HM Treasury entrance
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The UK changes crypto strategy

Protocol Fintech

Good morning, and welcome to Protocol Fintech. This Tuesday: the U.K.’s crypto turnabout, Hester Peirce on self-driving fish, and FTX at Coachella.

Off the chain

Ukraine Take Shelter, a website that connects refugees with housing, had the kind of problem that comes with success: a $10,000 bill from Stripe for identity verification. Harvard student Avi Schiffmann made a plea for funding on Twitter, where Stripe CEO Patrick Collison saw it. Collison wiped out the bill and promised to donate services going forward. All of which tells me that sometimes the best thing to do is to take the “fin” out of “fintech.”

— Owen Thomas (email | twitter)

Britain’s love-hate affair with crypto

Crypto’s ride in Britain has been bumpy and unpredictable. Last month, the country’s top financial regulator warned about investing in crypto, saying people “should be prepared to lose all their money.” On Monday, the country’s chief financial minister declared that the U.K. intends to be a crypto powerhouse.

Governments everywhere are struggling to come to grips with the promise and peril of blockchain. One official warns of crypto’s dangers, only to get scolded by another for discouraging innovation and financial inclusion. The U.K. is just the latest example of crypto whiplash.

Great Britain has grand crypto ambitions. The U.K. aims to become “a global hub” for crypto, “the very best place in the world to start and scale crypto-companies,” John Glen, economic secretary to the Treasury, said in a speech.

  • Just like other governments, the U.K. is exploring a future with stablecoins, which Rishi Sunak, chancellor of the Exchequer, said would be “brought within regulation paving their way for use in the U.K. as a recognised form of payment.
  • The U.K. will set up a “‘financial market infrastructure sandbox’” to enable crypto companies to innovate and experiment. A new body, the Cryptoasset Engagement Group, will be formed to make sure the government is working closely with crypto companies.
  • And the government itself plans to dip its toes into the crypto realm. Sunak said the Exchequer will work with the Royal Mint to mint its own NFT “as an emblem of the forward-looking approach the U.K. is determined to take.”

London is a global financial hub, but Britain hasn’t exactly been crypto-friendly. The upbeat message from the U.K. government is striking, given how the country’s Financial Conduct Authority has been cracking down crypto companies.

  • The FCA set a deadline for crypto companies to register with the regulator. It also issued a warning that none of the crypto ATMs operating in the U.K. were doing so legally.
  • Despite the lofty pronouncements about digital assets, HM Treasury is well aware of how crypto has become “attractive to criminals and hostile states” and the country “won’t compromise” when it comes to anti-money laundering regulations, Glen said.
  • The apparent doublespeak isn’t surprising, and recalls President Biden’s “crypto-is-cool-but-dangerous-but-cool” message. The U.K. appears to be interested in “advancing the use of fintech that [it] can control,” including stablecoins and NFTs, Mike Fasanello, chief legal officer at LVL, told Protocol. But the U.K. has also signaled it is “in support of the EU's position on decentralized digital assets.” The EU last week caused a stir with a new KYC rule that essentially bans anonymous crypto transactions.
  • Bill Pearce, chief marketing officer of UC Berkeley’s Haas School of Business, pointed out how Brexit caused London to fall behind Amsterdam and Frankfurt as a major financial center. “This is a bet-hedging to remain relevant to the fintech world,” he told Protocol.

London is grappling with a technology “so foul and fair.” The U.K. is doing what any nation-state would likely try in the face of what appears to be an unstoppable technology. “This is still another government, and governments like power and control,” Fasanello said. To keep its financial power, the U.K. may have to give up some control. Or it can keep control, and risk its financial power. It can’t have both.

— Benjamin Pimentel (email | twitter)

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On the money

Short-sellers are betting against tether. Along with regulators, lawmakers and critics, short-sellers think the stablecoin’s issuer has been too opaque, and are placing substantial bets that tether’s price will fall.

BitMEX laid off 75 employees. The crypto exchange said it cut jobs to “streamline for the next phase of our business,” a move that came after plans for a separate company founded by BitMEX’s CEO and CFO to buy one of Germany’s oldest banks fell through. The job cuts represent about 25% of its workforce.

Coinbase plans to hire 1,000 employees in India. Coinbase’s Indian arm currently has over 300 full-time employees, and it’s looking to more than double the workforce in the region.

Sam Bankman-Fried wants to give about 99% of his income away. The FTX CEO said that he plans to keep about 1% of his income, or $100,000 a year, and give the rest away. But so far his donations to charity haven’t kept pace with that philosophy.

The SEC is thinking about sharing crypto oversight with the CFTC. In the SEC versus CFTC battle for crypto regulatory control, it appears that the SEC might want a truce. Chairman Gary Gensler said the SEC was exploring ways to work with the CFTC to share oversight for crypto services that trade tokens deemed commodities alongside those that qualify as securities.

Overheard

SEC Commissioner Hester Peirce wants regulators to leave room for crypto companies to go through a trial-and-error process in their innovation, and to leave room for failure. “It is not enough to say that we welcome innovation; we also have to welcome the conditions under which innovation is possible,” she said in her remarks before a summit. There’s also something about self-driving fish and stock-jobbers in 18th-century London coffeehouses.

Considering the harsh crackdown on crypto companies and crypto ads in recent months, many were shocked when the U.K. government announced plans to make the nation a crypto hub. Jake Chervinsky, head of Policy at the Blockchain Association, called the move “Singapore-upon-Thames” in a tweet.

Rug Pull Rugs, a company that sells actual rugs featuring logos of past crypto scams, has an FAQ that viciously roasts the community. In response to the question “Why are you doing this?” the company wrote, “Honestly, we’re starting to think you’ll buy anything.”

Deal flow

FTX partnered with Coachella to issue NFTs. Attendees of the 2022 festival can now claim a “free commemorative 2022 In Bloom seed NFT” by entering their festival wristband codes in the FTX app, which will also unlock perks at the festival.

Modern Treasury raised $50 million. The payments technology company’s series C round was led by SVB Capital and Salesforce Ventures. The funding round also included $85 million the company raised in October, which brings the total to $135 million with a valuation of more than $2 billion.

Trisolaris DAO, a DeFi project on the Near protocol, raised $4.5 million. The strategic investment was led by Electric Capital, with participation from Jump Crypto, Dragonfly Capital, Leminscap, Ethereal Ventures and others.

Risk-management startup Effectiv raised $4 million. The startup’s seed funding round was led by Accel with participation from REV and others. The company intends to use the funding to expand its presence in the U.S.

Visa partnered with Air Canada in a “buy now, pay later” deal. The airline plans to use Visa’s BNPL Installment Solution to offer eligible credit cardholders delayed payments for airline purchases.

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Get ready to live stream Plaid Forum 2022 on May 19. Join the world’s leading companies and build the future of digital finance. Registration is now open!

Learn more

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