Wasabi Bitcoin wallet makers valued at $7.5 million after its first equity round

According to a report from CoinDesk, zkSNACKs, the makers of the privacy-focused Wasabi bitcoin wallet, raised $337,500 from Cypherpunk Holdings, valuing the wallet startup at $7.5 million. Wasabi acts as a non-custodial wallet and a gateway to CoinJoin transactions, an on-chain mixing technique that can obscure coin ownership traceability. Cypherpunk Holdings CEO Dominic Frisby cited Wasabi's substantial early revenues and the existence of a viable business model as reasons why the investment firm sprung at the opportunity. The new funding will help the privacy wallet to transition from a volunteer project that paid contributors via donations to a traditional VC-backed startup.

In our analysis of Wasabi's user activity and revenue, Bitcoin holders seeking financial anonymity adopted the privacy wallet rapidly following a UX upgrade released in early Dec. 2018. The number of CoinJoin transactions it facilitated rose steadily to a peak in Mar. 2019 before plateauing throughout the Summer months.

For revenue, Wasabi keeps a percentage of the total bitcoin entered into each CoinJoin transaction (equal to 0.003% * the anonymity set) as a fee. Therefore, its revenue is a function of CoinJoins administered, the size of each CoinJoin, and the price of Bitcoin. This dynamic helps explain the steep rise in month-over-month earnings from March to June, as the BTC price jumped from ~$4,100 to almost $14,000 over a three month period starting in Apr. 2019. Despite Bitcoin's price sliding back to around $10,000, Wasabi registered its highest monthly earnings two months later, suggesting the average anonymity set for each CoinJoin reached an all-time high in August. In total, Wasabi generated over 71 BTC in revenue (~$580,000 if exchanged for USD at the time of sale) in under ten months.

Note: The Bitcoin wallet used to observe Wasabi’s earnings has been inactive since Sep. 2019.

Why it matters:

• Was this a good move from Cypherpunk Holdings? Judging by the numbers, it is hard to argue again the decision to invest. zkSNACKs is a small team (two listed employees on LinkedIn) that managed to generate exceptional growth in terms of user activity and revenue since its first production-ready release. On the flip side, the market potential should lead to a mass influx of competitors offering lower CoinJoin fees to woo Bitcoin users away from Wasabi.
  
• Cypherpunk Holdings also invested in Wasabi's chief competitor, Samourai Wallet, back in June, valuing Samourai at $6.6 million. The investment firm is making a clear bet that Bitcoin privacy and fungibility will continue to see an increase in demand, especially after the recent rise of blockchain tracking companies like Chainalysis and Elliptic.