Do you want to form an Alliance(DAO) with me?

This is The Startup Breakdown, the newsletter where we breakDOWN startUPs (just had to make sure you appreciated the word play). By joining this growing community of hundreds of curious individuals, you're getting firsthand access to my observations and opinions on the current state of the startups and venture scene. If you'd like to receive these newsletters directly in your inbox once a week, go ahead and subscribe to never miss an email!

Happy Monday, folks.

I am continuing to experiment with formats, and some of you asked whether I’d consider moving the news to the bottom of the email. As this is the peoples’ newsletter, your wish is my command.

Today, we’re covering a company first, and if you want to read the latest juicy VC news, pretty much all of it related to the government action impacting the space, you’re gonna have to read to the end 😉

Seriously, though, your feedback is super helpful. If you have any other thoughts or suggestions on ways to improve the newsletter, sections to add, ways to engage beyond the inbox, I’m like 70% water and a bit of ears.

Now, we need to assume that everyone in the office is forming an alliance.

While you might not be an Assistant to the Regional Manager at a moderately successful local paper company, chances are that you’ve found yourself in a position in which you could benefit from smiling and shaking hands with coworkers, regardless of how you DTR.

A while back, a few crypto bros decided to go full Dwight, forming Alliance DAO, an accelerator propelling promising web3 startups to the next stage in their development through mentorship, resources, and more for a 3 month period. Participants receive $250K in funding, though this is often small compared to the fundraising graduates of the program generally raise in the weeks following.

Speaking of graduates, those who walk across that Satoshi-inspired stage also get the honor of becoming members of the DAO, allowing them to tap into the extensive network of alums and prepare to mentor the next batch of startups. I would have preferred a watch for my graduation gift but I guess that’s why they’re the ones raising multimillion dollar rounds…

Last month, the most recent cohort’s 16 participants got to present their progress in a demo day, many aiming to raise their next check to further fuel growth. With nearly 1700 program applicants (acceptance rates south of 1%), you prolly don’t need me to echo that the companies are pretty promising.

It can be pretty insightful to see where the builders are devoting their time, often highlighting trends like zkRollups, data, and appchains. While all three of these were evident movements in the space as represented by the companies pitching, it was AI integrations that stole the show. Real upset there.

I’ve been accused of being the dad of my friend group. I don’t get why considering how stylish my golf shirts are. However, if there are certain areas of life in which I do admit to behaving like a 45-year old father of four, it’s getting to the airport 3 hours early and saving money.

While Wallchain might not sell jorts or provide recs on steak seasoning, it does help with the whole budgeting thing, specifically in helping web3 users to avoid MEV losses.

MEV stands for Miner Extractable Value, and it refers to the ability of blockchain miners to go all all-seeing Sauron and make a pretty penny from their positions of power. Whenever transactions are submitted, miners have the ability to view them as they come in, then getting to choose the order that they are added to a block.

In practice, this is pretty significant in areas like DeFi and arbitrage. For example, let’s say you see that TreyCoin is trading at $4.20 on an exchange. You check another market and see that you can buy it for $4.19 there. Talk about a discount!

To take advantage of this, you could create a smart contract which borrows a couple million dollars to buy a fat stack of TreyCoin at $4.19 and immediately sell it on the other exchange at $4.20 each, netting quite the profit. It’s so easy, even my smart-contract-savvy grandma could do it!

Not so fast. Unfortunately, because the entire chain relies on validators to add this transaction to a block, and as they can see what the transaction is before it is added, they’re able to frontrun, recreating it and slotting their transaction before yours, eating at your profits.

This is but one example, but taken together, these methods are referred to as MEV. Even worse, much of this extraction is performed by bots, making it infinitely more likely that your transactions won’t be nearly as profitable as you might hope for. Not cool, guys 🫤 

That’s where Wallchain comes in, swinging in like a masked neighborhood superhero (10/10 movie. do yourself a favor and see it guys). The startup helps to protect users from these predatory behaviors, recovering this MEV on Polygon and BNB, two of the most popular blockchains in all of crypto. In fact, the service is already the most-used anti-bot MEV recovery tool on both chains.

