July 25, 2018 . 12 min read
Crypto Chat #49
The conversation around EIP-999, the proposal to recover funds stuck in the Parity multi-sig wallet, resurfaced this week after Ryan Zurrer, a partner at the prolific Polychain Capital, published an article laying out a path towards Ether fund recovery.
Disappointingly, Ryan did not disclose that Polychain is a large investor in Polkadot, the Parity-led project most affected by the frozen funds.
I personally remain convinced that fund recovery is not the correct solution.
For the record, I was an advocate of the DAO recovery in 2016 and I continue to take the view that we are still in the nascent stages of Ethereum development. Nevertheless, considering the extent to which the market has matured since Summer 2016, a contentious fund recovery would certainly lead to a(nother) chain split, disrupting the community and splitting liquidity across two assets.
Moreover, considering Ethereum’s value proposition as an immutable database, a fund recovery would set a dangerous precedent and likely lead prospective developers to focus their efforts on a competing smart contract platform.
Bitcoin (BTC) gained further momentum this week, gaining over $1,000. At the time of writing, BTC is testing resistance at $7,800, which also marks the 200 EMA level, and the 50 EMA is trending upwards, suggesting an imminent 200/50 EMA cross. That BTC 24-hour trading volume has increased 100% from its 7-month low is another sign that this latest move may be the real deal.
Market analysts suggest that BTC’s recovery is being driven by rumours surrounding a BTC ETF confirmation: the SEC is expected to rule on the issue by mid-August.
This expectation of the emergence of an ETF opens up an interesting trade opportunity regarding Grayscale’s BTC (GBTC) index fund. As Josh Olszewicz notes, there is a strong historical correlation between ETF rumours and the GBTC premium. An innovative investor may therefore decide to buy GBTC close to the ETF decision as a way to hedge against a negative announcement (H/T Matt Fox and Mattison Asher).
On the topic of Grayscale: the asset management firm published their H1 2018 report, which notes that they raised $250m in fresh capital, the strongest inflows of any six month period since inception. Of that $250m, 56% came from institutional investors.
For those looking to learn about the cryptoeconomics underpinning BTC, check out this fantastic explainer from the team at Mechanism Labs.
Ether (ETH) drastically underperformed BTC this week, with the ETH/BTC ratio falling over 18% to 0.058: the next major support level is at 0.055. ETH/USD remains largely unchanged over the week, with ETH trading within the $445-$460 range.
As Digital Asset Research note in their latest quarterly report, ETH is far from the most afflicted victim of this bear market: mid caps and small caps have seen -68.8% and -79.4% returns over the last quarter respectively, compared to -61.1% from large caps. Also interesting to see that the ‘exchange’ and ‘computation’ sectors have vastly outperformed the rest of the market.
Tetras Capital took the opportunity to publish their 40-page ETH Bear Thesis report. My thoughts on the report can be found here. TLDR: While the structure of their thesis makes sense, I don’t think their analysis is particularly objective. In particular, Tetras severely downplays Ethereum’s various Layer 2 solutions, including the imminent Plasma (Cash). Tetras’ report largely focuses on Ethereum’s volatile and arguably unsustainable gas prices. Vitalik Buterin addresses transaction fee economics in his latest presentation, which can be found here.
Make sure to check out Vitalik’s interview with Tyler Cowen here, in which he discusses issues including: the importance of decentralization; the validity of existing crypto asset valuation models, and prediction markets.
Rep. Brad Sherman called for blanket ban on buying and/or mining crypto assets during a Congress-hosted hearing this week, citing their use in illicit activities.
Twitter personality Crypto Dog later discovered that Sherman’s top campaign contributor, Allied Wallet, had to forfeit $13.3m to the US Government for facilitating illegal gambling. After posting the information to Twitter, Crypto Dog received a DM from Sherman with the message ‘STOP’.
An Age-Old Problem:
Messari’s Katherine Wu discusses blockchain governance in the context of globalization and global governance.
“Governance is a bottom-up approach. Goals and values go hand in hand, but are created from ongoing community consensus more than predefined rules. Technology may move the discussion forward and give us a framework to build upon, but governance is not a ground zero issue. At the end of the day, it's about human behavior.”
Global Regulatory Landscape:
The Law Library of Congress has published the most comprehensive overview of the international crypto-asset regulatory landscape I have ever come across.
In fact, it is so comprehensive that it will probably take me several weeks to read it all.
The G20 published a report suggesting they are cautiously optimistic about the positive impact crypto assets can have on the world economy.
IBM is partnering with a startup to launch a new fiat-collateralized stable coin, USD Anchor (USDA).
USDA will run on the Stellar blockchain and will be backed one-for-one with U.S. dollars held at a Nevada-charted trust company, which will in turn deposit the cash at banks insured by the Federal Deposit Insurance Corp (FDIC). FDIC covers deposits up to $250,000 in the event of bank failure.
