News and opinions on tokens, ICOs & cryptocurrencies
Token Economy
📌 #21: The post-Devcon3 edition

(also published on Medium)
🇵🇹 We're at WebSummit!
As people make their way back from Devcon3, WebSummit is about to start and we're in Lisbon (which is surreally a perfect mix of every European city + San Francisco = STUNNING).

If you're around, ping us!

We're organizing an informal drinks meetup with crypto people and VCs on Tuesday: you should come!

Thanks to Simon from Eura Technologies for sponsoring!
🏖 Devcon3 Recap
A guest post by Christina Frankopan & Max Mersch, thanks 🙏!

2014 Devcon0 🦐 - Berlin, ~50 attendees
2015 Devcon1 🐟 - London, 300 attendees 
2016 Devcon2 🐳 - Shanghai, 700 attendees
2017 Devcon3 🐋 - Cancun, 2,000 attendees 

We’ve come a long way baby! In just a few years, Devcon has grown to 2,000 attendees representing a flourishing Ethereum community 🌺. This is the fourth devcon. Some folks don’t realise there was a Devcon0, but *of course* the naming is zero-indexed, unless “I am crazy and don't consider 0 a number” (thanks to Vitalik for leading us to subreddit r/badmathematics, our new favourite place)
What a refreshing event! The Ethereum Developers’ Conference lived up to it’s name: some of brightest minds in the Ethereum community presented their progress in scaling solutions, privacy advancements and real world adoption cases. We were warned that anyone pitching an ICO 🙈🙉🙊 would be forcibly wheeled off stage, and happily that didn’t happen: on the contrary, one of the largest rounds of applause celebrated Nick Johnson’s announcement that the ENS Foundation would never run a token sale. 👏👏👏 

One of the interesting things about the Ethereum community is the warm 🌞 and technically focussed culture. Ultimately, the best Ethereum developers care about building product, creating fundamentally important technology and creating novel incentive structures - not selling tokens. This is the first conference experience in a while that represented this adequately: the cryptocurrency noise has otherwise been hard to drown out recently.

After 5 days in Cancun, we are increasingly confident about the depth of technical advancements in the Ethereum ecosystem. We can’t cover everything we found exciting, but will highlight here just some of the progress we’ve seen. Although there are hard changes needed ahead, there is a real chance that Devcon4 will showcase large-scale use cases of Ethereum technology. As Vitalik puts the Foundation’s agenda: "Scalability is probably problem number one”. The Foundation is noticeably stepping up research and infrastructure support for many of those scaling solutions. The core topic of Vitalik’s “Ethereum in 25 minutes” was on sharding, touching on the trilemma of optimising for decentralisation, scalability and security. Joseph Poon also presented progress with plasma. CUE: ALL BOW DOWN TO RALPH MERKLE 🙏🙏. 

The much awaited PoS is coming “soon” via Casper 👻, although there is still no fixed timeline for roll-out of the hybrid PoW/PoS (paper just released prior to Devcon), let alone full PoS. We also learnt that Casper is also being designed from the start to be post-quantum secure.  We’ve stopped worrying now that we know that’s under control 😎.

The community also recently celebrated the successful recent Byzantium hard fork🍴, which introduced support for a number of important fundamental privacy features, including zk-snarks (and ring 💍 signatures). One of the most exciting series of Devcon presentations was by Jacob Eberhardt unveiling a dev toolkit for privacy enhancement using zk-snarks, ZoKrates. The implementation has issues (eg cost of verification), but the implications for privacy and beyond are huge.
We’re in reaching distance of applications being released on main-net with pragmatic implementations strategies. 
  • Status revealed plans for their desktop application which will run Status nodes acting as offline inboxes for Whisper and helpers for push notifications, as well as announcing their plans to release private hard wallets. They’ve made their mission very clear: making the onboarding process for new users as frictionless & secure as possible to assure mass adoption. 💻
  • Infrastructure layers such as Raiden demonstrated µRaiden through the most practical of examples: controlling an RC car on stage & paying for each movement with real time off-chain microtransactions. µRaiden may be useable on main-net as soon as this month. 👾
  • Nick Johnson unveiled ENSnow for subdomain rentals: enabling users to easily register & use subdomains in less than 30 seconds. ⏰

As interesting as the collection of talks was, the greatest parts of Devcon3 remain the conversations and relationships with old and new friends built in smaller circles, whether at impromptu meetups in the local Starbucks ☕ or with a seaside cocktail 🍹! 

We’ve had long discussions well into the night around the future of open source funding mechanisms; alternatives to large upfront token sales as a fundraising method that often lock-in structural incentives design before the product architecture has been built. Increasingly, projects are considering raising smaller private token or equity rounds, deploying continuous token offerings or even simply using tokens to properly incentivise the target user groups through airdrops and donations. 

Solutions such as the recently unveiled AragonOS and zeppelinOS were often suggested as pragmatic approaches to solve the problem of upgradability in an immutable network. By making the governance systems and the smart contracts upgradable in a frictionless way, one could imagine that the entire incentives structure could be rebuilt in case of a pivot. Lots to think about here.

