Why I’m doing a startup again after years of investing
2017 and part of 2018 were good times for myself and many others in the crypto space. The speculative bubble around Bitcoin and ICOs led to a surge of capital, interest, and talented people, freshly converted to the philosophies of self-sovereign money and decentralized technologies.
While the speculative nature of most of the interest caused the market cap to come crashing back down in 2018, hurting many in the process, the massive amount of capital flowing into the space had some positive effects as well.
Many very talented people who had either been working on decentralized tech or were freshly converted, got their crazy ideas well funded, and got to work building remarkable technologies.
Angel Investing
At the time, as founding partner of Taureon angel group, I saw so many smart people building awesome things that I concluded my time was best spent on backing projects with capital, resources, and any useful bits of information I picked up along the way.
We had the privilege of backing some amazing projects that are just now getting their products out there:
- improving privacy technology with REN, Loki, and MobileCoin;
- enabling DEXs with Kyber and 0x;
- fixing IoT infrastructure with IoTeX;
- getting a working version of sharding with Zilliqa;
- tokenizing commodities and trade finance with ABC Platform;
- enabling decentralized file storage with Archon;
- and many others working quietly on building their tech.
Among the 100s of pitch decks we went through, there was one thing that always nagged at me that was missing in the industry: why isn’t there any project or system that lets me use cryptocurrency as a ubiquitous electronic cash? Why hadn’t anything gained traction for the first use case of Bitcoin?
As the downturn of Q3 and Q4 saw most of our angels pulling out of the space completely, and projects in the space going bankrupt left and right, I contemplated what the next moves in the space would be.
Myself and some others from Taureon researched setting up a VC fund and raising external capital to take our activities to the next level, but we kept running into an overarching problem: many of the great technologies we wanted to fund have glaring user adoption problems. How could we ever expect to get ROI without getting users for the technology?
Adoption Research
Personally, I kept coming back to the lack of usefulness of existing cryptocurrencies as spending money. As someone who believes in the philosophy, even I had a pretty hard time justifying using Bitcoin or another cryptocurrency as cash, it was just too difficult, and I didn’t like mixing my payments with my investment assets.
So I set out to figure out how to make cryptocurrencies useful as electronic cash, surely there would be someone working on this problem already that I could support in some way.
As part of my research and observations, I concluded that price volatility was a major blocker to usefulness as cash. If I decide to buy a car on Friday and set aside some money, then by Monday I either have half a car or two cars, the unpredictability of its value over such a short period of time makes it unusable as cash. It seemed unlikely that no one had yet realized this, so I went on a hunt for stable cryptocurrency solutions.
This hunt led me to re-discovering and fully understanding MakerDAO, which at the time of writing has their stable cryptocurrency DAI at a market cap of $92m USD. The exciting thing about MakerDAO was not necessarily that they’ve devised a brand new solution, though they’ve certainly make some massive improvements on existing ideas, but that they’ve finally achieved a market cap and availability of their stable cryptocurrency that has never been done before.
The MakerDAO Rabbit Hole
If you’ve not looked into MakerDAO before, the basics are this: ETH holders who want to keep their ETH, but also want to get some capital to use with it, can collateralize their ETH in a smart contract and take out a loan against it. This loan is distributed by creating a token called DAI, which is worth roughly $1 USD.
What’s super interesting about this, is not that one can get a loan on their ETH, but that the entire system is decentralized, even the stable DAI! Unlike the stable bankcoins on the market right now, DAI has the same censorship resistant properties of any other cryptocurrency, no one can revoke access to DAI like they can with bankcoins.
The available liquidity of DAI, coupled with the stability and decentralized nature of it, unlocks a whole new realm of possibilities for programmable money. Now users can participate in the smart contract economy without having to speculate on the value of ETH at the same time. Speculation and utility has been separated!
This enables a new era for open finance, where users can lend or borrow in DAI, invest in synthetic assets in DAI, participate in prediction markets or reputation in DAI, all without having to speculate on the underlying currency itself. Because it is all decentralized, these products are not restricted by jurisdiction or licensing requirements, which means the 4 billion underbanked who are cut out of the high quality financial system are finally able to get access to sound financial products.
But perhaps the most impactful effect of the availability of stable cryptocurrency, is that finally, the last remaining barrier to peer-to-peer electronic currency has been removed.
Building Peer-to-Peer Electronic Cash
With the discovery of the traction DAI was getting and the realization that the primary blocker of peer-to-peer electronic cash is being removed, I deepened my research to solve the other major blockers I identified:
- Transaction speed
- Unpredictable high fees
- Major UX problems
- Adoption roll out strategy
Since DAI is built on Ethereum, I checked on the status of the various scaling solutions that had been in the works. Ethereum core’s solution, now named Serenity, is still on the horizon. Ethereum POA has a sidechain for DAI called xDAI. Neat but perhaps a bit too centralized. Connext is similar to Bitcoin’s Lightning network, but for Ethereum, which recently launched. Meta Transactions allow for the transactions to be aggregated to combine fees and lets users pay in DAI instead of ETH. Ok, several solutions to transaction speed and fees, looking good.
