2018 September 10 - Volume.2 Issue.36

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2018 September 10 - Volume.2 Issue.36

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Deep Pockets Prop Up Development Teams for Long Haul

Companies that did an ICO before the price boom of 4Q17 are sitting on massive reserves that could potentially fuel development teams for years to come. Last week TenX, a basic wallet that promises a Visa debit card, voluntary disclosed their financial positions revealing that the company is sitting on over $100Mn. Not only is that more than the company originally raised, but it’s more than their whole network is currently valued on secondary markets. And they’re not the only ones.


Ethereum suffered a confidence setback last week as its co-founder Vitalik Buterin told Bloomberg that the blockchain space is nearing its “ceiling” and that the marketing strategy that has been ensued in the last near decade is coming to a dead-end. But extremely deep pockets within the very closed-circuit cryptocurrency community could result in the prolonging of marketing euphoria masking the little adoption of services.

|| PSEUDO POSITIVE FEEDBACK LOOP

Despite little user adoption of Decentralized Applications (dApps), and even less deployment as of yet of functioning products, cryptocurrency retail investors are likely to continue seeing upbeat teams within the cryptosphere about the prospect of their tokens having secured funding for years to come.

TenX, who raised $80Mn last year, published their first transparency report last week and became one of a handful of companies to disclose financials. ICO companies have no contractual obligation disclose any financial documentation. They also have no obligation to deliver on product promises, which has been the case for TenX 8-months on ever since Visa ended their relationship with WaveCrest, the only Visa issuer in Europe at the time back in January (Diar, 8 January).

As of August 6, TenX’s reserves consisted of $70.5Mn in fiat and ~$34Mn in crypto - $104.5Mn combined. TenX also disclosed their burn rate, which at $ $8.9Mn yearly the company can keep sending positive vibes to investors for the next decade. But TenX can’t be singled out for its good fortune, and, by their own figures, excellent portfolio management. Many other companies have been blessed with similar good tidings.

While comprehensive financials are not disclosed by many companies, the amounts that they have in their original Ether treasuries at the time of their ICO is public information. Some of the most popular and anticipated projects, most of which have yet to launch, are sitting on treasuries north of $500Mn. That’s excluding their cash on hand, as well as their own token reserves.

Mr Buterin voiced his belief that the decentralized industry must begin to move into the direction of real application of real economic activity. It seems, however, that with scaling issues that continue to be of concern, marketing activities promoting the potential could remain the norm until the User Experience of the world computer gets addressed.

Market Capitalization Less than Treasuries

wdt_ID Token ETH Treasury USD Market Cap
1 Aragon 237,466 45,524,526 21,548,571
2 SingularDTV 201,131 38,558,754 10,734,428
3 Gnosis 190,367 36,495,316 32,538,049
4 FirstBlood 76,921 14,746,463 5,370,291
5 Monetha 57,190 10,963,813 3,682,337
6 HEROcoin 39,116 7,498,962 1,101,650
7 Bloom 33,185 6,361,973 3,962,182
8 Mysterium 27,522 5,276,271 2,361,780
9 Atonomi 26,922 5,161,222 3,640,872
10 Indorse 16,559 3,174,552 1,531,934


Popular Tokens Sitting on upward of $½ Billion

wdt_ID Name ETH Raised ETH USD
1 DigixDAO 466,648 395,433 75,808,415
2 Golem 820,000 369,023 70,745,428
3 Polkadot* 485,331 306,276 58,716,224
4 Status 299,898 246,419 47,241,053
5 Aragon 274,990 237,466 45,524,526
6 Filecoin 566,715 216,906 41,583,115
7 Tezos 361,122 203,468 39,006,848
8 Gnosis 250,000 190,367 36,495,316
9 Iconomi* 114,939 114,939 22,034,956
10 Kyber 200,000 81,999 15,720,048

Notes: USD Balances as on 9 September 2018



Kraken European Volumes Decline, Cost Cutting Measures Take Form

Over 50 employees from Kraken's client services division based out of the exchange's Canadian office where met with letters of termination last week. The cost cutting measures represent 10% of the company's support staff as the exchange is said to reshuffle it's priorities and focus on their Asia expansion, despite exiting Japan less than 6 months ago.


Kraken Bitcoin trading volume in August dropped 73% versus its high in March 2018 - levels not seen since June 2017. The massive drop in volume, the result of cryptocurrency prices that remain in decline, has pushed the exchange to cost cutting measures.

