The Breakdown - Web 3 Gobsmacked as Meta Announces 47.5% Creator Fees

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 Saturday, April 16th, and that means it's time for the weekly recap. Before we dig into that, however, a few housekeeping items. There are two ways to enjoy the breakdown. You can listen on the Coin Desk Crypto Podcast Network feed, which features the breakdown and other Coin desk shows.

Starting point is 00:00:41 You can also listen on the breakdown only feed, which has just the breakdown. Both come out on the same day, Coin desk coming out in the afternoon and breakdown in the evening. Whichever feed you listen on, if you are enjoying the show, please go subscribe, rate, and review it. And if you want to get deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit. That's L.Y slash breakdown pod. Also, a disclosure as always, in addition to them being a sponsor of the show, I also work with

Starting point is 00:01:10 FTX. And finally, if you haven't bought your tickets yet, I highly suggest you check out Coin Desk's Consensus 2022, which this year is happening in Austin, Texas, between June 9th and June 12th. The event has voices and topics representing a huge cross-section of the crypto space. You've got your ZZs and SBFs, but also Punk 6-529 and Kathy Wood. It should be a real really, really good time. If you're interested, you can use code breakdown for 15% off your ticket. Check out coindesk.com slash consensus 2022. All right. So the theme of this weekly recap is almost a question. It's a question of whether the inevitable participation in the crypto industry, in Web 3, in the metaverse, from big vaunted institutions, either traditional finance or big

Starting point is 00:02:04 tech can be done in a way that is good or in good faith. And we're going to get a bunch of different sides on that this week. So let's start with BlackRock. Now, BlackRock is the world's largest asset manager. They have more than $10 trillion of assets under management. BlackRock has been getting increasingly interested in this space. I covered a couple weeks ago how in Larry Fink, that's the CEO of BlackRock's annual shareholder letter at the end of March, he explicitly discussed how the Russia-Ukraine war had a, quote, potential impact on accelerating digital currencies. He said that, quote, the war will prompt countries to reevaluate their currency dependencies, and that given all this and the increasing interest they're seeing from clients,

Starting point is 00:02:49 quote, BlackRock is studying digital currencies, stable coins, and the underlying technology to understand how they can help us serve our clients. This week, that point was underscored when BlackRock led a $400 million round in Circle, whose main product, of course, is USDC. What's more, it wasn't just an investment round. BlackRock is going to be acting as a primary asset manager for USDC cash reserves, which are now coming up on $50 billion worth, and they're also, quote, entering a broader strategic partnership with Circle, which includes exploring capital market applications for USDC.

Starting point is 00:03:26 Jeremy Allaire, the CEO of Circle, said this is a huge milestone on the road towards mainstream adoption of digital currency. With the BlackRock Partnership, we are expanding our existing relationship with BlackRock for managing significant assets for the reserves that back USC to explore new ways that USDA can be adopted in Tradfai capital market applications. Jeremy went on to say that, quote, through this partnership, I've gotten a chance to get to know the executive leadership at BlackRock and feel the whole team is focused on the ways that frictionless value exchange can increase global economic prosperity. As the U.S. seeks out a leadership role in digital currency, we believe firmly that the strength of private sector

Starting point is 00:04:00 innovation, building on an open financial system on public blockchains, can cement America's leadership role in the internet economy. Now, this dredged up a lot of mixed feelings in the community. On the one hand, it is certainly a sign of the maturation of the space, and a huge W for Circle in USC. On the other hand, there are many who feel that it's not clear who Black Rock's friends really are other than BlackRock. And certainly a lot of folks who have questions coming up about the decentralized mission of crypto. Then again, on the flip side of the flip side, USDC has been positioning itself as the within the system stable stable stable USD-based value transfer to the new age of the US dollar. So in that context, it makes sense.

