2019 March 18 - Volume.3 Issue.9

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2019 March 18 - Volume.3 Issue.9

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Cosmos In Vogue for Proof-of-Stake Blockchain Model

The highly anticipated Cosmos Hub promising blockchain interoperability went live onto mainnet last week seeing over 80% of the validator slots picked up with the network now being secured by over $300Mn. The staked total so far places Cosmos in the top three Proof-of-Stake networks whose overall delegated or masternode engagement stands at nearly $4Bn.

After formulating the concept of blockchain interoperability in 2016, and raising $16Mn in an Initial Coin Offering (ICO) a year later, Cosmos' first phase went live onto the mainnet last week. Nearly 40% of Atoms, the network's token, have been bonded to 82 of the 100 possible validators. The number of validators will reach a maximum of 300 throughout ten years but can be voted on to increase.

The next phases for the Cosmos network participants are to vote on the ability to transfer Atom tokens and the initiation of the Intercommunication Blockchain Protocol (IBC) that would allow for other blockchains to connect to Cosmos Hub, its primary intended purpose.

Nearly 40% of Atoms have now been bonded - an unofficial rate puts this at over $300Mn. And it's likely to continue rising as more initial funders begin backing select validators.

But it's not the only Proof-of-Stake (PoS) game in town. Over 70 projects that rely on some format of PoS have seen an average of 40% of their token supply delegated or engaged. The tally of which stands close to $4Bn with EOS, whose mainnet launch was met with hiccups due to low staking participation, now represents nearly half of the staked value on PoS blockchain networks alone (see table).

Competition though is likely to get even more fierce as delegators seek the best bang for their buck. A half dozen known blockchain PoS projects are set to go live later on this year. And high-profile networks are still in the works (see table below).

[wpdatatable id=260]

Sources: Stakingrewards.comEOSx.io

Staked/Engaged Supply on Proof-of-Stake Platforms

[wpdatatable id=259]

Current Select PoS Network Stake Yields - NB: Livepeer current yield stands at 154%. Excluded from the graph below for visual purposes.

Pan-Stablecoin Risks Highlighted as Tether Diversifies Reserves

After quiet on the Tether front, the company managed to stir things up once more after it was found that sponsor of the largest stablecoin had updated their terms of service to indicate that the greenback is no longer the only asset supporting the outstanding tokens. But other dollar-collateralized stablecoins are also only one-degree of separation to similar risks. Meanwhile, thin opportunistic volumes are throwing Dai off its peg.

The controversial saga around Tether took on a new factor of distaste by the cryptocurrency community as it was revealed that the company behind the stablecoin had changed their Terms of Service (ToS).

Tether amended its definition for reserves to include "cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities."

The broad definition with little information as to the synthesis of the reserve portfolio further propelled the possible systemic risk to the cryptocurrency industry which remains tethered to the stablecoin.

And despite facing multiple issues from questionable company structures, dubious offshore banking partnerships, personal affiliations, opaque audits, and US subpoenas, Tether remains the goto stablecoin for traders dwarfing all new entrants who have established a higher level of transparency, regulatory approval, FDIC-insured deposits and attestations from reputable auditing firms.

The latest notch achieved by Tether, however, only really highlights the divergence of all stablecoins from the decentralized ethos that the unknown creator of Bitcoin, Satoshi Nakamoto, looked to address in the very first place by creating a trustless model that would bypass the need for financial institutions.

While the regulatory framework for recent stablecoin additions on the market lessens the likely risks, ultimately, however, all significant stablecoins on the market from USD Coin to Gemini Dollar face the same diversification opportunity by the very institutions that hold their reserves. While banking books will show a balance, faith in the institution's money-managers is merely a can kicked down the line.

The other decentralized stablecoin option remains MakerDAO's Dai. But that too has come under pressure requiring its stability fee to increase 350% from the start of the year, now standing at 3.5%.

To make matters slightly more questionable comes from a short window of opportunity to purchase Dai at a discount that completely threw Dai's ability to hold its peg on Coinbase. A 6% discount of Dai on Stablewire, a platform that allows the interchanging of various stablecoins, resulted in the token being traded well below peg with thin trading volume.

Whether or not this was a one time opportunity by traders looking to arbitrage or a prelude to possible more massive fiascos remains to be seen. But the de-pegging highlights the possibility of a token not yet at scale to withhold such events.

Coinbase: Dai Falls to $0.9528 USDC...

...Coinciding with Stablewire Discount on Dai (Contract In/Out)

Contract Transactions: Link
StableWire Discount Announcement: Link

Outstanding Supply of Stablecoins Plateau, Dai Makes Gains


Compound Finance to Introduce New Risk Model, Governing Rights

Having deployed a decentralized application for lending and borrowing with a net supply currently standing north of $20Mn within a short period of time, Compound Finance have gone back to the drawing board having assessed possible future risks, and are set to introduce a new model in their upcoming release that would also allow for community participation. Robert Leshner, the founder of the project, discusses the details with Diar.

Compound Finance who kicked off the viable notion of Decentralized Finance applications (DeFi) alongside MakerDAO, Dharma and dYdX, has seen total cryptocurrency collateralized loan originations nearing $9Mn within six months from launching in late September of last year.

