Cryto is Down Bad, But Spexi is Still in the Clouds

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Happy Monday, folks.

Starting light and getting heavy on this chilly November morning.

Boxing fans and 4/20 enthusiasts, rejoice. Legendary The Hangover actor (and boxing champion) Mike Tyson launched his own line of edibles earlier this year called "Mike Bites." Obviously, the gummies come in the shape of an ear, an homage to the incident with rival fighter Evander Holyfield in which Tyson bit off part of Holyfield's ear... Sources say that a truck delivering a large shipment was spotted leaving Armie Hammer's residence.

Holyfield seems to have mellowed out since his boxing days, as well. He reportedly plans to launch his own line of cannabis next year, and the two have even managed to bond over their shared second careers and come together to promote the gummies as part of an "eari-ie cannabis campaign." The duo took part in a photoshoot where they rock matching Christmas sweaters while munching on the treats.

Tyson claims that he "wouldn't have bit his ear" had he been on cannabis back in the 90s.

Staying on the (hopefully) enemies to lovers trope, President Biden met with CCP leader Xi Jingping for the first time in person this morning in Indonesia. The two agreed that nuclear war = bad (way to go, fellas), Taiwan = contested, and preventing the planet from burning up = good. It is unclear whether any concrete policy will emerge from the kick back or whether either's opening line after years of Zoom breakout rooms was "Wow. You're taller than I had imagined."

Finally, the bad news. I mentioned last week that regulation around crypto might be coming sooner rather than later with the election of Rishi Sunak, the innovative pro-crypto former hedge fund manager, as British Prime Minister. It looks like regulation might be coming state-side, too, though Uncle Sam's reasoning stems from the absolute shit show that was the last week in the world of all things crypto.

It all started as most modern feuds do with some Twitter fingers causing some hurt feelings. Then, Alameda Research, arguably the world's most revered quantitative crypto hedge fund, had its financial statements leaked which showed a massive chunk of its total assets, think $5 billion out of a total $15 billion, wrapped up in $FTT, the native token of decentralized crypto exchange FTX. FTX is (spoiler alert) was the world's third largest exchange and was led by billionaire Sam Bankman-Fried (SBF), the same person who also started Alameda. It would make sense, then, that the fund was a large investor in the token. What made less sense was how it was possible for them to hold $5 billion worth of $FTT-based assets when the total market cap of $FTT was only $3 billion...

Changpeng Zhao (CZ because web3 just loves its abbreviations), CEO of the largest exchange Binance, then spooked the internet on Sunday when he tweeted that Binance would be selling its own holdings of $FTT after some unnamed "revelations" had come to light. This tweet, possibly in response to the valuation discrepancy in the leaked balance sheet but also possibly from rumors that SBF had been shadily lobbying against certain other leaders and companies in the web3 space, sparked a wildfire of deposit attempts that eventually led to a bank run as investors tried to get their money out of FTX with nightmares of the collapses of past crypto exchanges, further driving down the price of the $FTT token (94% in total...) before getting a quick breath of air when it was announced that Binance would be stepping in and purchasing FTX and ensuring that customers would not lose their deposited funds.

In Musk-esque fashion, the deal fell through in 24 hours. Now, FTX has declared bankruptcy, customers have lost millions of dollars, and there is a ripple effect pulsating through the entire crypto and financial sector as companies that had holdings in FTX are being hit hard in their own balance sheets, with some such as BlockFi being completely wiped out as they had deposited their own customers' investments on the FTX platform.

The entire thing played out in five days, yet its impact could severely hamper support for the entire industry for a decade, greatly setting back the timeline that many had hoped for in achieving mass adoption of web3. Some even argue that this was the final nail in the coffin of the "crypto winter" and the industry will never recover. In what has seemed like Antarctica with months of nothing but darkness, this week was the eclipse to top it all, making the price decreases and hacks of the last year look like some light shade.

So how was your week?

On a serious note, many were deeply impacted by the events of this past week. SBF's actions were irresponsible and arguably predatory, and no number of "sincere apologies" are going to bring back the millions of dollars that retail consumers lost in the blink of an eye.

While there will likely be even further scrutiny on the industry (and deservedly so), this event also warrants a call for the rest of the community to rally behind the ethos that led so many to the space in the first place: decentralization and community.

It's more important than ever for the leaders in this space who are here for the right reasons (I sound like I'm in The Batchelor...) to step up and do the right thing when it comes to protecting users and drive this space in a positive direction to ensure such blatant mismanagement and disregard never occurs again.

Personally, I haven't lost hope. In fact, seeing the rallying cries on Twitter and the platoons of smart people who are still heads-down building the future of web3 has actually inspired me and instilled a greater sense of confidence in the industry's long-term success prospects.

With that being said, I encourage you to check out the companies pitching at Alliance DAO's demo day last week. The link tells you about all 17 of the ventures which graduated from the program, but I'm going to spend the rest of this edition giving the pitch for one which was particularly interesting to me: Spexi

*Quick disclaimer: none of the following is financial advice. It is meant to be purely informative, and as always, investors should always do their own research, a particularly acute point right now...

