Blueprint: OpenSea lands $13B+ valuation; Aave's DeFi for Institutions; and credit fintech Petal becomes a Unicorn
Gm Fintech Futurists — welcome to 2022! Our agenda for today is below.
NFTs: NFT kingpin OpenSea lands monster $13.3B valuation in new raise
DEFI: Aave Launches a Permissioned DeFi Platform for Institutions
CONSUMER CREDIT: Petal nears unicorn status by raising $140 million in new funding round
LONG TAKE: Fintech distribution, Crypto manufacturing, Metaverse & Web3, and Choosing your journey (link here)
PODCAST: The world’s most powerful Web3 developer suite, with Michael Godsey of Infura (link here)
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If 2021 were the year of NFTs, the marketplace behind it was without a doubt OpenSea. The NFT auction venue has closed a $300 million Series C led by Paradigm and Coatue, bringing OpenSea’s valuation to $13.3 billion. This meteoric rise is matched by operating performance — in the past month alone OpenSea transaction volumes have been over $2.4 billion, and revenues amounted to hundreds of millions of dollars over the last 12 months.
Just 6 months ago, OpenSea was last valued at $1.5 billion by a16z, implying a 10x rise in price in the new round. Andreessen has also just raised a fresh $9 billion of capital, suggesting that they are pretty good at investing in the current paradigm. And despite a more stale NFT market in the last few months of 2021, OpenSea still saw transaction volume increase by over 600x year over year. Another benchmark for OpenSea’s valuation is the price of other NFT firms, such as Dapper Labs, which raised at a $7.6 billion valuation in 2021.
OpenSea certainly has competitors, but few can challenge OpenSea’s 97% market share of onchain secondary sales in Q3 2021. Marketplaces have network effects, which suggests that it will be hard to unseat a destination that has built both sides of the buyers and sellers equation.
Yet as the space heats up, we recommend watching Coinbase, given their strength in the fungible token exchange and the recent announcement that users can now view their NFTs in Coinbase’s browser wallet. Alternately, crypto wallets like MetaMask or Rainbow may facilitate peer-to-peer NFT exchange directly from their applications, while also leveraging token distribution to vampire attack the community. And finally, traditional brands and auction houses, e.g., Sotheby’s and Christie’s, have entered the market with platforms likes of Sotheby’s Metaverse, and may capture new incremental users coming into the space.
DeFi protocol Aave is looking to attract institutional capital through the launch of its new permissioned platform, Aave Arc. The launch aims to reduce the barriers for entry for institutional clients, who are required to participate in decentralised finance in a regulatory-compliant manner. Crypto custody firm Fireblocks serves as the first whitelisting agent, and claiming to have already approved 30 licensed financial institutions for participation in the new platform.
Stablecoin rates float around 3-10%, for what is essentially securities lending or margin borrowing. Compared with the current UK and US official interest rates of 0.1% and 0.25% respectively, DeFi protocols offer users compelling fixed income products missing not available in traditional markets. PWC reports that 74% of hedge funds see crypto as an investment opportunity, and that in the next five years 7% of their AUM will be held in crypto assets. The largest obstacle, however, is regulatory uncertainty for 82% of respondents — we interpret this as an inability to mix with a lot of the onchain capital out there.
The Total Value Locked (TVL) of USD in the Aave protocol has significantly declined from the $18B in late October to the current level of $9B. Such volatility is familiar in DeFi, with protocols struggling to retain long-term liquidity due to (1) investors chasing higher rates from newer protocols, or (2) liquidations in levered positions during market turbulence. Institutional money might be stickier, and therefore help Aave grow in a period of retail headwinds. Alternately, such professionalization is likely to remove alpha from the systems, as less experienced retail assets are segregated from hedge funds trading against hedge funds.
DIGITAL LENDING: Petal nears unicorn status by raising $140 million in new funding round (link here)
Credit card provider Petal has raised an additional $140 million in Series D funding, giving the company an $800 million valuation. Petal provides Visa credit cards to consumers with little to no credit history, analysing creditworthiness from cash flows pulled in from data aggregation — referred to as ‘Cash Score’ — as opposed to requiring traditional credit ratings.
Personal credit demand is high. The rejection rate on credit card applications has more than doubled in under two years from 9.7% in February 2020 to its current 19.8%. The Survey of Consumer Expectations (SCE) Credit Access Survey found that the increase in rejection rates from pre-pandemic levels was due to increased applications from individuals with lower credit scores. That demand needs to go somewhere, and perhaps suggests how Petal has tripled their user base to 300,000 cardholders and quadrupled revenue to nearly $50MM in 2021, and sees 10-20,000 new members per month.
But remember, this is an underwriting business with an interchange booster. You make money on the way in, and have default risk on the way out. So the key to long-term success is (1) ensuring the ‘Cash Score’ measure doesn’t underperform traditional credit scores by allowing higher than planned delinquency rates, and (2) using the cash war chest to retain market share from competitors, like TomoCredit, who is are offering the same product at a 0% APR, instead of a 20% APR.
Rest of the Best
Here are the rest of the updates hitting our radar:
PAYMENTS: PayFit raises $289 million
2021 in Review: Fintech distribution, Crypto manufacturing, Metaverse & Web3, and Choosing your journey (link here)
Welcome, dear reader, to our 2021 retrospective and a view towards the future.
It has been a titanic year for “traditional” fintech. The last decade of storytelling, hustle, venture investment, and anxiety had finally burst through into billions and billions of enterprise value in the public markets. We saw, for the first time, into essentially every single “democratizing finance” business model imagined by entrepreneurs in standardized, SEC filing format.
Podcast: The world’s most powerful Web3 developer suite, with Michael Godsey of Infura (link here)
In this conversation, we chat with Michael Godsey – the GM and Head of Product for Infura, previously a Producer and Product Manager in the video game industry working on Call of Duty, Need for Speed, and EA Sports franchises. Michael’s educational background is in Mathematics and Game Design.
More specifically, we touch on the idea of games and rendered worlds, the philosophies behind game design, the financial services that are blockchain powered, the solution that Infura solves for so many, and so much more!
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