News and opinions on tokens, ICOs & cryptocurrencies
Token Economy
📌 #20: Crypto activism, Q&A w/ Ryan Selkis of Messari, Orchid, Celebrity ICOs, Fat protocols revisited, Buffett & Thiel, cool new projects & more funds

(also published on Medium)
🏋️ Crypto activism
We published a short column in last week's issue exploring the idea of crypto projects merging together, on the back of a couple of thought-provoking posts. The scenario is absolutely fascinating, and may well happen in some shape or form in the near future, though the technical execution still appears somewhat daunting. Ethereum adoption of zk-SNARKs, with the support of Zcash development team, is an example of something we could start seeing more often that could ultimately pave the way to a full merger.

Another type of “corporate finance” strategy that seems more likely to rapidly take off in crypto investment circles is good ol' activism. We have in fact heard from the grapevine that a number of institutional investors are already busy thinking about it, with some even starting to dip their toes in it.

Activism relates to the acquisition and exertion of significant influence at the decision making table, with the intention of turning things around for the better and ultimately making a financial return down the line.

This is relatively common in liquid markets where stakes can be freely accumulated in the secondary market, with the difference that in crypto, unlike equities for example, there are no rules about ownership disclosure. So an activist crypto investor is not bound to disclose when her stake surpasses material thresholds, potentially ending up with very a large position without anyone paying attention. In reality though, given the relatively shallow books on exchanges, any significant buying activity would not go unnoticed.

Another stark difference with the equities world is that holding a stack of tokens, regardless of its size, gives its holder no enforceable legal rights whatsoever (unless of course it's a DAO token and it runs on something like Aragon). From this it follows that a hostile kind of crypto activism is unlikely to yield much fruit, as in order to exert any sort of influence at the table an activist would also need to negotiate some more formal representation, on top of holding the tokens, perhaps a seat at the board of the company / foundation in exchange for a lock-in period etc. That is more easily achieved by being amicable to the core development team and company. That is if the existing community and ecosystem are to be preserved, which presumably is what an activist would value in the first place (alternatively, there is always the option of a fork with a sponsored external development team, a “management buy-in” in the old world jargon).

We touched briefly on that in our recent piece on Tezos:

"I think we will start to see big “donors”/investors want to have some control oversight borrowing from the old-word of VC board seats — and if the power dynamics start to change might also start to see smaller investors pool together."

People like Marc Andreessen have been a long time vocal critic of (certain types of) activist investors, encouraging young fast growing tech companies to protect themselves by adopting dual-class of shares or even simply by delaying going public until a more mature stage to avoid exposing themselves to cash-hungry activists, when profits still need to be reinvested. His legendary clash with Carl Ichan on the eBay board of directors is one for the history books.

But in crypto, networks are “public” from the get go so there really isn't a choice of staying undercover. With tens or even hundreds of millions of dollars sitting on some balance sheet, and many network valuations that trade at discount to their liquid assets, this is inevitably going to be a fertile ground for activism, and perhaps that's not a bad thing after all. VCs, or active investors more generally, now have another entry point in projects they believe in, potentially taking advantage of ‘depressed’ prices to obtain a voice a very rich table. Kyle from Multicoin even thought about how crypto activism could turn rogue.

Some intriguing questions are already emerging as to how this will project forward: Boris Silver from Fundersclub is already wondering who is going to do the first LBO of a decentralized network? "Barbarians at the (Crypto) Gate" who will be the activist investors of crypto? And even who will be the first to lend money to a crypto LBO?

Everywhere we look at in crypto, we see uncharted waters.
🔍 Messari
Our friend Ryan came out of the woodwork with Messari, his brand new venture. Named after the Italian merchants who invented double entry accounting (nice one Ryan!), Messari aims to become the open-source database for cryptoassets. Unlike other attempts at data aggregation in this space, this one is particularly interesting as it addresses a key flaw of the existing approaches: 

“there are no incentives for projects to volunteer such info, AND it’s against the very ethos of the industry to share such information with a third party when that third-party stands to only individually profit from the data aggregation.”

We sent over a few question to Ryan and he was kind enough to grace us with thorough responses in his unmistakable style. Enjoy!

TE: It sounds like Messari could require a lot of manual data aggregation, right? How can you scale it to thousands of tokens in a cost-efficient manner?

RS: As we think about crowdsourcing data and information that would go into a sort of crypto "10-K", we wanted to start with the least controversial, most objective, generally available, and most static information possible: supply authorized and outstanding. The industry's investors, lawyers, advisory firms, and the projects themselves are excited to share this information to help inform users about their future supply schedules. It's a no-brainer to share inflation rates in one place, so people understand what type of dilution they should expect over time in a given project.

