Bitcoin crash: A new beginning

https://dailyfintech.com/2022/06/27/bitcoin-crash-a-new-beginning/

In January 2000, global financial markets were on the verge of a meltdown that was expected to destroy both the reputations of investors and the riches of day traders, that invested in companies and tech stocks that weren’t generating any revenue.

The “dotcom” crash caused a stock market meltdown.

Between 1995 and 2000, Nasdaq climbed 400% as internet companies sought to profit from the new technology. It peaked in 2000, and by October 2002, Nasdaq had lost 78% of its value, around $5 trillion.

Big advertising budgets and poor business models were the main reasons why companies like Pets.com, Webvan, eToys, Boo.com, Kozmo, and many others failed to deliver on their promises and support their high share prices and ended up shutting down or being acquired.

However, a few technology companies got it right, demonstrating remarkable growth and earnings. When you look at companies like Google and Amazon they thrived and turned out to be the dominant players in the sectors.

Looking back at the past two decades only proves to us that early internet entrepreneurs and investors were right about the internet and how it would revolutionize the way we live and work.

While most of the world’s technology companies are not 1 trillion dollar companies like Google ($1.56T) and Amazon ($1.18T), the aggregate earnings of tech companies are 2.5 times higher than they were in 2000.

MSCI World Technology Index vs. MSCI World

This incredible growth tells the story of tech over the past two decades and I think tells us what we should expect from crypto.

Yet, the drop in cryptocurrency and NFT prices has raised concerns, finger-pointing, and calls for regulation.

The entire crypto market is feeling the pain.

Bitcoin has lost about 70% of its value since hitting an all-time high of roughly $69,000 in November 2021. The total market cap of crypto assets has dropped to less than $1 trillion from its November 2021 peak of $3 trillion.

Today 95% of the crypto market is worthless.

There are more than 19,000 cryptocurrencies and dozens of blockchains that exist. Most of what’s out there today doesn’t add any value and some are even scams, just like many of the early internet companies. Eventually, like the dotcom crash, they will go belly up what will be left will be valuable coins and legitimate businesses. In 10 years from now, there’ll be a couple of clear winners for different kinds of applications.

While some things seem similar between this crypto and the dotcom crash, they are very different. The dotcom crash impacted the global economy, while the global economy impacted crypto. Crypto has a long way to go before it becomes the cause of an economic downturn like the dotcom or housing bubbles were. Crypto is simply a volatile new tech market trying to find its way, also victimized by a global recession.

But the crypto crash is teaching us some valuable lessons about crypto and NFTs and how they work in the economy. Similar to how the dotcom crash clarified for internet companies what products and business models are viable, this recent crypto crash is removing our rose-colored glasses about Web3 and the metaverse, and those that survive the crypto crash could become the tech giants of the future.

Crypto has created products that could not have been imagined before, including digital playthings that are often of little practical value, such as nonfungible tokens and meme cryptocurrencies. But there are also some useful ones such as smart contracts that allow financial assets to be bought and sold directly without the intervention of traditional intermediaries. This should, at a minimum, lower costs and improve efficiency by creating competition for entrenched institutions.

Rather than seeing this as the end of bitcoin, we can see it as the next step in the evolution of the market transitioning from a speculative asset to one that creates value by providing useful services to the economy.

by Ilias Louis Hatzis is the founder and CEO of Kryptonio wallet.

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https://dailyfintech.com/2022/06/27/bitcoin-crash-a-new-beginning/

Alt Lending week ended 24th June 2022

https://dailyfintech.com/2022/06/24/alt-lending-week-ended-24th-june-2022/

ECB Calls Crisis Meeting on Yield divergence

Last week the ECB convened an emergency meeting in order to discuss the widening yield gap between the weaker and stronger members of the Eurozone. There is nothing new about this. By all accounts they kicked the subject about and then did very little.  In particular however they were looking at the increasing differential between German and Italian yields. The problem is that bond holders are once more getting jittery about Italy’s ability to repay its debts. The same goes for Greece, Spain, Portugal, Cyprus etc. for the life of me I cannot understand why they are worried now. None of these countries are ever going to repay their debts. The best you can hope for is for it all to be rolled over at somewhat increased rates in perpetuity. Or you could try and sell the worthless paper to the ECB before the yields make the economies concerned completely unviable overwhelming their ability to pay. Until all this debt can be mutualized this will keep coming back. Mind you don’t think the Germans will like where mutualization would lead them. They have long memories where inflation is concerned.

Deutsche checks up on its Bankers

The compulsory  requirement is intended as a response to the news that some bank employees were using encrypted software to have a chat. JP Morgan was fined $ 200 million by regulators last year  for failing to keep records of their employees conversations on private mobile devices. I find it astonishing that regulators can insist on this type of thing. Don’t employees have a right to privacy of any kind. Moves like this are the kind of thing that I would expect Putin to use. If regulators are indeed this paranoid then I suggest that they subject themselves to a mental health check up. As for the employers. They should be ashamed of themselves and should have pushed back on draconian interventions like this. Regulators are not the Stasi? Or perhaps they are. I am glad to be clear of people like this.

Global Central Banks Everything Bubble turning to Everything Bust.

Further to the ECB’s travails mentioned above today’s Telegraph points out the rating agency S&P is warning that higher rates may lead to the Italy entering a downward debt spiral. At the same time both Equities and Fixed Income  are falling like stones perhaps putting an end to the 60/40 so called risk averse strategy favoured by so many investment houses. For lenders higher rates will be a nightmare as creditors have to make a judgement on pulling the rug from borrowers that are overwhelmed by higher rates. The tide is going out rapidly and we are about to see who has been skinny dipping. Innovative strategies are going to come to the forefront shorting overvaliued equities might become more commonplace. Does the market have the expertise to deal with this in the least painful manner? We’ll soon see.

Howard Tolman is a well-known banker, technologist and entrepreneur in London,  We have a self imposed constraint of 3 news stories per week because we serve busy senior  Fintech leaders who just want succinct and important information. For context on Alt Lending please read the Interview with Howard Tolman about the future of Alt Lending and read articles tagged Alt Lending in our archives. Daily Fintech’s original insight is made available to you for US$143 a year (which equates to $2.75 per week). $2.75 buys you a coffee (maybe), or the cost of a week’s subscription to the global Fintech blog – caffeine for the mind that could be worth $ millions.

https://dailyfintech.com/2022/06/24/alt-lending-week-ended-24th-june-2022/

XBRL News about ESG, technology and EU trends

https://dailyfintech.com/2022/06/23/xbrl-news-about-esg-technology-and-eu-trends/

Here are the three most relevant developments in the world of structured reporting we became aware of in the course of last week. 

1  ESG practitioners detail top reporting challenges

2  Calculations, new formats, and formula: latest technical updates from XBRL International

Much of the presentation was devoted to discussing the upcoming Calculations v1.1 specification. Although this specification provides only an incremental change to current XBRL calculations functionality, it was clear from other presentations during the conference that this update is keenly anticipated.

Trying to keep up with engineers’ work is challenging, but always rewarding!

3  ESEF in practice: third instalment considers sustainability reporting

In case you missed it, Accountancy Europe’s third ‘ESEF in Practice’ webinar, held with event partners Toppan Merrill and Workiva, is now available to view in full online, along with a brief event recap. This series always brings interesting insights from a range of expert speakers, and the latest instalment was no exception.

This program is definitely worth checking out in detail if you’re interested in what’s happening with digital reporting in Europe. 

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Christian Dreyer CFA is well known in Swiss Fintech circles as an expert in XBRL and financial reporting for investors.

 We have a self-imposed constraint of 3 news stories each week because we serve busy senior leaders in Fintech who need just enough information to get on with their job.

 For context on XBRL please read this introduction to our XBRL Week in 2016 and read articles tagged XBRL in our archives. 

