Big Corporate is taking steps to implement decentralized technologies.
On this episode of “The Breakdown:”
- Corporate dips into decentralized media, starting with Twitter and TikTok
- Regulatory difficulties continue for Binance
- Crypto on the minds of Congress and the SEC
Big corporations have been seeing crypto not just as a hype machine, but as a technological update opportunity. Twitter, for example, has found a new lead for its decentralized social media group Bluesky. TikTok has similarly dipped into decentralized media as it struck a deal with decentralized music app Audius. Which platforms will take on crypto next?
Binance continues to come under regulatory scrutiny with the Netherlands as the latest country to issue a warning to the company. Even after CEO Brian Brooks left the company citing “differences in strategic direction,” Binance founder Changpeng “CZ” Zhao claims to continue to search for regulatory-minded people to join the company’s ranks.
Regulatory focus continues in the U.S. as well, with members of the Securities and Exchange Commission, Commodity Futures Trading Commission and Congress hosting opposing opinions on how to regulate crypto. The disagreements continued this week, including a statement from the Fed’s Neel Kashkari bashing crypto and a letter from two congressmen requesting clarity from the SEC and CFTC. Will U.S. authorities ultimately come to an agreement on the best path forward?
“The Breakdown” is written, produced by and features NLW, with editing by Rob Mitchell and additional production support by Eleanor Pahl. Adam B. Levine is our executive producer and our theme music is “Countdown” by Neon Beach. The music you heard today behind our sponsor is “Tidal Wave” by BRASKO. Image credit: Cole Burston/Bloomberg/Getty Images, modified by CoinDesk.
What's going on guys, it is Wednesday, August 18 and today's is a type of episode that is sorely overdue: a big news grab-bag. There have been a ton of stories recently that would normally fit in "The Brief," but the main stories I've been covering have been complex enough that I just haven't had space to even do "The Brief." So, here's a few of those stories in slightly shorter form and hopefully this gives you a good overview of some of the things that have been happening.
Let's start with a tweet from Maya Zehavi that connects the dots on two stories I've been watching. She writes, "We're at the point where corporate America isn't just looking at crypto for hype marketing opportunities, but is seriously studying the tech to gauge how it computes into their core business. Two big social media examples from the past few days: Twitter and Bluesky, and TikTok and Audius." So, there's a ton to unpack here. So let's start with the news around Twitter. In December of 2019, Jack Dorsey announced a new initiative. Like square crypto, it would be a team whose mission was its mission. In other words, it didn't have to impact Twitter's bottom line. Dorsey wrote, "Twitter is funding a small, independent team of up to five open source architects, engineers and designers to develop an open decentralized standard for social media. The goal is for Twitter to ultimately be a client of this standard." He basically said that in the early days, Twitter was so open that some thought it might become a decentralized internet standard, like the SMTP email protocol. Instead, the company centralized. But, in his estimation, the time might be coming to try something different. He gave four reasons why.
One, it's too hard basically, for centralized companies to enforce policy around abuse and misleading information. Two, the value of social media isn't any longer in content hosting and removal but in recommendation algorithms for directing attention. Three, problematically, the existing incentives lead to "attention being focused on content and conversation that sparks controversy and outrage rather than conversation which informs and promotes health." And four, he said basically, blockchain tech now makes something different possible. So, that was then, it's now been about a year and a half where we haven't heard that much at all. Other than Jack often reiterating the Bluesky was in his estimation, one of his most important priorities. On August 5, however, the Bluesky Twitter account teased that they had finally found a leader, "It's been a long time coming, but we finally found a lead. We're currently working through details to set up the new Bluesky entity which will operate independently from Twitter. We're excited to share more soon."
Well, soon is apparently today, and they announced that Jay Graber would be joining as the lead of Bluesky, Jay has experience in the crypto space having previously contributed to Zcash, and more recently working on decentralized identity and social media with a focus on privacy and supported by the Ethereum Foundation. Let's go back now to Maya's tweet thread, as she has an interesting take on the significance of this and specifically what Graber's appointment means. She writes, "Twitter isn't just looking at building their own version of a blockchain for self-dealing regulatory arbitrage capture, like Zuck, but embracing the open-source, public-chain infrastructure as an ecosystem they're fostering. The Bluesky direction, based on hiring Jay, is looking at a potentially much bigger picture than the more modest approach crypto's attempted to tackle the centralized social media till now by actually embracing the core issue of identity. The understanding that a decentralized social media network means not having to tackle the mode of creating a network effect from scratch, but tapping into the existing other networks to a single sign on, thus evolving social media apps into an identity service. The social media network role evolves on-chain to a service that onboards users as an identity provider, stores their metadata, content and social graph; offers curation by their algorithm, provides moderation and censorship by their policy. That means that the users cease to be captured audiences in a corporate trap, but can export their social graph to other services if they don't like the social media services, and build their identity as its centralized reputation they can use. The fact that Jay is coming into this role with experience both with privacy and Web 3.0 networks means the Twitter strategy goes a lot farther than just Bitcoin and can potentially offer multi-chain, on-chain SSOs."
