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Forbes Blockchain 50 2022

by ForbesFebruary 8, 2022

Cryptocurrencies hog the spotlight, but blockchain’s biggest innovations are below the surface, saving billons each year for the world’s largest companies.

_{Reported by Maria Abreu, Nina Bambysheva, Justin Birnbaum, Lauren Debter, Michael del Castillo, Steven Ehrlich, Chris Helman, Katie Jennings, Jeff Kauflin, Javier Paz, Jon Ponciano, Marie Schulte-Bockum}

You’ve come a long way, blockchain! Since our inaugural roundup of the Blockchain 50, published in 2019, the billion-dollar companies (minimum, by sales or market value) on our annual list have moved beyond test projects and now rely on “distributed ledger” technology to do serious work. A lot of the action is in the back office, verifying insurance claims or facilitating real estate deals. It has also become vital to supply chains, whether checking the provenance of conflict minerals like cobalt or tracking auto parts for Renault. Nearly half of the Blockchain 50 are based outside the United States; 14% are Chinese. New this year: venture capital firms, which as a group invested more than $32 billion in the sector in 2021.

Cryptocurrencies like bitcoin and ether grab all the headlines, especially after booming last year and then losing more than $1 trillion in value since November. But in many ways, speculative cryptocurrencies are the least intriguing blockchain application. The most lasting impact will come as more and more multinationals integrate blockchains into their daily operations, unleashing untold efficiencies.

Adobe

SAN JOSE, CALIFORNIA

In October 2021, the company that makes Photoshop and the keeper of the PDF format launched Content Attribution, which lets creators export their images directly to certain nonfungible-token (NFT) exchanges: KnownOrigin, OpenSea, Rarible and SuperRare. The feature lets artists protect their work against fraudulent claims by irrefutably proving their provenance before “minting” them as NFTs ready for auction. The service will eventually be available to all of Adobe’s 20 million Creative Cloud subscribers.

BLOCKCHAIN PLATFORM: Ethereum

KEY LEADER: Will Allen, VP at Adobe overseeing its Content Authenticity Initiative

Allianz

MUNICH, GERMANY

The insurance giant ($164 billion, 12-month sales) uses blockchain to streamline cross-border auto insurance claims in Europe. Different teams and incompatible databases used to mean lots of back-and-forth emails. Claims could take months to settle. Now there’s a single source record of each claim. Processing time has been reduced to minutes, and costs have fallen 10%. So far it’s being used by 25 Allianz subsidiaries to settle 850,000 claims.

BLOCKCHAIN PLATFORMS: Hyperledger Fabric, Corda

KEY LEADER: Bob Crozier, chief architect of Allianz Technology and global head of blockchain for Allianz Group

Andreessen Horowitz

MENLO PARK, CALIFORNIA

Arguably the largest crypto investor in the world, the venture capital shop also known as “a16z” has raised around $3.1 billion in three dedicated blockchain funds over the past three years. That includes the massive $2.2 billion Crypto Fund III, which launched in June 2021. In total, the blue-chip firm has funded at least 60 startups working with blockchain and was an early investor in Coinbase, now valued at $34 billion. a16z also hopes to shape crypto regulation, having hired former officials from the SEC, Treasury and the Department of Justice to lobby policymakers.

BLOCKCHAIN PLATFORMS: Bitcoin, Ethereum, Solana, Flow, Celo, Near, Arweave and others

KEY LEADER: Chris Dixon, general partner and leader of a16z Crypto

Ant Group

HANGZHOU, CHINA

Since July 2020, this Alibaba affiliate has devoted 10,000 developers to blockchain. Already they’ve created 30 applications, generating over 100 million blockchain-tracked documents including patents, vouchers and warehouse receipts. The most mature AntChain application is Trusple (Trust Made Simple), which connects international buyers of products and components—beads in the apparel industry, say—to 6 million Chinese sellers. The app simplifies tax, customs and shipping, and enables banks to instantly complete payment, reducing auditing costs and default risk. Nearly 20 global banks including CitiBank, BNP Paribas, Singapore’s DBS and Japan’s Mizuho are providing financing via the platform.

BLOCKCHAIN PLATFORM: AntChain

KEY LEADER: Geoff Jiang, president of Intelligent Technology Business Group, Ant Group

Anthem

INDIANAPOLIS, INDIANA

The $137 billion (sales) Blue Cross Blue Shield licensee is testing the blockchain to try to speed up an arcane administrative process known as “coordination of benefits,” which determines one’s primary insurer. It usually requires a series of faxes (yes! faxes!) and phone calls and can take up to three months. Through a shared ledger with Chicago-based Health Care Service Corporation for certain Medicaid members in Texas, the companies now make this determination in minutes or hours. Anthem’s blockchain program processes around 3,000 to 5,000 verifications a month.

BLOCKCHAIN PLATFORM: Hyperledger Fabric

KEY LEADER: Rajeev Ronanki, Anthem’s president of digital platforms

Aon

DUBLIN, IRELAND

Unintended policy cancellations are a big problem for insurers and often occur when a customer underpays or forgets to pay a premium. In 2021, insurance broker Aon ($12 billion, 12-month sales) partnered with insurance carrier Zurich to move invoicing to an immutable blockchain ledger—already leading to a double-digit decrease in cancellation notices. The technology, known as Adept, was developed by a subsidiary of Acord, the Pearl River, New York–based body that sets standards for the global insurance industry. Aon hopes to bring 10 more counterparties onto its blockchain this year.

BLOCKCHAIN PLATFORM: Corda

KEY LEADERS: Christa Davies, CFO

A.P. Moller—Maersk

COPENHAGEN, DENMARK

The world’s second-largest container shipper ($54.5 billion trailing 12 months) now counts 250 ports and 20 ocean carriers using its proprietary TradeLens blockchain, which cuts time and reams of paperwork out of tracking containers as they move through global seaports. Sportswear giant Puma, which ships out of northern Germany, can now track a specific container in seconds rather than hours, according to Maersk. TradeLens, which Maersk co-developed with IBM in 2018, has tracked more than 55 million container shipments and is now being used by other shipping giants such as Germany’s Hapag-Lloyd and Singapore’s Ocean Network Express.

BLOCKCHAIN PLATFORMS: TradeLens, Hyperledger Fabric

KEY LEADER: Christian Hammer, chief technology officer, TradeLens

Baidu

BEIJING, CHINA

China’s fourth-largest tech firm has 20,000 developers building (mostly) financial applications on its open-source blockchain. Last year they generated $47 million in revenue, a drop in the bucket for the $15.5 billion (sales) firm, but the future looks bright. In September Baidu won its largest contract to date, a $25 million deal with the government of Tongxiang, a city southwest of Shanghai, to build software to track the supply chain for the roughly $5 billion worth of synthetic fibers used to make clothes in the textile center. Efficiencies from moving its workflow to a shared ledger have already cut lending costs by 50 basis points. Baidu estimates that the blockchain has helped reduce the supply chain’s energy consumption by 17% and could remove 15,000 tons of carbon dioxide from the environment each year.

BLOCKCHAIN PLATFORM: XuperChain

KEY LEADER: Xiao Wei, chief manager of Baidu Blockchain

BHP

MELBOURNE, AUSTRALIA

In 2020 BHP, the $61 billion (sales) Anglo-Australian multinational mining outfit, sold its first “paperless” shipment of Australian iron ore to China. That evolved in 2021 to trading cargoes of copper concentrate to China, with all documents, assays and emissions data enshrined on its MineHub blockchain platform. BHP has since adopted blockchain-based traceability to ensure there’s no “dilution” of the nickel it sells to Tesla’s Shanghai battery factory and to track the carbon emissions of the copper it sends from Chile to electric cable maker Southwire in Carrollton, Georgia. BHP is now in talks with suppliers to use blockchain to guarantee that the rubber in the 6,000 giant truck tires it uses each year was produced without slave labor or illegal deforestation.

BLOCKCHAIN PLATFORMS: MineHub, Hyperledger Fabric

KEY LEADER: Michiel Hovers, group sales and marketing officer

Block

SAN FRANCISCO

Twitter cofounder Jack Dorsey’s other company, formerly known as Square, generated $42 million in fees from its Cash App’s bitcoin brokerage in just the third quarter of 2021. It’s a safe and easy way for crypto newbies to get into the game: Block generated $9.8 billion in revenue from bitcoin sales in the 12 months ending September 2021. Dorsey left Twitter in November and is a vocal crypto booster, so expect Block to lean into its new name. In July, it created a business called TBD, which focuses on building a decentralized financial system and is looking to build an energy-efficient bitcoin mining system.

BLOCKCHAIN PLATFORM: Bitcoin

KEY LEADER: Jack Dorsey, CEO

BNY Mellon

New York

This 238-year-old bank is fully embracing the future: The institution that Alexander Hamilton started now wants to be king of back-office servicers for crypto ETFs. The firm already has 90% market share in Canada, meaning it provides tax and administrative services to most of the 17 crypto ETFs currently trading up north. In October it announced another big ETF applicant, Grayscale’s $23 billion Bitcoin Trust. New York–based Fireblocks, which provides crypto custody services, is a new BNY Mellon investment valued at $8 billion.

BLOCKCHAIN PLATFORMS: Bitcoin, Ethereum

KEY LEADERS: Roman Regelman, CEO of asset servicing and head of digital; Mike Demissie, head of digital assets; Ben Slavin, global head of ETFs

Boeing

CHICAGO

Boeing is partnering with Canada’s TrustFlight and developer RaceRocks to build a so-called digital aircraft record system that helps airlines keep up with required maintenance. This expands on Boeing’s earlier blockchain initiative with Honeywell’s GoDirect Trade platform, which in 2020 securely sold $1 billion in Boeing aircraft parts. In time they envision a global airworthiness records platform, which could save 25% in maintenance costs—worth billions annually across the industry.

BLOCKCHAIN PLATFORMS: Go Direct, Hyperledger Fabric, Hyperledger Indy

KEY LEADER: Charles S. Sullivan, president, Boeing Canada Operations

Breitling

GRENCHEN, SWITZERLAND

The luxury watchmaker now tracks 320,000 timepieces on the blockchain, giving customers access to detailed product history and proof of authenticity. Breitling is also using it to move into the resale market. Want to sell an Avenger you were given a decade ago? You can get an instant appraisal via your digital wallet. Looking to buy? Like consulting Carfax before purchasing a Toyota, you can easily check out the number of previous owners and repair history. In February, Breitling will let European owners buy, sell or trade timepieces online; it already allows customers to trade in old watches for store credit. It’s running tests in Switzerland to let customers quickly alert police to stolen goods via their digital wallet and is experimenting with blockchain-based warranty claims for lost watches.

BLOCKCHAIN PLATFORM: Ethereum

KEY LEADER: Antonio Carriero, chief digital and technology officer

China Construction Bank

BEIJING, CHINA

The world’s second-largest bank, with $4.7 trillion in assets, has so far processed $141 billion worth of transactions on private blockchains for everything from supply-chain financing to cross-border payments. Among its more recent products is EasyPay, designed to make it simpler for corporations to send large, paperwork-intensive transactions with fewer errors and less need for audits. If a company in Guangxi wants to buy palm oil from Labuan, Malaysia, the counterparties can load their trade contract, receipts and waybills into the shared ledger. Local CCB branches can then process both halves of the trade in parallel, instead of sequentially. The result: Total settlement time is reduced from two days to about ten minutes. The platform now connects 14,000 bank locations.

BLOCKCHAIN PLATFORMS: Tianshu BaaS, CCB Chain, BC Trade 2.0

KEY LEADER: Lei Xing, senior manager at CCB Financial Technology Company

CME Group

CHICAGO

In October, the dollar value of Chicago Mercantile Exchange crypto futures reached $4.7 billion daily, temporarily making the CME the largest crypto derivatives exchange in the world. That same month the SEC approved the first U.S. bitcoin futures ETF, Proshares Bitcoin Strategy ETF (BITO), which now has $1 billion in assets. CME has launched crypto futures contracts for ethereum, as well as “micro” bitcoin and “micro” ethereum futures, tailored for those who want to invest $150,000 or less.

BLOCKCHAIN PLATFORMS: Bitcoin, Ethereum

KEY LEADER: Tim McCourt, global head of equity index and alternative investments

Coinbase

SAN FRANCISCO

The largest crypto exchange in the U.S. went public in April 2021, and its market value soared as high as $94 billion before settling to a recent $40 billion. In the third quarter of 2021, Coinbase logged more revenue ($1.3 billion) and net profit ($406 million) than in all of 2020, while its customer base swelled from 43 million to 73 million in the first nine months of the year. Next: diversification. Its “Coinbase Cloud” software aims to help developers build crypto applications, and in October, it announced an NFT marketplace to compete with OpenSea. A month later, CEO Brian Armstrong told investors Coinbase NFT could become “as big or bigger” than its trading business.

BLOCKCHAIN PLATFORMS: Bitcoin, Ethereum and dozens of others

KEY LEADER: Brian Armstrong, CEO

De Beers

LONDON

The $5.1 billion (12-month sales) diamond producer has registered more than 400,000 stones, worth some $2 billion, on its Tracr blockchain, up 50% since January 2021. The platform records a diamond’s cut, color, clarity and karat, then tracks it along the supply chain. Users can instantly verify the rock’s origin and authenticity with a simple scan as it’s mined, cut, polished and sold—eliminating the need for costly and time-consuming mail-in verification. Tracr now has more than 30 industry participants, including Zales, Jared and Kay Jewelers.

BLOCKCHAIN PLATFORMS: Tracr, Ethereum

KEY LEADER: Jason McIntosh, chief product officer, Tracr

Depository Trust & Clearing Corporation

JERSEY CITY, NEW JERSEY

If you bought or sold a security in the U.S. last year, odds are that the clearing and settlement services were provided by DTCC, far and away the largest post-services firm in the world. In September DTCC, which processed $2.3 quadrillion in 2020 trades (total face value of the securities; trailing 12-month sales $2 billion), successfully completed a six-month test on a blockchain project that will reduce errors and cut settlement times from two days to less than one. DTCC’s main business remains publicly listed securities, but its new Digital Securities Management application is targeting pre-IPO companies with privately traded shares.

BLOCKCHAIN PLATFORMS: ION, DSM, Hyperledger Fabric

KEY LEADER: Rob Palatnick, managing director and global head of tech research

Digital Currency Group

STAMFORD, CONNECTICUT

Think of DCG as a crypto conglomerate. The firm owns five major crypto companies: trading platform Genesis, news site Coindesk, digital asset exchange and wallet Luno, bitcoin mining firm Foundry and Grayscale, the largest digital asset manager in the world, with more than 150 portfolio companies and $39.6 billion under management. In November, DCG raised $700 million in a private stock sale led by Softbank at a $10 billion valuation, bumping founder Barry Silbert’s net worth to $3.2 billion. DCG’s newest startup, Foundry, has taken advantage of crypto miners being banned from China in May to create the world’s largest bitcoin mining pool, providing 19% of the network’s total processing power.

BLOCKCHAIN PLATFORMS: Bitcoin, Ethereum, Litecoin and others

KEY LEADER: Barry Silbert, CEO

Fidelity

BOSTON

Fidelity started mining bitcoin in 2015 when it was trading below $500, making the $11.1 trillion asset administrator one of the first traditional institutions to dabble in crypto. But true to its conservative nature, the 401(k) giant (2020: $21 billion sales) steered retail customers clear of owning crypto directly. Its main crypto niche today is not retail but providing custodial services and research to institutional clients through its Fidelity Digital Assets unit. The number of these big clients doubled to nearly 200 in 2021. Next: overseas expansion. Last year, Fidelity launched a Canadian bitcoin ETF and secured a permanent crypto license from the U.K. financial regulator.

BLOCKCHAIN PLATFORM: Bitcoin

KEY LEADER: Tom Jessop, head of Fidelity Digital Assets

FTX

NASSAU, THE BAHAMAS

Led by 29-year-old Sam Bankman-Fried, the world’s richest crypto billionaire (net worth: $26.5 billion), FTX dominates the hypercompetitive crypto exchange landscape. It handles some 10% of the $3.4 trillion face value of derivatives (mostly futures and options) traded by crypto investors each month. FTX pockets 0.02% of each of those trades on average, good for around $750 million in nearly risk-free revenue—and $350 million in profit. Additionally, the company hauled in a record $1.5 billion in private funding last year, rocketing its valuation from $1.2 billion to $25 billion. Eager to become a household name, FTX is spending hundreds of millions of dollars on marketing, signing up a slew of celebrity brand ambassadors including Tom Brady, David Ortiz and Kevin O’Leary.

BLOCKCHAIN PLATFORMS: Bitcoin, Ethereum, Solana and dozens more

KEY LEADER: Sam Bankman-Fried, CEO

Fujitsu

TOKYO

The $32 billion (12-month sales) telecommunications and computer hardware company runs a blockchain innovation lab in Brussels with more than 40 clients— from a rice-trading startup to giant brewer Anheuser-Busch. The companies use the lab to test fresh ideas, backed by Fujitsu’s technical expertise. In November, for example, water purification firm Botanical Water Technologies started building a trading platform using Fujitsu’s in-house distributed ledger technology, which will allow sugar mills, distilleries and cola makers to sell or reuse the water they would normally discard during production. The platform, launching in April, will trace the water as it’s purified, sold and delivered, and give companies the option to donate a portion of their purified water to water-scarce communities.

