Stablecoin News for the week ending Wednesday 9th November.

https://dailyfintech.com/2022/11/09/stablecoin-news-for-the-week-ending-wednesday-9th-november/?utm_source=rss&utm_medium=rss&utm_campaign=stablecoin-news-for-the-week-ending-wednesday-9th-november

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

The What, How and When of CBDC’s in the west. 

This week we decided to do a deep dive in CBDC’s and in particular the many projects facilitated by the BIS.  Yes China has an extensive trail and a number of other various projects are underway in various parts of the world, but our interest lies where issues of privacy and freedom run the strongest.  There has been a lot of reporting but has anything substantive been achieved?

First, the Central banks from France, Switzerland and Singapore are attempting to automate foreign exchange markets, using decentralized protocols to cut the cost of cross-border payments.

Project Mariana, coordinated by the Innovation Hub of the Bank for International Settlements (BIS), is looking at whether protocols used in intermediary-free decentralized finance (DeFi) can replace traditional, more laborious processes for matching buyers and sellers of different fiat currencies.

“DeFi and its applications have the potential to become systemically important parts of the financial ecosystem,” the BIS said in a statement on its website. It added that automated market makers can become “the basis for a new generation of financial infrastructure.”

Meanwhile, officials are also struggling with how to regulate DeFi, given that there’s no obvious entity to heap obligations on. One study from the BIS last December even called DeFi an “illusion,” saying that centralized governance is inescapable.

France, Switzerland, Singapore to Test DeFi in Forex Markets (coindesk.com)

Recently, a six-week pilot project to evaluate whether central bank digital currencies (CBDC) would be useful for foreign exchange transfers successfully had 20 different commercial banks conduct over 160 payments worth around a total of $22 million, the Bank for International Settlements (BIS) revealed in a report.

Central banks – based in Hong Kong, China, the United Arab Emirates and Thailand – issued over $12 million on the platform, allowing the commercial banks to conduct payment and foreign exchange payment versus payment transactions (PvP), the report said. The pilot was part of BIS’s ongoing Project mBridge, a collaboration between the international financial institution and the central banks of those four nations that is studying CBDCs and their possible role in cross-border payments and multi-CBDC transactions.

“One important observation is the limited number of FX PvP transactions which were conducted during the pilot compared with one-way payments,” the report said. “This reflected in part the relatively short window of time banks had to off-load their foreign CBDCs due to the requirement set by some central banks to clear balances of their CBDCs at the end of the day, along with the limited overlapping RTGS [real-time gross settlement] hours between the four jurisdictions.”

According to the document published recently, one issue the banks found was that the on-bridge transactions lacked “an efficient FX price-discovery mechanism.” The FX rates were instead determined off-bridge, before the transactions occurred, which led to the banks needing to tap pre existing balances in nostro accounts rather than using mBridge itself.

Foreign Exchange Transactions Take Center Stage in New BIS CBDC Report (coindesk.com)

A project involving multiple Asian central bank digital currencies (CBDC) has been badged a success, facilitating over $22 million in foreign-exchange transactions, the Bank for International Settlements (BIS) said.  The trial, described as the first of its kind ever, using a custom-built distributed-ledger technology platform, is supported by central banks from China, Hong Kong, Thailand and the United Arab Emirates.

Landmark International CBDC Test Deemed Success, BIS Says (coindesk.com)

So in summary, lots of technical work, of which some appears to be useful, has or is being carried out, but the large political debate in the west about how our privacy and freedom will be protected or how much we would give up to access the benefits of this new technology has not even begun.

In short, we are in practical terms still a very long way away from having a CBDC in the west.

__________________________________________________________________________________________________________________________________

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.

https://dailyfintech.com/2022/11/09/stablecoin-news-for-the-week-ending-wednesday-9th-november/?utm_source=rss&utm_medium=rss&utm_campaign=stablecoin-news-for-the-week-ending-wednesday-9th-november

Bitcoin is Inevitable

https://dailyfintech.com/2022/11/07/bitcoin-is-inevitable/?utm_source=rss&utm_medium=rss&utm_campaign=bitcoin-is-inevitable

Throughout history, many events have taken place on October 31st, but I think time will show that the most significant event was the release of Bitcoin’s whitepaper by Satoshi Nakamoto.

Last Monday, Bitcoin turned 14.

Bitcoin was not the first attempt to create digital money. Like many other innovative technologies, Bitcoin stands on the shoulders of all those who came before it and attempted to create a digital currency using a ledger that was secured by encryption.

In 1983, David Chaum conceived an anonymous cryptographic electronic money, Ecash, believed to be the first real-world attempt to create digital private money. Several other attempts followed including hashcash, DigiCash, Bit-Gold, and B-Money, but Bitcoin succeeded where all the previous efforts failed.

Until Satoshi published Bitcoin’s whitepaper, no one could figure out a way to create money without relying on a centralized institution that was vulnerable to failure or government oversight.

Bitcoin has grown to become a global phenomenon without a marketing budget. The growth of Bitcoin has been viral and the reason for this is Bitcoin’s sound money principles. It is an awakening of sorts, which changes our concept of finance, upends our confidence in fiat currencies, and makes us question government and banks.

Everyone’s journey to Bitcoin is different and personal.

For me, this is my second bear market. I knew about Bitcoin for many years but I never really paid any attention to it —sometimes I wonder how I missed it. I got into Bitcoin in the summer/fall of 2016 when I was working at a fintech company and started to think about what to do in crypto. It took me a while before I jumped in. I spent several months researching and trying to understand the technology, the market dynamics, and why bitcoin has value.

Understanding Bitcoin is something difficult. Like most people, in the beginning, I was fixated on the price and its volatility. But I have come to understand that regardless of the cycles, whether it’s going from $20,000 to $3,000, and then from $3,000 to $70,000 and back down to $20,000 the value proposition of bitcoin is constant, and it doesn’t change.

To understand Bitcoin you need to ask some fundamental questions about what money is and question some of the assumptions we have about money.

In my view, the existing monetary system has broken our trust beyond repair. Inflation is rising, and central banks are using counter-productive measures to keep the economy afloat.

The collapse of the fiat currencies we use today is inevitable.

We are living in a world where inflation runs rampant. Central banks have been printing money forever and now they are trying to solve the problem of inflation. Food and gasoline prices are far more expensive than a year ago and will continue to rise, and it is not just because of the war in Ukraine. The real problem is that central banks printed trillions of dollars over the last three years.

To quantify the situation, today there is $90 trillion in dollar-denominated debt and about 9 trillion dollars in the banking system. This is a 9x increase in the number of dollars in the banking system since 2008 when we had the last financial meltdown.

Central banks can’t solve the problem of inflation because they are the source of inflation. To maintain the system, they need to keep on printing money, otherwise, it will collapse —when new debt is created, there is a future demand for dollars and to meet that future demand central banks have to print money. Money printing continues, in part to deal with the second-order effects of the previous round of money printing. It’s a vicious endless loop.

The existing fiat system is broken to the point that it cannot be repaired. Central banks have printed money to such an extent that they have opened pandora’s box and put themselves in a situation that has allowed this unsustainable debt to become a bubble.

Bitcoin is inevitable and it will be replacing a system that is irreparably broken. It’s only a matter of time.

I like to think of Bitcoin’s price as purchasing power. While it might not be used on a day-to-day basis like other currencies, Bitcoin is designed to be a better form of money that can’t be printed or controlled by a centralized authority. Bitcoin’s fundamental value is that there will only be 21 million bitcoins and no one can change that.

There are multiple currencies in the world, but only Bitcoin has removed the need for trust and has given people an option to voluntarily opt-in to a censorship-resistant form of money —anyone can send bitcoin to anyone else on the network.

Bitcoin is inevitable because of the intellectual capital flowing into it.

