Past issues

Sep 3 2017

Protocolitics, Regulators, ICO insanity

Keeping track of new developments in the distributed ledger technology space.
Token Economy
#12: Protocolitics, Regulators, New ATHs
(also published on Medium)
🇷🇺 Protocolitics
It's been a rather eventful week in Russian crypto.

1. The First Deputy Prime Minister showed support for the creation of a “crypto-ruble”, a state-backed cryptocurrency.

2. A spokesman for the Regulators called for bitcoin to be regulated and only tradable by qualified investors on the MSE.

3. The same day Burger King Russia launches the WhopperCoin, a loyalty scheme in the form of a crypto currency. Yes, that's right.

4. A day later, the Ethereum Foundation, represented by Vitalik himself, stroke a partnership with state-owned bank Vnesheconombank (VEB) aimed at supporting "its new blockchain research center, providing specialist training for distributed ledger technology and the ethereum platform".

5. The next day, that was called a "misunderstanding" and the partnership was no longer between VEB and the EF but between VEB and a newly formed entity called Ethereum Russia (founded by Vitalik and the CEO of Yota Devices, a Russian company).

And this is after a company co-owned by Putin's internet advisor announced earlier in August a plan for a $100 million ICO to launch a bitcoin mining operation. Putin himself met with Vitalik in June, when only a year ago there were talks at the Kremlin of introducing criminal penalties for bitcoin adopters and miners. Views changed rapidly!

While we are urged by a friend who knows the region well to take everything coming out of Russia with a "huge grain of salt", as corrupt power games tend to be portrayed as benevolent partnerships or endeavours, one can't ignore what's going on over there. 
The Russian government is clearly starting to get the grips with the threat and the opportunity created by crypto currencies, and wants to ensure it stays right in the middle of the developments. And Russia isn't alone in worrying, we covered North Korea's crypto endeavours a few issues ago. Crypto seems to be worrying oppressive governments!

It's really starting to feel like crypto might develop into modern time's space race: nation states accumulate mining power today as a way to lock in international monetary hegemony of tomorrow.

Despite Vitalik's best intentions of widespread blockchain adoption, this feels like a dangerous game to play.
👮 The regulators are coming
This week has most definitely been a scary one for people in the space.

You can just feel the wind rising.

Be sure to head down to our "Growing Pains" sections where we discuss more about the SEC and China's regulators starting their first timid actions.
🚀 But honey badger don't care
What a week!

No one seems to care much about the regulatory activity going on, as both ETH and BTC touched their all time highs this week, with a massive rally.

We're back down as we speak, but the influx of capital does not seem to be slowing down at all - with a lot of activity from China and South Korea.

The party's still on 🎉


Now on to the juicy stuff:
📌 Token Economy
Primoz from ICONOMI writes a long and detailed post about the value of token ecosystems.
There's the classic means of payment / store of value discussion, but there's also a lot of other good stuff talking about inflation, yielding tokens and more.

Primoz is pretty bullish on utility value tokens:

"The networks generated on the basis of blockchain protocols shall replace classic “pipeline” companies in many industries and the concept of ownership and central entities shall be replaced by the concept of stakeholders and a well thought out decentralized system in which individuals co-create the value of the network."
Michael Karnjanaprakorn lays down his own model to evaluate tokens.

He's been investing in the space for a while and he's really great, so I pay attention.

TL;DR:
1.Thesis
Does it align with one of the themes I’m investing in right now?
2. Token Network Effects
Does the token align incentives to simultaneously accelerate growth and token value?
3. Team & Leadership
Is there a strong team that can scale an open source network?
4. Technology & Developer Ecosystem
Does open-source code exist with supporting developer adoption?
5. Transparency & Trust
How transparent is the team with the community?
6. Traction & Roadmap
Has the team proved the ability to execute?
7. Terms & Legal
What are the terms of the ICO?


And finally:
"When I first started to work in tech, it wasn’t crazy to raise an angel or seed round with just an idea. But, over time, the bar got set higher and higher.

The same thing will happen with cryptocurrencies. While it might be the Wild Wild West today, don’t get burned by investing into low quality projects."
A super-solid tweetstorm by Peter VanValkenburgh about the shapeshift economy.

Another pretty bullish case here:
“Money” will die and be replaced by digital portfolios of assets that connect with liquid markets doing instant exchange and settlement.
What an extremely interesting thing this is.

This is one of the most solid self-governance attempts I've seen to date.

IGF set up a Swiss foundation and prepared a standard ICO disclosure form it's encouraging companies to submit. They maintain an open database of all the submissions for everyone to search (targeted mostly at national regulators, with which they seem to want to collaborate heavily).

