Crypto meltdown is wake-up call for many, including lawmakers

A representation of virtual currency bitcoin and a US one dollar banknote are seen in front of a stock graph in this illustration. (REUTERS)
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Updated 08 June 2022

Crypto meltdown is wake-up call for many, including lawmakers

  • Roughly 16% of adult Americans, or 40 million people, have invested in cryptocurrencies, survey shows
  • Stablecoin TerraUSD's collapse has led to an estimated $40 billion in investor funds erased

NEW YORK: Meltdowns in the cryptocurrency space are common, but the latest one really touched some nerves. Novice investors took to online forums to share tales of decimated fortunes and even suicidal despair. Experienced crypto supporters, including one prominent billionaire, were left feeling humbled.
When the stablecoin TerraUSD imploded last month, an estimated $40 billion in investor funds was erased — and so far there has been little or no accountability. Stablecoins are supposed to be less vulnerable to big swings — thus the name — but Terra suffered a spectacular collapse in a matter of days.
The Terra episode publicly exposed a truth long-known in the always-online crypto community: for every digital currency with staying power, like bitcoin, there have been hundreds of failed or worthless currencies in crypto’s short history. So Terra became just the latest “sh— coin” — the term used by the community to describe coins that faded into obscurity.
Terra’s quick collapse came just as bitcoin, the most popular cryptocurrency, was in the midst of a decline that has wiped out nearly half of its value in a couple of months. The events have served as a vivid reminder that investors, both professionals and the mom and pop variety, can be rolling the dice when it comes to putting money into digital assets.
After being mostly hands-off toward crypto, it appears that Washington has had enough. On Tuesday, two senators — one Democrat and one Republican — proposed legislation that seeks to build a regulatory framework around the cryptocurrency industry; other members of Congress are considering more limited legislation.
What’s surprising, however, is that the cryptocurrency industry is signaling its cooperation. Politicians, crypto enthusiasts, and industry lobbyists all point to last month’s collapse of Terra and its token Luna as the possible end of the libertarian experiment in crypto.
Stablecoins are typically pegged to a traditional financial instrument, like the US dollar, and are supposed to be the cryptocurrency equivalent of investing in a conservative money market fund. But Terra was not backed by any hard assets. Instead, its founder Do Kwon promised that Terra’s proprietary algorithm would keep the coin’s value pegged to roughly $1.00. Critics of Terra would be attacked on social media by Kwon and his so-called army of “LUNAtics”
Kwon’s promise turned out to be worthless. A massive selling event caused Terra to “break the buck” and collapse in value. Reddit boards dedicated to Terra and Luna were dominated for days by posts referencing the National Suicide Prevention Hotline.
Terra’s ascendance attracted not only retail investors but also better-known cryptocurrency experts. One notable “Lunatic” was billionaire Mike Novogratz, who tattooed his upper arm with the word Luna and a wolf howling at the moon. Novogratz told his followers that the tattoo “will be a constant reminder that venture investing requires humility.”
Michael Estrabillo entrusted his crypto investments to stablegains, an investment vehicle that he says had assured him and other investors that the funds were secured in USD Coin, one of the largest stablecoins. Then, on May 9, he said he was informed his money was locked up in Terra.
“Had I known I was involved in a currency that was backed by an algorithm, I would have never invested in that,” Estrabillo lamented.
