Hi Fintech futurists --

First off, I just want to say that if you are working on any project that (1) is looking to launch a security token or stablecoin, (2) touches a decentralized finance protocol, or (3) is digitizing traditional asset classes -- please reach out to me at lex.sokolin@consensys.net. There are many ways I could help.

This week, we look at the current symptoms in crypto finance, from Goldman considering stablecoins, to Tether's $600 million currency print, to $200 million in decentralized lending, to Binance Chain's $1.2 billion money movement for 2 cents. The latest short takes on the Fintech bundles, Crypto and Blockchain, Artificial Intelligence, and Augmented and Virtual Reality are below. Thanks for reading and let me know your thoughts by email or in the comments!

Long Take

This is what it looks like, this change in the atmosphere, the fireflies all lighting up as the night comes in. We are here. We are in it. It makes the skin crawl. Do you think we will see another moment like this in our careers?

Goldman Sachs entered and dominated personal digital lending, runs a neobank and roboadvisor, bought a large digital wealth footprint in United Capital, launched a credit card in partnership with Apple, and is now looking into cryptocurrency stablecoins -- something that Facebook and JP Morgan have already started building. Goldman is 150 years old. Facebook is 15 years old, a child. Ant Financial, the inevitable Fintech winner across the developing world, is a toddler at only 5 years old. What about you -- how dated is your thinking?

I went to the Risk.net Live conference last week. You don't get more quantitative and institutional in finance than this group of people. Every other person had a physics PhD and worked in risk management for large capital markets trading desks. Check out the morning agenda below --

Two things stuck with me. The first is that in the web of investment bank technology, there are 20 or more core vendors on which systems run. Adding Blockchain to the mix merely adds a 21st system, which is by design incompatible with everything else. Thus enterprise chain projects have been focusing on integration and proofs of concepts, not re-engineering the core. But we know how this plays out -- as it has over and over again across Fintech. Digitizing "unimportant" channels and hoping for them to succeed simply doesn't work. See JP Morgan giving up on Finn, or Northern Trust capitulating its pioneering idea into Broadridge, or any other number of examples from Bloomberg to LPL Financial. Even the struggles of Digital Asset could be used as an example of the danger of working oneself into an existing web of solutions, and trying to preserve their dependencies.

The second thing is that an addiction to frontier technology -- crypto and artificial intelligence -- was everywhere. Not from a Bitcoin speculation point of view, but from an operating, business model perspective. The question people are moving towards is no longer "Why?" but "How?". If Goldman's CEO is saying “Assume that all major financial institutions around the world are looking at the potential of tokenization, stablecoins and frictionless payments” -- can we stop beating around the bush and just get to work?

I see the following sequence of transition, all happening simultaneously. Initially, most companies were motivated by internal costs savings and efficiency gains. This is why Wall Street lined up at the blockchain gate, and why IBM, Accenture, R3, and ConsenSys have implementation consultants busily working with incumbents. Today, decentralization will not occur in these systems. But tomorrow, they will be cleanly interoperable with public chains and assets. Stablecoins are one of the test cases for how institutional finance approaches (e.g., Fnality and Clearmatics), Silicon Valley approaches (e.g., Andreesen now a finance company, node in Libra), fintech startups (e.g., Gemini), and the crypto anarchist underbelly (e.g., Tether) are all going to converge for the same pie.

According to a nifty Blockdata report, 66 stablecoins are live and 134 projects have been announced but not launched. I wonder if we are going to need 200 versions of the US Dollar! The more interesting point is that over half of the assets are running on Ethereum software. There is a good reason for this -- Ethereum has the best developer community still, and there are things you can actually do with digital assets on this chain. More on that later.

