Past issues

Aug 6 2017

🗳 TE #8; Filecoin & 0x ICO terms, BTC fork, Crypto funds boom & more

Keeping track of new developments in the distributed ledger technology space.
Token Economy
Never a dull week in crypto land!
(also published on Medium & Steem)
🗳 Filecoin
The long awaited terms of the Filecoin ICO have been revealed:

- Legal instrument: SEC-compliant SAFT (Simple Agreement for Future Tokens) handled via Coinlist, limited to accredited investors. Don't miss Preston Byrne's views on this instrument.

- Allocation: 10% sold at crowdsale, 15% retained by Protocol Labs, 5% by the Foundation, 70% reserved for miners to mine on a 6-year half-life curve. Important: tokens will be allocated at network launch, which is expected in 6-12 months (maybe even longer).

- Vesting: starting from network launch, 6 year linear for PL and Foundation, choice of 6 months to 3 years for investors (min 12 months for advisors).

- Pricing: it's capped to 200 million FIL tokens, but pricing is dynamic according to a function that starts at $1/FIL and increases linearly from there according to total amount raised. Investors that opt for 3 year vesting will get up to 20% discount. Advisors invested at between $0.5-0.75 per token in the pre-sale.

- Pre-sale: they have already raised $52m from 150 or so 'early birds' during the pre-sale that ran 21-24th of July.

This is a genuinely exciting project that involves some of the best minds in the game. The terms are very rich. All we are hearing from the market is that there is a burning desire to participate, but allocations are being squeezed down.

👇 Stefano's post below captures our reactions to the mind-boggling math behind this ICO. The responses to his tweet are also worth a read (spoiler: obviously Juan Benet doesn't agree!).    
Stefano took some time to model out the possible pricing and cap for Filecoin ICO and presented some of the problems at its core.
Juan is supposedly writing a response but it didn't make it in time for the NL, so we'll include it next week if it comes!

The title is fairly clickbaity, I'll admit to that, but it's stuff that needed to be said.

TL;DR:

The flaws in Filecoin’s token sale
  1. Filecoin gave an amazing deal to their buddies, just a few weeks ago
  2. Filecoin is being insanely greedy, going out for a $700M+ raise
  3. Early clickers are incentivized, price unknown, network congestion
  4. Protocol Labs and Filecoin foundation are keeping 2x the coins that investors will get

Stefano followed up with a post urging more public commentary about projects that fundraise publicly for vast amounts of money. It's time for open-source due diligence.
🚨 Growing pains
So Bitcoin forked and hit all time highs, all in the same week. We now have two versions of Bitcoin which in aggregate are valued in excess of $56 billion, $11 billion more than the day prior to the fork. One could have purchased 1 BTC sub $2,000 in mid July and the same BTC would have yielded more than $3,000 post fork on August 1st. The mainstream media is going nuts on the free-money story.

The process itself was relatively smooth, in fact surprisingly so. If you had your bitcoins in cold storage, hardware wallets or even in (a small number of) exchanges you'd have seen your accounts airdropped with fresh BCH pretty swiftly. BCH price went artificially through the roof in the short term (to over $1,000 in some places) as most exchanges didn't accept deposits, so BCH holders could not actually sell even if they wanted to. As that backlog started to clear up, BCH price fell all the way down to just north of $200 as of this writing, giving Bitcoin Cash a network value of $3.7 billion. Arbitrageurs has a hell of a ride all along.

A few observations:

1. The market clearly rewarded this distributed governance decision, certainly in the very short term. The narrative seems to be that, in absence of an opposing activist faction, the two competing school of thoughts are now free to implement their own agendas for protocol scaling, which should accelerate speed of innovation in both camps. As Fred Wilson put it, forks are a feature not a bug in the blockchain sector, and we are likely to see more of them in the future. Vitalik himself expressed this view, in much geekier terms of course. The whole crypto market is up +$20 billion (+20%) since the fork.

2. The counter-narrative is that network effects are damaged and brands diluted by the fork, assuming that the competing networks are mutually exclusive. As always the market is a weighting machine in the long run, so it will be down to it to establish which version will be most valuable. If ETH/ETC are a precedent, we know which way it may go.

3. Exchanges have been put under tremendous spotlight, not just for how they handled the process from a comms perspective, but also for their actual holdings. The fork opened up some greenfield legal debate, such as whose actual property is a forked digital currency if held in an exchange. Some exchanges ended up flipping their initial stance. Very few came out of this fork stronger than before and there's a chance this will represent an inflection point for decentralised exchanges (and perhaps the end of a few of the centralised ones). "Only when the tide goes out do you discover who's been swimming naked." said Buffet, and it fits nicely here.

