#24 When to launch a token, stablecoin wars, and NFT intellectual property conundrums
Yuga Labs has taken the spotlight of crypto away from Russia with the launch ot the APE token and the purchase of Cryptopunks. Also, Zuck announces NFTs on Instagram and the EU does not ban Bitcoin.
(cheap influencer trick coming…)
Many people have asked us about sponsorship opportunities in this newsletter. So far we hadn’t considered any opportunity seriously - Carbono Insights was our way of reaching out and building a network for Carbono. But we want to open the door now and see what it looks like outside. So if you have a project that you want to put in front of the eyes of an international audience of crypto amateurs and enthusiasts, let us know! We will read you at team@carbono.com
Wen token?
In case you hadn’t noticed yet, crypto speaks in memes. Anything starting with “wen” shows the speaker’s eagerness for something happening soon. Thus, “wen token” is the peaceful war cry of web 3 enthusiasts who look forward to the decentralization of their favorite projects.
The “Wen token?” question was answered affirmatively in a couple of illustrious cases recently.
Yuga Labs is the studio behind Bored Apes, the most outstanding NFT brand of the moment, which recently announced a couple of earthquake-y news: the purchase of Cryptopunks and Meebits and a $450M funding round led by Andreessen Horowitz.
Metamask is a non-custodial wallet used monthly by 30 million users. Non-custodial means that it is not centrally managed, like the wallet you might obtain via Coinbase. It allows users direct contact, ownership, and responsibility for their assets.
Both projects are among the most widely recognized brands in the crypto ecosystem. Their approach to tokens will probably differ greatly. While Yuga Labs is building a crypto entertainment emporium with strong Web 2 and big corporate vibes, Metamask belongs to Consensys, a company that participates with the values of Ethereum.
The existence of an operating token generally draws the line between centralized and decentralized projects. The frontier between Web 2 and Web 3, as Web 3 turns users into stakeholders and co-owners of a company, and realigns incentives.
This is something that is broadly misunderstood. At Carbono we are often approached by companies who are considering launching a token, mostly thinking of them as a fast and easy way to raise funds, following the fading echoes of ICOs. And although tokens can be a source of funding, they are definitely not fast or easy, as they require the company to learn and adopt the conditions of web 3 and decentralization to work.
We have made a shortlist of the goals a project could pursue by launching a token, and the implications it would have.
First and foremost, tokens change the incentive structure. It creates a new layer of stakeholders, a hybrid between consumer and shareholder, and starts a new relationship between them and the project. One where the team and the token holders share the goal of pushing the project forward for the token to accrue more value. And, while onboarding a whole segment of people to the purpose of the project seems ideal, it comes with an equivalent load of responsibility. These new customers have new demands in terms of communications and transparency, and they will want to be listened to.
When these new tokens are imbued with governance powers, another shift happens. Stakeholders now have the power and the responsibility to lead the project. Companies that launch a token need to open their arms to collective cooperation and build the groundwork for decentralized governance. In exchange, decentralization through tokens is sometimes viewed as a defense mechanism against regulation, because it takes the responsibility off the team’s shoulders.
Tokens can indeed become a fund-raising tool. By creating a token and providing it with value, projects can create a treasury that can be used to push forward a project, without the need of raising funds from VCs or resorting to business models that can harm a project in the future (for example, if Metamask was pushed to selling ads). A valuable token can be used to create grants, reward programs, or even be exchanged for other assets, even fiat, to make payments in more traditional sectors (like hiring a lobbying firm)
On the other hand, while a token can give project independence from VCs, it can even become the key to raising funds from them: a token sale is a natural entryway for venture capital firms, especially if it happens in the early stages, maybe at a discount. It is an excellent tool for onboarding smart money.
Tokens are web 3’s most powerful marketing tool. Who doesn’t like airdrops? An airdrop is an automated giveaway of tokens. It has the ingredients of the best marketing strategies:
Airdrops can be targeted to a defined audience with a predictable size, which guarantees reach.
