Snippings

In their recent report on the future of digital assets, Boston Consulting Group quite rightly say that such assets should be treated as a “strategic infrastructure transition” for banks rather than as a niche innovation
theme, going on to observe that the task of bank leaders is not to predict the winning rail, but to keep the bank in control as assets (including money) become programmable.

 

In our recent paper on 

There are, of course, new risks associated with the new infrastructure. At a time when multimillion dollar hacks of defi platforms are almost daily news, banks are right to be cautious.

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None of this comes without tradeoffs.

Smart contract bugs are a real attack surface. Programmability that enables legitimate logic can also enable exploits. The history of DeFi is littered with protocols that had sound economic logic but nuanced vulnerabilities that left them vulnerable to exploits. Audits help but don’t eliminate risk.

There’s also the oracle problem: contracts that depend on real-world conditions need reliable data feeds, and those feeds are themselves attack vectors. (Just look at what happened recently with the Polymarket Paris weather bet.) Conditional programmability is only as trustworthy as the data it conditions on.

And for most mainstream use cases, the UX overhead and difficulty of interacting with smart contracts still exceeds the benefits. Programmable stablecoins are powerful in the hands of developers building on top of them — but remain relatively inaccessible to non-native users.

From: Why banks can’t retrofit their way to programmable money — The Financial Revolutionist.

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Criminals who steal others’ electronic IDs can manipulate information in public registers, apply for loans, transfer money, set up companies, and receive public benefits on false grounds. This leads to major losses for individuals, companies, and the public sector.

From: Digital Identity Management in Norway is a Success but also a Disaster – Research News.

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Five centuries ago, Pope Gregory XIV waged war on prediction markets. The reason? Back then merchants and priests were betting on papal elections, sparking tales of insider trading. So in 1591 the Pope excommunicated these gamblers. You could see this as one of the first attacks on market manipulation in history.

From: Don’t bet on Trump reining in the prediction markets.

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None of this comes without tradeoffs.

Smart contract bugs are a real attack surface. Programmability that enables legitimate logic can also enable exploits. The history of DeFi is littered with protocols that had sound economic logic but nuanced vulnerabilities that left them vulnerable to exploits. Audits help but don’t eliminate risk.

There’s also the oracle problem: contracts that depend on real-world conditions need reliable data feeds, and those feeds are themselves attack vectors. (Just look at what happened recently with the Polymarket Paris weather bet.) Conditional programmability is only as trustworthy as the data it conditions on.

And for most mainstream use cases, the UX overhead and difficulty of interacting with smart contracts still exceeds the benefits. Programmable stablecoins are powerful in the hands of developers building on top of them — but remain relatively inaccessible to non-native users.

From: Why banks can’t retrofit their way to programmable money — The Financial Revolutionist.

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4. Fees are unpredictable and can vary widely – for example, Solana is known for low fees but in just three USDT payments in my test they varied from 0.001% to 0.43% of a $40 payment. Such large and unpredictable swings make it difficult to develop commercial stablecoin propositions for retail and consumer payments at scale.

5. It is unclear from a user perspective why there are so many blockchains on which USDT and USDC are issued and transacted and why a user would choose one blockchain over another – in the small sample of blockchains I used in my tests, there is no obvious correlation between fees, confirmation times and share of issuance of the different blockchains (there is also the question of why a user would choose USDT over USDC and vice versa or any of the other 150+ USD stablecoins but that is a question for a separate article).

Overall, it is the blockchain used that determines the speed and cost of a stablecoin payment, rather than the stablecoin itself

From: (12) Blockchain Reaction – by Jeremy Light – Agenda: Payments.

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Meanwhile, in a developed country…

Berlin here: Today, a pharmacy generated an invoice on-screen and I scanned their QR code and sent the money via instant payment from my bank account because their card payments were down…. veeery interesting experience, but it worked. Felt a little smug for suggesting the solution – I don’t carry EUR 250 with me in cash… why would I?!

From: It just keeps happening… Seems cash will remain the back up until we can get digital payments that are reliable. ATM was down as well. Lucky there’s a Post Office. John Howells Nick Quin David… | Faith Reynolds | 13 comments.

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I have long argued that giving non-banks risk-free (ie, pre-funded) access to central bank settlement accounts would be good for competition and therefore good for consumers and businesses. This is one area where the Bank of England did come down on the side of innovation. Their “omnibus” account was introduced in 2021 to spur innovation and competition in payments. As Huw van Steenis, who was an advisor to the former Governor Mark Carney, said at the time “this is what to watch, not the Bahamas’ sand dollar”.

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The biggest immediate opportunity is the ability to clear payments directly over Fedwire Funds, FedNow, and NSS without using a commercial bank sponsor. In my view, this is a major structural shift, but the Fed is imposing a heavy liquidity penalty to protect its own balance sheet.

THE PRE-FUNDING BOTTLENECK
If you are a FinTech, the Fed is not going to extend you a dime of credit. Under the proposed rules, Payment Account holders are ineligible for discount window borrowing and are strictly prohibited from incurring daylight overdrafts. The Fed will use real-time monitoring to automatically reject any transaction that exceeds your account balance. We all know how investors just love having “regulatory capital” just sit around for clearing and settlement. Normally Fintech’s are cash lean, even neobanks fit this characterization. Winners here? Stripe, PayPal, Adyen, Walmart, Target, yes I mean that scale.

From: Fedwire for Fintechs – Opportunities | Noyes Payments Blog.

 

Now, one of the reasons as to why I think this is such a big deal is that it begins the separation of payments from credit.

Polymarket is enticing users to provide identifying information by offering them faster trading speeds. Earlier this month, it rolled out an online portal where individual customers can submit information including passports, licenses and proof of residence. Submitting the information isn’t mandatory. But customers who complete the forms can access Polymarket’s U.K.-based server, which offers the fastest trading speeds, giving them an advantage of milliseconds over other users. Those milliseconds make a difference for the key subset of their customers who drive significant levels of high-speed, automated trading volume. A difference of milliseconds can make or break some trading strategies.

It’s almost as if identity is the new… well, you know.

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Reid Hoffman, a LinkedIn co-founder and partner at venture firm Greylock Partners, mostly uses his digital twin, Reid AI, for public appearances and media interviews. The system—trained on 22 years of Hoffman’s books, speeches, podcasts and articles—has delivered more than 75 addresses and presentations since its 2024 launch.

From: Employ an AI Twin to Handle Your Piles of Busy Work – WSJ.

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In response to customer complaints, senior Polymarket engineer Mustafa Aljadery said in a post on X that the KYC checks targeted customers accessing Polymarket’s application programming interface “in certain jurisdictions” and that Polymarket “remains kyc free for all other users.”

But if Polymarket doesn’t start enforcing its policy on prohibited jurisdictions, it risks regulatory action. Regulators in the Netherlands and other countries have already threatened it with penalties if it continues to provide an illegal gambling platform to their residents.

From: Polymarket Wants Traders to ID Themselves as It Faces Sanctions, Legal Risks — The Information.

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