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The FTX filing for bankruptcy, most high-profile crypto financial collapse to date – Industry roundup: 18 November

FTX's corporate control deemed ineffective and compromised, claims new CEO

According to recent court filing reports, the newly appointed CEO of FTX, John Ray, claims that the bankrupt crypto exchange, once valued at US $32 million, founded by Sam Bankman-Fried (SBF), had compromised regulatory authority, incomplete records, missing and unreliable financial statements, and inadequate corporate control. Furthermore, the FTX chapter 11 bankruptcy filing reveals that despite claims from the company's founder, SBF, that the company held $5.5 billion in "less liquid" crypto tokens, the total fair value of cryptocurrencies held by FTX International as of the end of September was reportedly only $659,000.

The FTX filing for bankruptcy in the US last Friday signalled the most high-profile crypto financial collapse to date, after traders withdrew US $6 billion from the platform within three days and rival exchange Binance dropped a rescue deal.

This case is reportedly unprecedented, Ray further stated in the filing, "from compromised system integrity and faulty regulatory oversight abroad to the concentration of control in the hands of a very small group of inexperienced, unsophisticated, and potentially compromised individuals."

Reports indicate that Ray has not identified any specific abroad regulator in the filing and also claimed that Bankman-Fried made inconsistent and misleading comments to the public. According to reports, Bankman-Fried stated he expanded his business too quickly and failed to recognize signs of problems at the exchange.

The impact of the FTX collapse affected many around the world. Temasek Holdings, a Singapore state investor and FTX investor, mentioned Bankman-Fried in a detailed statement on Thursday as it announced it would write down the value of its entire $275 million investment. Numerous different venture capitalists, such as Softbank Group Corp's vision fund and Sequoia Capital, have written down their investment positions in the exchange to zero, as the fallout from FTX's bankruptcy continues to reverberate across the globe. Furthermore, Genesis Global Capital, a major crypto firm, suspended client withdrawals in its lending operations on Wednesday in response to the extreme market disruption and loss of sector optimism exacerbated by the FTX collapse. Santander UK has also placed a freeze on all payments to cryptocurrency exchanges.

The Finance Minister of Singapore reportedly stated that the implosion of FTX has elevated severe claims of potentially fraudulent activity. Additionally, while Indonesia allegedly ordered crypto exchanges to halt trading FTX tokens, Brazilian crypto supporters reportedly cited FTX's demise in their call for policymakers to grant official approval to a legislation to strengthen cryptocurrency industry oversight.

Binance investigates a proof-of-reserves certificate to restore the crypto financial meltdown

As many centralized crypto exchanges rush to establish their legitimacy in the wake of FTX's collapse, Changpeng Zhao, founder and CEO, Binance, has reportedly stated that Proof-of-Reserves (PoR) could potentially restore faith in cryptocurrency.

Reports indicate that true DeFi prioritizes transparency, and many decentralized exchanges have public accounting records that are updated in real time. However, centralized exchanges, despite operating in the DeFi sector, are not the same. Daniel Keller, Co-Founder, Flux, commented that blockchain was designed to be completely transparent ledgers, but the process is nonetheless concealed.

The PoRs reportedly aim to increase transparency, demonstrating that an exchange has sufficient liquidity to process all customer withdrawals. Users could track funds and verify the exchange's reserves by implementing a "Merkle tree". Typically, PoR proposals necessitate third-party participation to ensure that the funds on-chain correspond to the funds claimed by the exchange.

Binance has reportedly been forthright about the development of their PoR, pledging to assist FTX and encouraging other exchanges to do the same. The policy is reportedly in place on a few exchanges, including Kraken and BitMEX. However, reports indicate that Binances’ data was incomplete when they produced their first snapshot PoR, with a full PoR reportedly in plan. Vitalik Buterin, the creator of Ethereum, has also informed Zhao that he plans to work on a new protocol, which Binance reportedly plans to test first. According to reports, the Merkle Tree method was used in the original PoR protocol for many years. Analysts state that in DeFi entities, a public ledger eliminates the need for a PoR, where all transactions are reportedly visible on the blockchain in real time. Keller commented that it is critical to have a formal framework where users can see the reserves held on exchange.

