Long Take: 2024 market sentiment for banks and blockchains & Ethena's 50% yields
We consider Ethena's 50% interest rates, and report back from ETHDenver and Fintech Meetup
Gm Fintech Architects —
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Summary: In this article, we discuss the contrasting atmospheres of ETHDenver and Fintech Meetup, underscoring the divergent interests of the crypto-native and traditional financial sectors, respectively. Fintech Meetup highlighted the booming interest in embedded finance and banking-as-a-service, with significant emphasis on regulation and the integration of artificial intelligence into financial workflows. ETHDenver, on the other hand, focused on the technical side of cryptocurrency, including Web3 AI, DePIN, and the scaling of Ethereum, alongside the financial engineering innovations driving bullish sentiment in crypto markets. We also explore the impact of new financial products like Ethena on stablecoin dynamics and borrowing rates, illustrating the broader implications for both crypto and traditional financial markets as they navigate shifts in interest rates and investment strategies.
Topics: THDenver, Fintech Meetup, SEC, Lineage, Synapse, Synctera, Ops Insights, Savvi AI, EigenLayer, Ethena, Maker DAO, Compound, ARK ETF, KBW index.
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Long Take
I spent last week at ETHDenver in Colorado and Fintech Meetup in Las Vegas.
The conferences and audiences could not be more different, even if a few people did overlap here and there. Let’s frame the key takeaways from each, and then explore the more interesting parts of the market. These events are a great check on market sentiment, and can help us contextualize price charts with information from the ground.
Fintech Meetup, the land of the banks
Taking place at the Venetian, Fintech Meetup was a monster event. It had the roaring energy of Money2020 during the SPAC era. While there was a healthy agenda, including a Crypto / DeFi in traditional finance panel that we moderated, the heart of the event was the 800+ meeting tables running thousands of meetings between industry participants. Huge rows of booths extended across the floor as well.
Regulation was a pervasive theme. One angle, of course, is the SEC allowing the Bitcoin ETF to come through. But at the Meetup, this wasn't a big deal because most of the audience was banks and the fintechs that sell software into them. More relevant was the regulation around embedded finance and banking-as-a service (BaaS). The difference might be rhetorical, but you can think of BaaS as the capability to access the actual regulated bank account in order to do deposits, payments, cards, and lending, while embedded finance is a bit more about the integration rails and APIs that distribute those products to large tech companies (e.g., Apple) and commerce venues (e.g., Amazon).
does a great job articulating the issues that the FDIC has with the BaaS model, which centers around controls, knowing your customer, risk, and management oversight.
Small banks like Lineage can grow from $30MM to $300MM by merely renting out their charter to tech aggregators like Synapse or Synctera, who sit in between the bank and the consumer app. As a result, the underlying bank — drunk on "brokered assets" — is relying on the fintech provider to perform the usual onboarding checks and manage exposure. But everyone has an incentive to go fast, minimize friction, and grow.
We don't think it makes sense to squeeze the tech players out of the value chain, but rather to try and work with them to generate the tooling necessary for everyone to get comfortable. However, when risks are passed off from one party to another, banking authorities start to get concerned.
Outside of embedded finance, we did see a bit of AI starting to seep into Fintech Meetup. One such company was Ops Insights, building AI agent workers for compliance manual reviews. Another, called Savvi AI, provided a machine learning-based platform integrated into Excel that could perform financial analysis tasks. Both were interesting riffs on the types of workflows that financial companies already have, but none were trying to change how finance works or what is being manufactured.
That said, the sentiment was quite positive and the event was bustling. Valuations for companies within Fintech, reflected by the ARK ETF above, have meaningfully outperformed banks, symbolized by the KBW index, which has also underperformed the market as a whole. To that end, we can at least point to some concept of a rebound in the sector. And with that, let's look at the new world.
ETHDenver, ready for lift-off
ETHDenver is a crypto-native event, dressed in t-shirts, hoodies, and pink unicorns.
The primary audience is developers and entrepreneurs, with venture investors circling around promising projects. Because of this dynamic, the language is technical and most of the presentations are about extending open software. While the main event has a deep agenda, most of the action happens outside in side events that are thematically organized. Let’s highlight the most important ideas.