A Home Base for Financial Nihilism
Happy Monday, Fintech Takers!
I hope you had an enjoyable weekend. Mine centered around a kid’s birthday and sleepover involving a bunch of 7 and 8-year-old boys, which went surprisingly well … by which I mean that everyone walked away from the experience exhausted and intact, and my house is still standing.
Lots of stuff has happened recently, much of which is above my pay grade.
One topic that I am qualified to opine on is the OCC’s proposed rules for payments stablecoins under the GENIUS Act, which were released last week. I’m going to write about the NPRM at some point (perhaps after some industry comments have come in), but I will say one thing right now.
It’s amusing to see how mad the crypto ecosystem is at the OCC for trying to close the yield loophole in GENIUS (a move that I predicted when GENIUS first passed). They’re accusing the OCC of being a protection racket that cares more about the survival of banks than about innovation and competition, which is A.) kinda true in a broad sense (the OCC’s core mandate is safety and soundness) and B.) deeply hurtful to this OCC (which has bent over backwards to encourage competition and innovation).
It reminds me of parenting. You spend all your time and energy trying to do everything for your kids and give them a day that they’ll never forget, and then, at the end of the day, they ask to ride home on the top of the minivan, and you say no, and they accuse you of being an unfun poophead who doesn’t love them.
Sometimes you just can’t win!
- Alex
P.S. — As you know, I am obsessively interested in the application of cash flow data to the consumer lending lifecycle. I have written and podcasted about it many times (here, most recently). On March 26th, I’ll be talking about it live with my friends at Nova Credit. The virtual event is free to attend, and I promise it will be very nerdy. Join us!
The Garden of Earthly Delights by Hieronymus Bosch.
3 FINTECH NEWS STORIES
#1: Proof of CitizenshipCopy anchor linkCopied
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The Trump Administration is reportedly considering executive action that would require banks to collect proof of citizenship from their customers:
The policy would be retroactive, which means banks would have to solicit documentation from current customers as well as future ones, the people said. REAL IDs, which do not prove citizenship, would not be considered eligible.
Already, the industry is pushing back out of concern that the potential move — via presidential order, not legislation — would be costly and complicated to implement. Illicit finance laws require financial institutions to collect some personal information on their customers, but not citizenship details specifically.
So what?Copy anchor linkCopied
As the Semafor article notes, banks really don’t want to collect proof of citizenship from their new and existing customers. There are a few reasons for this.
First, it would be an operational nightmare. Only about half of U.S. citizens have a passport. To confirm the citizenship of the other half, banks would need to either convince their customers to dig out their physical birth certificates and certificates of naturalization or get access to digital verification services like EVVE (though, as Jason Mikula noted yesterday, such systems aren’t comprehensive).
Second, it’s bad business. There is no legal requirement for a person to hold a specific legal status to open or use a bank account in the U.S., which is why banks don’t bother collecting proof of citizenship today. If they were forced to start doing so, they would likely see an increase in both application abandonment rates for new customers and attrition rates for existing customers (these rates would likely be elevated among banks’ non-citizen customer bases, which would reasonably fear how the collected data would be used).
Third, these types of government requirements often come back to bite banks in the ass. There is, in fact, a long history of banks being asked by the government to help them do something, only for the government (often under the control of a different political party) to drag bank executives to Washington, D.C., in the future to explain themselves. Obviously, everything involving crypto and debanking over the last 4-6 years is a good example. Another is the COVID-era Paycheck Protection Program, in which banks (and their fintech partners) were initially told, “get money out there as quickly as you can and don’t worry about following the usual procedures,” but were eventually raked over the coals by the government for facilitating massive amounts of fraud.
#2: Kalshi Moves Down the StackCopy anchor linkCopied
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DriveWealth and Kalshi have partnered:
By embedding Kalshi’s contracts directly into existing digital investing platforms, the firms expect partners using DriveWealth’s brokerage stack to be able to offer new tools for portfolio diversification and risk management, while keeping activity within a brokerage framework they describe as focused on compliance, operational efficiency and scale.
The announcement also frames prediction markets as a growing, complementary asset class for retail and digital-first investors looking to express macro views or manage risk, with DriveWealth’s distribution network and brokerage infrastructure paired with Kalshi’s prediction market capabilities to broaden access in a “compliant, seamless manner”.
So what?Copy anchor linkCopied
Nope.
No.
[Michael Scott voice] NO! GOD! PLEASE NO! NO!
This is very bad. Look at the language that is being used to describe it:
“Portfolio diversification and risk management”
“Prediction markets as a growing, complementary asset class for retail and digital-first investors looking to express macro views or manage risk”
I’ve said this many times before, but just to reiterate: It is incredibly dangerous to present gambling (which is what Kalshi offers) as sensible investing and risk management for consumers. It distorts how people (particularly young men) think about financial services. It frames fundamentally irresponsible, negative EV bets as responsible monetary choices.
From a business standpoint, this is a very smart move by Kalshi. The company has captured its primary regulator (the CFTC), and it has had a ton of success embedding its event contracts into brokerage apps like Robinhood and Coinbase. The trouble with those arrangements is that because Robinhood and Coinbase are also in the casino business, they aren’t going to tolerate rev share arrangements with Kalshi over the long-term. They are going to vertically integrate and become designated contract markets, so that they can offer event contracts to their users and reap all the benefits for themselves. Indeed, Robinhood has already agreed to acquire a CFTC-regulated futures exchange (MIAX Derivatives Exchange), positioning itself to control its own event-contract infrastructure. Coinbase, which already operates a CFTC-regulated derivatives exchange and has made acquisitions in the derivatives and prediction-market space, similarly has the regulatory and strategic foundation to internalize event contracts over time rather than rely on Kalshi.
