Amid the speculation and volatility in the casino-like land of crypto, there remains a subset of people who embrace blockchain’s potential to decentralize various aspects of human activities for the greater good. Taikoits founder Daniel Wang is one of those idealistic founders.
A serial entrepreneur, Wang originally wanted to bring decentralization to social platforms. Decentralized networks like blockchains, he believes, 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 online,” he told me in November at an Ethereum developer conference. “There will be no progress if there is no freedom of criticism.”
Wang originally planned to build the decentralized application on Ethereum. The blockchain co-created by Vitalik Buterin has attracted a portal of developers who use “smart contracts,” or lines of computer code that automatically execute predetermined conditions, to enable cryptographic applications beyond simply storing value.
After some extensive research, however, Wang realized that none of Ethereum’s “Layer 2” solutions, which are primarily designed to scale transactions on the network, were truly decentralized.
“It’s problematic to build decentralized applications on centralized blockchains,” he told me in an email interview.
Ethereum’s current ability to process around 15 transactions per second makes it impractical for many applications. As a result, “arrays” have emerged as a layer 2 solution, offloading Ethereum transactions to subchains and then logging them back to the main chain in batches, reducing network congestion and transaction fees.
The issue with most aggregations, according to Wang, is that they achieve scalability at the cost of decentralization, undermining the spirit of web3. Convinced that the level of infrastructure for truly decentralized social networking applications was lacking, he decided to fill the gap, leading to the founding of Taiko in March 2022.
Over the past couple of years, crowdfunding has emerged as a popular investment thesis on the web3, and Taiko has been riding the wave. The two-year-old startup has so far raised $37 million in three rounds of funding. The 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 who participated in the new round are Wintermute Ventures, Presto Labs, Flow Traders, Amber Group, OKX Ventures, GSR, WW Ventures and others. It’s not uncommon to see a long list of investors participate in a single round in the nascent crypto space, where the right relationships can make or break one’s success.
Some investments in this round are still subject to regulatory approval, a Taiko spokesman said.
The company’s previous investors include more established venture capital firms that were early bets on Asia’s web3 scene, such as HongShan (formerly Sequoia Capital China), BAI Capital and GGV Capital.
The funding will be used to prepare for Taiko’s mainnet launch. The company recently announced an allocation of $30 million in developer grants, and its latest testnet, which launched last month, has amassed more than 1.1 million wallet addresses and over 13 million total 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 prevalent issue.)
“We’re trying to be like Ethereum where nobody 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 non-profit development arm to promote community building and decentralized governance, as well as a commercial entity to recruit people and raise venture capital.
A truly decentralized social network
For Wang, Taiko provides a critical building block for a social network that is truly owned by users. Many existing social networks that claim to be decentralized often fail to deliver on that promise, he argued.
“For example, Lens and Farcaster run on infrastructures that can be further decentralized (compared to [ones] pool-based) and Damus runs on multiple central servers instead of a fully decentralized infrastructure,” he said.
The ideal decentralized social networking application, despite its greatest technical challenges, could enable: “1. Ownership and control of your content. 2. Privacy and data security. 3. Resistance to censorship… and therefore, freedom of speech.”
One of the biggest challenges facing decentralized social applications is content quality and security. While web2 social networks curate content to attract users, their decentralized counterparts may end up with low-quality or even offensive content without the presence of a moderator.
There should be an intermediate layer, or “transponder,” that sits between decentralized content and users, Wang suggested. Each relay can then filter content that reflects the “unique perspectives” of the underlying decentralized social network, thereby attracting diverse user bases. “We are still waiting to see this approach implemented effectively,” he said.
But how does the app incentivize users to create desirable content? This poses another challenge.
“For a web2 social network, the goal is often to gather 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 becomes vital to build discretionary incentives into the system. This necessity can sometimes divert attention from developing a truly useful product to the priority of making a profit.”
“We are ten years away from mass adoption of crypto, but every technology builds on an existing technological achievement,” he added.
