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TBW #39: How the Exchanges got burnt out

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TBW #39: How the Exchanges got burnt out

Read all about The Big Whale's 39th Premium newsletter.

Hello Whales and welcome to the little newcomers who have just joined us in the Premium edition. There are already more than 1,500 of you reading us every week! Thank you so much 😍

To devour this week

🖊️ Editorial

🔥 Our exclusive news

⚡ ️ The Metaverse Investigation

🤖 Spot Wallet

THE BIG SPLASH

Season 2 ⭐⭐

This is it, it's the end of the year, time for assessments and retrospectives... Rest assured, that's not what we intend to do, you already know the news too well.

For this last newsletter of the year, we've got something else planned. Firstly, of course, to thank you 🙏

Eight months ago, we launched The Big Whale with a lot of desire and hope. Needless to say, those hopes have not been disappointed. Thanks to you, the medium can already count on a community of over 15,000 supporters and readers!

Should we be satisfied with that? Of course not, and that's the second point we wanted to raise with you: like many start-ups in the Web3 ecosystem, we're still only at the beginning of the adventure, and we're going to have to grow and structure ourselves 🚀

That's our ambition in 2023. We're going to succeed in doing that by improving, innovating (NFTs are part of this strategy), and by getting you more involved in the project!

Waiting for the resumption in January, get some rest, recharge the batteries. We're all going to need it.

The Big Whale team 🐳

THE BIG NEWS

Our EXCLUSIVE NEWS 🔥

👉 Audit: how the Exchanges got burned

This is what we call the double kiss cool effect. While the Exchanges have utterly failed to reassure about their "Proof of Reserves", they have also managed to "burn themselves out" with the audit firms that had agreed to work them. "Some platforms really wanted to manipulate opinion by passing off simple checks as real audits", explains one consultant 😬. In particular, Mazars has "temporarily" suspended its relationship with Binance. "The problem is that the auditing world is a very professional and rigorous environment where we don't really like this kind of manipulation," he adds. Not to mention the fact that everyone talks to each other. "When you do this to one firm, you do it to all the others," adds another consultant. Will Mazars, EY, Deloitte and KPMG no longer be working with Binance and Crypto.com? Nothing has been said, as these companies are potentially big clients 💰. What is certain in any case is that they have not created the conditions for trust. That's the last straw when you're looking for reassurance.

THE BIG STORY

Metavers: the teenage crisis

Hyped as THE next big revolution, the metaverse is far from having won everyone over. Users are still few and far between and its uses still seem fairly limited, leading some to say that it has... no future. But is this really the case? We investigated 🔎

Sébastien Borget is a big fan of Twitter. The boss of The Sandbox posts short videos there almost every day in which we see him and his avatar wandering around the metaverse he co-founded.

One minute, the Frenchman is at a concert. Another, he's jumping from building to building or walking through a shop... Each video is different, except that he's always quite alone. There are, at best, a handful of other avatars in his company 🙃

It's a fact, metavers like The Sandbox (owned by Animoca Brands), Decentraland or Axie Infinity are relatively little used.

One figure speaks for itself: according to DappRadar, there are on average fewer than 1,000 daily users on Decentraland and The Sandbox. A particularly low figure, especially when you consider the valuation of these companies. Based on its latest fundraising, The Sandbox is worth more than $3 billion!

This huge contrast has led some to say that these new virtual "eldorados" are just bubbles, and have no future.

But is this really the case? 🤔

As usual, things are (much) more complicated. We surveyed platforms, users, investors and businesses!

A huge potential

To understand the expectations around metavers, we need to go back to its origins and potential.

Metavers hasn't broken through in the last two years by chance. It has accompanied the rise in power of the "Internet of value" - the famous Web3 - and crypto-assets. Although cryptos fell sharply in 2022, the market has more than doubled since 2020.

In this Internet of value, there are new currencies, cryptocurrencies, new objects, NFTs, and also new spaces: these are the metavers.

