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RelayNode NYC #31 - December 9

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.

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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: Figure Unicorn Deep Dive…

New Blockchain Unicorn: Figure Technologies, a blockchain-powered lending startup, closed a $103M Series C round, led by Morgan Creek Digital, with participation from MUFG Innovation Partners, DCM, Digital Currency Group, Ribbit Capital, DST Global, among others. Anthony Pompliano from Morgan Creek joined Figure’s board of directors and recaps his investment thesis here. The SF-based company was founded in 2018 and has raised $225M in funding, with its latest valuation hovering above $1.2B. Figure was co-founded by Mike Cagney, former co-founder and CEO of SoFi, and has over 200 employees. Why so much hype?

Status Quo: The $309T of global financial assets involve lots of rent seeking. According to the Provenance whitepaper, “traditional asset classes require a combination of custody, trustee, administrative and reconciliation functions that are not accretive to consumers, asset originators or investors. Further, each asset class is often burdened with aspects of illiquidity, opaqueness, additional costs and risk.” Indeed, while typical stock exchange transactions happen in real-time, post-trade services like settlement, custody, stock lending, and collateral management take days and increase overall costs. Post-trade services are dominated by the DTCC (Depository Trust & Clearing Corporation), a member-owned market utility that serves as central securities depository for trades processing $1.85Q (yes quadrillion) in securities transactions. In debt capital markets, loan originators either retain loans or sell them to loan buyers. There is no exchange for loans, so sellers often generate a CUSIP for the loans and pay to settle trades through DTCC. Enter distributed ledger technology and digital securities.

HELOCs > Mortgages > Student Loans >>>>: Figure’s mission is to build and promote innovative financial products on a blockchain that benefit consumers and eliminate rent-seeking, illiquidity and other inefficiencies present in current financial markets. In July 2018, Figure began offering its flagship product, the Figure Home Equity Line, a fixed-rate line of credit that provides approval in <5 minutes and funding in 5 days (vs. the traditional paperwork-intensive, 45-day process.) At the heart of Figure’s lending products is the Provenance blockchain. The company leverages the security, efficiency and cost advantages of a blockchain for loan origination, financing and sales. Cagney claims that the blockchain saves 130+ basis points on originating HELOCs. Figure has since expanded its product offering to include Mortgage Refinance and Student Loan Refinance, with more products in the works. In May 2019, Figure closed an up to $1B uncommitted asset-based financing facility from Jefferies and WSFS Institutional Services.

Provenance.io: Figure built Provenance.io, a permissioned proof-of-stake blockchain, which acts as a ledger, registry and exchange across financial assets and markets. The tech was built in-house but uses the consensus module from Hyperledger Fabric. Provenance has 4 major participants: the administrator, members, omnibus banks and stakeholders (nodes). Permissioning is provided by an “independent” administrator, Provenance Blockchain Inc. (PBI), a Delaware non-stock corporation. The plan is to position Provenance.io as a platform to onboard other companies, not just Figure, to originate loans, receive payments, trade in the secondary market, finance, and securitize loans. To date, Provenance.io has experienced significant growth with $700M+ in loans originated, $1B+ in assets traded, and 100+ members onboarded. While initially focused on debt and asset-backed securitization markets, Provenance.io has application across equities, remittances and payments. Figure has identified $300B+ in annual fee reductions, liquidity improvements and other benefits that it can deliver.

Hash Token: Hash is the digital token native to Provenance.io., which has a fixed token stock of a 100B Hash tokens. The initial Hash allocation was 71% to Figure (in exchange for IP), 24% to PBI (some of which was later sold in a security token offering) and 5% to the initial nodes in the form of their stake. PBI plans to allocate 5% of the total stock from its position to strategic partners (i.e., other members, including loan originators, warehouse providers, etc.). Hash represents a share of the fees paid to transact on the Provenance.io blockchain. Fees are targeted to be ~1/3 of the economic benefit of using the blockchain (estimated at ~$36B+ annually) and are paid to PBI, nodes, and Hash holders, with the majority of the economics accruing to the latter. Hash is tradeable, comes with voting rights for the governance of PBI and is non-dilutable. The market cap of Hash should be commensurate with the present value of the fees paid to transact. In August 2019, Provenance.io held its first open auction of Hash, where tokens sold for $0.15, resulting in an implied market capitalization of $15B.

