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Flow: The Normie Blockchain
Zigging When Others Zag and Progressively Decentralizing to Win the Future
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Hi friends 👋,
One of my favorite kinds of essays to write are the ones where there’s an obvious consensus opinion … that turns out to be completely wrong. I think that’s what we have today.
Many people in crypto dismiss Flow, the blockchain originally developed by Dapper Labs, as too centralized or corporate. While it started that way, what’s happened since and beneath the surface is much more complex and fascinating. They’re building a maximally decentralized platform to support a billion users building complex worlds on-chain, even if it means making some hard trade-offs upfront.
This is a Sponsored Deep Dive on Flow. As with Solana and Braintrust, I figured that the interest in Flow is broad enough that it deserved to be a Monday piece. While the piece is sponsored, these are all my real and genuine views – there’s no perfect blockchain; it’s all about making the right trade-offs to serve the target audience and use cases. The future is multi-chain.
Plus, if I weren’t genuinely fascinated, there’s no way that I could have written 14,000+ words – they would have paid me for less than half that many! You can read about how I choose and write Sponsored Deep Dives here.
Disclaimer: As always, this is not investment advice. I own a small amount of FLOW. As always, I only write sponsored deep dives on companies or assets I would invest in personally – but this piece is for entertainment and educational purposes only. If you saw my portfolio over the past couple of months, you would know that you’d have to be a fool to buy something just because I wrote about it. Plus plus, I’m clearly conflicted. As always, if you’re going to invest, do your own research.
Let’s get to it.
(Click here ☝️ to jump directly to the online post)
This is the longest Not Boring essay in history, so let’s start with a quick summary:
Dapper Labs, the team behind CryptoKitties and NBA Top Shot, built the Flow blockchain to solve scalability issues with Ethereum and support open worlds.
The crypto community has largely written off Flow as too centralized.
Flow wants to onboard the next billion users, not to fight for crypto-natives.
It’s made bets that attempt to solve the Scalability Trilemma with time.
Since going live in late 2020, it’s progressively decentralized across dimensions.
With the Brud acquisition, it’s adding DAO skills and doubling down on youth.
The Flow ecosystem is gaining steam and has a pivotal summer ahead.
Flow is a sleeper to build one of the most vibrant web3 ecosystems.
Physical Properties with Digital Superpowers
Crypto can give digital assets physical properties with digital superpowers.
Bitcoin behaves like gold, but it can be stored and transferred more easily.
DeFi behaves like the financial system, but without middlemen and with programmability and composability.
NFTs behave like physical things, but with lower storage costs, programmability, and composability.
DAOs behave like LLCs, but with more flexibility, speed, and stakeholder ownership and control.
I’ve explained crypto as a way of getting back to our roots, but on a global scale, in recent essays. In The DAO of DAOs, for example, I wrote, “I think that stakeholder ownership is the natural state of things, and that we just haven’t had the technology or models to coordinate such widely distributed governance and ownership before.” I was proud of myself for coming up with the comparison.
In it, he walked through the history of ownership, collectibles, and money to highlight NFTs’ place in the grand arc of human history. He even used Legos to describe composability long before that became the default analogy. Concluding the talk, he said:
Blockchain is creating a world of digital assets and open source software that is real and permanent as anything physical and built to interoperate like Lego sets. Now don’t get me wrong, the barriers to adoption are incredibly high. Speed, scalability, user experience, and cost will have to change dramatically before any of you will consider using these tools in your daily life. But if you squint, something absolutely incredible is starting to happen.
For the first time, we have both the reason and the ability to tear down the feudal castles that control our online experiences. For the first time, we can transition to true digital freedom, where identity, self-expression, and ownership is back where it belongs: in your hands.
It was prescient. Roham gave the speech two full years before 99.99% of us had ever heard the term “NFT.” Since then many others have used the concepts Roham laid out in it to explain this wild new world approachably.
Today, the company Roham co-founded, Dapper Labs, and the blockchain it created, Flow, wants to give entire digital worlds physical properties with digital superpowers. Flow describes itself as the “blockchain for open worlds.” It has at its disposal the lego blocks of crypto, DeFi, NFTs, and DAOs.
Roham and the Flow team understand that open worlds, like the physical one, thrive with more participants from all walks of life, skill sets, and ability levels. Their job is to make it as easy as possible for anyone with an idea to build it and remix it with others’. They know that what makes physical cities and spaces vibrant aren’t the spaces themselves, but the people in them.
Nerds built the internet, but normies brought it to life by filling common spaces like AIM chat rooms, Facebook, and Twitter. Both are needed for a thriving digital ecosystem. But as Roham pointed out in the talk, the barriers to adoption for normies are high. Speed, scalability, user experience, and cost will have to improve dramatically before normies start participating in their daily life.
The stakes are high, too. We spend more and more time in digital worlds, playing the Great Online Game, in 2D worlds like Twitter to fully immersive video games. We both use and shape our digital worlds. The question is whether we’ll get the same property and voting rights in our digital worlds that we do in our physical ones. If we get it right, we’ll get the benefits of physical properties with digital superpowers.
That’s what Roham and the team set out to do with Flow. It’s a blockchain built for open worlds, but really, it’s a blockchain built to onboard hundreds of millions or billions of mainstream consumers. Normies.
As it stands, though, Flow is a dark horse in the crypto community. After a scorching Spring of 2021, Flow usage dipped.
Transactions peaked at 8.1 million in April 2021. They fell by more than half to 3.9 million by September.
Flow hasn’t generated a ton of buzz on Crypto Twitter in the intervening five months. When I asked this holy war-inducing question the other day in order to fish out thoughts on Flow without tipping my hand that I was writing about it…
… and not a single person mentioned Flow.
My sense is that CT isn’t currently taking Flow seriously as a standalone blockchain because peoples’ first interaction with Flow felt too centralized. The battle has moved on to L1 chains like Solana, Avalanche, Near, Polkadot, and Celo, L2 sidechains like Polygon and Fantom, and zero-knowledge leaders like Starkware and zkSync.
While those other chains already allow permissionless deployment – anyone can write a smart contract and deploy it to mainnet without asking anyone – Flow doesn’t yet (although it expects to by summer). It doesn’t feel as web3.
But it would be a huge mistake to dismiss Roham and the team. They’ve arguably done as much as anyone aside from Satoshi Nakamoto and maybe Vitalik Buterin to bring people into web3, normies and degens alike.
Because when you ask people how they first got into crypto, a huge slice of the population gives one of two answers:
NBA Top Shot
Some of the most degenerate pseudonymous people I know in the space started their respective journeys down the rabbit hole by either purchasing jpegs (well, technically, SVG files) that looked like this:
Or by queuing up here…
… entering their credit card info, and stacking NBA highlights in a custodial wallet.
CryptoKitties and NBA Top Shot were my entrée into web3, too. In the first piece I ever wrote about the space, The Value Chain of the Open Metaverse, I wrote about CryptoKitties and Top Shot. NFTs were the first web3 use case that really clicked for me beyond token speculation. They were my a-ha moment. As more of our lives became digital, I realized, of course we’d want a way to own our digital things.
Ownership of unique digital assets was made possible by the ERC-721 token standard. Tokens like ETH and BTC are fungible: every ETH is worth as much as every other, and people don’t care which ones they own. On Ethereum, fungible tokens work off of the same standard: ERC-20. For something like CryptoKitties, though, each of which is unique, ERC-20 didn’t work. So the team behind CryptoKitties, Axiom Zen, created a new standard, ERC-721. If ERC-20 tokens represent digital money, ERC-721 tokens represent digital things. Turns out, there’s a big market for digital things.
The wild part is: CryptoKitties, ERC-721, and NBA Top Shot were all created by the same people, Roham and his team.
The team that today runs Dapper Labs, led by co-founders Roham (CEO), Dieter “Dete” Shirley (CTO), and Mikhael “Mik” Naayem (CBO), started working together at Vancouver-based startup studio Axiom Zen, where they created CryptoKitties on top of Ethereum. While there, Dete co-authored the ERC-721 Standard and introduced the term “NFT.”
When Ethereum couldn’t handle the volume that CrypoKitties drove, they decided to spin up a new company, Dapper Labs, create their own blockchain, Flow, and build NBA Top Shot as its first app to show off its potential.
For the avoidance of confusion, since we’ll be talking about both a lot, Dapper Labs is the parent company of both Top Shot and of the Flow blockchain, but Flow is a distinct entity from Dapper. The relationship between Dapper and Flow is somewhat like the Ethereum Foundation and Ethereum or Solana Labs and Solana, except that Dapper Labs is a for-profit entity that also builds applications on top of Flow, like NBA Top Shot, NFL All Day, and UFC Strike. As we’ll discuss throughout the piece, Flow is becoming increasingly independent and distinct from Dapper over time.
