If you remember, the original plan was for Telegram to raise a $600M pre-sale and then hold a $600M public sale.

I still remember reading the TON whitepaper and sale information, and having to re-read 3 times to make sure they really were planning such a massive raise.

But they did plan it, did raise it, and - obviously - ended up oversubscribed multiple times over.

So, not really that satisfied in raising around $850M in its crazy pre-sale, Telegram has actually decided to continue it. Because why not, the money is there, why should they leave it on the table?

The rumors state that they might be trying to get up to $1.6B before an ICO would happen, but at this point it is even doubtful it ever will.

Sequoia and Benchmark are participating, so who am I to say that this is crazy, but this is crazy.

Implications of massive token pre-sales

While we were in London this week, we've met with quite a few family offices and hedge fund managers, which would traditionally never even have heard of cool interesting startups and had limited visibility on the underlying features, tech and rationale for cryptocurrencies projects.

Yet, they've all invested in the super-hyped, mega ICO pre-sales.
Kin? Check. Filecoin? Who wouldn't! Basecoin? Well Andreessen's in.. and so on.

Aside from the depression that is generated in my soul when I see capital so mis-allocated in the world, I started getting pretty scared about a number of things.

1) Fiat-to-fiat vs Fiat-to-crypto-to-fiat

The easiest thought association is that this massive institutional capital in-flow has shifted from going through ETH and BTC, and is now instead going straight to companies fiat bank accounts.

This means that there is a much lower price pressure on the big cryptocurrencies, as they've been bypassed. It's much easier for a family office to just wire $50M to someone, than having to sign up for an exchange or OTC provider, buy the crypto, send it and deal with the reporting. On the other side, companies get fiat and don't have to dump $millions on exchanges.

But this also means that if previously everyone that was participating in the crypto markets would benefit from the institutional capital waterfall, now the only ones taking advantage are the big mega-sale companies and their previous equity investors.

This is both good and bad:

- good: all the investors that will get burned on these non-sensical risk-reward decisions will only lose their own money and they won't be impacting the prices in the crypto markets.
- bad: no-one get the upside.

2) Where on planet earth will we find liquidity for all of these tokens?

Pre-product projects (let's not forget that Telegram has still not written one line of code of what they're proposing) are now raising pre-ico amounts that rival most public IPOs and that value the networks into the billions and tens of billions.

But the big capital is only going in at the pre-ico timeframe.

This means that there will be no buyers once (or if) the product is released and the tokens hit the exchanges (assuming there will be exchanges that will want to touch these in the future, and that have capacity to add all of them).

If we are relying only on the broader retail investors, then that's 1) fucked up and 2) naive.

When you're making a speculative purchase with no underlying value, having an idea of who to sell the asset to before purchasing it should be really the only requirement, but here it seems to me that most investors have just been blinded by a digital bling, and haven't even thought of that.

🔦Featured on Token Economy

Our friend Nick was at ETHDenver this week where he took part in the hackathon with one of the winning projects (Keysplit.io - very cool, check out his post about it).

From Nick's takeouts and the many tweets surrounding the main event, it sounds like it's been a total blast. Yet another testament to the level of energy and activity in the Ethereum community.

Good news for Tezos holders and fans, the power-struggle between Gevers and the Breitmans is finally over! 🎉

In an unexpected turn of events, Gevers, who single-handedly controlled the Foundation's board and therefore the capital locked into it, and Pons stepped down "voluntarily" to "optimally support the Foundation in the advancement of its mission", making space for Ryan Jesperson and Michel Mauny (who had served on the board of the new T2 Foundation that was supposed to oversee Tezos development independently from the Tezos Foundation).
 
While Tezos still has to deal with some headaches (a rumours SEC investigation and a few class action lawsuits), it's now free to focus on delivering the big promises and to access the ICO funds. Network launch could be imminent.

Many lessons learnt along the way too, hopefully. Fortune has a good recap of the whole story so far.

We'll never really know exactly what happened behind the scenes over the past weeks. The only clue to what may have happened was that the Breitmans had recently announced their intention of going rogue and releasing the Tezos tokens wether they'd get the funds or not.

Bitmain prints money. 

Estimates suggest they generated $3-4 billion in operating profits last year, their 4th year of operation.

This first of all blows our mind, but secondly makes us appreciate just how strong Bitcoin's market position really is.

