This Week in Fintech ending 30 July 2021

https://dailyfintech.com/2021/07/30/this-week-in-fintech-ending-30-july-2021/

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 Yield farming: High Rewards, High Risk?

The world’s largest cryptocurrency fell below the $30,000 threshold early last week, and many fear that  Aeolus’ bag of winds may have opened and we may see new lows. Cryptocurrencies have tumbled since mid-May, wiping some $1.3 trillion off their market value. All of the top ten most valuable cryptocurrencies are down by more than 50% since their recent highs. Bitcoin has faced a range of obstacles, including regulatory scrutiny in China, Europe, and the US and dropping hash rates. But in the last few days, the values of cryptocurrencies have all trended upward, indicating that the cryptocurrency market may be beginning to show signs of recovery. The reason behind the bounce back is Elon Musk, Jack Dorsey, and Cathie Wood speaking during a panel discussion about the future of Bitcoin. Yet, many crypto investors instead of just waiting for the value of their digital coins to grow, are now actively pursuing returns by lending out their crypto holdings or exploring other ways to earn yield and maximize their profits. “Yield farming” can result in interest rates in the double digits, which is far greater than the interest rates available in dollars.

Editor note: If Bitcoin is an asset it should earn something. The higher yields from Defi yield farming elicit two responses – positive (free market interest without central bank manipulation) and negative (this will be a honey pot for scammers).

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Tuesday Bernard Lunn, CEO of Daily Fintech and author of The Blockchain Economy wrote: 4 part series on Lightning Network Part 4: Pooh Bear says disruptive change takes longer than expected but impact is bigger than expected

Pooh, exercising his role as moderator at the Pooh Corner Tech Debate, pointed out that most people in the audience are focussed on the supply issues around Lightning Network ie how it works, but that the bigger issues maybe around the demand issues ie who will use it.

“That is why I follow the honey” continued Pooh. “The El Salvador legal tender decision is all about remittances. Through Strike and Lightning Network, people can send/receive/spend money super fast and dirt cheap. This is real competition to using USD and Western Union.”

“Being a bear of little brain”, continued Pooh in his best humble brag voice, “I do NOT have all the answers but these are the three questions I am asking.

Editor note: The last post in our 4-parter on Lightning Network

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: Catastrophe Models Are More Accessible, Insightful and Prevalent Than Ever

Five years ago, catastrophe(CAT) modelling was relatively unknown. Today, CAT modelling for hurricanes and earthquakes is fast becoming the norm in property underwriting. Catastrophes, natural or man-made, can obliterate otherwise stable businesses. Commercially available CAT models have emerged only in the last quarter century. Earlier, rudimentary methods were employed to estimate catastrophic losses as historical loss data was scarce for low frequency, high severity events and standard actuarial techniques inadequate.

Editor note: with news about wildfires in West of America/Canada and floods in Europe, this post is very timely

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/2021/07/30/this-week-in-fintech-ending-30-july-2021/

Alt Lending week ending 30th July 2021

https://dailyfintech.com/2021/07/30/alt-lending-week-ending-30th-july-2021/

Criminal Case Review Commission (CCRC) takes another look at alleged LIBOR rigger Tom Hayes case.

Tom Hayes has been fighting to clear his name ever since 2017 and despite not knowing the case intimately I feel a certain amount of sympathy for him. Once powerful institutions have decided that you must take the rap then it is very difficult to wriggle free even if you are as clean as the driven snow. The CCRC has agreed to consider an independent and as yet unpublished  report produced by Raphael Yahalom  a researcher at MIT Sloan School of Management. He apparently argues that “ the grossly inadequate” processes and policies set up by the banks are to blame for the Libor rigging scandal than individuals such as the hapless and perhaps grievously wronged Mr. Hayes. I can’t wait to read it. I was involved in the syndicated loan business in the early 1970. In those days lead managing banks deliberately sought Japanese Banks to act as reference banks for rollover pricing. Japanese banks were at the time subject to a premium over other banks thanks to very high leverage and perceived  enhanced credit risk. This premium could be as high as 3/8%. Typically with three reference banks the borrower would pay an extra 1/8% over and above the agreed risk margin. The borrowers were not informed of this but the banks new full well what they were doing. It was unethical, dishonest and arguably fraudulent. I am still surprised that no class actions have been launched.

NatWest suffers because of the dead hand of government

Another very good piece by the Telegraphs Matthew Lynn about why the government should aim for a quick clean all at once break from NatWest. I agree with him. The drip drip strategy currently being pursued by the Clueless UK government might bring in a bit more money but in the meantime NatWest is left to suffer under the dead hand of government in a market that is fizzing with new technologies and ideas. Revolut a digital newcomer has a higher valuation than the tired and plodding residue of Fred the Shred’s RBS. Some years ago RBS markets alone were running nearly 400 disparate applications. Needless to say it never did work very well.

Starling’s Boden says Revolut’s new travel feature clutching at straws

There is obviously no love lost between digital challenger banks Starling, Revolut and Monzo. It is a shame because they all have a lot in common. They are all run by teckies rather than bankers, are great at managing deposits but not so good on the asset side of the balance sheet and they all lose money to a greater or lesser extent. Nevertheless Boden’s comment that ”banks are not the best people to book your holiday” was a somewhat arrogant and unprovable statement. On the face of it Revolut’s foray into travel has something going for it. Travel involves credit, payments money, foreign exchange, and a network of digital connections. Why not see if  there is an opportunity in vertically integrating. Personally I would not book a holiday through a bank but this is what digital banking is all about disrupting traditional suppliers. The Revolut app is undoubtedly a risk but probably not any worse than lending money when you don’t know much about it. You never know it might just work rather well.

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/2021/07/30/alt-lending-week-ending-30th-july-2021/

XBRL News about trends and Nigeria

https://dailyfintech.com/2021/07/29/xbrl-news-about-trends-and-nigeria/

Here is our pick of the 3 most important XBRL news stories from the last week. 

1  Major European trends for reporting

Whether it’s the upcoming mandatory ESG disclosures or increased scrutiny reflected in data granularity, the road leading up to 2022 (and beyond) is a challenging one. In a financial world that is so profoundly wired together, a small change on one end can unravel a process on another end, and the wind of change will affect all involved. Approaching the publication of our whitepaper on major trends shaping reporting in the European Union, we share our subjective teaser on trends that are and will be a major influence.

Europe currently is in the vanguard for reporting of all kinds. Here’s a summary of the relevant trends.

2 99 days that will change reporting

The coming days should see greater certainty emerge in the environmental, social, and governance (ESG) standards-setting space, observes XBRL International CEO John Turner.“For those of us very used to the normal pace of accounting standards setting (or indeed, disclosure rule creation), the speed with which policy makers have turned their attention to the goal of mandatory and consistent sustainability reporting is breathtaking,” he writes in a new blog post.

Due to his position, John has great insights into reporting developments around the world. Check out his 99 days!

3 New for Nigeria: XBRL reports blaze a trail

We were delighted to hear this week that Dangote Cement, Africa’s largest cement producer, has produced its most recent financial statements in XBRL, using the International Financial Reporting Standards (IFRS) Taxonomy. This marks the first time a Nigerian listed company has reported its results using XBRL.

It is genuinely encouraging to see an important company in Africa’s largest country by population stepping up to true leadership by voluntarily filing XBRL reports! Go Nigeria, go Africa!

