TBW Premium #5: the future of Sorare

Read all about The Big Whale's fifth Premium newsletter.

May 12, 2022

Hello Whales, and welcome to the newbies who've picked the right week to join us in the Web3 deep end 👋

Before we let you dive in, we wanted to thank Julien, a founding subscriber who will recognise himself. Thanks to him, The Big Whale is going to be even more successful in the coming months.


Stress test 😱

A shock, an earthquake, a blast... Words fail this morning to describe what is happening to the Terra project. In the space of a few days, the project's stablecoin (UST) and token (Luna) have respectively lost their parity with the dollar and more than 99% of their value. In total, more than 30 billion dollars went up in smoke.

Where does the problem come from? While it's difficult to point to a specific reason, what is certain is that the UST stablecoin, the third largest on the market until a few days ago, played a major role in this industrial crash. As we explained to you last week in our report on stablecoins, algorithmic projects are particularly innovative, and therefore successful. But they are also much riskier than others (centralised or decentralised).

Terra founder Do Kwon explained on Twitter on Wednesday that he had a plan to successfully restore the system and get the Luna holders back afloat, at least in part. Do Kwon's highly technical 'solution' did not arouse blissful enthusiasm. More than stability, it is confidence in the project that is likely to be the most complicated to bring back.


Our exclusive news

👉 Crédit Agricole is making progress on crypto custody

Officially, French banks are still rather skittish on the subject of cryptos. Only Société Générale, with its Forge subsidiary specialising in blockchain, can boast a dedicated business. But behind the scenes, things are moving. According to our information, Crédit Agricole is looking very seriously at the possibility of offering its customers cryptocurrency custody services. "The idea is making good progress internally", confirms a person close to the bank, whose boss Philippe Brassac had nevertheless explained in an article a year ago that bitcoin would fall below "one dollar". The main reason for Crédit Agricole's change of heart is customer demand. A phenomenon that its competitors are also facing. In a sign that things are moving in France and even in Europe, the German bank Commerzbank (ranked 2nd in the country) applied to the regulator in April for approval to hold its customers' digital assets.

👉 The Belgian fund that could invest in Coinhouse

Coinhouse continues to structure its new fundraising round. A fortnight ago, The Big Whale revealed that France's largest crypto platform was negotiating with private bank ODDO BHF for a possible stake in its capital. Negotiations are based on an investment of €8 million. According to our information, another big fish could also be involved alongside the existing shareholders (True Global Ventures, XAnge, etc.). This investor is the Belgian fund Tioga 🇧🇪 , which specialises in crypto, and could invest just over €10 million in the deal. With ODDO BHF and Tioga, Coinhouse, whose valuation is said to be in excess of €150 million, will be able to expand its geographical reach (Belgium, Germany and Switzerland in particular), while also distributing its products to traditional financial players.

👉 Mon Petit Gazon soon on Web3

Mon Petit Gazon, ever heard of it? We're talking about the fantasy football game that brings together hundreds of thousands of friends or colleagues every week to challenge each other online based on the results of real football leagues. The company, which has topped €1.5 million in sales by 2021, wants to continue to grow and, above all, monetise its business even more, thanks in particular to... NFT. According to our information, MPG is working on a Web3 version of its game. Nothing has been decided yet. One of the preferred options is a 'solo' game with NFTs developed on Polygon (Ethereum's sidechain). Polygon has the particular advantage of being one of the least expensive protocols in terms of transaction costs. While waiting to define its strategy a little more precisely, MPG, which has a few dozen employees, is recruiting people, particularly developers specialising in... crypto.


Exclusive: Nicolas Julia unveils Sorare's future 🔥

👉 L'actu. Sorare is getting into new sports. Its boss Nicolas Julia reveals his plan.

👉 Why it's important. The French unicorn is accelerating to open up to other markets and conquer millions of users.

👉 The context. The NFT market is experiencing a slight slowdown.

THE BIG WHALE: The markets are going through quite a storm. Because of Terra, they're down more than 20% and bitcoin is hovering around $30,000. Has this had an impact on your business?

NICOLAS JULIA: Market trends have an impact on us when we raise funds. Investors are sensitive to trends, so if the markets fall, they are more cautious. But since Sorare was created, our philosophy has been to avoid having a product that is correlated to the markets. We want to abstract ourselves from the complexity of cryptos. We have no blockchain of our own, no token. We made strong choices at the start of the project to ensure that the technology would only be an asset. Our only technology is NFTs, which bring plenty of advantages: ownership, portability and lots of other features.

