A new playbook for TradFi

In this edition…

• Why fintechs are launching their own blockchains

• A playbook for bringing blockchains to TradFi

• Three phishing schemes hooking crypto users

• The unintended impact of the Tornado Cash verdict

• A breakout week for decentralized governance

The race to win payment rails

Sam Broner and Pyrs Carvolth

After a string of stablecoin announcements, Stripe’s latest push into crypto is reported to be a new blockchain; meanwhile Circle announced the buildout of their L1, called Arc. While it’s clear that every fintech company can spin up their own app-specific blockchain, a killer app and strong distribution are an edge, not a certainty. So what are fintechs building toward, and how will it affect the ecosystem?

We’re getting close to a new paradigm for money — one that gives users control and democratizes access to financial innovations globally — but we’re not there yet. Today, stablecoins are a simpler way to do yesterday’s financial activities, like saving and sending, better. They address the shortcomings of existing systems, but truly native opportunities for stablecoins may require wider distribution, deeper integrations, and another generation of product insights.

There’s good reason for fintechs, banks, and payment companies to build L1s and L2s: moving payment flows onchain can improve their cost structure and simplify last-mile payment infrastructure — the local rails that deliver funds to end users. For a company doing payout in 170 countries, managing last-mile payments is a hassle, so encouraging local entrepreneurs to build on open protocols can reduce cost and make for a better experience.

If fintechs commit (and we think they should), the big players can seed their new blockchains with existing payment flows and rival existing L1s and L2s in payment volume from day one. But it remains to be seen whether they will be able to build a vibrant ecosystem that attracts external businesses.

For the most ambitious companies, there is a genuine opportunity to create the next generation of payments — the biggest, best, and most global yet. A bold and early bet, great ecosystem stewardship, and quality partners could snowball into network effects. One company dominating the next generation of money — stablecoins — feels like a long shot, but crazier things have happened.

Further reading: Can openness survive at scale?

Lightspark cofounder Christian Catalini asks, “Can crypto scale without losing its soul?” in a thread on the tension between building an ...