BLOCKCHAIN PLATFORMS: Hyperledger Fabric, Besu and Cactus, plus Ethereum

KEY LEADERS: Frederik De Breuck, head of Enterprise Blockchain Solution Center; Shingo Fujimoto, manager of data and security laboratory, Fujitsu Research

Industrial and Commercial Bank of China

BEIJING

The largest bank on the planet ($5.6 trillion in assets) has 40 blockchain applications, which last year handled a total of more than $48 billion worth of transactions for local governments and industries including construction and transportation. Among its most innovative apps is Icago, which rewards users for making use of energy-efficient vehicles, whether trains, buses or electric cars. The bank’s blockchain connects wallets owned by ICBC customers to government transportation data. Carbon credits issued by the transit commission as nonfungible tokens can be redeemed for China’s new central-bank digital currency. In the future, securitized carbon emissions will be sold as bonds to companies looking to meet carbon reduction requirements. In Qingdao, a city known for its beer, the program removed 99,000 kilograms of carbon in 2021. This year, the program will expand to Shenzhen, Shanghai, Chengdu and seven other cities.

BLOCKCHAIN PLATFORM: Emperor Seal Chain

KEY LEADER: Chaowei Liu, principal manager

JPMorgan Chase

NEW YORK

JPMorgan’s Onyx Digital Assets network is making waves in the massive ($1.5 trillion a day, face value) repo market, the overnight government bond market that’s a steady source of profits for large financial institutions. By using smart contracts and JPM Coin, a digitized version of the U.S. dollar, Onyx repo trades settle in real time instead of overnight, reducing settlement risk and manual processing. The intraday repo application has so far facilitated the movement of $230 billion in trades, completing about $1 billion in transactions a day. In June, Goldman Sachs began using Onyx.

BLOCKCHAIN PLATFORMS: ConsenSys Quorum

KEY LEADER: Umar Farooq, CEO of Onyx by JPMorgan

Kakao Corporation

Jeju-si, South Korea

South Korea’s dominant mobile messenger application, KakaoTalk, is used by nearly 90 percent of the country’s 52 million people, and as of May 2021 it has a marketplace for trading NFTs. Called KrafterSpace, the exchange is fully integrated with OpenSea, the San Francisco–based NFT bazaar that recently raised money at a $13.3 billion valuation. On KrafterSpace users can purchase tokenized artwork directly through Kakao’s messenger app with the accompanying digital wallet, called Klip Drops. Both KrafterSpace and Klip Drops are built on Kakao’s own blockchain, Klaytn, which has more than 800,000 active users. Separately, in August, Kakao launched a $515 million Klaytn Growth Fund to support developers willing to contribute to its blockchain’s ecosystem.

BLOCKCHAIN PLATFORM: Klaytn

KEY LEADER: David Shin, head of Klaytn Global Adoption

LINE Corporation

TOKYO

Part of Z Holdings, the $36 billion (market cap) Japanese internet conglomerate that also owns Yahoo Japan and Japan’s PayPal competitor, LINE is the country’s largest messaging app, with 300 million users. The company has developed a proprietary blockchain, also called LINE, owned by Softbank Group and South Korean internet conglomerate NAVER Corporation. Its services include a cryptocurrency exchange, an NFT marketplace and a digital wallet with more than 254,000 registered accounts. The associated cryptocurrency, LINK, is a big hit, attracting nearly a million miners. As of late January it had a market cap of $669 million.

BLOCKCHAIN PLATFORM: LINE Blockchain

KEY LEADERS: Woosuk Kim, CEO of Unblock and LINE Tech Plus; Keun Koo, head of blockchain development at Unchain

Marathon Digital Holdings

LAS VEGAS

Five years ago, Marathon was mostly known as patent troll, filing a raft of lawsuits (most settled out of court) against corporate giants like Apple, Amazon, Dell, Yahoo, Pinterest and Twitter. In 2017 the operation had annual revenues of less than a $1 million and a market cap of less than $10 million. It aggressively pivoted toward bitcoin mining in 2017, and the Nasdaq-traded company now has a market cap of $2 billion on revenue of less than $100 million. A big beneficiary of China’s bitcoin-mining ban, Marathon currently holds at least 8,133 bitcoin worth $300 million. The company intends to put to work 70,000 more servers in early 2022, increasing its computers devoted to crypto mining to 199,000, good for approximately 1.2% of total global bitcoin mining activity.

BLOCKCHAIN PLATFORM: Bitcoin

KEY LEADER: Fred Thiel, CEO

Mastercard

PURCHASE, NEW YORK

Twenty-four crypto cards, including Gemini, Uphold, CoinJar and BitPay, have been launched by Mastercard, letting customers spend their digital assets at 80 million vendors around the world. In October, the credit card giant partnered with Bakkt, a subsidiary of Intercontinental Exchange (owner of the New York Stock Exchange), which will provide technology to allow even more Mastercard issuers the ability to accommodate cryptocurrency transactions. Mastercard also runs a blockchain incubator called “Start Path,” which has so far assisted 12 crypto startups, giving them direct access to the multinational company’s products, customers, workshops and mentoring.

BLOCKCHAIN PLATFORMS: Terra, Rootstock, Monero, Bitcoin Cash, Litecoin, Bitcoin, Ethereum, Avalanche

KEY LEADERS: Raj Dhamodharan, executive vice president of digital assets and blockchain products and partnerships

MicroStrategy

TYSONS, VIRGINIA

Enterprise software provider MicroStrategy and its crypto-Kool-Aid-guzzling CEO, Michael Saylor, are corporate America’s biggest bitcoin owners. The D.C.-area firm, which nominally makes boring back-office business software, has transformed itself during the pandemic into a crypto trading powerhouse. MicroStrategy now holds 124,391 coins worth $4.6 billion at today’s prices and has booked nearly $846 million in crypto trading profits since August 2020.

BLOCKCHAIN PLATFORM: Bitcoin

KEY LEADER: Michael Saylor, CEO

National Basketball Association

NEW YORK

The NBA’s Top Shot platform has transformed the sports memorabilia business, bringing NFTs to the average fan. Powered by Vancouver, British Columbia–based Dapper Labs’ “Flow” blockchain, users can buy, sell and collect “moments,” akin to digital trading cards—such as a LeBron James dunk that recently sold for a record-setting $230,023. Its popularity isn’t slowing, either. Since November 2020, 1.3 million people created Top Shot accounts, and total sales have soared from $2.5 million to $992 million. Top Shot’s outsize success has generated broader curiosity about crypto within the league. The NBA formed a blockchain subcommittee to evaluate future opportunities, launched a WNBA version of Top Shot and entered a multiyear partnership with crypto exchange Coinbase.

BLOCKCHAIN PLATFORM: Flow

KEY LEADER: Adrienne O’Keeffe, vice president of global partnerships and media

NCR

ATLANTA

The 141-year-old maker of cash registers and ATMs wants to create a massive global network of 1.5 million locations that will allow passersby to buy bitcoin and other cryptocurrencies. In January it bought Boston-based LibertyX, a bitcoin ATM company that has 30,000 machines scattered across America. In June, NCR spent $2.5 billion to buy Cardtronics, a Houston company with 285,000 ATMs at Circle Ks, CVSs and Krogers in the U.S. and nine other countries. Bitcoin, ethereum and a few other cryptocurrencies should be available on these machines by the end of the summer.

BLOCKCHAIN PLATFORM: Bitcoin

KEY LEADER: Tim Vanderham, CTO

Nornickel

MOSCOW

Through its Swiss Global Palladium Fund, the world’s largest producer of palladium and refined nickel ($17.7 billion, 12-month sales) has issued $1.3 billion worth of tokenized contracts for its precious and base metals, including gold, silver, platinum, palladium, copper and nickel. The contracts, stored on the Atomyze blockchain, help industrial firms like Umicore, Traxys and Glencore track the origin and environmental bona fides of their metals and make it easier to adjust inventory levels.

BLOCKCHAIN PLATFORM: Hyperledger Fabric

KEY LEADERS: Marco Grossi, CEO, Atomyze AG; Alexander Stoyanov, CEO, Global Palladium Fund

Oracle

AUSTIN, TEXAS

By 2030, some 40% of all new cars will be electric. Demand for cobalt, used in EV batteries, is soaring. Nearly two-thirds of the world’s cobalt supply is mined in the Democratic Republic of Congo, a war-torn country where child labor and other human rights abuses are common. Oracle and British startup Circulor, a raw-materials supply-chain tracking company, have built a blockchain-enabled platform to trace the provenance of high-risk, conflict-area raw materials such as cobalt. Many of the world’s largest EV manufacturers, including Volvo, Mercedes-Benz and Polestar, have signed on for the service, which is built on Oracle’s blockchain.

BLOCKCHAIN PLATFORMS: Hyperledger Fabric

KEY LEADER: Wei Hu, senior vice president, high availability technologies

Paradigm

SAN FRANCISCO

Started in 2018 by Coinbase cofounder Fred Ehrsam and former Sequoia Capital partner Matt Huang, Paradigm has quickly become one of the most prominent crypto VC firms. Investments ranging from $1 million to over $100 million include FTX, Coinbase, Chainalysis, Uniswap and Sky Mavis. Sixteen are already valued at $1 billion or more. In November, Paradigm announced a new $2.5 billion fund, the largest crypto-centric venture capital fund ever.

BLOCKCHAIN PLATFORMS: Bitcoin, Ethereum and others

KEY LEADERS: Fred Ehrsam and Matt Huang, cofounders

PayPal

SAN JOSE, CALIFORNIA

In October 2020, PayPal launched a crypto brokerage service as part of its grand plan to become a one-stop financial super app. Crypto users engage with the app twice as much as regular clients, and its offering of crypto rewards through the Venmo credit card has been a big hit with younger users. Although the company now lets U.S. customers purchase up to $100,000 in crypto per week, most transactions are much smaller; daily trading volume is estimated to be under $50 million. Looking ahead, the company wants to expand its crypto offerings beyond the U.S. and U.K. and is exploring the launch of its own stablecoin.

BLOCKCHAIN PLATFORMS: Bitcoin, Ethereum, Bitcoin Cash, Litecoin

KEY LEADERS: Dan Schulman, president and CEO; Jose Fernandez da Ponte, SVP and general manager for blockchain, crypto and digital currencies

Ping An (OneConnect)

SHENZHEN, CHINA

Through its subsidiary OneConnect’s blockchain financing platform, the sixth-largest company in the world has made more than $12 billion in loans to a million small and medium-sized businesses in China’s Guangdong province since January 2020. OneConnect’s software uses government data to analyze a borrower’s risk profile for banks, cutting transaction processing to as little as 10 minutes—a massive money saver for its 788 client financial institutions, including $5.6 trillion powerhouse ICBC. In November, a OneConnect subsidiary partnered with the People’s Bank of China to use blockchain to track and process the financing of imports and exports from mainland China and Hong Kong.

BLOCKCHAIN PLATFORM: FiMAX

KEY LEADER: Li An, associate director of product

Providence

RENTON, WASHINGTON

In 2019, Providence, a not-for-profit Catholic health system, acquired Seattle health-tech startup Lumedic. The prize? Lumedic’s blockchain, which helps solve time-consuming administrative problems like “prior authorization”—when a doctor needs to check with a patient’s insurer to ensure certain surgeries or medications will be covered. In 2021, 16 of Providence’s hospitals and four clinics across Washington, Montana and Oregon were using its shared ledger to speed up prior authorization processing time from days to hours. Last year, more than 40,000 treatments were processed on Lumedic’s blockchain.

BLOCKCHAIN PLATFORM: Corda

KEY LEADERS: Kimberly Sullivan, chief revenue cycle officer, Providence; Mike Nash, CEO, Lumedic (acquired)

Renault

BOULOGNE-BILLANCOURT, FRANCE

In response to European regulators’ ever-growing technical requirements, the French automaker ($53 billion 12-month sales) launched blockchain platform Xceed in April to track thousands of car parts going into every vehicle manufactured in 16 factories across Europe. If any characteristics—such as the size of a screw or a headrest’s positioning—aren’t up to standard, the manufacturer is automatically alerted and can then notify suppliers with the push of a button, saving weeks of time on audits. Partners include top suppliers like Faurecia, one of the world’s largest makers of automotive interiors, with $18 billion in annual revenue. By 2024, Renault hopes to enlist 3,500 suppliers in a bid to track every one of its 6,000-plus regulated car parts and features. Renault has also started 20 other in-house blockchain initiatives tackling everything from car-buying transactions to supply-chain traceability.

BLOCKCHAIN PLATFORM: Hyperledger Fabric

KEY LEADER: Odile Panciatici, blockchain VP

Samsung Group

SUWON, SOUTH KOREA

Most Americans know Samsung for TVs and other electronics, but those are just one aspect of the largest ($220 billion 12-month sales) chaebol (conglomerate) in South Korea. It also makes ships, runs theme parks, sells life insurance—and, since 2020, has been using a blockchain-based loan platform to make it easier for small and midsize enterprises to request government loans. Previously, such a request required documents from three parties—the government, the credit guarantor and the bank—which would take three weeks on average to process. The platform reduces paperwork, cutting processing time to 12 days and saving about 13,000 working hours a year.

BLOCKCHAIN PLATFORM: Nexledger

KEY LEADER: Jihwan Rhie, head of Blockchain Business Planning

Signature Bank

NEW YORK

In 2015, Signature became one of the first banks to accept crypto customers. It was a prescient move: Total crypto deposits have surpassed $22 billion, and the bank has processed more than $200 billion worth of payments on its ethereum blockchain–based proprietary network, Signet. This year the company began offering bitcoin-backed loans. It has also partnered with stablecoin issuer TrueUSD to allow clients to mint and send instantaneous payments using the dollar-denominated asset. The market is a fan: Over the last 12 months, Signature’s stock has almost doubled.

BLOCKCHAIN PLATFORMS: Signet, Ethereum

KEY LEADER: Frank Santora, chief payments officer

Société Générale

PARIS

Last year France’s third-largest bank released Cast Framework through its Forge subsidiary. The software lets both mainstream financial firms and crypto startups create regulatory-compliant digital securities on a blockchain. A recent application was helping Banque du France refinance $45 million in securities backed by some of the bank’s home-mortgage portfolio, tracked on a blockchain. Using the blockchain reduced transaction time and saved on auditing costs. SocGen is also developing a so-called “smart contract” library of reusable code specific to financial services and has applied for a French regulatory license that will allow them to manage digital assets for clients.

BLOCKCHAIN PLATFORM: MakerDAO

KEY LEADER: Jonathan Benichou, chief financial officer, SG Forge

Sotheby’s

NEW YORK

The 278-year-old art auctioneer, known for selling Picassos, van Goghs and Warhols, is now gleefully hawking cartoon primates and pixelated cyberpunks. In April 2021, Sotheby’s held its first NFT sale, moving a body of work by digital artist Pak for $16.8 million. That was only the start: In all Sotheby’s did more than $100 million in NFT sales last year, contributing to the auction house’s record-breaking gross sales of $7.3 billion. In September, cashing in on the craze for unique NFT profile pictures on social media, Sotheby’s sold 101 images of monkeys, part of the Bored Ape Yacht Club collection of 10,000 animal avatars, for $24.4 million. The auction house now accepts bids in fiat currency and cryptocurrency.

BLOCKCHAIN PLATFORM: Bitcoin, Ethereum

KEY LEADERS: Stefan Pepe, CTO, Sotheby’s; Sebastian Fahey, managing director, EMEA, and executive lead for Sotheby’s Metavers

Stone Ridge Holdings Group

NEW YORK

In 2017, the financial firm that already owned a $13 billion asset manager, launched New York Digital Investment Group (NYDIG), a subsidiary aimed at helping institutional investors buy and hold crypto. Stone Ridge has since bought and held some 20,000 bitcoin (worth $740 million at current prices) and last December NYDIG raised $1 billion from nine VCs including WestCap and Bessemer Venture Partners at a $7 billion valuation. Institutional clients include JPMorgan, Wells Fargo and Morgan Stanley; last year it cemented partnerships with banking software giants FIS and Fiserv.

BLOCKCHAIN PLATFORMS: Bitcoin, Ethereum, XRP, Litecoin,Bitcoin Cash

KEY LEADERS: Ross Stevens, executive chairman; Robby Gutmann, CEO

Tech Mahindra

PUNE, INDIA

The technology arm of Indian conglomerate Mahindra Group (2021 revenue: $5.1 billion) has developed more than 60 blockchain-based products spanning telecom, media and entertainment, manufacturing, retail and energy. One of the most interesting: VaccineLedger, which was developed in collaboration with a startup funded by Unicef and Gavi, the vaccine alliance that oversees a worldwide Covid-19 vaccine database with the World Health Organization. The blockchain helps prevent counterfeiting and reduces the number of vaccines that go to waste by tracing the shots from manufacturer to recipient. It records data related to custody, temperature, location and purchase orders for each vial. VaccineLedger already operates in two states in India, with plans to expand globally.

BLOCKCHAIN PLATFORM: Hyperledger Fabric

KEY LEADER: Rajesh Dhuddu, global practice leader of blockchain and cybersecurity

Tencent

SHENZHEN, CHINA

Over the past decade, Tencent has built a Chinese “super app,” used by more than 1 billion people for everything from gaming and social media to messaging and shopping. Now it’s developing a one-stop blockchain platform, Tencent Cloud Blockchain. Ten provinces and cities including Hainan, Guangdong and Beijing already use it to issue electronic bills for things like health care and transportation. As August 2021, Tencent’s blockchain had processed more than 15 million transactions in one city alone.

BLOCKCHAIN PLATFORMS: ChainMaker, Hyperledger Fabric, FISCO BCOS

KEY LEADER: Powell Li, general manager of Tencent Cloud

Twitter

SAN FRANCISCO

Crypto’s town square, where Elon Musk shamelessly pumps canine coins and where millions of tiny traders try to send their latest purchases to the moon in 280 characters or less. There were 220 million tweets about NFTs in 2021 and an additional 60 million in January 2022 alone. And just because its crypto-obsessed CEO, Jack Dorsey, left in November to devote all his time to Block (see page 68) doesn’t mean corporate Twitter is forsaking its claim to the decentralized future. Twitter is doubling down on creator tools, like tipping other tweeters with bitcoin and letting users display their NFT collections as profile pictures—for a fee.

