Notations On Our World (Weekly Edition): #RandomThoughts On The State of Tech

Fidenza #313 (which sold for $3.3 million) and Fidenza #9 — from the NFT project Art Blocks [Courtesy of Tyler Hobbs]

A new week dawns.   Our team pulled together some #RandomThoughts on Crypto (courtesy the team at CoinBase) and weekly developments courtesy the team at The Information, Bloomberg Green along with TED.

We look forward to the continued privilege to serve: 

What’s up? It’s Coinbase Bytes,

There’s never a dull moment on the blockchain. Here’s what you need to know this week:

• DeFi’s record summer. Big firms eye decentralized finance, lifting some apps to new heights.

• The next NFT trend. Art Blocks’ massive growth and the rise of “generative” NFTs.

• Cuba recognizes crypto. The country outlines new rules for using digital assets.

Bitcoin $47,470.05 -0.45%	Ethereum $3,535.06 +11.48%	Cardano $2.82 +3.57%
Dogecoin $0.28 -3.17%	Solana $114.91 +62.27%	Polkadot $29.72 +18.22%

Price changes are for the past week, ending on Sep 1, 2021 at 01:58 PM UTC

See the latest prices

DEFI UPDATE

Decentralized finance apps hit all-time highs

NFTs aren’t the only element of the Ethereum economy that are booming this summer. The universe of crypto-based lending, saving, and trading apps known as DeFi has also been breaking records. This week, the total value locked (TVL) — the total amount of money traders have put to work via various DeFi platforms — broke previous all-time highs set in May, reaching $165 billion. So what’s been fueling DeFi’s latest surge?

• Institutional investors attracted by high yields are increasingly interested in DeFi — including payment company Square and Wall Street giants like J.P. Morgan and BlackRock. According to the Chainalysis Global DeFi Adoption Index, the share of DeFi transaction volume conducted by large institutional traders rose from less than 10% in mid-2020 to over 60% in the second quarter of this year.
• MetaMask, a popular wallet option for DeFi, has seen its user count soar 1,800% this year. It now has more than 10 million users, up from around 600,000 last summer (and 5 million in April).  
• A consortium of the largest DeFi apps have banded together to bring DeFi to “the 6 billon smartphone users around the world.” Using a crypto platform called Celo, the group (which includes Aave, Curve, and Sushiswap) aims to increase crypto adoption in developing economies.
• Decentralized lending platform Aave is the largest DeFi application, with $14.2 billion TVL. Aave is set to launch a dedicated lending platform for institutions “within weeks.” In other Aave news, Bitwise, the world’s largest crypto-index-fund manager (with over $1 billion invested) recently announced the creation of the Bitwise Aave Fund.

Why it matters… Even if you aren’t directly experimenting with DeFi, it’s good to know what’s happening in that world if you trade popular tokens associated with DeFi — like ETH, Solana, and Cardano. (Cardano’s smart-contract functionality rolls out soon.) ETH now regularly sees greater trade volumes than BTC — and by market cap Cardano is now the third-biggest cryptocurrency while Solana is eighth.

Read up on Cardano

How Iceland is cutting down on fossil fuels — with volcano-powered buildings While the weather in Iceland is often cold, wet and windy, a nearly endless supply of heat bubbles away below the surface. In fact, almost every building in the country is heated by geothermal energy in a process with virtually no greenhouse gas emissions. Here's how this renewable energy works.

BE A BETTER HUMAN

3 short works of literature to inspire you to stand up for the planet  •  5 genuinely useful things — all from experts — you can do to fight climate change  •  Feeling anxious about the climate? You're not alone, and here are a heap of cures  •  25 sustainable brands for ethical shopping, from home to style  •  8 vegan bacon recipes making the rounds on TikTok

READ THIS

How big a deal is 1.5°C vs. 2°C of global warming? Pretty significant — here’s why The Paris agreement is aimed at limiting global temperature rise to no more than 2°C, but we could reach 1.5°C within the next decade. Here's the difference that half degree could make to our world — and to our lives.

