May 29, 2018 . 12 min read

Crypto Chat #43

Highlights

Paradex:

Leading crypto asset exchange Coinbase acquired Paradex, a 0x relayer, this week.

Paradex was one of the first 0x relayers to launch on mainnet earlier this year, although its volume pales in comparison to that of competing relayers, DDEX and Radar Relay.

Unlike other relayers, Paradex avoided a fee structure denominated in the 0x token, ZRX, instead opting to generate revenue through market making all trades and benefiting off the spreads. As such, Paradex is only decentralized as far as it does not custody user funds.

Coinbase plans to integrate Paradex into its retail offerings, opening up a variety of ERC20 listings to users. The announcement also mentions ‘wallet-to-wallet’ trading, suggesting that Paradex may evolve into a legitimate peer-to-peer marketplace.

The market briefly brought ZRX close to all time highs following news of the announcement, although the price has since subsided with the wider market downturn. Considering that Coinbase is highly incentivized to acquire a substantial portion of ZRX tokens in order to maintain future influence over 0x smart contract upgrades, I can’t help but feel that ZRX can still grow by several orders of magnitude (this is not investment advice). Moreover, it seems likely that other large centralized exchanges will now look to make a relayer acquisition of their own.

Coinbase also announced that their professional trading platform, GDAX, has been rebranded to Coinbase Pro, which will feature new services including direct protocol staking from its wallet.

Attacks:

A series of embarrassing events for Verge, Bitcoin Gold, and Ethereum Classic this week.

Abacus’ Daniel Goldman provides a fantastic summary of Verge’s attack, caused by a combination of timestamp spoofing and a clever exploitation of its use of five hashing algorithms.

The attack of Bitcoin Gold, an opportunistic fork of Bitcoin, was more straightforward, with the adversary simply acquiring 51% of the network’s total hashpower before executing double spends to the tune of $18.6m.

Ethereum Classic, a network valued at over $1.5bn, was not attacked but Husam Abboud revealed to the world that a 51% attack would only cost between $55m-$85m.

I imagine that we will see more and more attacks on weakly secured networks in the coming weeks and months — check out this site to see the cost of a 51% attack on various chains. Indeed, I have even had the idea of raising a fund specifically for the purpose of attacking weak chains — if anyone wants to front ~$50m then please email me ASAP.

This week's attacks also lend further credence to my theory that weakly secured networks will eventually root themselves to secure chains like Ethereum using Plasma Cash.

Blockchain Size:

@StopAndDecrypt’s (@SAD) article on Ethereum’s bloated blocksize caused a lot of consternation in the community this week.

@SAD argues that blocksize growth is unsustainable because it will increase node processing requirements, which will cause further centralization as only those with expensive hardware will be able to feasibly run a full node. Ethereum could avoid such centralization through a blocksize cap, although this would lead to increased fees and supposedly prevent dApps from functioning as designed.

Gustav Simonsson, a member of the security team at Ethereum, put many of @SAD’s claims to rest in this follow-up article. Moreover, the Ethereum community is actively taking steps to incentivize running full nodes.

TruStory:

Preethi Kasireddy, formerly of Goldman Sachs, Coinbase, and Andreessen Horowitz, announced that she has raised a $3m seed round led by True Ventures, with participation from the likes of Pantera, Coinbase Ventures, and Fred Ehrsam, for her new platform, TruStory, which will incentivize users to research and validate claims that people make in ICO white papers.

The announcement also mentions that TruStory is currently run solely by Kasireddy and that the product is far from close to being brought to market. With this in mind, I find it enormously ironic that Kasireddy was able to raise $3m, presumably at a valuation between $20m-$30m, pre-product and pre-team (!), for a project that aims to weed out overvalued/overhyped projects in the crypto asset industry.

I brought up these concerns to Ryan Selkis, founder of Messari, a Self Regulatory Organization for the crypto asset space, and a notable critic of fundamentally weak/overvalued projects.

Unfortunately, all I could infer from Ryan’s dismissive response was that a) different standards apply when it comes to his friends’ projects b) I know nothing about venture investing! And here I was thinking that ideas were worth closer to a dime/12 than $30m…Back to the drawing board.

Market

prices provided by coinmarketcap.com as of 18:05 EST

BTC:

Bitcoin (BTC) struggled to regain bullish momentum this week, falling over 14% to the $7,100-$7,200 range.

