CryptoAM: Bancors Change, Synthetic Issuances, and The Marshall Token


☀️ Good Tuesday morning, CryptoAM’ers! ☀️We’ll be back to your regularly scheduled programming this week, sorry if you’ve missed us.

For those of you in Chicago, we have a special event for you! Token Daily Capital & Fidelity are putting on a dinner, and you find the event linked here.



Three things you need to know:

One: Bancor Makes Some Significant Changes

Bancor has a storied place in the history of cryptocurrency. The Bancor ICO was the largest ICO in history! They managed to raise $153M in June of 2017, $1M more than than infamous DAO ICO… (which itself led to the largest dispute in the history of Ethereum — the DAO hack).

Bancor is a liquidity protocol, aimed at creating a decentralized way to exchange and trade tokens. It launched its web application about 2 months after the close of its ICO, and has attracted a small but core group of traders who transact using the Bancor protocol regularly. Despite this core group of users, Bancor suffers from many of the same drawbracks that plague decentralized exchanges in general.

  • The inability to achieve instant settlement leading to a lack of liquidity

  • No ability to take out leverage on your positions

SBancor has also restricted U.S investors as other decentralized exchanges (such as EtherDelta), have been targeted by SEC for the unregistered selling of securities. The token price has fallen >90% from previous highs.

So needless to say, Bancor needed a facelift. Last week, they got one. Bancor revamped their token in a sweeping manner:

  • To accelerate and incentivize network liquidity, Bancor will airdrop BNT’s entire Ethereum reserve, which will amount to 10% of BNT’s market cap at the time of the airdrop, on all BNT holders.

  • BNT will be upgraded to an inflationary token with a default setting of 0%. BNT holders will vote on the rate of inflation and its recipients — deploying funds to strategic Bancor liquidity pools, oracles and developers, as determined by the community.

  • We are announcing the Bancor Foundation Grants Program aimed at funding a broader array of developers and startups building on the Bancor Protocol. Initial grants are awarded by the Bancor Foundation, while future grants will be voted on by BNT holders.

Let’s break this down a bit.

  • First, Bancor will be airdropping their entire BNT ether reserve (filled from their ICO days) to Bancor token holders.

  • Second, they’re introducing inflation into the Bancor system and redefining what it means to be a Bancor holder. In line with many other newer procotols, Bancor is introducing more forms of community governance into the system, and they are using inflation as an incentive to participate.

  • Third, they are focusing on something we’ve talked about before — ecosystem funds. Many protocols are beginning to realize that developers and companies are unlikely to begin building on a protocol without incentive. In order to introduce incentive, many protocols have spun up “ecosystem funds” that can pay devs to create on their protocol. Personally, I view a well run ecosystem fund as one of the most important secondary offerings a protocol should have.

Why this matters: Token models are ever changing. When the first Ethereum based ICOs launched a little more than 3 years ago, the concept of a “token” at the center of what is ostensibly an economic construct was a radical idea. Keep an eye on protocols that have the guts to radically overhaul their token system. Projects like Bancor, Numeraire and Haven (now Synthetix) stand out considerably.


Two: Synthetic Issuances Continue to Grow

We’ve discussed the topic of decentralized synthetics a few times here already. Decentralized protocols that allow for the creation of synthetic assets through collateralization are taking strides everyday, and those protocols are some of the most compelling use cases for decentralized finance I’ve seen yet.

Yesterday, UMA protocol announce a new product, the “Synthetic Token Builder”. This is essentially a more flexible and user controlled version of Synthetix. The concept behind the protocol is simple — allow users to use collateral to mint any type of token. For example, someone could mint a TSLA token using DAI as collateral, and sell it on a DEX. You could simulate the exposure to pretty much anything.

To ensure that tokens are fully collateralized at all times, UMA has implemented a practice of “freezing” assets:

At any time, anyone can ask the smart contract to check if your token facility is undercollateralized. During this process, the smart contract checks what the latest price is from the price feed and checks if the amount of DAI you’ve maintained in the contract meets the required amount.

If you do, you’re all set. If you don’t, the smart contract freezes all the collateral in the contract (you can’t deposit or withdraw), and assesses a penalty. Anyone who holds synthetic tokens that were minted by this token facility can redeem them for a proportional amount of the backing collateral, plus any penalty.

The obviously drawback: If the market moves violently, and the amount of capital needed to bring the token back to full collateralization is *more* than the amount already deposited, the token creator would be incentivized to walk away from the contact. In effect, this creates a upper and lower bound on the potential price gyrations, making it a less safe bet than a centralized exchange.

Yes, but: This is a great experiment! The product is now live on Rinkeby. It’ll be interesting to see how the UMA model (more open source, no token) competes with the Synthetix model (DeFi, but less open — does have a token). It seems as though the token aspect of Synthetix has attracted a lot of speculators, and I tend to believe that models like this work better with tokens because of the psyche of cryptocurrency market investors.

Go deeper: read the full UMA protocol announcement.


Three: The Marshall Islands is Launching a Token Sale (!)

Yes, you read that headline correct. Last week at the CoinDesk Asia conference David Paul, a Marshall Islands Minister revealed that the Marshall Islands was planning on introducing a digital token to act as its national reserve currency. They’re even launched a nifty new website where you can register to buy the thing! They’ve named the new currency in an incredibly catchy and witty way: the Timed Release Monetary Issuance. Sounds good?

They plan to sell this currency over 18 - 24 months via a pre-sale.

Some key quotes from the conference as reported by CoinDesk:

  • The U.S. Treasury had told the RMI government “point-blank,” according to Paul, that it didn’t like the SOV. However, following nearly a year of internal discussions, Paul affirmed that U.S. officials are saying this project could work.

  • “A nation cannot rebrand [like a company can]. That’s why we have to do this in such a way that’s different. It has to be transparent. It has to be inclusive. We need to make sure that we work with regulators to ensure that once we launch, they don’t go back and say, ‘Oh, you haven’t done this. You should have done that.'” - David Paul

There were some big players that stood in opposition to this plan. According to a CoinDesk report, the IMF “advised against the currency” last year. U.S regulators were also uncomfortable with the idea, but ultimately turned foot and decided that the tender may actually end up working out.

