The Breakdown - JPMorgan Moves Into the Metaverse

Starting point is 00:00:00 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, February 16th, and today we are talking about J.P. Morgan in the Metaverse. Before we get into that, however, if you are enjoying the breakdown, please, go subscribe to it, give it a rating, give it a review, and if you want to get deeper into the conversation, come join us on the Breakers Discord. It's a place where we chat about everything that's going on in the show, everything that's going on in the crypto world, the macro world,

Starting point is 00:00:48 the political world, you name it, it's probably happening there. You can find a link in the show notes or go to bit.combe slash breakdown pod. Finally, a disclosure, as always, in addition to them being a sponsor, I also work with FTX. So today is a little bit of a catch-up day and we're catching up on two areas. What's the latest in institutions getting involved in this space and what's the latest in regulatory conversations around the space. So let's start with one that is clearly here to just pour gasoline on the fire of the metaverse skeptics. J.P. Morgan has set up shop in DeCentraland. They now have something called the Onyx Lounge, which is named after their crypto and blockchain unit. The lounge features an image of JP Morgan's CEO Jamie Diamond, which

Starting point is 00:01:33 transforms into a picture of the company's Christine Moy. It's a lounge where you wander over and hang out with your favorite investment bank, question mark. Now, JPM is claiming the status as the first banking institution to enter the metaverse, and as you might expect, crypto Twitter's reaction is somewhat skeptical. Frank Chaparro from the block writes, chilling in JPMorgan's Metaverse lounge in DeCentraland. They have a tiger. Alex Kruger says, what do you go to a Metaverse for? Superpowers, sex, gaming, speculation, friends, what do you not go to the Metaverse for? Visiting a J.P. Morgan lounge. Chris Kay, a Defi YouTuber, also points out attention that some others noticed as well, saying, you cannot make this up. J.P. Morgan, our banking customers

Starting point is 00:02:21 are not allowed to buy crypto. Also, J.P. Morgan. We just bought Metaverse Land and DeCentraland and opened up a lounge on it. Now, what Chris is getting at is that J.P. Morgan in particular has long been pretty antagonistic towards Bitcoin and the crypto space as a whole, although JP Morgan as a firm has for years explored various dimensions of it, enterprise blockchain, yada yada. What's clear with this particular initiative is that this is not some small consideration for them. The DeCentraland Lounge came paired with an extensive report called Opportunities in the Metaverse, how businesses can explore the metaverse and navigate the hype versus reality. The report starts off, the elements of a new digital age are converging at scale.

Starting point is 00:03:03 The metaverse is the driving force bringing these elements together in a unified, immersive experience. We are not here to suggest the metaverse as we know it today will take over all human interactions, but rather, to explore the many exciting opportunities it presents for consumers and brands alike. The metaverse will infiltrate every sector in some way in the coming years with the market opportunity estimated at over $1 trillion in yearly revenues. As a result, we see companies of all shapes and sizes entering the Metaverse in different ways, including household names like Walmart, Nike, Gap, Verizon, Hulu, PWC, Adidas, Atari, and others. Business leaders in boardrooms around the world are now asking themselves, what is my Metaverse strategy? What am I supposed to be

Starting point is 00:03:42 doing in the Metaverse? What is the Metaverse anyway? The report also points to a couple big numbers as a way to capture attention on this first page, saying the Metaverse offers opportunities to transact $54 billion. Every year, $54 billion is spent on virtual goods almost double the amount of music buying. Socialized, 60 billion, approximately 60 billion messages are sent daily on Roblox. Own 41 billion non-fundable tokens currently have a market cap of 41 billion and experience 200 strategic partnerships to date with the sandbox, including Warner Music Group to launch a music-themed virtual world. Now, Christine Moy, who according to her LinkedIn added global head of Metaverse at JPMorgan five months ago, wrote a long thread on what

Starting point is 00:04:25 JPM is thinking about with regard to the Metaverse. She writes, we wrote this paper to help clients cut through the noise and highlight what we would love to see built or scaled next in commercial infrastructure tech, privacy, and identity, workforce, and social governance. Commercial infrastructure, a delightful wallet experience that combines Tradfai Payment Rails, crypto, and NFTs, digital identity, verifiable credentials, with the ability to support a variety of anonymous avatars across virtual worlds, while still making private KYC-AML compliant payments. Defi and Dow's evolution of NFT asset-backed financing, virtual world mortgages,

