📌 An opinionated recap of the most interesting news in crypto
Token Economy
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Thank you, IOTA
We wouldn't have expected our weekly newsletter to just expose and explain anti-patterns, but here we are. After EOS, it's the time for IOTA.
Some absolutely insane developments coming out of IOTA, whose only job is apparently making other dubiously-managed projects look less obscene.

IOTA took a "snapshot" of their tangle, and took the liberty to wipe out coins from users who were "at risk" given a bug in IOTA's code. Those users would have to go through a recovery procedure to get them back.

Some considerations before we proceed:
1) It is ignominious for a blockchain project to just flat out steal your coins
2) The recovery process is just laughable. To get the coins back, you'd need to prove you owned your seed. Which would also have enabled you to just use your wallet in the first place. An attacker with your seed could have both stolen your coins as well as initiated the same recovery process. Which takes us to the fun part:

About 200 addresses had multiple recovery requests.

Quite a talent in making a shitty situation in a terrible one.

The preferred solution here would have been an announcement of the sorts:

- look people, we have a bug and a part of your seed might have been exposed. This happened because we rolled our own crypto and had no idea what we were doing. Also, tough shit on you because you trusted us. Now move your coins asap.

but instead they decided to give more time to hackers that might have gotten part of the seed to reconstruct it all and then initiate the recovery.
Mix that with some people that might have initiated more than 1 recovery processes because that's not something they do every day and they're scared for their monies, and what do you get?


Yeah, you heard that right - IOTA stole money from its users and is now asking to verify their identity to give it back.

We'll stop here because the situation is self-explanatory, but thank you IOTA, for showing everyone else what not to do.
Sometimes it's refreshing to zoom out and look at the big picture again, more so during a bear market.
Mike Maples' post does that incredibly eloquently, placing crypto on a long historical timeline of human coordination around economic activity and the resulting economic abundance that emanated from it. From the emergence of corporations, to their 'equitization' via stock markets and the idea of the wealth of the commons and how blockchains can help govern them at scale.

“Just like a stock market was a financial platform for creating the scalable corporation, blockchains can be governance platforms for enabling the scalable commons. In the not-too-distant future, a new form of networked governance will allow new types of value creation with crypto assets rather than shares of stock, contributors rather than employees, and decentralized collaboration rather than centralized ownership.” 

A re-energizing read. 🔌
A must read from Arjun Balaji on founder incentives.

If you're about to launch a crypto project, this is one area where you can't put too much thinking, as we're seeing with Zcash, and other projects that it gets picked upon by commentators for years after network launch.

(Recently Jackson Palmer shared the (public) info that Zooko makes about $4.2M a year from the Zcash founder reward).

Arjun details a trilemma between:
- decentralized governance and development
- continuous founder / team incentive alignement
- fairness

and how the Zcash model is a particularly good implementation.

It was a particularly interesting week for Zcash with a nice Techcrunch feature but most importantly with Zcon0, which had glaring reviews from attendees as one of the best conferences of the year (with some cool stuff coming out of it like ZN taxation).
An excellent piece highlighting the importance of privacy "to enhance the "moneyness" of cryptocurrency", ie to achieve true fungibility. The author exemplifies the perils of deteriorating fungibility in the existing monetary systems due to the erosion of privacy in the name of surveillance, compliance and usability. Even Bitcoin, according to the author, suffers from imperfect fungibility, preventing it from becoming a practical medium of exchange.

This is going to be an ongoing and polarising debate for a long time, the one between privacy as a fundamental human right and the societal need to prevent criminal activity.
If you are looking for a bullish thesis on Bitcoin look no further than this piece, and Pierre Rochard's 3-part Bitcoin Investment Theses Series (Part II was published this week).

The author presents a growth and adoption model for Bitcoin based on mineral crystallisation scheme. According to it we are still in the 'nucleation' phase, characterized by a fervent activity around wallets, exchanges, nodes, mining pools and micro-bubbles, supported by a strong inflow of engineering talent.

Spoiler: the model shows Bitcoin reaching $100M per coin by 2030.
More on Bitcoin. A couple of weeks ago Jimmy Song published a popular post on the limitations of smart contract platforms, which sparked a long tweetstorm response from Kyle Samani of Multicoin.

