#17 On stablecoins, crypto CEOs and some big companies going crypto
Crypto CEOs went to Congress and we did a small who'w who. And, speaking of Congress, regulation is going hard on stablecoins. Nike, Ubisoft, Visa are always going hard, but into crypto.
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Stablecoin regulation is getting closer and closer
In Elizabeth Warren's words, "stablecoins provide the lifeblood of the DeFi ecosystem." She does not mean it as a compliment. Her follow-up sentences defined Defi as the shadiest part of crypto.
Warren is one of the many political figures urging regulatory action on stablecoins. Stablecoins are probably one of the most urgent matters on the table of regulators and traditional financial institutions looking at crypto either as a threat or an opportunity.
Why is this?
A stablecoin is a digital asset whose value is pegged to another asset like a commodity or another currency and therefore has a stable price. As a result, they benefit from the transaction speed and low prices of cryptocurrencies while avoiding the problem of volatility. They have two primary use cases that have the potential of eating off of the big brother's cake:
They are used to investing in digital assets without resorting to fiat currencies. Money can move around crypto without touching a bank because stablecoins provide a home currency to go back to and often a bridge between protocols, platforms, and blockchains. They are the lifeblood of DeFi; Warren's not wrong.
They also have great potential as cross-border fast and cheap payment methods.
Regulators have some legitimate concerns, while others may not be so legitimate. There are questions about the stability among the fair points, as most protocols haven't been tested under large-scale stress conditions. Plus, some stablecoins (USDT, we’re looking at you) have behaved suspiciously in the past and have led to a bad reputation as possible market manipulators. But also, stablecoins erode government and corporate power, something regulators don't like…but some people in crypto quite like it.
Legislators worldwide have been increasingly vocal about regulating the space in recent times. We could say the last chapter in this series kicked off at the beginning of November when the President's Working Group on Financial Markets (PWG) in the USA released a report on stablecoins. The PWG urged lawmakers to subject stablecoin issuers to the same strict federal oversight as banks. In recent days, Japan announced a similar possible approach to legislation that might happen in early 2022. The country's 70 most important financial institutions are working in a CBDC project that might have also triggered the need for more control.
Other international organizations, like the World Economic Forum or the European Council, are lagging a little bit behind, still going through the phase of producing recommendations. But in these cases, too, proposals are pushing for regulation.
When it comes to taking action, things get more complicated and nuanced. The US Senate recently launched consultations and hearings to dig deeper into the industry. Their energy was less combative in general than that of other politicians (yes, Mrs. Warren, we're talking about you. We know you read this newsletter), and Senators have often stated that regulation needs to be careful not to stifle innovation.
Corporations and big finance also have heterogeneous positions on stablecoins. There's a general sense of interest, but it can manifest through copycat projects that try to embrace the virtues of digital assets virtues without the decentralization and subsequent loss of power. But other institutions, like Bank of America, have openly urged regulators to act because they want to come out and play properly once and for all.
If we zoom out and see the forest, we probably witness the baby steps of the first significant regulatory intervention in crypto. The first generation of regulatory efforts aimed to close the most urgent loopholes of crypto: lack of AML or KYC in substantial businesses, essential investor protection from fraud, etc. Stablecoins are the first opportunity for regulators, traditional finance, and crypto native corporations to build a framework that pushes adoption while respecting innovation.
⬡ Six Angles
We select six topics to illustrate the very different angles crypto can be approached from. We could choose dozens, but six is the atomic number of carbon… and otherwise we'd be writing for ages.
1. Altcoins | Elon takes Doge seriously
Elon Musk is no stranger to crypto or memes. Sometimes, when he speaks about crypto, it's hard to tell if he's being serious or not. Recently he went on the record again to talk about Dogecoin during an interview with Time magazine, who chose him as Person of the Year. He said Dogecoin is better suited to become a payment method than Bitcoin. And he seemed to mean it.
