Crypto IRL

Last week, I scored a personal win. I deadlifted 405 lbs!

I remember when I was first struggling to deadlift just the 45lb bar. Now I have lifted 9x that! But it was not smooth sailing. I tried and failed to lift 405lbs at least 5 times over the past month. Truth is, I was intimidated. My mindset was my weak point not my body.

I love doing things which I did not think I could do…but it’s not easy. This growth mindset also translates into other spheres of life. I started my career as a chemical engineer designing oil refineries but I’ve reinvented myself a couple times as I transitioned to become an oil market analyst then a product manager then a management consultant and now a payments product strategy director.

Similarly, companies that have thrived for over a century have reinvented themselves and adopted new technology. Nobody wants to end up like Blockbusters or Kodak. However, I am increasingly concerned that some legacy financial institutions are not reinventing themselves with appropriate haste. Growth mindset is for people and corporations. Innovate or die.

News

1. Pay like you email

* In the 1970s, my dad won a scholarship to attend college in England. His parents didn’t have a phone at home. So my dad would write letters that would end up on ships sailing from Europe to Africa. Sometimes it took months for letters to be delivered.

* Flash forward 35 years, I left my family in Nigeria to attend college in the US. Thankfully, the internet made it possible for me to send emails and have WhatsApp calls. I was able to instantly communicate for free thanks to the internet: a global standard protocol for exchanging files.

* In the time that communication rapidly evolved in leaps and bounds, payments have only taken tentative steps forward. We are still using many of the same dated solutions (ex Western Union, SWIFT) from when my dad was in college.

* I use Gmail. Imagine if I could only send emails to other people who use Gmail too. Email would be extremely limiting, right? This is analogous to some of the modern payment solutions ex CashApp. The systems are not interoperable. Therefore, consumers end up with a bunch of apps.

* The lack of interoperability is worse when you try to send money to a different country. There is no difference when I send an email to my brother-in-law in San Diego versus my other brother-in-law in England. They are both free! But it’s not the same with payments. Instead, you have to deal with different currencies, different apps, lots of fees….it is just a pain!

* Bitcoin Lightning Network is like email. It enables users to transfer funds irrespective of country, app platform and best of all it’s free. I am extremely bullish on the potential for the Lightning Network to disrupt the payments space.

* There are economic drivers for this too. In 2020, Costco had $122B sales. They paid about 2.9% fee on their Visa transactions generating up to $3.5B for Visa. If Costco switched from Visa to the Lightning Network, they could boost their profit from $21B in 2020 to $24B. Better yet, they could decide to share some of the savings with their customers like me and give us even lower prices. Nice!

* Customers just want to get their job done. The average consumer has no idea how the existing payments system really works. I don’t think the average person cares or needs to know how the Lightning Network works either. People will flow to cheaper, faster, better solutions. The herd is coming.

2. Twitter Lightning Payments

* This week, Twitter expanded its tipping program to now enable users send bitcoin payments to each other.

* The tipping program already enabled users to send payments using CashApp and Venmo.

* Bitcoin tips are possible using Strike which runs on the Bitcoin Lightning Network. Strike enables instant and free bitcoin payments globally.

* I am really excited to see how users respond to this feature. I can imagine folks using tips as a way to send money to loved ones in different countries. I am also curious to see how the other social media platforms respond. Facebook has famously struggled to launch a digital currency. Why not just integrate into an existing one?

3. Bahamas: Sun, Sand and CBDCs

* When I think of Bahamas, I think of sun, sand, swimming pigs….and now the world leader in Central Bank Digital Currencies.

* Last October, Bahamas became the first country to launch a Central Bank Digital Currency (CBDC). The country consists of 700 islands scattered across the Caribbean. The Central Bank was incurring high costs flying cash across the archipelago. A CBDC fixes that.

* The timing was fortuitous. COVID-19 suddenly increased the demand for government aid. This would have triggered long lines at social services offices at a time when public health officials were advising social distancing.

* The introduction of the CBDC enabled the government to directly deposit money into citizens accounts.

Other

1. Nigeria Education Foundation

TLDW

* Oct 1st was Nigeria’s Independence Day. I started a nonprofit to help advance K-12 education in Nigeria.

* 12+ million children in Nigeria are not enrolled in school, by far, the highest number anywhere :-(

* Many children enrolled are getting a sub-par education, the government estimates 20% of Grade 6 students can NOT read or write

* I’m partnering with Destiny Trust to sponsor marginalized children. If you would like to join, we are accepting US dollars, Bitcoin and other cryptocurrencies. We are a registered 501©3 non-profit. All donations go to the kids. You receive a receipt for tax purposes.

Thanks for your attention. Please let me know what’s on your mind. I always appreciate feedback. Have a great week y’all!

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

It only took 5 years. But, I finally did it! I visited the Big Bend National Park over the Labor Day weekend. The park is bigger than the state of Rhode Island and it has well preserved dinosaur fossils. The rivers carved temple-like canyons in the ancient limestone and the night skies are as dark as coal but spectacularly set alight by shooting stars. It was peaceful and blissful….and yes there is a crypto connection, stay with me.

If only the mountains could talk. They might tell stories of change. Scientists say this region was once a mighty sea but today it’s an arid desert 500 miles away from the coast. The climate and environment slowly changed over time. Today, financial services and technology are changing. It feels like the pace of change is both quick and slow. If you don’t pay attention, you might be surprised by the rise of crypto.

NEWS

1. El Salvador: Bitcoin is legal tender

* I’ll never forget that night in Miami. The air was thick with expectation. Jack Mallers had happy tears in his eyes as he introduced President Nayib Bukele of El Salvador. President Bukele announced he was drafting a bill to make bitcoin legal tender in his country. Instantly, the main hall at the Bitcoin 2021 conference erupted in applause and cheers. As the excitement wore down, I quietly wondered how this would all play out. Well, we are about to find out.

* This week, on September 7, 2021, the law went into effect. Here’s what it means:

* All merchants are required to accept bitcoin in addition to US dollars, the other legal tender.

