Arkstream Captial: Why We Invested dappOS | The Intent Infra
Author: Ren — ArkStream
Introduction
In 2023, the global digital payment market reached a valuation of $9.46 trillion. In contrast, the transaction volume of the cryptocurrency market in the first quarter of 2024 approached $9.1 trillion. This surge indicates that financial experts globally are anticipating a bullish trend in the cryptocurrency market for 2024, with “smart money” having already positioned their capital in anticipation of arrival of dumb money. This raises the question: Who constitutes the ‘dumb money’? Within the Web3 community, all capital inflows from the Web2 ecosystem are regarded as ‘dumb money,’ irrespective of whether these funds come from ordinary users or established financial institutions. From the viewpoint of Web3 users, a clear distinction exists based on the terminology of “mining”: Web3 employs GPUs for this process, whereas traditional mining operations utilize heavy machinery.
Cryptocurrency consists of two primary components. The first, denoted as ‘crypto,’ was originally dominated by cryptographic engineers, which inherently presented a significant barrier to entry for novices due to its technical complexity. The second component, ‘currency,’ has evolved into what is now referred to as Finance (FI), and is predominantly influenced by financial experts. Despite the rapid expansion of this sector, it remains comparatively underdeveloped.
For example, the term “token fund” is frequently used by groups of airdrop farmers who often self-identify as token funds. In contrast, legitimate token funds, typically managing assets over $20 million, find this nomenclature objectionable and prefer to be referred to as “crypto hedge funds.” These legitimate funds typically have an average investment size of approximately $30,000; whereas Web2 venture capital firms where the minimum investment (“ticket size”) is typically at least $3 million — a hundredfold difference compared to Web3 — the large Web2 hedge funds manage assets in the realm of hundreds of billions of dollars, marking a disparity of a thousandfold. Most leading Web3 funds may not even equal the annual management fees of prominent venture capital firms like Sequoia, where the annual salary of a senior executive can surpass the total assets under management of many token funds. However, when compared to hedge funds such as Bridgewater or major asset management firms like BlackRock, Sequoia, despite its stature, is analogous to SHIB (a smaller, less significant cryptocurrency) relative to BTC (Bitcoin), in terms of assets under management. Token funds, akin to the most volatile meme coins, exhibit resilience comparable to wild grass — they cannot be easily eradicated and rejuvenate each spring. Despite the seemingly impressive return on investment in Web3, when viewed in terms of assets under management, these figures become less remarkable.
Web 3: No User Experience, No Decentralization
The discrepancy in the scale of assets under management (AUM) between Web2 and Web3 can be attributed to their differential adoption rates. According to a 2022 Statista report, only about 3% of global internet users engage with Web3 technologies, whereas the vast majority, 97%, continue to use Web2 technologies. Further data provided by Goncalo (2023) indicates that Web2 boasts 27 million developers and 5 billion users, in stark contrast to Web3’s 20,000 developers and 50 million users. This equates to approximately one Web3 user for every 100 Web2 users, and one Web3 developer for every 1,350 Web2 developers. This estimation may still be optimistic, considering the possibility that the actual number of active users is lower than the 50 million wallet addresses suggest, potentially fewer than 5 million.
The underlying reasons for this disparity are manifold. Web2 engineers are constantly refining their products to enhance user experience and increase daily active users (DAUs). However, they face challenges as market dominance is often consolidated by one or two major players — a significant limitation of centralization. Conversely, Web3 engineers are noted for their focus on refining technical capabilities which can sometimes mislead users. An industry joke remarks, “If the user experience is poor, it must be a Web3 applications.” This implies that some Web3 products may be intentionally complex to navigate, possibly to capitalize on user mistakes and high gas fees. This context helps elucidate why centralized exchanges (CEXs), which offer a user experience comparable to Web2 platforms, still hold a pivotal position in the decentralized ethos of Web3.
Intent-centric is the Third Wave of Mass Adoption
These observations underscore the necessity for Web3 to attract more users and capital and to provide a seamless user experience comparable to leading Web2 products to facilitate widespread adoption. This perspective forms one of the core investment theses at ArkStream.
In our analysis, mass adoption is invariably linked with the development of a “killer app.” The initial surge of mass adoption in the Web3 space was catalyzed by Decentralized Finance (DeFi), largely due to Ethereum’s infrastructure, in 2020. This movement offered a valuable application for crypto-native currencies and marked a pivotal moment of mass adoption among crypto-native users.