With CryptoKitties and Top Shot, Dapper built an incredible top of funnel machine for the entire space. But it’s also been an incredibly leaky one.
In early 2021, when Top Shot took off, it gave over a million people their first web3 experience. When they wanted to do the next thing… there wasn’t much else to do. The Flow blockchain was mainly Top Shot. Third-party developers couldn’t build on top of it without approval from the Dapper team; Flow didn’t yet allow the permissionless deployment that lets wild things emerge randomly in other ecosystems.
Users either went back to web2 or continued their web3 exploration in more developed ecosystems like Ethereum and then Solana.
Would-be web3 entrepreneurs and developers largely did the same. For the more hardcore among them, Flow, which allowed users to purchase with credit cards and lacked off-ramps to non-custodial wallets in the early days, seemed too centralized to build on.
That’s the bear case, and it’s the commonly accepted case. 🥱
But the bull case for Flow is that it’s playing a different, longer game.
In Own the Internet, my bull case for Ethereum last summer, I wrote that I was bearish on chains attempting to compete directly with Ethereum. I like L1s that differentiate and try to win for certain use cases. The two chains I highlighted in that piece: Flow and Solana.
Solana, which I wrote about in August, was built to win high-frequency DeFi use cases, and it’s in the lead there.
Flow wants to win by getting as many regular consumers, or “normies,” onboarded as possible.
That means starting with the strategy most people associate with Flow: working with global brands those consumers love like the NBA, NFL, UFC, La Liga, and Dr. Seuss.
Beyond IP holders, Flow seems to be tapping into huge pools of consumers via the tech giants; Google is an investor and a leak last month showed Instagram is working on integrating Flow NFTs. There are also the beginnings of a very interesting developer ecosystem on Flow, with unicorns like PlayCo and Animoca building games on Flow alongside emerging success stories like Genies and Cryptoys.
Flow is targeting both today’s normies and the next generation of users and builders so web3-native they won’t even call it web3. One of Flow’s biggest hidden advantages is that it’s trying to onboard (and retain) all of the youngest users via Genies, Cyptoys, Brud, and a more seamless experience. Those young users will become creators and builders and whales. Building for them means Flow can play the long game.
That time horizon is the part that people not intimately familiar with Flow miss. I missed it too.
When I started talking to the Flow team about potentially writing the piece, my assumption was that the Flow team had decided to approach the The Scalability Trilemma – blockchains can only have two of three of Security, Decentralization, and Scalability – by completely sacrificing Decentralization in exchange for Scalability and Security.
Now I actually think they’re trying to solve the Trilemma without sacrificing any of the three by adding a fourth dimension: Time.
For Flow, the team re-thought how to build a blockchain that can handle complex dapps serving billions of users from scratch. They realized that it might be possible to solve the Trilemma by adding a bunch of complexity upfront, reducing decentralization in the short-term, and building a product and ecosystem that achieves all three over time.
In other words, it’s impossible to solve the Trilemma with simple solutions from day one, but it’s possible to do it if you relax the time constraint and “decentralize” progressively.
So what does that complexity look like?
Under the hood, Flow’s architects reimagined everything:
A new programming language – Cadence – that makes tokens their own resource type, which means developers can better build for and protect peoples’ money.
A new multi-node architecture, one that splits consensus and compute and splits nodes into four types: Consensus, Verification, Execution, and Collection.
Dapper provides a custodial wallet for newbies, but experienced users can bring or build their own.
Over time, because the wallet keys cycle, users can choose to switch to non-custodial without transferring their assets whenever they’re ready.
A more sustainable blockchain, which Deloitte found takes less energy than an Instagram post.
Flow has decentralized in a slow, progressive fashion. They aren’t in a rush. They’re building for the next billion users, the mainstream users.
Building for the mainstream means making different trade-offs in the short-term in pursuit of the long-term vision, and it means making Flow the most welcoming place for the next generation of builders to build rich, composable experiences. That takes time.
Taking time is a risky play, and one that’s in no way guaranteed to pay off in such a fast-moving environment, but if it works, it has the chance to make Flow the first blockchain with real, “oh shit everyone is using this,” network effects.
It’s hard to bet against the Flow team. They’ve been through the Hype Cycle a couple times now, and they just keep building and attracting millions of users. At this point, four years into Dapper Labs and less than 18 months into Flow’s public life, we might not even need to wait that long to see liftoff. Flow is finding its rhythm.
For example, remember that transaction cool down we talked about a few paragraphs ago? Flow’s already bounced back. It’s picking up steam.
There were 3x more Flow transactions last month than there were in September, in the midst of an NFT bear market. Overall, Flow has handled more NFT transactions than any other chain by far.
But its ambition is to be more than an NFT chain. It’s building the “blockchain for open worlds.”
Layne Lafrance, Flow co-founder and Product Lead, explained that “Flow is designed to be performant when people come together, build together, build on top of things. Complex communities need to be able to evolve.”
To that end, in October, Dapper acquired Brud, the team behind virtual celebrity Lil Miquela helmed by Trevor McFedries, who also founded popular DAO Friends with Benefits (FWB). Trevor will be running Dapper’s push into DAOs on Flow, dubbed Dapper Collectives, starting with Brud DAO.
I asked Trevor when we’ll see Brud DAO, and his answer encapsulates the way that Dapper builds: “We’re doing it as soon as possible, but the motto here is the anti-Facebook: Move Slow and Get it Right.”
“We could be wrong,” Roham admitted, “But if we’re right, this is the way to build new mainstream consumer products.”
There’s no guarantee they get it right. Looking at Flow’s market cap compared to other L1s, the money suggests that people think it’s unlikely. But the Flow team has been patiently snapping LEGO blocks together in pursuit of a big, long-term vision, and they know better than anyone how to bring consumers into web3. It’s worth understanding what they’re up to:
Crypto for Normies
Kitty Up! 😺
Kitty Down 😾
Acquiring and Decentralizing Brud
Young Users and Real Network Effects
Risks and Trade-Offs
There’s a lot to cover, so before we dive in, I want to set the stage and define the stakes.
Crypto for Normies
As I was writing this piece, I asked one of my degen friends what he thought about Flow, and he asked one of his even more degen friends, who said this:
“Flow is like normie blockchain.”
In crypto, that’s kind of an insult, but let’s do some quick math.
As of last November, there were 21 million MetaMask wallets. Generously assuming there’s a different real person behind each one, that means 21 million people with the capability of plugging directly into web3. Crypto.com estimates that there are roughly 300 million crypto users worldwide, including all bitcoin holders and users of centralized exchanges like Coinbase. So let’s go with 300 million people.
There are roughly 5 billion internet users worldwide. We’ll make a few extreme assumptions for simplicity here:
None of today’s 300 million crypto holders ever use Flow.
The people who do or will care the most about crypto for crypto’s sake are either already part of that 300 million or too young to participate.
Both are rough and wrong, but they’re rough and wrong in opposite enough directions that it should come out in the wash.
So if Flow is the normie blockchain, that seems to be a pretty good place to play.
Obviously, that graphic is an extreme representation of the state of play. A lot of the L1s and L2s on the left are working to make web3 cheaper and more performant exactly so developers can build products to attract more of those 4.7 billion non-crypto internet users into web3.
But in order to appeal to the current batch of web3 developers and users, those chains might not be willing to make the same trade-offs upfront that Flow has. The Flow team, on the other hand, has proven that they do not give a fuck about looking cool. These are the same people who brought you CryptoKitties.
While everyone else competes for existing crypto users, Flow is trying to go after everyone else. a16z’s Chris Dixon told me, “Flow is playing a totally different game. Sometimes, you need to make some bets on the future.”
So as you read through the piece, try to orient towards the future. As Layne described it:
We designed Flow to exist over time. Blockchains will be the homes to digital cities, and Flow needs to make the same promises you’d want if you were building a city – giving people the ability to sustain themselves, making guarantees to builders, giving owners property rights, making sure no one can blow it up. Any city built today needs to respect the environment, and Flow is no different. It’s a sustainable way to own digital assets over time.
We want this to be a generational product, designed for ten years of dapps to seed ten more years of dapps.
When you’re building on a decades-long time horizon, you make different decisions in the short-term. For example, while Flow’s transition to letting developers deploy to the blockchain permissionlessly has felt interminably long to some, a year and a half is very short in the grand scheme of things. The long time horizon is also why Flow has more prominent projects for kids and teenagers, like Cryptoys, Genies, and Brud, than other ecosystems.
In one of my favorite tech quotes of all time, Stripe’s Patrick Collison said:
There’s something quite deep about the notion of using time horizons as a competitive advantage, in that you’re simply willing to wait longer than other people and you have an organization that is thusly oriented.