But when you look at market cap and activity, Tether remains top dog. Whether you like it or not, Tether's claim that it raised $1 billion in a Bitfinex Initial Exchange Offering has gone largely undisputed, and the company has continued to print money. In fact, its printing of money has been reported by Decrypt, the Financial Times, and researchers from the University of Sussex Business School -- all suggesting that a $600 million issuance manipulated Bitcoin prices into rising over the last several months. If real assets are being sent to Tether in exchange for its coin, then nothing untoward is happening. But it is increasingly clear that Tether generates hundreds of millions in dollar-equivalent assets in response to "indications of demand" by "wealthy clients", which in turn is used to increase the money supply in the system. Facebook's coin doesn't sound so bad anymore.

Anyway, back to the core story. Once internal operational efficiencies are out of the way, tokenized systems assail traditional asset classes. Fractional smart securities will continue to make middle and private markets more readily accessible to the average investor through initial liquidity, machine-built regulatory compliance, new reporting systems, and trading networks. While Fintech reduced the average asset allocation minimum from $500,000 to $5,000, this current wave will drive it to 5 cents. You don't have to look very far to see it happening already.

Binance might be the world's largest crypto investor network today -- and the money movements on its proprietary chain are essentially costless. Moving $1.2 billion of value (suspend your disbelief about the longevity of that value) rounds up to 2 pennies.

In traditional custody and financial services middle offices, account opening and money movement are a key friction point for asset gathering. Build a good onboarding process -- like Revolut -- and you will reap large customer acquisition benefits. In a pretty ingenious move, Binance has been developing an equivalent of an ACAT process for tokens off the Ethereum chain itself. Over $20 billion in ICO funding over 2017 and 2018 has led to the creation of 6,000 regulator-trapped tokens that raised money on Ethereum, but there is no available path to liquidity. Binance launched a competitive protocol powered by its native token BNB, plugged into a decentralized exchange it controls (hmm!), and is now soliciting ICO tokens to migrate over. Several smaller-sized assets, like CanYaCoin, Hut34 (and I am sure many others I do not follow) have decided to move. And if you don't care because you are a Bitcoin maximilist, well, the company is also going to create a Bitcoin-pegged token on Binance Chain. Once on the Binance chain, these assets can be traded away for eternity in the unregulated Pirate Bay of capital markets.

While this looks like a draining of Ethereum's core value proposition, I don't think that's the case. Binance's competitive advantage is a global network of speculators. Siphoning off tokens whose main path to monetization is to flip Memes to other traders is just fine in the long run. For any of these companies to become functional software products running in a decentralized way requires a smart contracts platform, rather than investor book building (which is massively valuable on its own). And this brings me to the most exciting thing at the very edge of our present day financial system -- decentralized autonomous finance.

In the year 2050, all financial instruments will be manufactured by software machines. Financial institutions will be the capital layer into these contraptions, providing balance sheet and scaled machine learning model to power underwriting decisions. Regular people will have thousands of permissioned AI agents executing tasks on their behalf, tracking them across the chained Web, similar to how cookies today grab and drag our data around the Internet.

This science fiction story is made more real today by projects like MakerDAO and Dharma getting increasing traction with their DeFi lending products, and expanding the feature set. First, Maker is considering adding other assets as potential collateral into its smart contracts that generate cash loans. Instead of being moved to Binance and speculated away, higher quality assets like Augur, Basic Attention Token, DigixDao, Golem, OmiseGo, and 0x can be used to create spending power. It is easy to imagine that future collateralized assets will include houses, invoices, and commodities. Smart underwriting engines can sit on top of the protocol, rented from financial software experts.

Another new DeFi product release is Dharma offering a 10% interest rate on stablecoin deposits -- how the interest is generated and whether this is regulated banking activity, we'll leave for another time. And if that's not futuristic enough for you, OpenLaw has released a glimpse of the possible by wrapping Decentralized Autonomous Organizations built through Aragon with a legal liability wrapper that protects members from general liability under traditional law. Marrying Stripe, Delaware Corporations, smart-contracts based DAOs, open finance, and global decentralized banking should give you a flavor of why now is the best time to be in finance.

Short Take

• Bank, Credit Union, & Fintech Data Platform MX Secures $100 Million Through Latest Financing Round Led By Battery Venture Partners. MX used to be MoneyDesktop, a private label version of Mint.com used by small banks as a PFM. Selling the aggregation software successfully and being in the game for 10 years allowed it to re-play the aggregation story, at today's higher valuations -- set by Plaid.