* Government launched a digital wallet, Chivo, and building out bitcoin ATM network, Chivo ATMs. These allow locals to withdraw cash without fees.

* The government purchased over $20M worth of bitcoin and all Salvadorans were given about $30 of bitcoin each

* El Salvador’s economy has struggled. Remittances, money sent home by Salvadorans abroad, now account for 25% of the GDP, up from 9% in 1991. Unfortunately, locals pay high fees to receive them. Firms like Western Union earned $400M in fees last year. These are funds that could have gone to health, education, investments and so on. Leveraging Strike built on the Bitcoin Lightning network enables cheaper and faster transactions.

* It’s not all rainbows and unicorns. There have been protests and local opposition. Protestors allege that the new law was rushed without proper consultation from the public. They sight a need for more education to understand the pros and cons of Bitcoin. A poll by a local university found 70% of population preferred US dollars to bitcoin. The government has given assurances that salaries and pensions will be paid in US dollars.

* And so it begins. The eyes of the world are on El Salvador as it hosts the first bitcoin experiment. I don’t anticipate we will see a stampede of all countries doing the same thing. However, we could see some countries fast track their Central Bank-backed Digital Currencies (CBDC).

2. McDonalds accepts Bitcoin: I’m lovin’ it

* McDonald’s, Starbucks, Pizza Hut and the Holiday Inn are some of the American companies operating in El Salvador that now accept bitcoin payments there.

* The law requires local companies to accept bitcoin but they are free to immediately convert it to US dollars if they choose to.

* Perhaps the biggest impact of this law might be accelerating international companies comfort and adoption of bitcoin payments. Now that McDonald’s and Starbucks are accepting bitcoin in El Salvador, could they do the same elsewhere? It remains to be seen.

3. Panama and Ukraine

* El Salvador was the first to adopt Bitcoin but it certainly won’t be the last.

* Nearby Panama is an international trade and finance center. A Congressman has introduced a CryptoLaw bill which aims to

* Provide legal, regulatory, and fiscal certainty to the use, hold and issue digital value and crypto assets NOT limited to bitcoin

* Expand government use of blockchain technology in identity and transparency

* Across the Atlantic, the Ukrainian parliament passed a bill to regulate and legalize cryptocurrencies. The bill just needs the president’s signature to become a law. There are some differences compared to El Salvador.

* Unlike El Salvador’s law, the bill in Ukraine does NOT put cryptocurrency on the same legal footing as the national currency.

* Additionally, the government is NOT limited to Bitcoin nor is the government invested in rolling out digital wallets and ATMs to support cryptocurrencies

4. British Post Office + Bitcoin: Odd duck?

* Beginning next week, British citizens would able to purchase Bitcoin through the Post Office. I guess it’s not the post office of our grandparent’s generation. My brain is tickled by the union of strange bedfellows.

* Well, it turns out the process is not so smooth. Verified users of the Post Office app can click through to DEX Swarm where they can purchase vouchers to that can be redeemed for cryptocurrencies. I’m curious to see how much uptake this scheme has. Perhaps the goal was just to get more people signed up to use the Post Office’s app.

That’s all for this week. I hope you have a delightful week ahead.

Thanks,

Afolabi

PS.

#NeverForget. My thoughts and prayers are with everyone impacted by 9/11. 20 years have gone by but the pain still endures. May we never see a day like that again.

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

They say history does not repeat itself but it rhymes. Today, Hurricane Ida hit the Louisiana coast on the 16th anniversary of Hurricane Katrina. I have gone through a couple hurricanes, they can be awfully devastating. Ida seems particularly nasty. My thoughts and prayers are with everyone impacted.

For this week’s episode, I’m taking a deeper look at 3 stories and not the usual 5. I think you will enjoy it. Let me know what you think.

NEWS

1. Culture eats finance?

* Visa dropped $150,000 on an NFT this week. See the pic below. They are the first corporation to do so. But why does this matter?

CryptoPunk #7610 (2017). Courtesy of Visa, via Twitter.

* The internet brought new services, products and careers like email, Twitter, and social media influencers. The crypto age is doing the same. In 2001, I could not have imagined sleeping in a strangers bed but 20 years later we are happy Airbnb guests. Keep an open mind, its early days for crypto.

* NFTs have been on a tear lately! There were over $2.5B sales of NFTs in the first half of the year. Over 1 million pieces of crypto art have been sold for over $800M.

* Now back to Visa. Visa believes that NFTs could play a role in the future of commerce. They did not just some cash, Visa also wrote a 17-page white paper about their thesis. They believe that every brand and company will create and/or acquire NFTs. I love that they are exploring and positioning themselves to help their clients. I need to dig into NFTs too. But here’s what I know:

* NFTs connect to culture. They cut across visual arts, music, sports, gaming and more. NFTs allow fans to own a piece of sports history ex NBA Top Shot. NFTs enable collectors to have an immutable record of ownership. NFTs are good for creators - they could earn royalties on successive resales. Lastly, NFTs could enable gamers to own assets in game, then move and sell them elsewhere.

* In the heydays of Clubhouse, there were rooms full of hundreds of people trying to learn about NFTs. Many of these people were creators, collectors and fans who were new to the cryptoworld. Culture not finance brought them over.

* The race is on to see whether culture (ex NFTs) or finance (ex DeFi) will onboard the next 100 million users.

2. Crypto and sports: match made in heaven?

* The love fest between crypto and sports is blooming. The top draft picks of the NFL and NBA signed endorsement deals with crypto companies. FTX has naming rights to the Miami Heat’s arena and Crypto.com will be sponsoring F1.

* But right now, I think sport tokens is where the fun is at. In soccer, major teams like Arsenal, AC Milan and Barcelona have issued digital tokens which can be sold to fans and traded like an asset. I like it. Ownership of sports teams is a billionaires game. What’s the average die-hard fan to do?

* Tokens enable fans to signify their devotion…think of it like a digital jersey. In exchange, teams let token owners have a small say in how the team is run. Juventus token holders voted on the song to be played when a goal is scored. Maybe future token holders might have a say on jersey or player selection.

