Coinbase NFT platform is finally live; The crypto user journey; What are the benefits of open finance?;
In this edition:
Mastercard in metaverse
Coinbase NFT platform is finally live
What are the benefits of open finance?
Bitcoin firm Crusoe Energy raises $505 million to crow flare-gas mining business
Investing in hyper-personalised lifestyle offerings
The crypto user journey
Despite growing crypto-corn numbers, sector not immune to macro trends
Coinbase stock fell to an all-time low on Friday
Seeking out alternative payment methods
Bluesky is still an independent company
Gen Z embraces digital technologies to manage their money
Mastercard in metaverse
Mastercard has joined the land grab by major payments players and banks into the Metaverse, with new filings related to NFTs, virtual worlds and more.
The 15 filings by Mastercard, with an April 7th date, include NFT backed multimedia, marketplaces for digital goods, and payment transaction processing and e-commerce software business transactions in the Metaverse.
The applications are filed on a 1b basis, meaning there’s an intent to use them in the future, though when the company plans to use them and how is unclear.
Unlike 1a applications, which are for “actual use,” 1b filings don’t require evidence to the government that the trademark is already being used.
Instead, a company must show “bonafide intent” to use the trademark at a future date.
Visa has been moving into the ecosystem for some time, adding crypto staff to the team and purchasing a CryptoPunk last summer.
Last month, American Express filed for similar trademarks as Mastercard for “downloadable computer software for facilitating the transfer of a virtual payment card to an electronic mobile wallet,” among other areas.
Though there’s no universal definition for the term “Metaverse”, but the term appeared in the American Express application when describing the “transaction authentication services, routing, authorization and settlement services, and fraud detection and control services in the metaverse and other virtual worlds.”
For the Mastercard application, the term Metaverse appears when describing “financial sponsorship of cultural events, charitable events, concerts, sporting events, travel experiences, fine dining events, festivals and awards shows in the metaverse and other virtual worlds.”
This trademark isn’t Mastercard’s first move into the blockchain and crypto space.
Earlier this year, Mastercard inked a deal with Coinbase to support its NFT marketplace.
But the move highlights a larger trend among companies. While there were around 13 metaverse trademark applications in February 2021, that number jumped to 257 by February 2022.
Coinbase NFT platform is finally live
Coinbase today announced that its NFT marketplace is officially live in a limited-access beta launch, six months after it officially announced its long-teased plans.
Coinbase NFT is now available to select users added from the waitlist, which has amassed millions of prospective members since October. According to the exchange, it will add users in the order of signup, with plans to add everyone in the “coming weeks.”
The peer-to-peer marketplace has launched with support for NFTs minted on Ethereum, the leading platform for NFT artwork and collectibles, and Coinbase says it plans to add support for other unspecified blockchain platforms in the near future.
Coinbase NFT will aggregate listings from across marketplaces, with a rep telling Decrypt that “any NFT that’s for sale on the Ethereum blockchain will be searchable” on the platform.
Coinbase’s platform will debut with no added transaction fees, although it will still have standard Ethereum gas fees. The marketplace will eventually introduce its own fee, which Coinbase VP of Product Sanchan S Saxena described in a media briefing as a “low single-digit fee.”
At launch, Coinbase NFT is only usable with self-custody wallets such as Coinbase Wallet and MetaMask, as well as wallets that support the WalletConnect protocol. That means that users are fully responsible for their own assets held within a wallet, which can be connected to other marketplaces, exchanges, and decentralized applications.
Eventually, however, Coinbase NFT plans to launch optional NFT custody services, and let users buy NFTs with a Coinbase account or a credit card. Saxena described that planned move as part of an effort to “bring NFTs to the masses through this platform.”
What are the benefits of open finance?
Open banking has democratised and transformed finance as we know it. Open finance is the next step on this journey and will encourage collaboration between third party providers and the traditionally closed financial industry. Open finance will be good for businesses as well as individuals: consumers will gain easier access to their financial data and learn more about their finances. Access to more information leads to better financial decisions.
