The FOMO crowd is back in town. Will Bitcoin have a blockbuster comeback?

bitcoin-rally

Last week our theme was “Are you buying BTC? How safe is your Bitcoin?”. Our theme for this week is “The FOMO crowd is back in town. Will Bitcoin have a blockbuster comeback?”

TLDR. Bitcoin and cryptocurrencies  are on the rise again. Over the last 10 years Bitcoin has been tested against all kinds of foes, ranging from hacks and scams to hostile governments, and showed its resilience every time. This time around it might have the opportunity to replace fiat currencies.

On Sunday, the price of Bitcoin (BTC) hit a 13-month high, above $9,300. This is the highest price Bitcoin has seen, since May 10, 2018. Trading volume peaked with over $19 billion worth of Bitcoin traded across cryptocurrency exchanges. BTC is dominating the market share for cryptocurrencies, rising up from 55% to 57%.

Screen Shot 2019-06-17 at 3.57.20 AM.png

Will Bitcoin have a blockbuster comeback?

Its looks like the FOMO crowd is back in town again and they are showing in hordes. According to CoinMetrics.io, there are now over one million daily active addresses, a number that is defined as the number of unique “from” or “to” addresses used per day. This is a number we haven’t seen, since November 2017. Bitcoin market cap has jumped almost 3x, going from around $60 billion in December 2018, to $170 billion now.

Screen Shot 2019-06-17 at 4.43.13 AM.png

One of the reasons Bitcoin has seen a strong comeback is due to the trade war between US and China. Usually during turbulent times, Bitcoin has always been a very strong safe haven for investors. Another is just natural price discovery. When you understand what Bitcoin really is, then you understand it’s importance. Bitcoin is the most powerful inventions, since the advent of the Internet, introducing digital scarcity in our lives, as we become exponentially digital.

Facebook upcoming roll out of its cryptocurrency, as soon as next week, has also helped fuel Bitcoin gains. With an array of heavyweight backers, that include Mastercard, Paypal, UBER and Visa, its expected that Facebook’s stable coin will make a big slash.

Unlike traditional cryptocurrencies like Bitcoin, Facebook’s cryptocurrency is centralized, and verification is controlled by a select group, rather than the public. The cryptocurrency is pegged to USD, a hard asset, as a way to manage volatile price swings, that have been associated with Bitcoin, Ethereum and other cryptos.

In a recent Q&A on Youtube, Andreas Antonopoulos, said that Facebook’s coin is not a cryptocurrency:

“What Facebook, or companies like Facebook, are proposing is not a cryptocurrency. It doesn’t have any of the fundamental characteristics of cryptocurrencies. It does not stand on the five pillars of open blockchains. In fact, it stands on none of those five pillars. What are the five pillars, that we talked about before? You have probably heard me say this a few times. A cryptocurrency is open, public, neutral, borderless, and censorship resistant.”

Even if Facebook’s Globalcoin ends up failing, the company’s foray in into the market is good news for Bitcoin and other cryptocurrencies. In the past, Facebook attempted to create its own payment system, developing a digital currency called Facebook Credits. but folded it in 2012. Yet, when big players like Facebook enter the cryptocurrency market, it only helps build trust and brings more credibility to the entire market.

Many are still wondering if this rally different from that in 2017 or if its just pump and dump, staged by a few investors.

History never exactly repeats itself, but always shows resemblance. This kind of parabolic rise in prices followed by a dramatic drop, has happened several times in Bitcoin’s lifetime. But, when we look at the of bull runs of 2013 and 2017, they very different and mainly driven by retail investors. This time around, things are different.

Recently, Bitcoin has been recognized as a new asset class, so what we’re really seeing is the mainstream adoption of Bitcoin. Today, the crypto market has attracted more institutional investors. Institutional investors have poured in over $30 billion into building platforms. Also, regulations are taking shape in different countries, which is why we are seeing big players like Facebook, Goldman Sachs, Fidelity and JPMorgan Chase, getting in the cryptocurrency market.

When it comes to digital assets, ICOs, STOs, IEOs, a lot of the new projects are coming up right now, trying to capture the money. Also investors are buying up Litecoin, as its halvening is expected this August. Since the beginning of the year, Litecoin’s price has gone up 300%.

Ultimately, over the next few years we are going to see nations and central banks buying up Bitcoin, as the new gold reserve. The true success of Bitcoin will be achieved, when we don’t have to sell our Bitcoins and convert them to fiat.

Image Source

Ilias Louis Hatzis is the Founder & CEO at Mercato Blockchain Corporation AG.

He writes the Blockchain Weekly Front Page each Monday and has no positions or commercial relationships with the companies or people mentioned and is not receiving compensation for this post.

Subscribe by email to join the other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research)

What the rise and fall of Basis Stablecoin tells us about the future of corporate Stablecoins such as Facebook GlobalCoin

basis.001.jpeg

TLDR The brief history of the Basis Stablecoin is that it was founded in Brooklyn in August 2017, announced a $133m round from top tier investors 8 months later in April 2018 and then shut their doors just 7 months later in December 2018. All the news was announced on the Basis site. The ambition was huge – to be the global algorithmic central bank. Despite plenty of cash & brains, Basis failed. Now in the days when we wait for the launch of Facebook’s Stablecoin on 18 June 2019 and witness the stunning growth of Tencent/WeChat in China, we piece together the story of what happened and what it means for the Blockchain Economy. 

This update to The Blockchain Economy digital book covers:

  • Escrow type funding with Regulatory approval trigger
  • Tough borderless SEC
  • Algorithmic Central Bank vs legacy Central Banks
  • $133m is a drop in the bucket if you need to defend a peg
  • Context & References

Escrow funding with Regulatory approval trigger.

This funding strategy is key to understanding the Basis Stablecoin. This is similar to what we saw with Seba bank. Money is wired and held in an escrow type account until regulators give the green light. We may see more of this type of funding. It makes sense because a) there is no chance of getting regulatory approval without a lot of capital b) the prize is big if the venture gets the nod from regulators c) nobody will invest a lot of capital in the hope of getting regulatory approval.

This funding style means the demise of Basis is not a classic venture failure story. The scenario of non-approval by regulators is planned for at time of capital raising. Some capital is burned from funding to non-approval, but only a relatively small % of total capital invested. 