Canadian Dollars, Japanese Yen and the British Pound have on average represented an insignificant 1% of Bitcoin trading volumes.

The biggest loss for Kraken has come from the cool off from European markets. The exchange, which remains to be one of the few cryptocurrency exchanges with fiat on-ramps, as well as tokens on their platform, has seen the volumes from Europe drop 28%. In January 2017, 77% of their total Bitcoin traded volume was from Euro alone.

Kraken Losing European Customers ($)


Source: CoinAPI


US Muscle Hits Swiss Based Shapeshift with KYC Requirements

Last week, Shapeshift announced that it will soon be mandatory for every trader to provide basic personal information. The traditionally anonymous instant exchange will now perform know-your-customer (KYC) checks and share information with regulators. Erik Voorhees, Shapeshift’s CEO and a longtime proponent of financial privacy, said that he would prefer if the collection of personal information was not a mandatory element. In a tweet that Mr Voorhees has since deleted, he said that KYC “is not something we want to do, nor something any user wants. It's a heavy decision done to derisk under duress.”

The Bank Secrecy Act(BSA) requires financial institutions in the U.S. to assist government agencies to detect and prevent money laundering. Under the BSA, money transmitters must register with Financial Crimes Enforcement Network (FinCEN) as an money services business (MSB), have a risk-based know-your-customer (KYC) and anti-money-laundering (AML) program, as well as file suspicious activity (SARs). In 2013, FinCEN issued guidance, which said that any MSBs dealing with cryptocurrencies fall within the purview of the BSA.

It’s heavily implied that Shapeshift was imposed to implement KYC under the threat of enforcement action by either FinCEN or another U.S. regulator, despite Shapeshift being based in Switzerland. The BSA is applicable to all MSBs engaged in money transfer business to or from the U.S. regardless of the jurisdiction. In fact, FinCEN imposed a $110Mn fine against Russia-based BTC-e last year for not requiring KYC and for allegedly facilitating transactions for cybercriminals.

BTC-e operator Alexander Vinnik was arrested by Greek authorities on behalf of the U.S. Department of Justice, but extradition was lost to Moscow earlier this year.

Changelly, Shapeshift’s biggest competitor, has coincidentally also started to withhold fully private Monero due to “high risk” KYC concerns.

It’s becoming increasingly clear that non-KYC exchanges serving U.S. customers, which are not decentralized (can be shut down), will either be strong armed to shut down or imposed to implement KYC. Both Bitfinex and BitMEX decided to stop serving US individual in 2017.

It is expected that turn of events will spur the development of decentralized exchanges (DEX) that support cross-chain atomic swaps.

|| BUT CAN DEX BE THE ANSWER?

Decentralized exchanges have yet to pick up much speed in terms of trading volume, albeit seeing a slight uptick in recent months with the addition of multiple 0x relayers coming online. One of the hurdles that plagues the industry due to KYC and AML requirements are fiat on-ramps.

Bancor, however, has indeed addressed this bottleneck by allowing patrons to add fiat funding with their credit cards despite being a decentralized network. This however does require full KYC paperwork through their credit card processor Simplex.


Monetary Policies Come into Focus as Ethereum Adjusts Miner Reward

14 Ethereum developers decided to support a reward reduction from 3 ETH to 2 ETH per block. Such change would decrease the daily issuance from $4Mn to roughly $2.7Mn and push down the supply inflation rate from 6.4% to 4.3%. While this is just consensus of a small group of key developers, the proposal will be included in Ethereum’s Constantinople hard fork scheduled to go live in October.

The final consensus won’t be reached until the hard fork is actually implemented by the miners. Although the miners could technically decide to fork off, it is quite unlikely that such implementation would gain much traction without the support of the key developers. It’s also improbable that the developers would implement such a change if they didn’t have majority approval of the users as well as miners. Once Ethereum moves from Proof of Work to Proof of Stake, the supply inflation will drop to about 0.5–1% regardless.

Words Matter:
The supply of Bitcoin is disinflationary by design, which means that the supply is increasing at a decreasing rate. Currently, approximately $11.6Mn worth of Bitcoin are added to the supply every day (see table).

The supply inflation rate currently stands at approximately 3.8%.When all the Bitcoins are mined around the first half of the 22nd century, the supply inflation rate will be 0%. Bitcoin can be deflationary only if it is assumed that people keep losing bitcoins, which is effectively decreasing the supply. Chainalysis has already placed a whopping 6Mn Bitcoins as unmined and lost coins.