* COVID-19 related social distancing has crippled ticket sales and sports revenue. 40 soccer teams in Europe earned $200M in additional revenue from token sales. The value of tokens go up and down like stocks. This week, rumors that Cristiano Ronaldo was moving to Manchester City sent the value of their token surging 25%. But it now looks like Ronaldo may end up at Manchester United instead.

* Tokens are enabling fans to learn a bit about crypto eco-system without even trying. Culture is eating finance.

3. Stablecoins: Will a rose by another name still smell as sweet?

* Lightning does not strike the same place twice. Nah. Something is brewing. These were my sentiments when two leading stablecoin issuers made announcements in as many days.

* The value of stablecoins, unlike cryptocurrencies, are pegged to another commodity. This means that a US dollar backed stablecoin should always equal $1. The 2 largest stablecoins, Tether and Circle, have published reserves indicating that they are not 100% cash and cash equivalent. This week, Circle announced it’s intention to move from 61% cash and cash equivalents by September.

* The following day, Paxos, the issuer of Paxos Dollar (PAXD) announced two things. First, it was rebranding Paxos Dollar moniker from PAX to USDP. Second, it reaffirmed that it holds 100% cash reserves.

* I think this flurry of activity is linked to Facebook. Facebook has struggled to launch a digital currency payment system. But it’s leadership indicated that its digital wallet could be launched before year end. Facebook has reportedly had conversations with Circle and Paxos about partnering on a stablecoin.

* Facebook has almost 3 billion monthly active users. It has already launched WhatsApp Pay in India and Brazil. It could grow a formidable payments business across Facebook, WhatsApp and Instagram. But I expect they will continue to face a lot of regulatory scrutiny.

Tweet of the week

TLDR: It’s not too late to begin investing today.

Things that I’m excited to read

1. DeFi: Future of Finance

* This new book written by a trio of a Duke professor, a venture capitalist and a DeFi founder, was recommended by one of our loyal readers. Thanks!!

* The authors argue that the current financial landscape is ripe for disruption and we are seeing, in real time, the reinvention of finance.

* This book conducts a deep dive into some of the most innovative protocols in the DeFi space such as Uniswap and Compound. Can’t wait to dive in!

2. Consensys: DeFi report

* Consensys is the leading blockchain technology company that develops tools and enterprise solutions on Ethereum. If you have a Meta Mask wallet, you are their customer. They also partnered with JP Morgan to develop their crypto solution.

* Consensys publishes a quarterly report on the state of DeFi. The Q2 2021 report is here.

Thanks for coming for this week’s ride. I’ll see you next time. Be safe.

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

This weekend, Warri, a city I grew up in crowned a new king. I loved seeing the pomp and tradition on display. The new king is just 37 years old, very young in a country where monarchs are often crowned in their 50s through 70s. His speech spoke of history, inclusion and ambition. Hmm, that word: ambition. Friends, I have lots of ideas about topics to explore and share with you. But my time is limited. I am looking for someone to join the 5x5 Crypto team so we can go further faster. Requirements:

* Curious about crypto

* Ready to have fun

Let me know if you are interested!

News

1. Afghanistan: Funds transfer is life or death

* Many of us were moved by the heart-wrenching scenes in Afghanistan this week. I can’t pretend to know how it feels. But I can marginally relate to the Afghans living in the US trying to send money home to help loved ones.

* In this climate of fear and desperation, Western Union announced that it was stopping operations in Afghanistan…the very moment when sending funds could literally be the difference between life and death. This is infuriating. It does not have to be this way.

* Yes, I understand that Western Union has a responsibility to care for their workers and business. It just illustrates that the existing model is broken. Fortunately, Bitcoin Lightning Network changes that. It provides a censorship-resistant avenue for people to send funds without rent seeking middlemen.

2. Lightning in Nigeria: 0% fee on US fund transfer

* This is BIG! Bitnob’s integration with the Lightning Network is now enabling FREE, instant, non-reversible funds transfer between the US and Nigeria. Read that again.

* In 2018, Nigerians in diaspora sent $25B back home. According to the World Bank, the average remittance fee in Africa was 8.4%. This means that middlemen like Western Union earned $2.1B that could have gone towards education, health, investment etc.

* This is precisely the type of solution that is needed in Afghanistan and frankly everywhere. I can’t wait to try it out. Too often, people mistake crypto as purely a speculative venture. It’s not. Payment solutions like this are going to reshape the competitive landscape and challenge existing business models while creating new opportunities. Get ready.

3. What do Walmart, Amazon and Kroger have in common?

* US retail giants are warming up to crypto. Walmart is hiring a crypto payments expert to develop and implement their crypto payments strategy. Amazon also posted similar job descriptions too. Meanwhile, Kroger has partnered with Fold to enable grocery shoppers earn bitcoin rewards for their purchases.

* It’s all very interesting but I do not plan to spend any bitcoin buying milk. Why would I? When I believe the long-term price of bitcoin is higher than it is today. That said, I think stablecoins like USDC could be a real winner here.

* Stablecoins allow instant, irreversible transactions UNLIKE credit and debit card payments. When you purchase coffee from a local cafe using a credit card, it could take 1-3 days for the merchant to receive payment. This could be especially frustrating for cash strapped businesses. Why the delay, it’s 2021? Stablecoins are instant.

4. Bankers: “digital assets will lead to greater compliance and transparency’

* Deloitte conducted a global survey of financial service professionals to understand their attitudes towards digital assets (ex crypto like bitcoin, stablecoins, CBDCs).

* Bankers familiar with blockchain said the top 3 benefits they anticipate from digital assets were: (1) improved access to funding sources (2) greater compliance and transparency (3) more efficient processes ex faster payments

* It was great to see traditional finance begin to appreciate the opportunities ahead. The point about greater compliance and transparency flies against popular (and incorrect) narratives that crypto is a shadowy tool used only by the underworld. Bankers are saying it’s a force for good.

* Lastly, it was interesting to note that 79% of all respondents expect digital assets to be somewhat important over the next 24 months. Meanwhile, 76% of respondents strongly or somewhat believe that digital assets will be a strong alternative or replacement for the existing fiat system within the next 10 years. If you are a bank and not thinking about this, you are falling behind!

