The promise that blockchain would change the world has not materialized: the technology has primarily enabled people to speculate on a new asset class.
A major hurdle to realizing blockchain's full potential, Web3 advocates argue, is that decentralized services are extremely difficult to build. Tomasz Tunguz, best known for his popular startup blog and successful SaaS investments at Redpoint Ventures, believes he's found a company that significantly lowers the bar for building blockchain apps.
The company is Initia, which recently closed a $14 million Series A round, about 90% of which was funded by Tunguz's Theory Ventures, according to information obtained exclusively by TechCrunch. The funding gives Initia a token valuation of $350 million and marks Theory's first investment in both equity and tokens.
Theory has allocated $230 million to around a dozen startups, focusing on three themes: data, AI and blockchain.
“Ethereum is the size of seven Snowflakes,” Tungus told TechCrunch, comparing the second-largest blockchain network to a cloud storage company. (At the time of the interview in mid-September, Ethereum's market cap was about $293 billion, Snowflake's was $37 billion.) “These next-generation databases and programming platforms have the potential to do big things,” he added.
The new round brings the total amount raised by Initia to $22.5 million, including previous funding from Delphi Ventures, HackVC and Binance Labs.
Fragmented Garden
The decentralized app development environment is highly fragmented, and rather than using general-purpose Layer 1 networks like Ethereum or Solana, developers are increasingly turning to specialized chains, or App Chains, that are designed to perform optimally on specific blockchain characteristics like transaction speed and security.
However, these bespoke chains generally lack interoperability, which is where Initia comes in. Calling itself the “iOS for Web3” (a pretty bold ambition), the startup operates a Layer 1 network that gives different app chains interprogramming compatibility while also providing the flexibility to tweak the execution environment as needed.
“When you build an application in Web3, it's a five-layer cake. You start with a reasonable cake and then as you scale, you swap in different layers,” Tunguz said. These layers include functionality such as consensus (network validators agree on the state of the blockchain) and data availability (the state of the blockchain is posted to the blockchain).
Developers may want to change certain “fundamental performance characteristics” of a distributed database without sacrificing security. “Financial applications require low latency. Various applications may require high security. That's rollup-as-a-service, or L2,” Tunguz said.
“Initia combines these two innovations with instant compatibility with most blockchains, making it a great place to start with great defaults for developers,” the investor said.
Initsia co-founder Ezhan Mangalji, aka “Zon,” talks about how his company is building a “multi-chain Garden of Eden.” Image: Initsia
Having a unified development environment makes it easier to move funds between decentralized networks, improving liquidity and ultimately improving user convenience. Initia co-founder Stan Liu explained how Initia is streamlining the user experience for cryptocurrency-based prediction markets, where people bet on the outcome of certain events.
“Prediction markets have come to the forefront again recently with the presidential debates,” Liu told TechCrunch. “The big problem is that to facilitate these types of transactions and get real trading volume, the protocols themselves require significant liquidity.”
Liu gave the example of Polymarket, a popular prediction market. To place a bet, users need to deposit USDC stablecoin into the platform. To do so, they must pay a transaction fee, or gas fee, in the form of ETH on the Polygon blockchain. This means that users must first obtain ETH on an exchange or another source, then “bridge” that currency to Polygon. Finally, to actually place a bet, users need a wallet that is compatible with the Ethereum Virtual Machine, not just any cryptocurrency wallet.
Meanwhile, Liu said that Contro, a prediction market powered by Initia, allows users to stake with any cryptocurrency using any wallet. This process is possible because Initia supports multiple blockchain execution environments, and app chains created in these environments can interact with each other by making payments to Initia.
Token Investment
Theory's investment in Initia shows that Web3 startups continue to attract capital from mainstream VCs despite highly volatile fluctuations in coin prices and ongoing public skepticism about the usefulness of cryptocurrencies beyond financial speculation. Theory's investment in Initia will grant it token warrants, giving it the right to buy the startup's future token if and when it launches.
Spencer Farrar, partner at Theory Ventures, explained the reasoning behind pursuing a token round: “First, how do we bootstrap open source development and foster a fruitful ecosystem? Tokens can play a part in that. I raise capital by taking my company public, which has historically been a long and expensive process. Tokens potentially give us access to global actors.”
Farrar, who previously built a project at Solana, also saw Initia's developer relationships as a selling point.
” [Initia’s founders] “What’s great about Zhong and Stan is that they not only have very deep technical expertise, but they’re also available to work with developers,” Farah said. Specifically, he noted that several of the projects being built at Initia used Move, an open-source programming language developed at Meta and that continues to be used by blockchains such as Aptos and Sui.
Despite the growing excitement around AppChains, the industry is still in its early stages. Ezaan Mangalji, another co-founder of Initia, estimates that there are only around 50 AppChains in active development. To date, eight projects have been tested on Initia and are preparing for mainnet launch within the next two months. The testnet has recorded more than 125 million transactions and nearly 3 million unique wallets.
Tunguz hopes that initiatives like Initia will help expand the multi-chain ecosystem.
“There are a lot of people working on modularizing the database and pulling out different components like the data availability layer, the execution layer, coming up with different flavors of light nodes and full nodes to scale out, and improving performance across different parts of the full database,” the investor said.
“The other reason is that we've seen a 600-700-fold improvement. [in blockchains] There is evidence that various design choices have significantly improved performance over the past three years.”