Apple’s 30% tech tax on developers has not just antagonized consumer tech giants like Epic Games and Spotify but is also turning web3 startups against it. Major NFT marketplaces OpenSea and Magic Eden noticeably only let users browse listings on their iPhone apps without enabling trading to avoid the steep fees. But doing so bars the one billion iPhone users from easily accessing a new breed of decentralized apps, while web3’s current challenge is to drive mass adoption.
A nascent startup hopes to solve the app store problem for web3. Founded last year, Magic Square is building an app store that lets developers list projects that are vetted by the community. And its initial traction — 250,000 have signed up to test its upcoming beta version — has helped it attract investor attention.
Magic Square’s valuation jumped to $75 million after recently raising an additional $1 million, up from the $30 million price tag of its $3 million seed round led by Binance and Republic that was closed in July. The startup is now seeking to raise $4.4 million at a $120 million valuation, CEO Andrey Nayman told TechCrunch.
Crypto.com Capital, the VC arm of the namesake crypto exchange, has joined as a strategic investor and will leverage the large pool of projects listed on the exchange to help Magic Square onboard more developers.
The startup wants to make marketing cheaper for crypto startups, which are currently throwing tens of thousands of dollars at influencer endorsement without knowing for sure that will lead to new users, or they launch an airdrop but end up attracting speculators rather than real users.
As such, Magic Square has designed a marketplace for affiliate marketing — a concept that has existed since the dawn of the internet — where developers set the price of how much they pay for each user acquired. In turn, marketers claim the tasks and work on helping these apps drive users. That’s also how the startup generates revenues. Instead of a tax on in-app purchases, it takes a 10% cut from the developers’ campaign budget.
Buoyed with fresh proceeds, Magic Square plans to add headcount to its team of 40 employees spread across the world and focus on product development for its affiliate marketing program.
With the explosion of blockchain apps and crypto scams, having some kind of gatekeeper could offer a layer of protection to consumers. Despite the heavy tax they charge, Apple and Google at least work to root out illegal or suspicious apps — even though the mission sometimes falls short.
“There are currently around 10,000 dApps out there, but if I talk about production-ready applications, it’s like 2,150 apps,” says Nayman, who was previously an investor at a major Israeli hedge fund.
“If you are a crypto-savvy user, you know where to look. You know to check the white paper, the audit reports, the LinkedIn of the founders — the nuances that need to be checked in order to decide whether this is a project that you want to be involved or not with. But if you are not, you have no idea where to start.”
There’s a seeming paradox in building a user-friendly decentralized product because accessibility and speed often rely on centralized data centers. But as some web3 experts increasingly argue, it’s the degree and type of decentralization that matters.
In Magic Square’s case, decision-making for app publishing is kept in the decentralized realm. Its store depends on a group of validators to screen apps, a process that happens through a decentralized autonomous organization, or DAO, with an incentive mechanism to keep participants accountable and active. The app store is in the process of transitioning from Solana to Binance Chain.
Validators are the ones who eventually decide what gets to be on Magic Square, and they do so by vetting projects by three criteria — content, security and user experience — not unlike traditional app store inspection. Each app goes through 250 randomly picked, independent validators, including 50 “qualified” ones who are technically advanced and 200 “standard” ones who can be anyone from the community.
Validators are doing it for financial returns. Whether their app ends up passing the test, developers need to pay validators in Magic Square’s tokens to audit their apps. The store also encourages app users to leave reviews by rewarding them with points that can be converted into tokens, a structure that Neyman compares to the vastly popular — though sometimes fraught — play-to-earn business model used in GameFi.
“Instead of playing, they just can use the same application that they’re using in their daily lives,” says the CEO.