U.S. government files charges against the operators of Blockchain Terminal’s “fraudulent” $30 million ICO
The U.S. Securities and Exchange Commission (SEC) and the Attorney's Office for the District of New Jersey each filed a lawsuit against Boaz Manor and his business partner for running an allegedly fraudulent ICO in 2017 that raised $30 million. As the story goes, the two defendants founded CG Blockchain and Blockchain Terminal (BCT) to build a Bloomberg Terminal clone for cryptocurrency traders. But Boaz Manor, a convicted criminal in Canada, used an alias to conceal his true identity and give his companies, and their token, a false sense of legitimacy. Boaz and crew managed to raise $30 million from investors and secure a few high-profile partnerships, including one with financial data provider FactSet before his past became public knowledge. The SEC's complaint also notes Blockchain Terminal told investors it had over 20 clients using its product. In reality, the company produced only a dozen prototypes during Boaz's tenure, but the funds that received one never used it nor paid for it. Now, Boaz and his partner face civil and criminal lawsuits for their connection with Blockchain Terminal. Why it matters: New frontiers are not immune to those that take advantage of investor exuberance (and greed). Crypto, and more specifically the ICO boom of 2017, is no exception. Fraudulent efforts ran rampant because there was little to no regulatory oversight at the time. While some criticize the government getting involved, a certain level of regulatory interference is necessary for the crypto industry to weed out bad actors and continue its maturation. The SEC is continuing to ramp up activity related to 2017 ICOs. Last Oct., the government agency settled with Block.one, the creators of EOS, and Sia for holding unregistered securities offerings. The SEC is also taking Telegram to court next month over its $1.7 billion ICO in 2018. To keep up with crypto-related regulatory events, Messari has compiled a list of all SEC actions in a handy resource page.
Source: The Block — Published: 2020-01-18T00:00:00Z
A recent CoinDesk report states Voice, Block.one's long-awaited social media application, will not run on the EOS mainnet when its beta version goes live on Feb. 14. This finding comes from the FAQ for Voice, which says early iterations of the app will run on a “purpose-made” network. Block.one does carry on to claim the team would like to move Voice to the EOS blockchain, or even other suitable networks, but the statement alone is non-committal. Why it matters: This news is not entirely new. Block.one’s EOS-less launch strategy for Voice has been publicly accessible since Dec. 9. But this approach runs counter to Block.one’s statements when it first announced Voice in Jun. 2019. While Block.one did not explicitly rule out a pivot back to EOS down the road, Block.one’s recent maneuvers could trigger other development teams to lose confidence in EOS as a viable smart contract platform. One explanation for the shift in launch strategy is EOS’s recent performance issues. Last Nov., a smart contract called EIDOS spiked network activity, congesting the network and making it increasingly expensive to execute transactions. These congestion issues still plague EOS to the point where some users can’t move EOS tokens out of their crypto wallets. Considering Block.one dropped over $150 million developing Voice ($30 million on the Voice.com domain name alone), it makes sense the company would opt to protect its investment instead of launching on a network that could stifle user engagement. Voice cannot compete with the likes of other social media giants Block.one aspires to dethrone by running on EOS in its current state.
Source: CoinDesk — Published: 2020-01-17T20:30:00Z
Given the censorship resistant nature of blockchains, the intelligence community faces difficulties addressing terrorist financing issues using cryptocurrency. In an excerpt from their 2020 Crypto Crime Report, Chainalysis finds that the technical sophistication of terrorist financing campaigns employing cryptocurrency has advanced significantly. To highlight this advancement, Chainalysis provides two case studies — one that took place between 2016 and 2018, and one from 2019. In 2016, Ibn Taymiyya Media Center (ITMC), the media wing of Mujahideen Shura Council (MSC) in the Environs of Jerusalem, a jihadist group based in Gaza, became the first terrorist organaization to launch a public crowdfunding campaign using cryptocurrency. In a campaign titled “Jahezona” (“Equip Us” in Arabic), the group called upon potential donors to help them raise money to buy weapons. The campaign ran from June 2016 to June 2018 with ITMC using various social media platforms to promote the campaign and share a Bitcoin address, which donors could send funds to. Using its analytical tools, Chainalysis was able to build a comprehensive picture of where donations originated from and where some received donations were ultimately sent. Over the two years the fundraising campaign ran, ITMC received tens of thousands’ worth of cryptocurrency across more than 50 individual donations. In January 2019, the Izz ad-Din al-Qassam Brigades (AQB), the military wing of Hamas, began raising Bitcoin in one of the largest and most sophisticated cryptocurrency-based terrorism financing campaigns ever seen, according to Chainalysis. AQB launched three separate sub-campaigns, iterating their methods each time they ran into obstacles. In the first sub-campaign launched in January, the group began simply by displaying a QR code underneath a “donate to the jihad” message on their website. The Bitcoin address was associated with an account of a U.S. based regulated exchange. The account was quickly shut down with the individual who established it investigated. The