Tech Brew Ride Home - Tue. 11/08 – FTX: You Ok, Bro?

Episode Date: November 8, 2022

Why has FTX appeared to have halted withdrawals? Innocent explanation, or could we have another big crypto blowup brewing? What if Elon just says, screw it, and puts all of Twitter behind a paywall? What happens if NFT marketplaces stop honoring royalties? And why is Apple having a hard time with its design team? Sponsors: Masterworks.com/ride Links: Binance to Sell Rest of FTX Token Holdings as Alameda CEO Defends Firm's Financial Condition (CoinDesk) Musk discusses putting all of Twitter behind a paywall (Platformer) Mysterious company with government ties plays key internet role (Washington Post) OpenSea Breaks Silence on NFT Royalties, But Creators Don't Like What They Hear (Decrypt) Apple’s Brain Drain Hinders Efforts to Pick Its Next Jony Ive (Bloomberg) Learn more about your ad choices. Visit megaphone.fm/adchoices

On April 4th, 2023, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. Welcome to the Tech meme right home for Tuesday, November 8th, 22. I'm Brian McCullough today. Why has FtX apparently halted withdrawals? Innocent explanation, I'm sure, or could we have another big crypto blow-up brewing? What if Elon just says, screw it and puts all of Twitter behind a paywall?

What happens if NFT marketplaces stop honoring royalties? And why is Apple having a hard time with its design team? Here's what you missed today in the world of tech. You okay? FTX. According to on-chain data, FTCX appears to have stopped processing withdrawal requests, starting at 637 a.m. Eastern Time, covering withdrawals of Ethereum, Solana, and Tron. Now there have been whispers about FTCS's solvency in recent days. Here's what's happened as best I've been able to piece it together. Remember, Sam Bankman-Fried owns FTX a trading platform. He also owns Alameda, a sort of investment arm, which is what he has used to scoop up troubled crypto projects in recent months, backstopping the market, as we've said,

a la JPMorgan. Well, somehow FTX's balance sheet leaked recently, revealing that Alameda's biggest asset, the thing that it can use not only to buy things, but also to remain solvent, was FTT, basically the token of its sister company FTX. Then, quoting CoinDesk, Binance's CEO, responding to a coin desk scoop about trading firm Alameda Research's balance sheet, tweeted Sunday that he will sell the remaining FTT tokens held on his books that he took on as part of his exit from Alameda's sister company FTX last year. Binance CEO Changpeng Zhao did not say how much FTT his firm will sell, but that as part of the cryptocurrency exchange's exit from FTC's equity last year, Binance received roughly $2.1 billion worth in the form of BUSD, Binance's stable coin and FTT.

Alameda's CEO, meanwhile, retweeted that her trading firm's financial condition is stronger than what was reflected by the balance sheet Coin desk wrote about. She also offered in a reply to the Binance CEO's post to buy his firm's FTT token holdings for $22 each. The price of FTT declined 14% over a 24-hour period to $22.2.2 its lowest price since June. Zhao's announcement comes after rumors swirled about the financial health of Sam Bankman-Fried's trading firm Alameda Research, after a leaked balance sheet reviewed by Coin Desk, revealed the trading firm owed $5.8 billion of FTT tokens, including FTT tokens pledged as collateral as of June 30th. Alameda was revealed to have $14.6 billion in assets and $8 billion

in liabilities, including $7.4 billion in unidentified loans. On Saturday, Alameda Research CEO Caroline Ellison responded to the rumors by tweeting that Alameda had over $10 billion of assets not reflected on the leaked balance sheet. Ellison added that Alameda had undisclosed hedges in place and had already returned a bulk of their outstanding loans, end quote. So if I'm reading this right, might Binance have taken the opportunity to sell FTT coin in order to kneecap its rival FTX by forcing the price of that asset down to make people question FTX's solvency overnight. FTC's FTT dropped more than 20% to below $18 a coin as investors began to fear possible contagion from the potential collapse of FTX-linked Alameda. FTCX outflows reportedly

reached more than $450 million. FTCS CEO Sam Bankman-Fried said, quote, FTCS is fine, but folks have been watching stable coins absolutely flood off of the FTX platform. And now this morning, people are saying withdrawals have ceased on FTX, which, as the Crypto Daddy tweeted, quote, for a company that's solvent, it's doing some very insolvent things, end quote. So look, this is all happening right now this morning. I'm not very deep in the crypto space, as you know, so I'm sure some crypto folks will say I've got some details wrong here, but I believe the gist of it, as of my writing this morning, is FTT is crashing and not recovering so far. the amount of EF in FTX's primary wallet is down 97% from its highs. Nothing from Sam Bankman-Fried so far this

