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RelayNode NYC #26 - November 4

David Gogel

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.

On the 6-month anniversary of the launch and 26th edition of this newsletter (full archive here), we want to thank our 850+ weekly subscribers. We know there are a lot of crypto newsletters out there and we appreciate you taking the time to read RelayNode. We would be grateful if you could fill out this short 5 question *survey* so we can continue to serve this growing community. Feedback is a gift.

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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 Director of Community & Growth @TQ Tezos, ex-Head of Growth @Stellar/Lightyear, Side Hustle @Dystopia Labs.

The development of the crypto / blockchain industry is often compared to the initial development of the Internet. Today, consumers regularly use applications that leverage protocols (e.g., TCP/IP, SMTP) that power the web without fully understanding the underlying technical standards. However, many forget that the initial years of the Internet were mired by infighting and slow adoption of protocols / standards. Similarly, developers in the crypto industry have spent the last decade focused on building and scaling open-source protocols (e.g., Bitcoin, Ethereum, and many more) that will catalyze an open financial system.

On the 11th anniversary of the Bitcoin whitepaper, I have been reflecting on the state of the industry and where we are in the development of an open financial system.

Innovation & growth with some challenges but still early days of major tech wave

  • Bitcoin launched in 2009 as a trustless P2P electronic cash system. The crypto market has since experienced significant growth in size and scope with the rise of ~3000+ cryptocurrencies in circulation. Bitcoin has remained the most valued cryptoasset, establishing itself as the digital gold and acting as a hedge to macro risks, while the top 10 have varied over time. 1,799 coins are dead or were scams.

  • Cryptoassets market cap increased 32x in 2017 reaching a record high of $829B. The market then crashed by 87% through crypto winter, hitting $108B at the end of 2018. In 2019, the market cap has consolidated in the range of $200-$400B.

  • A sustainable financial system requires borrowers, lenders, investors, high liquidity, some leverage, bulls and bears. Private market valuations face more scrutiny in the public markets. Price discovery takes time though speculation and price volatility have rewarded traders not investors. The sector is slowly shifting from speculation to a global payments network powered by store of value assets.

Cryptonetworks are new ecosystems incentivized by cryptoassets

  • Cryptoassets incentivize cryptonetworks which create new business models, enable new applications, disintermediate current service providers, and lower the cost of existing products & services. Cryptonetworks are web-based decentralized networks that provide various digital services; they are powered by a blockchain, an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but everything of value.

  • Open cryptonetworks are open-source protocols, software, and communities; growth is driven by large network effects as cryptoassets are distributed to participants who are incentivized to promote the network and build more applications on top of underlying systems, resulting in cryptoasset value appreciation.

  • Blockchain tech is still in its early days (think Netscape) and while the hype is high, the majority of consumers have yet to adopt the tech. While transaction data is on-chain and verifiable by anyone anywhere, the challenge is how to separate the signals or insights from the noise. New ecosystems are emerging addressing scalability, interoperability, privacy, and security issues. Crypto winter was painful but cleaned up parts of the industry. The best teams deliver on product roadmaps and provide a solution to an identified problem through ruthless execution.

Retail dominance; institutions slower to adopt but increasing interest

  • With limited utility, the cryptoasset market has been dominated by early-adopters and retail investors speculating on future value. In late 2017, the industry hit an inflection point: the price run-up expanded interest to the mainstream but limited utility remains. Then the bust. Welcome to the trough of disillusionment.

  • The growth of margin, futures, options, derivatives, and structured products, mostly on unregulated or off-shore exchanges, has created large amounts of leverage in the system. While some leverage is good, too much debt can create systemic risk.

  • Larger, more regulated, trusted participants (CME / CBOE) promoted the maturation of the space seeking institutional capital which has stayed on the sidelines due to a lack of education, unsecure infrastructure, tools for risk management, as well as uncertainty around regulation. Institutional infrastructure is now in place (e.g., Bakkt, Tagomi, Coinbase Custody, Grayscale) but demand is still low, though growing.

  • While private and consortia blockchains trials spread across industries, major successes in production have yet to emerge beyond securities settlement, supply chain financing, and cross-border transfers.

Some product-market fit

  • Investment rapidly poured into infrastructure businesses (i.e., exchanges, wallets, custodian, crypto friendly banks, fiat on ramps, liquidity providers) to allow users to access and use digital assets. Picks and shovels are still lucrative.

