RelayNode NYC #41 - February 24

RelayNode
Written By David Gogel
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Welcome to RelayNode NYC Area edition! The NYC blockchain ecosystem is growing rapidly. Our goal is to harness its energy and innovation for the benefit of New Yorkers and provide a weekly curated list of interesting content, upcoming events, and local jobs.

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RelayNode NYC is curated by:

David Gogel Founder @GogelX/Definancier, Advisor @Paperchain.io, fmr Associate @Techstars' Blockchain Accelerator, Co-president @Wharton FinTech, Corp Dev @LinkedIn @AIG

Hsin-Ju Chuang Founder @Dystopia Labs. Former-Head of Growth @Stellar/Lightyear, Solana. Ex-Director at Tezos (TQ)

1 Big Thing: FinTech M&A Boom and the Future Crypto Bank

On the heels of Visa’s $5.3B acquisition of Plaid, “traditional FinTech” deal-making is on a tear. Last week, we saw 3 major deals announcements:

  • Morgan Stanley + E*Trade: Morgan Stanley announced its plan to acquire E*Trade, an online discount brokerage, in an all-stock transaction valued at $13B, 34% above market value. Morgan Stanley will acquire 5.2M retail customers with $360B in assets and an online bank with $56B of deposits. Wealth & Asset Management will become Morgan Stanley’s main business, making 57% of profits. Another casualty of Schwab’s transition to zero-commission trading.

  • LendingClub + Radius Bancorp: LendingClub, the online alternative lending marketplace, announced its plan to acquire Radius Bancorp in a cash-and-stock transaction valued at $185M. The acquisition will give LendingClub a valuable banking charter, $1.4B in assets providing a cheaper source of funding, and improved margins. Todd Baker, Senior Fellow at the Richman Center at Columbia University, explains “Radius lets LendingClub fix the three key weaknesses of its current business model---the fragility of its marketplace and institutional funding model, its dependence on continuous loan sales to generate revenue and the high price it pays to bank intermediaries—in one fell swoop.” Continuation of the trend of established alternative lenders in the US moving into business banking and payments.

  • Intuit + Credit Karma: According to the Wall Street Journal, Intuit Inc. is nearing a deal to buy personal-finance portal Credit Karma Inc. for ~$7B in cash and stock (last valued at ~$4B in the private markets), in a move that would push the bookkeeping-software giant further into consumer finance. Credit Karma grew by selling credit card and loan offers to customers after building their credit profiles. Intuit could match TurboTax tax data and Mint/Quickbooks transaction data with Credit Karma credit-scoring data. That could let Intuit charge card issuers and lenders more for access to its data.

Some background: 2019 global fintech funding and deals were strong, despite falling short of 2018 records. According to research firm CB Insights’ annual report, fintech startups raised $34B in total last year across 1,912 deals, down from $41B across 2,049 deals in 2018.

Coinbase: the Future Crypto Bank? According to Forbes, eight years after its start, Coinbase has opened 35M accounts, presides over $21B of assets and is on target to top $800M in revenue. Its core revenue is derived from trading commissions on digital assets. Despite Coinbase’s dominant share of a large addressable market, the crypto exchange market remains competitive, especially as volumes have stalled and new money remains on the sidelines. “Trusted” crypto exchanges (e.g., Coinbase, Binance, Gemini) are competing for feature/product parity (# of trading pairs, spot, derivatives, margin, staking, lending. research, custody etc.), then on lowest trading commissions and highest liquidity. Compared to traditional asset classes, Coinbase’s trading commissions fees remain elevated and are likely to face downward pressure. Low margin, high volume businesses are notoriously hard to scale. 

Strategic alternatives: If you are building a financial services business and trying to futureproof your business model, should you buy growth via account acquisition (e.g., E*Trade, Radius) or invest in new markets by aggregating financial data (e.g., Credit Karma)? Both strategies rely on rebundling financial products, but the former increases ARPU through cross-selling opportunities, while the latter monetizes product innovation.

