Preamble rant:

The recent collapse of FTX, a large crypto exchange, and its associated entities, left many of us disappointed and disgusted with flashbacks to Enron and Lehman Brothers. Nothing is new under the sun. Unfortunately, whenever humans are involved, there is a potential for bad actors to make poor choices that wreak havoc. This has proven true across industries, countries, and time. But regulation and controls can help safeguard the little guy. I expect more regulation, legislation, and guidelines in the months and years to come.

Still, I worry that the wrong lessons are being learned. Some folks might see the FTX implosion as vindication that “crypto is bad”. Others might see it as the death knell for crypto and blockchain technology at large. This is a mistake. Technology is neither good nor bad. Humans use technology for good or bad. That’s an important distinction. One of my takeaways is to double-down and continue uncovering ways in which crypto and blockchain technologies can solve real-world problems. Let’s go!

Giant maps and summer road trips

When I was a kid, my family would go on road trips every summer. It was a great adventure. From time to time, we would pull over to the side of the road while our parents struggled and fumbled through giant fold-out maps. This was Nigeria in the 1990s. There was no internet. The maps were sometimes outdated. As you can imagine, we got lost a couple times. One day, we narrowly escaped being detained by the military because we inadvertently were driving towards Aso Rock, which was then the presidential palace of Abacha, one of Nigeria’s brutal dictators! Yikes!!

Today, I can’t remember the last time I opened up a giant fold-out map. Thank God for Google Maps! I now use it every day to find the optimal route for my commute. It’s been a massive time-saver as I’ve learned to deal with the joys of New Jersey’s clogged up highways. If you are like me, you might not have realized that some companies such as Uber pay Google to embed Maps in their products. Some other companies use Google Maps to optimize the distribution of their products. It’s really important for these companies that Google Maps is accurate and frequently updated.

As much as I love Google Maps, it’s not perfect.

Google Map’s gaps

I am going to highlight two gaps with existing mapping services: (1) Updates and (2) Ownership.

1. Updates

Google has done a great job mapping out the world. However, new roads and buildings are constructed every day, new businesses emerge with new signage. Logically, Google Maps prioritizes map updates for high population cities. Thus, Google updates Street View and Satellite pictures of big cities like London at least every year while smaller cities like my ancestral hometown, Ijebu-Ode, might be updated every couple of years. Is there a better solution?

2. Ownership

In 2013, Google acquired Waze for $1B. Waze was a fast-growing Google Maps competitor that utilized an army of volunteers to submit real-time traffic updates and review maps. Over 420,000 people volunteered to edit Waze’s maps. Additionally, Waze had ~100 employees at the time of acquisition. But get this: the average Waze employee received $1.2M after the acquisition but the volunteers received nothing. Ouch. Is there a better solution?

Introducing Hivemapper

Hivemapper is a decentralized map built by people using dashcams. It solves both of the problems - updates and ownership - outlined above by providing crypto-incentives and technology to anyone interested in participating.

Did you know that each photo in Google Maps’ Street View was taken by a Google employee in a specialized car with a 3D camera? One can imagine that the cost would be astronomical. Wouldn’t it be better if we could crowdsource images from drivers on their daily commute or road trips? Imagine if just 1% of all drivers did this. They would continually map every new highway off ramp, new small business, freshly created pothole, etc. But that’s not all. In the future, these drivers could also collect other types of data such as air quality, weather, noise, wireless coverage, and so on. These contributors would be rewarded with HONEY, the native token of Hivemapper. The best part is that it does not require any change in behavior, contributors need only install a dashcam the size of a deck of cards.

The Hivemapper Network recently launched on November 3, 2022. There are two dashcam models available priced from $549 (larger design) to $649 (smaller, more compact design shown above). If you order before January 7, 2023, you will be airdropped 500 Honey tokens. Then you will earn more tokens as you drive once the dashcam is activated.

Behind Hivemapper

Hivemapper is led by executives at the confluence of tech, logistics and crypto. The team has individuals who built and scaled global maps and geospatial products at Yahoo Maps, Scale AI, and Mapbox. They are mathematicians, physicists, computer scientists, logistic experts, artists, and designers working together to create a decentralized mapping network.

Hivemapper raised over $18M in its Series A from investors including Spark Capital, Multicoin Capital, Solana Ventures, and Founder Collective. Today, the company has a number of esteemed advisers including the current or former CEOs of Solana, Helium, Masterclass, Zillow, Tinder, and the former head of Apple Maps.

Concerns

While Hivemapper sounds interesting, it also set-off a number of alarm bells in my head. My concerns are centered around privacy, hacks and the HONEY token.

A. Privacy

Every website you visit and every click that you make on the internet is being monitored. Advertisers take that information to market new products and services to you. Now, imagine if your offline activities were being similarly tracked. Kinda scary, right? But I guess Google Maps is already tracking wherever I go.

Hivemapper says it has privacy by design. The dashcams only collect the minimum required information. Furthermore, the company blurs licenses plates and people’s faces in the pictures and videos captured.

B. Hacks

Even if Hivemapper does what it says it would do to protect privacy, imagine if a bad actor hacked the dashcams and started collecting unauthorized information. It could be ugly. Hivemapper needs to have in place strong information security protocols to safeguard its contributors and collected data.

C. HONEY token

If a contributor successfully earned 1,000 HONEY tokens while driving across the country, what can they do with it? Worst case scenario, they might sell it. But what is supporting the underlying value of HONEY? For starters, there is a cap on the total amount of HONEY. Thus, if demand increases over time, the price of the HONEY tokens should rise. I also think Hivemapper could establish partnerships with major brands then enable HONEY holders to trade them in for Uber Eats credit or airline loyalty points.

Some others have raised eyebrows about HONEY’s tokenomics. About 60% of the total HONEY supply has been pre-allocated to insiders with 20% going to employees, 15% to the company itself and 5% to the affiliated foundation. HONEY’s initial allocation of tokens to insiders is unusually high. For context, Ethereum only had 15% allocated to insiders while newer blockchains like Avalanche and Solana had 42% and 48% respectively.

But one of the golden rules of tokenomics is to avoid projects with high concentration of token ownership amongst a few owners:

Early successes

Despite some of these misgivings, Hivemapper has achieved some early wins.

During the alpha launch, the Hivemapper Network covered 95% of all roads in Manila, the capital of the Philippines in 6 months. It mapped 110,000 miles of road. Crucially, 75% of the map of Manila was refreshed every month. This is much higher than Google Maps.

Additionally, the city of Shreveport, Louisiana has also become a Hivemapper customer. The city paid $7,000 for dashcams to be put in the city’s fleet of garbage trucks. Shreveport hopes the frequently updated maps will provide greater visibility into residents’ challenges ex potholes etc.

Ideal customer

I have considered getting a Hivemapper dashcam just to test it out and engage with the network. But I don’t think I drive enough to accumulate a significant amount of HONEY tokens. I think the ideal customers might be owners of large fleets of vehicles. For instance, cross-country trucking companies, school buses, taxi companies, and mail delivery services. These large fleets cover a lot of miles on an ongoing basis and could generate a lot of HONEY tokens. Nonetheless, it might still be worthwhile for a regular Joe who moonlights as an Uber driver to try it out.

What do you think?

I hope you have a wonderful week ahead. Stay grounded and seize the day.

All the best,

Afolabi

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit afolabio.substack.com

If you are like me, then you were a little awkward in college. Here’s an example of an interaction I had on campus as I walked from my dorm to class.

Pretty college co-ed: “Hey! Do you want a free t-shirt?”

Me: Uh! (Awkwardly looks away. Runs in the opposite direction.)

Don’t hurt me🤕

It’s complicated.

Let’s flash back a few months before this awkward interaction.

So many thoughts rushed through my head as I packed my bags. I wondered if my American professors would understand my Nigerian accent. I wondered if I would easily make friends, maybe meet a nice girl. But then my mother rocked me back to earth as she exclaimed “Please stay away from credit cards o!”. Apparently, someone’s son was drowning in credit card debt. I guess he thought the money was free.

In Nigeria, less than 3% of consumers have access to credit. It’s a stark contrast to the US, where 83% of adults have credit cards (Federal Reserve). My mum’s friend’s son had recently relocated from Nigeria to the US for college. He was woefully unaware of how to manage credit. He would stop and chat with the pretty college co-eds waving free t-shirts in front of the gym. Eventually, he signed up for a couple of credit cards. Then it all went downhill. He didn’t stand a chance.

And so I stayed away from credit cards.

The case for credit 💳

But my views have evolved. I no longer see credit as a tool for self-destruction. Rather, I see credit as a tool - it’s neither good nor bad - it’s just a tool. If used properly, credit could help people build wealth and live healthier and happier lives. But if used improperly, it could lead to financial ruin. Credit is a double-edged sword.

