Effective, private, low friction bot prevention

Market analysis

I didn’t evaluate other markets before choosing this one, because this one was already in progress. Future sprints will do so though.

Low friction, private, bot prevention
Market selection
Insights - It’s a cold start problem. However, I believe a few industries really need this, as long as we have a lower bar for “effectiveness” Interested - I just am. Feels like a real problem, and one that can scale really well - a global, identity network. I think the world will become more private over time, and people will become more open to different technologies (zkp, World ID, etc)
Market evaluation
Advantage - have a web2 product background, but web3 expertise Large/growing market - in crypto, it’s small. but ID verification is a big one. New tech - account abstraction makes it easier to make wallets; more people are moving onchain New behavior - companies are maturing with real business models. airdrops and whatnot aren’t working anymore
Talking to people
Value chain: - Platforms: Crypto exchanges, adult content, anon communities, DAO, Gitcoin - Crypto signup flows: WalletConnect, Privy, Metamask, Phantom - Crypto users: Talk to those who had outraage over dydx debacle, Adam Cochran, LeftsideEmiri

Specifically for:

  • Web3-specific exchanges - Pancakeswap, Lido, Rocketpool, Rainbow, dydx
  • Web3 messaging platforms - XMTP, Coinbase
  • Web2.5 companies - Vishal

Separate hypothesis - more to do more with spam, rather than growth

  • Online communities - Reddit, 4chan, CMC Community
  • Taboo content - Onlyfans, Fanhouse, Porn sites

Not considering

  • Need KYC / bank accounts
    • Financialized products - Robinhood (free stock) - connect to brokerage
    • Crypto exchanges - Binance, Kraken, etc.
  • Referral platforms as a service → Usually fine since conversion criteria is product-specific (sign up for a month subscription)

Hypothesis and takeaways

Area
Hypothesis entering sprint
Belief leaving sprint
Customer problem(s)
Online companies with privacy-focused audiences have trouble identifying bots from real users for signup bonuses. Web3 companies have trouble with user acquisition, specifically signup bonuses, because they do not have bot prevention.
Multiple startups with the same hypotheses failed to find platforms or web3 users, and there is also no clear path to providing all three qualities. - Online companies with privacy-focused audiences were difficult to sign up due to this not being a big problem, high onboarding friction, and brand risk of KYC. - Incorrect assumption that growth can have a lower bar of robustness than compliance, since there will be bad actors at scale - Companies are more worried about downside protection (brand risk, small minority of crypto Twitter spreading false narrative) than potential upside - Non-privacy-focused users are vast majority of crypto users, but they are happy to KYC with known companies. - Though crypto consumer apps need this primitive - the ability to distinguish users from bots to be able to reach mass adoption - there are no consumer apps yet. - Correct that compliance is not the area to focus on. It’s difficult to do, and the US has no clarity on this, and unlikely for some time.
Market size
$1B right now (~10B current value of large companies like Uniswap, dydx, Dapper, OpenSea; assume spending 10% for user acquisition)
Market size is much smaller than expected. - 15+ dead/pivoted away startups. I spoke with three founders. - KYC space is commoditized with low margins, unlikely for venture scale opportunity - One co worth >$1B has <$10M in revenue - Likely a feature rather than standalone company. Large co’s/orgs with existing user trust will natively build (Coinbase onchain verify, Gitcoin passport) - Reputation is more interesting than identity, can be used for search, ranking, etc. - One startup on reputation said no competition, companies just don’t care
Growth rate
Could 10x if bull market Belief that this will grow with AA
Winner, and profits, in this space are unlikely to accrue to any intermediary. - Expect adoption to be on the OS-level (device biometrics), common standards (webauthn, passkeys, DID), or public infrastructure solutions (blockchain) - One startup pivoted to gov’t IDs, but their competition is consultancies helping orgs add DIDs to Apple Wallet - Another startup focused on reputation predicts this is 5 year bet, betting that’s when all data will be onchain
Potential early customers
Web3-specific exchanges that are making money Web2.5 companies
Expected early customers were hesitant or did not want this. - One web3 exchange said KYC is impossible due to comms. Hard to justify brand risk. - Another web2.5 customer said “Even if this existed, not sure we would use it” “When we care about growth, we don’t care about fraud” - Game designers don’t like financial incentives, prefer product-led growth - One potential early customer did not end up integrating with a startup they invested in that did this