The history of MetaMask: Initially rejected by YC, now with over 80 million users

Original Title: 《MetaMask: The Hero Crypto Deserves》

Author: Mario Gabriele

Compiled by: Dong Yiming, Creed, Chain Catcher

Predecessor: Vapor

Miami

This is an unlikely location for an important meeting. Florida is known for its spring break and silver-haired snowbirds, but not always for technological innovation. When it comes to the story of Ethereum, the Sunshine State deserves more attention.

In January 2014, a rather ragtag group met at a beachfront villa in Miami. While they chose the state to attend the North American Bitcoin Conference held at the Cleveland Hotel in South Beach, the real purpose of their visit was to discuss a different crypto project: Ethereum.

Months earlier, a then 19-year-old Vitalik Buterin had penned a "white paper" outlining the possibilities of what he envisioned as a "world computer." His work garnered support and attention, including from those who joined him in Miami. He arrived at the villa with two other talented developer friends: the scruffy yet enthusiastic Gavin Wood and the bespectacled Charles Hoskinson. Businessmen Anthony Di Iorio and Joseph Lubin also participated in the discussions.

If Buterin effortlessly exerted gravitational pull on those gathered, then Lubin must have seemed the most out of place. The Torontonian had worked with Buterin for 30 years and attended the meeting at Di Iorio's invitation. Coincidentally, Lubin had previously worked on Wall Street. Before joining Goldman Sachs as a vice president, Lubin had spent seven years as a research scientist.

During the group's stay in Miami, Lubin not only ensured his position at the forefront of the Ethereum revolution but also balanced Buterin's idealism with his own business acumen. This meeting was a pivotal moment in both Lubin's career and the history of Ethereum.

First Ethereum Developer Conference (Devcon 0)

Eleven months later, Devcon 0 was held in Berlin, the first official forum for Ethereum, where Buterin, Wood, and other core members of the early Ethereum community spoke.

By then, the Ethereum team had made a significant decision: the project would be non-profit. This choice fractured the leadership team, with some members of the original creative team leaving to seek new opportunities. Despite being close to Buterin, Lubin was among those who began to look beyond the project for more commercial avenues. Around the time Devcon 0 began, he started a new venture: ConsenSys. The company aimed to find and fund business opportunities for Ethereum, helping to drive adoption and bring its benefits to consumers and enterprises yet to onboard.

In a conference room in Berlin, the precursor to one of ConsenSys's star assets was born.

Joel Dietz was a fervent convert among many. With the kind of soft hair reminiscent of a 90s star and a youthful face, Dietz had already carved out a niche in the ecosystem. He had not only published his insights on the future of cryptocurrency in Bitcoin Magazine but also initiated a series of meetups for Ethereum enthusiasts in Silicon Valley.

In addition to these activities, Dietz was busy with his own project, or more accurately, some of his projects.

One of these projects was a Bitcoin-based crowdfunding platform called Swarm, along with a series of crypto browser extension projects. It turned out that Dietz was able to act on one of the ideas discussed during the conference. He recalled, "During the discussions at Devcon 0, we heard a lot about the need for a JavaScript client and some web3 interfaces that would bridge the world of standard web applications and Ethereum clients."

In one of the conference rooms, Dietz sat down with Buterin and Wood and made a simple pitch: he should receive one of the recently announced Ethereum developer grants to create a JavaScript-based browser extension.

Buterin didn't seem too convinced. Dietz recalled that he was personally interested in the idea and even gave it a name: Vapor. Despite not receiving any funding, Dietz left Berlin with the project.

Back in California, he began to leverage the network he had built to get to work. He wanted to talk to "all the JavaScript developers in the state who had given any form of talk on Ethereum clients." According to Dietz's recollection, such talks numbered no more than four. They were led by "JavaScript hacker" Aaron Davis, a group of Apple employees.

Davis was known in the cryptocurrency world by his pseudonym "Kumavis." Like Dietz, he had recognized the potential of blockchain early on. In their conversations, Kumavis mentioned that he had come up with the idea for an Ethereum wallet after planning a crowdfunding campaign and realizing he needed a way to "spread the link."