With the transparency of open finance, consumers also gain better control over their finances. Open finance is a leg in the journey towards open data, where everyone gets to choose who gains access to their data – financial and other.
Open finance: rules and regulations
The biggest difference between open banking and open finance is that open banking is partly regulated by a legal framework while open finance isn’t (yet).
As you may know by now, open banking in Europe is partly regulated by PSD2, or the revised payments services directive. This directive, which took effect in 2018, made it possible to open up the financial services industry – and the hope is that future open finance regulations will continue this development.
Open finance, i.e. the access to information regarding your investment assets, pensions, and other types of financial services, is not covered by any financial regulations. But this may soon change. The European Commission and the UK’s Financial Conduct Authority (FCA) are both investigating if there's a need to regulate open finance. The goal is to promote greater financial health through competition and market innovation.
Open finance – the next step of open banking
So, in short: open finance is like a continuation of open banking. It’s the next level in the democratisation of finance, and it will finish what open banking started: levelling the playing field so that consumers get better-tailored financial journeys. Businesses gain access to more relevant data, smoother onboarding of new customers, and scalable, future-proof fintech solutions.
Bitcoin firm Crusoe Energy raises $505 million to crow flare-gas mining business
Don't waste energy. That's the idea behind Crusoe Energy Systems, which converts natural gas that would otherwise go to waste into power for Bitcoin mining.
The U.S. firm today announced it has raised $350 million in a Series C round led by G2 Venture Partners. The round also brought back investors from previous rounds—among them, Polychain Capital, Bain Capital Ventures, and Winklevoss Capital.
In addition to the Series C equity Crusoe has raised, it's secured up to $155 million in credit from SVB Capital, Sparkfund, and Generate Capital, giving it a total of $505 million to play with.
Crusoe says the funding will allow it to hire nearly 100 additional employees to join its 157-person staff, while helping it scale up its Bitcoin mining and cloud computing operations both in the U.S. and abroad.
Key to Crusoe's strategy is its trademarked Digital Flare Mitigation system, which the firm says "provides a low cost solution to eliminate routing flaring."
Flaring is the practice of burning natural gas that can't be easily moved or captured. Though it's an inefficient use of resources, from gas companies' perspective, it's much more economical than trying to actually utilize the gas.
Crusoe helped pioneer the process of using that excess natural gas to create electricity and power Bitcoin mining machines positioned onsite. This way, the gas isn't burned and it doesn't have to be moved elsewhere.
Flare mitigation, however, works against that argument because using excess gas to mine Bitcoin is cleaner than burning it and putting more carbon into the air—though environmentalists might argue that this is just fueling the demand for more Bitcoin.
Investing into hyper-personalised lifestyle offerings
An emerging trend of the last few years has been the Super App model. Within all industries, not limited to banking, companies are bundling services, from Apple, Google, PayPal and Amazon, to retailers, telecom companies, FinFech firms and traditional players like Goldman Sachs. All have begun to build propositions around customer lifestyle, bundling financial, shopping, restaurant and travel services (to name a few) with the aim to boost engagement and become a one-stop shop for customers.
In layman's terms, lifestyle banking uses technology and consumer data to identify new opportunities—ones that take a holistic view of a consumer’s lifestyle to solve timely pain points or create enjoyable experiences. Partnerships inside and outside financial services are leveraging established name recognition, trust, and timely niche offerings to meet the consumer’s lifestyle needs. Digital engagement is at the core of all Super App propositions.
One of the best examples is Tinkoff , the Russian digital bank that has been profitable for many years now. It has pioneered the Lifestyle Banking model in Russia by bundling value-added services like travel and entertainment bookings, and a mobile network into a Super App to cater to every need. This has attracted additional more engaged users to the bank, who may initially join for non-financial reasons, and now Tinkoff Lifestyle customers make twice as many monthly purchases than average (non-Lifestyle) Tinkoff customers.
Income generated from Tinkoff Lifestyle engagement is then reinvested into customer loyalty via cashback and promotions. Deeper relationships with consumers and earning loyalty is critical for banks, as it pays off with higher revenues, lower operating costs, and happier customers, the perfect cocktail to attract more customers.
