The Shaky Foundations of Web3 Companies

“Getting out of real prison is easier than getting out of Twitter prison,” former pharmaceutical executive Martin Shkreli captioned his selfie when he was released from prison in May 2022. Shkreli was jailed on the charges of raising the price of a life-saving drug by 5000 percent. Dubbed the ‘Pharma Bro’ in the media, Shkreli was found guilty in 2017 by a federal jury for securities fraud and on the count of conspiracy to commit securities fraud.

Interestingly, soon after coming out of jail, Shkreli announced that he would be debuting ‘Druglike’, a Web3 drug discovery software platform.

Druglike: Almost a legit company like

According to the press release from Shkreli, Druglike would be providing resources to people and organisations to start or contribute to an early-stage drug discovery project. Shkreli, who has a lifetime ban from the pharmaceutical industry to his name, said that the goal of his company is to democratise the access and cost of early-stage drug discovery. On average, the process—from identifying a drug to the final FDA approval—takes up to ten years and costs USD 1.3 billion.

Druglike will offer a cloud-based and decentralised service for in-silico computing programs to design drugs. The company would also incorporate a blockchain verification system where contributors can earn rewards paid out in a new cryptocurrency called ‘Martin Shkreli Inu’ (MSI).

Considering Shkreli’s own past and the lack of details around the new Web3 company, several questions were raised. There have been doubts about how the cryptocurrency transactions would generate value and also about the company’s plans for venture capital funding.

One of the major roadblocks is his ban from the pharmaceutical industry; however, Shkreli mentioned that his company would only be developing software and not drugs.

WeWork’s former CEO, Adam Neumann, also has had a similar trajectory. He was accused of burning hundreds of millions of dollars. After the Wall Street Journal exposed this, he was unceremoniously fired from the company. Even then, Neumann walked away with over a billion dollars. In 2021, Neumann co-founded ‘FlowCarbon’. His wife Rebekah is the second co-founder, and Dana Gibber is the company CEO. FlowCarbon uses blockchain technology to put carbon offset credits on the chain for scaling climate change solutions. At the announcement of the company, Gibber said that they were thrilled to present the investors with experience in the Web3 world that has been plagued by scammers and grifters.

Closer home, ‘Polygon’—a platform which is a ‘Layer 2’ network built on the Ethereum blockchain—is one of the leading Web3 companies based in India. Founded by Jaynti Kanani, Sandeep Nailwal, Anurag Arjun, and Mihailo Bjelic, Polygon recently raised USD 450 million from Sequoia Capital India. However, the company was stuck in a controversy when it appointed Siraj Raval to one of its key positions. For the uninitiated, Raval was embroiled in a case where he was accused of charging high fees for his machine learning course and defaulted on offering refunds to students wishing to pull out of the course. He had allegedly also promised placement opportunities with leading companies that he failed to fulfil.

Web3—often surrounded by controversies

Staunch believers of Web3 technology seem to be passionate about its potential to create a better version of the internet. Many go to great lengths to defend its subsequent inevitability in the future that is defined by decentralisation. Despite recent controversies surrounding this technology, investors keep pumping money into Web3-based ventures. One of the world’s top venture capital firms—Andreessen Horowitz—recently said that Web3 is now entering its golden era. This firm has also been actively investing in crypto firms, the latest one being Neumann’s FlowCarbon which sells ‘Goddess Nature Tokens.’

That said, there are enough critics too. Take, for example, Twitter’s former CEO Jack Dorsey who tweeted, “You don’t own ‘web3’. The VCs and their LPs do. It will never escape their incentives. It’s ultimately a centralised entity with a different label. Know what you’re getting into.” Elon Musk had also tweeted that Web3 seems more like a marketing buzzword than a reality. He further made a separate tweet, asking sarcastically if anyone had seen Web3. To this, Dorsey replied, “It’s somewhere between a and z.”

In the past few months, these Web3/crypto-based companies have suffered miserably. One incident that is fresh is the controversy involving Binance and WazirX. It started when Binance CEO Changpeng Zhao announced in a series of tweets that his company does not own any equity in Zanmai Labs (parent company of WazirX) and only provides wallet services to WazirX as technology solutions. This sent shockwaves in the industry, especially because Binance, in 2019, had announced the acquisition of WazirX in a blog post.

The relationship between the two companies soured after the Enforcement Directorate froze bank balances of over INR 64 crore of the Zanmai directors. This squabble has left 15 million registered users on the platform stranded.
Web3 projects around the world have lost more than USD 2 billion to hacks and exploits, according to a report by auditing and security company CertiK. This is higher than all of 2021 combined. This report also claims that a total of USD 308 million was lost in 27 flash loan attacks in Q2 2022—for comparison, in 2021, USD 14 million was lost to flash loans in Q1.