Following the feedback we got from various DAO voting groups on Discord and Telegram, and after appearing on AAG #202 (video)  and AAG #204 (video) — you can find the updated proposal bellow. 

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Executive Summary**

Recently we’ve delivered all milestones for our lvl 3 (highest level) grant from the Web3 Foundation - announcement. The grant was to build a minimal feature set (MFS) of our peer-to-peer state channels SDK that enables smart contracts to run directly between the end users devices while inheriting security from a distributed ledger. The goal is to improve the user experience of Polkadot by providing a real-time execution environment without any transaction fees.

For a high-level explanation on what we’re doing, please read our blog post. For a deeper explanation please read the grant agreement with the Web3 Foundation which is fully open source - covering the tech, team, ecosystem fit, how does it benefit Polkadot etc… There’s also a youtube video explaining the tech on a high level.

The project is open source - github

For anyone interested in trying out what we’ve built, there’s a demo at peer3.to or you can watch our old demo video.

The goal of this proposal is to seek treasury funding for a production version of the SDK.
Following the feedback from AAG we'll do a delayed payment, with a mix of stables and DOT — 350k USDT upfront and a delayed payment of 250k USDT and 30k DOT after 6 months, effectively reducing the risk to the treasury.

Full Proposal

Introduction:

Peer3 is developing a public good, open-source Software Development Kit (SDK) that enables users to execute smart contracts directly with one another, bypassing the need to route each & every interaction through the blockchain. This approach removes bottlenecks and reduces costs for many applications that would otherwise struggle to overcome them and paves the way for entirely new blockchain use cases by:

• Eliminating unnecessary transaction fees.
• Enabling real-time, seamless interactions.
• Inheriting security from distributed ledgers.

The Web3 Foundation recently congratulated us on successfully delivering all milestones for a Level 3 Grant that we secured with them last year - X announcement.

Building on this success, we aim to deliver a comprehensive production-ready SDK that will be openly available to and hugely benefit the Polkadot ecosystem, empowering developers to unlock new, exciting and commercially viable use cases.

Problem Statement

Web3 ecosystems face a critical gap in scalability and user experience when measured against Web2 offerings. While decentralized systems provide security and transparency, they often:

• Fail to deliver the real-time interactions that users expect from Web2 platforms.
• Rely heavily on on-chain interactions, which result in delays and additional costs.

These inefficiencies inhibit the user experience, restrict broader commercial adoption, and prevent Web3 from competing effectively with many Web2 use cases.

Proposed Solution

Our solution seeks to provide developers with a framework through which they can curate user experiences that more closely replicate what is possible in Web2, while preserving Web3's core principles of decentralization, security, and trustlessness.

Peer3 could be imagined as providing a new communication layer that sits on top of a parent Chain ‘X’. A Layer (X+1), where users (peers) can communicate off-chain on more arbitrary matters and bypass the need to interact with the ledger repeatedly. The underlying blockchain is only used for settlement, liveness and dispute resolution.

• Off-chain Execution: Smart contracts execute in real-time directly on the users’ device. Transactions are gossiped peer-to-peer for other peers to validate. This saves time and cost, by removing the need for every transaction to execute on-chain.
• On-chain Security: If malicious (byzantine) behaviour occurs off-chain, any honest (non malicious) peer will detect it. In such a case the peer will initialize a dispute on-chain leveraging the shared security of Polkadot to enforce correctness, resolve conflicts, and penalize malicious behavior.

Market Opportunity

By bridging the gap between the user experience of Web2 and the security and decentralization of Web3, we create lower barriers to entry for developers and open a world of exciting, new, and innovative use cases across multiple industries:

• Gaming: Peer-to-peer interactions enable real-time multiplayer experiences from well known games like poker and chess to more complex and custom games.
• Payments: Frequent payments between a group of participants (micropayments, cross-border/domestic bank settlements, splitting bills with friends).
• Consumer Applications: Keep the speed and ease of use without keeping the middleman (Uber, DoorDash…)
• Supply Chain Management: Real-time shipment tracking and blockchain-backed validation.
• Data Marketplaces: Allow peers to trade large amounts of data in a fully verifiable and trustless way without having to pay on-chain fees.
• Social Apps: Social apps and networks that go beyond communication and handle systems of value.
• Decentralized Finance (DeFi): Innovative and complex arbitrary financial agreements directly between peers.

With Polkadot’s cutting-edge design, the SDK will attract developer talent, inspire innovation, and position Polkadot as the go-to ecosystem for a whole host of groundbreaking blockchain applications.

Example Use Case - Peer-to-Peer Poker

In traditional Web2 poker offerings, games rely on centralized servers and companies, which have historically led to major issues, including instances of insider tampering with card distributions, costing customers millions in unfair losses and crippling confidence. The most common complaints customers make are slow payouts, the games are rigged and their accounts getting banned if they win too much.

A decentralized poker game, where all actions are verifiable on-chain and players engage in real-time, would offer a far superior and transparent experience. However, Web3 systems today are ill-equipped to handle this due to the inherent slowness and high costs of processing each interaction on-chain.

Currently, two types of blockchain poker solutions exist, both with significant drawbacks:

• ZK rollup-enabled, fully decentralized games: While decentralized, these games suffer from incredibly slow performance and high cumulative transaction fees, making them impractical for real-time gameplay and all but killing adoption.
• Web2-based platforms accepting crypto: These platforms merely use cryptocurrency as the in-game currency while relying on traditional Web2 software and security, effectively missing the core principles of decentralization and trustlessness.

