[header date=”16 October 2018″]Digging deeper into SpankChain, exchanges escape from South Korea, and Tether tanks.[/header]
Sex sells, but what if you add a blockchain?
One year ago, SpankChain launched its ICO with a video announcement featuring Kayden Kross, an adult film actress. Draped in a white silk robe, Kross bemoaned how porn stars are frequently mistreated by the conventional financial system. They are denied bank accounts and payment for their work (due to chargebacks), and often face unreasonably high fees from content distributors and various middlemen. Adult performers are outcasts, abused in their own economies.
Because industry incumbents can take 15% of performer’s payments, SpankChain emerged as a small but intriguing crypto alternative. In a crypto world dominated by products looking for a reason to exist, SpankChain seems to fill an actual market need.
The budding market has raised awareness about the business hurdles faced by adult performers, and even claims to have pioneered higher-quality video streaming. SpankChain says latency on its website is just 500 milliseconds, compared with 2-4 second delays on other sites, an improvement that would be a remarkable accomplishment alone.
SpankChain’s payment system is built on Ethereum and there are two tokens for the platform—SPANK, a staking token which is used to earn BOOTY, a token for tipping online performers. Like most upstart cryptocurrencies, the economics of the system are circular, abstruse, and dubious. According to the recap of SpankChain’s November token sale, of the 1 billion SPANK tokens that were created, approximately 300 million were sold—that netted SpankChain’s development team nearly 20,000 ether, then worth about $6 million. Now, SpankChain CEO Ameen Soleimani tells Quartz, the project has banked about $4 million, split evenly between cryptocurrency and dollars.
To be clear, SPANK trading volumes are tiny, just a few thousand dollars per day across a handful of exchanges. The crypto token, trading for about $0.07 per unit, gives the project an implied market cap of $21 million. (A smart analyst, of course, wouldn’t trust that degree of extrapolation.) Still, for what it’s worth, Soleimani says the platform now has about 50 performers and 500 users. It’s niche, but he claims the network is growing.
Soleimani acknowledges the project isn’t completely decentralized. Nobody’s about to stream video on a distributed network, he says. But blockchain has provided the payment rails for a more equitable compensation system for adult performers. Whereas existing content distributors charge upwards of 10%, 20%, or even 30% of a performer’s earnings, along with “high-risk” registration fees, SpankChain has promised to take just 5%.
It would be easy to dismiss this as new-age smut with a crypto twist. But the project reveals, and attempts to remedy, the fundamental inequalities and moralizing inherent in the financial system, even in seemingly liberal societies. —Matthew De Silva
Further reading
- How pornographers invented e-commerce (Business Insider)
- The porn business isn’t anything like you think it is (Wired)
- How facial recognition software is changing the porn industry (Esquire)
- Humans and robots are on the cusp of a sexual intimacy we may never reverse (Quartz)
[mailto filter=”SpankChain” subject=”SpankChain”]Should project founders prioritize economics or technology?[/mailto]
[supplemental headline=”Market chatter: Tether’s square peg”]
Over the past year, we’ve grown accustomed to crypto prices booming and busting while Tether, a token pegged to the US dollar known as USDT, remained stable. Not anymore. Now, USDT is in the doldrums while the broader crypto market is rebounding. That could be because investors are fleeing Tether (paywall) for more trusted digital currencies.
[img src=”https://cms.qz.com/wp-content/uploads/2018/10/atlas_Hyhk4IzoX@2x.png”]
In the past few days, USDT has broken from its $1 peg, shaking investor confidence. In two of the largest bitcoin markets, Binance and OKEx, USDT fell below 97 US cents per unit. Tether fell as much as 7% on other major exchanges, including Kraken and Bittrex.
Since USDT is a major source of liquidity for cryptocurrency trading, even small fluctuations in its price or supply can impact the entire crypto market. USDT’s recent fall has renewed concerns about whether the digital tokens are truly backed by equivalent dollar reserves at a bank, as the Tether team claims. One might expect enterprising traders (or even Tether itself) to take advantage of an arbitrage opportunity, but thus far it seems like few are willing to assume the risk.
[takeaway]One reason for Tether’s slide might be its real-world banking woes. On Monday, Bitfinex—a crypto exchange that shares a management team with Tether—published a “Fiat Deposit Update.” The team said it suspended deposits of government-backed currencies due to “processing complications,” but did not offer specifics. Readers may remember that earlier this month, Noble Bank International, which once served as Bitfinex and Tether’s bank, was reportedly considering a sale amid financial struggles. Although Bitfinex has denied insolvency, its “complications” may have spread to Tether. ↘️[/takeaway]
[/supplemental]
View from South Korea
The “Kimchi premium” is a term cryptocurrency investors use to describe the delicious spread in prices between foreign exchanges and the once-superheated South Korean market. But following a government crackdown, the spread has turned so unpalatable that the country’s cryptocurrency exchanges have a new plan: get the hell out.
