Polygon blockchain gave DraftKings unique yield: CoinDesk

• Through careful review of blockchain records, the trading publication found that DraftKings got an unusually sweet deal to provide its services, one whose lucrative features were not discussed in the heavily touted partnership's announcement.

What they're saying: "A lot of players are pushing the envelope, and use selective transparency. That's not so good for the industry's reputation," William Mougayar, crypto investor and author of The Business Blockchain told Axios.

• The DraftKings communications team sent Axios a statement from Sabrina Macias, a company vice-president, disputing that the arrangement between the two companies was secret. "Furthermore, the article inaccurately asserts special treatment," her statement noted.

Background: DraftKings ventured into what's known as staking, in a deal announced March 2022, in partnership with blockchain infrastructure company Zero Hash.

• Blockchains that use staking recruit multiple third parties to doublecheck transactions. Those third parties get paid in fresh cryptocurrency emitted by the blockchain they are checking.
• Stakers have to post coins as insurance against malicious or negligent behavior. The more they post, the more work they get to do and the more they earn.
• Others can back stakers (it's called "delegation"), increasing its underlying pile, and, typically, sharing in whatever rewards staking entities earned. Most staking companies keep only a small portion of rewards earned from others' coins (maybe 10% or less).
• Delegators don't give their coins to validators, but they do give the validator control over what their coins earn and risk losing them if the validator makes mistakes.

Zoom out: More mainstream tech brands are getting into blockchain security as a side hustle. Google Cloud, for example, has contributed validation services to Solana, Celo and Polygon.

Of note: the coin of the realm on Polygon is MATIC (currently trading at around $0.75).

• Polygon is a sidechain associated with Ethereum, the second largest blockchain after Bitcoin.

Details: CoinDesk found that Polygon Labs delegated 60 million MATIC to DraftKings' validator and let it keep 100% of all rewards earned.

• Polygon, it should be noted, delegates to many validators (26 validators, sharing 454 million delegated MATIC, according to the report), but typically it shares in earnings.
• Yes, but: Crypto companies are frequently willing to go way out of their way to associate with a name that normal people are familiar with. By permitting DraftKings to keep all the earnings from its 60 million MATIC, it's a clever way to pay the firm to stick around without directly handing payments over.

Flashback: From Kim Kardashian touting a random token to Tom Brady appearing in commercials for FTX, high profile blockchain partnerships that go sideways are an old story at this point.

Quick take: Security is a key feature of blockchains, but this deal looks like Polygon favored brand association with a not terribly invested partner over using its MATIC treasury to foster the strongest possible pool of validators.

The other side: Zaki Manian, a co-founder of staking company Iqlusion and other crypto ventures, disagreed that the arrangement is so unusual. Various flavors of delegation for partnerships can be seen out there.

The intrigue: DraftKings seemed to be not very invested because it actually got booted off the network in October for failure to run the validator adequately.

• Zero Hash, the company it contracted with to run its node, has not replied to a request for comment from Axios about what went wrong.
• Polygon has not replied to a request for comment.

The bottom line: Joyce Lai, a veteran attorney in the blockchain business who runs the New Territories consultancy, told Axios, that companies can cut any deal they want, but "where community is a critical part of the system, projects and their partners need to take into consideration the long term optics."