The Breakdown - What's Really Going on With OnlyFans and Payment Censorship

Episode Date: August 21, 2021

The tyranny of payment processors as moral barometers strikes again. On Thursday, Axios revealed that OnlyFans was struggling to raise money from outside investors despite being on track to make more than a billion dollars this year. Later in the afternoon, OnlyFans announced it is eliminating sexually explicit content from its platform.  The internet was agog, given that OnlyFans’s success is almost entirely based on sexually explicit content. In this episode, NLW explores the variety of things going on behind the scenes, connects the dots to Chase Bank’s shutdown of Compass Mining’s accounts and argues that payment processors shouldn’t be in charge of societal decisions about what free people are allowed to do.  Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW “The Breakdown” is written, produced by and features NLW, with editing by Rob Mitchell and additional production support by Eleanor Pahl. Adam B. Levine is our executive producer and our theme music is “Countdown” by Neon Beach. The music you heard today behind our sponsor is “Tidal Wave” by BRASKO. Image credit: Gabby Jones/Bloomberg/Getty Images, modified by CoinDesk.

I'm not saying a priority that a society doesn't get to decide what is and isn't acceptable. I'm saying that the place to make those decisions is not shadowy text messages from the enfranchised power structure. And while maybe Bitcoin doesn't solve this straight up, at least not with a fair bit of organizational design around it, I'm goddamn glad it exists so that there is at least a counterweight against the unfettered control of payments middlemen to tell us what is and isn't acceptable in our own lives. 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 Friday, August 20th, and there are times when the value of cryptocurrencies must be explained in theoretical terms. As a bulwark or a hedge against undesirable futures that might or might not come to pass. By their very nature, these arguments require. someone to imagine a theoretical future to really grok the value of this new technology. On the other hand, there are sometimes that something happens in the real world that shows clearly and forcefully the value of a cryptocurrency system outside the purview of traditional actors here and now. This week has given us a couple examples of the latter. The first comes from Compass mining. Briefly, if you don't know Compass mining, they are a super cool company, focused on

on increasing the decentralization of hash rate by allowing everyone to participate in Bitcoin mining on terms that work for them. Also cool is the story of how they came to be. One of their founders, Thomas Heller, has deep roots in global Bitcoin mining and a ton of experience. The other Witt Gibbs has frequently told the story of trying just a slew of ways to engage with and support the Bitcoin space without any really clicking. One of Witt's attempts was a podcast that I was actually on all the way back in 2018. Now he's running one of the most important and fast-growing companies in the Bitcoin space, so hell yes, if you want to contribute, just keep trying. Anyway, on Wednesday, he tweeted, shout out to Chase for shutting down Compass mining accounts for doing our part to replace

the old guard with self-sovereign future-focused supporters of hard money. Get behind Bitcoin or get out of our way. In a follow-up story in CoinDesk, apparently Compass's COO visited a local Chase branch in Ohio to make a transaction, only to be told by some teller that their accounts had been frozen the day before and would be held frozen until at least August 27th. These accounts held about 7% of the company's cash, so no real risk to functioning, but still, it shows the absurdity of the traditional system. Going deeper, Chase just seemed super shady about the whole thing. I guess 90 days ago or so, they told Compass that they were undergoing a review, but that was about whether they were eligible for an upgrade.

Then the account manager who had been communicating with them totally ghosted, and this happened. All of this is extra weird because Chase had seemed to reverse its earlier stances on crypto by taking on Coinbase and Gemini as customers in 2020. So, best case scenario, this is some weird, localized issue that doesn't actually reflect Chase's position as a whole. That would still suck for Compass, but it wouldn't necessarily have broader implications for whether Chase was a good actor vis-a-vis this space. The worst-case scenario is that it just shows how hard it remains for crypto companies to have

normal bank relationships. And for what it's worth, regulators desire to put even more onerous reporting burdens on crypto companies is likely to make this banking problem worse, as many will just say, you know what, whatever, Bitcoin, crypto, they're just not worth it. Still, the Compass and Chase story was relatively small potatoes compared to the big payment processor censorship story of the week. The internet was absolutely flabbergasted to learn yesterday that, OnlyFans is banning sexually explicit content after pressure from its payment processors.