If a company making $4B in *profits* attempted multiple hostile forks and wasn't successful in its intents, then it must mean that Bitcoin's resilience is really something exceptional.

On that very topic of Bitmain's total dominance, the founder of Bitcoin.org touched a nerve with a post where he proposes a hard-fork to change Bitcoin PoW algorithm.

"...now we have a situation where one man controls the majority of the hashrate, and we are OK with that so long as he behaves himself. Imagine if someone followed you around with a gun pressed against your head, and you were OK with this because “he is incentivized to not shoot me because of the threat of jail”, people would call you stupid and crazy, and yet when it comes to Bitcoin, we’re totally fine with thinking along those lines."

He's mostly worried about the political implications centralized mining superpowers in China, and the risk of government seizing equipment or miners eventually going rogue.

The post unsurprisingly sparked some emotional reactions on Twitter. It seems to be the case that everyone thinks this is unlikely to happen let alone 'cure the disease', but it's the threat itself that keeps all parties in check.

⚠️Warning: long, interesting read.

Kyle from Multicoin explores the scalability trilemma: safety, scalability, and decentralization.

He explores all of the "legs" between these different features and all of the projects that are trying to address different dimensions.

After reading this you should have a much better understanding of the full ecosystem.

To feed your thoughts regarding regulatory arbitrage and competition, reading what's going on in the Philippines would be a great idea.

The additional thought emerging from this, is the leapfrogging argument.
Just as people in emerging countries completely skipped landlines and PCs to go straight to smartphones, it's possible (even if admittedly a bit far fetched) that in some underbanked countries, people will completely skip the old-school banking system and only rely on digital currencies.

Not really crypto related, but Signal has launched the Signal Foundation, with an initial $50M contribution from the co-founder of WhatsApp, who's joining as a Chairman.

With 3 mentions of cryptography in the first paragraph, and the recent Kin / Telegram disaster-ICOs, we might smell either a move to compete with the newly acquired funds for their competitors, or even an initial setup for a future token sale.

We'll keep an eye on this one.

We touched on discount tokens last week.

In a timely fashion, Alex from Coinfund published a good primer on this token model in the context of having designed one with Sweetbridge (a project they advise).

The reason they like this token model is that it addresses all 3 key properties of crypto assets:

1/ digital, secure, trustless and globally accessible
2/ can support an ecosystem to use and accept it
3/ its value correlates with fundamentals

One way to look at this token is like a royalty that gives holder a right to use a portion of the service provisioned by the platform, where value flows to offset costs for the users. Crucially, passive investors can't capture its value fully.

Another superb primer on the fundamental designs of stable coins, that comes to the same conclusion as our own: there is no ideal stable coin (yet).

Speaking of stable coins, Nick at 1confirmation shares some of the learning from the MakerDAO story (3+ years building, no ICO, limited hype, live product, not traded on popular exchanges):

1/ Who your early token holders are matters a lot
2/ Token-based projects work best as distributed internet tribes rather than traditional companies
3/ Getting from project launch to product launch takes lots of time

Disclaimer: we are LPs in 1confirmation.

A long post from the founders of Austere Capital, highlighting their views on a critical flaw in the MV=PQ valuation model for crypto assets. Namely that it is circular, since the token price in USD terms is used to calculate the right side of the equation, which in turns is used to derive the token price itself.

Admittedly we haven't dissected it in details yet, so we'll try to come back to it at a later time.

Yep, it still sucks badly. 

And this is for one-off transactions like ICOs, so imagine how much more work there is to build UX/UI for recurrent usage.

For some reason, in the past week Bulletproofs have received a lot of attention (we still have to understand why, as it's a proposal from 2016)

This one's a great read if you haven't heard of it.

The TL;DR:
- Bulletproofs are general zero-knowledge proofs (like SNARKs)
- They can be used to extend multiparty protocols such as multisignatures or Zero-Knowledge Contingent Payments
- Bulletproofs provide a much more efficient version of CT rangeproofs (when batch verifying, over 23x speed improvement)
- These rangeproofs can be aggregated within transactions with only logarithmic size increase.
- With sufficient aggregation, such as in Provisions, batch verification becomes over 130x as fast as the old proofs

If you follow Ryan Selkis aka Twobitidiot on Twitter you probably know he's heads down building Messari, an open data layer for crypto assets with the ultimate aim to provide the industry with the data backbone to self-regulate. Our long time readers may remember we interviewed him when he announced the project last October.