The subsequent wave of mass adoption occurred in 2021 with the explosive growth of Non-Fungible Tokens (NFTs). This phase represented the mass adoption of digital assets, bridging Web2 and Web3 for the first time and enabling transactions such as an elderly gentleman purchasing digital artwork from Christie’s Auction House to display in his home. Over the course of this year, the focus has shifted towards Real World Assets (RWA), paving the way for the use of cryptocurrency in tangible asset transactions, such as real estate.
The third wave of mass adoption, which forms the cornerstone of our strategic framework, is the intent-centric approach, emphasizing the mass adoption of infrastructure and decentralized applications (dApps). We contend that this is crucial for achieving the ultimate mass adoption by general internet users.
Intent-Centric Approach: Catalyzing Web3’s “1995 Moment”
In 2023, Paradigm Capital revitalized the concept of “intent-centric” design, proposing a novel framework for developing Web3 interactions that are fundamentally centered around user intentions. Under this model, users would articulate a desired outcome via an intent command, triggering a series of operations that execute seamlessly in the background, culminating in a single signature to actualize the intent. Within this framework, ‘intent’ refers to signed messages that enable users to define their objectives on the blockchain. Specialized third-party agents, termed solvers, are then tasked with managing the technical aspects necessary to fulfill these objectives. The core mechanism involves users authorizing solvers to generate transactions, whereby solvers determine the most efficient computational routes while users retain complete control over their assets. Essentially, the intent-centric model shifts the focus from the operational ‘How’ to the strategic ‘What,’ thereby simplifying user interaction with blockchain technology.
This approach promotes chain abstraction and account abstraction, liberating users from the complexities of choosing specific chains or dApps. It significantly reduces the entry barrier and streamlines blockchain interactions, as users simply delegate technical tasks to solvers. This paradigm is poised to facilitate widespread adoption of infrastructure and decentralized applications (Infra/dApp).
The historical progression of computer technology illustrates a parallel development. Initially, computer operation required mastery of command-line inputs, a barrier that restricted broader use and technological advancement. However, the advent of Windows 95 and the integration of graphical user interfaces and web browsers markedly lowered these barriers, expanding the user base from fewer than 50,000 to several billion. This pivotal transformation, often referred to as the “1995 moment” of the internet, fundamentally altered user interfaces, rendering the internet significantly more accessible and user-friendly to the general populace.
In the maturation of Web2, intent-centric products became widespread, exemplified by applications like Uber. In such models, the user’s intent — such as traveling from point A to point B — is seamlessly handled by the platform through driver matching, route optimization, fare calculation, and mutual information provision. Despite these advancements in Web2, Web3 users continue to encounter complexities in transactions, such as those involved in acquiring an NFT. The implementation of intent-centric infrastructure and products in Web3 promises to simplify these processes significantly, offering more intuitive and user-friendly interfaces and workflows.
The adoption of intent-centric solutions in Web3 could replicate the transformation seen with the internet’s “1995 moment,” potentially ushering in a new era where billions of users can effortlessly engage with Web3 technologies. This shift would not only enhance user experience but also contribute to the true decentralization of the digital space, thus heralding the stage of mass adoption for Web3.Caption: Image via twitter.com/TheDeFiSaint
dappOS: Pioneering the Intent-Centric Paradigm, backed by Leading Global Venture Capitalists
dappOS, a premier intent execution network and foundational component within the intent-centric domain, initiated its financial journey with a Pre-Seed financing round conducted through Binance Labs in June 2022. The momentum continued with a significant milestone on July 21, 2023, when dappOS announced a Seed funding round spearheaded by IDG Capital and Sequoia China, culminating in a valuation of $50 million.
The trajectory of growth persisted into the next fiscal year, with Polychain orchestrating a Series A investment of $15.30 million in April 2024, thereby appraising the company at $300 million. This series of robust financial endorsements from top-tier investment institutions has firmly positioned dappOS as a leader in the intent-centric sector.
Noteworthy is the participation of ArkStream in this investment phase, not merely as financial backers but as strategic partners and Growth advisors for dappOS. Our involvement underscores our commitment to supporting and steering dappOS towards realizing its potential within the evolving landscape of Web3 technologies.
dappOS Technology and Products
dappOS posits that Web3 technology is presently in a nascent stage characterized by rapid advancement. While cryptographic assets proliferate, many Web2 users encounter barriers preventing access to these new assets due to the intricate nature of Web3 products. dappOS contends that the removal of these barriers is pivotal to attracting additional investors and users from both the Web2 and Web3 domains.
