Month: September 2020

Kiffmeister’s #Fintech Daily Digest (09/21/2020)

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China needs first mover advantage in digital currency race: PBOC magazine

China needs to become the first nation to issue a digital currency in its push to internationalize the yuan and reduce its dependence on the global dollar payment system, a commentary published in the People’s Bank of China (PBOC) China Finance magazine. It said the rights to issue and control a digital currency would become a “new battlefield” of competition between sovereign countries. The article also argued that the improved data feedback from a digital currency would help enhance monetary policy transmission.  The PBOC started its digital currency research in 2014 and completed the top-level design, standard formulation, function research and development, and joint debugging and testing in 2019. In April 2020 small-scale pilot work began.

Retail Central Bank Digital Currency: Design Considerations, Rationales and Implications

While CBDC technical feasibility is not yet established, this Reserve Bank of Australia paper considers some issues around its possible design, the possible rationales for issuance, and the implications of issuance. It concludes that, given the likely benefits and risks, at present there does not seem to be a strong public policy case for issuance in Australia. Nonetheless, it will be important to closely watch the experience of other jurisdictions that are considering implementing CBDC projects. [This paper also has a very nice and precise discussion of the infernal “account” versus “token currency taxonomy.]

Mastercard Launches Central Bank Digital Currency Testing Platform

Mastercard launched a virtual testing environment for central banks to evaluate CBDC use cases. The testing platform will enable central banks to simulate the digital currency’s behavior prior to deployment. It invites collaboration from other stakeholders on the project such as central banks, commercial banks, and tech and advisory firms, to assess CBDC tech designs, validate use cases and evaluate interoperability with existing payment rails available for consumers and businesses. 

Mastercard Delves Deep Into POS Financing With Fintech Jifiti

Traditional consumer credit companies are also engaging in buy-now-pay-later (BNPL) plans. Mastercard has expanded its payment options by partnering with FinTech Jifiti to allow both merchants and issuers to offer credit and consumer financing to Mastercard holders. The company had already forged alliances with Fly Now Pay Later, Splitit, Divido and Pine Labs to provide BNPL services worldwide. Per an Accenture figure cited by Mastercard, the BNPL industry boasts an astronomical market value of $1.8 trillion. 

A Dive Into Avalanche

Avalanche is an open-source platform for launching DeFi applications and enterprise blockchain deployments in one interoperable, highly scalable ecosystem. It is the first smart contracts platform that confirms transactions in under one second, supports the entirety of the Ethereum development toolkit and enables millions of independent validators to participate as full block producers. In addition to supporting sub-second finality, Avalanche is capable of throughput orders of magnitude greater than existing blockchain networks (4,500+ transactions/second), and safety thresholds well-above the 51% standards of other networks. 

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Kiffmeister’s #Fintech Daily Digest (09/20/2020)

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It’s been a slow news day, so I thought I’d summarize some of the interesting news along the U.S. regulatory crypto-asset and banking perimeter that has been on my mind lately.

Recently several U.S. banks have received state charters to run what would seem to be narrow banking operations. A narrow bank is a financial institution that issues demandable liabilities and invests in assets that have little or no nominal interest rate and credit risk. The U.S. Fed has rejected attempts to establish narrow banks, or what it calls pass‑through investment entities (PTIEs), the most recent being in 2018 by TNB USA. TNB proposed to provide nonfinancial firms and consumers with safe liquid deposits that paid higher rates of interest than what were then currently available, by placing deposits into a NY Fed Master Account. The rejection was based on the risk that PTIEs, if they caught on in a big way, could balloon the Fed’s balance sheet and disintermediate the traditional banking sector.

Meanwhile, in February 2019 Wyoming’s Special Purpose Depository Institution (SPDI) Act was signed into law. SPDIs are required to maintain 100% of fiat demand deposits as liquid assets and they are prohibited from lending fiat deposits. In July 2020 the Wyoming Banking Board accepted crypto-centric Avanti Financial Group’s bank charter application, paving the way to a chartering decision in October. In September crypto exchange Kraken’s application for a SPDI charter was approved. It is not clear if the new banks will apply for NY Fed Master Accounts, but Kraken’s Chief Legal Officer implied that it might.