As always Naval is able to put the whole thing in the right perspective:
The Monetary Authority of Singapore (MAS) has promptly followed the footsteps of the SEC and issued a (much briefer) statement on digital tokens. This is of particular relevance as it comes from one of the jurisdictions that, alongside Switzerland, has historically been considered crypto-friendly from a regulatory perspective.

In short they echoed the SEC in saying that some types of digital assets have evolved to fall under the definition of 'security', and if that's the case then both the issuers AND the intermediaries need to register with MAS and subject themselves to licensing requirement.

Is Switzerland next? The regulatory arbitrage doors are quickly shutting across the board. And it's probably a good thing.
Title is pretty misleading here, it turns out the founder actually first emailed the SEC and then they called back.

Nothing new in terms of content, other than: figure out if you're selling a security or not.
📌 Token Economy
It's official, we're entering mass market: Coinmarketcap.com is now more popular that the WSJ and the FT! Unless of course it just a small number of us hitting refresh every 5 minutes...🤑
Giotto De Filippi pictures a world where crypto currencies coexist harmoniously and can be fluidly exchanged with (tokenised) fiat currencies. In that world the 'exchange' function of a bank gets unbundled from its core 'redemption' function, enabling truly decentralised exchanges like Omisego to thrive.
Inspired by the Filecoin ICO, Yann Ranchere raises some critical questions about the basis on which protocols should be valued and where value accrues. These are very important questions that no one really has definitive answers for yet.
Follow up on last week's announcement of zeppelinOS, with many more tech details.

Looks amazing.
We spoke about this last week too, and now we have seen that the White Hat Group has returned 100% of the funds that they saved in the Parity attack.

They are taking donations at whitehats.eth
Cool profile from the OpenOcean team of Aragon's co-founder Luis Cuende:

"He embodies the new class of rising cryptocurrency stars, extremely young and driven, simultaneously raised all over the world and by Reddit, and having a healthy amount of rebellion towards the current systems of governance"
Elad Gil argues that just as Netscape's  IPO marked the real kick off for the Internet era, 2017 will be the starting gun for broad involvement of venture, hedge funds, and eventually average consumers in cryptocurrencies and related protocols and assets.

TL;DR:
  • Value store (AKA gold replacement) use case is becoming real.
  • New blockchains, technologies, and applications are emerging - growing the crypto market.
  • New ways and infrastructure to monetize and raise money for crypto technology.
  • Outside of crypto and ML, there are few good entrepreneurial markets right now.
  • Some people got rich.
  • Capital inflows.
Great post from Balaj trying to measure blockhain decentralization.
Factors include mining, client, dev, exchange, node, ownership decentralization.

Fairly technical read, but you'll learn about Gini coefficients, Lorenz curves and the newly defined Nakamoto coefficient.

Don't miss Vitalik's response.
Anything Vitalik writes is a must read.
🤡 ICO madness
What  a refreshing token sale design.

TL;DR

  • No presale (aside from a very, very tiny seed round raised quite a while back)
  • $24M absolute max cap
  • No advantage to contributing first, but make sure to contribute during first 24h
  • For the first 24 hours of the token sale, the individual contribution cap will be fixed such that the total $24M hard cap is equally divided among all registrants
  • Any ZRX that have not been sold within the first 24 hours will then become available (at the same price) to contributors that hit the initial individual cap, via a 3x increase to the individual cap.
  • Any ZRX that are not sold after 96 hours will be retained by the 0x team.

Full disclosure: Stefano participated in 0x's seed round through a syndicate.
#️ July 2017 Numbers Update
July was another record month for ICOs, with total USD raised topping June at $665 million from 33 issuances (according to Tokendata). We are north of $1.5b for 2017 already.
This article is behind paywall so here is a TL;DR.

  • The prolific LA-based startup studio behind companies like Dollar Shave Club has caught up with the crypto frenzy and announced a blockchain-focused incubator
  • In an 'eat your own dog food' way they are planning to raise capital ($50-100m) via an ICO, which will be managed by Argon Group (who also ran Blockchain Capital III $10m ICO)
  • The pre-sale is scheduled for Sept. 18th, public crowdsale for Oct. 2nd
  • Token holders will receive tokens in the incubated projects (so long as they also do ICOs), and a portion of fund profits will be used to buy back own tokens in the open market
  • Fully compliant with SEC regs, so capped to 99 US investors and unlimited international investors.

