Access to private shares typically means $100k+ minimums, inflated secondary pricing, year-long lockups, and layers of fees. For retail investors, this exclusion is especially unfortunate given how the market has evolved:

• The median time to IPO has roughly doubled since the late 90s, stretching from ~5 years to 14 years today

• The median company in the 2014–2019 IPO cohort generated 80%+ of its market cap after becoming public

• More recent IPO cohorts now capture over 50% of their eventual market cap while still private

The result is a clear mismatch: value creation has moved decisively into private markets, but the price discovery and liquidity infrastructure has not followed.

Across much of the 2025 IPO cohort, public markets have served more as liquidity and de-risking venues than as sites of meaningful value creation, with current prices often sitting ~50% below the initial opening.

Nonetheless, with the IPO window reopening this year, there has been a renewed push in crypto to “democratize” private markets through tokenization and perps. In practice, however, most of these efforts are building tradable wrappers on top of a market that remains fundamentally broken. It is data-poor, illiquid, and structurally fragmented.

The core problem is simple. Pre-IPO shares lack a real spot market with depth, reliable execution, and credible price discovery. Without that foundation, anything built on top is purely cosmetic.

There are two reasons this market has never developed:

First, private shares live directly on a company’s cap table and require issuer consent to transfer. SpaceX is not adding a $150 buyer to its cap table, and even large institutional transactions are routinely rejected for strategic, regulatory, or reputational reasons.

Second, under SEC Rule 144, most resales of private company stock require a minimum 12-month holding period before shares can be legally sold.

TL;DR: no free transferability + no inventory velocity = no order book.

To understand why this gap persists, it’s worth examining how today’s pre-IPO market is actually structured and who it is designed to serve.

Pre-IPO Landscape

The pre-IPO market can be broadly categorized into two segments: institutional-focused and retail-focused platforms. Institutional venues, namely Nasdaq Private Markets and Forge, dominate the market with >90% market share.

1. Broker/Marketplace Model

Overview: This is the primary mechanism through which institutional capital accesses pre-IPO equity.

How it works: Forge operates a broker-dealer marketplace. Most transactions are intermediated by brokers who source blocks of shares from employees, funds, or early investors. Instead of a live public order book, brokers typically match institutional buyers with sellers in large negotiated block trades.

Pros:

• No balance sheet risk – Platforms don’t warehouse inventory

• Direct ownership – Buyers end up with actual company shares, no derivatives or SPV models

• Minimal counterparty risk – Trades are executed via regulated broker-dealers, with escrow and company transfer approval processes

• Scalability/Access – Because brokers cultivate relationships with funds, banks, and issuers, they can source large blocks and give buyers exclusive access to deals with size

Cons:

• Opaque pricing – Transactions are privately negotiated, often at wide spreads vs fair value. And orders are often re-quoted

• Slow settlement – Typical transactions take 6-8 weeks

• High fees – Broker commissions (2–5%+) eat into both buyer and seller proceeds

• Retail excluded – High minimums (often $100K+)

• Company approval bottleneck – Issuers can block or delay transfers. And >50% of transactions are usually rejected

2. Company-Sanctioned Liquidity Programs

Overview: These programs represent the most orderly and issuer-aligned form of pre-IPO liquidity.

How it works: Platforms like Nasdaq Private Market (NPM) and Carta Liquidity run issuer-approved tender offers, buybacks, or secondary programs. These aren’t continuous markets but structured events, usually once or twice a year, tied to major financings. After board and legal approval, a 2–6 week window opens where eligible shareholders can sell, with the company aggregating bids, setting a clearing price, and executing in bulk.

The pros and cons are nearly identical to the above model, the key difference is that sanctioned programs are structured, time-bound events with guaranteed company participation, lower fees, and cleaner cap table management. Importantly, even Nasdaq does not describe NPM as an exchange. It functions closer to a cap-table administration, compliance, and transaction-coordination platform.

The structural frictions embedded in institutional pre-IPO platforms have, in turn, driven the emergence of retail-focused offerings built around SPV-based access models.

3. Inventory/Principal Model

Overview: This model offers retail investors simplified, immediate access to pre-IPO equity by having the platform act as principal, acquiring shares and reselling fractionalized exposure.

How it works: The platform acquires pre-IPO shares from employees, early investors, or funds, assumes inventory risk, and then resells fractionalized interests to retail investors. Examples include platforms such as Linqto.

Pros:

• Immediate execution: No multi-week negotiation or issuer-run liquidity window

• Low minimums: Fractionalization enables retail participation

• Operational simplicity: The platform handles sourcing, custody, and transfer logistics

Cons:

• Balance sheet risk: Platforms assume principal exposure and inventory risk, reducing scalability

• High effective pricing: Markups and fees are embedded in the offer price

• Limited investor protections: Retail investors hold indirect exposure rather than direct shares

• No secondary liquidity: Positions are typically illiquid until an IPO, acquisition, or platform-facilitated exit

• Regulatory complexity: Structures often operate near the edge of securities and transfer-restriction regimes

4. SPV Aggregator Model

Overview: This model enables retail-accredited investors to access pre-IPO equity by pooling capital into an SPV that collectively acquires a secondary block of shares.

How it works: Multiple retail accredited investors are pooled into an SPV, which collectively purchases a secondary block of shares. Examples include platforms such as EquityZen and AngelList.

Unlike the inventory/principal model, SPV aggregators do not warehouse shares or assume balance sheet risk. Pricing risk is borne entirely by investors, and access is gated by successful capital aggregation rather than platform inventory. Beyond the absence of platform balance-sheet risk, most of the remaining tradeoffs mirror those of the inventory/principal model.

To summarize, we can segment the landscape as:

• Broker/Marketplace (institutional matchmaker)

• Company-Sanctioned (issuer-led)

• Inventory/Principal (retail reseller)

• SPV Aggregator (pooled retail)

So we are left with:

The Institutional route that is fundamentally inaccessible to retail OR the retail route which is littered with poor pricing, high fees, no secondary market, and weak investor protections.

But can tokenization or perps solve these issues?

Why pre-IPO perps are too early

Launching a perp DEX is table stakes post HIP-3. The real challenge lies in the oracle, specifically where and how reliable pricing data is sourced.

As we covered above, the pre-IPO spot market is slow, opaque and predominantly broker driven, meaning there are no real-time pre-IPO price feeds in existence.

Per John, Ventuals, a new pre-IPO perps platform, is using a combo of offchain data (NPM price feeds, 409As, etc.) + the 8hr moving average of the perp price itself.

For reference, 409As can be up to 90 days old by the time they’re circulated. More importantly, they are often intentionally deflated to provide favorable Fair Market Values (FMV) for employee stock options; companies want lower valuations here to minimize the tax burden on employees receiving equity compensation. Thus, the resulting price isn’t a fair value of the stock price in the open market, and 409As can often be as low as 1/4th the price of the most recent primary round.

As such, I suspect early pre-IPO perp platforms will behave closer to prediction markets where toxic flow is a feature not a bug. Here’s why:

Put simply, pre-IPO markets attract a high concentration of informed traders: brokers, secondary funds, and platform operators at a minimum. For market makers, this creates a toxic-flow problem with no offsetting hedge, since no real-time spot market exists. The outcome is predictable: market makers don’t quote, spreads widen, and retail loses interest in trading altogether.

Given the data + toxic flow problem with perps, the natural next question is: what if we skip the derivatives layer entirely and just tokenize pre-IPO shares directly?

Why pre-IPO tokenization doesn’t work

There’s two routes to evaluate tokenization: institutional and retail.

Institutional would only happen if the issuer itself decided to natively issue shares onchain. I don’t see that happening in the foreseeable future. And Forge or NPM won’t do it without issuer consent.

The retail route implies either 1) the platform purchases shares via an SPV and resells the tokenized version to retail or 2) the platform pools user funds, purchases private shares, and you receive tokenized shares in your wallet.

