Past issues

Mar 12 2018

#39: back from Unplug & EthCC

📌 An opinionated recap of the most interesting news in crypto
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🤙🏔⛷🇫🇷Unplug, EthCC and Token Economy meetup recaps
What a week!

We started with Unplug.vc, our retreat up high in the mountains with 60 VCs and entrepreneurs.

It was a truly great time, and it was amazing to see the deep conversations happening between people - that's exactly the goal of the event: not a new conference, but a chance to truly connect with people and hopefully make something happen that wouldn't have happened.

We had attendees from the top EU VC funds in the space as well as some founders of the best projects around. We'll try to keep a twice-a-year pace, so watch out for the announcements.

There was skiing, there was snowshoeing, there were saunas, beers, laughs, falls, polenta, sleds, and just one injury 🚑.

Pictures and videos coming soon!
After Unplug we went straight to Paris for the Ethereum Community Conference.

Another great event with a ton of technical and project presentations.

It definitely feels like the #BUIDL is going on no matter what happens in the markets.

There seems to be more and more get-rich-quick type people getting attracted to these conferences, and maybe because of their inexperience it's hard sometimes to figure out if they're genuinely excited about what's going on or just green candles.

Not much in terms of new interesting projects unfortunately; it was all fairly known projects - but nonetheless interesting. And we were also able to listen as Vlad, Vitalik and others expanded on the future plans for Ethereum itself.

On Thursday we organized a very quick meetup in the evening, which got a bit tight with hundreds of people attending (instead of the 40-50 we expected). We promise to handle logistics better next time - but I think everyone enjoyed it.
It was doubly awesome as it collided with the Aragon Community Meetup, same-time-same-place!

Now on with the good stuff.
⁉️Q&A with Jeremy Allaire and Sean Neville of Circle
On the back of last week's announcement, we took the opportunity to run a few questions past Jeremy and Sean, respectively the CEO and President of Circle, in relation to the Poloniex acquisition. We didn't get all the answers we were after, but we got some more colour at least. Enjoy!
 
Note: the Q&A dates prior to this week's SEC statement on exchanges.

TE: Can you touch on the acquisition rationale, how does it fit in with Circle's vision?
 
JA/SN: Circle is built upon a foundation of blockchain technology and crypto assets, and we’re on a mission to make it possible for everyone, everywhere to create and share value. Circle Pay helps people around the globe connect to one another and share value just as they would share any other kind of content on the open borderless internet; Circle Trade serves institutions and investors as one of the world’s largest providers of crypto asset liquidity; and our forthcoming Circle Invest app enables individuals to tap into crypto asset investment through a simple, seamless, mobile experience. Now Poloniex addresses another key element of Circle’s product foundation: An open global token marketplace.
 
TE: What made you pick Poloniex?

JA/SN: Over the last year and a half, Poloniex experienced rapid growth in its retail cryptocurrency exchange. Poloniex was looking for a strategic partner with the experience and operational expertise to further scale their platform globally. Given Circle’s global reach and experience, we were best positioned to help take Poloniex to the next level in their business – we have the capabilities to take on their growth and continue to invest in product innovation.

TE: What changes should user expect to see in Poloniex from a product perspective? How will its positioning change vs other exchanges, in particular what's going to happen to all the listed tokens that are likely to be securities? Are mass delistings on the road map?
 
JA/SN: Circle looks forward to scaling and improving Poloniex in the days and years to come. Circle will first address Poloniex customer support, risk, compliance, and technical operations to further scale the existing product and platform. Many of the near-term changes will be behind the scenes, improving rather than dramatically altering what already works so well.
 
TE: Interesting timing, the SEC hinted recently that crypto exchanges listing unregistered securities could be breaking the law. How do you think crypto exchanges should be regulated?
 
JA/SN: Circle intends to continue playing a leadership role as it relates to national and global regulatory frameworks for this space. We fully support the SEC’s mission of protecting investors and maintaining fair, orderly, and efficient markets and facilitating capital markets, and we expect them to pursue that mission to the fullest extent. We believe the technology developed by firms like Circle is complementary to this mission, and look forward to working closely with all our regulatory stakeholders, both domestic and abroad.
 
TE: It's no secret that many crypto exchanges, including Poloniex, have been operating without licenses for trading securities or money transmitter registration. Was that not a big worry as you considered the acquisition?
 
JA/SN: Circle is one of the most broadly-licensed crypto companies. Circle maintains US state Money transmitter licenses, was the first company to obtain the NY state BitLicense, and holds an E-Money license from the FCA for operations in Europe. We intend to continue working closely with regulators locally and globally to protect customers.
 
TE: There are rumours that Circle obtained a “no enforcement action against prior activity” letter before completing the deal. Is there any official statement from you or the SEC itself that can be disclosed at this stage?
 
JA/SN: We don’t comment on rumours.
 