Lately he's been researching token curated registries as a potential structure for Messari to become a "self-regulatory organization" and he's concluded this is the way forward.

"The high-level concept of a token-curated registry is this: there’s a list you want to be on and you think you deserve to be on the list. You are then willing to pay an application fee in an effort to make that list — either on a one time basis or via recurring credentialing “dues” — because there is intrinsic value to inclusion. You can think of a TCR like a cooperative, where existing members vote to include new participants and share in the costs, and rewards, of running the community."

The most powerful thing will be the signal that being on a Messari registry sends to the community: the good quality project will proactively want to open up their kimonos and be curated, while the bad ones will hide.

Insurance has long been called one of the perfect use cases for decentralized applications, and indeed for good reason.

Yann from Anthemis explores more a space that hasn't received the deserved mental cycles.

He finds a few problems, that are actually shared with many other applications:
- stablecoin value
- oracles
- dispute management
- regulation
and clearly, underwriting

There is the SEC way, and then there is mexicantarget's way.

"I've been fighting against scum like you, who make Ponzies and get people in sh*t, just because of your stupidity and greed. I burned ~$30.000 just to buy your project and shut it down, because I'm getting really sick from situations like this, where poor suckers invest in schemes like yours and get burned".

Scary stuff, so much so that it was the topic of a panel at the recent Satoshi Roundtable in Cancun. Turns out crypto security practices need to extend to the physical world.

Just last week, we've heard that the founder of a recently funded crypto project has hired permanent body guards...

Wow! Demand for crypto native products like crypto-backed loans is through the roof.

SALT experienced demand of over $1.3B in loan requests, being able to service only $23M of it. As a result they decided to halt new user registrations to focus on automating internal processes. 

An interesting retrospective from developers at Infura, Grid+ and Metamask who joined up the Cryptokitties team at the height of the mania to collaboratively alleviate network congestions and build the foundations for future scalability.

“One of the things that makes the Ethereum community different: Everybody, even if they’re working on potentially competing projects, works together to figure stuff out. It goes against the capitalist, startup world where everyone’s trying to beat out everyone. I’ve never seen anything like this in any other crypto-community this large.”

Shapeshift has launched one of the most request features: the ability to exchange one coin for multiple coins.

Say you want to buy a number of alts with your BTC, you can now do that in just one transaction.

Pretty cool (even if still entirely centralized).

Decentralized financial instruments are coming, fast.

Developers have started using Dharma.js and the Dharma protocol to create short-selling markets on any ERC20 token, by using (1.5x) DAI as collateral.

Financial instruments is clearly the #1 area where we're seeing the most innovation, and it's just accelerating.

The founder of Genius (remember Rap Genius, the fastest growing YC company ever?) is at it again, still in the same space with Everipedia: a decentralized Wikipedia.

Larry Sanger, one of the co-founders of Wikipedia, also joined the new company as Chief Information Officer recently.

Can't think of a better use case for current decentralized computing abilities.

The people at Truffle just keep on shipping.

This time it's Drizzle, a Redux-based set of front-end modules that react to Ethereum data automatically.

Slowly but surely the infrastructure to build decent dapps is being created! That's amazing news. 

Coinbase is almost done supporting Segwit, finally.
Also, they are committing to working on  transaction batching, improved UTXO management and Lightning Network features.

Jimmy Song is one of the best known core developers. He's also a partner at Blockchain Capital, and through his role there he is launching Platypus Labs, which will provide fellowships and residencies to support open source bitcoin development.

The issue of funding open source development is going to become more and more crucial, especially as good teams continue to release open source software but stop using useless tokens.

The Ledger team is extremely impressive. I own a different hardware wallet, but now kinda wish I had a Ledger.

In their transition away from Chrome apps, they've unveiled quite the update: a new native app for all of their supported cryptos.
Looks super slick.

Not that we gave them the benefit of the doubt, but boy what an extraordinary mess.

