CryptoAM: Franklin Templeton,, 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

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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 looking to raise $50M fund

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The largest companies in crypto keep on diversifying. Just months after announcing it was launching a cryptocurrency exchange, 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 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 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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