This Week in Startups - $META earnings instant reaction, Apple's NFT rules, SBF backlash & more | E1597

Episode Date: October 27, 2022

Sunny and Vinny are BACK for another crypto roundtable! First up, they give instant reactions to Meta's rough Q3 earnings and Zuck's big bet (1:59), before breaking down Meta's AR/VR battle with Apple (15:14). Then, the trio does a full NFT breakdown: Reddit's NFT usage (20:19), new App Store rules (27:41), and understanding royalties! (37:52) Then, they wrap by covering SBF facing backlash and a crypto Q&A. (47:54) (0:00) Jason tees up today's topics! (1:59) Jason welcomes Sunny and Vinny, and the trio breakdown Meta's Q3 earnings right as they drop! (14:12) Odoo - Get your first app free and a $1000 credit at https://odoo.com/twist (15:14) Who will win the AR/VR wars: Meta or Apple? (20:19) Reddit's NFT usage (26:12) Revelo - Get 20% off the first 3 months by mentioning TWIST at https://revelo.io/twist (27:41) Are Apple's new App Store NFT rules overreaching, or a great sign for crypto? (36:28) Smash Digital - Visit https://SmashDigital.com/TWIST to get a free SEO video audit for your business (37:52) Understanding NFT royalties (47:54) SBF facing backlash after comments on regulation (57:39) Crypto Q&A! FOLLOW Sunny: https://twitter.com/sundeep FOLLOW Vinny: https://twitter.com/VinnyLingham FOLLOW Jason: https://linktr.ee/calacanis FOLLOW Molly: https://twitter.com/mollywood Subscribe to our YouTube to watch all full episodes: https://www.youtube.com/channel/UCkkhmBWfS7pILYIk0izkc3A?sub_confirmation=1

Hey, everybody, hey everybody. We have an awesome crypto roundtable for you today. Sonny and Vinny are back. Molly's off for this one. So it's just me and the boys. First up, we're going to take a break from crypto because breaking news, Metis Q3 earnings dropped right as we were on the call. And Vinny and Sunny are experts in Web 2 and also VR and AR.

We break down what's happening at Meta. Their stock is collapsing. Their earnings and their revenue is getting massive headwinds. So we break that down. And who's going to win ARVR versus L. Apple, meta, Google, and Facebook, and that big fight that's going on over the next 10 years. Then we do a deep dive into the state of NFTs. Apple, speaking of Apple, and their App Store rules are getting quite onerous.

Reddit is also adding an NFT program and royalties are not getting paid to some of these NFT projects. We're going to talk about that and much, much more. We'll take a listener question as well. It's going to be a great show. So stick with us. This Week in Startups is brought to you by O-DU is a fully customizable and fully integrated suite of business apps

that lets you build and scale your stack as you build and scale your business. Your first app is free forever, and right now O-DU is offering $1,000 off your first implementation pack at O-D-com slash Twist. That's O-D-O-O-O-O-O-com slash twist. Revello. Looking to affordably scale your product development with global tech talent in U.S. time zones, hire vetted remote developers in Latin America

with Revello. Get 20% off for the first three months at Revello.com slash twist. And smash digital. Scaling organic traffic for your startup can be challenging, but it doesn't have to be. Visit smashdigital.com slash twist to get a free SEO video audit for your business. You'll see if SEO is right for you and what? it takes to become an industry leader. All right, everybody, it's time for our biweekly, bi-monthly.

I'm not sure how you say that. Price a month, we have a crypto roundtable with two of the smartest folks we know in the Web3 crypto space, Sande Madra and Vinnie Lingam. Welcome back to the program. Molly's not here today. She had other commitments. But we got a full docket here, huh? A lot going on and some big earnings out right now as well.

So it's an exciting afternoon. it's a very exciting afternoon. I guess before we get into crypto, Facebook just dropped earnings. And my lord, just to recap it, they're down to 110 bucks a share,

I think. This is because, in after hours. So there are 129, but then in after hours, it's dropped down to, 110. It's right there,

110. 110. Oh, my Lord. What's your take on the Brad Gersner letter? and how Facebook is being run, Sunny? Yeah, you know, I didn't have a chance to listen to earnings. I know, Jake, you were commenting on it in a chat thread earlier, but I think, you know, he was a voice of recent.

The other thing I'll say is, you know, Facebook historically, and we know this from, say, the earlier times of Facebook, they've been a great platform company. And what they're doing right now, And then they've acquired incredibly well, like WhatsApp, Instagram, Oculus. But what's happening right now is the investment they're making in terms of they're sort of trying to compete with the ecosystem, which they should allow, they should support. And so I actually read Brad's note as something really positive and kind of focus the expensive and expenses and move those towards sort of the platform aspect. So I was really, I thought it was a great note, but it's always, you know, challenging when the company is, is, is,

really heads down in the direction that they are. And it seems like from what you said earlier, they're doubling down. They're not even, you know, kind of going back on that at all. And just for background, Brad Gersonner from Altim and her capital, a long-time shareholder, has been trying to get through to Zuckerberg, hey, maybe some austerity measures here, maybe control spending, maybe spend $5 billion or burn $5 billion a year on the VR adventure, not $10 or more billion, and maybe get focused on. AI at Facebook and making sure those platforms don't die, the money printing machine. What do you think, Vinnie?

