The Breakdown - The $20,000 Human IPO & 5 Other Stories That Have Nothing to Do With COVID-19

Episode Date: April 14, 2020

Even as the market tries to make sense of everything happen (or ignores it, depending on your perspective), crypto keeps on plugging along.  Today on The Breakdown @NLW looks at 5 recent crypto stories that are representative of larger trends, including: Coinbase Custody enabling staking for Polkadot DOTs A Telegram-focused exchange shutting down due to regulatory compliance costs A $20k Human IPO on Ethereum  Shapeshift acquires Portis & other crypto M&A A G20 report on the threat of Stablecoins 

Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond, with your host, NLW. The Breakdown is distributed by CoinDisc. Welcome back to The Breakdown. It is Tuesday, April 14th. I hope that you guys are coming back off of a great Easter weekend. Maybe you took a long weekend. Maybe there's no such thing as a long weekend anymore because of quarantine. But either way, I hope you're doing well. Earlier today, I went to Twitter to ask what people wanted out of today's episode. I said that it was either going to be option one, five evolving COVID-19 narratives such as dollar strength, contact tracing, supply chains, and declinification, or option two catching

up on the crypto conversation, such as Libra Stablecoin risks, ton regulatory issues, and more. And by a two-to-one margin, folks voted for option two, catching up. on the crypto conversation. Now, this could be a small sample bias, but I do think that I've noticed a certain amount of corona fatigue in the podcast market, let's say. And I think there's a few reasons for that. One is we've now been in this for a really long time, right? The hype and just heightened everything of going into lockdown and watching this unfold before us, while scary and tumultuous is also something that we want to watch in a really close way and you could see that in how people were paying attention in the first

couple of weeks. Now we've sort of settled into a new norm. We've settled into a new reality. And in a lot of ways, we're just past the point where all we want is for it to end, for us to go back to some sort of normal. Now, I've said before on this podcast, and I will say it again, that I don't believe there's another normal on the other side. I still think we are woefully behind in terms of figuring out what it looks like to get us back to work and all too willing to create this dialectic between health outcomes on the one side and economic outcomes on the other, which I just don't believe exists. Furthermore, I do want to reinforce that what I want to do with this podcast is use the principles and the ideas of Bitcoin and Crypto More broadly as a gateway to explore systems of power and

larger economic issues as well. So I will be continuing to cover COVID-19 and in particular what the post-COVID-19 economy and society and tech landscape looks like as we do start to work our way out of this. But you guys are ready for a little bit of crypto content. It looks like, so that's what we're going to do today. So I'm going to look at five crypto trend stories that have nothing to do with COVID-19. The first will be about Coinbase custody enabling staking for Pocodot's dots. The second will be a bank shutting down or an exchange shutting down that was predicated on telegrams token launching. The third will be a $20,000 human IPO. The fourth will be a recent acquisition from Shapeshift. And the fifth will be stable coins as a threat to local currency.

So let's dive into this not COVID-19 episode of the breakdown. Okay, so for each of these themes, to do two things. First, I'm going to say what's the story, and then second, I'm going to talk about the broader trend. The first story is Coinbase custody is preparing to let its clients stake poca dots dot tokens through a partnership with Bison Trails. Basically, the long and the short of it is that these clients of Coinbase custody will be able to delegate their dots to the validators of Bison Trails and earn staking rewards because of it, making it just super easy to participate in securing the network and earning those staking rewards. This is not totally new for Coinbase. Coinbase custody already supports staking of Tazos and is in fact the largest operator of a

taso staking validator. That's the story. What's the trend? The trend has to do with what this year or one of the themes that this year was supposed to be about that has gotten so far hijacked, which is we're seeing a set of contenders on the base layer. These Ethereum killers or would Ethereum killers. Tezos is maturing into this quiet giant while PolkaDot is really about to have its shake at everything. I've even seen some folks in the Ethereum community say, hey, listen, if 2020 goes by and Ethereum hasn't been killed, an Ethereum killer hasn't been crowned, maybe we can stop using that language. Now, I don't think that necessarily the stakes of the game are just Ethereum killing or not, but I do think that one of the underlying themes and trends of this year is

seeing the emergence of these major proof-of-stake networks as competitors to those other base-layer chains. So I think that this is interesting to watch less in terms of the specifics. This is something that Coinbase Custody has made clear is going to be a part of what they offer, but more in terms of that trend of watching a story that maybe we've forgotten about in all the madness, which is the contenders for new types of base-layer blockchains coming online in a major way this year. So that's number one. Coinbase Custody is. going to be enabling staking for Pocodot's dot tokens. Next up is Telegram.