Jimmy closed the loop with this piece that outlines three fallacies in the arguments typically used to counter his original thesis:

1/ Focus on aggregate numbers (eg. Ethereum has more developers).
2/ Some level of centralization is beneficial, at least initially.
3/ Oracles will save us.

Jimmy was also a guest on Laura Shin's Unchained podcast this week, if you want to dig deeper into his views and find out why he wears a cowboy hat. 🤠🎧
Since the SEC statement on Ether, the whole industry has been left head-scratching trying to interpret what 'sufficiently decentralized' means in practice.

Here Aleksandr from Coinfund proposes his own definition of decentralization as a "a strong guarantee of minimum difficulty (economic or otherwise) associated with materially altering the social contract or the technical promise of such a system by any of its agents.".

It will be interesting to see how the regulators will engage with the community to come to a common view on this topic. This is clearly top of mind for most, see next post. 👇
Along the lines of the thoughts above, Kain from Havven shares his views on what decentralization means and how it should be measured:

"The solution I propose is to frame decentralisation as a strategy, a kind of adaptive trait to resist censorship. It should be obvious from this definition that regulation is from this perspective a form of censorship. Based on this definition, the measure of decentralisation of a system is determined by its success in resisting censorship."
If you happen to be down the TCR rabbit hole, here Moshe from Medcredits proposes an improvement to the design where subjective and objective curation tasks are distinguished at the protocol level.

The idea comes from the realization that incentives for objective curation would naturally trend towards zero as the only way to profit from it would be to challenge a nefarious applicant, but since such applicant will be challenged based on objective properties, it won't apply in the first place. Moshe proposes to introduce forced errors into the system, borrowing from the TrueBit design, to ensure economic incentives persists.

It's awesome to see projects openly collaborating on designing, testing and perfecting new primitives.
We don't have the energy to follow the EOS saga, but for those of you who want to pick up from last week, we now have a total paradigm shift coming out of block.one.

They will be participating in the governance after all, and with their 90M votes can pretty much control most of it.

And they're also proposing a new constitution veering a bit more towards the code-is-law angle.

Interesting times.
Wendy from Northzone offers an insight into a "normal" VC's mental models for understanding and evaluating token based projects.

Some key questions:

- Why are they doing this? 
- Can this team lead a community of thousands or tens of thousands from behind the scenes?
- Is the market potential for this project 100X larger than what I would consider sufficient for a traditional venture business?
- What is the wedge that leads to real adoption?
- How does the thread of adoption string together all the different groups of adopters?
- How will the protocol achieve compounding network effects?
- How dynamic is the protocol, and how dynamic does it need to be?
Custody has seen an incredibile amount of interest in the past months from developers and entrepreneurs.

Here is a good overview of the players in the market right now. 
💥Newsy stuff
Well that escalated quickly. Polychain has $1B AUM (or they had as much back in Feb, so since they are long only one would assume they have less now, unless they have raised much more capital since).

That's quite a amazing result considering it all started with $10M less than 2 years ago. It is also an unquestionably enormous amount of capital to manage given the stage of the crypto industry. Just think about how many billion dollar traditional venture funds are out there and how some of the very best in the game have religiously kept their fund size under control over the years.

Meltem made some very interesting points in a recent tweetstorm that touched on the implications of large hedge funds deploying capital in illiquid markets with a view to at some point find liquidity. Picking out the two most salient ones:

7/ crypto funds have largely driven pre-sale valuations and ICO investing, but had minimal impact on BTC and ETH markets. the problem with owning a lot of illiquid investments is how to wind down these positions. this will be the biggest challenge ahead.

8/ the fact that there is a tremendous amount of homophily (like-mindedness) and co-investing between crypto funds and we're in a bear market. when some of these assets become liquid, there will be tremendous sell pressure and little buy side demand.
These sort of surveys are always to be taken with a pinch of salt as the methodologies can be at best questionable and at worst outright misleading, if only because they are attempting to draw meaningful conclusions about a population in the hundreds of millions from a sample size of 15k respondents.