They can deliver a message, through the customization of the airdrop criteria. For example, when LooksRare rewarded users according to their buy and sell activity on OpenSea, they were telling the world what kind of behavior they wanted to promote.
It turns many token recipients into immediate advocates. Can you think of any other marketing tool that does this? Can you imagine an ad turning a viewer into a customer and an ambassador in just one impact?
Tokens give companies superpowers. And with great power comes great responsibility. Tokens are not a frivolous decision. They require determination, not to mention technical skills, and flexibility to adapt to the complex and fast-paced world of crypto. Companies must act accordingly.
⬡ 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. Stablecoins | Stablecoin Wars III
The term “stablecoin wars” has been tossed around a few times already. From the early days of the coronavirus outbreak, when a stack of stablecoins competed against each other (or maybe competed against the obvious leader, Tether’s USDT), to the transparency race between Circle’s USDC and Tether’s USDT when they raced each other to prove regulators that their coin was the most trustworthily collateralized.
Given that there doesn’t seem to be an official “stablecoin war” narrative, we thought we might as well announce a third one ourselves. Today there is a stablecoin war, this time between algorithmic stablecoins.
The two most popular decentralized algorithmic stablecoins are Terra’s UST and MakerDAO’s DAI.
Decentralized stablecoins are stablecoins that are not issued by a company but by a protocol. The three main leaders in the rankings, Tether’s USDT, Circle’s USC and Binance’s BUSD, are all issued by corporations that back their stablecoins through treasury reserves.
Algorithmic stablecoins are called algorithmic because they maintain their stable 1:1 peg through automated buy and sell (or burn) mechanisms of their collateral. And this collateral is generally comprised of other digital assets, as opposed to centralized stablecoins.
DAI is not only the second most popular algorithmic stablecoin, but also one of the most venerable digital assets, and a precursor of DeFi. DAI was the first crypto-collateralized stablecoin, pegged to the dollar, and initially backed only by Ether, although it eventually accommodated other assets as collateral.
UST is Terra’s algorithmic stablecoin, the current clear winner in terms of volume and growth. UST is also algorithmic and decentralized and depends on Terra’s native token, LUNA. It’s through creating and destroying LUNA that UST maintains its peg on the dollar.
Both DAI and UST are currently racing to innovate in their respective spaces. MakerDAO is aware that DAI is losing momentum, and their governance channels are seeing innovative propositions pop up. One very relevant one is suggesting to incorporate real-world assets as collateral to DAI, in ist race to remain relevant in the future.
While DAI is trying to compete with UST, Terra is trying to protect their stablecoin from the doomsday event of the future. Algorithmic stablecoins rely their peg on digital assets; assets not quite known for their stability. A drastic and sustained drop in price could end with the stablecoin. To prevent their stablecoin from crumbling in times of great volatility, Terra has a plan to purchase $10B Bitcoin progressively (that’s almost 2x Microstrategy) to give support to LUNA in the event of a fall. The great purchase has already started (analysts are looking closely to see the effect on Bitcoin price). Terra is turning Bitcoin into the reserve currency of their stablecoin.
On this occasion, the stablecoin war is not a civil war o a struggle between peers; it’s the fight for the future.
2. Ethereum | The Merge is closer
When the year started, we announced that The Merge was going to be the most important event in crypto of the year. We weren’t counting on Putin. We do stand behind our claim that from a technical point of view, it is a turning point in crypto.
The Merge is what we would have previously referred to as the coming of Ethereum 2 through an evolution from a Proof of Work to a Proof of Stake consensus mechanism. The Ethereum Foundation decided to re-brand the event to make it more friendly and accurate: it is not the passing from Eth 1.0 to Eth 2.0, but a merge between the Execution Layer (the current version of Ethereum) and the Consensus Layer (the new blockchain).
Read this Reddit thread to get all your facts right and in plain language.
The Kiln merge is Ethereum’s last event before the real thing and it happened last week. Kiln is a testnet: an identical twin of the Ethereum blockchain, where devs can start trying out their projects and stress testing it. Kiln underwent its own merge last week.
