Alt Lending Week ending 16th December 2022

Alex Cartoon London Daily Telegraph 5th. December 2022

A picture tells a  thousand words. The popular Alex cartoon which shines a light on banking practices and attitudes, this morning featured medium ranking investment banking executive Clive trying to influence his boss on the subject of his  bonus. He constructs a list of deals that he has pitched and lost over the last year. His boss points out the paradox of lost deals            as being a justification for a bonus. Clive then points out that the banks that won these deals have been left with the underlying assets and that it has therefore cost competitors a fortune. This, of course is very true. When I had to make credit decisions I was aware that that asset had my name all over it perhaps for a significant length of time. Underwriting decisions cease to be an issue once the asset are sold. The credit decision is therefore a snapshot of the moment in time and not a considered view of future prospects. Does this make for considered future risks? I don’t think so. The shadow banking markets are going to find this out to their detriment over the next couple of years. Banks like Credit Suisse are already struggling and so will many of their counterparts.

A note to Bankers – Other creditors are also a threat

It seems like the old days are coming back with a vengeance. In these inflationary times bank relationship managers are going to have to take a good and detailed look at the management accounts of the companies within their remit. Energy costs are going through the roof and businesses are being stretched. British Gas is apparently taking a very robust approach to its credit policies and threatening companies with overdue bills with winding up orders. It is a relatively easy process in the UK although not well known and it is a very blunt instrument. If you wind up a company it no longer remains a customer. Seems as though British Gas has decided that a bigger risk is to let the debt build up and spiral out of control. What it does point out is that bankers need to be able to read and understand the financial statements of their clients and act accordingly. In times like these time is of the essence. This situation is of course coming on top of a steep hike in interest rates which is also going to affect companies which are highly leveraged marginally profitable of both. Unfortunately banks don’t train their credit officers to the same degree these days. To become a lender you had to go through a grounding in business and financial analysis. Looking at the future rather than the past was a big part of it.

UK Mortgage rate spike was market overreaction

It hasn’t taken long for mortgage lenders to realise that the wild west markets of not so long ago were a totally unnecessary overreaction. The UK mortgage lending market is one of the most competitive in the world and god know how much the rush to hike rates so fast and so high has cost lenders in lost business higher administration costs and market reputation? In any case they are now having to make amends as “products” have become uncompetitive. As I have mentioned before the real problem is that these loans are not priced properly in the first place. The situation we find ourselves in today was ideal for a total rethink and an introduction of new thinking but I don’t believe that it going to happen. Mortgage lenders don’t seem to have the intellect to recognize the opportunity which would be good for borrowers and lenders alike.

Howard Tolman is a well know London based ex banker, entrepreneur and IT specialist

Daily Fintech-Alt Lending week Ended 2nd. December 2022

Credit Rating need reform: FCA

I needed to think carefully to get my head around this one. Apparently the FCA think that the retail credit agencies in the UK have significant variances between the information they hold on borrowers. This would not be particularly important except that the major banks rely on the credit agencies to make decisions for them. On top of that whatever the credit agencies decide won’t make any difference to the credit decision or the other variables that stem from the credit decision. What you get will be a product. If the institution that you bank with doesn’t have a product then it’s hard luck. Apparently the Credit Rating industry rakes in some £ 800 million every year from doing whatever it does. I suppose that what it is to collate information from banks which is by definition quantitative rather than qualitative who then base their decisions around a series of benchmarks which have very little relationship with the circumstances that the borrowers find themselves in. The FCA insist you KYC but the market practice tells you something else. This has nothing whatsoever to do with serving clients and more to do with not knowing your customer. Since the rating agencies got themselves ensconced in the banking business there is not real competition. Interest rates bear no relationship to risk and a product mindset provides poor service at a high price. Who wins?

Valuing Crypto: this week’s installment

I am supposed to be writing about lending but I cannot help but focus on how some people evaluate risk. After all lending is in the risk business and investing is just another string to the bow of that risk business. Nevertheless I have to say that some of the great and the good seem to have been taken for outright fools by the emergent Crypto scandal. This includes Bill Clinton and Tony Blair, by the way, who both spoke at a crypto gig earlier this year lending at least a tiny bit of credibility to this make-believe market. I have not yet met anybody who can give me an adequate and coherent reason why any crypto currency has any value whatsoever except that a lot of very foolish people were at one time convinced that it was valuable and a hedge against FIAT currencies and that a whole industry has grown up around a group of fools and chancers. Admittedly some people have made a lot of money but I am sure that a lot more has been lost. Bitcoin has stated remarkably stable falling from a high of around $ 66 k to $ 16k or 76%. How much further can it go. Well I’ll tell you right down to zero and the only reason it is stable is that those hold ing it are too scared to admit that they were sold a pup.