Big picture: This may seem like a ploy by a smaller nation to capitalize on fundraising through tokens. Let’s be real — you’re probably right. With that being said, it’s indicative of a larger and interesting trend of countries introducing digital currencies into their ecosystem. It’s not unreasonable to assume that smaller, more economically fragile countries will look to digital tokens as a way to attract foreign investments.


Also in the news:


Market Outlook:

Quick Take

Overall Market: Both realized and implied Bitcoin volatility has dropped off significantly over the last week, and we’re seeing significant Bollinger Band and MA coiling as evidenced by the chart below. Based on those indicators, it’s likely in my opinion that we will experience an explosive. I tend to lean heavily on the reflexivity thesis, which would indicate that the first large candle out of this lull will dictate the next few weeks of price action. In light of these trends, although there is no guarantee, I would expect to see substantial movement.

As you can see in the chart below, Bitcoin dominance has started to fall off after reaching a peak of 73.5%.

Based on the correlations breaking down, and a turning in BTC dominance, I am long select ALT-USD pairs that have shown bottoming patterns such as XRP and LTC. I am holding spot Bitcoin.

Key Support:  10100, 9880

Key Resistance: 10400, 10650


Around the Corner:

  • Sep 17, 2019 - Ethereum Classic Hardfork

  • Sep 18, 2019 - Binance will be opening registrations for Binance USA

  • Sep 23, 2019 - Bakkt to launch Daily/Monthly Futured

  • Sep 27, 2019 - CME futures contract expiry (3 mo)

  • Oct 13, 2019 - Bitwise ETF decision by SEC

  • Oct 14, 2019 - Extended date for Bitfinex to meet order and turn docs over to NYAG


What I’m thinking today:

What You Should Know Before Putting Half a Million DAI in Compound

Came across this tweet the other day about the significantly higher interest rates we see in DeFi:


Pretty bullish sentiment. One of the things that has always been on my mind though is the actual risk involved with these DeFi platforms. So it was interesting to see Ameen Soleimani, CEO of crypto’s beloved Spankchain, discuss what it was like managing the company’s finances and deciding whether or not to use Compound, one of the largest DeFi lending protocols.

Spankchain has about 500K of DAI in reserves, which at 10% interest rate on Compound has the potential to net around $4K a month, so there’s a good incentive to move that DAI onto Compound.

Ameen identifies three risks when lending on Compound:

  1. Contract Security Risks

  2. Centralized Points of Failure

  3. Bank Run Risk

Contract Security Risk

Not a massive risk according to Ameen, given that Compound has had three different audit reports by three different smart contract security firms + an independent bug bounty program.

Centralized Points of Failure

This is where things get more interesting. According to the report:

Because all cTokens use the same administrator, if the administrator key is compromised, all assets deposited in Compound can be trivially drained.


Having this type of centralization allows Compound to more easily make upgrades to its protocol (e.g. V1 to V2), but does leave open the possibility that if the administrator key were to fall into the wrong hands, there could be major disruption. Also important to note obviously is that Compound itself has the ability to “upgrade the price feed oracle, upgrade the interest rate models, and upgrade the risk model of the protocol.”

Bank Run Risk

Perhaps the most interesting of all the risks. The key here is to know the utilization rate of a DeFi protocol, which is the amount of total assets in the protocol that are currently being borrowed versus the total amount of assets committed to the protocol.

E.g. If there was $100M worth of DAI inside the Compound protocol and $90M of that was being borrowed, the utilization ratio would be 90%.

The reason why this is interesting is at the end of July this year the utilization ratio on Compound hit close to 100%. In other words, if a large group of people wanted to withdraw their DAI from Compound at that time they wouldn’t have been able to - it was all being borrowed and the system didn’t have the DAI available to give back to these lenders. What this would look like, according to Ameen:

“Lenders attempting to withdraw would simply see their transactions fail, and would be forced to wait until more borrowers paid back their loans before they could withdraw.”


This is clearly a problem if you’ve lended out DAI and you quickly need to get this DAI back. Imagine putting your money in a bank or other financial institution and then, when trying to withdraw that money again, you’re told its not possible and that you’ll have to wait.

Your only other option would be to sell your cDAI (compound token representing DAI) on open exchanges, where you’re likely to get stuck with exchange fees and potentially lower prices if everyone is trying to sell their cDAI at once.

How Compound addresses this

In the case that the utilization rate gets close to 100%, the Compound protocol is supposed to increase interest rates to incentivize borrowers to repay their loans (or otherwise it gets increasingly expensive for these borrowers). Doing this also is supposed to incentivize more lending (which should also decrease the utilization ratio).

Here’s the problem. The maximum interest rate the Compound protocol can currently reach according to Ameen is 20%. Let’s not forget that to take out DAI, borrowers use Ether. If a borrower believes that ETH will increase by 20% over the course of the year, there’s no incentive to pay back that loan, which could leave Compound with a liquidity problem.

This problem could be avoided however because Compound has the ability to manually increase interest rates on the protocol if it wants to. However if you’re a borrower and you borrowed on the assumption that you would never pay more than 20%, then facing the prospect of rates higher than that is obviously going to leave you unhappy.

Overall

If you’re lending on Compound and you want to be able to withdraw your funds at any moment, you should carefully watch the utilization ratio. If it starts to tick towards 100% and the price of ETH is going upwards, I’d be considering my options to withdraw my DAI from the protocol. If not you’re relying on the hand of god (Compound) to arbitrarily lift interest rates for you - something that could lead to a whole lot of push back on Compound given the decentralized ethos of the crypto community.


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About CryptoAM:

The core focus of CryptoAM is to cut through the noise of the cryptocurrency world — and deliver actionable information straight to your inbox. Every piece of information that CryptoAM delivers ends with a “so what — why does this matter?”. It’s easy to get lost with all the information that comes out everyday, CryptoAM exists so you have a guide.

