The big news of the week is that Coinbase has acquired Paradex for an undisclosed sum.
Paradex was one of the 0x relayers that launched on mainnet earlier this year. Their launch caused a bit of a stir in the community as, unlike other relayers at the time, they took the very pragmatic view of avoiding the use of ZRX token for collecting fees (now others have followed suit apparently), using the 0x order matching architecture. So Paradex is only 'decentralized' in that it's a non-custodial wallet-to-wallet trading platform, however they themselves are counter-party to all trades running a centralized order book. Dan Romero labelled it a 'bulletin board', a la Craigslist.
The Paradex team only started working on it less than a year ago, and launched 3 months ago, so this was an incredibly quick exit that we suspect won't represent a material return for its backers Blockchain Capital and Pantera. So one wonders why such a rush for a DEX at the dawn of a category to tie up with one of the largest centralized exchanges. Paradox?
And Coinbase isn't the only centralized exchange entering the DEX arena, Binance is also building its own version. It's interesting to think about what the landscape will look like 3-5 years from now, and which DEXs will manage to carve out significant market share independently and how, if at all. No doubt Coinbase will push the regulatory agenda for everyone involved, having stated that they are looking to implement certain changes to allow US customers to use Paradex.
It's also intriguing to think about the possible implications for 0x governance, assuming Paradex continues to build on the protocol as part of Coinbase: if they start to funnel significant volumes through the platform, they presumably would want to ensure they have a say in how its smart contracts are upgraded going forward. And if Coinbase has a say, what's to stop other large exchanges to also secure their share of influence?
We are hoping to feature a Q&A with Paradex in next week's issue to shed some light into some of these questions, so stay tuned.
ASKfm's massive, deadly fuckup
We had to check a few times if this was real, but indeed it is. And it's one that will be remembered long after this ICO madness ends in the dustbin of history, with people thinking about it and asking how it ever was possible that we got to this point without realizing the madness of it all.
ASK.fm, an anonymous questions and answers website, which had been linkedin in the past to at least 9 teenage suicides, has just taken it too far.
As they are readying to launch their own cryptocurrency (are you even a real company if you're not launching your own token?) someone had the genius idea of a marketing stunt where a group of climbers would climb Mt. Everest and bury a Ledger wallet containing 500,000 of the yet-to-be-released tokens (we wonder how that is even possible).
The company then decided that those tokens were worth $50,000 when there is no market price as the tokens don't exist yet.
In a Youtube video documenting the burying, people are invited to "go get them" "if you can".
This reckless idea obviously went very wrong, and not because one of the climbers had quite a hard time and had to be rescued with a helicopter, but because one of the sherpas that was helping the crew lost his life in unclear manners.
A bit out of words at the moment, so will leave more reporting below.
Spencer's pen has been on fire lately (and he's also just launched a new podcast!).
This is a profound post that draws a parallel between the secular economic growth emanated from those jurisdictions that offered "strong assurances" (eg property rights) and consistent enforcement of rules, and the foundations for the next leg of economic growth potentially stemming from the strong assurances offered by highly decentralized networks like Bitcoin in the digital jurisdiction.
His contention is that, with an increasingly larger share of economic activity moving online, the only way to provide strong assurances is via decentralized networks rather then central authorities. The impact of that former would be even larger, being global by nature, inherently objective and perfectly enforced.
Prof. Stephen McKeon spells out the thesis behind his belief in the widespread adoption of security tokens.
In short: - 24/7 markets - Fractional ownership - Rapid settlement - Reduction in direct costs - Increased liquidity and market depth - Automated compliance - Asset interoperability - Expansion of the design space for security contracts
1-6 are the usual spiel. 7-8 are particularly thought provoking.
Interoperability between tokenized assets would be a pretty big deal indeed, potentially facilitating the end-of-cash / digital barter scenario:
"I want global pooled liquidity for all asset classes through a single interface. I don’t want to hold cash as working capital - I‘d rather stay fully invested while my wallet proportionally sells assets to make my mortgage payment each month."
Expansion of design space means programmable securities become possible, driving enormous innovation in governance as a result.
We came out a lot more excited about security tokens after reading this post.
If you are into ratio-based valuations, this post if for you.
The authors have developed another multiple to asses over/under valuation for bitcoin, by using its network value relative position between and an upper and lower bound level defined by two variations of the Metcalfe's Law formula.
The ratio seems to have done a good job historically at predicting corrections and right now still points to some sustained over-heating despite the recent dive.
Sometimes it's good to feature pieces we don't agree with at all.
In this one, a wall-streeter argues that blockchain and decentralized computing have completely failed or will soon, and that the only real use case for the technology is trading, which will be taken over by Wall St.
We find this view fairly shortsighted, but definitely agree that trading of tokens representing specific and unique types of value is a game changer. We just hope we won't be needing Wall St. for any of this.
Quote: "Uncensored money and distributed applications were great concepts but have found success in few real-world applications. However, the blockchain has found its killer app and it is Trading. There are a few new players in the market (notably, the crypto exchanges), but for the most part crypto is fitting into the existing world of the capital markets.
So, thank you crypto-nerds. You have invented the greatest financial instrument ever known to man. Wall Street will take it from here."
Wired examines the use case of proving the authenticity and legitimacy of a piece of data, specifically video, with blockchains.
We've been skeptical about this use case for a while, given the ability for anyone to write any data to the blockchain, but can see how this could actually work with associated and referenced content, like videos.
