Kiffmeister’s FinTech Daily Digest (07/03/2020)

Technical hurdles for CBDC
The Bank of Japan (BoJ) will commence a digital yen proof of concept. It anticipates two major technical challenges; ensuring universal access (with only 65% of Japan’s population having access to smartphones in 2018) and finding the right balance between resilience (which favors a distributed ledger platform) and capacity/speed (which favors a centralized ledger). It is leaning towards a centralized ledger. Some degree of offline functionality was also deemed important.

Motives Matter: Examining Potential Tension in Central Bank Digital Currency Designs
This Kansas City Fed note discusses the challenges of designing CBDC to achieve financial inclusion in the United States. For example,  CBDC that requires a smartphone or internet connection may only reach about half of the unbanked U.S. population.  Also, the tension over technology choices could lead to neither financial inclusion nor cross-border usage being fulfilled by a CBDC. Finally, CBDC has been discussed as a possible mechanism for setting negative policy rates, but that would require abolishing cash, anathema to CBDC designed for financial inclusion.

The BIS’s Hyun Song Shin on central banks and the new world of payments
If we look at the long arc of history, the social convention of money has undergone several key institutional changes. With the possible introduction of CBDCs, we may be at the cusp of another important step in the evolution of the relationship of the central bank with society. Digital innovation has made central bank public goods more important than ever, and central banks need to be at the cutting edge of technology to serve society. We may expect these efforts to make our payment systems more efficient, faster and more widely accessible for the new, digital world.

Low Internet Access Driving Inequality
COVID-19 and the Great Lockdown triggered a mass migration from analog to digital and highlighted that access to the Internet is crucial for socioeconomic inclusion. However, Internet usage remains a luxury: half of the world’s population does not have access to the Internet, either through a mobile device or through fixed line broadband. The digital divide — the gap between those who have Internet access and those who don’t — is more like a chasm, both within and between countries.

USDC Market Cap Exceeds $1 Billion
USD Coin (USDC) has broken the $1 billion market capitalization barrier. Multiple factors are driving recent growth, including COVID19-related currency volatility across many developing economies, the addition of support for blockchains other than Ethereum (with Algorand being the first to join) and the adoption of USDC by Compound (a decentralized finance (DeFi) lending crypto-asset lending platform.

Compound’s COMP Token Takes DeFi by Storm
Compound’s COMP token became the largest decentralized finance (DeFi) token by market capitalization only days after its June 16 launch. Compound, developed on the Ethereum blockchain, allows anyone holding a supported crypto-asset to deposit it into a Compound smart contract where it joins a liquidity pool and starts generating interest. The interest comes from other users that borrow funds and pay interest for the loans. Users can also borrow crypto from Compound by putting up collateral above a threshold defined by the project.

Lemonade reaches $3 billion market cap after shares soar more than 138% on its IPO day
Shares of online insurer Lemonade more than doubled in its market debut to reach a $3 billion market cap. Lemonade, launched in 2016, offers insurance to renters and homeowners with the use of artificial intelligence and chatbots, allowing the company to speed up the process. Customers are guided by a chatbot through the application process in under a minute, and claims get paid that quickly as well.

1,600 ICOs Give Insight Into Future Of Capital Raises
According to this paper, the key to identifying promising initial coin offerings (ICOs) lies in the language used in the underlying white papers. ICO project owners, who focused on a comprehensive description of the technological core behind their tokens were 20% more likely to obtain funding as well as 40% more likely to list their tokens on CoinMarketCap, one of the leading price-tracking website for crypto-assets. These ICOs saw their prices increase 24% more than average over 300 days after being listed.

ECB welcomes initiative to launch new European payment solution
The European Payments Initiative was launched by 16 European banks. This initiative aims to create a unified payment solution for consumers and merchants across Europe, encompassing a payment card and a digital wallet and covering in-store, online and person-to-person payments as well as cash withdrawals.

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