Look, Brad's a really smart guy. I think Facebook's gone through a couple of, I mean, Facebook had a couple of good tailwinds to help them out over the past nearly two decades. One, which I think is ending, is the advertising, the display advertising and, you know, ad-targeting business model that's been pervasive. in Web 2.0 for years where you could target people, you can suck all the data, you can analyze it,

et cetera, and that's what's fueled their business. I mean, most of their revenue, 99% is advertising driven, and that's falling off a cliff. I mean, we're seeing the global economy taking ahead. People are, you know, advertising always gets cut. But this is a lot bigger,

deeper issue with the, you know, the privacy, you know, things that Apple has done to make it harder for them to target people and serve ads and whatever else. So there's definitely, I think the tide is shifted and changed, and I think that Facebook, and Brad's 100% right, Facebook has to say, they have to accept that that era is over. The era of Web 2 personalize ads is dying. It's on the way down. We hit peak a while, you know, maybe a year or two

ago or whatever. And now it's going down. And so we either, you know, it's adapt or die. And so they have to reinvent their business. And, you know, Zuck's trying to do that in terms of doing it through meta and rebranding as, you know, as meta. And you see my tweet? It was like the bottom's in when you rebrand. Well, that was a prophetic tweet. I mean, did you have inside information or? No, not at all.

So wait, when you did this tweet, the bottom is in when meta rebrands is Facebook. Is there any chance that you think he does that? You did this in January of this year? You think that's a possibility? I don't think it's a possibility in the short term. I think, I think, you know, the problem, the problem really, I mean, he should. Okay, let's be frank, he should rebranded. But you can imagine how long it's going to take for them to undo what they've just done.

I mean, just, you know, they probably, like, when they announce it, they were still updating the products, the logo is the messaging. I mean, this is a, you know, the surface area of Facebook as a, as a network is like half the planet uses it, basically. So it's not that easy to do. So I think they'll probably stay the course. And so it was more tongue-in-cheek when I said that they should rebrand. I mean, I guess what they're trying to do right now is trying to move the playing field to the Metaverse. But they had the benefit of having a high level of engagement and ad views in the early days. At the same time, at Google launch AdWords.

So there was a lot of demand in the early days for direct advertising. We had this transition from offline advertising and media and print. into digital platform, social networks, search, etc. And they benefited from that tailwind for 20 years, nearly. But tides have shifted. So they try to do the whole thing with Aptos and DM and their own currency and getting into Web3. That didn't go down well. Facebook may be one of those companies that stuck in this pigeonholed era that they, you know.

It doesn't make sense, though, because when you think about it, they did make the Facebook marketplace work. everybody's using that Facebook marketplace, which is like an eBay kind of competitor. There are things they could plug in here that would work. It does seem to me, Sonny, that going for VR was just like, that's like a hell merry. Well, you have billions of people who are using. No, no, no, it's not a hell merry.

It's the only option, I think. Like, you think, let's think about this. Okay. Let's think about it. Like, I mean, Zuck's a smart guy. It's given some credit to, okay? The only option is, so they can't buy more companies because the regulator is just not going let them happen. They can't expand through acquisition. We know this. So they're kind of stuck from

that front. The advertising business model is going down, so they're not going to be able to monetize that. The commerce business model isn't as big as what they were making advertise in terms of margins. It's a lot tighter margin business, and there's a lot more, you know, it's a different business, and they can grow the marketplace, but they're never going to get to the same margins and growth rates and revenue. It's just highly competitive. And so what do they do? And they basically went with Blue Ocean Strategy. Let's go somewhere where we have enough capital to deploy, where it's likely going to be a positive outcome in 10 or 20 years. We already have Oculus, we have a leg in there, and let's just move the playing field

because we can't play in the current world. I actually think it's slightly different. I think it's slightly different. I think it all starts and it stems from Apple and their control on the ecosystem and the changes that they're making. So I don't think advertising is dead. I think advertising will continue. It's like a fundamental business model of just humans.

it's been around print to TV to radio to television to internet. I don't think it goes away. I actually think this is a lot more about controlling the end-to-end platform. So I think this is stemming from never doing a phone and a platform. And VR, AR was and still is an attempt to own a platform start to end, so you're not subject to the platform changes that Apple is making. And so a lot of, you know, my belief is it's coming from that. That's the motivation is, hey, that's where things see.

to be going AR, VR, VR, let's get ahead of that and let's own that platform by being there early. And so I don't think it's like advertising is dead. I think the changes are hurting them. Well, let me just give you some data here. And then I'll let you go, Vinnie. The revenue just reported down 4% year over year. So they have 27.7 billion in revenue. They went down year of year, 4%. And they're down 3% quarter over quarter. And last quarter met a reported negative revenue growth for the first time. Net income is about 4.4 billion. This is down 52% year of a year, down 32%.

Wow, quarter over quarter. Total user growth was around 4% year of a year. So the user base is growing slowly, but they have reached the natural audience. So it's definitely like they're bouncing along the ceiling, I would say, of advertising revenue. They need some product extensions. But let's face it, VR is... at least a decade out from having any meaningful user base.

So this is not coming soon, is it, Vinnie? So let's just talk about two things, yeah. Like, I think, Sunny, I agree with you. Advertising is not going anywhere except it's slowing down or it's declining, which means that the industry doesn't disappear. The growth premium gets ripped out of them. This is what brands basically says. I just had one thing on the advertising thing.

I actually don't think so. I think it's being picked up in other places. I think if you go look at what Amazon's doing, I think if you look at what Apple is taking away, So I think if you look at the overall pie, I don't have the numbers in front of me, I'll pull them up. I'm saying for Facebook, I'm saying. For Facebook. Yeah.

Okay. I think you're saying advertising in general, but for Facebook it may be. So for Facebook, they're going to be basically flattered down because of Apple and all the other pressures that they have in the market. They can't grow that base. Secondly, the active user expansion is happening in markets with low revenue per user. Okay, because those, you know, it's emerging markets, et cetera. They add revenues are lower.

So they're going to struggle on the margin side, and they're going to struggle to grow that because they've saturated most of the Western world and the high revenue per user markets, and now that's declining. So this is my point. Okay, so why is this a problem? A large portion of the compensation for Facebook employees since the inception of the company has been based on stock options. And stock options work great in an up market because, hey, you know, you're just a $100,000 of the stock. next year will be worth $120, you have to be worth $150, you price it in, you stay, you get refreshes, et cetera. You can keep issuing stock options all day long when it goes up.