In close comparison, Digital Currency Group's lending arm Genesis who tailors to an institutional audience saw crypto-collateralized loan demand to the tune of $20Mn in 2018, highlighting a new growing segment within the industry, although still a tiny portion of its $1.1Bn loan portfolio (Diar, 4 February).

The five assets currently on the platform, Dai, Ether, 0x, Reputation and Basic Attention Token have earned the 3500 lenders on the platform, based on unique addresses, a cool $50,000.

As various competing options come to market within the segment, Compound plans to expand its offering and update the collateral model that would address possible risks in a significant upgrade slated to go live within the next 8-12 weeks.

At scale, Compound has looked at theoretical outcomes for liquidator upside that could be diminished within the volatile crypto-asset class should there be little market liquidity of the underlying assets being seized, currently at a 5% discount.

To make matters even more unmanageable, a dump in price from the liquidator's sale could also shift borrower's collateralized value in a downward tailspin further exasperating the problem.

The upcoming version does plan to address collateral ratio management with each assets having its own ratios. And within the year, Compound is moving to shift such decisions on the platform onto the market suppliers who will be able to govern the risk parameters themselves.

The new model will also aim to help the encouragement of diversification of assets lenders deposit on the platform. Currently, nearly 60% of the net supply on Compound is Augur's Reputation token, but only accounts for just 4% of total borrower demand.

Overall, demand for loans outside of Dai and Ether have been slim, resulting in minuscule returns for the other assets on the platform. But new dynamic parameters set by token holders could carry more interesting returns.

Compound is also aiming at expanding the supported assets on the platform by introducing ten new cryptocurrencies every month after launching the next version.

Whether or not this will find demand is yet to be seen, but community participation in financial models stands to be the next evolutionary experiment for DeFi.

Sources: Compound, Etherscan

Compound Net Supply $21Mn, But REP Marks Lions Share

Compound Total Borrowed $8.8Mn

Compound Finance Interest Earned vs. Paid

38% Average Supply of Dai Taken in Loans Since Inception

Swiss Exchange to Welcome Fourth Cryptocurrency ETP

The SIX Swiss exchange is set to welcome an XRP Exchange Traded Product (ETP) from Amun, the sponsor who last year released a crypto basked index cunningly named HODL. This month saw the introduction of Bitcoin and Ether ETPs also though they have yet to find any interest. Amun is said to be eyeing other top market cap cryptocurrencies according to Coindesk the likes of Bitcoin Cash, Litecoin and Stellar Lumens (Diar, 19 November 2018).

Trading interest though in Europe, as far as dollar-value is concerned, remains far removed from that witnessed state-side. The Amun Crypto Index has seen a mere $20Mn in trading volume since it's launch. Grayscale's Bitcoin Index has seen nearly $1Bn for the same period. But volumes steady do indicate that new interest in the asset class has yet to materialize (see chart).

Vaneck ETF Setback as CBOE Pulls Plug on Bitcoin Futures

After less than 18-months on the market, CBOE's Bitcoin Futures are set to be retired, at least for the time being (Diar, 11 December 2017). In contrast to their cross-town rival, CME has found an audience and trading volume has increased for three straight months (see chart). The writing seems to have been on the wall last August when this publication noted the diverging trend of open interest on the competing exchanges (Diar, 6 August 2018).

While this might not be an indication of institutional interest or lack thereof, hopes for a Bitcoin Exchange Traded Product (ETF) diminished slightly last week as the second largest futures exchange pulled the plug and unlikely to bode well with regulators who already questioned market liquidity. The CBOE was set to be the listing exchange for the Vaneck SolidX Bitcoin Trust, now but a dream.

Citi Pours Cold Water Over Blockchain Initiatives
Speaking to Coindesk, Citi's innovations lab chief has Gulru Atak said that the major bank has taken a step back from efforts on the blockchain front, not due to lack of promise but near-term potential. In light of larger established networks the likes of SWIFT, the bank concluded that efforts should be geared towards near-term goals and not the army it would require to onboard the world banks to the blockchain for cross-border settlement.
Paxos Standard Looks Beyond Stablecoin
Paxos Standard, a recent entrant into the stablecoin market after raising nearly $100Mn last year is now eyeing the tokenization of commodities like gold. The company has also successfully tested the tokenization of stock market equities and bonds on the blockchain and believes that to be a reality in 2019. But the company may have many roadblocks to jump over as a regulated stablecoin unlikely to displease.
Regulators Tone Begins Shift on Crypto Risks
At a G20 summit last year, Bank of England's governor Mark Carney dismissed the potential risks to financial stability that crypto-assets would pose (Diar, 5 March 2018). Shortly after, the UK's Financial Conduct Authority (FCA) weighed-in on the potential ban of crypto derivatives. And Candian watchdogs have now also proposed the very same ban. The Basel Committee has also classified the potential risks.

Deconomy 2019
Seoul, South Korea

Diar is pleased to be the principal media partner for the upcoming Deconomy conference in Seoul, South Korea on April 4-5. Speaker line-up include Andreas Antonopoulos, Vitalik Buterin and Nouriel Roubini, to name a few.
See you there.

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