2018 July 16 - Volume.2 Issue.28

Goto Previous Issue - Next Issue

2018 July 16 - Volume.2 Issue.28

Goto Previous Issue - Next Issue

Users Abandoning DApps as Augur Moves onto Mainnet

The cryptocurrency community rejoiced on the mainnet launch of the oldest ICO, Augur. The prediction platform went live with few hiccups, none serious, all of which were addressed quickly by the development team. A week in after the excitement, user count and volume have dwindled on the back of an untuned user experience. But data shows this clearly is not be an isolated case for Augur, but in fact, a visible issue with Decentralized Applications (Dapps). The top 10 used Dapps have now seen a whopping median drop of 95% from peak users.


2018 is witnessing a ramp-up of projects going onto the Ethereum mainnet. Dappradar, which tracks Dapp activity has a listed 650 applications. But outside of a few dozen Dapps, mainly exchanges, there is no transactional volume.

Active daily users on Dapps have been plummeting week on week. Diar number crunching shows that there are currently less than 1600 users active on the Top 10 Dapps based on user count. And transactional volume is dwindling alongside dropping users. To make matters a little more bleak, the most used decentralized exchanges, IDEX, ForkDelta and Bancor have seen their user base dwindle to less than 5% from peak in a short few months.

|| ENTER AUGUR

Augur, one of the most anticipated projects went live a week ago, but was met with as much criticism as enthusiasm on the back of a complex user experience. The results are apparent - users dropped off quickly despite a massive $400k in volume on day one on Fifa World Cup markets.

Credit though should be given to the ease of being able to deploy Augur and access the application via Github in neat executable packages for all operating systems. And starting a market is also a fairly straight forward process. But taking a position on markets required more trading acumen than expected on a simple Yes/No question.

|| OPPORTUNITY, NOT OBITUARY

The opportunity, then, is in developing a user experience akin to current market platforms. That could be burdened on the shoulders of Augur, or any development team - or it can be an opportunity for others to add new ancillary services as part of the ecosystem.

The question is, however, can blockchain transaction times compete with live feeds that can handle mass amounts of data on a millisecond basis that Wall Street have become so accustomed to - at least for Dapps that are geared for financial markets?

User Count: Top 10 Decentralized Applications Fall From Grace?

wdt_ID Operation Type Peak Users Current % Drop
1 IDEX Exchange 8266 414 -95%
2 Fomo3D Gambling 998 400 -60%
3 ForkDelta Exchange 18845 191 -99%
4 PoWH 3D Speculation 4483 220 -95%
5 Bancor Exchange 1746 87 -95%
6 Cryptokitties Games 14194 79 -99%
7 LocalEthereum Exchange 413 141 -66%
8 Etheremon Games 328 43 -87%
9 The Token Store Exchange 626 23 -96%

DApp Count vs 24h Transaction Volume (15 July 2018) - ETH


Augur User/Volume Count 


Source: Dappradar.com, Diar


Smart Contract Hacks Breach Quarter Billion Post Bancor Freeze

Bancor experienced a breach that led to a theft of $23.5Mn after which $10Mn in Bancor’s native token BNT was immediately recovered as a result of a built-in pause functionality, which is in place to mitigate cases exactly like this. It’s unclear whether the breach could have been prevented had there not been a permissioned backdoor or whether the issue was caused by improper security procedures.


Bancor, a decentralized exchange, experienced a security breach on Monday through which approximately $23.5Mn ($12.5Mn of ETH, $10Mn of BNT, $1Mn of NPXS) were stolen from a wallet that was used to upgrade smart contracts. Bancor team announced the breach on Twitter where it reiterated that no user wallets were compromised and that it was able to freeze all the stolen BNT tokens. Bancor’s ability to freeze BNT funds spurred controversy blaming the protocol of not being sufficiently decentralized. Bancor itself admits that “full decentralization is the aim, not the beginning” and that the existence of emergency measures “was transparently communicated and heavily discussed prior to Bancor’s token sale.”