- Avi and Zac


CryptoAM was founded as a daily newsletter by Avi Felman in May 2018. Zac Thomas joined Avi in January 2019 to revamp CryptoAM and is now a co-writer for the letter. Zac will normally focus on policy, regulation and mainstream adoption while Avi generally writes the project, technology and market focused pieces. If you read closely, you’ll be able to pick us apart soon enough 🙂


Nothing written in CryptoAM is legal or investment advice and should not be taken as such. CryptoAM does not make any guarantee or other promise as to any results that may be obtained from using our content. No one should make any investment decision without first consulting his or her own financial advisor and conducting his or her own research and due diligence.


CryptoAM: Franklin Templeton, Blockchain.com, and views on DeFi


🙏🏽 Happy Friday 🙏🏽

This edition is ~1200 words. A easy 5 minute read for those of you with tight schedules



Three things you need to know:

One: Franklin Templeton Introduces a Token

Image result for franklin templeton

Here’s a big one. Franklin Templeton, one of the largest investment firms in the world, just announced that they will be launching a tokenized money market fund on the Stellar network. The token is constructed to maintain a stable price of $1.00 and aims to issue a distribution every year.

  • In conjunction with the launch of the fund, Franklin Templeton will be developing a mobile application that will allow potential investors to purchase, redeem and track the value of the token in real time.

As to what the fund invests in? Simple. Low-risk assets. From the prospectus:

  • U.S. government securities which may include fixed, floating and variable rate securities.

  • Repurchase agreements which are agreements by the Fund to buy Government securities and then to sell the securities back on an agreed upon date (generally, less than seven days) at a higher price, which reflects prevailing short-term interest rates.

  • Portfolio maturity and quality   The Fund only buys securities that the investment manager determines present minimal credit risks. The Fund maintains a dollar-weighted average portfolio maturity of 60 calendar days or less, maintains a dollar-weighted average life for its portfolio of 120 calendar days or less, and only buys securities that mature in 397 calendar days or less.

Pay attention: This news is flying under the radar, despite the significance of the issuance. This is one of the first true steps into the world of tokenization and lays the groundwork for a potential swell of asset managers introducing the concept of a “tokenized” security to their large pool of potential investors.

  • The concept of “security tokens” has died a hard death among traditional crypto heads. If you dig a little deeper though, it becomes clear that the concept, rather than fading away, has merely shifted audiences. Traditional institutions are actually finding security tokens to be a rather interesting and investable product, as they tend to solve many of the current plumbing issues of the securities markets. The back office technology that security tokens can replace might not be sexy, but it doesn’t mean it’s unimportant!


Two: Wallet provider Blockchain.com looking to raise $50M fund

Image result for blockchain.com logo

The largest companies in crypto keep on diversifying. Just months after announcing it was launching a cryptocurrency exchange, Blockchain.com is reportedly raising a $50M VC fund. The fund will invest in both equity and tokens of cryptocurrency projects, and has apparently already invested in projects such as Origin Protocol and Coindirect.

Why it matters: Blockchain is the world’s largest wallet provider, claiming to have over 40 million users. This gives it some pretty natural advantages from an investing perspective, and the announcement of the fund is indicative of the growth of corporate venture capital. The name is pretty self explanatory; corporations creating venture capital arms to be able to invest in startups.

It comes with some key advantages - as a corporation you can invest in the most innovative new startups, whose technology you might then look to leverage in your own company (often to stop you from being disrupted). For a startup being invested in by a VC arm of a corporation, this may lead to opportunities to run pilots or PoCs with the biggest names in the industry.

Binance currently funnels part of its investment in startups through Binance Labs, an incubator for startups that provides seed funding for 10% of a company’s equity and token supply. Coinbase Ventures is also one of the more active funds investing in early stage crypto startups, with over 21 investments.

Hypothetical situation: If Blockchain.com offered to invest in your crypto startup, and as one of the terms offered the opportunity for your token (the token would have to be quite advanced) to be compatible with the Blockchain.com wallet and thereby available to its 40M users, what would you do?

The company currently offers support for bitcoin (BTC), bitcoin cash (BCH), ether (ETH), stellar (XLM), and USD PAX (PAX). I’ll be interested to see what type of additions there are to that list moving forward.


Three: A critical view of DeFi and ETH

We often can get caught up in our own echo chambers. For that reason I recommend the following tweet thread from the former head of EY blockchain, pushing back against the recent DeFi hype. Interesting food for thought:


On the other side here’s an interesting take on why, despite all the development that seems to be going on on Ethereum, the price seems to be faltering vs Bitcoin:


Also in the news:


Market Outlook:

Quick Take

Overall Market: Lot’s of macro themed developments over the last few days.

  • Christine Lagarde (former IMF head) mentioned the potential for digital currencies to disrupt the current economic system in a speech to the European Parliament.

  • Fed presidents are arguing over whether an inverted yield curve spells recession or not. The market is currently pricing in a 25 basis point cut in the Fed’s policy rate, the same size as its cut in July (which previously drew dissent from fed members)

  • The U.S and China will be meeting in October for another round of trade talks. The S&P was up ~1.3% on the news.

There are also some interesting protocol developments coming up. Ethereum Classic is still scheduled to fork this month and is racing ahead of other altcoins, outperforming even Bitcoin (+16% vs +4%) since August 1st.

Direction: The market fell out from under us. The range is tightening and the market is moving back down after failing to break the 10.9 key level. Now, everything between 10.1 and 10.9 can be considered noise — the next move will be explosive. Bitcoin is coiling.

I’ll be watching very closely here — lots of potential for Bitcoin to make new lows. The important things to watch for:

  • More build-up of open interest, indicating increasingly leverage

  • Funding rate patterns — is it going negative or positive?

  • How quickly are wicks bought up?

My personal take is more pain here moving forward. I’ve taken off a lot of risk here, and am flat on leverage.

Key Support: 10.1

Key Resistance: 10.9


What I’m thinking today:

A question I’ve always had that still bothers me: what happens when Bitcoin block rewards are gone? Will there be enough transaction fees on the blockchain to ensure a secure and 51% proof blockchain?

