đŹđ§ London Meetup: THANKS đ
We had a great time last Tuesday night at our first London Meetup: 70+ people showed up, some familiar and many new faces too. We loved the mix between investors, entrepreneurs and developers.
A big thank you to Firstminute Capital (who took care of the bill) and David from Decusis (who took care of the logistics).
Our next one will be in Paris in March around EthCC. Stay tuned, more info closer to the date.
Now, weâre getting ready for Unplug which is happening in just a week! Attendees include people from Anthemis, MMC, Project A, Localglobe, Cherry Ventures, Fabric, Libertus Capital, Samsung Next Ventures, CoinFund and more, as well as builders from Github, Google, Facebook, Storj, Coinlist, OScoin, NuCypher, OpenCollective, Cofoundit, Balance Money and more!
đ¸ Implications of the massive ICO pre-sale hype
Telegram is holding a secretive second pre-ICO sale for its blockchain-powered network
If you remember, the original plan was for Telegram to raise a $600M pre-sale and then hold a $600M public sale.
I still remember reading the TON whitepaper and sale information, and having to re-read 3 times to make sure they really were planning such a massive raise.
But they did plan it, did raise it, and â obviously â ended up oversubscribed multiple times over.
So, not really that satisfied in raising around $850M in its crazy pre-sale, Telegram has actually decided to continue it. Because why not, the money is there, why should they leave it on the table?
The rumors state that they might be trying to get up to $1.6B before an ICO would happen, but at this point it is even doubtful it ever will.
Sequoia and Benchmark are participating, so who am I to say that this is crazy, but this is crazy.
Implications of massive token pre-sales
While we were in London this week, weâve met with quite a few family offices and hedge fund managers, which would traditionally never even have heard of cool interesting startups and had limited visibility on the underlying features, tech and rationale for cryptocurrencies projects.
Yet, theyâve all invested in the super-hyped, mega ICO pre-sales.
Kin? Check. Filecoin? Who wouldnât! Basecoin? Well Andreessenâs in.. and so on.
Aside from the depression that is generated in my soul when I see capital so mis-allocated in the world, I started getting pretty scared about a number of things.
1) Fiat-to-fiat vs Fiat-to-crypto-to-fiat
The easiest thought association is that this massive institutional capital in-flow has shifted from going through ETH and BTC, and is now instead going straight to companies fiat bank accounts.
This means that there is a much lower price pressure on the big cryptocurrencies, as theyâve been bypassed. Itâs much easier for a family office to just wire $50M to someone, than having to sign up for an exchange or OTC provider, buy the crypto, send it and deal with the reporting. On the other side, companies get fiat and donât have to dump $millions on exchanges.
But this also means that if previously everyone that was participating in the crypto markets would benefit from the institutional capital waterfall, now the only ones taking advantage are the big mega-sale companies and their previous equity investors.
This is both good and bad:
- good: all the investors that will get burned on these non-sensical risk-reward decisions will only lose their own money and they wonât be impacting the prices in the crypto markets.
- bad: no-one get the upside.
2) Where on planet earth will we find liquidity for all of these tokens?
Pre-product projects (letâs not forget that Telegram has still not written one line of code of what theyâre proposing) are now raising pre-ico amounts that rival most public IPOs and that value the networks into the billions and tens of billions.
But the big capital is only going in at the pre-ico timeframe.
This means that there will be no buyers once (or if) the product is released and the tokens hit the exchanges (assuming there will be exchanges that will want to touch these in the future, and that have capacity to add all of them).
If we are relying only on the broader retail investors, then thatâs 1) fucked up and 2) naive.
When youâre making a speculative purchase with no underlying value, having an idea of who to sell the asset to before purchasing it should be really the only requirement, but here it seems to me that most investors have just been blinded by a digital bling, and havenât even thought of that.
đ Token Economy
Takeaways from the ETHDenver Hackathon 2018 by Nick Neuman
đŚFeatured on Token Economy
Our friend Nick was at ETHDenver this week where he took part in the hackathon with one of the winning projects (Keysplit.io â very cool, check out his post about it).
From Nickâs takeouts and the many tweets surrounding the main event, it sounds like itâs been a total blast. Yet another testament to the level of energy and activity in the Ethereum community.
