A crypto token falling down a roller coaster.
Illustration: Christopher T. Fong/Protocol

The silver lining in rising rates

Protocol Fintech

Good morning, and welcome to Protocol Fintech. This Tuesday: Coinbase and Robinhood’s surprising gains from rising rates, why Changpeng Zhao and Sam Bankman-Fried are fighting on Twitter, and BlockFi’s return to the crypto yield market.

Off the chain

The crypto boys are fighting! If you haven’t been keeping up with the Twitter feud between Binance’s Changpeng “CZ” Zhao and FTX’s Sam Bankman-Fried, I dug into it in this morning’s Source Code. As I wrote there, this isn’t just about mean tweets, though. The heart of the dispute seems to be what crypto regulation looks like in the United States. Congress is considering the Digital Commodities Consumer Protection Act, or DCCPA, a bill that Bankman-Fried says he’s “optimistic” about and that would advance the CFTC’s position in regulating crypto. If that law ends up giving FTX an edge against Binance, well, all’s fair in love and crypto. And if you do like mean tweets, we rounded up some of the best in Overheard.

— Owen Thomas (email | twitter)

A silver lining in rising rates

Rising interest rates are generally seen as bad news for fintech and crypto. Capital becomes more expensive and customers find themselves grappling with rising prices and a bleak economic outlook.

But Coinbase and Robinhood managed to find some upside in their otherwise downbeat earnings reports from the Fed’s aggressive but controversial bid to curb inflation.

Trading isn’t hot, but holding cash is. Coinbase and Robinhood both reported drops in customers and revenue, but hit on similar bright spots.

  • Both made money from holding cash in the wake of the Fed’s big rate hikes. Coinbase said its interest income tripled to $102 million from the previous quarter — a twelve-fold increase year-over-year.
  • Robinhood said its interest revenue soared 73% sequentially to $128 million, or 103% year-over-year. CFO Jason Warnick said the company expects “another quarter of net interest revenue growth” in the last three months of the year.
  • Rising rates meant “we've seen trading come down,” Warnick said, but Robinhood is generating interest revenue from about $17 billion in assets. Net interest revenues is “a growing part of our revenue mix,” he said.

A stablecoin deal is boosting Coinbase. Coinbase is part of the Circle-led Centre consortium that supports the USDC stablecoin, the crypto market’s second-biggest stablecoin with a market circulation of $42 billion.

  • Coinbase makes money off of USDC from a revenue-share arrangement, CFO Alesia Haas said on last week’s earnings call.
  • The company also makes money on the interest collected from reserves of cash and Treasury bills backing USDC. That was worth pretty much nothing when rates were near zero, but has turned into a meaningful amount as the Fed continues hiking rates.
  • Patrick Corker, Circle’s treasurer and vice president of finance, said rising rates are clearly having a huge impact on the USDC ecosystem. “When you take the Fed funds [rate] from basically zero to north of 400 basis points, that's going to be a powerful stream of revenue,” he told Protocol.

Diversification helps in uncertain times. The era of “basically zero” interest rates is over for now. Consumers are pulling back on trading and holding more in cash. The difference now is that caution literally pays.

— Benjamin Pimentel (email | twitter)


Don’t miss out! Register today to hear some of the biggest players in fintech discuss the industry’s most pressing issues at the Financial Technology Association’s inaugural Fintech Summit: Shaping the Future of Finance. Produced in partnership with Protocol, all sessions of the event will be live-streamed on November 16th.

RSVP here today to join us on November 16.

On the money

The SEC won a case against crypto firm LBRY. The ruling that LBRY’s offerings were securities could be the kind of legal precedent the agency’s been looking for.

On Protocol: BlockFi has introduced a new digital assets interest product for accredited investors, after previously agreeing to shut down a yield-paying crypto product that the SEC said was illegal.

Zelle is acting as a loophole for new small-business tax rules. Venmo, Cash App, and PayPal must issue tax forms for users who receive more than $600 and also file them directly with the IRS — but Zelle says the rule does not apply to its bank-owned payment service, since it operates directly over the ACH network.

