Long Take: OnlyFans bank-forced adult content ban, its failure, and the Metaphysics of Finance
Hi Fintech futurists --
This week, we cover the following:
Thesis: We talk about OnlyFans, and how its bank vendors pressured it to try to ban adult content, and how and why that failed. We also discuss the crypto tax provisions in the Senate version of the $1 trillion infrastructure bill, and their impracticality. These themes are tied together with a metaphysical hypothesis about the role of financial services, anchored in a discussion of the Platonic model of the mind. How are rationality, emotion, and social context involved to define the shape of our industry?
Topics: banking system, payments, money in motion, money at rest, ethics and morality, social contract, regulation, nation state, decentralization, DeFi
Tags: OnlyFans, Patreon, JP Morgan, BNY Mellon, Elizabeth Warren, Senate, Plato, Freud
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Yes, this is what this newsletter has turned into. You could say it was inevitable.
Let’s lay the factual ground work. OnlyFans is a website for influencers and performers of the “creator economy” to offer premium content behind a paywall. You could trace its origin to things like Kickstarter and Patreon. To say that its usage has exploded would be both a pun and an understatement — 1 million creators, 70 million consumers, and 700+ employees.
The majority of product/market fit for the company comes from adult entertainment; they became the Zoom of sex work during the Covid pandemic, leading to over $1 billion in 2021 net revenue, largely structured as subscription services. That’s like a $10 to $50 billion company — on par with the NuBank IPO, but with twice the customers.
And yet! As the company enters its next stage of growth and looks at monetization, it has to become increasingly kosher to institutional investors that gate-keep liquidity. It also has to have global financial banking partners globally to support its footprint and activity, including both money-in-motion (payments) and money-at-rest (savings). It found that banks routinely and systemically denied money movement for the explicit sexual content of its creators.
We are definitely *not* here to moralize about or advocate for/against what the platform does, or what its users want to do. The financial super-control, however, we find very, very icky.
A quick reminder that the same thing used to happen to cryptocurrency, with traditional banks like JPM refusing to do anything with crypto companies. After a while though, the OCC said that federally chartered banks can custody crypto assets and Visa bought a $150,000 NFT CryptoPunk. The early banking mover in that instance, Silvergate, saw an increase from $300 million to $3 billion of marketcap.
So here we are just a few days later with OnlyFans unbanning its porn ban.
The surface level takeaway is that commercial and financial rails can turn off a business. So a bank can kill a grocer, or a media business, or a hospital. That’s an interesting observation, but a dead end. Get a new, more risk-seeking bank! Or don’t use a bank!
One level down is the takeaway that the people, entities, and cultures they belong to for the (1) operating business (i.e., OnlyFans) and (2) the financial rail (i.e., BNY) are different. In running infrastructure — and maintaining that infrastructure within the political economy under the control of the nation state — your utility function is very distinct from a novelty-seeking lockdown pandemic sort-of-port site, whose founders want to YOLO make billions.
We are interconnected for some existential things to human super-structures that have interests very different from ours.
Infrastructure of Tax Money
But let’s pin this for a second and look at the infrastructure bill. This was a big deal a few weeks back and we didn’t have the space to cover it in detail. This still is a footnote, but at least it is checked off the to-do list. Here are some key threads:
The recap is this. There’s a giant US infrastructure bill, meant to revitalize the post-Covid economy and shift some income down the income ladder. President Biden proposed a $2+ trillion agenda, and the Senate whittled it down to a $1+ trillion agenda. It still needs to squeeze through the House, and there’s a lot of politics around what, when, how.
The US needs to raise a lot of money to pay for the things it wants to fund. One of those sources — about $30 billion or so — is supposed to come from crypto taxes. What a surprise to everyone in the crypto industry! A few years back, you couldn’t get a bank account. And now, you’re supposed to pay taxes on your illiquid NFTs that you stake in a smart contract to leverage up your market making position. Great.
The Senate definition of who provides DeFi services and what needs to be collected by which party isn’t very practical, and landed on some strange, incorrect carve-outs. We’ll leave the drama of the crypto community self-organizing to generate an amendment of the proposed language, the “almost there” moment, something with Ted Cruz, and then the whole thing falling apart because of politics about defense. The end result is that if you run a node in a network that runs financial smart contracts with a Dex on it, i.e., all computational blockchains, somehow you need to help the IRS collect taxes from those decentralized transactions.
A first order observation is that now crypto has made it! Like cannabis, it is mainstream enough to tax, legalize, and promote at scale. The political mechanism that is subsuming these financial assets isn’t the same one that is trying to put it into a box, and the gears may even get stuck on themselves.
And once something creates a revenue source for the government, it ain’t going away. The political octopus needs tax as its sustenance.
The second order observation is that many of the political individuals having opinions on the space are doing so with the impassioned feeling of an orator, not with the cold logical analysis of a mechanic. Elizabeth Warren has inadvertently added to the embarrassing lexicon of out-of-touch people trying to denigrate the most valuable thing Gen Z has going for it with her tremendous line calling crypto developers “Shadowy Super Coders”.
