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Hello readers,
Does the idea of scanning your iris with an Orb to create a human-verified onchain wallet address feel dystopian and invasive?
If so, you have plenty of company (rightly so).
Ironically, this is one of the primary reasons for covering Worldcoin.
Why?
One thing we’ve learned as crypto investors over the years is that projects that evoke a visceral response from the masses tend to be the ones you want to take a good look at (more on this later in the report).
This week, we’re sharing a memo on Worldcoin — a digital identity solution that seeks to become the “proof of personhood” infrastructure for the next era of the internet.
Disclaimer: Views expressed are the author’s personal views and should not be relied upon as investment advice.
Let’s go.
At its core, Worldcoin (recently rebranded to “World Network”) has three interconnected parts.
Worldcoin is on a mission to solve “proof of personhood” in the digital era. The goal is to create an onchain wallet ID linked to individual biometrics for every single person on the internet.
This would allow you to stay anonymous (normal blockchain address), but also give you the ability to prove you are human and reveal important information about yourself as needed (home country, date of birth, SSN, etc), using zero-knowledge proofs.
Internet native problems, such as fake accounts, bots, sybil attacks, etc, could be solved by providing a “verified human” credential that preserves user privacy.
In an era of advanced AI, this could prove to be quite useful for the future of the internet.
How does it work?
Worldcoin uses a custom biometric hardware device called an “Orb” to scan an individual’s iris and generate a unique cryptographic hash as their World ID (wallet address).
The World ID Orb
Visceral reaction?
I don’t blame you (more on the importance of this later).
The data from the iris scan itself is not saved (according to Worldcoin, which Trail of Bits has audited), only the cryptographic hash. This allows you to prove “I am a unique human” without revealing personal data.
We think it could ultimately solve for “Know Your Customer” laws, which pose significant privacy and security threats for billions of internet users globally — who have sensitive data stored in (insecure) databases all over the internet (see recent Coinbase exploit).
In essense, World ID allows you to be an anonymous crypto user (as you are today) while also allowing you to verify your identity as needed.
There are currently five locations in the US where you can get your iris scanned and generate your human-verified onchain ID: Nashville, Miami, Austin, Los Angeles, and San Francisco. Orb locations are also currently scattered across forty-six countries.
We understand that Worldcoin will also be rolling out a streamlined Orb later this year, with plans to offer “self-service” by placing them in high-traffic areas like malls and convenience stores.
World App (wallet & app store) is a self-custody crypto wallet and identity app that is the primary gateway for users into the “World Network.” It safely stores a user’s World ID, crypto assets, and enables global payments.
The app includes a Uniswap integration for token swaps and partners with on-ramp providers (MoonPay, Ramp) for converting to/from traditional currencies.
World App is also home to 236 3rd party “Mini Apps” that run inside the wallet. More on this concept of an “app store” later in the report.
We recommend downloading the app and testing it out.
Why?
There is serious alpha to be had for crypto investors who use the products.
Of course, there’s not a whole lot you can do in there right now. But that’s not the point. As you play around with it, think about how clean the UX is (it feels like a web2 app). Think about why they are building an “app store.” Think about why they are integrating other solutions like Uniswap and Morpho. Think about how hard it is to pull all of this together.
As we scoured for interesting onchain data, one thing stood out to us:
Data: The DeFi Report, Dune
This is telling us that 60% of transactions on World Chain (Worldcoin’s L2) are “account abstraction” transactions — meaning the user is simply tapping the (mobile) app interface rather than dealing with a wallet and interacting separately with a browser.
World App plans to integrate additional L2s as well as Bitcoin and Solana soon.
As these chains are onboarded, we’ll be testing the app to look for a similar “account abstraction” user experience across chains.
World Chain launched in October of last year. It’s an Ethereum L2 (built on the Optimism stack) that underpins the app and token. The chain serves as the accounting ledger for the WLD token and other activities within the World App. Launching as an L2 allows Worldcoin to leverage Ethereum for security while operating with higher throughput and lower fees.
Interestingly, the chain is being optimized to prioritize transactions made by verified humans (World ID holders) over bot traffic.
This means less front-running from bots.
By reducing bot-generated spam, World Chain could provide a more reliable experience and prevent gas fee spikes.
World Chain has quietly emerged as a top L2 in the Ethereum ecosystem in terms of transactions and blobs posted to L1.
Data: The DeFi Report, Dune
Over the last month, World Chain is averaging roughly 1.2 million transactions per day (2nd most amongst L2s behind base).
What’s driving these transactions?
A combination of incentive programs (users claiming WLD tokens for generating an ID), speculative trading (integration with Uniswap), and use of mini apps.
