Matter Labs, a Layer-2 blockchain scaling research and development outfit, released the testnet of its flagship solution, called ZK-Sync. The sidechain allows Ethereum users to outsource processing responsibilities to a more performant layer in terms of transaction speed and cost. ZK-Sync uses rollup contracts alongside zero-knowledge proofs (ZKPs) to help ensure sidechain and cross-layer transfers remain private yet valid. Why it matters: Matters Labs efforts to launch on Ethereum are practical only because of the upgrades added to the network’s impending Istanbul hard fork. Once in effect, EIP-2028 will lower the gas per byte of Calldata operations by a factor of four, from 68 down to 16 gas per byte. Calldata gas requirements were previously too high for “ZK-Sync-styled contracts,” so the upcoming upgrade is a welcomed opportunity for the layer-2 scaling development firm. Cheaper transaction costs would also benefit similar scaling solutions and could spark a surge in competition among layer-2 networks seeking to scale Ethereum. Istanbul is set to activate at block 9,069,000, which most anticipate will arrive this Saturday, Dec. 7. Any innovation in blockchain scaling is bound by the Scalability Trilemma, which states a network, sidechain or base layer, in the pursuit of performance, must trade off either security or decentralization. In the case of ZK-Sync, a group of validators manages the transfer of funds and the packaging of final account values into Ethereum blocks, a less than desirable system in terms of decentralization. An additional risk is the untested nature of rollup contracts. While exciting, rollup technology is still in development, yet these cross-chain solutions could end up storing massive amounts of capital. Since these contracts would potentially act as juicy honeypots for hackers, security, and with that, excessive testing, is paramount.
Source: CoinDesk — Published: 2019-12-05
Cryptocurrency lending business, BlockFi announced today it would roll out zero fee trading for Bitcoin, Ether, and Gemini USD. Users will be able to trade using their existing cryptocurrency deposit balances. According to BlockFi CEO, Zac Prince, The decision to offer trading on cryptocurrency deposit emerged as a response to customers informing BlockFi that they typically withdraw funds to trade. With a zero-fee model, the company instead plans to monetize the trading business by selling data on users’ trades to market makers that BlockFi counts as its clients. The company also announced today that users will be able to deposit and buy USDC and litecoin beginning December 11 and that the company plans to launch a fiat-to-crypto gateway in Q1 2020. Furthermore, in the second half of 2020, BlockFi plans to launch a crypto rewards credit card. Why it matters: A continued trend we’ve seen this year is exchanges leveraging their positions as central sources of liquidity to provide ancillary services beyond trading. Throughout the year exchanges have rapidly expanded into lending, staking, capital markets and other services. Furthermore, open finance protocols are accelerating the features that exchanges can offer. The convergence of crypto financial services is emerging from all corners of crypto finance including those not primarily engaged in trading such as BlockFi. With the introduction of trading, BlockFi now becomes the first cryptocurrency trading platform to offer interest on customer funds. The announcement could prompt more exchanges to offer interest on customer deposits further pushing cryptocurrency exchanges into the realm of traditional banking.
Source: CoinDesk — Published: 2019-12-05
This is the third issue 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 last week's on Melon here. Maker underwent a major milestone last month upgrading to Multi-collateral Dai (MCD). We wrote in detail about the implications of adding real-world collateral, the Dai Savings Rate, and the potential "too big to fail" dynamic in our latest Messari Pro Research report. Since the upgrade, the system has undergone a gradual change of upgrading single-collateral Dai (Sai) to the new Dai. Source: sai2dai.xyz While the first few days of migration were slow, recently more Sai has transitioned to Dai. This is in large part to major providers such as Compound supporting MCD, although they are still the largest Sai holder with over $13 million. More loans on Compound are expected to transition away from Sai since the interest rates on both the lending and borrowing sides are more favorable with Dai. The transition from SCD to MCD is arguably one of the most impactful upgrades the nascent DeFi space has experienced and seeing Dai surpass Sai in the near future is a sign of readiness to transition away from Sai altogether.
