Fintech 🧠 Food - Winning at Embedded Finance, FTX and the tiny bank & Starling blocks Crypto

Hey everyone 👋, thanks for coming back to Brainfood, where I take the week's biggest events and try to get under the skin of what's happening in Fintech. If you're reading this and haven't signed up, join the 24,371 others by clicking below, and to the regular readers, thank you. 🙏

Hey Fintech Nerds 👋

I hope you're all well. To my American friends, happy Thanksgiving; I'm grateful for all of you, health, happiness, and another year of learning and meeting new people. A year of OMG conferences are back, and they're actually kind of exhausting. A year of, wait, unit economics matter now. WTF?

A year of embedded finance, FTX buys everything, then explodes; I hope you didn't buy Crypto last Thanksgiving and companies with four letters in Fintech crashing back to reality.

I'm hopeful for the future. 

In Fintech, the rising interest rates make embedded lending interesting for all involved. In Crypto, the price noise going away means projects with real utility are coming to the forefront. 

And more than anything, the world feels a bit less aggressive, a bit less intense, and a smidge more reflective after a lot of intensity during the pandemic.

The world has problems. Massive ones.

As builders and investors in finance, we have an unparalleled opportunity to shape the future. Money is the incentive mechanism for our species. If you change how money works, you change everything.

So most of all, I'm grateful to you readers for being on the journey, building amazing things, and supporting this newsletter. 

📣 This week, I Rant on why the way we do regulation and data is holding back the embedded finance opportunity.

👀 Unpack why Venmo and CashApp could be the biggest threat to consumer Neobanks and;

👀 Why Starling blocking Crypto is rational in the short term but the wrong long-term move.

Oh, and Crypto nerds, you're gonna love the read from Vitalik near the end 📚

Pro tip: This week’s rant is long and steps back into some first principles of embedded finance market structure. The ultra nerds should search for “where the risk lives” and skip to that bit to see an analysis of how we change the market for the better

PS. I’m reserving judgment on what’s happening with Pipe until the facts are uncovered. There have been rumors for a while, but I’m gonna leave that to the pro journalists. Next week though, I want to look at “revenue-based finance” as a topic because I’ll admit it gives me some heartburn. As does poor corporate governance in growth companies as a topic.

Weekly Rant 📣

The future of embedded finance in a world of more regulatory scrutiny

Embedded finance could be the biggest thing in financial services in the next decade, but only if it manages to work around the two biggest things happening in macro:

1. Rising interest rates making banks and lending exciting again

2. A tidal wave of regulatory scrutiny for Fintech and Crypto

#2 could ruin the embedded finance party if we're not careful. 

Last week, the US Treasury recommended enhanced supervision for "bank and Fintech partnerships." This follows investigations by the OCC into bank supervision of 3rd parties.

Regulation often reacts to a real problem, and the problem embedded finance has is a house built on sand. The market structure wasn't designed for tiny banks to have millions of consumers with cards.

We can fix it.

But only if we understand the market structure.

Why do we want embedded finance in the first place? 🤔

Embedded finance is a big deal.

Embedded finance at e-commerce was $2.6trn of Gross Payment Volume (GPV) in 2021, which is 5% of all US retail transactions. Bain says this will hit $7trn by 2026. Most volume comes from payments but will expand into lending, tax, accounting, insurance, and insert-your-financial-product-here. 

But accepting payments was the easy part.

Embedded finance is heading towards lending.

Lending is at least 10x more complex, and that's where everyone is going next. Credit cards, charge cards, term loans, BNPL for B2B, "revenue-based finance," and term loans for businesses are all the hot areas that have not yet experienced the regulatory pushback that traditional "Durbin debit" and "Fintech partnerships" have now started to experience.

Regulatory scrutiny comes as investment capital is limited.

At the same time, we're seeing Fintech companies forced to focus on unit economics, which means the cash to spend on customer acquisition is less readily available. 

Add to this that cash must now be deployed to build out sophisticated compliance, fraud, risk, and control capabilities to respond to regulatory scrutiny. 

It has never been more critical to understand the regulatory landscape.

The focus has shifted from "ship and grow." To get the right controls and unit economics to survive and profit.

Unlocking the embedded finance opportunity.

Two things are true

1. Embedded finance might be the single biggest opportunity for everyone in financial services.

2. The risk, regulatory, and compliance sophistication must level up for everyone to deliver that vision.

We have to win at the details and execution if we want embedded finance. And to do that, we need an understanding of the market, where the friction is, and how to attack it.