The web3 economy is riddled with X-to-Earn business models. The Play-to-Earn (P2E... back at it with the acronyms lol) model has gained some traction, perhaps none so as well-known as Axie Infinity. Another interesting one was the Move-to-Earn model with companies such as STEPN which incentives users to... well... step with monetary rewards. Spexi is looking at yet another vertical: Fly-to-Earn.

While most of just think of drones as a way to get cool shots for the Gram, they actually represent a pretty big market for a variety of industries for which the aerial imaging data that drones can collect is critically important. These industries include everything from energy, disaster management, and even city planning. The list goes on, but all have traditionally relied on the same inefficient data collection practices of either internally hiring or contracting drone operators to collect very specific data, an expensive and time-consuming practice which reduces their ability to solve the problems they are trying to address.

Enter Spexi, a company which began as a SaaS platform helping to connect and coordinate companies and drone operators on a per-task basis. They recognized the inefficiency in their existing model and are now ready to roll out Spexigon, a web3-based improvement to their existing marketplace.

For drone operators, whether commercial or hobbyist, a marketplace opens up far more opportunities for finding work by compiling many companies looking for flyers. However, with Spexigon, these operators are no longer forced to wait for a company to contract them to earn. Instead, they are able to fly their drones and collect data now and earn $SPEXI tokens for their work. These tokens can be bought and sold like any other token, creating an ecosystem for independent drone operators to immediately put their well-developed thumb muscles to use.

For companies, they're given access to the world's first large, decentralized base of aerial imaging data. Not only is this more comprehensive than what any single organization could ever collect through the per-flight system and likely of higher resolution given the number of hardcore drone enthusiasts investing their own money in the best of equipment, but it also comes at a fraction of the cost.

The existing market for aerial imaging in 2020 was about $2.26 billion. This number is expected to grow at a CAGR of nearly 15% to $8.52 billion by the end of the decade. Plus, this is only considering the existing user demographics. Consider the industries which are not currently using aerial data, such as EVTOL makers or video game landscape rendering, which would consider using this data should it be made more accessible.

A few companies have emerged to offer similar services, though none have incorporated the power of decentralization. Drone operators can sell their photos and videos with HOsiHO or Dronestagram, though these cater more to simple images and videos rather than in-depth aerial imagery data.

There are also options like Drone Base or Up42 which do offer useful aerial data, though both marketplaces still operate largely on per-flight contracting, limiting their abilities to stock large quantities of data which can be reused and resold. Spexi differentiates itself through the immediate incentive for drone operators to collect high quality information to populate the platform now rather than only once the need for specific data arises.

However, there is risk with the decentralized approach given the reliance of the business model on a large number of drone operators. For companies, the only reason that they would pay to access the collected data is if it is:

a. More comprehensive than what they could collect on their own

b. Cheaper than hiring on a per-flight basis

Having a large base of data collectors from across the country (and even world) would make both of these conditions easy to meet, but without enough imaging data to attract organizations to shell out for access, the company will be losing a lot of money on paying data collectors without buyers to finance the entire ecosystem.

The tokenomics are also unclear. If the token's purpose is only to compensate drone operators, they might as well send them fiat payments. What could be a more enticing use of the token would be if businesses purchased data access with $SPEXI. Then, access could be granted on a per-usage payment model, increasing the demand for the token and driving the price up while creating more incentive for drone operators to continue to collect data.

The company recently raised $5.5 million in seed funding led by Blockchange Ventures with participation from other industry leaders such as Protocol Labs, InDro Robotics, Dapper, and others. These investors represent a strong mix of crypto and engineering believers, lending further credibility to the team's mission.

The team itself has strong industry leaders (CEO Bill Lakeland, COO Alec Wilson, CTO Peter Szymczak) who check all the boxes from a mix of business and technical expertise. Even better, most of the experience they have comes in the aerial and drone industry. If there is any group that knows the industry and recognizes exactly what it is missing, it's this one.

It's still very early in the life cycle for the Spexigon platform. However, given the practicality of the team's solution and the market size, the future looks very bright. Companies will likely recognize the cost savings (and value added) by using this approach for their aerial imaging needs, and drone operators will be attracted by the offering of immediate compensation for their work rather than having to wait on and negotiate each individual flight.

If all goes well, it will be exciting to see the many use cases for this data in the wider economy through industries which will shape the way we live. At the very least, though, maybe some influencers will be paying drone operators for providing them some post inspo?

Now, start your week off strong by building that intellectual circle and forward this email to 3 people that might be interested in its content. Know of a company that I should research next? Have an industry which you just know is going to blow up? Feel free to respond to this email and let me know.

Remember: this is not financial advice. As always, do your own due diligence. Protect yourself and your loved ones, and never risk more than you can afford to lose.

While you're still hungry for startup news, make sure to check out another newsletter bringing you the latest and greatest in breakdowns:

Cheers to another day,

Trey

P.S. Interested in the business of college football? Make sure to check out Pigskin Economics, a once-per-week breakdown of the biggest topics going from the sideline to the executive suite.