How it Works: When members transact in fiat, the omnibus bank uses an equivalent amount of Hash, passed instantly between transacting members, to memorialize fiat transactions on the blockchain. Members do not need to directly buy or sell Hash. The omnibus bank performs KYC/AML as part of onboarding and provides fiat settlement services, acting as the interface between fiat and the Hash token. When a loan is made, members deliver the loan amount to an omnibus bank. The omnibus bank gives the member Hash in return. Those tokens are immediately sold back to the bank, which releases the funds. This second transaction forms the packet, which includes all inputs digitally signed from source (e.g., title, credit, income, etc) that then sits on Provenance. The loan then amortizes and is serviced entirely on the blockchain.

Risks: Provenance faces governance challenges it needs to overcome. While Figure plans to operate Provenance.io and PBI as independent entities, Figure still holds 72% of Hash tokens and Cagney sits on the board of PBI, raising concerns over control, which may potentially limit adoption from partners and invite scrutiny from regulators. For example, will Figure allow a competitive Student Loan Refinancing lender (ahem SoFi) to originate loans on its blockchain? PBI and Figure plan to sell enough of their Hash allocation in 2 offerings (via a Reg D and an IPO) to result in a post allocation of <50% Figure, >35% to Hash investors, 5% to PBI, 5% to nodes and 5% to strategic partners. In April 2019, PBI completed a $20M Reg D security token offering, coinciding with the spin out of Provenance.io and PBI as independent entities. While it is Figure’s stated intent to not own a majority of Hash, and thereby not have control over PBI and permissioning of the overall system, the perception and actuality of independence (ahem Libra) will be required to onboard new partners. Further, Figure will walk on a tightrope between replacing existing middlemen with a lower cost rent seeking platform and distributing promised benefits fairly to participants as a token holder-owned permissioned blockchain.

The bottom line: The digitization of securities and disintermediation of parties is widely viewed as the future of securities. Figure has built an impressive end-to-end platform and ecosystem leveraging blockchain tech to drive speed, efficiency, and cost savings to lending and demonstrated its ability to execute by launching a product, driving significant volume, and enticing large financial firms to begin moving assets over. The company has abstracted away a lot of the complexities around blockchains, while providing a better product in a faster time period and at a cheaper rate than traditional financial players. DTCC & CUSIPs beware.

Things to read

🌐 Macro / why Bitcoin?

  • Arcane Crypto published a weekly recap highlighting an unusual observation: from Nov 29 to Dec 2, premium rates on BitMEX’s BTC March 2020 contracts increased over 30%, while the BTC price decreased by 6% from $7,750 to $7,300. Looking at the implied volatility of BTC option prices, one can get an indication of the market’s expectations of the bitcoin price over the coming months. While the IV for mid Dec 2019 is around 55%, it is over 70% for June 2020. This clearly shows that traders anticipate large movements in the Bitcoin price as we approach the next halving in May 2020.

  • Unlike most traditional assets, Bitcoin transactions are fully auditable, allowing for new ways to analyze investor behavior solely by analyzing public data. Kevin Lu and the Coin Metrics team examine the state of investor psychology at 6 critical moments in Bitcoin’s history using the distribution of investor’s estimated cost basis, an extension of the realized capitalization concept.

  • Binance Research released a Global Markets report focusing on crypto trends over the past month, including the market’s notable swoon, the growth of Binance Futures and analysis on the impact of margin trading with regards to crypto-assets liquidity.

  • Jim Reid, strategist at Deutsche Bank, shares his view in the “Imagine 2030” report raising awareness of the challenges of the existing fiat system, specifically with the emergence of crypto. He stipulates that people’s heightened demand for dematerialized means of payment and anonymity could drive more individuals to digital currencies.

  • The Fed has injected $320B in the repo market since Sept. 17, when the central bank began pumping in daily liquidity after overnight lending rates spiked from 2% to ~10%. Dealers are now hoarding T-bills and have increased their net positions. Interest rate and repo market volatility incoming as we approach the end of the year.

