Visions: On Our Virtual Route 66 This Week: On the Week That Was

We present curated notations on the week that was in our World with thoughts courtesy Katie Curic (

featuring Dr. Fauci), The information , Bloomberg and Fortune Magazine:

Gabe Frank, the co-founder and CEO of NFT-backed loan provider Arcade, likens his startup to the pawn shops, owned by his dad in El Paso, Texas, that he worked at growing up.

“What they do is they enable liquidity, they take custody of the asset, they make a loan. If the borrower doesn't come back, then the pawn shop keeps the asset and they can sell it,” Frank said. “The protocol that we have today, Arcade, looks a lot similar to a pawn shop.”

The startup developed a decentralized protocol built on the Ethereum blockchain whose website connects NFT owners with lenders of tokens. Many of the loans, which use the NFTs as collateral, are for three months. If the borrower does not pay back the loan in full, with interest, the lender takes ownership of the NFT. Since launching in January, no one has defaulted on their loans, Frank told me in an interview.

“They're hoping that the borrower defaults, so they can pick up a scarce, rare asset at a discount, or they get yield” if the borrower pays back the loans with interest, Frank said.

Loans on the platform are peer-to-peer and borrowers can set aside any of their NFTs as collateral, and can even bundle NFTs together for one loan. Frank said that borrowers include retail lenders, high net-worth individuals, decentralized autonomous organizations (DAOs) and more.

So far, the startup, which raised a $15 million Series A round led by Pantera Capital in February, has handled about $13 million in loan volume. Arcade primarily makes money by taking a 2% cut of the principal at the time of the loan origination. It also lends out tokens it owns.

Founded in April 2021, Arcade launched its loan marketplace in January and is among several decentralized finance startups that provide a path for owners or crypto currencies or blockchain-based assets to leverage these holdings. (Read how the founder of DeFi protocol Compound Finance thinks the Fed’s rate hikes could affect crypto lending.)

Arcade also represents another potential use for NFTs, which exploded in popularity last year as a trendy consumer item. Frank said that part of the inspiration for creating Arcade was his own experience of building a portfolio of NFTs that “look cool” but didn’t really have any utility.

Some NFT holders borrow against their NFTs for an extended period of time, to finance other activities. “It's like a perpetual borrow—keeping the money working and servicing the debt on the platform,” he said.

In the future, Frank thinks the market for NFT-backed loans is only going to increase as the applications for NFTs rises as well. He said that once the focus on NFTs moves beyond art and profile pictures to in-game assets, digital land and more, the lending market could undergo a big shift.

“That just opens up the lending market, pretty massively,” he added.

Big Number: $11 billion

That’s how much revenue the Biden administration expects to be generated over the next decade from modernizing legislation and regulation on cryptocurrency in the United States, according to the budget proposal released on Monday.

The proposed tax changes would require certain taxpayers to disclose foreign accounts with digital assets and amend fair value accounting methods to include digital assets. This would allow the Internal Revenue Service to collect taxes on crypto that has appreciated in value but has not been sold—if the taxpayer chooses to realize those gains before sale.

The Biden administration’s proposed changes are a fresh stab at taxing the wealth gained by trading crypto and comes months after President Biden signed an infrastructure spending bill into law that will change tax reporting requirements for crypto transactions beginning in 2023.

The most recent budget proposal also calls for $52 million to counter cyber threats, which the proposal said is in line with the strategy “that emphasizes disruptive activity and combatting the misuse of cryptocurrency.”

Overheard

“In Ukraine, the basics are now essentials. We’re matching donations to alleviate the humanitarian crisis in Ukraine.”

That’s from a Crypto.com ad that ran several times during Sunday night’s telecast of the 94th Academy Awards. The exchange is the first crypto company to advertise during the Oscars, Variety reported, and is the latest example of crypto advertising appearing in mainstream events. Several crypto companies advertised during this year’s Super Bowl, the most popular—and expensive—advertising opportunity each year. (Read my colleague Akash Pasricha’s breakdown of how much Coinbase likely reaped from its buzzy QR code ad.)

Upcoming Events

Thursday, April 21—Fintech: Women in Tech Leadership Forum—We’re hosting our next Women in Tech Leadership Forum on the topic of fintech, convening executive women leaders virtually. The event is free and by invitation only, for C-Level women in established tech companies. Limited space is available. Apply for an invitation or submit your interest in speaking here.

Wednesday, May 25—*SAVE THE DATE*—We’re hosting our second virtual Creator Economy Summit, convening creators, platforms and investors to talk about what’s next in one of tech’s hottest industries. More details here.