Block rewards + TX fees make up the security model of Bitcoin. One can consider them the total economic value produced by Bitcoin, and model the costs to attack Bitcoin based on that assumption.

In 2140, block rewards will go away, and the security of the Bitcoin network will depend entirely on transaction fees. I don’t know if this will be sustainable model, and it heavily depends (in my opinion) on whether Bitcoin is used as a means of transaction or as a store of value prior to continued halvings. People may think of this as a far off problem, but in reality the issue could crop up within the next 20 years. If Bitcoin price does not double at least every 4 years, then the security of the network will actually fall. Security relative to marketcap will also fall precipitously if Bitcoin is not used more frequently in transactions.

Well, I asked twitter the question and got lively responses. Dan Held wrote an article that talks in depth about the transaction issue, but my issues with it are almost word for word the issues that “@nuttycoin” has. Trimmed down, Bitcoin needs to scale to a much higher TPS in order to be used.

Go check it out, and if you have any answers of your own – send them my way!

Some additional readings on the topic:


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Nothing written in CryptoAM is legal or investment advice and should not be taken as such. CryptoAM does not make any guarantee or other promise as to any results that may be obtained from using our content. No one should make any investment decision without first consulting his or her own financial advisor and conducting his or her own research and due diligence.

CryptoAM: The Telegram TON, VanEck ETF, and Elwood Fund


Happy Wednesday, and welcome back from the holiday weekend – hope it was a relaxing one! Burning man just ended, and Bitcoin is up. Coincidence…? I think not.

Today’s CryptoAM is ~2300 words — a simple 9 minute read :)



Three things you need to know:

One: Telegram gears up to launch ‘TON’ network

The crypto industry’s favorite messaging app is getting closer to launching its own much anticipated blockchain network. Telegram, with an estimated 300 million users globally, is set to launch the Telegram Open Network (TON) by October 31st. In anticipation, on September 1st the company allowed public nodes to run on its testnet for the first time.

Telegram raised $1.7 billion through an ICO back in 2018, to date the 2nd largest ICO in history after EOS. Here’s some of the things the company has promised it’s building with that money:

  1. TON Payments = A highly secure, fast and decentralized payment system with a transaction speed comparable to that of Visa and MasterCard. Payments are set to be made via Telegram’s ‘Gram’ token.

  2. TON Storage = A file-storage technology available for storing files with torrent-like access technology and smart contracts used to enforce availability. Similar to a distributed Dropbox.

  3. TON Proxy = A network anonymizer layer to hide the identity and IP addresses of TON nodes. This layer can be used to create decentralized VPN services and blockchain-based TOR alternatives to achieve anonymity and protect online privacy.

  4. TON Services = A platform for third-party for DApps, smart contracts and a decentralized browsing experience.

  5. TON DNS = A service to assign human-readable names to accounts that will allow users to access decentralized services as easily as browsing the World Wide Web.

That’s a lot of promises in a lot of different areas. Not just that but these are big problems the company is promising to solve - blockchain scalability for payments while maintaining a high degree of decentralization, decentralized storage, and what seems to be a decentralized identity product. It’s unclear however whether the company is planning to launch TON with all these features by October 31st deadline (unlikely).

Key trend: There are a number of social media platforms currently trying to launch their own cryptocurrencies. Facebook is the most prominent example alongside Telegram, but there is also Kakao (Korea’s largest messenger app), and Japan’s Link. Lest we forget also that Block.one (EOS’s parent company), recently committed $150M to grow a new social network called Voice.

Why this matters: Telegram’s 300 million users give it network effects that no other blockchain network currently enjoys. That, combined with the $1.7 billion raised for the project, has led to high expectations about what the TON network will achieve.

What to watch for: The markets and the regulators. Expect this to make a splash in the markets as a number of exchanges will likely be offering Gram tokens over the coming months. Given the heightened regulatory scrutiny of crypto and the large number of Telegram users I’d also expect regulators in a number of different countries to take a close look at this. How Telegram attempts to engage with regulators could offer an interesting roadmap for Libra and Binance’s Venus project.

Oh, and if you’re wondering whether the October 31st deadline is likely to be met or might be delayed (like many other projects), here’s a quote from the NYT:

“Telegram promised in legal documents that it would deliver Grams to investors by Oct. 31, 2019, or give back the money. The company is now racing to get the coins out before that deadline.”

Safe to say I think we’re likely to see the release before October 31st.

Go deeper: Read the Aton research report on Telegram


Two: VanEck introduces a limited Bitcoin ETF-like product

Earlier today, VanEck put out a press release detailing a new Bitcoin product aimed at institutional investors in the traditional markets. The product is designed to behave similarly to an ETF and is issued under SEC Rule 144, which:

Modifies the Securities and Exchange Commission (SEC) restrictions on trades of privately placed securities so that these investments can be traded among qualified institutional buyers, and with shorter holding periods—six months or a year, rather than the customary two-year period.”

In short, the new Van Eck product will be tradable between institutional investors and will be compatible with the current plumbing of the financial system. This should make it easier for those institutions who would rather hold a Bitcoin product than get exposure through a derivative product (like a CME future). It also has the benefit of never expiring and is likely a more defensible buy for those funds with more conservative mandates.

An ETF – the “holy grail” of cryptocurrency products –  continues to elude issuers. Since the first ETF application denial by the SEC in 2017, many different product issuers have attempted to produce a exchange traded fund for Bitcoin. The introduction of such a fund would be a boon for retail investors, who are currently lacking a good way to invest in Bitcoin from traditional brokerage accounts.

  • There does seems to be appetite for a retail Bitcoin product. To get a glimpse of this appetite one can look at the holdings of GBTC, an investment trust that gives retail buyers the ability to own BTC through their traditional brokerage accounts. GBTC is issued by Greyscale investments and currently has $2.3B in AUM according to their publicly available information.