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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/2021/07/29/xbrl-news-about-trends-and-nigeria/

Catastrophe Models Are More Accessible, Insightful and Prevalent Than Ever

https://dailyfintech.com/2021/07/29/catastrophe-models-are-more-accessible-insightful-and-prevalent-than-ever/

Five years ago, catastrophe(CAT) modelling was relatively unknown. Today, CAT modelling for hurricanes and earthquakes is fast becoming the norm in property underwriting, for catastrophes that can obliterate otherwise stable businesses. Commercially viable CAT models started emerging only in the last quarter century. Earlier, rudimentary methods were employed to estimate catastrophic losses as historical loss data was scarce for low frequency, high severity events and standard actuarial techniques inadequate.

CAT modelling is the practice of using computing horsepower to mathematically represent physical characteristics of catastrophes. Dominant CAT models in use are AIR Worldwide(AIR), Risk Management Solutions(RMS), and EQECAT. These modelers develop probabilistic models that help organizations prepare for financial impacts of catastrophes. (Re)insurers, rating agencies, risk managers and brokers license models from these firms.

It was the unprecedented loss sizes experienced during Hurricane Andrew in 1992 that exposed deficiencies in the erstwhile actuarial approach to quantify cat losses. When the hurricane hit, AIR promptly issued a fax to its clients estimating model losses in excess of $13 billion. Months later, the Property Claims service reported an actual industry loss of $15.5 bn. Losses hit the market hard, resulting in insolvency of 11 insurers. Subsequently, adoption of catastrophe models grew briskly, turning into a more sophisticated and reliable basis to catastrophe risk assessment.

CAT models are designed to pinpoint locations where future events are likely to occur, intensity likelihood, estimated damage ranges and insured losses by future events. Factors that obviate use of traditional methods include: constantly morphing exposure landscapes, new properties in high hazard areas and changes in building materials and designs. Models combine historical disaster information with current demographic, building (age, type and usage), scientific and financial data to determine potential cost of catastrophes for specified geographic areas.

The process of developing CAT models is complex, drawing on expertise from a broad range of disciplines, including meteorologists, seismologists, geologists, engineers, mathematicians and actuaries. CAT models provide a wide range of outputs e.g. exceedance probability curves, real time loss estimates and loss tables.

Insurers use CAT modelling for underwriting and pricing. Models assess risk in an exposure portfolio, guiding underwriting strategy and reinsurance decisions. It helps reinsurers and brokers to price and structure contracts, while bond investors use it in pricing and structuring of catastrophe bonds. Some regulators allow insurers to use CAT modelling in rate filings for pricing.

The unprecedented severity of storms during the 2004-05 hurricane seasons led to CAT modelers facing criticism for underestimating losses. However, it is important to recognize that there is no one-size fits all approach and different approaches exist, each using different assumptions, data inputs and computational algorithms.

As in most of insurance, new technologies are making a dent in CAT modeling. Xceedance, a global provider of insurance consulting and services, offers On-Demand Catastrophe Modelling Services, using the open Oasis Loss Modelling Framework. It allows global and regional catastrophe modelling companies to implement models on the Oasis platform, while delivering modelling services on-demand to the insurance industry with no annual licensing requirements and the flexibility to choose peril models from its community of expert model providers.

The CAT modeling industry is also steadily moving towards greater use of AI, a step change from its focus on traditional statistical techniques. In data-assisted approaches, physical models simulate the underlying processes. Such usages are emerging in organizations such as Cytora and Reask. A number of partnerships have evolved tying carriers with insurtechs, example being global reinsurer Scor with insurdata and KatRisk.

Despite the widespread use of CAT models, as with financial models, it is not an exact science. But as the probability of extreme weather-induced catastrophes becomes acute, CAT models will grow as a vital component of risk management toolboxes for (re)insurers.

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https://dailyfintech.com/2021/07/29/catastrophe-models-are-more-accessible-insightful-and-prevalent-than-ever/

Stablecoin News for the week ending Wednesday 28th July.

https://dailyfintech.com/2021/07/28/stablecoin-news-for-the-week-ending-wednesday-28th-july/

Stablecoins are spooky!

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

This week we saw a lot of talk from regulators about what we should be scared about, but it remains unclear if and what they will ever do.

Stablecoin Regulations Are Coming Soon – CoinDesk

Part of the problem is when the gamekeeper turns into the poacher, if the regulators decide to leap into the provision of stablecoins such as CBDC, who is going to protect our privacy when the protector is also the issuer, operator and regulator?  Well maybe there is a technology solution, this paper lays out a technical architecture where you don’t have to trust humans because it is all in the code.  Sounds familiar, a bit like Bitcoin for Central Bankers!

“Abstract.  Most central banks in advanced economies consider issuing central bank digital currencies (CBDCs) to address the declining use of cash and to position themselves against increased competition from Big Tech companies, cryptocurrencies, and stablecoins. One crucial design dimension of a CBDC system is the degree of transaction privacy. Existing solutions are either prone to security concerns or do not provide full (cash-like) privacy. Moreover, it is often argued that a fully private payment system and, in particular, anonymous transactions cannot comply with anti-money laundering (AML) and countering the financing of terrorism (CFT) regulation. In this paper, we follow a design science research approach (DSR) to develop and evaluate a holistic software-based CBDC system that supports fully private transactions and addresses regulatory constraints. To this end, we employ zero-knowledge proofs (ZKP) to impose limits on fully private payments. Thereby, we are able to address regulatory constraints without disclosing any transaction details to third parties.“

Designing a Central Bank Digital Currency with Support for Cash-Like Privacy by Jonas Gross, Johannes Sedlmeir, Matthias Babel, Alexander Bechtel, Benjamin Schellinger :: SSRN

With all of the fuss about what is actually backing Tether and Circle stablecoins, two co-founders of the Puerto Rico-based digital FV Bank say they have become the first in history to be awarded a U.S. patent for a stablecoin design based solely on government debt.

The patent application, filed last year on the back of a pre-existing patent by Nitin Agarwal and Miles Paschini, describes their instrument as a “tokenized crypto asset backed by sovereign debt.”  Its working name is Yuga Coin, which in Sanskrit means the “joining of two things,” or in this case, “generations,” Agarwal told CoinDesk in an interview on Tuesday.  “We aim to create multiple stablecoins that are government-friendly, know-your-customer (KYC), anti-money laundering and Financial Action Task Force (FATF) compliant based on different currencies,” Agarwal said.

US Patent Granted to Stablecoin Concept Backed by Government Debt – CoinDesk

So in summary, while the regulators increasingly talk the talk, we have a proposed solution so that they can maybe walk the walk.  In the meantime some young entrepreneurs have jumped in and promised that if you really want government money, you can have it from a private issuer and it’s called Yuga.

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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/2021/07/28/stablecoin-news-for-the-week-ending-wednesday-28th-july/

4 part series on Lightning Network Part 4: Pooh Bear says disruptive change takes longer than expected but impact is bigger than expected

https://dailyfintech.com/2021/07/27/4-part-series-on-lightning-network-part-4-pooh-bear-says-disruptive-change-takes-longer-than-expected-but-impact-is-bigger-than-expected/

Pooh, exercising his role as moderator at the Pooh Corner Tech Debate, pointed out that most people in the audience are focussed on the supply issues around Lightning Network ie how it works, but that the bigger issues maybe around the demand issues ie who will use it.

