#291: Tesla Launches Usage-Based Insurance, & More

This week, Tesla launched its insurance service in Texas, the second state to offer its insurance and the first to offer its usage-based program based on user safety scores. Vehicle owners who sign up for the beta release of its Full Self Driving software will provide Tesla with driving data that generates a score out of 100. Owners with higher scores will enjoy lower insurance fees.

Unlike other online usage-based insurance programs, users will not need to buy hardware to enable the service. Tesla will onboard users through touchscreens in their vehicles or on their Tesla apps. Tesla believes that over time it will lower auto insurance costs by 20-40% based on real-time driving behavior data in addition to traditional underwriting metrics like credit, age, and claim history. Data on the average distance between cars while driving, for example, could help Tesla lower rates relative to its competitors.

This week, Coinbase announced plans for a peer-to-peer Non-Fungible Token (NFT) marketplace which will broaden its crypto-focused product suite. Competing with leader OpenSea, Coinbase’s marketplace will allow users to mint, sell, and trade NFTs through its user interface. To facilitate trades, Coinbase will activate smart contracts on Ethereum and, in the future, will support other blockchains. With more than 1.5 million users on the waitlist after the first few days, well above OpenSea’s user base of 400,000, Coinbase’s offering seems destined for early success.

During the last year, NFT marketplace volume has surged to more than $10 billion last quarter. In addition to Coinbase, FTX US has announced a marketplace that will support both Solana- and Ethereum-based NFTs.

We believe that given its broad reach and ease of use, Coinbase should be able to diversify its revenue stream from brokerage and custody services with NFTs. With a recently announced feature, Direct Deposit, for example, it will reduce the friction associated with converting fiat currencies into cryptoassets, enabling decentralized finance (DeFi) and NFT applications.

Recently, Coinbase decided to terminate a lending product called Lend after the SEC issued it a Well’s notice. While NFTs do not seem to be in the crosshairs of regulation, OpenSea’s recent delisting of several projects, seemingly out of fear that they might be considered securities, might be a signal that they may not be immune for long.

With ownership and value embedded in the internet, blockchain assets continue to challenge regulatory frameworks. While the SEC is advocating for oversight, Coinbase and others are proposing a new regulatory framework to govern this new asset class.

Last week, Microsoft made history with its Megatron-Turing Natural Language Generation model (MT-NLG), the world’s largest natural language processing model. At 530 billion parameters, MT-NLG is 3x larger than the next-largest model, the 175 billion parameter GPT-3. Tuned with just a few examples, the model achieved state-of-the-art performance in multiple language tasks including LAMBADA. Notably, the model demonstrated that increasing the number of parameters resulted in better performance, corroborating results from previous foundation language models.

Interestingly, Microsoft has invested $1 billion into OpenAI, the creator of GPT-3. Setting new AI records, Microsoft now seems to be competing with OpenAI’s AI research teams. In our view, this competition will up the ante and advance the state of the art faster than otherwise would have been the case.