But when it goes down, nobody wants options. And people start looking at what they're earning and saying. There are all these companies do RSUs now in E as well, right? Options are a lot more limited in public. Yeah, but they have to believe, to both of your points, they have to believe that RSU that they got for free. So a restricted stock unit is a gift. You don't have a strike price on it.

So you don't have to worry exactly where it is. But you are saying, hey, I'm getting this at 100. and $5 or $10, whatever it's today. I'm here because I wanted to double in the next three years and I'm going to come in on the weekends and work nights and give up my life to make it triple so that my million in RSUs or my 500K RSUs over the next three years turns into $2 million, and it can be life-changing money.

That's not going to happen. Here's an interesting chart to take a look at. This is a comparison of Google's CapEx versus Facebook's. Now, the top line you see here, we'll pull it up for the audience. So this is up to Q2. doesn't include Q3. I'll give you Q3s in a moment. But as you can see,

the top green line and the top blue line, those are the revenue for Google and meta. I'm not going to call a math for that and meta. I'm going to call it Facebook. Google. Google's green, Facebook's below. So, you know, you've got more than two times the revenue with Google. And then you look at their CAPEX.

Oh, my Lord. The CAPX for Facebook slash meta is, you know, the same essentially as Google's with so much more revenue. And then if you were to look at actually what happened this quarter, Google's CAPX and Q3 was $7.2 billion. It was less than Facebook's, but its revenue was 2.5 times. Metis CapEx is blowing out.

And this includes like finance, leases, hardware, all the stuff they're investing in, 9.5 billion. Oh my Lord, it's going up. CapEx keeps going up on this business. So he's spending like a drunken seller. Are you sick and tired of huge SaaS bills? I know I am. And switching between 10 different platforms every day, it's chaos.

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No, no, you got to split the two up. They're two different things. VR and AR are two different things. Okay, but I'm going to put... Apple is going to win VR. Apple hands down is going to beat Facebook in AR. Okay. So you get that 100%.

It's 99%. On AR. Got it. Which is more important for you, AR or VR? I think AR is the bigger play. Of course. Okay. So, Sunny, chances, if you were going to give a percentage to win AR, which is the day,

what are the chances Facebook beats Apple? If we relay some odds, I think it's like 75% Apple, 25% Facebook right now. Got it. Yeah. Okay, so it's three and four that Apple wins. And then if we were to look at market share of headsets, of revenue, however we want to look at it, who's going to win on a percentage of user time, percentage of headset sales? I mean, if we were to look at it, Vinny, Facebook versus Apple versus Google versus Microsoft.

They're not the same thing, though. Of course they're not. That's why I'm asking you. It's Apple's oranges. Apple's going to sell 100 million AR headsets in the next five years. Wow. 100 million. So you think Apple runs away with it.

So for people who don't understand why you're making this prediction, because Facebook's making all the noise. Why do you think Apple wins? Why do you think Apple wins so handily? 99% chance they win in your mind. Because they control the compute device. Okay, so the phone is in your pocket. So the biggest issue with VR is this heavy headset you're wearing on your head

because the compute sits on the headset, basically. And you've got to move around with this. What they've done with Apple with the VR glasses, and this is all rumors because it's not pretty release yet. But they've basically got a wireless connection to your phone, which is just in your pocket, and they run all the compute locally, and they're just streaming the visuals to your glasses

and you can see inputs. And so it's got a camera that's reading things like the way that, you know, Tesla does it. And but the hide, the heads-up display on your, on your, on your glasses, they don't need to be, the battery life on that thing's very, I mean, doesn't need a lot of battery power. It's just displaying, you know, AR images

and that the compute's actually happening on your phone. And people are walking around with a billion of these phones. You know, Facebook can't, even if Facebook built the exact same glasses, okay, they don't have direct, you know, deep SDK and API access to the chip set that's sitting in the Apple device. They don't own the device. They cannot optimize and improve it.

Sunny, you know, Sunny is an electrical engineer. You can tell you better than anyone. Like, unless you actually have, you know, even from a security perspective, the secure enclaves that's going to sit inside the iPhone. Like Apple can just say, Facebook, sorry, you can't have access to it and that's it. Yeah, okay. You feel the same way, Sunny? I kind of, I'm in agreement with Vinny.

I think Apple's going to run away. I think they have a shot. And I, you know, the one thing I will say, and maybe it's a good slight segue into the next topic, is the one thing that Apple has working against them, which could just change everything, is this Apple tax. And they continue to double and triple down into all new areas. And we want to talk about this. But that's, that's one thing that I'm, you know, I'm not convinced as long as they keep that, they can keep winning. And the Apple tax, to find that for the audience, what the Apple tax is. Apple tax is like the 30% that they take on a set of transaction.

Whether in-app purchases or subscriptions or the game that you're selling. And they have arbitrary places that they do this. They've said they're going to do it on NFTs now. It's why you can't sign up for- Two weeks ago, yeah. Exactly. And so that's the thing that they continue to double down on. It's your Achilles.

It's a huge opening for anybody else because, you know, as a developer, a single individual developer or large corporations, the incentive to go to something else, especially with a network effect like Facebook, is huge. And so they're one of the only ones I can take it out because they have so many people on their platform. It's harder for an individual company to come in and do it. So that's why I still give them a shot in this.

Let me, let's pivot then to our first story here in crypto. So thanks for your input on the meta corporation. And by the way, their headcounts up to 87,000 people have meta. You're up 28% Europe. every year. I mean, 28%. In Google, they added 37,000 people in one year. In one year.

That's 200. What are they doing? There's only 200 working days a year, right? So it's like 200 people a day. What are they doing? I mean, what are all these human beings doing at these companies? It doesn't make any sense. They're fixed cost businesses.

