A Stable Full of Thoroughbred Stablecoins

This is guest post is by my longtime friend, Vito. Enjoy!

It is exciting news that Coinbase just added USDC, its first stablecoin to the already supported array of digital currencies (BTC, BCH, ETH, ETC, LTC, ZRX).

In order to properly describe my excitement, I must first explain what a stablecoin is. In the 1960s, a gallon of gas cost $0.30, or 3 dimes. In October 2018, a gallon of gas now costs a bit over $3.00, but considering pre-1964 dimes were 90% silver, those three 1960s dimes will still get you about a gallon of gas today. So one could say that silver dimes are stablecoins, not because they are dimes, but because they are made of silver. In terms of blockchain, stablecoins are designed to minimize the price volatility and are usually pegged to fiat currencies at a 1:1 ratio. As we tend to think in dollars rather than gallons of gas, bags of rice, or ounces of gold, it is only logical to create stablecoins that are pegged to the fiat currency we use everyday. In the case of USDC, it is United States Dollars. 

USDC is joining an array of existing stablecoins that already exist on the market: Tether (USDT), TrueUSD (TUSD), Paxos Standard Token (PAX), Gemini dollar (GUSD), and Dai Stablecoin (DAI) just to name a few. Those are not the only stable coins in existence; Waves and Ardor platforms have their own versions of digital USD and EUR. What makes USDT, TUSD, PAX, GUSD, DAI, and now USDC, special is that they are accepted by major exchanges, such as Binance, Kraken, Coinbase, Gemini, and HitBTC. 

Maybe exchanges are “evil” and we should all be using Decentralized Exchanges (DEX), but no matter how you feel on the topic, what really unites these stablecoins is that they run on the Ethereum blockchain in a form of ERC-20 tokens. I have to admit there is a slight exception to my statement: while Tether does exist in a form of ERC-20, it’s traded in a much smaller quantity compared to Omni Layer implementation running on the Bitcoin blockchain ($3 Billion on Omni vs $60 Million as ERC20).

I don’t want to get into Tether; despite what people say about it, it is still the biggest kid on the block, but maybe not for long. As of now, Tether has a 24-hour volume of $2.1 Billion USD. This is compared to barely $20 Million PAX/TUSD. At the moment, all ERC-20 stablecoin daily volumes barely make up 10% of Tether’s daily volume, but as more exchanges start to accept these new coins, I would not be surprised to see the volume quadruple in the next couple of months. 

Coinbase acquired Toshi, which is now Coinbase Wallet with built in DApps and some DEX functionality. In my opinion, if you’re using Coinbase, like the vast majority of US crypto users, the transition from paper money to digital money in your Coinbase Wallet should feel natural. I feel that Coinbase will soon compete directly with Venmo, PayPal, Square, ApplePay, and other digital payments. This is extremely important to adoption. We will still be using fiat, but processed by a decentralized Ethereum blockchain. This presents a great opportunity to transact on a blockchain with “nonbelievers,” and those who have faith will be able to convert stablecoins to their favorite coin.

Personally, what I am really excited about is that I can keep my funds in my favorite crypto coin, mainly BTC, ETH, and some XMR and LTC, and settle with my co-workers and friends using USDC sent to their Coinbase Wallet, without hearing their negative, ignorant opinions on crypto currency.

Thoughts on SF Blockchain Week 2018

(Before I start… a special thank you to Amy Liu for the new logo! Please check out her work!)

I paid $200 to attend SF Blockchain Week 2018 on Monday and Tuesday just to get a sense of the industry pulse, post-2017 run up. I came away with a few new insights and a lot of reassurance that my favorite projects are still working towards the right goals.

The crypto community is now split into anti-bank “activist” and legally compliant “legit” camps

The hedge fund and VC communities were represented on all non-technical panels, making assertive calls for regulated crypto exchanges, ICO regulatory clarity, and compliance solutions. They are not wrong to think these will be money makers, but they seem to be clueless as to how much the technical community is already working to circumvent centralized authority. For example, decentralized exchanges (DEXs) will probably come into feature parity with traditional exchanges next year, and they will be autonomous, distributed Internet entities.

As expected, the technical community was talking about “scaling” issues (Proof of Stake and State Channel issues). The difference in goals could not be more clear to me: The nerds want to replace the Internet with a decentralized anarchy and Wall St. wants new plumbing for the money machines. Of course these interests can coexist, but going forward, every trader and banker will need to have a clue about how the Internet works without leaning on their IT guy, which presents a serious learning curve.