second sub-campaign began with AQB replacing the Bitcoin address on their website with a new one linked to a private, non-custodial wallet. Despite the additional precautions used to increase anonymity this Chainalysis was able to trace donations to and from the address. Soon after this however, ACB launched a much more advanced third sub-campaign. With this campaign AQB integrated a Bitcoin wallet into their website that generated a unique Bitcoin address for each donor. Furthermore, AQB published instructional videos detailing how to donate as anonymously as possible. This latest and still ongoing campaign has proven difficult to track given the unique addresses used for every donor. Nevertheless, Chainalysis was able to discover some addresses using a combination of court documents from associated cases, addresses from the first two sub-campaigns, and its analytical tools. In just nine months AQB has raised roughly the same amount of money that ITMC did over the course of two years. Chainalysis believes that in 2020 and beyond more terrorist organizations could embrace cryptocurrency as a fundraising tool, using increasingly more sophisticated methods to enhance their privacy. They suggest law enforcement, intelligence agents, and the cryptocurrency community remain vigilant to ensure this doesn’t happen. Why it matters: Public blockchains, despite their pseudonymous features are fully transparent by design given that every transaction is recorded on an open public ledger, shared amongst all network participants. To the delight of law enforcement, cryptocurrencies provide unparalleled insights into the crypto-based terrorism. Chainalysis’ report highlights the importance of analytical tools used to understand what’s going on on public blockchains. As methods for evading surveillance and tools for
Source: Chainalysis — Published: 2020-01-17T20:05:00Z
This report is part of a weekly series where we will explore the mechanics behind major Open Finance protocols and evaluate them on a fundamental basis. You can view prior reports here. Uniswap was started in November 2017 by Hayden Adams who took inspiration from a Reddit post from none other than Vitalik Buterin. After receiving a grant from the Ethereum Foundation, he worked on it until it launched a year later. Within its first few months, Uniswap became a growing piece of the decentralized exchange landscape which quickly led to a fundraising round by Paradigm. As it stands today, Uniswap accounts for more volume than any other DEX. Rather than employing a traditional order-book model where traders place buy-sell orders that are eventually matched up, Uniswap uses an automated market maker model which allows anyone to deploy capital into a pool of funds which buyers then trade against. This model allows there to be liquidity in otherwise illiquid assets making it ideal for the long tail of cryptoassets. However, this comes to the detriment of increased price slippage on larger orders as seen on the chart below (and described in more detail here). This compares to traditional markets that have market makers providing liquidity by offering prices at which you can buy and sell. Doing so requires professional risk management tools and significant capital. With Uniswap, anyone can market make simply by depositing assets into a pool and then passively earning money from a fixed 0.3% fee on each trade. However, it's not guaranteed passive income as there are ways to lose money providing liquidity as a result of price movements. Regardless, you can still measure the fundamental growth of Uniswap by looking at the amount of fees accumulating to liquidity providers. The growth of Uniswap was nothing short of impressive as half a million in fees accumulated within the first six months. While there was a decline this fall coinciding with a decrease in overall crypto volume, Uniswap fees have since increased as it handles more volume than any other DEX with nearly $3 million traded over the last 7 days. As the user experience of DEX trading improves to rival that of its centralized competitors, volume will likely continue to increase on these non-custodial exchanges. A large part will be a result of aggregators such as 1inch and DEX.AG that enables traders to source liquidity from a variety of decentralized exchanges to get the best spread, a problem that has plagued DEXs. This composable nature allows permissionless access to various liquidity sources, something that is impossible in centralized models. We will likely see altogether new financial applications as a byproduct while DEXs continue to contribute to the burgeoning DeFi ecosystem.
Source: Jack Purdy — Published: 2020-01-17T15:30:00Z
Gemini announced today that they have created their own insurance company that will provide them with $200 million of coverage against their cold storage assets. The captive insurer dubbed “Nakamoto” will provide coverage for customers of Gemini Custody, the crypto cold storage service of Gemini Trust Company. With the addition of Nakamoto, Gemini now insures all customers’ assets including USD deposits and cryptocurrencies both in hot and cold wallets. Why it matters: It's been notoriously difficult for cryptocurrency custodians to gain insurance given the unique underwriting challenges presented by the industry. Although some custodians have been able to successfully get insurance on customer assets, many have elected to self-insure, simply setting aside their own cryptocurrency holdings to cover against any customer losses Gemini is now one of the safest exchanges, insuring virtually every asset they hold on behalf of customers. It remains to be seen whether or not insurance is the primary hurdle holding back institutional adoption, but it will give potential institutional investors more peace of mind holding funds with Gemini.