💰 Funding & Exits

  • DappReview, an analytics platform for decentralized apps (currently supporting 3,900 dapps across 13 public blockchains), was acquired by Binance. DappReview will maintain its independence in technical development and operation, and Binance will offer support in non-technical fields including marketing and biz dev. DappReview will release a new suite of products in Q1 2020. Financial terms were not disclosed.

  • Zerion, a startup that enables non-technical users to acquire, track and manage assets on several DeFi protocols, raised $2M in Seed funding led by Placeholder, with participation from Blockchain Ventures and Gnosis. Funds will be used to accelerate development and add support for more DeFi services.

  • Securitize, a security token platform, acquired BUIDL, a Japan-based blockchain tech consultancy advising digital security projects. Given Securitize’s investor base which includes several prominent Japanese investors (Global Brain, MUFG, Nomura Holding, KDDI, Mitsui Fudosan and SBI Holdings), the acquisition is an opportunity for the platform to expand its presence in Japan. Another example of how Asia is a driving force in this industry. Financial terms were not disclosed.

🔓 DeFi / OpFi

  • The Maker Foundation Interim Risk Team has placed an Executive Vote proposal into the voting system to raise the Dai Savings Rate to 4%, lower the Sai Stability Fee to 3%, lower the Sai Debt Ceiling to 95M, and raise the Dai ETH Debt Ceiling to 75M. It will be interesting to see what the negative spread between the DSR and the Sai Stability Fee will do for Sai generation and liquidity in the migration contract (over 63% of Sai already migrated to Dai). MakerDAO released a 68-page MakerDAO 101 deck providing a deep dive on the protocol.

  • Matteo Leibowitz, Research Analyst at the Block, introduced the Open Finance Index (OFI). Total value locked (TVL), popularized by Defi Pulse, pulls the total balance of Ether and ERC-20 tokens held by DeFi smart contracts, multiplying them by their price in USD. Matteo claims TVL falls short in accurately reflecting Open Finance activity. OFI departs from TVL methodology, instead aggregating vertical-specific metrics.

  • Michael Cohen, freelance web/web3 developer, published interesting research making the case for adding ETH as collateral to Synthetix. Ether collateral brings new risks with it, but without it, Synthetix will have a difficult time achieving its massive potential. Adding Ether injects much-needed leverage without diluting the value of the SNX token. The team is targeting a launch in early 2020.

  • Credmark (formerly Graychain) released its Q3 2019 crypto credit report. Active debt in the crypto industry grew by 23%. During the same period, the amount of active collateral only grew by 12%. This was primarily because collateral contains a larger percentage of crypto than debt (which includes more fiat/stablecoins), and crypto lost 25% of its value during the quarter.

  • Mason Nystrom, from ConsenSys, explains why 2019 was the year of DeFi and why 2020 will be too.

💸 STOs / Stablecoins / Tokens

  • Binance announced plans to support Tezos validation at 0% fees. Users will have the liquidity to exchange XTZ at any time during staking/baking. How will other Staking-as-a-Service providers and exchanges offering staking services (Coinbase, Gate.io) which charge high staking fees respond?

  • Joel John, Analyst at Outlier Ventures, published great insights on stablecoins in 2019 analyzing volume and user behavior.

  • Within hours of a Twitter spat where Jared Tate, the co-founder of Digibyte, criticized TRON and Poloniex, an exchange partly owned by TRON founder Justin Sun, Poloniex announced plans to delist DigiByte. Personal relationships, ego, and emotions still impact much activity in the crypto space.

🌉 Infrastructure

  • Brave, a privacy-focused web browser, passed 10M monthly active users, tripled daily active users to 3.3M in the last 12 months, while Verified creators have grown 12x over 2019. Big potential for crypto on-ramp.

  • Bitfinex announced its support for the Lightning Network. Users can withdraw and deposit bitcoin on the exchange instantly over Lightning, a second layer on the bitcoin blockchain to scale the network. Supporting Lightning significantly improves security and limits exchange centralization risks as funds can be sent to the exchange only when trade execution is required.