Chain interoperability is probably the future

I now feel pretty confident saying that, in the near term, there will be hundreds, if not thousands, of public chains competing with Ethereum as a “smart contract platform for X”. Most of these chains will probably die after failing to propagate their node community fairly or securely. So why even bother? They believe they can shortcut the scalability issue by foregoing mining and instead deploy a Proof of Stake block validation system. Quickly, the difference between these:

Proof of Work (Bitcoin, Ethereum, most long-running chains): Miners buy fast computers and get paid to mine blocks and confirm transactions (relatively slow).

Proof of Stake (EOS, Dash, NEO, most new chains): Token holders with a lot of tokens get paid to not spend their tokens but instead “stake” them to validate new blocks. This is faster, but now there is a big pot of gold to steal, and a disincentive to spend money.

To my original point: it probably won’t matter to you. Several groups have have begun projects aiming to create common protocols for blockchains that will enable different networks to communicate with each other seamlessly. How will this look in the real world? Image you will be able to spend Bitcoin to launch a smart contract on Ethereum, or buy a coffee with Litecoin from a vendor who only takes Dash. This is what I mean by chain interoperability. I can see a world where all global transactions and smart contract calls take place between different blockchains, but you and I are still only spending (perhaps legally obligated) local fiat currencies. Perhap even autonomous AI-driven systems can make/receive payments with each other in a humanless IoT economy: imagine a car that owns and can pay for repairs itself. It really gets your imagination revved up.

Of course this begs the question, in a world where blockchains live and die by network security, which chain system will be “the one” to buy? Or will thousands of small local chains coexist and render token hoarding pointless? The crypto economics of the coming multi-chain landscape are unclear.

Ethereum will be a network of many subchains

A project called Plasma will turn Ethereum into a network of smaller subchains. The main idea is that users can create a smaller chain to off-load transactional data until it is recorded later on the main Ethereum chain. I can’t really explain it better than this Medium article by the Aragon guys.

Securitized crypto assets are live

One of the more interesting talks was between the founder of Indiegogo and a guy who led the tokenization and sale of a hotel in Aspen. Many interesting points here:

  • The financial instrument was a REIT issuing securities as an Ethereum ERC-20 token.

  • The tokens traded on a next gen alternative trading system (ATS), not a typical crypto exchange.

  • As far as I can tell, the organizer is non-technical and leveraged Indiegogo as his tech and legal advisory to comply with SEC Reg D designation frameworks. So yeah, Indiegogo is now the leader in crypto token securitization.

  • Minimum contribution to own a piece was $10k USD (accredited investors only).

  • Half of the token holders are from Asia.

Lastly, I just want to point out that I changed the mailing list platform from Mailchimp to Substack. One benefit is that I can create an exclusive paid-only list if there’s demand. I’m thinking something like $4/month for bi-monthly tech insights and condensed news summaries. If that’s something you would be interested in, please let me know.

The Ice Age Cometh

The Great Crypto Ice Age of 2018 is almost here. But as the hype slows down, technical progress remains steady. Here are some interesting things I've come across in the last few months:

Build a Bitcoin Lightning Network node from a Raspberry Pi and external hard drive. Sidenote: you will learn a TON about Linux in the process.

Bitcoin’s Path to Method of Payment by Jimmy Song (Medium article)
The case for Bitcoin purely as a store of value.

The Proof of Work newsletter by Eric Meltzer
This is a great, focused newsletter with regular updates directly from all the major projects.

One of the very few crypto-heads on Twitter who actually has a clue. He also has a good investment newsletter, Off the Chain.

$6000 remains the current BTC floor. As algorithmic trading starts to tighten up, things might get very interesting by October/December.

Yes, Ethereum is still alive.

Stay warm and stay tuned!

FOAM, Loom, And 0x

In down markets like the current, it's a great time to stop thinking about prices and get back to the tech. I've been spending a good amount of time at the San Francisco Ethereum Dev Meetups and here are some of the interesting things I've come across.

FOAM: A mesh network of radio beacons that provide a "proof of location" service
Official pitch:
 The FOAM Proof of Location protocol empowers a permissionless and autonomous network of radio beacons that can offer secure location services independent of external centralized sources such as GPS through time synchronization.

