This Week in Fintech ending 28 January 2022

https://dailyfintech.com/2022/01/28/this-week-in-fintech-ending-28-january-2022/

This week our experts brought you the following insights based on their experience as investors, entrepreneurs & executives.

Monday Ilias Hatzis our Greece-based crypto entrepreneur (Founder & CEO at  Kryptonio a “keyless” non-custodial bitcoin and cryptocurrency wallet, that lets users manage bitcoin and crypto, without private keys or passwords and Weekly Columnist at Daily Fintech) @iliashatzis wrote The digital euro is on the way

Digitalization is affecting everything and is accelerated by the pandemic. One area unable to escape this accelerated trend is money. Money inventions have challenged and transformed the structure of the financial system throughout history. Time and again, innovations have sparked disputes about the dangers they represent and the benefits they provide, as well as the role of central banks in fostering financial trust. Not so long ago, cash was more or less the only way to make an immediate purchase. However, we have grown accustomed to using forms of private digital money such as online bank transfers, debit cards, and applications on our smartphones or smart watches.

Editor note: Ilias makes the case for CBDCs as an interim step to a stateless currency like Bitcoin.

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Tuesday Bernard Lunn, CEO of Daily Fintech and author of The Blockchain Economy wrote: Part 4: Impact Investing for economic empowerment

There is a big difference between philanthropy/ charity and impact investing. Philanthropy/charity has no revenue model. Such pure giving is needed at the lower levels of Maslow’s hierarchy of needs where the donees have no capacity to pay anything.

Editor note: The big question is whether Fintech only serves big companies or whether it can be used by all of us? Is it Fintech4Us or Fintech4Big&Wealthy? Can the 99% use Fintech to better their lives? Is there a real level playing field?

Wednesday Alan Scott Managing Director EMEA at 24 Exchange @Alan_SmartMoney wrote his weekly roundup of Stablecoin news.

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Thursday

Rintu Patnaik, an Insurtech expert based in India, wrote: As Insurtech valuations tumble, Hippo Insurance gears for growth

In general, technology stocks declined substantially on Wall Street in the past year, but insurtech stocks saw major declines. Lemonade fell 78% to a market cap of $2.3 billion, less than its trading day price in July 2020. Hippo crashed 77% since entering the NYSE through a SPAC merger last year, seeing current market cap drop to $1.5 billion from $ 5 billion at the time of the merger. Root, which specializes in car insurance went public in 2020 and lost 88% within a year. Metromile, another American car insurer that went public via a SPAC merger a year ago, lost 87%, and was acquired by Lemonade. Oscar Heath saw its share price collapse by 79% since its March ’21 IPO.

Editor note: this is a timely post as all investors rediscover the V word – valuation

Christian Dreyer @x3er, the Swiss based CFA who focusses on how XBRL changes our world wrote his weekly roundup of XBRL news.

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Friday Howard Tolman, a well-known banker, technologist and entrepreneur in London, wrote his weekly roundup of Alt Lending news.

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Alt Lending week ending 28th January 2022

https://dailyfintech.com/2022/01/28/alt-lending-week-ending-28th-january-2022/

Horta-osorio and Credit Suisse

It seems that trouble automatically finds the top dogs at Switzerland’s second largest bank. In the Portuguese bankers case it was COVID restrictions that forced his resignation as Chairman after just nine months. It was his mission to sort out the obvious problems which had arisen  under his predecessor. Unfortunately new brooms have to be squeaky clean and very strong when trying to sort out entrenched problems. I have some experience of this as during the late eighties I witnessed first hand the terrible journey that Bank of America made from being a large and sophisticated global bank  to becoming a subsidiary of regional minnow North Carolina National Bank . Once the rot has set in it is hard to control and the ultra flat organisational structures of banks together with divisional rivalries and blame games frequently turn cohesive organisations into a sack of hissing vipers. I am not saying that this is what has happened here but it is pretty obvious that it is not a good place to be at the moment.

Schoolboy mistakes by government cited in peers resignation

Lord Agnew resigned from his position as a minister to the treasury and the cabinet office yesterday. For once the peer made clear that the resignation was not something to do with the general malaise in the current government and the chaotic performance of Boris Johnson although I cannot help but feel that the two things are somehow connected. The problem appeared to be the shambolic way in which the various COVID support facilities, bounce back loans etc. were handled by the Treasury and the inevitable losses which have so far reached approximately £ 5 billion and could indeed run much higher. When these facilities were introduced I pointed out that the speed of their introduction would inevitably lead to huge bad debts and that has now proven to be the case. There is a lesson here for all serious lenders. Make sure that you are happy with your levels of diligence when considering the risks. If you don’t get this right a large amount will just not come back. I hope that the government doesn’t try to collect the bad debt themselves. That would almost certainly be an even bigger debacle.

Covid hits the cruise business. Parallels

With the bond market signalling problems ahead I think we are going to all be afflicted by the famously appropriate Chinese curse “may you live in interesting times”. This particular piece refers to the problems experienced by cruise line operators and at the same time demonstrates the interdependency of global markets through technical things appearing in loan agreements like Cross Default clauses. By this mechanism a problem in one industry quickly filters into another. In this case it is cruise operators and shipbuilders but the problem goes far deeper.  We are going to see very large defaults all over the world in the next few years as inflation brings whole economies to their knees.  Lenders take note. COVID is hitting cost levels in all businesses and government overreactions to it are making matters worse. It’s not just Putin and Ukraine you need to worry about. Time to put on your tine helmet.

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/2022/01/28/alt-lending-week-ending-28th-january-2022/

XBRL News about Arelle, Handelsregister and ontologies

https://dailyfintech.com/2022/01/27/xbrl-news-about-arelle-handelsregister-and-ontologies/

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

1  Workiva announces acquisition of the Arelle XBRL validation platform

2  The country needs a modern commercial register

The commercial register is a comprehensive database on the Swiss economy. Among other things, it lists all corporations with various information. At first glance, the commercial register would therefore be predestined to become a central point of information for any business interactions. But that’s not the case.

The country in question that this piece refers to in the original German (find your browser’s autotranslate button) is Switzerland, of course. The article advocates – without so many words – for bringing the commercial register from the 18th century, when it was founded, to the 21st, and for making it really useful in the digital age. We fully concur.

3 Ontology engineering and the love for modeling and analysis

Escher, the complexity of coffee, knowledge engineering with ontologies – all these are nodes of the semantic networks associate professor Maria Keet keeps and grows in her mind, openly sharing them on the Web. With plenty of curious intersections they live online, openly available, just as her textbook – An Introduction to Ontology Engineering. Having emerged from Maria’s research interests in knowledge engineering with ontologies, concept modeling and related natural language generation, this textbook is the first of its kind globally in this subfield, recently being recognized as outstanding by UCT Open Textbook Award.

This conversation with the author of said freely available ontology engineering textbook is quite academic, yet with a rather practical slant, as the future of structured data reporting will be ontological IMHO.

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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/2022/01/27/xbrl-news-about-arelle-handelsregister-and-ontologies/

As Insurtech valuations tumble, Hippo Insurance gears for growth

https://dailyfintech.com/2022/01/27/as-insurtech-valuations-tumble-hippo-insurance-gears-for-growth/

In the past year, technology stocks trailed on Wall Street, but insurtech stocks saw major declines. Lemonade fell to a market cap of $2.3B, more than 50% compared to its trading day price. Since its SPAC merger, Hippo’s market cap dropped to $1.5B from $5B. Root, a car insurance specialist went public in 2020 and lost nearly 90% within a year. Metromile, another American auto insurer that went the SPAC route, was no better and got acquired by Lemonade.

