Bye Bye Binance

Tweet of the week 🦉🏆

Over the weekend the FCA, the UK’s top financial services regulator, banned crypto exchange Binance from undertaking any regulated activities in the UK, making it one of the most significant regulators to take action against the company. They have until Wednesday to confirm it has complied. Although the FCA doesn’t regulate all cryptoassets, they do regulate derivatives and assets they deem to be “securities”, meaning you need authorisation to advertise and sell them. Binance was not approved under the FCAs crypto registration scheme and its application was dropped recently.

This isn’t Binance’s first run-in with regulators as it got in hot water with BaFin recently due to its stock tokens product. Japan’s FCA equivalent also recently issued a warning to Binance.

A large number of tech companies have a “move fast a break things” mentality, which works in some industries but not in the heavily regulated world of financial services. Whilst crypto companies might believe that being decentralised and “outside the system” means they do not need to comply with traditional rules and regulations, they are increasingly finding that is not the case. On-ramps and off-ramps into fiat currencies are still needed which is where regulators have jurisdiction and can step in and take action, as well as in advertising crypto related products and services.

With the regulatory outlook for crypto still very nascent, some are using the opportunity to act like it’s the wild west while others are trying to work with regulators to help inform them and shape policy (probably to their own advantage). If I were running a crypto firm, I know which path I would take.

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Fundings & M&A 💸

There were 53 deals in the fintech space across the US and Europe with a total investment of $2.5bn. Some highlights are below.

🇪🇺 Mollie raised a €665m ($800m) Series C at a €5.4bn ($6.55bn) valuation led by The Blackstone Group and included EQT, General Atlantic and others.

🇪🇺 Hawk AI raised a $10m Series A led by BlackFin Capital.

🇬🇧 Wise has announced 7th July is its date for its direct listing on LSE.

🇬🇧 ClearScore raised £144m from Invus Opportunities.

🇺🇸 Crediverso raised a $3.1m seed round from Act One Ventures, Bessemer, Clocktower and Point72 Ventures.

🇺🇸 Securitize raised a $48m Series B co-led by Morgan Stanley and Blockchain Capital and included Borderless Capital, Global Brain, Mouro Capital and more.

🇺🇸 Majority raised a $19m seed round led by Valar Ventures and included Avid Ventures and Heartcore Capital.

🇺🇸 Stash has acquired financial literacy startup PayGrade.

🇺🇸 Deserve raised a $50m Series D led by Mastercard, Ally Ventures and Mission Holdings.

🇺🇸 Symphony has acquired voice trading software provider Cloud9 Technologies.

🇺🇸 Cross River Bank acquired PeerIQ.

🇺🇸 Chainalysis raised a $100m Series E at a $4.2bn valuation led by Coatue and included Accel, Addition, Altimeter, Benchmark, Blackstone and Dragoneer.

🇺🇸 SmartAsset raised a $110m Series D led by TTV Capital and included Citi Ventures and others.

🇺🇸 RabbitHole raised $3.6m in a round led by Electric Capital.

🇺🇸 Yield Protocol raised a $10m Series A led by Paradigm and included Variant Fund, Framework Ventures and DeFi Alliance.

🇺🇸 Rarible raised a $14.2m Series A led by Coinfund and Venrock.

🇺🇸 Lower raised a $100m Series A led by Accel.

🇺🇸 Blockchain Capital has raised a $300m fund with participation from Visa and PayPal.

🇺🇸 Andreessen Horowitz announced a new $2.2bn Crypto Fund III and also that David Harber is joining the firm.

Challenger Banking 🚀

🇪🇺 Raisin has merged with Deposit Solutions to create a consumer savings behemoth.

🇬🇧 Revolut reported financials this week for 2020. Highlights were +34% revenue growth yoy to £222m, adjusted revenues +57% yoy to £261m, annual loss of £207m, gross profit £123m and 49% gross margin. Number of customers 14.5m (+45% yoy)and deposits of £4.6bn (+96% yoy).

🇬🇧 Credit Kudos released a credit decisioning product powered by open banking which saves lenders hours.

🇬🇧 Monzo got a telling off from the Competition and Markets Authority for not providing bank transaction histories to 143k former account holders in a timely fashion.

🇬🇧 Budgeting app Emma is to become a super-app, adding stock trading, crypto, P2P payments, savings accounts and credit scores to its portfolio of products.

🇺🇸 Robinhood and SoFi have moved to restrict customers that sell IPO shares they purchase through the respective platforms within 30 days from future IPOs.