In either case, these models fail to address the core constraints that plague the pre-IPO market. Retail platforms must still solve how to source shares at scale without assuming inventory risk, clearly define what investors actually own and whether those claims are bankruptcy-remote, shorten mandatory holding periods, and aggregate sufficient two-sided order flow to support liquidity. Tokenization does not resolve any of these issues. In fact, by relying on SPV-based structures, it often introduces an additional problem: offerings on the same platform can carry materially different fee structures, governance terms, and economic rights, undermining fungibility of shares.

The pre-IPO spot market is the single hardest problem no one’s solved in over a decade.

Tokenization can however add real value once the underlying spot market structure is fixed. But right now it just amplifies bad market structure.

Social Alignment

Further, underlying companies would need to be comfortable with tokenization for the asset class to scale, and right now that seems unlikely.

Tokenizing pre-IPO equities can result in the underlying stock units being voided if it’s perceived by the underlying company to be adversarial to their interests. It’s likely that the end retail purchaser of such tokens would be the last person to know that their capital is at risk in this way.

What is the endgame?

The path to winning starts with building a liquid, real-time spot market. One with low fees, shorter holding periods, and bankruptcy-remote structures as the foundation.

Once daily volumes reach levels that can support meaningful perp open interest across the top private markets, low-leverage perps can be introduced. At that stage, the platform’s own spot market doubles as the live price feed and, more importantly, unlocks real-time liquidity for market makers, laying the groundwork for the deepest and most efficient markets.

Looking ahead, tokenization of private shares could eventually move the spot market fully onchain, enabling the full composability and accessibility of DeFi. But that vision remains at least a few years out, held back by regulatory, structural, and market-driven hurdles.

For too long, retail investors have been locked out of private markets. As companies stay private longer and treat public markets as mere exit liquidity, unlocking liquid access to these assets will stand as one of the most important innovations in modern capital markets.

All views expressed are my own.

Sources:

[1] https://a16z.com/private-markets-new-public-markets

[2] https://www.augment.market/the-power-20 (image)

I've spent the better part of a year collaborating with the BanklessVC team, and during this time, it became increasingly clear that our venture philosophies align remarkably well.

We’re leaving behind the hype-driven, low-float, high-FDV token playbook and instead, investing from first-principles in ambitious founders building 0-to-1 companies.

About me:
I've spent the last 5+ years obsessed with the idea of permissionless finance. Like many others, I started my journey as a retail investor, trying to replicate the parabolic returns I saw on Reddit. However, I soon found myself deep in the Ethereum forums learning about the inner workings of decentralized ledgers. It quickly became clear to me that blockchains are a step-function improvement over the existing internet and will underpin everything from payments to commerce to physical services and marketplaces.

During my 3 year tenure at HashKey Capital, one of the largest crypto funds in Asia, I had the privilege of backing a number of incredible crypto companies; spanning from onchain commerce, smart contract-level compliance, and cutting-edge solutions in the MEV space.

I’m beyond excited to step into this new chapter with Bankless Ventures. We’ll be at the forefront of a new wave of next-gen companies. Backing founders building category-defining primitives across DeFi, Consumer, Fintech and anything in between. And with the growing momentum around pro-crypto regulation and clear institutional adoption, I believe the timing couldn’t be any better to capture the Cambrian explosion of blockchain innovation.

On that note, I wanted to share a few 0-to-1 ideas we’re excited about:

Crypto-Powered Fintech

Traditional financial systems primarily serve affluent citizens in developed nations, leaving the majority of the world's population underbanked. This neglected majority faces significant challenges: prohibitively expensive cross-border transfers, limited credit access, and inability to invest in global markets like U.S. stocks and bonds. These barriers severely restrict business development and personal financial growth in emerging economies.

Crypto is already reducing payment costs to near-zero while providing instant settlement, extending credit opportunities to previously excluded populations, and enabling global investment access through tokenization. This represents not merely an incremental improvement but a fundamental breakthrough in financial inclusion; creating a more equitable, interconnected global economy accessible to all.

Endless Pursuit of Capital Efficiency

One of crypto’s defining features is composability: the ability to combine independent “money legos” into novel financial products without needing permission. This evolution has progressed from basic stablecoins to yield-bearing dollars, and now to synthetic dollars that generate returns from diverse sources including real estate, market-making strategies, and green energy investments.

Imagine purchasing pre-IPO startup shares, borrowing USDC at 5% against those shares, and then allocating that USDC into a high-yield private credit product offering 12% returns. The ability to seamlessly combine independent products into comprehensive strategies, once accessible only to institutional investors, is now becoming possible on blockchains.

At BanklessVC, we believe blockchains will serve as a canvas for infinite economic relationships, far surpassing anything achievable within today’s traditional financial systems.

Publisher-Exchanges

A “publisher-exchange” is a content platform that allows you to exchange value directly in-app (think TikTok shop, Instagram shop, WhatsApp Business or Pinterest) wherein content and commerce are inextricably unified.

In Web2, popular consumer applications are expertly engineered to deliver frequent, small doses of dopamine, effectively keeping users engaged. We’ve already seen through the likes of WeChat and Douyin that when you layer financial products on top of sticky consumer apps, they perform extremely well.

In today's digital landscape, we consume information at unprecedented speeds. Now imagine if financial transactions could move just as quickly and effortlessly- this is crypto's fundamental breakthrough. Crypto-enabled consumer apps can transform user engagement through stablecoin micropayments, native asset issuance and onchain attribution. When thoughtfully designed, these applications can cultivate deeper user loyalty than current platforms, allowing emerging publisher-exchanges to challenge established market leaders.

Looking Forward

The blockchain space is at an inflection point wherein regulatory and infrastructure maturity meets application-layer innovation. I believe we're just beginning to scratch the surface of what's possible onchain, and I couldn't be more excited to support the founders building it.

About Bankless Ventures

Bankless Ventures is an early-stage Web3 Venture fund launched in 2023 to empower pioneers to explore the frontier of web3.

We’re currently fundraising for Fund II. If you want to invest in Bankless Ventures Fund II, you can submit an interest form as a Limited Partner (LP):

Submit Limited Partner Interest

If you’re a startup that wants to be reviewed by our investment team, show us what you’re building here:

Submit Startup

Disclosures

Views expressed in blog posts are those of the individual personnel of Bankless Ventures, LLC (“Bankless Ventures”) quoted therein and are not the views of Bankless Ventures or its affiliates. Bankless Ventures is not currently registered as an investment adviser with the Securities and Exchange Commission, in reliance on the exemption from registration provided by Section 203(m) of the U.S. Investment Advisers Act of 1940, as amended, and Rule 203(l)-1 thereunder. Blog posts are not directed to any investors or potential investors, and do not constitute an offer to sell, or a solicitation of an offer to buy, any securities, and may not be used or relied upon in evaluating the merits of any investment. These disclosures apply to all blog posts, whether available on this website, any associated distribution platforms, and/or any public online social media accounts, platforms, or sites (collectively, “content distribution outlets”).

Blog posts are provided for informational purposes only, and should not be relied upon or construed as legal, business, investment, tax, or other advice. You should consult your own advisers as to those matters concerning any investment. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in blog posts are subject to change without notice and may differ or be contrary to opinions expressed by others. Charts, graphs, and graphics provided in blog posts are for informational purposes solely and should not be relied upon when making any investment decision. Certain statements contained here have been provided by third parties or based on information received from third parties, including from portfolio companies of funds managed by Bankless Ventures. While taken from sources believed to be reliable, Bankless Ventures has not independently verified the accuracy or completeness of such statements and information and makes no representations about the accuracy or completeness of the statements or information or their appropriateness for a given situation. In addition, blog posts may include third-party advertisements; Bankless Ventures has not reviewed such advertisements and does not endorse any advertising content contained therein. All blog posts speak only as of the date indicated.