Source: Messari — Published: 2019-12-05
One of the things we nailed early in Messari's life was building an organic community of contributors and supporters via our community analyst program. We've been heads down closing a fundraise and scaling the internal team in the past couple of quarters, but as we look forward to 2020, there are a number of ways we intend to scale our extended team and global community as well. We hope some of these will excite you, and get you to join us more actively! 🙂 Some of the ideas I'm most excited about: Community Analyst Program, Part Two Some time in the next couple of weeks, we're going to do a "where are they now" post about our 2018 community analyst pool. It's been wild to watch the folks that joined Eric (our head of research) on a volunteer basis, leverage us and their peers to catapult into full-time positions throughout the industry. We can't take credit for anything they've accomplished since, but if we can be even marginally effective as a training ground for new professionals looking to enter the space full time, we'll do that in a heartbeat. We've made two full-time hires from our community analyst pool, and dozens more have gone on to a variety of amazing positions worldwide. If you are interested in learning more about this program, stay tuned for more info and an application in the new year. Open API Next year will also be the year we aim to gradually open-source and decentralize our entire crypto asset data library. We said from day one the industry needed a "single source of truth" for basic information, and the best way to power that would be via a free API, and a community governed disclosures library. We've taken these responsibilities on almost entirely ourselves so far, but 2020 presents opportunities to expand the contributor and validator base. We are certainly putting our money where our mouths are on this front. Our registry business currently represents the majority of our revenue, yet we plan to open ourselves up for competition (!!!) because it's healthy and will grow the pie for all. We shouldn't compete on basic, freely available data. Let's work together. Messari Labs One of the things that gets really interesting with open APIs and open data is the diversity of experimentation that can take place from analysts and hobbyists. Tinkerers don't have to worry about building duplicative infrastructure, or concocting competing data standards and methodologies to build tools that help people filter through the crypto noise. We hope more teams experiment with our APIs, and may even consider incubating small teams that are passionate about further building out important side projects of ours like OnChainFX.com, Boards, and Stablecoin Index. If you're a hacker, check these out, and get in touch if you'd like to collaborate on them. ¿Você fala Messari? Our news feed is now available in Portuguese via our partners at Money Times. We hope to add foreign media and information partners that help us extend Messari's reach to a worldwide audience next year. Our news feed will be free to license for any enterprising global supporter who's willing to help us polish our analyses in the local lingo. How else can we build out our community? -TBI
Source: Ryan Selkis — Published: 2019-12-05
A new report from cryptoasset hedge fund Paradigma Capital takes a deeper look at the impact Bitcoin miners have on the market. The study highlighted that miners control a small share of on-chain volume, and when off-chain volume is taken into account, bitcoin miner volume is minuscule. Paradigma carried out a correlation analysis to assess if there is any association between miners moving funds to exchanges and bitcoin price returns. While little to no association was found, the answer may not be as straightforward as “miner behaviour has no impact on bitcoin price”. CEO of Blockware Solutions Matt D’Souza pointed out that miners movement of capital holds more importance than off-chain trading volume as it represents fresh supply applying sell pressure on the market. Why it matters: Assessing miner behaviour to gain an edge in the Bitcoin market has become a popular strategy used by analysts. This study puts miners share of the Bitcoin market into context. While the findings of the study are clear, the impact miners have on the Bitcoin price market is a more nuanced debate with mining professionals arguing movement of miner’s funds hold significantly more importance than trading volume.
Source: Miner Update — Published: 2019-12-05
Eight former Morgan Stanley executives are launching a crypto derivatives exchange offering perpetual futures contracts for bitcoin, ether, XRP, litecoin, and EOS, with up to 100x leverage. Phemex claims to manage 300,000 transactions per second with an order entry and response time of less than 1 millisecond putting it on par with traditional exchanges. The exchange has signed up around 2,000 users, however, U.S. residents are restricted from trading. .Why it matters: Trading infrastructure in crypto has historically lagged behind that of the traditional financial markets. Phemex is looking to bridge this gap bringing experience from Wall Street to replicate trading and matching engines. The professionalization of exchange venues and derivatives products are an essential step to make the crypto markets more efficient. If they are able to continue improving it should gradually make institutional investors more comfortable participating in these markets.
Source: Crowdfund Insider — Published: 2019-12-05
A new Ethereum Improvement Proposal (EIP) is looking to delay Ethereum’s inherent difficulty bomb (aka “Ice Age”) yet again. EIP-2387 would activate another hard fork, affectionately named Muir Glacier, around Jan. 6 next year, which would push back significant increases in mining difficulty by 4,000,000 blocks (approximately 611 days). If accepted, it would mark the third time Ethereum developers opted to extend the full implementation of the difficulty bomb: the Byzantium hard fork in 2018 and the Constantinople hard fork earlier this year also punted the Ice Age. At a high level, the difficulty bomb is “a piece of code embedded” into the Ethereum network that gradually increases the hashing difficulty for Proof-of-Work (PoW) miners. Early developers included this feature to encourage (see: force) network stakeholders to participate in Ethereum’s planned switch to Proof-of-Stake (PoS). Why it matters: If accepted, the delay suggests the Serenity upgrade and switch to PoS is not imminent. Ethereum core developers have already delayed the launch of Serenity to 2021 (no specific date attached). And the 4 million block postponement of the Ice Age suggests this milestone won’t be greenlit until later that year. Despite some disdain from current network stakeholders, the Ice Age may serve an important purpose when the time comes. Ethereum participants will need a financial incentive to transition from dedicating mining resources to locking stake unto the network, and the difficulty bomb helps provide that push. But the recent rise of staking services, facilitated by the launch of staking returns through exchange holdings, suggests crypto users are eager to contribute to PoS networks. The high demand for staking and an increase in available staking resources may eliminate the need for an Ethereum Ice Age. A counterargument is the difficulty bomb would force Ethereum node operators to keep their clients up to date or face increasing operational costs.
