The big story this week is 0x's ICO.

It is interesting for a number of reasons and I think can spark quite a few discussions.

1) Token sale dynamics

0x has been seen as a new standard in token sale dynamics.

The ICO has been capped at $24M raise, and the price for each token has been set the day before the ICO to ~$0.05.

A pre-registration was necessary so that each pre-registered address would have the opportunity to buy an amount equal to the total supply of tokens divided by the number of registrants.

This has given the ability to everyone to buy themselves some ZRX without having to write crazy contracts, spend a ton in gas, etc.

Civic was used to try to limit sybil attacks, and seems to have worked pretty fine.

2) Token price

A whole lot to talk about here.

As we said, the token price was fixed, which instantly gave a "market cap" valuation to the offering.

The combo of limited per-account supply and fixed price made for an interesting explosive mix.

Imagine you're someone who wants to bet big on this token:
you still can only buy 6.7 ETH worth of it (plus ask friends, SOs, etc. to donate their device / ETH account).

This means that usual whale buyers would have to rely on secondary liquidity to buy their usual ticket size.
But on the other side they wouldn't find big dumps, but only small sellers that bought ~6 ETH worth of the tokens and wouldn't want to sell it all.

I think this was the combo that made the price spike up to $0.5, a 10x increase in a matter of days.

This begs the question of the pricing of ICOs, and the similarity to the pricing of IPOs.

0x could arguably have done two things:
- found buyers that would have paid a much higher price than the 5c per coin and raise the same $ amount but giving up way less tokens and holding more for subsequent raises.
- sold many more tokens at the 5c price.

It's fascinating to see the experimentation going on in this completely new model of instant liquidity and valuation.

3) Fun paradox

The first exchange where 0x has been traded was EtherDelta, a direct competitor to the 0x protocol.

4) Public due diligence and the "not perfect" case

A few days before the ICO started, the Hacking Distributed blog (Emin Gun Sirer's personal blog, the same that published the Bancor is flawed analysis) published the results of a deep analysis of the 0x protocol.

The post outlined several problems with decentralized exchanges in general, as well as specific problems with both 0x and EtherDelta.

This is another case of AWESOME public diligence on publicly fundraising projects.
This one was even more awesome because it was the result of deep informed research, which would take a few weeks for a normal person, and wouldn't get Cornell-Phd levels of insights.

I don't think many people read the post, but it got picked up by Forbes, and many people read that one.

I think it's great that people can access more information about specific projects, even if biased or partial.

My personal take on the post, is that the issues outlined are very minimal and fall very much into one of the patterns I hate the most.

The pattern is the usual "this new solution doesn't fix X Y Z, so it's not perfect." Or. "this solution introduces A B C problems, therefore it sucks".

The point that is always missed in this discussion is that the comparison should be fair, and so for that to be the case in my opinion we have to compare the potential of the current solution to the status quo solution.

When this lens is applied, it's very hard to see new solutions as sucky.

In this specific case, decentralized exchanges have all sorts of little issues, but they have two MAJOR wins:
- people can't run off with your funds
- you know that the trades you see are real
- the SEC can't come and freeze your funds.

To me, a solution would be better than the status quo even if I had to shout the orders from my window, as long as it solved these 3 issues.

Disclosure: We both hold ZRX.

A we've previously written on this newsletter, we think that the future will bring us decentralized exchanges faster than we imagine.

These will be needed for two specific reasons:
- an exponentially growing number of asset-tokens
- an exponentially increasing interest from regulators

Shapeshift this week announced that they will be strongly limiting the ability for US users to interact with its service.
They will start delisting tokens that are deemed securities.

They're clearly not happy about it, stating "As an organization trying to advance this technology for an open and honest financial system, we believe that individuals, regardless of race, gender, and geographic location, should have the right to make decisions with their own finances."

Our bet? They'll move to decentralized technology sooner rather than later.