5. Crypto-Infrastructure bill electrifies community

* The Senate passed a $1 trillion infrastructure bill with a vaguely worded amendment on cryptocurrency. The idea was to increase taxes on crypto to help pay for roads, bridges and so on. But the resulting amendment was so poorly worded that it threatened to cripple crypto adoption and drive innovation abroad.

* Texas Senator Ted Cruz questioned if up to 5 Senators could describe what a cryptocurrency is, much less ably craft thoughtful legislation about it.

* Fortunately, IRS sources state that they will ignore the wording in this bill. Nonetheless, this episode has electrified the crypto community. We have seen the emergence of single issue voters and deep-pocketed individuals appearing from the sidelines to bankroll crypto education and advocacy in Washington. Let’s see how impactful this lobby becomes over the next couple election cycles.

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!

Today we are doing a special edition exploring the opportunity for crypto in the developing world. This is a topic close to my heart as I was born in Nigeria. I have been fortunate to have lived and worked in Africa, Europe and North America. This has given me a perspective on how different and similar we all are. When it comes down to it, people want to create a good life for themselves and their families. However, situations vary greatly within and across countries. This brings me to this question:

Can crypto and DeFi (decentralized finance) enable economic prosperity?

Join me as I explore. As always, please let me know what your thoughts are. I am always happy to engage. Thanks!

Banking the other half

He quietly walks in at 4pm everyday. Baba Alajo (“man of the accounts”) is dressed in a white kaftan with a dusty wooden walking-stick in hand. Some say, the walking stick is meant to beat off any would-be pickpockets. You see Baba Alajo is here to pick up cash from my grandmother’s roadside store. He is the closest thing to a bank in this community. 

The World Bank estimates that 1.7 billion people are unbanked. These folks do not have access to potentially life enhancing services like low-interest lines of credit for their businesses or a mortgage to buy a home. Instead, many of these people rely on the likes of Baba Alajo to provide them with cash deposit and withdrawal services. They are also particularly vulnerable to predatory loan sharks. 

There are 4 key reasons why people do not engage with the formal financial sector.

* Lack of funds: According to the World Bank, 59% of unbanked people said lack of funds was the reason they did not have a bank account. Small business owners like my grandma might only earn a couple dollars a day. I once learned about a Ugandan bank that charged customers whenever they received deposits. Ouch! This would eat into the already meagre savings. 

* Illiteracy: UNESCO reports that over 770 million adults cannot read and write. Women are over-represented in this group. Most banks and FinTechs are designed to serve literate customers. My grandma did not have the opportunity to get a formal education. When she was in her 70s she took an adult reading class at her local church. Many people can’t read, we need to also have solutions to onboard them too.   

* Trust: Some people have been traumatized by the banking system. As a kid in Nigeria, I remember outcries when banks failed and families lost their life savings. In contrast, people like Baba Alajo are part of the communities they serve. In my grandma’s case, she knew his family and he learned the rhythms of her business. Often times, people like Baba Alajo would pass on their business to their child when they retired. Trust has been built over generations.  

* Access: Mobile phones have enabled billions of people to participate in modern banking by expanding access to the internet. However, the UN estimates only 47% of people in the developing world have access to the internet. Technology alone can’t close this gap. Trusted community members like my grandma could host mobile phones for shared access. More innovation is required to close this gap at the last mile.

Lack of funds is the primary reason people do not bank. However, my sense is that the unbanked and underbanked have varying exposure to the drivers. I would guess that the underbanked are more literate than the unbanked. They may also have higher trust in financial institutions and greater access to them than the unbanked. 

Figure 1. Illustration of the differences between the unbanked and the underbanked

Now that we have established why some people don’t engage with the modern financial sector. Let’s explore what problems they have that could be solved. I’m highlighting three.

* Store of value. 

Situation/Complication: Most of the unbanked live in countries facing high levels of inflation and currency devaluation. For instance, in Nigeria, the price of rice has tripled over the past 6 years. During that time period, salaries have not kept up and unemployment worsened. Meanwhile, the nairas’ value has tumbled over the past 6 years from $1 = N200 (2015) to $1=N500 (2021). Consumers who are earning and saving in naira are fighting a losing battle with inflation. 

Resolution: One solution is to save in alternative currencies such as US dollars, fiat-backed stablecoins ex. USDC or cryptocurrencies like Bitcoin. Access to dollar denominated accounts is limited in Nigeria but dollar-backed stablecoins paired with high interest savings accounts such as BlockFi or yield farming on Compound could provide a wall of defense against the rising tide of inflation. 

* Access to credit 

Situation/Complication: Access to credit is notoriously limited in some developing countries. There are difficulties enforcing contractual breaches and credit scores are generally not available. The bank lending rate in Nigeria averaged 11.5% over the past year whereas interest rates in the US were 2-4%. This leads to massive differences in total interest paid over the course of a 30-year mortgage on a $200k house. The hypothetical borrower in Nigeria pays over $400k in interest whereas the US borrower pays a little more than $100k over 30 years. Wow!

Resolution: Establish digital identities on the blockchain to simplify assessment of credit worthiness. DeFi could be leveraged to expand access to global pools of credit. This could enable credit-worthy individuals and business to developing countries more readily gain access to more and lower-interest financing 

* Remittances 

Situation / Complication: Many migrants send a portion of their paychecks home to support family members and invest in businesses. The World Bank estimates that $702B remittances were sent in 2020. In many developing countries, remittances accounted for more than 20% of the GDP. However, the fees associated with these transfers can be exorbitant. The World Bank found the average cost of receiving remittances in Sub-Saharan Africa was 8.2% in Q4 2020. In contrast, domestic funds transfer within the US is FREE using CashApp. 

Resolution: Blockchain-enabled cross-border payment solutions are near instant and low cost (<1% fee). Strike.me leverages the Bitcoin Lightning Network to enable users transfer funds funds through their app from US bank account to a foreign bank account. Send Cash Africa achieves similar results too. In contrast, existing bank solutions are more costly and time-intensive. Reducing transaction fees from the global average of 6.5% to 1% could unlock $39B. To put things in perspective, USAID’s annual budget was $40B in 2020.

