🧠🍝 - 3rd July 2022 - The bull case for DeFi, FTX does all the things, and the Robinhood memestock reckoning begins
Hey everyone 👋, thanks for coming back to Brainfood, where I take the week's biggest events and try to get under the skin of what's happening in Fintech. If you're reading this and haven't signed up, join the 16,715 others by clicking below, and to the regular readers, thank you. 🙏
Hey Fintech Nerds 👋
Never a dull day in Fintech.
The Klarna down round has everyone talking. Especially those that had a real hatred toward BNPL. I never fully understood this. I get that it’s bad to encourage people to spend more in cases where that person can’t afford to. But that’s exactly what credit cards have done for decades. At worst, BNPL does that on a smaller scale and at best it could be more responsible. I’ll unpack that more next week.
Meanwhile; FTX is acquiring everything.
It’s a great time to have capital and be strategic.
The BlockFi / FTX thing is still a bit unclear so I’m leaving that alone till next week, but they’ve been busy with Embed, lending to BlockFi, and maybe buying, and partnering with Robinhood? Unpacked in things to know.
Long one this week, the rant felt like trying to lay an egg, so many interconnected ideas, but important to try and hold them all in context.
Weekly Rant 📣
The bull case for Web3
I have high conviction that web3 and DeFi will create a new global financial system, that is orders of magnitude more efficient, transparent and fair than the existing one. I believe it will unlock incredible new use cases and economic opportunity.
But a lot of folks don’t. This tweet sums it up nicely.
So I wanted to look at
Why is it fashionable to beat up on web3?
The problems with TradFi
Why DeFi rails might be a better alternative financial system
Because it presents a completely different cost structure
The finance use cases that could drive new revenues and business models
What’s holding us back (lack of liquidity)
Why we lack liquidity (lack of trust)
The actors bringing liquidity to the new financial rails
How we might combine the best of TradFi, Fintech and DeFi to get the best outcome
It's pretty fashionable to beat up on Crypto and Web3.
And given the sheer amount of horrors we're seeing in the news, it's not surprising that Crypto narratives, prices, and momentum have taken a beating.
From their all-time highs, Bitcoin is down nearly 70%, Ethereum 75%, and Dogecoin 90%. NFTs trading volume fell off a cliff (see below)
Sometimes it's hard to see the sublime in the Crypto industry because there are many examples of consumers losing rather than winning. When Crypto falls, it does so spectacularly and usually hurts the most vulnerable. Memecoins, scams, hacks, fraud, terribly designed projects, and outright Ponzi schemes are everywhere.
So I don't blame the critics.
They have a point.
But what might shock the critics is that most people in web3 and Crypto feel the same way.
Even the founder of Ethereum, Vitalik Buterin, is sick of it.
That's before we get to regulators. To say regulators have a dim view of "Stablecoins" would be an understatement. But the vitriol and disgust are reserved for the centralized companies that took advantage of the bull run and made almost no attempt to protect consumers from harm.
We will see an avalanche of regulation and policy in the coming years. MiCA in Europe is just the start.
So is that it? Game over?
TradFi is failing us.
Traditional Finance is the lifeblood of the global economy. Developed countries allow citizens to own property and create lending, the growth engine that gave us all of the wonders of the modern world.
But TradFi is rooted in pre-internet technologies and regulations built for a different context.
It isn't global; it's globalized. We took a patchwork of national systems and added a patchwork of networks to make pieces interoperate.
Finance isn't digital; it's digitzed. There is no HTTP for money, and most of the technology is proprietary which holds back innovation.
The innovators in financial services took paper and branch processes and replicated those in technology; we never re-thought finance technology from the first principles.
The fixed infrastructure creates costs and a tax on the economy. That infrastructure has to be paid for, which is paid in fees and additional lending APR% to inefficient providers.
TradFi also lacks transparency because it replicates the paper world. While in Crypto and Web3, a developer can write a few lines of code to send $1 to everyone who has a Bored Ape NFT, governments can't figure out how to distribute pandemic funds in the TradFi system.