The subdued market performance is evidence of investors dismayed by the ability of insurtechs to shake up this giant industry. Disruptive companies like Uber and Airbnb waited nearly a decade before going public. Contrast with Lemonade that went public after five years and Hippo at six. Both were opportunistic in capitalizing on the Covid-19 pandemic when the market was hot.

Market analysts opine that insurtech companies perhaps went public before they could predict their growth well enough. Lemonade’s market cap was $10 billion at one point with valuations driven by generous multipliers, akin to the super-profitable software sector. Lemonade’s customer base initially grew at a frenzied rate of 294% in 2018 and 108% in 2019. But after that rapid growth, rates slowed down and investors intently scrutinized efficiency effects, where technology leadership would be most impactful.

Some analysts see Hippo as better positioned in this group based on lifetime-value to customer-acquisition-cost (LTV:CAC) and its ability to improve loss ratios. The company has managed high customer retention rate of over 80% and a five-fold LTV multiple from its omnichannel presence and high premiums per homeowner policy (~$1,200). The opportunity in homeowners is tremendous, with $105B in annual premiums and one player with 10%+ share.

Hippo has adopted a proactive approach to home insurance protection, with smart devices and real-time notifications. This curbs claims frequency and severity and presumably allows Hippo to offer lower premiums. Its Smart Home program is widely adopted in US home insurance, with kits that mitigate damage from water, fire and theft. The opt-in rate is 75% with 500K devices shipped. Customers maintain their homes, with thousands of home checkups and preventive actions delivered, yielding 4.5/5 on customer satisfaction scores.

Hippo believes that it has several competitive advantages, listing its moats as:

1)Technology + Insurance approach: Ability to draw on full-stack tech – Smart Home based ML algorithms – to deliver superior CX.

2)Vertically Integrated Insurance Capabilities: Offsetting risk profile by using carrier partners.

3)Diversified Distribution Strategy: Selling D2C, through insurance and non-insurance partners.

4)Smart Home Program: Making customer homes resilient to typical damages

5)Dedication to Hippo customers: Treating human touch as a very important aspect of building trust with its client base.

So far, 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. Hippo suffered from a particularly high loss ratio last year, at 161% in the second quarter due to large concentration of policyholders in Texas who suffered from extreme weather conditions, resulting in substantial damage claims. For bigger insurance companies, the effect on the loss ratio was much lesser due to the geographical spread.

In recent months, Hippo has added experienced executives from giants like AIG and Chubb, to help improve its underwriting process, adding more sources and variables to augment customer analysis. It is geographically diversifying. At the end of Q3, it had $850 million in cash reserves, allowing significant legroom to improve models, and move up on profitability. Though the capital market is currently ambivalent to the sector, the momentum is expected to shift for those that achieve exponential growth and have a path to profitability well laid out.

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Stablecoin News for the week ending Wednesday 26th January.

https://dailyfintech.com/2022/01/26/stablecoin-news-for-the-week-ending-wednesday-26th-january/

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

Here comes the Fed!

Well not really, but this week we got a lot more insight into what the Fed’s is thinking with the release of a discussion paper that examines the pros and cons of a potential U.S. CBDC.  

Federal Reserve Board – Central Bank Digital Currency (CBDC)

The Fed – Frequently Asked Questions (federalreserve.gov)

This analysis of the announcement from the Cato Institute is spot on.  

For a 40‐​page document, the findings were actually rather thin. It seems the Fed is still undecided, but it is leaning towards launching a CBDC that would protect privacy without permitting anonymous use, be intermediated (or hosted) by private banks, and be easily transferable. In other words, it would be much like what already exists.”

The Fed Finally Announced Its CBDC Ideas | Cato at Liberty Blog

Separately, Jerome Powell, the recently re-confirmed chair of the Federal Reserve, has reaffirmed his belief that a digital dollar should not drive private stablecoins out of the market.

Fed chair Powell doubles down on continued survival of private stablecoins — as long as they are better regulated (theblockcrypto.com)

But the week began with a rallying cry from the Central Bankers, Central Bank, the Bank of International Settlements or BIS, declaring that only Central Bankers can make and manage real money.

According to the general manager of the Bank for International Settlements, Agustín Carstens, sound money should not be based on trustless, permissionless, and anonymous ledgers, but on trust, and more specifically—trust in central banks.

“My main message today is simple: the soul of money belongs neither to a big tech nor to an anonymous ledger. The soul of money is trust. And central banks have been and continue to be the institutions best placed to provide trust in the digital age.”

BIS Chief Urges Trust in Central Banks – Crypto Briefing

So in summary, this week the two major money regulators, the Fed and BIS, both gave us some more insight into their thinking.  The Fed has left the door open to privately issued stablecoins and if they build a CBDC it would operate much like cash does today, while the BIS has claimed that only Central Bankers can provide the “soul of money”.  

We will see.  But in this game talk is cheap, if consumers like an innovative new product, they will grab it and there are plenty of choices now out there and soon coming.  

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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.  

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/2022/01/26/stablecoin-news-for-the-week-ending-wednesday-26th-january/

Part 4: Impact Investing for economic empowerment

https://dailyfintech.com/2022/01/25/part-4-impact-investing-for-economic-empowerment/

There is a big difference between philanthropy/ charity and impact investing. Philanthropy/charity has no revenue model. Such pure giving is needed at the lower levels of Maslow’s hierarchy of needs where the donees have no capacity to pay anything.

The big problem with philanthropy/charity is the continuous need for fund raising.

However, impact ventures have a revenue model, so the ventures should be able to get off the fund raising treadmill. Although impact ventures have a revenue model, they are different from pure commercial ventures in that they serve two masters. They must show positive impact as well as profit.

The problem for impact ventures is that measuring impact is hard. Many pure profit ventures use the impact messaging but it is PR only and not real positive impact (for more, please read Part 2).

Impact investing for economic empowerment works best at what this site describes as “growth needs” as opposed to “deficiency needs”, which arise due to deprivation (once they are satisfied, you don’t need more). Growth needs don’t stem from a lack of something, but rather from a desire to grow and the motivation to get more drives our growth as a civilisation.

The big question is whether Fintech only serves big companies or whether it can be used by all of us? Is it Fintech4Us or Fintech4Big&Wealthy? Can the 99% use Fintech to better their lives? Is there a real level playing field?

The impact of economic empowerment is relatively simple to measure. An impact venture focused on economic empowerment has customers who vote with their wallet rather the donees served by philanthropy/ charity. If a lot of poor people use the services of an impact venture focused on economic empowerment, then it is having a positive impact. It is as simple as that.

Some subjects are too complex for our short attention spans, so we do 4 posts one week apart, each one short enough not to lose your attention but in aggregate doing justice to the complexity of the subject. Stay tuned by subscribing.

Part 1

Part 2

Part 3

Part 4

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/2022/01/25/part-4-impact-investing-for-economic-empowerment/

The digital euro is on the way

https://dailyfintech.com/2022/01/24/the-digital-euro-is-on-the-way/

Digitalization is affecting everything and is accelerated by the pandemic. One area unable to escape this accelerated trend is money. Money inventions have challenged and transformed the structure of the financial system throughout history. Time and again, innovations have sparked disputes about the dangers they represent and the benefits they provide, as well as the role of central banks in fostering financial trust. Not so long ago, cash was more or less the only way to make an immediate purchase. However, we have grown accustomed to using forms of private digital money such as online bank transfers, debit cards, and applications on our smartphones or smartwatches. As a fellow of the Digital Euro Association, a think tank specializing in crypto assets, stablecoins and central bank digital currencies (CBDC), we are working on contributing to the public and political discussion between policy-makers, technologists, and economists.