“That is why I follow the honey” continued Pooh. “The El Salvador legal tender decision is all about remittances. Through Strike and Lightning Network, people can send/receive/spend money super fast and dirt cheap. This is real competition to using USD and Western Union.”

“Being a bear of little brain”, continued Pooh in his best humble brag voice, “I do NOT have all the answers but these are the questions I am asking:

  • How many people in the Rest of the World are getting paid in Bitcoin and spending in Bitcoin?
  • How much money are investors putting into uses of Lightning Network? Are those startups focussed on West or Rest?
  • Are people in the Rest of the World using Bitcoin or some other cryptocurrency?

I am not interested in a lot of opinions, show me the data!

Some subjects are too complex for our short attention spans, so we do 4 posts one week apart (see here for 1,2,3 some may not be published yet), each one short enough not to lose your attention but in aggregate doing justice to the complexity of the subject. Stay tuned by subscribing.

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/2021/07/27/4-part-series-on-lightning-network-part-4-pooh-bear-says-disruptive-change-takes-longer-than-expected-but-impact-is-bigger-than-expected/

Yield farming: High Rewards, High Risk?

https://dailyfintech.com/2021/07/26/yield-farming-high-rewards-high-risk/

The world’s largest cryptocurrency fell below the $30,000 threshold early last week, and many fear that  Aeolus’ bag of winds may have opened and we may see new lows. Cryptocurrencies have tumbled since mid-May, wiping some $1.3 trillion off their market value. All of the top ten most valuable cryptocurrencies are down by more than 50% since their recent highs. Bitcoin has faced a range of obstacles, including regulatory scrutiny in China, Europe, and the US and dropping hash rates. But in the last few days, the values of cryptocurrencies have all trended upward, indicating that the cryptocurrency market may be beginning to show signs of recovery. The reason behind the bounce back is Elon Musk, Jack Dorsey, and Cathie Wood speaking during a panel discussion about the future of Bitcoin. Yet, many crypto investors instead of just waiting for the value of their digital coins to grow, are now actively pursuing returns by lending out their crypto holdings or exploring other ways to earn yield and maximize their profits. “Yield farming” can result in interest rates in the double digits, which is far greater than the interest rates available in dollars.

Ilias Louis Hatzis is the founder and CEO at Kryptonio wallet.
Get Kryptonio – the safest and simplest crypto wallet.

Yield farming has been the cornerstone concept for DeFi from 2020. Yield farming, the hunt for passive profits on cryptocurrencies, is already taking shape on a number of new lending platforms. Yield farmers invest their money in the hope of earning high returns, frequently in the double digits. Yield farming is crypto’s answer to traditional lending.

Compound, an Ethereum-based credit market, introduce one of the largest DeFi lending platforms, where users may now borrow and lend any cryptocurrency on a short-term basis at rates calculated by an algorithm. A typical yield farmer transfers assets among pools on Compound, continuously pursuing the pool that offers the greatest annual percentage yield in order to maximize returns. On a practical level, it is similar to a technique used in conventional banking called a foreign currency carry trade, in which a trader attempts to borrow the currency with a lower interest rate and lend it to the currency with a greater rate of return.

In early July, Coinbase unveiled a savings account with a 4% APY (annual percentage yield), taking aim at U.S. banks, fintechs, and other brokerages alike. To use the high-yield savings account, savers will need to convert their dollars to USDC.

Rivals like Celsius, Hodlnaut, and Nexo offer yields of 8.69%, 10.5%, and up to 12% on USDC accounts, respectively. Amber Group, a Hong Kong-based startup became a unicorn, worth $1 billion, after a June fundraising round, in just four years since it launched.

However, there’s a big catch with all of these savings accounts. These crypto brokerages use their savings deposits to fund margin lending against crypto assets, so your savings are still subject to the downside of a crypto crash. Coinbase is guaranteeing the principal balance of these USDC savings accounts, so savers can take comfort in the stability of their savings at Coinbase relative to other higher-yielding crypto exchanges.

Coinbase’s guarantee is great, but there is a significant difference between Coinbase’s guarantee of your principle and the guarantee offered by major U.S. banks on savings accounts and money market accounts. What’s the difference? Federal deposit insurance provided by FDIC protects checking and savings accounts up to a maximum of $250,000 in value.

Coinbase’s new savings account is not insured by the Federal Deposit Insurance Corporation (FDIC) because Coinbase is not a bank. While it’s highly unlikely, this means that if Coinbase was to go bankrupt for some reason, there’s no guarantee that your savings account principal at Coinbase would be safe.

Price volatility is not the only risk when it comes to yield farming. Investors run the risk of having their digital wealth stolen by scammers. From Jan-April, DeFi fraudsters stole $83.4 million in DeFi fraud losses, according to CipherTrace. In June, Mark Cuban “got hit” as a yield-farming operation imploded. After peaking at $60, the underlying token became worthless, in what some called a crypto bank run.

Hacking is another big problem as DeFi applications are open source and can be vulnerable to hacks. There is also the risk of joining DeFi platforms with young, unproven tokens that have a high chance of losing their value, leading the entire dApp ecosystem to crash.

While regulators appear to be on the attack, New Jersey, Texas, and Alabama served a cease and desist order to BlockFi, the market is highly unregulated. Regulators seem to point to BlockFi’s Interest Account (BIA), which offers rates that consumers are now becoming accustomed to in DeFi, but that have blown traditional banking rates out of the water. Regulators will have difficulty dealing with yield farming. Considering the fragmented and diverse nature of the market the task for regulators seems almost impossible. Who and what is there to regulate? From a regulatory standpoint, the yield farming market poses several serious and multifaceted risks and challenges, that will become more serious as the market further grows.

Any investment requires a balancing act, between risk and reward. Yield farming is a high-risk, high-reward investment option that is worth pursuing, as long as you understand the various risks associated with it and develop a strategy to deal with them.

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This Week in Fintech ending 23 July 2021

https://dailyfintech.com/2021/07/23/this-week-in-fintech-ending-23-july-2021/

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 What’s next for DeFi?

In the financial world, 2021 will likely be remembered for two things. First, it was the year that Bitcoin began to gain traction, with a growing number of major financial institutions, huge technology corporations, and even a government signing on. Second, it’s the year DeFi’s value exploded, rising from less than $1 billion to $88 billion, since May 2020. More importantly, DeFi gets rid of the necessity for centralized regulated money custodians and creates a new system based on transparency, democracy, and seemingly limitless mobility.

Editor note: Ilias takes us on a data-driven tour of the state of the art in Defi (Decentralised Finance).

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Tuesday Bernard Lunn, CEO of Daily Fintech and author of The Blockchain Economy wrote: 4 part series on Lightning Network Part 3: Tigger says be patient it is happening and will change everything

Tigger bounced onto stage at the Pooh Corner Tech Debate and got a big cheer when he said “soon all Bitcoin wallets will have a Lightning Network capability and users will simply notice faster confirmation and lower fees.”

A positive heckler shouted “and that will solve the economic incentive issue for node operators that Eeyore was blathering about”.

On an excitable roll, Tigger pointed to recent news indicating traction.

Editor note: If last week’s post was too bearish for you, you will like this bullish take on Lightning Network.

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: API-led Platform businesses rising – Swiss Re’s iptiQ in focus

Digital ecosystems, orchestrated by powerful platform businesses and crisscrossing traditional industry sectors, are estimated to top 30% of global economic activity by 2025. While Amazon, Google, Alibaba, Tencent are early pioneers, others are shaping up across strata, in B2B as well as B2C. They thrive by efficiently matching supply with demand while solving deep entrenched problems, such as protection gaps.