After digging into Flow, I see the same ethos and patience at play. The Flow team is willing to trade time and short-term degen praise for a chance to get it right for billions of normies.
The strategy is sound and the trade-offs make sense, but until there are a billion users on Flow, questions remain. Some of the core questions for Flow are:
Can it prove that a large number of normie users prefer onboarding via consumer-grade blockchain applications over more web3-native-feeling ones?
Can it attract so many of those users that developers take note and learn a new, non-EVM-compatible programming language to build apps on Flow?
Will those developers build apps that keep users in the Flow ecosystem?
Can Flow and the developers in its ecosystem provide the full web3 experience to those who want it over time?
All of which boil down to the big bet that Flow is making:
By reversing the typical L1 approach – by building for normies first and progressively decentralizing – can Flow get the best of both worlds: real network effects and a solution to the Trilemma?
It’s not a guarantee that they’ll be able to make the transition – in fact, Flow looks like the cute underdog among blockchains – but there’s a lot of power hiding under the hood, and if anyone has the experience to onboard the next billion consumers, it’s the Dapper team.
Roham Gharegozlou grew up on the internet. Born in Iran, his family moved him to Dubai when he was six, and then to Paris for high school. He found his permanent home online, where he made websites and ran side hustles. That experience helped get him into school in the States.
In 2012, three years after graduating from Stanford with a BA in Economics and a Masters in Biological Sciences, an oddly perfect combo for building online worlds, he launched Axiom Zen, “an award-winning venture studio that specializes in mainstream applications of new platforms and emerging technologies including blockchain and artificial intelligence (AI).”
As early as 2014, Roham became intrigued with the potential of blockchains. Axiom Zen won grand prize at the Money 20/20 hackathon in Las Vegas that year. Two out of the company’s three submissions were bitcoin apps. OG.
An excellent profile in Coindesk, written when the publication named Roham one of the 10 Most Influential people in crypto in 2021, described that he was initially attracted by the opportunity to remove platform risk for developers. By 2016, he had pulled in Axiom Zen’s Chief Software Architect, Dete, to figure out how to build something on Ethereum “to illustrate that with something concrete, something fun, something even goofy.”
At the same time, Roham’s high school classmate from Paris, Mik Naayem, who had been on the Board of Axiom Zen since the company’s founding, sold his mobile game platform-as-a-service company to Animoca Brands. While Mik was taking some post-acquisition time off, Roham kept bugging him about this blockchain thing. Mik was in Brazil kitesurfing, but after a couple weeks of reading up post-sesh, it finally hit him: this technology has the power to give people ownership, rights, and freedom.
(Case in point: as we speak, thousands of people from around the world are donating BTC and ETH to Ukraine: learn more and donate here).
He finally gave into Roham’s pleas to “get up here,” and headed up to Canada. When he got up there, the team was chewing on this prompt:
We believe in a decentralized future, what bridges need to exist to get us there?
First, they thought about creating a stablecoin. Only USDT existed at the time.
Then, they explored building a privacy-securing blockchain using zero knowledge proofs.
None seemed the right one to help achieve the goal: to make the new technology tangible for everyday people.
Finally, “One day, as they left yet another fruitless brainstorming meeting, [Dete] Shirley’s co-worker, Mack Flavelle, turned to him and said, ‘We need to put cats on the blockchain.’”
Once they figured out what that actually meant, the team got to work building. By the fall of 2017, they were ready. They unveiled CryptoKitties live at the ETHWaterloo hackathon.
CryptoKitties won, alongside seven other teams, including another Axiom Zen project, blockchain analytics tool Rufflet. The prize? $1,000 in the token of their choice.
The real prize the team was after, though, was bringing crypto mainstream. They laid out their beliefs in the CryptoKitties Manifesto:
Mik explained the thinking behind CryptoKitties even more succinctly: “Asking people to adopt a new technology by starting with banking is crazy.”
Already in this first iteration, the threads that inform Dapper’s strategy were clear. NFTs needed to represent things that people care about, they believed, and the internet fucking loves cats. They were right.
Consumers loved CryptoKitties, and it did give many of them a new way to interact with Ethereum. Too many. During its mainnet release a month after ETHWaterloo, the week of November 28, 2017, CryptoKitties broke the (decentralized) internet. Per Delphi Digital:
Pending transactions spiked from under 2,000 to over 11,000, and the CryptoKitties contract address accounted for almost 12% of all transactions on the network during this period.
CryptoKitties got so big, so quickly that it no longer fit inside of Axiom Zen. Roham, Dete, Mik, and Mack decided to spin it out. In March 2018, they announced the independent CryptoKitties and a $12M funding round led by Chris Dixon at a16z and Fred Wilson at Union Square Ventures, both early investors in Coinbase.
When USV and a16z invested, they were investing in a digital collectibles company – more than just CryptoKitties, they knew, but not a whole blockchain. But that’s what they ended up getting.
According to CoinDesk, the month after the raise, April 2018, Roham started courting the NBA for a partnership. After making Ethereum unusable with some cat pictures, the team realized that NBA demand would be impossible to support.
So Dete’s tech team, including CryptoKitties OGs Kim Cope and Layne Lafrance, started looking for alternative blockchains. It was 2018, so luckily everyone was building one. They “read more than 100 white papers” and talked to 20 teams, but according to Dete, “No one was building a blockchain with an eye for creating high-quality, consumer-facing applications.”
Still, they promised Roham they wouldn’t need to build their own blockchain. And then, of course, they realized that they needed to build their own blockchain.
“We felt backed into having to build our own,” Dete told me:
And once we did, we went whole hog. What else should we rethink? So we wrote our own new programming language (Cadence). We built a new interface between dapps and wallets that let users work with mobile, custodial, and browser wallets. We made a lot of decisions that were all about doing things at the protocol level that make it better for end-users who don’t want to spend time learning.
It was an expensive investment to make, but one that seemed worth it in the halcyon days of the late 2017 / early 2018 crypto craze.
Then, things turned south quickly. They wouldn’t recover for a while.
Kitty Down 😾
One of the criticisms of Dapper Labs and Flow is that, unlike Ethereum or Bitcoin, it’s VC-backed. VCs get in early before normal people are able to get in, this argument goes, giving them practically free profits at the expense of whichever retail bag holder they dump on as soon as their lockup expires.
There’s two ends of the spectrum on crypto VCs: the first are legitimate co-builders and crypto native long-term thinkers. They are the ones that keep building alongside their portfolio cos and kept builders alive through bear markets.
In Dapper’s case, VCs kept the company alive during the bear market and the company sold tokens to the public at the same price it sold them to VCs, even though VCs invested first.
Chris at a16z was one of Dapper’s earliest backers, and has backed the company through every round, even when it seemed a little crazy. “Actually, check with the team on whether they’re OK talking about that.”
“Oh yeah, we can talk about it.” Mik laughed.
“We went through some really bad times. In mid-2018, we were the CryptoKitties guys, the people who made cute little cat things, going around saying we were going to build a platform. People thought we were a one-trick pony. It was a huge challenge.”
In the months after formally launching Dapper Labs and raising $12 million, the market turned south and Crypto Winter began. In October, with Ethereum down 85% from January’s peak, and with CryptoKitties volume anemic, the team scratched together a $15 million Series A2 in October 2018, led by Venrock, with participation from Google Ventures as well as returning investors a16z and USV. Ethereum fell another 55% by the end of the year.
By 2019, it was getting comical. Most projects born in the ICO craze were long gone. The competition among new L1s was fierce, but they were fighting for scraps. CryptoKitties usage kept shrinking…
And yet, in September 2019, like clockwork, there were Chris Dixon and Fred Wilson with an $11.2 million convertible note. As part of the announcement, Roham also announced Dapper’s blockchain, Flow, to the world, and explained its differentiation:
Bitcoin and Ethereum show how crypto can make the world of finance more open and transparent; Flow will do the same for consumers of entertainment and culture.
The round was also the first that was convertible into FLOW tokens, which VCs bought for $0.10 per token. With the price sitting at $5.78, that looks like yet another steal for the VCs, but it was a very non-obvious bet at the time.
Let’s pause and take stock. At this point:
CryptoKitties was hitting its two year anniversary and volume was anemic.
Dapper had raised $39 million.
Flow was announced but not live.
There was no second hit app live.
And then COVID hit.
Early on in COVID, before the spike in venture funding, there was a period during which the pandemic looked like a real threat to many startups’ survival. Companies shut down offices, laid off employees, and hunkered down. At a16z, the team analyzed its portfolio and asked, “Who has cash and who doesn’t?” The biggest red flag in the portfolio was Dapper.
Mik told me how close it got: “There was a point at the beginning of the pandemic where we had six months of runway left. Then we were able to get another $10M round together.”
