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RelayNode NYC #21 - September 30

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.

Some personal thoughts from this week… a little longer than usual so bear with me.

I try to avoid discussing short term crypto price movements and focus my attention on longer term fundamentals. However, last week’s bearish price action indicates that the crypto industry is maturing as the influence of institutional investors continues to grow in a market that has been traditionally and uniquely dominated by retail. Let me try to unpack some of the dynamics at play (all pricing data from onchainfx owned by Messari).

Bitcoin price volatility - how did we get here?

After hitting an all-time high of $19,346 in Dec. 2017, the price of a Bitcoin declined by 83% reaching $3,232 in Dec. 2018. After spending most of 1Q 2019 in the $3-$4K range, the price pushed through $4K in April and rapidly rose back up to $10K+ in June. Increasing macro risks such as the US-China trade war, recession fears, and quantitative easing, convinced some investors to flee riskier assets for safe havens like US treasuries, gold, and digital gold (i.e. Bitcoin). The volatility resulted in Bitcoin becoming the best-performing asset class of 2019 year-to-date.

Demand for Bitcoin is influenced both by Fiat-Bitcoin and Altcoin-Bitcoin flows. Bitcoin’s total market capitalization now sits at ~67% of total crypto asset market capitalization, more than doubling since January 2018.

Last week’s market crash

After a summer of range-bound trading between $10-$13K, the price of Bitcoin crashed below $10K. Tuesday saw one of the largest drawdowns of 2019, with Bitcoin trading down 16%. Bitcoin now trades above the $8K support line, but downside risk remains. Cryptoassets are highly correlated and large cap altcoins, such as Ethereum, Ripple, Bitcoin Cash, and Litecoin, were hit just as hard, each losing 20+% last week.

Bitcoin's sell-off followed Bakkt’s long-awaited launch of Bitcoin futures with the physical delivery of Bitcoin in the Bakkt Warehouse. With just 72 contracts traded on its first day, some critics blamed Bitcoin’s price drop on Bakkt's low trading volume.

Before Dec. 2017, there were no regulated markets for bitcoin derivatives. The listing of the CME and CBOE cash-settled futures on federally regulated exchanges coincided with all-time highs in Bitcoin prices. Sure Bakkt’s initial volumes were low, but CME and CBOE cash-settled futures also opened with low volumes and gradually increased over time. Adoption doesn’t happen overnight.

Bitcoin Spot -> Cash-settled futures -> Physically-settled futures

The main use case for Bitcoin and other digital currencies continues to be speculative trading. Futures contracts allow speculators to speculate on the direction of prices. They also allow hedgers to manage risk. The contracts are highly leveraged instruments, allowing traders to put up a small amount of capital to enter into a larger trade. It is therefore no surprise that the crypto derivatives market has grown in size and scope. From a trading volume perspective, on September 29, the total daily spot market volume was $4.5B, while the total derivatives market daily volume was $7.5B (source: FTX). Further, the major derivatives exchanges drive ~3x trading volume vs. spot market equivalents. No wonder competition in the derivatives market is heating up.

The derivatives market has been dominated by offshore exchanges, most of which are lightly regulated or unregulated, such as OKEx, Huobi, BitMEX, bitFlyer, Deribit, and FTX. Existing cash-settled futures are generally used for levered speculation as they allow for imperfect hedging due to the exchange risk associated with converting Bitcoin to cash at maturity.

Furthermore, existing cash-settled futures can be manipulated as settlement is based on third party spot prices from exchanges with various degrees of liquidity, which traders can manipulate close to contract expiry. According to Arcane Crypto, Bitcoin’s price falls on average 2% ahead of CME bitcoin futures settlement. The research highlighted a “striking systematic trend” between Bitcoin price movements and CME futures expiration dates. Unlike Bakkt’s physically-settled Bitcoin contracts, CME futures “are optimal for manipulation. They are settled in dollars and not in bitcoin. The price for the settlement is determined by the bitcoin price in the underlying market. Thus, it is never actual bitcoin that change hands, and it is just an overlying market traded in dollars."

The listing of physically-delivered futures on Bakkt, a federally regulated exchange, is a watershed moment that limits vectors of manipulation and enhances market structure by enabling holders of physical Bitcoin to fully hedge existing exposures. This opens the door for everyday businesses to accept Bitcoin without meaningful price risk.

