2018 October 01 - Volume.2 Issue.39

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2018 October 01 - Volume.2 Issue.39

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US Cryptocurrency Exchanges Move at Different Speeds

Earlier in March Coinbase announced to trader’s glee that it would soon add support for ERC20 tokens. Fast forward 6-months, to the day, and the regulatory conscientious exchange announced that it has, rather, revamped its listing process, opening up a corridor for token creators to apply for possible addition onto their popular platform. Meanwhile, Circle and Kraken have added new assets. And with the Circle backed USD-C Stablecoin going live last week, Coinbase could find itself on the back foot against their very own vision of an ‘Open Financial System’ with their competitors cementing first-to-market partnerships across the decentralized ecosystem.


While Coinbase’s executive hiring bonanza has shown no sign of slow down this year, the same can’t be said about the exchange winning over new traders (Diar, 23 August & 23 April).

Before the cryptocurrency bear market this year, any slight rumor of a potential Coinbase add would cause an asset price surge – a “feature” the exchange earned from its popularity, but, whose gas may soon start to fizzle out to other exchanges adding new assets.

Coinbase’s only addition this year, Ethereum Classic, was met with lackluster reception from the crypto community as it wasn’t an ERC20 token, and was seen to be the inner workings of Digital Currency Group’s Barry Silbert whose investment arm Grayscale sponsor the development of the project (Diar, 16 July).

But it’s clear that Coinbase is attempting serious maneuvers in conveying, as of last week at the very least, that they do indeed plan to add more cryptocurrencies. The exchange has added a cryptocurrency ranking board, an educational platform, and have also released a mini-version of the Coinbase Index Fund were traders can bundle the assets currently listed.

|| COINTEASE

Still, the new bells and whistles added to Coinbase’s own utopia falls short of the announcement made back in July which revealed that the exchange was exploring 5 potential additions - 0x, ZCash, Basic Attention Token, Cardano and Stellar Lumens (Diar, 16 July).

As it stands, at least from a regulatory point of view, Cardano, ZCash, and Stellar Lumens have all been added by US exchanges who also have fiat onboarding (see table). The latter two cryptocurrency have already received the blessings of the New York Department of Financial Services (Diar, 25 June).

While the ‘Big Apple’ may not be the center of the cryptocurrency world, the addition of ZCash and Stellar Lumens would still be compliant with the New York BitLicense with Gemini and itBit having set the precedent.

|| STABLECOIN TRICK?

Stablecoin projects have been structured as standalone projects, however, the depth of their adoption within the cryptocurrency ecosystem appear to be of strategic importance for exchanges. With various Stablecoin projects having popped up this year, many exchanges are hoping that the horse they’re backing a winner (Diar, 17 September).

And Stablecoin bring a good little trick for fiat on-ramps who are weary of regulators scrutinizing their listings as possible securities.

USDC Moves on Coinbase's 'Open Financial System' Vision?

wdt_ID Focus USDC Adoption By
1 Loans (mortgages, small business lending, micro-lending, etc) BlockFi, MoneyToken, Dharma
2 Merchant Processing (point of sale, internet orders) BitPay, Centrifuge
3 Investing (stocks, index funds, savings accounts, etc) FOTA, Melonport
4 Venture Capital (seed, traditional vc, venture debt, etc) -/-
5 Remittance (sending money cross border) -/-
6 Identity & Reputation (IDs, authentication, credit scores, etc) -/-

Coinbase Falls Behind Other US Exchange Listed Assets

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

Notes: # Addition confirmed. Selected Exchanges have Fiat on-ramp


With Stablecoin being able to move between exchanges, access to lots of various cryptocurrencies becomes a reality, despite the user experience suffering from some extra steps.

|| CIRCLES…..OPEN FINANCIAL SYSTEM

It's no little wonder that investors have poured in over a quarter billion dollars into Stablecoin projects (Diar, 25 June).  A non volatile Stablecoin could be the key for users to access decentralized financial services such as loans.

And as Coinbase continues to address their wish for an “Open Financial System”, they now face pressure from their competitors who have made advances on several fronts of the vision with reputable projects adopting Circle backed Stablecoin USDC. (see table).


