I’m ecstatic to announce that Diogo Mónica, one of the most exceptional founders I know, is joining us as a General Partner. In addition to co-founding and building Anchorage Digital into the success story it is today, Diogo possesses a wealth of technical experience from leading the platform security teams at Block (formerly Square), where he engineered their first encrypted card reader, and Docker, where he developed the company’s security protocols.

Diogo adds an entirely new flank of experiences and capabilities to what Haun Ventures can offer builders, and his arrival represents an important step for us as we construct an elite venture franchise investing at the frontier of crypto. Diogo will be transitioning to Executive Chairman of the Board of Anchorage Digital.

I first met Diogo seven years ago in San Francisco as he and Nathan McCauley were starting Anchorage Digital. Even then, it stood out that he had that rare combination of deep technical expertise, exceptional communication skills, and fierce competitive spirit—all paired with a magnetic personality (not to mention a PhD in computer science with a speciality in network security and distributed systems). We kept in contact afterwards in a variety of contexts: collaboratively, when I joined Andreessen Horowitz, where Anchorage Digital was a portfolio company; and competitively, in my role on the board of Coinbase. These connection points over time only deepened my admiration for Diogo. When I was preparing to launch my own firm and needed strategic advice, he was one of the first people I called.

I’m hardly alone in my admiration. To say Diogo is a leader within our industry is an understatement: he’s among a pioneering set of founders early to crypto that revolutionized digital asset custody to create a new standard for institutional participation in crypto. Today, Anchorage Digital is the only federally chartered crypto-native bank in the US, with assets under custody in excess of $50 billion. As both a leader and sought-after founder, Diogo has supported dozens of protocols through launch. His foresight and understanding of security infrastructure have been instrumental in shaping today's landscape and advancing broader adoption of crypto.

Diogo brings personal experience building, leading, and growing a multi-billion-dollar company. In this way, he’s a perfect complement to our existing team, which includes early operators from companies like Coinbase, Twitter, and GitHub. We know that founders crave connection with peers who have seen and solved the same challenges—be it taking a product from zero to one, hiring and scaling teams, securing multiple funding rounds, and everything in between. It’s clear why he’s been such a desirable angel investor, backing over 100 startups across sectors from crypto to security to AI to consumer.

I knew Diogo would be a perfect fit at Haun because, like us, he’s a builder. I’ve seen firsthand how he is at his best in fast-moving environments where he can roll up his sleeves and get his hands dirty. His warmth and wit (he’s extremely funny, as I’ve come to learn after several stints traveling the globe together for business) are what make him a wonderful teammate and a wonderful human. And we expect his boundless energy, curious mind, and fiercely competitive nature will make him an incredible asset to us and to our founders. I couldn’t be happier he’s decided to dive in and build alongside us.

Welcome, Diogo!

By Katie Haun

Several weeks ago, the Treasury Department sanctioned the Tornado Cash application. We don’t profess to know all the facts of what Tornado Cash as a particular application did or didn’t do and assume it may take some time for those facts to come to light. We’re assuming, for the purposes of this post, that OFAC sanctioned no more than a piece of code based on the information publicly available to us now.

I have had many conversations about this with crypto founders who are concerned about the implications of this action and where it could lead. Regardless of where you fall on the specifics of what Tornado Cash may enable, this conversation is important and timely as advances in privacy-preserving technologies are underway that we believe will have beneficial societal impacts including increased consumer privacy, control, and ownership.

Many in the crypto community have been talking about a 1st Amendment freedom-of-speech defense. As I thought about this further, I called Eugene Volokh, a professor of constitutional law and one of the world's leading authorities on the 1st Amendment (he literally wrote the book on it). He’s also a programmer who graduated with a CS degree at 15. His response to the code-as-speech argument surprised me. That’s because despite being a self-described 1st Amendment maximalist, he thought that some of the better legal arguments might not be freedom-of-speech-based at all.