BLOCKCHAIN PLATFORMS: Bitcoin, Ethereum

KEY LEADER: Parag Agrawal, CEO

Visa

SAN FRANCISCO

The credit card giant has partnered with more than 60 crypto platforms including FTX, BlockFi, Coinbase and Binance to make it easy for people to spend digital currency through crypto-linked cards. All 80 million of Visa’s merchants now effectively accept crypto as payment, with the funds automatically converted to fiat currency before they receive it. While crypto transactions can be expensive, Visa leaves that headache to its partners, which charge as much as 2.5% in Coinbase’s case. Consumers have spent more than $6 billion using Visa crypto cards since October 2020.

BLOCKCHAIN PLATFORMS: Bitcoin, Ethereum

KEY LEADER: Terry Angelos, SVP and global head of fintech

Walmart

BENTONVILLE, ARKANSAS

After hundreds of listeria, salmonella and E. coli infections last year, and millions of pounds of recalled food, the FDA finally seems to be getting serious about food safety. It announced in September 2020 that manufacturers and retailers will henceforth be responsible for tracking more than a dozen types of risky foods such as romaine lettuce, soft cheeses and fish at every point along the supply chain in order to identify and toss contaminated items more rapidly. The retailer is already tracking 1,500 items on the blockchain, triple that of a year ago. Its food safety initiatives are becoming more visible to shoppers: A recent Sam’s Club pilot in China let shoppers scan a QR code to gain information about where the produce was grown and when it was harvested.

BLOCKCHAIN PLATFORMS: Hyperledger Fabric, Walmart Blockchain

KEY LEADERS: Archana Sristy, senior director, blockchain, Walmart Global Tech; Tejas Bhatt, senior director, global food safety innovation

WeBank

SHENZHEN, CHINA

One of WeBank’s latest blockchain apps encourages sustainable living by rewarding users for doing things like walking, taking the bus or recycling clothing. The Chinese digital bank, which is 30% owned by Tencent, issues Green Bud Points via a mini-app on WeChat that can later be exchanged for vouchers and gifts. All records are stored on its blockchain to ensure transparency and traceability. The platform already has 1 million daily active users and reports that it recorded a reduction of more than 2,500 tons of carbon emissions over 2021. Overall, WeBank has more than 70,000 coders working on its proprietary “FISCO BCOS” blockchain.

BLOCKCHAIN PLATFORM: FISCO BCOS

KEY LEADER: Henry Ma, executive vice president and chief information officer

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How Crypto’s Original Bubble Boy Rode Ethereum And Is Now Pulling The Strings Of The DeFi Boom

by ForbesFebruary 8, 2022

OLAF CARLSON-WEE rode 2017’s “initial coin offering” craze to become one of crypto’s top venture investors. Now he’s raking in hundreds of millions, from a blockchain rage called DeFi, which promotes the fantasy of democratized financial services.

On a frigid, windy day in January, Olaf Carlson-Wee is settling in for a long Zoom call from his $10 million Soho loft in Manhattan, reflecting on how far he has come in the four and a half years since Forbes featured him on its cover, labeling him the poster child for the cryptocurrency bubble of 2017.

Back then, a speculative frenzy of hundreds of initial coin offerings (ICOs) pushed the cryptocurrency market to well over $100 billion in value as greedy fools bid up junk tokens backed by little more than a white paper and some quirky computer code. Then 27, with three years of Coinbase work experience under his belt, Carlson-Wee was considered a sage. He had started a San Francisco–based hedge fund called Polychain Capital that was backed by Andreessen Horowitz, Union Square Ventures and Sequoia Capital, and his fund’s assets had swollen from $4 million in September 2016 to $200 million.

Today, despite recent turbulence that saw bitcoin and other cryptocurrencies fall 30% to 50% in a matter of weeks, the market for them is still close to $2 trillion, and Polychain’s assets are $5 billion—up 125,000% since inception. Carlson-Wee just closed a $750 million raise for his third venture fund, led by Tiger Global Management and Singapore’s Temasek Holdings, two of the smartest and most successful investment firms on the planet.

“We had a lot of interest. Many, many hundreds of millions in demand more than we raised,” boasts Carlson-Wee, now 32, clad in a lime-green tie-dyed T-shirt, running his fingers through his spiky, bleached blond hair.

“Whatever the ideal, in practice, DeFi is a speculator’s paradise…even after crypto’s recent correction, the amount at risk stands at nearly $80 billion.”

Carlson-Wee’s net worth has grown to an estimated $600 million because among crypto investors, he has an uncanny knack for deftly navigating a market chronically infected by hyperbole and assets without any discernible intrinsic value. Among the most profitable of his early investments was a major stake in ether, the token underpinning the Ethereum blockchain—now worth $2,700, but trading for less than $12 back in 2016 when Carlson-Wee’s Polychain went all in.

He is not shy about his new riches, quite literally created from ether. His 6,000-square-foot Soho digs, which he recently bought fully furnished, was once an art gallery owned by prominent NYC collectors. Its opulent interior design, described by its realtor as lower Manhattan’s “most Instagram-worthy” residence, was inspired by the luxury Hôtel Costes in Paris and features tin ceilings, gold columns, a cobra-shaped snakeskin chair and chandeliers fashioned from organ pipes and crystal. Its master bathroom is a study in gold, including a mirrored ceiling and a shimmering gold-plated bathtub with a large dollar sign hanging on the wall above it. A few months before he bought this New York party palace, when bitcoin was trading above $50,000, he closed on another trophy property in the Hollywood Hills. That $28.5 million, 12,000-square-foot mansion has breathtaking ocean and Los Angeles skyline views, an indoor pond, infinity pool, seven bedrooms and spaces for ten cars.

One of the keys to Carlson-Wee’s success has simply been being early. He met Ethereum founder Vitalik Buterin, for example, when the then-19-year-old briefly worked at Coinbase in 2013. That was just before Buterin wrote his revolutionary blockchain white paper, which one-upped bitcoin by creating a multipurpose computing platform based on so-called “smart contracts.” These agreements have no conventional legal standing, but because the terms are blindly enforced by computers, they are more immutable. Without smart contracts there could be no ICOs or NFTs.

Olaf Carson-Wee

GUERIN BLASK FOR FORBES

In 2018, at the Web 3.0 conference in Berlin, Carlson-Wee met MIT research scientist Harry Halpin—the co-creator of a super-privacy protocol called Nym. Halpin was frustrated by traditional VCs’ reluctance to back him. Says Halpin, “This smartly dressed young fella came up to me and said, ‘We at Polychain are interested in funding subversive technology.’ ” Polychain led a $6.5 million round for Nym last July, just before the startup hired Chelsea Manning.

“I like being the first person to believe in someone,” says Carlson-Wee, just back from spending his New Year holiday with a dozen friends in a house he rented in St. Barts. “Our goal is to invest in breakthrough technologies that will enable new types of human organization and behavior.”

Polychain’s most ambitious investment foray to date has been its backing of a phenomenon known as decentralized finance, or DeFi, which uses blockchain technology in peer-to-peer applications. The promise is that DeFi could eventually become a cheaper, more private, secure and accessible replacement for traditional financial institutions, including banks and exchanges. Carlson-Wee was an early investor in DeFi’s biggest winners, such as Uniswap, an exchange; lender Compound; MakerDAO, a lender and stablecoin creator; and DeFi exchange aggregator dYdX. Blockchain-traded DeFi tokens have had eye-popping returns. The total market now amounts to $78 billion, up from $10 billion in January 2020.

Crypto idealists, including Carlson-Wee, believe DeFi is the future of finance, and just the thing to level off a lopsided financial playing field. For centuries middlemen bankers—from the Medicis of Florence to JPMorgan’s Jamie Dimon—have wielded great power and amassed huge fortunes. DeFi aims to cut them out.

All DeFi functions—payments, savings, trading, lending—are conducted on blockchain-based software. Changes are made by token holder vote. There is no central control.

Carlson-Wee’s success lies not only in his ability to find the most promising DeFi startups but in Polychain’s willingness to make outsize investments in them. Decentralization and democratization may be the DeFi ideal, but when it comes to decisions that might affect Polychain’s returns, Carlson-Wee is very much in charge. He doesn’t hesitate to use his firm’s formidable voting power to ensure that the interests of his partners come first.

“I’m very much a pragmatist,” he admits. “I don’t think crypto fixes wealth inequality or wealth concentration, but it does shake the snow globe.”

Olaf Carson-Wee

GUERIN BLASK FOR FORBES

OLAF CARLSON-WEE’S crypto journey started in 2011, the summer after his junior year at Vassar College in upstate New York. An avid fan of role-playing video games, he had read about how the underground drug marketplace Silk Road was enabled by a virtual currency called bitcoin. His excitement over the new tech drove him to sink almost his entire life savings—about $700—into bitcoin at prices ranging from $2 to $16. He went on to write his senior thesis in sociology on the emerging cryptocurrency.

After graduating in 2012 and spending a few months working as a lumberjack while living in a yurt on a commune in Washington State, he blindly emailed his thesis to the Brian Armstrong and Fred Ehrsam, the cofounders of budding crypto exchange Coinbase. They hired him as their first employee and put him in charge of customer service. Carlson-Wee famously insisted that his entire $50,000 salary be paid in bitcoin.

Though he had little coding experience, he helped automate many of Coinbase’s routine customer-service responses. He was eventually put in charge of risk and lowered Coinbase’s fraud rate by 75%.

Early in his crypto career, Carlson-Wee says, he realized that entrepreneurs with a strong vision for the future were funded and rewarded most, rather than those who were reactive or fast followers.

“Coinbase had the architecture of a central custodian. It was very contrarian in crypto at the time. It was taking on the compliance and antifraud burdens of accepting bank payments,” he says. “This was something nobody had really been able to do.”

But as Coinbase expanded and became more mainstream, it was forced to pay greater attention to regulatory demands. It began to intentionally steer clear of crypto’s bleeding edge, where Carlson- Wee felt the most potential lay. He was most excited about Buterin’s new Ethereum blockchain, which unlike bitcoin could (theoretically) run virtually any type of digital platform, making possible decentralized versions of Uber, Facebook, Google or Dropbox.

Former Coinbase colleague Adam White, recently president of crypto wallet Bakkt, believes that as Coinbase added dozens of software engineers from top schools, Carlson-Wee had become pigeonholed as the “operations guy.”

“I started to realize that Olaf was more than just the guy who was going to work hard and answer [customer] support tickets,” says White, who recalls a holiday party in 2014 at which Carlson-Wee casually told him that bitcoin would never trade as low as $300 again.

In 2016, Carlson-Wee informed Armstrong and Ehrsam that he was quitting to form a crypto hedge fund. “I realized that [Coinbase] was going to broadly follow its path with or without me,” he says. “By founding something, I could regain that feeling of super-high leverage.”

LEVERAGE HAPPENS to be the fuel powering the current DeFi boom. From a capital-raising standpoint, DeFi is the successor to initial coin offerings. Most of the ICOs of 2016 and 2017 were junky digital IPOs in which speculators traded ether tokens to invest in hundreds of questionable projects. The majority were worse than even the shoddiest stocks. There was almost no disclosure, and investors had no real equity or voting power. Billions were lost.

DeFi is touted as an improvement because investors in these Ethereum-based platforms are merely lending their capital, usually in the form of ether or a stablecoin like USD Coin, to others in peer-to-peer networks. The rules are set out in smart contracts embedded in the Ethereum blockchain. By lending crypto, DeFi investors can make money—lots of it— through something called yield farming.

It works like this: Say you own $10,000 worth of ether. Rather than having it sit in your digital wallet on Coinbase earning zero interest, you could deposit it in a DeFi platform like Compound, making it available for somebody else to borrow for a set time. In exchange you’ll earn an annual yield as high as 30%. But that’s not all. You’ll also be rewarded with Compound’s own tokens, COMP, the platform’s native asset, which entitles you to vote and have a say in governing the network. COMP tokens also trade actively. Between their launch in June 2020 and mid-2021, they skyrocketed in value from about $65 each to more than $800. Even after the recent crypto crash they’re up about 90% since release.

“You can now have lending agreements for millions of dollars between two people around the world who don’t know each other’s identities,” says Carlson- Wee, whose 2018 $2 million investment in Compound led its seed round at a $22 million valuation. Compound released its token in June 2020. Its market cap soared to $4 billion in 2021 and now hovers around $800 million.

“These loans can be an agreement between a person and a computer, or a corporation and a computer. There’s no concept of identity or legal contract. And yet [because of smart contracts] you can have literally billions of dollars [move] between these people,” Carlson-Wee says.

Whatever the ideal, in practice, DeFi is a speculator’s paradise. The COMP tokens you’re awarded for lending out your ether on Compound can then be deposited in any number of decentralized exchanges such as Uniswap (also a Polychain holding), where you can likewise earn interest and more free tokens. On Uniswap you earn UNIs. Then you can deposit your UNIs on SushiSwap and earn SUSHI. And so on.

It can seem like a self-perpetuating bubble. Over the last 12 months, DeFi platforms including Uniswap and SushiSwap have averaged over $50 billion in transaction volume per month, but there’s little evidence that any of this goes toward the things banks typically finance—say, company expansion or even buying a home.

“Polychain is among a handful of big hedge funds and VCs including Paradigm, Bain Capital Ventures and Pantera, which, behind the scenes, centrally control many of the biggest decentralized platforms.”

Things don’t always go smoothly, either. Chainalysis estimates that in 2021, 72% of $3.2 billion in crypto assets stolen came from DeFi sites. In early 2020, when the emerging pandemic caused markets to plummet, investors in a Polychain-backed DeFi platform called MakerDAO suffered $8 million in losses when its underlying software liquidated 1,200 collateral positions in response to a 55% drop in the price of ether. At one point the foundation that runs MakerDAO considered an emergency shutdown. The platform was saved in part because ether rebounded 80% in a few months. Much more is at risk now. In March 2020 the total value of digital assets “locked up” in DeFi platforms was about $10 billion; today, even after crypto’s recent correction, the amount at risk stands at nearly $80 billion. Little wonder that powerful opponents, such as Massachusetts Senator Elizabeth Warren, have called DeFi “the most dangerous part of the crypto world.”

IF THE NEW WORLD of decentralized finance is a democracy, then Olaf Carlson- Wee is a Tammany Hall boss. With large stakes in the biggest platforms including Compound, Uniswap and MakerDAO, Polychain’s analysts are actively involved in creating their architecture, known as “tokenomics,” as well as designing the incentive mechanisms that attract investors.

When it comes to Compound’s governance, for example, Polychain is the second-most-powerful voting bloc behind Andreessen Horowitz. It controls 306,000 of 2.8 million votes, roughly 11%. Andreessen has 321,000. Important votes on things like lowering loan collateral requirements require that only 400,000 votes be cast, so, as long as they agree, the venture firms can easily sway any vote their way. In fact, Polychain is among a handful of big hedge funds and VCs including Paradigm, Bain Capital Ventures and Pantera, which, behind the scenes, centrally control many of the biggest decentralized platforms.

Unlike voting for common stocks, there is no mandate to notify token holders of upcoming votes, and for those who store their DeFi tokens on exchanges like Coinbase there isn’t even a mechanism to allow voting.

“A decision does not pass on Uniswap, Aave or Compound unless it is approved by the founding team,” says Andre Cronje, founder of Yearn.Finance, a yield farming robo-advisor. Carlson-Wee openly admits that his team works with founders on all major proposals. Adds Cronje, “As much as there is talk of decentralization, unless it is back-channeled there will be no approval.”

Carlson-Wee prefers not to dwell on DeFi’s inherent contradictions. “I’ve never really viewed decentralization as an end goal or a feature that users want,” he says. “What people really want are security guarantees. And decentralization is usually the best way to get them.”

These days, he’s focused mostly on where to deploy his $750 million in fresh capital. Polychain takes a thematic approach to investing in early-stage startups (see table, page 65), something that the youthful money man says he gleaned from VC veteran Fred Wilson, of Union Square Ventures.

In the fast-moving cryptoverse, DeFi is yesterday’s bubble. NFTs and the metaverse are the next wave of froth Carlson- Wee wants to surf. “The internet generation cares about avatars and profile pictures more than clothing and cars. As we transition to digital lifestyles and, eventually, a fully internet-native metaverse, NFTs become the artifacts all around us,” he says, a glint in his blue eyes. “Imagine a game world where the price of a token going up would actually expand the size of the game.”

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DAOs Aren’t A Fad — They’re A Platform

by ForbesFebruary 3, 2022

^{Tribute Labs CEO Aaron Wright and COO Priyanka Desai (above) at a Williamsburg, Brooklyn, mural of a popular nonfungible token (NFT). Their DAO service operation created Flamingo DAO, which turned a $10 million investment into a $1 billion NFT collection. Photograph by Jamel Toppin for Forbes.}

The leaderless investing collectives known as decentralized autonomous organizations are generating a lot of eyerolls. Thanks to high flexibility and low regulation, they’ll also soon generate a lot of profits.

By Jeff Kauflin with Isabel Contreras

“This is an incredibly risky move. I don’t know if I agree with this.’’ Erick Calderon, the founder of a company named Art Blocks in a risk-oblivious field, nonfungible tokens, was nonetheless concerned. It was February 2021, and Calderon was one of 59 investors who had banded together to potentially buy a rare set of 150 popular NFTs, CryptoPunks, directly from their producer, Larva Labs.

