#16 The Context: Is a decentralised Twitter the future?
How an Elon Musk Twitter could affect DeFi, the maturing of NFTs, the coming-together of Wall Street and DeFi, and more stories this week
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At the beginning of the week it looked like Elon Musk wasn’t going to get Twitter, then it seemed it was. Now there’s at least a glimmer (well, a commentary) that he may have lost interest. What does it mean for crypto? We explore that, as well as looks at NFTs and Wall Street.
As usual, a disclaimer: This newsletter collates the interesting stuff in DeFi/crypto/metaverse/web3/NFT land and offers some context (hence the name). It’s aimed at anyone who wants to keep an eye on the space but isn’t following it too closely, or is on the hunt for story ideas and angles. It’s put together by a team at YAP, and doesn’t contain any promotion of our clients (if one is mentioned, we’ll flag that).
Ping us at thecontext@yapglobal.com. Old newsletters can be found here.
[tl;dr]
Twitter could have a new owner. What are the implications for DeFi?
We might have talked a little too much about NFTs, but they’re not going away, and neither are we.
It’ll be interesting to see how the shotgun wedding between Wall Street and DeFi happens. Or will there be louder wedding bells in London, or Singapore, or Hong Kong, or the UAE? Or somewhere else entirely?
[Implications of Musk's Twitter potential buy]
What implications are there for DeFi of Elon Musk’s (still unconfirmed) Twitter takeover?
There is no shortage of helping hands being offered to Musk, according to The Information’s Akash Pasricha. In an interview in mid April, Sam Bankman-Fried told him he would be excited to help decentralize Twitter (something he expanded on in a thread on Twitter, saying blockchain would be perfect for a more decentralised social media.)
Others have chimed in with ideas, including lawyer Preston Byrne, who talked about what a decentralised social media service might look like, and a DAO called Eris he worked on back in 2014. Others talked about Urbit, Scuttlebutt and Twetch.
Ex-Twitter CEO Jack Dorsey already started exploring that with Twitter’s Bluesky project, and so might make another collaborator, Akash reasons. This would offer huge opportunities for startups focusing on blockchain-based social networks, he says. (Bluesky has been quick to clarify the relationship with Twitter, which says it is an independent company whose funding from Twitter is subject only to the condition that it “research and develop technologies that enable open and decentralised public conversation.")
The apparently successful takeover has also resurrected some discussions in the cryptoverse, according to Preston Byrne, about other forays in decentralised social media.
But is that the way to go? Could taking Twitter private push it into ‘regulatory darkness’ where bad folks “with troubling human rights records”, in the words of Access Now, an organisation committed to defending the "digital rights" of users, could act “with impunity”? While a decentralised model may help preserve freedom of speech, where does Musk’s desire to “authenticate all humans” help preserve anonymity — not just for the sake of privacy, but also, in Access Now’s words, as “a vital tool for human rights defenders and others to advance their work with reduced risk of persecution”? While there are plenty of writers who have focused on how the likes of Twitter have effectively allowed a number of small “publics" at the extremes of the spectrum dominate the discussion, Twitter's failure to address that doesn't necessarily make Musk's antidote the right prescription.
The maturing of NFTs
We’ll doubtless look back at these early days of NFTs and wonder why we weren’t smart enough to figure out where it would go. Unfortunately acknowledging that doesn’t help us be smarter. What we can see, though, are the twin signs of both consolidation — as the big players scoop up the niche ones — and a broader experimentation of use cases. As user and creator mature, so will the space settle on those areas where NFTs offer real value to both:
Consolidation: OpenSea, the largest exchange of Non-Fungible Tokens (NFTs) by trading volume, has acquired NFT aggregator Gem in the hope of better serving pro collectors, who use Gem to buy assets in bulk across multiple platforms to save on fees. (Story by Andrew Hayward of Decrypt)
And, yes, scams. NFTs were stolen after Bored Ape Yacht Club Instagram and Discord were hacked. It's hard to say much more about this, but what does seem to be clear here is that the hacking was of non-DeFi parts of the supply chain, in this case Instagram and Discord. Still, phishing and social engineering are as old as the hills, and DeFi should get smarter about defending itself, and its users, from these tactics. (See more at The Context #13)
It doesn't look like China is going to allow the trading of NFTs anymore. NFTs were the one remaining DeFi sector there, mainly because they were not hosted on public blockchains. Indeed, prominent Chinese tech companies don't even call them NFTs, preferring "digital collectibles”, and users can only buy them with government-issued currency and can't sell them on. According to Zeyi Yang of MIT Technology Review, this practice may also be destined for the dumpster, after three national financial industry associations called on members, effectively, to not have anything to do with them.
