Square & Twitter Web3 plans; Digit neobank sold for $240MM; Ritholtz, WisdomTree, Onramp launch Crypto Index SMA
Lex Sokolin
Managing Partner @Generative Ventures | ex Consensys Chief Economist & CMO | Fintech, AI, Web3
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Short Takes
CRYPTO: Jack Dorsey’s Square changes its name to Block (link?here) and his replacement at Twitter is the leading force behind their push for decentralisation (link?here)
The founder and long-serving CEO of Twitter, Jack Dorsey, has stepped down stating that “the company is ready to move on from its founders.” No more than two days later, his digital-payments company Square unveiled its new name, Block. You know, like “blockchain”.
Square’s core business is a mobile payment service with two main product lines, (1)?Cash App?which allows users to send and receive money peer-to-peer through mobile apps and (2) Square Point-of-Sale which lets merchants process payments via smartphones. It also recently acquired Afterpay (BNPL) and Tidal (music label,?our coverage here), as well as built a crypto team called TBD, which announced a decentralized exchange?concept.
Quite a bit of Square’s revenue comes from retail Bitcoin selling, and Jack has a soft spot for the asset. This can be seen from their recent announcement, where Cash App now fully supports the?Bitcoin Taproot upgrade, which increases the speed of BTC payments through batching multiple transactions together. Bundling decentralized finance into the retail distribution of the company is a compelling strategic move. All this tells us where Square is going, having to compete with?PayPal/Venmo?and its Paxos rails.?
Next, enter Parag Argwal, the new CEO — and formerly CTO — of Twitter. Most notably Argwal was involved with Twitter’s Web3 project Bluesky, which aims to create a decentralised protocol for social media. The first initiative is implementation of a Bitcoin-based tipping service which utilises the layer 2?Lightning Network.
Arcane Research’s?The State of the Lightning?report states that the capacity of the Lightning network increased by 181% between January 1 and September 30 this year. The future expansion of the network can be driven by the 192 million active Twitter users. The report estimates that by 2030 there will be more than 700 million people using the layer 2 instant payment protocol.
The second initiative is the exploration of using NFTs for authentication, and therefore identity. Should Argwal decide to accelerate the aforementioned projects, Twitter would transform from a social network into a financial and identity default across the web. A reminder that Square/Block has other big tech competition -?Facebook also recently pulled off a name to change to Meta?as it looks to envelop itself in Web3 and?Stripe is also becoming a crypto company.
Neobanking platform Digit has been acquired by Oportun in a $238 million deal, which includes $114 million in cash and $99 million in equity. Digit was founded in 2013 and has since grown its offering to include automated savings, investing, and banking tools. Most notably, their personalised, automated savings app created in 2015 helped customers save over $7 billion and pay off $300 million in debt.
The acquirer, Oportun, is a consumer loan and credit fintech that has been operating since 2005, with 2 million customers served and $11 billion disbursed. It is public, runs at $600 million in revenue per year, and trades for about 1x at $600 million in market capitalization.
In a sense, this acquisition is the B2C fintech bundling thesis played out yet again. By coupling their own services with Digit’s distribution, Oportun will be able to offer one of the more complete neobank platforms on the market. The joint capabilities will include a lending platform (Oportun), a credit card for customers without a credit score (Oportun), a digital bank with inbuilt and automated budgeting capabilities (Digit), automated savings and investing features (Digit), and an AI-driven mobile-first consumer platform (Digit). The combined company has over 1.4 million members, of which 600k come from Digit — see the?investor relations deck here.
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For context, 73% of Americans rank finances as the biggest stress in their life, and two thirds of American’s were deemed to be financially unhealthy in the?2021 Financial Health pulse. People still need a financial tech wrapper.
As for this deal, a couple of takeaways. Like in the case of OnDeck/Enova, we see the power of being a public company and having access to liquid capital markets. Digit was an early Acorns competitor, but instead of having a?$2.2B SPAC exit, it sold for $240MM on $40MM in ARR, a 6x multiple. FT Partners is a great fintech investment bank, so that suggests the sale is a fair price, which in turn suggests not a ton of value creation despite a large user footprint. Perhaps it’s the competition, or shareholder structure and burnout, or the need for scale in a market with endless fintech unicorns. But looks like a well priced deal for Oportun, which is a cashflow generating machine given its lending business model, now diversified into a number of hot sectors.