Bitcoin, crypto, and web3 are drawing graduates from all over the world who have the technical know-how and whose skills are readily applicable to blockchain development. These young crypto believers are often fully committed to working in the sector, attracted by the idea of decentralization and generational wealth opportunities of bitcoin. They are unfazed by the battered job market and volatile cryptocurrency prices.

How can you bet against a market that has the smartest and brightest minds out of universities going into crypto? You can’t.

The most impressive feature of Bitcoin is that it is still there. It has survived crash after crash and government hostility. It has truly been battle-tested in the harshest of conditions. Everyone uses Bitcoin for their own reasons, but Bitcoin has ushered in a truly new paradigm of money, one that is challenging existing definitions. The creator of bitcoin, Satoshi Nakamoto, wanted it to be a currency. I think we still have ways to go before we reach that point, but with each passing day, it becomes more plausible, and eventually, we will see a Bitcoin-based monetary system.

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

Image Source

Subscribe by email to join the other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research.

https://dailyfintech.com/2022/11/07/bitcoin-is-inevitable/?utm_source=rss&utm_medium=rss&utm_campaign=bitcoin-is-inevitable

Alt Lending Week Ending 4th November 2022

https://dailyfintech.com/2022/11/04/alt-lending-week-ending-4th-november-2022/?utm_source=rss&utm_medium=rss&utm_campaign=alt-lending-week-ending-4th-november-2022

Innovation or rip offs in the UK mortgage market?

There are a lot of products in the UK mortgage market as rising interest rates have comme d’habitude caused panic among those who should know better. One mans panic is another ones opportunity and some interesting deals involving all kinds of clever tricks with interest rates bring the chancers out of their shells. The Times article outlines a lot of them and their advice to punters is caution. Think about the prognosis over the whole lifetime of the loan and work out the possible scenarios that might just apply to you two or three years down the road. Those attractive deals now might just become a nightmare. If the markets move or your circumstances change  don’t expect any sympathy from the people that lent you the money. They will most likely have the whip hand and those nice people who you dealt with can become horned monsters in the shake of an interest rate rise. Most borrowers want to do the right thing and pay what they owe. Bankers want it both ways. My advice to borrowers, do your homework, assume the worst and always read the small print. When markets are volatile it’s usually a lenders market. It is at the moment. Better to wait if you can until things calm down a bit.

 Nat West and Credit Suisse valuations demonstrates market madness.

A couple of articles this week show how potty the valuations of some of the worlds largest banks have become. Nat West boss came out with a gloomy forecast on the prospects for the UK including a 7% drop in house prices and set aside a £ 242million provision for bad debts. The result £ 2.2 Billion slashed from its market valuation. Credit Suisse new CEO presented a turnround plan and the market knocked its value down to below $ 10billion. But these are real banks with lots of clients and products and expertise. Both have net assets of over $ 40 billion yet are trading at a massive discount to those asset values. Start-up Revolut on the other hand recently migrated to Lithuania is said to be worth  about the same as both banks put together. Not in my world I’m afraid. But this is just an example of craziness on a grand scale. It can’t go on and it won’t.

Depressing credit signals by Barclays

Barclays has withdrawn its 95% mortgages from the market fearful of the fact that some borrowers might fall into negative equity. While I can understand the sentiment behind this move it is yet another signal that availability of credit products in the UK is now purely a box ticking exercise rather than a response to other far more meaningful credit information. The high cost of residential property in the UK makes it more difficult for first time buyers to get a foot on the ladder. This policy is an arbitrary credit tightening which other mainstream banks will soon follow. I would like to see a return to sensible banking practice. As I mention above most borrowers want to do the right thing but rigid credit criteria do not make good decision making. A young couple buying their first house will not want to default and go back to renting even if they are in negative equity. Their creditworthiness should be assessed on their ability to service the debt and what’s more their proven willingness to pay up. People who have spent years renting and have a perfect track record should not be frozen out of the market just because the value of their security has fallen slightly. Some real world common sense should apply. Speaking to a mortgage adviser these days has become like talking to a rule book. God help us.

 Howard Tolman is a well known London based Banker, It specialist and entrepreneur

https://dailyfintech.com/2022/11/04/alt-lending-week-ending-4th-november-2022/?utm_source=rss&utm_medium=rss&utm_campaign=alt-lending-week-ending-4th-november-2022

Stablecoin News for the week ending Wednesday 2nd November.

https://dailyfintech.com/2022/11/02/stablecoin-news-for-the-week-ending-wednesday-2nd-november/?utm_source=rss&utm_medium=rss&utm_campaign=stablecoin-news-for-the-week-ending-wednesday-2nd-november

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

How do you regulate Stablecoins? 

This week we saw two major jurisdictions (Singapore and the U.K.) wrestle with this issue, while we got another reminder of what can go wrong when you have an “anything goes” unregulated approach.

First, the Monetary Authority of Singapore (MAS) has proposed a slew of new rules to rein in the local crypto industry – starting with some stringent standards for stablecoin issuers.

The rules include setting capital and reserve requirements for issuers of stablecoins. The measures also seek to ban issuers from engaging in “other activities that introduce additional risks” like lending or staking, which lets users lock their crypto and earn interest.

The proposals come after a turbulent year for crypto markets. The downturn is particularly frustrating for Singapore regulators, as a number of collapsed multi-billion-dollar crypto enterprises like stablecoin issuer Terraform Labs and crypto hedge fund Three Arrows Capital have ties to the country. The MAS had since promised to tighten regulations for the sector.

Singapore Central Bank Proposes Stablecoin Rules to Rein In Crypto Sector

Also at the same time in the U.K. Rishi Sunak’s government said it wants to ‘tentatively seize’ crypto opportunities including stablecoins as it prepares to widen the regulatory net.

UK Stablecoin Rules Approved by Lawmaker Committee (coindesk.com)

Finally, we got another reminder of what can go wrong when the Near Foundation, an organization supporting the blockchain of the same name, urged the winding down of the USN stablecoin and announced it’s setting aside $40 million to fund a “USN Protection Programme.”

USN is a Near-native stablecoin, which was created and launched by Decentral Bank (DCB) in April, according to a statement from the Near Foundation on Monday.

The foundation said USN is an independently operated community-run project, and that it had no direct financial assistance from the Near Foundation.

According to the statement, DCB recently contacted the Near Foundation to advise it that USN had become undercollateralized, a condition that is “inherent” with algorithmic stablecoins, especially in “extreme market conditions.” DCB further confirmed, according to the foundation, that there was also double-minting of USN, which contributed to the undercollateralization.

Near Foundation Urges Winding Down of USN Stablecoin, Sets Aside $40M (yahoo.com)

So in summary, this week we saw two major regulators look to tighten and increase regulation whilst we see another stablecoin project (algorithmic backed again) get in trouble.

___________________________________________________________________________________________________________________________________

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.

https://dailyfintech.com/2022/11/02/stablecoin-news-for-the-week-ending-wednesday-2nd-november/?utm_source=rss&utm_medium=rss&utm_campaign=stablecoin-news-for-the-week-ending-wednesday-2nd-november

X marks the spot

https://dailyfintech.com/2022/10/31/x-marks-the-spot/?utm_source=rss&utm_medium=rss&utm_campaign=x-marks-the-spot

What a story this has been… First Elon wanted to buy Twitter, but Twitter didn’t want to sell. Then Twitter wanted to sell, but Elon didn’t want to buy. Twitter sued Elon, then Elon wanted to buy, but Twitter didn’t want to sell and kept suing Elon to buy.

Well, now Elon Musk owns Twitter —he finally acquired the company for $44 billion. Immediately after, he fired the CEO and several top executives and tweeted “the bird is freed.”

Beyond firing the company’s top brass, Elon has more plans on his mind and he’s been sharing his thoughts with us through his tweets and documents from the Twitter lawsuit. He’s consistently said that he wants Twitter to be more open and has promised to unban controversial accounts, including former President Trump, and to relax content moderation rules. He’s also tweeted about stopping ads and turning Twitter into “X, the everything app.”

