Stelo Labs: We made three fatal mistakes when it comes to killing people on paper

Original title: Susetting Stelo

Original author: Stelo

Compiler: Qianwen, ChainCatcher

Stelo, a Web3 security company led by a16z, discontinued all of its offerings on October 31. According to the RootData page, Steolo closed a $6 million seed round on February 16 this year.

The company published an announcement on its official website in October and explained the three reasons why the product failed, and the following is the full text of the official announcement, compiled by ChainCatcher as follows:

We have made the difficult decision to discontinue all Stelo products on October 31, 2023. This includes Stelo extensions, stelo.com, approvals.xyz, and the Stelo API. It’s a tough decision, but we want to keep all of our users safe from future phishing attacks. For this, we recommend that all users download one of the following products immediately: Pocket Universe, Fire or Wallet Guard.

When we started developing Stelo, our vision was to solve the technical and design challenges of security and usability. We believe that the most pressing issue is to prevent users from being scammed or falling into phishing traps. Therefore, we decided to start with the aspect of ensuring that the transaction is secure and easy for users to understand.

By being an important part of the transaction flow, we believe we can grow into an ecosystem of products that include MPC wallets, fiat on/off the line, API products that leverage the scam/phishing data we collect, DAO voting tools, and more.

In terms of numbers, we have achieved the following results:

• Over 10,000 downloads of the Stelo extension.
• 1,500 daily active users and 7,000 monthly active users (although we have not developed or marketed products in the last 6 months).
• We protect more than $200 million in assets in total.
• Our platform has blocked hundreds of scams and saved users from potential disaster.

In addition to our extensions, we have also developed a developer application programming interface (API) for the wallet, combining our transaction risk engine, token approval website, and a common interface to interact with any smart contract.

However, after a year of building the Stelo product line, it became clear to us that some of the assumptions we had made didn’t hold true or apply to the startup’s startups. **

Hypothesis 1: Transaction security**** has ******** data network effect****

Our view is based on “data network effects”, which means that the more users we have, the more attacks we see, and the better our systems will be at detecting and stopping attacks, bringing in more users. In particular, we’re pinning our hopes on off-chain network effects, where data about websites and URLs is very important. Only products that are part of the transaction flow can access this data and see which websites the malicious transaction originated from. It turns out that most malicious transactions can be detected simply by looking at the transaction payload and applying a simple heuristicistic algorithm. ****

We recognize that when there is evidence that this is not the case, we should not just believe our own narrative. We believe there are network effects, but we shouldn’t confuse potential long-term effects with short-term realities. It’s still possible for this network effect to play out to a certain extent (almost all fraud networks have it), but we’re not there yet. ****

We also recognize that competition is for losers. In a market where there are no barriers to entry, no strong network effects, and competitors are already full, no one wins. We need to develop effective strategies to avoid competition and identify markets.

****Hypothesis 2: ****Every ******** cryptocurrency user ******** uses ******** separate wallet

We use the Cryptocurrency Adoption Metric because we believe that all transactions need to be secure. This assumption means that all transactions will be made through a dedicated wallet. However, many of the most promising cryptocurrency use cases – gaming, decentralized social, and stablecoins – are likely to have embedded wallets that abstract the complexity and risk of using a dedicated wallet away from the user. If users don’t use the wallet directly and aren’t at risk of phishing, then our portfolio won’t add any value.

We learned to be clear about our hypotheses and to question new evidence as it was discovered. We believe that our approach has “de-risked” the risk that will arise in the largest use case patterns of cryptocurrencies as examples. While we know we’re betting on the competition between standalone wallets and embedded wallets, we don’t really look at the issue and find out what it really means. If we really thought deeply about which solution a developer would choose for each product, we might take a different approach or choose a different problem to solve.

****Hypothesis 3: Consumer Crypto Adoption Is Just Around the Box

On top of that, we believe that the use of cryptocurrencies by mass consumers is just around the corner. We’re still excited about a lot of cool projects, but crypto isn’t mainstream yet. AAA-level crypto gaming or decentralized social networking may soon bring explosive growth, but the Stelo portfolio doesn’t offer much benefit to these users and can’t benefit from that growth. Importantly, we don’t believe our current users are representative of the new wave of users we expect to come with wider adoption. Without customer feedback from the “right users,” we feel like we’re flying in the dark with no direction.

We recognize that we need to be grounded in important end-to-end issues. On the surface, we’re focused on the problem – we protect people from scams. However, as a rule of thumb, our user base is primarily involved in gambling and speculation, which means that if we really think about the end-to-end user problem, it’s helping people gamble and speculate, but that’s not something we’re trying to solve. We don’t need to address the whole problem from the start, but we should understand the entire user journey to make sure we’re helping users solve important and ongoing problems. ****

Continue on your way****

We will start building again and communicate with users. We’ve taken these lessons to heart as we develop the next generation of Stelo Labs. We will have the courage to question our own narrative, focus on finding a suitable market, list various hypotheses, and base ourselves on end-to-end user problems. ****