Starting point is 00:04:59 leveraging defy primitives alongside an emergence of cross-border and cross-metaverse FX and liquidity and token treasury management solutions with Dow tooling for community, neighborhood, and tribe management. I'm going to pause there, and I say this not cynically, but there should be an award for figuring out how many key terms or buzzwords you can fit into a single tweet. Next up, she writes privacy and ID, in addition to using verifiable credentials to support multiple and non-avitars, for compliant payments and cyberbullying prevention, expansion of

Starting point is 00:05:27 NFT token-gated spaces to create more opportunities for private interactions and business meetings. Tech, performance across devices including mobile, with definition of metadata standards for wearables, objects to enable unique manifestations of NFTs in different virtual worlds. EG and NFT is a T-shirt in Decentraland but a sword in a fantasy game. Hat-tip to coin artists for pioneering. Future workforce, more 3D designers and architects, community and Dow managers, metaverse experience experts who specialize in tokenomics and engagement, more storytellers. Social infrastructure, clarity, and paved way on regulation, tax, accounting treatment,

Starting point is 00:05:59 navigation of local jurisdictional rules, and community-based governance setup. Interoperability. What is the TV remote of the Metaverse? How do we toggle between specialized virtual worlds, both Web 2 and Web 3 seamlessly? I want to hang with my yoga friends in the morning on one virtual world, but to play e-sports in the afternoon somewhere else. So it's very clear, and this is the point that I want to make, is that they are not taking this lightly. They are not thinking about this on a surface level. They are digging all the way in. Nexto is a trusted and easy to use crypto platform where you can buy cryptocurrencies at the touch of a button and start earning up to 18% annual interest that is paid out daily. They support all of the

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Starting point is 00:08:13 and use referral code breakdown to support the show. Outside of just the cynical crypto-twitter takes, which you have to expect, if you're an investment bank getting into the Metaverse, I think there's two very different angles that I want to flag. The first is positive. Metaverse and Web3 have clearly had an easier time making sense to people than crypto things, in the same way that NFTs are easier for Normies to grok and get into than Defi is.

Starting point is 00:08:40 It could be because it's spiritually similar to the gaming experience that brands have spent the last decade coming to appreciate the importance of, or it could be something else, but whatever the reason is, it's clear that there is way more brand attention on Metaverse opportunities than there has been for anything else nominally related to crypto. Just this week, Victoria's Secret and McDonald's filed for trademarks in the Metaverse, and Disney has appointed a head of Metaverse as well, technically a senior vice president of Next Generation storytelling and consumer experiences.

Starting point is 00:09:08 The CEO of Disney wrote in an email to staff for nearly 100 years our company has defined and redefined entertainment by leveraging technology to bring stories to life in deeper, more impactful ways. Today, we have an opportunity to connect those universes and create an entirely new paradigm for how audiences experience and engage with our stories. So that's the first angle. There is clearly a lot of attention and grocability to this. The second is more cautionary, and that is that Metaverse doesn't mean the same thing to everyone. The crypto version that so many in the Web3 space are invested in is in many ways at odds with the corporate-owned version that someone like Facebook is going for.

Starting point is 00:09:45 Facebook, remember, wants to be the Metaverse platform, literally own the platform. There is an inherent tension there with an open permissionless flexible network. Brands like JPMorgan are playing in the crypto version now because comparatively that's where more people are hanging out, but they are also potentially opportunistic in looking for business opportunities. I think it's safe to say that most brands will go wherever has network scale. And so if you believe in an open permissionless metaverse, investing in those spaces being the network effect winners right now feels very, very important.

Starting point is 00:10:17 As an aside, Zuckerberg is now apparently calling Facebook employees metamates and the internet is collectively gagging. Speaking of institutions in Web 3, apparently the New York Stock Exchange has filed a trademark application around a potential online marketplace for NFTs and virtual goods. Now, NYSC has dabbled in NFTs releasing their first last year, but this is being treated by the press so far as potentially more defensive than proactive. Bloomberg says in a statement the NYSC said it has no immediate plans to launch cryptocurrency or NFT trading, but quote, regularly considers new products and their impact on our trademarks and protects our intellectual property rights accordingly.