I asked Chris how he decided to invest again, and he told me honestly, “I couldn’t have done that if I didn’t run the fund. Dapper had raised something like $50 million and hadn’t found product-market fit. If I were a junior person, I don’t think I could have gotten the deal approved.”
But Chris did run the fund, and a16z, USV, and Dapper’s previous investors including Venrock, Accomplice, Animoca, and Samsung NEXT all backed the company again. By the time the round was announced in August, it had grown from $10 million to $12 million and finally to $13.4 million as new angels, like NBA stars like Andre Iguodala and Spencer Dinwiddie, and funds, including Coinbase Ventures and A.Capital, joined the round. This round, too, included tokens at $0.10.
“Then,” Mik recalled, “Things started to take off.”
The inflection point was the community sale. In September, Dapper sold up to $1,000 worth of FLOW tokens, or 10,000 FLOW, via Coinlist to as many people as wanted to buy. Each token was sold for $0.10, the same price VCs has paid over the prior two years. Over 12,500 users from 100 countries committed nearly $9 million in funds, breaking CoinList records for participation at the time. The next week, the company held an auction for another 25 million FLOW tokens, which cleared at $0.38 per token, raising an additional $9.5 million.
When the FLOW token launched in October 2020, a16z, which owned more than any VC, only owned 3.2% of the network. It was a good outcome given the uncertainty, but nothing spectacular…
Then NBA Top Shot launched the following week.
By January 25th, Top Shot had blown up to the point that I noticed and wrote about it. The next day (my birthday NBD), FLOW started trading on Kraken. CoinMarketCap shows its price that day as $6.87, good for a 68x markup from both the private and community sales.
In the Top Shot-fueled NFT hype that followed, Flow’s price topped $39 in March. Later that month, Dapper Labs, the parent company of both Flow and Top Shot, announced it had raised $305 million from a group led by Coatue (including, of course, a16z) at a $2.3 billion pre-money valuation. The list of angels in the round included basketball legends Michael Jordan and Kevin Durant, singer Shawn Mendes, and a roster of NFL Players, a nod to its upcoming partnership with the league.
Meanwhile, NBA Top Shot surged – its peak volume hit $47.9 million on February 21, 2021 and peak users hit 186k on May 7th – and then began to fall.
Despite declining usage of its flagship, in September, Dapper raised another $250 million, led once again by Coatue at a $7.4 billion pre-money valuation, with participation from a16z and Mary Meeker at Bond, among others.
That was a bold bet. As you might recall from earlier, September marked a low-point in transactions on Flow. The Dapper team had proven that they could once again catch lightning in a bottle and build a blockchain-based product that consumers loved, but at that price, the investment was a bet that Dapper could keep attracting consumers with upcoming projects like NFL All Day, UFC Strike, and La Liga, and more importantly, that it could attract developers who want to reach mass market consumers with its blockchain.
Because while CryptoKitties tanked Ethereum, Flow handled Top Shot just fine. It was designed from the ground up for exactly that kind of usage; in a sense, Top Shot was built as a very successful beta test. What’s going on under the hood is a lot more fascinating.
The most important thing to understand about the Flow blockchain is that it was designed for what mainstream consumers want – high speeds and low costs – without sacrificing security or – in the long run – decentralization. To do that, Flow’s architects designed a multi-node architecture that separates consensus and compute.
Top Shot has run on Flow for its entire run without hiccups despite enormous volume. Per CryptoSlam, Flow has handled more than 2x more NFT transactions (17 million) than any other blockchain, most of which came from Top Shot.
But Flow is designed to handle many multiples more transactions from a variety of dapps – not just NFTs, but DAOs and DeFi; not just Dapper-developed, but developed by a growing number of independent developers. To attract them, it’s bringing both large numbers of consumers and a better developer experience, starting with its own programming language, Cadence.
All of the choices the Flow team has made increase complexity upfront in order for a better experience in the future. That’s why Flow has felt more centralized to start. That’s not the end-state.
So in this section, we’ll dig into the three main areas of the Flow Primer:
Flow: Multi-Node Architecture
Cadence: Developer-First Experience
Consumers: Consumer-Friendly Onboarding
Ok, let’s go.
Flow: Multi-Node Architecture
Flow is a blockchain for toys, but it’s not a toy blockchain. It clicked for me when I heard this podcast between Dete and Solana’s founder, Anatoly Yakovenko, who I described in my Solana piece as “a hardcore engineer” and “grizzled.”
Listen to that nerd joy! That’s a conversation between two people who’ve both been wrestling with the same challenges and have come up with more advanced solutions than nearly anyone in the world.
But Solana’s go-to-market involved teaming up with SBF and building for hardcore traders, while Flow’s involved cats, dunks, and credit cards. That’s obscured a lot of the technical magic happening under the hood. Which brings us back to the Scalability Trilemma.
Every new L1 is essentially an attempt to solve the Scalability Trilemma in a new and better way, either by eliminating the need for trade-offs or by enhancing the blockchain’s strength in one of the three legs: scalability, decentralization, and security.
In the essay in which he coined the term, Ethereum co-founder Vitalik Buterin wrote, “The scalability trilemma says that there are three properties that a blockchain try to have (scalability, security, and decentralization), and that, if you stick to ‘simple’ techniques, you can only get two of those three.”
The essay was titled Why Sharding is Great, a not-so-subtle hint at the non-simple approach he favors to solving the Trilemma: sharding.
The Flow team, like the Solana team, believes that sharding fails in a few ways, the most important of which is that sharding breaks “ACID” guarantees, and therefore composability.
Essentially, sharding would mean pushing more complexity onto both application developers and users:
A simple user action (purchasing a hat for a CryptoKitty using a stablecoin like TUSD) can take twelve transactions and seven blocks on a sharded blockchain. In an unsharded, ACID-compliant environment like Flow, the same action, and many more complex than it, can be handled by one atomic transaction in a single block.
As developers of the first NFT app that required composability, Flow’s team was uniquely positioned to understand the challenges with Ethereum from the application developer’s perspective. Plus, in addition to writing the first NFT standard and breaking the network with CryptoKitties, they also built the first consumer smart contract wallet on Ethereum, which had many of the features they’d ultimately build directly into Flow.
Reconstituted as Dapper Labs, the team wanted to partner with top IP holders, like the NBA and NFL, to create NFT projects and blockchain-based games, but they knew two things:
If they brought in the kind of demand they expected from the IP holders’ huge audiences, they would make Ethereum unusable, for themselves and others.
To bring more developers and creators to NFTs and open worlds, they would need to find a blockchain that was faster, cheaper, and easier to build consumer experiences on.
They had no intention of building their own blockchain; they just couldn’t find one in the sea of options that was built the way they would have built it. So they decided to build it themselves, and Flow was born.
The Flow team’s core insight was that they could split consensus and compute.
In plain English, there are two types of blockchain tasks: non-deterministic and deterministic.
Consensus, agreeing on which block of transactions comes next, is non-deterministic or subjective.
Compute, computing the result of transactions, is deterministic or objective.
Compute is more computationally expensive but less of a security risk; it’s easy to prove if someone is lying about the result of 2+2. Consensus is computationally cheaper but more of a security risk. Flow’s architects realized that a more efficient architecture splits the two:
Compute: fewer, more expensive computers running nodes.
Consensus: more, cheaper computers running nodes.
Existing blockchains made each node do both, limiting either throughput or security. Flow set out to achieve the best of both worlds.
“As a consensus node,” Dixon explained, “All you need to know is that state transitions are valid, you don’t need to compute them. It’s similar to the insight made by zk rollups.”
In the technical paper, Flow: Separating Consensus and Compute, published in September 2019, Dete, Lafrance, and Dr. Alexander Hentschel laid out the case for their new architecture.
The focus of this paper is to formalize the split of consensus and computation, and prove that this approach increases throughput without compromising security. In contrast to most existing proposals, our approach achieves scaling via separation of concerns, i.e., better utilization of network resources, rather than sharding.
In February 2020, the Flow team put out a second technical paper more fully fleshing out the multi-node architecture, this time with four node types:
Consensus Nodes decide the order of transactions on the blockchain
Verification Nodes are responsible for keeping the Execution Nodes in check
Execution Nodes perform the computation associated with each transaction
Collection Nodes commit to the presence of transactions and enhance network connectivity and data availability for dapps
Splitting validation among four nodes was and remains a key innovation for Flow. No other chain uses this architecture.
