Our investment in Kiln — Enterprise-grade staking made easy
We are excited to announce our investment in Kiln, a leading enterprise-grade staking technology provider that is institutionalizing the staking market by moving beyond just running validators to meet the growing needs of digital asset institutions. With early participation in liquid staking pools like LIDO and key projects like Alluvial (a cooperation between Kraken, Coinbase and others), Kiln is at the cutting edge of staking and validator technology.
We led Kiln’s $17m Series A round and were pleased to be joined by Consensys, GSR, Kraken Ventures, Leadblock Partners, Sparkle Ventures, XBTO, with renewed participation from existing investors 3KVC, Blue Yard Capital, SV Angel and Alven among others.
Digital Assets Investment Thesis — the Future Rails of Financial Services
At Illuminate, our long-standing thesis has been that digital assets are becoming the future rails of financial services. This transition is already underway, and we believe there will be significant adoption of digital asset and DeFi rails on permissionless blockchains within the next 5 years for many traditional and new asset classes. Accordingly, we have been investing in the infrastructure that enables this once in a generation shift.
Emergence of Proof- of-Stake (POS) Mechanism & the Importance of Staking Infrastructure
With the emergence of Proof-of-Stake, consensus mechanism staking (and running validator nodes) has become a key layer in securing and maintaining the blockchain. Kiln is driven by the conviction we have on Proof-of-Stake (PoS) as a growing consensus mechanism by market share on both market cap and # of chains. Proof-of-Stake has been a consistently growing consensus mechanism across blockchains. Whether you agree or not with the FUD associated with Proof of Work’s energy usage, Proof-of-Stake remains free of the distractions that come along with it due to its low energy usage. That, along with its strong security track record since its development in 2012, PoS has substantially grown in market share over this last bull run, only taking a dip in one quarter when Terra’s market cap evaporated.
Large and Growing Market
On the back of the Ethereum merger in September 2022, the market cap of PoS chains is poised to grow significantly. Ethereum, the 2nd largest blockchain by market cap, is larger than the next 10 PoS combined and had only ~8.9% assets staked as of June 30th, 2022 according to Kraken reports. Given the high-stake rates of 50–80% of comparable PoS chains, we expected a strong tailwind over the next year or two as the total assets staked on Ethereum grew by 5–8x with users moving to secured Ethereum through staking. While stake rates grow to a healthy equilibrium, we expect many staking service providers outside of the largest to rapidly gain market share. The desired security that comes from a decentralized pool of validators, will serve as a rising tide for all validators outside of the top 4 who currently have outsized market share.
Why Kiln? A Company Building Partnerships First
Staking infrastructure as a category has been growing quickly and Kiln immediately caught our eye. The Kiln team has a unique focus on building partnerships across the industry, like Alluvial and Ledger (many more announcements coming shortly). They are consistently punching above their weight class given team size and assets staked under management. Underlying all these partnerships is best-in-class tech allowing them to serve as the aggregation layer for on-chain staking between validators and custodial and non-custodial asset holders. As the industry evolves and the need to integrate multiple staking players proves real, Kiln is in an ideal position to play the aggregator role and accelerate it.
An Exceptional Team, with Clear Founder Market Fit
With any early-stage company, the most important factor is the team, and this is where we also have our highest conviction. Laszlo Szabo, co-founder and CEO of Kiln, is the lynchpin for the company as a talent magnet, able to attract the unparalleled engineering talent for Kiln. Together with Thomas (ex Circle) and Ernest (ex Improbable, Qubit), the other two co-founders, the senior leadership is well-balanced and brings technical and operational skillsets together. The team consistently impresses with thoughtfulness and insight when it comes to understanding the intricacies of the staking ecosystem. Diligencing their tech infrastructure revealed an organized and executed development process with strong design choices. With each validation call and introduction, we made, we heard consistent and resounding feedback on the team’s quality and calibre.
We are thrilled to be supporting Laszlo and the Kiln team and feel privileged to collaborate with such an impressive set of co-investors.
Illuminate Portfolio Digital Assets Stack
Our portfolio comprises of the key components of the “stack” that is needed to enable secure and compliant adoption of crypto/defi rails by financial services companies. Kiln fills an important gap, institutionalizing staking services with validator-agnostic APIs and services to enable multi-provider staking.
Our existing portfolio of digital asset infrastructure solutions includes:
· Talos — institutional grade trading infrastructure (OMS/EMS)
· BlockDaemon — institutional-grade blockchain infrastructure
· Copper — leading institutional-grade crypto custodian
· Notabene — transaction compliance platform
· Cloudwall — institutional grade risk management platform
· Fordefi — Institutional defi wallet and security platform
· Curv — MPC based digital asset security platform acquired by PayPal
· Baton Systems — post trade digital asset solution that enables riskless settlement.
· Pontoro — Infrastructure asset tokenization platform