Compared with its rivals, Twitter is a comparatively small platform with around 300 million monthly users, and it has never experienced the exponential growth for example of TikTok or Instagram. But it has a commanding role in news distribution and is considered influential —it is widely used by politicians, thought leaders, and businesses, to share their opinions and comments.

Since going public in 2013, Twitter has occasionally turned a profit. Except for 2018 and 2019 when it made a profit of just over $1 billion, Twitter has posted a net loss every year.

Twitter makes money from selling ads and licensing data. Revenue from ads represents more than 85% of its total revenue and in 2021 Twitter made over $4.3 billion from advertising and $760 million from data licensing.

But, Google, Facebook, and Amazon get the lion’s share of the advertising dollars, leaving little room for anyone else. Elon knows that Twitter cannot become a dominant player in the ads business, even if advertising is how it butters its bread today.

This whole free-speech absolutism runs headlong into making Twitter a viable business from ads, and this in part is why Elon has tweeted that he does not want to run ads.

Advertisers care a lot about “brand safety.” If you running ads for your brand, you don’t want to place them for instance next to a Neo-Nazi tweet. If Elon opens up the platform and lets in a tsunami of bullies, misinformation, and other sludge, advertisers will flee and ad revenue with dissipate.

Elon is a smart guy and he knows all this, which is why we are hearing him talk about his plans for X to make Twitter profitable.

Elon’s inspiration for X is WeChat, used by more than a billion people in China. WeChat allows people to use QR codes to do all manner of tasks, from buying groceries to booking a dentist appointment, hailing a taxi, sharing photos with friends, or playing video games. They can access a government-issued ID card through WeChat too.

Elon Musk is no stranger to the fintech business. In 1999, he founded X.com, an early online bank —customer deposits were insured by the FDIC. In 2000, X.com merged with Confinity, a payments startup led by Peter Thiel, and the resulting entity became PayPal.

Obviously, he’s been thinking about this for a while. Back in 2017, he reacquired the domain name X.com from PayPal for an undisclosed amount.

This new X project sounds to me like Elon wants to revisit the fintech space wearing a crypto mask and taking advantage of Twitter’s global user base. In personal texts that were published as part of legal proceedings in the Twitter case, Elon told his brother, that he had “an idea for a blockchain social media system that does both payments and short text messages and links like Twitter.”

I can understand why Elon is eager to copy WeChat’s model. WeChat made an estimated $17.49 billion in revenue in 2021, largely by taking a cut on transactions it processes for things like games, deliveries, and a thriving market for digital services. More than half a billion people use thousands of mini-apps inside WeChat every day.

But Elon Musk is not alone in the pursuit of building a super app.

Super apps are one of the hottest trends in tech right now and they represent the holy grail of the web3 era. The term super app is nothing new. It was introduced to the world in 2010 by Mike Lazaridis, Blackberry’s founder, and CEO. They are appealing because they solve the issue of choice overload, minimizing the number of apps and digital services consumers need to manage.

Already several fintech have been shifting to support a wider range of consumer needs in the last year and become one-stop shops for consumers’ needs.

Revolut and Klarna stand out, but many others also have super app ambitions (Curve, Wise, Lydia, Argent, Nubank, Douugh, etc)

In the past Revolut forayed outside the realm of finance into hotel bookings with ”Stays” and last week with “Shops,” making another push to become a true multi-vertical super app. In the other geographies, RappiColombia has raised $500 million ($5 billion valuation), PideYummy raised $4 million from Ycombinator and others, and India’s Paytm was the country’s largest-ever IPO in late 2021.

A year ago, PayPal, launched a redesigned app, that bundles a slew of services, including a shopping hub, a high-yield savings account, and even a fundraising platform. Buy now, pay later (BNPL) providers like Affirm and Klarna have also launched their versions of a super app that integrate their core BNPL solutions with other shopping and financial tools.

Making a super app is hard on many levels, but most of them have nothing to do with technology.

A question that comes to mind is why didn’t Jack Dorsey merge Twitter with Block to create a super app. In one of their conversations, Dorsey wrote to him:
“Yes, a new platform is needed. It can’t be a company. This is why I left. An open-source protocol, funded by a foundation of sorts that doesn’t own the protocol, only advances it.”

Something else not to forget is the lessons from Facebook’s Libra. Governments in the west are wary of monopolies, especially in Europe, and a super app with a lot of data and power could face big problems and eventually be gutted.

I think we can expect to see crypto tightly integrated into Twitter, with possibly a token-based voting system that allows everyone to have a say over the product, peer-to-peer crypto payments, and every tweet and transaction recorded on the blockchain with its ownership verified. All this without a central entity that decides what is right or wrong —no censorship whatsoever. If Elon succeeds, Twitter will become the gateway to the world of X —that world may even be a metaverse.

Think about this for a minute. If you owned a company like Tesla, eventually a fleet of self-driving electric cars that you built and X could power an Uber killer powered by the blockchain (in 2021, Uber made $17.45 billion). Now think about solar, batteries, space, AI, connectivity, and everything else he’s involved with, you’ll come up with some great use cases for Twitter users that want to enter the world of X.

If you’ve ever been to an FAO Schwarz store, I am sure you’ve heard of “Welcome To Our World Of Toys.” This music pops into my head when I think of Elon’s world of X or maybe it is because Christmas is coming and I am just thinking about toys 😆

As far as users being interested in super apps, well, we haven’t seen super apps really take off in a meaningful way outside of Asia. Most people in the US use different apps for different things. But research by PYMNTS validates that Elon may be moving in the right direction, as it shows that three-quarters of consumers would be interested in super apps. With the right brand and offering it could be a hit.

For the next decade or so, the trend among consumers and businesses will shift toward super apps. Super apps can and will provide unique experiences based on customer preferences and historical behavior.

Some contenders will succeed and some will fail. The big question is not whether Elon’s new X project will succeed or not. I think he will succeed because he has a strong global brand, a strong personal brand, access to resources, a large user base, and a vision. The question is whether banks understand how they will deliver value in a world dominated by super apps, that are integrated with crypto and Defi, and whether they can move quickly enough to respond before super apps become a super disruption.

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

Image Source

Subscribe by email to join the other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research.

https://dailyfintech.com/2022/10/31/x-marks-the-spot/?utm_source=rss&utm_medium=rss&utm_campaign=x-marks-the-spot

Alt lending week ending 28th October 2022

https://dailyfintech.com/2022/10/28/alt-lending-week-ending-28th-october-2022/?utm_source=rss&utm_medium=rss&utm_campaign=alt-lending-week-ending-28th-october-2022

Even the Masters of the Universe can’t break into UK Retail Banking

This is all about Goldman Sach’s somewhat forlorn attempt to break into the UK’s retail banking market with its Marcus initiative. Surely the Masters of the Universe with plenty of brains, deep pockets, plenty of confidence could brush away stuffy old outfits like Barclays and Lloyds. It seems not and Goldman have now sidelined poor Marcus. The point being made here is that there is something fundamental in the British psyche that Prevents newcomers from achieving penetration in this boring and not very profitable market at scale. Wave after wave of digital “disruptors” have tried to wake up punters with their glitzy apps and Android friendly front ends but somehow, they just don’t get the traction. It remains to be seen how the sharply rising interest rates might affect this seemingly impenetrable fortress, but one must ask. If Goldman’s can’t do it, then who can?

Morrisons Sale and Leaseback

One result of the end of cheap money is that it will wake up corporate treasurers to the fact that leverage can be expensive. While the expectations ae that interest rates will stabilise sooner rather than later at around the 5% level more in line with historical cost of money. I think that there are a couple of points to be made here. Firstly, highly leveraged “zombie companies” cannot afford borrowings at this kind of level and secondly banks are going to have to look very closely at their risk premiums if they are going to have to pay much more for their retail and wholesale deposits. There is, after all, a trade off between the rate charged and the ability of borrowers to pay it. Regulation in this area has just not helped. Secondly those outfits that are asset rich do have alternatives and they are increasingly going to have to weigh up the risks and opportunities of using them. Sound like going back to old fashioned banking might be the answer.

