The Breakdown - Is Twitter Getting Serious About Decentralized Social Media?

Starting point is 00:00:04 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 Nidig and produced and distributed by CoinDesk. What's going on, guys? It is Wednesday, August 18th, and today's is a type of episode that is sorely overdue, a big news grab bag. There have been a ton of stories recently that would normally fit in the brief, but the main stories I've been covering have been complex enough that I just haven't had space to even do the brief. So here is a few of those stories in slightly shorter form, and hopefully this gives you a good overview of some of the things that have been happening.

Starting point is 00:00:48 Let's start with a tweet from Maya Zahavi that connects the dots on two stories I've been watching. She writes, We're at the point where corporate America isn't just looking at crypto for hype marketing opportunities, but is seriously studying the tech to gauge how it computes into their core business. Two big social media examples from the past few days, Twitter and Blue Sky, and TikTok and Audius. So there is a ton to unpack here, so let's start with the news around Twitter. In December of 2019, Jack Dorsey announced a new initiative.

Starting point is 00:01:19 Like Square Crypto, it would be a team whose mission was its mission. In other words, it didn't have to impact Twitter's bottom line. Dorsey wrote, Twitter is funding a small, independent team of up to five open-source architects, engineers, and designers to develop an open-decentralized standard. for social media. The goal is for Twitter to ultimately be a client of this standard. He basically said that in the early days, Twitter was so open that some thought it might become a decentralized internet standard, like the SMTP email protocol. Instead, the company centralized, but in his estimation, the time might be coming to try something different.

Starting point is 00:01:54 He gave four reasons why. One, it's too hard, basically, for centralized companies to enforce policy around abuse and misleading information. Two, the value of social media isn't any longer in content hosting and removal, but in recommendation algorithms for directing attention. Three, problematically, the existing incentives lead to, quote, attention being focused on content and conversation that sparks controversy and outrage rather than conversation which informs and promotes health. And four, he said, basically blockchain tech now makes something different possible. So that was then, and it's now been about a year and a half where we haven't heard that much at all, other than Jack, often reiterating that Blue Sky was in his estimation one of his most

Starting point is 00:02:36 important priorities. On August 5th, however, the Blue Sky Twitter account teased that they had finally found a leader. Quote, it's been a long time coming, but we finally found a lead. We're currently working through details to set up the new Blue Sky entity which will operate independently from Twitter. We're excited to share more soon. Well, soon is apparently today, and they announced that Jay Graber would be joining as the lead of Blue Sky. Jay has experienced. in the crypto space, having previously contributed to Zcash and more recently working on decentralized identity and social media with a focus on privacy and supported by the Ethereum Foundation. Let's go back now to Maya's tweet thread as she has an interesting take on the significance of this

Starting point is 00:03:17 and specifically what Graber's appointment means. She writes, Twitter isn't just looking at building their own version of a blockchain for self-dealing regulatory arbitrage capture like Zuck, but embracing the open-source public chain infrastructure as an ecosystem they're fostering. The Blue Sky direction, based on hiring Jay, is looking at a potentially much bigger picture than the more modest approach crypto has attempted to tackle decentralized social media till now, by actually embracing the core issue of identity. The understanding that a decentralized social media network means not having to tackle the moat of creating a network effect from scratch, but tapping into the existing other networks

Starting point is 00:03:51 through a single sign-on, thus evolving social media apps into an identity service. The social media network role evolves on chain to a service that onboards users as an identity provider, stores their metadata, content, and social graph, offers curation by their algo, provides moderation and censorship by their policy. That means that the users cease to be captured audiences in a corporate trap, but can export their social graph to other services if they don't like the social media services and build their identity as a decentralized reputation they can use. The fact that Jay is coming into this role with experience, both with privacy and Web3 networks, means that Twitter strategy goes a lot farther than just Bitcoin and can potentially

Starting point is 00:04:27 offer multi-chain on-chain SSOs. To be radically reductive of her larger points, I think what Maya is saying is that Jack is at least treating this as much more significant than just some random side thing. And I think that that's accurate if you listen to him, although I will say that having 21 months between the announcement and finding a lead does not fill me with confidence that there's actually any urgency around this as an issue. But let's shift over to the TikTok side. What was the deal there?