In conclusion, there are significant opportunities to improve economic prosperity and financial inclusion. I am looking forward to exploring more crypto and blockchain enabled solutions to these challenges. Please let me know if you learn of projects and startups working in this space. I may do a profile on them in the future. 

Thanks for joining me this week. Let me know your thoughts. Have a great one.

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

Thrilling week

Hey y’all! I love the Olympics. I admire the passion, discipline and resilience to win. There have been so many triumphs and disappointments. I particularly enjoyed seeing Philippines and Bermuda win their first gold medals EVER. What a thrill! It’s also been a thrilling week in crypto as bitcoin price rebounded to $42k.

I’m almost kinda famous

I recently appeared on the Citizens of Blockchain podcast. I got to share my “come to crypto” story. I also discussed crypto in Nigeria vs US, bitcoin mining, energy, banking and more. I really enjoyed the conversation. Please check it out here.

Side note - it’s a bit weird watching yourself on video. I was struck by how similar my brother and I are. We don’t look alike but boy do we have similar mannerisms and speech patterns. Twins!

NEWS

1. 200 million crypto users!

* Research by Crypto.com finds there are now more than 200 million crypto users around the world, it took only 5 months to double from ~100 million in January

* Bitcoin’s dominance was eroded from 67% (Jan 2021) to 51% (Jun 2021) share as other cryptocurrencies (excluding ethereum) surged from 20% to 38% share.

* Investors are looking beyond the blue chips to Cardano, Polkadot, Solana and many others. Let’s not forget the impact of Elon Musk and dogecoin.

* The chart below indicates that the big surge in crypto users occurred AFTER the bitcoin bull run simmered down. Odd. I would have expected more users jumping on board during the price increase. If this is true, then a number of users caught a falling knife. Will they have the conviction to #HODL?

Source: Number of users from Crypto.com and bitcoin prices are from Coindesk

2. Happy 6th birthday Ethereum!

* The second largest cryptocurrency turned 6 this week. There aren’t many 6-year olds valued over $300B. What a run!

* Last month, 20,000 validators staked their ethereum in anticipation of the move from proof-of-work to proof-of-stake. Ethereum now has over 200,000 validators representing about 5% of the ethereum supply earning about 6% yield.

* Ethereum continues to be the main blockchain where DeFi applications are being built. However, it’s been plagued with high fees and increasing competition. The Eth 2.0 upgrade is expected to ease some of these issues.

3. Uniswap going mainstream

* The internet never forgets. A new video from the EthCC conference was deleted last week. In it, Uniswap’s Growth Lead talks about plans to partner with FinTechs like PayPal, Stripe, to provide DeFi to mainstream consumers. Exciting!

* The video was taken down at the request of Uniswap concerned that the comments might be understood and taken out of context.

* Uniswap is the largest decentralized exchange on Ethereum. A marriage with FinTechs could enable mainstream users have access to a wider set of assets, 24/7/365 access and instant settlement…these are all wins for the everyman!

4. Wall Street in and out on crypto startups

* Paxos announced that Bank of America and Coinbase joined it’s recent Series D fundraise. Paxos has raised more than $540M. BoA is also a Paxos customer after the US’ second largest bank joined Paxos Blockchain Stock Settlement Network.

* It’s not all good news though. BlockFi has been faced with rising regulatory challenges from at least 4 US states. The lead investor in BlockFi is reportedly developing cold-feet and mulling pulling in the face of mounting legal and regulatory challenges. Stay tuned!

5. US Infrastructure bill targets crypto

* The Infrastructure Bill was a centerpiece of President Biden’s campaign. Congress has been working on an ambitious proposal to build roads, railways, and other core infrastructure.

* But that’s not all. Buried in the bill is language that could increase the tax reporting burden on crypto users. The verbiage is so broad and ambiguous that it is open to interpretation and stifle adoption.

* Crypto industry groups are petitioning Congress to exercise restraint. President Biden is forcefully behind the Infrastructure Bill. Remains to be seen if this addition targeting crypto will stand in the final version.

Explore

1. Fractional NFT ownership

* NFTs are still having a moment. The artist Beeple sold NFT for $69M. Since then NFT art have continued to post significant appreciation. However, iconic pieces are often out of reach of entry level collectors.

* Enter Fractional Art. This platform enables fractional ownership of the world’s most sought after NFTs ex Beeple’s Elon piece. Fractional unlocks liquidity, reduces entry costs, and allows for synergy with other DeFi primitives.

* I’ve been thinking about adding art to my investment portfolio. The fractional model exists for NFTs ex Fractional Art and conventional analog art ex Masterworks

2. More on retirement

* Last week, I invited you to check out Choice which enables you to invest tax advantaged retirement dollars into bitcoin and other cryptocurrencies

* This week, Choice announced that they are partnering with my friends at Compass Mining to enable users to purchase mines using retirement dollars. I like this idea! I expect Compass will expand the program to other retirement account providers.

* Caution: One of my friends wrote back sharing his experience with Choice. It was not pleasant. He found the process to be a bit clunky and manual. He ended up closing his account and going with KeyKeeper IRA. Solutions like KeyKeeper might be particularly attractive if you value holding your own keys. To be fair, he tried using Choice earlier on, their products may have evolved since.

Tweets of the week

Thanks for reading. Let me know what’s on your mind. Have an awesome August!

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

I’m back!

I took a couple weeks off to recharge. I surprised my wife with a beach getaway to the Caribbean. It was sunny, sandy and so much fun. Unfortunately, I got pretty sick on our last full day. Thankfully I’m fully vaccinated and it wasn’t COVID. My doctor urged me to go straight from the airport to urgent care. It was pretty gnarly but I’m finally feeling better now. I’ve missed y’all. What have you been up to? How has your summer been?

Crypto never sleeps.

While I was laying low, crypto kept on pumping and churning. I’m going to highlight 5 recent developments then share some resources for you to explore and read. Let’s go!