We recently hosted a Twitter Spaces on the topic with Eugene. Here is what he had to say about assuming speech protections under the U.S. Constitution for code:

• “I'm pretty skeptical of there being much by way of 1st Amendment protection for, let's say, code that you can run because the freedom of speech is tremendously important. I do generally take a pretty broad view of freedom of speech, but it really is freedom of speech. It's not freedom of action. It’s not freedom of stuff. In many ways, code looks a lot like stuff ….”
• “I do think [code is] protected by the 1st Amendment in some situations . . . distributing source code might be protected if it's the sort of thing that people will just read, think about, and talk about. But if it's something that is directly executable then, by and large, it stops communicating things, or at least communicating things to people, and starts doing things . . . so I am pretty skeptical about the prospect that one can just set up mechanisms for doing all sorts of things and have them be protected because those mechanisms operate through code.”

When asked to put himself in the mindset of the Treasury official who is coming to a novel set of questions and a very novel set of new innovations and trying to think about how they reconcile those with the Constitution, Eugene was circumspect:

• “There may be some 4th Amendment protection for certain kinds of privacy protecting technologies. And remember the 4th Amendment, unlike the 1st Amendment or the 2nd Amendment, actually specifically says that unreasonable searches and seizures are forbidden. So it recognizes that there could be reasonable restrictions on privacy. Let me offer an analogy, and this is an area where analogies are really all we have to go on here. So it turns out that there is a rule under the 4th Amendment that when a driver of a car is arrested, the police may search the passenger compartment, but they can’t search any separately locked trunk . . . let's say that's the rule. Imagine the state says, oh, all right. We just say all cars on the roads have to lack a separate trunk. They have to be SUVs or hatchbacks, or station wagons. They just can't have a separate trunk. I'm inclined to say that that might raise some pretty serious 4th Amendment problems precisely by requiring people to step away from what has been recognized as standard default privacy protections…and by banning a certain kind of technology…you're interfering with the right to be free from unreasonable searches and seizures.”
• “If the government wants to, for example, search inside your car…then it needs probable cause. But of course if they just look in through the windows, why that's not a search. That's … just looking at things that are in plain view. The state says we're going to insist that cars be made out of glass— let's say transparent materials—so that more will be in plain view. Of course, we still will need probable cause in order to actually look inside for the things that aren't visible from the outside, but we'll just require a lot more to be visible from the outside by requiring the cars be made out of transparent material. That too, I think, would pose some … likely 4th Amendment problems.”
• “When we try to extend the analogy to modern electronic technologies, that's hard to tell. But I do think that this highlights that there are some limits, I think, to what the government can do to interfere with privacy protective technologies.”

What Eugene casually shared top of mind that day caused me to return for a moment to my legal roots. For those who don’t know, I was a Supreme Court clerk, then a constitutional lawyer turned prosecutor. I litigated countless 4th Amendment challenges and know from experience that this area of law is particularly dynamic, not to mention fact and jurisdiction-dependent, and this argument definitely merits further analysis. The Supreme Court has made clear that the 4th Amendment needs to keep up with emerging technologies – holding, for example, in a recent case that the amendment limits the ability of law enforcement to track location through cell site data obtained from a provider, something that was previously viewed as falling outside a user’s expectation of privacy.

Aside from the 4th Amendment the OFAC action raises other legal issues that are not being widely talked about in the crypto community. OFAC took this action based on a federal law that gives Treasury the power to block the property of bad foreign actors (think the North Koreans or international arms dealers). But that federal sanctions law was likely not intended, and may not encompass, the power to block access to open-source software applications, which are not the property of anyone, much less foreign actors.

And recall that the Due Process Clause requires that the government give people fair notice before taking actions that deprive them of their property or could even expose them to criminal sanctions. Treasury’s action here, relying upon a decades-old law, therefore raises some pretty interesting constitutional and statutory questions. That’s why we’ll be going deeper on this topic with a full analysis we’ll release later this month.