Bancor says that the ability to freeze funds was a strategic decision to learn from past incidents such as the DAO hack. Bancor’s CTO Yudi Levi wrote in a blog post a year ago that Bancor smart contracts will initially be upgradeable and “even though this does provide us with a greater level of centralized control during the pilot phase, we’re positive that releasing this control too early is risky and the reason hacking TheDAO was possible in the first place. We are all about responsible decentralization and we want to get there together.” Bancor clarified that the pilot phase is currently set to three years.

Udi Wertheimer, a blockchain researcher, wrote last year in a blog post about Bancor’s ability to freeze any BNT transactions as well as issue and destroy BNT tokens. Eyal Hertzog, Product Architect at Bancor, responded that these are all security switches needed to potentially recover stolen funds and that they “sincerely believe this is in the best interest of the community, given that all the tests in the world can’t prepare you for the ultimate test, live in the wild with tens of millions of real users of all intentions.” Mr Wertheimer thinks that the hack was enabled by permissioned backdoors that were compromised by the attackers. He said: “One backdoor enabled the theft of $23Mn. Another backdoor enabled restoring $10Mn of those.”

Costly Smart Contract Hacks

wdt_ID Project Date Amount (USD) Type
1 Bancor Jul-18 $23.5Mn Theft
2 PoWHCoin Jan-18 $928,000 Freeze
3 Parity Nov-17 $150Mn Freeze
4 Parity Jul-17 $30Mn Theft
5 The DAO Jun-16 $56Mn Theft

According to Diar’s research, many other cryptocurrencies or crypto assets have a pausable functionality built in including CryptoKitties, EOS, ICON, Maker, Qash, Status and TRON. In fact, Consensys considers it best practice to be able to pause a smart contract when things potentially go wrong.

Bancor is decentralized because it doesn’t hold user funds or user’s staked liquidity. However, Bancor can freeze/burn/issue BNT - as was always publicly known. Bancor has written about this design choice at length, and it is built into BNT’s open-source token code, which has been widely reviewed since the BNT token sale.

Decentralization is a multi-faceted spectrum and we believe Bancor stacks up well, especially in light of the fact that many popular tokens also possess freeze functions. Few if any dapps will be fully “decentralized” within the first few years of their launch, nor would we really want them to be during this fragile time in a nascent network’s development.

In general, standing against centralized and monopolistic power is noble and important, however, critics should not be dismissive of the critical role of leadership, especially in times of emergency. There is still much work to be done on the path to fully trustless systems, and we believe that a leaderless approach will not prove to be the optimal one to begin with.

Guy Benartzi, Co-founder and CEO of Bancor


Cryptocurrency Backed Loans Ushers in More Speculation Tools

Decentralized applications have yet to sustain an audience. But for cryptocurrency collateralized loans, the data shows increased interest. Salt, ETHLend, Dharma and Maker/Dai have seen amped up requests. In fact, Dai has hit excess of $50Mn in collateralized debt. But with no fiat offramps, credit scores and underwriters, loans are being used as tools for speculator positions rather than actual debt.


While not many use cases for blockchain outside of speculation have so far taken shape, cryptocurrency loans are becoming more easily accessible, at least for people who have a little knowledge connecting their wallets to the Ethereum Mainnet. In fact, the use case has been identified by Coinbase to be one of their key growth markets (Diar, 2 April).

But the intended use case of actual debt isn't all that meets the eye. Data crunching by Diar shows that 72% of all delinquent loans processed through Dharma are unsecured, or at least with less collateral than the loan value. And on loans excess of $5000 the interest rate, even with collateral, is between 15-20%.

|| WHAT IS IT GOOD FOR?

As it stand, the cryptocurrency loan markets are over-collateralized, which begs the question - why exactly are people borrowing? Nadav Hollander, founder of Dharma tells Diar that "this implies that the primary way in which people are using Dharma, today, is borrowing / lending for speculative purposes." The lending, then, is currently being used as either leverage to buy more cryptocurrency, or as a way to short.

|| WAITING FOR BLOOM TO SPRING

It's clear that the technology works across the live platforms. However, the economics and the risk is yet to be answered. Bloom however is indeed aiming to address credit scoring on the blockchain. And Mr Hollander tells Diar that "In the near future, we expect underwriters to start entering the market, opening the door for unsecured loans on Dharma. For now, however, we’re primarily focused on making it easy for more relayers to come to market, given that a rich market of liquid relayers is, in some senses, a major carrot to attract underwriters to join the network."

