Keeping track of new developments in the distributed ledger technology space.
Never a dull week in crypto land! (also published on Medium)
🚨 Growing pains
WHAT A WEEK
The are at least three major news this week in the crypto space.
Let's get to it:
👮 SEC's Report
Obviously the talk of the town is regarding the SEC breaking its silence in relation to the ICO / DAO space.
To be honest, we're a bit surprised at the panicking going around.
To summarize, the SEC said that: - The DAO tokens were in fact securities. This is hardly surprising to anyone. The DAO was a decentralized venture/hedge fund. Token holders received a share of the profits of the funds.
- They are not pressing charges on Slock.it
Surprising, but good I guess.
- Other tokens sold through ICOs might be securities.
Duh. Here the SEC is playing a smart waiting game. It's basically saying "hey, we're watching" - but it's not altering the long standing securities law framework that has been operating in the US for quite a while. And this is one of the reasons why we still haven't seen any "tokenized equity" projects done by pros.
FWIW, high quality projects have been paying lawyers millions of dollars already to make sure they were not selling unregistered securities.
- Exchanges, and individuals reselling tokens which are deemed securities, are violating securities laws.
This, in our opinion, is the key message to take away from the report. This is the SEC's way of saying, "look, it's too hard to regulate issuing so we'll just tell you that you might be violating securities laws. BUT, if you are an exchange operating in the US or with US customers and you are hosting securities, then we know very well where and how to come at you. Also, if you're an individual who bought and sold securities, get scared".
The most impressive thing for me was to see how much the SEC understands the issue and the depth of thought it put into this. The story is flawless and the analysis is precise.
These are my speculations about the impact of the report:
- There will be two different paths for token issuers: 1) Most projects will try to comply with US laws, and use CoinList to only offer a sale to accredited investors. This is obviously a massive win for the AngelList-backed company. 2) A minority will go for war. Anonymizing features will become more and more sought after even in asset-representing or usage tokens. Protocols like Zerocoin and the such will gain in popularity even more, with Coins implementing them following suit. Monero already delivered a pretty good result this week.
- The race towards decentralized exchanges will accelerate This might be the first easiest massive and major use case for decentralized ledger technologies and smart contracts. The SEC can do absolutely nothing with anonymous tokens and decentralized exchanges.
The attention of the SEC will then have to be targeted exclusively towards the issuers.
I, for one, am conflicted. I always think I don't have enough information to make a correct decision in supporting one or the other chain. Same as when ETH forked.
This goes to show how complicated it must be for casual Bitcoin users who may not even ever hear about Bitcoin Cash and just be stuck with whatever their exchange or hosted wallet decides. So much for decentralization..
Governance of decentralized protocols is surely one of the most intellectually stimulating aspects of the debate today.
This is a massively ambitious plan, and frankly a game changer for the ETH development community. zeppelinOS will provide a core kernel deployed to the blockchain that other dapps can call, API-like, as well as an asynchronous contract execution tool and a marketpace of inter-contract dapps and services.
We had the chance to chat with Demian Brener, the CEO of Zeppelin Solutions and asked a few questions:
What prompted you to create zeppelinOS?
We are super lucky to be working with the best projects and developers in the space through our security audit work and the OpenZeppelin community. This gives us an inside view of what our their main challenges are and where the industry is heading at. These learnings inspired us to work on zeppelinOS, as a way to solve most of the infrastructure and security problems related to smart contract development.
Is this going to be Zeppelin's 'main thing' or will you continue to offer services?
Zeppelin Solutions builds software to grow and protect the core infrastructure of an open, global economy, powered by blockchain technologies. The way we are doing this is by building a set of products, services and networks to allow businesses and consumers to participate in this open economy. zeppelinOS is our most ambitious project that aims to solve most infrastructure and security problems in the space today, and in 5 years time.
How do you see the emerging blockchain tech stack developing? What are the next building blocks that need to be developed?
We are at the very early stages of blockchain tech but a lot of work and progress is being done. We need to keep working on better scalability and interoperability solutions, languages, and debugging tools, among others.
What's the most underrated project in the DLT space today?
We see lots of great teams and interesting projects emerging these days, so it's hard to pick one. I'd say projects targeted to developers are underrated compared to those targeted to consumers, who mostly use cryptocurrencies for investment and speculation purposes.
Alex Miller announces his GRID+ stable coin on top of Ethereum and explains how stable coins can serve the whole ecosystem.
It's an interesting piece to read, because Alex says: "I don’t think app tokens are the future." and points to fiat-pegged stable coins as the solution, which in this world is somewhat contrarian thinking.
