The bad news? Diem was dying. The good news? Mo Shaikh and Avery Ching saw a way they could give it an afterlife.
It was the week before Thanksgiving in 2021, and the pair recall walking out of a meeting at the offices of Meta Platforms, formerly Facebook, in Menlo Park, Calif., and realizing that after a fraught nearly three years, the project they had been working on—Meta’s embattled crypto payments network, Diem, previously called Libra—could perhaps find new life outside the social media giant.
The duo (Ching, 42, a software engineer working on the Diem blockchain and Meta’s crypto wallet, Novi, and Shaikh, 36, who led strategic partnerships at Novi) had already been discussing taking the open-source codebase of Diem out of Meta and building it out externally once it was clear regulators would squash Diem. And following that meeting, “Avery and I looked at each other…and we said, ‘Wow, I think we just got the green light’” to build the blockchain outside, recounts Shaikh.
By early December, Kyle Samani, the managing partner and cofounder of crypto-focused investment firm Multicoin Capital, recalls relaxing by the pool in Miami after his firm’s summit had just wrapped up. Samani says he forgot he had a call scheduled with a couple of founders to pitch a prospective investment—but, poolside, he hopped on the phone.
Shaikh and Ching pitched their burgeoning blockchain startup to Samani, and “after the phone call was over, I walked over to Tushar [Jain, cofounder and managing partner at Multicoin], who was, like, sitting 20 feet away,” and explained the conversation he just had with the team at what would later be called Aptos Labs, Samani recalls. “And [Jain] was like, ‘All right, we’re in. Let’s go.’ It was a very fast decision,” Samani recounts. Multicoin chipped in a chunk of cash (they invested in equity with token warrants, which is a common structure for such deals. Samani declined to provide the size of their investment). Multicoin is also invested in rival blockchain Solana.
Shaikh and Ching’s pitch was effectively taking the Diem codebase “and running with it,” recalls Samani, which meant building and launching a layer one, or L1, blockchain. He believes a competitive differentiator for Aptos is the Move coding language that it uses, designed at Meta, which he considers to be “very opinionated in how it’s designed, and it’s meant to make it harder to have bugs, quite frankly.” And after the failure of bringing the technology to life at Meta, “I love the fact that they said, ‘Fuck this,’ like, ‘I don’t care what Facebook and the government says, we’re gonna go make it happen,’” says Samani.
Aptos’s cofounders Shaikh and Ching—who officially left Meta in December and are now CEO and CTO of the Palo Alto–based startup, respectively—espouse a grandiose vision of “building a L1 for the next billion users”—but they’re trying to solve a basic problem. Despite numerous layer one blockchains working on making crypto applications easier and cheaper to build and use, many of the current options still come with outages, high fees, and security vulnerabilities. The Aptos blockchain, currently in a testing phase (the public, and live, version is expected to launch later in 2022), is aimed at being a decentralized, general purpose blockchain—a safer and more scalable base for builders of things like NFT projects, social media, and DeFi, or decentralized finance.
With ex–Big Tech founders, promising technology, and the top VC backers in crypto (in addition to Multicoin, the startup also attracted Andreessen Horowitz, or a16z, Katie Haun, Tiger Global, FTX Ventures, and others) to raise its March $200 million round, Aptos Labs appears to have many of the ingredients for a recipe for success in the space. The startup raised funds at a valuation that’s reportedly between $1 billion and $2 billion, and currently has about 60 employees (the company declined to comment on its valuation).
But in addition to the rapid and disastrous descent of the crypto market over recent weeks, the startup is facing another, more direct problem: In early March, the company and CEO Shaikh were hit with a hefty lawsuit. Shari Glazer, an entrepreneur and philanthropist whose family is the Glazer family, which owns NFL team the Tampa Bay Buccaneers and English football club Manchester United, claims along with her firm Swoon Capital that Shaikh and Ching weren’t the only founders of the startup. Instead of Ching, she claims, she was a “50/50” partner with Shaikh in the venture, entitled to half the startup’s “founder’s shares” in equity—what she claims is at least $1 billion.
A chip on their shoulder
On a video call in early May, Ching and Shaikh look very dynamic sitting side by side: Ching is fairly clean-cut, but casual; Shaikh sports a voluminous head of flowing gray hair (Ching jokes that when he first met Shaikh in person, it was like going on a blind date: “He has professional pictures, like a suit and short hair, and I met him in person, [and] I was very surprised.”).
If you ask them, the pair describe themselves, and each other, as competitive.