TE: If that’s the case, what should other exchanges read into this precedent: isn't the SEC effectively giving certain actors a “get out of jail free” ticket?
 
JA/SN: Same as above, we don’t comment on rumours.
 
TE: We have to ask about Tether, since Poloniex has a market there. Shall we assume you have done your diligence and it's all looking good there? Are you planning to phase USDT out for proper fiat on ramps?
 
JA/SN: We look forward to scaling Poloniex up and out through market expansion and localization, increasing token listings where possible and appropriate, and exploring the fiat USD, EUR, and GBP connectivity that Circle already brings to its compliant Pay, Trade, and Invest products. Any product decisions we make going forward will be thoughtful and rooted in customer feedback.
 
TE: A closing thought on decentralized exchanges, how worried or excited are you?

JA/SN: We believe in a more evenly distributed future, and are excited to see work in this area.

TE: Thanks guys!
📌 Token Economy
⚠️Warning: long read on crypto valuation theories.
 
Johnny Antos and Reuben McCreanor propose a theoretical framework for valuing crypto assets that captures both the massive upside expectations baked into the idea of exponential change and the probability that they become worthless by serving no purpose.
 
At the core of this effort is the author's belief that for nascent industries predicting long term outcomes is pointless as they will be dictated by products, use cases and markets that do not yet exist and cannot be imagined yet (a well adopted thesis amongst early stage tech investors).

In order to capture the volatility of the unknown unknowns, the authors use an adjusted Black-Scholes framework that values a crypto asset as a “call option on the real economic value on both the currently envisioned use cases, and those that can only be conceived once these current uses eventuate.” The essence of it (and the post goes into some formulas) is that the current price of the asset embeds a large “time value” given the high volatility of real economic utility value outcomes between today and maturity.

The authors also review the seminal valuation pieces by Burniske, Evans and Pfeffer highlighting their supposed limitations. 
 
We look forward to seeing some working examples of this valuation framework.
Tony Sheng shares his quick and dirty DD process to screen utility tokens. 

His model uses idea risk, execution risk, token necessity and token dynamics as inputs and spits out whether one can expect increased usage of the network and (crucially) if that will drive increase in value.
Coinbase just snapped up Linkedin VP of Corporate Development Emilie Choi, suggesting that we should be expecting some M&A activity in the near future. 
 
Referring to the Poloniex acquisition, Coinbase view is that the industry is still too nascent to be consolidating yet mature enough to attract interesting startups and entrepreneurs. One may read into it that, at least in the short term, they will be eying tuck-in acquisitions / acqui-hires to bolster internal businesses (eg custody, fund management, etc). 
So we are not over Mt. Gox yet! 

It turns out the trustee charged to liquidate the Mt. Gox BTC and repay creditors has been selling tens of thousands of BTC on the market, which is believed to have caused the crash from $19k. And apparently he has another 180k BTCs to sell off. 

This is clearly inorganic sell pressure that the market should absorb and then revert to 'normal', however it remains totally inexplicable why this was not done OTC. 
Token Economy reader Christian Catalini, MIT professor and founder of the MIT Cryptoeconoics Labs, together with Joshua Gans, Chief Economist at Creative Destruction Lab of the University of Toronto, have published an academic paper on ICOs and how they can be used to fund a new venture and how they compare to traditional funding routes.
 
We have not had enough time to read through and digest it (crazy week!), but it's no doubt one to bookmark.
People must have been thinking I'm completely nuts while I was laughing out loud reading this post in a coffee shop.

The team at SpankChain seriously has something special, and this one deserves a standing ovation.

Key quotes.

"Well that’s exactly what counterfactual instantiation lets us do Morty. This shit is the FUTURE!"

"Don’t you see Morty? The interpreter contract. It only exists counterfactually Morty."

"Because Game Theory Morty."
Not looking good here.

ArtPlay did a deep data dive in the volumes of many different exchanges with some fairly stunning findings.

Based on their analysis, it seems that some Chinese exchanges could have up to 90% completely fake volume (and thus liquidity).

The estimate is that about $3B of daily volume is non-existent. Ouch.

Binance's CEO also tweeted the article saying that it's a problem and that they do their best to address it.
TL;DR:


Here are the inaugural Ethereum Foundation grant winners:


L4 Research – Scalability Grant – $1.5M. State channels research.
Runtime Verification – Security Grant – $500K. Casper contract formal verification.
ETHGlobal – DevEx Grant* – $200K. World-class developer conferences for Ethereum
Prysmatic Labs – Scalability Grant – $100K. Sharding implementation.
DDA – #buidl Grant** – $100K. Tokenless decentralized derivatives network + state channels R&D
Barcelona Supercomputing Center – Scalability Grant – $50K. Sharding simulation.
Plasma Taiwan Dev – Scalability Grant – $25K. Plasma implementation.
Ethers.js – DevEx Grant – $25K. Web3.js alternative.
Turbo Geth – Scalability Grant – $25K. Geth optimization.
Solium – DevEx Grant – $10K. Solidity static analyzer.
Alex Komarov – Design Grant – $10K. Key management UX study
(Anonymous) – Hackternship – $10K. Deterministic WebAssembly.
Ankit Raj – Hackternship – $10K. Technical writing for Geth and Solidity.
This is the video of Vitalik's talk about Plasma Cash, which is called like this because it is exactly like Plasma, but more scalable. 🔥

Outstanding idea, of letting people only care about blocks where they have coins stored.
This is achieved with ERC721 and non-fungible tokens.