Starting point is 00:04:55 Audius is a decentralized music streaming app. It's actually one of the largest centralized consumer apps at this point with over 100,000 musicians, including my non-ironic favorite musician of the last decade, Scrilex, as well as 5 million members who listen. Audius aims to break the power of the music industry, something I've talked about frequently as one of the more tightly controlled industries that exists. With this deal, Audius will be powering TikTok's new TikTok sounds library, and this is basically an attempt to streamline the way uploading music to TikTok works. Through the partnership, Audius users can now just upload them to TikTok directly in less than a minute. This is a pretty huge deal for Audius.

Starting point is 00:05:33 TikTok is arguably the most important social media platform of the moment, and certainly is so when it comes to musicians getting their music discovered. It's been that way, at least since Lil Nas X used TikTok to get Old Town Road popular enough to eventually cross to radio and become the longest charting number one ever. Yes, ever, over everyone. The Beatles, Justin Bieber, you name it. In the wake of the news, Audius' governance token was like, up 86%, but that's not really the big story. Again, going back to Maya's thread, quote,

Starting point is 00:06:02 TikTok is tapping into decentralized media as a streaming option as an attempt to jumpstart their own music marketplace as a way to circumvent a rev share copyright issue that comes with traditional streaming partnership. Meaning, they view an audience partnership not only as a cheaper option that doesn't come with any geopolitical strings, but an opportunity to foster content and a creator marketplace as a supplier without having to deal with record company IP issues down the line. I think her analysis that this is TikTok's attempt to break out of their partnerships with music labels, or at least their attempt to start to do an end run around them, is spot on.

Starting point is 00:06:35 And to me, audience alone trying to break the monopoly of record labels is one thing, but doing so with the backing of a social media app with more than a billion users a month is a lot more interesting. One of the most important developments in this space is that community banks, regional banks, and credit unions can now start offering Bitcoin to their customers. That's right. Checking, saving, and now Bitcoin. It's all happening seamlessly thanks to a platform by NIDIG that offers institutional-grade custody and compliance. They're also the sponsor of The Breakdown. And if you want to find out more, go to nidig.com slash NLW. That's nydig.com forward slash NLW. We discussed Twitter's crypto forays, but what about Facebook? If you're

Starting point is 00:07:27 confused about the name changes of Facebook's stablecoin project, you are not alone. Libra became DM, and Facebook's effort to build a wallet for DM switched their name to Novi. Anyway, David Marcus, who now lead the Novi effort for Facebook as part of the DM Association, wrote a blog post reflecting on the recent discussions among U.S. regulators about crypto and stable coins. It's the most aggressive pushback I've seen on the idea that Facebook shouldn't be allowed to be a part of reinventing payments. Marcus writes, I've repeatedly heard variations of the argument that the payments in financial services industry shouldn't let Facebook be part of these innovations. I've heard multiple conversations about how this

Starting point is 00:08:03 proposal would be so great if only Facebook wasn't involved, end quote. He says this doesn't make any sense, for the reasons that, one, Facebook payments already enables more than $100 billion in payments volume every quarter, and two, that, as he puts it, quote, this line of thinking is profoundly un-American. He goes on to write, one of the core tenets of our value system is the promise of a level playing field, This idea that any person or company bringing a solid solution to a problem will have a fair shot. While Facebook still has more work to do to rebuild trust, it is also consistently delivered massive value for consumers involving similar important services. Now, it's mostly interesting to me as a vocal, hey, let us play, but somehow I think

Starting point is 00:08:43 they've still got a pretty uphill battle with regulators. Speaking of companies that are firmly in the crypto space, but also are dealing with regulatory hurdles, Binance continues to fight to mainstream itself from a compliance and regulatory standpoint. A couple weeks ago now, former Office of the Comptroller of the currency, Brian Brooks, abruptly left Binance U.S. over a difference in strategic direction. This was just days after he had done an interview with Forbes about the big raise the company was in the midst of, in which he also tried to distance himself and Binance U.S. as a whole from their parent company.

Starting point is 00:09:16 Then this morning, the Netherlands Central Bank issued a warning saying that Binance is operating without legal registration in the country, which is the latest in a string of other countries who have made similar warnings. Don't count Binance out yet, though. CZ is out pounding the pavement with the narrative that the company is transitioning, from technology innovator to financial services company, and in the meantime, they're clearly trying to bulk up with hires that help as well. As Cinesk puts it, the company has just hired a, quote, former U.S. Treasury enforcer to its chief anti-money laundering role, and CZ said as recently as yesterday that hiring, quote, very senior people, with regulatory and compliance experience is their number one priority.

