"In light of the time and attention it will take from me, I have reached the conclusion that I cannot address this development without it becoming an unwelcome distraction to the important work of the division," Oh said in a resignation letter.
Category Archives: Fintech International
A Visual Explanation of Algorithmic Stablecoins
Dragonfly Research | Haseeb Qureshi | Apr 27, 2021
Stablecoin usage has exploded in the last year. And yet, fewer and fewer people seem to understand how these stablecoins actually work.
For some reason, stablecoin creators are obsessed with making these designs seem impenetrably complex. Almost every white paper is mired in equations and newly invented jargon, as though their authors are trying to convince you: trust me, you’re not smart enough to understand this.
I don’t agree. At bottom, all stablecoin design is pretty simple. I’m going to show you a simple visual language to understand how all stablecoins work.
Think of each stablecoin protocol as a bank. They each hold assets and owe liabilities. Each of them captures value somehow and distributes that value to “equity” holders.
Consider a normal full-reserve bank.
On the left side are its real assets — the actual physical dollars it holds in reserve. On the right side are its liabilities—call them “digital dollars”—which are claims on the assets in reserve.
See: A Brilliant Fintech Future – Banking on Stablecoins
In a full-reserve bank, each liability is matched 1:1 with assets in reserve. If someone with a digital dollar asks for the cash back, the holder is given the physical dollar and the corresponding digital liability is destroyed. This is how Tether, USDC, and every other fiat-backed stablecoin works.
The equity of the bank belongs to shareholders — investors in the bank — and they make money from the fees the bank charges. In Tether’s case, the owners of Tether Ltd. are the shareholders, and their profits come from the Tether minting and redemption fees.
Every liability of a full-reserve bank should maintain a close peg to a dollar, since it’s always redeemable for $1 in reserve. So long as the bank maintains cheap convertibility, arbitrageurs will ensure this effortlessly maintains its peg.
So that’s a vanilla full-reserve bank. It’s an obvious model, but it will help illustrate how crypto banks are different.
Full-reserve Crypto Stablecoins
How would you create a crypto full-reserve bank whose liabilities are stable dollars?
Given crypto just reinvented money, the first thing you’d want to do is swap out the USD assets for crypto assets. But crypto is volatile, so 1:1 backing won’t work if your liabilities are in dollars. If the value of crypto goes down, the bank will be left undercollateralized.
See: Are Stablecoins Better Than Bitcoin?
So just do the obvious thing: put down an extra cushion of crypto to give you a buffer in case the crypto goes down.
This is basically how MakerDAO works.
Dai’s peg is currently stable.
Notice that the assets in reserve are significantly larger than the total liabilities (Dai). This keeps the whole system secure.
(I’m glossing over a bunch of details here. But for the purposes of comparing MakerDAO to other models, this is a good start.)
Now let’s look at Synthetix.
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The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Series of Essays: Regulation in the Era of Fintech
The Regulatory Review | April 26, 2021
Technological innovation is changing the financial sector. Cryptocurrency markets have surged to all-time highs, culminating in the historic initial public offering of Coinbase, the first major cryptocurrency company to go public on a U.S. stock exchange. Retail investors have used Reddit and various commission-free trading platforms to spark unprecedented market volatility in “meme stocks,” such as GameStop. And at the same time, the Internal Revenue Service has struggled to distribute stimulus checks to millions of Americans, highlighting the need for better technological and regulatory solutions to facilitate faster payments in the United States.
New financial technology, or “fintech,” promises to make the financial system faster, better informed, and more global. Once a budding sector of finance, fintech is now a constant presence in every corner of the industry. Fintech products have opened the door to many new opportunities for consumers, investors, and businesses. But with these opportunities, come new challenges. Regulators and policymakers face key choices as they adapt to meet the needs of this constantly changing landscape while keeping investors and consumers safe.
See: SEC Commissioner Peirce speak at FFCON21 May 11-13 - Register Here
The Regulatory Review has invited policymakers, scholars, and practitioners from across the financial sector to discuss the pressing issues fintech poses for the industry and to offer their insights about how fintech will continue to impact financial institutions, markets, and regulators in the future.
More Data, More Problems
April 26, 2021 | Rick A. Fleming and Alexandra M. Ledbetter, U.S. Securities and Exchange Commission
Investors in capital markets have access to more information than ever before, but it is challenging for even sophisticated market participants to sort through all of the data. The U.S. Securities and Exchange Commission should adopt data standardization practices for corporate reporting to make accessing reported information easier and less costly for the investing public.
