Open banking, open finance, and open data; Crypto’s Real Value Was Never $3 Trillion; What went wrong with Robinhood;
In this edition:
1️⃣ Open banking, open finance, and open data… What’s the difference?
2️⃣ The Can’t Be Evil NFT Licenses
3️⃣ Crypto’s Real Value Was Never $3 Trillion
4️⃣ The Web3 Developer Stack
5️⃣ Block launches Cash App Pay beyond the Square network
6️⃣ Pathways in the embedded finance landscape
7️⃣ What went wrong with Robinhood
8️⃣ How Institutional Defi has Evolved in the Last Two Years
9️⃣ DeFi: Could the crypto industry change finance as we know it?
🔟 Would you sell or buy a house with and for cryptocurrency?
The State of Crypto VC and DAOs
The Can’t Be Evil NFT Licenses
The web3-focused investment arm of the venture firm Andreessen Horowitz has created free “Can’t Be Evil” licenses specific to NFTs to help creators either protect or release their intellectual property (IP), create an irrevocable baseline of IP rights for NFT holders and outline exactly what IP rights they have, the company’s Miles Jennings, general counsel, and Chris Dixon, founder, wrote in a blog post today.
“Can’t Be Evil” is a guiding principle in web3 (and a riff on the “don’t be evil” slogan popularized by Google) arising from a new computational paradigm: blockchains are computers that can make strong commitments and that are not controlled by people. In other words, blockchains enable a new “trustless” version of the internet where users don’t need to trust one another or rely on centralized services and corporations to transact.
Much like in traditional creative and open source licensing, where there are a number of open source license models to choose from, we know that not all creators will want to adopt the same form of license for their NFTs. We designed the “Can’t Be Evil” licenses for as many creators as possible by developing six options that each grant different sets of rights with different degrees of permissiveness (see our legal primer (PDF) for all six licenses and relevant drafting notes).
We also recognize that, despite the options, these licenses won’t be right for every project, and that the licensing needs of projects will change as rapid innovation tirelessly drives the space in new directions. We hope this set is a starting point for fostering a trustless NFT licensing ecosystem and encouraging greater standardization as the space grows.
All six licenses are available on the a16z crypto GitHub, and our legal primer (PDF) provides a number of additional considerations for potential modifications. To that end, we’re also putting the licenses themselves under the CC0 agreement (and thus dedicating the copyright to the public domain) so the community can use, fork, iterate on, and improve the licenses with the greatest possible freedom.
One can imagine a future where platforms automatically recognize the licensing rights associated with a project. When creators of a new NFT project incorporate art from existing projects, the sales of the new NFT could automatically result in royalties paid to both the original creators, and the current NFT holder. These benefits could inspire a proliferation of licensed work that contribute to a more just, more efficient, and ultimately more creative NFT ecosystem.
To add a “Can’t Be Evil” license to your project, or innovate on them to meet the needs of your community, start with our GitHub repo.
Source Andreessen Horowitz
Crypto’s Real Value Was Never $3 Trillion
The true value of the crypto market isn’t what its believers suggest ($3 trillion), but it’s nothing to sneer at, either says a Bloomberg article.
So how much of that $3 trillion pile at the height of crypto last year was actually … cash? Could it be that the last crypto boom never even happened?
Let’s take a look at what a skeptic, economists, a researcher and data crunchers say.
David Gerard, a noted crypto skeptic has strong opinions about that $3 trillion market-cap figure. “It’s literally just made-up BS numbers,” he says, right off the bat.
For truer, more granular data on crypto’s size, Gerard suggests looking at flows of cash into and out of exchanges. But that would require accessing data from exchanges — and most don’t willingly share it. Gerard says totaling all the leverage involved in trading crypto would give a sense of how much the underlying market is inflated by. Store away that thought for now.
If you want more concrete figures, a 2021 paper by the Federal Reserve Bank of Cleveland looks like it may hold some clues. Two economists looked into how retail investors spent their stimulus checks on crypto. Anantha Divakaruni, who teaches financial technology at the University of Bergen in Norway and his co-author, Peter Zimmerman, a Cleveland Fed economist, suggests looking at measures that show the average price at which Bitcoin has traded, not the price at which the last coin was sold. (He won’t be the only one to recommend this.) Zimmerman notes that average price is a good measure for markets that can be as illiquid as crypto often is.
