TBW Premium #20: What's behind Tornado Cash?

TBW Premium #20: What's behind Tornado Cash?

Read all about The Big Whale's 20th Premium newsletter.

Hello Whales and welcome to the little newcomers who have just joined us in the Premium edition.

There are already more than 1,000 of you reading us. Thank you 🙏

So what's new this week apart from inflation (which fell back a little in the US in July)?

To devour this week

🖋️ The editor's editorial

🔥 Our exclusive news

🔍 Investigating fan tokens


What Tornado Cash is "hiding"

Should we welcome the US government's ban on Tornado Cash? That's a big question. On the one hand, we'd be tempted to say "yes". Since its creation in 2021, the cryptocurrency "blender" has been used extensively by criminals. According to US intelligence, it has been used to launder no less than $7 billion. Seen in this light, it's pretty obvious, Tornado Cash should be banned.

But on the other side, we would also be very tempted to say "no". Because banning Tornado Cash is not just about a decentralised application used by a few criminals and, let's remember anyway, tens of thousands of private individuals who haven't asked for anything. It also concerns a broader principle: the right to anonymity in the digital world. In other words, our right to continue to carry out transactions (pay, be paid, etc...) without being traceable, as is currently the case with cash 💸.

Because who will set the limit for bans? Should the Internet be banned because of child pornography? If all the tools used by criminals are banned, we won't soon have much left. Especially if an authoritarian government takes power. With the scheduled end of cash and the proliferation of central bank digital currency (CBDC) projects, the right to privacy in the digital universe is going to become a fundamental issue.

This debate is obviously not just American. It is global. In fact, these issues are currently being discussed in Europe. It is often in what may seem anecdotal that the essential issues are hidden. This is once again the case with Tornado Cash.

So in other news, last night Ethereum's latest testnet "Goerli" successfully switched from proof-of-work to proof-of-stake (less power-hungry algorithm). This was the last necessary step before Ethereum's main network makes the final switch to proof-of-stake, which is scheduled for around 19 September 🚀.



👉 MiCA: the rewrite has already begun

Where do MiCA regulations stand? Just over a month after the political agreement on this text which should better regulate cryptos in Europe, the Parliament and Commission teams are already reworking it. The aim? To give it a more practical and less "political" translation" in other words to make it more concrete. So far, so good. But, as we told you in June, this rewriting is not without consequences. "With a text like this, the devil is in the detail", confirms a source well versed in the negotiations. While some parts of the agreement remain unchanged, others have been slightly modified. This is particularly true of the section on decentralised finance (DeFi), which was almost totally excluded from the negotiations. According to the new draft, which The Big Whale was able to consult, operators and service providers linked to DeFi would now be covered by the regulations, with all the obligations linked to domiciliation in Europe and flow control constraints (user identification in particular).

Do you have any information?



Football: All clubs want their fan token (or almost) ⚽ ️

By Clément Garcia

Fan tokens

👉 News. Europe's football leagues are kicking off a new season.

👉 Background.  In less than two years, fan tokens have made a name for themselves in the football industry.

👉 Why it's important. These digital tokens represent a new driver (particularly financial) for clubs.

With his fingertips, on the screen of his iPhone, Driss scrolls through the latest mercato news. This August, his attention is mainly focused on Juventus 🇮🇹. His 'favourite' team has been busy in recent weeks, and is expected to complete a number of transfers of highly-rated players. "It's all off to a good start," says the 28-year-old Parisian, who is hoping that French world champion Paul Pogba's new team will have a good season, which could, among other things, drive up the price of the club's fan token.

Because Driss is not just another fan. He's a Juventus Turin fan token holder: the $JUV.

Like him, there are thousands of others who hold tokens from the Italian club. These $JUVs are digital tokens registered on a blockchain. They are not like NFTs, i.e. they are unique, but they give access to a wide range of services: stadium tickets, VIP events, the right to vote on the decoration of the bus or the music played when the players enter the pitch. The more tokens you have, the more influence you have on the outcome of votes.

The first tokens of this kind have been on offer since 2019 by the Malta-registered company "Socios", and since then they have grown strongly. As the European leagues resume at the moment, several dozen clubs such as Juventus Turin, Paris Saint-Germain and Manchester City already have their fan tokens. And other teams around the world are working on their own.

But why are clubs using them? How do they benefit? What are the limits? The Big Whale investigated 🔍

To understand the "hype" around fan tokens, we need to go back a little further, to December 2019, to the launch of the very first copies, those of Juventus Turin.

