INERTIA Advisory - Weekly Newsletter - 19/04/2022
Welcome to INERTIA Advisory’s weekly newsletter, where you will receive updates on the most remarkable things happening in the cryptocurrency space.
Enjoy!
The Metaverse
As many of you probably know, “The Metaverse” is a very wide concept and a global consensus still hasn’t been reached to describe what this represents. Thus, since this week’s newsletter will be pretty much focused on The Metaverse, we will describe it as a digital space where people go from socializing with each other to sharing experiences and adventures by playing virtual games, going to concerts within digital worlds, or even exploring the remotest and darkest parts of the metaverse.
There are two types of digital worlds. The first one is centralized (or closed) and it is mainly driven by a big multinational that owns the master key of the digital world. All assets stored in that closed metaverse, belong to the corporation that controls them, and they could be erased at any moment in time by the company itself. The second one, however, is an open, NFT-based, and decentralized digital world. This Metaverse is a blockchain-based Metaverse that follows Web3 principles, seeking decentralization by giving away the governance of the digital world to its users and providing full ownership of the digital assets using the NFT technology.
Here is a little reminder of what are the differences between Web1, Web2 & Web3;
Now that I have made an introduction to The Metaverse, let’s dig into what is going on within the current centralized and decentralized digital world landscapes.
Meta, formerly Facebook, has been making a big effort to rebrand the company and make people change their perspectives on the company. Meta has reputationally suffered in the past, making the management body of the company take this bet toward what they think is the future of the company. As a matter of fact, Meta is reportedly about to invest + US $10 Billion annually in The Metaverse in the upcoming years.
However, the approach that Mark Zuckerberg and his company is taking is, how could I say it… very wrong. Meta’s founder and CEO stated that the e-commerce of the digital assets within Meta’s digital world will be subjected to a specific fee structure that makes the company’s approach very questionable.
Firstly, the ability to create within Meta’s Metaverse will be limited to just a “handful” of creators, making this digital world kind of inaccessible for the creator economy. Here, we are talking about fashion accessories, digital real estate, in-game assets, and more. In addition, those selected people who will be able to start creating in Meta’s digital world will face up to 47.5% in fees that will go to the company itself. Meta’s Quest store, which sells products for its Oculus headsets, charges a 30% transaction fee. However, in addition to that Meta’s Horizon Worlds online store charges an additional 25% of the remaining profits.
The company is trying to justify itself by saying that when a revenue share model is implemented, the final cut will be less than the 30% fee that Apple and other companies take.
Mark, let me tell you something. You are not competing against Apple and other centralized companies right now, you are going against NFT-based decentralized metaverses, whose assets are traded in NFT marketplaces that charge up to 2.5%!!
Even Opensea, the largest NFT marketplace by volume in the world has been criticized for its “high” fees (the marketplace has a plain fee of 2.5%) haha! On the other hand, Meta is pretending to come as a new player in the digital world space and start charging 1.800% higher fees than the most criticized NFT marketplace. Like, come on… you can do it better Meta. If not, the narrative that Mark Zuckerberg and Meta (formerly Facebook) are unable to create anything by themselves and have to end up buying the competence might end up being true after all.
As a matter of fact, the biggest and clearest advantage that Open Metaverses will have on public blockchains is the creators’ economy. These decentralized digital worlds are made by the people and for the people. A good example of this is “The Otherside”, the open metaverse that Yuga Labs, the team behind the creation of the Bored Ape Yacht Club, is creating for NFT crypto degens.
The Otherside will reportedly be an open digital world where people will be able to create and build anything inside the digital world. In addition, NFT collections will be able to be imported by using 3D modeling tools, bringing already existing communities to this new world.
Let’s see how the space evolves in the next couple of months but in the meanwhile, see how the debate of BAYC vs Meta in a nutshell;
DeFi
Uniswap
Uniswap Labs, the company behind the creation of Uniswap which is the largest decentralized exchange in the world by traded volume, and its investors are being sued by a woman who claims the company’s failure to comply with securities laws.
The demandant is alleging a lack of KYC (Know-Your-Customer) due diligence and failure to register as a broker-dealer with the SEC (Securities Exchange Commission) that were responsible for putting investors at risk by allowing scammers to launch “pump and dump” schemes in the Uniswap protocol.
Uniswap Labs spokesperson said that “These allegations are meritless and the complaint is riddled with factual inaccuracies. We plan to vigorously defend against this suit.”
In my humble opinion, this seems to be a clear intended case against Uniswap as a whole. For those of you that do not understand the mechanics of Uniswap, here goes an explanation. Uniswap Labs is a US-based LLC that is responsible for creating a DeFi protocol called Uniswap. Uniswap the protocol, where you can exchange tokens permissionless, is a decentralized protocol that runs on Ethereum. In other words, it is basically a piece of code that facilitates people to transact without having to register anywhere.
