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Industry roundup: 3 February

First DeFi ETF to launch on 17 February

The Hashdex DeFi Index ETF, announced last month as the world’s first decentralised finance (DeFi) exchange traded fund (ETF), will be listed on Brazil’s stock exchange from 17 February. Brazilian banks XP, Itaú BBA and Banco Genial will coordinate the offering.

The DeFi ETF is being launched jointly by Brazilian crypto asset manager Hashdex in collaboration with CF Benchmarks to track 12 DeFi tokens and is promoted as enabling investors to track a basket of projects in the DeFi space. The fund will invest in tokens generated by decentralised apps rather than crypto or listed companies

A release confirming the launch date notes that DeFi markets have grown strongly in the past year to become an US$80 billion market in 2021, with more growth expected in 2022. This growth “has attracted investors, giving companies in the space a massive opportunity for long-term growth.”

The release adds that companies “poised to benefit from the growing adoption of digital currencies and DeFi include WonderFi Technologies Inc: Marathon Digital Holdings, Inc; Mobilum Technologies Inc; Voyager Digital; and Hut 8 Mining Corp.

“Investing in DeFi is the same as investing in the fintech companies of the future. It is a very promising market that, because of its disruptive technologies, can grow exponentially in the coming years,” said Marcelo Sampaio, chief executive of Hashdex. “By offering the first DeFi ETF in the world, we are providing our global investors with the ability to play a part in the next evolution of the crypto ecosystem,”

According to Hashdex, 70% of the ETF will be composed of DeFi protocols, 15% of smart contracts platforms and the remainder of DeFi protocol supports, including identity verification and scalability solutions such as Polygon, Chainlink and The Graph .

Decentralised finance aims to dispense with a centralised intermediary such as a bank or an exchange and provide financial services such as lending and trading through an algorithm. Proponents claim that it offers greater transparency, resistance to censorship and faster settlement times than traditional finance.

Although one of the fastest-growing areas of the crypto asset industry, recent reports note that interest has cooled since late 2021 as crypto prices have fallen. Decentralised applications (Dapps) hold about US$107 billion of customers’ funds, down from a November peak of US$180 billion, according to data from DappRadar.

The Hashdex DeFi Index ETF will invest in the tokens developed by Dapps, networks built on blockchain technology and use preprogrammed algorithms to execute cryptocurrency trades. Dapp tokens can be traded on other crypto markets but also allow owners to vote on governance proposals and developments for the network.

The Financial Times reports that while Canada, Sweden, Germany, Switzerland, Jersey and Liechtenstein all boast spot cryptocurrency ETFs, and Australia and India are poised to join them, US regulators have only approved futures-based versions, while those in the UK, Hong Kong and Singapore have not even permitted these vehicles.

The FT adds that not everyone is convinced by the more liberal approach, however. Commenting on the Hasdex fund, Ben Johnson, director of global ETF research at Morningstar told the paper: “This strikes me as an artefact of a race to the bottom with respect to crypto asset regulation in general and the regulation of registered funds that invest in such assets more generally.”


Ripple partners with Modulr on cross-border payments

US fintech Ripple – a specialist in enterprise blockchain and crypto solutions and the firm behind digital currency XRP, the world’s eighth largest crypto asset – aims to befriend UK regulators as it develops its cross-border payment capabilities, according to UK business daily City A.M.

Earlier this week Ripple announced a partnership with payments platform Modulr, one of the few non-banks with access to Bank of England settlement services. 

The partners plan to offer customers technology which will enable fast, cheap cross-border payments into the UK and Europe from the Asia Pacific, North America, Latin America and Middle East regions. They announced that Trust Payments is the first customer to go live and begin benefiting from the partnership.

A release announcing the partnership stated: “Together, the two leading FinTechs will make it easier than ever for businesses, like Trust Payments, to run real-time payments internationally powered by Ripple’s financial technology, RippleNet. With Modulr’s technology, global businesses have an alternative to legacy correspondent banking and can now make payments into the UK and Europe faster, more reliable, and cost-effective.”

