A Digital First World, Bakkt's SPAC and Roblox

Off The Blocks, Vol 126, Wednesday, January 13, 2021

My work focuses on creating ecosystems for tech adoption. At Proteum, we connect the dots on things that matter in an increasingly interconnected and decentralized world - physical, financial, and digital.

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Towards A Digital First World

I took a quarter off from writing this newsletter, partly because there is a lot happening and partly because I wnated to take a step back and look at the implications of a rapidly evolving landscape in fintech and healthcare - both industries that are heavily impacted by the raging pandemic. Executives in these industries have embraced innovation proactively instead of only focusing on their core business.

Pre-pandemic, 42% of small and medium business relied on paper checks for B2B payments. Remote work options and the uncertainty of opening up at scale seem to have accelerated the shift away from paper and into real time payment solutions. This is an irreversible trend and opens the door for SMBs to embrace more digital services for consumer empowerment (gift cards, loyalty rewards) as well as expanding into a broader digital asset ecosystem. The SMB segment is also a huge consumer opportunity.

On the healthcare side, telehealth has seen huge gains and has somewhat shifted the fee for service healthcare model to fee for value. Providers that had shunned digital advances are now actively seeking technology to better serve their patients and enhance operational efficiencies. This trend is also irreversible and is moving towards a collaboration of diverse industry participants across the healthcare ecosystem. This is a perfect confluence of broad range of solutions incorporating technology, privacy, payments, and regulatory management.

Interestingly, both fintech and healthcare solutions are also heavily regulated and place enormous emphasis on data protection and privacy. Most of these regulations are being crafted as there is a surge in online transactions. A recent UN report found that 132 out of 194 countries already have data protection regulations around the type and severity of information to protect. While both fintech and healthcare have different statutes to protect the type of information and different encryption demands, both build from personally identifiable information (PII) and include information to comply with a variety of regulations such as HIPAA, KYC, AML, KBA, BSA, and other acronyms, which may also have federal, state, county or local counterparts and reporting requirements.

Ultimately, while it may not be obvious, it is good to understand that healthcare is a business that is built on payments. Modernizing payments in healthcare can significantly improve the consumer experience and the revenue cycle management for medical providers and insurance companies. As payments are simplified and healthcare moves to value based care, patient experience will be ever more important for retention. Providers will gravitate to solutions that provide ease of transaction along with privacy safeguards, thus empwering the consumer. Increasingly, digital assets will start to play an important role in this ecosystem. For example, Solve.care partnered with Lyft to provide healthcare transportation, using their native digital currency.

The Office of the Comptroller of Currency (OCC) recently released an interpretive letter to essentially say that banks may use digital assets, such as stablecoins, or new technologies including independent node verification networks (INVNs) to provide banking services such as payment activities. Therefore banks may now issue stablecoins or exchange fiat for stablecoins, or maintain blockchain ledgers by serving as a node on a network. This opens the way for alternative settlement systems which can be a spark for radical innovation in the coming years. Indeed Signature Bank has been betting on this kind of guidance to spur growth for its digital offerings. Expect a number of banks to follow suit.

It is only a matter of time that captive digital assets can be used as currency for everyday use and tendered for payments. Custodial services (Bakkt - also see news below) or non-custodial services (ShapeShift) are starting to evolve to cater to these changes in digital asset adoption. It may be possible to exchange your healthcare tokens for exclusive discounts on your running shoes. As a first step, we will start to see successful solutions take an ecosystem approach with open information sharing and dramatically lower transactional costs. Monetization paths may be provided by subscriptions and services built into the ecosystem and the profits will be distributed based on the value added to the ecosystem.

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Data and Research

  • BTC network health: Bitcoin has made impressive gains in the last few weeks and has mostly kept pace with the stock to flow ratio since the last halving. Those new to the world of BTC would be well-positioned to learn about the fundamentals and get to understand the health of the network in terms of the new and active addresses, hash rates, transaction volumes etc. The usage and transaction volumes are up, Hash Rate is trending higher and the miners are investing in securing the network. All seems to be well. The below table by Glassnode, summarises the network health in a snapshot. Link

  • Crypto-SPACs: Bakkt announced that it will go public in a SPAC transaction. The company is expected to be valued at $2.1B and is probably the first large SPAC transaction with exposure to bitcoin and other digital assets. Bakkt is positioning itself as a digital asset native with regulated trading, clearing, custody, and payments partnerships in place. The Bakkt wallet claims to be fully integrated with Starbucks, Home Depot, Xbox, and Subway loyalty rewards to start with and is in advanced discussions to be integrated into the Apple ecosystem. Notable investors in Bakkt - Starbucks, Microsoft, BCG Ventures, ICE, and PayU.

  • The Tale of 2020: Last year was a pandemic dictated experiment and the world is a changed place. Digital nativity is now the default mode to get any economic activity done as borne out by Zoom and the rise in e-commerce spending. Throughout the year, there were disparities in how coronavirus impacted people very differently along social and economic lines, the loss of income on one hand, to the resilience of companies that were already on a tech-enabled path. Paradoxically, executives prioritized efficiency and stability of core business rather than stepping the gas on innovation. The good news though was the availability of vaccines, which should help in getting back to some sense of normalcy. There’s a lot of good data here to understand the craziness of the last year.

News From The World This Week

  • Tether’s Supply Growth: Tether printed two billion dollar-backed tokens last week, a new record for the leading stablecoin project. Over 24.6 billion tethers now circulate across Ethereum, Tron and Bitcoin’s Omni Layer, per data from Coin Metrics, up from 4.8 billion one year ago. Tether provides for the ability to use USDT to support the increased trading volumes in bitcoin and across all cryptocurrencies and trading venues. In addition, USDT can serve as collateral for an increasing number of derivatives products. Link 

  • The Rise of Roblox: Roblox, which first released its service in 2006, is hitting the public market following a year of dramatic growth as kids, who were forced to stay home during the pandemic, spent more time playing games. Revenue in the third quarter jumped 91% from a year earlier to $242.2 million. Daily active users almost doubled in the period ended September to 36.2 million and “hours engaged more than doubled to 8.7 billion. Now, it is going public in a direct listing. The NYSE will set a reference price for the stock the night before Roblox’s debut, but no shares will be traded at that price. In the morning, the market makers will match buyers and sellers to determine the opening price and the stock will be available to the broader market under the ticker symbol “RBLX.” Link

About Proteum
Proteum is a global investment and advisory firm that works with public, private and start-up companies to help them create ecosystems for adoption and navigate tech, business and regulatory challenges across markets.

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