The Breakdown - Reddit NFTs Show People Like Crypto When They Don’t Know It’s Crypto

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 nexo.io, Circle, and FtX, and produced and distributed by CoinDesk. What's going on, guys? It is Tuesday, October 25th, and today we are checking in with Web 1 and Web 2 and what they're doing in Web 3. 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 or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. Also a disclosure as always. In addition to them being a sponsor of the show, I also work with FtX.

Starting point is 00:00:49 All right, guys. Well, yesterday we got primed on the macro scene to kick off the week. We discussed Bank of Japan interventions into their currency markets, the first for decades, and whether they held a warning signal for U.S. Treasury markets. Today we're going to be talking a little bit more on the crypto side, although we start with an update on a story that blends macro and crypto. I've been following the turmoil in the UK political scene on this show, and last week I argued that I thought that Liz Truss' ineligent, inauspicious early exit from the prime minister role was in many ways a casualty of the larger economic and geopolitical environment.

Starting point is 00:01:26 The trust government put forward a controversial tax cut and spending package, which was viewed as a catalyst for recent dysfunction in the UK business. bond market. Of course, the reason it landed so poorly was the context into which it was proposed. That is, a Britain that's facing incredibly high inflation, hugely problematic energy prices, and a scary-looking winter to come. Anyway, where we left that story was with the UK Conservative Party racing to figure out who would replace her. Boris Johnson had suggested that he might try for a comeback, but on Sunday bowed out once again. That effectively left just two candidates, and by Monday it was down to one.

Starting point is 00:02:03 After all that, Rishi Sunak will be the PM, the third in three months, but the PM nonetheless. Sunak was formerly Chancellor of the Exchequer and the Boris Johnson government. Most notably for this audience, as Chancellor, he was the one who pioneered the vision of the UK as a crypto hub, which attempted to unwind some of the hostility which had been expressed towards the industry by UK regulators in recent years. He even wanted his Majesty's Treasury, her Majesty's Treasury at the time,

Starting point is 00:02:29 to make an NFT. Sunok was chosen by Conservative Party MPs to take over leadership of the party following the disastrous start from Liz Truss. Now, as you might imagine, the local crypto industry is expressing hope that Sunok will shepherd in the crypto policy he put forward as chancellor.

Starting point is 00:02:44 Adam Jackson, the director of policy at Innovate Finance, which is a UK tech industry body that also advocates for crypto, called Sunac a, quote, champion of fintech. Ian Taylor, director of the industry lobby group, Crypto UK, said, it's a positive for crypto and the general economy.

Starting point is 00:02:58 That said, the Sunat government will have its hands full dealing with an economy that seems in some ways to be on the brink of a financial crisis and a currency crisis. In spite of that, there is some chance that the new government will view the passage of the financial services and markets bill as a priority. The bill will assign the power to regulate crypto markets and firms to the existing financial services regulator, as well as legalized stablecoin usage for payments. Indeed, Sunnick has said that one of the first steps will be integrating stablecoins into the UK payment system. That bill, in fact, made some progress literally today. On Tuesday, the Parliament's Lower House, which is the House of Commons, met for a line-by-line reading of the proposed bill.

Starting point is 00:03:36 The lawmakers are considering a list of proposed amendments, including one put forward by Andrew Griffith to include crypto assets in the scope. Griffith said, quote, the substance here is to treat crypto like other forms of financial assets, and not to prefer them, but also to bring them within the scope of regulation for the first time. The Treasury will consult on its approach with industry and stakeholders ahead of using the powers, to ensure the framework reflects the unique benefits and risks posed by crypto activities. Now, there are a number of steps before this actually gets passed into law, but there clearly is progress being made. When it comes to the crypto community, some are taking Rishi's expressed

Starting point is 00:04:09 enthusiasm at roughly face value. Pentoshi wrote, UK's new prime minister wants to make it a crypto hub. We're getting closer. Eventually, this will be the norm as the young replaced the old, and we see digital replace the physical. Others are much more skeptical. There's a clip from 2021 with Rishi talking about CBDCs making the rounds that has a lot of folks, Bitcoiners in particular, casting a wary eye. Preston Pish writes, where have you seen anywhere that this guy has uttered the word Bitcoin? A wolf dressed in sheep's clothing is one who runs around saying crypto and talks about CBDCs. I'd argue potentially more dangerous than people who have no clue. Matt O'Dell writes, this new British Prime Minister is no friend of Bitcoin. The news, quote-unquote, accounts are misleading