The 1D Ichimoku Cloud indicator suggests a particularly bleak period ahead, with a bearish taikun-kijun crossing about to take place.

Conversely, the 1D Relative Strength Indicator (RSI) suggests we are closing in on oversold territory, although this could feasibly last for weeks if not months. Turtle BC’s Buy Markets indicator, which sits at 5.71%, also suggests the market is oversold.

Meanwhile, SegWit integration has led to a 98% reduction in BTC transaction fees from highs of $60 in late December 2017.

ETH:

Ether (ETH) was hit particularly hard this week, falling over 25% to the $520-$530 range. ETH/USD shorts are at an all time high on Bitfinex.

As reported in TrustNodes, this latest wipe out may have largely been caused by the EOS team, which recently moved 300,000 ETH from its crowdsale smart contract to Bitfinex. To complicate matters further, Bitfinex is currently campaigning to become an EOS block producer. That EOS would try and crash the ETH price in the days leading up to its mainnet launch is ethically dubious yet wholly unsurprising.

Funds:

Lightspeed Venture Partners, one of the earliest investors in Snap, is reportedly considering setting up a new fund dedicated to crypto asset investments.

Meanwhile, this graphic provides a nice overview of the crypto asset fund ecosystem, including: which projects funds have taken stakes in; the rate of fund growth, and 2018 ROI by month.

Government

CFTC:

Marco Santori, architect of the SAFT and currently President and Chief Legal Officer at Blockchain (the company), provides fantastic commentary on the CFTC’s crypto derivatives framework.

The industry remains on the edge of their seats for the SEC to publish similar guidance on securities law in relation to crypto assets.

Coin Center, the leading industry policy think tank, continues to advocate for safe harbor protections for decentralized networks, positing that compliance would be impossible and any ban would do immense damage to American competitiveness with respect to emerging decentralized token technologies.

Investigations:

The U.S. Justice Department has opened an investigation into Bitcoin price manipulation, focusing on practices such as spoofing and wash trading.

While I welcome any action that will reduce manipulation in the crypto asset markets, I can’t help but feel that there are far larger fish to fry in capital markets. As with former New York Attorney General Eric Schneiderman’s investigation into crypto asset exchanges, this feels like a bit of a marketing stunt on behalf of the DoJ.

Meanwhile, the UK’s Financial Conduct Authority is reportedly investigating 24 blockchain-related firms.

Marshall Islands:

A rather strange story from the Marshall Islands this week.

Moore Grams of Polymath did some research into the Marshall Islands’ Sovereign (SOV) coin, which will be used to supplement USD as its legal tender.

The Marshall Islands was advised by Israeli start-up Get Neema, which will receive a staggering 50% of SOV supply for its services. Yes, 50% of the Marshall Island’s new currency will be in the hands of a 5 member team based on the other side of the world.

Enterprise

Circle:

Circle Invest, a crypto-asset investment platform from Goldman Sachs-backed Circle, has added a ‘Buy the Market’ tool to its platform, an easy way for retail investors to invest in the seven supported assets weighted by market cap.

Circle Invest will mark assets up by 1% when users buy or sell a particular crypto asset but will not charge any additional fixed fees. The news is bearish for the industry's burgeoning index fund field, which charge on average several percent per annum.

Silvergate:

The Wall Street Journal profiled Silvergate Bank, one of the few banks in the United States offering services to blockchain/crypto-asset companies.

Silvergate’s assets nearly doubled to $1.9bn last year, largely due to business flowing in from crypto-related companies.

AmEx:

American Express is integrating Hyperledger’s blockchain technology into its rewards program, allowing merchants to create custom Membership Reward programs for cardholders.

I eagerly/ambitiously await for the day where AmEx transforms points into fungible tokens, which could then be easily traded on secondary markets.

Use cases

Arbitration:

A fascinating proposal from Dean Eigenemann, who is heading up dispute resolution for the Ethereum Name Service (ENS).

Eigenmann proposes integrating a forced bribers feature, whereby a dispute resolution protocol has a built in system to bribe arbitrators. The assumption is that arbitrators are required to report attempts of bribes and having the protocol designers act as bribers should help make it easy to identify who the bad actors are. The difficulty comes in executing bribes while concealing the identity of the briber from the arbitrator.

Meanwhile, a group of academics from University College London and Cornell have introduced Pisa, a generic state channel design framework that includes a new protocol for hiring a third party agent, called the custodian. The custodian is designed to help alleviate the assumption in state channels that requires every participating party to remain online.