References to any securities or digital assets on this website or any other content distribution outlets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services, or an offer to sell, or a solicitation of an offer to buy, or a recommendation to purchase, or any other type of recommendation or advice with respect to any securities or assets. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors in any investment vehicle discussed or mentioned by Bankless Ventures personnel, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by Bankless Ventures. An offering to invest in a fund managed by Bankless Ventures will be made separately and only pursuant to the private placement memorandum, subscription agreement, and other relevant documentation of any such fund which should be read in their entirety, and only to those who, among other requirements, meet certain qualifications under federal securities laws. Such investors, defined as accredited investors and qualified purchasers, are generally deemed capable of evaluating the merits and risks of prospective investments and financial matters.

There cannot be any assurances that the investment objectives of Bankless Ventures will be achieved or that its investment strategies will be successful. Any investment in a vehicle managed by Bankless Ventures involves a high degree of risk including the risk that the entire amount is lost. Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by Bankless Ventures, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. Past performance is not indicative of future results. With respect to its investments in any cryptocurrency or token project, Bankless Ventures is acting in its own financial interest, not necessarily in the interests of other token holders. Bankless Ventures does not have any special role in any of these projects or power over their management. Bankless Ventures does not undertake to continue to have any involvement in these projects other than as an investor and token holder, and other token holders should not expect that it will, or rely on Bankless Ventures to, have any particular involvement.

Blog posts are subject to the Substack Terms of Use and Privacy Policy.

In this conversation, we speak with Martin, the founder and CEO of Schuman Financial. Beside being a serial tech entrepreneur and investor, Martin was formerly a government minister, member of the board of the European Stability Mechanism, and EVP for Europe at Binance. He also holds an advanced degree in applied economics from Harvard University.

Read on to learn more about their journey, the hurdles of navigating regulatory waters, and what the future of euro-denominated finance might look like.

Bankless Ventures: What was the original spark that led you to start Schuman Financial?

Martin: The euro is by far the second biggest global currency after the dollar, financial services are moving on-chain, and yet there is still no major euro stablecoin. That gap was a glaringly obvious business opportunity for us for many years. Plenty of attempts have been made to build a euro stablecoin, but none of them succeeded because nobody has done it right. So we’ve set out to finally fix that.

Bankless Ventures: What’s the biggest problem you’re solving, and why does it matter?

Martin: Europe has an economy with more than 400 million people, and everybody here operates on euros, not dollars. There is no chance it will dollarise anytime soon. The euro-denominated financial market is and will remain the second largest in the world. So if you believe these financial services will also inevitably move on-chain in the coming years–simply because blockchain is just a better technology for storing and moving financial value than anything we’ve had before–then a euro stablecoin market going into hundreds of billions of dollars is inevitable. The only way to settle and transact with euro-denominated financial services on-chain is via a major euro stablecoin. It doesn’t make any sense to settle them against euro fiat, let alone stablecoin dollars. And it’s not just the stablecoin itself–there is a whole infrastructure and interconnections into the traditional financial and fiat systems that you need to build around the stablecoin.

Bankless Ventures: Talk to me about Schuman in more detail, how does it work? How do you interact with it?

Martin: Schuman Financial is the company building the biggest euro-denominated stablecoin and the required infrastructure for moving European and euro-denominated financial services on-chain. Our core initial product is our euro stablecoin, EURØP. We are issuing it through a French company with a MiCA stablecoin issuer license in France which is effectively regulated by the French central bank. We also have the best fiat and banking infrastructure, including Societe Generale as our main banking partner. With this, we can receive payments from our clients going into tens of millions of euros and convert them into stablecoins that they receive in their wallet in less than a minute from when they send them to us.

Institutional clients can mint and burn the stablecoin directly with us, while retail clients will shortly be able to buy at all the main crypto exchanges in Europe. They can then use it for all the usual crypto purposes, including trading, and for more traditional financial services, like payments, remittances, lending and investing in tokenised real-world assets.

Bankless Ventures: How has your vision for the product evolved since you first started working on it?

Martin: Initially, the focus was purely on creating a compliant euro stablecoin, but we realised that the stablecoin alone wasn’t enough. The ecosystem and infrastructure around EURØP have to be just as strong–both in crypto and in TradFi, like the banking and payments services that I’ve mentioned previously. We are increasingly focusing on building these capabilities that will enable more traditional financial services but be much more effective because they will be on-chain.

Bankless Ventures: What has been the most surprising challenge you've faced so far in building this company?

Martin: One of the biggest challenges has been regulatory compliance. Even though MiCA provides clarity, navigating the challenges of compliance, banking, and institutional onboarding has been more difficult than expected. Traditional financial institutions still view stablecoins with scepticism despite the apparent benefits, although we can see that their position on stablecoins is shifting. If your readers are interested in this topic, I’ve explained the rationale in a recent blog.

Bankless Ventures: Can you share a moment where you knew you were on the right track—when something just clicked?

Martin: A few months after we started, a major crypto exchange told us, “Guys, we have been believing in the euro stablecoin potential for years but couldn’t find one that ticked all our boxes. So we’re pretty excited that you are finally building something we can get behind.”

Bankless Ventures: What role does community play in your company’s growth and vision? How can people get involved?

Martin: Unlike traditional finance, crypto is driven by users, developers, and businesses that build on top of stablecoin infrastructure, and community is critical for success. We actively engage with DeFi protocols, fintechs, and institutional players to expand EURØP’s use cases. People can get involved by integrating EURØP into their projects, advocating for adopting euro-based stablecoins, or simply using it and spreading the word.

Bankless Ventures: What excites you most about the future of the industry, and where does your company fit into that vision?

Martin: The future of finance is on-chain. The transition from slow, inefficient and often expensive banking systems and financial products to faster, cheaper and much more accessible financial products running on a blockchain is inevitable. And we can now finally see it in action, like with our yet-to-be-announced cross-border payment product. A payment from a US bank account to a bank account in Europe that takes a few days with the current banking system but less than a few minutes with our stablecoin solution is actually pretty cool.

Bankless Ventures: If you could go back and give yourself one piece of advice on day one, what would it be?

Martin: Who would have thought, but it turns out that regulated finance moves way slower than crypto. So brace yourself with patience and just keep building.

Bankless Ventures: What kind of people thrive at your company?

Martin: People who are builders with a positive mindset and can deal with a lot of uncertainty and complexity. We are in a space that combines the revolutionary spirit of crypto with the dry bureaucracy of traditional finance–it takes a lot of resilience to handle that.

Bankless Ventures: What’s the most contrarian belief you hold about building a startup?

Martin: Don’t work like a maniac, and get a lot of sleep. No matter how hard you work, you will not succeed unless you have the best ideas and make the right strategic decisions. And to make those, you need a clear mind, which you will never get if you are constantly submerged in your daily grind.

Bankless Ventures: Who or what has been most influential in shaping how you run the company?

Martin: CZ. He’s probably the most impressive founder and CEO that I’ve ever worked with closely. People in crypto know him as a true visionary, but he also had an incredible and relentless focus on execution and efficiency. Building a great company is ultimately about getting things done exceptionally well and fast.

EURØP is now live on Kraken and Bitvavo!

About Bankless Ventures

Bankless Ventures is an early-stage Web3 Venture fund launched in 2023 to empower pioneers to explore the frontier of web3. We’ve just officially started raising for Fund II. If you want to invest in Bankless Ventures Fund II, you can submit an interest form as a Limited Partner (LP):

Submit Limited Partner Interest

If you’re a startup that wants to be reviewed by our investment team, show us what you’re building here:

Submit Startup

Disclosures

Views expressed in blog posts are those of the individual personnel of Bankless Ventures, LLC (“Bankless Ventures”) quoted therein and are not the views of Bankless Ventures or its affiliates. Bankless Ventures is not currently registered as an investment adviser with the Securities and Exchange Commission, in reliance on the exemption from registration provided by Section 203(m) of the U.S. Investment Advisers Act of 1940, as amended, and Rule 203(l)-1 thereunder. Blog posts are not directed to any investors or potential investors, and do not constitute an offer to sell, or a solicitation of an offer to buy, any securities, and may not be used or relied upon in evaluating the merits of any investment. These disclosures apply to all blog posts, whether available on this website, any associated distribution platforms, and/or any public online social media accounts, platforms, or sites (collectively, “content distribution outlets”).

