Arthur Hayes and Adam Schlegel on Why Private Equity Is Crypto's Next Big Wave

Maelstrom is launching a private equity fund to acquire profitable, scaled crypto companies, particularly those outside Western venture capital's focus, to professionalize and scale them for future acquisitions by larger TradFi or crypto players.

• Maelstrom's PE fund addresses a gap for mature crypto companies needing exits and operational scaling.

• The fund offers a unique, LP-friendly structure with discounted fees and co-investment opportunities for institutional investors.

• Successful stablecoins require massive user distribution, with Ethena poised to thrive in a falling rate, rising crypto market.

Maelstrom, led by Arthur Hayes and Adam Schlegel, is raising a $250 million private equity fund to acquire control stakes in 6-8 established crypto companies with $25M+ revenue and high EBITDA margins. This initiative aims to fill a market void by providing 'cash money' exits for founders and professionalizing these businesses, often located in Asia or Latin America, to make them attractive to traditional finance acquirers, thereby driving broader professionalization of the crypto space.

Maelstrom's PE Strategy

• 00:00:00 Maelstrom is launching a private equity fund to target profitable crypto companies, many generating $50-100M+ in revenue with 30-50%+ EBITDA margins, making them suitable for a controlled buyout strategy. Many of these important crypto companies are based in Asia or Latin America, areas often overlooked by Western venture capital.

Evolution of Crypto Funding

• 00:05:06 The crypto asset management landscape has evolved through several cycles: initially simple Bitcoin funds, followed by the ICO boom, and then the rise of crypto venture capital for early-stage token deals. Now, with significant institutional capital unable to find suitable large-scale investments in early-stage projects, there's a need for private equity to acquire and scale established, cash-flowing crypto businesses that are critical to the ecosystem but may lack the polish for traditional acquirers.

Addressing Market Gaps

• 00:11:51 Maelstrom aims to acquire companies at lower valuations, professionalize them by improving efficiency and operations, and then sell them for a higher multiple to strategic acquirers like Robinhood or Charles Schwab, or larger PE firms. This addresses a market gap where traditional players often find it challenging to acquire 'polished, turnkey businesses' in crypto, especially those outside Western jurisdictions perceived as 'scary' or 'dodgy'.

Private Equity Diligence

• 00:26:20 The fund's due diligence process is similar to traditional private equity, focusing on subsectors like trading infrastructure, screening tools, and execution layers. Maelstrom leverages a network of operating partners from Web2 and Web3 to refine theses, forecast financials, conduct technology and legal audits, and score management teams, ensuring a comprehensive evaluation of potential investments.

Fund Structure & Appeal

• 00:31:43 The fund is structured with a $250 million anchor fund offering preferential, discounted fees to LPs, with fee discounts extending to co-investment opportunities in Special Purpose Vehicles (SPVs) that cover excess equity needs for larger acquisitions. This LP-friendly structure, including fee-free co-invest and the ability to sub-select investments, is designed to attract large pension funds, sovereign wealth funds, and endowments seeking scalable crypto exposure and attractive returns beyond typical crypto VC offerings.

Stablecoin Market Outlook

• 00:59:44 The stablecoin market is highly competitive, but distribution to a large client base is the critical success factor. While many new issuers claim superior stablecoin designs, most lack the massive distribution necessary to compete with established players like Tether, Circle, and Ethena. In a falling interest rate environment, Ethena is expected to outperform Tether and Circle, as its revenue is driven by crypto speculators seeking leverage, which thrives when crypto prices rise due to cheaper money.