 New readers can read 3 free articles.  To  become a member with full access to all that Daily Fintech offers,  the cost is just USD 143 a year (= USD 0.39 per day or USD 2.75 per week). For less than one cup of coffee you get a week full of caffeine for the mind.

https://dailyfintech.com/2022/06/23/xbrl-news-about-esg-technology-and-eu-trends/

Embedded insurance catches on, more segments join in

https://dailyfintech.com/2022/06/23/embedded-insurance-catches-on-more-segments-join-in/

Within embedded finance, insurance is provided as a native feature in the platform, marketplace or ecosystem. Not entirely new, bancassurance is one variant that has existed for long. In its current avatar, embedded insurance offers advantages for all involved, including tech players, carriers and consumers. A primal constraint in insurance distribution has been that purchase is disparate from the product or service covered, resulting in poorer data for carriers and lesser relevance for customers. It seems logical that tech players would be better suited to distribute such insurance due to superior control of customer journeys, compared to insurers.

Besides, the tech stack of insurers has suffered from inflexibility and difficulty in integration. This has sprung up a range of enabler start-ups, offering APIs for distribution, claims and even full stack, white-label solutions. Given that platforms are expected to control 60% of new sales by 2030, insurers that lag or don’t innovate, risk erosion of their profit pools.

Prevalent forms of embedded insurance include:

  • Mortgage lenders offering title insurance
  • Ticket and event organizers offering event insurance
  • Car rental businesses offering rental insurance
  • Phone insurance bundled with purchase of the phone.

A successful embedded insurance program tends to comprise:

  • A digitized product (quote, bind and issue transaction seamlessly)
  • Short-term, subscription-based, and frictionless product
  • Pre-underwritten insurance products
  • The pricing of coverage a fraction of the main product/service.
  • Target channel partners are specific and grouped.

A pertinent example of an embedded offering is Bundle from Insuritas that delivers a suite of solutions that enables financial institutions, payment, and retail platforms to operate their own labelled, full-service insurance agency. Owners benefit from expanded wallet share, increased retention, and recurring revenue. Insuritas handles the agency platform and APIs, leveraging virtual and live agents with comprehensive marketing automation. With Insuritas, residential home loan originator Northpointe Bank realized an 84% growth in insurance policy sales in one year. Customers respond to a personalized email tied to their mortgage process and receive a quote, in a seamless journey where Northpointe Bank works with Insuritas to grow the agency alongside the bank.

Embedded insurance is integral to the concept of ecosystems and facilitates offering of holistic solutions to customers’ risk requirements. Such ecosystems have survived the first few years of hype. Among others, digital MGAs are capitalizing on the opportunity by carving out niches and partnering with merchants and brands to offer embedded insurance where incumbents are non-existent. Regardless of who takes the lead, embedded propositions are an opportunity for all market participants.

Another insurtech company Bestow, offers new embedded insurance technologies that empower businesses of myriad sizes to bundle life insurance within existing customer ecosystems. Customers can apply for, and once approved, purchase up to $1.5 million coverage in a jiffy within the partner’s application. A medical exam isn’t mandated. Bestow’s life insurance infrastructure handles the gamut of the purchasing experience for partners from pricing estimates to instant underwriting to policy issuance.

With ecosystem partners focusing on core competencies of product management or supply chain, they often lack the wherewithal to successfully launch insurance products. Devoid of a clear-cut strategy to go to market, going solo is a risky and daunting proposition. Only the largest platforms can afford dedicated teams – mid-market players find it necessary to partner. Hence, digital players are seeking value in embedded solutions, although it can take time. One plus is that augmenting the shopping experience for its customers serves as an effective marketing and retention tool. While the transactions and digital assets might get increasingly commoditized, the core value creation is from the ecosystem with its data that can benefit customers, providers and suppliers. In time, partners would have the opportunity to graduate from embedding insurance services to offering insurance-as-a-service.

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https://dailyfintech.com/2022/06/23/embedded-insurance-catches-on-more-segments-join-in/

Stablecoin News for the week ending Wednesday 22nd June.

https://dailyfintech.com/2022/06/22/stablecoin-news-for-the-week-ending-wednesday-22nd-june/

Here is our pick of the 3 most important Stablecoin news stories during the week.

For the first time in the history of stablecoins, supply dropped!

This week as the Crypto markets continue their wild ride, money, not just value, moved out of the ecosystem.  The market cap or measure of how many stablecoins are in circulation dropped for the first time with over 10B redeemed directly from the treasuries of major issuers.

Total supply of stablecoins dropped sharply for first time ever in Q2 (cointelegraph.com)

There has also been a flight to perceived quality as Tether reduced its market cap to just below 70b but Circle has increased from 48b to 55b.

Tether’s USDT market cap dips below $70B for an 8-month low (cointelegraph.com)

In the meantime Circle has expanded its product range by introducing a Euro stablecoin.  Like USDC, Euro Coin is a regulated stablecoin that is fully backed by reserves — in this case, the euro. That means every EUROC token in circulation will have an equivalent euro-denominated reserve held in custody at financial institutions regulated by the United States. 

Silvergate Bank, a crypto-friendly financial institution, was listed as the initial custodian for the euro-pegged stablecoin.

In Fiat FX markets the Euro is the second highest traded currency behind the USD, so this seems like a natural product extension for Circle.

Circle launches euro-backed stablecoin EUROC (cointelegraph.com)

So in summary, in a week when the addressable market increased with the implementation of a Euro coin, the market itself started valuing the difference between a collateral backed coin such as Tether and a reserve backed one in Circle.  These things matter more in a risk off market but not so much in a risk on or neutral one.  Crypto is very much in the category of risk assets and money is moving away and not towards them.

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Alan Scott is an expert in the FX market and has been working in the domain of stablecoins for many years.  Twitter @Alan_SmartMoney

We have a self imposed constraint of 3 news stories per week because we serve busy senior Fintech leaders who just want succinct and important information.

For context on stablecoins please read this introductory interview with Alan “How stablecoins will change our world” and read articles tagged stablecoin in our archives. 

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New readers can read 3 free articles.  To  become a member with full access to all that Daily Fintech offers,  the cost is just US$143 a year (= $0.39 per day or $2.75 per week). For less than one cup of coffee you get a week full of caffeine for the mind.

https://dailyfintech.com/2022/06/22/stablecoin-news-for-the-week-ending-wednesday-22nd-june/

Why Bitcoin Still Matters

https://dailyfintech.com/2022/06/20/why-bitcoin-still-matters/

This week, the value of bitcoin and other cryptocurrencies has plummeted with billions of dollars lost. The crash is hitting investors all over the world and the rapid declines wiped out two years of financial gains overnight.

Some attribute this to inflation, rising interest rates, and the Ukraine conflict. I believe it is a combination of things, that are mostly related to crypto things like the Terra (LUNA) collapse a month ago, the SEC investigation of Binance and its BNB coin, Coinbase’s dropping stock price and rumors of possible bankruptcy, the recent failure of Celsius, and several other things. Everything has created a perfect storm, making investors very nervous.

Bitcoin is the original cryptocurrency and it accounts for almost 45% of the market. Bitcoin’s price has plunged, losing over 65% of its value since its November 2021 high of over $69,000 for a single coin. Today that price is just over $20,000.

Though volatile, over the last decade the crypto market has shown tremendous durability, with each reset resulting in price-market capitalization growth and rapid innovation.

The amount of money invested in Bitcoin makes it difficult to think that digital currency could one day become obsolete. Over $30 billion was invested in crypto startups just last year, nearly four times the previous record of $8 billion in 2018.

Hundreds of new companies have created blockchains, the underlying ledger system on which Bitcoin is based. But many industry “experts” predict the coin’s demise. Earlier this month, 26 concerned technology experts wrote an open letter to the U.S. Congress urging “a critical, skeptical approach toward the industry.”

No one knows what the future holds, but Bitcoin still matters.

In January 2014 Marc Andreessen wrote “Why Bitcoin Matters,“ an article in the New York Times explaining the importance of Bitcoin:

“Bitcoin is a digital bearer instrument. It is a way to exchange money or assets between parties with no pre-existing trust.”

In his article, he outlines Bitcoin’s benefits are very low transaction fees, no credit card fraud risk, and it can be used in countries where the banking system is not well developed.

Last week at Consensus 2022, Edward Snowden talked about money and privacy and his involvement with Zcash. Out of everything that he talked about, one thing stuck with me:

I use bitcoin to use it. In 2013, bitcoin is what I used to pay for the servers pseudonymously.”

Using Bitcoin to buy things was not always the case, but these days you can buy an awful lot of things in different ways with Bitcoin.

