Executive Summary

The US is on the verge of its largest monetary transformation since the birth of the Eurodollar system. New regulatory frameworks like the Genius Act and the upcoming Clarity Act formalize a clear path for banks, funds, asset managers, and corporates to issue and hold stablecoins at scale.

Every major institution will use stablecoins to reduce costs, re-engage customers, control distribution, and create new flywheels in their core business models.

But there is one major restriction that almost nobody is talking about:

Regulated stablecoin issuers are prohibited from passing any yield or interest to users.

This single clause creates the largest structural vacuum in digital finance. Many institutions will issue stablecoins that must be without any yield - these stabelcoins also cannot be easily used in decentralized finance given the opaque listing process, legal restrictions and liquidity fragmentation. Consumers and global markets will push these stablecoins, yet they will all earn 0 percent which will slow down adoption.

This vacuum is the trillion dollar opportunity.

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Central Thesis

The combination of global dollarization, Eurodollar erosion, new US regulatory clarity, and a fragmented on-chain liquidity landscape will drive an unprecedented surge in institutional stablecoin issuance. But the inability of issuers to offer yield and the inability of DeFi to absorb institutional scale will create the need for new financial infrastructure layers.

Below are the four structural drivers.

A. Emerging Markets Are Dollarizing at Record Speed

Stablecoins have already become savings accounts in emerging markets

• Standard Chartered estimates that 1 trillion dollars of EM retail deposits could migrate to stablecoins by 2030.

• In countries like Nigeria, Kenya, Egypt, Venezuela, Turkey, and Argentina, stablecoins provide:

  • A dollar hedge against inflation

  • Protection from bank instability

  • Instant global transfer rails

  • A portable store of value in places where financial infrastructure is weak

Local currencies are losing trust

In many emerging markets, stablecoins already function as de-facto savings accounts, because the US dollar is no longer viewed as a transactional currency but as an investment instrument that protects households from inflation, devaluation, and banking instability. In Argentina, where annual inflation exceeded 200 percent in 2023–2024, users convert pesos to USDT/USDC weekly using on-ramp APIs to preserve purchasing power. In Nigeria, the naira lost over half its value in 18 months, making stablecoins the digital equivalent of a “treasury bill” for SMEs and freelancers who hold balances on wallets like Binance P2P or local agents. Technically, stablecoins provide instant custody, near-zero transfer friction, and immunity from local capital controls, unlike cash dollars which require physical storage or black-market dealers. In Venezuela, families hold savings in USDT on mobile wallets because it avoids currency seizure risk and maintains value across borders. In these markets, the dollar is treated as a yieldless but stable investment, and stablecoins are the most accessible form of it.

For younger populations, USDC or USDT is effectively a “checking account” and a source of truth.

This consumer behavior aligns perfectly with regulated US institutions entering the market. Once US banks and corporations begin issuing stablecoins at scale, EM users will move from offshore stablecoins to regulated US ones for safety and brand trust.

This is one of the most powerful adoption vectors in global finance.

B. The 30–40 trillion dollar Eurodollar system is under threat

The Eurodollar system defined global finance for 50 years

Since the 1960s, trillions of dollars have lived offshore in London and other foreign banking centers. These dollars are used for:

• Global trade

• Commodity finance

• Corporate liquidity

• Interbank lending

Total size estimates range from 30 to 40 trillion dollars.

The Eurodollar market emerged in the late 1950s when Soviet and Eastern Bloc banks began holding US dollars in European institutions to avoid potential seizure by the US government. By the 1970s, it had exploded into a global offshore funding system because US banking regulations capped domestic interest rates, while London banks could offer higher returns. Through the 1980s–2000s, Eurodollars became the backbone of global finance. Corporations borrowed in Eurodollars for trade, commodity financing, and balance-sheet management. By 2020, the Eurodollar system was estimated at 30–40 trillion dollars, dwarfing the size of the US M2 money supply. Yet it remained opaque, unregulated, and largely outside US supervisory control. Dollar clearing relied on correspondent banking routes across London, Singapore, and the Caribbean, creating systemic points of failure.

The US has long tolerated this system because it reinforced global dollar dominance. But geopolitical and financial dynamics have shifted. Offshore dollars weaken monetary visibility, complicate sanctions enforcement, and reduce treasury demand transparency. Stablecoins offer the first technological replacement for Eurodollars: instantly auditable, programmable dollars issued under US jurisdiction, with real-time traceability of flows. If global trade, EM savings, and corporate liquidity migrate into US-regulated stablecoins, the dollar’s international role strengthens while offshore opacity disappears.

Why the US wants stablecoins to replace Eurodollars

This matters deeply to the US: the only way to regain control over trillions of offshore dollars is by moving the world from Eurodollars to regulated stablecoins.

The US government has limited visibility and control over offshore dollars. Stablecoins reverse this dynamic by:

• Pulling offshore liquidity back into US-regulated structures

• Providing real-time visibility into flows

• Offering programmable policy enforcement

• Reducing systemic risk across opaque offshore markets

Stablecoins allow the US to re-domesticate the eurodollar system without changing how global participants transact.

London risks losing one of its most important banking pillars

Stablecoins issued under US jurisdiction pose a direct competitive threat to offshore dollar markets because they:

• Offer faster settlement

• Are cheaper to operate

• Provide clearer regulatory oversight

• Integrate natively with onchain financial rails

The geopolitical shift is profound. The last time the US had an opportunity to re-anchor global dollar flows under its own regulatory perimeter was decades ago.

Now stablecoins provide the mechanism.

C. Genius Act and Clarity Act: The Regulatory Green Light

The Genius Act establishes the first comprehensive federal regime for issuing and supervising payment stablecoins. It defines which entities may issue stablecoins (insured depository institutions, qualified trust companies, and specially licensed non-banks), sets reserve composition standards (primarily short-duration Treasuries, repos, and cash), and requires daily reconciliation, real-time reporting, and guaranteed one-to-one redemption. Technically, it brings stablecoin liabilities onto regulated balance sheets, making them functionally equivalent to tokenized deposits. For example, a US bank could issue a stablecoin used for intraday settlement between corporate treasuries, reducing wire/ACH costs and settlement times from hours to seconds.

The Clarity Act extends this framework to corporate and fintech issuers, creating licensing obligations, cybersecurity standards, and custody requirements, while imposing the critical rule that no yield or interest may be shared with users. This prevents stablecoins from becoming investment products and forces issuers to operate them as pure payment instruments. For instance, a retailer issuing a closed-loop stablecoin for rewards or checkout payments can earn interest on reserves but may not pass it to customers. This restriction shapes market incentives, economics, and the eventual fragmentation of institutional stablecoin liquidity.

This is the moment institutions were waiting for

The Genius Act and the upcoming Clarity Act create:

• A formal pathway for banks and trust charters to issue stablecoins

• Balance sheet and capital rules for issuance

• Custody frameworks for institutional holders

• Redemption and reserve transparency requirements

• Explicit bans on passing yield to stablecoin users
  

Once passed, this will trigger a Cambrian explosion of institutional issuers including:

• Banks

• Fintechs

• Corporates

• Asset managers

• Broker dealers

• Retail giants (Walmart, Amazon, Target)

Why every institution will issue a stablecoin

Take Walmart as the example.

• Roughly 2 percent of Walmart’s revenue flows out to payment processors like PayPal and Stripe - that’s billions in fees

• With a regulated stablecoin, Walmart can:

  • Eliminate a large percentage of payment fees

  • Earn yield on customer balances through T-bills internally

  • Create closed-loop payment networks

  • Own customer distribution and data

  • Offer loyalty and cash-back mechanisms embedded into payments

And Walmart is only the template. Airlines can issue stablecoins for ticket settlement and loyalty ecosystems, reducing merchant fees and capturing float from unused miles. Telecom operators can turn prepaid balances into compliant stablecoins, earning treasury yield on billions in stored value. Ride-hailing and delivery platforms can streamline payouts to millions of drivers while internalizing payment costs. Large retailers, gaming companies, and streaming platforms can all build closed-loop economic systems where payments, rewards, and user balances operate on their own stablecoin rails.

Every major corporate CFO will run this math. Stablecoins become an enterprise-grade cost reduction engine and revenue flywheel.

But the Clarity Act introduces a crucial restriction

Yield is banned. Issuers cannot share any treasury or reserve income with users.

The Clarity Act bans yield because the moment a stablecoin pays interest, it stops looking like cash and starts looking like a money-market fund. That would force every issuer – from Walmart to JPMorgan – to follow strict securities or banking laws designed for investment products, not payment instruments. Regulators want stablecoins to behave like digital cash, similar to a dollar bill or a prepaid balance, not something consumers expect to “grow.” Allowing yield could trigger bank-run dynamics like 2008 money-market stress. By banning interest, the US protects its banking system, avoids shadow money funds at trillion-dollar scale, and keeps the stablecoin market simple, safe, and payment-focused.

This preserves stablecoins as payment instruments not investment products. It protects regulators from securities classification risk. But it also creates the largest structural mispricing in finance.

Trillions of dollars will sit in stablecoins that earn 0 percent for users while issuers earn risk-free yield on the backend.

D. The Coming Liquidity Fragmentation Crisis

The next phase of regulation will unlock an unprecedented wave of institutional stablecoin issuance. Banks, corporates, fintech platforms, broker-dealers, retailers, telecoms, airlines, and asset managers will tokenize dollars, deposits, loyalty balances, inventories, receivables, and even commodities. Within a decade, the market could contain 1,000 or more regulated stablecoins and tokenized real-world assets, each backed by transparent reserves but constrained by one structural rule: they cannot offer yield. Users will hold trillions of dollars of digital cash that behaves like savings, yet earns 0 percent by design.

This creates the foundation of a Liquidity Fragmentation Crisis. Each issuer’s token is isolated, with its own redemption obligations, risk profile, chain deployment, and compliance stance. There is no uniform listing framework, no shared risk model, and no cross-issuer liquidity standard. In such an environment, neither DeFi nor TradFi can absorb or price these assets at scale.

Every regulated token would require its own oracle feed, risk curve, liquidation logic, governance approval, and due-diligence process. No lending protocol can scale bespoke integrations at that magnitude. Meanwhile, institutions cannot connect to dozens of chains and hundreds of protocols; the operational, legal, and reputational exposure is prohibitive. For example, for JPMorgan to use a tokenized deposit as collateral in open DeFi, it would need to integrate into lending markets, pass governance votes, supply price infrastructure, and accept onchain liquidation risk—an impossible proposition for a global systemically important bank.

When every institution issues its own stablecoin, we get:

1. Thousands of isolated issuer tokens

Every bank, corporate, and fintech launches a token with different risk, redemption, and liquidity profiles.

2. No listing standard

Exchanges and DeFi cannot uniformly list these tokens.

3. DeFi cannot underwrite 10,000 independent assets

• Each asset requires

  • Its own oracle

  • Its own risk model

  • Its own liquidation logic

• This is operationally impossible.

4. TradFi cannot integrate with 50 protocols across 20 chains

Banks cannot maintain bespoke integrations with fragmented DeFi liquidity.

5. Institutions need high-quality, compliant, liquid markets

They cannot touch retail yield farms, long-tail assets, or experimental protocols.

Result: Stablecoin issuers earn yield. Users earn 0 percent. DeFi cannot absorb the flow. TradFi cannot plug in. Liquidity is shattered.

This is the structural gap emerging that is a hard problem to solve

Why Does access to (new) DeFi matter

Why does access to DeFi matter? Access to DeFi is critical because it is the only financial system capable of treating tokenized real-world assets as productive collateral at global scale. In traditional finance, collateralization is constrained by banking hours, intermediaries, credit committees, and bilateral agreements. Borrowing USD often costs 8–10 percent, reflecting regulatory capital, counterparty risk, and operational overhead. DeFi removes these frictions. With over $100 billion in constantly available liquidity, assets can be borrowed against in real time, 24/7, at market-clearing rates. Blue-chip lending markets frequently price USD borrowing at 3–4 percent, and during periods of low utilization, automated pools compress lending spreads to 0.2 percent, enabling ultra-efficient capital formation.

This efficiency is not theoretical—it is structural. DeFi is the only environment where collateralization, liquidation, and pricing occur programmatically, without human bottlenecks. A tokenized treasury bill, a corporate stablecoin, or a bank-issued deposit token could become instant collateral for credit, liquidity, or market-making. Without this access, institutional stablecoins remain financially inert—they move money but cannot generate economic activity. In a world heading toward thousands of yieldless stablecoins, the inability to tap DeFi’s liquidity engine traps trillions of dollars in idle form, distorting incentives for users, issuers, and the broader economy.

Lending protocols like Aave, Compound, Morpho, or Curve cannot scale underwriting for thousands of assets.

• Risk curation does not scale

• Oracle feeds do not scale

• Governance does not scale

• Liquidation engines break down

• Institutional compliance requirements are unmet

• Multi-chain fragmentation becomes unmanageable

Even if DeFi wanted to absorb institutional stablecoins, it physically cannot.

Institutions will issue assets that cannot touch DeFi and will earn 0 percent.

This is the trillion dollar vacuum.

Summary

The convergence of regulatory clarity, institutional participation, and global dollarization marks a historic shift in how digital dollars will be issued, saved, moved, and priced. The Genius Act and Clarity Act together initiate the largest institutional onboarding event in the history of crypto. As banks, Fortune 100 corporates, fintechs, and asset managers enter with regulated stablecoins, several inflection points will define the next decade of market structure:

Key Inflection Points to Watch

A major inflection point is the DTCC’s formal approval by SEC and rollout of tokenization frameworks in the US, which signals that the core market infrastructure for equities, funds, and collateral is preparing to migrate onchain. DTCC processes over $2 quadrillion in securities transactions annually. When an institution of this scale standardizes tokenization rails, it validates the technology for the entire financial system. This shift is not symbolic—it establishes the operational, compliance, and settlement backbone required for banks, asset managers, and broker-dealers to treat tokenized assets as first-class financial instruments. It is one of the strongest signals yet that the US intends to modernize its financial plumbing through tokenization.

Other key catalysts to watch out for in coming months:

• Passage of the US Clarity Act

• First Fortune 100 corporate stablecoin issuance

• First US bank–issued stablecoin under Genius Act rules

• EM users migrating from offshore to regulated US stablecoins

• Liquidity fragmentation across dozens, then hundreds, of issuer tokens

• DeFi’s inability to list or underwrite the new institutional asset universe

Each milestone expands adoption by an order of magnitude. Yet they also reveal the core systemic challenges: yieldless instruments, fractured liquidity, and no scalable pathway for institutional assets to access DeFi’s 24/7 capital engine. Trillions of dollars will sit in digital dollars that cannot be deployed, priced, or collateralized efficiently.

The Opportunity ahead lies at the intersection of these forces. The next generation of platforms will need to:

• Bridge regulated issuers with scalable onchain markets

• Provide compliant yield pathways where issuers legally cannot

• Aggregate fragmented institutional liquidity

• Standardize underwriting, risk, and pricing models

• Give TradFi access to onchain assets without protocol complexity

• Enable global users to earn safe, regulated yield without violating the Clarity Act

This transitional moment calls for a new category of neutral infrastructure—one built between TradFi and crypto, capable of unifying issuance, liquidity, and yield. The institutions are coming, the users are ready, and the regulatory rails are falling into place.

The remaining gap is the connective tissue.
The next decade belongs to whoever builds it.

Markets and supply chain distribution today are more expansive and global in nature than ever before in history. The advent of e-commerce has allowed products to be sold and shipped to almost anywhere in the world. Consumers today have the power to view and order any product online at any time of the day & from anywhere in the world.

Manufacturers work to keep up with the demand and are constantly looking for ways to reduce costs through substandard manufacturing and low-cost supply of materials and components. These global opportunities however have created and encouraged the growth of counterfeit goods and the theft of companies’ intellectual property. 

Blockchain: A Game Changer

Blockchain technology offers a powerful solution to these challenges by introducing a decentralized, transparent, and secure system for recording transactions and tracking products. Let’s check out how blockchain is Revolutionizing supply chain efficiency in the Fashion Industry:

• Traceability and Transparency: Blockchain provides a ledger of all transactions, making it easy to trace the journey of each product from origin to consumer. In the fashion industry, this means every step—from sourcing raw materials to manufacturing and shipping—can be documented and verified. 

This transparency not only builds consumer trust but also helps brands ensure compliance with ethical standards and sustainability practices.

• Combatting Counterfeit Goods: Counterfeiting is one of the most discussed issues in the fashion industry costing billions of dollars annually. With the help of blockchain technology and its tamper-proof nature, it ensures that every product’s history is recorded and verified. This makes it virtually impossible for counterfeit goods to infiltrate the supply chain. 

Consumers can scan a product's blockchain record to verify its authenticity, protecting both brands and customers from fraud.

• Reducing Carbon Emissions: One of the most important concerns facing the fashion industry is its environmental impact, specifically carbon emissions. Blockchain technology can help reduce carbon footprints by streamlining supply chain processes. Blockchain allows for more effective transportation routes, fewer wasteful shipments, and lower energy use by giving precise, real-time data. 

Furthermore, blockchain can validate sustainable processes and the use of environmentally friendly products, pushing firms to get greener.

• Promoting Sustainability: Sustainability is becoming the primary concern in the fashion industry, and blockchain technology helps to achieve this aim by encouraging environmentally friendly practices. Blockchain technology can track the use of sustainable resources and verify that ethical labor standards are maintained throughout the supply chain. It can also enable transparency across a product's lifecycle, from raw material purchasing to manufacturing, distribution, and disposal. 

This broad visibility encourages companies to implement sustainable practices and empowers consumers to make informed, environmentally conscious decisions.

• Ethical Sourcing: Blockchain technology also ensures that raw materials are sourced ethically by providing verifiable information about their origin. This allows companies to ensure that their products are manufactured from resources that are socially and environmentally responsible. 

Ethical sourcing contributes to fair labor standards and promotes sustainable agricultural and extraction methods.

• LCA ( Life cycle Assessment): A system for evaluating the environmental impact of products across their whole lifecycle, from raw material extraction to manufacture, use, and disposal. Blockchain technology can combine LCA data, resulting in a transparent and immutable record of each product's environmental impact. 

This helps businesses to identify areas for improvement in their sustainability operations and customers to make informed purchasing decisions based on the environmental impact of the products they buy.

From Data to Impact

• A study by the World Wildlife Fund (WWF) revealed that implementing blockchain technology in the supply chain could help reduce up to 30% of the environmental impact of textile production by ensuring compliance with sustainability standards.

• According to a survey by IBM, 70% of consumers believe that transparency is important, and 53% are willing to pay a premium for brands that provide it. Blockchain helps meet this demand by providing detailed and trustworthy supply chain information.

• A report by the International Chamber of Commerce (ICC) projects that blockchain could reduce the global trade of counterfeit goods by up to 50% by providing verifiable product provenance.

• The Carbon Trust estimates that blockchain could help reduce emissions in the supply chain by 15-20% by 2030 through enhanced efficiency and better resource management.

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Industry Insights

1. LVMH

A luxury goods conglomerate has adopted blockchain technology to track the environmental impact of its products. This ensures full transparency and compliance with sustainability goals. By leveraging blockchain, the company is setting new standards in eco-friendly practices and reinforcing its commitment to a sustainable future.

2. H&M

H&M Group is exploring blockchain solutions to enhance supply chain transparency and efficiency, aiming to reduce carbon emissions associated with production and logistics.

3. Provenance

A leading blockchain technology company collaborates with brands to meticulously track the origins and authenticity of their products. This innovative partnership provides consumers with verifiable and transparent information about their purchases, ensuring trust and confidence in the products they buy. By leveraging blockchain, the company is revolutionizing the way brands and consumers interact

A Case study: Autify Network

Autify Network is developing a revolutionary trust protocol that leverages the power of blockchain and AI to increase transparency in the global supply chain. The company aims to create a decentralized ecosystem that ensures transparency, efficiency, and trust for all stakeholders involved in the supply chain of luxury fashion products. 

In September 2022, Autify Network successfully raised $1.9 million in venture capital and grants funding from Loop Ventures, NEAR Foundation, SIA Foundation, Stellar Community Fund, Biconomy, and Filecoin, marking a significant milestone in its growth and development to revolutionize supply chain management in the fashion industry. 

They are addressing an extremely complex problem that affects companies worldwide, resulting in losses exceeding $5 trillion due to supply chain inefficiencies, counterfeiting, and a lack of transparency.

From counterfeit goods to unethical labor practices, the issues have tarnished the reputation of some of the world's most famous fashion brands. Blockchain technology is said to be a promising solution to these problems. 

Autify network brings you the solution, they are one of the few developing modern, modular, and comprehensive supply chain management solutions catering to brands, vendors, suppliers, and end consumers. It is one of their standout features, setting them apart from the competition. 

By offering exceptional flexibility, and allowing easy customization based on business needs and size, all at a reasonable cost.

Supply chain management:

Autify Network is building an end-to-end supply chain management platform for businesses to manage the flow of goods and services from the point of origin to the point of consumption. Their platform will provide real-time visibility into the movement of goods and enable businesses to adapt to changes in demand or supply quickly. They can also help reduce costs and improve efficiency by automating routine tasks and streamlining workflows.

• Inventory management

• Order management

• Transportation management

• Warehouse management

• Supplier management

• Demand planning

• Analytics and Reporting

Supply chain traceability:

They are building a supply chain traceability platform to track the provenance of goods, including their origin, movement, and ownership. This can help to prevent counterfeiting and ensure the authenticity and quality of products. Their Platform will make it possible for different actors along the supply chain to have different roles and privileges.

Their system will provide real-time tracking of all players involved in the product journey from field to end consumer. By simply scanning a QR or NFC code, customers can easily access all relevant details about the product. They will keep a permanent and immutable record of transactions, which can help to prevent fraud, tampering, and errors in supply chain data. Supply chain participants can reduce the time and cost associated with tracking and verifying the authenticity of goods, and improve the efficiency of supply chain operations.

In addition to the supply chain management and traceability platform, Autify Network is also building several other innovative products:

Sustainability track and trace: Autify Network’s sustainability track and trace solution will allow companies to track the environmental and social impact of their supply chains, including carbon emissions, water usage, and labor standards. By providing transparent and verifiable sustainability data, they will help companies meet their sustainability goals and improve their reputation with consumers.

Autify Verified a Decentralized Sourcing Platform: Autify Network’s verified vendor sourcing will provide a trusted platform for companies to find and connect with verified suppliers and service providers. By using blockchain-based identity verification and reputation scoring, they can ensure the reliability and quality of their vendors and simplify the procurement process for their clients.

Integrating AI and Computer Vision for automation: They are leveraging the power of AI and computer vision to improve item tracking and identification within the supply chain. This will enable them to provide more accurate and efficient traceability solutions and help their clients reduce losses and improve inventory management.

B2B Cross-Border Payment Module:  Autify Network’s cross-border payment platform will allow businesses to make secure and efficient payments across borders. By eliminating intermediaries and reducing transaction costs, they will help businesses expand their global reach and streamline their international operations.

Their platform provides real-time visibility into the movement of goods and enables businesses to quickly adapt to changes in demand or supply. They also help reduce costs and improve efficiency by automating routine tasks and streamlining workflows.

Sources and References:

• https://www.unep.org/news-and-stories/story/environmental-costs-fast-fashion 

•  https://issuu.com/fashionrevolution/docs/fr_fashiontransparencyindex2020 

• https://www.fashionrevolution.org/about/transparency/ 

• https://www.businesswire.com/news/home/20180515005775/en/Global-Brand-Counterfeiting-Report-2018-2020---ResearchAndMarkets.com 

• https://www.unep.org/news-and-stories/press-release/un-alliance-sustainable-fashion-addresses-damage-fast-fashion 

• https://www.weforum.org/agenda/2020/01/fashion-industry-carbon-unsustainable-environment-pollution/ 

• https://www.businessinsider.in/slideshows/miscellaneous/the-fashion-industry-emits-more-carbon-than-international-flights-and-maritime-shipping-combined-here-are-the-biggest-ways-it-impacts-the-planet-/slidelist/71640838.cms 

• https://www.bloomberg.com/graphics/2022-fashion-industry-environmental-impact/ 

• https://www.mckinsey.com/~/media/mckinsey/industries/retail/our%20insights/state%20of%20fashion/2022/the-state-of-fashion-2022.pdf 

• https://www.mckinsey.com/industries/retail/our-insights/state-of-fashion 

• https://www.unep.org/news-and-stories/story/putting-brakes-fast-fashion 

• https://www.unep.org/news-and-stories/story/environmental-costs-fast-fashion 

• https://www.ibm.com/policy/trust-transparency-new/ 

• https://bytescare.com/blog/the-economic-impact-of-counterfeiting-and-piracy#:~:text=Future%20Projections%3A%20Looking%20ahead%2C%20the,to%20%24959%20billion%20by%202022. 

In this post, we will cover:

1. MEV - overview

2. Market opportunity & players

3. Value chain and MEV participants

4. About Flashbots

5. My thesis on MEV space: Is Flashbots really worth $1B?

1. MEV - overview

• Definition: Miner (earlier PoW) or maximal extractable value (MEV) is the value extracted by miners or validators by utilizing their ability to order transactions within a block.

• This new breed of high frequency trading allows savvy and technologically advanced participants in DeFi to arbitrage across decentralized exchanges (DEXs) and forcefully liquidate or draw down positions directly after a large swing in asset prices on trading and lending platforms, resulting in tidy profits. 

• MEV has grown more lucrative on Ethereum due to the rise of Decentralized Finance (DeFi) applications and become easier to earn due to the creation of Flashbots Auction, a dedicated marketplace for finding the most lucrative MEV opportunities.

• Types

  • The three main types of MEV on Ethereum are arbitrage, liquidations, and sandwiching.

    • DEX Arbitrage

      • When there’s a significant price difference across one exchange to another, MEV bots will buy lower-priced tokens to sell them on another exchange at a higher value.

    • Liquidations

      • DeFi lending protocols require users to deposit some cryptocurrency as collateral. When a user can’t repay his loans, the protocol typically allows anyone to liquidate the collateral and earn a liquidation fee from the borrower.

      • MEV searchers will compete to determine which borrowers can be liquidated and collect the liquidation fee for themselves.

    • Front-running

      • Some searchers will use bots called “generalized front-runners” to scan the mempool for profitable transactions.

      • Once a profitable opportunity is detected, the bot will replicate a user’s transaction with a higher gas price so that miners will choose that transaction over others.

