Welcome to the Block & Mortar newsletter! Every week, I bring you the top stories and my analysis on where business meets web3: blockchain, cryptocurrencies, NFTs, and metaverse. Brought to you by Q McCallum.
Reading online? Subscribe to get this in your inbox on Tuesdays.
It turns out I could have replaced the previous newsletter with this video summary of crypto’s hell week. Lesson learned: don’t write; just wait for the memes. Maybe after the new year I’ll relaunch Block & Mortar as a user-generated content website called I Can Haz Web3?
The world is still sizing up FTX’s blast radius. Thus far crypto lender BlockFi has filed for chapter 11 and Genesis has suspended withdrawals. The Ontario Teachers’ Pension Plan has been the largest mainstream player to acknowledge (and then write down) their FTX investment. And a few people have accused Binance’s Changpeng “CZ” Zhao of setting the crash in motion. Seems strange to vilify the person who spotted the smoke, instead of going after the arsonist, but what do I know?
(It’s been weird to watch the implosion of FTX play out on Twitter, a site that is itself teetering on the edge of collapse. But that’s another story.)
There have also been changes inside FTX itself. Founder-CEO and head of tweet threads Sam Bankman-Fried has jumped from the sinking ship parted ways from his creation. I’ll cover the two in separate segments.
Let’s start with Sam:
It’s time for Choose Your Own Adventure, FTX edition.
Your business has just gone up in smoke and a lot of money is missing. Like, a lot of money. Creditors are already just a wee bit upset with you, and then it surfaces that you cashed out $300M from the company before things went pear-shaped. Two countries are claiming first dibs on putting you behind bars. What would you do?
Chill in your $40M penthouse in the Bahamas.
Go on the runTake a little time away for self-reflection.
Like the poet Sean Carter, “I ain’t passed the bar but I know a little bit.” So, me, I’m sold on option 3. Anything you say can and will be used against you. An attorney would tell you to keep quiet.
I guess Sam missed this advice when shuffling his legal counsel? I say this because … he keeps … tweeting. And texting with journalists. Then tweeting some more, to express disappointment that this same journalist has published what he’s said. (Perhaps in the delirium of losing several billion dollars of other people’s money, he assumed this was a social call? I don’t know.)
I bet it’s hard to stay quiet when some very well-known and well-respected media outlets are publishing glowing reviews of you. And when folks are saying they’d consider backing you on your next go-round. But, when the nicest thing your previous employer can say about you is that you “have no ongoing role” at the company, take it as a freebie hint:
The best time to speak through legal counsel was about three weeks ago. The second-best time is right now.
As an attorney once so eloquently explained to me: it’s hard to misquote silence.
Have a quick palate-cleanser before we move on to the FTX side of the story.
The fashion industry was an early adopter of web3 and continues to explore the space. Accepting cryptocurrency for purchases. Developing NFT collections based on their creations. Using NFTs as event tickets and digital twins of physical goods. Even setting up shop in Minecraft.
This isn’t just the big-name fashion houses, either. Footwear titan Nike has been on an absolute tear in web3, acquiring companies (such as rtfkt) and partnering with artists, leading to more than $185 million in NFT sales alone.
The platform will be a place for people to buy, show off and trade phygital and virtual products; unlock access to events and products; and co-create products, says [Nike VP Ron] Faris, whose role is to lead Nike’s blockchain, Web3 and metaverse strategies. “When you think of a virtual product like a virtual shoe, it’s not just a shoe; it’s the product and the experience, service or utility baked in.” For example, a virtual shoe might enable holders to preorder a physical counterpart, enable token-gated chats with shoe designers or unlock wearability in a favourite game. “We don’t see that virtual product as the end of the purchase journey; it is the beginning of the journey,” Faris says.
I think it’s worth reading that excerpt a few times to appreciate the full scope of what Nike is doing. For example, co-creation of products turns participants into partners, which improves their relationship with the company and with their peers on the platform. And the ability to trade means that participants will have true ownership of their digital goods.
All of this is a sign that Nike really gets what web3 is about. This is not a company doing NFTs for the sake of doing NFTs; Nike is creating an experience to drive interest and customer loyalty, and doing so in a way that aligns with consumers’ expectations of web3.
