ConsenSys: The Future Web 3.0 Operating System

Author: A&T Capital

1. Why Invest in ConsenSys

Introduction

Recently, ConsenSys completed a $450 million Series D funding round, and after this latest round of financing, ConsenSys' valuation exceeded $7 billion, more than doubling from the valuation of $3.2 billion during the $200 million Series C funding round in November 2021. In January of this year, the number of monthly active users accessing Web3 applications through MetaMask surpassed 30 million, growing by 42% in just four months. Infura's Ethereum on-chain transaction volume exceeded $1 trillion.

ConsenSys CEO Joe Lubin stated in an interview with Decrypt that MetaMask will soon launch a decentralized autonomous organization (DAO). This new DAO will not participate in the management of MetaMask but will fund updates for MetaMask and confirm that MetaMask will not only launch the DAO but also plans to issue a token. The news of ConsenSys' financing and token issuance has garnered enthusiastic attention from users.

In November 2021, ConsenSys completed a $200 million Series C funding round at a valuation of $3.2 billion, just six months after raising $65 million from JPMorgan and Mastercard. A&T Capital participated in this round of financing. As a previous investor in ConsenSys, A&T would like to take this opportunity to introduce our rationale for investing in ConsenSys and showcase the full range of ConsenSys products.

Why Are We Investing in ConsenSys?

Looking back to 2021, we believed that enterprise blockchain adoption would become a mainstream development trend:

• Taking IBM Blockchain and R3 Corda, the two largest consortium chain technology service providers in the overseas market, as examples, the number of publicly available business cases on their official websites has been decreasing year by year over the past two and a half years, particularly evident in the first half of 2021. Both companies underwent large-scale layoffs and job transfers in their blockchain divisions at the beginning of the year. As the understanding of blockchain deepens in the broader environment, consortium chains are no longer the only option for traditional enterprises to utilize blockchain: as enterprises gradually "blockchainize," this process requires corresponding changes in business operations, which cannot be managed solely by external service providers and necessitates decision-making and promotion by internal teams, leading to a demand for modular, on-demand blockchain solutions.

• The popularity of DeFi has been rising, with the total market value of DeFi approaching $20 billion. Compared to centralized exchanges, decentralized exchanges are seeing increasing trading volumes, and the number of wallet addresses interacting with DApps is also growing.

• Ethereum solutions are favored, as public chain systems enter the corporate vision. Thanks to Ethereum's absolute leading position in the public chain world and its strong innovation, enterprise-grade Ethereum (Quorum & Besu) has greater potential value and space compared to other consortium chain solutions, making it attractive to many traditional enterprises.

Thus, Ethereum, as the absolute leader in the public chain market, has become the core value storage layer of this value network.

In the Ethereum ecosystem, the main traffic entry points currently consist of three types: navigation websites, aggregation platforms, and wallets. Among these, navigation websites have the lowest user stickiness and technical barriers, aggregation platforms have emerged more recently with decent user stickiness, while wallets have the highest user stickiness and relatively higher technical and operational barriers.

The wallet sector started early with many players, and it has now become a red ocean. With innovations arising from technological and market demands (e.g., smart contract wallets), monetizing traffic remains a persistent challenge.

Returning to ConsenSys' traffic advantage, MetaMask is the largest non-custodial wallet by user count under ConsenSys.

For developers, considering that Ethereum has been around since 2014, its development tools are relatively complete and mature, and the developer community has formed an optimal set of development tool usage solutions.

ConsenSys holds an oligopoly position in the mainstream developer tools sector, with products such as Infura, Truffle, Ganache, and MetaMask.

2. ConsenSys Overview

Company Introduction

ConsenSys was founded in 2014 by Ethereum COO Joseph Lubin (referred to as "Joe") and is a comprehensive service company focusing on Ethereum-centric development, incubation, and enterprise services.

ConsenSys provides corresponding products for three types of customer groups:

• Enterprise clients: SaaS-like products (Codefi) break down the overall blockchain solution into nine major modules, allowing enterprise clients to purchase on demand; a certain amount of customization services will be retained as a channel for ConsenSys to export brand value, with typical cases including the cross-border trade platform Komgo and the MAS clearing and settlement system;

• Developer clients: As essential development tools for Ethereum developers, the contract development framework (Truffle) will introduce paid services on top of the free version, while the API service provider (Infura) will continue to charge based on tiers;

• End users: The wallet (MetaMask), as the most widely used wallet for Ethereum, will introduce new paid services on top of its basic free functionalities.

After modularizing the overall solution, ConsenSys' future core direction is to provide a complete modular product library for Ethereum project parties and enterprise blockchain clients, allowing clients to purchase any module individually and combine them according to their needs. (See the diagram below)

3. Product Introduction

MetaMask - The Largest Traffic Entry Point in the Public Chain Ecosystem

MetaMask is currently ConsenSys' only product aimed at end users, and it is one of the earliest wallets for Ethereum, as well as the wallet with the largest user base. Launched in 2015, it has long been known as a web-based, free, "semi-official" non-custodial wallet.

MetaMask is the default option for all applications on Ethereum regarding wallet functionality, and in the past year, it has expanded to other mainstream public chains beyond Ethereum, e.g., BSC, Algorand.

