Keeping track of new developments in the distributed ledger technology space.
Token Economy
0x, Decentralized Exchanges, Metropolis, BCH, M&As, Platform Funds
(also published on Medium)
The big story this week is 0x's ICO.

It is interesting for a number of reasons and I think can spark quite a few discussions.

1) Token sale dynamics

0x has been seen as a new standard in token sale dynamics.

The ICO has been capped at $24M raise, and the price for each token has been set the day before the ICO to ~$0.05.

A pre-registration was necessary so that each pre-registered address would have the opportunity to buy an amount equal to the total supply of tokens divided by the number of registrants.

This has given the ability to everyone to buy themselves some ZRX without having to write crazy contracts, spend a ton in gas, etc.

Civic was used to try to limit sybil attacks, and seems to have worked pretty fine.

2) Token price

A whole lot to talk about here.

As we said, the token price was fixed, which instantly gave a "market cap" valuation to the offering.

The combo of limited per-account supply and fixed price made for an interesting explosive mix.

Imagine you're someone who wants to bet big on this token:
you still can only buy 6.7 ETH worth of it (plus ask friends, SOs, etc. to donate their device / ETH account).

This means that usual whale buyers would have to rely on secondary liquidity to buy their usual ticket size.
But on the other side they wouldn't find big dumps, but only small sellers that bought ~6 ETH worth of the tokens and wouldn't want to sell it all.

I think this was the combo that made the price spike up to $0.5, a 10x increase in a matter of days.

This begs the question of the pricing of ICOs, and the similarity to the pricing of IPOs.

0x could arguably have done two things:
- found buyers that would have paid a much higher price than the 5c per coin and raise the same $ amount but giving up way less tokens and holding more for subsequent raises.
- sold many more tokens at the 5c price.

It's fascinating to see the experimentation going on in this completely new model of instant liquidity and valuation.

3) Fun paradox

The first exchange where 0x has been traded was EtherDelta, a direct competitor to the 0x protocol.

4) Public due diligence and the "not perfect" case

A few days before the ICO started, the Hacking Distributed blog (Emin Gun Sirer's personal blog, the same that published the Bancor is flawed analysis) published the results of a deep analysis of the 0x protocol.

The post outlined several problems with decentralized exchanges in general, as well as specific problems with both 0x and EtherDelta.

This is another case of AWESOME public diligence on publicly fundraising projects.
This one was even more awesome because it was the result of deep informed research, which would take a few weeks for a normal person, and wouldn't get Cornell-Phd levels of insights.

I don't think many people read the post, but it got picked up by Forbes, and many people read that one.

I think it's great that people can access more information about specific projects, even if biased or partial.

My personal take on the post, is that the issues outlined are very minimal and fall very much into one of the patterns I hate the most.

The pattern is the usual "this new solution doesn't fix X Y Z, so it's not perfect." Or. "this solution introduces A B C problems, therefore it sucks".

The point that is always missed in this discussion is that the comparison should be fair, and so for that to be the case in my opinion we have to compare the potential of the current solution to the status quo solution.

When this lens is applied, it's very hard to see new solutions as sucky.

In this specific case, decentralized exchanges have all sorts of little issues, but they have two MAJOR wins:
- people can't run off with your funds
- you know that the trades you see are real
- the SEC can't come and freeze your funds.

To me, a solution would be better than the status quo even if I had to shout the orders from my window, as long as it solved these 3 issues.

Disclosure: We both hold ZRX.
💱 The decentralized exchanges are coming
A we've previously written on this newsletter, we think that the future will bring us decentralized exchanges faster than we imagine.

These will be needed for two specific reasons:
- an exponentially growing number of asset-tokens
- an exponentially increasing interest from regulators

Shapeshift this week announced that they will be strongly limiting the ability for US users to interact with its service.
They will start delisting tokens that are deemed securities.

They're clearly not happy about it, stating "As an organization trying to advance this technology for an open and honest financial system, we believe that individuals, regardless of race, gender, and geographic location, should have the right to make decisions with their own finances."

Our bet? They'll move to decentralized technology sooner rather than later.

