Why crypto wants $500 million worth of Twitter

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With help from Derek Robertson

The crypto industry doesn’t want to be part of the conversation anymore. It wants to own it.

That’s one way to read the latest bit of Twitter financing news, at least.

When Elon Musk announced the list of backers for his Twitter takeover on Thursday, one of the most intriguing was Binance, the global crypto exchange putting $500 million behind Musk’s deal.

Binance is framing its investment as a reflection of its support of Elon Musk’s free speech ideology and an opportunity to build back-end tech that might help the beleaguered social network navigate the next generation of the internet. Just as importantly, it’s a way to put Binance’s thumbprint on an institution that’s long been a megaphone for some of crypto’s top evangelists.

“There’s a very strong mission alignment,” the exchange’s founder, Changpeng “CZ” Zhao, said in a video released by Binance on Saturday. “I hope to see more, other crypto players fund more key platforms in society. I think that’s important for the industry to grow.”

Zhao has said he wants to help Twitter modernize its platform for Web3, a loosely defined term that refers to the next generation of the internet. In theory, that could mean adding blockchain-based tools that would firmly identify who’s behind each individual account — allowing users to preserve their anonymity while assuring that they are, in fact, a person. It’s far from clear if a Musk-led Twitter would move forward with those suggestions.

“We’re looking at this as an R&D investment. It’s not a commercial interest for us in a traditional manner where we’re looking to put in ‘this’ amount of money we expect to get ‘these’ returns,” Binance spokesperson Patrick Hillmann said in an interview. “We think this is going to be one of the greatest laboratories that the Web3 industry will ever have access to to start to actually test some of these theories we have — and we thought it was too important to pass up.”

The immediate benefit of maintaining and growing crypto’s bully pulpit is more tangible.

Twitter is vital to crypto’s information ecosystem. It’s where founders hawk tokenized startups, anonymous sleuths air out possible frauds and communities form around blockchain-based decentralized networks. It’s also where top players, including Musk, Binance’s Zhao or Square CEO and Twitter co-founder Jack Dorsey, can flex their political muscles with their followers – Washington policymakers got a taste of this during last year’s debate over infrastructure bill language.

Some of the industry’s top executives, along with a few celebrities, turned to their Twitter accounts to mobilize their followers in opposition to language that would require certain crypto businesses to report their transactions to the IRS. While pro-crypto forces were ultimately unsuccessful in that fight, it’s been widely cited as a catalyzing event for driving grassroots engagement on crypto policy across the U.S.

A person close to the company said the investment is as much about a media ideology as business. Zhao’s “got views on a ton of different things; including how people consume their information,” the individual said, arguing that Zhao has a cult-like following that would see the acquisition as on the practical application of digital assets for traditional internet companies. “People really see this guy — in his company, in his Twitter followers — as someone who is leading people somewhere.”

It’s not Zhao’s first foray into the information game either. Binance took a $200 million stake in Forbes earlier this year. And the company’s in-house venture capital shop likely has a lot more money to spend: Binance reportedly hauled in $14.6 billion in fees through its trading platform last year.

That said, there’s not guarantee any of Binance’s aims will align with those of the other investors bankrolling Musk’s acquisition — a roster that includes the venture firm Andreessen Horowitz, Fidelity, Qatar’s sovereign wealth fund and Oracle co-founder Larry Ellison — or if Musk himself will heed the crypto exchange’s suggestions.

Elon “has been very clear that this is his project and that our investment in this is to come in and to have a seat at the table and to be able to make suggestions,” Hillmann said. “But in the end, he will be the decision maker.”

caveat emptor

The risks of crypto are a big theme here at DFD this week. Here’s another example: SEC slapped graphics hardware manufacturer Nvidia with a $5.5 million fine on Friday, for failing to disclose to investors the extent to which it had begun to rely on sales of equipment used for cryptocurrency mining.