The Political Realities of Trussonomics will affect political thinking across the spectrum.

Daily Telegraph 24th October

Excellent piece by the Daily Telegraph’s Kate Andrew’s in which she points out that rising interest rates are putting pressure on governments everywhere to have a rethink on the wisdom of printing money as a substitute for real economic growth. The market turmoil that followed the sharp increase in gilt yields shone a light on the fact that the pension regulator was asleep at the wheel. Did they not know that leveraged products such as LDI (liability driven investments) contained a mechanism for restoring risk profiles in volatile markets? Did they not know how margin calls work?   Seems not. Truss was going for growth but needed to roll the pitch first. However borrowing money for day to day consumption is not a sustainable strategy now and has never ever been one. The consequences of the pandemic and the hubris of central banks and governments for the last 15 years are going to have to give way to reality and it is the taxpayer that will need to foot the bill in declining living standards, government hand outs and public services. This is why six million people are on NHS waiting lists.

Howard Tolman is a well known London based Banker, entrepreneur and technology specialist.

https://dailyfintech.com/2022/10/28/alt-lending-week-ending-28th-october-2022/?utm_source=rss&utm_medium=rss&utm_campaign=alt-lending-week-ending-28th-october-2022

Final XBRL News from Pakistan, Ireland and the UK

https://dailyfintech.com/2022/10/27/final-xbrl-news-from-pakistan-ireland-and-the-uk/?utm_source=rss&utm_medium=rss&utm_campaign=final-xbrl-news-from-pakistan-ireland-and-the-uk

After more than two years and 130 posts, we are concluding our regular programming on this channel with the following three items, all hailing from XBRL International. Thank you Bernard for providing this platform! Please continue following what’s happening in the world of XBRL by following XBRL International on Twitter and yours truly for tidbits on the epistemology of markets. 

1  XBRL reporting coming soon to Pakistan?

2  Irish Revenue offers advice on tagging errors

Revenue, Ireland’s tax and customs agency, requires financial statements to be submitted in Inline XBRL (iXBRL) as part of corporate tax returns. It has updated its iXBRL Tax and Duty Manual with a new section on tagging errors in iXBRL submissions, highlighting the most common errors seen for taxpayers, their agents and software vendors.

We are taking note of this small country’s way of handling corporate tax reporting and hope to see changes in Switzerland in the not too distant future. 

3  FRC Lab offers tips for net zero disclosures

The UK Financial Reporting Council’s FRC Lab has released a new report on net zero disclosures, offering companies tips and questions to consider in communicating their net zero commitments. It also comes with a related example set.

We just love the succint categorisation commitments, impact and performance. Here’s to clarity of purpose!

—————————————————————

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/2022/10/27/final-xbrl-news-from-pakistan-ireland-and-the-uk/?utm_source=rss&utm_medium=rss&utm_campaign=final-xbrl-news-from-pakistan-ireland-and-the-uk

Stablecoin News for the week ending Wednesday 26th October.

https://dailyfintech.com/2022/10/26/stablecoin-news-for-the-week-ending-wednesday-26th-october/?utm_source=rss&utm_medium=rss&utm_campaign=stablecoin-news-for-the-week-ending-wednesday-26th-october

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

Stablecoins and Crypto are stable whilst everything else is volatile!

This week, I noticed an interesting thing while researching how successful Binance’s conversion of their customers from USDC to BUSD has been.  You may remember a few weeks back, Binance announced it was doing a one for one swap to its stablecoin to enhance their customers user experience and reward loyalty.

The Block: Binance’s stablecoin clocks in market share all-time high as supply tops $20 billion

Well it has gone well, BUSD has grown to a 20b market cap, making it the third most popular coin.  However, the overall market cap has held steady at or around 150b.  In fact over the last five months that market cap has barely moved, while the Fiat world has gone crazy.

In the meantime and going in the opposite direction to Binance, Coinbase has made the exchange between Fiat and USDC free of Fees.  

Crypto Exchange Coinbase Waives Fees for Converting Between USDC and Fiat, Eyeing Global Audience

Part of the rationale for this move may be linked to the fact that outside of the US adoption of USDC has lagged.

“Currently, 3x more USDC is bought with USD versus non-USD currencies. In part this is because, outside of the US, users usually have to pay fees in the process of converting their local currency into USDC, and this is a barrier to broader international adoption.”

USDC adoption is lagging outside of the United States: Coinbase

So in summary most currencies have lost over 20% against the USD.  So while Crypto has fallen, if you are domicile outside of the US you have made money on the exchange rate and done particularly well if you happen to have had a big holding of USD stablecoins!

_____________________________________________________________________________________________________________________________________

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.

https://dailyfintech.com/2022/10/26/stablecoin-news-for-the-week-ending-wednesday-26th-october/?utm_source=rss&utm_medium=rss&utm_campaign=stablecoin-news-for-the-week-ending-wednesday-26th-october

The UK LDI Gilts blow up rhymes with GFC 2008 and AFC 1998

https://dailyfintech.com/2022/10/25/he-uk-ldi-gilts-blow-up-rhymes-with-gfc-2008-and-afc-1998/?utm_source=rss&utm_medium=rss&utm_campaign=he-uk-ldi-gilts-blow-up-rhymes-with-gfc-2008-and-afc-1998

Mark Twain once said that “History never repeats itself, but it does often rhyme.” This is certainly true of financial cycles.

What all have in common is an attempt to use derivatives and leverage to make something risky appear safe.

If you understand the above you are all set and can skip to the end for the conclusion. If not, read on while I break it down.

UK Gilts market = UK sovereign bonds – like treasury bonds for American readers. Ok nothing esoteric there. For my story on how I first learned about Gilts please click here.

LDI = Liability Driven Liability Driven Investment. This is a bit esoteric. My super simple explanation is that LDI is a derivative instrument mostly used by defined-benefit pension plans to insure their liabilities, so that they can improve returns via leveraged fixed income trading.  For my story on who taught me enough about derivative instruments please click here

GFC 2008 = Global Financial Crisis. This is well known. Although American in origin it was Global because America is such a big/important market.

AFC 1998 = Asian Financial Crisis. This is less well known. It was mostly limited to Asia, so it was traumatic locally but not globally.

First, these 3 crashes are different in two obvious ways location & market:

  • Location. Gilts LDI = UK, GFC = USA, AFC = Asia
  • Market. Gilts LDI = leveraged fixed income trading, GFC = Consumer Real Estate, AFC = Currencies

What all three have in common is dressing up something inherently high risk –  leveraged fixed income trading,  consumer real estate, currencies – to make it look safe. The old age is “if it looks too good to be true it probably is”.

Gilts LDI is in the news at the moment. I believe it will be more like AFC than GFC – traumatic locally (in UK) but not globally.

Image source.

https://dailyfintech.com/2022/10/25/he-uk-ldi-gilts-blow-up-rhymes-with-gfc-2008-and-afc-1998/?utm_source=rss&utm_medium=rss&utm_campaign=he-uk-ldi-gilts-blow-up-rhymes-with-gfc-2008-and-afc-1998

The year your great-grandpa bought bitcoin

https://dailyfintech.com/2022/10/24/the-year-your-great-grandpa-bought-bitcoin/?utm_source=rss&utm_medium=rss&utm_campaign=the-year-your-great-grandpa-bought-bitcoin

This year has been tough for many companies in the crypto market. Some have collapsed altogether, others have fired a huge number of employees to keep their heads above water and some are going all in on crypto.

It’s no secret that in 2022 the price of bitcoin and other cryptocurrencies have been tumbling, and on the surface, it looks like the bears beat the bulls.

But, nothing could be further from the truth. The fact is that we are in the most “bullish” bear market we’ve ever seen.

