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The exception to the fintech downturn

Protocol Fintech

Good morning, and welcome to Protocol Fintech. This Thursday: Keep’s pitch to investors during a downturn, the backlash to the blockchain backlash, and a startup hires a “PR jedi master.”

Off the chain

One of the fascinating aspects of cryptocurrencies is their default public nature. While it’s possible to obfuscate transactions by opening up multiple wallets and executing multiple transfers, some people don’t even bother, making their purchases and sales easy to trace. That includes Rep. Madison Cawthorn, who’s already under investigation for hyping the Let’s Go Brandon token. CoinDesk’s Danny Nelson found Cawthorn’s Ethereum wallet and discovered undisclosed transactions. Nelson also did the math and concluded Cawthorn likely lost money on his cryptocurrency trades. You’re not supposed to profit off your official position in Congress. Maybe Cawthorn misinterpreted this as simply “not profiting”?

— Owen Thomas (email | twitter)

The exception to the downturn rule

Kathryn Petralia and Rob Frohwein, two of the co-founders of Kabbage, have devised a way to offer forgivable loans, or what they call “vesting cash plans,” for businesses to offer employees. By signing up with their new startup, Keep Financial, employers will be able to distribute a cash bonus to employees on a regular basis so long as the employee agrees to stay at the company for a designated period of time.

Keep shows that innovation is possible, even in a downturn. Fintech has been hit harder than other sectors by the sharp decrease in valuations assigned to public companies and growth-stage startups.

  • Keep announced $9 million in funding in May, in a round led by Andreessen Horowitz. Launchpad Capital, Thomvest Ventures, Cambrian Ventures and Worklife Ventures participated in the round. The hefty sum illustrates how seed funding is more readily available than growth-stage funding right now, especially for a team with a strong idea and a track record.
  • The startup is taking some of the concepts that made stock options such a popular compensation vehicle for Silicon Valley while putting them within reach of smaller businesses that might never contemplate issuing shares to employees. Frohwein offers the example of a $5,000 bonus to cover a tradesman’s initial cost of materials if they stay at a company for a year.

Keep Financial is doing things differently — but by the books. It’s a licensed lender in 46 states, underwrites risk and manages the loan.

  • According to Frohwein, the business model was a no-brainer. He first discovered employer-forgivable loans as a lawyer early in his career, when he was representing a young doctor who was offered a loan that incentivized him to work in a rural area.
  • Most employer-forgivable loans are similar. Offered in a variety of industries to cover tuition, equipment needed for a job or major life purchases like a down payment on a home, they’re administered by the employer through a bank.
  • Frohwein and Petralia started talking to HR leaders about why they didn’t offer these types of loans to keep employees around. They told him they’d do it in a heartbeat if it weren’t for the execution challenges.
  • Those include tax and legal obstacles, which may explain why startups haven’t been lining up to tackle this opportunity

Investors are still betting on teams. Petralia and Frohwein sold Kabbage to American Express in 2020, giving them a track record.

  • “What stands out about Rob and Kathryn is how good they are at translating real-world experiences into financial services products,” said Launchpad Capital founder Ryan Gilbert. Andreessen Horowitz general partner Anish Acharya cited the “massive and fragmented compensation market” as well as the co-founders’ reputation.
  • The business model is appealing, too. Keep allows employees who leave a company before the loan vests to repay over time at relatively low rates, but interest isn’t the real revenue source. Instead, it’s looking to make money on the fees it charges businesses — fees that will likely be far lower than the cost of replacing valued employees.

Now the question becomes: If Keep Financial has cracked the code on forgivable loans, what’s to keep a bunch of other startups from copying their work? Frohwein is unbothered by that scenario, daring the competition to try it. “Folks should copycat us — copycat the product, do it,” he said. “We have a lot of vision for how to extend this product, extend this company and really help fix recruiting and retention.”

— Veronica Irwin (email | twitter)

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


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On the money

On Protocol: A former OpenSea executive, Nate Chastain, has been charged with insider trading. The first insider trading charge related to crypto, it could set a precedent for future enforcement in the NFT and crypto sphere.

NBA sponsorships by crypto companies hit a record. Crypto companies reportedly helped push NBA sponsorship revenue to $1.6 billion in the 2021-22 season, and are now the second-most lucrative sponsorship category.

Also on Protocol: During a two-hour outage at Square, merchants aired complaints on Twitter about lost sales. Some called for refunds in processing fees.

The Solana blockchain halted globally for four hours. Validator operators were instructed to prepare for a restart. The network assured users that both network state and funds were secure during the pause.

FTX’s Sam Bankman-Fried signed the Giving Pledge. With a net worth of $21 billion according to Forbes, the FTX founder signed the public commitment to give a majority of his wealth to philanthropic causes.


A group of 25 computer scientists, software engineers and technologists drafted a letter to Congress Wednesday criticizing blockchain technology. And let’s just say it did not go over well with the crypto community.

The “Letter in Support of Responsible Fintech Policy” was pretty scathing in its characterization of the value of the blockchain. “Not all innovation is unqualifiedly good; not everything that we can build should be built. The history of technology is full of dead ends, false starts, and wrong turns,” and blockchain technology, the letter says, is one of them.

Chris Dixon, co-founder of a16z Crypto, appeared to subtweet the signatories of the letter. “In every new tech wave (internet, Web2, mobile, Web3) there’s a set of professional cynics who achieve brief fame but then fade away when the tech they deride goes mainstream,” he wrote.

Famed Kubernetes engineer Kelsey Hightower felt a harsh backlash, saying that he’d received death threats over Twitter DMs. “Now I gotta go figure out how to unsign a thing. This isn't the hill I'm willing to literally die on,” he said in a since-deleted tweet. Hightower remains one of the signers for now, but he may not have much to add. “If you're following me for more crypto takes you're going to be really disappointed,” he wrote, then deleted.

Moves and hires

Fireblocks appointed Varun Paul as CBDC and market infrastructure director. Paul was previously in various roles at the Bank of England, and is the first person to hold the newly created role.

Matt Graves joined Petal as vice president of Communications. Graves previously held leadership roles at TripAdvisor and Twitter and represented Petal at his firm Tripleshot Communications. Also, the SF Appeal once called him the “PR jedi master of digital music.”

SoFi hired Drew Eklund as vice president of Equity Markets. Eklund was formerly vice president of Equity Capital Markets, Syndicate, at Goldman Sachs, and was managing director of Equity Sales at Evercore ISI.

Kathryn Bunn is starting as head of Strategic Projects, Banking as a Service at Cross River. Bunn has held managerial roles at the company since June 2021, and held various roles at Atlantic Capital Bank and Bank of America Merrill Lynch.

Coinbase hired Nick Delikaris as director of Financing Trading. Delikaris is the co-founder and co-chair of the Financial Technology and Automation Committee at the Risk Management Association, and has served on the advisory board at Rutgers University since 2017.

Ethan McClelland joined Synapse as director of Government Affairs and Public Policy. McClelland held various staff roles in the U.S. House of Representatives for over a decade, most recently as a parliamentarian.


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Thanks for reading — see you tomorrow!

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