  • Initial Coin Offerings (ICOs) displaced public markets and private investments for fundraising for early-stage companies. Anticipating a world of decentralized apps, investors supported infrastructure-building projects. The ICO market boom and bust showcased some of the benefits and shortcomings of fundraising on the internet; initial exchange offerings (IEOs) / security token offerings (STOs) are the next wave.

  • Fiat-backed stablecoins, cryptocurrencies designed to minimize the volatility of the price of the stablecoin relative to some stable asset or basket of assets, found product-market fit early as a way for traders to move in and out of more volatile cryptoassets while protecting their gains. These stablecoins are now morphing into cross-border payment and credit systems. Crypto-backed stablecoins (MakerDAO) are adding new collateral types and expanding their addressable market by providing decentralized capital to finance real-world assets.

  • Investments rapidly poured into decentralized finance (DeFi) products and companies which innovate on the manufacturing of financial products. DeFi is following a similar growth trajectory to FinTech, with initial product market fit in payments and lending. Soon, use cases will emerge in wealth management and insurance. UX / UI continues to be a barrier for adoption but in true aggregation theory, user facing platforms (e.g., InstaDapp) are delivering value by curating information for consumers. Yet, too many users are chasing unsustainable top-line returns and not risks-adjusted returns.

  • Programmable digital securitization of ownership in real-world assets subject to securities regulations is beginning to disrupt Wall Street, predominantly in real-estate and fixed income securities. Tokenization enables fractional ownership, better pricing discovery and trade execution of illiquid asset classes. The landscape is still nascent and will evolve as regulatory guidance and standards emerge.

Regulatory arbitrage & uncertainty with guidance slowly emerging

  • The cryptoasset revolution is global but the degree of regulation varies significantly, with the US seeing moderate levels. Facebook’s announcement of Libra sparked new competition between governments, central banks, and private companies around the globe over control of the future of digital money.

  • Cryptoassets share properties with currencies, commodities, and securities, making uniform legal classification challenging: community consensus has emerged along various dimensions (e.g., utility vs. security token) but regulatory clarity is still needed.

  • No KYC / AML, frauds, ICO scams, money laundering, drug trafficking, unregistered security offerings, lack of investor protections have resulted in increasing regulatory scrutiny. High-profile enforcement actions against unregistered securities offerings (e.g. Kik, Telegram) have tamed the market, at least in the US, or pushed teams abroad. Many market actors have formed self-regulatory organizations and are working with regulators to educate them on the tech but more is needed.

  • While any technology can be used for nefarious purposes, regulators are looking to encourage innovation and progress but manage for unintended consequences.

Cryptoassets market trends

  • The strong are getting stronger: early profit centers are turning into gatekeepers, investors, and acquirers. Exchanges play a major role, processing billions in trading volume and generating fees, making strategic investments to enhance product offerings. Consolidation in the sector is expected as the industry matures and margin compression accelerates.

  • East vs. West divide: Asia continues to be a dominant player in the industry yet the East vs. West gap is real and widening.

  • The race for institutional capital: new products are focused on attracting institutional capital, expanding adoption beyond retail investors.

  • Ecosystem development: smart contract platforms are investing to attract developers and building out ecosystems. Ethereum still in the lead but competition heating up.

  • Enterprise blockchain continues to grow: established tech & financial services companies are making bets on disruptive tech trends and investing in applications

How far we have come since the launch of Bitcoin! Centralized networks continue to face a public trust backlash around how user data is managed while users want more control over their digital lives. No one in the early 90s could have predicted the rise and dominance of Facebook, Amazon, Google, Netflix. Before Spotify, we had Pirate Bay. Mistakes are made. Lessons are learned. We are living through a rebuilding of the financial system on open networks using new decentralized applications spanning lending, venture capital, investing, identity / reputation management, remittance, and merchant processing. I can’t wait to see where this industry will take us over the next 10 years.

🌐 Macro - why Bitcoin?

  • The Federal Reserve cut its benchmark interest rate for the 3rd consecutive time this year, by a quarter point to 1.5-1.75%. Chairman Jerome Powell hinted the central bank would hold off on further rate cuts.

  • The Bitcoin whitepaper turned 11 on Halloween. Yan Liberman and Kevin Kelly, researchers at Delphi Digital, released an excellent report on Bitcoin’s outlook and explores the interplay between price and open interest on BitMEX. “In our view, the best environment for bitcoin is one characterized by declining market volatility, more accommodative monetary policies from global central banks, and low (but not contracting) economic growth.”

