The crypto industry is full of former regulators, who typically serve as legal advisors and political lobbying advisors for top companies. With the exception of former Justice Department prosecutor Katie Horn, it's even rarer for a regulator to serve as an investor in a venture, let alone a founding partner.
Matthew Homer, who previously served as a senior cryptocurrency supervisor at the New York Department of Financial Services, is trying to break the mold. After leaving DFS in 2021 and working at venture firm Nyca Partners, Homer founded his own venture firm focused on cryptocurrencies, Department of XYZ, which just raised $5.1 million.
The fund has limited partners acting as advisors to its portfolio companies, including former regulators from various government agencies, as well as participation from industry leaders such as Compound's Robert Leshner, Multicoin's Kyle Samani, and the Winklevoss twins. supported by
In an interview with luck, Homer said XYZ is not intended to lead funding rounds, but instead serves as an important advisory resource for startups on their cap tables. “When I looked at the venture space, that's one of the reasons I started this fund,” he said. “No one actually owns the restricted lanes.”
“We’re not going to be the biggest paycheck, but we’re going to be the regulator friend on speed dial,” Homer added.
adventures of homer
Homer began working as a regulator for the Federal Deposit Insurance Corporation, an independent agency focused on banking, in 2012, when cryptocurrencies received little government attention. He had been playing with Coinbase since it started that year, but lost interest in his nascent technology after his trades failed.
He previously ran policy at Cuovo, which was acquired by Plaid, and returned to oversee DFS in 2019, tasked with leading the company's research and innovation division. Part of his remit will be in cryptocurrencies, but he was hesitant to try blockchain again. “That's part of the job,” he recalled his boss telling him. “You have to own it.”
DFS has been at the forefront of cryptocurrency regulation for many years, creating the BitLicense program for digital asset companies in 2015. To date, the agency is the only one in the U.S. with comprehensive oversight at the state or federal level, and has attracted companies from Coinbase to PayPal to apply for licenses. The cryptocurrency industry has criticized DFS for its often lengthy approval process, but blockchain-sympathetic lawmakers and entrepreneurs have since held it up as a model for responsible oversight.
Through his work at DFS, Homer believes that cryptocurrencies have more visibility given their on-chain and public nature and the risks inherent in other parts of finance that DFS oversees, from banking to insurance. He said he recognized the potential it could bring. He served in that role early in the pandemic as DFS assessed the impact of the coronavirus on regulated entities. He realized that while many traditional institutions do not have good data, more digitally native cryptocurrency companies offer a novel and promising type of infrastructure.
After DFS, Homer moved into the venture field, starting as a resident director at Nyca Partners, a New York-based fintech VC firm. Hans Morris, Nyca's managing partner, said that despite Homer having no investment experience, he helped the firm refine its regulatory-focused strategy. Homer wanted to move into crypto investing, which Nyca was not focused on, so he decided to leave his job to found XYZ. Mr. Morris joined Mr. Homer as an LP because of his hypothesis-driven approach and ability to provide regulatory advice. “If I were an entrepreneur, I wouldn't want the whole board to be like that, but I'd want someone to be like that.” [Homer]” said Morris. luck.
From X to Z
Homer decided on his first fund because of its size, which pales in comparison to mega funds like A16Z Cryptocurrency and Paradigm, and because of data showing that smaller funds outperform larger ones. One reason was, in his words, “access to competitive opportunities.” In other words, his goal was for large investors to bring XYZ onto their cap tables as a regulated resource, especially since there are many advisors with experience in agencies from DFS to the Securities and Exchange Commission.
Robert Leshner, founder of Lending Protocol Compound and leading decentralized finance leader, said he brought XYZ into the Series A of his new company, Superstate, on the advice of his lead investor. “I was relying on [Homer] It’s like an assistant general counsel,” Leshner said. luck. “He was a pretty big part of thinking about the nuances of our compliance and legal issues.”
Mr. Leshner also decided to join XYZ as an investor. “[XYZ is] It's probably one of the most influential dollar-sized funds I've ever worked with, and has worked with most investors in crypto and Silicon Valley. ”
While other funds are chasing consumer apps, more speculative assets such as meme coins and pre-launch layer 1 tokens, Homer said XYZ is primarily focused on financial infrastructure, stablecoins and DeFi platforms. He said he would focus on it. Early investments include Mountain Protocol, a permissionless, high-yield stablecoin that operates outside the United States, and Superstate, which tokenizes real-world assets such as Treasury funds.
Homer is not optimistic that the U.S. regulatory landscape will improve anytime soon, but in the meantime, he is uniquely positioned to help founders navigate difficult issues. “You can never predict where regulations are going to go,” Homer said. luck, “But what you can do is help founders be as predictable as possible, or at least avoid making fatal mistakes.”