Blog posts are provided for informational purposes only, and should not be relied upon or construed as legal, business, investment, tax, or other advice. You should consult your own advisers as to those matters concerning any investment. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in blog posts are subject to change without notice and may differ or be contrary to opinions expressed by others. Charts, graphs, and graphics provided in blog posts are for informational purposes solely and should not be relied upon when making any investment decision. Certain statements contained here have been provided by third parties or based on information received from third parties, including from portfolio companies of funds managed by Bankless Ventures. While taken from sources believed to be reliable, Bankless Ventures has not independently verified the accuracy or completeness of such statements and information and makes no representations about the accuracy or completeness of the statements or information or their appropriateness for a given situation. In addition, blog posts may include third-party advertisements; Bankless Ventures has not reviewed such advertisements and does not endorse any advertising content contained therein. All blog posts speak only as of the date indicated.

References to any securities or digital assets on this website or any other content distribution outlets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services, or an offer to sell, or a solicitation of an offer to buy, or a recommendation to purchase, or any other type of recommendation or advice with respect to any securities or assets. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors in any investment vehicle discussed or mentioned by Bankless Ventures personnel, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by Bankless Ventures. An offering to invest in a fund managed by Bankless Ventures will be made separately and only pursuant to the private placement memorandum, subscription agreement, and other relevant documentation of any such fund which should be read in their entirety, and only to those who, among other requirements, meet certain qualifications under federal securities laws. Such investors, defined as accredited investors and qualified purchasers, are generally deemed capable of evaluating the merits and risks of prospective investments and financial matters.

There cannot be any assurances that the investment objectives of Bankless Ventures will be achieved or that its investment strategies will be successful. Any investment in a vehicle managed by Bankless Ventures involves a high degree of risk including the risk that the entire amount is lost. Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by Bankless Ventures, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. Past performance is not indicative of future results. With respect to its investments in any cryptocurrency or token project, Bankless Ventures is acting in its own financial interest, not necessarily in the interests of other token holders. Bankless Ventures does not have any special role in any of these projects or power over their management. Bankless Ventures does not undertake to continue to have any involvement in these projects other than as an investor and token holder, and other token holders should not expect that it will, or rely on Bankless Ventures to, have any particular involvement.

Blog posts are subject to the Substack Terms of Use and Privacy Policy.

Back in April of 2023, we launched Bankless Ventures. Our thesis at the time was simple: We believed a small fund with a powerful brand could punch well above its weight class.

Over the past 21 months, we’ve been able to test that thesis as Ryan, Ben, and I evolved from opportunistic angel investors to competitive deal-winners. As angels, deal flow often found us. But as VCs, we had to secure that deal flow in a fiercely competitive ecosystem.

Could Bankless Ventures succeed? In order to win, we had to answer yes to these four questions:

• Can we get into the right deals?

• Can we deliver massive value to our portcos?

• Can we keep nailing hits?

• Can we build the best team?

Now that Bankless Ventures Fund I is 90% deployed and our gaze turns to Fund II, let’s take a moment to evaluate our performance and measure results.

Can we get into the right deals? ✅

Keeping Fund I small (under $40 million) was the right call. Our nimble size has allowed us to slip meaningful checks into early-stage deals, where larger VCs simply cannot fit. The combination of a powerful brand with $500K check sizes has allowed us to consistently win the deals we’ve wanted at stages optimized for venture scale returns. Most boutique funds fail to get on the cap table–larger players squeeze them out, and founders don’t know the reputation. Bankless is different.

"It feels like I'm on the podcast" is the number one quote we hear when joining a pitch call. Almost every founder we talk to has already spent hours listening to Bankless and knows our values before we enter the chat. Some thank us for getting them into crypto. This helps accelerate the deal-making process.

When they know us, they trust us, and want us involved. This is how we won our position in some of the most hotly contested deals of the last funding cycle.

Can we deliver massive value to our portcos? ✅

Our value proposition to portcos is the two Ns: Narrative liquidity and network liquidity.

• Narrative liquidity is the ability to propagate a story in crypto–this industry thrives on stories, and we are good at telling stories that scale. We drive education and understanding about the sectors that we also invest in–to great effect.

• Network liquidity is who you know; it's the total value of your network, and we have found ourselves in the fortunate position of being 1 to 2 degrees of separation from the key people a founder needs to give their project rocket fuel–a well-timed introduction to the right person is worth millions.

Billions in capital listens to Bankless on a weekly basis and uses Bankless as a signal for large trends in the industry as a whole. The themes that Bankless has pounded the table on (DeFi, L1s as money, L2s) have focused outside capital into the same themes that Bankless Ventures invests in.

While remaining neutral about specific portfolio companies, Bankless has been able to direct attention, talent and capital toward the sectors that excite us.

Can we keep nailing hits? ✅

We've nailed many of the major value accrual themes of crypto during our first seven years as investors. We saw Ethereum in 2016 as programmable money; we saw DeFi in 2019 as composable money legos; we saw L2s in 2020 as high-bandwidth blockspace–we’ve captured many of the deca-corns that crypto has birthed.

But the past is not always a predictor of future success, and for each new year, there's the question of whether we can keep nailing the hits. Our record in Fund I says yes. We nailed several of the frontier investment categories early on in this, with strong, high-ROI bets across restaking, zkProver tech, Bitcoin L2s, and Crypto x AI.

On the back of Fund I successes, we have further confidence that our approach to identifying, vetting, and making heat-seeking conviction plays is scalable and repeatable in Fund II.

Fund I is still early in its return cycle, but we deployed aggressively in 2023 and 2024 with purpose–we aimed to sow during the build market and reap the benefits during the bull market. While the typical venture cycle J-curve means that returns are often negative in the first few years of a fund, we are currently showing returns of 2.3x MOIC. (Next time I write an article reflecting on Bankless Ventures performance, I look forward to discussing DPI instead of MOIC)

Can we build the best team? ✅

Ryan and I bootstrapped Bankless Media from zero to a profitable 8-figure ARR business within a year without outside capital. Today, Bankless Media has a talented leadership team and 20 contributors who help us run it day-to-day.

We built a media company, but could we build a Venture Fund with the operational excellence of the best funds in tech? The answer again has been yes.

With full-time chad leadership from Ben Lakoff – and Ryan and I solely incentivized by fund performance, not salaries – Bankless Ventures Fund I has been resourced as a $100M fund at a $40M size.

Our superb team also boasts Brent Matterson focused on deal sourcing and curation, Kim Adams on providing portfolio support, and Ryan O’Meara dialed in on operations.

In Fund II we’re bringing an additional investment partner to our bench. This to-be-announced addition is one of the best crypto investors we know; he’ll specialize in “truffle-hunting” for incredible founding teams and deals we can lead, allowing us to get more surgical and enter opportunities even earlier. Stay tuned!

We’re raising $50M for Fund II

To recap, yes, we get in the right deals, we deliver massive value to portcos, we nail the hits, we have the team. We’ve never been better positioned to deploy capital in crypto.

We’ve just officially started raising for Fund II, and already have a ton of interest from great partners. Today, we’re opening up LP applications for Fund II. We want to talk to you.

Submit Interest Form

What’s next on the crypto frontier?

• Trillions of AI agents going bankless

• Stablecoins bringing open finance to the world

• ZK tech solving identity, privacy, and opening 1000 new rabbit holes

No matter where it happens, we’ll be there. Because this is the frontier, it’s not for everyone, but we’re glad you’re with us on the bankless journey.

Originally posted on Bankless Media

• EigenLayer offers services to leverage Ethereum's economic security

• Complex low-level development is required for services with shared security

• The Othentic Stack enables the creation of novel computational services, abstracts away development barriers, and minimizes engineering overheads

Developer bottlenecks

EigenLayer has been a major unlock for the ecosystem, providing the ability to extend security across various systems using smart contracts.

