Escuchar Crypto IRL

Preamble rant: The recent collapse of FTX, a large crypto exchange, and its associated entities, left many of us disappointed and disgusted with flashbacks to Enron and Lehman Brothers. Nothing is new under the sun. Unfortunately, whenever humans are involved, there is a potential for bad actors to make poor choices that wreak havoc. This has proven true across industries, countries, and time. But regulation and controls can help safeguard the little guy. I expect more regulation, legislation, and guidelines in the months and years to come. Still, I worry that the wrong lessons are being learned. Some folks might see the FTX implosion as vindication that “crypto is bad”. Others might see it as the death knell for crypto and blockchain technology at large. This is a mistake. Technology is neither good nor bad. Humans use technology for good or bad. That’s an important distinction. One of my takeaways is to double-down and continue uncovering ways in which crypto and blockchain technologies can solve real-world problems. Let’s go! Giant maps and summer road trips When I was a kid, my family would go on road trips every summer. It was a great adventure. From time to time, we would pull over to the side of the road while our parents struggled and fumbled through giant fold-out maps. This was Nigeria in the 1990s. There was no internet. The maps were sometimes outdated. As you can imagine, we got lost a couple times. One day, we narrowly escaped being detained by the military because we inadvertently were driving towards Aso Rock, which was then the presidential palace of Abacha, one of Nigeria’s brutal dictators! Yikes!! Today, I can’t remember the last time I opened up a giant fold-out map. Thank God for Google Maps! I now use it every day to find the optimal route for my commute. It’s been a massive time-saver as I’ve learned to deal with the joys of New Jersey’s clogged up highways. If you are like me, you might not have realized that some companies such as Uber pay Google to embed Maps in their products. Some other companies use Google Maps to optimize the distribution of their products. It’s really important for these companies that Google Maps is accurate and frequently updated. As much as I love Google Maps, it’s not perfect. Google Map’s gaps I am going to highlight two gaps with existing mapping services: (1) Updates and (2) Ownership. 1. Updates Google has done a great job mapping out the world. However, new roads and buildings are constructed every day, new businesses emerge with new signage. Logically, Google Maps prioritizes map updates for high population cities. Thus, Google updates Street View and Satellite pictures of big cities like London at least every year while smaller cities like my ancestral hometown, Ijebu-Ode, might be updated every couple of years. Is there a better solution? 2. Ownership In 2013, Google acquired Waze for $1B. Waze was a fast-growing Google Maps competitor that utilized an army of volunteers to submit real-time traffic updates and review maps. Over 420,000 people volunteered [https://www.cozyberries.com/waze-statistics-users-facts/] to edit Waze’s maps. Additionally, Waze had ~100 employees at the time of acquisition. But get this: the average Waze employee received $1.2M [https://www.haaretz.com/israel-news/business/2013-06-13/ty-article/.premium/waze-workers-sharing-in-google-buyout/0000017f-f43f-d223-a97f-fdff876f0000]after the acquisition but the volunteers received nothing. Ouch. Is there a better solution? Introducing Hivemapper Hivemapper is a decentralized map built by people using dashcams. It solves both of the problems - updates and ownership - outlined above by providing crypto-incentives and technology to anyone interested in participating. Did you know that each photo in Google Maps’ Street View was taken by a Google employee in a specialized car with a 3D camera? One can imagine that the cost would be astronomical. Wouldn’t it be better if we could crowdsource images from drivers on their daily commute or road trips? Imagine if just 1% of all drivers did this. They would continually map every new highway off ramp, new small business, freshly created pothole, etc. But that’s not all. In the future, these drivers could also collect other types of data such as air quality, weather, noise, wireless coverage, and so on. These contributors would be rewarded with HONEY, the native token of Hivemapper. The best part is that it does not require any change in behavior, contributors need only install a dashcam the size of a deck of cards. The Hivemapper Network recently launched on November 3, 2022. There are two dashcam models available [https://hivemapper.com/compare-dashcams]priced from $549 (larger design) to $649 (smaller, more compact design shown above). If you order before January 7, 2023, you will be airdropped 500 Honey tokens. Then you will earn more tokens as you drive once the dashcam is activated. Behind Hivemapper Hivemapper is led by executives at the confluence of tech, logistics and crypto. The team has individuals who built and scaled global maps and geospatial products at Yahoo Maps, Scale AI, and Mapbox. They are mathematicians, physicists, computer scientists, logistic experts, artists, and designers working together to create a decentralized mapping network. Hivemapper raised over $18M in its Series A from investors including Spark Capital, Multicoin Capital, Solana Ventures, and Founder Collective. Today, the company has a number of esteemed advisers including the current or former CEOs of Solana, Helium, Masterclass, Zillow, Tinder, and the former head of Apple Maps. Concerns While Hivemapper sounds interesting, it also set-off a number of alarm bells in my head. My concerns are centered around privacy, hacks and the HONEY token. A. Privacy Every website you visit and every click that you make on the internet is being monitored. Advertisers take that information to market new products and services to you. Now, imagine if your offline activities were being similarly tracked. Kinda scary, right? But I guess Google Maps is already tracking wherever I go. Hivemapper says it has privacy by design. The dashcams only collect the minimum required information. Furthermore, the company blurs licenses plates and people’s faces in the pictures and videos captured. B. Hacks Even if Hivemapper does what it says it would do to protect privacy, imagine if a bad actor hacked the dashcams and started collecting unauthorized information. It could be ugly. Hivemapper needs to have in place strong information security protocols to safeguard its contributors and collected data. C. HONEY token If a contributor successfully earned 1,000 HONEY tokens while driving across the country, what can they do with it? Worst case scenario, they might sell it. But what is supporting the underlying value of HONEY? For starters, there is a cap on the total amount of