OpenSea raises $300M at $13.3B valuation; Bitcoin vs Traditional stocks; Increasing CAC in fintech; Two major embedded finance models;
Perspective for today:
- Bitcoin did well but some web2 companies did better in 2021
- OpenSea raises $300M at $13.3B valuation
- How can you beat ever-increasing customer acquisition costs in fintech?
- Civil unrest in Kazakhstan affecting cryptocurrency prices
- Ethereum dominance at stake according to JPMorgan Chase & Co.
- Why VCs should keep super apps under their radar
- WeChat will support Central Bank Digital Coins (CBDC)
- Two major embedded finance models for banks
- Is Ethereum security or not?
Bitcoin did well but some web2 companies did better in 2021
And after Bitcoin’s bad start to 2022, Microsoft, Apple and Tesla have also beaten BTC in the past 12 months.
When it comes to investing, it’s hard to quibble with an annual return of 60%. And yet Bitcoin holders earned lower yields in 2021 than one of the Web2 companies that crypto is trying to overtake: Alphabet.
Bitcoin had a lackluster December, limping into the new year with 60% returns for 2021 — its worst performance since 2018, when it lost roughly three-quarters of its value. (Investors can only hope for a down year like that again.) Though BTC has a $880 billion market capitalization, ranking eighth on CoinMarketCap’s list of assets, in between Meta (FB) and Nvidia (NVDA) shares.
But Alphabet, which has a market cap above Bitcoin’s, nonetheless managed to beat it. Google’s parent company watched its stock price rise 68% in 2021, per data from Google Finance, thanks to increased advertising revenue across its platforms, including YouTube.
Other top-tier tech stocks also did well. NVIDIA, which makes chips for both video game devices and crypto mining rigs, gathered up 125% returns as supply chain problems boosted demand (and prices) for its products; its market cap is now above $750 billion.
Computer company Microsoft is up 54% over this time last year. Apple has registered 41% gains. And electric car maker Tesla, headed by Dogecoin fanatic Elon Musk, is now up 64% over the past 12 months.
While cryptocurrencies and companies are different types of assets, comparing the numbers is instructive precisely because of their differences. Many stocks (though not Alphabet) pay regular dividends to shareholders.
Moreover, stocks — even individual ones — can be incorporated into retirement accounts, meaning they have in-built tax benefits that make them more attractive to retail investors. Not so with Bitcoin, hence the demand for a Bitcoin exchange-traded fund that trades like stocks on a traditional exchange.
Of course, holders might object that these numbers are cherry picked — home in on another timeframe and the numbers might look completely different. After all, Bitcoin is known for going on epic tears.
OpenSea raises $300M at $13.3B valuation
Paradigm and Coatue Management led a $300 million investment that cements NFT marketplace OpenSea as one of the most valuable private firms in crypto.
OpenSea said Tuesday night that investors valued the company at $13.3 billion in the Series C funding round, up sharply from the startup’s $1.5 billion valuation in a $100 million Series B announced last July. The The New York Times was the first to report the news.
Tuesday’s big numbers show the rapidity with which OpenSea has ensconced itself as the leading venue for trading non-fungible tokens. The firm said in a blog post it plans to use the funding for product development, hiring, startup investments and to “significantly improve customer support and customer safety.”
Despite some high-profile user blunders, business has been brisk for OpenSea. In the last 30 days alone, the marketplace for prized profile pics and other digital collectibles logged 1.6 million Ethereum transactions and a trading volume of $2.4 billion, according to data compiled by DappRadar.
The company was founded by Devin Finzer and Alex Atallah in 2017, well before NFTs had captured mainstream interest. CoinDesk’s first piece on OpenSea — for a $2 million funding round led by crypto VC firm 1confirmation — called it “an Ebay for CryptoKitties.”
OpenSea’s latest round is another sign of the boom times in crypto venture capital, with over $30 billion in investments flowing into crypto startups in 2021.
How can you beat ever-increasing customer acquisition costs in fintech?
Over the last few years we’ve seen meaningful inflation in digital customer acquisition channels (FB & GOOG) as competition has increased and changes like Apple Ad Tracking have made attribution harder.
Furthering competition the vast majority of fintech companies have focused on the same customer profile (subprime), with the same product offering (e.g., banking, investing, lending) and a set of ever-increasing customer subsidies to join (free money on the internet!).
How then will a company distinguish itself in 2022 in the face of increasingly competitive and constrained digital acquisition channels?
There are two answers –- the best companies will either achieve growth through products that lend themselves to product-led growth or partnerships represent non-inflationary distribution opportunities.