Source: CoinDesk — Published: 2019-12-04
Messari hosted a public AMA with Steven Becker, COO and President of the Maker Foundation in the Messari community group. Below is a transcript of the conversation. You can find all of Messari's historical AMA's here Messari: Thanks for joining us! We’ve received a bunch of great questions and will try to get through them all, but before we start would you mind giving us some background on yourself and how you got started at your current role? Steven Becker: So my previous lives have all been in traditional financial services. Everything from interest rate derivative trading, fund management, corporate finance you name it. So when I first heard of Bitcoin and Ether - I was like... Uh no thanks. I was trading futures and options, did not want any more volatility and besides - personal opinion here - did not consider them to be actual currency but... the blockchain infrastructure was really interesting and that is what drew me to Maker and specifically this whole thing about a decentralized stablecoin Messari: Awesome! Makes sense for someone interested in blockchain but not wanting volatility, MakerDAO lets you have your cake and eat it too. So lets dive into the questions we've received! To start we have a few about Dai itself Outside of using it for leverage what can you use dai for? Steven Becker: Dai is digital cash. Cash that can be sent and used around the world. Currently there are 400 live integrations/partners with the protocol... ranging from remittance all the way to gaming, so it covers a lot use in varying industries. Ultimately keep in mind Dai is just digital cash. One new example Messari: Obviously the whole system underwent a massive upgrade recently, we have a question relating to the Sai Dai migration. Will Sai exist forever or is the plan to eventually have it all rolled into Dai. If so, is it possible to enforce this? Steven Becker: Firstly keep in mind that the protocol is decentralized. So ultimately it is up to MKR holders, who I call Governance. The plan for Governance... is to shut down Sai when they have deemed a sufficient critical mass of Sai has been migrated to Dai. So no set date, it is up to them. Messari: Gotcha so a little up in the air but will end up winding down based on the decision of the collective. One more question about Dai in particular How is Dai impacted if one of the collateral types is deemed a security or there is some regulatory issue? Say for example, the SEC says BAT is a security. Steven Becker: Keep in mind that one of the conversations Governance is talking about is tokenized real world assets and security tokens. By definition they will be securities that can be used to generate Dai. Therefore there is no impact on Dai itself, as Dai depends on the core value of the collateral type for its stability and will still be decentralized. Messari: Are you committed to permissionlessness? What happens if a regulator demands KYC on all DAI creators? Or if the SEC says MKR is a security? Steven Becker: Again, because the protocol is decentralized it is operating in the same vein as Bitcoin and Ether. Therefore the regulatory approach to these decentralized tokens will most likely be applied to the Maker protocol and Dai. Messari: Do you think adding real-world assets hurts permissionlessness? If not, how can addition of something that requires a centralized maintainer not harm this? Steven Becker: This brings up a great point. From my point of view the real value right now is in the intersection of the traditional world and blockchain. It is at this intersection that the traditional will start to realize the full value of the blockchain. I am further of the opinion that Maker is an economic engine that will facilitate the growth of an economy on-chain. So to get there we need a transition point... That is where using real-world assets will showcase the value to real-world organizations, until the dovetail effect will produce enough evidence for the real-world to integrate blockchain into their architecture. Messari: That’s helpful, so it seems Maker can strike a balance between allowing centralized assets without compromising the permissionless of the whole system. Steven Becker: Within reason and up to Governance Messari: Gotcha, and regardless of the types of collateral, there will inevitably be more than one type available which obviously creates more parameters to be governed What types of participants are most fit for the task of determining risk parameters? Especially as the collateral portfolio expands and there is more work to do Steven Becker: This is something I would personally like to see more of, and that is new risk teams contributing supporting Governance and contributing to the protocol. There are so many asset types that could be used as collateral that the entire spectrum of risk will apply. Consequently anyone with market risk knowledge to legal and operational could quite easily contribute depending on the asset type under consideration. Messari: What kinds of tools are people using to determine the risk parameters of the protocol? Steven Becker: The protocols risk function, as can be seen on the Thursday governance calls (4 pm UTC), have used liquidity and market risk based Value-at-Risk models, both parametric and non-parametric. ...and that is due to the fact that the collateral types under consideration have recourse to secondary markets and price discovery. Models in the future would be a lot different and incorporate more of the risk spectrum so I am looking forward to seeing what those are personally. Messari: You probably have keen insight into this next question given how closely it ties in with your background. What role do you see for interest rate derivatives to hedge governance parameters? Steven Becker: Quite a bit actually. What is interesting from an IRD point of view is the basis risk of the Stability Fee against a traditional overnight rate, together with the spread of the SF and DSR. So lots of points of 'interest' for that type of instrument. I also believe that there is an organization providing Credit Default Swaps on vaults and similar insurance type products. Messari: Speaking of the DSR, Since the DSR cuts into the "revenue" of MKR holders (via MKR burn), what incentive do they have to increase it? Steven Becker: That is a component of the broader economic aspect of the protocol. Supply and demand generally move in lockstep, so where the SF would help with the generation of Dai and thus supply the DSR provides the demand aspect that creates the balance. Given a supply driven scenario the DSR would be used to help find the clearing point and provide the necessary robustness to the protocol. For those not familiar with DSR. So the DSR, or rather how Governance manages the spread between SF and DSR will promote the necessary momentum for growth in a considered fashion. Messari: So even though it decreases the "margins" of MKR holders its a necessary cost to drive the demand side of Dai Steven Becker: Correct, as a quick example, runaway supply may be a detriment to the protocol which could be balanced out,first by arbitrage if the Dai price is impacted, or by increasing the SF OR the DSR - implying the spread is what helps