Washington may also be waking up to the fact that what used to be niche part of the Internet and finance has gone mainstream and can no longer be ignored.
The total value of crypto assets hit a peak of $2.8 trillion last November; it’s now below $1.3 trillion, according to CoinGecko. Surveys show that roughly 16 percent of adult Americans, or 40 million people, have invested in cryptocurrencies. Retirement account giant Fidelity Investments now offers crypto as a part of a 401(k) plan. Sen. Cory Booker, D-New Jersey, has repeatedly pointed out that crypto is particularly popular among Black Americans, a community long distrustful of Wall Street.
Further, crypto has permeated popular culture. Numerous Super Bowl ads touted crypto. Sports arenas are now named after crypto projects and the Washington Nationals baseball team took a sponsorship deal from Terra before it collapsed. Celebrities routinely shill crypto on social media, and YouTube personalities generate millions of views talking about the latest crypto idea.
Terra’s collapse was a bridge too far, it seems.
On Tuesday, Sen. Kirsten Gillibrand, D-New York, and Sen. Cynthia Lummis, R-Wyoming, proposed a framework to start regulating the industry, which would include giving the Commodity Futures Trading Commission full regulatory jurisdiction over cryptocurrencies such as bitcoin and rewriting the tax code to include crypto. It would also fully regulate stablecoins for the first time ever.
This comes after the Biden administration’s working group on financial markets issued a 22-page report last November, calling on Congress to pass legislation that would regulate stablecoins. One recommendation includes a requirement that stablecoin issuers become banks that would hold sufficient cash reserves.
Treasury Secretary Janet Yellen has also called for stablecoin regulation, saying “we really need a regulatory framework to guard against the risks,” during a House committee meeting in May.
Further, it appears that the cryptocurrency industry — with its libertarian leanings and deep skepticism of Washington — might also be on board.
“I do think this is a bit of a wake-up call. A lot of people were taken aback by Terra’s failure,” said Perianne Boring, founder of the Chamber of Digital Commerce, one of the top lobbyists for the cryptocurrency industry.
Other crypto lobby groups, like the Association for Digital Asset Markets, have announced support for the Lummis-Gillibrand bill.
One idea that Washington seems to be coalescing around is that entities that issue stablecoins — often used as a bridge between traditional finance and the crypto world — need to be transparent about the assets backing them and be as liquid as any other instrument playing a key role in finance.
Sen. Pat Toomey, R-Pennsylvania, is circulating a separate bill that would require stablecoin providers to have a license to operate, restrict the types of assets they carry to back those stablecoins, as well as be subject to routine auditing to make sure they are complying.
Describing Terra as a “debacle,” Toomey said in an interview that Terra’s collapse made it even more important that Washington build some guardrails around stablecoins. Toomey is the top Republican on the Senate Banking Committee.
“It’s always difficult to get anything across the goal line in the Senate, but there’s nothing politically polarizing about creating a statutory regime for stablecoins,” Toomey said.
After Terra’s collapse there are two remaining big stablecoins: USD Coin issued by the company Circle, and Tether, created by the Hong Kong-based company Bitfinex. Both hold hard assets to back their value, but Bitfinex is less transparent about the assets it holds and is not audited. There are also a host of smaller stablecoin issuers, which in the world of crypto could become the latest hot item overnight.
“It’s not just urgent that Washington step in, it’s urgently urgent,” said Jeremy Allaire, founder and CEO of Circle, in an interview.
 

