As we start Q4 of 2018 we review the mixed emotions, torn regulators, excited enterprises and emerging usecases
It has been a period of mixed emotions for the token markets. On one end, hopes of ETF approvals pushed prices towards a temporary relief and on the other, a flash crash from $7300 to $6100 in a matter of 48 hours left markets wondering if a recovery is possible on the short run. The larger ecosystem consisting of governments, corporates, institutions and our favorite — the #buildlgang has been hard at work though. Institutions that once shunned the token markets are now embracing it. There is a rise in token related services being offered by larger institutions to enable clients to have exposure to the space without risks of custodianship. In case news of token generation based funding has been a cause for concern, it is worth noting that VC backing for the ecosystem has not necessarily dwindled down. We look at the key news that emerged over the course of the month in our monthly brief. Make sure you sign up for our newsletter here to stay on top of these key news updates and thought leadership.
ETF Woes Continue
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The SEC continued to maintain its stance on Bitcoin related ETFs. Ones filed by ProShares and Direxion were turned down on basis of concerns regarding fraud and manipulation in the token markets. In addition, a pending decision about the VanEck ETF has been further pushed until September 30. However, the SEC’s Commisioner Hester M Peirce followed on with an open letter of dissent. She suggested that regulators should not be the gatekeepers of innovation and should allow markets to take their own course. In addition to this, the month witnessed the SEC suggesting that two exchange traded token oriented trackers pause active trading due to confusions regarding the nature of the product. All is not bad doom and gloom though. Citigroup may soon launch a new product that allows individual investors to have exposure to tokens without holding them. The bank aims to be an agent issuing digital asset receipts (DARs) to enable proxy trading without actual ownership of the underlying tokens. Although there was news that Goldman Sachs may soon drop plans for their trading desk, the firm since came through and clarified it to be “fake news”. While one cannot say with certainty when an ETF can be anticipated, it is becoming clear that there is rising interest in tokens from larger organisations. Will be worth observing its implications on price in the months to come.
Funding Has Seen A Decline. Or Maybe Not.
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Bloomberg recently reported that token generation events are at a decline and July saw a new low set for interest in the fundraising mechanism. Analysts have also been indicating towards the possibility of a drastic fall in Ethereum’s prices as ICOs begin to sell their ethereum holdings. With Ethereum prices crashing and a reducing interest in new tokens the state of token sales may not exactly be in good shape. However, there has been no substantial dip in venture capital interest for the ecosystem. The past month saw 2 new large rounds for blockchain oriented entities. Blockchain startup Dfinity had raised $102 million in a round led by a16z crypto and Polychain Capital. Dfinity claims that its network can finalise software computations in less than 5 seconds. The startup had also done an airdrop of 35 million Swiss Francs worth of tokens to its community earlier in the year. In addition, Enterprise blockchain provider Axoni has raised $32 million from the likes of JP Morgan, Wells Fargo and Goldman Sachs. This brings their total raise to $55 million. Although token markets have been in a slump since the beginning of the year, venture capital investments into blockchains have not reduced substantially. More on the raise by Axios here.
Our State of Blockchains report for Q2 tracked VC investments to be north of $1.8 billion for the year. The “bear market” since the beginning of the year has not necessarily affected capital raises by #buidlers. If you are building in the ecosystem, make sure you drop us your pitch here.
The World Bank Is Tinkering
Blockchain-based bonds are here. The world bank has launched a two year bond in collaboration with Commonwealth Bank of Australia named Bond-i. It stands for “blockchain operated new debt instrument”. The bonds have raised over $80 million from investors including several Australian banks and state treasuries. The entirety of the bond’s life cycle from creation to allocation and management over its two-year life cycle will be happening on the blockchain. The world bank has been a pioneer in using technology with bonds. In 1989 the organisation issued the first globally traded and settled bond. The move by the worldbank is in sync with the IMFs thoughts that blockchain based financial instruments can bring clarity and stability to global markets. An increasing number of nations have been exploring the issuance of digital fiat on blockchains. Singapore government issued a prototype of the SGD on ethereum last year.
This is one small step for the world bank. A giant leap for blockchain adoption in financial markets.
