Let a thousand crypto flowers bloom
Let a thousand crypto flowers bloom
Notes from a16z demo day, and why a “DAO” is suing Martin Shkreli
Happy Wednesday! Here’s what you can get from this Glitch: a recap of a16z Crypto’s demo day showcase in London, a normie’s guide to PleasrDAO’s lawsuit against Martin Shkreli, some alarmism about sandwich attacks on Solana, and a delectable compilation of odds and ends.
How the crypto garden grows
What happens when a giant VC fund gives 25 young businesses half a million dollars each, and 10 weeks to develop their ideas?
This kind of money doesn't move the needle for the likes of a16z, which has tens of billions under management, and $7.6 billion and counting in its crypto arm alone. But in taking a let-a-thousand-flowers-bloom approach, the firm has shown an interest in founders who believe they can apply blockchains and related technologies to an eclectic blend of different fields. Last week, the firm hosted a demo day in which they put their latest crop of crypto seedlings on display.
Among them was Roux, a startup focused on shaking up the world of food blogging and recipe-sharing. Whenever it launches (no date has been given), Roux will aim to be a place where creators can own and monetize their recipes, benefitting when someone publishes something that alters—or because this is crypto, “forks”—a concoction. The way things currently work, when chefs create a recipe they get paid for the idea by selling food at their restaurant or through magazine publishers or book sales—they don’t stand to benefit if someone takes their idea and adds to it or changes it slightly. On Roux, recipes will essentially be digital assets with built-in attribution. If an idea is “forked,” you’ll always be able to see where it came from—and when people choose to pay for it, some of the revenue can theoretically be sent back to the original. The idea is an ambitious attempt to use blockchains to unify the current recipe landscape of bookmarked tabs, viral TikToks, and random scraps of paper that have been torn out of magazines and kept for later. We’ve talked before in this newsletter about how consumer crypto could be on the brink of usability. If it catches on, giving food bloggers a way to reliably get credit and compensation for the recipes they create, Roux could be an extension of this.
ZKPassport, meanwhile, is touting “identity infrastructure.” In an onstage demo the startup’s CEO, Michael Elliot, tapped his passport on his phone to show how a user can pull information from the document’s NFC chip. The idea is that users can preserve their privacy by using the company’s cryptography to choose which information the app transmits. This could be used to prove to an online service that you’re over 18, for example (without revealing your exact age), or are not from a sanctioned country. The app is useful for me, personally, because it’s the exact use case I often cite to describe how the complicated mathematics behind zero-knowledge tech could work in the real world. ZKPassport is, however, just one of a clutch of startups working on using zero knowledge for similar applications. A company called Rarimo, for example, also recently created an app focused on scanning NFC chips in passports to allow “incognito voting.” The groundswell of projects suggests a lot of enthusiasm for the potential of the tech—the next challenge will be convincing big corporations or governments that it is both legitimate and useful.
Then there’s Aminochain. The Layer 2 protocol is meant to help companies with banks of biological data use it in research more efficiently— this includes things like results of tests, blood draws, granular information from cancer screenings, and so on. Such data is quickly piling up in medical databases, but according to Caspar Barnes, Aminochain’s founder, it’s mostly languishing. Barnes thinks a new marketplace, where institutions and companies that hold this data can choose to license it, will open up a channel where patients stand to benefit whenever their data is commercialized or sold. The company’s first application lets researchers license biological data via NFTs on a marketplace. The tech also opens up the possibility that researchers looking at similar medical conditions will be able to bank their data, earn money from it, and in turn sponsor research that benefits people with those conditions.
Even if we never hear from these projects again, a16z’s demo day is further evidence that 2024’s early-stage crypto startups are nothing if not diverse in their interests. Crypto contains multitudes. —Lucy Harley-McKeown
Correction: This was updated after publication to clarify details about how Aminochain works.
