Fintech in 2022: CBDCs, Superapps, and Regulation

Regulation is coming, the West’s superapp quest will continue, CBDCs are coming soon, and more fintech predictions for the year.

Fintech will have a tough time topping 2021 (which might be a good thing—the world doesn’t need a repeat of the Robinhood-enabled Gamestop Götterdämerung, or Better.com’s CEO accusing hundreds of employees he Zoom-fired of “stealing” from the company). Private investment in fintech is likely to retreat slightly, at least in the US and China, although investment in crypto-related startups will almost certainly increase. The bloom is off the SPAC rose a little, meaning some large fintech companies will stay away from the public markets in 2022.

On a more detailed level, here are some fintech predictions for 2022:

Regulation is coming, on a variety of fronts.

The biggest development is India’s still-in-proposal-phase threat to ban cryptocurrency. As we noted in December, Modi’s government is displaying a lack of resolve: dates for submitting the bill have come and gone, and various leaks about draft revisions keep cropping up. India’s main securities regulator had approved in November an ETF offering exposure to global blockchain technologies, but then hit the brake, lest the fund contradict whatever rules are supposedly coming. The vacillation is not that hard to understand; there are an estimated 15 million holders of cryptocurrency in India, and the government knows from previous attempted bans that compliance is hard to achieve. FIN expects that some kind of bill will pass this year, but that it will either be short of a full ban or be rescinded once India gets its own central bank digital currency (CBDC); a pilot program may launch as early as this year (more about this below).

In the UK, greater scrutiny of Buy Now, Pay Later (BNPL) schemes seems nearly certain this year. In October, the Treasury began a consultation period on proposed BNPL regulations, particularly around educating consumers and preventing excessive debt; that period ends on January 6. Similar measures may be adapted in Australia and the European Union, although possibly not in 2022.

US regulators should begin tackling several issues this year, notably stablecoin. Even if Fed chair Jerome Powell and Treasury Secretary Janet Yellen can’t yet agree on the form that stablecoin regulation should take, the US government broadly agrees that the meteoric rise in the use of dollar-denominated stablecoin presents a genuine risk to the stability of the financial system. Look for legislation on this issue to be introduced in 2022; whether a bill can actually pass and have an impact is a separate question.

Aside from occasional enforcement actions, US regulation of cryptocurrency has been at a standstill for several years, in part because Congress has failed to take up the issue in any meaningful way. Senator Cynthia Lummis (R-WY) wants to change that, and has pledged a comprehensive bill that would spell out clearly the qualifications for different asset classes and create a crypto-specific regulatory agency. It’s far from guaranteed to become law, but it should generate some productive debate.

The West’s superapp quest will continue, perhaps pointlessly.

There are several drivers of fintech consolidation, but one of the strongest is the race to create a superapp—that is, the overarching, one-stop app in which consumers not only make payments but also buy stock and crypto, book car rides, order food delivered, etc. While WeChat and Weibo enjoy this status in China, during 2021 FIN (see item #2) has become increasingly pessimistic that a genuinely transformative Western superapp can be built simply by bolting handy services onto an already successful product. That won’t stop many from trying, although Facebook and Google seem sufficiently chastened by recent misfires to sit out for a little while (although if Amazon were to make a major move in 2022, particularly outside the US, it would grab our attention). In the meantime, look for fintech giants like PayPal and Square (now Block) to acquire specialty companies in an attempt to boost their superapp standing.

DeFi will eat further into mainstream fintech.

For all of the hype in the second half of 2021, Decentralized Autonomous Organizations (DAOs) are truly in their infancy. Most American states, for example, don’t even recognize DAOs as companies (by contrast, Singapore and Switzerland actively court DAOs and other blockchain companies). As DAO interfaces become more user-friendly, a small but growing group of consumers will adopt DAOs, which in turn will put pressure on traditional financial services and neobanks to compete. will move more toward the mainstream in 2022.

CBDCs are coming soon…or kinda here?

As FIN predicted a year ago (see #5), China’s digital yuan has continued to expand, if somewhat more quietly than anticipated. If you believe Chinese state sources,

more than 140 million personal digital wallets for e-CNY have been created and another 10 million company digital wallets were opened as of Oct 22. More than 150 million transactions have been made via digital wallets, with the total transaction value approaching 62 billion yuan ($9.73 billion).

Even if those statistics are twice as high as reality, the number of people with digital yuan accounts is already larger than the adult population of the vast majority of countries on Earth. The digital yuan will clearly grow in 2022.

India, as noted above, may not be too far behind; a government report issued this week called CBDC “a safe, robust and convenient alternative to physical cash.”

This week, the Mexican government tweeted out its plans for a pilot program in 2024:

https://twitter.com/GobiernoMX/status/1476376240873517061

The international CBDC movement—for what it’s worth the US is conspicuously years behind—raises what for FIN is perhaps the most fascinating, as-yet-unanswerable question for 2022: When the world’s largest economies have fully operational, widely distributed CBDCs, what will happen to the “private” cryptocurrency market of Bitcoin etc? Will there, for example, still be a need for dollar-denominated stablecoin like USDC? Will there be a bifurcated market in which authorized CBDCs are used for payments, while Bitcoin and other coins are still attractive as speculative assets, or illegal activity? 2022 might be the year that we figure this out. Tell the FIN community what you think in a comment.

This piece originally appeared in FIN, James Ledbetter’s fintech newsletter. Ledbetter is Chief Content Officer of Clarim Media, which owns Techonomy.

Related Posts
See All

Can Democracies Truly Ban Crypto?