With that in mind, a report commissioned by ING shows how supposedly 9% of Europeans currently own some crypto currencies, with 25% stating they expect to own some in the future (interestingly, both numbers are higher than in the USA and places like Turkey with a troubled national currency are at the top of the rankings). This is apparently a critical threshold as according to a 2011 study “when just 10 percent of the population holds an unshakable belief, their belief will always be adopted by the majority of the society”.

Those numbers appear slightly inflated compared to the market sizing data shared recently by Chris from Greylock, who placed the upper bound universe of crypto holders at 25-30M globally (based on unique ETH and BTC addresses). One reason the numbers could differ is that popular apps like Revolut, Square etc. are giving easy access to many users without each needing their own wallet addresses. Another reason is response bias in the survey itself.

Chris Burniske coincidentally tweeted out something related today, calling a "foregone conclusion" that crypto holders will outnumber stock holders.
In other news:
- Crypto ads. Facebook reversed its ban on crypto related ads, allowing select pre-approved advertisers to promote their businesses. ICO ads are still off-limit.

- Exchanges #1.
Japanese maker of 700m user strong Line messaging app is very close to launching a new crypto-to-crypto exchange called Bitbox. It won't be available to US nor Japanese users though for regulatory reasons.

- Exchanges #2. Uphold followed Coinbase footsteps in acquiring a broker-dealer to obtain the necessary licenses to start offering crypto assets that may be classified as securities.

- Exchanges #3: there's a new business model for exchanges in Asia, where users pay transaction fees in ETH/BTC and get reimbursed 100% with the native platform token. Two such exchanges climbed up the ranks #1 and #2 by volumes in a couple of months from launch. Looking a little shady.

- White gloves. Blockchain too launches its own institutional-grade offering aimed at institutions, family offices and individual investors including an OTC desk and research services. Are they here yet?

- On the move. New law crypto-focused law firm on the block, started by Josh Ashley Klayman ex-Morrison & Foerster LLP, alongside a sister blockchain consulting firm.

- Crypto banking. German licensed banking technology platform solarisBank has launched "Blockchain Factory" to start offering its services to the crypto industry in Europe. Much needed and great news for the European ecosystem.

- Validation.
Daily prices for ETH, BTC, BCH and LTC are now available in the Federal Reserve Economic Database (FRED), one of most widely quoted sources for economic data.

- Hacked. Typeform, the popular online survey tool, suffered a data breach exposing a backup file containing sensitive customer information. Many ICO issuers used Typeform to collect KYC/AML info, like Ocean Protocol. One more attack vector to add to the list and yet another example of why storing user data is a massive liability.

- Kakao. Not to be left in the dust by Kik, Telegram and the others, the $7.6B company is also looking to create a blockchain based product. “We’re going to create a service that people can use without having to learn the language of crypto,” Han said. As all of the others previously.
😎 Cool new projects
More experimentation with the possible applications of the Lightning Network, by Rui Gomes.

This is a provably fair, bitcoin roulette-based gambling game built on top of the Lightning Network. 

Pay for spins and withdraw wins instantly (note: the house has an edge).
The NFT ecosystem get a standard open-sourced license "to help clarify and demystify a user’s rights as the owner of a non-fungible token to any artistic overlays that might be associated with the token".

Courtesy of Dapper Labs / Axiom Zen.
Radar Relay gets out of Beta and launched an API and an open-source SDK targeted at sophisticated traders.

They have also improved the onboarding UX and released some interesting stats suggesting they have so far generated  >80% of all 0x volumes ($150M over the 183M reported by 0x in May). 

Brian from Coinbase continues in his mission to get everyone on the planet using crypto.

This new initiative combines that with doing some good, by gifting crypto to people in need. He's starting it off with a $1m personal commitment.

It reminded us of GiveDirectly, which does the same thing and also accepts crypto payments in a variety of currencies.

Nevertheless, very cool to see the community move in this direction.
Casa unveiled its Keys product.

(On a separate note, I find their use of the .casa tld and of the product name as the domain name to be extremely cool, but I digress)

At $10k a year, this is a very premium product for a not-quite-institutional set of customers.

There isn't a lot of color on how it actually works, but it's a software multi-sig solution with some human support involved.
Foam, the protocol for decentralized, geospatial data markets, have announced details of their token sale and it's particularly interesting to see how they have structured it in the context of the current regulatory environment.

