Blockchains, Banks, and Block Space

What is the business of the new internet?

Author

Forefront
November 27, 2023

Happy Monday!

Welcome to edition 168th edition of the Forefront Newsletter. If you’re new here, we give you a weekly roundup of the best news and insights at the intersection of crypto, culture, and community.

This week we’re covering:

Let’s get into it…

What’s Poppin’

Binance, the world's largest crypto exchange, was criminally charged with breaking sanctions and money-transmitting laws and agreed to pay $4.3 billion to settle the allegations in "one of the largest penalties" the U.S. has ever obtained from a corporate defendant. Founder Changpeng "CZ" Zhao pleaded guilty in Seattle to charges he personally faced and agreed to pay a $50 million fine, as well as step down from the CEO job. Richard Teng, a former Abu Dhabi regulator and later Binance's regional markets head, will take over as CEO.

Bankless cofounders David Hoffman and Ryan Adams have received criticism for the lack of differentiation between the BanklessDAO and BanklessHQ brands. In response, the two have decided to submit a governance proposal to BanklessDAO early next week to clarify branding separation between the entities. They also plan to burn all of their BANK tokens on the back of this proposal. While the details of the proposal have not yet been released, there are already some people who are concerned that completely breaking associations between the two entities is not the way forward, instead advocating for a separate but aligned mission between the two organizations.

The essay "Virtual Blockchains in The Modular Era" discusses the shift from capital-intensive infrastructure development to a more modular, cost-effective approach in web3 technologies. It explains how this evolution, exemplified by rollups, simplifies development and reduces costs, mirroring trends seen in the internet industry post-dot-com crash. This shift enables rapid, scalable innovation in blockchain applications, making it easier for startups to enter the market. The essay also highlights the potential of virtual blockchains in creating flexible, application-specific environments, indicating a significant change in the landscape of online services​.

This essay by Kerman Kohli explores Farcaster, a web3 social platform using Ethereum for identity and a distributed network for messaging, offering a more open alternative to traditional social media. It enables permissionless identity, allowing users to link Ethereum addresses to their Farcaster ID for integrated social and on-chain identities. The platform's open data approach, exemplified by its integration with Dune analytics, offers comprehensive user insights. Farcaster's ecosystem, including applications like Bountycaster, demonstrates the potential for diverse, interconnected applications. The author lauds Farcaster for its user-centric approach, contrasting it with the limitations of current algorithm-driven social networks.

Yup, a new app designed for cross-posting across multiple social networks, publicly launched this week, including Twitter/X, Bluesky, Farcaster, Lens, and Threads. Yup aims to streamline the social media experience in the face of a fragmented ecosystem. However, at launch, Yup does not support the entire social app ecosystem, notably excluding platforms like Mastodon and Nostr. Yup’s goal is to allow users and creators to consolidate their social media presence across various platforms, enhancing interoperability among these networks. The development of Yup represents a shift towards more integrated social media experiences, despite the challenges posed by the diverse and decentralized nature of the current social web landscape.

This essay from Galaxy explores the emergence of block space as a revolutionary business model in the crypto industry. It begins by highlighting how new technologies, like software, have historically enabled innovative business models, with SaaS being a prime example. In the crypto space, four main business models have been identified: SaaS, exchanges, stablecoins, and block space, with block space being the newest and most intriguing. Block space refers to the sale of a specialized computing resource on a per-operation basis, creating a business model based on demand-side network effects. This model is not dependent on individual businesses or companies but can be facilitated by decentralized networks like Bitcoin or Ethereum. Consumers are purchasing over $8 million worth of block space daily, with blockchains coordinating the production of this resource. The business model for block space is characterized by high cyclicality, correlation with market volatility, poor gross margins but attractive operating margins, network effect-based business, and scalability​.

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Inbox Signal TL;DR

The 14th edition of Inbox Signal went out to Forefront Members. Here's a taste of the stories:

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Fun with Fundraising

  • Privy announces an $18m Series A led by Paradigm.

  • Saga announces a $5m Seed Extension led by Placeholder.

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