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BFD Expert Voices - Private Credit

BFD Expert Voices

Global crypto exchange FTX collapsed yesterday, an apparent victim of its founder's hubris and its top rival's ruthlessness, Axios' Dan Primack writes.

Why it matters: Booms and busts are common in crypto, but never anything close to this magnitude. And the reverberations are deafening.

The headline: Binance, the world's largest crypto exchange, agreed in principal to acquire FTX, the world's third-largest crypto exchange. 

Deal terms weren't disclosed, and it seems likely that specifics haven't yet been determined. FTX continues to spiral, with many speculating, (and one source reporting) that the merger will never close.

The consequences: This is a disaster for some of venture capital's top names, including Sequoia Capital, and may eventually prompt LP litigation threats.

The bottom line: This isn't a replay of Enron or Theranos, but it sure has echoes of both.

Kia Kokalitcheva and Crystal Kim report that FTX US, the U.S.-based subsidiary of the embattled crypto exchange, is not affected by FTX's liquidity crunch. 

Brady Dale and Crystal remind us that the agreement is nonbinding, details are sparse, and even Binance CEO Changpeng "CZ" Zhao has warned that his company "has the discretion to pull out from the deal at any time."

Brady explains what exchange tokens are, why they matter, and how FTX's native token, FTT, ended up at the center of the exchange's collapse. 

And Matt Phillips notes that FTX founder Sam Bankman-Fried is just the latest business hero to get his comeuppance in this economic cycle.

FTX scoured Wall Street, Silicon Valley billionaires for $1B lifeline (Semafor)

FTX turmoil raises the risk that two huge political donors will fade (Bloomberg)

Bankman-Fried’s crypto bill ‘dead’ after sale (The Block)

Binance, Gate.io, KuCoin, Poloniex, Bitget, Huobi and OKX promise to implement ‘proof of reserves’ (CoinDesk)

Robinhood plunges as Bankman-Fried’s FTX sells itself (Bloomberg)

Binance’s plan to acquire FTX is a ‘real-life Game of Thrones’ (TechCrunch)

Galaxy Digital reveals $77 million exposure to FTX (The Block)

Sam Bankman-Fried’s $16B fortune is eviscerated (Bloomberg)

Crypto Twitter reacts — in memes (Decrypt)

Go even deeper: Listen to Dan Primack, Crystal Kim and Brady Dale discuss more on Twitter Spaces.

1 big thing: Going deeper on Binance-FTX

Illustration of a hundred dollar bill in the shape of the FTX logo 

Yave, a Mexico City-based embedded mortgage lender, raised $7.5 million in funding led by Better Tomorrow Ventures and Metaprop.

Why it matters: Despite a slowdown in the global housing market, demand for tech-enabled mortgage origination continues to grow in Mexico.

How it works: Yave created an embedded mortgage application process to help homebuilders and real estate firms in Mexico get homebuyers approved faster.

Customers integrate Yave's pre-approval module into their websites via API, or they can track a homebuyer’s application process through its mortgage CRM.

Yave now has 30 partners using its platform and has executed US$80 million in mortgages since its launch in 2018.

Between the lines: The company can move faster than a traditional bank, because it originates and services all mortgages executed through its platform, according to founder and CEO Bernardo Silva.

“In Mexico, five banks and the government originate 99% of the loans,” Silva estimates. “It’s very difficult to have new competitors, because there’s no liquid secondary market like [Fannie Mae or Freddie Mac] in the U.S.”

To overcome this, Yave partnered with a mortgage REIT and a couple of banks to finance the loans it originates.

As a result, sellers typically close an additional 20% of customers using its tech, he says.

State of play: It’s a challenging time for the mortgage industry, as rising interest rates have led to an overall decline in new home purchases globally.

But the housing slowdown in Mexico has not been as pronounced as in the U.S., in part because underlying mortgage rates there were relatively high to begin with, Silva says.

