Taco raises $37M to build Web3 infrastructure for a censorship-free internet

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Amidst the speculation and volatility in casino-like crypto land, there remains a subset of individuals who support blockchain's potential to decentralize various aspects of human activities for the greater good. Taco founder Daniel Wang is one of these idealistic founders.

A serial entrepreneur, Wang initially wanted to bring decentralization to social platforms. He believes that decentralized networks, such as blockchain, help resist censorship through distributed data storage and community-based content moderation.

“I hope that the next generation can grow up free and able to say anything on the internet,” he told me at an Ethereum developer conference in November. “If there is no freedom to criticize, there will be no progress.”

Wang wanted to build decentralized apps on Ethereum. The blockchain, co-created by Vitalik Buterin, has attracted a flood of developers who use “smart contracts,” or lines of computer code that automatically trade under predetermined conditions, to enable crypto applications beyond simply storing value. Let's execute.

However, after some 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.

“Building decentralized apps on centralized blockchains is problematic,” he told me in a follow-up email interview.

Ethereum's current capacity to process approximately 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 later logging them back to the main chain in batches, reducing network congestion and transaction fees.

According to Wang, the problem with most rollups is that they achieve scalability at the expense of decentralization, which undermines the spirit of Web3. Recognizing that there was a lack of infrastructure for truly decentralized social apps, they decided to fill the void, founding Taiko in March 2022.

Over the past two years, rollups have emerged as a popular investment thesis in Web3, and Taiko rode the wave. The two-year-old startup has raised $37 million in three funding rounds so far. Its Series A round, which just closed with $15 million in funding, was led by Lightspeed Faction, Hashed, Generative Ventures, and Token Bay Capital.

While declining to disclose its exact valuation, Taiko confirmed with TechCrunch that it has reached unicorn status.

Other investors participating in the new round include Wintermute Ventures, Presto Labs, Flow Traders, Amber Group, OKEx Ventures, GSR, WW Ventures and more. It's not unusual to see a long list of investors join a single round in the emerging crypto sector, where the right relationships can make or break one's success.

Some investments in this round are subject to regulatory approval, a Taiko spokesperson said.

The company's previous investors include more established venture capital firms that began betting early on Asia's Web3 landscape, such as Hongshan (formerly Sequoia Capital China), BAI Capital and GGV Capital.

This funding will be spent in preparation for Taiko's mainnet launch. The company recently announced the allocation of $30 million in grants to developers, and its latest testnet, which went live last month, has collected over 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 like Web2, a person can own multiple wallets and bot accounts remain a prevalent issue.)

“We strive to be like Ethereum where no one owns the network. Our goal is to serve the public good,” Wang said, comparing Taikoo’s corporate structure to Ethereum. Most crypto projects operate a non-profit development arm to promote community building and decentralized governance, and a commercial entity to hire people and raise venture capital funding.

Truly decentralized social network

For Wang, Taiko provides an important building block for a social network that is truly owned by users. He argued that many existing social networks that claim to be decentralized often fail to deliver on that promise.

For example, Lens and Forecaster run on infrastructure that can be further decentralized (in comparison). [ones] based rollup), and Demus runs on multiple centralized servers rather than a completely decentralized infrastructure,” he said.

The ideal decentralized social app, despite its major technical challenges, could allow: “1. Ownership and control of your content; 2. Data privacy and security; 3. Censorship resistance… and thus, freedom of expression.”

One of the biggest challenges facing decentralized social apps 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 curators.

Wang suggested that there should be an intermediary layer, or a “relayer”, that sat 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 diverse user base. “We are still waiting to see this approach implemented effectively,” he said.

But how does the app encourage users to create desirable content? This presents another challenge.

Wang suggested, “For Web2 social networks, the objective often lies in gathering a large user base to generate advertising revenue, which could potentially take the company public.” “However, in the Web3 domain, if the team has no ownership, it becomes important to embed token incentives within the system. This need can sometimes distract from developing a truly useful product to prioritize profit generation.

“It has taken us ten years to achieve mass adoption of crypto, but every technology builds on existing technological achievements,” he said.