To be radically reductive of her larger points, I think what Maya is saying is that Jack is at least treating this as much more significant than just some random side thing. And I think that's accurate if you listen to him, although I will say that having 21 months between the announcement and finding a lead does not fill me with confidence that there's actually any urgency around this as an issue.
But let's shift over to the TikTok side, what was the deal there? Audius is a decentralized music streaming app. It's actually one of the largest centralized consumer apps at this point with over 100,000 musicians, including my non-ironic favorite musician of the last decade Skrillex, as well as 5 million members who listen. Audius aims to break the power of the music industry, something I've talked about frequently as one of the more tightly-controlled industries that exists. With this deal, Audius will be powering TikTok's new TikTok sounds library and this is basically an attempt to streamline the way uploading music to TikTok works. Through the partnership, Audius users can now just upload them to TikTok directly in less than a minute. This is a pretty huge deal for Audius, TikTok is arguably the most important social media platform of the moment and certainly is so when it comes to musicians getting their music discovered. It's been that way at least since Lil Nas X used TikTok to get "Old Town Road" popular enough to eventually cross to radio and become the longest-charting number one ever: yes, ever, over everyone, The Beatles, Justin Bieber, you name it.
In the wake up the news, Audius' governance token was up at 86% but that's not really the big story. Again, going back to Maya's thread, "TikTok is tapping into decentralized media as a streaming option as an attempt to jumpstart their own music marketplace as a way to circumvent a rev share copyright issue that comes with traditional streaming partnership, meaning the viewing audience partnership not only as a cheaper option that doesn't come with any geopolitical strings, but an opportunity to foster content and a creative marketplace as a supplier without having to deal with record company IP issues down the line." I think her analysis that this is TikTok's attempt to break out of their partnerships with music labels, or at least their attempt to start to do an end run around them, is spot on. And to me, Audius alone trying to break the monopoly of record labels is one thing, but doing so with the backing of a social media app with more than a billion users a month is a lot more interesting.
We discussed Twitter's crypto forays, but what about Facebook? If you're confused about the name changes of Facebook's stablecoin project, you are not alone. Libra became Diem and Facebook's effort to build a wallet for Diem switched their name to Novi. Anyway, David Marcus, who now leads the Novi effort for Facebook as part of the Diem Association wrote a blog post reflecting on the recent discussions among U.S. regulators about crypto and stablecoins. It's the most aggressive pushback I've seen on the idea that Facebook shouldn't be allowed to be a part of reinventing payments. Marcus writes: "I've repeatedly heard variations of the argument that the payments and financial services industry shouldn't let Facebook be part of these innovations. I've heard multiple conversations about how this proposal would be so great if only Facebook wasn't involved," he says this doesn't make any sense for the reasons that one, Facebook payments already enables more than $100 billion in payments volume every quarter. And two, that, as he puts it, "This line of thinking is profoundly un-American." He goes on to write: "One of the core tenants of our value system is the promise of a level playing field. This idea that any person or company bringing a solid solution to a problem will have a fair shot. While Facebook still has more work to do to rebuild trust, it is also consistently delivering massive value for consumers involving similar important services." Now, it's mostly interesting to me as a vocal "Hey, let us play!" but somehow I think they've still got a pretty uphill battle with regulators.
Speaking of companies that are firmly in the crypto space, but also are dealing with regulatory hurdles, Binance continues to fight to mainstream itself from a compliance and regulatory standpoint. A couple of weeks ago now, former Office of the Comptroller of the Currency Brian Brooks abruptly left Binance U.S. over a difference in strategic direction. This was just days after he had done an interview with Forbes about the big raise the company was in the midst of, in which he also tried to distance himself and Binance U.S. as a whole from their parent company. Then this morning, the Netherlands' central bank issued a warning saying that Binance is operating without legal registration in the country, which is the latest in a string of other countries who have made similar warnings.
