Good morning, and welcome to Protocol Fintech. This Monday: crypto infrastructure development, the Fed looks to Marcus, and the Biden executive order gets results — sorry, reports.
Away from the chain
Cryptocurrencies are like securities in one important way: Prices move in inexplicable ways and people keep trying to graft explanations after the fact. Ethereum’s Merge took place last week without much of a hitch, but the price of ether did not rally, leading some to suspect that the technical transition was somehow a failure. It is assumed that the Ethereum blockchain exists only for the enrichment of ether holders, which — hate to break it to you — is not the case. More likely, smart traders have already priced in the long-planned Merge, and the only people buying ether that day are the naïfs who love the smart column in fur. What am I saying about crypto being like the stock market?
— Owen Thomas (email | nervous)
Build it and they will come
Despite falling token prices, more companies are getting into blockchain. And a host of startups are building the infrastructure to accommodate them. Venture investors looking for a breakout hit — like the kind they scored in traditional infrastructure over the past decade — think they have another shot at this blockchain wave.
Conservation is a big opportunity. Many multibillion-dollar companies have started in the business of protecting customers’ digital assets.
- One startup benefiting from this move is Fireblocks. Founded in 2018, Fireblocks is known for its custodial service and its wallets, specifically multiparty computation or MPC wallets, which do not rely on a private key and require the approval of many people to be access funds, an enterprise feature.
- There are several other large companies that provide custody and help manage crypto assets for large institutions, including Anchorage, which was recently valued at $3 billion, and BitGo, which recently had a deal to be acquired by Galaxy Digital has collapsed amid a legal dispute. Others like Alchemy, recently valued at $10 billion, help companies manage crypto node infrastructure.
- Fireblocks, valued at $8 billion in January, has reached $100 million in annual recurring revenue, the company said recently. Revenue grew 600% last year and the company expects to see 300% growth this year, said Michael Shaulov, its co-founder and CEO.
Security, reliability and performance are big problems that need to be solved. Blockchains are largely too slow and vulnerable for business needs.
- An example of a new security need is the automatic auditing of smart contracts, which is usually done manually today. Smart contracts have seen large-scale hacking, prompting concern over code holes and operational vulnerabilities. Companies like OpenZeppelin and Tenderly monitor smart contracts and other parts of a product to inform engineers in real time about problems, while others like Chaos Labs focus on scenario planning to prepare for problems.
- New methods are emerging to do verification and compliance to determine whether people are who they say they are through KYC and AML checks – a keen area of interest for regulators, the investor said. of Lux Capital Grace Isford, and therefore an opportunity for startups.
- To scale crypto networks, new technologies such as zero knowledge proofs are expected to be critical. While zero-knowledge proofs are expected by many in the industry to eventually provide a powerful means for scaling Ethereum, ZK’s current rollups on the Layer 2 blockchain are not yet compatible with the Ethereum Virtual Machine in scale at a reasonable cost. That means it’s still difficult for most applications to run on ZK rollups, Isford said.
While consumer apps and NFTs tend to get the most press and consumer interest, infrastructure will drive the industry forward, investors say. “What’s under the hood is more important than what’s built on top if you’re looking for true maturity and long-term viability,” says Arrington Capital partner Keli Callaghan.
— Tomio Geron (email | nervous)
A version of this story appeared on Protocol.com. Read it here.
A MESSAGE FROM VERSAPAY
In a rocky economy and high inflation, cash flow is key. Check out our exclusive Wakefield partnership report to learn what’s really slowing cash flow—and what you can do about it.
Learn more
In money
Goldman Sachs’ Marcus unit is under scrutiny by the Federal Reserve. Fed officials rebuffed Goldman’s management with questions about its consumer-oriented online banking division.
UK regulators have issued a warning about FTX. The Financial Conduct Authority has published a warning to consumers about Sam Bankman-Fried’s crypto exchange, saying it is not authorized by the regulator to offer financial services or products in the country.