Peer3 SDK enabled Poker:

By utilizing the best elements of Web3, while maintaining the speed and user-experience of Web2, we enshrine Poker to be unstoppable, verifiably fair, censorship resistant, permissionless, still fun to play and more cost-effective than Web2 implementations. We go beyond gameplay and make it possible to do trustless aggregation of players (liquidity) where anyone can tap into the system (users directly or even a casino/operator) and by doing so they get instant access to an already established player base and in the process they too add to it and expand it - contributing to the network effect. All trustless and permissionless.

How It Works

Real-Time Gameplay:

• Players establish a peer-to-peer state channel before starting the game.
• Actions such as dealing cards, placing bets, and revealing hands happen off-chain, enabling fast and seamless gameplay.

Security and Trust:

• Programmatic enforcement of game rules prevents cheating or unauthorized actions.
• In case of disputes or malicious behavior, cryptographic proofs ensure the game state can be verified and resolved on-chain.

Low Costs:

• Gameplay actions incur no transaction fees since they occur off-chain.
• Only the final settlement, such as transferring winnings, is submitted to the blockchain, significantly reducing costs.

Privacy:

• Sensitive data, like card hands and bets, is exchanged directly between players’ devices, ensuring privacy without compromising transparency.

In the end the game offers various benefits to both players and casinos/operators in comparison to other alternatives.

Benefits for players (that play directly on the protocol):

• permissionless,
• no intermediaries (there are no intermediaries to custody funds, shuffle the cards and organize the games. Users do that on their own, between each other and settle on a decentralized blockchain),
• provably fair games,
• unfreezable accounts (All accounts are non-custodial - the players control the private keys and use them to sign transactions. Only those private keys can move assets on a decentralized ledger (blockchain)),
• instant deposits/payouts,
• unstoppable & censorship resistant (Like blockchains these systems are designed to be resilient and live forever without any central points of failure.),
• privacy (users decide what data they share and with whom),
• lowest fees

Benefits for casinos/operators:

• established player base,
• white label,
• custom fees & incentives,
• revenue sharing with the protocol,
• access to a global and permissionless market (like blockchains, the protocol offers anyone with an internet connection unrestricted access),
• no intermediaries (White labels interact with the same underlying protocol that's fully permissionless and unstoppable),
• easy integration (basic white labels can be integrated instantly with a few lines of code),
• software (white label) available for free, forever

Competition

To our knowledge, Peer3 does not face direct competition within the Polkadot/Kusama ecosystem or the broader Web3 space.

While most scaling solutions in Web3 are predominantly concerned with payment channels and prioritize server-side optimizations, Peer3 is pioneering a unique client-side framework, positioning itself as a truly differentiated solution in the blockchain space.

Team

Board and multisig:

Founder/Engineer - Luka Stanisic - ⅓ multisig

• https://github.com/lukastanisic99
• https://www.linkedin.com/in/luka-stanisic-712907251/

Advisor/Cryptography - Jeffrey Burdges - ⅓ multisig

• https://github.com/burdges
• https://www.linkedin.com/in/jeffreyburdges/

Advisor/Economics & legal - Kasper Mai Jørgensen - ⅓ multisig

• https://www.linkedin.com/in/kmjoergensen/

Engineer - Dragan Basta

• https://github.com/thepeaknick
• https://www.linkedin.com/in/dragan-basta/

Designer - Aleksa Krstic

• https://www.linkedin.com/in/aleksa-krstic-124880112/

Business development - Aleksa Gradinski

• https://www.linkedin.com/in/aleksa-gradinski/

Business development - Gerard Murphy

• https://www.linkedin.com/in/gerard-murphy-8939b520/

Advisor/Engineering - Andrew Burger

• https://github.com/coax1d
• https://www.linkedin.com/in/andrew-b-8a628870

Funding Ask and Justification

We’re asking for 350k USDT upfront and a delayed payment after 6 months for 250k USDT and 30k DOT. We plan to use the funds to hire more top talent to work on this (the SDK) full time and cover operational costs. The DOT portion of the payment will be used for our reserves to pay bonuses/incorporate into the compensation structure of the team and align our long term financial interests with the Polkadot ecosystem.

Conclusion

We invite the Polkadot Treasury to support our mission to deliver a production-ready SDK that will unlock new possibilities for Web3 adoption. With Peer3’s innovation and Polkadot’s robust infrastructure, we can together pioneer real-time, decentralized solutions that redefine blockchain technology.

Let’s create a golden phase of Polkadot adoption, empowering developers and transforming industries.

Sincerely,

**Peer3 Team

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Additional Resources

Videos:

• Peer3 Intro: A high-level overview of Peer3 and its potential.
• Tech Explanation: A deeper dive into the technical framework behind Peer3.
• Demo: A demonstration of the Peer3 SDK in action.

Technical Deck: Decentralized Futures Application: A more technically focused presentation on Peer3’s capabilities.

Blog Post: Building a Peer-to-Peer Internet Secured by Web3: Detailed insights into Peer3’s value proposition and progress.

Open-Source Repository: GitHub: Access the Peer3 SDK codebase and related materials.

Website: Peer3 Official Website: Featuring a working tic-tac-toe proof of concept showcasing Peer3's functionality.

Social Media: Peer3 on X (formerly Twitter)