Their reasoning was that the crypto market’s volatility represents a level of inherent risk that would require disclosure. Nvidia “deprived investors of critical information,” the SEC Enforcement Division’s Crypto Assets and Cyber Unit Chief Kristina Littman said in a statement.

But tech companies take a lot of risks. Their markets can evaporate. Consumer tastes change. Is crypto really so different?

I emailed John Sedunov, an associate professor at Villanova who studies risk in markets and cryptocurrency, and asked him about the extent to which crypto is (or is not) riskier than any other core part of Nvidia’s business model.

Sedunov described how a business built on a fluctuating financial asset is different from one built on something more concrete and easily forecastable.

In other words, it’s not your regular chip market: “As market values for cryptocurrencies fluctuate, it is likely that the demand for GPUs will also fluctuate, meaning that Nvidia’s GPU sales are also likely to fluctuate with it,” Sedunov wrote. “Bitcoin, for example, has had high volatility over time — less so recently, but still higher than, for example, the USD/EUR exchange rate.”

He compared it to another recent, and sobering, instance of volatility that companies did disclose:

“One that immediately comes to mind is the banking industry, where U.S. banks were quick to disclose how much exposure they had to Russia and Ukraine when the war began this winter.” — Derek Robertson

irony poisoning

NFT culture can get weird. And then it can get really weird, like, questionably weird: Like this look from CoinDesk’s Will Gottsegen at the world of “Miladys,” a line of NFTs created by Remilia, an enigmatic right-leaning art collective.

The Miladys look for all intents and purposes like most other NFTs — vacant, randomly-generated computer avatars shot above the shoulder, like a school picture. But the culture around them is significantly different: “Miladys are where the polytheistic religion of Vedism, kaomoji callsigns (a particularly DIY flavor of emoticons), rave culture, venture capital and the downtown New York podcast ecosystem intersect,” Gottsegen writes.

That ecosystem was featured in a recent Vanity Fair profile which detailed its connections, financial and otherwise, to tech-gazillionaire/far-right campaign donor Peter Thiel. There’s also BuzzFeed’s report from a Thiel-funded film festival, another part of the mogul’s broader push to seed a right-wing cultural avant-garde. (It’s no surprise that would naturally overlap with the crypto world, which has always had its own strong libertarian bent.)

As tends to be the case with such edgelord-y cultural phenomena, the defense for association with unsavory characters tends to be to use ironic detachment, theory-laden jargon, or some combination of both.

After getting caught citing an explicit neo-Nazi group, the project’s anonymous creator has distanced him or herself from them by writing: “It’s an artist’s duty to explore and critique the contemporary, even in all its ugliness, and if they determine that critique is best produced in a process of performative embodiment, so be it… Cancel culture is dead, disavowal doesn’t belong here.”

In 2016 the ascendant trolls of Web 2.0 forum culture celebrated their “meme-ing” Donald Trump into the White House. The claim of credit might have been questionable, but it was still a pointed example of how vanishingly small, if not non-existent, the line between irony and sincerity is when it enters the political realm. At the nexus of Web3 culture and the “new right” as embodied by Thiel, et al., the Milady saga is a window into the next generation of right-wing cultural politics before they make themselves reality. — Derek Robertson

The Future In 5 Links

  • See a wildly realistic train station in Unreal Engine 5, the powerful graphics engine that could power the metaverse.
  • Clearview AI settled a lawsuit from the ACLU, agreeing to limits on the use of its highly controversial facial recognition technology.
  • Google and Meta are laying thousands of miles of proprietary undersea cables to expand Africa’s high-speed internet access.
  • Don’t look now, but the big crypto sell-off is finally beginning to stabilize.
  • What are the seven essential ingredients of a metaverse (well, according to a16z)?

Stay in touch with the whole team: Ben Schreckinger ([email protected]); Derek Robertson ([email protected]); Konstantin Kakaes ([email protected]); and Heidi Vogt ([email protected]).

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