📌 + Token Velocity, Parity's Hard Fork Proposal & big SEC news
Token Economy
📓 also published on Medium
💭 $500 billion high
This week the combined network value of all crypto assets surpassed the $500 billion mark (based on circulating supply).
The speed at which it arrived there is absolutely mind-boggling: two weeks ago we were just above $300 billion, a month ago just over $200 billion, $18 billion in January. We'll admit it, we're feeling a little dizzy up here. We knew the masses were knocking at the door, but the brute force of this movement took everyone's breath away.
So much so that a few people took this significant monetary milestone as the time to delve in sobering reflections, daring to ask some good hard questions.
Vitalik himself took the stage first with a powerful thread:

1/ So total cryptocoin market cap just hit $0.5T today. But have we *earned* it?
 2/ How many unbanked people have we banked?
 3/ How much censorship-resistant commerce for the common people have we enabled?
 4/ How many dapps have we created that have substantial usage? Low added value *per user* for using a blockchain is fine, but then you have to make up for it in volume.
 5/ How much value is stored in smart contracts that actually do anything interesting?
 6/ How many Venezuelans have actually been protected by us from hyperinflation?
 7/ How much actual usage of micropayment channels is there actually in reality?
 8/ The answer to all of these questions is definitely not zero, and in some cases it's quite significant. But not enough to say it's $0.5T levels of significant. Not enough.

This is effectively a list of the many promises the blockchain revolution set off to fulfil. I don't think he's saying that we've horribly failed at the ultimate mission, it's undoubtedly still very early days. What he is doing though is ringing the alarm bell as prices (and therefore expectations) may be getting way out of hand, at a much faster rate than real utility is being delivered. On that very note it's worth going through Kyle's tweetstorm rant, literally drafted as he was scrolling through Coinmarketcap (someone please teach him how to thread tweets though!).

What arguments are being made?

There is the argument that the steep price appreciation has created a lot of wealth at the edges of society, and that such wealth is getting broadly redistributed. And it's obviously great that many early believers in something crazy at the time got handsomely rewarded and that they themselves re-invest in the ecosystem (when not buying Lambos). But that's a little shortsighted, it certainly wasn't the original plan to create a greater fool's money making machine. The plan was to deliver real world utility, and it's very significant that Vitalik himself is questioning if we've delivered enough of that to justify a $500 billion network value tag.
Then there is the argument that speculation is the Mother of all technological progress, that the promise of quick profits attracts the best minds alongside the speculators and that the former end up building great long lasting things from the ashes of a bubble pop. Maybe this is what we just have to accept, the inevitable trajectory that all the foundational technologies need to go through. We have undoubtedly seen some of the smartest folks we've ever met devoting their careers to this industry, but we've also seen ruthless speculators and the worst scammers. And we are definitely seeing the institutional flow on money pouring in, with over $30 billion in daily volumes traded most days this week.

Lastly, there could be a reason not to panic, at least for some of the 'store of value' crypto assets out there, bitcoin of all with it's +$300B market cap. For bitcoin, price could actually be totally irrelevant. Yes, if you are buying bitcoin for its censorship resistance properties, you should not care about its price being $1k, $18k, $180k or $1m, you are getting your censorship insurance regardless. The price volatility is there anyways at all prices, and in fact it is trending downwards over time as price rises and liquidity increases. So it could in fact be the case that the higher bitcoin's network value, the more it fulfils its SoV/censorship resistance promises. But as Vitalik wonders, how many common people are getting this value?

Vinay Gupta took the stage next, with another heart-felt and widely shared thread, later summarised in a standalone post. While Vitalik's was a retrospective, Vinay's looking ahead at some possible future regulatory scenarios.

He elegantly navigates the hard fought borders between the status quo, the Governments and Regulators' turfs, and the Future, the libertarian dream that has animated much of the crypto movement. He gives the latter very little chances of success in its current form, and ends up outlining a handful of 'plays' that could make blockchain indispensable to society and therefore appease the Leviathan Regulator:

1/ a near zero-waste society where everything is priced
2/ banking for the unbanked
3/ crypto-protected biometric ID
4/ microtransactions
5/ crypto currencies backed by natural resources
6/ C2C insurance

$500 billlion is a big number, there are lots of promises and expectations in it. But we are here now, and the regulators are all looking. Now is the time to solve some real, pressing societal issues with this amazing piece of technology.