Starting point is 00:09:55 Now, let's shift over to the other side of the regulatory and government conversation and some recent comments and actions from people on the government side. First, the Fed's Neil Kashkari went off a bit this week in a speech saying that crypto is 95% fraud, hype, noise, and confusion. I thought that the funniest line was this one. Quote, there's no barrier to you creating your own Bitcoin or me creating my own. I'll call it Neil Coin. He's so scornful of this idea. but he's literally describing a permissionless market without barriers to entry, where the only thing that will choose the winners are not entrenched interests, but the collective allegiance of a community and a market.

Starting point is 00:10:31 This is not the Golden Council of Goldman picking winners and losers. It's something much different. Of course, that's not to say that there isn't a ton of capital devoted to the cause of picking winners, but it's nothing like the Tradfai barriers to entry that keep power hermetically sealed in the traditional financial system among a chosen few. On the flip side, he's right that Neil Coyne would be a disaster because Cascari is effectively a fed sock puppet, who's basically rolled out to be a whipping boy around their less popular decisions, and it's been that way for years. As Hidden Forces host Dimitri Kofinas put it,

Starting point is 00:11:02 no amount of wood chopping will make me forget how Keshkari earned his stripes in the first place. At least crypto isn't on deck for a bailout like the one he spearheaded in 2008. These are the people we elevate to high office. The hypocrisy is nauseating. Now, just a couple more interesting things out of Congress. First, two congressmen, Patrick McHenry and Glenn Thompson, wrote an open letter to Gary Gensler in acting CFTC Chairman Rustin Benham. They are concerned about what they've been hearing and want some clarity. Quote, we are at a pivotal point with respect to shaping policies that will significantly

Starting point is 00:11:35 impact the digital asset ecosystem. Recent comments made by Chairman Gensler and his recent exchange with Senator Elizabeth Warren provide a concerning roadmap for regulatory actions that will have long-term implications. Rather than regulate innovation and job creation out of this country, we should promote an active dialogue between regulators and market participants. Lawmakers and regulators must work together to properly balance protecting innovation with any new regulations to ensure the digital asset marketplace flourishes in the United States. To that end, we request a response from you and your fellow commissioners describing the ways this SEC and CFTC plan to work together on these critical issues.

Starting point is 00:12:11 Before advancing new regulations, the SEC and CFTC should prioritize robust discussions on the current domestic regulatory regime as it relates to digital assets and our regulatory framework's impact on American economic competitiveness. So basically these guys are saying they don't like that open letter from Elizabeth Warren and they want the SEC and the CFTC to get together to figure it out. Now, if you listen to my episode from Saturday, you'll have heard me say that it seems that there is some serious amount of tension right now between the SEC and the CFTC on who has the authority to actually regulate crypto. And I've seen nothing to dissuade me from this subsequently. CFTC commission Mr. Mr. Mr. Brian Quintens, who I referenced then, responded again on Twitter to a question

Starting point is 00:12:49 around whether ETH is a security. He wrote, A futures contract on a security is in both the SECs and the CFTC's jurisdiction. A futures contract on a pure commodity is only in the CFTC's jurisdiction. There is currently a futures contract on ETH. It is only under the CFTC's purview, which makes ETH a non-security commodity. Brian this morning also gave those who hoped for a fair shake for DFI something to be excited about when he tweeted, for my experience, fraud usually involves a level of centralization and control as well as opacity. Query of those two conditions exist in a true full defy system.

Starting point is 00:13:23 If not, how does the idea of investor protection change or shift from the governments to a participant's prerogative? Finally, one last note about our allies in Congress. Tom Emery, a Republican from Minnesota and Darren Soto, a Democrat from Florida, have reintroduced legislation that would mitigate financial action task force or FATIF guidance that they are concerned would kill blockchain innovation. It's the same issue as some of the language in the recent infrastructure bill. And this legislation is all about ensuring that actors that don't custody customer funds aren't required to register as money transmitters.

Starting point is 00:13:55 The point of all of this is that there continues to be a growing course of allies who actually get it. And so if you're looking at this landscape despite all of this chaos, I think that there's reason to be at least somewhat optimistic. For now, lots to digest, and I hope that was helpful. And until tomorrow, guys, be safe. and take care of each other. Peace.

The Breakdown - Is Twitter Getting Serious About Decentralized Social Media?

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