DeFi — current state of the market; Fintech infrastructure or in other words embedded finance infrastructure; Amazon and crypto;
In this edition:
- Fintech infrastructure or in other words embedded finance infrastructure
- Full decentralization: How to decentralize DeFi and other simple applications
- The Marketplace 100 List by Andreessen Horowitz
- Amazon and crypto
- FIS to bring crypto trading, DeFi, and staking services in partnership with Fireblocks
- Three Open Finance use cases
- DeFi — current state of the market
- MetaMask warns users of new Apple iCloud phishing scam
Fintech infrastructure or in other words embedded finance infrastructure
2 Identity, fraud, and risk
4 Crypto enablement
6 Data aggregation and normalization
9 Income verification and payroll
For me, one of the most promising services in this ecosystem is crypto enablement.
Crypto enablement describes companies that enable traditional financial institutions and fintechs to offer crypto compliantly and more seamlessly to their end customers. Despite still being in the very early innings of this market, 31% of 18–29 year-olds already own cryptocurrency. That number will only continue to grow. As the lines continue to blur between traditional financial services and crypto this will become an increasingly important part of the infrastructure toolkit.
Fintechs big and small are always looking for new tools to expand their ecosystem of products and services.
Despite all the innovation and meteoric growth in the category, it is still very expensive and time-consuming to launch a fintech company, and it’s equally challenging to operate once live.
We are in the early innings of the next generation of enabling infrastructure that will continue to drive down the amount of time and people required to innovate in financial services.
Full decentralization: How to decentralize DeFi and other simple applications
Full decentralization is currently the most common model of decentralization within the DeFi sector. As reflected in the images below, the shift from a centralized model (as in web2) to a decentralized model (as in web3) involves:
- deploying an open-source smart contract protocol to a decentralized and programmable blockchain network to form the core infrastructure layer of the web3 system — the smart contract protocol provides an execution layer for all of the components of the backend that can be deployed on-chain (i.e., payments, messaging, etc.);
- operating a “client” layer in a decentralized manner — the client represents all of the system’s software that operates off-chain, and acts as a gateway to the smart contract protocol (clients can range from being simple frontend websites to complex applications);
- adding digital assets distributions — this could be an airdrop to contributors and consumers; issuances to insiders (employees, advisors, and stockholders of the developer company);
- the allocation of digital assets to an explicit incentivization scheme (such as liquidity mining in DeFi); and the formation of a treasury controlled by the DAO, to be used in connection with any future incentivization;
- launching DAO governance of the smart contract protocol and DAO treasury; and
- ensuring users own and retain their own data (currently a huge contention in web2 systems).
The Marketplace 100 List by Andreessen Horowitz
Here are the highlights from the third edition of the Marketplace 100:
- Unprecedented turnover shows that early stage marketplaces are as relevant as ever. Nineteen companies “graduated” (versus 10 last year), due to five IPOs, three SPACs, and 11 acquisitions. There were also 37 “freshmen,” 48% more than last year.
- #1 Instacart’s ascendency in a “winner takes most” category may be hard for the next generation of marketplace giants to replicate — opening up more room at the top!
- Live shopping app Whatnot had the biggest YoY list jump ever, moving up 73 spots into #26, and contributing to the Collectibles category’s break-out year.
- Ticketing, Food & Beverage, and Education saw the most new entrants, as a result of a “covid bounceback” where consumers adjusted to a new normal. Vaccine rollouts were particularly closely correlated to recovery in categories like Childcare and Ticketing.
- For some categories, though, quarantine created lasting habits. In particular, the Games and Shopping/Collectibles categories saw sustained growth, moving beyond previous pre-covid baselines.
Bonus: while not included on the Marketplace 100 list, NFT marketplaces exploded in 2021. We looked at all-time marketplace volume for the top NFT marketplaces, with OpenSea leading at $23.5B all-time, per DappRadar.
Though Instacart continues to dominate at the top slot on the list, all of this turnover begins to hint at the real story in marketplaces this year and going forward. Where does the next Instacart, Airbnb, Uber, or Lyft come from? Who will be in the next generation of marketplace giants?
While it’s too early to say, four categories have emerged from 2021 as ones to watch: Ticketing and Experiences; Shopping and Commerce; Games; and the growing world of web3 marketplaces.