SPAC-Y

SPAC popularity has grown, along with scrutiny of the IPO alternative SPAC at it again... Since last year, special purpose acquisition companies have dominated the public market. SPACs go public for the sole purpose of one day acquiring a real company and taking them public. DraftKings, Virgin Galactic, and Opendoor all went public by merging with SPACs. Wild stat: SPACs have accounted for ~70% of all IPOs in 2021. So far this year, SPACs have raised a record-breaking $129B — already more than they raised in 2020. But as SPAC popularity has grown, so has scrutiny: SPAC lawsuits have tripled this year, including against billionaire Bill Ackman’s SPAC. Many cases involve allegations of misleading investors. Short-selling firms have increasingly scrutinized companies that went public via SPAC. The CEOs of e-truck startups Nikola and Lordstown resigned after a short-selling firm alleged they exaggerated their tech and misled investors. SPACs tend to lose a third of their value post-merger on average, according to a study spanning 2019 to 2020. The 50 biggest SPACs have lost 20% in value this year. Not always SPAC-tacular… SPACs offer a faster, and sometimes cheaper, way for companies to go public. A SPAC merger usually happens in three to six months on average, while an IPO can take 3X to 4X longer. Companies that go public via SPAC are also allowed to make sales projections to prospective investors, while IPO companies can’t. Plus, SPACs can sometimes help companies avoid initial mispricing. But with increasing scrutiny of SPACs, we may see more regulation in the future. THE TAKEAWAY SPACs can be a double-edged sword… SPACs’ advantage — a faster, more frictionless path to going public — might also be their weakness. Companies that go public via SPAC sometimes face less oversight than those that IPO. Meanwhile, newly-public SPACs may not be able to provide as many disclosures to investors since their acquisition target has yet to be named, and financial diligence may be narrower. But all investments carry risk – and even the IPO review process, designed to help protect investors, isn’t a guarantee that companies' disclosures are completely accurate.

World Taliban takeover causes Afghanistan’s economic meltdown Afghans have faced rising food prices, cash shortages and unpaid wages since group seized control AUGUST 31, 2021 by Benjamin Parkin in New Delhi and Najmeh Bozorgmehr in Tehran