There is a lot to unpack here, so sit down, grab a drink, and be glad it's Friday. First, for the uninitiated few out there, OnlyFans was started as a subscription network for content creators to provide fans with premium recurring content. It was imagined basically as a superfan site for Twitter and Instagram influencers. But it quickly found a very specific type of content that was the runaway hit of the site, and this was, of course, not safe for work content. In 2018, Leo Radavinsky, the owner of My Free Cam's, bought about 75% of the site, and it became even more focused on sexual content. Now, OnlyFans has had frequent entries into pop culture. In January 2020, during the Australian wildfires, remember those crazy things that,

in retrospect, we should have taken as an inauspicious omen for the year to come, a 20-year-old American named Kalin Ward started offering nude selfies in exchange for donations to help the bushfire relief, and, to her surprise, quickly raised over $1 million. leading to a partnership with OnlyFans. In April, Beyonce called out the site on a Megan Thee Stallion remix of Savage, and in the wake of that being released, the site was getting 200,000 new users a day

and 7,000 to 8,000 creators joining every day as well. Then, of course, during the COVID pandemic shutdowns, Onlyfans became even more ingrained, with many turning to it as a way to make money from home. What's more, some people made famously a ton of money. Bella Thorne set a then record when she made over $1 million within a day of joining in August of last year. Bad Bobby, aka the Cash Me Outside meme girl, made that much in just six hours of joining earlier this year.

Expectedly, the site has also had a ton of controversy. There have been accusations that they don't do enough to prevent illegal content from underage individuals. The BBC, for example, has done numerous reports on exactly that. In August of this year, a U.S. Congresswoman Anne Wagner announced that she was forming a bipartisan coalition to investigate OnlyFans around those issues. So that's maybe a pretty good sketch that gets us to yesterday. Extremely popular, extremely fast-growing site, a ton of money flowing both to the site and also to the people who use it.

But, of course, with anything surrounding nudity, sexually explicit content, etc., there's going to be controversy. So yesterday, the story unfolds in two main chapters. The first came when Dan Primac of Axios reported that OnlyFans was struggling to find investors. Apparently, earlier this spring, OnlyFans contracted with the Rain Group, which is a merchant bank focused on tech, to help it attract investors. Almost immediately, though, most big VC firms passed without even doing any diligence. The goal of the raise apparently was at least in part to cash out porn mogul Leo Radivinsky,

the owner since 2018 that I mentioned before, in a search for more legitimacy. The crazy thing about no one being interested is that OnlyFans' numbers are bonkers. As part of this Axio story, they published Leak Financials. In 2020, OnlyFans had a gross merchandise value of $2.2. This year, that number is going to be closer to $5.9 billion. Net revenue, 2020, $375,000, $1.2 billion. Free cash flow. Last year was $150 million.

This year, $620 million. Total amount paid to creators since inception, $3.2 billion. More than 300 creators earn at least $1 million annually, and around $16,000. thousand creators earn at least $50,000 annually. In total, more than 7 million fans spend on only fans each month. The fact that VCs didn't want a part of a business like that shows, one, what total sheep VCs are, but two, also the incredible stigma around adult content in the mainstream of American business. That was just Chapter 1, though. Chapter 2 was the real hammer drop. 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.

Only fans issued a statement yesterday afternoon that read, effective October 1, 2021, only fans will prohibit the posting of any content containing sexually explicit conduct in order to ensure the long-term sustainability of the platform and to continue to host an inclusive community of creators and fans, we must evolve our content guidelines. Creators will continue to be allowed to post content containing nudity as long as it's consistent with our acceptable use policy. These changes are to comply with the requests of our banking partners and payout providers. We will be sharing more details in the coming days, and we will actively support and guide our creators through this change in content guidelines. The shock was palpable. I mean, this is friggin' only fans that we're talking about.