At the time, they were just an idea from the head of Alexandre Dreyfus, the founder of Socios, a start-up born in 2018 and in which Xavier Niel is one of the discreet shareholders. "Tokens make it possible to create a link and commitment with a club's supporters around the world," explains the Frenchman, who has managed to convince several major prestigious clubs fairly quickly. "Starting with clubs like Juve acted as a catalyst. We were immediately more credible," rewinds Alexandre Dreyfus, who is one of the co-founders of the famous online sports betting site Winamax.

The Covid crisis

But Socios' real plus was undoubtedly the Covid crisis. Just a few months after the launch of $JUV and other tokens, half the planet found itself confined. Like many activities, football came to a standstill, which had a considerable impact on the football industry. Just one figure: in 2020, the premature stoppage of the French championship cost PSG just over €20 million, according to Deloitte. Even when you're called PSG and have an annual budget of €600 million, a loss like that, over just two months, makes you tick.

The crisis has accelerated clubs' awareness of the need to diversify their sources of income, so that they no longer depend solely on the sale of players, TV rights, merchandising and ticket sales. "The vast majority of a club's supporters are not in the stadium, and most of them don't even live in the city or country where the club is based," explains Alexandre Dreyfus. In Asia, a club like Barcelona has millions of fans. In Europe, Driss is the perfect example. Although he has never been to Turin's stadium, the Frenchman behaves exactly like a tifosi - 'supporter' in Italian - and follows all the matches remotely. "The tokens make it possible to create a link with all the supporters, those inside the stadium as well as those outside," explained a PSG spokesperson. A link that is proving to be quite lucrative. To boost the distribution of its token, Italian club Inter Milan even wrote the name of its token last year on its shirt, as did Spain's FC Valencia.

Because clubs make money from tokens. Firstly when they are sold to the general public: the sale of FC Barcelona tokens in 2020, for example, generated more than €1 million in revenue. Socios and clubs share the profits 50-50. The clubs also receive money from the resale of tokens between users on the secondary market.

All in all, the revenue from tokens is anything but negligible. "It's an excellent way of creating new experiences and monetising the influence of clubs around the world," explains Bruno Belgodère, deputy delegate general in charge of economic affairs at Foot Unis, the new unified union of French professional football clubs and leagues. We're currently talking about a market worth several hundred million euros. Before the 2022 correction, it was even worth more than a billion euros.

How much do the clubs earn precisely? Which ones recover the most? None of the teams contacted by The Big Whale (PSG, Monaco, Manchester City, Juventus Turin, etc.) wished to reveal details of their income. The same is true of Socios, which reports that clubs earned a total of €200 million from the sale of their tokens in 2021. However, this figure is likely to be revised downwards in 2022 due to the downturn in the markets.

A sector that still raises questions

A sign of the sector's dynamism, Socios is no longer the only company offering fan tokens, and a major competitor, the Chinese-born giant Binance, is trying to make inroads. Since 2021, the biggest crypto exchange platform on the planet (read our interview with its boss), which claims more than 100 million customers, has signed several partnerships with clubs such as Lazio Rome in Italy, FC Porto in Portugal and FC Santos in Brazil. When contacted, Binance also declined to comment on the revenue generated by this activity.

Is it to keep the veil on a juicy business 🤑 that clubs and platforms don't communicate? What is certain is that not all football clubs have yet taken the plunge. Some may never even take it. "Not everyone has this culture and some clubs want to keep a real link with their supporters," slips in one consultant.

Others are worried about the financial excesses of the sector. Because the line between sport and speculation can quickly become quite blurred. "Some token holders are not in it just for the passion of the sport", Bruno Belgodère cautiously suggests, while other observers are not taking any prisoners: "It's just speculation", slips in a good connoisseur of an activity that is still largely unregulated.

In time, it's not impossible that fan tokens will be categorised as gambling, in the same way as the classic sports lottery. Sorare, the French NFT star representing football players, is currently on the radar of the National Gaming Agency.

The lack of regulation also raises doubts about possible market manipulation. There is currently nothing to prevent a club from buying back some of its own tokens before the public announcement of the recruitment of a star, which would drive up the price of its fan token. The same goes for a player who is about to sign a contract with a new club... Lionel Messi received $PSG tokens as part of his move to PSG, and he continues to receive them every month with his salary. Did he receive the first $PSG before the contract was made official? When Messi's arrival was announced, the $PSG increased by more than 100% in 24 hours. In the traditional world, a company that "gambles" with its shares could be attacked for insider trading. In the crypto world, things are a little less clear at the moment.

Meanwhile, fan tokens are still just a drop in the ocean of football revenue. According to the Cryptoslam website, there are just 20,000 FC Barcelona fan token holders worldwide, compared with more than 140,000 socios, i.e. members of the association that directly manages the club. "We're only at the beginning of the wave," explains Alexandre Dreyfus. It all depends on how big it gets 🌊.

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