Ilias Louis Hatzis is the founder and CEO at Kryptonio wallet. Please participate in our Crypto Wallet Survey, we could use your help. It’s seven simple multiple-choice questions about crypto wallets and you should be done in 60 seconds. The survey is completely anonymous.

The rise of cryptocurrencies and stablecoins, like Facebook’s Diem (formerly Libra), is forcing governments to rethink national digital currencies. Central banks want to maintain control over money, but the meteoric rise of cryptocurrencies has clearly shown that people no longer trust their national currencies, such as Venezuelans and Nigerians, and want to control their money.

At an international level, the digitalization of money and payments is being examined by the G7 and the G20. In Europe, it is frequently discussed by Finance Ministers in the Eurogroup.

Some fear that digitalization, if not properly governed could create instability and even threaten the monetary system. Central banks are considering whether they should innovate by offering digital money. Unlike bitcoin and other cryptocurrencies, central bank digital currencies (CBDC) are government-issued, basically digital versions of existing national currencies.

Race for the future of money
Over the past two years, central banks around the world have been working on CBDCs. A survey in 2020 showed that 86% of all central banks are conducting research on CBDCs. The Atlantic Council, a nonpartisan global leadership organization, released a six-month update of its central bank digital currency tracker on December 13th. Today, 87 countries (representing over 90 percent of global GDP) are exploring a CBDC, 9 countries have now fully launched a digital currency and 14 countries, including China and South Korea, are now in the pilot stage with their CBDCs and preparing a possible full launch.

Sources: Atlantic Council Research, Bank of International Settlements, International Monetary Fund, John Kiff Database

China has been experimenting with the digital yuan since 2014. The digital yuan has already been used to process over $5 billion in transactions. Sweden recently launched a pilot of the e-Krona with a small number of real-life market participants. The “sand dollar,” in the Bahamas, is already in operation used as a means of payment. Nigeria is the latest country to launch a CBDC, the e-Naira.

Out of the big four central banks, including those of the EU, UK, and Japan, only the US has not progressed beyond research mode in central bank digital currencies. The Federal Reserve Board (FRB) released a whitepaper in January 2022, that looks into the pros and cons of creating a central bank digital currency for the United States.

The United Arab Emirates and Saudi Arabia launched a bilateral CBDC pilot project called Project Aber in 2019, and concluded that DLT can successfully facilitate cross-border transactions. In February 2021, the United Arab Emirates joined China, Hong Kong, and Thailand in a joint CBDC cross-border test. This “Multiple Central Bank Digital Currency (m-CBDC) Bridge” will test the use of DLT for foreign currency payments. The latest cross-border payment test is Project Dunbar – a partnership between South Africa, Singapore, Malaysia, and Australia.

Some countries are taking a completely different approach. In the fall, El Salvador became the first nation in the world to adopt bitcoin as a national currency. El Salvador’s citizens can use bitcoin to pay any business for its products and services.

Two or three years ago, few were talking about the digital euro. Now the European Central Bank (ECB) is planning to unveil the digital euro in the next five years. The rise of stablecoins to over $120 billion combined with the expansion of big tech companies into finance has brought the digital euro to the foreground.

European Central Bank
In October the ECB started an investigation phase for the possible introduction of a digital euro. The digital euro would still be a euro, only in digital form. Unlike cash, the digital euro will be used digitally and in a programmable way, but payments with a digital euro will not be as anonymous as a payment in cash.

The digital euro will be an attractive alternative to cash. It will function as a crypto asset that can be integrated into fully automated transactions, without the need for any human intervention. According to estimates, the internet of things will connect 24 billion devices by 2030, with 23% of the devices in the EU.

From a strategic standpoint, a digital euro accessible to foreign users would cut the cost of using the euros in cross-border payments, increase the international role of the euro, strengthen Europe’s strategic autonomy, and lessen the global domination of the US dollar.

But, issuing a digital euro would affect society as a whole. Complex questions and difficult choices lie ahead about how to introduce the digital euro to the market. The right balance needs to be struck to make the digital euro robust and easy to operate.

In a truly digitalized economy, CBDCs are a natural next step. The financial infrastructure in any given country will play a key role in the speed and extent of adoption of CBDCs, stablecoins, or cryptocurrencies. The development of CBDCs is a response to the challenge cryptocurrencies and private stablecoins pose to the central banks. Digital national digital currencies like the digital euro are a positive step in our digital evolution, as we transition from fiat to sound money (that is not prone to sudden appreciation or depreciation in purchasing power over the long term),  like bitcoin. While it is too early to predict what will happen and what shape money in the future will take, in the end, people will decide whether to use cryptocurrencies or CBDCs,

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https://dailyfintech.com/2022/01/24/the-digital-euro-is-on-the-way/

This Week in Fintech ending 21 January 2022

https://dailyfintech.com/2022/01/21/this-week-in-fintech-ending-21-january-2022/

This week our experts brought you the following insights based on their experience as investors, entrepreneurs & executives.

Monday Ilias Hatzis our Greece-based crypto entrepreneur (Founder & CEO at  Kryptonio a “keyless” non-custodial bitcoin and cryptocurrency wallet, that lets users manage bitcoin and crypto, without private keys or passwords and Weekly Columnist at Daily Fintech) @iliashatzis wrote Jack Dorsey wants to keep the force in bitcoin decentralized

Jack Dorsey, CEO of Block (formerly Square), has been a consistent advocate of bitcoin. Dorsey both personally and professionally has supported bitcoin for years. In 2018, he said that bitcoin will eventually become the world’s single currency. In 2020, Square purchased about $50 million worth of bitcoin. In early 2021, Square bought another $170 million worth of bitcoin. At the Bitcoin 2021 Conference in June, Dorsey explained that he sees bitcoin as a way to protect against currency devaluation and expedite transfers of funds across borders. Late last year, Square changed its name to Block, to denote a broader mission that includes blockchain and economic empowerment. With Block’s bitcoin holdings at 8,207 BTC, worth $354 million at current prices, Block hasn’t changed its tune on bitcoin. Last week Dorsey officially announced that Block would get into Bitcoin mining to make it easier for people to mine bitcoin. The announcement was made on Twitter and confirms information that dates back to October that the company would eventually enter the mining business. Block aims to create an “open bitcoin mining system” which is easily available, reliable, performant, power-efficient, and can be used by anyone.

Editor note: If you want to see the future of Bitcoin, watch what Jack Dorsey (and El Salvador) do.

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Tuesday Bernard Lunn, CEO of Daily Fintech and author of The Blockchain Economy wrote: Part 3: Equities birth certificates to get people onto the 1st rung of the wealth creation ladder.

People often talk about getting onto the property ladder, but property is only one type of asset used for wealth creation.

Equities is the primary asset used by the wealthy.

Imagine somebody born into a poor family who on her/his 21st birthday receives a certificate that in real inflation adjusted terms represents more money than they can earn in a year at a minimum wage.

That is a feasible scenario if that person is given an Equities Birth Certificate and cannot cash them in for at least 21 years.

Editor note: Read this post to understand some of the practical details in an idealistic dream to reduce financial inequality. This is NOT rocket science.

Wednesday Alan Scott Managing Director EMEA at 24 Exchange @Alan_SmartMoney wrote his weekly roundup of Stablecoin news.