Major Cryptocurrency Supply Inflation

wdt_ID Cryptocurrency Bitcoin XRP Bitcoin Cash Litecoin Monero Dash Zcash Nano
1 Price $6,464 $0.30 $508 $56.8 $114 $178 $128 $2.4
2 Market capitalization $111,488,767,609 $11,725,660,482 $8,805,150,929 $3,302,514,077 $1,865,702,896 $1,477,942,537 $603,153,967 $322,460,859
3 Block interval/confirmation time ~10 minutes ~4-10 seconds ~10 minutes ~2.5 minutes ~2 minutes ~2.5 minutes ~2.5 minutes ~10 seconds (theoretically instant)
4 Blocks per day 144 - 142 572 720 557 584 -
5 Issuance per block 12.5 BTC (will be halved to 6.25 BTC in 2020) - 12.5 BCH 25 LTC 3.95 XMR 3.35 DASH 12.5 ZEC -
6 Issuance per day $11,635,398 $799,239 $902,244 $811,931 $324,045 $332,520 $933,105 $0
7 Supply inflation (For 2018) 3.80% 2.50% 3.70% 9.00% 6.30% 8.20% 56.50% 0.00%
8 Max supply Limited at 21M Limited at 100B Limited at 21M Limited at 84M Not limited (18.4M and then ~157,700 yearly) Limited at 18.9M Limited at 21M Limited at 133.25M
9 Current supply 17,247,350 39,650,153,121 17,335,363 58,183,828 16,374,433 8,299,784 4,716,931 133,248,289
10 Supply Issued % 82% 40% 83% 69% - 44% 22% 100%


Major Smart Contract and IoT Supply Inflation 

wdt_ID Token Ethereum EOS Stellar Cardano IOTA Ethereum Classic
1 Price $223 $5.1 $0.2 $0.09 $0.57 $11.8
2 Market capitalization $22,710,781,135 $4,603,725,199 $3,902,974,414 $2,206,030,724 $1,596,623,344 $1,234,513,620
3 Block interval/confirmation time ~15 seconds .5 seconds ~4-5 seconds ~20 seconds ~1 minute (theoretically instant) ~14 seconds
4 Blocks per day 5959 172,800 - - - 6,128
5 Issuance per block 3 ETH (will be changed to 2 ETH) - - - - 4 ETC
6 Issuance per day $3,990,786 $630,647 $106,931 $0 $0 $290,222
7 Supply inflation (For 2018) 6.40% 5.00% 1.00% 0% 0% 8.60%
10 Max supply Not limited (for now) Not limited (5% inflation rate) Not limited (1% inflation rate) Limited at 45B Limited at 2.78B Limited at 210M
11 Current supply 101,728,023 906,245,118 18,783,263,941 25,927,070,538 2,779,530,283 104,266,353
12 Supply Issued % - - - 58% 100% 50%


Lightyear Buys Chain, To Become Interstellar
Chain, enterprise blockchain development startup, was acquired by Lightyear and formed a new company Interstellar. Lightyear, a company focused on empowering the Stellar blockchain, was co-founded by Jed McCaleb who has also co-founded both Ripple and Stellar. All of the Chain’s products will be migrated to Stellar.
SEC Suspends Trading of ETNs Linked to BTC and ETH
The SEC announced the temporary suspension of trading in the two securities linked to bitcoin and ether - Bitcoin Tracker One and Ether Tracker One. The reason for suspension is a lack of current, consistent and accurate information on these products and what is their categorization. The trading will be suspended until September 20.
ASX Delays DLT Settlement Platform Launch Until 2021
The Australian Securities Exchange (ASX) partnered with Blythe Masters-led Digital Asset to use distributed ledger technology for post-trade settlement to replace the current 25-year old CHESS platform. The ASX was originally targeting a rollout date in 4Q 2020 but has now been delayed until 2Q 2021 citing complexity of the implementation.
Kingdom Trust Obtains Insurance Through Lloyd's
Kingdom Trust, an institutional custody solution for alternative assets including cryptocurrencies, has been able to insure its cryptocurrency holdings by Lloyd's of London. Kingdom Trust serves over 100,000 clients and has over $12bn in assets under custody. The cryptocurrency holdings are now insured against thefts and destruction.

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