DeFi startup Arch raises $5 million to become the 'BlackRock of web3'

Decentralized finance (DeFi) startup Arch has raised $5 million to try to achieve the lofty goal of becoming the "BlackRock of web3."

The oversubscribed seed round was co-led by Digital Currency Group and SoftBank spinoff Upload Ventures. Other investors included the venture arm of Latin America blockchain firm Ripio, TechStars and GBV, Arch said in a company release. 

The startup aims to make investing in DeFi accessible to the everyday investor. 

“We kept hearing stories of people who, for instance, wanted to get into crypto, and the only option they really had was going out to exchange and buy this single token that a friend had recommended to them that they really didn't know anything about,” said Christopher Storaker, co-founder and CEO of Arch, in an interview with The Block. “They were basically putting all their eggs in one basket.” 

Storaker says diversification is the only free lunch in finance and wants to make it simple for the web3 ecosystem. His decentralized asset management protocol creates well-diversified tokenized investment portfolios that individuals will be able to buy via a smart contract and then self-custody, he said. 

Going head-to-head with BlackRock

But why should an investor use Arch instead of buying a crypto exchange-traded product from a big player like BlackRock or 21Shares?  Especially as BlackRock increasingly makes moves into crypto. 

Storaker says Arch will take a different approach by going beyond just Bitcoin and Ethereum to provide investors exposure to the cutting edge of what’s happening in web3. 

“When we say ‘BlackRock of web3,’ we really want to be on par on the methodology side with what they do and what people expect from passive products,” Storaker said. 

The team also wants to ensure that the transition of capital from web2 to web3 is as seamless as possible for newcomers to the space. 

“It's not something that comes naturally,” he added. “But I think people are willing to try it.” 

Tapping into the everyday investor

This is why Ripio Ventures, the venture arm of Latin America-based blockchain firm Ripio, decided to back the team. They said Arch has the potential to touch millions of users in Latin America and offers potential collaboration opportunities for Ripio. 

Ripio currently has about 3.5 million users, mainly in Argentina and Brazil, a Ripio spokesperson said. 

“What Arch offers is a solution that is interesting because it's bringing in something that is complex ... [and] making it easy for everyone to do it,” said Andres Fleischer, managing partner of Ripio Ventures. 

Arch is currently built on Ethereum rails. Primarily because it’s an order of magnitude greater than any other ecosystem, Storaker said.

Are tokens securities?

Offering tokenized products to the average investor does, however, create challenges. 

Securities and Exchange Commission (SEC) Chairman Gary Gensler has repeatedly reiterated that he believes “most crypto tokens are securities” and that many intermediaries need to register with the SEC, "whether they call themselves centralized or decentralized.” 

“We have been working with counsel almost from day one, in making sure that we don't run afoul of regulation here in the U.S. and elsewhere,” Storaker said. “For us that means sometimes going slower than then you might have done otherwise, but so you don't mess up." 

The platform will offer two index-tokens: the Arch blockchain token, which tracks the world's largest blockchains, and the Arch Ethereum Web3 token, which tracks native tokens of major protocols like Chainlink and Uniswap.

Arch previously raised a pre-seed round and went through the TechStars accelerator program.  

The new funds from the round will be used to tokenize a wider suite of decentralized finance indices and to develop the platform into a decentralized asset management protocol.