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The cryptocurrency banking startup FairX has announced its shutdown on July 19 in a long (very long) Twitter thread.
The Twitter thread posted by the FairX founder Michael Dowling – who was also the former CTO of IBM Blockchain Financial Solutions – revealed the reasons behind this decision in thorough details. The main reason behind this shutdown was stated to be lack of funds.
FairX was more than a regular financial services company as it not only dealt with banking, but also with digital currencies and assets. The company initially planned on setting up a licensed national bank which Dowling described as, “A new, licensed, fully regulated national bank, modelled as a financial market utility, that would work with individuals and banks to create a dematerialized bank deposit, denominated in USD. The bank was Frank Financial.”
He further explained the concept behind his company:
“This dematerialized bank deposit would act, in many respects, similarly to a stablecoin, except a stablecoin this was not. A stablecoin, by its definition, is not an asset that can settle transactions between banks in the context of, say, ACH (automated clearing house) or CC (credit card) transactions.”
According to Dowling, his company was struggling to raise funds for the past 14 months.
He also stressed the company’s initial success in receiving positive feedback from financial regulators. He explained that their business idea was in compliance with all the basic financial factors like Anti-Money Laundering, Know Your Customer and counter-terrorism financing rules.
However, like any other company, this approval on its own was not sufficient for the firm to thrive. Just when FairX needed investment capital – somewhere between $150 million to $250 million – a wide majority of the crypto community backed out simply because they perceived the bank to be too centralized.
According to Dowling, neither VCs nor crypto investors seemed to like the company. He stated two reasons behind this. First, early investors expected to be given their preferred shares which the company was unable to do due to banking regulations. Second, the creation of a proper stablecoin would be impossible without it being centralized, and centralization is something no one in the decentralized crypto space likes.
All in all, Dowling concluded that disrupting the banking sector with crypto comes at a very high fiat price. He also wrote that blockchain may not be the right technology to use when it comes to banking, although several researches suggest otherwise and while many banks are rushing into various blockchain endeavors.
David Marcus Should have Partnered with PayPal Instead of Facebook?
On the other hand, he wished good luck to Facebook’s new venture of the digital currency Libra. He wished best of luck to Facebook’s chief in this cryptocurrency venture, David Marcus. Among other regulators from all over the world, Facebook and Marcus are currently facing tough probe and inspection regarding the social network’s virtual coin of a special G7 task force.
Dowling went on to say:
“I really do wish Marcus and his team all the best of luck. I wish Marcus had chosen…ANYONE…other than FB to partner with. I wish he had tried this at PayPal, which has a reputation of actually following the rules to get things done. Pretty sure they will require a bank license.”
The series of tweets ended when Dowling concluded that his team will use this time to regroup and think about other issues for which they could create a “sustainable return.”