The Chartered Financial Analyst Institute (CFA), whose three-level program has helped train more than 150,000 financial professionals, is adding topics of crypto assets and blockchains to its Level I and II curriculums for the first time next year.
The CFA material on crypto assets and blockchain will appear alongside other FinTech subjects including: artificial intelligence; machine learning; big data, and automated trading.
Goldman Sachs have appointed their new CEO, David Solomon. Like his predecessor, Solomon is openly interested in pursuing opportunities in the crypto asset landscape.
A few updates on Augur, the Ethereum-based decentralized prediction market:
1. Cuy Sheffield discusses the creation of Augur ‘relayers’, third party applications built on top of the Augur protocol, and the benefits of eliminating third party custody of user funds. Augur Casino is the first Augur relayer I have come across.
2. Coindesk reports that Augur betting volume has exceeded $1m.
3. There are now several markets on Augur centered around whether public figures will die before a certain date. These markets are essentially hit contracts in that there is an incentive for people to place bets on the ‘yes, they will die’ side and then try and kill the figure in question. These markets will test Augur's ability to ensure decentralization.
4. An in depth tutorial on how to use Augur.
StarkWare Industries, a company focused on implementing ZkSTARK technology across the blockchain sector (strongly recommend you look into ZkSTARKs!), has announced they will be pursuing a Tech4Tokens strategy, whereby they invest their technology in early stage blockchain projects in exchange for tokens.
Introducing Marble, an open-source bank on the Ethereum blockchain.
The Marble smart contract owns Ether and tokens and makes its funds available to provably fair, low-risk protocols that require a lender.
Marble is a fantastic concept, yet I am remain unsure as to how it works at scale: who decides/how does one decide what constitutes a low-risk protocol?
Users vs. Speculators
Decentraland’s Tony Sheng discusses two topics very close to my heart — whether projects should design tokens for speculators or users and the lessons we can learn from Glen Weyl and Eric Posner’s Radical Markets.
As Sheng posits, optimizing for value accrual does not necessarily lead to a 'allocatively efficient' network. Ultimately, if your network is not healthy then it will be difficult for value to accrue to it over the long term.
On the topic of Radical Markets, Simon de la Rouviere discusses several possible applications for the Harberger Tax. Watch this space ;)
Following last week’s Ethereum spam attack (see CryptoChat #48), Vitalik Buterin estimates that the assault cost up to $15m, or ~75 Lamborghinis.
The 0x team has released the 0x Portal, a decentralized application for user on-boarding, education, and relayer discovery.
Leveraging the portal, users can set up their wallets and trade on any and all 0x relayers with just three steps. Impressive stuff!
Gnosis Safe provides users with a convenient and secure mobile application to manage their funds and interact with Ethereum dApps. Safe also provides users with a means to recover access to their wallets.
NIFTYgallery is an app to discover and create collections of Ethereum-based digital collectibles (in the form of ERC721 non-fungible tokens (NFT)).
Each collector can create their own unique profile, as well as earn badges depending on the number of assets owned and the way in which they show them off.
The interface design is beautiful! I expect applications like NIFTYgallery to catalyze the adoption of digital collectibles as they add a whole new social capital dimension to NFT ownership.
Perlin claims to:
- Achieve 1,300 transactions per second with a latency time of 4 seconds
- Maintain user privacy even in the absence of Byzantine adversaries
- Support the development of secure and scalable dApps.
One to watch!
Nervos Network, a ‘next gen’ dApp platform focusing of scalability and security, closed a $28m Series A led by Sequoia China and Polychain Capital.
The founder, Jan Xie, was the first and only researcher and developer at the Ethereum Foundation based in China, where he focused on proof of stake and Sharding.
Autonomous Next have published an in depth report on the state of the crypto asset economy.
1. 2018 YTD has seen $12 billion in ICO funding, vs $7 billion for last year, but nearly half of that funding is EOS ($4.2 billion) and Telegram ($1.7 billion) hiding emerging weakness in the ICO system.
2. Over 300 crypto funds have formed to invest in crypto assets, and control around AUM of $7.5-10 billion; however, assets are highly concentrated with a few entities, and the operating future for funds of less than $25 million is likely to be difficult.
3. A variety of third parties – from legal to corporate advisory to exchanges – have formed in the ICO space to monetize solutions around these needs, driving the all-in price of an ICO process to $1-5 million, which is in turn passed on to investors through unreasonable valuations.
Dave Hoffman, Professor at the University of Pennsylvania Law School, reviews the promises of the top 50 2017 ICO projects. The findings:
- Of 37 that promised vesting, 80% didn't code it
- Of 32 that promised supply restrictions, 25% didn't code it
- Of 17 that promised burning, 35% didn't code it
- Of 10 with tokens that could be modified (like #Bancor), only 4 disclosed that right in English
Worst ICO of 2018
Gloria Martinez takes a look at Invacia AI, "the worst ICO of 2018", which has seen 95% price depreciation since its token offering.