The convergence of digital banks towards lifestyle banking offerings is transforming the customer journey and leading to greater personalisation. It ensures that customers have access to their desired services when they actually need it, as well as allowing for further differentiation. The development of these offerings is both cause and effect of income diversification and increased revenues, which lead to increased sustainability of a customer-centric business model.
The crypto user journey
Crypto faces a major barrier when it comes to mainstream adoption: The user journey is complicated and not yet built-out, and it’s not at all easy or intuitive for people new to crypto to even do the simplest possible thing — hold complete control over their own digital assets.
Of course, it’s not required that users hold complete control over their assets to invest in crypto. Centralized exchanges like Coinbase have proven the efficacy of the “custodial” model for trading crypto, in which people keep their assets with a custodian that secures and keeps track of them.
The key advantage of this model is convenience: It’s become relatively easy for anyone to use the Coinbase app or other exchanges to buy crypto without having to write down a “seed phrase,” the string of words that constitute the “private key” controlling access to the assets. In this way users can buy and sell various cryptocurrencies, trade them for other cryptocurrencies, use assets for purchases and payments, and soon purchase NFTs.
Venturing further into the broader web3 ecosystem of fully decentralized interoperable apps and networks — not just exchanges, but play-to-earn games, tokenized social networks, fan-engagement communities, and other rich user experiences — is largely inaccessible through a custodian, however. That web3 experience requires sending their crypto to a non-custodial wallet, in which no one but the user holds the private keys and there are no limits to the types of transactions that can be done.
Indeed, this is the most exciting part of crypto, but also where we see so many first time users drop off. Web3 products can’t expect users to immediately make the leap from familiar centralized experiences into the deep end of decentralization in one step. The future of mass-market crypto experiences lies within apps that provide familiar, custodial experiences with the ability to graduate into non-custodial experiences.
Tokens and NFTs are already unfamiliar for many people, and there is a theoretical limit to how far the average person is willing to go to explore new experiences. In a purely non-custodial environment, most people will take one look at the screen where they are prompted to write down a 24-word “seed phrase” (the randomly generated phrase that constitutes their “private key,” or password) and decide it isn’t worth it.
If the goal is to onboard first-time crypto users, the experience must be custodial — at least to start.
Despite growing crypto-corn numbers, sector not immune to macro trends
Crypto sometimes seems like the darling of venture capital—impervious to a slowdown as rounds and valuation only go up.
However, while a dozen unicorns were minted in the crypto space so far this calendar year, venture dollars dipped in Q1 compared to both the previous quarter and last year’s first quarter.
According to Crunchbase data, the first quarter saw VC-backed companies in the crypto space raise about $5.1 billion—less than the $6.6 billion that cascaded into the sector in Q4 of last year, and also less than the $6.3 billion seen in the first quarter of 2021.
However, the market also does not appear to be falling apart. Venture funding globally was down in the first quarter, as fears of interest rate hikes, inflation and geopolitical tensions heated up. Also, Q1 still saw significant deal flow on par with any quarter, and actually saw more venture dollars than either of the middle quarters of last year.
While funding numbers may be uneven, crypto’s unicorn class grew larger. A dozen new companies joined the ranks so far this year, including:
San Francisco-based FTX US ,which raised $400 million at an $8 billion valuation.
Binance.US—the American franchise of Binance—raising more than $200 million in a seed round at a pre-money valuation of $4.5 billion.
Miami-based Yuga Labs closed a $450 million seed round at a $4 billion valuation.
In total, last year saw just more than 30 unicorns born in the crypto space. On top of that, this year more than a half dozen previously crowned crypto-corns raised even more money at even higher valuations.
Changing tide?
While crypto, in general, seems immune to the current slowdown in funding, some in the space see things changing.
Jai Das —partner, president and co-founder at Sapphire Ventures , who invests in crypto—said he has seen crypto companies this year trying to raise large rounds that have not been able to get all the investors needed.
“They can get a lead, but they can’t fill out the round,” he said. “These are $200 million and $300 million rounds.”