While EigenLayer provides the baseline smart contracts to derive security from Ethereum, AVS developers are responsible for:

1. customizing a system that interacts with the EigenLayer framework and

2. developing critical core components that fit the new shared security economy. 

In the new shared security economy, node clients are continuously evolving, and Operators must execute diverse onchain and off-chain computation work that represents the AVS unique service. 

AVS developers need to deploy their core service atop a trustless execution environment, spin up a network of Operators that run their unique node software, reach on-chain agreements on arbitrary computational tasks, distribute rewards, and enforce penalties and slashing based on the Operators' attestations.

All this creates a bottleneck for developers as they onboard into the Eigen ecosystem.

Introducing Othentic

The Othentic Stack is a self-deploy infrastructure to spin up distributed systems with shared security, with a mission to facilitate the creation of novel computing services.

Leveraging a library of production-ready and configurable components, AVS developers can focus on their core service, minimize engineering overheads, and abstract away low-level implementations and error-prone infrastructure details.

Stateless Rollups 

Othentic introduces a framework for Stateless Rollup, allowing AVS developers to self-deploy:

1. Custom computational services over trustless execution environments and

2. A network of Operators that run arbitrary compute tasks. 

Stateless Rollups are: 

• Computing services that provide services to other networks or applications

• Decentralized networks that run their own validator set and are compatible with any EVM or non-EVM blockchains

Stateless Rollups such as oracles, coprocessors, bridges, relayer networks, decentralized RPCs, ZK provers, exploit prevention systems, privacy-preserving computations, decentralized auth systems, AI inferences, composable data networks, decentralized solvers, and MEV Auction, provide services to other protocols without being constrained by any particular blockchain. 

Othentic Task Consensus

AVS’s operation can be broken down into units called “Task.” Each Task represents a unit of work to be carried out by the Operators. One of the primary goals of Othentic is to support diverse node tasks and enable AVSs to submit unique task specifications.Othentic Task Consensus is a scheme to execute, validate, and approve any given task.

Powered by a modular consensus engine, the Othentic Task Consensus allows the execution and validation of any computation use case.

The consensus algorithm leverages the leader election mechanism, a process for a quorum of nodes to make claims about the execution of a Task by the executing node. These claims are cryptographically signed to ensure the authenticity and immutability of task execution. 

This structure allows AVS Operators to execute customizable services, providing a foundation for a wide range of applications.

Conclusion

The Othentic Stack is an ever-evolving system. As work on the Stack continues, novel modules will be integrated and become available for developers to plug in and configure. Developers can gain early access by signing up here.

We are thrilled to be supporting the team behind Othentic and are excited about the future of shared security. To learn more about Othentic check out their website or follow along on X/twitter for updates. 

It’s why we’re proud to back the BSX team in their efforts to supercharge onchain trading as the first institutional-grade perpetual trading engine on Base. The team behind BSX brings extensive experience and knowledge from their previous roles at Coinbase, Kraken, Jump, FalconX, and other trading venues.

Near zero trading fee, 10x leverage, deep liquidity & cross margin.

BSX the platform is a self-custodial DEX that offers perps trading primarily for traders with any size– no size is too smol or too big. This is made possible through their design considerations of combining the speed of off-chain execution with the security and transparency of onchain settlements. In the background, BSX uses a central limit order book (CLOB) which is populated with liquidity from various market makers. This allows for minimal slippage, faster execution, and overall a better trading experience. 

The platform offers some neat features such as:

• Reduced gas trading thanks to Base’s low transaction fees

• 10x Leverage on available markets (currently: BTC/USDC, ETH/USDC, SOL/USD)

• Cross margin – meaning everything in your BSX portfolio is used towards your account equity and margin. This includes your unrealized PnL. 

• Market and limit orders 

• Scalp trading functionalities 

• 1-click trading – meaning traders only have to approve signature once, after which they can execute trades in 1-click 

• Seamless API and SDKs (Python, JS) integrations so that traders can use external trading terminals without exposing private keys and giving up custody of funds

At a high level, BSX looks like this:  

This design allows for a few things: 

• Users retain full custody of their funds when they deposit into BSX 

• BSX’s order matching can be done in 10ms, which is comparable to and faster than some centralized exchanges!

•  Clearing, liquidations, and trade settlement are all done at the smart contract level on Base L2

• BSX sequencer makes trading on BSX front-running and MEV-resistant

• The sequencer also makes BSX much cheaper to trade on than other DEXs on Base. 

To dive more into the product specifications, risk engine, funding rates, and more, check out the BSX docs here. 

What’s next for BSX? 

In the upcoming months, BSX intends to work closely with its traders and partners to continue improving the overall trading experience and become the main hub for onchain derivatives trading. Key roadmap items include: 

• Account and sub-account structure to run multiple strategies through one wallet

• Isolated margin accounts

• Advanced trading features 

• Additional markets and products (eg. options, commodities, FX trading & more)

• BSX roll-up 🤫

We are thrilled to be supporting the team behind BSX and are excited about the future of decentralized trading that BSX plans to lead. To learn more about BXS check out their website, docs or follow along on X/twitter for updates. 

About Bankless Ventures

Bankless Ventures is a $40M early-stage Web3 Venture fund launched in 2023 to empower pioneers to explore the frontier of Web3.

If you want to invest in the Bankless Ventures fund, you can submit an interest form as a Limited Partner (LP): 

Submit Limited Partner Interest

If you’re a startup that wants to be reviewed by our investment team, show us what you’re building here.

Show us what you're building!

Disclosure

The views expressed here are those of Bankless Ventures, LLC (“Bankless Ventures”) personnel quoted and are not the views of Bankless Ventures affiliates. Certain information contained here has been obtained from third-party sources, including from portfolio companies of funds managed by Bankless Ventures. While taken from sources believed to be reliable, Bankless Ventures has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. In addition, this content may include third-party advertisements; Bankless Ventures has not reviewed such advertisements and does not endorse any advertising content contained therein.

This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by Bankless Ventures. (An offering to invest in a Bankless Ventures fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by Bankless Ventures, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

It’ll make sense in a bit.

An intent is a desired state change specified by the user. An intent-based system abstracts the complexities of a typical transaction and focuses on what the user’s outcome is, whereas a transaction specifies how that outcome is achieved. Practically everything can be considered an intent since a user is always expressing their goal when interacting with a dApp — the key difference is how that user’s objective is captured and executed. Intents eventually get converted into transactions, but only after they are processed by an intent-based system designed for that purpose. 

Intents Vs. Transactions

• Transactions are explicitly defined, making them imperative- meaning that every function for how to execute the transaction in the virtual machine is already defined (example: swap 1 ETH for 2,000 USDC using Uniswap ETH-USDC pool on Ethereum with ETH as the gas fee). 

• Intents on the other hand specify the state change, but not how to get there, making them declarative. (eg: change the state of my account from 1 ETH to at least 2,000 USDC – basically, swap 1 ETH for >= 2,000 USDC) 

Let’s say you have USDC but would like to get Aave’s interest-bearing ETH (asETH). Normally, there are a few steps involved. You would have to: 

• get ETH for gas if you don’t already have (several steps in itself) 

• approve USDC to swap

• swap USDC for ETH

• swap ETH to WETH

• deposit WETH into aave

Using something like portals, you could simply swap your USDC directly for asETH by signing 1 intent. In the background, portals figure out the most optimal route, abstract the gas cost, and return asETH in your wallet. The path is figured out by the portal solvers. 

We can break down the system into 2 core components:

1. Intent capture: This refers to how the user’s objective is interpreted by the system. Most intent-based systems use their own framework or domain-specific language (DSL) which is interpreted by the algorithm that figures out how to fulfill the intent (also known as solvers). Front ends are also part of the intent capture process, they help guide the user in generating the intent. Front ends like UniswapX, CoW swap, and others capture the user’s intent and then pass it along for execution. 

