Jack Kubinec

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Whenever a big name in the financial world saunters into blockchain, a healthy dose of skepticism is warranted. Institutional blockchain initiatives can oftentimes be more about firms saying they’re doing something than about actually doing something.



One initiative that I’ve been trying to tease apart the seriousness of is the “finternet,” a forward-looking financial system being championed by some of the contributors to India’s UPI digital money system.



The Bank for International Settlements penned a <a href="https://www.bis.org/publ/work1178.htm">paper</a> with the financial magnate Nandan Nilekani, who co-founded India’s sixth-largest company by market cap, about the finternet in April of this year. Since then, the team has been on the talk circuit.&nbsp;



In late August, Nilekani and Siddharth Shetty, who was formerly an advisor to the Indian Ministry of Finance, <a href="https://x.com/solana/status/1828779943880433806">demoed</a> the finternet in a talk at Global Fintech Fest. In the demo, the Indian businessman shows off the finternet sending 2,000 rupees and settling the transaction on Solana.



Then last month at Solana Breakpoint, Shetty gave a talk about the finternet which admittedly was a bit of crypto word salad, but he did get into the idea of assets being tokenized on multiple interoperable financial ledgers — that is, building the economy on blockchain rails instead of traditional financial rails.



The finternet is in its very early stages, one person who helped work on the demo told me. And the finternet team, obviously, is not the first to have the idea of moving economic activity onchain. But what interests me is the names involved — and what they imply about the potential stakes for a project that’s integrated itself with Solana.



Nilekani’s Infosys IT company is worth $94 billion, and he and Shetty were involved in building India’s Unified Payments Interface, or UPI, the Solana Foundation and Shetty have said. The Indian government rolled out UPI in 2016 as part of a broader digitization movement in the country. It’s a quite ambitious, albeit offchain, digital payments program that <a href="https://economictimes.indiatimes.com/tech/technology/total-upi-transactions-cross-100-billion-mark-in-2023/articleshow/106492917.cms?from=mdr">processed</a> over 100 billion transactions between Indians in 2023.&nbsp;



The finternet is wholly distinct from UPI, according to multiple people I spoke to. It’s more about unifying the financial system across asset types and geographies.



The Solana Foundation and Superteam India — a Solana community organization — are both listed as contributors to the finternet sandbox.&nbsp;



At the end of the day, maybe the finternet project won’t turn out to be much. But when we talk about large institutional projects involving Solana — the Visas, PayPals, and Stripes of the world — perhaps it’s worth throwing the finternet in there as well.



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<li><a href="https://blockworks.co/newsletter/forwardguidance">Forward Guidance</a>: The intersection of crypto, macro and policy.</li>



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Fintech

Indian tech magnate teases Solana-built ‘finternet’ for an economy onchain

Macauley Peterson

In the early 2010s, banking customers dissatisfied with the fees, complexity and poor service of traditional banks gained some new options.



Neobanks, also called digital or challenger banks, emerged as fintech startups aimed at providing banking services primarily through mobile apps and web platforms, without the need for physical branches.



Fintechs like Simple in the US, N26 in Germany, and Monzo and Revolut in the UK focused on providing an intuitive user experience, often incorporating features such as real-time spending notifications, budgeting tools and easy money transfers.



Yet like their brick and mortar counterparts, there remains an account at the center of a closed loop of services.



Read more from our opinion section: <a href="https://blockworks.co/news/fintech-blockchain-breakthrough">Fintech has hit a wall. Blockchain will break through it.</a>



A new crypto consortium is pitching “Open Finance,” or OpenFi, as an alternative to both neobanks and strictly crypto DeFi.



The key concept lies in starting from a user-controlled account. Rather than having banks as the KYC-enforcing gatekeeper, banking services can be plugged in —&nbsp;and swapped out — like the <a href="https://blockworks.co/news/crypto-lego-financial-system-decentralization">“money Lego” metaphor</a> we’re so accustomed to in Web3.



In short, OpenFi is a framework for integrating noncustodial blockchain solutions into the traditional financial system.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-us.googleusercontent.com/docsz/AD_4nXfHclJHxDXXCkDJy57VKFxg-LSLaPWhzLqoRE9eAFqYK6vEFokKmCi3CMAneWetdfTYB9ahM-A2RJtLYGsNCJFi9Aq069sMHdInntkcnXfSa-2NbxPPqXWy3yYsx7iix5VguGsOGN5IN9LViKlthRemFiUV?key=0NF5j9AG0of31q7cFe5n_Q" alt=""/><figcaption class="wp-element-caption">Source: Safe</figcaption></figure>



<h2 class="wp-block-heading">The vision of OpenFi</h2>



Pitched on the sidelines of EthCC in Brussels, the group envisions a future where banking accounts are replaced by smart wallets, enabling users to manage their finances independent of any one centralized entity.