Along similar lines, the San Francisco Fed and the Office of the Comptroller of the Currency approved Jiko Group’s purchase of Mid-Central National Bank. Jiko will offer Federal Deposit Insurance Corporation backed accounts into which customer deposits are briefly held until being swept into Treasury Bills. Returns on Bills are passed through to depositors, and Bills are liquidated when depositors withdraw funds. It sounds very narrow bankish to me!

In a further blurring of regulatory lines, the U.S. Office of the Comptroller of the Currency (OCC) will allow national banks to provide crypto-asset custody services on behalf of customers. It also reaffirmed that nationalbanks may provide permissible banking services to any lawful business they choose, including crypto businesses, so long as they effectively manage the risks and comply with applicable laws. JP Morgan is one such national bank that already provides banking services to crypto companies.

Kiffmeister’s #Fintech Daily Digest (09/19/2020)

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What Kenya can teach its neighbors — and the US — about improving the lives of the “unbanked”

Mobile money isn’t the one easy fix to global poverty — there’s no such thing — but it is an extraordinarily simple tool that works remarkably well. And yet, a decade after it first took off, it remains in many places underutilized. The evidence base for it is significantly stronger than the evidence base for popular financial access interventions like microloans. And there’s a great deal the global development community could do to make it more possible in the countries where it hasn’t taken off, from helping governments develop fair and limited regulation and taxation frameworks to directly dispersing money to people through mobile money systems. That sort of work isn’t flashy, but it lays the groundwork for a world where everyone can save, send, and spend money from their phones — and that, the evidence suggests, can make a really big difference. 

Libra’s Long Road From a Facebook Lab to the Global Stage: A Timeline

This Coindesk article provides a detailed timeline of the Libra project’s history, from the early signs that Mark Zuckerberg’s social network was sniffing around the blockchain industry to Libra’s recent watering-down of its once-bold plans. Bookmark this article, because Coindesk will keep updating it as the story continues to unfold. 

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Kiffmeister’s #Fintech Daily Digest (09/18/2020)

~ kiffmeister

Facebook-backed Libra welcomes Blockchain Capital as new member

Blockchain Capital, one of the largest venture capital firms in the blockchain industry, has joined the Libra Association. That brings the number of association members to 27.  

Europe may force Apple to let other payment apps access NFC chip

Apple could be forced to allow third-party payment apps to access the NFC chip in the iPhone and Apple Watch without having to use Apple Pay. The European Union is purportedly considering new antitrust legislation in response to complaints by banks that Apple’s restrictions on access to the chip are anticompetitive. The report is set to be unveiled next week by the European Commission as part of a package of policy proposals. Germany has already passed a law which would require this. 

Bank of Thailand issues new rules for digital loans

The Bank of Thailand issued a circular to businesses looking to apply for digital loan business licences that approved the use of alternative data which includes utility bills and online shopping information. Greater use of alternative data will help service providers to analyse the ability and willingness of borrowers’ debt payment based on information-based lending. It will also pave the way for the unbanked to get access to personal loans.  

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Kiffmeister’s #Fintech Daily Digest (09/17/2020)

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Digital EC Currency (DCash) Pilot Launch is Imminent

DCash, the digital version of the Eastern Caribbean dollar will soon be available. This video provides more detail. See also the DCash landing page on the EC Central Bank (ECCB) website.  

Ready for Liftoff: Avalanche Mainnet Set to Launch on September 21

Smart contract platform Avalanche will launch on September 21. Avalanche purportedly will deliver sub-second transaction finality, support the entirety of the Ethereum virtual machine and development toolkit, and enable up to millions of independent validators to participate as full, block-producing nodes. Avalanche is capable of throughput orders of magnitude greater than existing blockchain networks (4,500+ transactions/second), and security thresholds well-above the 51% standards of other networks. 

