Winding Tree is Winding Down

Letter from CEO Maksim Izmaylov

After years of dedicated effort, we've decided to close the Winding Tree project. This decision was primarily influenced by the crypto industry's unpreparedness and the need for more understanding and trust in blockchains within the travel sector.

At the beginning of Winding Tree, there were two main problems: crypto wasn't ready, and the travel industry needed to understand and trust blockchains. We were hopeful about crypto, and our job was to educate people in travel. Crypto had evolved, but, unfortunately, orthogonally to our use case. At the same time, our attempts to educate travel executives weren't sufficient. A coordinated effort of travel companies is required for something like Winding Tree to thrive. Still, even in 2024, only a few people understand its proposition. We attacked the problem from different angles: B2B, B2C, identity management, etc. We worked unwaveringly towards the goals in the white paper, but ultimately, we failed to find a product market fit. The founding team still firmly believes that our ideas hold true. What's not right is the timing.

Professor Horst Treiblmaier of Modul University Vienna is working on a paper in which he aims to analyze our project and why it didn't culminate in a complete overhaul of the travel industry, as we all hoped. While Professor Treiblmaier's probe is underway (it will take several months for him to publish his conclusions), we would like to recap what we learned working on Winding Tree and share it with whoever would be interested in listening.

Winding Tree was born out of my frustration working on my first travel startup when I first encountered travel's technological sluggishness. During 2015-2016, I organized (and attended) many events for travel tech professionals and startups in Silicon Valley. I summarized what I learned about travel in a blog post I published at the end of 2016, where I surmised that travel could hugely benefit by working together on open source projects, and on decentralized systems in particular, since so many problems, as reported by experts, stemmed from the oligopolistic nature of travel. The feedback to my post indicated that many industry professionals supported our vision. We had to execute! Furthermore, the feedback we received at numerous travel conferences we attended around that time and comments on our draft white paper showed us we were on the right track.

We raised money via a token sale in 2018 and started working on the project in earnest. We quickly discovered that the travel industry, technologically challenged as it were, was far from being ready for the challenges that crypto was riddled with and is still struggling to address. While your average travel-industry-conference-goer was at times too enthusiastic about the promises of Satoshi's brainchild, whenever the time would come to roll up the sleeves (and start generating those private keys), the project in question would stop to a screeching halt. Still, at the time, we were hopeful that crypto-brainiacs would soon solve the issues preventing mass adoption and that normies (people unfamiliar with crypto) would quickly catch up with the movement.

Another challenge was the time it took to explain blockchain's opportunities, sometimes weeks or months. Many gave up before recognizing its true value. I must admit, it also took me a while to learn its actual value.

Still, others were intimidated by the incontestable finality of blockchain transactions and the challenge of adopting new security practices around key and wallet management. Indeed, a system that doesn't forgive the slightest mistake imbues one with a constant sense of terror. You must be scrupulous, check everything twice, and then a few times more, and only then execute with trembling fingers.

The industry was not ready, but the outlook was quite positive. Crypto was moving by leaps and bounds: Bitcoin, Ethereum, smart contracts, ICOs, DeFi, etc. It seemed that a solution to the UX ("user experience") of crypto wallets and applications would soon be solved. Needless to say, we were sorely mistaken.

Visiting a crypto event a few months ago, I was dispirited to notice that there weren't any projects that would offer a "normie" (a person not experienced in crypto) anything remotely resembling anything useful. Until now, crypto's sole use case is gambling, which includes buying tokens in the hope that its price will increase. So, even if we had a wallet that you could use without premature hair graying, there is no reason to do so, except if you're a gambler or trader (which is, of course, the same thing).

No amount of gm's and wagmi's (crypto adherents' cheerful slang) would be enough to lift your spirits when you see that in the industry constantly discussing mass adoption, little is being done to act on it. I approached multiple CEOs of big, well-known crypto projects to address this, suggesting that travel is maybe the only real use-case, to no avail. Instead of creating products that could be used by mere mortals, the Ethereum ecosystem tries to imitate Ethereum's philosopher king Vitalik, who has notoriously heavy writing and speeches that only a few can understand.