Starting point is 00:04:49 you for engagement. He wants total control and surveillance of money. So there you go, guys. Now that I've shared their opinions, I'm officially not misleading you for engagement. In all seriousness, and not to get drawn into this again, but these warnings would go a hell of a lot farther if they weren't A, all the time about literally everything, and B, so fucking condescending, as though you can't make up your own mind about whether a politician is an ally or not. Now, that said, it doesn't mean they're not right about Rishi, and being wary of any politician, or at least asking about motives first, make sense. Want to keep more profits when trading? Get the best possible prices, and trade with 50% lower fees on NexO Pro. The new Spot and Futures trading platform uses aggregated

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Starting point is 00:06:15 Plus, Circle posts weekly reserve reports and monthly attestations of reserve capital, letting users know that USDA is safe, transparent, and compliant with regulations. Just go to circle.com backslash transparency to see why USDC is a trusted staple coin. 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 fees. One of the largest exchanges in the U.S.

Starting point is 00:06:50 FtXUS is also the only leading exchange that supports both Ethereum and Solana NFTs. When you trade NFTs on FTCX, you pay no gas fees. Download the FTCX app today. and use referral code breakdown to support the show. Let's talk Web 1 and Web 2 companies and crypto for just a moment. One of the big themes on Twitter this week is a lot of increased chatter around Reddit NFTs. Reddit launched its NFT offering in July and has so far onboarded 2.5 million new crypto wallets. Its flagship offering is a profile picture NFT based on the website's mascot.

Starting point is 00:07:30 The NFTs were initially offered at minimal prices around 0.01Eth. Recently, however, they've gone on a huge bull run with the most desirable examples reaching all the way up to 18th. The NFT series even topped the OpenC leaderboard this week with 489 eth in volume, as the hype drove daily growth of almost 4,000%. One of the key parts of the Reddit NFT strategy was to keep clear of crypto terms. NFTs are quote-unquote digital collectibles, the wallet is a quote-unquote vault, and users can interact with the system without even being aware that they are using crypto-rails.

Starting point is 00:08:01 Speaking several months ago when the NFTs initially launched, Reddit CEO Steve Huffman said, We try really hard not to use any crypto words. It just confuses people. The ecosystem is so confusing, I can't figure out half this stuff. One of my frustrations with the crypto community is like, you know how everything in open source is just a little bit worse? But they're like, it's amazing. Look at this Microsoft word replacement. It's just as good. No, it's not. Cryptos like that, again. Now remember, Redditors have historically been super antagonistic towards crypto in general and to NFTs specifically, so this shift is kind of interesting. And as I mentioned, there is a ton of discussion of this right now. Kicks at Speculator Art writes, Reddit user. One, hates NFTs. Two, thinks

Starting point is 00:08:41 Reddit avatars are kind of cute. Three, buys one for $10. Four, here's it's worth $1,500 now. Five, onboards to Polygon. Six sells Reddit avatar. Seven now has over one ETH on chain from an NFT. Maddie at DCL blogger says Reddit 2021. NFTs suck, a curse, ban and burn them, why are people paying so much for these? Reddit 2020. Oh, gee, I love my little avatar guy. Only cost me $10. It's worth $100. I love NFTs. Nehers from Coin Center writes, Reddit has fallen. All we need now is for Funko Pops to roll out a digital collectible to take out the last of the resistance. Meltem DeMere's dead ass is this take, saying, lizard brain take. Reddit NFTs prove everyone loves being an insider to a new thing that gives them status and makes money. People don't

Starting point is 00:09:23 actually hate NFTs or crypto. They hate that people who aren't them get status and wealth from it because they think they deserve it more. Faroca host at Rug Radio says Reddit sold NFTs to Redditors as digital collectibles. Here's how we bring the bullback. One, we become exit liquidity for Reddors. Two, they make bank. Three, they become NFT maxis. Four, we onboard the rest of the internet.