DeFi presents an alternative financial system.
If ownership unleashed the entrepreneurship that delivered the economic growth and living standards humanity enjoys today, digital ownership could have at least that impact again.
DeFi and web3 change the nature of ownership because:
DeFi is natively global. Anyone with a compatible web3 wallet can access the tokens, assets, and applications on a Blockchain no matter where they are.
DeFi is natively digital. This enables new use cases like programmable money. If someone does x, then do y. If a business makes a sale, automatically deduct the tax and send it to the tax authority in real-time.
DeFi can be permissionless. A merchant might choose to give anyone with an NFT (say a Bored Ape) a discount at their store. This requires no integration or connectivity to the NFT creator. There are cases where we might want permissions on top, but the infrastructure defaults to permissionless, and that's powerful.
DeFi can be composable. Two or more existing services can be combined to create a third service. A Stablecoin + Lending Protocol can be combined to allow investors to lend to businesses in emerging markets that then lend to consumers or businesses. For example, Goldfinch and Credix may partner with a lender in Brazil or Argentina and investors in DeFi.
DeFi can be transparent. Transactions in DeFi are a permanent, searchable public record. While it would be impossible to see the history of every leather wallet that ever held a U.S. dollar, it is trivial to know every wallet address that ever had a Stablecoin. Traditionally we have to wait for a company to announce their performance for things like Daily Active Usage. Services like Dune Analytics provide real-time dashboards of what is happening in web3. We can see precisely how many users a service does (or doesn't) have.
The DeFi use cases have mostly allowed Crypto traders to do more Crypto trading. The consumer and business Crypto "yield" products with high APY% have lower APY's, just as banks are starting to offer higher yield deposit accounts. The use cases only worked so long as there was investor appetite.
DeFi can't succeed if it's circular, feeding speculative games based on a speculative bubble.
It's not surprising developers focussed where the demand was. But now things have changed.
DeFi needs to bring a new utility. It needs to do useful things, and it needs to be usable by most people.
I think that can and will happen.
We're still early.
On the Bankless podcast, Mark Cuban gives a classic anecdote about broadcasting basketball games on the internet in the early 90s. To do this, you needed an expensive P.C., a modem, and an internet service provider, and when you had all of that, you had to download dedicated software to play the audio. The audio quality wasn't always great either.
The internet was a worse experience in almost every way except for one. Anyone could listen to it anywhere on earth, so long as they had an internet connection.
The same is true of web3 and Crypto today. For most users, it is worse in almost every way imaginable. It's expensive, people don't like its carbon footprint, it has hacks and scams, and the UX is complicated even for those that live and breathe this stuff.
Yes, Crypto has been around since 2009 and the Bitcoin whitepaper. But it's a long journey from ARPANET to Netflix. The utility takes time to build and requires the infrastructure to mature.
Assuming that happens. Assuming we look past the price and assume that the cost, risk, and UX issues go away with time. How will people ever make money from this stuff if it's not just speculative games?
A new cost structure for finance.
DeFi presents a dramatic shift in how people and businesses can create and capture value.
Reducing cost, creating new ways to acquire and engage users, and making finance available as software.
Uniswap runs an entire exchange with only ~60 contributors, unlike the 3,000 Coinbase has. Coinbase has to do more as a regulated, listed business, but remember, DeFi is made of small composable building blocks. You get somewhere interesting if you take several of these tiny but ultra-efficient building blocks.
Last week I pointed to the IMF Global Financial Stability Report from April 2022, showing DeFi has almost no operational and labor costs. There is a future where many of these blocks combined can do as much (and more) than today's centralized exchanges and TradFi businesses at a lower cost because they're specialists.
Imagine if you could take the world's best payments engine (Stablecoin), the world's best account (wallet), the world's best lending engine (DeFi protocol) and exchange (decentralized exhcange), and combine that with the world's best fraud and risk team. Might that be more efficient than the one inside most organizations?
Web3's Utility phase will be led by Finance Use cases.
What Fintech is doing today, abstracting the pain of the TradFi rails, becomes significantly more capable.