News

1. BlockFi is under fire

* Regulators in New Jersey, Texas and a growing number of states are challenging BlockFi’s Interest Account. BlockFi provides high interest savings accounts (2-8%) for stablecoins and cryptocurrencies. The firm also provides collateral backed loans.

* Regulators allege that these interest accounts are securities under state rules. BlockFi may need to cease operations in some states until they can obtain appropriate registration. Boohoo! I’ve been a happy customer for over a year.

* This would be disruptive to customers like me. It could also be a big blow for BlockFi’s IPO plans. The implications could extend to other companies and FinTechs seeking to offer similar products. I’m gonna follow this closely.

2. High interest savings accounts going mainstream

* I was really excited to see that Compound launched a Treasury business that would enable FinTechs and banks offer high interest savings stablecoins account to their customers.

* I’m earning 0.40% APY on my cash savings at my bank. My bank brags that this is 5 times the national average. In June, the US Bureau of Labor Statistics (BLS) reported that the inflation rate was 5.4%. It sucks. My savings aren’t keeping up!

* Meanwhile, Compound’s new offering would enable banks and FinTechs to offer their customers 4% annual interest on USDC deposits. To be clear, USDC is a stablecoin that is pegged to the value of a dollar, 1 USDC always equals $1.

* 4% is literally 10x what I’m getting at my bank. But it doesn’t come without risk. Unlike dollar accounts that are insured by the FDIC up to $250k, I don’t think the stablecoin savings accounts will be insured. I still think it’s a good product as long as you manage your exposure based on your risk tolerance. I’m excited to see Compound Treasury help bring truly high interest rates to the masses. Let’s go!

3. Square building DeFi unit

* Jack Dorsey, one of my favorite CEOs, announced that Square is building a new business focused on DeFi. Right now, there’s about $50B worth of value locked up in DeFi applications. Most of this value is on the Ethereum blockchain. But Square is going to focus on building its DeFi platform on Bitcoin instead.

* If you are unfamiliar, DeFi refers to Decentralized Finance. It uses smart contracts and blockchains to provide permission-less financial services to customers. Right now, we send money, make payments and trade through a series of middle men ex banks, brokerages, payment networks…each of these have significant costs, limited hours of operation and require permission and/or documentation. DeFi changes that.

* Square’s new business unit is yet to be named. I think it could be big deal. Square could help scale by leveraging its 36 million Cash App users and hundreds of thousands of vendors using its products. It’s easy to see how CashApp could add the ability for consumers to take loans against their bitcoin holdings. Or leverage Tidal to introduce new ways for us to purchase and earn income from music. I’m really excited about it. It’s not going to be easy but I think we will look back and realize this was a big deal.

4. Stellar eyes buying MoneyGram

* Stellar is a crypto network focused on cross-border payments. It is reportedly considering buying 81-year old MoneyGram, one of the largest remittance companies.

* This would be a fascinating development seeing a crypto company acquiring an established traditional financial services company. I’m guessing that Stellar wants to leverage MoneyGram’s reputation, presence in 200 countries and 350,000 agents with last-mile access to millions of consumers.

* I have family across Europe, Africa, and North America. My family and I frequently move money across borders. Existing options are less than ideal. This is an area ripe for disruption. Consumers want cheaper, faster, and easier cross-border payments. If Stellar and MoneyGram can deliver that then I’m all for it.

5. Malaysia police STEAMROLL 1,069 bitcoin miners

* Some folks in Malaysia acquired bitcoin miners. The problem is they got greedy and illegally tapped electricity from the local power authority for free. Eventually they were caught, arrested and prosecuted. Justice was served.

* But then the local police takes it a step further and uses a steamroller to crush 1,069 perfectly functioning bitcoin miners valued over $10M.

* I think the police should have auctioned off the machines to raise money for the community. Each year, the US government raises billions of dollars by conducting over 300 auctions selling seized or abandoned property. Maybe Malaysia could borrow a leaf? Here’s a video if you are curious:

EXPLORE

1. Strike: best way to buy bitcoin?

* Strike is now charging 0.3% rates on bitcoin purchases. In contrast, Coinbase charges up to 3.99%. Lately, I’ve been using SwanBitcoin for my weekly bitcoin purchases. They charge 0.99 to 2.29%. Strike’s new rates are a big deal and could help drive down fees for all consumers.

* Strike is still in beta mode and is only limited to Bitcoin, you can’t buy other cryptocurrencies on the platform. Sign up for the waiting list here and earn $5: https://invite.strike.me/8LBL22

2. Choice: Buy crypto with retirement funds?

* Choice allows you to use some of your tax advantaged retirement dollars to acquire digital currencies. Bitcoin has been the best performing asset of the past decade. If you are a long-term crypto bull then this might be something you want to check out.

* Right now, Choice has over 125,000 accounts and $18B assets under custody. They have a website where you can make your allocations and manage your portfolio. Choice recently announced that they will be launching an app. I’m excited to try it out. If you would like to join me on their waiting list you could do so here: https://www.choiceapp.io?kid=1KZEV7

Read

There are so many good reads on the internet. Here are a couple I’m digging through.

* Deconstructing CeFi by Kraken: If you are curious about how crypto lending platforms are able to offer high interest rates, then check this out.

* Compass Mining: Risk vs Reward by Lyn Alden: Earlier this year, I became a bitcoin miner. Lyn Alden is a great thinker. In this piece, she analyzes the risks vs rewards of bitcoin mining with Compass. Compass is a white glove service that makes it easy for regular non-tech folks to become miners. Check it out if you are curious.

Thank you for making it this far. I always appreciate your questions and feedback. Have a great week ahead!

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

Time flies when you are having have fun. It’s been about 6 months since I wrote my first newsletter. I’ve learned a lot. I hope you have too. If there is anything that’s you on your mind - just go for it AND stick to it. Now that we have gotten the pep talk out of the way, let’s dive into key developments this week.