Notably, Peer-2-Peer lending is estimated by Morgan Stanley to hit over of $290Bn by 2020 - up from a mere $8Bn 5 short years ago. Can crypto vie for some of the market share?

Dharma Loans Snapshot: 72% Delinquency on Unsecured Loans...

wdt_ID - --
1 Total Number of Loans 135
2 Active Loans 28
3 Paid Off Loans 89
4 Delinquent 18
5 - of which Smaller Collateral 13
6 - % of Delinquent "Unsecured" 72%

...Delinquent Loans Account for 13% of Total Loan Portfolio 

wdt_ID - --
1 Total Delinquent 4800
2 -% Delinquent of Total Loans 13%
3 Collateral Retained 1578
4 -Effective Delinquent % 9%

Excluding Top 3 Loans, Average Interest Earned at 3.9%

wdt_ID - --
1 Total Paid Off Loan Value 31126
2 Collateral 40043
3 Interest Earned 3625
4 Dharma Portfolio Interest Rate 12%
5 - Interest Rate (Excl. Top 3 Loans) 3.9%

Top 3 Loans Account for 92% of Total Interest Earned

wdt_ID - --
1 Loan Value 18021
2 % of Dharma Loans 58%
3 Avg. Interest 17%
4 Interest Earned 3327
5 % of Total Interest on Dharma 92%


Source: Loanscan.io, Diar Calculations


Coinbase Hints at Possible New Listings - Paradex Launch Imminent?

Coinbase ruffled feathers on the back of an announcement that the popular exchange is currently "exploring" rather than finalising a decision on the possibility of listing 5 different cryptocurrencies. But announcement methods aside, why has Coinbase chosen these specific five assets - 0x, ZCash, BAT, Cardano and Stellar Lumens?


The announcement made by Coinbase last week that the exchange is having its engineering team look into 5 different cryptocurrencies was its largest disclosure yet. The possibility of adding 0x was certainly unsurprising given the roots the project has with Coinbase (Diar, 2 April). And if connections wasn't enough reason to believe in the prospect, Coinbase's recent purchase of 0x based decentralized exchange Paradex should be (Diar, 28 May).

|| JUST LIST IT ALREADY...

For readers of this publication, ZCash would have also not come as a surprise (Diar, 18 June). Coinbase all but confirmed ZCash with its announcement having addressed possible major concerns already. Coinbase writes "we may also only enable certain ways to interact with these assets through our site, such as supporting only deposits and withdrawals from transparent Zcash addresses."

Its important to note that the New York State Department of Financial Services (NYDFS) has confirmed approval of public T-addresses as well as fully private Z-addresses. And currently, most of the transactions on Zcash are not private making Coinbase's job a tad easier for regulatory compliance purposes.

|| SPLIT PERSONALITY?

Coinbase's announcement does seem to indicate that the exchange is gearing up for a Paradex relaunch. "Some of these assets may be offered in other jurisdictions prior to being listed in the US" was a similar statement to what was said upon the purchase of the Decentralized Exchange, which is slated as being a "Bulletin Board" overcoming regulatory hurdles for trading ERC-20 tokens.

|| CHANGE OF RULES?

If Coinbase is to continue to adhere to its own criteria, on whether or not a token can be listed by the exchange, which it asserts it does, then its questionable if the considered coins would meet the requirements set by their Digital Asset Framework. If Coinbase does however see these assets as meeting criterea, then it seems they're quite lax and subjective to begin with (see charts).

US Exchanges with Fiat Pairings (Listed and Confirmed Listing)

wdt_ID Crypto Coinbase Circle Kraken Gemini itBit
1 Bitcoin + + + + +
2 Bitcoin Cash + + + +
3 Ethereum + + + + +
4 Eth. Classic + + +
5 Litecoin + + + +
6 Zcash ? + + +
7 Ripple + +
8 Monero + +
9 Stellar ? + +


From the GDAX Digital Asset Framework
4.2:  The number of exchanges that support the asset. Exchange Volume Distribution - If secondary markets exist, then volume should be relatively distributed across exchanges.