Dietz and Kumavis decided to team up to build Vapor, initially an informal decision. As Dietz put it, Kumavis was interested but wanted the early project to secure funding before he left his stable full-time job at Apple. The third member was Martin Becze, who had been living in the co-working space that Dietz helped operate and assist the Ethereum Foundation, and he also jumped on board.

To raise funds, the three attempted to enter the place that powered many unicorns: Y Combinator.

In a video provided by YouTube, you can see Becze, Dietz, and Kumavis explaining what they were trying to build.

In this one-minute clip, the word "wallet" is not mentioned, as it did not carry the connotation it does today. Instead, the team described what they were building as a connector that "bridges the browser with the blockchain."

Thanks to Y Combinator, this pitch sparked enough curiosity. But YC still rejected their funding request. Dietz provided an email sent by YC partner Trevor Blackwell.

The email stated: "We regret to inform you that we do not plan to fund Vapor this time, but the three of you impressed us with your presentation and the demo you brought. However, we are not sure that the product will attract a large user base. For a smart contract to gain public acceptance, it must establish a very large scale of trust. If you look at things that have been widely accepted by the public before, like fiat currency and common law contracts, they all had a large number of early users with good reputations (governments, monopolies) that established a trusted network. I think you should look for your first target user who is widely trusted by the public; I don't know who that would be, but you will be the best at identifying that user."

In hindsight, it would have been tempting to retort to YC: "Ha! How do you feel about our smart contract adoption numbers now?!" But Blackwell's stance is one held by most technologists, including those skilled at predicting and funding the future.

Even without YC's firepower, the founders of Vapor continued to commit to the project. But cracks began to show.

Post-YC: The Tricky Terrain

So far, the trajectory of the Vapor story is quite clear. But it was about to fall down the rabbit hole and into the shadows.

While researching for this article, I attempted to speak with the three founders of Vapor, contributors to the success of MetaMask, and others in the wallet space. I did not speak with Joe Lubin and Daniel Finlay, the latter being a developer at ConsenSys who is considered one of the founders of MetaMask. I also did not receive a response from the third member of Vapor, Martin Becze.

After being rejected by YC, Kumavis continued to work on Vapor. But he soon realized he was the only one contributing among the three. Becze focused on other Ethereum-related activities, while Dietz was only superficially involved in other projects. "I did 100% of the work," Kumavis pointed out.

Dietz himself seemed to confirm that Kumavis was the primary contributor, stating that he "did about 90% of the coding and browser extension-specific work." Dietz claimed he "funded the early development," referring to paying for office space and team meals. However, Kumavis made it clear that Dietz "never paid for anything" and asked him to provide receipts.

Dietz was surprised by Kumavis's departure and suspected foul play. As he put it, he found himself removed from Vapor's GitHub organization and Slack channel, the latter being renamed "Metamask." This experience made him feel kicked out, saying, "I guess you could say I was forced out."

For Kumavis, this separation was not as dramatic or contentious. He did remove Dietz from Vapor's GitHub and Slack, but that was because Vapor was going nowhere. Frustrated by his co-founders' lack of effort and feeling that the product was "not quite right," he decided to cut ties and start anew, applying for new grants.

Kumavis used $30,000 to support the project he built from scratch: MetaMask. After that money ran out, he continued to work independently for a while, but without a salary, he decided to hand the project over to ConsenSys. At that time, ConsenSys was just a "vibrant hacker team," which felt like a good fit.

Once on board, Kumavis hoped the team could bolster the new project's firepower. To that end, he reached out to his friend and former colleague at Apple, Dan Finlay. Finlay's impact on MetaMask seemed immediate. As Kumavis noted, Finlay brought the fox logo to the project, which today is MetaMask's calling card. Kumavis specifically emphasized the freshness the fox logo brought to the project, as they were hesitant to trust Vapor's code, saying, "Since our project was built from scratch, we had the fox logo before we had any substantial working functionality in MetaMask."

Now, Vapor was no more. MetaMask emerged under the ConsenSys banner, with its future defined by Kumavis, Dan Finlay, and Joe Lubin.