FTX had a liquidity problem, but another important factor was reportedly the size of its liabilities, which was exacerbated by the use of its native token as collateral, said reports. Yves Longchamp, Head of Research, SEB, commented that FTX had $9 billion in liabilities and only $900 million in liquid assets, indicating that FTX was lending out user funds to Alameda Research in order to channel them into early investments that were then transferred back into the FTX exchange. As a result, FTX had $9 billion in illiquid assets unable to be sold immediately to compensate user withdrawals, causing users to panic and FTX to pause all withdrawals.

Coingecko, a digital currency data exchange platform, accumulated all of the PoRs as they were published, but no liability information was shown. Binance's PoR reportedly showed $69 billion in reserves, with native tokens accounting for 40% of its holdings. The company has not released liability information currently. However, Zhao claims that Binance has no liabilities.

Ripple broadens its payment platform to corporate clients globally

Ripple, a cryptocurrency firm, plans to expand its payments solution outside of financial institutions, opting to support corporate clients such as Nutrisource, Oceanus and other corporates. Additionally, Ripple, through this new expansion, intends to enter a number of markets, including trade, agriculture, e-commerce, technology and supply chain.

With cross-border payments reportedly slow, unreliable and costly, Ripple seeks to make cross-border payments faster, economical and more straightforward. Reports state that customers typically pay approximately 7% in fees when sending money across international borders. The firm acknowledged that the fee is incurred by the receiver, which disproportionately affects the unbanked. Ripple had sought to address this problem by expanding its product products and services for use scenarios that were reportedly restricted by the legacy financial system. Additionally, Ripple stated that it was still working on use cases such as internal treasury, vendor, salary and bulk payments.

Brendan Berry, Payments Product Head, Ripple, claims that companies worldwide are burdened by the broken state of payments, whether it be due to a distributed workforce, international clientele or suppliers. Furthermore, Berry explained that a large number of corporate partners, regardless of sector, have requested support to help with their cross-border payment challenges.

The 'On-Demand Liquidity' (ODL) service from Ripple aims to enable instant payment settlement by removing the requirement for pre-funded destination accounts. Ripple recently announced that it had expanded ODL to nearly forty pay-out markets across the globe, including Africa, Argentina, Belgium and Israel. The existing customers of the fiat-based 'RippleNet' in various parts of the world also reportedly upgraded to ODL, including in Australia, Brazil, Singapore, the United Arab Emirates, the United Kingdom and the United States.

AMEX and Square collaborate to develop a credit card for sellers

Square Inc. plans to introduce its first credit card in collaboration with American Express, as it expands into the banking services arena. The new card will reportedly become the first credit card available to Square's community of small business owners in the United States. Additionally, it is expected to seamlessly integrate into Square's wide variety of platform solutions, enabling clients to manage their cash flow and organize their finances via the same platform they use to operate their company.

The Square Credit Card, in efforts to complement its comprehensive portfolio of banking solutions, is expected to become available to eligible Square merchants in the US. The card will reportedly be issued by Celtic Bank and operated by i2c Inc. Next year, Square plans to provide more information regarding the card and its potential benefits.

Luke Voiles, General Manager of Banking, Square, commented that credit cards are an evolution of Square’s efforts to expand payment processing options for small businesses. Additionally, the planned credit card, according to Voiles, is a way to cater to the “so-called thin-file merchants” who would otherwise be unable to obtain credit. Square has reportedly provided working-capital loans to its sellers, estimating future revenue and performance based on data from their card-processing volumes and used for credit decisions. Furthermore, Voiles claims that even though customers may be “thin-file”, Square can still forecast the next 12 months and use the same underwriting tools to provide credit card lines.

Amex plans to provide its back-end capabilities, while Square’s developers and product managers will reportedly aid in developing an interactive front-end experience. Mohammed Badi, President, American Express Network, commented that the collaboration with Square is in line with a recent strategy of modernizing its network and embracing partnerships with fintechs that aim to co-create cards.