Similar to Patel, the revenue many crypto companies are generating along with increasing value many tokens are seeing in the market prove attractive to investors, Das said.
Tokens, in particular, are intriguing because they also enable companies to raise cash.
While still optimistic on crypto, blockchain and Web3, Das said he believes the sector started to see a downturn in venture investment in the fourth quarter last year and expects it to continue as market uncertainty unfolds.
“It is taking longer for deals to get done,” he said. “When you reach out to a company, they no longer say, ‘sorry, we already have three term sheets.’
“Crypto is not immune to macro trends,” he added.
Coinbase stock fell to an all-time low on Friday
Just two days after the cryptocurrency exchange launched its long-anticipated NFT marketplace. Shares on Nasdaq slid to $131.14 in after-hours trading, down more than 15% since the marketplace’s beta launch.
The launch, hyped for over a year, failed to reverse Coinbase’s months-long stock slump. Since January, the stock has shed 47.61%. Even in a difficult year for crypto trading, that dwarfs 16.39% YTD losses for Bitcoin and 21.13% for Ethereum.
On Thursday, J.P. Morgan analyst ken worthington cut his price target for COIN by 31%, to $258. Explaining the call in a note to clients, he wrote: “The crypto markets are in need of some excitement in terms of new products and/or new use cases to continue to drive the crypto markets to becoming more mainstream, thus driving activity levels.”
It seems, at least for now, that Coinbase’s NFT marketplace has failed to generate much excitement. The platform joins a crowded ecosystem of that includes OpenSea, Rarible, Foundation, SuperRare Labs, LooksRare, and Nifty Gateway, among others. (NFTs are unique blockchain tokens that prove ownership of a digital asset.)
Coinbase’s marketplace differentiates itself from competitors' by emphasizing communal experience, encouraging NFT artists and buyers to interact and connect with social features, akin to Instagram. The platform, which aggregates any NFTs for sale on the Ethereum blockchain across marketplaces, is still limited-access and slowly opening to its millions-long waitlist. It does not yet support in-platform NFT minting or other blockchain platforms besides Ethereum, but plans to at an unspecified date.
The launch, initially planned for late 2021, also comes at a time when the red-hot NFT market of last year appears to be cooling. But despite Coinbase’s late entry to NFTs, the exchange’s bet on community engagement also comes at a time when NFTs have steadily grown in utility, beyond status symbols to community-building tools.
Seeking out alternative payment methods
U.S. merchants are constantly on the lookout for tactics to reduce the high costs of card acceptance. Finding and supporting lower cost alternative payment methods is the easiest way offset the cost of cards.
The challenge today is that there simply is no silver bullet alternative payment method (‘APM’) that provides low costs, robust acceptance enablement, strong UX, and controlled risk. Many U.S. APMs are used today for a narrow set of use cases or have other flaws.
• ACH and e-checks can be lower cost but lack broad acceptance coverage.
• Real-time banking rails have yet to translate into mass acceptance of bank payments Zelle®, which rides the RTP rails, can be used for C2B, but is driving little to no C2B volumes today).
• PayPal has not yet pushed to compete on price with cards, for example by enabling Venmo linked to bank payments for merchant acceptance. In fact, PayPal maintains a symbiosis of sorts with the card schemes, including strategic partnerships with Visa and Mastercard.
• Cryptocurrency payment acceptance is still nascent with a fairly broad range of costs (1%-2.5%), but we expect major acceleration in crypto payments (we illustrate the growth of C2B crypto commerce here).
• BNPL is one of the most expensive payment methods for merchants to accept, but it demonstrates its utility by reducing consumer purchasing burden for high-value transactions.
• Lastly, other mobile wallets and payment methods also rely primarily on card funding, which makes them as costly or more costly than cards to accept.
While no one of these APMs is a threat to the cards ecosystem today, each is nibbling at the edges with a potential for longer-term disruption. At the heart of disruption potential is the evolution of real-time banking infrastructure. Real-time bank payment rails are an ideal foundation for development of APMs as seen throughout the rest of the world. Any number of scaled mobile apps/wallets (PayPal, Cashapp, Dunkin, etc.) could use such rails to displace the costs of cards.