Ether, which is at the heart of your application, has still lost more than 20%...

The funny thing is that many members of our community actually see Sorare as a protection against falling markets.... Our players are more likely to think in euros or dollars, so falling markets have almost no effect on them. At the moment, what does matter is the seasonality of the game. With the end of the football championships, we know very well that the community is less active. That's why we're diversifying.

How many players do you have on Sorare today?

We have 1.8 million people registered and 380,000 active players, including 125,000 who buy cards. That's a good figure, but we're aiming for much more, and to get there we have several levers. The first is price. We're looking at ways of lowering the price of the entry ticket. The aim is clearly to allow people to play in pay mode by putting in less money.

Could this involve a new series of less rare and therefore less expensive cards?

Creating less expensive cards isn't necessarily the best idea. One idea for us would be to make it possible to play with just one card and not five. This system alone would considerably reduce the cost of entry. We're also thinking about simplifying the game or a 'free-to-play' system, which is a funnier, more social way of playing, and which would considerably broaden the audience. We're investing heavily in this last point.

What's your biggest market today?

It's Europe, and that's normal because we started out in France. What's interesting is that the United States is already number three. And the launches we're about to make will help us further.

In September 2021, you raised $680 million, a record for French Tech and a deal that values you at over... $4 billion. What impact did the deal have on Sorare? How do you manage such a big change in status?

You have to manage to keep the coherence, the culture and the speed that we had when we were still a very small company. And the most important thing is to have patience, because when you recover so much money, you might be tempted to think that everything is going to go even faster. But that's not the case. A company is a collective, it doesn't just change. We've also done a lot of recruiting. And recruiting the calibre of people we want takes time. I like to take the example of Ryan Spoon, who we picked up from ESPN, where he was head of digital and fantasy games for nearly ten years. It's not easy to find someone like him. And then you have to give him time to build his team, so very quickly the whole process takes nine or twelve months. Sometimes this 'slowness' is frustrating, but it's normal. You just have to learn to manage it. Where we really saved time with the fundraising was in signing up new leagues and new sports... That helped me a lot!"

Can we envisage a future Sorare token?

You should never say never, but it's not in our plans at least in the short term. If I had to give my opinion today on the 'in-game' currency, I think that rather than using the ether (Ethereum's token, editor's note), which fluctuates, we would go for something more stable. We mustn't lose sight of the fact that the tens of millions of users we're aiming for will come to play and not to speculate.

If you were to go for something like a stablecoin, when would it be?

Today we have a technology watch on all the protocols. We haven't made any specific decisions, but it's something we're looking at very closely.

Sorare is now used by hundreds of thousands of people, including professional football players. How can conflicts of interest be managed? Two Ajax Amsterdam players recently sought to profit from a team line-up before it was publicly announced...

Yes this is a key issue for us. There's nothing more important than fairness. This month we'll be bringing out new conditions of use, particularly for professional players. They'll still be able to play, but we really have to ensure that none of them can take advantage of their status.

Speaking of professional players, we've seen that Kylian Mbappé has been promoting his Sorare card. Is there anything between him and Sorare?

Many players have invested in the company and bought cards. Players are at the centre of Sorare, so having former players and current players is lucky. Mbappé is a world star, an iconic player, so obviously that would be great. But I don't have anything in particular to announce about him.

Would sponsoring a football team be a way for you to expand your audience?

Everything is on the table. We're going to start marketing and being more visible in the coming months. After that, I've said it over and over again: we'll do club sponsorship when the product is perfect or close to perfect. Embarking on this kind of adventure is quite expensive, so you can't afford to miss out. When we're ready, we'll do it. And we will be very soon.

Today, on average, what budget do you need to put together your team and start playing Sorare?

We have two game modes, "underdog" and "specialist"" which allow you to play Sorare for a few euros. But this is still marginal.

Do you have any idea of the average basket of Sorare players?

It's very uneven. You have to look at the rarity of the cards. For "limited" cards, i.e. the least rare, the average basket represents a few hundred euros per year. And when we're talking about unique cards, i.e. the crème de la crème of the game, it can go up to several tens of thousands of euros, but only a few dozen users are concerned.

What did you think when Erling Haaland's card sold for more than 600,000 euros last January?

At the risk of being a bit provocative, I don't think that's a lot. When I look at the intrinsic value of an NFT card, I find that it offers a lot more than a physical card. When you see that some physical cards go for millions, the value of NFT cards could be much greater. But it's not an end in itself, we've never set out to break records.

How much do clubs get in royalties on each card sold on the primary market? Last I heard it was between 5 and 15%...