Living in Nigeria meant you paid cash for everything. The words “mortgage”, “car loan”, “student debt” and “credit card bills” were not in our vocabulary. No one had credit! And so you paid 100% cash when you bought a house or a car. The lack of credit also meant that no one had a credit score. So if you wanted to rent an apartment, you would have to pay 1-2 years of rent upfront. Needless to say, many of my cousins lived with their parents well into their late 20s and early 30s.

Can you imagine if the US had the same setup as Nigeria? There would be untold pain. According to the National Association of Realtors, the average new home buyer in the US paid just 7% of the total purchase price as a downpayment and took out a loan for the rest. Similarly, according to Statista, 85% of new car purchases in the US are financed. Collectively, Americans owe more than $1.2 trillion in car loans. In Nigeria, the total is closer to $0.

The ability to thoughtfully take on credit could save lives. Many hospitals in Nigeria require full payment before treatment is rendered. Too many people have needlessly died while family members frantically rushed to raise funds to pay for life-saving treatment. It’s desperately heart-wrenching.

The ability to take on mortgages could help many families own their homes and start building multi-generational wealth. Construction loans also enable investors to deliver more housing units to eager customers.

Access to credit could enable a business owner to grow and sustain their business. Businesses might need loans to purchase raw materials to fulfill large orders. Businesses could even offer credit to customers, enabling them to buy more products. Credit could provide the runway a growing entrepreneur needs to take off.

The list could go on. The bottom line is that access to credit could help grow the economy while enabling people and businesses to lead more prosperous lives. If this is true, then why do only 3% of Nigerians have access to credit?

Problems dey 🚧

My sense is that credit penetration is low for a couple of key reasons:

* Structural: Nigeria does not have a well-established credit score system. In other countries, credit scores are linked to a national identity number ex Social Security Number. In recent years, Nigeria introduced a National Identification Number. This is a key first step.

* Enforcement: Nigeria experiences weak enforcement of justice, that’s putting it nicely. This means that creditors are highly exposed if the debtor does not pay. I’ve heard of judges being bribed, police turning a blind eye, and uneven treatment. Creditors may not reliably have recourse for bad loans.

* Other business: Given the aforementioned risks, historically Nigerian banks considered other business opportunities to be more lucrative than lending. Providing credit to the masses was not high on their priority list. Fortunately, in recent years Nigerian banks have started offering secure credit cards backed up by deposits to their customers.

* Policy: Government policy does not expressly encourage the extension of credit to the masses. Incentives, if any, do not appear to be working.

Nonetheless, there are many exciting FinTechs working to crack this nut. I recently met a couple of them at a FinTech Happy Hour in NYC.

Local solutions to local problems 👷

QuickCheck is one of the exciting FinTechs extending credit to Nigerians through a mobile app. The start-up was founded in 2017. It uses artificial intelligence and machine learning to extend microloans to its customers. Quickcheck’s lending process is very fast (less than 10 min) and does not require any paper documents.

Quickcheck has funded over 1.1 million micro-loans averaging $80 for 30-day terms. The total value of loans disbursed exceeds $40M. Most of the customers are middle class and 80% are between 25 and 43 years old. Returning customers account for over 70% of loans provided each month. The average interest charged is 40-50% per annum but bear in mind that most loans are only for 1 month-long term. Customers often use the loans to cover emergency expenses, school fees, or business expenses.

QuickCheck works like a middle-man. They borrow large chunks of money at lower interest rates from high-net-worth individuals (HNWI) and institutions, then they turn around and lend out small chunks of money at higher interest rates to individuals and small-medium-sized businesses. They profit from the difference between interest rates, however, they also take the risk of issuing bad loans and the cost of operations.

Figure 1: This is an illustration of QuickCheck’s business model

QuickCheck needs to borrow more money so that it can grow its lending business and extend its impact. Unfortunately, it finds itself in an underserved in-between class of small- and middle-sized enterprises. Typically, businesses that need to raise less than $100k can access funds from local high-net-worth individuals (HNWI) or the capital markets. Larger businesses seeking to raise more than $5M can often access institutional creditors. But Quickcheck’s needs are in between these extremes.

DeFi to the rescue? 💻

Decentralized Finance (DeFi) seeks to reduce costs and increase efficiency by using smart contracts and blockchain technology to eliminate middlemen like banks.

For instance, today if you wanted to borrow $100k to buy a house, you might go to Bank of America. They will assess your creditworthiness and determine what interest rate to offer you. Mind you, Bank of America has thousands of employees and expensive offices all around the country. Thus, the interest rate they offer you need to be high enough for them to offset their costs and deliver a profit to their shareholders. Additionally, the United States has a recent history of bias in lending. Several banks, most notably Wells Fargo, have admitted that some under-represented minority groups were unfairly charged higher interest rates than others with similar qualifications. DeFi could help fix this.

DeFi relies on smart contracts. This helps remove bias. Smart contracts are computer code. They simply operate based on data. If a person wanted to borrow $100k, the smart contract might check to determine if certain qualifications are met, if true then it disburses a loan. And because DeFi applications don’t have thousands of employees or expensive offices, they could offer more competitive interest rates than traditional lenders.

Today, much of DeFi relies on over-collateralization to issue loans. Thus, if you wanted to borrow $100k cash you might be required to provide $150k of bitcoin which is held as collateral while you repay the loan. Overcollateralization works for crypto-rich, cash-poor people who believe that the value of digital assets would rise in the future. However, it does not work for the under-banked or those who do not have significant a pile of digital assets. DeFi needs to extend beyond over-collateralization in order for it to achieve more impact. There are a number of exciting Crypto projects working on this.

Meet Goldfinch 🐦

Goldfinch has provided QuickCheck with $1.45M debt since January 2020.

Goldfinch is a decentralized protocol that allows for borrowing without crypto collateral. It is focused on reaching underserved emerging markets in Africa, South America, and Asia. In January 2022, Goldfinch raised $25M in funding from Andreessen Horowitz, Coinbase Ventures, SV Angel, Bill Ackman, and others. The startup previously raised $11M in June 2021.

Goldfinch works by the interplay of four types of protocol participants:

* Borrowers: Small- and medium-sized businesses seeking to borrow funds. Borrower Pools list the loan terms the Borrower seeks ex. interest rate, amount, and loan term. Borrowers typically request funds in USDC, the stablecoin backed 1:1 with US dollars.

* Backers: Backers assess the Borrower Pools and determine whether they should provide first-loss capital. First-loss capital means that the Backers are eligible to receive a higher return on the loan than other capital providers but if the Borrower defaults, the Backers will be the first not to get paid.

* Liquidity Providers (LP): LPs provide the senior line of credit to earn passive yield. They don’t have to actively assess every proposed Borrower. Rather, LP funds are invested if there is a sufficient level of commitment from Backers. When LPs provide senior credit, a portion of their interest is redirected to Backers to incentivize Backers to properly assess Borrowers.

* Auditors: Auditors vote to approve Borrowers. They provide a human-level check to guard against fraud. Auditors are randomly

Figure 2: Illustration of the Goldfinch protocol

Once a loan has been issued, Borrowers make repayments to the Borrower Pool based on the interest rate and payment period. When the Borrowers pay more than the interest owed, the remainder is applied to the principal balance.

The Borrower Pools have a Senior Tranche and a Junior Tranche. LPs provide funds for the Senior Tranche while Backers supply to the Junior Tranche. When the Borrower repays, the Borrower Pool first applies the funds to interest and principal owed to the Senior Tranche at that time, and the remaining funds are then applied to the Junior Tranche’s interest and principal balance.

Backers and LPs receive an NFT when they initially supply capital. The NFT tracks the amount that was supplied and the amount that is still outstanding. NFTs ensure that no one can redeem more than their proportional share of the total repayments as they come in. For instance, if two Backers each supplied $1,000 for a total of $2,000 borrowed, and the Borrower has only paid back $400 thus far, the NFTs ensure that each Backer can only redeem up to $200, which is their portion of the repayments thus far, rather than each Backer racing to redeem the full $400 themselves.

For more information on Goldfinch and how the protocol is structured and participants incentivized, please check out their white paper.

Closing thoughts 💭

There is a tremendous and growing market for credit, especially in emerging markets like Nigeria. It is exciting to see crypto solutions like Goldfinch tackle this problem. But Nigeria has over 200 million people. Goldfinch is still a drop in the ocean of opportunity. Fortunately, technology does not scale linearly. Adoption could grow exponentially. I believe the market is big enough for many more players to emerge.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit afolabio.substack.com

Preamble

My wife and I recently packed our bags and relocated to New Jersey! Texas was good for us but now we are on to our next adventure in Greater New York City. Would love to meet up if you are in the area.

It’s been fascinating observing people’s reactions when I say I work in crypto. Some acquaintances immediately start walking me through their crypto portfolio while others clutch their pearls and flee for dear life. Jokes aside, I am often the first person they have met who works in the space. Sometimes, I get the sense they don’t quite know what to make of me. Crypto’s unsettling reputation has not been helped by the recent market downturn, hacks, and bankruptcies. My singular refrain has been that “the underlying technology could solve real-world problems, focus on that”.