Futures’ impact on Bitcoin’s price

It was generally difficult, if not impossible, to short Bitcoin before the launch of derivative products. Following the launch of the CME futures, the San Francisco Fed released research suggesting that the reversal of bitcoin price dynamics was a result of the provision of a market structure where bears could enter the market:

“We suggest that the rapid rise of the price of bitcoin and its decline following issuance of futures on the CME is consistent with pricing dynamics suggested elsewhere in financial theory and with previously observed trading behavior. Namely, optimists bid up the price before financial instruments are available to short the market (Fostel and Geanakoplos 2012). Once derivatives markets become sufficiently deep, short-selling pressure from pessimists leads to a sharp decline in value. While we understand some of the factors that play a role in determining the long-run price of bitcoin, our understanding of the transactional benefits of bitcoin is too imprecise to quantify this long-run price. But as speculative dynamics disappear from the bitcoin market, the transactional benefits are likely to be the factor that will drive valuation.”

Similarly, the launch of Bakkt enabled holders of physical bitcoin to hedge exposures potentially contributing to last week’s price declines.

Looking ahead

While the media, traders, and speculators focus on the headline Bitcoin price as a barometer for activity in the industry, the launch of Bakkt and impending launch of ErisX and LedgerX will accelerate the adoption of digital assets by institutional players. Many investors have been waiting for institutional-grade custodians and exchange infrastructure to enter the space. Greater demand on the asset class vastly improves the potential for more accurate value capture through organic price discovery.

Further, the headline bitcoin price masks other positive developments in the broader cryptocurrency and blockchain industry. As we highlight below, last week saw a flurry of traditional equity fundraising advancing blockchain applications in supply chain, gaming, analytics, layer 2, security token issuance, and self-sovereign identity. Crypto markets may be down and volatility may be up, but innovative ways of creating, managing, and transferring digital value are expanding rapidly and teams with a long-term focus on adoption are building and executing. The fundamentals are improving… onward

RelayNode Links: Sign up | Submit events

RelayNode NYC is curated by:

David Gogel

Advisor @ Paperchain fmr Associate @ Techstars' Blockchain Accelerator, Co-president @ Wharton FinTech

Hsin-Ju Chuang

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

Things to Read

Macro

  • Caitlin Long released an excellent article on dynamics in the repo market, why banks are undercapitalized & why GAAP accounting papers over it, and what it means for Bitcoin. “The financial system is fragile. It’s unstable. It always has been. What started in the repo market last week isn’t new—it’s actually the fourth such episode since 2008. At a systemic level, the traditional financial system is as fragile as Bitcoin is anti-fragile.”

Funding & Exits

  • Everledger, a blockchain provenance startup building transparency, traceability and sustainability into global supply chains, closed a $20M Series A led by Tencent, one of China’s leading internet-based services provider, with participation from Graphene Ventures, Bloomberg Beta, Rakuten, and Fidelity. The new partnership with Tencent will help Everledger strengthen and extend its developments in China.

  • Immutable, the blockchain gaming studio responsible for the popular Ethereum-based trading card game Gods Unchained, closed a $15M Series A led by Naspers Ventures and Galaxy Digital EOS VC Fund. The funding will be used for the continued development of Gods Unchained, and the development of the Immutable Platform, an open-source toolkit for other studios creating games with owned items.

  • Securitize, a leading solution for issuing and managing compliant digital securities on the blockchain, raised $14M in additional funding for its Series A from Santander InnoVentures, MUFG Innovation Partners, and Nomura Holdings. Funds will be used to further develop its technology platform to modernize the legacy securities industry. The firm was notably approved by the SEC to act as a transfer agent and official keeper of records on changes of securities ownership.

  • Flipside Crypto, a blockchain analytics startup providing business intelligence and analyzing cryptocurrency user behaviors, raised $7.1M in a Series Seed Prime, led by Galaxy Digital Venture, with participation from Digital Currency Group, True Ventures, Collaborative Fund, and Founder Collective. The funds will be used to expand the team and further develop its solutions.

  • Elementus, a New York-based blockchain on-chain analytics platform focused on AML compliance, raised $3.5M in a seed funding round led by Morgan Creek Digital, with participation from Avon Ventures, FMR LLC, Stage 1 Ventures, and Robot Ventures.

  • Skew, a crypto data analytics startup which provides a real-time overview of crypto derivatives markets, raised $2M in seed funding led by London-based FirstMinute Capital, with participation from Kleiner Perkins, Seedcamp, Kima Ventures and QCP Capital. Funds will be used to build out its flagship derivatives data platform, skewAnalytics.

  • Matter Labs, a blockchain R&D company focused on Zero-Knowledge Proofs and their practical application in public blockchains, raised a $2M seed round led by Placeholder VC to develop a new scaling initiative atop the ethereum blockchain. Funds will be used to grow the scientific and engineering teams to support the company's R&D roadmap.

  • Servicefriend, a startup that builds customer service AI chatbots for messaging applications, was acquired by Facebook. According to TechCrunch, Servicefriend’s founders now work for Calibra—a Facebook subsidiary which is building and operating services on top of the Libra Blockchain network. Financial terms were not disclosed.

