Sanctions-Evasion-as-a-Service
3 BIG IDEAS FROM THE PODCAST
This week, Jason and I did something a little different, again. Instead of recapping the last month in fintech (or, ahem, the entirety of last year to draw out the themes shaping this one), we turn our entire attention to Kontigo.
More precisely, to Jason’s splendid ~5,500-word investigative report on Kontigo.
For the uninitiated, Kontigo is a Venezuelan stablecoin “bank” that went through Y Combinator, raised money from Coinbase (among others), accessed JPMorgan Chase virtual accounts via Checkbook, relied on other U.S. infrastructure providers like Stripe, Rain, and Lead Bank, and stitched together a business model built on regulatory blind spots.
And it claims to have helped process more than $1 billion in total payment volume.
What it doesn’t have is a clear owner of risk.
As it turns out, my new favorite acronym, Sanctions-Evasion-as-a-Service (SEaaS?), is an efficient way to manufacture growth metrics.
It’s also an efficient way to end up as the subject of Jason’s reporting. And as I posted on Twitter at the time, the real implications of this story stretch well beyond Kontigo itself.
Tune in for the full conversation here
And read below for my three big ideas...
#1: Who is Accountable?Copy anchor linkCopied
Kontigo gives users the ability to hold USDC, swap it into local currency (bolívares in Venezuela), and spend through a Visa debit card. It even offered access to virtual JPMorgan Chase accounts via a partner called Checkbook (that’s reportedly over now). Kontigo functionally looks and acts like a neobank, but there is no single bank standing behind it.
Kontigo’s infrastructure was pieced together from U.S.-based partners: JPMorgan Chase (via Checkbook) for virtual U.S. bank accounts, Bridge for stablecoin on-ramping and off-ramping, Rain for card issuance, and Stripe for merchant acquiring.
They were functionally providing access to the U.S. financial system, but it was through multiple parties. Each handled a part, but none had visibility into the whole.
Unlike banking-as-a-service (BaaS), where a partner bank is ultimately on the hook, Kontigo operated without a regulated center of gravity. And to paraphrase Jason, as any group project leader knows, when everyone is accountable, nobody is accountable.
Kontigo’s example makes that painfully clear. Chase didn’t cut off the Checkbook integration due to sanctions being red flags. They acted only after a spike in ACH disputes and reversals. There was no feedback loop to detect the real issue (funds moving through a U.S. bank to sanctioned Venezuelan entities).
Stablecoins (like all crypto products) are decentralized by design, but that decentralization now conceals risk. Many stablecoin issuers and other stablecoin-adjacent companies are applying for national trust bank charters. The GENIUS Act was passed last year, but there are still no rules on the books.
The absence of regulated anchors at the center of this ecosystem raises the bigger question: If no one had investigated Kontigo, would anyone have known that it was violating U.S. sanctions?
If JPMC hadn’t noticed elevated dispute rates, if a journalist hadn’t traced the infrastructure, if the geopolitical context hadn’t changed (the U.S. invasion of Venezuela was a dramatic twist in this story) … there’s a decent chance that the real story of Kontigo doesn’t come out.
#2: Silicon Valley, Turned Up to 11Copy anchor linkCopied
As mentioned, Kontigo went through Y Combinator. And it not only adopted the classic Silicon Valley startup ethos; it turned the volume knob all the way up to 11.
Everything about Kontigo’s bombastic comms strategy (including their “Jamie Dimon, we’re coming for you” post and their ultra-aggressive auto-replies to folks who shared Jason’s reporting) feels like the most unhinged version of the Silicon Valley “never apologize, never back down, there’s no such thing as bad press, just keep building and ignore the haters” mentality.
Jason said it took him all of about sixty seconds looking at Kontigo’s marketing to know something was off with the company, well before he started talking to his sources. I felt the same when they first came across my radar.
So why didn’t it stop any of their investors or partners? Did it even give them pause?
I mean, Kontigo raised a $20 million seed round. Twenty million dollars for a seed round is … well, a lot.
Is it possible that Kontigo’s behavior actually helped them raise money? If they’d acted more sober and responsible, would they have raised as much?
Matt Levine sometimes jokes about how VCs prefer to invest in founders like Adam Neumann, who have a track record of failing spectacularly and torching hundreds or millions of dollars of capital because it signals the type of insane confidence (and fundraising ability) that characterizes outlier returns.
It’s a funny joke when it’s happening in an industry like commercial real estate or micromobility. It’s less funny (at least to me) when it’s happening in an industry like financial services, where one of the jobs-to-be-done (whether we like it or not) is to keep money out of the hands of bad people.
The hyper-performative act of not being serious or professional should be disqualifying for anyone trying to raise money to disrupt the financial services industry.
The fact that it’s not (and is actually an advantage) tells me that the problem isn’t the founders. It’s organizations like Y Combinator that set the incentives that founders respond to.
#3: The Off-Ramp VS National SovereigntyCopy anchor linkCopied
The core of Kontigo’s appeal is the ability for people living in countries with high inflation, unstable monetary systems, and strict currency controls to hold their money in U.S. dollars and access the global financial system.
The app gives users a way out of their local economy: hold value in dollars, move it across borders, and convert it back into local money when needed. And, to be clear, I completely understand and empathize with consumers in places like Venezuela when they say that they find this type of product deeply appealing (as many did after Jason’s report was published). They’re just trying to live their lives.
However, the ability of stablecoins to circumvent countries’ monetary systems raises some very important (and under-discussed) questions.
Brian Armstrong recently tweeted that “a crypto wallet is an exit ramp from a failing local economy, available to anyone.” That sounds very inspiring, but off-ramps don’t exist in a vacuum; they rest on and interact with real political and economic infrastructure.
Under the previous regime in Venezuela, which was responsible for the country’s hyperinflation and other economic woes, you could see an alignment between stablecoin issuers and distributors and ordinary citizens. The citizens didn’t vote for what was happening (Nicolás Maduro stole the 2018 and 2024 elections), and they legitimately needed an off-ramp into an economic system that worked for them.
But what happens if that changes?
Let’s say María Corina Machado, the Venezuelan opposition leader, comes to power. Let’s say she has the support of the people and is trying to fix the country’s economy and monetary system. In that environment, USD-backed stablecoins might actually be counterproductive. They might take money out of the Venezuelan economy.
Would Circle care? Would Coinbase? Would Tether? Would any of these companies say, oh, now that you have a government working to fix this, we’ll just back off?
That’s the problem. Stablecoins are utterly unaccountable to the governments or people they purport to serve. Sometimes interests align. That doesn’t mean they always will. And that’s something we should think carefully about.
What’s missing isn’t oversight alone. It’s accountability for the second- and third-order effects. Off-ramps are real flows of value, and when private companies create them without considering the geopolitical consequences, they leave governments to clean up the wreckage.
If stablecoins are going to keep playing this role, the question isn’t just who benefits, but who governs.
Stablecoin issuers and distributors have real global economic and political power … but no one voted for them.
WHAT I'M LISTENING TO
#1: Private Credit: An Interview with Huw van Steenis (Net Interest Extra) 🎧Copy anchor linkCopied
A really great expert primer on all things private credit.
If you didn’t know that Marc also has a podcast, now you do! You’re welcome!
#2: Tokenization, AI, and the Efficient Frontier of Banking (The Community Bank Podcast) 🎧Copy anchor linkCopied
This is just a shockingly great podcast and a good one for fintech folks to listen to to better understand community banks and community bankers.
I enjoyed this episode in particular.
Thanks for the read! Let me know what you thought by replying back to this email.
— Alex
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