Frank and Ettore Argue About FTX. Should NFTs and Blockchain Games Be Seriously Worried?

The worst threat coming out of the FTX meltdown isn’t something most gamers ever think about. But Frank & Ettore agree that #SAND will ultimately end up with an even bigger market share.

Hi, I’m Frank! I’m a tech writer at Cloudbeds. That’s my work friend Ettore 👇 over there in Spain. 🇪🇸 Nice crown, Ettore! Who are you supposed to be… king Felipe the Sixth?

( Ettore ) It’s called a tiara, Frank. Hey, I’m Ettore! I’m a product manager at Cloudbeds. That aging hipster over there in Bermuda 🇧🇲 is Frank.☝️ He’s not my stylist.

( Frank ) But I could be.

( Ettore ) I’ll hire you if I ever want to wear the same ‘YOU DIED’ tee shirt four days in a row. Do you ever wash that thing?

F__ Haha, no comment.

E__ No surprise.

F__ But talk to me, Ettore. Unless you’ve been in Narnia or wherever then I’m sure you’ve heard all about the dumpster fire formerly known as FTX.

I’m calling it Fallout ‘22: a franchise worst. In one way or another, it’s stanking up pretty much every corner of the cryptocurrency metaverse. Further, the collapse of FTX will have a serious dampening effect on blockchain games, NFTs, and web3 projects in general.

E__ You’re talking about the CeFi exchange platform that collapsed? That FTX?

F__ Yeah, that FTX. But it’s not just about them anymore. The virus keeps on spreading, and nothing that runs on the blockchain is immune. Like on Monday when Bermuda’s own BlockFi International…

E__ Lemme interrupt him, folks. BlockFi International is a major crypto lender. Just so you know.

F__ BlockFi International was a major crypto lender. They filed for liquidation here in Hamilton on Monday.

They’re winding up their business because they had too much exposure to FTX.

E__ That’s definitely unfair to a lot of people. I’m sorry to hear it. But you think that’s going to impact blockchain games? Where’s the connection?

F__ I think all the growth we’ve seen in blockchain games since 2021 is about to get erased.

E__ Then I think you need to quit whatever it is you’re reading and/or smoking, Frank! NFT marketplaces shared zero critical dependencies with FTX or BlockFi. The FTX trainwreck just underscored what we already knew was wrong with centralized crypto.

F__ Enlighten us, Ettore.

E__ Okay, a CEX is usually a black box. They’re managed by people, not protocols, and that creates all kinds of vulnerability.

Everything you’re reading about FTX boils down to a human error on the part of just a handful of humans.

That’s why the same people who said DeFi was dead a year ago are flooding to Curve and Uniswap right now.

F__ Wow. I didn’t know you were so passionate about this, Ettore. I figured you had your mora hidden under your mattress.

E__ I don’t play Genshin, Frank.

F__ Yeah, my niece does. So here’s the TLDR. FTX is a Bahamas corporation…

E__ And the elephant's heavy. So what?

F__ So on November 2nd, Coinbase revealed that FTX’s sister company, Alameda Research, was largely capitalized with FTX funbucks.

E__ You mean FTTs?

F__ Right! It’s basically worth Camel Cash. So, on November 8th, FTX halted all customer withdrawals during what was shaping up to be a real old-timey bank run. Ironic, right? These bitcoin bros just reenacted the Great Depression.

E__ I'm losing you, Frank. Focus on this century…

F__ Fair enough. So, on November 10th, Sam “das Wunderkind” Bankman-Fried finally betook himself to Twitter and acknowledged he’d wunderfully f*cked up. And on November 11th, FTX filed for bankruptcy after their Binance frenemy, Changpeng Zhao, refused to bail them out.

At the time of this writing, ETH has taken about a 25% nosedive compared to where it was before the Alameda leak. BTC plunged to the lowest it’s ever been in an already-dismal year. But you’re saying this is a nothing burger?

