Polychain puts its money on HotStreak to streamline sports betting using blockchain • TechCrunch

In the world of sports betting, instant payments and reliable custody are key to the user experience. HotStreak, a web3 platform for daily fantasy sports (DFS) contests, is betting that the decentralized nature of the blockchain makes it an ideal solution for DFS platforms.

The sports betting market in the United States has grown rapidly as states begin to loosen regulations surrounding the industry. It doubled in size in 2021 with over $52.7 billion in total turnover during the year, according to Morning Consult.

There are two major problems with major sports betting platforms like FanDuel today, HotStreak CEO Greg Dean told TechCrunch in an interview. The first is that as a player, “getting your money in and out is extraordinarily painful,” he said, because payouts are tied to older payment systems like ACH wire that require the user to trust the counterparty they’re betting against. platform to actually distribute funds to them.

While users experience the friction of slow-moving, centralized payment systems, operators bear the brunt of building and maintaining their own proprietary currencies on the platform to facilitate payments, Dean said.

The team behind HotStreak’s web3 sports betting protocol Image credit: HotStreak

“When you talk to someone and explain it [for] billion dollar companies like FanDuel, when you open up their technology stack and look inside, you see a ramp, proprietary wallet, a proprietary digital currency, and a proprietary ledger, all sort of maintained by this centralized, trusted authority. I think we’re going to look back on it and laugh at the industry a little bit,” Dean said.

From the operator’s perspective, he added, creating these payment systems creates overhead.

“It’s just a huge inefficiency in terms of running the business. Really, what they want to do is build good products that users want to use, not become a run-off for fiat, or for a proprietary digital currency,” he added.

HotStreak’s decentralized SHARP protocol aims to tackle both sides of the problem from a payment and escrow perspective by facilitating near-instant payments and asset escrow management based on a set of rules predetermined in the protocol itself rather than to trust counterparties to initiate payments. to other players. The settlement period for payments on their platform is 10 seconds, according to the company’s website.

HotStreak raised ~$1.5 million for its seed round last May, mostly from angel investors who Dean said are “huge crypto enthusiasts.” Today, the company announced that it has raised an additional $9 million in Series A funding led by crypto-native VC firm Polychain Capital, a new investor in HotStreak.

The product has evolved significantly since the seed round, Dean said. HotStreak’s 10-person team plans to use the new funding to further develop its own platform as well as the underlying protocol it runs on, he continued.

“When we raised our first round, it was more just based on the technology we’re building for the DFS product, which is basically a bunch of neural networks that cost short-duration sports events,” Dean said.

The company has seen $3 million to $5 million worth of transactions per month on its platform this summer and is profitable today, Dean said, though he did not share specific numbers regarding revenue or profitability.

FanDuel co-founder and CEO Nigel Eccles, who invests in an adviser to a number of sports betting companies, is stepping in as chairman of the startup as part of the Series A, which could help the company stay connected with opportunities to work with other companies in space .

HotStreak itself makes money both from the entry fees it charges players to use the platform, which it says is listed on the app at the start of each game, and plans to monetize the software by selling it to other sports betting platforms, according to Dean.

Dean and his team are not the only founders who have recognized room for blockchain-based innovation in the sports betting space. Last month, BetDEX, a startup co-founded by former FanDuel executives including Eccles, debuted its own Solana-based sports betting protocol, armed with $21 million in funding it raised last year from Paradigm and FTX. BetDEX is more focused on bringing down the fees in the room, while HotStreak is focusing its efforts on improving payments and custody processes.

“There’s an opportunity here to build something that could really change the industry and change the way people interact with sports betting in general, because it doesn’t really make sense that you’d want to give your money to a centralized person to hold on to just in case you wanted do a bad one or enter a DFS contest,” Dean said.

While Dean admitted that the overall market for DFS providers may shrink as more US states legalize online sports betting, he believes the overall sports betting market will continue to grow significantly. Focusing on DFS to start gives HotStreak a regulatory advantage, he explained, although the platform will likely expand to offer more traditional sports betting products, which typically require more expensive legal disclosures.

HotStreak doesn’t spend much on marketing, an activity dean described as “burning” cash. Instead, the company is focused on relentlessly iterating the user experience.

“If you’ve been in crypto long enough, it kind of feels like a lot of solutions looking for a problem. This is perhaps one of the more concrete examples of a real existing systemic problem in an industry, where a web3 protocol can change that and drastically improve things, Dean said.