HONEY. Thus, if demand increases over time, the price of the HONEY tokens should rise. I also think Hivemapper could establish partnerships with major brands then enable HONEY holders to trade them in for Uber Eats credit or airline loyalty points. Some others have raised eyebrows about HONEY’s tokenomics. About 60% of the total HONEY supply has been pre-allocated to insiders with 20% going to employees, 15% to the company itself and 5% to the affiliated foundation. HONEY’s initial allocation of tokens to insiders is unusually high. For context, Ethereum only had 15% allocated to insiders while newer blockchains like Avalanche and Solana had 42% and 48% respectively. But one of the golden rules of tokenomics is to avoid projects with high concentration of token ownership amongst a few owners: Early successes Despite some of these misgivings, Hivemapper has achieved some early wins. During the alpha launch, the Hivemapper Network covered 95% of all roads in Manila, the capital of the Philippines in 6 months. It mapped 110,000 miles of road. Crucially, 75% of the map of Manila was refreshed every month. This is much higher than Google Maps. Additionally, the city of Shreveport, Louisiana has also become a Hivemapper customer. The city paid $7,000 for dashcams to be put in the city’s fleet of garbage trucks. Shreveport hopes the frequently updated maps will provide greater visibility into residents’ challenges ex potholes etc. Ideal customer I have considered getting a Hivemapper dashcam just to test it out and engage with the network. But I don’t think I drive enough to accumulate a significant amount of HONEY tokens. I think the ideal customers might be owners of large fleets of vehicles. For instance, cross-country trucking companies, school buses, taxi companies, and mail delivery services. These large fleets cover a lot of miles on an ongoing basis and could generate a lot of HONEY tokens. Nonetheless, it might still be worthwhile for a regular Joe who moonlights as an Uber driver to try it out. What do you think? I hope you have a wonderful week ahead. Stay grounded and seize the day. All the best, Afolabi This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit afolabio.substack.com [https://afolabio.substack.com?utm_medium=podcast&utm_campaign=CTA_1]

If you are like me, then you were a little awkward in college. Here’s an example of an interaction I had on campus as I walked from my dorm to class. Pretty college co-ed: “Hey! Do you want a free t-shirt?” Me: Uh! (Awkwardly looks away. Runs in the opposite direction.) Don’t hurt me🤕 It’s complicated. Let’s flash back a few months before this awkward interaction. So many thoughts rushed through my head as I packed my bags. I wondered if my American professors would understand my Nigerian accent. I wondered if I would easily make friends, maybe meet a nice girl. But then my mother rocked me back to earth as she exclaimed “Please stay away from credit cards o!”. Apparently, someone’s son was drowning in credit card debt. I guess he thought the money was free. In Nigeria, less than 3% of consumers have access to credit. It’s a stark contrast to the US, where 83% of adults have credit cards (Federal Reserve [https://www.federalreserve.gov/publications/2021-economic-well-being-of-us-households-in-2020-banking-and-credit.htm]). My mum’s friend’s son had recently relocated from Nigeria to the US for college. He was woefully unaware of how to manage credit. He would stop and chat with the pretty college co-eds waving free t-shirts in front of the gym. Eventually, he signed up for a couple of credit cards. Then it all went downhill. He didn’t stand a chance. And so I stayed away from credit cards. The case for credit 💳 But my views have evolved. I no longer see credit as a tool for self-destruction. Rather, I see credit as a tool - it’s neither good nor bad - it’s just a tool. If used properly, credit could help people build wealth and live healthier and happier lives. But if used improperly, it could lead to financial ruin. Credit is a double-edged sword. Living in Nigeria meant you paid cash for everything. The words “mortgage”, “car loan”, “student debt” and “credit card bills” were not in our vocabulary. No one had credit! And so you paid 100% cash when you bought a house or a car. The lack of credit also meant that no one had a credit score. So if you wanted to rent an apartment, you would have to pay 1-2 years of rent upfront. Needless to say, many of my cousins lived with their parents well into their late 20s and early 30s. Can you imagine if the US had the same setup as Nigeria? There would be untold pain. According to the National Association of Realtors [https://www.cnbc.com/select/average-down-payment-on-a-home-today/], the average new home buyer in the US paid just 7% of the total purchase price as a downpayment and took out a loan for the rest. Similarly, according to Statista [https://fortunly.com/statistics/car-loan-statistics/#gref], 85% of new car purchases in the US are financed. Collectively, Americans owe more than $1.2 trillion in car loans. In Nigeria, the total is closer to $0. The ability to thoughtfully take on credit could save lives. Many hospitals in Nigeria require full payment before treatment is rendered. Too many people have needlessly died while family members frantically rushed to raise funds to pay for life-saving treatment. It’s desperately heart-wrenching. The ability to take on mortgages could help many families own their homes and start building multi-generational wealth. Construction loans also enable investors to deliver more housing units to eager customers. Access to credit could enable a business owner to grow and sustain their business. Businesses might need loans to purchase raw materials to fulfill large orders. Businesses could even offer credit to customers, enabling them to buy more products. Credit could provide the runway a growing entrepreneur needs to take off. The list could go on. The bottom line is that access to credit could help grow the economy while enabling people and businesses to lead more prosperous lives. If this is true, then why do only 3% of Nigerians have access to credit? Problems dey 🚧 My sense is that credit penetration is low for a couple of key reasons: * Structural: Nigeria does not have a well-established credit score system. In other countries, credit scores are linked to a national identity number ex Social Security Number. In recent years, Nigeria introduced a National Identification Number. This is a key first step. * Enforcement: Nigeria experiences weak enforcement of justice, that’s putting it nicely. This means that creditors are highly exposed if the debtor does not pay. I’ve heard of judges being bribed, police turning a blind eye, and uneven treatment. Creditors may not reliably have recourse for bad loans. * Other business: Given the aforementioned risks, historically Nigerian banks considered other