It's a basic and critical consumer protection disclosure given that inflation is the second most important driver of price (behind finger-in-the-air sentiment about "will this pump or dump?")

Supply is also relatively easy for our small team to aggregate and scrub for accuracy, and to keep properly updated -- even if there are occasional modifications to some project's supply schedules (e.g. when Ethereum switches to PoS).

But we still want the projects to be proactively "filing" information into the Messari database. And they should!

We don't own it, and we aren't trying to license it back out or silo the information. There's no token required to access the information. No bullshit. It's an open-source library that CoinDesk or Bloomberg could pull from for free.

Still, to be successful here requires us to develop some common data standards and a submission portal that will get people to buy in to this as a low-friction way to self-regulate. And busy developers need to feel urgency to contribute to this database when there is no legal need to.

So these first few months are about building an aura of inevitability around this project.

I'm planning to run Messari for the next ten years. And given the fortunate and unique positions I was in to first spearhead investments at DCG, run CoinDesk and its ~3,000 person Consensus summits, and now work as an EiR at ConsenSys, there are few - if any - people in the industry that are in a similar position to pound the table for this type of project. It's also unsexy grunt work with no compelling near-term economics, so potential "competitors" should really be collaborators.

TE: You mentioned that the “Bloomberg of crypto” will be a network, not a centralized company. We smell a Messari token around the corner, can you give us a hint about how would you expect that to work?

RS: Not yet. But I will say that I am spending a lot of time advising and watching projects with good teams that have developed data tokens or what I call "human work" tokens - staking tokens that help solve incentive problems around open-source projects.

If and when we do a token offering, it will almost certainly be a crypto-security with fundamental value (revenue share from fees the network generates), and it will be properly offered via some type of SEC filing. If you're going to be the EDGAR of crypto, you shouldn't be afraid of doing a public filing yourself.

TE: You talked a lot about treasury policies in your introductory post. What's your take on the optimal structure around managing ICO funds, in light of recent events like the Tezos mess?

No comment on specific events, but I've been pretty vocal about reining in some of the excesses in the industry. There's a lot of things I see every day that disgust me: people doing insider deals for discounts and then flipping shamelessly one month later, failing to disclose advisory conflicts, even bragging about trading on insider tips prior to exchange listings.

It's galling.

If you're serious about your project, you don't want a lack of clarity on your treasury policies to distract or even derail things.

But I don't know what the optimal structure should be, and it's going to be Messari's position to stay neutral and simply shed light on the objective reality.

Data > Opinions. This will probably be one of the biggest challenges for me to internalize personally, because I'm pretty outspoken about some of the projects that I think have badly misaligned incentives. I need to shut up.

If you put a gun to my head, though, I'd say it's stupid and irresponsible for these projects to hold the majority of their raises in crypto. Your project is not a fund of funds. Project backers have no residual claims on the assets your team (usually one with no fiduciary experience) are gambling with. To think that some teams will raise $20mm and run out of money if there's a 90% downdraft is maddening.

Of course, this isn't a completely fair spit take. Many teams might want to diversify their raises, but they might not be banked, or find it risky to be banked with so much regulatory uncertainty! So we need to understand treasury policy to know how and when teams intend to hedge positions, move into "stablecoins" or fiat. Treasury management is a complex subject that will take time to flesh out, and I hope by looking at the universe of best practices, Messari can help standardize that area for token project leads.

Still, whether you are taking about fiat, hedging instruments or stablecoins, the main point still stands: Sell. Your. Crypto.

You need dirty, immoral, inflationary fiat to pay for operations. If you want to hoard crypto, put your money where your mouth is, hoard your own treasury, and lengthen your vesting schedules. You should be outperforming ether, anyway, otherwise why did people support you?

The tote bag?

TE: It sounds like you'll focus initially on supply curves. What can we expect to see coming next?

RS: Not sure yet. Probably basic project info (white paper, github stats, etc.) and real-time financial statements if the tech is ready.

I am a huge fan of the Balanc3 team at ConsenSys. They are lightyears ahead of anyone else I've seen when it comes to crypto accounting solutions and transparency software, and are driving the conversation with the big accounting firms in the U.S.

They are also a perfect example of a project that an outsider might view as competitive, when in reality their quickbooks-like product could funnel basic financial information into Messari without asking for all their proprietary data as well.

TE: What timeline are you working on for a first release?

RS: Depends on how fast we hire the core team. Send me good people!

I would like to get a first release out before the end of Q1 when some of these project inflation bombs start going off - days when token projects hit their one year cliff and instantly see 5, 10, 20% of their money supply become liquid overnight.

TE: How can one lend long term support to the project?