Editor note: Rintu analyses the B2B2C ecosystem from Swiss Re that they call iptiQ

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/2021/07/23/this-week-in-fintech-ending-23-july-2021/

Alt Lending Week 23rd July 2021

https://dailyfintech.com/2021/07/23/alt-lending-week-23rd-july-2021/

Bank of England signals concern over Cloud providers dominance in UK financial sector

To be honest I am surprised that it has taken this long for this undoubted issue to surface. Let’s put it this way if all cloud companies were Chinese would we have tolerated the migrations we have had to date? Cloud computing is obviously top heavy with the old lady estimating in 2019 that four firms controlled 65% of the market. The bank seems to have three main issues concentration of sensitive data and resilience are the first two. But  Andrew Bailey, the bank’s governor made the extraordinary claim that he had seen examples of Cloud companies using “ market power” to deny their companies information which allowed them to monitor risk. A bit more digging into exactly what this meant might be appropriate? The reason that Cloud computing exists is because it is cheaper. Add to this the pigs ear that most major banks have of managing their IT estates and it becomes a compelling and profitable way of doing things. The traffic here is only going one way. Nevertheless I suspect that efforts to investigate the developmental integrity of these large companies will yield little benefit. Ultimately a discussion with the major players on how they mitigate the undoubted risks might be a better way of going.

Big banking players need to think hard on geopolitical risk of China

Going back to the previous comment I wonder what we would be thinking now if all cloud provision was owned by the Chinese? President Biden is making it clear that certain practical difficulties are emerging over the increasingly hostile stance taken by China particularly over Hong Kong. From the UK perspective the spotlight falls on HSBC the largest London based Global Bank. It’s performance has been very good up until now largely because of its focus on the buoyant and growing Asian market. However Biden is signalling that those doing business with the Chinese might have to take a hard look at their US operations. HSBC seems to be pursuing a strategy of consolidating its Hong Kong operations despite the obvious growing and accelerating political tensions. HSBC seems to want to have its cake and eat it too but in reality if it wants to keep the Western part of its franchise it will have to be careful. The US has real teeth when it wants to use them. Some of us oldies still remember what it did to Iran just over 40 years ago. HSBC and many others might have to make some really tough choices.

The Debt conundrum is a UXB!

Another must read article from the Daily Telegraph’s City Editor Ben Marlow and he doesn’t pull any punches. He is telling all of us City watchers what we intuitively knew already that there is a toxic mix of inflationary pressures, overvalued assets and a market place tremendously vulnerable to a sharp rise in Interest rates. Nevertheless that is where not just the UK but the whole western world led by the US happens to be. The UK banking sector seem more or less intact at the moment but as pointed out there are red flags all over the place. Government policy during the pandemic has been life support for a lot of businesses how they will cope with financing the expected post COVID bounce from a stretched banking system within both the UK and Continental Europe remains to be seen. Bond defaults are also rising. But the combination of inflationary pressures and economies that cannot take the medicine of higher interest rates is just as it is described here. An unexploded bomb waiting to go off.

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/2021/07/23/alt-lending-week-23rd-july-2021/

XBRL News about sustainability reporting, implicit reporting and NFTs

https://dailyfintech.com/2021/07/22/xbrl-news-about-sustainability-reporting-implicit-reporting-and-nfts/

Here is our pick of the 3 most important XBRL news stories from the last week. 

1  Get set, ready, go green: prepare for sustainability reporting

  • From manufacturing to investment, all market sectors are witnessing a paradigm shift in reporting as governments move from financial stability to financial sustainability.
  • Much is still unknown, with fast-moving developments to set sustainability-related reporting standards across the globe underway.
  • Regulators recognise that sustainability-related disclosures are a high-stake game, and sustainability reporting will likely become mandatory soon.

A very nice post indeed, summarising the upcoming challenges for sustainability reporters (that’s you, preparers!), including a timeline of expected milestones.

2 IFRS discusses tagging of implicitly reported concepts and data consumption problems

What happens when some values go untagged? If we know A and B, can we simply assume C? In case you missed it, a really interesting presentation by Karlien Conings asks whether lack of tagging of implicitly reported concepts hinders digital consumption of financial information, and what might be done about it. This was discussed at the June 2021 meeting of the IFRS Taxonomy Consultative Group.

While this may look like an arcane technicality of digital financial reporting, it really goes to the core of the onto-logical completeness and accuracy of digital reports as opposed to how the mental representation of a financial report takes shape in the mind of its (qualified) reader. A review of IAS 1 may be in order.

3 Auditchain to use NFTs for accounting and disclosure controls

The launch of the world’s first decentralized accounting, audit, financial reporting virtual machine will feature non-fungible tokens for Proof of Assurance of disclosure controls and to allocate royalties between creators and validators of control logic. Auditchain Labs AG, (https://auditchain.finance) the developer of the world’s first decentralized accounting, financial reporting, audit and analysis virtual machine for assurance and disclosure, today announced a new NFT creation platform that will allocate royalties between curators and validators of global standard logic-based accounting and disclosure control components. 

Auditchain is making great strides in the creation of a (near) real-time reporting, auditing and analysis framework and ecosystem on-chain. We believe that this may well represent a textbook (Innovator’s dilemma) example of industry disruption where a new way of doing things creeps in below the radar through a fringe application of technology – in these case, ontological consistency checks of digital reports (see above). Note that the author has a commercial interest. 

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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/2021/07/22/xbrl-news-about-sustainability-reporting-implicit-reporting-and-nfts/

API-led Platform businesses rising – Swiss Re’s iptiQ in focus

https://dailyfintech.com/2021/07/22/api-led-platform-businesses-rising-swiss-res-iptiq-in-focus/

Digital ecosystems, orchestrated by powerful platform businesses and crisscrossing traditional industry sectors, are estimated to top 30% of global economic activity by 2025. While Amazon, Google, Alibaba, Tencent are early pioneers, others are shaping up across strata, in B2B as well as B2C. They thrive by efficiently matching supply with demand while solving deep entrenched problems, such as protection gaps.

Leveraging real-time insights on user preferences, embedded finance – a step-up from reselling services – uncovers revenue opportunities at lower incremental costs. Similarly, embedded insurance enables third-party providers to seamlessly integrate solutions into customer experiences via insurance functionality abstracted as technology hooks .

Embedded insurance is enabling car-share services to offer mobility insurance instantaneously. Some of this happened already, but it was clunky. For insurers who ‘white label’ their products to third parties, timeframes were months to conclude deals, and years to returns. The world is a-changing for financial services and insurance, which might potentially fade into the background of customer offerings.

The embedded model is suited for commodity lines with high levels of automated underwriting. For consumers buying products, providers take all information from purchase flows to seamlessly offer bindable quotes. Underpinning technologies are: a) Third-party APIs and b) SaaS architecture.

Established in 2016 as a global B2B2C digital venture focused on insurance distributors, Swiss Re’s iptiQ is pioneering embedded models among specialist insurtechs, driving substantial implementation cost savings and improved underwriting. It is expeditious for partners eyeing an opening into crowded markets and unlocks revenue streams. iptiQ boasts of an insurtech platform with an underlying carrier, being highly configurable with 140 L&H products pre-built. Established distributors are up and running within 60 days.

iptiQ crossed 500,000 customers with 40 partners in 5 markets. Its growth trajectory pegs its market-implied valuation at $2 billion. Its strategic partnership model enlists: a) Existing insurers launching new products in new markets or channels b) Affinity groups with large customer bases that cross-sell financial products. c) Experienced startups with unique propositions to cover un-insureds.

iptiQ and IKEA launched HEMSÄKER – home insurance that can be purchased on IKEA’s website. With easy-to-understand language, cover can be purchased in minutes. The partners tested extensively the digital customer journey that’s easy to navigate and uses terms to let customers know exactly what they are covered for.