On the product side today’s products become tomorrow’s primitives; simply offering a bank or brokerage account is no longer good enough to stand out as new APIs make it extraordinarily simple to integrate the core features of banking (e.g., saving, spending, lending, investing) into almost any app experience.
Instead, the products that capture consumer’s imagination will remix these primitives in new and interesting ways that leverage communities, crypto, and commerce. In particular, one could expect to see more multiplayer products driving product-led growth — money is inherently multi-player (medium of exchange!), but to date, financial products have largely been single-player.
On the partnership side, we’ve already seen Credit Karma partner with the Houston Rockets deal and Chime with the Dallas Mavericks deal, as well as the Guideline distribution deal with Gusto and the Melio distribution deal with Intuit. Though these channels have price leverage and may raise prices over time, they represent the kind of predictability and volume in both acquisition cost and acquisition supply that has largely been missing from digital marketing channels as of late.
Founders would be wise to note these examples — the companies that have historically been the best in class at direct to consumer marketing are now looking to business development and partnerships for continued growth, and we expect this trend to continue well into 2022.
Ethereum dominance at stake according to JPMorgan Chase & Co
A note from JPMorgan states that Ethereum might keep losing dominance in the field of decentralized finance in the coming year. The note, written by Nikolaos Panigirtzoglou, managing director of global markets strategy at JPMorgan, states this dominance is at risk due to the problems Ethereum has had scaling its network.
Ethereum has centered on an L2 (Layer 2)-centric roadmap, that supports the rise of rollups and sidechains to try and find alternatives to the intensive activity and high fees that are happening on its Layer 1 blockchain.
Even with this strategy, the percentage of defi dominance, which was estimated at almost 100% at the start of last year, has dropped to an estimate of 70% of the market right now.
Panigirtzoglou further explains that what’s more problematic is the fact that Ethereum has lost part of its influence in the defi arena to other chains, instead of to its own L2 scaling solutions.
Solana, Avalanche, BSC, and Terra, a group of smart contracts-enabled cryptocurrencies and networks known as “ethereum killers,” have been gaining market share and creating a community behind them.
This has also resulted in the price increase of their respective native tokens. While Ethereum managed to also increase the price of its network asset, ether (ETH), each one of the aforementioned tokens surpassed ETH’s performance last year.
Sharding, which is the strategy Ethereum will use to scale in its L1 blockchain, won’t arrive until next year after the merge, which will change the proof-of-work (PoW) consensus to a more energy-friendly proof-of-stake (PoS) consensus.
Why VCs should keep super apps under their radar.
Innovation across the Indo-Pacific region has advanced at a highly diverse pace, which ranges from fast-growing ecosystems such as Singapore, Indonesia, Malaysia, and Vietnam, to the nascent sprouts of entrepreneurship in the small Pacific Islands, Laos, and Myanmar, which are yet to enjoy the same volume and type of resources.
The region has witnessed the fast rise of unicorns (i.e. companies valued over $1 billion) and tech giants, with over a dozen nine-figure rounds raised by start-ups over the past half-decade.
Super apps Grab, Gojek, Tokopedia, Bukalapak, Traveloka, and SEA Group are by far the largest recipients of funding in terms of volume, followed by fintech and e-commerce.
These sectors alone, excluding Grab’s SPAC and Gojek and Tokopedia’s merger, exceed $27 billion since 2016. In number of deals, fintech takes the lead with 300+ rounds, with e-commerce and education next in line.
Controlling for outliers the share of funding shifts, demonstrating that sector trends remain similar, with fintech and e-commerce as the top recipient in terms of both volume and size of deals.
Grab and Gojek have emerged as two of the biggest “superapps” on the continent, providing a one-stop shop for consumers to access services such as online shopping, ride-hailing and payments. The appeal of these umbrella apps is a centralised platform for a multitude of services.
The platforms largely follow the WeChat model, the Chinese super app that allows users to message and make payments from the same platform. This model is now well established in Asia, and is also gaining prevalence in Africa and Latin America, as deeper mobile penetration means that an increasing number of people are gaining access to smartphones, internet and mobile data for the first time, and the integration of financial services is filling a significant gap for the unbanked in these regions.
Tokopedia and Bukalapak are both e-commerce platforms, reflecting the rise of the platform and internet economy, whereby more and more consumers are doing their shopping through online channels.
Finally, Traveloka is all-in-one booking platform for travel, which can be directly related to Asia quickly becoming the fastest growing tourism sector in the world.
Aside from the intrinsic, economic value these companies have been adding to their own tech scenes, the media coverage and debate these success stories have ignited has trickled down to the rest of the ecosystems in these countries by way of attracting investor and corporate interest.
WeChat will support Central Bank Digital Coins (CBDC)
WeChat, China’s largest messaging app and one of the country’s most popular payment services, will start supporting the Chinese government’s digital currency.