The duo share a love of basketball: They say they play a pickup game at the Stanford campus on weekends with other basketball enthusiasts at blockchain companies (Shaikh warns that Ching “has an amazing jump shot, and he’s not afraid to show it”). The two initially bonded over the sport when they first met in person in late 2021 while working at Meta, after only seeing each other over Zoom, since Shaikh says he was living on the East Coast at the time.
Ching describes his upbringing in Honolulu as “very relaxed…It was all about prioritizing family and friends and taking time to just enjoy life,” he says. Shaikh, meanwhile, says he was born in Abu Dhabi, and that his family immigrated in 1990 to Brighton Beach, New York, where Shaikh claims he grew up “quite humbly in a basement apartment.”
According to Samani, Shaikh and Ching have a “chip on [their] shoulder,” he says. “When you can sense that in an entrepreneur, it’s usually a very good sign,” he posits. In practice that meant neither was prepared to see the work they had done on the Diem project go to waste.
Diem, spearheaded by Facebook parent Meta, was envisioned as a global digital currency (in the form of a stablecoin) that would enable people to easily and inexpensively make payments and send money around the world. Meta announced the bold project in 2019, which was overseen by a consortium of other companies as an independent group (the Diem Association).
Shaikh and Ching both worked on the digital wallet unit, Novi, which was a subsidiary of Meta, with Shaikh working on strategic partnerships and Ching serving as a principal software engineer, focused largely on the underlying Diem blockchain. After over two years of setbacks and grilling at Congress, the project, thwarted by regulators’ and politicians’ scrutiny, had only managed to launch a pilot version of Novi. Shortly after, David Marcus, the executive who had spearheaded Meta’s crypto efforts, declared he was leaving the company by the end of 2021. The stablecoin and the underlying Diem blockchain never publicly debuted. (Diem sold its intellectual property and other assets to Silvergate Bank in January of 2022.)
“I’ve never not launched a product [before], no matter what thing I’ve been a part of,” Ching says.
When asked whether Meta invested in Aptos Labs, a spokesperson told Fortune the company could not comment due to an “ongoing legal matter.” Aptos Labs told Fortune that neither Aptos nor anyone at the startup was currently involved in litigation with Meta.
Aptos Labs isn’t the only company born out of the carnage of the Diem project. Mysten Labs, a startup that’s building Web3 infrastructure from some fellow ex-Meta engineers, was founded in 2021 and also garnered backing from some of Aptos’s investors like a16z. Like Aptos, Mysten Labs uses the Move language and is targeting speed with its blockchain: a goal of over 200,000 transactions per second, cofounder and CEO Evan Cheng told The Information last year.
But while CEO Shaikh recounts dreaming up Aptos Labs with his cofounder and fellow Meta colleagues, Glazer remembers a different story.
50/50 partners?
According to her and her firm Swoon Capital’s lawsuit against Shaikh and Matonee, Inc. (the legal name for Aptos Labs), Glazer claims she met Shaikh through White & Case law partner Pratin Vallabhaneni in the summer of 2021, per Glazer’s deposition transcript (Vallabhaneni declined to comment to Fortune), and, through her investment firm, Swoon Capital, hired Shaikh as a consultant in August of 2021 to help her or her firm find existing blockchains to acquire to repurpose for sports, media, and entertainment endeavors, for $35,000 in payment, per the complaint. Glazer says she shared her “confidential business plans” with Shaikh. Glazer alleges that at the end of August, Shaikh proposed that they modify the plan and instead launch a new blockchain, and she agreed to make Shaikh an “equal” partner in the endeavor, alleging they agreed to “change their consulting arrangement into a partnership in the Venture.” She alleges they agreed to initially eschew venture investing in lieu of funding she would put up because it would dilute her equity. She claims that she agreed to help Shaikh secure engineers to join the venture, and that she would introduce Shaikh to her “extensive” network. According to what Glazer submitted as an email chain shared in the lawsuit, where Glazer communicated with Vallabhaneni and included Shaikh, Glazer described it as something “Mo and I are going to partner on…directly and do it together.” She further alleges in an affidavit filed for the lawsuit that the pair agreed to bring on “Meta’s lead blockchain engineer,” Ching, as a “salaried employee” and not a “co-founding partner.”
But, as Glazer alleges, Shaikh instead sought external funding from VCs including a16z, and incorporated Matonee, Inc. without her (she alleges they agreed to incorporate it together). She alleges Shaikh cheated her out of her “rightful share” of a partnership in a “blockchain technology venture,” claiming that she and Shaikh had an oral agreement that they were to be “50/50 partners” in the venture, and that she would initially contribute $10 million, or more if necessary, and secure an additional $10 million in financing from Fox (a Fox spokesperson told Fortune the conglomerate didn’t end up investing in the startup), per documents attached to the lawsuit, to get the project off the ground. Glazer and her lawyers did not respond to multiple requests for comment.