“Fundamentally, bitcoin is not a good substitute for transactional currency. (...)Even though it was created as a silly joke, dogecoDogecointter suited for transactions.”
If there was a Person of the Year award in crypto, Musk could very well be the chosen one too. His opinions and actions have agitated the market quite a few times. Tesla's purchase of $1.5B in Bitcoin, the announcement of the company accepting BTC to buy cars, the subsequent rectification of the last statement attributed to environmental concerns, his frequent Shiba Inu-themed tweets pushing meme coins up and down...
But there are reasons to take him seriously when it comes to Doge. In August, Jared Birchall, Managing Director at Musk's family office, became a legal and financial advisor to the Dogecoin Foundation, representing Musk himself, as stated on the web. Vitalik Buterin is a member of the board, too, BTW.
And, more recently, he also announced Tesla would accept Dogecoin as payment for some products, like merchandising, "and see how it goes."
Elon has a point: Bitcoin has grown roots in the "store of value" narrative. It has become an alternative to gold, but people don't use gold to pay for merch. As a fork of Litecoin, which was itself a faster copy of Bitcoin, Dogecoin offers speed, reasonable fees, and the traction of being a popular currency because of its meme spirit.
2. TradFi | VISA launches advisory services
"We've seen a material shift in our clients' mindset in the last year, from a desire to explore and experiment with crypto to building a strategy and product roadmap." said Claudio Di Nella, Head, Visa Consulting & Analytics, Europe.
It seems like VISA is walking the talk. Back in August, the credit card company purchased a Cryptopunk and claimed one of the reasons to do so was to get a "firsthand understanding of the infrastructure requirements for a global brand to purchase, store, and leverage an NFT." So apparently, VISA is an example of the trend they're unveiling: companies are moving from experimentation to strategy. And they want to be there to help.
Last week, VISA announced a new line of Crypto Advisory Services housed within its consulting and analytics division that aims to help customers from the private or public sector dive into areas as broad and diverse as NFTs or CBDCs.
VISA released some research on consumer attitudes and usage to accompany the announcement that points at peak interest from general consumers in cryptoassets.
3. Blockchains | Ubisoft, and Kickstarter choose sustainable Layer 1's
Can you imagine a time when Ubisoft and Kickstarter were considered old-school? Well, that time is now. Both young digital giants recently announced plans to go deeper inside the rabbit hole. No surprise, as they are both innovative companies in the center of sectors, gaming, and crowdfunding, that are likely to be disrupted by crypto, so kudos to their adaptive spirits.
Ubisoft recently launched the beta version of a new platform called Ubisoft Quartz, allowing users to acquire NFTs of items that can be used in-game, such as weapons, clothing, or vehicles.
On the other hand, Kickstarter announced on their blog the "development of an open source protocol that will essentially create a decentralized version of Kickstarter’s core functionality."
Apart from the unmistakable message about adoption and mingling between the new and the not-so-new-anymore, there's an interesting angle, and it has to do with the choice of blockchains.
Ubisoft is working on Tezos for Quartz: Tezos is an alternative smart contract Layer 1 solution taking a solid position as a more sustainable blockchain, specializing in NFTs. On the other hand, Kickstarter will soon publish a whitepaper with the details, but we already know they've chosen Celo, an open-source and carbon-negative blockchain.
4. Regulation | Crypto CEOs Congressional Hearing
Six CEOs from major crypto companies were summoned to the U.S. House Committee on Financial Services to testify about the present and future of the industry...and things went surprisingly smooth. Jake Chervinsky, one of the most prominent crypto lobbyists, said this:
Crypto-CEOs had the opportunity to warn regulators about the risk of ill-regulating the space and pushing these companies off-shore. Regulators had the chance to express their interest in understanding and acting sensibly.
Let's see who were these six CEOs and what they represent.