I admit that our offering sounded far-flung to most people in the travel industry as well. The early days of Winding Tree were all about the search for the right pitch, the simplest possible explanation of what decentralization can do for travel. We'd had hundreds of meetings and calls with industry professionals, and we were often dismissed as borderline crazy. A few persisted in unraveling the crypto enigma, and even the best of us took at least a few days to put two and two together. Understanding crypto is no harder than that! But humans are not wired to think in terms of decentralization, or perhaps blockchains are too magical, too good to be true. I get it; it took a while for me to wrap my head around it. But when you get there… As a prominent venture capitalist acquaintance told me: "I saw the light!"

In early 2022, I was approached by Mitra Sorells, editor-in-chief at Phocuswire, a news outlet spun out of Phocuswright, the "most respected travel research authority and events brand in the world," as they say on their website. We'd met before, briefly, and Mitra wanted to know the latest Winding Tree news. We were working on WIN then, a fully smart-contract-based hotel booking website, and we'd already signed up DoubleTree by Hilton in Amsterdam for the upcoming Blockchain Week. It turned out that Phocuswright Europe was taking place in Amsterdam in 2022, and their whole team was staying at the same DoubleTree that we'd already engaged for business! Naturally, I suggested that Phocuswright try out our booking experience and save 50% on the booking cost. To my utter astonishment, she refused the opportunity to both save a fortune on their hotel bookings and at least try and see for themselves how a blockchain-based booking system could work. Mitra and her team had written tens of articles about blockchain and its applications in travel, and perhaps her lack of enthusiasm made me ask her whether she had a crypto wallet. I took it for granted that she did. One assumes journalists are honest people who try to get to the nitty-gritty of the subjects they write about. Well, I've already spoiled the punchline on this one. Of course, she never tried to do anything crypto-related. To this day, I am puzzled by this. Is it the bad rap that crypto gets because of all the scams, all the exchange collapses, etc? We'll never know.

WIN (short for "Winding Tree") was an absolute pleasure to work on since we used all of our own infrastructure, and we made it for crypto people, who, perhaps for the first time in their lives, could use crypto in real life. It was straightforward to book, the check-in experience was speedy (of course, we had to teach the staff to work with our system), and DoubleTree gave us a whopping 50% discount off their market rate because they were so excited to give WIN and Winding Tree a try. We didn't even charge any commission since we only wanted to test whether a blockchain-based system like the one we were building would work in real life. It worked like a charm! We had a bunch of happy customers, but behind the scenes, we couldn't convince the hotel to receive crypto as payment or designate a person to manage room availability and bookings as they came in, so we had to be the evil intermediary. What we proved with WIN was that crypto people are happy to book hotels given a sizeable discount. Well, at least something. We understood that even big hotels like DoubleTree lack the resources to deal with crypto.

The reluctance of most companies to deal with crypto at all, let alone to accept it as a form of payment, is not a mystery. Regulatory uncertainty of the status of crypto in most countries and complete prohibition in some did not help our case at all. Moreover, business process optimizations enabled by smart contracts only work when you operate entirely in the world of crypto. Everything falls apart when you have to convert crypto to fiat to pay for a hotel booking (and the hotel then has to convert it back to fiat on their end to pay their suppliers). Instead of saving and optimizing, one would experience a monstrous complication and increased prices (crypto/fiat conversions aren't free.) But I'm getting ahead of myself…

We had to build upon our moderate success in Amsterdam and prove the demand hypothesis. With ETH Barcelona and EthCC (Paris) approaching, we got to work. A few hotels were secured for both events, and organizers promoted WIN extensively. And yet we failed to sell a single room! The only insight we could salvage from the wreckage was that a 20% discount is not enough even for crypto-conference goers to change their behavior. Considering the amount of work required to manage a single hotel (remember, they could not deal with private keys or accept crypto), the remaining slim margin of, at best, 5% was not enough to sustain this model.

A system like Winding Tree can work in a world where the general public is comfortable dealing with crypto. And that world is definitely coming. It's hard to know whether it'll be here in 5, 10, or 20 years. So, we thought, perhaps the winning strategy for Winding Tree was to use whatever blockchain-based components we had built and apply them to generate a profit in the meantime, hoping we'd slowly build out the decentralized future we all so desperately wanted to get to.