In the meantime, consider this:

• First, this involves several unsettled areas of law that will take many years to shake out. And even then the vehicle(s) that winds its way through the court system will not necessarily be of the crypto community’s choosing. It will likely be the government who chooses the vehicle and the facts. And as a former judge I worked for was fond of saying “bad facts make bad law.”
• Second, if you’re building privacy preserving tech in crypto, it’s worth familiarizing yourself with other relevant aspects of the law aside from hanging your hat on one amendment related to speech.
• Third, speaking of laws, Tornado Cash is yet another reminder that we are going to need new rules for bleeding edge technologies. For a long while the crypto community has focused on the executive branch and agencies. However, in this next chapter the other two branches of government, the legislative and the judiciary, will feature prominently. On the legislative side, if you are a developer, a founder, or someone who cares about web3 and products that protect privacy for the average person, it is important to engage in the process and make your voice heard. As we saw with the Infrastructure Bill, the crypto community can have an impact on these outcomes. For the judiciary, it means the industry has to turn up its efforts with more thought leadership that reaches a different sort of audience including legal academics through scholarship, contributing to journals, filing amicus briefs, and much more.
• And finally, we’ve been talking about this from a US-centric point of view. We know that web3 is a global community. However, the United States has historically played a leading role in setting policy and creating laws that many jurisdictions around the world will look to as a model.

These are serious issues. They will require serious leadership. Many of the founders we back have chosen to work in web3 precisely because they understand the need for digital systems that can broaden access to innovation while protecting user privacy. We see some signs of progress that the United States is moving in the right direction. That said, if indeed the government sanctioned an open-source blockchain application, that would raise serious legal questions that demand further conversation. We look forward to sharing our continued thoughts on this topic.

By Katie Haun and James Rathmell

Since our post last month, there have been some further developments in reaction to the Tornado Cash sanctions, from Coinbase’s lawsuit to Treasury’s clarifying guidance and Coin Center’s complaint. We’re glad to see a strong response from the industry because we believe foundational principles are at play in this case. Namely, can governments ban open-source technology with sanctions, proscriptions, or embargoes that aren’t narrowly tailored? OFAC is right that many criminals have misused the Tornado Cash platform, but the stakes here go beyond Tornado Cash. The real question is whether the government can target the architecture of a blockchain itself, because what can be done to one kind of open-source protocol can be done to any open-source protocol.

I say this as someone who spent a decade prosecuting money launderers: the fight against illicit finance must be done in a way that’s legally sound. There’s a tried and true playbook for addressing money laundering if there exists sufficient evidence of intent to subvert the law — bringing prosecutions, enforcement actions, seizures, and other steps against bad actors.

Here, OFAC sanctioned Tornado Cash based upon IEEPA, a federal law that gives it the authority to block “any property in which any foreign country or a national thereof has any interest,” alleging that the protocol had been “commonly used by illicit actors to launder funds, especially those stolen during significant heists.” OFAC’s concerns in this respect are undoubtedly legitimate. But in issuing broad, indiscriminate sanctions against an open-source protocol writ large, the agency overstepped its legal authority to sanction the foreign hackers and their property in a way that leaves it exposed to both statutory and constitutional attack. It’s also produced a chilling effect for plenty of builders in the space who are rightly concerned whether OFAC’s view is now the law.

We don’t think it is.

Today, we’re publishing a legal memo that open sources the core arguments as to why, which we hope will be used in existing cases and ones still to come. When we thought about who to collaborate with on these arguments, Steve Engel was the first person who came to mind. Steve and I were co-clerks at the Supreme Court and he went on to lead the Office of Legal Counsel, the office that reviews the President’s executive orders for legality and also effectively serves as outside counsel for all executive branch agencies, including Treasury (read: Steve doesn’t hang out on crypto twitter so I called him up, explained the situation, and we brainstormed a bit).

The bottom line is that we think that OFAC went too far as a statutory matter because it appears to have blocked open-source, self-executing software that isn’t a person or the “property” of any foreign national or entity. IEEPA doesn’t grant such broad, roving authority to target open-source software architecture, and that is true no matter how noble OFAC’s intentions may have been. As the Supreme Court said in a recent case, our system of government “does not permit agencies to act unlawfully even in pursuit of desirable ends.”

