財星雜誌：兩次「欺騙」a16z的Basis創辦人是誰？

原作者：傑夫約翰羅伯茨，《財星》雜誌

原文翻譯：魯夫、前瞻新聞

Located east of Princeton University in central New Jersey, Carnegie Lake is a three-mile-long, tree-lined lake that is home to wildlife such as swans and herons. In 2011, freshman Nader Al-Naji spent many mornings here, training at dawn with other members of the rowing team. Many of his Princeton rowing teammates later achieved great success, becoming Olympians and executives at well-known companies such as JPMorgan Chase and Tesla.

Al-Naji was a bona fide genius who also found his place among the American elite. He sold his vision of changing the world to Silicon Valley elites, and investors later described him as an outsider startup founder. Al-Naji eventually convinced institutions such as Sequoia Capital, Google and Bain Capital to invest hundreds of millions of dollars in his startup. But his bold vision was built on fantasy.

Al-Naji’s first venture, an attempt to build a cryptocurrency startup that seemed too good to be true, failed, but he convinced investors that it was a learning experience. He soon re-emerged with an even bolder plan: He launched a social network as “Diamondhands” that would turn other people’s social profiles into commodities that could be traded in cryptocurrency without permission. That project also failed.

Despite two failures (which, in hindsight, were based on far-fetched ideas), many of Al-Naji’s supporters continued to believe in him. However, in July of this year, Al-Naji’s luck ended. The Department of Justice arrested him and, along with the U.S. Securities and Exchange Commission (SEC), charged him with embezzling investors’ funds, living a lavish lifestyle in Beverly Hills, and transferring $1 million in cash to his family. Al-Naji called the charges a “mistake” by the U.S. government.

In some ways, Al-Naji’s prank is just another story of a cryptocurrency mogul defrauding his backers. But it raises a deeper question: How did Diamondhands deceive the “smartest” investors among Silicon Valley’s elite? At the same time, it puts the most prominent venture capital firm among these investors, Andreessen Horowitz (a16z), in an awkward role: fraud victim and prosecution witness.

Nader Al Naji, Founder of Basis

Princeton Times

Nick Bax, CEO of a cryptocurrency forensics company and a frequent expert witness, recalls his grueling training days at Princeton University, where he would spend 25 hours a week training and where ambitious young people were always vying to outdo each other. Even in such a group, Al-Naji was able to stand out.

“Everyone knew Al-Naji,” Bax said. “He was a fast rower and an outgoing person. We knew he was ambitious and exceptional even by Princeton standards.”

While attending Princeton, Al-Naji also had an unusual hobby: cryptocurrency. According to his LinkedIn profile, he graduated with honors a year early and “mined about 23 bitcoins using free electricity on campus.”

After graduating with a degree in computer science, Al-Najis career path was similar to that of many other top Ivy League graduates, who landed jobs at well-known companies in the finance and technology sectors, such as hedge fund DE Shaw and Google. However, in mid-2017, Al-Naji left the search giant to start his own business. He became the founder and CEO of a cryptocurrency startup called Basis.

The new startup exhibits the main characteristics of Al-Najis project: a bold and disruptive vision wrapped in technical jargon that, if you dig deeper, seems too good to be true.

Basis is a new type of cryptocurrency stablecoin that supports its value stability not with the usual reserve assets but with a strange algorithmic force. If the price of Basis rises above $1, the system will issue new shares that can be exchanged for stablecoins, thereby pushing down the price. If the price falls below $1, Basis will sell bonds at a discount, which can then be redeemed in full.

Many people were skeptical of Basis. One cryptocurrency observer called Basis a scam that turned lead into gold, noting that Basis relied on the first-in, first-out principle, a classic pyramid scheme. (Three years later in 2021, another algorithmic stablecoin project with the same design, Terra, defrauded more than $200 million from investors and triggered a massive collapse in the cryptocurrency industry, and Basis skeptics were eventually vindicated.)

Despite Basiss shaky financial footing, Al-Naji quickly raised $133 million from wealthy investors, including Andreessen Horowitz, Google Ventures, Bain Capital Ventures, and a former Federal Reserve governor.

However, nine months after its successful initial fundraising in October 2017, the Basis project failed. After the initial hype and a period of calm, Al-Naji announced that the Basis project was being cancelled due to regulatory challenges and that the remaining funds would be returned to investors after deducting the fees incurred.

However, one venture capitalist who invested in the project questioned this public explanation, telling Fortune that Al-Naji chose not to move forward with Basis because he didn’t think it would work.