As just one example, the CFO tools like Modern Treasury integrate with multiple banks and allow a business to automate its operations. No more logging into 6 different online banking portals and sending files in different formats. This business exists partly to deal with the pain of the existing infrastructure, but where it creates value is in the automation.
If APIs change the Fintech infrastructure to be more practical, then DeFi is an entirely new Fintech infrastructure.
If real-world assets get tokenized, it would be trivial for developers to find ways to aggregate that into a single dashboard for consumers and businesses. Once aggregated, the level of automation is limitless.
But the Fintech in DeFi can do new things.
Instead of APIs like Plaid to open up bits of your existing data, we re-orient how data works entirely around you, and your wallet. Instead of your data being locked inside a bank or Fintech company. The bank or Fintech company asks you for permission to see the data in your wallet.
We can make linkages between assets because we have a global record of those different assets. Just like we can see if a wallet holds an NFT of a Bored Ape and some ETH, we could (if tokenized) see someone owns a house and a car. If they own a home and a car and have KYC'd that wallet, we could have a marketplace of lenders competing to offer that person the best price on financing.
Because the data access model is completely flipped, finance might become less something you apply for and more something algorithms compete to be more accurate about.
And that's just one example off the top of my head.
Imagine seeing the carbon credit balance of every business in real-time when evaluating them as a stock worthy of a good ESG rating (through tokenized carbon).
Insurers already pay people for their daily step count. Imagine if they made that a game like Stepn (the step count tracker app/game)? Imagine if anyone who had the Stepn GST coins got a 25% discount at Equinox gyms if they spent in GST.
It's always data and finance. Finance and data.
Transparent, global, digital, composable, and permissionless.
Finance ultimately underpins everything in the economy. There's always a payment, lending, and ownership. Finance is the ultimate horizontal industry in the economy. And if we change how ownership is recorded, we unlock new use cases.
So how do we deliver the DeFi dream?
We need Liquidity.
All of the money and assets in the world are locked in TradFi. For a financial system to work, money and assets must flow at scale. The more assets and money (liquidity), the more stable and resilient the system becomes.
Liquidity reduces price volatility, helps absorb shocks, and is the blood running in the veins of the global economic system.
DeFi doesn't have enough Liquidity.
Today all of the Liquidity is in TradFi. Despite countless on-ramps, even at the peak of demand, it became tough to quickly get money into DeFi rails at scale. Because DeFi presents so many unknowns and risks, TradFi (consumers, businesses, and regulators) had to be cautious. And frankly, given the market correction, they were right to be.
The biggest thing holding back Liquidity is backward compatibility with TradFi and regulation.
Because the market cares about the risks. Most consumers and businesses don't want a world where they have to be their own bank and deal with bank robbers.
The good news is that some market actors are reacting to bring Liquidity to DeFi.
Who can bring Liquidity to DeFi?
TradFi is bringing assets into DeFi.
The prize for bringing liquidity into DeFi isn’t just lower costs, but TradFi can do more with less if they become more capital efficient.
Time for a quick lesson on capital efficiency 👨🏫
Today liquidity gets stuck.
As a financial institution (Bank, Hedge Fund, Asset Manager etc.) You have to post collateral for many of the complex trades in capital markets. To grossly over simplify, you want to buy $100m of GME 0.00 (Gamestop). In the USA, as a registered broker, you have to post collateral to do this at the DTCC.
Today the DTCC works on T+2 settlement (Trade day plus 2). Meaning, if you place an trade on a Monday with your broker, the legal ownership of $100m of Gamestop shares changes on Wednesday. In those two days the DTCC asks for collateral (margin) from the broker. Lets say this is 2%. So, to buy the $100m in two days time, the broker must first place $2m as collateral and leave it there for two days.
That liquidity is stuck.
And while it’s stuck, it’s not buying and selling other things.
(The reason it gets stuck is often because there are 1000s of trades happening from a single buyer (e.g. Robinhood), and they’re often buying that not with cash, but financed against the other stock or assets they hold. It’s the DTCC’s job to work out where risk is in the market and prevent contagion, which is exactly what they did with Robinhood. See Good Reads below for more info).