  • Evernym, a market leader in self-sovereign identity solutions, raised $8M in pre-series A funding with investors including Barclays Ventures and Medici Ventures.

Open Finance / DeFi

  • The MakerDAO community is debating the risks and merits of the system accepting non-trustless assets as collateral for Dai. Camila Russo, Founder at the Defiant, has a great post outlining the pros and cons of adding real-world assets to the MakerDAO credit system.

  • Binance Research released an excellent report on carry trade and arbitrage strategies with between DeFi and CeFi platforms. The report also discusses potential price inefficiencies along with risks and constraints that must be considered when building these advanced positions.

  • Linda Xie, Co-founder & MD at Scalar Capital, pens her thoughts on interoperability & composability in Ethereum. Combining areas that are completely separate (e.g. DeFi + gaming) leads to new ideas & deeper understanding of both.

Trading

  • Bakkt, the bitcoin derivatives trading platform owned by ICE, completed its first full week of trading. The firm saw 166 physically-settled bitcoin futures contracts traded through its platform— ~$1.5M in notional trading value assuming Bitcoin price of $8,700.

STOs / Stablecoins

  • The Brooklyn Net’s Spencer Dinwiddie had plans to issue a security token on the Ethereum blockchain and raise $4.95M - $13.5M in the offering, allowing the player to sell a portion of his $34M contract to accredited investors in $150K or larger allocations. The token would be backed by Dinwiddie's contract and pay back the principal amount plus interest. Per a report in the NYT, the NBA said he will not be permitted by the league to tokenize his contract.

  • Harbor Square Investments, a subsidiary of tokenized securities platform Harbor, received a broker-dealer license from FINRA. Harbor now gains the ability to buy and sell digital securities on its behalf and for its client base.

  • Franklin Templeton Investments, a multi-billion dollar asset management company, filed a preliminary prospectus with the U.S. SEC for a money market fund whose shares that would be recorded on the Stellar Network.

Layer 1

Layer 2

  • Ryan Gentry & Matt Shapiro from Multicoin Capital drop an essay arguing that general platforms like Bitcoin and Ethereum already offer sufficient privacy guarantees for most users to never need niche privacy-focused blockchains.

  • Due to the costs involved in Kik’s high-profile lawsuit with the SEC, the company announced it is shutting down its core messaging app Kik—with its 300 million users—to help keep it afloat.

  • Aztec Protocol begins its 30-day “Ignition Ceremony” that will see the protocol offer private transactions on the Ethereum mainnet.

  • Arthur Breitman, the creator of Tezos, announces Checker, a coin stabilization technology for Tezos.

  • Lightning Network developers have identified a vulnerability that could leave the funds of users at risk. According to a post on Lightning Labs’ blog, many versions of the Lightning Node software have not been performing crucial checks on the validity of a channel before accepting it. Without these checks, nodes have been vulnerable to an exploit that could potentially lose funds.

Audio of the Week

  • On Venture Unplugged, Nick Grossman and Mayra Ceja discuss how Union Square Ventures makes investments, why open protocols are so important to Web3 deployment, what blockchain uses cases and companies are going to change the world and why USV joined the Libra Association.

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:

CryptoMondays NYC Fireside Chat with Arthur Breitman, Co-Founder, Tezos (Free)

When: Monday, September 30, 2019, 6:30 PM to 9:00 PM

Where: Lounge At The Rose Hill Hotel, 34 E 32nd Street · New York, NY

This CryptoMondays NYC will feature a Fireside Chat with Arthur Breitman, Co-Founder of Tezos, and CTO of Dynamic Ledger Solutions which is leading the Tezos project. Our Fireside Chat will include a broad discussion of how the technology underlying Tezos is evolving and why having a monetary premium matters. We'll also delve in to Arthur's latest Tezos project, Checker, which aims to provide financial logic designed to help stabilize the value of a tokens with respect to an externally provided index. We'll leave time at the end of the Fireside Chat for questions from the audience.

Tezos Global Summit ($125)

When: September 29th - October 31

Where: Spring Studios, 50 Varick Street, New York, NY 10013

The Tezos Global Summit aims to bring together the business community, developers, researchers, validators, and more to discuss Tezos, the global blockchain ecosystem, and paths to adoption. This is the capstone event in the TQuorum conference series, featuring thought leaders and experts on digital assets and capital markets, the proof of stake ecosystem, blockchain development, and more, this multi-day conference has presentations and workshops for all levels of experience.

Building Crypto & Bitcoin Trading Apps with Python ($10 – $99)

When: Monday, September 30, 2019, 9:00 AM to 5:00 PM

Where: MiT National Land Services, One Penn Plaza · New York, NY

This is an intensive full day loaded with learning and knowledge transfer, a course in building a crypto trading system using Python. You will walk away with a deep understanding of the skill needed to build these apps, core business concepts, how to work with exchanges, websockets, 0x exchanges, machine learning and more. We'll use libraries like pandas, matplotlib and NumPy to build a trading system and analyze trade data, time series and charting. Python experience is not required but basic programming experience is.