Whatever the reasons for Basis’s failure, it’s surprising that a group of savvy investors were able to bet on the project, given that it seemed to defy the basic laws of economics. One explanation is that the nature of venture capital is to take risks on seemingly crazy ideas. Another is that investors valued Al-Naji personally.

Many venture capitalists rely heavily on what’s called pattern matching: finding entrepreneurs who are similar to previous successes. In Al-Naji’s case, he’s perfect. In interviews for this article, two venture capitalists from different firms who backed Al-Naji’s projects used the same phrase to describe him: “an outsider actor.” The description applies not only to his education and work background, but also to his confident demeanor.

Another venture capitalist who has invested in Al-Naji noted that Al-Naji, much like another notorious cryptocurrency figure, has taken advantage of the venture capital world’s penchant for pattern matching.

“In retrospect, they had very similar personality traits. Al-Naji was like Sam Bankman-Fried in that he spoke so fast that you might not always understand what he was saying, but he came across as a good, honest guy,” the venture capitalist said.

A fourth venture capitalist, who had invested in two of Al-Naji’s startups, offered a more sobering view based on his own experience evaluating founder missteps.

“Half the work in all these stories is figuring out whether someone is a psychopath or a narcissist,” the venture capitalist said. “I’ve never actually given much thought to whether Al-Naji is a psychopath or a narcissist, but to me he seems to be leaning toward the narcissist side.”

Meanwhile, questions have been raised about how Al-Naji spent the money he didn’t return. Al-Naji has said he’s returned more than 90% of the money he invested in Basis. In 2021, he explained to TechCrunch: “The $10 million that I didn’t return to investors was actually spent on lawyers.”

However, several of Al-Najis investors expressed disbelief that a small startup would spend $10 million on lawyers in just a few months.

Diamondhands is born

The biggest cryptocurrency boom in history is in full swing in 2021. Elon Musk has driven Dogecoin to an all-time high with an appearance on Saturday Night Live, and cryptocurrency enthusiasts have rushed to pour millions of dollars into digital monkeys. In Silicon Valley and New York, venture capital firms have amassed billions of dollars in funds to invest in cryptocurrency projects.

This was perfect timing for Al-Naji’s next move. When he resurfaced, he would appear as “Diamondhands,” an anonymous figure who would launch a decentralized social network and then disappear into the mists of the internet, just as Bitcoin’s creator Satoshi Nakamoto had done years before.

When Al-Naji founded Basis, he saw it as a breakthrough in economics. His plans for a social network are even bigger. Bitclout will disrupt companies like Facebook and Twitter with a new platform without any control or centralized servers. It will run just on code and tokens.

To launch BitClout, Al-Naji borrowed a technique from Silicon Valley called growth hacking, scraping the profiles of 15,000 Twitter users to populate the new network. The site itself looked like a hastily made Twitter knockoff.

The name Bitclout is reminiscent of Klout, a failed social network that ranked people based on their influence, and many criticized the project as Yelp for everyone. Al-Naji took the concept a step further, encouraging Bitclout users to buy and sell tokens whose value would be tied to the identity of people on the site. Users would have to exchange Bitcoin for the networks new cryptocurrency.

Like Basis, the idea seemed half-baked. For one thing, no one could explain the technology that Al-Naji touted as running “just on code and tokens.” Meanwhile, Al-Naji’s decision to pre-populate the network with existing Twitter profiles was rightfully seen as a serious intellectual property violation.

Then there’s the false mystique surrounding “Diamondhands,” a name inspired by cryptocurrency slang for those who don’t sell when the market plummets, but that doesn’t hide the fact that Al-Naji is the man behind Bitclout.

When Al-Naji launched the Bitclout website in March 2021, he shared the URL with others, absentmindedly telling them not to spread it. When the link went viral, Al-Naji claimed it was an accident, even though all signs pointed to it being part of a growth hacking scheme.

While the failure of Basis earlier may have put investors off Al-Naji, the cryptocurrency market has gone crazy, and well-known institutions have not only invested in Al-Naji again, but also agreed to cooperate with Diamondhands scam to hide their identities.

Months before Bitclout launched, firms like Andreessen Horowitz and Coinbase Ventures struck deals with Al-Naji to buy tokens at a presale price of $6 ($16 for later entrants). While many of Bitclout’s backers also invested in Basis, the new project also attracted newcomers like Sequoia, the crypto VC firm that later lost $214 million on its investment in Sam Bankman-Fried.

In a similar fashion to SBF’s early treatment, Sequoia Capital published a flattering profile of “Diamondhands” that explained why BitClout had no executives, a board of directors, or any other standard corporate mechanism that could provide accountability.