The argument goes, if you want real time liquidity, then instead of posting $2m as collateral, the brokers need to find $100m to buy the stock outright.
It’s a risk thing, not a tech thing.
If both assets (the stock and the cash), exist on a Blockchain network, we know where it is. We don’t have to guess how solvent a buyer is. We know.
Today, FTX allows any trader, to use any collateral and does real time risk decisioning and margining, based on the actual data of their actual positions.
It also allows them to use any asset as collateral.
The goal isn’t just real time settlement. It’s real time risk management.
If we have real time risk management, we could unstick liquidity.
This would be the most massive thing to happen in financial markets since we first digitized securities in the 1970s.
It doesn't matter how good the promise of web3 infrastructure is if the world is trying to block you. And right now, there is little incentive for regulators and governments to fully embrace DeFi and Web3. It sounds scary, is full of scams and hacks remember?
But the incumbent banks may see that as a business opportunity.
Trust is their whole thing.
This comment from Tyrone Lobban, head of Onyx at JP Morgan, stands out.
"Over time, we think tokenizing U.S. Treasurys or money market fund shares, for example, means these could all potentially be used as collateral in DeFi pools. The overall goal is to bring these trillions of dollars of assets into DeFi so that we can use these new mechanisms for trading, borrowing [and] lending, but with the scale of institutional assets."
Incumbent banks must move gradually and need regulatory clarity before moving a significant amount of assets.
But if they get this right, the promise is massive.
They will benefit from the centralized Crypto businesses coming the other way toward institutions.
Centralized exchanges are unlocking Liquidity for DeFi.
As I stand back and look at the FTX M&A shopping spree, it looks like they're buying three things.
Licenses: FTX acquired Ledger X, which gave it CFTC licenses to trade Crypto derivative products. It also acquired IEX group, an equities (stock) exchange regulated by the SEC.
Users: Acquiring BlockFolio gave FTX several million consumer users, and perhaps Robinhood would bring many more.
Market entry: In Europe, the Middle East, Africa, and elsewhere, the lesser noticed acquisitions expand their global presence. For example, Liquid Global is a Japanese exchange, Bitvo is a Canadian exchange, and they also had some local licenses.
The most important thing that FTX does that unites TradFi and Fintech is their 24/7, 365 trading engine. FTX is incredibly efficient compared to TradFi trading, allowing users to use any asset in their portfolio as a margin. It also calculates margin in real-time rather than in set windows. This means traders can post different collateral and be much more reactive to market moves.
If the rumors are true, Goldman may be trialing allowing its clients to post collateral to FTX and have FTX perform the role of pricing that debt. Liquidity from TradFi meets a technology from Crypto.
Institutions and traders will move to the most efficient venue and bring their Liquidity.
FTX is positioning itself as a venue with institutions on one side and TradFi on the other.
How might DAOs enable DeFi Liquidity?
But this leaves the actual DeFi projects and DAOs in the middle.
Where does Uniswap, Compound, MKR, and everything that makes web3 special fit? If FTX is using the technology and the assets and institutions are bringing Liquidity, what about the DAOs? What about decentralization and wallets and tokens?
For me, this is the biggest gap to unlocking web3. How do centralized Crypto and TradFi interact with DeFi to bring true Liquidity to these new platforms? Regulators will continue to raise an eyebrow at FTX and be on "go slow" until this question is answered wholly and competently.
And everything FTX does benefits from the innovation that came from Crypto. A global, 24/7, 356, open, and permissionless set of technologies and assets.
Those DeFi protocols and projects are critical to web3 and DeFi becoming mainstream. But how do they get Liquidity? And for decentralization to work, the protocol can't be expected to also enforce the rules of a given jurisdiction.
Developers and contributors to these DAOs quietly wonder, "will I get a letter from the regulator?"
We need to build with the new tools but learn the lessons of history.