with the balance. Messari: Makes sense, and one more question regarding the DSR What incentive do Dai holders have to use the DSR compared to other DeFi protocols with higher rates? Steven Becker: DSR is a type of risk-free rate that I like to call the 'trust-free' rate because this is DeFi. So the incentive is to get paid with the only risk being the underlying protocol. Messari: So the spread between the DSR and other lending rates is simply the risk premium accounting for the possibility of credit defaults Steven Becker: Yes Messari: So were closing in on the hour mark here and will wrap up with a few more miscellaneous questions Does the upcoming Istanbul hard fork pose any problems to Maker's contracts, similar to Aragon? If so, would Maker consider migrating to Cosmos as well? Steven Becker: No we are not affected. The smart contracts for Maker do not have hard-coded gas requirement like Aragon. Further, even though Maker is blockchain agnostic, it is more important to look at blockchains with the greatest available value. Right now that is Ethereum. Messari: How do you think about competition down the road if someone figures out how to do non-collateralized loans on Ethereum? How scalable are collateralized loans? Steven Becker: The more competition the better as it helps develop the DeFi landscape and showcase the value of DeFi to the traditional world. Generating value from assets is only restricted by the value of the assets available. Consequently if real world assets were tokenized, the access to value would be potentially huge. Messari: Definitely. Well I don't want to keep you too long thanks so much for joining us Steven! This was super insightful. To finish off could you just give us what excites you most regarding the future of the project and what the best ways are for people to keep up with the happenings in MakerDAO Steven: To finish off could you just give us what excites you most regarding the future of the project and what the best ways are for people to keep up with the happenings in MakerDAO. On Twitter, with the team Or if you're interested in Governance, please join our forums Messari: And for everyone else, if you're interested more in a lot of these supply/demand and interest rate dynamics, we covered them in our latest Pro Research piece. You can see a snippet below You can read the rest here.
Source: — Published: 2019-12-04
Since 2013 there has been over 350 M&A deals in the cryptocurrency industry totaling $4 billion according to a new report from TokenData Research. M&A activity in the industry tends to be positively correlated with cryptocurrency prices and sentiment with M&A activity peaking in 2018. Deal activity has slowed considerably since 2018 from about 160 deals announced to an estimated 90 to 100 announced in 2019. Notably there has been a significant drop in larger deals (over $100 million). 2018 saw 5 deals over $100 million with the largest being Circle’s $400 million acquisition of cryptocurrency exchange Poloniex (which it recently spun out), the largest cryptocurrency acquisition of all time. 2019 has only seen one deal eclipse the $100 million mark, with Kraken’s $100 million acquisition of regulatuated derivatives platform Cryptofacilities. However that number could bump up to 2 if Coinbase’s rumored $140 million acquisition of Tagomi is does indeed announce. Coinbase has been the most acquisitive company in the industry acquiring over 16 companies since 2013. Similar to the industry at large, The company’s M&A strategy has largely consisted of Acquihires and technology “tuck ins”; however, it has also engaged in two significant acquisitions such as Earn ($100 million) and Xapo’s custody business ($55 million). Exchanges have been some of the most prolific acquirers in the space, having the necessary cash positions to do so given their financial success facilitating speculation. 2019 also saw the first token merger. In April 2019, Singapore-based crypto exchange COSS and crypto wallet ARAX announced they would merge. As part of the merger the projects’ respective token holders swapped their tokens for new tokens of the merged entity. However, despite the deal being the first token merger, the transaction was not pure “decentralized M&A” given both tokens were very early stage and entirely driven by their founding organizations. In this light, the acquisition was not entirely unique as their have been numerous acquisitions relating to development teams building decentralized protocols. These teams engage in M&A in pursuit of things such as development acceleration, customer expansion, and protocol commercialization. Why it matters: Deal activity in early stage industries could be a sign a consolidating industry or an industry struggling to find product market fit. Furthermore, while many focus on venture and token investment as barometer of industry health and signal of industry focus, looking at company M&A is also enlightening as it incorporates information from operators in the space. Operators can provide unique insights into where they see value as the builders in crypto. The long theorized token merger happened for the first time in 2019. Despite the deflated token values post 2017 bubble and crash, token values remain elevated. There are still over 75 token projects with market capitalizations greater than $50 million, potentially providing these projects with valuable acquisition currency. Furthermore there are numerous token projects trading below the value of their treasury potentially serving as valuable acquisition targets.
Source: Token Data — Published: 2019-12-03
According to CoinDesk, China’s internet firewall blocked access to Etherscan, a favored Ethereum block explorer, for IP addresses originating within the country. The change went relatively undetected at first, although evidence suggests the event occurred sometime in Sept. 2019. While the reason behind the ban remains unclear, some reports note users previously used the Ethereum blockchain to share particular articles censored by China’s government, which one can read using block explorers like Etherscan. At this point, other block explorers remain accessible “from inside mainland China.” Why it matters: Despite China’s push for greater adoption of blockchain technology, blocking access to Etherscan is a clear sign the country is not as optimistic about cryptocurrency and its associated qualities, in particular, censorship resistance. China’s government is predicated on censoring information, and a censorship-resistant communication and transaction platform is antithetical to its strategy. China could also be looking to direct attention away from other networks as the country intends to launch a digital currency, the CBDC, sometime next year. The effort to firewall block explorers is a futile one, however, as any user can access a chain’s information by spinning up a node. Any further push to ban block explorers by the Chinese government may lead users to run their own node, which would provide an overall benefit to most networks, including Ethereum. The counterargument is Ethereum’s state growth problem is making self-hosting an increasingly difficult practice, an issue that could lead users to migrate to competing networks.