Source: CoinDesk — Published: 2020-01-16T16:45:00Z
I have a confession to make: I can’t keep up with all or even most of the news in crypto. Not only is this more or less my full-time job, but I’ve been doing it for almost seven years (so I understand most context around stories), AND I have the benefit of leveraging a 15 person team to help me filter through daily news, data, and social chatter. Still, keeping up has become an impossibility. And I’ve heard the same sentiment from other obsessive crypto learners as well. It seems irrational, then, to expect anyone to have a firm grasp of history and context surrounding all the ongoing ecosystem developments when they tweet something uninformed or ignorant of developments. It strikes me that there are still few trusted aggregators and educators. Lots of information, but no good triaging systems. (Air traffic control for precious attention.) I wanted to try a very small experiment today, and hope you’ll tell me if you like it / it resonates. If it falls flat, it will be back to regularly scheduled programming tomorrow. If you have systems that work for you, please share them as well! I’m calling my personal system, Operation Kill 50 - because I’m a bit tired and unoriginal today, and because it sounds more awesome than "the stop getting distracted, loser” system. OK50 is an attempt to force myself to close 50 open tabs each morning, tag / categorize the resources, and temper my browser tab addiction, which keeps swelling in size because I’m a hoarder of crypto content. As an experiment, I added everything I read / skimmed in 30 min this morning, and dropped annotated points I think seemed meaningful. If you like this format, then I’ll gradually get to a daily curation system with new content (vs. clearing my old queue. Iterative feedback is welcome) My scoring system: 0 - Clickbait / trash 1 - Headline is all you need 2 - Add to the quick search library 3 - Good for your situational awareness 4 - I’ve been meaning to study more, add to the deep dive queue 5 - Drop everything, and read now. A - Messari B - The Block C - CoinDesk D - Decrypt CT - Twitter Thread OK50 - Beta Test Crypto Nexus Mutual #NXM (4) I LOVE the concept of mutualized insurance, and Nexus uses a continuous token model (aka bonding curve) that makes sense for tough to mutualize risk pools, and seems to be gaining steam as a crypto economics trend. I’ve been meaning to test the product, and write more about it. Who’s done the best analysis of the system so far? Binance New Year Message #BNB (3) "It is our fundamental belief that fundraising on the blockchain is a killer app...(doubling down on vision)…"All projects apply to Binance first, giving Binance effectively the right of first refusal.” (Cites a Blockchain Capital graph which shows nearly all IEO gains go to Launchpad users)..."We hope to fully open-source Binance Chain and Binance DEX in 2020”…(waxes poetic about decentralization) River - A bitcoin Financial Institution #BTC (3) I’d love to have Alex Leishman on the podcast if anyone wants to connect me for an intro. "River’s goal is to offer a “brokerage-like experience” (Schwab) with Bitcoin’s latest bleeding-edge technologies: [SegWit, Lightning, Taproot, etc]…River also provides financial tools missing from most mainstream exchanges, like performance reporting, which offers clients insights into unrealized and realized gains and losses for a taxation period (tax optimization!) Why 2020 Will Be a Big Year for Crypto - B (2) Added because the author is Peter Johnson from Jump Capital, one of the most important global trading firms. Key insight: "I do not expect massive inflows from [institutions this year]. Portfolio manager incentives are not conducive to encouraging large crypto allocations as crypto is a non-consensus investment...If a portfolio manager gets behind investing in crypto, and it does well, they probably get a nice bonus (but not the types of payouts available to those investing their own money or 2/20 hedge funds); however, if it does poorly (or they lose money in an operationalissuelike an exchange hack), they get fired for losing client funds." ETH 2.0 Goals - CT # ETH (2) Links to resources on ELI5 design goals. Wave Financial / Tezos State of Digital Securities #TokenizedSecurities (2) “Digital Securities are regulated securities with a digital token wrapper”…”Underlying shift from issuance to tokenization” for savings on servicing, audit risk and boost to liquidity. Good market maps of issuers, issuance platforms, and exchanges/custodians; global regulatory overview, and early case studies. General 19 Business Moats That Shaped Massive Companies - (2) Good case studies for entrepreneurs. Rise of Right Wing Populism - QZ (2) list of world leaders who (might be) labeled populists/nationalists. How Tim Cook Stared Down the FBI on Privacy (3) In depth look at how Apple resisted the FBI’s demands to create a backdoor to its iPhone encryption. Important if you believe Apple is a critical piece of crypto infrastructure, and needs to hold its ground on privacy. And important if you’re thinking about the PR investments needed to win friends and influence people on scary sounding things like privacy coins, and unstoppable smart contracts. This won’t replace the analyses we do on the site (and below the fold), but could be an additional feed to incorporate in the future. If nothing else, it will quietly cure my addiction. -TBI
Source: Ryan Selkis — Published: 2020-01-16T16:40:00Z
Former CFTC chair and crypto advocate Christopher Giancarlo has created a non-profit known as the Digital Dollar Foundation to support efforts towards a central bank digital currency for the U.S. They will be working with Accenture as a technology partner due to their prior experience working with the European Central Bank, the Monetary Authority of Singapore, and Sweden's Riksbank on similar initiatives. The Foundation will also be working with economists, lawyers, and other technologists to create potential designs and a framework for testing the system. The idea is to create a digital token that is pegged to the U.S. dollar, but unlike existing fiat stablecoins such as USDC or Paxos, it will be backed by the Federal Reserve. Why it matters The Federal Reserve has announced previously that they have looked into digitizing the dollar but were unsure of the direct benefits. This initiative will be devoting its resources to showcase how the U.S. could benefit from such an undertaking Recently there have been efforts from central banks around the world to create a tokenized version of their fiat currency with hopes to compete with any current or future private money such as Libra or Bitcoin that threatens fiat hegemony. The U.S. seems to be behind the rest of the world, however, the Digital Dollar Foundation could help push this movement forward.