You can purchase goods from Amazon with Bitcoin, using a third-party service called Purse. With Purse a customer selects the item he or she wants to buy on Amazon, copies Amazon’s URL, and pastes it on Purse. Purse completes the transaction and gives customers up to a 15% discount on Amazon’s price.

Major retailers and high-end brands have also been jumping into the crypto and Web3 space. Gucci is the latest luxury brand to accept crypto payments in-store. In March, the fashion label Off-white started accepting payment with six cryptos in its stores in Paris, Milan, and London. LVMH’s luxury watch brand Hublot released a limited edition collection that could only be purchased using Bitcoin.

It’s not just where you pay with Bitcoin, but how. Both Visa and Mastercard have partnered with cryptocurrency providers to introduce crypto payment cards that convert digital currency into traditional money. Early in the year, Visa said that customers made $2.5 billion in payments with its crypto-linked cards in its fiscal first quarter of 2022.

Bitcoin can be very important for micropayments, embedded payments, and machine-to-machine transactions. It might not look that way right now, because of the high fees and slow transaction times, but as Layer2 technologies ramp up that’s going to change.

Imagine your car with its own wallet paying for its insurance, parking, tolls, and a car wash. By 2030, about 95% of new vehicles sold globally will be connected and this value pool is expected to reach $450 billion.

According to BitInfo, the average fee for a Bitcoin transaction in 2022 was around $2, making it not only expensive for purchases less than $1 but also more expensive than a credit card even for larger payments.

Some people already use bitcoin as a currency, and nearly 20% of all adults in the United States say they’re likely to make a purchase using crypto, according to a recent report by PYMNTS. But most people and businesses don’t because of its volatile nature.

Technologies like the Bitcoin Lightning Network will change both fees and times, costing only a few cents to send Bitocin and making transactions near-instantaneous.

In a bull market, everybody thinks they’re a genius.

For those that want to invest, you need to proceed with caution. This reminds me of the “Athens Stock Exchange Crash of 1999” when people with no understanding of capital markets (farmers, blue-collar workers, etc.) invested everything they owned to randomly buy stocks, borrowed money to invest, and ended up losing their shirts.

That’s exactly what happened with two friends of mine in the crypto market. Fortunately, they were not financially ruined, but they lost everything after the Terra-Luna crash. When they started investing in 2020, they invested only in altcoins, because they wanted at least triple-digit returns. Buying some altcoins along with your Bitcoin will always give you better returns than a Bitcoin-only portfolio. But, having a portfolio consisting of only new altcoins, is a sure way of losing it all when the market changes.

Keep in mind that you are likely to lose money if you’re looking for short-term gains. Start thinking about “Dollar Cost Averaging,” and stop thinking in terms of days, weeks, and months and start thinking in terms of years.

For example, buying $100 of Bitcoin every month for 3 years starting 3 years ago would have turned $3,600 into $9,783 (+171%). When you consider that we’re currently almost 70% down from Bitcoin’s all-time-high in November, that return is amazing.

Investing this way requires that you continue to buy even in a bear market, regardless of the short-term losses. The reason this works so well is that even though your investment stays the same (eg $100), you accumulate more BTC when prices drop. In this sense, dips are a great opportunity.

To everyone that thinks that crypto is dead, remember that Bitcoin is a survivor.

The metaverse may represent Bitcoin’s thriving survival. Cryptocurrency is a prominent way of payment for anything from online sports betting to Web3 game platforms like Roblox, and Bitcoin is the most common mode of exchange. Though fiat money will almost certainly continue to be accepted, companies such as Nike, Puma, Gap, and other major brands have been developing new imprints and products in the metaverse over the last six months. The rise of these worlds means that paying with altcoins will likely rise and benefit the ubiquitous Bitcoin.

Bitcoin has come a long way since its start and has a long way to go. It represents an opportunity for anonymity and legitimacy in online purchases and an alternative to nationally-manipulated money.

by Ilias Louis Hatzis is the founder and CEO of Kryptonio wallet.

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https://dailyfintech.com/2022/06/20/why-bitcoin-still-matters/

Alt Lending Week ended Ended 17th June 2022

https://dailyfintech.com/2022/06/17/alt-lending-week-ended-ended-17th-june-2022/

UK mortgage lending underwriting has grown old and tired

Gerard Lyons who I believe would have made an excellent candidate for governor of the Bank of England rather than the less than impressive Andrew Bailey makes the point that PM Boris Johnson’s comments on the housing market last week were unlikely to be effective. He suggests that mortgage lenders should consider  reducing the huge deposits that first time buyers a forced to come up with which means that many quite eligible and high earning couples are stuck in rented accommodation where they are unable to move onto housing ownership. This has a drag effect on the whole of the market. Lenders refuse to accept a strong track record of rental payments as evidence of trust. They should reconsider or some bright spark  should come up with an insurance product to cover part of the risk. The security of the property is after all the secondary source of repayment after the earning power of the owners. In the Uk we have priced mortgages incorrectly for years. Time for a rethink.

EU resort once more to move financial business from London to less attractive locations within the protectionist Bloc.

This is a story that doesn’t want to go away and paints a woeful picture of the mindset of EU institutions who are constantly thinking up new ways to undermines London as a financial sector. US banks are showing some resistance to these moves and for very good reasons. None of the continental centres have the same depths of liquidity technical and business expertise as London  has or Zurich has for that matter, Ultimatelt forcing European companies to use European banks to process transaction will cost European clients more and limit their ambitions. This doesn’t  seem to matter to the bureaucrats in Brussels whose only thoughts concern punishing Britain for having the temerity to reject the EU outright. There are three major reasons why London is preferred by New Yorkers. Firstly we speak the same language (yes it still matters) secondly we think more like the Americans and thirdly London is more fun. There is another reason Banking and finance are creative businesses. Not much creativity over the other side of the channel.

Another tale of unrelenting Hubris in London valuations.

My first reaction to this story was to wonder who Bank of London group was. Turns out it is a unicorn that has raised money on a valuation of over £ 1 billion. Not bad for a start up but apart from holding nine patents and promising to “transform the very fundamentals of banking” it looks to me like another possible piece of snake oil salesmanship. I wish them all the best but I’ve seen it all before. The company has net assets of £ 21,3 of which £13 million is in cash, and made a £ 48k loss in its first published accounts. Its founder is a technician as is its chairman and its board contains Lord Mandelson one of Tony Blair’s old mates. I am sorry but these valuations are ridiculous. Also what are the fundamentals of Banking?  Technology doesn’t change them or they would already have changed by now. The start up space looks very crowded with highly speculative ventures.

Howard Tolman is a well-known banker, technologist and entrepreneur in London,We have a self imposed constraint of 3 news stories per week because we serve busy senior  Fintech leaders who just want succinct and important information. For context on Alt Lending please read the Interview with Howard Tolman about the future of Alt Lending and read articles tagged Alt Lending in our archives. Daily Fintech’s original insight is made available to you for US$143 a year (which equates to $2.75 per week). $2.75 buys you a coffee (maybe), or the cost of a week’s subscription to the global Fintech blog – caffeine for the mind that could be worth $ millions.

https://dailyfintech.com/2022/06/17/alt-lending-week-ended-ended-17th-june-2022/

XBRL News about key audit matters, ESAP and CFA benefits

https://dailyfintech.com/2022/06/17/xbrl-news-about-key-audit-matters-esap-and-cfa-benefits/

Here are the three most relevant developments in the world of structured reporting we became aware of in the course of last week. Apologies for the delayed publication, which was due to a technical glitch. 

1  Insights from Japan’s digitally tagged KAMs

2  Opinion of the ECB on the establishment and functioning of the European Single Access Point

On 25 November 2021 the European Commission published a legislative package1 (hereinafter the ‘proposal’), proposing the establishment of a European Single Access Point (ESAP) providing centralised access to publicly available information of relevance to financial services, capital markets and sustainability, as envisaged in the Capital Markets Union (CMU) Action Plan adopted by the Commission in September 2020. 

Despite the very technical language, this is a very important (unsurprisingly supportive) comment by the ECB. 

3  CFA charterholders gain access to XBRL data platform via Calcbench partnership

The CFA Institute Research Foundation has partnered with Calcbench, providing over 180,000 potential users with instant and systematic access to XBRL data filed with the US Securities and Exchange Commission (SEC). From later in June, Chartered Financial Analysts (CFAs) worldwide will enjoy free use of the Calcbench Premium service as part of their CFA Institute membership.

