Former BitMex CEO Arthur Hayes calls his Maelstrom Capital a ‘very patient’ fund

Arthur Hayes and Akshat Vaidya are out to beat bitcoin and ether’s returns, but they’re going to take their time.

Hayes, the former CEO of crypto exchange BitMex, and Vaidya, BitMex’s former head of corporate development, founded Maelstrom Capital, where Vaidya serves as chief investment officer. In an interview with CoinDesk, Hayes and Vaidya said Maelstrom is currently targeting infrastructure companies “as that’s what makes sense in this part of the cycle”.

“Nothing scales like consumers, but we’re not quite at the stage where there’s enough infrastructure to support it,” Vaidya said.

Maelstrom is set up as Hayes’ family office, using a pool of his cryptograph. Because there are no liquidity providers to answer to – since it’s Hayes’ money – there’s no rush to put in capital to earn management fees so the firm can be “patient”.

“We want to identify projects that are actually quality,” Hayes said. “It’s not a spray-and-pray game because we don’t have external LPs.”

Infrastructure deals have “strong technological moats targeting a large market, and understanding the business is simple: It’s ‘P’ multiplied by market size,” Vaidya explains.

Compound, Aave, and Uniswap were all founded in 2017, but they didn’t appear on anyone’s radar until 2019 and weren’t mainstream until the summer of 2020 for decentralized finance (DeFi).

“At the time, nobody cared about them because of the negativity around [initial coin offerings] and the massive bear market,” Hayes said. “This led to a wave of projects claiming to be the next Uniswap, Compound or Aave, but many were based on something less substantial. Investors were willing to put money into these projects knowing they could exit within a few months of getting their tokens, Hayes added.

Hayes believes the turning point for the projects he is investing in now will probably come sometime around 2024 when the market starts to question whether these projects have delivered on their promises, built their products, acquired customers and demonstrated that their technology works.

And with that comes clone projects and their “me too” investors, just like what happened during the 2020-2021 COVID-19 bull market, when clones of Uniswap, Compound and Aave became flush with capital.

“In this part of the cycle, it’s important to make money, but also to have done the work during the bear market to identify which companies are genuinely valuable and which are just imitations,” Hayes said.

Some of these did well and some of them were “[excrement] coins” – which Hayes has no qualms about investing in when the time comes, because that’s how crypto-level returns are made when the market shifts from bear to bull.

“We are not saying that we will always invest in pure quality, we will invest in a complete piece [dog excrement] because we get our tokens today,” he said. “And in three months we can dump them because the narrative is there.”

In 2020, the US Department of Justice alleged that Hayes violated the Bank Secrecy Act (BSA) and allowed money laundering on the BitMEX platform by failing to implement know-your-customer (KYC) and anti-money laundering (AML) controls. In February 2022, Hayes and BitMEX co-founder Ben Delo pleaded guilty to the charges.

The guilty plea means the evidence and arguments the government had on Hayes, et. eel. was never tested in the adversarial environment of a courtroom. BitMEX is not a US company, nor did it use US dollars. As legal experts pointed out at the time, the only other instance of the BSA being applied to a non-bank financial institution ended in a deferred prosecution agreement – ​​no prosecution in exchange for a mending of ways.

So of course the long reach of US regulators is on the minds of Hayes and Vaidya.

“The benefit of investing in infrastructure projects, especially in this cycle, is that many of these are not really in the crosshairs of regulators to the extent that others might be,” Vaidya said.

“There’s no one to go after because it’s non-custodial,” he said. “This company will never get a Wells notice.”

All but one of Maelstrom’s portfolio companies, which do not have a token model, have been outside the United States

Even when a project involves American founders, it is domiciled in a friendly jurisdiction like Switzerland, explains Vaidya.

“So no preference per se, but I think the market itself just does its thing,” he said.