Tezos Board reorganized by Tezos
Good news for Tezos holders and fans, the power-struggle between Gevers and the Breitmans is finally over! đ
In an unexpected turn of events, Gevers, who single-handedly controlled the Foundationâs board and therefore the capital locked into it, and Pons stepped down âvoluntarilyâ to âoptimally support the Foundation in the advancement of its missionâ, making space for Ryan Jesperson and Michel Mauny (who had served on the board of the new T2 Foundation that was supposed to oversee Tezos development independently from the Tezos Foundation).
While Tezos still has to deal with some headaches (a rumours SEC investigation and a few class action lawsuits), itâs now free to focus on delivering the big promises and to access the ICO funds. Network launch could be imminent.
Many lessons learnt along the way too, hopefully. Fortune has a good recap of the whole story so far.
Weâll never really know exactly what happened behind the scenes over the past weeks. The only clue to what may have happened was that the Breitmans had recently announced their intention of going rogue and releasing the Tezos tokens wether theyâd get the funds or not.
Secretive Chinese bitcoin mining company may have made as much money as Nvidia last year by Evelyn Cheng
Bitmain prints money.
Estimates suggest they generated $3â4 billion in operating profits last year, their 4th year of operation.
This first of all blows our mind, but secondly makes us appreciate just how strong Bitcoinâs market position really is.
If a company making $4B in *profits* attempted multiple hostile forks and wasnât successful in its intents, then it must mean that Bitcoinâs resilience is really something exceptional.
An open letter to the Bitcoin community to change the proof-of-work algorithm by Cøbra
On that very topic of Bitmainâs total dominance, the founder of Bitcoin.org touched a nerve with a post where he proposes a hard-fork to change Bitcoin PoW algorithm.
ââŚnow we have a situation where one man controls the majority of the hashrate, and we are OK with that so long as he behaves himself. Imagine if someone followed you around with a gun pressed against your head, and you were OK with this because âhe is incentivized to not shoot me because of the threat of jailâ, people would call you stupid and crazy, and yet when it comes to Bitcoin, weâre totally fine with thinking along those lines.â
Heâs mostly worried about the political implications centralized mining superpowers in China, and the risk of government seizing equipment or miners eventually going rogue.
The post unsurprisingly sparked some emotional reactions on Twitter. It seems to be the case that everyone thinks this is unlikely to happen let alone âcure the diseaseâ, but itâs the threat itself that keeps all parties in check.
Models For Scaling Trustless Computation by Kyle Samani
â ď¸Warning: long, interesting read.
Kyle from Multicoin explores the scalability trilemma: safety, scalability, and decentralization.
He explores all of the âlegsâ between these different features and all of the projects that are trying to address different dimensions.
After reading this you should have a much better understanding of the full ecosystem.
âThe Rising Tide Lifts All Boatsâ â A Perfect Crypto-storm is Brewing in the Philippines by Miguel Cuneta
To feed your thoughts regarding regulatory arbitrage and competition, reading whatâs going on in the Philippines would be a great idea.
The additional thought emerging from this, is the leapfrogging argument.
Just as people in emerging countries completely skipped landlines and PCs to go straight to smartphones, itâs possible (even if admittedly a bit far fetched) that in some underbanked countries, people will completely skip the old-school banking system and only rely on digital currencies.
Signal Foundation
Not really crypto related, but Signal has launched the Signal Foundation, with an initial $50M contribution from the co-founder of WhatsApp, whoâs joining as a Chairman.
With 3 mentions of cryptography in the first paragraph, and the recent Kin / Telegram disaster-ICOs, we might smell either a move to compete with the newly acquired funds for their competitors, or even an initial setup for a future token sale.
Weâll keep an eye on this one.
The Fundamentals of Discount Tokens by Alex Felix
We touched on discount tokens last week.
In a timely fashion, Alex from Coinfund published a good primer on this token model in the context of having designed one with Sweetbridge (a project they advise).
The reason they like this token model is that it addresses all 3 key properties of crypto assets:
1/ digital, secure, trustless and globally accessible
2/ can support an ecosystem to use and accept it
3/ its value correlates with fundamentals
One way to look at this token is like a royalty that gives holder a right to use a portion of the service provisioned by the platform, where value flows to offset costs for the users. Crucially, passive investors canât capture its value fully.