        • Frontrunning (or Priority Gas Auction) occurs when a transactor submits transaction A with a higher gas price than an already pending transaction B, taking the profit opportunity from transaction B (i.e., taking a DEX price arbitrage chance). Such actions can cause negative externalities in a network.

    • Sandwiching 

      • Malicious type of front-running that is often used to manipulate cryptocurrency prices. It occurs when a searcher detects a large pending trade on a decentralized exchange (DEX) and places a trade right before and right after it to benefit from an artificial price change.

• Nature of MEV: Good or bad?

  • Good MEV: MEV helps make the DeFi markets more efficient by creating financial incentives to rectify price inconsistencies.

  • Bad MEV:  MEV can work to disrupt network consensus to the detriment of user trust in the Ethereum protocol and subject user trades to unforeseen slippage or attack. Network congestion and high gas prices for other users

    • Bidding war occurs in regular transaction pools, increasing the p2p network load and volatility in gas prices

    • Due to the all-pay nature of the network, failed bids revert on chain, leading to an unnecessary blockspace consumption and underpriced bids (bidder execution risk) that reduce the block proposer profit

    • Because gas prices determine the orders, bidders cannot express granular ordering preferences (only bid for top positions) and can lead to bid spamming

• Size of MEV

  • Miners and operators earned $730m in profit from MEV on Ethereum in 2021.

  • At current rates, Ethereum miners alone are expected to earn more than $750m annually from MEV.

2. Market opportunity & players

Industry TAM

Between January 1, 2022, and December 31, 2022, $133m in Maximal Extractable Value (MEV) was earned on Ethereum

Year-over-year, the total amount of MEV created in 2022 was significantly lower than the amount of MEV created in 2021 in part because of the steep decline of decentralized finance (DeFi) activity on Ethereum as a result of bear market conditions. In addition, increased competition between MEV searchers has also contributed to making DeFi markets more efficient and thereby reducing MEV profit margins.

Third-party builders and relays are new entities in the MEV landscape of Ethereum made possible because of the advent of MEV-Boost software, as well as the open-sourcing of both builder and relay code. Historically, Flashbots was the only operator of a relay, and mining pools connected to the Flashbots relay to earn MEV. However, because of MEV-Boost and the open-sourcing of relay technology, other MEV relays such as the Dreamboat relay operated by Blocknative are starting to compete with the Flashbots MEV-Relay and help decentralize MEV infrastructure. The Flashbots MEV-Relay is still by far the most popular relay, producing 81% of MEV-Boost blocks.

The data from MEV-Explore sets the lower bound on MEV and actual MEV extracted would be higher due to incomplete protocol / transaction type coverage. The data also only reflects extracted MEV and not all the MEV opportunities (theoretical total extractable value is higher). MEV-Explore only covers profit for single-transaction MEV opportunities (i.e. does not cover profits made from sandwich attacks). The explorer also does not cover CEX-DEX arbitrage due to lack of public CEX data. Flashbots indicated MEV extraction is expected to grow as new ways of value extraction appear in the future

Is MEV bigger than we think?

Historical context

• After The Merge in PoS Ethereum, miners are no longer part of the consensus process, and validators have taken their place as network security providers. The process for adding new blocks to the chain has been broken into two separate roles: block builders and block proposers.

• Block builders are not part of the base layer infrastructure of Ethereum post-Merge but are the optional MEV add-on that covers the building process on their behalf. Block builders scan the mempool for transactions and try to assemble the most profitable blocks for proposers to include. All else equal, the blocks assembled with the most profitable MEV transactions will earn the proposer a higher rate of reward.

• Block proposers simply stake 32 ETH to have a chance to propose a block. At the network level, the average reward per block is ~0.2 ETH, but this average varies based on the number of active validators, slashing penalties, and other network-level factors. At the individual validator level, rewards vary greatly based on the number of blocks they are selected to propose.

• Block building is a complicated and data-intensive process. The builders with the fastest connections and best algorithms create the most profitable blocks. In a handful of seconds, builders must be able to simulate the most profitable bundles of transactions, as submitted to them by searchers. Although there are over 400,000 validators on Ethereum, many of them are running fairly basic technology. For this reason, block building has been outsourced by validators and has fallen into the hands of a few entities.

• Flashbots addresses this issue as well, using a feature called MEV-Boost. MEV-Boost creates a marketplace for block builders looking to sell bundles of transactions to block proposers. The block builders submit full blocks of transactions, but the proposers can only see the block headers. In doing so, block proposers can’t see individual transactions, thus preventing them from censoring blocks because of any specific transaction.

Market share & competition 

• MVP boost Relay market: Flashbots share has been declining from 64.3% total block market share and 76.3% MEV-Boosted block market share (in Nov 22) to 50-55% in Feb 23

Flashbots competitors include Blocknative, Eden Network, BloXroute and Manifold. As seen from the MEV-Boost Relays market data, Flashbots is a clear winner in this race (64.3% total block market share and 76.3% MEV-Boosted block market share)

Source: mevboost.org, mevboost.pics as of November 13th, 

1. Blocknative

• Blocknative provides one MEV relay that validators can connect to. This relay is:

  • Publicly available

  • Publicly listed & maintained

  • Open-sourced

  • Transparent about address filtering

• Blocknative currently has only one trusted builder, but the company noted plans to expand to multiple external builders in the near future.

2. BloXroute

BloXroute currently offers three types of MEV relays:

• Max profit: Relay that propagates all available transactions/bundles with no filtering

• Ethical: Relay that propagates non-frontrunning bundles and private transactions – BloXroute tries its best to filter out MEV bundles that execute strategies like generalized frontrunning and sandwiching

• Regulated: Relay that propagates all available transactions/bundles except the ones sent from/to wallet addresses that are sanctioned by OFAC

Builders must be whitelisted by BloXroute. Builders must support the builder specs, either by using builder geth or developing customized software and then contact BloXroute support for builder registration. Builders must have Ultra tier in order to connect to BloXroute relay in Mainnet, or Introductory tier in Ropsten.

3. Eden Network

Eden Network has three products devoted to minimizing the negative externalities of MEV:

• Eden RPC: A set of endpoints that protect Ethereum users from malicious MEV (i.e. frontrunning, sandwich attacks)

• Eden Relay: A suite of tools for Ethereum validators and builders to maximize their revenue

• Eden Bundles: An endpoint for sophisticated MEV searchers to submit bundles to a network of builders

MEV on other chains

Solana

MEV on Solana is very different because it lacks an external mempool. In Solana’s design, each validator has its own mempool where it must evaluate MEV opportunities. Leaders are scheduled to propose blocks. When submitting a transaction, the transaction is routed to an RPC server, which keeps track of the time and schedule of the upcoming leaders. The server then sends the transactions to the next handful of leaders in the queue, hoping one will process the transaction. Transactions are therefore only effectively sent to a handful of validators rather than every validator on the network like on Ethereum.

Source: Jito Labs Medium

MEV on Solana is much less prevalent in dollar terms than Ethereum. Over the past six months, there has been less than $15 million in total MEV profits. Over 98% of both liquidation and arbitrage attempts fail. The failure results from the lack of penalties for failed transactions (i.e., gas costs), which creates an incentive for MEV opportunities to be exploited by interested parties spamming the network. Because of this dynamic, MEV-induced spam takes up huge amounts of blockspace and results in degraded performance for normal users.

Cross-chain MEV

Cross-chain MEV is a nascent market. MEV across chains involves the complex management of many currencies and data streams. It also requires knowledge of the intricacies of multiple developing chains. Cross-chain MEV also carries an additional risk factor in bridging assets. Today’s opportunities primarily center around arbitrage, and in the future, the market will grow as chains gain more DeFi activity.

3. Value chain and MEV participants

Read more

What is Blur?

@blur_io was launched by @PacmanBlur on Oct 2022.

It has no marketplace fees, and enforces a 0.5% minimum creator royalty.

In 4 months, Blur has shaken Opensea’s domination.

Since it exploded onto the scene four months ago, Blur has disrupted the deeply entrenched power structure that has dictated the competitive dynamics among NFT marketplaces for a long time. After numerous miserably failed attempts to topple OpenSea have only bolstered the incumbent’s air of superiority, Blur has finally managed to break this pattern of defeat by genuinely threatening the giant’s dominance, which has turned into a standoff between David and Goliath.

The series of cleverly designed liquidity incentives, which have enabled Blur to take the NFT market by storm, have now culminated in the pinnacle of its growth strategy – the launch of the BLUR token. As part of its vision to function as the main steward for the pro NFT trading community, Blur puts the future development of its ecosystem into the hands of its users, which will be facilitated through a decentralized governance process.

To this end, the BLUR token will act as the decision-making instrument that will allow the community to set parameters essential to the platform’s value accrual mechanism. The token was airdropped to users in the form of Care Packages, which transformed into BLUR tokens on February 14th at 12pm EST.

To participate in the protocol’s governance, BLUR token holders need to delegate their token balance to an address, which can be their own or someone else’s. Voting power is proportional to the BLUR balance of an eligible address, including the delegated balance. To enact a standardized procedure, the governance process will be conducted by means of Blur Improvement Proposals (BIPs), which will need to pass a three-stage process.

First, proposals need to be posted on the research forum for the purpose of eliciting feedback from the community. Once the proposal is battle-tested, it moves to the second phase. In short, the second phase consists of a 14-day voting period, which only allows delegated community members with a minimum of 100K tokens delegated to submit proposals.

If the proposal passes with at least 30M yes votes, it advances to the third phase. Lastly, an on-chain execution vote containing the code to be implemented will be set up, which will require a simple majority with at least 120M yes votes at the end of the 14-day voting period in order to be executed.

Above all, the primary levers for the community to pull through the governance process would revolve around the issuance of treasury grants as well as the change of the protocol fee. In addition, three committees will chaperone the early community, which will be tasked with specific functions, such as ensuring adherence to guidelines or executing policy changes around royalties.1

1/ Blur dropped its token on Feb 14.2

The same day its trading volume exceeded OpenSea’s.

360M BLUR (12% of total supply) were distributed to holders.

Whether the momentum is sustainable remains to be seen.

2/ After 4 days, Opensea made “big changes” in response:

- OpenSea dropped fees to 0% for a limited period of time,
- Implemented a 0.5% minimum creator earnings model,
- Allowed sales using NFT marketplaces with the same policies (including Blur)

3/ NFT Marketplaces’ main KPIs

- trading volume
- users (unique buyers)
- number of sales
- average number of trades per user
- Average sale size

On Blur vs Opensea specifically, we add:

- royalty fees
- community engagement

4/ Trading volume

In the week of Feb 13, Blur was killing it.

Its trading volume was over 5x Opensea’s volume.

Worth noticing, top 3 wallets on Blur each received $1.5M+ worth of $BLUR.

Even considering wash trading - this was substantial.

5/ Daily users

So far, OpenSea has a steady daily user volume dominating the market.

Blur’s # of daily users has increased by 3x since their airdrop on DATE.

6/ Sale count

You can see, Opensea and Blur are two big players.

On Feb 20, Blur even got ~70k trade counts, while Opensea had ~77k.

Blur was capable of flipping the game

7/ Average number of trades per user

This indicator tells how well user retention is.

Blur’s early supporters are super active.

But the trend is volatile too, compared to Opensea’s.

8/ Average sale size

OpenSea is a marketplace for NFT projects of any size.

So the average sale size is low (< 1 ETH).

Blur has a slightly higher average size.

Blur executes a lot of high-value trades with an average NFT sale price of $1,365 vs. OpenSea’s $351. OpenSea’s large, mass-market userbase trades smaller values. But Blur’s smaller target audience of NFT power users trades larger values.

9/ Royalty fees — associated with the sale of NFTs, a percentage of sale price going to creators

Opensea: creators are limited to earning royalties on only one platform at a time.

Blur: trying to let creators earn full royalties everywhere.

10/ Blur wants 100% loyalty.

A creative and bold move — a loyalty button.

Users get a 100% loyalty score if they don’t have listings anywhere else.

Blur wants to wipe out Opensea by having 100% loyal users.

11/ Now, Blur looks promising to beat Opensea.

Top 3 pillars that win Blur the market share:

- expansive choice of NFTs
- impressive speed - 10x faster, 20% gas efficient than GEM
- slick UX — simple and easy to understand

Blur has doubled down on speed since day one to make itself stick out from the competition via real-time listings and instant NFT metadata reveals. According to Blur, its marketplace is in the ballpark of being 10x faster and nearly 20% more gas-efficient than Gem, which is OpenSea’s NFT aggregator for veteran traders.3

12/ Opensea has been the market leader but Blur’s tokenomics changed that

By and large, Blur’s go-to-market strategy has been shaped by the belief that a token can be a useful vehicle for bootstrapping liquidity but has shied away from exploiting it as a means to sugarcoat modest traction, which might distract from the quality of the product. Therefore, the BLUR token economics renounce unnecessary complexities and, instead, double down on a tried-and-tested approach.

Simply put, it emulates Uniswap’s UNI vesting schedule, except for an additional cliff. More precisely, 51.0% of the total supply of 3bn BLUR tokens is earmarked for the community, of which 23.5% will be reserved for community members while 76.5% will be earmarked for the community treasury.

Apart from that, 28.9% will accrue to core contributors whereas 18.9% will be distributed among investors. The remaining 1.0% will flow to advisors and will be subject to a prolonged vesting schedule of 48 to 60 months as well as a cliff ranging between 4 and 16 months.

The platform is currently distributing its governance token to traders, based on a point system. This model rewards users for providing liquidity to the order book through listing NFTs and bidding on them. Users are rewarded for both, the amount of liquidity provided as well as the risk of the liquidity provided. Higher bids and lower asks, relative to the order book, will increase the point value of your orders. This mechanism gives weight to each order that incentivizes real liquidity to fill Blur’s liquidity pool order books.4

To maximize the number of points, traders can place bids as close to the floor price as possible on collections with high trading volumes. Accepting bids may reduce the chances of receiving rewards, which is why some traders place and cancel bids repeatedly. This creates a bidding wall of user-provided liquidity on Blur. Traders exchange these points for Care Packages, which contain an unspecified amount of BLUR tokens.

When properly designed, token airdrop mechanics can fuel a flywheel of behaviors that can jumpstart a project’s user adoption.

Blur’s structure offers NFT traders the lowest fees as well as the deepest liquidity on the market, and it’s working. Blur’s marketplace is outperforming OpenSea while Blur’s aggregator is outperforming Gem.

Blur has found product-market fit while leveraging its token to capture market share from OpenSea. Blur is proof that tactical incentives powering quality products rule the world. With decentralized blockchains, unenforceable royalties find themselves in a race to zero, one that Blur has fully embraced. The platform has now entered the “Airdrop Season 2” phase and specifically notes that traders that “bid on top collections closer to the floor get more rewards.” In other words, traders that put in a bid close to the floor price—that is, the cheapest available NFT for a certain project—of a popular project will maximize their eventual rewards. They’re both buying and selling in bulk as a result.

13/ @LooksRare and @the_x2y2 launched their own tokens and had price spikes.

Now, they have cooled down.

Many tokens tend to fall after their initial hype.

Will this happen to Blur too?

In this post, we will go through:

1. Traditional/Web2 investment framework

2. Evaluating a Crypto project (data-driven checklist for Web3 projects)

   1. Case Study 1: Unit economics of a DEX

   2. Case Study 2: Comparative metrics for DeFi tokens

   3. Case Study 3: L1/L2 ecosystem comps

   4. Case Study 4: DeFi business models

Read more

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Hi friends,

We launched Web3Scout: Product Hunt for Crypto to help curate the top Web3 products. Every 2 weeks, we will also feature deep-dives into the top 3 most upvoted & innovative products for our 23K readers 👇

We are actively sourcing these products from (in decreasing order) our founder network, Web3 accelerators (Orange DAO, DeFI Alliance, Outlier Ventures, Beacon Accelerator), new Twitter/discord accounts, launchpads (Product hunt, Launchcaster.xyz) and various meet-ups & community groups.

If you’re building and launching a Web3 product or fundraising, we can help. Please add your product to Web3Scout website so our community can discover you. We will also include you as a featured startup (23K+ readers) if our comm…

Read more

Subscribe now

Hi friends,

We launched Web3Scout: Product Hunt for Crypto to help curate the top Web3 products. Every 2 weeks, we will also feature deep-dives into the top 3 most upvoted & innovative products for our 23K readers 👇

We are actively sourcing these products from (in decreasing order) our founder network, Web3 accelerators (Orange DAO, DeFI Alliance, Outlier Ventures, Beacon Accelerator), new Twitter/discord accounts, launchpads (Product hunt, Launchcaster.xyz) and various meet-ups & community groups.

If you’re building and launching a Web3 product or fundraising, we can help. Please add your product to Web3Scout website so our community can discover you. We will also include you as a featured startup (23K+ readers) if our community upvotes you in the leaderboard or you have an impressive demo :)

Drop #1: Top products covered today 👇

1. Shield, security & Content moderation engine for Web3

2. Steadefi, next-gen leverage protocol on Avalanche

3. Ylide, web3 cross-chain communication protocol

Share Cryptechie💱

1. Shield

Security & Content moderation engine for Web3

👷 Web3 Infrastructure

Shield is building a scam detection and content moderation engine for web3 platforms. They integrate as a scam filter API for NFT platforms and tooling. They offer cutting edge crypto scam detection models and content moderation tools to help web3 platforms protect their users from malicious actors and protocols, enabling users to eliminate scams from crypto wallets and apps.

They are quickly rolling out discord home security systems for NFT communities and DAOs and seeing significant traction with their subscription model - securing 100k+ crypto users via discord bot and API integrations.

Shield will emerge as a tier 1 home security system for web3 companies to protect their communities, and any web3 builder can grow their community securely with Shield at the center.

The company is solving a real web3 pain point: Security is more costly when you don't have it. Most platforms get audited, but users are still exploited by malicious content and scam actors across dapps. User threats are left uncovered (wallet drainers, phishing attacks, malicious actors).

Shield is founded by a team of ex-Facebook, McKinsey, V Combinator, Messari, MIT & Princeton technologists.

Product Demo: https://www.loom.com/share/a2444e28bd9846a8bbe2e833503bfef8

Documentation: docs.getshield.xyz

Stage

Pre-seed

Amount raised

$1.5M

Investors

In Stealth (Top tier Web3 investors)

Social media

https://www.getshield.xyz/

Editor’s Note: This week we also present a unique opportunity to invest in Shield, a web3 security tooling company, alongside top tier crypto investors and many strategic angels. You can view more details and invest here

2. SteadFi

Next-gen leverage protocol on Avalanche

💰 DeFi

Steadefi is a DeFi framework on Avalanche that combines risk management and leverage in order to enable trading strategies that are highly sought after by the market.

Steadefi is a new leverage protocol that boosts yield while managing risks automatically, which ultimately provides predictability to users for greater DeFi adoption. $STEADY is the primary token of Steadefi with limited supply and deflationary properties.

How It Works

TLDR → DeFi yield investors are subject to numerous position risks and yield shortcomings. → Steadefi aims to address these issues through careful risk management, real yields that align with our APYs, and an automated user experience that provides clear market views and historical data. They do so by introducing Auto Hedging, Fixed Rate Lending, and Isolated Lending Pools to leveraged yield farming.  

The Risk and Unpredictability of DeFi

Since summer 2020, DeFi has attracted millions of new users through the promotion of staggeringly-high yields. Unsatisfied with “meager” 10-100% APYs, these same new users (aka ”yield farmers”) continued taking on increasingly riskier investments in order to “maximize their gains” in the shortest time possible. However, while doing so they remained unaware of the extreme risks involved through advanced DeFi concepts such as impermanent loss, market exposure, liquidations, yield volatility, code exploits, or insolvency. Then in spring 2022, with worsening market conditions and sudden downward volatility, this yield farming boom came to an abrupt end as yield farmers soon discovered that the only thing they had truly yielded was “disappointment.” Adding on to this sense of disappointment was that many users began to realize they were chasing those yields without an informed and actionable market view—most assumed it would all be “up only.”

The Steadefi team observed (and participated) in this yield farming boom, and soon used this market experience as a catalyst for the core of our protocol: offering institutional-level risk management and automation for individual DeFi users, while providing them with something they had not found over the previous two years—predictable real yields.

The Position Risks

Sensitivity to Market Movements Investors suffer losses (sometimes extreme) due to the high volatility of the crypto markets, especially when they set themselves in leveraged long OR short positions. Impermanent Loss (IL) An infamous term in the DeFi yield farming space, Impermanent Loss occurs when one asset in a liquidity pair fluctuates relative to the other asset, leading to an overall loss of equity. This type of loss is amplified in leverage yield farming positions as market movements may move the liquidity pair’s volatile asset (AVAX, ETH, BTC) more dramatically when leveraged. Liquidation When investors seek higher yields through leveraged positions, significant market movements against their position can lead to liquidation, which usually entails a 10-20% loss on the principal assets.

Yield Shortcomings

Unpredictable returns and misleading APYs In order to secure TVL, many leveraged yield farm protocols advertise high rates of return (APYs), which inevitably fall short of their investors' expectations. This means that investors are unable to predict what their yields may be in the long term, in addition to feeling "misled" by returns that end up below the original target. Requires excessive position management Most leveraged yield farming protocols require their investors to manually set up their own market-neutral positions and then also manually rebalance them to ward off liquidation or bad debt ratios. This can result in being both time-consuming and overly-complicated for the majority of users. Mismatch of risk vs reward Conservative lenders looking for safe (albeit slightly lower) yields on an asset may suffer exposure to the risks involved with highly-leveraged borrowing. Aggressive lenders seeking higher yields may receive lower "risk-reward" gains as they are forced to share those yields with the more conservative lenders.

SteadFi Approach

Risk Management Our strategy vaults are designed to provide institutional-grade risk management for individual DeFi users (and institutions, of course!). Our Strategy vaults undergo rigorous testing for handling almost any market movement by effectively balancing both long and short positions. These “rebalances” are performed at multiple parameters for ensuring minimal issues with impermanent loss.

Real Yields Our strategy vaults provide real yields, which means our rebalancing mechanisms have been carefully designed and tested in order to provide investors with predictable returns that align closely with our advertised APYs. See our backtesting data here.

Automated Positioning

For our strategy vaults, we have automated all of the processes, including the initial market-neutral setup when depositing assets. Yields gained over time will be automatically compounded into the principal, allowing our investors to simply deposit and relax.   Offering an Informed Market View With the help of clear guidance and an intuitive UI, our users can use historical data and vault analytics to craft and implement a fully-informed market view. After forming their strategies based on their market outlook, the user’s only responsibility is to deposit the correct asset and enjoy their steady returns.

Optimizing Risk-Reward Profiles By creating isolated lending pools dedicated to the risk profile of the lender, we can offer yields that better align with the user’s risk threshold. In this system, for example, a conservative lender's assets will only be used for more low-risk vault leveraging, while a more aggressive lender's assets will only be used for higher-risk vault leveraging. The yield rewards will then match with the use and risk profile of the funds.

Stage

Pre-seed

Amount raised

$1-2M

Investors

Ava Labs

Social media

https://steadefi.com/

Launch timing

Q1 2023

Media

3. Ylide

Web3 cross-chain communication protocol

🌉 Interoperability Protocol

What is Ylide Protocol?

Ylide Protocol is an open-source cross-chain wallet-to-wallet communications solution for Web3 projects. We anticipate that for the mass adoption of the Web3 it is crucial to have native decentralized and secure communications layer. That's what Ylide's purpose is.

Ylide Protocol consists of four main parts:

[ ] Client SDK Ylide Client SDK is a “just-add-water” solution for integrating decentralised end-to-end encrypted communications right into your existing or new application.

[ ] Prebuilt smart contacts It’s a core of our product. Smart contracts used for storing, transferring and managing messages on the blockchain. Contracts pre-deployed by Ylide can be used and seamlessly integrated. Or founders can create a customised solution on the top of it. Ylide will provide contracts for multiple mainstream blockchains with cross-chain facilitation.

[ ] Admin Tools It is a solution to forget about coding at all. Deploy, monitor, manage smart contracts and set custom monetisation parameters of your choice from the handy UI.

[ ] Pre-build products To save even more time of the founders we provide open-source product templates for typical communication use cases, so you can focus on the customisation and skip the hardest part.

Use cases for Ylide

True interoperability Generalized messaging for any type of communication that is open to integration by design and compatible with other apps

Flexible monetisation Financial transactions with arbitrary logic: subscriptions, pay per transaction and split payments

Web3 architecture Decentralized storage, E2E encryption, no more hosting — pay once, and a smart contract will work without interruption

Secure and open-source Audited, verified by numerous clients and available to be verified by you

Blockchain agnostic A multi- and cross-chain solution with optimal routing inside with clear customization management if needed

Something really new Send your users actionable messages acting as a one-click checkout button, pay them to see ads, and countless other possibilities that we haven't even thought of yet

Product MVP

Check out their latest beta version of B2C product called Ylide Social Hub (link: hub.ylide.io): 

- Smart feed with crypto content from Twitter, Discord, Telegram, Medium, and Mirror in one place. - Decentralized mailbox to send and receive encrypted mail across 17 chains. - Quick sign-in with wallet via popular options like Metamask, WalletConnect, and others.

Mail client: mail.ylide.io Demo video: ylide.io/demo-mail

Stage

Seed

Amount raised

<$1M

Investors

Symbolic Capital, Polygon

Social media

https://ylide.io/

Launch timing

2023

Media

Subscribe now

Hi crypto friends,

After speaking to 50+ Web3 founders, I realized it is hard for Web3 founders to get discovered, find early adopters, beta test their product and spread the word. On the other hand, venture capitalists and crypto natives can’t wait to learn about and get their hands dirty trying out these innovative products but don’t know where to look.

To solve this challenge, we launched Web3Scout: Product Hunt for Crypto to help curate the top Web3 products. Every 2 weeks, we will also feature deep-dives into the top 3 most upvoted & innovative products for our 23K readers 👇

We are actively sourcing these products from (in decreasing order) our founder network, Web3 accelerators (Orange DAO, DeFI Alliance, Outlier Ventures, Beacon Accelerator), new Twitter/discord accounts, launchpads (Product hunt, Launchcaster.xyz) and various meet-ups & community groups.

Drop #1: Top products covered today 👇

1. Soul Wallet

2. Pouch.ph

3. EigenTrust

Share Cryptechie💱

1. Soul wallet

ERC-4337 wallet. Supported by the Ethereum community.