In previous crypto winters, we didn’t have massive investment banks like JPMorgan and Goldman Sachs with dedicated crypto teams, we didn’t have celebrities and huge brands filing for trademarks on the metaverse, we didn’t have crypto logos on the jerseys of professional sports teams and we certainly didn’t have countries making bitcoin a legal tender.

What should be evident beyond the prices of coins dropping, is that crypto is becoming more popular and even more accessible than ever before.

Speaking of accessibility, Mastercard’s announcement last week of “Crypto Source” is big news. Mastercard will offer a service that will make it easier for banks to offer crypto trading services to customers.

Mastercard is teaming up with the crypto platform Paxos and will act as a “bridge” between the crypto platform and banks. The service will be launched in the U.S., Israel, and Brazil in early 2023 as part of a pilot program. Mastercard’s program will handle everything for banks when it comes to crypto trading —regulatory compliance and security.

With this recent move, Mastercard is looking to bring crypto to the masses by making it very easy for banks to offer crypto trading services.

In the financial and crypto world, there are not many companies that are more respected than Mastercard and its partner Paxos —this is the company Paypal uses for their crypto offerings, and Binance partnered with it to launch BUSD, its USD-Backed stablecoin.

Banks have avoided cryptocurrencies up to now for several reasons that include regulation and security. The new program from Mastercard and Paxos addresses all the reservations that have kept banks from getting into the market.

Essentially, Mastercard is building a massive onramp for banks, saying to them, don’t worry we’ll handle the regulatory compliance issues, we’ll handle trading, custody, and security, and all you need to do is plug into our system and offer it to your customers. With Mastercard taking responsibility for crypto compliance, transactions, AML, and identity monitoring, there are not many reasons left for banks to say no.

But, for existing exchanges, the new Mastercard program may be bad news.

It certainly seems possible that a large number of retail investors could choose to trade cryptocurrencies using an account held with their bank, instead of using much younger and less established cryptocurrency exchanges. Potentially, the Mastercard program will route orders from banks to Paxos, which could affect revenues for Coinbase, Kraken, Gemini, and other exchanges operating in the US and elsewhere.

However, if Mastercard’s program is successful, we will see banks, that don’t opt to go through Mastercard, create their own crypto trading services and partner directly with crypto exchanges.

For retail investors, there will be some great side effects with more choices of trading venues and competitive fees. We may even see more subscription models emerge, like Coinbase One.

Crypto is a strategic position for Mastercard, which has been at the forefront of driving cryptocurrency integration.

Everyone knows Mastercard because of its cards. Crypto represents a way for the company to move beyond plastic and fortify its business in moving value, while it continues being in the middle of everything when it comes to payments.

Mastercard’s larger vision is to utilize the growing interest in cryptocurrencies by providing seamless crypto transactions. Mastercard is making some interesting plays that will not only generate an alternative revenue stream but will also cement its position in the payment industry. This recent move further solidifies Mastercard’s work and ambitions in the crypto space and could be a strong catalyst.

The company has embarked on an aggressive strategy to build a crypto stronghold and make crypto accessible to its massive user base and customers —financial institutions. It has 89 blockchain patents, it has filled 15 trademarks related to the Metaverse, and 285 blockchain applications pending.

Mastercard’s customers have issued about 3 billion cards as of December 2021. The future is going to be multichain and multicurrency —hopefully, bridges will become a lot safer— and this is why Mastercard is entering the market faster than many of its rivals and before crypto goes mass and spins out of control.

Mastercard launched its Crypto Card Program and partnered with Circle, Paxos, Uphold, and Galileo Financial Technologies. It acquired the blockchain intelligence company CipherTrace last year. In April, it announced a crypto rewards credit card with Gemini —I love the idea of spending my “dirty” fiat money and getting crypto rewards. And it unveiled a partnership with Nexo for a payment card based on a crypto-backed credit line —users can spend without having to sell their digital assets, which are used as collateral to back the credit granted.

When the rest of the world is focused on the recession, inflation, interest rates going up, crypto prices dropping, and other news, Mastercard and a few other big companies are preparing.

In the past few months, we saw BlackRock enter the market and partner with Coinbase. We saw Fidelity and Citadel Securities launch a crypto exchange. We saw BNY Mellon and Nasdaq launch their crypto custody services. We saw Visa expand its partnership with FTX and Google announce it will accept crypto payments for its cloud services.

Credit card companies, banks, stock exchanges, payment companies, and other financial institutions will offer crypto.

It should come as no surprise, that these folks are capitulating. They know what’s on the horizon and they know that now is the time to get ready for crypto’s mass adoption. While they fought crypto for years calling it a bubble, now they know the time has come to jump in and take a strong position.

From the outside looking in, crypto can sound pretty scary, People hear about the hacks, and maybe they know people that got scammed or lost money and that regulation is still a gray area.

With banks getting in, everyone will feel a lot safer buying their first bitcoin.

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

Image Source

Subscribe by email to join the other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research.

https://dailyfintech.com/2022/10/24/the-year-your-great-grandpa-bought-bitcoin/?utm_source=rss&utm_medium=rss&utm_campaign=the-year-your-great-grandpa-bought-bitcoin

Alt Lending week ended 21st October 2022

https://dailyfintech.com/2022/10/21/alt-lending-week-ended-21st-october-2022/?utm_source=rss&utm_medium=rss&utm_campaign=alt-lending-week-ended-21st-october-2022

Revolut shifts trading clients to Lithuania. Blames Brexit

It seems that Fintech start up Revolut is moving the hosting of a million of its trading clients from the its UK trading subsidiary to its to Lithuania. Apparently, this is because the UK regulator has not yet granted the outfit a Mifid licence which would allow the company to market its products to its European clients. A couple of thoughts. Firstly did the clients concerned get a say in this and secondly why is the FCA so tardy in granting the licence. Frankly I don’t know what to think about this. I am not a fan of the FCA which is notoriously slow in responding to market events, It is obvious however that there is something about Revolut that doesn’t seem quite the ticket hence the delay in approvals. I don’t think I would like to be carrying out trades with a company that is so far removed from the markets it is trading in. I also think clients should ask themselves what is going on. Caveat Emptor still makes sense in these digital days.

Is the Eurozone to be targeted by the bond vigilantes yet again.

One or two recent articles in various newspapers have focussed on the pleasure in the Eurozone at Britain’s discomfiture during recent market turbulence. I do not know whether the UK pensions industry has sorted itself out or not but, for once, Andrew Bailey’s strategy to put a time limit on funds to sort out their awry positions seems to have stemmed the market panic. It was not as if we were discussing economic fundamentals in any case. Several Eurozone economies are in a worse state than the UK. Jeremy Warner writing in today’s (19th OCT) Telegraph says the UK was just first on the list and the Eurozone will be next. Supposition I guess but what everyone failed to comment on was that if you offer smart traders a one-way bet, they will always take it. They are they to make money nothing else. No loyalty, no ethical values. Europe will come into the cross hairs at some point and I would think that Europe’s commercial lending banks will be in the front line. For one it will not be the same factors influencing everyone. The current inflationary situation is hitting all economies differently. May you live in interesting time as the Chinese curse says.

More Nasty Surprises may be waiting somewhere in the financial system

It seems lots of opinion writers in the business sections are anticipating more nasty shocks for lenders but don’t know where they might come from. It was obvious that not too many people knew about LDI’s (Liability Driven Investments) before the doomed mini budget and the immediate market overreaction and the fact that the old lady was able to restore order so quickly shows that the situation was not as serious as first thought. Nevertheless there will clearly be a need for some lenders to look very carefully at the risk profiles of their portfolios over the next couple of months. In the UK where a surge of bad debt is expected in mortgage books our new chancellor is mulling over windfall profits for lenders as rates rise. That could work out to be lose – lose for all concerned. As rates rise inexorably zombies will stalk the street as if from nowhere. How is it all going to end up I am not sure but the whole of Europe and North America is going to be a chilly place this winter.

bernard@dailyfintech.com

https://dailyfintech.com/2022/10/21/alt-lending-week-ended-21st-october-2022/?utm_source=rss&utm_medium=rss&utm_campaign=alt-lending-week-ended-21st-october-2022

XBRL News about Georgia, human rights and digital financial reporting

https://dailyfintech.com/2022/10/20/xbrl-news-about-georgia-human-rights-and-digital-financial-reporting/?utm_source=rss&utm_medium=rss&utm_campaign=xbrl-news-about-georgia-human-rights-and-digital-financial-reporting

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

1  Human rights reporting needs machine readable data

2  Implementing XBRL in Georgia: a case study

CoreFiling has published an interesting case study giving us a look into XBRL adoption in a new country, with a data modernisation project run by the National Bank of Georgia. This sought to harmonise with European best practice in banking regulation, and to replace complex and challenging data processing with a more efficient XBRL-based solution.

