We are excited to announce our investment into Kinto, the safe, decentralized, and KYC-compliant Ethereum L2!

After raising $1.5 million in a pre-seed round earlier this year, Kinto recently raised another $3.5 million in a round led by Kyber Capital Crypto, Spartan Group and Parafi. Other participants include Robot Ventures, SkyBridge Capital, Kraynos, Soft Holdings, Modular, Tane, and us, of course!

CoinDesk covered the fundraising announcement, which you can read here.

Here’s more about Kinto and why we are so excited about this investment.

Scams and Rug Pulls are Everywhere

Blockchain, with its open and permissionless nature, has the potential to improve access to financial services across the globe. Builders can now create more efficient services that are non-custodial, decentralized, and free of rent-seeking middlemen.

However, all these improvements are overshadowed by scams, rug pulls, and smart contract hacks. More than $30B was lost in 2022 alone.

These risks are a primary cause of why financial institutions are sitting on the sidelines.

Enter Kinto

Kinto is the first blockchain network built to address all these problems on the chain level to support a new wave of secure financial applications. The network has been designed from the ground up to provide a safe environment for both users and financial application builders.

By default, Kinto provides KYC, insurance, and AML & fraud monitoring at the blockchain level. All participants are KYC'd using well-known, approved KYC providers, and the network runs AML on all of them continuously. Transactions can then only be performed by verified participants.

Kinto’s KYC architecture is at the core of its value proposition. The KYC architecture relies on three components:

1. Identity Nodes

2. NFT Smart Contract - Kinto ID

3. KYC Providers

Kinto introduces a new category of nodes, called “Identity Nodes”, that perform KYC-related tasks. Identity Nodes interact with a smart contract deployed on Kinto L2 called “Kinto ID” that mints non-transferrable NFTs to users that have completed the KYC process.Identity Nodes leverage approved KYC providers (including Plaid, Persona, Parallel Markets, and Stripe Identity) to store users’ information. The user can choose which KYC provider to use, and governance can add and remove KYC providers.

Personally Identifiable Information (PII) is only saved in select identity providers chosen by each user, and this PII cannot be linked to their on-chain accounts except when they grant access to an application that requests it. Governance can reveal bad actors to report to authorities.Here are other important components of Kinto:

1. Built-in Insurance. The network also offers insurance against black swan events to all smart contracts and applications built on top of Kinto. Sequencer fees from the network are given as a yield to network underwriters.

2. Default Revenue Stream. Kinto offers Contract Secured Revenue. Sequencer fees are shared with every smart contract based on their tx volume.

3. Improved UI via Account Abstraction. Users can access crypto financial services on Kinto without being forced to install a browser extension or store seed phrases or private keys due to native account abstraction at the chain level. Applications can offer easy onboarding and account creation through username/password, 2FA, or mobile device keys while remaining non-custodial.

4. Full on-chain governance. A fully on-chain, two-layer governance system will control the Treasury, fees, integrations, identity providers, and main chain parameters. 9 Nios (i.e. Guardians), who are elected by token holders on a rolling 6-month basis, will vote on proposals. Governance will be implemented using Open Zeppelin's governor. The votes are binding, and insiders cannot bypass, cancel or prevent the execution of proposals.

5. 100% Finance. Kinto is 100% focused on financial use cases. Kinto offers a native infrastructure that connects to the main DeFi protocols, oracles, and other DeFi infrastructure. Kinto will provide financial institutions and developers with a secure SDK ecosystem to build upon. Through Kinto, they can access all public and liquid protocols on the Ethereum Mainnet safely.

The Ethereum L2 Market is Booming

The Ethereum L2 market has grown more than 33x in Total Value Locked (TVL) over the last 3 years, with Arbitrum ($7.41B in TVL) and Optimism ($3.68B) leading the way. You can find more data on L2 TVL here. 

The growth of L2s is expected to continue as delays of Ethereum’s L1 scaling vision persist. 

With the exception of a small number of L2s such as dydx and Immutable X, most of these L2s are general-purpose blockchains. We believe there is a huge gap in the market for a safe, compliant-focused blockchain that is open and connected to the liquidity on Ethereum but with increased security and compliance.

Kinto’s combination of an open, decentralized L2 with mandatory KYC for increased security can fill this gap and attract billions of institutional liquidity sitting on the sidelines. 

The Team

The Kinto team has decades of experience in software development, DeFi, and TradFi, which is imperative in building the tools needed to unlock the trillions of dollars in traditional institutional funds.

Co-founder and CEO Ramon Recuero was the founder of Babylon Finance, a community-led asset management protocol that enabled users to create investment clubs and invest in DeFi together. At its peak, Babylon attracted ~$30M in TVL. Ramon also has experience building software for very well-known companies such as Google, Y Combinator, Open Zeppelin, Zynga, and MOZ.

Co-founder and CTO Victor Sanchez has been building software and launching tech startups for over 15 years. He co-founded SyncRTC, a hybrid education and corporate training platform. SyncRTC was sold to LoopUp, at which Victor became group CTO. Victor worked with Ramon as an advisor to Babylon Finance. 

Chief Strategy Officer Alan Keegan has years of experience at both TradFi and DeFi firms, including as an investment associate at Bridgewater Associates (one of the largest investment firms in the world). Alan also founded Omega One and Tiger Trading, and was Head of Growth at Sense Finance.

Conclusion

We are excited to support Kinto as they build out their compliance-focused L2 and help unlock trillions of institutional funds that will flow into DeFi.

Congrats to Ramon, Victor, Alan, and the entire Kinto team on this fundraise!

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