Sam Bankman-Fried. SBF is the world's youngest billionaire, a charismatic leader for crypto, and the founder and face of FTX. FTX is a centralized exchange specialized in derivatives that has become a force of nature in the industry and is fighting to become a household name in the USA through grandiose partnerships that have sent them to No. 10 on Ad Age's 2021 Marketers of the Year list. FTX's footprint in crypto is vast, thanks to its business activity, including many investments in the space.
Jeremy Allaire is the CEO of Circle, a company created by Center. This consortium includes members from the cryptocurrency exchange Coinbase and Bitcoin mining company Bitmain to help businesses embrace the innovations in the payments space. Circle is behind USDC, #2 stablecoin by market value.
Brian Brooks is the CEO of Bitfury Group. Bitfury's story sounds like a western movie: miners turned into tycoons. Bitfury started with mining hardware and software production but has evolved into software, venture capital, and analytics for public administrations.
Charles Cascarilla is CEO of Paxos Trust Company. Formerly ItBit, one of the first Bitcoin exchanges, Paxos has become an infrastructure provider and is behind some of the most promising examples of big corporation immersion in crypto, helping firms like PayPal or Meta go crypto.
Denelle Dixon is CEO and Executive Director of Stellar Development, an open-source, decentralized protocol for digital currency to fiat money low-cost transfers.
Alesia Jeanne Haas is the CFO of Coinbase Global. Coinbase was the first crypto native company to go public. It has become a de facto representative of crypto in Wall Street and is one of the strongest lobbyists for crypto.
5. Metaverse | Nike purchases crypto-Nike
The footwear and sports apparel giant has acquired a startup called RTFKT (pronounced "artifact") that will help the company accelerate its "digital transformation.” RTFKT was founded in early 2020 and has since made a name for itself designing and creating what it calls "Metaverse-ready sneakers and collectibles” Engadget.
So Nike purchased Metaverse-Nike.
Grayscale says the metaverse is a $1T opportunity, so it's easy to understand why Nike is getting in position. Digital collectibles make total sense in the future narrative of the metaverse: NFTs can create a market of interoperable digital assets that users can purchase and "wear" digitally. In other words, anyone could eventually end up wearing their virtual Jordans in Decentraland and then also in a virtual meeting with co-workers sometime later.
The move is very similar to Adidas'. The three-striped brand recently announced a partnership with Bored Apes Yacht Club, one of the most popular NFT collections, as well as gmoney and PUNKS Comic (nothing to do with Cryptopunks)
BTW. Jimmy Fallon has joined the list of celebrities flashing their Apes. This and Adidas and Nike's announcement are proof that NFTs are becoming the real killer app for crypto. Who would've thought?
6. Decentralization | Solana's troubles
Solana is one of the most promising scaling solutions for crypto. It is a Layer 1 smart contract blockchain with a combination of Proof of Stake and Proof of History as consensus mechanisms. This means it is an alternative to Ethereum with better transaction speed and lower fees.
Since its first steps, it has been one of the investors' favorites. Much of its success has to do with the fact that FTX was behind it from a very early stage, and so have, regularly, other investors looking for the new token sensation. Solana has built a thriving ecosystem of DeFi and NFT projects and a community of developers working on it. Funding, ecosystem, developers: the magic triad.
Recently Solana has been under some scrutiny after revealing they had suffered a DDoS attack that slowed down its processing speed. Opposite to what happened some months ago, when the network went down for 17 hours, this time, the episode didn't manage to break Solana. Nevertheless, the incident brought up Solana's most prominent reputational flaw in the eyes of the crypto community: its centralization.
It is generally said that Solana has fewer validators and that the technical requirements to become a Solana validator make it available only to a few. For true believers, centralization is an unnegotiable feature of the future of the internet. If you don’t understand why this is a great piece to get started: Why Decentralization Matters, by Chris Dixon.
Here is a very superficial summary of three good reasons:
Decentralization avoids single points of failure.
Decentralization provides the highest levels of security.
Centralized organizations tend to be extractive; decentralized organizations, by design, distribute benefits.
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