Regulation is coming, the West's superapp quest will continue, CBDCs are coming soon, and more fintech predictions for the year.

The Future of Crypto Politics

Regulation is coming, the West's superapp quest will continue, CBDCs are coming soon, and more fintech predictions for the year.

Elizabeth Warren’s Bitcoin Climate Crusade

Regulation is coming, the West's superapp quest will continue, CBDCs are coming soon, and more fintech predictions for the year.

Venture Capital Admits It’s Obsolete. Now What?

Regulation is coming, the West's superapp quest will continue, CBDCs are coming soon, and more fintech predictions for the year.

The Future of Crypto Politics

45 percent of Democrats and 58 percent of Republicans don’t know or have no opinion on cryptocurrency regulation. But that picture may change as crypto companies with important policy issues at stake become bigger players in the political arena.

In September, after watching nonresponses to disingenuous Senate questions, FIN wrote:

a Congressional hearing is typically a poor venue for gaining insight into the American financial regulatory system. Even when the events are not contentious, they can seem like experiments to concoct a maximum number of ways for people to talk past one another.

Those remain reliable watchwords, but a recent House Financial Services Committee hearing on cryptocurrency showed that it doesn’t always have to be an exercise in bad faith. The four-plus-hour hearing, with several crypto executives as witnesses, was almost entirely civil in tone—if anything, some of the witnesses could have been grilled much harder—and touched on a wide range of subjects in ways that were genuinely edifying. We’ll get to a broader, arguably troubling theme in a moment, but it’s worth cataloguing several legitimate policy issues aired during the hearing.

At what point should we be concerned about the possibility of a bubble? With the massive growth of cryptocurrency, this question from Al Green (D-TX) seemed pretty relevant. Brian Brooks, the CEO of Bitfury and the former acting Comptroller of the Currency, provided a solid, if not bulletproof, answer: crypto volatility stems a lot from being a relatively new and thinly traded market. Much of what provides stability in, say, equities markets is an ecosystem that provides a lot of price discovery: mutual funds, futures, derivatives, etc. He also claimed that some 80% of Bitcoin holders, for example, have never sold any of their holdings, and therefore days or weeks when Bitcoin tumbles can often be attributed to a very small number of people (even one) selling. Therefore, he argued, what the crypto market needs is more liquidity and price discovery, not less.

What effect will the growth of crypto have on community banks and minority-owned depositary institutions? This question from Greg Meeks (D-NY) turned into a bit of a commercial for Circle Impact, an ambitious initiative announced last month by Circle, which operates USDC, the second-largest dollar-denominated stablecoin. Circle CEO Jeremy Allaire explained that because Circle isn’t a lending institution, it intends over time to allocate billions of dollars worth of USDC to minority-owned and community lenders, to shore up their balance sheets and, ideally, create more capital for underbanked communities. The program has yet to get off the ground, but using crypto to enhance financial inclusion is an area where Congress can at least theoretically play a useful role.

Does cryptocurrency represent a threat to the dollar’s status as the world’s reserve currency? This concern came from Blaine Luetkemeyer (R-MO), and presents a tricky challenge to the way that a lot of people think about crypto. That is, US crypto advocates talk about the need for monetary innovation, and the need to keep that innovation inside the US, not drive it abroad. But if the US dollar—even in a future digital form—has to compete in a global marketplace on the basis of its features (as opposed to the hegemonic status that Bretton Woods conferred upon it), then there is no guarantee that it will beat Bitcoin, or the digital yuan, or some currency that hasn’t been invented yet.

Brooks, at a minimum, has thought about the question. “I’ve said for a long time that the secular reduction in dollar holdings as a percentage of global central bank holdings is alarming,” he said. Actual solutions, however, seemed in short supply.

Should stablecoins, until future legislation might deem otherwise, be regulated as commodities? Sean Casten (D-IL), referring to the federal government’s recent report on stablecoins, asked this, noting that the legal protections to make stablecoins behave like a currency are not now in place. Allaire gave a reasonably plausible “no” answer, pointing to a number of existing regulatory requirements that treat USDC the same way that cash transactions on Square or PayPal are handled.

Largely absent from the hearing was the kind of swashbuckling, Muskian sneering at the very idea of regulation. Indeed, FTX CEO Sam Bankman-Fried said explicitly that there were certain consumer protections around crypto trading that he would welcome, and that would benefit the crypto industry.

Despite such comity, the hearing did surface a burgeoning theme of conflict. Ranking member Patrick McHenry (R-NC) alluded to it in his opening statement: “My fear is that we’ll have a partisan divide.” Some Democrats, he said, may already have made up their minds about crypto, and intend to file regulatory laws that will stifle or kill crypto innovation in the US. A cynic might point out that McHenry may actually welcome such a divide; at least since the middle of the year, there has been a palpable sense in some public settings that Republicans want to champion and enable the cryptocurrency ecosystem, while Democrats want to attack it, or at a minimum regulate and tax it.

An opinion piece this weekend on the Decrypt site used the headline “Democrats Are Blowing the Bitcoin Vote.” It argued:

Republicans are becoming the party of crypto, while Democrats are earning a reputation as anti-crypto….This is a terrible mistake….Why are Democrats opposed to crypto? Their hostility may be rooted in the libertarian leanings of many early crypto adopters, few of whom are inclined to support a party associated with big government. What they’re missing is that Bitcoiners will happily support any politician who supports Bitcoin, no matter how flawed, from Nayib Bukele to Ted Cruz.