💰 Funding & Exits

  • Canaan Creative, a China-based maker of cryptocurrency mining equipment, filed for a US IPO, aiming to raise $400M via the Nasdaq. Canaan previously tried to list in Hong Kong and China, but faced pushback from regulators. The company reported a loss of $45.8M for 1H 2019, with net revenue of $42.1M. Meanwhile the demand for crypto mining machines has rebounded amid bitcoin rally running since April. Your turn Bitmain.

  • CoinList, a NY-based company that connects investors to crypto projects, raised $10M in funding, led by Polychain Capital with participation from Jack Dorsey and Collaborative Funds. Funds will be used to build a cryptocurrency exchange, CoinList Trade, and a cryptocurrency wallet, among other services.

  • Synthetix, a decentralized platform on Ethereum which provides tools for creating on-chain synthetic assets that track the value of real-world assets raised ~$3.8M in new funding. Framework Ventures purchased 5M Synth (SNX) tokens from the Synthetix Foundation’s treasury.

  • SIBEX AG, a decentralized peer-to-peer crypto trading platform offering an institutional-grade dark pool for digital asset procurement and liquidation, raised CHF 1.78M (~US$1.8M) in a seed funding round, from Fenbushi Capital, Swiss stock exchange group SIX and Accomplice VC, among others.

  • Centrifuge, an open decentralized platform to connect the global financial supply chain, raised $3.7M in funding, led by Crane Venture Partners, with participation from Fabric VC (investment thesis here), Atlantic Labs, Inflection Capital, among others.

🔓 DeFi / OpFi

  • Kyle Samani, GP at Multicoin Capital, dropped a masterpiece on the future of exchanges. Crypto exchanges are (re)building every major financial service from 100- year-old services like lending to crypto-native services like staking. Given their position as aggregators of capital and their interest in building both traditional and crypto-native financial services, the exchanges are perfectly positioned to catalyze the adoption of Open Finance and onboard billions of users into crypto. As they morph into DAOs, the early participants in their respective ecosystems are likely to be rewarded.

  • In the run up to a planned upgrade to Multi-Collateral Dai and the launch of the Dai Savings Rate, MakerDAO’s stability fee was lowered to 5.5% this week. A single address accounted for 94% of the vote, generating questions around centralization of the vote and lack of voter participation.

  • Joel John, Analyst at Outlier Ventures, deep dives into InstaDapp’s growth and evaluates various business models for monetization.

  • ConsenSys announced Activate by Codefi Networks, a platform that facilitates the launch and participation in decentralized networks. The Activate platform will come with built-in tools for token holders to use their tokens, allowing them to perform a range of actions including staking, delegating, and voting. The platform will allow networks to ensure ongoing reliability and security, incentivize users to support the network, and create better engagement.

  • 0x, a decentralized exchange protocol that many crypto projects use to facilitate the p2p exchange of Ethereum-based assets, announced that the upcoming 0x v3 vote will start on November 4th. The upgrade includes a new ZRX staking mechanism, DEX liquidity aggregation, the ability for relayers to support flexible fees, and various technical improvements for ecosystem devs.

  • bZx announced the launch of Torque, non-custodial platform for fixed rate, indefinite-term cryptocurrency loans. Torque will integrate of 0x v3.0, which allows for the creation of decentralized limit orders, which can be automatically implemented for borrowers to further protect them from margin calls. In addition to not receiving any penalties on margin calls, borrowers can avoid slippage as well.

  • Leland Lee makes the case that Ethereum is now unforkable a la ETC-like fork, thanks to DeFi. ETH is valuable because of the systems that exist on top of it.

💸 STOs / Stablecoins / Tokens

  • Antony Lewis, Director of Research at R3, covers design tradeoffs for stablecoins and makes the case that permissioned pseudonymity seems to be a sensible balance between allowing innovation without enabling large scale abuses of the financial system.

  • HASH CIB published a report proposing 6 valuation approaches for valuing tokens that can be adopted by industry specialists, subject-matter researchers, and the investment community. Convergence in methodology is necessary for more predictable prices.

  • tZERO, the Tezos Foundation, Alliance Investments partnered on a project that will tokenize £500M ($643M) in planned real estate development

🌉 Digitization of Payments Infrastructure

  • Uber launched a suite of financial products for its drivers. I expect more industries to shorten the gap between when a product or service is consumed and earnings are paid. Digital payments are accelerating and blockchains / crypto adoption will add gasoline to the fire.