Where is the opportunity, and how do you win?

To unpack this, I think we need to 

• Recap the experience of embedded finance

• Define "what is embedded finance, and what is it not."

• Define the value to the ultimate end customer and the players in the value chain (and the trade-offs/choices)

• Have a first principles understanding of the regulated financial products that could be embedded

• Have a first principles understanding of who embeds and who helps provide to the embedders

• Who holds what regulatory and legal risks in the value chain

• Therefore how can we build sustainable businesses instead of good ideas that never reach escape velocity

What does Embedded Finance look like to a customer?

Embedded finance gets thrown around like all buzzwords to create excitement and get marketing hype. It might help to build up a definition as we go.

Embedded finance is a regulated financial product that shows up at the point of need.

Like all semi-precise definitions, that sounds like a word salad. So let's work backward to give it some semantic meaning. 

The point of need represents a moment, context, or experience a human or business has. Maybe they're shopping online, doing work, doomscrolling, or trying to find a new house. The core activity is not "doing finance," but it's doing something else. The financial product then shows up in the context of that activity. 

For example

1. You're browsing for gifts for Christmas, and the BNPL button shows up to offer you an installment loan (the financial product). 

2. You set up a new project in your project management software for construction. A deposit account and credit facility show up in the software to allow you to order the parts before the project begins or before you get paid.

3. You're a creator on social media who can accept payments with a single click from within the experience.

Lastly, regulated financial products are any service that requires someone in the value chain to have a license from one of the many regulatory agencies for that product to be offered legally. Obvious examples are FDIC-insured checking accounts, any form of lending, or interest-bearing savings accounts. (We'll come back to this).

What is embedded finance, and what is it not?

Marketing finance at the point of need isn't something we invented with the internet or since Fintech came along. Supermarket checkouts and Car dealerships have been marketing financial products for decades. We've also had airlines and brands offer co-branded credit cards.

You could call that "analog embedded finance."

But to me, that is not embedded finance; it's marketing financial services that happen to have your logo on the front.

But for simplicity. Let's define embedded finance as follows.

1. It happens in a brand's digital experience

2. The brand has control over the experience (to some extent)

3. The customer drives the experience

4. The experience is automated (or mostly automated)

5. The experience is real-time (or mostly real-time)

Not embedded finance: Signing up for an installment plan in a retail store does not happen in a digital experience, is often driven by staff, not the customer, and therefore involves manual steps by the team at the brand.

Embedded finance: Going to a home appliance website, getting to the checkout, and being offered a BNPL plan is real-time, automated, and driven by the consumer. The brand has some control over that experience, and the experience is happening on that digital property.

If you zoom out, this distinction could seem like a nitpick, but it's crucial if we want to understand why embedded finance is so powerful.

Value created for customers.

Embedded finance creates convenience in context for customers.

Customers are often schlep blind. Schlep blindness is being so used to an activity that you fail to see how painful it is, or if you do, fail to make it better. And life is full of them, from the commute to trying to reconcile accounts between systems or just trying to figure out if you can afford that thing you want. 

Schleps are a pain. 

These pains create barriers to progress. 

But a convenient product helps the customer get to their desired outcome through the barrier. Accounting systems that can update with real-time bank account data or payment orchestration solutions manage the schlep of reconciliation. Real-time payments allow merchants to have cash now to fund inventory or consumers to pay each other instantly in a time of need. 

The convenience of the embedded finance service comes from being embedded into the context user's activity. Building a new tool for reconciliation is nice; having one that works in the background of the accounting solution is better. Having instant installment loans is nice; buying them at checkout is better. 

The trick is to figure out where the customer spends most of their time and how a regulated financial product can make that more convenient within that context?

Value captured by brands.

Embedded finance unlocks engagement and revenue for brands. 

Embedded finance is the ultimate engagement creator and friction remover because nearly every activity involves finance eventually. It creates more engagement by removing barriers to paying, getting paid, or between systems. 

Epic games bake in their payment experience to Fortnite to create more engaging experiences for consumers. Shopify embeds payment acceptance and expense cards to keep users on the platform and deepen the value they create. 

There are less obvious examples too. Uber lets its drivers cash out earnings immediately into a debit card, ensuring that drivers want to use the platform and feel the reward instantly.

Embedded finance is an astonishingly effective source of revenue for brands. More than 50% of Shopify's revenue comes from financial services (of which most of that is payment acceptance). But this can take many other forms.

