TBW Premium #26: AFP to sell NFTs, interview with the "King of Web3"...

TBW Premium #26: AFP to sell NFTs, interview with the "King of Web3"...

Read all about The Big Whale's 26th Premium newsletter.

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To devour this week

🖊️ Editorial

🔥 Our exclusive news

🔍 The Big Dossier

🤖 The focus of the week


An evil for an... evil

There were no surprises. Last night, the US Federal Reserve (Fed) announced a further rise in its rates, which are now above 3% - a record since 2009.

If the Fed is reacting so strongly, and it is not alone, it is because there is an emergency with record inflation. Prices are soaring everywhere. And escalating tensions with Russia are unlikely to calm things down.

Is this the right solution?

By raising rates so much, central banks will end up driving inflation down, that's a certainty. But at what cost? Because at the same time, economies are likely to be hit very hard. The first signs are in fact obvious, especially in Europe, where some analysts are now anticipating a recession in... 2023.

While we wait to find out whether the global economy will slow down, or even more, there's plenty going on in Web3. Ethereum has perfectly successfully made its transition to Proof-of-Stake and are now working with validators. This week we bring you a full analysis of Ethereum's biggest validator: Lido.

You'll also find a lengthy interview with Animoca Brands boss Yat Siu, who is particularly optimistic about the future of metavers!

Good diving 🐳



👉 MiCA: The battle over NFT

MiCA, episode 42 😅. Although it is no longer in the public eye, the European regulation that is supposed to better regulate cryptos still continues to drive debate in Brussels. Not least over its scope. While the Parliament and Commission teams work on the final text, a battle has opened up around... NFTs. In the political agreement reached at the end of June, it was stipulated that NFTs would not be subject to MiCA. At least initially. Except that some elected representatives have since been arguing for these unique tokens to be included. Just like DeFi (decentralised finance). "NFTs are a technology; it's the underlying that needs to be regulated," explains one expert. If MiCA were to be applied - not before 2023 - NFTs would be considered as traditional assets, and therefore subject to national and European regulators. "The sector would find it hard to innovate in Europe," he adds.

👉 AFP to launch its NFTs

Agence France Presse is moving into NFTs. According to our information, the famous agency, which employs more than 1,200 journalists around the world, will be auctioning off three NFTs at the end of October at an event dedicated to its "photographic heritage". AFP has teamed up with La Collection, a start-up specialising in NFTs. The first NFT will represent the 1st AFP dispatch sent out on 20 August 1944. The second NFT will be a photo of Serge Gainsbourg burning a 500 franc note on the TF1 television set in 1984. The third was a photo of US Democrat Bernie Sanders, who was seated wearing mittens at Joe Biden's inauguration, and who did the rounds of the web wearing his now famous mittens. If the sale is a success, AFP could fairly quickly repeat the experiment.

Do you have any news?



Lido: Ethereum's giant validator


👉 News. By switching to Proof-of-Stake, Ethereum no longer works with miners (like Bitcoin) but with validators.

👉 The background. To become a validator, you need to tie up 32 ethers (more than €40,000) on Ethereum.

👉 Why this is important. Lido is a rather ingenious protocol that allows anyone to become a validator without necessarily having 32 ethers.

For the past week, there has been a sense of relief in much of the crypto ecosystem. Ethereum's Merge, which we've explained to you in detail over the past two weeks, has gone very well. The blockchain is still working and consumes much less power than before - a 99.5% drop - thanks to Proof-of-Stake. Perfect, you might say!

Except that this update has also changed the way Ethereum works, which no longer runs in exactly the same way. It is no longer miners (Proof-of-Work) who run the protocol, but validators.

Or to be a validator, participate in the network and earn cryptos (ethers in this case), you need to "stake" (immobilise) 32 ethers. Even if prices have fallen sharply, that's more than €40,000! And just imagine if the price goes back up to where it was in 2021 (over €150,000)... Not very democratic or decentralised. Fortunately, there are solutions.

There are two main ones:

  • Immobilise your ethers via an exchange platform like Kraken or Binance. This solution is the easiest for beginners because there is no technical complexity and no minimum threshold is required (exit the 32 ethers!).You can currently expect around 4% annual return via these platforms. On the other hand, this is a highly centralised option. You're obliged to trust Kraken or Binance, who hold your crypto-currencies and can take a significant commission on *staking* rewards.

  • Go through a liquid, decentralised staking provider (liquid staking). It's a bit like using an exchange platform, but without the exchange platforms: the ethers you place remain associated with your wallet (non-custodial). Lido, Rocket Pool and Stakewise are the main protocols in this field.