But you can’t bury your head in the sand and ignore the world around you. If you fail to study history, then you are bound to repeat the same mistakes. We are living through the early days of Crypto’s history. Let’s learn from this moment lest we fall prey to the same dragons.

Heartache 💔

Celsius - a prominent centralized crypto lending company - filed for bankruptcy on July 13, 2022. Customers had been unable to withdraw their funds since June 12, 2022. It now looks unlikely that they will ever reclaim all their funds. Some devastated customers have written letters to the judge presiding over the bankruptcy proceedings. These letters are gut-wrenching. Here are excerpts from two of them:

But how did we get here?

Celsius: Background🔎

Celsius was founded in 2017 by Alex Mashinsky (CEO), Daniel Leon (former COO, now Chief Strategy Officer), and Nuke Goldstein (CTO) in Hoboken NJ. Celsius provides customers with high interest-bearing accounts for cryptocurrencies and crypto-collateral-backed loans.

High interest-bearing crypto accounts

Example 1: Johnny cashed out some of his cash savings and stock investments to buy 1 bitcoin on Coinbase. He then sees an ad from Celsius offering 17% interest rates for customers who deposit bitcoin with the company. He looks at his regular bank account and is reminded that Bank of America is only offering 0.1% interest. It’s a no-brainer! Johnny moves his 1 bitcoin from Coinbase to Celsius to earn high interest.

Crypto-collateral-backed loans

Example 2: The price of bitcoin has more than doubled. Johnny is feeling good about his investment. Time to finally buy that engagement ring he has been eyeing. The price of bitcoin is $50k but he only needs $10k. However, Johnny doesn’t want to sell his bitcoin because he believes the price will be much higher in the future.

Step 1: He transfers 0.3BTC valued at $15k as collateral for a $10k cash loan.

Note: (a) There are no interest payments on the loan but he has 1-year to pay it back. (b) There are no credit checks because the loan is overcollateralized with a loan to value (LTV) ratio of 67% => $10k loan / $15k crypto collateral.

Step 2: Celsius will monitor the LTV ratio as the price of bitcoin continues to fluctuate. If the price of bitcoin drops deeply, Johnny will have 24 hours to add more collateral or pay down the loan if the LTV hits the predetermined threshold ex 90%. If Johnny fails to bring the LTV back to an acceptable range say ~67% within the prescribed time then Celsius has the right to sell his collateral for cash.

Besides lending, Celsius generated revenue from token sales, bitcoin mining, and discretionary trading of cryptocurrencies. As of June 2022, Celsius had lent out $8 billion to customers and had $12 billion in assets under management. The company had 450 employees and reportedly 1.7 million account holders.

How did it go wrong?⚡

TLDR: Celsius CEO said the company went bankrupt due to “..certain poor asset deployment decisions”. Basically, weak risk management. Unfortunately, this does not appear to be an isolated incident, rather, tales of poor decision-making and under-resourcing are emerging from different parts of the organization.

On the surface, the main thrust of Celsius business model was sound. It’s the same model that banks have used for centuries: pay interest to depositors then loan those funds out to another entity at a higher interest rate. Then you simply profit off the difference in interest rates.

Celsius grew rapidly by offering up to a 17% interest rate on crypto deposits. At its peak, it had $24B of assets under management. This helped it raise $750M in Nov 2021 at $3.3B valuation. That fundraising round was led by the second largest pension fund in Canada. But it all came crashing down when Celsius filed for bankruptcy due to the $1.2B hole in its balance sheet.

Celsius reported its total assets were $4.3B but total liabilities were $5.5B. Of the $5.5B liabilities, Celsius owes its customers $4.7B but does not have the assets to pay them. The company only has $125M cash on hand. Much of the $4.3B of assets are said to be Celsius’ holdings of its own crypto token which has dropped in value from a peak of $7.7 in June 2021 to $0.9 in July 2022. There are questions about the current market value of the $4.3B listed assets and fears the actual is lower than what has been reported.

Where did risk management fail?

We are still learning about the failures that led to Celsius bankruptcy. Here’s what I have gathered thus far:

1. Failure of leadership

Celsius executives reportedly told the Chief Human Resource Officer NOT to run background checks on the incoming CFO, Yaron Shalem. This is a major red flag 🚩 In Nov 2021, Shalem was arrested in Israel and charged with money laundering at his previous company.

Perhaps stronger controls could have identified a CFO who might have steered Celsius away from taking on increasing levels of risk. But ultimately the CEO is responsible.

2. Under resourcing

Disruptors don’t color within the lines. They dream up new industries and take risks executing their visions. This is the nature of technological disruption. Uber and Airbnb are great examples of disruptors who launched products ahead of supporting laws, rules and regulations. The Silicon Valley swagger to move quickly and break things has produced results….but one wonders if it is a fit for financial services.

Celsius reportedly only had 3 compliance professionals serving 1.7 million account holders. Some banks serving fewer customers might have 10 to 30x compliance professionals. A former Celsius compliance employee shared how the department was seen as a cost center and not a strategic partner for the business. One could extrapolate and imagine that the same attitude of under-resourcing likely applied to risk management too.

3. Poor fund management

Celsius CEO said in retrospect, they made poor fund deployment decisions. These decisions primarily fall into two camps: (a) over-leveraged positions and (b) over-exposure to stETH.

(a) Over—leveraged positions:

Celsius loaned out depositors’ funds on MakerDAO, a decentralized lending platform. One loan is ~$550M. This loan is overcollateralized like the loans Celsius itself issues. One challenge is that the price of Bitcoin has tumbled more than 60% since the 2021 highs. As a result, Celsius has had to pay down the loan or provide more collateral to bring the LTV back in range, otherwise, the entire $550M collateral would be liquidated. Celsius likely used new customer deposits to secure the collateral consisting of old customer deposits. Celsius came close to losing $550M a couple of times. It has reportedly lost smaller amounts due to insufficient liquidity to shore up the LTV ratio.

A sound risk management approach would have considered that crypto prices could fall significantly and perhaps limit Celsius exposure to this high-risk strategy.

(b) Over-exposure to stETH

Celsius used customer deposits to acquire over $400M of stETH, an irresponsible amount given that no counterparties hold a comparable amount to trade with. stETH is an illiquid receipt stoke for staked ether. stETH is a derivative of ether with each stETH representing one staked ether on the new Ethereum blockchain. However, the price of stETH and the price of ether decoupled in recent months, stETH now has a 3% discount at the time of writing.

A sound risk management approach would have considered whether Celsius should have used user’s deposits to acquire stETH, and if decided to, there could have been controls to limit the amount of exposure to this illiquid asset in Celsius portfolio.

What next for Celsius customers? ⏭

Celsius presented itself like a bank but operated more like a hedge fund. Many customers did not read the fine print in Celsius terms and conditions. Reading through now would yield several realizations.

Uninsured deposits

Depositors at US banks are protected by the Federal Deposit Insurance Corporation (FDIC). If a US bank goes bankrupt, all depositors’ funds are insured for up to $250k. Unfortunately, Celsius is NOT a bank and did not hold any insurance for depositor’s funds.

Section 13 of the Celsius user agreement explicitly states that if the company goes bankrupt, customers may not be able to recover ANY funds.

Bankruptcy claims

Celsius customers are filing bankruptcy claims. Some have also written letters petitioning the judge to release funds to them.

Interestingly, although Celsius is headquartered in Hoboken NJ, the bankruptcy suit was filed in New York’s Southern District. Judges in this district are thought to be more savvy and experienced with major bankruptcies having previously handled notable cases like Merril Lynch and Bernie Maddoff. Unfortunately, it’s not looking good for customers.

What lessons have been learned? 📔

Not your keys, not your coins

My friends who have been in crypto for several years frequently admonish everyone to move their holdings off centralized exchangers like Coinbase and lending platforms like BlockFi and Celsius. This episode has made the reasons painfully obvious. It’s clear to see why they recommend one self custody crypto holdings in a cold wallet.

Leadership matters

It looks like Celsius executives lost their heads in the ecstasy of the bull market. They kept on layering on high risk moves perhaps imagining themselves to be invincible. But truth be told, I think the rot started way before the crypto bull market. The absence of background checks for senior executives, the under-resourcing of compliance are symptoms of a culture that turns its nose at the modern financial services industry. I agree that there are some financial services which are ripe for disruption but there are also risk management practices and standard operating procedures which have successfully safeguarded the interest of customers. These mustn’t be discarded with the bath water.

Please do considerable research as you invest your funds. Look at the background and statements of the leaders. Sometimes people who are undisciplined with finances reveal themselves to be undisciplined with their words too.

Real human impact

1.7 million affected account holders may never fully recover their funds. This would undoubtedly leave a lasting bad impression. Some of the stories are simply heart-breaking. There’s the story of a worker close to retirement who sold off their stocks and bonds and deposited everything into Celsius. There are countless stories of families who put decades of life savings into these accounts. Some people will never recover financially. It must be taking a heavy emotional toll too. I fear, a few people may even take their own lives similar to the suicides following the Great Stock Market Crash of 1929.