Sometimes the extra revenue comes from selling more stuff or more platform usage. The BNPL might encourage a consumer to purchase something creating more sales or the embedding of 

If a brand offers a debit or credit card, they benefit from the interchange (swipe fee) revenue. If a brand introduces lending, it may take an origination fee (finders fee).

But with regulated financial products, there are trade-offs between how much revenue the brand generates and the amount of operational and compliance complexity they have to add.

The regulated financial products.

Most financial products are one of the following types

• Make a Payment

• Collect (receive) a payment

• Store value

• Borrow value

• Invest value

There are many customers, providers, and regulatory wrappers for these basic primitives. A consumer or business could be the customer, and the provider could be a regulated financial institution or an intermediary. 

This seemingly simple framework is important because of the sheer breadth of regulated financial products and how they change by the customer, provider, and activity.

Taking consumer cards as an example.

A consumer making a payment might use a debit or credit card. There's an ecosystem of providers that help brands issue a card to a consumer and an ecosystem of providers that help merchants acquire payments from the consumer's card.

At a minimum, on the issuer side, there are at least three roles to fulfill

• A brand delivers services to the consumer and has its logo on the card (e.g., Chase, Chime, or Shopify).

• Optional: Middleware provider simplifies connectivity to the underlying 3rd parties, reducing time to market and opex to maintain relationships with banks and issuer processors. (BaaS platforms like Bond, Unit, Treasury Prime, Swan, etc.)

• Optional: 3rd party solution provider specializes in complex workflows and activities and can deliver a "department of a bank as an API." (Fintech infrastructure, e.g., KYC, AML, Credit underwriting like Alloy, Persona, Prism, and many more).

• An issuer processor connects to the payment rail. This may be the bank themselves or a 3rd party (like Marqeta, Galileo, GPS, etc.). They often also offer many of optional services.

• A bank account is required to fund the transaction (either credit or debit) and ensure all local laws, regulations, and payment network rules are followed.

Note 1: The role of the "program manager" who creates the regulated financial product and helps ensures it complies before launch could be performed by the bank, processor, middleware provider, or brand. 

Note 2: A bank can play all three roles, and many more providers exist in embedded finance use cases between the bank and the brand. That's where things get confusing. But check out this 11:FS report from back in the day for more detail.

In this case, the regulated financial product is a debit card or credit card. The organization with ultimate regulatory responsibility is the bank, which must ensure all providers and brands follow the rules.

The type of brand that embeds.

Simply put, brands can be 

• Born Digital exists because of the internet ad born after

• Digital Nomads added digital to a business that existed pre-internet

• Finance first their primary customer use case and value is something in finance or adjacent, so a bank or fintech company.

• Non-finance primary customer use case is anything but finance (transport, energy, retail, travel)

When we talk about embedded finance, we usually mean born digital non-finance brands, adding a regulated financial services product at the point of need. They are rewarded with engagement and revenue if they do this in context and create convenience. Phew.

Of course, digital nomad brands can use embedded finance too, and present an utterly massive opportunity.

Now a layer of complexity. 

Each brand can be early-stage, mid-stage, or late-stage. Earlier companies prioritize time to market and customer acquisition. Mid-stage now, it's less on growth and more on unit economics and vendor consolidation. Late-stage (or public), efficiency, and profitability matter.

Earlier-stage companies might prioritize "all-in-one" solutions and graduate to specialists as they scale. 

The challenges the market face now 

• Scaling so fast, the companies didn't adjust to the new responsibilities. Companies with 2m to 10m consumers could quickly get a card in the hands of millions. 

• Pushing compliance responsibility to partners and providers. A non-finance brand doesn't have the skill or experience to be focused on regulation.

In fact, many brands wanted someone else to manage the sticky compliance stuff. And often, the providers (banks, middleware, and processors) have done a good job.

But the problem is that's not how regulation and policy were designed.

Regulators can and do work with providers, but they look via the banks.

Where the risk lives.

Banks always hold the highest level of responsibility to the regulator and local Government agencies. Other players in the ecosystem may also need to be licensed, but the premise of the entire financial system is that banks have the highest level of responsibility. 

I spent so long going through all the ecosystem players in detail because now the picture below can make more sense.

Banks are held to account by the regulators and agencies. Banks must file reports to those agencies and undergo periodic exams. One of the things they must demonstrate during any exam is that they have the policies and processes in place to manage KYC, AML, credit risk, and often 1000s of other laws and rules. 