By Clara Hernanz Lizarraga When it came time for Ainhoa Álava to take over her family’s cattle business in Spain, she decided to go in a greener direction. In 2006, at age 30, she launched the country’s first environmentally friendly snail farm. The venture didn’t last long — Álava quickly got tired of the long, quiet winters when the creatures would hide away in their shells — but her commitment to sustainable agriculture stuck. She began raising chickens for their eggs, giving them plenty of space to run around and keeping them off antibiotics. At the time, Álava’s approach was relatively rare. People in the Basque city of Urduña, where she lives, were skeptical when her 3,000 chickens started laying expensive organic eggs. Álava with her chickens. Photographer: Angel Garcia/Bloomberg “There were distributors who would pat me on the back as if to say ‘Let’s see how long you last!’” she said. So Álava took to marketing her produce directly to nearby businesses, pushing a shopping cart full of eggs from shop to shop until she found enough partners. “Today I have clients I can’t serve because I’ve sold out,” she said. Her customers include fine-dining restaurants such as Azurmendi, a three-Michelin-star establishment perched on a hillside outside Bilbao. Álava said the whole project was motivated by scenes she witnessed as a child, when her family killed chickens for food. “Inside of them, the chickens had lumps that looked like little tumors,” she said, which made her reflect on the impact of traditional feed on the meat consumed by humans. Free-range eggs are no longer a novelty in Europe, but sustainable farming practices still haven’t been widely adopted. That’s why, as part of its plan to zero out planet-warming emissions by 2050, European Union policymakers have proposed Farm to Fork, a plan to halve the use of pesticides and antibiotics and make a quarter of all farming organic by the end of the decade. Álava drives around the region to deliver her eggs every morning (left). Over the years, she has built a loyal clientele that includes fine-dining restaurants such as Azurmendi (right). Photographer: Angel Garcia/Bloomberg Reaching those targets will require grooming a new generation of farmers willing to put the health of their livestock — and the planet — first. Álava’s success was possible in part because she had access to her parents’ land and state-of-the-art machinery. It’s much harder for young people with fewer resources to break into the business. Amets Ladislao, 41, was studying history in the Basque city of Vitoria when she decided to go to agriculture school instead. Her parents had worked in a factory, but she longed for the farm life she’d experienced visiting her grandparents. “It was all very bucolic,” she said. She dreamed of having an allotment, some chickens and a few cows, and selling her produce locally. But her new school didn’t teach the organic techniques she wanted to use, and she had to battle negative perceptions of her career choice. Most importantly, Ladislao couldn’t afford the high cost of land to start her own operation. After she graduated, Ladislao worked for one farm after another until she found Bizkaigane, a cooperative in the northern Spanish province of Biscay, founded in 1983. The group hires a young person every time an elder retires. “It sounds very utopian, but we are nine workers, we get nine wages. We paid back a huge loan and we are a solvent company,” she said. Julen, one of the members of the Bizkaigane cooperative, prepares to feed the sheep. Photographer: Angel Garcia/Bloomberg The farmers produce a wide range of cheeses, yogurt and raw milk that they distribute locally, and pride themselves on maintaining good working conditions. When Ladislao was expecting her second child, the team collectively decided to reduce their working hours to boost their quality of life. Ladislao knows that every aspiring farmer won’t have the same opportunity, but she hopes the Farm to Fork strategy will help support young people who face the same hurdles she encountered. Diversifying the workforce, especially by encouraging those who aren’t the children of farmers, could bring new ideas and perspectives, she said. In Europe, a direct payment program known as the Common Agricultural Policy has kept farmers afloat for decades. The problem, according to Alan Matthews, an economist at Trinity College Dublin, is that the subsidies have discouraged older farmers from retiring and slowed the reallocation of land to younger generations. “I’m not simply saying the only problem is too many older farmers, but that’s certainly the big elephant in the room,” he said. A cured cheese production room in Errigoiti, Bizacaya. Photographer: Angel Garcia/Bloomberg The average Spanish farmer is over 60, and, unless their children take over the business, tends to end up selling their land. Today, more than half of the country’s farmland is owned by only 3% of farmers, according to EU data. Meanwhile the number of farmers in the region as a whole has shrunk in recent years, with more young people leaving rural areas for the cities. That could change soon as the EU reforms its subsidy policy, with a new system set to come into force in 2023 that will, in theory, complement Farm to Fork. If the measures are successful, Europe could see many more farmers like Bidane Baskaran and her brother Arkaitz. Bidane joined the family farm at age 23 — over her parents’ objections. “They have had to deprive themselves of many things to get this going,” she said, and wanted their children to have a better life. But if Baskaran’s job is tough, it’s also rewarding. In just five years, the siblings have won awards for their Idiazabal, a traditional hard cheese. They’ve also launched new products such as gaxure, a sweet treat inspired by Norway’s famous brown cheese, made from the whey that’s left over after producing cow’s milk. Julen watches over the sheep that graze outdoors in Errigoiti, Bizcaya, along with his dog. Photographer: Angel Garcia/Bloomberg “The main way to attract younger people into farming is to give them a decent income without subsidies,” said Matthews, the economist. “All the evidence shows that ultimately subsidizing entry into farming simply increases the demand for land and rents go up.” Farm to Fork strategy is a good first step, he said, but the real problem is the large companies. “If you want European agriculture to be more environmentally friendly, the trick is to get the big guys to change their practices.”

 

How Silicon Valley Wined and Dined Elizabeth Holmes

Theranos founder Elizabeth Holmes is back in the news in Silicon Valley. The jury in her forthcoming trial, in which she stands accused of defrauding investors and the public about the company’s blood tests, was selected this week. The trial starts next week and will last a few months. 

I was thinking about Holmes this week as I was processing the slew of reports and social media commentary. And there’s one thing about the reaction to her story that’s never sat well with me. 

Since The Wall Street Journal exposed her fraud, Silicon Valley investors, entrepreneurs and tech’s influential chattering types have been quick to distance themselves from Holmes. The attitude they shared again and again was essentially “She really wasn’t one of us.” 

The bulk of Theranos’ funding didn’t come from traditional venture capitalists, these people like to remind us. Her board included senators and cabinet secretaries, not tech luminaries. To put an even finer point on it, well-known tech investors took the rare step of publicly bragging that they passed on investing in the company when they had the chance. While soaking in the drama of her downfall, Silicon Valley elites wanted everyone to know they had nothing to do with what happened. 