The announcement felt like the equivalent of Binance announcing that it would no longer be allowing people to trade cryptocurrencies on its platform. For people who made their livelihood on only fans, it was a particular slap in the face, especially as the site would give no clarification on what would and wouldn't actually be allowed in this acceptable use policy. The Daily Beast collected some reactions from the people affected. One person said, Sex workers made OnlyFans what it is today. What a bunch of pricks. They hoed us.

Another creator Meredith Jacqueline said, it's just mind-boggling. It's like, y'all hate porn that much that you're willing to give up money? Because if it were me, I like money more than I hate a lot of things. Another OnlyFans creator, Tess, said, it's super unfair. They basically want all the influencer girls on there to post Instagram content and make 50K a month. It's sad. A lot of adults.

adult entertainers rely on OnlyFans and were finally making the money they deserved. Importantly, also, many noted that this is a story they've seen before. Tumblr used to be a refuge for sex workers on the internet. Eventually, though, it banned sexual content in an attempt to attract more mainstream advertisers. That move didn't work. Tumblr never recovered. It never went mainstream, and it lost a big part of the community that was there. Now, although OnlyFans has said that nudity would still be allowed in their statement,

many are basically assuming that this is just step one to removing nudity entirely, and whether it is or isn't, obviously none of these creators feel like they have any basis to trust the platform at all. But again, the question is why? Why would OnlyFans make this move? Is it just an attempt to get legitimate venture capital dollars? There is at least one other dimension of the story as well. Here's how Bloomberg broke the news. Scoop. OnlyFans will prohibit users from posting any sexually explicit content citing mounting pressure from banking partners and payment providers. And so we're back to the censorship issue. Only fans explicitly said that this was to comply with the request of their banking partners and payout providers. And importantly, there is a larger campaign among payment

processors to push against porn. Back in December of last year, Visa and MasterCard cut off porn hub based on hosting child porn. A MasterCard spokesperson told The Verge, today the use of our cards at Pornhub is being terminated. Our investigation over the past several days, has confirmed violations of our standards prohibiting unlawful content on their site. As a result, and in accordance with our policies, we instructed the financial institutions that connect the site to our network to terminate acceptance. Now, importantly, a very interesting wrinkle in this story is that it was in part spurred by billionaire investor Bill Ackman, who went on an absolute crusade to have MasterCard stop allowing Pornhub after reading a New York Times article by Nick Christoff

about the unauthorized videos of underage children being spread. Bill Ackman sent the text message to the CEO directly to try to get them to terminate their relationship. In many ways, then, what we're seeing with OnlyFans is sort of just a logical extension of that. So, like I said, there is a lot to unpack, and first of all, let's discuss OnlyFans itself. To be clear, this is not some heroic company fighting against the tide of outside oppressors. It's a company that wants a type of growth, liquidity, and access to markets that are currently unavailable to it, and it's willing to tow the line of the morality police to get it. An exchange between monetary economist, John Pondon, Paul Coning and Spank Chain founder Amin Soleimani is illuminating. J.P. writes,

OnlyFans can find other payment providers one supportive of its existing business model. Payments is a competitive business, after all. But I suspect that's not what OnlyFans wants. It wants a good excuse, those damn banksters, to push adult performers away and go mainstream. Amin responded, nah, I think they want an IPO and the banks won't let them. 100% of Pornhub Equity is on sale at 5x Ebidaa. Private equity markets for porn are rather unfulfilling. John Paul follows up, right, but if their current payments partners don't want to facilitate adult payments as OnlyFans seems to be claiming in its statement, then OnlyFans can always find other partners to work with. But it isn't taking this step. So ultimately, it is