The investors were top tier (such as Bain Capital Ventures, Google Ventures, Stanley Druckenmiller, Kevin Warsh, Lightspeed, Foundation Capital, Andreessen Horowitz, Wing VC, NFX, Valor Capital, Zhenfund, INBlockchain, Ceyuan Ventures, Sky9 Capital) so this structure is hardly a surprise. We can expect this structure as the norm for ventures that plan to be regulated. However as the next section describes, a non-regulated approach of seeking forgiveness not permission might be the takeaway from the Basis story. 

Tough borderless SEC.

The SEC loves cracking down on tokens that they deem to be securities – which is pretty well every token (except ETH, Bitcoin and utility tokens that have zero resemblance to securities).  There is regulatory overlap in America by State and by asset type and the SEC has firmly planted its flag in the camp that says they regulate everything that is crypto. This scares investors and entrepreneurs. The SEC is also not afraid to take action cross border, so a venture anywhere that does any business in America needs to be wary of the SEC.

As Basis CEO Al Naji put it in a Forbes interview: “The SEC generally avoids saying that something will definitely be one way or the other. But from that meeting we got the impression that we would not be able to avoid securities classification.”

There are thee possible takeaways from this:

  • Be Regulated. If you want to be a regulated entity, have a big budget for lawyers and lobbyists and plenty of capital and play within the rules laid down by legacy Finance.
  • Be Unregulated. That means offering a tech service, not a finance service. In an earlier wave of disruption for example, Skype positioned as an unregulated tech service, not a regulated Telecom service.
  • Be Chinese. That is obviously not a real strategy unless you are Chinese, but it is interesting to see how Chinese tech companies such as Tencent and Alibaba have been able to launch and scale financial services.

It will be interesting to see what strategy Facebook unveils on 18 June. Obviously  Be Chinese is not an option for Facebook. They have probably chosen Be Regulated. Given that Facebook has announced a date, they must have already got regulatory approval. It will be interesting to see how this plays out as we are in uncharted territory.

Algorithmic Central Bank vs legacy Central Banks

The Basis white paper, published in June 2017, described Basis as an “algorithmic central bank”.

The Legacy Central Banks won’t give up their power without a fight. 

Like Legacy Central banks, the algorithmic central bank strategy was simple:

  • buy back Basis tokens when the price dropped below the benchmark peg

 

  • Create new tokens when the price went above the benchmark peg

The difference from Legacy Central Banks was:

  • Transactions were done on-chain.

 

  • Transactions were automated and baked into code ie could not be subject to political change.

Despite these two differences, the core strategy was exactly like Legacy Central Banks.

$133m is a drop in the bucket if you need to defend a peg.

Central Banks need a lot of capital to defend a benchmark peg. Just ask the Bank of England after they lost the battle defending the peg of GBP to the European Exchange Rate Mechanism (ERM) to George Soros.

In a history rhyming footnote, Stanley Druckenmiller (who worked with Soros) was an investor in Basis.

Facebook has a big capital base. Whether investors will be happy letting  Facebook use this capital to defend a benchmark peg is another matter.

Grab your popcorn for an epic rumble in the jungle (image source).

The_Rumble_in_the_Jungle_poster.jpg

Context & References

Investing in Payment Tokens and Stablecoins (aka new currencies).

Why StableCoins are so important (but also so hard to get right)

Facebook Ambitions in Fintech (note, from October 2014)

The Facebook GlobalCoin stablecoin won’t kill Bitcoin but many companies should be worried.

———————————————

Bernard Lunn is a Fintech deal-maker, investor, entrepreneur and advisor. He is CEO of Daily Fintech and author of The Blockchain Economy.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

Are you buying BTC? How safe is your Bitcoin?

720kzruvfd131

Last week our theme was “Why is Bitcoin going up? HOLD on Bitcoin?”. Our theme for this week is “Are you buying BTC? How safe is your Bitcoin?”

TLDR. Digital currency needs to be safe, accessible and provide complete peace of mind to anyone holding cryptocurrency or to anyone that is considering getting in the market. Coinbase, North America’s largest cryptocurrency exchange, holds only 2 percent of its coins insured with Lloyd’s of London. Major insurance companies are starting to offer protection against cryptocurrency theft, rather than missing out on a volatile and loosely regulated, but rapidly growing market.

At the end of May, Bitcoin hit $9,000 and for the last week its been hovering around $7,700.  Many have been predicting that when Facebook launches it’s stable coin, Bitcoin will break $10,000. That’s a lot of money for a single coin and we can expect this value to go even higher, as Bitcoin use cases sprout. Even news stories like India’s proposed ban for crypto that could lead to a jail sentence for up to 10-years… crazy, will only cause citizens in the country to become increasingly interested in Bitcoin and other cryptocurrencies.

But, one thing that scares most people, when it comes to cryptocurrencies, is safety. The average user wants to buy and sell Bitcoin using their phone and be sure that their funds are safe.

Even though we’ve seen great improvements, the risk of cryptocurrency exchange hacks is always there. According to the Wall Street Journal, more than $1.7 billion in cryptocurrency has been stolen over the years, with 61% of the thefts in 2018 alone. Most of the hacked exchanges were based in Asia. Here are four major hacks in 2018:

Last month, when Binance got hacked for $40 million, it was great to hear that they were going to offer a full refund. Binance users didn’t lose money, thanks to its “Secure Asset Fund for Users (SAFU),” an emergency insurance fund created in July 2018.

On large US based exchanges, like Coinbase and Gemini, US dollars are FDIC insured, for up to $250,000. Currently, the U.S. government does not provide insurance for any digital assets, which means as soon as you convert any sum of money from fiat to crypto, it is no longer insured.

Most people assume that their cryptocurrencies are insured, but that is not always the case. Bitcoin and other cryptocurrencies stored on an exchange or a custodian service, most likely are not insured. Regulations for Bitcoin vary for each country. The crypto space is still highly unregulated and news of big hacks make many insurance companies hesitant to offer coverage to exchanges. While, some countries require exchanges to follow strict guidelines, some don’t require anything at all.

When an exchange claims to be insured, it’s difficult to know if it really is insured. Also an exchange that’s insured could suffer an incident, that’s not covered by insurance.  Even the few exchanges that have a concrete insurance policy, offer very limited cases to make a claim. Insurance is primarily for cases where an exchanges systems are hacked. A user with poor quality passwords or a user that doesn’t follow basic security measures, most likely will not be covered.

The volatility of crypto markets has sidelined many big insurance companies. Until recently, the crypto industry mainly consisted of volatile exchanges and startup companies, which posed high-risk without large enough revenues to encourage the major insurance companies to get involved.