This diagram shows the how the four nodes work together to validate a transaction in a pipeline, each node doing specialized work and passing the result on to the next:
My first question when I was reading through all of this was, “What happens if the Consensus nodes verify a transaction that ends up being invalidated by the Execution or Verification nodes?” And they have a solution:
This chart looks complex, but what it amounts to is essentially a set of checks and balances in which “even a single honest node, of any role, can punish and trigger recovery from invalid data introduced by dishonest Collection or Execution Nodes.” A transaction included in Block A isn’t sealed until two blocks later, once it’s gone through all of the checks.
Visualized another way:
Like a Toyota factory, the whole assembly line can keep moving quickly and efficiently, but any node can pull the Andon Cord to stop a particular transaction from getting through.
While the Top Shot interface obscured mentions of a blockchain, this is what’s been running under the hood the whole time, and it worked smoothly. Early in its life, many of the nodes have been run by Dapper, but as time has gone on, they’ve decentralized, with a majority of the security-relevant Consensus nodes run by unrelated parties. That number will increase over time and Flow will get less and less centralized. (You can see all nodes in real-time at Flowscan.)
“We built Flow to be maximally decentralized at scale,” Dete explained. “Anyone with a home computer will be able to participate in Consensus or Verification.”
Currently, Flow is scalable and secure. Over time, it has become, and is continuing to become, more decentralized, too.
Perceived decentralization isn’t just about nodes; it means permissionless deployment for an ecosystem of outside developers.
So while they were building blockchain anyway, they decided to create a new programming language, Cadence, too.
Cadence: Developer-First Experience
“As a business guy,” Roham recalled, “It was scary when my CTO told me that he wanted to create a new programming language when we had only a year of runway left.”
Not only would creating a brand new programming language take resources – something Dapper Labs was short on in the early days – it also came with a huge, explicit trade-off: time.
Developers would need to learn a new language before they could build on Flow and existing blockchain developers would need to rewrite their dapps from scratch to work on Flow.
Bitcoin and Solana are written in existing languages, C++ and Rust. Ethereum smart contracts are written in its Solidity language, which has become the standard for most of web3. Many L1s and L2s are “EVM-compatible,” meaning in part that their smart contracts are written in Solidity and can plug into the Ethereum Virtual Machine (EVM).
With its own language and architecture, Flow isn’t EVM-compatible. It forces developers to choose and to learn. It’s a risky bet: even if it works, the third-party ecosystem will take longer to develop. There’s not a whole world of open source resources for Cadence, or a network of auditors to audit smart contract code. Cadence is another reason that Flow needed to start out more centralized.
That said, Cryptoys CTO Emilio Cueto told me that the learning curve from Solidity to Cadence is easy, and that the differences are minor from a coding perspective but all come out in Cadence’s favor from a builder’s perspective.
Obie Fernandez, the CEO and founder of Let the Music Pay, which created Flow-based music NFT platform RCRDSHP, is a Cadence fan, too:
We’ve tried a few and Cadence is the most developer-friendly blockchain programming language in our experience. We love the familiar syntax and how productive it is, especially compared to Solidity.
That’s a strong endorsement. Prior to founding RCRDSHP, Fernandez was the CTO at Andela and wrote the bible for Ruby on Rails development, The Rails Way.
The magic of Cadence is that it’s a programming language specifically designed for digital ownership.
According to the Primer, “Cadence is the first ergonomic, resource-oriented smart contract programming language.”
Unlike other programming languages, which predate “programmable money,” Cadence essentially makes money its own data type, which means the language can do different things with money than it does with normal numbers or strings of text. Unlike a string of text, for example, money can’t just be copied in Cadence. That means developers can secure users’ assets more easily, too.
This is an idea whose time has come. Independently, the world-class team working on Libra for Facebook created the resource-oriented Move programming language in a similar way.
Flow offers a few additional key upgrades to the dapp developer experience:
Ergonomic syntax makes it easy to read and, importantly, to audit.
Flow-created open source library of SDKs and Standards (like the FT and NFT standards, Flow equivalents of ERC-20 and ERC-721).
Strong, static type system helps catch errors when the code is compiled as opposed to when it’s being run in the wild.
Upgradeable smart contracts allow developers to release labeled beta versions to mainnet in order to find and fix bugs before fully releasing control of the contract.
Flow Client Library makes it easy for any application to work with any wallet and vice versa, without custom code on either side.
Additionally, Flow’s minimal environmental impact – a transaction on Flow takes less energy than a Google search – appeals to both developers, and to their customers and partners.
The upshot is that Cadence and other developer-facing decisions that Flow makes, make users more secure, and it might be easier for new developers to learn, but it comes with that familiar trade-off: complexity and time.
First, Dapper only let developers launch on Flow if Dapper audited the smart contracts. Now, developers can build for Flow as long as they have an audit from a reputable auditor, which Flow will pay for, and more than 50 teams have independent keys to deploy freely. By summer, Flow expects to have fully permissionless deployment. This will be a key milestone to watch.
A lack of permissionless deployment to date has turned many in the developer community off, but Dete explained the logic: “We have to be protective of the network today because it is so complex.”
He pointed out that there were bugs in early Ethereum deployments, but that it didn’t matter because usage was so low. The stakes are higher for any blockchain now. So Flow made a conscious and temporary decision to make sure that everything is just right and ready for prime time.
It makes the same trade-offs when facing consumers.
Consumers: Consumer-Friendly Onboarding
Flow was designed at the protocol level to make it easier for developers to make the experience easy and safe for consumers.
For example, Flow touts Human Readable Security, which means that it’s easier for wallets to tell users what they’re allowing when they sign a transaction in plain English.
When I signed in to Matrix World with my Blocto wallet, the approval screens described what was I was approving – “You are signing for Transaction Fee - Free (subsidized by Blocto)” – and let me know that there was a script being run so that I could check it if I wanted. It was clear and easy to understand.
Human readable security would help avoid situations like the recent OpenSea hack that targeted users by getting them to a transaction without really knowing what they were signing, as explained here. It seems like table stakes for normie adoption. To use a historical analogy, apps took off after Apple made it safe to download them without worrying about viruses. With money on the line, the stakes are even higher in web3.
Equally important to normie onboarding, Flow lets users sign up for accounts without needing to store or remember 12 or 24 word seed phrases. It feels much more like a normal consumer web onboarding than other wallets. Then, they can evolve into something more advanced.
“Top Shot was originally built with a custodial wallet integrated with a private interface,” Dete explained, “Our new products like NFL All Day and UFC Strike use FCL, which is an open interface, and Top Shot now lets people withdraw to non-custodial wallets as well. But we believe that you don’t need to always start by asking people to set up a non-custodial wallet to participate.”
Instead, Flow wants to give users choice.
Some users will always want to pay with a credit card and have the wallet provider hold their NFT or tokens on their behalf.
Others will want to login, pay, and store NFTs and tokens with a non-custodial wallet like Blocto, the most popular on Flow not built by Dapper.
Many, Flow believes, will want to start with a custodial wallet and more centralized experience, and then transition to self-custody over time as they get more comfortable. Some of those will then want to bridge assets over to other chains via bridges and wormholes.
Flow wants to support all of those use cases by meeting consumers where they are and then growing with them. Essentially, Flow has progressively decentralized itself and its users.
We’ve covered a lot, so I want to pause to give you a quick framework to use to think about Flow.
One of my favorite pieces in the web3 canon is Jesse Walden’s Progressive Decentralization: A Playbook for Building Crypto Applications. In it, he describes the three components required to have a successful blockchain-based application:
This table is a handy quick-reference guide:
The progressive decentralization playbook is typically applied at the application layer, to dapps that become DAOs. Blockchains are supposed to launch more decentralized by default.
While I’m fudging the technical definitions here a little bit, and while Flow is decentralized per the above in the sense that it has a live token and no single entity can determine what happens on the network, it feels like Flow is a story of progressive decentralization on each level:
The blockchain has progressively decentralized as more normal people run consensus nodes from low resource hardware and Dapper Labs crossed below ⅓ control of consensus nodes.
Development has progressively decentralized from Dapper-only, to developers audited by Flow, to anyone with a Flow-sponsored audit, and this summer, to permissionless deployment.
A user’s experience can get progressively more decentralized as they get more comfortable and move from a custodial wallet to a non-custodial one.
Instead of decentralization being a static point or a goal in and of itself, it’s a… flow.
That same flow applies to the use cases on Flow.
Dapper Labs built Flow for gaming, media, entertainment, and open worlds. NFTs were just the first instantiation. Those use cases need more legos.
So now there’s DeFi on Flow. Flowty, a P2P NFT lending marketplace, launched in early February and has done over $300k in loan volume over 65 loans. The largest transaction to date was a $50k loan against a LeBron James Cosmic Top Shot Moment. This too is progressively decentralizing, starting by exclusively supporting high-value NBA Top Shot legendary tier assets and expanding to more Flow-based collections over time. Other DeFi projects, including decentralized exchanges, are coming, too. They’ll mostly be focused not on the degens, but on helping build the financial backbones for NFTs, games, and open worlds.