Stablecoin Selection Advance on Exchanges, Decentralized Exchanges

wdt_ID Stablecoin Auditor Regulation Circulation Exchanges
1 USDC Grant Thornton FinCEN $7.5Mn Poloniex, OKEx, DigiFinex, CoinEx, KuCoin, Coinplug, XDAEX
2 Gemini dollar BPM NYSDFS $3.46Mn Gemini , HitBTC, Bibox, DEx.top
3 Paxos Standard Withum NYSDFS $15.1Mn Binance, ZB.COM, Gate.io, DOBI trade
4 TrueUSD Cohen & Co. FinCEN $102.7Mn Binance, Bittrex, Upbit, Digifinex, CoinTiger


Stablecoin Selection Advance on Exchanges, Decentralized Exchanges

wdt_ID Stablecoin Auditor Regulation Circulation Exchanges
1 USDC Grant Thornton FinCEN $7.5Mn Poloniex, OKEx, DigiFinex, CoinEx, KuCoin, Coinplug, XDAEX
2 Gemini dollar BPM NYSDFS $3.46Mn Gemini , HitBTC, Bibox, DEx.top
3 Paxos Standard Withum NYSDFS $15.1Mn Binance, ZB.COM, Gate.io, DOBI trade
4 TrueUSD Cohen & Co. FinCEN $102.7Mn Binance, Bittrex, Upbit, Digifinex, CoinTiger


Venture Capital Firms Go Deep and Wide with Blockchain Investments

While the billions being poured into Initial Coin Offerings stole headlines, traditional venture capital has also been backing companies covering a large spectrum of the blockchain ecosystem.


Initial Coin Offerings (ICOs) were supposed to disrupt how early ventures raise capital. And many were calling for the end of venture capital as we know it. But markets have corrected, and token values have continued to plummet. As Diar found, 70% of tokens are now valued at less than what was raised during their ICO (Diar, 24 September 24). The majority of tokens have dropped in price by more than 90% from their all time highs.

Non-equity ICOs are not only scrutinized by the regulators but the founders also have very misaligned incentives as there is no contractual obligation to deliver a product - a reality that to date seems to be the case with few launches, and even less adoption. The amount that was raised through ICOs as well as the number of projects successfully completing an ICO is now approaching a one year low.

But one would certainly be too quick to call this the end of companies focusing on blockchain and cryptocurrencies.

Diar found that while projects are now more reluctant to raise capital through ICOs, traditional venture capital continues to up their risk in the Blockchain space. According to data provided by Pitchbook, in just the three quarters of 2018, blockchain and crypto companies have raised nearly 3.9Bn through traditional VC - 280% more when compared to last year (see chart). The number of deals also nearly doubled from last year. And investors are not only writing more checks, they are also writing much larger checks. The median deal size of crypto and blockchain investments has increased by more than $1Mn in 2018.

Ten of the largest deals in 2018 have seen blockchain and crypto companies raise more than $1.3Bn (see table) in venture capital. Only one of these companies has a native utility token - DFINITY. The rest presents a traditional equity investment.

Unsurprisingly, by far the most active VC investor is Barry Silbert’s Digital Currency Group (DCG). According to Pitchbook, the firm has closed more than 110 deals in the crypto and blockchain space. DCG is followed by Blockchain Capital and Pantera Capital who have closed 100 deals combined. The most active traditional VC firms are Andreessen Horowitz, Danhua Capital and Future Perfect Ventures (see table). The most active angels are Tim Draper, Naval Ravikant, Roger Ver and Barry Silbert.

There are close to 2,000 investors who have invested in at least one blockchain company. Diar analyzed the 50 most active investors, which have invested into at least 8 blockchain companies. Approximately 52% of investments are by investors who are not exclusively focused on investing in blockchain. And as far as location, the US is by and far leading the chart. Investors taking a punt into blockchain companies are predominantly based in the U.S. (79%), followed by China (12%), South Korea (2%) and Singapore (2%).

Largest 2018 Venture Capital Deals

wdt_ID Company Size (Mn) Led by
1 Bitmain $400 Sequoia Capital
2 DFINITY $163 Andreessen Horowitz, Hashed, Polychain
3 Basis $133 Bain Capital Ventures
4 R3 $122 Bank of America, SBI Holdings, HSBC
5 Circle $110 Bitmain
6 Seba Crypto $104 Black River Ventures, Summer Capital
7 Ledger $77 Draper Esprit
8 Paxos $65 RRE Ventures, Liberty City Ventures, Jay Jordan
9 Uphold $57.5 Hard Yaka
10 Figure $55 Ribbit Capital, DCM Ventures


Venture Capital Firms Blockchain Investments Still on the Rise


Venture Capital Median Blockchain Investment 


Source: Pitchbook


Cryptocurrency Operations Manoeuvre to Launch "Blockchain Banks"

Securing banking facilities for cryptocurrency operations remains to be the "secret sauce." While Europe seems to be playing nicer with crypto than the US, others have seen an opportunity to build new banking operations from the ground up with a Blockchain focus to facilitate the sidelined industry.


