The Business of Crypto Gambling
The $10 billion crypto business you might not know about.
Disclaimer, NFA, all that legal stuff: All the information presented on this publication and its affiliates is strictly for educational purposes only. It should not be construed or taken as financial, legal, investment, or any other form of advice.
Hi folks 🙋🏻♂️,
The past month in crypto felt like years instead. Not surprising given the fact that one year in crypto is literally five years in the equities market (do the math on the trading hours). I’m tired of listening to SBF’s press apology tour. Everything that happened with FTX, BlockFi, and Genesis can be attributed to one thing: speculation. So long as the capital market exists, it’s human nature to speculate. An acquaintance of mine who owns a family office in Southern California once said: “it’s glorified gambling, we just call it investing”. Whoops, forget that you ever read that last sentence. Anyway, this week I’m finally moving on from covering bankruptcies into a topic that I’ve been fascinated about: crypto gambling — specifically one company that has risen to the top while staying relatively under the radar.
The Business of Crypto Gambling
The act of gambling dates back to before written history. The exact origin is almost impossible to trace but there is evidence of gambling practices in Egypt, Greece, and China dating as far back as 2000 BC. In fact, gambling dice were predicted to be invented in Ancient Mesopotamia as far back as 3000 BC.
The New York Stock Exchange (NYSE) origin traces back to the original Buttonwood Agreement signed on May 17, 1792. This means that in the “modern world”, we’ve been speculating for 230 years. If we want to take it one step further, the Dutch had its stock market even earlier. In 1611, the Dutch East India Company became the first publicly traded company.
Speculation has always been a part of human society and it’s not slowing down. Take a look at the 2022 world cup. Americans are reportedly planning to bet $1.8 billion on the event. Sportradar reported that betting activities on the 2018 world cup totaled $140 billion. What does this all mean?
The legalization of sports betting combined with the global reach enabled by the internet increased the total addressable market of the overall gambling industries. But that’s not all. Enter crypto. If the internet increased its reach, crypto increased the global flow of money, making it easier than ever for a person to participate in the “online” economy, which directly benefits gambling. One firm successfully capitalizes on this trend: Stake.com.
Here are the quick takeaways:
Stake.com is probably the second largest crypto company after Binance.
Stake.com easily spent $1 billion+ on sponsorships.
Stake.com co-founders are most likely billionaires.
Gambling or speculation will always exist, whether we like it or not.
Crypto needs to move away from a speculative-based business model, to truly become mainstream.
If you’re enjoying this write-up, please consider subscribing. It takes 10 seconds of your time but would mean a lot to me :)
“Relatively Unknown” Crypto Giant
The reason for the quotation mark is that Stake.com is quite well-known amongst your average gambling enjoyer and amongst the influencer/content creator community. It’s also not that unknown amongst crypto Twitter personalities who are very online, but it’s relatively unknown amongst crypto professionals, whether that’s the suits from Wall St. or tech bros from Silicon Valley.
When people hear of “crypto giants”, they tend to think about Coinbase, Binance, or OpenSea. But Stake.com might be the second largest crypto business after Binance.
Here are some stats about Stake.com:
Spent $1 billion+ (conservative) in sponsorships
Cleared $100 billion+ in volume and $10 billion+ in revenue
Amazing. How did they achieve this? Let’s take a step back.
Stake.com was founded in 2017 by Ed Craven and Bijan Tehrani. The company operates out of Australia but utilized a gambling license from… Curacao. Unsurprisingly, the site is prohibited in the US, UK, AU, and many other countries. If they’re banned in so many countries, then how did they get so big?
VPN and 100% crypto-based. Remember BitMEX? Those of us who were around in the crypto derivatives market circa 2018 would remember how BitMEX was the de-facto crypto derivatives market before Binance and FTX developed their own derivatives markets. You only need an email address and a $5/month VPN subscription to start trading on BitMEX. There’s no FIAT on or offramp. Crypto in, crypto out.
It’s pretty much the same for Stake.com. However, they’ve learned from BitMEX’s mistakes (jail time and fines), and spun out separate entities to serve US and UK customers, just like crypto exchanges. But hey, maybe Stake.com can get away with a lesser sentence (if it ever gets charged) because of:
Founders are not US citizens
Gambling products aren’t seen as “serious” as derivatives
Big-name mainstream sponsorships (we’ll get to that below)
Successfully spun out US and UK entities
Let’s get into the numbers. The most that we can do here is an educated guess based on publicly available information, and there’s much less of that information for Stake.com compared to a centralized crypto exchange like Binance. So we’ll do our best.
Stake.com has sponsored the UFC, Drake, Watford FC, Everton FC, and multiple influencers. Combined, these sponsorships can easily amount to $1 billion, if not more. Drake alone has bet more than $1 billion with Stake.com. In any business, an entity that can comfortably spend $1 billion for marketing will easily make 5-10x in revenue.
Additionally, a popular Twitch streamer called Trainwreckstv has claimed that he made $360 million from gambling stream sponsorships from Stake.com over 16 months. If you think this number is a bit ludicrous and not believable, then I got one more piece of information that might make more sense. Adin Ross, another popular streamer, accidentally leaked a $1M per week sponsorship deal with Stake.com. That’s $52M per year. Might not be as high as what Trainwreckstv claimed, but that’s still an insane amount of money.
Adin Ross and Trainwreckstv are only two out of the dozens of streamers and influencers that Stake.com sponsor in order to funnel their young and culpable audience into their platform. All-in-all, the Drake ambassador deal, the UFC sponsorship, and the 9 figures spent on influencers alone can easily amount to $1 billion. Stake.com fees are dynamic, but let’s assume that it roughly charges 4%. To justify spending this much money on marketing, Stake.com needs to generate at least $25 billion in gambling volume — so the platform should be able to easily clear $100 gambling billion in volume per year.
Last but not least, perhaps the easiest piece of information to emphasize just how wealthy the founders of Stake.com are is the properties that Ed Craven recently purchased. He bought a $38M and an $88M mansion; reportedly owns many other multi-million dollar properties; and is planning a $150M property development. Real estate is the easiest predictor of someone’s liquid wealth. If Ed can comfortably spend $100-200M for houses, in cash, then he’s easily worth 5x of that.
Always Has Been
Whether we like it or not, facilitating speculation has always been a good business model. Gambling will always exist, as the capital market itself is a form of gambling. The internet and crypto also exacerbate the growth of gambling, making it more accessible to a global audience. We’re also seeing the rise of gaming companies implementing gambling-like strategies such as loot boxes and Gacha. Gambling won’t disappear. That said, as an industry, crypto needs to focus more on implementing viable business models. We can’t rely on the same old token ponzinomics mechanics to bring on the next bull cycle. We should all work together to make sure that the vision of web 3 comes to fruition by enabling less speculative business models and actually generating value for the end users.
Gambling ruins people’s lives. That’s without question. Genshin Impact, a popular game that was launched in 2020, made $100M in its first two weeks because of its Gacha-based model, which means that players get a chance to receive a rare character depending on their luck. As the world gets more volatile and wealth inequality increases, younger people are looking for more ways to escape upwards. Weirdly enough, crypto is an industry that benefits from this phenomenon. Although the tech is real, we can’t completely disregard that crypto also enables the ultimate form of speculation — as industry practitioners, we also need to find a way to escape from this.
Until next time,