Instead, like an a la carte menu, specialized providers take on the job of banking services, an approach that removes single points of failure and puts users in control.



A key component of the OpenFi strategy is the development of infrastructure to support apps. As Jasper De Maere, research lead at Outlier Ventures noted, &#8220;apps inspire infrastructure [and] infrastructure enables new apps.&#8221; In short, it’s time fintechs migrate to a new tech stack, he said.



Unlike embedded wallets offered by centralized players — sometimes referred to as CeDeFi, OpenFi advocates call for the use of smart wallets — <a href="https://blockworks.co/tag/safe">Safe</a> and <a href="https://blockworks.co/news/making-crypto-wallets-user-friendly">Zeal</a>, which is built on Safe, are two of the group’s initial members.



Smart accounts provide direct access to DeFi applications, allowing users to determine their security setup, while outsourcing payment and banking rails to providers such as Monerium and Gnosis Pay.



Read more: <a href="https://blockworks.co/news/gnosis-uramp-on-chain-banking-products">Gnosis uRamp joins suite of on-chain banking products</a>



For OpenFi to realize its full potential, there needs to be a concerted effort to develop more user-friendly applications that can rival those offered by traditional fintech companies, but also further progress on identity and security solutions.



On the identity front, Julian Leitloff of idOS pointed to the need to streamline onboarding and avoid redundant KYC processes. Today, most users need to repeatedly verify their identity when accessing different financial services. OpenFi, which Leitloff called “the killer use case for crypto,” proposes a unified identity solution that simplifies this process.



The idOS system <a href="https://blockworks.co/news/ethereum-arbitrum-orbit-mainnet">uses an Arbitrum Orbit chain</a> but is chain-agnostic, and provides user-encrypted data to dapps via an <a href="https://docs.idos.network/idos-docs/developer-docs/dapp-sdk-integration">SDK</a>.



<h2 class="wp-block-heading">Institutions still needed</h2>



Despite the promise of OpenFi, traditional financial institutions will continue to play a crucial role, according to Julian Grigo from Safe. Merchants and service providers are not yet ready to accept direct crypto payments, which is why hybrid solutions like Stripe, Gnosis Pay and Kulipa are needed to bridge this gap while maintaining regulatory compliance.



But by unbundling accounts from banking services, the OpenFi group hopes to fulfill the promise of an open, user-centric financial ecosystem, with greater choice and more options for generating yield onchain —&nbsp;something the neobanks have failed to deliver.



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<li><a href="https://blockworks.co/newsletter/empire">Empire</a>: Crypto news and analysis to start your day.</li>



<li><a href="https://blockworks.co/newsletter/forwardguidance">Forward Guidance</a>: The intersection of crypto, macro and policy.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha directly in your inbox.</li>



<li><a href="https://blockworks.co/newsletter/lightspeed">Lightspeed</a>: All things Solana.</li>



<li><a href="https://blockworks.co/newsletter/thedrop">The Drop</a>: Apps, games, memes and more.</li>



<li><a href="https://blockworks.co/newsletter/supplyshock">Supply Shock</a>: Bitcoin, bitcoin, bitcoin.</li>
</ul>

Banking

Can crypto fully realize the open banking fintech vision?

Ben Mills

Financial technology has been an incredible growth sector for investors and innovators. But relatively soon, blockchain will become the only part of fintech that matters.



The success story of fintech over the past 15 years has been defined by tremendous developments on the part of electronic and online payments systems, with companies like PayPal, Venmo and Stripe becoming household brands. (Not to mention the evolution of monoliths like American Express, Visa and Mastercard.)



Only three years ago, venture funding for fintech companies topped $140 billion. But since then, investment in the sector, <a href="https://news.crunchbase.com/fintech-ecommerce/financial-services-funding-exits-forecast-2024/#:~:text=Early%2Dstage%20investment%20in%20fintech,in%202020%20and%20prior%20years">particularly in early-stage rounds</a>, has dwindled to levels not seen since Barack Obama was in the White House, totalling a mere $25 billion in 2023.



Caveat: I’m a huge admirer of fintech. It’s where I’ve spent most of my career, first at Braintree (acquired by PayPal), and later heading up Product at Venmo. I’ve seen firsthand how these companies have transformed societal habits around money.&nbsp;



But after diving down the rabbit hole with smart contracts and crypto, it became clear to me that blockchain is the new foundation we’ve been looking for to create a new global financial system.