TL;DR Zeppelin found many, many bugs in the Serpent compiler. One of these bugs affected the REP token contracts, which would enable anyone to change the contract date and freeze the whole economy. Augur's team triggered it voluntarily so that no-one else could and are in the process of rewriting everything in Solidity. Every exchange has committed to upgrade the software.
We really could have done without it this week, but no. The ICO gods sent us Mayweather's Instagram where he poses next to a pack of 100 dollar bills professing he's "gonna make a $hit t$n of money on August 2nd on the Stox.com ICO".
Leaving aside that the T&Cs of Stox token sale prevent US investors from participating, this sort of cheap mass market push aimed at attracting short term speculators can't be good for the industry. Stox subsequently distanced itself from Mayweather, though it smells badly like a staged act...
A Bancor founder is also an advisor, unsurprisingly. Maybe we're just the dinosaurs here, but we can't imagine that a legit project would need to do this. Avoid like the plague.
A team member denounces the wrongdoings of the other founders of Quantum Resistant Ledger.
- They never set up a Foundation, and instead set up a UK ltd - The founder moved 90% of his coins to Bittrex - Founder is going on vacation for a while and continues to work full time as a physician
This is why we can't have nice things, and why the SEC gets involved in this stuff.
My main intellectual issue right now is figuring out how regulation can help here. These things also happen in regulated offerings, where the founder takes off and still draws a salary. The main difference is that in the crypto space a founder can liquidate all his tokens day-1, and still keep control of the whole things, while in a traditional equity structure they can't.
In his traditional memo addressed to its clients, legendary value investor and founder of Oaktree Capital Howard Marks reserves two pages (out of 22) to crypto currencies (p. 15-16).
He's clearly past the 'ignoring you' phase, which in itself is a big moment, however needless to say he's firmly in the 'laughing at you' phase (and he may never bulge from it in his lifetime): "But they are not real!!!!!" he states bluntly, calling them "nothing but an unfounded fad (or perhaps even a pyramid scheme)", and ascribing the meteoric performances of BTC and ETH to 'financial naiveté' and 'wishful thinking'.
As if the USD or any currency, or Money for that matter, were 'real'. This one, of all his memos, may hunt him down for decades to come...👻
Chris Ballinger from Toyota Research Institute discusses how the Japanese automotive manufacturer plans on combining Blockchain, AI and machine learning technologies to develop the vision for autonomous vehicles. Fascinating how it's all coming together.
Compound.vc (formerly known as Metamorphic Ventures) announced that they are committing a pool of capital from their fund to dapp developers who build on top of protocols they are investors in (for now: Blockstack and Gem).
It's nice to see a VC firm try to keep up with the times and re-invent itself.
They'll also be announcing a few other intellect investment initiatives in related areas that they are interested in.
Another week, another tokenized fund ICO in the making. This one uses proprietary volume analysis algorithms from the spread betting arena to trade crypto currencies and promises a 40% annual return, through monthly dividends and token appreciation.
$BTC is rallying ahead of Aug 1st, on not particularly strong volumes relative to the past week. Bitcoin dominance back up north of 50% for the first time since...May.
Now that it's clear we are forking on August 1st, and holders of BTC will end up with the same number of the forked BCC, the illusionary prospects of 'free money' seem to be be pushing prices up. However it's worth keeping an eye on where the 'smart money' is placing bets: short positions have been building up steadily over the past 24hrs, almost 3x'ed, and the avg rate on BTC margin funding almost doubled overnight. Whales manipulating the market or event-driven hedge fund strategies at play there, that's beyond our pay grade.
In the meantime $BCC futures have been trading on Chinese exchange viaBTC to the tune of $1-2m over 24hrs.
Fun week ahead for day traders!
Monero ($XMR), the anonymous digital currency, popped +20% on the day of the SEC announcement. Metastable, the high profile crypto hedge fund founded by Naval and backed by the likes of A16Z and Sequoia, announced ownership of 1% of the circulating supply of the currency (worth $6-7m at current prices).
For the science fiction fans, this booked published in 2005 came recommended by Autonomous in the latest newsletter for having many touch points with DAOs and smart contracts. We'll leave you with this quote describing the Economics 2.0 system imagined by Stross:
Economics 2.0 is a system that is ‘more efficient than any human-designed resource allocation schema’. It 'replaces the single-indirection layer of conventional money, and the multiple-indirection mappings of options trades, with some kind of insanely baroque object-relational framework based on the parametrized desires and subjective experiential values of the players’. Human intelligence is incapable of participating in Economics 2.0 'without dehumanizing cognitive surgery.