The Breakdown - Big Banks Are Entering the Metaverse

Episode Date: March 18, 2022

This episode is sponsored by Nexo.io, Arculus and FTX US.    On today’s episode, NLW looks at recent crypto industry news, including:  Yuga Labs’ purchase of CryptoPunks and Meebits A leak deck about Yuga’s metaverse ambitions HSBC becomes the first bank in The Sandbox Fundraising from ConsenSys and an ex-Meta team  The mayors of Miami and New York City say “HODL”    - Take your crypto to the next level with Nexo. Invest and swap instantly, earn up to 20% APR on your idle assets or borrow cash against them at industry-leading rates. Get started today at nexo.io to receive up to a $100 welcome bonus. Valid through March 31. - Arculus™ is the next-gen cold storage wallet for your crypto. The sleek, metal Arculus Key™ Card authenticates with the Arculus Wallet™ App, providing a simpler, safer and more secure solution to store, send, receive, buy and swap your crypto. Buy now at amazon.com. - FTX US is the safe, regulated way to buy Bitcoin, ETH, SOL and other digital assets. Trade crypto with up to 85% lower fees than top competitors and trade ETH and SOL NFTs with no gas fees and subsidized gas on withdrawals. Sign up at FTX.US today. - Consensus 2022, the industry’s most influential event, is happening June 9–12 in Austin, TX. If you’re looking to immerse yourself in the fast-moving world of crypto, Web 3 and NFTs, this is the festival experience for you. Use code BREAKDOWN to get 15% off your pass at www.coindesk.com/consensus2022. - “The Breakdown” is written, produced by and features Nathaniel Whittemore aka NLW, with editing by Rob Mitchell, research by Scott Hill and additional production support by Eleanor Pahl. Adam B. Levine is our executive producer and our theme music is “Countdown” by Neon Beach. The music you heard today behind our sponsor is “I Don't Know How To Explain It” by Aaron Sprinkle. Image credit: PM Images/Getty Images, modified by CoinDesk. Join the discussion at discord.gg/VrKRrfKCz8.

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexus.io, Arculus, and FTX, and produced and distributed by CoinDesk. What's going on, guys? It is Wednesday, March 16th, and today we are doing a little grab bag of topics from the crypto space, catching up on some of the things that we've missed with so much macro discussion. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it wherever you listen to podcasts. Give it a rating, give it a review, or if you want to get deeper into the conversation, come join us on the Breakers Discord. It's where we talk about the day's show, the day's news, you name it.

And if you want to join that conversation, you can find the link in the show notes or go to bit. dot lee slash breakdown pod. Finally, a disclosure, as always, in addition to them being a sponsor of the show, I also work with FTX. Now, as I mentioned today is going to be a variety of topics, and I will tell you right now that the main things going on, the main things that have my attention are happening at the geopolitical and macro level. I came very close to doing today's show about the Petro Yuan, which is something we'll probably

cover later this week. But frankly, we've had so much of that sort of macro discussion. that I felt, A, the need to catch up on some of the other stories that have been happening more in the crypto industry specifically, and also just the need to take a little break. You know we're going to be talking about the Fed and interest rates tomorrow after the FOMC meeting that happens this afternoon. So with that, let's discuss what's been happening over in the crypto space. I mentioned last weekend the big story from the industry's perspective was the potential proof

of work ban that was coming up for vote in the European Parliament's economic. Committee on Monday. As you'll know from the show on Monday, that vote ended up being a rejection of what would amount to a proof of work ban, which is obviously great news for the space. However, there was one other big topic of conversation that dominated crypto Twitter throughout the weekend. And that was, of course, the acquisition by Yuga Labs, that's the creator of the Board Apes Yacht Club, of Cryptopunks. Let's read the Yuga Labs' Twitter threat about the announcement. Some big news to share today. has acquired the Cryptopunks and Mebitts collections from Larva Labs.