News

1. Bitcoin Taproot upgrade: More DeFi?

* It’s going to be easier to build financial services on Bitcoin. Now it’s up to developers and entrepreneurs to make it happen

* Right now, a lot of DeFi (decentralized finance) like lending products are based on the Ethereum blockchain. The Taproot upgrade will make Bitcoin more competitive.

* This is possible because 99% of Bitcoin miners indicated support to move forward with Taproot, the upgrades are expected to take effect in November. This is a big deal! Remember this week, years down the road.

2. China is enforcing bans on bitcoin mining

* China accounts for about 65% of global bitcoin mining capacity. But officials in key provinces have proposed harsh penalties for miners.

* The Chinese government started a crackdown on crypto in 2017 when it banned cryptocurrency exchanges and initial coin offerings. But the government has been moving forward with field tests of its Central Bank-backed Digital Currency.

* Bitcoin miners in China are under pressure. Some are selling equipment, relocating overseas or moving underground. The silver lining is that this exodus could lead to greater geographic diversification of mining and perhaps reduced reliance on high carbon emitting power sources.

3. Gov: Texas wants crypto

* The windswept plains of West Texas are fertile ground for bitcoin mining. A number of renewable energy powered projects have been proposed there. Some Chinese miners are reportedly eyeing the Lone Star state.

* Last week, the Governor of Texas signed law creating a master plan for expanding the blockchain and digital asset industry in Texas. There’s even rumors that the state might acquire some digital currency (likely bitcoin) on its balance sheet.

* Texas wants to lead how Miami has become a magnet. But the herd is coming. 25 states are reportedly considering signing blockchain and digital currency legislation in this congressional year.

4. VC fund focused on Black & African crypto launches

* Audacity Fund founded by 29-year old Erikan Obotetukudo launched on the 100th anniversary of Tulsa Race massacre. My conversation with her was one of my highlights at the Bitcoin 2021 conference.

* The fund aims to invest up to $100k in up to 3 black or African crypto startups each quarter. In addition, the fund aims to deliver insights to help these companies win.

* The idea is investing in crypto, culture, and community creates economic opportunities for those who are often overlooked, underbanked, and underserved. Exciting stuff! Stay tuned

5. 13-year old builds $7M crypto application

* When I was 13 years old, I was thinking about school and praying for my athletic genes to kick in. Gajesh Naik built a DeFi protocol that has managed $7M worth of cryptocurrency.

* This 13-year old emailed a VP at Polygon (fast-rising Indian crypto company) for guidance. Since then he has successfully built PolyGaj, a DeFi protocol inspired by Goose Chain which is built on Binance Smart Chain (PolyGaj is on Ethereum).

* Gajesh, whose father studied computer science, now has 5 years experience coding. He is experienced with C, C++, JAVA, and Solidity. Very impressive, the future is bright!

Explore

1. What crypto consumers want?

I recently surveyed subscribers to learn about their attitudes towards crypto exchanges. Thanks to all who participated. Please check out the insights and results here. Let me know what you think.

2. World Economic Forum: DeFi kit

The WEF recently produced a starter kit on DeFi for policy makers around the world. Check it out here.

3. Currently reading: The Infinite Machine

This is the story about the origins of Ethereum. I’m trying to learn more about DeFi so I figured it would be helpful to learn about the history.

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

This is a special edition of 5x5 Crypto News. I hope you enjoy it. As always I welcome your feedback.

They say curiosity killed the cat. Fortunately, I’m not a feline. Ha! Jokes aside, my mind is frequently buzzing with questions. Lately, I have been thinking about the future of cryptocurrency exchanges. Why do people choose certain exchanges but not others? Would consumers be happy to access cryptocurrencies through banks? I conducted a survey to answer these and other questions.

Here are the key takeaways from my survey:

* Consumers want investment accounts: ~80% of surveyed consumers see cryptocurrencies as strategic investments. 50% of consumers would like to purchase cryptocurrencies through investment accounts like Fidelity or Vanguard.

* Consumers are promiscuous: Trust, cost and ease of use are the most important factors when selecting a cryptocurrency exchange. Customers are kinda promiscuous: 46% of surveyed consumers are very likely to change to a provider who provided superior performance in their key buying factors.

So what does this mean?

Consumers value convenience. They have limited funds to invest and are evaluating both stocks and cryptocurrencies. If this holds true, then should we not see cryptocurrency exchanges and investment accounts converge?

But it won’t look the same. One of the hallmarks of cryptocurrencies is 24x7x365 access to trade. In contrast, the stock market is closed more hours than it is open each week. Binance has started tokenizing select stocks likes Tesla enabling them to be traded around the clock. We live in a 24-hours news cycle with 24-hour gyms and grocery stores. The 40-hour a week stock market feels like a relic of yesteryear. If regulators are supportive, one could imagine consumers embracing this opportunity.

Not just an investment. The predominant narrative is ‘Bitcoin is a store of value like digital gold’. It makes sense that surveyed consumers would prefer to access it through their investment accounts. But that’s not all. There are also opportunities to earn high interest rates by staking. Digital currencies could also support cheaper and faster payments. There’s more. Perhaps established players will adopt crypto solutions aligned with their mission. For example, banks might engage with digital currencies to enable cheaper and faster payments.

Survey results

Why do you buy cryptocurrencies?

* ~80% of surveyed consumers buy and hold cryptocurrencies as strategic investments; they most frequently buy them monthly

* This could evolve as digital currencies are used for payments especially remittances

What would be your ideal way to purchase cryptocurrencies?

* Almost 50% of surveyed consumers would prefer to purchase cryptocurrencies via investment accounts ex Vanguard, Fidelity

* 27% of participants would prefer to use bank accounts or cryptocurrency exchanges. This suggests that banks have an opportunity to provide additional services to customers.

* Interestingly, none of the participant listed digital wallets ex Apple Pay or FinTech solutions ex CashApp as an ideal solution. I think this might to speak to the more established trust participants have with banks, investments and crypto exchanges. Results may differ with a larger sample size.

What are top 3 most important factors when selecting a crypto exchange?