But the situation is slowly changing and we’re starting to hear more and more from exchanges that are offering a safety net to their customers.

Last year, the Winklevoss twins announced that cryptocurrencies on their Gemini exchange and custody services were fully insured.

The Gibraltar Blockchain Exchange (GBX) announced an insurance policy to cover its digital assets, in partnership with Gibraltar-based Callaghan Insurance.

In February, BitGo announced it had secured the industry’s most comprehensive insurance protections for crypto currencies and digital assets will be insured for up to $100 million through Lloyds.

In April, Coinbase revealed the details of its insurance arrangements for cryptocurrency held for customers. In a blog post, the exchange confirmed that it is covered for up to $255 million for coins held in so-called hot wallets, in other words, assets which are essentially online and open to potential hacks.

In South Korea, four exchanges offer insurance: Upbit, Korbit, Bithumb, and Coinone. However the insurance limits on these exchanges are less than $5 million, with is barely enough to cover users in the case of a major hack. Hanwha Insurance, a South Korean insurance company, has introduced a cyber insurance product, that provides compensation for hacking damages to domestic crypto exchanges.

Insuring cryptocurrencies is very important, especially when you consider the valuation of Bitcoin and other cryptocurrencies. Protection against potential hacks could be an important source of revenue, with huge annual premiums for theft coverage. Annual premiums could be as high as 5 percent of coverage limits.

If you’re considering getting individual cryptocurrency insurance, some companies like Allianz, Chubb, XL Group and AIG are quietly offering protection for cryptocurrencies. Allianz offers individual insurance to cryptocurrency investors: “Insurance for cryptocurrency storage will be a big opportunity, Digital assets are becoming more relevant, important and prevalent on the real economy and we are exploring product and coverage options in this area” said Christian Weishuber, a spokesman for Allianz.

Incidents of hacks and stolen funds can damage a market trying to build consumer confidence. As the crypto space is maturing, cryptocurrencies represent potential areas of growth for the insurance industry. Insurance adds a layer of security and ensures that users are properly compensated and reimbursed, in the case of a security breach. Binance has chosen to take on the costs of insurance by allocating 10% of their trading fees to SAFU. It remains to be seen how exchanges around the world approach this issue, and if they build their own coverage or work with insurance companies to guarantee customer funds. Either way, safety is important and needs to be addressed, if we will ever see the mass adoption of cryptocurrencies.

Image Source

Ilias Louis Hatzis is the Founder & CEO at Mercato Blockchain Corporation AG.

He writes the Blockchain Weekly Front Page each Monday and has no positions or commercial relationships with the companies or people mentioned and is not receiving compensation for this post.

Subscribe by email to join the other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research)

Why BTC = USD1 million may be possible, but not desirable even for those with Bitcoin

Scenarios.001.jpeg

TLDR. Buying Bitcoin as a Store of Value is anti-fragile scenario planning aka tail risk insurance against something really bad happening in the Legacy Finance Economy. If a tiny % of global wealth makes that bet with a tiny % of their investable assets and one of the really bad scenarios happens, BTC = USD1 million is a feasible scenario. That scenario is not desirable even for those with Bitcoin if you also have a lot of Legacy Finance assets.

This update to The Blockchain Economy digital book covers:

  • Run the numbers on Bitcoin and Gold.
  • That $1m BTC price implies a cup of coffee costing $ thousands.
  • Now assume BTC is around $10,000. Are you too late?
  • There are four scenarios to play with.
  • This scenario planning is driving the Bitcoin price.
  • It is OK, nothing bad will ever happen in the Legacy Finance Economy.
  • I own Bitcoin but don’t want it to be worth $1 million
  • Context & References.

Run the numbers on Bitcoin and Gold

First run the numbers on 21m Bitcoin

(Even though it is more like 17m after accounting for lost Bitcoin)

  • 21m * $1,000 (long gone except in short dreams) is $21 billion.
  • 21m * $10,000 (credible soon) is  $210 billion.
  • 21m * $100,000 (wild forecast #1) is  $2,100billion (aka $2.1 trillion).
  • 21m * $1m (wild forecast #2) is  $21,000 billion (aka $21 trillion).

That is a lot of money. Now run the numbers on Gold Market Cap

The Gold Market Cap is the $ per ounce market price * total Gold

The $ per ounce market price is the easy part of the Gold Market Cap calc. As of time of putting key to pixel, the price is $1,338.50

This is where it gets a bit fuzzy. Gold does not have a mathematically precise hard upper limit like Bitcoin, but we can get to an “accurate enough” estimate. There are about 5.5 billion ounces of gold in the world. That makes Gold market cap at current prices about $7.4 trillion.

That means to get to to $21 trillion in Bitcoin market cap (ie BTC = $1m USD) is a major stretch in normal scenarios.

This is where the second part of the headline comes into play – ”but not desirable even for those with Bitcoin”

That $1m BTC price implies a cup of coffee costing $ thousands.

If USD hyperinflation kicks in, both Gold and Bitcoin price will rocket. You can already see this in countries with hyperinflation where even if you had bought Bitcoin at the peak price in last bull run of $20,000 you would have outperformed any asset priced in your hyperinflated Fiat currency.

It may seem inconceivable that USD will suffer hyperinflation but hyperinflation is always inconceivable until it happens. One of the jobs of wealth managers is protecting against long tail risk and hyperinflation is a classic long tail risk. That is why some legacy finance assets are moving into Bitcoin.   

Now assume BTC is around $10,000. Are you too late?

No asset moves up in a straight line. Bitcoin is more volatile than other assets in part because there are no Central Banks doing “plunge protection” by printing currency and buying financial assets in Quantitative Easing (QE) schemes.

So you will need to be comfortable with occasional down moves of more than 20%.

For those investing from big asset pools, putting a small % into Bitcoin is sensible. For example, assume a Family Office with $1 billion to invest, putting 1% into Bitcoin. That is $10m. Assume buying in at BTC = $10,000 to keep the numbers simple. Now run that through four scenarios.

There are four scenarios to play with

Wealth Managers and Family Offices look at both Bitcoin & Gold as a hedge against central bank money printing. There is no certainty in investing, only scenario planning and tail risk insurance.