The group, a decentralized autonomous organization (DAO) called Flamingo, had pooled $10 million and met weekly via Zoom (audio-only to protect those wanting anonymity) to figure out what to do with it. The CryptoPunk opportunity, at about four ether ($7,200 at the time) per punk, would eat 10% of that, which is partly why Calderon aired his concerns on the group’s Discord channel.

The tension got thicker when members discovered one of their own—someone going by the pseudonym “Pranksy”—had tried to front-run the deal, opening a back channel with Larva Labs to buy 150 punks for himself. In the end, Flamingo members voted to spring for the punks, which were recently valued at $30 million. As for Pranksy, he left the DAO “by mutual agreement,” telling Forbes he was “somewhat naïve [about] the DAO process.”

A few of the CryptoPunks owned by Flamingo DAO.

‎

Most of America is. Sure, you’re probably familiar with the concept: leaderless collectives in which groups democratically make investment decisions, such as when 17,000 members of a DAO tried to buy one of 13 surviving original copies of the U.S. Constitution last year. Aaron Wright, CEO and cofounder of Tribute Labs, which set up Flamingo, calls a DAO “a sub-reddit with a bank account.” But while the headlines tend toward the splashy or the silly, a new model is emerging that has real legs as an alternative investment vehicle.

A quarter-century ago, an Illinois “investment club” run out of a church basement, the Beardstown Ladies, spawned a slew of bestsellers and imitators as stock-picking groups proliferated. DAOs have modernized and digitized the concept, incorporating many of the traits that make the blockchain so potent.

By using tokens, DAOs can efficiently allow votes, empower profit sharing and, crucially, supply liquidity, as tokens can be bought and sold—though for now, trading in tokens is not something the Securities and Exchange Commission is ready to bless.

By limiting membership to 100 people or fewer, some DAOs are also able to skirt SEC rules, since they fall under a quaint 82-year-old “investment club” exemption—so long as the participants are all involved in managing their kitty and don’t publicly offer their securities.

And while the leaderless model can be called, by another definition, anarchy, it also lets those interested in alternative assets play without having to outrun the 20% profit share that hedge fund, venture capital and private equity managers regularly charge for what too often is average performance. Syndicate, which makes DAO-in-a-box software, partners with another startup that can help you do all the legal and tax paperwork for $2,000 a year, while Tribute charges 2% a year of the DAO’s original investment to do all that paperwork and incorporate things like coordinating group calls (not coincidentally, the same upfront vig that funds charge). The difference here is that the profits are all yours.

Combine all that, and you have something that can’t be judged by all the dumb headlines. Instead, think of DAOs as a legal platform, much as nimble LLCs emerged decades ago as an easier way to incorporate than the lawyer-laden C Corp. The early adopters might seem silly. The second wave will make it mainstream.

Exhibit A: Kinjal Shah is a partner at VC firm Blockchain Capital, in San Francisco, which has a traditional fee structure on $1.8 billion under management. Nevertheless, Shah cofounded a DAO called the Komorebi Collective, which has 35 female investors, $400,000 in capital and a goal of investing in crypto startups with female and nonbinary founders. In creating an investment vehicle (leveraging Syndicate services) that isn’t weighed down by institutional investors or high hurdle fees, Shah says the DAO can “have a lot more experimentation and flexibility.” And those are two terms that tend to portend exponential growth.

The early days of DAOs did the model no favors. In 2016, early adopters of ethereum formed “The DAO” to back crypto projects, quickly attracted $150 million—and then lost one-third of that to a hacker before making a single investment. While the attacker was denied most of his spoils after developers controversially “forked” (reissued) ethereum, the point had been made: The DAO disbanded, and all DAOs carried a stink akin to that of early dark web marketplace Silk Road.

Nevertheless, the concept gradually spread. By 2018, roughly 10 DAOs had been formed. By 2020, there were nearly 200 of various types, according to DeepDAO. Yes, embarrassing incidents continued, including numerous “rug pulls”—scammers collect money for a DAO crypto offering and then abscond with the loot, a digital version of The Music Man. Just this January, BadgerDAO, a 24,000-member organization that lets people earn interest on their bitcoin, lost $120 million in a cyberattack.

But the sheriffs are flooding into this Wild West. Today, more than 50 companies offer blockchain security auditing, according to OpenZeppelin. And the number of DAOs keeps surging—it currently sits at more than 4,000, with over $8 billion in their treasuries.

Yes, the populist teams and populist themes attract the headlines. PleasrDAO, which has about $100 million in assets and a mission, according to its “chief pleasing officer,” Jamis Johnson, that varies between doing “dope shit” and building “a portfolio of assets that represent internet culture,” shelled out $4 million for the Wu-Tang Clan’s one-of-a-kind album Once Upon a Time in Shaolin (buying it from the feds, who seized it from Martin Shkreli, the jailed “Pharma Bro”). It also spent $5.5 million for the “Stay Free” NFT minted by fugitive National Security Agency whistleblower Edward Snowden and $4 million for an NFT of the original “Doge” image—the mascot of the cryptocurrency Elon Musk promotes in tweets. But look closer, and you’ll see that this isn’t the “stonks” crowd—investors include the platinum-chip venture firm Andreessen Horowitz (firms, as well as individuals, can invest).

A quarter-century ago, an Illinois “Investment Club” run out of a church basement, the beardstown ladies, spawned a slew of bestsellers and imitators as stock-picking groups proliferated. DAOS have modernized and digitized the concept, incorporating many of the traits that make the blockchain so potent.

While fans may have fantasized through the decades about banding together to buy their hometown sports teams, the Krause House DAO provides a legitimate group with a far more serious path to that unlikely goal, incorporating former players and superfans in a campaign to buy an NBA team.

A lot of this increasing legitimacy can be credited to Wright, the 41-year-old Tribute Labs cofounder and law professor, who has been obsessing over DAOs since the start. After graduating from Cardozo Law School in 2005, he vacillated between entrepreneurship, cofounding sports discussion site Armchair GM, which was sold to Wikipedia’s for-profit arm for $2 million in 2006, and New York corporate law, even representing Jay-Z in an intellectual property dispute.

In 2014, seeking more intellectual freedom and better hours, Wright began teaching law at his alma mater and combined his two careers, founding a legal clinic for tech startups and expounding on crypto and blockchain. In 2015, he advised the cofounders of ethereum on their first “crowd sale”—they sold ether for 30 cents that now trades around $2,500—and later offered his thoughts on The DAO. Wright didn’t invest in The DAO, he says, because “it wasn’t 100% clear what you were purchasing, what the structure would look like and whether that would work.” Vindicating his concern, in a postmortem, the SEC concluded the tokens The DAO issued were securities that should have been registered.

In 2017, Wright cofounded what would become Tribute Labs with Swiss software engineer David Roon to advise companies on how to embed legal contracts into the blockchain, adding new Cardozo grad Priyanka Desai as chief operating officer. In essence, he was selling the pans in the gold rush, but he couldn’t help but prospect too—he’s one of the key figures behind Flamingo.

While Tribute’s DAOs are funded with ether and operate on the blockchain with certain key protections written into their code, they’re organized as Delaware limited liability companies, with investors holding their equity interest in units, not crypto tokens. To further keep SEC watchdogs and reporting requirements at bay, they’re open only to accredited investors—investment funds and individuals with income above $200,000 or investable net worth above $1 million. No investor can own more than 9%, and Wright limits his own holdings to 1% of each DAO.

The Tribute DAOs’ bylaws require only a majority of those voting on any deal (not a majority of all members) to approve a purchase and provide for a mechanism for disaffected participants to get their money out—or, as it’s known in the DAO world, to “rage quit.” Despite all their interaction, members can choose to remain anonymous from one another. Tribute Labs, with 12 lawyers, engineers and financial types all working remotely, vets all participants, fulfilling federal “know your customer” requirements and issuing annual K-1 tax reports required by the IRS. Flamingo participants hail from New York, California, Puerto Rico (a crypto investor tax haven) and Australia, among other places.

Wright points out that the U.S. legal system is more DAO-hospitable than those in Europe, since in the U.S. you can create member-managed companies that don’t designate a single manager or CEO. He helped write a new Wyoming law that allows for LLC DAOs but says the Dela-ware law is just as flexible.

Additional Tribute-fueled DAOs have sprouted almost organically. Last October, Neon DAO raised $20 million in just 45 minutes to invest in the metaverse and has already bought undeveloped virtual land. Two months later, Noise DAO, focused on music NFTs, closed in 30 minutes and raised $7 million. Red DAO raised $12 million in September to focus on digital fashion (both NFTs representing ownership of a physical piece of clothing and outfits in the metaverse). One member is already advising fashion brands on NFT strategy—not unusual, as DAO members often see themselves as players and not just passive investors. Flamingo, for example, commissioned NFTs by unknown artists who have gone on to digital fame—in part via the credibility conveyed by Flamingo.

How big could investing DAOs get? The global money management industry now tends more than $100 trillion in assets, and Syndicate cofounder and CEO Ian Lee predicts DAOs will hold at least 2% of that in 10 years, increasingly moving into big money pools like stocks and real estate. A former VC and head of crypto at Citigroup, Lee has some big-name backers for Syndicate, including Andreessen Horowitz, Coinbase Ventures, Snoop Dogg, Ashton Kutcher and Reddit cofounder Alexis Ohanian.

The ecosystem matures quickly. In a house 90 minutes from Vancouver, British Columbia, 39-year-old Jess Sloss is a leader (or, as he calls it, “instigator”) of Seed Club, which aims to be the Y Combinator of DAOs, running eight-week startup workshops for cohorts of 15 that win acceptance into the program. It gives them advice on topics like marketing and how to launch a token.

Sloss got into digital marketing, then went to work for crypto startups. Along the way, he joined the ranks of those frustrated by the power of the big web companies. “The value that we were creating for these networks was massive, and our ability to have a say in those networks, or have an ownership stake, was minimal or zero,’’ Sloss says. “Are we just going to be living with these feudal overlords and farming for them?”

Feudal overlords? Sloss isn’t quite as out-there as he sounds. Last year he raised $2 million from dozens of angel investors including a Tribute Labs DAO; Union Square Ventures partner Nick Grossman is a backer. Plus, Seed Club is just one of many DAOs animated by a determination to make sure creators and those who come up with ideas—as well as investors—keep a fair share of the wealth. DAOs, says the 50-something Frank Rotman, a managing partner of fintech venture capital firm QED who has recently started studying DAOs, are “playing to an ethos and a zeitgeist that has hit the next generation.”

The global money management industry now tends more than $100 trillion in assets, and Syndicate cofounder and CEO Ian Lee predicts DAOs will hold at least 2% of that in 10 years, increasingly moving into big money pools like stocks and real estate.

Out in Silicon Valley, Syndicate is looking to scale up the DAO model far faster, with a service that allows up to 99 investors to instantly turn an ethereum wallet into a DAO—a “Web 3 Investment Club’’ that votes and tracks its holdings on the blockchain. The basic setup is under $300; the service launched in late January, and in under a week, 200 DAOs had signed up.

Pitfalls abound. Scammers continue their pestilence. If assets do swell into the trillions, it’s hard to see the SEC adhering to rules designed for the financial equivalent of knitting circles. The regulators already consider tokens to be securities if they can be bought and sold—as opposed to merely used for voting and then burned (destroyed) when an investor withdraws. And an entire decentralized trading exchange, Uniswap, already exists. “It really is mass civil disobedience,’’ Rotman muses.

Finally, there’s the matter of performance. If the wisdom of the crowds better mimics the meme-stock bozos than the enlightened ideals of Aristotle, DAOs will have a short shelf life. After their bestseller drew scrutiny, those Beardstown ladies were ultimately revealed to be market underperformers, rather than Buffetts in the basement. Then again, the faceless hordes behind Flamingo have done far better than just CryptoPunk NFTs—their ahead-of-the-curve calls have helped them turn $10 million into nearly $1 billion in 15 months. A 1% stake in Flamingo, which originally cost $23,000, now goes for 3,000 ether—about $8 million. And new members are screened for the knowledge and influence they can add—not unlike a blue-chip VC or hedge fund seeking partners, but without the crazy fee structure.

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What Every Crypto Buyer Should Know About OpenSea, The King Of The NFT Market

by ForbesNovember 23, 2021

Startups are supposed to specialize, but OpenSea’s founders thrived by building a wide-open market for creating and trading all manner of NFTs, whether art, music or gaming. Now that they’re centimillionaires and poised to become billionaires, they have other worries: competitors, fraudsters and the next crypto crash.

In March 2020, as Covid-19 began to spread, OpenSea founders Devin Finzer and Alex Atallah held a gut-check phone call. Their five-person startup had built a platform on which users could create, buy and sell all sorts of nonfungible tokens (NFTs)—computer files used to track ownership of unique digital assets like art and music on a ledger known as a blockchain. Yet 26 months after going live, they had just 4,000 active users doing $1.1 million in transactions a month, which translated (given OpenSea’s 2.5% sales commission) to a paltry $28,000 in monthly revenue. The NFT market had a “dead feeling,” recalls CTO Atallah, who conducted his side of the call from the basement of his parents’ Colorado home, where he had gone to work as New York locked down. Ominously, Rare Bits, a direct and better-funded competitor, had just announced it was folding. The pair set a do-or-die goal of doubling business by the end of the year—and met it in September.

Year of the NFT: Cofounders Alex Atallah (left) and Devin Finzer in OpenSea’s new SoHo office. The company, launched in 2018, is on track to exceed $300 million in revenue this year, up from less than $1 million in 2020.

Sasha Maslov for Forbes

Finally, in February 2021, the NFT market roused from hibernation—and went crazy. In July, OpenSea processed $350 million in NFT trades. That same month, in a round led by Andreessen Horowitz, it raised $100 million in venture capital at a $1.5 billion valuation. In August, as NFT hype (and FOMO) reached a fever pitch, volume spiked tenfold to $3.4 billion—an $85 million commission windfall for OpenSea in a month when it likely burned less than $5 million on expenses. Although transactions have since retreated to around $2 billion a month, the platform now has 1.8 million active users and a dominant share of the market. It’s up to 70 employees and is scouting for dozens more, including much-needed customer service reps.

Recently, there’s been talk of another round of venture investment at a valuation that could reach $10 billion. With a 19% ownership stake each, CEO Finzer, 31, and Atallah, 29, are centimillionaires on the cusp of becoming crypto’s newest billionaires.

Yet Atallah was humble as he chatted in November at a restaurant in New York’s kitschy new Margaritaville Resort Times Square, sitting near its 32-foot Statue of Liberty replica, which hoists a cocktail instead of a torch. He was there for the third annual NFT.NYC convention, which boasted 5,500 registrants with 3,000 on the waiting list. Young enthusiasts prowled the hotel wearing Bored Ape Yacht Club sweatshirts—a tribute to a collection of 10,000 simian NFTs whose owners treat it as a social club as much as a collectible or investment.

You might say humility was at the heart of Finzer and Atallah’s successful strategy. Some advisors had urged them to specialize in an NFT niche—say, art, gaming or music. But they opted to build a category-agnostic platform because they didn’t think they were prescient enough to predict which NFT types would catch on.

Beyond casting a wide net, Finzer says, OpenSea has thrived simply by “being in the right place at the right time” and listening to users about what they want. The platform tracks NFTs on ethereum and other blockchains, and all purchases are made in crypto. Sellers can opt for a fixed-price or auction format. Artists can reserve a percentage of each resale price. Ultimately, Finzer sees the NFT ownership verification model working for anything from concert tickets to real estate—he’s just not sure what will succeed when. “I’ve always had a pretty gray view of the future,” he says.

Despite its sudden success, OpenSea faces big and varied risks—from fraud and another NFT market bust to new competition. In October, Coinbase, the nation’s largest crypto exchange and an original investor in OpenSea, announced it will launch its own NFT peer-to-peer marketplace. Within weeks, Coinbase had 2.5 million sign-ups for its waiting list, and CEO Brian Armstrong was predicting the new business “could be as big or bigger” than its core crypto trading business.

‎‎‎Stephen Curry bought this Bored Ape NFT in August for $180,000. He’s not the only celebrity who owns an ape — Jimmy Fallon and Mark Cuban have their own simians.

Stephen Curry

OpenSea’s open-market approach heightens the risk of counterfeits, scams and fraud—just ask Amazon or eBay. For example, a scammer can copy an image of someone else’s art and sell it as an NFT on OpenSea. Finzer says the site is working on an automated way to spot fakes and has moderators who investigate suspicious offerings. Still, people can present problems too. In September, Finzer requested the resignation of OpenSea’s head of product after Twitter users discovered a crypto wallet linked to that executive was buying NFTs shortly before they appeared on the price-moving OpenSea homepage—in other words, he was allegedly frontrunning his own employer’s decisions.

While they come across as humble, OpenSea’s founders are hardly low on ambition. Raised in the Bay Area by a physician mom and a software engineer dad, Finzer says he was “devastated” to be rejected by Harvard, Stanford, Princeton and Yale. (He settled for Brown.) After a short stint as a Pinterest software engineer, he cofounded his first startup, Claimdog, in 2015 and sold it to Credit Karma a year later.

As a kid, Atallah, the Colorado-born son of Iranian immigrants, made spreadsheets to compare the attributes of everything from birds to browsers. After graduating from Stanford, he worked as a programmer before teaming up with Finzer. In January 2018 they entered the Y Combinator startup accelerator with an idea for paying users crypto to share their Wi-Fi hotspots. But at that point, CryptoKitties—the cartoonish virtual cats whose ownership records were digitally inscribed on the ethereum blockchain—had captured the public imagination. “It was the first time people who didn’t really care about crypto were suddenly getting interested in it for reasons other than flipping a coin. I thought that was really powerful,” Atallah says. They quickly pivoted to OpenSea and later moved their operation to New York City.