For normies, DeFi might not be the right on-ramp into web3, but by starting with NFTs and progressing to DeFi, the Flow ecosystem can introduce them to the benefits of the on-chain financial system. One step at a time.
The DAOs are coming, too, via Dapper Collectives, starting with Brud. Dapper’s October acquisition of the company behind Lil Miquela brought with it both Flow’s first DAO and a web3-native entrepreneur behind one of Ethereum’s most successful.
Acquiring and Decentralizing Brud
Given the threads of progressive decentralization and complex communities that run through Dapper’s story, it shouldn’t be surprising that its entry into DAOs was the result of a founder’s thwarted desire to progressively decentralize.
Trevor McFedries founded Brud in 2016 to create new models for digital storytelling using “community-owned media and collectively built worlds,” exactly the type of use case Flow was purpose-built to handle. Its flagship character, Lil Miquela, has over 10 million fans across social media who interact with her and help shape her story.
When we spoke, Trevor told me that the Dapper acquisition actually started because he wanted to turn Brud into a DAO but met resistance from his board. For a few years, he’d been bringing the idea of exiting-to-community up at board meetings but they were skeptical of crypto and uninterested. One of his board members told him that last time they did a token investment, they got deposed by the SEC. They didn’t want to deal with that again.
But Brud was about building characters, stories, and worlds as a community, and Trevor thought community ownership was the only model that really fit the business, so he kept pushing. He realized telling wasn’t working, so he decided to show. “Part of launching FWB was about showing my board how much value could accrue to DAOs.”
FWB is Friends With Benefits, the cultural DAO that Trevor launched in September 2020. And he was right. One year later, in September 2021, FWB raised $10 million from a16z. Just as the Dapper team popularized NFTs, Trevor and FWB popularized non-DeFi DAOs.
FWB’s success, and the growing excitement around DAOs generally, finally convinced his board that decentralizing was a good idea, but many of them were blocked from holding tokens in their fund docs. So they asked Trevor to go find crypto investors to buy them out. He put together a deck and started having conversations, one of which was with Roham. Dapper and Roham are active investors in web3, but as the two started talking and connecting on the vision, he had a different idea:
No one’s better at building experiences for the next generation than you, we both believe in a multi-chain future. Why not just build here? As you build tools for Brud’s community, you can just build them for everyone on Flow.
The deal took a little while to close because Trevor wanted to make sure that Brud’s culture would fit inside of Dapper’s, but after rounds of conversations between the teams, he realized it was a snug fit. “We’re artsy emo kids; they’re super nice, smart Canadians.”
In October, Dapper Labs officially acquired Brud and announced the launch of Dapper Collectives, with Trevor as CEO. Dapper Collectives is “dedicated to paving the way for the decentralization of social media and the democratization of online common-interest communities on Flow, to ensure creator communities capture value.”
In his own blog post, USV’s Fred Wilson explained that Dapper Collectives initial efforts will include:
Bring community ownership and collective building to Dapper Labs products –– starting with Lil Miquela and her 10 million fans;
Build and release open source tools to help other mainstream communities engage in decentralized ownership and governance on Flow blockchain;
Help the most forward-thinking “web 2” companies decentralize their operations, engaging at the CEO and Board of Directors level to assist in tokenomics as well as technical implementation.
Roham called DAOs “the most interesting area after NFTs” in the quest to “put a crypto wallet in every pocket” through mainstream adoption.
For Trevor, it’s also an opportunity to rethink everything about DAOs and online communities:
What are the voting mechanisms for people to make decisions?
How do you make everyone a creator?
What’s a more familiar front-end for a multi-sig wallet?
How can groups tell stories on-chain together by playing with time and provenance?
Shouldn’t metaverses be character-driven instead of universe-driven?
On that last point, Trevor explained, “People don’t move to NYC for the architecture, even though it’s nice architecture. They move there for the people: to get laid, make money, have fun.”
And just like Top Shot didn’t mention crypto or NFTs – even though the Dapper team invented the phrase – Dapper Collectives has the opportunity to build a new vocabulary around online communities owned by members. Notice, for example, that they didn’t call it Dapper DAOs.
“Governance doesn’t make me want to get up and be active,” Trevor admitted, “And if you’re a 13-year-old kid, do you want to participate in governance? I don’t know…”
Like building a brand new blockchain and creating a new programming language, re-thinking everything that early DAO adopters understand means trading off speed of adoption and go-to-market upfront in exchange for what they believe will be a better solution for the long-term.
“Move slow and get it right.”
The answer Trevor gave me when I asked when Brud will decentralize – in a familiar pattern, it will be the first DAO on Dapper Collectives when it does, before it opens up to partners and third-party groups – is how the Flow team approaches everything.
That’s because in a world in which everyone is always saying “We’re so early,” the Flow team believes we’re even earlier than everyone else does.
Young Users and Real Network Effects
One way to understand why Flow is running the strategy it’s running is this observation that Dete made about network effects:
Before the iPhone, everyone thought that Palm had network effects, or that Blackberry had network effects. You don’t have real network effects until you get to huge scale.
He points out that while everyone is obsessed with Ethereum’s network effects – most of the money being spent in web3 is being spent on Ethereum – “Dollars aren’t loyal. Liquidity is cheap. Users and developers are sticky.”
The Flow team’s stated goal is to become the first blockchain with a billion users. That would give it the scale to develop network effects within a certain user group, mainstream consumers. Getting there requires differentiation and focus.
Dete doesn’t think that Flow will be the next great DEX (decentralized exchange) chain, and similarly, he doesn’t think that Ethereum should be a billion user chain. That’s not what it’s built for, and as described above, the Flow team has its concerns about sharding’s impact on the collaboration and composability needed to build real online worlds.
To get to a billion users, Flow is taking a two-pronged approach: now and future.
Now, it’s partnering with the NBA, NFL, La Liga, and other owners of popular IP – as well as mainstream-focused developers – to bring people into the Flow ecosystem and into web3 for the first time. “It’s not about stealing market share,” according to Dete, “It’s about building products that a billion people want to use.” Once those billion people come in the door, it’s up to Flow to keep them in the ecosystem and help them progressively become more comfortable with web3 tools.
I think Flow’s most important differentiator, though, and its secret weapon, is that it’s building for the future, in a couple of ways.
First, it built a blockchain and a programming language aimed at attracting web2 developers who are coming into web3 with fresh eyes and evaluating each ecosystem on its own merits. The team recognizes that it would be difficult to pull web3 developers away from their language and ecosystem of choice, but believes that new web2 refugees – people who will need to learn a new language anyway and are used to building experiences for hundreds of millions or billions of people – are most likely to find a home on Flow.
Second, and most importantly, Flow is the only blockchain focused on young users.
One of my favorite strategies that a handful of special companies run is taking advantage of the Compounding Power of Young Users.
The idea here is to focus on building the best experience possible for the youngest part of your market, acquiring and retaining them as they get older, and continuing to focus on serving the youngest people who age into your market. The hard part is that in the short-term, they don’t have the most money to spend and they’re not the most profitable segment, but if you retain them over the long-term, you own the future.
This is what Stripe did so well – recall Patrick Collison’s time horizons as a competitive advantage – it focused on the startups instead of going after the biggest companies, and then grew with those startups. It’s what Snap did so well, too. For years, critics argued that Snap needed to make the product less confusing to older people with more money to spend, but Snap continued to focus on building the best experience for young users and came to dominate their use case for that segment.
And it’s exactly what Dapper is trying to pull off with Flow. The crypto money is on Ethereum, and by extension in EVM-compatible chains, but the next billion users might be somewhere else.
This idea struck me when I talked to Trevor. Having built Miquela for a teen audience and attracted 10 million fans, he knows the demographic well and takes them seriously. That came across in the way that he spoke about creating a new, more approachable vocabulary, and in the way he talked about building tools for Flow:
We’re building safer legos. The tricky thing about Ethereum is that it’s easy to fuck it up, and fucking up can have real financial consequences. Unlocking the next billion people requires 13-year-olds just hacking away and shipping. We can’t prohibit them from playing around because they’re scared or because they don’t have the money.
DAOs today speak to Younger Millennials and Gen Z. Younger Gen Z is still skeptical. They can’t play around on Ethereum; their $20 allowance doesn’t cover gas. That feels like a white space.
He wants to broaden the view of what it means to be a tech entrepreneur from the traditional 22-year-old Stanford CS grad to the creators and passionate fans.
We want to give the 15-year-old sneaker flipper the tools to be able to say, “What if we did it this way instead?” We want to give YouTubers the tooling to build their own models. Really, we want to give people the tooling and design space to go fuck things up.
