Hello and welcome to Protocol | Fintech! This Friday: Crypto's anti-Gensler offensive, fixing the infrastructure bill's broker rule and a "Pac-Man" approach in mobile.
An end run around the SEC
Major crypto players unwrapped their plans for regulating the fast-growing, but controversial industry. And they appear to have a common theme: sidelining the SEC.
The venture capital powerhouse Andreessen Horowitz thinks the SEC is outdated. Coinbase wants a brand-new digital assets regulator. Ripple is pushing for the CFTC to play a bigger role.
The anti-SEC push is taking shape at a time when the industry has been taking hits from the agency's chairman, Gary Gensler, a blockchain and crypto expert who has emerged as one of the industry's fiercest critics.
"It is time to look beyond the SEC as a catch-all regulator." That's what a16Z, which has set up three funds focused on the crypto industry, said in a 35-page policy paper published last month.
- Coinbase was even more pointed in its proposal. The crypto exchange is pushing for the creation of a new regulator for digital assets.
- That idea wasn't exactly well-received in fintech circles. Ripple General Counsel Stuart Alderoty and Blockchain Association Executive Director Kristin Smith each described the idea as impractical. Robinhood's Chief Legal Officer Dan Gallagher called it "one of the stupidest ideas I've heard in this space in a long time."
- Ripple, which is in the middle of a legal brawl with the SEC, is taking a different approach: It wants the CFTC to play a more prominent role in crypto regulation, saying the agency's oversight of complex financial markets "is well established and widely accepted, and provides robust customer protection." And it has complained of "ambiguities" in the way the SEC applies a 75-year-old Supreme Court ruling that defines a security.
The goal is to change the landscape — in their favor. Crypto regulation is coming: It's just a question of the shape it takes, and who benefits.
- The crypto companies do have a point, said Christine Parlour, a professor at UC Berkeley's Haas School of Business. "The SEC has deep expertise in securities and trading, but the rules that they have historically implemented often don't make sense for cryptocurrencies," she told Protocol.
- But Stephen Diamond, a veteran Silicon Valley legal observer who teaches law at Santa Clara University, said the crypto industry's PR and lobbying offensive is unprecedented. "What we're seeing here is essentially a wholesale attack on an agency," he said.
There's a lot of money at stake. The crypto economy has topped $3 trillion recently — more than the value of Microsoft or Apple.
- A16z is an investor in Coinbase, which is worth $69 billion, and just announced a third crypto investment fund worth $2.2 billion.
- Ripple's XRP token has nearly $50 billion in circulation.
- Robinhood, Square and other fintech companies are increasingly dependent on crypto revenues for growth.
The SEC is gearing up for a battle. The agency has yet to weigh in on the different proposals, especially those seeking to push it to the sidelines of the battle over crypto. But Gensler doesn't appear to be backing down — and he's invoking investor protection as a rationale for his agency's involvement. "When a group of people try to mask the underlying economic realities of a certain product or instrument, investors can get hurt," he said two weeks ago. That argument has gotten a warm reception from some allies in Congress — which could mean a tough crowd for crypto companies that want to switch referees in the middle of a game.
-- Benjamin Pimentel
Coming up
China's fintech future
How will China shape the future of fintech in the medium and long term — and what does that mean for the existing financial system? Join us Dec. 2 for a discussion about Beijing's latest moves to test the CBDC, what we know already about how the CBDC does (and doesn't) work and in-country fintech innovations we should adopt globally.
Crypto and institutional investors
Venture capital started the move to treat crypto as just another asset class. Now institutional investors are considering allocating part of their holdings to cryptocurrencies. Watch Dec. 6 as senior reporter Tomio Geron leads a discussion about the impact of crypto on the investing world.
A MESSAGE FROM MASTERCARD
The fintech developers who made mobile banking as routine as texting aren't done. The next frontier for innovation is open banking, and fintech builders are enabling consumers to be at the center of where and how their data is used.
From Protocol | Fintech
A top fintech lawyer isn't afraid to "poke the bear." Ripple General Counsel Stuart Alderoty explains his testy tweets.
Staples Center will become Crypto.com Arena. The owner of the Los Angeles sports center has struck a deal with the crypto company for naming rights to the venue.
Oportun is buying Digit. The online lender has agreed to buy the digital bank for $212.9 million.
Robinhood won its meme-stock collusion lawsuit. The broker had been accused of colluding with Citadel Securities when it shut down trading in meme stocks in January.
Amazon will no longer accept Visa credit cards in the U.K. The tech giant blamed the payments company's high credit-card transaction fees for the coming change.Overheard
"We can fix these poorly constructed standards and ensure they are compatible with how this new technology actually works." —Rep. Patrick McHenry, on introducing a bill to narrow the IRS definition of a crypto broker, in response to criticism of the definition in the infrastructure bill as overly broad.
"The relative immaturity of the underlying technology has allowed hackers to steal users' funds, while the deep pools of liquidity have allowed criminals to launder proceeds of crime such as ransomware and fraud." —Tom Robinson, co-founder and chief scientist of Elliptic, on the swelling losses in DeFi markets due to scams and other fraud.Three questions with ... Tom Burnside, CEO, LendingPoint
What fintech trend are you most excited about?
I'm most excited about what financial freedom means to people right now, specifically the 1099 and solopreneur group. Individuals are rethinking their work and life goals which have been a driving force behind the Great Resignation.
What fintech trend is most troubling for you?
We're seeing companies react to this mobile preference shift driven by the global pandemic by using what I like to call the "Pac-Man approach" — gobbling up every product in sight and calling it a mobile-first platform. However, with this approach, companies are not understanding how and if these products will improve the customer's experience and how best to integrate them into their current ecosystems. This risks putting customers in the wrong product at the wrong time.
What's been your biggest professional blunder and how did it help you?
What I've learned is that taking the time to get the product and experience right is less expensive than trying to just get it done quickly. A bad product can be detrimental to the brand and can be hard to come back from. Fail fast, move on, and do better.
Need to know
Square and Marqeta are bringing the Square Card to small businesses in Canada. The card, which lets businesses access revenue from sales immediately, was first introduced in 2019.
How much does Brex pays its tech employees? You may have heard the job market is hot lately. You can see just how well the business-card startup compensates engineers and product managers in data drawn from public filings.
U.S. Bank is buying fintech TravelBank. The deal, which will add travel and expense management to the bank's capabilities, is reportedly worth about $200 million.
Social Capital is selling 15% of its SoFi stake. Valuations are sky-high in fintech, investor Chamath Palihapitiya said in explaining the sale. The "SPAC king" is using the money to fund new investments.Making moves
Ketan Babaria is going to M1 Finance as chief product officer. He previously led product at Roofstock, and has worked at PayPal, Groupon and Capital One.
Marc Andrusko joined Andreessen Horowitz as a fintech partner. He was previously at Plaid and also worked at Goldman Sachs on its Marcus product.Deal flow
Gemini is reportedly raising $400 million at a $7 billion valuation. The crypto exchange was co-founded by Cameron and Tyler Winklevoss.
Doorvest raised $14 million. The startup enables people to buy single-family homes as investments.27%
That's the stock drop Paytm saw in its first day of trading, after conducting India's largest-ever IPO.
A MESSAGE FROM MASTERCARD
Open banking offers developers at fintech companies large and small the opportunity to build data-centric solutions that help solve real-world problems. Consumers can now use their data for their own benefit, and there's enormous potential in this space.
Thanks for reading. We're off next week — see you after Thanksgiving!