We are certainly looking forward to kicking the tires of this new membership benefit! Hopefully we’ll be forgiven for bringing the headline in line with the CFA Institute Code & Standards …

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Christian Dreyer CFA is well known in Swiss Fintech circles as an expert in XBRL and financial reporting for investors.

 We have a self-imposed constraint of 3 news stories each week because we serve busy senior leaders in Fintech who need just enough information to get on with their job.

 For context on XBRL please read this introduction to our XBRL Week in 2016 and read articles tagged XBRL in our archives. 

 New readers can read 3 free articles.  To  become a member with full access to all that Daily Fintech offers,  the cost is just USD 143 a year (= USD 0.39 per day or USD 2.75 per week). For less than one cup of coffee you get a week full of caffeine for the mind.

https://dailyfintech.com/2022/06/17/xbrl-news-about-key-audit-matters-esap-and-cfa-benefits/

Auto Insurance Ecosystems – The Claims View Part 2

https://dailyfintech.com/2022/06/16/auto-insurance-ecosystems-the-claims-view-part-2/

In auto insurance, processing a single claim event requires a multitude of smaller transactions that involve customers, lenders, collision repairers, auto manufacturers, parts suppliers, medical providers and others. These transactions hinge on an elaborate web of decisions and data, which ultimately shore up transaction costs while increasing the likelihood of fraud and claims leakage. In the U.S. alone, it is estimated that more than one billion days of cumulative claims cycle time (loss date to claim completion date) are lost annually in auto claims.

The complexity intrinsic to auto claims hinders the ability to manage at scale, caused from several underlying factors:

  • Parts proliferation: Repairable parts per auto claim increased 48% since 2010
  • Internal technology: An average new vehicle uses more than 100 million lines of code
  • Connected-car capabilities: 86% new vehicles sold in 2022 with embedded connectivity
  • Advanced Driver Assistance Systems and diagnostics systems: Vehicles receiving a diagnostic scan during collision repair rose 1,000% since 2017.

Increasing complexity is best managed through digitization. Claims ecosystems enable carriers to effectively leverage capabilities to digitize total loss valuations, repair estimates, shop management, repair workflows, medical claims and parts ordering. The key enablers include integrations with ecosystem partners that unencumber information sharing.

Ecosystems comprise of connected digital services that let users fulfil multiple needs on a single platform. End goals of participants vary, ranging from growing core businesses to expanding company networks to end-to-end solutions. Ecosystem players tend to be one of: a)local champions that attract customers by leveraging ecosystem channels b)incumbents that cross-sell new, non-core products/services c)digital start-ups that have built scale with limited products/services and then diversify offerings via ecosystems d)internet giants that diversify offerings, increase touchpoints and capture larger wallet share.

CCC Intelligent Solutions (CCC) is a leading US provider of automotive collision software. As orchestrator of an auto claims ecosystem with carriers, manufacturers, collision repairers and part suppliers, they work with over 24,000 repairers and 350 carriers, processing a majority of U.S. auto repair estimates. A leader in hyperscale cloud computing and photo analytics, CCC pursues growth by cross-selling new products. Using data from beacons, dongles, mobile apps and connected cars, CCC provides insurers the ability to identify when enrolled vehicles are in an accident. It automatically shares information to initiate a claims process, reducing communication bottlenecks between car owners and insurers.

An ecosystem partner, incumbent Allstate redesigned its repair appointment booking workflow using CCC’s Shop Scheduling, enabling four-fifths of customers to book repair appointments the same day. CCC connects Allstate and its consumers with thousands of repair facilities in the Allstate Good Hands Network. The result: Allstate has successfully improved repair appointment timelines and cut cycle time at scale. Cycle time improved by 14% in a year, with nearly 18000 monthly repair appointments.

In APAC, leading AI insurtech Claim Genius has partnered with auto claims ecosystem leader Fermion Technologies for P&C Insurance, an example of a digital startup joining an existing ecosystem. Fermion will incorporate Claim Genius’s real time damage estimates into its TrueSight™ suite of analytics products, making the solution available to its network of carriers spanning 10 countries. Once implemented, clients can get instant estimates for damaged vehicle repair by utilizing photographs or videos of accident vehicles.

There are various digital insurance ecosystem plays in insurance. In past posts, prominent integrated ecosystems such as Vitality, Manulife Move and iptiQ were covered. The value in ecosystem approaches is that insurers leverage not just internal analytics, but also partner ecosystem data to transform customer experiences. Customer journeys are transforming at the speed of technology. Understanding customer needs beyond merely product insights, is crucial to insurers in their digitization and ecosystem journeys. Well-crafted customer journey maps build better understanding of customer experience, in turn helping integrate with and scale ecosystem growth.

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https://dailyfintech.com/2022/06/16/auto-insurance-ecosystems-the-claims-view-part-2/

Stablecoin News for the week ending Wednesday 15th June.

https://dailyfintech.com/2022/06/15/stablecoin-news-for-the-week-ending-wednesday-15th-june/

Here is our pick of the 3 most important Stablecoin news stories during the week.

The what and how of Regulations!

This week as markets continued to crash the discussion increased about what and how the stablecoin and broader Crypto market should be regulated.

Everyone seems to be waiting on the U.S. which could have a new federal law on stablecoins by the end of this year, lawmakers told attendees at Consensus 2022.

Lawmakers worry that a lack of regulatory clarity may be putting the brakes on crypto innovation, and the recent collapse of terraUSD (UST) only adds fuel to the fire for those calling for action.  “I’m going to go out on a limb and say we get stablecoins done this year,” Sen. Pat Toomey (R-Pa.), who put forward his own bill on the topic this year, told attendees. 

US Stablecoin Law Could Actually Pass This Year, Lawmakers Say (coindesk.com)

The precipitous fall of Terra and Celsuis has re-energized crypto sceptics. On May 10, amid Terra’s collapse, Treasury Secretary Janet Yellen argued before the Senate Banking Committee that stablecoins create “run risks, which could threaten financial stability, risks associated with the payment system and its integrity.” Clearly, not every token that calls itself a “stablecoin” is stable, but Ms. Yellen is wrong to think that stablecoins pose a systemic risk to financial stability.

A true stablecoin is a dollar-like token collateralized by at least $1 worth of assets. The best known stablecoins, Tether’s USDT and Circle’s USDC, account for $72.5 billion and $54 billion, respectively, in circulating supply. Opportunistic regulators and politicians, notably the Securities and Exchange Commission’s Gary Gensler and Sen. Elizabeth Warren, call stablecoins “wildcat banks” and argue that they are susceptible to runs.

This view is just uninformed as the historian Niall Ferguson has written here.  This has been yet another example of investors losing money (which is also happening on the Dow and Nasdaq), not one where consumers were thinking they were making a safe deposit.

Sick Stablecoins Can’t Infect Financial Markets – WSJ

While the market has not yet fully recovered from the onslaught caused by the TerraUSD (UST) depeg, another stablecoin project shows signs of distress, causing fears and speculation within the community. 

Stablecoin protocol USDD’s price dipped to $0.97 on major crypto trading platforms on Monday. Because of this, the market started to keep an eye on the project with fears that the project will follow the footsteps of Terra (LUNA), now officially Luna Classic (LUNC). CurveSwaps, a bot that monitors large asset transfers, flagged that $1 million USDD was recently swapped to 997,339 Tether (USDT).

USDD stablecoin falls to $0.97, DAO inserts $700M to defend the peg (cointelegraph.com)

So in summary, the market carnage may still have a way to go and regulations are required to raise some barrier of entry to those who cannot even spell risk management, but it is important that any regulations are sensible and well thought through.  We do not want to throw innovation out with the protect everyone from everything bathwater.  

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Alan Scott is an expert in the FX market and has been working in the domain of stablecoins for many years.  Twitter @Alan_SmartMoney

We have a self imposed constraint of 3 news stories per week because we serve busy senior Fintech leaders who just want succinct and important information.

For context on stablecoins please read this introductory interview with Alan “How stablecoins will change our world” and read articles tagged stablecoin in our archives. 