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Thursday

Rintu Patnaik, an Insurtech expert based in India, wrote: The Connected Car Data Monetization Landscape

Car manufacturers generate revenue through vehicle sales and post-sale services. As newer business models such as mobility-as-a-service and vehicle-as-a-platform evolve, additional revenue streams are emerging. Whereas conventional businesses generate nearly 90% of revenue, over the next decade, this share is expected to shrink to about 70%. Vehicle-as-a-platform is relatively new with a below 1% share in revenue. However, it’s expected to grow 1.3x year-on-year over the next decade, making it the fastest growing automotive business segment. It comprises two revenue streams: data monetization and platform-as-a-service, the former being the focus of this post.

Editor note: Losing my privacy is worthwhile if I save on insurance premiums by being a better driver.

Christian Dreyer @x3er, the Swiss based CFA who focusses on how XBRL changes our world wrote his weekly roundup of XBRL news.

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Friday Howard Tolman, a well-known banker, technologist and entrepreneur in London, wrote his weekly roundup of Alt Lending news.

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https://dailyfintech.com/2022/01/21/this-week-in-fintech-ending-21-january-2022/

Alt Lending week ending 21st January

https://dailyfintech.com/2022/01/21/alt-lending-week-ending-21st-january/

Fat Cat merry go round

I sometime think of all the striving technical geniuses doing their best to earn a crust through proper innovation and then along comes a story that makes me wonder if it is all worthwhile. The Daily Telegraph today reported that ex Credit Suisse CEO Tidjane Thiam is making a comeback in the Spacs market. Let me remind you of recent history. Thiam had to resign in 2020 because of a scandal that Credit Suisse were spying on their own staff. He denied all knowledge of this, but nevertheless fell on his sword. Surely knowing what your bank is up to is a requirement of a CEO? However since that time we have had the multi billion pound losses concerning both Fund Manager/Family Office debacle over Archegos and the “Supply Chain Finance” without the Supply chain  antics of Lex Greensill which cost the Swiss bank billion of dollars and its reputation. But never mind he is making a comeback by launching a $ 1.5bn SPAC.  In the report an executive at PwC capital markets opined that   Bankers like Spacs because “it gets them involved in more entrepreneurial projects associated with disruption and opportunities. In return the companies get years worth of expertise”. I don’t know about you but it makes me want to weep.

Metro Bank founder faces disgruntled shareholder

It seems like Metro Bank founder Vernon Hill does not seem to be able to shake off his previous involvement with Metro Bank. He is now running Philadelphia based Republic First and Driver Management an active investor is not particularly happy with its performance making clear that he can see the American bank going the same way as Metro. Hill  resigned from Metro Bank in 2019 following an accounting scandal involving “miscalculating” some £ 900 million of loan risk. Driver is keen to get shot of Republic First but obviously doesn’t like the current share price. Apparently Hill was not personally responsible for the miscalculation but when you’re in charge of the bank the miscalculations are down to you. Please see above?

HSBC reviews mortgage criteria amid cost of living concerns

Well here’s a non story if you ever wanted one and amid Boris Johnson’s woes on rule breaking et al comes a real world reaction to government policies of soak the voter. While writing this plotters are meeting in Westminster with a view to giving Boris the Spanish Archer. Well he can’t say that he wasn’t warned? For what it’s worth Boris a word in your ear. If you start making people poorer with daft policies they will very quickly tire of you. It is not just energy prices, stupid green policies, higher taxation but also interest rates. If you want to stay put after April fools day I suggest you reconsider?

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/2022/01/21/alt-lending-week-ending-21st-january/

The Connected Car Data Monetization Landscape

https://dailyfintech.com/2022/01/20/the-connected-car-data-monetization-landscape/

Car manufacturers generate revenue through vehicle sales and post-sale services. As newer business models such as mobility-as-a-service and vehicle-as-a-platform evolve, additional revenue streams are emerging. Whereas conventional businesses generate nearly 90% of revenue, over the next decade, this share is expected to shrink to about 70%. Vehicle-as-a-platform is relatively new with a below 1% share in revenue. However, it’s expected to grow 1.3x year-on-year over the next decade, making it the fastest growing automotive business segment. It comprises two revenue streams: data monetization and platform-as-a-service, the former being the focus of this post.

Car data will gain increasing prominence on the automotive industry landscape, due to its high monetization potential. Use cases are categorized around few value creation drivers – direct revenue generation, cost savings, and safety augmentation, adding to a potential incremental revenue of USD450 – 750 billion by 2030.

Leading players are generating revenue through the sale of products/services, tailored advertising, and the sale of data to third parties.

Honda, with driving data on about 3.7 million vehicles, provides that data to commercial facilities such as electric boards displaying road conditions, at about 4 million yen ($36,000) a month. It has partnered with location-data startup Nightley to analyze drivers’ behavior. The data is being tapped to determine consumer demand, gauge the effectiveness of advertising and for planning retail outlet expansion. Monthly subscriptions start at 200,000 yen.

Toyota Motor has teamed up with NTT to develop technology that controls the flow of traffic in an area after detecting congestion. It is constructing infrastructure to utilize the data and monetize it through partners, such as Uber Technologies. The automaker has collaborated with Japan’s Aioi Nissay Dowa Insurance to analyze driving data and offer discounts on auto insurance.

Wejo, a British startup backed by General Motors, operates a trading platform for connected car data. It collects real-time data from auto companies, processes and provides the information in ready-to-use formats. Sompo Holdings in combination with Microsoft, is investing $25 million in Wejo that will give the insurer a single-digit stake. The objective is to leverage the partnership to develop new business areas and insurance products.

An Israeli rival, Otonomo, runs a similar platform where BMW, Daimler and 14 other automakers are sellers. Data buyers come from insurance, payment, and advertising industries, as well as local governments. Otonomo takes a 35% cut of sales while auto companies pick the rest.

Otonomo’s platforms make considerable changes to the raw data from suppliers to produce legal information that is ready for sale, complying with over 15 different privacy regulations based on customer location. It is focused on six vertical markets—insurance, transportation, financials, vehicle fleets, car dealerships and smart cities. Receiving an average of 4.3 billion data points per day from over 40 million vehicles, at about 110 data points per vehicle per day, it collects over 150 data parameters.

Otonomo has published car data value for key segments, reporting that fleet operators have the largest value at around $25, insurers at $15 for usage-based-insurance applications and car dealerships at $15 per-vehicle per-year. Other segments have lesser rates, typically measured in dollars per million data points. The financial industry pays around $30, smart city projects $40-80 and transportation projects $100 per million data points.

Based on mileages and number of registered cars, the overall market (data aggregators, OEM, Telematics and Mobility players) is poised to grow at CAGR of 200%, reaching $38 billion by 2026.

External monetization of data by insurance carriers is growing due to an increased focus on open insurance. Some already monetize their data, creating newer revenue models. Allstate firm Arity, for instance, is using telematics data to open new markets. By providing valuable insights to motor vehicle dealers and repair shops aside from supplying data to billboard advertisers, connected car data will have a substantial impact on the mobility landscape.

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https://dailyfintech.com/2022/01/20/the-connected-car-data-monetization-landscape/

Stablecoin News for the week ending Wednesday 19th January.

https://dailyfintech.com/2022/01/19/stablecoin-news-for-the-week-ending-wednesday-19th-january/

To CBDC or not, that is the question!

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

This week we saw arguments for and against the implementation by Central Banks of a state backed stablecoin or CBDC.  

Firstly, the BIS published a study on the rise and power of digital platforms which are defined as marketplaces that enable connectivity of buyers and sellers along with the facilitation of exchange such as AirBnB and Uber.  These will be early adopters and most likely issuers of stablecoins and/or CBDC’s.