Source: CoinDesk — Published: 2019-12-03
Binance announced today that it will add support for Tezos staking beginning tomorrow, Dec. 4. The staking rewards will be calculated daily and distributed monthly, with the first distribution to be completed before Jan. 1, 2020. Distributions will be completed before the 20th day of each of the following month. Users must hold at least one XTZ to qualify for staking rewards. Why it matters: The news comes off the back of Coinbase’s Nov. 7 announcement adding support for Tezos staking. Coinbase Tezos staking was over 3x oversubscribed late November, signaling substantial demand for passive income opportunities on otherwise idle cryptocurrencies on exchanges. Coinbase and Gate.io charge 25% and 33%, respectively for their Tezos staking services. Interestingly XTZ will be the first token that Binance will not be charging fees for. Zero fee staking could reflect a shifting strategy towards staking for Binance, conceptualizing it more as a customer acquisition tool than a source of income.
Source: Binance — Published: 2019-12-03
It's not all bad news. Crypto faces some major challenges ahead, and I've been guilty of expressing frustration and disappointment with increasing regularity in recent weeks. So are we screwed, or what? A good chunk of the news cycle that's been top of mind happens to be in areas where I'm more bearish on our prospects: US regulatory and tax regime; Libra's launch viability in the developed world (given FB is a political pariah in all western countries and unavailable in China); the ongoing gradual liquidation of ICOs/IEOs with no real upside catalysts or sticky use cases, the impact of persistent negative headlines, etc. But there are many areas that still excite me and give me hope! I'd love to see BTC reframed as a "speculative store of value" by good marketers in the industry - something that any gold investor should own as part of a two asset basket since they may be perfect digital-analog complements. BTC is also a "swiss bank account in your pocket", but that's scary as a marketing meme, and I wish more people would lean into the volatility and use it as a medium-term shield vs. frame BTC as a "crypto-currency" which scares people twice ("shadowy" "threat to dollar"). Zcash is the second most important project in the industry to me, because it's the only one with close-to-perfect privacy embedded in the core protocol...something we need for both fungibility (for dissidents) and enterprise adoption (for customer privacy). Zcash is also a canary in the coal mine and the front lines for how crypto will be regulated on a global scale. If Zcash is restricted (as is possible in Japan, Korea, etc.), then I think privacy upgrades to BTC will become all but impossible. I'm thrilled Coin Center has been a major proponent of Zcash, and that there are some smart money, well-networked investors backing the project. The web 3.0 thesis has become relevant surprisingly quickly. I thought it would take years to get excited about these applications, but perhaps it's sooner than we think. I'm not too bullish on token-first models, but upstarts that apply token models to applications that already work are more interesting. Even then the most interesting tokens from a utility standpoint probably aren't traded via a Binance IEO, but earned and slowly liquidated. That would be a welcome change, eh? I'm a bull on decentralized exchange, synthetic assets (how can foreigners own shadow shares of the S&P?), streaming / metered payments, crypto for gaming and virtual goods, and web 3.0 wallets; I'm also a big proponent of the "money legos" method of building smart contract applications because it's easier to build a reliable library of audited mini-contracts than trust the full smart contract tower of a more convoluted system. I'm cautiously optimistic that the ETH 2.0 crew will avoid breaking composability and shooting itself in the foot. I'm also a mega-bull on non-Libra stablecoins: USDT, Dai, USDC, etc. should power the biggest killer apps of the next cycle. Dai for DeFi? USDT for emerging market payments? USDC for enterprise settlement? Why not? Now, as two years ago, I think the industry can avoid self-inflicted wounds with common sense transparency around basic practices - governance, contributors, token economics and distribution, etc. We're glad to be working towards a solution with great teams on our transparency registry. I hope it helps put us in the right direction in the U.S. and globally. Should you be bullish, too? Don't take my word for it. Better to listen and re-listen to this interview last week with Andreas Antonopoulos on the Defiance podcast. Andreas continues to be the clearest and most inspiring teacher incrypto. The full episode is available as a transcript as well, and it's pure gold. My favorite excerpt: "So why is privacy and financial affairs so important? The reason is that if you understand that money is the language by which society not only coordinates but also expresses value, and where cash is the last remaining mechanism before cryptocurrencies that allows people to coordinate and express value to each other, without anyone else in the transaction without intermediaries, then it becomes obvious that if you lose the ability to have privacy on those issues, it undermines many of our other fundamental freedoms." It's 55 minutes long, and I listened to it three times this holiday weekend. It's that good, and Andreas is that good. I needed the pick me up. Maybe you do to. -TBI Subscribe to our free newsletter to get Unqualified Opinions delivered to your inbox each morning.
