2023 DC Fintech Week, Washington DC

Posted: November 9, 2023

This week, I had a chance to attend DC Fintech Week 2023 in Washington, DC, and it left a good aftertaste. First, the two-day event organization was at the highest level and presented great opportunities for learning and networking. Kudos to Chris Brummer, Georgetown Law, and the team that made this experience seamless! The full event agenda is at https://dcfintechweek.org/agenda-2023-2/. 

Based on my listening to the speakers and interactions with the attendees and speakers, I am going to share several observations and a summary of the talks. First, I will briefly summarize my observations and then share the points mentioned during panel discussions or speaker sessions.

1. There is definitely a lot of attention to the crypto tech and AI among US regulators.

2. There is a higher chance that AI regulation will come sooner than the comprehensive regulation for crypto in the US.

3. The delays in the regulation may be explained by the deliberation of the long-term vision of the US regulator. The short-term solutions, though helpful, may not be a priority of the regulator.

Summary of the DC Fintech Week 2023

• Crypto and fintech investment slows down in 2023, while AI investment takes over. In comparison with the crypto model with public token sales, the AI sector is less amicable for retail investor participation, which is confirmed by the fact that there is not a single publicly traded AI company at the moment. (Robert Le, Pitchbook)

• Regulator thinks about tech (regulation) in the long term. Long-term planning is complicated by the complexity of long-term objectives, e.g., economic and regulatory inclusion. A need for a stable and resilient financial system to support economy and inclusion is a part of that. On that same note, there is a need for payment infrastructure that promotes financial inclusion with privacy protection. Only safe, secure, and reliable payment system architecture can cultivate and maintain trust.

If stablecoins are issued by private companies and are connected to USD, i.e., borrow the trust of the Federal Reserve, then these are           private money and need to be regulated. Latest article (Michael Barr, Federal Reserve)

• A combination of data and computing power that allows scalability will give companies competitive advantages in an AI-powered economy. Amazon internally uses AI to compare the content of speakers' presentations, find points of disagreement, and homogenize speeches between speakers. (Dominic Delmolino, Amazon)

• Financial regulator looks into regulation for non-bank institutions, e.g., big tech companies that facilitate consumer transactions – Apple, Google, Amazon, etc. There is an opinion divide between crypto and tokenization of real assets. While crypto is recognized as driven by speculative motive, tokenization is driven to solve the real problem - the promise to reduce frictions of the market. Moreover, tokenization is mostly private. Hence, the regulation can be imposed. The fundamental challenge of the regulator with the distributed blockchains – is unknown ownership of the wallet that, is important in supervision over transactions and preventing financing terrorism. (Mike Hsu, Office of the Comptroller)

• Providing payment services for the Nigerian population and small businesses. Seamless payments are seen as a basic need for a modern consumer. CBDCs are good compliant solutions in the eyes of the speaker. The main detractor of crypto is its unclear user value. (Olugbenga Agboola, Flutterwave)

• Fannie Mae's risk assessment department is using AI to train it in reviewing mortgage documents by observing the repetitive actions of human agents. (Steve Holden, Fannie Mae)

• The regulator explores watermarking of the content produced by AI to differentiate it from real-world content (or vice versa). The Administration is creating a National AI recourse. Personally, the speaker follows Stanford HAI research. (Elizabeth Kelly, White House)

• The figure is building a system that allows them to originate mortgages on the blockchain with the prospect of their future transaction on the blockchain. The system utilizes two advantages of blockchain: recordkeeping and immutability of transactions. The estimated economic benefit of technology from cost savings related to trust and verification of data is five p.p. Envision several macro trends for the future: (1) credit market contraction and (2) private credit on the chain. (Mike Cagney, Figure CEO) 

• Financial markets are full of frictions, e.g., ownership of the credit notes was hard to track in 2008-2009. (Brian Brooks, O'Melveny)

• Beta Financial de-biases credit risk prediction models from racial biases and provides contactless credit services to underserved communities through the traditional banking sector. Business inspired by personal story – recommend to listen. Their interaction with the regulator identified a huge gap in understanding modern technology and contactless banking services. (Seke Ballard, Beta Financial)

• Potential regulation for AI may include data and model disclosures, knowledge of consumer use cases, and evidence that the company knows how to prevent misuse of the technology or harm. (Nellie Liang, Undersecretary of US Treasury)

• Consumer protection and market efficiency should be mutually enforced. The regulator is very much aware of the intricacies of predictive model building. In terms of crypto, the regulator does digital asset providers licensing and has issued eight pieces of regulatory guidance. (Adrienne Harris, Superintendent, New York State Department of Financial Services)

• There is an education gap among the public on crypto topics, and crypto companies provide education for investors (e.g., Coinbase Learn). The regulatory approach should provide oversight and clarity, moving away from pure enforcement to true regulation. (Michael Sonnenshein, Grayscale Investments)