RS: If you know a team that is working on one of the 1000 "Bloomberg of crypto" plays today, please mention Messari and tell them to reach out. 999 of those projects are not going to be competitive, but complementary.

You can also subscribe to the mailing list where we'll share when the site goes live and how specific stakeholders can show their support. Professional investors, crypto projects, and general crypto enthusiasts are going to have different ways they can help. Hit me up on twitter, or email me. [I don't give my email out, but people who are really interested will be able to track me down or get referred in by another friend within the industry.]

And if you're a media outlet, you can call and interview me and help get out the word!
👻 Orchid
Any time Sequoia invests in a seed round then you should take a look.
If they do it in a crypto startup.. then that really means to pay attention.

Orchid is a sort of tokenized-Tor, with the goal of bringing censorship-free internet everywhere.

This is continuing the trend of monetizing unused digital assets and creating a decentralized marketplace to facilitate the exchange.
We've seen it with computing, storage, and so on, but this case might be the most interesting of all.
Orchid wants you to share your excess bandwidth.

Orchid raised a seed round of almost $5M from the who's who of Silicon Valley investors, including Sequoia, Andreessen Horowitz, DFJ, Polychain Capital, Metastable, Blockchain Capital, Crunchfund, Struck Capital, Compound VC and Richard Muirhead.

Obviously, here too there's a token sale coming with a goal of raising $350M. We won't reiterate on our thinking around this here.

Axios' quick breaking piece
A more in depth look from Coindesk
Richard Muirhead explains why he has invested in the company with a solid 1984-ish piece.
📌 Token Economy
The NYT gets to it! And when it does it's really a pleasure to read.

In this article they go and explore the past and present of the founders and proponents of ICOs that use celebrities social media posts as endorsements.

Not surprisingly it all smells like scam from miles away.

There's many sad things about this:
- a lot of people will lose a lot of money based on celebrity endorsements, as the celebrities obviously don't care - they get paid cash and do whatever you want
- the SEC and FBI will start looking into it deep and then the regulations will but regulating only for scammers is hard so we will most likely get something that will hinder development of legit projects too.

Striking a good balance is really hard, but right now it's just madness.

Scammers everywhere are stealing more from the public, and somewhat legit teams are raising insane amounts without, usually, any sort of internal oversight on how the funds get used.

We're starting to see some amazing transparency efforts by the most forward thinking projects, but it would be quite the stretch of imagination to think that others will implement this.
Investment thesis in crypto capital circles are starting to evolve and mature as the industry grows.

A few weeks ago we talked abut the "Thin Protocols" thesis coined by Teemu from Zeppelin. This week Coinfund co-founder Jake exposes his thinking about why the "fat protocol" theory has started to come short as an investment thesis. 

His main points are: 

- that protocol/app boundaries can be drawn at multiple levels in the functionality stack, and therefore an investor needs to justify why one boundary has better investment characteristics than another;
- investing in base protocols doesn't necessarily provide investor with more diversification than investing at the app layer, and in any case one would be better off investing in the interoperability layer if she believed multiple protocols can co-exist;
- the way value flows along the functionality stack is very situational and complicated and does not necessarily result in the base layer capturing the lion share. If that's the case then vertical diversification in the stack may be the better strategy than horizontal diversification across base protocols;
- In the short to medium term, as masses start to enter the space while scalability bottlenecks still exist, the best investment opportunities may in fact lay in consumer-proximate applications sitting in semi-centralized parts of the stack or even off-chain. 

Some really deep thinking here which we need to digest further, while we anxiously wait for Joel Monegro's update to his seminal piece.
In the regulatory wild west of ICOs, this project is planning to run its own as a fully regulated and SEC compliant process. 

The regulatory path they will take is known as Reg A+ and differs from the alternative one taken by the likes of Filecoin and Science Inc. in a few areas highlighted below. Given the 2-year CPA audit requirement, this seems to be a viable option for established projects with some substance to be audited.
Steven McKie of Amentum imagines how public infrastructure could be better funded and managed thanks to tokens.

Follow the man, he is a deep thinker.
Our favorite CryptoLawyer is telling us there are no CryptoLawyers and we are confused.

Just kidding. We absolutely agree with Stephen as always, but with one addendum:
we think that in the future there will be a software developer position type in charge of writing the laws of an ecosystem and writing / auditing enforcing code.
They might be more deserving of the CryptoLawyer term (or CryptoLegislator). Hopefully we can just come up with better nomenclature.
Intrachain protocols are now news on Bloomberg. What a change from a few years ago.

Jeff Garzik, an early bitcoin developer and Bloq co-founder, is launching Metronome.

