Crypto Exchange C3 Raises $6M, Aiming to Fix FTX Bugs
- Crypto exchange C3 has raised $6 million in seed funding led by Two Sigma Ventures.
- C3 allows retail investors to retain custody of their crypto while providing traders with sophisticated tools.
- Co-founder Michel Dahdah told Insider that he aims to fix the mistakes that led to FTX’s collapse.
A series of bankruptcies – FTX, BlockFi, Celsius, Voyager, Genesis – have revealed major flaws in several crypto-financial institutions. Michel Dahdah believes his company, crypto exchange C3, can fix one major challenge these crypto companies face: the custody issue.
Several venture investors agree. C3 has raised $6 million in seed funding led by Two Sigma Ventures, the venture capital arm of hedge fund Two Sigma Investments.
A long list of traditional hedge funds and trading firms also invested, including Jane Street Capital, Hudson River Trading, Flow Traders and GoldenTree Asset Management, as well as crypto-native trading firms CMS Holdings, AlphaLab Capital, Jump Crypto and Cumberland, a division of DRW. Crypto-focused VC firm C2 Ventures also participated.
Dahdah, originally from Venezuela, told Insider that he has seen some of the benefits of crypto firsthand. In countries facing hyperinflation and currency devaluation, some citizens have turned to stablecoins – cryptocurrencies that are pegged to fiat currencies like the US dollar – to try to shield their money from these harmful effects.
Centralized crypto exchanges, such as Binance, Kraken, and Coinbase, are often the easiest way for such customers to access crypto. “In Venezuela, Argentina, everyone uses Binance as a bank,” Dahdah said.
But a major problem with centralized exchanges, he said, is that they retain custody of customers’ funds, which puts them at risk if these institutions face a solvency crisis – as in the case of the now defunct FTX. In the traditional financial world, custody and exchange are separate functions, and crypto must follow suit, he said.
So C3 allows its customers to keep their money in non-custodial crypto wallets or to use another financial custodian of their choice, such as Fireblocks or Anchorage. Of course, that doesn’t solve all the regulatory problems facing crypto—Kraken, for example, shut down one of its U.S. services this week in a settlement with the Securities and Exchange Commission—nor does it address the financial mismanagement and misrepresentation that allegedly occurred within the fallen institutions such as FTX and Celsius.
But self-custody gives customers more freedom to keep their money safe, advocates such as VC Adam Struck have argued — at least they can choose whether to entrust their coins to a particular entity.
However, for the average user, crypto wallets can be intimidating to set up. In particular, there is the matter of remembering a private key – a complex string of characters – to maintain access to one’s wallet. So C3 also offers crypto newbies the alternative to a traditional email login to access their funds, using a type of cryptography known as multiparty computation to validate and secure that data.
Dahdah began raising funds for C3 in the summer of 2022 and completed the process in about two months, he said, before the crypto industry’s latest round of bankruptcies. Alongside its focus on self-sharing, C3’s pitch to deliver more sophisticated institutional trading tools attracted investors from the traditional financial world. The FTX meltdown only increased appetite for C3’s service, Andy Kangpan, principal at Two Sigma Ventures, told Insider.
“I think the future that they’re building towards is one that should prevent that kind of collapse from happening,” he said.
