RelayNode NYC #33 - December 23

RelayNode
Written By David Gogel
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Welcome to RelayNode NYC Area edition! The NYC blockchain ecosystem is growing rapidly. Our goal is to harness its energy and innovation for the benefit of New Yorkers and provide a weekly curated list of interesting content, upcoming events, and local jobs.

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We will be taking a break for the week of December 30. We will return on January 6, 2020. Happy holidays!

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RelayNode NYC is curated by:

David Gogel Advisor & Finance Lead @ Paperchain fmr Associate @ Techstars' Blockchain Accelerator, Co-president @ Wharton FinTech, Corp dev @LinkedIn @AIG

Hsin-Ju Chuang Founder @Dystopia Labs. Former-Head of Growth @Stellar/Lightyear, Solana. Ex-Director at Tezos (TQ)

1 Big Thing: 2020 Predictions & Look Back at 2019

It’s that time of year, when many industry participants look ahead and make 2020 predictions. Some of my favorite prediction collections:
 

In December 2018, I made the following 2019 predictions on LinkedIn:

So how did I do? Directionally correct with some big misses. Let’s go through these: 

1) acquihires / consolidation through M&A as companies run out of capital & long-tail of funds face redemption calls 

(Verdict ✓✓✓)

TokenData released a report on M&A in the crypto / blockchain industry. “2019: Strategic M&A continues its strength. The opportunistic and sometimes obscure Financial M&A disappeared during the market correction in 2018 and has been absent in 2019.” Strategic M&A has held up well, with a projected 70 deals for 2019. Further, according to Crypto Fund Research, there are currently 804 cryptocurrency funds in total. Nearly 70 crypto-focused hedge funds that largely cater to institutional investors have closed this year. The number of new funds launched this year is also less than half the number of launches in 2018. 

My personal experience working in the space is that capital raising is challenging for both startups and funds (though power law dynamics remain). Cash remains tight and absent a rebound in crypto prices, broader capitulation is likely. Industry consolidation is required to clean up fragmentation and bring in larger pools of institutional capital (especially for later-stage rounds and exits). A more robust crypto M&A market is likely to materialize in 2020.

2) increasing governance standards as a result of activist funds / token-holders 

(Verdict ✓)

Experimentation in Decentralized Autonomous Organisations (DAOs) picked up steam. A spectrum of new governance and coordination ideas are being put to the test. Many protocols have expanded value creation options for token holders, putting them at the heart of governance through DAO set ups. Jesse Walden, an investor at a16z crypto, recaps interesting crypto governance ideas. I have been surprised that no major fund has taken a more activist approach, accumulating token supply, and requesting changes to protocol governance. 

3) a reverse hard fork, leveraged buy-outs, and a George Soros attack on a major stablecoin  

(Verdict 💀)

I was way off on this one. Reverse hard forks, leveraged buy-outs, and decentralized M&A did not happen (yet.) However, teams have been actively acquiring companies to help them transition from a centralized starting point to a more decentralized end-state and we saw a sliver of token mergers (e.g, COSS & ARAX). I expect to see new forms of M&A transactions emerge as projects look to consolidate and grow market share.

One common concern for stablecoins is the possibility of a Soros attack, where a malicious actor tries to break a peg. This is a reference to when George Soros made $1B in a single day in 1992 shorting the British pound to break the Bank of England’s peg to the German Deutsche Mark. Dai, the leading decentralized stablecoin, has proven resilient and able to sustain its peg, despite the volatility in the price of Ether and spikes in liquidations of CDPs. Meanwhile, Maker’s transition to MCD and the addition of new collateral types reduce the risk of a Soros attack.

4) a national cryptocurrency linked to fiat currency from a G-20 nation 

(Verdict ✓)

A wide array of central banks and nations are exploring launching their own digital currencies. The People’ Bank of China’s Digital Currency/Electronic Payments project and the US Federal Reserve’s FedNow Service real time payments projects both emerged after Facebook’s Libra announcement. I expect to see at least one national digital currencies go live in 2020.