  • Mike Blandina, Chief Product Officer at Bakkt, announced plans to launch a cryptocurrency consumer app and merchant portal in the first half of 2020. Will digital payments at Starbucks help bring real world applications to bitcoin and other cryptocurrencies?

  • Not directly crypto related but found this article by Avery Segal, partner at a16z, on innovative use cases for QR codes in China very interesting. The only place I interact with QR codes in the US is mobile payments at Starbucks. There is so much opportunity for new mobile-first experiences. This is also another example of the transition from "Made in China" to "Innovated in China."

🏦 Institutionalization

  • Genesis Capital, the lending arm of the OTC trading subsidiary of DCG, published its latest “Digital Asset Lending Snapshot”, noting that the surge in cash lending was significant enough to shift the firm’s $450 million lending book. BTC-denominated loans now represent <60% of Genesis’ portfolio. The cash lending program, with loans denominated in fiat or USD-pegged stablecoins, grew from 23.5% in 2Q of the firm’s active loan portfolio to 31.2% in Q3.

🍰 Layer 1

  • Vitalik Buterin discusses here how the transition from ETH 1.0 to ETH 2.0 may occur. He highlights, specifically, why the changes and disruptions application developers and users will be limited. Vitalik also argues that cross-shard DeFi composability will be largely preserved in an ETH 2.0 cross shard context.

  • Monero is adopting a new POW algorithm to ward off ASICs mining. The upgrade will be implemented toward the end of November and will make mining with CPU once again very easy. It will completely eliminate CryptoNight and enact the RandomX algorithm.

  • Enterprise blockchain adoption has been progressing steadily. Businesses and regulations have strong requirements on identities and permissioning, which tend to lead them towards a permissioned over a permissionless blockchain protocol. Jim Zhang, Co-Founder & Head of Protocol Engineering at Kaleido, wrote a great article comparing the 3 leading protocols, Hyperledger Fabric, Enterprise Ethereum and R3 Corda.

⚖️ Legal

  • The SEC issued a No-Action Letter to the Paxos Trust Company explaining that the SEC would not recommend enforcement actions against Paxos Settlement Service, a blockchain-based securities settlement platform. Paxos will begin testing settlement for Credit Suisse and Société Générale. The shift from the current system of "T-2" via the DTCC to same-day clearing could free up large amounts of cash currently tied up in the clearance process. Jeff John Roberts from Fortune has a great recap.

  • The SEC, CFTC, FDIC, and the OCC joined the Global Financial Innovation Network, a global RegTech sandbox led by the UK’s Financial Conduct Authority (FCA). Another positive development on the long path to the standardization of regulatory regimes.

  • In a major privacy security breach, BitMEX, a crypto derivatives exchange, issued an email to its users containing the email addresses of other users in the CC: field. We need better accountability (potentially legal) for companies to protect user information.

🎥 Video of the Week

  • Nisa Amoils launched the Digital Asset Report from the NYSE. She covers highly informative reports on digital assets in a short video. Highly recommend subscribing and watching her interviews with Catherine Coley, CEO of Binance.US, and Dominik Schiener, Co-Founder of IOTA.

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.

Events this week:

Rise of Stablecoins (co-hosted by the Global Blockchain Business Council) (Free)

When: Monday, November 4, 2019, 6:00 PM to 8:00 PM

Where: 599 Lexington Ave · New York, NY

Join Shearman & Sterling and the Global Blockchain Business Council (GBBC) on November 4, 2019 for a panel discussion on the world’s most talked about digital assets.

MODERATOR: Sandra Ro, Chief Executive Officer at GBBC

SPEAKERS

• Reena Sahni, Financial Regulatory Partner at Shearman & Sterling

• Eric Winer, VP of Engineering at Gemini

• Michael Moro, CEO at Genesis Global Trading

• Jeff Bandman, Founder & CEO, BlockAgent; Former FinTech Advisor & Founding Director LabCFTC, U.S. Commodity Futures Trading Commission

Heritage Dao (Free)

When: Tuesday, November 5, 2019, 12:00 PM to 1:00 PM

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

CNYC member Dennison Bertram will present HeritageDAO. HeritageDAO is an experiment in a new kind of public cultural foundation tasked with the goal of preserving, indexing and making available physical photography that has otherwise been lost. www.heritageDAO.com