• Monzo Raises £113M. The neobank has 2 million users, is aiming to attack the American market through partnership, and is transparent about its economics. It has £500 million in customer deposits, so 1% on that is £5 million in interest income. The company lost £50 million last year, but earned a £2 billion valuation. All I can tell you is that these guys know how to sell a story.

• Mortgage Tech Startup Blend Raises $130M, Reportedly Nears Unicorn Status. The company processes $2 billion in loans per day, on behalf of 150 lending financial institutions. This is private label done right focusing on the long tail of banks.

• State regulators expand multistate licensing process for fintechs. Many States have been pushing back in court on the OCC's fintech charter, and it is rumored that Google looked at the regulation and walked away. At the same time, several States have been trying to push their own uniform Fintech licensing regime. If this all sounds insane, you are correct, and is in large part why the West is losing to China in the Fintech race.
  

• Northern Trust to Transfer Pioneering Private Equity Blockchain Technology Platform to Broadridge. Broadridge is the backbone of much of the asset management industry, and mutualizing an internal project from Northern Trust certainly makes sense. What's interesting to me is that this idea was a good early guess by NT -- security tokens for PE/VC are just getting started -- and yet it didn't capitalize on its research and development.

• Legal & General has launched ‘estua-re’, the first pension risk transfer execution platform driven by blockchain. A wealth manager is using digital assets for reinsurance. The underlying tech stack is Amazon -- so if you want your public chain to succeed, make sure it is deployed on Amazon as a service.

• Billionaire Henry Kravis Invests in Former Employee’s Crypto Fund and VRB Debuts Cryptocurrency Bank and SEC-Registered Clearing House Brings Crypto Trading to 5 Million Clients. Here are a couple of symptoms showing how asset management is continuing to grow Crypto as an asset class, and that the regulated bridges between token and fiat economies are strengthening.
  

• Why Machines Need to Dream; The ingenious neurobiology of mammalian sleep has been mathematically modeled to streamline A.I. memory and storage capacity. Fun take on how humans are the ones that are scrubbing our unnecessary data from machine learning data sets, but one day this could be the function of machine sleep.

• FinTech in China: An Introduction. Oldie but goodie -- a broad intro to the big players in Chinese AI companies that deliver financial services product.

• Citi launches tool to flag suspicious payment activity before clearing. A straight application of machine learning to prevent payments fraud, something that AI startups have been doing for 5 years going. Notable for me is how common-place this stuff is now, and we don't even notice massive real time AI systems giving us permission to use our financial accounts.
  

• Jony Ive leaving Apple signals the end of Steve Jobs era. Maybe Ive just wants to chillax, but he is unlikely to find as large a platform for his industrial design work as Apple. And there are so many things to still design -- mixed reality hardware, self driving cars, space shuttles. Why is he leaving! Maybe Apple is becoming a subscriptions company, not a hardware company? Maybe Apple is launching a cryptocurrency powered by Goldman Sachs, and Ive is a Bitcoin maximalist?

• Harry Potter: Wizards Unite On Track for $10 Million First Month Following $1 Million Launch Weekend. There are 3 million players in the game since June 21, which seems impressive until you learn that Pokemon Go had 21 million players and generated $28 million in the first four days. Still, it is the most downloaded app in the iPhone app store. And there's always Minecraft.

• Airbus Partners with Microsoft to Begin Selling HoloLens 2 Software After Successful AR Pilot Program. I hold the view that mixed reality will be pushed by enterprise and governments first, and that consumers will bootstrap into it as a side benefit. In this example, Airbus has found multiple industrial use-cases for AR (e.g., design, aircraft maintenance) and build technology to use it within HoloLens.

• YouTube’s Upcoming AR Ads Let You Try On Makeup During Beauty Vlogs. This is important. If attention platforms succeed at embedding commerce into advertising itself, then you get a very different payments and financing industry. Point of sale lives in content.

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