A passenger jumps from a train compartment to another at a railway station during a nationwide strike in Kolkata on September 20, 2012. Shopkeepers, traders and labourers blocked railway lines and closed markets across India September 20 in a nationwide day of protest against reforms allowing in foreign supermarkets such as Walmart. AFP PHOTO/Dibyangshu SARKAR (Photo credit should read DIBYANGSHU SARKAR/AFP/GettyImages)
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The Merge has big risks and opportunity

Protocol Fintech

Good morning, and welcome to Protocol Fintech. This Wednesday: keeping the Merge on track, Gensler’s take on crypto regulation and Stripe’s markdown.

Off the chain

I know credit cards have loyalty programs, but this is getting ridiculous. Ryan Deffenbaugh pointed out a handful of tweets showing a corporate-card rivalry that’s getting heated coast to coast. “It is 1 a.m. in Santa Monica and I am listening to two guys in the street shout about Brex vs. Ramp,” Anduril’s Luke Metro reported. I was ready to attribute that to an LA Tech Week incident, but then ScienceIO’s Will Manidis shared this: “Men used to go to war and now they're arguing if Brex or Ramp gives you better perks at Sweetgreen NoMad.” I’ll leave you trying to guess which startup-friendly card is which “French Dispatch” character.

— Owen Thomas (email | twitter)

Keeping the Merge on track

In crypto, it’s simply known as “the Merge,” the key milestone when a major industry player shifts to a new system of verifying transactions.

On Sept. 19, Ethereum is scheduled to make that much-anticipated transition, leaping from its original proof-of-work system to a newer layer based on a proof-of-stake mechanism.

The switch will purportedly transform Ethereum into a more scalable, secure and eco-friendly network. But it involves a complex process that experts say is fraught with risks, potentially causing serious disruptions in crypto’s second-biggest ecosystem.

There’s fear around the Merge, but also excitement. Sara Xi, chief product officer of Prime Trust, likens the Merge to moving cargo from one train to another while the two are moving.

  • The change will likely enhance Ethereum’s cred as a more environmentally responsible ecosystem than, say, bitcoin. The blockchain is abandoning a system of “mining” that’s long been denounced for excessive energy use. Ethereum says the Merge will reduce the network’s energy consumption by 99.95%.
  • The Merge is also expected to bolster the value and market position of ether, Ethereum’s native cryptocurrency, according to Mike Fasanello, chief compliance officer of LVL. Even after the crypto market’s crash, ether currently has a market cap of nearly $200 billion, the second-most-valuable cryptocurrency after bitcoin, which is worth $410 billion.
  • Ethereum, which supports other cryptocurrencies as well, plays a critical role in crypto as the industry’s dominant blockchain for smart contracts. The Merge could solidify its position, Xi said.

One big concern is scams. The Ethereum Foundation is worried scammers will try to trick investors into thinking they need to take steps to upgrade to “ETH2” — a shorthand developers use to refer to the new network — or swap their current tokens for new ones.

  • “There is no ‘ETH2’ token, and there is nothing more you need to do for your funds to remain safe,” Ethereum said.

Another key question: What happens to Ethereum’s miners? Andy Long, CEO of White Rock Management, said that for miners, the Merge means “the end of the super-normal returns they've enjoyed lately.”

  • The proof-of-work Ethereum network, known as Mainnet, has relied on miners to validate blockchain transactions. Ethereum’s proof-of-stake layer, known as the Beacon Chain, will rely on builders, who bundle transactions together, and validators, whose ability to select and validate transaction blocks depends on how much cryptocurrency they own.
  • There’s speculation that the Ethereum miners would opt to keep going on their own, leading to the creation of a fork, similar to one that created Ethereum Classic in 2016. That could create confusion and potentially hurt the value of ether.

Technical glitches could mar the Merge’s rollout, too, and hurt Ethereum’s reputation among investors and smart contract developers alike. But there are still many reasons to be optimistic, Xi said, that “the trains don't crash.” A lot is riding on the Merge.

— Benjamin Pimentel (email | twitter)

A version of this story first appeared on Protocol.com. Read it here.

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On the money

Stripe has been marked down by another big investor. A regulatory filing reported by Axios showed T. Rowe Price Global Technology Index Fund marked Stripe shares down to $23.04 as of June 30, representing a 64% decline from the end of 2021. Stripe had already cut its internal valuation used for employee stock compensation this summer.

Celsius sues a former money manager (who had already sued Celsius). The crypto lender, which filed for bankruptcy in July, accused KeyFi of incompetently managing assets. KeyFi had sued Celsius last month, alleging that it was not paid for its work and that Celsius mismanaged customer funds.

President Biden is expected to release a plan for student loan debt. The Washington Post reports that Biden is considering forgiving $10,000 for some borrowers while extending the pause on payments. The leadership of SoFi, which provides private loans and refinances federal ones, said recently the company is assuming the pause will be extended.

Mt. Gox payouts are getting closer, and that could cause some crypto chaos. While it is still unclear just how many bitcoins may hit the market (and when) after the failed exchange’s trustee delivers recovered crypto to creditors, the influx of bitcoin could rock the cryptocurrency's price in an already punishing year for digital assets.

An OG fintech company has been acquired in a $1.6 billion take-private deal. Computer Services Inc., or CSI, a 57-year-old provider of payments processing and regulatory compliance services, has been purchased by private equity firms Centerbridge Partners and Bridgeport Partners.

Brian Armstrong said Coinbase will continue cutting costs as crypto winter drags on. The Coinbase CEO told CNBC that the company is looking to reduce fixed costs and continue shifting its revenue mix toward subscriptions and services.


Sam Bankman-Fried isn’t worried about losing $75 million to back up Voyager before it filed for bankruptcy. “We want to do what we can to stem contagion, and sometimes that’s going to mean that we try to help out in cases where it’s not enough,” he told The Wall Street Journal. “If that never happened, I’d feel that we were being way too conservative.”

SEC Chair Gary Gensler has a message for crypto: “The SEC will serve as the cop on the beat.” In a WSJ op-ed, he said investor protections should “come standard,” like seatbelts in cars.

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Thanks for reading — see you tomorrow!

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