Let's recap:
- Maduro made claims on national television that $735m was raised in the first day of the $PTR pre-sale
- The website has been largely unusable, but those that managed to go through registration noticed they were only allowed to state an offer range
- They have switched from Ethereum to the NEM blockchain at the last minute, without providing any explanation
- All premined tokens are supposedly still sitting in this one NEM address, though this is highly speculative as the government have not confirmed what the official address is
- the public ICO is scheduled for March 20th, when presumably all tokens will be paid for and then issued
- some diligent eyes noticed in the fine print that the Petro is in fact supposed to be redeemable for the *value* of a barrel of oil, denominated in...Bolivars! Yes, a Petro is redeemable for heavily inflating Bolivars.
- If that wasn't enough, Maduro has also announced plans to issue a second crypto currencies backed by gold reserves (the Petro Oro).

On the lead up to this, the government has been raiding and expropriating equipment of Venezuelan bitcoin miners, often with brute force. 

The whole is sad and terrifying...

Following Venezuela's example, the Iranian central bank has announced the intention to launch its own cryptocurrency and to control the usage of other cryptocurrencies.

Both countries are under US sanctions and their respective currencies have severely devalued against the USD over the last few years. Issuing a state-controlled crypto currency is now probably top of the agenda for all countries that fit this bill, a development that many industry insiders didn't foresee until recently and that stands at total odds with the ethos of the community.

🎁 A guest post by Pierre Entremont of Otium Venture

The French market watchdog (“AMF”) published a progress report of it’s “UNICORN” programme, aiming at building a legal framework for ICOs in France. The document summarizes the replies to the public consultation the AMF held, and describes the main orientations resulting from it. They for sure have good intentions, but you know what they say about those.

It states that tokens which give financial or governance rights are securities and are consequently already regulated, but that utility tokens are a genuinely new thing (a subpart of the French legal concept “miscellaneous goods”) which need a specific regulation.

It’s still early, but the core areas this regulation would cover are classic:

- Transparency before and after the ICO

- Progressive funds release and founders tokens vesting

- Proper KYC / AML processes.

Finally, companies asking for it could get an optional “visa” from the authority, stating that they are in conformity with the to be written law.

Interesting side effect: even if tax matters are out of the authority’s scope, the classification as “miscellaneous goods” could lower the tax rate for investors from a monstrous 70% in some cases to c. 35%.

It’s great to see that the authority genuinely wants to help, and the approach towards tokens considered as utility looks reasonable. It’s worrying however that it does not encompass tokens with governance rights, which are essential to decentralized networks.

Ironically, governance tokens may end up being the collateral victims of a political mechanism. Modifying the securities regulation is way harder to do than writing a new law on a new and exotic kind of goods, which is the way the authority took. Let’s hope all governance systems will not be discarded.

As mentioned in issue #34, Wyoming senators had proposed a Bill to exempt certain tokens from securities and money transmission regulations.

This week, the Wyoming House of Representatives has unanimously passed it to the Senate for approval (which if granted could put the Bill into effect on July 1st).

The conditions for a token to be exempt are the following:
1/ It must not be marketed as an investment
2/ It's exchangeable for goods/services (i.e it's functional utility token in SAFT jargon)
3/ There must not be involvement of the issuer in the secondary market to provide price support.

After FINMA last week, more policy makers are corroborating the theory that not all tokens fall under the definition of securities. There are rumours that other States are following a similar path.

It looks like the SEC has been making calls.

Reportedly more than a dozen projects have shelved ICO plans after being contacted by the agency, possibly explaining the "RIP ICO" we talked about in issue #34.

Albert Wenger of USV proposes an alternative approach to regulating crypto tokens and ICOs that worked effectively in the first era of the Internet: Safe Harbors (i.e. provisions or regulations that specify that "certain conduct will be deemed not to violate a given rule", such as the Digital Millennium Copyright Act that protects ISPs from the consequences of their users' actions). 

Albert believe such safe harbors should be centered around:
1/ token sales and distribution, requiring holding periods and information disclosures above certain thresholds of dollar invested per investor (and exempting airdrops for example)
2/ secondary markets, requiring utility tokens not to represent ownership in order to qualify for being listed on exchanges.

This feels like a middle-ground approach between self-regulation and the SEC/CFTC attempt to apply legacy frameworks to new assets, and apparently there are already organizations actively developing proposals along these lines.  

Jung Ki-joon, 52, reportedly suffered from a stress-related heart attack.

The anecdote behind the $17m Series A round led by A16Z is that apparently Coinbase had made an acquisition offer for stealthy Anchor Labs, subsequently announcing a competing custody product when the offer was rejected.

Custody for digital assets continues to be a hot topic as institutional investors get the grips with this asset class.