“BitClout has no CEO, board of directors, or shareholders, only token holders. They believe that an open, blockchain-based organization whose direction is determined by the community will outperform social media’s traditional advertising-driven business model,” wrote Sequoia, which did not respond to multiple requests for comment for this article.

After BitClout went live, early token buyers quickly made a killing as the price of the site’s eponymous token soared to nearly $200. However, the good times didn’t last long, and Al-Naji once again announced that he would abandon the project, claiming that it had always been a “beta test version” and should not have developed to the point where it had. Instead, he would invest the proceeds of Bitclout (whose token price had already gone to zero) into another project dedicated to decentralized social networks. Meanwhile, retail investors who exchanged Bitcoin for Bitclout tokens on the site found that they could not redeem their tokens back to Bitcoin.

The SEC alleges that Al-Naji raised $257 million by selling Bitclout tokens to investors and the public, and that, contrary to his claims of “only tokens and code,” he had direct access to the funds. In court documents, the SEC alleges that he used the Bitclout proceeds to pay credit card bills and a six-bedroom home in Beverly Hills, and gave nearly $3 million in gifts to his family. It is unclear where the remaining funds went, according to court documents.

Star Witness

a16z is headquartered on Sand Hill Road, a picturesque arterial that winds down from Interstate 280 past Stanford University. Over the past decade, a16z has parlayed its early successes in companies like Facebook and Airbnb into a multibillion-dollar business empire and, more recently, a political and cultural presence. The company has also promoted its own mythology so aggressively and effectively that some joke that it is a public relations firm masquerading as a venture capital firm.

Recently, a16z has taken on a new, unexpected identity: It has been labeled as a fraud victim, “Investor 1,” in the Justice Department’s case alleging criminal conduct against Al-Naji.

a16z’s role in the case is surprising because it invested just $3 million in Bitclout, a pittance for a firm that routinely pours $100 million or more into startups and is sensitive to negative publicity.

“Generally speaking, funds don’t betray the entrepreneurs they invest in. They just take the losses quietly,” a cryptocurrency lawyer familiar with Bitclout told Fortune. “When a fund loses money, they don’t hold the entrepreneur accountable, they just take it themselves.”

Venture capitalists interviewed by Reuters agreed, noting that firms are reluctant to engage in public legal proceedings in order to avoid the perception that they are unfriendly to the founders of the startups they back. According to the crypto lawyer, a16z’s role as a witness may have been forced.

Renato Mariotti, a former federal prosecutor and now a white-collar defense attorney at the Paul Hastings Law Firm, said the arrangement is also consistent with the Justice Departments normal strategy in such cases. Its more convincing to have the victim say, I lost money, they lied, he said.

a16z declined to comment for this article, but the firm does not appear to harbor any ill will toward Al-Naji following the Bitclout incident. In fact, a16z appears to have approved Al-Naji’s plan to invest Bitclout’s funds in a new social networking venture called Deso Foundation. Ostensibly decentralized and designed to support other cryptocurrency ventures, the Deso Foundation has made only three small investments, the most recent of which was in early 2023, according to Crunchbase data.

DeSo’s funding recipients include Al-Naji’s AODAO, a venture that aims to build a decentralized community for people to invest in NFTs. In a 2002 interview, Al-Naji explained to me that DAODAO represents “the next opportunity for true ownership by the people.”

In mid-July, Al-Naji was arrested in Los Angeles and indicted on fraud charges in federal court. Mariotti said that if Al-Naji is found guilty, he could face three to six years in prison. Court documents show that Al-Najis lawyers (he has hired lawyers from several top law firms) are negotiating with the Department of Justice, but so far, the two sides have not reached a settlement or filed a formal defense to the criminal charges.

For now, Al-Naji doesnt seem concerned about his legal woes. When asked to share his side of the story, he politely declined.

“I really want to help, but I have to proceed with caution at this point. However, I am sure this will be a well-thought-out article, and I will be sure to contact you as soon as I can tell the full facts,” he responded on Telegram.

Meanwhile, he has been active on a new social media platform called Diamond, where his fans worry that his arrest could delay the launch of a promised token called Focus. He has tried to allay those concerns in a series of videos and text posts, including one suggesting that the U.S. government’s charges against him were a mistake and would be cleared up.

“But after some thought and discussion, the impact of the incident is not obvious, and may even have a positive impact. On the one hand, if there is negative follow-up when we launch Focus, it may damage people’s willingness to share the app. On the other hand, it will also make more people know about it,” Al-Naji wrote.

原文連結

This article is sourced from the internet: Fortune Magazine: Who is the founder of Basis, who “cheated” a16z twice?

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