Amid the speculation and volatility in the casino-like cryptocurrency space, there remains a small group of people who support blockchain’s potential to decentralize aspects of human activity for the greater good. Daniel Wang, the founder of Taiko, is one of these idealistic founders.
A serial entrepreneur, Wang initially hoped to bring decentralization to social platforms. He believes that decentralized networks like blockchain can help resist censorship through distributed data storage and community-based content moderation.
“I want the next generation to grow up with the freedom to speak their mind on the internet,” he told me at the Ethereum Developers Conference in November. “Without freedom to criticize, there can be no progress.”
Wang initially planned to build decentralized applications on Ethereum. The blockchain, co-founded by Vitalik Buterin, has attracted a large number of developers who use “smart contracts,” or lines of computer code that automatically enforce predetermined terms, to make crypto applications more than just stores of value.
However, after some extensive research, Wang realized that Ethereum’s “layer 2” solutions were primarily designed to scale transactions on the network, and none were truly decentralized.
“Creating decentralized applications on centralized blockchains is problematic,” he told me in a follow-up email interview.
Ethereum’s current ability to process approximately 15 transactions per second makes it impractical for many applications. Therefore, “rollups” emerged as a layer 2 solution, which offloads Ethereum transactions to a secondary chain and then bulk-records them back to the main chain, thereby reducing network congestion and transaction fees.
Wang said the problem with most rollups is that they achieve scalability at the expense of decentralization, thereby defeating the spirit of web3. Convinced that a truly decentralized social application lacked an infrastructure layer, he decided to fill this gap, leading to the founding of Taiko in March 2022.
Over the past two years, rollups have become a popular investment theme in web3, and Taiko has jumped on the bandwagon. The two-year-old startup has raised $37 million in three rounds of funding to date. Its Series A funding round just closed, raising $15 million, 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 others. It’s not uncommon for a long list of investors to join a funding round in the nascent cryptocurrency space, where the right relationships can make the difference between one’s success or failure.
A spokesman for Taiko said certain investments in this round are still subject to regulatory approval.
The company’s past investors include established venture capital firms that were early bets on the Asian web3 field, such as HongShan (formerly Sequoia Capital China), BAI Capital and GGV Capital.
The funds will be used to prepare for Taiko’s mainnet launch. The company recently announced a $30 million grant to developers, and its latest testnet went live last month and has amassed more than 1.1 million wallet addresses and more than 13 million transactions to date. (Wallet addresses provide a rough estimate of user activity on web3 services, although as with web2, a person can have 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 become a public good,” said Wang, who compared Taiko’s corporate structure to that of Ethereum. Most crypto projects operate a non-profit development arm to promote community building and decentralized governance, and a commercial entity to hire staff and raise venture capital funding.
A truly decentralized social network
For Wang, Taiko provides the key building blocks for a truly user-owned social network. He believes that many existing social networks that claim to be decentralized often fail to deliver on this promise.
“For example, Lens and Farcaster run on infrastructure that can be further decentralized (with [ones] Based on aggregation), Damus runs on multiple centralized servers rather than a fully decentralized infrastructure,” he said.
An ideal decentralized social application, although facing greater technical challenges, would allow: “1. Ownership and control of your content; 2. Data privacy and security; 3. Resistance to censorship… thereby enabling free speech free.”
One of the biggest challenges facing decentralized social applications is content quality and security. While web2 social networks select content to engage users, decentralized social networks may end up with low-quality or even objectionable content without a moderator present.
Wang suggested that there should be an intermediary layer or “relay” between decentralized content and users. Each relayer can then filter content that reflects the “unique perspective” of the underlying decentralized social network, thereby attracting a different user base. “We are still waiting for the effective implementation of this approach,” he said.
But how do apps incentivize users to create the content they want? This brings another challenge.
“For web2 social networks, the goal is often to accumulate a large user base to generate advertising revenue, which may lead to the company going public,” Wang suggested. “However, in the web3 space, if the team does not have ownership, it becomes critical to embed token incentives into the system. This necessity sometimes diverts attention from developing truly useful products to prioritizing profit generation. “
“We are still a decade away from mass adoption of crypto, but every technology builds on existing technological achievements,” he added.