business opportunities to be more lucrative than lending. Providing credit to the masses was not high on their priority list. Fortunately, in recent years Nigerian banks have started offering secure credit cards backed up by deposits to their customers. * Policy: Government policy does not expressly encourage the extension of credit to the masses. Incentives, if any, do not appear to be working. Nonetheless, there are many exciting FinTechs working to crack this nut. I recently met a couple of them at a FinTech Happy Hour in NYC. Local solutions to local problems 👷 QuickCheck [https://quickcheck.ng/] is one of the exciting FinTechs extending credit to Nigerians through a mobile app. The start-up was founded in 2017. It uses artificial intelligence and machine learning to extend microloans to its customers. Quickcheck’s lending process is very fast (less than 10 min) and does not require any paper documents. Quickcheck has funded over 1.1 million micro-loans averaging $80 for 30-day terms. The total value of loans disbursed exceeds $40M. Most of the customers are middle class and 80% are between 25 and 43 years old. Returning customers account for over 70% of loans provided each month. The average interest charged is 40-50% per annum but bear in mind that most loans are only for 1 month-long term. Customers often use the loans to cover emergency expenses, school fees, or business expenses. QuickCheck works like a middle-man. They borrow large chunks of money at lower interest rates from high-net-worth individuals (HNWI) and institutions, then they turn around and lend out small chunks of money at higher interest rates to individuals and small-medium-sized businesses. They profit from the difference between interest rates, however, they also take the risk of issuing bad loans and the cost of operations. Figure 1: This is an illustration of QuickCheck’s business model QuickCheck needs to borrow more money so that it can grow its lending business and extend its impact. Unfortunately, it finds itself in an underserved in-between class of small- and middle-sized enterprises. Typically, businesses that need to raise less than $100k can access funds from local high-net-worth individuals (HNWI) or the capital markets. Larger businesses seeking to raise more than $5M can often access institutional creditors. But Quickcheck’s needs are in between these extremes. DeFi to the rescue? 💻 Decentralized Finance (DeFi) seeks to reduce costs and increase efficiency by using smart contracts and blockchain technology to eliminate middlemen like banks. For instance, today if you wanted to borrow $100k to buy a house, you might go to Bank of America. They will assess your creditworthiness and determine what interest rate to offer you. Mind you, Bank of America has thousands of employees and expensive offices all around the country. Thus, the interest rate they offer you need to be high enough for them to offset their costs and deliver a profit to their shareholders. Additionally, the United States has a recent history of bias in lending. Several banks, most notably Wells Fargo, have admitted that some under-represented minority groups were unfairly charged higher interest rates than others with similar qualifications. DeFi could help fix this. DeFi relies on smart contracts. This helps remove bias. Smart contracts are computer code. They simply operate based on data. If a person wanted to borrow $100k, the smart contract might check to determine if certain qualifications are met, if true then it disburses a loan. And because DeFi applications don’t have thousands of employees or expensive offices, they could offer more competitive interest rates than traditional lenders. Today, much of DeFi relies on over-collateralization to issue loans. Thus, if you wanted to borrow $100k cash you might be required to provide $150k of bitcoin which is held as collateral while you repay the loan. Overcollateralization works for crypto-rich, cash-poor people who believe that the value of digital assets would rise in the future. However, it does not work for the under-banked or those who do not have significant a pile of digital assets. DeFi needs to extend beyond over-collateralization in order for it to achieve more impact. There are a number of exciting Crypto projects working on this. Meet Goldfinch 🐦 Goldfinch [https://goldfinch.finance/] has provided QuickCheck with $1.45M debt since January 2020. Goldfinch is a decentralized protocol that allows for borrowing without crypto collateral. It is focused on reaching underserved emerging markets in Africa, South America, and Asia. In January 2022, Goldfinch raised $25M in funding from Andreessen Horowitz, Coinbase Ventures, SV Angel, Bill Ackman, and others. The startup previously raised $11M in June 2021. Goldfinch works by the interplay of four types of protocol participants: * Borrowers: Small- and medium-sized businesses seeking to borrow funds. Borrower Pools list the loan terms the Borrower seeks ex. interest rate, amount, and loan term. Borrowers typically request funds in USDC, the stablecoin backed 1:1 with US dollars. * Backers: Backers assess the Borrower Pools and determine whether they should provide first-loss capital. First-loss capital means that the Backers are eligible to receive a higher return on the loan than other capital providers but if the Borrower defaults, the Backers will be the first not to get paid. * Liquidity Providers (LP): LPs provide the senior line of credit to earn passive yield. They don’t have to actively assess every proposed Borrower. Rather, LP funds are invested if there is a sufficient level of commitment from Backers. When LPs provide senior credit, a portion of their interest is redirected to Backers to incentivize Backers to properly assess Borrowers. * Auditors: Auditors vote to approve Borrowers. They provide a human-level check to guard against fraud. Auditors are randomly Figure 2: Illustration of the Goldfinch protocol Once a loan has been issued, Borrowers make repayments to the Borrower Pool based on the interest rate and payment period. When the Borrowers pay more than the interest owed, the remainder is applied to the principal balance. The Borrower Pools have a Senior Tranche and a Junior Tranche. LPs provide funds for the Senior Tranche while Backers supply to the Junior Tranche. When the Borrower repays, the Borrower Pool first applies the funds to interest and principal owed to the Senior Tranche at that time, and the remaining funds are then applied to the Junior Tranche’s interest and principal balance. Backers and LPs receive an NFT when they initially supply capital. The NFT tracks the amount that was supplied and the amount that is still outstanding. NFTs ensure that no one can redeem more than their proportional share of the total repayments as they come in. For instance, if two Backers each supplied $1,000 for a total of $2,000 borrowed, and the Borrower has only paid back $400 thus far, the NFTs ensure that each Backer can only redeem up to $200, which is their portion of the repayments thus far, rather than each Backer racing to redeem the full $400 themselves. For more information on Goldfinch and how the protocol is structured and participants incentivized, please check out their white paper [https://uploads-ssl.webflow.com/62d551692d521b4de38892f5/631146fe9e4d2b0ecc6a3b97_goldfinch_whitepaper.pdf]. Closing thoughts 💭 There is a tremendous and growing market for credit, especially in emerging markets like Nigeria. It is exciting to see crypto solutions like Goldfinch tackle this problem. But Nigeria has over 200 million people. Goldfinch is still a drop in the ocean of opportunity. Fortunately, technology does not scale linearly. Adoption could grow exponentially. I believe the market is big enough for many more players to emerge. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit afolabio.substack.com [https://afolabio.substack.com?utm_medium=podcast&utm_campaign=CTA_1]

Preamble My wife and I recently packed our bags and relocated to New Jersey! Texas was good for us but now we are on to our next adventure in Greater New York City. Would love to meet up if you are in the area. It’s been fascinating observing people’s reactions when I say I work in crypto. Some acquaintances immediately start walking me through their crypto portfolio while others clutch their pearls and flee for dear life. Jokes aside, I am often the first person they have met who works in the space. Sometimes, I get the sense they don’t quite know what to make of me. Crypto’s unsettling reputation has not been helped by the recent market downturn, hacks, and bankruptcies. My singular refrain has been that “the underlying technology could solve real-world problems, focus on that”. But you can’t bury your head in the sand and ignore the world around you. If you fail to study history, then you are bound to repeat the same mistakes. We are living through the early days of Crypto’s history. Let’s learn from this moment lest we fall prey to the same dragons. Heartache 💔 Celsius - a prominent centralized crypto lending company - filed for bankruptcy on July 13, 2022. Customers had been unable to withdraw their funds since June 12, 2022. It now looks unlikely that they will ever reclaim all their funds. Some devastated customers have written letters to the judge presiding over the bankruptcy proceedings. These letters are gut-wrenching. Here are excerpts from two of them: But how did we get here? Celsius: Background🔎 Celsius was founded in 2017 by Alex Mashinsky (CEO) [https://en.wikipedia.org/wiki/Alex_Mashinsky], Daniel Leon (former COO, now Chief Strategy Officer), and Nuke Goldstein (CTO) in Hoboken NJ. Celsius provides customers with high interest-bearing accounts for cryptocurrencies and crypto-collateral-backed loans. High interest-bearing crypto accounts Example 1: Johnny cashed out some of his cash savings and stock investments to buy 1 bitcoin on Coinbase. He then sees an ad from Celsius offering 17% interest rates for customers who deposit bitcoin with the company. He looks at his regular bank account and is reminded that Bank of America is only offering 0.1% interest. It’s a no-brainer! Johnny moves his 1 bitcoin from Coinbase to Celsius to earn high interest. Crypto-collateral-backed loans Example 2: The price of bitcoin has more than doubled. Johnny is feeling good about his investment. Time to finally buy that engagement ring he has been eyeing. The price of bitcoin is $50k but he only needs $10k. However, Johnny doesn’t want to sell his bitcoin because he believes the price will be much higher in the future. Step 1: He transfers 0.3BTC valued at $15k as collateral for a $10k cash loan. Note: (a) There are no interest payments on the loan but he has 1-year to pay it back. (b) There are no credit checks because the loan is overcollateralized with a loan to value (LTV) ratio of 67% => $10k loan / $15k crypto collateral. Step 2: Celsius will monitor the LTV ratio as the price of bitcoin continues to fluctuate. If the price of bitcoin drops deeply, Johnny will have 24 hours to add more collateral or pay down the loan if the LTV hits the predetermined threshold ex 90%. If Johnny fails to bring the LTV back to an acceptable range say ~67% within the prescribed time then Celsius has the right to sell his collateral for cash. Besides lending, Celsius generated revenue from token sales, bitcoin mining, and discretionary trading of cryptocurrencies. As of June 2022, Celsius had lent out $8 billion to customers and had $12 billion in assets under management. The company had 450 employees and reportedly 1.7 million account holders. How did it go wrong?⚡ TLDR: Celsius CEO said the company went bankrupt due to “..certain poor asset deployment decisions”. Basically, weak risk management. Unfortunately, this does not appear to be an isolated incident, rather, tales of poor decision-making and under-resourcing are emerging from different parts of the organization. On the surface, the main thrust of Celsius business model was sound. It’s the same model that banks have used for centuries: pay interest to depositors then loan those funds out to another entity at a higher interest rate. Then you simply profit off the difference in interest rates. Celsius grew rapidly by offering up to a 17% interest rate on crypto deposits. At its peak, it had $24B of assets under management. This helped it raise $750M in Nov 2021 at $3.3B valuation. That fundraising round was led by the second largest pension fund in Canada. But it all came crashing down when Celsius filed for bankruptcy due to the $1.2B hole in its balance sheet. Celsius reported its total assets were $4.3B but total liabilities were $5.5B. Of the $5.5B liabilities, Celsius owes its customers $4.7B but does not have the assets to pay them. The company only has $125M cash on hand. Much of the $4.3B of assets are said to be Celsius’ holdings of its own crypto token which has dropped in value from a peak of $7.7 in June 2021 to $0.9 in July 2022. There are questions about the current market value of the $4.3B listed assets and fears the actual is lower than what has been reported. Where did risk management fail? We are still learning about the failures that led to Celsius bankruptcy. Here’s what I have gathered thus far: 1. Failure of leadership Celsius executives reportedly [https://www.cnbc.com/2022/07/19/former-employees-say-issues-plagued-crypto-company-celsius-years-before-bankruptcy.html] told the Chief Human Resource Officer NOT to run background checks on the incoming CFO, Yaron Shalem. This is a major red flag 🚩 In Nov 2021, Shalem was arrested in Israel and charged with money laundering at his previous company. Perhaps stronger controls could have identified a CFO who might have steered Celsius away from taking on increasing levels of risk. But ultimately the CEO is responsible. 