5) growth of decentralized finance / new financial products / decentralized identity

(Verdict ✓✓)

DeFi has grown to become one of the core drivers of usage on Ethereum. $670+M worth of ETH is now locked in DeFi smart contracts, ~90% of which secured in Maker, Synthetix, and Compound. Further, centralized crypto lending platforms advanced $648M this year, marking a 28X increase from the $22M lent out at the start of 2019. 

Despite the lack of progress on a Bitcoin ETF, we have seen the rise of new types of financial products:

6) institutional adoption of compliant security tokens starting with fractionalized ownership in real estate / art / collectibles

(Verdict ✓)

The security token market underperformed in 2019. The STO market infrastructure seems to be in place but now we need demand and liquidity (probably the worst things to wait for.) Ian Allison from CoinDesk explains the challenges in real estate tokenization and profiles a failed venture between Fluidity and Propellr. Meanwhile, BTG Pactual partnered with Dalma Capital and plan to utilize Tezos to sell $1B+ worth of security tokens. Securitize registered as a transfer agent with the SEC, allowing them to act as an official record keeper in transfers of tokenized securities. Securitize is now able to keep a real-time cap table of investors and facilitate corporate actions for issuers, including the payment of dividends and interest, conducting shareholder votes and redemptions/share buybacks. Meanwhile, Harbor pivoted from directly sell security tokens to providing the infrastructure for other companies to issue their own tokens. Harbor announced a partnership iCap Equity to tokenize $100M worth of real estate funds. 

7) a major tech company (FAMG) will leverage blockchain tech to regain trust from users

(Verdict ✓✓✓)

The 4 Tech Titans increased resources towards blockchain tech:

Most notably, Jack Dorsey, CEO of Twitter, announced the social network will create a five-person team of open-source developers to develop an open and decentralized standard for social media, with Twitter ultimately being a client of this standard.

8) freemium / SaaS business model will evolve to include tokens / mining 

(Verdict ✓)

One of the major web2 monetization models is freemium / SaaS: users sign up for the freemium plan, and then a cohort of them will convert into paying customers. I thought we would see more free services in return for users’ computing power. Instead, this has manifested itself in the form of staking, a process where a holder of a Proof-of-Stake cryptoasset locks their funds in order to validate transactions and are compensated via protocol level inflation proportional to the amount staked as a percentage of the overall amount being staked. Staking-as-a-service exists because staking can be a complex process that the everyday token holder might not want to perform. 

9) Regulatory clarity & jail time for major fraudsters 

(Verdict ✓✓)

Regulatory clarity has since long been sought by market participants and lawmakers. Indeed according to Messari’s 2020 prediction report, “it was an active year for regulators here in the US. The NYAG went after Bitfinex and Tether, the SEC settled with the creators of EOS, Siacoin, and Veritaseum as well as a host of other smaller projects, and it sued Kik Interactive for the illegal issuance of Kin tokens. We also saw joint statements with the CFTC, SEC, and FinCEN regarding AML/KYC requirements and another joint statement from FINRA and the SEC regarding crypto custody. We also saw the FATF, an extra-governmental organization, make recommendations about AML/KYC procedures to prevent money laundering. The SEC also continues to reject all applications for Bitcoin ETFs.” 

No major jail time for fraudsters (though some big fines) but hopefully more likely in 2020. Special shoutout for NYDFS which rapidly accelerated the pace at which it has approved BitLicenses (10 in 2019, 24 in total since 2015). The regulator is also in the process of evaluating changes to the BitLicense to make New York more crypto / blockchain friendly.

10) Breakthroughs in scalability / interoperability / security / privacy 

(Verdict ✓✓)

Today, Ethereum is the leading smart contract platform. Ethereum is theoretically capable of encoding any conceivable logic, in practice, it’s rather limited because of throughput, latency, and cost constraints. Because of these limits, developers are choosing to build on other chains (Blockstack, NEAR, Solana, Algorand, Flow, Dfinity, Tezos, EOS, Nervos, Kadena) at an increasing pace. Kyle Samani from Multicoin Capital explored what applications are being unbundled from Ethereum, what applications are increasingly bundling around Ethereum, and what are the long-term implications for ETH’s monetary premium.