Source: CoinDesk — Published: 2020-01-16T14:30:00Z
The former Plasma Group research team raised $3.5 million from Paradigm and IDEO to start a new company, called Optimism. This new venture will look to put Plasma Group’s original Optimistic Rollup design, a layer-2 scaling for Ethereum, into production. The raise and rebirth come less than a week after the team shut down the non-profit Plasma Group, which relied solely on donations to finance research efforts. Now, as a for-profit startup with an up-front investment, CEO Jinglan Wang believes the team will be able to focus on development instead of soliciting regular donations to sustain day-to-day operations. Why it matters: The transition to a for-profit company makes a lot of sense. The former Plasma Group team was able to turn last year’s donations into a product it could potentially monetize. And they now have enough capital to focus on what they do best, which is a win for both the team members and Ethereum. In the announcement of Plasma Group’s closing, the team hinted they would look to tackle “the problem of funding and sustaining public goods” next. While Optimism will aim to productize Optimistic Rollups, the group simultaneously released details on a new proposal (dubbed miner-extractable value auctions) that could help fund community contributions through value created by the Ethereum network. This new implementation could fit within layer-2 systems, allowing Optimism to attack two of Ethereum’s most prominent challenges: scalability and sustainable funding for ecosystem development.
Source: The Block — Published: 2020-01-15T20:30:00Z
Crypto custodian Anchorage announced today it will be adding institutional trading to its suite of ancillary services. The firm believes the combination of custody and trading is a natural fit as investors don't want to switch between various venues for their trading. They will also be using an agent rather than principal model of over-the-counter trading, where rather than earning the difference between the price paid and market price of the asset they take a fixed fee of 10 basis points per trade. Along with the brokerage announcement, Anchorage will be acquiring analytics company Merkle Data that provides quantitative risk modeling. Why it matters After raising $40 million last summer, Anchorage has been adding additional capabilities to compete in an increasingly competitive market for crypto custody. While previous additions such as staking and governance have made them more competitive with the likes of BitGo and Coinbase custody, the addition of brokerage services will put them in direct competition with brokers such as Tagomi and FalconX.