Starting point is 00:10:55 So those are the two institutional updates, but let's talk now about the regulatory updates. Two bills worth tracking, and the first comes from Warren Davidson, a longtime ally of this space. Yesterday, he tweeted, our office will be introducing legislation in the U.S. House of Representatives shortly to protect Americans from this version of overt theft. And then he played the video of the Canada Finance Minister announcing the crackdown that we talked about on yesterday's show. He continues, a number of people will undoubtedly recognize that Bitcoin fixes this. That's only true with self-custody. Account-based crypto has similar vulnerabilities. We also have a bill protecting self-custody, the Keep Your Coins Act. So the Keep Your Coins Act,

Starting point is 00:11:35 which was introduced yesterday, aims, quote, to prohibit federal agencies from restricting the use of convertible virtual currency by a person to purchase goods or services for the person's own use and for other purposes. Specifically, it would make it impossible for agency heads to restrict the ability to, quote, use virtual currencies or its equivalent for such user's own purposes, such as to purchase real or virtual goods and services for the user's own use or conduct transactions through a self-hosted wallet. And of course, this self-hosted wallet, or as various enemies of the self-hosted wallet, have often called it an unhosted wallet, is something that's going to be a pretty big fight, it seems. Peter Van Valkenberg, the director of research at Coin Center, says thank you, Warren Davidson,

Starting point is 00:12:15 for standing up for our rights to use censorship-resistant money like Bitcoin. Simple bill. agencies can't make rules prohibiting transactions and use of self-hosted wallets. I also love this flag from T.J. Haidt who writes, has Twitter found the humor in the fact that it's the K.Y.C. Act yet? Of course, referring not only to the Keep Your Coins Act, but to the K.Y.C. Identity Verification process. That is the argument for why unhosted or self-hosted wallets shouldn't be allowed to exist in the way that they do. Also, yesterday Representative Josh Gottheimer, who is notably a Democrat, introduced his own act and tweeted this. For cryptocurrency to thrive here in the U.S. instead of overseas, we must provide more certainty to help boost innovation and protect consumers. That's why I'm releasing the Stablecoin Innovation

Starting point is 00:12:59 and Protection Act to define qualified stablecoins. So basically the idea here is that certain digital currencies can be designated as qualified stablecoins if they can be redeemed on a one-for-one basis for U.S. dollars. These could, with this legislation, be issued either by a federally backed bank or a non-bank that agrees to maintain at least 100% reserves consisting of U.S. dollars, U.S. debt, or any other assets the Office of the Comptroller of the currency deems akin to cash. He said in an interview, I don't think we should stifle innovation in the cryptocurrency market, and also noted that they've been very engaged with the Treasury Department. The Blockchain Association says this bill represents the most well-thought-out stablecoin

Starting point is 00:13:41 legislation we've seen. The blockchain association looks forward to working with Representative Gottheimer on these issues moving forward. Sam Bangman-Freed said excited to see moves by Representative Josh Gottheimer and others to regulate and license stable coins by ensuring they're backed one-to-one. Stable coins hold huge promise for payments and finance, and regulatory oversight and clarity can give them the trust and safety they need. The most important aspects of this are, one, audit reserves, two, make sure that you don't need to be a bank to be minting them. The reserves are probably at a bank, or we might get stuck with no one actually able and willing to issue them. Jeremy Allaire says the bill strikes a strong balance between risk oversight and enabling competition and innovation.

Starting point is 00:14:19 Big step forward. So clearly the important thing here is the attempt to move past the notion that only banks basically can issue them while still having strong consumer protections. This is important as there was another hearing this week on stable coins in the Senate Banking Committee, and the block summed it up like this. Nellie Lang was back in Congress today, this time speaking before the Senate Banking Committee. Lang was careful both to express optimism around the future of stablecoins and downplayed the restrictiveness of the U.S. Treasury's central proposal for stablecoin regulation. In its push for greater stablecoin oversight, the U.S. Treasury Department is trying to soften its central proposed regime. Basically, the Treasury had said that it was only FDIC-backed institutions that should be able to issue stablecoins,

Starting point is 00:15:03 and that, of course, had the industry and anyone who really thinks about innovation kind of nonplussed. So the fact that they're moving away from that and that other members of Congress are stepping in with proposals that would actually address the same concerns, but do so in a way that kept competition is a big move forward. Now, one final narrative note, the idea of stablecoins as potentially key to the next generation of dollar hegemony is finally starting to click. In her hearing, Lang said that stablecoin technology, quote, would go far in preserving the dollar as the global currency. So there you have it, guys, a quintessentially 2022 breakdown, I think, big institutions entering the metaverse, regulatory discussions around stablecoins heating up,

Starting point is 00:15:42 this is the world that we live in, the world that we're excited to be a part of. 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.

The Breakdown - JPMorgan Moves Into the Metaverse

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