What’s more, the agency has exposed itself to constitutional attack on a few fronts. It’s likely a court may not even reach the constitutional questions, however, because of the doctrine of constitutional avoidance which instructs courts to avoid ruling on constitutional issues when a case may be resolved on other statutory grounds. As the Supreme Court noted recently, the constitutional-avoidance canon provides “extra icing on a cake already frosted.” But suffice it to say these sanctions resulted in an asset freeze that deprived some innocent Americans of their property—without due process of law. And the sanctions may have violated the Fourth Amendment’s prohibition on unreasonable seizures to boot. Finally, while OFAC’s recent guidance shows that it recognizes the First Amendment problems inherent in altogether banning the publication of and interaction with code, its prohibition on the use of Tornado Cash code burdens the ability of Americans to use the privacy-enabling application to facilitate anonymous speech. That itself raises a substantial First Amendment issue.

Speaking of extra icing, sanctioning open-source code is also bad policy. These sanctions are reminiscent of when the U.S. government attempted to curtail public access to encryption tools in the 1990s by banning the export of encryption technology. Had the U.S. criminalized the use of cryptography without a license, we would have a much less secure — and much less developed — internet today.

We think that OFAC has overstepped, and it should fix that sooner rather than later. The first Tornado Cash lawsuits have already been filed against OFAC in Texas and Florida, and these may not be the last. OFAC can and should focus its sanctions efforts on the bad actors who abuse open-source software, not on the tools themselves.

The full memo can be found here.

By Katie Haun and Fred Wilson

The events surrounding FTX have shaken the confidence of many. How did one of the largest crypto exchanges collapse so quickly? Why do meltdowns like this seem to keep happening?

At times like this, it helps to have a long-term view of web3 as a sector, not just a forward-looking long-term view, but also some perspective on where we have come from.

As longtime investors in web3 and board members (also individual shareholders) of Coinbase, one of the oldest and best-known companies in the space, we thought we might share some thoughts.

Web3 is a software-driven innovation that has a built-in financial system. This has been both a strength and a weakness. On the one hand, tokens enable developers and users to contribute to open-source protocols and participate in the economic upside of doing so, leading to strong developer communities. That’s been a positive relative to how software has been developed, monetized, and governed in the past. On the other hand, tokens lend themselves to boom/bust cycles and a sense by many that web3 is simply a speculative endeavor with no real substance behind it.

This perception is only reinforced by the companies and individuals who started web3 companies and projects with the exclusive intent of making a lot of money very quickly through leveraged trading and speculation, pumping and dumping, and, sometimes, outright fraud.

Most of the well-known meltdowns in web3, going all the way back to Mt Gox and including recent failures like 3AC, Celsius, and Alameda/FTX, have happened to centralized companies operating trading, lending, and speculating businesses. Many of the failures have been offshore and all of them were largely unregulated. These companies and their activities have given web3 a bad name. We have also seen high profile decentralized projects, like Terra, fail due to flawed design but those failures happen out in the open in a transparent way that is much healthier than the way centralized companies fail.

Contrast that with regulated web3 businesses like Coinbase, Kraken, and Anchorage that operate in the US and you will see that the companies that have followed the rules and behaved properly have weathered these storms. Coinbase’s early innovation was creating a secure, easy-to-use, regulated bridge from fiat currencies to crypto and a safe place to store crypto assets. Coinbase provides a number of important services that have allowed the web3 ecosystem to grow and thrive.

The most important software innovation of the last decade, which started with the Bitcoin white paper fourteen years ago, is the emergence of open-source software and decentralized protocols that are the foundation of web3. These protocols have survived recent market volatility. It is the promise of software that is not controlled by a company, but instead by an open-source community with built-in safeguards and increased transparency relative to today’s tech and financial systems, that gives us so much confidence in the future of web3.