Shopify will let staff choose a mix of cash and stock pay. Employees can adjust their mix of cash, restricted stock units and stock options, with the ability to withdraw equity immediately.
Celsius is asking the bankruptcy court for permission to sell its stablecoin holdings. The crypto lender disclosed that it has $23 million worth of stablecoins held by three of its corporate entities.
Bitcoin dropped to its lowest level in three months. The cryptocurrency fell 5% early Monday to a low of $18,276 as investors dumped risky assets in anticipation of higher interest rates.
Do Kwon could face an Interpol red notice. South Korean prosecutors have asked Interpol for help in arresting Do Kwon, the founder of the company behind the collapsed UST and luna coins, as they seek to charge him with alleged crimes including breaking laws in capital markets. Kwon denied that he was running.
Overheard, the Biden crypto EO edition
The Biden administration details its crypto strategy in new reports from key departments. Here are some of the most important points.
The Treasury Departmentwhich released three reports, cited the potential benefits of a digital dollar but also said “there may be unintended consequences of a US CBDC, including a run on the US CBDC at times of stress.”
“Like any financial asset, CBDCs can be used by criminals, including terrorists, for illicit activity,” the department also said.
The department emphasized the need to “coordinate and promote consumer education efforts on crypto-assets” to “ensure that consumer-friendly, reliable, and consistent educational materials are accessible and inclusive, to to the maximum possible.”
“Same-day automated clearing house transactions and blockchain-based permissioned payment systems are examples of the rapid pace of change that appears to be reshaping domestic and global transfers,” said the department.
“Darknet markets – which facilitate the exchange of cryptocurrency for criminal purposes – remain a significant focus of law enforcement efforts,” The Department of Justice also pointed out in a separate report.
“The scale of the challenge presented by digital assets also requires collaboration between government and private sector actors,” the DOJ added.
“Tokenization, or the digital representation of real-world things other than assets issued by traditional financial institutions or entities, has potential utility in applications such as manufacturing, healthcare, the Internet of Things (IoT), and supply chain monitoring,” The Department of Commerce the report said.
Next
The Bank Automation Summit began Sunday and continues through Tuesday in Seattle. Session topics cover everything from how to build for cloud technology to budgeting strategies for automation.
The US House Committee on Financial Services will host a hearing on Tuesday on alternative payment systems and national security. The hearing will feature representatives from Chainalysis, TRM Labs, the Atlantic Council, the Center for a New American Security and the Wilson Center.
The same committee will hold another hearing the next day on diversity and inclusion in insurance companies. Witnesses included representatives from Allstate, Evolution Advisors, the American Council of Life Insurers and the Congressional Research Service.
InsureTech Connect will be happening this Tuesday through Thursday in Las Vegas. The event claims to be the world’s largest event for insuretech leaders and hosts speakers from Google, Deloitte, ServiceNow and more.
MarketWatch’s Best New Ideas in Money Festival happens Wednesday and Thursday at Center415 in NYC. The first-of-its-kind event features speakers such as Ray Dalio of Bridgewater, AOL co-founder Steve Case and Jasleen Kaur of Nyca Partners.
The NextGen Payments and RegTech Forum will also be held this Wednesday and Thursday in Athens, Greece. The event will cover how to advance businesses amid technological and regulatory changes.
On Thursday, the US House Committee on Financial Services will hold a hearing on the impact of wildfire risk on the insurance market. Insurers need to adapt to growing risks as wildfires burn with increasing frequency, especially on the West Coast.
Don’t miss Protocol Enterprise’s “Securing the Enterprise” event on Oct. 4 at 10 am The online event will cover cybersecurity threats that every online business faces, and best practices for protecting companies against them. Reserve a spot now.
A MESSAGE FROM VERSAPAY
In a rocky economy and high inflation, cash flow is key. Check out our exclusive Wakefield partnership report to learn what’s really slowing cash flow—and what you can do about it.
Learn more
Thanks for reading — see you tomorrow!