💰 DeFi

Problem - EOA sucks

There are two kinds of accounts on Ethereum currently:

• EOA (Externally-owned account), most people use this kind of account on MetaMask

• Smart contract

Key Management

• Tightly coupled between key and account (lost key, lost account)

• Hard to recover (lost recovery phrase lost key)

Access Control

• No access control (same for everyone)

• No multi-sig

• No roles 

• No spending policy (daily limit)

Gas Payment

• Gas must be paid in Ether

• Gas must be paid directly from EOA

UX

• No batch transaction ( approve + send + cancel approvement) 

• Wasteful on-chain revert

Solution

Current Solution

• Hardware wallet

  • Only solve the key stolen problem

• Multi-sig wallet

  • Safe but inconvenient 

  • Rely on EOA

• MPC wallet

  • Only solve the key recovery problem

Soul Wallet Solution: Account Abstraction via ERC-4337

Smart Contract Wallet controlled by the user directly (without needing an EOA). Support both desktop and mobile.

Key management

• Decouple key and account

• Social recovery

Access Control

• Native multi-sig

• BLS aggregation - reduce gas by at least 30%

• Per device key

• Spending limit

• Multi-Role

• Session Keys

Gas payment

• Pay gas via the sponsor

• Pay gas via ERC-20

• Privacy

UX

• Batch transaction

• Automation transaction

• faceID / touchID signature

Product progress

Launched both POC plugin and mobile (supported by @AstroX network) apps.

Reading material

• POC DEMO

• EIP 4337

• Devcon account abstraction

Stage

Seed

Amount raised

$2M

Investors

Vitalik, Strategic Angels

Social media

https://twitter.com/soulwallet_eth

Launch timing

2022

2. Pouch.ph

BTC Lightning ewallet for the Philippines

💰 DeFi

🦺 Payments

Pouch.ph is using bitcoin’s Lightning Network to transform digital payments & remittances for the Philippines, one of the world’s largest remittance corridors, which saw $32B in remittance volume last year. The Pouch.ph eWallet is akin to a digital bank plus global remittance connectivity via bitcoin/lightning, payment processing for merchants, and in-app shopping conveniences for individuals. You can think of Pouch as “Stripe meets Venmo” on Bitcoin’s Lightning Network rails for SE Asia. 

They’ve partnered with CoinCorner in Europe and are having even bigger partnerships in the works

Opportunity Size

The Bitcoin Lightning Network is a decentralized, global payment network capable of near-instant settlement for a fraction of the cost of legacy payment processors. Pouch is using bitcoin’s Lightning Network to transform digital payments & remittances for the Philippines, one of the world’s largest remittance corridors, which saw $32B in remittance volume last year

The Lightning Network is still in its infancy now but growing very rapidly. The lightning network has already begun to disrupt the remittance payment industry and we expect that trend to continue. What is most important here is NOT how large a market size for Pouch TODAY, but rather how large it WILL BE for it in 7-10 years from now, when we believe the Lightning network will disrupt Visa, Mastercard, Western Union, and alike, and become the global market leader in global payments. At that time the market size for Pouch would be a HUGE one. It is like comparing the Lightning network growth with Facebook’s growth. When Facebook was in its infancy and was live only in Harvard and several other colleges in the US, then it was a big mistake focusing on Facebook’s market size at that specific time only, without having a large picture and vision of Facebook becoming a dominant social network in the US and in the world. We believe that the lightning network today is as Facebook was in 2005.    Even just the current Philippines market is a very large one by itself. Pouch’s direct competitors are the two eWallet giants who exclusively serve Philippines. GCash was recently valued at $2B. PayMaya was recently valued at $1.4B. Pouch is targeting this same consumer eWallet/banking & digital payment processing market, with a twist that they can also serve the $32B PH remittance market (with lower prices and a better experience) as a side effect of being lightning-native.

From the Founder, Ethan Rose:

As an American who has sent money home to my wife’s family for the past 7 years, and spending months at a time living in the Philippines, it was clear to me that the century-old “Western Union” remittance paradigm (A $32B industry in the Philippines alone) is overdue to be disrupted. Fees are high (7% on average). Transaction times are slow (3 days on average). And remittance companies block transactions frequently.    My deep passion to build Pouch was born out of a tragedy when I tried to send a medical remittance to a friend to save her 7-year-old son, but he passed away; He was unable to receive life-saving medical care on time because my remittance was too slow.    The Lightning Network is the obvious disruptor, enabling instant payments over a highly scalable & permissionless global network.   I’m a solo founder. Previously I spent my career in Seattle as a software engineer at T-Mobile, Mighty Ai, Uber, and Aurora.   I love coding and I could build anything that I set my mind to. So why the heck would I choose payments in the Philippines? My past experiences have prepared me mentally to dedicate the rest of my life to making the monetary system more fair & free, and the payments system more borderless for Filipinos.   I believe in the lifecycle of a startup where a founder must start as a hacker and pivot to higher leadership. I love the hacking that I get to do today, but I am equally excited to be orchestrating the most talented team in the Philippines who together are far more effective than I could ever be on my own.

Stage

Seed+

Amount raised

$2M+

Investors

Hivemind VC

Social media

https://pouch.ph/

Launch timing

2022

3. EigenTrust

Reputation protocol for Web3

🆔 DIDs

EigenTrust is a Web3 Identity and Reputation protocol and has signed up pilot POC partners - Zerion, Cyberconnect, MintKudos, Lens, Farcaster. They are also in discussions with Metamask, gm.xyz, layer3. On data infra integrations - they’re working with Dune Analytics and Ceramic teams for the data ingestion and storage layer for EigenTrust.   Check out their demo video for the web3 social use case.

EigenTrust - what is it?

The core idea behind EigenTrust is that a person's reputation is defined recursively by the people who trust that person, weighted by those people's reputations.   The Intuition At baseline, you can trust your friends. This gives you a good starting point, but because each person only has so many friends, it's too limited to make a workable system.   As a next step, you can expand that by asking your friends who they trust, and weighing their opinions by how much you trust your friends.   This increases your trust coverage, but it has two problems. The first problem is that it still does not give you enough coverage. And the second problem is that it adds a fair amount of computation for large systems, because you have to do this for every user in the network.   You can address both of these: You can ask your friends whom they trust, and in turn, ask their friends whom they trust, and in turn, ask their friends whom they trust, and do this for a very long time, at each stage weighting their opinions-as of that same stage-by how much you trust them.   In other words, you can initialize a trust vector with a set of seed peers that you trust. And then you can keep multiplying that vector by a matrix that represents the pairwise trust judgments of all the peers in the network. This is a power method algorithm, and it converges to the principal eigenvector of the matrix.   This solves both of the problems introduced by the friends of friends method. Because you ask so many times, you get complete coverage over everyone connected to you, directly or indirectly - in just a single eigenvector calculation.  

What is the market opportunity for reputation systems?

The market for web3 reputation is proportional to the growth of web3 users and their on-chain activity. Just like how web page indexing and ranking became the backbone of internet search and ads, web3 reputation will power key features (search, discovery, recommendations, trust, and safety) for any web3 marketplace or consumer app in the next 5 years.   A peer-to-peer community or marketplace in web3 will rely on an open reputation infrastructure, versus trying to manage an in-house data infrastructure and proprietary algorithms thereby restricting themselves to centralized liability (no community ownership or incentive alignment). In the first 5 years of internet marketplaces (paypal, ebay, et.al), the top 3 expense line-items included trust & safety, fraud, and reputation. The cost to create and manage an in-house reputation infrastructure can range from a few hundred thousand to millions depending on size and scale.   Reputation will become an important public utility infrastructure - just like oracles, data indexers, and decentralized storage infrastructures. The value accrual for such a service comes from real demand for reputation computing, which drives growth, monetization, and retention for apps and marketplaces in web3. Reputation systems can power user loyalty in web3 context where apps and front ends find it challenging to create compelling moats.  

What is the architecture of the protocol? 

The foundational layer of the protocol is a decentralized computation network. The network performs the EigenTrust calculations and makes the reputation data available for developers to use in their applications. This layer will be designed to ensure a constraint free and optimized implementation of the power method which runs in polynomial time.   Another component of the protocol will involve a Data APls layer which will enable developers to select the relevant data that needs to be ingested for reputation computation in their use case. Developers can choose to leverage any on-chain data or bring their off-chain data. This layer will also enable developers or their community to input the seed peers as well as their desired pairwise trust (reputation heuristic) to perform the EigenTrust computation. The results of the reputation computation will be published on the desired data infrastructure (Ceramic, IPFS, etc.).   Finally, the token economy will strengthen sybil resistance, power the reputation compute marketplace, and enable the community to curate and enable an open reputation system for a variety of use cases.  

Application - Proof of Concepts

1. Web3 Social Personalized User rankings

   The goal is to provide a personalized recommendation/ranking for each user in web3 social, we used Farcaster data for our POC. The ranking results can be used for 'Users to Follow'on a web3 social app.   We computed a personalized version of EigenTrust for users, where the pairwise trust matrix was created by taking the existing follow-follower graph. And for each user, they were their own seed node. We ran the EigenTrust algorithm for the existing 3000+ users.   Additional rankings can be created in a similar way for NFTs to explore/buy and content to   follow based on your social graph. All of this is based on the peer-to-peer activity data, and results in the most truthful and valuable UX for users.

2. NFT Collection Rankings

   The goal is to provide a relative (elo) ranking of NFT collections using on-chain data. The ranking results can be used by marketplaces and communities to show reputation of NFT collections.   We started by picking a couple of trustworthy collections as seed peers (>1-year mints, top 30 daily volume, floor price >5 Eth). We used BAYC and Moonbirds as the seed peers. These criteria for seed peers can be defined by the developers or community.   Then we established a system for pairwise trust. In this case, since NFT collections can't directly vouch for each other or trust each other explicitly. We assumed that trust between collections is a function of the cohort of owners' transitive purchases of other collection. To be more specific, we said that one collection "trusts11 another collection if a certain number of people bought NFTs from the second collection after having bought NFTs from the first.   After 12 iterations, the Principal Eigenvector converged to a global trust score for these collections. Relatively well known collections like MAYC, Azuki, and VeeFriends were highly ranked1 and copy-cat or fake collections got a score of 0.

Stage

Pre-seed

Amount raised

$3.5M

Investors

Galaxy Digital, Spartan

Social media

Launch timing

2022

• First, the cryptocurrency market is highly volatile and subject to rapid price fluctuations. This can make it difficult for CFOs to accurately forecast revenue and make financial plans.

• Second, crypto companies often operate in a regulatory grey area, with different countries having different rules and regulations regarding cryptocurrency. This can make it difficult for CFOs to navigate the legal and compliance landscape and ensure that the company is operating within the law.

• Third, crypto companies are often startups that are in a high-growth phase, which can be stressful for CFOs who are responsible for managing the company's financial resources and making sure that it is financially stable.

  Overall, being the CFO of a crypto company requires a high level of financial expertise, strong analytical skills, and the ability to adapt to a rapidly changing industry.

As we look back on the events of 2022, it's clear that significant challenges and opportunities lie ahead for CFOs leading crypto and DeFi organizations.

First, 2022 saw the continued growth and adoption of DeFi platforms. We can expect to see more companies and individuals using these platforms to manage their financial assets and conduct transactions without the need for traditional financial intermediaries.

We have also seen the continued development of broader Web3 technologies, which enable users to interact with decentralized applications and protocols more seamlessly.

2023 will certainly present challenges and opportunities for Web3 CFOs. One of the biggest challenges will be the need to understand and navigate the complex and rapidly evolving landscape of Web3, crypto, and DeFi.

CFOs will need to develop a deep understanding of these technologies and their potential implications in order to make informed decisions.

Another challenge will be the need for Web3 CFOs to ensure compliance with increasingly complex and varied regulatory frameworks around the world.

Despite these challenges, there are also significant opportunities for Web3 CFOs. One of the biggest opportunities has, and will continue to be the ability to access new sources of liquidity and funding through DeFi platforms. CFOs will be able to use these platforms to raise capital and manage their financial assets in new and innovative ways.

Perhaps most of all, a natively global system of finance and commerce can allow DAOs, DeFi platforms, and Web3 teams to hire, operate, and grow at a scale and reach unprecedented 1n economic history.

By staying up to date with the latest developments, developing a deep understanding of these technologies, and working closely with legal and compliance teams, Web3 CFOs can navigate the challenges and take advantage of the opportunities that lie ahead.

Challenges facing Web3 CFOs today and key insights

Request.finance’s team spoke to 250 finance and operations leaders at Web3 companies to find out what their biggest challenges were when they started their new role, and what they learned.1

1. Education is needed to help finance professionals understand Web3.

Most CFOs at Web3 organizations come with prior experience in financial operations, accounting, or similar roles, but struggle with learning about Web3. A common refrain is the difficulty in keeping up with the rapid pace of new technologies and applications: from Layer 1s and 2s, to the alphabet soup of ZKPs, NFTs, EIPs and more. Sifting through vast amounts of new information, and trying to understand and incorporate new decentralized applications (dApps) into their workflows is a challenge many CFOs face.

o     66% of Web3 CFOs indicated that they had more than 3 years of experience in a finance or accounting role before joining a Web3 organization.

o    Over 99% of CFOs at Web3 organizations said they did not have formal on-boarding processes when they started in their roles.

o     63.6% said that knowledge of Web3 was one of the biggest gaps in their professional knowledge when they first started as a Web3 CFO.

Source: FT Partners Research

2. Financial Operations (FinOps) tooling in Web3 represents a tremendously underserved Saas category.

Existing payments, accounting, or enterprise resource planning (ERP) tools are ill­ suited to the needs of Web3 CFOs.

There is an urgent need for more crypto-native accounting tools that can pull and label data from various blockchain networks, for financial reporting purposes. The demand for no-code blockchain analytics tools was also a key issue highlighted. Despite the existence of platforms like Dune Analytics, writing specific queries to meet the crypto accounting needs of CFOs still requires programming languages like SQL. Few CFOs have the technical know-how, or the time to create customized reporting tools for their own in-house use. The lack of appropriate tooling has led many Web3 CFOs to fall back on familiar, but painstaking manual reconciliations on spreadsheets, and using macros and pivot tables for financial reporting in crypto.

o    When asked about the availability of FinOps tooling in Web3, over 85% of CFOs polled said that it was "insufficient" compared to Web2.

Landscape of providers in the space who are racing to fill this void…

3. Web3 CFOs are re-emphasizing self­ custody of their organizations' digital assets, following he string of collapsed CeFi platforms in 2022, like Celsius, Hodlnaut, and FTX.

Each time a centralized exchange (CEX), or centralized finance (CeFi) lending platform runs into financial trouble, they bring down with them all the fund managers, companies and their employees whose crypto assets are stored on their custodial wallets

o     About 97.5% of Web3 CFOs indicated that more than half their organization's digital assets and crypto treasury are held in self­ custody today.

o     Interestingly, most Web3 CFOs polled were already actively practicing self-custody. Only 27.3% of Web3 CFOs indicated that the implosion of centralized crypto platforms in 2022 led to a shift towards more self-custody.

4. Despite the challenges, Web3 CFOs are optimistic about the growing need for more finance professionals in the blockchain space.

o     76% of Web3 CFOs polled estimate that the demand for finance, accounting, tax and audit professionals will grow over the next 12-24 months.

Ultimate guide for Web3 CFO: what you need to know2

1. ROLES & RESPONSIBILITIES OF WEB3 CFOS

2. CRYPTO WALLETS & CUSTODY

3. FIAT BANKING

4. ON/OFF RAMPS

5. CRYPTO PAYMENTS

6. TREASURY MANAGEMENT CHAPTER

7. FINANCIAL REPORTING & COMPLIANCE

8. LANDSCAPE OF CRYPTO COMPANIES

1. ROLES & RESPONSIBILITIES OF WEB3 CFOS

The role of the CFO in Web3 is similar to that of a CFO in a traditional company, with the added complexity of navigating the unique challenges of the cryptocurrency and decentralized finance (DeFi) space.

Some specific responsibilities of a CFO in Web3 include:

• Forecasting revenue and making financial plans: The highly volatile nature of the cryptocurrency market means that CFOs must be adept at forecasting revenue and making financial plans that are responsive to market changes. This may involve analyzing market trends, studying the performance of other crypto assets, and using financial modeling tools to create projections.

• Managing risk: CFOs must be able to identify and manage financial risks, including the risk of losing funds due to hacking or other security breaches. This may involve implementing security measures to protect the company's digital assets and developing contingency plans in case of unexpected events.

• Ensuring compliance: As the regulatory landscape for cryptocurrency and DeFi is constantly evolving, CFOs must stay up to date on the latest rules and regulations and ensure that the company is operating within the law. This may involve working with legal counsel to understand the regulatory environment and implementing policies and procedures to ensure compliance.

• Managing the company's financial resources: CFOs must be responsible for managing the company's financial resources, including its budget and cash flow, to ensure that it has the financial stability to sustain its operations. This may involve developing and implementing financial strategies, managing the company's financial budget, and ensuring that the company has adequate cash reserves.

Web3, on the other hand, refers to the development of a decentralized, open-source internet where users have greater control over their data and online interactions. This is achieved through the use of blockchain technology, which enables the creation of decentralized applications (dApps) and smart contracts that can facilitate peer-to-peer transactions and interactions without the need for a central authority.

Web3 organizations deserve, and need better software tools to help finance and operations teams manage their day-to­ day finance workflows. Automation of repetitive processes like payments, and integrations with other applications in both Web2 and Web3 are key to simplifying FinOps for Web3 teams. These tools can also empower CFOs to add strategic value through better visualization and reporting of the organization's crypto asset values, and cash flows across different chains, token types, and platforms.

2. CRYPTO WALLETS & CUSTODY

Wallets and keys are the crypto equivalent of bank vaults - where your funds cannot be moved without your consent. Understanding them is key to managing your team's crypto assets.

•     Crypto wallets are software programs that store private and public keys, which are used to send and receive cryptocurrency respectively. Unlike regular wallets, your crypto always lives on the blockchain, which is a digital ledger that records transactions, and account balances.

•     Public keys and wallet addresses are like bank account numbers, or wire transfer instructions you can share publicly to receive deposits.

•     Private keys are like authorized signatures that allow you to send and withdraw money. They are used to "sign", or authenticate blockchain transactions. Crypto wallets use a seed/recovery/backup phrase to algorithmically create private keys. They must be safeguarded at all costs. Each seed phrase can also be used to generate multiple wallet addresses linked to it.

TYPES OF CRYPTO WALLETS

There are different types of crypto wallets. Each has its own advantages and disadvantages, allowing them to play different roles, and meet different needs in your crypto FinOps.

While most CFOs already likely have existing wallets in use at their organization, this section can still be relevant.

Understanding different wallets can help you evaluate whether your organization's current crypto wallets are being used in a way that is fit-for-purpose. For instance, if your company's entire annual payroll is being held on an centralized exchange's hot wallet, you may want to rethink that practice. "We've always done it this way" is a poor reason to maintain an existing process.

Here, we map out what we consider to be the most crucial distinctions between wallet types that you should consider when choosing to adopt wallets for your Web3 organization's needs.

MPC vs Multi-sig

For most organizations, either a multi-sig, or MPC wallet is likely to represent the best tradeoffs between security and useability.

How can CFOs decide between a multi-sig, or MPC wallet? For the technically adroit CFO, a more detailed discussion can be found in a blog article written by Nichanan Kesonpat for the 1kxnetwork.

But for those who want the TL;DR - here is a practical summary of some key differences between the two types of wallets:

Evaluating crypto wallets

With hundreds of options available, it can be challenging to know which crypto wallet is right for you. As a CFO, the stakes are even higher. You need to be sure that you're choosing a wallet setup that will protect your company's crypto assets and give you the peace of mind you need to focus on your job.

To help you cut through the noise, you must first be able to understand what's important to you, before looking at how the different wallet types map onto those needs. It's important to remember that you can use different wallets to meet different needs.

When choosing a crypto wallet, consider the following factors:

• SECURITY

Security is paramount when choosing wallets. This includes who controls your private keys, and how transactions are approved - which affect your ability as a CFO to implement access control management, spending policies, limits, and permissions.

Other security measures you should consider in a crypto wallet include fraud detection and prevention features, two-factor authentication (2FA), or seed phrase recovery.

The track record of a wallet, including time in the market, or previous security breaches or hacks should also be noted.

• CHAINS  & TOKENS SUPPORTED

The wallets you choose should support a wide range of blockchain networks, as well as token types like non-fungible tokens (NFTs). The more extensive the support for different chains & currencies, the simpler your organization's wallet management will be.

• ADDITIONAL FEATURES

Wallets increasingly offer additional features to increase their usability, including the ability to convert or "swap" token types within the wallet, offering native staking, or other features like making batch payments. These features should help to simplify and automate your FinOps processes in crypto.

• COST & FEES

Depending on which wallets you use, they either have one-time upfront costs, or ongoing fees charged to users. Hardware wallets typically only have upfront costs. Custodial, or multi-sig wallets may charge ongoing fees for custody, on/off ramp fees, transaction fees, conversion fees, staking fees.

• PRIVACY

Privacy is a slightly contentious point, especially in the wake of the US Treasury's sanctions on the popular cryptocurrency mixer, Tornado Cash. However, there are legitimate reasons why CFOs may want to have optional privacy-preserving transactions, like when making payroll.

Web3 CFOs need to balance the need for privacy with the need for compliance with accounting and financial reporting requirements. This can be a challenging task, as privacy-preserving crypto payments may make it more difficult to track and report on financial transactions.

This may involve using specialized privacy preserving dApps while implementing strict internal controls and processes to ensure that their organizations are able to support privacy-preserving crypto payments while also meeting their financial reporting obligations.

Here's a handy checklist for CFOs to use when evaluating crypto wallets:

CUSTODY

•     Where are my private keys / key shares / key shards? Who will own them?

•     What% of my private keys or key shards do I control?

•     Can I have instant access to my assets and execute transactions at anytime, from anywhere?

•     Do I have a strong and robust recovery protocol?

•     Is the governance engine secure? How?

•     What happens if the service provider stops operating?

•     What happens if servers are down?

•     Has the technology provider been audited by industry security experts?

OPERATIONS

•     Does the solution support the blockchains, and token I want to use?

•     Are there transfers/transactions limits, or minimums?

•     Are there fees involved?

•     Does my setup scale across team and projects?

•     How can I connect my accounts to my backend systems?

•     How can I automate my workflow to be more efficient?

•     Do I have access to Web3 use cases (NFTs, DeFi, staking)?

•     Can I implement privacy-preserving solutions?

GOVERNANCE

•     What are the different user roles and how do they interact?

•     What are my teams and my back office allowed to do?

•     Who has access to what?

•     How can I prevent internal collusion?

•     Can I create and manage whitelists?

•     Can I implement governance policies and user access rules when I want? How long does it take?

•     Can I choose who will be involved in the approval process for all transactions?

FINANCIAL REPORTING & COMPLIANCE

•     How can I track my administrator and operator activities?

•     How can I meet financial reporting and other audit requirements?

•     Is the technology recognized and approved by regulators?

•     Can I collect data from various chains and token types easily and with clarity?

3. FIAT BANKING

Someday, blockchain payment rails will dominate payments, stablecoins will have replaced fiat currencies, tradable assets are tokenized, and decentralized finance platforms will stand where banks and other financial institutions once used to. That day is not today. The reality for some time to come, is that decentralized finance will continue to exist alongside their traditional finance counterparts. Remember that the gold standard dominated global finance from c. 1873 until the Nixon shock in 1971.That's nearly a century! It's predecessor, the silver standard, lasted even longer: starting with the Sumerians c. 3000 BCE until 1873 - nearly 4, 872 years. Today, traditional institutional investors who participate in your equity round may want to wire money in fiat. Your employees may prefer to receive a portion of their salaries directly in fiat currencies to meet daily expenses. More commonly, you will find yourself having to make purchases with merchants or vendors (normies) that only accept fiat. Choosing a bank that can support your fiat payment needs is crucial.

Some best practices to consider:

1. BANK USING SPECIAL PURPOSE ENTITIES

Typically, when opening a corporate bank account, you will be required to declare whether or not the business deals in cryptocurrencies. A declaration in the affirmative is highly likely to create problems as the Uniswap Labs founder and CEO, Hayden Adams, discovered.

And of course, making untruthful representations to your bank is inadvisable either. So how do you navigate this conundrum, if you cannot go completely bankless? When speaking to crypto CFOs, we found that most of them had to set up a bank account under an Special Purpose Entity (SPE) registered as a consulting or technology company. It is this bank account that then serves your organization's fiat banking needs.

Consider the following hypothetical Web3 organizational chart, reminiscent of many others in the space (Chart below). At the top is a non-profit foundation that manages the protocol layer. Below that is an affiliated, or wholly-owned subsidiary that develops dApps or other spinoff technologies on top of the protocol. CPL Corporate Services Ltd could be a distinct SPE. It is not a subsidiary of any companies that deal in crypto. Instead it can have service-level agreements (SLAs), and covenants with all the other entities in the chart.

Contracts with employees, service providers, or investors that wish to deal with the main organization in fiat can be either novated to, or signed with this SPE instead

For example, employees wishing to work for CPL Ltd could be hired under the SPE, which in turn has an agreement to be an employer of record (EOR}, and manage payroll services for CPL Ltd.

This SPE could also have debt covenants that extend interest free credit lines to other entities, effectively allowing it to pay operating expenses in fiat like cloud-hosting fees.

Note: seek advice from relevant Qualified Persons concerning your organizational structure, and other related matters like banking, trusts, subsidiaries, etc.

2. USE NEOBANKS & FINTECH BANKS

Smaller, regional or local banks may be more open to on-boarding companies that deal in crypto. However, these banks may have a more limited range of services that may hamper your banking needs. For instance, a smaller bank may not have convenient online banking services, or may not support international payments.

Alternatively, you can consider Non-Bank Financial Institutions (NBFls) like fintech banks, or neobanks like Revolut. These companies tend to be more open to taking on risks that their banking partners, or other traditional banks would ordinarily refuse to.

For instance, AsQire is a fintech Qlatform based in Sinmmore - where many Web3 companies, DAOs, and Foundations have set up, owing to its longstanding enterprise­ friendly environment. Aspire has helped to incorporate and bank thousands of Web3 organizations, and even has a liquidity pool on GoldFinch - an uncollateralized DeFi lending protocol.