Even better, Nike is using .Swoosh to bring more people into the fold:
Now, with Dot Swoosh, Nike wants to broaden the net of who its Web3 strategy is for, going beyond Rtfkt’s endemic customer base and tapping into its own, who may be less experienced in the world of Web3. The goal is to educate and onboard the Nike community, rather than the Web3 natives, to “level the playing field”, Faris says.
Sounds like Nike is playing the long game. I can’t wait to see what comes next.
Quick palate-cleanser number two:
Between the wider Crypto Winter and the FTX debacle, it’s good to see that the world hasn’t completely lost faith in web3 technology. In fact, some large financial institutions are making big plans with it:
On Tuesday, a lineup of top-shelf firms — Citigroup, HSBC, Wells Fargo, and MasterCard, among others — joined forces with the Federal Reserve Bank of New York to explore using distributed ledgers to connect deposits.
In a 12-week proof-of-concept project—the Regulated Liability Network U.S. Pilot—[the New York Innovation Center (NYIC)] will experiment with the concept of a regulated liability network (RLN). RLN is a concept for a financial market infrastructure (FMI) facilitating digital asset transactions that connect deposits held at regulated financial institutions using distributed ledger technology.
In light of recent events in crypto, I have to say that I find the RLN blockchain … refreshingly practical? It’s not about creating
toxic financial powderkegs high-yield investment vehicles and custom tokens. It’s about big banks testing new ways to exchange information.
There’s a general thought that once the older crowd – defined as “anyone older than you” – starts hanging out somewhere, it’s no longer exciting. It becomes a place for people who have responsibilities and who need to go to bed at a sensible hour. So yes, the RLN project could be seen as the arrival of The Olds to blockchain.
Works for me. I’d really, really like to put the Things Go Wrong™ segment back on the shelf for a while.
Lehman brothers collapsed in 2008. It was hardly the first domino in the financial crisis, but certainly the most well-known domino at the time. The most visible. For a lot of people, Lehman was the “oh this is real” moment.
Still, I remember reading somewhere – for the life of me, I don’t recall where – that Lehman was actually the best job on The Street after the crash. You can’t just shut down an investing operation overnight, right? You have to unwind all of the open positions. And in the wake of a financial crisis that’s claiming tons of banking jobs, unwinding a company of that size is a guarantee of several years’ steady work.
I wonder whether FTX will fulfill a similar role. Attorney John J Ray recently took over as CEO to steer the company through bankruptcy proceedings. If the first week’s discovery efforts are any indication, he and his team have a lot of work to do.
(Just in case A Certain Someone is reading this: Please notice that the new guy here is trying to save the company. You can’t show up on your first day, toting a sink, and knock down the proverbial load-bearing walls. You only get to do that if you’re a founder.)
Thus far Ray is … I was about to say “not impressed” by what he’s found? But this feels like the opposite:
Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.
(I hereby nominate “Declaration Of John J. Ray III In Support Of Chapter 11 Petitions And First Day Pleadings” for Diss Track of the Year 2022.)
To put this in perspective: Ray oversaw the restructuring of the dumpster fire and poster child of corporate malfeasance called Enron. That Enron. For him to say your business is the worst mess he’s ever seen, that’s like Sam Bankman-Fried telling you that you’ve torched a lot of money. It means you’ve truly achieved something special.
Not “good,” just “special.”
I encourage you to read the First Day Pleadings document in full. As while you read, keep this in mind:
Yes, FTX was a mess. Yes, there were complex crypto shenanigans. Yes, the place was an example of precisely how to not run a financial institution.
But let us not forget the real issue is that one guy walked off with the money.
This was an issue of Block & Mortar.
Who’s behind Block & Mortar? I'm Q McCallum. I've spent the past two decades in the emerging-tech space. And I'm very interested in web3 use cases.
Credit where it's due. Big thanks to Shane Glynn for reviewing early drafts. Any mistakes that remain are mine.
Reading this online? Or as a forward? Why not sign up? Get Block & Mortar news in your inbox, every week.
Privacy statement: I don’t share/rent/sell your personal info. Seriously.