morning or the Alameda CEO today, or since the flurry of tweets yesterday, and now no withdrawal transactions being processed. Possibly there is an innocent explanation for all of this, but taken together, it all looks very bad. Lots of folks saying the silence from Sam Bankman-Freed speaks volumes. If he could calm the markets, folks say he probably would. and he's not, at least so far. It is currently 9.16 a.m. in the Bahamas, so I feel like there's zero chance that SBF is not awake and not aware

that all of this is happening. Thought I'd get the Twitter stuff out of the way earlier today. Casey Newton had a huge piece up yesterday with tons of scoops like the rumor that Elon has pitched charging most or all of Twitter users for a subscription. Not a partial anything, like the whole platform would go behind a page

wall. Meanwhile, internal estimates show that Blue, that subscription product as it exists now, could lose Twitter $6 per user per month in the U.S., which begs the question, why are they doing it this way? Quoting Casey's platformer newsletter, quote, the company rolled out a new version of the app on Saturday with release notes that said the new Blue was now available. The copy, written by Jason Calacanus, was widely derided for sounding like a fishing email. The problem is that Blue was not available, and so, those who did subscribe found that they had merely gotten access to the current version of Blue. Then after a debate about the potential effects of unleashing thousands of new verified

accounts onto the platform in the middle of the U.S. midterm elections, the company postponed the launch. But the new Blue likely faces larger problems. The existing version only had a little more than 100,000 active subscribers, platformer has learned. The new version will be 37 and a half percent more expensive, and its value seems murky for most regular users of the platform. It's unclear how the company will persuade enough people to subscribe to justify the effort. Twitter employees tried to sell Musk and his advisor David Sacks on the idea of asking business accounts to pay for extra features, since many of them used Twitter to reach large audiences, but they were dismissed in favor of offering wide-scale verification first,

I'm told. Other employees have warned about a secondary feature of the new blue that Musk added at the last minute, reducing ad load in the Twitter app by half. Estimates showed that Twitter will lose about $6 an ad revenue per user per month in the United States by making that change, sources said. Factoring in Apple and Google's share of the $8 monthly subscription, Twitter would likely lose money on Blue if the AdLight plan is enacted. The business fundamentals are just not there, said one former employee who worked on the plans. Musk has been heavily involved in the chaotic launch of Blue, participating in stand-up meetings and exchanging regular emails with Esther Crawford, a director of product management at the company. There is one decision-maker,

and that is me, Musk told workers, according to meeting notes shared with employees in Slack. Any detail of Twitter blue must be clear with him down to the last detail, the message added. But all of that could be a prelude to the biggest change of all, charging most or all users a subscription fee to use Twitter. Both Musk and Sacks have discussed the idea in recent meetings, according to a person familiar with the matter. One such plan might allow everyone to use Twitter for a limited amount of time each month, but require a subscription to continue browsing the person said. It could not be learned how serious Musk and Sacks are about the paywall. Twitter did not respond to a request for comment. It also does not appear imminent as the Blue team is wholly occupied with the launch of the expanded verification.

Still, given Twitter's huge debt burden, the backward economics of Blue and the recent pause in spending by major advertisers, it's clear that Musk and his brain trust will have to do something to significantly increase revenue. And whatever they choose, it seems increasingly clear that Twitter will never be the same, end quote. What else? Elon was tweeting yesterday that since he took over, Twitter has been breaking records in terms of daily active users. Indeed, a source told the verge that Twitter has told advertisers, the service added more than 15 million monetizable daily active users since the end of Q2, quote, crossing the quarter billion mark, end quote. Meanwhile, it looks like he's just going to tweet through all this, as they say, because folks have noted that Elon is on pace to tweet over

750 times so far in November, or more than 25 times a day, up from an average of around 13 tweets per day back in April. This sounds not great. An investigation has alleged that trust core systems, which is used by Chrome, Safari, and Firefox as a root certificate authority has connections to U.S. intelligence and law enforcement, quoting the Washington Post. An offshore company that is trusted by the major web browsers and other tech companies to vouch for the legitimacy of websites has connections to contractors for U.S. intelligence agencies and law enforcement, according to security researchers, documents, and interviews. Google's Chrome, Apple Safari, and nonprofit Firefox, and others allow the company trust core systems to act as what's known as a root certificate authority, a powerful spot in the internet's infrastructure that guarantees websites are not fake, guiding users to them seamlessly. The company, The United's Panamanian registration records show that it has the identical slate of officers, agents, and partners as a spyware maker identified this year as an affiliate of Arizona-based packet forensics, which public contracting records and company documents show has sold

communication interception services to U.S. government agencies for more than a decade. Trust Corps' products include an email service that claims to be end-to-end encrypted, though experts consulted by the Washington Post said they found evidence to undermine that claim. version of the email service also included spyware, developed by a Panamanian company related to packet forensics, researchers said. Google later banned all software containing that spyware code from its app store. A person familiar with packet forensics work confirmed that it had used Trust Corps' certificate process and its email service message safe to intercept communications and help the U.S. government catch suspected terrorists. Quote, yes, packet forensics does that,