Some of my favorite ETH improvements: 

Meanwhile, Ethereum 2.0 is still on its way.

11) new talent from traditional finance & tech entering the space 

(Verdict ✓✓✓)

We’ve finally seen momentum from legacy tech and financial institutions — with Square, Microsoft, Fidelity, Facebook, JPMorgan, SoFi, and TD Ameritrade all announcing crypto or blockchain based financial products. Further, Indeed’s report on trends in crypto / blockchain jobs indicates lucrative and growing employment opportunities. 

12) pragmatists >> maximalists

(Verdict 💀)

In hindsight, this seems more like a wish than a prediction. I remain a pragmatist with maximalist intentions. Yet, maximalism has prevailed resulting in toxic tribalism, driving away newcomers and causing valuable talent to leave the industry. I continue to believe that pragmatists need to prevail if crypto / blockchain is to become more mainstream.

Crypto winter has been (continues to be) challenging but the industry has developed the infrastructure, companies, and products to support the next stage of growth. Here are my top predictions for 2020:

  1. The (re)rise of dissident tech and la resistance: more funds will support the protection of personal data, tools for anonymity, and privacy coins.

  2. Growing fragmentation and rivalry between East/West exchanges - BBBOH (Binance, BitMEX, Bitfinex, OKex, Huobi) vs. CBGK (Coinbase, Bakkt, Gemini, Kraken). Projects that can successfully bridge the gap between East and West will outperform.

  3. With limited new user adoption and trading fee compression, competition between existing players will heat up with increased focus on cash-generating business lines. Centralized exchanges will catalyze M&A boom to grow. Exchanges will compete with NeoBanks by expanding the pie outside of crypto natives. 

  4. As fragmentation persists, brokers, middleware services and aggregators will strengthen their positions. While new distribution apps are being built for DeFi, vertical champions are unlikely to sit still. 

  5. The sophistication of the products (highly levered options and derivatives) will remain higher than the individual sophistication of the players in the markets, causing dislocations that savvy funds and individuals will take advantage of.

  6. DeFi’s main use case will grow beyond leverage for speculative trading and begin to address mainstream users’ financial needs: deposits, credit, payments, treasury management, capital markets, investments, and insurance. Focus will move beyond deposits, credit, and payments and move down the stack. Increased focus on risk-adjusted returns with the emergence of new tools to better manage risk, leverage data to improve product transparency, and create a digital safety net in the event of a crisis. Undercollateralized lending is likely to grow as decentralized identity use cases proliferate. We are likely to see greater interoperability between Bitcoin and DeFi, as well as the rise of DeFi for B2B use cases. 

  7. On-chain synthetic assets that track the value of real-world assets will continue to grow. The MakerDAO community will debate the risks and merits of the system accepting non-trustless assets as collateral and ultimately agree to add new types of collateral.

  8. Partial asset and financial instrument tokenization will increase before being retrofitted into the “Alternatives” asset class.

  9. A major game will finally bring blockchains and NFTs to mainstream users.

  10. Several Ethereum killers will fail to launch but a wide variety of programmable blockchains will likely coexist if interoperability solutions across chains develop and prove to be secure and usable.

  11. Centralized and decentralized stablecoins will coexist, with centralized stablecoins likely being the larger market size. 

  12. China will accelerate its leading position after being the first country to launch a digital currency that is widely distributed via homegrown tech and banking giants.

  13. New battlefronts will emerge including the Oracle Wars and the Staking Wars.

  14. May 2020 Bitcoin halving will bring a lot of volatility and increased mainstream press coverage.  

  15. The digitization of securities becomes more widely viewed as the future of securities. Reg A+ becomes a pathway for regulated token offerings in the U.S.