However, Shaikh and his lawyers argue that, among other things, an oral agreement wouldn’t legally hold up. According to the court filings (Shaikh filed to dismiss Glazer’s lawsuit), Shaikh’s consulting contract could only be legally amended in writing (which it was not, according to a copy submitted as an exhibit). Shaikh denies there was such an agreement as Glazer described, and in filings describes Glazer as a prospective investor in the venture, not a cofounder. In what his filing says are WhatsApp messages with Glazer submitted in the filing to dismiss the complaint, Shaikh told Glazer of various venture investors who “would be very interested,” and told Glazer that $10 million “won’t be enough” to get the project off the ground, arguing that she could not have believed that they had an agreement not to bring on other investors early on. He further claims that the alleged investment from Fox puts Glazer’s allegation of being owed an equal share of the equity in the startup into question, as it’s unclear what type or amount of equity the conglomerate would have obtained for its investment that would not dilute her share.
Of the lawsuit against Shaikh and Aptos, Multicoin’s Samani says his firm stands “behind Mo, Avery, the entire Aptos team, and their technology,” and that they believe Glazer’s claims “are without merit,” he told Fortune in an emailed statement.
In a statement to Fortune, Shaikh wrote the “allegations are filled with material inaccuracies and mischaracterizations that attempt to take credit for the work of others.”
The lawsuit is ongoing, and the timeline is murky. But as they fight the litigation, Shaikh and Ching aren’t slowing down their plans to launch the Aptos blockchain later this year.
The enterprise blockchain
Up until NFT.NYC in November of 2021, Ching says the team had been “building heads down for a long time and not really engaging very much with the outside” community.
Still working for Meta, Ching and Shaikh took their team to the multiday gathering of NFT creators, founders, and crypto and Web3 groups, and Ching remembers sitting in a hotel room in New York talking with the team about all the “cool projects” they were seeing and wondering what they could bring to the space if their project was live. “It was definitely an eye-opening experience for many of us. That changed a lot of our feelings in terms of, like, how do we best affect this community?”
As Shaikh claims, that week proved “really special because it showed our team how rich the Web3 ecosystem is and how desperate it is for this type of technology,” referring to Aptos’s blockchain.
For the most part, new L1s have billed themselves as one of a handful of things: mainly, faster and cheaper alternatives to Ethereum, the entrenched leader that still underpins the majority of activity in areas like DeFi, but which is often slow and expensive to use. Aptos is no exception, as its cofounders claim it will be fast (the startup says it’s already “on our way” to 100,000 transactions per second, though as of early June, it was doing about 10,000).
But the bigger question is, with many L1s already live and gaining users, does the space really need another one?
“You have to be something different or something more interesting than Bitcoin and Ethereum [are] right now,” argues Tom Dunleavy, senior research analyst at crypto research firm Messari. “What does your L1 bring to the table that tries to occupy the rest of whatever crypto’s market cap is? You know, is it going to be more decentralized? Is it going to be faster, is it going to be cheaper?”
One thing they knew they needed? A name. When meeting with investors Shaikh and Ching say they didn’t yet have a proper name, so the pair were calling the venture “Project XYZ,” Shaikh recalls. But early in 2022, Shaikh realized that after much back and forth, the startup needed a name ASAP. “I told Avery one night, ‘Hey, man, you just got to come over to my place. We gotta knock this out,’” he says, referring to his apartment in Palo Alto, which he says he just moved into after leaving the East Coast to help set up Aptos in California. He recalls Ching came over “around 9 p.m. or so…I lit the fireplace, played some music in the background, [lit] some candles, and we went into our zen mode.” With the help of some highly caffeinated drinks, the pair say they eventually arrived at Aptos, the name of a town near Palo Alto that was named after a word from the Ohlone tribes, who lived in the Bay Area, that meant “the people.” Shaikh says they “thought this was the perfect meaning for what we’re trying to achieve.”
Since its inception, the Aptos Labs team has been fairly explicit that it wants to be optimized for enterprises and large companies.
“We want to take the best practices of enterprise grade technology but apply it for the next billion users that are interested in using this technology,” Shaikh told Fortune. “If we collaborate with these larger institutions, we can meet the next billion users where they are.” Aptos is already laying the groundwork for that to take shape.
In his blog post announcing Aptos’s fundraise in March, Shaikh says several companies including Anchorage, Binance, Blockorus, Coinbase, Livepeer, Moonclave, Paxos, Paymagic, Rarible, and Streaming Fast were already engaging with the startup and contributing code. “We’re very excited about a lot of the large institutions being excited about us,” Shaikh said.