This model is based on the idea that banks historically directly served their consumer or SMB customers.

Banks must also ensure that any "3rd parties" the bank supports comply with all of the regulations and rules to which the bank is subject. 

In the new world of embedded finance, banks often look through their providers to the end Fintech company or, in this case, a non-finance brand. The providers might have fantastic data and control over their Fintech companies. They may even limit what that brand or Fintech company can do, but they don’t control the app or user experience of the end customers.

Lastly, the brands look to control their customer's risk and ensure they follow the rules and constraints set by their providers based on the policy of the underlying bank.

But most bank systems weren't designed to "look through" the Fintech company and its customers. Providers might be able to do so, but they don't control what the Fintech does. 

Responsibility is on the left of the picture, but control of the customer and the data is on the right. And the way banks prove they have control is by checking policies, procedures, and controls at the Fintech company. 

This is sub-optimal because, like many things, it wasn’t designed; it evolved over time.

And this isn't the fault of the regulators as such.

The regulators receive a minimum standard data delivered on PDFs or CSV files and via periodic exams and reviews. During those exams, they may go much deeper into how a bank operates and read the underlying policy documents. But this isn't a complete look through to everyone in the market, far from it.

The regulators perform the task in front of them, given the mandate they have from their state or government with a limited budget and often even worse technology.

Seriously, pour one out for the supervisors. That job is hard.

Regulators need better supervisory tech and better data.

And partner banks need a "look through" for transactions, fraud, risk, and compliance.

What if we used data?

The data exists for better supervision.

• The embedder or Fintech company can see the device, the user behavior, and the billions of metadata signals a customer generates when interacting with a digital service.

• The middleware provider can see all of their customers, many of the 3rd parties, and help support partner banks collating this data.

• The partner banks should be able to collect all of that data and look through it.

There are now Fintech companies building solutions for partner banks to "look through" policies and share data. There are also efforts for data sharing underway (by Unit 21, Sardine, and others), and the middleware providers and partner banks are all responding to the regulatory pressures.

But everyone needs an upgrade.

And the very principle of how supervision works needs to consider the available data as a control.

If you're a non-finance brand with little experience in financial services, that's a non-trivial mess to get your head around.

What if we could look at legislation or certification?

The US has wanted a “Fintech charter” for a long time, but it doesn’t appear to be something either political party is entertaining. Internationally, there are more sophisticated regiem’s like e-money, but even they are predicated on regulators relying on banks who rely on 3rd parties, etc.

Imagine if there was an “embedders playbook” or embedded finance certification. This would require sharing specified data in an agreed format (or, better yet an agreed set of APIs). The partner banks and supervisors could then use that API (with whatever dashboard they prefer) to “look through” to the performance of the brand offering the regulated financial product.

As mentioned, there are companies starting to develop pieces of this, but wouldn’t it be cool if it were driven as a standard?

Well, in the absence of that happening (yet), there are still things brands should be mindful of.

What can embedders and brands do?

There's really no such thing as outsourcing regulation to a provider. Just streamlining. There's no downside to being amazing at regulatory and compliance if you're a non-finance brand. You can get a ton of value from specialists who are experts, but the best ones help you become an expert too (just with more automation!)

The tools today are substantially better than they were 5 years ago. 

Regulatory scrutiny is coming.

The opportunity in lending is enormous. 

But the complexity when we go beyond debit into credit and more complex regulated financial products explode.

Get good at compliance, and you win.

And if we as an industry share data more, we can unlock the embedded finance opportunity in the right ways.

Let's all get better.

What are your thoughts?

What else can we do?

ST.

4 Fintech Companies 💸

1. Flare - Order Now Pay Later (UK)

• Flare lets merchants add a button at checkout to "order in advance" and claims to increase revenues by 22% and lead times by 2.5x. This enables merchants to batch orders together, save cost and reduce the CO2 in their supply chain. Shoppers get a discount on the product they want and can save towards it in installments.

• 🤔 We've seen a few folks try save now pay later, but few have nailed the merchant value proposition like Flare has. Consumers love shopping and the convenience of splitting a payment, but I wonder if the power of BNPL was "get shiny thing now." With consumers in trouble and still needing everyday essentials, this merchant/consumer win-win feels like a good thing the world needs. Excited to watch this team and see if they can get major traction (Discl: One of the co-founders used to work with me at 11:FS, I am not an investor but think they're awesome).

