Keeping track of new developments in the distributed ledger technology space.
Token Economy
👮  #16: Interactive Coin Offerings, Valuations, 0x ecosystem, Regulators, Simple Token, State coins, BIG funds & more

(also published on Medium)
📌 Token Economy
Devising a good token sale seems to be one of the most elusive arts of this new world.

Vitalik has been vocal with criticism but also many interesting thoughts about potential new models.

This week, a whitepaper published by Jason Teutsch and Vitalik himself, proposes a new type of pricing mechanic for token sales.

Before I dive into it, I think that the biggest takeaway for me here is that ICOs, tokens, decentralized computing, and all that is happening in this space, is driving innovation in all sorts of weird areas, including things like price discovery mechanisms.

Back to Interactive Coin Offerings. Vitalik and Jason notice that there are two conditions that sales try to optimize for and systemically fail at:
- universal distribution
- fixed amount of tokens or fixed % of supply in exchange for fixed amount of currency.

They explain that the reason they fail is because it's impossible to optimize for both.

So the solution is to create a model where users submit a "pricing schedule" or "valuation table" where they explain how much of the tokens they'd buy at different price points.
Then, a smart contract continuously and automatically does the buying based on what the users submitted.

Clearly this doesn't play too well with the new model being adopted by almost everyone of running private sales for large ticket buyers at a discount from the public..

Still, let's see if anyone will try this out!
Chris Burniske's long awaited post on valuation methodology for crypto assets is finally in the public domain. We were lucky to have had Chris present it IRL at the Venture Retreat a couple of weeks back, and we can see he has already evolved his thinking around a few areas.

The post is so dense of content and linear in the way it covers the topic that the best thing to do is to read it a few times and play around with the accompanying spreadsheet to see first hand what the levers of value are for a crypto asset.
One interesting variable in Chris' model is the % of tokens in a network that are locked up by "bonders and hodlers", which by nature has a velocity of 0. Chris takes them out of the equation when calculating current utility value, as these tokens are effectively not available to contribute to the crypto economy. He then makes some assumptions about the re-entry of these tokens in circulation over time, as the network reaches saturation and the incentives to hodl diminish.

Bonus I: On that note, Primoz Kordez elaborates on How the Behavior of Token “Hodlers” May Create Volatility

Bonus II: A good document from Multicoin Capital that runs through the various drivers of token velocity that protocol designers should consider.
It's fair to say the 0x ecosystem is developing as one of the most active and vibrant in crypto land.

There are already 9 known independent teams building decentralized exchanges on top of 0x protocol. And some of are already live on the Ethereum mainnet such as Kin Alpha, a relayer, who launched this week.

Another exciting project built on top of 0x that unveiled this week by an former Coinbase software engineer is dxdy, a protocol for decentralized derivatives that introduces short selling and options trading on ERC-20 tokens. We talked about there being an inherent long bias in crypto valuations a few issues ago, this should rectify that). dYdX uses the 0x protocol for the decentralized exchange functionality, thus benefiting from its existing liquidity pools.

Will from 0x still sees a future 3-5 years from now for centralized exchanges in handling the fiat on/off ramps, and for the least sophisticated users perhaps. However the future of asset exchange is undoubtedly decentralised and it can't come soon enough. Fred Ehrsam reminded us of that this week in his latest post Why Decentralized Exchange Protocols Matter.

"The number and scope of assets that become tokenized will exceed what we see in current financial markets by orders of magnitude. Thanks to decentralized exchange protocols, those tokens will be tradable on unified global markets. And tokens, unlike most assets, allow programmatic interaction with their corresponding systems, so the ability for interplay between the asset, its native system, and other assets is higher than ever. Buckle up."

Also don't miss the cool explanatory video of how the 0x protocol works, hosted on 
Looking at this unfold has been amazing.

Charlie Lee from Litecoin has challenged a few people to a bet, where they'd trade an equal amount of post-HF 2x coins vs normal BTC.
Charlie and others are on the No2X side, while Roger Ver showed up and bet 1000 BTC (Today ~$4,300,000 USD).

This is not a traditional bet where if you're wrong you lose. It's more of a swap, so you're exchanging the coin you think has less value for one you think will have more value. So the stakes are not as high as they seem.

But still, it's cool to watch.

Ben Davenport is also on the No2X side and acting as the organizer, with Tuur Demeester also participating.
If you're into stocks or trading and want to apply some fundamental analysis to Bitcoin to gather more insights on the price levels, this is for you.

It's a very thorough article which explores the NVT Ratio (Network Value to Transaction Ratio).
I've never been a trader nor a public markets investor, so I loose interest fairly quickly but you can probably use stuff like this to take money away from the wallet of people like me.