"Metronome owners will be able to receive a digital receipt for removing their coins from one blockchain. They can send the receipt to another blockchain, to add metronome there."

For those who keep track, Garzik is one of the 2x fork proponents and supporters.
Well Mohit's a believer! We love the enthusiasm.

But in reality Mohit just put down what we all believe will happen in the world - crypto, smart contracts will take over and enable completely new value flows.

The only thing we're a bit unsure on, is the 10 years timeframe. It might be quite a bit longer than that..
Technical talk from Vlad who's been working on Casper for a good while - it's really really solid.

Vlad explains how he's been thinking about the cryptoeconomic design in and around Casper to build a Proof of Stake consensus protocol.
👮 This week in regulation
The AMF has finally spoken, and has done so very sensibly as we expected.

It has launched a public consultation period aimed at gathering "the opinion of the stakeholders on various possible regulatory tracks and launch a program of support and analysis of these operations [i.e. ICOs]".

Three regulatory tracks are contemplated as part of the process:
1) A guideline of best practices
2) An extension of existing securities law to include ICOs/tokens
3) A brand new legislation

It has also announced the launch of a parallel regulatory sandbox aptly named UNICORN (Universal Node For ICO Research & Networking), offering crypto entrepreneurs a common framework for the development of their operations, while ensuring the protection of investors.
It's great to see European regulators approaching this sector with an open mind.

Allez la France!
Sighs. Startups leveraging DLT and blockchain in the UK are having a tough time in accessing banking services, with mixed messages coming from different banks. Yes, they still need banking to pay bills, salaries and taxes...

This isn't at all surprising, historically even traditional fintech startups dealing with remittances or money transfer services in the UK got a similar treatment from the legacy banking system.

This is relevant to some of the points made by Ryan in his Q&A: your treasury strategy may well end up being dictated by access to the traditional banking infrastructure. 
The Malta Financial Services Authority, as part of its ‘National Blockchain Strategy’, has launched a consultation process on a proposed regulatory framework for collective investment schemes (knows as PIFs) investing in virtual currencies.
😎 Cool new projects
Ujo was one of the first decentralized application-layer projects to be announced, this was 2 years ago.

It's a way for music artists to get paid.

They released a track with Imogen Heap to build up hype, but now it's getting really close. They're announcing a sort marketplace where artists can register, add content and accept ether.

The space is the right one we think, also proven by Spotify's acquisition of Mediachain (a decentralized music attribution database, USV and A16Z funded).

Exciting times.
Chain has introduced a new service called Sequence, a cryptographically-secured cloud-based ledger as a service for managing balances in financial and commerce applications (e.g. wallets, lending platforms, marketplaces, exchanges etc).

We are starting to see really cool middleware products that leverage cryptography to solve problems common to multiple industries.
A peer-to-peer marketplace for the exchange of names registered via the Ethereum Name Service.

Nothing new if you're an avid reader, but it's now live!
Very solid knowledge base of projects.

Fun fact, when we added this to the newsletter it was freely accessible and didn't have its own token.

One or both of these have now changed..
😤 First they ignore you, then they laugh at you, then…

Peter Thiel said he is "skeptical" of most cryptocurrencies except bitcoin.

Back in 2014 Warren was quoted saying Bitcoin was a "mirage".

More recently, in front of a class of business students, he was heard calling it a "real bubble", but most interestingly claiming “You can’t value bitcoin because it’s not a value-producing asset.”

Perhaps what he meant was that it can't be valued in the same way the businesses he's invested in (all "value-producing" in his mind) are valued, which is fair.

Importantly, note how he didn't say it has no value, he said it can't be valued. 
💰 New funds
Our friends at Multicoin have some serious ambitions: they announced this week that they're aiming for a $100M fund which will be exclusively invested in tokens.
It looks like Greyscale is moving forward with its Zcash trust. SEC filing done.

Greyscale is Barry Silbert's vehicle that already has a Bitcoin trust and an Ethereum Classic trust.
Nothing too exciting, a new institutional fund called 3iQ Global Cryptoasset Fund offering Canadian accredited investors exposure to bitcoin, ether and, wait for it, litecoin. 

The mainstream media just loves pushing out these sort of headlines, despite the fact that the large majority of such funds have not yet been raised to our knowledge.

Regardless, it's the gold rush folks.
💵 Legacy funding rounds
Long time since we had anything to report under this heading, and as always it's about a business that deals with either wallets, exchanges or mining. 

Abra, the bitcoin remittance mobile service with plans to get into credit to consumers, closed a Series B round led Foxconn, with participation from Silver8 Capital and Ignia, as well as previous Abra backers Arbor Ventures, American Express, Jungle Ventures, Lehrer Hippeau and RRE.
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 🤙
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