GPS is a good technology for getting your own location on a map, or sharing your location with someone you trust, but what if you wanted to prove to an employer or a third party that you were somewhere at a specific time? For this need, GPS has a few limitations: you could fake your location, your receiver isn't able to get a signal from the the four required beacons because of interference from structures, or someone (like a nationstate) could be actively interfering with your signal.

The FOAM project aims to create an incentivized network of synchronized radio beacons that will verify your location on the Ethereum blockchain for a small fee (paid in their token). If someone tries to fake their location by signing a transaction in a place they're not, the network will financially penalize the cheater.

In short, the ecosystem for spacial data will be a two-sided marketplace: The "user" who is asking the beacons to record their location without relying on GPS (IoT, logistics and insurance companies come to mind), and the "location provider", anyone with a synchronized beacons who is collecting fees from the network by providing spacial data. They are planning an ICO for this summer.

Some interesting links on the topic:

Loom: an Ethereum scaling solution for the gaming industry
Official pitch:
 Think World of Warcraft and Twitter on the blockchain. Built on Ethereum.

It's my observation that the "Internet" has a negative outlook on Ethereum's ability to scale up transactions/second to meet the demands of projects trying to record game data (Cryptokitties). However, many of the devs working directly on Ethereum projects have publicly declared extreme confidence in the future of sidechains as a way to offload Ethereum Virtual Machine (EVM) computation and use the main Ethereum chain as a low throughput "source of truth".

Loom is a scaling project with major momentum. I came across them while taking their Solidity programming course called CryptoZombies (highly recommended intro to blockchain programming). In short, Loom is a platform for creating a unique sidechain (they call them DAppChains) for any game.

This differs from most Ethereum sidechain projects in a major way, in that most sidechains are implemented on a per project basis. Using Loom, any game dev could instantly spawn their own sidechain without the overhead of creating "yet another crypto project". I'm pretty excited to see where this one goes. Their token is currently trading for $0.35 with a total supply of 1,000,000,000.

0x Protocol: Infrastructure layer for decentralized exchanges
Official pitch:
 an open, permissionless protocol allowing for ERC-20 tokens to be traded on the Ethereum blockchain.

The main project goal is a sidechain protocol that anyone can use to create a decentralized ERC-20 token exchange, not just for currency, but also for collectable tokens like CryptoKitties. Some notable projects are already implementing it, including Paradex, which was acquired by Coinbase in May 2018. The ZRX token is currently trading at $1.31 with a max supply of 1,000,000,000.

Why I'm Still Hyped On ETH

It's important to know that ETH has the second highest market cap because of the torrent of developer activity building on top of the platform, and almost every other platform is simply playing on hype. Recently I've gone to a few Ethereum Developers Meetups in here in San Francisco, and every time I leave even more hyped on Ethereum. Here are three awesome projects that were pitched:

Cipher Browser (Update: Cipher has since been acquired by Coinbase)
Cipher is a both an Ethereum wallet and browser in a single app, similar to MetaMask if you've ever used that. So why is this useful? Ethereum Đapps (decentralized apps) are websites/apps that provide an interface between normal users and the Ethereum blockchain. CryptoKitties is a great example of this: if you want to buy a cryptokitty, you need to send ETH to the seller and pay a transaction fee to the miner to record the transaction. Before wallet browsers like MetaMask and Cipher, making this kind of purchase would have been pretty hard (imagine buying something from Amazon using a command-line), but now we can safely make ETH transactions by unlocking our wallet in the browser and simply clicking the "Send ETH" button.

One of the major unsolved issues with Ethereum is the amount of resources required to run a node. New Đapp developers will need to wait more than a day and consume almost 100gb of harddrive space to sync the Ethereum blockchain. Or they can use Infura's node with with support for all Ethereum functions, assessable via standard web APIs. Infura is already one of the leaders in Ethereum infrastructure, serving as the backend for sites you probably use like MyEtherWallet. These guys serve 6 billion requests a day.

To understand what these guys are doing, it's important to know that Ethereum plans to transition from Proof of Work to either Proof of Stake or a hybrid PoW/PoS system. My short explanation is that in PoW, blocks are mined by those with the most computing power, and in PoS, mining privilege is assigned to those with the most of amount of money committed to a smart contract. In either scenario, blocks will still need to be mined with computer power, which high-net-worth individuals might not have. 1protocol plans to introduce a set of smart contracts that allows those two parties to pool resources and share the block rewards. Just to blow your mind a bit, the computers in this case might not even be "people", but just virtual machines that spin up automatically to earn money when they have some idle time. Pretty cool.

Loading more posts…