Decoder

What are Stablecoins?

Stablecoins are cryptocurrencies supposedly pegged to a cryptocurrency, fiat money, or to exchange-traded commodities. They are supposed to be less vulnerable to big swings, but Terra suffered a spectacular collapse in a matter of days, publicly exposing a truth long-known in the always-online crypto community: for every digital currency with staying power, like bitcoin, there have been hundreds of failed or worthless currencies in crypto’s short history.

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Saudi banks shut down 42 branches in 12 months, increase digital presence

Updated 9 sec ago

Saudi banks shut down 42 branches in 12 months, increase digital presence

  • More banks are switching to increased virtual interactions and digitalization, and new banks are opening entirely on that premise

CAIRO: Saudi banks shut down 42 branches over the year ending in June, revealed the Saudi Central Bank, also known as SAMA.

The number of bank branches in Saudi Arabia also inched lower to 1,927 in the second quarter this year from 1,932 in the same quarter last year.

So, what are the reasons behind this decreased number of bank branches, and when did this trend begin?

The most common assumption would be the COVID-19 pandemic and its prolonged effect on the entire economy, including the financial and banking sectors.

Between the fourth quarter of 2019 and the first quarter of 2021, which includes the peak of the pandemic, 68 branches were closed. 

Also, bank branches continued to decrease quarterly long after lifting COVID-19 restrictions, albeit there was no clear trend.

Between May 2020 and June this year, 137 bank branches in the Kingdom shut shop.

It is worth mentioning that branches that have closed are not second-tier or underperforming banks but some of the largest and well-performing ones. For instance, Al Rajhi Bank, which had 543 branches in the fourth quarter of 2020, reduced it to 515 by June this year.

While COVID-19 sparked the digital revolution, advanced and innovative technologies did the job.

The past three years of the pandemic slowly began the transformation toward digital banking, which can be seen closely in the Saudi banking sector.

More banks are switching to increased virtual interactions and digitalization, and new banks are opening entirely on that premise.

Last February, SAMA licensed and welcomed the Kingdom’s third digital bank D360 Bank, following the launch of STC and Saudi Digital Bank in June last year.

Similarly, according to SAMA, 19 Saudi fintech companies have been authorized to provide payment services, consumer microfinance and electronic insurance brokerage over the past few months.

So, what does the future of digital banking in the Kingdom hold and will the population accept this digital revolution?

In a survey conducted by Ipsos in the Kingdom in October 2021, the research major pointed out that 61 percent still trust traditional banks, while 47 percent counted on mobile service providers and 40 percent depended on popular digital brands to carry out financial transactions.

The report added: “63 percent said that they will be making all their financial transactions through digital banking in the future, and 58 percent believe that people would no longer use cash as a payment method.”


Saudi banks increase loans by $77.1bn in Q2

Updated 14 August 2022

Saudi banks increase loans by $77.1bn in Q2

  • Kingdom is moving toward Vision 2030 by developing the trade sector and ensuring its sustainability

CAIRO: Saudi Arabia’s bank loan portfolio rose by SR289 billion ($77.1 billion) in the second quarter of this year from the same quarter a year ago, according to a recent statistical bulletin released by the Saudi Central Bank, also known as SAMA.

Bank loans totaled SR2.42 trillion at the end of the second quarter of 2022, up from SR1.95 trillion in the second quarter of 2021, showed the SAMA report.

The SR289 billion increase was led by an SR191.1 billion growth in miscellaneous activities. Its share increased by 2 percentage points to 52 percent in the second quarter of 2022.

The data showed that the value of Saudi banks’ aggregate loan portfolio totaled SR2.24 trillion at the end of the second quarter of 2022, up 14.8 percent from the year before and up 4 percent from the previous quarter.

The annual growth in bank loans dropped to a negative in 2017 and remained below zero until the third quarter of 2018. However, bank loans have been seeing an upward trend ever since, according to the SAMA report.

From the third quarter of 2018 until the end of 2019, the value of Saudi bank loans grew at an average rate of 3.7 percent year on year; between 2020 and the second quarter of this year, it grew at an average rate of 14.8 percent year on year.

The dominating segment in the Kingdom’s loans was miscellaneous economic activity, which acquired 52 percent of the total loans this quarter.

Commerce came in second, holding 17.2 percent of total loans in the country, recording SR385.7 billion in the second quarter, showed the data.

The Ministry of Commerce in the Kingdom has been moving toward the Saudi Vision 2030 by developing the trade sector and ensuring its sustainability, according to the Kingdom’s Unified National Platform.

The platform stated: “The Ministry of Commerce’s mission focuses on improving the business environment in Saudi Arabia through enacting, developing and supervising the implementation of flexible and fair trade policies and regulations.”

Even though total bank loans expanded this quarter, two economic activities saw a quarterly decline in bank credit in the second quarter of this year: manufacturing and processing and transport and communication.

