'You’re frozen/ When your protocol’s not open'

In the crypto world, everything is decentralized, right? Well, maybe. That model is being tested as investment floods the market and mass advertising campaigns lure in curious consumers who are more interested in the financial buzz than blockchain pieties.

OpenSea is the new flashpoint of this debate. After raising $300 million in new funding, the NFT marketplace is now worth $13.3 billion. Its backers include Andreessen Horowitz and the Coatue hedge fund.

• The funding came as OpenSea froze the sale of 16 NFTs on its platform — a collection that included eight Bored Ape Yacht Club NFTs, seven Mutant Ape Yacht Club NFTs and one Clonex NFT.
• The NFTs in question were reportedly stolen, according to tweets by Todd Kramer of New York’s Ross+Kramer art gallery. Kramer said he’d been phished and the NFTs were stolen from his hot wallet. (The tweets have since been deleted.)
• OpenSea pointed out that freezing the NFTs on its marketplace doesn't mean they can't be swapped directly on the blockchain. “We do not have the power to freeze or delist NFTs that exist on these blockchains, however we do disable the ability to use OpenSea to buy or sell stolen items,” a company representative told ARTNews.
• Kramer’s deleted tweet is now an NFT, of course.

Decentralization is great until it’s not. To go mainstream, NFTs and other crypto products will need more ways to fight fraud and theft.

• While early adopters will gladly spend on Bored Apes and dog-meme coins, and accept the risk that comes along with them, mainstream consumers will be wary of buying NFTs or altcoins without some basic fraud protections. Those are easiest to implement in a centralized environment. “Centralization isn't always ‘evil’. It's sometimes a natural consequence of real users with real needs/problems,” Sameer Singh, a startup investor, wrote on Twitter.
• The industry may need to implement better security measures, especially for high-priced NFTs, which can often sell for more than $1 million each. It’s ironic: Isn’t the whole point of an NFT is to signal the certified owner of a digital artifact?
• Some crypto natives on Twitter complained about the loss of decentralization: “[With] true decentralized ownership no one should be able to step in.” But the question is whether there are enough of those people to make a mass market. They may be loud voices, but do they matter?

Web3 may be decentralized in theory, but not in practice. OpenSea can say it’s just a mere “blockchain explorer,” but its valuation suggests otherwise.

• OpenSea has run away with the NFT market, commanding an estimated 97% share in November.
• Coinbase had more than half of the bitcoin trading market in December. Even with the crypto market’s dip, it’s still worth $50 billion.
• Andreessen Horowitz, which raised a $2.2 billion crypto fund in June, is an investor in both companies.
• Hence the vicious Twitter fight between Block CEO Jack Dorsey, who has called out VCs for trying to turn Web3 into a centralized phenomenon so they can reap the profits, and a16z co-founder Marc Andreessen.

Businesses will find themselves choosing between crypto’s ideals and practical user demands. And there are no easy answers.

• For mainstream customers used to credit cards’ strong fraud safeguards, businesses will need to offer similar protections — or clearly explain why they are not doing so. Coinbase insures accounts up to $250,000, but not for breach of users’ account credentials, for example.
• It’s an article of faith that crypto transactions are irreversible. But there’s nothing inherent in blockchain technology that requires that, and some crypto projects already allow reversals. Companies like OpenSea that use existing blockchains without such features may have to build a “proprietary transaction layer,” Singh told Protocol in a DM.

The challenge for many crypto-native companies may be fear of a backlash from hardcore users — including their own employees. Change like this will take time. That could leave an opening for companies that care less about philosophy and more about customers.

— Tomio Geron (email | twitter)

A MESSAGE FROM MASTERCARD

59 million Americans work outside the traditional employer benefit system - and more and more are moving away from that model as the gig economy grows. People, during the pandemic, are taking a step back and thinking about the traditional job setting and asking: ‘Is this what I want to do?’

Learn more

From Protocol | Fintech

The state of small-business fintech. Protocol and Morning Consult took an in-depth look at how small businesses are adapting to new tools for managing their finances.

Overheard

“It’s probably gotten way too deep at this point. But it’s what we signed up for.” —Ridley Plummer, project lead of the Australian Open’s plan to offer NFTs corresponding to tiny portions of the tournament court’s surface.