You know, they should be milking these things. But I guess they have so much profits and so much cash. They're going to thumb their nose at Wall Street. Let their stocks tank. maybe start buying their stock back. And maybe that's the endgame here. They're just like, you know what? Wall Street, we don't care about your opinion.

We're going to buy our stock back with our cash reserves and game over. We're going to start taking these great talented people off the market during recession. Let's pivot now to Reddit. Reddit was supposed to IPO. That never happened. I don't know what the status of their IPO is. but Reddit also in July launched NFTs and they seem to be doing really great in terms of wallets

and their audience is obviously very, or there's a portion of their audience that is very pro-crypto. Can you cue up this story for us, Sunny? Yeah, so they, you know, effectively what they did is they created 2.8 million wallets for a bunch of their users and then they made available to those users like an NFT associated to their platform. And why I think this is super interesting is kind of building a lot of stuff

that we've been talking about where this is a push away from things for the crypto community by the crypto community only. And this is crossing into sort of a traditional Web 2 brand that's making their way towards that community. And I think that's really powerful.

It's one of the themes that we've had over the last couple of these sessions is these traditional brands coming in, bringing their user base. Now, we're seeing it still in small numbers, right? We only saw, you know, a few thousand of the wallets that were created have ever transacted before. But I think it's really, really powerful.

You know, at the end of the day, this NFT that got created for this ecosystem, it ended up having like $100 million of value and it started transacting the ecosystem. But this is how we're going to, you know, there's a big knock on the Web3 ecosystem on. There's not a lot of users here and it's been overly financialized. But I think these type of activities are really exciting for the Web 3 spot. And Vinnie, I don't know what your thoughts on this thing were as well. No, I look at, I think it's, I think it's, it is very exciting. You know, it's the whole Web 2.5 argument, right?

You've got to get move users from 2 to 2.5 into 3. And people like, I think three wins when everyone thinks they're using 2.5, but it's actually three. Oh, so in other words, you're a Web 2.0. user, you don't want to deal with a wallet. You're not buying some hardware wallet. But your account, your Gmail account, your Facebook account, your Twitter account suddenly is a wallet. And I didn't do anything. I didn't have to, you know, do any work, right? It didn't even call them NFTs. They called them like collectible avatars or something, right? So they're, there, and that,

you know, we've said that as well. We'll see this really when when the technology is not even understood by the, like, the names don't come up of the technology, but it's just the use cases that are emerging, which is, which is really exciting here. amazing and you know there's so many ways for them to incentivize people to get into this like you know just dropping stuff into their wallets and they were of course doing reddit cash for a long time they had their own sort of coins before yeah and this is something facebook was working on and they kind of gave up on why did facebook give up on cryptocurrency was it because they felt like regulators would hold them to a higher standard and the regulators are kind of pissed off

and government officials are pissed off at Zuckerberg for, you know, election interference, like this sort of high level thing. Or did Zuck just say like, I just don't think this is the next thing. I think we can only focus on one big thing, so let's just focus on VRA. What do you think happened there? I'll give you, I don't know for certain, but I'll give you my two cents on this. I think that the regulatory, like, backlash that they saw put a lot of pressure on the organization and people were a little bit more hesitant to keep pushing forward because they had a core business that was solid and growing and strong and they were like there's no reason to put any of this at risk and and the regulars are

going to scrutinize us more and everything we do and this is just not worth it it's the rest of the business now that's in good times why would you want to risk anything because everything looks great and you have a core business that's just churning out cash every quarter of to quarter like you know put just off in their shoes I would be like Guys, it's not worth it. I mean, yeah, okay, let's say this thing takes off. Who cares? We'll see it coming.

We can get into it later. Let's just pull out now. And that was the easy way out, right? Because it just wasn't worth it. Now, with declining revenues or flat revenues, big burn in the meta stable with the horizon and, you know, and every, I'll kill this, everything else. Now the argument is like, maybe you've got to double down and go into crypto or yet, you know, I personally think that, like, because it's such a big organization,

because it's not 2010 when Zuckerberg had to pivot to mobile and the company was five years old. This is like 22, 23, I don't know, 70,000 employees, whatever the number is. Like, it's not that simple just to pivot the entire business and move in a different direction when you're managing 20-something billion dollars of revenue every year. So it's Clay Christensen all over again. Innovator's dilemma. What do they do? How do they turn the boat? I actually think it's related to what we said before.

I think when you look at the blockchain space, which is, you know, what Aptos, so the project got spun out. We have a section in it in our notes as well, but like the project got spun out, turned into Aptos. I think when you look at it again from platform ownership, you cannot own blockchain, right?

It's a technology. It's going to be, you know, all over the place, can be different instances of it. We already see it today. We Ethereum, Solana, Bitcoin, Doge. And so my, my guess is, and you know, probably a person to have on at some point in any of the shows,

J-Cal is David Marcus, right? because he was leading these efforts, would be, I think you look at and say, we can't own this, right? And you look at, again, VR-A-R, and you can see a lens in which through you can own the whole thing. So that would be my guess is why you move away from it.

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I didn't think that they even understood the space. And so I'm looking at this saying, if Apple is getting this granular into NFTs and a rule set around them for their app store, they are, I don't know, going to do something in this space? What do you walk us through this, Sunny? What are the new rules in Apple's iOS 16.1 update for NFTs?

Because this is a level of granularity. That is suspicious to me. Is it suspicious to you too, Sunny? Well, I don't think it's suspicious. I think it's really good because they've kind of looked at it. And maybe Nick, you can pull up something to follow because I'll put up. But effectively, you know, at the highest level of what they said is NFTs are allowed. But a couple of things.