“Three types of digital platforms are expanding in financial services: (i) fintech entrants; (ii) big tech firms; and (iii) increasingly, incumbent financial institutions with platform- based business models. These platforms can dramatically lower costs and thereby aid financial inclusion – but these same features can give rise to digital monopolies and oligopolies.”

Significantly, the paper called for ex ante (early or ahead of time) regulation of platforms and the need for Central Banks to be focused on their role as protector of consumers interests.

Platform-based business models and financial inclusion (bis.org)

Also the BIS released this week a report on the status of CBDC development globally in which China leads the way.

Rise of the central bank digital currencies: drivers, approaches and technologies (bis.org)

Then, later in the week in the UK, the Lords Economic Affairs Committee said introducing a central banking digital currency (CBDC) “would have far-reaching consequences for households, businesses and the monetary system”.

“The introduction of a UK CBDC would have far-reaching consequences for households, businesses, and the monetary system for decades to come and may pose significant risks depending on how it is designed,” the committee said in a report.

“These risks include state surveillance of people’s spending choices, financial instability as people convert bank deposits to CBDC during periods of economic stress, an increase in central bank power without sufficient scrutiny, and the creation of a centralised point of failure that would be a target for hostile nation-state or criminal actors.”

‘Britcoin’: There isn’t a ‘convincing case’ for a digital currency in the UK, House of Lords committee says | Business News | Sky News

In a similar manner in the US, citing the privacy dangers posed by China’s digital yuan, Rep. Tom Emmer proposed a bill to bar the Fed from creating a digital currency for consumers.  

In a press release describing the bill, Emmer warns that a digital currency issued by the Fed could be a slippery slope in which consumers could one day be forced to register with the central bank to access money, which could in turn lead to mass surveillance of their financial activity.

Bill Seeks to Ban Fed From Issuing Digital Currency to Consumers – Decrypt

So in summary, do we trust our Gamekeepers (Central Banks) to turn poachers and issue their own CBDC?  Or are we better off having them focus on their role as regulators and protectors for consumers and let BigTech and FinTech succeed and sometimes fail to deliver us this new innovation?

___________________________________________________________________________________________________________

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

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/2022/01/19/stablecoin-news-for-the-week-ending-wednesday-19th-january/

Part 3: Equities birth certificates to get people onto the 1st rung of the wealth creation ladder. 

https://dailyfintech.com/2022/01/18/part-3-birth-certificates-to-get-people-onto-the-1st-rung/

People often talk about getting onto the property ladder, but property is only one type of asset used for wealth creation.

Equities is the primary asset used by the wealthy.

Imagine somebody born into a poor family who on her/his 21st birthday receives a certificate that in real inflation adjusted terms represents more money than they can earn in a year at a minimum wage.

That is a feasible scenario if that person is given an Equities Birth Certificate and cannot cash them in for at least 21 years.

Let’s run some numbers for the donees/recipients. Assume $1,000 invested at birth and and an annual real return (after fees, taxes and inflation) of 3%, compounded over 20 years. Age 21 donees will have $18,0611 as per this handy compound interest calculator.  Now assume that person’s only work prospects are minimum wage in America ie $7.25 per hour and they work 8 hours per day for 20 days and 12 months (no holidays), they can earn $13,920 per year. $18,0611 could change their life.

That $1,000 seed money invested at birth comes from donors – more on them later.

At age 21 donees can choose to cash in whatever % they want. Some will leave it invested ‘till retirement. Some will blow it all on sex & drugs & rock ‘n roll. At 21 it is their call. Before the age of 21 it has to stay invested.

These Equities Birth Certificates have three values:

cash value. $18,0611 is a meaningful amount.

learning value. Learning about the compounding value of equities in such a simple visceral way can also change their life.

value of popular commitment to a free market system. This is where the interest of donors and donees converge. Donors want/need a society committed to a free market system, so that people will resist the siren songs of authoritarians of both right and left; because they see that free market innovation puts money in their pockets.

Now let’s run some numbers for the donors:

  • Minimum commitment is $100,000 = 100 babies getting $1,000 each.
  • Assume some people give $1m = 1,000 babies =1% for a family with assets of $100m and the super wealthy donate 1% of a $1 billion wealth = $10m = 10,000 babies.
  • Donors cannot choose which equities are used or choose donees and all donations are anonymous

The equities Birth Certificate concept requires government buy in, as it is critical that donees can accumulate tax free and so that Donors can get a tax deduction. The first countries to do this will prosper from a lot of wealth creation.

No market timing, but free education about the value of being greedy when others are fearful and vice versa. In most 20 year periods, equities have yielded positive returns, so even babies born during the late stage of a bull market will usually do ok.

However the babies born when the conventional wisdom hates equities will do best. There are over 400k births every day, so those babies fortunate enough to be born when this magazine trumpeted “the death of equities” (image source) will do well – and free education about the value of being greedy when others are fearful and vice versa will be them comparing the value of their certificates to those who invested when equities were being hyped by the media.

The equity assets on the birth certificates must be fee-free and global. This will require some global index provider to become a partner.

Some subjects are too complex for our short attention spans, so we do 4 posts one week apart, each one short enough not to lose your attention but in aggregate doing justice to the complexity of the subject. Stay tuned by subscribing.

Part 1

Part 2

Part 3

Part 4

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/2022/01/18/part-3-birth-certificates-to-get-people-onto-the-1st-rung/

Jack Dorsey wants to keep the force in bitcoin decentralized

https://dailyfintech.com/2022/01/17/jack-dorsey-wants-to-make-sure-bitcoin-stays-decentralized/

Jack Dorsey, CEO of Block (formerly Square), has been a consistent advocate of bitcoin. Dorsey both personally and professionally has supported bitcoin for years. In 2018, he said that bitcoin will eventually become the world’s single currency. In 2020, Square purchased about $50 million worth of bitcoin. In early 2021, Square bought another $170 million worth of bitcoin. At the Bitcoin 2021 Conference in June, Dorsey explained that he sees bitcoin as a way to protect against currency devaluation and expedite transfers of funds across borders. Late last year, Square changed its name to Block, to denote a broader mission that includes blockchain and economic empowerment. With Block’s bitcoin holdings at 8,207 BTC, worth $354 million at current prices, Block hasn’t changed its tune on bitcoin. Last week Dorsey officially announced that Block would get into Bitcoin mining to make it easier for people to mine bitcoin. The announcement was made on Twitter and confirms information that dates back to October that the company would eventually enter the mining business. Block aims to create an “open bitcoin mining system” which is easily available, reliable, performant, power-efficient, and can be used by anyone.

Ilias Louis Hatzis is the founder and CEO at Kryptonio wallet. Please participate in our Crypto Wallet Survey, we could use your help. It’s seven simple multiple-choice questions about crypto wallets and you should be done in 60 seconds. The survey is completely anonymous.

When bitcoin was launched in 2009, many were not sure how it would play out. However, the world’s first cryptocurrency gained rapid success and cemented its dominance as the market leader, far ahead of its competition. In December, bitcoin passed another milestone. Ninety percent of all bitcoins set to ever enter the supply have now been mined. While it took 12 years to mine the first 90 percent of bitcoin’s total supply, the remaining 10 percent will take 120 years to mine. The 21 millionth bitcoin will not be mined before 2140.