2. Under resourcing Disruptors don’t color within the lines. They dream up new industries and take risks executing their visions. This is the nature of technological disruption. Uber and Airbnb are great examples of disruptors who launched products ahead of supporting laws, rules and regulations. The Silicon Valley swagger to move quickly and break things has produced results….but one wonders if it is a fit for financial services. Celsius reportedly only had 3 compliance professionals serving 1.7 million account holders. Some banks serving fewer customers might have 10 to 30x compliance professionals. A former Celsius compliance employee shared how the department was seen as a cost center and not a strategic partner for the business. One could extrapolate and imagine that the same attitude of under-resourcing likely applied to risk management too. 3. Poor fund management Celsius CEO said in retrospect, they made poor fund deployment decisions. These decisions primarily fall into two camps: (a) over-leveraged positions and (b) over-exposure to stETH. (a) Over—leveraged positions: Celsius loaned out depositors’ funds on MakerDAO, a decentralized lending platform. One loan is ~$550M. This loan is overcollateralized like the loans Celsius itself issues. One challenge is that the price of Bitcoin has tumbled more than 60% since the 2021 highs. As a result, Celsius has had to pay down the loan or provide more collateral to bring the LTV back in range, otherwise, the entire $550M collateral would be liquidated. Celsius likely used new customer deposits to secure the collateral consisting of old customer deposits. Celsius came close to losing $550M a couple of times. It has reportedly lost smaller amounts due to insufficient liquidity to shore up the LTV ratio. A sound risk management approach would have considered that crypto prices could fall significantly and perhaps limit Celsius exposure to this high-risk strategy. (b) Over-exposure to stETH Celsius used customer deposits to acquire over $400M of stETH, an irresponsible amount given that no counterparties hold a comparable amount to trade with. stETH is an illiquid receipt stoke for staked ether. stETH is a derivative of ether with each stETH representing one staked ether on the new Ethereum blockchain. However, the price of stETH and the price of ether decoupled in recent months, stETH now has a 3% discount at the time of writing. A sound risk management approach would have considered whether Celsius should have used user’s deposits to acquire stETH, and if decided to, there could have been controls to limit the amount of exposure to this illiquid asset in Celsius portfolio. What next for Celsius customers? ⏭ Celsius presented itself like a bank but operated more like a hedge fund. Many customers did not read the fine print in Celsius terms and conditions. Reading through now would yield several realizations. Uninsured deposits Depositors at US banks are protected by the Federal Deposit Insurance Corporation (FDIC). If a US bank goes bankrupt, all depositors’ funds are insured for up to $250k. Unfortunately, Celsius is NOT a bank and did not hold any insurance for depositor’s funds. Section 13 of the Celsius user agreement [https://celsius.network/terms-of-use]explicitly states that if the company goes bankrupt, customers may not be able to recover ANY funds. Bankruptcy claims Celsius customers are filing bankruptcy claims. Some have also written letters petitioning the judge to release funds to them. Interestingly, although Celsius is headquartered in Hoboken NJ, the bankruptcy suit was filed in New York’s Southern District. Judges in this district are thought to be more savvy and experienced with major bankruptcies having previously handled notable cases like Merril Lynch and Bernie Maddoff. Unfortunately, it’s not looking good for customers. What lessons have been learned? 📔 Not your keys, not your coins My friends who have been in crypto for several years frequently admonish everyone to move their holdings off centralized exchangers like Coinbase and lending platforms like BlockFi and Celsius. This episode has made the reasons painfully obvious. It’s clear to see why they recommend one self custody crypto holdings in a cold wallet. Leadership matters It looks like Celsius executives lost their heads in the ecstasy of the bull market. They kept on layering on high risk moves perhaps imagining themselves to be invincible. But truth be told, I think the rot started way before the crypto bull market. The absence of background checks for senior executives, the under-resourcing of compliance are symptoms of a culture that turns its nose at the modern financial services industry. I agree that there are some financial services which are ripe for disruption but there are also risk management practices and standard operating procedures which have successfully safeguarded the interest of customers. These mustn’t be discarded with the bath water. Please do considerable research as you invest your funds. Look at the background and statements of the leaders. Sometimes people who are undisciplined with finances reveal themselves to be undisciplined with their words too. Real human impact 1.7 million affected account holders may never fully recover their funds. This would undoubtedly leave a lasting bad impression. Some of the stories are simply heart-breaking. There’s the story of a worker close to retirement who sold off their stocks and bonds and deposited everything into Celsius. There are countless stories of families who put decades of life savings into these accounts. Some people will never recover financially. It must be taking a heavy emotional toll too. I fear, a few people may even take their own lives similar to the suicides following the Great Stock Market Crash of 1929. Diversify Please do NOT put all of your eggs in one basket. Diversify to reduce your exposure to any one platform and any one company. Consider moving some or all of your crypto holdings into multiple cold wallets and securely store them in waterproof, fireproof, and tamperproof environments. Risk management is a differentiator Crypto has been pulling in top talent from a variety of backgrounds. Sometimes I sense a tension between the tech-forward move fast crowd and the deliberate, cautious, and risk averse financial services crowd. But we need both legs to run into the future. The Celsius meltdown has given me a renewed appreciation for risk and compliance. In recent days, crypto lending companies have been at pains to explain their risk management approach and distance themselves from Celsius. I expect there could be a flight to quality, with consumers gravitating to more established and regulated providers. There is an opportunity for banks to make a move here. More curious about DeFi Humans are fallible. People get greedy and risky, then bad things happen. This is not