Deals & Debuts

See The Information’s Crypto Power List for an exclusive list of the top executives, investors, and rising stars in the crypto industry.

Coinbase is reportedly close to a deal to buy 2TM, the parent company of Brazilian crypto exchange Mercado Bitcoin, CNBC reported, citing a local newspaper.
Salad, a decentralized cloud computing startup, raised a $17 million Series A round co-led by Left Lane Capital and Origin Ventures. Other investors included Kickstart Seed Fund, Royal Street Ventures and Carthona Capital.
Blur, an NFT marketplace, raised a $11 million round led by Paradigm. Other investors included eGirl Capital, 0xMaki and LedgerStatus.
Ultiverse, a blockchain metaverse startup, raised $5 million from Binance Labs. The new funding comes a week after Ultiverse raised a $4.5 million seed round co-led by Binance Labs and Defiance Capital.

On The Move

FTX Europe named Dr. Marcel Lötscher, a former regulator at the Financial Market Authority (FMA) Liechtenstein, as its head of regulatory strategy for Europe. He will begin his role in October.

What We’re Reading

Play Games, Earn Crypto: For Children of Blockchain Pros, Play-to-Earn Gaming Opens a Brave New World (The Information)
Poll: Younger Americans Bullish on Cryptocurrencies (Axios)
Bitcoin Erasing 2022’s Losses Has Bulls Predicting More Gains (Bloomberg)

Cryptocurrency still has plenty of growing up to do before it can get the keys to the world’s economy.

The latest example of crypto’s immaturity came Tuesday, when Sky Mavis, developer of the groundbreaking non-fungible token game Axie Infinity, disclosed that a hacker stole about $600 million worth of crypto from its players last week. Sky Mavis officials said the thief found private passwords used to validate transactions on networks it employs, then used that information to withdraw about 173,600 Ethereum and $25.5 million in stablecoins tied to the U.S. dollar

The cyberattack will ultimately rank as the largest or second-largest theft of crypto on record, nose-to-nose with last summer’s hack of PolyNetwork. (In February, federal officials arrested a New York couple accused of laundering about $4.5 billion worth of crypto stolen from the Bitfinex exchange, but the currency had a value of roughly $70 million at the time of the hack in 2016.)

News of the latest theft prompted predictable responses from supporters and critics of blockchain.

Crypto champions described it as an unfortunate but necessary part of the movement’s maturation, further reinforcing the importance of improving security protocols. Boosters also noted that the hacker likely will struggle to cash out on the haul, largely because forensic and law enforcement investigators can trace the stolen coin on the public blockchain.

Skeptics, meanwhile, added the hack to a fast-growing list of breaches draining money from innocent victims. Blockchain analytics firm Chainanalysis reported that criminals stole $14 billion worth of crypto last year through various hacks, scams, and tomfoolery.

Crypto supporters, however, shouldn’t shrug off their problems with another kind of currency: trust.

While the most ardent crypto evangelists envision a decentralized financial world untethered from elite institutions—central banks, commercial banks, predatory lenders—that utopian fantasy isn’t materializing anytime soon.

Our society remains organized around centralized governments, which exist, in part, to ensure criminals like the Axie Infinity hackers are brought to justice. Crypto entrepreneurs also are successfully accumulating gatekeeping power through exchanges, marketplaces, and digital networks, turning massive profits in the process.

Policymakers across the globe have been slow to regulate cryptocurrency, likely owing to their own naivete and the industry’s breakneck growth. But deeper regulation is fast approaching, and the most powerful figures in crypto know that you can only fight city hall so hard.

The industry’s top players recognize this dynamic. It’s why Binance CEO Changpeng Zhao traded in his casual hoodies for suits and ties, telling Fortune’s Vivienne Walt in a profile published Tuesday: “We’re communicating with all the regulators right now. The issues we had before we are solving, right now.” It’s why exchanges and venture capitalists bullish on crypto—Coinbase, FTX, Andreessen Horowitz—are building a stable of lobbyists in Washington, D.C.

Those efforts, however, will continue to get undercut by multimillion-dollar hacks that exploit vulnerable crypto investors. (Axie Infinity’s largest user base resides in the Philippines, where the per capita income is about $3,500.)

To curry much-needed favor with lawmakers, the crypto community will need to prove that its underlying technology is trustworthy. While the Axie Infinity hack might not look large in the bigger picture—$600 million represents 0.0003% of the global crypto market cap—the mere threat of similar thefts could lead to burdensome and industry-stunting regulations.

Crypto still has plenty of time to graduate into a world-changing revolution. But first, it’ll have to endure some growing pains.