Another partner is ImmoScout24, Germany’s leading real estate platform, which launched loss of rent insurance integrated into its digital ecosystem. In few clicks, private landlords protect themselves against financial uncertainties from tenancy agreements. The insurance covers complete or partial loss of up to six months’ rent, in case of defaults. While ImmoScout24 acts as a registered agent, all insurance-related aspects are covered by iptiQ, from the user journey to policy issuance to claim settlement and payment.

Medibank is a leading Australian private health insurer, providing health cover needs of 3.7 million customers. It has created a solution with iptiQ that offers benefits to the customer by reducing average time to buy, improving online conversion rates more than 100%.  Sales increase is achieved with much lower CAC and best in market lapse rates.

Customers choose from 4 health statements that best describe them and receive a quote immediately, after sharing basic personal details. At the quote screen, customers adjust cover and optionally provide height and weight inputs, which allows iptiQ to generate a BMI score and offer lower premiums. This new customer experience went to market in three months by using API gateways from Medibank’s digital front end.

Growing from 12 to 40 partners over 3 years, iptiQ has consistent, impressive results to show. In-force policies increased significantly y-o-y with increases in L&H and P&C.  Through its partner ecosystem and API-led engine, iptiQ helps individual firms achieve much more than they individually can, in effect becoming greater than the sum of its parts.

You get 3 free articles on Daily Fintech. After that you will need to become a member for just US$143 a year (= $0.39 per day) and get all our fresh content and our archives and participate in our forum.

https://dailyfintech.com/2021/07/22/api-led-platform-businesses-rising-swiss-res-iptiq-in-focus/

Stablecoin News for the week ending Wednesday 21st July.

https://dailyfintech.com/2021/07/21/stablecoin-news-for-the-week-ending-wednesday-21st-july/

Oh just FUD it for a while and see what happens!

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

This week saw the slow, cautious progress by Central Banks combined with a continued program by their supporters to stop or slow the growth of the existing privately issued stablecoin and Crypto ecosystem.  

First the European Central Bank announced it has started the next phase in introducing its own central bank digital currency (CBDC) – the “digital euro“ which it has pushed back until 2026.  

A two-year investigation period will first involve discussions of policy objectives and use cases for the remainder of the year, followed by tradeoffs between privacy and other policy objectives such as anti-money laundering in early 2022.

After that, the impact on the financial system, particularly the drain on bank deposits and how to manage this, as well as the use of cash, are on the agenda. Another important element of the investigation will be the business models of private and public entities involved with the digital euro.

After the investigation phase, and a decision to continue in 2023, the actual development is scheduled to take around three years, which means the ECB has quietly added another year to the development phase, compared to its statements a few months ago.

https://think.ing.com/articles/ecb-presses-ahead-with-digital-euro-focusing-on-use-cases-first/

Here comes der FUD (Fear Uncertainty and Doubt), it seems to be falling into three categories, environmental (will not survive scrutiny as current system is also expensive), risky (will not survive because people are not betting all their wealth on Crypto) and evil (will not survive because normal people are using it for legitimate things and it is never popular to call normal people evil).

Here is the risky FUD, in a heavily debunked paper, the claim is that if left unchecked, the world of stablecoins could evolve into one reminiscent of the 19th century’s free banking period in the U.S., according to two prominent financial experts.

Yale economist Gary Gorton and U.S. Federal Reserve attorney Jeffery Zhang said there existed systemic risk to the financial system by a “digital form of privately produced money” pegged one-to-one with “safe” assets.

In an academic paper titled “Taming Wildcat Stablecoins” released Saturday, the pair describe similarities they see in stablecoins with that of privately issued “wildcat” bank money in the past.  Basically, they argue that if it is not made by a Government, it is not safe.

Stablecoins Risky Like ‘Wildcat’ Bank Practices of 19th Century, Gorton and Zhang Write – CoinDesk

But are stablecoins and CBDC’s really an innovation or are they just a copy of the past version of money?  Henry Ford was famous for saying if he listened to his customers he would have just built a faster horse! 

Bitcoin’s popularity has unleashed a race for digital money dominance, which is likely to intensify with the emergence of Central Bank Digital Currencies (CBDCs). In a 2021 survey of central banks, 86% of respondents indicated they are actively researching the potential for CBDCs. The question that emerges is how will CBDCs live alongside borderless cryptocurrencies like bitcoin?

This paper is a three-part study on CBDCs within the context of the evolution of money. Readers will find that CBDCs will play an important role in the normalization of money as a digital concept. The paper outlines several factors that will contribute to the rise of CBDCs in the coming years, as well as the design limitations of CBDCs that will drive demand back to bitcoin.

Rise Fall Central Bank Digital Currency – Bitcoin Magazine: Bitcoin News, Articles, Charts, and Guides

So in summary, Central Banks are having a lot of trouble with design choices and hence are moving forward very slowly, while their supporters are trying at the very least to slow the rapid growth of the current stablecoin and Crypto ecosystem, but regardless, we are left with an interesting question.  Does merely transforming current money into a Digital form make a compelling innovation or will it dwindle next to the more interesting stuff happening in Crypto land?

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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/2021/07/21/stablecoin-news-for-the-week-ending-wednesday-21st-july/

4 part series on Lightning Network Part 3: Tigger says be patient it is happening and will change everything 

https://dailyfintech.com/2021/07/20/4-part-series-on-lightning-network-part-3-tigger-says-be-patient-it-is-happening-and-will-change-everything/

Tigger bounced onto stage at the Pooh Corner Tech Debate and got a big cheer when he said “soon all Bitcoin wallets will have a Lightning Network capability and users will simply notice faster confirmation and lower fees.”

A positive heckler shouted “and that will solve the economic incentive issue for node operators that Eeyore was blathering about”.

On an excitable roll, Tigger pointed to recent news indicating traction:

Lightning Network  capacity breaks 1,500 BTC

The CEO of Twitter hinted that the Lightning Network will be integrated into the social network

A publicly traded company buying millions of $ worth of Bitcoin to fund their  Lightning Network operations

Playing to the crowd Tigger invited them to imagine a future with micropayments, real time payments and mobile money for the unbanked.

Enough excitable optimism and depressive pessimism last week. Next week, the bear of little brain attempts to offer a balanced view.

Some subjects are too complex for our short attention spans, so we do 4 posts one week apart (see here for 1,2,4 some may not be published yet), each one short enough not to lose your attention but in aggregate doing justice to the complexity of the subject. Stay tuned by subscribing.

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/2021/07/20/4-part-series-on-lightning-network-part-3-tigger-says-be-patient-it-is-happening-and-will-change-everything/

What’s next for DeFi?

https://dailyfintech.com/2021/07/19/whats-next-for-defi/

In the financial world, 2021 will likely be remembered for two things. First, it was the year that Bitcoin began to gain traction, with a growing number of major financial institutions, huge technology corporations, and even a government signing on. Second, it’s the year DeFi’s value exploded, rising from less than $1 billion to $88 billion, since May 2020. More importantly, DeFi gets rid of the necessity for centralized regulated money custodians and creates a new system based on transparency, democracy, and seemingly limitless mobility.

