Is Ethereum Studio ConsenSys Faltering?

Within the ethereum ecosystem, ConsenSys occupies a special place. It is the most well-funded and, some would say, the most well-known company in the space. Started in 2014 by Joseph Lubin, the NYC-based outfit is a “venture production studio” – a model which incorporates an array of business and funding activities within ethereum. But it may have spread itself too thin, according to a recent Forbes profile of Lubin. 

Joseph Lubin

The profile, which is authored by Jeff Kauflin, paints the picture of a company that is faltering. Specifically, there are two problems with ConsenSys in its current form. 

The first one is its organizational structure. “We are an oddly-shaped company because we were the first (within the ethereum ecosystem),” Lubin had remarked in an earlier interview. As Forbes describes it, ConsenSys functions on a hub-and-spokes model with the main organization at the center and various startups funded by it as spokes. The startups are a diverse set, from a music-management startup to a collaborative storytelling app to an asteroid mining project. They are part of an ecosystem that Lubin has described as Web 3.0, which will disrupt existing industries and create new ones. Cumulatively, the startups spread the gospel of decentralization by making products that incorporate a “trustless” architecture on which bitcoin is based. 

The ecumenical collection of projects is complemented by a flat management structure without hierarchy. It seems like an attempt to replicate the workings of democracy within a corporate structure. Lubin is described as an “anti-CEO” and an “anti-founder” by a former employee. “The intention isn’t to create companies and send them out and make money. The intention is to create an ecosystem. It really is very family-like,” he tells Kauflin.

But families are not immune to politics. In fact, the larger the family, the more the politics. And so, politics is slowly becoming the norm at ConsenSys. Employees and projects jostle for attention from Lubin and the Resource Allocation Committee, which is responsible for making critical funding decisions. The result is a toxic work culture in which the project that makes the most noise gets the most resources. 

The second problem with ConsenSys is the lack of sustainable revenues. Very few startups within the organization’s umbrella are making money. 

To be sure, the consulting business seems to be going gangbusters. Its headcount has grown from 20 to 250 within a single year and it counts governments and central banks of countries around the world as customers. But these are established organizations and not startups growing the ecosystem for ethereum. This far, the only breakout success for ethereum has been Cryptokitties, a blockchain-based game of virtual pets whose usage spiked towards the end of last year.   

ConsenSys is largely self-funded from Lubin’s fortunes. He is supposed to have bought a substantial share of ether tokens, when its ICO was held in 2014. (Estimates of his share vary and Lubin has not disclosed the figure). Back then, the token was sold for 30 cents to the general public. It is currently trading at $94.11 after peaking at $1,122.91 during the first week of January this year. Lubin has said that ConsenSys can go on for a “very, very long time” without revenues. 

But that may promote a lax attitude amongst startups funded by ConsenSys. In a podcast, Kauflin said that ConsenSys startups do not have to face the same hurdles as traditional startups because they have access to relatively easy funding. “When you look across all of the spokes, they have very little adoption and it’s unclear how they would be self-sustaining in terms of revenue and adoption,” he said. 

The bigger question relates to the effect that their failure might have on ethereum’s ecosystem. ConsenSys is vital to ethereum and a steady stream of failures from its studio could affect traction for the technology among developers and mainstream audiences. It could also mean bad news for the price of ether, ethereum’s cryptocurrency, which is used as “gas” (or staking mechanism to conduct transactions using their tokens) on ethereum’s blockchain.