Other than 0x and EtherDelta, there are already a ton of technologies being developed.

Kyber is one of the most interesting ones, and will be holding its whitelisted token sale in the next weeks.
You can read more about it in their hello world post.

OmiseGo is one of the most famous ones, being the #1 crypto asset by market cap.

Dmarket is another that targets games, they want to be the the first cross-game marketplace that allows gamers from all over the world to trade or exchange in-game goods originating from any gaming platform, and it's holding its token sale right now too with early backing from Pantera Capital.

⚠️ INNOVATION ALERT: Dmarket is the first to link to a PDF with their interpretation of the Howey Test. This goes into absolutely grey and murky legal waters.

Additionally, Bitshares, Waves, Maker etc. all have their own dex.

As per intra-chain protocols like Plasma, Cosmos and Polkadot, the innovation being designed here is orders of magnitude higher than any innovation in traditional exchanges (where the coolest thing comes from Eric Ries with the Long Term Stock Exchange, and is super hard to build).
Ⓜ️ Ethereum's Metropolis / High-innovation vs high-stability blockchains
I don't think there's any other space where a small minor news can trigger mental trips about governance mechanisms and the differences between two open source styles.

But crypto does it!

Ethereum announced that the Metropolis hard-fork is expected to happen in late September.

Let's talk about Metropolis briefly.

It's a MASSIVE update.

zk-snarks! This will take a couple more months after Metropolis, but then we'll finally be able to send ETH completely anonymously.

2) mining difficulty will go down substantially - a first move towards Proof of Stake.

3) Account abstraction. This is difficult one to understand, and explain, but it basically enables a number of transaction management features, such as having smart contracts pay for transaction fees.

4) Some programming improvements which I'm not technical enough (anymore 😢) to understand.

In any case, the most interesting takeaway here for me is in pointing out the difference between Bitcoin and Ethereum.

The difference is staggering.

Bitcoin takes 3 years to resolve a 2MB block upgrade (and we'll most likely end up with three competing chains), while Ethereum is chugging along major upgrades.

Disclosure: I'm way overexposed on ETH vs BTC.
🚀 BCH rally
Bitcoin Cash staged a hell of a rally this week, going all the way to $1,000 on some exchanges with daily volumes that touched $4.4 billion, well exceeding BTC and ETH.

The trigger seem to have been the mining of an 8MB block that cleared in excess of 37k transactions, which the market may have taken as a sign the Bitcoin offshoot could fulfil its promise of faster onchain transactions.

As a result of the price rise and difficulty dropping, it's now more profitable to mine BCH than BTC. Roger Ver saw that coming and perhaps turned that into self fulfilling prophecy (the rumour is that he's currently in China rounding up miners). On top of that the mounting Segwit2x FUD could be turning into a 'flight to safety' towards BCH.

The Asian angle is certainly intriguing, particularly given Roger Ver's recent whereabouts. The trading volumes from the region, Korea mostly, are simply staggering. One theory goes that BCH could become endorsed or even controlled by the Chinese government. The fact that one unknown miner controls 97% of the network's hashrate fuels the fire behind that speculation.
🌊 M&A wave approaching?
This week Shapeshift announced the acquisition of Keepkey, the manufacturer of a secure hardware wallet for digital assets. Terms were not disclosed.

The thesis is that through vertical integration between the (hardware) wallet layer and the (decentralised) exchange layer Shapeshift can offer the best of both worlds natively.

It's exciting to see the start of M&A activity in the crypto space and the emergence of industry consolidators. Even more so when it is a European company that acquires a US-based one. 
🇪🇺 💪

We noted a few issues ago that both Kraken and Coinbase were actively hiring for heads of corporate development, so we definitely expect to see more of this in the future.

What we can't quite picture yet is what M&A would look like between two fully decentralised token-based networks. Imagine if Augur and Gnosis one day decided to join forces, or Sia and Storj. It is bound to happen at some point and it will be fascinating.
📌 Token Economy
A must read from Josh Stark about why the term cryptoeconomics has little to do with economics.
Albert Wenger explores the issue of governing use of funds from teams that raise big ICOs.

This is one of the reasons we're fans of projects like Aragon (and the others coming out soon).