Ilias Louis Hatzis is the founder and CEO at Kryptonio wallet.
Get Kryptonio – the safest and simplest crypto wallet.

Investors have poured record amounts of money into DeFi applications that are replicating traditional financial products on decentralized blockchain infrastructure, drawn by the high profits offered by lending, borrowing, decentralized trading, and synthetics protocols.

The most common metric to measure the growth of DeFi is Total Value Locked (TVL) which is the amount of funds locked into all DeFi protocols. According to DeFi Pulse, In May 2020, TVL was around $900 million, and a year later it peaked at over $88 billion across all blockchains.

According to Messari, trade volumes on decentralized exchanges have increased by more than 8,000% since 2020. The number of DeFi users has grown tenfold when compared to Q1 2020, and the supply of stablecoins has increased by 7x, based on Consensys.

According to Dapp Radar, DeFi is now offering deposit rates as high as 8% for new customers. When you compare with DeFi, interest rates on bank deposits now are close to zero percent, and in some cases are even negative, particularly in Europe. There are just two European Union members with interest rates above one percent: Croatia (2.5%) and Romania (1.25%), whereas all other nations in the Eurozone have rates of zero percent or less. In the US, the national average interest rate for savings accounts is 0.06 percent, with the highest rate available being 0.7 percent annual percentage yield, based on data from Investopedia.

Because of the inherent volatility of cryptocurrencies, stablecoins are a form of DeFi activity that carries a lower level of user-facing risk as compared to other alternatives. Deposits in stablecoins can earn anywhere from 3-4% interest per year to as much as 40% interest each year depending on the provider. In April 2021, the cryptocurrency exchange Binance announced that it was willing to pay up to 37.36% of its trading volume in USDC.

With every metric screaming DeFi’s phenomenal growth, what’s next?

Jack Dorsey, Square’s CEO, last Thursday posted on Twitter that the company is “focused on building an open developer platform with the sole goal of making it easy to create non-custodial, permissionless, and decentralized financial services.” Square is the bank of the future and this announcement is a huge validation for Bitcoin DeFi.

When it comes to DeFI, there are two kinds of organizations in the world right now: those who believe and support it and those who fight it. Banks being banks are fighting hard to defend their turf. But DeFi provides a significant opportunity for banks to avoid past mistakes. Banks can now create credible and trustworthy paths between the centralized financial services and the new global order of DeFi, and should use their weight and resources to build these trusted pathways.

Cryptocurrency players such as Coinbase have been at the forefront of any substantial efforts to build a bridge between traditional finance and cryptocurrencies. There is no reason why big banks could not follow suit and provide similar offerings to clients interested in bitcoin trading with a broader range of platforms to choose from.

Some other banks are making moves in the right direction.

JP Morgan Chase became one of the first financial institutions to test the use of its own JPM digital coin in an actual real-world setting after enabling crypto trading in 2017. BBVA recently launched its first bitcoin transaction and custody service and Revolut has enabled crypto trading since 2017 and has recently added dogecoin to its offering.

It is possible that DeFi could completely transform the global financial system by eliminating transaction costs and ramping up the battle for next-generation efficiency and speed, among other things. DeFi increases security, lowers transaction costs and does away with middlemen or banks to operate.

What this basically means is that DeFi isn’t merely yet another unwelcome disruption for incumbent banks, it’s an existential threat. Unless incumbents don’t want to become the banking industry’s Blockbuster Video, it would make a lot of sense to let go of the brakes and embrace DeFi.

Years ago, we use to banks to open bank accounts, get loans, and other financial services. As fintech companies grew, we started to do a lot of these things through our mobile phones. Now with DeFi in the picture, fintech companies can reach the next level in their evolution, using blockchain to improve their financial services.

DeFi is borderless, anyone with a smartphone and Internet access can use it. It’s secure and transparent because it uses blockchain technology. Interest rates are purely determined by supply and demand, without an organization or a government being able to set rates.

DeFi is the future of finance because it solves problems that traditional finance cannot. This is just the beginning and as DeFi matures even more, we will see services from one blockchain interact with other services on different networks.

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https://dailyfintech.com/2021/07/19/whats-next-for-defi/

This Week in Fintech ending 16 July 2021.

https://dailyfintech.com/2021/07/16/this-week-in-fintech-ending-16-july-2021/

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 Is Bitcoin Worth the Risk?

Over the last few years, we’re transitioning from a process of redefining financial services, by altering the architecture that underpins our financial system. Fintech companies are becoming mainstream, but they’ve operated on the outskirts of the traditional financial system. Much of today’s payment infrastructure was built years ago to allow business-to-consumer payments, trade financing, and supply chain activities. Many of these payments use a common template, have a lot of manual overlays, and are typically costly. We can have a fundamental shift where we go from manual to automated with the growth of blockchain technology at scale. Central banks are trying to figure out how to make this new technology without having negative effects, as they try to find the best way to make it more effective. The growth trend in cryptocurrencies is expected to continue. Some, including myself, believe that cryptocurrencies will replace existing fiat currencies. One thing is certain, no one can remain blind to current events in the crypto world and its growing importance for the financial system.

Editor note: Fintech and crypto have both come a long way but are only getting started with a much bigger journey ahead. 

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Tuesday Bernard Lunn, CEO of Daily Fintech and author of The Blockchain Economy wrote: 4 part series on Lightning Network Part 2: Eeyore says nice theory, shame about the traction

Eeyore usually gets negative audience reaction at the Pooh Corner Tech Debates as his pessimistic worldview contrasts with the optimistic enthusiasm of most tech conference attendees. He started by – uncharacteristically –  pandering to his audience by telling people that Lightning Network was a centralised solution; this got a heckle “why does that bother a legacy finance guy like you?”

After that weak start Eeyore went on to ask who is actually using Lightning Network today and to point out two major weaknesses.

Editor note: If you think Bitcoin is a ponzi scheme heading to zero, this post will strengthen your belief.

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: Cryptocurrency boom stokes insurer interest, Coincover funding the latest cue

The cryptocurrency industry has been on a roll, peaking at a market capitalization of $2.2 trillion this April.  Motivated by its growing popularity, major corporate investors evinced an interest. Tesla acquired $1.5 billion of bitcoin (BTC) in January 2021 while MicroStrategy stockpiled $2.2 billion of BTC. Insurers slow to enter the crypto world, are warily assessing risks ranging from cyber-attacks on exchanges and users to price volatility. Despite being a growing, multi-trillion dollar industry, crypto assets remain96% uninsured. But as crypto moves away from a HNW user base, insurers are making moves.

Editor note: Rintu looks at three ways that (re)insurers are helping to turn crypto from a store of value to a useful currency for day to day use.

Bernard Lunn, CEO of Daily Fintech and author of The Blockchain Economy wrote: Why we are replacing $GS with $RKT in the Fintech 50 Index today

Today is 3 months from when Coinbase went public and we released the first version of our Fintech 50 Index.

The most controversial entry in our Fintech 50 Index was Goldman Sachs (GS) which we classed as Fintech because Goldman Sachs is a Fin that is so smart about Tech that they are almost Fintech.

I believe convergence is real and that there is not a big difference, beyond naming, between a Tech that became a regulated bank and a bank that became totally tech driven.