Diversify

Please do NOT put all of your eggs in one basket. Diversify to reduce your exposure to any one platform and any one company. Consider moving some or all of your crypto holdings into multiple cold wallets and securely store them in waterproof, fireproof, and tamperproof environments.

Risk management is a differentiator

Crypto has been pulling in top talent from a variety of backgrounds. Sometimes I sense a tension between the tech-forward move fast crowd and the deliberate, cautious, and risk averse financial services crowd. But we need both legs to run into the future.

The Celsius meltdown has given me a renewed appreciation for risk and compliance. In recent days, crypto lending companies have been at pains to explain their risk management approach and distance themselves from Celsius. I expect there could be a flight to quality, with consumers gravitating to more established and regulated providers. There is an opportunity for banks to make a move here.

More curious about DeFi

Humans are fallible. People get greedy and risky, then bad things happen. This is not limited to crypto. It happens across every industry. One of the beautiful things about decentralized finance (DeFi) is that it runs on smart contracts aka code. It takes the human out of the equation and executes based on the written code. But no system is infallible. DeFi solves for one risk - human behvaior - while heightening another risk: hackers. DeFi is poised to continue growth and eventually will underpin a chunky slice of the mass market.

Brace yourself for more regulation

Society functions around a set of rules of engagement. There are consequences when you break those rules. Every industry needs regulation. Crypto is no different. I hope that the regulation is thoughtful and not a knee-jerk reaction. I hope the regulation would seek to protect the consumer, not prevent the consumer from engaging with crypto. I hope the regulation is crafted in partnership with industry, seeking to support technology advancement and not strangle the baby in the bassinet.

I’m optimistic. Many advances we take for granted today went through a storming phase in their infancy. I have seen newspaper clips from the 1800s railing against electricity and cars. Today we can’t imagine our lives without them. I expect the US will eventually strike the right balance with crypto regulations.

PS - But wait, there’s more

There’s more to the Celsius story. For instance, I didn’t get into the alleged token manipulation and potential insider trading.

PSS - Former Coinbase PM arrested for insider trading

Speaking of insider trading, this week, a former Coinbase product manager was arrested along with his brother and a friend for insider trading.

Background

There are about 2,000 crypto tokens. Binance lists over 300 of them on their exchange. Coinbase has been intentionally listing more tokens to close the gap and give their customers more choice. Coinbase currently lists about 200 tokens. It’s been observed that new tokens experience a significant price jump once they are listed on Coinbase. It could be due to millions of users suddenly gaining access and increasing demand.

The Coinbase PM obtained intelligence on which tokens would be listed then relayed it to his accomplices. The trio then got wallets controlled by other people to opportunistically buy and sell these tokens. They earned at least $1.5M through this insider trading scheme.

Blockchain to the rescue

Public blockchains permit anyone to view transactions. The challenge is that it’s not always obvious to the observer who owns the wallets but that’s why blockchain analytics firms like Chainalysis, TRM Labs and Elliptic specalize in.

An avid observer noticed this pattern of sales from a wallet. He shared his observations on Twitter. Soon financial regulators were hot on the chase and identified the trio and notified Coinbase. The Coinbase PM was invited to a meeting where at Coinbase where he was presumably fired. Regulators sent him a letter. He bought a ticket to fly home to India on the same day. The suspect was apprehended before he could flee the country.

Contrary to some widely held beliefs, blockchain technology is not just a haven for would-be-criminals, rather, it can be a valuable tool for law enforcement to catch criminals.

It’s been long rumoured that there is significant insider trading at some crypto tokens. Perhaps this case is the first of many to come. The industry needs to police itself and partner with law enforcement.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit afolabio.substack.com

I’ve got a confession. (Cue Usher’s hit single “Confessions”)

I am not exactly sure what the metaverse is. There I said it. I feel so much lighter lol :-)

Last year, “metaverse” burst onto our collective lexicon when Facebook announced it was reinventing itself as Meta. Mark Zuckerberg produced an hour-long video explaining what the metaverse was and how Facebook was going to engage in it. I didn’t watch the video then but I did see a few clips. It felt important. I felt like it must be a big deal if one of the world’s richest men was betting his ENTIRE fortune on it. I didn’t want my ignorance to cost me this opportunity.

So I started a little exploration. I spent part of my New Year’s Eve in the Decentraland metaverse. I started buying a few metaverse tokens and invested in a metaverse-themed ETF. During the hype, I even considered buying some virtual land in the metaverse. Now to be clear, my investments were pretty limited…way less than 1% of my portfolio.

But since Facebook’s fateful announcement, the world’s most prestigious investment banks and consulting companies have published a slew of reports on the metaverse opportunity. Citi Bank forecast that the metaverse economy could be worth $13 trillion by 2030. The Boston Consulting Group (BCG) had a less bombastic view, forecasting that the metaverse economy would be worth $1.3 trillion by 2030. To put things in context, in 2021, the total value of the US car and automobile manufacturing market was $83B. The bottom line is this - some smart folks are saying the metaverse could be at least 12 times the US car market in 7.5 years. No one knows the future but there is some consensus that the metaverse could be BIG business.

Ok…you’ve got me interested. But what is the metaverse??

I have been digging trying to learn more. I finally watched the Zuckerberg metaverse video. I listened to a bunch of podcasts, watched more YouTube videos, read some essays, and flipped through a couple of decks. I’m still organizing my thoughts and refining my thinking. Figured it might be helpful to share some of my preliminary thoughts. Let’s go!

What is the metaverse?

High school level definition

The metaverse is a 3D version of the internet. It is a convergence of the physical and digital worlds.

According to Matthew Ball, the metaverse represents the 4th wave of computing. The first three waves were mainframe computing, personal computing and mobile computing. So if the mobile era was defined by easy ability to get online, the metaverse era would be defined by always being online, this is called ambient computing.

College-level definition

According to Roundhill, the metaverse is the successor to the current internet that will be interoperable, persistent, synchronous, open to unlimited participants with a fully functioning economy, and an experience that spans the virtual and 'real' world.

TLDR: the metaverse is an immersive, interactive environment generated by a computer.

What is NOT the metaverse?

Did you notice that none of the definitions mention virtual reality headsets? That was a big surprise to me. I had originally imagined a future where VR headsets became as common as cellphones are today. While I think sales of VR headsets are poised to going to continue rising, they are NOT required to access the metaverse. In fact, some of the closest metaverse-like experiences in gaming are accessible via cell phones.

Side note - my jaw dropped when I recently learned that Meta sold 8.7 million Oculus VR headsets in 2021. That’s more unit sales than Xbox consoles in 2021! Do you have one? I’m thinking about getting one to test it out. Sales of these VR headsets have doubled each year. Now Meta is opening up physical stores so more people can experience it firsthand.

TLDR: VR headsets provide one way to access the metaverse but they won’t be the only way to experience it.

The metaverse must be experienced.

One of my cousins in Nigeria told me how undergrads studying computer science did not have access to computers. They would write computer code by hand on paper and then submit their homework to professors to review. These students did not get the opportunity to actually run the code to see if the code did what it was supposed to do. They did not get to practice how to troubleshoot bugs in the code.

We can all agree that this is a subpar way to learn. I think about the metaverse along similar lines. It’s nice to read and write about it but ultimately one is best served by diving in and playing with the emerging technology. It’s kinda like going back in time to the 1920s and trying to explain the internet to your neighbors. Not easy lol.

Ok. Sounds nice but what problem does the metaverse solve?

I’m still ruminating on this. Right now, I think the metaverse could increase accessibility, remote collaboration, education, gaming, social relationships, industry, and more.

a) Accessibility: One of my friends in college was a fountain of dry jokes and witty takes. She was also a triple major who graduated with a 4.0 GPA. But I’ll never forget when she shared that she sometimes had to drop classes that she wanted to enroll in because the building was not wheelchair accessible. My heart sank. I did not realize that not all buildings on campus were wheelchair accessible or had elevators. This opened my eyes to the inequity of access. I hope the metaverse can extend access to people who might have different mobility abilities. But then I think about people who are visually impaired and hope access is somehow extended to them too.

b) Remote collaboration: I’m tired of Zoom. I love people and I’m energized by engaging with people. But sitting in a chair going back-to-back on never-ending Zoom calls is draining. It’s also often subpar when some coworkers are meeting in person and others are on Zoom. Last year, Bill Gates said that within 2-3 years most work meetings would be held in the metaverse. I laughed when he said it. I still think his timeline is unrealistic. But I hope he is directionally right. I hope a metaverse solution improves the Zoom experience. Perhaps a future where coworkers can use holograms or avatars in 3D to engage with each other and express more body language beyond facial expressions.