  • Not only does GBTC have a large AUM – they have a premium over the underlying Bitcoin. When an investors purchases a share of GBTC, they are on average (over the last 6 months) paying a 27% premium. This doesn’t seem like a good deal for investors to me! If an ETF product were to come out, it seems likely to me that this premium would collapse, and their product would lose market share.

The big picture: The structured products space in cryptocurrency is ripe for disruption. An underrated feature of a traditional product is the ability of investors to buy through a tax deferred account, which could open up a large potential pool of capital.


Three: $1B crypto ‘fund of funds’ set to be launched

Interesting time to be a crypto hedge fund. Late last week the Financial Times reported that Elwood Asset Management is looking to make a $1 billion investment in cryptocurrency hedge funds. Elwood itself currently manages the personal digital assets of Alan Howard, a billionaire fund manager. Howard is the founder of a large traditional hedge fund called Brevan Howard, which has a reported $20B in assets under management.

Elwood is reportedly looking to construct a portfolio that is made up of crypto funds for institutional investors. According to company CEO Bin Ren the company has already started screening crypto hedge funds, with 50 currently meeting the due diligence requirements.

Why it matters: Elwood and PwC co-authored a report on crypto hedge funds earlier this year. Here’s the money quote:

“We estimate that there are actually only around 150 active crypto hedge funds, which collectively hold around US$1 billion assets under management today. This excludes crypto index funds and crypto venture capital funds.”

In other words, if Elwood was able to attract $1 billion in investment to this new fund of funds, it could have a significant impact on the industry (to be fair — there are other sources that estimate the total industry AUM to be much higher). Ren’s comments also seem to suggest however that they only view 1 in 3 crypto hedge funds as currently fit for investment from institutional investors.

Any capital invested by Elwood may also end up increasing overall investment in crypto companies, which totaled $136 million in Q2 2019. Although the investment mandate for Elwood’s fund of funds is not yet known, most crypto hedge funds have venture arms or employ a hybrid hedge fund / venture fund model which allow them to invest in crypto companies.

Yes great but: I admit I got a little click-baited by the FT article. It looks as though Elwood is slowly looking to make its way to this magic $1B number, and doesn’t in fact have these commitments already fixed. However with a strong relationship to Brevan Howard’s $20B hedge fund, there’s no doubt an opportunity for Elwood to bring a number of institutional investors over to begin investing in the industry.

Go deeper: Here’s the original Elwood report on crypto hedge funds and a recent Cointelegraph overview of the key players in the crypto hedge fund market.


Also in the news:


Market Outlook:

Quick Take: Bitcoin dominance just hit 2yr highs, and is now at ~73% (Data: TradingView BTC.D).

This increase is dominance is mostly due to the great suffering of altcoins, and only a few application based coins and exchange coins have held up well. Some interesting coins worth mentioning are SNX a DeFi based coin and LINK, an oracle-based coin, up 5.5x and 6.2x YTD respectively (Data: Messari). Picking up alts right now is akin to finding a diamond in the rough.

With respect to Bitcoin, we are seeing a reversal after touching off the strong support at 9.4k. We got an MACD cross on the daily view, indicating follow through on the trend. Historically, follow through on a crossover has been high probability event. We’re back within range though, and face a key battle at the 10.9k level. If we reject off 10.9k once again, it’s likely in my opinion that buyers will be become less confident in continued momentum, and we could revisit 10.2k quickly. I hold a margin long position and will double down on the long after a break of 10.9k.

Personally, I believe in this particular reversal due to the length of time elapsed, the drawn out nature of the bottom, and relative leverage flushing compared to previous “bottoming” candles.

In general, the past few months have allowed moving averages to consolidate to current price levels, a good thing for continued growth. You can use the previous price action to create a frame for inflated distance between price and moving averages, as well as inflated implied volatility (>110%). This can help identify a topping move.

Key Support: 10400

Key Resistance: 10900


What I’m thinking today:

The Invention of Money

There is a certain beauty to the financial world. Only a select few areas of study or work require such a rounded approach across disciplines for success. History, philosophy and psychology, math and computer science are all integral to developing an understanding of the world, which is key if you’d like to understand the markets (and money!).

There are many fields that just briefly require the study of history. Speaking as a student of chemical engineering, I can assure you that once we passed by the origins of the atom, learning about Bohr, Rutherford and their ilk, I rarely revisited the field of history (save of course for the pictures of Daniel Bernoulli that appeared next to half the equations in my textbooks).

Economics of course, is often just the description of the aggregate behavior of mankind. As many that study history know, if there is anything in the world that rarely changes, it is the behavior of mankind.

With this in mind, the study of economics often accompanies the study of economic history. Many of the systems and “obvious” choices that exist in our current financial and economic systems are due to the choices and inventions of men hundreds of years ago. Understanding and dissecting these choices will help you understand the weaknesses and strengths of the current system.

In particular the system of money stands out. Money, like many other things in our daily life, is a man-made invention. Money can even be considered a technology. Just as the technology of the wheel radically improved our ability to transport, the technology of money radically improved our ability to transact.

Our current system of money is a claims and fractional based form of money. Money exists mostly on the digital ledgers of banks and within ones and zeros. Money is not “backed” by anything and is quite literally not a true object. Most banks are required to only have a fractional of true “money” on hand and can lend out far more than their actual reserves dictate. Historically, this has led to bank collapse when people begin to lose faith in their banks, and demand to withdraw cold, hard cash.

Bank runs in today’s world are structurally much harder. People tend to get direct deposits from their jobs. They pay off credit cards via their bank account. Money to many people now only exists within the banking system. There is little money left outside the system…so what happens if the system does collapse?

For me, understanding the history of the current system led me to appreciate the strength of Bitcoin greatly. For now, the inherent fragility present in a claims-based system competes with the usefulness of cheap debt. The discussion rages on.

How did this all come to be? Well that’s linked above. The article presents a thorough and fascinating read on the history of money, and how our current system came to be. I highly suggest the read!