However, fintechs and neobanks run on traditional banking rails, and are subject to many of the same service limitations and failure points. These include:

• CENSORSHIP: Nobody cares about censorship - until they become its victims. In 2020, 1,392 com12laints were made against Monzo for freezing accounts without warning. Revolut withheld tens of thousands of dollars without explaanation. Resolver froze more than 1,000 accounts, often without warning in 2021. In September, Paypal and Venmo were accused of shutting down the accounts of an LGBT organization. More recently, Paypal updated its terms of service agreement to authorize deductions of $2,500 fines from users' accounts. Around the same time, Flipper Zero, a successful Kickstarter-funded hardware hacking tool, accused PayPal of freezing_$1.3 million in backer's funds. Many NBFls also consider crypto-related businesses to be high-risk. This is typically stated in their terms of service agreements, which are subject to change without prior notice. For instance, in November 2022, Starling Bank blocked all card payments to crypto merchants and crypto-related bank transfers over alleged fraud concerns.

• COST & SPEED: Fintech platforms ultimately rely on legacy banking rails, and payment networks. While they are quick to advertise low, or no fees, what is hidden in the fine print is that:

  • there are low holding and transfer limits on non-enterprise accounts

  • currency conversion rates are poor, or

  • same-day settlements for cross border payments will typically be far more expensive than relying on crypto rails, and other off ramp methods

• SERVICE COVERAGE: Blockchain ledgers are born global: banking services are not. While a good many fintech platforms may serve most major currencies and markets, their coverage and penetration can vary considerably. In contrast, when you use blockchain rails for payment, you will never need to ask the question: "Is it available in your country?" Fintech banks and payment processors have also withdrawn service coverage from entire populations, after deciding that servicing a particular region or country is not economically viable. These can be incredibly disruptive for businesses.

3. USE UNRELATED BANKING PROVIDERS

Just as it is prudent to diversify your company's crypto inventory across multiple crypto wallets, it would be similarly wise to hold your company's fiat balances across multiple, uncorrelated banking providers.

It is important to ensure that your bank provider and NBFI are uncorrelated. What does that mean? NBFls like neobanks usually do not have their own banking licenses. Rather, they act as user acquisition channel partners, akin to wholesale retailers to traditional banks.

So for instance, if you already use Revolut in the United States, it would not diversify away your counterparty risk to use either Metropolitan Commercial Bank, or Cross River Bank - both of whom are Revolut's local partners.

Diversification is about not having exposure to correlated risks. In practical terms, you should ensure that your counterparties have little to no substantial dealings or linkages with one another. The string of collapsing centralized crypto platforms exposed to contagion from the Terra/Luna implosion illustrates this well.

To effectively diversify your risk of being de-banked in fiat, ensure to check for linkages between your fiat banking services providers. Should any one of these NBFI banking services providers - or their core banking partners cut you off or go out of business, it must not dramatically impair your company's ability to conduct business operations involving fiat payments.

The fintech and banking landscape can change rapidly. Professional communities on Slack and Discord can help you access actionable intelligence from the experience of fellow web3 finance and operations professionals.

4. ON/OFF RAMPS

Put simply, how do you move money between crypto wallets and bank accounts? It is important to note here that fiat on banking rails and crypto on blockchain networks live on entirely separate technology stacks. Thus, fiat cannot literally be transferred into a blockchain wallet, and crypto cannot be stored in a bank account per se.

To move value between a crypto wallet and a bank account, or vice versa, you will have to rely on on and off ramps.

On and off ramps, as their name suggests are two sides of the same coin. On-ramps simply mean the exchange of fiat currencies for crypto. Off-ramps refer to the reverse: the exchange of crypto for fiat.

There are presently four primary means of doing so:

•         Centralized stablecoins.

They are some of the most popular crypto payments options chosen by enterprises. USDC accounts for a large share of all enterprise crypto payments in the app. In effect, centralized stablecoins are tokenized deposits. Stablecoins are legally identical to the account balances on your bank statements, or a centralized exchange. All deposits are debts owed by deposit-taking institutions to you. Centralized stablecoin issuers promise 1:1 exchanges between fiat currencies and stablecoins. But it is important to note that stablecoin issuers' ability to meet redemptions is dependent on the composition and value of their assets held in reserve.

Typically, you will have to apply for a business account with one of these centralized entities. Sometimes, these are directly integrated into, and thus accessible from within crypto wallets and payment apps.

•          Decentralized stablecoins.

Not all stablecoins are issued via a centralized entity. Decentralized stablecoins mint synthetic stablecoins when users deposit other crypto assets into a smart contract, rather than wiring fiat into a bank account of a deposit­ taking institution. These smart contracts attempt to maintain a pegged exchange rate to a reference fiat currency in a programmatic manner. They attempt to mimic the decision rules and operations of how central banks, or currency boards around the world do as part of their exchang§ rate QOlicies. For example, Curve, the second largest decentralized exchange on Ethereum, has released a whiteQaQer detailing an example of one such implementation of a price stabilization mechanism. Off- ramping using decentralized stablecoins then, is somewhat of a misnomer as it is not technically possible to deposit fiat currencies from bank accounts into these smart contracts. However, they exist in something of a middle ground between centralized stablecoins, and using CEXes. It is possible to directly off-ramp some decentralized stablecoins in a roundabout manner that still appears nearly instantaneous. Off-ramping using decentralized stablecoins is useful for enterprises that wish to conduct their financial operations using non-USD stablecoins.

Non-USD stablecoins can enable Web3 companies to have deeper penetration into specific local markets. After all, it is already challenging to spend on blockchain payment networks locally, much more so using a USO-denominated currency. For instance, Jarvis Network is an over­ collateralized synthetic stablecoin protocol that focuses on issuing non-USO stablecoins, and creating liquid markets for them. The list of non-USO stablecoins available on Jarvis Network includes major currencies like the jGBP, jCNY and jEUR, as well as smaller, less represented currencies like the jSEK, jPHPand jNZO. Through Jarvis' Network's partnership with Mt Pelerin Group, an authorized financial intermediary in Switzerland users can off­ ramp decentralized stablecoins from any wallet, on both Layer 1 and 2 blockchain networks. It also offers stablecoin off-ramps in 14 fiat currencies directly from a bank account in 172 countries. To minimize the transaction costs of off­ ramping stablecoins this way, enterprises can encourage payment recipients to perform the off-ramps using their own accounts with Mt Pelerin.

•         Centralized exchanges.

Centralized exchanges (CEXes) offer more versatile on, and off ramps. Centralized stablecoin issuers enable on/off ramps only in single currencies. For instance, Circle only accepts USD deposits in exchange for USDC, and StraitsX only accepts SGD deposits in exchange for XSGD. Centralized exchanges typically accept fiat bank deposits via bank wires or credit cards, in many currencies, in exchange for most cryptocurrencies and stablecoins.

While this using a CEX for on-off ramps certainly seems more elegant on paper, there are four other considerations to note. Firstly, it can be costly and time consuming. Credit and debit cards are a popular way for retail users to purchase cryptocurrency via an exchange, but they come with high fees of up to 10% per transaction. This is generally unacceptable for enterprise use. Card payments are also on-ramps, but not off­ ramps as it is usually impossible to "withdraw" money onto a credit or debit card.

Secondly, you run the risk of being de­ banked. Many banks and credit card issuers still consider such transactions suspIcIous, locking or even closing accounts after learning the nature of the transactions. For exchanges, the credit cards of certain countries - including Russia and Ukraine - are automatically rejected.

Thirdly, banks that do tolerate transfers to cryptocurrency exchanges may still involve their compliance teams to ask detailed questions regarding the exact destination of funds and the reasoning behind crypto purchases. If and when transfers do go through, they can take several days. By then prices might have fluctuated dramatically.

Lastly, the counterparty risks of dealing with a CEX can often be higher. While both CEXes and centralized stablecoins are deposit-taking institutions, it is typically easier to audit the reserves, and liquidity of a centralized stablecoin issuer than a centralized exchange. Put simply, it is generally easier to assess whether a centralized stablecoin issuer has the liquidity and solvency to honor their debt obligations than a CEX.

•         On/off ramp service providers.

There are an increasing number of players that offer direct payouts: both from crypto wallets to bank accounts, and vice versa. Some of these include NBFls like online brokerages like Robinhood, fintech payment processors like Stripe, and neobanks like Revolut which have now begun to offer crypto. In effect, these on/off ramp providers are acting as their own exchanges and market makers.

Within this category, are also over-the­ counter (OTC} desks, often operated by CEXes. They are ideal for making outsized transactions typically in the millions of dollars, in a more cost­ effective manner than making spot purchases on exchanges. OTC desks are valuable due to their ability to conduct large trades without moving the market against them. This effect is known as "slippage" and occurs when large-scale buying causes prices to immediately rise before the targeted amount of cryptocurrency has been purchased, while selling causes it to fall before it's all sold.

This is ideal for cases where large amounts have to be off-ramped. Examples include converting part of the capital raised in fiat from a venture funding round into stablecoins for global payroll. Or conversely, converting a portion of your organization's crypto treasury to pay bills to landlords which may require a large upfront cash downpayment.

Top things to consider for On & Off Ramps

On/Off ramping is not as easy for businesses as it is for individuals. The nature and size of corporate banking introduces significantly greater fraud, and AML risks. Traditional banks may de-bank corporate accounts which receive funds from bank accounts linked to centralized exchanges.

As local banks' risk tolerances can vary widely between countries, it is recommended that you consult with fellow professionals like those in the web3cfo.club.

Regardless of which off-ramp methods, or specific service providers you use to convert your fiat to crypto, or vice versa, there are four best practices to consider:

• Map out your on/off ramp needs by payment corridors

Today, there exist a myriad of on/off ramp methods as compared to just a few years prior in 2017.

At the enterprise level, a growing number of solutions providers are increasingly eager to peddle their latest and greatest universal on/off ramp solutions.

What most won't tell you during the pitch is that there is no such thing as a free lunch. CFOs we interviewed quickly discovered one or more of these limitations:

•     Geographical coverage, or supported tokens/blockchains is highly limited

•     There are serious daily transfer limits far below your organizational needs

•     Settlement times are the same as bank transfers

•     Fees are exorbitant if they rely on credit card payment networks

•     You  must open a corporate  bank account with their banking partner

•     Payment services licensing must be obtained as part of the on-boarding process

Remember that on and off ramps ultimately mean having to deal with geographically-bound banking networks.

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•     Avoid using on/off ramps to hold your treasury

On/off ramp wallets - especially third­ party custodial ones, should never be abused as treasury wallets, to minimize your exposure to counterparty risk from custodians.

While I already highlighted the importance of self-custody in the third chapter on crypto wallets, it is worth repeating here. Too often, crypto companies are lulled into complacency, and end up misusing CEX wallets to hold significant amounts of their treasury. Web3 CFOs should strongly avoid abusing on/off ramps - especially CEXes in this manner.

•     Implement a monitoring regime to screen for de-peg and liquidity risks

Whichever stablecoins you choose to use to on/off ramp, it is recommended that you set notifications and alerts for social media activity and price action to regularly screen for de-peg risks.

Apart from screening for warning signs for stablecoin de-peg risks on your own personal accounts, consider recruiting the help of your marketing team. They likely already have tools which monitor social media regularly as part of their workflows.

What de-peg risk criteria should Web3 CFOs screen for? De-peg risks vary depending on the type of stablecoin.

If your organization relies heavily on centralized stablecoin issuers to manage your organization's on/off-ramps, CFOs can regularly review the attestation or audit reports provided by these issuers as part of their disclosure regimes. Balance sheet issues could cause fatal bank runs. This also applies to screening for liquidity risks when using other centralized entities like CEXes for on and off ramps.

On the other hand, synthetic stablecoins are also subject to similar risks of their own, largely related to the design of their price stabilization mechanisms. CFOs should review the design of these mechanisms closely, before deciding to rely on them as on/off ramp channels

There is no such thing as an unassailable stablecoin model, or indeed an infallible exchange rate policy. Catastrophic currency devaluations have happened in traditional foreign exchange markets, and have happened with on-chain stablecoins

Different stablecoin designs are subject to different risks, and Web3CFOs must implement robust due diligence in evaluating stablecoins for enterprise use, and also adopt ongoing screening for specific de-peg risks.

Regular screening can enable CFOs to react in a timely manner to protect their crypto treasury from such risks. There are numerous examples of how vigilant monitoring of fear, uncertainty and doubt, (FUD) on social media platforms has allowed individuals and companies to save hundreds of millions of dollars from exposure to collapsing stablecoins and centralized off-ramps.

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•     There is safety in diversity

Use a mix of on, and off-ramp channels that are as uncorrelated as possible. In the example above, if you already use a CEX to meet over half of your monthly on and off ramp volume, examine its shareholding structure, and avoid using other entities linked to it.

Instead, you can use a different CEX that is not a subsidiary or partner to the one you currently use.

Better still, use a mix of other stablecoin issuers to meet the other half of your on/off ramp volume each month.

If for example, you are already using a Circle Business Account for USDC, consider using a Paxos off-ramp for BUSD, or USDP.

Ideally, you can use different on/off­ramp channels for different purposes. For instance, you can consider using a CEX tooff-ramp crypto for payroll, and a centralized stablecoin issuer to off-ramp when paying SG&A expenses in fiat.

Diversification is a running theme throughout nearly all the best practices sections in each of the guide's different chapters. Web3 CFOs today also diversify their on/off ramp channels (Fig. 16).

The technical, regulatory, and market risks in the crypto industry are rapidly evolving. In this environment, CFOs at crypto companies must never allow their organization to become reliant on a single provider - for anything that could jeopardize the company's finances. That said, more is not always better

Refer here for the top 20 Fiat-to-Crypto Onramp Services provider by geography

5. CRYPTO PAYMENTS

DAOs, enterprises, and foundations have very  different  crypto  payments  needs, including:

•     Billing or invoicing clients for goods and services rendered

•     Processing bills and invoices for goods and services consumed as operating expenses

•     Managing payroll, equity and token allocations

•     Submitting, approving, and reimbursing travel & expense (T&E) claims

•     Issuing and managing corporate expense cards

•     Disbursing grants and bounties, airdrops and prizes, or investment capital

And perhaps most importantly of all, keeping accurate transaction records is a matter of personal finance for the individual retail consumer. In contrast, Web3 CFOs need tools to manage their crypto payments in a manner that facilitates easy financial reporting for internal stakeholders like management and investors, and external parties like tax, audit, and AML authorities.

Thankfully, there are a number of applications which are specifically designed to address the crypto payment needs of organizations like DAOs, enterprises, and foundations.

A. Billing in crypto

1.      CRYPTO INVOICES

Invoicing clients in crypto is especially relevant for companies that provide services to crypto-native organizations. Examples include smart contract audit firms, software development houses, media and marketing agencies, or corporate services providers.

Crypto tools are designed to meet the operational and compliance needs of enterprises accepting payments in crypto, by simplifying the invoicing process.

You can automate recurring invoices for billing your clients monthly, weekly, or even on a streaming basis. Or schedule email reminders to chase upcoming bills, or even late payments past due.

It also lets you know when you have been paid. You can also enable email notifications to let you and your clients know when your invoices have been sent, rejected, accepted, or paid on­ chain.

It also serves as a deterministic proof of income. Suppose you receive a call by law enforcement agencies, suspecting you of laundering money for an international scam ring. Or the tax authorities accusing you of unlawful tax evasion.

Sending them your Etherscan wallet history does little good. The pseudonymous nature of crypto wallet addresses, and the long alphanumeric strings of transaction hashes are ill-suited for financial reporting, or calculating tax liabilities.

With crypto tools, all this is documented easily, and in a human readable format. All wallet addresses are also linked to real world identities in a deterministic manner. There is almost no chance that a wallet, or payment is mislabeled by accident

On the other hand, you may also be a CFO of a DAO or crypto-native company that pays contractors, contributors, freelancers, and other service providers in crypto.

Most crypto organizations have substantial proportions of their treasury in crypto from fundraising events, and will prefer to pay for their operating expenses in crypto as well. Your organization needs a tool that allows you to easily pay bills and invoices in crypto.

Most organizations send and receive PDF invoices - in different layouts and formats, across different communication channels like email, and messaging apps.

This is problematic for several reasons:

Firstly, there is the issue of operational efficiency when making crypto payments. Most companies manually copy the payment information from PDF invoices, or a spreadsheet when paying the invoices. This is time-consuming, and incredibly prone to human error.

With crypto tooling, all wallet addresses are linked to names and emails. There is no chance of paying the wrong amount or to the wrong person. With batch payments feature, you can also review, approve, and pay hundreds of different wallets, in different tokens in just three clicks.

Secondly, there is also the issue of finance operations. With crypto tools, you can spare yourself the endless back-and-forth of unnecessary communications between freelancers and your company's finance department.

A common nuisance companies experience with invoices is that mistakes sometimes occur with the wrong billing information like the company's name, Tax ID, or address. This can cause needless delays in processing payments.

Crypto tools allow you to send your freelancers or contractors a QR code or link. This will automatically create an invoice that's already pre-filled with your business information. They will just need to fill out the rest of the invoice. Now anyone can invoice you correctly in just a few clicks.

Thirdly, there is the issue of bookkeeping. PDF invoices typically come in different layouts, which must be manually downloaded, properly named, and stored into files.

Their data must be extracted, compiled, and uploaded into some bookkeeping or accounting software like Xero.

But how do you account for the historical exchange rates of invoices denominated in volatile cryptocurrencies, or even fiat exchange rates? What about gas fees?

All of this is automated with crypto tooling companies where you have a single clean dashboard where you can see all your invoices in chronological order, filter by names, addresses, or payment status.

All this data, including historical exchange rates and gas fees, can be easily exported to tax or accounting software in a few clicks.

2.  SUBSCRIPTIONS IN CRYPTO

Subscriptions in crypto is another topic that may be relevant if your organization accepts crypto payments.

Invoices are good enough for most B2B billing workflows - especially if there are lags between delivery of the service and payment.

Even for companies that wish to offer subscriptions in crypto, invoices can also be used to offer subscribers discounted lump sum payments for packages or bundles.

But companies like blockchain analytics tools, news, or media and other content platforms may prefer a crypto billing method that supports direct debits at regular intervals from customers' crypto wallets.

There are currently very few elegant blockchain-based solutions for merchants to pull funds away from their subscribers' crypto wallets on a regular basis.

True subscription on the blockchain is technically challenging. The blockchain was built with decentralization and security in mind.

Every transaction has to be signed and approved by the wallet owner - a "push" payment. This does not lend itself well to "pull" payments like subscriptions.

There are three approaches that currently exist to support subscriptions in crypto:

•     Streaming payments

Payment streaming protocols like Superfluid allow your organization to bill subscribers or users every second. This would be ideal for on-demand, sharing economy platforms like a car, or bike-sharing dApp.

In a single transaction, a subscriber could agree to transfer a fixed amount in a constant stream over a pre-defined duration. Every second, a tiny amount of the total bill will flow out of the subscriber's crypto wallet, without any need for additional gas fees. Similarly, cancellation is also only one transaction.

But in order to use Superfluid's payments streaming, a subscriber will need to wrap their ERC20 tokens into a Super Token, which are then used for payments. For instance, our hypothetical bike-sharing dApp could accept payments using Request Finance, in the USO-pegged stablecoin, DAI.

•     Token allowances

Token allowances are the equivalent of direct debit authorizations in traditional finance. It allows your subscribers to provide a one-time approval for recurring payments, enabling businesses to provide subscription-based services in a hassle-free manner.

Merchants can automatically deduct subscription fees directly from subscribers' wallets at regular intervals, over the subscription duration (e.g. 30 USDC per month). Once the smart contract uses up the allowance for the given period of time, it cannot pull any tokens from the user's wallet, until the periodic allowance is reset at the next time interval.

For instance, Suberra is developing a subscription payments standard through periodic allowances, which are time-gated smart contracts with pre-defined transaction values.

•     NFT subscriptions

Another approach would be recurring billing using NFTs that serve as digital membership cards. For instance, Unlock Protocol enables NFT-based recurring subscriptions and memberships that don't need to be manually renewed.

In comparison to the payment streaming method above, Unlock can allow your product to automatically enable, or disable a user's access to your services depending on the NFT's validity, which is tied to whether a member has paid their bills.

Additionally, billing subscribers via membership NFTs can also allow you to easily develop commercial partnerships with other merchants to offer incentives, discounts, and other loyalty rewards that enhance the value of your membership plan.

For instance, our hypothetical bike-sharing dApp that uses Unlock Protocol's NFT membership to bill its users for the use of its bikes, could also partner with coffee chains like Starbucks to offer a 10% discount on in-store purchases to members who have the bike-sharing membership NFT in their crypto wallet.

Comparing crypto billing methods

B. Compensation in crypto

Compensation at Web3 companies is also typically processed in crypto tokens and stablecoins - at least in part, if not entirely. There are good reasons for this. This section will cover how to manage three different aspects of compensation in crypto:

•     Payroll

•     Expenses, and

•     Token Allocations

1.  CRYPTO PAYROLL

The Benefits of Using Crypto for Payroll

As mentioned before, stablecoins offer a fast, cheap, globally­ available, universally accessible, internet-native means of payment. Being able to pay anyone, anywhere, anytime greatly expands your organization's ability to hire the best talent, and enter new markets around the world.

How to Set Up a Crypto Payroll System

•     Employer of Record (EOR)

One of the complexities of global payroll for remote teams also involves the need to have localized entities or subsidiaries which act as employers of record (EOR). On top of incorporating local entities wherever you wish to hire, you will likely also need to deal with local labor laws which cover things like pension schemes.

There are global payroll services providers like Deel, or Remote.com that do all of these for you for a monthly fee per employee. They also allow payouts in crypto - albeit only to US residents, and employees must open an account with Coinbase.

•     Contractor Payouts

Using an EOR to manage global payroll can be costly, and there are typically serious limitations when paying salaries in crypto or stablecoins. To address this, crypto companies such as Request Finance introduced a crypto payroll module. Choose from over 150 different crypto or stablecoins to pay your team in, and from 14 different payment networks of your choice. You can also schedule recurring salary payments, according to the frequency of how often they get paid in a month. Best of all, you also can pay hundreds of salaries in just a few clicks. You can also view the history of your salary payouts, or which team members have yet to be paid.

2.  EXPENSES IN CRYPTO

Expense management is a big deal for DAOs and crypto companies. For one, it is closely tied to how an organization manages its burn rate - especially given how most crypto organizations' operating expenses are financed with investors' capital. After payroll, travel and expenses (T&E) is typically the second-largest spending category for companies. When these expenses aren't properly tracked and processed, that can interfere with a CFO's ability to accurately budget and forecast for the future.

Also, T&E can be used to reduce corporate tax liabilities. Under most tax regimes, T&E is also tax-deductible - insofar as proper records are kept to demonstrate that they are business-related. By maintaining the right documentation for the right period of time, and ensuring that all deductions are valid, companies can be confident they can maximize their allowable tax deductions.

Automating your organization's expense management can simplify the claims submission process, simplify documentation when claiming tax deductions, and enable employees to be reimbursed faster. No one wants to pay $1,000 in travel costs out-of­ pocket for a business trip and then wait around for months while those expenses are reviewed, approved and reimbursed.

Additionally, for the sales and business development teams who attend conferences and events frequently, they will find themselves having to claim expenses like conference tickets, or sponsorships that were paid in crypto.

There are many corporate expense management solutions in the market: but few allow expense reimbursements to be made in crypto. For instance, one of the most popular corporate expense management apps is Expensify - but the only cryptocurrency it supports for reimbursements is Bitcoin. Look for crypto companies which have an expenses module that allow CFOs to easily track, review, and reimburse expense claims in crypto, stablecoins, or fiat.

3.  TOKEN ALLOCATIONS

In addition to ordinary wages being paid in stablecoins to meet the team's fiat expenses, many companies have governance, or utility tokens as part of their compensation packages. It is important to note that these tokens are distinct from equity. Unlike equity, most tokens do not represent a claim on the future cash flows of an operating entity.

Token allocations - typically done as part of an initial coin offering (ICO) - serve to align the incentives of the team with the long-term success of the platform. This inspires confidence in external stakeholders like users and early investors.

Token allocations have significant differences when compared to traditional equity.

The decision to offer tokens as compensation will depend largely on how the organization generates value, and where does the value accrue to. It is also possible to offer a combination of both tokens and equity as part of the compensation package.

In addition, you'll also need to consider:

•     Payroll taxes and tax withholding

•     Accounting and tracking token-based awards

•     Legal documents and processes to ensure compliance with tax and securities laws

Note: seek advice from Qualified Persons like a local tax advisor or accountant with experience around token compensation plans.

6. TREASURY MANAGEMENT CHAPTER

As explained earlier, you should consider maintaining at least three different crypto wallets:

•     one for receiving payments,

•     another for paying expenses,

•     and a third wallet that acts like a savings, or investment account

The assets comprising these accounts are derived from multiple sources, primarily from fundraising or operating revenue. Fundraising in crypto typically takes the form an Initial Coin Offering ("ICO"), which lists a newly-minted token for sale on a decentralized exchange for sale to retail investors. The company receives cryptocurrencies like ETH, or stablecoins in exchange for its native token.

This fresh capital is typically directed to the treasury. Ideally, organizations or dApps that have sound fundamentals will aim to generate revenue from fees. This operating revenue represents a recurring source of income to the treasury. While other ancillary sources of income may exist, this piece will focus on those fundraising and operating revenue, with an ICO being the primary source of treasury capital.

Typically in an ICO, the token issuer will retain a significant portion of the supply of its native token in its own treasury account. These tokens are usually pre-allocated for a variety of uses as outlined in a public offer document like a White Paper. Allocated uses often include staking rewards, compensation for advisors and other core contributors, ecosystem development grants, or future working capital needs.

Often, the organization's treasury will be composed largely of its own native token; effectively seeking to align the interests of investors and the token issuers. Messari illustrates this in its report, Crypto Theses for 2022, showing the breakdown of top organization treasuries. Shown below, some of DeFi's largest treasuries are largely, if not entirely, composed of the issuer's native tokens.

Treasury Capital Allocation

BEST PRACTICES

For proper organization treasury allocation, as with a traditional finance investment strategy, there is no "one size fits all" solution. There are, however, some best practices and a framework for approaching treasury allocation.

A16z Crypto states that "the goals are capital preservation, liquidity, and income, in precisely that order" for a Web3 CFO's treasury asset allocation and management strategy. Building off of this framework, let us dissect each component and build a hypothetical treasury basket assuming a profitable organization with a native token.

1.    CAPITAL PRESERVATION

Large exposures to a single asset are a significant risk factor to the organization's treasury.

Regardless of economic fundamentals, token prices are highly susceptible to exogenous shocks.

