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You are the best, today’s agenda below. Chin up everyone!

CRYPTO: Flashbots Seeks to Raise $50M at $1B Valuation: Report (link here)
PAYTECH: Link raises $30M to help merchants accept direct bank payments (link here)
NFTs: L'Oréal’s NYX Makeup Brand to Launch DAO, Ethereum NFTs to ‘Redefine Beauty’ (link here)
LONG TAKE: JPM's frank $175MM M&A mistake and the dangers of synthetic humans (link here)
PODCAST CONVERSATION: Combining payments infrastructure for merchants, digital lending, and DeFi, with Stronghold CEO Sean Bennett (link here)

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Short Takes

CRYPTO: Flashbots Seeks to Raise $50M at $1B Valuation: Report (link here)

Flashbots, the foundational MEV crypto firm, is aiming to raise between $30-50MM at a valuation of $1B, despite a particularly poor 2022 for crypto funding. The firm is “reverse-pitching” investment funds, where investors are called to persuade Flashbots why they should accept an investment. Paradigm, a leading crypto investment fund, is already leading the round as a follow on to the seed-stage fundraise in 2020.

What is MEV: A beginner's guide to Ethereum's invisible tax

MEV — Maximal Extractable Value — is one of the more technical and important topics in crypto. In traditional markets, you have high frequency trading firms arbitraging transaction through physical proximity to various exchanges. In crypto markets, it is the structure of transaction ordering within blocks that plays a similar role.

Certain savvy firms can arbitrage on-chain trading opportunities by restructuring, excluding, or including transactions within a block during its production to create profit. Flashbots facilitates this market by providing an off-chain marketplace of block-building for on-chain traders and validators. Its objective is to reduce the impact of inefficient block structuring and to streamline MEV. Over $687MM has been extracted from transaction reordering on Ethereum since the start of 2020.

Notably, Flashbots is typically seen as a public good in the Ethereum ecosystem. More recently, it has been criticized for its censorship of transactions related to Tornado Cash in order to comply with OFAC sanctions, given Tornado Cash was sanctioned for money laundering. Block-level capital markets have the power to move what is an isn’t executed, even in a “permissionless” system.

We think MEV is here to stay at least for the short to medium term, reducing some network inefficiencies and capturing a profit. The potential of the space coupled with Flashbots’ dominant market position — over 5x more blocks being processed than their nearest competitors — could justify their “reverse-pitching” process and valuation. We can also expect various Web3-native mechanisms around this in the future, from tokens to DAOs to direct integration into multiple chains.

👑Related Coverage 👑

We first covered Flashbots in May 2021 here — Long Take: Marqeta's $300MM of revenue & Ethereum's $20B in ann. transaction fees highlight opportunity and industry structure

PAYTECH: Link raises $30M to help merchants accept direct bank payments (link here)

Link, a fintech start-up that helps merchants accept direct bank payments — thereby bypassing network interchange fees — has raised $30 million in funding. The round was led by Valar Ventures for a $20mm Series A, while Tiger Global led the $10MM seed round.

Link's platform allows US merchants to accept direct bank payments from customers, bypassing the need for credit or debit card processing. The economic benefit for merchants, who are subject to interchange fees of over 3%, is profound. By integrating Link into their existing purchase flows, merchants generate and share payment links with customers, who can then pay by bank transfer directly into a merchant’s business account.

Link will also take on the customers’ credit risk, guaranteeing the funds for the merchant, whilst using algorithms in the background to identify suspicious transactions. The company claims it can reduce chargebacks and churn, while providing coverage of 95% of US bank accounts. The platform currently supports payments from over 2,000 banks in the United States, out of about 6,000 or so in total.

Charts & Graphs – Institute for Local Self-Reliance — Source

Merchants reportedly paid $25B in network fees last year, and Link has managed to attract several billion in annual payments volume. Estimates put the digital payments revenue pool at $20T by 2026. It is predicted that this year account-to-account transfers will make up 20% of global e-commerce payments. The flipside is that interchange revenue is the secret revenue source in many neobank footprints — think about the beautifully colored card. We think Visa and Mastercard are very hard to disrupt, especially if you aren’t Plaid.

👑Related Coverage 👑

Is Plaid cheap at $5.3 billion for $500 billion Visa?

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NFTs: L'Oréal’s NYX Makeup Brand to Launch DAO, Ethereum NFTs to ‘Redefine Beauty’ (link here)

NYX Professional Makeup, a brand owned by L'Oreal, has built an Ethereum-based DAO that allows customers to create and trade NFTs of “makeup” products, named GORJS. These NFTs will symbolize ownership of a virtual product, such as a virtual lipstick or eyeshadow, and attract creatives to work on an avatar makeup market in the metaverse, which can go far beyond the physical to include surreal elements facilitated by their digital nature.