So Telegram has been mired in a lawsuit with the SEC around its $1.7 billion token sale. And part of the outcome or part of the problem with the proceedings for people who are interested or who are invested in that sale is that they have blocked the distribution of tokens while this case is ongoing. That has created problems for a number of different ecosystem actors who were supposed to be here to build their business around this new telegram blockchain. One of those companies is Black Moon Crypto. It was an exchange that aspired basically to be the first to sell these telegram tokens, and it will now be closing. They said that it has to do with high regulatory compliance costs is the main reason.

They told CoinDesk, after in-depth analysis, we concluded that running a crypto exchange in compliance with all modern European Union regulation, including the fifth anti-money laundering directive and licensing requirements that are constantly changing unpredictably and unfavorably is not competitive to unregulated alternatives that are available in the market at the moment. So that's the official story, but clearly there has to do with the fact that these telegram tokens are just locked up. That's the story. What's the trend? Well, the larger trend has to do with Europe in specific, but more broadly, just clamping down of the regulatory environment everywhere in the world. One of the things that has become clear if you watch regulatory signals is that the longer that crypto goes on, the longer that it lives rather than dies, the more that regulators are saying, well, look, if you're going to exist, you're going to fall in line with our regulatory apparatus. There was some indication of

earlier this week in another report in which the European Parliamentary Research Service said that they should work to cover, quote, regulatory blind spots for crypto assets in that AMLD-5 legislation that came about in 2018. Effectively, this research service says that there are big categories of the crypto industry that are just not covered by AMLD-5, and that more recent rules such as those set out by the financial action task force or FATIF are better akin to what needs to be. So you've got on the one hand this exchange shutting down because of the regulatory mire that telegram is facing along with high regulatory compliance costs in Europe, while Europe is actually, or the European

Parliamentary Research Service at least is saying that those requirements need to be even more stringent. I think we're going to see a lot of this over and over and over again this year as nations around the world really try to pin down crypto in a way that fits with their existing models. So expect more of that, I think, in the coming months. Here's something a little bit different. Alex Masmej has sold $20,000 worth of personal tokens on the Ethereum network. These Alex token holders will receive collectively 15% of his income in the next three years and will be able to trade the tokens on uniswap. This is a story where the story is the trend itself, or at least it's one of the first

indicators of something which seems like it is an inevitable trend. There are in the traditional finance world, this concept of ISAs or income share agreements that have been bubbling for a long time and are having, if not a mainstream moment, certainly a more mainstream conversation than they had in the past. You can actually sometimes go back and look at what people were talking about in Silicon Valley 10, 15 years ago now and map that to what might be tried at least, if not become mainstream 10, 15 years later. So this is a guy who's deeply immersed in the Ethereum world. He's worked on Dow's. He's known for work on NFTs. And basically he wanted to, I think, dog food this idea and actually do this in a big way. So the way that he describes it

is a blend between a small income share agreement and a human IPO. There are approximately 200 token holders of this. So I guess just by math, that means the average token holder has $100 of this Alex token. Additionally, he offered almost a Patreon style or a Kickstarter reward style incentive structure for additional things like one-on-one sessions, access to his network, and possible participation in the seed round of his next startup. I think this is an idea that people are really interesting. to see how it plays out. And I think for me, the reason that actually this is one where the

crypto part isn't dismissable is the exchange element. One of the things about this whole concept is that when you introduce liquidity where people can actually make bets and make different arbitrage decisions on the basis of how they see that asset performing, it can really change the dynamics around who's willing to participate in this sort of ISA human IPO type thing. Now, there's a ton of conversation to be had about all the challenges, all the downsides. This ISA idea is absolutely not without both risks and a ton of detractors who have, I think, meaningful arguments. So there's a ton to dig into if this concept interests you.