So, “build like hell, it’s the only thing that gives us a right to exist” (Vinay's words).

📌 Token Economy
The Parity team has come out with a post in what I envision being a looong lobbying and influencing tactic to try and recover the insane amount of money that was lost due to a bug in their wallet contract.

The post is interesting on many levels, but I don't think it achieves much.

What I particularly appreciated was the candidness and admission that they fucked up big time.

"No one should be under any illusion that unlocking these stuck funds would be anything other than a rescue operation - and would only be possible with a hard fork. In none of these cases was the protocol specifically at fault. Issues with client usability, problems with codebase maintained by both private entities and the Foundation code, the unexpected emergence of a competitor network, and plain user error have contributed to where we are today. Ethereum, as it is today, remains solid and continues to evolve."

Their proposal is a hard-fork that would solve the contract suicide problem and unlock all the funds.

If I had to guess as of today, I'd say this has very little chance of getting wide community support - and I'd consider the funds well and done.

IF for some reason there was a hard-fork, the resulting "classic" chain, would have many more supporters than ETC.
Multicoin Capital is churning out amazing content continuously.

In this one, Kyle talks about token velocity and its central importance when designing and investing in token economies.

TL;DR is that if velocity is extremely high, then the price pressure just aren't there to make it a good investment (and my view is that if velocity is so high, usually it's better suited to be transacted in ETH or equivalent).

Kyle also proposes some models that reduce velocity and make the token more interesting as an investment:

1) a profit-share (or buy-and-burn) mechanism
2) staking functions
3) burn-and-mint mechanics
4) gamification
5) becoming a store-of-value
I feel this is a must read for anyone designing a token ecosystem.

The title is misleading, it really talks about defensible token models and when can they be successful.

Being written by Aragon, the conclusion is that Governance is a great way to make a token meaningful - but reading this post should make your mind race if you've been designing a token or want to in the future.
Always a very sensitive topic and one of the first we try to cover with teams we speak with.

Zeppelin proposes a few improvements here:
- Improved vesting terms
- Staggered fundraising
- Owner dividends
Nothing new here: Bitcoin is censorship resistant money.

But it's great to see it explained in the New York Times with actual real use cases that can be understood by everyone (even if many might not believe that such a situation could happen in the US - but today's news of Trump banning words (!!!) should make everyone even more scared). 
Another one by Multicoin, looking at the price of 0x.

It shows just how extremely hard / impossible it is to set a price target based on fundamentals for tokens.

Particularly interesting how they are decoupling short-term price movements vs long-term potential of the token.
Speaking of 0x, the team wrote a very interesting post on something that's rarely discussed: conflicts of interest.

The TL'DR is that members of the 0x core teamwill nottake a financial stake in, formally advise, or partner with other players in the 0x ecosystem.

There should really be a deeper discussion in the space on what teams building protocols should be doing other than developing the protocol obviously. Hopefully this gets it started.
TL;DR: Bitcoin has more network effects than other cryptos

1. User, fund and investor adoption.
2. Exchange adoption & network liquidity: Bitcoin as the "reserve currency"
3. Derivatives and other financial infrastructure.
4. Mainstream press and attention.

I've always had massive respect for Elad Gil, but this post I just don't understand.

To me, it seems like he is just listing first-mover advantages and not inherent network effects (of which, for me, there aren't many).

Additionally, my view is that comparing Bitcoin to other cryptos is kind of crazy. Bitcoin is censorship-resistant money, and it has already won at that.
Now, everything else can try to become whatever they want (world computer, payment network, etc.) but it will be different and non-competitive.
Our friend Francesco wrote a post about Initial Free Offerings.

This is something we've suggested countless times to teams we've spoken with so it's great to see some more content on the topic.
That's $300 for a virtual plot of VR crypto land.
😎 Cool new projects
Not a new project, but a new token for an existing project. Cosmos is separating the Atom token from the (new) Photon token.