Source: Anchorage — Published: 2020-01-15T20:00:00Z
What do criminals do with illicitly-gained cryptocurrencies? In an excerpt from their latest Crypto Crime report, Chainalysis shows how criminals are laundering their cryptocurrency and cashing out into fiat. Looking at on-chain data, Chainalysis identified how exchanges have emerged as the leading destination for illicitly-gained cryptocurrencies through the use of their OTC desks. According to the report, Binance and Huobi, account for more than 50% of all the illicit Bitcoin received by exchanges, an amount totaling $1.4 billion. On these venues, a small segment of the total accounts are responsible for most of the illicit Bitcoin received. Chainalysis suggests that many of these accounts are OTC brokers. OTC brokers facilitate the majority of all cryptocurrency trade volume, and are typically associated with exchanges despite operating independently. Many of these OTC brokers have substantially lower KYC requirements than the exchanges they operate on, creating the opportunity for illegitimate OTC brokers to emerge and service money laundering criminals. Chainalysis has identified 100 of these brokers, which it calls the “Rogue 100,” that Chainalysis believes provide money laundering services. The Rogue 100 are extremely active traders and received more than $3 billion worth of Bitcoin over the course of 2019. Chainalysis believes that these OTC brokers are a key enabler of every type of crime they cover in its report, by providing fiat offramps. To combat this practice they suggest that every exchange conduct more extensive due diligence on OTC brokers operating on their platforms, and ensure that their OTC desks have effective KYC processes in place. Why it matters: Ever since Bitcoin first entered public consciousness through its fundamental role enabling the silk road, a formerly prominent darknet marketplace, Illicit activity has been a major stain on the cryptocurrency industry’s reputation. With increased regulatory scrutiny on the industry, its perplexing how some of the industry’s largest and most powerful organizations have emerged as the primary enablers of these money laundering activities. However, maybe it shouldn’t be so surprising considering the same dynamic exists in traditional financial services as well. Chainalysis’ report illustrates the inherent risks in conducting illicit financial activities on public blockchains. Public blockchains, despite their pseudonymous features are fully transparent by design given that every transaction is recorded on an open public ledger, shared among all network participants. Without stronger privacy at the base layer, cryptocurrencies will continue to provide unparalleled insights into the crypto-based money laundering economy to the delight of law enforcement and regulators.____
Source: Chainalysis — Published: 2020-01-15T18:30:00Z
Kadena completed the final stage of its mainnet launch earlier today by incorporating smart contract functionality and cross-chain communication with Kadena’s private network, Kadena Kuro. Developers can now build and deploy applications on the Proof-of-Work (PoW) network using Kadena’s native smart contract language, Pact. Beyond interoperating with its in-house private chain, the team is also working to integrate its token wallet, Chainweaver, with the Cosmos Network, which it hopes to complete by the end of Q1. Why it matters: Kadena opted to launch its mainnet in stages, which allows the team to pinpoint and debug vulnerabilities early on before subsequent updates increase the attack surface. The staged rollout can also help bootstrap a community of contributors and users as the network progresses. As we covered in our New Asset Coverage series, Kadena launched its first mainnet version in late Oct. for miners only, which had a profound effect on miner adoption and network security. It was also a community member that discovered an inflation bug in Kadena’s code. But since the contributor found the vulnerability before token transfers were unlocked, Kadena was able to easily locate and remove the falsely created coins and issue a security patch. Kadena’s interoperability efforts go beyond the integration of the Chainweaver wallet into Cosmos. The Kadena team has also been working to make Pact available on both Cosmos and Polkadot, which would allow developers to create smart contracts on any of these networks through the Chainweaver interface.
Source: Kadena — Published: 2020-01-15T17:00:00Z
The SEC has issued a warning related to trading investing in IEOs. According to the agency, IEOs may be conducted in violation of the federal securities laws and lack many of the investor protections of registered and exempt securities offerings In the cases where they constitute the sale of a security, the issuer would be required to register as a security with the SEC along with the exchange as an alternative trading system (ATS) and potentially a broker-dealer. The SEC stresses that these types of investment vehicles can be used for fraudulent purposes given the lack of adequate reporting requirements. If an offshore entity offers to any U.S. based person then they are breaking the law, however, the investor may have limited legal remedy due to the nature of applicable laws in the foreign country. Why it matters The SEC issued a similar statement in 2018 surrounding the issuance of initial coin offerings (ICO) and proceeded to take action against a number of unlawful offerings. IEOs burst onto the scene in 2019, with almost 300 offerings according to our report, and it is likely they did not all comply with U.S. securities laws making them likely targets for future enforcement. U.S. based exchanges have avoided IEOs while they proliferated abroad generating substantial revenue for offshore exchanges. A few months ago Coinbase mentioned they were considering an IEO platform, however, the statement by the SEC will likely dissuade them to push that initiative forward.
