Building a P2P AdTech Marketplace on Blockchain Layer 2
Advertising Technology has a supply chain problem. Globally, advertisers are losing more than $23 billion every year to ad fraud. Depending on who you talk to, experts and insiders complain about the “AdTech tax”: between 10% and 55% of every dollar spent on ads is used up fighting fraud and paying middlemen.
The AdTech ecosystem is complex and convoluted. Observers note that the more complex a market is, the easier it is to hide fraud. And there are many different types: domain spoofing, inventory fraud, iframe stacking, unauthorized redirects, hidden fees, outright large-scale personal data theft, botnets, clickfarms and “coordinated inauthentic activity”.
These issues persist because AdTech is a largely unregulated market, and is not incentivized to fix the problems. Instead, much of AdTech makes money off these problems (even though advertisers are begging for a solution, such as working directly with publishers and creators, which we are enabling).
To contextualize one example, let’s look at ad inventory fraud and compare it to a rough equivalent in a banking system: imagine a bank so chaotic that every second or third time you went to cash a check, a bank employee could make a copy of the check, change the name in the “To” field, and cash it again — without any accountability. This is basically the state of affairs in some of AdTech’s programmatic exchanges, markets that are so wildly convoluted and opaque that it is nearly impossible to tell who did what at any given time.
Peer-to-Peer… Marketplaces ?
One of the interesting features of the marketplace we are building is that it is peer-to-peer, kind of like BitTorrent or Napster back in the day. But what does that mean exactly?
Digiday published an interview with an anonymous media executive who was asked what to do about the AdTech tax. His answer was short and clear:
“Advertisers should go direct to publishers and strike their own deals.”
So this is what we are building: A fair, transparent, peer-to-peer venue for sponsors and creators/publishers to strike their own deals. Later on, we will add other forms of advertising and measurement to the mix as well. Microsponsors will be privacy-respecting, accessible, blazing-fast and will ensure that publishers keep more of what they deserve, and sponsors and advertisers get what they pay for.
How are we going to do all of this? Glad you asked.
Enter the Blockchain
Blockchain technology is a near-perfect antidote to a chaotic state of affairs. It is the most perfect battle-tested system (so far) for managing both digital assets and supply chains.
Digital ads are both digital assets and supply chains. But blockchain is still in its infancy and has been too slow and expensive to use for AdTech so far. This is why we are building our marketplace on top of the Ethereum blockchain using the 0x Protocol, which will ensure our auctions are verifiably fair, secure, transparent, tamper-proof as well as scalable and inexpensive.
Ad exchanges are very similar in structure to financial exchanges. The basic primitives are the same: goods are auctioned by sellers to buyers, each generating bids & asks which go into orderbooks, followed by an exchange of goods and payment.
Earlier this year we hacked together our sponsorship marketplace concept during the 0x Hackathon. Microsponsors showed how the same tools that fintech traders are using to exchange cryptoassets directly and securely, peer-to-peer, can also be used to auction sponsorships (and in the future, even digital ads at scale).
In the time since the hackathon, the 0x Protocol has not only met but exceeded expectations. The 0x team is hard at work on its next set of upgrades that will enable blockchain scaling. Their solution will scale in terms of transactions/second by abstracting the processing of transaction batches into a second layer blockchain that utilizes Zero Knowledge Proofs (check out their “StarkDex” demo here)**.
Additionally, the upgrade to 0x Mesh will let us scale in terms of liquidity, number and diversity of market participants. In other words: our market will be accessible to non-technical participants who can cash-out their earnings anytime, as they like. Participants may not even be Creators or Sponsors — they might just be relayers or traders in secondary markets.
To put all of the work that 0x are doing into perspective: a marketplace like the one Microsponsors is building would not have been technically possible even one year ago. Microsponsors is lucky to be working closely with the 0x team as part of their Ecosystem Acceleration Program while they roll out these upgrades in the next few months. Stay tuned.
If this sounds interesting to you, get in touch. Email hello[at]microsponsors.io or tweet at https://twitter.com/microsponsors
* Some technical notes on blockchain scaling: The 0x Protocol’s Zero Knowledge Proof solution increases throughput to about 500 transactions/second (so far) by abstracting them away from the base layer of Ethereum. This also makes transacting 200x cheaper. In a 0x architecture, bidding and auctioning take place mostly off-chain in traditional servers called “Relayers”. Only order-fills — the part where the seller selects the best bid — are ever actually sent as a transaction to the blockchain… Or, in the near future, the 0x ZKP 2nd layer blockchain.