A normie’s guide to the PleasrDAO lawsuit against Martin Shkreli
Just another Mad Libs-inspired crypto storyline: PleasrDAO, a “decentralized autonomous organization” focused on collecting digital art is suing Martin Shkreli, notorious pharmaceutical CEO and convicted securities fraudster, over the rights to a Wu-Tang Clan album.
It’s also the latest example of the sort of meme-based marketing the crypto world is notorious for.
Wondering WTF is going on here? Let me try to explain.
What is PleasrDAO?
Started in the heat of NFT summer, circa 2021, PleasrDAO is a group of NFT traders turned art collectors that calls itself an “experimental art collective.” The group formed originally to purchase an NFT by artist Emily Yang, aka Pplpleasr, who gave the DAO its name and raison d’etre: collecting internet stuff that felt cool and might be valuable in the future.
In 2021, it paid more than $4 million for an NFT tied to an image of a Shiba Inu that inspired a viral meme in 2010 and helped give rise to Dogecoin. That same year, PleasrDAO paid $5.4 million for a picture of NSA whistleblower Edward Snowden’s face that had been turned into an NFT. It also bought the rights to Wu-Tang’s hitherto-unreleased studio album Once Upon a Time in Shaolin. The album is the focus of its lawsuit against Shkreli.
So DAOs can sue people?
Early crypto advocates envisioned DAOs as leaderless, self-governing, and blockchain-based organizations that would run almost exclusively using smart contracts, eliminating the need for things like lawyers and accountants.
In practice, “DAO” has become an umbrella term for lots of things, some of which look more like traditional organizations than decentralized (much less “autonomous”) ones. The entity behind PleasrDAO’s lawsuit—which accuses Shkreli of violating the contract he signed in 2015, preventing him from releasing the album publicly—is technically an “exempted foundation company” based in the Cayman Islands. Businesses formed under this structure don’t have to pay local taxes as long as they mainly do business outside of the Cayman Islands. But yes, apparently DAOs set up this way can sue people just like a traditional business can.
Once Upon a Time in Shaolin
To really understand what’s going on here, we need to go back to the inception of the album PleasrDAO and Shkreli are fighting over. This was back in 2014, when streaming apps like Spotify began to dominate the music industry. Frustrated that works of art had begun to feel ephemeral and valueless, Wu-Tang Clan decided to launch a cultural experiment.
Their wager was that if you made an album exclusive and scarce—the opposite of media under the streaming model—you could increase the value of the album to its artists. After seven years of working on Once Upon a Time in Shaolin, they decided that instead of releasing it on streaming apps, they’d sell the rights to a single owner for a sum in the millions. As part of the deal, the owner would sign a contract promising to play the album exclusively at listening parties, and not to release the files publicly, unless otherwise agreed upon by Wu-Tang. They’d also get fun memorabilia like a fancy titanium case with a physical CD.
Martin Shkreli was enthused. He became the first owner of the album in 2015, purchasing it for $2.1 million. But his term as the album’s protector was short-lived—later that year he was arrested, and, in 2017, sentenced to prison. As part of the conviction, $7.4 million of his assets became available for sale, including Once Upon a Time in Shaolin.
Fresh off the hype of the NFT craze in 2021, PleasrDAO decided to purchase the rights from Shkreli for $4.1 million. Jamis Johnson, PleasrDAO’s “Chief Pleasing Officer,” called the album “the original NFT.”
But it turns out that even though Shkreli had sold the rights to the album, he’d also downloaded the files. In May 2022, he started threatening to release the files publicly, and streamed parts of the album on YouTube—much to PleasrDAO’s chagrin.
A lawsuit as a marketing ploy
Eventually, PleasrDAO must have realized that Shkreli’s antics were an opportunity. It cooked up a plan to start selling tokenized chunks of the album’s IP, which it called $ALBUM, on the same day that it filed a lawsuit against him. Buying a chunk of the album’s IP also shaves time off its “release date,” in 2103, when, according to Wu-Tang’s original agreement with Shkreli in 2015, the album’s owner can start earning money off the album’s sales. Currently, it costs $1 to move the release date up by 88 seconds or around $960 to move it up by a day.