We leave Cancun with new friends and excited for the community. Pity those whose security details 👮 did not permit project teams to attend Devcon3 this year, for fear of crypto-gangs kidnappings. They missed out. 

These are our personal views and observations from Devcon3. We both have investments in Status & Raiden.
⩻⩼ Blockstack explainer
Nick continues his amazing series for Token Economy, where he breaks down whitepapers and projects and explains them in an easy way. 🏅
📌 Token Economy
GDAX have released a very helpful framework containing a list of criteria that digital assets must meet to potentially qualify for being admitted onto the exchange. It could well do the job as an framework for investors in this space.

Unsurprisingly, they will not list security tokens.

This, plus some ongoing rumours, clearly signal that they are about to include other assets beyond BTC, ETH and LTC.
Nothing particularly new here (forks and ICOs as natural evolution mechanisms, anti-fragility etc), but it's always notable when YC talks about crypto and always makes us wonder what they are cooking up (notable data point: not a single YC company has IPOd yet).

They key message here is that the rate of experimentation and evolution in crypto is unprecedented.
Albert Wenger from USV gives his personal state of the union on the two crypto assets, and he seems to be slightly more bullish on BTC than ETH (despite being long both).

- ETH key risks: change in sentiment from ICO slowdown, scalability issues. Bull case for 2018 revolves around some ETH-based projects successfully launching and getting adopted while progress is made on the scalability front.

- BTC key risks: mining concentration and forks. Bull case revolves around the animosity within the community to die down, with one main chain retaining the title of Bitcoin.

Notable quote on BTC: 

"it is the one cryptocurrency with a widely understood use case: censorship resistant store of wealth. [...] With everything crazy that’s going on in the world politically, the demand for censorship resistant wealth storage is high and growing."
This is one of the great initiatives spearheaded by the folks at Amentum Capital.

It's open source effort to provide investors secure tools for custody and managing digital assets, as well as content on secure best practices. A hot topic no doubt.

Bringing traditional finance to adopt open source software and adapt to its ethos won't be a walk in the park, but it's important that the crypto community is in the driving seat when defining the standards.

A first wallet product should come out in the next few weeks.
The Zeppelin team explains why they will not be conducting a public sale, and explain the advantages of private sales instead.
It was only a matter of time.

A Californian law firm has filed a class action lawsuit against Tezos founders and ICO promoters, accusing them of violating US securities law. Most likely others will follow and no doubt the SEC is keeping a close ear.

We struggle to see how anything can be built under these conditions. 
This post is authored by a traditional fund manager who's been through the bubble and draws lots of parallels between crypto now and back then.

The things he highlights as bubblicious are already under everyone's eyes and we have often covered them. What's worth mentioning is his prediction of how the carnage will unfold:

- EU/US to issue a regulatory framework for ICOs
- massive delisting of security tokens from exchanges
- tokens to lose +90% of their value, regardless of quality (example of Amazon in the equity world that dropped to $5 per share, now at $1,000+)
- real utility tokens to crash in tandem, but to recover quickly
- in the aftermath, quality projects will comply with securities law, granting equity-like rights to holders
- new ICOs will be of established projects with products and live use cases.

One thing he fails to mention is the scale of crypto now vs tech in the days. We are still one order of magnitude away from the values reached back in 2000-2001, and we know that masses of institutional capital are just about to get into the market. Things may get way more irrational before they get more rational.

Regardless of when the bubble will burst, it's always worth keeping this Fred Wilson line in mind: 'Nothing important has ever been built without irrational exuberance'. The only way to navigate this space for us is to keep a long term focus on the foundational technologies that can survive any bubble pop.

Bonus 1: The Economist talks about the Bitcoin bubble as the definition of the greater fool theory.

Bonus 2: if you believe in technical analysis, someone showed how the Bitcoin bubble already popped and we are still in a strong upward leg.

No one has a clue...
paper - 📄 On decentralized digital democracy. 

I've been a big fan of the DemocracyEarth team, from before they joined my same YC Batch, and I'm really amazed by their progress and ambition.

This paper is a must read if you are interested in real-world game-changing future-thinking albeit a bit utopic blockchain applications.

We were tipped about this from a friend at MIT, and apparently it's a continuing trend of academics leaving their spots and going out to launch crypto projects.

This one tries to gain more scalability by rarely using the blockchain and instead relying on a system of agents to confirm transactions super fast.
Chris Berg, Sinclair Davidson and Jason Potts are from the RMIT Blockchain Innovation Hub, the world’s first social science research centre into the economics, politics, sociology, and law of blockchain technology.

Here they write about political economy, and how solving the Byzantine General's problem could mean that the blockchain technology will be the one to put an end to governments.
We were told that Ethereal was another really great event, so here's a recap for anyone who couldn't be there.
Cameron from Hummingbird explores firms and operational complexity to identify situations where decentralization is convenient.

for apps that:
1.) Do not involve significant operational complexity.
2.) Involve the exchange of non-physical assets.
3.) Transact in markets where firms currently offer little value through the coordination and management of human capital.
4.) Have the potential to be broken down into simple incentive structures, which is easier said than done (and requires Game Theoretical testing).
5.) Occur in markets where anti-censorship protection, which is a core feature of distributed systems, is important to the users. (Optional). went out and raised $116M to build the "Bitcoin computer", which was basically a super overpriced and not really working bitcoin node / miner.