Literally nothing is cooler right now in DeFi/NFT land than being a shadowy super coder. Where can we take the course?
The Platonic Frame
While these two data points we pulled out are quite different, there’s a common thread here that we want to tie to philosophy and metaphysics. We’ve been catching up on Plato as part of the Awakening from the Meaning Crisis lectures, by John Vervaeke.
As Vervaeke plots us through the development of civilization and adaptations of people to society, he introduces what Plato thought were the three core meta-drives for human beings: (1) the “man”, an agent of reason, (2) the “lion”, an agent of peer and social belonging, and (3) the “monster”, an agent of bodily impulses and appetites. Plato proposes to teach the man, train the lion, and tame the monster to achieve wisdom. Here’s a good summary of the talk.
These modes of thinking also map onto Freud’s (1) ego, the aspect of reality and reason, (2) the superego, the socialized and communal values and morals, and (3) id, the primitive and instinctive components of personality.
Yet another more modern interpretation of this distinction is to divide our biological brain into three parts: (1) the neocortex, which deals with abstract concepts and generates consciousness, (2) the mammalian brain, which wires together emotions, which in turn are core to social relationship, and (2) the “lizard brain”, which is what the lizard people use to control us, and also is the source of our instincts and desires.
We know what it *feels* like to *think*, or how *reason* fails to incorporate *feeling*. We understand how social pressures control our actions, as well as the actions of billions across global society. So whichever of these descriptors you like, grab it and use it. The message feels fairly consistent across all.
So when we look at the OnlyFans news, what we see is the rational, emotional, and social forces collide. At the level of abstraction and logic, OnlyFans is just another website that makes money off subscriptions. Banks should love the revenue. And yet, they are operated by individuals within the context of other individuals. Some of them may have emotional and ethical views on issues that overpower the rational voice.
A negative base reaction to sex work pours out like boiling water into the social rivers. The lizard brain yells! All this congeals into political decisions and laws that codify how “the lion” should feel. One can lose honor and pride in supporting “the wrong” type of behavior. The mammalian brain places outrage as an invisible barrier for how to behave in society.
And further, we may think of financial institutions as rational corporations trying to maximize shareholder value in a spreadsheet. But remember, they are licensed to hold and generate money. This means that banks are instrument of the state, and the state is a social contract enforced by the sword — it is rationality glued together by peer chaos. But not all banks are the same, and some have less attachment to the status quo, like Signature Bank and its billions of crypto deposits. The rational calculation outweighs the need to belong to the power structure.
We can run the infrastructure bill through the same analysis. Crypto’s positioning as highly disruptive and anarchic threatens the state’s ability to control money supply and financial services. Decentralization undermines the practicality of licensing regimes. This in turn brings out the internal “monster” in people engaged with incumbency. It makes them feel like something valuable and dear of theirs is under attack.
As a result, smart people with lots of evidence of reasonable thinking, like Jamie Dimon, Elizabeth Warren, and Warren Buffet, say things from their gut. Or maybe their heart. Those things are both emotional and social. They are signals about keeping up tradition and respecting how-things-are. They are not analysis.
But then when you introduce higher-order social and moral context, like the need to pass a bipartisan infrastructure bill to offset the destruction of the last several years, a bit of crypto outrage seems out of place. We see the dollar signs. We see the tax revenue. Crypto is abstracted out of “the money pirates” characterization and into just another tax source on a spreadsheet. The gears are reasoned and mechanistic. This is probably a good thing.
We’ve got one last idea. The words “progressive” and “conservative” have become meaningless with flag-waving. What we want to denote with them, however, is that progressives favor change and novelty — they want progress to some directional forward. Conservatives, on the other hand, want to keep things safe and working. Once we build a beautiful thing, can we please stop tearing it down?
Money is an abstraction that tries to remove the moral and emotional aspects of real world activity. If we are just adjusting the spreadsheet, we don’t know if what is growing by 20% is the revenue for selling sandwiches or guns. It is the perfect unit of account for Platonic “reason” or Freudian “ego”. As we have described before, it can either be in motion or be at rest.
And so perhaps there is a natural progressivism for financial companies that provide services for money in motion — card rails, payment service providers, eCommerce platforms, trading venues. Think about PayPal, Amazon, or Schwab. All of them want change, because that is how they get more abstract money points. Similarly, Bitcoin and Ethereum are networks that desire transactions, and are thereby progressive and novelty seeking in nature.
On the other hand, for entities like the Federal Reserve, or the large megabanks focused on balance sheet management like Bank of America, or the titanic asset managers like Vanguard, money is best handled at rest. The savings account or retirement account benefits from stability and safety. Stop trading! Don’t move it around! These companies are by their DNA conservative and would want to resist change.
This is the great tension at the level of financial abstraction. Do we stay, or do we go?
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