How MetaMask Makes $400M+ đź’°

+ New Way that MetaMask Makes Money

January 16, 2023

GM, folks 👋🏻 - Happy Monday. For those in the US, Happy Martin Luther King Jr. day. You’ve one more day to sleep in 🛏️. Market rallied over the weekend, with BTC and ETH breaking above $20,500 and $1,500 respectively. We’re so ready for the market to be back… 🔥 but remain cautious at the same time.

In Today's Email:

  • What Matters: FTX finds $5 billion 🤔

  • Products: MetaMask liquid staking đź’§

  • Charts: Liquid staking volume share, ETH staking ratio 🥧

WHAT MATTERS

FTX Finds $5 Billion

State of play: FTX new management reportedly has recovered $5 billion+ in assets. The bankruptcy attorney states that the $5 billion located is in cash and “liquid crypto”. This number is considerably higher than what most people expected. The consensus was 20-30 cents on the dollar, but now it's looking close to 50-60 cents on the dollar 🤔

Quick facts:

  • FTX's new leadership located $5B in cash, liquid crypto, and liquid investment securities.

  • The $5B doesn't include the $425M worth of crypto assets held by the Bahamian SEC.

  • No comment on whether the $5B includes SBF's contested $450M in Robinhood shares.

  • FTX might sell its core exchange in the bankruptcy process.

  • Current sales priorities are on four businesses that are relatively independent of FTX international: LedgerX, Embed, FTX Japan, and FTX Europe.

The exact total amount of money that FTX owes its customers is unclear, but predicted to be around ~$10 billion. It was also discovered that SBF instructed his FTX Co-Founder Gary Want to create a backdoor that enables Alameda to borrow from FTX customers without any permission. The line of credit created for Alameda: $65 billion đź’¸

What’s next: More facts needs to be uncovered to have a clear picture regarding how the bankruptcy proceeding will go. We learned that the DOJ and US Trustee has filed to voice their objections to FTX current management hiring the New York law firm, Sullivan and Cromwell. Both cited potential conflicts of interest as the same firm had previously worked with FTX and SBF. We’re also seeing more takes regarding potential conflicts of interest that expands beyond the DOJ filing. Here are some of them:

Our take: If FTX can truly recover $5 billion or more, this is a much more positive outcome than previously expected. Many seems to doubt that the value is really that high given what transpired. Unfortunately, we need to wait a bit more before knowing the possible outcome and severity of this bankruptcy proceeding. Any changes surrounding the attorneys involved in the proceeding will also undoubtedly delay the process.

For builders: There’s still a great lesson that we can took from FTX. It had an arguably superb product. The trading experience and the cross-margining functionality on FTX worked very well. Thus far, there’s still a white space to be filled here, especially on the decentralized fronts. Traders are confused where to go. Binance seems the obvious option, but no one likes concentration risks.

For investors: There will be opportunities to acquire FTX assets, subsidiary companies, and assets for cheap. We’re already seeing significant interests on the lesser affected (and solvent) businesses of FTX, primarily the EU and Japanese entities. Paying attention to what deals will be made for these assets and how it would impact the open market will be key for the next few quarters.

PRODUCTS OF THE WEEK

MetaMask Liquid Staking

What is MetaMask Liquid Staking: MetaMask is one of the largest non-custodial crypto wallet with reportedly more than 30 million monthly active users. It just introduces a new liquid staking feature, allowing users to stake their ETH via Lido and Rocket Pool 🚀

  • The new product is launched under its Portfolio Dapp feature that also allow users to easily bridge and swap assets all within the MetaMask wallet. MetaMask doesn’t explicitly state whether there’s a fee related to the staking feature, but we can assume that users will eventually be paying for convenience.

  • One of the ways that MetaMask made money is by charging users an additional fee for the in-wallet swap feature. MetaMask routes users’ trades to various DEXs, but take a cut on top. This fee has generated MetaMask more than $400M since inception 🤯

Other cool products:

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Liquid Staking Derivatives Volume Share

Liquidity is key for Liquid Staking Derivatives (LSDs). Lido, which is a pioneer in the space, is much more integrated with the broader DeFi ecosystem. However, we can see above that its volume (stETH) has been declining in comparison to Coinbase’s (cbETH) and Binance’s (bETH) LSDs. This means a few things.

Our take: Centralized exchanges’ LSD products can be used as a sentiment analysis on the types of market participants that are staking Ethereum. Regulated funds, especially those who’re leaning TradFi instead of crypto-native, would rather opt in for Coinbase’s or Binance’s products instead. This is because LSD protocols such as Lido adds a component of code-base risks on top of the existing counterparty risks ⚠️

To watch: After staked Ethereum withdrawals are enabled, it would be critical to assess how the LSD landscape will change. We predict that it will shot up as investors gain confidence that they can recoup their money back at any time. However, this isn’t necessarily a good thing for LSD protocols.

  • The moat of being a first-mover advantage and providing liquidity to a supposedly illiquid asset will be gone, and there might be a race to the bottom in terms of LSD fees, with larger companies adding it on top of their existing stack as a feature instead of a product.

Ethereum Staking Ratio

Ethereum is the 2nd largest crypto asset by market capitalization. In September 2022, it transitioned from using Proof-of-Work to Proof-of-Stake (PoS), further cementing PoS as the dominant consensus mechanisms for blockchains out there. That said, Ethereum’s staking ratio is still much lower than other PoS chains ⛓️

State of Play: Ethereum is arguably the most decentralized network compared to all the assets listed in the chart above. This means that ownerships that belong to the founding team or the initial investors are much lower than other networks, which is a factor that explains its low staking ratio percentage.

Our take: Staked Ethereum currently can’t be withdrawn. The upcoming Shanghai upgrade that will enable withdrawals will be a key catalyst in finalizing Ethereum’s full transition to a PoS network. Some market participants are worried that it will be delayed, hence explaining the lower staking ratio percentage.

QUICK BITES

MEME & NOTEWORTHY READS

  • Li Jin’s article on progressive decentralization for media.

  • Sequoia’s Alfred Lin’s reflection about FTX.

  • @delphiintern’s notes on Delphi Digital 2023 year ahead report.

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Disclaimer: All the information presented in this publication and its affiliates is strictly for educational purposes only. It should not be construed or taken as financial, legal, investment, or any other form of advice.