In response, dappOS has established a network predicated on “intent execution,” with the objective of furnishing builders with infrastructure that integrates intent-centric functionalities and streamlines Web3 interactions to the level of mainstream Web2 applications. This framework empowers users to accomplish their objectives through simple click operations, obviating the need for mastering technical intricacies.
A noteworthy innovation of dappOS is its Optimistic Minimum Staking (OMS) mechanism. This system design facilitates the immediate execution of tasks upon submission, followed by verification. In the event of task failure, the network enforces penalties on the responsible service provider via consensus, ensuring either successful task completion or appropriate user compensation. The mechanism, which mandates service providers to stake slightly above the total value of potential uncompleted tasks, augments service efficiency and diminishes user costs, thus benefiting both parties. The adaptability and cost-alleviating features of OMS reinforce dappOS’s competitive edge.
Leveraging the OMS mechanism, dappOS has furnished developers with multiple intent task frameworks, including unified accounts, intent assets, and real-time dapp interactions. Firstly, dappOS’s unified account system seamlessly supports its intent execution network, enabling users to manage and utilize their assets across diverse network environments without being encumbered by chain-specific issues or Gas fees. Secondly, the unified account amplifies the concept of “intent assets” proposed by dappOS, analogous to the “Paypal” of Web3. For instance, intentUSD, akin to a stablecoin, offers added flexibility and automatic earning features, mitigating liquidity and stability concerns in the Web3 space. This novel approach facilitates automatic conversion of the stablecoin into different forms depending on the context, such as Tether USDT or USD Coin USDC during transactions. Lastly, by enabling real-time operations with a single signature, dappOS optimizes dapp interactions, streamlining user engagement while upholding the stringent security and decentralization standards of blockchain technology.
As developer and user engagement with the platform burgeons, dappOS stands poised to emerge as a central nexus in the Web3 ecosystem. Through its innovative design and strategic deployment, dappOS is simplifying the blockchain experience, laying the groundwork for a more inclusive and expansive future for Web3.
dappOS Ecosystem
Currently, dappOS V2 is undergoing beta testing in a phase characterized by limited functionality. However, it has already garnered considerable attention from mainstream derivative platforms such as GMX, Perpetual, and KiloEx, alongside established decentralized exchange (DEX) platforms like QuickSwap, and notable protocols such as BENQI Liquid Staking and Stader. For instance, the integration of dappOS V2 by KiloEx resulted in a notable surge in daily transaction volume, reaching a peak of $238 million within a week. Concurrently, Manta’s on-chain daily active users (DAU) witnessed an exponential increase of over 3000%, while transaction volume surged by 217%. Additionally, both parties have announced plans for joint distribution of airdrops to incentivize user engagement.
These collaborative ventures within the decentralized finance (DeFi) space serve to validate not only the intent recognition and execution capabilities of the dappOS network but also afford an opportunity to engage deeply with its state-of-the-art, secure products from a user-centric perspective. Such engagements facilitate a more comprehensive understanding and recognition of the robust product foundation underpinning dappOS.
Conclusion
Foremost, ArkStream proudly declares its role as an investor and Growth Advisor for dappOS.
The advent of the intent-centric architecture heralds a favorable evolution in Web3 interaction paradigms. While still in its experimental phase, the concept of intent holds promise for enhancing the Web3 user experience and catalyzing the next phase of mass adoption, akin to the transformative “1995 moment” of the internet.
Nevertheless, the realization of true Intent Centricity confronts several technical challenges. Balancing low cost with high efficiency proves to be a persistent hurdle, a conundrum shared by all decentralized exchanges (DEXs). In light of these challenges, ArkStream remains committed to humility, steadfast observation, continuous learning, and collaborative growth alongside dappOS.
ArkStream Capital is a crypto fund founded by native cryptocurrency professionals, encompassing primary market and liquidity strategies. It invests in the most native and cutting-edge innovations in Web3, dedicated to fostering the growth of Web3 unicorns. The ArkStream Capital team, with members from prestigious institutions and companies such as MIT, Stanford, UBS, Accenture, Tencent, and Google, entered the cryptocurrency field in 2015. Their investment portfolio includes over 80 blockchain companies, such as AAVE, Filecoin, FLOW, Pocket, Manta, Sei, and Polyhedra.
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