c) Education: Let’s face it. Not all teachers are created equal. Some are very engaging and can bring a seemingly dry subject to life. But others struggle to impart knowledge to students. Students have different learning preferences. Students who are strong audio-learners are advantaged in the existing education system. Now imagine if students had the opportunity to travel through time and space to experience natural phenomena and historical events. Imagine if instead of memorizing the planets you could see them close up and see the icy rings around Saturn. Or be on the front row as Abraham Lincoln gave the Gettysburg Address. Imagine if medical students could go on a safari through a human’s veins and arteries to learn about heart disease. These immersive experiences would be resonant and more engaging. Researchers say immersive experiences lead to 30% greater retention. This increased understanding could trigger more technological breakthroughs. I’m excited!

d) Social relationships: When my grandpa went to medical school in England in the 1930s, his letters would travel 6-10 weeks before they reached his parents in Nigeria. Today my family is spread out across Africa, Europe, and North America. Video calls and cell phones have made the world feel much smaller. But I hope the metaverse could take it to the next level. It would be amazing for my parents to have more immersive experiences with their grandchildren. My nieces are becoming more curious about our culture and heritage, it would be amazing if my parents spend even more time with them and give could give them a virtual tour of our ancestral village or the cities they grew up in. Obviously, I don’t think the metaverse would be a perfect substitute for in-person interaction but I think it could be a bridge over oceans and great distances.

e) Industry: According to McKinsey, BMW was designing its most advanced manufacturing plant when a team member suggested they build a virtual replica in the metaverse before beginning construction. So they did! BMW executives and technologists were able to physically tour the metaverse plant. Soon they realized 30% of the design choices were not ideal. They significantly revised the designs before proceeding to construction. Testing it out before construction led to substantial financial cost savings.

Sounds good….what are the downsides?

In life, you gotta take the rain with the sunshine.

a) Terror risks in 3D: Technology is neither good nor bad, it all rests on the application. Unfortunately, bad actors are often early adopters of new technology. Terrorist groups have leveraged Facebook, YouTube, and Twitter to find and radicalize young people. The same may become true in the metaverse. In fact, the metaverse might provide better tools to train terrorists. We will need to develop new counter-terrorism tools.

b) Loss of person-to-person contact. The pandemic illuminated the loneliness crisis in many Western countries. Many of us coped with the social-distancing measures by increasing our time spent on social media. But for thousands of years, humans have needed person-to-person interaction to sustain wellness. It remains to be seen if the metaverse will be able to replicate this interaction.

c) Too much tech. I’m embarrassed by how much time I spend looking at screens. I’m usually working on a laptop, scrolling on my phone, or watching TV on a big screen. No wonder my eye prescription keeps getting progressively worse! Should we be concerned that there is too much technology in our lives? I wonder if the rise of the metaverse will drive the appreciation of natural, in-person activities. It might become a luxury to travel in real life. We might see more people yearning for eco-tourism vacations where they are cut off from technology.

What’s going in the metaverse today?

Do you remember when newspapers uploaded a scanned copy of their publication on their website? Over time, newspapers have developed internet-native publications that have functionalities that were not possible with a paper copy. For instance, newspapers can target ads with much greater precision today. They are able to get much more detailed feedback on how readers respond to their articles and headlines.

I think the metaverse might be similar. Initially, companies will copy and paste existing models into the metaverse but over time they will develop new metaverse-native models with functionalities that were not possible with the 2D-internet.

Do you remember the first concert you went to? Mine was loud, sweaty, and crowded, but so much fun. We stood shoulder-to-shoulder, singing at the top of our voices waving our hands while awkwardly dancing with a cold beverage in hand. Today’s tweens and teens are having a very different experience. Cathy Hackel, self-proclaimed queen of the metaverse, shared how her 10-year-old son’s first concert was a virtual one on Roblox! But this was no isolated incident. In 2020, Travis Scott made headlines when his concert in Fortnite was attended by 12.3 million people (link to the concert). [FYI - Roblox and Fortnite are both gaming platforms].

Side note on gaming:

In 2010, Chris Dixon famously said that the next big thing would first look like a toy. Gaming is a big business and a gateway to the metaverse.

Fortnite is the blockbuster video game produced by Epic Games. Epic is privately held so financial details are limited. However, we know that in 2020, Fortnite had 80.1 million monthly active users. 63% of its players are aged 18-24. 38% of users spent more than 10 hours a week playing Fortnite.

Roblox appeals to an even younger demographic. According to Roblox, two-thirds of US children aged 9-12 use its platform. In 2021, Roblox earned $1.9B of revenue from 45.5 million daily active users who spent 41.4 billion hours engaged on the platform.

I am highlighting these because I’m not a big gamer..yet. And as a millennial, I’m beginning to feel a lil old lol. I am recognizing that I may have a big technology blindspot because gaming is often on the bleeding edge of technology. Gaming could give a preview of what might go mainstream.

Meta is NOT alone

Meta is not the only major company investing in the metaverse. Microsoft, Apple, and Alphabet are reportedly pouring billions into it too. This year, Accenture, the global consulting company, will onboard over 100,000 new employees through its metaverse platform. This all started at the height of the pandemic. New employees were sitting at home remotely going through 16-24 hours of Zoom presentations. Definitely not an ideal experience. And so Accenture changed things up! They sent each new employee a virtual reality headset. The new hires then created customized avatars (cartoon-like representations of themselves) and were guided to Accenture’s metaverse headquarters. They were put into small teams and worked on simulations to solve customer problems. Crucially, there were opportunities to have 1-on-1 and small group conversations. Partners who often have tight travel schedules were able to readily welcome the new employees from anywhere in the world.

Who knows? Maybe in a couple of years, it may be common for new employees to get a new company laptop AND a virtual reality (VR) headset. Times are changing!

What’s next?

More baby steps forward. The metaverse is very much in its infancy. It requires advances across a range of technologies such as 5G, 3D graphics, virtual reality, augmented reality, and cryptocurrency to move forward. It’s going to take a while. The current hype will simmer down but the building will continue. But I think mass-market adoption will gradually deepen over the next 5-20 years. It’s time to pay attention so you can make the most of this opportunity.

So what do you think about the metaverse? I would love to hear from you.

Onwards & Upwards,

Afolabi

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit afolabio.substack.com

Hey y’all!

This will NOT be a typical newsletter.

I started writing as a forcing mechanism to learn more about crypto. It has been fun. Along the way, I’ve learned a ton, made new friends, started Bitcoin mining, and got a new full-time job in crypto. Thank you for coming on this journey of discovery with me.

The vision of 5x5 Crypto was to simply explain the 5 most important developments in crypto in about 5 minutes. Lately, it has become a drag to consistently produce weekly updates. The truth is that I am no longer satisfied with just reporting news developments in crypto. I want to go deeper. I want to explore real-world use cases of crypto. I am curious about doing more analytical pieces. It’s time to dream again.

Introducing Crypto IRL

I am repositioning the newsletter. Introducing: “Crypto IRL”. My goal is to explore crypto in real life. I aim to produce 1-2 publications each month on a variety of topics. I have a list of topics that I want to explore and I can’t wait to dive in. Lately, I have been thinking about the metaverse, Bitcoin mining profitability, and crypto applications in Africa. Let me know if there are topics you would like for me to explore.

But crypto markets are crashing…

Yeah. Crypto markets have tumbled lately. My conviction is unchanged. I am still investing weekly. I had been waiting for a price crash since Q3/Q4 last year. But it seems that Crypto Winter has finally arrived. It was expected. Crypto has historically had multi-year cycles of “summer” (price rise) followed by “winter” (price crash)…with each new summer rising to a new high. Veterans say the Crypto Winter is when serious building happens. It’s the time when fair-weather fans fade into the background. It’s the time when one’s conviction is tested. It’s the time to go deeper and explore. This is the perfect time to pivot. Will you join me?

You don’t have to do anything. You will receive the new publication in your email. Please stay tuned. I hope you enjoy this new season. If you do, please be sure to forward it to your friends :-)

I hope you and your family have a wonderful week ahead.

Onwards & Upwards,

Afolabi

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit afolabio.substack.com

Hey y’all!

Did you hear the remarkable story of how an inexperienced passenger safely landed a plane when the pilot became incapacitated? Here’s some background:

I listened to the recording of the passenger calmly explaining the situation to the air traffic controller multiple times. I listened intently as the air traffic controller steadily guided the passenger to land the plane. And he did it! He safely landed the plane.

I was struck by how calm and measured the passenger was. He had a pregnant wife at home. This was a potentially fatal situation. His whole life was at stake! One might have expected to hear the terror, fear, and shock in his voice. There was none. I guess he is ‘built different’.

God forbid, if I were in a similar situation, I hope I can be as calm and measured as he was. How do you react when your world is turned upside down? Well, the crypto and stock markets have taken us on a downward heading rollercoaster these past few weeks. How have you dealt with it? Are you ‘built different’ too?

Thoughts on ‘Built different’

I am often intrigued by how multiple people could have the same experience but polar reactions to it. For instance, we have all experienced the recent plunge in the stock and crypto market, some folks have been writhing in pain and selling off assets while others have been pleasantly buying up investments at ‘bargain’ prices. There’s also a group of people who are steadily executing their investment strategy, unfazed by the market turbulence. I’m in the last group but I’m fixin’ to go bargain shopping.