OnlyFans that is making the final choice to the platform adult performers, perhaps because it wants a better equity valuation, as you suggest, to which Amin agreed. For what it's worth in at least one conversation with someone I know who seems to have some insider knowledge of this situation, that was reinforced to me as well, this desire to successfully complete a big venture round. The point is sometimes when we don't like a thing that's happening, we lionize or valorize one of the actors involved, and I don't want to do that in the case of OnlyFans. But second, let's discuss the sex workers and adult entertainers on the OnlyFans platform. This absolutely sucks for them, and there may be some of you out there who think that what they do shouldn't be allowed

in general, and so cheer this move. As you might imagine from what I've said so far, I disagree with that, and generally think consenting adults should be able to do whatever they want. What's more within that framework, the rise of something like OnlyFans that is comparatively safer and that also has huge upside potential for entertainers seems like a really positive advance. Even if you disagree, though, I would caution against ends justify the means thinking. The place for society to make decisions about what free people should and shouldn't be allowed to do with their bodies isn't text messages between billionaires and payment processor CEOs. On the topic of those payment processors, it would be reasonable to say,

yeah, but underage sexual exploitation is a major problem. Shouldn't that trump any concerns about free speech and censorship? This one is complex. I do absolutely believe that this is a major issue, and I think that these platforms have been way too lax, and that it would be fairly easy for them to do a lot better at this. That said, there's also some fairly claring hypocrisy, and more than a bit of favorites playing.

An independent study from earlier this year by the National Center for Missing and Exploited Children compared instances of child sexual abuse material on major websites. The parent company of Pornhub, which also runs Red Tube, U-Porn, and others, had a disgusting 13,229 instances. Snapchat, though, had 10x that with 144,095 instances. Google had 546,704 instances, and Facebook took the cake with a whopping 20.3 million instances of child sexual abuse material. The point that I'm making is that you don't see Visa and MasterCard racing to disconnect Facebook from

their network, even though it had 1,500 times as many instances of abusive material as the entire Pornhub network. One question is, does Bitcoin fix this? Edward Snowden tweeted as much yesterday, but others are not so sure. Ayella, a popular internet commentator and also occasional adult entertainer, wrote, guys, the real villains here are the payment processors, the silent, shadowy blacklist in cabal that dictates the kind of moral behavior that we're allowed to engage in, who, without any sort of oversight, can wipe any company they wish out of existence. I'd normally be like, this is fine because of the free market, except we don't have a free market. The natural competition to this crypto has been defanged with regulation that prevents it

from being the rightful free market competitor it should be. Other commentators have suggested that for crypto to really be an alternative, it would have to be something entirely outside the normal system. Otherwise, the pressure of that system, of which payments are only one part, would be too much. Rahaley writes, folks, cryptocurrency is not an option. First off, it doesn't have the adoption or usability to sustain a service that offers on-demand streaming video. That shit is expensive. Second, it would prevent only fans from ever being able to raise legitimate money again. Third, it would mean getting blacklisted from the entire above-ground

financial system, payroll, finance, benefits, you name it. I think that perspective is worth pointing out, not because I agree that crypto doesn't have the scale to solve this, but when it comes to things that major parts of society are censoring, implementing crypto as a solution to uncensor them will often mean comfort with designing an entirely alternate system and an entirely alternate life for the people who are helping keep that new system alive. We're talking anonymity, different types of nimble operational structures, et cetera. Avoiding censorship is immensely complex and not just from a technological level. For me, the net of all this is what I tweeted yesterday upon hearing the news. Payment processors and banks should simply not be making moral judgments for society.

This is not a pure libertarian fantasy either. I'm not saying a priority that a society, he doesn't get to decide what is and isn't acceptable, that everything should just be free and open. I'm saying that the place to make those decisions is not shadowy text messages from the enfranchised power structure. And while maybe Bitcoin doesn't solve this straight up, at least not with a fair bit of organizational design around it, I'm goddamn glad it exists so that there is at least a counterweight against the unfettered control of payments middlemen to tell us what is and isn't acceptable in our own lives. Anyways, guys, I appreciate you listening. I hope you're heading into a great weekend. Until tomorrow,

be safe and take care of each other. Peace.