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Axie Infinity
If you’ve followed crypto news at all, you may have heard about the concept of “play-to-earn” games - players can generate digital assets by playing games, and trade them for real money on open marketplaces. The concept isn’t particularly new, but last year a game called Axie Infinity received a lot of hype because its tokens were gaining value and its players were able to eke out livings playing full time:
Axie Infinity is arguably the industry standard-bearer for play-to-earn games, and it's a deceptively simple one at that. Axie, developed by Vietnam-based studio Sky Mavis, centers on NFTs of monsters called Axies that form a team whose battles earn players Smooth Love Potion (SLP) tokens. The game features its own blockchain, named Ronin, to facilitate faster and cheaper transactions for SLP, Axie’s governance token (AXS), and Ronin’s native token (RON).
Basically, you buy some NFTs which you use to fight other players, and if you win you get rewards you can use to breed new, stronger NFTs. You can also sell the rewards if you want. This was great when Axie’s tokens were valuable, but not so great if the market craters:
Axie Infinity's NFTs, for example, have seen a spectacular collapse in trading volume: Volume jumped from $4 million in April to $848 million in August, then crumbled before a second peak in November of $753 million, finally dropping like a concrete block to $82 million in February. Volume doesn't seem to have recovered in March, with trading down even further to shy of $30 million. Axie NFT floor prices are down 96 percent from an all-time high of .24 ETH and now sit around .01 ETH.
This is a problem for players, who went from making decent amounts of money to earning less than minimum wage. The game had been touted as a way for people in the developing world to avoid working exploitive, low wage jobs:
In May 2021, after years of hyperinflation in its currency, Venezuela raised its minimum wage to 10 million bolivars a month ($22 USD). [Iguano’s] scholars, who sign on with a 50-50 contract, make around $20 every two weeks, he said. "I think $40 or $50 a month is better than nothing.”
What’s a scholar? It’s a term the Axie community coined to describe someone who is allowed to use another player’s NFTs, and earns a split of the rewards from the hours spent gaming with them. The owner is straightforwardly called a manager. Some of the most successful managers can have hundreds of scholars playing games round the clock on their Axies, earning significant revenues. Back when the NFTs were worth almost a thousand dollars each, the managers also sat on significant asset holdings. The scholars had to play every day to continue to earn money. Sounds like…a job, right?
It’s hard to pin down why the values of Axies and the associated crypto tokens have fallen so significantly in the last six months, but the company has had to restrict how players can earn rewards, in an attempt to deflate in-game currencies so the economy doesn’t collapse entirely:
"We know that this is painful medicine,” the [Sky Mavis] blog post said. “The Axie economy requires drastic and decisive action now or we risk total and permanent economic collapse. That would be far more painful."
Economies of any size are incredibly complex and difficult to manage in the best of times. Axie’s has all the hallmarks of a bubble - probably not a Ponzi! - with a lot of people piling in as they saw asset values increasing, and crashing back down when the game designers weren’t able to balance supply and demand. Now millions of players are sitting on assets that have lost nearly all their value, and many are locked into predatory work agreements with digital bosses, forced to grind all day at a repetitive video game that doesn’t even earn them a minimum wage. Despite the billions flowing into web3, decentralized projects, and play-to-earn startups, there are a lot of real problems that need to be solved before the average person can hope to earn a living in the metaverse.
Ad Fraud
Often, when we talk about ad fraud, we are talking about shady publishers - operators of blogs or news websites - faking page views and clicks to earn ad dollars. Sometimes, though, the ad fraud is perpetrated by one of the largest media companies in the US, supposedly by accident:
Publishing company Gannett Co. provided inaccurate information to advertisers for nine months, misrepresenting where billions of ads were placed, according to researchers who provided their findings exclusively to The Wall Street Journal.
[…]
In the case of Gannett, advertisers thought they were buying an ad on one Gannett site—very often the flagship USA Today—but actually purchased space on another, such as one of its many local outlets, according to ad industry researchers.
The company is blaming it on one unfortunate employee:
The error was added to Gannett’s ad systems by one of its employees in May 2021, and was detected and corrected by the company on March 4 as it worked with a partner to integrate new technology, according to Gannett executives familiar with the situation. They said the issue may have harmed Gannett’s business and that the company is determining whether it will issue refunds to advertisers.
It absolutely should! Advertisers believed they were paying for ads in one place were actually showing up elsewhere:
In a typical example of how ad space was mislabeled, a reader of the Indianapolis Star was represented incorrectly in an online auction as a visitor to USA Today’s site, according to the researchers. An advertiser seeking to target a national audience could have instead reached people in Indiana.
Automated or “programmatic” advertising is essentially a split second digital auction, allowing advertisers to bid on ad space on webpages based on a variety of criteria. Typically, an advertiser will set some guidelines - they may want to advertise to readers of a newspaper in Indiana, for instance - and the publisher (site owner) will send back details about where the ad appeared. Except when that system sends the wrong information huge brands believe they’ve been showing ads on USA Today’s flagship website when instead it’s a biweekly newspaper in New Mexico.
