Protocol | Fintech
The people, power and politics of fintech, every Tuesday and Friday.
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Crypto flexes its muscles in Washington

Senate Majority Leader Chuck Schumer of New York talks to reporters in the Capitol in June.

Hello and welcome to Protocol | Fintech! This Friday: The crypto industry strikes back, Ripple CEO's mysterious tattoo and a16z on credit unions.

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The Big Story

Crypto strikes back

Senators working on a roughly $1 trillion infrastructure bill thought it'd be a good idea to tap the fast-growing crypto industry to help pay for it.

But then the crypto world said: Not so fast.

The first major battle between crypto and the Washington establishment offered glimpses of the major issues at play — and how crypto can actually fight back.

Politicians want crypto to pay up. The crypto-related proposals would have raised roughly $28 billion to pay for the legislation mainly through taxes.

  • The most controversial proposal would have required miners and node operators, whose work undergirds the blockchains that cryptocurrencies rely on, to report crypto transactions like brokerages. That quickly ignited a host of technical, privacy and other concerns.
  • The Electronic Frontier Foundation warned that the proposal "could create new surveillance requirements for many within the blockchain ecosystem."
  • The crypto industry pushed back hard — and appeared to score a small victory after the bill's language was amended to clarify that miners and node operators would not be classified as brokers.
  • But that was a "fire drill" in a protracted process in which the industry must engage with a Congress that "did not fully appreciate the complexity and nuance of the technology they seek to regulate,'' crypto experts Joe Carlasare and Amanda Cavaleri wrote in Bitcoin Magazine.

"The Senate is about to vote on a bill that could kill crypto." That was the stern warning of Fight for the Future's "Red Alert" campaign, which sought to rally crypto supporters to shape the final bill.

  • The campaign urged supporters to endorse the amended proposal to replace a "provision that's so poorly written it could crush the cryptocurrency ecosystem."
  • Coinbase CEO Brian Armstrong weighed in, tweeting out the EFF's warning and the Red Alert campaign, and railing against "a hastily conceived" proposal that "could have a profound negative impact on crypto in the U.S. and unintentionally push more innovation offshore." (Note: Yes, this is no-politics-at-work Brian Armstrong; in his controversial memo, he carved out an exception for issues that directly affect the company's work.)

The battle is just getting started. There will likely be more skirmishes over crypto's role in the ambitious infrastructure bill. Democratic Rep. Don Beyer of Virginia has a bill in the works in the House. And regulators remain eager to come up with new rules for how the industry should operate. But the infrastructure-bill conflict also demonstrated crypto's power.

"It's always tempting to make fun of crypto bros," Slate's Jordan Weissmann wrote. "It's clear, though, that they've learned to flex some lobbying muscle."

— Ben Pimentel

A MESSAGE FROM SINGAPORE EDB

Singapore is fast becoming a global hotbed of tech innovation. It's easy to see why. Nearly 80 of the world's top 100 tech firms have set up outposts there, including Google, Facebook, Stripe, Salesforce and homegrown unicorns like the super-app Grab.

Learn more

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Join Protocol's Biz Carson for a conversation with Atomic's Swathy Prithivi, Accel's Rich Wong and Asana's Oliver Jay during our upcoming event: Going Global: How Tech Companies Expand Internationally August 10 at 9 a.m. PT / 12 p.m. ET Learn More

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From Protocol | Fintech

Ripple's CEO on crypto regs, legal brawl … and his tattoo. Brad Garlinghouse said the SEC suit he and his company face is disappointing but he's upbeat about Washington's new focus on crypto. He also shared the lasting mark Ripple has made on him.

A 193-year-old crypto company? Founded in 1828, BankProv, formerly known as Provident Bank, wants to be a provider of crypto services to banks. The secret to its success: It handles the dollars while they deal in bitcoin and ether.

California says income share agreements are student loans. California regulators have struck an agreement to regulate the agreements as student loans, in what could set a standard across the country.

Hippo goes public. CEO Assaf Wand talked about what's next for the home insurance tech company after its SPAC deal.

Overheard

  • "I remain skeptical that a Federal Reserve CBDC would solve any major problem confronting the U.S. payment system." —U.S. Federal Reserve Governor Christopher Waller on a U.S. digital currency, at an event organized by the American Enterprise Institute.
  • "[T]he use of complex, opaque algorithmic models in consumer credit transactions also heightens the risk of unlawful discrimination, and unfair deceptive, and abusive practices." —National Consumer Law Center, warning of the risks of AI in fintech.
  • "We see a bright future for credit unions and believe a number of multi-billion dollar software companies will be built to assist them in the transition to digital." Anish Acharya and Seema Amble of Andreessen Horowitz on opportunities for startups servicing credit unions.

Need to Know

  • Saule Omarova, a Cornell professor, is the latest potential nominee to head the OCC. She's seen as less friendly to big banks than predecessors.
  • Canada released its open banking plan. The plans would make it easier for consumers to switch between financial entities, but it could take years to implement.
  • North Carolina has proposed a regulatory sandbox for fintech. One local expert described the program as promising "reduced governmental red tape" for local startups in one of the country's major financial hubs.
  • A French asset manager is launching the first EU-regulated bitcoin fund. Melanion Capital's fund will track 30 stocks in crypto mining and blockchain technology.

Deal Flow

  • Tabby raised $50 million. The Middle East-focused buy now pay later startup was founded two years ago.
  • Neobank Jupiter raised $45 million co-led by Nubank. The India-based neobank gained the backing of a giant Latin American neobank.
  • Zeni raised $34 million. The SMB financial-data startup was backed by Elevation Capital.

Data Point

4.5 million

The number of customers that held a stock or ETF on Square's Cash App in the second quarter, up more than 3x from a year ago.

3 Questions With...

Thomas Sponholtz, CEO, Unison

What fintech trend is most troubling for you?

Innovation is often centered around a problem, a need or a desire. And this applies to innovation in fintech. In every case, the trickle-down effect of the innovation should provide value to the consumer. What's most troubling to me is when innovation loses sight of the consumer's problems, needs and wants. Every fintech company wants to be creatively innovative, but we need to do so with an eye to whether what we are building will safeguard consumers' privacy and financial security or put it at risk.

What's been your biggest professional blunder and how did it help you?

Timing is everything. Some might say that my biggest blunder was to launch a proptech company right before the market crash of 2008. The company was founded in 2004 and we launched our first funds in 2006. But what was tremendously powerful in going through the crisis and the aftermath is the fact that we established a track record, both with the consumer and the investor.

The stress the crash put on the operational capability of the company and on the portfolio required quick-turn pivots and instilled in me and our team the importance of agility, which, by the way, was muscle memory that came in handy this past year when the pandemic created moments of uncertainty.

What fintech company — besides your own — have you been most impressed with this past year?

Since I live and breathe the residential real estate investment space and because I truly believe in the hard-earned value of homeownership, I'm fascinated by technology that improves equitable access to pursuing this proverbial American Dream. Homeownership is the No. 1 wealth builder for Americans and can provide longer term financial flexibility when managed well ... Companies like Opendoor have built a suite of digital products that simplify the home buying, selling and financing experience; their tech-enabled platforms are a start to expanding access to home ownership.

A MESSAGE FROM SINGAPORE EDB

Business leaders say they choose Singapore for its modern tech infrastructure, strong government support, robust pipeline of talent and pro-business regulations (the World Bank ranks it No. 2 in the world for ease of doing business). Plus, its location in the heart of Southeast Asia serves as a launchpad into the bustling Asian-Pacific market.

Learn more

Thanks for reading — see you Tuesday.

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