We’ve talked before (The Context #5 and #9) about how music could be a great fit for NFTs. The Trends VC newsletter has created an excellent collection of thoughts and links exploring the potential Music NFTs (example: one artist sold an NFT for $41K to a superfan, the equivalent of the earnings from more than 10 million streams of her songs on Spotify.)
And we talked about how media is turning to NFTs in The Context #14; The South China Morning Post’s second NFT collection, featuring newspaper front pages in 1997, sold out in just over two hours, netting $120K for the Hong Kong-based paper (or, strictly speaking, the venture it spun off last month.)
Disrupting Wall Street
Will FTX CEO Sam Bankman-Fried get his way on his crypto derivatives trade plan, and if so, what does that mean for Wall Street? In FTX's proposal, Bloomberg reports, customers would open accounts directly with the platform and its computers would monitor their trades made using margin, which involves putting up collateral. This automated system differs from the existing model in that it cuts out middlemen, using FTX's own money to backstop trades, where presently the exchange requires its member brokers kick money into a communal fund to cover defaults.
While it’s impressive that the likes of FTX are having a civilised dialogue with the titans of Wall Street, across the pond crypto still faces charges of being a Ponzi scheme fueled by greed, and that from an executive board member of the European Central Bank, Fabio Panetta. Coindesk quotes him as calling for regulation to avoid another sub-prime-like crisis. “Now is the time to ensure that crypto-assets are only used within clear, regulated boundaries and for purposes that add value to society,” he opines, to avoid a “lawless frenzy of risk-taking.” (Full speech here)
Using that criteria, a lot of Wall Street would have to close down too. On the other hand, Bankman-Fried might agree with Panetta, at least when it comes to yield farming, according to a Financial Times column by Jamie Powell. Panetta is right that crypto is lawyering itself up: The Wall Street Journal says the crypto industry can’t hire enough lawyers as it tries to manage regulation, but also help manage the company's products. (Story by Mengqi Sun)
Panetta’s urge for caution is likely to be tempered by the re-election of French president Emmanuel Macron. On the campaign trail he came out strongly in support of crypto innovation, although he has called for unified Euro crypto regulation, as well as a “European Metaverse" to limit the ingress of American Big Tech. (Story by Jaroslaw Adamowski of Cryptonews) (See Reading below for an FT piece on the UK’s own agenda)
[Tidbits]
[The true purpose of crypto?]
Afghans are buying cryptocurrencies to keep their savings out of the hands of the Taliban, according to this Bloomberg piece: “A Would-Be Crypto Baron Plies His Trade in the Taliban’s Shadow". But they're not after Bitcoin, says Habibullah Timori, who runs one of four crypto brokerages in Herat, Afghanistan's third largest city. They want stablecoins, he says, because that way they can retain their savings' value. Business is good, and may remain so: The Taliban have said they are considering whether to embrace crypto. (Story by Eltaf Najafizada)
Likewise, Russian emigrés opposing Putin’s war in Ukraine, have found similar uses for stablecoins as sanctions stopped their Russia issued bank cards from working overseas. The Ukrainian government, buoyed by millions of dollars’ worth of crypto donations, has plans to be among the top five countries in crypto legislation. One area of interest: using NFTs could be used to document Ukraine’s history, says Alexander Bornyakov, deputy minister of digital transformation, as Russia tries to erase it. (Stories by CoinDesk's Anna Baydakova and Cryptonews' Fredrik Vold) (We've looked at Ukraine's use of crypto in The Context #8)
But crypto’s evasive qualities also offer comfort to those trying to sidestep sanctions and launder ill-gotten gains. Just because wallets and transactions can be tracked doesn’t mean that they can be frozen or stopped: The (likely) North Korea hackers who stole $600 million from Axie Infinity have been moving their loot in a cat-and-mouse game with the U.S. Treasury Department. It's a sign of how increasingly sophisticated criminals have become in leveraging the weak points of crypto. (Story by Tory Newmyer and Jeremy B. Merrill) (More on the Axie hack in The Context #12 )
[Battle of the hubs]