I am constantly in awe at the *pace* of amazing ideas coming out of Vitalik's circle.

This new idea could extend so much to pose threat to decentralized exchange protocols as it enables much faster centralized order matching but in a non-custodial scenario.

🤯

If you want a funnier and maybe even simpler explanation, you could listen to Karl Floersch's impromptu talk on a staircase outside of the conference. Karl is a co-author and is awesome.

There is also Vitalik's post on Ethresearch
Jacob defines cryptoeconomic primitives (a take on cryptographic primitives) as:

Protocol based incentives systems that are uniquely enabled by tokens. Also referred to as “tokenized economic games” ².

They enable the coordination and allocation of capital to achieve a shared goal via the use of various economic and cryptographic mechanisms.

Some examples include TCRs, prediction markets, stablecoins, token indexes etc. His point is that such primitives, when combined together, have compounding utility as they are the building blocks of applications that were not imaginable prior to their existence, ultimately increasing the utility of each individual primitive.
⚠️Warning: clickbait!

$500m was not sent in a single transaction, but still interesting that the genesis address keeps receiving random airdrops, order mistakes and deliberate transactions that the author equates to religious acts of reverence to the Ethereum gods...
A pretty accurate run down of what the decentralized internet looks like to the average user today: clunky, buggy, slow, ugly, but it's already here and it works and the genie isn't going back in the bottle.
Binance proves to have some solid risk management systems in place. 

It successfully froze the funds of a hacker who ran a pump & dump on the VIA coin using a bunch of phished account to drive the price up and subsequently tried to withdraw the proceeds after dumping from other pre-deposited accounts.
😎 Cool new projects
Seriously cool stuff from a group of researchers.

GasToken is a way to "pre-purchase" gas for future Ethereum transactions. This gives you a way to pay for gas when it's super cheap and spend it when it's very expensive, which could help you prioritize your transactions.

This solution exploits the storageRefund that happens in Ethereum and in fact the "pre-purchase" mentioned above isn't really a purchase. 

You mint GasTokens by sending storage data to a contract, which entitles you to a refund in the future when you destroy that data.

The cool thing is that the GasTokens you've minted are ERC20-compliant and so we now have fully tradeable gas.

A much more detailed explanation is on the website.
A rather entertaining real-time BCH vc BTC transaction visualizer involving highways and cars, because why not!

Look at all those segwit racing cars! 🏎️

h/t to unplugger Fredrik Haga.
A new Scala-based formally verifiable language that compiles down to both the public Ethereum EVM and all private Ethereum implementations.
The Gnosis multi-sig wallet might become the default multi-sig you want to use.

https://wallet-website.gnosis.pm/
Alice finally released the first demo of a "combined donation and impact investment platform that would give charities the seed funding they need to start a project, while ensuring that donors are fully repaid in case it fails to achieve its goals".

You can read the post or play with it here.
A $3600 heater/miner combo that could make you $120/month (before electricity costs).
🤡 ICO madness
A solid post by Ryan Mac calling out on outright whitepaper plagiarism, that yet didn't prevent certain project to raise tens of millions or be valued in the several billions.
Who would have thought that a project named Bitcoiin, endorsed by Steven Seagal, would have turned out to be questionable?
This one smells a little fishy, if anyone wants to dig deeper...

- A Cryptocurrency Real Estate Investment Vehicle (CREIV, yep)
- Selling 20-30% of tokens at a valuation of $1 billion. They currently have no assets.
- Principals, advisors and employees will hold 70% of tokens post IPO
- Already making promises of being listed on major exchanges
- Last but not least, planning to launch debit/credit card and mobile payment app
Tokensoft officially launches as a platform to run compliant ICOs. The space is rapidly heating up particularly on the back of recent SEC statements, with already half a dozen similar projects going after it.
These things still happen? Most likely in private mode...
👮 This week in regulation
Another week rich in regulatory news.
 
A week after the announcement of Circle's acquisition of Poloniex, and the chatter that ensued following that leaked slide, the SEC issued a statement on crypto exchanges reminding investors and operators that:
 
"If a platform offers trading of digital assets that are securities and operates as an "exchange," as defined by the federal securities laws, then the platform must register with the SEC as a national securities exchange or be exempt from registration.”