Starting point is 00:04:45 In short, this is the back and forth of a lot of institutional adoption, and it's not likely to stop here. There's also the other angle on this, which is interesting, which is the stable coin arms race. You have Doe Kwan and Terra making moves, building their Bitcoin reserve, and seemingly pushing into Binance as a bigger platform for integrating UST into their ecosystem. And then you have digital dollar efforts coming from all corners at this point. For example, the digital dollar project, which is led by former CFTC chair, Christian Carlo, announced a partnership with the DTCC, the Depository Trust in Clearing Corporation. They're developing, quote, the first prototype to explore how a CBDC might operate in the

Starting point is 00:05:21 U.S. clearing and settlement infrastructure, leveraging distributed ledger technology. This project is known as Project Lithium. So we have the Fed's Project Hamilton, we have the digital dollar projects, Project Lithium, we have UST, we have USDC, then we have Tether, of course. And so maybe this is as simple as BlackRock keeping that whole process close. There are a few other stories in the back and forth of post-narrative institutionalization. MasterCard launched a crypto-backed credit card with Nexo this week, as I mentioned a couple days ago, but they also filed a dozen plus Metaverse and Crypto-related trademarks. Now, this is the same thing with the New York Stock Exchange filing around these type of trademarks

Starting point is 00:05:59 in February. It shows an intent to use but no requirement to. Robin Hood is adding coins, Shibi Inu, Solana, Polygon, and Compound. And Eric Balcunis from Bloomberg pointed to a new NASDAQ survey of financial advisors, which found that 72% of them would be more likely to invest in crypto if a spot ETF were available. What's more of the advisors that are currently investing in crypto, 86% plan to increase their investment, and their current ideal allocation is 6% of the portfolio. Looking for ways to step up your crypto game? Then go with Nexo. For starters, you get free crypto for each purchase or swap. How about earning guaranteed yields? Up to 17% paid out daily.

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Starting point is 00:07:22 Your private keys are encrypted on the Arculus keycard and are never online. 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 FTXUS. FTXUS 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.

Starting point is 00:07:54 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 FTX, you pay no gas fees. Download the FTX app today and use referral code breakdown to support the show. With that, let's shift to something that had everyone fired up, and that's Facebook or META's fees for its new Horizon Worlds platform. In a blog post on Monday, META said that it's going to be testing virtual sales inside Horizon Worlds. Important background context is that Zuckerberg has previously criticized Apple for its 30% in-app fees.

Starting point is 00:08:33 In a November post on exactly this topic, he said, quote, as we build for the Metaverse, we're focused on unlocking opportunities for creators to make money from their work. The 30% fees that Apple takes on transactions make it harder to do that. So we're updating our subscriptions products so now creators can earn more. Then this week from Business Insider, quote, meta charges a platform fee of 30% for sales made on Meta. It's Virtual Reality System, which was formerly known as Oculus. On top of that, Horizon World's Meta's Metaverse system will charge a 25% sales fee.

Starting point is 00:09:04 This means meta will take a cut of up to 47.5% from the sale price, leaving the seller with 52.5%. Insider was basically like, wait, are you serious? And so reached out to the company for confirmation of this math. That math was indeed confirmed by a spokesperson. Quote, if a creator sells an item for a dollar, then the MetaQuest store fee would be 30 cents, and the Horizon platform fee would be 17 cents, 25% of the remainder, leaving 53% for the creator before any applicable taxes. Over time, we plan to bring Horizon Worlds to more platforms, and so the platform fee won't always be going to Meta. As Horizon World rolled out to more

Starting point is 00:09:39 platforms like Mobile, we expect those platforms to charge their own fee. The Horizon World's fee, which is 25% of the remainder, would be applied after any relevant hardware platform fee has been applied. And then, to top it all off, Vivek Sharma, meta's VP of Horizon, told the verge, quote, we think it's a pretty competitive rate in the market. We believe in the other platforms being able to have their share. So, of course, everyone was like, are you effing kidding me? Starting, by the way, with Apple. Fred Sane's an Apple spokesperson said in an email,

Starting point is 00:10:07 Meta has repeatedly taken aim at Apple for charging developers a 30% commission for in-app purchases in the App Store and have used small businesses and creators as a scapegoat at every turn. Now, Meta seeks to charge those same creators significantly more than any other platform. The announcement lays bare Meta's hypocrisy goes to show that while they seek to use Apple's platform for free, they happily take from the creators and small businesses that use their own. The crypto crowd was even more brutal. This has definitely become a rallying cry for many, including Punk 6529. He writes in one of his classic