That is why I chose to include GS in our Fintech 50 Index.

The problem is that other banks are also becoming equally smart and tech driven. If we include Goldman Sachs, why not JP Morgan, Bank of America or UBS?

I opted for a wide definition when building our Fintech 50 Index and included a) old Fintech like Visa and Mastercard b) Traditional Fintech ie selling tech to banks.  That wide definition remains in place, but as of today, by replacing GS with RKT in our Fintech 50 Index I am no longer including any legacy banks, no matter how tech smart and tech driven they are.

RKT (Rocket Companies, Inc)  is big enough to go into our Fintech 50 Index – at  today’s valuation  of over $33 billion it ranks 20 in our Index, which is just above Equifax and below MSCI Barra, but it is also plenty controversial

Editor note: By putting a company into our Fintech 50 Index we are NOT saying it is a good investment. Do. Your. Own. Diligence ( DYOD). Among other factors look at revenue momentum, valuation and debt risk.

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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To continue receiving ‘This Week in Fintech’, the weekly recap of our articles, you will need to fill this form to give us consent to send this to you. Please note that Daily Fintech requires your organizational email address (e.g. corporate, educational or government) and your LinkedIn URL. This information is required for subscribers who want ‘This Week in Fintech’ for free. If you prefer to not provide this information, you can still receive all our content by becoming a paying member.

https://dailyfintech.com/2021/07/16/this-week-in-fintech-ending-16-july-2021/

Alt Lending week ended 16th July 2021

https://dailyfintech.com/2021/07/16/daily-fintech-week-ended-16th-july-2021/

First of its kind LSE listing for Wise ought to be thought provoking?

Not surprisingly, this story has been widely reported for a couple of reasons. Firstly because it is the first time a listing in London does not involve the issuance of new shares, thereby saving considerable underwriting costs and placement costs and secondly because of the valuation itself. Based on the first days activity buyers hiked the value of Wise to an astonishing £ 8.8billion. Now this is a money transfer application. It sends money from one place to another, something banks used to do and before that we used registered letters and other non digital devices. I don’t want to speculate, but there is nothing new about it.  Perhaps they give very keen FX rates and have other reasons why they should be this valuable.?  There is no barrier to entry in this market and lots of people are doing it? What is so special about sending money from one place to another. One paper commented that at least WISE makes a profit having doubled its annual profits last year to £ 21.3 million.  Unless I have miscalculated this translates to a mind blowing P/E ratio of 382:1. The conclusion seems to be that Wise compares well with other full digital banking offerings (that also do money transfers) but make considerable losses and are nowhere near as valuable.  So what has this got to do with lending? If you can make more money by sending it from one place to another than by lending it profitably in productive assets then someone’s got their sums wrong.

UK mortgage price war looms as banks fight to keep market momentum

It seems like we can’t stop letting history repeat itself. A pricing war is now developing among the banking sector as the boom caused largely by Chancellor of the Exchequer Rishi Sunak’s stamp duty holiday comes to an end and prices start to cool down. God knows why we even have this appalling tax in the first place. It is government meddling at its very worst as it doesn’t help anybody. Nevertheless banks have only two things they can use to entice business. Firstly credit  terms. They can lower deposit requirements.  Secondly compete on pricing. If you lower deposit requirements then you increase the chances of negative equity should prices stabilise. Logically then interest rates should edge up to counter the enhanced risks. However low interest today will push prices higher which also increases risk. One thing is certain properties in certain parts of the UK are no longer affordable.  Inflation is rising and it is glib to say that interest rates will not rise as the whole thing is transitory. The government cannot afford to allow rates to rise but because of their other priorities and interventions are powerless to stop it. Interest rates have been a politicised for too long. I am not sure there is a satisfactory answer?

Auditors PwC and Saffery Champness under scrutiny concerning Greensill and Wyelands Bank

At least someone is having a look at what went on earlier this year. Certainly the house of cards that was Greensill capital was, with hindsight, an accident waiting to happen as I have mentioned in the column previously. I don’t suppose for an instant that this is really going to help anybody and might cause PI insurers some sleepless nights but will it lead to an improvement in audit quality. I doubt it.  I  was a lending banker from 1969 to 1987. I was taught to understand accounting myself and to ask questions. At Bankers Trust I penned a controversial memo which foresaw by two years the debacle that Clarksons and Court Line. At the time it caused an internal furore but in those days even a junior analyst had to be taken seriously. The warning signs generally appear well in advance but it takes expertise to pick up on them. That skill set is a rarity these days.

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/2021/07/16/daily-fintech-week-ended-16th-july-2021/

XBRL News about European banking & data handling

https://dailyfintech.com/2021/07/15/xbrl-news-about-european-banking-as-well-as-data-handling/

Here is our pick of the 3 most important XBRL news stories from the last week. 

1  EBA releases phase 2 of its 3.1 reporting framework

The European Banking Authority (EBA) published phase 2 of its 3.1 reporting framework. The technical package supports the implementation of the reporting framework by providing standard specifications and includes the validation rules, the Data Point Model (DPM) and the XBRL taxonomies for version 3.1.

This is important because, well, banks are, still. And they have to report to the authorities in XBRL.

2 Updated version of our free Excel add-in is available …

An updated version of our free Excel add-in is available in Microsoft’s AppSource store. The latest release of XBRL Filed Data gives users faster and better control over data returned by queries created in the taskpane for as-filed SEC data. Plus, we’ve added new output options, more endpoints for taskpane queries and optimized field layout and defaults. SEC filers and XBRL US Members can now also use the add-in to check filings for Data Quality Committee and SEC Filer Member issues in Excel and save time by using the tool.

For those of us who have ditched client based software altogether, the same goes for Google Sheets, of course. Learn more here.

3 Bulk download of filings.xbrl.org data available to XBRL members

As you may be aware, XBRL International is hosting a repository of ESEF reports at https://filings.xbrl.org/.  The repository makes the filings available as raw ZIP files, extracted xBRL-JSON data, and in an Inline XBRL Viewer. As an XBRL member, you can get access to a GitLab repository containing all filings in the repository.  This provides an easy bulk download of all filing data, as well as a convenient way to keep up-to-date with any new filings.

One of the many benefits of XBRL membership … just saying!

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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/2021/07/15/xbrl-news-about-european-banking-as-well-as-data-handling/

Why we are replacing $GS with $RKT in the Fintech 50 Index today

https://dailyfintech.com/2021/07/15/why-we-are-replacing-gs-with-rkt-in-the-fintech-50-index-today/

Today is 3 months from when Coinbase went public and we released the first version of our Fintech 50 Index.

The most controversial entry in our Fintech 50 Index was Goldman Sachs (GS) which we classed as Fintech because Goldman Sachs is a Fin that is so smart about Tech that they are almost Fintech.

I believe convergence is real and that there is not a big difference, beyond naming, between a Tech that became a regulated bank and a bank that became totally tech driven

That is why I chose to include GS in our Fintech 50 Index.

The problem is that other banks are also becoming equally smart and tech driven. If we include Goldman Sachs, why not JP Morgan, Bank of America or UBS?

I opted for a wide definition when building our Fintech 50 Index and included a) old Fintech like Visa and Mastercard b) Traditional Fintech ie selling tech to banks.  That wide definition remains in place, but as of today, by replacing GS with RKT in our Fintech 50 Index I am no longer including any legacy banks, no matter how tech smart and tech driven they are.