limited to crypto. It happens across every industry. One of the beautiful things about decentralized finance (DeFi) is that it runs on smart contracts aka code. It takes the human out of the equation and executes based on the written code. But no system is infallible. DeFi solves for one risk - human behvaior - while heightening another risk: hackers. DeFi is poised to continue growth and eventually will underpin a chunky slice of the mass market. Brace yourself for more regulation Society functions around a set of rules of engagement. There are consequences when you break those rules. Every industry needs regulation. Crypto is no different. I hope that the regulation is thoughtful and not a knee-jerk reaction. I hope the regulation would seek to protect the consumer, not prevent the consumer from engaging with crypto. I hope the regulation is crafted in partnership with industry, seeking to support technology advancement and not strangle the baby in the bassinet. I’m optimistic. Many advances we take for granted today went through a storming phase in their infancy. I have seen newspaper clips from the 1800s railing against electricity and cars. Today we can’t imagine our lives without them. I expect the US will eventually strike the right balance with crypto regulations. PS - But wait, there’s more There’s more to the Celsius story. For instance, I didn’t get into the alleged token manipulation and potential insider trading. PSS - Former Coinbase PM arrested for insider trading Speaking of insider trading, this week, a former Coinbase product manager was arrested along with his brother and a friend for insider trading. Background There are about 2,000 crypto tokens. Binance lists over 300 of them on their exchange. Coinbase has been intentionally listing more tokens to close the gap and give their customers more choice. Coinbase currently lists about 200 tokens. It’s been observed that new tokens experience a significant price jump once they are listed on Coinbase. It could be due to millions of users suddenly gaining access and increasing demand. The Coinbase PM obtained intelligence on which tokens would be listed then relayed it to his accomplices. The trio then got wallets controlled by other people to opportunistically buy and sell these tokens. They earned at least $1.5M through this insider trading scheme. Blockchain to the rescue Public blockchains permit anyone to view transactions. The challenge is that it’s not always obvious to the observer who owns the wallets but that’s why blockchain analytics firms like Chainalysis, TRM Labs and Elliptic specalize in. An avid observer noticed this pattern of sales from a wallet. He shared his observations on Twitter. Soon financial regulators were hot on the chase and identified the trio and notified Coinbase. The Coinbase PM was invited to a meeting where at Coinbase where he was presumably fired. Regulators sent him a letter. He bought a ticket to fly home to India on the same day. The suspect was apprehended before he could flee the country. Contrary to some widely held beliefs, blockchain technology is not just a haven for would-be-criminals, rather, it can be a valuable tool for law enforcement to catch criminals. It’s been long rumoured that there is significant insider trading at some crypto tokens. Perhaps this case is the first of many to come. The industry needs to police itself and partner with law enforcement. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit afolabio.substack.com [https://afolabio.substack.com?utm_medium=podcast&utm_campaign=CTA_1]

I’ve got a confession. (Cue Usher’s hit single “Confessions [https://www.youtube.com/watch?v=5Sy19X0xxrM]”) I am not exactly sure what the metaverse is. There I said it. I feel so much lighter lol :-) Last year, “metaverse” burst onto our collective lexicon when Facebook announced it was reinventing itself as Meta. Mark Zuckerberg produced an hour-long video explaining what the metaverse was and how Facebook was going to engage in it. I didn’t watch the video then but I did see a few clips. It felt important. I felt like it must be a big deal if one of the world’s richest men was betting his ENTIRE fortune on it. I didn’t want my ignorance to cost me this opportunity. So I started a little exploration. I spent part of my New Year’s Eve in the Decentraland metaverse. I started buying a few metaverse tokens and invested in a metaverse-themed ETF. During the hype, I even considered buying some virtual land in the metaverse. Now to be clear, my investments were pretty limited…way less than 1% of my portfolio. But since Facebook’s fateful announcement, the world’s most prestigious investment banks and consulting companies have published a slew of reports on the metaverse opportunity. Citi Bank forecast that the metaverse economy could be worth $13 trillion by 2030 [https://icg.citi.com/icghome/what-we-think/citigps/insights/metaverse-and-money_20220330]. The Boston Consulting Group (BCG) had a less bombastic view, forecasting that the metaverse economy would be worth $1.3 trillion by 2030. To put things in context, in 2021, the total value of the US car and automobile manufacturing market was $83B. The bottom line is this - some smart folks are saying the metaverse could be at least 12 times the US car market in 7.5 years. No one knows the future but there is some consensus that the metaverse could be BIG business. Ok…you’ve got me interested. But what is the metaverse?? I have been digging trying to learn more. I finally watched the Zuckerberg metaverse video. I listened to a bunch of podcasts, watched more YouTube videos, read some essays, and flipped through a couple of decks. I’m still organizing my thoughts and refining my thinking. Figured it might be helpful to share some of my preliminary thoughts. Let’s go! What is the metaverse? High school level definition The metaverse is a 3D version of the internet. It is a convergence of the physical and digital worlds. According to Matthew Ball, the metaverse represents the 4th wave of computing. The first three waves were mainframe computing, personal computing and mobile computing. So if the mobile era was defined by easy ability to get online, the metaverse era would be defined by always being online, this is called ambient computing. College-level definition According to Roundhill [https://www.roundhillinvestments.com/], the metaverse is the successor to the current internet that will be interoperable, persistent, synchronous, open to unlimited participants with a fully functioning economy, and an experience that spans the virtual and 'real' world. TLDR: the metaverse is an immersive, interactive environment generated by a computer. What is NOT the metaverse? Did you notice that none of the definitions mention virtual reality headsets? That was a big surprise to me. I had originally imagined a future where VR headsets became as common as cellphones are today. While I