Ten years ago, in August, Marc Andreessen said that software was eating the world. About two years ago, Angela Strange, general partner of Andreessen Horowitz, suggested that every company would become a fintech company.
The first of these declarations has become indisputably a fact. The trumpet Econd seems to be on a similar path. Software companies are increasingly embedding banking into their services, and the explosive growth of financial tools is penetrating B2B products as companies recognize that financial services can be a powerful stimulus for their existing network effect flywheels. The next stage of this evolution cannot be ignored: if every company becomes a fintech company, then it seems that these companies will inevitably become crypto companies, because a large part of revenue and user participation will be driven by crypto products. The underlying infrastructure for facilitating financial transactions will be native to encryption. We first saw this in how encrypted productization penetrates into consumer financial technology platforms. As the larger and more disruptive trend of encrypted networks powers the future of all financial services, it is imminent not far away.
The development of the Web3 financial service infrastructure combined with the growing consumer demand for digital assets is pushing all companies that interact with financial technology to encrypt. Encrypted networks and encrypted assets will become the common ground for connecting global wallets and financial services, promote significant revenue generation and user participation in consumer-oriented platforms, and promote more efficient B2C and B2B financial interactions compared to traditional financial systems.
Encryption is a product, everyone wants it
Encryption as a monetization and participation engine for fintech
The growing consumer demand for crypto assets is driving fintech companies and existing financial services companies to produce crypto assets. Providing users with access to crypto assets is no longer differentiated-it has quickly become a bet: In Gemini’s 2021 U.S. Encryption Report, 77% of respondents either own cryptocurrency or think they are “curious about cryptocurrency” “. Fintech companies should want to add encryption to their platforms, as it is rapidly becoming an important source of user acquisition and engagement.
The best example is Square. The company’s life cycle started as a point-of-sale solution for small and medium-sized enterprises, and has since become a corporate leader that provides consumers with Bitcoin access. Since the launch of Bitcoin purchases through Cash App at the end of 2017, the revenue run rate of this product line has grown to more than $1 billion. This has enhanced Cash App monetization, user acquisition and app engagement: Cash App now has nearly 40 million monthly active users, up from 7 million at the end of 2017, which prompted rival Venmo to launch similar products in 2020 in response .
Robinhood is another relatively early promoter of providing encrypted asset product lines, launching Robinhood Crypto in 2018. Since then, Robinhood has become a cryptocurrency-driven company: in the two quarters since its initial public offering in early 2021, Robinhood has generated $233 million and $51 million in revenue from crypto transactions�?-Higher than the US$5 million in the second quarter of 2020. Since the IPO, cryptocurrencies have accounted for approximately 40% of transaction-based revenue, up from 4% in the fourth quarter of 2020. The company now holds more than $20 billion in crypto assets on the platform. Revolut, one of the largest new banks in Europe and another pioneer in the crypto space, has also witnessed significant growth in crypto, as the crypto assets held on the platform have increased by more than 5 times in 2020, reaching 742 million US dollars .
The interest in cryptocurrency is also related to employers. As Nikhil Trivedi pointed out in his next big event #37, the crypto business and product line teams have become magnets for attracting the best talent. This is partly the result of a mature ecosystem, because leading crypto-native companies now have the resources and needs to build strong engineering, financial, operational, legal, and business-related functions. But the growing appeal of cryptocurrency to high-quality talents is fundamentally driven by the realization of its multidisciplinary commitments. Computer science, cryptography, game theory, community building, economics, finance, culture, media, games Etc., there is room for innovation and attractiveness to individuals, providing important support for password-related teams in attracting cross-industry talents. In the battle for talent, cryptocurrency companies now offer world-class salaries and take the lead in today’s most extensive and deepest technological innovations.
Social platforms hope to stay ahead of the curve by launching encryption features
Social media platforms have tremendous influence, reaching approximately 4 billion people around the world. They are at the center of modern culture and are now embedding financial services to interact more deeply with users, making them obvious candidates for integrating encrypted assets and networks. We are beginning to see how these integrations can not only enhance their financial services work, but also create opportunities for new features that were previously impossible with traditional financial grids.
Twitter recently announced that they can use Bitcoin to pay for tips, making it the first major social network to encourage the use of Bitcoin as a payment method, which is a good example. Bitcoin’s Lightning Network is a protocol built on Bitcoin that aims to achieve faster and cheaper transactions, and provides a solution for effectively expanding micropayments that did not exist before.
Similarly, after launching the test phase in 2020, Reddit is seeking to expand its Ethereum-based crypto token reward program for community members. Users can earn tokens by submitting high-quality posts and comments, allowing them to measure reputation within the community-turning results and monetization into the quality of user interaction with the platform. Because they exist on the Ethereum blockchain, they can be used in other Ethereum-based applications.
Tips and community-based rewards are relatively harmless features in themselves, especially considering that they exist today on a small scale. However, they herald the continued blurring of the boundaries between society and finance. These early attempts at the functionality of encrypted products give us a glimpse of what will happen next, from the monetization of its cultural influence by the community to the personal brand becoming an investable asset. As community platforms become the center of small businesses and digital identities, cryptocurrencies will play an important role in these seamless social financial interactions.
Web3 infrastructure as the backbone of the financial system
Although encryption is becoming an important user acquisition and revenue-generating tool for consumer-oriented platforms, its importance to the future of financial services can best be reflected in how it changes its core financial grid. Today’s financial infrastructure, even the infrastructure used by leading financial technology companies, largely uses the basic technologies established nearly 50 years ago. The first wave of meaningful fintech startups has built services on and around legacy systems. The opportunity of an open financial system built on an encrypted network today: to become the backbone of all financial services, to create new business models and to promote a step-wise improvement in the user experience.