Source: Ryan Selkis — Published: 2019-12-03
WisdomTree, a U.S. based asset manager with $60 billion in assets, is now offering a physically-backed bitcoin exchange-traded product (ETP). It is listed on the Swiss SIX exchange where it will compete with a similar product by Amun, however WisdomTree will offer a 0.95% expense ratio compared to 2.5% for Amun. Why it matters: Many investors are still uncomfortable directly buying bitcoin, financial products like this offer alternatives for them to gain exposure without having to deal with custody. As the market for bitcoin financial products becomes more competitive, providers will start competing on fees. This will drive down costs, making them more attractive to investors.
Source: Reuters — Published: 2019-12-03
Piggybacking off recent research paper by Tarun Chitra from Gauntlet, Haseeb Qureshi suggests that on-chain lending markets and staking directly compete with each other leading to interesting implications on network security. He claims that POS networks are only secure if participants are incentivized to stake and that participants are only incentivized to stake if the reward is high enough. Theoretically, economically rational actors would stop staking if they could get a more attractive yield elsewhere such as on-chain lending markets. If participants do stop staking in pursuit of a higher return elsewhere, the network would be less secure and more vulnerable to 51 percent attacks. Haseeb models out such a scenario using a technique known as agent-based simulation. What the results showed between a simulation of ETH in Compound and ETH staked is that while most ETH holders stake their ETH initially, as the block reward fell and the stake rate became less attractive relative to Compound lending rates, participants rebalanced their staked ETH over to Compound. The conclusion reached is that if a networks POS block rewards decrease over time, then its long-run equilibrium will be for almost all assets to be lent, not staked. Therefore POS must have adaptive monetary policies to respond to stake demand fluctuations. Haseeb suggests that such an attack could be performed by subsidizing on-chain lending markets (borrowing a ton of the asset in order to raise rates) in order to drive stakers away from staking and towards lending. Once the amount staked is depleted the attacker could attack the chain more cheaply. “This could lead to a snowball as onlookers see the total stake shrinking, they now want to go short ETH, further increasing the borrow demand on Compound.” All this could be done while eliminating ETH price exposure by collateralizing the loans with other crypto assets such as USDC or tokenized Bitcoin. Why it matters: Touted for their increased efficiency and environmental friendliness, POS chains have been heralded as the “next step” in the evolution of blockchain consensus mechanisms. Nearly every single network that has launched this year or will launch next year (“The Ethereum Killers”) uses some form of POS consensus, including high profile projects such as Cosmos, Algorand, Polkadot, Dfinity, and Hedera Hashgraph. Although we now have some data points on how these systems perform in the wild with some of these POS networks having launched, the above analysis shows just how little we may understand about POS security in the real world. Blockchains do not exist in a vacuum and their security may depend on many factors exogenous to the protocol. Furthermore, turing complete blockchains theoretically introduce an infinite amount of complexity to a network that may have unpredictable consequences on the security of the underlying chain.
Source: Dragonfly Research — Published: 2019-12-02
Yesterday, Vertcoin suffered its second 51 percent attack in a year. According to Vertcoin’s lead maintainer James Lovejoy, the attack saw 603 blocks replaced with 553 blocks mined by the attacker. The reorganization caused 5 double-spend attacks worth about $29. Lovejoy stated there is “strong evidence” that the attack was carried out renting hashrate from Nicehash, a cloud mining company. Why it matters: Vertcoin is one of many coins optimizing for ASIC resistance in pursuit of keeping mining accessible to average people. Beyond the fact that the network garners little hashrate to support it and it's inexpensive to attack it, cryptocurrencies opting for ASIC resistant algorithms open their attack surface significantly by only allowing their coin to be mined using GPUs and CPUs. Security for such coins is more difficult to model given that GPUs and CPUs have use cases other than cryptocurrency mining, making it unknowable how much idle hash power is out there. Today marks almost a year to the date when Vertcoin was first 51 percent attacked. Interestingly the market appears to be non-reactive to news of 51 percent attacks as seen with the Ethereum Classic incident earlier this year.