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Nothing written in CryptoAM is legal or investment advice and should not be taken as such. CryptoAM does not make any guarantee or other promise as to any results that may be obtained from using our content. No one should make any investment decision without first consulting his or her own financial advisor and conducting his or her own research and due diligence.

CryptoAM: Synthetic Assets, Binance Lending, and Tzero Troubles


Hey all, Avi writing from sunny Los Angeles. Nice massive sell-off this morning! Really threw a loop, as the market report was done. I talked about chop…but now we're out of the range.



Three things you need to know:

One: The Evolution of DeFi — From Leverage to Products

Chart: Defipulse.com

To the casual observer, it seems as though DeFi was going through a rough time the past couple of months. In ETH terms, the amount of value locked up with DeFi procotols fell precipitately from the beginning of May through July.

  • According to DeFi Pulse, value locked up in decentralized procotols has rebounded about 25% (in ETH terms). It should be noted however, that much of the drop corresponded with a spike in ETH price, suggesting that much of the drop was due to profit taking. Also, the DAI stability fee was raised significantly during that time, and could have contributed to the fall off in value.

The majority of DeFi value currently exists in leverage/lending platforms. 56% of all value is locked up in Maker currently, and the second place DeFi protocol Compound (also a lending play) controls about 23% of overall value locked. (Data from DeFi Pulse) All of this to say — lending platforms seem to be the main driver of DeFi currently.

I expect this to change dramatically in the coming year. There is a new breed of protocols coming out, focused on the minting and trading of decentralized synthetic assets. The current leader of this class is a protocol called Synthetix, currently #4 on the DeFi leaderboard with $27M worth of value locked up in their ecosystem. Synthethix allows you to mint new assets by staking their native token, and they have a variety of different assets that are decentralized and tradable on their platform.

Just last week, Synthetix announced the first decentralized index fund — a token tied to a basket exchange coins. These coins will have a long and short version. According to an interview with the founder of Synthetix, they intend to launch a variety of different tokens including leveraged forms.

  • The beauty of these products is the decentralized nature of the system that allows anyone (from anywhere!) to trade. For example, someone in Nigeria could invest in an S&P token to get access to the U.S market and hedge out some of their native currency risk. This is what really excites me about synthetic assets….

We are very excited to launch a new category of Synth, Index Tokens, these tokens track an index of centralised exchanges tokens. The long version is called sCEX and the short version is called iCEX. These Synths are designed to give users exposure to a basket of exchange tokens, which have gained huge popularity in the last 12 months. sCEX tracks the value of a basket of exchange tokens roughly approximating their weighted market cap, iCEX is an inverse index of this basket, and works like our other Inverse Synths

Start paying attention: The introduction of decentralized and tradable structured products presents substantial opportunity for people early in the space. Over the coming years, the ability to trade anything from anywhere will become pervasive through the cryptocurrency ecosystem. This of course, comes with many legal implications that will have to be hashed out — but one thing is certain — the tech is coming.

Go deeper: Read the interview with Kain Warwick, founder of Synthetix


Two: Binance Introduces Margin Lending

Yesterday, Binance announced the rollout of their new margin lending platform. The platform is scheduled to go live on the today, August 28th.

Initially only 3 assets will be available for lending:

  • Binance Coin - 15% annualized - 14 day term

  • Tether - 10% annualized - 14 day term

  • Ethereum Classic - 7% annualized - 14 day term

In classic Binance fashion, these offerings are exclusive. The subscriptions are first come, first serve and have a subscription cap on them. Through this first iteration, the subscription caps are 200,000 BNB, 1,000,000 USDT and 20,000 ETC.

  • Binance is appears to be running this in a similar manner to their IEOs as it seems they are attempting to get people interested by making it difficult to access the product.

  • The kicker: It will most likely work! With such a small cap on assets and a such a large userbase, it looks like the caps will be hit almost immediately. Since Binance is backing the payout on these loans, people will likely view this as “free money”.

The bigger picture: Exchanges are quickly expanding into every possible money making operation they can. OTC services, lending services, research, margin, custody…the list goes on. In traditional finance many of the classic crypto-exchange operations are actually performed by many different parties — mostly due to regulation. For example, the order matching engine, clearinghouse and custodian are all different entities in the traditional finance. Exchanges are flipping this idea on its head, and creating really robust ecosystems to capture clientele.

How to use this: It’s important to realize that there are very few widely used crypto-assets. Exchange coins tend to be the most used cryptocurrencies, and are also integral to the success of exchanges. A exchange coin done well can really create a sense of community (and also stickiness), which can help exchanges maintain client relationships.

I believe that a variety of different services and building a strong community can pay massive dividends for exchanges. Looking at up and coming exchanges that offer novel products, a strong community, and large variety of services can help you pick investable assets.


Three: tZERO loses investor following Byrne resignation

Without doubt one of the strangest (and least appreciated) stories in cryptoland looks like it’s come to a head. Following the resignation of Overstock CEO Patrick Byrne (tZERO’s parent company), Makara Capital has officially pulled out of investing in tZERO. The Singaporean based fund had long been playing an on-off game when about deciding to invest in the firm.

Back in March Makara Capital was poised to co-lead a $100M investment in tZERO alongside GSR Capital. This figure was already down from a prior $404M commitment. GSR Capital only ended up investing $5M in tZERO.

Why it matters: I believe you’d be hard pressed to find a story that better illustrates the ups and downs of the security token hype cycle than this. tZERO is one of the most high profile names in the market and raised $134M in an ICO in August 2018.

Key trend: The security token industry, once seen as a natural evolution to ICOs and a vehicle to revolutionize the capital raising process, has struggled with liquidity issues and meeting regulatory requirements.

Go deeper: Read Forbes’ write up on the fall of Patrick Byrne (with analysis on tZERO)


Also in the news:


Market Outlook:

Quick Take

Direction:  We were trading decidedly within range until Bitcoin decided to collapse. Market structure has turned strongly bearish over the last hour based on my interpretation of price action and my telegram chats going silent (this was a joke).