__________________________________________________________________________________________________________________________

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https://dailyfintech.com/2022/06/15/stablecoin-news-for-the-week-ending-wednesday-15th-june/

Ready for Web3 crypto security?

https://dailyfintech.com/2022/06/13/ready-for-web3-crypto-security/

Everyone is talking and working on Web3. Jack Dorsey is going even further, talking about Web5 powered by Bitcoin.

Web3 is the new evolution of the web that’s powered by crypto. On Web2 platforms like Facebook and Twitter, users can only “read and write.” On Web3 platforms, users can “read, write and own” — meaning users can own the digital assets they create as well as be part of the network infrastructure.

Web3 is a powerful narrative that is capturing the attention of entrepreneurs and investors who are looking for the next big thing. But managing keys has been a long-standing problem for crypto. Users have lost billions of dollars of crypto because of the inefficient management of their private keys.

There is a major roadblock when it comes to Web3 and crypto going mainstream: the user experience is difficult and not straightforward. For those new to crypto to perform even the most essential thing is hard — to have custody over their digital assets.

When you have you use a bank or a Web2 application, they control all of your interactions with them. They have absolute power – they can reset your password or even change the rules for passwords on the fly.

With crypto security, users can remove the intermediary and have a direct relationship with the protocol.

This is an awesome power that is both incredible and frightening at the same time.

It’s incredible because you own your crypto and no one can revoke the ownership of your tokens, NFTs, or digital assets. It’s frightening because you’re in charge of controlling the secrets that control your digital access. This is a critical responsibility and while there are tools to make it easier and less daunting, we are still in the early days.

But more importantly, it requires a new way of thinking.

Web3 companies cannot expect users to immediately leap from familiar centralized experiences into the deep end of decentralization in one step.

When people think about crypto they think about hacks. Hackers have already nabbed $1.22 billion worth of crypto in 2022. But the truth is that the Bitcoin and the Ethereum network have never been hacked. The cryptographic infrastructure of these blockchains is so strong and so well-thought-out that it’s virtually impossible to hack them.

Yet we’ve heard of crypto hacks. So what are people talking about when they talk about crypto hacks?

When someone on Twitter pretends to be Elon Musk and says send me your bitcoin, that’s a Bitcoin hack. But no one can go to the Bitcoin or the Ethereum network and impersonate me to trick the network and take my ETH. That can’t happen.

To make an analogy with our present reality, no one can break into the bank vault, but people have tricked bank customers to give them their information, and then used it to steal their funds. Vaults have always been secure, but the bank’s customers have been tricked.

A prominent method attackers use is to look for people who need support for a specific dApp or wallet and jump in and offer to help, by misrepresenting themselves as someone with authority. In the process, the attacker will ask for the seed phrase as part of the debugging process. You should never give anyone your seed phrase under any circumstances. There is no reason you would ever need to do that.

Also with everyone getting into NFTs, sophisticated attackers are exploiting NFT drops. You go to a site to mint or buy an NFT, but it’s not a trusted site, and you need to sign a transaction but you may not know exactly what you’re signing. You may be approving something nefarious, like transferring funds you didn’t intend to send or granting permission to your funds. When Metamask or your wallet pops up to approve a transaction, you may need to inspect the nature of that transaction to understand what it is exactly that you’re approving.  If you’re signing a transaction on OpenSea you’re on a trusted venue. But if you’re signing it on some brand new NFT drop, that just appeared a few hours ago and is going to disappear in a few hours and you need to buy now as the time is running out, you should probably think twice and inspect the transaction details before you sign the transaction. We are still in the wild west.

Generally speaking the enclave on smartphones is very secure. If you install a non-custodial wallet on your smartphone, you can trust that the crypto wallet is going to remain secure and keep your private key safe. But then the risk is how to back up the private key if that phone is destroyed or if you lose that smartphone.

There are tons of stories that we’re heard and read about with people losing their keys, saving them on hard drives that burnt out or forgetting the password to their hardware wallet.

In Forbes, Jameson Lopp discusses his Bitcoin custody tips. The article provides an excellent explanation of the various alternative and trade-offs.

According to Jameson, the most serious threat is accidental loss. Usually, wallets have a seed phrase that can be backed up. You can back it up digitally, on paper, on steel, or even in your mind. But what happens if you lose both your wallet and your seed phrase? That’s where things like social recovery come into play or facial biometrics that let users encrypt and upload their private keys to their cloud.

The second-biggest security threat is digital theft. The future of storing private keys has to do with Multi-Party Computation (MPC) or Shamir’s Secret Sharing, which are methods that split the private key among a few trusted private parties. MPC wallets and Multi-signature wallets do not have the structural problem that exists with other wallets — they do not rely on a single secret to access and spend your funds.

The third biggest security threat is government seizure. This is far more likely if the coins are on an exchange because government regulators can compromise them, and let’s not forget that hackers can steal them (always remember “not your keys, not your crypto”). Today, most crypto users depend entirely on exchanges for the custody of their cryptocurrencies. Exchanges allow users to recover their passwords in a familiar traditional way. But I would not recommend that you rely on exchanges to store your crypto. Holding assets on an exchange will limit your ability to use those assets. If for example, you hold ETH on an exchange you won’t be able to do different DeFi stuff, you won’t be able to buy and trade NFTs, and you won’t be able to use Web3 authentication.

Accessing Web3 is largely inaccessible through a custodian, like an exchange. The Web3 experience requires sending crypto to a non-custodial wallet, in which no one but the user holds the private keys.

Most Web3 users will not be crypto-native, and asking them to obtain hardware wallets and create security systems is asking too much of them.

The wallet user experience is suboptimal. You need to create a wallet, store (or remember) an incredibly long seed phrase or risk being locked out, and then transfer in funds. Once you’ve done that, you have to pay gas fees before you’re able to buy anything. So the whole system is not quite ready for mass-market adoption yet.

The good news is that there’s a huge market opportunity.

The future of mass-market crypto experiences lies within wallet apps that provide familiar, custodial experiences with the ability to graduate users to simple and secure non-custodial experiences.

by Ilias Louis Hatzis is the founder and CEO of Kryptonio Wallet.

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Alt Lending week ended 10th June 2022

https://dailyfintech.com/2022/06/10/alt-lending-week-ended-10th-june-2022/

 A crash is coming: Rejoice

You might not like what Andrew Orlowski has to say but as he says “ the tech sector is long overdue a correction- Kick back and watch creative destruction do its thing”. Don’t worry. Be happy. But a correction is due and it has already arrived with VC backed projects having lost half their value this year according to Pitchbook which tracks private company valuations. He highlights the BS that surrounds tech raises and valuations when most of the companies are not really disruptors or even tech companies just same old, same old with a jazzy front end. One of the potential big losers here is Swedish outfit Klarna whose founder was predicting a world takeover of the banking systems less than a year ago on the back of a buy now pay later application. Klarna’s value has fallen close to 35% this year already. Others will follow as I have long predicted and the alternatives will not be pretty. Down rounds, Fire sales and bankruptcies. Watch this space.

Bankruptcy Boom:  A storm is coming

The Telegraph is right to point out that as Covid support is withdrawn insolvencies will increase. Hardly surprising as some of the borrowers under Sunak’s give aways were fraudulent accidents waiting to happen. God know how much money he wasted. In any case this points out that the same thing is happening in more or less every advanced economy.  Hopefully this will lead like a good hot vindaloo to a good clear out. In the US, UK and the Eurozone we have been living with Zombie companies for too long being kept alive by next to zero interest rates with the mainstream banks not having either the appetite  or internal expertise to address the problem. A combination of higher interest rates and risk aversion will force lenders hands. About time to but it won’t be pleasant.

Apple enter Buy Now Pay later field.

Along goes the galloping herd in to the latest fad although I don’t see the clear business rationale. As mentioned above Kalrna’s value has dropped sharply over the last half year and now you see the reason why. It really isn’t that difficult to conjure up an app that looks after simple installment credit agreements. There is no barrier to entry so everyone piles in like the proverbial lemmings. We do not know whether Apple will introduce its service in the UK whose regulators are sensibly looking at the social implications of providing yet another way of allowing people who can’t afford it to spend money that they don’t have. In any case there is enough competition here with Revolut, and a few others including the large players also developing products. No one under the age of 60 has worked in a serious inflationary environment. When it comes to either paying your rent or the instalments for those new trainers to some BNPL lender some of that debt may well be uncollectable. Is there enough in the margins to cover the risk. Seems we might soon find out.