But they did. Tech investors, like Oracle founder Larry Ellison, were among Theranos’s biggest backers. So was Tim Draper via his firm, DFJ.

And as a student at Stanford University, Holmes was mentored by the same cast of characters who claim credit for helping Larry Page and Sergey Brin start Google, among other things. The tech press fawned over her.

One event around 2013 or 2014 comes to mind. I was at a party at the lavish home of one of tech’s most powerful investors. Holmes was there, and her presence was instantly apparent because half the crowd mingling on the tennis-court-turned-cocktail-venue had gathered around her. I had never seen her in person before and was somewhat surprised to find that she seemed very low-key. 

As the crowd began to move to a different area of the party, a female tech executive came up to me and bragged that she had recently had coffee with Holmes and that she was “the real deal.” I was somewhat bummed that I had missed the chance to introduce myself to such an icon, but I figured there would be other chances. 

No, Silicon Valley didn’t hate Holmes or know from the beginning that she was a bad egg. Silicon Valley tried to cozy up to her, as it does so many other powerful people. It just turned out that when it all went south, those people conveniently forgot about all the times they had wined and dined her. If the story had turned out differently, I promise you, each of those individuals would be claiming a piece of her success. 

None of this is to say that Silicon Valley is to blame for Holmes’ actions. I don’t believe that. I believe she was a uniquely troubled and dangerous person. And she’ll probably have to pay for her mistakes. 

But the smugness with which many powerful people in Silicon Valley are treating Theranos now is highly problematic. In dodging responsibility, they are saying they don’t need to learn from what happened. 

But Silicon Valley must learn from Theranos, because many of the problems at the center of its downfall—lax diligence, governance dominated by clubby relationships, the aggrandizement of founders—persist. In fact, there’s a lot of evidence they are getting worse. 

Last week, the co-founder of meditation app Headspace was charged with defrauding investors. And Kate wrote recently about how the race to invest in hot companies is leading investors to cut corners on due diligence. 

I hope Silicon Valley stops stuffing Theranos down the memory hole and starts thinking about how to spot the next Holmes before it’s too late.

 With Labor Day upon us, summer is effectively over. And with news today thin on the ground, this seems an appropriate moment to review the highs and lows of the summer in tech business. So without further ado, here are The Briefing’s awards for the most distinctive tech business stories of the past three months:

Worst Boys-and-Their-Toys Moment: This is a tie between Richard Branson and Jeff Bezos for their rocket ship rides, days apart in July. The competition between the two was so intense that Branson’s ship was reportedly in danger during its flight but the pilots didn’t abort, possibly to avoiddispleasing the boss. As for Bezos, his comments afterwards thanking Amazon customers “because you paid for all this” came across as just a touch clueless.

Worst Planned IPO: Didi Global. No contest here. What Chinese company goes public after warnings by the Chinese government not to go ahead? Didi stock almost immediately lost nearly half its value. 

Low Points in Antitrust Regulation: There’s a lot to choose from here. The FTC’s review of Amazon’s proposed MGM acquisition was a contender for the title, given how the deal would advance the Biden administration’s aims of giving consumers more choice in television and is probably the least compelling example of Amazon extending its power. In the end, however, how could we pass up a court tossing out the FTC and states’ lawsuits against Facebook, declaring the initial complaint had not made the case? Great stuff.

Biggest Deal That Wasn’t: DoorDash buying Instacart. This would have been a $50 billion acquisition that would have transformed the intensely competitive food delivery market. News that the talks occurred came after months of Instacart systematically replacing most of its top management team, including its CEO, which made it even more intriguing.

Most Improved Stock Performance: Asana, whose stock has tripled since late May, after treading water for most of the previous eight months. It’s not clear what Asana’s co-founder Dustin Moskovitz is injecting into the waters around Wall Street, but it’s certainly working. The stock rally has lifted the value of Moskovitz’s stake to about $5 billion, a second fortune on top of the billions he made as a co-founder of Facebook.

Best Example of PR Doubletalk: There’s always intense competition in this category but it’s hard to pass up Apple Fellow Phil Schiller’s statements that Apple has “great respect” for the Japan Fair Trade commission and appreciates “the work we’ve done together.” The Japanese regulator this week forced Apple to relax its App Store rules in favor of some developers. It’s a great example of a company executive saying in public the opposite of what we’re sure they mean.