A note to sovereign Lenders. Beware of the Chinese connection 

The fact that China is financing a number of projects in developing countries as part of its Belt and road initiative is already well known but a controversial railway project in Kenya financed by China and a recent General Election in Kenya have conspired to force the Kenyan government to disclose the terms of the loan. Originally signed in 2014 the terms and conditions of the loan were shrouded in secrecy. This is a common factor in most if not all of loans made by Chinese entities to developing nations together with collateral rights, binding arbitration in Chinese Courts restraint of trade clauses and high rates of interest. Kenya has stated that loans from China are strangling its economy. When you consider that China is the worlds largest lender with assets around 6% of Global GDP many countries could already have fallen into this trap. It is not clear what Beijing was trying to get out of these arrangements but a raft of bad debt and a lot of ill will seems the most likely outcome.

 Howard Tolman is a well known London Based ex Banker, IT specialist and Entrepreneur

Stablecoin News for the week ending Wednesday 21st December.

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

What a year 2022 has been! 

As this is my last post for the year, I have picked stories that seem to sum up what has been a wild 2022. 

Firstly, in stablecoins we had a number, in particular Algo stablecoins lose their peg.

In the case of USTC, for example, the Terraform Labs ecosystem had flaws that allowed the exploitation of arbitrage opportunities due to the low liquidity of Curve (CRV) that underpinned the stablecoin’s parity. 

Also, in May, the DeFi Anchor project, a protocol that allowed users to deposit USTC to earn rewards, reduced its yield from 20% to just 4%. This took many investors by surprise, and they decided to take UST out of Anchor and sell it on the market.

Reasons Behind Stablecoins Losing Their Peg (

Another stablecoin fell apart this week, once again an Algo.  The token of the decentralized application (DApp) creation platform Waves (WAVES) is plummeting after the algorithmic stablecoin backing it failed to maintain its peg to the US dollar.

Ethereum Rival Plummets in Price After Stablecoin Built on Its Chain Loses Peg to US Dollar – The Daily Hodl

And then as almost as if it was trying to bring some order to all this chaos the BIS have endorsed a finalised prudential standard on banks crypto asset exposures which will provide guidance and hence make it more likely that mainstream TradFi will dip its toes into Crypto.  Some quick takeaways;

  • Group 1 cryptoassets. Those that meet in full a set of classification conditions. Group 1 cryptoassets include #tokenised traditional assets (Group 1a) & #cryptoassets with effective stabilisation mechanisms (Group 1b). Group 1 cryptoassets are subject to capital requirements based on the risk weights of underlying exposures as set out in the existing #Basel Framework.
  • Group 2 cryptoassets. Those that fail to meet any of the classification conditions. As a result, they pose additional & higher risks compared with Group 1 cryptoassets and consequently are subject to a newly prescribed conservative #capital treatment. In addition to any tokenised traditional assets & #stablecoins that fail the classification conditions, Group 2 includes all unbacked cryptoassets. A set of hedging recognition criteria is used to identify those Group 2 cryptoassets where a limited degree of #hedging is permitted to be recognised (Group 2a) and those where hedging is not recognised (Group 2b).

Additional key elements of the standard include:

  • Infrastructure risk add-on: An add-on to risk-weighted assets (#RWA) to cover #infrastructure risk for all Group 1 cryptoassets that authorities can activate based on any observed weaknesses in the infrastructure on which cryptoassets are based.
  • Redemption risk test and a supervision/regulation requirement: This test & requirement must be met for stablecoins to be eligible for inclusion in Group 1. They seek to ensure that only stablecoins issued by #supervised & #regulated entities that have robust redemption rights and governance are eligible for inclusion.
  • Group 2 exposure limit: A bank’s total exposure to Group 2 cryptoassets must not exceed 2% of the bank’s Tier 1 capital and should generally be lower than 1%.
  • Other elements of the standard include descriptions of how the operational risk, liquidity, leverage ratio & large exposures requirements should be applied to banks’ cryptoasset exposures.

Prudential treatment of cryptoasset exposures

And our final story, is a bonus fourth article, that focuses us on what this novel invention is all about – the technology.  Credit Suisse, Pictet and Vontobel have conducted a proof of concept to issue tokenized investment  products recorded on a public blockchain and traded on BX Swiss, the Swiss regulated stock exchange.  The three processes of the proof of concept – issuance, trading and settlement – took place within hours, whereas in a traditional financial environment they take days.