Much like Beanie Babies, their cloth-and-stuffing ancestors, CryptoKitties turned out to be duds as investment-grade collectibles—the supply was too great to make most of them worth much. After spiking in early 2018, interest in both crypto and NFTs went into hibernation.

What awakened the market in early 2021 wasn’t OpenSea’s doing. Instead, platforms like the billionaire Winklevoss twins’ Nifty Gateway captured attention with curated, high-quality art. Last March, Christie’s auctioned the NFT for digital artist Beeple’s “Everydays: The First 5000 Days” for $69 million, the third-highest price ever paid for work by a living artist.

As NFTs fetched eye-popping prices, more and more ordinary folks decided they too wanted to become creators, collectors or speculators—and turned to OpenSea, with its anyone-can-be-an-artist ethos, built-in secondary market and handy features. For instance, the site has an advanced filtering system so users can find NFTs with the rarest—and theoretically most valuable—attributes. (Only 46 Bored Apes have solid-gold fur, and they command a hefty premium.) When a new NFT is created and recorded on ethereum, the site automatically spawns a webpage displaying it—a nice feature as NFTs became a status symbol, with people sharing their OpenSea pages and changing their Twitter profile pictures to an NFT they own. “It became this circular feedback loop, driven by envy and desire. And OpenSea really captured that market,” observes Richard Chen, a partner at VC firm 1Confirmation and an early OpenSea investor.

Dani, 27, a former fashion designer living in Georgia, has turned a $17,000 investment in NFTs like the World of Women into a portfolio worth $715,000. AJ, a 37-year-old former gaming company CEO from North Carolina, put less than $10,000 into NFTs and now values his digital assets at $1.3 million. He recently convinced his gastroenterologist brother to start buying NFTs. The brother, in turn, hooked his own buddies. “They’re pretty much doing colonoscopies and then checking their phones for new NFT drops,” AJ says.

Sounds like a bubble, all right, raising the question of how OpenSea will fare when it bursts. Responds Finzer: “We have a large amount of padding in case we need to weather a winter.”

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The Richest Under 30 In The World—All Thanks To Crypto

by ForbesOctober 6, 2021

FTX cofounder Sam Bankman-Fried built a $22.5 billion fortune at age 29 by profiting off the cryptocurrency frenzy – but he’s not a true believer. He just wants his wealth to survive long enough to give it all away.

It’s a hazy late-summer evening when Sam Bankman-Fried drifts into Electric Lemon, a “clean, conscious” eatery on the 24th floor of the five-star Equinox Hotel in Manhattan’s Hudson Yards complex. The 29-year-old cryptocurrency billionaire has jetted in from Hong Kong in part to cohost this private party but nonetheless tries to slink to the corner of the room unnoticed.

His standard attire—black hoodie, gray khaki shorts, beat-up New Balances—might be camouflage on the streets below, but in this sea of cufflinks and cocktail dresses he stands out even more than 6-foot-9 Obi Toppin, the New York Knicks power forward who’s mingling with the crowd. It doesn’t take long before Bankman-Fried is mobbed: Can I pitch you something? What do you think about the latest crypto crash? How about a photo for Instagram?

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It’s all part of the job for the richest twentysomething in the world. Bankman-Fried’s cryptocurrency exchange, FTX, which enables traders to buy and sell digital assets such as bitcoin and Ethereum, raised $900 million from the likes of Coinbase Ventures and SoftBank in July at an $18 billion valuation. It handles some 10% of the $3.4 trillion face value of derivatives (mostly futures and options) traded by crypto investors each month. FTX pockets 0.02% of each of those trades on average, good for around $750 million in nearly risk-free revenue—and $350 million in profit—over the last 12 months. Separately, his trading firm, Alameda Research, booked $1 billion in profit last year making well-timed trades of its own. Lately Bankman-Fried has been hitting the TV circuit to opine on bitcoin prices, regulations and the future of digital assets.

“It’s a really weird, awkward in-between time for the industry,” he says. “There’s just a lot of uncertainty in half the countries in the world.”

Four years ago, Bankman-Fried had yet to buy a single bitcoin. Now, five months shy of his 30th birthday, he debuts on this year’s Forbes 400 at No. 32, with a net worth of $22.5 billion. Save for Mark Zuckerberg, no one in history has ever gotten so rich so young. The irony? Bankman-Fried is no crypto evangelist. He’s barely even a believer. He’s a mercenary, dedicated to making as much money as possible (he doesn’t really care how) solely so he can give it away (he doesn’t really know to whom, or when).

Steve Jobs obsessed over his sleek and simple products. Elon Musk claims he’s in business to save humanity. Not Bankman-Fried, whose philosophy of “earning to give” drove him into the crypto gold rush, first as a trader, then as the creator of an exchange, simply because he knew he could get rich. Asked if he would abandon crypto if he thought he could pile up more money doing something else—say, trading orange juice futures—he doesn’t even pause: “I would, yeah.”

At the moment, Bankman-Fried’s “effective altruism,” the utilitarian-inflected notion of doing the most good possible, is almost entirely theoretical. So far, he has given away just $25 million, about 0.1% of his fortune, placing him among the least charitable members of The Forbes 400. He’s betting that he’ll eventually be able to multiply his giving by a factor of at least 900 by continuing to ride the crypto wave instead of cashing out now.

“My goal is to have impact,” he says. But to get there, Bankman-Fried, who moved to Hong Kong in 2018 and to the Bahamas in September, will have to survive increasing government attention and outflank an army of competitors vying for the business of more than 220 million traders worldwide—all while braving the boom-and-bust crypto cycles that can spawn great fortunes at historic speeds yet level them just as quickly.

“He’s a phenom,” says Kevin O’Leary, star of ABC’s Shark Tank, who recently invested in FTX and is a paid spokesperson. “He’s achieved a lot so far, and he has the respect of a lot of investors—I’m one of them—but his job is just beginning.”

The son of two Stanford law professors, Sam Bankman-Fried grew up reading Harry Potter, watching the San Francisco Giants and listening to his parents talk politics with West Coast academics. After graduating from a small private Bay Area high school that, he says, “would have been really great if I were more hippie-ish and liked science less,” he enrolled at MIT, where he “half-assed” his way through a physics degree, spending more time playing video games Starcraft and League of Legends than studying. He figured he might become a physics professor. But he was fundamentally more interested in ethics and morality. “There’s a chicken tortured for five weeks on a factory farm, and you spend half an hour eating it,” says Bankman-Fried, who is a vegan. “That was hard for me to justify.”

He read deeply in utilitarian philosophy, finding himself especially attracted to effective altruism, a Silicon Valley–esque spin on philanthropy championed by Princeton philosopher Peter Singer and favored by folks like Facebook cofounder Dustin Moskovitz. The basic idea: Use evidence and reason to do the absolute most good possible. Typically, people give to trendy causes or those that have affected them personally. An effective altruist looks to data to decide where and when to donate to a cause, basing the decision on impersonal goals like saving the most lives, or creating the most income, per dollar donated. One of the most important variables, obviously, is having a lot of money to give away to begin with. So Bankman-Fried shelved the notion of becoming a professor and got to work trying to amass a world-class fortune.

Save for Mark Zuckerberg, no one in history has ever gotten so rich so young. The irony? Bankman-Fried’s not a crypto evangelist—he’s barely even a believer. He’s a mercenary.

After graduating from MIT in 2014, he took a high-paying finance gig, trading ETFs for quant firm Jane Street Capital, and funneled a chunk of his six-figure salary into philanthropic causes.

He paid little attention to the rough-and-tumble early days of crypto—when the FBI shut down the Silk Road illicit online marketplace in 2013 for selling all sorts of contraband in exchange for bitcoin, for example, or when Mt. Gox, then the world’s primary crypto exchange, collapsed in 2014 after losing 850,000 bitcoins, worth about $460 million at the time. But toward the end of 2017, when bitcoin was charging through its first mainstream bull run, leaping from $2,500 to nearly $20,000 a coin over just six months, he spied an opportunity. He noticed that the nascent market was not efficient: He could buy bitcoin in the U.S. and sell it in Japan for up to 30% more.

“I got involved in crypto without any idea what crypto was,” he says. “It just seemed like there was a lot of good trading to do.”

In late 2017 he quit his job and launched Alameda Research, a quantitative trading firm, with about $1 million from savings and from friends and family. He set up shop in a Berkeley, California, Airbnb with a handful of recent college grads and began working the arbitrage trade, hard. Sometimes his entire staff would have to stop work to swarm foreign-exchange websites because they couldn’t convert Japanese yen to dollars fast enough. At its peak, in January 2018, he says he was moving up to $25 million worth of bitcoin every day.

But he soon grew frustrated with the quality of the major crypto exchanges. They were geared toward making it easy for individuals to buy and sell a few bitcoins, but they were in no way equipped to handle professional traders moving large sums at rapid speeds. Sensing his moment, he decided to start his own exchange.

Bankman-Fried has done a lot more earning than giving so far. HIs $25 million in lifetime donations is mathematically equivalent to a typical 29-year-old American stuffing $15 into a Salvation Army bucket.

In 2019, he took some of the profits from Alameda and $8 million raised from a few smaller VC firms and launched FTX. He quickly sold a slice to Binance, the world’s biggest crypto exchange by volume, for about $70 million.

At first it was slow going. A dozen employees toiled from standing desks in a Hong Kong WeWork, trying to lure traders to their new exchange. He soon found a niche catering to more sophisticated investors looking to trade derivatives—things like bitcoin options or Ethereum futures. Many derivatives traders have little to no ideological conviction about crypto. Like Bankman-Fried, they simply want to make money.

As a result, they tend to make substantially more trades, and for higher amounts, than the average retail investor. That leads to more fees for FTX, which takes a cut of between 0.005% and 0.07% of each transaction. FTX is also one of the few exchanges that feature tokenized versions of traditional stocks—offering, for instance, a crypto token that represents a share of Apple. Since the business has almost no overhead, its profit margins are high: around 50%.

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Worth $22.5 billion, Sam Bankman-Fried is the richest self-made newcomer in Forbes 400 history. And at 29, he’s one of the youngest. Here’s how he stacks up against the competition.

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Bankman-Fried didn’t have the proper licenses to operate in America’s highly regulated derivatives markets. So he based the business in Hong Kong, partly because he had just attended a bitcoin conference in nearby Macau. At the start, that helped him win over clients in Asia, a hotbed of crypto trading. But digital nomads grow few roots. Toward the end of September, he announced (via Twitter, naturally) that he plans to move the headquarters of his 150-person outfit to the Bahamas to take advantage of clearer crypto regulations and less-stringent Covid-19 travel restrictions. (His smaller American exchange is based in Chicago.)

In just two years of catering to the more-sophisticated trader, FTX has gotten huge. Its $11.5 billion average daily derivatives-trading volume makes it the fourth-largest derivatives exchange, behind only Bybit ($12.5 billion), OKEx ($15.5 billion) and industry leader Binance ($61.5 billion). A year ago, it was doing just $1 billion in trades each day across 200,000 users. As Bankman-Fried’s user base has ballooned to 2 million, he has raced to scale up his servers and beef up customer service and compliance.

In 2019, Binance—the crypto exchange run by billionaire Changpeng Zhao, known as “CZ” (above)—pumped about $70 million into FTX. In July, Bankman-Fried bought out Binance’s stake for $2.3 billion. No wonder they’re “still friends,” as CZ told Forbes.

Yong Li Xuan/The Straits Times/Newscom

“He can, through the force of his character, move engineering timelines up by unbelievable amounts of time,” says Anatoly Yakovenko, the founder of Solana, a cryptocurrency with a $43 billion market cap.

Bankman-Fried’s nimbleness and speed of execution has attracted plenty of investor attention. In January 2020, crypto-focused venture capital firms including Pantera Capital and Exnetwork Capital pumped $40 million into the business at a $1.2 billion valuation, according to PitchBook. By this July, seemingly every blue-chip VC in the world wanted a piece of FTX. He was able to raise that monster $900 million round, which pushed its valuation to $18 billion. FTX is now worth more than Carlyle Group or Nippon Steel. It was founded just 29 months ago.

For all his early success, there’s one way Bankman-Fried shows his age: Among America’s 50 richest people, he’s remarkably cash-poor. Forget Swiss bank accounts or a well-balanced portfolio of stocks and bonds. Virtually all his wealth is tied up in his ownership of about half of FTX and more than $11 billion worth of FTX’s publicly traded FTT tokens—which can be used to make payments or for trading discounts on the FTX exchange, akin to a gift card or store credit. He also holds a few billion dollars’ worth of other cryptocurrencies he’s backing.

It’s no surprise, then, that he has done a lot more earning than giving so far. His $25 million in lifetime donations, directed toward a smattering of causes including voter registration, global poverty mitigation and artificial intelligence safety, is the rough mathematical equivalent of a typical 29-year-old American stuffing $15 into a Salvation Army bucket.

“There’s a lot of work to be done,” he admits, saying major giving is “not a short-term goal. It’s a long-term one.”

At the moment, essentially none of his profits are going toward philanthropy. Including a pledge of 1% of its net fees, FTX and its employees have earmarked $13 million for charity so far. But mostly he’s plowing billions back into his businesses, including spending $2.3 billion in July to buy back Binance’s 15% stake in FTX—doubling down on his bet that if he keeps building his wealth, he can make a bigger charitable impact later.

The trade-off between earning now and giving later has tormented billionaires for ages. Warren Buffett bickered with his late wife, Susan, over whether they should let the magic of compound interest grow their fortune and then give it away, or donate their assets during their lifetimes. After all, money compounds, but so do many of the world’s problems. In the end, Susan won. In 2006, Buffett announced he was beginning to give away nearly all his wealth, to be spent right away.

“I see little reason to delay giving when so much good can be achieved through supporting worthwhile causes,” Chuck Feeney, the 90-year-old cofounder of Duty Free Shoppers, who has given away his entire $8 billion fortune, said in 2019.

Another concern: Is making money from crypto fundamentally at odds with Bankman-Fried’s mission to do good? A year of crypto mining, the process of solving arbitrary mathematical problems to generate new coins, uses gobs of energy, enough to power Belgium.

Bankman-Fried is pouring hundreds of millions into marketing: $210 million to stamp the FTX logo on leading esports league TSM, $135 million to rebrand the Miami Heat’s arena, $17.5 million to rename UC Berkeley’s football field.

“Those concerns are real, but sometimes a little overblown. If you look at carbon produced per dollar of economic activity, crypto is not a huge outlier,” Bankman-Fried claims. “It’s probably a factor of two or three worse than the average company but not a factor of 20 or 30.” He notes that FTX buys carbon credits to offset its consumption and is investing $1 million into carbon capture and storage initiatives.

Perhaps his biggest challenge of all, though, is where he goes from here. Specifically, he needs to find a way to maintain FTX’s hypergrowth without running afoul of government regulators.

Cryptocurrencies are outright banned or face draconian restrictions in countries including China, Bolivia and Turkey. In the U.S., Congress has already introduced at least 18 bills this year that directly affect the industry. Brian Armstrong, the billionaire CEO of Coinbase, recently denounced the Securities and Exchange Commission during a spat over Lend, a proposed crypto lending product. Coinbase ended up dropping it.

Meanwhile, Bankman-Fried has been putting FTX’s $900 million cash infusion to work, hunting for acquisitions that will either expand his user base or give him licenses to operate in key jurisdictions. In August, FTX announced that it would acquire LedgerX, a New York–based exchange that has already won permission from the U.S. Commodity Futures Trading Commission to sell crypto derivatives. That means FTX may soon be the first major crypto exchange to offer derivative products in America, ahead of Binance, Coinbase and Kraken. “They moved commendably rapidly to cut that deal,” says Christopher Giancarlo, former chairman of the CFTC.

He’s also pouring hundreds of millions into mainstream marketing. He agreed to pay $210 million to stamp the FTX brand on leading esports league TSM in June, struck a $135 million deal to rename the Miami Heat’s arena in March and inked a $17.5 million contract for the naming rights to UC Berkeley’s football field in August. Plus he recently launched a $30 million ad campaign to promote FTX through ambassadors such as Shark Tank’s O’Leary, NFL legend Tom Brady and NBA superstar Steph Curry. All three have equity in FTX.

Bankman-Fried’s aim: to position his risk-taking two-year-old financial firm as something safe and mature. If your company becomes part of everyday discourse, it’s much harder for politically sensitive regulators to shut you down. It’s a playbook written by PokerStars during the first great online gambling boom, which peaked around 2010, and later adopted by sports gaming outfits FanDuel and DraftKings.

He also wants to move beyond crypto. Last year, he steered FTX into prediction markets, which let traders bet on the outcome of real-world events like the Super Bowl and presidential elections. He’s eyeing broader expansion, too: The hope is that one day customers will be able to buy and sell everything from an Ethereum call option to a share of Microsoft or a mutual fund on FTX.

“There’s a wide world out there,” says the single biggest beneficiary of the crypto boom. “We shouldn’t think that crypto is going to be the most fertile ground to work in forever.”

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Chelsea Manning Is Back, And Hacking Again, Only This Time For A Bitcoin-Based Privacy Startup

by ForbesAugust 25, 2021

Jamel Toppin for Forbes

Five years ago, from her prison cell, trans whistleblower Chelsea Manning sketched out a new way to protect online privacy. Now, she is helping an MIT-affiliated cryptographer bring the next generation of privacy software online.

Chelsea Manning’s long blonde hair catches in a cool summer breeze as she turns the corner into Brooklyn’s Starr Bar, a dimly lit counter-cultural haunt in the heart of the hipster enclave of Bushwick. The 33-year-old best known for leaking hundreds of thousands of top-secret government documents to Julian Assange in 2010, then coming out as a transgender woman, walks past a poster depicting sea turtles, humans and geese merging to form the outline of a dove. Beside the image are the words, “Your Nations Cannot Contain Us.”

