Square plans to buy Afterpay—will Dorsey’s DeFi dreams come true?

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San-Francisco based fintech company Square Inc (NYSE: SQ) has announced that it plans to acquire fast-growing Aussie financial firm Afterpay (ASX: APT).

The deal is set to be worth AU$39 billion (US$29 billion), making it the largest corporate takeover in Australian history. Square will acquire all of the existing Afterpay shares, and the deal is expected to close by the end of Q1 2022.

Afterpay investors voted for the takeover and will be paid in Square shares. The deal will also see Nick Molnar and Anthony Eisen, the co-founders of Afterpay, take senior management roles at Square.

It’s not all champagne at Square this week

While the purchase of Afterpay is undoubtedly a huge step forward for Square, giving it access to the company that pioneered Buy Now Pay Later (BNPL) in Australia, it’s not all bright lights and champagne at Square HQ this week.

The company reported that while its BTC revenues and profits were up 200% year-on-year, they were down significantly compared to Q1 due to “relative price stability.” This is corporate-speak for the price of BTC tanking and investors fearing a potential digital currency bear market as regulators target Binance, Tether, BlockFi, and other major players in the industry.

Yet, a quarterly decline in BTC trading revenue and profits wasn’t the only worrying thing the company reported. Square made a decision to purchase $50 million of BTC in Q4 2020 and another $170 million in Q1 2021. So far, that has only led to a $45 million impairment loss for the Silicon Valley fintech firm.

Like Michael Saylor of MicroStrategy, Dorsey has exposed his firm to significant financial risk by buying into the false narrative of Bitcoin as a store of value.

Will Jack Dorsey’s DeFi dreams come true?

Like the ICO craze of the 2017 digital currency bull market, decentralized finance (DeFi), has generated lots of hype this time around, and Dorsey has well and truly jumped on the bandwagon.

In Mid-July, he announced that Square was building a platform to facilitate DeFi development.

Square is creating a new business (joining Seller, Cash App, & Tidal) focused on building an open developer platform with the sole goal of making it easy to create non-custodial, permissionless, and decentralized financial services. Our primary focus is #Bitcoin. Its name is TBD.

— jack (@jack) July 15, 2021

Jack Dorsey sure does like his buzzwords…

This announcement comes at a strange time when regulators are circling the digital currency industry and clamping down on the nonchalant attitude the industry has taken towards compliance with AML/KYC regulations and other laws.

It’s not at all clear that permissionless or decentralized financial services are even legal, let alone viable. It’s difficult to imagine how decentralized entities who presumably aren’t checking customer details, lest they violate the mantra of permissionless finance, would comply with existing and new KYC/AML regulations.

For example, the EU recently set out new rules enforcing strict KYC checks on all digital currency-asset providers and service companies. Even a cursory glance at the new rules reveals that any notion of lending money to anyone and his dog with a few clicks will not be permitted.

As well as the legal status of such endeavors, one has to question Dorsey’s commitment to BTC, a crippled version of the Bitcoin protocol that can’t scale or store any data on-chain due to an ideological commitment to small blocks.

Unfortunately, BTC developers did away with much of Bitcoin’s innate functionality, which included a Turing-complete scripting language, in order to keep block sizes small. Dorsey has not clarified why he thinks BTC would be capable of running such financial applications.

Maybe Dorsey and others should take another look at BSV?

There’s no doubt that Jack Dorsey is an accomplished businessman. At age 44, he’s the CEO of two major publicly listed companies (Square and Twitter), yet, when it comes to Bitcoin, Jack Dorsey has been wrong from the outset.

There’s only one version of Bitcoin that can facilitate DeFi at a global scale, and it’s the original unbounded protocol now known as BSV enterprise blockchain. With a strong commitment to legal compliance, legit DeFi projects (if there are any in the end) will be welcome to migrate to a scalable blockchain capable of unlimited transactions per second and mass data storage.

If Dorsey truly is committed to an open, inclusive financial system, why choose a broken chain with transaction fees greater than most of the poorest people in the world earn per day? He should build on BSV instead, and so should anyone serious about building scalable blockchain businesses with negligible fees.

Then again, perhaps Dorsey’s words and actions aren’t all they seem to be. Maybe protecting his existing business interests is more important than the open, inclusive financial system he espouses. Time will tell, but in any case, there’s only one blockchain with the technical chops to pull these grand ideas off.