Otherside’s utterly avoidable NFT disaster
Good morning, and welcome to Protocol Fintech. This Tuesday: Otherside’s downside, Robinhood vs. Munger, and Wikimedia drops crypto.
Off the chain
How long will crypto’s gravy train for consumers last? Crypto.com is cutting back its crypto-linked card rewards and eliminating staking rewards. Its native CRO token tumbled as a result. A marketing land grab means big handouts in the name of customer acquisition: That’s not new to crypto. What is new is how quickly those may disappear this time. Everything moves fast in crypto.— Owen Thomas (email | twitter)
Yuga Labs’ much-anticipated virtual land sale sent the Ethereum network into a tailspin Saturday, renewing questions about whether the smart-contract network is up to the challenges new businesses built on it pose.
The creator of the Bored Ape Yacht Club NFT collection sold about $320 million worth of virtual land NFTs Saturday for Otherside, its planned metaverse project. The funds, raised in the apecoin cryptocurrency Yuga is using for Otherside, can’t be sold for one year, according to project organizers.
About 55,000 NFTs were sold for about $5,800 each at apecoin’s price at the time. Secondary sales have reached $586 million, according to CryptoSlam.
Ethereum’s problems are still very much with us. The network’s well-documented high transaction fees and slow execution speeds still persist.
- The massive demand caused Ethereum gas fees, as transaction fees are known, to spike. Yuga, which has also acquired the CryptoPunks and Meebits NFT collections, apologized for the episode and said it would refund gas fees for people with failed transactions.
- During the minting of Otherdeed NFTs, Ethereum fees spiked, jumping higher than the actual costs of purchasing the underlying Otherdeed NFTs themselves. Transaction costs reached $123 million, according to Bloomberg. Yuga had decided against doing a Dutch auction, where prices drop over time, as a technique that might reduce gas fees. Instead, it limited the number of NFTs each wallet could purchase in each wave of sales.
- Simple code fixes could have reduced gas fees, according to Will Papper, co-founder for Syndicate, a DAO infrastructure startup. “A lot of users were upset that Yuga didn't have a gas-optimized smart contract for minting,” said Gabe Frank, CEO of NFT lending service Arcade.
Ethereum 2.0 is coming. Will it fix this kind of hiccup?
- Ethereum is expected to move to Ethereum 2.0 sometime later this year. It will move the network to a proof-of-stake consensus mechanism, cutting its environmental impact.
- But another major change, sharding, which will cut gas fees and increase transaction speeds, is not expected until next year.
- Even then, many analysts expect Layer 2 networks on Ethereum to take on more of the transactions on the Ethereum network. And other Layer 1 blockchains such as Avalanche, Solana and Cardano are trying to compete for Ethereum’s developers.
Why not just build your own chain? Yuga suggested the ApeCoin DAO, a technically separate organization that oversees apecoin, could follow Dapper Labs’ path in building its own blockchain.
- Dapper Labs, the crypto pioneer behind CryptoKitties and NBA Top Shot, looked at the available blockchains and said: Nah, we’ll build our own.
- Yuga already helped create a token, apecoin. But apecoin is just one of many cryptocurrencies riding on the Ethereum blockchain
- The ApeCoin DAO could set up its own blockchain. It makes sense, given the challenges facing Ethereum. But it is not a simple task. Dapper spent a couple years building out its own blockchain, Flow, which was announced in September 2019 and began operating in October 2020. Dapper customized the blockchain for consumer apps and even created its own programming language called Cadence for smart contracts.
- Having its own chain could be a plus as Yuga seeks to compete with other metaverse projects such as Decentraland and Sandbox, which both use Ethereum-based tokens.
Meanwhile, what Otherside is for, besides making Yuga Labs money, is unclear. So far, selling hot NFTs is easier than building a metaverse that people use. The headlines around all the money Yuga and its associated projects raise may be racing ahead of player interest. While a popular metaverse can draw many people in, a downside when everything is financialized is that people who may want to use these services could be driven away by the high prices. “The challenge with [the] ‘selling land’ model is that incentives aren't always aligned,” said Anand Agarawala, CEO and co-founder at Spatial, a virtual gallery metaverse service. “Many people buy land as an asset and try to maximize price while creators who can actually develop amazing experiences in it get priced out. And you end up with lots of empty lots.”