  • Scenario 1. Legacy Finance assets behave normally and Bitcoin becomes a small part of the Gold market which remains about where it is today. In that scenario, 99% of $1 billion grows by 3% and Bitcoin moves sideways. All is fine in that Family Office.
  • Scenario 2. Legacy Finance assets behave normally and Bitcoin turns out to be less valuable than tulips. The Family Office loses $10m on Bitcoin but the rest of the portfolio (99%) performs normally. The 3% on $990 million is $29.7m, but there is a $10m loss on Bitcoin.
  • Scenario 3. Legacy Finance assets suffer a catastrophic decline (say 80%) and Bitcoin goes to the moon. This is where $10m goes up 100x and is worth $1 billion and the $1billion in Legacy Finance assets loses $800m (80%). I use 80% as example because some of the portfolio will already be in assets such as land that do not go to zero. Tail risk insurance mission accomplished.
  • Scenario 4. Legacy Finance assets suffer a catastrophic decline and Bitcoin goes to zero. In that awful scenario, shelter, food & physical safety become critical and financial assets become only a distant memory and it is the gold part of your tail risk insurance that you rely upon.

This scenario planning is driving the Bitcoin price.

First, 4 things that do NOT drive the Bitcoin price:

  • News: positive news made no difference in the bear market and now  negative news is just ignored. Bull markets climb a wall of worry, bear markets worry about good news.
  • Technical Analysis: all the TA pundits are forced to say “this should not be happening”. We are left with a simplistic version of  TA looking at big round numbers “we crossed 8k so 9k is next” or “we dropped below $8k so $7k is next”.
  • Retail Muppets and FOMO: retail investors don’t have enough capital, so big savvy institutional traders could easily drive price down with a few well timed shorts.
  • Crypto Whales: they already own so much crypto at low cost, why risk Fiat cash when prices are rising fast?

It is the Legacy Whales doing scenario planning which drives the Bitcoin price. Big money is making an anti fragile bet at the tail end of the Everything Bubble, leaving overpriced IPOs etc

Traders understand this and repeat the mantra to “not fight the tape”, understanding that real inflows will make shorting dangerous.

It is OK, nothing bad will ever happen in the Legacy Finance Economy.

That was of course an ironic section heading. 10 years after the Lehman crisis we solved a debt problem by piling on a lot more debt. Doc to patient “Your heart attack was from alcohol and junk food. Here is a bottle of whiskey and a double cheeseburger”. Deutsche Bank (DB) is one scenario flashpoint.

DB is one of many bad scenarios. There are also many good scenarios. The point of scenario planning is not to predict which scenario will happen – that is impossible. The point of scenario planning is to position portfolios for as many scenarios as possible – including unlikely ones (referred to as long tail risk). That scenario planning is a major factor in the current Bitcoin bull market.

We all hope that DB will turn their ship around. We all hope that central banks have figured out how to engineer a soft landing and a return to normal money. Even if you own Bitcoin, the bad scenarios are bad. However, as the old saying goes – hope is not a strategy.

I own Bitcoin but don’t want it to be worth $1 million

My hope for the future is that the Blockchain Economy will reduce inequality by making a more level playing field. My hope is that Bitcoin is worth a bit more than it is today (but a lot less than $1 million) and that price is supported by real use cases as a Medium Of Exchange. Yes, hope is not a strategy.

Context & References

Why bitcoin is surprisingly valuable and stable as a chair with only one leg – for now

What has changed a decade after the financial crisis?

Bernard Lunn is a Fintech deal-maker, investor, entrepreneur and advisor. He is CEO of Daily Fintech and author of The Blockchain Economy.

I own some Bitcoin, but I am not receiving compensation for this post.

Subscribe by email to join the  Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

Numerai a small cap AI Blockchain gem

Blockchain and AI are the most trending technologies. Blockchain for Finance and AI for Finance ventures are also increasing. The combination is hoped to fuel the autonomous financial infrastructure that will host all kinds of intelligent applications in capital and financial markets.

LiveTiles-Blockchain-Infographic-E

LiveTiles brought to my attention 20 AI Blockchain projects with a great infographic. As I have profiled a few of them in 2017 at the protocol layer and the data-finance verticals, I decided to catchup with Numerai. They had grabbed my attention 2 years ago in this primer I wrote: The Big Hairy Audacious Goal of Numerai: network effects in Quant trading

Screen Shot 2019-06-02 at 16.59.44Numerai is creating a meta-model from all the Machine Learning (ML) algorithms developed by “the crowd” with cryptographic data. Numerai aims to offer a platform that generates alpha in a novel way. It wants to structure a rewarding mechanism for its traders that not only eliminates the typical competitive and adversarial behavior between them but actually, penalizes them.                              Efi Pylarinou

Numerai was and is a bleeding edge venture. It remains the only hedge fund built on blockchain and using ML and data science in a novel way. The novelty lies in changing the incentive and compensation structure of the fund manager.

Numerai launched no ICO. The NMR token was awarded to the thousands of data scientists for creating successful machine-learning based predictive models.  Once the data scientists are confident of the predictive ability of their model, they can stake their NMR and earn additional NMR if they are correct.

Numerai involves a staking mechanism.

In March, Numerai reported that $10million had been rewarded up to date. NMR tokens were distributed via airdrops initially. At launch on 21st February 2017, 1 million Numeraire tokens (NMR) were distributed to 12,000 anonymous scientists.  Thereafter, NMR  tokens were awarded as rewards to users of its platform. Bear in mind, that if a participant stakes NMR and their model doesn’t perform, the staked tokens are burnt.

According to Numerai, the NMR token is one of the most used ERC20 tokens. By end of 2018 reporting 25,000 stakes of NMR.

Numerai II.pngSource

Almost 200,000 models submitted by data scientists around the world for a competition to crowdsourced the best prediction models.

Screen Shot 2019-06-02 at 18.52.49Source from Chris Burniske`s talk at Fluidity Summit in NYC.

Numerai in March raised $11mil from investors led by Paradigm and Placeholder VCs. Numerai is a very rare case because this fundraising is not for equity but for NMR tokens.

Numerai token is a utility token and investors just bought $11million of NMR tokens.

The funds raised will primarily be used to drive the development of Erasure, a decentralized predictions marketplace that Numerai launched.

What does this mean in plain worlds?

Numerai was not a protocol but rather an application  – a hedge fund. Erasure will transform it into a protocol. This has several significant implications.

  • NMR becomes a token on the protocol and can be used to build all sorts of applications on top of Erasure.
  • Numerai becomes decentralized. The NMR smart contract will no longer be controlled or upgraded by Numerai but by NMR token holders. So, NMR becomes a governance token.
  • Numerai will have no authority on the supply of NMR tokens.

