Crypto is here for the middlemen. The industry is more than ready to replace these parasitic cogs with decentralized, transparent and secure alternatives.
But crypto’s killer app — the way that crypto will truly launch into the mainstream — hasn’t arrived yet.
Some of my favorite crypto thought leaders have said for years that the real killer app will be prediction markets, NFTs, tokenized real estate, metaverse, etc. The laundry list continues to grow. But I’m here to say right now that none of these are crypto’s killer app. While they are interesting speculative opportunities that offer diverse market exposure, these markets are not large enough to onboard the next million or billion users to the on-chain world.
What speculative market is? Sports betting.
Sports betting is the consumer application for crypto that everyone has been waiting for, and which can benefit greatly from decentralization. If there’s anything I’ve learned in my years in the crypto industry, it’s that crypto’s ultimate use case is disintermediating markets by offering peer-to-peer, decentralized solutions.
Bitcoin disintermediates the market for fiat and savings technology, offering an alternative to US dollars. Smart contract platforms like Ethereum disintermediate trust by allowing the creation of trustless, permissionless, peer-to-peer applications.
But beyond these two coins, other parts of crypto have emerged that remove the middleman even from within crypto: Uniswap offers token swapping that reduces a reliance on centralized exchanges; Render Network offers decentralized access to GPU compute power; and money markets like Aave and Compound offer access to capital and permissionless loans rather than having to go through banks.
And sports betting is a middleman-heavy, rapidly growing industry that would particularly benefit from crypto’s ability to cut that middleman away.
In 2022, sports betting revenue eclipsed $7.5 billion while increasing 75% YoY — this growth is more than all other streams of gaming revenue combined (slots, table games, iGaming etc.). Mobile has also reduced many barriers to entry and is far more convenient for deposits –– 70% of all wagers are placed online. Combine that with a 10.3% compound annual growth rate (CAGR) and 46% of American adults having placed at least one sports wager in the past year, and you have an incredibly fast-growing market to disrupt.
But the current issue with sports betting is the middleman in the form of bookmakers who usually charge a 10% “vig” or fee for every bet. Whether you win or lose, you pay 10%. A hidden tax of sorts.
Just as decentralized exchanges like Uniswap have made exchanges better and more efficient with the advent of automated market makers (AMMs), a similar model (like a central limit order book) can replace bookmakers in sports betting.
But bookmakers, like those in Vegas, aren’t even the worst perpetrators. Over $500 billion yearly is gambled with illegal and unregulated sports books, including bookies and off-shore, unregulated websites. These websites are ripe with wire fraud, offer no consumer protections, no data privacy and even more predatory odds. Centralized crypto betting platforms like Stake and Rollbit are no better as they carry all the same risks, along with the risk of customer funds being hacked.
With more and more wagers being placed online, the timing has never been more perfect for a truly innovative sports betting platform.
Crypto makes sports betting better
We’ve already established that smart contracts can significantly bring down the costs –– that’s just the start.
Crypto can also maximize capital efficiency, allowing users to place more bets with less money, eliminating fraud and counterparty risk. Using blockchain rails allows for new business models and systems that have never been possible in traditional systems.
Read more from our opinion section: The US dollar? Yeah, that’s a Ponzi scheme
Projects can use tokens to encourage and onboard users through liquidity mining (or bet mining), where users who bet on the platform or provide liquidity can receive tokens in exchange for helping the platform grow. As the platform grows and more users are onboarded, the markets are then made more efficient. Then, platforms can take the funds from the fee they charge and distribute them to stakers of the token. This helps drive more brand loyalty in an industry where switching costs are typically very low.
The trading of live odds is another way for sports betting to make use of crypto. This is the ultimate degen move: Users can go long or short on the odds of a game and capitalize on the trend or direction of the game, rather than only be able to benefit from a binary outcome (win or lose). Add in leverage and margin, and things can get really interesting.
Onboarding the next million users
Many reading this article will think, “Why is sports betting any different from Twitter adding NFT profile pictures or Facebook changing their parent company name to Meta?”
But I believe that sports betting is truly crypto’s new killer app because it makes the industry faster, cheaper and safer. NFTs, the metaverse and any other flavor of the month may meet two out of three of these conditions, but very few satisfy all three. Any technology that wins on those three dimensions will beat any incumbent.
Crypto is the advent of the ownership economy. We are here to create public goods by utilizing public, trustless systems. Everyone talks about centralized exchanges or capital markets as some of the worst perpetrators who take advantage of retail, but for some reason, no one ever mentions “Vegas” — the worst perpetrator of them all, the sharkiest shark.
There are many languages in the world but everyone, universally, speaks the language of competition and speculation. Let crypto offer a fair alternative that’s easier, cheaper and less predatory for America’s new favorite pastime.
Ishan is a University of Texas McCombs School of Business graduate with a BBA in Finance & Marketing. He founded and managed a Private Equity Fund that reached an eight-figure Assets Under Management (AUM) and has also gained experience with many top 200 projects of crypto market cap. In 2022, he helped found SCRIB3, a Web3 Marketing and PR venture. He was notably among the first to raise an alert about potential deceptive and unethical business practices by FTX. Ishan contributes as a DeFi analyst, an active angel investor, and an advisor in projects like Polygon Technologies.
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