Trading and Settlement in Digital Securities — CMTA, The Capital Markets and Technology Association

So in summary, as the world of stablecoins and CBDC’s staggered thru the year, while the broader Crypto world descended into chaos and we all look forward to a break, recharge the batteries and get to do it again next year, remember the technology, it is novel, it is efficient and it brings powerful advantages over the existing system.

Happy festive seasonal wishes to everyone!


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

Twitter @Alan_SmartMoney

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

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

Stablecoin News for the week ending Wednesday 14th December.

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

CBDC’s are coming but what type? 

This week we saw more announcements on CBDC’s research and experiments, but it is unclear if we will get a Retail (direct account with the Central Bank) or Wholesale (direct account with a Bank and regulated by the Central Bank) or both.

First, the ECB is running a digital euro prototyping exercise. The goal of this exercise is to allow market participants to develop front-end prototypes that can be integrated with the back-end infrastructure developed by the Eurosystem.

Not clear and not decided if this will be retail or wholesale.

Documents for the digital euro prototyping exercise

Then, the BIS came out with a major study on wholesale CBDC’s and how regulations would function in a multi jurisdictional cross border context.

Traditionally cross-border payments have relied on a mutually trusted central entity. Distributed ledgers, blockchain and smart contracts (together dubbed “distributed ledger technologies” or DLT) could provide an alternative to that approach. However, different DLT applications in the cross-border payments context come with legal challenges. Hence, it is necessary to analyse the extent to what financial law and regulation is fit to deal with DLT-based payments.

We find that financial law traditionally assumes that functions are concentrated in a single entity. Hence, the distribution of functions in DLT comes with the need for additional agreements, ongoing coordination across, and governance arrangements among each participant. Further, in a cross-border context, multiple regulators and courts of various countries will be involved. All of these must decide whether for compliance with the law and regulations they look at DLT as a whole (‘ledger perspective’) or each individual DLT participant (‘node perspective’). On that basis we analyse the extent to which the ledger or the node perspective should prevail, resulting in policy recommendations for regulators.

DLT-based enhancement of cross-border payment efficiency – a legal and regulatory perspective

And finally, Spain’s central bank, the Bank of Spain (BDE), said it intends to launch an experimental program to begin testing wholesale central bank digital currencies (CDBCs) and is seeking collaboration proposals from local finance and technology institutions.

The bank will focus on three main areas with the program that seeks to simulate the movement of funds, experiment with the liquidation of financial assets, and analyze the benefits and drawbacks of introducing a wholesale CBDC to its current processes and infrastructure, according to a translated Dec. 5 statement.

Spain’s central bank to experiment with wholesale CBDCs (

So in summary, this week we saw more evidence of work being done on CBDC’s with the wind seemingly blowing in the direction of wholesale and not retail implementations.


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

Twitter @Alan_SmartMoney

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

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

Stablecoin News for the week ending Wednesday 7th December.

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

CBDC’s are still marching, but is it Tokenization that is playing the tune. 

This week we saw a number of announcements on further progress being achieved with the many CBDC experiments taking place around the world.  While Crypto burns in the dumpster fire, will it be tokenization of Trad Fi assets that pushes forward and with it a big use case for CBDC’s? 

First, France and Luxembourg have used an experimental central bank digital currency (CBDC) to settle a bond worth 100 million euros (US$104 million), the latest in a series of trials in tokenized financial markets.

The Venus Initiative “shows how digital assets can be issued, distributed and settled within the eurozone, in a single day” and “confirms that a well-designed CBDC can play a critical role in the development of a safe tokenized financial asset space in Europe,” Nathalie Aufauvre, general director of financial stability and operations at Banc de France, the French central bank, said in a statement.

The initiative also involved Goldman Sachs, Santander and Societe Generale as well as the publicly funded European Investment Bank.

France, Luxembourg Test CBDC for 100M Euro Bond Issue (

Even in war-torn Ukraine, the National Bank is considering an electronic version of the Ukrainian hryvnia that would be able to facilitate the exchange and issuance of virtual assets, among other uses.

The central bank has discussed its vision for an electronic iteration of the country’s sovereign currency, the hryvnia, with representatives of banks, non-banking financial institutions and the crypto market, according to an official press release on Monday. The bank is exploring retail non-cash payments, virtual asset circulation and cross-border transactions as possible applications for a CBDC.

“E-hryvnia can become one of the key elements of qualitative infrastructure development for the virtual-assets market in Ukraine,” the report said.