Cardano - ADA - Traded Volume Across 16 Exchanges

Basic Attention Token - BAT - Traded Volume Across 19 Exchanges

0x - Traded Volume Across 31 Exchanges

Stellar Lumens - XLM - Traded Volume Across 34 Exchanges


Neufund Gets Boost with Binance Blockchain Bank Backing

Malta continues to make cryptocurrency headlines as Binance announced the backing of a decentralized bank and will further raise equity on the Neufund platform. The choice of using Neufund for a legally-binding, on/off-chain Equity Token Offering (ETO) on Neufund seems to be quite straight forward seeing as both companies where the first to enter Malta - both companies whom have assisted the government in steering their blockchain agenda.

Binance has backed Founders Bank with a 5% investment at a $133Mn pre-money valuation. But it's not all blue skies - there are regulatory hurdles to overcome, mainly, the granting of a banking license. While it would seem unlikely for such a request to be denied, Malta is tiptoeing after the European Banking Authority scathed the Central Bank for allowing rampant money laundering violations. But this was isolated to one bank.

With Binance becoming a key investor through Neufund, the platform is likely to gain some of the splash a little further. And rightfully so.

The Berlin-based Blockchain outfit is indeed one of the most regulatory compliant operations that has understood the requirement of bridging blockchain to the slow moving government paper trail to make any ETO legally binding. It is understood by Diar that the German regulator BaFin, usually takes between 4-6 weeks to approve a prospectus. This puts 6 projects earlier announced by Neufund in June open for investment within a few weeks.

Companies Launching ETO on Neufund

wdt_ID Company Description Stage
1 Brille24 Eyewear for Smart AI Applications Series D
2 Uniti Electric Vehicles Seed
3 mySWOOOP Markets, Real-time Pricing Series B
4 Next Big Thing IoT Series A
5 Emflux Motors Electric Motorcycles Series A
6 BlockState Financial Products Suite Seed


Russian Bitcoin Use For Election Hack Funding
The 12 Russian intelligence officers charged for hacking DNC emails during the 2016 U.S. presidential election used bitcoin according to an indictment obtained by special counsel Robert Mueller. Bitcoins were obtained through mining, P2P exchanges and prepaid cards. They were primarily used to pay for domain names, servers and other expenses.
R3 Makes Stride With Corda Enterprise Launch
After many years of development, R3 launched Corda Enterprise, which is a commercial version of its open-source Corda software. The enterprise version is fully compatible with the non-commercial software and includes 24/7 customer support as well as Blockchain Application Firewall. R3 is also reportedly considering an Initial Public Offering (IPO).
Task Force for Digital Currency Fraud Established
U.S. Department of Justice (DOJ) empowered by an executive order by the president is establishing a Task Force on Market Integrity and Consumer Fraud dibanding Financial Fraud Enforcement Task Force established under the Obama Administration. The executive order states that the Task Force will focus on digital currency fraud amongst others.
Tether Appoints New CCO
Tether appointed Leonardo Real, former AML Quality Control Manager at the Bank of Montreal, as Chief Compliance Officer (CCO). Mr Real, a self-proclaimed longtime advocate of blockchain technology, said that he looks forward to helping showcase Tether’s commitment to transparency and regulatory compliance within the cryptocurrency space.

Receive Diar Every Monday – The Digital Assets & Regulation Trade Publication

Something went wrong. Please check your entries and try again.

#DontCriticizeAnalyze

Disclaimer: Unless otherwise specified, the content of the articles published on www.diar.co constitutes intellectual property of Diar Ltd and may not be reproduced or republished in whole or in part without prior written consent. The information contained in the articles published on www.diar.co does not in any way constitute financial or investor advice and is only intended for informative purposes. Readers may not rely on such information to decide on investment or financing options or otherwise rely on such information in making decisions with monetary or financial effects. Diar Ltd does not accept any liability of any kind with regards to the validity of the information or with regards to any damage suffered as a result of reliance on such information. © 2018 Diar Ltd. Contact: newsdesk@diar.co

TERMS OF USE  –   PRIVACY POLICY   –   SITE MAP