They then also provide custodial services and smart contract management for the ICO offering itself.

👏
Jake from Coinfund is a believer in decentralized social media and thinks they could become a very important first type of dapps.

"These products are likely to be some of the first mainstream application of blockchain networks. Especially given scalability solutions, they are poised to put a dent in traditional media in a big way."
This is one that makes you think.

Is business travel really one of the first markets that needs decentralized applications? 🤔

I mean, we did already see one for dentists, but still.

"Winding Tree is a blockchain-based decentralized open-source travel distribution platform. We make travel cheaper for the end user, while making it more profitable for suppliers.

No intermediaries means no exorbitant transaction fees and no barriers for entry. Moreover, we allow small companies to compete with big players, finally bringing innovation back into the travel industry."

The website is really well done, and the team has some travel-tech experience, but there is a bigger theme here I'd like to discuss:

Sometimes, just sometimes, I get this strange vibe that someone might  be making shit up just to raise cash even if there's absolutely no need for what they're doing and they're probably never going to be able to build it anyways.

Is it just me hallucinating? 🤒

This one for some reason has really got me thinking.

There must be a limit on the number of random dapps that can go out and fundraise from the same demographic.
- How will the ICO funding market evolve from here?

- Will investors just start to focus on apps they use or markets they like?

- How will random speculators (the bulk of investors today) decide what to invest in? Will they only focus on the super hyped / high quality ones?

- If this moves towards the standard VC model (eg. there are people who are paid to sort through all the potential startups in the world), wouldn't that be pretty bad for the investor-user use case of dapps?
The nugget of info here is that this author claims to have a source inside the NSA saying he NSA knows who satoshi is, or are - as he seems to think it's more than one person.

They achieved this supposedly by running his writing through the Big Brother's stream of data.

Add to the movie. 🍿
"Quietly, these are the kinds of conversations that are happening in Silicon Valley."

A VC with Founders Collective rounds up his thoughts on tokens, and what's next for VC.


#1: Venture Capital is facing an existential threat.
But the cat is out of the proverbial bag: access and liquidity, afforded by decentralized technologies, is what could be so disruptive to Sand Hill.

#2: Unlimited resources can bring serious challenges. (Opportunity ≠ Focus)

#3: Crypto’s “Day 1”: a lot of work and building remains to be ready for “Real Work”

#4: How much will change about about the hard work of building and selling?



So to the new challengers, the hungry, the builders — take your marks. The race to build the next generation of the valley is just beginning.
Oh man way to kill a party!

Preston Byrne thinks we're reaching the line of insanity with ICOs and he can't wait till we're done.

He lays down three different bear scenarios for how it'll all go down.

It's worth a read to build your own conclusions.

"I just think that ICOs are to the future of networks/investment what the Railway Mania was to the Industrial Revolution: a vast misallocation of capital arising from misapprehending the true utility of revolutionary technology and misapplying that technology to contemporary problems.

The ICO bubble and its promise of cheap, quick gains is rightly the focus of attention for most folks at the moment. It is the promise of the greatest gains in the shortest time with the least effort. That bubble needs to pop before we can get down to business with the utility-driven applications of this technology. And pop it will, as surely as the sun rises in the morning."
🚨 Growing pains
This seems to be a first: a project shut down after being in touch with the SEC post-ICO.

It just seems so very odd that the SEC would target such a small and unknown project, without any announcement or follow up comment. So odd in fact that a conspiracy theory suggests the founders of Protostarr may have fabricated the whole plot. 

But by reading the article, it also seems like it’s a possibility that people are just doing shit without even thinking about it.

Another easy explanation here is that the team realized no one really cared about their ICO given they *just* had launched the project on Aug 6th, and decided to do a fancy show exit.

If the SEC actually did get in touch with these guys, as odd as it may seem on the surface, it shows they are clearly hard at work on this and have their antennas out. They told us they were watching in July after all, and now they start making calls.

To be fair, this was amateur hour at its finest: these guys incorporated as a US LCC and referred to their token as ‘investor coin’.

The fact that they reached out to a ‘small fish’ may suggest that:

a. they are doing their own diligence from the bottom up, learning their way up without scaring off the bigger fishes until they are ready to grill them. In fact they may not even have expected so much coverage for a project that only raised 120 ETH via an ICO, and perhaps didn’t even expect such project to pro-actively shut down without debate.

b. they are playing the bully at school who goes after the easy targets first to gain respect and cause FUD.

Whatever happened, this headline no doubt sent cold shivers down the spines of many founders of projects that have completed an ICO.