the person said, speaking on the condition of anonymity to discuss confidential practices, end quote. Some NFT marketplaces have apparently stopped honoring NFT royalties, which usually work out to about 5 to 10 percent in fees set by the original creator of the NFT and paid, or at least supposed to be paid, by sellers on secondary market sales, and the fact that these royalties are not being honored is rocking the NFT community because, honestly, that was one. one of the biggest selling points and use cases for NFTs, right? Ownership rights that cascade throughout the life of the NFT, quoting DeCript. As many NFT platforms shifted away from honoring creator-set royalties in recent weeks, top marketplace OpenC had remained silent on the subject, apparently weighing its options.

On Saturday night, the $13.3 billion startup finally showed its hand, but OpenC's newly expressed strategy isn't sitting well with many prominent Web3 creators. In a Twitter thread, OpenC shared what it called a thoughtful principled approach to NFT royalties, including the rollout of a system that would let creators of new projects blacklist certain marketplaces that do not require traders to pay royalties. That system takes effect on November 8th. OpenC said that it is still considering what to do about existing NFT projects and that it will garner additional community feedback ahead of a self-imposed December 8th deadline. After that date, the marketplace will make a decision which could ultimately include making royalty fee payments optional for traders, as some other marketplaces have done.

In recent months, many upstart and rival marketplaces have attempted to claw away market share by offering zero royalty trading or making them optional. Nearly the entire Solana NFT market now operates with these models, after Magic Eden made royalties optional for traders and Ethereum platforms like X2Y2 looks rare and blur have followed suit. When creator royalty fees aren't required, many traders' options, not to pay them. Data from X2Y2 in late October, shared by synonymous proof director of research, Punk 9059, showed that just 18% of traders bothered to pay any royalty amount. Free writing is too easy, they said. The bigger question, arguably, is what OpenC's plans mean for creators of

existing NFT projects. The firm said that it could make royalties optional for traders, but it may also enforce them for some subsets of collections or utilize other potential enforcement methods ahead. Creators may need to change their projects and deploy new contracts to utilize such methods, end quote. Finally, today I need to catch you up on something. It was one of those weekends last month when this news broke, so I didn't get to tell you that Apple VP of Industrial Design, Evans Hanky, left the company, or at least is planning to leave. It was Hanky who replaced Johnny Ive back in 2019. And now Mark German is reporting that Apple's search for a new product design lead has been hindered by high turnover, leaving few candidates for a department that,

many believe, is still in Johnny Ives' shadow. Quote, though Hanky had been at the company for about 20 years, her relatively brief tenure at the top of the industrial design team made it hard to establish a distinct vision for new products. Apple also lacks a clear succession plan for the job, a significant problem for a company that sells premium price products largely based on their look. In some ways, the department has been in flux since the death of Steve. jobs more than a decade ago, according to people with knowledge of the situation. The Apple co-founder had forged a partnership with IVE that helped establish the clean, simple aesthetic that remains the tech giants hallmark today. But an increased emphasis on costs, along with other distractions,

created new difficulties, they say. Over time, the group evolved into two central teams, industrial design and human interface design. The former handles the look of hardware, while the latter run by executive Alan Dye oversees the appearance of Apple Software. After Ives' deposition, departure, both groups were placed under the purview of Jeff Williams, Apple's chief operating officer. Over the past few years, the team has lost the majority of senior designers who worked under IVE, with many of them going to his new firm, Love From. That has now made it harder to replace Hanky, people with knowledge of the matter said. And Apple spokeswoman declined to comment. Altogether, at least 15 members of Ives' core senior design team at Apple have exited since 2015.

Hanky, who is leaving Apple next spring, isn't currently planning to join Love From. a person with knowledge of the matter said. That kind of turnover had been rare. Months before the departure started, I've touted that only two members of the design team had left Apple in the 15 preceding years and that one of the two resigned for health reasons. Even before I've left, Apple's operations department had begun to wield more influence over the design team. People familiar with the matter said, that meant a focus on costs rather than purely on look and features. The length of Hanky's stint means she didn't stay long enough to oversee the end-to-end development of a released product.

These cycles can take many years. So the look of the latest iPhones, IMAX, and iPads were devised before Hankees' tenure began, end quote. Interesting if Apple product design is at some sort of a crossroads or perhaps stuck standing still, because either possibility would be a bit concerning. By the way, for those of you asking, I did set up a Mastodon account.

It's at ride home, at toot.com. community, but I haven't done anything with the account yet. And quite frankly, though we'll probably have to talk about this at length at some other point, based on my poking around with Mastodon this weekend, I don't see it as becoming successful for a whole ton of reasons. But as I said, more on that later. Talk to you tomorrow.