There are some questionable assumptions here, such as the idea that “the Bitcoin vote” represents in any given non-national election a sufficient, freestanding constituency of any importance. It does seem to be the case, at least for now, that crypto owners have no automatic party allegiance. A Morning Consult poll released this week found that “61 percent of crypto owners say they voted for Biden last year, compared to 32 percent who say they voted for former President Donald Trump.”

And neither is it clear that regulation is an especially partisan issue: “Notably, 45 percent of Democrats and 58 percent of Republicans didn’t know or had no opinion on the amount of cryptocurrency regulation.”

But that picture may change as crypto companies become bigger players in the political arena. Especially this summer when it emerged that the proposed (and now passed) infrastructure law targeted crypto brokers, the crypto industry has frantically increased the amount of time and money it spends on federal lobbying:

Membership has risen from 28 firms to 65 since January 1. Meanwhile, the 2020 budget that was just shy of $2 million has gone up to nearly $8 million, according to executive director Kristin Smith and the association’s most recently filed 990 forms. Among the most recent members are Solana Labs, Republic, Dapper Labs, Tacen and Messari. 

Here’s a safe bet: with Congressional elections coming next year, that $8 million figure is going to balloon. Indeed, with all of the cyberwealth looming around the cryptocurrency industry, it is increasingly likely that individual members of Congress will raise substantial piles of campaign cash from crypto firms.

Cynthia Lummis may be a small indicator of what the future looks like. Elected last year as the junior senator from Wyoming, Republican Lummis has developed a reputation as a crypto advocate. Keeping in mind that Wyoming campaign spending is relatively small and that Lummis doesn’t face re-election until 2026, it’s still interesting to note who is donating to her campaign. A recent investigation by The Block (behind a paywall) found that a majority of the individuals who have donated to Lummis’s campaign work for firms that The Block deems either “crypto native” (such as the CEO of Kraken) or “crypto adjacent.” The crypto industry has lots of money to spend, and important policy issues at stake; look for more Lummis scenarios in next year’s elections.

This piece originally appeared in FIN, James Ledbetter’s fintech newsletter. Ledbetter is Chief Content Officer of Clarim Media, which owns Techonomy.

Related Posts
See All

Elizabeth Warren’s Bitcoin Climate Crusade

45 percent of Democrats and 58 percent of Republicans don’t know or have no opinion on cryptocurrency regulation. But that picture may change as crypto companies with important policy issues at stake become bigger players...

The Senate’s Crypto Theater

45 percent of Democrats and 58 percent of Republicans don’t know or have no opinion on cryptocurrency regulation. But that picture may change as crypto companies with important policy issues at stake become bigger players...

The US Senate’s Sneaky Crypto Move

45 percent of Democrats and 58 percent of Republicans don’t know or have no opinion on cryptocurrency regulation. But that picture may change as crypto companies with important policy issues at stake become bigger players...

Does the SEC Have a “Crypto Mom” Problem?

45 percent of Democrats and 58 percent of Republicans don’t know or have no opinion on cryptocurrency regulation. But that picture may change as crypto companies with important policy issues at stake become bigger players...

Like Taking Candy from Babies: Grownups in the Metaverse

I see caution flags about how kids will be catered to in this new world everywhere. Now that we’re all big babies in the metaverse, it’s time to make sure we’re minding the real babies with a lot more intention.

This summer, my colleague David Kleeman explained how kids kickstarted the metaverse. The habits and practices that go along with metaversal life are already spawning a mosh pit of ideas about digital ownership, like a recognition of the value of digital accessories as well as, of course, in-game currencies.

Now we’re seeing strange phenomena. Instead of kids wanting to age up (like in the old days when most readers of Seventeen magazine were actually thirteen, for example)  we’re seeing older folks (myself included) aging down, trying desperately to make friends in Roblox, grok Discord, and pass themselves off as anything but newbies in VR Chat. (Accompanying soundtrack: Neil Young singing “You can be twenty on Sugar Mountain.”).

Thanks to the behavior of babes, we’re seeing the formation of a new Internet, based on their patterns of online play.  That raises the dander of long-time children’s internet safety activists like Parry Aftab, an attorney. In an email, she writes, “The time to start thinking about human risks and cyber safety is before the first code is written. Surveys and audits must be designed and conducted to anticipate human risks and apply ways to address them.” Role-playing and virtual reality worlds and identities aren’t new, she reminds me. And neither are the risks associated with their use and misuse. Her Cybersafety Group is working to codify appropriate guardrails for metaverse systems.

Stephen Balkam, founder and CEO of the well-respected Family Online Safety Institute,  also likens these early metaverse days to the early web and the onset of social media. “This new platform that incorporates VR and AR is not being built with kids and safety in mind.  Meta and the many other players in this space will need to incorporate the thinking and expertise of a wide range of child safety experts, psychologists, educators and ordinary parents as they build out this next great iteration of the Internet.”

Many early metaverses (Second Life being the exception) were born with a focus on kids.  Minecraft was created in 2009, bought by Microsoft in 2019, and morphed into a collaborative immersive play space. Roblox appeared slightly earlier, beginning its life as a kid’s playground where you earned in-game currency called Robux. Players can now buy, sell, and create virtual items to decorate their virtual characters on the platform. A few enterprising Roblox kids moved beyond spectators, designing their own games and items for sale. The interesting thing about Roblox’s monetization model is that all kids can roam around freely, but only Premium members and able to build and sell things.

Roblox may be the shining star, but there is no shortage of earlier games that groomed kids for today’s online avatar-based collaborative adventures.  Communities like Neopets and Club Penguin (which was discontinued in 2017) informed many of today’s online rambles.

