Chaos Labs, a blockchain risk analytics firm whose team includes former members of the Israeli special forces, announced on Tuesday that it's received $20 million in seed funding in a round led by PayPal Ventures and Galaxy Digital.
The almost two-year-old company specializes in running worst-case scenario simulations for decentralized finance trading platforms. Other participants in the round include Coinbase, Uniswap, Lightspeed, Bessemer, and angel investors like Balaji Srinivasan and Naval Ravikant.
"We built a Web3 cloud where we can replicate all of the blockchains that our clients run on," Omer Goldberg, founder and CEO of Chaos Labs, told Fortune. "And we can interact with their application in the same exact way that they're going to be interacted with in real life."
Chaos Labs's unusually large seed funding comes after a year of crypto hacks, collapses, and exploits, including the infamous Mango Markets exploit, in which hacker Avraham Eisenberg took advantage of weaknesses in the crypto trading platform to walk away with $116 million in assets. The U.S. Securities and Exchange Commission later charged Eisenberg with fraud and market manipulation.
Goldberg told Fortune that Chaos Labs' software could have "100%" prevented Eisenberg's attack, which is probably why the company's 10 public clients include some of the biggest names in DeFi, including Aave, Chainlink, and Uniswap. Almost $3 billion in crypto assets were lost to hacks and exploits in 2022, according to CoinGecko.
“As crypto development accelerates and the landscape grows in complexity, so does the range of potential exploits and hacks,” Amman Bhasin, a partner at PayPal Ventures, said in a statement. “Chaos Labs addresses this by arming protocols, investors, and users with a suite of risk management and optimization tools."
Goldberg, who spent four years after high school in the Israeli special forces, hails from Big Tech. He used to be an engineer at Facebook and Instagram, where he learned about common risk-mitigation strategies, including chaos engineering, a method for stress testing computer programs and simulating worst-case scenarios. (Chaos Labs borrows its name from the technique.)
In 2021, he built his own DeFi protocol, or trading platform. Before he opened up his project to the public, he decided to stress-test what he had programmed. As he was building his "chaos engineering" tools, other protocols heard about his comparatively involved testing methods and asked him to stress-test their trading platforms.
He soon pivoted and founded Chaos Labs. Since then, he's hired almost 25 employees, the majority of which are friends or contacts from his time in the Israeli military. He said his yearly revenue is in the "millions."
"Crypto, blockchains, DeFi, however you want to call it, are going to be a huge part of the future of finance," he told Fortune. "And there's no way that can be true without having tools that are best in class or at least offer the same assurances as the traditional finance counterparts."