Market looks very heavy to me, and I’m looking at 9.5k to give me a better picture. If we break down past 9.5k — we will be posting a lower low and I’m relatively confident R/R wise shorting down past 9k (which I think will break if we trade below 9.5k — personal opinion. I have been wrong before).

Both realized and implied Bitcoin volatility is continuing to cruise down. Options volumes and open interest are falling off. (Data according to Skew.co) implying that leverage is being flushed from the system. I wouldn’t be surprised if we saw more declines in implied volatilities towards the high 60 - low 70 area based on the long time frame that the high 90/100 range held.

Altcoins are looking increasingly weak, and Bitcoin dominance is continuing to post new highs (Data: Tradingview - BTC.D). This Friday I’ll have more a data driven analysis for you. Stay tuned.

On the macro side of things, the world continues to slide into unease. The Jackson Hole meeting of central bankers this past week had one theme — unease. Many economists are now acutely aware that the current state of the world feels very much like uncharted waters. Gold is up almost 3% over the last week, a telling sign that the market is pricing in major uncertainty (Data: Tradingview)

Key Support:  9500

Key Resistance: 9900


What I’m thinking today:

Venture Capital and the Performance of Blockchain Technology-Based Firms: Evidence from Initial Coin Offerings (ICOs)

Came across this report from UCLA, Erasmus University, and Trier University which seems to have flown under the radar. The main question of this study however is something immensely interesting - did VC involvement in ICOs help increase the value of these projects?

Here’s the authors’ TLDR abstract:

“Our results suggest that VC financing causes BTBFs to substantially outperform their peers. Specifically, we find that VCs are not able to pick better BTBFs to invest in (selection effect). Instead, they add value post-investment (treatment effect).”


What this means:

Selection effect = whether VCs are genuinely better at picking the top projects than the general public. Theoretically they should be better at selection than the average retail investor. Reasons for this include having significant resources to evaluate and screen new investment opportunities, allowing them to conduct deeper due diligence on projects. An example of this might be hiring a technical expert to actually screen whether what a project is promising in its white paper is feasible and makes sense.

Treatment effect = the benefits a project receives by being invested in by a VC. This obviously includes capital, but also value add services such as professional coaching (e.g. providing finance, marketing, strategy advice) and access to a VC’s networks.

The results:

If you want to dig into this further and find out exactly why VC funding matters for projects, the report is here.


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Nothing written in CryptoAM is legal or investment advice and should not be taken as such. CryptoAM does not make any guarantee or other promise as to any results that may be obtained from using our content. No one should make any investment decision without first consulting his or her own financial advisor and conducting his or her own research and due diligence.

CryptoAM: Block Trading, Bitcoin in Gaza, and Crypto as a Commodity


Happy Friday all! Zac here writing from a bustling Mexico City, and Avi from sunny Boca Raton.

Fact of the day - only 35% of Mexicans over 15 have a bank account. Hell of an opportunity for crypto companies or traditional fintechs. Have a great weekend!



Three things you need to know:

One: Paradigm introduces crypto options block trading

Image result for paradigm messaging app

Yesterday marked a big step towards mainstream adoption for the cryptocurrency derivatives market. Paradigm, an up-and-coming messaging application for cryptocurrency traders, announced a partnership with Deribit that will allow large traders to discuss and settle options transactions through their messaging platform.

Over the last year, many institutions have entered the derivatives space and have quickly found there is often thin depth on orderbooks. This forced institutions into private chat rooms on applications like Skype, Telegram, etc that were used to discuss and place trades.

These trades did not come without risk. When they were negotiated, one counterparty would have to go to Deribit and place an open trade on the order book. If the opposing counterparty wasn’t fast enough, it was entirely possible that they wouldn’t be able to executive the trade — as someone else would eat up the offer.

Paradigm solves this issue completely by allowing two counterparties to discuss, agree and settle transactions entirely through their messaging application. This should bring significant comfort to large counterparties and will help drive forward adoption.

Why this matters: Derivatives volumes have been growing exponentially over the last year, and many new firms are entering the area as they bet on continued growth. Institutional tooling is paramount to success, especially in an industry as complicated as cryptocurrency derivatives. Your average retail trader will likely not put forth too much volume (at least, not yet!) so catering to the institutional crowd is necessary for success.

Directional ideas: If you (like me) believe that the coming derivatives space will explode, then it may be a good idea to look at offerings in the traditional derivatives space and figure out how they may apply to crypto.


Two: Who actually uses Bitcoin in Gaza

I love myself a story about crypto being used to help ordinary people (innocent people) with limited access to the traditional financial system. Absolutely love it. I also love when things are put into context so people can see the bigger picture.

These two great things combined yesterday with a great Coindesk piece on how Bitcoin is being used in Gaza.

The background to my joy: Earlier this week the New York Times released a piece on how terrorist networks have been increasingly using Bitcoin and other cryptocurrencies to help finance themselves, having been cut off from traditional financial networks. In particular the article centered on Hamas, a terrorist organization that is the de-facto government of Gaza, and how it was using crypto to fund terrorism. Not good, and a bad look generally for this industry.

Then we got some context. Terrorists groups are alleged to have collected tens of thousands of dollars from Bitcoin donations. However sources connected to Coindesk then went on to discuss civilian usage of Bitcoin:

“There are some offices that now do $5 million to $6 million a month,” freelance web developer and Gaza-based bitcoiner Ismael Al-Safadi told CoinDesk about local money changers. “I’ve seen an office send 100 BTC in one [transaction]. … There are also a lot of small clients. They send $200 or $1,000.”


Why civilians are using Bitcoin: Palestine is largely cut off from international payment services such as PayPal. For many freelancers then, crypto payments are one of the few ways they can get paid by international clients. Other uses include remittances from family abroad, where citizens in Palestine receive crypto and then exchange it for fiat through local peer-to-peer groups.

Reality check: In all likelihood the overall volume of crypto transactions in Palestine is low, and being proud that civilians use BTC more than terrorists is a rather low bar. However this story is important because a) people’s lives are genuinely being improved through using crypto and b) there’s still a stubborn mainstream narrative that crypto and illicit activity are closely linked. Consider this golden oldie chart:

Source: Chainalysis


Next time you hear someone complain that Bitcoin is only used for illicit transactions, please gently slap them across the face until they understand that on best estimates, only around 1-2% of the economic value is used for illicit activity.

