If you can’t beat ’em, join ’em.
That’s the underpinning philosophy of former PayPal President David Marcus’s approach to the cryptocurrency market, and his new startup Lightspark, after a tumultuous career in the space that included an attempt by Facebook to launch its own digital coin.
“We’re very focused on rails and not assets,” Marcus, who most recently led Facebook’s payments division, Novi, said in an interview with The Block. “We learned this through all of our last adventures,” the Paris-born entrepreneur said with a mischievous grin, alluding to his much-publicized attempt to launch Meta’s Libra (later called Diem) before it was squashed by stateside regulators.
His new startup — which revealed its product suite on Tuesday — is building on top of the Bitcoin network, specifically a Layer-2 protocol known as the Lightning Network. In Marcus’s view, building out the requisite tools to make the Lightning network easier to use is a better path than relying on alternative blockchains because of Bitcoin’s relative size and more secure regulatory footing.
Lightspark raised about $173 million last year at a valuation of almost $1 billion at the time, according to a person familiar with the matter who declined to be named.
Lightspark’s platform overhauls the process by which market participants connect to Lightning, which requires users to establish peer-to-peer payment channels off-chain. The firm emerged from stealth in May when it announced a fundraise with backing from a16z Crypto, Paradigm, Coatue and Matrix Partners.
Despite being heralded by proponents as a way to scale Bitcoin and support cheaper and faster payments through the cryptocurrency network, Lightning has failed to gain much traction relative to the broader market.
The network’s capacity currently sits at $158 million, which – when compared to DeFi protocols — would rank 53rd in terms total value locked. Much of Lightning’s potential is being held back by the clunky and time-consuming process of node management and engaging with the Lightning Network, Marcus said.
“It was a lot like the early days of the internet,” said co-founder James Everingham, who most recently worked as vice president of engineering for Novi. “I wanted to run a web server I had to go find code, download it, build it, tweak it to get it to work with my specific server.”
“This seemed to be very similar. I finally was able to download the code: it took me a week to tweak it to get it to work on my system.”
Lighspark’s products allow users to integrate their platform to support instant bitcoin transactions on the Lightning network. Specifically, it removes the need for Lightning node operators to manually find equilibrium, or balance, between inbound transactions and outbound transactions.
“I have to do all this manual stuff which is pretty far beyond what a small business or someone that wants to connect to Lightning would do,” Everingham said.
Lightspark leverages artificial intelligence to predict where liquidity is concentrated on Lightning to automated the channel balancing process.
Muneeb Ali, CEO of Trust Machines, which enables Bitcoin applications, said this will help smaller companies who want to support Lightning payments do so without building out large technical teams.
“Effectively with a solution like this many independent players (imagine 100s of retail stores) can start giving more reliable payments to their end customers without hiring their own teams to manage ‘enterprise grade lightning’ like Strike or Cash App had to,” he said.
While it might be some time before most people will be able to buy coffee from their local barista through the Lightning Network, Lightspark’s platform could provide a solution for crypto’s hobbled capital markets. In the wake of the blow-up of Signature Bank and Silvergate, high-speed traders lost a hub by which instant 24/7 transactions could be executed through a trusted party. Those players could theoretically move their activity to the Lightning, with the help of Lightspark.
“This is real time net settlement, right, and it is definitely 24/7,” Marcus said. “Plus it is this thing that no one entity or person controls.”
“This is solving a lot of problems for a lot of players,” he said. “The current climate of crypto being very difficult right now makes us feel quite good that we built on bitcoin and not on anything else frankly.”
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