James Malcolm, head of foreign exchange and crypto research at UBS Investment Bank. He tells me to look at realized value — the prices that coins actually fetched in their most recent transaction — instead of market value, which assumes every coin would trade today at the current price shown on an exchange.
Malcolm says a useful way of looking at the market is through what’s known as MVRV, or the ratio of market value to realized value. MVRV reveals how frothy the market is. And luckily there’s a researcher who tracks it.
The Data Crunchers
James Check at Glassnode, a former civil engineer, Check is the man behind any number of esoteric measures, such as the “RVT ratio” and “MRGO” (don’t ask), that sometimes get mentioned in stories about crypto. A single person can use multiple addresses, so Glassnode clusters them together into entities — unique users — to get a more accurate reading. Bitcoin has about 300,000 unique entities per day, down from around 400,000 in February 2021, he says. As for the market’s value, he also says to look at MVRV, which reached 3.2 at November’s peak, meaning the market value was that many times larger than the realized value.
So if the market cap was almost $3 trillion at the peak, dividing it by 3.2 equals about $875 billion, which roughly approximates today’s $1 trillion market cap.
Source Bloomberg LP
The Web3 Developer Stack
Despite the rise of Bitcoin and Ethereum, along with the emergence of new categories like DeFi, NFTs, GameFi and DAOs, web3 developers represent less than 1% of the 31.1M software developers globally.*
So why are there so few developers in web3 today? For one, the tools and infrastructure available to web3 developers are much less robust than that of web2. This simply makes it more difficult to get started building, experimenting, and deploying in web3. That’s all quickly changing however, as the number of monthly active web3 developers hit all-time highs at the end of 2021. And to support this growing contingency, is a vibrant ecosystem of teams working to simplify the entire web3 developer journey, which will ultimately help unlock the next stage of web3 growth and innovation.
Building in Web2 vs Web3
Software development is the process of building computer programs. There are three main components to a given program:
- The front-end (what users interact with)
- The back-end (what users don’t see)
- Database (where critical data is stored)
The front-end that a typical user interacts with through a mobile or desktop browser is basically the same in web2 and web3. A web3 app like Uniswap looks similar to a typical web2 app because both front-ends are mostly created using React — a popular developer framework for web and mobile apps.
It’s under the hood where web2 and web3 differ. The backend frameworks and types of databases that make web3’s defining characteristic — user-defined ownership — possible are new and unique.
Where web2 applications largely rely on centralized databases, web3 applications are built on decentralized databases (blockchains). This requires entirely new backends and new primitives like wallets.
The tools that aid in the creation, deployment, and maintenance of web2 applications are incredibly developer-friendly, thanks to decades of cumulative development. Out of the box solutions, mature infrastructure, shared code libraries, and easy to use frameworks largely make building in web2 a breeze.
Web3 on the other hand still requires specialized expertise to interface with complex infrastructure and commonly involves many redundant processes given that the stack is less developed, leaving teams to have to reinvent the wheel. That said, the tooling that will help onboard the next 1M+ web3 developers is rapidly improving.
Block launches Cash App Pay beyond the Square network
Block’s Cash App is now letting users make payments on e-commerce sites outside the Square network. Until now, users could only make payments using Cash App Pay on Square terminals or online Square merchant partners.
The company has partnered with American Eagle, Aerie, Tommy Hilfiger, Finish Line and JD Sports Fashion plc for the launch with more merchants like ROMWE, Savage X Fenty by Rihanna, SHEIN, thredUP and Wish coming to follow in the coming months.
Users can either explore discounts and promotions offered by these brands from the Cash App’s Discover tab or go to their website and select the Cash App Pay option at checkout. They can use Cash App credit or debit cards to pay for items they purchase.
The company said it’s automatically offering a 10% discount to users when they make their first purchases with these merchants using Cash App Pay.
Block first introduced Cash App Pay last year to let customers easily make payments to Square merchant partners in-person or online by scanning a QR code or pressing the button on their app. Users can also use the Cash app debit card to make payments across merchants.
This new move of letting users make payments outside the Square network might help Block compete better with rivals like Apple Pay, which has a long list of online partners. The firm announced in June that it’s working with Apple to support the tap-to-pay on iPhone feature — which was announced back in February — on the Square app later this year.
In April, Block confirmed a massive data breach where a former employee download unauthorized reports from the Cash App that included information like full customer names, brokerage account numbers and in some cases full information about their investment portfolio.