Building anything involving traditional finance payments is complex and requires developers to take on a lot of scope — collecting user data, integrating payments and handling security, risk and compliance. If any one of those components is deficient, the entire system is doomed to fail. That’s a lot of responsibility for any project, and often requires small armies of developers to sustain.



So much time and resources are invested in overcoming risk-and-compliance barriers that you rarely see real innovation in building fintech products. Ultimately, many of these barriers relate to the complex web of regulations and requirements that have only become more complex as fintech has grown.&nbsp;



Blockchains not only solve those problems, but preclude them. Universal accounts mean there is no need to collect user data. Blockchains’ public and immutable ledger offers a single, universal and flexible payment system. Self-custody means developers can’t access user funds, which significantly simplifies considerations around security, risk and compliance.



In short, blockchain has eliminated many of the responsibilities that developers normally have to take on to build applications. That enables small teams to deliver uniquely valuable products to millions of people.



Just consider the impact that DEX pioneers like Uniswap and dYdX have had, springing from the heads of individual founders to quickly rival large corporate centralized exchanges in terms of trade volume, and then continuing to maintain absurdly small development teams thereafter.



Critics like to claim that crypto developers “don’t want to follow the rules,” but the reality is that blockchains and public key cryptography make many of the old rules irrelevant.



As a sector, crypto is burdened with regulatory inconsistencies and blind spots, of course. Applying old rules to new systems that have radically different characteristics was never going to make sense.



Innovation in fintech is being held back by the increasingly obsolescent traditional financial system. Blockchain gives fintech a new future because it is developing from a far stronger technical foundation where the possibilities have only just begun to be explored.



<hr class="wp-block-separator has-alpha-channel-opacity"/>


<div class="wp-block-post-author-biography">Ben Mills is the co-founder of Meso, a payments platform connecting banks and blockchains. Prior to Meso, Ben spent a decade building payments products as an early team member at Braintree (acquired by PayPal), as Head of Product at Venmo, and working on Solana Pay at Solana Labs.</div>


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<li><a href="https://blockworks.co/newsletter/forwardguidance">Forward Guidance</a>: The intersection of crypto, macro and policy.</li>



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<li><a href="https://blockworks.co/newsletter/lightspeed">Lightspeed</a>: All things Solana.</li>



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blockchain

Fintech has hit a wall. Blockchain will break through it.

Spool Finance has launched v2 of its DeFi middleware product in hopes of becoming a gateway for institutions to enter decentralized finance.&nbsp;



Spool v2 was created with an eye to regulatory compliance following feedback from the traditional finance institutions Spool is courting with its DeFi product. Two major institutions could join the fray through Spool by the end of next year, the project’s lead contributor said, but declined to name them.



To assure regulatory compliance, Spool was advised by the white-shoe Swiss law firm Bär &amp; Karrer.&nbsp;



The Spool protocol <a href="https://medium.com/spoolfi/spool-genesis-a-comprehensive-launch-guide-3eb5cee328ff#9cd7">launched</a> in March 2022 as a “set it and forget it” solution for DeFi investment. The platform creates automated yield strategies from DeFi protocols based on an investor’s risk appetite.



Read more: <a href="https://blockworks.co/news/empire-web3-defi-tech-mainstream-institutions">The ‘next leg’ of DeFi users will be institutions, Blockchain Capital’s Larsen expects</a>



Spool is organized as a <a href="https://blockworks.co/tag/daos">DAO</a> that hires employees with specific mandates to develop the business side of the protocol. It has no formal legal organization.&nbsp;



Upon launching, Spool had trouble garnering interest from institutional investors, said Simon Schaber, Spool’s chief business development officer.



“When I went to them, I said, ‘Look, we’ll offer you fully transparent, everything in-house, compliant.’ They said, ‘Yeah but look, Simon, there&#8217;s this huge player called <a href="https://blockworks.co/tag/celsius">Celsius</a>. They&#8217;ve got a shitload of funds under management. They&#8217;re too big to fail. Why don&#8217;t we just put it into Celsius?” Schaber said.



<a href="https://blockworks.co/news/celsius-to-file-for-bankruptcy-imminently-report">After Celsius crashed</a> alongside a few other centralized yield-generating products in crypto, Spool started seeing more serious institutional interest in Q3 of 2022.



Now, alongside its more DeFi-native clients, Spool is working on deals with Fintech firms as well as small and regional banks, Schaber said, adding that the protocol was also in serious talks with one of the ten largest asset managers in the world as well as one of the largest banks, though he would not disclose which.