“That battle’s not going away. The SEC’s not going to run from this. The CFTC is not going to yield.” —Former CFTC Chairman J. Christopher Giancarlo on the debate over which agency should take the lead in regulating crypto.

“DAOs aren’t suppose [sic] to be ‘run by someone,’ right?” —Binance CEO Changpeng Zhao, responding to a Twitter query on who runs the friendliest DAO.​

3 questions for Rania Succar, senior vice president of Intuit’s QuickBooks Money Platform

What fintech trend are you most excited about?

We’re seeing the impact crypto can have on financial markets and increasing adoption among consumers, but the possibilities crypto presents for powering prosperity for small businesses are potentially even more exciting, yet still very nascent. Crypto can ease the very real cash-flow challenges that often lead to SMB failure. Providing accessibility to the crypto ecosystem opens up many exciting opportunities including smart contracts that enable an SMB to finance an open invoice through DeFi or instant and low-cost money-movement options for SMBs.

What fintech trend is most troubling for you?

Despite all the innovation in fintech, adoption among small businesses continues to lag. A prime example of this is in the space of B2B payments, which has the potential to completely be disrupted by fintech solutions. For context, 81% of B2B transactions are still checks. This means that small businesses are still struggling with age-old challenges of waiting weeks to get paid and spending hours — in some cases, up to 40 hours a month — logging information in spreadsheets or even on paper. It can take a long time for small business owners to adopt new technology. While we certainly have seen an accelerated shift to digital solutions through the pandemic, a very large share of small businesses continue to stick with old patterns.

What's been your biggest professional blunder, and how did it help you?

In my view, the biggest professional blunders take place by being in a job that you are not deeply motivated by. I constantly reflect on what’s important to me and where I get energy and that informs my view on when I’m ready for the next role and what criteria I look for in a role. I also always invest a lot in making sure I feel great about the people I’m working with. That creates significant safe space when something goes wrong — whether it’s an unexpected product issue or not hitting targets in a given year. I have had my fair share of moments when things go wrong — but they end up being areas we move on from really quickly, because I’m working in environments that celebrate courageous bets and failing fast.

Need to know

PollenPay is set to launch in the U.K. The fintech startup will offer a new “buy now, pay later” service.

Brian Armstrong bought a Los Angeles home for $133 million. The Coinbase CEO reportedly acquired the Bel-Air estate from Japanese entrepreneur Hideki Tomita.

INX acquired Tokensoft Transfer Agent. The crypto exchange operator bought a subsidiary which facilitates securities transactions with issuers. Financial terms were not disclosed.

Mozilla paused its cryptocurrency plans. After Jamie Zawinski, a co-founder of the open-source web browser project, blasted Mozilla for partnering with “planet-incinerating Ponzi grifters,” Mozilla said it would stop accepting crypto while it reviewed how doing so fit with its climate goals.

Making moves

Rostin Behnam was sworn in as the new CFTC chairman. Behnam, who joined the CFTC as a commissioner in 2017, had served as acting chairman since January 2021. The CFTC is poised to play a critical role in emerging crypto regulation.

Steve Quirk is Robinhood’s first chief brokerage officer. Quirk is joining the company from TD Ameritrade. He will oversee Robinhood’s broker-dealers, Robinhood Financial and Robinhood Securities.

Joe Kassim was named to First Capital Bank’s board. Kassim had joined the South Carolina bank in 2019 as president and chief operating officer.

Ian Rand was named Monument CEO. The former CEO of Barclays Business Banking will replace the digital bank’s co-founder, Mintoo Bhandari.

Deal flow

Petal raised $140 million. The consumer credit finance company’s series D round was led by Tarsadia Investments.

Cion Digital raised $12 million. The enterprise blockchain software company’s seed round was led by Green Visor Capital and 645 Ventures.

Rupifi raised $25 million. The India-based “buy now, pay later” startup’s financing round was led by Tiger Global and Bessemer Venture Partners.

A MESSAGE FROM MASTERCARD

A shift in the way health insurance and benefits are handled has helped free workers from unfavorable working conditions and unlocked opportunity for the millions of gig workers entering the labor market. In October 2020, Mastercard and Stride Health partnered to bring portable benefits to gig and independent workers.

Learn more

Data point

$15.8 trillion: That’s the total crypto transaction volume in 2021, up 567% from 2020, according to Chainalysis.