Pathways in the embedded finance landscape
Embedded finance, whereby non-banking companies offer financial services such as lending, insurance and digital wallets, has been on the rise for many years. Several non-traditional financial services players around the world, such as Big Tech companies, fintechs and retailers, continue to build out innovative digital apps that are rapidly improving and that connect users to API-enabled financial infrastructure. In several parts of the world, banks have facilitated much of this activity through open banking, banking as a service (BaaS), white-labelled back-of-house infrastructure and compliance capabilities. At the same time, there’s a massive rise in fintech start-ups in a market that’s expected to grow to US$7.2tn by 2030.
Now, the choice for banks is how to play within this rapidly evolving landscape. Focusing on infrastructure (in which banks develop and manage the technical and operational ‘plumbing’ of the future financial services ecosystem) and on customer experience and interaction (in which banks establish a strong brand and control all customer interactions across a wider array of products and services) will become key to creating a distinctive client proposition. The largest players will be able to do both simultaneously, or through some combination of the criteria listed in ‘Pathways in the embedded finance landscape,’ above, reaping the benefits of cross collaborative innovation and developing new products and services that complement each business line’s strategic agenda.
What went wrong with Robinhood
Robinhood was one of the most valuable startups in Silicon Valley before its IPO. But now, its share price is down around 75%.
Open banking, open finance, and open data… What’s the difference?
What is open banking?
There is no universal definition of open banking. But generally, the common goal of open banking is to allow consumers to authorise regulated third party providers (TPPs) to access account data held by their Providers so that a service can be provided. The data disclosure between the account provider and TPP is completed securely using Application Programming Interfaces (APIs).
What is open finance?
Open finance is the next step on the journey from open banking. Instead of simply sharing data from payment account, the data available will cover all areas of finance. This means customers could connect their current accounts, savings accounts, mortgages and credit cards with their pensions, investments, insurance and other financial services too.
As we are seeing in Australia, consumers are now able to see all their banking data held by different financial providers in one easy-to-use dashboard. This will give all parties a complete financial picture, making for much more reliable insights.
What is open data?
The next step beyond open banking and open finance is open data. This means going beyond financial services. It’s connecting account data from other sectors such as energy / utility and telecommunications and in some countries it extends to personal health and government records as well.
The goal is that one day consumers and firms will be able to see their complete financial picture all in one place. Some people refer to this as “open data economies”.
What are the benefits of open banking, open finance, and open data?
Benefits for customers:
- Aggregated view of all their financial and non-financial accounts in one dashboard
- Better and more tailored product offerings
- Easier identification of opportunities to reduce expenditure and save money with the added advantage of moving the savings into the right savings products
- No need to provide personal information many times over
- Hassle-free paperless services
- Better oversight of all financial income and expenses allowing for instant application decisions rather than waiting days or weeks.
Benefits for banks who adopt open data beyond the compliance requirements:
- Holistic client information for credit checks and lending
- 360-degree client views for better campaigns and marketing
- Become more competitive with hyper-personalization
- The potential for revenue-driving partnerships
- Streamline costs and resources
- Faster time to market for new products.
Benefits for TPPs:
- Easier access to customers and potential customers
- More complete data to create insightful products
- Better potential to partner with banks and other TPPs
- Faster and more secure transactions
- Expanding globally becomes more achievable.
Source 10x Banking
DeFi: Could the crypto industry change finance as we know it?
The crypto industry wants to upend the giants of finance. And they have a word for their revolution: “DeFi.”
After a litany of crises and scandals in traditional finance, legions of computer programmers decided to throw their hat into the ring, creating new infrastructure that took banks and other institutions out of the equation. Anyone with a computer and an internet connection could launch their own software for things like lending, trading or insurance.
But that lower barrier to entry opened the space to bad actors who wanted to swindle people out of their money. The industry’s rapid pace of development also led to bugs and programming gaffes, making it an easy target for cyber-savvy criminals. In 2021, more than $12 billion was lost to thieves and scammers exploiting DeFi protocols.
Now, after a plunge in crypto prices, and the demise of multibillion-dollar projects like Terra, regulators and law enforcement are paying more attention, zeroing in on the hackers and grifters making operating in the nascent industry.
Watch the video to learn more about DeFi, how it works, and what’s next for the industry as regulators seek to clean it up.