Vault creators can <a href="https://docs.spool.fi/spool-v2/features-of-v2">charge</a> management fees in Spool v2.



Spool made smart contracts a large part of its pitch to investors, Schaber said. While traditional fund management software can go offline or change hands, leading to renegotiation of terms, Spool’s permissionless software functions indefinitely.&nbsp;



In v2, vaults can now be “gated,” meaning addresses can only interact if they adhere to know-your-customer (<a href="https://blockworks.co/tag/kyc">KYC</a>) or some other criteria, and “multi-asset,” where investors can combine assets in a vault. 



Schaber said on-chain and off-chain assets could be combined through its institutional partnerships, combining liquid staking tokens with dividend-focused real estate in a mutual fund, for instance.



<a href="https://blockworks.co/tag/tokenization">Tokenization</a> of so-called “real-world assets” is <a href="https://blockworks.co/news/tokenized-machine-real-world-assets">anticipated to be a major driving narrative</a> in crypto <a href="https://blockworks.co/news/blackrock-ceo-us-lagging-innovation-tokenization">over the coming years</a>.



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Celsius

DeFi protocol Spool rolls out compliance-focused ‘V2’ to court institutions

Shalini Nagarajan

The US Office of the Comptroller of the Currency (OCC) has established a new fintech office to adapt to technological evolutions in banking, including crypto assets.



The Treasury said the office will add to its knowledge of digital assets, fintech partnerships and other emerging technology models that have an impact on OCC-supervised banks. It will also contribute to oversight of partnerships between traditional institutions and fintech firms.



Prashant Bhardwaj, who has worked in several roles across the financial sector for 30 years, has been appointed the new fintech office&#8217;s deputy comptroller and chief financial technology officer. His tenure begins April 10.



“To ensure that the federal banking system is safe, sound, and fair today and well into the future, we need to have a deep understanding of financial technology and the financial technology landscape,” Michael Hsu, acting comptroller of the currency, said in a <a href="https://www.occ.treas.gov/news-issuances/news-releases/2023/nr-occ-2023-31.html" target="_blank" rel="noreferrer noopener">statement</a>.&nbsp;



The OCC is a department under the Treasury in charge of executing laws relevant to national banks. Some of its powers include supervisory actions against banks, removal of bank directors and rejecting applications for new bank branches.



Hsu has previously urged the crypto industry to introduce stablecoin standards in the same vein as the World Wide Web Consortium and Internet Engineering Task Force’s approaches to guiding internet development.



In December, the OCC reiterated its stance on taking a <a href="https://blockworks.co/news/us-treasury-occ-crypto-problem" target="_blank" rel="noreferrer noopener">cautious approach</a> to crypto, pointing to various events that roiled digital asset markets in 2022.&nbsp;



One year earlier, Hsu had issued a reminder to federal savings associations and national banks to not participate in “certain cryptocurrency, distributed ledger, and stablecoin activities” without a non-objection notice from their regulatory supervisors.



“The events of this year in the crypto industry have revealed a high degree of interconnectedness between certain crypto participants through a variety of opaque lending and investing arrangements,” the agency said in a semi-annual Risk Perspective report.



Just before his recent retirement, Senator Pat Toomey pushed legislation that would see the OCC <a href="https://blockworks.co/news/lame-duck-senator-leaves-stablecoin-bill-legacy" target="_blank" rel="noreferrer noopener">gain direct oversight</a> of stablecoin issuers by way of a specialized licensing charter.



The agency was among three powerful US financial regulators to express skepticism over financial institutions holding crypto assets in January. Along with the Federal Reserve and the Federal Deposit Insurance Corporation, the OCC <a href="https://www.fdic.gov/news/press-releases/2023/pr23002a.pdf">warned</a> that risks associated with crypto should not spill over into the banking system.&nbsp;



“Based on the agencies’ current understanding and experience to date, the agencies believe that issuing or holding as principal crypto-assets that are issued, stored, or transferred on an open, public, and/or decentralized network, or similar system is highly likely to be inconsistent with safe and sound banking practices,” the agency said.



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<li><a href="https://blockworks.co/newsletter/supplyshock">Supply Shock</a>: Bitcoin, bitcoin, bitcoin.</li>
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Fresh OCC ‘Fintech Office’ Tasked With Keeping Up With Crypto

<div id="highlights-block_6352acf674cb6" class="highlights">
 <ul>
 <li>Despite the downturn, interest in and demand for crypto as a long-term investment is still very much alive</li>
 <li>A survey M1 conducted of over 1,000 retail crypto investors in September 2022 showed the majority of those investors plan to hold their current crypto assets for more than six months</li>
 </ul>
 
</div>



The 2022 crypto winter froze crypto companies&#8217; growth and sparked investor sell-offs. But even with assets plummeting, industry insiders have continued to push forward through the downturn — restructuring teams, reshaping products and announcing new offerings for institutional and retail investors alike.