The work on that alternative approach had started years before WIN (we knew we had to pursue different strategies to maximize our probabilities of success). I'm talking about our project with Ernst & Young, a company that dazzled us with the prospect of serving thousands of people who collectively spend more than a billion dollars on travel each year. Creating a two-sided marketplace, like Winding Tree, is extremely hard, and the tech is the least of your worries. What's hard is to coordinate buyers and sellers! It made sense to cut corners and, instead of dealing with many companies, buyers, in this case, replace them with a single one. We formed a separate company called Simard (many firms still don't like crypto), signed contracts with suppliers E&Y wanted to buy from, and underwent extensive audits. Big companies like EY are notoriously slow, so it took us years until we got to a working product. When we did and had transactions, revenue, and promises from our partner to gradually scale it, EY management changed, and the project was canceled.

It has been a while since I started to think that the world, or at least its travel-tech subset, isn't ready for blockchains. Over the years, we met many people excited and supportive of Winding Tree's vision. But after a while, I realized we suffered from a selection bias. We talked to conference attendees whose job is to be excited about anything new (hello, Chief Innovation Officer!). These journalists surf the buzz waves (chatbots yesterday, blockchain today, AI tomorrow). Some people were genuinely interested in what we were trying to achieve. Still, even then, they didn't realize what our vision entails: the changes they would have to make in their organizations, not just in terms of the tech stack but also business models, security practices, etc. A good friend of mine, a devotee of Winding Tree, once showed me the results of a short introductory course we performed for him and a few employees of the hotel he was in charge of: his seed phrase was posted on the wall of his office. He was adamant nothing would happen to it since he trusted every one of his employees. Indeed, it is something to strive for in an organization, but not the best (crypto) key management habit.

Is the world ready for crypto? Looking at other projects that were our competitors, I see they're going through the same struggle. One that claimed to be the first decentralized marketplace for hotel bookings (simultaneously admitting they sourced inventory from Expedia!) moved all information about paying in crypto to a small section on the bottom of their website. Turns out it's not a sought-after feature... An executive of another company admitted in a bout of honesty: "Max, we're using words like 'decentralized,' just for the sake of marketing!" These were the times of "inflated expectations," and now all the crypto-related verbiage is disappearing. No one needs decentralization! What is it, anyway? First, you have to explain that no one today owns any of their digital life: emails, Instagram photos, Facebook posts, AirBnB listings, all of that belongs to the platforms, or rather, the platforms may exercise their control over "your" stuff at any time, for any reason, providing no explanation. (Let's not even go to the discussion of who can see your most personal stuff.) Now, there is a way to take over your digital assets, be the true master of your digital universe, and be self-sovereign. It's a mode of existence where you increase your autonomy and freedom by sacrificing convenience. Very few are ready to trade their convenient bank accounts, where they're subject to endless possibilities of abuse, for true ownership of their assets and for the increased risk of losing it all if their cybersecurity is lax.

One of the first books on the reading list for crypto beginners, the book that was recommended to me by Santiago Siri (and that was endorsed by people like Peter Thiel and Balaji Srinivasan), is called The Sovereign Individual by William (now Lord!) Rees-Mogg and James Dale Davidson. It's a dense reading from 1997, where the authors predict the rise of digital currencies that the state would not control, among many other significant societal changes. Some time ago, it dawned on me that perhaps the answer was before me all this time. Perhaps building decentralized applications for the masses is a nonstarter. Perhaps there is a good reason the book is called "The Sovereign Individual."

What's left now is to wait until a critical mass of crypto-savvy travel companies enters the market. I am talking about people genuinely interested in the benefits that decentralization enables. We have a small cache of stablecoins that we will use when the time comes to kickstart the project again, but for now, the development is frozen.

We have published all of our projects' code on our GitHub, and our developers are available if you need help understanding it. We can also consult any travel (and non-travel) companies about their crypto or travel journeys.

We hope to see you all on the other side…