Wyoming Regulator Taps Chainalysis as State Push into Crypto Continues

Chainalysis and the Wyoming’s Division of Banking, the banking regulator responsible for the chartering and supervision of state banks, have teamed up to combat money laundering, sanctions violations, and other criminal activity that uses digital assets. Wyoming’s watchdog will leverage Chainalysis solutions to verify the state banks’ compliance with anti-money laundering, Bank Secrecy Act, know-your-customer and sanctions requirements. It will also employ Chainalysis tools to help  federal and state law enforcement agencies conduct regular transaction testing and monitoring. 

The Libra Association appoints James Emmett as Managing Director of Libra Networks

Former HSBC executive James Emmett will take on the role of managing director of Libra Networks LLC, the operating company subsidiary of the Libra Association. He has was previously CEO of HSBC Bank PLC and Europe. Before that he was chief operating officer at the bank, where he guided technology and operations. 

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Kiffmeister’s #Fintech Daily Digest (09/16/2020)

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Kraken Becomes First Crypto Exchange to Become a US Bank

The Wyoming Banking Board approved San Francisco-based crypto exchange Kraken’s application for a special purpose depository institution (SPDI) charter. Kraken is now the first SPDI bank in Wyoming. Kraken will also be the first newly chartered (de novo) bank in the state since 2006. By becoming a bank Kraken gets direct access to federal payments infrastructure, and can more seamlessly integrate banking and funding options for customers. As a state-chartered bank, Kraken now has a regulatory passport into other states. Up now, Kraken relied on third-party providers for wire transfers and other services.  

Bahamas to Roll Out Sand Dollar Digital Currency Next Month

According to Bloomberg, the Central Bank of the Bahamas will roll out its Sand Dollar digital currency nationwide in October, after piloting the islands of Exuma and Abaco since December. The central bank will mint more Sand Dollars as demanded, at the same time removing physical currency out of circulation to prevent inflating the monetary supply. Once the system is up and running, holders will be able to use their mobile phones to make person-to-person or business transactions — even when they’re offline. 

Central Bank Digital Currencies – Money Reinvented

CBDC are currently being investigated by several central banks, with China and Sweden having undertaken trials. Major uncertainties remain about how full-scale CBDC would operate and about their implications for capital markets. Further, there are important concerns about potential threats to individuals’ privacy. But, as this Deutsche Bank report points out, CBDC may soon become part of our lives, so societies need to learn how to use them best. 

French Multinational Bank to Launch a Digital Euro Pilot Using Tezos Blockchain

Blockchain firm Tezos has been selected by Societe Generale to spearhead the Banque de France’s digital currency pilot program. The French central bank selected Societe Generale in July after a successful review of applicants in development of a wholesale central bank digital currency (CBDC) to ease interbank settlements. 

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Kiffmeister’s #Fintech Daily Digest (09/15/2020)

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U.S. State Regulators Roll Out One Company, One Exam for Nationwide Payments Firms

The U.S Conference of State Bank Supervisors (CSBS) has set out parameters for state licensing that will involve a single exam administered by examiners from across the country in 2021. Nationwide payments firms, meaning those operating as money transmitters in 40 or more states, will be able to get a single license to operate throughout the U.S. It includes crypto-asset firms. 

Big European states call for cryptocurrency curbs to protect consumers

The finance ministers of the five European Union member states said in a joint statement that stablecoins should not be allowed to operate in the 27-member bloc until legal, regulatory and oversight challenges had been addressed. The five countries want all stablecoins to be pledged at a ratio of 1:1 with fiat currency, with reserve assets denominated in the euro or other currencies of EU members states, and deposited in an EU-approved institution. All entities operating as part of a stablecoin scheme should be registered in the EU, they said. Such a move would likely impact the Geneva-based Libra Association, which plans to issue and govern Libra. 