And the first thing we're doing is giving full commercial rights to the NFT holders, just like we did for BAYC and MAYC owners. Editor's note, for those who don't know, that's Bort Ape Yat Club and Mutant Ape Yat Club. It's been amazing to watch the BAYC ecosystem use their rights to collaborate and build awesome shit we never could have dreamed up. We can't wait to see the Cryptopunks and Meibits communities do the same. We've long admired crypto punks in the work of the project's founders Matt and John. They've pushed NFTs in the broader crypto world forward, and we're honored to carry the brands

they've built into the future we're building at Yuga. To be clear, the BAYC ecosystem will remain at the center of our universe. We believe that what's good for punks is good for apes in the rest of the space. Likewise, what's good for apes is good for punks. We want to grow the pie, not fight over slices. We're not in a rush to do anything but give people full commercial rights, see what they build, and listen. So I think this is actually a pretty big deal, and I'm likely to go deeper on the weekly recap, but there are a couple of points that I will want to discuss there and we'll preview here.

The first has to do with cultural power laws. So power laws refer to the idea that in a particular ecosystem, you're going to see a power law distribution where there are a few really valuable things and a long tail of less valuable things. This idea of cultural power laws are that in the context of a new cultural phenomenon like NFTs, there are going to be a few collections that have a disproportionate mindshare in the space. Punks and apes are certainly the two biggest among that, with a number of others at the next tier and then a very long tale of things that are maybe relevant for their communities, but don't really shape the cultural conversations around NFTs.

One of the things I'm interested in is how this shapes the cultural power laws within NFTs. Does this lump board apes and punks together? Does it create space for one of those next tier projects to sneak up, into that very top tier? I don't know, but it's interesting to ask. A second discussion I think is interesting is the very idea of transferring ownership of a collection and what it means for the feel of decentralization. Do people feel like their punks are less decentralized than they were before because the collection was able to be purchased in this way? Are these traditional company models used by Yuga and Larva Labs the right models or

should it be something closer to a community-owned Dow? This is certainly a big topic of conversation on Twitter. Third, this idea of commercial rights and NFTs, I think, is hugely important. I think that it may have a deterministic impact on how people come to think about NFTs. It's one thing if your collection is just cool art that you think is fun to show people. It's an entirely different thing if you're an active investor in a proto-metaverse, which, by the way, we'll get into in just a second as it relates to board apes. This is where the real business side of the NFT industry comes into play, and it's something that I think could have a pretty big impact on how NFTs develop in the future. Related to that, I'm interested in how much this suggests that NFT communities in the long run

aren't just about status, as we've so often discussed, but instead about access and what ownership does for you. If there's more emphasis on commercial rights, you're not just talking about status because you've got a cool thing that's expensive. You're talking about an actual utility that is potentially income and yield producing. Even if that's more economically value, that may not be to everyone's taste, and so again, deterministic impact on how this industry evolves. There are some seriously competing takes on this. Punk 6-529, for example, says today's news is immensely good for punks. We'll unlock tons of activity that was sidelined due to lack of clarity on rights. At the same time, there is a feeling of loss among some. DC investors says,

I don't expect everyone to understand, but it feels like my favorite corner bar just got turned into an Applebee's, which, even if you don't agree, you have to admit, is a great line. So like I said, I actually think this is a fairly significant Web3 historical moment that deserves its own time to discuss, so potentially more on this on the weekly recap. Now, one other Bored Ape Yuga Labs thing, however, the block acquired a pitch deck from Yuga, and there are some interesting things going on. Apparently the company is looking to raise money at as much as a $5 billion valuation. They're projecting $455 million in revenue this year, a big chunk of which is intended to come through the sale of virtual land.

They intend to sell 200,000 plots in March and August with a $178 million goal. This is the first phase of a larger metaverse initiative, one goal of which is at least in part to diversify their revenue away from the apes themselves. The deck says, quote, we want to build something that expands the universe of the BAYC, but also invites the larger NFT community and those priced out of BAYC membership to join. On top of these virtual land sales, they're planning to launch their own ape coin. They're planning to launch something like an in-game app store that will allow players to create characters using NFTs they own and so on and so forth. Nexo is the go-to platform for all things crypto.