Why? To start, the fintech community has already doubled down on building long-term infrastructure around digital assets, while TradFi continues to pile in, catch up and push ahead.



Investors still care, too, as do the financial firms that serve them. Conversations about crypto have actually been reinvigorated over the past few weeks, with a great deal of overdue reorganization in the works.



BlackRock launched bitcoin investing for its big institutional clients. Mastercard and Binance launched a prepaid card, offering crypto rewards in Argentina. Nasdaq launched Nasdaq Digital Assets, offering custody services for bitcoin and ether to institutional investors. And a number of brokerages have opened the doors to crypto investing, including Stash’s <a href="https://cms.blockworks.co/stash-to-add-crypto-to-its-managed-portfolio-offering/" target="_blank" rel="noreferrer noopener">new crypto offering</a>, Fidelity’s new <a href="https://cms.blockworks.co/fidelity-expands-crypto-suite-with-ethereum-index-fund/" target="_blank" rel="noreferrer noopener">Ethereum Index Fund</a>, and even my company, M1 and our launch of M1 Crypto.



So, why is this all happening, seemingly at the worst time possible? And where do the believers go from here?



<h3 class="wp-block-heading">Thinking long term</h3>



The answer lies in the retail investors themselves, who are driving the crypto movement.&nbsp;



Despite the downturn, interest in and demand for crypto as a long-term investment is still very much alive.



Crypto is often viewed as a tool of day-traders and investors intent on making a quick dollar through constant buying and selling, but in reality, there is a strong group of believers keeping the crypto dream alive through their holdings.



That core sticks around. A survey M1 conducted of over 1,000 retail crypto investors in September 2022 showed the majority of those investors plan to hold their current crypto assets for more than six months. In fact, despite the crypto winter, only 21% of respondents plan on selling.



And there’s still so much left to build.



Over the coming year, we will undoubtedly see even more convergence of DeFi and TradFi. Institutional adoption will increase, and crypto companies and projects will continue to raise money to support new innovations in the industry.



As long as that fire is still lit, we can be assured that spring will come again.



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crypto winter

Crypto Winter Won’t Freeze Fintech’s Interest

<div id="highlights-block_62a075457a2ad" class="highlights">
 <ul>
 <li>Select US users can transfer bitcoin, ethereum, bitcoin cash and litecoin to other wallets and exchanges</li>
 <li>Sending crypto outside of PayPal carries a fee determined by network congestion</li>
 </ul>
 
</div>



PayPal users can now transfer cryptocurrencies including bitcoin and ether to third-party wallets and exchanges, nearly two years after the payments giant opened up its platform to digital assets, the company announced on Tuesday.



Currently available to select US users, the feature will be extended to eligible US customers in the coming weeks, according to the <a href="https://newsroom.paypal-corp.com/2022-06-07-PayPal-Users-Can-Now-Transfer-Send-and-Receive-Bitcoin-Ethereum-Bitcoin-Cash-and-Litecoin" target="_blank" rel="noreferrer noopener">announcement</a>.



The San Jose, California-based company first began allowing customers to <a href="https://newsroom.paypal-corp.com/2020-10-21-PayPal-Launches-New-Service-Enabling-Users-to-Buy-Hold-and-Sell-Cryptocurrency" target="_blank" rel="noreferrer noopener">buy, hold and sell</a> bitcoin, ether, bitcoin cash and litecoin in October 2020. But they had no option to move out their holdings from the platform to crypto wallets such as MetaMask and Electrum, or exchanges such as Coinbase.



This feature was one of the most requested updates since the purchase of cryptocurrencies were allowed, PayPal said, and executives had been discussing its implementation for a year.



Now users will be able to move their cryptocurrency from PayPal to other crypto addresses, including hardware wallets — and send crypto to family and friends for free within the same payments network. Sending cryptocurrency outside of PayPal carries a fee, which may fluctuate depending on network congestion.