Stablecoins: designing a price-stable cryptocurrency by Haseeb Qureshi
Another superb primer on the fundamental designs of stable coins, that comes to the same conclusion as our own: there is no ideal stable coin (yet).
Lessons From MakerDAO by Nick Tomaino
Speaking of stable coins, Nick at 1confirmation shares some of the learning from the MakerDAO story (3+ years building, no ICO, limited hype, live product, not traded on popular exchanges):
1/ Who your early token holders are matters a lot
2/ Token-based projects work best as distributed internet tribes rather than traditional companies
3/ Getting from project launch to product launch takes lots of time
Disclaimer: we are LPs in 1confirmation.
MV=PâŚQue? Love and Circularity in the Time of Crypto by Brian Koralewski
A long post from the founders of Austere Capital, highlighting their views on a critical flaw in the MV=PQ valuation model for crypto assets. Namely that it is circular, since the token price in USD terms is used to calculate the right side of the equation, which in turns is used to derive the token price itself.
Admittedly we havenât dissected it in details yet, so weâll try to come back to it at a later time [donât miss Chris Burniske response on Twitter].
Usability in the crypto world (or my experience as an ICO participant)
Yep, it still sucks badly.
And this is for one-off transactions like ICOs, so imagine how much more work there is to build UX/UI for recurrent usage.
Bulletproofs: Faster Rangeproofs and Much More by Andrew Poelstra
For some reason, in the past week Bulletproofs have received a lot of attention (we still have to understand why, as itâs a proposal from 2016)
This oneâs a great read if you havenât heard of it.
The TL;DR:
- Bulletproofs are general zero-knowledge proofs (like SNARKs)
- They can be used to extend multiparty protocols such as multisignatures or Zero-Knowledge Contingent Payments
- Bulletproofs provide a much more efficient version of CT rangeproofs (when batch verifying, over 23x speed improvement)
- These rangeproofs can be aggregated within transactions with only logarithmic size increase.
- With sufficient aggregation, such as in Provisions, batch verification becomes over 130x as fast as the old proofs
A token to self-regulate tokens. But really. by TwoBitIdiot
If you follow Ryan Selkis aka Twobitidiot on Twitter you probably know heâs heads down building Messari, an open data layer for crypto assets with the ultimate aim to provide the industry with the data backbone to self-regulate. Our long time readers may remember we interviewed him when he announced the project last October.
Lately heâs been researching token curated registries as a potential structure for Messari to become a âself-regulatory organizationâ and heâs concluded this is the way forward.
âThe high-level concept of a token-curated registry is this: thereâs a list you want to be on and you think you deserve to be on the list. You are then willing to pay an application fee in an effort to make that list â either on a one time basis or via recurring credentialing âduesâ â because there is intrinsic value to inclusion. You can think of a TCR like a cooperative, where existing members vote to include new participants and share in the costs, and rewards, of running the community.â
The most powerful thing will be the signal that being on a Messari registry sends to the community: the good quality project will proactively want to open up their kimonos and be curated, while the bad ones will hide.
Crypto applications : musings on insurance dapps? (Part 1) by Yann Ranchere
Insurance has long been called one of the perfect use cases for decentralized applications, and indeed for good reason.
Yann from Anthemis explores more a space that hasnât received the deserved mental cycles.
He finds a few problems, that are actually shared with many other applications:
- stablecoin value
- oracles
- dispute management
- regulation
and clearly, underwriting
Someone bought Cryptoallstarz for $30,000 just to shut it down
There is the SEC way, and then there is mexicantargetâs way.
âIâve been fighting against scum like you, who make Ponzies and get people in sh*t, just because of your stupidity and greed. I burned ~$30.000 just to buy your project and shut it down, because Iâm getting really sick from situations like this, where poor suckers invest in schemes like yours and get burnedâ.
Bitcoin Thieves Threaten Real Violence for Virtual Currencies by The New York Times
Scary stuff, so much so that it was the topic of a panel at the recent Satoshi Roundtable in Cancun. Turns out crypto security practices need to extend to the physical world.
Just last week, weâve heard that the founder of a recently funded crypto project has hired permanent body guardsâŚ
Addressing Demand â Salt Lending by Salt Lending Medium
Wow! Demand for crypto native products like crypto-backed loans is through the roof.