NYX Pro Makeup US @NYXCosmetics

Something new in beauty just dropped👀 INTRODUCING GORJS ✨ Want to find out what we mean? 👉 gorjs.io #TheFutureIsGORJS #LFG

FKWME NFT passes will go live to the public on the 1st February at 0.19 ETH each. These NFTs earn a daily yield of soulbound (untradeable) GORJS tokens, which can be used for DAO governance, as well as providing allowlist access for future NFT airdrops and sales. The GORJS token will be capped at 100MM and used to vote on proposals and projects. Other ways to earn GORJS include artist referrals to grow the community.

The project aims to create a community of artists and use a token to guide DAO governance. Soulbound tokens are not tradeable, which has two important implications: (1) less likely to be a security, and (2) less liquid, therefore disincentivizing actors that would participate solely for financial gain.

Image of a circular chart showing the GORGJS DAO's token allocation. 40% of tokens going to "community" from NFT mint and artist NFTs, 18% going to "community" through creator token grant, 2% going to "community" through artist token referral, 10% going to founding team, 10% going to advisory team, and 20% going to "reserve."

L’Oréal has been consistently interested in a metaverse play, with investments in Digital Village through Bold, its VC arm. The beauty giant also filed 17 trademark applications last year relating to NFTs and blockchain. Fashion and beauty will continue to be stables in the virtual world, and L’Oréal has begun establishing themselves and testing out the opportunities. We think these ideas connect strongly to the themes of digital identity, social belonging, and group labor — far beyond makeup.

👑Related Coverage 👑

Long Take: Getting ahead in Facebook's Metaverse by earning the Harvard of NFTs

Long Take: JPM's frank $175MM M&A mistake and the dangers of synthetic humans (link here)

Today we are going cover JP Morgan spending $175MM on Frank, the … frankly fraudulent … financial aid fintech.

Yahoo Finance @YahooFinance

“It’s a few hundred thousand students that were unable or did not want to complete their FAFSA compared to the prior year,” @with_frank CEO Charlie Javice says. “COVID had a huge impact when it came to financial aid. … For this season, I do expect there to be a lot of momentum.”

We look at the topics of student lending, the cost of acquiring customers, and explore why JPM would want to own this asset. The interesting bit, however, is trying to figure out how Frank faked 4 million accounts. This connects to the current trends in generative AI, and in particular the attempts of building out synthetic humans at scale — people who seem real, but aren’t. Those may populate video games and the metaverse, but also fraudulent sales of neobanks.

Read Long Take

Podcast Conversation: Combining payments infrastructure for merchants, digital lending, and DeFi, with Stronghold CEO Sean Bennett (link here)

In this conversation, we chat with Sean Bennett, Co-founder and Chief Technology Officer at Stronghold. Based in San Francisco, Stronghold is a financial technology platform that enables real-time payments, foreign exchange and cross-border clearing and settlement leveraging next-generation financial infrastructure delivered via APIs.

Stronghold, recently named as Forbes Fintech 50 company, works with businesses like IBM and Lyft to make payments quicker and easier while maintaining regulatory compliance and interoperability between payment systems. Sean is a renowned technology expert in the digital currency space, having designed and executed some of the first distributed cross-border transactions of sovereign currencies.

Listen on Apple Podcasts

Rest of the Best

Here are the rest of the updates hitting radar.

PAYTECH: China’s state-backed blockchain project aims to be the Swift of stablecoins and central bank digital currencies
PAYTECH: India’s PhonePe tops $12 billion valuation in new funding
LENDING: P2P lending platform PeopleFund raises $20M Series C extension led by Bain Capital
ROBOADVISOR: Schwab Robo Clients Receive $52 Million For Allocation Disclosure Failures
INSURANCE: Liberty Mutual considers $1 billion Latin America sale
WEALTHTECH: Broadridge renews digital wealth platform alliance with IGM Financial
WEALTHTECH: Advisor-Finder Zoe Financial Launches Wealth Platform
WEALTHTECH: Global WealthTech Solutions Market: Empowering Investors with Innovative Technology
VR: Gorilla Tag Made $26 Million In Revenue On Quest App Lab

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Contributors: Lex, Laurence, Matt, Farhad, Daniel, Daniella

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Blueprint: $1B valuation for MEV project…