Hyperledger Fabric for Trusted IoT using Node-RED on Kubernetes (Free)

When: Wednesday, November 6, 2019, 6:00 PM to 9:00 PM

Where: NYC Blockchain Center, 54 W 21st St · New York, NY

In this 2 and a half hour hands on workshop we propose to demonstrate and teach one possible alternative to address the challenge stated above. In this workshop we will show how to connect a simple IoT sensor to Node-RED on the IBM Cloud, connect some IBM Watson services to perform AI/ML and append resultant data on to a Hyperledger Fabric Blockchain running in a managed Kubernetes OpenShift cluster. What you will learn:

- How to setup and manage a Kubernetes cluster on IBM Cloud

- Stand up a 2 Organization ( Farm and Market ) Hyperledger Fabric v1.4.2 Blockchain network on OpenShift

- How to connect an IoT sensor Node-RED ( we will use the Texas Instrument - SimpleLink™ multi-standard CC2650 SensorTag™ )

- Setup Node-RED on Kubernetes

- To record environmental Temperature events to Hyperleder Fabric 1.4.2 Blockchain

- To visualize Temperature readings with Node-RED dashboard

[Whitepaper Wednesday] Investigating the impact of global stablecoins (Free)

When: Wednesday, November 6, 2019, 12:00 PM to 1:00 PM

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

This week, we're reading a recent report from the BIS, an international organization of central banks, about stablecoins: https://www.bis.org/cpmi/publ/d187.pdf. We'll discuss the central banker's take on stablecoins and how existing projects are approaching the questions poised by the BIS report.

BlockchainWeekend NYC ($39)

When: Thursday, November 7th - Sunday, November 10th

Were: 55 Broadway, New York

BlockchainWeekend is a city-wide inaugural initiative supported by New York City Economic Development Corporation (NYCEDC) and the biggest tech ecosystem players in New York. It will take place on Thurs., Nov 7 to Sun. Nov 10th, with 50+ blockchain-focused events to take place across all five boroughs. With events covering in all industries of blockchain, you will experience the latest blockchain technology and how the technology is used. Browse and discover what you like!

Upcoming events

Consensus Invest: NYC (Free for Qualified Investors, $899)

When: Tuesday, November 12

Where: New York Marriott Marquis located at 1535 Broadway New York, NY 10036.

Invest: NYC is an annual forum focused on delivering discussions on the trends and investment opportunities for cryptoassets, the fastest-growing alternative investments in history. Invest brings together global investors across asset management, commercial banks, hedge funds, pension funds, mutual funds, insurance companies and service providers, all with unique perspectives and experiences to underline the current sophistication of digital securities and commodities.

BitDevs: Socratic Seminar 98 (Free)

When: Thursday, November 14, 2019, 7:00 PM to 9:00 PM

Where: NYU Stern, 44 West 4th Street · New York, ny

Discussion Topics: Please see our link aggregator for a list of potential discussion topics. Feel free to make suggestions in the comments section below. A final list will be posted the day before the event. https://www.zotero.org/groups/691739/devsny/items/collectionKey/ULF65ETC

Polkadot for Investors -- Risk vs. Upside of staking participation (Free)

When: Thursday, November 14, 2019, 6:00 PM to 8:00 PM

Where: 101 5th Ave · New York, NY

Polkadot is one of the most anticipated mainnet launches of the year. By end of this year, Dots will be traded, staked and held by investors. Coinshare's Meltem Demirors will moderate a discussion between Blockchange Partner Ken Seiff and Blockdaemon Founder Konstantin Richter to discuss:

  • How can an investor safely engage in the network?

  • What are the main concerns?

  • What are the risks and strategies to mitigate them?

  • What 3rd party solutions exist and how do they all stack up -- Accounting, Custody, Nodes etc.?

⚡Continued: Klatch: Let's Build a Peer to Peer Meetup App w/ Libp2p ⚡(Free)

When: Monday, November 18, 2019, 6:30 PM to 9:00 PM

Where: WeWork Dumbo Heights, 81 Prospect St · Brooklyn

🎤 6:30pm - 7:00pm: Beginner Q&A + Bring up a cool piece of tech

🎤 7:00pm - 9:00pm: Klatch: a peer to peer meetup app

Klatch continued: We will mock up the user stories for a meetup clone, Klatch. The twist will be to build a peer to peer meetup clone where the users are the servers and the users with Libp2p. Think Bittorrent meets Meetup.

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.