SALT experienced demand of over $1.3B in loan requests, being able to service only $23M of it. As a result they decided to halt new user registrations to focus on automating internal processes.
The Inside Story of the CryptoKitties Congestion Crisis by ConsenSys
An interesting retrospective from developers at Infura, Grid+ and Metamask who joined up the Cryptokitties team at the height of the mania to collaboratively alleviate network congestions and build the foundations for future scalability.
âOne of the things that makes the Ethereum community different: Everybody, even if theyâre working on potentially competing projects, works together to figure stuff out. It goes against the capitalist, startup world where everyoneâs trying to beat out everyone. Iâve never seen anything like this in any other crypto-community this large.â
đ Cool new projects
Bitfract
Shapeshift has launched one of the most requested features: the ability to exchange one coin for multiple coins.
Say you want to buy a number of alts with your BTC, you can now do that in just one transaction.
Pretty cool (even if still entirely centralized).
Short selling on Dharma
Decentralized financial instruments are coming, fast.
Developers have started using Dharma.js and the Dharma protocol to create short-selling markets on any ERC20 token, by using (1.5x) DAI as collateral.
Financial instruments is clearly the #1 area where weâre seeing the most innovation, and itâs just accelerating.
How Everipedia is Decentralizing History with Blockchain by Reza Jafery
The founder of Genius (remember Rap Genius, the fastest growing YC company ever?) is at it again, still in the same space with Everipedia: a decentralized Wikipedia.
Larry Sanger, one of the co-founders of Wikipedia, also joined the new company as Chief Information Officer recently.
Canât think of a better use case for current decentralized computing abilities.
Drizzle: Reactive Ethereum Data for Front-ends by Truffle
The people at Truffle just keep on shipping.
This time itâs Drizzle, a Redux-based set of front-end modules that react to Ethereum data automatically.
Slowly but surely the infrastructure to build decent dapps is being created! Thatâs amazing news.
Announcing SegWit support on Coinbase by Dan Romero
Coinbase is almost done supporting Segwit, finally.
Also, they are committing to working on transaction batching, improved UTXO management and Lightning Network features.
Jimmy Songâs New Mission: Fund Unpaid Bitcoin Coders by CoinDesk
Jimmy Song is one of the best known core developers. Heâs also a partner at Blockchain Capital, and through his role there he is launching Platypus Labs, which will provide fellowships and residencies to support open source bitcoin development.
The issue of funding open source development is going to become more and more crucial, especially as good teams continue to release open source software but stop using useless tokens.
Announcing the new Ledger Wallet desktop and mobile applications by Ledger
The Ledger team is extremely impressive. I own a different hardware wallet, but now kinda wish I had a Ledger.
In their transition away from Chrome apps, theyâve unveiled quite the update: a new native app for all of their supported cryptos.
Looks super slick.
𤥠ICO madness
Venezuela Claims $735 Million Raised in First Cryptocurrency Sale by CoinDesk
Not that we gave them the benefit of the doubt, but boy what an extraordinary mess.
Letâs recap:
- Maduro made claims on national television that $735m was raised in the first day of the $PTR pre-sale
- The website has been largely unusable, but those that managed to go through registration noticed they were only allowed to state an offer range
- They have switched from Ethereum to the NEM blockchain at the last minute, without providing any explanation
- All premined tokens are supposedly still sitting in this one NEM address, though this is highly speculative as the government have not confirmed what the official address is
- the public ICO is scheduled for March 20th, when presumably all tokens will be paid for and then issued
- some diligent eyes noticed in the fine print that the Petro is in fact supposed to be redeemable for the *value* of a barrel of oil, denominated inâŚBolivars! Yes, a Petro is redeemable for heavily inflating Bolivars.
- If that wasnât enough, Maduro has also announced plans to issue a second crypto currencies backed by gold reserves (the Petro Oro).
On the lead up to this, the government has been raiding and expropriating equipment of Venezuelan bitcoin miners, often with brute force.
The whole is sad and terrifyingâŚ
Iran becomes latest rogue state to develop its own cryptocurrency
Following Venezuelaâs example, the Iranian central bank has announced the intention to launch its own cryptocurrency and to control the usage of other cryptocurrencies.