A MESSAGE FROM CHECKOUT.COM
The emergence of DeFi is shaking up the way consumers think about how they store value. For reference, Visa saw $2.5 billion of crypto-backed transactions in the first quarter of 2022. We’re seeing consumers really starting to use this in a way that even a year ago was kind of hypothetical.
On the money
On Protocol: The EU Commission accused Apple of violating antitrust rules by denying competitors access to the underlying NFC tech it uses for Apple Pay, and in turn undermining would-be rivals’ tap-to-pay functions.
The Solana network was flooded with data and went down for seven hours. A large volume of bots reportedly flooded the Candy Machine NFT minting tool, pushing validators out of consensus.
Also on Protocol: Some 23 members of Congress wrote a letter to the EPA asking for stricter regulation of bitcoin’s environmental impact. Top crypto leaders like Jack Dorsey and Michael Saylor responded, saying the letter was plagued with “misconceptions about bitcoin and digital asset mining.”
The Wikimedia Foundation does not want your bitcoin anymore. After several members of the community asked the foundation to stop accepting crypto as a payment method last month, citing environmental concerns, the foundation decided to officially close its BitPay account.
A new Tesla SEC filing reveals that it’s bullish on digital assets. In the electric car company’s latest quarterly SEC report, it said it was optimistic about “the long-term potential of digital assets both as an investment and also as a liquid alternative to cash,” even though it ended a short-lived experiment with taking bitcoin in May 2021.
Robinhood is clapping back at Charlie Munger’s “tiresome” criticism of the online brokerage after he dinged payment for order flow. “He should just say what he really means: Unless you look, think, and act like him, you cannot and should not be an investor,” Jacqueline Ortiz Ramsay, a top comms official, told us.
Munger BFF Warren Buffett took his own swing at bitcoin. "If you told me you owned all the bitcoin in the world and you offered it to me for $25, I wouldn't take it. What would I do with it?” he said at the Berkshire Hathaway shareholder meeting.
For a slightly kinder take on crypto, there’s Citadel Securities founder Ken Griffin. At the Milken Institute Global Conference in Los Angeles, he compared cryptocurrencies to abstract art, which he collects. "Why is a painting worth $10 million?” he said. “It's oil on canvas. So value is in the eyes of the beholder."
Mairead McGuinness, the EU Commissioner for Financial Stability, Financial Services and the Capital Markets Union, thinks that crypto needs to have global regulation set in place. “We need not look too far into the past to see the harm that financial innovation can cause without the right regulation and supervision in place,” she wrote in The Hill.
EBA Clearing, SWIFT and the Clearing House are piloting a program for instant cross-border payments. The test is scheduled to start at the end of the year, with 24 financial institutions joining in initially.
Framework Ventures raised $400 million. The VC firm plans to use the funds to invest in blockchain gaming projects, along with general Web3 and DeFi projects. This is Framework Ventures’ third crypto-focused fund.
CoinDCX raised $135 million. The crypto exchange’s series D round was led by Pantera Capital and Steadview Capital Management, with participation from Kingsway, Draper Dragon, Republic and Kindred.
Point raised $115 million. The home equity fintech’s series C round was led by WestCap, with participation from existing investors a16z, Ribbit Capital, Redwood Trust, Atalaya Capital Management and DAG Ventures.
Copper raised $29 million. Fiat Ventures led the digital banking startup’s series A round, with general partner Alex Harris joining Copper’s board. The round came just on the heels of its $9 million seed funding round back in October.
NovoPayment raised $19 million. The BaaS company’s series A round was led by Fuel Venture Capital and IDC Ventures. Enjoy this prime shade thrown by the Latina-founded, Miami-headquartered company as it sets plans to expand in the U.S. and Latin America: “Today, while Silicon Valley players shift to set up shop in South Florida, NovoPayment stands out as a native in the region.”
Revolut partnered with Cross River. The U.K.-based super app maker has signed up with fintech-friendly bank Cross River to start issuing personal loans to U.S. customers.
A MESSAGE FROM CHECKOUT.COM
Businesses — whether Web2 or Web3-oriented businesses that don’t want to hold crypto but do want to be able to interact with crypto holders — want to be able to offer that as a payment mechanism to their communities. The other is hands-on, where merchants are comfortable accepting crypto.
Thanks for reading — see you tomorrow!