RelayNode NYC #32 - December 16

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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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: Why Bitcoin is undervalued (in 750 words)…

Governments and central banks create and control modern money. Currency has value because members of society mutually agreed that it has value. Bitcoin is a breakthrough technology, similar to TCP/IP, HTTP, and SMTP. Bitcoin, as a protocol, offers an effective means to transfer money over the internet without relying on a centralized intermediary. The protocol is controlled by a decentralized network with a transparent and accessible set of rules, offering an alternative to government-issued fiat. The unit of account, bitcoin, is the unit of money on the Bitcoin network. 

In the following, I argue that bitcoin is undervalued by juxtaposing the certainty of bitcoin supply with its uncertain demand. I assume a $34 trillion addressable market size for global stores of value ($9 trillion) and mediums of exchange ($25 trillion). I exclude additional option value accrued from new layers built on top of Bitcoin and bitcoin's market price, which is below market value. Assuming a fixed supply and a conservative 5% penetration, I estimate bitcoin's market value to be $1.7 trillion. This translates to a valuation of ~$81,000 per bitcoin (assuming full dilution) or 11.4 times the current price of $7,100. 

A)    Bitcoin Supply

Uniquely, Bitcoin's supply schedule is predictable, encoded in its consensus algorithm, maxing out at 21 million units in 2140. As we approach the 3rd halving in May 2020, the block reward will be cut in half, at which point 87.5% of bitcoin ever to be mined will be in existence. With annual inflation soon approaching 0.5%, miners will increasingly be compensated for processing transactions and securing the network through fees on high transaction volumes.

B) Drivers of Bitcoin Demand

1) As a non-sovereign monetary store of value: Amidst increasing macro risks, unconventional monetary policy, and rising geopolitical tensions, bitcoin is likely to prosper as a digital store  of value that is difficult to seize, freeze, or devalue. Bitcoin, with relatively negligible costs of storage and transfer, can be considered digital gold. According to the World Gold Council, the total above-ground stock of physical gold is ~194,000 tons or ~6.2 billion ounces. Assuming a price of gold of $1500 per ounce, bitcoin, as a store of value asset, has an addressable market of $9 trillion.

2) As a medium of exchange in a payment system: government-backed money is the predominant medium of exchange. M1 is a narrow measure of money that includes liquid assets, such as physical currency, checking, and deposit accounts, that can easily convert to cash. According to the CIA Factbook, global M1 is $25 trillion, resulting in an addressable market for bitcoin, as a medium of exchange asset, of $25 trillion.

3) As a tech-driven monetary system enabling new applications: for bitcoin to accrue value, adoption needs to grow, and new use cases need to develop. Critics often point to Bitcoin’s decentralized, often dysfunctional governance as an impediment to innovate. However, I consider the inflexibility to be a feature, not a bug. It pushes a vibrant ecosystem to build layers on top of Bitcoin. The protocol easily integrates into other software or hardware while maintaining the integrity of its monetary policy. Indeed, while bitcoin can thrive as a store of value without being the most effective medium of exchange, innovations, such as the Lightning Network, open up new opportunities and generate option value derived from increased network utility.

4) Speculative frenzy: I believe bitcoin's market value is significantly above its market price. In the last 2 years, market capitalization has remained highly volatile, peaking at $320 billion, and now sits at $130 billion. The difference between value and price is that the former, in the eyes of the seller, might be much more than what a buyer will pay. Value creates demand, which can influence price. Given bitcoin's supply inelasticity, the price is determined by incremental information, liquidity, and sentiment-driven demand, which exhibits characteristics of a bubble. But speculative interest in bitcoin is likely to decline as adoption and utility increase. As supply remains predictably fixed and demand rises, value will more directly influence price.

Antithesis: Bitcoin’s value proposition is not just a protocol or a programmable currency with provable scarcity; it is a tech-enabled monetary system with option value. The antithesis is that bitcoin will never become digital gold or a mainstream medium of exchange. Yet, relative to other cryptocurrencies, Bitcoin has more users, has more hashing power, and has never been hacked. Further, no competitor or fork has successfully replicated Bitcoin’s robust security incentive mechanism and network effects derived from an active ecosystem.

Things to read

🌐 Why Bitcoin?

  • Jill Carlson, co-founder of the Open Money Initiative, argues, in a controversial post, that cryptocurrency’s main use case will always be its censorship-resistance for individuals and organizations. To judge cryptocurrency based on mainstream adoption is to judge it on a metric it was never designed to achieve.