In general, for Bitcoin specifically I think that the entanglement of value is so complex, that such exercises can miss way too much of it. They're still super interesting to think about, specifically if you apply them to assets whose value is more tightly correlated with usage.
This is a conversation between Chris Dixon, someone who bet heavily on the Ethereum ICO (👏🏻👏🏻👏🏻) and Fred Ehrsam (Coinbase's Co-Founder).

Didn't have time to listen yet, but Fred Wilson says it's excellent.
Steem has announced a new protocol built on top of its own blockchain called Smart Media Tokens that essentially allows any publisher or community to launch their own token and related internal incentive mechanism battle tested on (now a site with global Alexa ranking in the low 2k).

The endeavour of finding a native monetisation model for communities is a arduous one, but a noble one.
Jack from Colony emerged from a relatively long silence with a pretty poignant piece saying that everyone who is doing ICOs with non-live dapps is infringing securities laws and you shouldn't give them your "hard hodl'd ETH" (favorite sentence of the day). 

His piece generated a mixture of resentment and support from the community. We are hoping to have a bit more on Colony in next week's issue.
🚨 Growing pains and 👮 regulations
This might have been the most active week in terms of regulatory news, with stuff coming out of China, South Kore, Japan, Switzerland, Australia, obviously the USA, and we hear France soon too.
As expected, the Chinese ban was just temporary: laws governing crypto currencies in China will be enacted on October 1st 2017 as part of the “General Principles of the Civil Law of the People’s Republic of China” legislation.
South Korea’s financial regulator follows China's steps in (temporarily) banning ICOs as fundraising tool. The ban also extends to margin trading of crypto currencies, but does not seem to touch exchanges as yet other than via a warning that their activity needs to be tightly controlled and monitored.

There is undoubtedly a level of scam crypto activity in Asia that we can't quite get a sense for from the Western world. However, the outright bans no doubt have a political angel. As Naval succinctly put it, the first countries to go to war with cryptocurrencies are those with capital controls. The two are inherently incompatible.

Bonus: only a few days earlier, a fintech company affiliated to Korea's most popular messaging app Kakao had announced the launch of a new crypto exchange called Upbit.
The Australian Securities and Investments Commission issued some regulatory guidance for businesses considering launching ICOs. 

Issues of tokens that are securities need to comply to the existing regulatory framework for financial products. Some tokens are not securities.
The Swiss Financial Market Supervisory Authority is examining "a number of ICO cases to determine whether regulatory provisions have been breached."

While generally speaking ICOs are not regulated in Switzerland, parts of the procedure may have links to existing regulations (e.g. anti-money laundering, securities or collective investment schemes). That's where FINMA will be looking into.
The SEC has announced the creation of a Cyber Unit to target cyber-related misconduct, including "violations involving distributed ledger technology and initial coin offerings".

A few days later the SEC turned the handle, charging Maksim Zaslavskiy and two of his companies (REcoin and DRC World) with defrauding investors in ICOs backed by false claims. The two companies issued unregistered securities in the form of tokens supposedly backed by real estate properties and diamonds. Turns out it was all lies. 

The Cyber Unit will be busy for a while, we are sure.
In centralized exchange news, we now have the first fully regulated market for cryptographic security tokens. With transaction costs reduced by 80–90% and real time trade settlement thanks to the blockchain, this could could one day seriously threaten traditional security exchanges.

Behind the alternative trading system (ATS) is t0, part of Overstock's Medici Ventures.
🤡 ICO Madness
Good data here from over 100 ICOs.

The rate at which projects succeed in their ICO efforts (i.e. exceed 75% of their target) is rapidly deteriorating, down from 92% in June to 34% in September, while the capital raised by 'failed' ICOs has halved, from a median of $4m in June to $2m in September.

This is excellent news. While succeeding at raising money via ICO isn't in any way a guarantee for the long term success of the project, the market is getting more sophisticated at separating the wheat from the chaff, raising the bar for everyone.
Take serial entrepreneur/molester and most likely soon convict Gurbasksh Chahal, add an endorsement (subsequently retracted) by Paris Hilton, spray over the latest buzzwords, cover it with a totally useless token, then try to sell $100m worth of it. 

You get the gist of this one...
So this ones sounds crazy in the beginning, but it might not be.
(I think this is a feeling I have most days in this world).

This is the new project from Jason Goldberg, who you might remember for one of the most spectacular startup failures of recent memory:

Jason has since been extremely open about his failure, which has been awesome to see.
What's not so awesome is to see him jump ship again from his yet-new company Pepo, to now go ask $40M from the public for a crypto project.

Anyways, let's get to it:
Simple Token is a sort of base token + framework for custom ERC20 tokens.

Apps can stake Simple Tokens to create their own branded tokens to use in their own ecosystem.

Simple Token will both be the token / infra, as well as a service/software company to provide services to users of the infrastructure.