Given these competitive dynamics, should Coinbase follow the Morgan Stanley / Lending Club or Intuit strategy? Pursue both… they aren't mutually exclusive. As we move closer to an age of zero commission trading for digital assets, trading may be just a way to draw in customers for other products. Unsurprisingly, Coinbase Ventures has invested some surplus capital into 60 blockchain and cryptocurrency startups. Coinbase should monetize current users through cross-selling value-added premium services and position itself not only as a fiat-crypto-crypto exchange but as a crypto banking platform. Through Coinbase Commerce, Coinbase’s new partnership with Visa, and its involvement in Libra, the company is rapidly moving into the payments ecosystem. Unless Coinbase becomes a bank itself, it still pays economic rent to intermediaries (e.g., Silvergate) for banking services and direct access to the traditional payments rails. As Coinbase’s expense base remains elevated (1100+ employee headcount), a banking license may improve long-term margins by enabling a unique data asset that spans across the traditional financial system and the new open financial platform the company is championing.

Bottom line: As margin compression on core trading revenue accelerates, Coinbase will continue to search for new growth opportunities.

Go Deeper:

Things to read


 

🌐 Why Bitcoin / Macro?

  • Kraken released a deep dive into Bitcoin’s halving and implications for #btc’s inflation mechanism.

💰 Funding, M&A, & Exits

  • BitGo, a leading crypto custodian, announced that it is acquiring Harbor, a leading digital securities platform, along with the firm's FINRA-regulated broker-dealer and SEC-registered transfer agent subsidiaries. The acquisition extends BitGo’s capabilities to address a wider class of digital assets for institutional investors and provides a foundation for a full-stack digital assets solution. Financial terms were not disclosed.

  • OSL, an institutional-focused crypto exchange providing brokerage, custody and a software-as-a-service platform for digital assets and operated by Hong Kong-based BC Group raised $14M from Fidelity International. Fidelity bought 17 million shares of BC Group (5.6% stake) at a price of HK$6.50 (US$0.83) per share. 

  • Contour, the blockchain-based trade finance platform using R3’s Corda, announced an investment from Citi Ventures. Funds will be used to develop the open network to create seamless trade and digitize the outdated process. This announcement comes as Contour moved into full commercialisation of its offering last month after 2 years of successful pilots in 14 countries. Financial terms were not disclosed.

  • Copper.co, a London-based custodian for digital assets offering multi-signature custody and prime brokerage services, raised a $8M Series A from Target Global, MMC Ventures and LocalGlobe. Funds will be used to develop regional client facing operations in North America and Asia and launch new products for institutional clients.

🔓 DeFi / OpFi

  • Coinbase has become a Visa principal member, making the announcement a milestone for mainstream crypto adoption. Principal members of Visa are financial institutions that are reportedly authorized to act as “issuing bank,” meaning they could issue cards and provide transaction processing services. This move will allow Coinbase to offer more features for its debit card. 

  • bZx was exploited again. According to Larry Cermak at the Block, an attacker took out a flash loan of 7,500 ETH, bought 3,518 ETH worth of sUSD for close to $1 and subsequently deposited it to bZx as collateral. They then used 900 ETH to market buy sUSD on Kyber and Uniswap and manipulate the price of sUSD to more than $2. This allowed the attacker to take out a larger loan than they were supposed to because the collateral appeared bigger than it was. With this collateral, the attacker then borrowed another 6,796 ETH on bZx and used it (as well as the remaining ETH balance) to repay the original flash loan. In the end, the attacker netted 2,388 ETH in profit (~$645K). The bZx ETH pool lost about $1.8M while the sUSD pool gained $1.1M.

  • Nexus Mutual announced that voting had concluded for the two claims regarding the first bZx attack. Assessors voted to honor both claims, #121 and #152, which totaled roughly $31,000. 

  • In the latest Our Network, MyCrypto CEO Taylor Monahan shares some thoughts on how to prevent the bZx exploit from happening again.

💸 STOs / Stablecoins / Tokens / DAOs

  • Decentraland, a virtual-reality world owned by users where people are already spending real money to buy plots of land and other property, launched on Ethereum mainnet and is giving away $100,000 worth of prizes over the next four days via a treasure hunt in its urban hub, Genesis City.

