June 29, 2022
Illustration: iStock/Getty Images Plus; Protocol
Good morning, and welcome to Protocol Fintech. This Wednesday: the hidden risks of DAOs, Pinterest at the Ready and the Bitcoin Jesus default.
Since the days when Ben Ling spearheaded Google Checkout then jumped to Facebook, the ecommerce job at Google has been Mountain View’s equivalent to the Defense Against the Dark Arts professorship at Hogwarts. The revolving door at headquarters helps explain why Google’s long been on the back foot against Amazon in merging search and shopping. The last holder of the position, Bill Ready, just decamped to run Pinterest. Good for him, but who’s going to oversee ecommerce now? Replacing Ready falls to Prabhakar Raghavan, who’s recently been aligning Google’s shopping features more closely with search and ads.— Owen Thomas (email | twitter)
Decentralized autonomous organizations, common in crypto projects, promise a fairer, more democratic governance structure than a traditional public company. They often control substantial assets through treasures they oversee. But a few recent incidents have thrown DAOs’ virtues into question.
Solend, a Solana-based lending protocol, voted to reclaim a whale’s wallet that posed a risk to the rest of the protocol, then overturned that controversial vote. Some members of the Merit Circle DAO sought to refund an investment from Yield Guild Games, potentially in violation of an investment contract. All this has left many in the crypto industry wondering: What rights do DAO participants legally have? And what can parties that transact with a DAO expect?
The answer depends on the DAO. According to K&L Gates partner Andrew Hinkes, whose practice includes work on blockchain projects, it’s hard to make generalizations about what laws or regulations apply to a DAO because the organizations take on so many different forms.
Most of the DAOs that people are familiar with are alegal. These leave participants legally murky as to their rights to governance tokens and the digital assets controlled by the DAO. However, disappointed token holders may have recourse through the rules of the DAO, Hinkes explained.
DAOs promise democratization, but they should carry a warning: Voter beware. Those who join a DAO — or do business with one — should “spend time to research the DAO, understand how it operates” and realize many DAOs are “experimental,” Hinkes said.
In short, the only guaranteed rights in a DAO are the ones written in code. In one sense, this is liberatory: One of the underlying philosophies of Web3 is that people can create fairer and more efficient systems with technology than centralized governments can. On the other hand, it’s risky and sometimes opaque. In the worst cases, rules are created by a small handful of powerful people. According to Chainalysis, less than 1% of governance token holders have 90% of voting power. That doesn’t seem particularly decentralized, or autonomous.— Veronica Irwin (email | twitter)
Efficient by design:We wanted to understand how Stellar compares to other blockchains and the legacy financial system. But as we tried to gather information on what was publicly available, there was little to be found. Rigorously-tested data and research from the blockchain and traditional finance industries as a whole is lacking and not easy to come by.
On Protocol: The FTC filed a lawsuit against Walmart, alleging that the retail giant "turned a blind eye" to fraud worth hundreds of millions on its money transfer services, including not providing proper training for employees and lack of fraud prevention procedures. The company called the lawsuit “baseless.”
New York Community Bank will hold some of USDC’s reserve assets. While BNY Mellon remains USDC issuer Circle’s primary reserves custodian, the move is part of Circle’s bid to include underrepresented financial institutions in the digital assets market.
The Premier League’s crypto sponsorships aren’t slowing down. Despite the recent crypto crash and general market downturn, crypto sponsorship deals are still too lucrative for soccer clubs to pass up.
CoinFlex is issuing tokens after a freeze on withdrawals. CoinFlex said a counterparty failed to repay a $47 million debt, resulting in a pause in withdrawals for the crypto exchange; the company is now planning to raise funds by issuing a new token.
Oh, it gets stranger. CoinFlex CEO Mark Lamb accused Roger “Bitcoin Jesus” Ver of being the party who owes the company $47 million. Ver denied it and said CoinFlex owed him money.
Goldman Sachs downgraded Coinbase to a sell rating. In another hit for the crypto exchange, Goldman analyst William Nance said that a combination of lower trading activity and the “continued downdraft in crypto prices” resulted in the change.
Affirm CEO Max Levchin isn’t too worried about the state of the “buy now, pay later” sector in the market downturn. “No, we're not seeing any of these apocalyptic promises,” he told Protocol, adding that the rollout of Apple Pay Later is actually a reflection of a growing industry.
The Bank for International Settlements had some pretty shady things to say about crypto in its 2022 Annual Economic Report. “The only participants who profit are the crypto insiders, who extract rents from the speculative market on the back of new entrants left holding the bag,” the organization wrote, adding that while blockchain technology could enhance the monetary system, crypto right now is not it.
Mike Novogratz, CEO of Galaxy Digital, seems to be having some crypto regrets. After claiming that he was “officially a Lunatic” and getting a luna tattoo in January (let’s shelve that under “Things That Aged Poorly”), Novogratz is now saying, “Yeah, erase that one.”
Before co-founding Remitly, Oppenheimer was the head of Mobile and Internet Banking Initiatives at Barclays Kenya, and worked as a director in Barclays’ corporate banking in the U.K. and Ireland before that.
What are you most excited about in the fintech space now?
The digitization of financial services. I think sometimes people conflate digitization with crypto or blockchain, but I think that there's a digitization broadly that sometimes includes those technologies, but oftentimes doesn't. What I'm excited about is building trust with digital technologies to cut costs out of the system. I think as financial services become more digitized, specifically for immigrants, it will create a lot of good in the world, both in terms of affordability as well as accessibility and trust.
Efficient by design: SDF has established an ongoing Carbon Dioxide Removal (CDR) commitment. Together with the Stellar ecosystem, we will pay for removal of carbon emitted by the network every year, and are retroactively paying for the removal of the historical carbon footprint of the network since launch.
Thanks for reading — see you tomorrow!