Bank loans to transport and communication fell by SR6.2 billion in the second quarter of 2022 from the same quarter the previous year.

Compared to the previous quarter, the sector dropped from 2.1 percent of total loans in the first quarter to 1.9 percent, showed the SAMA bulletin.

Bank loans given to manufacturing and processing fell by SR4 billion in the second quarter of 2022 from the same quarter the previous year.

The data showed that the sector dropped from 7.2 percent of total loans in the first quarter to 6.9 percent compared to the previous quarter.

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QS Monitor taps 90% of global food trade

Updated 15 August 2022

QS Monitor taps 90% of global food trade

  • Platform currently operates in 72 countries: Managing director Burak Karapinar

RIYADH: UAE-based global food trade startup QS Monitor has created a platform for food traders to ship their goods risk-free.

Established in 2020, the company mitigates the risk for exporters as they streamline their shipments to avoid food loss by providing traders with the requirements for their goods to pass security measures.

Burak Karapinar, the managing director and founder of QS Monitor, told Arab News that the platform currently operates in 72 countries, which amounts to almost 90 percent of the global food trade industry.

“We are in 72 countries and growing, but this represents almost 90 percent of the global food trade. So, the ones we don’t have on the platform right now are either small countries or ones that are not big in the food trade,” Karapinar said.

Calling it the “Google for food trade,” Karapinar explained that traders input the product along with the destination, and QS Monitor will provide a complete list of requirements.

But that is not at all. Joe Hawayek, the board member of QS Monitor, told Arab News that the platform also links users to testing laboratories in their country.

“We are linking them with a testing laboratory in their country that can conduct these tests, issue them with the relevant certification that says they have passed, and they take it and travel with it for their product from the start,” he added.

By linking these players, Karapinar is trying to mitigate the food loss in the supply chain caused due to contamination. 

FASTFACTS

• As the Ukraine-Russia war affected the global food trade sector, the company plays a huge role in ensuring importers are still connected with exporters.

• Saudi Arabia and the UAE import most of their eggs from Ukraine, and because of the platform, importers could find alternative sources for their products.

“To give you an idea, 72 percent of global food loss happens in the supply chain, not at home or on the consumer’s plate,” he pointed out.

As the Ukraine-Russia war affected the global food trade sector, the company plays a huge role in ensuring importers are still connected with exporters.

“That’s another beauty that we can provide to this platform. The onboarding of a supplier takes months. You need to be able to verify all the information and make sure the supplier meets your criteria and standards.

“Through our platform, you don’t need to do that. You can gather this information. And you can make your decision. So, we also add the trust element between the buyer and the seller,” Karapinar said.

Hawayek also added that Saudi Arabia and the UAE import most of their eggs from Ukraine, and because of the platform, importers could find alternative sources for their products. With a network of over 400 laboratories, the company provides several services through its platform and certification for Halal requirements for certain foods.

“We did more than 10,000 transactions last year; this includes certification testing, inspection, product registration, and supplier audits,” Karapinar added.

With 6,000 traders on the platform, Karapinar stated that the company currently has 1,000 traders on QS Monitor from the Kingdom and is planning to grow that number by a minimum of five times.

In addition, the company is currently in series A funding stage and is on its way to raising $8 million and expanding its staff from 18 to 60 people in the next five months.

QS Monitor also won UAE’s FoodTech Challenge provided by the Ministry of Climate Change and Environment, which features almost 600 companies.

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Gazprom ramps up gas flow to Hungary via Turkstream pipeline, official says

Updated 13 August 2022

Gazprom ramps up gas flow to Hungary via Turkstream pipeline, official says

  • The agreement with Gazprom is for 15 years, with an option to modify purchased quantities after 10 years

BUDAPEST: Russia’s Gazprom has ramped up flows to Hungary via the Turkstream pipeline that brings gas to Hungary via Serbia, a Hungarian Foreign Ministry official said on Saturday.