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Stay safe from hackers with no cords, no charging, no Bluetooth. Just crypto security made simple. Buy Arculus on Amazon today. The breakdown is sponsored by FTX US. FtX US is the safe, regulated way to buy and sell Bitcoin and other digital assets with up to 85% lower fees than competitors. There are no fixed minimum fees, no ACH transaction fees, and no withdrawal. these. One of the largest exchanges in the U.S. FDXUS is also the only leading exchange that supports both Ethereum and Solana NFTs. When you trade NFTs on FTCS, you pay no gas fees. Download the FTCS app today and use referral code breakdown to support the show. It has often been said that every financial startup is in some ways trying to become a new type of bank. And I think that in the

Web3 world, every consumer-facing property, certainly every NFT community, might just want to become their own Metaverse as well. Speaking of banks and Metaverses, some other Metaverse news. HSBC is coming in hot to be the, quote, first global bank to enter the Sandbox Metaverse. So the sandbox is one of the main Metaverse competitors alongside things like Decentraland. HSBC, which has about $3 trillion in assets, is apparently buying a plot of land. Now, the partnership announcement is slightly Spartan on details, saying, quote, the groundbreaking partnership between the sandbox and HSBC will see the global financial

services provider acquire a plot of land, virtual real estate and the sandbox metaverse, which will be developed to engage and connect with sports, e-sports, and gaming enthusiasts. Suresh Balaji, the chief marketing officer of Asia Pacific at HSBC, said, quote, the metaverse is how people will experience Web 3, the next generation of the internet, using immersive technologies like augmented reality, virtual reality, and extended reality. At HSBC, we see great potential to create new experiences through emerging platforms, opening up a world of opportunity for our current and future customers and for the communities we serve. Through our partnership with the sandbox, we are making our foray into the Metaverse,

allowing us to create innovative brand experiences for new and existing customers. We're excited to be working with our sports partners, brand ambassadors, and Inamoka brands to co-create experiences that are educational, inclusive, and accessible. Now, the sandbox is making a big time push for these sorts of brand deals, listing other partnerships including Gucci, Warner Music, Walking Dead, Snoop, Adidas, etc. Now, what to make of all of this is a bigger question. First, it's clear we're at a stage where brands can still get some headlines by being the quote-unquote first to join.

Remember, J.P. Morgan set up shop in DeCentraland about a month ago. At the same time, I think it's also still unclear that there is a there-there-there for brands yet beyond those headlines. The optimistic take is that these headlines will, in fact, help bootstrap network effects by giving people motivation to go check out what brands are experimenting with, creating an incentive for brands to dedicate resources to actually building out these virtual worlds. The cynical take is that brands moving in too fast to a space actually makes the space less interesting. However, I'm totally open to the idea that that's an old boomer punk rock way of

thinking that's just good and dead now. Shifting away from the metaverse and right into the Twitterverse, Elon is back. A couple days ago, Elon tweeted, what are your thoughts about probable inflation rate over the next few years? Michael Saylor, as you might imagine, was like this like White-on-Rice saying U.S.D. consumer inflation will continue near all-time highs, and asset inflation will run at double the rate of consumer inflation. Weaker currencies will collapse, and the flight of capital from cash, debt, and value stocks to scarce property like Bitcoin will intensify. Elon Musk, who has been in these conversations with Saylor before, said it is not entirely unpredictable that you would reach that conclusion. He then followed up, as a general principle

for those looking for advice from this thread, it is generally better to own physical things like a home or stock in companies you think make good products, than dollars when inflation is high. I still own and won't sell my Bitcoin, Ethereum, or Doge for what it's worth. Prices which had been going kind of sideways down were buoyed temporarily on this, which shows that there is still, even now, a year later, an Elon trade to be had. Next is Libra getting new life. Aptos is a new startup founded by former meta employees that has just announced a $200 million dollar round, led by A16Z crypto and with investors like multi-coin and Coinbase ventures.