In management consulting, we often heard the refrain “manage expectations”. It is key because disappointment occurs when our expectations fall short of reality. Increasing a company’s profitability by 20% within 1 year is neither good nor bad. It’s only when you factor in expectations that one is able to define the performance. If the company’s CEO was expecting a 30% increase in profitability, then 20% suddenly looks like a shoddy disappointment. However, if the CEO was expecting a 10% increase, then the 20% result is an impressive feat worth celebrating with bonuses and promotions. Managing expectations is key.

If you are a long-term subscriber, you’ll know that I’ve been waiting for “crypto winter” since the end of Q3 2021. You might also know that I’ll be unsurprised if the price of Bitcoin fell back to the $10k level or lower but then surge to new highs, dare I say six figures, in the next bull run in a couple of years. This is not based on any technical analysis. Rather, I have glanced at the historical performance of Bitcoin (a proxy for the wider crypto market) and recognized that large price swings are part of the process but over the long term, the price tends to go up. I’m managing expectations I’m in this for the long haul. Over the past seven Mays (2016-2022), the value of the S&P 500 stock market has increased 2x while Bitcoin price has increased 67x. Zooming out can provide a helpful perspective.

Tail events and a flight to quality

I recently read “Tails you win”, an article by Morgan Housel. He reminds us that most results are due to tail events.

For instance, out of 21,000 VC investments between 2004 and 2014, 65% lost money, 2.5% made 10-20x, 1% achieved more than 20x returns. Incredibly, only about 0.5% or 100 companies achieved the glamorized 50x returns. The vast majority of the industry returns are due to a tiny fraction of investments. We glamorize and idolize these investments and some of us even aspire to make similar 50x returns too. But the odds are not in our favor. Morgan’s analysis on the VC market was not shocking but I had not fully considered what he said next: that tail events drive the vast majority of results is a truism of nature and other disciplines.

Each human is a miracle. Just one sperm out of the millions deposited, gets to fertilize the egg and develop into a baby. Or consider that in 2020, just 5 companies (Amazon, Apple, Meta, Microsfot and Tesla) accounted for a whopping 37% of the S&P 500’s total market returns. [S&P 500 consists of 500 publicly traded companies]. Warren Buffett famously said that he has owned 400-500 stocks during his life but he made most of his fortune from just 10 of them….despite painstaking research and analysis on all of them.

So what does this mean for crypto? Well, extending the analogy would suggest that the just a handful of crypto tokens will stand the test of time and generate the lion share of returns. Looking back at snapshots in time between Dec 2016 and today, indicates that only 3 tokens: Bitcoin, Ethereum and Ripple, have consistently made the top 10 list. This is not say that other projects will not stand the test of time. But if you are looking to build and sustain long-term value, these might be a helpful place to start. Of course, do your own research as I’m not a financial adviser.

Warren Buffet also famously said that “you should be fearful when others are greedy but greedy when others are fearful”. Fortunes are made in downturns. There may be attractive opportunities to acquire high-quality crypto and stocks at “bargain” prices.

The reality is that it takes a lot of discipline to execute on this strategy. Plus no one knows if the prices will drop further. Personally, I have focused on dollar-cost-averaging i.e. consistently investing in cryptos and stocks on a weekly or monthly schedule irrespective of market conditions. It’s all automated.

The Terra-sized elephant in the room

The biggest story in crypto has been the Terra Luna collapse. It might rank in the top 5 most catastrophic events in crypto. Terra was an algorithmic stablecoin. I did not have any exposure to it although I have friends and cousins who did. Many other people more knowledgeable than me have touched on this topic. If you are interested, check out this Twitter thread

Speaking

I recently participated in an industry panel for the Black Professionals in Tech Network (BPTN) on blockchain. It was great fun. I really enjoyed the audience questions and engaging with other panelists and the event sponsor CIBC.

Next up, I’ll be leading a company-wide lunch and learn on “Global perspectives in crypto” at Cross River (~800 people). My goal is to bring stories of how people are using crypto around the world to solve problems in their lives. Wish me luck!

That’s all folks! I hope you have a great week. Get outside and enjoy the sun!

Ciao

Afo

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit afolabio.substack.com

What a difference a year makes! About a year ago the price of Bitcoin hit $63k, today it’s $43k (-30% YoY). But attendance at the annual Bitcoin conference in Miami increased 2.5x to 30,000 people this year. So what’s the deal? Let me tell you a little secret: it’s not just about price.

The conference itself is a bit of a sideshow. Tons of people I know went to Miami without stepping foot in the convention center. A lot of the action happens behind closed doors in meeting rooms, rooftop bars, and yachts. Investors, builders, technologists and enthusiast converge for one week in the sun to network and get things done.

Bitcoin 2022 key takeaways

Bitcoin magazine, the organizers of the conference, posted videos of panels and speeches on their YouTube channel. I’ll highlight some of the

CashApp launches 3 new Bitcoin services

* Get Paid in Bitcoin enables CashApp users to auto-invest a portion of their paycheck into bitcoin.

* Bitcoin Roundups enables CashApp users to round up payments to the nearest dollar then buy bitcoin with the difference.

* Lightning Network integration enables users to receive Bitcoin in Cash App through the Lightning Network. The ability to send bitcoin through that network was enabled in January.

My thoughts:

* CashApp is key to onboarding people. The fast-growing app has 30 million monthly users. But the demographic is younger and more diverse than the typical bank account holder. CashApp knows that culture leads finance. They routinely partner with hip-hop stars like Megan the Stallion and Lil Nas X for cash and Bitcoin giveaways. This helps drive adoption and builds goodwill for the brand.

* CashApp meets people where they are: Offering bank-like features like auto-investing and roundup is familiar to the average Joe. Additionally, CashApp excels where crypto falters, CashApp user experience is simple and easy to follow. Building out auto-investing would produce a baseline of steady income for Block (owners of CashApp). It’s a win-win.

* Walled gardens to open fields: Today you can only send funds to people who have the same app. So now I have a zillion apps on my phone…ugh. For example, I only use CashApp to pay my barber but then I use PayPal to pay my powerlifting coach. CashApp and PayPal are walled gardens, they are not interoperable. Imagine if you could ONLY send emails to people who had a GMail account. That would be incredibly annoying. We would all end up with a zillion email accounts. But in the future we should be able to pay like we email. The future is wide open fields not walled gardens. The Lightning Network can help us get there. But we need more businesses to integrate the Lightning Network….

Robinhood is integrating Lightning Network ⚡

* 6 months ago Robinhood announced it was launching a Digital Asset wallet. It quickly garnered a waitlist with over 2 million people

* This week, Robinhood announced that it would integrate Lightning Network to enable faster Bitcoin transactions

* This is meaningful as Robinhood has over 22 million users. Like CashApp, its users tend to be younger than the typical bank account holder. So far only about 10% have indicated interest in the crypto wallets but I expect that could grow with time. 2 million is good but we need a LOT more integrations to the Lightning Network….

Strike integrates Shopify and NCR (largest POS operator)⚡

* Jack Mallers, CEO of Strike, announced that they are integrating the Lightning Network into Shopify and NCR. This is a HUGE deal.

* Shopify is the third-largest online retailer in the US behind Amazon and eBay. There are over 1.1 million live stores on Shopify in the US and another 1.2 million around the world

* NCR is the largest point-of-sale (POS) operator. POS machines are the gadgets we swipe our cards in to pay for goods and services as we are checking out of the grocery stores, coffee shops etc.

* These integrations would enable millions of merchants to transact using the Lightning Network. Access would be extended to brands, merchants and stores that you are familiar with.

* The cool thing is that this integration would enable customers to pay in Bitcoin or stablecoins or even dollars. Exciting times ahead. But the question is, will we see adoption?

* I don’t know. Why?

* #HODL: I don’t want to part with my Bitcoin today because I believe the price will be higher 5-10 years from now.

* Inertia: The typical person would default to continue paying the same way unless there is a trigger. There needs to be significant benefit or cost to trigger behavior modification. For international payments, Lightning Network is cheaper, faster, and more convenient to use than some existing options. But domestic payments…I think the interoperability between walled gardens could be one driver. I think merchants stand to save money on interchange fees by switching to the Lightning Network, it would make sense for some merchants to offer discounts to customers who pay with the Lightning Network. But other than that, am I missing something?

Lightning Labs ⚡

* The leading Bitcoin developer has raised $70M in it’s Series B from Valor Equity Partners and global asset manager Baillie Gifford, both early backers of Tesla and SpaceX; Robinhood CEO Vlad Tenev, NYDIG and Silvergate CEO Alan Lane.

* The goal is to transform the network into a multi-asset layer atop Bitcoin. The first step would be to add stablecoins. Lightning would enable fast and high volume stablecoin transactions. In the future, other asset types like NFTs could be added too.

What’s on my mind

Walk to earn 🏋️‍♂️

I like fitness. I like making money.

This week, I discovered Fitness + Money = “walk-to-earn”. Have you heard about this?

