Amidst the speculation and volatility in the casino-like world of cryptocurrencies, there remains a subset of people who champion blockchain’s potential to decentralize various aspects of human activities for the greater good. taikothe founder Daniel Wang He is one of these idealistic founders.
Wang, a serial entrepreneur, initially wanted to bring decentralization to social platforms. He believes that decentralized networks like blockchains help resist censorship through distributed data storage and community-based content moderation.
“I hope the next generation can grow up being free and able to say anything on the Internet,” he told me in November at an Ethereum developer conference. “There will be no progress if there is no freedom to criticize.”
Wang initially planned to build the decentralized application on Ethereum. The blockchain co-created by Vitalik Buterin has attracted a flood of developers using “smart contracts,” or lines of computer code that automatically execute predetermined terms, to enable cryptographic applications beyond simple storage of value.
However, after extensive research, Wang realized that none of Ethereum’s “Layer 2” solutions, which are primarily designed to scale transactions on the network, were truly decentralized.
“It is problematic to build decentralized applications on centralized blockchains,” he told me in a follow-up email interview.
Ethereum’s current ability to process around 15 transactions per second makes it impractical for many applications. As a result, rollups have emerged as a Layer 2 solution by offloading Ethereum transactions to secondary chains and subsequently recording them on the main chain in batches, reducing network congestion and transaction fees.
The problem with most rollups, according to Wang, is that they achieve scalability at the cost of decentralization, which undermines the spirit of web3. Convinced that the infrastructure layer for truly decentralized social applications was missing, he decided to fill the void, leading to the creation of Taiko in March 2022.
Over the past two years, rollups have emerged as a popular investment thesis on web3, and Taiko has ridden the wave. The two-year-old startup has so far raised $37 million across three funding rounds. Its Series A round, which just closed with $15 million in funding, was led by Lightspeed Faction, Hashed, Generative Ventures, and Token Bay Capital.
Other investors participating in the new round include Wintermute Ventures, Presto Labs, Flow Traders, Amber Group, OKX Ventures, GSR, WW Ventures, and more. It is not uncommon to see a long list of investors joining a single round in the nascent crypto space, where the right relationships can make or break one’s success.
Certain investments in this round remain subject to regulatory approval, a Taiko spokesperson said.
The company’s previous investors include more established venture capital firms that were first to bet on Asia’s web3 scene, such as HongShan (formerly Sequoia Capital China), BAI Capital and GGV Capital.
The funding will go towards preparing for the Taiko mainnet launch. The company recently announced an allocation of $30 million in developer grants, and its latest testnet, which went live last month, has amassed over 1.1 million wallet addresses and over 13 million transactions. totals to date. (Wallet addresses provide a rough estimate of user activity on web3 services, although, as in web2, a person can own multiple wallets and bot accounts remain a common problem.)
“We strive to be like Ethereum, where no one owns the network. Our goal is to be a public good,” Wang said, comparing Taiko’s corporate structure to that of Ethereum. Most crypto projects operate a nonprofit development arm to encourage community building and decentralized governance, and a commercial entity to hire people and raise venture capital.
A truly decentralized social network
For Wang, Taiko provides a critical component for a social network that is truly user-owned. Many existing social networks that claim to be decentralized often fail to deliver on that promise, she argued.
“For example, Lens and Farcaster run on infrastructure that can be further decentralized (compared to [ones] rollup-based), and Damus runs on multiple centralized servers rather than a completely decentralized infrastructure,” he said.
The ideal decentralized social application, despite its greater technical challenges, could enable: “1. Ownership and control over your content; 2. Data privacy and security; 3. Resistance to censorship… and therefore, freedom of expression.”
One of the biggest challenges facing decentralized social applications is content quality and security. While web2 social networks curate content to attract users, decentralized counterparts may end up with low-quality or even offensive content without the presence of a curator.
There should be an intermediary layer, or a “relay,” that sits between the decentralized content and users, Wang suggested. Each streamer can then filter content that reflects the “unique perspectives” of the underlying decentralized social network, thereby attracting diverse user bases. “We are still waiting for this approach to be implemented effectively,” he said.
But how does the app incentivize users to create engaging content? This poses another challenge.
“For a web2 social network, the goal often lies in amassing a large user base to generate advertising revenue, which could potentially lead to the company going public,” Wang suggested. “However, in the web3 domain, If the team has no ownership, it is crucial to incorporate symbolic incentives into the system. This need can sometimes divert attention from developing a truly useful product to prioritizing profit generation.”
“We are ten years away from mass adoption of cryptocurrencies, but each technology builds on an existing technological achievement,” he added.