The researcher who caught the bug drily explains the problem with a digital ad ecosystem that runs on a mix of buggy software and trust:
“Programmatic advertising relies on a lot of data being self-reported by those selling the ads,” Mr. Vickers said. “That this issue went undetected for so long suggests that the processes in place to verify this information are not sufficient.”
Typically researchers hunting for ad fraud are scouring the seedy corners of the Internet for Macedonian teens running click bots, but sometimes it’s the software developers at USA Today.
News Feed
Speaking of software bugs, here’s a bad one:
A group of Facebook engineers identified a “massive ranking failure” that exposed as much as half of all News Feed views to potential “integrity risks” over the past six months, according to an internal report on the incident obtained by The Verge.
The engineers first noticed the issue last October, when a sudden surge of misinformation began flowing through the News Feed, notes the report, which was shared inside the company last week. Instead of suppressing posts from repeat misinformation offenders that were reviewed by the company’s network of outside fact-checkers, the News Feed was instead giving the posts distribution, spiking views by as much as 30 percent globally.
Ahh good. What the world needed last fall was definitely thirty percent more toxic sewage polluting the Facebook News Feed. So what did the engineers do? Hope for the best, apparently:
Unable to find the root cause, the engineers watched the surge subside a few weeks later and then flare up repeatedly until the ranking issue was fixed on March 11th.
According to one salary website, an entry level Facebook software developer makes around $180 thousand dollars a year and more experienced ones can earn close to a million. The company was once considered a desirable place to work for software engineers, before some of them realized it was destroying the fabric of society and all that. Still! You would think that Facebook’s well-paid, highly skilled development teams would be able to find a bug that made the News Feed one third more toxic in less than six months? I don’t know. What sort of content was getting amplified?
In addition to posts flagged by fact-checkers, the internal investigation found that, during the bug period, Facebook’s systems failed to properly demote probable nudity, violence, and even Russian state media the social network recently pledged to stop recommending in response to the country’s invasion of Ukraine. The issue was internally designated a level-one SEV, or site event — a label reserved for high-priority technical crises, like Russia’s ongoing block of Facebook and Instagram.
It’s easy to blame this on a handful of developers - which is what these companies would undoubtedly prefer to do! - but Zuckerberg has been incredibly hands-on with his company’s code for its entire existence, so it’s highly unlikely he didn’t know this was going on. Facebook leadership was hiring scummy PR firms to trash TikTok, fighting with state Attorneys General, and trying to discredit leaked documents showing its platform was spreading toxicity…all while knowing they had a high level bug in their code that was amplifying awful posts? Man.
Activision
We have talked a little about Bobby Kotick, the current CEO of Activision Blizzard, which was bought by Microsoft. We have also talked about insider trading. There are many ways to do insider trading, some more obvious than others. One thing you can do that will almost certainly get you investigated by the authorities is to negotiate with your bank to buy a lot of options (the right to purchase stock at a future date at a fixed price) in a company a few days before a sale is announced:
Federal prosecutors and securities regulators are investigating large bets that Barry Diller, Alexander von Furstenberg and David Geffen made on Activision Blizzard Inc. shares in January, days before the videogame maker agreed to be acquired by Microsoft Corp.
Rather than simply logging onto RobinHood and buying options contracts, the three called up their bankers at JP Morgan and cut a deal to buy 4.12 million shares for a cool $108 million dollars. Within a few days those shares were worth $168 million, and could be worth over $200 million after the sale is completed. Seems normal, right? Making a 9 figure bet a few days before an announcement that sends a stock up 50%? Don’t worry though, they claim they didn’t have any insider information:
“It was simply a lucky bet,” [Diller] said. “We acted on no information of any kind from anyone. It is one of those coincidences.”
You know what’s also a coincidence?
Mr. Diller has served on the board of directors of Coca-Cola Co. with Activision Chief Executive Bobby Kotick. Coca-Cola announced this month that Mr. Kotick would step down from its board this year. Mr. Diller described Mr. Kotick as “a long time friend.”
Typically insider trading cases hinge on whether any “long time friends” texted or emailed each other. We’ll see whether it really was a coincidence - in other words, whether the SEC can find any proof.
David Solomon
David Solomon is the CEO of Goldman Sachs. He’s also, for some reason, a nightclub DJ who used to go by D-Sol but has switched to using his full name. The Financial Times asks: Can David Solomon DJ?
Solomon’s recently confirmed slot at the Lollapalooza festival in July raises an uncomfortable possibility: is the chair and CEO of the world’s second-biggest investment bank being taken seriously for his music? Or is he a novelty booking because of his day job?
As a subject matter expert on EDM, I think it’s important to distinguish between a DJ - a performer who spins a live set of dance music - and a producer - who creates original tracks. Sometimes DJs produce, and sometimes producers DJ, and they are not always good at both. Is Solomon good at either? Veteran DJs and producers are mixed (sorry) on the topic:
The first track on the first mix is a remix of the Pink Panther Theme, which should almost signal automatic disqualification from a future professional gig in my book.