  • Enjin, a gaming community platform and virtual goods marketplace, has gone live on the Ethereum Mainnet. The Enjin Platform enables developers to integrate crypto into all kinds of apps and games without having to write blockchain code.

  • Aragon is a decentralized autonomous organization whose goal is to act as a “digital jurisdiction” that aims to make it possible for organizations, entrepreneurs and investors to do business without a legal nexus. Aragon Court launched aimed at operating as a digital jurisdiction and an online decentralized court.

  • Sia, a blockchain-based, peer-to-peer file storage network, launched Skynet, a content delivery network (CDN) and web hosting platform.

  • Riksbank, the Swedish central bank, announced a trial for an e-krona targeted at the general public. The solution is developed by Accenture built using R3’s Corda network. The bank emphasized that no decision has been made to proceed with a central bank digital currency (CBDC), and the project is intended as a learning experience. The blockchain-based pilot project will run through February 2021.

  • Shopify, the e-commerce software company, announced it will join Facebook’s Libra Association, contributing $10M and operating a node that processes transactions for the stablecoin. If successful, Libra will help Shopify’s merchants reduce fees and bring new commerce opportunities to developing nations.

🌉 Infrastructure

  • In the 74-page report, JPMorgan described several projects that have shown ‘real world’ application & highlights many of the most promising use-cases which it sees as having the potential for wide-spread adoption in the financial sector.

  • Paxos Trust Company, a New York-regulated financial institution that digitizes and mobilizes assets, announced the launch of its permissioned blockchain-based “Paxos Settlement Service.” The service can now settle select U.S. listed equity trades between broker-dealers Credit Suisse and Instinet, LLC. The firm launched the service under 'No-Action' relief from the SEC. 

  • Binance, the company behind the leading global cryptocurrency exchange and blockchain ecosystem, announced the launch of Binance Cloud, an infrastructure solution for customers and partners to launch digital asset exchanges leveraging Binance’s industry-leading technology, security and liquidity. 

  • FCoin, the Chinese crypto exchange, annouced it may default on 7K-13K BTC of user funds due to a "data error" and a "decision error." Launched in May 2018, FCoin grew rapidly after pioneering a new business model that paid out 80% of the platform’s revenue from transaction fees in the platform’s FT exchange tokens.

  • Cryptographic identity feels like a major goal - own your identity, own your data, own your social media accounts. What will get us there? Nick Grossman, partner at USV, shares some thoughts.

🍰 Layer 1 

  • Ethereum core developers are moving forward with ProgPoW, an update for making Ether mining more ASIC resistant. The hard fork is tentatively scheduled for July.

  • Cardano’s recent hard fork (“Ouroboros BFT”) was released at epoch 176 to transition from a federated network to a PoS consensus model. Since its launch in 2017, Cardano’s mainnet has operated with limited functionality. The hard fork sets the stage for Cardano to launch the Shelley mainnet in the next few months, allowing users to stake their ADA and receive inflation rewards for contributing to the network’s security.

  • Managed by the IOTA Foundation, Trinity is an open-source software wallet for IOTA enabling users to manage their tokens over the IOTA network. On February 12, Trinity was attacked via a third-party dependency from Moonpay, resulting in the theft of 8.55 Ti in IOTA tokens (~$2M.) The IOTA team released a post-mortem on the hack.

⚖️ Legal

  • Enigma MPC reached a settlement with the US SEC related to the $45M issuance of ENG tokens in an ICO in September 2017. Meanwhile, the company announced that the first Enigma mainnet was successfully launched on February 13th, 2020.

  • Warren Buffett released his annual Berkshire Hathaway letter to shareholders and sets the gold standard for transparency with simple language and from the perspective of owners. If only crypto token issuers were subject to the same disclosure rules as public companies...

Highlighted Industry Jobs (non-exhaustive list for NYC / remote):

If you would like to highlight jobs or internships in future editions, please email links here.

