Ep 38. Crypto Purpose?

Hey friends! My wife and I recently drove out for a beach weekend to celebrate my birthday. It was great to hear the crashing waves and feel the sand beneath my feet. I like to watch the sunrise on my birthday. I start the day with gratitude then I reflect on my purpose and aspirations. Recently, more than one friend remarked that crypto felt like a solution looking for a problem. They basically said crypto serves no purpose. I disagreed. What starts off looking like a toy can become big business (ex cellphones, internet, Facebook). I submit that it’s still early days but crypto is already solving real world problems today. This week, I will highlight a couple of them. Ruminations 1. Store of value Problem During my freshman year at the University of Texas, $1 was equal to N130. My family lived in Nigeria, my parents were exchanging their hard-earned naira for US dollars so I could pursue our dreams. Since then, it has gotten much worse. In Jan 2015, $1 was N200 but by Jan 2017, $1 was N500. Within 2 years, the effective cost had increased by 2.5x! A $10,000 tuition bill which was equivalent to N2M in 2015 was suddenly N5M in 2017. No one’s income went up by 2.5x in just 2 years. The devaluation of the naira has wrought untold pain on Nigerian families and businesses. Solution Inflation and devaluation are the evil twins robbing hard-working people of their purchasing power. One solution is to save in more stable assets such as US dollars. However, access to US dollars is restricted in some countries. Startups like Xend in Nigeria and Reserve in Latin America enable families to preserve their purchasing power by saving in dollar-backed stablecoins. One challenge with stablecoin deposits is that unlike banks, deposits are not all insured. Thus if the provider failed, customers could lose their savings. Please do your own research and consider using a portfolio strategy of spreading stablecoin deposits across a range of providers. 2. Instant cross-border payments Problem My family is spread across 3 continents: North America, Europe and Africa. I often move funds across the regions for gifts, donations or investments. It’s a pain! The three biggest pain points are: cost, friction, and speed. Cost: According to the World Bank, the average fees to send money to Africa is 8.3% (2020) - the highest in the world. I have previously touched on this here. Every dollar that goes to fees, could have gone to more productive uses like the education charity I recently founded. In 2020, we spent $46B fees on global cross-border payments. What if we could significantly reduce that? Solution I have tested out crypto solutions that enable instant, free-to-low cost cross-border payments. I have used the Bitcoin Lightning Network and stablecoins. These technologies clearly outperform some existing solutions like international wires. Recently, Meta (formerly known as Facebook) launched their Novi wallet. This digital wallet uses stablecoins to enable FREE cross-border payments. In the future, the wallet will be integrated into WhatsApp, Facebook, Instagram reaching Meta’s 2.8 billion monthly active users. The Novi system would dwarf PayPal and CashApp’s reach. 3. Play-to-earn games Problem Millions of people in The Philippines lost their jobs as the pandemic slowed down the economy. Unemployment amongst millennials reportedly shot up to 30% in some regions. Solution I recently watched the 18-minute documentary about the rise of play-to-earn in The Philippines. Check it out. In Cabanatuan City, locals started playing Axie Infinity, a video game where players earn rewards that can be exchanged for money. Everyone from 70-year old shopkeepers to out-of-work professionals seemed to be diving in. Locals earn up to $500 a month, about twice the minimum wage in Phillippines. Axie Infinity is a trading and battling strategy game. Users purchase creatures called Axies, which are digitized NFTs. Players can collect, breed, raise, battle, and trade them. The game allows users to cash out their tokens into local currency. There are 3 things you need to start playing today: a smart phone, high speed internet, and funds to buy Axies. Over the past year, the cost of acquiring Axies has increased beyond $500, now out of reach of many Filipinos. The gaming community rallied and developed scholarship programs where Axies can be rented out in a revenue-sharing model. To be clear, I don’t think this game is the one solution to world poverty. But I love how it gives people an opportunity to improve their lives. I love how gaming reaches people who would otherwise not explore crypto. I am now wondering if Nigeria could see a big boom in play-to-earn gaming. Nigeria has over 200 million people but * 62% are under the age of 25 * 33% are unemployed * 70% have access to the internet Feels like a recipe for growth! News 1. El Salvador to build Bitcoin City * El Salvador will build a modern carbon neutral city with NO income, property, capital gains or payroll taxes; there will only be 10% sales tax * The country is issuing a 10-year $1B bond with 6.5% yield. $500M will be used to build volcano geothermal energy, bitcoin mining facilities a infrastructure for the city. The other $500M will be used to buy more bitcoin but it will be locked up for 5-year period * Bold moves. El Salvador is a poor country aiming to be the Singapore of Latin America. Locals have raised questions about whether the president is over-reaching. I don’t know enough to have an opinion on this but I’m sensitive to dictatorial tendencies given my experience growing up in Nigeria. 2. Advertising making crypto ubiquitous * Crypto.com recently unveiled a $100M global advertising campaign spearheaded by Matt Damon and featuring one of my favorite quotes “fortune favors the brave”. They also bought 20-year naming rights to the storied Staples Arena where LA Lakers play. * FTX has been heavily investing in sports advertising. In basketball, they have the naming rights to the Miami Heats. In football, they have taken out ads for the Super Bowl 2022. In baseball, they run a ton of ads during the World Series. In formula 1, they sponsor the Mercedes team. * All these investments are making crypto ubiquitous. But are they working? I think it’s great for name recognition but I dunno if the uptick in customers will cover the costs. Also, is the stadium sponsor curse dead? Between 2001 and 2003, 11 companies sponsoring sports stadia filed for bankruptcy. 3. CitiBank to hire 100 crypto * CitiBank plans to hire 100 in their blockchain and digital assets division * Yet another bank investing in a crypto team. However, a segment of crypto folk are very pro-decentralization and not big fans of banks. We are in a tight labor market and there is a war for crypto talent. Will Citi be able to get the talent they want? That’s all this week. Thanks for sticking with me. I hope you have a wonderful Thanksgiving. Best, Afo This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit afolabio.substack.com