<div class="wp-block-image">
<figure class="alignright is-resized"><a href="https://lh3.googleusercontent.com/JgSA8dGIUX2lsgumZ5P1vEALBga8bun-aGC85F9isEqWuG9qMPfwKRn1qx0osQGfM16IoxrcIylvVL1bpu-8cedE-dswKommurHldMNLXArR55a-aH64IvtPrhfUrHb4Ksxk-yB2oG1bu7Qfuw" target="_blank" rel="noreferrer noopener"><img loading="lazy" decoding="async" src="https://lh3.googleusercontent.com/JgSA8dGIUX2lsgumZ5P1vEALBga8bun-aGC85F9isEqWuG9qMPfwKRn1qx0osQGfM16IoxrcIylvVL1bpu-8cedE-dswKommurHldMNLXArR55a-aH64IvtPrhfUrHb4Ksxk-yB2oG1bu7Qfuw" alt="The fintech giant first enabled crypto buying and selling in late 2020, but users couldn’t transfer their assets to third-party wallets" width="395" height="205"/></a></figure></div>


The capability still applies only to bitcoin, ethereum, bitcoin cash and litecoin.



PayPal’s announcement carries weight, as the fintech giant has more than 426 million active users who use the network to transfer money around the world and to make payments to merchants.



In March last year, PayPal rolled out the ability for US customers to use crypto as a form of payment to merchants using its “<a href="https://newsroom.paypal-corp.com/2021-03-30-PayPal-Launches-Checkout-with-Crypto" target="_blank" rel="noreferrer noopener">Checkout with Crypto</a>” service.&nbsp;



“We will continue to roll out additional crypto features, products, and services in the months ahead,” Jose Fernandez da Ponte, general manager of blockchain, crypto and digital currencies at PayPal, said in a statement.



Dan Schulman, PayPal’s president and CEO, revealed last year the firm’s <a href="https://cms.blockworks.co/paypal-ceo-smart-contracts-defi-apps-part-of-companys-crypto-plans/" target="_blank" rel="noreferrer noopener">crypto capabilities</a> will expand into the use of central bank digital currencies and smart contracts.&nbsp;



Some of PayPal’s revenue stems from crypto purchases made on its platform, but the exact amount isn’t clear because the company excludes this figure from its total payment volume.



Venmo, a popular payments app owned by PayPal, supports the buying and selling of cryptocurrencies but doesn’t yet have the ability to transfer them externally. 



As for Robinhood, the trading app rolled out a <a href="https://cms.blockworks.co/robinhood-deploys-beta-crypto-wallets-allowing-select-customers-to-transfer-off-platform/" target="_blank" rel="noreferrer noopener">beta version</a> of its crypto wallet to 1,000 customers that allowed them to transfer digital assets to other crypto wallets for the first time in January. It later opened the feature to <a href="https://cms.blockworks.co/robinhood-opens-crypto-wallet-service-to-2-million-more-users/" target="_blank" rel="noreferrer noopener">2 million</a> more “eligible” users — <a href="https://blog.robinhood.com/news/2022/3/28/the-future-of-investing-is-247-s8ksg" target="_blank" rel="noreferrer noopener">excluding</a> those in New York, Hawaii and Nevada, due to regulatory hurdles.



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PayPal Enables Crypto Transfers to External Wallets, Exchanges

Jacquelyn Melinek

<div id="highlights-block_620d2cd1cd8b4" class="highlights">
 <ul>
 <li>The fund will target investments in founders from underrepresented groups such as women, Black and Indigenous people</li>
 <li>Stronghold’s SHX token has fallen about 42% on the month to .00392 cents as of 11:08 am ET on Wednesday</li>
 </ul>
 
</div>



Stronghold, a payments and financial infrastructure firm, has launched Stronghold Capital to deploy a $100 million fund to expand into early-stage startups in <a href="https://cms.blockworks.co/andrew-yang-we-must-avoid-politicizing-crypto-web3/" target="_blank" rel="noreferrer noopener">Web3</a>, blockchain and fintech ecosystems.



The fund will focus on investing in “overlooked” companies and fund managers, the company said in a <a href="https://www.businesswire.com/news/home/20220215005035/en/Stronghold-Launches-100-Million-Investment-Fund" target="_blank" rel="noreferrer noopener">statement</a>. The capital firm has previously invested in Sam Bankman-Fried’s Alameda Research and Precursor Ventures, which backs seed-stage investors and aims to deploy capital to founders who are women, LGBTQ and people of color.



The firm’s CEO and Co-founder Tammy Camp will serve as fund manager for the capital arm. Camp told Blockworks she has been involved in the blockchain space since 2013, so investing in this space felt natural.



“We’re not looking to reinvent the wheel in venture capital,” she said. “But more diversity in the ecosystem is something that is better for the ecosystem…the more capital that goes into the market, the more it should be allocated for diverse groups.”



