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FTX fallout (pt3) + All the Web3 news you missed this week
Sam Bankman-Fried, former CEO and founder of FTX, has embarked on a press tour that WSJ’s Gregory Zuckerman dubbed the “George Constanza” defense - making the rounds at the NY Times and Good Morning America. However, the “we didn’t intend to…” defense hasn’t been wining people over.
Coffezilla’s recap of SBF’s interview with Tiffany Fong is a good summary of his first interview.
Regulators are continuing to chime in over the past week, including recent comments by the CFTC Chair (Rostin Behnam) and US Treasury Secretary Janet Yellen. Undoubtedly we’ll hear more from regulators over the next few months, the question how fast will regulators react to this latest turn in the crypto markets.
Here’s the Web3 news from the past week
Brands that have traditionally interacted with their communities via focus groups have a lot to gain from leaning into Web3’s model of community ownership, argues Geoff Renaud of the Web3 creative marketing agency Invisible North. Giving customers a stake in a brand not only attracts a wider audience, but offers companies a new way of driving innovation.
DAOs: FTX Demise Is Win For Decentralization (Blockworks)
The lack of transparency in FTX’s operations, which came to light in a big way with its high-profile meltdown and bankruptcy filing, could fuel a migration to more open and decentralized structures, say some DAO proponents. A solution for scaling DAOs might lie in fractal-like subDAO structures, with a “meta governance structure on top of individual subDAOs, tracking the organization’s progress as a whole via a consensus-driven sum of its disparate parts.”
Reflecting on a recent Fast Company interview with Neal Stephenson, the author who coined the term “metaverse” in his novel Snow Crash, Tim Bajarin writes that we’re regularly interacting with the metaverse already, in the form of 2D gaming interfaces. In order for the metaverse to develop further, it needs to be cross-platform, such that users can move their digital selves through different worlds. But, writes Bajarin, “The reality is that the initial Metaverse worlds we will get in the next few years will be mostly closed ones.”
Metaverse exploitation and abuse to rise in 2023: Kaspersky (CoinTelegraph)
Cybersecurity experts predict that the metaverse will become a major target for malware, ransomware, and phishing next year — as well as the abuse and sexual assault of individuals’ avatars — thanks to poor data protection and moderation. “Social media is already a hotbed of data breach activity, so it stands to reason that the metaverse will be an extension of this,” reports CoinTelegraph, noting that users lost roughly $1 billion in crypto scams through social media in 2021.
Under the brand name “Mocopi” (think “motion capture”), Sony is now selling sets of six sensor bands that people can wear on their hands, feet, back, and head in order to animate virtual avatars. Each set costs roughly $358, with a software development kit launching on December 15 to incorporate the sensors’ data into metaverse platforms.
Everything We Learned From the Sam Bankman-Fried Interview (New York Times)
At the New York Times DealBook conference on Wednesday, former FTX head Sam Bankman-Fried sat for a lengthy interview about the company’s implosion. Here’s the full transcript, but the headlines are as follows: SBF says he “didn’t knowingly commingle” FTX customer funds and Alameda Research funds, didn’t knowingly commit fraud, and didn’t realize his organization’s “dangerous position” until it was too late.
Why Do Crypto Lenders Keep Blowing Up? (CoinDesk)
With BlockFi filing for bankruptcy this week, the funereal atmosphere of the crypto lending space has continued to intensify. “As we learned this year, even when things go well for crypto lenders they can quickly turn south,” writes Daniel Kuhn. “Volatility in the markets put pressure on crypto lenders’ normal businesses – including shrinking the number of depositors and borrowers. Faced with increasing withdrawals, many were found to have been illiquid or insolvent.”
After FTX: DeFi can go mainstream if it overcomes its flaws (Cointelegraph)
In the same way that FTX’s collapse has highlighted the advantages of DAOs, growing distrust in centralized crypto exchanges may be a boon for code-run DeFi platforms. “Users have pulled money from crypto exchanges and turned to noncustodial options to trade funds,” reports Prashant Jha, noting that the DeFi exchange Uniswap saw a “significant spike” in trading volume the day that FTX filed for bankruptcy. But if DeFi wants to really win investors’ hearts, it’s going to have to resolve its major hacking vulnerabilities.
As Web3 game developers workshop their business models, there are new revenue streams to consider, like in-game NFTs in the form of customizable weapons. But in a space where users are also looking to make a profit, developers have to be wary of users “looking for ways to game the game.” Per VentureBeat: “The mechanisms behind the game are crucial to managing this factor, and are also incredibly challenging. If you generate coins, are they inflationary or deflationary, and how does generating new coins impact the market? Are your NFTs and coins interoperable across different games and different protocols?”
At the same New York Times DealBook conference where SPF spoke, Treasury Secretary Janet Yellen expressed her skepticism about the state of crypto protections: "I think everything we've lived through over the last couple of weeks, but earlier as well, says this is an industry that really needs to have adequate regulation. And it doesn't.”
“As hundreds of millions of dollars worth of happiness, retirements, and even basic health care were erased in the blink of a bro’s cunning eye, Congress is cool, calm, and collectively, well, daft,” writes Matt Laslo. In short, lawmakers don’t know enough about crypto, don’t understand it, and aren’t prepared to keep up with the speed of its evolution.
In case you missed it - this was the most opened article from last week’s news roundup
The crypto lender BlockFi, which had been kept afloat by a revolving line of credit from FTX after the meltdown of Three Arrows Capital this summer, is on the brink of bankruptcy and gearing up for layoffs. Alameda-backed Maps.me and Oxygen said in a statement that FTX was a custodian for more than 95% of their overall token supply, leaving the DeFi projects to “[consider] all options” to protect themselves. The Winklevoss-founded crypto exchange Gemini froze withdrawals from its yield-earning program on Wednesday, the same day that Gemini outflows hit $563 million against inflows of just $78 million. Genesis Global Trading suspended loan redemptions and originations, as withdrawal requests exceeded the investment bank’s liquidity. Total value locked on the Solana network plummeted from $1 billion in early November to $300 million this week.
Meanwhile, the legal ramifications of FTX’s implosion are unfurling. Investors filed a class action lawsuit against FTX, Bankman-Fried, and a number of FTX’s celebrity ambassadors, including Tom Brady, Stephen Curry, Larry David, and Gisele Bündchen.
Hi, I’m Andrew Chang - I created the Web3 Roundup to share what I’m learning in this space. I’ve spent my career at the forefront of the technology industry in areas such as crypto/blockchain (Former COO @ Paxos, co-founding partner of Liberty City Ventures), video and adtech. I learn by meeting with founders, investors and other thought leaders and approach Web3 with the same enthusiasm – and skepticism – I had about crypto/blockchain technologies 10 years ago.
You can connect with me on LinkedIn