A protocol is born out of the app Numerai – its name is Erasure. Erasure is much broader than a hedge fund, as all sorts of prediction and data markets can be built on the protocol. The vision is to always to be a token that is actually used. Which brings to the spotlight the lack of transparency around data measuring use of protocol and Dapp tokens.

 Footnote: Numerai at launch was backed by Fred Ehrsam, Joey Krug, Juan Benet, Olaf Carlson-Wee and Union Square Ventures.

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

 Subscribe by email to join Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

Why is Bitcoin going up? HODL on Bitcoin?

v2_large_7374e39098f8cf9efbb37c59ccda20dac8c6320d

Last week our theme was “Is it time to buy Bitcoin? Google’s data on Bitcoin searches“. Our theme for this week is “Why is Bitcoin going up? HOLD on Bitcoin?”

TLDR. Ten years ago, when Satoshi Nakamoto published Bitcoin’s whitepaper, he described a “peer-to-peer version of electronic cash.” The idea was for Bitcoin to be digital cash. To provide a borderless means for payments, without intermediates. Since then, while Bitcoin has become a household name, it has yet to realize its true potential. It’s primarily used for speculation, instead of an everyday means of exchange.

Major retailers have become very receptive to the idea of accepting Bitcoin as means of payment. Now you can pay your AT&T bills using Bitcoin. Satellite television and Internet service provider Dish Network accepts Bitcoin as a payment option. You can fund your Microsoft account with Bitcoin, to purchase games, movies, and apps in the Windows and Xbox stores. Who accepts Bitcoin? Here’s a list with a few of the major companies accepting Bitcoin.

Yet, research from Chainalysis shows that just 1% of Bitcoin transactions were payments to merchants. Almost no one is using Bitcoin to buy things. Speculation was the primary use for Bitcoin.

Annotation-2019-05-31-114901.png

In the first four months of 2019, the proportion of merchant related transactions remained low. Only 1.3% of Bitcoin (BTC) transactions were purchases from merchants. The most extensive use is speculation on exchanges. The increase in price has to do with what we are willing to pay for Bitcoin and cryptocurrencies, instead of what we can actually do with them.

Bitcoin’s volatile nature discourages people from using it to buy things. People prefer to HODL and make huge profits in the future, instead of using Bitcoin to pay for things.

-1x-1.png

Five years ago, criminal activity was behind about 90 percent of cryptocurrency transactions. Now, illegal activity has shrunk to about 10 percent and speculation has become the dominant driver.

Speculation is important for new technologies. Whether you are dealing with emerging technology, a new business or idea, speculation is one of reasons that something will cross the chasm, to become widely adopted or a complete failure. But speculation can also be bad, when its not backed by growing usage.

Today, usage for Bitcoin and cryptocurrencies is still very low. About 85% of Bitcoin’s value is the result of speculation. Investors are heavily speculating on the future usage and adoption for cryptocurrencies and blockchain, but today utility is just a small component of the current price.

Use cases are what will drive Bitcoin’s growth, not speculation.

During a conference in Korea, Andreas Antonopoulos said “Crypto doesn’t have a use-case in the ‘developed’ world… yet“. The reality is that until scalable use cases are fully deployed, cryptocurrency markets will remain a highly speculative and volatile.

Many attribute this to block size, Lightning Network, or user experience.

We are starting to see some real use cases around the world. Projects like Facebook’s upcoming stablecoin, JPMorgan’s JPM Coin and Fidelity’s recent announcement that it will start buying and selling BTC for its clients. These are all important and constitute stepping stones in mass-adoption for cryptocurrency, but I am not sure if they are the Bitcoin’s killer app.

If we want to predict where it might go, we need to look beyond price and follow how its used and who is using it. Lack of real-world use is the biggest challenge for Bitcoin. Maybe Bitcoin will never become a payment currency and will only be a stored value just like gold. But it’s only by using Bitcoin we give it “real”, intrinsic value. Either way, with serious money now coming into the market, we are still at the beginning of everything.

Image Source

Ilias Louis Hatzis is the Founder & CEO at Mercato Blockchain Corporation AG.

He writes the Blockchain Weekly Front Page each Monday and has no positions or commercial relationships with the companies or people mentioned and is not receiving compensation for this post.

Subscribe by email to join the other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research)

IBM and BofA lead Blockchain patents tally – but do patents matter?

patent-cartoon

Image Source

I must credit the research behind this post to Keir Finlow Bates. Keir is an entrepreneur based out of Finland, where he runs a Blockchain research company. I recently came across his research report on the Blockchain patent market.

It was refreshing to see that the report was published on LinkedIn and free for everybody to access and benefit from. It had good coverage, understandable trends, a few obvious names at the top, and a few disappointing stats too. Keir had spent three days researching on Blockchain patent information on ‘google patents’ and compiled the statistics in his report.

Before we get into the findings of the report, I just wanted to discuss the question, “Do patents matter at all?”. I believe, the answer is “It depends”.  It depends on your willingness to defend them – if you are the patent holder.

With 97% of all patents, the costs are not justified. The inventor spends the money filing the patent, but do not reap any benefits. 50% of patents are expire as inventors do not pay the maintenance fees. So why file a patent at all?

Patents make sense if your product is extremely complex and hard to develop, and if the costs of defending the patent is affordable/justified. It also helps with perception (that you own the product IP), and posturing (that you will defend it).

However, defending a patent takes years, and costs millions of dollars. So it may not necessarily be an option for a startup with a differentiated product and shallow pockets. It may also not make sense if the invention’s life span is relatively shorter. By the time the patent battle is fought in courts, the life of the product would be over.

Patents are often very narrowly defined, and getting around them shouldn’t necessarily be hard work for a smart competitor/imitator. In a conversation with a startup CEO I met recently, she revealed that she wasn’t so fond of patenting her product. She reasoned that she had to give away a lot of information about her product during the patenting exercise, that it makes it easier for a competitor to create a close enough version of it.

In the case of Blockchain, I feel, patents are a KPI to mark industry and thought leadership than protecting IP. Apart from a handful of architectural improvisation in Blockchain, innovation has been largely incremental.

Another point to ponder is that, Blockchain is a technology that knows no boundaries. As there are several Blockchain friendly island jurisdictions, patenting within major jurisdictions like the US, Europe or China may be meaningless. However, the race for getting on top of the patent list is still on.

Patents

Source: Keir’s report

Coming back to Keir’s analysis, one key dimension I missed on it was China. It’s no news to us that China is racing ahead of the rest of the world in patenting its inventions with most emerging technologies like AI, Blockchain and Quantum Computing.