Howard Tolman is a well-known banker, technologist and entrepreneur in London,We have a self imposed constraint of 3 news stories per week because we serve busy senior  Fintech leaders who just want succinct and important information. For context on Alt Lending please read the Interview with Howard Tolman about the future of Alt Lending and read articles tagged Alt Lending in our archives.

Daily Fintech’s original insight is made available to you for US$143 a year (which equates to $2.75 per week). $2.75 buys you a coffee (maybe), or the cost of a week’s subscription to the global Fintech blog – caffeine for the mind that could be worth $ millions.

 

https://dailyfintech.com/2022/06/10/alt-lending-week-ended-10th-june-2022/

XBRL News about expansion

https://dailyfintech.com/2022/06/09/xbrl-news-about-expansion/

Here are the three most relevant developments in the world of structured reporting we became aware of in the course of last week.

1  SEC approves new rules that expand electronic filing requirements

2  How XII aims to tackle greenwashing by standardising ESG reporting

Recently, international standards organisation XBRL International announced the creation of the Digitisation Sustainability Lab (DSD Lab), an initiative to help standardise the methods public companies use for climate disclosure reporting. In addition to XBRL International, the EDM Council, Capitals Coalition, and Children’s Investment Fund Foundation (CIFF) were named as partners in the initiative. The initiative partners believe the DSD Lab will revolutionise global environmental, social, and governance (ESG) reporting. 

Seeing how the world of ESG reporting standards is rapidly consolidating, it only makes sense for XII to expand resources applied to that field. 

3  Multiple reports, one document

The original version of the Inline XBRL specification was released over ten years ago with a wide range of features to enable filers to embed XBRL tags within an HTML file, creating a document which is both human readable and computer readable. In my role as editor of the transformation registry, I look after one of these features – the ability to have a fact value which is presented in a human readable format for human readers and a canonical computer readable format for computers to use.

The expanding field of ESG reporting may well be a domain of application for this, as the author wishes. 

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Christian Dreyer CFA is well known in Swiss Fintech circles as an expert in XBRL and financial reporting for investors.

 We have a self-imposed constraint of 3 news stories each week because we serve busy senior leaders in Fintech who need just enough information to get on with their job.

 For context on XBRL please read this introduction to our XBRL Week in 2016 and read articles tagged XBRL in our archives. 

 New readers can read 3 free articles.  To  become a member with full access to all that Daily Fintech offers,  the cost is just USD 143 a year (= USD 0.39 per day or USD 2.75 per week). For less than one cup of coffee you get a week full of caffeine for the mind.

https://dailyfintech.com/2022/06/09/xbrl-news-about-expansion/

Auto Insurance Ecosystems – The Claims View Part 1

https://dailyfintech.com/2022/06/09/auto-insurance-ecosystems-the-claims-view-part-1/

As cars get smarter, the volume and granularity of real-time data generated is on the rise. With connected cars set to grow further, newer opportunities for digital innovation are springing up across the auto insurance value chain, bolstered by growing ecosystems. While consumers gain in increased convenience, AI-enabled connected platforms deliver cost savings and multiple benefits for insurers.

Take the case of China, with an estimated 340 million cars. Ping An Insurance has created a digital offering for car owners by integrating more than 190,000 outlets, including nearly 60,000 maintenance outlets, 78,000 repair shops, and 30,000 car dealers. It provides users with a one-stop experience, not only for accidents but for an ever-expanding range of auto services from roadside recovery to valeting, parking payment, fuel card recharge, vehicle loss calculation and refueling discounts. The results are impressive: 83 million bound vehicle users on their app.

In the past, car owners needed to navigate repair shop rules, structure of vehicle parts, and haggle over prices. The Ping An smart car loss calculation function is convenience personified. During a traffic accident, the car owner needs to take a picture of the scene, especially the damage caused by a collision, and uploads it to the app. The loss report is generated within seconds, and the premium for the following year is estimated immediately to help customers decide whether insurance needs to be used or not. Additionally, a reasonable repair price is generated, and a reliable repair shop recommended. In 2020, the online claims settlement service was delivered to nine million customers, 95% of whom used the “one-click claims service” function, scoring a 95.7% rating.

Leading insurers are redefining claims experiences to seamlessly anticipate and meet customers’ needs. An example is a claims department communicating updates based on customers’ engagement preferences, be it social network apps, text messaging or a one-stop, omnichannel hub. Using video and data-sharing capabilities, claims teams provide customers with rich, real-time information, answering 100% of claims status questions digitally and eliminating the need for phone calls—except when customers prefer a human touch.

A pertinent example of a growing auto insurance ecosystem centered on the claims experience is that of Singapore-based Fermion Group. Fermion (formerly Merimen) has processed US$10 b+ in premiums and claims, with 150,000+ claims processed monthly from 12000+ ecosystem partners across 10 markets in Asia. It creates ways for businesses to integrate insurance ecosystems into customer journeys to build differentiated ecosystems. As Asia’s leading insurance SaaS provider, Fermion serves more than 150 insurers and over 9000 repair shops, loss adjusters, lawyers and part suppliers.

AIG embedded the Fermion system in its auto claims service chain to streamline the process of claim notification and management. More than 95% of garage quotations and repair details are reviewed and approved within 24 hours. More than 97% of payments for repair costs are approved within one day of garage operators submitting documents. Most garage operators are satisfied with the speed and process and willing to provide service priority for AIG-insured vehicles. The system enhances communication with customers, such as when the company approves repairs quotation and assigns work to garage operators. New forms of service are being introduced, such as ‘live’ service and the ability for customers to open their claim via mobile interactive-video with claims completely opened in five minutes.

As ecosystem platforms create more capacity in claims organizations, insurers can differentiate themselves by dedicating additional resources to claim prevention. Preventing claims will change the relationship between insurers and customers—from a loss focus to a partnership with shared interest in loss prevention. Telematics capabilities coupled with connected devices and third-party data alert customers to risks before losses occur. Furthermore, platforms help businesses move from solely customer to ecosystem value that extend from digitizing processes to facilitating external partnerships.

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https://dailyfintech.com/2022/06/09/auto-insurance-ecosystems-the-claims-view-part-1/

Stablecoin News for the week ending Wednesday 8th June.

https://dailyfintech.com/2022/06/08/stablecoin-news-for-the-week-ending-wednesday-8th-june/

Here is our pick of the 3 most important Stablecoin news stories during the week.

How do we handle failure?

Some interesting developments in the regulatory sphere this week that are more accommodating of innovation.  The big problem of innovation is that we love what we get when it works, however it is by necessity a series of experiments that always involves, unfortunately, multiple failures.

Firstly the UK Treasury proposed a method of managing the wind down of a stablecoin that would certainly have been useful in the recent Terra/Luna instance. 

You can find the paper here along with an opportunity to respond by the 2nd August.

Managing the failure of systemic Digital Settlement Asset (including stablecoin) firms – GOV.UK (www.gov.uk)

This proposal follows the collapse of algorithmic stablecoin TerraUSD (UST), which lost its 1:1 peg with the U.S. dollar during a sell-off across the crypto market earlier this month.

  • The government recommends changing existing legislation to give the Bank of England power to appoint administrators to oversee insolvency arrangements with failed stablecoin issuers.
  • Normal insolvency rules require the administrator to work in the best interests of creditors, in this case the proposal is for public interest to take first consideration.
  • “Since the initial commitment to regulate certain types of stablecoins, events in crypto asset markets have further highlighted the need for appropriate regulation to help mitigate consumer, market integrity and financial stability risks,” the Treasury said in its proposal, which will be considered by Parliament.

Regulators across the globe have shifted focus to stablecoins following Terra’s implosion, with the European Commission favoring a large-scale ban of the asset class.

UK Government Proposes Stablecoin Safeguards After Terra Collapse (coindesk.com)

However, the UK Government proposal avoids mentioning any approaches to stopping failure in the first place, or at least making it less likely, by for example opening up access to Reserve Bank master accounts.   Manmohan Singh, a senior economist with the IMF proposes that backing stablecoins with reserves and granting them access to Fed master accounts are just a couple of ways to make the payment system quicker and more efficient.

