Ex-GoDaddy Execs Raise $6.5 Million for Cheap, Android Phone-Friendly Blockchain

June 22, 2018, 2:08 PM UTC

The cofounders of Locu, a startup that spun out of Sir Tim Berners-Lee’s lab at MIT in 2011 and sold to GoDaddy for a reported $70 million two years later, are going back to their roots: allowing the little guy to take back control in a world of titanic, Internet data monsters.

Having left their posts as GoDaddy vice presidents, where they helped small businesses and restaurants establish web presences, Rene Reinsberg and Marek Olszewski are teaming up on a new blockchain project called Celo, which translates to “purpose” in the contrived, international language Esperanto. The tech is a so-called fork of Ethereum, and will serve as the basis for a social payments platform built for mobile phones.

Joining Reinsberg and Olszewski is Sep Kamvar, an MIT professor and former Locu advisor best known for having co-invented “Eigentrust,” an algorithm akin to Google’s website-ranking tool PageRank, but for managing reputation in peer-to-peer systems. Google incorporated some of Kamvar’s pioneering work into its own systems after buying his personalized search startup, Kaltix, in 2003. (He led personalization at the search giant until 2007.)

Celo will consist of two main parts, Reinsberg and Olszewski told Fortune. The first is a decentralized database that maps people’s phone numbers to public encryption keys, alphanumeric strings required for transacting in cryptocurrency. The entrepreneurs said they are designing the system to make crypto payments “as easy as sending a text.”

The second key aspect involves creating so-called stable-value coins that are pegged to generally non-volatile assets, such as the U.S. dollar. These stablecoins will serve as the system’s medium of exchange, as opposed to cryptocurrencies like Bitcoin, whose wild price swings tend to encourage holding behavior and speculative investment.

“Our target market is emerging markets,” Olszewski said. “Specifically, we’re focused on developing on $20 cheap, Android phones.”

Having labored in secret for a year, Reinsberg and Olszewski disclosed Friday that they have raised $6.5 million in traditional venture capital funding for the project, and also published details about Celo’s technology in an academic white paper. Investors include former Locu backers General Catalyst and Naval Ravikant, venture capital firms Andreessen Horowitz, Social Capital, and Lakestar, and cryptocurrency outfits such as Coinbase, Polychain Capital and Autonomous Partners.

A number of high-profile angel investors are also backing Celo, including LinkedIn cofounder Reid Hoffman, Twitter and Square cofounder and CEO Jack Dorsey, Venmo cofounder Andrew Kortina, and former Citigroup chairman Dick Parsons.

Celo’s approach to stablecoins relies on reserves consisting of an over-collateralized basket of cryptocurrencies, like Bitcoin and Ethereum, alongside a central bank-like set of algorithms that automatically manage the monetary supply. (The methodology is similar to that of Basis, another cryptocurrency project, which you can learn more about here.)

The strategy is not without critics, however. Most notably, Preston Byrne, a lawyer and cofounder of Monax, another blockchain startup, has taken similar models to task, saying they ignore basic economic principles.

“We’ve been trying to be very thoughtful about the approach,” Reinsberg told Fortune. “We actually believe that our system is very shock resistant and that it works well for the use-cases we’re pursuing. We’re happy with the results so far.”

The Celo white paper notes that the proposition is “not risk-free” and that a “black swan event” could derail it, while also laying out countermeasures designed to protect against just such a scenario. “Our simulations across a range of market assumptions will be presented in a forthcoming paper,” the authors write.

As for Celo, Reinsberg said that his team, which is hiring, has an internal test-net up and running, and that it plans to debut an early-stage, public prototype of the system later this year.