More signs of the centre of gravity shifting in crypto geography with crypto exchange Kraken launching in the UAE after getting full regulatory approval. Binance was given approval to operate in Abu Dhabi earlier this month. But there are two sides to this: Singapore and Hong Kong are keen to lure these companies, the former has made it clear that its (retail) population should not be the target of any DeFi products. And then there's the danger of allowing the crypto welcome mat to be used by undesirables, like money-launderers: the UAE has been the focus of Russian attempts to seek a haven for their fortunes via crypto, which in turn as seen the UAE placed on the Financial Action Task Force's grey list of countries. (Story by Emma Graham and Dan Murphy of CNBC) (We've looked at this hubbub before in The Context #6 and #9)
[Beware the metaverse]
The metaverse is not just a crypto thing, necessarily, but its fortunes are likely to be intimately tied to that of DeFi, where the world of tokens as assets, decentralisation and new world-visions make it a natural fit. Not least because users would be able to truly own, create and trade assets —their avatar, their digital goods, digital real estate — against existing models where everything is subscription-based, and ultimately controlled by the metaverse’s operator. But that may not necessarily be the case, according to a piece in The Conversation, which asks: Can you truly own anything in the metaverse? The author, law professor João Marinotti, argues that blockchains and NFTs don't protect virtual property: “[A]ll visual and functional aspects of digital assets – the very features that give them any value – are not on the blockchain at all," he argues. “These features are completely controlled by the private metaverse platforms and are subject to their unilateral control."
There’s another aspect to the metaverse which may also give platforms a headache. How responsible are they for what goes on in their terrain? Yinka Bokinni donned a VR headset and experienced an immediate and unrelenting barrage of assault, racism and rape jokes. She doesn't say which apps she used, but when she reached out to them, all “talked about how trust and safety are core to what they do." Decentralised and autonomous though they may be, metaverse platforms are likely to find they will have plenty of policing to do.
[Is Bitcoin in a rut or in cold storage?]
Bloomberg says Bitcoin is ‘stuck at the moment,’ citing prices flagging, fewer coins changing hands and crypto-related funds seeing ‘massive outflows’. But where are those outflows going? Buried at the end of the piece is the answer: a lot of that coin is actually going into cold storage, meaning investors are holding/hodling, not losing interest. Analysts at Blockforce Capital conclude: “We have only seen this level of outflow from exchanges four previous times since the start of 2018. Three of those instances correlated with a sharp upward movement in price not too long after.” This would seem as likely a lead as the one actually used. (Story by Vildana Hajric)
Meanwhile, the grandad of crypto is now legal tender in the Central African Republic, becoming the first African country to do so, and the first globally after El Salvador. (Story by Rahul Nambiampurath, of BeInCrypto) (More here on El Salvador and legal tender)
[Reading]
A deep dive into the mysterious subcultures of cryptocurrency obsessives with Canada-based writer Sarah Resnick. A decent field-guide for those new to the space, or wondering what a degen is.
The commentary piece that raised a few eyebrows: Elon Musk probably won’t buy Twitter. Probably by the time you read this, you'll know whether this was prescient or moot.
FT takes a long look at why the UK joined the race to woo the crypto industry. The piece by Joshua Oliver and Philip Stafford shows how the UK plan is not just a knee-jerk effort to win a bit of crypto trading but to make itself "a leading place for crypto technology within financial services," in the words of one interviewee. This isn't about DeFi so much as it is about CeFi (or TradFi, if you prefer.) Is that good news for crypto, or will we see a similar trajectory to that taken by FinTech?
This newsletter is pulled together by a team led by Jeremy Wagstaff, formerly of the WSJ, BBC and Reuters and Samantha Yap, founder of YAP Global. Other members: Ruby Wu, Roslyn Tear and Becky Corbel. Many thanks to Joey Woo for production. Any views expressed here are not necessarily those of the writers, YAP Global or its clients.