Other than 0x and EtherDelta, there are already a ton of technologies being developed.

Kyber is one of the most interesting ones, and will be holding its whitelisted token sale in the next weeks.
You can read more about it in their hello world post.

OmiseGo is one of the most famous ones, being the #1 crypto asset by market cap.

Dmarket is another that targets games, they want to be the the first cross-game marketplace that allows gamers from all over the world to trade or exchange in-game goods originating from any gaming platform, and it's holding its token sale right now too with early backing from Pantera Capital.

⚠️ INNOVATION ALERT: Dmarket is the first to link to a PDF with their interpretation of the Howey Test. This goes into absolutely grey and murky legal waters.

Additionally, Bitshares, Waves, Maker etc. all have their own dex.


As per intra-chain protocols like Plasma, Cosmos and Polkadot, the innovation being designed here is orders of magnitude higher than any innovation in traditional exchanges (where the coolest thing comes from Eric Ries with the Long Term Stock Exchange, and is super hard to build).

I don't think there's any other space where a small minor news can trigger mental trips about governance mechanisms and the differences between two open source styles.

But crypto does it!

Ethereum announced that the Metropolis hard-fork is expected to happen in late September.

Let's talk about Metropolis briefly.

It's a MASSIVE update.

1) zk-snarks! This will take a couple more months after Metropolis, but then we'll finally be able to send ETH completely anonymously.

2) mining difficulty will go down substantially - a first move towards Proof of Stake.

3) Account abstraction. This is difficult one to understand, and explain, but it basically enables a number of transaction management features, such as having smart contracts pay for transaction fees.

4) Some programming improvements which I'm not technical enough (anymore 😢) to understand.


In any case, the most interesting takeaway here for me is in pointing out the difference between Bitcoin and Ethereum.

The difference is staggering.

Bitcoin takes 3 years to resolve a 2MB block upgrade (and we'll most likely end up with three competing chains), while Ethereum is chugging along major upgrades.



Disclosure: I'm way overexposed on ETH vs BTC.

Bitcoin Cash staged a hell of a rally this week, going all the way to $1,000 on some exchanges with daily volumes that touched $4.4 billion, well exceeding BTC and ETH.

The trigger seem to have been the mining of an 8MB block that cleared in excess of 37k transactions, which the market may have taken as a sign the Bitcoin offshoot could fulfil its promise of faster onchain transactions.

As a result of the price rise and difficulty dropping, it's now more profitable to mine BCH than BTC. Roger Ver saw that coming and perhaps turned that into self fulfilling prophecy (the rumour is that he's currently in China rounding up miners). On top of that the mounting Segwit2x FUD could be turning into a 'flight to safety' towards BCH.

The Asian angle is certainly intriguing, particularly given Roger Ver's recent whereabouts. The trading volumes from the region, Korea mostly, are simply staggering. One theory goes that BCH could become endorsed or even controlled by the Chinese government. The fact that one unknown miner controls 97% of the network's hashrate fuels the fire behind that speculation.

This week Shapeshift announced the acquisition of Keepkey, the manufacturer of a secure hardware wallet for digital assets. Terms were not disclosed.

The thesis is that through vertical integration between the (hardware) wallet layer and the (decentralised) exchange layer Shapeshift can offer the best of both worlds natively.

It's exciting to see the start of M&A activity in the crypto space and the emergence of industry consolidators. Even more so when it is a European company that acquires a US-based one. 
🇪🇺 💪

We noted a few issues ago that both Kraken and Coinbase were actively hiring for heads of corporate development, so we definitely expect to see more of this in the future.

What we can't quite picture yet is what M&A would look like between two fully decentralised token-based networks. Imagine if Augur and Gnosis one day decided to join forces, or Sia and Storj. It is bound to happen at some point and it will be fascinating.

Token Economy is written and curated by Stefano Bernardi and Yannick Roux.

If you're building a new fundamental piece of technology for the future, please reach out 🤙