Governance will be a *massive* topic and use case for decentralized consensus. Naval also touched on it with a tweet.
Our friend Alexander Lange from Earlybird shares his views from a trip to Crypto Valley.

- There's actually no one there
- Super nice, but super expensive to live / hire there

"For now I think crypto valley is for crypto what Delaware is for LLCs — a jurisdiction but not a home base."
Nothing particularly exciting about this post, which you can safely skip, but it is interesting that even YC got to write about tokens (even if not from partner).
Cool post from Blockstack's co-founder Muneeb.


  1. Data ownership back to people.
  2. Cloud storage -> commodity. (Didn't understand this one).
  3. Personal servers! Yes!
  4. OSS FTW.
  6. Company lifecycle changes.
  7. New job types
I find ENS to be one of the most fascinating use cases for Ethereum, and it doesn't get talked about enough.

With 180,822 names registered and thus many more transactions, it is probably the biggest used dapp in the Ethereum space.

👱💥: 168,595 ETH are locked in winning .eth bids (~$50M).

Fun fact: The largest ‘name whale’ owns 17,507 ENS names.

If you're using ENS you're using the first alpha of the future web.
It's an interesting read because the author, after the very helpful notes, basically states he thinks this whole crypto thing really won't work out at all.

Always nice to read different perspectives from people that are informed.
Maybe to distract from all of the 2x drama, Blockstream announces the ability to beam blockchain data from a satellite. This has the goal to make it more safe to transact in digital divide zones of the planet.

Very cool albeit a big clunky (no two-way communication yet, or at least need for sms + relayers), need for satellite dish, etc.
If you're into early ugly pitch decks that then turn into big unicorns.

Super hard to have believed in Brian's vision so early, especially after the first bubble that went fro $31 to $2 - so kudos to whoever participated. 

Hopefully they also used the product to buy BTC itself, as that would have generated a 1000-2000x return, more than Coinbase's stock.
The biggest Bitcoin wallet (confusingly named "Blockchain") just added Ether support.
AMD doesn't want to leave all the fun to NVIDIA and is exploring the mining space with a first beta release.
🚨 Growing pains
One for the conspiracy theorists...

The CEO of a HK based crypto exchange spread rumours that North Korea might have started mining BTC at state level.

Why the fuss?

We have a case of a nation state (which also happens to be a dictatorship) that is potentially accumulating reserves of a digital currency.

The obvious question is why and a few theories have emerged on the interwebs.

1. State level FOMO. South Koreans are very active on crypto exchanges, as one can see by looking at the volumes traded on their currency pairs.

2. It may be linked to the wannacry ransomware episode (which were attributed to NK's intelligence), since the first instances of mining were recorded in the days following the hacks. As the story goes, North Korea started mining to generate bitcoin activity within the country, "so that they could stealthily move bitcoin from the ransomware wallets around while preserving deniability of the attacks."

3. With massive sanctions against them, not much to trade anyways, and a currency no one really wants, why wouldn't the government of a regime build a profitable mining business no other state can interfere with, to fund the dictator's agenda? Export electricity, import BTC. Easy peasy.

4. The hardcore conspiracy theorists went as far as imagining that NK could be colluding with another state, or a large mining pool, to accumulate enough hashrate to stage an attack on the network or perhaps only to manipulate the markets. The argument being that they must be buying their mining equipment from someone, and given the sanctions against them, that smells a bit fishy. This opens up a scary scenario of crypto wars where a state, or multiple states control hashpower.
Even Vitalik stepped in and took the opportunity to make the case against Proof of Work.
😤 First they ignore you, then they laugh at you, then...
Japan, thanks to its progressive crypto regulatory environment, is consolidating its position as a hub for blockchain experimentation.

A unit of the Tokyo-based financial information provider Fisco issued three-year Bitcoin-backed bond worth 200 bitcoins to another firm in the group. The debt pays a 3 percent coupon and returns 200 bitcoins back at maturity. This is significant because issuers storing value in bitcoin on their balance sheet may also become more open to accepting bitcoin as a form of payment.