Amazon and crypto
Amazon CEO Andy Jassy says Amazon is not close to adding support for cryptocurrency payments.
“We’re not probably close to adding crypto as a payment mechanism in our retail business, but I do believe over time that you’ll see crypto become bigger,” Jassy said.
But Jassy, who made the comments in a CNBC interview on Thursday, did say he thought it was “possible down the road” that Amazon could eventually sell NFTs.
Jassy’s crypto commentary comes amid recent speculation that Amazon might one day allow customers to pay using cryptocurrency.
Last summer, the e-commerce giant said it was “exploring” cryptocurrency payments for the platform.
“We’re inspired by the innovation happening in the cryptocurrency space and are exploring what this could look like on Amazon,” read a company statement shared with Decrypt at the time.
We believe the future will be built on new technologies that enable modern, fast, and inexpensive payments, and hope to bring that future to Amazon customers as soon as possible.”
Amazon Web Services — the cloud platform subsidiary of Amazon — also advertised for a Head of Product to join its Amazon Managed Blockchain. The job opening indicated a preference for potential applicants experienced with the world of decentralized finance (DeFi).
In addition, Amazon’s Advertising FinTech team was last year searching for a Senior Software Engineer to work on “financial ledger, billing and reconciliation systems.” This particularly vacancy did not make explicit reference to crypto or blockchain technology, but the URL for the vacancy did.
Jassy himself has a history with blockchain, too.
He replaced Jeff Bezos as Amazon CEO after serving as Amazon Web Services CEO, where he launched the cloud platform’s Amazon Managed Blockchain service.
FIS to bring crypto trading, DeFi, and staking services in partnership with Fireblocks
As the crypto industry continues to attract mainstream attention, institutions are looking for ways to get exposure to the emerging asset class. However, too often they run into friction when it comes to transacting, custodying assets, and getting onboarded at exchanges and prime brokers.
A new partnership is looking to change that.
Announced today, FIS, a publicly-traded $62 billion fintech company that offers everything from payments services to wealth management, has joined up with New York-based infrastructure company Fireblocks to provide its more than 6,000 capital markets clients access to a full suite of crypto trading and lending services.
“Globally, we are making it really easy for our client base to procure and take advantage of the Fireblocks platform,” says John Avery, Head for Crypto and Digital Assets within the Capital Markets division of FIS.
Starting today, all of FIS’ more than 6,000 capital markets clients will have access to Fireblocks’ offerings, starting with its 1,000+ partners onboarded to its network that allows quick, secure, and cheap transfers across the world 24/7/365.
However, what really excites Avery about this partnership is what Fireblocks can offer beyond trading. After all, sophisticated capital markets participants now see methods of earning passive income on holdings such as lending and staking as table stakes for the industry. “Fireblocks offers our advanced clients things like staking, lending, and decentralized finance.”
This partnership is just the latest entanglement for FIS in the crypto world, and shows how seriously institutions and their clients are taking the once-shunned industry. Earlier this month FIS’ payment processing unit WorldPay partnered with Circle to allow merchants to accept USDC, the second-largest dollar-denominated stablecoin, with a market capitalization of more than $50 billion. In May 2021, another FIS division partnered with NYDIG, which offers crypto custody and trading, to enable banks to offer crypto services to their clients.
The issuing of tokens, for example, can align the incentives of early users and reinforce network effects, helping solve the “cold-start” problem that can derail many startups.
Armstrong also outlines the disadvantages of crypto that entrepreneurs must watch out for, including regulatory uncertainty. On balance, he thinks crypto is where the internet was in the early days. “In 5 or 10 years, pretty much every startup that gets created, it’s going to use the internet, it’s going to use AI, and it’s also going to use some form of cryptocurrency somewhere in that product.”
Three Open Finance use cases
1 — Changes to traditional market structures — TPPs could increasingly control the primary customer interface and weaken the customer’s relationship with ASPs. One-stop-shop solutions for multiple account management, better product comparison tools, easy switching, and balance sweeping solutions are likely to erode customer stickiness. In the absence of a clear Open Finance strategy, ASPs could be relegated to a utility through inaction rather than choice.