- Whitelisting via the Token Foundry platform
- Token sale in conjunction to mainnet launch, where all participants pay the same price
- Non-transferability during a 45-day Initial Use Period 
- Transferability enabled via smart-contract if proof of use is demonstrated via staking the token and providing work.
Curated on a Product Hunt collection!
💰 New funds
The cat is finally out of the bag, A16Z have unveiled their widely rumoured dedicated crypto fund. The new news though is that it will be co-led by Kathryn Haun, the former US DoJ prosecutor known for her work on the Silk Road investigation and Coinbase Board member, alongside Chris Dixon.

Forbes suggests 'A16Z crypto' $300M was raised from a subset of LPs from the main fund, which has several billions under management by now, giving a sense for crypto appetite among institutional LPs.

Key features of the fund are that it will act like a venture fund rather than a hedge fund, so taking long term positions throughout cycles in both equity or tokens, agnostic to stage or geo. Portfolio companies will still get access to the A16Z service machine counting 80+ people.

Here's A16Z own announcement, which is always worth reading. It's interesting to think of trust as a new "software primitive".

The timing is interesting, right after the SEC statement on ETH and in the middle of a >-70% market correction:

"Although the Bitcoin whitepaper is now almost 10 years old, we believe we are still early in the crypto movement. The infrastructure needs to be improved and the applications are difficult for non-early adopters to use. Many crypto applications still get dismissed as toys. We believe this will change quickly. For one, crypto is purely a software movement and doesn’t depend on a hardware buildout, in contrast to, say, the internet, which required laying cables and building cell towers. Second, the space is developing extremely rapidly, partly because the code, data, and knowledge is largely open source, and partly because of the increasing inflow of talent."

USV also went on record this week with Albert Wenger confirming his firm will instead not launch a dedicated fund, citing the benefits of keeping all under the same roof. As to why investors are going after this space aggressively, he said:

“Investors are rationally pouring a lot of money into this sector, because I think people are seeing the winning blockchain here might be worth a trillion, or a couple of trillion dollars. It’s not at all crazy to think that.”
Behind paywall.

This news broke last week, when USV announced their investment in Multicoin listing other funds they had also backed, but now it's officially official. Belated congrats!

Arianna's fund, whose size has not been disclosed, but placed in the low 8-figures, also counts David Sack's Craft Ventures, Steve Cohen’s family office and Coinbase Brian Armstrong as LPs, alongside USV.

30% of the fund will be reserved for illiquid equity deals, there rest in crypto currencies and tokens with a thesis around privacy, infrastructure and developer tools. Existing investments include Celo and Kadena.
💸 Funding rounds
Congrats to our friends from Conio, one of the few Italian blockchain startups, for closing their Series A round from a group of local investors.

Conio offers a popular mobile Bitcoin wallet as well as whitelabel solutions to financial services institutions to manage digital asset.
High Fidelity has raised another $35M for what on the surface seems like a Decentraland competitor, ie an "open-source platform for building distributed social virtual reality worlds". The funding comes from Galaxy Digital’s EOS Ecosystem Fund, Blockchain Capital and existing investors Breyer Capital, IDG Capital Partners, and Vulcan Capital and suggests that they will be building on top of EOS (hey, found one!).

The founder is no less than Philip Rosedale, the man who created Second Life back in 2003.

Obviously there is a token: "High Fidelity Coin (HFC), which the company says is a high-speed “stablecoin” cryptocurrency, designed specifically for commerce, usable anywhere in the world, offering near-instantaneous transaction speeds and low transaction costs."
NFTs are all the rage in VC land.

Lightspeed and Shasta Ventures have led a $5M round into Unblockable, a pre-launch platform to buy, sell and use digital collectibles representing pro-athletes. 

The idea is that the value of each non-fungible token should somehow ultimately reflect the athlete's likeness and real-world performance, with ownership unlocking additional benefits through partnerships with major sports leagues, player associations, entertainment and gaming brand for example). 

The CEO is an ex Tampa Bay Buccaneers player.
Another ambitious stable-coin project has attracted funding from the likes of Peter Thiel, Coinbase and some 40 other investors to the tune of $5M.

The company, Reserve, has also published a long post outlining the need for an alternative stable coin model, though not giving out any details on how they are designing it. It seems they will try to peg it to a purchasing power index by backing it both with seignorage shares and crypto assets.