The metavers offer a new playing field for companies. Several reports, including one published in mid-2022 by the consultancy McKinsey, suggest a potential of several trillion dollars - $5,000 billion by 2030. Inevitably, companies are taking an interest 🤑

Hundreds of Web3 companies like Dogami, which offer to breed dogs in the metaverse (you may not like it), have emerged on this trend.

"The metaverse allows us to transform industries like gaming where you directly own your assets," explains one of its co-founders, Bilal El Alamy. Dogami has just raised 14 million euros.

Many traditional companies have also understood what is at stake. Gucci, LVMH, Carrefour and Nike have all set up shop in The Sandbox. Some brands, such as Gucci, allow you to buy products directly - virtual handbags for 4,000 euros in the virtual world of Roblox. Others allow you to buy products in their virtual shop that are then delivered to you in the real world.

Banks and insurers have also understood very well that they need to get in on the act. JP Morgan, HSBC and Axa, to name but a few, have all taken plots of land and created virtual branches.

A vision summed up by Cyrille Magneto, VP Innovation at AXA France, as follows: "The metaverse allows us to present a different image of the brand, attract new customers and bring in tech talent. Some of our staff are already using metavers to go out and prospect for customers."

The fact remains that, while some experiments are interesting, sales are still very low. "A lot of brands won't say it, but it's not taking off", explains a good connoisseur of the sector.

Despite sometimes exorbitant prices, particularly in the luxury sector, volumes have not exceeded a few hundred thousand dollars, according to our information.

Most importantly, customers are not legion. Why?

Firstly because access to metavers is not simple. Not everyone can get to The Sandbox at the snap of a finger. "We're still in the seasons phase where we're testing the game and the technology before opening it up to the general public," confirms a company spokesperson.

Managing the scalability, in other words the growth, of the protocol is a real challenge. Currently, no metavers are capable of supporting the presence of several hundred thousand users with sufficient quality and security.

Then there is the subject of user experience, which is still very far from satisfactory. "We get to the end of gaming experiences pretty quickly," explains one investor. Not to mention the equipment required: wallets to identify oneself on decentralised platforms or VR headsets for 3D metaverses.

Continuing to invest

But is this a reason to give up? Far from it. And while the metaverse has been the target of much criticism, particularly since Mark Zuckerberg's Meta group made it its priority, some believe that this is, on the contrary, the best time to learn and "build".

The industry is growing, points out Frank Desvignes, partner at True Global Ventures and investor in The Sandbox. "We've gone from 10 to 230 creative studios in The Sandbox over the last twelve months," he explains.

For many, the buzz around the metaverse has created huge expectations, but we need to be patient. "We're at the very beginning," insists Frank Desvignes. "The metaverse experience will improve and that's what will attract users and convince companies to invest."

Axa is one of those companies. In early 2023, the insurer 🇫🇷 will launch an "experiment" in the metaverse for its customers. "Completing the experiment will earn you an NFT which will give players advantages in the metaverse and also outside it," explains Cyrille Magneto.

Part of the rewards may come in the form of the platform's token (the SAND at The Sandbox, the MANA at Decentraland) which can itself be converted into bitcoin or traditional currencies.

Idemo for Dogami. Players will be able to obtain discounts or privileged access to partner products or derivatives. This model based on gamification and ownership is at the heart of what the metaverse promises. Frank Desvignes sums it up simply: "Play, own, earn and have fun" 😎

The metaverse is not doomed. After undoubtedly growing too fast, it needs to mature and manage the market downturn. "It's just having its teenage crisis", sums up one investor in the sector. The real challenge, especially for companies, is to be ready when it comes of age.


THE BIG FOCUS

Édouard Steegmann (Spot): "The user experience is essential for a wallet"

Following in the wake of the FTX crash, the wallet developed by French company Spot has now been downloaded more than 500,000 times. Its CEO, Édouard Steegmann, looks ahead to future developments in the market.

The Big Whale: How do you stand out from other wallets?

Édouard Steegmann: Our priority is really the user experience. We want everything to be simple and intuitive. We don't do tech for tech's sake, even though Spot is full of it (laughs).

The aim is to do what Apple managed to do with the iPad, i.e. a product that everyone knows how to use. Even my grandmother knows how to use an iPad!"

