"The integral concepts of The Internet were laid out in 3 independent instances, with only the last one implemented (in the US via ARPA). The other two were blocked by the agencies under which they operated, that either couldn’t see the point or justify allocating resources to it."
A chart by Ben Davenport on positive loops for bitcoin's price movement over the past decade.
⚡️ Bitcoin is Not Too Slow
Unchained Capital puts the "Bitcoin as Visa" narrative to rest once and for all and gives us a good refresher on the fundamentals.
🔹 Building a DeFi Product On Different Chains
The founder of the DeFi project Synthetix wrote a post to revisit their decision to build their product on both Ethereum and EOS. The major conclusion is that the team was "dead wrong" to build on EOS as they significantly underestimated Ethereum network effect and its benefits: the availability of robust developer tooling, composability, strong social base, and the existence of multiple ERC-20 tokens that managed to capture non-trivial monetary value.
🔹 A Wave of Ethereum 2.0 Grants
The Ethereum Foundation just allocated $2M in a new round of funding for teams building Serenity (Ethereum 2.0). The largest grant ($725K) went to Prysmatic Lab, co-led by Token Daily Capital research partner Raul Jordan, followed by Status ($650K), and Sigma Prime ($485k). These teams are building the three major clients for the Beacon Chain that is scheduled to launch next January.
🔹 DAI Interest Rate Swaps Come Out of EthBerlin
A team of developers teamed up during the EthBerlin hackathon to build LSDai, an Interest Rate Swap for DAI using Compound's rate as the reference rate. This is the newest synthetic DeFi product that allows lenders to hedge against the volatility of Compound interest rate. It will be interesting to observe how LSDAI performs given the correlation between DAI's interest rate and MakerDAO's stability fee (decided through MKR voting).
DAI interest rate is highly correlated to MakerDAO stability fee .
🏛 Court Rules Against CSW
In a not-so-surprising outcome of the Kleiman vs Wright case, the judge has dismissed Craig Wright's statements describing them as inconsistent. The judge has ordered CSW pay Kleiman heirs 50% of any Bitcoin mined during the CSW-David Kleiman partnership. There are significant doubts around the existence/accessibility of these bitcoins and this may be the reason that Kleiman heirs are allegedly looking for settlement with CSW.
💸Launching an L1 Cryptocurrency is Harder Than Ever
Arianna Simpson wrote an interesting thread on the uphill battle soon-to-launch layer 1 chains will face and how Bitcoin avoided them. These multi-billion-dollar chains are more complicated and have a considerably larger attack surface. One point we'd add to Arianna's thread is that the launching chains, mostly smart-contract platforms, will struggle to steal developer mindshare from Ethereum given its strong lead and network effects.
DeFi Summit London
DeFi Summit London (September 10, 11) is right around the corner. Token Daily is supporting the two-day event which is focused on decentralized finance. Every attendee will be handpicked in order to maximize high-quality multidisciplinary interactions. The event brings a great lineup of speakers representing different companies, DeFi protocols, and research institutes. Apply today for your ticket https://defisumm.it.
THOUGHT OF THE DAY By Mohamed Fouda
The Growth of The Blockchain Data Sector
About five months ago I published my thoughts on the blockchain data sector, the different use cases we've seen, and the market landscape. I went so far as to predict these companies will be the next crypto unicorns.
At the time of writing, it wasn’t clear how a company working with public data could be worth a billion dollars. Since five months have passed, it seems like a good time to evaluate the progress of the blockchain data sector and its companies so far.
In the April article, data companies were placed into two large categories: 1) chain analytics and 2) economic data companies. I expected companies from each sector would strive to expand into the other.
Increasing regulatory scrutiny and geopolitical tensions have led to increased demand for blockchain data analytics. Regulatory and law-enforcement bodies use the data to track the unregulated economic activities or tax evasion scenarios enabled by cryptocurrencies. The simplest example of this is how the IRS has used data from third parties to conclude that some crypto users didn’t pay enough taxes (and subsequently sent thousands of letters to these individuals, including CP2000 forms). Although the data used by the IRS has probably been provided by exchanges, there is a significant chance data from analytics companies have been used as well.
Based on increasing demand, it wasn’t surprising to find Chainalysis, one of the leading companies in the chain analytics sector, on the Forbes 2019 list of next billion-dollar startups. This aggressive growth is not unique to chain analytics companies and we're seeing more aggressive growth on the economic data providers side. Some quant funds depend primarily on on-chain data to place and execute trades. Over the last 5 months, many existing companies have expanded their teams to widen their offerings and offer more specialized and nuanced data. Moreover, newer companies are entering the space to offer specialized data for emerging sectors such as DeFi.
Growth of On-chain Data Insights
While it is not possible to provide an exhaustive list of companies in the data sector or detail their expansion, it is essential to illuminate a few examples to create a blueprint of where the space is headed.
On the on-chain data front, Coinmetrics, Tokenanalyst, Glassnode, and others have been consistently shipping new metrics and tools to develop better insights from on-chain data.
Robust on-chain metrics are generally hard to build and require extensive data cleaning to improve data quality and remove artifacts. A good example of this includes Tokenanalyst’s "exchange flow" which tracks inflows and outflows from several major exchanges. This metric requires identification of address clusters of the exchange wallets, i.e., chain analytics in addition to separating transfers to/from clients from intra-exchange transfers. The complexity of the task is, however, worth it as it can provide signals about market movements. On-chain metrics are growing in popularity as robust indicators of economic activity that is expensive to manipulate.
Another area that's been seeing increased demand for on-chain data is DeFi.
Investors need tools to monitor and compare different lending and margin protocols which leads to products like LoanScan, DefiPulse, and DefiScan. These products provide data about lending rates, market liquidity, risk of liquidation, and other data that are valuable to DeFi users and investors.
A third emerging trend in the on-chain data space centers around platforms that allow users to run their own queries. Alethio, Dune Analytics, and the Graph Protocol are all platforms that allow financial researchers and users to directly interact with the Ethereum blockchain to get the information they need. These platforms will allow investors and funds to develop their own proprietary insights and economic signals.
As institutional investors are starting to allocate a few basis points of their portfolio into digital assets, it is important for these investors to track their performance. This need has given rise to a number of institutional geared crypto indices such as Vision Hill Crypto Active Indices in addition to general crypto indices such as Bletchley Indices (acquired by Coinmetrics in June). As institutions get more comfortable holding and managing cryptocurrencies, I expect financial markets data monopolies such as Bloomberg to acquire or partner with many of the blockchain data companies to cater this data to their customers.
Free Data is the Tip of The Iceberg
A common theme that can be observed in many of the blockchain economic data companies is that they offer some of their data/insights for free. The goal is mainly to build community and brand awareness for these companies - a top of funnel if you will. However, companies offer more nuanced data and insights to their paying customers.
The analysis and proprietary insights from publicly available data are what differentiates great funds and investors. Ray Dalio discussed in his book “Principles” that the data they used to predict the 2008 financial crisis was publicly available data. What differentiated Bridgewater is the way they looked and analyzed this data. The same will hold true for cryptocurrencies; although on-chain and price data are publicly and widely available, companies that clean, standardize, analyze and sell the data and insights will be cornerstones in the crypto space.
Disclosure: Token Daily Capital and/or its partners may have exposure to some of the cryptocurrencies mentioned in this newsletter.