While U.S. mortgage rates have risen from below 3% to above 7% this year, rates in Mexico have seen a more modest increase — from about 9% to 11%.

What’s next: Yave has primarily served local Mexican homebuyers to date, but it's looking to expand and help originate mortgages for U.S.-based buyers looking to buy a home there.

Due to the current economic environment, however, plans to expand beyond Mexico are on hold, Silva says.

Of note: Goodwater, Activant, Moore Capital, Fintech Fund, Cross River, Vinte, Magma Partners, DILA Capital and Wollef also participated in the most recent round.

2. The BFD: Mexican mortgage tech startup banks $7.5M

Illustration of a cursor holding a stack of Mexican peso bills

FTX's downfall not only has put the crypto market in a tailspin, but it has also dinged rival and potential acquirer Binance.

Driving the news: Bitcoin prices dropped 14.4% as of early Wednesday, while Binance's BNB tokens were down 7.5%. FTX's FTT tokens were down 82.6%.

The big picture: FTX was one of the largest and most vocal exchanges out there, and it played a big part in representing the crypto industry in front of regulators. Its collapse is an enormous hit of confidence for the industry.

3. Binance tokens also take a hit

Goldman Sachs weighs payments acquisition (WSJ) 

The banking giant has expressed interest in buying a payments-tech company to build out its credit card capabilities, the Journal reports. Executives have discussed buying Deserve, Cardless, or CoreCard Corp. — companies that could enable Goldman to attract more merchants seeking to launch their own fintech programs.

Zelle becomes a loophole for small-business taxation (Bloomberg) 

Small businesses are flocking to Zelle, because the P2P payments network says it is not subject to new IRS tax rules that apply to competitors Venmo and PayPal. Zelle notably does not hold funds.

4. Credit score

Illustration of positive and negative trend lines coming out of center point.

• TRM Labs, a San Francisco-based blockchain intelligence company, raised a $70m expansion to its Series B round led by Thoma Bravo, with participation from Goldman Sachs, PayPal Ventures, Amex Ventures, Citi Ventures, and others. www.trmlabs.com

• Ramp, a London-based crypto on- and off-ramp, raised $70m in Series B funding. Mubadala Capital and Korelya Capital led. ramp.network

• Mendel, a Mexican B2B payments firm, raised $60m in new funding from Industry Ventures, Infinity Ventures and Victory Park Capital. https://axios.link/3FWRnSw

• Agrolend, a Brazilian agribusiness capital provider, raised $27m in Series B funding led by Lightrock, with participation from Yara Growth Ventures and Mago Capital. https://axios.link/3ULD1st

• Ping, a LatAm-focused digital payments wallet, raised $15m in seed funding from Y Combinator, Race Capital, BlockTower, Danhua Capital, Signum Capital and Goat Capital. https://axios.link/3Uphjuv

• KodyPay, a London-based all-in-one payments app for offline retailers, raised $5m from unnamed strategic investors. https://axios.link/3TjN32Q

• Railsr, a U.K.-based embedded finance startup, is exploring a sale following the recent completion of its $46m Series C funding round, Sky News reports. https://axios.link/3DWuBr4

• ZikZuk Technologies, an Indian neobank for SMEs, acquired Delhi-based tax-filing firm TaxSpanner.com. https://axios.link/3tjbJxP

5. Deals of the day

• Brex founder and co-CEO Henrique Dubugras joined Expedia Group's board of directors. https://axios.link/3WPKkkr

• Mangopay, a U.K.-based payments firm for marketplaces and platforms, appointed Ronen Benchetrit as its new CTO. https://axios.link/3WL74C9

6. It's personnel

Welcome to Wednesday. So, that happened, and tons of questions remain. Let's get into what we know.

✏️ Thanks to George Moriarty for editing and Rob Reinalda for copy editing this newsletter.

And thank you for reading Axios Pro Fintech Deals! Please ask your friends, colleagues, and frenemies to sign up!

November 09, 2022

1 big thing: Going deeper on Binance-FTX