The crypto trade is plagued by former regulators, usually serving as authorized counsel at prime firms or advisors on political lobbying. Extra uncommon is a regulator serving as an investor at a enterprise agency, not to mention a founding accomplice, except for former Division of Justice prosecutor Katie Haun.
Matthew Homer, beforehand a senior superintendent overseeing crypto on the New York Division of Monetary Providers, is breaking the mould. After leaving DFS in 2021 and dealing on the enterprise agency Nyca Companions, Homer began his personal crypto-focused enterprise agency, the Division of XYZ, which simply raised $5.1 million.
The fund is backed by restricted companions who function advisors to portfolio firms, together with former regulators from an array of companies, in addition to prime trade individuals comparable to Compound’s Robert Leshner, Multicoin’s Kyle Samani, and the Winklevoss twins.
In an interview with Fortune, Homer stated XYZ doesn’t purpose to steer funding rounds however as a substitute function an important advisory useful resource on cap tables for startups. “As I appeared on the enterprise house, it’s one of many causes I launched this fund,” he stated. “There’s nobody that’s actually proudly owning the regulatory lane.”
“We’re not going to be your largest examine, however what we’re going to be is your regulatory buddies on pace dial,” Homer added.
Homer’s odyssey
Homer started as a regulator on the Federal Deposit Insurance coverage Company, an unbiased company centered on banking, in 2012, when crypto was barely on the radar of governments. He performed round with Coinbase, which began that 12 months, however misplaced curiosity within the nascent expertise after a failed transaction.
He labored in a coverage function at Quovo, which was acquired by Plaid, earlier than shifting again right into a supervisory function at DFS in 2019, tasked with main the analysis and innovation division. A part of his remit can be crypto, although he was hesitant to enterprise once more into blockchain. “That’s a part of the job,” he recalled his boss telling him. “You’ve bought to personal it.”
DFS has lengthy been on the forefront of crypto regulation, creating the BitLicense program in 2015 for digital property firms. So far, the company stays the one one within the U.S. on the state or federal degree with a complete supervisory regime, attracting firms from Coinbase to PayPal to use for the license. Whereas the crypto trade has criticized DFS for its usually laborious approval course of, blockchain-sympathetic lawmakers and entrepreneurs have since held up the company as a mannequin for accountable oversight.
Homer stated his time at DFS made him understand the dangers inherent to different elements of finance supervised by the company, from banking to insurance coverage, and the potential of crypto to supply extra visibility given its on-chain and public nature. He held his function through the early days of the pandemic, when DFS labored to evaluate the influence of COVID on its regulated establishments. He realized that many conventional establishments didn’t have nice knowledge, however the extra digitally native crypto corporations provided a novel and promising sort of infrastructure.
After DFS, Homer moved into the enterprise house, beginning as an executive-in-residence at Nyca Companions, the New York-based fintech VC agency. Hans Morris, the managing accomplice at Nyca, stated that Homer helped Nyca refine its technique round regulation, regardless of not having an investing background. Homer needed to maneuver into crypto investing, which Nyca wasn’t centered on, and determined to depart to discovered XYZ. Morris got here on board as an LP due to Homer’s hypothesis-driven strategy and skill to supply regulatory recommendation. “If I had been an entrepreneur, I wouldn’t need my entire board to be like that, however I might need somebody to be like [Homer],” Morris advised Fortune.
From X to Z
Homer selected a primary fund whose dimension would pale compared to megafunds like a16z crypto or Paradigm partly due to knowledge displaying smaller funds outperform bigger funds, but additionally to have the ability to “get entry into extremely aggressive alternatives,” as he put it. In different phrases, his aim was for bigger traders to carry XYZ onto cap tables as a regulatory useful resource, particularly due to its litany of advisors with expertise at companies from DFS to the Securities and Change Fee.
Robert Leshner, the founding father of the lending protocol Compound and a number one voice in decentralized finance, stated that he introduced XYZ into the Collection A of his new firm, Superstate, on the recommendation of his lead investor. “I relied on him like an assistant common counsel,” Leshner advised Fortune. “He was a reasonably large a part of us considering by a few of the nuances of our compliance and authorized issues.”
Leshner determined to additionally be part of XYZ as an investor. “He’s in all probability one of the crucial high-impact funds for the greenback dimension that I’ve labored with, and I’ve labored with most traders in crypto and Silicon Valley.”
As different funds chase client apps and extra speculative property like memecoins and pre-launch layer-1 tokens, Homer stated XYZ will largely concentrate on monetary infrastructure, stablecoins, and DeFi platforms. Early investments have included Mountain Protocol—a permissionless, yield-bearing stablecoin working outdoors the U.S.—in addition to Superstate, which can tokenize real-world property like Treasury funds.
Homer isn’t optimistic that the regulatory state of affairs within the U.S. will enhance anytime quickly, however he’s in a novel place to assist founders navigate thorny questions within the meantime. “You may’t ever predict the place regulation is heading,” Homer advised Fortune, “however what you are able to do is assist founders anticipate the place potential or least keep away from making actually deadly errors.”
