FinTech Weekly Summary | Aug 08 – 15

Protocols are very important. However, they are not a sexy topic and often misunderstood. We rarely think of email as SMTP protocol, but it is. The application that we see is just a ‘nice-wrapper.’ The reason we can send email from @gmail account to @yahoo account is because of the underlying protocols. They ensure that applications use the same language and can communicate. The recent appearance of blockchain (a  protocol) has enabled a completely new business model to create a whole deal of other protocols (nothing related to blockchain itself). This is a tremendous opportunity for innovation, and it will change many things – the first two summaries go into more detail about this. Protocols are a technical (potentially dry) topic to understand but understand it we must. It is a tremendous step in tech evolution. It is like taking medicine – not pleasant to do but will make us better later 🙂

Have a wonderful week,


Fat Protocols
By Joel Monegro

The previous generation of shared protocols (TCP/IP, HTTP, SMTP, etc.) produced immeasurable amounts of value, but most of it got captured and re-aggregated on top at the applications layer, largely in the form of data (think Google, Facebook and so on). This relationship between protocols and applications is reversed in the blockchain application stack. Value concentrates at the shared protocol layer and only a fraction of that value is distributed along at the applications layer. There are two things about most blockchain-based protocols that cause this to happen: the first is the shared data layer, and the second is the introduction cryptographic “access” token with some speculative value. Increasing value at the protocol layer attracts and incentivises competition at the application layer. Together with a shared data layer, which dramatically lowers the barriers to entry, the end result is a vibrant and competitive ecosystem of applications and the bulk value distributed to a widespread pool of shareholders. This is a big shift. It will prevent “winner-takes-all” situations and creates an entirely new category of companies with fundamentally different business models at the protocol layer.


The Theory of a Blockchain Circular Economy
By William Mougayar

We are in the early stages of a new chapter in the nature of work. The blockchain will enable us to do our jobs and be compensated inside new circular economies that have their own currency units and their own work units. Most work today is compensated via bilateral agreements between a worker and an employer according to a simple contract: you work in X job, and we will compensate you in Y currency. With more control, we would then be able to perform new types of tasks that may or may not resemble what is traditionally considered labor, and earn cryptocurrency instead of fiat currency. Already, a number of blockchain based businesses are compensating users for their ‘work’ via digital tokens. At the heart of making this possible, is the relationship between actual work done, the value created, and value received. These type of mechanics and operations will benefit and enable their users also to partake in their success via the sharing of network equity. What is happening here is the creation of mini circular economies that are self-contained.


Disruptive Mentality in Banking
By Vicente Quesada

The disruptive mentality for the digital transformation requires innovating, ideally without ‘muscle and money.’ What would disruptive mentally look like in banking? Charge at a 90% discount rate credit card services; link advertising performance with product demand; use voice robot financial advising; issue personalised financial products with 50 times less face value; be at least 10 times smarter with big data usage for product development and promotion, that will enable Amazon-like recommendations to increase product consumption; use machine-learning models for consumer credit risk management, etc. Disruptive mentality innovation can create a true competitive advantage for banks that embrace it.


Risks in the Crowdfunding Industry
By Vaishali Naroola

The UK’s financial watchdog is probing the crowdfunding sector for the second time in two years. The rationale behind this is that this sector is displaying signs similar to those that were displayed by market players in the lead-up to the financial crisis. Putting this in perspective, the global crowdfunding market is expected to reach between $90-96bn by 2025, which is approximately 1.8 times the size of the global venture capital industry today. Crowdfunding and its offshoot, peer-to-peer lending, come with inherent risks as any other financial product. These risks have to be uniformly communicated and understood by market participants before a market floor can be established. If the goal is to become better investors, let’s start by understanding these risks for what they are: pooling of credit risk, asymmetric information and limited liability and the role of the platform provider.


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I'm a #26 Global FinTech influencer. An Economist by profession, I have worked on both sides of the table - tech startups and global financial organisations. I love football, technology, travelling and photography.