Tron founder Justin Sun is one of the richest figures in crypto, and a good chunk of his bitcoin (BTC) is stored in one place: U.S.-based Valkyrie Investments.
The altcoin kingpin had more than $580 million of BTC stashed with the crypto asset manager at one point in August, according to a private financial document that CoinDesk reviewed. That amounted to over 90% of money at Valkyrie’s largest division, Valkyrie Digital Assets LLC, the document shows.
In other words, Valkyrie Investments, a money manager that pitches crypto products to Wall Street investors, mostly relied on Justin Sun, a controversial Chinese crypto billionaire. (The current state of Valkyrie’s assets is unknown.) Sun has also said he’s one of Valkyrie’s biggest shareholders.
It’s yet another example of centralization in crypto, an industry rife with whales carrying outsize clout, in spite of its decentralized ideals.
Sun’s relationship with Valkyrie popped up in ways that benefited his empire. For example, Valkyrie built investment products for “Justin tokens” such as Tron’s TRX and BitTorrent BTT that other crypto asset managers say they avoid. It promoted Tron using the blockchain network’s developers’ own marketing materials. It even let Tron share its spotlight on Wall Street – literally – with someone wearing a T-shirt bearing the Tron logo joining Valkyrie’s bell-ringing at Nasdaq in September.
The financial lives of individuals are almost always nobody’s business. Sun’s previously undisclosed, outsized percentage of Valkyrie’s assets under management (AUM) is an exception. The depth of the relationship is a matter of public interest because it raises questions about Valkyrie’s reliance on a single client for growth.
Sun is a notable and polarizing figure in the crypto industry. He is the founder of the Tron blockchain, which has spawned repeated controversy. Tron issued, for example, an algorithmic stablecoin that researchers derided as a “clone” of the doomed UST/LUNA setup.
Valkyrie Investments Chief Investment Officer Steve McClurg would not discuss the source of Valkyrie’s client funds, citing confidentiality. Sun didn’t respond to a request for comment.
Assets under management
Sun’s money touched every section of the business, from separately managed accounts to trusts and even Valkyrie’s bitcoin futures exchange-traded fund (ETF). Having large assets under management (AUM) can help a fund manager promote itself to prospective clients and also potential financial backers. Bigger is generally better.
For a few months this year, Valkyrie did have another whale, or major investor: It signed a $700 million partnership to manage treasury funds for crypto protocol NEM/Symbol in January. Weeks later, the company said its AUM had surpassed $1 billion, according to a February press release. But that deal fell apart in months and NEM/Symbol took back its tokens, according to people at the protocol.
McClurg told CoinDesk that Valkyrie continues to partner with NEM/Symbol. That protocol does not appear on the private Valkyrie document that CoinDesk reviewed.
Tokens from Sun's Tron blockchain anchored Valkyrie’s TRX trust, its largest trust at $37 million, according to a person familiar with the matter.
Also, Sun in October 2021 called himself the largest investor in Valkyrie’s bitcoin futures exchange-traded fund (ETF).
It’s not exactly clear why Sun, a knowledgeable crypto founder who recently told CoinDesk he self-custodies most of his tokens (and also has custody partnerships with Binance, Huobi and Fireblocks) would put so much bitcoin in a pricey SMA.
SMAs are portfolio management products that Valkyrie sells to investors who want to directly own their crypto but leave the fuss of buying and selling to a money manager. It charged a 1.5% fee when it officially launched its SMA service in October.
John Key, the former head of Valkyrie’s SMA product, said Sun’s SMA was an institutional-type product that differed from the retail offerings.
Having one whale in an SMA doesn’t necessarily pose a threat to clients with money in other products. But it could become problematic for the asset manager’s fee revenue – and its ability to pay staff – if that client ever decided to leave.
“If you had a hedge fund that had six pieces out of seven in the hands of one player, you couldn't swing the budget, if you know what I mean,” said Chris McHugh, an economics professor at Tufts University.
Sun may have been Valkyrie’s private whale, but he’s a vocal backer of the Nashville, Tennessee-based firm. He joined its mid-2021 equity round and his Tron blockchain called Valkyrie a “strategic partner” when it launched Tron Trust three months later. As an equity investor in the business, his incentives appear to be heavily aligned with Valkyrie’s.
On Valkyrie’s end, CEO and founder Leah Wald has taken a board position at crypto exchange Huobi, which Sun reportedly acquired. Sun is also a board member.
Crypto trusts are private investment funds that give accredited investors a way to buy exposure to cryptocurrencies without holding any tokens. Firms such as Bitwise, Osprey, Valkyrie and Grayscale (CoinDesk’s corporate sibling) sell trusts covering a range of cryptocurrencies to the Wall Street crowd. But only Valkyrie sells a TRX trust. Valkyrie also created – but didn’t launch – a BitTorrent trust product.
Sun viewed Valkyrie as the Tron ecosystem’s access route to U.S. investors, according to his public statements. In September 2021 he said Tron would work with Valkyrie to list its Tron trust on over-the-counter markets and ultimately help it create a Tron ETF. Both steps would mainstream the cryptocurrency in the U.S. Neither event has come to pass.
For its part, Valkyrie discusses its Tron trust with a document chock full of platitudes, buzzwords and paragraphs lifted verbatim from Tron’s own website.
“The TRON network completed full decentralization in Dec 2021 and is now a community-governed DAO,” the April 2022 document, which carries Valkyrie’s logo, declared as it parroted language seen on Tron.network in January. At least seven sections of the document appear to be taken directly from other sources without citing them.
Though he wouldn’t discuss Valkyrie’s clients, CIO McClurg confirmed that Valkyrie has a partnership with Tron.
“I’ve known Justin for many years. We had representatives on the Tron hackathon, we’ve got strategic partnerships with them” and other protocols, he said.
The partnership has seen Valkyrie toy with creating trusts for one Sun-linked token that two other asset managers, who requested anonymity, said they would never touch: BitTorrent, software for sharing – or pirating – files. Tron bought BitTorrent for $120 million in 2018 and promptly launched a BTT token to incentivize users.
Valkyrie signaled its intent to create a BTT trust with an August 2022 fact sheet and U.S. Securities and Exchange Commission filing in October. McClurg said Valkyrie didn’t move forward with the fund because of the rocky crypto market.
Valkyrie’s own finances have been battered by the crashing markets. In recent days it fired 30% of its staff in response to “a thorough review of asset growth.” It also lost its biggest investor in an earlier funding round.
Still, McClurg said Valkyrie is soldiering on.
“The company’s in a good position. Despite the crypto winter we're growing again,” he said.