History: The Multifaceted Nature of ConsenSys

To understand MetaMask, we need to clarify the "parent company" that adopted it. However, ConsenSys has not made this description easy; over its seven years of development, it has changed its approach multiple times to adapt to shifting market dynamics and operational upheavals.

ConsenSys's chief economist, Lex Sokolin, explained the various phases of the company, highlighting three distinct transformations. We will examine how these different changes have influenced the development of MetaMask.

Phase 1: The "Burning Man" of Cryptocurrency

ConsenSys sought to be an incubator for startups, gathering outstanding technical experts and providing them with funding and the freedom to build everything needed for the crypto ecosystem.

While the idea was good, it created a somewhat disorganized environment. As Sokolin noted, during this period, Lubin funded 100 companies in hundreds of different ways, but "some of those ways were very loose."

Mike Demarais, CEO of another crypto wallet provider, Rainbow, aptly captured this aspect of ConsenSys's issues, saying, "[It was] a crazy place. A bit like a 'Burning Man' for salaries." Demarais closely monitored the company and hired many who worked under its sponsorship.

This environment both facilitated and hindered the development of MetaMask.

On one hand, it allowed Kumavis and Finlay to continue pushing the project forward. Initially, the team thought MetaMask would be a straightforward project to complete. But Sokolin later remarked, "It seemed to turn into an endless project, but in a good way." If there had been strict deadlines, MetaMask might not have become so robust.

On the other hand, ConsenSys's loose structure meant the project had little vision. Despite Kumavis and Finlay being very talented, they viewed MetaMask as a developer tool rather than a consumer project. Brandon Millman, CEO of Phantom Wallet, who worked with the MetaMask team before he was an API provider (during his time at 0x), once said, "It was clear that the product was built by developers for other developers. This made sense because most of Ethereum's early users were developers."

However, focusing on developers in 2014 may have made sense and had lasting benefits, but the lack of a long-term plan for consumer use hindered MetaMask's development. Today, many complaints stem from the product's lack of intuitiveness, but many of those decisions seem to have been made from the start.

Phase 2: Downsizing and Survival

After the prosperous year of 2017, cryptocurrency fell into a two-year winter. Bitcoin plummeted from its all-time high of $19,000 to nearly $3,000; Ethereum dropped from nearly $1,400 to $84.

Inevitably, ConsenSys was also severely impacted. Not only did the value of its held assets plummet, but its confidence in the entire cryptocurrency market also waned. More than ever, blockchain was popular, with seemingly knowledgeable people claiming they saw the immense potential of blockchain rather than cryptocurrency.

ConsenSys did not continue to mindlessly fund dozens of startups trying to bloom; instead, it focused on providing knowledge and services to large institutions exploring the blockchain revolution. In the following years, banks, media companies, and governments relied on ConsenSys's consulting services. Sokolin stated that the company had worked with ten central banks to advise on digital currency projects.

However, ConsenSys was not operating in a financially healthy state. At the end of 2018, the company laid off 13% of its staff to improve its financial situation. But MetaMask survived during this period, indicating that it had established itself as a core part of the infrastructure. In the same year that these cuts occurred, MetaMask's downloads surpassed one million, a decent result for a project that had been abandoned by Y Combinator just a few years earlier.

Phase 3: Splitting and Streamlining

Starting in 2020, ConsenSys began to reorganize itself. To raise funds, the company split into two independent entities: "ConsenSys Mesh" and "ConsenSys Software," each with different focuses.

ConsenSys Mesh would serve as an investment entity, selecting new companies worth investing in from a portfolio of companies.

"ConsenSys Software" bundled the company's leading technological assets into a clearer product. Under this new banner were Infura, Truffle, Codefi, Diligence, and of course, MetaMask. After August 2020, the Quorum platform would also join this quintet, as at that time, ConsenSys purchased the commercial blockchain platform Quorum from JPMorgan.

To facilitate this transformation, the company laid off another 14% of its workforce. At least as a strategic move, it seemed to pay off. ConsenSys Software announced a $65 million funding round in April 2021, followed by an additional $200 million investment in November.