think sales of VR headsets are poised to going to continue rising, they are NOT required to access the metaverse. In fact, some of the closest metaverse-like experiences in gaming are accessible via cell phones. Side note - my jaw dropped when I recently learned that Meta sold 8.7 million Oculus VR headsets in 2021. That’s more unit sales than Xbox consoles in 2021! Do you have one? I’m thinking about getting one to test it out. Sales of these VR headsets have doubled each year. Now Meta is opening up physical stores so more people can experience it firsthand. TLDR: VR headsets provide one way to access the metaverse but they won’t be the only way to experience it. The metaverse must be experienced. One of my cousins in Nigeria told me how undergrads studying computer science did not have access to computers. They would write computer code by hand on paper and then submit their homework to professors to review. These students did not get the opportunity to actually run the code to see if the code did what it was supposed to do. They did not get to practice how to troubleshoot bugs in the code. We can all agree that this is a subpar way to learn. I think about the metaverse along similar lines. It’s nice to read and write about it but ultimately one is best served by diving in and playing with the emerging technology. It’s kinda like going back in time to the 1920s and trying to explain the internet to your neighbors. Not easy lol. Ok. Sounds nice but what problem does the metaverse solve? I’m still ruminating on this. Right now, I think the metaverse could increase accessibility, remote collaboration, education, gaming, social relationships, industry, and more. a) Accessibility: One of my friends in college was a fountain of dry jokes and witty takes. She was also a triple major who graduated with a 4.0 GPA. But I’ll never forget when she shared that she sometimes had to drop classes that she wanted to enroll in because the building was not wheelchair accessible. My heart sank. I did not realize that not all buildings on campus were wheelchair accessible or had elevators. This opened my eyes to the inequity of access. I hope the metaverse can extend access to people who might have different mobility abilities. But then I think about people who are visually impaired and hope access is somehow extended to them too. b) Remote collaboration: I’m tired of Zoom. I love people and I’m energized by engaging with people. But sitting in a chair going back-to-back on never-ending Zoom calls is draining. It’s also often subpar when some coworkers are meeting in person and others are on Zoom. Last year, Bill Gates said that within 2-3 years most work meetings would be held in the metaverse. I laughed when he said it. I still think his timeline is unrealistic. But I hope he is directionally right. I hope a metaverse solution improves the Zoom experience. Perhaps a future where coworkers can use holograms or avatars in 3D to engage with each other and express more body language beyond facial expressions. c) Education: Let’s face it. Not all teachers are created equal. Some are very engaging and can bring a seemingly dry subject to life. But others struggle to impart knowledge to students. Students have different learning preferences. Students who are strong audio-learners are advantaged in the existing education system. Now imagine if students had the opportunity to travel through time and space to experience natural phenomena and historical events. Imagine if instead of memorizing the planets you could see them close up and see the icy rings around Saturn. Or be on the front row as Abraham Lincoln gave the Gettysburg Address. Imagine if medical students could go on a safari through a human’s veins and arteries to learn about heart disease. These immersive experiences would be resonant and more engaging. Researchers say immersive experiences lead to 30% greater retention. This increased understanding could trigger more technological breakthroughs. I’m excited! d) Social relationships: When my grandpa went to medical school in England in the 1930s, his letters would travel 6-10 weeks before they reached his parents in Nigeria. Today my family is spread out across Africa, Europe, and North America. Video calls and cell phones have made the world feel much smaller. But I hope the metaverse could take it to the next level. It would be amazing for my parents to have more immersive experiences with their grandchildren. My nieces are becoming more curious about our culture and heritage, it would be amazing if my parents spend even more time with them and give could give them a virtual tour of our ancestral village or the cities they grew up in. Obviously, I don’t think the metaverse would be a perfect substitute for in-person interaction but I think it could be a bridge over oceans and great distances. e) Industry: According to McKinsey, BMW was designing its most advanced manufacturing plant when a team member suggested they build a virtual replica in the metaverse before beginning construction. So they did! BMW executives and technologists were able to physically tour the metaverse plant [https://venturebeat.com/2021/11/16/bmw-uses-nvidias-omniverse-to-build-state-of-the-art-factories/]. Soon they realized 30% of the design choices were not ideal. They significantly revised the designs before proceeding to construction. Testing it out before construction led to substantial financial cost savings. Sounds good….what are the downsides? In life, you gotta take the rain with the sunshine. a) Terror risks in 3D: Technology is neither good nor bad, it all rests on the application. Unfortunately, bad actors are often early adopters of new technology. Terrorist groups have leveraged Facebook, YouTube, and Twitter to find and radicalize young people. The same may become true in the metaverse. In fact, the metaverse might provide better tools to train terrorists. We will need to develop new counter-terrorism tools. b) Loss of person-to-person contact. The pandemic illuminated the loneliness crisis in many Western countries. Many of us coped with the social-distancing measures by increasing our time spent on social media. But for thousands of years, humans have needed person-to-person interaction to sustain wellness. It remains to be seen if the metaverse will be able to replicate this interaction. c) Too much tech. I’m embarrassed by how much time I spend looking at screens. I’m usually working on a laptop, scrolling on my phone, or watching TV on a big screen. No wonder my eye prescription keeps getting progressively worse! Should we be concerned that there is too much technology in our lives? I wonder if the rise of the metaverse will drive the appreciation of natural, in-person activities. It might become a luxury to travel in real life. We might see more people yearning for eco-tourism vacations where they are cut off from technology. What’s going in