Good morning, and welcome to Protocol Fintech. Hope you enjoyed the long weekend. This Tuesday: lessons from Canada’s crypto crackdown, Better.com gets worse, and Ripple contends with its “risk” factor.
Off the chain
As I watched Randi Zuckerbergadapt an Adele song — “Hello, this is DeFi” — to promote cryptocurrency, I couldn’t help thinking: “Is this my fault?” After all, I’d kind of encouraged the smarter Zuckerberg sibling’s musical career early on. I’m not quite sure what the inclusiverse is, but if Randi Z. is involved, I have to think it’s going to be more fun than a metaverse for the office. Crypto needs more show tunes.
— Owen Thomas (email | twitter)
Canada's crypto crackdown
It’s the latest crypto application: politics.
The streets of Ottawa are largely quiet now, but Prime Minister Justin Trudeau’s government has extended the emergency it called to crack down on the trucker protests that caused gridlock at the U.S.-Canada border. The use of the Emergencies Act allowed the Royal Canadian Mounted Police and the Financial Transactions and Reports Analysis Centre of Canada, or Fintrac, to clamp down on the political action’s funding — including crypto.
The crackdown comes at a critical time. The U.S. too has begun flexing its muscles to curb the use of blockchain tech for activities deemed illicit or illegal. And a large segment of the crypto industry has been sending signals that it wants to help.
They know where you keep your crypto. Canada’s crypto showdown helped dispel the mistaken notion that the blockchain is an anonymous realm.
- Crypto wallets may not have personally identifiable information, but wallets hosted on a centralized exchange are linked to an identifiable user account. And transactions on the blockchain can be traced from point to point. Canadian authorities ordered a halt to transactions to more than two dozen crypto wallets.
- The Blockchain Intelligence Group tracked the transfer of at least $2.25 million worth of cryptocurrency to “multiple donor” wallets that served as a “funnel” to the main protest group address, said Mike Fasanello, the company’s director of Training and Regulatory Affairs. He added that it was unclear if the funds went through or if the Canadian government was able to block the flow.
- The wallets may not have names attached to them, but Fintrac and other Canadian agencies can obtain the personal account information behind addresses linked to exchanges or financial institutions, Fasanello added. Kraken CEO Jesse Powell warned users that the crypto exchange “will be forced to comply” with a government order to freeze assets: “We cannot protect you.”
- Melody Brue, analyst with Moor Insights & Strategy, agreed. “Custodial exchanges cannot protect users' assets in a situation where a government deems an activity to be illegal — even without fair legal process to make that determination,” she told Protocol. “This should be a warning sign to crypto holders on an exchange.”
Big Crypto is taking a clear stand for KYC. There are ways to hide crypto transactions through “obfuscation methods, such as using “stealth wallet addresses,” Fasanello said. But these tricks often are associated with money laundering and other crimes.
- Last week, major crypto players made a strong statement that they don’t want that association: that they take “know your customer” and the risks of criminal activity seriously.
- A group led by Coinbase and Anchorage Digital announced a network called TRUST that would enable crypto companies to comply with the Justice Department’s Travel Rule, which says information about who is sending how much to whom must “travel” with sizable financial transactions.
- A day later, crypto companies led by Coinbase and Circle announced new protocols, called Verite, that would allow crypto companies to verify transactions without disclosing personal information.
- These are “tricky” moves, Brue said, since “self-custody and privacy are central to the utility value” of DeFi. “This is essentially financial censorship,” she told Protocol. “It becomes a slippery slope though when decentralization and censorship-resistance have the potential to clear the way for illegal activity, including money laundering and terrorism.”
Law and order is making its move in the Wild West. Crypto is striving for a cleaner reputation, which is why the KYC-related initiatives are “smart” at a time when governments are paying closer attention to the industry, said Rob Siegel of the Stanford Graduate School of Business. The moves “may not head off regulation,” he told Protocol, but they show that crypto companies “are aware of where governments are going to look to prevent fraud, money laundering, etc.” Crypto wants to be on the right side of the law when the sheriffs — or the Mounties — arrive.
— Benjamin Pimentel (email | twitter)On the money
On Protocol: Ukraine passed a bill to legalize crypto, while Russia is still fighting over whether to ban or regulate it. The Ukrainian law doesn’t recognize bitcoin or other digital currencies as legal tender, but does provide a legal framework for business disputes involving crypto.