Bitcoin gets into a lot of hot water because of its energy consumption and electricity is the largest cost involved with mining operations. A Bloomberg report estimated that in 2021 bitcoin would use 91TWh of energy, as much as Pakistan. Awareness of bitcoin’s “energy problem” was heightened when Elon Musk said Tesla was suspending bitcoin payments over concerns about the rapidly increasing use of fossil fuels for bitcoin mining and transactions. While most media outlets portray a negative picture of bitcoin’s energy consumption and it’s true bitcoin mining consumers more electricity than many cities and countries, we shouldn’t forget that 74% of bitcoin mining is powered by renewable energy and bitcoin mining is greener than most other systems out there.

Most people haven’t been able to mine bitcoin for years. Mining is a difficult proposition for individual miners and today it’s concentrated in the hands of few. Companies and even governments now invest millions to create server farms where they mine bitcoin. NBER researchers found that the top 10% of miners control 90% of the bitcoin mining capacity, and just 0.1% (about 50 miners) control 50% of the mining capacity. Such a high concentration could make the bitcoin network vulnerable to a 51% attack, where a colluding set of miners or one miner is able to take control of a majority of the network.

The mining process is complicated and requires a massive amount of dedicated hardware, trying to solve a computationally difficult puzzle and verify a block of transactions.

In the early days of bitcoin, miners would connect to mining pools to earn a more consistent paycheck. All of the miners worked together and when one member of the pool got lucky, the entire pool benefited. Eventually, weighted mining pools emerged, taking in all of the bitcoin earned by their miners and redistributing them based on mining power contributed. To prevent mining pool centralization, protocols like Stratum V2 are aiming to change the relationship between the miner and the mining pool. Instead of mining pools deciding what transactions go into blocks, miners decide which ones to include.

As bitcoin’s value skyrocketed in 2021, it’s become more challenging to mine without economies of scale and there are concerns that the network could become centralized, controlled by a handful of miners, just like the centralized web services we use today that hold all of our data

Building an open bitcoin mining system to democratize what may “become the world’s single currency”, is critical for a decentralized and permissionless future.

When the internet was first designed, it was conceived to be a decentralized network where we were supposed to run our own servers and not just be a client of Google, Facebook, and others.

Dorsey wants to overhaul the mining process in order to tackle the overwhelming challenges that are holding bitcoin back. For bitcoin to remain a community rather than an oligarchy, the community must be able to participate in a meaningful way. Dorsey wants everyone to be able to easily run their own node, without having to rely on anyone else to verify transactions and find out the state of the blockchain.

That’s the ultimate key to decentralization and what we should be thinking about when it comes to web 3.0 and the metaverse.

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https://dailyfintech.com/2022/01/17/jack-dorsey-wants-to-make-sure-bitcoin-stays-decentralized/

XBRL News about case studies, structured data and Oman

https://dailyfintech.com/2022/01/13/xbrl-news-about-case-studies-structured-data-and-oman/

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

1  A broader and deeper use of structured data

2  CMA joins XBRL International and launches XBRL platform

The Capital Market Authority (CMA) joined the XBRL International concurrently with the launch of the XBRL platform as part of the CMA’s strategy to prepare for an appropriate investment environment to enhance the performance of the capital market and insurance sectors through continued development of the legislative and technological systems related to disclosure of the issuers of securities and insurance companies in line with the Oman Vision 2040  to reach digital transformation which is a requirement to ease the services for all the parties as an important part of the national priorities.

The introductory paragraph actually is just one sentence, would you believe it.

3 Data how you need it: XBRL US case study explores huge RoI

XBRL US recently published yet another interesting case study, this time examining how Liberty Mutual Surety has used XBRL to automate the generation of structured, normalised data in the format the company requires.

These case studies are always valuable reminders of the optionality for value creation introduced by generic mandates for structured data reporting. Yes, thinking about you, Switzerland …

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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/2022/01/13/xbrl-news-about-case-studies-structured-data-and-oman/

AIG200: $1.3 Bn in digitalization to regain past glory

https://dailyfintech.com/2022/01/13/aig200-1-3-bn-in-digitalization-to-regain-past-glory/

During the financial crisis, American International Group (AIG) could only be saved by a government bailout. Since then, the prevailing sentiment has been that even without the crisis, AIG would have destroyed substantial value notwithstanding credit default swaps, largely on account of recurring material issues in its core operations. A decade after the crisis, AIG continued to struggle to generate an acceptable return.

Due to the protracted duration of AIG’s underperformance, the market hasn’t entirely acknowledged the improvement that management has achieved. In 2020, as part of its massive AIG200 initiative, AIG invested a $1.3 billion over a three-year period, to revamp core processes, technology infrastructure and services. The moniker AIG200 symbolizes the insurer’s next 100 years after its centennial in 2019. The emphasis is meant to be on investments that enhance the customer and distributor experience, with a significant bias on investing in modernized and digitized workflows.

Before AIG200 started, efforts were aimed at retracting its “go big” strategy, shrinking of risk appetite, and increasing reinsurance use. This caused a short-term impact of increasing combined ratios. The expense ratio crept up during this de-risking phase, as more aggressive use of reinsurance lowered net premiums. On the other hand, it created a solid base to drive underwriting improvement, especially in commercial lines business, historically its worst performer. Disciplined risk selection has resulted in better underlying loss ratios over time. While AIG made significant progress, it had not fully closed the gap with market leaders.

The work on AIG200 began in 2020 with 10 core programs. With a one-time cost of $1.3 billion, run-rate savings were forecast to be $600 million and $1 billion cumulative in 2021 and 2022. Approximately 75% of the savings are expected in the P&C segment. Based on its projections, it should reduce combined ratio by about 160 basis points in line with management’s target for a combined ratio below 90% by the end of this year. Assuming a 5% estimate for average catastrophe losses, it would result in a combined ratio a little below 95%, putting AIG roughly in line with peers.

Within AIG, its life insurance and property and casualty operations have performed very differently, with P&C being the laggard. P&C operations combine both commercial and personal lines, but commercial operations form the largest portion, accounting for two thirds of net written premiums in 2020. Out of the 10 programs, three have a focus on the P&C business. These programs involve building out a standard commercial underwriting program designed to enable and improve better underwriting analysis, enhanced “digital first” efforts for AIG’s Japanese business, and improved capabilities in AIG’s Private Client Group.

Commercial P&C insurers looking for opportunities to build a competitive edge, focus on the least commoditized segments. A specialty line such as excess and surplus (E&S) lines, is one such segment. Outside of Lloyd’s, AIG is the largest E&S underwriter in the United States. Being among the largest commercial P&C underwriters means that it can leverage its proprietary database to better price and select risks than smaller peers. Investments in digitalization such as AIG100 should allow it to better exploit this potential advantage. Besides, AIG has among the widest geographic reaches, lending it an advantage in garnering business from large MNCs.

Companies tackling digital disruption make brisk changes in key areas—deploying innovative digital business models, forming agile squads and deploying new analytics. Yet, after tasting initial success, these 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.

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https://dailyfintech.com/2022/01/13/aig200-1-3-bn-in-digitalization-to-regain-past-glory/

Stablecoin News for the week ending Wednesday 12th January.

https://dailyfintech.com/2022/01/12/stablecoin-news-for-the-week-ending-wednesday-12th-january/

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

This week was very much about the ongoing balancing act between regulation and innovation.

First, the major VC firm Andreesen Horowitz called for a careful “Do no harm” approach to regulation. 

“Everyone’s got a different idea of how crypto regulations should look. After watching crypto exchanges Coinbase, FTX, and Binance put forth their visions, the venture capital firm responsible for funding many of the space’s startups and unicorns has produced its own recommendations.