the metaverse today? Do you remember when newspapers uploaded a scanned copy of their publication on their website? Over time, newspapers have developed internet-native publications that have functionalities that were not possible with a paper copy. For instance, newspapers can target ads with much greater precision today. They are able to get much more detailed feedback on how readers respond to their articles and headlines. I think the metaverse might be similar. Initially, companies will copy and paste existing models into the metaverse but over time they will develop new metaverse-native models with functionalities that were not possible with the 2D-internet. Do you remember the first concert you went to? Mine was loud, sweaty, and crowded, but so much fun. We stood shoulder-to-shoulder, singing at the top of our voices waving our hands while awkwardly dancing with a cold beverage in hand. Today’s tweens and teens are having a very different experience. Cathy Hackel, self-proclaimed queen of the metaverse, shared how her 10-year-old son’s first concert was a virtual one on Roblox! But this was no isolated incident. In 2020, Travis Scott made headlines when his concert in Fortnite was attended by 12.3 million people [https://www.forbes.com/sites/davidthier/2020/04/28/a-staggering-number-of-people-saw-fortnites-travis-scott-astronomical-event/?sh=c22b517b41f9] (link to the concert [https://www.youtube.com/watch?v=wYeFAlVC8qU]). [FYI - Roblox and Fortnite are both gaming platforms]. Side note on gaming: In 2010, Chris Dixon famously said that the next big thing would first look like a toy. Gaming is a big business and a gateway to the metaverse. Fortnite is the blockbuster video game produced by Epic Games. Epic is privately held so financial details are limited. However, we know that in 2020 [https://www.businessofapps.com/data/fortnite-statistics/], Fortnite had 80.1 million monthly active users. 63% of its players are aged 18-24. 38% of users spent more than 10 hours a week playing Fortnite. Roblox appeals to an even younger demographic. According to Roblox, two-thirds of US children aged 9-12 use its platform [https://www.forbes.com/sites/jonathanponciano/2021/03/10/roblox-valuation-hits-42-billion-as-gen-z-gaming-giant-skyrockets-50-in-ipo/?sh=31a4bb8b3873]. In 2021 [https://ir.roblox.com/financials/annual-reports/default.aspx], Roblox earned $1.9B of revenue from 45.5 million daily active users who spent 41.4 billion hours engaged on the platform. I am highlighting these because I’m not a big gamer..yet. And as a millennial, I’m beginning to feel a lil old lol. I am recognizing that I may have a big technology blindspot because gaming is often on the bleeding edge of technology. Gaming could give a preview of what might go mainstream. Meta is NOT alone Meta is not the only major company investing in the metaverse. Microsoft, Apple, and Alphabet are reportedly pouring billions into it too. This year, Accenture, the global consulting company, will onboard over 100,000 new employees through its metaverse platform. This all started at the height of the pandemic. New employees were sitting at home remotely going through 16-24 hours of Zoom presentations. Definitely not an ideal experience. And so Accenture changed things up! They sent each new employee a virtual reality headset. The new hires then created customized avatars (cartoon-like representations of themselves) and were guided to Accenture’s metaverse headquarters. They were put into small teams and worked on simulations to solve customer problems. Crucially, there were opportunities to have 1-on-1 and small group conversations. Partners who often have tight travel schedules were able to readily welcome the new employees from anywhere in the world. Who knows? Maybe in a couple of years, it may be common for new employees to get a new company laptop AND a virtual reality (VR) headset. Times are changing! What’s next? More baby steps forward. The metaverse is very much in its infancy. It requires advances across a range of technologies such as 5G, 3D graphics, virtual reality, augmented reality, and cryptocurrency to move forward. It’s going to take a while. The current hype will simmer down but the building will continue. But I think mass-market adoption will gradually deepen over the next 5-20 years. It’s time to pay attention so you can make the most of this opportunity. So what do you think about the metaverse? I would love to hear from you. Onwards & Upwards, Afolabi This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit afolabio.substack.com [https://afolabio.substack.com?utm_medium=podcast&utm_campaign=CTA_1]

Hey y’all! This will NOT be a typical newsletter. I started writing as a forcing mechanism to learn more about crypto. It has been fun. Along the way, I’ve learned a ton, made new friends, started Bitcoin mining, and got a new full-time job in crypto. Thank you for coming on this journey of discovery with me. The vision of 5x5 Crypto was to simply explain the 5 most important developments in crypto in about 5 minutes. Lately, it has become a drag to consistently produce weekly updates. The truth is that I am no longer satisfied with just reporting news developments in crypto. I want to go deeper. I want to explore real-world use cases of crypto. I am curious about doing more analytical pieces. It’s time to dream again. Introducing Crypto IRL I am repositioning the newsletter. Introducing: “Crypto IRL”. My goal is to explore crypto in real life. I aim to produce 1-2 publications each month on a variety of topics. I have a list of topics that I want to explore and I can’t wait to dive in. Lately, I have been thinking about the metaverse, Bitcoin mining profitability, and crypto applications in Africa. Let me know if there are topics you would like for me to explore. But crypto markets are crashing… Yeah. Crypto markets have tumbled lately. My conviction is unchanged. I am still investing weekly. I had been waiting for a price crash since Q3/Q4 last year. But it seems that Crypto Winter has finally arrived. It was expected. Crypto has historically had multi-year cycles of “summer” (price rise) followed by “winter” (price crash)…with each new summer rising to a new high. Veterans say the Crypto Winter is when serious building happens. It’s the time when fair-weather fans fade into the background. It’s the time when one’s conviction is tested. It’s the time to go deeper and explore. This is the perfect time to pivot. Will you join me? You don’t have to do anything. You will receive the new publication in your email. Please stay tuned. I hope you enjoy this new season. If you do, please be sure to forward it to your friends :-) I hope you and your family have a wonderful week ahead. Onwards & Upwards, Afolabi This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit afolabio.substack.com [https://afolabio.substack.com?utm_medium=podcast&utm_campaign=CTA_1]