Miami received its first disbursement from the MiamiCoin project. Miami Mayor Francis Suarez said that the city would use the $5.25 million in funds to address Miami’s housing crisis, with potential plans to pay residents dividends in bitcoin.
Also on Protocol: Newly released memos show Ripple’s lawyers warned it of a “risk” that the SEC would view XRP as a security.
Better.com lost four top executives. The departures come as rumors swirl of another round of layoffs, TechCrunch reported. Better.com CEO Vishal Garg took time off after infamously botching a mass layoff late last year.
Bitpanda is planning to add new tokens to its exchange on a weekly basis. The cryptocurrency exchange will also allow project creators to apply for their tokens to be listed, going through a vetting process by its asset listing committee.
Fidelity International launched a physical bitcoin ETP. The investment firm will list the physical bitcoin ETP on the Deutsche Börse stock exchange and the SIX Swiss Exchange. It plans to list the exchange-traded product on the Toronto Stock Exchange by December.
Federal Reserve senior officials can no longer invest in individual stocks, bonds, crypto and commodities. Effective May 1, officials cannot make new investments in stocks but can hold on to existing shares. Any holdings in commodities and foreign currencies must be for “non-investment purposes.” Cryptocurrencies are completely off-limits.
A MESSAGE FROM CLARI
How do you maximize Sales and Marketing performance? Point them at the same targets. Watch the latest episode of Club Revenue on Nasdaq as Bhaskar Roy, Chief Marketing Officer at Workato, reveals his remarkable tactics so that Marketing and Sales can outperform.
Deal flow
Relex Solutions raised $568 million. The retail-focused AI firm’s latest funding round was led by Blackstone Growth.
Funding Societies raised $144 million. The digital financing venture’s series C+ equity round was led by SoftBank Vision Fund 2, with participation from new investors including VNG Corporation and EDBI, and existing investors Sequoia Capital India and BRI Ventures.
Found raised $60 million. The financial services company’s series B round was led by Founders Fund. (Say “Founders Fund funded Found” five times fast.)
Check raised $75 million. The payroll infrastructure company’s series C round was led by Stripe (don’t tell Ryan Breslow!), with participation from existing investors Bedrock, Thrive and Index.
Stronghold Capital launched a $100 million investment fund for Web3 and the blockchain ecosystem. The funds will be used to focus on “identifying and investing in emerging talent — especially underrepresented and overlooked founders.”
Ref Finance raised $4.8 million. The NEAR Protocol DeFi project’s latest funding round was led by Jump Crypto, with participation from Alameda Research and Dragonfly Capital.
A MESSAGE FROM CLARI
How do you maximize Sales and Marketing performance? Point them at the same targets. Watch the latest episode of Club Revenue on Nasdaq as Bhaskar Roy, Chief Marketing Officer at Workato, reveals his remarkable tactics so that Marketing and Sales can outperform.
Coming up
So you decided to go multicloud. Now what? Join Protocol’s Tom Krazit and a panel of experts next Wednesday at 10 a.m. PT/1 p.m. ET for a conversation on multicloud computing and how businesses should think about their options as the market evolves.
Block and Coinbase’s earnings calls are scheduled for Thursday. SQ’s average estimated EPS is at -$0.13, down 360% from last quarter. COIN’s average estimated EPS is at $1.94, up 19.8% from last quarter. Both will give a glimpse of the consumer crypto market at the end of last year.
Intuit and Morningstar’s earnings calls are also set for Thursday. INTU’s average estimated EPS is at $0.93, up 1.8% from last quarter. MORN’s average estimated EPS was not available.
NYU’s Stern Fintech Conference is scheduled for Friday. Hosted by NYU Stern’s Fubon Center for Technology, Business, and Innovation and its Fintech Initiative, the virtual conference will focus on DeFi’s impact on financial systems and businesses. Also, just take a look at speaker Bartoletti Massimo’s publicity shot, will you?
The MIT Fintech Conference is also happening Friday. Featuring speakers like SEC Commissioner Hester Peirce, Ripple CTO David Schwartz and Crypto.com CEO Kris Marszalek, the conference will touch on topics like crypto regulation and obstacles to financial inclusion in fintech.
LendingTree’s earnings call is set for Friday. TREE’s average estimated EPS is -$1.16, down 157% from last quarter.
Thanks for reading — see you tomorrow!