  16. Layer-1s & Layer-2s will be more focused on adoption / usage in developing markets due to expansion of fiat on/off ramps (eg. Binance & Coinbase). 

  17. Staking-as-a-service becomes dominated by centralized exchanges, leading to the rise of centralized staked derivatives. Several PoS layer-1s will be challenged, leading to the community shifting focus to figuring out how to do decentralized staked derivatives.

  18. More traditional tech platforms explore ways to decentralize governance and control over users' data through the use of DAOs. Interest and adoption of LAOs (For-Profit, Limited Liability Autonomous Organizations) will grow.

  19. Telegram and Libra fail to launch prior to the US presidential election. 

  20. Enterprise blockchain adoption will progress steadily, with R3 taking market share from HyperLedger and Enterprise Ethereum.

🌐 Why Bitcoin?

  • In response to Jill Carlson’s CoinDesk editorial arguing that cryptocurrency is most useful for breaking laws and social constructs, Allen Farrington, write abouts elusive symmetries. “Censorship resistance is nice to have, but integrity assurance creates the fundamental use case of fixing the price and the value of time itself, and keeping it fixed forever. We can absolutely judge based on mainstream adoption, but we can also afford to wait.”

💰 Funding & Exits

  • Ripple, a SF-based payments company that uses cryptocurrency to move money across borders, raised a $200M Series C (at an estimated $10B valuation), led by Tetragon, with participation from SBI Holdings and Route 66 Ventures. Funds will be used to boost the adoption of XRP and Ripple’s native blockchain network. In 2019, RippleNet grew to 300+ customers and included a new strategic partnership with MoneyGram. This network momentum drove 10x year-over-year growth in transactions across the network and more banks and payment providers using XRP to source liquidity on demand.

  • The Maker Foundation sold $27.5M worth (5.5% of total supply) of MKR tokens to Dragonfly Capital and Paradigm. As covered in Forbes, the partnerships with Dragonfly and Paradigm are part of MakerDAO’s effort to increase adoption in Asia.

  • FTX, a crypto derivatives exchange, raised a strategic investment from Binance. FTX founder Sam Bankman-Fried says the investment is in the tens of millions of dollars in return for a double-digit stake. Binance also took a long-term position in FTX’s native token, FTT. Funds will accelerate the growth of FTX with support and strategic advisory from Binance while FTX maintains its independent operations. According to skew, the consolidated entity make it a viable threat to BitMEX.

  • Kraken, a crypto exchange, acquired Circle’s OTC business. Circle Trade was considered by many to be the most successful crypto OTC desks. Kraken said the acquisition would supply its OTC arm with new trading partners, “particularly in Asia,” deeper liquidity and tighter spreads, and improved automation and advanced tools for traders designed to streamline the trade process. With Circle divesting its OTC business and doubling down on USDC, which was introduced via the CENTRE consortium (joint effort between Circle and Coinbase), probability of an acquisition by Coinbase is increasing IMO. The question is whether SeedInvest gets spun out beforehand?

  • Alchemy, a developer of tools and infrastructure services for blockchain projects, raised $15M in a Series A round, led by Pantera Capital, with participation from Stanford University, Google chairman John Hennessy, Yahoo founder Jerry Yang, and Charles Schwab. Funds will be used to scale existing services and fuel international expansion. The middleware tools already powers infrastructure for 100s of businesses serving 1M+ customers per week, including Augur, 0x, Cryptokitties, Kyber and the Opera browser.

  • ZenLedger, a cryptocurrency tax analysis and blockchain analytics startup, raised $3.4M in seed funding, led by Vestigo Ventures, with participation from Gumi Cryptos, Castle Island Ventures, Unblock Ventures, and Migration Capital. The company has grown revenue and customers by 500% year over year.

  • Astro Wallet, a startup offering a crypto wallet allowing users to pay with USD on decentralized apps, was acquired by Coinbase. Complete economic abstraction and more seamless fiat on-ramps for the win.