* Trust, cost, and appearance are the 3 most important factors when selecting a cryptocurrency exchange

* Trust is difficult to build but easy to lose. Banks and investment firms have established trust with their existing customers. They could extend new services to their customers. However, crypto exchanges need to intentionally build trust.

* Large players like Coinbase have outsize name recognition which helps engender trust. I’m curious to see if there will be consolidation of native crypto exchanges

How willing are you to change to another provider that has superior performance in the most important factors?

* 46% of surveyed consumers are likely to change to another product if it provided superior performance in the features most important to them

* This suggests that we are still in the early days

Conclusions

There is an opportunity for banks and investment managers to enable their customers to access cryptocurrencies. The majority of consumers are strategic investors, however, high frequency traders are likely to drive the majority of revenues.

Trust, cost, and appearance are the most important factors when selecting a product to access cryptocurrencies. However, almost half of surveyed consumers are willing to change to a provider that provides superior performance.

NOTES

I surveyed subscribers of my newsletter. The respondents were primarily aged between 20 and 40 years old and located in the United States, Canada and Nigeria. There were less than 20 participants. These results are highly preliminary and do not constitute financial advice.

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

This is a special edition of the 5x5 Crypto News focused on the Bitcoin 2021 conference.

Last weekend, I attended the Bitcoin 2021 conference in Miami. My goal was to learn and connect. I figured I could watch the presentations on YouTube on my own time but I could not recreate the networking opportunity. Therefore, I focused on walking around the exhibition hall and connecting with companies and people. I found myself chatting with NFT creators on the beach and hobnobbing with newbies and VCs alike in multi-million dollar gated communities. Here are a couple things I learned.

1. El Salvador adopts bitcoin

I was in the room when Jack Mallers took the stage. He wept as he discussed how bitcoin and the lightning network was bringing relief to people in El Salvador. For context, 20% of El Salvador’s GDP is from remittances. However, folks receiving funds pay up to 50% transaction fees because 70% of the population does not have access to banks. Strike and the Bitcoin lightning network enabled instant and free cross border payments. This meant families received more money to buy medicine, food, school fees and so on. This deeply resonated with me.  

The atmosphere was already charged when we watched a special message from President Bukele of El Salvador. He announced that the country would be adopting bitcoin as a legal tender. The room erupted in a standing ovation. Strangers hugged each other, high fives were exchanged and tears flowed freely. It was electric. I got to experience history! In some ways, it reminded me of the night President Obama was elected to his first term in office. It’s not the same but I will never forget how it felt to be in that room. 

I finally got it. While I may have entered into this space for investment purposes. I am learning and experiencing that bitcoin is also about freedom and making the world a better place. That is a vision that I can get behind. 

2. Bitcoin mining

Earlier this year, I jumped in and became a miner. The conversation about carbon emissions is not just an academic one, it has now become personal. I believe mining can become a force for good by subsidizing energy investments that might not have been economic otherwise. I have first hand experience with energy poverty. It is a terrible thing. This has informed my support of a multi-pronged approach to power development. Yes, I 100% support low-to-no carbon power sources like geothermal and solar. At the same time, I am not going to scorn natural gas.    

It was exciting to learn that Square is partnering with Blockstream to build a $5M solar powered bitcoin mining facility. At the same time, it was also exciting to connect with Upstream Data on their solutions to capture flared gas to power bitcoin mines. One of my contacts shared that these natural gas set-ups have a payback period of about 2 years. I also learned that some of these facilities use older bitcoin miners (S9s) because they handle irregular power supply better than the newer models. Upstream Data is working on integrating carbon credits into their solution. They are also developing modules suitable for offshore applications. These systems would need to be corrosion resistant and sturdy for that use case. 

Lastly, I met the ePic team. They produce machines to mine Siacoin. Sia works as an “Airbnb for hard drives”.  It is a cryptocurrency software that allows any computer running it to rent out unused hard drive space to users looking to store files. I have not done extensive research on Sia but I thought the use case was interesting. Additionally, the team shared that the estimated payback period for a Siacoin miner was 6 months based on $2k miner investment. ePic is struggling to keep up with demand for these miners. There’s currently a 3-6 month wait for machines. Learn more here.

3. NFTs

There is a lot more to NFTs than art and NBA Top Shot. I learned about virtual reality projects, gaming, movie production and other projects. NFTs are here to stay. They will be one of the most effective on-ramps for the next billion crypto users. The beautiful thing is that many of these users may not recognize that NFTs are crypto solutions. I really enjoyed connecting with NFT creators, investors and technologists. I have a lot to learn here but it has certainly gotten more of my attention. 

4. Privacy

I also learned about the Secret Network. As blockchain solutions continue to evolve into a myriad of applications, it would become increasingly important to protect user privacy. Data on a users transaction history could be paired with other data sets ex house address to produce unnecessary criminal exposure. The Secret network is the first public blockchain with privacy as a default. Learn more here. 

5. DeFi

Decentralized finance (DeFi) repeatedly came up in my conversations. For context, DeFi is focused on removing the middle man from transactions and enabling people to obtain financial services for lower costs, greater speeds and anytime (24/7/365). It is more closely associated with the Ethereum blockchain. However, DeFi applications are now being built on Bitcoin too. A number of crypto OGs encouraged me to dive deeper into both Bitcoin and Ethereum DeFi protocols. Their hypothesis is that DeFi is going to be the killer application of cryptocurrency. DeFi will also be a major on-ramp for the next billion users into the cryptosphere. I am taking their advice in digging in. 

Closing thoughts

I learned much more than I highlighted here. I had a number of interesting conversations about payments, custody and much more. I would like to leave you with links to some of my favorite presentations from the conference. 

* Bitcoin for billions, not billionaires by Lynn Alden and Elizabeth Stark

* How Bitcoin can stimulate the green transition by Steve Lee and Aaron van Wirdum 

* Bringing innovation home to America by Senator Lummis and Rep Davidson

* How to onboard a billion people by Yan Pritzker, Bobby Lee and Ray Youseff

* Banking the unbanked by Jack Dorsey and Alex Gladstein

Let me know if you have any specific questions. I am always happy to engage. 

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