Kiln is expected to be the last merge testnet created before existing public testnets are upgraded. Application & tooling developers, node operators, infrastructure providers and stakers are strongly encouraged to test on Kiln to ensure a smooth transition on existing public testnets. Announcing the Kiln Merge Testnet
3. Regulation | The EU does not ban Bitcoin
The EU Parliament did not ban Proof of Work blockchains. Might sound weird to make a fuss about something that did not happen, but a European ban on Bitcoin was close.
Markets in Crypto Assets (MiCA) is the most important crypto regulatory package in the old continent. In terms of relevance, it mirrors Biden’s Executive Order, although the routes taken on either side of the Atlantic look nothing alike.
The goals are similar, nevertheless: the EU wants to exercise some control over certain trends that they consider a threat (with a special focus on stablecoins), but at the same time trying not to harm innovation.
Up until the last minute, there was a possibility that MiCA included a de facto ban of Bitcoin and other Proof of Work blockchains, stemming from the EU’s commitment to sustainability. Finally, the “do not harm innovation” part prevailed.
4. NFTs | The Intellectual Property conundrum
Yuga Labs is the company of the month in crypto. The name that took the spotlight away from Ukraine and reminded the industry that we are still aboard a fast-moving train.
Yuga Labs is the company behind Bored Ape Yacht Club and its spinoffs, and, as we have mentioned before, they recently announced the purchase of Cryptopunks: the collection with which they competed for the award as the most popular NFT collection.
The acquisition of Cryptopunks means that BAYC’s approach to Intellectual Property will prevail. Larvalabs, the studio behind Cryptopunks, had always had a restrictive approach towards the use of the intellectual property of their creations. The exact policy was not even clear, but the bottom line was: owners of a punk owned the asset, but not the exploitation rights. On the other corner, Bored Ape Yacht Club gave ape owners full Intellectual Property rights. Yuga Labs is itself building an emporium of crypto-native entertainment based on this flexible take on universe-building. Am I hearing someone say Disney?
NFTs are still floating in a gray area in terms of intellectual property and exploitation rights that still need a lot of consideration before they land on something reasonable for all.
5. Web 2 | NFTs are coming to Instagram
Mark Zuckerberg recently announced that NFTs will soon come to Instagram. The move is consistent with Meta’s bet on the metaverse, and it’s likely to shake crypto when it happens. But Zuck gave zero details on what the integration might look like.
The clear predecessor is Twitter, where NFTs started by taking positions as profile pictures. It doesn’t seem likely that Instagram will do anything similar. At least they won’t stop there.
Instagram’s business model is heavily based on advertising and e-commerce, and NFTs could play a role there, especially in the latter. Non coincidentally, Meta has filed 8 digital asset and Web 3 trademark applications that include everything necessary to incorporate NFTs into their platforms.
6. NFT analytics | The Nansen NFT indexes
Nansen is a blockchain analytics leading company that recently unveiled a set of NFT based indexes to capture the activity and trends in NFT.
Nansen designed a group of indexes consisting of the different NFT collections that are representative of the different NFT market segments (e.g. Social, Gaming, Art and the Metaverse). Investors can follow the different market indexes to gauge the market movements and performance. It is important to note that investors cannot invest directly into these indexes. Instead, funds and investments can be constructed and balanced in accordance with the index benchmark, thereby developing index funds. NFTs As Investments - How Are They Performing?
Their indexes have proved that the NFT market has a relatively weak correlation with the general crypto market. This means that bulls and bears do not necessarily happen similarly in both spaces. NFT Market Continues to Outperform Crypto Despite Correction – Nansen
For the design of these indexes, Nansen has created a classification for NFTs that was needed in other areas of research. Their six indexes are classified according to the most relevant industries where NFTs have successful use cases: Art, Social, Game, and Metaverse (the other two indexes being formed by Blue Chip and a top 500 index).
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