Loom:

Two exciting announcements from the Loom team.

First, China’s largest mobile game platform has announced its intention to integrate with Loom dAppChains.

Cocos is one of the most widely used game engines in the world, with 106 million active users of their SDKBOX per month outside of China. Now Cocos game developers will be able to easily integrate with Loom dAppChains and deploy scalable blockchain games.

Second, the team announced the release of ZombieChain, an EOS-like Delegated Proof of Stake (DPoS) sidechain for Ethereum dApps.

Developers will be able to run their dApps on ZombieChain for a fixed monthly fee, leveraging the throughput advantages of DPoS while retaining the security of the Ethereum main chain. Plasma Cash support will be integrated in June.

Tari:

Ricardo Spagni, the lead developer of privacy-coin Monero, and Dan Teree, co-founder of Ticketfly, have teamed up to launch a merged-mined sidechain of Monero, Tari, which aims to redefine the digital asset experience. Merged-mining allows for two crypto assets to be mined simultaneously based on the same algorithm.

According to the press release, Tari will enable consumers and businesses to break down walled gardens between businesses, sell and trade scarce digital assets with programmed rules, and record immutable transfer and verification of ownership. Sound familiar? Probably because Ethereum has provided these same features for the last 3 years.

Investors include Pantera, Canaan Partners, and Multicoin Capital.

Augur:

In anticipation of its launch, SRO Messari published a profile on Augur, a decentralized prediction market initially conceived in 2014.

Meanwhile, Matt Liston, Chief Strategy Officer at competing decentralized prediction market, Gnosis, filed a lawsuit against the Augur founders, claiming that the team committed fraud, breach of contract, and trade theft in connection with conflicts that arose out of Liston's termination from the company and his stake in Augur's token distribution, leaving him empty-handed.

Liston is seeking a total of $152m in damages, although it is likely that the case will be settled out of court.

DAG:

Industry analysts are spending a lot of time looking at Directed Acyclic Graph (DAG) networks, which claim to offer superior throughput than vertical blockchain architecture. Hedera Hashgraph, a new DAG-based platform, has reportedly raised at a $6bn valuation pre-mainnet.

And yet there seems to be a lot of evidence to suggest that DAGs cannot scale without trending towards centralization.

Security Tokens:

Stephen McKeon, finance professor at the University of Oregon, has published The Security Token Thesis, which lays out the advantages that tokenized securities can provide over their current forms:

  1. 24/7 markets
  2. Fractional ownership
  3. Rapid settlement
  4. Reduction in direct costs
  5. Increased liquidity and market depth
  6. Automated compliance
  7. Asset interoperability
  8. Expansion of the design space for security contracts

Certainly worth the read for anyone in the financial services industry.

TCR Design Patterns:

A concise summary of the various Token Curated Registry (TCR) design patterns:

  1. Unordered TCR
  2. Ordered TCR
  3. Graded TCR
  4. Layered TCR
  5. Nested TCR
  6. Combinatorial TCR

Meanwhile Simon de la Rouviere, the father of TCRs, has published another fascinating piece, in which he proposes that donations in the form of bounties, grants, and patronage can generate residual network value they are funded through the usage of a curved bond.

ZeppelinOS:

Introducing ZeppelinOS, a platform for developing, managing, and operating smart contract applications in Ethereum.

Using ZeppelinOS, developers can now build smart contracts that can be easily upgraded over time, helping to avoid situations in which hundreds of millions of dollars worth of crypto assets are put at risk due to easy-to-fix vulnerabilities.

ICOs

Nothing to report this week!

Resources

Crypto Chat archive

Andreesen Horowitz Comprehensive Resources List

Trading tips and tricks

Beginners guide to crypto assets, including: Bitcoin, Ether, Litecoin, Decred, and Zcash

Ethereum Virtual Maschine illustration

100 crypto assets in 4 words or less

Crowdsourced Ethereum reading list

How blockchains actually work

What is ‘cryptoeconomics’? / Making sense of cryptoeconomics / Beginner’s guide

Decryptionary, an extensive crypto/blockchain glossary

Calendar for upcoming crypto events

ICO statistics

27 resources for cryptocurrency traders

Guardian’s ‘Everything you ever wanted to know about Bitcoin but were afraid to ask’

Quantifying decentralization

ICO picking guide

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