In a document titled “How to Build a Better Internet: 10 Principles for World Leaders Shaping the Future of Web3,” Andreessen Horowitz, or a16z, argues for a multi-stakeholder approach to regulation that includes governments, businesses, and civil society groups. It also argues for stablecoins—fiat-pegged cryptocurrencies that offer easy entry into decentralized protocols but that have been eyed warily by U.S. officials—to be “well-regulated” and then put to work improving the financial system.”

Interestingly, as someone who has been involved in developing the self regulatory  system adopted in the FX wholesale market, they are proposing a principal, rather than rule based approach.  Rules are easier to engineer around, while principals focus on intent and causation.  The 10 principles proposed are:

Andreessen Horowitz Calls For ‘Targeted’ Regulations for DeFi, Stablecoins and Web3 – Decrypt

Getting Regulation right is a non-trivial matter and important.  We are already seeing fear of stablecoin regulation and USDT and USDC centralization, making decentralized stablecoins like MIM, FRAX and UST attractive to DeFi investors.  This is a handy reminder that for any Regulatory/Policing system in a western democracy to be effective it must have citizen consent.   

Crypto regulation concerns make decentralized stablecoins attractive to DeFi investors (cointelegraph.com)

And, in our final story, PayPal, who in it’s very early days, had developed a stablecoin before pivoting to credit and debit cards, is now looking to get back in the business.  A big move that validates the stablecoin space!

PayPal Is Exploring Creating Its Own Stablecoin as Crypto Business Grows (coindesk.com)

So in summary, for stablecoins this week we saw an interesting contribution from the industry in how it should be regulated, a move by some investors to hedge against looming regulation and a big player starting preparations to enter the market.

While Crypto struggles to go mainstream, stablecoins are racing there!

___________________________________________________________________________________________________________

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

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/2022/01/12/stablecoin-news-for-the-week-ending-wednesday-12th-january/

Part 2: Most of what is sold as Democratization of Wall Street is one of these 3 lies

https://dailyfintech.com/2022/01/11/part-2-most-of-what-is-sold-as-democratization-of-wall-street-is-one-of-these-3-lies/

Before looking at what real democratization of Wall Street could look like, today’s Part 2 looks at how purely profit oriented ventures that dress up the pitch in one of 3 democratization of Wall Street lies.

Lie 1 = smaller units access. This pitch typically touts the investment returns of an asset class that requires a big minimum entry fee from the wealthy and then offers retail investors access for a much lower minimum entry fee. Asset classes of this type include commercial real estate,  private equity including venture capital and hedge funds. The smaller units pitch is something along the lines of access for $10k not $1m. This usually packaging an asset that intermediaries representing the wealthy want to sell you.

Lie 2= free is good for you. Free is the perfect way for a venture to get to scale, but if that venture is sold to investors as a profit oriented venture, always remember that you the user are the product being sold. You might consider that trade (your data for a free service) is a good one for you but this is NOT democratizing of Wall Street, it is packaging punters on behalf of Wall Street.

Lie 3 =  $ billions of market cap means $billions of value. This is typically the private equity/venture capital unicorn pitch “look we just did a round valuing the company at $x billions of market cap, now you get the opportunity to buy in at $x billion++ valuation.”Before your succumb to being flattered as an insider, check small print such as preference rights.

These ventures are often very successful judged purely on their profit generation. It is their impact investing democratization of Wall Street pitch that is a lie.

Some subjects are too complex for our short attention spans, so we do 4 posts one week apart, each one short enough not to lose your attention but in aggregate doing justice to the complexity of the subject. Stay tuned by subscribing.

Part 1

Part 2

Part 3

Part 4

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/2022/01/11/part-2-most-of-what-is-sold-as-democratization-of-wall-street-is-one-of-these-3-lies/

Ethereum 2022: The Force Awakens

https://dailyfintech.com/2022/01/10/ethereum-2022-the-force-awakens/

Last year was a turning point for the entire crypto industry. One thing that stood out was the growth of Defi, a decentralized financial system that is primarily based on the Ethereum blockchain. Ethereum not only made Defi possible but NFTs that went viral and primarily live on the Ethereum blockchain. Ethereum is powering just about every innovative and disruptive application that is changing the world. Many of these applications are already changing the world by inventing new ways to transfer property, funds, debt, and equity in a safe and secure way. When you look at the numbers, Ethereum had an epic 2021, with the price of ETH rising 400% and the total transaction volume for the year reaching $5 trillion. This is some serious volume. The general consensus is that Ethereum will outperform Bitcoin and we may even see a flippening. Will Ethereum’s market cap surpasses Bitcoin’s in 2022? Will 2022 be the year the Ethereum force awakens?

Ilias Louis Hatzis is the founder and CEO at Kryptonio wallet. Please participate in our Crypto Wallet Survey, we could use your help. It’s seven simple multiple-choice questions about crypto wallets and you should be done in 60 seconds. The survey is completely anonymous.

The future of Ethereum wasn’t always as bright. A few years back bitcoin clones like Bitcoin Cash and Dogecoin made Ethereum look like just another coin in a massive soup of cryptocurrencies.

Earlier today, Ethereum’s price and market cap were at about $3,200 and $380 million. While Ethereum had a strong year, 2022 could be even brighter.

One of the reasons is the ETH 2.0 upgrade.

The Ethereum upgrade is expected in mid-2022 and will convert the network from proof-of-work to proof-of-stake. It will ultimately alleviate the problems around speed, costs, and scalability, making it as fast as many centralized payment processors such as VISA and Mastercard.

Proof-of-stake opens up staking which should appeal to institutional investors familiar with revenue-generating assets. If institutional investors like Microstrategy start buying up ETH then it’s going to increase demand significantly and make Ethereum a household name.

Currently, layer 2 solutions play a vital role in addressing issues relating to Ethereum’s network performance. Layer 2 blockchains are those compatible with Ethereum and provide an array of scaling solutions. The primary technologies of layer 2 blockchains are currently rollups and sidechains.

Rollups handle the computational load on their blockchain then post a batch of ledger updates to the Ethereum mainnet. This means those transactions could theoretically inherit the full security and decentralization of the base layer in the future. Sidechains do not update mainnet balances and use their own consensus mechanisms. This tradeoff is made for applications where scalability is more important than security. Polygon is the most widely used sidechain today. By the end of 2022, Ethereum will primarily be a blockchain that is used by other layer-2 networks to interact with each other.

The upgrade is important but there are a few more reasons for Ethereum to smile. While every ecosystem needs at least one killer app to drive its adoption, Ethereum has dominated multiple categories: ICOs (2017), DeFi, DAOs, and NFTs.

Without a doubt, DeFi is one of the most exciting areas in finance today, with offerings ranging from asset management, yield farming or borrowing and lending, decentralized exchanges, derivatives, and stablecoins. In 2021, the market exploded from $22 billion at the start of the year to over $250 billion locked across DeFi protocols, according to data from DeFi Llama. The market has several competitors, but Ethereum’s has the lion’s share of total value locked in DeFi, around 70%, and the upcoming ETH 2.0 upgrade, should keep it in the driver’s seat.

NFTs became extremely popular in 2021 with the total sales volume surging past $41 billion. Ethereum is the de facto medium for buying and selling NFTs, as most NFT projects are built on the Ethereum blockchain. Research has shown that Ethereum leads the NFT market, generating more than 97% of the sales. In the first few days of 2022, Ethereum NFT trading volume on OpenSea is already soaring. This coming year NFTs will gain even more traction and you can expect your grandmother to start asking you about NFTs. We will see the market explode with new use cases beyond art, collectibles, and gaming and Ethereum will be smack in the middle of it all.