Source: SEC — Published: 2020-01-15T16:30:00Z
I literally cannot believe I’m getting suckered into writing a longer-than-140-characters, somewhat serious, post about BSV. Yet here we are after a 3x rally in less than a week catapulted the controversial asset to the fourth largest in crypto by "market cap." Here’s what you need to know. Background: There’s an ongoing legal battle in Florida between Craig Wright, who claims he’s Satoshi Nakamoto, and the estate of Craig's former business partner, Dave Kleiman. Decrypt has a good recap of the drama to date. The tl;dr is that the case has been a predictable circus, and the judge (and commentariat) believe Wright is lying about his creation of bitcoin, perjuring himself repeatedly, and dragging out proceedings as long as he possibly can. Bitcoin contributor and Casa CTO Jameson Lopp even compiled a list of all the evidence against Craig Wright being Satoshi Nakamoto. At the same time, a small community of Wright supporters have rallied around his preferred fork of Bitcoin, BSV (Satoshi’s Vision), which is itself a fork of Bitcoin Cash. Coinmetrics did a good job of breaking down the differences earlier this year. Since then, Wright has at various times threatened (promised?) to sell “his" $9 billion+ bitcoin stake (Satoshi’s addresses), and invest the proceeds into the development of BSV. The BSV price seems to be rallying now because Wright finally provided the court in the Kleiman case a list of 16k+ BTC addresses he claims to have access to as "a third party provided the necessary information and key slice to unlock the encrypted file” containing all the address info. This third party Wright is referring to is the mysterious "bonded courier” he'd previously identified as necessary to accessing his stash, and whose very existence the court has called into question. What you need to know: Three things are important for you to know and track. We should be clear that Wright has given contradictory statements and submitted possibly forged documents throughout the case. The judge can’t stand him. But his latest stunt (and it is a stunt, barring some miraculous, disappointing surprise), drags out the proceedings for an additional 90 days, as the Kleiman estate must review the new evidence. In the meantime, there’s all sorts of shenanigans the BSV community can pull and has been up to, including pumping the asset, likely planning to claim BSV from old bitcoin multi-sig addresses once those corresponding BTC are spent (thanks to a new proposed hard fork), and attacking the rival BCH chain. You have to give it to them, the BSV community comes up with some pretty novel ideas for heists. Especially clever if you’re hoping to settle a court case and cover a fine you wouldn’t otherwise be able to afford...without admitting you're not actually Satoshi. Come to think of it, there’s nothing I’d put past the inhabitants of the island of misfit crypto toys. Look beyond the “market cap” ranking. It pains me that BSV has climbed so far up our coin rankings even though a huge chunk of its supply has never moved or been claimed (and likely never will be). CoinMetrics also has an excellent post on “fork uptake” which pegs the actual claimed supply of BSV (and BCH) at ~50% or less that of the parent BTC chain. That would still put BSV in the top 10 by market cap, but it’s not nearly as nauseating as top 3. I’ve already spent too much time on this, and wasted a perfectly good morning. But if you’re trading the news (which I neither do nor recommend), BSV is available for trading on several large exchanges (Bitfinex, Huobi, OKEx, Polo, and Bittrex). Good luck with that. I’m staying the hell away. -TBI
Source: Ryan Selkis — Published: 2020-01-15T15:50:00Z
In his first piece for Dragonfly Research, Tom Schmidt examined the role liquidators play in decentralized credit markets. As all loans are required to be over-collateralized, a system needs to be in place to prevent borrowers from running away with their loan if their collateral falls below the loan value. Before this can happen, once the collateral value falls below a certain threshold (always 100% of the loan value), any user can repay the loan for the borrower in return for the collateral plus some liquidation fee. Liquidators are similar to miners in that they perform useful services for the network and are compensated based on encoded rules. To date, this has been a profitable activity for many, earning nearly $1 million last year. However, there are several factors leading to decreased profit margins: Low barriers to entry means increased competitions will enter the market Borrowers are getting better at finding ways to more efficiently manage loans such as using DeFi saver or Aave's flash loans that can be used to avoid paying the liquidation fee MakerDAO moved away from a fixed price sale of collateral to an auction in multi collateral dai opening the liquidation fee to a competitive market. This will Why it matters These developments leading to lower borrowing fees will make for an improved DeFi user experience at the cost of lower margins for liquidators, although the former could help bring in additional capital leading to more aggregate fees for liquidators. As more use cases for decentralized finance emerge, more applications such as synthetic assets and derivate platforms will require third parties to provide value-add services and be compensated for their work.
Source: Dragonfly Research — Published: 2020-01-14T21:00:00Z
Today Kraken announced it acquired Bit Trade, one of the longest-running cryptocurrency exchanges in Australia. The announcement marks Kraken’s 5th public acquisition, and follows its most recent acquisition of Circle Trade in December of last year. Bit Trade is an platform that combines liquidity from several exchanges into one interface. Why it matters: As Ryan suggested in our 2020 crypto theses, “I predict BitMEX, Coinbase, Binance, Kraken, and Huobi will make nearly $1 billion of acquisitions within the next 24 months.” Top exchanges will continue to accelerate their acquisition pace this year as they build out their suite of services. Liquidity begets liquidity. We’d expect the exchange industry to continue to consolidate as local exchanges get scooped up into larger platforms.