DeFi is new, but lending isn't new, and fraud isn't new. If you abstract finance from technology, it has some universal laws.
The actors with the most Liquidity (largest balance sheet) have pricing power.
Lending businesses can expand in a bull market but die in bear markets unless they get their underwriting model right.
Fraudsters are always the most creative economic actors.
Every generation invents new regulations to deal with the last crisis, but regulations never get upgraded like software.
Most people don't want to be their own bank.
TradFi, in particular, has a lot of Liquidity and experience underwriting and dealing with fraud and regulation in the existing financial system.
To get Liquidity, we need to build trust in the new system.
To build trust, we need builders who understand the universal laws of finance and the new technology of DeFi.
That will likely be a mix of TradFi, CeFi, and DeFi protocols.
TradFi and CeFi will help manage those risks for consumers.
But the more "pure" and specialist DeFi protocols can be, the more efficient, global, and transparent our new global financial system will be.
Risk management and compliance can't be enforced by the protocols without breaking what makes them special. They are so efficient precisely because they focus on a small number of activities and do those exceptionally well.
I hope we see regulatory and compliance specialists that can support DAOs and protocols. They're on the frontier, and contributors and developers are taking a good amount of personal risk to build a new financial system, often quietly wondering if they'll get a letter from a regulator.
What happens now.
Already becoming cliche to point out the great companies built in a recession, but it is a consistent pattern. Disney, FedEx, Microsoft, Salesforce, Google, and Facebook were founded during recessions.
And back then, new technology didn't have nearly the funding startups have today.
DeFi feels inevitable.
Whether it can deliver on its promise depends on if consumers and businesses start to trust it and find it useful.
To do that, we must be backwardly compatible with humanity and the economy.
Backwardly compatible with TradFi.
Backwardly compatible with regulations.
And most importantly, forwardly, proactively managing new risks.
If we understand the risks, manage the risks, build trust, and get Liquidity.
4 Fintech Companies 💸
1. Untied - Turbotax (or Columntax) for the U.K.
Untied allows users to connect via open banking and see all their accounts in one place aimed at the self-employed and landlords. It also allows more complex filling like fuel mileage and sharing information with an accountant (CFA equivalent). Untied helps the 12m people in the U.K. who have to do a tax return. From 2024 any landlord will also have to (by law) provide quarterly tax reports to the tax authority using software like Untied. Untied is the first to market in the U.K. with this type of offering.
🤔 Like all countries, the U.K. tax system has its complexities that burden the self-employed and smaller-scale businesses the most. Unlike in the U.S., the threshold for personal tax planning is much higher (£100k income, or ~$120k). However, the current admin burden is significant for the 12m who do (gig workers, Crypto traders, freelancers, and self-employed). Untied charges £49 or £99 per year, but I can't help but think this is a feature of a bigger product's subscription rather than a standalone. Untied will offer an API to allow Neobanks and incumbents, who provide services to SMBs, to use their solution to help with tax filling.
2. Aqua - Private Equity investing for the masses
Aqua allows individuals, trusts, or smaller firms to invest in Private Equity (P.E.) firms. Private equity firms buy stakes in a company often with the intent of "fixing it to sell it." (If you've ever seen a T.V. show about flipping houses, it's the same idea). Typically the minimum ticket size for investment is $5m per investor, meaning only the ultra-wealthy can participate. Aqua aims to bring that down substantially, widening the population of investors. They do this by aggregating funds from many investors and acting as a single L.P. into the P.E. firm.
🤔 This market is the ideal environment for P.E. firms as stock prices continue to plunge and VC-backed firms search for profitability. But like many asset classes, the poor old consumer is locked out. I'm yet to see a company truly fractionalize P.E. firm investing. The closest is Sprout which does V.C. investing from £5,000 ($6,100) in the U.K. But if someone like Drivewealth (or the recently acquired Embed) can fractionalize that, it could be a feature in every Neobank and Fintech super app. Or better yet, part of a diversified portfolio managed by your personal A.I. (with your own little DALL-E artwork to picture current portfolio performance).