While certainly aided by the heated cryptocurrency market, the support from blue-chip financiers like Third Point and Marshall Wace also indicated confidence in ConsenSys's new structure.

For MetaMask, this reorganization brought more opportunities.

On one hand, ConsenSys seemed eager to promote synergies between its six different products. With fewer products to focus on, it should be able to build real bridges.

Equally important, it should ultimately secure more funding. ConsenSys was not only better at raising funds but also no longer needed to allocate funds across numerous products. Besides developing the Infura platform, MetaMask, as a star project in the portfolio, would also be treated as a true priority.

Traction: MetaMask's Supersonic Advance

In the past year, MetaMask has experienced massive growth, expanding its service scale.

In just over a year, MetaMask's monthly active user growth rate was 2,100%, increasing from one million to over 21 million. This is undoubtedly good news, and it's hard to imagine the pressure this has put on MetaMask's systems and maintenance staff.

When pointing out MetaMask's shortcomings, Sokolin noted, "People should be happy about this; it's an incredible pressure for the team."

The surge in MetaMask not only refers to its user numbers but also to its revenue. In October 2020, the team launched the aforementioned "Swap" feature. As mentioned earlier, Swap allows users to exchange their tokens, with MetaMask executing transactions using separate swap providers. MetaMask takes a fee of 0.875% of the transaction amount.

It turned out to be an extremely sharp move. Although the fees charged were considered "high" by some, MetaMask has successfully monetized the Swap feature very effectively. Research firm Delphi Digital reported that MetaMask's revenue from this feature reached $200 million in 2021, while DeFi hot products like Sushi earned only $70 million during the same period.

Delphi's analysis of MetaMask's revenue: "Think about this: MetaMask's customer acquisition cost (CAC) is a huge zero. MetaMask has no token incentives or issuance, so their revenue has almost no cost consumption, with profit margins close to 100%. Imagine if they had a token sale."

Such suggestions are not unfounded. MetaMask has considered issuing a token multiple times in the past. Recently, Joe Lubin tweeted a suggestion about $MASK:

Is tokenization feasible for MetaMask?

It doesn't seem like an easy task. On one hand, MetaMask has not publicly articulated a clear idea of what functions the token would provide. Past discussions have clearly mentioned a token that would allow customers to vote on potential new features, referred to as a "token-weighted governance model." According to Demarais, this is "the weakest value proposition" for such a project.

Additionally, there is a risk that the token would only add short-term hype to the project. In our discussion about OpenSea, we outlined how Rarible's $RARI token briefly allowed it to dominate the NFT market, but it did not last long. Without a token, OpenSea surpassed them with a stronger, more consumer-focused product. Demarais pointed out, "Having a token doesn't make you win. But it can incentivize you."

Phantom CEO Millman expressed skepticism about the potential MASK token, saying, "I personally have my doubts. What MetaMask needs to do now is focus on improving their core product. Bringing some token governance scheme into a broad 'community' will only slow down development and iteration. I think everyone agrees we need more cycles to make wallet products better."

Overall, MetaMask has survived the rapid changes of 2021 and effectively maximized its benefits, which is commendable. However, to maintain its lead, it needs to adapt to new environments and embrace new challenges.

Future: Where Have All the Wallets Gone?

No industry evolves faster than cryptocurrency. With new companies, technologies, and financiers constantly emerging, meaningful changes are happening every day. We are in the first minute of the first quarter, and compared to the days we've come from, there will be more crazy things to come.

This means that, as stated above, crypto wallets are in their infancy. They are still taking shape, driven by technologies that may be reformed, changing for uses that will evolve. This uncertainty brings both risks and opportunities.

We can expect four factors in the Web3 era that could directly influence the evolution of wallets:

• There will be more intense competition.
• There will be greater adoption.
• Cross-network demand may increase.
• There will be more use cases.

Each of these will impact MetaMask's future. We will analyze these and consider how the current market leaders are positioned.

More Intense Competition

When MetaMask officially launched in 2016, its advantage lay in the fact that there were few competitors at the time. In the following years, the number of competitors steadily increased, but no wallet has ever shaken MetaMask's position.