One, if you're going to be buying or selling, it has to be through the IAP, the in-app purchase process, hence that, you know, the 30% tax has to be paid. And two, they've said NFTs cannot unlock or lock or make features available. So they've sort of maybe listening to our podcasts and we've talked about some of these. And there you go, right? Apps may not use mechanism to lock content, license keys and all these kind of things. And so they've really talked about it. They've talked about the exchange and transmission of cryptocurrencies. This is going to be really interesting as well because, you know, J-Cal, there's a lot of talk about

what happens to the Twitter app going forward as it becomes a super app, and it uses maybe some underlying cryptocurrency, maybe could be Doge, and what happens with those type of things. And so I think what's interesting here is they've tried to, and I again view this as an opportunity, they've tried to kind of do the hard shell defense here, which is like, let's see if we can get all the openings and block it off. I'll just go back to the point we talked about before,

which is it's impossible to do this. the minute you allow NFTs, blockchain, smart contracts into the ecosystem, they are programmable, they're composable, they're permissionless, people will find a way around them. One of them will take off, and then Apple will be stuck at this place where they're going to have to make a very hard decision on cutting it all off or basically allowing it. And I still stick with the point of view that allowing these in,

and because of the composable nature, the programmable nature of these things, People are going to find innovation just can't be stopped. And they've allowed innovation in the ecosystem. If I was to interpret this, Vinnie, if I have an NFT and my board apiop yacht club NFT, if I loaded into this app, unlocked a bunch of features and let me into a secret chat room and gave me premium access to some videos, that would not be allowed under this terms of service, correct? I'm not sure the interpretation of this is like

let's say for example I did it on the website so you went to the website okay and then you download the app for that website and now because you've loaded up the NFT in the website the app features are unlocked for you because your user account is upgraded is that legal? Yeah I you know this is what happens to me with all this is what happened to me in the audible days

and we talked about this two weeks ago NFTs would be the perfect rapper for your collection of albums, you know, paid for e-books, whatever. So this would kill the e-book store or the audio bookstore. When I used to have to buy from Audible, I would open up Amazon's or Audible's website, find the book I wanted, purchase it there, then go to the app, unload the app from memory, reloaded from memory,

pull down to refresh, and, you know, maybe 60 seconds later I'll have it there. Yeah, yeah. And it's like, okay, well, just let me buy it through the Audible app. Why am I having to switch? And I don't mind exactly. I'm technically savvy, but perhaps my mom or cousin is not supertributed now. And now they've allowed it finally. This seems to me, Sonny, like they're trying to control it the way they try to control the

audiobook space. It's just going to fail eventually. It will. And I think this area is a lot more composable, right? You can basically do a lot more. In the Audible example, it's very limited things you could do. Here, I just don't even know how they can enforce it all because you could put an app through the app approval process. They could never see that that was there.

And then without ever going back to the approval process, you could start unlocking these features within the app. And both the app and the offline mechanisms out of apps for mechanism could work hand in hand. They would have to literally enforce all apps that are already in the store and try to take them down. and they can't do that. I mean, it's going to be the Wild Well, West. I think it's very exciting. Yeah, so the way, it's going to be amazing to watch Apple try to contend with this because crypto people are known to be, you know, Fers.

They're going to want to F with Apple. And they're pirates, let's face it. And I'm here for it. I can't wait to see the crypto monkeys, you know, come in and try to, you know, ape Tim Cook. And they're going to, they're going to poke the bear. and in a way that maybe like Epic Games, the creators of Fortnite, you know,

they've been very outspoken, Daniel Ack and Spotify, like, hey, listen, we can't make this business work if we're giving you 30% because we got to give the music industry

some 70% or whatever it is. Like, you're crushing us here. It's not going to economically work. And so the way Apple typically has done this is said, you know what? We'll just do enforcement. So it's like taxes,

right? Like the IRS doesn't need to enforce, you know, tax evasion. They just need to get Martha Stewart. The SEC's just got to get Martha Stewart to get people to stop inside our training. They're going to find people to make examples of. And this is going to be complete utter chaos.

Can I put an example or just throw something out there, which I think would be really powerful. Now, you know, a lot of this comes in and on antitrust. But imagine a keen crypto developer does something like this. They say, you know what? We will abide by Apple's 30%, but we're going to collect it outside. and Apple, you now, we have it, we're holding it for you in the smart contract, but we just don't want to use your mechanism. Those type of innovations will really push hard on this antitrust thing.

If Apple is saying, fine, there's this tax, and now you can only, you know, you have to pay the tax to our payment mechanism, those type of things are definitely anti-competitive. Because I think Lena Khan is completely, I don't want to say, incompetent, but I think she's off the mark. I don't think she's incompetent. She's obviously a very smart individual. But I think she's missing the real target. She's going after Zuckerberg for Giffy or the EU.

I'm sorry, the EU went after the European. Yeah, like going after Rumba who cares, going after like some VR app, who cares. If you really want to fight the real enemy, the real enemy is Amazon basics, you know, and the app stores. and all Lena Con has to do, it's not popular because Tim Cook's very popular and Apple's very popular, you just go to Apple and say, we want you to have alternate app stores allowed.

And once you do that, and Google Play can be on Apple or a new company called, you know, 0%, and if you pay 100 bucks a year for this app store as a subscription, you pay 0% in fees, that would be like my version of it. I'd say, hey, listen,

we're going to launch an app store, that's platform independent. You can use it on Android, iOS, and any other future one, including headsets. But this App Store is a membership app store. You pay $100 a year and you don't pay the 30%. Can you imagine what would happen for people who want to, you know, it would be like a Costco version of app stores.

Instead of paying a markup on every item, you just pay for a membership once a year. Things like that would be really good use of Lena Kahn's time. This is what the ecosystem has been waiting for, people have worked around it through the mobile web exceptions that Apple is allowed. I just really hope folks that listen to us here and listen to all the things around technology, look at this as an opening. Don't be discouraged by this and work around it.

