Former BitMEX CEO Arthur Hayes Calls His Maelstrom Capital a ‘Very Patient’ Fund

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

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

"Nothing scales like consumer, but we're not quite at the phase where there's enough infrastructure to support that,” Vaidya said.

Maelstrom is set up as Hayes' family office, using a pool of his crypto and fiat money. Because there are no liquidity providers to answer to – as it's Hayes’ money – there’s no rush to deploy 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 game of spray-and-pray because we don’t have outside LPs.”

Infrastructure deals have “strong technological moats that are addressing a large market, and it's simple to understand business: It's 'P' multiplied by market size,” explains Vaidya.

Good firms are founded in the bear market

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 decentralized finance (DeFi) summer of 2020.

“At the time, no one cared about them due to the negativity around [initial coin offerings] and the massive bear market,” Hayes said. “This led to a surge 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 in a few months after getting their tokens,” Hayes added.

Hayes thinks the turning point for the projects in which he’s investing now will likely come sometime around 2024 when the market starts to question whether these projects have fulfilled their promises, built their products, acquired clients, and demonstrated that their technology works.

And with that comes clone projects and their "me too" investors, just like what happened during the COVID-19 bull market of 2020-2021, 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 investing in when the time comes because that’s how crypto-tier returns are made when the market shifts from bear to bull.

“We're not saying that we're always going to invest in pure quality, we'll invest in a complete piece of [dog excrement] because we get our tokens today,” he said. “And in three months' time, we could dump them because the narrative is there.”

BUIDLing during a crypto war

In some ways, Hayes might have been the opening salvo – or the first victim – of the U.S. government’s war on crypto.

In 2020, the U.S. Department of Justice alleged that Hayes violated the Bank Secrecy Act (BSA) and allowed money laundering to occur on the BitMEX platform by not implementing 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. al. were never tested in the adversarial environment of a courtroom. BitMEX is not a U.S. company, nor did it use U.S. dollars. As legal experts highlighted at the time, the only other instance of when the BSA was used on a non-bank financial institution ended with a deferred prosecution agreement – no prosecution in exchange for a mending of ways.

So, of course, the long reach of U.S. regulators is on the mind of Hayes and Vaidya.

“The advantage of investing in infrastructure projects, especially at this cycle, is that a lot of those aren't really in the crosshairs of regulators to the extent that others might be,” Vaidya said.

One example of this, according to Vaidya, is their portfolio company EtherFi, a decentralized and non-custodial liquid staking platform, which closed a $5 million round in February.

“There’s nobody to go after because it's noncustodial,” he said. “This company will never get a Wells Notice.”

All of Maelstrom’s portfolio companies, bar one, which doesn’t have a token model, have been outside of the U.S.

Even when a project does involve U.S. founders, it is domiciled in a friendly jurisdiction like Switzerland, Vaidya explains.

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