A research on patent databases Patentics and Incopat about a year ago, identified that Alibaba was leading the Blockchain tally, even ahead of IBM. Of the top 36 companies with at least 20 Blockchain patents, about 50% of them were Chinese firms including BAT.

Keir’s analysis was performed on Google patent, which supposedly includes China Patents – but the data in the report indicates otherwise. The key takeaway from the reports are that,

  • Bank of America leads the tally with 60 filed and 24 granted patents in the US.
  • IBM had over 200 filings and 16 granted patents, and continue their investments in Blockchain R&D.
  • Challenging the big names, Chainfrog really stole the thunder, with over 16 filed and 4 granted patents.
  • Apple, Google and Goldman Sachs disappointed with 0, 1 and 2 granted patents to their names respectively. However, it may be a calm before the storm for these leading brands.

One key point stands out for me. Is the system of patenting fundamentally broken? If I spent two years of my life creating a complex product, addressing a huge market, I should be able to patent it, and defend my patent. Cost shouldn’t be a barrier to defend my work.

Instead of raising the innovation bar for competitors/imitators, the patenting system has perhaps raised the cost bar for inventors to defend their IP.


Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion and a podcast host.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).


 

Is it time to buy Bitcoin? Google’s data on Bitcoin searches

google_search_bitcoin.png

Last week our theme was “Top 7 Crypto Exchanges for IEOs“. Our theme for this week is “”

TLDR. Search data is a great way to track the growth of active Bitcoin and cryptocurrency users. Search is a great indicator of what people are interested in. Engagement levels are red hot, with crypto investors checking the daily price of of their precious coin. Data from Google Trends shows search interest for Bitcoin hit a 14-month high. This data confirms studies that suggest there’s a correlation between Bitcoin’s price movements and search interest for it. For Bitcoin, cryptocurrencies and blockchain looking at the search data for different geographies, we can examine the entire ecosystem in new and interesting ways.

Bitcoin has been hovering around $8,000. The CBS 60 Minutes segment, “Bitcoin’s Wild Ride,” which aired last week was very positive for Bitcoin.

Screen Shot 2019-05-26 at 11.46.08 PM.png

Bitcoin’s price movement has been getting more and more people to search for it. There seems to be a real connection between people searching Bitcoin on Google and actual investment in the cryptocurrency. Bitcoin’s price can be predicted based on the number of Google searches for it, because the latter precedes the former, making Google search a key indicator for Bitcoin trading.

Back in  2017, search engine marketing firm SEMRush found that Bitcoin’s price had a 91% correlation with Google searches for it.

Google trends also shows us the geographic origin of Bitcoin searches, with countries in Africa and Europe ranking in the top 10:

Screen Shot 2019-05-26 at 9.04.30 PM.png

  1. Nigeria
  2. South Africa
  3. Ghana
  4. St. Helena
  5. Netherlands
  6. Austria
  7. Switzerland
  8. Singapore
  9. Slovenia
  10. Australia
  1. Germany
  2. Venezuela
  3. Canada
  4. Malaysia
  5. Ireland
  6. United Arab Emirates
  7. Pakistan
  8. United States
  9. United Kingdom
  10. New Zealand

Beyond prices, Google searches also indicate the pulse of an entire geographic region for crypto. Using Google Trends we have tried to uncover the interest for the top two cryptocurrencies, Bitcoin and Ethereum, overall for Cryptocurrencies and for Blockchain technology, performing searches for “Bitcoin”, “Ethereum”, “Blockchain” and “Cryptocurrency”.

Its no surprise that countries like Japan, South Korea, China and Russia lead the world in interest for “Blockchain”. They are building solutions to harness the power of decentralization and stand at the forefront of developing blockchain technologies.

russia-google.png  japan-google.pngkorea-google.png  china-google.png

In most western countries like the United States, the European Union, Canada, the United Kingdom and Australia, Bitcoin dominates user searches.

usa-google-search.png  canada-google-search.pngeu-google-search.png  uk-google.pngaustralia-google.png

In South America, Venezuela presents an interesting case. With its unstable political situation and economy, “Bitcoin” is the top query with 75% of the results.

southamerica-google.png  mena-google.png

There is an incredible amount of information one can obtain from Google’s Trends. But Google search data is not the only source. There have been studies showing  the correlation between Twitter posts and Wikipedia article views to Bitcoin’s price.

No matter how you look at it, the relationship between public interest and price is undeniable. It indicates that people are interested in buying Bitcoin. It is FOMO materialized in numbers and coincides with Bitcoin’s famous, or perhaps infamously wild market cycles.

Image Source

Ilias Louis Hatzis is the Founder & CEO at Mercato Blockchain Corporation AG.

He writes the Blockchain Weekly Front Page each Monday.I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. 

Check out our advisory services (how we pay for this free original research)

Why StableCoins are so important (but also so hard to get right)

Stablecoins.001.jpeg

TLDR. When Vitalik Buterin and Balaji Srinavasan were asked whether certain trends were either underrated or overrated, they both said that StableCoins were underrated. This post is my explanation of why I think they are right. Yet we have already seen some high profile StableCoins fail, which is why the headline also refers to why StableCoins are also so hard to get right.

In the image above you see the usual path to a currency – from Store of Value to Medium Of Exchange to Unit Of Account. Bitcoin could be all three but today faces a volatility chasm, with wild bull and bear markets. A StableCoin is designed from the start to be all three.

Today Bitcoin is a speculative Store of Value (the digital gold thesis). I am on the record saying that Bitcoin has more upside than downside and have been a buyer, but it is certainly a speculative bet. Even though it is speculative, Bitcoin has some credibility as a Store of Value.  However Bitcoin is weak as a Medium Of Exchange (there is not much you can buy directly in Bitcoin) and Bitcoin is not credible at all as a Unit Of Account. You will know when Bitcoin becomes a Unit Of Account – we stop referring to how much something costs in Fiat currency and only refer to the cost in Bitcoin or Satoshi units.