Data: The DeFi Report, Dune
Over the last month, World Chain is #2 (behind Base) in terms of blobs posted to L1.
Please note that Worldcoin’s business model is extremely nascent right now. As we understand it, the team is currently focused on prioritizing user adoption (as they should be).
In this section, we are mostly speculating on how the business could evolve in the years to come. This is dependent on the team successfully onboarding hundreds of millions of users and creating a network effect amongst its World ID users and “app store.”
We think future monetization will largely center around identity verification services for 3rd party apps (free for users).
For example, a social media platform could integrate World ID to block bot accounts. We’re getting a glimpse into the future right now with Google’s recent release of Veo 2. The bots are one thing. But with video and now AI Agents coming, it’s easy to see the slippery slope that social media is on.
In this model, Twitter could pay a small credential issuance fee and/or verification checks for human-verified accounts.
If a large social media network were to adopt World ID, its “proof of personhood” infrastructure for the internet could proliferate quite quickly, with use of World ID scaling with enterprise adoption in a recurring revenue model. Fees could potentially flow to World Chain stakers (dependent on the L2 decentralizing its sequencer).
This model is similar to how credit bureaus charge for ID verification or how Captcha providers charge businesses for human verification.
There are currently 236 “mini apps” available through the Worldcoin wallet. We think these apps could ultimately serve as another source of revenue for Worldcoin by taking a small cut of app revenue as the platform powering the ecosystem (similar to Apple).
To be clear, the “mini apps” on Worldcoin are largely experimental today (as expected). They include things like World Chat (similar to WhatsApp, but you can send $) gift cards, games, trading apps, etc.
Orb distribution is currently a cost center for Worldcoin (they manufacture the Orbs and give them to certified operators to onboard users globally).
However, the Orbs could ultimately be sold or licensed to businesses, governments, or other organizations that want to onboard World ID at scale. For example, a government might want to buy or license an Orb to transition to a new voting system using the IDs.
Data: The DeFi Report, Dune
Finally, World Chain collects transaction fees from users via its centralized sequencer today. Over the last 6 months, the chain has generated $149k in net onchain profit (the vast majority came via higher user fees pre-EIP4844).
Again. We’re speculating here on the potential business models that could emerge.
It all depends on how fast the team can onboard hundreds of millions of World ID users globally.
Like most crypto businesses, this is all about network effects.
The market for World ID is large & global. The target market is essentially every human on earth with internet access (roughly 5 billion). The team is currently targeting 50 million users by the end of the year (12 million verified IDs today).
As a starting point, the team seems to be targeting the 1 billion people who lack legal identification (and access to banking). Worldcoin can offer an ID + bank account to these folks.
Internet & social media platforms. Companies like Twitter/X have resorted to charging users as a means to eliminate spam/bots. World ID could solve this.
Messaging apps, e-commerce sites, and online games.
Banking, payments, & government services.
Dating websites.
Crypto companies running airdrop incentive programs (can also help with DAO voting, i.e., one vote per person instead of by assets held).
If just a fraction of users from these industries adopt World ID, this could accelerate usage into the hundreds of millions.
The bottom line is that the digital ID & verification market is growing rapidly ($100b annually by 2030, according to Grand View Research).
This massive addressable market (and the network effects that can accrue to the winner) is part of the reason why investors have valued the project in the billions, even at its nascent stage.
Let’s move on to token economics, as we’ll have more on Worldcoin’s investors & capital raised later in the report.
Total Supply: 10 billion (capped until 2038, potential for 1.5% inflation thereafter if needed)
Circulating Supply: 1.53 billion (15.3% circulating)
Only 24.7% of the tokens are held by the Worldcoin team + investors — significantly lower than most crypto projects (40-50%).
The 7.5 billion tokens (75%) allocated to the “community” are for users (to incentivize adoption) and the protocol’s own treasury. Worldcoin’s goal is to give 60% of the supply away to users over a 15-year period. The remaining 15% is allocated for the Worldcoin Foundation — to be used to incentivize the developer ecosystem/”app store.”
With that said, only 15.3% of the supply is circulating today.
Therefore, it is critical to understand the timing and size of upcoming unlocks.
20% of the investor and team tokens unlock over a three-year period, which started on July 24th, 2024.
The remaining 80% unlock over 5 years.
All insider tokens will be fully unlocked in July of ‘28.
There are roughly $77 million team and investor tokens unlocking per month (at the current WLD price of $1.33)
At the current WLD price, $555m of insider tokens are set to unlock through the rest of this year.
An additional $823m will unlock next year.