Here’s the generational rub. After going public in March, Roblox has its eyes on the next prize — an older audience. New advertisers like Vans and Gucci are building their own Roblox worlds on the site. Recent Roblox concerts included Twenty One Pilots and Lil Nas (watch and listen at those links). Roblox executives like Tami Bhaumik, who I spoke with, are touting the move to serve an older audience, saying that they’re following its users. And they’re succeeding. According to AdWeek, the company recently reported that it has as many users over age 13 as under it, and revenues are growing commensurately.

Visions of COPA

Why move away from the kids audience? Because we have a body of laws that governs how media (including TV and online) can interact with and market to kids.  In 1998, Congress enacted the Children’s Online Privacy and Protection Act (COPPA) to give the FTC power to enforce safety guidelines for websites with children under the age of 13 as their audience. The list of responsibilities includes parental permissions, no data collection, and restrictions on inappropriate marketing. What upshot?  Some of the bigger sites for kids, like Disney, Sesame Street, Nick, and YouTube, for example, invested in ways to obtain parental permissions and became COPPA compliant.  But thousands of other software creators (CDs, DVDs, and apps were very prevalent at that time)  were forced to either shutter or stop servicing kids under 13. The unintended consequence of enacting a law to make the Internet safer for kids was to drive companies away from their market because of the expense of compliance.

Today COPPA is woefully out of date, with nary a word about avatars or in-game currency. History repeats itself. In-game currencies like the one on Roblox or digital wallets that hold cryptocurrencies or store non-fungible tokens are the stuff this new Web is made of. In bygone days, a responsible parent would shell out tangible $60 for a tangible DVD or CD game. Today they’d need to open a digital wallet, maybe with some Ethereum or Solana coin to spend, and put their kids on a fixed allowance (one sword or accessory per week?). 

And yet despite the technical hurdles, parents tell me that kids are spending digital currency on digital things. “My 15-year-old doesn’t call it the metaverse. He calls it ‘playing with his friends,’” said William Tustin, principal of Chicken Waffle, an AR/VR company. Dubit, the consultancy and research firm where Kleeman works, is hard at work researching how kids will interact with the metaverse, even conducting focus groups in Roblox (the first one was designed as an elaborate pirate ship, by the way). Kleeman finds there’s been “a huge jump in the number of households subscribing to online games” (up 47% compared to a year ago).

Kleeman sees parents giving more credence to the burgeoning online world, including the metaverse.  “A number of things have happened to make parents more comfortable with kids spending digital dollars,”  he continues. “During the pandemic, families had no choice but to use digital innovations to see movie premieres, when cinemas were closed, or to watch virtual events in virtual games instead of attending attractions and events in-person.” Digital entertainment  ‘tapped’ into the dollars that families used to spend on physical attractions and events. In the future families will weigh the convenience of at-home versus the experience of going to a venue, attraction or event.”  The study also found a generation gap among parents, with young ones who grew up on games being more comfortable with concepts like the metaverse and digital allowance.

I see caution flags about how kids will be catered to in this new world everywhere. A new kids TV series is being created based on the Robotos NFT. AMC theatres are using NFTs to help sell tickets to the new Spiderman movie. There’s even a new magazine focusing on NFTS for and by kids.  

Organizations like Aftab’s Cybersafety Group, Dubit and others like the Futures Commission can play a big role in developing rules of the road for protecting kids in the metaverse. But now that we’re all big babies in the metaverse, it’s time to make sure we’re minding the real babies with a lot more intention.

Related Posts
See All

How the Pandemic Birthed the Metaverse

I see caution flags about how kids will be catered to in this new world everywhere. Now that we’re all big babies in the metaverse, it’s time to make sure we’re minding the real babies...

Kids have Kickstarted the Metaverse

I see caution flags about how kids will be catered to in this new world everywhere. Now that we’re all big babies in the metaverse, it’s time to make sure we’re minding the real babies...

Lilliputians Will Tie Up Gulliver in the Metaverse

I see caution flags about how kids will be catered to in this new world everywhere. Now that we’re all big babies in the metaverse, it’s time to make sure we’re minding the real babies...

What the Moon and the Metaverse Have in Common

I see caution flags about how kids will be catered to in this new world everywhere. Now that we’re all big babies in the metaverse, it’s time to make sure we’re minding the real babies...

Water & Climate: Wicked Problem Meets Threat Multiplier

Water insecurity due to climate change has the potential to uproot nearly every aspect of modern society: food production, urban and rural settlements, energy production, industrial development, economic growth, and natural ecosystems.

Water and climate change are wicked problems, independently and jointly. In a 1973 article in Policy Sciences, Horst W. J. Rittel and Marvin M. Webber introduced the idea of a “wicked problem,” a social policy dilemma that has no definitive scientific solution and is intertwined with other problems.

Where the two wicked problems of water and climate change overlap, climate change is a threat multiplier.

While water security and climate change have often been treated as separate problems, in reality they are inextricably linked.  As the impacts of climate change increase, so do the stressors that decrease water security.  A thoughtful evaluation of where these two wicked problems intersect will help guide the public sector, private sector, non-governmental organizations, and civil society towards enduring solutions.

The Wicked Problem of Water

Historically, water issues have not only plagued societies, but in some cases, brought them down. It’s not always drinking water but water as an agricultural issue, too (think: no food = no society). Today, a great number of regions and countries face issues of either excess water or aridification. Water quality and pollution issues are also often at play, adding another complicating element. In turn, agro issues are also intensified.

Drinking water is just part of a bigger set of problems. Economic prosperity itself is also hindered by problems with natural ecosystems, flooding, poor water quality, and inequitable access to water.

