Microsoft dives into Web3 with investment in Ethereum co-founder’s start-up ConsenSys

Blockchain start-up ConsenSys has raised $450 million in a new round of funding that more than doubles its valuation to $7 billion.

The cash injection was led by ParaFi Capital, ConsenSys said Tuesday, with Microsoft, Japan’s SoftBank and Singapore’s Temasek also joining as new investors in the company.

New York-headquartered ConsenSys was founded in 2014 by Joseph Lubin, a co-founder of Ethereum. Ethereum is the blockchain platform behind ether, the world’s second-biggest cryptocurrency.

Whereas bitcoin is mostly used for transactions, Ethereum can be used to create decentralized applications, or dapps — think Facebook or TikTok, but on the blockchain, a shared record-keeping system for crypto transactions. ConsenSys develops software that runs on the Ethereum network.

It marks a rare crypto-related bet from Microsoft. The company previously led an early-stage investment in Palm NFT Studio, a start-up also co-founded by Lubin.

Microsoft’s involvement highlights growing interest from the world’s largest tech firms in Web3, a loosely-defined term that refers to efforts to create a decentralized version of the internet based on blockchain technology.

It’s a term that has attracted a lot of chatter — and money — in Silicon Valley. Blockchain start-ups raised a record $25 billion in venture capital funding globally last year, according to CB Insights data. Other tech giants exploring Web3 include Facebook-parent Meta and Twitter.

ConsenSys is viewed by investors as one of the companies that will power Web3. It’s benefited from a flood of investment into emerging crypto trends such as decentralized finance, or DeFi, and nonfungible tokens, otherwise known as NFTs.

The company’s most popular products include the MetaMask cryptocurrency wallet and Infura, a suite of tools that helps developers create Ethereum apps.

MetaMask allows people to store and manage their tokens through a web browser extension or a mobile app. People can also access popular blockchain-powered apps like Uniswap and Axie Infinity. The bulk of ConsenSys’ revenues currently comes from fees for trading different tokens on MetaMask.

MetaMask topped 30 million monthly active users in January, ConsenSys said, up 42% in the last four months. The U.S., Philippines, Brazil, Germany and Nigeria are its most active markets. Infura, meanwhile, is used by over 430,000 developers and recently topped $1 trillion in annualized transaction volumes.

ConsenSys said all the proceeds from its latest round would be converted into ether. The funds will go toward hiring 600 more employees, a redesign of MetaMask slated for release later this year, and building out ConsenSys’ growing NFT business.

Just as Web3 has generated a lot of hype, it’s also drawn some notable critics, including tech billionaires Elon Musk and Jack Dorsey.

Dorsey dismissed Web3 as a centralized technology owned by venture capitalists rather than the crypto community, while Musk says he thinks it’s more “buzzword” than reality.

For his part, Lubin doesn’t see it that way.

“What Jack may be concerned about is how a small number of VCs are grabbing the lion’s share of equity or tokens in many of the best projects,” ConsenSys’ CEO said. “I’m not concerned at all.”

“Decentralized protocol technology is anti-fragile, as is its global community,” Lubin added. “The community will interpret centralization as suboptimal and an opportunity, and will relentlessly decentralize.”

The crypto world has also been keeping a close watch on regulatory developments out of the U.S., after President Joe Biden issued an executive order calling for a coordinated response from the government to industry oversight.

Bitcoin, ether and other digital tokens initially reacted positively, only to subsequently turn south as investors grew concerned by a lack of detail in Biden’s plan.

The U.S. government “has a big policy decision on its hands,” Lubin said, adding ConsenSys “is ready and eager to assist policymakers however we can.”

“At the end of the day, permissionless blockchain networks are global, and they will grow and change our everyday lives whether or not the U.S. is a leader,” he added.