There are two main differences between custodial and non-custodial: A) Insurance. Which is a feature that can be less relevant when speaking about stablecoins, which are more like MMFs and therefore narrow banks, where the credit transformation risk is far lower. Moreover, it is also a feature that could be added over time thanks to capital markets. B) Compliance responsibility. If you offer self-custody accounts, you don't need to be a financial institution. However, if you want your customers' accounts to talk to traditional rails, you are only shifting the compliance effort to another part of the chain - for example to Bridge or Iron if you are connecting bank accounts, or to acquirers and issuers if you are connecting them with cards. At the end of the day, imo, self-custody will win, simply because it is much easier and faster to build a neobank by outsourcing pieces of compliance to external providers and orchestrating all of them to build the best ux for your customers. It is only a matter of which method is the most effective for building successful fintech businesses.

Someone dangerously skipped permissions on this one and is giving me an even bigger platform🤠 Introducing a new weekly newsletter in partnership with @AlexH_Johnson and @FintechTakes: Skeptical Optimism. First essay out now. Hope you enjoy it.

i was the biggest @mercury fan up until this month. they changed partner banks. every single debit card suddenly started failing without any indication, services started getting canceled, etc. pretty bad.

“As soon as you realize that [something] is a problem, you should fix it. Don’t be a dumbass. That’s where my heart is. I would never dream of hurting anybody on purpose.” –@DollyParton on removing the word "Dixie" from Dollywood. The full cover story ➡️

Folks, I don't really care that much if you use AI to write. I know a lot of people who struggle to write. Writing is hard. If AI gets you started, then use it. But for heaven's sake, read what you've written. And have an editor. (Wester's Rule No. 3.) That's all I'm saying.

Some tough news to share: After 8 years of covering the FCS as a full-time job for HERO Sports, my position was eliminated this morning by the company that owns HERO. Whenever asked about what my dream job is, I’ve always said I’m doing it. Covering the FCS and being able to support my family doing so was the dream gig. So that’s why I’m hoping the support of my work continues as I try the independent route. I fully understand some do not like paying for something they are used to getting for free. But I’ll work even harder to make it worth your money if you give it a shot. On Patreon for $8/month, you'll get access to a Monday-Friday daily podcast called FCS Daily Dose, some video segments, and daily articles talking FCS storylines nationwide, reporting, analysis, columns, predictions, reactions, and more. Thank you for the support to this point. And thank you in advance for any continued support! Patreon link:

Sorry Tarek, Kalshi is not just like Uber. Comparing local ride-sharing rules to federal and state gambling statutes that target underage gambling, problem gambling, financial exploitation, money laundering, and sports bribery oversimplifies a massive legal and regulatory divide.

Is the CFTC regulating prediction markets… or cleaning them up before a case lands at SCOTUS? In today's newsletter (link in next tweet) I looked at the recent emergency orders and advisories amid numerous legal setbacks, which has led to plenty of raised eyebrows.

I encounter this type of thinking a lot: "X is just rent-seeking." You should not try to think this way. It's often more helpful to start from the place of asking: what if X is not rent-seeking, and is in fact a subtle equilibrium discovered by the market? I don't think interchange is rent-seeking. I say this after a decade+ of being a stablecoin investor. If you don't understand what you're trying to disrupt, you have no shot of actually succeeding in disrupting it. So zoom out. What is interchange and why does it exist? When a consumer swipes a card, the merchant pays a fee. For US credit cards, it averages to a bit over 2%. Of that Visa/MC take only about 0.15% in network fees. The lion's share, roughly 1.9%, is what's called interchange—it's the piece that the merchant pays to your issuer (that is, whoever gave you your card). Since that's ~80% of the fee, I'll use "interchange" loosely for the whole thing. So when you buy something from some Shopify store you've never heard of on a credit card, by far the biggest payment is that merchant paying your card issuer 1.9% of your purchase. What is your credit card issuer doing with that 1.9%? Well, they're rewarding you (more than half of it goes to rewards, this is a huge arena of competition), they're protecting you from fraud and settling disputes, and, of course, they're extending you credit. After all that, issuers are taking home in profit about 10% of their slice of interchange. (Note: Issuers make their real money on interest, not interchange.) So why does interchange exist? Why do merchants agree to pay it? Is it "rent-seeking"? The reason why merchants pay it is because without interchange, consumers would be much less willing to buy things. 1. Consumers like to buy items on credit. Don't think I need to explain this too much. The bundling of credit into the moment of payment with zero friction massively changes spending patterns compared to cash / stablecoins. 2. Chargebacks let consumers say "this merchant defrauded me." Visa default sides with the consumer, and steps in if there's a dispute to resolve. This is effectively a private legal system, collectively funded by merchants. But unlike normal law, Visa's law says the merchant is guilty until proven innocent. Turns out, this is great! Siding with the consumer is the optimal equilibrium to stimulate spending in a consumer economy. This part is even bigger than it seems. Because chargebacks also allow small, untrusted merchants to compete with large ones. Consumers can now have confidence in trying out new vendors, because Visa's legal system is rigged the consumer's favor. Any whiff of a merchant behaving badly and they are punished. This allows new honest merchants to thrive. There's a sense in which big companies don't need this protection, because big companies already have public reputations. It's small mom and pop shops and startups that need this insurance, and the administration of this whole private legal system is paid for by interchange. 3. Theft protection: if your card gets stolen, there are fraud prevention algorithms that detect this and will generally make you whole on losses. If you were using cash or stablecoins and your wallet got stolen, that's obviously not happening. In a world proliferating with more hacks and scams and fraud, you can also think about this as a private police function. 4. Last and most obviously, cards are ubiquitous and international, so accepting cards and the interchange system gives you access to a gigantic network of consumers worldwide. So merchants are charged a 2% tax (actually less because not all cards are credit, but simplifying) to make this whole scheme work. Of course, the economics of tax incidence says that if merchants are getting taxed, they'll raise their prices and pass the tax along. So merchants pay some of the tax, consumers pay some of the tax in the form of higher prices. And yes, the card networks get a cut for sitting in the middle. But most of the system is actually about the transfer of risk between consumers and merchants. Interchange has persisted because it serves an important market function that would otherwise have to be filled some other way. That said, do the card networks do anticompetitive stuff? Yes! The honor-all-cards rule, no-discount rules, anti-steering rules, collectively set rates, and more. They keep losing or settling antitrust cases because they are wily coyotes. But the core of interchange is actually a market trust function. It's not likely to go away just because you invented a different clearing system. Yelling "rah rah stablecoins, boo rent-seeking" and expecting everything to change is only going to leave you confused at why that's not happening. Stablecoins play a very important role in how money will move. They are massively more efficient than the correspondent banking system. That's part and parcel of Rain's edge over the incumbents. But if you want to displace interchange, you have to rebuild the other stuff it does: a worldwide dispute system with a default consumer bias, fraud protection, and a consumer-side subsidy that makes people want to spend with your thing. Stablecoins alone are only a single piece of that.

We’re excited to share that Alpaca’s subsidiary Alpaca Derivatives LLC has registered with the Commodity Futures Trading Commission (CFTC) as a futures commission merchant (FCM) and is now a Member of the National Futures Association (NFA).