Digital Assets ₿

🇬🇧 The FCA have banned Binance from the UK, ordering them to stop all regulated activities over concerns around AML, fraud and weak consumer protection.

🇺🇸 Goldman Sachs completed a repo trade using JPMorgan’s private blockchain network in what Goldman’s Matthew McDermott described as “a pivotal moment”.

🇺🇸 Citi officially launched “Digital Assets Group” under its wealth division.

🇺🇸 FTX is sponsoring MLB and becoming their “official cryptocurrency exchange brand”

🌍 As China clamps down on crypto miners, other locations should benefit from the activity. BIT Mining has delivered machines to Kazakhstan and another logistics firm is sending mining machines to Maryland. Twitter was abuzz with rumours of Chinese miners going to Austin. Anthony Pompliano wrote a good post on implications here.

🌍 The BIS anointed CBDCs as the winner against bitcoin, stablecoins and big tech.

🌍 Binance is launching an NFT marketplace with a headline auction called “Genesis” featuring Andy Warhol’s “Three Self-Portraits” and an NFT of Salvador Dali’s “Divine Comedy:rebeget”.

🌍 The two South African brothers who started Africrypt have disappeared as with $3.6bn in bitcoin.

Traditional Banking 🏦

🇪🇺 Fiserv and Deutsche Bank have formed a JV for merchant acquiring in Germany.

🇺🇸 Fifth Third Bank is the latest to give customers access to their paychecks two days early.

🇺🇸 Morgan Stanley will require staff and visitors to be vaccinated to enter its New York offices.

Fintech Infrastructure 🚧

🇪🇺 Swift has signed up six global banks for its new ISO 20022 transaction platform which is going live in November.

🇪🇺 Visa is acquiring Plaid European rival Tink for €1.8bn in a boost for the open banking ecosystem in Europe. Simon Taylor has a good breakdown below

🇪🇺 Deutsche Bank has signed a collaboration with Oracle to transform its legacy database infrastructure.

🇺🇸 Wells Fargo has joined Akoya network, a data aggregator somewhat similar to Plaid but owned by banks.

🇺🇸 Circle is releasing a DeFi API, enabling companies to access lending markets starting with Compound.

Payments 💰

🇺🇸 PayPal is increasing costs for merchants on its platform to 3.49% + ¢0.49 per transaction for sales through its button or digital wallet and 2.59% + ¢0.49 for card payments, the latter undercutting Stripe and Shopify (2.9% + $0.30). In-person transactions are dropping to 1.9% + ¢0.10 for $10+ transactions and 2.4% + ¢0.5 for transactions under $10.

🇺🇸 Visa is partnering with Russian bank VTB to trial payments by looking at a camera.

Regulatory Corner 🔎

🇺🇸 The SEC pushed back a decision to approve an ETF from Valkyrie Digital Assets from June 26 to August 10.

🇺🇸 Lawmakers voted to repeal the “true lender” rule.

Crypto 101 🏫

Proof-of-stake (PoS) - a consensus mechanism (more below) whereby blocks are mined or validated according to the quantity of coins they hold. If a miner has more coins, they have more mining power.

Last week we talked about a different consensus mechanism, proof-of-work (PoW), which uses electrical energy to power brute force trial and error computation to prove consensus. One issue with PoS is that it uses a lot of electricity to power the complex computers used in the trial and error computing. Also there is a lot of redundant energy consumption because miners compete to validate the next block and only one miner can win. So if Miner A and Miner B are competing to validate the next block and Miner B gets there first, the electricity consumption of Miner A is wasted and they essentially start again for the next block. PoS is vastly more energy efficient because it does not require complex computing power but proof of ownership essentially. Popular blockchain Ethereum is moving from a PoW to a PoS mechanism partly for this reason.

To prevent bad actors taking over the blockchain, PoW requires an attacker to acquire a large amount of the computing power of validators on the network which requires a lot of energy and expensive equipment. PoS requires validators own some of the blockchain’s native token which incentivises them to behave properly so as not to cause the value of their own tokens to plummet. It also requires potential bad actors to acquire a large amount of tokens to attack the system.

Consensus mechanism - A way to ensure that multiple parties agree on some data value i.e. achieve a consensus. In traditional finance, centralised parties (banks) do this. But in a decentralised system there is no equivalent so a group of actors in the system must agree. If it was just down to one party, it would be very vulnerable to bad actors. The way in which a group of independent parties agree to something is a consensus mechanism, of which proof-of-work and proof-of-stake are examples.

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