E__ No, I’m saying it’s natural, Frank. Crypto is a free market. Right now, it’s the only free market. Market corrections taste bad, but they’re good medicine. Phony crypto celebs like Sam Bankman-Fried… do we have to keep calling him ‘Sam Bankman-Fried’?

F__ Everybody just says SBF.

E__ Crypto bruhs like SBF shouldn’t be a thing, but they are. When you let markets correct, instead of governments running up planned-economy debt and basically deciding who doesn’t have to fail, then everybody is better off. That’s why the world’s No. 1 most-regulated economy…

F__ You mean the United States?

E__ I mean the United States. That’s why the SEC, the IRS, and the US treasury department are scared of crypto. It means they don’t know what to tax, they can’t define capital gains, they can’t decide precisely how much currency is out there—and therefore they can’t police how much everybody’s money is worth.

F__ Right you are, monsignor! You’ve touched on precisely the biggest threat coming out of the FTX meltdown. There could be wide-ranging consequences for all digital assets, including NFTs. In Bermuda, Bahama…

E__ Come on, pretty mama!

F__ Okay okay. One of the things that made SBF famous was how he went to Washington and cozied up to lawmakers. He poured money into crypto-friendly candidates and Super PACs.

E__ That’s not all bad. There’s an older generation who still thinks crypto is imaginary.

F__ Yes!

E__ SBF was doing Godfather II. Trying to legitimize crypto in the eyes of the government.

F__ I agree, and that definitely needs to happen. But going around the U.S. capital saying “we want regulation, we just want it to be good regulation” — that appealed to some, not to all. And it caused bad blood between FTX and Binance.

E__ Binance is Changpeng Zhao’s platform. They’re registered in the Caymans, yeah?

F__ Precisely. People take crypto offshore for a reason. Changpeng Zhao doesn’t exactly hang out in D.C. and get drinks with regulators. SBF broke his trust.

E__ Indeed, indeed. So back to NFTs…

F__ Right. So here’s Defiant back in June, talking about Nat Chastain getting indicted by the feds for NFT insider trading on OpenSea. Listen to this:

“They will come for other people next. It’s starting,” wrote Loopify, a web3 builder with 190K Twitter followers. Roberto Nickson, founder of The M3taverse, an NFT media company, was also shocked by the news. “Insane,” he tweeted. “First of its kind. Won’t be the last.”

E__ That sounds ominous.

F__ He signs off with

“US Govt not playing games anymore.”

…what if that’s true?

E__ What if that’s not? People overreact. But that’s great for DeFi. That’s great for Pancake and Uni and all the rest.

People are jumping to decentralized crypto because they’re finally coming to their senses. Yeah, there’s more of a learning curve than with CeFi.

But you don’t run into the same risk of fake capitalization or straight-up fraud.

F__ Ettore, you know that and I know that. But the IRS, the SEC, the treasury department—they won’t split those kinds of hairs. For instance, in May, the US treasury secretary, Janet Yellen, said stablecoins “represent the same kind of risks that we have known for centuries in connection with bank runs.” Seen anything that looks like a bank run since then, Ettore?

E__ I’ve heard FTX get called that recently…

F__ Yellen, Elizabeth Warren, a bunch of congress folk and bank regulators; they’ve been in front of the cameras all month calling for some kind of regulatory crackdown. FTX and Celcius’ bankruptcies gave them tons of talking points.

On November 16, Yellen said FTX and its aftershocks, quote, “demonstrate the need for more effective oversight of cryptocurrency markets.” That tells you the feds are on the move.

E__ That tells me you know how to google things, Frank. One hot take from one political appointee in one country doesn’t mean the sky is falling. But you’re right: they don’t know the difference between CeFi and DeFi.

Auditing blockchain gamers—or whatever you’re suggesting might happen—that’s way beyond their competence. They wouldn’t know an NFT from… from an Axie skin.

F__ Haha—funny you mentioned it. Here’s another thing I googled. You’ll love this. It says “the patchwork of new tax laws aimed at collecting revenue from the growing digital assets market creates new risks and obligations[.]”

E__ Okay. Boring.