These web3 protocols are in active development for mainstream adoption and some key features are still missing. For example, blockchains as they were originally architected are public by default. This is not suitable for most applications. Imagine if your email, banking, and social data were public for everyone to see on a blockchain. Also, blockchains are slow and complex networks. Improvements to performance, scalability, and privacy are happening at the infrastructure level of the web3 technology stack. Emergent technologies like zero-knowledge proofs and rollups are starting to address these issues without compromising decentralization. These breakthroughs are still in the early stages of deployment among a small subset of developers. This is the kind of important work that happens behind the scenes without any coverage. But it is these developments that are preparing web3 for the mainstream.

Eventually, as the web3 infrastructure improves, the user experience gap between self-custody and storing assets on centralized entities will shrink. More users will feel comfortable self custodying their assets in software they control and managing the keys that provide access to their assets themselves. This is how many web3 users interact with decentralized applications, like NFT marketplaces, today.

When web3 becomes a credible alternative to web2 for the masses, large centralized companies like Facebook, Apple, Amazon, and Google will have to compete for access to our data thus redefining how we use the web. Software development will be more open-source and composable. And large financial institutions like banks and brokerage firms (which includes the FTXs of the world) will no longer control our assets and lend them out without our permission.

Ironically, web3 is about giving control of data and assets back to the people and taking it away from large centralized companies. But the transition from web2 to web3 has been slow and messy and many of the early web3 companies have been copycat versions of what came before them. That is where the risk has been in the web3 ecosystem and what we need to move away from.

The lesson of these recent events for policymakers should not be that web3 is bad and must be constrained. It should be that pushing innovation offshore is bad. We need trusted and well-regulated centralized entities to survive and thrive and we also need decentralized web3 protocols to flourish and provide a path to a fully decentralized web. Both are possible and the good news is we are already on a path toward both. We need to stay that course, provide for a healthy web3 sector in the US, and stop pushing US users to risky/shady offshore entities with unclear, uneven, and unfair policy actions.

This is another hard moment for web3 and we will see negative headlines about “crypto” for some time. But it’s important to remember that these headlines are all about the speculating/trading part of web3. The much more important underlying software innovation continues unabated. And that is what we remain so excited about and will continue to fund and champion.

This piece was also shared on the AVC blog.

By Katie Haun

Today, we’re introducing Haun Ventures, a firm designed from the ground up to help founders build the next generation of the internet. We’ve raised $1.5 billion in capital to support the growth of web3. We’ll invest through two platforms: a $500 million early stage fund and a $1 billion acceleration fund.

My path to web3

My road to crypto and then to venture was unconventional. I spent over a decade at the U.S. Department of Justice prosecuting organized crime, murders, public corruption, prison gangs, white collar crime, and money laundering. In 2014, I created one of the government’s first cryptocurrency task forces. In the course of that work, the vast potential of these technologies quickly became clear. Like any tool, they could be used for good or for bad, but we had just started to scratch the surface of the good.

After leaving the government, I collaborated with some of the most amazing builders and investors in the space, including Brian Armstrong, who recruited me to the Coinbase board in 2017. There, I met my friend and former partner Chris Dixon, with whom I launched and scaled one of the earliest and largest dedicated crypto venture franchises in the world. Working with founders over the years brought out my own entrepreneurial spirit, and I started to think about building something new based on my experience. Specifically, I have always seen value in connecting the crypto world to different audiences – whether across government, academia, business, or otherwise – to facilitate greater understanding of the benefits of this nascent tech. All of this led to the launch of Haun Ventures, a firm built to uniquely serve the teams building the third generation of the internet, or web3.

Web3 has expanded beyond its financial origins — it now provides the technological building blocks to power the next iteration of the digital world

We think of Bitcoin as the original breakthrough that launched a thousand experiments. This first implementation of digital, decentralized consensus unlocked countless novel approaches to network-incentive alignment and non-sovereign stores of value. The decade since its invention has been characterized by a flurry of innovation across the infrastructure layer of web3, notably including the launch of Ethereum, a blockchain for deploying and running decentralized applications. This, in turn, ultimately made way for globally accessible financial use cases and the “DeFi Summer” of 2020.