The more they're trying to clamp down on it, things are going to squeak through, and they won't be able to pull it back in. It's a technology that is just not as enforceable in those type of ways without fully cutting it off. And I think it's very hard for them to take that line right now. One of the things you want to know before you invest in a company, which is what I do, is how good is their SEO, their search engine optimization? Why? Well, because when people are looking for your product, where are they going to go?

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Go to smashdigital.com slash twist. All right. Let's move on to NFT royalties. T this one up for me, Sonny. I don't exactly. understand how royalties work in NFTs myself. I understand the concept of royalties to the original artists, but I don't know how this was executed in things like OpenC and Ugal Labs, which owns Bay, would the Bay, the... This is a very similar... Yeah, it's a very similar example in terms of how the technology is, you know, sort of almost infinitely configurable. So the idea that when an NFT is minted, the contract behind it can include parameters to say, you know, if this NFT is involved in a transaction, that the certain portion of that transaction should be collected

as a fee and go back to the creator. It's a very simplistic example. Now, and, you know, if that NFT... Like in the music industry. So I wrote the song, you did a cover of it. As the person who wrote the song, I get some royalties. I got it. And that enforcement generally has been by the platform, because the platform is the place that is collecting the, you know, let's say between the buyer and seller and the platform is looking at the fee associated with that and making the, you know, pulling that fee, holding it, making it available to the creator. Now, what other, what's happened. What's an example of a platform that would do this? OpenC, open C is an example there. Now, what's happened is other platforms is launch now marketplaces, let's call it a marketplace, is a better term.

is they've emerged that they claim to be zero percent fees. And what they effectively do is allow a price to be negotiated between Vinny and J-Cal for a board ape. And what subsequently happens is they make the transfer between you to a zero-dollar transfer and then a money transfer, a separate transaction. And by doing that, they basically can work around these mechanisms. And there's different ways that this can happen. This is not many way.

And what uproar that this has created, And it's kind of tied into the Apple thing we're talking about is people that really believe in this and these projects that have put this together and the creators are behind it saying this is really bad for the ecosystem because we really finally thought we got to a place where we could be rewarded and we could participate in the growth of these things. And these new marketplaces, DYDX and a couple other ones have been created, pseudoswap, are doing this and are just working around sort of the core principle that was created. And so that's been the real uproar and the ecosystem around royalties today. This is fascinating in terms of the permissionlessness of this, Vinnie. If I could hand you a bag of cash and I just give you a 10K brick for your NFT and you send it from your wallet to my wallet, that's the power of crypto, is this permissionless. But that is recorded somewhere, correct? It's always records.

So that's recorded somewhere. And if it's recorded, then the person who was supposed to get that $6% on that $10,000, that $600. what could they do? They saw, they would see this, I guess, occur on some blockchain somewhere.

They see this transaction occur. What is their recourse? And then why would people build a marketplace to skirt this? Why would you want to skirt this? It seems like this is the ethos

of the place of the reason. What I've learned about humanity is a lot of people just don't have any ethos. Like, they don't care. There are people out there who just, there's people out there who like will steal people's tips.

Like, there are a lot of, Like, you know, people, humans in the world who just don't care about any other ones. They just care about themselves, right? They're very, like, they're very selfish and, you know, I think unethical. So, yes, while I agree that the royalties should be enforced, and I'm very pro royalties for artists in particular, I think that the problem comes in when you move an item from yourself to another wallet, if I want to move from one wallet to another, there's no royalty, but it looks like a transaction on chain.

Like, I can move it from MetaMass to a ledger, and I shouldn't be paying a fee, and there was no price. and there was no price. So I guess the real quick, so if I, you and I do a transaction like that over the counter, I say, hey, Jay, you want this moonbird?

You say, yeah, Vinny, I'll give you 10 Eth. It's like, great. She's sending me 10 Eth to this address. I send you to remember that address. There's no record of that transaction taking place. And therefore, there's no royalty due because, like,

how do you do it? It's the same as in the offline world if like you and I trade on a pair of sneakers. And, you know, like, you know, we have friends who trade sneakers. You know, you'll give you one, you'll pay for it.

then there's no transaction fee to the original sneaker or, you know, developer, owner, designer, whatever. So I guess in the real world, what we're trying to do, in the web three world, we're trying to, like, create this notion that it's all or nothing because, you know, and even though we don't accept in the real world that physical objects change hands all the time and there's no royalty being paid, we think that we automatically have to have a royalty because you can now track everything. It's not that simple. Now, let me, let me give you the counter argument here. I think that the royalty fee should be lower than 8%, 10%.

I think it should be at a point where it's almost de minimis. So let's call it sub 5% to the artist or 3%. Let's say 1%. No one's going to care at that point to do. We're not going to go around the corner trying to do a deal to save 100 bucks, even on a 10 grand thing. It's just not worth it. But the artist gets paid. So the 8% in this world is just as bad as 30%.

than the Apple world. It's a big, it's a big enough number that people are willing to work around and get a work around. So let's argue that the market is saying we don't like seven and a half, 10%, maybe even 5%. Let's move to a 3% royalty, which people, you know, the same as credit card fees, people will pay that. That probably would mean that less people would work around the system because the cost to work around the system and the effort is more than the fee that you're going to pay. I also think that you can't take a view that you have to have this thing universally enforced. And so what you should do is say, look, the ethos, the spirit of what we're trying to do

is that we collect a 3% royalty. If you want to work around it, that's fine, but you're just depriving the artists of his revenues, his incomes, whatever else. And then the platforms, Magic Eden, OpenC should just honestly, by default, the same as eBay, everyone else, say, look, we're going to just honor the artists request based on the smart contract. And if you transact through our platform, we're going to do that. And the platforms do that.

The platforms do that. Look, here's OpenC's royalty, just for people who are watching on YouTube.com slash this weekend or using Spotify to watch it. It's very elegant. Well, here's a, yeah, so this image shows, you know, an NFT buyer and an NFT seller have a transaction. The NFT seller and OpenC, you know, obviously they clear this transaction. OpenC then holds for some period of time the royalty and then ships it to the creator.

