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| The biggest crypto news and ideas of the day Jan. 19, 2022 If you were forwarded this newsletter and would like to receive it, sign up here. Sponsored by Welcome to The Node.
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Today’s must-reads Top Shelf QUALIFIED INVESTING: Investors have pulled $532 million out of crypto funds over the past five weeks, according to CoinShares. Thinking beyond this current bearish mood, Gemini has introduced a prime brokerage wing for institutional investors following the acquisition of trading technology platform Omniex. Just a few days ago, the crypto exchange bought out digital-asset manager Bitria. Meanwhile, iTrustCapital, a crypto individual retirement account (IRA) software company with 27,000 funded accounts, raised a $125 million Series A funding as it looks to expand into staking and DeFi governance opportunities. Finally, in a bit of a downer, the U.K. will ban crypto ads to all but high-net-worth or sophisticated investors.
ANTI-CRYPTO REQUIREMENT: Publicly traded student loan and financial service provider Social Finance Inc. (SoFi) has received conditional approval from the Office of the Comptroller of the Currency (OCC) to create a full-service national bank, provided the new entity does "not engage in any crypto-asset activities or services," the banking regulator announced on Tuesday. The Utah-based bank will begin with $5.3 billion in total assets and $718 million in capital and be subject to capital requirements. SoFi has a digital asset trading subsidiary.
BAN MINING? The vice chairman of the European Securities and Markets Authority (ESMA) has called to ban proof-of-work crypto mining in the European Union, citing environmental concerns. "Proof-of-stake has a significantly lower energy profile,” Erik Thedéen told the Financial Times. Proof-of-work is the tried and true consensus mechanism used by Bitcoin and Ethereum.
WALLET WOLLOP: OpenSea, the NFT marketplace platform with a $13.3 billion valuation, has acquired Dharma Labs, a wallet company launched in 2019. As part of the deal, Dharma co-founder Nadav Hollander will become OpenSea’s chief technology officer replacing OpenSea co-founder Alex Atallah, who will now oversee “NFT ecosystem development efforts.” Dharma, positioned as the "Robinhood of DeFi,” will shut down in one month. Separately, Opera has launched the beta version of its “Crypto Browser Project,” an internet browser with built-in Ethereum integrations targeted for “the crypto-native and the crypto-curious.”
ETHEREUM BRIDGE: Osmosis, the cross-chain decentralized exchange that has $1.6 billion in crypto “locked,” now has a bridge to Ethereum. Built by internet services provider Althea, the so-called Gravity Bridge will let users into the ETH-based economy by deploying a unique technological fix – rather than redeploying its smart contract on Ethereum. Relatedly, according to a JPMorgan analyst, Ethereum’s dominance in NFTs has shrunk to 80% of the total market (from 95%) due to congestion, high gas fees and competition from Solana.
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Overheard on CoinDesk TV... Sound Bites "Crypto is trading a lot like tech."
–Osprey Funds Founder and CEO Greg King, discussing the "balmy" crypto winter, on CoinDesk TV's "First Mover."
What others are writing... Off-Chain Signals Packy McCormack on “Web 3 debate” (Not Boring). NYTime’s Ephrat Livni on this, too, for DealBook. Grayscale taps Bloomberg for Future of Finance Index launch amid ETF push (The Block). Meanwhile, Grayscale’s flagship Bitcoin product sees discounts of 26.53% – the largest differential to BTC spot price ever. (Decrypt) Crypto ATMs in Singapore are closing down following the city-state’s financial regulator cracking down on crypto-related advertising (Decrypt) 400 accounts compromised in recent Crypto.com hack: CEO (Bloomberg) Man Group CEO: Firm is Considering a Crypto Fund (Blockworks) Will El Salvador default on its debt because of Bitcoin? Markets say yes (Protos) EPA tackles coal-to-crypto industry trend (Green Wire)
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Putting the news in perspective The Takeaway Meta's 'Horizon Worlds' Is Sophisticated Spygear New patents held by Facebook parent company Meta Platforms have given us an utterly predictable and bleak glimpse of Our Zucked Future. The concepts suggest that once its shared virtual space Horizon Worlds has reached its full potential, users’ facial expressions and other biological processes could be tracked and cataloged to make in-world advertising more effective. We should expect nothing less from a company whose main product is, in essence, mind control.