We have seen traditional financial services companies adopt encrypted “technology stacks” because they recognize the potential of cheaper and more efficient payment methods and open access to financial products. Visa announced earlier this year that they will begin trial settlement of stablecoin transactions on the Ethereum blockchain. Visa is interested in using the leading encryption network as the basis for transaction settlement. Although this is still a pilot project today, Visa’s participation confirms the growth of stablecoins. The asset class of stablecoins has grown from less than US$1 billion in 2019 to more than US$100 billion today because of its connection with open financial applications. Program interoperability and fast and cheap settlement capabilities, as well as their existing technical infrastructure.
Soon after the announcement of Visa, the European Investment Bank (“EIB”), one of the world’s largest supranational banks, issued digital bonds on the Ethereum blockchain. EIB emphasized the benefits that financial services based on encrypted networks may bring to market participants, including reduced fixed costs and dependence on intermediaries, increased market transparency for capital flows and asset owners, and faster settlement speeds.
The adoption of encrypted network infrastructure by financial service giants is still in the early stages, but the actions of Visa and EIB may indicate how encrypted networks will penetrate the financial ecosystem and become the basic model for seemingly traditional financial applications, services and businesses. It is difficult to see that the vast majority of digital transactions have not been transferred to the encryption technology stack; everything from stocks to bonds to real estate transactions will touch cryptocurrencies at the settlement layer. In short: financial services will increasingly run on encrypted networks in the future.
The new financial stack means business model innovation…
Financial grids based on encrypted networks not only bring benefits to existing financial services, but also completely allow new business models. The efficiency provided for applications built on the encrypted track and the composability enabled by tokenization allow users to access product features (and the team’s ability to build product platforms) that cannot be achieved in the traditional business model. The result is an ecosystem of financial building blocks that does not extract fees from middlemen and human prejudices at the transaction point, and can be built or integrated by anyone. We have seen a significant fit in the product market in areas such as P2P loans, among which the two largest loan agreements today-Aave and Compound.
In addition, products built on encrypted networks are globally accessible and cross-platform combinations by default, fundamentally changing the way the platform contacts end users and integrates with other protocols (similar to today’s traditional companies and other companies Cooperative way of product distribution). The elegance of this composability is that it requires only a few lines of code to access financial instruments, allows one innovation to unlock dozens of other innovations, and simplifies local, national, and international businesses on top of smart contract-based agreements The build. Aave provides a major example of unlockable composability: by integrating with multiple applications, it can provide users with access to “quick loans”-a way that allows users to borrow tokens without collateral and use the loan Products for integrated applications.
Its transformative potential lies in how it can extend the coverage of financial services to communities with insufficient bank accounts and allow “non-financial” platforms to easily embed financial services in their ecosystem. With the emergence of game earning platforms like Axie Infinity, we have seen this, and we should expect these “money Lego blocks” to be further integrated into historical non-financial platforms.
And a better user experience
When building at the forefront of innovation, technological advancement often exceeds user experience. Encryption is no exception �?securely interacting with encrypted applications via mobile devices is almost non-existent, and even desktop interaction usually requires a multi-step process to confirm the correct fees for payment and completion of transactions. On the surface, encryption still has enough room to improve the experience.
However, as encryption protocols are increasingly integrated into easy-to-use aggregator platforms and mobile application functions begin to emerge, the “hidden” user experience advantage at the core of encryption innovation becomes the most important.
Many startups are based on expanding the accessibility of financial services to everyone; until Bitcoin delivers the blueprint for a distributed system, the realization of these goals has never been realistic. Encrypted networks provide financial services to anyone in the world who can access the Internet and smartphones-4.7 billion and 6.3 billion people, respectively. These open networks reduce the entry barrier for entrepreneurs to practically zero, because any individual or enterprise can use the transparent code base and public API provided by existing open protocols to build financial products. The result has brought a series of benefits to users, and selected examples are as follows :
- The encryption protocol enables 24/7 instant and cheap global transactions, while allowing users to continuously access and custody their assets.
- Transferring funds between platforms has become trivial-it can be done on any scale in minutes, instead of facing transaction restrictions and multi-day settlement periods-forcing fees and competitive iterations of new products. This type of open competition will gradually increase the innovation rate of these financial services. As we all know, the user experience of a centralized platform deteriorates with the expansion of scale, and it relies more on network effects rather than continuous innovation to achieve success.
- Adjust incentive measures through trustless, programmable custodial accounts that allow the agreement to enforce bankruptcy, default, interest payments, etc. programmatically, freeing users from traditional counterparty risks. The auditable nature of the application code base provides “transparent accounting” so that users can understand the product’s functions and the platform’s mortgage quality and existing leverage in real time.
With the emergence of new business models, better products and better user experience will follow. The next stage of this evolution will be the emergence of companies that build on encrypted network infrastructure and provide a functional, easy-to-use experience, just like our consumer-oriented companies have been accustomed to in the past decade. In a few years, encryption will power the most innovative financial and social products and an important part of global financial transactions, and we will not even realize this.
Although the crypto ecosystem has matured and new and potentially transformative business models have emerged, as this fast-growing financial system has become a key area for governments and regulators, there are still major regulatory risks. Policymakers have different understandings and methods of action, which creates uncertainty about how (and whether) the legal framework of the 1930s can be used to regulate today’s technological innovation. The regulatory environment will remain turbulent in the short term. Although more and more allies in the government and regulators are increasingly aware of the benefits of encrypted financial services, they are still optimistic in the long term.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/encryption-is-eating-fintech/
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