As an old myself, it’s hard to admit, but it’s true: the next wave of massive consumer hits aren’t likely to be built by or for someone my age. Flow and its ecosystem are focused on who’s next.
While Trevor and the Dapper Collectives team are building tools for younger users, third-party entrepreneurs are building products, experiences, and worlds to onboard them into web3. The two examples of third-party dapps building on Flow that come up most often are both building for very young users: Genies and Cryptoys.
They give a good flavor for the kinds of projects enabled by Flow. Let’s look at each quickly.
My friend whose degen contact called Flow “normie blockchain,” followed up with another text: “Asking the NFT peeps I know who are basically saying they haven’t heard much about it in months. A project called Genies building on it. Genies seems cool.”
For the first five years of its life, Genies has focused on letting users create their own personalized avatars that they can dress up to express their personality with clothes and accessories, including outfits from Gucci as part of a partnership. Users can use their avatars in apps like Instagram, WhatsApp, iMessage, and Giphy. The company has also partnered with celebrities including Justin Bieber, Cardi B, and Dapper Labs investor Shawn Mendes to create their avatars.
Last May, as NFTs heated up, Genies announced that it was building an NFT marketplace on Flow, and that it had raised a fresh $65 million from Bond’s legendary Mary Meeker.
I asked Akash how he came to build on Flow, and he told me it started with an Instagram outreach from Roham:
I’d been talking about the philosophy behind NFTs – digital scarcity – for so long without knowing about NFTs. A couple years ago, I was talking about digital scarcity in an Instagram Story, and Roham saw it and reached out. He told me, “You’re talking about NFTs.” I asked, “What’s that?”
The two got to talking, and Akash realized that NFTs were exactly what he was looking for. “I had a vision of authenticating digital assets, but I thought it was a 2025 thing, not a 2021 thing.” He looked around for the best places to build, and chose Flow for a few reasons:
Flow targets the youth instead of the existing web3 community
It was the easiest to build on coming from web2
It would allow users to compose NFTs and evolve their avatars over time, without complicated burn mechanisms
Maybe most importantly, the two companies share similar missions. Akash said:
We could do a $100 million NFT drop today, no problem, but that doesn’t do shit to move the world forward. What does matter is empowering kids with the knowledge of how all of this works and tools to create their own decentralized avatar ecosystems over time. So instead of thousands, we’re pricing things at $3, $4, $5, $7, $10.
The average Genies user doesn’t look like the average web3 user. Akash told me the largest bucket of Genies users are 14-16-year-old girls. “They can get a lot out of NFTs, but you need to speak to them in a language they understand. Once you do, they can become builders.”
So Genies, too, started centralized and is slowly decentralizing. In January, it announced that it was expanding its mission: “empower humans to create their own digital identity ecosystems.” That starts with ownership – “Effective immediately, every single creator (talent and users alike) now owns their Genie” – and will expand over time to include the tools and materials to create virtual worlds and digital experiences, all owned by their creators, with full commercialization rights.
The Genies vision requires what Flow offers: scalability, accessibility, composability, and the decentralization needed to guarantee that its creators can’t get arbitrarily deplatformed. When you’re building a world, you need to know that the ground won’t disappear from under you.
Genies NFTs are scheduled to go live on Flow this summer.
Cryptoys is building for an even younger audience.
The company started as an idea for a digital-first toy company and evolved into something that looks more like an NFT-native Nintendo, with original IP, gaming, toys, and more.
In October, a16z led a $7.5 million seed round in Cryptoys’ parent, OnChain Studios. Dapper Labs is also an investor.
Will Weinraub, Cryptoys’ co-founder and CEO, told me that they started looking at Flow in the first place because they attribute the whole NFT bull run to Top Shot and Dapper Labs. “Top Shot didn’t mention NFTs; they just made it easy to get started, and then people could go down the rabbit hole and discover everything else.”
What Top Shot did for sports fans, Cryptoys wants to do for kids and gamers. “We want parents and grandparents to be able to buy Cryptoys for Christmas, and Flow makes the most sense from that standpoint.”
More specifically, Cryptoys chose to build on Flow for a few reasons.
First, the environmental impact is key. Cryptoys wants to partner with larger brands, and Flow’s minimal environmental impact is appealing to those brands. Gamers notoriously hate NFTs because of (often ill-informed) concerns about their environmental impact.
Second, Cryptoys’ co-founder and CTO Emilio Cueto explained, composability is necessary for Cryptoys. Each Cryptoy has a bunch of attribute layers representing things that the Cryptoy owns. “If you put a hat on a Panda,” he highlighted, “the Panda owns the hat. If you sell the Panda, the hat can go with it in one transaction.” It’s not just clothes, either. Each Cryptoy will have skills that stick with them, that can change, evolve, and be acquired over time.
Composability as it works on Flow makes that easier than it is on other chains. One resource can own another resource, and because Cadence is resource-oriented, it makes it much easier to compose a bunch of different assets in the code. A similar outcome on Ethereum might involve burning a hat and a Panda and getting back a Panda with a hat, as opposed to just sticking the hat on the Panda.
I asked Will and Emilio point blank if they were worried about betting their company on a chain other than Ethereum or Solana, and they didn’t seem concerned. They said that it’s just a matter of time until Flow breaks out:
Flow is up and coming, there’s so much adoption. The reason most people can’t see that yet is that Flow has attracted projects with more interactivity, and those projects naturally take longer to build.
It’s the same refrain over and over again: more complexity upfront, better experiences and richer worlds over time.
Cryptoys is betting that it can onboard the youngest users into web3 without them even thinking about it. In fact, most of Cryptoys users will probably never call it web3 (until some of them start writing thinkpieces comparing web4 to web3); they’ll just come to expect, and build, digital projects with ownership, composability, and fun baked in.
That’s the bet that the Flow team is making more generally: that it can build a longer-lasting platform that can deliver better, richer consumer experiences at scale by adding complexity up front and giving it time. That approach obviously has risks.
Risks and Trade-Offs
I hope it’s clear at this point – both in the piece and in Not Boring’s history – that I don’t think there’s one perfect blockchain, or that there will be one blockchain to rule them all. As I’ve said many times, I’m a Maximalist Minimalist.
I hope it’s also clear what I think Flow’s biggest risks are at this point. We’ve been talking about the trade-offs throughout the piece:
Complexity means a longer time to maximal decentralization
Building for mainstream consumers requires different things than building for crypto-natives
After spending hours with the Flow team and people in the ecosystem, I’m convinced that they made these trade-offs with eyes wide open and that they’re very happy with where they are today. That said, the trade-offs still come with major risks.
First and foremost, in an industry so dominated by momentum and narrative, Flow has been quiet. Many people I talked to pointed to the fact that, early last year, it seemed like a neck-and-neck competition for second place between Solana and Flow, but that Solana has pulled away.
I don’t think a single person working on Flow even thought about Solana as a competitor – the two are trying to do very different things for very different audiences – but there’s no doubt that Solana has taken more mindshare in the community and has attracted more third-party developers. A big risk to Flow is that they can’t make it clear to people why what they’re doing is different. They want to change what it means to be “in crypto,” but that means stacking a whole ‘nother level of complexity and education on top of already hard challenges.
Additionally, whether fair or not, the narrative around Flow is that it’s more centralized and permissioned than other blockchains. We’ve discussed the reasons they’ve made those trade-offs at length, but to win over the more crypto-native builders, they’ll need to change that perception. That’s just going to take momentum and keeping timing promises to developers. In Nike’s words: Winning Takes Care of Everything.
Second, Flow needs to fix the funnel. It needs more ways to keep people engaged with the Flow ecosystem after they’ve onboarded via one of the projects building on top of it in order to build real network effects. That will, of course, mean continuing to grow the Flow ecosystem, but it will also mean creating bridges between different dapps and a glue to hold it all together. Typically, that job is done by the blockchain’s token.
In Flow’s case, it made the trade-off to let people use credit cards and price in USD in order to onboard consumers more easily, but I think that it needs to somehow increase the adoption and usage of the FLOW token in the ecosystem. FLOW derives value from developer usage and staking, but it can also be used as the fabric that connects an ecosystem of increasingly decentralized dapps. Pricing in FLOW might make it less likely that consumers sell, take their USD, and go play elsewhere.
It seems like good news is on the way on this front:
Finally, Flow will need to play catchup on the ecosystem front. I genuinely believe that there are strong advantages in the way Flow was built and in how it progressively decentralized for entrepreneurs building complex interactive consumer experiences, but starting out more centralized and permissioned came at a cost.
On other blockchains, anyone can come in, build legos, and deploy them to mainnet, for better or worse. The “for better” is that, without much work from a central team, 18,146 monthly active developers can come in and build apps and improvements. Flow will get there when it goes fully permissionless this summer, but it needs to both hit that target and rejuvenate developer interest. Because while it’s using time as a competitive advantage, it’s undoubtedly in a race against time as well.
