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Upstart’s plan to win back Wall Street

Protocol Fintech

Good morning, and welcome to Protocol Fintech. This Thursday: why Upstart put loans back on its balance sheet, eToro beefs up to take on Robinhood, and more evidence of insider trading at Coinbase emerges.

Off the chain

Is Adam Neumann’s Flow a crypto play too? That might explain Andreessen Horowitz’s outsized enthusiasm for the WeWork founder’s proptech venture. Forbes reported, and the company confirmed, that Flow plans to offer a digital wallet, though a company representative stressed that it wouldn’t be used for rental payments. Particularly classy was the way Flow had a recruiter fall on his sword to explain why a job description that described the company as “one of the largest implementations of blockchain in the economy” was “misleading.” If a $350 million investment buys anything, it should at least involve a modicum of braggadocio. After the story came out, Flow took down its job board altogether, Forbes’ David Jeans noted.

— Owen Thomas (email | twitter)

Upstart’s turnaround plan

After a revenue drop its CEO called “unacceptable,” Upstart is making a bet on the strength of its ability to underwrite loans with AI. The company is planning to leave some loans on its balance sheet, as concerns about the economy shift Wall Street away from backing riskier consumer debt. Rather than pull back on its lending in response, the company said it will hold some loans as it seeks longer-term capital partners.

Upstart has been on a roller coaster. Founded in 2012 by former Google executives, Upstart uses an algorithm to identify worthy borrowers overlooked by traditional creditors. As a marketplace lender, it gets most of its revenue from fees for matching financial institutions with borrowers.

  • Business was good last year. Upstart originated nearly $12 billion in loans and its share price soared from $20 at its December 2020 IPO to around $400 in October.
  • Those good times didn’t last. The firm’s share price has fallen nearly 80% this year as Wall Street in general has soured on fintech stocks.
  • Upstart reported $228 million in second-quarter revenue, down 26% from the first three months of the year. That was in line with preliminary earnings the company published in July. But it projects further revenue declines in the third quarter, to $170 million. Those declines are "obviously disappointing and unacceptable to us," CEO Dave Girouard said on Upstart’s Aug. 8 earnings call.

Tech is the answer. "Historically, as soon as there is a whiff of macro risk, credit markets shut down altogether," CFO Sanjay Datta told Protocol. "Our holy grail has always been to convince markets that you can use technology to react more quickly and more precisely to macro risk.”

  • Upstart is on a long list of fintechs working to answer the doubts of investors as consumer sentiment declines and the economy shifts from the low-interest, stimulus-boosted environment that proved fertile ground for the industry in 2021.
  • But the company says it is not becoming a balance-sheet lender and has no plans to pursue a banking charter, as other lenders have: It is making a temporary change in response to the market.
  • Wall Street is skeptical. Analysts reacted negatively when Upstart revealed it was holding some loans on its balance sheet at the start of the year, prompting the company to reverse course and sell off the loans. Holding loans introduces risks that investors in Upstart’s marketplace lending model did not previously have to worry about, said Andrew Boone, a managing director at investment firm JMP Securities.

Above all, Upstart wants to stay nimble. That means not seeking a banking charter, as other lenders have. It also meant unwinding a deal with the Consumer Financial Protection Bureau that gave some sanction to the fairness of its algorithms; continuing the arrangement as Upstart made changes would have required lengthy reviews. Girouard said the company still tested its algorithms for fairness and would keep working with the agency. It’s one more way that Upstart is leaving itself open to change.

— Ryan Deffenbaugh (email | twitter)

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

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On the money

On Protocol: Meet Yi He, the 35-year-old Binance OG who is taking charge of the company's $7.5 billion venture capital arm.

Celsius got a bankruptcy court’s approval to sell its mined bitcoin. The crypto lender said it also has gotten several proposals to inject cash into the company.

Lofty promises from neobanks aren't always what they seem. The high-interest savings accounts and promises of fewer fees that digital banks use to pull in customers often come with strings attached, Bloomberg reports. Neobanks in general are struggling to break even.

Robinhood competitor eToro has acquired Gatsby for $50 million in cash and common stock. Gatsby runs a smaller-scale social investment service.

Crypto lender Nexo is taking legal action against a co-founder. Nexo asked the U.K. High Court to order Georgi Shulev to transfer nine crypto assets to the company that were supposed to be a condition of a settlement agreement under which Shulev would receive $1 million.

Is fortune still favoring the brave? The commercial starring Matt Damon has largely disappeared from the airwaves, part of a pullback from television advertising for crypto firms that dominated the Super Bowl earlier this year.


New token listings on Coinbase were rife with insider trading, according to a new study. “These findings point to cryptocurrency markets being susceptible to the same forms of misconduct that regulators have for a long time grappled with in traditional financial markets,” academics Ester Félez-Viñas, Luke Johnson and Tālis J. Putniņš wrote.

“I regret to inform you that Winamp is doing NFTs,” dogecoin co-creator Jackson Palmertweeted. Winamp founder Justin Frankel isn’t a fan either.

Moves and hires

Gravity Payments CEO Dan Price resigned. The outspoken leader who cut his own salary to give workers raises is facing misdemeanor charges related to accusations of an assault, which he denies. COO Tammi Kroll is stepping in to run the company.

Derar Islim is taking over as interim CEO of Genesis. The crypto brokerage, part of the Digital Currency Group conglomerate, faced losses after the collapse of Three Arrows Capital, prompting CEO Michael Moro to step down amid layoffs.

Bitcoin IRA has named Rick Synrod as chief operations officer. Synrod was previously COO and head of operations for Fidelity’s digital asset investment division.

Ofer Karp has been named chief technology officer of Fundbox. Karp, who will also serve as general manager of Fundbox's Tel Aviv office, was formerly executive vice president of engineering at WalkMe.

Ryan Rugg has joined Citigroup as global head of digital assets for Citi's Treasury and Trade Solutions Group. Rugg was formerly head of the IBM Americas Blockchain team.

Paul Stamatiou is leaving Kraken, where he was a principal designer for less than a year. Stamatiou worked on design at Twitter before that.

Monique Winkler has been named regional director of the SEC's San Francisco office. Winkler has served as the office’s acting regional director since March and as the office's associate regional director for enforcement since 2019.

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