Speaker: Professor Jamiel Sheikh is a graduate professor at Columbia, NYU and CUNY, where he teaches blockchain, performance management and data science respectively. He has an MBA from Columbia University, BBA from Baruch College and is completing an MS in Artificial Intelligence from Georgia Institute of Technology.

Intro to predictive data analysis using Apache Kafka, Spark, Zeppelin on JVM (Free)

When: Wednesday, October 2, 2019, 6:30 PM to 9:00 PM

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

At this meetup, you will learn:

- How Kafka can be an event source to collect weather data from say IoT sensors.

- See how Spark can be called from and execute from a few simple Java applications - Word Count, Basic functional aspects like map/reduce/fold

- How Apache Zeppelin `Notebook` allows for interaction with in memory Resilient Distributed Datasets (RDD) which provide parallelized predictive analysis on single and multiple raw datasets (e.g. How Flight Delay data may collate with Weather datasets.)

[Whitepaper Wednesday] Yield Protocol: On-Chain Lending (Free)

When: Wednesday, October 2, 2019, 12:00 PM to 1:00 PM

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

This week, we are reading about Yield Protocol, a proposed financial primitive for lending on-chain assets for an ecosystem like Ethereum's. Read the paper: http://research.paradigm.xyz/Yield.pdf. We will discuss how it works, its tradeoffs vs. other approaches, and what people might use it for.

NYC BigApps Blockchain Demo Day ($10)

When: Thu, October 3, 2019, 12:00 PM – 5:00 PM EDT

Where: Urban Tech Hub @ Company, 335 Madison Avenue, New York, NY 10017

NYC BigApps Blockchain culminates the ongoing Innovation Challenge into a final Demo Day! Join us for a full day of pitches and networking, featuring our cohort of 10 startups and a showcase of other incredible projects in the NYC blockchain community.

DeFi NYC Mini Demo Day: MakerDAO, Staked, Uniswap, Terminal, & UMA (Free)

When: Thursday, October 3, 2019, 6:15 PM to 8:45 PM

Where: Distributed Global, 16 Vestry St · New York, NY

DeFi NYC Mini Demo Day is an opportunity for companies in the decentralized finance (DeFi) space to show the community what is being built.

Presenting will be David Utrobin of MakerDAO (https://makerdao.com), Tim Ogilvie of Staked (http://staked.us), Hayden Adams of Uniswap (https://uniswap.io/), Harrison Hines of Terminal (https://terminal.co/), and Regina Cai of UMA (https://umaproject.org).

Upcoming events

⚡R3 Presents: Overview of the Corda Platform⚡ (Free)

When: Monday, October 14, 2019, 6:30 PM to 9:00 PM

Where: WeWork Dumbo Heights, 81 Prospect St · Brooklyn

Overview of the Corda Platform with Peter Li from R3. In this short talk, Peter will present an overview of the Corda platform, briefly discuss the concepts and functional features of Corda, and review both some use-cases and live CorDapps that are built on Corda. In addition, Peter will explain the structure of the wider Corda community and the role of R3. After, there will be an open discussion as a group where we can conduct Q & A to answer any questions you may have.

Mondo.NYC music festival & global music / tech business conference ($99 - $598, 20% discount using “relaynodemondo”)

When: Tue, Oct 15, 2019, 4:00 PM – Fri, Oct 18, 2019, 5:00 PM

Where: Williamsburg Hotel, Brooklyn, 96 Wythe Ave., Brooklyn, NY

Mondo.NYC is the first music festival and global business conference focusing on the intersection of emerging music discovery, blockchain and other frontier technologies, and how these new applications and economies will significantly impact both music and tech industries. Emerging artists, innovators and industry insiders will connect and collaborate with fans in a mission to advance human creativity in an ever-changing world.

BitDevs: Socratic Seminar 97 (Free)

When: Thursday, October 24, 2019, 7:00 PM to 9:00 PM

Where: NYU Stern, 44 West 4th Room 1-70 · 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 topic list will be posted the day before the event.

https://www.zotero.org/groups/691739/devsny/items/collectionKey/TLHMLG8R

The Dawn Of The Enterprise Token (free)

When: Monday, October 28, 2019, 6:00 PM to 9:00 PM

Where: Rise New York, 43 W 23rd St · New York, NY

A speaker and panel series focused on exploration of enterprise tokens like the JPM coin, Libra. & the Walmart patent, what it all means, where it is headed and how you might position for it.

Notable Conferences