Georgia, the country, not the state, for the benefit of our US friends. 

3  Register for online workshop about digital financial reporting

Join an online workshop on 18 November 2022 that explores issues relating to digital financial reporting and digitalisation of financial reports. The workshop will take place from 11:00 to 13:00 GMT/12:00 to 14:00 CET. The session will be held by the International Accounting Standards Board in conjunction with the European Accounting Association (EAA) and the European Financial Reporting Advisory Group (EFRAG).

Here’s your Call To Action: go register – please?

—————————————————————

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/2022/10/20/xbrl-news-about-georgia-human-rights-and-digital-financial-reporting/?utm_source=rss&utm_medium=rss&utm_campaign=xbrl-news-about-georgia-human-rights-and-digital-financial-reporting

Stablecoin News for the week ending Wednesday 19th October.

https://dailyfintech.com/2022/10/19/stablecoin-news-for-the-week-ending-wednesday-19th-october/?utm_source=rss&utm_medium=rss&utm_campaign=stablecoin-news-for-the-week-ending-wednesday-19th-october

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

China’s CBDC slows, Tether gets T Bills and the USA has an ugly baby!

This week we got an update from China on their CBDC, whose uptake has slowed to a crawl, whilst Tether in response to criticism has now put all of its reserves in US Treasury T Bills and the US Federal Government is wrestling with the difficult birth of its stablecoin legislation.

First an update from China’s central bank digital currency (CBDC) which has reached the milestone of 100 billion yuan (US$13.9 billion) worth of transactions amid a slowdown in uptake, South China Morning Post (SCMP) reported Thursday, citing People’s Bank of China (PBOC) data.

This year, transaction volume in China’s e-CNY has increased by 14% from the 87.6 billion yuan ($12 billion) recorded at the end of 2021, which is a big decrease when compared to the 154% growth seen between June and December of last year.

China’s CBDC Transactions Reach $14B as Uptake Slows: Report (coindesk.com)

Tether reports it has eliminated commercial paper from its stablecoin reserves, ending a years-long relationship with the investment vehicle that had partially backed its crypto.

The issuer said Thursday it has replaced the paper with US Treasury Bills — short-term government-issued debt securities — as part of ongoing efforts to increase transparency.

Tether Says USDT Stablecoin Now Backed by T-Bills – Blockworks

Patrick McHenry, ranking member of the United States House of Representatives Financial Services Committee, thinks the “conversation has become unmoored” regarding financial technology and needs to return to solving real-world problems. He is currently in talks over legislation that may at least bring more clarity to stablecoins.

Currently, there is no U.S. federal definition of digital assets or stablecoins, McHenry said, calling the situation “retrograde.” McHenry, House Financial Services Committee Chair Maxine Waters and the Treasury Department have been in negotiations for months on legislation to regulate stablecoins 

Rep. McHenry gives progress report on stablecoin legislation, says it’s an ‘ugly baby’ (cointelegraph.com)

So in summary, uptake of China’s CBDC has slowed to a crawl, Tether has loaded up on US Government debt (or Treasury Bills) for transparency on its stablecoin backing while the US Federal legislation on stablecoins is an ugly baby.

Just another crazy week in stablecoin world!

____________________________________________________________________________________________________________________________________

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.

https://dailyfintech.com/2022/10/19/stablecoin-news-for-the-week-ending-wednesday-19th-october/?utm_source=rss&utm_medium=rss&utm_campaign=stablecoin-news-for-the-week-ending-wednesday-19th-october

Binance hack reveals crypto’s weaknesses

https://dailyfintech.com/2022/10/17/binance-hack-reveals-cryptos-weaknesses/?utm_source=rss&utm_medium=rss&utm_campaign=binance-hack-reveals-cryptos-weaknesses

Binance is the world’s leading cryptocurrency exchange. It wasn’t hacked.

Hackers stole $570M in tokens from Binance, the world’s largest cryptocurrency exchange. The hack targeted the BSC Token Hub, which serves as a link between two Binance systems. Binance reported in a blog post that an exploit affecting a cross-chain bridge between their BNB Beacon Chain and BNB Smart Chain caused the massive breach.

Crypto bridges are necessary infrastructure, but easy targets. They act as connectors that enable independent blockchains to transfer assets and information between each other. An application on Ethereum can’t communicate with another application for example on Solana, which can be obviously limiting. As we were getting more blockchains, there is a need for those cross-chain bridges which facilitate the communication between two different blockchains.

Bridges are an attractive target because they often feature a central storage point of funds that back the “bridged” assets on the receiving blockchain. Regardless of how those funds are stored —locked up in a smart contract or with a centralized custodian— that storage point becomes a target. Binance uses its own native cross-chain bridge for its exchange, so hackers were able to exploit it while the money was in their cross-chain bridge. With many new models being developed, cross-chain bridges present attack vectors that may be exploited by bad actors.

In August, Chainalysis estimated that $2 billion worth of cryptocurrency had been stolen in 13 cross-chain bridge attacks, mostly in 2022. In March, an attack drained $600 million from a bridge behind the crypto-powered video game Axie Infinity. In February, $325 million was stolen from the Wormhole network.

The recent hack of Binance’s native cross-chain bridge confirmed what we already knew —that the BNB Smart Chain is not very “decentralized”.

It all boils down to the essence of decentralization.

A network is considered decentralized if it has a sufficient number of distributed nodes that all share equally in the functions of running the network and keeping it secure.

For example, the number of Bitcoin nodes is 15,000 and each one of these nodes holds a full copy of the bitcoin blockchain. Ethereum has 8,000 nodes, and the BNB Smart Chain has only 26 nodes. While a sufficient number of nodes is up for debate, it largely depends on how easy it is for one centralized authority to control what happens to the entire network.

The BNB Smart Chain doesn’t look too decentralized to me. There are not many nodes, and the ones that exist are influenced by Binance to a high degree.

It’s this high degree of centralized authority which prompted the BNB Smart Chain node operators to rapidly halt the blockchain and implement a software upgrade that froze the remaining stolen BNB.

When we consider the “blockchain trilemma” (security. decentralization. scalability), it’s clear that the BNB Smart Chain sacrifices decentralization for better security and scalability. This is the reason why their transactions are so fast and cheap, and why they are able to respond to cyber attacks so effectively, but at the end of the day, it’s not very different from a normal bank —there is just a small team of validators who control the entire network.

The Binance ecosystem (exchange, team, token, and blockchain) is a bit like web3 lite for users who want a simple experience of digital asset trading and use. It’s like an introductory on-ramp for crypto and NFTs.

While we all want decentralized exchanges, we also want law enforcement and prosecutors to intervene and do something when hacks like this one happen.

These hacks are hurting crypto’s image. There is a pressing question of whether bridges will survive being part of the crypto ecosystem. If cryptocurrencies are to be widely adopted, they will need to have secure and reliable systems for moving value.