So it comes out of the seller's, you know, sale price and no big deal. They should be happy to do that. And I guess if the artists go after the platforms, the platforms then are where the majority of these transactions will occur. And I guess that's where we can get enforcement. And this is the thing I love most about NFTs. I love the fact that smart contracts and NFTs and crypto give the artists some ability to do this. This is kind of the best part of crypto.

But so Magic Eden's made a change. they're allowing you to make the royalty payment optional. Yeah, really? Exactly. Well, see, this is the thing then. I think what should happen is the artist should then, as a block, sue Eden. That's a very simple thing to do. You just get 10 of the artists to then sue them and say, you're, and basically, if they create enough pressure,

Magic Eden's going to say, you know what, we don't want to be the scumbags in this ecosystem. them. It's not worth the bad press. These artists deserve their payments. And don't you think they would crumble, Sunny, with the bad press? So let me just add this. Okay, so here's the issue. I think that Magic Eden and OpenC and the bigger players at scale, they're concerned with losing market share to like Hadeswap and Salon Art

and upcomers to make it optional. Now, I believe that the downside to this for them is that, artists will no longer support them. They'll have less. They're not pricing in the goodwill from the ecosystem. And I don't think that, I think that it's a bad, you know, the desire. Look, we live in an open capitalistic world. If you want to make a decision, let's see what the consequences are.

So they're going to make it optional. Then let's see what the consequence. There will be consequences. And if they don't, if they don't want to counter the free players, if they want to counter the free players, they think it's a threat, then, you know, then that's their decision. I personally think that the loyalty, the goodwill and loyalty that they get from, even the buyers, I'm happy to always pay the royalty fees. I have no issue with it, right?

The goodwill they lose from guys like me going elsewhere and saying, fine, you know, then I think it's bad. And I think it's not so bad for the ecosystem because what happens is people start going, you know, there's a lot of crypto-arbitrised traders. So the long-term investors, myself, Sonny, whoever else, the NFTs, we don't give a paying 5%, 7% royalties because we're going to just hold this thing for like 10 years. it's the guys who are buying and flipping every single day. They go buy a moonbird now, they sell it two hours later.

They make 5%. They're the ones upset because they're paying 8% on the transaction, on least on one side of the transaction. So the people that this policy impacts are the people who are trying to arbitrage and trade these things on a regular basis. And these exchanges are so busy chasing the volume metric of trades and how much volume they do in terms of trades, that they are catering to these.

traders, these day traders. And it's kind of like Robin Hood free trades. But you know, even in Robin Hood and anything else, there's always a catch. Someone's going to pay the price at some point, right? All right. We got one more story we can do here. SBF. I just interviewed him at the Altiminer Summit.

Unfortunately, it was private event. Chatham House rules. Can't talk too much about it. Although he did, I did ask him a little bit about the stable coins. And I won't tell you his answer. But it seemed like he was super enthusiastic. about stable coins. I'll leave it at that. But I've been seeing on Twitter that he, and he's been quite vocal about this, is pushing for more regulation. I saw a lot of backlash. So,

here's his tweet at a high level. A, we need regulatory oversight and customer protection. B, we need to ensure an open free economy where peer-to-peer transfers code, validators, etc., are presumptively free. C, we should establish regulation until then standards to ensure A and be. Sunny, what is the backlash to SBF about? Because I saw a lot of people saying like, you know, like really gnarly stuff about SBF. I don't get it. It seems to me like regulation is what would cure a lot of the problems and the uncertainty in the crypto space. So what's, what's behind the backlash here? Yeah, I think the primary backlash. And Vinny should chime in here, too, because he's talked a lot more about this than I have, is that the notion that he's even

putting out there that there should be regulation is against the ethos of the decentralized nature of this. And so the vocal voices around not wanting any of that really spoke up. And I think if we think about this ecosystem, the way we want it to exist at much more scale, we know that can't exist. It can't be the kind of a deregulated, decentralized environment. And so that is, that was the core of what led to it. It's like, oh, you know, you started in our world and now you're kind of going in this other world.

That was the main, main focus of the backlash out of this. And the concept here is, well, he has all the wallets. He's done incredibly well. Now he's pulling the ladder up behind him, I guess, in some way. Is that the sort of accusation here or the implied accusation? It is. But, you know, he's also backing it up. Like, they had an issue this week.

And I don't know the exact number where a bunch of, of their customers got fished and some money was stolen from their wallets. And they went and paid that back. And so with a good regulatory framework, there could be much more punishment for the folks that are doing those things. Insurance, other things can be created around insurance products can be created. And so I think as the entire ecosystem grows, he sees that. And he is backing it up because he's having to deal with these problems, which maybe the

loud folks that are speaking up are not dealing with that today. any, your take, because you've talked a lot about this too. I think that the exchanges have got a different agenda to the spirit of DeFi. Their agenda is to control the flows of funds through them and the DeFi. Because, you know, Coinbase, by the way, like they tried launching this deposit product defy, which they didn't do and offering high interest rates. And I think it was the ACC or someone shut them down. Remember that last year?

Yeah, so imagine that had gone live and the D5 fallout happened and they were exposed in some way to some of the crashes and drains. That would have been disastrous, especially given the scale they were at. And Coinbase is pretty responsible, so it's probably would have been, they probably would have been not more safer about it. I think that, you know, when you look at the exchanges and whether it's SBF or CZ or any of the big exchanges, they're going to vest the interest in maintaining the status quo and having regulations be, you know, a little obscured where they can. operate with their offshore structures and whatever else. They don't really want regulations. Look, if you really want regulations to come in,

you should be willing to submit to a full audit of everything you've done for the past five years as an exchange to, like, I think, how are they going to fare with that? I mean, how is Ted they're going to do with a five-year audit? Well, they won't want to get regulated. But if, if FTX wants to be regulated and finance wants to be regulated and all the other exchange will be regulated, and they feel that they've done. done nothing wrong over the past five years since 2017, they should submit for a full audit.