2. Fynbos - Email address for money

• Fynbos uses "payment pointers" to give developers and users a human-readable address to send or receive money (e.g., $fynbos.me/alice). Users create an "open loop" digital wallet and then connect underlying cash or card accounts to that wallet with "payment pointers." Users can then create workflows for money in and outflows (e.g., if paying x, use account y). It's like if payment automation, a digital wallet, and square cashtags had a baby.

• 🤔 Cash app has "cashtags" Back in 2010, I was convinced Jack Dorsey would use Twitter handles to connect money to payments. The problem has always been network effects and interoperability. There are so many payment types, countries, and apps. Fynbos focus on infrastructure, and "pointers" is a neat abstraction. It could also make for interesting backward compatibility between web3 wallets and TradFi.

3. Pitchedit - Crowdfund Angel investments (UK)

• Pitchedit allows founders to create a digital "pitch" for which mentors and potential investors review and leave feedback. The platform works like a crowdfunding platform but for a much earlier stage. 

• 🤔 Not every founder has a network, but they might be great at execution. The platform reminds me of F6S, used by various start-up accelerator programs. Crash that with new regulations that allow early-stage consumer investing, and you have something interesting. The crowd equity platforms haven't set the world on fire with revenue, but this sort of thing as an asset class is interesting.

4. Bodil - Pay by bank app at e-commerce checkout (UK)

• Bodil uses the UK's pay-by-bank app standard to allow merchants to quickly accept payments for consumers with lower fees and rewards baked in. Bodil is cheaper than card payments, offers instant settlement, and builds a BNPL-like shopping experience to drive repeat customers to the platform. 

• 🤔 4 or 5 companies are trying to become the "pay-by-bank app" button at checkout; some are well-funded and staffed with super-experienced and connected teams. None of them have gained traction because of the two-sided market problem. Which of these buttons should consumers trust? It works with their bank, but there's no logo they recognize. Contrast this with Venmo being a checkout option at Amazon. I'm curious if there's a way through the cold-start problem in the UK or if these payments end up being another avenue for authorized push payment fraud.

Things to know 👀

1. Venmo does charity payments and redesigns P2P payments

Venmo's 90m users will soon be able to select a verified charity and donate to their cause within the Venmo app. This feature has been available in the PayPal app since 2016, but the social / P2P nature of Venmo. The new send money feature is also designed to streamline sending money to groups and focus on avatars and profile pictures to recognize to whom the money is being sent.

• 🤔 P2P Payment apps could win at sub-prime. These apps solve an immediate problem (get help from a friend or get paid in cash immediately). Especially for the under or unbanked and migrant workers, the P2P app may be their first non-cash payment experience. This is a phenomenal wedge into e-commerce, cards, and potentially even lending (which Block and PayPal both do to varying degrees).

• 🤔 P2P Payment apps like Venmo could also displace "Neobanks." Why have a generic Neobank when CashApp or Venmo do all the same things? We might see the market split towards Neobanks specializing in communities and all-in-one or "Fintech Super Apps." Of the Neobanks, I wonder if any of them has the feature velocity to make it there while focussing so much on cost and unit economics.

• 🤔 Venmo is quietly becoming a force. A button at checkout for Amazon, 90m users, and an improved feature velocity. I'd argue 3 years ago, Venmo was seen to have lost a step after its PayPal acquisition. That's changing, or the PR is changing.

• 🤔 Venmo is also dominating PayPal's PR. I've covered it three times in the last two months and in that time PayPal isn't talking about new core features in BNPL or international expansion. It's talking about Venmo, an interesting strategy in a market where "PayPal" is a Fintech stock, but Venmo is a sister brand far enough away that it almost gets away with being its own thing. Useful. We're not hearing as much about CashApp lately. Is that intentional? A lack of things to announce? I wonder.

• 🤔 Charity payments are harder than it seems. Charities are a high-risk sector that suffers significant fraud and money laundering. Many operate globally, in war-torn regions where bribery and corruption are common. A pre-registered, vetted set of charities inside a mobile experience makes life much simpler for Venmo and its users.

2. UK Digital Bank Starling blocks Crypto payments

Starling has joined the ranks of HSBC, TSB, and Virgin Money in blocking payments to Crypto exchanges and apps. Nearly half of UK banks now block transactions entirely, while larger banks like Barclays, Natwest, and Santander have severe restrictions and limits.