Both countries are under US sanctions and their respective currencies have severely devalued against the USD over the last few years. Issuing a state-controlled crypto currency is now probably top of the agenda for all countries that fit this bill, a development that many industry insiders didnât foresee until recently and that stands at total odds with the ethos of the community.
đŽ This week in regulation
Summary of replies to the public consultation on ICOs and update on the UNICORN Programme â AMF
đ A guest post by Pierre Entremont of Otium Venture
The French market watchdog (âAMFâ) published a progress report of itâs âUNICORNâ programme, aiming at building a legal framework for ICOs in France. The document summarizes the replies to the public consultation the AMF held, and describes the main orientations resulting from it. They for sure have good intentions, but you know what they say about those.
It states that tokens which give financial or governance rights are securities and are consequently already regulated, but that utility tokens are a genuinely new thing (a subpart of the French legal concept âmiscellaneous goodsâ) which need a specific regulation.
Itâs still early, but the core areas this regulation would cover are classic:
- Transparency before and after the ICO
- Progressive funds release and founders tokens vesting
- Proper KYC / AML processes.
Finally, companies asking for it could get an optional âvisaâ from the authority, stating that they are in conformity with the to be written law.
Interesting side effect: even if tax matters are out of the authorityâs scope, the classification as âmiscellaneous goodsâ could lower the tax rate for investors from a monstrous 70% in some cases to c. 35%.
Itâs great to see that the authority genuinely wants to help, and the approach towards tokens considered as utility looks reasonable. Itâs worrying however that it does not encompass tokens with governance rights, which are essential to decentralized networks.
Ironically, governance tokens may end up being the collateral victims of a political mechanism. Modifying the securities regulation is way harder to do than writing a new law on a new and exotic kind of goods, which is the way the authority took. Letâs hope all governance systems will not be discarded.
Wyoming House Approves Utility Token Securities Exemptions Bill by CoinDesk
As mentioned in issue #34, Wyoming senators had proposed a Bill to exempt certain tokens from securities and money transmission regulations.
This week, the Wyoming House of Representatives has unanimously passed it to the Senate for approval (which if granted could put the Bill into effect on July 1st).
The conditions for a token to be exempt are the following:
1/ It must not be marketed as an investment
2/ Itâs exchangeable for goods/services (i.e itâs functional utility token in SAFT jargon)
3/ There must not be involvement of the issuer in the secondary market to provide price support.
After FINMA last week, more policy makers are corroborating the theory that not all tokens fall under the definition of securities. There are rumours that other States are following a similar path.
SEC Cools a Red-Hot Crypto Market by Picking Up the Telephone by Bloomberg
It looks like the SEC has been making calls.
Reportedly more than a dozen projects have shelved ICO plans after being contacted by the agency, possibly explaining the âRIP ICOâ we talked about in issue #34.
Crypto/Blockchain Safe Harbor by Albert Wenger
Albert Wenger of USV proposes an alternative approach to regulating crypto tokens and ICOs that worked effectively in the first era of the Internet: Safe Harbors (i.e. provisions or regulations that specify that âcertain conduct will be deemed not to violate a given ruleâ, such as the Digital Millennium Copyright Act that protects ISPs from the consequences of their usersâ actions).
Albert believe such safe harbors should be centered around:
1/ token sales and distribution, requiring holding periods and information disclosures above certain thresholds of dollar invested per investor (and exempting airdrops for example)
2/ secondary markets, requiring utility tokens not to represent ownership in order to qualify for being listed on exchanges.
This feels like a middle-ground approach between self-regulation and the SEC/CFTC attempt to apply legacy frameworks to new assets, and apparently there are already organizations actively developing proposals along these lines.
South Korean official in charge of crackdown found dead
Jung Ki-joon, 52, reportedly suffered from a stress-related heart attack.
đ¸ Funding rounds
Andreessen Horowitz invests in in digital custody startup Anchor Labs by Axios
The anecdote behind the $17m Series A round led by A16Z is that apparently Coinbase had made an acquisition offer for stealthy Anchor Labs, subsequently announcing a competing custody product when the offer was rejected.
Custody for digital assets continues to be a hot topic as institutional investors get the grips with this asset class.
âšď¸ About us
Token Economy is written and curated by Stefano and Yannick.
If youâre building a new fundamental piece of technology for the future, please reach out đ¤
Feel free to send links to include in the next issue, or any comments you might have on this one!