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Blueprint & Digital Wealth: Google invests $1B into CME Group; Revolut crypto exchange; $10B valuation from SoftBank for $40B+ AUM Grayscale holdco

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Blueprint & Digital Wealth: Google invests $1B into CME Group; Revolut crypto exchange; $10B valuation from SoftBank for $40B+ AUM Grayscale holdco

Nov 8, 2021
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Blueprint & Digital Wealth: Google invests $1B into CME Group; Revolut crypto exchange; $10B valuation from SoftBank for $40B+ AUM Grayscale holdco

lex.substack.com

Dear readers —

Today we extend a warm Fintech welcome to the subscribers of Digital Wealth Week.

DWW is a great newsletter focusing on the latest in digital investing technology and the wealth / asset management industries. We have recently joined forces with them under the Fintech Blueprint banner. As a result, we are adding a weekly email to our content calendar that includes focus on those topics, which you can adjust in your Substack profile. For instructions and a tutorial, please see our explanatory post here.

And with that, our agenda for today is below.

  1. DIGITAL INVESTING: Google invests $1 billion in CME Group as market moves to the Cloud (link here), and Revolut wants to build its own crypto exchange (link here) and

  2. ASSET MANAGEMENT: SoftBank, Alphabet Join $700M Investment in Digital Currency Group, Valuing DCG at $10B (link here)

  3. ANALYTICS: UK’s Global Investment Firm abrdn Acquires Finimize (link here)

  4. RESEARCH: Why Facebook is domain squatting on the Metaverse (link here)

  5. PODCAST: Building a $15B+ embedded loan management platform, with LoanPro CEO Rhett Roberts (link here)

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Short Takes

DIGITAL INVESTING: Google invests $1 billion in CME Group as market moves to the Cloud (link here) and Revolut wants to build its own crypto exchange (link here)

Two pieces of news on the exchange front: (1) Google invests in global derivatives exchange CME Group and (2) Revolut is looking to creating its own crypto exchange.

First, Google’s investment in CME Group will see the capital markets venue migrate its infrastructure to Google Cloud at the start of next year, with data, clearing services, and eventually its markets all making the transition. Google’s claim on hosting these financial transactions on their cloud positions them as a leading hardware infrastructure for trading transactions. For this privilege, the tech company is investing $1 billion in CME preferred stock, which is a non-trivial ownership share in the $80 billion exchange. We can think of this as a customer acquisition cost for transaction flow.

In turn, CME is able to leverage Google’s data analytics and machine learning to improve trading insights and services to market participants. If you generate a lot of data exhaust from your clients, you might as well package that data exhaust into insights — something the capital markets players know how to do well, while the rest of the industry lags behind. See our podcast with NVIDIA on the topic.

Market data distribution & consumption through cloud & AI | Google Cloud  Blog
https://cloud.google.com/resources/greenwich-future-of-market-data-research-report
Financial services, cloud adoption, regulators | Google Cloud Blog
https://cloud.google.com/resources/greenwich-future-of-market-data-research-report

The move is the conservative Big Tech approach to finance — instead of building out new distribution footprints from scratch and getting into regulatory trouble, it is easier to underwrite financial service companies to use your superior software and hardware platforms. This way you still host the solutions and gain new partners that scale with Fintech adoption. Eventually, all computation processing would live on Web2. Google doesn’t have to build a derivatives exchange, just host it.

The same logic applies to emerging asset classes. For example, Revolut is looking to create its own crypto exchange, expanding on the current offering that allows its 15 million customers to trade up to 20 cryptocurrencies. The neobank, despite being a loss-making business, is still well funded an $800 million round in July that valued the firm at $33 billion. In order to deepend its economics in the digital investing business, it would integrate vertically from merely brokerage of digital assets, to running the order books and crypto custody services underneath. All this would still sit in the cloud, pulling Google, AWS, and MSFT into the crypto business via the infrastructure vector.

The interesting dynamics start to happen when we start thinking about cloud and blockchain overlap. What if you no longer need Big Tech to host Web3, and exchanges are decentralized and embedded into the network? Today, much of blockchain is still running on third party hardware. But whether this is the industry equilibrium is up for debate.


ASSET MANAGEMENT: SoftBank, Alphabet Join $700M Investment in Digital Currency Group, Valuing DCG at $10B (link here)

Tech piggy-banks SoftBank and Alphabet teamed up to invest $700 million into Grayscale owner Digital Currency Group (DCG). The move brings the company’s valuation to $10 billion.

Mapping out Digital Currency Group's Portfolio

DCG is a holding company that provides exposure across Web3 to most of the top performing assets and has extensive connectivity into the industry. It owns companies like media firm CoinDesk, brokerage Genesis Global, and investment firm Grayscale.

For context, the Grayscale Bitcoin Trust now has $40 billion in assets under management with returns over 40,900% since inception, and is perhaps being converted into an ETF. As a comparison, Wisdom Tree has $70 billion in AUM and trades at under $1 billion, 90% lower than DCG.

More generally, there is large scale investment coming into the top players in the crypto industry. FTX raised over $420 million last month, and crypto companies raised a total of $6.5 billion last quarter. These large investments rounds are indicative of institutional adoption following consumer demand into the space. Since the capital markets are trying to catch up with the space — rather than explore the space carefully — massive checks into ideas with clear product/market fit are the instrument of choice.