Ukraine Considering CBDC That Can Facilitate Crypto Trading (

Meanwhile in London, TP ICAP, the world’s largest interdealer-broker, has registered as a digital-asset provider with the U.K.’s Financial Conduct Authority as it attempts to break into the crypto world with its Fusion Digital Assets marketplace.

The company, a giant in infrastructure for wholesale markets for traditional finance, is working with custodian Fidelity Digital Assets to offer a platform to match orders and execute spot crypto trades.

“Until now, the wholesale digital-assets market has lacked the credible infrastructure and assurance necessary for [financial market players] to allocate capital,” Duncan Trenholme, co-head of digital assets at TP ICAP Group, said in a statement. “Over time, we believe blockchain will lead to the tokenization of traditional asset classes.”

Interdealer Broker TP ICAP Gains UK Crypto License (

So in summary, the tokenisation of traditional assets such as Bonds, Securities and even currencies (a stablecoin) by the Trad Fi market who use Central Banks as their regulator and risk management service provider will lead to a must have use case for CBDC’s.  

This is a wholesale only market and as such the politically sensitive retail CBDC can be quietly forgotten.


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

Twitter @Alan_SmartMoney

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

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

Stablecoin News for the week ending Wednesday 30th November.

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

Stablecoins or CBDC, do we need both? 

This week we heard a lot about the progress of CBDC’s but also people are starting to realise that they will have to compete with their nimble cousins the private company issued stablecoins.

But first, let’s review some of what has already been implemented.  The first serious CBDC or otherwise known as the sand dollar, from the Bahama’s central bank, was created ostensibly to deal with financial exclusion. However, Martin C W Walker writes that, even though the currency has been considered a success, the data does not strongly support financial inclusion as a reason for introducing a CBDC.

How is the “world’s most advanced central bank digital currency” progressing? | LSE Business Review

This paper from the Fed, explores whether there could be a first-mover advantage for a jurisdiction issuing a central bank digital currency (CBDC) compared to other jurisdictions that subsequently issue their own CBDC. Conventional academic literature provides a framework by which one can assess a CBDC in the domestic payments market, the international payments market, and the technology markets that support payments. 

However, a CBDC may be more than just a means of payment and thus a first-mover advantage is examined for both the asset component of reserve currency and a future financial system built on CBDCs. 

Overall, the first mover literature does not suggest that there is a compelling first-mover advantage for issuing a CBDC.

The Fed – An Examination of First-Mover Advantage for a CBDC (

And finally, Antoine Martin, financial research advisor in the Financial Stability Policy Research Division of the Federal Reserve Bank of New York, speaking about the future of digital currencies and a new path for CBDCs: to support the development of safe stablecoins instead of producing their own digital currency.

“Stablecoins are much better payment instruments than Bitcoin and stabilize their value by being backed by assets denominated in a fiat currency. They commonly depend on commercial bank money to hold the reserve assets that back their coin representations and this is typically the US dollar.

Central bank liabilities could support the provision of stablecoins

“Stablecoins are very close cousins of Alipay and Tenpay’s digital payment platforms in China. Indeed, for every yuan in customer deposits, Alipay and Tenpay must hold a yuan in an account at the People’s Bank of China, making them functionally equivalent to stablecoins”, he continued. “And so in principle, central bank liabilities could support the provision of stablecoins, much like bank reserves for commercial bank money.”

“Instead of issuing a retail CBDC, central banks could support stablecoins by allowing them to be backed one-for-one with balances in a central bank account. They could also facilitate a bankruptcy remote legal structure to ensure that end-users are paid in full even if the issuer becomes bankrupt. Such stablecoins could be a close substitute for central bank digital money, while balances in a central bank account are risk free and could earn interest. Though stablecoin issuers should be subject to some oversight in exchange for access to a central bank account”, he added. “These stablecoins would be safer to end-users and thus more attractive than those backed with other assets. Rather than producing a competitor to digital currencies by producing a CBDC, central banks could be used as a tool by providers to enhance their payment service.

Supporting stablecoins is easier than managing a CBDC for retail use

Antoine Martin concluded by saying that “adapting our regulatory and legislative environment to support stablecoins is already a formidable task, but it is probably easier than managing a CBDC for retail use, especially as the private sector currently provides all retail digital means of payments on legacy technology.”

Central banks consider backing stablecoins instead of launching CBDCs – FinanceFeeds


So in summary, the fastest, easiest and best way to issue a CBDC could be to just properly regulate stablecoins.