Source: CoinDesk — Published: 2019-12-02
"Make no mistake, bitcoiners are revolutionaries.” -Nic Carter, Castle Island Ventures So this happened over the weekend: "The office of the U.S. Attorney for the Southern District of New York and the FBI announced today that it has arrested and charged Virgil Griffith for violating the U.S. sanctions laws and traveling to North Korea to 'deliver a presentation and technical advice on using cryptocurrency and blockchain technology to evade sanctions.' 'As alleged, Virgil Griffith provided highly technical information to North Korea, knowing this information could be used to help North Korea launder money and evade sanctions,' U.S. Attorney Geoffrey S. Berman said. 'In allegedly doing so, Griffith jeopardized the sanctions thatboth Congress and the president have enacted to place maximum pressure on North Korea’s dangerous regime.’" Griffith is a research scientist for the Ethereum Foundation. Back in April, he took it upon himself (on "a personal vacation” against the advice of some of his friends at the EF) to head to North Korea for a crypto conference and present to attendees on "Blockchain & Peace." This was despite an official denial of entry from the U.S. State Department. He also seems to have aimed to facilitate a symbolic transfer of ETH from the DPRK to South Korea afterwards, a unilateral "act of peace”, but one that unfortunately violates the type of U.S. laws that can get you up to 20 years in prison. It’s a sticky situation, as Griffith is a U.S. expat who lives in Singapore and has been apparently seeking to change citizenship. He seems to have known that he was breaking the law by attending in the first place, but it hardly looks like he was sharing state secrets that would warrant such a heavy handed charge. Most all of the information he presented during his time there was publicly available. Vitalik came to the defense of his friend, saying: "I refuse to take the convenient path of throwing Virgil under the bus, because I firmly believe that that would be wrong...Geopolitical open-mindedness is a virtue. It's admirable to go to a group of people that one has been trained since childhood to believe is a Maximum Evil Enemy, and hear out what they have to say. The world would be better if more people on all sides did that. In fact, this virtue of his has paid off in multiple other contexts; improved relations with Ethereum Classic, Hyperledger, and others [Ed note: Virgil has been working most recently to certify ethereum as Sharia-compliant, so he's been a big general proponent of financial inclusion]...I don't think what Virgil did gave DRPK any kind of real help in doing anything bad. He delivered a presentation based on publicly available info about open-source software. There was no weird hackery "advanced tutoring"...So I hope USA shows strength rather than weakness and focuses on genuine and harmful corruption that it and all countries struggle with rather than going after programmers delivering speeches parroting public information." Where’s the clear red line he crossed? Disobedience to the U.S. most likely. Indeed, the complaint notes that Virgil was (naively) cooperative with the FBI during an interview following the conference, and that he had even showed agents photos and documents from the gathering, claiming he’d like to return to the conference again in 2020. Virgil hardly seems like the type of guy who deserves a lengthy prison sentence for naivety, and I hope he gets a good lawyer. But let’s step back and think about the practical line he crossed. That is, picking a high-risk, low-reward battle by even heading to North Korea in the first place. We’re just starting to fight a long-term war to ensure crypto survives, and this wasn't a smart move for anyone representing the broader crypto community. Meanwhile, crypto journalist Laura Shin had a good practical take: "I see a lot of misconceptions about North Korea. It's important to understand what makes this country different before you form an opinion on Virgil's situation. North Korea is essentially a prison masquerading as a country. People are not allowed to leave, they aren't allowed to travel out of their own towns without permission, they're not even allowedto think their own thoughts aloud. If a North Korean verbalizes a thought not in line with the regime's propaganda or commits some other perceived crime, they risk not only being sent to a prison camp, but also having their entire family sent there andthe next two generations being born, living and dying there. You can be punished for watching a foreign movie, talking to a foreigner, for basically doing anything that doesn't show 100% loyalty to the Kim family. There is actually a loudspeaker in every North Korean home that spouts North Korean propaganda all day. I see people saying it's not a crime to help the North Korean people. But the only way to help North Korean people is in secret. Any public activity between North Korea and a foreigner is with the dictatorship, NOT with everyday people. The regime craves outside relationships with foreigners because it legitimizes them. And it NEVER lets everyday North Korean people interact with foreigners, because that introduces the possibility that the citizens would have proof that everything the regime tells them is lies. I also see people saying sanctions hurt the NK people. That may be so but Virgil was allegedly helping the regime avoid sanctions. And if you think the regime is going to get money from cryptocurrency and turn around and feed its people, then you know nothing about North Korea." In other words, this simply wasn’t a smart political calculation. The battlegrounds matter when you are the insurgent fighting much larger and more dangerous powers. You can’t help the insurgency if you’re stuck behind bars for 20 years, or even two of crypto's formative years. This should make a lot of people think about the high stakes game we're playing in building an information technology that strips the state of a core power. Nic Carter captured this sentiment perfectly in his post a few months ago “A Most Peaceful Revolution”, which you should read TODAY if you haven’t already. If you take the view crypto is the last line of defense against a global surveillance state, and ultimately, global authoritarianism (as I do, unfortunately), then the precedents set in cases like this are critically important. We need to be 10x better than the systems we aim to replace if crypto is to have any chance of succeeding. If we lose the high ground, we have absolutely, positively no shot. -TBI P.S. On a lighter note, if you haven't tried Messari Pro yet, you can get an annual subscription for $20 bucks a month using the offer code TURKEY20 . Offer expires at the end of the day so better get moving. 🙂 Subscribe to our free newsletter to get Unqualified Opinions delivered to your inbox each morning.
Source: Ryan Selkis — Published: 2019-12-02
Disclaimer: Galaxy Digital Holdings Ltd. is an investor in Messari Galaxy, a full-service crypto-focused investment bank revealed a net-loss of $68.2 million in the third-quarter primarily a result of their OTC trading business that lost over $43 million. While the third quarter was a challenging one for the market as a whole with bitcoin losing down 30%, there were a few bright spots for the company. The OTC trading desk onboarded 47% more counterparties compared to last quarter, Advisory Services’ worked on two IPOs as Joint Bookrunner for Canaan and Co-Manager for Silvergate Bank, and the firm entered the structured and derivative product markets. Why it matters: As more profitable businesses are built around crypto there will be a growing demand for traditional investment banking functions such as the underwriting of debt and equity offerings. Galaxy Digital is poised to be a leader in this space having been focused exclusively on crypto and receiving regulatory approval from FINRA in July. The size of the firm’s balance sheet has enabled them to remain solvent despite the bear market. Should market conditions reverse, the $125 million of cryptocurrency could further increase the size of the balance sheet expanding their capabilities.