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

Image Source

Subscribe by email to join the other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research.

https://dailyfintech.com/2022/10/17/binance-hack-reveals-cryptos-weaknesses/?utm_source=rss&utm_medium=rss&utm_campaign=binance-hack-reveals-cryptos-weaknesses

https://dailyfintech.com/2022/10/14/74149/?utm_source=rss&utm_medium=rss&utm_campaign=74149

The UK is currently being treated as a poor credit risk. There are worse risks within the Eurozone

Seems like bond traders have got a downer on the UK. They should cast their beady eyes over the Eurozone where there is serious trouble on the horizon. Of course the UK government did a pretty lousy job of explaining what their ultimate objectives actually were when Kwasi Kwarteng introduced his huge mini budget and the optics weren’t that good but the reasons given as to why bondholders are becoming so twitchy are ridiculous. Abolishing the 45% tax bracket would almost certainly bring in far more tax than would be lost and create a well needed stimulus within the City of London. Unfunded tax cuts given the effects of fiscal drag are also a stupid reason to go ape. Sovereign bond portfolios are strange animals and work on the basis that the holders invest their printed money in instruments which they know can only be rolled over or inflated away. All the analysis in the world won’t change the fact that is repayment was triggered by a credit event none of it would be repaid. I was around at the sharp end when this merry ground started up in the 1970’s and I remember the banking markets trying to put controls over sovereign risk. Portfolio diversification didn’t work then and it doesn’t work now. Some of this debt is toxic and the holders already know it. The UK is far from being the worst.

Brace yourselves there are more nasty surprises coming from the finance world

Some journalists take a somewhat naïve view of regulated financial institutions and I fear that The Daily Telegraph who are taking aim at the shadow banking sector suggest that just because a bank Like Credit Suisse has reasonable capital ratios it remains a good risk rather than some of the more laissez faire outfits that line the streets of Mayfair. The fact is Credit Suisse made some lousy credit decisions that everyone noticed. Next question is how much more of this is in the balance sheet still? Don’t get me wrong Credit Suisse will be all right one way or another. The shadow banking area has some good players and a few lousy ones. Some of the things I have seen over the past twelve months have shocked me to the core. Nevertheless most of the lenders in this sector are not big enough to cause a bad accident although they could lose some very rich people quite a lot of money.

Why are the bond vigilantes picking on the UK?

This is a very good question and bond traders would do well to start getting back to basics rather than training their guns on the United Kingdom. Nevertheless the Daily Telegraph published a piece which seeks to explain why the UK is getting punished so badly by the market? The answer it comes up with are disingenuous. Permanent Tax cuts will grow the UK economy as even the IMF now admits. Less tolerance for inflation within the EU. Tell that to the Dutch and Estonians. The end of cheap money in the UK. Most analysts insist that the UK’s banks are sounder than a lot of their European counterparts. I don’t buy any of these arguments. Nevertheless something is out of kilter in the bond markets would you really like to be holding Greek or Italian risk at the moment? The market has lost track of the fundamentals.

beranrd@dailyfintech.com

https://dailyfintech.com/2022/10/14/74149/?utm_source=rss&utm_medium=rss&utm_campaign=74149

The blowback from 28 years of cookies advertising technology is coming soon 

https://dailyfintech.com/2022/10/13/the-blowback-from-28-years-of-cookies-advertising-technology-is-coming-soon/?utm_source=rss&utm_medium=rss&utm_campaign=the-blowback-from-28-years-of-cookies-advertising-technology-is-coming-soon

Netscape released cookies technology  28 years ago on October 13, 1994. This spawned a vast industry that some call surveillance advertising (more politely referred to as targeted advertising or behavioural marketing) that powers the Internet that we use every day.

The blowback from 28 years of cookies advertising technology will start with 3rd party cookies (aka tracking or targeting cookies) that  originate from a third party such as an advertiser (not from the website operator). Third-party cookies are either spookily accurate, which prompts consumer backlash, or hilariously wrong, which prompts advertiser rejection. 28 years on, we have more spooky accuracy and many big tech companies with browsers such as Google/Chrome, Apple/Safari and Mozilla/Firefox have committed to drop support for third-party cookies. These vendors are getting ahead of consumers who are using adblockers or just ignoring ads because they don’t like the time-waste and privacy-invasion and regulators who want to protect those consumers.

The advertisers who have been hurt by lots of fake traffic are cheering these moves.

Subscriptions alone cannot monetize all the online content we want to consume, so we need a win/win advertising model.

Photo by Mae Mu on Unsplash

https://dailyfintech.com/2022/10/13/the-blowback-from-28-years-of-cookies-advertising-technology-is-coming-soon/?utm_source=rss&utm_medium=rss&utm_campaign=the-blowback-from-28-years-of-cookies-advertising-technology-is-coming-soon

Every end is a new beginning

https://dailyfintech.com/2022/10/13/every-end-is-a-new-beginning/?utm_source=rss&utm_medium=rss&utm_campaign=every-end-is-a-new-beginning

It’s been two years since I started my first post on dailyfintech.com with, “Hardly anyone would argue that change and innovation are not necessary in insurance. The $5 trillion global insurance industry is large, complex and capital intensive. With various relatively untapped market segments and under-penetrated world regions, the onset of PE/VC investments did herald the beginning of buoyant sentiment for more dramatic change and innovation than the industry was known for.”

This is my final post here. The experience has been most gratifying, as I’ve dwelled on change and innovation themes with potential to make substantial impact on the insurance sector globally. In this post, I reminisce and recount from posts that received the most interest.

In the first of API-economy related posts, Insurance can learn from banking, the success of insurance-as-a-service models was mentioned as being contingent on the ability to deliver frictionless experiences and integration of operational processes. Achieving scale required on the one hand, business-as-usual capabilities for insurers operating white labels, while also, effectively managing large partner networks that industrialized management of the relationship.

In Platform businesses rising, digital ecosystems, orchestrated by powerful platform businesses and crisscrossing traditional industry sectors, were shown to top 30% of global economic activity by 2025. They thrive by efficiently matching supply with demand while solving deep entrenched problems, such as protection gaps. Growing from 12 to 40 partners over 3 years, such a platform business Swiss Re’s iptiQ has delivered consistent, impressive results. Through its partner ecosystem and API-led engine, iptiQ has helped individual firms achieve much more than they individually can, in effect becoming greater than the sum of its parts.

In a set of posts covering key metrics for insurtechs, the CAC post highlighted how in insurance, the cost of acquiring customers (CAC) is higher than other industries, at 7-9X that of selling to an existing customer. On average, that’s paying between $487 and $900 for each new customer. While a good CAC depends on the business line, one way to weigh this metric effectively is to balance it against customer lifetime value (CLV). Customers with higher CLV are worth more to acquire at the outset.

In a two-part series covering Web3, the first post mentioned – “The desire for more transparent, fairer relationships is fueling the growth of Web3. Global DeFi adoption is expected to continue to scale rapidly. Insurance organizations need to gear up, as the availability of Web3 insurance would likely stimulate the next big rush of vast user bases to enter the DeFi world. Web3 creates better alignment and behavior in insurance, the community being both the underwriter and the user.”

In a range of posts covering digitalization endeavors of incumbents, the AIG post showed how companies tackling digital disruption, after tasting initial success, see transformation programs frequently lose momentum, due to legacy issues such as technology infrastructure, misaligned operating models or a change-resistant culture. Competing against digital attackers ultimately requires transforming both hard capabilities (technologies) and soft capabilities (operating models) to create a conducive business environment for change enabled by digital technology. AIG200 makes for an interesting turnaround study, relevant to incumbents embarking on large change programs.

In yet another set of posts that covered larger insurtechs, the Hippo Insurance post delineated how technology approaches haven’t convincingly proven value in clearly quantifiable terms. Investors expect AI advantage to be reflected in lower claims frequency rate. Where the new insurtechs exhibit a technological edge, it tends to pale in relation to one significant disadvantage — their limited size.

Returning to my first post, I conclude with Professor Robert Shiller’s quote: “Radical innovation requires serious experimentation, serious effort to find the precise form of financial or insurance structure that will perform well, serious effort to educate the potential clients about the new risk management tool, a commitment by innovators to make it work, and an involvement with other institutions and thought leaders to make the variety of changes possible to make the innovation succeed.”