These water challenges can, in part or in entirety, be attributed to poor governance and public policy. Other contributing factors include aging water infrastructure and underinvestment, slow adoption of innovative technologies, and the gross undervaluation of water.

For millions of people globally who live without running water, accessing drinkable water also entails increased personal security risks, primarily for women and children.  Climate change creates additional pressures on often already tenuous situations. In other words, it amplifies and multiplies existing threats.

Climate + Water = Instability

In addition to the impacts of climate change and water instability on human health, the two are also increasing natural disasters and affecting food security, power production (e.g., thermoelectric power generation), business continuity and growth, and social well-being. Increased water insecurity due to the impacts of climate change has the potential to uproot nearly every aspect of modern society if left unchecked: urban and rural settlements, energy production, industrial development, economic growth, and natural ecosystems.

Stakeholders that are associated with all those issues have specific needs for amounts and quality of water. These needs are essential to how we regulate water systems and deeply affect the decision-making processes behind that regulation. But the needs of various stakeholders often conflict. And the majority of the world’s water systems are in some way threatened. (Only 23 percent of the world’s longest rivers (over 1,000 miles long) flow to the ocean uninterrupted.)

Consider a regulated reservoir with hydropower stations located along an upstream river, with agricultural fields located downstream (a very common situation). This reservoir is regulated with specific rules based on past water-related conditions, but climate change is changing these historical conditions. If water availability is reduced, the hydropower station would like to keep more water upstream to maintain a stable power production, but farmers downstream want more water to maintain crop production.

In addition, other stakeholders such as citizens, businesses, and natural ecosystems rely on surface water resources and its tributaries, and each one has their own interests and needs. Therefore, climate change has the potential to exacerbate water-related issues: it can increase the intensity and length of conflicts, increase poverty, increase food deserts, and disrupt access to education and knowledge.

Who solves wicked water and climate problems?

Wicked problems like those related to water and climate change rarely sit conveniently within the responsibility of any one organization. Yet everyone from individuals through multinational corporations and governments has a role to play in solving them. Solving such wicked problems begins with individuals understanding how their choices impact water and climate, and changing how they behave. Then those changes must typically be incorporated by numerous associated stakeholder groups.

All stakeholders need to engage, and be engaged, in solving wicked problems, because different organizations have different relative strengths. For example, entrepreneurs have speed and focus but not size and scale, while the public sector has size and scale but less speed and focus. All other stakeholders sit between these two extremes. Businesses, depending on their sector and company strategy and culture, can be a bridge between the entrepreneurial and public sectors.

The question of who solves wicked problems is illustrated in the below illustration (adapted from XGENESIS).

The way forward

The intersection between climate change and water is complicated. To address it, we need to solve multiple problems. These include, but are not limited to, water scarcity, increased flooding, quality and lack of access, climate impacts, and the intersection of the two. There are no simple answers, but clarity about the root causes of these problems is necessary if we are to begin to achieve an equitable, secure, and resilient future.

Related Posts
See All

A Roadmap to AI and Digital Transformation in Water (or Elsewhere)

Water insecurity due to climate change has the potential to uproot nearly every aspect of modern society: food production, urban and rural settlements, energy production, industrial development, economic growth, and natural ecosystems.

Tech and Innovation Offer Promise for the World’s Most Water-Challenged Regions

Water insecurity due to climate change has the potential to uproot nearly every aspect of modern society: food production, urban and rural settlements, energy production, industrial development, economic growth, and natural ecosystems.

The Role of the Business in Solving “Wicked Problems”

Water insecurity due to climate change has the potential to uproot nearly every aspect of modern society: food production, urban and rural settlements, energy production, industrial development, economic growth, and natural ecosystems.

Water is Critical for Business, and AI is Critical in Managing It

Water insecurity due to climate change has the potential to uproot nearly every aspect of modern society: food production, urban and rural settlements, energy production, industrial development, economic growth, and natural ecosystems.

The Would-Be Banking Regulator Who Wants to Eliminate Banks

This week, Biden surprised a lot of people by nominating Saule Omarova to head the Office of the Comptroller of the Currency.  Could her proposal for a “people’s ledger” eliminate banking as we’ve historically understood it?

This piece originally appeared in FIN, James Ledbetter’s fintech newsletter.

Perhaps we were not paying the closest attention—shouldn’t-this-have-happened-months-ago?—to who would be nominated to head the Office of the Comptroller of the Currency (OCC), that backwater financial regulator that is part of Treasury and is impervious to reform because its statutory empowerment dates to the Civil War. The last we had dialed in, there was a pundit battle about whether President Biden would or should nominate former Treasury official Michael Barr versus Mehrsa Baradan, who is, among other things, the author of the vital book The Color of Money.

This week, Biden surprised a lot of people by nominating Saule Omarova, a singularly fascinating figure who is: a Cornell Law Professor; an accomplished scholar with a radical critique of the American financial system; a former lawyer at the white-shoe firm Davis Polk; and a former Treasury official in the George W. Bush Administration. Oh, and she was born in what is now Kazakhstan and was educated in Moscow.

Omarova as OCC chief would be a trifecta of identity politics: the first woman, the first person of color, the first person born outside the United States to grace the OCC throne. In the fintech and crypto worlds, however, people are freaking out. “Omarova is another Gary Gensler and possibly worse,” tweeted one crypto commentator. Reuters’ Breakingviews labeled her “a dubious choice.”