Proper asset allocation and defensive diversification are fundamental pieces of traditional investing that carry into the DeFi realm as well.

An investor holding an S&P 500 ETF will almost certainly fare better than the investor holding one individual technology company stock in the face of a tech sector bottoming such as the Dot-Com Crash.

Narrowing the focus, holding that one specific stock introduces direct, unmitigated exposure to a sole company: if it goes under, the investor goes under. These same principles can be applied to the DeFi ecosystem and specifically to treasuries.

At its core, a treasury should be a fortress of capital, walled against market gyrations and certainly impenetrable by the malperformance of one individual asset. This approach, as seen in the Messari chart, is not always taken, however. So how should a treasury be composed? What is the proper asset allocation?

As highlighted by the cryptocurrency market's volatility and overall 2022 performance, capital preservation can be a challenging target. However, focusing less on the market movement of an investment, an investor may look to the underlying organization's health and likelihood of survival. In other words, what is the chance of it blowing up?

Without naming specific tokens, some assets within the ecosystem are generally respected as "blue-chip" investments with the largest market caps, they are foundational to the industry; if they go under, we all go under. Additionally these assets have shown massive historical price appreciation since launch which more than preserves purchasing power.

Capital preservation can also be achieved by holding industry-standard, dollar­ pegged assets. For example, and not providing recommendations, Circle's USDC or MakerDAO's DAI might fit this approach.

Assuming operations as usual, a treasury of 100% these two assets would have the exact same balance in thirty years as it does today. This is essentially a "leave it under the mattress" approach.

So which approach to choose? While the former comes with volatility and a litany of organization-specific risks, the latter delivers no possibility of price appreciation and loss of purchasing power when off-ramped to a fiat currency due to off-chain inflation.

This leads back to the basics: Diversification. Including a mix of both types allows an organization to know its treasury will have a floor value of the dollar-pegged assets while also aiming for capital gains from the industry's top coins or tokens. Capital is preserved and maintained.

2.    LIQUIDITY

This is the cash in the checking account used to cover expenses. An organization will have a list of basic cash expenses such as compensating core contributors, audits, server hosting, marketing at events, and so on. Without immediate liquidity, the project could potentially renege on contracts or miss payments.

Going back to the need for diversification, an organization with 100% of its treasury in its native token would need to sell that token in order to generate short-term liquidity.

This raises three, of multiple, primary complications.

•     Downward pressure on the token's market valuation. Selling large blocks into an otherwise stable market reduces the token's price, all else equal.

•    Capital loss when selling into a down market; if the token has declined in price then selling for liquidity results in a loss.

•     Invites the appearance that the organization offloading its own token has lost faith in its own project. Other sellers may follow, cratering the token price, or users may abandon the platform.

Liquidity exists in the form of cash. Cash, in the cryptocurrency ecosystem, exists in the form of dollar-pegged assets. Thus, liquidity is best maintained by holding a diversified basket of the most battle-tested such stable assets.

This selection may include the aforementioned names USDC and DAI or introduce other well-known dollar-pegged assets with transparent collateral reporting.

3.    INCOME

DeFi platforms can offer a range of treasury management services, including decentralized exchanges, lending and borrowing platforms, and yield farming opportunities. From these different avenues, a treasury may generate income through two methods:

•    Capital gains, highlighted above, strives for the "buy low, sell high" approach. However, as seen in the case of my investment portfolio, this approach does not guarantee positive returns and often results in massive losses. It is a high risk strategy. That does not mean organizations must eschew asset speculation entirely, but rather that they should diversify to protect against market or asset downturns.

•    Yield bearing investments, present an income strategy that, if selected properly, is insulated by market dynamics.

On Lido, for example, ~$5.8 billion ETH is staked earning 5.5% APR (as of 30 November, 2022). Similar options exist for other proof of stake chains such as Solana or Polygon.

Staked assets must be appropriately balanced against available liquidity due to lockup periods on many staking platforms and organizations. Lido and others do afford investors the ability to sell the staked assets on the secondary markets, but these assets are subject to the same risks as highlighted in the "capital gains" strategy.

A further, more stable, and often higher­ yielding option is investing in a yield­ generating platform such as Credix. On Credix, institutions and accredited individuals may generate ~12% targeted APY on USDC by investing in the Liquidity Pool which represents the Senior Tranche of all active deals in a marketplace. Credix deploys capital to traditional, off­ chain FinTech lenders in emerging markets which then issue loans to SMEs and consumers.

This type of investment relies on a pegged-dollar asset, USDC, and extends the lion's share of risk outside the cryptocurrency market. Thus, it is a market diversification from holding an asset such as Bitcoin. Neither should comprise the entire treasury, but balancing one against the other helps mitigate risks.

This three-pronged approach to treasury management ultimately fails without proper diversification. A treasury focused 95% on capital gains income fails in capital preservation and liquidity as nearly all of its assets are in the riskiest strategy thus putting its capital at risk and limiting dependable liquidity. Likewise, a 95% idle USDC treasury is not generating income

Diversification is the backbone of proper treasury management. Without a diversified allocation, a treasury puts the entire organization at risk of failure.

Regardless of whichever chains your organization uses, there is safety in diversity. While many Web3 teams may build on specific chains, and thus rely predominantly on one particular chain, Web3 CFOs should note that over­ exposure to one particular chain presents its own risks.

For instance, the collapse of Luna and UST wiped out many companies building dApps on Terra, and who held a large proportion of their company's treasury in assets on the Terra blockchain.

Web3 CFOs owe a fiduciary responsibility to its organizations core stakeholders, especially its team, users, and investors to protect the company's financial health- not a particular ecosystem or ill-defined sense of "community".

Balancing these three different concerns is a task that rests in part on the good judgment of Web3 CFOs, whom the management team can count on to act in the best interests of the company as a going concern. Hedging your crypto treasury's exposure should never be left to convenience, inertia, or an excess of blind optimism in any one particular chain.

Chains and their ecosystems are like countries. Failed chains are like failed economies in the real world: poorly governed banana republics where no one wants to visit, invest, or build in. The history of national economies - and blockchain economies is littered with gravestones to both.

Blindly trusting in a particular chain or assets on that chain would be the same as deciding to move your business, and all its assets into a newly-formed country in an emerging market. If doing so sounds like a terribly risky idea, Web3 CFOs at crypto companies building on particular chains should reflect on the prudence (or lack thereof) in doing so in the world of DeFi.


7. FINANCIAL REPORTING & COMPLIANCE

The string of collapsed crypto companies culminating in the fall of FTX & Alameda has sent shockwaves through crypto. Despite the damage, the turmoil presents an opportunity for new standards in financial reporting to emerge for enterprises and DAOs.

For internal stakeholders like employees and management, financial reports are like a health screening. It can be used to align teams, and inform decisions throughout the organization. For external stakeholders like investors, users, and regulators - financial reporting is a matter of compliance with local laws, but also to inspire public confidence in the viability and financial health of an organization.

In this section, we will review key issues in financial reporting in crypto like:

•     Financial Statements

•     Proof-of-Reserves (PoR)

•     Accounting Standards for Crypto Assets

1.    Financial Statements

The financial health of a web3 company or DAO should be measurable through consistent financial reports and statements that can be crafted on a regular basis. Just as a traditional company would regularly bookkeep and produce monthly/ quarterly/ annual financial statements, why should web3 companies and DAOs be any different?

If anything, CFOs can signal quality by a proactive commitment from a Web3 firm or DAO to produce regular financial statements internally and or to investors.

But producing financial statements can be a frustrating affair without the right tools. There are available enterprise grade crypto accounting solutions designed for web3 projects and other companies looking to incorporate crypto assets into their balance sheet.

Essential tools for setting up the complete back-office system for a web3 CFO include a solution for crypto accounting, AR/AP & payments, and payroll.

Ideally these solutions should integrate with one-another to maintain everything in one place.

For simplicity, the most basic financial reporting consists of three financial statements: income, balance sheet, and cash flow (Fig. 14). The populating of the content within the financial statements then involves the systematic linking of information from each of the areas within the model, starting with revenue and working through expenses, debtors, creditors, assets, etc.

The practice of maintaining consistency in the creation of regular financial statements and thorough financial reports will prepare Web3 companies for auditors when they come knocking at the door.

Alternatively, Web3 CFOs at smaller organizations that may lack the in-house capabilities to manage financial reporting can consider outsourcing the work to crypto-native corporate services providers like BlockOffice.

2.    Proof of Reserves

Proof-of-Reserves (PoR) Is an independent audit performed by a 3rd party to validate that a centralized entity's, or smart contract platform assets equal clients' funds. PoR allows the market to verify that industry giants are acting honestly, and are solvent.

A competitive advantage can be achieved by an on-chain PoR that matches assets against liabilities and details equity. The same is true for decentralized stablecoins. It's not enough to list assets.

PoR should detail cryptographic proof of client balances & wallet control. The public should also be able to see the sum of client liabilities, user-verifiable cryptographic proof that all wallets were included, & signatures showing a custodian has control.

Currently, PoR is most popular amongst exchanges, and other centralized deposit-taking institutions or platforms given that cryptoassets are often opaquely held In these centralized entities.

Of the largest centralized exchanges, Kraken Digital Asset Exchange has been known & respected for its a semi-annual PoR. Binance recently also announced plans to perform routine PoR audits in light of FTX imploding.

PoR should be an industry standard for DeFi, especially stablecoins & real world assets (RWA). If individuals/entities can't be certain that a protocol or stablecoin is backed as it claims to be, the market remains susceptible to systemic risks that harm DeFi adoption & innovation.

For example, Chainlink's PoR service provides smart contracts with the data to assess collateralization of any on-chain asset backed by both: (i) off-chain and (ii) cross-chain reserves. Operated by a decentralized network of oracles, it enables the autonomous auditing of collateral in real-time, rather than forcing users to trust paper guarantees made by custodians. This can give DeFi platform users transparency into an asset's underlying collateralization

Chainlink Proof of Reserve verifies the collateralization of any on-chain asset backed by off-chain or cross-chain reserves.

Read here how ‘How crypto companies can provide proof of reserves’. As a public company, Coinbase already proves our reserves using our audited financial statements. Coinbase is also exploring various novel ways to prove reserves using more crypto native methods and are announcing a $500k developer grant program to encourage others to do so as well. On-chain accounting is the future, bu there are pros and cons to the various ways this can be implemented today.

3.    Accounting Standards for Crypto Assets

Accounting for crypto assets remains a highly-debated topic among bookkeepers and investors today.

While innovation in the crypto space is moving at a rapid pace, standard setters in the accounting industry have not had the same stamina to keep up. With new crypto assets emerging all the time with varying properties, the task is monumental, to say the least.

Current accounting standards had not been written with crypto assets in mind, and therefore, one must look at the existing accounting standards and apply a principles­ based approach.

The two prominent standard setters today are the IASB and FASB, responsible for the development and publication of International Financial Reporting Standards (IFRS) and US GAAP accounting standards, respectively. While both seek to improve the transparency of financial reporting, the accounting treatment of crypto assets will slightly differ under IFRS and US GAAP, and should be applied according to the jurisdiction of the underlying entity.

A Web3 CFO needs to learn how to approach each of the following:

•     Initial recognition and subsequent measurement of crypto assets

•     Fair value measurement of crypto assets

•     Tax: calculating capital gains/losses

•     Disclosure for crypto assets

DIFFERENT ACCOUNTING TREATMENTS UNDER IFRS AND US GAAP

With different exchanges quoting different prices, it's important that you maintain a consistent approach with regards to the pricing source of your crypto assets where the greatest volume are being traded. Given markets never close, the recommended practice would be to use the same time for pricing the assets.

Crypto assets like Bitcoin, Ethereum are actively traded, and therefore will have an active market or a 'principal market'. An active market is one in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The accounting standards do not define specific thresholds that need to be exceeded with regard to frequency and volume to determine if an active market exists. As such, the determination is subject to professional judgment.

Therefore, if an active market exists for that crypto asset at the measurement date, a Level 1 valuation can be performed. In the absence of an active market, the prescribed guidance is to use a valuation model that can be applied consistently from period to period.

TAX: CALCULATING CAPITAL GAINS & LOSSES

To make more informed investments and better manage risk, most finance managers actively track the unrealized gains/losses of their digital assets.

Calculating capital gains or losses also may be relevant where taxation on capital gains is levied. In some cases, capital losses may be used to offset your tax liabilities. Typically, only realised gains are relevant for tax reporting purposes.

Capital gains are usually calculated by taking the fair market value at the time of sale, minus the cost basis at which the crypto asset was acquired.

Thus, if your organization is domiciled in a jurisdiction where capital gains taxes are levied on crypto assets, it is important to understand how to assess your cost bases (i.e. what did it cost to acquire the asset) when calculating the profit or loss of transferring, selling, or spending a digital asset.

There are several methods to calculate cost-basis, including:

•     First In, First Out (FIFO)

•     Weighted average cost (WAC)

•     Last In, First Out (LIFO)

•     Highest in, first out (HIFO)

Below, I will illustrate the impact that each of these methods have on the gains/losses. It is important to note that the explanation below is referring to cryptocurrencies that are fungible.

Consider the following example of Janet Saylor, CFO of MacroTactics, a Web3 fund:

•    Janet bought 1 BTC in Jan 2017 for $1,000 per BTC

•    Janet bought 2 BTC in Jan 2018 for $14,000 per BTC

•    Janet bought 5 BTC in Jan 2019 for $3,500 per BTC

•    Janet sells 2 BTC in Dec 2021 for $47,500 per BTC

With FIFO method, Janet would set her cost basis for the 2021's sale as $15,000:

•     Capital gains on 2021's sale= ($47,500 x 2) - $15,000 = $80,000

With WAC method, Janet would set her cost basis for the 2021's sale as $11,625:

•     Capital gains on 2021's sale= ($47,500 x 2) - $11,625 = $ 83,375

With LIFO method, Janet would set her cost basis for the 2021's sale as $7,000:

•     Capital gains on 2021's sale= ($47,500 x 2) - $7,000 = $88,000

With HIFO method, Janet would set her cost basis for the 2021's sale as $28,000:

•     Capital gains on 2021's sale= ($47,500 x 2) - $28,000 = $67,000

As seen above, HIFO often leads to lowest capital gains and hence tax liabilities. However, the FIFO methodology is the most widely accepted cost basis method. This is because it accounts for the frequent points of purchases and sale of crypto assets across accounting cycles. Discuss with your professional accountant when deciding on your preferred cost basis method.

OBTAINING CLEAN DATA FOR YOUR COST-BASIS CALCULATIONS

When maintaining your ledger of digital assets transactions, it is essential to review the following data points across each wallet type:

•    Transaction fees

•    Timestamping of transactions

Not accounting for these may result in erroneous data being used in calculating the cost­ basis of your team's digital assets.

1.       TRANSACTION FEES

When calculating the cost-basis of your digital assets, it is essential to account for the fees incurred in the transaction. It is essential to deduct the transaction fees when determining the cost of the said digital asset. Some of these fees include:

1.  Gas fees charged by the blockchain protocol

2.   Fees imposed by the wallet provider (usually by centralised wallets)

For each of these activities, it is important to understand the relevant fees involved in the process and account for it. See table below.

2.     TIMESTAMPING OF TRANSACTIONS

It is common for Web3 teams to have transactions involving both centralised exchanges and self-custody wallets. The good news is that for both centralised exchanges and self­ custody wallets, users can quickly export their transaction records (e.g. via the central exchange's records or block explorers such as Etherscan).

However, centralised exchanges and block explorers often mark the timestamp of transactions in different timezones.

When compiling a chronological record of transactions across centralised and self­ custody wallets, finance managers have to ensure the transactions are in the same timezone before compiling them into a master journal. This matters because cost basis methods such as FIFO require an accurate chronological order of transactions.

It is best to keep all transactions to be in the same time zone, be it UTC or the local timezone of the entity in which financial statements are prepared for.

Here are the default time zones for popular block explorers and centralised exchanges. (Updated as of Dec 2022)

When choosing a crypto-native accounting software, ensure that these adjustments for fees and timestamps are accounted for. For instance, Headquarters (HQ.xyz), enables CFOs to generate automatic records of the cost-basis, fees, and time-stamp adjustments for crypto transactions - across wallet types.

DISCLOSURE FOR CRYPTO ASSETS

As there are no explicit IFRS and US GAAP standards for crypto assets, the presentation and disclosure of crypto assets and crypto asset transactions should follow the entity's approach about the accounting model to apply to the crypto asset, i.e. as an intangible asset, inventory, a financial asset or otherwise.

However, such disclosures require significant judgement and a thorough understanding of the underlying facts and circumstances.

For example, below are the summarized disclosure details of Microstrategy for their Bitcoin holdings in the annual report 2021 (note (g) to consolidated financial statements);

•     The Company determines the fair value based on quoted prices on the Coinbase exchange, the active exchange that the Company has determined is its principal market,

•    The Company performs an analysis each quarter to identify indicators for impairment,

In determining if an impairment has occurred, the Company considers the lowest price of 1 Bitcoin quoted on the active exchange at any time since acquiring the specific bitcoin held by the Company.

LEVERAGING TECHNOLOGY FOR FINANCIAL REPORTING

Implement robust accounting and tax systems that are capable of handling cryptocurrency transactions.

This may include integrating specialized software or hiring external experts like BlockOffice to assist with the accounting and tax reporting of cryptocurrency transactions.

Web3 companies can take advantage of accounting software such as QuickBooks or Sage lntacct to manage their corporate financial reporting. This software will allow companies to handle their accounts payable, accounts receivable, and payroll quickly and efficiently.

This can include using cloud-based crypto accounting platforms like Cryptoworth, utilizing data analytics to gain insights, and utilizing crypto-powered AR/AP and payment solutions like Request Finance.

Corporate level financial solutions designed for web3 in the marketplace can be evaluated by their cross­ functionality capability between applications. The right tools can dramatically simplify financial reporting in crypto for Web3 CFOs.

Crypto financial reporting and tax compliance is very difficult to accomplish at scale without a practical crypto bookkeeping solution to consolidate cryptocurrency transactions in one place. Sophisticated back-office solutions exist for web3 companies and DAOs to enable scalable crypto financial reporting and compliance.

The core requirement for the ability to produce meaningful financial reports from a corporate level crypto operation is through a bookkeeping solution designed specifically  for cryptocurrency transactions.

Tracking cryptocurrency transactions is an entire challenge on its own due to the complexities that come with blockchain and its technical diversity.

Meaning, such a solution would need to be capable of tracking transactions and other crypto data from the following sources:

•     Exchanges

•     Blockchains

•     DEXs

•     DeFi Protocols

•     NFTs

•     Neobanks

•     Crypto Payments & AR/ AP

•     MPC-enabled Custody Solutions

With the data sources being supported, the next challenge is data injection. This means how the back-office bookkeeping solution can actually receive the data itself in a secure Read-Only way while having the required dataset for a comprehensive ledger.

There are three possible data injection methods that need to be supported in order to support every crypto data source available.

•     Read-Only APls

•     Blockchain support (more chains the better)

•     CSV   support  (including  a  solution native template)

If the above data injections are all available within the back-office crypto accounting solution, there will always be a way to inject the data.

8. LANDSCAPE OF CRYPTO COMPANIES

As digital assets became more widely accepted, the need for corresponding tooling to meet accounting, reporting and tax requirements of both individuals and corporate users grew. Initially operating largely out of sight, tax authorities across the globe noted the surging value of digital assets and the increasing number of retail and institutional players within new digital asset markets. Following a long period in which cryptocurrency traders and participants in the broader ecosystem were largely left to their own devices, tax authorities now apply increasingly elevated levels of scrutiny and enforcement action. In response, consumers and enterprises seek the means to both reactively and proactively ensure compliance with tax regimes. In many cases, tax reporting requirements coincide with the need for enterprise-scale accounting and reporting solutions.

Recent market turbulence as the consequence of FTX's failure further underlines and incentivizes the need for appropriate accounting tools and procedures, whether for risk management, reporting purposes, or tax loss harvesting.

Source: FT Partners Research

Popular crypto onramps

Not long ago, the crypto onramp scene barely existed. However, now the onramping scene is much more lively. Some of the more recognizable crypto onramps in action today include, though aren’t limited to, the following services:3

• Banxa — a financial technology platform that provides fiat-to-crypto onramp services plus offramping services for stablecoins

• MoonPay — another financial tech company that provides crypto onramp and offramp services, currently active in +160 countries

• Mt Pelerin — a non-US, no-KYC crypto onramp based out of Switzerland

• Ramp — a crypto onramp and offramp service that specializes in facilitating in-app crypto purchases for web3 projects

• ShapeShift — a fiat-to-crypto onramp aggregator that supports buys through Banxa, JunoPay, Mt Pelerin, and OnRamper

• Transak — another onramp and offramp service that supports +130 cryptocurrencies across +125 countries

Which of these services would be right for you depends on your needs. They respectively vary in the money limits, payment options, and geographic jurisdictions they support, so some may be better fits depending on your specific situation.

Treasury Management and payment tools

These are the companies, tools, and protocols working on allowing on-chain companies to manage, deploy and diversify their treasuries in the best way for the organizational objectives.

When analyzing this segment, we decided to investigate both DAO-focused tools and broad-based ones. We explored over 30 treasury management-related solutions and below share a list of the ones we found more relevant/interesting. We believe the most interesting opportunities lie in either:

Company-oriented blockchain finance hubs (for which brokers/exchanges seem like a natural complementary business model)

OR

Highly secure open-source fundamental plug-ins that become basic block pieces (resembling pretty much what gnosis.safe achieved). We are skeptical about the market size and strategic positioning of treasury management tools exclusively focusing on DAOs.4

Payments

Focused on tools that allow on-chain organizations to streamline on-chain and off-chain payments for employees, contributors, service providers, and partnerships.

These tools provide DAOs and companies with more efficient ways to handle their increasing crypto payment transaction volume and complexity. To date, most on-chain payments rely on self-composed spreadsheets coupled with simple transactions from many self-created and administered wallets.

When analyzing this segment, we reviewed more than 20 payment and compensation tools, and below have shared a list of the ones we found most relevant/interesting. We found a significant overlap or potential synergies from tools offering payment services to those offering treasury management ones, and believe that there are significant strategic advantages for companies offering both. Again, similar to our conclusion for the treasury management section, we see considerably more value in non-DAO-specific approaches, although we decided to include some interesting DAO-focused profiles.

Crypto payments - provider landscape

VC developments

Check sizes in 2022 increased in the sector with prospects of consolidation going into 2023 as many regional players are emerging solving the same core problem set.

As many crypto tax competitors are starting to provide free crypto tax services for retail customers, many large players such as TaxBit believe future competition will be focused on attracting enterprise-level clients. TaxBit noted that there is limited competition for enterprise tax information reporting in the current crypto space and the company is at the forefront of this effort. 5

“For tax information reporting in traditional finance, there are a few players such as Thomson Reuters, IHS Markit, Broadridge etc., but we haven’t yet encountered their competition in the crypto space.”

– Lindsey Argalas, COO, TaxBit

As noted by TaxBit, other crypto tax players are starting to shift their focus on enterprise offerings to capture the more lucrative institutional client market share. Notable venture-backed competitors with professional product suites include CoinTracker, Ledgible and ZenLedger.

CoinTracker

CoinTracker is the official tax partner of Coinbase, OpenSea, Intuit’s TurboTax and H&R Block. The company’s crypto portfolio assistant and crypto tax solution supports +300 exchanges and +10,000 cryptocurrencies. CoinTracker’s portfolio management software has been used to track +$50 billion in crypto-assets (3% of crypto market cap tracked). CoinTracker’s tax solution has full support for the U.S., India, U.K., Canada and Australia (partial support for others). As a part of its enterprise solutions, CoinTracker also offers a tax platform for crypto providers (white labeled for each platform). Enterprise clients include Coinbase, Intuit’s TurboTax and Wolters Kluwer.

In January 2022, CoinTracker closed its $100 million Series A round led by Accel, with participation from new and previous investors, including General Catalyst, Initialized Capital, Y Combinator Continuity, 776 Ventures, Coinbase Ventures, Intuit Ventures, Kraken Ventures, as well as Claire Hughes Johnson (Former COO, Stripe), Gokul Rajaram (Coinbase and Pinterest board member), Jeremy Liew (Early Investor in Affirm and Snapchat), and Alex Bouaziz (Deel CEO). With this round, CoinTracker hit a valuation of $1.3 billion.

CoinTracker plans to use the funding to meet the increased demand and complexities of the cryptocurrency industry by:

• Bringing in high caliber talent to support its aggressive growth plans, including Head of Engineering Gaurav Garg, formerly VP of Engineering at Uber and Google; as well as Product Lead Zack Reneau-Wedeen, formerly Head of Product at Robinhood Crypto

• Continuing to lead in coverage of exchanges, chains, and popular cryptocurrency segments such as DeFi and NFTs as the industry evolves

• Expanding CoinTracker for tax professionals

• Scaling customer support, content and community to help users address their crypto portfolio and tax challenges more deeply

In April 2018, CoinTracker closed its $1.5 million seed round led by Initialized Capital. Other investors include Y Combinator and a host of angel investors. Some of those include Protocol Labs CEO Juan Benet and Paul Buchheit, the engineer who created Gmail. CoinTracker also raised $120K during its pre-seed round in February 2018 (led by Y Combinator).

Ledgible

Ledgible is a professional-first crypto tax and accounting platform. Ledgible supports +270 exchanges, 15 blockchains, and 3 accounting platforms (Netsuite, QuickBooks and Xero).  Ledgible supports a wide array of cryptocurrency wallets, including XPubs and other derivation-based protocols (HD). Major wallets include Ledger, Trezor and Bitgo. Ledgible Tax Solutions also integrate with all major professional and consumer tax software such as TurboTax, Tax Act, UltraTax CS, CCH Axcess and more.

In June 2022, Ledgible closed its $20 million Series A round led by EJF Capital. Joining the round are JAM FINTOP, Thomson Reuters Ventures, TTV Capital, Fenbushi US, Commerce Ventures, Nathan McCauley and Perkins Coie. Ledgible noted that the funds would be used to “expand the teams within [Ledgible’s] two core lines – Professional Tax and Enterprise Accounting, including further expansion to support [its] growing number of institutional partners and accounting firms.” Ledgible also raised $1 million during its pre-seed round in February 2018 (led by TTV Capital).

