The crypto industry is littered with former regulators, typically serving as legal counsel at top companies or advisors on political lobbying. More rare is a regulator serving as an investor at a venture firm, let alone a founding partner, with the exception of former Department of Justice prosecutor Katie Haun.
Matthew Homer, previously a senior superintendent overseeing crypto at the New York Department of Financial Services, is breaking the mold. After leaving DFS in 2021 and working at venture firm Nyca Partners, Homer started his own crypto-focused venture firm, the Department of XYZ, which just raised $5.1 million.
The fund is backed by limited partners who serve as advisors to portfolio companies, including former regulators from an array of agencies, as well as top industry participants such as Compound’s Robert Leshner, Multicoin’s Kyle Samani, and the Winklevoss twins.
In an interview with Fortune, Homer said XYZ doesn’t aim to lead funding rounds but instead serve as an essential advisory resource on cap tables for startups. “As I looked at the venture space, it’s one of the reasons I launched this fund,” he said. “There’s no one that is really owning the regulatory lane.”
“We‘re not going to be your largest check, but what we are going to be is your regulatory friends on speed dial,” Homer added.
Homer’s odyssey
Homer began as a regulator at the Federal Deposit Insurance Corporation, an independent agency focused on banking, in 2012, when crypto was barely on the radar of governments. He played around with Coinbase, which started that year, but lost interest in the nascent technology after a failed transaction.
He worked in a policy role at Quovo, which was acquired by Plaid, before moving back into a supervisory role at DFS in 2019, tasked with leading the research and innovation division. Part of his remit would be crypto, though he was hesitant to venture again into blockchain. “That’s part of the job,” he recalled his boss telling him. “You’ve got to own it.”
DFS has long been at the forefront of crypto regulation, creating the BitLicense program in 2015 for digital assets companies. To date, the agency remains the only one in the U.S. at the state or federal level with a comprehensive supervisory regime, attracting companies from Coinbase to PayPal to apply for the license. While the crypto industry has criticized DFS for its often laborious approval process, blockchain-sympathetic lawmakers and entrepreneurs have since held up the agency as a model for responsible oversight.
Homer said his time at DFS made him realize the risks inherent to other parts of finance supervised by the agency, from banking to insurance, and the potential of crypto to offer more visibility given its on-chain and public nature. He held his role during the early days of the pandemic, when DFS worked to assess the impact of COVID on its regulated institutions. He realized that many traditional institutions did not have great data, but the more digitally native crypto firms offered a novel and promising type of infrastructure.
After DFS, Homer moved into the venture space, starting as an executive-in-residence at Nyca Partners, the New York–based fintech VC firm. Hans Morris, managing partner at Nyca, said that Homer helped the firm refine its strategy around regulation, despite not having an investing background. Homer wanted to move into crypto investing, which Nyca wasn’t focused on, and decided to leave to found XYZ. Morris came on board as an LP because of Homer’s hypothesis-driven approach and ability to offer regulatory advice. “If I were an entrepreneur, I wouldn’t want my whole board to be like that, but I would want someone to be like [Homer],” Morris told Fortune.
From X to Z
Homer decided on a first fund whose size would pale in comparison to megafunds like a16z crypto or Paradigm partly because of data showing smaller funds outperform larger funds, but also to be able to “get access into highly competitive opportunities,” as he put it. In other words, his goal was for larger investors to bring XYZ onto cap tables as a regulatory resource, especially because of its litany of advisors with experience at agencies from DFS to the Securities and Exchange Commission.
Robert Leshner, founder of lending protocol Compound and a leading voice in decentralized finance, said that he brought XYZ into the Series A of his new company, Superstate, on the advice of his lead investor. “I relied on [Homer] like an assistant general counsel,” Leshner told Fortune. “He was a pretty big part of us thinking through some of the nuances of our compliance and legal problems.”
Leshner decided to also join XYZ as an investor. “[XYZ is] probably one of the most high-impact funds for the dollar size that I’ve worked with, and I’ve worked with most investors in crypto and Silicon Valley.”
As other funds chase consumer apps and more speculative assets like memecoins and prelaunch layer-1 tokens, Homer said XYZ will largely focus on financial infrastructure, stablecoins, and DeFi platforms. Early investments have included Mountain Protocol—a permissionless, yield-bearing stablecoin operating outside the U.S.—as well as Superstate, which will tokenize real-world assets like Treasury funds.
Homer isn’t optimistic that the regulatory situation in the U.S. will improve anytime soon, but he is in a unique position to help founders navigate thorny questions in the meantime. “You can’t ever predict where regulation is heading,” Homer told Fortune, “but what you can do is help founders anticipate where possible or least avoid making really fatal mistakes.”