“We are looking to solve a very specific problem in the market,” Sendi Young, managing director for RippleNet Europe told the paper. “In our approach we want to work with the system including ecosystem partners, governments and regulators.”

Ripple describes 2021 as its most successful year to date, more than doubling the number of transactions on RippleNet, with a payment volume run rate of over US$10 billion. The company was recently valued at US$15 billion. However, as City A.M. noted, its increased focus on European markets comes as Ripple remains embroiled in a lawsuit with the US financial regulator for issuing XRP.

The US Securities and Exchange Commission (SEC) filed an action against Ripple and two executives in December 2020 for US$1.3 billion, alleging that XRP was unlawfully sold as an unregistered security.

City A.M. reports that the business is now diversifying, developing the capabilities of its RippleNet and launching a charm offensive targeting regulators in overseas markets, including the BoE.

“I would like to say we were friends,” Young told the paper. “Here and in many places around the world, we are working very, very closely with central banks and government regulators.”

Since last September RippleNet has announced partnerships with the Central Banks of Bhutan and Palau to help them develop central bank digital currencies (CBDCs). Ripple is also making inroads in the UK and in October became a member of the Digital Pound Foundation, an industry body supporting the development of a British CBDC.

“We have regular meetings around a variety of topics,” Young said, insisting that Ripple is in a “very good position” with regulators worldwide.


China’s zero-Covid policy a risk to supply chains, warns HSBC

China’s continuing zero-Covid policy restrictions threatens to undermine the global supply chain recovery as any small disruption in the country will likely lead to “ripple effects” across the world, the head of shipping at HSBC has warned.

The coronavirus pandemic has revealed “how lean the supply chain has become. And there is little margin of error,” said Parash Jain, the bank’s global head of shipping and ports equity research. “The sheer importance of China when it comes to global trade means that any small disruption in China, will have a ripple effect across the supply chain,” Jain told broadcaster CNBC earlier this week.

China introduced a zero-tolerance Covid policy two years ago when the first cases of the virus were reported. Beijing has, in certain cases, ordered the closure of ports and factories and imposed strict quarantines and travel restrictions — whether within a city or with other countries — to control outbreaks.

As the world’s second-largest economy, China’s measures have impacted manufacturing and shipping operations globally, exacerbating the supply chain crisis. The emergence of highly infections omicron variant of the virus has seen a recent spike in infections across the country

There have been renewed concerns that the pandemic could also deal a further blow to the shipping industry. Covid cases have been reported in the key port cities of Shenzhen, Tianjin and Ningbo, and also in the industrial hub of Xi’an, triggering lockdowns and curbs in the largest port hubs. 

Despite the country reporting relatively few cases compared to many other places in Asia, Beijing has maintained its zero-Covid approach ahead of the Winter Olympics, which begin on 4 February. On a more positive note, Jain acknowledged that China has the infrastructure in place to quickly decongest – whether it’s at the port or in the supply chain side.

“However, the chaos created because of this will eventually have an impact on the other side of the ocean,” he added. “That’s why, as long as China maintains this very strict zero-Covid stance, we cannot rule out a disruption time to time as the year progresses.”

As a result of the pandemic, several large container shipping lines “are trying to get a greater hold on the entire supply chain,” said Jain “There is investment on the land side logistics. There is investment on the terminal side. But some of those infrastructures, particularly, in the developed market, were long overdue.”

“From the shipper’s perspective or from the customer’s perspective, given the comfort that they had over the last several decades of maintaining just in time inventory, I think that these disruptions probably would make them think again.”

In the US, Federal Express has suspended several freight shipment services, blaming staff shortages and supply chain issues.