Source: Kraken — Published: 2020-01-14T19:15:00Z
In a recent post, Jesse Walden of a16z Crypto navigates the challenges facing decentralized applications (dApps) on their path to building a successful product with a sufficient level of decentralization. Striving for pseudo-decentralization and token distribution in the early stages of a project can lead to a lack of user demand and potential regulatory scrutiny. Therefore, Jesse offers a three-step process to show how dApps can decentralize progressively to avoid overlooking the foundational steps required to build a “sustainable, compliant and community-owned product.” Product/Market Fit: The most important step because without a product people want, there is no business. Jesse advises tight team control of the project, no pretense of decentralization, and no token distribution at this stage. Community Participation: Once the product gains traction, that’s when Jesse says projects should start fostering a community of participants, turn towards open-source development, and explore adding incentives for community contributions (either via fees or tokens). Sufficient Decentralization: With product/market fit and a robust community in tow, the final stage is to seek widespread token distribution and to cede majority ownership of the project. Why it matters: Navigating these waters has been a complicated process for many a project. Numerous dApps in 2017-2018 skipped the product phase in favor of claiming decentralization and early tokenization. Most now reside the ever-growing wasteland of unused dApps. The ones that have succeeded to date, such as decentralized finance app Compound (to name one), started as a single team overseeing the early product development. Only later on did their attention shift to decentralizing their efforts (e.g., Compound’s Open Oracle System to democratize collecting price information). Most of the questions Jesse leaves answered surround the distribution of a token. There are various proposals on how to reward community contributions via token allocations, including incentivized testnet events or security deposit mechanisms like NuCypher’s WorkLock. But there is no universal answer. Each project will have a different community, and as Jesse points out, finding the right strategy depends on a deeper understanding of community behavior.
Source: a16z — Published: 2020-01-14T18:00:00Z
Cosmos’ ATOM tokens just opened for trading on Coinbase Pro, which means they’ll likely soon be available (and stakeable) on Coinbase. Should we expect similar staking dynamics to what we saw with Tezos when it became available to stake on Coinbase, Binance, and Kraken? First, a quick recap on XTZ’s delegated staking model. In the Tezos staking design “bakers" act as protocol validators by locking security deposits on the network and maintaining the required validation hardware. Bakers earn direct fees from their work, and XTZ holders can delegate their stakes to third-party bakers who will stake and bake (!!!) on the users' behalf — usually for a commission similar to that of a mining pool. Bakers have what’s called a "staking capacity,” which is currently 8x their security deposits. If their staking balance (the baker’s funds + all delegated funds they manage) exceeds the security deposit by more than 8x, the baker is considered “over-delegated.” That means the participants in that baking scheme will receive less than their expected pro rata funds unless the baker increases their staking capacity (adds to their security deposit). (More on the math here.) The dynamic is designed to do two things: 1) in theory, incentivize decentralization because it encourages delegators to find bakers with available staking capacity, 2) in practice, ensures bakers increase their staking capacity and principal holdings in lockstep with user deposits. The Tezos design assumes users will be proactive and bakers reactive, rather than the other way around. In reality, many customers simply rushed to stake through Coinbase as soon as the company's new (stupid simple) staking service was released. As the company’s baker quickly hit its staking capacity and became over-delegated, Coinbase purchased additional XTZ to top up its security deposits. The company said it would not (perhaps could not, given regulatory restrictions) use customer funds for security deposits, which are subject to some illiquidity, slashing penalties, and protocol risk; and because there are no lockup periods for delegated XTZ, Coinbase upped its balance sheet Tezos position, and may have caused other exchanges to quickly follow suit. Though it’s unclear how much each exchange purchased, the Tezos price jumped ~70% in the six weeks following the Coinbase, Binance, and Kraken announcements (it's still up 20% from the initial Coinbase announcement). The rush to source liquidity by the major staking services was likely a major catalyst for the Tezos pump, given the fact that more than 75% of XTZ is currently staked. So the million dollar question is: will we witness a similar trend for ATOMs? Cosmos staking Like Tezos, Cosmos leverages a delegated staking model to secure its network. However, validators in the Cosmos universe push some risk to their customers (delegators). A misbehaving validator could lose its staked funds and those of its delegators, creating a higher diligence standard for those looking to delegate stake. And the validators must post a minimum level of "bonded delegation," which includes delegated ATOMs that cannot be un-bonded for a minimum of 21 days. Despite the risks, since there are only 125 active validators at any time who can receive inflation rewards, there are incentives for small stakeholders to delegate with third parties or build their own infrastructure. The active validators are determined by "staking weight”, the total of self-delegated and user-delegated ATOMs. But there is no equivalent "staking capacity” metric to Tezos, because there is no restriction on the minimal amount a validator must self-delegate while piling up delegated ATOMs. That reduces the possibility of an artificial supply shortage, as custodial exchanges like Coinbase, Binance, and Kraken won’t need to ramp up ATOMs purchases to satisfy customer staking demands. PS - h/t to our analyst Wilson for the assist on this research. Worth a follow on twitter.