Now. This is potentially a lot of selling pressure in the market coming from insiders. We assume team members who have been with Worldcoin from the beginning are selling as they unlock (potentially life-changing money at the current valuation).
If we assume the team sells 100% (worst case scenario) of their unlocking tokens, we have a total of $240m of sell pressure through year-end, and $354m next year (again, at the current WLD token price).
As for the investors?
Given that the Series B round (where most investors came in) was at a $3b valuation, we doubt they are looking to sell anytime soon (especially given the upside of the project).
With that said, we can analyze the impact of unlocks by comparing the market price to the market value:
Data: The DeFi Report
We can clearly see the impacts of the unlocks here. The (circulating) market value is currently approaching all-time highs, but the price has struggled to keep up due to the unlocks.
Now. The fact that the market cap is rising is a good sign. That tells us that insiders may not be selling aggressively just yet.
Why?
Price is holding up while tokens unlock, which increases the market cap. Therefore, it appears that demand is at least meeting the supply of unlocks currently.
For example, from March to May, roughly $225m of supply was unlocked. Over that same period, the market cap grew $800m.
Therefore, unlocks (to the extent that they are being sold) are being met with demand for the token at present.
We tend to stay away from low float projects such as Worldcoin (especially in bear markets)
With that said, the low float can actually work in your favor during bull markets. Why? Low float = less capital required to aggressively move the price.
As such, low float isn’t necessarily high risk if you’re in a bull market and there is persistent demand for the token. You just don’t want to be caught holding the token in a bear market when demand diminishes (unless you are planning to hold through that for many years).
Number of World IDs: 27 million (downloaded the app)
Verified World IDs: 12.6 million (downloaded the app + scanned their iris with the Orb)
Monthly Active Addresses: 8 million
Orb Expansion (+ delivery service): There are roughly 1,088 Orbs worldwide today. The team plans to roll out a “self-service” Orb later this year, which will be placed in high-traffic areas like malls and convenience stores. A delivery service is also planned (have the Orb show up at your home).
Mini App Store: 236 Apps
Global presence: Orbs are available in 46 countries.
World Chain: Launched in October ‘24, already top L2 in terms of transactions.
Sam Altman (Chairman, Co-Founder). Sam is also CEO of OpenAI/ChatGPT)
Alex Blania (CEO). Alex is a theoretical physicist by training.
In total, Tools for Humanity (developer company for Worldcoin) has 378 associated members per LinkedIn.
Base Operations: San Francisco and Munich.
The project was incubated by Sam Altman and a few close allies. In October of ‘21, they raised an initial $25 million.
Three months later, another $100 million was raised at a reported valuation of $3 billion. A16z led the Series A. Participants included Coinfund, Digital Currency Group, MultiCoin, Coinbase Ventures, Reid Hoffman, Khosla Ventures, Variant Fund, and Tiger Global.
In May of ‘23, the team raised another $115 million led by Blockchain Capital. Participants included A16z (again), Bain Capital Crypto, and Distributed Global.
In total, the project has raised roughly $250 million from notable VC firms and investors.
Given that investors came into the Series A/B rounds at a reported $3-$5b valuation, we think most of the investor tokens have a cost basis between $.20 and $.35.
Worldcoin was first. And their approach is bold. However, competitive threats are emerging from multiple angles:
Proof of Humanity: Combines social verification (community members vouch for new entrants via video). While philosophically aligned to WorldCoin’s goals, PoH is much smaller in scale (it has a few thousand registered users) and slower to verify (can take weeks and requires existing members to vouch). We think this is an inferior solution to what Worldcoin is building.
BrightID: Uses a social graph approach. Similar to PoH, it does not use biometrics. Instead, users join video calls or connect with others in-person/online to build a graph that the algorithm analyzes to determine uniqueness. Given the lack of biometrics, we also view this as an inferior project when compared to WorldCoin.
Humanity Protocol: Uses biometric palm scans (instead of iris scans). The team has raised over $50m and was valued at $1.1b in January of this year. They’ve yet to launch their mainnet. We think biometrics are critical to the winning formula, so we view this project as Worldcoin’s primary competition within crypto today.
Government Digital ID Programs: Outside of crypto, you still have the status quo competitors, such as governments and/or “big tech” solutions. One example is in India, where the government has issued 1.3 billion biometrically verified IDs.
The iris scan. It feels invasive and could create a barrier to entry if this hurdle is not overcome.
Centralization. Crypto natives do not want to take Worldcoin at its word that it doesn’t store user data. Of course, if it turns out that Worldcoin is lying to all of us (this will come out if true), then the project likely goes to zero. We tend to think they are telling the truth (given audits), but it will take time for the market to build that trust.