Watch Vitalik Buterin (Ethereum) and Balaji Srinavasan (Coinbase and A16V) talk about StableCoins around minute 38

This update to The Blockchain Economy digital book covers:

  • Mixing SpeculativeCoin and StableCoin in one venture does not work
  • StableCoin for JP Morgan, Facebook & Samsung is just the tip of the iceberg
  • Why a StableCoin has to be multi-currency basket
  • Don’t bet against Government backed CBDC.
  • Low volatility is essential for Cross Border payment rails
  • Bitcoin as a Medium Of Exchange faces hurdles that will take a long time to overcome
  • You cannot manufacture a stable result out of unstable/volatile base
  • Audit heavy/ tech lite is simple key to trust in redemption
  • StableCoin can be a currency for passionate global communities
  • StableCoin can be bridge into crypto for conservative adopters
  • Context & References

Mixing SpeculativeCoin and StableCoin in one venture does not work

We call them StableCoin to differentiate from coins/cryptocurrencies that are speculative. So I coined (sic) the word SpeculativeCoin.

SpeculativeCoins have benefited from a great business model, defined as Tokenomics (funding via coins that you sell into a rising price). The idea got discredited in the ICO hype and got nailed by the SEC (details here).

Ripple has been masterful at using Tokenomics to boost XRP. Whether that means XRP has value is more debatable, but there is no question that Ripple has done well with this model. It is debatable how many Altcoins will do well, but what is absolutely certain is that you cannot mix SpeculativeCoin and StableCoin in one venture.

Speculative Coin/Tokenomics might work. StableCoin might work. An investor might mix SpeculativeCoins and StableCoins into a portfolio just like you might have Facebook and Exxon Mobil in the same portfolio. However, the two models are totally different. It would be like combining Facebook and Exxon Mobil in the same operating business.

StableCoin for JP Morgan, Facebook & Samsung is just the tip of the iceberg

It is hard to keep up with the flurry of PR from big companies offering their own branded StableCoins. Without trying too hard to stretch the memory banks, we have seen StableCoins launched by JP Morgan, Facebook & Samsung. Other big banks, social media networks and consumer electronics companies will soon have to issue one to compete. Soon we will have a StableCoin for each Global 2000 corporate and then it may move to SME.

When every company has their own StableCoin, it will add about as much competitive advantage as having your own .com address.

Why a StableCoin has to be multi-currency basket

A single Fiat currency StableCoin, whether USD or EUR or CHF or any other reasonably stable Fiat currency is not good enough for two reasons, one of which is critical:

a multi-currency basket is more stable than any single Fiat currency. Even if a Fiat currency has been stable for a long time, smart investors don’t like betting that politicians won’t do something stupid in future. Printing money is a pretty big temptation!

a single Fiat currency could be seen as a threat by the nation state that issued that currency. Although governments cannot shut down Bitcoin or Ethereum (for more, read this chapter in The Blockchain Economy), they have more  control when it comes to a single Fiat currency StableCoin. This is an existential threat to a StableCoin venture pegged to a single Fiat currency. As the news of Basis shutting down shows, this is not just a theoretical risk. Basis shut down, despite raising over $100m from top tier investors, because of regulatory pressure.

Don’t bet against Government backed CBDC.

CBDC = Central Bank Digital Currency. A CBDC cuts out the FX Interbank market but not the Central Bank. It is a more efficient Fiat currency; still Fiat but faster and more efficient. Governments that are frustrated by their ability to shut down Bitcoin (because it is decentralised and there is no Bitcoin company) will not hesitate to shut down any threats that are easy to shut down.

That is why a single Fiat currency, which could be seen as a threat by the nation state that issued that currency,  faces existential risk from Governments.

Low volatility is essential for Cross Border payment rails

Daily Fintech wrote about this back in October 2015:

“Use case # 3 is using Bitcoin as an invisible interim store of value. Neither sender nor receiver cares about Bitcoin. If you wanted an interim store of value for this purpose, the last thing you would invent is Bitcoin. You would create something that was almost a mirror image of Bitcoin:

  • Had the lowest possible volatility against the major Fiat Currencies.
  • Was not perceived as a threat by the Governments that issue those Fiat Currencies.”

Look at the 10×3 problem. Imagine getting paid for a product with a 10% margin and in the 10 minutes to settle on-chain, the price declines by 10%. You just lost money on that sale, even if fees are zero.

Bitcoin as a global Medium Of Exchange faces hurdles that will take a long time to overcome

We may pay for most our purchases with Bitcoin at some point in the future. The problem is that may be so far in the future that we a get our space flight to Mars before Bitcoin becomes a global Medium Of Exchange.

Our theory is that it will happen first via the excluded in countries suffering a currency crisis (for more, read this chapter in The Blockchain Economy). So we may see local networks where Bitcoin crosses the chasm to become a Medium Of Exchange (for example in Venezuela). Then it may replicate in other failed states who lost control of their currency.

For Bitcoin as a Medium Of Exchange to cross the chasm in the developed world, we will need a wave of startups to create services to meet needs that consumers are not even aware of yet.

Both will take time.   

You cannot manufacture a stable result out of unstable/volatile base

The idea that clever math/code means you can create a StableCoin automagically from unstable/volatile cryptocurrencies sounds like creating Triple A mortgage bonds out of junk loans – and we know how well that ended in 2008!

Audit heavy/ tech lite is simple key to trust in redemption

As there is no magic tech solution, the best solution is the audit heavy/ tech lite approach that we define in this chapter of The Blockchain Economy book:

“Fiat collateralised (Fiat deposits held in custody). This is the most popular and easy to understand and used by most StableCoins. For example, Tether/USDT pegs to the US Dollar via reserves held in custody. So if you buy $1 of USDT, you are told that it is backed by $1 of US Dollar held in a bank. This obviously requires some confidence that the StableCoin operator really does have the assets properly custodized; there has been serious concern whether Tether/USDT was doing this. Confidence measures include an audit by a reputable firm. StableCoins will increasingly fall under regulatory scrutiny as they are deposit taking and need at least AML/KYC processes. This model has been described as “audit heavy/tech light”. It is operationally complex, because you need all the Legacy Finance relationships; bridging the worlds of Crypto and Regulated Banks is not easy.”

StableCoin can be a currency for passionate global communities

We live in a world where more people are members of Facebook than are citizens of even huge population countries and where we often have as much in common with “tribes” across the globe than we do with our physically close neighbours. People who are passionate about something (diet, fashion, religion, whatever) want to find others like them when they travel and when they want to give cash to that person, a multi fiat StableCoin can be trusted by both parties.    

StableCoin can be bridge into crypto for conservative adopters

On a panel at a conference, I told the panelist next to me (a senior banker) that I was a Blockchain and Bitcoin bull. The banker asked me if that meant that I was an anarchist. I laughed and said “look at me, I have grey hair and wear a suit, how can I possibly be an anarchist?” The point is that when you leave the cryptosphere and talk to mainstream business people and investors, they look for something that feels more normal and less mind bending than Bitcoin – like StableCoins.

