2018 May 21 - Volume.2 Issue.20

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2018 May 21 - Volume.2 Issue.20

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Prediction Market Platform Augur Sets Launch Date

Augur, one of the very first startups to launch an Initial Coin Offering has officially announced that their platform will go live on July 9. With the exception of exchanges, the soon deployment of the predictions market platform marks one of the first blockchain operations to go live.

Tom Kysar, Product Manager at Augur tells Diar that "Everything is pretty much done, apart from big testing." The company will deploy the platform fully on the Ethereum Mainnet, and a new REP token will also be migrated.

Diar understands that while the platform will allow people to create any markets they wish, Augur will be looking to make sure that safe behaviour is being practiced during the first few weeks.

|| WHAT ABOUT THE REGULATORS?

Effectively speaking, should Augur find a mass audience to create binary and scalar markets, the platform could be a speculator's dream. And with the application being on the blockchain, there is little regulators can do apart from possibly seizing the domain.

However, even that might prove to be of little effect as Augur does encourage people do deploy the code on their own computers by downloading the source off GitHub where it is available.

Augur is one of the few projects in the top 50 coins that is neither currency, nor platform token, but a utility token.


US Cryptocurrency Exchanges Heed to SEC Directions

Kraken said that the exchange will likely register with the US Securities and Exchange Commission (SEC) as a broker dealer, and then later as an Alternative Trading System. And Coinbase indicated it would follow the same path in April. Poloniex and Bittrex are also reportedly working with the SEC.


Kraken, the second largest U.S.-based exchange by volume, said that it will “probably” register with the US Securities and Exchange Commission (SEC). Kraken CEO Jesse Powell told Bloomberg that the exchange would  first register as a broker dealer and then as an alternative trading system (ATS). Any ATS has to be approved by the SEC and then is under its oversight. Being registered as an ATS requires stricter record keeping and demands more transparency, a lacking feature in most Cryptocurrency exchanges.

In March, the SEC released a statement that warned exchanges from trading assets that meet the definition of a security and such exchanges must register with the SEC as a national securities exchange or be exempt from registration. The SEC also recommended that investors who are trading digital assets that are securities should use a platform or entity registered with the SEC, such as a national securities exchange, ATS or broker-dealer. In order to become an ATS, any company first needs to register with the SEC as a broker dealer and join a self-regulatory organization such as the Financial Industry Regulatory Authority (FINRA).

Any trading platform registered with the SEC would have to use strict standards reviewed by the SEC to pick only high-quality digital assets to trade. The SEC would also review the trading protocols that determine how orders interact and execute. The access to a platform's trading services must be the same for all users to meet the standards of an SEC-registered exchange.

Mr Powell said: “I don’t think it necessarily helps the business. I think we’re doing everything right anyway.’’ Mr Powell also said that Kraken would need more clarity from the SEC about which tokens or cryptocurrencies are securities and how to trade them online legally. Currently, none of the cryptocurrency exchanges are registered with the SEC.

In April, former New York Attorney General Eric Schneiderman sent letters to thirteen cryptocurrency exchanges including Kraken inquiring about internal controls and protection of customers.

Kraken left New York in 2015 due to the BitLicense and didn’t respond to the inquiry saying that New York Attorney General doesn’t have any authority over Kraken. Kraken also recently donated $1Mn to the lobbying nonprofit Coin Center. One potential motivation in Kraken’s willingness to get registered with the SEC is Mr Powell’s vision to have Kraken’s equity traded as a token.

Kraken would follow Coinbase, which said in April that it is in talks with the SEC about registering as a licensed broker dealer. Just this last week, Coinbase reportedly met with Office of the Comptroller of the Currency (OCC) to discuss  the possibility of obtaining banking licenses.

|| ALL FALL IN LINE

According to New York Times, Circle has also indicated that it will begin the process of registering acquired Poloniex with the SEC and FINRA as a broker dealer and later also ATS. In March, Bittrex stated: “We look forward to continuing our proactive dialogue with the SEC and other regulators on how to build a secure, fully-regulated environment for blockchain that encourages innovation and economic growth.”

wdt_ID Date Company Information Source
1 May, 2018 Kraken "Kraken will probably register with the SEC. We would probably get registered as a broker dealer and then an ATS." Jesse Powell, CEO of Kraken
2 April, 2018 Coinbase "Coinbase has approached U.S. regulators about registering as a licensed brokerage firm and electronic-trading venue." WSJ
3 February, 2018 Poloniex "We will begin the process of registering the new entity with the SEC and FINRA as a Broker/Dealer and in turn as a licensed ATS.” Nathaniel Popper, NYT
4 March, 2018 Bittrex "We look forward to continuing our proactive dialogue with the SEC and other regulators on how to build a secure, fully-regulated environment for blockchain that encourages innovation and economic growth." Bittrex


Civic Verification Process Harkening Back to Centralized Solutions?

At the Consensus event that took place in New York last week, Civic introduced their prototype of a beer vending machine that is supposed to anonymously verify age and then disperse the beverage. And while a good use case in theory, Civic’s solution is still being routed back to the company itself for identity verification who stores the data, albeit, temporarily. 


San Francisco-based Civic, whose focus is on digital identity, introduced a prototype of a beer vending machine to demonstrate blockchain-based identity verification to the mainstream audience. Titus Capilnean, Communications & Marketing Manager at Civic, said that the startup wanted the “anonymous age verifying beer vending machine” to be so niche that it would be easy to understand for a regular individual. The vending machine was installed at Consensus, which was attended by more than 8,000 people. Anyone who wanted to get a free beverage had to download the Civic app, verify an email address, a cell phone number and then take a picture of any State-issued identification document, which would verify that they are of legal age.