💰 Funding & Exits

  • Crusoe Energy Systems, a tech-driven flare mitigation provider, raised $30M in equity financing, led by Bain Capital Ventures and The KCK Group, with participation from Founders Fund, Winklevoss Capital and Polychain Capital. The company also raised $40M in project financing. Funds will be used to to open a bitcoin mining facility and expand Crusoe's proprietary Digital Flare Mitigation™, which converts otherwise wasted natural gas into electricity to power energy-intensive computing.

  • Digital Asset, creator of the open source DAML smart contract language, raised $35M in Series C funding (total of $150M) led by ASX and Jefferson River Capital. Funds will be used to accelerate the adoption of DAML across industries, expand the number and variety of DAML-enabled partner products and fund new products to enhance the developer experience.

  • Upvest, a startup that provides APIs to interact with the major open-source blockchains and helps companies tokenize financial assets onchain, raised  €7 million (~$7.8 million) in a Series A, led by Notion Capital, with participation from Partech Ventures and Holtzbrinck Ventures. Funds will be used to expand the team and improve the platform.

🔓 DeFi / OpFi

  • Micah Zoltu, an independent software developer, wrote a post explaining how “anyone with ~40,000 MKR (~$20M) can steal all of the collateral in Maker DAO, both DAI and SAI, along with a good chunk of assets from Compound, Uniswap, and other Maker integrated systems (over $340M).” In response, MakerDAO released a post addressing this vulnerability and introducing the Governance Security Module (GSM). The GSM is designed to give MKR holders a chance to review changes that will go into the system and act accordingly if changes are deemed to be malicious. Downside of composability?

  • Mario Laul, Researcher at Placeholder VC, highlights historical systemic crises associated with the collapse of asset prices or income flows and the recurring interplay between financial innovation and regulation, and considers the potential long-term implications for DeFi to assess potential risks and prepare for different economic and regulatory scenarios.

  • Alethio published a thought piece on illiquidity and bank run risk in DeFi, conducting an empirical analysis that examines moments of liquidity risk in the Compound money markets.

  • DeltaTiger, community member at Synthetix, explores the recent community decision to implement a 1.25% weekly rewards decline. This change went live last week in the Capella release. Since this new monetary policy was introduced, it has had a positive result in terms of active participation in the network and has played a key role in attracting a large number of additional stakers.

  • Camila Russo, Founder of the Defiant, has a great interview with Hugh Karp, founder of Nexus Mutual. 

💸 STOs / Stablecoins / Tokens

  • Nike received a patent to tokenize shoes on Ethereum. A document filed with the U.S. Patent and Trademark Office indicates that Nike intends to generate unique IDs and create ERC 721 tokens for some shoes.

  • Banco Santander redeemed a $20M bond using Ethereum. The bank performed an early repayment of the blockchain-based bond that was issued on Sept 10 2019, which shows that the Ethereum blockchain can be applied across the full lifecycle of a security.

  • Moloch DAO, OpenLaw, and MetaCartel have been working on extensions to the initial Moloch DAO code in order to power next-generation LAOs, which would enable DAOs to engage in a greater range of for-profit ventures.

  • Blockade Games, the blockchain gaming studio behind Neon District, announced its crossover NFT spanning 2 other games (Battle Racers and Light Trail Rush.) NFT interoperability for the win. 

🌉 Infrastructure

  • 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. The initiative, dubbed Bluesky, is in response to “entirely new challenges centralized solutions are struggling to meet.”

  • CoinShares published its latest report on Bitcoin mining trends, investigating the geographic distribution, composition, efficiency, electricity consumption and electricity sources of the Bitcoin mining network. Interesting facts: China dominates in general with 65% of total capacity, and at current bitcoin prices, the average miner is profitable. 

  • Vitalik Buterin, Co-Founder of Ethereum, explores the use of quadratic voting, funding, and attention payments. "The ultimate effect of [quadratic payments] rolled out in their full form could be as deeply transformative as the industrial-era advent of mostly-free markets and constitutional democracy."

🏦 Institutionalization

  • Bakkt announced that it will be offering two new products: the Bakkt Bitcoin Monthly Options and Bakkt Bitcoin Cash Settled Futures. The products will be available on ICE Futures Singapore which will allow Bakkt to grow its presence in Asia.