Here’s a couple other examples of crypto being used to make the world happy :)

Bitcoin has saved my family

DAI being used for disaster relief in Vanuatu


Three: Litecoin’s warning — the dangers of halvings

Image result for litecoin crypto

Litecoin had its block reward cut in half on August 5th. In general, people love to speculate on the effects that a halving could have on the ecosystem (well, mostly the price) of an asset.

Litecoin provided a nice case study in the potential effects of a halving. Price (in Bitcoin terms) peaked in April 2019, and saw a resurgence to highs in June 2019 (about 4 and 2 months before the halving respectively). Litecoin was one of the only altcoins to post positive returns vs Bitcoin in 2019, showing that a halving could be priced in as a positive event for price. This of course makes sense, as with halvings come supply reductions.

For larger assets such as Bitcoin, the market is more likely to effectively price in such events as the broader market (and especially those driving price) tend to know about halvings & the subsequent supply reduction far in advance. I’m less bullish on the impact of halvings on Bitcoin than I am on Bitcoin-clones such as Litecoin and BCH, for this reason.

This event also had a large impact on the Litecoin mining ecosystem. According to reporting from Coindesk:

Litecoin’s mining difficulty – a coded-in measure of how hard it is to solve the mathematical puzzles used to write blocks on the network – has dropped from 15.93 million on Aug. 4, one day before the halving, to 11.40 million on Aug. 22, based on data from mining pool BTC.com. The hashing power on the network has also fallen by 28 percent.

Litecoin’s mining difficulty is designed to automatically adjust every 2,016 blocks, approximately every 4 days, to ensure the block-producing interval remains about 2.5 minutes based on the average hashing power in the current cycle.

The 28 percent difficulty drop means the current level is the lowest since April 29. BTC.com’s data estimates that difficulty will continue to decline by another four percent at the next adjustment date, which is due in three days.

The 4-day average hashing power on the litecoin network has also declined from 456 terahash per second (TH/s) recorded on Aug. 4 to 326 TH/s on Aug. 22 at 23:54 UTC, when the latest difficulty adjustment occurred – a 28 percent drop.

Basically in short — mining is dropping off a cliff. Profitability for LTC miners was cut in half by this recent reduction meaning that a large portion of LTC miners (about a quarter from the data) were no longer profitable.

Why this matters: The reduction in hash power belies one of the major problems of halving events — the further centralization of mining. The lower the block reward, the more economics of scale are rewarded. This means that mining power becomes increasingly concentrated with large players. Let’s look at why this matters:

  • Halvings actually present one of the greatest game theory issues for assets like Bitcoin with a fixed supply. Will the network be able to sustain attack when block rewards are effectively zero? Will transactions fees be enough to support the network? The more money miners make while mining Bitcoin, the more secure Bitcoin is from a 51% attack. If block rewards go to zero and transactions fees don’t increase meaningfully, then we’ve run into an issue.

  • My general take on this is no — by the time 2140 rolls around Bitcoin’s supply schedule will need to increase in order to be game theoretically sound. This of course, hinges on the argument that BTC will be used as a store of value (i.e — not transacted with frequently). Based on the current “slow but secure” structure of Bitcoin, this seems like the most powerful narrative and therefore I am inclined to believe that in the (far off) future Bitcoin will need to extend block rewards.


Also in the news:


Market Outlook:

Quick Take

Direction: It didn’t take long for price to redirect bear. We flushed a significant amount of leverage down and broke the 10k barrier once again. We’re still stuck in the 9k - 13k range — a large range with lots of trading opportunity but a range nonetheless.

You can see on the 1hr chart provided above where you could have found a potential short opportunity. We’ve seen consecutive lower highs.

I’m personally going long above 10.9 and going short below 10.2. In this particular range, I believe there will be follow through to either side, as this is a completely momentum driven market. Paying attention to the slowing down of momentums, MA’s and large prints will do you well in this market.

Key Support:  10.2, 9.8

Key Resistance: 10.7 


What I’m thinking today:

Hey all! We have a special guest post today from one of our favorite crypto analysts, Aditya Das of Brave New Coin.

He’s written a great long form research report on the state of Ethereum and what the upcoming hard fork could mean. You can check out the report linked here.

For those who want a tl;dr, a quick summary by Aditya follows:

Ethereum is at a crossroads. In its current state, it has failed to provide working solutions for enterprise customers and faces the twin threats of a multitude of competitors and growing impatience from investors and developers alike. In an attempt to address these concerns the project is scheduled to make two major network updates in the next six months.

The first of these, Istanbul, is a hard fork set to occur in October 2019 that will complete the Metropolis stage of Ethereum development (on the Ethereum 1.0 chain). The second and far more ambitious update, Ethereum Serenity is scheduled to begin in January 2020. The Serenity update will launch an entirely new blockchain with fresh core features like database sharding and a proof-of-stake consensus.

Istanbul implements major fixes to the Ethereum 1.0 network like a change away from the ETHash hashing algorithm to the newly created Progressive PoW algorithm. The time of the update has surprised some because of its closeness to the launch of ETH 2.0 and Serenity. Factors like Serenity’s extended release roadmap, and the number of stakeholders who are still dependant on ETH 1.0 (existing PoW miners & Dapp projects already deployed on the existing chain), have pushed core developers into a position where 2 chains will likely be worked on concurrently for at least the next 5 years.

This will likely mean Ethereum in the medium term will run with 2 chains, possibly with 2 separate Ether’s, each with its own distinct development communities and solution features.

Highly recommended to check out the report!


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Nothing written in CryptoAM is legal or investment advice and should not be taken as such. CryptoAM does not make any guarantee or other promise as to any results that may be obtained from using our content. No one should make any investment decision without first consulting his or her own financial advisor and conducting his or her own research and due diligence.

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