The patents, compiled by the Financial Times (FT), might or might not wind up in actual products. But several of them are conceptual layups that follow clearly from the one thing that Facebook has done effectively on the two-dimensional internet: spying on user behavior and using that data to target users with tailored advertising. Meta spokesman Nick Clegg effectively confirmed to FT that Horizon Worlds will rely on the same basic model of targeted advertising and commerce.
Meta is working to make sure that its tracking and targeting within Horizon Worlds, though, will be even better. (For the record, Horizon Worlds thus far appears to be a walled garden owned by one company. That is by definition not part of the “metaverse.”) That means it will gather even more data about users than Meta’s current sprawling surveillance apparatus – including, potentially, biometric data about the most intimate nuances of your real-world body.
One Meta patent found by the FT, for instance, would change media content based on the user’s facial expression through Meta’s virtual-reality headset. Another was for body-tracking hardware, nominally for use as an input controller, but also ripe for gathering data about users’ pose or other bodily data. A complementary patent would allow Meta’s customers (its advertisers, that is, not its users) to “sponsor the appearance of an object” in a virtual store.
These tools would allow Meta to track your moods and reactions and alter your metaverse experience to elicit the responses that best serve its business model. In the current version of the Facebook app, the desired response is broadly “engagement” – that is, reading, clicking, buying or otherwise interacting with a piece of content. As a variety of investigations have shown, Facebook/Meta over the years has relentlessly optimized for engagement, even when that engagement was with harmful content.
This could amount to a vastly deeper level of emotional influence than Meta already has over its users. Meta’s machine-learning models of individual biometric response data could be massively powerful for influencing users’ behavior, not just within Horizon Worlds, but anywhere online.
“My nightmare scenario is that targeted advertising based on our involuntary biological reactions to stimuli is going to start showing up in the metaverse,” a technology lawyer told the FT.
That presents immense privacy concerns, particularly given Facebook/Meta’s track record.
“These patent applications indicate that Meta has not learned its lesson, having been accused previously of storing users’ biometric data without permission,” Emma Taylor, a technology analyst at GlobalData, responded to the report in a statement. “It is likely that the same issues surrounding data privacy from existing social media platforms will be extended, or even exacerbated, in the metaverse.”
For investors, of course, all of this terrible prognostication just sounds like thousands of cash registers going “ka-ching.” If emotion-targeting ads work, they’ll be laughing all the way to the bank as Meta’s users cede their willpower. That demands a different question: Meta’s plans are just deliciously evil … but do they actually make sense as a business proposition? Investors are the main audience for the entire Meta project at this point – but what if they’re the ones getting snowed?
The focus on advertising is a good start if you’re a Meta stockholder. Targeted advertising is basically the only thing Facebook has ever actually done well. Check out this genuinely hilarious chart, on which Facebook’s “advertising” revenue is an up-and-to-the-right line, and “other” revenue is a worm crawling along the seafloor.
Even Google, whose revenue comes mostly from ads (80%), is much more diverse. Meta has no equivalent to Android, the Play Store or the Chromebook. It has consistently flubbed and fumbled its attempts to diversify. Arguably, its biggest expansion success was its acquisition of Instagram, which ended with the founders reportedly leaving acrimoniously. Mark Zuckerberg isn’t a genius, he’s the caretaker of an enhanced Hot or Not clone who will go to his senescence mumbling about Community from behind those doll-dead eyes while cashing a river of checks from Chinese factories making knockoff Skylanders fidget spinners.
So building an ad-backed social network BUT IN 3D is about as ambitious as investors should trust Meta to be. But despite the dire warnings, I wonder just how much actual advertising alpha Meta can generate from the emotional content of a facial expression. The real meat and potatoes of a social advertising platform is product and service sales, and understanding a user’s desires their relies mostly on text or language, searches they input or things they enthusiastically post about. Rest assured Meta will be tracking all of that within Horizon Worlds as well, but the addition of facial expression may turn out to be a marginal advance, at least in the short term.
And we must again return to the bare truth: Meta is just absolutely abysmal at actually building usable products. So far, Horizon Worlds looks incredibly low rent and generic, and being constantly targeted with tailored ads while creepily aware that your body is being tracked won’t make it more pleasant. I can’t imagine a critical mass of human beings wanting to spend enough time there for Meta to learn very much about them, however sophisticated the spy gear.
The Chaser...
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