Did Reddit Break the U.S. Securities Markets?
April 27, 2021 | Marlon Paz, Mayer Brown LLP
Recent market volatility in GameStop and other “meme stocks” has put a national spotlight on the evolving role of technology in regulating U.S. capital markets. The U.S. Securities and Exchange Commission should improve the antiquated plumbing of the U.S. securities trading infrastructure to speed up the clearing and settling process.
DeFi Is the Next Frontier for Fintech Regulation
April 28, 2021 | Kevin Werbach, The Wharton School of the University of Pennsylvania
Decentralized finance promises significant benefits, including democratized access to financial products, improved market efficiency, easier access to liquidity, enhanced financial privacy, and faster innovation. DeFi, however, also poses serious and multifaceted risks.
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The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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This Slackbot wants to fix fintech’s workplace harassment problem
Sifted | Ryan Weeks | Apr 28, 2021
There have been hundreds of cases of harassment in the fintech sector. Today, InChorus launched a slack bot to track and collate data on microaggressions.
The fact that InChorus, a reporting platform for workplace harassment, chose fintech as its ground zero is a sobering sign for the sector.
More sobering still is the fact that, this time last year, more than 500 incidents of harassment were reported through InChorus’ system by fintech employees in the UK. Of those, 85% related to gender and 10% involved “unwanted physical contact”.
See: Why workplace learning matters more than ever
Unsurprisingly, more than 85 companies in the sector have since signed up to the FinTech For All Charter, which aims to tackle these issues with the support of the Financial Conduct Authority, Innovate Finance, Level39 and others.
The next phase in that initiative begins today, with the rollout of a new Slackbot which will track and collate data on microaggressions relating to harassment and diversity issues within the fintech sector.
“We really believe in the ongoing collection of data around this problem in order to ultimately drive accountability,” said Rosie Turner, cofounder and co-CEO of InChorus.
The plan is to aggregate the data to provide freely available insights on the sector as a whole. A handful of companies — including Funding Options and Concirrus — have signed up to use the tool at launch and will be analysing their own data for benchmarking against sector-wide stats.
Turner told Sifted that all 85+ signatories of the FinTech For All Charter will be invited to incorporate the technology shortly after today’s launch.
See: Culture and Diversity Leadership: Tale of Two Doors
Curve, the digital bank, recently signed up to the charter. The firm’s cofounder and CEO Shachar Bialick told Sifted that the tool could “only be a good thing, as no one should have to come to work and suffer harassment in any shape or form, ever”.
“Despite having 33% women at Curve across all workforce (and 14% across engineering), the lack of gender parity across the industry remains a painful issue, something which Curve itself is trying to address by actively attracting more women to its employee base, particularly in engineering,” Bialick added.
The number of incidents (more than 50) involving unwanted physical contact reported during InChorus’s first data collection effort early last year is particularly painful — and over half of these were not isolated incidents. Surprisingly, the data did not suggest that the majority of people who had experienced this were more junior than the perpetrators.
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The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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DeFi Users Explode as ETH Makes New Highs
The Defiant | Dan Kahan | Apr 29, 2021
ETH is breaking new all-time highs of just under $2,800 on Thursday, and the breathtaking rally from $200 a year ago is coming with a boom in users.
MetaMask said it has surpassed the 5M monthly active users milestone, while a popular Dune Analytics dashboard shows DeFi users just recently climbed above 2M for the first time.
MetaMask Boom
MetaMask’s active user base has grown 400% during the past six months, according to the April 27 blog post.
The DeFi wallet had reached 1M cumulative monthly active users across its browser extension and mobile app for the first time in October 2020. Now in April, MetaMask is reporting over 5M active users over the past month.
FFCON21 May 11-13: Join us for VIP Masterclasses on Decentralized Finance (DeFi) Workshops
MetaMask attributed the influx of users to a combination of factors including the NFT craze and increased interest in DeFi from people in what the company calls “the Global South.”
“India and Indonesia are both in the top 5 countries in terms of MetaMask mobile adoption, while Vietnam and Nigeria are in the top 10,” the post says. “Many people in these countries do not trust their governments, and thus eagerly look towards alternatives.”
