Kiffmeister’s #Fintech Daily Digest (02/02/2021)*

XRP pump draws in thousands, and victims lose millions

XRP’s price had gradually surged from $0.27 on January 25 to $0.40 on the 30th, the momentum contributing to a narrative that it was going to boom, despite the fact that a legal fight between Ripple and the SEC is in a very nascent phase. A couple of hours before 8:30am ET on February 1, with confidence reaching fever pitch, XRP hit $0.7448. At that point, whales began to offload their XRP and the coin’s value dropped over the course of the morning to as low as $0.37 where it seems to have settled in. On the stock markets, pump and dumps like this are a form of securities fraud—but no such regulations exist in the crypto space.

Gemini launches ‘Earn’ — an interest-earning program that offers up to 7.4% yield

Crypto exchange Gemini launched a new interest-earning program called Earn. The highest yield (7.4%) is only available on Filecoin but for the rest of the supported coins, the interest rate ranges from 1.54% to 5.83%. The most popular cryptocurrencies, bitcoin and ethereum, each yield 3.05%. Loans made through the program are unsecured so depositors have exposure to borrower credit risk. Borrowers are not required to post collateral to the depositor or to Gemini. There is a high demand for crypto among the institutional borrowers that Gemini claims to vet, who use it to fund their operations and investment strategies. 

Bitwise Files for Approval to Publicly Trade Its Bitcoin Fund

Bitwise Asset Management, a provider of cryptocurrency index funds, is seeking regulatory approval that would enable it to publicly trade shares of its bitcoin fund on an over-the-counter (OTC) marketplace. The company has filed a 211 form with the U.S.’s Financial Industry Regulatory Authority (FINRA) for the Bitwise Bitcoin Fund. Aiming to compete with the likes of Grayscale Investments, the firm plans shares of its fund to be publicly traded on the New York-based OTCQX marketplace. Fidelity Investments would oversee the custodianship of the fund’s bitcoin assets. The fund will offer a 1.5% expense ratio, which is lower than Grayscale’s Bitcoin Trust (GBTC) at 2.0%.  

First Open Permissioned Blockchain in China’s Blockchain-Based Service Network Launched by Bianjie

Bianjie has launched the first open permissioned blockchain on China’s Blockchain-based Service Network (BSN). This WenChang blockchain is powered by Cosmos’ interoperable blockchain ecosystem. WenChang Chain is compliant with Chinese enterprise standards and offers permissioned controls. The global city node infrastructure, deployed by BSN, presents developers with a ready, open blockchain network so they can focus on refining the application layer, develop business logic, and deploy dApps in an easy and more cost-effective way. 

Decentralized Exchange Volumes Hit Record Above $50B in January

January decentralized exchange (DEX) trading volume soared to set an all-time high of $56 billion, eclipsing the previous record of $26 billion from September 2020, according to data from Dune Analytics. Uniswap represented over 45% of total DEX volume ($26 billion traded in January) with Sushiswap claiming nearly 22% ($12.2 billion). 

USDC goes live on Stellar network

USDC has gone live on the Stellar network. At launch, Stellar USDC is immediately available on Stellar’s decentralized exchange, accessible to any Stellar account through integrated wallets (Lobstr, Solar, StellarPort, StellarX, and StellarTerm), and tradeable across Stellar’s ecosystem of more than 9,000 assets including stablecoins like NGNT, BRLT, ARST, EURT, TZS and ZAR. 

Forbes Blockchain 50

The third annual Forbes Blockchain 50 features companies that lead in employing distributed ledger technology and have revenue or a valuation of at least $1 billion. Twenty-one newcomers—including the world’s largest bank, the Industrial and Commercial Bank of China, and four others from Asia—make their debut. They take the spots of such U.S. companies as Facebook, Google, Amazon and Ripple, all of whom are still active in blockchain but kept lower profiles in the space over the past 12 months. 

Robinhood reportedly shelves IPO plans in wake of GameStop PR disaster

Trading app Robinhood may have put its plans for an initial public offering on hold after public opinion turned against the company in the wake of its response to the short squeeze on GameStop (GME). According to Fox Business Network’s Charles Gasparino, sources inside Robinhood say the company’s only focus is surviving the fallout from the drama it currently finds itself engulfed in, and will pause its plans for an IPO launch for now. 

Britain is cracking down on the $3.7 billion ‘buy now, pay later’ industry

Popular “buy now, pay later” shopping services like Klarna will fact stricter regulation under proposals announced by the U.K. government. The Treasury said buy now, pay later (BNPL) firms would come under the supervision of the Financial Conduct Authority (FCA), which regulates financial services firms and markets in Britain. Such firms will be required to conduct affordability checks before lending to customers, the government said, while people will also be allowed to escalate complaints to the U.K.’s financial ombudsman.  

Open Banking kicks off in Brazil

The first of four phases of Brazil’s Open Banking implementation has started, as part of the country’s broader agenda of modernization of the national financial ecosystem. In the initial phase, there will be no sharing of data on customer registration or transactional activity. Instead, companies participating in the open banking ecosystem will need to open data on their service channels and the characteristics of banking products and services through open application programming interfaces (APIs). In July’s second phase, participating institutions regulated, authorized and supervised by the Banco Central do Brasil will start sharing customer data, with their consent. This will be followed by August’s third phase where consumers will be able to pay bills and make money transfers outside their bank’s environment. The last phase, forecast for December, relates to sharing of additional customer details, in areas such as foreign exchange services, investments, insurance and salary accounts.  

South Korea Regulators to Expand Open Banking Ecosystem

In January, South Korea’s Financial Services Commission (FSC) unveiled its work plan for 2021, outlining key areas of focus and policy tasks for the year, including promoting financial innovation by advancing open banking development and adoption, the regulator said on January 18, 2021. To promote the development and use of contactless financial services, the FSC said it will begin allowing savings banks and credit card companies to provide open banking services in the first half of 2021, which will be followed by financial investment businesses.  

Fintech regulation: how to achieve a level playing field

This BIS working paper advocates regulating bigtechs using an entity-based rather than a “same activity, same regulation” activity-based regulatory approach. It argues that there is only limited scope for harmonizing the requirements for different players in specific market segments without jeopardising higher-priority policy goals. The regulatory framework should incorporate entity-based requirements for big techs in areas such as competition and operational resilience that would address the risks stemming from the different activities they perform. This strategy would not only help regulation to achieve its primary objectives, but would also serve to mitigate competitive distortions. However, in some policy domains, such as consumer protection or AML/CFT, an activity-based approach may well be adequate enough to achieve primary objectives. 

* The views expressed herein are those of the author and should not be attributed to the International Monetary Fund, its Executive Board or its management.