March 2023 was an exciting month where we started with the key insights drawn from the Global Digital Report shared by Simon Kemp specifically on the implications of generative AI and ChatGPT to digital marketing & advertising, followed by Federico Ast from Kleros explained how decentralized arbitration for the web3 economy works and the concept of proof of humanity, then we have the exciting weekend where we turn around the collapse of Silicon Valley Bank (SVB) and its impact on Asia with Shai Oster and then the temporary depegging of USDC with Cosmo Jiang, and end on a high note with Chris Lee, sharing lessons on how to invest into crypto projects in 2023 with his firm TKX Capital.
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- Innovation always goes ahead of compliance. At the moment, the crypto market is part of the financial system and cannot be isolated from the rest of the world.
- His reflections on a meeting with Warren Buffett from Berkshire Hathaway: 1/ the interest rate is a measure of liquidity in the whole macroeconomy and acts as gravity for businesses to find their footing when it increases; 2/ companies need cashflow to protect their positions against hostile investors in difficult times and 3/ being patient with making investments for the long term.
- How he indexes founders and teams behind crypto and web3 projects for investments is the directionality of the idea and balance of the team. The red flags he seeks out are whether the founders and teams of the projects have a bad track record.
How the USDC depegging almost destroyed the whole Web3 and Crypto economy with Cosmo Jiang from Nova River & Global Coin Research
Key Takeaways with full transcript here:
- The mechanics that led to the collapse of Silvergate Bank and Silicon Valley Bank are similar: they are dealing with concentrated risk with a specific group of depositors: crypto and start-ups respectively and the mismatch in durational and liability duration.
- If the US Federal Reserve, US Treasury and FDIC had not backstopped the deposits, the USDC depegging might have gotten worse and in turn, sent the decentralized finance (DeFi) markets into turmoil. During the USDC depegging over the weekend of 7 March 2023, ETH and BTC prices surged due to the swapping of USDC treasuries from different projects and stabilized after the event.
- The surprise is that Signature Bank was solvent before the regulator chose to shut it down. Despite Signature Bank having a large exposure to crypto, the capital ratios even with the markdowns were reasonable and had a separate line of business outside of crypto. The implications are that both Signature and Silvergate Bank banked 85% of the crypto industry in the US and had transfer networks that operated similarly to the Fedwire except that they are free and accessible 24-7 and facilitated liquidity flows across different exchanges.
The collapse of Silicon Valley Bank sends tremors and opportunities to the Asia Pacific with Shai Oster from The Information
Key Takeaways with full transcript here:
- The bottom line is rising interest rates caused the bank's assets to lose value and poor risk management triggered the bank run. One insight that Shai pointed out is that bank runs are like mass psychosis with an interesting quote, "Capitalism is a collective hallucination, so sometimes we hallucinate the world differently."
- The Silicon Valley Bank's (SVB) situation would have impacted the series A and B companies in the Asia Pacific including China, if the US Federal Reserve, US Treasury and FDIC had not backstopped the deposits. The loss of SVB means that Silicon Valley has lost its financial plumbing for startups and venture capital funds, for example, payroll processing and lending. The startup unicorns would not have been impacted by this event as they are likely to have moved on to a larger bank such as JP Morgan or HSBC to hold their deposits.
- The next three to six months will be important and the equivalents of SVBs may be business opportunities for other regional banks to come in and acquire the assets of SVB given that the world is moving towards regionalization. A recent update is that First Citizens Bank acquired SVB after the publication of the podcast episode.
The revolution of legal arbitration begins at Kleros with Federico Ast
- Kleros has managed to enforce a dispute resolution in a landmark court case in Mexico as a decentralized arbitration blockchain and shared how the blockchain can resolve disputes using the Schelling point economics mechanism.
- The launch of Kleros 2.0 to scale from 1,000 to 1 billion cases for arbitration and the key developments will focus on the requirements: cross-chain, modularity, fork-friendly, lightweight PNK token, juror fraud protection and evidence spam protection and a better user-friendly interface.
- Federico outlined the concept of proof of humanity as a know-your-customer registry to prove identity, the application of Kleros to be used as an IP and patent registry, and explained how the blockchain protected itself from farming profile attacks or even potential AI bot attacks by utilizing the blockchain for a dispute.
- The myth of a decline in social networks such as Facebook and Twitter is a mainstream media fabrication. The data from the report showed the contrary that the number of social media users is growing but they are spending their time on different apps and not converging their time on a single app such as Facebook or Tik Tok.
- Marketers and advertisers need to get out of their broadcast mindset and be surgical about the choice of platforms through which they deliver their message in the different digital tools available to them. His advice is that media buyers should do more due diligence on digital platforms rather than rely on key publishers.
- ChatGPT is not going to destroy Google any time soon. Both ChatGPT and Google search are not a zero-sum game in getting the attention of the user. The success of ChatGPT is predicated on the business model which is yet to be proven compared to Google's search advertising.
- Generative AI has an important role to play in content creation and distribution of media specifically allowing consumers to choose their adventure based on the inputs and outcomes that they desire in the future.
Asia Tech Review by Jon Russell: Recently, Jon Russell, left the venture capital fund at Crypto.com. He has restarted his weekly newsletter where he curates the important news on technology companies in the Asia Pacific and shared his thoughts on recent key events, for example, the Tik Tok hearings in the United States. Check it out.
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