MetaMask also noted a significant uptick in usage of their in-wallet token swap function, MetaMask Swaps, reporting over $2B in accumulated transaction volume over a six-month period.
The Larger DeFi Boom
MetaMask’s growth is reflective of the larger explosive growth in overall DeFi users during the past few months.
Based on “DeFi Users Over Time” data compiled by 1confirmation’s Richard Chen using Dune Analytics, which tracks unique addresses interacting with major DeFi dapps, there were 586k Defi users at the beginning of October 2020. The DeFi user base has since grown about 240% to over 2M users.
To be sure, a single user can have multiple unique addresses, so the Dune Analytics numbers are somewhat inflated.
Source: Dune Analytics
Still, these analytics only reflect users interacting with 26 major DeFi apps like Uniswap, Compound, and 1Inch, which doesn’t encompass all DeFi dapps.
As indicated by MetaMask’s 5M monthly active users, there are potentially a large number of people who limit their Web3 activity to holding and swapping within their wallets using features like MetaMask Swap.
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The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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SEC enforcement chief resigns over role in Indonesian torture case
Politico | Kellie Mejdrich and Zachary Warmbrodt | Apr 28, 2021
Alex Oh said in a resignation letter that she was leaving because of a "development" in a case on which she worked as a corporate lawyer.
SEC Chair Gary Gensler's pick to serve as the agency's enforcement director resigned unexpectedly on Wednesday amid mounting criticism from progressives over her work as a corporate defense lawyer.
Alex Oh, who was in private practice for two decades before Gensler announced her new role last week, resigned after a federal judge reprimanded her and others defending oil giant ExxonMobil in a class action lawsuit brought by Indonesian villagers. It was a stunning reversal for the SEC less than two weeks into Gensler's tenure at the helm of the agency.
Oh walked away from the job as Gensler faced growing concern from progressives on Capitol Hill and in the activism community about his decision to hire a long-time corporate lawyer for one of the government's most powerful posts for overseeing the finance industry.
The episode marked a surprising political backlash from progressives who had cheered Biden's nomination of Gensler, after the former Goldman Sachs partner emerged as a tough banking regulator when he chaired the Commodity Futures Trading Commission during the Obama administration.
See: SEC Commissioner Peirce Pitches Token Safe Harbor Proposal Version 2.0
Before it was announced last week that she would join the SEC, Oh worked for two decades at the law firm Paul, Weiss, Rifkind, Wharton & Garrison, where she represented Fortune 100 companies facing government investigations, with clients including Bank of America and ExxonMobil.
Oh was part of a legal team defending ExxonMobil in a lawsuit seeking to hold the company liable for murder and torture by the Indonesian military during civil unrest between 1999 and 2001. Villagers said ExxonMobil should face liability because it hired soldiers to guard natural gas facilities in the country.
Following complaints about the conduct of ExxonMobil's lawyers, U.S. District Judge Royce Lamberth on Monday admonished Oh and others defending the company. The lawyers for the villagers had told the court that ExxonMobil's defense team had characterized them as "agitated, disrespectful and unhinged."
The SEC did not respond to a request for comment about when they were aware of the issues involving Oh and ExxonMobil. Paul Weiss Chairman Brad Karp defended Oh in a statement: “Alex is a person of the utmost integrity and a consummate professional, with a strong ethical code.”
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The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Tesla Sold Some Bitcoins
Bloomberg Opinion | Matt Levine | Apr 28, 2021
Tesla Bitcoin
A funny thing for Elon Musk to do would be:
- Tesla Inc. buys some Bitcoin.
2. Tesla announces that Bitcoin is good now and that it bought some.
3. The price of Bitcoin goes up, because institutional adoption of Bitcoin is good for its price, but also because, by the Elon Markets Hypothesis, anything that Musk buys goes up.
4. Tesla sells some Bitcoin, making a profit.
5. Musk tweets that the price of Bitcoin is too high.
6. Bitcoin prices go down due to the Elon Markets Hypothesis.
7. Go to Step 1.
Well, on Monday Tesla announced earnings, and guess what guess what guess what:
Tesla pulled a new lever to juice earnings in the quarter, generating $101 million in income from selling about 10% of its Bitcoin holdings.
Profit from the cryptocurrency and the sale of regulatory credits and tax benefits contributed about 25 cents to Tesla’s adjusted earnings of 93 cents a share, allowing the carmaker to beat Wall Street’s 80-cent average estimate, Dan Levy, an analyst with Credit Suisse, wrote in a note Monday.