Shaikh says they are “pursuing partnerships” in key areas like social networks, media and entertainment, gaming, and finance (including traditional finance, or TradFi, they say). That could include incorporating the blockchain into popular social media apps: Shaikh says he hopes the likes of Snapchat, Twitter, and Instagram (owned by his former employer), which is starting to test integrating NFTs into its platform, would use the Aptos blockchain someday. The startup also announced in April it would work with Google Cloud to help power its node infrastructure, or the computer servers that run blockchain networks.
Leaning into enterprise may be a smart move, some observers suggest. For the many L1s in the space, Messari analyst Dunleavy argues, “Right now, you’re seeing it’s really a marketing game.” And he suggests the “enterprise level blockchain use case really still hasn’t been solved” yet.
Ching declares they want everyone to use the Aptos blockchain. While large institutions are “key to the picture,” he says, it’s “not just these large institutions.”
Writing in another language
In early May, the Aptos team hosted their first in-person hackathon at their office in Palo Alto—a common type of event in the crypto space that gathers developers, programmers, and founders to work on projects on a blockchain.
Among those developers was Jason Zhao, a Palo Alto–based Stanford graduate who previously worked at DeepMind and Google X, and is now the cofounder of a yet-to-be announced Web3 startup. He says he’s been learning and working with blockchain languages like Solidity (used for Ethereum) and Rust (used with Solana), and though he and his fellow developers came across some “quirks” during the hackathon, he was “impressed” by the Move coding language Aptos uses, “especially given that it’s so early stage.”
During the hackathon, Zhao says his team worked on an NFT marketplace project—one of 12 projects that came out of the event, according to Aptos Labs.
Aptos’s blockchain, which still doesn’t have a white paper, uses a delegated proof of stake (PoS) model, and the company says it will be fully open and permissionless when they launch the public blockchain later this year. The team says it’s working to make it safe, to improve user experience especially for those who aren’t native to the crypto space. In testing on a private network, the startup claims it’s been able to update the protocol with no downtime, and says its consensus protocol’s safety has been audited and verified.
Per Aptos’s documents, the blockchain is designed to be more secure, which could help prevent things like denial of service attacks (DoS), something that’s plagued other crypto platforms. So far, Ching says, the team is testing the network, and has built the blockchain with upgrading in mind. Aptos Labs also hasn’t launched a token yet, but Shaikh says they’ve looked at various documents for tokenomics, or the supply and demand dynamics of a token, and are finalizing them, planning to design the “most fair” tokenomics possible.
The blockchain isn’t compatible with the Ethereum virtual machine (EVM), the software used to create smart contracts on Ethereum, which is “both an obstacle to overcome” and “kind of like a moat for them” competition-wise, according to Messari research analyst Chase Devens, because if Aptos is able to attract developers to use their language, it will have them “fenced in there.”
At least some developers, like Zhao, seem to be getting the hang of Move. “I wouldn’t say I’m a master of it, but it wasn’t completely like learning a new language. It felt, like, sort of familiar,” he notes.
‘Swimming upstream’
But there’s no mincing words: Aptos’s timing is less than ideal. Top coins like Bitcoin and Ethereum are down well over 60% so far in 2022 from their highs in November, and big algorithmic stablecoin TerraUSD and token Luna collapsed in May, triggering a meltdown. Popular crypto lending platform Celsius Network, meanwhile, froze withdrawals and is reportedly preparing for potential bankruptcy as it struggles to repay its debts. Even in the private markets, investors are predicting crypto startup valuations will cool off from their nosebleed levels.
There are plenty of skeptics like Messari’s Devens, who notes that the “recent market conditions, coupled with technical developments within crypto, have been unfriendly to newer L1 competitors,” he told Fortune via email. “Most of the 2021 L1 boom was driven by Ethereum’s high transaction fees and token incentive campaigns for customer acquisition,” he noted, adding that “the appetite for these dilutive campaigns has dried up, and Ethereum’s scaling solutions are beginning to take off. Both of these hurt the value proposition for new L1 systems going forward. Unless your L1 has already established organic activity, you’re swimming upstream.”
But Shaikh believes the downturn will weed out unhealthy speculation and hype, and allow them to work heads-down on their project. The startup is still dealing with the $1 billion lawsuit, and until the Aptos blockchain is public and running later this year, the team won’t get a full test of just how secure and scalable its network actually is.
“The bumps come after you launch,” notes investor Samani, “not before. I’m sure there will be problems.”
For now, they’re charging ahead. Or, as Samani might describe it: F–k this, let’s go make it happen.
Clarification, June 10, 2022: This article has been updated to clarify in the last sentence that it was investor Kyle Samani’s perception of the founders, not their own description.