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

Twitter @Alan_SmartMoney

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

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

Alt Lending Week Ending 25th November 2022

The downside to a crypto collapse – The Spectator 19th November 2022 

Right of Centre publication The Spectator magazine makes an interesting point in the aftermath of the collapse of FTX. The author is a traditional and well-respected Banker who has no truck whatsoever with Crypto currencies however the point he makes is quite valid. Even so I am not sure I agree with him. The basis of his fears is that a complete crypto meltdown would have unknown consequences within the worldwide financial system in which theses fantasy assets exist. He is right but what is better to continue to pursue the make-believe stories for a little while longer or to accept the reality that these assets don’t and never have existed as a store of value. The Financial markets have always had their fair share of spivs and snake oil salesmen and until those idiots who  believed the crypto hype understand that what they believed in was the Kings invisible clothes then we are just laying the groundwork for the next Ponzi scheme.

A Lesson for Sovereign debt analysts

Ratings agency Fitch has decided that two tranches of debt worth $ 2.9 billion issued by a Luxembourg entity on behalf of F1 are rated as “junk” or below the BBB minimum for investment grade paper. The reasoning for this is that China’s zero Covid policy could prevent the sport form returning to China with all that this entails for F1’s finances. A race is indeed scheduled in Shanghai for April next year and nobody is suggesting that the overall financial model of F1 is in any way flawed but such is the problem of dealing with any authoritarian regime that does exactly what it likes without any reference or regards for what others might think, including their own populations. For China substitute, Iran, Russia North Korea etc. etc. China is fundamentally no different. The lesson is an old one. If you sup with the devil then use a long spoon.

Unaffordable mortgage rates and their impact on the economy

I just happened to notice a tombstone in the Telegraph this morning that advertises Bank of Scotland’s Home Loan rates. Apparently if you are one of the unlucky ones to have a variable rather than a fixed rate loan with Bank of Scotland then next month you are going to be stung with a risk premium of 4.45% above the bank’s own base rate. I don’t want to single anyone out as the mortgage market in the UK is a mish mash of “products” some of which make sense and a lot of which don’t. Meanwhile the bean counters who determine these rates just carry on regardless without any reference to whether the risk premium is appropriate. To take a practical example Just supposing a property has a small outstanding variable mortgage of £ 100k outstanding and the value of the property is say £ 800k. In other words there is absolutely no likelihood of there ever being a loan loss. Is the risk premium appropriate? The answer is no. If the mortgage was £ 700k the answer might be yes in today’s market. But we do not price mortgages according to risk. Some intellectual rigour ought to be applied to how we do these things. The way we price and structure mortgage lending in the UK is another thing that holds back growth because it uses blunt instruments like loan to value. 



Howard Tolman is a London based well known ex Banker, Entrepreneur, and IT specialist

Stablecoin News for the week ending Wednesday 23rd November.

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

Stablecoins are the Canary in the Crypto coal mine! 

This week we continue to see the shakeout from the FTX implosion and stablecoins point to it continuing for some time yet. 

Binance, and OKX suspended deposits in Circle’s (USDC) and Tether’s (USDT) stablecoins based on the Solana blockchain.

Victoria Davis,’s VP of corporate communications, later clarified in an email to Axios, “We have temporarily disabled the ability to withdraw or deposit USDT and USDC via the Solana protocol due to Solana network conditions and the risk posed by the significant role of FTX as a Solana-based stablecoin bridge and trading venue.”

Some alarm bells were raised when the yield on Circle’s Earn product showed zero on versus 0.25% the day earlier.

The change seemed to coincide with Genesis Global‘s crypto lending unit announcing that it would halt customer withdrawals and loan originations, which led to the Winklevoss twins’ exchange Gemini suspending its yield-earning Earn product.

“Circle chose to change the yield from 0.25% yield to 0% before Genesis closed their credit lines,” Busch, the spokesperson for Circle, says. “Circle Yield has historically been driven by demand to borrow in crypto capital markets.”

Crypto exchanges mum on abrupt stablecoin deposits halt

Meanwhile a JPMorgan report measured investors’ exodus from the crypto ecosystem as shrinkage of the stablecoin market.

The combined market cap of the largest stablecoins reached a peak of $186 billion in May, before the Terra/LUNA collapse, the note said. That compares with less than $30 billion at the start of 2021 and about $5 billion a year before that. Since May, the stablecoin universe has dropped by $41 billion, with just under half of the decline attributed to the demise of Terra.

This outflow of looks small relative to the $165 billion that had entered the crypto market via stablecoin creation in 2020 and 2021, “but it would be difficult here to imagine a sustained recovery in crypto prices without the shrinkage of the stablecoin universe stopping.”