Context & References

Investing In Payment Tokens And StableCoins AKA New Currencies.

Mega Waves In The-blockchain Economy And The Dams Holding Them Back

Is Bitcoin suitable as an interim store of value for a payment rail?

Bernard Lunn is a Fintech deal-maker, investor, entrepreneur and advisor. He is CEO of Daily Fintech and author of The Blockchain Economy.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

Top 7 Crypto Exchanges for IEOs

ieo-Initial-Exchange-Offering.jpg

Last week our theme was “Bitcoin going parabolic. ALT Season is Almost Here!“ Our theme for this week is “Top 10 Crypto Exchanges for IEOs”

TLDR. Initial Exchange Offerings (IEOs) are picking up steam, capturing the interest of investors, project teams, and exchanges. IEOs have been breathing new life into the dying ICO model. While the first IEOs took place back in 2017 (Bread, Gifto),  the trend didn’t really take off until early 2019. The demand for IEOs has been considerable, and can be attributed to several factors. IEOs represent a radical shift in the ICO model, in terms of trust. Top cryptocurrency exchanges around the world are launching their IEO launchpads and are scrambling to attract interesting new projects that want to raise funds, by selling tokens directly to exchange’s user base. This article will walk you through the rise of IEOs, their unique nature, advantages and limitations and evaluate the IEO offering by some of the top Exchanges.

Since the Coinmaster token sale in 2013, ICOs have been the most popular way to fundraise. The ICO idea is simple. The project creates a digital token, based on the ERC20 protocol, and then offers it for sale in an initial offering. While ICOs have raised billions and the ICO model became the most popular way to raise money, there have been plenty of problems and the model has been slowly dying.

One of the issues most investors face, is how to predict if the project will work after launch and if it will be successful. But the biggest problem has been scam.

The total funding of coins and tokens in 2017 reached o $11.9 billion, with 11% ($1.34 billion) going to scams. A research study by Statis Group, revealed that more than 80% of ICOs in 2017 were scams. I am sure you all remember Bitconnect and their $2.6 billion Ponzi scheme (BTW, I just heard that Bitconnect is coming back and will go live in 42 days).

The trend has been changing and IEOs represent a safer way to invest in tokens. The most important advantage of IEOs is trust.

An IEO is just like an ICO, with the difference the tokens are sold only to the users of the exchange, that is conducting the token sale. IEOs offer plenty of advantages, over ICOs. An exchange can tap into its user base. The standards for due diligence are higher. The project gets an immediate listing on an exchange.

While, IEOs look very similar to ICOs, they offer more security and trust.

The exchange screens every project that wants to launch an IEO on its website. It analyzes the project’s whitepaper and tokenomics, marketing, product status and a few other things, to determine if the project is promising enough. If the project has legs, then a date is set for the IEO and exchange’s users can purchase the token. After the IEO completes, the token is listed on the exchange and is available for trading.

Binance kicked off IEOs early this year. In January, Binance’s Launchpad hosted a public sale of BitTorrent tokens, raising $7.4 million for the file-sharing service owned by Tron.

But major trading platforms like OKEx, Huobi, Bitrrex, Bitmax, Coineal, Exmarkets, KuCoin and others are joining the IEO bandwagon. The majority of the IEO platforms are currently held by Asian exchanges, however, European platforms are also getting ready to join the party.

Choosing the right platform to host an IEO is very important. Its give a project the best chance to achieve its fundraising goal. Some of the things to consider when selecting an IEO platform are: easy of use, safety and security, high liquidity, multi-coin support and strong technology.

  1. Binance Launchpad: Superior technology, partnerships and a seamless user experience, are the reasons for its high liquidity. Currently the exchange has the highest number of users in the world giving it a broader reach, supporting all devices and multiple languages.
  2. OKEx Jumpstart: The Malta based exchange, is one of the leading exchanges by tradING volume. To provide uniqueness to its platform, OKEx Jumpstart uses a subscription, plus allotment approach. The subscription opens for 30 minutes and it will close early if the oversubscription limit is reached. Once the subscription is over, allotment then follows.
  3. Huobi Prime: Huobi positions its launchpad as a Direct Premium Offering (DPO) platform. All coins purchased through Huobi Prime are immediately deposited into user’s accounts and are tradable on Huobi Global against Huobi Token (HT).
  4. Bittrex: Bittrex’s first attempt at an IEO didn’t go as planned. RAID, its first IEO had stop, due to some controversy with the project being funded.Unlike most other exchanges, Bittrex does not have its own token.
  5. Kucoin Spotlight: At start the only requirement to participate, was to have a verified account and the principle was “first-come, first-served”. Now the exchange plans to use a lottery model. The exchange’s native coins are used as an instrument in the IEO model.
  6. Coineal: A big exchange with almost $700M daily trading volume and a stronghold in the southeast Asian markets with investors in China, Japan, Korea, Vietnam.
  7. Exmarkets Launchpad: One of the newer aggressive exchanges in the race. The platform lists 9 completed IEO’s 4 ongoing and 3 upcoming.

To launch an IEO, most exchanges ask for an upfront flat fee and a percentage of tokens or the funds raised. In most cases, terms are determined through private discussions rather than standardized procedures. Several exchanges are making IEOs a priority and are no longer considering new or niche assets for general listings. When I was speaking with a new exchange a couple of days ago, they told me their strategy is for IEOs to be their main source of revenue.

With 260 exchanges listed on Coinmarketcap, the exchange business is profitable, however the market has become vert saturated and competitive. Exchanges are looking for new ways to earn and IEOs can boost their revenues and through listing fees.

During the ICO boom in 2017, many projects hit the market and a lot of money was invested. But because of high scam rates, several countries in order to protect investors, banned ICOs or placed strict rules to reduce potential fraud. IEOs solve many problems that existed in the ICO model. High levels of trust make the IEO crowdfunding process much more efficient. However the possibility of the project failing after raising funds from an IEO still exists.

Initial Exchange Offerings mark the end of a long crypto winter, bring more security to the blockchain fundraising, change the fortunes for most of these exchanges and ultimately protect investors from scammers and fake projects.

Image Source

Ilias Louis Hatzis is the Founder & CEO at Mercato Blockchain Corporation AG. He writes the Blockchain Weekly Front Page each Monday.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research)