There are a couple apps where you sign-up for a workout commitment e.g., walk 10,000 steps a day then you get get paid in crypto for following through. I haven’t signed up yet but I’m immediately think what’s the catch? So far, it looks like some of these apps require you to buy some tokens and perhaps you get penalized if you don’t follow through.

Check out Step and learn more here.

I hope you spend sometime outside this week. It’s spring and the weather has been glorious. I’m aiming to walk outside for at least 30 min every day. Join me!

Ciao

Afo

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit afolabio.substack.com

Weekly rant: Is Bitcoin religion?

The crescent moon was spotted. Ramadan is here.

This is a particularly holy time for the 4.5 billion Muslims, Jews and Christians around the world. Muslims are fasting from sunrise to sunset for a month. Jews are preparing for Passover. Catholics are giving up vices to observe Lent as all Christians gear up for Easter.

But the world is losing religion. Mosque, synagogue and church attendance have been falling in the West. Is Bitcoin the new religion?

The similarities are eerie.

Bitcoin maxis seek to evangelize and orange-pill non-believers much in the same way a missionary might seek to convert a pagan. The Bitcoin crowd flocks to Twitter Bitcoin celebrities like the faithful grasp on to every word uttered by televangelists. The plebs tweeting condemnation at Ethereum enthusiasts are reminiscent of the fundamentalist ferociously yelling that all sinners are going to hell. Some tout Bitcoin as the solution to all the sorts of problems just as the devout look to God. But I guess the difference is that we have not had any Bitcoin holy wars….so much blood has been shed in the name of religion. Hopefully Bitcoin does not add to the tally.

This week, Miami will host Bitcoin 2022 - the single largest crypto conference in the world. Brace yourself. It’s going to be an eventful week. Many of the speeches will likely be a rehash of content one can already find online but I expect some major announcements. Controversially, President Bukele of El Salvador is set to give a speech. I have mixed feelings about him. On the one hand, I admire a technology-forward leader. At the same time, I’m disturbed by reports of human rights abuses and corruption. Sigh. This reminds me of the early days when Bitcoin was adopted by Silk Road and other unsavory characters. I hope mass media focuses on the underlying technology not the cast of early adopters. The reality is that savvy criminals adopt new technology to evade police tactics. This is not new. Don’t throw the baby away with the bath water.

NEWS 🖨📜

1. Cross River raises $620M Series D

* Full disclaimer: I joined Cross River’s Crypto team at the end of last year. We are hiring 😁

* Funds were raised from an enviable set of investors including Andreessen Horowitz and T Rowe Price. Cross River cut it’s teeth by providing infrastructure for the FinTech revolution. The next phase of growth will come from doubling down, expanding internationally and developing new crypto solutions.

* Now that we have raised more resources, it’s time to execute. Come build with us. For more info - check out this Tech Crunch article and our website. DM me with questions.

2. Bitcoin Miner goes public via SPAC 📈

* PrimeBlock, a US-based Bitcoin miner, plans to go public through a merger with a special purpose acquisition company (SPAC) for an estimated enterprise value of $1.25B

* PrimeBlock has over 110 MW of installed data center capacity across 12 facilities in North America. It sources ~60% of it’s power from non-carbon emitting sources. In Q4 2021, it generated about $25M revenue in Q4 2021.

* Some investors unwilling or unable to directly purchase Bitcoin have gotten exposure by purchasing shares of publicly traded Bitcoin mining companies like RIOT Blockchain. Shares of Bitcoin miners tends to move in sync with the price of Bitcoin. See below:

* Personally, I prefer to hold the real thing rather than a proxy. Do your own research!

3. Axie Infinity: Hackers steal $600M😱😳🥴

* I’m a bullish about play-to-earn games. I think there’s tremendous opportunities for them to grow in developing countries with high unemployment and young populations. Axie Infinity is the darling of play-to-earn….this makes the news of this hack all the more devastating.

* Here’s what I have gathered: Hackers used social engineering and took advantage of a human error to get away with $600M worth of Ethereum and USDC in the Ronin bridge. The bridge is kinda like a bank for the game. For context, Axie Infinity allows players to trade characters and win earnings which can then be exchanged for ETH or USDC and withdrawn for use in the real world.

* The impact was swift: 34% drop in volume of trading in the Axie Marketplace within a day (according to DappRadar). But many Axie players while frustrated, have continued to play on.

* Investors in SkyMavis, the owners of Axie Infinity, include Mark Cuban, Alexis Ohanian, and Animoca Brands. SkyMavis said that they will make impacted players whole. Gosh…I hope they have insurance for that….I doubt it.

* Unfortunately, this hack is not an isolated incident. Over the past year, hackers have exploited weaknesses in Ronin bridges to steal over $1B.

* The Philippines is the biggest market for the game where there are over 2.5 million players. The road to Axie Infinity growing 10x to 25 million players will be paved with tougher security.

4. US crypto policy debate heating up💵🏛

* President Biden’s executive order on crypto intensified ongoing debates around how to regulate crypto

* This week, Sen Elizabeth Warren (D) once again voiced her support for the US to issue a Central Bank-backed Digital Currency (CBDC). She thinks a well designed CBDC could drive out private digital currencies like Bitcoin and improve safety and efficiency of the market. Opponents fear the CBDC would give the US government unprecedented surveillance over citizens. Additionally they fear that a CBDC which the Federal Reserve could issue at will would not be sound hard money. Rather, an extension of the current system where the US government printed printed billions of dollars over the past 2 years whereas Bitcoin is a deflationary store of value by design. There will only be 21 million Bitcoin.

* Sen Cynthia Lummis (R) is working on a new bill that would propose rules to clarify the role of the SEC and other agencies and provide definitions that would classify many popular tokens as securities.

* The definition of whether a token is a security is key. If tokens like Solana are deemed to be securities then they would need to be registered with the SEC, crypto exchanges would need to delist them or become broker-dealers…and a host of other adjustments. The net effect is that they would likely increase the cost of serving the customer. That said, there may be some consumer benefits. I need to dig more into this.

That’s all folks!

I hope you have a great week ahead.

Thank you

Afo

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit afolabio.substack.com

Is the economy gonna boom or bust? Lately, this question has been popping up everywhere. The Russia-Ukraine conflict has pushed oil prices sky high, inflation has been soaring and many people are feeling the pinch in their wallets. So what’s the deal? Apparently, the answer lies in men’s underwear🩲

Alan Greenspan, former head of the Federal Reserve, once said that sales of men’s underwear are a key economic predictor. The theory is that men’s underwear are discretionary spending…no one sees them except when men change in the locker room or when they are about to….😈. BUT when the economy is bad, men postpone replacing their tired, worn, nasty underwear. This theory proved true during the 2008 recession. I found a study across 56 countries that explored this topic. The takeaway is that the theory does not hold true across all countries…Researchers found a strong correlation between men’s underwear sales and economic performance in Kuwait (0.903), Armenia (0.914), Ecuador (0.917) whereas there was a negative correlation in Cyprus (-0.966), France (-0.955), and Mexico (-0.940).

Friends, I have got one question for you: do you plan to buy more underwear in the next 30 days? Fill out this anonymous survey 😁

On my mind 🧠

Crypto for good💖

I have 60 first cousins. I recently had a nice long chat with one of them. During the pandemic she and her husband buckled down and refocused. The result: they doubled their income over the past year🙌.….BUT they are not any happier.

Instinctively, I know this to be true. Beyond a certain point, additional money does not yield more happiness. In fact, it might be the opposite! The great poet Biggie said it best “Mo’ money, mo’ problems”.

Don’t get me wrong. I am an ambitious person. I want more. One of my goals is to leave an inheritance for my grandchildren. That said, I have come to realize that achieving that “number” won’t necessarily make me any happier. Life is unpredictable. There will be tears and laughter….SO if you are guaranteed to cry, is it not better to cry in a Rolls Royce…(or a Lucid for me) versus a broken down and unreliable dumpster fire of a car? 🤣

But what would make me happier? Impact. Positive impact.

This week was the 15th anniversary of my maternal grandpa’s passing. He was a phenomenal human being. A simple, hardworking, ambitious, and kind man. Grandpa’s life was transformed by a scholarship in 4th grade. Through grit and grace, he became a doctor then the Chief Medical Officer of Nigeria. He directly treated thousands of patients but his influence positively impacted millions.

Unlike a bunch of my cousins, I decided not to become a doctor. Instead, I’m going Otolorin (in Yoruba this means “choosing a separate path”) in crypto. But the shared values endure. I have always been guided by potential for impact as I have navigated my career journey.

This brings me to crypto. Too often people focus on price but miss the underlying technology. I believe crypto can be a force for good by solving real world problems. I want to dig in and learn more about these solutions. Would you be interested in a series where I highlight some of the solutions, people, and technologies addressing real world problems? Vote here. Tell me what you would like to see or not.

News📰

1. Ukraine: First Crypto war, now NFTs?🕶🕯

* It’s been said that Russia’s invasion of Ukraine is the first crypto war, now NFTs are getting in on it too.