ORG CHARTS

AMAZON

CLOUD

How Andy Jassy Is Reshaping Amazon’s Power Structure

By Mark Di Stefano

In the nine months since Andy Jassy took over the top job at Amazon, the former Amazon web services chief has made attention-grabbing moves like shuttering the company’s physical bookstores and increasing pay to keep up in the red-hot market for tech talent.

Behind the scenes, Jassy has also been filling the top ranks with familiar faces from his time running Amazon’s cloud computing division. The cybersecurity team led by Steven Schmidt and James Hamilton—Amazon’s top engineer overseeing data centers—report directly to the CEO. His direct reports also include ten other senior executives, including Adam Selipsky, Jassy’s successor as Amazon Web Services chief.

The Information’s newly updated and expanded organizational chart of Amazon gives our most in-depth look yet at 134 of the company’s top executives and administrative staff across retail, entertainment, advertising, cloud computing and more.

READ THE FULL STORY

Global Economy

The end of globalisation as we know it

Unhedged x Adam Tooze, part two

MARCH 31, 2022 by Robert Armstrong and Ethan Wu

In 1950, the entire U.S. power generation sector generated a bit more than 300 terawatt-hours of electricity. Today, the sector generates more than 4,000 terawatt hours, and wind energy alone generated more in 2020 than the entire sector in 1950.

The story of electricity in the U.S. is not simply a story of exceptional growth, however. It is also a story of a significant plateau. U.S. power generation has been more or less flat since the end of the first decade of this century. That’s testament to greater efficiency and to slower economic growth after the global financial crisis.

Underneath that electricity plateau though are a number of other major energy stories of growth and expansion, peaks and valleys, second winds and near-deaths. All are relevant for today and for the future.

Coal, for instance, is a clear peak. It was the single biggest source of power through the late 2000s, with a significant decline since then. Nuclear is a clear plateau, up from nothing in the 1950s to a steady state since the turn of the century. Hydro is seasonal, with peaks and valleys depending on resource. Natural gas, which peaked in the early 1970s, subsided for years, and then soared again in the 1990s through to today.

Oil-fired power and renewables (wind, solar, geothermal, biomass, and waste) are what really interest me. Oil-fired power generation soared from the 1960s right through to the second oil shock of the late 1970s, and was in fact the nation’s third-biggest source of power in 1973, behind coal and natural gas. Its rate of growth was rapid, and its timing, so to speak, spectacularly poor as it aligned with not one but two oil shocks.

Renewables present two curves, really — a late-1980s surge driven by friendly policies and a big build-out of renewable generation in California in particular, and then a rapid and smooth rise from the mid-2000s to today. Renewables now generate more power than oil ever did, and more than large hydro does as well.

Resource availability and the economics of power generation from each source are obviously major determinants of each of these curves. But it is essential to remember as well that these curves are the results of policies and regulations or, to put it more plainly, choices.

Professor Michael Webber of the University of Texas recently provided me with a capsule history of some of those choices. That oil-fired power generation, arriving just in time for the oil shocks, meant that the public “freaked out.” As he says, “It’s one thing to lose your ability to drive to work, that’s annoying. But to lose electricity is a much bigger risk because the world’s food preservation and water treatment systems run on electricity. So a gasoline outage is disruptive but a power outage is life-and-death.”

The response to that freak out? The U.S. accelerated its construction of coal and nuclear capacity, as seen in the charts above. At the same time, three other trends were underway with significant implications for U.S. power generation. First, air quality regulations were clamping down on higher-sulfur coal in the U.S. east and oil-fired power everywhere. Second, railroad deregulation made it much cheaper to bring low-sulfur coal from Wyoming, in particular, to points east. Finally, in 1978 the U.S. prohibited construction of new gas-fired plants — based on an assumption that the U.S. was running out of gas and would need what remained for industrial use.

The result, in particular for the wave of coal-fired power plants built in the 1970s and 1980s, is a bit ironic. As Webber says, “We yell at utilities today to shut down coal plants for security and environmental reasons but in the 1970s and 1980s, we were yelling at utilities, begging them to build those exact same coal plants for security and environmental reasons.”

Yesterday’s solutions, in other words, are tomorrow’s problems. It is therefore worth considering what today’s dominant trend — a massive build-out of wind and solar generation — will require of future planners and investors.

Complementing their low cost, variability and seasonality will certainly require massive amounts of energy storage capacity. But it could require more — potentially hydrogen or bio-methane used in conventional gas turbines, or even small nuclear reactors to quickly provide zero-carbon power. Long-term stability, coupled with deep de-carbonization, will mean building a great deal. It will also mean anticipating new challenges before they become systemic problems.

Nathaniel Bullard is BloombergNEF's Chief Content Officer.

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