Protocol | Fintech
The people, power and politics of fintech, every Tuesday and Friday.
Photo: Nicky Loh/Getty Images

Stablecoins face the Visa test

Crypto.com CEO Kris Marszalek at the Money20/20 conference in 2019.

Hello and welcome to Protocol | Fintech. This Tuesday: Visa settles with crypto, Mexico presents opportunities and the Archegos fallout grows.

(Was this email forwarded to you? Sign up here to get it in your inbox every week.)


The Big Story

Stablecoins face the Visa test

Can stablecoins improve how conventional payments get settled? That's the question for Visa, which is now testing the USDC stablecoin for transactions.

It's a pilot program. Users of Crypto.com's Visa card who have cryptocurrency in their digital wallet can use the card at a merchant as they normally would. On the back end, Crypto.com and Visa will settle up with USDC tokens.

  • Previously, Crypto.com had to settle with fiat currency. Now, Crypto.com will send USDC to Visa directly over the Ethereum blockchain. This will make it cheaper, faster and less complex, the companies say.
  • But how much cheaper? Sending crypto over the Ethereum blockchain can cost $10 to $20 per transaction in what are known as gas costs, the Ethereum term for miners' fees. But Visa could batch the transfers, similar to how it settles traditional payments across its network, to keep costs low.

This doesn't change things for most Visa users. But it could, eventually. Crypto enthusiasts hope that showing that crypto-only card transactions can work will lead to traditional transactions changing as well.

  • An early wave of stores advertising "Bitcoin accepted here" got media attention, but almost no one showed up to shop.
  • Lower costs and increased speed could attract other companies to offer similar cards or apps that help consumers pay with crypto.

Stablecoins are making a difference. One of the biggest criticisms of cryptocurrencies is their volatility: How can you use Bitcoin to buy groceries when the price swings radically day by day?

  • Stablecoins are pegged to or backed by assets such as dollars. USDC is pegged to the dollar.
  • Trading volume for stablecoins has exploded in the past couple years. So far, most of the use has been among crypto traders who want to park assets in less-volatile currencies but don't want to pay the high transaction costs of shifting their holdings to fiat.
  • "Visa's use of USDC is another validation of cryptocurrency as a safe and efficient means to transfer value," said Jonathan Levin, co-founder and chief strategy officer at Chainalysis.
  • Crypto enthusiasts view stablecoins as a major building block to other crypto applications that require escrow or other lock-ups, such as prediction markets, decentralized insurance or remittances.

It's more than a token effort. USDC is run by Centre, a consortium that includes companies such as Coinbase and Circle and has close to $10 billion in circulating supply. It's still a distant second to the largest stablecoin, Tether. But it has avoided some of the controversy that has enveloped Tether. Visa plans to expand USDC settlement to other partners later this year.

— Tomio Geron

A MESSAGE FROM AMAZON

A new study conducted by Amazon/Ipsos found that most Americans support raising the minimum wage. Results from the study, which involved interviews with more than 6,000 adults, revealed that two out of three support increasing the minimum wage to $15 an hour.

Read more

From Protocol | Fintech

Buyer's market: Real estate is booming, and Opendoor thinks it can help.

Moving money: Ben interviews Western Union's CFO Raj Agrawal on the nearly 170-year-old company's tech-heavy future.

Overheard

  • "The banks are extremely vulnerable … It's what Amazon did to offline retail. It's just playing out 10 years later in fintech right now." —Investor Mark Goldberg on the spike in VC investments in fintech startups that are challenging traditional financial institutions.
  • "The net worth of a typical white family is nearly 10 times greater than that of a Black family and eight times greater than that of a Latino family. This wealth gap is a curable injustice that requires collaboration." —Greenwood co-founder Ryan Glover on the need for a digital bank geared to serving Black and Latino communities.
  • "In 10, 20 or 50 years' time, a small amount of crypto by today's standards could be worth a considerable sum of money to any benefactor of your estate - but only if it is properly and legally recorded and easy to access once you're gone." —Caoilionn Hurley, managing director of Co-op Legal Services, on the growing amount of unclaimed cryptocurrency and NFT assets in the U.K.

3 Questions With ...

Vilash Poovala, CEO of Oyster Financial

What do you think is the most exciting fintech trend?

For me, the most exciting fintech trend is cryptocurrency and the likelihood that it will disrupt the financial world over the long term. In Mexico and other parts of Latin America, cryptocurrency's potential is particularly strong in terms of solving some key pain points around creating a trusted digital currency. The savings businesses have sitting in their accounts can be boosted by additional increments they don't get from banks today.

What fintech trend is most troubling for you?

The most troubling issue to me is there are simply too many cookie-cutter fintechs being incorporated and funded that are in the same category with little or no true differentiation between them. Why do we need 10 players and investors backing them when they are all offering exactly the same thing? In the end, this is not good for the market, for investors or [for] the end customers.

What problem in fintech would you like to see someone or some company solve?

The biggest challenge that needs to be solved for Mexico is building a world-class neobank infrastructure that is deeply integrated with a forward-thinking traditional bank that is connected to a global payment association such as Visa or Mastercard. Banks in Mexico need reliable and nimble fintechs to address very real and urgent pain points that will help them modernize the financial system and close the massive financial-inclusion gap that exists there today.

Need to Know

  • Archegos blew up. Some $30 billion could be lost in the biggest Wall Street disaster since LTCM. Archegos founder Bill Hwang's Tiger Asia Management previously pleaded guilty to criminal fraud and paid $44 million to settle civil insider trading charges. Goldman Sachs, Morgan Stanley and Deutsche Bank liquidated Archegos positions, and Credit Suisse and Nomura, which were prime brokers of Archegos, were looking at big losses. The lingering question: Which other banks are vulnerable?
  • Beam banned from banking. After promising interest rates of 0.2% to 1% but actually providing much less, the mobile banking app has shut down. It must refund about $2.6 million in a settlement with the FTC.
  • Broadridge is buying Itiviti for $2.5 billion. The fintech company is buying the provider of trade order and execution management for banks, brokers and asset managers.
  • SoFi is letting its customers buy into IPOs. The lending company said it will allow years who have at least $3,000 in account value to buy into IPOs. (Loyal3 once did this for companies like Square.)
  • Chainalysis is worth $2 billion. The blockchain analytics startup, which helps trace crypto transactions for corporations and government agencies, raised $100 million, led by Paradigm.
  • Circle now supports NFTs. The payments infrastructure company said it will set up a marketplace for non-fungible tokens which will be able to accept credit card and crypto payments.

Thanks for reading — see you Friday.

Recent Issues