In some positive news, USDA would be the first fully fiat-backed, regulatory-compliant stablecoin in the Cardano ecosystem.  The issuance will be  partnered with a regulated financial services company based in the United States as the banking partner, ensuring the stablecoin is fully compliant and adheres to regulatory guidelines


So in summary as the Crypto market continues to wobble it will be the stablecoin market that indicates when prices will stabilise and potentially grow as funds and confidence begin to return.


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

Twitter @Alan_SmartMoney

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

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

Daily Fintech Alt Lending Week Ending 18th November 2022

Is this finally the end of the crypto saga?

I can’t say that you read it here first, but I have been consistent within this column in refusing to believe in the crypto currency story. FTX might not actually be the archetypal financial con but a con it most certainly was whether by accident or by design. I discussed the whole thing with a colleague who understands the crypto business better than most and he compared it to Enron? As in most of these stories some innocent people were almost certainly caught up in doing things which were illegal, but they might have not known about it? To me the great lesson to be learned from a huge financial disaster is that the fact that a company is regulated does not save you from being swindled. The EU added credibility as Cyprus granted a license to FTX less than two months ago. To its credit the UK’s FCA warned the UK public against trading with an unlicensed unregulated entity but FTX had been licensed in quite a few respectable locations but that has not helped one iota. The UK only seemed to warn people because FTX was in the Bahamas. The FCA also recently granted a license to Revolut which moved a lot of their trading to Lithuania earlier this year? My colleague told me that the real problem was that an affiliated company Alameda Research was gambling with client’s money. He told me that this was not a research company but a proprietary trading desk and that the traders were “ true believers” in the asset class and were therefore always holding a long position. I told him that was the key shortfall of crypto. By definition you cannot take a short position in something that doesn’t actually exist in any tangible form. Caveat Emptor.  

Morrison owner shields £ 6.5bn. from rising interest rates.

I found this piece quite interesting as it somehow seems to assume that just because you have an interest hedge then everything is hunky dory. Clayton, Dubillier and Rice are Wall street players but no doubt consider themselves to be world players. I don’t know anything about them but I wouldn’t mind betting that thew rationale for acquiring Morrisons in the first place had very little to do with next to zero interest rates. The purchase took place in October of 2021 when conditions were much different to today. This was a leveraged buy out which almost certainly means that the buyers borrowed most of the money in Sterling thereby creating a partial hedge against the capital sum. However, if the leverage was let’s say three times this would have left the buyer with a 25% sterling liability. Since the Russian insanity in Ukraine the American dollar has surged as a safe haven (under Biden?) Just  the same I would like to be fly on the wall when CDR’s hedging committee next meets. Hedging has costs and risks attached to it. Nothing comes cheap and whatever else comes out of this deal it doesn’t look like a good deal for the buyer nor for he banks that financed it.

UK Insolvencies hit six month high

As the UK chancellor takes aim at the British Economy a warning that things are not at all good in the credit markets. Insolvencies of UK companies have risen by nearly 40% year on year. Part of this is due to the support given to the walking dead through artificial COVID support loans, another giant folly mainly caused by the UK Government in the first place. Many of the companies which are in trouble now have been in trouble for ages and would not have survived in a normal interest rate environment anyway but it will prove to be a dire headache for the bankers that will have to pick up the pieces. As I have mentioned many times before the real problem is that there is shortage of people mot just in the UK but worldwide who have the ability to recognise value and to know how to save what is valuable. Britain is the first economy in Europe to have to address this problem but it will be everywhere as soon as the ECB recognises that it cannot go on printing virtual money for ever. That point cannot be far off. The UK has a relatively strong banking system but that does not apply to some other Eurozone economies. Today the ECB warned that the Eurozone faces threats to its financial stability. Yesterday we were told that Japan faces a downturn with economic fundamentals far worse that the UK.

Howard Tolman is a London based well known ex Banker, Entrepreneur and IT specialist

Stablecoin News for the week ending Wednesday 16th November.

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

As FTX blows up stablecoins hang in there. 

This week while FTX burned down to the ground, thankfully stablecoins managed to stay for the most part stable.

With volumes of trades at unprecedented levels as customers rushed to the exists, 

USDT transactional activity jumped to a four-month-high.  Tether Global Chief Technology Officer Paolo Ardoino pointed out in a Thursday tweet that over 700 million USDT were redeemed for U.S. dollars in the past 24 hours. “No issues. We keep going,” he said.

Tether’s USDT Stablecoin Drops 3% Below $1 Peg

Meanwhile in CBDC land, the BIS discovers that convenience is not only good for customers but also for Central Banks.  Good to know.