ZenLedger

ZenLedger is a crypto tax software provider that supports +500 exchanges, +50 blockchains and +40 DeFi protocols, including NFTs. Like TaxBit, ZenLedger is providing enterprise-grade solutions for public and private sector clients. ZenLedger has been partnering with the IRS to provide crypto tax support. In March 2022, ZenLedger announced the renewal of its contract with the Civil and Criminal Investigation Units of the IRS. The company also noted “Big 4 accounting firms ultra-high network tax practices, top 10 blockchain core developing teams and token/crypto founders” as its institutional client base.

In May 2022, ZenLedger closed its $15 million Series B round led by ParaFi Capital, with participation from Three Point Capital, King River Capital, and its Series A lead investor Bloccelerate VC, among others. This new funding was used to enhance ZenLedger’s professional offerings by adding products such as registered investment advisors (RIAs) and certified public accountants (CPAs). Prior to this round, ZenLedger hired for c-suite level executives in April 2022: Duyane Norman (Chief Strategy Officer), Daniel D. Escobar (Chief Technology Officer), Jonté Harrell (Chief Financial Officer) and Greg Adams (Chief Operations Officer). The employee base has tripled as well.

In August 2021, ZenLedger also closed its $6 million Series A round led by Bloccelerate VC. Investors included Mark Cuban’s Radical Ventures, G1 VC, Borderless Capital, 4RC, Centrality, BIGG Digital Assets, CoinGecko, Accelerator Ventures,Vestigo Ventures, Castle Island Ventures, Migration Capital, Blackwater Capital, and angel investors Jon Staenberg, Karl Muth and Darren Lau. ZenLedger noted that the company had raised a total of $11.5 million in funding as of Series A (two seed rounds disclosed: $3.4 million seed round in December 2019 and $1.5 million seed round in September 2018). This funding was used to launch ZenLedger’s crypto portfolio management solution and grow the company headcount (new hires in marketing, enterprise sales, customer service, and software engineering). During this announcement, ZenLedger shared that “the company has grown its customer count and revenue 500% YoY and has exceeded $5 billion in cryptocurrency transactions processed.”

3

Bankless

How to Onramp to Crypto without a CEX

Read more

3 years ago · 44 likes · 10 comments · William M. Peaster

Methodology:

Scoring the fashion brands was done using the following major categories: 

1. Purchasing Power of Wallets - As measured by the amount of liquid ERC20 tokens within the wallet. Purchasing power is our proxy for wealth and every brand wants the richest consumers. We will also sharpen this analysis by looking at wallets across a few wealth thresholds. Third consideration for this analysis will be to determine which brand is most concentrated in terms of high value customer cohorts through a clustering analysis

2. Impact of Frauds and Scams - As measured by the number of scam / fake / phishing tokens that were purchased by the brand’s customers. This tells us which brand’s consumers are likely to have negative web3 experiences. 

3. Engagement of Wallets - As measured by Daily Active Wallets (DAWs). More engagement, more potential. 

Diving into each of the categories, we rank each fashion brand to come up with an overall winner. Here’s how it broke down:

Purchasing Power of Wallets

Tiffany’s dominated this category with a staggering ~$20k average USD balance in collection owner wallets. The next leading brand, D&G, wasn’t even close, coming in at $1.3k. Gucci follows with $1.2k and Prada comes home dead last with a whimpering $400. If you want to know where the rich wallets play, it’s Tiffany’s!

But what if Tiffany’s appears to have more wealth because of some outlier billionaire wallet? Well we thought of that too. We looked at the percentage of each collection's wallets that fall above a certain threshold in wealth and it became evident that Tiffany’s crushes the competition here as well. 

% of wallets > Threshold

But what use is having money if you don’t use it? You can be a baller, but if you’re only spending once a year, that’s not impressive. This is where our clustering analysis comes in. We want to find high net worth individuals who spend. So, we ran our clustering algorithm on 2 variables, wallet value and transaction frequency to see which brand has the highest concentration of most valuable customers.

Some slight surprises here, but with our focus on the engaged whales, D&G comes out on top. It’s worth calling out that Prada has the most frequent traders, because (spoiler alert) that’s one of the few things they take the lead in so far. 

Impact of Frauds and Scams

We all know getting scammed can feel like your soul has been attacked, and that can create negative associations with brands. So we took a look at which brand’s collection owners have fallen victim to the most scams. Out of the top collections that each brand’s owners participate in, we found that if you’re a Tiffany’s owner… chances are you have been duped into buying a “bad” NFT. That might be because you’re RICH and people are targeting you. Heavy lies the crypto wallet eh?

% of total NFTs (that are bad) owned across the top 10 collections customers participated in

This one is kind of hard to explain without too many words, but what we mean is, if you look at all the collections that Tiffany’s collection owners participate in, rank them by participation overlap, of the top 10, this is the percentage of tokens that were bad. For example, take a look at this collection on Etherscan as it’s one of the most popular collections for Tiffany’s owners. I’m not mad, I’m just disappointed.

So who wins this category? D&G. Their customers are the least susceptible to scams! Hopefully we didn’t just alert scammers to an opportunity… 

Engagement 

Why is engagement important? Greater engagement means greater potential for marketing and greater potential for purchases, etc. Engagement drives retention and that’s what keeps you alive. So what portion of a brand’s user base actually transacts in the web3 ecosystem over the last 2 weeks? Here’s the answer:

Winner, D&G!

Conclusion

And with that, D&G wins overall and is crowned the best web3 fashion brand. Tiffany’s was so close and we almost gave them the edge because of just how much purchasing power they have in comparison to the other brands. Prada comes in last, but, interestingly, their consumers participate in fashion collections much more than the other brands’ users. Those wallets are interested in fashion related projects whereas other brands’ users are interested in web3 more broadly.

After crowning our top web3 brand, we expected we would get questions from curious minds to better understand our analysis. So… 

As a quick reminder, we measured the brands based on multiple categories (purchasing power of customers, wealth at different thresholds, persona clustering, impact of fraud, customer engagement levels). Let’s take a look at the first pillar of our analysis, purchasing power. We crowned Tiffany’s the winner of this pillar.

The easiest way to understand purchasing power is simply by looking at which brands’ customers have the most capital to purchase goods with. So we took all ERC20 balances of the participating wallets and summed and averaged them. Here’s how it shook out:

Now, one might argue that D&G should be the winner here given the total amount of purchasing power their community has, but that’s purely a side effect of having nearly 9x the amount of wallets. What brands should care about is the average because that shows who’s got the most liquid wealth. In this regards, Tiffany’s dominated. 

What if Tiffany’s appears to have more wealth because of some outlier billionaire wallet? Well we thought of that too. Here’s a distribution of the percentage of each brand’s wallets at various wealth thresholds. It’s evident that Tiffany’s crushes the competition here. 

All signs point to Tiffany’s at this point, but being the curious minds that we are, we also wanted to run a clustering algorithm on consumers to see if we could isolate high value customer groups and determine what portion of each brands’ users qualify as high value. The results came back more surprising than we expected. D&G and Tiffany’s have similar customer personas, but D&G came out ahead. 

Segmenting Users by Key Characteristics:

• Highly Engaged Whales - large balances, frequent transactions

• Traders - Highest velocity of transactions

• Modest bunch - 2nd highest wallet values, moderate levels of transactions

Tiffany’s has won 2 out of the 3 initial categories so far with D&G claiming one victory. We’ll dive deeper into the other analyses (fraudulent activity) and (engagement) in our following posts this week. 

Fraud and real engagement

As you know, the web3 space has been rife with scams and hacks, so we wanted to take a look at how they impacted fashion brands. 

A big part of brand strength is brand image and how consumers perceive their experience with the company’s products. Any brand looking to grow brand strength should try to minimize events that could harm their customers’ experiences. In web3, that means minimizing spam, phishing and counterfeit tokens. 

We’re not looking directly at how many customer wallets were hacked because that’s not something the fashion brand can really control as it’s more of a layer 2 front end issue. Just like if you saw an item on Nike’s homepage but bought the item through Amazon and Amazon is where the hack occurs.

Instead, we looked at the top 10 other collections that each brands’ wallets participated in and dug into each contract to identify potential bad assets. The results were surprising. Out of all the tokens in the top 10 other collections for Tiffany’s owners, 71% of them were tagged as spam, phishing or fake by Etherscan. 

Example of a bad asset tagged (red box) by Etherscan:

It’s clear to see that D&G is our winner in this category and while it’s going to be hard for any of these brands to secure their users’ wallets on their own, they should keep this metric in mind as a barometer for their users’ experience in web3. It is not a direct reflection on the brand, however we believe it could make their customers more likely to churn from web3, causing brands like Tiffany’s to lose influence in the space. Advice, track it and try to influence it.

Engagement

As we round up our Battle of the Fashion Brands in web3 analysis, we turn to our final metric, engagement.

When it comes to customers, companies should care about acquisition, engagement and retention. We’ve decided to focus on engagement for our analysis as we believe continued engagement levels results in better retention and is a sign of good customer experience. That positive experience will then drive acquisition through word of mouth creating a flywheel effect. At least, that’s what we believe, but we’re open to your thoughts :) 

We use Daily Active Wallet (DAW) to measure engagement by taking every wallet in each of the 4 brands and tracking whether or not they made a transaction with a web3 product. Then we took that number and divided it by the total wallet population of each brand to find out what percentage of their users are engaged. Here were the two week results leading up to our analysis. 

D&G was our winner over this time period, having captured the top spot 9 out of the 14 days in the past two weeks. 

And with that, we conclude that D&G was our winner having claimed top spot in the majority of our analysis areas. Stay tuned for our next analysis and if you have ideas for us, we’d love to hear them!

Here is the summary of the 3 sections for this Web3 guide from Cryptechie:

1. Web 3 stack: Overview of Web3 stack and what you need to know

2. Resources, guides and best articles: A list of constantly updating notion pages and databases full of crypto and web3 resources

3. Learning by doing exercises: Quick hands-on experience on various basic topics such as non custodial wallets like metamask & coinbase wallet, transacting on different blockchains like Ethereum & Polygon, trading or swapping crypto coins like ETH, DAI & MATIC , buying different NFTs like ERC721 & ERC1155 on OpenSea, transacting on centralised & decentralised exchanges, etc

1. Web 3 stack

The Crypto ecosystem can be better unpacked as a six-layer cake model¹, ranging from the basic settlement/mining layer, all the way through the consumer-facing decentralized application and access layer. Between the consumer facing access layer and mining is a spectrum of infrastructure providers, hybrid infrastructure application tools known as primitives, and composable applications that codify, enable and make accessible the various use cases across the crypto ecosystem.

A. If you are a beginner and want to understand Web 3 stack at a high level

A guide to Web3 and Blockchain stack by @Suhail

• Blockchains

  The base of Web3 stack is the blockchains network. These are divided into 2 types. The first layer refers to the base level of blockchain(its main structure) such as Ethereum and BNB. However layer 2 refers to networks built on top of layer 1 blockchains.

• Authentication

  These are the tools/wallets that is used to authenticate a user inside of applications. Metamask and Wallet connect are the most popular wallets.

• Languages

  In order to write smart contracts we need a programming Language. Popular ones are Solidity, Vyper and Rust. Each one has their own pros and cons.

• SDKs

  Building functionalities from scratch can be a little time-consuming, therefore we can use Web3 SDKs to make the development process much faster. thirdweb, Moralis are great examples.

• Frontend Development

  To develop the UI for Web3 application you would need a framework such as React, Angular or Vue. Developer can use any of them however for react there are many resources available online.

• Oracles

  Blockchain oracles are tools that connect blockchains to external systems. They act as a bridge between blockchains and off chains. Chainlink is the most popular price oracle.

• Development Environment

  This is the place that you write code. When it comes to writing smart contracts, you can either use Remix IDE a local development environment

• Web3 Libraries

  These are used to interact with the blockchain from client. There are many libraries that does that but the most popular are Ethers.js, Web3.js, and Web3.

• Node Providers

  Node provider offers a way to access information on blockchain without having your own local blockchain setup. Some of the fastest node providers are Chainstack, Infura and Alchemy.

B. If you are an engineer / Web 3 developer

Defining the web3 stack²

When building a traditional web or mobile application, developers depend on a handful of building blocks to get the job done.

1. API / app servers (REST or GraphQL)

2. Authentication layer (managed or hand-rolled)

3. Database

4. Client-side frameworks, platforms, and libraries

5. File storage

So what did this look like in web3?

• Blockchain

• Blockchain development environment

• File storage

• Off chain data protocols

• API (indexing & querying)

• Identity

• Client (frameworks and libraries)

• Oracles

• Other protocols

You can build a full stack web3 app with Next.js, Polygon, Solidity, The Graph, IPFS, and Hardhat

1. Blockchain - Polygon (with optional RPC provider)

2. Ethereum development environment - Hardhat

3. Front end framework - Next.js & React

4. Ethereum web client library - Ethers.js

5. File storage - IPFS

6. Indexing and querying - The Graph Protocol

Web3 Application Architecture

Preethi Kasireddy, who worked for a16z over 2013-15 and was an engineer at Coinbase from 2016-17, recently published a blog post that explains the “architecture of Web 3.0 applications.” Backend programming for a dapp is entirely different than for a traditional web application. In Web3, she writes, “you can write smart contracts that define the logic of your applications and deploy them onto the decentralized state machine [i.e. the Ethereum blockchain].” Web servers and traditional databases, in this paradigm, are no longer needed — since everything is done on, or around, the blockchain.

She notes a bit later in the post that “Smart contracts are written in high-level languages, such as Solidity or Vyper.” Solidity was partly inspired by ECMAScript syntax, so it has some similarities to JavaScript (but is very different in other ways).

As for the frontend, that “pretty much stays the same, with some exceptions,”She lays out the simplified Web 3 application architecture in this diagram:

C.If you are growth PM/developer in Web 3, understanding the Web3 Growth Playbook is key³

Web3 Growth Strategies

Partnerships & Integrations

Software companies growing through large BD deals is nothing new and many Web3 projects have adopted this strategy. For example, ChainLink executed on a strategy of closing partnerships during the 2018-2019 bear market and $LINK outperformed as a result.

However, business development can look very different in Web3 when these partnerships are negotiated transparently in governance forums rather than behind boardroom doors. Given that these integrations often do not require permission from one of the two parties, they are not always mutually beneficial. For example, a number of platforms have integrated Curve in ways that do not necessarily benefit Curve itself.

A few examples of Web3 partnership categories:

• Token utility - projects that have a native token want to make it as useful as possible. This could include exchange listings, collateral listings (eg adding $LINK to Compound), or a partnership with a DEX to drive additional liquidity.

• Distribution - all users interact with DeFi protocols through wallets (Metamask, Rainbow) and increasingly aggregators (Zapper, Zerion). These frontend interfaces control which protocols they show to users and so getting your yield aggregator integrated with wallets can be a big deal.

• Lego building - leveraging another DeFi primitive to bring additional utility to your product. For example, Notional leverages Compound to increase its effective yield.

• Mergers - the recognition of two teams building in similar directions and no longer making sense to compete has led to protocol mergers, notable Keep & NuCypher and Fei & Rari.

We're starting to see times prioritize hiring a partnerships/BD lead given its increased importance .

Liquidity Mining & Tokenomics

Growth hacking has become incredibly popular over the past decade as marketing has become more analytical and engineering driven. While growth hacking in Web2 has historically been on building affordable, repeatable growth loops, the focus in crypto has been on leveraging a project's native token to drive growth loops.

Liquidity mining is a "a network participation strategy in which a user provides capital to a protocol in return for that protocol’s native token." Just as VC funds helped subsidize marketplaces until they reached scale, Web3 protocols can bootstrap their growth using their native token.

Crypto projects that have grown through token incentives have faced similar challenges to Web2 startups that burned through piles of venture funding. The data is quite clear that most subsidized liquidity is highly mercenary. Hence, we're starting to see more thought out liquidity mining products including OHM and Rift.

Community

If Web2 companies have focused on driving loyalty amongst their uses in the form of engagement and retention, Web3 companies are focused on driving user ownership. One of the most exciting and unique features of Web3 is that "users...fund the products, information, and services that they consume." We're still very early in understanding all of the downstream implications of this innovation.

We think community is critical in a network growth context because engaged communities will give networks leverage in everything they do. This is evident if you look at the Twitter feeds of projects with engaged communities - every announcement sees a ton of engagement and retweets.

Communities can substitute or complement key stakeholders in Web3 projects:

• Early customers (and cheerleaders) - having a small group of fanatical customers is crucial for any startup. Community members can serve this role (and then some) because they're both early customers and have meaningful upside

• Leverage core team - community members can help with hiring, token design, fundraising (things investors historically helped with)

• Extend core team - community members can provide both technical and non-technical support to the core team. Sometimes they step up and join core team, other times this happens more ad-hoc.

• Distribution - upstart token projects want to partner with other projects with large communities, just like new products look for distribution in channels with a large footprint

D. If you just want to know more about real world use cases for Web 3

To grasp the power of Web3 , imagine the following ideas of how web3 could improve or disrupt the most successful companies⁴:

• Amazon logistics

  Instead of having large distribution centers, Use decentralized mini warehouses (e.g. your backyard) for storage & drivers pick up merchandises from closest storage location. Delivery fees paid in warehouse tokens are earned by warehouse owners.

• Meta / Facebook

  Users earn the platform token by posting and commenting. Amount earned is based on popularity of content posted. Advertisers pay for ads in the platform token.

• Google

  If the search engine / browser records any user data—e.g. demographic, behavioral— into its database, user earns the platform token. Advertisers pay in platform token to access the database.

• Costco

  Customers purchase store membership in NFT. They can rent out the NFT on secondary market to others who want access to Costco discounts but don’t shop frequently. Members get rental incomes. Costco gets more customers.

• Pepsi

  Pepsi owns dozens of food & beverage brands & regularly acquire new ones. A PepsiCo utility token— which customers can earn when buying from one brand & spend on another brand— could help Pepsi grow new brands by leveraging customers from existing brands it owns.

• Comcast / Xfinity

  Comcast operates a public WiFi network, which consist of hotspots in public locations, businesses & home gateways. A utility token supported by network revenue, which users can earn when providing hotspot service would improve WiFi coverage & user loyalty.

• Netflix

  Airdrop Netflix tokens to users-> Let users “stake” tokens on pilot shows they like-> Users earn partial streaming revenue from those shows. Now users have more incentive to help promote their favorite shows which attract more subscribers.

• Mercado Libre

  Use tokenization to drive traffic & give marketplace vendors more incentive. Vendors earn tokens when the customers they attract to platform make purchases. Vendors can then give the tokens to customers as discount or use tokens to pay for platform commissions.

• Airbnb

  Hosts & guests earn Airbnb tokens when they receive good reviews. They can use tokens to pay for future booking fees, or lower commission charges, or sell tokens on secondary market to monetize their rewards of being good participants on the platform.

• Nike

  NFTs matched one-to-one w/ limited-edition shoes maintain rarity even after physical shoes are worn out & gone. A collection of rare sneaker NFTs becomes a store of value, which gives more incentive for customers to buy rare sneakers & allows higher price premium.

• Starbucks - they already announced it!

A visual exploration of the REAL use cases of NFTs by @Shivsak

Resources

A list of constantly updating notion pages and databases full of crypto and web3 resources

1. Gaby's Web3 Reading List (One of the best resources!)

2. The Daily Ape by @Darrenlautf

3. Crypto resources by @a16

   

4. The Library by @CuriousAddys: Consider this your community portal to a world of web3 knowledge!

5. Token Economics Resource List: This is an open source list of valuable tokenomics resources

6. Working in web3 handbook by @smsunarto

7. Web3 Podcasts Spreadsheet by @AdrienBe_

8. Monday DeFi Market Alpha: Weekly DeFi news summarized

9. ZK Research by @asnared

10. Working In Web3 by @Clavisishere

11. List of 600+ crypto VCs

12. Sov's Compendium by @sovereignsignal

13. Crypto/Web3 So Far in 2022

14. A long list of 1600+ blockchain/crypto/Web3 projects with 1-liner description

15. List of 24 top resources to get up to speed quickly

Evergreen articles & research on Web 3

1. Best books on Ethereum (Mastering Ethereum) and Bitcoin (Mastering Bitcoin)

2. Crypto/Web3 Startup Ideas by DeFi alliance

3. How web3 is shaping the future of finance by 11FS

   

   How Web3 Is Shaping The Future Of Finance

   15.6MB ∙ PDF file

   Download

   Download

4. Web 3 gaming landscape

   

5. State of_Digital Asset Data Infrastructure Landscape

   

   

6. FT report on Blockchain - A basic blockchain industry report

7. The Ultimate Guide to Solana

8. A16z report on State of Crypto

9. Crypto consumer use cases

   

10. Learning, Earning, and Web3

    

11. Decentralization for Web3 Builders: Principles, Models, How

    

12. The Complete Guide to Full Stack Ethereum Development

    Building Full Stack dApps with React, Ethers.js, Solidity, and Hardhat

13. What Are Blockchain Bridges And How Can We Classify Them

    

14. Guide to L2 / roll-ups by Vitalik and L2 comparision by The Block

    

15. What I'm frustrated by in crypto - an honest piece

16. 2021 Electric Capital Developer Report

17. Dapp Industry Reports: Q2 2022 Overview

Transition to web3: a guide for non-technical roles

👩‍🏫 1. Start with basics (how & why)

Start here to learn the fundamentals of blockchain and crypto.

✍️ 2. Consume & create content

Curated information sources so you can stay up to date on web3.

🎓 3. Learn by doing

Jump in and use decentralized applications to gain more familiarity with web3.

🔍 4. Find your niche

Double down on sub-sectors within web3 that you’re passionate about.

🔨 5. Start contributing

Join a DAO to build out your network and start contributing to various communities.

🤝 6. Commit to your niche

Find a full-time role or part-time earnings opportunities in web3.

3. Learning by doing

Quick hands-on experience on various basic topics such as non custodial wallets like metamask & coinbase wallet, transacting on different blockchains like Ethereum & Polygon, trading or swapping crypto coins like ETH, DAI & MATIC , buying different NFTs like ERC721 & ERC1155 on OpenSea, transacting on centralised & decentralised exchanges, etc 

Learning by doing in partnership with Tony Mathew1

1. Buying crypto currencies in a centralised exchange

2. Experimenting with DeFi and DApps : Aave on Polygon Chain

3. Swapping coins on a Decentralised Exchange (DEX)

4. Buying an NFT on OpenSea marketplace

5. Importing NFTs to non custodial wallet like Metamask

6. Multiple non custodial or self custodial wallets using the same seed phrase or recovery phrase

7. Transferring between Ethereum and Polygon blockchains

8. Experimenting with wallets for other blockchains : Phantom wallet for Solana blockchain

Buying crypto currencies in a centralised exchange

A centralised exchange like Binance or Coinbase is similar to traditional stock exchanges in the sense that they allow to have an account with a simple login instead of dealing with private key or seed phrase. They abstract and handle these details for you. Also they allow you to buy or sell crypto coins using fiat money via different options including credit and debit cards. For this tutorial I am using Binance exchange and INR as currency.

To get started in an exchange or even a wallet, users are typically required to do an online KYC to verify their identity to ensure safety in such platforms. This is the screen that asks for such details. In Binance & earlier in Metamask also the committed time to finish KYC was 2 days, but it got completed in less than 2 hours.

On choosing Indian Rupees (INR) as currency, Binance gives me an option to buy crypto coins via P2P transactions , ie I am directly paying to a seller who wants to sell the particular coin I am looking to buy . Limitation with P2P is that it is a manual process. The exchange will hold the coins in custody from the seller, buyer transfers money to seller directly, then seller has to give confirmation to exchange on recieving funds and then exchange will transfer the coins to the buyer.

In this example I bought around 19 MATIC tokens on Polygon chain using FIAT money which is INR. Now the coins will reflect in trading wallet section of my Binance account. As a next step, I want to move it out of the centralised exchange to my fully controlled ethereum address so that I can manage the coins using my own non custodial wallet in a purely decentralised manner without any centralied exhanged acting as an intermediary. Remember once you have a private key and account(s) for Ethereum , the same is valid for other EVM compatible blockchains like Polygon and Solana and even testnets like Rinkeby and Kovan. So here I am using the address of my account 1 in my metamask wallet for ethereum chain to send the MATIC tokens on Polygon chain.

Since the transaction is happening on Polygon, you can see how low the gas fee is . If I had ETH and was trying to send to the same address on ethereum chain, then the gas fee would have been much higher. It may take upto 10 minutes as shown below for the transacion to be complete and the coins to be visible against your address.

Now in my metamask wallet, on choosing Polygon mainnet as the network, I am able to see the MATIC tokens against my address

Experimenting with DeFi and DApps : Aave on Polygon Chain

Once you have coins on a blockchian, you can also experiment with DApps (Decentralised Applications) especially DeFi (Decentralised Finance) apps . I have used some of the MATIC coins on Polygon that were purchased earlier to get hands on with Aave. As per the polygon blogpost https://blog.polygon.technology/polygons-defi-series-aave/

The Aave protocol is an open-source non-custodial decentralised liquidity protocol built on the Ethereum blockchain. It is the largest DeFi protocol in the world (by total value locked) and has a distributed team of over 70 people all over the world. The Aave protocol allows users to supply and borrow cryptoassets and earn yield on cryptoassets supplied to the protocol.

Go to aave.com and connect Launch App and then connect your wallet

When Ethereum mainnet is the chosen network on my metamask wallet, Aaave will show me the coins and the APY I can earn for them and also gives me option to borrow

On clicking supply you can see the the next screen that will show the gas fee. Since I am on ethereum network, the fee will be higher.

Now I switch to polygon network on my wallet and in Aave DApp to see my coins listed with option to Supply

On clicking Supply for MATIC it will show me the gas fee, which is very low on Polygon network as against the Ethereum chain

I went through with the transaction and then after it is complete , I can see that I have supplied 1 MATIC or approx 0.66$ to Aave so that I can start earning interest. I have the option to withdraw the amount or swap for another coin which will provide a different APY

Swapping coins on a Decentralised Exchange (DEX)

DEX or a Decentralised Exchange allows a crypto user to trade on crypto coins by swapping one coin for another. The process is achieved using a concept called Liquidity Pool which exists different pairs of coins. You can easily find detailed writings on the topic in the internet. Below you can see how this can be done on both Polygon and Ethereum chains.

1, QuickSwap on Polygon chain : QuickSwap is a DEX on Polygon chain. In an earlier part I had shown how I bough MATIC on Binance exchange and then sent them to my address. Now I will be swapping some of those MATIC tokens for WETH (Wrapped Ether) and DAI tokens. For example in the screen, I choose to swap some MATIC for DAI and then I need to click confirm

The my metamask wallet will ask me for confirmation and show the gas fee , which is very low and has to be paid in MATIC token , since this entire transaction is on Polygon Chain.