* Given West Africa’s colonial past, I’m painfully aware that it is the victor who gets to write history. The Ukrainian government is establishing an NFT collection memorializing the war - presumably it would feature stories of Russian atrocities and Ukrainian courage. Each piece will be art representing a story from a trusted source written onto an unchangeable, globally distributed blockchain

* The funds raised from the sales would support humanitarian relief. Would you get in on this?

2. Russia accept Bitcoin for oil and gas ⛽️

* On the other side of the conflict, Russia has been increasingly isolated by Western countries

* Now, the Russian government is indicating that they may soon start accepting bitcoin payments for oil and gas sales

* This is part of a larger story where the US dollar, some say the “petrodollar”, is being challenged as the de facto currency for global oil trade. When China buys oil from Saudi Arabia, they pay in US dollars. Isn’t that odd? If you lived in the US but wanted to buy avocados from Mexico, would you pay for them in Nigerian Naira…I don’t think so! But there is a history and reason why it is that way today. And now it’s been challenged by China’s Yuan…and also Bitcoin. There could implications for the US economy if this catches on at scale…that’s a whole ‘nother conversation.

3. Big oil is mining Bitcoin 🤠

* I love it when my world’s collide….for context, I started my career in in oil & gas as an engineer then a market analyst…..now this week, ExxonMobil disclosed that it has been mining Bitcoin with waste natural gas in North Dakota

* Exxon is reportedly also considering Bitcoin mining projects around the world including Nigeria, Argentina, and Germany. Exxon is far from being alone in this endeavor. ConocoPhillips are other companies have been doing so for sometime.

* Last year, a friend and I evaluated starting a company to mine bitcoin with flared gas in Nigeria. We had some deep concerns and it did not progress. I’m feeling wistful reading about Exxon executing on this idea….maybe we should have persevered…maybe it’s not too late?

4. First fashion week in the metaverse💋💅🕴🎫🛍

* Calling all fashionistas! The first Metaverse Fashion Week (MVFW) is upon us.

* Decentraland is hosting the MVFW from March 24-27 featuring over 60 established and digital-native brands including the likes of Estee Lauder to Forever 21.

* Attendees can snag NFT wearables, listen to expert panels and have fun at after parties…all in the metaverse. Also, there’s a robot named Sophia who will be walking around wearing the latest NFT wearables. If you spot her in the metaverse, you can snap a selfie and enter a giveaway!

5. Gov of Florida: You should be able to pay your taxes in Bitcoin👨‍✈️

* It’s tax season! Gov DeSantis of Florida wants to make it possible for businesses to pay taxes in Bitcoin. But why just businesses? You have to remember that there are no personal income taxes in the Sunshine State. I think this is probably more gimmick than substance because why would you pay your taxes with an appreciating asset (Bitcoin) instead of a depreciating one (dollars)? Nonetheless, this move is not surprising as Miami has been positioning itself as an epicenter for the crypto industry.

* It’s particularly meaningful because Gov DeSantis is one of the frontrunners to be the Republican candidate for President in the next election. At the very least, he could bring introduce the topic at the national level.

* But Florida won’t be the first! That crown belongs to Colorado. Earlier this month, the Centennial State became the first to accept crypto for tax payments. It’s expected to go into effect in June! In Colorado, the plan is to accept crypto payments BUT convert them into dollars for deposit in the state’s treasury. I guess the next move would be to hold crypto on the state’s balance sheet. Which state is going to be the first to do that?

That’s all folks. I hope you have a great week. Remember April Fool’s Day is on Friday!

O dabo

Afo

Thank you for reading 5x5 Crypto News. This post is public so feel free to share it.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit afolabio.substack.com

Hey y’all!

I hope you had a terrific week! I’m visiting New Jersey this week. I checked into my hotel, walked towards the elevator when I ran into this:

This is a first! I’ve seen Bitcoin ATMs before but never in a hotel. The narrative I’d heard was that there are 2 main sets of Bitcoin ATM users in the US. The first set are immigrants. They buy and send Bitcoin as a means of sending and saving funds for loved ones in their home countries ex Venezuela, Mexico and Nigeria. This is particularly helpful for people who might be undocumented migrants in the US - they may not be able to have a conventional bank account. The second set are people who value anonymity. They like to use cash to buy Bitcoin.

Have you used a Bitcoin ATM? If yes, what was your use case? What was your experience?

Personally, I don’t love them because the fees are way higher than crypto exchanges. I am curious about the economics of owning Bitcoin ATMs. Might be a interesting side hustle to pursue. Maybe I’ll do a deep dive to investigate assess first.

On my mind🧠

Introducing the world’s first Bitcoin mortgage: Milo! 🚀

Background

* Milo! Depending on where you grew up, the word “Milo!” evokes memories of a sweet chocolatey drink ☕ or the 10th mayor of Tel Aviv. I’m in the first group. Yum!

* Milo Credit is a global digital bank founded in 2018 to reshape mortgages for global consumers. Most people around the world don’t have access to a mortgage. They often never own a home. Many of those that do gradually build a house painstakingly over years as their funds allow.

* This month, Milo Credit launched the first Bitcoin mortgage. They are offering 30-year mortgages up to 100% of the house cost as long as you provide surplus Bitcoin collateral. The interest rates are low and payment plans are flexible and adjustable.

* So for example, if you wanted to buy a $200k condo, you might be required to provide $300k Bitcoin collateral. Milo establishes a minimum LTV (loan-to-value) - it’s 67% ($200k/$300k) in this example . My guess is that you would get a lower interest if you provide significantly higher collateral.

* But that’s not all. We all know that the price of Bitcoin can be volatile. Milo would monitor the LTV ratio as the price of Bitcoin evolves. Milo would set a LTV ratio at which the borrower would need to either provide more Bitcoin or pay down the loan. Milo might also set an LTV ratio at which the borrower goes into default or loses the collateral. I’d love to learn more about the fine prints.

* So continuing the example, if the price of Bitcoin dropped by 50%. The LTV ratio would then become $200k/$150k = 133%. I’m guessing Milo might set the limit for the LTV around 80-100%. This would trigger the borrower to provide more collateral to bring the loan LTV back into balance or risk a default.

Takeaway

* Look, no one wants to be this guy:

* The Bitcoin Mortgage is NOT a mass-market product. It’s targeted at the lucky few who have bags of Bitcoin but don’t want to sell the underlying asset. It makes sense not to sell today if you believe the value will rise over the next 30 years.

* But the devil will be in the details. I’m keen to understand the terms and conditions of the mortgage. The lending risk is somewhat mitigated by the fact that the bank could repossess the house if the value of Bitcoin crashed.

* This is an important first step. We still have a long way to go before uncollateralized crypto loans are possible and we are able to extend mortgages to people who don’t have access today. We will get there!

News📰

1. Coinbase is subject to class-action lawsuit🚨

* 3 individuals who purchased crypto through Coinbase have filed a class action lawsuit against the firm. They allege that Coinbase operated as an unregistered securities exchange because they claim that 79 of the tokens listed on the website are securities.

* This lawsuit is not unexpected. The Chair of the SEC is thought to hold the view that many tokens/cryptocurrencies except Bitcoin, Ethereum, dollar-backed stablecoins are securities. If this is true, then Coinbase and other crypto exchanges would be required to register as securities exchanges and adhere to additional requirements.

* I don’t think there is cause for extreme alarm. This is bigger than Coinbase. I hope this lawsuit nudges the industry closer to achieving clarity and supportive legislation.

2. Crypto goes to Congress: Dems split 💔🪓

* Democratic party is split on crypto. But it’s not progressives vs centrists. The progressive wing is split. On one hand, Sen Elizabeth Warren is a vocal opponent concerned about consumer protections. On the other hand, folks like Rep Ritchie Torres (NY) are embracing the potential to reach the unbanked and cut lower the cost of services.

* I liked this quote from Rep Torres:

“The project of radically decentralizing the internet and finance strikes me as a profoundly progressive cause….You should never define any technology by its worst uses. ... There’s more to crypto than ransomware, just like there’s more to money than money laundering.”

* This week, Congress questioned leading crypto experts on the potential of Russia to use crypto to launder money and evade sanctions. TLDR: No evidence to suggest that this happening at scale. Here’s the link if you are curious:

3. 68% of US millionaires own crypto 💸💰💲

* Survey from Motley Fool finds that we are in good company!

* Bitcoin is preferred. 60% of US millionaires own some Bitcoin while 50% of them own Ethereum. Turns out they aren’t immune to memecoins with 86% saying they had invested in the likes of dogecoin and Shiba-Inu

* Looking ahead, 59% expect to allocate more of the portfolio to crypto over the next 5 years while 50% of those who don’t currently own any crypto plan to buy some within the next year.

Public Service Announcement: It’s less than a month before Tax Day. Commiserations to my crypto trading friends. Let me know how it goes and what tools helped you.

O dabo

Afo

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit afolabio.substack.com