Why all the fear? Well, there is her proposal for a “people’s ledger” which does seem like it would eliminate banking as we’ve historically understood it. Omarova’s point of view about fintech and cryptocurrency might seem at first blush ludicrously broad, but it reflects a wariness about the stability of the overall financial system, clearly an overhang from the 2008 economic breakdown and ensuing Great Recession. Her perspective contrasts notably with most of SEC chief Gary Gensler’s public comments about crypto, which tend to focus on investor protection. Omarova is concerned that fintech and cryptocurrency accelerate already-existing threats to what she calls the “New Deal” framework of financial regulation, and indeed to the economy as a whole.

Her “New Deal” frame can be inadequately summarized like this: Forged in a crucible of global economic meltdown, the New Deal’s approach to financial markets was to strike a balance between market activity—consigned almost exclusively to the private sector—and public-sector responsibility for market stability (including backstops of last resort), and consumer protection (such as FDIC deposit guarantees) that propped the whole thing up. This structure, while fragile, was able to propel the US economy through the strife of the Depression and World War II to a period where sustained prosperity was at least theoretically possible.

The model, though, has been breaking down for decades (she doesn’t say so, but FIN would argue the 1971 closing of the gold window and subsequent breakdown of Bretton Woods was the first knockout blow). Omarova fear about systemic stability focuses more on developments in the ‘80s and ‘90s, emphasizing the development of derivatives and other ways of “synthesizing assets.” In her her 2019 paper in the Yale Journal on Regulation, Omarova categorizes the aspects of new financial products that made the system more unstable: pooling, layering, acceleration, and compression.

So: this is the lens through which Omarova views cryptocurrency and the blockchain. Almost everything that crypto advocates tout as a revolutionary breakthrough—more efficient transactions! decentralization!—she sees as a potential threat to global financial stability. Here is a crucial passage from testimony she delivered to the Senate in 2018:

If [blockchain technology] succeeds in making wholesale payments, clearing, and settlement instantaneous, easy, and cheap, it will enable potentially exponential growth in the volume and velocity of trading in securities and other financial assets. To put it simply, in a fully frictionless world of blockchain-powered transaction processing, overtly speculative trading will also be faster, easier, cheaper, and thus more voluminous.

It’s not quite Mo Money, Mo Problems, but it’s close.

How much, though, would Omarova’s academic opinions truly matter in a regulatory position that’s both modest and constrained? It’s important to remember that the OCC has effectively no jurisdiction over any important cryptocurrency producer or exchange. It’s also entirely possible that the Senate won’t approve Omarova’s nomination, although her Bush administration history might earn her some cred with a Senate Republican or two.

It would be dim-witted, though, for the fintech or crypto community to celebrate a shootdown of Omarova’s nomination as a meaningful victory. The day of reckoning between crypto/blockchain and the state is coming. It could be entirely authoritarian; China this week officially declared all cryptocurrency activity illegal. It could be more constructive; also this week, Britain’s Financial Control Authority announced it would work with the Bank of England to use blockchain technology to speed up regulatory reporting. Most likely it will be a mixed bag, but the path will be easier through thoughtful, experienced regulators like Omarova; instead of reflexive opposition, the fintech and crypto worlds should look for ways to engage her.

This piece originally appeared in FIN, James Ledbetter’s fintech newsletter. Ledbetter is Chief Content Officer of Clarim Media, which owns Techonomy.

Related Posts
See All

The Senate’s Crypto Theater

This week, Biden surprised a lot of people by nominating Saule Omarova to head the Office of the Comptroller of the Currency.  Could her proposal for a “people’s ledger” eliminate banking as we’ve historically understood it?

Does the SEC Have a “Crypto Mom” Problem?

This week, Biden surprised a lot of people by nominating Saule Omarova to head the Office of the Comptroller of the Currency.  Could her proposal for a “people’s ledger” eliminate banking as we’ve historically understood it?

Slowly, Biden’s Fintech Approach Emerges

This week, Biden surprised a lot of people by nominating Saule Omarova to head the Office of the Comptroller of the Currency.  Could her proposal for a “people’s ledger” eliminate banking as we’ve historically understood it?

Will Circle Become a Full-Fledged Bank?

This week, Biden surprised a lot of people by nominating Saule Omarova to head the Office of the Comptroller of the Currency.  Could her proposal for a “people’s ledger” eliminate banking as we’ve historically understood it?

Does the SEC Have a “Crypto Mom” Problem?

Commissioner Hester Peirce has been unusually vocal in expressing her opinion that the SEC has failed to articulate clear and consistent rules. But simply saying “there ought to be rules” isn’t adequate in the long run.

This piece originally appeared in FIN, James Ledbetter’s fintech newsletter.

Consider, for a moment, the US Supreme Court, where the value of dissenting opinion is widely understood and praised. After all, given the shift over time in politics and values, today’s dissenting opinion is sometimes, very crucially, tomorrow’s presiding wisdom.

In a different category, arguably, is the small regulatory agency, appointed by the executive branch and approved by Congress but designed to be independent of any given administration or political party. These agencies include the Federal Communications Commission, the Federal Election Commission, and FIN’s subject today, which is the Securities and Exchange Commission (SEC).

Such agencies were designed to avoid partisan domination; in the case of the SEC, there are five commissioners, no more than three of whom can belong to the same political party. Assuming then, that dissent (both partisan and otherwise) is built into the leadership of such agencies, do they operate best if they try to forge consensus? Or should they, like the Court, encourage open dissent as a public service?

Over the last three years, as the SEC (alongside other federal regulators) has issued fintech and cryptocurrency policies in fits and starts, at least one commissioner—Hester M. Peirce, who joined the commission in January 2018—has been unusually vocal and occasionally witty in expressing her opinion that the SEC has failed to articulate clear and consistent rules for companies to follow. Her advocacy for financial sector innovation has earned her the nickname “Crypto Mom.”

