May 11, 2022

Crypto Bahamas, Otherside fallout, and a little crime for good measure

Welcome to the Block & Mortar newsletter! Every week, we bring you the top stories and our analysis on where business meets web3: blockchain, cryptocurrencies, NFTs, and metaverse. Brought to you by Scott Robbin and Q McCallum.

Traffic jam on the way to Otherside

Last weekend saw the launch of Otherside deeds, the NFTs used to claim property in the highly-anticipated Otherside metaverse

Few details are known about Otherside – the promo trailer didn't exactly drop a lot of hints – but that didn’t stop enthusiasts from shelling out over $300 million in ApeCoin ($APE)  to mint their NFT deeds. This is a victory for parent company Yuga Labs (also home to the Bored Ape Yacht Club), right?  Sort of.  

The rush of buying activity brought the underlying Ethereum blockchain network to its knees, and drove up the gas fees that people pay for each attempted transaction.  Emphasis on "attempted." People had to pay gas fees even if their transaction didn't go through.

In total, all of this activity burned more than $157M in gas fees. And, interestingly enough, the price of the ApeCoin dropped steeply following the event.  That $300 million in ApeCoin is closer to $150 million as of this writing. 

Yuga Labs issued an apology and promised to refund gas fees for those who failed to mint:

“We are aware that some users had failed transactions due to the incredible demand being forced through Ethereum’s bottleneck. For those of you affected, we appreciate your willingness to build alongside us – know that we’ve got your back and will be refunding your gas.”

Regardless, the Otherside metaverse appears to be on track to create something unique and special. We hope to hear more about the game mechanics and other such details in the coming weeks. 

Magnates of the Caribbean

What do Tom Brady, Orlando Bloom, and Anthony Scaramucci have in common? Sure, they have As in their name.  More importantly, they were among the attendees of Sam Bankman-Fried’s Crypto Bahamas event.  This four-day business conference was a gathering of celebrities and Wall Street who’s-who to discuss the future of finance and web3.

The Bahamas, which is one of the only countries where companies can obtain a license for both crypto derivatives and the spot market, is quickly becoming the hub for crypto exchanges like Bankman-Fried’s FTX. Maybe it’s the loose business-friendly laws, maybe it’s the paper umbrellas in the drinks… who knows?  

We certainly don't know, since we weren't in attendance.  But only because our invitations got lost in the mail.

In France, it's called a “Royale with Crypto”

FTX isn't the only crypto exchange with something to celebrate. French financial regulator l'Autorité des marchés financiers (AMF) gave Binance the green light this week. 

The AMF's approval grants Binance the authority to offer new services in France and to directly market within the country. Binance plans to hire 250 people to build out its new Paris office, which will serve as the hopping-off point for its European expansion. 

(Credit where it's due: we first saw this reported in Les Echos. Bloomberg provides English-language coverage of this story.)

Things Go Wrong™

In California, a group of plaintiffs has filed a lawsuit against the decentralized autonomous organization (DAO) bZx, claiming that the DeFi platform is responsible for a hack in which they lost about $1.5 million in crypto.  (This is a portion of a total $55 million lost in that hack.) 

How will this turn out?  It's hard to say.  Crypto is in weird legal territory. There aren't a lot of rules around it, and it hasn't really been tested in court.  As one of your Block & Mortar editors often points out: you never want to be a case law pioneer.  You really, really want there to be historical precedent on which you can set your expectations, and on which a judge can base their ruling.  Absent that, a lawsuit can be a real nail-biter.  (And extremely expensive, even if you win.)

We consulted with our crypto law expert and learned about a couple of things working against bZx here.  Traditionally, people do work under the form of a corporation or partnership to limit their individual liability.  That's why the "LL" in "LLC" stands for "limited liability." Without that protection it is possible that a DAO could be considered an "unincorporated association" and every member of the DAO can be individually liable for the DAO's debts.

What will be DAOs' path to corporation-like limited-liability protections? What will be the tradeoffs to get there? And what impact will those protections have on the pseudonymity so common in web3?  Keep an eye on the state of Wyoming.  They passed a law that lays some important groundwork:

On July 1, 2021, Wyoming’s Decentralized Autonomous Organization (“DAO”) law (Wy. Stat. § 17-31-101 through 17-31-115) became effective. This makes Wyoming the first U.S. state to clarify the legal status of, and legally recognize as a separate entity, a decentralized autonomous organization and its members, and it helps lay the foundation for this growing sector to provide a formal legal entity structure for those participating in unincorporated groups whose governance is generally coded into smart contracts.

… but maybe, Things Will Go Less Wrong In The Future?™

Despite the phrase, "the blockchain," there are many blockchains out there.  And every cryptocurrency rides atop a single blockchain.   It's sort of like hotel points, frequent flier miles, or in-store gift cards.  A given token is only valid on its home blockchain.  

A bridge is a crypto equivalent of a currency exchange, in that it (effectively) moves tokens from one underlying blockchain to another.  This is handy for you.  And also tempting for criminals, since so much value moves through bridges.  

Sometimes it helps to patronize a high-profile, name-brand currency exchange to reduce your risk of getting scammed.  After high-profile attacks this year on the decentralized Wormhole and Ronin bridges, established crypto exchanges like FTX and Coinbase are aiming to provide bridge-like services to address this concern.  According to a piece by Bloomberg's Olga Kharif:  

"It wouldn’t shock me if more users wanted exchanges as bridges given their expertise and bankroll," Sam Bankman-Fried, chief executive officer of FTX, said in an email. "We’re currently bridging some chains together and are thinking about potentially doing more."

The exchanges improve customer adoption and retention by providing the service, and customers get extra assurance from working with well-known companies.  Seems like a win-win.

Taking a wider view, it's interesting to see centralized services stepping in as a way to reduce consumer risk.  On the one hand, bringing trust to a field increases adoption.  On the other hand, decentralization is a key tenet of crypto.  What will be the ideal – or, at least, "settled-upon" – balance of decentralized versus centralized in web3?

These trading cards won't get lost in a move

Collectors have long bought and sold sports cards – hence the name "trading" cards –  and a card's price can fluctuate over time based on the athlete's activities.  

It's no surprise, then, that trading cards have taken on a new form as NFTs.  The digital cards certainly keep better than their paper equivalents.  And trading on a blockchain-based system is a natural fit.   (We'll spare you a lecture on marketplace design.  Just know that online markets make it easier for buyers and sellers to meet.  And the transparency from keeping prices and transactions in the public eye further improves the experience.  Blockchain is perfect for trading collectibles in this fashion.)

Going digital also lets collectors move beyond still images.  NBA TopShot, for example, mints NFTs of video clips.  And this week, the partnership between Draftkings and Metabilia offers some special perks for people who buy the rookie players' NFTs:

Called NFT Membership collectibles, owners will be rewarded with various event-based NFTs throughout the season, which will correspond to milestones or accomplishments for the respective athletes.

Taking a slightly different approach, Under Armour has paired up with Steph Curry to issue NFTs every time he scores a three-pointer.  Any chance that'll clog the network like the Otherdeeds minting did?

Jokes aside, we look forward to seeing what comes next as digital goods open new doors for collectibles.

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Note: We’d like to thank Shane Glynn for reviewing early newsletter drafts. Any mistakes that remain are ours.