Similarly swapped some MATIC for WETH on Polygon.

The updated balance of all 3 tokens will show up in the coins dropdown option in QuickSwap and also in metamask web extension

Now, if the tokens are not appearing in metamask wallet, one needs to import the tokens. Click on Import Tokens screen after choosing Polygon Mainnet as the network. For WETH following are the details that can be obtained by seeing the WETH contract page on Poylgon scan. On import, the WETH balance is updated.

Below you can seen how to check in Polygonscan to find the contract address for DAI and then use that to import the tokens in metamask mobile wallet

2, UniSwap on Ethereum Chain : UniSwap is a Decentralised Exchange (DEX) on Ethereum blockchain. In the below I am trying to swap some of the ETH in Ethereum chain to get USDC on ethereum chain.

On clicking swap and then on the Confirm Swap on the popup, metamask wallet will popup to show the expected gas fee

In this case I cancelled the transaction after seeing the details as I did not want to execute a transaction with such a high gas fee on ethereum network.

3, Swap within Metamask wallet : Metamask wallet provides a swap option. It is not a standalone DEX like Uniswap or Quickswap, but instead it instead it fetches quotes from multiple DEX aggregrators and suggests user to choose the one with lowest charges.

Here you can see the price quote and gas price estimate for swapping ETH to USDT and WBTC. I did not execute the transactions and cancelled after seeing the price details.

Since gas fee lower in Polygon network , I switched to Polygon mainnet and did a swap of MATIC to WETH at a very low gas fee as shown below

Buying an NFT on OpenSea marketplace

OpenSea is the largest marketplace to buy and sell NFTs. Non-Fungible Tokens can be based on any of the two different standards ERC721 or EC1155. The latter standard actually enables the creations of tokens that are a mix of both fungible and non-fungible. Further, OpenSea allow transactions of NFTs that are based on Ethereum, Polygon or Solana blockchains. In this example below, I am buying a part ownership in an ERC1155 NFT on Polygon. I am doing this so that I can experiment at a very low cost.

1, Add Wrapped Ether for transacting on OpenSea : This is needed because OpenSea allows transactions using WETH which is an ERC20 token. For buying Ethereum NFTs, it must exist on Ethereum chain as WETH on Ethereum and for buying Polygon NFTs, it must exist on Polygon chain as ETH on Polygon .

If there is not enough WETH, more can be added by wrapping ETH balance or MATIC balance based on the chain in which balance is needed . See below example of wrapping ETH to WETH on ethereum

2, Then I searched for Polygon sports NFTs using the search filters and then sorted them by Price: Low to High

3, Checked the details section to confirm it is on Polygon and can also see type as ERC1155

4, To buy the chosen NFT click checkout, complete the Unlock and Sign parts of the transaction by clicking on the wallet , thus completing the purchase.

Importing NFTs to non custodial wallet like Metamask

To view any NFT bought on OpenSea in your metamask wallet , you need to import the NFT with the required details like contract ID and token ID . Go to your wallet and choose the network based on where the NFTs exist . In this example it is Polygon. On the NFTs tab, click import NFT and then enter the contract address and token ID that can be obtained form OpenSea. On completing the import, the NFT will be displayed in your metamask wallet.

Multiple non custodial or self custodial wallets using the same seed phrase or recovery phrase

For a non-custodial wallet , the 12-words seed phrase or recovery phrase is everything. Hence the major warning signs that you keep seeing on “never to lose this phrase” and to “create safe backups” . Ethereum seed phrases are based on BIP39 standard. It is a code generated when you create a new wallet for ethereum blockhain for the first time using a non-custodial wallet. You can play around on this site https://iancoleman.io/bip39 / to get an idea on the link between the 12-words seed phrase or recovery phrase, private key and public key.

This means that a user can reuse the same phrase in a new non custodial wallet to access the exisinting wallet without having to get a new 12-words mnemonic. I have used the seed phrase that I got while setting up my metamask wallet to import the wallet account to coinbase wallet app as shown below. This way I am able to see all my crypto coins that I hold on Ethereuem and Polygon chains in my coinbase wallet app . This is just by using the same recovery phrase or seed phrase that was provided to me when I had set up my metamask wallet.

Viewing transaction and coins holding details of an address using Etherscan and Polygonscan

Etherscan is the website where you can view details of a transactions and addresses in a more easy to read UI/UX.

You can view the details of the transactions against an address and also the tokens owned by that address by visiting Etherscan. Example : https://etherscan.io/address/0xad085736a7a27009dd346ecd1ce51cfab80c5e85 . If a particular address is also linked to an ENS (Ethereum Name Service) .eth domain, then that can also be used instead of the hexadecimal address. Example : https://etherscan.io/address/tonymathew.eth

As mentioned before, a user will have the same private key, public key and addresses in any other EVM compatible chain. So transactions and coin holdings of a given address on thePolygon network can be viewed by visiting PolygonScan and going to the page for that address . ENS name will work only for Ethereum chain and not for Polygon. Example : https://polygonscan.com/address/0xAd085736A7a27009Dd346ECd1cE51CfAb80c5E85

Transferring between Ethereum and Polygon blockchains

To view any NFT bought on OpenSea in your metamask wallet , you need to import the NFT with the required details like contract ID and token ID . Go to your wallet

1, Visit the website https://wallet.polygon.technology/bridge to do such inter chain transfers via the Polygon Bridge and connect your wallet

2, Ethereum to Polygon transfer needs just one transaction and cost gas fee on the Ethereum network

3, Polygon to Ethereum transfer has two stages with one on Polygon chain and other on Ethereum chain and will take upto 3 hours to be completed

Experimenting with wallets for other blockchains : Phantom wallet for Solana blockchain

Phanton Wallet is a famous wallet for Solana blockchain. If you want you can experiment with it. It provides an option to buy SOL using cards. Since minimum transaction is USD 300, i did not try any transactions. Here are the screens.

NFT craze has cooled down; DeFi TVLs are not breaking all-time highs; and people are wondering whether we are in the midst of bear market. However, building never really stops and new ideas are always coming up. One such concept that has existed for a while in crypto but hasn’t truly had its moment yet are DAOs. In the post titled The Future of Work, Ben Schecter argues that soon an average man won’t be working at a traditional company. But what does that exactly imply? And how are DAOs any different than traditional companies?

Let’s explore the potential of DAO (short for Decentralized Autonomous Organizations). We will go through a bit of history and then extract common properties of a DAO.

What does it mean?

The term was coined by none other than Vitalik Buterin who is known for his cheeky style. However, the necessity of a DAO comes from Bitcoin. One of the early challenges that Bitcoin faced was, due to its decentralized nature, it was quite difficult to agree on particular decisions. The classic example is the block size debate, whereby miners had the incentive to support bigger blocks whereas the developer community felt that a better solution to go with SegWit. There was no good way to settle the debate. This sparked a need for some sort of governing body. Vitalik in his article for the Bitcoin Magazine wrote a piece titled: Bootstrapping a Decentralized Autonomous Corporation where he attempted to address the question: do we really need the people? He then went on to introduce Decentralized Autonomous Organizations in the Ethereum White Paper.

The general concept of a “decentralized autonomous organization” is that of a virtual entity that has a certain set of members or shareholders which, perhaps with a 67% majority, have the right to spend the entity’s funds and modify its code. The members would collectively decide on how the organization should allocate its funds. Methods for allocating a DAO’s funds could range from bounties, salaries to even more exotic mechanisms such as an internal currency to reward work.

Today, the DAOs have evolved quite a bit. We have DApps such as Compound Finance running on ETH chain leveraging DAOs for making governance decisions. Governance tokens are distributed among early adopters and investors to allow for decision making. More on that later.

Vitalik’s definition of DAO is a little dated though now. In her post, A beginner’s guide to DAOs, Linda Xie gives a broader, more abstract definition of a DAO:

A decentralized autonomous organization (DAO) is a group organized around a mission that coordinates through a shared set of rules enforced on a blockchain.

Perhaps that’s a bit too vague though. Packy McCormick of Not Boring breaks it down a bit more concretely.

More simply, DAOs are a new way to finance projects, govern communities, and share value. Instead of a top-down hierarchical structure, they use Web3 technology and rapidly evolving governance and incentive systems to distribute decision-making authority and financial rewards. Typically, they do that by issuing tokens based on participation, contribution, and investment. Token holders then have the ability to submit proposals, vote, and share in the upside.

Let’s take a trip through history. And see how this concept has evolved over time.

Decred: Humble beginnings

There are models of governance that pre-dates Ethereum. For instance, the origin of Decred can be traced back to 2013 when an anonymous Bitcointalk user named ‘tacotime’ started a thread highlighting the problem with Bitcoin stating that PoW miners have amassed too much power and proposed a new chain “Decred” that gives power to the people who hold the currency via a Proof of Stake model. It wasn’t the first chain to introduce Proof of Stake. Decred is still relevant to this day, with a marketcap just shy of $1B making it the #86 in the top cryptocurrencies by marketcap. However, it hasn’t been as powerful as Ethereum.

Enter “The DAO”

Ethereum whitepaper introduced the concept of DAO, but Christoph Jentzsch took the bold step to author it. It launched in April 2016 as a decentralized venture capital fund. Members contributed ETH and received DAO tokens in return that could be used for voting on which projects the funds should be allocated to. 11,000 people invested 11.5 million ETH, 14% of the total supply at the time, worth roughly $150 million, which they planned to collectively invest in crypto projects. It was one of the largest crowdfunding campaigns in history. But soon turned out to the most controversial of the projects too. Two months into the project, hackers were able to steal 3.6 million ETH by exploiting a bug in the code. Luckily, the funds were put on a 28-day hold based on the terms of the smart contract, which gave the community some time to think. Eventually, after a contentious debate, the Ethereum core team released a hard fork of the Ethereum blockchain since it was a substantial amount. History was rewritten on the blockchain and in the new chain, there was no hack. Bitcoin maximalist immediately pointed fingers at Ethereum saying that the hard fork by small group of people demonstrated that the chain was not decentralized enough and a small group of people were able to critical decisions about Ethereum.

Aragon: power of composability

Despite “The DAO” hack and the consequent Ethereum fork that made many question decentralization of Ethereum, DAOs were not done just yet. Developers were learning from their mistakes and they started writing code that could be composed. Aragon promised to provide the picks and the individual teams were to be responsible for implementing their own DAO. This is a common pattern in programming whereby the framework creator simply makes it easy for the developers to implement their code with less errors as they do the heavy lifting themselves.

Aragon was one of more successful ICOs that managed to raise $25 million in matter of 15 minutes. Their vision was to make new company setup a plug-and-play experience. Any entrepreneur would have the ability to set up company ownership (via tokens), issue tokens, and raise funds for a project in a matter of minutes. You could set rules for the new company’s governance by creating tokens with various voting rights and tweaking percentages needed to pass a motion. You can also set rules for vesting schedules. Hence, making the experience of setting up a company leveraging a DAO very painless. Aragon wasn’t just the only name out there that was building such capabilities. There was also the DAOStack, District0x and others.

Today Aragon boasts to have created 1900+ DAOs with 60,000 members. But it hasn’t really been able to capture the market that well. Possibly because they were too early.

MakerDAO: first real use-case of DAO

Rune Christensen, co-Founder of MakerDAO, came up with a novel idea in a Reddit post to create a stablecoin (token whose value is pegged to the US dollar) by leveraging the power of three tokens: DAI (stable), ETH (collateralized) and MKR (govern). DAI was issued as a debt and required ETH as a collateral. More specifics on that some other time, but for now it is worth noting down that such a system as Maker required adjusting risk parameters and deciding on future iterations of the product. It needed guardianship and right incentives. The consequence: a governing token (MKR) that gave users voting powers and incentives to make the right decision. MakerDAO is one of the earliest applications of Ethereum.

MakerDAO’s governance model has been adopted by many protocols. Similar to Maker, the Compound protocol wants community consensus on which new markets to add, what parameters to change, how to issue COMP governance tokens (as a reward to protocol participants so they can participate in the DAO as well), and what to do with their three billion dollar treasury! By owning COMP tokens, your ownership weight is your voting weight.

Another example is Curve DAO building an automated market maker (AMM) that generates fees and provides revenue sharing for token holders that lock their tokens. The longer the Curve token (CRV) is locked for, the greater the amount of voting power and rewards received for the DAO member. Unlike traditional companies where profits are paid out pro rata, this DAO is setup such that voting power and revenue share is weighted according to the length of time a token holder has remained invested.

Moloch DAO and treasury management

During the depths of bear market, Ameen Soleimani, founder of SpankChain, recognized a problem with the Ethereum ecosystem. The developers didn’t have incentives to work on the Ethereum and as a result, progress on ETH2 was being hampered. He decided to fix it by building a DAO. The design was kept purposefully minimal, and thus reducing risk. Using MolochDAO, the members were able to propose projects and then acquire funding. One interesting feature of Moloch DAO was the ability to ragequit, i.e if a member don’t like a proposal, they can exit with their funds before the proposal goes through. MolochDAO’s contracts have been forked many times to create other DAOs.

Building on MolochDAO was MetaCartel. MetaCartel Ventures is a for-profit fund that invests in DApps and is an early investor in many prominent crypto projects including Zapper and Rai. Members consist of experienced builders in the crypto community. Similarly, The LAO is another DAO made up of Ethereum enthusiasts that has invested early on in projects. MetaCartel Ventures and The LAO are both examples of DAOs that have strong access to deal flow in the crypto ecosystem. Today, you need a staggering amount of 375 ETH minimum to become a member of the LAO.

In addition to financial instruments, DAOs have also been used to manage funds that seek to invest in specific types of projects. Similarly, PleasrDAO is a group that leverages a DAO with the goal of buying art in the form of NFTs. Most members of this group have never met, and some are still anonymous, but this hasn’t stopped them from buying an NFT of Edward Snowden for over $5M in April. At the time of writing, FlamingoDAO has a portfolio of $1B USD owning 215 CryptoPunks and 22 Bored Apes.

Constitution DAO and the connection to traditional institutions

In mid-November 2021, an internet collective called Constitution DAO crowdfunded close to $47 million in Ether. The goal was to use the funds to bid on a rare copy of the U.S. Constitution at a Sotheby’s auction on Nov. 18. This wouldn’t actually result in a tangible outcome that donors could use beneficially, but rather it exemplified that people could come together in novel ways to upend a traditionalist institution. Although, they lost the bid to Ken Griffin, CEO of Citadel, the move was significant enough to create waves in media and at one point, it was the favorite candidate to win the bid. It signified the power of DAOs and how quickly it could align people towards a single goal. It issued an admonition to traditional institutions: innovate or be displaced.

In late Feb 2022, Russia declared war on Ukraine that sparks protests across the globe. Around the same time, Shevchenko a Ukrainian based in UK, started a DAO for fund raising and donating to Ukraine. By end of March, it has raised around $8 million from people donating across the globe. As a consequence, Ukrainian President Volodymyr Zelenskyy legalized cryptocurrency in the country to address the deluge of digital assets that people wanted to donate to support humanitarian aid and Ukraine’s defense. This demonstrated enormous potential for DAOs as use-case for humanitarian causes.

One big milestone in getting DAOs recognized as a legitimate entity was getting Bill 38 passed in Wyoming that clarifies the legal status of DAOs. DAO contracts can be viewed as an LLC. The legal aspect of DAO has really been capitalized by Open Law. Open Law further makes it easier to create real world contracts using Ethereum. They essential wrap legal contracts within smart contracts. And makes it possible to sign and execute such contracts. Another product SyndicateDAO introduces the concept of web3 investment clubs. It can attach legal entities, open bank accounts, and issue K-1s. And allow a group of individuals to collectively invest in the web3 products such NFTs or tokens. Thus, we are ushering into this new era where DAOs will have legitimate place in the legal world.

The many faces of DAO

DAOs have come a long way. It originally started as a mechanism for ensuring that miners don’t have all the power and influence to dictate changes over the blockchain protocol. The new mechanism transferred power to tokens that could be distributed systematically. This incited a spark to add more powerful controls. Aragon was born that attempted to disambiguate power and money by building a blueprint for governing structures. It wasn’t super effective as the needs of the community were constantly changing. Birth of DeFi apps such as Compound, Uniswap and Curve required controls to be baked into the native protocol. Governance dashboards were built. Tools for monitoring and voting on proposals were created. Seeing success of governance tokens, DAOs were built that were essentially funding instrumentation for web3. Being decentralized and easily accessible, they managed to amass quite a bit of funding. Seeing their success, there was a need to bridge the gap from a legal perspective. And legitimize DAOs.

Coopahtroopa has a great article that sketches out the lay of the land and puts DAOs in different buckets.

There are 300+ DAOs with more emerging every day: check out this list which compiles DAO Tooling Matrix.

Holy Trinity: Power, Capital, Community

I spent some looking at the various DAOs that exist today and extracted common elements from them. Broadly speaking, all DAOs have some form of interjection of roles, capital and community. As an example, Grant DAOs are heavy on the capital side of things whereas a Protocol DAO requires stronger controls and access privileges. Similarly, Social DAOs has strong sense of community alignment. Same for Media DAO. But an investment DAO might be more heavy on the capital and access controls.

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1. Community

One common mistake people make when valuing ideas is that they don’t put enough emphasis on community. Products that built around DAO should gravitate where there is already community present. Today, most companies are dependent on some social chat product for internal communication. The are two big competitors are: Slack and Microsoft Teams. You can’t have coordination in a decentralized, distributed organization with such chat tool. The crypto community isn’t using Slack or Teams. They are use Twitter for getting the latest news and updates; Discord for engaging in active discussions and Reddit for knowledge sharing.

DAOs are becoming exclusive investment clubs that you can join if you can set aside certain amount of capital. NoiseDAO is one such example of a DAO that you can join by putting in minimum of 2 ETH. You pass in your discord username and it gives you access to a gated discord channel where participants of the channels are all members of the DAO. This gives some sort of exclusivity to members.

What is even more interesting are tools such collabland that allow folks to verify that they are indeed true owners of a particular NFT or some tokens. This tool integrates with Discord.

2. Capital

One interesting thing that catches the eye when looking at the list of highest funded crowdfunding projects is that majority of them are blockchain in nature. Crowdfunding, as a movement, had already been growing, but crypto tokens has put that on steroids. Platforms such as kick-starter allowed for crowdfunding and in return, the investor would be the first ones to see the product. In world of blockchain, when you invest in a project, you aren’t just incentivized by getting first look at the product, but you are actually making money if you are an early investor. A lot of people have made quite a fortune from investing early in blockchain projects. And as an entrepreneur, blockchain has proven to be a great vehicle for raising money.

But raising capital is just one part of the story. You could be building decentralized internet, but it doesn’t necessarily qualify you as a DAO. In order to be a DAO, the capital has to be locked up in treasury and only accessible by some people. Thanks to the open nature of the blockchain, people can know where the funds are being spent and if they have the right governance structures in place then it would be very hard of someone with access privileges to send funds for personal interests. This makes DAO an ideal candidate for not just raising funds but also managing them and allocating it to right projects that are beneficial for the org.

For additional safety, you have products that allow funds to move only there is sign-off from sufficient number of people.

Balaji’s concept of a mirror table (inspired from cap table) is another example where blockchain solutions shine. The radical transparency of blockchains make it easier to understand the flow of funds.

3. Roles

An organization can not function effectively if all members of that organization are experts on the same thing. We saw Industrial revolution bring about assembly lines that lead to higher productivity as role became more specialized roles. Similarly, we expect a DAO to have members with various responsibilities and unique expertise. This is codified in the smart contract. There needs to be dynamicity so that these rules can evolve. As a result, we have upgradable contracts that grant/revoke accesses from members. However, for managing all of this complexity, we need UIs.

We already saw how Aragon attempted to build a framework such that it could take advantage of composability of smart contracts and build a foundation upon which all futures DAOs could be built. In practice, however, it had some challenges taking off. That being said, some patterns are starting to emerge. One such pattern is giving community tokens and letting them vote on proposals for a protocol.

💡 Member personas

Creators — founders, full-time instigators of the organization
Believers — motivated by DAO’s purpose, more interested in status rewards than financial upside

Early contributors — doing work for pre-token equity, potential upside, and resume building

Investors — buying equity at primary sale for upside and mission support
Mainstream contributors — doing work for liquid native token, stable coins, or fiat
Management — earning token-based rewards for recruiting, managing, and evaluating contributors
Utility buyers — buying tokens to access products and services from the late stage DAO

Our thesis on “Stripe Atlas for DAOs”

We are bullish on DAO infra companies such as Superdao that are building "Stripe Atlas for DAOs". In the current landspace, there are many pain points to be addressed:

• DAO formation often requires lawyers, smart contract developers, audits, and high fees.

• Legal uncertainty, particularly regarding SEC guidance on token sales.

• No proven reusable templates or one-click formation tools 

• No enterprise-grade support for DAOs with $10M+ AUM 

• Member engagement levels are low, DAOs can't efficiently reach their members 

DAO tools don't have interoperability standards and are hard to use together. It is not hard to imagine that in the next decade many of the world's next great orgs will start as DAOs, not Delaware C-Corps. A lot of people are choosing to work for DAOs: aligned incentives with the DAO, equity, career velocity, etc. With DAO employment you get paid in crypto, same upside across the globe. Customer investing becomes a norm: financial upside + owner benefits. More savings are put into DAO equity than into NASDAQ-traded equity (~$20T) DAOs adopt self-tax policies and create revenue base for "crypto economy government"

Launch Checklist for DAOs

Before you launch a DAO, here is a broad checklist of things for you to consider:

Formation

What forms of DAO membership are you planning to use in the next 2-4 months?

• NFT-based membership for access (content, events, etc.) and governance rights

• “Private” tokens for investors (SAFTs, warrants, locked tokens)

• “Private” tokens for core team, advisors, and partners (SAFTs, warrants, locked tokens)

• Exchange-traded tokens

If you plan to use NFT-based membership, what features will you need?

• Multiple tiers of membership

• Restricting NFT trading (lock period, approval required, rights lost on transfer, etc.)

• Collect royalties from secondary trading

• Core team can update NFT artwork after sale

• Core team can change metadata on NFTs, e.g. assign custom roles

• Ability to increase the membership limit (e.g. if community votes for it)

• Member dues / “property tax” — NFT owner needs to pay DAO to keep NFT

• Black list / Core team’s power to mark member NFTs as “banned”

• NFT recovery (for members who lost access to wallet)

What features do you need for NFT launch?

• NFT airdrop to core team, advisors, partners, influencers

• Whitelist collection + private mint website

• Whitelist collection + free airdrop

• Public mint website

• Primary sale revenue management. Sending proceeds to DAO treasury, operating entity, etc.

• Member data collection on whitelist application or mint site (e.g. emails)

• Releasing NFTs for sale in batches

If you plan to use private tokens, what features do you need?

• Private tokens for investors (SAFTs, warrants, locked ERC20 tokens)

• Private tokens for core team

• Private tokens for advisors influencers, partners, early customers, etc.

• Lockup schedules (e.g. locked until TGE + 1 year, then released linearly for 1.5 years)

• Support limited transferability (e.g. investor entity change or wallet change)

• Dual on-chain + off-chain system (traditional legal agreement + ERC20 token)

• Ownership transparency = owner table sharing

Chain preference

• Ethereum + Polygon

• Solana

• Binance Smart Chain

• NEAR

• Other

What are your technical requirements?

• Ability to upgrade or extend smart contract

• Ability to acquire/add ENS domain to your DAO

Which legal entity is right for particular use cases?

Operations

What access features do you need?

• Member directory

• Member-only newsfeed

• Token-gated content on other apps: G Docs, Notion, Airtable, etc.

• Member-only chat / Discord, Telegram

• Member-only events

• Cross-DAO access: members of one DAO granted access to another one

What asset management features do you need?

• DAO-owned wallets (stablecoin, ETH, NFT holdings, third-party tokens, etc.)

• Ability to own off-chain assets (real estate, fine art, etc)

• Ability to create SPVs for individual assets (e.g. for investment DAOs)

• Fiat-based bank account (via linked traditional entity)

• [x] Treasury dashboard tracking all assets in one place

What level of governance do you plan to use in the next 2-4 months

• No community governance in the early period, core team makes all decisions

• Limited governance (voting on investment deals, grants, budget, elected roles)

• Proposal-based governance with veto power by core team

• Full proposal-based governance

Contracts and SubDAOs

• Ability to create SubDAOs with localized governance and budgeting

• Ability to appoint agent-of-record for off-chain representation, e.g. property ownership, fiat banking, employment contracts

• Ability to sign contracts with off-chain vendors

• Ability for members to create their own DAOs (e.g. player guild DAOs)

Spend management

• Workflow for contributor payments, invoices, etc.

• Ability to delegate small spending decisions to individuals and small teams

• Ability to pay for SaaS products as a DAO, e.g. for Notion, Typeform, etc.

• Spend reporting and bookkeeping

Exit options

• Pre-built process for DAO dissolution

• A way to distribute DAO assets to members or appoint dissolution manager

• A way to sell DAO or conduct DAO+DAO merger

🚀 The DAO Lifecycle

DAOs are similar to humans, they grow in stages, from an embryo to a fully adult organization. Below is a typical growth sequence for a DAO but each journey is unique and has its own path.

Idea stage

Leader + purpose + name 

To get started, one needs a name for the DAO (can be a working title), a leader, and the purpose of the organization. The purpose needs to be stated from the perspective of members and supporters (why we want this DAO to exist) and not from the perspective of the creator. In other words, articulate what kind of good things the DAO will make for its members and the general public.

Believers

Founding members + written roadmap + public profile

Manually invite most ideologically motivated people and draft together a plan of action. How do you want the DAO to work and what are you planning to make. The decisions on tokens, NFTs, and governance system can wait, focus primarily on value creation at this point. With founding members and a draft roadmap, an “upcoming DAO” profile can be created to attract more members.

Early contributors

Contributor loop + reward system

Figure out the most common and repeatable tasks the early members can do to help your DAO. Then, propose rewards for those actions. Rewards can include special achievements NFTs (designed for status, not speculation), whitelist membership for future NFT minting and token airdrops, and options to buy future NFTs/tokens at an exceptionally low price. 