Now, crypto has expanded far beyond financial use cases, touching gaming, art, media, and content. The web3 projects that emerge over the next decade will be even more expansive, applying the breakthrough mechanisms of the last decade to every industry from transportation and commerce, to fashion, sports, music, and more. We think consumer demand for digitally-native experiences and goods will continue to increase. As more people embrace these products, there will be a shift in individuals’ expectations for greater control of their personal data and a new generation of creators will demand and enjoy better economics. We think open platforms will win through loyalty, transparency, and trust by delivering better incentives than the walled gardens that came before.

We’re energized by the opportunity to invest in every layer of the web3 tech stack, and will back projects in their early stages as well as when they are ready to accelerate growth.

Building a different kind of firm for web3

We believe the next generation of the internet will naturally produce a new generation of investors. Firms built for this moment need to be what one of our portfolio founders characterized as “venture contributors.” This goes beyond asking how to be helpful — it’s about being an active, committed participant in the community and operating in a way that advances the values of web3. Many crypto-native firms have been built this way from day one and other firms entering crypto will need to cross over. Beyond providing capital, we will contribute to web3 in two specific ways to start and plan to layer in other capabilities as we learn and grow.

First, we’re helping founders deliver system change. As a community, we are engaged in a grand experiment to build new incentive structures for the web that can increase trust, transparency, privacy, and opportunity. To create a new internet that is an improvement over our current tech paradigm is a hugely ambitious project. It not only requires brilliant technologists to build but also experienced operators who can responsibly shape public opinion, policy, and the broader systems that power our society so that web3 can fulfill its potential. We will partner with our portfolio to lead a global campaign for web3 that combats misperceptions, engages policymakers, highlights positive use cases, and wins the hearts and minds of leaders across all sectors. We believe this approach will help lay the foundation for the web3 projects we support to reach a billion+ people worldwide.

Second, we’ve baked community participation into our practices from day one. As an early investor in the space, I’m proud of the groundbreaking program I helped develop to delegate governance rights and tokens to civil society groups, universities, and non-profit organizations. Haun Ventures will continue to broaden the array of voices involved in this ecosystem. We will build playbooks and share insights as we go that help set new standards for how venture firms can participate in web3.

We’ve assembled a world class team of leaders that have deep experience in very specific areas (inside of crypto and out). They are all-in on crypto and have already had a positive impact on how web3 is viewed throughout the world.

***

My path to this moment certainly wasn’t a traditional one. In many ways, I didn’t fit the mold. The mentorship and support of so many people, far too many to name here, helped me step outside my comfort zone and turn not fitting the mold into an asset. I’m incredibly grateful to all of them. As web3 grows to touch every aspect of our lives, we’ll need more voices and perspectives of those who break the mold.

I’m also thankful to the founders I’ve had the privilege of working with over the years who have been so encouraging of my decision to start this firm. Finally, I want to thank our limited partners. Our focus on system change was a key consideration in selecting our LPs – true strategic partners who are all-in on the vision for web3 and willing to leverage our combined capabilities to drive impact.

We’re committed to building a web3 ecosystem that future generations will admire. This is an exciting first step, but the real work begins now. We’ll have more to share as we continue to build our team and make investments.

This post is for informational purposes only, and does not constitute a recommendation to buy or sell securities or to pursue any particular investment strategy. This post should not be relied upon in evaluating the merits of any investment or any particular investment strategy. You should consult your own advisers as to business, financial, tax, legal, and all other related matters concerning any investment. The views expressed in this post reflect the current opinions of the authors and do not necessarily represent the opinions of Haun Ventures Management LP or its affiliates. Certain information in this post may have been obtained from third-party sources, including portfolio companies of Haun Ventures. While taken from sources that the authors believe to be reliable, Haun Ventures has not independently verified the accuracy of such information. Content is as of the date posted and subject to change without notice. Haun Ventures makes no representations about the enduring accuracy of information or its appropriateness for any given situation. Please see https://www.haun.co/disclosures for additional important information.

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