On Wednesday, Tencent announced that it will begin accepting digital yuan payments via its proprietary mobile wallet WeChat Pay, according to a local news report. China has been developing a digital yuan since 2014, and it has yet to be implemented nationwide. If people start paying for goods and services with WeChat, which has more than 1 billion users, it will give it a significant boost.
WeChat’s enormous user base and innumerable wrapped services have earned it the moniker of a “mega-app.” Users can use WeChat Pay to chat, pay bills, and order food or transportation. There are over 800 million monthly active users on WeChat Pay.
Linghao Bao, an analyst at consultancy firm Trivium China, told CNBC, “Chinese consumers are so locked in WeChat Pay and Alipay, it’s not realistic to convince them to switch to a new mobile payment app. So it makes sense for the central bank to team up with WeChat Pay and Alipay as opposed to doing it on its own.”
So far, the People’s Bank of China (PBoC) has conducted limited tests of the digital yuan in several cities involving small quantities of the currency in commercial and consumer environments. Despite the fact that there is no timetable for a nationwide rollout, there are indications that the PBoC is interested in expanding usage of the digital currency.
China has established a significant lead in developing a central bank digital currency for public use, exceeding the majority of countries that are still in their respective research phases. Earlier this week, the country’s central bank released a pilot version of a digital yuan wallet app on the Chinese iOS and Android stores.
Two major embedded finance models for banks
Accenture estimates that as the digital platforms start to offer embedded banking services, two major models will emerge.
Pass-through Services — Platform serves as a gateway to existing, third party everyday banking services.
Platform-branded Services — Everyday banking services offered by the platform under its own name.
Pass-through services — in this model, the digital platform sees its value proposition as giving customers easy access to bank-branded financial services where they need them most in the flow of business activities.
Several banks, fintechs, and other parties will be able to connect to the platform and offer their services via APIs. For example, users of the Xero cloud accounting software can access financial services, including business loans and finance, to help run their business on the Xero app store. We anticipate that bigtech platforms like Google and Microsoft may opt for the pass-through model or a middle-round approach.
Platform-branded services — in this model, the digital platform offers an embedded finance service as part of its own offering. The service will be seamlessly integrated into the platform’s user experience and its other services. The platform is in control of the user experience and the pricing of the product or service. In practice, the digital platform will partner with a bank or fintech to deliver the financial offering, often co-creating new solutions that solve SME pain points.
The expectation is that this model delivers ‘value add’ which can be monetized. Accenture believes smaller and more focused digital platforms — such as finance management and ride-hailing or gig-economy platforms — are more likely to follow this platform-branded model to increase their customer utility and stickiness. QuickBooks Cash is an example. It is a free-to-open business banking account with high-yield interest on all balances, provided by Intuit in partnership with Green Dot Bank.
The plays are not mutually exclusive. Some platforms may use different models for different financial products and services. Others may adopt a hybrid model, such as co-branding embedded services or forming exclusive distribution partnerships with selected incumbent banks or fintech providers.
Is Ethereum security or not?
U.S. Securities and Exchange Commission chair Gary Gensler today didn’t give an answer on whether or not Ethereum is a security — but he did say that if someone or something is raising money from the public, it could potentially meet the definition.
“We don’t get involved in these types of public forums talking about any one project, one possible circumstance or give legal advice over the airwaves that way,” he said on CNBC when asked whether Ethereum, the second biggest cryptocurrency by market cap, was a security.
He then added that if “you’re raising money from the public and the public is in anticipation of profit, based upon that promotor, sponsor, that group’s efforts, that’s within the securities laws.”
A security is a tradable financial asset that has monetary value — like stocks or bonds — that meets a specific legal definition as outlined by the so-called Howey Test. Under U.S. law, an asset meets the definition of a security if it is an investment of money in a common enterprise from which there is an expectation of profit based on that enterprise’s efforts.
The SEC previously said that it does not consider Bitcoin, the biggest cryptocurrency by market cap, to be a security but has weighed down on other cryptocurrencies, such as Ripple’s XRP. The SEC in December 2020 hit the creator of the eighth biggest digital asset by market cap with a $1.3 billion lawsuit — a case that is still ongoing.
In June 2018, William Hinman, the former director of the SEC’s Division of Corporation Finance, said that he believed Ethereum, since its sale, had become “sufficiently decentralized” and is now therefore not a security.
But the SEC of today, under Gary Gensler, might take a harder stance. For instance, Gensler has said that he believes thousands of cryptocurrencies in the Ethereum DeFi space — the world of peer-to-peer lending, borrowing and trading — are operating as unregistered securities.