So, if you’re Kalshi, what do you do?
You move down the stack and partner with brokerage-as-a-service infrastructure providers like DriveWealth, Alpaca, and Apex Clearing. This opens up integration opportunities with those companies’ customers (DriveWealth works with Revolut, MoneyLion, and OnePay, among others). The beauty of this strategy is that those end customers are A.) Likely interested in opportunities to grow customer LTV through additional product offerings, and B.) Unlikely to become designated contract markets themselves (the reason they work with a brokerage-as-a-service provider in the first place is that investing is a complementary rather than core offering).
I’m incredibly disappointed in DriveWealth for doing this. I hope all of its fintech customers refuse to bite, and I hope Alpaca and Apex stay away from prediction markets.
#3: A Home Base for Financial NihilismCopy anchor linkCopied
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Tether has invested $200M in Whop at a $1.6 billion valuation:
Tether Investments announced today a strategic investment in Whop.com, the world's largest internet market where people can create, connect, and transact in one place.
In addition to Tether's investment in the platform's growth, Whop will utilize Tether's Wallet Development Kit (WDK) to offer creators and users faster, more efficient global payments while allowing them to retain direct control over their funds, removing many of the frictions associated with traditional payment infrastructure. The framework enables seamless on-chain settlement and supports Whop's vision of creating a more flexible, internet-native economy where value moves as easily as digital content. The integration of WDK further positions Whop as a new self-custodial digital wallet for its community, powering features like lending and borrowing through modern DeFi primitives.
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If you don’t know what any of the words in the preceding paragraphs mean, congratulations. You are living a life blessedly grounded in the real world!
For those who live their lives completely on the internet (and people like me who study them), Whop is a familiar name. I wrote about it a couple of years ago:
Whop is a marketplace for digital entrepreneurship communities.
Think of it kinda like Shopify for the Gen Z internet economy.
Customers can browse through a wide selection of paid communities, courses, and tools – across various verticals – and easily purchase access to them through the Whop platform. Providers of these digital products (who I would mostly classify as influencers) can, like Shopify, get their “stores” up and running quickly and take advantage of a growing number of third-party apps available through the Whop app store. For every transaction, Whop charges a fee and a small percentage of the total sale (somewhere between 3% and 5%).
The company has done extremely well since then. It has 183,000 sellers on the platform and 18.4 million users. Last year, it was reported that the company was on track to process more than $1 billion in payments, which is a significant increase from the $300 million it reportedly processed in 2023.
But what are those payments for?
I’m so glad you asked! Here’s a fairly representative cross-section of popular businesses on the platform:
In here, we have businesses offering advice for sports betting, trading, shopping, using AI to make money in e-commerce and content creation, and, most disturbingly, a business offering to teach people how to start and operate a management agency for OnlyFans models.
Late last year, I wrote an essay on financial nihilism. In that piece, I highlighted a very interesting academic study that quantified the "giving up" effect, where sharply declining housing affordability leads younger generations to abandon the prospect of homeownership, which triggers significant, systematic shifts in their economic behavior that ultimately exacerbate wealth inequality. Those shifts in behavior include not working as hard, spending more money, and making riskier investments.
Those are all behaviors that Whop is ideally-positioned to capitalize on. It has built the perfect home base for young, internet-native consumers who have given up. And the most concerning thing about it is that the demand for advice on how to gamble better or how to use AI to make money without working hard is clearly surging (based on Whop’s scale and growth rate). The demand is there, and Whop is enabling a new class of entrepreneurs to become the suppliers.
And now Tether, a company that hasn’t, historically, seemed all that concerned with doing the right thing, is pumping $200 million into Whop.
Why are they doing this?
Let’s go back to the press release:
"With Tether's investment, we're accelerating our vision to build the world's largest internet market - where anyone in the world can create, connect, and get paid instantly," said Steven Schwartz, CEO & Co-Founder of Whop. "The next generation of business on the internet is global from day one, and payments need to move as freely as the internet itself. This partnership strengthens the financial backbone of our platform, aligning our infrastructure with a future where people can operate across the globe and build sustainable income - regardless of where they live or what currency they use."
And:
The integration of WDK [Tether’s Wallet Development Kit] further positions Whop as a new self-custodial digital wallet for its community, powering features like lending and borrowing through modern DeFi primitives.
In other words, Whop believes that it is building an internet-native global economy, and, as such, it makes perfect sense to partner with a provider of global, permissionless, internet-native money like Tether to provide the “bank” for that economy.
And it appears that the two companies are already well underway in pursuing this joint vision. Whop currently offers “Whop Treasury,” an embedded self-hosted stablecoin wallet that allows buyers and sellers on the platform to hold funds and, if they choose, earn up to 7% yield by lending their USDT (Tether’s stablecoin) to Aave for yield farming.
What’s next?
I can easily imagine Whop launching USDT-backed payment cards and DeFi-powered small business loans, but, to be honest, it’s the stuff I can’t imagine that scares me the most.
SPONSORED BY MX
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2 READING RECOMMENDATIONS
#1: Buy Now, Pay Later: Policy Issues and Options for Congress (by the Congressional Research Service) 📚Copy anchor linkCopied
If you need a primer on BNPL, the CRS (via its new report) has you covered!
#2: FTTB Visits the New York Fed (by Kiah Haslett, Fintech Takes Banking) 📚Copy anchor linkCopied
I really enjoyed this deep dive from Kiah on the Federal Reserve Bank of New York, the “first among equals” within the U.S. Federal Reserve system.
1 QUESTION FROM THE FINTECH TAKES NETWORK
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Thanks for the read! Let me know what you thought by replying back to this email.
— Alex
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