#272—McKinsey: The great banking transition

Also, we're at Nostrasia this week

Oct 30, 2023

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

This week:

The WSJ walks back its Hamas-Crypto claim
McKinsey: The Great Banking Transition
A tale of two stablecoin regimes: Japan v. the U.S.
Ecosystem updates: Uphold + Ripple, Hard Yaka at Nostrasia
ICYMI: Why Hard Yaka is powered by protocols
Stuff happens

1. The WSJ walks back its Hamas-Crypto claim

…from $93 million to $12 million.

Here’s the timeline:

Oct 10: The WSJ publishes a report claiming that Hamas raised up to “$134 million in crypto since 2021” based on data from two research firms
Oct 25: One of those research firms, Elliptic, rebutted those claims in a blog post: “...there is no evidence to suggest that crypto fundraising has raised anything close to this amount, and data provided by Elliptic and others has been misinterpreted.”
Oct 27: The WSJ updates their report:

WSJ: Palestinian Islamic Jihad and Hezbollah may have exchanged up to $12 million in crypto since 2021, according to crypto-research firm Elliptic. An earlier version of this article incorrectly said PIJ had sent more than $12 million in crypto to Hezbollah since 2021, citing Elliptic’s research. This article was also updated to include additional context about Elliptic’s research. The firm’s analysis of digital-currency wallets that Israeli authorities linked to PIJ found that PIJ may have used crypto to receive funds and to move funds to other terrorist groups. Elliptic said it isn’t clear if all of the transactions it identified directly involved PIJ, because some of the wallets belonged to crypto brokers that may have also served non-PIJ clients

Relevant:

2. McKinsey: The Great Banking Transition

McKinsey just published their annual banking report and the focus is on what they’re calling “The Great Banking Transition”:

In this year’s review, we focus on this “Great Banking Transition,” analyzing causes and effects and considering whether the improved performance in 2022–23 and the recent rise in interest rates in many economies could change its dynamics. To conclude, we suggest five priorities for financial institutions as they look to reinvent and future-proof themselves. The five are: exploiting leading technologies (including AI), flexing and potentially even unbundling the balance sheet, scaling or exiting transaction business, leveling up distribution, and adapting to the evolving risk landscape.

Check out the full report:

Global Banking Annual Review 2023: The Great Banking Transition

3. A tale of two stablecoin regimes: Japan v. U.S.

Japan is looking to take a leadership role in the regulation of stablecoins—Coindesk calls them a trailblazer (via Margaret Slemmer), having just passed a stablecoin law back in June.

Here’s Coindesk:

Japan’s stablecoin regulations attempt to address some of the biggest fears about major stablecoins: Do issuers really have the assets to back them? And even if they do, how do you ensure that assets are easily accessible and not tied up in opaque and risky investments?

But also:

Japan’s regulation has some strict provisions to protect the assets underlying stablecoins. If a domestic stablecoin is issued under a trust structure, which is expected to be a common way to issue stablecoins, “100% of the legal currencies (e.g, dollars or yen) backing a stablecoin must be kept in a trust inside Japan, and can only be invested in bank deposits inside Japan,” says Keisuke Hatano, partner at the law firm of Anderson Mori & Tomotsune.
But while this requirement might help ensure the security of assets, it can make it harder for stablecoin issuers to make money. “This poses a challenge for domestic yen-based stablecoins, as the interest rate for Japanese bank deposits is currently very low (in most cases below 0.1%).”
It’s slightly better for dollar-based domestic stablecoins, Hatano notes. “You still have to keep all the dollars in bank deposits in a bank in Japan, but you can get a higher interest rate for dollar deposits.”

(Like most countries, interest rates in Japan have been rising.)

Then there’s the U.S.

Here’s Jason Somensatto, Head of North America Policy at Chainalysis:

Stablecoins are the backbone of the crypto economy. Transactions involving USD-backed stablecoins reached nearly $6.87 trillion in 2022, surpassing the volumes of Mastercard and PayPal. Despite the crypto winter, stablecoin activity has remained resilient, reflecting approximately 40% of all value transacted on blockchain networks. In other words, stablecoins have emerged as an innovation with product-market fit.
Despite this, the U.S. is struggling to secure its role as the leader on stablecoin policy and competitiveness. As reflected in our recently-published 2023 Geography of Cryptocurrency Report, approximately 60% of all stablecoin activity involves stablecoins issued by non-U.S. domiciled issuers, and the majority of all stablecoin activity occurs through non-U.S. licensed services among the top 50 exchanges. A year ago, the trend was toward greater involvement by U.S.-based regulated companies.
U.S. policymakers should not passively sit back and watch as this trend in the innovation of payments continues. Instead, the U.S. should prioritize passing legislation and implementing regulations that aim to ensure the U.S. is able to properly supervise USD stablecoin activity and benefit from its growth.
The consequences of the U.S. failing to act on stablecoin regulation are significant.

Relevant:

4. Ecosystem updates: Uphold + Ripple, Hard Yaka at Nostrasia

Uphold’s new partnership with Ripple:

Ripple, the blockchain giant, has announced a strategic partnership with Web3 financial platform Uphold today. The collaboration aims to enhance Ripple's capabilities in crypto liquidity and bolster its global cross-border payments infrastructure. The alliance will leverage Uphold's advanced trading infrastructure, enabling a seamless value transfer between fiat and crypto across diverse networks.
Pegah Soltani, Ripple's head of payments product, and Simon McLoughlin, Uphold's CEO, have praised the partnership for its potential to fortify cross-border payment services. They envision this collaboration as a transformative force in the global payment infrastructure landscape.
Pat Thelen, VP of Global Account Management at Ripple, highlighted the potential of tokenizing real-world assets in industries burdened by outdated manual processes and latency. This development underscores the potential of blockchain technology to revolutionize traditional financial transactions and paves the way for a more integrated and efficient global financial ecosystem.

Hard Yaka is heading to Nostrasia this week. Learn more about our trip:

At Hard Yaka, we believe that the next chapter of the internet should be built on protocols rather than proprietary platforms—much like the early days of the web.
Unlike platforms, protocols are open, decentralized and interoperable. As such, they help tip the balance of power back toward individuals, communities, and developers rather than the megacorporations that dominated this last era of web2.
Just as we have protocols for things like websites and emails, we should have protocols for messaging, money, identity, and, of course, social media.
That’s why, next week, along with a few teams from the Hard Yaka ecosystem, we’ll be attending Nostrasia (Nov. 1-3) in Tokyo, Japan. (The “unconference” will also have a footprint in Hong Kong and will be streamed online.)

Heading to Nostrasia? Reach out: inquiries@hardyaka.com

5. ICYMI: Why Hard Yaka is powered by protocols

Here’s Hard Yaka co-founder and CEO Greg Kidd:

That’s why many of us are advocating for the decentralized web, a vision of the internet that can return power to users. Unfortunately, media accounts have focused on the highs and lows of the loaded term, web3, but the promise and potential of the decentralized web doesn’t require Bitcoin or, for that matter, a cryptocurrency at all.
In the same way protocols enabled the birth of the internet in the 1990s, they can return us to an environment of open and free competition that has users feeling empowered rather than powerless, and more in control of their own data and identities. With the decentralized web, essential aspects of life can be seamlessly integrated into the digital realm via easy-to-use administrative processes that respect individual security, privacy, and personal sovereignty. People could securely vote online, for example, or renew their driver’s license without a trip to the DMV. Social media can be reimagined.

USBC

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