Science has no doubt developed a well oiled incubation playbook, with world class marketing / branding skills tailored to consumer internet businesses. It will be interesting to see that put to action in a very different sector that seems to be paying by its own rules. Perhaps they believe it's the right time to start building consumer Dapps? 

As to the ICO structure, getting tokens directly in the underlying projects is a very appealing feature, as it leaves it to the token holders to decide when and if to liquidate each position. 
It's not entirely clear at this stage how the buy-back mechanism will work: 
- what will happen to the tokens that are bought back, burnt presumably to reduce supply?
- only a fixed % of the exit profits will be used to buy back tokens, what about the rest of the profits?
😎 Cool new projects
The folks at Neufund have launched the ICO Transparency Monitor, a tool that tracks ICO transparency (or lack of thereof). It ultimately generates a score for each ICO that reflects a standardised analysis of its smart contract code.

More info on their Github page.
Unsurprisingly Coindesk also launched a data tool for ICOs. 
😤 First they ignore you, then they laugh at you, then...
Last week legendary value investor Howard Marks shared his simplistically bearish views on crypto. This week another legend of fundamental analysis, Aswath Damodaran, professor of finance at Stern business school (famous for his ultra-bearish valuation of Uber), weighted in. 

His analysis is a lot more humble and thoughtful than Marks', here is a TL;DR:

🤑 Crypto currencies have definitely arrived, gathered attention and made lots of people rich along the way 
🙄 The underlying blockchain technology may have a profound impact on legacy financial services players, and they are taking notes (Marks didn't even mention the blockchain) 
👌 Long term success as a 'good currencies' will require deeper inroads as mediums of exchange or as stores of value
🤔 Reasons that hasn't happened yet are fiat inertia, volatility and competition from multiple crypto currencies
👌 The 'marketing effort' by the designers of these currencies is focused on speculators and traders rather than 'transactors'
👌 There are no ties to fundamentals, it's a momentum based pricing game
🤘 Depleting trust in governments and central banks, particularly amongst the younger generations, is no doubt a strong tail wind.
🤔 Winning as store of value or means of exchange though will require losing the characteristics that make it appealing to speculators, and compromise on trustless decentralisation.
🤓 He wonders what happens when currencies near their cap and miners have to make money from transaction fees
👎 His best attempt at a fundamental valuation of Bitcoin comes down to purchasing power proof: can you buy $2,750 worth of goods or services with 1 BTC?

Nothing felt way out of line overall, it's a very academic perspective as one would expect from him, rather than that of a visionary. His points on the over emphasis on the speculative features of these assets are very much spot on in the current market. In his narrow focus on Bitcoin though, he missed out on the value and potential of 'utility tokens' in unlocking network effects in existing or new economies.
The Chicago Board Options Exchange (CBOE), which operates the largest US options exchange, has entered an agreement with the Winklevoss twins to use bitcoin market data, in a move that paves the way for the exchange to launch bitcoin derivatives trading, perhaps before the end of the year.

"We've really come to the conclusion recently that cryptocurrencies are here to stay", John Deters, chief strategy officer of CBOE.

As we have mentioned in a previous issue, the presence of a regulated futures market for crypto currencies is of crucial importance for institutional capital adoption of the asset class. And we are hearing there is a huge amount waiting on the sidelines...
💰 New funds
We missed this one last week. Former JP Morgan trader Daniel Masters closed $5 million in total, apparently all raised in ETH. Jersey seems to be a natural home for crypto hedge funds, some fund service providers are developing crypto practices.
This one is a US-based hedge fund started by ex VCs from Venture 51, focused on large cap highly liquid crypto currencies and tokens. No management fees and 30-day lock-up, just to make it even more appealing.
Not much fanfare about this one, it seems that it was announced at a panel at some blockchain event. The founder is Morgan Hill from Attis Capital, the new fund is called AxionV and the $30m ICO is scheduled for August 7th (no further details as of writing).
About us
Token Economy is curated by Stefano Bernardi and Yannick Roux.

We're fully booked with a lot of VC and Crypto meetings for our Berlin trip, but are always on the lookout for cool deals and projects - so feel free to reach out.
Please send links to include in the next issue, or any comments you might have on this one!
Token Economy · The Dolomites · 38121 Trento TN · Italy
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