If you take a look at CoinMarketCap, you’ll see that the DAOs have a market cap of $29.5 billion. According to analytics tool DeepDAO, there are over 188 DAOs with a total of $10.1 billion in assets under management. While DAOs surged last year, the legal framework around them is mostly unclear. You can think of DAOs as internet communities with a “shared” bank account and governance token that community members hold and use to vote about where to invest the money in the account. In 2022, we will see them springing up like mushrooms in all kinds of web3 projects and communities around the world as they become more mature and mainstream.

The journey has barely started, but Ethereum has already hit escape velocity. While Ethereum has the first-mover advantage, competitors are hot on its heels, so if the upgrade comes too late it could miss the boat. For now, there is a lot of optimism surrounding ETH 2.0 and as interest and adoption of NFTs and DeFi continues to grow and Web3 is fully realized, Ethereum could moon if it executes flawlessly.

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https://dailyfintech.com/2022/01/10/ethereum-2022-the-force-awakens/

This Week in Fintech ending 7 January

https://dailyfintech.com/2022/01/07/this-week-in-fintech-ending-7-january/

Welcome to 2022.

This week our experts brought you the following insights based on their experience as investors, entrepreneurs & executives.

Monday Ilias Hatzis our Greece-based crypto entrepreneur (Founder & CEO at  Kryptonio a “keyless” non-custodial bitcoin and cryptocurrency wallet, that lets users manage bitcoin and crypto, without private keys or passwords and Weekly Columnist at Daily Fintech) @iliashatzis wrote Ethereum will shape the global app economy

With the Christmas holidays, you may have missed all the hubbub that followed Jack Dorsey’s tweet that basically said that Web3 is not the decentralized dream that everyone claims it is, and instead is a hustle pushed by venture capitalists to line their pockets. Dorsey wrote“You don’t own Web3. The VCs and their LPs do. It will never escape their incentives. It’s ultimately a centralized entity with a different label. Know what you’re getting into…” A few days later Jimmy Song wrote an interesting piece and said “The advent of the token sale allowed VCs to get into a token at an early stage, but get liquidity on their assets much earlier than the 7-10 year windows typically needed in a VC-funded firm. Sure, you end up selling useless junk to the broader public, but who cares if you make money?” He also added that VCs are “middlemen that capture lots of value while not adding much.” As you can imagine this caused a big stir and exposed a deep rift over the direction of crypto.

Editor note: is there a sustainable revenue model for the decentralized Web 3? If not we will get centralization dressed up as decentralization to keep investors happy.

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Tuesday Bernard Lunn, CEO of Daily Fintech and author of The Blockchain Economy wrote: Democratization of “Wall Street” Part 1: Wealth inequality is a big problem that is easy to fix.

The fix for wealth inequality is the democratization of “Wall Street” which is the subject of this 4-parter to kick off 2022.

“Wall Street” is short hand for the global financial system, which includes many other cities such as London, Zürich, Geneva, Amsterdam, Berlin, Hong Kong, Singapore, San Francisco.

Wealth Inequality is behind a lot of problems in our world, pushing people into the arms of authoritarian leaders of both right and left. The hyper-capitalism behind the authoritarian right benefits only the 1% as did the only communism ever attempted (in the Soviet Union). Free markets with some element of capitalism is the best formula for wealth-producing innovation – and authoritarianism is very bad at this job.A more inclusive form of capitalism that works for the 99% is the best answer for people, but it is hard to reduce that to political sound bites. So my hope is that the free market will create inclusive capitalism by democratizing Wall Street.

Editor note: Some subjects are too complex for our short attention spans, so we do 4 posts one week apart, each one short enough not to lose your attention but in aggregate doing justice to the complexity of the subject. Stay tuned by subscribing.

Wednesday Alan Scott Managing Director EMEA at 24 Exchange @Alan_SmartMoney wrote his weekly roundup of Stablecoin news.

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Thursday

Rintu Patnaik, an Insurtech expert based in India, wrote: Insurtechs Need to Ace Customer Acquisition Cost (CAC) Optimization

Across industries, it’s generally accepted that it costs about five times as much to attract a new customer as it does to sell to an existing one. In insurance, the cost of acquiring customers (CAC) is higher, at seven to nine times that of selling to an existing customer. On average, that’s paying between $487 and $900 for each new customer.

Editor note: Almost any business can be evaluated on CAC/LTV (Long Term Value). In this post Rintu describes how Insurtech ventures do it.

Christian Dreyer @x3er, the Swiss based CFA who focusses on how XBRL changes our world wrote his weekly roundup of XBRL news.

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Friday Howard Tolman, a well-known banker, technologist and entrepreneur in London, wrote his weekly roundup of Alt Lending news.

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https://dailyfintech.com/2022/01/07/this-week-in-fintech-ending-7-january/

Alt Lending week ending 7th January 2022

https://dailyfintech.com/2022/01/07/alt-lending-week-ending-7th-january-2022/

Fintech reports for 2022

Too much information here by far to make any kind of sense of it so I’m not going to try. Suffice to say that we’ll see more of the same, large amounts of money chasing loss making companies with wildly optimistic valuations and a market place that understands technology but which has a very sketchy grasp of lending risk. To emphasise the last point I had a drink last week with a retired regular from my local. He has been a Suffolk resident for ever and had a small business building houses and smaller constructions. He is also connected to various social groups mainly focussing on sports clubs. He regards mainstream banks with contempt and backs this up when all they try and do is sell him life insurance. He went back to the day when the branch managers knew the local businesses, their owners, their capabilities,  their standing, their integrity. They also knew local risk parameters, political influence and a lot more besides. Small business banking has always been problematic and yet this is the gateway to an economy’s growth. I’m afraid that apps and the people that design them just don’t know how to get this stuff right.

The Dangers affecting the Euro in the 2020’s

If you are of a nervous disposition then I would avoid reading this particular piece. Matthew Lynn in the Telegraph points out that the third decade of monetary union is likely to be its most perilous. Inflation is the enemy of monetary associations and he points out that two of the most recent, Bretton Woods which fell apart during the inflation of the 1970 and then the European Monetary System which collapsed in the early 1990’s due also to inflation. The sudden return of Inflation to the political and economic agenda has come as a shock to the system to the ECB which was late to act in the first place and is now out of synch with both the US and the UK both of which are normalising monetary policy. The ECB has no such option as because if it stops the printing presses then it risks the collapse of the whole caboodle. Whilst previous crises on the periphery were containable the problem now has reached the core of the zone in Italy, France and even Germany. The ECB has been buying paper from debtor countries banking systems which are not of the highest quality. It buys Euros. It borrows foreign currencies. What would you think if you were an investor?

BNPL companies raise an astonishing $ 11 bn in venture capital during 2021

Raising this amount in equity to sustain an undoubtedly much higher sum after leverage shows the popularity of this new play on an old trick. However in inflationary times the third later instalments might not be quite so affordable as the earlier ones. Time is money and someone is picking up the tab. We haven’t had inflation rearing its ugly head for  quite some years now which means that very few credit managers have had to factor it in to their sums. Hopefully they are already doing so or we will all see the consequences over the next few years. However everyone is piling in including the established banks who are playing defensive catch up games. If this gets too big it will be those who have the security that get paid back and those that don’t will get three parts of SFA. Don’t forget that pay now pay later is essentially a way for punters to pay for things that they can’t actually afford. You can’t repossess a three month old coat or a repaired car that is owned fy a finance company. Oh dear, oh dear. As they say in “where have all the flowers gone” When will they ever learn?

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/2022/01/07/alt-lending-week-ending-7th-january-2022/