It seems only to be a matter of time before Apple and Google have to give up the tight controls they exercise over their mobile app stores, given the onslaught of litigation, investigation and legislation they each face around the world. And that means investors need to start thinking about the bottom line impact of the potential changes.

We got some assistance in that analysis with a new version of the states’ antitrust action against Google over its app store, Google Play, filed on Saturday, with some of the prior redactions lifted. It stated that Google Play generated $11.2 billion in revenue in 2019 and booked $7 billion in operating income. (Credit to Reuters’ Paresh Dave for working on a Saturday to report this.)That means the Play Store accounted for 20% of what Alphabet reported in operating income that year, a startlingly high number.

Notably, such a proportion is in line with estimates of what Apple’s App Store contributes to the iPhone maker’s gargantuan profits. To be sure, the Apple number is far from confirmed. But the Google estimate comes from a group of states that conducted a nearly two year-long investigation into the company, so it seems likely to be reliable. It is telling that Google, and possibly Apple, get a fifth of their profits from parts of their businesses which the company’s don’t break out separately. The likely reason is that they know the sheer size of the profits are hard to defend.

After all, much, if not most, of that money comes from the 30% commission on in-app purchases, justification for which has been hard to find. As the states’ lawsuit against Google noted, when one employee asked where the 30% figure came from, another responded “pretty sure Steve Jobs just made it up for itunes” [sic]. Apple’s concessions last week on its app store rules, in response to a developer class action lawsuit, are likely just the beginning of the end for this particular river of tech gold.

ZOOM VIDEO’S FLIGHT PATH FLATTENS

There’s no pleasing some people, particularly investors in Zoom Video. Yes the video conferencing company is no longer reporting rocket-ship-like revenue growth. But its July quarter revenues were still solid—revenues up 54%! And yet Zoom shares fell 12% in after-hours trading.

That reaction makes about as much sense as most meme stock purchases! Did anyone think Zoom could continue increasing revenue 350 to 370%, as it did for a couple of quarters last year? It’s good enough that Zoom built on last year’s growth to expand further. Moreover, Zoom generated $455 million in real cash, increasing its total cash pile to $5 billion.

What investors are likely reacting to is Zoom’s even more downbeat growth projections for next quarter.  Fourth quarter revenue growth will be around 31%, Zoom indicated. For the full year, revenue will be up 51%, it expects. All in all, given the competition Zoom now faces from giants like Google, those aren’t bad numbers. 

AXEL SPRINGER’S SPENDING SPREE

Question: Is German media giant Axel Springer the new Verizon of digital media?

Verizon famously spent $8.3 billion between 2015 and 2017 buying, first, AOL and then Yahoo in an attempt to get into the digital-media-advertising market. Shortly after completing the Yahoo deal, a change in management prompted a change in strategy. Earlier this year Verizon dumped both properties for just $5 billion, an outcome that only looks good when compared to cellular rival AT&T’s even more disastrous foray into media.

It’s hard not to think of that experience after Axel Springer’s billion dollar purchase of Politico last week—a rich multiple of five times revenue—which follows its $500 million acquisition of Business Insider in 2015. Insider, as it is known, has since gone on its own spending spree, buying control of newsletter publisher Morning Brew at a $75 million valuation. 

Of course, the parallel with Verizon isn’t exact. Axel Springer is an old hand in media, unlike the phone company. Verizon’s AOL and Yahoo were both heavily weighted towards digital advertising, a brutally competitive market, whereas Politico and Insider are both at least partly subscription businesses. Even so, it’s hard to see how Axel Springer will get a return on these investments—particularly given the over-the-top price it paid for Politico—that will be good enough for its main backer, KKR.   

It’s likely not a coincidence that U.S. media firms like the New York Times Co. and News Corp., which presumably know the market better than Axel Springer, aren’t spending money like their German rival. If history is any guide—and, let’s face it, it usually is—Axel Springer will struggle to get a decent return. It’s probably just a matter of time before the company follows the lead of Verizon and reverses course. The next couple of years in digital media are shaping up to be bloodier than the past few.

World Has US corporate profitability peaked? Questions mount over a squeeze on margins for companies SEPTEMBER 3, 2021 by Mamta Badkar