As Uniswap, the protocol, cannot be stopped unless the whole Ethereum network is stopped (or if it goes through a vocation between the Uniswap governance token holders), regulators are now going after the centralized entity that is responsible for creating this software.
The response of the crypto community is hilarious when looking at the tokens that this lady was investing in without (obviously) making zero research at all and trying to make fast money. Some of the tokens are: “Rocket Bunny Token”, “BoomBaby” and “Matrix Samurai” among others.
Beanstalk
Beanstalk, an Ethereum-based stablecoin protocol suffered a US $182 million loss. The “hacker” obtained through a flash-loan to create a fake improvement proposal in the protocol to transfer funds to another wallet.
Improvement proposals in DeFi are used to propose changes within DeFi protocols. In order to vote on those improvement proposals, an individual must own the DeFi protocol’s “governance” tokens. Thus, the hacker took a big loan on those tokens and was able to vote for the “fake” proposal that he made. Being able to transfer funds to his wallet.
Regulation
United States
Cryptocurrency lender Celsius will stop offering its cryptocurrency interest accounts to US retail users. Users’ funds will immediately be transferred to a custody account where the funds will not be receiving interests anymore.
Accredited investors’ deposits, on the other hand, will continue to pay normal interests. This move does not surprise anyone as Celsius’ competitors saw the same regulatory crackdown back during the last months. BlockFi had even to pay over US $100 million for offering unregistered securities.
Tom Emmer, congressman for Minnesota’s 6th District and crypto enthusiast, called Gary Gensler ( SEC Governor) up for forcing these companies to stop offering this kind of product to retail people.
Portugal
Banco de Portugal updated its list of virtual asset service providers adding Bison Digital Assets as the country’s fifth licensed crypto exchange.
The company was newly created to operate under Bison Bank, which is fully owned by a Chinese private capital firm based in Hong Kong, and will offer crypto services to high net worth clients.
Canada
The Bank of Canada has become the first G7 country to turn to quantum computing to simulate scenarios where cryptocurrency and fiat currency can coexist.
Multiverse Computing has completed its proof-of-concept, which combines blockchain data from USDT (a US Dollar pegged stablecoin), and public data from up to 10 major financial institutions. It also consulted with experts from two major Canadian banks to come up with realistic parameters.
Russia
Russia will legalize crypto payments in the country. The ministry of Finance completed a bill to provide citizens and Russian crypto investors with clarity around digital assets and digital mining. Called “On Digital Current”, the document addresses previously unexplored aspects of Russian regulation for this nascent asset class.
Among these aspects is the classification of digital currency, the legal framework for its issuance and legal circulation in Russia, certifications, trading, and more.
Let’s see how regulators from other countries see this approach taken by Russia. I fear that this serves as an excuse to overregulate the industry without any proven example that Russian oligarchs are using cryptocurrencies to evade economical sanctions.
More News
Innovation
Nexo, a major cryptocurrency loan company, has partnered with Mastercard and the peer-to-peer payment startup DiPocket to launch the Nexo Card, a crypto card allowing cardholders to use their crypto as collateral to pay for services rather than selling them.
According to the firm, the Nexo Card’s credit line starts and stays at the 0% annual percentage rate and the product is the first-of-its-kind crypto-backed Mastercard credit card. The card also requires no minimum repayments and doesn’t take foreign exchange fees of up to 20,000€. Like traditional Mastercard credit cards, the Nexo Card is available as a virtual as well as a physical card and comes with direct Apple Pay and Google Pay integrations.
Nexo anticipates the Nexo Card to be accepted by 92 million merchants worldwide where Mastercard is accepted, allowing investors to spend up to 90% of the fiat value of their crypto in seconds without selling any of it.
This could become a game-changer for those people who have large capital appreciations on their cryptocurrency portfolios. At the end of the day, Nexus is allowing people to take loans against their portfolio not forcing them to sell their position and face a tax on capital gains.
This is only possible by the innovative implementation of Mastercard Send Cross Border, an initiative that eliminates the need for correspondent banking relationships that the company announced back in 2020. Here is a little recap of what it is about.
Crypto Blockchain Venture Funding
The cryptocurrency space saw a record US $12 billion in Venture Funding across 624 deals in Q1 2022. The sector has increased for seven consecutive quarters now.
Here is a little breakdown of where the sectors that the capital flew into. As it can be seen, the NFTs/Gaming sector is by far the winner. This is carried by the revolutionary Play-to-Earn gaming modality which is predicted to be a game-changer in the whole gaming ecosystem.