Now, let's say we think this is interesting and has a chance, and could be a good way for companies to create their own tokens.
Who would ever want to do so on a platform where the token issuers have pre-mined the shit out of the token?

These guys want to sell 30% of the tokens for $40M. They want to keep 10% personally and are doing all the usual dance of pre-sales and stuff like that.

I'll write a deeper column with my thoughts on this, but my thinking is evolving towards a conviction that doing an ICO (with today's prevailing structure) could be the dumbest possible thing for a project that wants its token actually used - and thus a shot at building something of value.
Kik raised "only" $48 million at its public sale of Kin tokens, vs the planned $75 million. Combined with the $50 million raised via a pre-sale, they came short of their $125 million target by about $25 million.

Whether this is a sign of regulatory-induced ICO fatigue or just investors getting a little more sophisticated (as per above), not sure. Probably both.

What's more telling is that an established network boosting 15 million MAUs, launching an internal currency for its own users, only reached 10k investors

If wide distribution was their main goal, surely a mass airdrop would have been more effective...
😤 First they ignore you, then they laugh at you, then…
Fidelity is definitely embracing crypto. Not only have they recently integrated with Coinbase, they apparently also run a small but profitable bitcoin and ethereum mining farm, started for educational purposes. 

That's right, one of the world’s largest financial services firms is mining crypto currencies. We have seen nation States mining too, so perhaps this should not be that surprising after all. If the world will one day run on crypto, some powerful entities will want to build up hashrate.

Who will be the miners of tomorrow?
Some parties are pushing hard to allocate additional funds to blockchain technology enabled projects, as part of the European Union's 2018 budget.

On the other side of the pond, the Trump administration is also doubling down on its commitment to leveraging the blockchain 
From EstCoins to emCash, although this one seems to be actually happening.

emCash will be a state backed cryptocurrency acting as cash replacement and usable via the EmPay wallet, aimed at facilitating direct settlements between users and merchant while reducing costs and increasing transparency.

Dubai has announced in the past its intentions of becoming a blockchain-run city and blockchain-run government by 2020, so this seems a step in that direction. But it is also a well oiled (no pun intended) PR machine so it’s always difficult to tell what’s real from what’s not.
Open the floodgates! Road blocks for regulated institutions to participate in the crypto space are tumbling down.

"Trillions of dollars in managed institutional money cannot currently be invested in public blockchain assets such as Bitcoin due to a lack of custodial transparency, institutional-grade insurance, AML standards for chain of integrity, and auditability under IFRS or GAAP accounting standards."

Goldmoney becomes world’s first publicly traded and regulated financial service to offer insurable, auditable and AML compliant exposure to cryptocurrencies (starting with BTC and ETH).

On the news, Goldmoney shares were up 15% on the Toronto Stock Exchange.

It's not rosy for everyone though:

Bonus I: Grayscale's Bitcoin Investment Trust pulls listing plan after hitting SEC roadblock (behind paywall)

Bonus II: Gold fund management firm VanEck withdraws bitcoin ETF filing
💰 New funds
IVP, who led Coinbase most recent round, has closed its XVI fund at $1.5 billion with one of the core thesis being funding picks & shovels in the crypto gold rush.

"Our thesis is it's here, it's real, it's growing and needs infrastructure."

More money to feed future crypto unicorns!
We had to take a cold shower after reading this.

Mike Novogratz of Fortress fame (he was running their macro hedge fund which had to shut down in 2015 after 2 years of heavy losses and exorbitant management fees), Mr Wall Street basically, is supposedly starting a $500 million hedge fund called Galaxy Digital Assets Fund to invest in cryptocurrencies.

Some juicy bits:

- He is investing $150 million of his own money
- Terms 2/20 & 2 year lock up
- Mandate includes market-making, arbitrage, ICOs and venture capital-style investments
- He made $250 million profit in trading cryptos since 2015, when he put $500k in ETH at below $1. Now 20% of his net worth is in crypto
- He paid his taxes on the profits!
- He bought a Gulfstream jet but donated an equal amount to a philanthropic project for criminal justice reform.

“This is going to be the largest bubble of our lifetimes. Prices are going to get way ahead of where they should be. You can make a whole lot of money on the way up, and we plan on it.”

Another shark swimming in crypto waters. Thanks for ruining our day, Novo.
Italian H-farm, who runs corporate accelerator programmes, has partnered with Deutsche Bank for a Blockchain Business Solution Accelerator.

Target startups will be those "using blockchain technology in the fields of trade & payments, logistics & transportation, procurement & supply chain, cloud & IT or legal" and will get €20k in funding.

It's encouraging to see some Blockchain focus even in Italy, however when we read things like "Deutsche Bank...will support the selected startups with certain services, such as business strategies" we get shivers running through our spines...
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 🤙
Please send links to include in the next issue, or any comments you might have on this one!
Token Economy · The Dolomites · 38121 Trento TN · Italy
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