Now the founder is supposedly advising others on their ICOs, or at least that’s what he states.
Out there in China, there have been rumours that authorities are discussing a plan that to limit the size of ICOs, to strengthen the information disclosure, supervise tokens and publish investment risk alerts. Potentially even suspending all ICOs in case of market risk.

China is not new to this sort of interventions, earlier this year the central bank suspended trading from all local exchanges.
The latest regulator to speak about ICOs is the ISA. Unlike the SEC though, the ISA hasn't actually yet done the homework, but simply stated that they are getting started. 
Israel is home to some large crypto projects such as Bancor, Coindash, Zen Protocol, Stox and others (Kin's Kik is also being developed there, with the rest of the team being based in Canada).

Udi Wertheimer made the effort of translating the next steps from Hebrew:
The war continues, and it's not really clear what's going on here.

Anyways, there is activity and BTC-e is partially back online, with assurances of debt tokens and recommendations of security precautions for users.

Doesn't seem like the funds are there tho..
🤡 ICO madness
August 2017 update
Our friends at Tokendata counted 39 completed ICOs raising $307 million in August. A down month over July due to the absence of mega ICOs (Filecoin will close in September).

We are at $1.85 billion for 2017 YTD.

September is not gonna be a slow month it looks like. Just on September 1st, there were 17 new ICOs, according to the awesome ICO Alert.
Ok so we're getting in insane territory right now.
I've scoured the web, but I haven't found a single news about this successful ICO.

Monetha, a company that was just started THIS YEAR, raised its hard cap in 18 minutes.

Now I don't know at which amount of $ or minutes, things start to get crazy, but I do think here we're out of the limit.

Monetha wants to be a payment system and a decentralized review system for online transactions.

Now, without getting into the details of the project (oh to hell, right now it's insane as they process a simple Ethereum payment and get 1.5% of the transactions for just providing a nice UI and not even escrowing the transaction) this is a project that should realistically have raised $500k-$1M, at the most.

We've had this discussion before, but it doesn't seem to be slowing down.

A nice design, a turtlenecked super slick CEO and a whiff of an MVP send the crowds into full on delirium, and I start to worry that only a nuclear crash can get people back to their senses.

FWIW, I do think there that could have been something cool built in this space, but now we're again in the position where there's a company and team that have $38M in cash and the same exact chances at succeeding as anyone else on the planet.
😤 First they ignore you, then they laugh at you, then...
Utility Settlement Coin is moving into its third phase – building a kind of blockchain-based fiat testnet – with six new partners.

The first live collateralized token exchange using the platform could occur as soon as the end of 2018.
I love these articles just for the quotes of these dinosaurs that have no idea what's coming for them.

"It is a fad that will die down and it will be used by less than 1 percent of consumers and accepted by even fewer merchants," said Sumit Agarwal of Georgetown University, who was previously a senior financial economist at the Federal Reserve Bank of Chicago. "Even if we can make the digital currency safe it has many hurdles."

Sure, in 5 years he'll probably be right, but in 15? I wouldn't want to take his side on a bet.
😎 Cool new projects
Last week we had Kim's announcement on Twitter, this week we have more details on what he's been up to (spoiler: no ICO):

  • It's a new file sharing service called K.im, expected to launch in mid-to-late 2018 (in closed beta now)
  • all files are to be hosted in a decentralized cloud-based system
  • uploaders can to set a price for the files, and users pay for downloading them with bitcoins via Bitcache
  • content is encrypted and can only be unlocked when a Bitcache payment is made
  • rightsholders can claim content as theirs and opt to remove or re-set the price and charge a fee of the revenues
The main pain-point this is trying to solve is geographical licensing restrictions to content, a root cause for piracy. If people who are willing to pay for content, but can't access it in their geography, this could be the solution (VPNs are another solution, but the legal implications are a bit muddy). Kim reckons this opportunity is worth $10 billion a year in lost revenues.

This seems unlikely to stop those who are already pirating content, they will just keep looking for free alternatives. It could be a product for the honest masses, but ultimately it will only work if copyrights owners come aboard, and they have their good reasons for restricting content geographically. But let's not discount Kim just yet...
Decentralized credit scoring.

Man, this is gonna be hard to build.
Yet another example of a company that had a product and is now adding post-facto a token to it, to boost its usage as well as obviously raise capital.

As much as it may seem nonsense to the trained eye, I do think that there is something into adding crypto network effects to a community and user base.

It will be interesting to see who are the first companies that will do this successfully.
💰 VC funding
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ℹ️ About us
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 🤙
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