And that's the young Deloids come in. And then that's part of what you do to get a U.S. license. Yeah, I don't know. Jake, I have this tweet from a long time. I'll try to find it sent it. But, you know, humans are humans' worst enemy. The humans kill more humans than anyone on the planet. We can't trust each other.

Like, we can't trust humans to make baby food. We have to regulate that, right? You know, there's formula or whatever. And so I just think it's really insane to think about any. at-scale environment without some level of control because we can't even do the most pure and innocent of things by ourselves without some oversight around those things. Would this be analogous to the sort of pirate days of the internet with Napster, BitTorrent, Nutella, all of that, right? You had these people who were like, you know what?

Information wants to be free. Anybody in the world should be able to get any file. And then we said, you know what, in the Western world, at least, we're going to respect copyright, Spotify will come out, we'll have Netflix. you'll be able to get this information. You can still buy CDs, but, you know, BitTorrent and Nutella and all these other things, Kazah, they're going to be kind of an underground that goes from being, you know, 90% of the market when the music industry didn't let you do stuff online to point 90 basis points of the market, 1% of the market.

That's what's happening in crypto. Is it not? That's the analogy here? Perfect one. I think I completely agree where we thought, all files should exchange for free and all movies should be for free and all music should be for free. and all TV shows should be for free to, you know, we had to create a sustainable ecosystem. And look, it's better for everyone.

Like I, you know, look back to those times when it was all these download Kazah, Napster, and all those things to what it is now. It's much easier to pay and watch a free movie and you get great content out of it because the studios are willing to invest into it. So I think it's just a natural... You don't worry about downloading a virus or something. I mean, what percentage of these exchanges are going to be able to transact with the Western world, the Canada's, the Germany's, the UK's, the United States.

I mean, all of these offshoreers are going to just be banned. And if you want to use them as an individual who lives in the United States, you're going to be able to use them, just like a person in the United States could use Kazaa, whatever, still out there. But you may get dinged, right? You could get dinged. Yeah, I think so. And then the majority of people, like, you know, we've talked about this as well.

Crypto is a worldwide phenomenon. The technology is related to our worldwide. And so there may be places that people, operate like that, but for the U.S., you know, the services we use, and the Netflix of the world, the Apple Music of the world, the Spotify's of the world. You can still go and download music for free and movies for free, but it's the Wild Wild West and there's a risk associated with it. And I think we'll just see the exact same thing play out here in this ecosystem. All right. This has been another amazing episode of our Crypto Roundtable.

We've got to get moving here. I know you guys got a lot of work to do today. We covered so much, so many topics. Let's get the plugs in here. Vinnie, how can people engage with your different companies and what you've invested in and built in the world? I know you got Civic and I know you got Waitroom. Weightroom.com is easy. Go download Waitroom.com for one-on-one video conferencing. That's easy. And then Civic, what do you need in Civic?

You're looking for partners. You're looking for employees. What are you looking for? Actually, so we're launching, thanks, Jake. We're launching Civic. com. It's live right now. We're doing a whole bunch of new features next week for the Salonan Conference.

go and check it out, Civic.Me, you can actually just rely on a wallet to it. You can view your wallet. It's a very great, it's a great visual explorer of your NFTs and we're bringing in identity there

and a whole bunch of other things. It's a, it's a culmination of efforts of years and years of development and creating decentralized Web3 identity management. Of course, everybody wants to get all four besties on their cap table. Some people have gotten two. I think there's a person who got three,

but only one company in the world, definitive intelligence got all four besties. on the cap table. And that's Sunny Madra's company. Like I said, all four Bessies. And Vinny. Okay, fine.

4.1. So, Sonny, tell everybody what is definitive intelligence and maybe... Yeah. No, thanks for that.

Yeah, definitive intelligence, we focus on Web3 growth. And so understanding what your users are doing on chain and then using that information to help grow your product. product analytics, growth analytics. And so, you know, we're working with companies ranging from NFT projects to utility projects

to, you know, folks in royalties and or loyalty on chain. And so if you are doing anything interesting in and around Web 3, we're there to help you both from our platform perspective or even just our growth teams that can interact with your company to help you figure out how best to take advantage of all the great data that's available in the ecosystem. And you're hiring right now? And what for? Yeah, we're always, we're always hiring great folks, yeah.

All right. So you know how to find Sunny. I'm guessing you're Sunny at definitive intelligence. That's it, exactly. That definitive.io, definitive. Dot I. Yeah, Sunny. Now, no XYZ.

Is that XYZ over? Is that over the XYZ domain? I think it's still there. I think, you know, it's still there. But, all right, one question. I forgot. I was going to take a couple questions from the audience. How, this is from a drink.

gaming. How does yield nodes and all the staking companies stopping withdrawals affect crypto adoption? I have no idea what that means. Explain to a dealify what that means, and if you can, and maybe the answer to this. Well, let's maybe make it generic because I don't know about the specific question, but like if the question is how are withdrawals being stopped and how does that effect and whether those withdrawals are, you know, through wallets or exchanges or whatever it happens to be or contracts that someone has deposited something in. It's really bad for the crypto ecosystem. It removes a lot of trust and it ties back to a regulation section that we had today. If you have put your money into something that's promised you yield and promised

you the flexibility to get your money in or out on your own and someone has then changed the parameters of that and such that you can't get your money out or your money is gone or has been stolen. That is really, really bad and that's why we need regulation. All right, everybody, for Vinny and Sunny, I'm JCal, and we'll see you next time on this week and startup's Crypto Roundtable. Bye-bye. All right. Bye, guys. Thank you. Great job, everybody.