Then, they pivoted into creating a "paid inbox" where you can earn money to respond to people's spam.

And it looks like they are sticking with the pivot, as they bought and are doing a full rebrand.

The metrics are surely there, we are all earning more than we should by responding to spammy ICOs - but, to be honest, it doesn't feel like this is the future we were promised.
😎 Cool new projects
Another attempt at an algorithmic stable coin platform.

Despite promising a more fair supply re-distribution mechanism compared to Basecoin, both protocols still remain exposed to high volatility scenarios, particularly while network effects are forming up.

With Dai being released in December and Digix soon after, it will be interesting to see which stable coin gets wide adoption. There is still an immediate gap in the market for a way-out-of-crypto token.
The Decentraland team gave a gift contribution to the community for Devcon: EthAlarm. This is a "push-not-pull" solution aiming to help with some specific Etherscan use cases: a simple application to get notifications of events triggered by Ethereum smart contracts.

Anything that gives you a lower chance of falling for a scamming scheme is always good news.

Metacert launched a free browser extension to visually prompt you when some sites are verifiably safe.

Stay safe!
Who's ready for the Ultimate Hodl Game?

TokenBnk is exactly what you're looking for.

Everyone locks their ETH in a contract and then needs to buy a specific token and spend it in order to withdraw it (you can think of this as a wire fee).
When someone withdraws and spends the token, it goes out to all the hodlers - kind of like an interest payment on your ETH.

The ETH never moves and is never used, so the payments only come from other people paying to withdraw.

There's too much game theory going on here for us to predict how it will play out, but we'll have updates soon.
Identity projects are popping up everywhere, and it looks like we will have many different systems of self-sovereign identity.

The people at DIF are working on creating a universal resolver that can accept many different "drivers" and provide a single interface. Like.
Ethereum is likley getting Generalized State Channels.

"The idea behind state channels is that we can make blockchains more efficient by moving many processes off-chain, while still retaining a blockchain’s characteristic trustworthiness."

This extends beyond payments towards full computing.

Liam Horne and Jeff Coleman are developing it, and thank god won't ICO. They've been funded by a donation from Vitalik himself 🙏
🤡 ICO madness
The October numbers are out and they are juicy as always thanks to our friends at Tokendata:
  • 97 reported ICOs (up from 62 in Sept)
  • $829 million (slightly up vs Sept)
  • $3.6 billion raised year to date
The numbers are still quite strong (Polkadot raised $144 million, 7-8 others have raised $30-40m), but there are some signs of that things may indeed be changing under the surface:

1. The average and median raised are down significantly (median being more indicative given the presence of outliers):
2. An increasingly larger % and absolute number of token sales fail to reach the stated goal. Architect Partners released some more data in support of that conclusion in their recent post aptly titled "The Coming Era of the Zombie Token?" (note that 'failure' in their books is <75% of target).
So, what could be happening?

- We may have reached a temporary demand saturation point: it's easy to put out another Facebook ad or (erm, campaign for yet another ICO, but it hasn't yet become any easier for investors to participate in these ICO (the friction is still high from both a technical and regulatory perspective). The insane growth of new Coinbase accounts is mainly fuelling BTC as the entry point for crypto newbies, while it isn't yet fuelling ICOs (it may though in 6-12 months, all else being equal).

- Investors are getting slightly more sophisticated. Events like the Tezos blow-up should, hopefully, make it increasingly clear that raising insanely high amounts of capital is a bad thing.

- More and more regulators are stepping in highlighting the risks involved in ICOs, inevitably spooking off a slice of investors.

- The BTC run has created FOMO and investors have been chasing it up, diverting attention from ICOs.

We can't tell if this is only a temporary slow down or the beginnings of a welcome return to sanity. Our hopes are firmly in the latter.
👮 This week in regulation
With the recent flurry of celebrity-endorsed ICOs, the SEC could no longer stay silent. 

Failing to disclose the "nature, source, and amount of any compensation" related to the promotion of the sale of a security token, violates securities law.

May the statement put an end to this nonsense.
This was last week news, but it didn't make much fanfare and we missed it.

Anyway, the regulator has been crystal clear: "All tokens or cryptocurrencies are securities under the FMC Act – even those that are not financial products.".

Some exemptions may be granted in the spirit of promoting innovation, and the regulator is open to engage early with issuers and to reform to law.
💰 New funds
Of course a "group of family offices operating in the arenas of real estate, aviation, and entertainment" had to launch a crypto fund.

They are based in Miami and seem to be focusing on ICOs, adopting quantitative and fundamental analysis. They have apparently already written a $25 million cheque into the ICO of a UK-based waste to energy treatment facility integrated on the blockchain. 
I guess this is a reminder to never trust what you see written in this section.

It looks like many of the "launches" of funds are more likely to be "intentions" of funds, and some also falsely claim advisors (and who knows what else).
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 🤙
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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