2. Intent execution: The intent is captured in the form of call data and then broken up into logic modules which the algorithm (solvers) can process. The term solver is broadly used to represent any system that can fulfill a user’s intent. An algorithm as simple as a market maker could be considered a solver in an order book-type dex. The main point here is that solvers can do 2 things: 1) interpret and break down the intent into precise, executable logic and 2) that logic becomes a series of transactions that can be executed by the solver. 

Intents have been around for quite some time but only became a buzzword earlier this year. Some have called it programable quotes, RFQ systems, coincidences of wants, and so forth. These have slightly nuanced definitions but ultimately optimize for the same thing: efficiently fulfilling users’ intentions. They solve for 2 things: 

• User experience: The ability to conduct what was once a complex transaction in a simplified manner.  

• Better counterparty & price discovery: The ability to get the most bang for your buck

Is it overhyped? Perhaps a tad bit, but for good reasons. Intents would allow us to achieve the user experience and liquidity of centralized systems in a relatively decentralized environment. 

Intent Capture 

In the initial stages, Intents are simply data and not transactions, therefore, a system needs to understand how to interpret that data. Most intent infrastructures such as Anoma and Essentials have developed their own DSL (domain-specific language) and others have proposed frameworks and standards to foster more composability across defi. 

The drawback with DSLs is that a developer would need to reconfigure their entire system to integrate something like an anoma or essential on top of spending time understanding how that DSL works. Safe to say, this is not developer-friendly.  

Other projects like BananaHQ & Router Protocol use an LLM-based model trained on vast data to interpret the intents and pass them along. 

The BananaHQ team has also proposed a structure for better intent capture in the EVM called Abstracted Transaction Objects (ATOs). ATOs capture information relevant to a specific operation. Solvers then use this information to create optimized transactions tailored to the operation’s requirements.

There are also few EIPs highlighted by 0xRainandCoffee in a recent thread that may become more useful as we move towards an intent future. 

For example, EIP-712 essentially allows us to have clear structure data when signing a message as opposed to just seeing bytestrings. 

Intent Execution 

Solvers are the algorithms that execute the intents, but there are still a few parties involved to ensure the intent is fulfilled. These parties can be the same entities although they are different algorithms or systems. 

An intent is executed by the following systems working together: 

• Application/Prompter: This is the system or front end that captures the intent 

• Resolvers: This system breaks down an intent before the data is passed along to the solver

• Solvers: They create the transaction logic flow. Solvers can execute the transactions as well, provided they can tap into liquidity.

• Fillers/takers: This party provides liquidity for the intent. Market makers are fillers (they can also be solvers too!)

• Searchers: These are algorithms that are constantly on the hunt for MEV-extracting opportunities 

Solvers

Since many things can be a solver and a solver does most of the computation for figuring out the path, we broadly use the term solver to mean the thing that fulfills the intent. 

One confusing thing is when someone refers to a dapp as a solver. You might hear, “LI.FI is a solver, so is 1inch”  – this is true because both LI.FI and 1inch have algorithms that are constantly looking for the optimal route once you plug in your intent. In the image below, you see the routes are presented, in this case, Circle CCTP, allbridge, and others are the fillers.  

Generalized Solvers 

Generalized solvers are purely algorithm that focuses on routing and executing the transactions. Solvers such as sea solver, rizzsolver, and others capture intents from an intent meme pool. As solvers mature, teams are designing creative API solutions to help Dapps abstract away complexity for users at every stage, and focus on delivering what the user wants with fewer surprises. A perfect example of this is the Portals.fi API, which allows users to “one-click” Zap to enter any Dapp. Yearn Fianance enabled Portals Zaps, and now their users can enter any Yearn position in a single click. Other similar API-based generalized solvers include Enso Finance and Propeller Heads. 

Intent adapters

In the recent paper published by Router Protocol, they introduce the concept of intent adapters that would enable better execution and composability of intents. Intent Adapters are smart contracts that are pivotal for abstracting complex actions of dapps and enabling streamlined interactions, whether on a single dapp or across multiple dapps. Adapters are essentially the executors of the transactions derived from intents. They specialize in specific tasks such as bridging, swapping, staking, etc. on a single protocol or across myriad ones. Adapters give rise to a highly modular solution where developers can build upon existing adapters to accomplish more sophisticated transactions. 

Example: 

Staking 1000 USDC in staking PlatformA can be broken down into:

• Receive Funds 

• Swap for the asset to be Staked

• Bridge to chain 

• Stake on A

Each of these transactions interpreted from a vague intent is performed by an adapter specializing in the task of bridging, swapping, or staking. 

Adapters themselves aren’t solvers, but instead, they are what solvers would use. The solver is what is threading these micro transactions together creating viable paths and then composing call data for the same using different adapters. 

The past, present, and future of intents 

Intents have been around for quite some time but it didn’t have the marketing finesse that VCs (sorry), marketing, and BD folks have added to it. CoW swap has had its version of intents implemented via batch auctions, 1inch fusion with dutch auctions, and so forth.  Some other interesting early adopters of intent-based systems include:

• Across — Users submit cross-chain swap requests on the source chain, Solvers (also known as Relayers in this system) compete with each other to fill this order, and the winning Relayer successfully fronts capital to the user on the destination chain in exchange for user funds + fee.

• Connext — Users submit cross-chain swap requests on the source chain, Solvers (Routers) compete to fulfill the order on the destination chain by fronting the transaction funds on the destination chain.

• Squid – Users submit cross-chain swap requests on the source chain, Solvers (Relayers) compete to quickly fulfil the order on the destination chain by fronting capital from their own inventory. 

• Debridge DLN – Users submit cross-chain swap requests on the source chain, Solvers (Takers) compete to fulfill the order on the destination chain by fronting the capital in exchange for a fee.

Where do we go from here? 

Imagine a world where you submit an intent to arbitrage various liquidity pools across multiple chains while only having USDC on a single chain. Though we may be a bit away from that, the development and advancement at the infrastructure layer is promising to enable this. As these intent infrastructures mature, dApps will inevitably want to optimize for efficiency and better price execution to compete. We’ve already seen this with the introduction of UniswapX and others alike. As we move towards an intent-centric future, most existing intent infra protocols may need to be rethought to optimize for integration friendliness and composability which could unlock a new paradigm of price and trade discovery across defi. 

The ecosystem 

Special thanks to Arjun from LI.FI as well as members of the Portals and Router Protocol team for their assistance in putting this article together.

About Bankless Ventures

Bankless Ventures is a $40M early-stage Web3 Venture fund launched in 2023 to empower pioneers to explore the frontier of Web3.

If you want to invest in the Bankless Ventures fund, you can submit an interest form as a Limited Partner (LP): 

Submit Limited Partner Interest

If you’re a startup that wants to be reviewed by our investment team, show us what you’re building here.

Show us what you're building!

Disclosure

The views expressed here are those of Bankless Ventures, LLC (“Bankless Ventures”) personnel quoted and are not the views of Bankless Ventures affiliates. Certain information contained here has been obtained from third-party sources, including from portfolio companies of funds managed by Bankless Ventures. While taken from sources believed to be reliable, Bankless Ventures has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. In addition, this content may include third-party advertisements; Bankless Ventures has not reviewed such advertisements and does not endorse any advertising content contained therein.

This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by Bankless Ventures. (An offering to invest in a Bankless Ventures fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by Bankless Ventures, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

*Enters Modulus* 

AI models are all around us: from chatGPT and Midjourney to the social media algorithm that is used to show specific content on your feed. They affect our decisions and the world at large but are operated by centralized entities that avoid transparency within their system, opening the gates for manipulation. We’ve seen movements calling for decentralized social media and overall permissionless systems, but in order to create a user experience similar to that of centralized systems, we need similar tooling to help effectively bring these systems together. 

Using the same example of a decentralized social network, here would be an ideal tech stack: 

• Decentralized storage of mutable data (IPFS, Aarweave) 

• Decentralized storage of immutable data (Ethereum) 

• Decentralized front-end 

• Smart Contracts 

• Decentralized/transparent personalization algorithms (ai) ← This is where Modulus comes in. 