Dressed in a black suit and wearing a silver Omega watch, she makes her way to a small wooden table illuminated by a shaft of sunlight. She orders a coke. Contrary to what one might expect, this whistleblower turned trans-icon looks uncomfortable in the hip surroundings. A fan reverently approaches her and welcomes her back. “This is my life,” she says after he leaves, expressing both gratitude for the well wishes, and lamenting the loss of her privacy. “I’m not just famous, I’m in the history books.”

While serving the longest sentence ever doled out to a whistleblower after she used the privacy protecting Tor Network to anonymously leak 700,000 government documents, she used her time in incarceration to devise a better way to hide the tracks of other online users. Knowing that the non-profit Tor Project she used to send files to Wikileaks had become increasingly vulnerable to the prying eyes of intelligence agencies and law enforcement, she sketched out a new way to hide internet traffic using blockchain, the technology behind bitcoin, to build a similar network, without troublesome government funding. The entire plan was hatched in a military prison, on paper.

The privacy network industry, including the virtual-private networks (VPNs) familiar to many corporate users, generated $29 billion in revenue in 2019, and is expected to triple to $75 billion by 2027. Fixing the known weaknesses of these networks is about more than just protecting future whistleblowers and criminals. Private networks are also vital for big businesses who want to protect trade secrets. Manning thinks that not-for-profit efforts like Tor, which relies on U.S. government funding and a worldwide network of volunteers to run its anonymous servers, aren’t robust enough. “Nonprofits are unsustainable,” says Manning casually, sipping from her Coke. “They require constant upholding by large capital funds, by large governments.”

Nym Technologies founder Harry Halpin sips on a “homojito” at Brooklyn’s LGBTQ-friendly Starr Bar, as he and Chelsea Manning discuss their nascent partnership, formalized in July.

Michael del Castillo for Forbes

By January 2017, she was seven-years into a 35-year sentence at Fort Leavenworth, home to the likes of former Army Major Nidal Hasan, who killed 14 fellow soldiers in 2009. As President Barack Obama prepared to leave office, he granted Manning an unconditional commutation of her sentence. Newly tasting freedom, she was contacted by Harry Halpin, the 41-year-old mathematician who worked for World Wide Web inventor Tim Berners-Lee at MIT from 2013 to 2016 helping standardize the use of cryptography across web browsers.

Halpin asked Manning to look for security weaknesses in his new privacy project, which eventually became Nym, a Neuchâtel, Switzerland-based crypto startup. Halprin founded Nym in 2018 to send data anonymously around the Internet using the same blockchain technology underlying Bitcoin. To date, Nym has raised some $8.5 million from a group of crypto investors including Binance, Polychain Capital and NGC Ventures. The firm now employs 10 people and is using its latest round of capital to double its team size.

Halpin was impressed by Manning’s technical knowledge. More than just a famous leaker who happened to have access to secret documents, Manning struck Halpin as someone with a deep technological understanding of how governments and big business seek to spy on private messages.

“We’ve very rarely had access to people who really were inside the machine, who can explain what they believe the actual capabilities of these kinds of adversaries are, what kinds of attacks are more likely,” says Halpin. “She’ll help us fix holes in our design.”

Born in Oklahoma on December 17, 1987, Manning had her first exposure to network traffic analysis in high school. She and her Welsh mother Susan had moved to Haverfordwest, Wales in 2001, when Manning was 14. In a computer class there, in 2003, she first learned to circumvent blocks put in place by the school to prevent students downloading certain files—and got caught pirating music by Linkin Park, Jay-Z and others. The headmaster had been watching remotely. “It was the first moment where it dawned on me, ‘Oh, this is a thing. You can do this.’”

By 2008 Manning’s interest in what’s called network traffic analysis first brought her to The Onion Router (Tor), a volunteer network of computers that sits on top of the internet and helps hide a user’s identity. The non-profit organization leveraged something called onion routing which hides messages beneath layers of encryption. Each message is only decipherable by a different member of the network, which routes the message to the next router, ensuring only the sender and receiver can decipher it all. Ironically, the network colloquially known as the Dark Web, and used by Manning to send classified documents to WikiLeaks, was developed by the U.S. government to protect spies and other government agents operating online.

Much of Manning’s consulting work comes with mutually binding non-disclosure agreements that make it difficult for her to market her business.

Jamel Toppin for Forbes

At around the same time Manning discovered Tor, she joined the U.S. Army. As a young intelligence analyst her job was to sort through classified databases in search of tactical patterns. After becoming disillusioned with what she learned about the fighting in Iraq and Afghanistan, she plugged into her computer, put in her headphones, and loaded a CD with music from another of her favorite musicians: Lady Gaga. Instead of listening to the album though, she erased it and downloaded what would eventually be known as the largest single leak in U.S. history, ranging from sensitive diplomatic cables to video showing U.S. soldiers killing civilians, including two Reuters journalists.

In prison she studied carpentry, but she never stopped exploring her earlier vocation. “I’m a certified carpenter,” she says. “But when I wasn’t doing that, I would read a lot of cryptography papers.” In 2016, she was visited in prison by Yan Zhu, a physicist from MIT who would later go on to become chief security officer of Brave, a privacy-protecting internet browser that pays users in cryptocurrency in exchange for agreeing to see ads.

She and Zhu were concerned with vulnerabilities they saw in Tor, including its dependence on the good will of governments and academic institutions. In 2020 53% of its $5 million funding came from the US government and 27% came from other Western governments, tax-subsidized non-profits, foundations and companies. Worse, in their opinion, the technology to break privacy was being funded at a higher rate than the technology to protect it.

“As the dark web, or Tor, and VPN, and all these other services became more prolific, the tools to do traffic analysis had dramatically improved,” says Manning. “And there’s sort of been a cold war that’s been going on between the Tor project developers, and a number of state actors and large internet service providers.” In 2014 the FBI learned how to decipher Tor data. By 2020 a single user reportedly controlled enough Tor nodes to steal bitcoin transactions initiated over the network.

Using two lined pieces of composition paper from the prison commissary, Manning drew a schematic for Zhu of what she called, Tor Plus. Instead of just encrypting the data she proposed to inject the information equivalent of noise into network communications. In the margins of the document she even postulated that blockchain, the technology popularized by bitcoin, could play a role. In the notes below she wrote the words: “New Hope.”

Manning was prohibited from having guests in prison she didn’t know before. Fortunately, she’d met MIT physicist Yan Zhu, at a party shortly before being locked up, and drew up these documents during a visit in 2016.

personal archivist LIsa Rein, Getty Images

Then, this February Halpin woke her up late one night with an encrypted text message asking her to take a look at a paper describing Nym. Developed completely separately from Manning’s jailhouse sketch, the paper detailed an almost identical system disguising real messages with white noise. A hybrid of the decentralized Tor that relies on donor support, and a corporate owned VPN that requires trusting a company, this network promised the best of both worlds. Organized as a for-profit enterprise, Nym would pay people and organizations running the network in cryptocurrency. “The next day I cleared my schedule,” she says. By July she’d signed a contract with Nym to run a security audit that could eventually include a closer look at the code, the math, and the defensive scenarios against government attacks.

Unlike Tor, which uses the onion router to obscure data sent on a shared network, Nym uses what’s called a mix network, or mixnet, that not only shuffles the data, but alternates the methods by which the data is shuffled making it nearly impossible to reassemble.

“Imagine you have a deck of cards,” says Manning. “What’s really unique here is that what’s being done is that you are taking essentially a deck of cards, and you are taking a bunch of other decks of cards, and you are shuffling those decks of cards as well.”

And, as it, turns out, not every government is comfortable using a privacy network largely funded by the U.S. government. Despite Halpin’s commitment to build a network that doesn’t require government funding to operate, in July Nym accepted a 200,000 euro grant from the European Commission, to help get it off the ground.

“Knowing that Wikileaks had become increasingly vulnerable to prying eyes from intelligence agencies and law enforcement, she sketched out a new way to hide internet traffic using blockchain, the technology behind bitcoin.”

“The problem is that there was never a financial model that made any sense to build this technology,” says Halpin. “There was no interest from users, venture capital, and big companies. And now you’re seeing what we consider a once in a lifetime alignment of the stars, where there’s interest in privacy from venture capital. There’s an interest in privacy for users. There’s interest in privacy from companies. And most of the interest from the venture capital side and the company side, and the user side has been driven by cryptocurrency. And this was not the case even five years ago.”

Even Tor itself is exploring how to use blockchain to create the next generation of its software. After receiving 26% of its total donations in cryptocurrency last year, the Tor Project received a $670,000 grant from advocates of the zcash cryptocurrency and sold a non-fungible token (NFT) representing the first .onion address for $2 million in May, 2021. Now, Tor’s cofounder, Nick Mathewson says the Seattle-based non-profit is exploring some of the same techniques developed by cryptocurrency companies to create Tor credentials that let users develop a reputation without revealing their identity. What he calls an “anonymous blacklistable credential.”

“If you’ve got a website, and somebody does something you don’t like, you can ban them,” says Mathewson. “You can ban the person who did that activity without ever finding out what other activities they did or figuring out who you banned.”

Though Mathewson is interested in the possibility of using blockchain to upgrade Tor itself, he warns that making privacy infrastructure for-profit could lead to more money being spent on marketing than product development. “Our mission is to encourage the use of privacy technology,” says Mathewson. “I don’t really care whether that privacy tool is the one I made or not.”

Ironically, the same cryptocurrency culture Halpin says brought so much attention from investors, deterred Manning from getting involved earlier. Though she counts herself among the earliest bitcoin adopters, claiming to have mined cryptocurrency shortly after Satoshi Nakomoto activated it in 2009, she sold her bitcoin last year for decidedly non-monetary reasons.

“I am not a fan of the culture around blockchain and cryptocurrency,” she says. “There’s a lot of large personalities that are very out there like your Elon Musk’s and whatnot,” she says. “And it’s very, like, ‘Oh, we’re going to get rich off of blockchain.’ It’s very nouveau riche. Like a new-yuppies-bro-culture that’s surrounded it. It has gotten a little bit better in some corners. But I think that culture is what I’m talking about. It’s like Gordon Gekko, but blockchain.”

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Are NFTs The New Napster? This Time The Music Industry Isn’t Taking Chances

by ForbesAugust 13, 2021

The embrace of NFTs by Kings of Leon was a wakeup call for their record label—and the music industry, which is now racing to avoid the same mistake that almost killed it 20 years ago.

More than two decades after it released its first album, Kings of Leon was honored at the Rock and Roll Hall of Fame. But what got the southern-inflected rock band to Cleveland last April was not its music; it was its non-fungible token (NFT) called “NFT Yourself.”

The digital tokens went on sale in March for the ethereum equivalent of $50 a pop, and included a copy of the band’s latest album, a unique piece of artwork, backstage passes, a one-off gold record and musical outtakes. Over the two weeks it was available, KoL moved 6,500 copies of “NFT Yourself” for a total of $2.2 million, including six “Golden Tickets” that sold at an average price of $100,000. Those extra special NFTs included lifetime VIP concert access to one show per tour, complete with a chauffeur. Since the original two-week offer, the NFT’s have generated another $246,000 in after-market sales, with the band collecting 10% of that.

Kings of Leon band members – Nathan, 42, Caleb 39, Matthew 37 and Jared Followill, 35 – pose in front of a display of their NFT at the Rock and Roll Hall of Fame in Cleveland, Ohio in April 2021.

Courtesy RRHOF

While the financial performance wasn’t revolutionary, the ripple effects are being felt throughout the music industry.

“Record deals have lost their value in a way,” says Nathan Followill, Kings of Leon’s 41-year-old drummer. “Nowadays a kid can make a record on GarageBand and put it out on TikTok or put it out as an NFT or put it out in any form. It’s almost like they don’t need to rely on the record industry as much as they used to, which in turn, I think, is making the record industry kind of panic.”

Most people know about NFTs because of the mania this spring surrounding a few auctions of digital art. In March, the low-brow Wisconsin artist Beeple (whose real name is Mike Winkelmann) captured the world’s imagination when he sold a collage of 5,000 .jpegs at Christies for a jaw-dropping $64.9 million. Musical NFTs are no different, except that in addition to any artwork, they come with audio files like the MP4s sold by Kings of Leon.

Justin Blau turned down an internship with asset manager BlackRock to pursue a DJ career. He sees NFTs as a perfect mix of music and finance.

Slaven Vlasic/Getty Images

“NFT Yourself” wasn’t a massive financial success for the Kings of Leon: At its peak in 2008 the band, which consists of three brothers and a cousin, made an estimated $10 million off its multi-platinum “Only by the Night” album. But “NFT Yourself,” marked the first time a mainstream act fully embraced NFTs and, depending on your point of view, it’s either a revolution, a lucrative publicity stunt or the latest gasp in the decades-long undoing of the traditional music industry.

Other acts have done much better with NFTs. Superstar DJ Justin Blau (aka 3lau) sold $20 million worth of NFTs since he started issuing them last fall, after teaming up with the surrealist artist Mike Parisella (aka SlimeSunday) and selling 33 limited edition NFTs of his latest album, Ultraviolet, which included animated videos by the artist synced with Blau’s music.

“The model that I’m working on is meant to be a reverse record deal,” says Blau, who is 30 and has worked with acts like Rihanna, Katy Perry and Ariana Grande. Instead of what he called a “predatory” 80% that most labels take, he plans to fund production costs by selling directly to fans. His team is now in conversations with Billie Eilish, Madonna and Metallica, and is preparing for what he hopes will be the first blockchain music auction to be hosted at Christies, the London auction house.

Beyond the cash directly earned by selling the NFTs, the digital tokens – each unique and like cryptocurrency, tradable on a blockchain – also provide a direct and permanent link to the super fans who hold onto them. Even though the buyers are just anonymous numbers floating in the blockchain ether, musical acts can use them to market – and sell — new music, fresh artwork, concert tickets and merchandise. Done right, NFTs offer the ease and ubiquity of internet distribution (think Napster) but with digital rights protection built in (think iTunes).

That’s triggered a growing effort to capitalize on the opportunity. Kings of Leon used Yellowheart, a New York-based blockchain startup founded by Joel Katz, a veteran Nashville music lawyer, to sell “NFT Yourself.” But the band had other options. Andrew Gertler, who represents singer Shawn Mendez, recently joined Jay-Z and Andreessen Horowitz in a $19 million investment in Bitski, which is building a new NFT platform for music. In May, Miami-based OneOf raised the largest NFT music rounds to date, $63 million, to build an energy-efficient marketplace to sell rare music by the likes of Whitney Houston, Quincy Jones, and John Legend. Celebrity investors are piling in. Mark Cuban and Ashton Kutcher joined a $4 million investment in music marketplace NFT Genius in June.

Actor-investor Ashton Kutcher, rapper-entrepreneur Jay-Z and venture capitalist Mark Cuban have all invested in NFTs as a way to distribute music.

Terry Wyatt/Getty Images, Kevin Mazur/Getty Images, Michael Cohen/Getty Images

It’s perked up the record companies too, who are eyeing the rise of NFTs as possibly more dangerous than the pirated MP3 files that sent the industry into a death spiral 20 years ago, but also potentially as miraculous as the streaming technology that has since revived it: Since 2007, revenue from recorded music has surged 35% to almost $40 billion, right where it was at the CD-fueled peak it hit in 1999, according to entertainment research firm, Midia. Weeks after “NFT Yourself”’ was released, executives at Kings Of Leon’s label, Sony/RCA set up a task force to get educated on NFTs, with similar efforts taking root at each of the three major music companies, including Sony Music, Warner Music Group and Universal Music Group.

“One of the things that has been the downfall of the music industry is that we compete very heavily against each other,” says Oana Ruxandra, chief digital officer for WMG. “And then tech comes and they eat our lunch, and we’re still competing with each other and won’t talk.” Noting the obvious shift in power dynamics NFTs represent, she added: “Any evolution justifies an assessment and evolution of artists’ contracts.”

As long as they can work out the kinks. Yellowheart took a fraction of what a label would have charged to handle the Kings of Leon NFT but it had hiccups with its tech. Yellowheart didn’t have a music player and no way to support the NFT’s encrypted audio files. Instead it distributed unprotected MP4 files of the band’s new music that can now be easily pirated and shared. Then there were the fees common to ethereum transactions that cost some fans an additional $90 on top of the $50 cost of the NFT. All this amidst a broader NFT market experiencing extreme volatility. After hitting a peak in May, when $294 million of Ethereum NFTs were sold in a single week, the market for them dropped 75% by June, according to data site NonFungible.com, before recovering to $302 million in July.

“I would say within the next 10 years 70% of albums will be released in NFT form,” says Kings of Leon’s Followill, who describes himself as the band’s resident cryptogeek. Speaking to the press at the Hall of Fame unveiling of the NFTs, a digital image of himself self flickering in the background, he shrugged: “Any time you’re just up the road from Jimi Hendrix and the Beatles, you must be doing something right.”

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‘Green Bitcoin Mining’: The Big Profits In Clean Crypto

by ForbesAugust 2, 2021

This story appears in the August/September 2021 issue of Forbes Magazine. Subscribe

Bitcoin is infamous for wasting enough electricity to add 40 million tons of carbon dioxide to the atmosphere a year — but now, a growing cadre of U.S. miners are developing green, and lucrative, new strategies worth a fortune all their own.

by Chris Helman

^{(IMAGE ABOVE) Bill Spence (left) and Greg Beard on a Russellton, Pennsylvania, coal waste pile left by a mine that powered 20th-century Pittsburgh steelmakers. They’re burning this polluting “gob” to mine bitcoin.}

Growing up in rural western Pennsylvania in the early 1970s, Bill Spence played with his pals on piles of coal waste, oblivious to the toxic heavy metals right under his feet. After working as an oil industry engineer out west, he returned home in the 1990s and found the piles—known as “gob,” for “garbage of bituminous”—still pockmarking the landscape. The present worry is that these unlined pits are leaching deadly carcinogens into the groundwater—or, worse, that they will catch fire and start polluting the air too. (Of the 772 gob piles in Pennsylvania, 38 are smoldering.)