Very, very long article examining the current and future state of Ethereum's actual full blockchain.
- Argument: Ethereum’s runaway data directory size is just the tip. - Prediction: It will all work, until it doesn’t. - Suggestion: Transpose.
The author's takeaway from all of this: - Ethereum’s blocksize growth is bad because of node processing requirements, not how much they need to store on a hard-drive. - To prevent complete collapse of the network, Ethereum will need to implement a reasonable blocksize cap. - Implementing a blocksize cap will raise fees and in return prevent many Dapps from functioning, or severely slow down. Future Dapps won’t work. - If Dapps don’t work, Ethereum’s entire proposition for existing is moot.
Recommended reading for developers and investors alike. As is the rebuttal below 👇
Julien makes a very interesting observation on how traditional networks (eg fax machines) fail to reward early adopters, pointing out how whoever joins first takes disproportionately more risk and pays more than late adopters, as economies of scale in production haven't yet driven prices down.
He proposes discount tokens as a model to appropriately reward the early users who seed a network at its birth.
- Wall st at the door. More institutional custody services flooding the market, this time from BitGo (while the Kingdom Trust acquisition is still pending regulatory approval).
- Retail.Circle Invest now let's users buy a market cap weighted index of crypto currencies.
Rarebits, the crypto collectibles marketplace, has launched Fanbits, a self-service platform for creators to easily turn images, and soon audio and video content as well, into non-fungible tokens and then place them for sale in a marketplace.
The idea here is to provide an alternative platform for creators to monetize their content free of intermediaries, such that the entire life cycle of their creations is transparently tracked on the Ethereum blockchain and the original creator can continue to earn fees (like royalties) from secondary sales.
It will be hard to displace centralized marketplaces with significant liquidity where creators are making a living from, but this opens up opportunities for entirely new type of content and creators that could not exist before (e.g. digital art).
The DOJ is supposedly working with the CFCT to investigate the practice of price manipulation in crypto exchanges.
If you have been following crypto-Twitter for more than 3 months you'll no doubt recall anonymous account @Bitfinexed, the most vocal critic of such activities across many exchanges. His timeline is filled with, in his views, indisputable evidence of spoofing and wash trading from many popular exchanges. Until he went completely silent in early April.
I guess we know why now.
In response to that, exchanges are gearing up on the legal front. Kraken just this week appointed Mary Beth Buchanan, former federal prosecutor appointed by President George W. Bush, as its General Counsel.
"Operation Cryptosweep" has been officially underway for over a month, with a series of 70 inquiries and 35 enforcement actions by securities regulators in the US and Canada (together as NASAA) addressed to fraudulent ICOs and their promoters.
Quote: “The actions announced today are just the tip of the iceberg,” .
The UK FCA is following suit, running enquiries into"24 unauthorised firms involved in cryptocurrencies to determine whether they might “be carrying on regulated activities that require FCA authorisation”."
Coincenter continue to do an invaluable job at trying to educate the industry about how tokens should be regulated.
Peter van Valkenburgh contention is that certain types of tokens that meet the following criteria should not be classified as securities:
1. The developers have made no further explicit promises to undertake future efforts and have accepted no further consideration for said promises.
2. The developers have released the protocol software gratis and open source to the world (such that anyone can now continue to refine and develop the protocol), and
3. The protocol software allows multiple unaffiliated participants to power the network by contributing computing resources (such that the resultant blockchain and any functionality associated with the token can be truly derived from an open set of unaffiliated participants).
If they were classified as such, Peter thinks it would effectively equate to a ban on trading them as they would not be able to trade on either regulated security exchanges (as there is no issuer to register) or non-security exchanges (which can't list securities).
Lightspeed, who most recently participated in the Telegram and Basis pre-sale, is apparently in the process of setting up a crypto-focused vehicle, either as a carve-out from its new main fund, a separate new Lightspeed-branded fund or a spinout that they would commit to seed.
Aaron Batalion is the partner leading the charge there.
At this stage, all traditional VC funds are trying to figure out how to play this market.
This one is targeting $20M and is exclusively focused on NYC startups, planning to deploy the capital raised in a token sale via a group of local investors who would benefit from the back-office support and network of CityBlock Capital.
App for traders raises big round of funding fuelled by crypto growth. Heard that a few times as of lately!
The growth round was led by Insight Venture Partners, with participation from DRW Venture Capital and Jump Capital, who see TradingView as a natural next step after RobinHood and eToro for a new breed of "amateur" speculators looking to broaden their interest. Quote from the lead investor: “They came for crypto. They stayed for the other stuff,”. 8M MAUs of worth of them.
Preethi Kasireddy's new venture TruStory has announced a $3M funding round led by True Ventures with participation from the usual long list of funds: Pantera Capital, Kindred Ventures, Homebrew, Coinbase Ventures, Wonder Ventures, Abstract Ventures and Alexia Tsotsis' new fund Dream Machine (cool name!).
TruStory is building a reputation system to incentivise crowd validation of claims via a token, starting from crypto (a very fertile ground of unfounded claims indeed!).
Mike Dudas' new online media venture focused on crypto has closed a 'strategic' investment from publicly listed Riot Blockchain.
As a reminder, Riot Blockchain was that company that used to be called Bioptix and make diagnostic machinery for the biotech industry, before changing its name and seeing its stock shot up from $8 to $40. Yep, that one.