With the development of options, futures and now bonds, Bitcoin is quickly growing into a traditional financial product, inevitably attracting the interest of institutional capital.
This is borderline comical, but also a clear sign that the big institutional capital managers still on the sidelines are itching to get in. As way of background, VanEck is a large asset manager with the majority of its exposure in gold.

10th of August 2017: VanEck's portfolio manager goes on record saying "Bitcoin and other digital currencies are a fad that has attracted the attention of programmers, speculators, and early adaptors. At best, digital currencies may eventually occupy some middle ground as a niche product, at worst, they become a failed experiment that ends in tears."

11th of August 2017: VanEck files with the SEC for a Bitcoin ETF that would initially invest in bitcoin futures contracts and trade on the Nasdaq.

🤡 ICO madness
For this week's madness, we have Decentraland.

The token sale was one of the most "hated" of the year, with people going bonkers on Slack, Twitter and Reddit.

The hate was born from the fact that this was a capped sale with absolutely no "protections" or token sale design.

This resulted in very few transactions being approved and people spending stupid amounts on gas.

There were also early transactions by partner platforms that helped them distribute the token around the globe. , Bitcoin Suisse, 3ico, token capital, and more that got people pissed.

To try and curb the hate, the team decided to go the 0x route and sell 2% more tokens to a large number of people. The tokens will come out of the ones reserved for Decentraland itself.

These tokens will be purchasable by people that were whitelisted as "in the community" and should total $1k per account - this should happen in early September.

In any case, the interest that was shown on the project surprised many people. I think one of the reasons is that it is one of the few end-user applications that seem interesting and new.

Disclosure: Stefano participated in an advisory pre-sale through a 3rd-party.
Genesis block still planned for Q3 2019.. who knows if we'll even still have blockchains then!
😎 Cool new projects
We are only starting to experience what the decentralized web could look and feel like.

Last week we featured Leeroy, a decentralised Twitter clone; this week it's time for the popular VC-backed social Q&A site Quora to get its dose of decentralization.

Enter (the beta version of) Cent. As always, it's buggy, slow, minimalist. To ask a question you set a bounty in ETH and that gets shared amongst the answerers based on the relative number of votes. Questions remain open for 24 hours.

Yannick already made a whopping 0.0008 ETH by answering this question...

Here is the Reddit thread with more comments. 
Just what it seems:
A decentralized platform that mimicks Youtube, built on top of the IPFS Network and STEEM, which enables earning rewards from your uploads.

Content quality is not at the max yet, but again - you're interacting with an early version of the future.
I'll use this post by Quiknode to call out what an awesome service this is.

I now have my own full ETH node and don't have to care about load on others.

Ping me if you want to use it, otherwise for a few ...ETH you can get yours.
💰 New funds
A week after Tezos announcement of their $50 million platform fund, Blockstack have announced their own, in partnership with Lux Capital, Rising Tide, Compound, OpenOcean, and VersionOne (notable absentees are USV and DCG, both shareholders in Blockstack, like Lux).

Developers who are building on the Blockstack infrastructure can apply for funding here. Each VC partner will review applications and make its own assessment and investment decision.

We have covered that, and the implications of this trend more broadly, in a standalone post called "The Rise of Native Protocol Funds".

In there we argue that there is an emerging funding stack for decentralised projects, where platform funds play a specific role.

We still have some partially open questions, such as:

  • Is the narrow and subsided developer adoption strategy of a platform fund an alternative or a supplement to a more open and organic one?
  • What is the optimal funding mix between crowd sale and institutional capital (native or third party)?
  • Where are VCs likely to add more value in a decentralised funding stack?
  • Where does governance currently sit in this stack and how will it be solved? Albert Wegner's recent post on ICOs and Governance resonates.

We expect more protocol funds to appear in the future and more VCs getting involved in this space on the back of that.
Not a new fund here, just a GP writing to their LPs to make the case for investing in crypto assets and amending their LPA. Many other GPs must be doing or are preparing to do the same, so in this they found a great template.

It's definitely worth a read for the content but also for the format and language used to communicate with limited partners (skip the first three parts if you know the basics of crypto). 

Love the transparency!
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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