ANALYTICS: UK’s Global Investment Firm abrdn Acquires Finimize (link here)

Abrdn (formerly Standard Life Aberdeen) acquired investing insights platform and newsletter Finimize for an undisclosed amount. The platform has over a million subscribers and 40,000 premium subscribers for their daily newsletter, which provides investing tips and financial news in a quick and easy to read format. We interviewed Finimize here to understand the secret sauce of financial community.

This makes sense for two reasons: (1) for Finimize, it gives the firm access to Abrdn’s asset management infrastructure and deeper monetization capability, (2) while Abrdn can leverage Finimize’s skills and knowledge to gain greater insight into self-directed investors and their communities. Given the resurgence in retail trading over the Covid period, we are seeing investment communities become a much more powerful driving force in the industry. Consider WallStreetBets and the amount of influence it exerts — consumers have power in numbers, cheap trading platforms, and close communication through social media platforms that shape the world of investments.

Rise of the retail army: the amateur traders transforming markets |  Financial Times
What's behind the rise of the retail investor? - Business - DAWN.COM
https://www.dawn.com/news/1614521/whats-behind-the-rise-of-the-retail-investor

Abrdn is smart to try and tap into *the culture*, honing their skillset in understanding and shaping the narrative around investments from a consumer perspective. This should not just be a top-of-funnel user acquisition exercise, but rather a deeper reflection on the very structure of capital markets. We recommend our conversation with Paul Rowady of Alphacution on the topic, which suggests a splintering of investing between (1) retail memetic sentiment through order flow into the Citadels of the world, and (2) gigantic passive asset managers on the other side. Beware of being caught in the middle.


Rest of the Best

Here are the rest of the updates hitting our radar:

  • DIGITAL INVESTING: The Digital Investment Bank of the Future: Republic Looks to Expand in the UK, Europe, and Asia Following $150 Million Series B (link here)

  • DIGITAL INVESTING: Evida to offer digital financial advice through additiv WealthTech platform (link here)

  • TRADING: CBOE to Launch US Treasuries Trading Platform (link here)

  • BNPL: Fintech Klarna Introduces All-in-One Shopping App to Enhance Digital Commerce Experience (link here)

  • DEFI: DeFi, CeFi and institutions: AscendEX’s $50M raise highlights ambitions beyond exchange business (link here)

  • DEFI & NFT: There’s Already $115M on Axie Infinity’s New Automated Market Maker (link here)

  • CBDC: 10% of China’s population have opened digital yuan wallets, per PBoC official (link here)

  • CBDC: JPMorgan estimates CBDCs could save corporates £100 billion in transaction costs (link here)

  • METAVERSE: Meta Offered a Glimpse into the XR R&D That’s Costing It Billions (link here)

  • METAVERSE: The Sandbox Blockchain-Based Gaming Platform Integrates to Meta's Social Metaverse (link here)

  • AI: AI Fintech for Buy Side Raises $47m (link here)


Blueprint Updates

Analysis: Why Facebook is domain squatting on the Metaverse (link here)

What are the implications for the Metaverse as Facebook refocuses and rebrands into Meta?

Mark Zuckerberg confronts his avatar at Facebook’s recent conference. With the introduction of the metaverse, it’s time to assess Zuckerberg not only as a corporate leader but as a cultural one.

We discuss the Facebook pivot into the metaverse and its rebrand into Meta. Our analysis touches on the competitive pressures faced by the company from big tech players, other ecosystem builders, and limits to growth for a $1 trillion business that likely motivated this refocus. We further dive into network effects around platforms, and why super apps and financial features are attractive, and how owning the hardware is a required defensive strategy. Lastly, we discuss these development through the crypto and Web3 lens, deeply disappointed with Facebook trying to domain park a generational opportunity with a centralized solution.

Read Long Take


Podcast Conversation: Building a $15B+ embedded loan management platform, with LoanPro CEO Rhett Roberts (link here)

In this conversation, we chat with Rhett Roberts, the Co-Founder and CEO of LoanPro – a new breed of software company that is API-driven, cloud-native and easily scalable. Rhett and his co-founders created the company out of necessity when they ran an auto lending business as they could not find anything flexible enough to suit their own needs.

More specifically, we touch on all things around the lending industry, the auto lending industry and how everything there works, and of course, why LoanPro is such an awesome company, and so much more!

“So not intending to build out a software business, but instead as a tool for our own lending company, we built what now has turned into LoanPro. Yeah, that's really kind of the genesis of the innovation. It's similar to other stories where we had to solve our own problem, and it resulted in what's now LoanPro. Others reached out to us once we had this tool within our own lending company and asked us, "Hey, we're having these problems, what did you guys do?" I said, "Hey, we had to build our own software". Essentially their reply was, "I don't want to build software. Can I use yours?" And for about a year and a half we said, "No. This is a key differentiator for our own lending company. This is what we've built." But after a ground swell of interest in saying, "Hey, really, don't think you guys know what you have here. We want to use it." We decided to say why not? It solves our problem; obviously other lenders have this problem as well. And fast-forward about 15 years, that's what LoanPro is at today..”

Listen on Apple Podcasts


More? More!

If you want to go deeper in Fintech & DeFi, upgrade to a premium Blueprint subscription below. Our value prop is simple: experienced judgment, accurate vision. If you knew the shape of the tomorrow, what would you do today?

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Blueprint & Digital Wealth: Google invests $1B into CME Group; Revolut crypto exchange; $10B valuation from SoftBank for $40B+ AUM Grayscale holdco

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