With the surge of DeFi applications in 2020, MetaMask's user base grew rapidly. In 2020, it introduced mobile client and trading features (named Swap).

In May 2021, it launched the institutional version of MetaMask, allowing institutional users to integrate MetaMask with institutional-grade custody for easier workflow management and reporting.

For Developer Users: Infura and Truffle

ConsenSys provides two main products for public chain developer users: Infura and Truffle, which will be explained separately below: Infura - AWS of the Blockchain Era

Infura is a node outsourcing service provider for public chains (accessed via API), established in 2016, operating about 10% of Ethereum nodes. These nodes are load-balanced, allowing developers' products to quickly and stably connect to Ethereum through Infura's API (see the diagram below):

Analogous Understanding:

Internet companies can easily deploy their applications in the cloud by purchasing AWS cloud services, while developers can easily deploy applications on Ethereum and other blockchains through Infura's API;

Reverse Understanding: Typically, just to get started, companies must spend tens of thousands of dollars to establish and operate nodes that can read and write to the blockchain. This is not only slow and costly but also consumes a lot of engineering resources. Worse, the node architecture may not gracefully support large-scale expansion. When nodes fail to synchronize block numbers, cross-server load balancing (as in traditional web applications) can collapse. Uniswap <> Infura:

Background: As the most successful application on Ethereum, Uniswap has been using the Infura API suite to meet its data requirements since its launch in 2018.

Challenge: The Uniswap interface allows users to easily trade tokens, add liquidity, and create liquidity provisions. Behind the scenes, Uniswap needs to extract a series of information from smart contracts on the Ethereum blockchain to input into the interface and populate data such as token pricing, user balances, and interest rates. The Uniswap team requires an easily integrable solution to access this data, which can also scale to meet the growing volume of requests.

Solution: When users access its UI/UX, Uniswap uses Infura to query information and pairs Infura with web3-react to obtain data such as token exchange rates, token balances, and other information from Uniswap's smart contracts.

Operational Status:

As the most popular node outsourcing service provider for Ethereum, Infura supports nearly half of Ethereum-related applications (e.g., MetaMask, Binance, Uniswap, Coinbase), with its API currently being called approximately 12 billion times daily.

Infura adopts a SaaS-like charging model, charging based on the number of API calls, with the most basic version being free.

Truffle

Truffle is an open-source smart contract development framework based on Ethereum's Solidity language, established in 2015, known in IDE form, providing a full range of tools from development to deployment (Ganache falls under this category), and is the most comprehensive contract framework in the Ethereum ecosystem.

As the most popular contract framework among professional Ethereum developers, Truffle not only has the ConsenSys Truffle team but also boasts a large community of active developers who continuously expand and optimize Truffle.

The basic tools of Truffle are free, and a paid package with more resources and services, Truffle Teams, was launched in February 2021.

Products for Enterprise Users

Customized Services Enterprise-grade customized blockchain services have always been the biggest distinguishing feature of ConsenSys compared to other blockchain technology companies. ConsenSys (including before the split) has provided customized blockchain solution services to dozens of companies across various fields such as finance, real estate, supply chain, and municipal services, with typical cases including: Government Finance:

• Collaborated with the Monetary Authority of Singapore to explore a real-time full settlement system (POC completed in 2018, MAS open-sourced the code);

• Explored a central payment settlement system with the South African Reserve Bank (POC completed in 2019, using code from the MAS case);

• Currently participating in CBDC testing projects with the Reserve Bank of Australia, Bank of Thailand, Societe Generale, and Hong Kong Monetary Authority;

Cross-Border Trade:

• Participated in the cross-border trade management & financing platform project Komgo, initiated by giants like ING, BNP, and Shell (MVP completed by the end of 2018, over 1000 transactions/month);

• Participated in the agricultural trade chain platform project Covantis, initiated by giants like COFCO and Cargill (launched in March 2020, with the first case being soybean transportation trade from Brazil to China).

Financial Markets:

• Planned and developed JPM Coin (in-ecosystem payments) and Liink (cross-border payments) for JP Morgan;

• After JP Morgan sold Quorum to ConsenSys, ConsenSys integrated Besu with Quorum at the business level and also provided external services;

ConsenSys believes that customized blockchain services are "labor-intensive" and lack revenue stability. In the future, it plans to leverage modular SaaS products like Codefi and Infura to create value, reducing the volume of customized services and allowing customized services to serve more as a window for ConsenSys to export its brand value.

Exclusive Azure Blockchain: Azure has announced that it will shut down its Azure version of blockchain services in September this year, to be replaced by Quorum; ConsenSys sells enterprise-grade blockchain services based on Quorum on the Azure platform through both customized and modular models.

Codefi - SaaS Model Output

Codefi began in 2019, with ConsenSys breaking down its previous comprehensive enterprise-grade blockchain solutions into modular basic products, eliminating the need for development teams to write repetitive code, focusing on applying blockchain technology to optimize traditional business and financial sectors.

Codefi includes nine modules (see the diagram below), and currently, it is mainly sold as an attachment to large individual cases for institutions;