So Spence, now 63, set out on a mission to whittle down the piles, restore the land—and make money doing it. In 2017, he bought control of the Scrubgrass Generating power plant in Venango County, north of Pittsburgh, which was specially designed to combust gob. But gob isn’t a very good fuel, and the plant was barely viable. Later that year, after being diagnosed with pancreatic failure and kidney cancer (which he speculates may have been linked to his early gob exposure), he stepped back from the business. Bored, he started dabbling in cryptocurrencies and soon had a eureka moment: He could make the Scrubgrass numbers work by turning gob into bitcoin.

After surgery and being taken off a feeding tube, Spence is now back at it, converting the detritus of 20th-century heavy industry into 21st-century digital gold. About 80% of Scrubgrass’ 85,000-kilowatt output is now used to run powerful, energy-hungry computers that validate bitcoin transactions and compete with computers worldwide to solve computational challenges and earn new bitcoins—a process known as mining. Depending on the price of bitcoin, which has recently been gyrating around $35,000, Scrubgrass realizes an estimated 20 cents or more per kilowatt hour (kwh) from mining, against just 3 cents selling to the power grid. Plus, because the plant is safely disposing of gob, it collects Pennsylvania renewable-energy tax credits now worth about 2 cents per kwh, the same as those available for hydropower.

Spence is one of an emerging cohort of American bitcoin miners who are turning one of the cryptocurrency’s biggest liabilities—its insatiable thirst for energy—into an asset. Whether they’re getting rid of waste fuels like gob, helping balance the electric grid in Texas or tapping into the flares at oil-and-gas fields, these cryptopower entrepreneurs are profiting by turning digital lemons into green lemonade. And with countries such as China, Indonesia and Iran moving either to severely restrict bitcoin mining or ban it altogether, the opportunity for domestic producers has never been greater. From just a 4% share two years ago, the U.S. has grown into the world’s second largest miner, now accounting for 17% of all new bitcoins, according to the University of Cambridge Centre for Alternative Finance.

The Belly of the Beast: At Riot Blockchain’s bitcoin mining facility in Rockdale, Texas, exhaust from some of the stacks of 120,000 energy-sucking computers pushes the temperature up to 130 degrees.

Photography by Aaron Kotowski for Forbes

For all bitcoin’s purported benefits, it’s also clear that the currency is an environmental disaster. Depending on bitcoin’s cost (a higher price attracts more miners), its global network sucks up between eight and 15 gigawatts of continuous power, according to Cambridge. New York City runs on just six gigawatts, the nation of Belgium on 10. Exactly how much carbon is released into the atmosphere by bitcoin mining depends entirely on what energy source is used. But the pollution is not negligible. To unlock a single bitcoin, miners must feed their machines about 150,000 kwh, enough juice to power 170 average U.S. homes for a month.

It’s especially frustrating that high-energy inputs aren’t a bitcoin bug but rather a feature. Sure, some portion of the electricity is used to validate transactions, but much is seemingly wasted solving flat-out useless mathematical problems. This “proof of work” is simply a way to create artificial scarcity, making it far too expensive for any one group to corner or manipulate the market. In a 2010 message board comment, Satoshi Nakamoto, the pseudonymous creator of bitcoin, made no apologies: “It’s the same situation as gold and gold mining. The marginal cost of gold mining tends to stay near the price of gold. Gold mining is a waste, but that waste is far less than the utility of having gold available as a medium of exchange. I think the case will be the same for bitcoin. The utility of the exchanges made possible by bitcoin will far exceed the cost of electricity used.”

TERAWATT TERROR

As Bitcoin’s price rises, so does the amount of energy consumed by its worldwide network, as more “miners” jump in with their high-powered computers to solve mathematical problems. When Bitcoin peaked at $64,654 in April, its network was wasting enough energy to keep the lights on in all of Georgia.

Of course, the system could have been designed differently. There are serious cryptocurrencies, including ethereum, cardano, stellar, Ripple’s XRP and algorand, which use vastly less energy than bitcoin or are being modified to do so. Ethereum, for instance, is transitioning next year from “proof of work” to a system called “proof of stake,” which cuts energy use by 99.95%. There’s even a new currency, candela, whose protocol requires solar-powered mining.

But bitcoin isn’t going anywhere. Its first-mover advantage has translated into a recent market cap of $700 billion, more than the five next most valuable cryptocurrencies combined. (Ether, the second most popular, has a market cap of $250 billion.) And bitcoin mining is unlikely to get much less energy-intensive. Its algorithm forces miners to compete to unlock each new coin, and that competition will continue until the last bitcoin is mined, sometime around 2140. Registering a transaction on the bitcoin blockchain takes a million times more energy than processing one on Visa’s bank network. (Backers say a new Lightning transaction network designed to operate atop bitcoin could make it even more efficient than Visa.)

“If you think it’s fake money, then any amount of energy use will be too much,” observes Ted Rogers, vice chairman of Greenidge Generation Holdings, which operates a power plant and bitcoin mining facility on Lake Seneca in upstate New York. “But bitcoin is not going away, and it is going to be the global reserve currency and the center of the future financial world.”

“If you think bitcoin is fake money, then any amount of energy use will be too much.”

Ted Rogers, Vice Chairman of Greenidge Generation Holdings

To see how green bitcoin can be, look no further than the Lone Star State, whose independent power grid famously failed during last winter’s deep freeze. Dozens of power plants were knocked offline, causing billions of dollars in property damage, and some retail customers were presented with monthly bills as high as $17,000. While the directors of the comically named Electric Reliability Council of Texas (ERCOT) have since resigned, the state’s politicians—beyond mandating that plants prepare better for winter weather—haven’t done much to reform the system.

Fortunately, the free market seems to be coming to the rescue, with 16 gigawatts of new wind and solar projects set for construction in west Texas over just the next year. During normal conditions this will be far more electricity than is needed to fill the Texas demand gap. But it will also ensure that there’s enough power for extreme events like ice storms and summer heat waves. Bitcoin miners are acting as a kind of shock absorber for this new green power. They buy up excess energy when it’s not needed, then shut down their mining rigs when demand surges, releasing power back onto the grid.

“West Texas is going to dominate; it will all come here,” predicts Jesse Peltan, 24, CTO of Dallas-based Autonomous (and a member of the 2021 Forbes 30 Under 30). Last year Peltan helped launch a 150-megawatt crypto mining data center near Midland called HODL Ranch, named for crypto hoarders who buy and then (typo intended) “hodl on for dear life.” It’s the first large-scale operation to be powered by the region’s massive solar and wind farms. Some nights the gusts are so ferocious that grid operators give away power just to keep the system from overloading.

Here’s the key: These miners have entered into so-called “demand response” contracts with the Texas grid, whereby they agree, in exchange for rebates, to shut down their computers at a moment’s notice during times of peak power demand. This brings average power costs at HODL Ranch down below 2 cents per kwh, for a mining cost close to $2,000 per bitcoin.

In Texas, bitcoin miners act as a shock absorber for new green power, buying energy when it’s not needed and shutting their rigs when demand surges.

The largest bitcoin mining operation in America is also in Texas, operated by publicly traded Riot Blockchain ($3 billion market cap) in Rockdale, northeast of Austin, near a giant interconnection that moves 5,000 MW of grid power through a maze of transformers and high-voltage lines. Riot taps directly into this interconnection to draw 300 MW of that juice, which powers 120,000 high-speed mining computers stacked in racks 30 feet high in three narrow buildings, each longer than two football fields. Construction is underway to expand to 750 MW, with 130,000 more machines to be installed by the end of 2022.

Riot has a 10-year contract to buy all the power it needs in Rockdale at a bargain 2.5 cents per kwh, counting a 0.5 cent-per-kwh discount it gets for participating in demand response. It also has the option to resell all its power to the grid. During the Texas freeze, the Rockdale facility voluntarily shut down all mining for two days. Assuming it earned the peak price of $9 per kwh, that’s a $90 million windfall. “At this scale of energy procurement, we are not just mining bitcoin,” says CEO Jason Les. Instead, Riot is acting as a “virtual power plant.”

Les, 35, studied computer science at UC Irvine but first learned about bitcoin while playing professional poker in the mid-2010s—and seeing other players use it to hold and move their winnings without banks. He’s not bothered by bitcoin’s volatility, because he’s all in: “When massive price swings come, they don’t affect me whatsoever. In poker, if you’re good, you’re still losing 45% of the time. I’m very comfortable with losing.”

An even bigger technological green gamble is being taken by Crusoe Energy Systems, which has raised $250 million, mostly to mine bitcoin in the middle of remote oil-and-gas fields in six states, including New Mexico, Texas and North Dakota. Investors include Bain Capital, Valor Equity Partners, Tesla cofounder J.B. Straubel and the twin brother crypto billionaires Cameron and Tyler Winklevoss. Crusoe has deployed 45 shipping containers stuffed with bitcoin mining computers, which are powered using natural gas that otherwise would have been burned off or flared. (When drillers complete new oil wells but don’t yet have pipelines hooked up to gather the natural gas, they set it on fire, since allowing it to simply waft into the atmosphere would be even worse for global warming.)

“We underestimated the operational complexities in the business,” admits Crusoe cofounder Chase Lochmiller, a 35-year-old veteran of crypto investment firm Polychain Capital. The startup has found it a challenge to maintain containers spread out across the vast landscape, particularly during the heat of the summer. While Crusoe is unlikely ever to scale up to Riot’s size and profitability, it is already diverting 10 million cubic feet per day of gas that would otherwise be flared. “We think the best way to improve the carbon economics of an oilfield is to add a few bitcoin rigs,” Lochmiller says.

Reclaiming history: Spence and Beard of Stronghold walk the Russellton site, which produced metallurgical coal for Pittsburgh steelworks a century ago.

Photography by Aaron Kotowski for Forbes

What really counts as green energy? Wind and solar power, for sure. Other sources can be a tougher call.

On the banks of New York’s Lake Seneca, the Greenidge Generation plant produces 80 MW of power, using about half to mine crypto. Private equity firm Atlas Holdings, based in Greenwich, Connecticut, bought the mothballed plant in 2014 and invested tens of millions to upgrade it to run on natural gas. That means it emits just a quarter of the carbon dioxide it did during the previous six decades, when it ran on coal, and none of the sulfur compounds or particulate matter.

So far, so green. Yet, as it did when it was powered by coal, the plant sucks in up to 100 million gallons of water daily for cooling, returning it to Lake Seneca about seven degrees warmer. Local environmentalists call it a “giant fish blender” and blame the heated water for lowering oxygen levels and contributing to algae blooms. A bill that would have banned crypto mining in New York for three years died in a state assembly committee in June. Greenidge has been further “greenwashing” its bitcoin by acquiring CO2 allowances and forestry offsets. CEO Jeff Kirt notes the plant’s discharge water is well within regulatory limits and says it has been adding more screening systems to protect Seneca’s trout. The company plans to go public later this year.

Back in Pennsylvania, environmentalists aren’t entirely thrilled that Spence’s Scrubgrass plant gets the same subsidy as hydropower. But the state has decided it’s better to have carbon dioxide emitted by a gob-burning power plant than to leave the stuff in polluting pits.

“The problem is real,” Spence insists. “The only way to fix it is these plants.” The technology at Scrubgrass wasn’t widely used until the 1990s and is expensive. A special reactor burns the gob, rocks and all, producing a high-pH ash that is applied to the remaining piles to neutralize their acidity. The economics make sense only with the addition of bitcoin mining. Spence has a new, well-connected partner in Greg Beard, who until 2019 headed natural-resources investing at private equity giant Apollo Global Management. The two cofounded Stronghold Digital Mining, which now owns Scrubgrass. With Beard, 49, as CEO, Stronghold raised $105 million in June from private investors—enough to buy more bitcoin mining equipment and acquire a second and possibly third gob-burning plant—and has filed preliminary papers to go public. Beard says he never saw anything like this during his two decades in private equity. “This is the most important growth play in a generation.”

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Bitcoin Exchange Led By World’s Richest Crypto Billionaire Raises Record $900 Million

by ForbesJuly 20, 2021

Hong Kong-based crypto derivatives exchange FTX closes a record $900 million fundraise at an $18 billion valuation. The deal will likely boost the net worth of its billionaire founder and CEO, Sam Bankman-Fried, by nearly $8 billion.

Crypto derivatives exchange FTX, has just raised the largest private equity round in the industry’s history, nearly doubling the previous record. Today, FTX Trading Ltd., owner and operator of the Hong Kong-based exchange, announced the $900 million Series B fundraise at an $18 billion valuation – a major milestone for FTX, which was worth only $1.2 billion a year ago.

In total, over 60 investors participated in the fundraise including Sequoia Capital, Third Point, Lightspeed Venture Partners, Coinbase Ventures, Softbank, Sino Global Capital, Multicoin, the Paul Tudor Jones family, VanEck, Circle and hedge funders Izzy Englander and Alan Howard. Instead of relying on an investment banker to organize the round FTX’s team worked directly with investors Paradigm, Ribbit, and BTIG to close the deal.

A relative latecomer among cryptocurrency exchanges, the exchange, launched in May 2019, differentiated itself from industry giants like Binance and Coinbase by offering even inexperienced traders advanced functionality and sophisticated investment products, including options, futures, volatility products and leveraged tokens. FTX averages over $10 billion in daily trading volume; it increased revenues tenfold this year and 75 times since its Series A funding round closed in mid-2020, according to a company statement.

“The primary goal of the raise was to [find] strategic allies who can help FTX grow its brand,” but the capital itself will be primarily used for acquisitions,” says Sam Bankman-Fried, the 29-year-old founder and CEO of the exchange. Non-crypto native firms, trading shops, NFT platforms, – “any of those are businesses where we think we have a lot of value to add, implementing the tools that we’ve built, and frankly, in some cases, us implementing what they’ve built,” he adds. The financing will also be spent on global expansion and growth acceleration.

FTX CEO Sam Bankman-Fried at his company offices in Hong Kong plans to give away much of his wealth as part of the effective altruism movement, which uses data to determine how to make the largest positive impact on the world.

Virgile Simon Bertrand for forbes

Notably absent from the list of investors is Binance, the world’s largest cryptocurrency exchange by market volume, currently beset by scrutiny from financial regulators worldwide. In December 2019, it made a strategic investment of an undisclosed sum in its Hong Kong-based peer. Binance’s chief executive Changpeng Zhao (commonly known as CZ) told Forbes the company has recently given up its equity stake in FTX: “We’ve seen tremendous growth from them, we’re very happy with that but we’ve exited completely.” He explains the withdrawal as a part of “a normal investment cycle” and says it was completed on good terms: “We’re still friends but we no longer have any equity relationship.”

FTX today counts over one million registered users, ranging from retail investors to sophisticated day traders, family offices and experienced institutional traders. Such rapidly growing popularity could also be attributed to multiple high-profile sports sponsorships it has struck this year. In March, FTX got a 19-year naming rights deal to the home arena of NBA team Miami Heat for $135 million – the first time a cryptocurrency exchange sponsored a professional sports venue in the U.S. Last month, the company secured multi-year brand partnerships with esports organization TSM and Major League Baseball (MLB) and named National Football League quarterback Tom Brady as its ambassador. Brady’s supermodel wife, Gisele Bundchen, took the role of environmental and social initiatives adviser in FTX. Both Brady and Bundchen have taken an equity stake in the firm.

As a result of the investment, Bankman-Fried, whose fortune Forbes estimated to be worth $8.3 billion as of last month, stands to grow his riches by at least $7.9 billion to $16.2 billion, as a result of the deal, cementing his title of the wealthiest known crypto billionaire. However, as the price of bitcoin dropped 3% over the last 24-hours, taking much of the rest of the crypto markets with it, that wealth could be short-lived. He owns 58% of the company’s shares. In August 2020, FTX acquired Blockfolio, a popular portfolio tracking app, for $150 million.

Many will also wonder whether FTX could be positioning itself for a public debut, a path increasingly favored by crypto startups. In April, Coinbase listed its shares on Nasdaq, thus becoming the first major firm in the industry to do so. Following the lead, digital infrastructure provider Circle and a yet-to-be launched crypto exchange, Bullish, have recently announced their plans to also enter the public markets.

“This is something we’re going to be actively thinking about and we don’t know how this is going to end exactly. So what we want to do is put ourselves in a position where we can do it if we want to [and] we are ready,” says Bankman-Fried. There’s no “ticking clock on our need to go public.”

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Revenge Of The Winklevii

by ForbesApril 5, 2021

After losing an epic battle with Mark Zuckerberg over ownership of Facebook and being shunned in Silicon Valley, CAMERON and TYLER WINKLEVOSS are back—this time as budding Bitcoin billionaires at the center of the future of money, the creative economy and quite possibly a new operating model for Big Tech itself.

Identical Twin billionaires Cameron and Tyler Winklevoss saunter into their empty 17th-floor offices in Manhattan’s Flatiron district wearing designer high-tops, black jeans and matching sweatshirts made by the high-end streetwear brand Heron Preston. The sweatshirts—Cameron’s is red, Tyler’s white—are emblazoned with a NASA logo, which the twins picked because it echoes the space-exploration theme behind the brand of their seven-year-old cryptocurrency trading operation, Gemini. In addition to being the Zodiac sign symbolized by twins, it was the name of NASA’s second space mission—the one just prior to Apollo 11, which put the first man on the moon.