To accomplish this, the startup utilizes a few strategies:

• Aggregates data off-chain, meaning that a bunch of crypto transactions are bundled together before they’re all submitted together to the blockchain for validation as one big transaction, limiting the number of transactions to be taken advantage of

• Offers private transactions, so the specifics of trades are not visible to miners

• Allows users to bid for the right to prioritize their transaction, moving up in the order and preventing the ability of bots to jump in front of them

Wallchain notifies users when a bot is attempting to extract MEV, prompting the user to allow the company to capture it instead. This protects the user’s profits and saves time and frustration while earning the company a nice little percentage of each transaction that it is involved in. 1 + 1 = 3

The company boasts a 100% MEV win rate over 19,000 bots revoked, helping grow revenues for users by 10-40%. This promise has attracted backers and investors include BNB Chain, NGC Ventures, and Paloma Chain among others, and it’s trusted by exchanges like Ape Swap.

With a great product that can be used by, and deliver real value to, a wide audience of users, from DEXs to retail customers, the platform’s growth can only be expected to go all exponential from here, and it still hasn’t even really launched yet.

Given how new the technology is, the total market size is a bit difficult to estimate. However, given the rapid growth (46% CAGR) of the DeFi industry in general, it’s safe to assume that MEV protection has only touched the surface of what it could be, particularly as more smart money enters the space (already > $11 billion total value locked, roughly translating to the money that is in this market), further driving the demand for protecting margins.

While the young market means there has not been a single dominant player to emerge, it’s still highly competitive with numerous companies and protocols emerging to service particular niches within the broader ecosystem.

Three of the most well-known in the space are Arbitrum, ZKSync, and StarkWare, all of which are Ethereum Layer 2 solutions. Think chains built on top of larger Layer 1 main blockchains to make them more efficient.

While operating on other blockchains might ensure that Wallchain gets a leg up on existing users on Polygon and BNB Chain, it still does compete with the others for new users and always has to worry about existing users trying out the competition as traders seek out the best support tools, chain-agnostically.

Not that it really matters to the Average Joe looking to use them, but the underlying technologies are also different. Arbitrum uses optimistic rollups while StarkWare and ZKSync both use zero-knowledge proofs. Wallchain uses modular rollups which are sorta the Frankenstein of scaling solutions for blockchains, combining the best parts of each. Hopefully they got zk’s eyes!

Again, this won’t matter to most should crypto reach wide scale adoption and use of MEV protection tools like this become usable for the masses. Right now, though, most people in the space are tech nerds who actually do know what these terms mean and likely have certain ones they believe in.

These users are also already more familiar with existing solutions which might pose a challenge for Walletchain. Unless users see major obstacles to the tech they’re already using, it’s not likely that they are going to take the time to learn a completely new one, regardless of whether Walletchain should (in theory) be cheaper and faster for users than traditional scaling solutions.

The team has the technical chops to achieve its lofty goals. Co-founder Yurii Kyparus is a multi-time founder with experience as a software engineer at FAANG companies.

Co-founder Maksym Bevza has similar experiences as a software engineer at Google with a few startups of his own under his belt. The rest of the dev team has tons of experience, too, and if you need another reason to root for these guys, the team hails from Ukraine. The country is becoming quite the hotbed for dev talent 🇺🇦 

Ultimately, though most people likely don’t have much use for Wallchain quite yet, the company has the potential to be massive, surpassing existing solutions which are already pretty well-established. Chalk this one up as a dub for the humans in the war agains the machines.

Your move, computers.

TLDR: Walletchain is building anti-MEV bot protection for traders on BNB and Polygon. Through a variety of methods, its tech allows users to protect profits from crypto miners using value

extraction bots to frontrun transactions. With a large existing user base and growing interest from investors across the space, the Ukrainian startup might be an essential tool in a future of crypto transactions.

What do you guys think? Would you invest in Walletchain?

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Everything is made in China… except friendships with the West :(

If you thought relations between the US and Xi were bad, the tension resulting in the international startup scene are even worse than spy balloon-gate.

Sequoia is considered one of the most respected investors in the world with the fund size to show it. That fund just got a bit smaller, though, as the company announced that it was doing the whole Hydra thing, turning its single chopped-off neck stump into three independent firms, Sequoia in the US and Europe, Peak XV in South and SE Asia, and HongShan in China.