[…]
It’s cheerfully competent and inoffensive, VIP room-style vocal house and disco. A little obvious at times, but he seems to be having fun.
I have listened to Solomon’s produced tracks - some of which have become minor radio hits - and one of his DJ mixes and they’re…fine. As credentialed DJs point out, Solomon is essentially blending popular house and dance tracks into an hourlong, mostly inoffensive club set. But! Nothing I’ve heard proves he has talent or belongs at a major music festival.
First off - Solomon is worth in excess of $100 million dollars, so there’s no guarantee he produced any of his singles himself. He’s the CEO of a major investment bank! Presumably, he is very busy with his day job when he’s not DJing Super Bowl parties so it’s plausible he used other producers or collaborators to create his singles. Many performing artists - singers, rappers - hire people to make their beats, but it’s not something you’d expect an EDM producer to do. I am not trying to start any rumors, but if D-Sol reads this newsletter he can feel free to reach out and go on the record about it.
Secondly, live spinning, as one of the people quoted by the FT points out, doesn’t require a whole lot of talent these days:
This person can obviously mix two records together, but that skill is a lot easier today with the advent of digital DJing and is only one part of the necessary requirements. To my mind, being brutal about it, this cheeseball needs to do a few more bar gigs to learn how to build a set better and gain a deeper knowledge of dance music — not just plump for obvious, commercial, accessible tracks.
Back in 2012 Deadmau5 stirred up controversy by admitting live performances are mostly theater:
“I just roll up with a laptop and a midi controller and ‘select’ tracks [and] hit a spacebar,” the Toronto DJ wrote Saturday in a blog post on his site titled “We All Hit Play.”
[…]
“People assume there’s a guy on a laptop up there producing new original tracks on the fly,” he wrote. “None of the ‘top DJ’s in the world’ to my knowledge have. Myself included.”
I have strong opinions on the EDM DJ and nightclub industry, but I will spare you for the moment. So Solomon’s mixes are all pre-baked, assembled at his undoubtedly luxurious home studio or on a laptop while he Gulfstreams between vacation homes, whatever.
My point is not that Solomon isn’t a dance music enthusiast, or that he can’t put together a catchy disco remix and get it on the radio because he owns a record label. We can simply call his “DJ” career what it is - a very rich, high profile banker with a hobby that everyone has decided to take seriously.
Is Solomon a talented DJ or producer? Not really. Should he be at Lollapalooza? I mean, I don’t know. If ten thousand people baking in the Chicago sun want to go into a tent with a 60-year-old centimillionaire and get down to the Pink Panther theme song, more power to them. It’s worth noting that despite Solomon’s nightlife alter ego, he’s still one of the most vocal proponents of forcing his employees back into the office.
Auditors
We’ve talked a little about auditors, mostly when they get caught not doing their jobs - ensuring companies aren’t doing massive frauds. But who audits the auditors? Well:
PwC Canada has been fined more than $900,000 by Canadian and US accounting regulators over exam cheating involving 1,100 of its auditors.
The watchdogs found that the Big Four firm failed to spot that staff were sharing answers in exams between 2016 and 2020 because of shortcomings in its internal standards and test supervision.
The best part of this story is that this apparently happens at other firms too, and quite recently:
KPMG was fined $50mn by the PCAOB in 2019, partly for the improper sharing of answers by its auditors, some of whom also manipulated a computer server so they could pass even if they scored less than 25 per cent on the tests.
Nice. I am sorry, but I would be pretty pissed off if I was a KPMG or PwC client paying hundreds of dollars an hour and I learned my auditors scored less than 25 percent on their auditor exam. What am I paying for! Either the exam is too hard or no one bothers to study because everyone at the firm is cheating on it with one another. A $1 million dollar fine seems cheap. I hope some of those clients get refunds.
Short Cons
WaPo - “But over a months-long slow play — led by an attractive woman and fueled by a spate of confidence-winning gestures — Jenkins slowly gave his money to the crooks. He has little hope of ever recovering it.”
Yahoo - “But instead of sending the money to individual crypto wallets, which would give the victims their money immediately, the hacker sent the money back to the liquidity pool accounts, which the victims can’t access.”
CNBC - “Hydra Market, which was considered to be the world’s largest and oldest darknet marketplace of illegal items and services, was seized and shut down by German authorities in coordination with U.S. law enforcement Tuesday…”
USA Today - “A 60-year-old man allegedly had himself vaccinated against COVID-19 dozens of times in Germany in order to sell forged vaccination cards with real vaccine batch numbers to people not wanting to get vaccinated themselves.”
Daily Beast - “Another of these annotations claimed that one recommendation for a Trump administration position was, in fact, a suspected foreign-intelligence asset, or spy.”
Tips, thoughts, or coincidental nine-figure stock windfalls to scammerdarkly@gmail.com