DIGITAL WEALTH: Ritholtz Wealth Management and WisdomTree Collaborate to Launch Innovative and Diversified Crypto Index?(link?here)
Onramp Invest, Ritholtz Wealth Management, Gemini, and WisdomTree have teamed up to launch the RWM WisdomTree Crypto Index and structure it as a separately managed account for Registered Investment Advisors.
The index provides diversified exposure to cryptoassets, broken down as follows — 36% Bitcoin, 20% ETH, and 4% to each of the other 11 cryptoassets highlighted in the table below. The constituents were chosen to provide full coverage across segments that either provide necessary services or advance crypto infrastructure. The index weightings will be adjusted according to market movements and exposures will be reviewed regularly.
This is the latest in a string of developments for institutional access, revealing growing consumer demand and institutional buy-in. In this structure, Gemini serves as the trading platform and custodian, and Onramp will supply the SMA architecture, rebalancing technology, and customer support for financial advisors to invest in the Index on behalf of their clients.
That approach is fundamentally different from buying a Bitcoin ETF with a bunch of underlying futures contracts, like the one from?ProShares. ETFs are extremely useful for creating broad retail access, because they plug into all the technology used to allocate about $4 trillion of advised US assets. Unfortunately, the SEC has been blocking meaningful progress of crypto ‘40 Act products for years. SMAs are a different approach and a higher fidelity technology, with the power to customize client accounts at scale. The key benefit is holding the actual assets, instead of some strangely priced derivative on a derivative. We are big fans of Onramp, WisdomTree, and Ritholtz for moving this forward.
Rest of the Best
Here are the rest of the updates hitting our radar:
Blueprint Updates
Discussion: What will Stripe do in crypto??(link?here)
How could Stripe crack into the world of crypto and how do stablecoins differ from their payment rails? In this discussion, we explore ways that Stripe — arguably the best American fintech company full-stop, although who would want to mess with Square — could be entering the crypto space. We consider approaches similar to the payment onramps, then discuss the underlying market structure powering those experiences, and highlight more generally the role of gateways relative to protocols. We touch on the role of custodians, banks, and wallets, as well as Square’s attempt, the tbDEX, where KYC/AML comes down to forms of opt-in identity. Finally, we address questions about Circle and USDC, and how stablecoins differ from the rails on which they travel.
Podcast Conversation: Origins of Metamask's 20 million Web3 users, with co-founder Dan Finlay (link?here)
In this conversation, we chat with Daniel Finlay –?a former Apple software developer, co-founder and co-lead developer on MetaMask – a non-custodial Ethereum wallet, allowing users to store Ether and other ERC-20 tokens and make transactions. Further, with the growth of DeFi and NFTs over the past year, MetaMask has increased in prominence as an entry point for novice users. So much so that its user base is now over 20 million monthly active users.
More specifically, we touch on how Dan went from teaching kids to code to having an app rejected by the Apple App Store to MetaMask, the philosophy behind e-government, questioning the role and job of software engineers, how crypto wallets compare to neobanks, and so so much more!
“…And in that definition, Web 3.0 is not just Ethereum. Okay. So, yeah. So, today, where we are today is we are in Ethereum and Ethereum compatible chain wallet. So, for a long time we were really primarily used with Ethereum, but you could connect us to your own blockchain. We've made it easier this year, where websites can suggest users connect to new networks. And we're really continuing in that direction where it's clear that Ethereum's scaling strategy is not to just go faster. It's to enable new additional networks to be built on top of it. And so, to enable those to grow... I'm not here to start putting up my own new gates to keep. I came here from getting rejected from Hollywood and the app store. I'm not trying to re-create the systems that excluded me.”
More? More!
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Chief Product Officer at Orkid Solutions, Inc.
3 年Awesome news Tyrone Ross Jr.!
aligning your finances with your authentic life, founder RLS Wealth, co-founder of The AGC? and founder of PRST?
3 年Appreciate the mention. We need to have you come back and talk to the team again.
Helping businesses gain, retain and keep their customers happy. | E-commerce, CX, Audience Development | Fmr: Warner Music, Sprinklr, 360i Digital, Universal Music, Def Jam, Infinity Broadcasting
3 年Sergio Ruiz Clyde Lee
Once again another great read. On this comment, “Should Argwal decide to accelerate the aforementioned projects, Twitter would transform from a social network into a financial and identity default across the web” Lex Sokolin could that, in a way, possibly compete with MetaMask?
Director at The Field Institute, Director at d-lab, Angel Investor
3 年Barbara Dale-Jones Jarred Britany