π DEEP DIVES |
The Crypto Sports Market Is Promising |
On April 5th, 1975, Satoshi Nakamoto was βbornβ. On January 9th, 2009, he released bitcoin, and, as a result, invented the cryptocurrency industry. |
Flash forward to 2017 and DapperLabs launches the first NFT viral sensation, CryptoKitties, resulting in the company landing a partnership with the NBA in 2021 to launch NBA Top Shots. |
Top Shots were so simple but so genius. Digital trading cards of NBA highlights captured the attention of hundreds of thousands of sports fans and speculators alike, with many willing to spend small fortunes to obtain the crypto GIFs. It didnβt take long for people to realize they could get rich off NFTs, and thus, the great NFT bull run of 2021 began. |
Unfortunately, NFTs have been down-only since 2022, and itβs unclear when the non-fungible JPEG resurgence will be. But, despite the brutal amounts of money lost in NFTs over the last year, one sector of the market is still thriving: sport NFTs. |
A Big Market The sports (and esports) market is gigantic with projections for it to generate over $500 billion in revenue in 2022. This is due to two major tailwinds: |
More people than ever are betting on sports. The sports betting market was already valued at $168 billion in 2021, and since then, itβs become even more commonplace. For context, 50 million Americans bet on the Super Bowl this year alone. |
Fantasy sports are gaining in popularity, with the number of players in the USA and Canada doubling over the past decade. Similar to sports betting, fantasy sports increase interest and engagement in sports, teams, and players. |
Thankfully for crypto, such a large market presents big opportunities to onboard new users. |
The Web3 Sports Push In the past, crypto brands focused their sporting attention on sponsorships. Who could forget the Cryptoβ’com and FTX arenas? |
Instead, like most segments of crypto, the industry is at its best when it doesnβt try to fit into legacy molds but instead does things in a new and innovative way. |
Crypto companies such as Chiliz, Sorare, and Stake are doing just this, standing head and shoulders above the competition. |
Chiliz is the dominant fan token platform, and they have already onboarded major brands across soccer, basketball, combat sports, motorsports, and esports. Fan tokens are crypto tokens that give fans new ways to participate with their favorite team. This could be fan-led decisions, contests, or exclusive tickets and gear. |
Sorare is an NFT fantasy game. Instead of merely picking a player's name, you get to purchase digital playing card NFTs. These NFTs are often even more valuable than their physical counterparts, and Sorare has already partnered with over 300 brands, including a $150 million deal with the Premier League and a union with the NBA. If you want to dive deeper into Sorare, Page One has an excellent article. |
Stake is a crypto sports betting platform that is partnered with major UFC fighters, soccer players, race car drivers, and even Drake (who frequently places multi-million dollar bets on the platforms). So far the platform has been quite successful, netting $2.6 billion in revenue in 2022. |
Beyond the mainstream partnerships, these platforms have done quite well in onboarding regular users, as Chiliz currently has a market cap greater than $700 million, Sorare has done more than 50,000 ETH in sales, and Stake had the aforementioned $2.6 billion in revenue in 2022. |
Looking deeper, we can see that sports NFTs are among the most popular NFTs in existence. Sorare is far and away the most traded NFT over the last day, week, and month, while only Axie Infinity stands above Sorare and Top Shots all time. |
The implication? Besides Axie, no NFT collection has done more to onboard new users than sports NFTs. |
Looking Ahead Itβs still early days for the crypto <> sports industry. But, itβs clear the union is mutually beneficial: |
Sports is a huge market, appeals to a wide variety of people demographically, is popular irrespective of the broader economy, and is already being gamified through gambling and fantasy sports. This makes it a perfect tool to onboard new users to crypto. |
Crypto improves fan engagement, skews younger, and presents new ways to increase revenue. In other words, itβs tailor-made for sports teams and leagues looking to be βcoolβ while simultaneously making more money. |
For these reasons, we would not be surprised to see this industry grow exponentially in the coming years, especially if the rules around regulation become clearer. |
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ποΈ REGULATORY FRONT |
US Treasury Department Releases Illicit DeFi Report |
If 2022 is remembered for the bear market, hacks, and almost unfathomable collapses, then 2023 will be remembered for the regulatory war. |
So far this year, weβve already seen: |
A scathing report by the White House. Signature Bank questionably closed as part of the broader banking war on crypto, known as Operation Choke Point 2.0. Coinbaseβs Wells Notice. Binance sued by the CTFC. Paxos ordered to stop issuing the Binance Stablecoin. Kraken end staking after an attack by the SEC. Elizabeth Warren campaign on βbuilding an anti-crypto armyβ. |