Differences: Atom is the native staking token for the Cosmos Hub. The Atom should have low money velocity.
Photon instead is a secondary fee token that’s also native to the Cosmos Hub, it’s a much more liquid token than the Atom with substantially greater money velocity.

Cool thing is we'll all get Photons because it will be a hard-spoon of Ethereum's state (aka an airdrop).
Bad news: they probably won't be worth much given their high velocity (read Kyle's post above).
MobileCoin is a new cryptocurrency from the founder of Signal, the encrypted messaging app.

The details are scarce, but it looks like it uses Stellar's technology and will focus on making it easy to use (with PIN recovery).
🤡 ICO madness
Kickstarter's competitor Indigogo didn't resist the temptation and is officiallu entering the ICO arena. Not by selling their own token, but by allowing projects to conduct compliant ICOs through their platform.

Effectively competing with Angel List product Republic, they will have restrictions in terms of maximum amount raised from smaller investors ($1m) and lock ups for accredited investors. 

The restrictions may not make it very popular given the sums that can be raised via ICOs, however the recent note from the SEC may put them in serious business.
👮 This week in regulation
The SEC Cyber Unit is on a roll.

After blasting scammy PlexCoin last week, this week is Munchee's turn, a sort of restaurant review app that was in the process of conducting a $15m ICO.

The SEC sent a cease and desist order to the company on the basis that they were in evident breach of securities law by trying to offer and sell what was deemed as a security. The company complied and refunded investors.

A few important considerations:

1/ It's a good example of the Howey Test at work;
2/ The SEC made some references to obvious promises or returns made in Munchee's whitepaper and website. Beware of what goes into the whitepaper;
3/ Munchee was an example of a pre-functional utility token, as per Cooley's SAFT Project framework, but would have classified as a security even with functionality. The way it was sold mattered most;
4/ The SEC seems to be surgically picking smaller cases to make a strong point to the market about what constitutes a security, or a scam, avoiding a more disruptive broad brush approach that would scare away entrepreneurs. Guidance by select enforcement.

Marco Santori's thread about it is a good summary and his predictions are food for thought.
On the back of the Munchee case, the Chairman of the SEC has released another memo on ICOs and tokens, which was rumoured to come right about this time.

The over-arching sentiment of the note turned out to be quite bullish. Yes, they are actively policing the market and intervening in the most obvious cases of fraud or scam, but they are not pulling the plug. Quite the opposite actually, the SEC seems to be encouraging ICOs to register as security offerings, praising the disruptiveness and efficiency of such a fundraising mechanism and even encouraging main street investors to be open to investing in such structures (they even presented a list of sample questions for investors to ask when considering an ICO!).

The note, addressed to both main street investors and market professionals, covered utility tokens in details, making it very clear that some (most?) of them will still qualify as securities despite being already functional. As they have demonstrated with Munchee, it's the substance that matters rather than the form: if an issuer has sold a functional utility token, yet made some promises of returns while involving the effort of others, that's a security. We should therefore expect the SEC to go after some utility tokens too in the short term.

Gone is the safe harbour of 'utility' in token sales.
2-month jail time and $100k in fines for PlexCoin founder. 

The regulator is making this a clear example.
🏦 Notable VC fundings
In a clear sign that demand for secure enterprise blockchain solutions has arrived, profitable BitGo has closed a $43M Series B round led by Valor Equity Partners and added some heavy hitters to its Board.

They process $8 billion in monthly transactions.
The manager of the Hold 10 passive index fund of the top 10 largest crypto assets has closed a $4m funding round from the goods and the greats (Khosla, General Catalyst, Naval, Elad Gil and others).

Money goes to build a team of 10, half of which engineers (notable for a passive index fund). For now only US accredited investors can put money in the fund, though they are planning to open to main street and international investors soon.
💰 New funds
The coolest thing of the week: an early Bitcoin adopter has donated 5,057 BTC
($80-100M in today's crazy markets) because s/he had just so many that it would be impossible to spend them while keeping a low-key life.

6 charities all got a pretty cool $1M gift from the fund, and they're well-known tech-forward ones like Watsi, Charity : Water, EFF, The Water Project, MAPS and the Sens Foundation.

There are 4,830 BTC left to be donated, and anyone can apply for the donations.
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 🤙
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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