According to their site, "The company is advised by monetary economists, members of the Paypal Mafia, billion-dollar company founders, a former SEC Commissioner, mathematicians, governance experts, and many many lawyers. So many lawyers."

Preston Byrne's post coming out in 3, 2, 1...
It was only a matter of time before the scooter and crypto worlds collided.

Spin is reportedly raising $125M through a security token offering that would give its holders (accredited investors only) right to a portion of Spin revenues. We don't quite fully understand such structure as token holders would appear to rank senior to equity holders, arguably we have zero details though.

Once again there has been a healthy dose of debate on security tokens more broadly in the Twitter-sphere this week, sparked by a sceptical tweetstorm by Haseeb and augmented by Cuy's take. Crypto Twitter can be a minefield at times, but it remains a fantastic place to debate and learn in the open. 
🤡 ICO madness
The draft June '18 ICO numbers from Tokendata are out, and they show a steep drop-off from May at just short of $600M in total (note Tokendata only include verifiable numbers, so for example they exclude raises like the recent supposedly >$500M TaTaTu one, more on that further below). 

June is also the first EOS-less month in a year, so that would have played a role in explaining the drop.

Here are the top 5 of June:

1/ Hybridblock ($47M): crypto exchange
2/ GoNetwork ($46.7): mobile infrastructure (Winner in ETHWaterloo)
3/ Fantom ($40M): DAG based smart contract platform
4/ Moneytoken ($37M): loans, stablecoin & exchange
5/ Cardstack ($35M): Dapp development platform
After the Nasdaq billboard seen last week, expectations were set for how the ICO would turn out.

The sale was structured as a descending price auction with 8M tokens for sale out of 10M total supply. While the initial price of the auction was set to 2ETH/MTN (c. $1K/MTN at the time), for an implied network value of $10B, it ended up clearing at $12M valuation, when 2-3 large whales took most of the available tokens, leaving many unhappy participants.
We first mentioned this project in issue #49, when it referred to an estimated $100M "pledge" from lady Bacardi.

It now seems that they have managed to privately raise north of $500M in total from Prince Félix of Luxembourg, crypto fund Lyna Capital and BlockTower Capital to fund "technical development and growing the company’s customer base". Because you need $500M for that, apparently.

It's also interesting to see BlockTower involved, as it was only last week when its CIO Ari Paul went on record calling out unsustainable early stage valuations. While we have not idea of the terms of this deal, we can guess that such a big raise didn't come cheap. 🤷
This is a report put together by PwC and Crypto Valley Association, so take its conclusions with a pinch of salt (e.g. Switzerland as "ICO Capital"). Lots of numbers and stats on ICOs to chew on though. 

The report claims 2018 YTD saw $14B worth of ICOs, more than all previous years combined. The difference being that most of those volumes are now done privately raising fiat from accredited investors and traditional institutional funds, and without any "C"oin involved.
👮 This week in regulation
Laura Shin gives a good state of the nation of the current regulatory situation in the US.

Despite the SEC recent statement on Ether, the regulatory environment is still far from clear.
Behind paywall, archive link here.

Japan's FSA issued six AML business improvement orders to some of the largest crypto exchanges in the country, the same that received licenses less than a year ago.

One of them, BitFlyer, has stopped accepting new registrations as a result, putting their ID verification procedures under review.

This action by the FSA marks one of the last moves by its longer standing minister, who is believed to be stepping down soon: an administration that will be remembered for being generally supportive of crypto, but also marked by large hacks like Coincheck.
You may remember that we started using StakeTree as a decentralized Patreon back in January. It felt great to support a project in the space and eat our own dog food, and we are very thankful for the 20-odd funders that staked some ETH to show support. 🙏

Neil, the maker of StakeTree, has announced this week that he will be sunsetting the StakeTree contract as his focus shifted to other things. You can read his post here. The StakeTree idea will continue to live under a different home, and we look forward to seeing it back in action.

In the meanwhile, our contract will also be sunset. If you are one of the existing funders, you have the option to withdraw your contributions for the next two months.
ℹ️ About us
Token Economy is written and curated by Stefano Bernardi & 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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