Lessons learned from the worlds first CBDC

The Avant smart card system created by the Bank of Finland in the 1990’s can be considered the world’s first CBDC and the only one so far that has gone into production. Avant cards were based on smart card technology similar to that used in debit and credit cards today. Even though the system was initiated, developed, and for the first few years operated by the central bank, it was eventually spun off and sold to commercial banks. Once debit cards became less expensive and were upgraded to use smart card technology, Avant became obsolete and was shut down. 

Coinbase And Circle Adds Algorand Blockchain To Fast-Growing Digital Dollar ‘Stablecoin’ Market

US Dollar Coin (USDC) received a blockchain upgrade to support faster transactions on Algorand. Algorand brings over 1,000 transactions per second (versus Ethereum’s 15) and transaction fees of 1/20th of a cent to the USDC ecosystem, and soon to be released innovations offer the potential of scaling throughput by 8-10x on Layer 1, accompanied by new secure smart contracts that complement standard tokens such as USDC. 

India Plans to Introduce Law to Ban Cryptocurrency Trading

India reportedly plans to introduce a new law banning trade in cryptocurrencies, placing it out of step with other Asian economies which have chosen to regulate the fledgling market. The bill is expected to be discussed shortly by the federal cabinet before it is sent to parliament. The Indian central bank had in 2018 banned crypto transactions after a string of frauds in the months following Prime Minister Narendra Mod’s sudden decision to ban 80% of the nation’s currency. Cryptocurrency exchanges responded with a lawsuit in the Supreme Court in September and won respite in March 2020. 

Measuring Bitcoin’s Decentralization

Bitcoin’s decentralization can be quantified in terms of supply dispersion, hashpower distribution, and exchange consolidation, among other metrics. Key metrics like the number of active addresses and the network’s hashrate continue to rise. Bitcoin’s supply is becoming more evenly dispersed, and the mining and exchange markets remain competitive. However, this analysis of Bitcoin’s decentralization is far from comprehensive, and various other metrics, such as node count and hardware manufacturer market share, should also be considered in assessing network’s health. On the whole, however, the network’s performance in these key verticals gives reason for cautious optimism. 

Klarna valued at $11bn after fresh investment for fintech

Klarna is looking to “wreak havoc” on the payments and banking industries after the Swedish “buy-now, pay-later” group was valued at $11bn ahead of a likely stock market listing by the most valuable private fintech in Europe. However, sceptics worry about Klarna’s rising credit losses — which almost doubled in the first half of 2020 compared with a year earlier, leading to operating losses to increase nine-fold — and whether it preys on vulnerable consumers. 

Nigeria regulators recognize digital assets in stunning new statement

The Securities and Exchange Commission of Nigeria has officially defined digital assets under its regulatory umbrella. Crypto assets will be deemed securities, unless proven otherwise, with the burden of proving that the crypto-assets proposed to be offered are not securities and therefore not under the jurisdiction of the SEC, placed on the issuer or sponsor of the assets.  

A Primitive Smart Contract-Embedded Physical Currency

From 1942 to 1944, the US issued what collectors call Hawaiian Overprints. As can be seen in the image, certain notes had “Hawaii” overprinted on their faces and backs. The notes were $1 Silver Certificates and $5, $10, and $20 Federal Reserve Notes. They were issued only in Hawaii with some circulating in US military theaters in the far East. The notes were issued after the start of World War II in the Pacific. And, the smart contract part of the notes was the “Hawaii” overprint. If the notes ever fell into enemy hands they would become worthless, not being recognized as legitimate US currency. Thus, like a smart contract, when certain conditions were met, the value of the note changed. In this case, it went to zero. 

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Kiffmeister’s #Fintech Daily Digest (09/14/2020)

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No one can refuse China’s digital currency, says central bank exec

Fan Yifei, a deputy governor of the People’s Bank of China (PBoC), outlined the major regulatory principles for the operation of the digital yuan. According to the renminbi’s indemnity provisions, the digital renminbi could be used to pay all public and private debts within the territory of our country, and it should be accepted everywhere in the country, and “no unit or individual may refuse to accept it if the conditions are met.” Here’s a link to the original Chinese language article: https://www.financialnews.com.cn/ll/gdsj/202009/t20200914_200849.html 

CBDCs: Geopolitical Ramifications of a Major Digital Currency

With most reports focused on technical aspects, it’s time to look at how digital currencies will impact the prominence of the Euro. A widely adopted digital currency could force the Euro out of its position in second, especially with the US Dollar showing no signs of budging from the top position.  Based on this, we explore the necessary steps to protect its current position and how a digital Euro might lend to this goal. 