“Identifying and investing in emerging talent — especially underrepresented and undervalued founders — stands to benefit the developer community, the fintech industry, and even society as a whole,” Camp said in a statement.



Stronghold’s SHX token has fallen about 42% on the month to .00392 cents as of 11:08 am ET on Wednesday. SHX has a market capitalization of $22.95 million, CoinMarketCap <a href="https://coinmarketcap.com/currencies/stronghold-token/" target="_blank" rel="noreferrer noopener">data</a> shows.



A handful of <a href="https://cms.blockworks.co/sovereign-wealth-fund-vet-eyes-150m-for-crypto-fund-of-funds/" target="_blank" rel="noreferrer noopener">funds</a> have been announced in recent weeks as firms continue to pool money into the crypto ecosystem. Funds launched last week include Hartmann Capital’s for $30 million, Infinity Ventures Crypto’s for $70 million and XYO’s for $20 million with partner Outliers Fund.



While they focus on different subsectors within the crypto world, the funds all carry an objective to further invest in the space, pointing to long-term growth of the industry.



“These new ecosystems must be built sustainably to last, and they must be built decentralized to matter,” Felix Hartmann, managing partner at Hartmann Capital, <a href="https://cms.blockworks.co/1-19-billion-invested-in-crypto-companies-this-week/" target="_blank" rel="noreferrer noopener">previously told</a> Blockworks. “Taking a venture approach helps us make sure of that.”



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Stronghold Capital Launches With $100M Fund for Web3, Blockchain and Fintech

Michael Bodley

<div id="highlights-block_62055f2e51569" class="highlights">
 <ul>
 <li>The hedge fund specialist had $43.8 billion of gross assets under management in November 2021, the most recent figure available </li>
 <li>Crypto strategies present a fresh set of due-diligence challenges for investors</li>
 </ul>
 
</div>



The asset management arm of UBS, one of the world’s largest hedge fund investors, is conducting due diligence on crypto portfolio managers as the division delves into digital assets, according to two sources familiar with the matter. 



The vetting process for UBS Asset Management, via hedge fund-of-funds unit Hedge Fund Solutions, has been ongoing and has ramped up in recent months as institutional interest in the sector has grown, the people said.&nbsp;



Sources were granted anonymity to discuss sensitive business dealings. A UBS spokesperson declined to comment.



UBS’ efforts have accelerated as the number of crypto-focused hedge fund launches — not to mention traditional asset managers<a href="https://cms.blockworks.co/sources-brevan-howard-launches-first-digital-assets-fund-in-massive-crypto-push/" target="_blank" rel="noreferrer noopener"> starting crypto trading programs</a> — has boomed recently. 



Though Hedge Fund Solutions has yet to back a digital assets portfolio manager or spin up a fund-of-funds focused on crypto specifically, sources flagged the effort as the latest sign that big-time investors can no longer afford to wait on the sidelines. The asset management unit had $43.8 billion of gross assets under management as of November 2021, the most recent data available.&nbsp;



Other large hedge fund investors are expected to follow suit, sources said.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“The people that park their money in the asset management arms of these big banks want crypto exposure just as much as everyone else,” one source said. “And they don’t necessarily have the know-how to source and vet these managers themselves. It makes sense for [UBS] to step in and make it happen.”</blockquote>



The bank has been busy getting familiar with crypto players and learning the ins and outs of conducting due diligence on strategies in the sector. For professionals used to vetting traditional fund managers, taking stock of crypto managers presents a new set of challenges around counterparty risk and custody, asset evaluation and evolving regulations.&nbsp;



“Even if they haven’t backed anyone yet, that’s not necessarily a bearish indicator,” one source said. “These things take time. They’ve got to get comfortable with vetting crypto managers. And they have to make sure their [limited-partners] are comfortable with it, too.”&nbsp;



Hedge Fund Solutions is led by Bruce Amlicke, the division’s chief investment officer.



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cryptocurrency

Sources: UBS Asset Management Vetting Crypto Hedge Fund Managers

Ben Strack

<div id="highlights-block_60f09138f6b92" class="highlights">
 <ul>
 <li>Cash App could increase its average revenue per user by five times in the coming years, according to research by Mizuho Securities</li>
 <li>Square’s bitcoin trading capabilities are among its most important services in terms of driving engagement, and in turn, revenue, Rosenblatt Securities analyst says</li>
 </ul>
 
</div>



Digital payments companies such as <a href="https://squareup.com/us/en/campaign/cross-product-center?device=c&amp;gclid=Cj0KCQjwub-HBhCyARIsAPctr7wIvH42bDDxJSU6ITAmhulhL8Bq83jEWVnnJkBEATG6TRQlASVXjmkaAsPIEALw_wcB&amp;gclsrc=aw.ds&amp;kw=square+inc&amp;kwid=p53639037657&amp;matchtype=e&amp;pcrid=522370665599&amp;pdv=c&amp;pkw=square+inc&amp;pmt=e&amp;pub=GOOGLE">Square</a> are in a position to steal major market share from traditional banks over the next decade, analysts said, as crypto services are driving engagement for such businesses.