Venezuela Has Been Busy Too
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Venezuela was all set to implement their oil barrels backed crypto-token “Petro” as a currency at the beginning of the month. Starting August 20th, the nation was claimed to have two forms of currencies. One named a “sovereign Bolivar” which is currently worth 100,000 existing Bolivars and Petro — as a form of salary payments. The Bianco Central de Venezuela (BCV) will publish official figures for the sovereign bolivar in Petro and value of the national crypto named Petro in international currencies. With Iran and Russia battling sanctions against them, it may be likely that they consider using a blockchain based payments settlement system soon. This piece by Times is a good primer for those seeking to understand what is going on in Venezuel Although there was news of Venezuela moving to the new currency standard, an update from Reuters last week clarified that the tokens are nowhere to be found yet.
A new exchange backed stable coin is in town. Terra has closed a $32 million investment round from Korea. Their focus group will not be traders. Instead, they will be working with multiple e-commerce firms in South East Asia to create a competitor to the likes of Alibaba’s Alipay. 15 e-commerce firms claiming a cumulative of 40 million customers and $25 billion in annual transactions have come onboard
More on the matter in TechCrunch’s coverage here. This is not the only “stable” token we have seen this past month.
New York based exchange has announced the launch of Gemini dollar, which will be pegged to USD at a 1:1 exchange rate. It will be the world’s first regulated stablecoin and aims to allow users to send and receive US Dollars on the Ethereum network. The launch of a stablecoin backed by a largely regulated exchange run by credible names should allow traders and individuals to have an alternative to hold their money in during periods of high volatility in token markets. Preston Byrne covers his thoughts on Gemini’s dollar backed token in his piece here.
Messenger Apps May Battle It Out Soon
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Line, a Japanese app for messaging, have launched their own token named Link. Tokens will be used as a reward mechanism for in-app activity. The chat app will roll out the token system in the coming month subject to regulatory approvals. A total of 800 million tokens will be distributed to enable the growth of the community. In addition, they have also launched a $10 million fund to invest in tokens. Meanwhile, Facebook’s former head of Messenger, David Marcus stepped down from the board of Coinbase citing a potential conflict of interest. This has kept the community busy guessing what Facebook could be building. Considering Facebook’s ownership of WhatsApp and messenger itself, it would be fair to assume that a chat based payments system may be in the works. More coverage on the matter by TechCrunch, here.
Tl:Dr — Kik, Line, Facebook (Messenger) and Telegram are actively exploring tokens. Chat based ecosystems may soon have the largest userbases for tokens soon.
Amidst all the noise, emotions and excitement surrounding the industry, a handful of authors continue to provide much needed clarity and insights on what is going on in the industry. We look at a handful of pieces we covered in our newsletter over the course of the month
Mapping The Decentralized Financial Ecosystem
Blockchains enable the creation of open, trustless, censorship-resistant and programmable financial systems. Max Bronstein from BTC Labs uses this post to map the decentralised financial system. He explores the most interesting financial primitives being built through the post. Beginning with stable tokens and scalable payments, the article then evolves to cover more complex subjects such as derivatives and indexing. Given the pace of innovation within the token economy, it may be hard to stay on top of all the key developments. Max summarises most of the key, interesting ones to be tracked and gives a brief explanation of each. Make sure you read it here and stay updated on the ecosystem’s development.
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Nik Bhatia lays the case for how second layer solutions built on Bitcoin can pave the way for massive adoption in his latest piece. He gives context to the matter by comparing Bitcoin to the different layers of Gold. These layers vary from gold in its purest, raw form to certificates backed by bank issued gold certificates. He explains that in all systems of value transfer, each layer serves a different function. For instance, base layers are for final settlement while higher layers are for facilitation of economic activity. Nik proceeds to suggest that lightning transactions are the second layer solutions for Bitcoin that bring a dramatic increase in usability. Read his piece here to learn more about how the lightning network could theoretically make that possible.
Media coverage of Bitcoin
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The media can often be wrong about emerging technologies. Hype, clickbait and inaccurate reporting can plague sectors until mainstream adoption occurs. The same has happened with Bitcoin for a while. We have seen it being declared “dead” multiple times in the past. Nic Carter uses this post to challenge claims made in general about the token economy. He explores price stability, usage, liquidity and centralisation in the post. He ends with a reminder that each of the challenges claimed about Bitcoin may work for a particular point in time. However, a sustained attack on Bitcoin for prolonged periods may often not be economically viable. It is a must-read for anyone confused about the economics behind Bitcoin. Give it a good read here.