Throw enough money and a global network of enough smart people at almost any problem, and they’ll solve it over time. Other blockchains have been able to take advantage of that dynamic to make improvements at the app layer and L2. Flow has made a bet that it’s better to solve a bunch of issues at the blockchain level instead of forcing developers to find workarounds, but given enough time, developers will find smart workarounds. Every day, the Ethereum and Solana ecosystems are able to handle incrementally more use cases a little bit better.
Flow needs to win the next wave of developers coming from web2 which will require changing the narrative to reflect reality (👋) and building momentum.
That said, when I talked to Flow’s Product Lead Layne, she pushed back on my definition of an ecosystem: “A vibrant blockchain ecosystem is one where people are having a great time with friends and experiencing things they otherwise wouldn’t,” she argues. “It's way more than having developers build.”
The world’s coolest amusement park isn’t fun if it’s empty. The world’s best designed product is useless without users. And Flow believes that a consumer-friendly blockchain ecosystem is only as good as the unique experiences it enables, ideally together.
Unique experiences drive Flow’s tokenomics, too.
We’ve gotten this far without talking much about the value of FLOW token, because it’s really not a prominent part of the story yet. The price of FLOW is down 85% from its Top Shot Spring peak.
Again, no one working on Flow really seems to be concerned. Layne explained that currencies that people need have to have intrinsic use cases that they can’t live without. FLOW’s value will be based, like so many other things, on supply and demand.
Let’s start on the supply side.
Flow is a proof of stake blockchain, which means that all of the nodes stake FLOW tokens and receive a reward in FLOW tokens for running the network successfully (or are punished for bad behavior via token slashing). Because of Flow’s multi-node architecture, relative rewards among node types will change over time in order to facilitate the right balance of nodes. According to the Flow Token Economics paper, the target split among roles is as follows:
According to Flowscan, 722 million FLOW are currently staked by 391 nodes, with the low-hardware requirement Consensus nodes coming in a little higher than targeted, with 207 nodes representing 52.9% of the total.
While there are only 207 Consensus nodes now, the system is architected such that it can support tens of thousands of Consensus nodes over time, making it incredibly decentralized where it matters.
As a reward for operating and protecting the network, validators are rewarded in FLOW tokens generated by inflating the token supply on the network. At launch, there were 1.25 billion FLOW tokens, and over the first four years, the total supply is only expected to increase by 162 million tokens, or 13%, all of which will go to staked validators.
Ultimately, Flow’s tokenomics are straightforward on the supply side. It’s a low-inflation Proof-of-Stake chain.
Things get more interesting on the demand side. Demand for FLOW tokens is directly tied to creating products that people want to use, in a few ways.
First, there are the fees. Flow charges users, or the apps they’re using, two fees:
Transaction fees cover the fees for a transaction to be submitted and included in a block.
Computation fees are added for more complex operations that require computation beyond updating balances.
While rewards inflate the supply, fees effectively lower it. Fees collected by the network are used as part of the reward payout each epoch. More fees mean less newly minted FLOW is needed for rewards.
Another main driver of demand is that Flow requires FLOW deposits for the creation and storage of all assets. Accounts need to pay a “minimum account balance” to cover the storage used by their account. Currently, the minimum account balance is a super low 0.04 FLOW (or $0.2272) for 400KB, covered by Flow’s treasury. As users own and store more stuff, the cost of storage goes up. Importantly, developers can and often do pay that cost for users, as was the case in the Matrix World onboarding I showed earlier.
On a technical level, this is how FLOW’s tokenomics work today: more great products- → more usage and storage → more fees and higher balances → more demand for a slowly- or non-inflating supply of FLOW.
The big unlock coming soon, though, is full FLOW coin support in Dapper Wallet.
Users will be able to hold FLOW, earn FLOW, and spend FLOW. In addition to dollars, people will be able to buy Top Shot moments with FLOW. At the very least, they’d save on the ~5% credit card fees, but it’s not hard to imagine that Flow would offer special rewards and perks for paying in FLOW to incentivize usage.
As more partnerships with top IP holders like the NFL and La Liga bring more people to Flow and incentivize them to spend in FLOW, it will create more demand for a limited supply of FLOW.
As more native games and worlds like Cyptoys and Genies bring a new, younger audience (and their parents’ money) into Flow, it will create more demand for a limited supply of FLOW.
As more people earn, hold, stake, and transact in FLOW, it will create more of an incentive for people to stay inside of the Flow ecosystem, which should attract more new developers, which should attract more users, and so on.
At this point, the most complex parts of the process are done. We’re picking up Flowmentum.
Flow has made a series of non-obvious bets.
It built a blockchain built to support complex, growing, and evolving worlds sustainably for a long-term.
It used an entirely novel multi-node architecture, and wrote its own programming language from scratch.
It focused on mainstream consumers and kids instead of crypto-natives.
It set itself a definition of decentralization that includes accessibility, not just initial node distribution.
As a result, it suffered through its own post-Top-Shot-craze mini-winter while other chains’ ecosystems flourished over the past year. But it looks like one of the unexpected benefits of differentiation is a lack of correlation.
Because as the rest of the crypto markets have gotten crushed over the past couple of months, activity is starting to pick up on Flow.
February was its best month ever by transactions, beating Spring 2021 peaks by nearly 50% as new projects come online, including its two biggest days ever by far, both over 1 million per day:
Over the last week, a Flow NFT marketplace – Gaia – reported $6.2 million in volume, placing it 4th compared to marketplaces tracked on Dappradar.
Flow is picking up steam among unicorns, too, with both Animoca and PlayCo building games on Flow and web3 native decacorn Alchemy and near-decacorn Circle building support for Flow. Tiger-backed Fancraze, which has officially licensed cricket NFTs, has the potential to onboard tens or hundreds of millions of ravenous fans of India’s popular ICC league.
It’s continuing to attract giant mainstream brands. In December, YouTube dropped NFTs to its top creators on Flow…
… and at the Super Bowl, Ticketmaster airdropped commemorative tickets to all attendees via Flow:
While both are relatively small tests, they represent the opportunity to access absolutely enormous markets with real use cases. If TicketMaster were to issue tickets as NFTs via Flow or if YouTube were to work with Flow to let creators mint popular videos and sell them to fans, they would be tapping into a ton of economic value, and subtly onboarding more people into web3.
And all of that more partnership-driven activity is starting to pull in dozens of community-built projects like Matrix World, KLKTN, Flovatar, Chainmonsters, Emerald City, Mantle Finance, Zeedz, Legaci, The Football Club, and Ballerz. All of these projects emerged organically, without involvement from the Flow team (although Zeedz was founded by a former Dapper Labs team member who left to build in the ecosystem, a good signal of the inside view of building on Flow). The network effects are starting to play out.
It feels like Flow is at a turning point, and that things might come to a crescendo this summer:
Dapper Collectives will release its first DAO tooling and begin supporting communities on Flow.
Genies is going live on Flow, and everything they build will be community-owned. Maybe one day, the company itself will decentralize on Flow.
Dapper Wallet will be available to all third-party developers for integration.
FLOW will be supported in Dapper Wallet and all Dapper projects as well as, presumably, many developed by third-party developers.
Flow will enable permissionless deployment, unleashing a wave of ungated creativity.
Once those last two are complete, Flow will have made another meaningful leap towards maximal decentralization.
Over the long term, though, for Flow to meet its architects’ own definitions of decentralization, the most important thing will be making sure that hundreds of millions or billions of people – normies, kids, and degens alike – can build, own, interact, and evolve on Flow.
What will the world look like if it succeeds?
It’s impossible to imagine the specific applications that will be built when millions and millions of users and creators have the tools to program money, compose digital assets, and create open worlds and communities. That’s the wild beauty of innovation and of composability.
But a world in which Flow has as big an impact as its team thinks it can is one in which people own their digital assets as smoothly and certainly as they own their physical ones. It’s a world in which people shape the platforms they use, and take part in the upside from their collective success. It’s a world in which kids have the power to create not just content or products, but the economies that surround them as well.
If it takes a few years of centralized effort upfront to build a richer decentralized future for billions of people, that’s a trade-off that Flow is willing to make. There’s a long way between here and there, but if anyone can pull it off, my FLOW is on the team that’s repeatedly proven they know how to bring normies into web3.
Maybe the greatest arbitrage in crypto was not caring what other people in crypto think.
Thanks to Dan for editing, and to Roham, Mik, Dete, Layne, Trevor, Chris, Will, Emilio, Brett, and Akash for your input!
Thanks for reading, and see you on Thursday,