Paxos, the stablecoin and blockchain infrastructure firm, has long worked with major companies like PayPal and Nubank. More recently, Paxos created a spinoff operation known as Paxos Labs that focuses on the specialized world of DeFi (decentralized finance) and helps companies offer their retail customers access to stablecoins and crypto lending protocols.
On Tuesday, Paxos Labs announced that it raised a $12 million funding round led by longtime crypto venture investor Blockchain Capital, and with participation from Robot Ventures; family office Maelstrom; and DeFi developer Uniswap Labs. Bhaumik Kotecha, cofounder of Paxos Labs, declined to say at what valuation Paxos Labs raised the capital. Charles Cascarilla, CEO of Paxos, is also CEO of Paxos Labs.
“The tech makes it easier for [customers] to integrate, and they don’t have to figure out all the smart contracts themselves,” said Kotecha. “But it’s also—we can sit down with their team and help them express compliance and risk.”
Stablecoins and DeFi
Founded in 2012, Paxos is a prominent player in stablecoins, one of the buzziest sectors in crypto. Stablecoins, which are pegged to real-world assets like the U.S. dollar, can help speed up payments and reduce fees, and have attracted significant interest from banks and fintech giant Stripe.
Paxos has made its name as a white-label issuer, or a service provider that big companies use to create and manage their own stablecoins. As more companies print more tokens, enterprises inevitably will think about how their customers will use them, said Kotecha. One market that many in crypto point to is DeFi, or financial markets that run on blockchains without centralized entities sitting in between transactions. In fact, Paxos recently agreed to acquire crypto wallet company Fordefi for more than $100 million as the stablecoin company’s clients clamor for more access to DeFi.
Kotecha, who started his career at Jack Dorsey’s fintech, Block, had been at Paxos for more than three years and was working on tech to simplify how companies plug into different DeFi markets, like Aave. While he and Cascarilla believed the software cornered an untapped market, the initiative didn’t fit into Paxos’s short-term, institution-focused road map. Add in the regulatory ambiguity surrounding DeFi as well as the freedom to experiment with a larger array of crypto assets, and the two decided to spin off the project and raise outside capital.
“The people that now all of a sudden are holding stablecoins as deposits inside of their applications, they want to put them to work, right?” said Spencer Bogart, a general partner at Blockchain Capital. “There’s a bit of a gap in the market there.”
Paxos Labs lets developers use a single software suite to not only create their own branded stablecoins but also allow their customers to earn interest on their holdings and borrow money using those tokens as collateral.
The startup is on pace to break even by the end of year, said Kotecha, and already has customers, including neobank Hyperbeat as well as developers behind the privacy-focused blockchain Aleo. “Especially as interest rates come down, the more compelling thing for users is deploying into on-chain markets,” he added.