See: Elon Musk says people can now buy a Tesla with bitcoin
That’s wonderful, my sincere congratulations to them. People want to be mad about this? There is a vague sense out there that it is somehow fraud to buy a thing, say you like it, and then sell some of it. For instance Dave Portnoy, who I guess is an investment celebrity now, used the words “pumps” and “dumps” to describe Tesla’s actions on Twitter, prompting Musk to reply that “Tesla sold 10% of its holdings essentially to prove liquidity of Bitcoin as an alternative to holding cash on balance sheet.” (Tesla’s “Master of Coin,” Chief Financial Officer Zachary Kirkhorn, also talked a lot about liquidity on the earnings call; Tesla decided to put a chunk of its corporate cash into Bitcoin and I guess needed to make sure that its money wasn’t trapped. A reasonable concern! “We've been quite pleased with how much liquidity there is in the Bitcoin market,” said Kirkhorn.)
For myself, I want to be absolutely clear that:
- I don’t think there’s anything illegal about Tesla buying Bitcoin, saying that it bought Bitcoin, and then selling Bitcoin when the price goes up. There’s no indication that Tesla, or Musk, were lying about any of this. (Not legal advice!)
- I think that's cool and fun, I’m glad they did it, and I hope they’ll do it again.
- I think that, if you can reliably do that — if you are Elon Musk and you can make Bitcoin go up by tweeting about it — you almost have an obligation to do it? Perhaps a fiduciary obligation to your shareholders, but at least a sort of aesthetic obligation to comedy. If Bitcoin wants Musk to manipulate it, Musk really ought to manipulate it.
As I wrote in February, when Tesla bought the Bitcoins:
Musk is in the nice position of being able to spend billions of dollars buying assets in liquid anonymous markets, and then make those assets go up just by tweeting about them. If you can do that, you should! If you can buy a thing secretly, announce “I own the thing,” reliably cause the thing’s price to go up a lot, and then — if you want — sell the thing secretly, then that’s a great business right there. Talk about clean energy; that’s a perpetual motion machine.
See: Elon Musk Had a Private Meeting With Volkswagen’s CEO. It’s a Brilliant Lesson in Emotional Intelligence
Or people have a sense that these earnings are somehow fake, less real than earnings from making and selling cars? The New York Times says that the Bitcoin sales “led to a $101 million accounting boost,” which makes it sound like it’s not an economic boost. But it is! That’s an extra $101 million of real U.S. dollars that came in the door from selling Bitcoin for a profit.
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The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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SPAC transactions come to a halt amid SEC crackdown, cooling retail investor interest
CNBC | Yun Li | Apr 21, 2021
Key Points
- After a record of 109 new SPAC deals in March alone, issuance has now come to almost a standstill with just 10 SPACs in April, according to data from SPAC Research.
- The SEC issued accounting guidance that would classify SPAC warrants as liabilities instead of equity instruments.
- Bank of America’s client flows showed that retail SPAC buying slowed down significantly.
- The proprietary CNBC SPAC Post Deal Index has wiped out 2021 gains and fallen more than 20% year-to-date.
SPAC mania has come to a screeching halt.
Just last month, special purpose acquisition companies celebrated a head-turning milestone by breaking their 2020 issuance record in just three-month’s time. After more than 100 new deals in March alone, issuance is nearly at a standstill with just 10 SPACs in April, according to data from SPAC Research.
FFCON21 May 11-13: The Rise of Retail Investors, Stakeholder Capitalism and IPO Innovations
The drastic slowdown came after the Securities and Exchange Commission issued accounting guidance that would classify SPAC warrants as liabilities instead of equity instruments. If it becomes law, deals in the pipeline as well as existing SPACs would have to go back and recalculate their financials in 10-Ks and 10-Qs for the value of warrants each quarter.
“SPAC transactions have essentially come to a halt,” said Anthony DeCandido, partner at RSM LLP. “This is going to cost these companies a lot of money to evaluate and value those warrants each quarter rather than just at the start of the SPAC. Many of these groups lack the sophistication internally to do this themselves.”
SPACs raise capital in an initial public offering and use the cash to merge with a private company and take it public, usually within two years. Warrants are a deal sweetener that offers early investors more compensation for their cash.
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The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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