VeradiVerdict - Issue #164
Blockchain innovation is moving at breakneck speed. In DeFi, we’ve gone from early lending protocols to an explosion of new financial instruments—perpetual swaps, liquid staking, structured finance products, and much more—in just over a year. NFTs have finally gone mainstream, propelling some existing projects to find product-market fit and luring many ambitious teams into the space. And as crypto protocols have “DAOified,” important governance tools have been built to meet demand.
In a few short years, the ecosystem has built ways to trade, borrow, pay, stake, vote, and do a number of other verbs in permissionless ways. But there’s one glaring hole in this new frontier: we still haven’t really figured out how to talk.
The decentralized world has a communication problem.
Don’t get me wrong, this community has found Web 2.0 outlets for communicating: “crypto Twitter,” Discord servers, Telegram groups, Signal chats, and so on. But these are band-aid solutions that don’t get at the core of what the Web 3.0 future needs. Mega-platforms still monetize our identities, discourse is subject to censorship, and gateways to the on-chain universe are restricted.
While today’s chat rooms help facilitate social communication, they’re wildly ineffective for functional communication. To see what I mean, here are a few situations a Web 3.0 user may find themselves in where functional communication would be useful:
An NFT catches their eye, but it’s not for sale. They’d like to reach out to the owner to gauge their willingness to sell and potentially make an offer.
A DeFi lending protocol would like to institute push notifications to automatically alert liquidity providers when they’re at risk of a liquidation so they can increase their collateral.
A contentious governance vote is underway and a large token-holder has yet to vote. A member of the DAO would like to reach out to them directly to try to persuade them to vote in a particular direction.
A new DeFi project is hoping to bootstrap their community and attract early liquidity. Instead of the traditional approach (Medium posts, Discord server, etc.) they want to directly reach out to the addresses of DeFi power-users and incentivize them to use the protocol.
Today, the infrastructure for these activities simply doesn’t exist—there’s no permissionless way to communicate wallet-to-wallet. Once these become possible, though, you can imagine the immense value that frictionless functional communication could unlock.
In short, the decentralized web needs email.
In the words of co-founders Shane Mac and Matt Galligan,
XMTP is a fundamental new building block of the next iteration of the web—a permissionless, crypto-native communication protocol that connects communities, creators, protocols, applications, and users. Today’s messaging platforms are walled off and centrally controlled, email is rampant with spam, and chat apps are rife with ever-accumulating scams. We’re here to build a better way for the world to communicate, established on a decentralized network that’s owned by its users, and that aligns incentives among participants in that network.
In short, XMTP is a decentralized communication layer that enables wallet-to-wallet messaging.
The protocol’s emphasis on decentralization is critical. The XMTP network will be secured by an independent network of validators and the messages will be fully encrypted by the user’s existing wallet. This has the important feature of composability: while there will be virtually no interference at the protocol layer, developers can build their own front-ends. For example, a team could design an XMTP “client” with a sophisticated spam filter. This design preserves the immutability of messages while also encouraging third-party innovation on top of XMTP’s layer-one.
The team is still heads-down building the protocol, but they’ve already hinted at a few exciting features, such as “bounty” messages that pay a reward to the recipient from the sender when they’re opened.
XMTP recently announced their $20M Series A led by a16z Crypto, including participation from several big-name angels such as Alexis Ohanian, Balaji Srinivasan, and Naval Ravikant. I am thrilled to have also invested personally in the company alongside these industry leaders.
Where we’re coming from; where we’re going.
In crypto, we talk a lot about doing for value what the internet did for information: giving it immediate, costless, and programmable distribution. We certainly have a lot more work to do, but we’re building towards that future.
But let’s not forget that there’s also a lot of opportunity in doing for information what the blockchain did for value: making it trustless, composable, and immutable. Fewer teams are working on these difficult problems, which is what makes me excited about XMTP.
Satoshi even wrote about messaging in one of his earliest emails:
[Bitcoin] can already be used for pay-to-send e-mail. The send dialog is resizeable and you can enter as long of a message as you like. It's sent directly when it connects. The recipient doubleclicks on the transaction to see the full message. If someone famous is getting more e-mail than they can read, but would still like to have a way for fans to contact them, they could set up Bitcoin and give out the IP address on their website. "Send X bitcoins to my priority hotline at this IP and I'll read the message personally."
Now, almost 15 years later, it may finally be time for this vision to come to fruition.
And pay-to-send is just low-hanging fruit—many of decentralized messaging’s “killer apps” are likely inconceivable to us today.
Keep an eye out for XMTP and the future of decentralized messaging. There’s a long road ahead, but it’s one, I believe, that will propel the entire industry forward.
- Paul V
The SEC’s final verdict on several bitcoin exchange-traded fund (ETF) applications is due next quarter.
Today, we are proud to announce that Unbound Finance has been deployed to the Ethereum mainnet and is now live!
The community organizers are encouraging members to move to other social media platforms such as Telegram and Discord.
The SEC chairman struck a similar tone in August, igniting a rush in tailor-made ETF filings.
The Treasury Department’s Office of Foreign Asset Control has quietly been very busy.
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Hi, I’m Paul Veradittakit, a Partner at Pantera Capital, one of the oldest and largest institutional investors focused on investing in blockchain companies and cryptocurrencies. I’ve been in the industry since 2014, and the firm invests in equity, early stage token projects, and liquid cryptocurrencies on exchanges. I focus on early-stage investments and share my thoughts on what’s going on in the industry in this weekly newsletter.