Cash App, a service developed by Square, could become the “money center bank of the future,” according to research by Mizuho Securities.&nbsp;



“This could make buying [Square] analogous to buying JP Morgan in 1871,” Senior Analyst Dan Dolev wrote in a July 15 note.&nbsp;



Twitter CEO Jack Dorsey, who has long been a proponent of cryptocurrencies, co-founded Square in 2009 and serves as its chairman and CEO.&nbsp;



Mizuho’s bullish outlook for Square comes after the digital payment business announced in February that it had purchased 3,318 bitcoins at an aggregate purchase price of roughly $170 million. The buy raised the company’s held bitcoin to five percent of Square’s total cash, cash equivalents, and marketable securities as of the end of 2020.



More recently, Jesse Dorogusker, the hardware and TIDAL lead at Square, <a href="https://cms.blockworks.co/jack-dorsey-confirms-square-will-make-bitcoin-hardware-wallet/">tweeted last week</a> that the company has decided to build a hardware wallet service to make bitcoin custody more accessible.



Dolev called Cash App “the ultimate challenger bank,” noting that Mizuho’s analysis of the business indicates a path to an average revenue per user of between $150 and 200 in the coming years, which is between three and five times above current levels. The average revenue per user ranges from $400 to $700 at consumer banks like JPMorgan and Wells Fargo, he added.



Still, Sean Horgan, an equity research analyst at Rosenblatt Securities, told Blockworks that he believes digital wallets as a group are going to disrupt traditional incumbent consumer banks over the next five to 10 years.



The customer acquisition costs for companies like Cash App and Venmo may range from $5 to $100, he added, as they are helped by the “network effect” of millennials helping older adults adopt the services. This is compared to incumbent banks who may spend $1,000 to gain a new customer, Horgan noted, as they may entice prospective credit card users with free rewards and build out costly bank branches around the country.



“Traditional banks [have] about $1 trillion of market value,” he said, “and as they steal revenue share and user share, that market cap is also going to transfer from the traditional banks to the challenger banks.”



<h3 class="wp-block-heading">Crypto services driving engagement, revenue</h3>



Square was a pioneer of gathering users through a free peer-to-peer offering and then rolling out additional products over time, Horgan said. The company’s bitcoin trading capabilities, which were added in 2018, are among the most important services in terms of attracting users to use the platform each day, he argued.



Cash App allows users to buy and sell bitcoin straight from their Cash App balance. Unlike other apps, most of the buying and selling happens in seconds, according to the company’s website, and users can spend their proceeds from a free Visa debit card.



“Bitcoin drives engagement and engagement drives monetization,” Horgan explained. “The more funds you’re bringing onto Cash App, the more you’re considering this thing your primary bank account or primary spending account, the more likely you are to take a debit card or credit card offering out and start using that.”



Venmo followed Square’s footsteps when the company <a href="https://newsroom.paypal-corp.com/2021-04-20-Introducing-Crypto-on-Venmo">announced in April</a> that it would allow customers to buy, hold and sell cryptocurrency directly within the Venmo app.



British fintech firm <a href="https://www.revolut.com/en-US">Revolut</a> revealed this week that it had raised $800 million in a new funding round led by SoftBank and Tiger Global, which values the company at $33 billion. People can use Revolut’s app to buy, sell, receive or spend cryptocurrency, as well as send crypto to other US Revolut accounts.&nbsp;



Moving forward, Horgan said he expects crypto rewards to gain more popularity.&nbsp;



Square offers a service called Bitcoin Boost, in which a user can select to have bitcoin automatically placed into their account upon each cash card purchase. Similarly, BlockFi earlier this month <a href="https://cms.blockworks.co/blockfi-releases-visa-rewards-credit-card-to-us-clients/">launched its Visa rewards credit card</a> for a handful of its US-based clients, providing users with crypto returns when they use the card.&nbsp;



“I’d rather get 2% back in bitcoin than 2% back in a 2% depreciating asset per year, which is cash,” Horgan said. “We’re going to see a lot more of that, and that’s just another reason to use these digital wallets like Cash App rather than traditional banks.”