SEC Commissioner and “Crypto Mom” Hester M. Peirce

The SEC, both during the Trump years and in the early months of Gary Gensler’s tenure, has issued a handful of decisions that have earned the scorn of many in the fintech and crypto communities. One notable example was denying the Winklevoss-owned Gemini’s request for a Bitcoin-based exchange-traded fund (ETF) in July 2018. Peirce issued a lengthy dissent with 26 footnotes. Not only did Peirce say that the proposal should have been approved, she accused the Commission of “engaging in merit regulation,” that is, the idea that the government prohibits anyone owning a particular security, even if they are willing to take on the risk. She issued a similar dissent when the SEC denied the New York Stock Exchange’s application to allow it to list a Bitcoin-backed ETF. Even when Peirce agrees with a given SEC action, she may well issue a statement indicating her concerns about some aspect of it, as she did this January regarding enforcement against Wireline’s fraud.

Given that she is a Republican hostile to Dodd-Frank and appointed by Trump, it is tempting to pigeonhole Peirce as reflexively pro-finance and anti-regulation. But that’s a mistake. First of all, by design in contemporary America, the SEC is going to have Republican commissioners, and they could be much worse than Peirce. Indeed, Barack Obama first nominated Peirce for the SEC in October 2015, although the nomination was scuttled by Capitol Hill bickering.

And while FIN may have multiple policy and doctrinal disagreements with Peirce, she seems genuinely interested in making the American financial regulatory system work more efficiently and effectively (as opposed to simply wanting to dismantle it). She is a full-on financial nerd; in elementary school her hobby was plotting stock prices.

On individual issues, her views not only have to be reckoned with but are at least partially right. FIN wasn’t around in 2018, but can’t currently see any reason for the SEC to continue to prohibit a Bitcoin- or crypto-based ETF. As we’ve previously noted, Canada and Brazil have already approved Bitcoin-backed ETFs, and billions of dollars have successfully been invested in them. It’s hard to see any remaining technical issues that haven’t been resolved or at least addressed.

The SEC, though, isn’t the Supreme Court, and there’s some reason to think that dissent undermines action. This week, Axios’s Felix Salmon called SEC chief Gensler “the most important financial regulator in the world,” but the Commission is not an autocracy and having Perice constantly bickering in public cannot make his job any easier. Of course, there is little that Biden or Gensler can do with Peirce, given the mandate for Republicans on the Commission and the fact that her appointment isn’t up until 2023.

The problem that the SEC and Peirce are going to run into, and fairly soon, is that simply saying “there ought to be rules” isn’t adequate in the long run. This week, Pierce told Roll Call’s Sarah Wynn: “We’re trying to force those underlying bitcoin markets to look like our securities markets that we’re so familiar with and I just don’t see that as being a requirement under the Exchange Act or a product approval, so that’s the concern that I’ve raised.” OK, but assuming that an unregulated status quo for cryptocurrency isn’t viable, if it isn’t a security, then what is it? (Peirce did not respond to a FIN interview request.)

Peirce’s stances resemble a political party that’s always been in opposition and never had to govern. It is hard to find in Peirce’s many public utterances a vision of a system that would effectively regulate 21st century finance. In 2017, when she worked for George Mason University’s Mercatus Center, Peirce and two colleagues issued a response to a call for comment from the Office of the Comptroller of the Currency on bank charters for fintech startups, in which they wrote:

A regulatory framework for fintech companies should not focus on the survival of any individual company, but on keeping barriers to entry low and ensuring that firms have workable and effective plans in place to protect their customers in event of failure.

It’s an appealing juxtaposition, but it’s entirely unclear what framework Peirce and her colleagues were referring to here, nor what relationship the idea bears to actually existing fintech failures. The Wirecard fiasco might be an extreme example, but how exactly would regulators ensure customer protection without requiring the kind of registration and oversight that Peirce opposes?

In an ideal world, Gensler and his allies would work with Peirce to find some kind of regulatory compromise. And maybe the SEC is looking for some face-saving way to finally say yes to a Bitcoin-backed ETF. Most likely, though, the future is going to see a lot more Crypto Mom dissents.

This piece originally appeared in FIN, James Ledbetter’s fintech newsletter. Ledbetter is Chief Content Officer of Clarim Media, which owns Techonomy.

Related Posts
See All

The US Senate’s Sneaky Crypto Move

Commissioner Hester Peirce has been unusually vocal in expressing her opinion that the SEC has failed to articulate clear and consistent rules. But simply saying “there ought to be rules” isn’t adequate in the long...

Stablecoin Regulation Is Coming Soon. But What Will It Look Like? (Part I)

Commissioner Hester Peirce has been unusually vocal in expressing her opinion that the SEC has failed to articulate clear and consistent rules. But simply saying “there ought to be rules” isn’t adequate in the long...

Fintech Shows Its Green Side

Commissioner Hester Peirce has been unusually vocal in expressing her opinion that the SEC has failed to articulate clear and consistent rules. But simply saying “there ought to be rules” isn’t adequate in the long...

Who’s Curating the Show?

Commissioner Hester Peirce has been unusually vocal in expressing her opinion that the SEC has failed to articulate clear and consistent rules. But simply saying “there ought to be rules” isn’t adequate in the long...

Spiritual Opium: China Limits Kids’ Online Gaming Time

Chinese officials unveiled tough new limits on the amount of time its young people can spend playing video games, calling them “opium for the mind.“  Let the experiment begin.