EU member Hungary has maintained what it calls pragmatic relations with Moscow since Russia’s invasion of Ukraine, creating tensions with some EU allies keen to take a tougher line.

Hungary, which is about 85 percent dependent on Russian gas, firmly opposes the idea of any EU sanctions on Russian gas imports and Prime Minister Viktor Orban has also lobbied hard to secure an exemption from EU sanctions on Russian crude oil imports.

Foreign Minister Peter Szijjarto met his Russian counterpart Sergei Lavrov in Moscow last month, seeking a further 700 million cubic meters of gas on top of an existing long-term supply deal with Russia.

Under a subsequent agreement, Gazprom started ramping up gas flows to Hungary on Friday, Hungarian Foreign Ministry State Secretary Tamas Menczer said in a statement.

Menczer said Gazprom would add 2.6 million cubic meters of additional gas per day to previously-agreed deliveries via Turkstream through August, with the amount of September deliveries being negotiated.

Hungary’s reserves stored 2.84 billion cubic meters of gas by the middle of July, the lowest level for that period over the past five years based on data by the national energy regulator.

Under a deal signed last year, before the start of the war in neighboring Ukraine, Hungary receives 3.5 billion cubic meters of gas per year via Bulgaria and Serbia under its long-term deal with Russia and a further 1 bcm via a pipeline from Austria.

The agreement with Gazprom is for 15 years, with an option to modify purchased quantities after 10 years.

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Arab News top picks of MENA’s 10 most funded fintech startups

Updated 15 August 2022

Arab News top picks of MENA’s 10 most funded fintech startups

  • Technology-based sectors starting to dominate the business landscape in the region

RIYADH: The entrepreneurial ecosystem has been on the rise in the Middle East and North Africa region for a while, with technology-based sectors starting to dominate the business landscape.

Financial technology, popularly known as fintech, has been a promising sector for business people and investors alike, with startups entering and exiting the industry like never before.

The numbers speak for themselves. Startup funding increased 540 percent in the first quarter of 2022 compared to the same time last year, reported Dubai-based MAGNiTT, a startup research platform.

To get a sense of the action in the fintech domain, Arab News has compiled a list of the 10 most funded fintech startups in the MENA region.

 

Tabby

Founders Hosam Arab, Daniil Barkalov

Funding $275 million

Rounds 8

Investors 19 investors including STV, Global Founders Capital, Raed Ventures, Partners for Growth, Atalaya Capital.

Headquarters UAE

One of the leading buy-now-pay-later platforms in the region, Tabby aims to provide financial freedom to shoppers by offering solutions without interest or debt fees.

Focusing on the retail sector, the company wants to improve the shopping experience of its loyal customers by offering a flexible checkout experience.

Tabby raised $150 million in debt financing in its last funding round and it aims to use it to fortify its balance sheet as well as strengthen its client base.


Foodics

Founders Ahmad Al-Zaini, Musab Al-Othmani

Funding $198 million

Rounds: 5

Investors 17 investors including STV, Sanabil and Prosus

Headquarters Saudi Arabia

Foodics offers a point-of-sale management system for restaurants that lets business owners keep track of all their operations, from the kitchen to employees and sales.

The company offers many facilities that support restaurant operations, including micro-lending and payments catering to food and beverage establishments.

In its latest funding round, Foodics secured $170 million in a series C round, allowing it to grow its fintech arm and micro-lending operations.

 

 


Tamara

Founder Abdulmohsen Al-babtain, Abdulmajeed Al-sukhan, Turki Bin Zarah

Funding $116 million

Rounds 4

Investors 9 investors including Impact46, CheckOut.com and Nama Ventures

Headquarters Saudi Arabia

Another pioneer in the buy-now-pay-later market, Tamara is a Saudi-based fintech that offers its solutions to merchants and buyers alike.

The company aims to create a seamless experience for shoppers by providing a zero-interest fee for its services.