• 🤔 The UK has been a horrible market for digital assets, but the new UK Government wants to change that. Companies have complained about slow responses from the regulator (the FCA) and the bans on Crypto. Since Brexit, the UK hasn't had many attempts to create a positive environment for Fintech and Crypto, but that is now changing. Just as the US enters a period of heightened regulatory scrutiny, it appears the UK is coming out of one. Speeches by the new Chancellor and EST suggest "competition" with traditional finance could be back on the agenda.

• 🤔 Yet the UK is full of talent and opportunity for digital assets. JP Morgan's Onyx, R3, and companies like Archax, Opensea, and Argent all have talent in the UK. We also have some Crypto first VCs like Fabric and Outlier Ventures that are UK based. The UK is a major global financial center with a history of regulatory innovation and the rule of law. English common law is preferred in international business, and the UK has already deemed NFTs property and smart contracts legally enforceable. This should be Mecca for digital assets.

• 🤔 The banks blocking Crypto is a huge barrier for the industry. Having "NFT" in your company name can exclude you from getting a bank account. But the banks have little choice but to block Crypto because Crypto has a massive fraud problem. If, as a bank, you see customer uses Crypto exchange, and then a very high percentage of those reporting frauds, it's rational to start putting limits and controls in place.

• 🤔 Crypto's fraud problem is really a data-sharing problem. Banks have reduced fraud by sharing information for decades. If a fraudster does something bad at Bank A, they tell the other banks what happened, so they can prevent fraud too. *That doesn't happen between Crypto exchanges and banks. But it could, and it would reduce fraud massively.

* Discl: Sardine, my employer, is building a data-sharing group between financial institutions, Fintech, and Crypto businesses (but so are many others!)

🥊 Quick hit: Opensea sold a house on its marketplace in a partnership with Roofstock onChain. The house cost $175,000 and involved an LLC taking ownership of the property, tokenizing the property, and minting an NFT representing ownership. Therefore ownership of the NFT is ownership of the house.

🤔 NFTs are quietly becoming useful to represent real-world assets. While the world looks away from Crypto as the speculation use case falls away, utility is building. The process of tokenizing is becoming more regular, and once tokenized, an asset is digital, auditable, and programmable. This will absolutely be a game-changer, just like those horseless carriages. 

🥊 Quick hit: FTX had an $11.5m Stake in tiny Farmington Bank. The bank is based in town (Farmington) with 146 people and has one building. Founded in 1887, it claims to have funded “99+” farm loans. Farmington was renamed “moonstone bank” at the time Alameda invested, for 10% making it worth $115m, despite having $10m in deposits.

🤔 FTX and Alameda were license shopping, and having a stake in their own “partner bank” or sponsor would have been a way to capture value if they did become a major consumer card brand. You have to imagine this will increase the scrutiny partner banks face.

Good Reads 📚

1. Proof of Solvency by Vitalik

Vitalik discusses several ways centralized exchanges and trading venues can prove they are solvent without breaking users' privacy. A Merkle sum tree acts as a public proof, while the tree's child (leaf) nodes correspond to an individual user's balance. The user would have a mathematical guarantee their balance is included in the total. Privacy can be enhanced with ZK Snarks. 

Vitalik et al. introduce a spectrum of " don't be evil " and " can't be evil. Existing exchanges (and all of the traditional finance) use the legacy audit to provide a balance against wrongdoing. Decentralized exchanges can't steal user funds but require the user to never make an error or have their security compromised. Centralized exchanges are at risk of bad actors or insolvency impacting user funds but can make a user whole if the user makes an error.

• 🤔 TradFi could learn a lot from this. If we cast our minds back to 2008, the world's largest banks and regulators were in a blind panic, wondering where the contagion might fall after the collapse of Lehman. We don't know and must trust the audits and systems in the analog world.

• 🤔 ZK Snarks only work today if the question is specific. A zero-knowledge proof is a great way to answer a question correctly without revealing the underlying data. The classic example is, "is this person over 18?" The problem with this cryptographic proof is it is very use-case-specific and hard to apply at the scale of something like Ethereum for all possibilities. However, we have a specific use case for proof of solvency. Perhaps this is an idea whose time has come.

Tweets of the week 🕊

That's all, folks. 👋

Remember, if you're enjoying this content, please do tell all your fintech friends to check it out and hit the subscribe button :)

Disclosures: (1) All content and views expressed here are the authors' personal opinions and do not reflect the views of any of their employers or employees. (2) All companies or assets mentioned by the author in which the author has a personal and/or financial interest are denoted with a *