Notably, they are using Move, which was an open-source programming language developed by the Meta-Novi Division. They're trying to build a scalable layer one to reach billions of people, which is obviously a huge vision, but I feel like we have to wait and see to better understand what it actually does and what space it's trying to carve out in the landscape of existing layer ones. Speaking of fundraises, consensus has raised $450 million at a $7 billion value This is led by Parify Capital and doubled their valuation from their November 2021 raise. One important feature of the fundraise is that they are converting all of it to ETH. The company's statement said, quote, all proceeds from the round will be converted to ETH to

further built Consensus's ultrasound money position as a rebalance to its ETH to Fiat ratio in line with Consensus' Treasury strategy. Indeed, they go on and say the next round will raise an ETH directly. Consensus founder Joe Lubin says this round takes in digital assets as well as Fiat and converts all immediately to ETH. Next round will be our series ETH, where we will assist investors in getting fully crypto-native and contributing ETH as a symbol of and commitment to the ongoing paradigm shift. In addition to these big raises, there were also a few high-profile hires, the most notable

of which was that A16Z crypto has hired Michelle Corver as their head of regulatory. A16C crypto is very focused on the policy world. They've released their own policy agenda. And so in their announcement, they said, while the Web3 ecosystem, is still nascent, we're already seeing the formation of a new internet economy that unlocks new opportunities for millions of people and enables participants to take control of their digital lives. President Biden's executive order last week demonstrated that the U.S. government recognizes the importance of Web3 in retaining our technological leadership in a world of

increasing competition, and the importance of striking the right balance between fostering innovation and mitigating real risks going forward. Web3 is not a monolith. An effective regulatory framework must differentiate between currencies, applications, protocols, and other use cases. We're committed to working constructively with policymakers and regulators to find this balance, as well as helping the category-leading Web3 startups in our portfolio navigate a complicated and shifting regulatory landscape. So Michelle Corvert, they say she was known as the DOJ CryptoZar. She started her career in the Secret Service, and then was the Department of Justice's first dedicated subject matter expert in crypto-related prosecutions and forfeiture.

She created and managed the Criminal Division's Digital Currency Initiative and over the last year served as chief digital currency advisor at FinCEN, which is the Financial Crimes Enforcement Network. About her appointment, Michelle tweeted after 27 years in government and law enforcement, most recently as the chief digital currency advisor at FinCEN, I'm joining A16Z crypto as head of regulatory. It's clear to me that Web 3 and its underlying crypto technology can solve critical challenges of national importance. I've devoted much of my career to helping policymakers understand the power and potential of this technology. I'm now excited to join A16Z crypto and work directly with Web3 projects to help them thrive in a rapidly developing regulatory environment.

It's always interesting when ex-regulators come to a space because the temptation for many is to say, oh, well, they're just lured by the money. However, these are folks who, by virtue of their job, were forced to dig deep into this industry. These are also people who have lots and lots of options of where they want to go after their time in government service. The fact that so many are deciding to get into the industry and try to build the version that they believe lives up to its promise to change the systems of power is, I think, a pretty exciting thing. Speaking of government in crypto, one more to close the show. This was shared by Alex Thorne, who's the head of firm-wide research at Galaxy Digital. He wrote, pinching myself to be sure that

this is actually a real story. It came from Bloomberg and says, mayors of New York City, Miami brush off crypto volatility, pledged to hoddle. The mayors of New York City and Miami used joint appearance at a crypto conference on Tuesday to brush off concerns about volatility in digital currency markets and say they'll continue to receive paychecks in Bitcoin. New York City Mayor Eric Adams said after speaking at the Data 3.0 for Web 3.0 event, I encourage young people to, just proportionately, if they get paid $200, put $10 into Bitcoin. In addition to that, both Miami Mayor Francis Suarez and Adams said that they had not liquidated any of their paycheck funds that they'd received in Bitcoin.

These are indeed new times when it comes to this crypto industry. There is lots more going on this week, like I said at the top, so much happening in geopolitics and macro that I'm sure we'll be back to it soon. For now, I want to say thanks again to my sponsors, nexus.io, Arculus and FTX. And thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace. Hey, breakdown listeners, come join CoinDesks Consensus 2022, the festival for the decentralized

world this June 9th through the 12th in Austin, Texas. This is the only festival showcasing and celebrating all sides of blockchain, crypto ecosystems, Web 3, and the Metaverse, and is designed for crypto-newbies, investors, entrepreneurs, developers, and creators. Don't miss speakers like Kathy Wood, SBF, CZ, Punk 6529, and Joe Lubin to name just a few. Use code breakdown to get 15% off your pass at coindesk.com slash consensus 2022.