That situation may not last forever. Competitors are emerging from multiple angles, with companies vying for wallet services and bad actors continually attempting to exploit vulnerabilities in MetaMask.

Coinbase is the most prominent participant in the first category. The cryptocurrency exchange also offers a wallet product, designed similarly to its core product. Coinbase Wallet supports NFTs and connects to the main exchange, simplifying the trading process.

While MetaMask aggregates different exchanges and finds the best prices for users through transfers, Coinbase has little incentive to conduct meaningful searches. This is just one example of how the company's core product cleverly limits the utility of its wallet.

Although Coinbase offers a "friendly" wallet, it seems unlikely to become a winner in this space, at least for the average user. MetaMask can link different exchanges and provide users with the best quotes through Swap, but Coinbase Wallet seems to have limited exploration in this area. This is just one example of how the company's core product restricts its wallet's utility.

Jack Dorsey's Block (formerly Square) may face similar issues. While Block has not yet offered wallet functionality, rumors suggest it is developing a wallet in the Bitcoin space under its sub-brand Spiral. While it seems that the obsession with Bitcoin surpasses all other challengers, Spiral or similar entities could potentially enter the Ethereum world dominated by MetaMask. Similarly, while this is a potential pathway, actual users may ultimately feel uneasy about Block's any prescriptive power over its cryptocurrency exchange services.

Decentralized exchanges and other crypto projects are also making strides in this area. According to Demarais from Rainbow, Uniswap and Aave may both launch mobile wallets. From his perspective, at least, these organizations will yield to the same problem: the use of wallets is merely a means to support different businesses rather than presenting as a truly unique entity.

What remains are many startups, with Rainbow being the most prominent. For Demarais and his team, the strategy is simple: create a wallet that ordinary consumers can use and provide the education and support needed for new experiences.

Phantom has taken a similar approach but with a different entry point. Millman and Agosti did not start by supporting the Ethereum ecosystem but instead decided to invest in and leverage the rising Solana.

Today, Phantom has become the wallet of choice for Solana users. The team's latest data indicates that Phantom has 1.5 million active users per month, with 100,000 new user downloads weekly. Additionally, it has raised $9 million from Garry Tan and a16z.

Argent is also a prominent competitor. It has secured $16.2 million in funding from well-known companies like Paradigm, Hummingbird, and Index. Focusing on the Ethereum ecosystem, Argent offers 20% APY through DeFi protocols like Aave and Compound. According to insiders, Argent has shone from a technical perspective, boasting strong security features and robust architecture.

Moreover, projects like Trust, Pillar, Dharma, Frame, Balance, Torus, WalletConnect (SDK), and others play important roles in the ecosystem. Additionally, several undisclosed projects have already generated buzz.

If any field's development speed can accommodate multiple winners, it is the crypto world. However, despite various competitors not overly worrying MetaMask, the nature of blockchain makes it much easier for users to switch to a new wallet provider than in other industries. Since all data is stored on-chain, users can effortlessly switch from one wallet to another without losing their asset data.

In summary, the dynamic changes in the cryptocurrency space mean that MetaMask may face many competitors and a diverse consumer base misusing various wallets.

Wider Adoption

A significant part of the reason MetaMask will face so many competitors is that cryptocurrency is entering the mainstream, bringing a wave of new users, including consumers, institutions, and developers.

Let's first look at user data. Three years ago, there were an estimated 31 million cryptocurrency wallet users. Today, there are nearly 80 million.

Compared to the adoption of other technologies, such numbers still pale in comparison. In 2018, the World Bank estimated that 3.8 billion people had access to traditional banking, while there are currently 4.6 billion active internet users. Will we eventually see cryptocurrency wallets reach similar penetration rates?

Whether it reaches such heights or not, participants in the field will need to attract a broad audience. MetaMask does have an advantage in this regard: brand recognition. While its product is not perfect, it has become the default wallet. Demarais noted, "It has become well-known and has become a brand. That is our challenge."