In 2021, Tamara raised $110 million in a series A round, making it a record-breaking round last year.


Paymob

Founder Islam Shawky, Alain El-Hajj, Mostafa Menessy

Funding $68.5 million

Rounds 4

Investors 10 including PayPal Ventures, Nclude and A15

Headquarters Egypt

Paymob, one of the players that changed the game in the Egyptian market, is a complete fintech solution for emerging markets and small and medium enterprises.

The company offers a complete digital payment solution for businesses to accept online and in-store payments.

Founded in 2015, Paymob raised $50 million in a series B funding round in May 2022, which was used in product development and market expansion. 

Ahmad Al-Zaini, the co-Founder and CEO of Foodics, a Riyadh-based startup which helps food outlets with their digital transformation. (Supplied)

PostPay

Founder Tariq Sheikh

Funding $63.5 million, according to Forbes

Rounds Undisclosed

Investors Touch Ventures and AfterPay

Headquarters UAE

Founded in 2019, Postpay is a flexible payment firm that offers shoppers to pay in three monthly interest-free installments at its partner stores.

The company works with leading global brands such as H&M, Footlocker, Dermalogica and domestic merchants such as The Entertainer and Squat Wolf.

Last June, the company secured $10 million in equity investment; the funds will be used to fuel its expansion plans across the MENA region.


HyperPay

Founder Muhannad Ebwini

Funding $50.5 million

Rounds 4

Investors 8 including Mastercard and AB Ventures

Headquarters Saudi Arabia

HyperPay offers a payment gateway for online businesses to accept and manage
payments online with flexibility and security.

Founded in 2014, the company has an extensive network of partners with banks across the Middle East and North Africa to better facilitate online payments in local currencies.

In its last funding round, HyperPay secured $36.7 million in June 2022 to enable the company to grow its team and introduce new payment solutions. 


Khazna

Founder Omar Saleh, Ahmed Wagueeh, Fatma Shenawy

Funding $47 million

Rounds 7

Investors 12 including Quona Capital, Khawazimi Ventures and Nclude

Headquarters Egypt

Another Egyptian fintech startup that tops the list, Khazna, is a financial super app that offers a wide range of solutions for underserved individuals.

The company aims to provide
the 20 million underserved Egyptians with banking and financial options through their smartphones.

Founded in 2019, the company raised $38 million in March 2022, allowing it to replace cash-driven alternatives across Egypt.


BitOasis

Founder Daniel Robenek, Ola Doudin

Funding $30 million

Rounds 6

Investors 15 including Wamda and Jump Capital

Headquarters UAE

A new kind of fintech added to the list, BitOasis is a cryptocurrency trading platform that offers a digital asset wallet.

Founded in 2015, the company allows users to buy, sell, trade and exchange crypto assets in the UAE.

Raising $30 million in its last funding round, BitOasis got approvals from the Abu Dhabi General Market and partnered with police entities to combat crypto fraud.


Telr

Founder Khalil Alami

Funding $28.9 million

Round 4

Investors 4 including Cashfree Payments and iMena Group

Headquarters UAE

An award-winning payment gateway provider, Telr has offices in Singapore, the UAE, India, and Saudi Arabia.

The company offers businesses a set of application programming interfaces and tools to enable them to accept and manage online payments.

Telr raised $15 million in a funding round in 2021 by India-based Cashfree payments to better facilitate cross-border payments.


Paytabs

Founder Abdulaziz Al Jouf

Funding $25.3 million

Rounds 2

Investors Saudi Aramco

Headquarters Saudi Arabia

Another award-winning startup, Paytabs, is a B2B online payments solutions provider that aims to give merchants digital payment features on their websites.

The company offers application programming interfaces to facilitate transactions in multiple currencies and other markets.

Founded in 2014, Paytabs is a Saudi Aramco-backed company that currently operates in the UAE, Saudi Arabia and Egypt.

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