Block needs to square its strategy
Good morning, and welcome to Protocol Fintech. This Thursday: Block’s pitch to investors, Gensler’s plea to Congress, and Binance’s next move.
Off the chain
A New York Times piece on the UST-luna implosion ends on a wry note: Neel Somani, who quit his job at Citadel to work on a Terra blockchain project, is still planning to compete in his hacker house’s demo day, even though the technology was rendered pointless by the crash. The prize: $50,000. “It’s in U.S. dollars,” he told the Times. “I asked.”
Dorsey squares Block
Block held its first investor day in five years yesterday, hoping to persuade Wall Street that there’s a logic to a conglomerate that sprawls from payments to streaming music to bitcoin developer tools. It spent big on Afterpay, a “buy now, pay later” service that promises to bridge its Square seller unit and Cash App. But after five hours of a presentation, it still wasn’t totally clear how the rest of Block snaps together.
Block head Jack Dorsey wants you to think of it as a software company, not a payments company. The units within Block serve “tailored audiences,” he said.
- The products and their audiences include “Square for sellers, Cash App for consumers, Tidal for artists, TBD for bitcoin developers and bitcoin hardware for those wanting to participate in the new economic reality,” he said.
- That didn’t address the key question, which is how those audiences overlap — if they do — and how housing the businesses together will help Block generate market-beating returns.
The easiest case to make is for Afterpay. Block detailed how important Afterpay is to tying Square and Cash App together, and how it can boost each of them.
- Afterpay is driving more sales for Square merchants already. It has already launched for online and in-person sales in the U.S. and Australia. Cash App is integrating Afterpay for shoppers to discover new products, which means generating leads for merchants. Afterpay, which is built into many non-Square ecommerce systems, is also integrating Cash App as a payment method, which could drive more sales, the company said.
- Square is also looking to sell into Afterpay’s merchant base, which includes Dick’s Sporting Goods, the Container Store, PetSmart and Rite Aid, said Alyssa Henry, the company’s Square lead. Expect to see Square go after more big retailers.
- At the end of March, 13,000 Square online sellers had processed Afterpay transactions. That figure had grown more than 50% to 20,000 by yesterday. Square’s Afterpay orders for online sellers have been three times as large as other payment methods — bolstering the argument of many “buy now, pay later” providers that the financing option prompts consumers to spend more.
Then there’s bitcoin. Maybe it’s the future of finance! Maybe it’s Block’s way of disrupting itself before someone else does. Where bitcoin fits in is more theory than practice right now.
- The digital commerce system that Block built itself on is “still exclusionary, closed and controlled by a few corporations … We need a protocol that is native to the internet, a standard that's inclusive, trusted and scalable to the entire population,” Dorsey said.
- There’s Spiral, which began as Square Crypto in 2019. Some of its products, like the Lightning Development Kit for faster, cheaper bitcoin payments, are now being used by other Block units. But really, said Steve Lee, the former Google engineer who started the group and still runs it, “you can think of the broader bitcoin ecosystem as our customer.”
- Other projects include chips and hardware to make bitcoin mining cheaper, and tbDEX, a decentralized technology for individuals to convert fiat into and out of bitcoin.
- The biggest bitcoin bet — besides Cash App’s large bitcoin trading business — might be Block’s hardware wallet. The wallet is really three pieces: a rock-like piece of hardware with a fingerprint reader, a mobile app and a self-serve recovery tool (remember all those nightmarish headlines about lost crypto keys?).
- "We are designing a system for regular folks, so it has to be resilient and inspire confidence even when things go wrong," said Jesse Dorogusker, Block’s hardware lead.
- Dorogusker made something of a business case for the wallet: It could include a subscription service to help customers regain access to funds, he said, and referral revenue from sending trades to crypto exchanges. And it could also connect to Cash App for buying and selling bitcoin. That’s more concrete than most of Block’s bitcoin dreams.
Dorsey’s pitch, in short, is that bitcoin could pay off over the long term. If the cryptocurrency ever becomes a common payment method — a big if, given bitcoin’s technical limitations and price volatility — Block’s investments could help position it at the forefront of a decentralized financial world. But right now, Afterpay seems like a far easier sell to investors. (Tidal is still a question mark, and didn’t get much time at the presentation.) Maybe it’s best to think of the bitcoin businesses as Block’s moonshots. That’s great, as long as Square and Cash App keep bringing in the dollars.— Tomio Geron (email | twitter)
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On the money
On Protocol: Circle CEO Jeremy Allaire defended the idea of stablecoins, even as he admitted the “violent” value destruction of UST shocked him.
South Korea relaunched a specialized investigative unit to investigate Terraform Labs. The financial crimes unit, nicknamed “Yeouido Grim Reaper” after Seoul’s financial hub, was abolished more than two years ago, but relaunched to investigate how the company behind UST and luna courted investors.
Pantera Capital, a Terraform Labs investor, said it wasn’t really affected by the UST crash. The VC firm said it cashed out almost 80% of its investment over the last year and “exited the majority of [its] position before [the crash] happened.”
Binance is looking to Germany next. After its regulatory win in France earlier this month, the crypto exchange is continuing its expansion across Europe, and is reportedly in talks with German regulators to secure a license.
Coinbase formed a crypto think tank to publish research. Director of Policy Hermine Wong is heading up the new Coinbase Institute, which will publish a monthly report on digital asset markets. It has also entered into an academic partnership with the University of Michigan.
Gensler makes his case
SEC Chair Gary Gensler warned Congress Wednesday that consumers and investors are vulnerable in an increasingly volatile crypto market now reeling from a sharp downturn.
Citing the recent collapse in the crypto market's value, Gensler said, “This is a field that is now worth $1.2 trillion. Two weeks ago it was supposedly worth $2 trillion.”
Gensler made a pitch for more resources for the SEC in order to more effectively monitor the crypto industry. The SEC recently announced that it was expanding its enforcement team to focus more closely on crypto.
“We are outpersoned,” he said. “We're not trying to grow really significantly,” but the SEC hopes to “grow our enforcement arm in this space.”
Read the full story here.— Benjamin Pimentel (email | twitter)
Moves and hires
David Chubak joined Jifiti’s board of directors. Chubak was formerly CEO of Citi Retail Services, and is currently head of Wealth Management at investment firm Edward Jones.
FTX named Marissa MacDonald chief compliance officer for its New York unit. MacDonald was previously chief compliance officer at Fidelity Investments, and will lead the new operation, which is currently seeking a New York State BitLicense.
Ant Group is hiring for 20 positions in Singapore. The Chinese fintech giant, an affiliate of Alibaba Group, is expanding across Southeast Asia, and is looking for people to fill positions in credit management, security and marketing for its digital bank.
BlockFi hired Brian Oliver as general manager of Institutions. Oliver previously held leadership roles at the CME Group, J.P. Morgan and Citadel Securities. He will manage BlockFi’s global Institutional business.
Bain Capital Crypto named TuongVy Le as partner and head of Regulatory and Policy. Le was formerly deputy general counsel and compliance officer at Worldcoin, and chief counsel for Legislative and Intergovernmental Affairs at the SEC prior to that.
INX named Renata Szkoda as chief financial officer. Szkoda was most recently director of Finance at Galaxy Digital, and is also currently chair of the Global Digital Asset and Cryptocurrency Association.
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