F__ “Most of the NFTs being issued at the moment are effectively ownership receipts[.]”

E__ Great. So what?

F__ So here’s the rub,

“[It] could be the ownership of a piece of digital land in the metaverse, or an object or skin to be used in a game.”

Ha ha—taxing an object or skin! Do I want to know who said that?

E__ I probably don’t.

F__ Ernst & Young said that in March.

E__ Okay, that’s… depressing. A big-four tax accounting firm. They advise a lot of regulatory agencies.

F__ Yep.

E__ But, if anything, Frank, it means that crypto—and the metaverse in general—are here to stay. They’re big enough to aggro the world’s biggest governments. #EnterTheMetaverse already, Frank! These bankruptcies are growing pains, not death throes.

F__ That’s completely true. Thanks for that.

E__ The FTX fail could have a dampening effect, sure. Easy liquidity, double-digit ROI for investors, that probably isn’t coming back anytime soon.

F__ Yeah, and a lot of gamedev partnerships will be put on hold if they aren’t screwed already. Bad analogy, Ettore, but this kind of feels like RDR2. The end of the trail. The wild-west metaverse is getting fenced in… hey, what’s that you’re virtually handing me?

E__ It’s a paper bag. Breathe into it.

F__ It smells like jamón serrano.

E__ You good, my man?

F__ I’m good. Okay. Last rant, I swear. I’m not gonna attribute these quotes. I’m looking at a top-10 blockchain gaming publication here.

E__ Ha ha—you’re protecting their sources?

F__ I’m protecting myself, from their sources. I don’t feel like getting doxxed. So earlier this year, they said gaming constitutes more than half of all blockchain activity, period.

E__ They’re right. It does. That’s why FTX is just a blip for blockchain games.

F__ Okay, same publication, Ettore. The FTX bankruptcy was less than a week old when the same experts were warning everybody that dapp, NFT, and DeFi in general—they’re all seriously threatened by the fallout. FTX was dragging down the whole metaverse economy.

E__ That was premature. That hasn’t happened.

F__ Then two days later—same people, Ettore!—they do a complete 180 and say blockchain games are basically unaffected by the FTX collapse. Seriously? Think of how many gaming platforms were funded with FTT! Plus everything ever built on Solana. How is basically unaffected possible?

E__ It’s entirely possible! It’s an evolving situation.

F__ You think their reporting was biased?

E__ I think you’re biased. People always assume the worst. I mean, it could theoretically be tougher going forward for, like, DeFi Land. But their token is already bouncing back. And, sure, you might see slower rollouts, tighter liquidity, and less venture capital.

F__ For now?

E__ Exactly! Just for now. That always happens after a market scare. Then the market swings back the other way and everybody says… they’re gonna be saying oh, I wish I’d bought #SAND back in late 2022.

F__ Ha ha! One hundred percent.

E__ Right? And blockchain games are resilient at a level the world has never seen before. They’re practically… I dunno… employee-owned businesses.

F__ Come on! That’s a stretch.

E__ Kind of, but you get the idea. You build your world, you monetize your world, and you live in your world. Everybody has that sense of ownership. That’s the essence of Metaverse.

F__ Well there’s going to be winners and losers, but The Sandbox is going to come out of this with even more market share. They were game metaverse pioneers. I’m seeing a lot of fours around here… 40K daily users, 40% retention rate, and more than 4 million total wallets…

E__ Yeah, kids today are going to grow up in a world where a game is something you create.

F__ My kid loves blockchain games. He’s nine.

E__ Your son sounds very relatable. You should interview him next.

(Frank) He says I’m a hack.

(Ettore) No, he doesn't.

(Frank) Ha ha—naw, he’s a nice kid.

(Ettore) And speaking of hackin’ it, Frank, how’s General Radahn coming?

(Frank) Too soon, Ettore. Too soon.

Frank Morgan is a tech writer at cloudbeds.com. Ettore Zotarelli is a product manager at cloudbeds.com. Frank is currently getting pwned by a boss in Elden Ring.