Cover Image

End Note: I am grateful to Bernard for the opportunity and his constant guidance. Patrick Kelahan graciously passed on the baton, and it has never been an easy job to fill in his shoes. I am indebted to the many readers that appreciated the posts, those who shared feedback and kept my motivation high.

https://dailyfintech.com/2022/10/13/every-end-is-a-new-beginning/?utm_source=rss&utm_medium=rss&utm_campaign=every-end-is-a-new-beginning

Stablecoin News for the week ending Wednesday 12th October.

https://dailyfintech.com/2022/10/12/stablecoin-news-for-the-week-ending-wednesday-12th-october/?utm_source=rss&utm_medium=rss&utm_campaign=stablecoin-news-for-the-week-ending-wednesday-12th-october

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

CBDC’s, Hacks and Wrappers!!

This week was busy in a number of areas as Innovators keep pushing the envelope and have various slip ups as sloppy code or design are exposed.

First on the CBDC front, The Reserve Bank of India (RBI) has outlined the proposed features and reasoning behind its in-development central bank digital currency (CBDC) in a Concept Note on Central Bank Digital Currency

Features of Digital Rupee

1) CBDC is a sovereign currency issued by central banks in alignment with their monetary policy.

2) It appears as a liability on the central bank’s balance sheet.

3) It must be accepted as a medium of payment, legal tender, and a safe store of value by all citizens, enterprises, and government agencies.

4) CBDC is freely convertible against commercial bank money and cash.

5) CBDC is a fungible legal tender for which holders need not have a bank account.

6) CBDC is expected to lower the cost of issuance of money and transactions.

India’s central bank outlines digital rupee CBDC plans (cointelegraph.com)

Then, a major hack was reported when Binance said a cross-chain bridge linking with its BNB Chain (its chain which uses BNB as a Utility token) was targeted, enabling hackers to move BNB tokens off the network.  

In total, hackers withdrew 2 million BNB tokens — about $570 million at current prices — from BNB Chain said in a blog post on Friday. 

An earlier estimate from the company placed the total amount withdrawn in a range of $100 million to $110 million.

The value of BNB sank more than 3% Friday morning to $285.36 a coin, according to CoinMarketCap data.

$570 million worth of Binance’s BNB token stolen in another major crypto hack (cnbc.com)

Speaking of a chain’s utility coin, Decentralized Social Network (DeSo’s) native token (DESO) railled Thursday as traders digested an expansion of the project’s content strategy and its plans to partially integrate Circle’s widespread USDC stablecoin.

DESO was trading around $17.82 at press time on a 25.6% daily jump, with strong spikes immediately preceding and following the platform’s stablecoin announcement at 1:04 p.m. ET Thursday, per CoinGecko. The token has a current market capitalization of $165 million, or one-tenth its peak total value last October.

The self-described decentralized alternative to social media’s giants says it will let developers create “social apps” that can’t be knocked offline. That ecosystem will presumably need payments rails – leading to the onboarding of a derivative of USDC, a top-three stablecoin.

DeSo’s blockchain won’t host a native form of USDC, as is the case for big name networks such as Ethereum and Solana. Instead, it will issue “DesoDollars” to users who bridge their Ethereum-based stablecoins into the ecosystem, said founder Nader Al-Naji. He said DeSo plans to give other chains’ USDC the same treatment.

“It’s not our goal to be tied to a single chain,” he said.

Decentralized Social Network’s DeSo Token Rallies Amid Stablecoin Plans

So in summary, the Indian Central Bank or RBI is designing a Retail CBDC coin with direct claims on it, leaving no room for local Banks to participate.  BNB discovered the cost of sloppy code and poor design and we see the notion of wrappers being introduced so that people never have to leave your ecosystem.

__________________________________________________________________________________________________________________________________

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.

https://dailyfintech.com/2022/10/12/stablecoin-news-for-the-week-ending-wednesday-12th-october/?utm_source=rss&utm_medium=rss&utm_campaign=stablecoin-news-for-the-week-ending-wednesday-12th-october

How I repaid my debt to my next finance educator by saving his life.

https://dailyfintech.com/2022/10/11/how-i-repaid-my-debt-to-my-next-finance-educator-by-saving-his-life-from-a-terrorist-bomb/?utm_source=rss&utm_medium=rss&utm_campaign=how-i-repaid-my-debt-to-my-next-finance-educator-by-saving-his-life-from-a-terrorist-bomb

I would come back from selling custom software solutions in the City Of London in the 1980s understanding very little. Most customers were not as kind as the man who explained the Gilts market to me. They would rattle on about some new derivative and expect me to understand.

Eventually I did understand, but only thanks to a kind colleague who was my next finance educator. I would come back from my sales calls with my scribbled notes and ask him “what on earth does that mean?”. His explanations were great and started with “it is really not that complex, let me explain”.

Attempting to thank him, I offered to buy him a drink. He suggested a pub near the tube/subway station that he used to get home.After one drink. he said he needed to go. I pressed him to have one more and he agreed. By waiting a bit longer he avoided being blown up in the tube/subway station by an IRA terrorist bomb

 I considered that a reasonable deal – he made my career by generously giving his time and knowledge and I (accidentally) saved his life.

https://dailyfintech.com/2022/10/11/how-i-repaid-my-debt-to-my-next-finance-educator-by-saving-his-life-from-a-terrorist-bomb/?utm_source=rss&utm_medium=rss&utm_campaign=how-i-repaid-my-debt-to-my-next-finance-educator-by-saving-his-life-from-a-terrorist-bomb

Why & how Daily Fintech is releasing Front Page Weaver code to open source.

https://dailyfintech.com/2022/10/10/why-how-daily-fintech-is-releasing-front-page-weaver-code-to-open-source/?utm_source=rss&utm_medium=rss&utm_campaign=why-how-daily-fintech-is-releasing-front-page-weaver-code-to-open-source

FrontPage is an expert-curated news service, with clickable news headlines plus a 250 character commentary – news you can trust from experts who have walked a mile in your shoes.

Front Page Weaver meets a need in the market because most news services are written by overworked journalists who add very little value beyond the Press Release.

Front Page Weaver code does 2 things:

  • A browser extension for Chrome that makes it easy for experts to create their news selection and commentary.
  • A backend service that “weaves together” these content contributions into web pages for readers.

I had originally planned to use Front Page Weaver as proprietary code on Daily Fintech. Let me explain why I am now releasing Front Page Weaver code to open source.

When I started writing on what became Daily Fintech in the summer of 2014, I had no ambition to build a media business. I was doing advisory work that required me to do a lot of research and I decided to share insights from that research in a blog. All I did was use standard WordPress – 100% content without any proprietary code.

I am proud of what we have built so far (a multi author blog with a small but influential following) and could see clearly how to build a successful media business, but life is short and I am no longer young (68th birthday recently) and startups require a lot of personal sacrifice. Thanks to some financial good fortune,  I no longer had a pressing need for a big exit win.

We have made FrontPageWeaver open source by posting the code on GitHub under the GNU General Public License, version 3 (GPL-3.0). This strong copyleft license is the same license used by Creative Commons (you can learn more on GitHub). The  code has been developed for us by a team at a firm called Trivialworks;  I hope that people will use their services, but one point of open source code is to make this totally your call.

I hope that the community picks up and improves Front Page Weaver because respect for truth is under huge threat today and information about money is so important. What people will do with Front Page Weaver code is not under my control.  This was the hardest thing to accept; I hope that good use floats to the top and bad use gets ignored, but I cannot control that.

You can see the code here

https://dailyfintech.com/2022/10/10/why-how-daily-fintech-is-releasing-front-page-weaver-code-to-open-source/?utm_source=rss&utm_medium=rss&utm_campaign=why-how-daily-fintech-is-releasing-front-page-weaver-code-to-open-source