1. Is Netflix Going To Make A Bid For Roku?
On Wednesday, Business Insider reported that Roku “abruptly” halted employees from trading the company’s stock. According to the same internal sources, many employees are speculating that the halt is because Netflix is looking to acquire the company. If the rumors are true, should Roku accept a deal?
In our view, Netflix would gain much more than Roku in such a deal. As we have stated, after a disappointing first quarter, Netflix is looking at advertising to boost its revenues and user growth. With a robust advertising business in the connected TV space, Roku could fast-track Netflix’s ambitions. Additionally, Netflix might be looking at broader play in the TV space, with Roku an ideal entree.
With 61.3 million active accounts, Roku operates the number one TV operating system as measured by hours streamed in the US, Canada, and Mexico. As an intermediary connecting consumers, content providers, and advertisers worldwide, Roku is in the process of rebuilding the TV ecosystem on digital rails, becoming a new-age gatekeeper in the burgeoning digital entertainment space, and replacing the need for broadcast and cable companies.
Albeit the largest, Netflix is just one of many subscription, video-on-demand services competing against Amazon’s “free” service. As a result, Roku would provide far more value to Netflix than Netflix would to Roku. In our view, Roku would be better off declining an offer and, instead, striking an advertising partnership with Netflix in a different and perhaps more productive way.
2. The Celsius Crypto Lending Platform Is In Trouble
As “risk-off” is gripping most financial markets, Celsius, once the first centralized crypto lending platform to cross $20 billion in assets, has halted all withdrawals on the platform amid significant outflow pressure. Last reported in its weekly live YouTube calls, total value on the platform halved between August and June to $10.6 billion. Since late April and in the aftermath of Terra’s collapse in early May, outflows accelerated, likely forcing Celsius to take this action.
To understand the situation, we must comprehend how Celsius generates the high yield it pays to depositors. Celsius generates yield through institutional lending, mining, and staking, as well as lending in decentralized finance (DeFi). Particularly concerning are its DeFi deployments, specifically ether, ~41% of which have been deposited into Lido’s liquid staked ether product (stETH) and ~30% directly into the Ethereum’s Proof-of-Stake (PoS) deposit contract. Those deposits leave only 29% in fully liquid ether to satisfy customer withdrawals. The PoS deposit contract is illiquid at this time, withdrawals not expected to be possible until early 2023. StETH will be redeemable 1:1 at the same time but, in the meantime, must be exchanged on the open market, resulting in significant friction for Celsius to meet their withdrawal demands for the token.
Given the transparency of blockchains, we can see that stETH is moving from Celsius’s main DeFi wallet to FTX-associated wallets, likely for sale to fund withdrawal demand from Celsius’s customers. Because Celsius and other market participants like crypto fund Alameda have been selling, stETH is trading at ~6% discount to ETH at the time of this writing, offering rational long-term investors an arbitrage opportunity if they are willing to hold stETH until post-merge Ethereum allows withdrawals.
Compounding the issue is that Celsius has borrowed stablecoins using ETH, stETH, and wrapped bitcoin (wBTC) as collateral. These debt positions are subject to liquidation if collateral prices drop too low relative to debt outstanding, which would result in seizure of the collateral. By pausing withdrawals, Celsius appears to be hoping to buy themselves time to pay down outstanding debts and move out of risky positions without incurring significant loss.
We believe this action could result in a blow to market sentiment that will likely drive broad-based crypto prices down further, especially if DeFi positions are liquidated, ultimately inviting more regulatory scrutiny to the retail crypto lending space after BlockFi’s $100 million settlement with the SEC.
3. Autonomous Mobility: Cutting the Cost of Transporting Everything
Adjusted for inflation, the cost of owning and operating a new vehicle hasn’t budged since the Model T rolled off the first assembly line in 1934: $0.70 per mile. That cost has been anchored in the 19th century transportation technology upon which humans still rely today. We believe the convergence between artificial intelligence and battery technology has created unprecedented autonomous electric transportation possibilities, including vehicles that fly and roll in ways that will alter the movement of people and goods radically.
Last week at UP Summit in Bentonville, ARK’s Tasha Keeney, Sam Korus, and Cathie Wood met with many companies bringing to life the autonomous mobility that Tasha has spent years researching for her new white paper. In this white paper, we examine the economics of autonomous mobility, including human and freight transport, both of which are facing profound changes.
4. Apple Pay Integrates “Buy Now Pay Later” (BNPL) As A Feature, Not A Product
Last week, Apple announced its new iOS 16 operating system with a feature, “buy now pay later” (BNPL), that will offer the ability to split payment for Apple Pay purchases into installments spread over several weeks. As noted last year, we believe BNPL will become a feature that consumers can choose through established payment methods like Apple Pay, obviating the need for the limited, stand-alone BNPL offerings available today. Apple’s BNPL will enable users to “pay later” with a simple tap and without a specialized third-party BNPL provider, as shown below. Shopify’s Shop Pay also offers consumers the choice between immediate and deferred payments. In January, Block bought Afterpay, a BNPL company, not only to integrate its features into Cash App but also to accelerate its international expansion in various regulatory regimes.
In our view, as consumers understand and opt in to out-of-the-box BNPL payment methods, digital wallets like Apple Pay, Shop Pay, and Cash App will expose the relatively limited value proposition of standalone BNPL providers like Klarna and Affirm. Evolving into full service “bank branches in your pocket” and with user bases larger than any US money center bank, we believe they should be able to integrate BNPL capabilities easily, continuing to delight consumers.
5. Nexon Has A Serious Plan To Move Into Blockchain-Based Gaming
In his introductory keynote to the annual Nexon Developers Conference this week, COO Kang Dae-Hyun announced the company’s plans to develop various blockchain-based games within the universe of its most famous title, MapleStory, a massive multiplayer online role-playing game (MMORPG) that at its peak in 2009 had over 92 million worldwide users.
Kang announced the eventual release of MapleStory Universe, an ecosystem in which players can earn native tokens and trade NFTs across multiple offerings:
- MapleStory N, a blockchain-based version of the original MapleStory for both PC and mobile interfaces
- MOD N, a sandbox game that will allow developers to create games compatible with MapleStory N
- MapleStory N SDK, which will enable developers to build applications compatible with MapleStory tokens and NFTs
We believe Kang’s is the first concrete plan by a renowned Web 2.0 game developer and publisher to launch a blockchain-based game on extant, successful intellectual property (IP). If successful, Nexon could inspire other game developers to follow suit, activating video game IP with larger fanbases to accelerate the adoption of web3 gaming. The combination of MapleStory N and MOD N has the potential to elevate the gaming experience by combining an in-house game with a sandbox environment, which could evolve into a Roblox-like platform with MapleStory-based user generated content (UGC).
Kang stated that Nexon’s research and development on blockchain-based games will take some time, cautioning against past iterations of play-to-earn (P2E) games that prioritized token sales and quick profits. Eschewing the cash-based marketplace approach, he emphasized the need to allow users to own assets like NFTs and to establish a free market for purchases and sales through gameplay or secondary trading. Kang concluded with a pledge to integrate Nexon’s games into public blockchains as much as possible, suggesting their future compatibility with external, non-Nexon NFTs. Although interoperability seems like a remote possibility today, we will await Nexon’s pipeline of blockchain-based games and applaud Kang’s commitment to the on-chain experience.