You're also a multi-currency wallet, which is rare enough to be highlighted...

We're compatible with Bitcoin, Ethereum, Polygon, Solana and Tezos, and we're currently thinking about adding new protocols, such as Cosmos and Ethereum layers 2.

We also allow NFTs developed on Ethereum, Polygon and Solana to be displayed. Our users really appreciate the display quality of these. Few wallets currently allow you to highlight their graphical dimension.

Your approach is ultimately quite similar to that of your competitor ZenGo. What really sets you apart from them?

They share with us the idea that simplicity is paramount, but we have different strategies. Spot is a wallet that offers "total" sovereignty, whereas ZenGo will never give you your private key entirely 🔑

This allows them to keep users captive (because they can't migrate to another product, ed. note), whereas on our side we prefer everyone to be free to change wallet if they want.

What is your business model?

We take a commission every time a user buys, sells, trades or stakes cryptos. Currently, our revenue comes mainly from buying cryptos. We collect 0.85% on the total amount paid by bank card, but we think that in the future there will be virtually no fee for this service.

In the long term, we will mainly make money from higher value-added activities such as staking or crypto-crypto exchanges.

You have never offered returns via lending providers. Why is that?"

This is a real question that, like many players, we asked ourselves. And after weighing up the pros and cons, we decided not to do it. Why not? Because it would mean working with centralised intermediaries like Celsius and Nexo, which we didn't want to do. The future proved us right, even though it was hard to know that it would be such a mess.

On the DeFi, if we launch we want it to be well done and simple to use. In the meantime, experienced users can use Wallet Connect in Spot to use all the DeFi apps on the market.

What features do you plan to add in the coming weeks?

We're going to continue on the integration of NFTs developed on Polygon, adding all sorts of data such as floor price variation or scarcity levels.

Overall, we're big believers in Polygon, which is a very interesting and low-cost blockchain. We're also going to offer peer-to-peer payment functionalities like CashApp does. This could be very useful for merchants wishing to accept crypto payments.

For this service, we should be highlighting a stablecoin (USDC a priori) on Polygon (a priori too) and address book-type features. Spot will also very soon be offering a chat protocol for communicating with other wallets and services.

You were one of the first crypto partners of online payment giant Stripe. What do you think of their strategy?

They've been slow to get going, like a lot of big traditional players, but they're currently one of our most active partners. What's interesting is that they're already looking at DeFi applications...

How do you explain that Spot isn't compatible with Ledger products, when its co-founder Éric Larchevêque is one of your shareholders  ?

We wanted to do it when the Ledger Nano X came out, which has a Bluetooth connection and can communicate with a smartphone. But, at that time (2019, editor's note), Ledger was still selling a lot of Nano Ss which, themselves, don't have Bluetooth. Now that the Nano X is more widespread, we might consider it 👀

What do you think of their new product, the Ledger Stax?

Honestly, it's a beautiful product and the fact that it's the iPod designer who worked on it is a real plus.

We'll probably make sure we integrate it into Spot. The only problem is that Ledger still hasn't figured out how to keep the private key off a piece of paper. It will be a revolution when they find a solution.

How do you see the future of the wallet sector?

The FTX case has clearly highlighted the need to store your cryptos yourself. To give you an idea, the average balance on Spot wallets has doubled in recent weeks.

Then we have to be clear-headed, there will be other FTXs because people always want more simplicity and exchange platforms offer them that simplicity. Education takes time, but we can see that attitudes are changing. Even Apple now encrypts iCloud end-to-end, which is great news for wallets in the event of hacking!"

NFTs have been an accelerator in the adoption of wallets. Where do you think the next wave will come from?

I think Web3 gaming will be a big driver of adoption and could attract hundreds of millions of users.

How do you analyse the controversy over Metamask collecting certain data from their users?

Many people have taken offence at nothing. Unless you have three computers, are permanently on the Tor browser (which allows you to surf the darkweb discreetly, editor's note) and have never revealed your identity, you are already known and tracked by many services. Those who are criticising Metamask are probably people who want to avoid paying tax...

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