So, a foundation in the Cayman Islands called PleasrDAO is attempting to sell around $27.8 million of $ALBUM, a crypto-token tied to Wu-Tang’s cultural experiment—and it’s using the headline-grabbing lawsuit it filed against Martin Shkreli to draw attention to the sale. Crypto projects are known for their meme-based marketing schemes. But that’s something else. —Sam Venis
The Solana Foundation’s crackdown on sandwich attacks reflects a sticky situation.
There are few topics more crypto than maximal extractable value or MEV. The term refers to a technical feature (or bug, depending on your view) under the hood of popular blockchains—the type of thing usually left to a handful of nerds to monitor and, if necessary, deal with. But a recent dustup at the Solana Foundation highlights some of the bigger problems MEV poses for the future of the industry.
CoinDesk confirmed last week that the Solana Foundation kicked more than 30 operators out of a program that subsidizes approved blockchain validators. The banned validators were allegedly involved in the exploitation of unwitting traders using an MEV strategy called a sandwich attack.
MEV refers to how validators, with the right software, can peer into the queue of pending transactions and execute strategies to profit from that information. The sandwich attack is the best-known example. A validator (or someone paying the validator) targets an awaiting transaction—for example, an order to buy some cryptocurrency on a decentralized exchange. As the validator processes the target transaction, it also approves a new transaction ahead of it for a large buy order. That raises the price before the victim’s trade. The victim’s trade hikes the price again, just before the attacker sells the crypto back to the market—for more money than used to buy it. The scheme gets its name because the attacker’s transactions sandwich the victim’s.
Sandwich attacks have been around for a while, but only recently, thanks in large part to the memecoin craze, have they become a significant issue on the Solana blockchain. It’s now common for validators to rake in millions of dollars in a single day via MEV strategies.
Solana, which launched in 2020, runs a variant of proof-of-stake, the consensus algorithm Ethereum uses. MEV has been a controversial topic for years within the Ethereum community, though most of the discussion has been limited to a relatively small group of technical minds. A recent federal US indictment of two sandwich attackers, which accused them of committing a “first-of-its-kind manipulation of the Ethereum blockchain,” has made the phenomenon much less obscure.
What makes this so crypto is that there is no dispute over whether the systems are working as designed. They are. To purists, it’s not a question of whether MEV is a feature or bug or whether sandwich attacks are good, bad, fraudulent, or immoral. It’s just how the game works. Besides, these networks need validators, and why shouldn’t the validators make as much money as they can?
Ethereum seems to have accepted MEV as a fact of life. Co-creator Vitalik Buterin published a long blog post last month contemplating the merits of strategies he called “MEV minimization” and “MEV quarantining.” But Ethereum doesn’t subsidize validators the way the Solana Foundation does via its Delegation Program. The operators the Foundation kicked out aren’t banned from Solana, just the subsidy program. Either way, the action has attracted critics who say it reflects centralization.
Perhaps MEV will stay a cat-and-mouse game that blockchain communities can quietly manage in-house. But the federal indictment and the Solana Foundation’s dramatic crackdown suggest that might be wishful thinking. —Mike Orcutt
ODDS/ENDS
“Biden’s hatred of Bitcoin only helps China, Russia, and the Radical Communist Left.” That was Donald Trump on his social media platform Truth Social last week after, according to the New York Times, he met with Bitcoin mining company executives at Mar-a-Lago. The article, whose headline is “How Crypto Money Is Poised to Influence the Election,” examines how Trump’s pro-crypto rhetoric and crypto super PAC Fairshake have, well, shaken up the politics around crypto heading as the election nears (and as we’ve discussed). Within the industry, the Biden administration is widely seen as anti-crypto, but it may be trying to mend fences. In recent weeks members of the administration have reached out to Coinbase and Ripple “asking to discuss crypto policy,” according to the same Times report. Separately, according to a report from Bitcoin Magazine, administration officials will attend a “Bitcoin and blockchain roundtable” in DC hosted by Democratic Congressman Ro Khanna of California.