3. Thepeer - The Mobile wallet API for Africa
Thepeer helps mobile wallet users move cash between different Fintech wallets in Africa. Since the explosion of Fintech companies, users of Mobile wallets in Africa often have an interoperability problem. Thepeer now supports merchant checkout and B2B payments and aims to become the native API for money movement between wallets.
🤔 The wonderful thing about having an explosion of Fintech companies across the global south is the sheer adoption scale. But the new problem of interoperability was, in hindsight, inevitable. The advantage of no legacy infrastructure is most Fintech wallets have modern APIs that can be integrated quickly. I'd be curious to see one of the big payments aggregators like PPRO or Rapyd look at African payments APIs like Thepeer to know if we can open more global trade.
4. Every - The Financial Operating System for Startups
Every combines an FDIC-insured operating account, bill payments, corporate cards, payroll, benefits, and employee onboarding into a single platform. Every is charging $0 per month for the banking, but $30 (+$6 per user) per month for the H.R. suite.
🤔 Interesting to see a business basing its monetization strategy almost entirely on the H.R. suite. It certainly has all the features and saves the web of SaaS integrations ops teams wrestle with. They're entering a market with well-funded players attacking from all sides. Still, with Ramp, Mercury, Brex, and Northone reaching maturity, perhaps there's an opportunity to sweep up the smaller companies with this pitch?
Things to know 👀
According to recent press, they may yet buy Robinhood too (or are looking for a path to). Although the CEO commented that they have no active plans or talks, they are excited about a future partnership.
FTX US is acquiring the stock clearing company Embed which provides stock brokerage and clearing through an API. This follows FTX US launching stock trading on the FTX US platform in May of this year.
BlockFi announced that it has secured a $250 million revolving credit facility from FTX to "bolster the balance sheet and platform strength."
🤔 Robinhood has a lot of users and a solid core UX but is taking a beating from regulators and public markets. It is arguably a distressed asset and possibly cheap for the right buyer. FTX has been very institutionally focused but is acquiring licenses and brands to gain global coverage. Robinhood potentially brings more licenses, users, and brands consumers already know. Perhaps the "no rush to buy" has much to do with the belief that Robinhood stock may go lower. Is this similar to how Elon plays for time to get a better deal with Twitter?
🤔 That was quick. Embed is relatively young, founded in May of 2020, covered in Brainfood in August of 2021 (when they broke stealth), and raising their $60m Series A in October of '21. They only did the partnership in May of 22' and BLAM, acquired. If there's a challenging round to get if you had a big Series A, then B is where the roadblock is for many.
🤔 But it's also potentially super strategic. Embed has all the required licenses and a very modern platform. I get the sense FTX is license shopping for global and product expansion. While Coinbase and others stumble in the public markets, FTX can pick up bargains.
🤔 I'm tantalized by the idea that FTX could tokenize stocks. With Embed, could FTX potentially "park" a real stock and have it move as a token inside the web3 ecosystem? FTX would be the broker, custodian, and clearing house for the Metaverse. Add NFTs, sports, and the institutional side to that, and they're positioning to also be the next globally significant financial market infrastructure (FMI).
🤔 But can they execute? Buying licenses is easy; integrating technology, culture, and process across multiple geographies and companies is much more complex.
🤔 Is FTX holding up the Crypto lenders it sees as creditworthy over the long term? Or is it working to prevent contagion? Perhaps both. Like all lenders (and brokers), you're as good as your ability to assess risk. FTX has made a name for being exceptional traders, but not everything is a trade.
The U.S. House Financial Service committee released its report on the meme stock frenzy of 2021. The finding that the DTCC waiver played a crucial role in keeping Robinhood solvent was "at odds with statements made by the company's executive leadership." The report found that Robinhood risk management failed and that wider risk to Robinhood customers was only averted due to the actions of the DTCC.
🤔 There is no smoke without fire. Robinhood clearly came close to the edge and, at the time, tried to blame its solvency issue on the DTCC. Who knows how many customers would have Gamestop shares the top of the frenzy and lost out if the DTCC didn't step in?