The company, led by Vinny Lingham, raised $33Mn last year in an ICO. Civic wants to provide on-demand, secure, and low-cost identity verification services powered by the blockchain. The shift to self-sovereign identity (SSI) where each user stores and controls their own data is almost inevitable because it vastly improves security and reduces redundancies of the centralized systems (Diar, 30 April).

The leaders in SSI development are collaborating with the Decentralized Identity Foundation (DIF) on interoperability and open standards to build a single ecosystem that supports SSI systems. While Civic is a part of Attestations & Reputation working group at DIF, it is understood by Diar that the company has not been actively contributing to open standards and interoperability. One industry expert attending Consensus told Diar “They are selling a centralized proprietary solution as an open decentralized system.”

|| WHATS THE PROBLEM?

The issue  appears to be that the picture of a state-issued ID document must be first shared and stored with Civic’s servers directly while they verify the validity of it. After the verification is complete the personal information is only stored locally on the device. Mr Lingham said that Civic doesn’t store data after the keys are generated.

However, this does bring into question on how "Trustless" the Civic verification process is with data sitting on private servers - even if for the stated period of time until verification.

|| WAIT...WHAT?

The company's privacy policy doesn't help the case either - "We acquire, hold, use, and Process Personal Information about Individuals for a variety of business purposes."

It is also unclear whether Civic has the authority to reliably attest for the validity of state-issued documents. In the future, Civic wants the validators to include trusted financial institutions, government entities, and utility companies, among others. The beer vending machine that verifies age exclusively by Civic can very easily be done by any centralized startup without using blockchain at all. Civic itself says: “There are [identity verification] solutions out there that can add technology to the decision, but they are centralized, arguably insecure and they can, at any time, decide to misuse that data." But this could be true for their own verification process also.

The industry source tells Diar “Civic doesn’t do selective disclosure or real zero knowledge proofs, nor are they using any vendor-neutral open standards which is what really makes an identity ’self-sovereign.” He continues: “This kind of PR stunt trivializes what decentralized self-sovereign identity is really about.”

On the opposite side of the spectrum, Microsoft reinforced their commitment to deploy Decentralized Identifiers (DIDs), which follow a specific standard outlined by a W3C working group. Microsoft will support the DIDs through the Microsoft Authenticator app.


Cryptocurrency Exchanges Vie for Preferred Stablecoin Adoption

Bitmain led a $110Mn investment round in Goldman Sachs backed Circle. The two companies will work together to create a new transparent stablecoin that would rival both Tether and TrueUSD. The stablecoin will be governed by a newly created foundation CENTRE, which is currently consisted of Bitmain and Circle but new members are expected to join before launch.


Bitman, the largest bitcoin hardware mining producer that reportedly earned $4Bn in profits last year, led a $110Mn investment round in Circle. Bitmain has been quietly becoming a powerhouse in cryptocurrency venture capital investing trailing DCG, Blockchain Capital and Andreessen Horowitz (see table).

To date, Circle has raised $246Mn in five investment rounds from Goldman Sachs, Baidu and China International Capital Corporation amongst others and is valued at $3Bn. In February, Circle acquired cryptocurrency exchange Poloniex for $400Mn. Circle looks to be making quick strides with a suite of products including Circle Pay, Circle Invest and Circle Trade. Circle Invest, their cryptocurrency investment app, allows trading of seven cryptocurrencies (Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic, Litecoin, Zcash and Monero) while Coinbase and Robinhood only offer four and two cryptocurrencies respectively.

Bitmain also partnered with Circle to create a stablecoin dubbed Circle USD Coin (USDC), which will be backed one-for-one by US dollars stored in an auditable bank account. USDC will be an ERC-20 token fully redeemable for fiat at any time. Eventually, Circle wants to introduce stablecoins backed by different fiat currencies as well. The token will be governed by a newly created foundation CENTRE, which is a wholly owned subsidiary of Circle. Currently the only other member of CENTRE is Bitmain but other members are expected to join.

Circle will first offer USDC in its own products including Poloniex, which currently doesn’t offer any fiat pairs. The majority of volume on Poloniex is traded against Tether (USDT), which is by far the most traded stablecoin globally.

Bitmain Investments

wdt_ID Date Company Industry Lead Investor Total Raised (Mn)
1 May 15, 2018 Circle Finance, crypto Yes $110
2 Apr 4, 2018 BitKan Bitcoin services - $10
3 Mar 13, 2018 OB1 P2P trades with crypto - $5
4 Mar 2, 2018 8btc.com Bitcoin forum - $16
5 Jan 15, 2018 Yours Blockchain social network Yes $1.5
6 May 22, 2017 RSK Labs Open-source smart contracts No $3.5
7 Apr 5, 2017 ViaBTC Mining pool Yes $3
8 Jan 19, 2017 CoolBitX Technology Hardware wallets No -
9 May 27, 2016 ChainLab DAO management No -
10 Apr 15, 2016 BitKan Bitcoin services Yes $1.6


Source: Diar, Company Websites, Crunchbase


To date, Tether, a sister company of Bitfinex, has issued more than $2.7bn  and claims that all tokens are 100% backed by real USD held in reserves. Tether has yet to release an independent professional audit and its trustworthiness has raised concerns (Diar, January 29).

|| WHICH ONE WILL WIN?

Binance, the largest exchange by volume, also just announced this week that it will be listing TrueUSD, which is an another ERC-20 stablecoin. Instead of having USD reserves in a bank account controlled by a single company, the U.S. dollars are held in the bank accounts of multiple trust companies that have signed escrow agreements. The amounts in the bank accounts are published every day and are subject to monthly audits. Due to popular demand, listing TrueUSD on Binance was delayed to May 22nd in order to prepare for sufficient liquidity.


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