‘No Other Option but More Collateral’: The Short- (and Long-) Term Fixes for Dai’s Broken Peg

Booming demand for stablecoins in DeFi’s yield farming landscape is breaking DAI’s U.S. dollar peg. MakerDAO’s DAI, which uses Ethereum and other stablecoins as collateral to maintain the peg, is trading above its targeted peg, has been consistently trading above $1 since mid-March. The community responded by setting all rates to zero, but the demand for DAI is so extreme that even these zero rates don’t make a difference. MakerDAO’s community is debating some tweaks to its monetary policy to restore the peg, though Maker’s creator believes the only long-term solution is adding additional, varied collateral to the DAO. 

User Profiling Can Help Regulators Identify Illegal Crypto Activity, Says FATF

The Financial Action Task Force (FATF) has identified certain behaviors and characteristics that serve as red flags for regulators trying to detect illegal or illicit transactions. One of the primary methods is to compare a user’s transaction activity with that of their profile. This can include instances where a deposit or transaction amount is inconsistent with a user’s available wealth or historical financial activity, perhaps signaling money laundering, a scam or a money mule. Other red flags include whether the person in question is much older than the average age of a crypto user, as well as if they have a criminal record or have been active on websites and public forums associated with illicit activity. Other red flags include instances where users send crypto to exchanges with no known KYC/AML checks, or where they are sending transactions that are just below the Travel Rule threshold. Regulators might also look at users who exchange digital assets on public and transparent blockchains (such as Bitcoin or Ethereum) for privacy coins, like monero or zcash, which obfuscate or withhold transaction activity from third parties.  

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Kiffmeister’s #Fintech Daily Digest (09/13/2020)

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Sweden’s World Record in Cashlessness Reveals Hidden Risks

One of the last bastions of cash, kids’ pocket money, is dying out in Sweden. Only 16% of Swedish children get regular allowances in the form of actual bank notes and coins. Svenska Handelsbanken AB, Sweden’s biggest lender, has introduced a digital piggy bank to help kids manage their pocket money via their mobile phones. Sweden’s next generation may not even know what a real piggy bank is, consigning the once-ubiquitous savings vessel popularized by storyteller Hans Christian Andersen to the history books, alongside rotary phones and floppy disks. 

SushiSwap Creator Returns $14M; What Changed His Mind?

SushiSwap, was a high-flying decentralized protocol which yielded ski-high returns before its anonymous founder “Chef Nomi” withdrew approximately $14M of developer funds. This unexpected move nearly tanked the entire project, before decentralized exchange FTX founder Sam Bankman-Fried stepped in to take over. Subsequently, Chef Nomi apologized and returned the funds, but it serves as a warning to all investors venturing into DeFi. This is the ‘wild, wild west’ of Finance. 

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Kiffmeister’s #Fintech Daily Digest (09/12/2020)

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Central bank digital currency — Bahamas Sand Dollar, Eastern Caribbean DCash

This is a nice summary of the Eastern Caribbean Central Bank (DCash) and Central Bank of the Bahamas (Sand Dollar) central bank digital currency (CBDC) pilots. 

Withering cash: Sweden seems special rather than ahead of the curve

While the ratio of physical cash to GDP has increased in most countries over the last years, it has fallen dramatically in Sweden. This column argues that rather than being ahead of the curve, a unique combination of events and policy measures have led to the falling cash demand in Sweden. Among those are measures to reduce tax evasion and the informal sector, an aggressive notes changeover, the introduction of an electronic payment app, the withdrawal of central bank subsidies to cash distribution, and a track record of protecting commercial bank money during crises. 

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