Would you sell or buy a house with and for cryptocurrency?
Agents want to tap a growing pool of buyers looking to convert their cryptocurrency into bricks and mortar.
As trading in cryptocurrencies soared during the pandemic, some investors struck gold and found themselves with the funds to buy property for the first time. Those with established wealth also added crypto to their portfolios. The 2022 Knight Frank Wealth Report, a global survey of more than 600 wealth managers who manage individuals worth over $30mn, found nearly one in five clients now invest in cryptocurrencies, tokens and coins.
Doing deals entirely in cryptocurrency means international buyers don’t lose out on exchange rates and fees converting one currency to another, making the transaction process smoother across borders.
The US crypto real estate market is still in its infancy. Features of the American system such as the requirement for a period of “escrow”, in which dollar-denominated funds from both parties must be held by a neutral third party, mean transactions carried out entirely in cryptocurrency are, for now, impossible.
That has not prevented efforts to establish a crypto real estate sector.
Mainstream participants in the US housing market are getting in on the game. In June PMG, a national real estate developer, began accepting cryptocurrency for all condominium sales in the US, through a partnership with FTX. Since its first crypto deposit in October last year, it has accepted pre-construction deposits for more than 70 condos including at its projects E11even Hotel & Residences and Waldorf Astoria Residences in Miami, Florida, totalling tens of millions of crypto deposits.
For buyers who want to hold on to their digital currency, Florida start-up milo is offering US dollar loans guaranteed by crypto collateral. Milo has lent some $10mn in mortgages backed by its clients’ crypto holdings since April, ranging from $150,000 to $3mn per loan. If the value of a client’s collateral falls below 70 per cent of the loan value at any point, a margin call is triggered and more collateral must be pledged.
The global real estate market has long been fertile ground for money laundering — the scale of the transactions involved enables black money to be reintroduced into the legal economy while providing a safe investment for those eager to offload illicit cash. Apply that logic to the crypto sector, where regulation is already loose and enormous sums can pass briskly between digital wallets without ringing alarm bells, and the potential for trouble is obvious.
Some experts counter that crypto transactions aren’t necessarily riskier. “If there are proper regulations, then the risks could be contained and kept at the level not higher than the normal markets,” says Oleksiy Feshchenko, an adviser in the cyber crime and money laundering section of the UN’s Office on Drugs and Crime.
Source Financial Times
How Institutional Defi has Evolved in the Last Two Years
In recent years, three changes in the ecosystem have had a profound impact on institutional adoption:
1. DeFi Financial Market Infrastructure (“dFMI”) players have matured and created fundamental base services to accelerate adoption and trading on decentralized networks
2. DeFi applications and protocols have begun to develop institution-focused services
3. L2 solutions have improved Ethereum blockchain performance, privacy, and cost per transaction
Institutional infrastructure, including DeFi wallets for organizations such as MetaMask Institutional (MMI), have come on scene offering services that span the entire capital allocation process? from ecosystem research, pre- and post-trade compliance, best execution, monitoring, reporting, and custody
Apart from the development of Web3 infrastructure and wallet services, the sheer number of decentralized applications has exploded? resulting in the exponential increase of institutional yield opportunities.
There has been a notable increase specifically in the number of applications that cater to institutional audiences, such as Maple Finance and Alkemi. Some established DeFi dapps have also expanded their services to create a foundation for institutional use cases. Examples include MakerDAO for stablecoins, Uniswap for AMM pools, order routing algorithms to create a decentralized exchange (DEX), and Compound borrow/ lending with interest bearing token rewards. These innovations have helped institutions adopt DeFi to replace some standard Open Banking APIs for the next generation of finance.
Today, the access to these DeFi smart contracts creates an open source layer of finance with deals on yield rates that traditionally would require bank licenses and large volumes. With DeFi, trading bots could be deployed for activities such as market making that could programmatically adjust investor staking schemes. This has led to accelerated growth in this space and high demand for diversification into the crypto asset class.
Layer 2 solutions have specifically addressed some of the technical concerns related to performance, privacy, and cost per transaction to cover enterprise security and deployment requirements.
This has allowed the Ethereum Foundation and maintained-infrastructure clients to expedite the move from PoW to PoSvia the Merge. These ecosystem developments have together created improved conditions to encourage a meaningful increase in institutional DeFi adoption.