Most components of the stacks are already there, while other components are now being pioneered by talented teams like Modulus. This is why we are proud to be backing Modulus Labs in their $6.3M round to advance a critical component of the Web 3 tech stack; accountable artificial intelligence. The round is co-led by 1kx Network and Variant, as well as participation from Floodgate, Alliance, Inflection.xyz, the Blockchain Builder’s Fun, GCR, and angels from the Ethereum Foundation, Worldcoin, Polygon, zkSync, Celestia, Microsoft, and more. 

What is Modulus? 

Simply put, Modulus brings AI to the blockchain. They combine the power of Zero-knowledge (ZK) proofs with machine learning to offer “accountable AI.” This category is popularly known as ZKML (zero-knowledge machine learning). 

Let’s unpack what this means. 

What does it mean to “bring AI to the blockchain”?

• Bringing artificial intelligence on-chain means producing an AI algorithm whereby anyone can verify that the algorithm is operating correctly/fairly. Let’s assume someone built a web3 version of ChatGPT. Since web3’s ChatGPT is on-chain, users can verify that the algorithm operates without tampering. 

• AI on the blockchain also means that dApps can now embed AI functionalities to offer users better experiences without having to trade off decentralization. For example: an NFT marketplace that curates NFTs you may like based on the NFTs in your wallet. Or, an AI-powered staking vault that finds the best and safest yield using on-chain data – all fully decentralized; from the back end to the AI algorithm used. 

How is this even possible? 

The cost of AI computation in the web2 space is already extremely high, let alone moving the compute to the on-chain world. But there is already a solution we’re pretty familiar with; ZK roll-ups. 

• ZK roll-ups helped scale Ethereum, increasing throughput while preserving security. Instead of putting the data directly on Ethereum, Zk roll-ups put the proof of computation on Ethereum. Layer 2 (such as StarkNet and zkSync) is the network of compute nodes that are actually processing transactions and generating these proofs. The proofs are then batched and sent to the Ethereum mainnet, where each proof is verified and the state change is accepted. Zk proofs can be verified extremely quickly, and this is what allows Ethereum to scale. 

• This mechanism can also be used to bring AI on-chain. If we can create a proof of our AI inference call, then we can demonstrate that we ran a specific model over a specific set of data. ("Inference call" is the process of using a trained ML model to make predictions on new, unseen data or input. When you make an inference call, you're essentially asking the AI model to use its learned knowledge to provide an output based on the input it receives). 

• Generating this AI inference proof means that others can now verify a model without having to trust the creators of the model, and without having to run the entire computation themselves, only needing to check the generated proof. In other words, we can have powerful AI on-chain without giving up on the decentralized and trustless nature of crypto. 

Enabling Trustless Autonomy

Trustless autonomy is achieved when things work how they are supposed to, without having to trust any one person or entity. 

In ZK roll-ups, complete verification is the ability to check the entirety of a sequence of computation instructions in a deterministic way. With the complete knowledge of all inputs to a particular function (which is what SNARKs/STARKs do). 

A similar thinking is applied to AI on-chain. Modulus defines what complete verification means for AI models. Each model can be considered “completely verifiable” when it consists of 3 characteristics: 

• The model architecture: The AI architecture for our AI-powered staking vault example should be encoded within the smart contract function itself. 

• The inputs: This is the raw data that the model utilizes as part of its algorithm. For our staking vault, the inputs would include stuff like the impermanent loss, volume, prices, etc. 

• The model weights: Model weights refer to the parameters that a machine learning model uses to make predictions or classifications- in our example, you could have weights for the impermanent loss. These weights should be published separately with the ability to check them before utilizing the AI. 

Although some of these characteristics may be private to users (for example: our AI staking vault may choose to hide the model weights to protect the alpha), the algorithm can still be verified completely, allowing an application to achieve trustless autonomy given that all three characteristics of a model are transparent and on-chain, the entire execution of that ML model is deterministic and thus can be verified. Most importantly, this requires that the model operator mustn’t be able to switch out weights, architecture, or inputs, and thus can’t influence the final result.

Potential use cases: 

We’ve just scratched the surface of what’s possible when AI is brought to the smart contract. Some use cases include:  

1. Matching: Recommendation and matching algorithms can be brought to Web3.  

2. NFTs: Wallet owners can be better served based on the NFTs they currently own.

3. AI Oracles: A highly accurate AI model can be trained to solve any off-chain validation problem, making a single, centralized oracle trusted by all.

4. Tokenomics: Improving the quality of a model on-chain and being paid in tokens for the improvements, such as running a DAO based on an AI, or distributing Airdropped tokens based on the evaluation of participation by an AI.

5. Decentralized Health Care Ensemble: Data scientists can apply their techniques without needing to understand anything about healthcare data or outcomes.

6. Model Integrity: Providing assurance that the same machine learning algorithm is being run on different users’ data the same way.

7. Attestations: Integrating attestations from external verified parties into a model or any other kind of smart contract running on-chain.

8. Decentralized Inference or Training: Performing machine-learning inference or training in a decentralized way, and allowing people to submit data to a public model.

9. Proof of Personhood: Checking that someone has been verified, without revealing any information about that person’s identity, whether that identity is fully recognizable, or pseudonymous, like a public key.

10. ML-parameterized DeFi applications: Updating parameters in real-time using an ML model.

11. Automated trading strategies: Providing proof of the financial model inference when deploying into a specific position.

12. Fraud monitoring for smart contracts: Detecting possible malicious behavior and enacting a pause.

13. Decentralized prompt marketplaces for generative AI: Verifying the outputs of a prompt to ensure to a potential purchaser that the prompt does in fact create the desired images.

14. Replacing the private key with privacy-preserving biometric authentication: Abstracting the private key via facial recognition or other unique factors.

15. Fair airdrops and contributor rewards: Creating detailed personas of users that determine airdrop allocations or contribution rewards based on multiple factors.

16. Filtering for Web3 social media: A social media platform could use an open-source ML model that is agreed upon by the community and publish proofs of the model’s inference when electing to filter a post.

17. Advertising / Recommendations: Running a model on my tastes locally that feeds into media applications to serve me content.

18. New types of on-chain games: Creating cooperative human versus AI games and other innovative takes on on-chain games.

Builders behind Modulus 

The Modulus Labs team consists of three talented co-founders: Daniel Shorr, Ryan Cao, and Nick Cosby. All three of them have technical engineering background. Daniel met Nick in High School and Ryan at Stanford. Modulus Labs has 3 advisors: Zhang Zhenfei (EF), Riad Wahby (CMU), Rand Hindi (Zama). The team built the first fully on-chain deployment of an AI algorithm to mainnet (RockyBot). They then went on to build the first on-chain AI game (https://www.leelavstheworld.xyz/). Learn more about the team here.

We are thrilled to be supporting this team along their journey. To learn more about Modulus Check out their extensive writings here and follow them on X for updates.

About Bankless Ventures

Bankless Ventures is a $40M early-stage Web3 Venture fund launched in 2023 to empower pioneers to explore the frontier of Web3.

If you want to invest in the Bankless Ventures fund, you can submit an interest form as a Limited Partner (LP): 

Submit Limited Partner Interest

If you’re a startup that wants to be reviewed by our investment team, show us what you’re building here.

Show us what you're building!

Disclosure

The views expressed here are those of Bankless Ventures, LLC (“Bankless Ventures”) personnel quoted and are not the views of Bankless Ventures affiliates. Certain information contained here has been obtained from third-party sources, including from portfolio companies of funds managed by Bankless Ventures. While taken from sources believed to be reliable, Bankless Ventures has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. In addition, this content may include third-party advertisements; Bankless Ventures has not reviewed such advertisements and does not endorse any advertising content contained therein.