2 — Pressure on traditional income sources and increased costs — increased competition and customer churn could potentially put pressure on firms’ revenues and reduce cross-sell opportunities for ASPs without a clear Open Finance strategy. Technology costs will also increase for both ASPs and TPPs. ASPs will have to build, test, and maintain APIs — either in-house or through a third party. TPPs will need to invest in connecting their systems to the ASPs’ APIs or buying API connectivity services from an external provider.
3 — Data competitive advantage — TPPs’ competitive advantage will grow due to the ability to access data held by ASPs and generate insights through advanced data analytics capabilities. This means Open Finance will erode traditional ASPs’ historical advantage — albeit often untapped — of holding large customer datasets.
Like Open Banking, Open Finance will give consumers and SMEs the right to authorise Third Parties Providers (TPPs) to access their data and initiate financial transactions on their behalf. But while Open Banking only applies to payments, Open Finance will apply to all — or most — financial services accounts, e.g., savings, insurances, mortgages, and investments. Open Finance is part of the UK Government’s broader Smart Data initiative to enable secure and content-driven cross-sector data sharing with TPPs, starting with communications, energy, and finance.
The UK plans to mandate Open Finance by law in the same way that the second Payment Services Directive and the CMA 2017 Retail Banking Order mandated Open Banking. Account Service Providers (ASPs) — or data holders — will likely be required to put in place and maintain secure Application Programming Interfaces (APIs) to share data with TPPs — or data receivers — at the customer’s request. The Financial Conduct Authority expects that TPPs will need regulatory authorisation to operate.
DeFi — current state of the market
DeFi uses blockchain, the technology behind currencies like Bitcoin and Ethereum but is distinct because it expands the use cases from simple value transfer to more complex financial products and solutions, such as trading, lending, borrowing and derivatives.
DeFi protocols leverage blockchain’s decentralized, distributed ledger technology to create permissionless and transparent financial applications.
- Permissionless — DeFi applications can serve anyone in the world with an internet connection.
- Transparent — the software behind every application is always open source and each transaction is auditable in real-time.
Though still in the early stages, DeFi applications have experienced exponential growth recently, with Total Value Locked (TVL) growing from $1 billion in May 2020 to $77 billion at the end of January 2022, hitting an all-time peak of $112 billion in November 2021.
- TLV represents the dollar value of all tokens locked in the smart contracts of a given DeFi protocol and is widely regarded as a growth tracker for the entire DeFi ecosystem.
With its recent meteoric rise, DeFi has attracted the attention of several companies outside of the crypto space.
- Amazon is looking to hire a Head of Product for the Amazon Managed Blockchain division, mentioning DeFi as a primary use case.
MetaMask warns users of new Apple iCloud phishing scam
In a recent tweet, the company said that the encrypted passwords for users’ crypto accounts, called MetaMask vaults, would be automatically uploaded to Apple’s cloud service if the iCloud backup option is enabled on the app.
This could result in a phishing account compromising the user’s iCloud account and, consequently, their passwords and any linked crypto wallets.
The announcement comes in the wake of a Twitter user going under the alias “Domenic Iacovone” sharing details of his funds stored in a MetaMask wallet being “totally wiped out” by hackers.
“Got a phone call from Apple, literally from Apple (on my caller ID). Called it back because I suspected fraud and it was an Apple number. So I believed them. They asked for a code that was sent to my phone, and 2 seconds later, my entire MetaMask was wiped,” he wrote on April 15.
According to Domenic Iacovone, his wallet contained non-fungible tokens (NFTs) from the popular Mutant Ape Yacht Club (MAYC) collection, which included MAYC 28478, MAYC 8952, and MAYC 7536. It also had $100,000 in ApeCoin and other NFTs.
According to “Serpent,” the founder of Dape NFT, Domenic Iacovone’s wallet contained as much as $650,000.
In a separate Twitter thread, serpent explained the hack details, saying, “MetaMask actually saves your seed phrase file on your iCloud. The scammers requested a password reset for the victim’s Apple ID. After receiving the 2FA code, they were able to take control over the Apple ID, and access iCloud which gave them access to the victim’s MetaMask.”
3/ MetaMask actually saves your seed phrase file on your iCloud. The scammers requested a password reset for the victim’s Apple ID. After receiving the 2FA code, they were able to take control over the Apple ID, and access iCloud which gave them access to the victim’s MetaMask.