Cryptocurrency Startups Combine As Wall Street Blockchain Effort Falters (#GotBitcoin?)
Chain and Lightyear, built around the technology underpinning bitcoin, are combining into a new company called Interstellar. Cryptocurrency Startups Combine As Wall Street Blockchain Effort Falters
Chain Inc., a startup working with Nasdaq Inc. and others to build a blockchain-based trading platform, is merging with another cryptocurrency startup, a sign that efforts to plug the technology behind bitcoin into the traditional markets are proving harder than expected.
Lightyear Corp., a for-profit spinoff of the Stellar Foundation, will acquire Chain, combining the two companies into a new company called Interstellar, according to the Stellar Foundation.
Chain Chief Executive Adam Ludwin will lead the new company, while Stellar co-founder Jed McCaleb will be the company’s chief technology officer.
Terms of the deal weren’t disclosed, but Mr. Ludwin said Friday investors would be cashed out at a multiple of their initial investment. Chain was valued at about $124 million after its last fundraising round, Mr. Ludwin said. It has raised about $43 million from investors including RRE Ventures, Khosla Ventures, Nasdaq and Visa Inc.
Startups such as Chain and Stellar are built around variations on the blockchain technology that serves as the underpinning for bitcoin and other cryptocurrencies. Bitcoin was designed to let any two people make an exchange directly, without middlemen, much like a digital version of cash.
Startups and established Wall Street players have attempted to adapt the technology for a range of uses including capital raising and stock trading.
Wall Street began experimenting more than three years ago with efforts to take blockchain and tailor it for their own uses. Startups such as Chain, R3, and Hyperledger have been involved with established companies like Nasdaq, JPMorgan Chase & Co., Citigroup Inc., International Business Machines Corp. and Microsoft Corp. There are myriad pilot programs, but none have yet succeeded in launching a mainstream, commercial product.
Four-year-old Chain struck a partnership with Nasdaq in 2015 to build blockchain-based trading platforms. Their first effort was a platform for trading private company stocks, called Linq. But Mr. Ludwin said customers were never completely comfortable with the prospect of running their own blockchain networks.
“We hit a wall a little more than a year ago with respect to our customers’ willingness to take the ultimate step, launching and operating a network of their own,” Mr. Ludwin said in an interview. Customers would rather use a decentralized network they don’t have to maintain and operate, he said.
Interstellar will focus on combining Stellar’s open platform with the kinds of services built to the specifications of financial services, Mr. Ludwin said. Chain’s existing customers, including Nasdaq and Visa, supported the deal, he said.
Stellar, founded three years ago by Mr. McCaleb and Joyce Kim, is also built on bitcoin’s concepts. It is designed primarily to lessen the friction in cross-border, cross-currency asset exchanges. Unlike the bank-led efforts, focused on networks where they would be in charge of who uses it, Stellar is open to the public.
An early bitcoin investor, Mr. McCaleb is well known in cryptocurrency circles. He created the Mt. Gox exchange, which he later sold Mark Karpelès, and co-founded the Ripple protocol. He launched Stellar shortly after leaving Ripple amid a dispute with the other founders.