Manmohan Singh on the Role and Structure of Stablecoins and the Impact of Collateral in the Financial System | Mercatus Center

Meanwhile the Japanese Government has passed legislation that stipulates that the issuance of stablecoins is limited to licensed banks, registered money transfer agents and trust companies in Japan.

The new legislation also introduces a registration system for financial institutions to issue such digital assets and provides measures against money laundering.

Japan passes bill to limit stablecoin issuance to banks and trust companies (cointelegraph.com)

Capitalism has a few key pillars to its success such as property rights and share ownership, but maybe as significant is the process of handling failure known as insolvency and administration.  Stablecoins are not by nature like everyday capitalism, where if my Fintech company goes bust the pain is limited to the shareholders and creditors.  But if we can have a system to manage the wind up of a stablecoin in a manner that limits the damage, then innovation will have gained and in the long run that is valuable to us all.

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Alan Scott is an expert in the FX market and has been working in the domain of stablecoins for many years.  Twitter @Alan_SmartMoney

We have a self imposed constraint of 3 news stories per week because we serve busy senior Fintech leaders who just want succinct and important information.

For context on stablecoins please read this introductory interview with Alan “How stablecoins will change our world” and read articles tagged stablecoin in our archives. 

____________________________________________________________________________________________________________

New readers can read 3 free articles.  To  become a member with full access to all that Daily Fintech offers,  the cost is just US$143 a year (= $0.39 per day or $2.75 per week). For less than one cup of coffee you get a week full of caffeine for the mind.

https://dailyfintech.com/2022/06/08/stablecoin-news-for-the-week-ending-wednesday-8th-june/

The Metaverse can’t live without NFTs

https://dailyfintech.com/2022/06/06/the-metaverse-cant-live-without-nfts/

Last Friday, I visited Blender Gallery in Athens for an exhibition by Philip Tsiaras. When speaking gallery’s curator I was pleasantly surprised to find out that they had created NFTs of the artist’s artwork, making them available on their curated marketplace called “Blenderverse.”

It’s no secret that NFTs changed the art game. Although non-fungible tokens (NFTs) have been a part of the cryptocurrency market since 2014, interest and adoption have risen rapidly over the last two years.

After Beeple’s historic sale, the NFT gold rush took off.

Artists, investors, and just about anyone wanted a piece of the action. From sneaker manufacturers selling virtual sneakers to the creators of famous memes, to global brands, everyone wants in.

Looking at some market stats, since the beginning of 2021 NFT transaction volume has grown significantly, but growth has been fluctuating. So far in 2022 the value sent to NFT marketplaces continued its 2021 growth in January, entered a downturn in February, and then began to recover in mid-April.

Despite the fluctuations in transaction volume, the number of active NFT buyers and sellers continues to grow. It’s estimated that the existing $3 billion market size will reach $13.6 billion by the end of 2027.

So what exactly is driving all this interest in non-fungible tokens?

A quick explanation is that NFTs live at the crossroads of several tailwinds. Digital natives prefer to own digital products over physical objects. These digital natives want to utilize NFTs to play games and interact with each other.

But beyond the hype of multi-million dollar digital art sales, the true significance of NFTs may lie in enabling the metaverse.

There is a huge focus and a lot of money poured into the development of the metaverse. Websites are selling plots of land in the metaverse as NFTs.

In 2021, an investment firm bought 2,000 acres of real estate for about US$4 million. Normally this would not make headlines, but in this case, the land was virtual. It existed only in a metaverse platform called The Sandbox. By buying 792 non-fungible tokens on the Ethereum blockchain, the firm then owned the equivalent of 1,200 city blocks.

Metaverse could be a game-changer for NFT gaming. Rather than letting players port weapons or powers between games, non-fungible tokens will more likely serve as building blocks for new games and virtual worlds.

With apps like VRChat, spaces for communication in VR are already thriving, and it’s not far-fetched to assume that these spaces can also serve as a fertile trading ground for NFTs. Sellers can easily provide links and previews to assets on the web or mint assets directly in the VR landscape.

The stuff appearing in the metaverse like a Bored Ape wearing the yellow Adidas jacket, virtual land purchases, digital art collections, and tickets for the ABBA concert… are where NFTs come into play.

NFT use cases can pretty much go from art, social media, metaverse, concerts, music, brands, virtual land, game items, investment products, licenses, collectibles, fashion…

Fashion is another of the earliest sectors to grasp the economic potential of NFTs and the metaverse.

Luxury house Burberry created NFT accessories for the Blankos Block Party video game, while Louis Vuitton launched its own NFT-studded video game, LOUIS THE GAME. Meanwhile, RTFKT – bespoke shoemaker to the metaverse – designs limited edition NFT sneakers that can be worn in virtual worlds and have already posted millions of dollars in sales.

NFTs are going to be a very powerful tool. They will represent any digital asset in the metaverse. In the next few years, businesses will make increasing use of NFTs, as a fundamental part of advertising and marketing, fee-generation, and wider business models.

We’ve only seen the tip of the iceberg…

by Ilias Louis Hatzis is the founder and CEO of Kryptonio wallet.

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Alt Lending Week ending 3rd. June 2022

https://dailyfintech.com/2022/06/03/alt-lending-week-ending-3rd-june-2022/

Gullibility in untrained and poorly regulated financial markets

The Times chronicles how investors are so easily fooled by plausible crooks with a business card and a suit. For Investors, some of whom are supposed to be professionals read lenders. The basis of this is that three fund managers working for a German Insurance company fooled investors by simply falsifying numbers and sounding reasonable. It highlights todays lack of professional training in risk and that regulation is often poorly directed. I have recently seen something similar in spades when a so called seasoned professional was completely fooled by a bunch of charlatans with fool’s gold in the form of a power point presentation. On top of this the same man tried to get a regulated institution heavily influenced by an unregulated London based chancer to lend  more than half a billion dollars to two separate and uncreditworthy borrowers. Too many chancers are not on the FCA’s radar. The lesson. Do your due diligence and don’t believe everything you hear just because you want to.

If professionals  can’t handle charlatans how are the rest of us supposed to?

This was a helpful little article highlighting the different ways credit card offerings work and how it can confuse people with. It is useful because it points out the ways that regulation can work against an honest punter. For example making too many applications for a new card in a short period of time can mean a greater chance of rejection. Why? Because that’s what the application software says. Does it make any sense? Sometimes yes, sometimes no. Buying finance is not like buying other products. The lenders know a lot about you but they don’t always use the evidence correctly. You on the other hand know nothing about them.  This all stems from regulation but it is they who are regulated and you who are left to the consequences.

Revolut’s Head of Compliance quits

As in so many unexplained resignation reports I wonder what has really gone on here. There were the usual denials and statements that they have a lot of people working in compliance and legal, things like that. It is quite obvious thought hat there was a serious disagreement within the organisation and Revolut are not going to tell anyone what caused it without having it dragged out of them. Despite the fact that this company is still essentially a start up it is like many of its counterparts arguably massively overvalued and should keep its shareholders fully informed of disagreements at  the top of the company. We know that there has a been a reorganisation of responsibilities and that there have been regulatory criticism in the past. Is it too much to ask for the shareholders and depositors to be told the truth. Apparently yes.

 

Howard Tolman is a well-known banker, technologist and entrepreneur in London,We have a self imposed constraint of 3 news stories per week because we serve busy senior  Fintech leaders who just want succinct and important information. For context on Alt Lending please read the Interview with Howard Tolman about the future of Alt Lending and read articles tagged Alt Lending in our archives.

Daily Fintech’s original insight is made available to you for US$143 a year (which equates to $2.75 per week). $2.75 buys you a coffee (maybe), or the cost of a week’s subscription to the global Fintech blog – caffeine for the mind that could be worth $ millions.

https://dailyfintech.com/2022/06/03/alt-lending-week-ending-3rd-june-2022/

XBRL News from XII, FASB and SEC

https://dailyfintech.com/2022/06/02/xbrl-news-from-xii-fasb-and-sec/

Here are the three most relevant developments in the world of structured reporting we became aware of in the course of last week.

1  Revisions to Calculations 1.1 ensure global utility

2  FASB issues further draft taxonomy implementation guidance

The US Financial Accounting Standards Board (FASB) has published another in its series of Taxonomy Implementation Guides relating to the 2022 GAAP Financial Reporting Taxonomy and SEC Reporting Taxonomy (collectively the ‘GAAP Taxonomy’). It addresses ‘Disclosures about Offsetting Assets and Liabilities,’ providing support to users of these latest XBRL taxonomies in digital filings to the Securities and Exchange Commission (SEC).