This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by Bankless Ventures. (An offering to invest in a Bankless Ventures fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by Bankless Ventures, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Validator-Backed Asset (VBA) is an emerging asset category within crypto, capturing more than $20 billion in TVL across LSTs, EigenLayer, and additional restaking protocols. The growth of VBAs promotes more secure capital circulating within DeFi and presents an opportunity for the birth of an entirely new asset class, enabling additional growth and capital efficiency for the ecosystem. Ion Protocol is amongst one of the first asset-specific lending platforms built to support VBAs. 

Bankless Ventures is proud to back Ion Protocol as its first investment in their $2M pre-seed round co-led by Portal Ventures and SevenX Ventures.
 

Validator-backed assets (VBAs) 
A validator-backed asset is any asset that is backed by value staked in a validator to secure a network. It can range from a standard liquid staking token (LST) to more complex restaked positions. Since each VBA contains a specific risk profile linked to factors outside of those traditionally considered in DeFi products, adding support for them in a composable fashion across DeFi becomes challenging. A few examples of VBAs include:

1. LSTs (eg. stETH, rETH) 

2. LST LP Positions

3. Staked LST LP Positions (e.g., Aura Finance’s ERC-4626 positions)

4. EigenLayer Native Restaking positions

5. EigenLayer LRT (Liquid Restaking Token) Positions

6. EigenLayer LRT LP Restaking positions

7. LST Index Products (e.g., IndexCoop’s $dsETH, UnshETH and more)

Ion Protocol: A lending market for validator-backed assets  
Ion Protocol allows users to lend and borrow using validator-backed assets as collateral. It uses provable validator-backed data to calculate credit risk and let users borrow ETH against their VBA. 

All loan positions in Ion are price-agnostic, meaning that instead of relying on price oracle data, all the loan parameters such as the interest rates, LTVs, position health, etc. are determined by consensus layer data and secured with ZK data systems. Liquidations on Ion are triggered by changes in consensus layer state, not by price oracles — a novel design to efficiently support VBAs across defi.

Core mechanism designs

Single Market Lending: On Ion, the lending market is isolated to support ETH only– lenders supply ETH as liquidity, offering borrowers access to the most liquid and used asset across defi; ETH. This enables ETH holders to access passive low-risk yields without exposing themselves to the additional trust assumptions associated with participating in validator staking. Borrowers are then able to always borrow ETH to compound their staking yields, hedge staking positions, and more, enabling hyper-efficient lending markets to borrowers.

Staking Sensitive Interest Rates: To make lending more efficient for assets that earn rewards from validators, Ion sets limits on how much interest rates can change compared to the current reward rates of the assets being used as collateral. This helps borrowers who want to make the most of their staked assets by giving them a stable interest rate. It also assures lenders that they're getting the best possible interest rates, based on how much people want to use the collateral assets.

Collateral-Specific Interest Rates: In many lending markets today, the interest you pay for borrowing an asset depends on the specific asset you want to borrow. For example, if you deposit USDC and want to borrow ETH, the interest rate will be different from borrowing WBTC. However, on Ion, things work differently. Here, all assets you use as collateral can only be used to borrow ETH. The interest rates are determined by the type of collateral you deposit. This reflects how risky the underlying validator-backed asset is.

ZKML-based Parameterization: This "credit-risk dependent" parameterization leverages Ion’s zero-knowledge machine learning framework that analyzes consensus layer data and information about validator setups to inform risk adjustment. To learn more about this see ZKML-Supported Risk Underwriting.

Reserve Bolstering Mechanism: Each market on Ion has a characteristic piecewise linear curve that dictates the borrow and supply rate of participants in the market. It is bounded by the staking rate of the given asset. The spread between the borrow and supply rate is what we determine as the "reserve spread." This spread helps create an extra amount of money that the protocol can use to protect the market if a black swan event occurs. 

Proof-of-Reserve Backed Liquidations: Liquidations on Ion happen independent of the market price of the collateral. Instead, they happen because of changes in the validators' balances in the beacon chain. If the amount of collateral backing a certain asset in the beacon chain decreases and positions become too risky, those positions will be liquidated. Essentially, liquidations are triggered by changes in the validators' accounts, not by how much the collateral is worth in the market.

Partial liquidation: Instead of having a fixed discount rate for liquidators, Ion uses a sliding scale for this rate. This means that the reward for taking over a risky position increases as the position becomes even riskier. It also limits how much of the collateral can be bought. This limit is designed to help liquidators bring a risky position back to safety without causing extra losses for the borrower.

Feeless flash loans: Ion enables users to take feeless flash loans from the protocol to effectively take uncollateralized borrows that can then be leveraged to perform complex operations (while supporting some internal products) such as position rebalancing, leveraged yield generation, and more. Because fees on borrows are only charged on a per-block basis and there is no additional fee charge incurred by the protocol, flash loans are completely free on Ion and incur no cost to the user (outside of network costs).

Builders behind Ion Protocol

Behind Ion are two passionate and ambitious co-founders, Chunda and Jun, who possess a strong vision for the future. They see ETH staking as the new "risk-free rate" which enables innovation in the defi protocols to support this risk-free rate as a foundational source of revenue in which many financial products can be built on top of.

Chunda McCain | CEO and Co-Founder Linkedin | Twitter

• Chunda is a young and ambitious entrepreneur who first discovered an interest in crypto at the age of 12. His interest in the space solidified into a passion during his time at the University of Pennsylvania (UPenn), where he studied Biology and Economics as part of the Life Science and management coordinated dual degree program. At UPenn, Chunda became president of the Penn Blockchain Club and co-founded FranklinDAO, a DAO involved in various activities including governance delegation of approximately $100 million (the second-largest delegate on Aave), producing research content on projects and emerging narratives within web3, and organizing events/network opportunities for students. Chunda's professional journey includes working as a Summer Business Analyst at McKinsey, a Blockchain Developer at Party Round, a core team member at Pentagon, a DeFi company built by the founder of Rari Capital and Waymont, Jai Bhavnani, and a Research Scholar at Blockchain Capital (at the time the firm was leading their EigenLayer deal which inspired Chunda to commit himself full-time to building in the industry). Chunda's passion, drive, and expertise position him as a promising builder and contributor to the future of DeFi.

Jun Kim | CTO and Co-Founder | Linkedin | Twitter

• Jun, a former computer science student at UPenn, dropped out in January 2022 to work full-time as CTO of VO2: a Techstars-backed sports-fan engagement company he co-founded. Prior to VO2, Jun gained valuable experience in the industry working as an Engineering Intern at Terraform Labs in 2021 and a Research Scholar at Blockchain Capital in 2022. After leaving VO2, Jun traveled around the world participating in hackathons until deciding to join Chunda as a co-founder.

Jun and Chunda have been close friends for three years and are committed to making Ion a core infrastructure within the DeFi ecosystem. The extended Ion team comprises of 7 additional members; 4 engineers and 3 on the operations, marketing, and business development side.

Timeline

• 2023 Q4 - Mainnet Launch

  • Includes LST Support, EL position support, Exotic LST Positions

• 2024 Q1 - CDP Launch

  • Launching the CDP + with potential plans for a v2 lending market and L2 expansion

• 2024 Q2 - Additional products

  • Expand product offering; Bonds, rate products, etc.

• Onwards

  • Other PoS networks + Ideally Neobank integrations if there is demand, and institutional adoption if demand is there

We’re thrilled to be supporting this team along their journey. To learn more about Ion Check out the Ion docs and follow them on X for updates.

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Disclosure

The views expressed here are those of Bankless Ventures, LLC (“Bankless Ventures”) personnel quoted and are not the views of Bankless Ventures affiliates. Certain information contained here has been obtained from third-party sources, including from portfolio companies of funds managed by Bankless Ventures. While taken from sources believed to be reliable, Bankless Ventures has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. In addition, this content may include third-party advertisements; Bankless Ventures has not reviewed such advertisements and does not endorse any advertising content contained therein.

This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by Bankless Ventures. (An offering to invest in a Bankless Ventures fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by Bankless Ventures, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.