Source: Ryan Selkis — Published: 2020-01-14T17:20:00Z
Yesterday, cryptocurrency derivatives exchange FTX launched its previously announced cash-settled bitcoin options. Within 2 hours of launch, FTX CEO Sam Bankman-Fried tweeted that the options hit $1 million in volume, while within 12 hours of launch he tweeted the the options traded about 2,000 contacts. FTX recently received a strategic investment from Binance worth “tens of millions,” and the two are collaborating on a wide range of products and working towards building out their respective token ecosystems. Why it matters: Competition in the derivatives space continues to heat up. CME, who is currently the largest regulated venue for trading bitcoin derivatives in the US, is set to launch its own Bitcoin options contracts today. Bakkt, recently launched their options contracts back in December. A more robust derivatives market should improve the price efficiency and liquidity of the underlying spot market, an important step for any regulatory approval on future financial vehicles.
Source: The Block — Published: 2020-01-13T16:30:00Z
Ethereum Classic completed the Agharta hard fork yesterday at block 9,573,000. Agharta introduces the same Constantinople and St. Petersburg protocol upgrades previously implemented on Ethereum to the Ethereum Classic network (via ECIP-1056). The fork intends to maximize compatibility and cross-chain communication between Ethereum Classic and its ancestor chain. Why it matters: Ethereum Classic should strive to remain compatible with Ethereum. Maintaining a high level of interoperability lowers the switching cost for developers and projects looking to build on an alternative platform. At the moment, State of the dApps tracks 2,738 total dApps on Ethereum, while Dapp Direct (an application tracker for ETC) only lists 36 total dApps operating on Ethereum Classic. Agharta also marked the end of the Geth Classic client. While it was one of the more popular Ethereum Classic clients pre-Agharta, Afri Schoedon of Parity Technologies told Coindesk that, “Geth Classic has hardly been updated since its launch in 2016.” As a result, Parity-Ethereum nodes became the predominant client for Ethereum Classic, hosting around 70% of the network. Client concentration may seem inevitable as operators converge on a single, well-maintained client. But reliance on a single codebase could be an issue if the client code contains a vulnerability (see: the recent attack on Parity Ethereum clients).
Source: ETC Cooperative — Published: 2020-01-13T16:00:00Z
I'm convinced one of the top killer apps crypto will mainstream in the years ahead is the tokenized income share agreement. An ISA is simply the securitization of a portion of your future income stream. Sellers receive cash (or in-kind services) up front, then agree to pay back a percentage of their income over a fixed period of time. The instruments have become popular within the U.S. student loan market, as they’re generally considered less risky to the borrower than traditional, non-dischargeable debt (Lambda School has been a high-profile promoter of ISAs), while still offering good upside to the lender. In the UK, ISAs have even progressed to the point where they're now approved and governed by the top UK financial regulator, the FCA, and many are leveraging ISA products to underwrite the costs of post-graduate degrees. Though ISAs are set for explosive growth this decade in education, some early - and high-profile - versions will inevitably look like toys. That’s one of the reasons I’m so excited for NBA Nets guard Spencer Dinwiddie’s tokenized contract, a $13.5mm offering due to launch today that will securitize ~40% of what remains on his current three year contract. In addition to offering some financial upside to investors, the offering includes perks for super fans (i.e. the offering's wealthy investors), such as an invitation to join Dinwiddie as a guest at the upcoming NBA All Star weekend. It’s a simple, effective starting point to boost the profile of ISAs: Professional athletes’ contracts are huge, so it's easier to bootstrap liquidity and interest in the tokenized instruments; The contracts are also usually fixed in length. Since careers are relatively short, the payback timeline is short, and the benefits of issuance and investment generally accrue over the same period; There's a non-financial “feel good” element to backing token offerings for entertainers, namely that super fans want to spend time with the athletes (or actors or musicians) they admire, but wouldn’t really ever get the shot, absent a financial relationship. I’m a net buyer of tokenized athletic contracts as a precursor to widespread ISA adoption, and view the Dinwiddie bonds as merely the first in a coming slew of high profile contracts that leverage a much more efficient technology (crypto) than previous attempts at similar structures through the legacy securities markets (Fantex). Dinwiddie tokens might spark a new form of fan engagement. One that caters to wealthy benefactors at first, but ultimately trickles down to everyday die-hard fans of all types. And one that ultimately opens the door for lower profile individuals and brands to offer similar "brand" tokens. The irony is that some have equated the ISA concept to a modern day form of indentured servitude. In reality, ISAs seem to be empowering Dinwiddie to make the most of his time in the NBA. If tokenized entertainment contracts succeed at scale, it could bring much needed exposure to an instrument that might help a new generation of borrowers identify alternatives to crippling, lifelong student debt, and equip a new generation of freelancers to bootstrap personal brands in the global gig economy. Seems like a worthy experiment. Shoot your shot, Dinwiddie. -TBI PS - Get my thoughts on the industry sent to your inbox every morning, along with curated crypto news and insights by signing up below
Source: Ryan Selkis — Published: 2020-01-13T15:30:00Z