RKT (Rocket Companies, Inc)  is big enough to go into our Fintech 50 Index, but it is also plenty controversial.

Rocket Companies, Inc was founded by Dan Gilbert, co-founder of Quicken Loans and now 36th richest person in the world. Rocket Companies, Inc became RKT via an IPO in August 2020 and is currently embroiled in class action lawsuits for investors in the class period 25 February 2021 and 5 May 2021. Those dates include a period in March 2021 when there was a big price spike. The lock up period in an IPO is 6 months which gets us to that class period.

By putting a company into our Fintech 50 Index we are NOT saying it is a good investment. Do. Your. Own Diligence ( DYOD). Among other factors look at revenue momentum, valuation and debt risk.

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/2021/07/15/why-we-are-replacing-gs-with-rkt-in-the-fintech-50-index-today/

Cryptocurrency boom stokes insurer interest, Coincover funding the latest cue

https://dailyfintech.com/2021/07/15/cryptocurrency-boom-stokes-insurer-interest-coincover-funding-the-latest-cue/

The cryptocurrency industry has been on a roll, peaking at a market capitalization of $2.2 trillion this April.  Motivated by its growing popularity, major corporate investors evinced an interest. Tesla acquired $1.5 billion of bitcoin (BTC) in January 2021 while MicroStrategy stockpiled $2.2 billion of BTC. Insurers slow to enter the crypto world, are warily assessing risks ranging from cyber-attacks on exchanges and users to price volatility. Despite being a growing, multi-trillion dollar industry, crypto assets remain 96% uninsured. But as crypto moves away from a HNW user base, insurers are making moves.

The surging valuation of bitcoin and other cryptocurrencies spewed massive thefts of online wallets and exchanges, with multi-million losses, such as Coincheck in January 2018. The cumulative result of such hacks is a weakening ecosystem. Cryptocurrencies present unique challenges for insurers as historical data that drive insurance pricing, is practically non-existent. Volatility in valuations in the event of large price swings affect premiums by reducing the total number of coins being insured. Regulatory ambiguity and scant oversight at cryptocurrency exchanges further complicate matters for insurers interested in providing services. However, insurance for cryptocurrencies has been gaining demand, given the instability of the cryptocurrency ecosystem.

For certain, bitcoin has been on the watch list of insurance companies. In 2015, Lloyd’s in a report listing risk factors mentioned, “The establishment of recognized security standards for cold (offline) and hot (online) bitcoin storage would greatly assist risk management and the provision of insurance”. It mentioned server-side security, cold storage, and multi-signature wallets as possible methods to mitigate risk attacks. Such challenges within the cryptocurrency ecosystem are a potential source of revenue for the industry. Most insurance products currently available are bespoke products tailored to fit client needs. Companies operating in cryptocurrency typically opt for theft coverage, which includes cyber-crime and excludes hacks, paying as much as 5% of coverage limits.

There are largely three ways that (re)insurers are playing in the cryptocurrency space.

  1. Underwriting crypto

Insurers provide cover for crypto assets in the form of crime and custody policies, for example against theft, hacks or cold-storage key loss. Nexus Mutual, a 2017 founded decentralized insurance fund operating on Ethereum blockchain, offers such covers. Another path is insurers providing coverage for crypto businesses, something only a handful of providers offer e.g. Evertas.

  1. Accepting crypto as payments

A growing number of insurers accept cryptocurrencies for payment, with attendant benefits of transparency and payment tracking. In cases where insurers are underwriting crypto assets, accepting premium in the risk currency eliminates FX volatility. AXA Switzerland announced in April that BTC payments would be accepted for nearly all products (except life insurance due to regulatory barriers).

  1. Holding crypto on balance sheets

Due to its inherent volatility, very few insurers have looked to invest directly in crypto assets. An example of a major insurer holding crypto in its balance sheet is MassMutual which invested $100m into Bitcoin last year. The tide is surely turning, as insurers and investors seek alternatives to historically low yields of fixed income investments.

Last month, Coincover, a leading crypto security firm that specializes in protection and insurance-backed guarantees for cryptocurrencies held online, announced a growth funding round intended to meet growing demand from the cryptocurrency market. Its platform combines a policy underwritten by Lloyd’s with technology created by specialists from government, military and law enforcement.

Demand for cryptocurrencies is booming, as more than 40 million people worldwide use some form. In the short term, the opportunity exists for larger corporate and specialty insurers, that are better equipped to understand and underwrite such a market. In the longer run, with uncertainty of how the boom will play out, insurers would be challenged to test, learn and get familiar with the structures surrounding cryptocurrency.

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You get 3 free articles on Daily Fintech. After that you will need to become a member for just US$143 a year (= $0.39 per day) and get all our fresh content and our archives and participate in our forum.

https://dailyfintech.com/2021/07/15/cryptocurrency-boom-stokes-insurer-interest-coincover-funding-the-latest-cue/

Stablecoin News for the week ending Wednesday 14th July.

https://dailyfintech.com/2021/07/14/stablecoin-news-for-the-week-ending-wednesday-14th-july/

Stablecoins are for payments, not just as a value store between trades.

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

This week we saw an interesting illustration of the difference between private issuers of stablecoins (Tether and Circle being the largest) and those public who are likely issuers being the Central Banks.  The real money and opportunity is in the services around the currency and not the issuance itself.

Circle is going public (as in public equity markets), which will help with transparency as they scale.  Beyond the headline USD 4.5 billion valuation (on estimated revenue in 2023 of $778m or 5.8x), what is clear is it’s positioning as a payments company in competition to Visa, paypal etc rather than just a manufacturer of smarter and Digital USD equivalents.

According to an investor presentation released with Thursday’s announcement, Circle estimates it will generate $115 million in revenue in 2021 with a $76 million loss.  Of those revenues, it expects $40 million to come from USDC, $65 million to come from TTS and $10 million from SeedInvest.  TTS (Transaction and Treasury Services) are probably the least understood and least detailed part of its offerings, described as “Circle Accounts and API services provide companies with a comprehensive suite of payments and treasury services,” the investor presentation says.

The company also projects $76 million in earnings before interest, taxes, depreciation and amortization (EBITDA) by 2023. off that, it expects TTS to be by far the largest line of business.

USDC Is Only Circle’s Second-Biggest Business, SPAC Filing Shows – CoinDesk

In the meantime the BIS (the Central Bankers Bank or Bank of International Settlements) released a report saying cross border payments as a use case needed more focus from Central Banks.  Central bank digital currencies (CBDCs) have the potential to enhance the efficiency of cross-border payments, as long as countries work together. This is the main conclusion of a joint report released today by the Committee on Payments and Market Infrastructures, the BIS Innovation Hub, the International Monetary Fund (IMF) and the World Bank.  The concern seems to be that they are being sidetracked into political/social issues/opportunities via a retail CBDC and missing one of their core businesses.

Central bank digital currencies for cross-border payments (bis.org)

Which brings us back to what is the real and best use case for CBDC.  CBDC’s could be as far as 10 years away and have yet to face some really tough choices which will require Public debate on everything from privacy to cross-border competition as critical citizens have their say, as this article from the FT highlights.

Four key questions central banks must answer about digital currencies | Financial Times (ft.com)

So in summary, Private sector players in the stablecoin business are building war chests, scaling, innovating and becoming more transparent while Central Banks are very much still in the early design stages.

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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/2021/07/14/stablecoin-news-for-the-week-ending-wednesday-14th-july/