“More and more central banks are transitioning from thinking about central bank digital currencies (CBDCs) in conceptual terms to considering a launch. Attention has shifted from high-level monetary policy and financial stability considerations to country-specific design and policy interactions.

Large banks have a competitive advantage that the introduction of a CBDC could amplify or reduce, depending on the design choices. A highly convenient CBDC produces sufficient competitive pressure in deposit markets to raise deposit rates for any given level of IOR and increases the responsiveness of deposit rates to IOR rate changes. Increasing payment convenience also has favourable effects on market composition by levelling the playing field. Paying interest on CBDC balances increases deposit rates but is arguably a less desirable policy since this action increases the inequality of market shares and can weaken the responsiveness of deposit rates to IOR rate changes. 

The conclusion is that payment convenience is a crucial aspect of CBDC design that may be more desirable than paying interest on CBDC balances.”

The case for convenience: how CBDC design choices impact monetary policy pass-through (

However, just up the road from Basel in Zurich, The Swiss National Bank does not see any overall benefit from issuing a central bank digital currency (CBDC) to be used by the general public and used in day to day transactions, governing board member Andrea Maechler said on Tuesday.

“We believe the risks outweigh the benefits,” Maechler told a financial conference held in Frankfurt, saying a retail CBDC meant central banks taking on the risks carried by the private sector and increased the risk of bank runs.

There also needed to be a balance struck between safeguarding privacy and the potential misuse of retail CBDCs in criminal activity, Maechler said.

Swiss National Bank against issuing retail central bank digital currency | Reuters

So in summary, the Crypto Infrastructure, of which stablecoins are a central pillar, was given one hell of a stress test this last week, while Central Bankers continue to stare at their navels about the usefulness of customer convenience.


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

Twitter @Alan_SmartMoney

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

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

Is crypto a regulated asset or a disruptive technology?

The FTX blow up has highlighted this strategic question.

This is one WITHOUT a magic quadrant. Crypto is either a regulated asset or a disruptive technology – but it cannot be both.

If you believe that crypto is a regulated asset, the easy trade is to buy Coinbase stock (COIN). Coinbase is fully regulated in the biggest market. However,  that is a possibly unwise investment as there is something not right about a centralised regulated exchange as an on & off ramp for decentralised permissionless networks.

Regulators need to hold somebody accountable and that means a centralised permissioned network. Regulators can hold Coinbase accountable, but not Bitcoin.

Decentralised permissionless networks, such as Bitcoin and Ethereum are by nature disruptive – you CANNOT regulate them even if you can regulate their on and off ramps.

Every bull market has a narrative, which bear markets then debunk. The next bull market answers that bear market debunking. Look at Bitcoin/BTC market cycles since 2009:

  • The 2013 bull market narrative (when very few people were paying attention) was “maybe this will actually be real” and the BTC price went to over $1,000. The bear market debunking was “well show me a real use case.”
  • The 2017 bull market narrative was about ICOs changing early stage fund raising (the real use case) and the BTC price went to over $19,000. The bear market narrative was that most ICOs were a failure for investors, . 
  • The 2021 bull market narrative was about institutional money. Anarchic crypto was now wearing a suit. It was all about regulation, no more of those crazy ICOs. Crypto was just one more asset in the everything bubble.   

The FTX blow narrative is all about regulation – without explaining what regulator will police a business such as FTX  with over 100 entities all over the globe. Legacy exchanges have blown up, but then regulation prevented future blow ups by having a simple rule that prevents a regulated exchange from using customer assets. So this is easy if crypto exchanges submit to a single jurisdiction.

The next bull market narrative will have to show a use case that is more than one more asset for institutions. I think this will be a “first the Rest then the West” story but I do not know when the next crypto bull market will start.

FTX & naked swimmers in a bear market

Warren Buffet, who has a way with words, said only when the tide goes out can you see who has been swimming naked. During 2022 the tide has been out in a tough bear market and FTX has been swimming naked. So I decided to dig in and try to get some perspective amid all the clickbait noise.

First, in case you need a news 101,  Bankman-Fried’s FTX is a big cryptocurrency exchange on the brink of collapse amid liquidity concerns and allegations of misused funds. Bankman-Fried told investors that Alameda owes FTX about $10 billion, which FTX loaned to Alameda using customer deposits. Before making the loan, FTX had just $16 billion in assets, meaning it lent out more than half of its assets.

Headlines blare comparisons with all the big past blowups, so I started by looking at total amounts involved. I was surprised to learn that Madoff was bigger than Lehman. The big difference is that Lehman was a systemic risk, meaning all counterparties were at risk.