Source: Galaxy — Published: 2019-12-02
At a high level, our previous research reports mentioned the wide range of new assets set to launch in the coming months. As these networks begin to go live, we would like to take a closer look at the various dynamics of each project. In this first series, we’re dissecting the different approaches employed by Kadena and Nervos Network to bootstrap their respective mining communities. All Proof-of-Work (PoW) blockchains rely on a robust group of miners to ensure network security. But PoW networks need to offer a clear competitive advantage (often financial) to entice miners to join in the first place. Nervos opted to host a mining competition on its testnet, where the top participants received real financial rewards in Nervos’ native CKB token upon mainnet launch (Nov. 15). This method helped familiarize miners with the nuances of Nervos’ blockchain and mining client design while facilitating token distribution. You can learn more about Nervos Network’s mining competition and the benefits of testnet events in our Pro research report on Incentivizing Testnet Participation. On the flip side, Kadena quietly launched its mainnet only for CPU mining activity (token transfers won’t unlock until Dec. 17, and smart contract functionality won't launch until Jan. 2020). The release enabled early miners to earn KDA tokens at a minimal expense. Kadena simultaneously held a public token sale, pricing KDAs at $1 per unit. The stark difference in acquisition cost between mining and purchasing created an enticing arbitrage opportunity for miners, which Mohamed Fouda at Token Daily covers in greater detail. The prospect of acquiring cheap KDA tokens ignited a frenzy among miners to join the network and develop more advanced mining tools. With each chain now live, does the data point to one approach being better than the other? Below is a comparison of the growth experienced by each network since its mainnet launch. Kadena’s effort had a profound effect on miner adoption. The opportunity for oversized financial gains early on (think of it as a pre-sale for miners) helped bootstrap a miner base. Notably, miners continue to dedicate resources to the network even though the arbitrage opportunity has long since closed. The network buy-in is strong at the moment since token transfers remain disabled. But the comparison to Nervos Network is deceiving at first. Despite the more gradual growth pattern (following its first few difficulty adjustments), Nervos’ hash rate and difficulty level are orders of magnitude greater than Kadena’s security metrics. Nervos is a premier example of how testnet competitions can recruit an active community of miners leading up to a mainnet launch. We should also note that no cross-network comparison is perfect. Kadena and Nervos have different mining algorithms, mining hardware/software requirements, and difficulty adjustment mechanisms. And if the algorithm itself is insecure, then the amount of hash power dedicated to the network is irrelevant. With that said, hash rate is generally an accepted measurement for evaluating the level of security between different chains. Check our asset profiles on Kadena and Nervos Network to learn more about each project. For future breakdowns on new assets, we’ll be keeping a close eye on the upcoming launches of Orchid and Polkadot.
Source: Messari — Published: 2019-11-29
IOHK CEO and Founder Charles Hoskinson tweeted the team intends to launch Cardano’s Shelley testnet on Dec. 9. The Shelley era introduces a Proof-of-Stake (PoS) consensus mechanism and promises to decentralize the current Cardano network by finally allowing network participants to stake $ADA and operate nodes. Shelley will also unveil delegation and incentive schemes “to drive stake pools and community adoption.” According to Hoskinson, a tentative snapshot of the current network is set for Nov. 29, which the development team will use to issue ADA tokens on the new testnet. Why it matters: Shelley marks the first significant development for Cardano since its mainnet launch over two years ago. Cardano’s initial phase, dubbed Byron, operated as a federated network with limited functionality — users could only execute token transfers. The Shelley era is a monumental step in Cardano’s goal maturation as it looks to become a viable smart contract platform. The Shelley testnet will also financially incentivize participation. Users will earn real ADA tokens by staking their current holdings on the test network. The Cardano development teams believe the information it gathers during the testnet event “will be crucial in creating a fair and balanced incentive mechanism, which will ensure reliable and honest network participation long into the future.” Learn more about the benefits of testnet events in our Pro research report on Incentivizing Testnet Participation.
Source: IOHK — Published: 2019-11-27
This is the second issue 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 the first on Synthetix here. Melon is an open-source protocol that enables the setup and management of pooled digital assets on-chain. It was one of the first DeFi projects where they dissolved the issuing entity, Melonport AG, successfully ceding control to a DAO. The native MLN token acts as “asset-management gas” that is subsequently burned after performing functions such as creating a fund, requesting investment, and redeeming assets. However, users do not need to buy or hold MLN in order to execute these functions as this is abstracted away to improve the user experience. This buy and burn framework aligns the growth of the network with the value of the token. To assess the growth of the network, a key metric is the assets under management. After the Melon Council DAO raised the AUM limit, there were two distinct spikes in AUM on Oct.1st and 9th. The increased investment demonstrates more people are finding value in the platform, which will inevitably lead to more actions that require burning MLN. While it's too early to draw a correlation between the AUM and price, it is interesting to notice the price increase coinciding with the first spike. This is a positive sign that investors and traders are looking at fundamental metrics indicating the health of the network and future growth potential. You can read more about the mechanics of the token burn and other facets of the Melon protocol on their asset page. In the future, we will look to perform a more granular analysis of the types of actions being taken to further evaluate Melon on a fundamental basis.
Source: Messari — Published: 2019-11-27