Governments. Worldcoin has encountered significant regulatory challenges across multiple countries, primarily due to concerns over biometric data collection, user consent, and data privacy. As expected, Worldcoin is touching on unusually sensitive zones in terms of ID systems, biometrics, cross-border payments, etc. Spain, Germany, Portugal, France, the UK, Kenya, Indonesia, and Hong Kong have all expressed concerns, in some cases pausing and/or banning Worldcoin’s operations in those countries. In response, Worldcoin introduced a “personal custody” model that ensures biometric data, including iris codes, is encrypted and stored locally on users’ devices (eliminating the need for centralized storage). Cybersecurity firm Trail of Bits was engaged for an audit, in which they confirmed that no personally identifiable data is collected or stored. With that said, Worldcoin could incur significant legal expenses defending itself in courts across the globe as governments catch up to the technology.
Team Execution. The Worldcoin team has to get A LOT of things right for this to work in the long run. For example, they need to have the best hardware device. They need to manufacture it at scale. They need to incentivize people (globally) to get a World ID. They need to bootstrap an “app store.” They need to integrate with key internet infrastructure and applications. They need to run an L2. They need to stay in compliance. That’s A LOT to execute on.
Low Token Float. As noted, Worldcoin is unlocking lots of tokens in the next three years. If the project cannot generate persistent demand for World ID (and the token), this will prove to be a major headwind for the token price.
Is WLD trading at a fair price?
Data: Glassnode, The DeFi Report
Worldcoin is currently trading at just .21 standard deviations above its “historical average.” With that said, we think the MVRV is higher than reported. Why? Token unlocks. When Worldcoin tokens unlock and are sent to investor wallets, Glassnode records those tokens at the current market price. This is pushing the realized value higher, when in reality those tokens were purchased at $.20-$.35. Therefore, the realized value should actually drop during unlocks.
We think the Z score should be closer to 1 standard deviation above the historical average. In January of last year, WLD traded at a Z-Score of 8.
Another way to think about fair value could be to compare the current price to the price at which early investors received tokens 3-4 years ago, when the political/regulatory risk was much higher.
The key question to ask yourself is, “What kind of exposure am I getting via the WLD token?”
We think it’s a combination of:
The AI narrative & Sam Altman
Internet identity infrastructure for the next era of the internet (which could be dominated by AI, AI Agents, bots, etc).
The “Mini App Store”
Talented, mission-driven team
Massive addressable market
Ethereum Layer 2
A “call option” on a massive breach of sensitive data (which we think is increasingly likely)
As noted in the intro, one of the things we like about this project is the visceral reaction it evokes from people. See the comment in my LinkedIn post yesterday for an example.
What I’m referring to here is polarization as a feature, not a bug. Outrage is free marketing. Worldcoin has been covered in Time Magazine and the Financial Times.
Not because it’s another L2. But because it scans your iris.
These types of projects tend to solve seemingly “unsolvable problems.” By challenging norms, they become inherently controversial. In turn, this tends to produce missionary founders (Sam Altman) and cult-like communities.
Furthermore, regulatory heat can be seen as a strategic advantage. Why? It forces clarity. When Worldcoin operations are paused in various countries, the team learns the legal boundaries and builds around them when necessary.
Finally, controversial projects tend to attract asymmetric capital. A project that could fail dramatically or succeed globally is exactly what VCs look for.
Worldcoin has all of this in spades.
But a lot of people view these attributes as a bug.
Therein lies the opportunity.
As a final note, most tech companies achieve global network effects via software only. Worldcoin is unique in that it is a network effects business that combines software, hardware, and biometrics (via the Orb scan).
We think it will be challenging for competitors to break these network effects if they are achieved at scale.
For these reasons, we recently added a small allocation of WLD to the portfolio and may look to buy more on further dips.
Thanks for sticking with us to the end.
Take a Report.
And Stay Curious.
Disclaimer: Individuals have unique circumstances, goals, and risk tolerances, so you should consult a certified investment professional and/or do your own diligence before making investment decisions. The author is not an investment advisor and may hold positions in the assets covered. Certified professionals can provide individualized investment advice tailored to your unique situation. This research report is for general educational purposes only, is not individualized, and as such should not be construed as investment advice. The content contained in the report is derived from both publicly available information as well as proprietary data sources. All information presented and sources are believed to be reliable as of the date first published. Any opinions expressed in the report are based on the information cited herein as of the date of the publication. Although The DeFi Report and the author believe the information presented is substantially accurate in all material respects and does not omit to state material facts necessary to make the statements herein not misleading, all information and materials in the report are provided on an “as is” and “as available” basis, without warranty or condition of any kind either expressed or implied.