OpenSea launched its first royalty enforcement tool. The goal of the tool is to make creator fees enforceable on-chain, and will apply to new collections listed on the platform starting Nov. 8.

Also on Protocol: The Justice Department seized $3.4 billion worth of bitcoin stolen in the 2012 hack of the Silk Road dark web marketplace.

Supreme Court hears a challenge to the SEC and FTC’s administrative law judges. The legal issue before the Supreme Court is whether parties facing enforcement actions can bring arguments against the commission structure to federal court before completing administrative proceedings.

Overheard, the CZ vs. SBF edition

Where to start with Sam Bankman-Fried and Changpeng “CZ” Zhao’s Twitter beef? It probably dates back to the tiff that led FTX to buy back Binance’s stake in the smaller crypto exchange last year, but things definitely got testier recently, especially after the balance sheet of a subsidiary of Alameda Research, Bankman-Fried’s trading firm, leaked online.

Then again, Bankman-Fried arguably heated things up last month when he suggested in a since-deleted tweet that Zhao was persona non grata in Washington: “Excited to see him repping the industry in DC going forward! Uh, he is allowed to go to DC, right?”

Zhao replied with Binance’s wallet, moving half a billion dollars in FTT, FTX’s native token, in preparation for sale, in a move most in the crypto world took as hostile. “Due to recent revelations that have [come] to light, we have decided to liquidate any remaining FTT on our books,” Zhao wrote.

What revelations, exactly? Zhao didn’t say, but he suggested it had to do with FTX’s moves in Washington: “We gave support before, but we won't pretend to make love after divorce. We are not against anyone. But we won't support people who lobby against other industry players behind their backs.”

“A competitor is trying to go after us with false rumors,” Bankman-Fried wrote.

Patrick Hillmann, Binance’s chief strategy officer, specifically denied having anything to do with the Alameda leak and blamed Bankman-Fried for failing “to address concerns about FTT.”

But everything’s fine now and there’s no fight, no, no, no! Bankman-Fried expressed hopes that he and Zhao could “work together for the ecosystem.” “Back to building,” Zhao wrote.

Deal flow

Insurtech Cover Genius raised $70 million in a series D round led by Dawn Capital. The company’s series C was larger at $100 million, but its successful fundraising bucks a trend of insurance startups struggling to win over investors.

Wealth management startup Arta Finance raised a $90 million series A round from Sequoia Capital India, Ribbit Capital, Coatue, and over 140 entrepreneurs. The company is led by former Google Pay chief Caesar Sengupta and had been raising while in stealth.

British fintech lender Plend raised a $46 million seed round from existing investors Ascension, Tomahawk VC, DD Venture Capital, Haatch, and new investors Active Partners, Velocity Juice, Sivo, and several entrepreneurs. The firm calls itself an “ethical lender” because it uses open banking to underwrite borrowers instead of the traditional credit system.

AI-driven underwriting platform Zest AI raised $50 million in a growth round led by Insight Partners and CMFG Ventures. The company has raised several growth rounds since its series C in 2013, according to Crunchbase, the most recent of which was $18 million in June 2021.

Chicago-based payments tech company Loop raised $30 million between seed funding and a series A round led by Founders Fund. The company serves shipping and logistics companies and was founded by two former Uber employees who worked on Uber Freight.

Insurance risk-transfer service Vesttoo raised $80 million in a series C funding round from Mouro Capital, Gramercy Ventures, Black River Ventures, Hanaco Ventures, and, according to Reuters, Goldman Sachs. The round brings the company valuation to $1 billion, tripling since the company’s previous raise.

Digital asset management service Bakkt will acquire Apex Crypto for $200 million. According to a press release, Bakkt believes Apex will help it get to market faster with products such as staking, external transfers, and NFTs.


Don’t miss out! Register today to hear some of the biggest players in fintech discuss the industry’s most pressing issues at the Financial Technology Association’s inaugural Fintech Summit: Shaping the Future of Finance. Produced in partnership with Protocol, all sessions of the event will be live-streamed on November 16th.

RSVP today to join the conversation.

Thanks for reading — see you tomorrow!

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