Starting point is 00:09:43 Five, our bags pump. Short-term loss for long-term gain. Mando, another host at Rug Radio echoes this sentiment. Either these Reddit grail buys will age well or I'm exit liquidity to help on board three million wallets into NFTs. Fuck it. I like those odds. Now, D-Fi researcher Ignus has a slightly longer form take, saying,

Starting point is 00:10:00 Reddit Collectible Avatars is the most fun I had with NFTs, at least since I bought my penguin four months ago. This is how Cryptomass adoption feels like. Let me explain. Yesterday, Reddit launched second generation of collectible avatars of 40,000 NFTs, all sold out within 24 hours, selling each for 10 to 100 USD. The Gen 1 launched in July and took weeks to sell out. Gen 1 and Gen 2 are already selling at 40x to 50x the initial price on OpenC.

Starting point is 00:10:25 Trading volume and liquidity is still low, though. Gen 1 cumulative trading volume is just 2.4 million USD, but that's not the point. The thing is, Reddit just onboarded 3 million crypto users with these NFT avatars by creating crypto wallets, and most of them don't even know they use crypto. NFT is not mentioned anywhere, crypto wallet named his vault. At least blockchain is mentioned once. Ignes then quotes the same CEO quote that we had before. His strategy is working. There's a small but growing community on Reddit of dedicated collectors. It feels like the 2021 NFT bull market, but with less talk on prices and more of showing off your uniquely customized avatars. Discord too tried to integrate crypto wallets but faced a backlash from users

Starting point is 00:11:02 who canceled their Nitro subscriptions. It seems there's no need to mention crypto or NFTs yet. In my opinion, Reddit executed the strategy perfectly. One worry I have is Avatar dilution if they constantly issue new NFTs to the market. Yet as long as the demand grows at the same pace, and the majority don't realize they're holding NFTs, it should be fine. DC investor, a prominent an NFT collector wrote, I haven't commented on the Reddit NFTs, sorry, digital collectibles, because they don't have a strong opinion on them. But definitely some who start with them will branch out into broader NFTs. Also interesting there on Polygon. But not sure these will gain and value long term necessarily. But I think it's inevitable that we're going to see

Starting point is 00:11:36 more NFTs on EVM chains, non-EVM, and also L2s. That's a good thing. A very good thing, because L1 inherently limited in capacity. And this will likely long-term increase the value of, quote-unquote, top NFTs on Ethereum layer 1, not decrease it. Why? The bottom line is we need more ways for more people to participate. Some people who started with Reddit NFTs today will eventually go buy a crypto punk, etc. Pentoshi again writes, Reddit coming to Web3 in the long run will be insanely bullish for crypto and NFTs. They will continue to onboard more people faster because they appeal to people who want to be a part of

Starting point is 00:12:07 and belong to something with other people that share similar interests. Can't fade that. I think there's really something fun here. There are millions of Redditors who are out there now just viving with NFTs without all the baggage of what it means to be a part of NFTs or crypto. It's a pretty good sign that there's there other than just people getting rich. Now let's move to one that's slightly less fun. Apple has announced a new set of terms and conditions for listing apps in its App Store, which are being seen as a fairly brazen attempt to ensure Web3 developers cannot use the service.

Starting point is 00:12:38 The terms ban transfer of NFTs independent of Apple's financial rails. That ensures that Apple receives its 30% cut of all in-app revenues. It also prohibits the use of NFTs as a means to deliver in-game content. The specific wording is that, quote, apps may not use their own mechanisms to unlock content or functionality such as license keys, augmented reality markers, QR codes, cryptocurrencies, and cryptocurrency wallets, etc. The new rules also ensure that crypto exchange apps are registered and appropriately geofenced, making Apple the de facto enforcer of government regulatory schemes, with the added twist that there is no court of Apple to take an appeal to if your app is removed incorrectly. The change of terms could have a chilling effect on

Starting point is 00:13:15 Web3 developers who suddenly find themselves without access to a huge portion of the smartphone market if they want to integrate native blockchain functionality into their applications. Web3 gaming seems to be the segment which will suffer the most under these terms, as NFT sales and transfers are effectively banned without apps paying the 30% Apple tax, something which really can't be facilitated while maintaining the use of blockchain payment rails. Jason Baptistei writes, make no mistake about it, Apple is now the largest threat to Web3 with their most recent App Store guidelines that they published today. Revised 3.1.1. Apps may not use their own mechanisms to unlock content or functionality. What that means? Token and NFT gated apps are dead. Doesn't matter if you bought on