According to a Reuters report, the omicron variant of Covid-19 has led to higher-than-normal staff sickness rates at the company, which has responded by temporarily halting economy domestic FedEx express freight, including FedEx two-day freight and FedEx three-day freight services. American consumers have already become aware of the problem and posted hostile online reviews, complaining of what they consider to be excessive delays.

Ransomware attack targets Britain’s salted peanuts

UK shops face an impending shortage of KP salted peanuts, Butterkist popcorn and other popular brands following a cyberattack on producer KP Snacks.

The company has notified stores that the ransomware attack has disrupted its IT and communications systems, which is likely to create supply issues until “the end of March at the earliest” as it “cannot safely process orders or dispatch goods”.

The warning message, issued via the groceries wholesaler Nisa, added that KP Snacks planned to limit the size of orders to retailers so it could “manage what stock we do have”, according to the website Better Retailing that first reported the attack.

On Friday 28 January we became aware that we were unfortunately victims of a ransomware incident,” said KP Snacks in a statement. “As soon as we became aware of the incident, we enacted our cybersecurity response plan and engaged a leading forensic information technology firm and legal counsel to assist us in our investigation.

“Our internal IT teams continue to work with third-party experts to assess the situation. We have been continuing to keep our colleagues, customers, and suppliers informed of any developments and apologise for any disruption this may have caused.”

The hackers are threatening to release information stolen from the company’s IT systems to pressure it into making a ransom payment to decrypt its files to continue operations.

“This is another example of the real-life consequences that ransomware can have, and they are becoming more common than ever before,” commented Carl Wearn, head of risk and resilience at cybersecurity firm Mimecast.

“Our recent report found that organisations in the UK experienced an average of 3,000 ransomware attacks in the last two years, at a rate of four attacks per day. It is not advisable to pay the ransom, as the criminals may not release the data or access to the systems.”

Another UK major snack food manufacturer, Walkers was hit by IT issues last October and the resulting gaps on shelves lasted to the end of the year.

The UK’s National Cyber Security Centre has warned that even if firms pay the ransom demanded “there is no guarantee that you will get access to your computer, or your files”.


B2B finance provider Behalf expects “big advancements in digitisation”

US alternative financing provider Behalf, Inc, which focuses on the business to business (B2B) sector, expects “big advancements” in the digitisation of B2B finance in 2022 as business merchants continue to invest to improve the customer experience and streamline their business operations.   

“Prior to the pandemic, a surprisingly large percentage of B2B commerce still took place via traditional channels such as in-person sales, assisted selling, distributors, and phone,” said Rob Rosenblatt, the CEO of New York-based Behalf. “When everything shifted to online purchasing, a lot of B2B sellers were really unprepared. But, since then, we’ve seen a lot of progress.”

Rosenblatt predicts that progress will continue on several fronts in 2022 and cites four major drivers:

1.   B2B Gets Real About Digital Commerce
Innovation in B2B payments has lagged B2C for many years. The fundamental changes in buyer/seller interaction models caused by the pandemic have forced the B2B merchant community to take a fresh look at how payments and financing enhance – or detract from – the overall customer experience.

In 2022, B2B merchants will continue to fortify the e-commerce experience with the goal of making the end-to-end buying process as frictionless and differentiating as possible. This will go beyond the shopping experience. Building on the momentum for Buy Now Pay Later (BNPL) in consumer retail, B2B merchants will invest in capabilities that enable them to automate the offering of financing solutions at the point-of-sale. These capabilities will provide their customers with greater buying power (raising the average ticket) and enhance cash flow through better matching of cash inflows and outflows. They will also build customer loyalty and create important operational efficiencies.

2.   B2B Buyers and Suppliers Flex on Payment Details
In B2B commerce, “payment terms” are an important aspect of any business relationship. These financing details have typically been negotiated up front — before the vagaries of specific transactions can really be considered.