but I do think that we're getting to see live a real, a real experiment in that. Now, he got press in the block as part of this, and one of the sections is called Personal Tokens as Crisis Tool. And Alex says, I'm affected by the crisis. I'm making less money. So this is what I found to bring myself up and turn this crisis into an opportunity. I think this is going to be very popular because people would need to be on the payroll. So I promise that this wasn't about COVID, but my overall point is that, that when you have a singular economic moment like this, everything becomes about that moment to some extent.

So I tricked you, there is at least a little bit of COVID-19 context. This type of moment, which is such a liminal moment, a transitional moment, a moment that exists between paradigms, right, where we have clearly and irrevocably left some paradigms in the past, but don't know yet what the new paradigms are, are the fertile fields where this type of experiment is going to happen? where it's going to be generated. I think that it's both interesting and in some ways not surprising that this type of

experiment is happening now in the shadow of such a transitional moment. So that's number three, the 20K human IPO. Shapeshift has acquired non-custodial crypto wallet provider Portis for an undisclosed sum. Portis is an Israeli-based company. The four remaining employees will now be part of, the ShapeShift Office, financial details of the deal are unknown, and Shapeshift CEO, Eric Voorhees described the partnership this way. He says, after integrating Portis's SDK or software development kit into the Shapeshift platform last year, we recognize the depth of their tech and how closely

aligned our values are. They really built something special, making self-custody extremely easy. As our relationship evolved, acquiring Portis became a natural next step. This is a cool acquisition, something that makes tons of sense, I think, for both companies. But there is a little bit of detail. And again, I tricked you. There's a COVID-19 context. You are, I believe, about to see an extraordinary amount of M&A activity over the next, call it six months, especially if there isn't just this crazy full V-shaped recovery.

Right now, the larger markets are operating with extraordinary levels of confusion in a lot of ways. We still have an economy both in the U.S. and largely globally that is pretty much offline. If you look over at China, going back to work does not mean going back to work at 100% or even really 50%. It's really, really variable. You're seeing second wave infections in places like Singapore. There aren't really plans for exactly how we get back to work. We're still hanging hopes on testing regimes that aren't available or medicinal regimes that aren't proven. So there's so much confusion in the market right now. Meanwhile, NASDAQ is back up above where it was in December. So it's almost like you just can't get signal right now.

There are people who will argue to the hilt that this is a fast-moving exogenous shock that will be solved and that the Fed's action helped. There are others who say that there's just no way that this is real and that we're destined for something else. So anyways, this is all to say that it's very hard to pin down where we actually are in this market cycle. And by the way, that's not to blame anyone who thinks one thing or another. This is an event that is basically without precedent in modern times and in a modern economy context. So we're not necessarily supposed to know. All we can do is kind of listen to everyone else and try to make the best decisions we can.

In the meantime, though, no matter what, insecurity reduces the ability for startups to go out and access more capital easily. There has been a major, major power shift from entrepreneurs who had been accessing capital extremely cheaply, extremely easily, relative to other times in history, back to the financiers. Anyone who has dry powder, anyone who has cash right now is in a position of power. What that's going to mean in terms of the entire startup industry, including crypto startups, is a lot of companies that can't make it to either A, profitability, or B, the status they need, the metrics they need to do their next round. In fact, it's not even necessary clear right now that VCs are willing to tap into their dry powder to do the next round because

they don't really have an incentive to rather than waiting a little bit longer and seeing what happens. So you're seeing that across the traditional tech industry and I think you're going to see it in crypto a lot. And the way that it's going to come home to roost is that the companies who not only survive but do well in the context of volatility, which is primarily companies like the exchanges are going to be just great big sucking maws for talent from the rest of the industry, right? And so here's the key line from the block piece about this acquisition of Portis by Shapeship. Founded in May 2018, Portis was reportedly on the verge of shutting down earlier this year after eight employees were laid off and co-founder quit in January. So this was already a company