I won't comment on that.

Would you one day be able to charge commission on cards traded on the secondary market?

This is something we're exploring, particularly on American sports. On football it's still under consideration, but it's not urgent, there's no short-term plan to do it.

You chose Starkware's layer 2 to avoid Ethereum's very high fees, why this choice rather than another?

When we had to choose in 2021, there were two solutions. On the one hand, layers 1 like Solana or Flow, and the other layers 2. We found ourselves in the position of an investor: we analysed the quality of the teams, the technology, the existing customers, etc. We were very rigorous because we had to be very careful. We were very rigorous because we'd been a bit burnt out in the past. We started out on Ethereum, before moving to Layer 2 Loom, and then returning to Ethereum because of differences with the team. All the time we were on Ethereum, we always covered the network costs. Some months it was costing us millions of euros...

Why did you decide to cover the costs?

It removed complexity from the product. I preferred to reduce our margin in order to fulfil our objective of bringing Sorare to millions of players.

Do you get the impression that something is happening in France?

Today, I think there's a real dynamic. It's quite impressive. But we still have a long way to go. We're still a small ecosystem. There's still a long way to go, and that involves politics in particular. Emmanuel Macron has spoken about us several times, he did so in the interview published in The Big Whale, and we're very proud. But he could do even more. Our conviction is that Web3 is the future of France and Europe.

What are your priorities in the coming months?

The number one priority is obviously to improve the game of football. It's the world's number one sport. Priority number 2 is to be good at other sports in the United States. We're going to see how we can attack this market, how we can make the cake bigger for everyone. We're going to make football grow thanks to American sports and vice versa. The third priority is to grow the team. There were 17 of us in Series B, now there are 75 and we'll be 200 by the end of the year, with 100 in Paris and the rest in New York.

What does it bring to your board of directors to have the likes of tennis champion Serena Williams?

From the outset, I said I wanted to work with sportspeople who are fully committed to the project. We don't want athletes who are there for a press release. We could have signed any number of them. And when it's not genuine, it shows. Serena Williams is quite incredible. She brings a lot to the table, firstly in terms of understanding women's sports, which is obviously an area we're going to explore. And then there's her relationship with the players, the players' associations and her whole network. It's pretty huge.

What about Antoine Griezmann or Gerard Piqué?

Each brings his own touch. Gerard Piqué is very well connected to the ecosystem, to the clubs. He allows us to navigate the arcana of football with the leagues, federations, clubs... Antoine Griezmann is much more focused on the product, the user experience. He'll be giving advice on the marketplace, because he loves the product. After that, we're not looking to add up all the profiles. We just want the best.


Borrowing euros in exchange for cryptos?

Ex-lawyer Victor Charpiat, well known in the crypto ecosystem, has just set up Kolat, a company that will allow people to borrow euros against cryptocurrencies.

How will Kolat work?

It's relatively simple: to borrow euros, a customer will leave us cryptocurrencies as collateral. The only requirement is that the amount in cryptocurrencies is greater than the sum they are going to borrow. Initially, we will only accept the safest stablecoins as collateral, as well as certain highly liquid cryptocurrencies such as bitcoin and ether. Unlike competing solutions (mainly available in the US), which are relatively expensive with borrowing rates of 5-10% per annum, Kolat intends to offer more attractive rates of less than 2% (depending on market conditions). To achieve this, we will reuse deposited collateral to generate returns, either by placing it on DeFi protocols or depositing it on centralised and regulated platforms. In all cases, the collateral will never be sold and we guarantee the borrower the full return of their collateral, even in the event of a sharp fall in the market.

What's the advantage and what will it be used for in practice?

This offer is mainly aimed at "crypto-native" companies (DeFi protocols that sell tokens, companies that sell NFTs, etc.), i.e. structures that finance themselves mainly from digital assets. Most of them have very few sources of revenue in euros and sometimes have difficulty selling them. We are also targeting companies that have cryptos on their balance sheet and would like to diversify their sources of funding. In the medium term, we will also be targeting family offices that have invested in cryptos to diversify their assets and would like to obtain a line of credit from them.

How is Kolat fiscally interesting?

The collateralised loan allows a form of cash-out optimisation (crypto-euro conversion, editor's note), as the crypto-assets owned by the borrower are "monetised" without being sold. The taxable event (for both companies and individuals) is the sale. The company therefore records a loan on its balance sheet, but retains ownership of the crypto-assets deposited as collateral.

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. PS: it's very kind of you to pass this edition on to your friends, but take the opportunity to tell them to subscribe 🐳

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