The viability of real-time payments in the U.S. is still challenging, however. The core infrastructure is now largely in place. RTP, operated by The Clearing House that also enables much of the U.S. ACH system arrived in market five years ago and in 2021 processed more than 1.8 billion transactions. FedNow, operated by the Federal Reserve, is a newer infrastructure set for go-live in 2023.
The banks themselves are generally reluctant to challenge the cards ecosystem with their own RTP-based scheme (we all know the golden goose fable after all). However, there is at least a debate ongoing as noted in this WSJ article.
According to the Wall Street Journal, Wells Fargo and Bank of America are in favor of pushing Zelle towards C2B payments while JP Morgan is concerned about moving too fast given the need for supporting fraud management infrastructure, with other major banks undecided.
Bluesky is still an independent company
Bluesky is a Twitter-backed project to "develop an open and decentralized standard for social media." says it is an independent company
Back in late 2019, when Jack Dorsey was still CEO of Twitter, he set in motion a plan to "develop an open and decentralized standard for social media" that would explore elements of crypto and Web3.
That effort, which came to be called "bluesky," gained steam in 2021 with a January "ecosystem review" of decentralized social apps and the August appointment of Zcash veteran developer Jay Graber as its lead.
Today, bluesky took to Twitter—the platform soon to be privately owned by mega-billionaire Elon Musk—to clarify that it's independent of the social media site and has been a public benefit limited liability company since February.
"The 'public benefit' part of our structure gives us the freedom to put our resources towards our mission without an obligation to return money to shareholders," it tweeted. "The company is owned by the team itself, without any controlling stake held by Twitter."
Given the surge of interest in Twitter's future, we thought this would be a good time to clarify the relationship between Bluesky and Twitter.
According to bluesky, where Dorsey remains a board member, it has $13 million in funding "to ensure we have the freedom and independence to get started on R&D."
In other words, it's somewhat beyond Musk's reach, even though the Tesla CEO just paid $44 billion for Twitter and has plans to improve it—from removing spam and minimizing content moderation to potentially introducing crypto payments.
Bluesky has taken inspiration from a number of crypto projects, including IPFS—a protocol that allows for peer-to-peer file sharing—to the Basic Attention Token that incentivizes Brave browser readers to watch ads.
Dorsey, however, is a Bitcoin maximalist. Now focused solely on leading payments company Block.
By contrast, Musk, though he cozied up to Bitcoin when Tesla bought $1.5 billion in BTC for its books, is more enamored of Dogecoin. He's been working with that blockchain's part-time developers to make it into a payment network that surpasses Bitcoin.
Gen Z embraces digital technologies to manage their money
Zoomers are the first generation who, without exception, have grown up entirely in the age of the internet. And Gen Z’s immersion in digital technologies from their earliest years onwards has shaped the way they see the world – both how they make decisions, and how they put those decisions into practice.
The influence of digitalisation is clear in each of the significant trends identified in this report. Zoomers are living their lives online – and they expect the brands with which they interact to accommodate that. And while there are subtle differences between the attitudes and behaviours of Gen Zs living in emerging markets and their counterparts in developed economies, both groups are digital citizens.
Zoomers Shop as Much as They Like to Party
This is particularly true in emerging markets, where Gen Zs currently spend 19% of their money shopping for clothes and electronic goods. By contrast, going out to eat, or to entertain, accounts for a slightly lower proportion of zoomers’ spending.
With much of that shopping taking place online, it is critical for retailers looking for a slice of this increasingly important market to offer the payment options that zoomers prefer. But even when it comes to the physical retail environment – or indeed at entertainment venues and in restaurants, cafes and coffee shops – Gen Zs will expect to be offered a broad range of payment choices.
In developed markets, entertainment and dining out does account for a slightly higher share of wallet, but shopping – and online shopping in particular – is nonetheless one of Gen Z’s favourite activities. Here too, payment options will need to become more diverse.