The company claims the move was just prompted by the difficulty in managing a global investment firm, but most think that the choice was about as truthful as [insert your least favorite politician here].

They might not be completely off on the whole “it’s tough out here” sentiment, though. President Biden has been making efforts to restrict the flow of USD into China. Must’ve had a really bad batch of food court orange chicken.

The goal is to hamstring China’s tech industry, which if you haven’t noticed is pretty darn successful, in large part because of the massive money invested by firms like Sequoia. Mr. President is also calling in all of his favors to convince other world leaders to play the “pretend Xi is invisible” game, too. Real mature, Joe.

It can be easy to think about the broader startup ecosystem as a bubble, sheltering a bunch of hoodied hooligans as they hack away at a keyboard and convince themselves that the Sun = bad.

However, as this story, and actually both of the next two, demonstrates, the entire sector remains deeply impacted by the policies and choices of politicians around the globe. I get the whole “never read the news! it’s so negative!” mindset, but idk man. Maybe it does help to know what’s going on.

What’s next? Nuclear war would make it hard to find customers for another food delivery app?

Elsewhere in the land of government vs. innovation, the zoo ran out of tissues as Apes around the country cried out over the SEC’s decision to pretty much declare war on crypto, suing the world’s two biggest exchanges in Binance and Coinbase.

The clear escalation of a long-growing feud culminated in the accusation that both companies were selling unregistered securities, and the agency singled out a few assets on each platform that it considered to fall into this category. Sorry to all of you Solana believers (@ myself), but at least they left Doge alone?

The frustration from the web3 community mostly revolves around the lack of clarity in the rules and classifications in the space. Even within the government, there are divisions over whether crypto is a security or a commodity, with advocates clamoring for the latter. Even worse, clear answers don’t seem very imminent.

Gary Gensler has become the cover of crypto advocates’ dartboards for months now, making his intentions to crack down on the industry clear. Apparently, SBF really broke his heart.

Interestingly, not only was GG a professor of Bitcoin and Blockchain at MIT, but he even applied to become an advisor for Binance a few years back, and they didn’t give him the gig. This could have all been avoided if CZ had liked his cover letter just a bit more.

Talk about a scorned lover, though… Gary has been going through it.

Many are concerned that the increasingly hostile US crypto ecosystem is going to drive innovation and talent abroad, and nations such as England (still called soccer) are capitalizing on it.

The US might be known as the startup capital of the world for now, but unfortunately, the harsh stance on crypto isn’t exactly unique. The country has been frustratingly slow to innovate and push for tech progress. And with increasingly strong-armed policies in the East, the demand for welcoming locales, whether in Europe, LATAM, or even Africa, grows stronger by the BTC halving.

Enough dumping on the government. I’m afraid I’ll suddenly go missing. If I don’t post next week, it was the FBI.

While Gary might be going after his exes, Jerome Powell, Chairman of the Fed and inflation aficionado, is sitting at the cutting edge, trying to ensure that we forget about the time we had to sell our least favorite pet to afford omelet ingredients.

The Fed announced FedNow, a payment initiative meant to make transactions instant while remaining even more secure and cost-efficient. Ideally, we’d all be winners from the instant settlement, so go team.

For the Fed, it seems that the agency is in its Netflix era, going after revenue lost to untruthful consumers. The team is convinced that high cash reliance by small businesses and individual consumers is caused by a need for instant settlement, something which is not currently offered by digital solutions. Worse (for them at least), this leads to as much as 2/3 of income going unreported.

FedNow will improve the current ACH payment rails, reducing the need for cash. Really, though, are we sure that the lack of instant ACH settlement is the reason why people aren’t reporting all of their income? Do you maybe think that people might also want to pay less in taxes?

Idk, I’m no tax evasion expert. Just spitballing here.

If there’s a real winner here, it’s local banks. While bigger ones have been working towards more ways to better serve their customers, it has been regional chains which have struggled to keep up with a lack of resources and reach.

This also creates further opportunities for new startups looking to capitalize on the new markets created. Rather than being payment-focused, though (because do we really need a 573957th payment service?), the opportunity might lie in helping new digital payment users to manage their accounts and protect their private information.

No word on whether these future companies would also be able to help teach your mom how to use the remote.

Cheers to another day,

Trey