Events this week

How to Create a Supply Chain Blockchain App (Free)

When: Monday, February 24, 2020, 6:30 PM to 9:00 PM

Where: LMHQ, 150 Broadway 20th floor · New York, NY

Blockchain increases visibility and efficiency in the supply chain like the coffee trade. See how blockchain can assist farmers, roaster and everyone between, bring you a fresher and fairer cup. Come out and we will walk you through design, development, and deployment of an illustrative blockchain network and application. In this hands on workshop, you will learn about...

- Developing a supply chain blockchain application with VS Code

- Deploying it on the IBM Blockchain Platform.

- Successful Blockchain applications in the Supply Chain space such as IBM Food Trust and others

- Best practices for developing blockchain applications today and looking forward to the future

Paxos Stablecoin Master Class (Free)

When: Wed, February 26, 2020, 5:45 PM – 8:00 PM EST

Where: Paxos HQ, Near Union Square, Details in confirmation, New York, NY 10011

The Paxos Stablecoin Masterclass is a mixed education and collaboration session for professionals seeking to understand and apply stablecoins and blockchain technologies to current and future products. The session will consist of learning the fundamentals of blockchain technology and stablecoins from a regulatory, operational and technological perspective. Afterwards there will be a more informal session to discuss, collaborate and network.

  • 5:45pm - 6:15pm: Dinner and drinks

  • 6:15pm - 7:15pm: Core stablecoin/blockchain fundamentals (Blockchains, stablecoins, private chains, regulatory outlook, applications)

  • 7:15pm-8:00pm: Q&A, information discussion, collaboration and networking

[Whitepaper Wednesday] Stellar (Free)

When: Wednesday, February 26, 2020, 12:00 PM to 1:00 PM

Where: Rent24, 25W 39th Street 14 Fl · New York, ny

We'll be reading the stellar whitepaper this week. Sasa Milic will be hosting. She recommended reading http://www.scs.stanford.edu/~dm/blog/simplified-scp.html and https://www.stellar.org/learn/intro-to-stellar as the whitepaper itself is super technical.

Upcoming events

A Fireside Chat w/ Gabriel Anderson, M.D. Tachyon/Consensys Accelerator

When: Monday, March 2, 2020, 6:30 PM to 9:00 PM

Where: The Ainsworth, 64 3rd Ave · New York, NY

This CryptoMondays NYC features a Fireside Chat with Gabriel Abderson, the Managing Director of Tachyon Accelerator which brings together a highly selective group of Web 3.0 founders for an intense 12-week sprint to hone their value proposition, test their assumptions with real customers, and prepare for the next phase of investment and growth. Tachyon is part of Consensys Labs, which is the venture arm of Consensys.

Secure Location Services - An Overview & Demo of FOAM (Free)

When: Wednesday, March 4, 2020, 7:00 PM to 9:00 PM

Where: CoinShares, 101 Fifth Avenue Suite 605 · New York, ny

Time for a mesh meetup! We're excited to host Ryan John King, co-founder and CEO of FOAM. He'll share an overview on the project and tech stack, show the physical device used by FOAM, and present on the results and documentation of the current tests and demos, planned Brooklyn test net and network launch details. We'll also talk about privacy, since privacy in location is a major part of FOAM, giving users the ability to obtain fraud proof location claims that are privacy preserving and to be in control of whom it is revealed/sold to.

Regulatory Arbitrage and New Markets: The excitement over Stablecoins (Free)

When: Wednesday, March 11, 2020, 6:30 PM to 8:30 PM

Where: Union Square, New York, NY

In this session, Women in Blockchain's Thessy Mehrain will discuss with Dorothy Chang of Paxos and Ayesha Kiani of LedgerPrime the origins and benefits of stablecoins, how they are being used today vs future applications, and why there are so many brands and countries that want to issue their own.

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Pay 6$ as a signal of your commitment...we want to see you!

No-show-funds support one of the next meetups.

Fee doubles 24hrs before event. If you can't afford the fee please get in touch beforehand.

Notable Conferences

Postponed

2020

David Gogel https://www.definancier.com
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