🔓 DeFi / OpFi

  • Sablier released v1 of its protocol for continuous and trustless payroll on Ethereum using Dai, USDC or cDai. Using something like cDai as the payment currency allows employees to accumulate real-time interest until they decide to spend their salary. 

  • Alex Mashinsky, CEO of crypto lending startup Celsius, provides a roadmap for DeFi suggesting DeFi community should improve platform interfaces, create products and services for a greater share of the population, and use stablecoins to bridge centralized fiat assets to decentralized cryptocurrencies.

  • Haseeb Qureshi, partner at Dragonfly Capital, believes that DeFi needs to focus on bringing down collateralization rates, developing a wider range of synthetic assets and developing the functionality for stable, on-chain identity.

  • MakerDAO announced that starting on December 20, control of MKR tokens will be handed from the Maker Foundation to the smart contracts. MKR token holders will soon be given full control, meaning that decentralized governance will be the only avenue for changing MKR token authorizations.

  • Fenbushi announced a partnership with Staked, a staking-as-a-service startup. Staked will provide staking infrastructure to Shanghai-based Fenbushi, which has a strong focus on the Asian market. Through the partnership, Staked will initially support Cosmos (ATOM) coin for Fenbushi, and later expand to more coins, including Polkadot (DOT), Ontology (ONT) and Ether (ETH).

  • Coinbase added automatic staking for XTZ, and less than a month later, Binance introduced 0% staking fees on Tezos. Arianna Simpson, GP at ASP, explains how the stake wars are just starting and the implications for centralization in Proof of Stake systems. Mohamed Fouda, GP at Token Daily Capital, explains that the major advantage of staking with an exchange is not the 0 fees, it is the ability for exchanges to issue certificates of deposit that depositors can trade while the asset itself is being locked on the network for staking.

  • Wave Financial, in partnership with Harmony, released an excellent report on trends in DeFi.

💸 STOs / Stablecoins / Tokens

  • Chainalysis explains how a $3B PlusToken ponzi scheme in China could be pushing down the price of Bitcoin as scammers liquidate their stolen funds via OTC brokers, mostly Huobi. Fascinating deep dive into how PlusToken scammers are obfuscating the movement of funds through mixers like Wasabi Wallet, which utilizes the CoinJoin protocol to make it more difficult to trace the path of funds, and peel chains.

  • Neon District is Blockade Games’ flagship game, a cyberpunk role-playing game where players control parties of characters and battle to progress through a sci-fi storyline and earn in-game NFT items. Blockade Games explains how Neon District is fixing existing blockchain game NFT token models for mainstream audiences.

🌉 Infrastructure

  • Parity, creators of one of the main Ethereum clients, announced that the Parity Ethereum codebase and maintenance will be transitioned to a DAO ownership, called OpenEthereum, and maintainer model. The announcement comes on the heels of Parity receiving a $5M grant from the Ethereum Foundation awarded last January.

  • Canaan Creative raised $90M in an IPO on the NASDAQ in Nov 2019. The shares are trading at $5.19, down 43% since the listing, while in the same period the Bitcoin price is down 8.3%. BitMEX research published an excellent post-mortem: “the success of this IPO was a major victory for Canaan and its bankers. Canaan managed to raise $90M at what we consider an extremely expensive valuation, right before a decline in the Bitcoin price and with the Bitcoin halvening coming up in around 6 months time. This should provide the company a significant cash buffer if the bear market continues.”

  • Binance Research released research positing why some miners are economically irrational when allocating computing resources between BTC, BCH, and BSV.

🏦 Institutionalization

  • Since launching in 2017, CME Bitcoin futures have seen growth in interest, trading volume and liquidity. With ~2.5M contracts traded since launch (12.5M equivalent bitcoin or $92B in notional value) and 4,929 average daily contracts traded (24.6 equivalent bitcoin or $182M in notional value) market participants use futures to efficiently express their views on bitcoin performance and manage exposure. The CME will introduce options on Bitcoin futures in 2020 to provide more choices in managing bitcoin price risk.

  • ErisX, the Wall Street-backed cryptocurrency exchange operator, launched its market for cryptocurrency futures. 