Coinone, one of South Korea’s biggest exchanges, told Quartz last week that it’s working on expanding elsewhere in Asia by next year.
“Our strategy is to escape Korea because we really don’t see any potential here,” Wonsuk Wayne Lee, a business developer at Coinone, said in an interview in Seoul, where the exchange is headquartered. “Basically we are trying to… aggregate all the liquidity, and we are going to form an umbrella, which is going to be another exchange.”
The Korean exchange is already in advanced talks with partners in at least two countries, and will be looking to form ventures with a 51:49 equity share, where it will hold the majority stake. The umbrella exchange could be set up in Malta, an aspiring crypto hub.
Coinone isn’t the only one.
At least two other major Korean exchanges—including Bithumb and Upbit—have already announced plans to set up shop in Thailand and Singapore, respectively. The trigger is the sharp slowdown in retail crypto trading after the government stepped in earlier this year to cool the market with new “know your customer “ (KYC) regulations and anti-money laundering rules.
Starting in late 2017, Korean investors flooded the zone, looking to cash in as bitcoin prices hit all-time highs. The resulting premium in Korean cryptocurrency prices soared to more than 50% above than the global average.
“The public image that the government is trying to formulate is that exchanges in Korea are thugs,” an exchange official said, requesting anonymity. “I wish I could tell you, ‘In this area we are being restricted like that.’ But it’s not like that because there is no regulation.”
Exchanges, in particular, are also unhappy for being dropped from the Korean government’s regulations that govern certain small firms as “venture enterprises,” which makes them eligible for favorable taxation benefits, among other things.
Southeast Asian crypto markets may not be a free-for-all, but Korean exchanges like Coinone are convinced that they can’t be worse than what’s going on at home. —Devjyot Ghoshal in Seoul
[mailto filter=”View from and interview feedback” subject=”Feedback”]Have you ever taken advantage of the “kimchi premium”? [/mailto]
[supplemental headline=”De-jargonizer: Hey, hey, hey!”]
“Hey, hey, hey!”—the sing-song catchphrase of ‘70s cartoon character Fat Albert—became a calling card for Carlos Matos, a one-time investor and spokesperson for the BitConnect cryptocurrency exchange. In October 2017, Matos sang it out as he exuberantly promoted the platform at a BitConnect annual ceremony, not long before the exchange folded.
An open-source cryptocurrency project created in February 2016, BitConnect used multi-level marketing to grow exponentially before collapsing under regulatory scrutiny. Earlier this year, the exchange and its accompanying BitConnect token (BCC) were revealed as parts of a possible pyramid scheme and Matos, it turned out, was actually a victim.
Ever the optimist—even after losing more than $100K during BitConnect’s implosion—Matos later posted a video thanking his scammers for teaching him how to recognize whether a project is legitimate or the work of con artists. For the rest of us, “Hey, hey, hey!” is a reminder that in crypto, a hard sell is a good reason to run in the other direction.
Did you know?
At one point during the height of crypto mania, BitConnect was even parodied by Last Week Tonight with John Oliver. Comedian Keegan-Michael Key portrayed Carlos Matos.
[img src=”https://cms.qz.com/wp-content/uploads/2018/10/fat-albert-hey-hey-hey.gif”]
[/supplemental]
Crypto calendar
🗣 Oct. 21-24: Money 20/20. Speakers at the Las Vegas event range from Coinbase president Asiff Hirji and Andreessen Horowitz’s Kathryn Haun to Senegalese singer Akon and Virgin Group founder Richard Branson.
🗣 Oct. 29: D1Conf. Covering everything from oracles to social security, this one-day event will bring together incumbents and innovators to discuss blockchain-based insurance and potential improvements for “insurtech.” If you’re already in Prague for Devcon (see below), D1Conf could be a worthwhile opening act.
🗣 Oct. 30-Nov. 2: Devcon 4. This year, the premier Ethereum conference takes place in Prague, Czech Republic. Talks are aimed at a deeply technical audience.
📚 Nov. 1: Alibaba quarterly earnings. The Chinese conglomerate has filed more than 10% of the world’s blockchain-related patent applications. Earlier this year, Ant Financial—an Alibaba affiliate—launched a blockchain-based remittance service.
[mailto filter=”Calendar” subject=”This is happening”]Tell us about your upcoming news and events.[/mailto]
Please send news, tips, and kimchi to privatekey@qz.com. If this email was forwarded to you, click here to sign up for your own subscription, which includes a free two-week trial. Today’s Private Key was written by Matthew De Silva and Devjyot Ghoshal, and edited by Oliver Staley and Jason Karaian. Bye, bye, bye!