Starting point is 00:13:53 your own site. 3.1.53. Apps may facilitate transactions or transmissions of cryptocurrency on an approved exchange provided they are offered only in countries or regions where the app has appropriate licensing and permissions to provide a cryptocurrency exchange. With 3.1.53, Apple is now an enforcer of bit licenses for governments. Added to 3.1.1, apps may use in-app purchases to sell and sell services related to non-fungible tokens such as minting, listing, and transferring. Meaning, in-app purchase tech is not built to enable dynamic pricing of NFTs. They want you to use tech that can't handle NFTs. What does that mean? You can't just use IAP to offer something for, let's say, 5420 or 69-69. You have to preset prices such as 99 cents or 1499. Each price point

Starting point is 00:14:34 is its own items requiring its own approval. The tech literally cannot work for NFTs and marketplaces. How do games do it? Ever buy gold bars and candy crush? Apple wants you to create your own currency, where you buy a set amount with Fiat and in-app purchases. Sounds a lot like tokens, right? Yep, except it's closed and regulated by Apple. OpenC and others should be fine as long as there are no web links to outside of the app, i.e., I can view the NFT, but if I can open a web link to view it in Safari and buy it, that is not allowed. Who does this hurt the most?

Starting point is 00:15:02 Game developers embracing Web3, NFTs, crypto, etc. Why would Apple focus on this? Follow the money. 60 to 70% of Apple's App Store revenue comes from gaming. Web3 threatens that. The big takeaway is that this is Apple's largest and maybe first official stance on crypto, NFTs, and Web3. It does not embrace it, but sees Web3 as a threat.

Starting point is 00:15:20 This is a step in the wrong direction from both a policy and a technology standpoint. Now, this wasn't the only take. Daniel Mason from Framework Ventures writes, Today Apple released new rules for crypto apps, especially Web3 games in the App Store. Apple stance on NFTs, crypto, and payments will have a massive effect on the industry. My takeaways in winners and losers based on initial reading. Games can enable NFT buying in-app purchases. This is hugely important clarification.

Starting point is 00:15:46 Developers can leverage IAP, 30% Apple fee, to sell NFTs or offer NFTs services, minting, listing transferring. This paves the way for NFTs as the gateway into crypto for mobile players. Games can't use other purchase methods or redirect users to other sites. Apple wants to keep dollars in the ecosystem. You can't use other payment solutions or include buttons, external links, or other CTAs. This makes it harder for other providers to plug in and capitalize. games can unlock features with NFTs and crypto assets. Premium content or functionality in-app must

Starting point is 00:16:14 be unlocked with an in-app purchase. Presumably, this could be an NFT purchase, but not an NFT already owned by a player or brought in from another ecosystem. Games can store virtual currencies. Games can offer wallets or store crypto assets. It doesn't specify, but presumably, but non-custodial and custodial wallets are fine. Licensed exchanges can facilitate crypto-transmissions. This is more a clarification as Coinbase and others obviously offer iOS apps already, but approved exchanges and only approved exchanges can facilitate crypto transfers. NFTs in this case are not considered crypto. So what are the takeaways? Apple is demonstrating a desire to work with crypto apps, especially games, but on its terms. Apple wants money, by enabling IAP-NFT buys,

Starting point is 00:16:54 banning external links, and limiting fungible crypto purchases to license exchanges, it limits competition. So who are the losers? Anyone trying to compete with Apple for either primary or secondary NFT purchases? This includes exchanges, OpenCSea and Magic Eden, payment ramps, moon pay, or other trying to get into the payment flow. Mobile Defi is also a loser given the license exchange ruling. Who are the winners? Crypto exchanges have more clarity for operating on the app store. Web3 games can use NFT onboarding as a frictionless way to onboard users using IAP. Infrastructure providers building solutions for white label in-game ecosystems for NFTs and tokens. So basically the question in the debate here is whether being able to do these things on Apple's

Starting point is 00:17:31 terms is still a net win. I don't think that's a question that's going to be resolved anytime soon, but it's interesting to see how much debate there is about it already. What's clear is the industry remains unignorable. And as we continue to move throughout this bare market, it's not just the financial institutions, but the big tech players as well that are getting their Web3 and crypto strategies in line. For now, I want to say thanks again to my sponsors, nexus.com,

Starting point is 00:17:53 Circle and FTX. And thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace.

The Breakdown - Reddit NFTs Show People Like Crypto When They Don’t Know It’s Crypto

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