  • State Street, a leading providers of financial services to institutional investors with $32T in client assets under custody and ~$3T in AuM, announced a partnership with custodian Gemini Trust for a new digital assets trial. It allows the user to consolidate the reporting of their digital assets serviced by Gemini, an independent digital asset custodian, with their traditional assets serviced by State Street.

🍰 Layer 1 

  • Monero announced that Riccardo “Fluffypony” Spagni is stepping down as the lead maintainer of the privacy coin. Fluffypony has served the Monero project over its five years of existence, and will continue to remain active in the community as a maintainer. Path to decentralization?

  • Zcash has implemented Blossom, a network upgrade designed to improve scalability and user experience by cutting block generation times to 75 seconds while keeping fees low. This upgrade also includes a new process mechanism called The Network Upgrade Pipeline which helps streamline new protocol upgrades in Zcash.  

  • The Ethereum Foundation continues to work step by step on its Ethereum 2.0 release. The latest update covers its technical audit, extended testnet, and new block explorer. 

⚖️ Legal

  • The SEC voted to propose amendments to the existing accredited investor definitions. The proposal expands the list of entities that may qualify as accredited investors allowing more investors to participate in private capital markets based on professional knowledge, experience, and certifications rather than just income or net worth. The proposal is subject to a 60-day public comment period.

🎥 Podcast & Video of the Week

  • Jason Choi has a fantastic podcast with Jill Carlson and Yaniv Tal debating whether mainstream adoption is bad for crypto and exploring Sound Money vs. Web 3.

  • Multicoin released videos from its Fall 2019 Summit.

Highlighted Industry Jobs (non-exhaustive list for NYC / remote):

If you would like to highlight jobs or internships in future editions, please email links here.

Check out Indeed’s report on crypto / blockchain jobs and trends for 2019.

Events this week

Take a week off and looking forward to events in 2020.

Upcoming Events

Understanding Decentralized ID (Free)

When: Tuesday, January 14, 2020, 6:00 PM to 9:00 PM

Where: IBM Garage, 368 9th Ave 16th Floor · New York, NY

Get an education on what Decentralized ID is and what some of the use cases are.

#TNYSCM18 – Blockchains in Supply Chain (Free)

When: Thursday, January 23, 2020, 5:30 PM to 7:30 PM

Where: TBD

As the hype around cryptocurrencies and blockchains is cooling off, a few committed entrepreneurs, innovators, technologists, and academics continue to build products to solve problems that have plagued enterprise supply chains for years. This event will feature some of those people and the products they are bringing to market.

NYC/XRP IV - Seeing 20/20!

When: Tuesday, January 28, 2020, 6:00 PM to 9:00 PM

Where: Location, TBD

The last year has been a very exciting time for both the NYC/XRP meetup and the larger global #XRPCommunity. Ripple Labs engineers and directors will be invited to share their stories and journeys as part of a fireside chat. 

TRUST-LESS 2020: Proof of Stake (PoS) Validator Summit

When: Sat Feb 1st - Sun Feb 2nd 2020

Where: Virtual

This is one of those pivotal moments in blockchain history. With ETH 2.0 & multiple PoS layer-1 blockchain protocols slated to launch early 2020, it's an opportunity for developers & students to enter the blockchain space & learn how to build one of the few viable business models that can earn money: staking-as-a-service. Attendees Will Learn:

  • What The ETH 2.0 Roadmap Looks Like  + How Staking Will Work

  • How To Stake On Different Layer-1 Blockchain Networks

  • How To Participate (As A Validator) Via Incentivized Testnets

  • How To Build Your Own Staking-As-A-Service Startup

  • Staking-As-A-Service Models: Economics, Custody, & Security

  • Frameworks For Treasury Management

  • How To Think Through Crypto-Taxes 

  • and more!

Notable Conferences

Nothing written in RelayNode NYC is legal or investment advice and should not be taken as such. 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.

David Gogel https://www.definancier.com
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