Initial capitalization

Token raise or primary NFT sale

Introduce DAO’s main token or its primary NFT collection representing membership. By this stage you will have two types of members — the ones who earn their membership via labor contributions and the one acquired through primary sale. In other words, you are now mixing “work to join” with “buy to join” models. You still can be pre-screening buyers and limiting the secondary market for memberships if it's important for your specific DAO. 

Governance setup

Partial decentralization + voting

Transferring some governance rights from creator to community. Typical decisions to delegate include financial parameters (“tax rate”), curation, investing, featuring, budget and grant approval, token allocations, and elected roles.

Treasury setup

Treasury composition + liquidity + spend management

Diversifying DAOs treasury to include its native token, unminted primary NFTs, major coins, stable coins, tokens from related DAOs (e.g. from the blockchain of choice) and fiat. Partnering with liquidity providers and lenders for loans, guaranteed exchange rates, and yield programs to generate more interest and currencies needed for contributor compensation.

Development program

Payroll + grants + project-based hiring + bounty program + programmatic incentives 

Recruiting contributors, including engineering, business roles, influencers, customers, and ecosystem partners. Using fiat, token and NFT-based compensation models. Automating rule-based compensation, including giveaways and airdrops.

Sustainable revenue

Member dues + secondary royalties + service review + licensing 

Longterm revenue models for DAOs include annual fees for holding membership NFTs (aka “property tax”), royalties from secondary NFT trading, paid services and gas fees, DAO-owned IP licensing.

Full decentralization

Governance layer + operating layer

Separating governance activities (policy, budgeting) and operating layer (an ecosystem of “labs” providing development and operation services. The main token may be split into a governance token (voting powers) and a utility token (ecosystem currency) at this point.

Future potential

DAOs aren’t a new concept. And have existed since the early days of blockchain. They have continuously been evolving from being just a great vehicle for fund-raising to managing treasury and distributing funds to areas that people decide need the most attention. As the crypto ecosystem continues to grow and draws more resourcing, it will create an even greater need for better management of capital. There are many areas where tooling can improve. Raising funds in compliant manner with no rug pulls. That’s where legal tech is going to play a pivotal role. You require better community management so that it is easier to voice opinions. And the community is adequately incentivized so that the ideas that are brought up are beneficial to the larger group. This could be mean some sort of payroll being incorporated. And having transparency in fund movements. All of these avenues for growth warrant their own exploration. But we will get to that a later point in time.

Why create a DAO?

• Growth incentive = give DAO equity for usage, referrals, social media activity

• Collective action = resource building, advocacy, co-marketing, standard creation

• Status systems = private communities with public display of membership

• Labor equity = share financial upside and governance with platform workers

• Liquidity = package assets to be traded on crypto exchanges, e.g. IP rights

• Investment = find, fund, and promote winners together: startups, tokens, NFTs

References & Further reading

• https://linda.mirror.xyz/Vh8K4leCGEO06_qSGx-vS5lvgUqhqkCz9ut81WwCP2o

• https://underscore.vc/blog/the-future-is-dao-a-primer-on-daos-and-their-explosive-growth/

• https://coopahtroopa.mirror.xyz/_EDyn4cs9tDoOxNGZLfKL7JjLo5rGkkEfRa_a-6VEWw

• https://1729.com/daos

• https://www.placeholder.vc/blog/2020/5/7/aragon-daos

• https://future.a16z.com/ dao-canon/

(Please note all the information below is publicly available on Coinbase website or twitter internet)

This was also a week where Coinbase turned 10 years! With ~100M KYC users and $300B crypto traded in just one quarter, Coinbase has firmly established itself as a crucial gateway to the Web3 ecosystem.

At Permissionless, our Chief Product Officer also unveiled some of our most important products: Dapp wallet/browser and Coinbase Pay SDK

• Dapp wallet and browser: Launched a web3 browser built directly into its main mobile app, powered by MPC tech that eliminates the need for you to manage your own keys.

• Coinbase Pay: The easiest fiat-to-crypto solution - purchasing or transferring crypto takes just a few clicks and developers can apply for access to the SDK.

Looking back to Brian Armstrong’s Mission, Vision & Strategy statement - we can see how far we have we have come along as Coinbase evolves into an app platform and new financial ecosystem

About five years ago, I wrote the Coinbase Secret Master Plan that outlined the four phases I envisioned cryptocurrency going through on its path to reaching 1 billion users. We have made incredible progress towards this plan, with >50M verified users on Coinbase, and more using other crypto products.

If our mission of increasing economic freedom is what we’re trying to achieve, then our strategy represents how we’re going to get there. This revised framing reflects where we are in the evolution of crypto 5 years later, and what we think the next 5+ years will look like.

Our strategy has 3 pillars (July 2019):

— Brian Armstrong

Coinbase Ventures is also advancing crypto & Web3 by partnering with exceptional founders who share Coinbase’s mission of creating more economic freedom for the world. It is recognized as one of the most active corporate VCs in the world by deal count. To date, we’ve invested in 300+ teams building everything from layer 1 protocols, Web3 infrastructure, centralized on-ramps, decentralized finance, NFTs, metaverse technologies, developer tooling, and more.

Coinbase Ventures generally break down our investments across six categories. Within these six categories, here’s how our activity shook out in Q1 ‘22.1

3 years later, not much has changed from the original vision except that the articulation has become sharper with increasing realization on how important open-source, decentralization and self-custody are! 
As we evolve towards the Product 3.0 strategy, these 3 guiding principles influence how we think about building with the users at the center of our decision: 

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1. API - first

Empowering developers and other ecosystem partners to build along with us

2. DeFi - first

Innovating in DeFi to allow permissionless, 24x7, global, instant access to everyone

3. Self-custody first

Embracing decentralization while building trust and ease of use for next 100M users

For more inspiration on our crypto spirit of “default to open,” watch this 2019 video where Coinbase hosted an open house with Brian

W22 companies are building in more than 80 sectors but Fintech + Crypto comprises more than a third of the batch. ~30 Crypto companies span various sub-sectors such as NFTs, DeFi, web3 services and crypto investing. As usual, this was a hard exercise to do, but we sifted through many of these amazing companies and founders in the space to shortlist 7 Most Promising Crypto and Web 3 Startups in Y Combinator Winter 2022 batch you need to watch out for! Without further ado, here is the list:

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🚀 Top 7 Crypto & Web 3 Startups

1. NFTScoring: NFT Trading Platform

• One line pitch: “NFTScoring is the place for you to discover, analyze and trade NFTs. We give you the superpowers to understand the NFT market in any given moment, make the best decisions, and take faster actions.”

• Why it is exciting: NFTScoring is trying to build a better dashboard for NFT traders which accounts for some of the unique attributes that make some NFTs more valuable than others, all while helping users find trending projects early. A big emphasis appears to be tracking which projects NFT whales are buying into through tracking a network of wallets. The startup has premium tier pricing which users need to pay for with Eth.1

• The team: Adam and David met while working together in the Avast AI research team. Together, they launched multiple companies, including an AI agency, and a logistics SaaS business. They are both technical founders with Data Science and AI master degrees.

2. Remi Labs: Everything a business needs to launch their own NFTs

• One line pitch: “Launching an NFT collection can seem tantalizing for brands, however, when executed poorly can create long-lasting negative implications. We take the cringe out of NFTs.”

• Why it is exciting: Businesses need to keep up and utilize the power of NFTs to help grow products lines and services. Launching an NFT collection can seem alluring for brands. However, when executed poorly, it can create long-lasting negative implications. Most businesses do not have the technical expertise, or the understanding of how to generate NFTs. Remi makes the NFTs for e-commerce businesses that want to sell to their customers. With Remi, customers don't need cryptocurrency, or even a crypto wallet.

• The team: Brant and Dan both worked at Podium (YC W16) and helped scale it to $100M ARR in three years. Doug and Roger have spent the last several years at Vivint, leading sales teams of 1000+ across the country. We all launched an NFT project together and have spent a lot of time in the space as consumers.

3. LiquiFi: Carta for crypto / web3

• One line pitch: “LiquiFi (“Carta for crypto”) helps companies and DAOs automate their token vesting, management, and distribution to employees, investors, partners, and community members. Secure, audited smart contracts guarantee timely distribution of vesting tokens and save significant time and resources spent building your own solution.”

• Why it is exciting: Token management is a clear web3 startup growing pain and YC has always been particularly successful in helping scale “startup-for-startup” products. The team stumbled across the idea for LiquiFi while working at a previous crypto companies they experienced how painful it was to set up and distribute tokens with a vesting schedule. As a result, they decided to work together to build a solution that would solve this token vesting problem.

• The team: Robin (CEO) and Oliver (CTO) were good friends for 6 years before starting LiquiFi. Robin worked as a Product Management Lead at various companies such as Eco, Adobe, Coffee Meets Bagel, and LinkedIn. Oliver worked as an Engineering Manager and Software Engineer at Set Protocol, Twitch, Amazon, and Salesforce.

4. Poko: Replace LLCs with DAOs in Emerging Markets

• Pitch: “We are building Slack for Web3. We aim to replace LLCs with DAOs in emerging market cross border collaborations. We will take costly multi-step months-long company registration and setups down to $50 a month and with the ease of opening a Slack channel.”

• Why it is exciting: DAOs are hot, but the tooling behind them is still catching up with the hype. Poko is leaning into the idea of using DAOs as LLCs which has some legal blurriness stateside but less so in plenty of other geographies.

• The team: Van led Netflix marketing strategy and growth in Southeast Asia and Australia, establishing fan communities in the region. Sean is an avid community builder and podcaster in the gaming, sports and mental health space. Geoffrey built a digital identity product that had 20M+ users in India and Vietnam. They have known each other for 18+ years - experience include being founding team members of a $2B coin cap protocol, creating a blockchain-based exchange that partially exited to Binance, and authoring consumer protection recommendations at the World Economic Forum's Digital Currency Governance Consortium.

5. Chaingrep: Search for blockchains

• Pitch: “Chaingrep is a search engine for on-chain interactions and digital assets. You can think of it as a new kind of block explorer. We think that current block explorers like Etherscan are too complicated to use for regular users, and that abstracting a lot of their functionalities and filtering out all the noise can dramatically improve the experience of finding on-chain information.”

• Why it is exciting: The transparency offered my blockchains is only as good as the platforms that make interpreting that data simple and readable, something that will become more important as more non-technical users find their way to web3 platforms. Block explorers are hard to use and haven't changed in years despite the exponential growth of blockchains like Ethereum. There could be a better way to organize the cambrian explosion of digital assets like NFTs and on-chain interactions. Just like web pages, we won't be able to put them in labeled lists forever or even categorize them. Your interactions should be human-readable, and you should be able to find an NFT simply by describing it. Thats why ChainGrep is building an Etherscan for humans.

• The team: Merwane (CEO) and Rosco (CTO) met in 2019 while working on their own projects. Rosco has a MSc in Computer Science and Merwane dropped out of university. They both worked as software engineering contractors prior to founding Chaingrep.

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6. Argo: a platform for monetizing premium short film entertainment

• Pitch: “Argo is on a mission to empower Film and TV makers worldwide. It’s the easiest way to upload and monetize your content. Argo provides the technology and the ecosystem for the Filmmakers to monetize their film and tv work through advertising, subscription and NFT sales.”

• Why it is exciting: Argo is a media startup focused on short films first and foremost, offering a platform for filmmakers to showcase their work while also tapping NFT sales as a way of helping them monetize their work and build buzz. Argo’s believes that short form content doesn’t just HAVE a future, but that it IS the future; and they are approaching it from “creators first” mentality that empowers filmmakers to monetize their work in new and innovative ways.
  They are building a social ecosystem Argo is building for short films, bringing together filmmakers, film festivals, brands, and influencers to provide better recommendations and a more engaging experience.

• The team: Arcadiy Golubovich was a seed investor in FUBO TV that IPOed in 2020. He found the largest entertainment financing company in Russia before that. He has built a career on being on the intersection of technology and entertainment. He has produced several feature films that premiered at top film festivals, and was an early investor in companies like Boxee that sold to Samsung, Fable that won several Emmy's for media innovation, Prizeo that sold to Custom Inc and more.

7. Finnt: Decentralized Finance & Crypto for Families

• Pitch: “Finnt is the first DeFi app for families. We provide multi-user, high yield saving accounts, which make it easy to save with crypto for your children or family members.”

• Why it is exciting: DeFi for families is an interesting take by mainly focusing on allowing users to link sub-accounts to a central investment account. While this is a bold bet since entire family savings are now potentially at risk in the DeFi world, there is a massive opportunity IF the guardrails are in place. Attractive value props here include creating cross-border savings accounts, using stablecoins to protect against inflation, generating high interest rates to beat unstable economy; and designing multi-users accounts to allow for better planning and remittance.

• The team: Anji & Faouzi met in 2008 during their Masters in Computer Science. They co-founded DOZ.com in 2010, a Marketing SaaS that got acquired in 2017. Also in 2018, they launched together an Ethereum Dapp, Varanida.com, acting as personal data wallet, that peaked at over 200K DAU.

..and that is a wrap! Check out the list of all companies👇

Follow me on LinkedIn

Nakul

If you liked this post from Cryptechie, please subscribe and share! 

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The creator economy is bigger than just entertainment and it’s bigger than just consumer—it’s about people being able to use technology to build in new ways, and then being able to use the internet as distribution to share and monetize those creations. The creator phenomenon avoids simple categorization; no industry will go untouched.

Currently, the creator economy is estimated to be over 100 billion USD: Creator economy startups are expected to raise funds up to $5B in 2021. There are 3 big macro-drivers for this:

1. Today, nearly 70 million Americans earn income as self-employed
   By 2028, that will swell to 90 million. And it’s not just the USA; this is a global trend accelerated by the pandemic

2. Freelancers want to control their destiny to achieve financial freedom faster

If freelancing appeals to workers for its autonomy, flexibility, and financial upside, freelancing’s growth is fueled by technological, macroeconomic, and cultural forces.

• On the technology front, internet platforms have enabled new forms of work. They connect worker and consumer, often making work more global, scalable, and frictionless. They make it feasible to earn a living wage online.

• On the macro front, the COVID pandemic accelerated the disaggregation of work. Many people found themselves out of work or more distrustful of traditional work. They turned to tech-enabled jobs or decided to dictate their own fate by going solo.

• And, most meaningfully, on the culture front, the disaggregation of work embodies the ethos of a new generation. It’s a reaction to institutional, centralized power, and a reaction to unprecedented inequality.

The Gini Coefficient measures income inequality, with a higher number equating to more inequality. USA’s Gini Coefficient has trended steadily upwards over the last 50 years. This chart helps explain why work is changing. The forces that led to Occupy Wall Street in 2011 are the same forces that led to GameStop mania in January 2021. As one r/WallStreetBets Redditor wrote during the GameStop craze, “This is the first time we all literally get to decide our destiny.” The disaggregation of work is about that control—that ability to control your destiny.

3. Numerous easy-to-use vertical Platforms have democratized access and broadened monetization

More than 4 Billion people, almost 60% of the human population is on the internet and are using creator platforms one way or another. However, only a tiny percentage is part of the creator economy, as most people are only generating social capital. Crypto economy will turn social capital into an economic value making every one of us part of the Creator economy. 

In the coming 5 years, there will be large number of platforms emerging which will broaden access to new forms of work, lower the barriers to entrepreneurship, democratize the means of production and distribution, and empower the community. Eventually, this will lead to the creator middle class, wherein not just the top 1% of creators make all money, but many creators will be making a full-time living using these platforms.1

Creators include chefs, teachers, DAO workers, NFT artists, gamers, fitness gurus, small business owners, coaches, community leaders and anyone doing non-commoditized work supported by digital platforms.

Credit: Li Jin

What’s striking about the creator phenomenon is that it’s not a vertical trend; rather, it’s a through-line that cuts across social, gaming, crypto, media, commerce. It is both the future of work, with creators forming a new class of digitally-native entrepreneurs and the future of leisure. And while the creator phenomenon is often thought of as a consumer trend, it encompasses both enterprise and consumer.

Products like Figma, Notion, Airtable, and more let everyday people build with the software. Each has a vibrant community of creators. They become creator economy companies—and become more than just tools—when they layer on a marketplace to let creators sell what they build. Airtable marketplace, for instance, lets you build an Airtable app and then earn income as others use your App. A mom-and-pop shop owner who builds an app to track her shop’s inventory can make money when other shop owners use her app for their own stores. This is the power of shared creativity, and is not new for developers who use tons of APIs and example projects when building something new; nobody has to start from scratch.

Part 2: Evolution of Creators (Web 2 to Web 3)

We are seeing an inflection point where the top creators are straddling 2 worlds - a) Web 2 centralized platforms (Instagram, TikTok, Twitter etc) where their audience (distribution) & engagement lives, and b) Web 3 platforms which promise to give the creators direct control and monetization opportunities.

Web 2 stack

Influencers of every stripe can monetize their passions and build an audience in nearly any category—writing a food newsletter for baking enthusiasts, creating TikTok dance choreography for followers to mimic, or playing Fortnite with thousands of onlookers.

Focus on investing in creators has led to a Cambrian explosion of creator tools entering the market, competing alongside incumbents and newcomers. This wide range of creators means a category-specific section of the tech stack, with each influencer curating and culling a list of their essentials—a photographer might include photo editing tools while a podcaster relies on audio editing apps.

Moving to Web 3

Creator tools enable micro-economies. The shift from Web2 to Web3 creates revenue streams which prioritize community ownership over individual ownership. By intertwining financial assets with social capital, we’re now witnessing a new type of asset class dominated by online community coordination.

This is the rise of micro-economies.

In Web2, creators monetize their work via SaaS or advertising models; they’re paid for a newsletter, artwork, or craft on a regular basis, or earn through platform-inserted ads around their content.

In Web3, creators monetize through the issuance of a social token or NFTs directly to their fans, with non-fungible tokens acting as digital media ownership.

How are crypto marketplaces and NFTs changing the game for creators?

The big picture is that emerging “tokenization” models, including non-fungible tokens, or NFTs, are creating new ways for collectors and investors to buy, sell, and trade digital art. More broadly, these innovations open the door to the tokenization of any products or collectibles that can be captured and owned digitally, and many new business models for creators.

Marketplaces powered by NFTs open up new revenue streams for creators, because anytime digital work is resold or their tokens traded on these platforms, the creator automatically gets a percentage of those secondary sales. It’s all transparent and governed by code on the blockchain, and it’s a big shift in creator economies.

1. NFTS: NFTs introduce a kind of digital scarcity and uniqueness that aims to give power back to creators. In the past creators have tried to adopt direct monetization in a bid to create scarcity. Using e-books, albums or even subscriptions. The major drawback has been the illegal duplication and distribution of these resources. Here’s where NFTs come in. This technology with its verifiable on-chain records enables creators to maximally utilise the passion of a few 100 true fans rather than millions of fans. These 100 true fans could then be incentivized with digital bragging rights and other forms of exclusive access. While the masses keep enjoying the almost free content. An example of a platform already pushing this model with the music industry is Catalog.

2. Social Tokens: social tokens would enable creators to have control of their relationship with their fans encouraging more direct engagement. The fans on the other hand would see supporting the artist, not as an act of help but rather as an investment. These fans would do all they can to assist the creator’s success. As the creator’s success would determine the token’s success leading to profit for the community of fans hodling the token.

3. Data ownership and portability: The current web 2 structure puts creators at a loss whenever they attempt to leave a platform or even get de-platformed by the platform itself. Such would mean leaving behind their audience on these platforms. Future-centric platforms like substack have already begun to give creators total ownership of their audience. Substack allows writers to take along email lists of their subscribed audience if they ever decided to leave the platform.

4. DAOs - community ownership and decision making : DAOs - decentralized autonomous organizations are a perfect model of community-focused platforms. They are online communities owned and operated by their members. Membership is mostly through a community token. Bringing this into the creator economy would mean decisions on algorithms, monetization and even what features to be developed on these platforms would be jointly made by the community. Decisions that would previously have been made by the profit-oriented platforms alone. A great example of this model would be Mirror.

Part 3: The Need for Developers tools (Bridging Web 2 <> Web 3)

Prior to 2006, startups weren't a thing. With the launch of AWS, the startup ecosystem boomed - Airbnb, Instagram, Uber & millions of companies launched due to AWS.

Plaid started in 2013 and post 2015 - every company wanted to offer fintech products. The launch of Plaid, Marqueta, and other fintech infrastructure players enabled new kinds of use-cases like embedded banking.

We are now at beginning of the second renaissance - a digital renaissance led by creators who are traversing both Web 2 and Web 3 worlds with their fans. This will give rise to platforms that enable the next generation of creator economy companies to be built. We see this as the inflection point from where the size of the market will grow exponentially by lowering the barriers to entry for new startups.

Why we need Developer Tools for Creator Economy

Today, the best way to move data around for developers and creators is to share screenshots. That doesn’t sound right for the year 2022!

The problem is that the developer tools available today for the above-mentioned creator economy developers are akin to website development in the early 1990s - primitive and archaic. We aren’t kidding! History has shown that whenever a new computing platform emerges or a behavioral shift happens - it’s preceded by the developer tools needed to build great products. This was the case for desktop computers, the internet, and mass smartphone adoption. We are currently in the tools boom for the creator economy.

💻 Jobs to be done for developers:

Their biggest pain point is finding a verified source for the data of their customers, the creator. While these developers could build their own APIs to the top creator platforms, their jobs to be done are to outsource a non-core function so they can focus on their core product, achieve aggregate coverage across platforms, and go to market in the fastest possible way.

1. 👨🏻‍💻 Outsource a non-core function so they can focus on their core product: Integrating with creator platforms’ APIs is hard enough, but maintaining the integrations after changes and updates makes it a full-time business. Hence, developers prefer to focus on their core product offering and outsource the API management part.

2. 𝍑 Achieve aggregate coverage across platforms: There are a lot of creator platforms out there, well into the hundreds. For a developer to attract the right creators, they must have coverage across the platforms where their creators live. This is a challenging problem for developers to attain coverage across all platforms and anticipate future platform shifts.

3. 🚀 Go to market in the fastest possible way: For each integration with a creator platform, there’s a cumbersome and time-consuming process including app approval by the platform. All of this takes time. Developers want to use market-available APIs to launch to market in the quickest time possible

🎬 Jobs to be done for creators:

The best creators have their identities intertwined with their data on the biggest creator platform of today. Hence, their data on these platforms is their most valuable currency. Their jobs to be done are to use their data to prove their legitimacy, to ensure that it is transported in a secure manner, and to have the power to cut off access to their data whenever they want.

1. 🙋🏼‍♀️ Use their hard-earned reputation as a part of their identity: Creators do not have formal W2 or employment verification documents. Hence, they need to use their creator platform data to prove their identity. Using this data, creators should be able to apply for loans, build influence dashboards, and even claim social-based airdrops of tokens.

2. 🔐 Ensure that it (their data) is transported in a secure manner: Privacy and security are of utmost importance. For creators who have their identities established on these platforms, they need to ensure that their data and content are safe without the risk of being hacked, plagiarized, or leaked.

3. 🎛 Have the power to cut off access to their data whenever they want: Creators need to be in control. They want to audit and revoke access to their data at any time and for any reason.

Potential Use cases

1. Empower brands to discover niche and upcoming creators. APls will enable the scaling of engagement reporting and CPM tracking through technology rather than manually (leading to the rise of a creator middle-class)

2. Enable creators to build a professional profile-based on their on-chain (NFTS, POAPs, Tokens, Votes, etc) and off-chain data (Discord, Discourse etc). This way, they can show the rest of the world what they've done, while relying on
   'proof of work'.

3. Access to financial products like loans and insurance to creators at fair rates

4. Enable developers to build tools for creators to build their own websites (link-in-bio)

5. Social identity verification of a creator for Web3 companies. Acting as a bridge between web2 & web3.

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Part 4: The market for such Dev Tools

The TAM for developer tools for Creator economy across Web 2 and Web 3 is sizeable with an estimate of $4-5B. This can span multiple use cases (proof of identity, proof of work, proof of income etc.) across a host of sectors with multi-billion address able markets - notable gaming, NFT, gated content, content marketplaces, creator financing and business management tools.

Fans also need to be continuously verified by these creators for gated content, content marketplace, crypto, web3.0, NFT and Gaming. There are 300M users of these services today and influencers/platforms can engage with dev tools to verify their fans/users.

Many new players are emerging who are building APIs in tangential categories and could expand to use cases in the Creator economy.

Part 5: Betting on Phyllo - ‘Plaid for Web 2 <> Web3 Creator Economy’

Phyllo builds APIs for secure and on-demand transport of a creator's data from creator economy platforms like YouTube, Twitch, OpenSea, Discord etc to developers that are building and serving the creator economy. These developers range across influencer and affiliate marketers (#paid, creator.co), creator financing platforms (Karat, Pixel Card), NFT marketplaces (Opensea), social tokens (Rally, Autonomy Network), and many more.

As one of the earliest investors in Phyllo, I have seen the small but mighty founding team of 3 grow to 30+ strong in less than a year and solve some of the most challenges problems in the space with user-centric design. I am bullish on Phyllo and many others developer-first API businesses that will transform creator economy in the coming years!

How Phyllo Helps

Developers need access to creator data from the creator platforms for various reasons that are core to their business models.

The challenge with access to such data is that developers either integrate with public APIs of multiple platforms and hence spend immense energies in going through multiple docs, building apps, getting necessary approvals, and then maintaining the integrations. Or, in cases, where the creator platform does not provide public APIs, developers write custom scrapers and try to hack their ways to somehow get the data; an approach that eventually becomes unsustainable. Needless to say, many organizations resort to manual methods of getting creator data that are both expensive and cumbersome.

Phyllo solves this challenge in the following ways:

• Phyllo provides you a single API pipe to integrate with multiple creator platforms, whether they provide public APIs or don't.

• Takes away the headache of integration, version maintenance, platform permissions, and relationships

• Simplifies the integration process by normalizing API responses across various data attributes

• Secures the data following industry best practices of encryption, data protection, and infra security

Supply Side Coverage
Phyllo's singular focus is to give developers a single, reliable data pipe to access creator data. While they are quickly progressing to 100% coverage on all major creator platforms, their intermediary approach is tranche-based.

Phyllo's pricing for the core products are designed to mimic the current status quo - a usage-based business model charged per API pull. Over time, due to catering to large enterprises, Phyllo will shift to a subscription-based business model that will allow for continuous access

Some amazing Product demos that just scratch the surface of what dev tools can enable in the creator economy!

Phyllo APIs Use Case - NFT Marketplaces | Demo Video - Watch Video

IDFY Bot User Experience! - Watch Video

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