The “OP Stack” has graduated from full training wheels to limited training wheels It’s now possible for users to withdraw tokens from OP Mainnet, an Ethereum-based rollup, to the Ethereum main chain without involving centralized components of the system. That’s thanks to a long-promised cryptographic system, called fault proofs, that OP Labs, the startup behind OP Mainnet and the popular “OP Stack” rollup technology, finally sent live last week. According to the announcement, other chains that use the OP Stack, including Coinbase-developed Base and the trendy NFT marketplace Zora, will also add fault proofs.
OP Labs says the upgrade moves the OP Stack to “Stage 1 decentralization” according to Ethereum co-creator Vitalik Buterin’s now canonical roadmap, which he wrote in 2022. Buterin characterized Stage 1 as having “limited training wheels”—a step up from Stage 0’s “full training wheels.” Stage 1 includes a “security council” that can override the system via a crypto wallet that requires 6 of 8 signers to agree to act. What does it take to reach Stage 2? “In the event that code does not have bugs, there must not be any group of actors that can, even unanimously” override the system, the roadmap states.
The firm behind Ethereum-based crypto exchange Uniswap just bought onchain Survivor. Crypto: The Game describes itself as an “interactive onchain survival game where contestants buy in, join tribes, compete in daily challenges, and vote each other out over the course of ten days, until one person wins the entire pot.” Players buy into the game by purchasing an NFT, which they can sell at any time. They get sorted into teams and must complete challenges including “digital scavenger hunts” and “crypto puzzles.” Challenge winners get to sit out the elimination vote at the end of the day. Season two, which just ended, featured 800 contestants and more than $200,000 in prize money. It also generated lots of buzz on Twitter/X and other social media spaces where crypto folks congregate. Uniswap Labs was a Season 2 sponsor and was apparently so impressed it wanted to buy the whole damn thing. The firm got a “behind the scenes look at how [Crypto: The Game] cracked this code for bringing new users into crypto,” chief operating officer Mary-Catherine Lader told Fortune.
The intrusive facial recognition company Clearview AI is trying to get out of legal trouble by allowing the people it’s hurt to own a piece of the company. This is such a weird story, but quickly: Clearview AI surreptitiously hoovered up 40 billion photos of people from Facebook, Instagram, LinkedIn, and other online platforms. The company used the images to create facial recognition products, which it then sold to thousands of law enforcement agencies around the US. People didn’t like this, so they sued the company and looked to be on the verge of bankrupting it. Instead, the New York Times reports that Clearview struck a deal to give 23% of the company to the people it harmed in exchange for letting Clearview … continue to make money from its invasive facial recognition products. If that doesn’t seem like a good deal to you, you’re not alone. Some folks have decried the settlement, even while suggesting that its creative structure could be a harbinger of a new world in which big tech companies’ exploitation of personal data is finally toppled, and replaced with a model that will allow individuals to own (and profit from) how their information is used online.
A startup called RISC Zero has launched a zero-knowledge virtual machine or zkVM. Honestly, we’re still trying to wrap our heads around this concept, but it seems important. According to RISC Zero, its offering, called zkVM 1.0, “unlocks verifiable offchain computation” so that developers can build more complex blockchain applications. In other words, complicated programs can run offchain and the zkVM can produce zero-knowledge proofs—which are easier for the blockchain to process than the complicated programs themselves—verifying that they were done correctly. RISC Zero joins a handful of projects that have released zkVMs, including a16z Crypto’s Jolt and Succinct Labs’ SP1. Again, we’re still wrapping our heads around all this. But it sure seems like a race is on.
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