August 31, 2022
Illustration: lvcandy/DigitalVision Vectors/Getty Images; Protocol
Good morning, and welcome to Protocol Fintech. This Wednesday: the spin on Tornado Cash, BlockFi blame games and California’s crypto plan.
If PayPal’s origin story does get turned into a Hollywood show, there’s a burning question: Who will play the main characters? Podcast host Antonio García Martínez gamely tried to get David Sacks, Peter Thiel and Max Levchin to volunteer actor picks on his “Pull Request” show, but they all passed. Maybe Kevin McHale of “Glee” for Levchin? Definitely not Wallace Langham again for Thiel — I thought he was miscast on “The Social Network.” Matthew Broderick as Sacks? I welcome your suggestions, and can’t wait to stream this.
— Owen Thomas (email | twitter)
The Tornado Cash crackdown triggered a heated debate in crypto: Should the industry comply with the controversial Treasury Department order — or just ignore it? The department’s Office of Foreign Assets Control had sanctioned the crypto protocol, saying it was used for illicit activity. Crypto advocates including Ethereum co-founder Vitalik Buterin have defended it as an important tool for protecting users’ privacy. The government’s move sparked outrage in crypto. Some companies have taken a defiant stance. Others warn that that could be a mistake.
The feds are taking a harder line on crypto. The Treasury Department said it had to take action against a crypto protocol that’s been used to launder more than $7 billion worth of virtual currency, including $455 million stolen by a North Korean-sponsored hacking organization.
Crypto is scrambling for a unified response. The battle over Tornado Cash shows crypto’s dilemma over the right balance between transparency and privacy in a time of heightened regulatory scrutiny.
Taking a “catch me if you can” attitude isn’t smart, said Mike Fasanello, chief compliance officer of LVL. While he is critical of the Treasury Department’s move, which he said has a “distinct element of overreach,” brazen defiance is likely to backfire. “This is not an area [where] digital asset businesses want to test OFAC’s resolve — they will lose,” he told Protocol.
How cybercrime is going small time: Cybercrime is often thought of on a relatively large scale. Massive breaches lead to painful financial losses, bankrupting companies and causing untold embarrassment, splashed across the front pages of news websites worldwide.
On Protocol: California is close to approving a new regulatory regime for crypto businesses. The state legislature passed a bill this week that would require a license to offer crypto financial services; it now awaits the governor’s signature.
Consumer confidence is bouncing back. U.S. consumer confidence increased by more than the forecast in August to reach the highest point since May, suggesting Americans are feeling less gloomy as gas prices fall.
House lawmakers want answers on crypto fraud. The House Committee on Oversight and Reform sent letters to digital asset exchanges Coinbase, FTX, Binance.US, Kraken and KuCoin seeking information and documents about how they are protecting consumers against scams. Federal financial regulators also received the inquiry.
Bitcoin dipped below $20,000. The cryptocurrency is under pressure from the Federal Reserve's plan to continue raising interest rates and waning investor appetite for risk.
Walmart asks court to nix the FTC's money-transfer lawsuit. Walmart said the FTC's lawsuit — which alleges that the retail giant turned a "blind eye" to fraud on its wire services — is an overreach by the regulator.
Better.com is weighing options to remain a private company. The embattled online mortgage firm has held discussions to remain a private company through alternative financing arrangements, according to an SEC filing, which could terminate a planned merger with a SPAC to go public.
New York City officials want American Express and Mastercard to more clearly track gun sales. The city's pension funds filed a shareholder proposal to require the credit card companies to create merchant codes for standalone gun and ammunition stores, which they say would make it easier to spot unusually large purchases.
Edwin Aoki, PayPal’s crypto CTO, is optimistic about the regulatory mood in Washington. “There has been a subtle shift over the last six months in the U.S. towards a pro-innovation stance, that says this industry and these tools and technologies exist, there are opportunities and positives that could come out of this, and now let’s make sure we have the right structures to ensure the risks and negatives are minimized,” he told the Australian Financial Review.
Seven Seven Six is the latest VC firm to raise a crypto fund and Kryptós is eyeing opportunities in the market crash, partner Katelin Holloway told the Information: “It’s on sale. Everything is on sale.”
Ripple’s Stuart Alderoty thinks the SEC, not Three Arrows Capital, deserves blame for BlockFi’s fire sale and bankruptcies in the crypto sector. “The SEC’s shakedown of BlockFi led to a mess. BlockFi ended up on the auction block and two other companies with similar businesses went belly up,” he wrote in a letter to the Wall Street Journal.
Stanley Huang, co-founder and chief technology officer at Moxo.
Huang worked as an engineer at Webex and Cisco before co-founding Moxo, a digital workflow software company that serves the financial services, consulting, legal and other industries.
What do you worry about in fintech?
There are two candidates that come to mind, with the first being mobile payments and contactless technology. This new and booming trend is beginning to gain traction but has yet to reach its full potential in Western markets. Disparate solutions exist but there has yet to be a unified solution that brings the multitude of payment capabilities under one roof. Emerging markets such as China have moved ahead with this trend and are building out the capabilities to be more end-user friendly.
AI has also made huge strides in the digital payments landscape, especially from a customer point of view. Technology such as chatbots, natural language processing and big data have been instrumental in elevating customer experiences as well as smoothing over any points of friction. But although effective, the technology is still too premature to replace human touch in high-touch verticals with a lot of customer interaction. Striking the right balance of automation and personalization is still a challenge for fintech, and needs to be applied strategically in the right use cases, otherwise, it can reduce the end-user experience rather than improve it.
How cybercrime is going small time: People have been swindled since before man created monetary systems. These aren’t new crimes; just new ways to commit them. But as cybercrime increasingly goes small-time, those on the front lines will need new and more effective ways to fight it.
Thanks for reading — see you tomorrow!