that was struggling. Going into this crazy economic environment we were having, I'm sure, just pushed that over the edge. And, you know, this company, this is a great, great outcome, right? This is not being dismissive of this. I do think you're also going to see acquisitions and M&A that happened just because of the power position that companies are in, not necessarily because the company to be acquired needs to. Binance and coin market capital is a great example of this. I think that Binance was already interested in acquiring coin market capital. It's clear that CMC was looking for an exit proposition long before this happened, but, you know, if they had waited a little bit longer with the way that ad prices are plummeting right now,

who knows what the bidding war would have been and what the price could have been in terms of how much lower it could have gone. So this whole M&A provoked by this larger macroeconomic landscape thing is going to be a big part of the story, I believe, of crypto in 2020. You're going to see a lot of recalibration and redistribution of talent to more exchanges, frankly, and to other big players with dry powder. So as with everything in this economy, it's a good time to be someone who has cash and options and a much tougher time to be someone who is looking at months of runway. The last of our crypto trend stories that have nothing, okay, maybe a little to do with COVID-19, is this one. A G20 watchdog, the Financial Stability Board, has warned national regulators

to review standards and address any possible disruptions cause by global stable coins such as Libra. So the FSB is basically a G20 body designed to advise on ways that governments can improve the global financial system. They released a consultation report today on Tuesday and said, quote, many activities associated with stablecoins were already covered by regulatory frameworks, but there are other risks for which national regulators could be left unprepared. Now, they focus on stable coins being untested at scale, having hidden vulnerabilities that

emerge only as they go mainstream. And so if governments start to rely on stable coins, or if economies more broadly start to rely on stable coins for making regular payments, there could be serious operational disruptions that affect real economic activity. So this is interesting to me, frankly, almost entirely in the new context of our kind of global economic shutdown right now, where one of the major and dramatic impacts we've seen is that there has been one true, above all others, flight to safety asset, and that's been the U.S. dollar. People have wanted to get into dollars. They have dollar-denominated debt.

There's a million reasons why. And that is playing out, not just in the way that we see the dollar strength relative to other traditional currencies, but in the way we are seeing new U.S.D-based stable. coins being minted. There are something like two to three billion more tethers than there were just a few months ago. And most observers, most researchers think that a big part of that isn't just crypto whales moving to safety within the crypto ecosystem and waiting to deploy that dry powder. But in fact, people around the world who are looking to get out of those local currencies who are being hammered by the dollar strength or the relative dollar strength and into a dollar approximation,

It's easier to get into tether in some places than it is to get into dollars, right? So that is a hugely significant force in where the crypto economy, where this kind of new digital asset economy meets traditional markets. And I think it's something we're going to talk about a huge amount more this year. There's an excellent, excellent piece by Max Bronstine and Avi Feldman, I think I talked about last week called about crypto dollarization that you should really go check out. I actually, I did discuss it on Friday's show, but it's a hugely important trend. And I think that one of the things that this document, this G20 watchdog document might be feeling, right,

even though they're not mentioning it, is that the Overton window on actually using these crypto dollars, right, these stable coins, is shifting really quickly in the context of crisis. And that could create more problems faster than governments had anticipated in terms of basically private competitors. to their currencies. So a really interesting report, but especially an interesting trend. All right, guys. So I tried to keep it focused on crypto. I tried to keep it on stories that I thought were relevant. As I said at the beginning and throughout, I do think that when there is something that sets the entire kind of social, political, and economic tone for the whole world at once, which this has done in a way that nothing else has done basically in history, is going to have

impacts on absolutely everything we talk about. But hopefully you enjoyed this trip down a few key crypto stories and what trends they represent. And I will continue to try to walk this line between that insider crypto content and some of this big macro stuff that I think is so important as well. But as always, guys, thanks for listening. Thanks for hanging out. If you have suggestions, ideas, stuff you want to hear about, people you want to hear from, hit me up on Twitter at NLW. Subscribe, like, rate this thing. Help us get it bigger. Help us grow the audience. Help us grow the community. And thanks for listening, guys. So until tomorrow, be safe and take care of each other. Peace.