🍰 Layer 1 

  • Dan Elitzer from IDEO explains in a post why staked ETH derivatives (DETH) have the potential to supercharge DeFi yields by allowing ETH to be simultaneously staked and lent. Unfortunately, this will also likely lead to high centralization of ETH staking and the Ethereum network.

  • Electric Coin Co. (ECC) released its Q2 2019 transparency report detailing company income, expenses and use of funds. At the end of Q2, the company held approximately $7.35M in USD and ZEC. Primarily due to the decline in the price of ZEC since the end of June, ECC’s current holdings are approximately $4.4M in USD and ZEC.

🍰🍰🍰Web 3

  • Filecoin, a decentralized storage network, announced that the Filecoin Testnet is live.

  • Kyle Samani, GP at Multicoin Capital, released an updated framework and thoughtful visualizations on the Web3 Stack. The 2019 Edition aims to show the Web3 stack as a set of interoperable networks. Interesting observations: the rate of fragmentation is accelerating, the growth of middleware such as cross-chain services.

⚖️ Legal

  • The NYDFS is planning to update the BitLicense. The agency released new guidance on proposed amendments including two updates the public can comment on: Any coins the regulator approves for listing in New York can be listed by any exchange that operates in the state, as long as they provide notice to NYDFS; and the regulator will publish a model framework for coin listings that exchanges should model their versions around. 

🎥 Video of the Week

  • In the latest Fintech Global Network from the NYSE, Nisa Amoils covers the NYSE & Direct Listings, and U.S. Digital Currency.

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

A Fireside Chat With Dr. Voshmgir, Institute of Crypto-Economics, Univ of Vienna (Free)

When: Monday, December 16, 2019, 6:30 PM to 9:00 PM

Where: The Ainsworth Social, 645 9th Ave · New York , ny

This CryptoMondays NYC features a Fireside Chat with Dr. Shermin Voshmgir, the Director of the Crypto-Economics Research Lab at the Vienna University of Economics. Dr. Vohmgir coordinates the interdisciplinary work of 30 researchers from eight departments (technology, economics, law, business). While tokens are a critical part of the crypto ecosystem, the community still lacks a clear taxonomy for tokens - from a business, technological and legal perspective - as well as modeling, forecasting, and evaluation tools. The aim of the core research done at the lab is to define a clear vocabulary, outline use cases, and develop these methods for modeling, forecasting, and evaluation. For a first scoping and definition of the token landscape the book “Token Economy” was written and published. As a second step we are working on a research roadmap that will outline our future research activities. More info here: https://www.wu.ac.at/en/cryptoeconomics/

Connected Smart Contracts: Develop a real-world connected Dapp using Honeycomb (Free) 

When: Monday, December 16th, 2019 6:30pm-9:00pm 

Where: dLab, 255 W 36th St (between 7th & 8th) Floor 3 · New York

Decentralized oracle networks inherently suffer from a chicken-and-egg problem regarding data sources and smart contract use-cases. We will kickstart this event by giving an overview of Honeycomb Marketplace as a solution, which provides a wide variety of data to build Chainlinked dapps today.

⚡Workshop: Build a Maker Bot on AirSwap⚡(Free) 

When: Monday, December 16, 2019, 6:30 PM to 9:00 PM

Where: WeWork Dumbo Heights, 81 Prospect St · Brooklyn

AirSwap will present an overview of the AirSwap peer-to-peer trading network and lead a hands-on workshop with the new AirSwap Maker Kit, which allows anybody to run automated trading software on the AirSwap network. This is a workshop so please bring your computer.

[Whitepaper Wednesday] Hard Problems in Cryptocurrency: Five Years Later (Free) 

When: Wednesday, December 18, 2019, 12:00 PM to 1:00 PM

Where: Rent24, 25W 39th Street 14 Fl · New York, ny

This week, we're wrapping up 2019 by reading Vitalik's recent post about open R&D questions in cryptocurrency: https://vitalik.ca/general/2019/11/22/progress.html. We'll discuss the listed problems at a high level and what they might mean for the ecosystem if they are solved or remain unsolved.

IOTA 2019: A Year In Review (And a Sneak Peak into 2020!) (Free)

When: Tuesday, December 17, 2019, 7:00 PM to 9:00 PM

Where: General Assembly, 902 Broadway 4th Floor · New York, NY

Come Join Dan Simerman, head of Financial Relations for the IOTA Foundation, as he walks through some of the biggest developments in 2019, a sneak peak into IOTA’s strategy for 2020, and his assessment of the blockchain and distributed ledger market in general

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.

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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