Continuing with illustrations of technical aspects, here’s one that’s one layer up. 

3  ESG investment and company names: SEC issues new digital reporting requirements

The US Securities and Exchange Commission (SEC) has this week published two new rules that include XBRL reporting components, both now open for public comment. A proposal on ‘Enhanced Disclosures by Certain Investment Advisers and Investment Companies About ESG Investment Practices’ would require firms to report on environmental, social, and governance (ESG) information relating to their investment strategies in Inline XBRL format.

Yet another level up, now veering into the political. 

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Christian Dreyer CFA is well known in Swiss Fintech circles as an expert in XBRL and financial reporting for investors.

 We have a self-imposed constraint of 3 news stories each week because we serve busy senior leaders in Fintech who need just enough information to get on with their job.

 For context on XBRL please read this introduction to our XBRL Week in 2016 and read articles tagged XBRL in our archives. 

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https://dailyfintech.com/2022/06/02/xbrl-news-from-xii-fasb-and-sec/

Data-Driven Insurance for Energy Systems

https://dailyfintech.com/2022/06/02/data-driven-insurance-for-energy-systems/

The energy industry is changing. A U.S. Energy Information Administration report found that solar and wind accounted for most new electricity capacity. With diminishing costs and increased demand, the solar and wind sectors are the future of energy. In the US, investment in renewable energy is expected to hit $1 trillion by 2023, up from $40 billion a mere five years ago. Globally, financing is expected to hit $7 trillion by 2023.

Swiss Re Corporate Solutions forecasts that renewables will make energy insurance the next multi-billion-dollar insurtech category. The transition toward renewables poses a unprecedented opportunity for fintech and especially for insurtech.  A key challenge, however, remains the specialized risks unique to renewable energy.

The renewable energy industry operates at the intersection of multiple risks. It combines traditional construction-related risks at the origin of the asset, counterparty risk during the asset lifetime, risks related to the weather and decay in long-term asset performance. Lack of understanding of risks lead to mispricing assets by assuming higher uncertainties in performance.

Battery Energy Storage Systems (BESS)

With increased efforts to decarbonize the global economy, large-battery storage facilities are mushrooming at unprecedented speed. Along with powering electric vehicles, battery technology is creating grid efficiencies and helping arbitrage electricity prices. With improved technology and falling costs (at 20% of 2010 costs), battery storage is witnessing accelerated growth. In the next 2-3 decades, companies will have invested more than $550 billion in home, industrial and grid-scale battery storage.

In the backdrop of BESS market growth, the planning and development time-gap between concept, construction and operation is reducing. Consequently, those in battery storage are hard pressed to secure customized and timely insurance. Insurance is required to protect revenue streams of BESS projects and makes lender financing feasible. With certain extant battery technologies, performance deteriorates over time, a pet peeve for lenders expecting payback over a number of years. Carriers are offering performance guarantee insurance to protect revenues in such cases, making conducive financing at bankable terms by lenders.

A deterrent to uptake of insurance is the paucity of data available to guide risk assessments, due to limited experience. To address this barrier to growth, incumbents and insurtechs are coming together.

Data-Driven Risk Assessment

To assess risk, insurers use two layers: firstly, the reference data of the batteries is tapped to understand battery chemistry and electrical architecture. The second layer evaluates operational data from the site to gauge how the asset has been designed, built and managed. Leveraging available data has led to AI and advanced science replacing historical reference points.

Insurtech Innovators

MS Amlin Underwriting Ltd, the Lloyd’s re/insurer, is partnering with insurtech Altelium to offer a construction all-risk and operational all-risk insurance solution for BESS. Altelium is a specialist insurtech that provides insurance for batteries, driven by real-time AI-powered data analytics. It works with UK Universities that specialize in different areas of lithium-ion chemistry.

Insurer Munich Re has launched a long-term insurance plan for battery performance, signing up battery maker ESS Inc as its first customer. Aimed at major projects such as stationary storage systems deployed for grid stability or peak demand reduction applications, manufacturers can give customers performance guarantees by backing their warranties for 10 years. Cover can be extended to individual projects, meaning customers are covered even in the event of manufacturer insolvencies.

Insuring BESS projects is a growth area for insurers in the renewables space, providing risk transfer mechanisms for protecting assets and liabilities from transit, construction, operation and performance. Battery storage facilities are exposed to a number of physical hazards, such as fire, explosion and flood, as well as emerging risks like cyber. Building expertise in this growing sector, its emerging technologies and lessons learned from past losses will enable sustainable insurance growth.

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https://dailyfintech.com/2022/06/02/data-driven-insurance-for-energy-systems/

Stablecoin News for the week ending Wednesday 1st June.

https://dailyfintech.com/2022/06/01/stablecoin-news-for-the-week-ending-wednesday-1st-june/

Here is our pick of the 3 most important Stablecoin news stories during the week.

Now what!??

As the dust settles on the cataclysmic collapse of the Terra (UST) ecosystem, an on-chain deep-dive carried out by blockchain analytics firm Nansen highlights two major takeaways.

Only a few (7 wallets) along with deep knowledge (maybe inside) of how the ecosystem and technology worked were involved in the attack.  The report is silent on where the money went and why.  But we do know more about the how.

Two key takeaways from Nansen’s UST stablecoin depeg report (cointelegraph.com)

While regulatory discussions around stablecoins have gained pace in the light of the UST debacle, it has also highlighted that the crypto market has evolved enough to absorb a $40-billion run-down (equivalent to the market cap of Lehman’s in 2008). This proved that the crypto market has grown enough to absorb a setback as big as Terra without posing a threat to broader market stability.  Both Crypto and TradFi withstood this massive realignment without government intervention.

However, this Terra collapse could also prove to be a turning point for stablecoin regulations around the globe, quite similar to what Libra’s global stablecoin plans did for CBDCs — i.e., prompting regulators to accelerate their own plans.

How Terra’s collapse will impact future stablecoin regulations (cointelegraph.com)

And Finally this week, Vitalik Buterin weighed in on how designers should set about building stablecoins.

“What we need is not stablecoin boosterism or stablecoin doomerism, but rather a return to principles-based thinking”.

He proposed the following two principals:

1: Can the stablecoin ‘wind down’ to zero users?

In Buterin’s view, if the market activity for a stablecoin project “drops to near zero,” users should be able to extract the fair value of their liquidity out of the asset.

Buterin highlighted that UST doesn’t meet this parameter due to its structure in which LUNA, or what he calls a volume coin (volcoin), needs to maintain its price and user demand to keep its United States dollar peg. If the opposite happens, it then almost becomes impossible to avoid a collapse of both assets:

2: Negative interest rates option required

Buterin also feels it is vital for an algo-stablecoin to be able to implement a negative interest rate when it is tracking “a basket of assets, a consumer price index, or some arbitrarily complex formula” that grows by 20% per year.

“Obviously, there is no genuine investment that can get anywhere close to 20% returns per year, and there is definitely no genuine investment that can keep increasing its return rate by 4% per year forever. But what happens if you try?” he said.

Buterin: How to create algo stablecoins that don’t turn into Ponzis or collapse (cointelegraph.com)

So in summary, this week we saw the continued fall out of the Terra stablecoin collapse and some talk of how it could be resurrected, which I have not bothered highlighting here as it still looks like wishful thinking.  But be assured, the regulators and their political partners have their poster child, now what will they do with it?

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Alan Scott is an expert in the FX market and has been working in the domain of stablecoins for many years.  Twitter @Alan_SmartMoney

We have a self imposed constraint of 3 news stories per week because we serve busy senior Fintech leaders who just want succinct and important information.

For context on stablecoins please read this introductory interview with Alan “How stablecoins will change our world” and read articles tagged stablecoin in our archives. 

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New readers can read 3 free articles.  To  become a member with full access to all that Daily Fintech offers,  the cost is just US$143 a year (= $0.39 per day or $2.75 per week). For less than one cup of coffee you get a week full of caffeine for the mind.

https://dailyfintech.com/2022/06/01/stablecoin-news-for-the-week-ending-wednesday-1st-june/