In all cases,  the reputational loss is massive. People like Sam Bankman-Fried fooled supposedly smart investors such as Sequoia Capital. And market prices fall, in some cases close to zero such as the  FTT token (which is akin to equity in FTX).

Re the skullduggery between Binance and FTX, this is a tale of two sharks and one wins. I was going to put Binance in the Cui Bono (who wins) category but decided on a new category which is Wait and See.

First Cui Amisit (who loses):

  • FTX shareholders such as Sam Bankman-Fried and Sequoia Capital
  • FTX Depositors aka traders who held crypto at FTX. $10 billion is not big compared to other big past blowups, but this is lots of people losing their life savings – ugh. But Wait and See, some money was recovered from Madoff and Mt. Gox.
  • Altcoin Investors. Even crypto blue chips like Bitcoin/BTC and Etherum/ETH took a hit but some crypto have been hammered and may not recover. 

Next Cui Bono (who wins):

  • Legacy Finance. An old fashioned bank or regulated exchange looks good compared to FTX. Oh and Legacy Finance assets may be moving from bear to bull market.
  • Coinbase. A fully regulated cryptocurrency exchange looks good compared to FTX.
  • Non custodial wallets, where an exchange cannot take your assets, looks like the right technology if you think the future will be self regulated

In the Wait and See category:

  • Binance. Will they win as last man standing? Or will traders shun their risk as being too much like FTX?
  • Crypto blue chips like Bitcoin/BTC and Etherum/ETH Bitcoin. Is this end of bear market capitulation or sign of a bubble popping?

Alt lending week ending 11th. November 2022

Is Musk’s Twitter deal such a good idea?

Interesting story from The Daily Telegraph questioning the wisdom of the controversial takeover by Elon Musk of Twitter. This saga began in April this year there have been many twists and turns along the way.  However, the biggest must be the seismic changes in the capital markets and the move away from the anything goes deal in the markets to a more sceptical and risk averse stance. This is not surprisingly a leveraged deal and much of the $ 44 billion needed to complete the purchase has been provided by a group of banks led by Morgan Stanley, Bank of America, and Barclays. As a trained analyst and an ex-arranger of syndicated loans for one of the said banks I can confidently say that in my day getting such a deal approved would be impossible. The difference is that these days “investment banks” don’t intend to keep the risk on their books. When I was underwriting, I had to look at how the asset would look on the books not just of my bank but a whole load of other lenders, mainly banks. The boys these days are like celebrity chefs cooking up a meal that looks great on the menu but can give you sever stomach cramp if anything goes wrong. Well in this case it has. Interest rates are rising aggressively and Twitter, which has never made much money since it went public is already highly leveraged. The interest burden is pushing it into the red as we speak. The lead management group have already conceded they might have to hold the Twitter paper longer than they expected. It could be long time indeed.

Is Bank of England making a mistake?

A paper written by Credit Suisse analysts argue that the Old Lady’s pronouncement on the expected peak of Sterling interest rates are underestimating the impact of the consistently tight labour market in the UK on inflation. Well they may be right but firstly who wants to listen to what Credit Suisse has to say about anything at the moment. Having said that the Bank of England’s forecasting over recent years has been less that impressive to say the least. Economists can say what they like because they always have a good story when they get everything wrong. I remember from my time in Greece having a quarterly bet with my old colleague, Oxford economics guru, George Magnus about the level of the Greek drachma three months hence. I won every time but George could always tell me why I won.

Tales of a Grocer

When writing about lending I am usually focussing on the lender and not the borrower but I was reading an article today about highly leveraged Grocery chain Morrisons which was putting emphasis on how it felt about its current situation. Morrisons has been hit quite hard recently by increased competition from the German discounters and its results have suffered accordingly. Morrisons was the subject of a bidding war some 13 months ago between two wall street houses sniffing a bargain. The winner was Clayton, Dubillier and Rice (CDR)the current owners.  However market conditions are now completely different and in todays world it looks like they have significantly overpaid. As in all such transactions, part of this deal was financed by the company being acquired and the new owners have loaded £ 2billion of acquisition loans onto Morrisons balance sheets. This debt is apparently held by some 19 banks and the paper will nob be significantly downgraded.  So what is Morrison’s view on this. Remarkably sanguine. Apparently these credits have a seven year maturity and the underlying documentation is extremely flexible. This means that there are no financial covenants in danger of breach. It is therefore the banks problem and not theirs. So lenders, the small print is pretty important when buying their party debt. The choices are binary take whatever price is available in the market or sit it out for seven years and hope for the best.

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