The SEC warns that many exchanges have the appearance of being registered and regulated entities, while in reality they are not, questioning their listing “so-called” standards, trading protocols and data integrity of their order books.

In response to the SEC statement Bittrex claimed full legal compliance with US laws outlining their listing two-step review process: following a first preliminary screen, Bittrex requires:

“a legal memorandum or opinion from its U.S.-qualified outside counsel or an acceptable substitute. The memo or opinion should present the factual and legal basis for its conclusion that (a) the Candidate Token is not a security under applicable securities laws, and (b) that trades of the Candidate Tokens would not be subject to regulation under any applicable laws applicable to trading of commodities.” 

Essentially shifting the responsibility over to the lawyers, in what seems to be turning into a hot potato game...
A New York district judge has granted CFTC the authority to regulate cryptocurrency as a commodity, in court case the CFTC had brought against the founder of cryptocurrency company CabbageTech.

"Virtual currencies are 'goods' exchanged in a market for a uniform quality and value. ... They fall well within the common definition of 'commodity'”
 
As they say, if all you have is a hammer, everything looks like a nail.
It's all happening in Wyoming! 

The so called House Bill 70 has cleared the Senate and is now about to get signed by the governor and become legislature. As covered in previous issues, the bill will exempt certain utility tokens from securities laws, setting a strong precedent for future litigation and indirectly influencing federal policies. 

Watch this state.
Everyone wants a piece of crypto, which is turning into a good way to confuse everybody... 
 
After the SEC called ICO tokens securities, the CFTC has been granted jurisdiction to treat them as commodities, Wyoming thinks they can be a utility, FinCEN now seems to suggest they are in fact “money”: what a mess!

in a letter to a member of Congress, FinCEN indicated that based on their interpretation of the relevant regulation, token sellers are money transmitters, which would subject them to KYC/AML obligations for US residents, the failure of which would constitute criminal liability with up to 5 years in prison extending to employees and investors.
A report suggests that the PBOC is actively working on a sovereign digital fiat currency called DCEP (Digital Currency for Electronic Payment).
 
As always, it's worth remembering that digital fiat has nothing to do with crypto and decentralization, being issued and controlled by a central bank. It's purpose is to eliminate physical cash and the black market and put everyone's transactions / holdings on a digital ledger controlled by the State, with the side benefits of offering faster and cheaper payment rails (perhaps with smart contract features).
Not holding our breath, but hopefully we will make a step towards harmonization across Europe later in 2018 when, as part of the European Commission's FinTech Action Plan, the EU Blockchain Observatory and Forum will report on the “challenges and opportunities of crypto assets” with a strategy on distributed ledger technology and blockchain and a blueprint for best practices on regulatory sandboxes.
💰 New funds
Multicoin announced the closing of $50 million of a $250 million target for their crypto hedge fund from the who's who of crypto silicon valley.
 
Congrats to the whole team at Multicoin, who are undoubtedly carving out a distinct voice in a noisy space with their pro twitter game and in-depth research pieces.
Coinbase has launched a passive index fund tracking the four assets listed on GDAX weighted by market cap, with quarterly redemption window on 30 day notice and no secondary market. 

By the looks of it the index is set to auto buy into any new additions to GDAX, which typically experience a steep run up on the back of the news or rumours of a listing. Will be interesting to see what happens at the next occasion.

For now it's only available to US accredited investors and cost 2% a year.
💸 Funding rounds
Centrifuge announced its seed round.

The founders of Taulia are at it again, building Centrifuge OS, a protocol that will try to make the Financial Supply Chain a bit more smart.

Their first dapp will be, obviously, an invoice financing marketplace - which is one of the best use cases for this space - BUT it needs a number of true, verifiable sources of data, and that's going to be provided by their Centrifuge OS.

The team is seasoned, having raised over $150 million for the previous company who is now used by 97 out of the Fortune 100 companies to improve liquidity when it comes to accounts payable.

We are excited to be participating in the round alongside Mosaic Ventures, Blueyard and Tiny.

Also on TechCrunch.
Messari has announced its funding round, of more than $1 million.
A wide array of investors contributed, ranging from Blockchain Capital and fintech venture firm Anthemis Group to Forbes crypto rich list member Matt Roszak.

Disclosure: we are also investors in Messari.
Initialized Capital has led a $2.1 million round in ERC20 decentralized exchange DDEX alongside ZhenFund. 

DDEX is yet another 0x relayer that uses off-chain order book matching and on-chain settlement, allowing users to trade directly from their Ledger or Metamask wallets.
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 🤙

If you'd like to publish some of your content on the Token Economy publication, please fill out this form ✍️

If you're feeling generous, you can stake some ETH on our StakeTree page 🙏
Feel free to 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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