“We actually call our employees astronauts,” Cameron says. “We’re all astronauts building on the frontier of money and the frontier of art and the frontier of finance.” Accustomed to finishing his brother’s thoughts, Tyler chimes in:“We feel like we’re on a spaceship, exploring a new frontier.”

Photographer Michael Prince and digital artist Yoshi Sodeoka collaborated to produce this 15-second rendering of Forbes magazine’s 2021 international billionaires issue cover. It is being sold at auction on Wednesday as an NFT artwork. The proceeds will go to the Committee to Protect Journalists and The International Women’s Media Foundation.

Photo by Michael Prince for Forbes, Illustration by Yoshi Sodeoka for Forbes

On this sunny March day, the spaceship is hitting warp speed. The price of Bitcoin is about to reach an all-time high of $58,000 (it sold for $8 in 2012 when the brothers began investing some $10 million in the digital currency), rocketing their combined net worth to $6 billion. Their latest investment, fast-growing Bitcoin lending giant Block-Fi, just announced it has raised $350 million, valuing the company at $3 billion.

And the 39-year-old brothers’ hottest venture, digital art auction platform Nifty Gateway, is basking in the glow of a sale at Christie’s, where the gavel is about to fall on the 255-year-old auction house’s first-ever sale of a nonfungible token (NFT) artwork, a one-of-a-kind computer file tracked on a digital ledger known as a blockchain. Nifty Gateway put the artist, Mike Winkelmann, who goes by Beeple, on the map through a series of “drops” starting last year. Before the day ends, Gemini’s custodial business, which houses digital assets securely, will receive a $69 million cryptocurrency payment for Beeple on behalf of Christie’s, making his “Everydays: The First 5,000 Days” the third-most-expensive work sold by a living artist, after Jeff Koons and David Hockney.

Much of the world still thinks of the 6-foot-5 twins as the crew-rowing chumps played by Armie Hammer in The Social Network, the hit 2010 movie about Facebook. At Harvard, classmate Mark Zuckerberg had swiped their idea for a social networking site, building an empire with 2.8 billion worldwide users and a personal fortune now worth $97 billion. A dozen years after they settled with Zuckerberg for $65 million in Facebook stock and cash, the Winklevii, as they are widely known, have emerged as leaders of a technological movement whose core operating principle involves digitizing the records of all assets globally, decentralizing control and cutting out gatekeepers—including Facebook.

Blockchain, the technology underlying Bitcoin and other cryptocurrencies, is already disrupting money and banking, as giant financial firms such as PayPal, Square, JPMorgan, Fidelity and Northern Trust embrace Bitcoin and jockey for position in a future awash in digital assets. At the same time, big companies including Boeing, Samsung, Tesla and Novartis are using the new technology to improve their supply chains, share customer data and speed up business processes. In some cases they’re adding Bitcoin to their balance sheets. In 2020, Bitcoin returned more than 300%, against 18% for the S&P 500.

The Winklevii say they’re just getting started. Through their holding company, Gemini Space Station, which owns their crypto exchange and Nifty Gateway, and via investments made by their family office, Winklevoss Capital, the duo have invested in no fewer than 25 digital asset startups. These fledgling companies are laying the foundation for what the brothers hope will be a new virtual world that they and others call the “metaverse,” in which digital assets like art, music, real estate and even entire businesses are created, bought and sold—and, most importantly, governed—by the blockchain. Many of the companies they’re backing are positioned to thrive in this three-dimensional version of the internet ruled via peer-to-peer computer networks, where participants rather than powerful companies profit.

“The idea of a centralized social network is just not going to exist five or 10 years in the future,” Tyler predicts when asked about Facebook. “There’s a membrane or a chasm between the old world and this new crypto-native universe. And we’re the conduit helping people transcend the offline into the online.”

The fact that two Greenwich, Connecticut–raised men of Harvard, both former Olympians, find themselves at the center of an antiestablishment movement whose most notable use case to date has been a thriving online bazaar selling illegal drugs speaks volumes about how far the Winklevii have come from their days in Cambridge, Massachusetts, grappling with Mark Zuckerberg.

After settling their arbitration with Facebook and competing in the 2008 Olympics in Beijing, the Winklevoss brothers headed to Oxford University to earn their MBAs in 2010 and then formed Winklevoss Capital to make venture investments. Eager to join the cadre of firms on Sand Hill Road funding today’s great technology companies, the twins soon realized that they were effectively shunned in Silicon Valley. Startup after startup, fearful of reprisals from juggernaut Facebook and its growing network, refused to take their capital.

Within 24 hours of meeting with the Winklevoss twins in 2019, Griffin (left) and Duncan Cock Foster had received an overture from Gemini to buy Nifty Gateway. The NFT auction house was recently valued at $1 billion.MICHAEL PRINCE FOR FORBES

As recounted in Ben Mezrich’s 2019 book Bitcoin Billionaires, it was during a vacation on the Mediterranean resort isle of Ibiza in June 2012 that the twins were first introduced to Bitcoin by early adopters who, like the Winklevii, were traditional-tech outsiders. The notion that money was the ultimate social network, and that Bitcoin was free from central-bank control and backed by mathematical certainty, appealed to the highly disciplined athletes.

After the brothers returned to New York, they began using their Facebook money to buy up Bitcoin. “We found the community super-welcoming,” says Tyler, who tends to be the more analytical twin. (Cameron is the more creative.)

In May 2013, they invested $1.5 million in a Brooklyn based exchange called BitInstant, which charged people a fee to exchange dollars for Bitcoin in just minutes. The business grew rapidly—reportedly accounting for 30% of all Bitcoin purchases. Unfortunately, some of those purchases were laundering money for drug dealers selling on the dark-web drug bazaar Silk Road, and by the end of the year the site was shuttered. Its computer-genius CEO, Charlie Shrem, whom the Winklevii embraced, was arrested and spent a year in federal prison for running an unlicensed operation.

Facing another brush with ignominy, the brothers decided that if they were going to succeed in this nascent marketplace they needed to be hands-on—and, more importantly, they needed to bring order to a chaotic, unregulated industry. In 2014, they founded their own cryptocurrency exchange, Gemini.

In the early days, Gemini was little more than a place to buy and sell Bitcoin, but today it offers trading and custody for 33 cryptocurrencies, including ether, a coin equipped with a native computer language that lets developers build applications without central servers; zcash, a privacy-protecting token based on Bitcoin; and mana, the native cryptocurrency of a virtual-reality world called Decentraland. The twins also have their own ethereumbased token called Gemini Dollar, which is pegged to the value of the U.S. dollar and therefore stable.

Among crypto exchanges (there are now more than 300), Gemini became, in October 2015, one of the first Bitcoin-focused financial institutions to be designated a trust bank by the New York State Department of Financial Services. This meant it was subject to the same regulatory requirements as banks like State Street and Northern Trust and enabled it to take deposits in all 50 states.

Though Gemini’s trading volume ($29 billion in the last 12 months) is much lower than that of giants like Binance and Coinbase, it rivals them in industry “trust” scores, which carry considerable weight in a market where exchanges are often hacked and fake trading volume is commonplace. Given the current environment of nosebleed valuations like Coinbase’s $68 billion, Gemini could likely fetch $5 billion if it ever needed outside funding.

The Beeple Bubble: “tom hanks beating the shit out of coronavirus,” an NFT artwork by the graphic designer known as Beeple, sold for $107,000 in 2020.

BEEPLE-COLLECT.COM

While Facebook’s early corporate mantra was “move fast and break things,” the Winklevii, who famously asked then–Harvard president Larry Summers to enforce the college’s “Standards of Conduct” against Zuckerberg, have always operated under an “ask permission first, not forgiveness later” ethos. A poster on the wall of their office from Gemini’s recent New York subway marketing campaign depicts the Founding Fathers of the United States with the words THE REVOLUTION NEEDS RULES.

Heavily promoting its operation as the “regulated” crypto exchange, Gemini is positioning itself to profit when the Securities and Exchange Commission finally approves crypto exchange-traded funds, which have already been approved in Canada and overseas. Starting in 2013, the Winklevii began applying to the SEC to launch a Bitcoin ETF. So far they’ve been turned down twice, the last time in 2018, with the SEC citing the immaturity of the industry.

Today, there are six crypto ETF applications pending at the SEC from the likes of Wisdom Tree, Van Eck, Fidelity, First Trust and Anthony Scaramucci’s Skybridge Financial. Gemini, which now offers customers a Bitcoin rewards credit card and a savings account that pays 7% interest on crypto deposits, has an application pending with the SEC to open an alternative marketplace for trading stocks and other securities issued on a blockchain.

“Gemini is the bridge where people can migrate away from centralized finance, from their current bank, and into this new world,” Cameron says. “Our business model is not based on information or monetizing privacy. It’s based on marketplaces and trading fees.”

Among the twins’ growing collection of cryptofocused startups, none is getting more buzz and showing more potential than its NFT marketplace, auction platform Nifty Gateway.

The company was founded in November 2018 by Duncan and Griffin Cock Foster, 26, also identical twins and rowers, who say they took up the sport after watching The Social Network in high school. Both had just graduated from college in 2017—Duncan from Washington University in St. Louis with a degree in computer science and Griffin from Emory in mathematics. During his senior year, Duncan began dabbling in CryptoKitties, a digital craze similar to the decades-ago mania for Beanie Babies, only one in which users create, collect and trade unique animated felines, registering each using a non-fungible token on the ethereum blockchain.

“Everyone had the same complaint,” Duncan said in a 2019 interview. “Buying NFTs was too complicated. We started Nifty Gateway to solve access issues, and we will not rest until 1 billion people are collecting NFTs.”

At first the Cock Fosters designed Nifty Gateway not as an NFT auction platform but simply as a way to buy NFTs with Mastercards and Visas instead of going through the arduous process of purchasing them with ether. In fact, the Winklevii first stumbled upon Nifty Gateway in July 2019 at the Contemporary and Digital Art Fair in New York. A work called “CryptoPunk 4530,” featuring a woman with a mohawk smoking a cigarette, rendered in the blocky style of an old-fashioned video game, had caught Tyler’s eye. The image was one of 10,000 similar but unique portraits created by Google veterans Matt Hall and John Watkinson and initially given away free. The price was $5,000. Tyler used his phone to create an account on Nifty Gateway, paying with his credit card.

As soon as the Winklevii returned to their office, Gemini’s vice president of engineering, Eric Winer, told them he had been keeping an eye on Nifty Gateway, which had just emerged from Adam Draper’s BoostVC accelerator boot camp. A month later, Gemini struck a deal to buy the seven-month-old startup. The Cock Fosters moved to an Airbnb in Brooklyn and worked with Gemini’s engineers to build what is now the world’s most exclusive digital-art platform. While numerous digital platforms operate more like eBay and are open to all creators, Nifty Gateway selectively curates its artists and sells their works in “drops,” taking a page from fashion brands like Nike and Supreme.

The NFT art market has exploded. In February, Nifty Gateway accounted for $75 million of the $91 million in NFT art auctioned on the top seven online platforms, according to data compiled by CryptoArt.io. As of late March, it had sold $132 million of the $188 million worth of such work bought by collectors. When the Cock Fosters launched Nifty Gateway a year ago, monthly sales were less than $100,000.

No NFT artist has gotten richer off the craze than Mike Winkelmann, a.k.a. Beeple_Crap, a 39-year-old father of two in Charleston, South Carolina, who earned a computer science degree at Purdue and studied no art past high school. He uses 3D-graphics software to generate artwork that is outrageous and often revolting. One piece depicts a naked Donald Trump eating a hamburger while sitting atop a train wreck that’s being consumed by giant coronavirus particles. Another shows Kim Jong-un dressed as Toy Story’s Buzz Lightyear with fake breasts.

As a hobby, Beeple created a digital image every day for more than ten years, posting his provocative “Everydays,” depicting dystopian visions of pop culture and politics, to social media sites like Facebook and Instagram. The work earned him a cult following on the internet, but he couldn’t monetize the digital medium, which was as easy to copy as simply right-clicking a mouse.

Last fall, Nifty Gateway began reaching out to artists, trying to populate its new exclusive platform with interesting and valuable digital art. Given Beeple’s 1 million Instagram followers, he was an obvious choice. After educating Winkelmann about NFTs, engineers at Nifty Gateway explained how he could program art to be dynamic, changing at different points in time, or based on a given outcome. He was already touching on political themes in his “Everydays” and saw the 2020 election as his opportunity to make a mark.

If Trump were reelected, Beeple’s “Crossroad” NFT would transform into a naked, sweaty, muscular strongman walking menacingly through fire. If he lost, the NFT would turn into a looping video of Trump lying facedown beneath a rainbow, with words like loser painted on his naked body, as a bird styled after Twitter’s logo chirped away. On October 31, “Crossroad” became the hottest ticket on Nifty Gateway, selling for $66,666.66 to a 32-year-old Miami-based digital-asset speculator with a Columbia MBA. The buyer put the work back up for sale on Nifty Gateway and sold it in February for $6.6 million, making a 90-fold profit. Beeple earned about $660,000 due to the platform’s fee structure, which invites artists to collect a 10% royalty on all aftermarket sales.

Drops Beeple auctioned for $1 each now trade for hundreds of thousands of dollars, earning him at least $10,000 per transaction. His various NFTs sold for a total of $10 million on Nifty Gateway in the weeks before his $69 million sale on March 11. The Winklevii’s NFT platform, which charges artists 15%, has been a lifechanger for Winkelmann. It has also created a booming business for Nifty Gateway.

“We’re doing $4 million in five minutes now,” says Cameron of drops that a year ago would have brought $50,000 on a good day. Adds Tyler: “Basically, the entire art world, the entire entertainment world, is knocking down the door.”

The gold rush in digital art and collectibles being minted and sold on Nifty Gateway and other NFT platforms like NBA Top Shot won’t last forever. But just as some dot-com-bubble companies like Amazon survived and eventually thrived, the Winklevii are building Nifty Gateway and Gemini for the long run as a marketplaceand custodian for all manner of assets, including property deeds, passports, commodities, collectibles, videogame characters, movies, music and event tickets.

“You want to pick that niche where there’s real market uptake,” Cameron says. “You don’t want to boil the ocean.”

Ultimately, the twins see their two marketplaces, Gemini and Nifty Gateway, integrated into a single dashboard where NFTs will be used as collateral for loans, enabling owners to tap their digital assets for funding without having to sell them. Tyler and Cameron also envision a future in which the due diligence they perform to verify a user’s identity could be issued as an NFT, letting users prove they’ve passed strict requirements—think Facebook, but with irrefutable identity confirmation.

“It’s almost like compliance as a service could be baked into an NFT token that Gemini issued,” Tyler says.

Another major area of investment for the Winklevii is blockchain-based applications that support decentralization—the idea that tech companies like Google, Facebook and Microsoft will no longer be necessary because web services and applications will be created, operated and governed by users.

“We very much saw ourselves in Duncan and Griffin [far right],” says Tyler (second from right) of the Cock Foster twins. “These guys had this passion, this conviction, and everyone around them was saying they were crazy.”MICHAEL PRINCE FOR FORBES

Back in 2014, Winklevoss Capital joined forces with San Francisco’s open-source developer Protocol Labs, investing in a seed round to finance various projects that would create a new internet infrastructure that doesn’t rely on centralized servers. One of its efforts, Filecoin, is intended to power a network for computer storage in which users around the world rent out their unused hard-drive space and in return receive ethereum blockchain–based tokens called filecoins as payment. There are already 250,000 such computers, or “nodes,” linked into a decentralized cloud computer. Filecoin has recently been on a tear: Its tokens have surged 350% so far this year, and it has a market capitalization in excess of $6 billion.

In June, Protocol Labs is hosting a workshop to build decentralized versions of Amazon, Google and Facebook that instead of relying on revenue from advertising targeting their users’ personal information will reward them with filecoin tokens. One day filecoin-connected computers could rival the cloud services of these tech giants.

Oasis Labs, based in San Francisco, is another promising Winklevii-owned startup. Run by a security and artificial-intelligence professor at the University of California at Berkeley, the company specializes in ultrasensitive data like human genome codes. The idea is that users will control their own data and be compensated for its use by corporations.

Winklevoss Capital portfolio member Stacks supports multiple projects aimed squarely at challenging centralized control by Big Tech. Boom is its decentralized wallet for creating and sending NFTs; Pravica is a decentralized communication platform that integrates email, chat and video into a single place; Sigle is a decentralized version of WordPress for making websites.

“Within the next decade, you’re going to see social protocols take off and people building decentralized forms of these services,” Tyler says.

The twins’ most recent investment, Artie, builds video games that don’t need to be downloaded and in-game digital assets that can be exported, traded on open markets and even imported into competing games. Artie’s “app-less” games use assets issued on the ethereum blockchain and can stream from anywhere, similar to how YouTube embed codes allow its videos to be played on any website.

Billionaire Zynga founder and CEO Mark Pincus is among the investors in Artie, as is YouTube cofounder Chad Hurley. “We’re seeing that consumers want to break down these walled gardens,” says Artie cofounder Armando Kirwin. “They want more choices, they don’t want monopolies, they want a return to the free and open web. And that’s the last sanctuary that we have.”

Of course, the irony of any serious effort to build a decentralized metaverse is that its chief architects will ultimately become unnecessary. Tyler and Cameron Winklevoss seem unconcerned. A Citibank analyst recently predicted that the price of Bitcoin could pass $300,000 within the the next few years.

“Decentralization is a spectrum,” says Cameron, looking out his window toward New York’s Chrysler Building. “Our goal was not to be the gatekeepers.”

It’s still early days in the blockchain revolution. Mark Zuckerberg, take note.

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