Thatβs a lot of regulatory hits in less than four months, but itβs about to get even worse. |
This week, The US Treasury Department released a βDeFi Illicit Finance Risk Assessmentβ, to assess how decentralized finance, or DeFi, is being abused by illicit actors. |
And already, pro-crypto lobbying outlets such as CoinCenter are pointing out that the report is unhelpful, inaccurate, and potentially dangerous. |
So whoβs right? |
The report is worth a read in its entirety, but in this article, weβll briefly summarize its good, bad, and ugly parts. |
The Good Against our expectations, the report isnβt all bad, as the Treasury actually makes some encouraging points. |
First, the report repeatedly makes clear that itβs just a report, not binding law. This means that the 2019 FinCEN guidance, which CoinCenter believes is good law, is still the law of the land pertaining to DeFi. |
The report also makes clear that DeFi is a relatively small fish, and that traditional finance is a much more significant money laundering threat. We couldnβt agree more. |
Finally, the report states that itβs not concerned with transfers between two βself-hostedβ wallets. In other words, the Treasury doesnβt care about you sending money directly to a friend. This is obviously positive, because if they were concerned about this, we would be entering the doldrums of a dystopian surveillance state where every transaction is monitored by the government. Oh yea, that's what CBDCs are forβ¦ |
Anyway, on to the bad. |
The Bad Although the report claims the Treasury is cool with peer-to-peer transactions, it qualifies this by saying βas long as it doesnβt involve smart contractsβ (paraphrasing). As smart contracts are the lifeblood of DeFi, this is basically the Treasury saying, βwe have our eyes on DeFi.β |
Beyond the implications for DeFi, this also shows a fundamental misunderstanding by the Treasury of how wallets work. Crypto wallets are on the blockchain, not in peopleβs pockets. To access them, you need to use smart contracts. Thus, every peer-to-peer transaction involves smart contracts in some form, making the Treasuries statement completely incoherent. |
Moving on, the report spends page after page debating regulations for centralized vs. decentralized tools and protocols. |
In the grand scheme of things, it shouldnβt matter whether a protocol is centralized or decentralized. What should matter is what the protocol is doing. If youβre managing other peopleβs money, you should be regulated. If youβre helping people secure their own money, you shouldnβt be regulated. |
Whether youβre centralized or not is irrelevant. |
The Ugly Ultimately, the Treasuryβs obsession with centralization and decentralization seems to be a step to regulate crypto protocols regardless of what the protocol is actually doing. |
This is best seen in the reportβs sections on the division of the Bank Secrecy Act (BSA, also known as the Anti Money Laundering law). |
The way BSA authority is (supposed to be) triggered is based on what the party in question is doing. As these activities have very different definitions, this gets very complex very quickly. Thus, itβd be helpful for the report to dive into what DeFi activities trigger what BSA attention. |
| Christopher Perkins π₯NYC @perkinscr97 | |
| Replying to@perkinscr97 | 9/It also cites that TVL was $39.77bn as of December 19, 2022. While this may seem big, in truth itβs tiny. As a reference, there are $7-8 trillion transactions per day in FX markets. And, according to Chainalysis the amount of illicit activity, remains quite small: https://t.co/MAOb1wPetj | | | Apr 7, 2023 | | | | 25 Likes 4 Retweets 1 Replies |
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As you can probably guess, the report does none of that. Instead, it claims that βDeFi services at present often do not implement AML/CFT controls or other processes to identify customersβ. In other words, all of DeFi is breaking the rules, irrespective of the protocolβs activities. |
So, according to the Treasury Department, it doesnβt matter if youβre just publishing software to help people secure their money, you are (potentially criminally) breaking the law. |
Not good. |
Conclusion As we stated in the good section, this is just a report, not binding law. But, that doesnβt change the fact that reports like these and the White House report are concerning for the future of crypto in the US. |
It is clear that the powers-to-be are not fans of crypto and are working to destroy it, whether explicitly through CBDCs or implicitly through cutting off banking access. |
This, as we have said many times, is extremely short-sighted. We should be encouraging innovation, not driving it away. |
Unfortunately, it looks like the US Government sees crypto not as a tool for prosperity, but as a threat to be destroyed. |
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TWEET OF THE WEEK |
| Much of the innovation in the last few decades was in search, social, crypto, and AI, because pure math is the last unregulated frontier. Invite the regulators in and theyβll freeze innovation here just as they did in healthcare and energy. | | Apr 12, 2023 | | | | 5.17K Likes 824 Retweets 170 Replies |
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