We are going to take a particular interest in Lido, as it is the largest and most innovative player in the sector. To date, around $6 billion worth of ethers have been placed in Lido, which accounts for 30% of Ethereum's validation market.

How does Lido work?

While Lido is commonly presented as a validator, it should rather be described as an "intermediary" of validators. All the funds that Lido receives are in fact distributed to 29 companies specialising in the validation of transactions on Proof-of-Stake protocols. They are selected by Lido's governance (the holders of its LDO token).

The advantage of this system is that there is no minimum deposit for users. "Lido democratises access to staking for crypto holders who don't have the amount needed to have an entire node at their disposal," points out Stanislas Barthélémi, blockchain and crypto-asset consultant at KPMG.

When users deposit their ETH in Lido's smart contract, they instantly receive its equivalent in stETH. "It's the first DAO (decentralised autonomous organisation, editor's note) to offer such a service, which is a significant advantage over competitors," he points out.

To put it simply, it's like your bank giving you a document certifying that you hold funds in an escrow account in order to use it as collateral.

Why use Lido?

The stEH offers a major advantage as it allows the representation of ETH to be used while the ETH has been immobilised. "This makes it possible to have a liquid version of one's investment, which can be re-used as collateral in decentralised finance protocols," continues Stanislas Barthélémi.

Example of a farming loop developed by Hugo Panczak, co-founder of the White Loop Capital fund:

A person holding stETH can collateralise them on the Aave protocol to borrow as many ETH as possible. Once this has been done, they can exchange their freshly borrowed ETH for stETH on the Curve protocol (to take advantage of the slight difference with ETH). With these new stETHs, ETHs can again be exchanged for other stETHs on Curve, before being pledged as collateral on Aave in order to increase its health factor and reduce liquidation risk."

This system can theoretically yield around 8% return per year at the current rate, compared with the 4.90% return offered by Lido.

The other advantage of stETH is its high liquidity. It can easily be exchanged for other tokens.

While holding a stETH is guaranteed by future convertibility with an ETH (probably in early 2023), its price can sometimes fluctuate in relation to the underlying asset. At the height of the spring crash, the stETH price plummeted to 0.88 ETH... Conversely, it also means that there are some great arbitrage deals to be had 😎.

How much can you earn with Lido staking?

Lido offers one of the best staking returns, but can never be better than that of an individual validator. And with good reason: Lido charges a 10% commission to remunerate validators and feed the cash flow of its DAO.

Currently, Lido's remuneration rate hovers around 5% per annum, but experts estimate that it could rise to 8%. The more Lido users there are, the more value will be extracted through staking.

This is far higher than exchange platforms such as Coinbase or Kraken, which offer 1 to 2% less.

Is it risky?

Thanks to the transparency of the blockchain, we can constantly check that the ETH deposited in the validators actually correspond to the number of stETH issued by Lido. Contrary to what might be feared with a traditional player, there is therefore no risk to the level of the reserve.

On the other hand, as the funds are deposited via smart contracts, there is always the possibility that the latter could be attacked. It cannot be repeated often enough, there is no such thing as zero risk. What is certain is that the Lido code is audited every year by specialists: Quantstamp (December 2020), SigmaPrime (December 2020), MixBytes (April 2021), StateMind (September 2022).

How is Lido's governance organised?

This is surely one of Lido's weak points: at the moment, the LDO token holders (who provide Lido's governance) are highly concentrated in the hands of the team developing the project and the venture capitalists (Andreessen Horowitz, Paradigm, Alameda, etc.).

"Like many DAOs, decentralising governance via a token is a red herring. More than 64% of Lido's tokens are held by investors, team members or selected validators", points out Stanislas Barthélémi.