Last week, a Switzerland-based startup SEBA, announced that it raised 100Mn CHF ($101.6Mn) in venture capital to build a bank that will give customers access to both fiat and crypto within the same account. The disclosed investors backing the project include Moscow-based Black River Ventures and Amsterdam-based Summer Capital.

The company, which currently employs 17 people, certainly doesn’t lack banking experience. SEBA will be headed by Guido Buehler who reached executive ranks throughout his 11-year tenure at UBS. SEBA’s chairman Andreas Amschwand as well as CTO Per Magnusson also worked at UBS for an extended time. Philipp Baretta, SEBA's CFO, had executive roles at both Credit Suisse and Citigroup.

SEBA is now in process of applying for a banking license from Swiss Financial Market Supervisory Authority (FINMA), with whom it has been in talks since April. After it receives the required approvals, the company plans to eventually expand to Singapore and the European Union.

In July, Binance invested $7.75Mn to purchase a 5% stake in Founders Bank. The new outfit applied for a banking license in Malta and plans to launch in the first half of 2019. The firm will hold an Equity Token Offering through Neufund towards the end of 2018.

|| BUT THATS NOT ALL FOLKS

The Litecoin Foundation partnered with TokenPay to acquire a nearly 20% stake in a German bank WEG Bank. The intention of the acquisition was to have a bank that is cryptocurrency friendly. 

Banks Accepting Cryptocurrency Operations

wdt_ID Bank Based in Total assets
1 Barclays UK $1.1Tn
2 Vontobel Switzerland $19.7Bn
3 Hypothekarbank Lenzburg Switzerland $5.0Bn
4 Falcon Private Bank Switzerland $2.9Bn
5 Metropolitan Commercial Bank USA $2.0Bn
6 Silvergate Bank USA $1.9Bn
7 VersaBank Canada $1.7Bn
8 Cross River Bank USA $1.2Bn
9 Bank Frick Liechtenstein $1.1Bn
10 LHV Pank Estonia $1.1Bn

|| BIG RISK, BIG REWARD?

Outside of Barclays UK who banks Coinbase, only smaller outfits look to have taken on the risk of cryptocurrencies. Diar places only four banks in the United States willing to facilitate cryptocurrency operations - Metropolitan Commercial Bank, Silvergate Bank, Cross River Bank and Signature Bank (Diar, 11 June).

Hypothekarbank Lenzburg, LHV Pank and Fidor Bank provide banking services to cryptocurrency businesses in Europe. And Vontobel, Falcon Private Bank and Bank Frick provide additional cryptocurrency based services such as asset management, trading, cold storage, tracker certificates and futures, even initial coin offering (ICO) advisory.


ICOs Tumble to $180Mn in September 2018, Just 7% of Peak


Source: TokenData

ICO - ETH Raise


Source: TokenData

FBI, SEC Sting Operations Takes Down 1Broker
A special agent with the US Federal Bureau of Investigations (FBI) that was able to purchase security swaps using Bitcoin with no Know-Your-Customer details has brought down Marshall Islands registered 1Broker whose CEO, Patrick Brunner, was Austria-based. The news coming out of Washington indicates increasing joint activity across US agencies.
Goldman Sachs, GV, Move in on Blockchain Payment Rails
Veem, a blockchain payment rails company focused on Small Business has closed a $25Mn funding round led by  Goldman Sachs and GV (formerly Google Ventures). The major Wall Street bank is now following the footsteps of cryptocurrency and blockchain investors Digital Currency Group and Pantera Capital who had initially backed the company in 2015.
Cryptocurrencies Reach Ears of UN General Assembly
Malta's Prime Minister Joseph Muscat, whose Island nation has been winning over cryptocurrency operations, so far mainly for banking purposes, took the benefits of Blockchain to the United Nations stage. While Malta so far primarily has a crypto interest, Mr Muscat took the opportunity to spin Blockchain for the greater good of humanity.
A16z Crypto Goes Large into MakerDAO Token
Andreessen Horowitz cryptocurrency investment arm, A16z Crypto, made one of its largest investments yet to the tune of $15Mn into MakerDAO. The governance token for the Stablecoin Dai is currently the most used Dollar pegged cryptocurrency on Decentralized Exchanges. A 45% discount on market prices for MKR put 6% of the total supply into A16z hands.

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