  • Coinbase announced that DAI will be the first stablecoin supported on the Coinbase Card. For customers wanting to spend crypto with less volatility, DAI could be the answer. DAI aims to always be worth one US Dollar, which offers more certainty to customers.

🏦 Institutionalization

  • WisdomTree, one of largest ETF providers in the U.S., launched a physically-backed bitcoin exchange traded product (ETP) on Switzerland's SIX stock exchange. The new product has an expense ratio of 0.95% and will compete with a similar physically backed bitcoin ETP from Amun AG on SIX. The product is currently available for professional investors only.

  • According to Charles Schwab’s 3Q 2019 SDBA Indicators Report, Millennials allocated a larger percentage of their self-directed brokerage account portfolios to ETFs and cash than did other generations, while mutual funds remained the largest holding in the accounts of all generations. For Millennials, Grayscale’s Bitcoin Trust (GBTC) is the most widely held asset after Amazon, Apple, Tesla, and Facebook. Notably, GBTC is not in the top 10 equity holdings by Gen X and baby boomers. Retail demand for millenials to own bitcoin via traditional investment accounts?

🍰 Layer 1

  • Lucas Nuzzi, Director of Technology Research at Digital Asset Research, deep dives into the multitude of improvements happening on Bitcoin and showcase a more complete picture of the tech stack. Rapid development in many vectors make Bitcoin not just a technology, but an entire monetary system supported by the tech.

  • The Ethereum network successfully completed a scheduled upgrade at block number 9,069,000 which occurred Sat Dec 7th, 2019. Node operators & miners will need to use a client that has been updated to the latest version, else you will be stuck on an incompatible chain following old rules & be unable to operate on the post-upgrade Ethereum network.

  • Haseeb Qureshi, Managing Partner at Dragonfly Capital Partners, explains how DeFi cannibalizes PoS security. On-chain lending markets directly compete with staking — meaning they directly compete with protocols being secure. Tarun Chitra from Gauntlet has a technical paper explaining the competitive equilibria between staking on an on-chain lending.

🍰🍰 Layer 2

  • Matter Labs, a Layer-2 blockchain scaling R&D lab, announced its vision for ZK Sync, a trustless scaling and privacy solution for Ethereum based on ZK Rollup. It also launched a testnet for ZK Sync, which uses rollup contracts alongside zero-knowledge proofs to help ensure sidechain and cross-layer transfers remain private yet valid.

  • EY released an update to the Nightfall open source and public domain tools. This update enables the first version of transaction batching - allowing up to 20 transactions at a gas cost of ~$0.24. at once under zero knowledge, representing a 400x improvement in gas efficiency.

⚖️ Legal

  • The NYDFS approved the application of SoFi Digital Assets, LLC, a wholly owned subsidiary of Social Finance, Inc., for virtual currency and money transmitter licenses. A BitLicense allows SoFi to offer crypto trading to New York residents.

  • The SEC rejected the NYSE's plan to amend the Listed Company Manual allowing companies to raise capital through direct listings via common equity securities. Following the rejection NYSE said it would remain committed to evolving direct listings and would continue to work with the SEC.

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

CryptoAsia - A Fireside Chat With Amber Chook, CEO of Zebra Global (Free)

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

Where: The Ainsworth, 64 3rd Ave · New York, NY

While we slog through Crypto winter in the U.S., Crypto Asia continues to rock! This CryptoMondays features a Fireside Chat with Amber Chook, CEO off Zebra Global, a a leading Crypto PR & Market Entry Consultancy headquartered in Tokyo, with offices in Beijing, Seoul, & Ho Chi Minh City, Zebra provides comprehensive social media management on local platforms, media coverage on both crypto and mainstream media, community management user growth, and event production.

[Whitepaper Wednesday] VPN0 (Free)

When: Wednesday, December 11, 2019, 12:00 PM to 1:00 PM

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

This week, we're reading about VPN0, a proposal for an incentivized peer-to-peer VPN from the Brave Browser team: https://brave.com/vpn0-a-privacy-preserving-distributed-virtual-private-network/ We'll discuss VPNs generally and how VPN0 would work.


Upcoming events

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.

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.