Don't count Binance out yet, though. CZ is pounding the pavement with the narrative that the company is transitioning from technology innovator to financial services company and in the meantime, they're clearly trying to bulk up with hires that help as well. As CoinDesk puts it, the company has just hired a quote "Former U.S. Treasury enforcer to its chief anti-money laundering role." And Cz said as recently as yesterday that hiring "very senior people with regulatory and compliance experience" is their number one priority.
Now, let's shift over to the other side of the regulatory and government conversation and some recent comments and actions from people on the government side. First, the Fed's Neel Kashkari went off a bit this week in a speech saying that crypto is 95% fraud, hype, noise and confusion. I thought that the funniest line was this one: "There's no barrier to you creating your own Bitcoin or me creating my own. I'll call it Neelcoin." He's so scornful of this idea. But he's literally describing a permissionless market without barriers to entry, where the only thing that will choose the winners are not entrenched interests, but the collective allegiance of a community in a market. This is not the golden council of goldmen picking winners and losers. It's something much different. Of course, that's not to say that there isn't a ton of capital devoted to the cause of picking winners. But it's nothing like the TradFi barriers to entry that keep power hermetically sealed in the traditional financial system among the Chosen Few. On the flip side, he's right that Neelcoin would be a disaster because Kashkari is effectively a Fed sock puppet, he's basically rolled out to be a whipping boy around their less popular decisions, and it's been that way for years. As Hidden Force's host Demetri Kofinas has put it, "No amount of wood chopping will make me forget how Kashkari earned his stripes in the first place. At least crypto isn't on deck for a bailout like the one he spearheaded in 2008. These are the people we elevate to high office. The hypocrisy is nauseating."
Now, just a couple more interesting things out of Congress. First, two congressmen, Patrick McHenry and Glenn Thompson, wrote an open letter to Gary Gensler and acting CFTC Chairman Rostin Behnam, they are concerned about what they've been hearing and want some clarity. "We are at a pivotal point with respect to shaping policies that will significantly impact the digital asset ecosystem. Recent comments made by Chairman Gensler and his recent exchange with Senator Elizabeth Warren provide a concerning roadmap for regulatory actions that will have long term implications. Rather than regulate innovation and job creation out of this country, we should promote an active dialogue between regulators and market participants, lawmakers and regulators must work together to properly balance protecting innovation with any new regulations to ensure the digital asset marketplace flourishes in the United States. To that end, we request a response from you and your fellow Commissioners describing the ways this SEC and CFTC plan to work together on these critical issues. Before advancing new regulations. The SEC and CFTC should prioritize robust discussions on the current domestic regulatory regime as it relates to digital assets and our regulatory framework's impact on American economic competitiveness."
So basically, these guys are saying they don't like that open letter from Elizabeth Warren, and they want the SEC and the CFTC to get together to figure it out. Now, if you listen to my episode from Saturday, you'll have heard me say that it seems that there is some serious amount of tension right now between the SEC and the CFTC on who has the authority to actually regulate crypto. I've seen nothing to dissuade me from this subsequently. CFTC Commissioner Brian Quintenz, who I referenced then responded again on Twitter to a question around whether ETH is a security. He wrote: "A futures contract on a security is in both the SEC and the CFTC's jurisdiction. A futures contract on a pure commodity is only in the CFTC's jurisdiction. There is currently a futures contract on ETH, it is only under the CFTC's purview, which makes ETH a non-security commodity."
Brian this morning also gave those who hope for a fair shake for DeFi something to be excited about when he tweeted: "From my experience, fraud usually involves a level of centralization and control as well as opacity. Query if those two conditions exist in a true full DeFi system, if not, how does the idea of investor protection change or shift from the government's to a participant's prerogative?" Finally, one last note about our allies in Congress, Tom Emmer, a Republican from Minnesota and Darren Soto, a Democrat from Florida, have reintroduced legislation that would mitigate Financial Action Task Force or FAT, if guidance that they're concerned would kill blockchain innovation, the same issue as some of the language in the recent infrastructure bill. And this legislation is all about ensuring that actors that don't custody customer funds, aren't required to register as money transmitters. The point of all of this is that there continues to be a growing chorus of allies who actually get it. And so if you're looking at this landscape, despite all of this chaos, I think that there's reason to be at least somewhat optimistic. For now, lots to digest and I hope that was helpful and until tomorrow, guys, be safe and take care of each other. Peace!