#221—The US Treasury, the Fed, and the FDIC take on crypto

Also, the Visa/Mastercard duopoly

Aug 22, 2022

Welcome to Yaka Stuff, our weekly newsletter that covers news, industry perspectives, and updates from the Hard Yaka ecosystem. Check out last week’s report here.

We’re back! I’ve been offline for a couple of weeks so I’m still catching up on things. We’ll keep it short this week:

The Tornado Cash saga
The Fed and the FDIC v. crypto
This week in stablecoins
This week in identity
Ecosystem updates
Worth reading: The Visa/Mastercard duopoly
Stuff happens

1. The Tornado Cash saga

The big news while I was out: A full-court press against crypto-mixing service Tornado Cash, which presents plenty of storylines from regulations to DAOs. Can you sanction smart contracts? Coin Center doesn’t think so. That didn’t stop the Netherlands from arresting one of the project’s developers.

Relevant:

2. The Fed and the FDIC v. crypto

Fed chair Jerome Powell, Photo: Brookings Institution

It’s not just the Treasury. The Fed is stepping up to bat, too. Here’s Decrypt:

The Federal Reserve released formal guidelines this afternoon to oversee the process by which “institutions offering new types of financial products or with novel charters” could be granted so-called “master accounts,” a key financial status that allows for direct payments with, and access to, the Fed. All federally-chartered banks possess a master account.
The Fed’s 49-page ‘Final Guidance’ mentions the word "cryptocurrency" only once, when discussing the sort of novel institutions that may seek master accounts under these guidelines. But the subtext of today’s announcement is inextricably linked to the crypto industry.
Custodia, a crypto bank founded by former Morgan Stanley managing director Caitlin Long, sued the Federal Reserve in June, citing a 19-month delay in the Fed’s processing of the bank’s application for a master account. The Fed’s application paperwork for a master account cites a typical turnaround time of five to seven business days.

Then, there’s the FDIC. Here’s The Block:

The Federal Deposit Insurance Corporation (FDIC) has issued cease-and-desist letters to FTX US and four other crypto companies for allegedly making "false and misleading statements" about federal deposit insurance.
FTX US, Cryptonews.com, Cryptosec.info, SmartAsset.com and FDICCrypto.com have been directed to "take immediate corrective action to address these false or misleading statements," the FDIC announced.
"The Federal Deposit Insurance Act (FDI Act) prohibits any person from representing or implying that an uninsured product is FDIC-insured or from knowingly misrepresenting the extent and manner of deposit insurance," said the regulator. "The FDI Act further prohibits companies from implying that their products are FDIC-insured by using 'FDIC' in the company’s name, advertisements, or other documents."
The move represents the latest public action by the FDIC regarding depository insurance claims. Late last month, the FDIC issued a statement declaring that crypto companies are not covered by federal depository insurance. That development came in the wake of the bankruptcy filing by crypto firm Voyager.

Relevant:

3. This week in stablecoins

4. This week in identity

Three Web3 and Decentralized Digital ID Funding Rounds Bring in Over $84M
Utahns Can Now Digitize Their ID, Partnership Announced with Utah Credit Union
Via /vs—Country of Luxembourg is Launching More Apps for Their Digital Government Platform
Via /vs—Signal Alerts 1,900 Messaging Users to a Security Threat from Twilio Hackers
Big Tech is Facing a Data Privacy Squeeze
Tencent Veterans Secure $13M to Build Cross-Chain Decentralized Identities
The FTC Has Kicked Off its Massive Push to Regulate the Data Economy

5. Ecosystem updates

Cashmere Raises $3M at $30M Valuation to Build Solana Enterprise Wallet

6. Worth reading: The Visa-Mastercard duopoly

The Economist via /gregkidd:

It’s like vegas,” says Matt Moore, the owner of a small bike shop in Georgetown, a neighbourhood in Washington. “You know you’re going to get screwed, the only question is how to get screwed the least.” The system of interchange—whereby banks and credit-card issuers charge merchants for collecting payments—is loathed by many retailers. Merchants hand over $138bn in fees each year; according to the National Retail Federation, a lobby group, it is their second-biggest cost after wages. And while shoppers are less likely to have strong feelings about the system, being mostly unaware of it, they also suffer as a result of higher sticker prices.
America is home to the heftiest interchange fees of any major economy—costs are an order of magnitude greater than in Europe and China. That largely benefits two firms: Visa and Mastercard, which facilitate more than three-quarters of the country’s credit-card transactions. Doing so has made them two of the most profitable companies in the world, with net margins last year of 51% and 46% respectively. Rank every firm (excluding real-estate-investment trusts) in the s&p 500 index by their average net-profit margins last year, five years ago and a decade ago, and only four appear in the top 20 every time. Two are financial-information firms, Intercontinental Exchange and the cme Group. The others are Mastercard and Visa.

Via /gregkidd—Can the Visa-Mastercard duopoly be broken?

USBC

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