To replace MetaMask, Rainbow has taken an aggressive repositioning approach. MetaMask feels functional and limited. Rainbow embodies the resilience and color of a social media challenger. This aligns with consumer expectations and the spirit of inclusivity. Regarding user adoption, Rainbow's community lead, Jackson Dame, said, "The future of Web3 and the next 100 million users will require more user-friendliness and more intuitive experiences. I don't think many people in the ecosystem would describe MetaMask with those words."

For MetaMask, it may not be too late to catch up now. The company should have ample liquidity to hire talented engineers; if possible, they will have enough space to complete this innovative work. Part of the challenge may be that MetaMask is so deeply rooted and mature that genuine reform may be impossible.

While products like WalletConnect make it easier for app developers to provide integration with many different wallets simultaneously, MetaMask is often the first to call the ports when adding such features. Demarais is also optimistic about MetaMask's potential, noting, "I believe MetaMask can serve as a developer tool."

However, Phantom's Agosti believes:

Wallets do have a virtuous cycle and some sort of network effect. Developers integrate popular wallets, developers build applications that attract users, making wallets more popular. Developer adoption has always been a primary driver of growth for wallets like MetaMask. Users download MetaMask not to use MetaMask; they download MetaMask because they want to mine or buy NFTs.

Whoever can win the hearts of users and developers will benefit the most from this virtuous cycle.

More Cross-Network Demand

A year ago, Solana's trading price was $1.80. Its price has recently hovered around $200. Such an exciting rise is just one sign of the project's rapid ascent in a short time. In the coming years, we may see many projects replicate Solana's trajectory, suggesting that we are heading toward a multi-chain, multi-network future. For example, we might choose Ethereum as one interaction, Bitcoin as another, Solana as a third, and Terra as a fourth.

Adding new chains requires a lot of work. Sokolin said, "Adding a new chain is very, very difficult." It not only increases technical complexity but also raises the possibility of user confusion. Transfers between different networks based on transaction types require a certain level of knowledge, and acquiring that knowledge takes time.

However, if users are constantly transferring between different chains, then lacking such functionality may make sense. Francesco Agosti cleverly summarized this issue: "If several chains have similar market shares (user numbers, transaction volumes) and these chains offer similar types of applications, then I believe multi-chain wallets provide a better experience. If there are significant differences in how the chains work, or the user bases of the chains, or the use cases these chains provide… then the answer becomes less clear. Multi-chain wallets will struggle to compete with wallets specifically targeting niche markets on specific chains."

Currently, MetaMask supports Ethereum and its ecosystem. For now, it does not need to do much else. But if projects like Solana and Terra continue to thrive, it may need to expand its application scope.

More Use Cases

The concept of a universal wallet may slowly fade away. As more transactions and interactions occur on-chain, there may be specialized products to serve them. Certain wallets have already claimed to serve specific niche markets.

We can see a similar trend emerging in the gaming space. Some wallets have already claimed to explicitly serve this area, with Wombat being one example. The rewards for playing blockchain games and rich NFT support have attracted nearly one million users.

Over time, there may be many such sub-industries that need to be served. Agosti outlined, "In the next five years, there could be a plethora of crypto use cases, expanding the total accessible market for wallets by an order of magnitude… The winners will be those who benefit the most from these waves or those who create the waves."

MetaMask should not be expected to capture all opportunities, but it will want to ensure it is not washed ashore.

Crypto Hero

MetaMask is a crypto hero. For over six years, its team has been dedicated to building a product that may be perfect but is effective. An important primitive that can be relied upon and trusted. MetaMask has opened the doors to the web3 world for tens of millions of users and thousands of developers. Demarais succinctly described the company's contribution: "Without MetaMask, we wouldn't be here."

Such an important contribution deserves respect and reward. But that does not mean the whirlpool of public opinion will become friendly toward MetaMask. As more consumers flood into this space, they will expect optimization and design levels that the current front end does not possess. Unless this gap is genuinely addressed, complaints of one kind or another will continue to exist.

MetaMask may not mind. It has withstood numerous trials, enduring changes in its parent company's structure and the brutal volatility of the crypto market.