Starting point is 00:10:40 threads, tweet 1, 60 crying laughing faces. Tweet 2, I present to you the meta-economic model. Step 1, pretend NFTs, centralized in-game objects, basically. Step 2, 47.5% percent. transaction fees. Yes, 47.5% to drop objects into here. 47.5%. So long as we are not regulated out of existence, i.e. preserving non-custodial wallets, we are going to win by default. 6529 couldn't help himself, though, and he just kept going. 47.5% meta-take rates on digital goods are a pretty good reason to push for an open metaverse, even if you don't believe me on all the risk of dictatorship stuff. State of tech. In crypto, 2.5% transaction. Fes are outrageous. Let's launch 10 competitors this year to drive this to zero. Web 2. We think a 47.5%

Starting point is 00:11:30 transaction fee on digital objects is pretty competitive, to be honest. Government. How can we protect consumers from crypto? Now, I'm obviously adding the voices to match the intonation, but I think that the point is dead on. Part of the upside of unfettered markets is that they create competition that makes it impossible for this sort of virtual exploitation to take place. Some think that the only possible way that Facebook wins because of this is regulation. Mayas Khan writes, Mark Zuckerberg proposing a 50% cut of NFTs on meta feels like the beginning of a prolonged regulation war between crypto-natives and corporations looking to profit from it. However, this doesn't stop some people from being scared. DC investor writes, while I enjoy trolling meta being out of touch,

Starting point is 00:12:12 the proper way to assess the 47.5% Zuck tax is based on total addressable markets, i.e. if meta offers more than 2x earnings pre-zuck tax, potential for a creative. versus a public chain, that it may make sense for a creator to use it? In short, the only answer is scale. Importantly, though, the Web3 crowd and the Open Metaverse kids aren't just competing with Meta. It was also announced this week that Lego and Sony are pumping $2 billion into Epic games, the creators of Fortnite to build a Metaverse. Keep in mind that Fortnite has arguably been host to the biggest Metaverse experiences yet, such as the Travis Scott concert in Fortnite a couple years ago, which saw 12.3 million concurrent users at the

Starting point is 00:12:52 concert and 27 million overall. There is a lot more respect and fear in this announcement. 6529 again says just in case we are wondering how much we need to scale up to be competitive. Alex Kruger writes Epic Games is officially entering the Metaverse race. This will be huge. NFT trader, the essay, says smart money is still pouring into the Metaverse and NFTs. However, they're investing in companies with proven experience, prototypes, and shipped products. Retail investors need to wisen up and hold the whole crypto and NFT industry to this standard. Finally, DC investor again wrote quick and dirty Metaverse predictions thread starring A, meta slash Facebook, B, Epic Games, C, Twitter, and D, Ethereum, L2s and other public blockchains.

Starting point is 00:13:34 A, meta slash Facebook. We'll build off of social apps and VR platform to push a controlled and mostly closed ecosystem. We'll push their own private consortium blockchain with long-term goal of global financial domination via the Metaverse token Congress will probably ignore, Libra Redux. B, Epic Games. We'll push Gamecentric VR Metaverse targeting most mostly gamers, focus mostly on in-game items, and then being able to use or flaunt those in social apps. We'll probably create a more open standard for any game publisher to join. Start as a private chain, then use public. C. Twitter. Doesn't realize it's actually the center of the current online metaverse because most in the org do not think this way. They will likely squander

Starting point is 00:14:10 everything they could have from this preeminent position and will just remain a 280 characters post app. D, Ethereum, etc. will remain the home of the organic soul pushing online economic interaction forward. We'll be home to the highest value artifacts as lower cost grows on L2 and other chains. Epic will probably integrate it eventually. Facebook will only do it if forced by others. Still early days and things could change dramatically. By the way, I think trolling on Metaverse means nothing is wrong. I get that it's amorphous now, but it's obviously this is going to grow into something. Crypto has shown the power of permissionless or relatively permissionless online economic interactions. There's no going back. Now I thought DC's thread was interesting to close on, especially

Starting point is 00:14:50 given what we've learned about Twitter's potential future since he wrote it. Would a private Twitter under the banner of Elon Musk be more or less likely to be at the center of the growing metaverse? I don't know, but it's a fun thing to think about. For now, I want to say thanks again to my sponsors, nexus.com. 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's in Census 2020, 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, Web3, and the Metaverse, and is designed for crypto-newbies, investors, entrepreneurs, developers, and creators.

Starting point is 00:15:43 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. com slash consensus 2022.

The Breakdown - Web 3 Gobsmacked as Meta Announces 47.5% Creator Fees

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