Not at all. Whatever our investments, we always follow two main principles: It's a question of perspective. If you refer to the market a year ago, then yes, the market is not at its best. Crypto and NFT prices have fallen a lot.Do you think there will be several hundred, or even several thousand metavers?the Terra ecosystem and the collapse of USTOf course, we've had a few problems with projects, but these are isolated cases. 99% of our portfolio companies are doing well, very well in fact. The ones that are struggling all have You raised $400 million earlier this year, and just over $100 million again just a few weeks ago. Why is that? Do you need the money?! Once again, there are the markets that we talk a lot about, which are the surface, and then there are all the projects that are being built and developed below that surface 🐳. It's the latter that we're betting on. In the last three months alone, we've invested in 40 start-ups, a total of 380 projects.Yat Siu: A lot of people are talking about "crypto winter" and explaining that the Web3 ecosystem is doing badly, but Are you not afraid of investing in too many companies?They don't keep the money for themselves. They always reinvest in the ecosystem, whether it's a small start-up or a giant that's going to join Wall Street. That's exactly our mentality. I want us to give back to the sector what it has given us. In Silicon Valley, if you don't invest in new start-ups, you're not cool.This edition was prepared with ❤️ by Raphaël Bloch and Grégory Raymond. The Big Whale is a free and independent media. By supporting us, you are contributing to its development.We were one of the first investors in The Sandbox and Decentraland. We could have focused on these two metavers and become hegemonic, but that's not our philosophy. We want to create a truly decentralised Web3, and that's why we've invested in metavers like Trivver and Blocktopia. We also participated in the development of Otherside, the Bored Ape metaverse. These projects only have value because there are others, because there is competition, like Apple versus Samsung. It's a question of philosophy.The latest round of financing was carried out with several players that we know very well, such as the True Global Ventures fund (one of the main investors in Animoca Brands, editor's note), and there are also new entrants such as the GGV fund, Temasek (Singapore's sovereign wealth fund) and Boyu Capital. For us, it's important to attract players from the traditional world. We want to bring the two worlds closer together.Yes it's planned, but we still have a number of points to sort out, particularly with regard to accounting  Will you continue to invest?So Animoca Brands is doing pretty well?The Big Whale: Everyone's talking about the market crash as if it's the end of the world. Do you see things the same way?Have any of your portfolio companies been affected by the market downturn?(read our survey)Better than ever (laughs)We think that we need to reinvest in this ecosystem so that it continues to grow. That's what made Silicon Valley so successful. When you go to Palo Alto and the surrounding area, the Internet connection is not very good, the infrastructure is ageing, and yet it's the Mecca of Tech, where a lot of big projects are still being launched. And why is that? Because it's not just the internet connection and the roads that count, you also need the right mentality, and over there, people reinvest a lot.Animoca Brands (900 employees) is a rather unusual company. We see ourselves as a gateway to Web3 for companies that want to invest in it. Our aim is to attract all the companies that don't know how to penetrate this sector.Some people refer to us as a Web3 conglomerate, others as the Tencent of Web3... But in reality, we are neither. Tencent is a video game giant. They own Riot Games, Supercell, they have shares in Epic Games (which is getting into NFT, editor's note). In short, they're everywhere. But their objective is not to develop the world of gaming, they want to put this sector under Chinese domination. That's not our vision at all.How does Animoca Brands make money?But if you look back three years, the market and the ecosystem are in great shape. lThere have never been so many Web3 start-ups, investment has never been so high. Since the start of the year, metaverse players have attracted $7 billion in investment, which is by far a record. The strength of Animoca Brands is our knowledge of the market and our transparency: when you invest with us, you are in it for the long term, not for short-term performance. And we have a very strong belief in the future of Web3, in the values it embodies, such as control over data, decentralisation... That's why we invest in so many projects. Too many funds are looking for the right horse, the investment that will make them billions quickly, but this vision is so Web2, it doesn't work like that in Web3.The Sandbox is one of our first investments in the sector. We have a majority stake. We have also invested in Decentraland. In 2018, there wasn't much choice when it came to metavers, so we chose to invest in both.that's simply not true.How many cities are there in the world? At least hundreds of thousands. A metaverse is like a city, you move in and out of it. So I think there will be as many metavers as there are cities.When Animoca Brand was founded in 2015, it was a video game studio. Today you are an investment company. Why this shift?You are currently valued at $6 billion. Do you plan to go public? And when?Is The Sandbox your biggest investment? What exactly is the link between Animoca and The Sandbox?, a land in Decentraland or a Cool Cats. They can be used in a whole range of universes. That's the whole advantage of the interoperability of metavers and blockchain.This approach is very advantageous because if one of the projects we've invested in doesn't work, we can find another use for it. Take the case of a Bored Ape The vast majority of our revenue comes from transaction fees, the sale of NFTs, plots in metavers. We also have a lot of cryptos (over $3 billion, editor's note). In the first half of the year, we recorded $550 million in revenues, a figure that is significantly higher than 2021.What do you think of Europe? Is it at the forefront of Web3?In detail, the distribution of funds among Lido's validators appears to be fairly balanced. None can control more than 1% of Ethereum's staking. Another important point is the geographical distribution of validators. "We need to continue to improve the geographical distribution of these companies to avoid over-concentration in the United States," stresses Stanislas Barthélémi. And quite quickly! The US securities regulator (SEC) has just explained that Ethereum could fall under its jurisdiction because many validators are in... the United States.What do these investors like?The first is that the project must always have a link with the NFT market. The second is that it must be linked to mass adoption.I'm touring Europe and the same culture can be felt just about everywhere. I think Europe has a card to play because it has champions and can put in place regulations that will make it a leader.
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