Next, I wanted to find solutions to the UX issues I found. Since DAI is an ERC20 token, its accessible by any ERC20 wallet. The problem with that is one’s money, DAI, is mixed in with a bunch of speculative and useless tokens, which is an incredibly confusing experience when someone is just trying to use DAI for payments.
Other major UX issues include: the need to use ETH as GAS to pay fees to send DAI around, the use of public keys to tell people where to send money, management of private keys, and lack of ways to turn cash into electronic cash.
I downloaded every single app I could find, but nothing indicated a focus on decentralized payments, DAI, or solving these major UX issues.
Uh-oh, how can DAI be used by the mainstream with all these issues?
Fixing Usability
Along the way I had been sharing my research with my good friend Rossco, who I had been advising on the decentralized asset manager he’d been building out of frustration with trying to manage his own assets.
He kept echoing a lot of the same UX problems, which he had run into while he had spent a few months training 7500+ non-technical folks how to use a Bitcoin wallet. The current state of crypto apps was viscerally fearful for them, they were worried they’d do something wrong and lose all their money.
Together we realized that if we ever wanted to realize our dream of having a usable, peer-to-peer electronic cash, we’d have to step up and build it ourselves, otherwise it might be decades before it actually happens.
So Rossco and I joined forces to create Mosendo, and accordingly my responsibilities with Taureon have become more passive.
Our main focuses at Mosendo are on user experience and user acquisition; we rely on the ecosystem to build the underlying tech infrastructure while we build the front end. The first of which is a p2p payments app called Mosendo.
With Mosendo, we’ve already found solutions for many of the UX problems we’ve identified: solving speed and fee issues with layer 2 solutions, solving public/private key confusion with $motag handles and social account recovery, usage of local currencies via synthetic forex, and abstracting away ETH so that users never need to know it exists.
Adoption Strategy
Our main challenges lie ahead on the long road to adoption: turning cash into electronic cash and convincing one micro-economy at a time to switch over to using Mosendo for payments.
For the first challenge, we are building a network of fiat gateway partners so that users in any country will be able to connect via their preferred payment method and top up the app. While the app is a normal crypto wallet and does not require identification, our payment partners will need to maintain compliance in their jurisdictions and may require personal details. We are also investigating the integration of p2p cash transactions.
For the second challenge, one of the most interesting thing to come out of the token ecosystem in the past 2 years is the creation of incentive structures with quick feedback loops and maximal alignment of interests. To this end, we are creating a utility token, DEP, that will be used in our ecosystem. Any time fees are paid or revenues are earned, they will have to be done so via our utility token, which is then burned after using. They are ‘single use’ tokens, unlike the many ‘multi use’ tokens generated over the past 2 years. This means that increased usage of our products results in higher demand and decreasing supply of the token, which in turn incentivizes token holders to evangelize for us.
This is the first of several adoption focused incentive systems we are designing, with a goal of creating a decentralized and distributed army of evangelists that convince people to switch over their spending to the Mosendo app. Until then, its Rossco and I ourselves with our boots on the ground, getting people setup one at a time.
Making A Business
In order to fund these incentives, we have several ways to monetize.
At first, we can earn commissions from our fiat-to-crypto gateway partners. Once we integrate synthetic foreign currencies, there are some arbitrage opportunities available.
After we have significant adoption with Mosendo, we will start rolling out our decentralized personal finance manager, Flipsr, which allows users to borrow or lend and earn interest, diversify their assets, and invest in synthetic assets such as US stocks.
Through these decentralized investment products, we can earn fees which are paid in our utility token, DEP. It’s important to note that the usage of the token is invisible to the average user, the purchase of DEP to pay ecosystem fees happens automatically on the backend.
We’re On A Mission
So that’s the plan more or less! Obviously there are way more details, far too many to get into here, but I hope this has been an informative overview of what I’ve been up to over the past few months.
The reason I’m doing this, is the reason I was drawn to Bitcoin and cryptocurrency in the first place. While I believe that government and regulation are necessary, I also believe that concentration of power breeds corruption and is eventually usurped by the selfish and greedy for their own benefit.
Through the use of decentralized currencies and technologies, we can create better systems that are less concentrated and less corruptible, and where better to start than the most effective system of control used by the most corrupt governments today: money.
My own frustrations while young with not having ownership of my digital money has led me down a path of discovering how money is used and misused all over the world and driven me to have a strong need to make sure this exists in the world.
Mosendo for me is really a culmination of my desire for this to exist since I was young, before cryptocurrencies existed. Watching fintech products such as Dwolla, Simple, Venmo, Revolut, and many more, try to fix the existing banking problems, hoping they will succeed, but watching them fall short due to regulation every time.
After observing these pioneers for decades, I think we’ve finally hit onto something that will completely reshape the way money is used around the world, and so it is now my turn to take a swing at making it happen.
As Roman general Hannibal Barca says, “we will find a way, or make one.”
Regards,
Tom Howard
Co-founder and Chief Strategy Officer
Mosendo
Thanks for taking the time to read this! If what we are doing resonates with you, there are a few ways to continue this conversation and bring this vision to life.
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