It’s been said that to really understand China you need to understand the Opium Wars. China lost face and power as the British and other foreigners sought unfettered access to its trade goods.

Somehow it’s fitting that this week Chinese party officials unveiled tough new limits on the amount of time its young people can spend playing online games. A state-owned media outlet published a piece that called video games “opium for the mind.“  (The statement caused stock prices of Chinese gaming companies like Tencent to plummet and the comment was removed shortly after it was released.) Elsewhere, the state-run Xinhua News Agency described the new online gaming rules as an effort to “protect the physical and mental health of minors”.

The ban may seem draconian, but honestly it’s the kind of intervention even many American parents secretly dream about. It applies to online gaming only (gaming consoles and playing alone are harder to regulate). Under the new regulation, online video game play for people under 18 is limited to three evening hours only on weekends and public holidays. No gaming is allowed during the school week. Online gaming companies must connect to an “antiaddiction” system operated by the government that will require users to register using their real names.

Adam Naijberg, Head of Communications for Tencent Games, offered me this somewhat generic, but important statement indicating that the company will help enforce the national mandate:  “Since 2017, Tencent has explored and applied various new technologies and functions for the protection of minors. That will continue, as Tencent strictly abides by and actively implements the latest requirements from Chinese authorities.” Najerg also says that kids make up a very small portion of its overall audience. “During the second quarter of 2021, players aged under 16 accounted for 2.6% of our China game grossing receipts. Among which, players aged under 12 accounted for 0.3%,” he told me over a messaging thread.

There’s no doubt China has been aggressive and masterful at inserting itself into the private lives and private enterprises of its country. Many say this is a continuation of President Xi Jinping’s move to reassert control over the economy. Others say it is a continuation of earlier moves this month to curb Chinese youth’s growing preoccupation with fandom. I spoke to a young colleague I’ve worked with in China, who confirmed that “it’s not only gaming, but the whole tech industry in China that is experiencing unfavorable policies at the moment.” She added that EdTech and gaming are the most outstanding examples right now, because Chinese are both strident and risk-averse in their approach to education.

Are Video Games Good for Kids?

Politics aside, this is a fascinating setup for an experiment on the detrimental or beneficial effects of video gaming with worldwide implications. There’s plenty of fuel to feed either side of the debate about how bad they are, from academicians, social scientists, parents, and educators. Scholars, says Chris Ferguson in this New York Daily News piece on the Chinese ban, are split on whether video game addiction “is real or just a moral panic.“ Pew Research suggests that American parents are equally concerned about their kids’ screen time and online gaming, with two-thirds of them saying screens make child-rearing more difficult.

Scientists have extensively examined the neuropsychological effects of playing games. Dopamine and serotonin give players a sort of high (and craving) as they play, similar to other thrilling or addicting behaviors. The good news is that your brain grows healthier and you feel good while it’s stimulated and engaged. The bad news is that you develop cravings for more of something that makes you feel that good. Research into the adolescent brain indicates that their neurotransmital systems are not fully developed yet, so their reactions to dopamine may be intensified (hence adolescent risk-taking behaviors). Here’s a good book on the subject.

Are Video Games Essential Learning Tools

Underlying the debate about kids screen time is the equally important discussion of what skills students will need to be prepared for today’s online, global and digital-first economy. In its Portrait of a Graduate (pictured above), the Battelle for Kids, a not-for-profit, forward-thinking educational reform group talks about the skills required for a 21st-century job market.  Many of those skills — collaboration, critical thinking outside the box, problem-solving are precisely the kinds of skills that online video games foster.

Susanna Pollack, President of Games For Change, a well respected organization for empowering gaming creators, says “China’s decision to restrict video game play for kids under 18 is at odds with decades worth of research around video games, youth development, and learning, as well as recent trends in educational gaming. It’s no surprise that during the COVID-19 crisis, teachers have increasingly been using popular games like Roblox and Minecraft to support the transition to remote learning and teach important skills and concepts. Video games, regardless of whether or not they are purpose-built for the classroom, offer online spaces where students can learn skills that are critical for the 21st century workforce — like collaboration, communication, critical-thinking, and problem-solving.”

Finally, there’s the issue of intrinsic vs. extrinsic control of the use of video games. At what age should a student begin to foster their own internal clock about overuse of online?  Will Chinese regulatory efforts be internalized by kids as they enter adulthood, or will they turn 18 and get drunk on video games once they’re freed from regulation?

Pollack report that “less than 1 percent of video game players exhibit characteristics of addiction, and none of these players experienced any negative outcomes related to addiction, according to a large-scale study published in the American Journal of Psychiatry. By imposing harsh limits to curb video game addiction she says, “China is responding to a problem that may not even exist — and keeping young people away from powerful tools that can set them up for success in the workforce of the future.”

Let the experiment begin.

Related Posts
See All

Niantic Calls the Current Metaverse Dystopian

Chinese officials unveiled tough new limits on the amount of time its young people can spend playing video games, calling them “opium for the mind.“  Let the experiment begin.

Kids have Kickstarted the Metaverse

Chinese officials unveiled tough new limits on the amount of time its young people can spend playing video games, calling them “opium for the mind.“  Let the experiment begin.

Why GameStop Was the Wrong Company to Lionize

Chinese officials unveiled tough new limits on the amount of time its young people can spend playing video games, calling them “opium for the mind.“  Let the experiment begin.

Expert Group Finds Covid Response a “Massive Global Failure”

Chinese officials unveiled tough new limits on the amount of time its young people can spend playing video games, calling them “opium for the mind.“  Let the experiment begin.