Euronet Worldwide and AeTrade join forces to create a real-time cross-border payment gateway for Africa

Euronet Worldwide, Inc., a global financial technology solutions and payments provider, has collaborated with the Africa Electronic Trade Group (AeTrade) to develop a multi-channel, real-time cross-border payments gateway (or switch) for Africa.

The Euronet-powered payments switch will reportedly function as the financial framework for a preliminary 44 of the 54 potential African Continental Free Trade Area (AfCFTA) nations, which plan to connect 1.4 billion people with a combined GDP of approximately US $3.4 trillion. The switch, which will utilize Euronet's Ren payments technology, will reportedly enable central banks, regional processors, financial institutions, regional mobile wallets and small and medium enterprises to initiate real-time transactions in a simple manner, offering additional banking benefits and capabilities for the citizens of Africa.

AeTrade was reportedly chosen to bring financial solutions to the continental market in accordance with the African Union’s (AU) Smart Finance and Digital Banking initiative, which was launched in February 2022, strengthening their existing partnership with the AU. Euronet and its Ren payments technologies were designated by AeTrade to build and deliver the pan-African payments switch. Mulualem Syoum, CEO, AeTrade Group, commented that the collaboration with Euronet is expected to offer an interoperable payment system that will serve as a foundation for multiple AeTrade Group services, including SME e-empowerment services, SME insurance services, e-government services, smart logistics and warehousing capabilities across Africa.

Klarna creates 'autopilot' for open banking, boosting interoperability for SMEs

Klarna, a Swedish fintech firm, has launched a new project, “autopilot”, to accelerate the development of open banking services. The open banking “autopilot” will reportedly provide firms access to a free product development framework created on its bank aggregation platform. Klarna Kosma, the company's fintech platform for financial institutions, stated that the initiative could assist start-ups in developing proof-of-concepts in fintech, e-commerce and data analytics.

The platform aims to provide financial institutions, fintechs and merchants with the interoperability to create the "next generation" of apps and services by offering API access to 15,000 financial institutions throughout 24 nations. Klarna’s network of banking institutions and a variety of products on its open banking platform are expected to be available at no cost for only three months to a small number of start-ups and established organizations.

Recent reports indicate that Klarna Kosma has also engaged in an open banking arrangement with Krea, a Swedish digital loans platform provider, in order to make loans more accessible and affordable for Swedish SMEs. However, reports say that Klarna disclosed in September that it would further reduce its workforce. The actions reportedly come just weeks after the BNPL company announced a £500 million loss in the first half of 2022, primarily due to staff expenditures and credit losses as a result of its market expansion.

PayMate expands its B2B payments platform into the Singapore and Sri Lanka region to strengthen working capital requirements

PayMate, a Mumbai-based cloud B2B payment processing platform, is reportedly accessible to companies in Singapore and Sri Lanka, supporting their working capital needs and digitizing and automating business payments in supply chains.

Large companies and SMBs in Singapore and Sri Lanka that use the company's platform can reportedly initiate early payments on supplier invoices using bank-issued commercial credit cards, extending their days payable. Additionally, the platform reportedly reconciles all incoming and outgoing payments, allowing CFOs and finance managers to analyse business cash flow in order to strengthen working capital. Custom approval workflows, APIs, spending reports and ERP integrations are other significant functionalities aimed at improving the effectiveness of the payable and receivable processes.

Ajay Adiseshan, Chairman and Managing Director, PayMate, commented that the platform offers an interface that enables clients' suppliers, dealers and distributors to accept payments and complete collections in a streamlined manner.

Additionally, the recent growth in Singapore and Sri Lanka is reportedly a component of the company’s broader strategic and geographic plan, affirming its interest in other regions, such as South Asia, Asia Pacific, Central Europe, the Middle East and Africa.

The company attributes the success of this strategy to the findings of a RedSeer report called Opportunities in B2B Payments in India. The report noted that the volume of global commercial payments in 2021 ranged between $130 trillion and $135 trillion, with India accounting for $8 trillion, CEMEA at approximately $10 trillion, and APAC at roughly $58 trillion.

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