🤔 The difference in how Robinhood handles comms and the DTCC could not be more striking. The Robinhood CEO remarks that the Gamestop event was a one-off, and they took "appropriate and responsible steps" to protect customers. The DTCC simply said they're evaluating the report and committed to managing risk and safeguarding the public. One of those statements is whiny, and one of them is grown up. The whole point of risk management is to deal with one-off events! 🤦♂️
🤔 I get that Robinhood had a massive margin call that would have been tough for anyone to find. And I get that perhaps it does feel a bit like they're a victim of their own success, timing, and Macro. They didn't make memestocks happen; the market, pandemic, and stimulus did that. But they have consistently sailed ultra-close to the wind with risk management in the name of financial inclusion.
🤔 There is always such a fine line between financial inclusion and financial irresponsibility. I hope the lessons are learned here, and we end up with a market where the less excluded can access the growth that comes from full access to capital markets. But getting this right isn't as simple as going, "here you go, consumer, you figure it out, oh and here are some explainers on our website."
Good Reads 📚
1. Web3 Use Cases Today - By Packy Mccormick.
Packy lands some enormous ideas worth your consideration and the time to read this piece in a gem-packed post.
The mood music on web3 could not be more bearish, but the silver lining is now we find ourselves in proper debates. Technologies like quantum computing are hard for consumers to invest in, but Crypto has consumer accessibility, which creates a boom and bust and speculation.
But if you look back, many critics called Facebook's acquisition a "sure sign of a bubble" when acquired for $1bn. Instagram had no revenue, but it had user engagement. Today estimates place Instagram's contribution to Meta's market cap at $153bn. Web3 is the opposite, with revenue but fewer users, so are the critics right? Packy mentions Goldfinch, Helium, and Braintrust as core examples that people get that can be used today. But that we're early.
🤔 Use cases are famously hard to predict because we always predict them with our mental model of the world when the prediction is made. A classic example is the original Star Trek series from the 60s. Despite being set in the 23rd century, they had no touch screens and used communicators clunkier than your phone.
🤔 Compounding this is that any use case the critic cannot imagine finding valuable today will seem ridiculous. But then, how many of Instagram's critics are Insta-famous? The future isn't for the cynics, but the lesson of web 2.0, is that web3 does need solid debate. As we head into the bear market, this focus on washing out the bad actors and focusing on use cases is refreshing. The future can't be just about speculative games and hypercapitalism. But it can be about new business models.
2. Congressional Testimony on Digital Assets by Dr Chris Brummer
Dr. Brummer is the world's most extraordinary regulatory mind and makes such considered and powerful points.
The core question in the U.S. is often, who should lead on Digital Assets regulation the SEC or the CFTC. The bigger questions are: How will we ensure consumers understand their risks in plain English? How can we help those left behind historically participate in capital markets? And what are the long-term use cases of Digital Assets beyond speculation, and how might they present both opportunity and risk? Enforcement has its placed and is being used, but it can only react to problems; it can't prevent them or the consumer harm. Today no regulatory agency has the mandate to improve financial inclusion.
Dr Brummer gives example use cases like a decentralized identity that helps with voting eligibility and building credit scores for the excluded. Or using Crypto rails to reduce the cost of complex transactions with multiple parties like mortgages and property. Or using Stablecoins / CBDC as a low-cost alternative to cash often relied on by the most vulnerable in society.
🤔 I sincerely hope the committee (and wider policy community) pays attention to the core message here. Crypto presents some old risks, but the most effective way to manage that may not be with the same old rules. Critically Crypto presents new threats; simply applying old rules won't capture that.
🤔 Chris talks about "adopting a builders mentality." The government should lean into what the tech offers to manage risk and potentially build a fairer, more efficient, and transparent financial system. I believe that the private sector can and should do this building and collaborate with the government transparent and inclusively.
Tweets of the week 🕊
That's all, folks. 👋
Remember, if you're enjoying this content, please do tell all your fintech friends to check it out and hit the subscribe button :)