As small and medium-sized businesses (SMBs) take more considered approaches to how they pay for goods to optimise capital allocation, manage cash flow, and match inventory to revenue flow, B2B merchants will respond with more flexible financing choices tailored to different types of transactions. We will move towards a “slider function” built within financing programs that facilitate alignment on financing details, discounts and payment summaries between buyers and sellers at the individual transaction level. Longer-term, we will see the evolution of category and merchandise-specific automation of financing options with the assistance of artificial intelligence (AI)- and analytics-based platforms.

3.   New Financing Options for Small Business
Small businesses desperately need more flexible financing alternatives to traditional business credit cards and loans. Fintech will be the solution to that problem in 2022 with the emergence of alternative lending solutions specifically for small businesses. These will come in different forms — from alternative financing solutions purpose-built for B2B, to all-in-one small business and spend management credit cards, to neobanks and decentralised finance (defi) solutions. SMBs have some access to products like these today, but 2022 will be the year in which we see a laser focus on products that specifically address the needs for expanded working capital solutions for small businesses.

4.   Banks Dive Deeper into BNPL
Some traditional banks view alternative financing solutions like BNPL as a threat – to their credit card, credit line and instalment loan businesses. JP Morgan Chase, in particular, has been outspoken about this threat and vowed to defend against it. Others such as Barclays and SoFi recognise the promise of BNPL and have partnered with MasterCard to offer BNPL-type services.

In 2022, expect to see more banks incorporate alternative financing and BNPL solutions into their offerings for consumers and businesses. Some will offer solutions via acquisitions of fintech startups while others will look to partner with fintechs or build these capabilities from within. As more banks embrace alternative financing, they will in fact contribute to the proverbial “rising tide that lifts all boats.” Beside their role as a trusted source of financial advice, banks have the ability to capitalise on vast reservoirs of spend and payment history to improve access to flexible financing alternatives for both consumers and businesses.

“The web is tailor-made for B2B commerce — always on, 24/7 availability, self-service, nearly unlimited choice,” adds Rosenblatt. “It creates a wealth of new opportunities for businesses to improve the way they engage and serve their customers, while also dramatically streamlining their business operations. I think we’ll see B2B start to really close the innovation gap with business-to-consumer (B2C) in the next 12-24 months.”

BT Pension Scheme employs IRM for cash flow-matched strategy by 2034

The UK’s BT Group, the telecommunications multinational previously known as British Telecom, has introduced integrated risk management (IRM) for its pension scheme to assess its appropriate level of risk and pace its transition from equities to a fully cash flow-matched strategy by 2034.

Reporting on BT’s move, the website comments that experts expect IRM to grow in importance as covenant risk comes to the fore of pension trustees’ minds.

But until recently, few tools were available to streamline the process, with traditional risk management approaches taking a relatively narrow view of company accounts, as well as being prohibitively expensive for the UK’s smaller schemes looking to ensure best practice.

IRM approaches are typically more holistic than the tools traditionally deployed in assessing risk for UK defined benefit (DB) pension schemes, accounting — for example — for covenant impact and sponsor viability.

London-based fintech financial modelling firm Gazelle Corporate Finance has been developing software designed to ease the IRM process since its formation in 1996. BT commissioned the company to begin working with its pension scheme in 2018, using its Mousetrap tool to help manage BT’s risk and move gradually from equities to a fully cash flow-matched strategy by 2034.

The BT Pension Scheme is the UK’s largest corporate DB scheme with around £58 billion (US$78.5bn) in assets. Gazelle has since supplemented Mousetrap with a slimline version of the product designed for use with smaller pension schemes, providing covenant reports at much lower cost than a traditional assessment.

DBiCAM (Defined Benefit integrated Covenant Assessment Model), its tool for small and medium-sized pension schemes, launched in September 2021 as a cost-effective solution for an underserved market. 

The company describes it as “a fully integrated pension risk model designed to benchmark covenant risk” and priced at around 10% of the cost of standard covenant assessment “a great way to organise available risk information about your employer and scheme joining everything up to support better decisions about pension risk.”



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