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Token Daily Capital Newsletter #8


"can’t stop thinking about the concept of 'illusion without owners':

when everyone says they can’t believe that everyone else has bought into some naïve idea. but when you go looking for the true believers, you can’t actually find any" 

Aaron Lewis



⚡️ Bitcoin as a Safe Haven Asset

Bloomberg on how Bitcoin has morphed into an unlikely sanctuary as market turmoil rises. Since bitcoin has historically been an uncorrelated asset, it makes sense folks turn to it as the yuan dramatically weakens and stocks take a tumble. 

⚡️ Blockstream Launches Mining Operation and Pool

Blockstream publicly officializes its entry into the Bitcoin mining world. The facility they announced will be capable of generating - at full power - about 6 Exahash per second (~ 7.5% of the current Bitcoin network hash rate). Additionally, Blockstream is running a new Betterhash based mining pool.



🔹 Gas Station Network

Gas Station Network (GSN) avoids several hassles that come with accessing dapps. Instead of requiring a new potential user to download Metamask, create an account, back up the recovery phrase, and fund the account with ETH to pay gas fees, the GSN abstraction layer allows the dapp to pay the gas fees for user interactions. This way, dapps bear these costs as customer acquisitions costs and users enjoy a seamless onboarding experience. Eventually, the app will roll out subscription fees that will compensate for onboarding costs.

🔹 The Tokenized Asset Portfolio

Fluidity is trying to bring traditional real-world assets (think stocks, bonds, or even real estate) into DeFi via their Tokenized Asset Portfolio. The team has designed a model that allows the use of traditional assets as collateral for MakerDAO's upcoming multi-collateral DAI. The team has tested the model on Ethereum's Kovan testnet.

🔹 Tornado Cash Launches on Mainnet

A zk-SNARKs Ethereum mixer launched on Mainnet on August 6th. Though still unaudited, there have already been 50 Ethereum deposits, each around 0.1 ETH, contributed to the anonymity set.  


Litecoin Halving

On Monday August 5th, the Litecoin network went through a halving event, cutting down the block subsidy from 25 LTC per block to 12.5 LTC/block. While traders were expecting significant price appreciation in anticipation of the halving, the LTC/BTC pair is sitting close to a 2-year low. 

More Troubles in Thundercore

Less than 3 months after Thundercore CEO Chris Wang penned an apology post for a major Thundercore controversy, the project is facing a new PR headache as people have discovered the project's lead scientist Prof. Elaine Shi quietly terminated her affiliation with Thundercore.

Coinbase Listings

Coinbase is considering adding 8 more altcoins to its platform. The list includes Cosmos Atmos, Algorand, Dash, and Decred. The stated goal is to offer Coinbase customers exposure to assets that represent more than 90% of the aggregate cryptocurrency market cap.  



📚 Becoming Decentralized Enough: The Case for DAOs

This week, we illustrated how DAOs can help DeFi projects become "decentralized enough."  Protocols will eventually arrive at a crossroad where they either delegate all control to a DAO or clearly turn into centralized businesses that offer non-custodial financial services. 

📚 A DAO Reviving

Former Polychain partner Ryan Zurrer, along with several anonymous partners, is taking another shot at building a decentralized large-scale crypto venture fund using a DAO.

The new DAO, whose high-level details were published on Github, follows the same principals of the original Ethereum DAO including open participation and the ability to join or leave at any time. The new design also adopts a number of committees called "leagues" that perform day-to-day activities of a decentralized fund such as deal sourcing and diligence. If the new DAO is successful, founders may find new ways for fundraising (ie pitching the DAO community and running public campaigns to persuade the DAO token holders to vote in their favor). 



Unpacking Stablecoin Volume on Ethereum

Stablecoin on-chain volume on Ethereum has been a hot topic lately. TradeBlock’s report last month showed that the aggregate transaction volume of the top five stablecoins on Ethereum (USDT, USDC, DAI, TUSD, Paxos) has exceeded the total transaction volume of Venmo in Q2 of 2019. Additionally, a recent report from The Block shows that the transaction volume of Ethereum’s stablecoins exceeded that of Ethereum itself on July 26th.

Both comparisons clearly demonstrate Ethereum stablecoin volume going up and to the right. The question that remains: is this volume a result of the use of stablecoins in payments? Have stablecoins succeeded in delivering their vision of creating stable payment rails that can be used for everyday payments?

To answer these questions, we need to unpack stablecoins’ on-chain volume. The goal here is to investigate the claims that most of the stablecoin on-chain transaction volume comes from trading on both centralized and decentralized exchanges.

If this is the case, it would invalidate comparisons with Venmo, Zelle or similar consumer payment platforms. To begin analyzing stablecoin on-chain data we need to understand the relative volume of different ERC20 stablecoins. Using Tokenanalyst’s stablecoin volume data, we find that the ERC20 version of Tether (USDT) is currently the dominant Ethereum stablecoin with a volume exceeding 50% of the overall stablecoin volume.

A weekly aggregate of ERC20-USDT on-chain volume, and inflows and outflows of five major centralized exchanges.

If we want to further explore how much of the ERC20-USDT is used for trading, we can start by looking into its centralized exchanges in and outflows. TokenAnalyst provides this data for a number of major exchanges including Binance, Bitfinex and Kucoin. In fact, there is a significantly larger number of exchanges that also use ERC20-USDT. Hence, the data of these 5 major exchanges is merely a lower-bound for the flow in and out of centralized exchanges. The real volume can be 2 or 3 times larger than the lower bound. Still, according to our analysis, the on-chain transaction to and from these 5 exchanges represent around 20% of the overall ERC20-USDT on-chain transaction volume over the past year. This trend is not unique to USDT, the same analysis for UDSC shows that the volume of the same 5 exchanges represented 18% of the overall USDC on-chain volume.

The notable outlier in this regard is DAI with only 1.6% of its on-chain volume happening on centralized exchanges (whereas most of DAI trading volume happens on decentralized exchanges). Uniswap volume alone represented around 0.8% of the overall DAI on-chain volume over the past year.

Given that these numbers are just lower-bounds and considering that such numbers don’t even include the on-chain volume from decentralized exchanges, it is easy to conclude that, in fact, a significant majority of the stablecoin on-chain volume is likely only used to enable trading on exchanges.

What Does that Mean for Stablecoins?

Conceptually, the explicit goal of stablecoins is to encourage users to use cryptocurrencies for decentralized payments. The idea is that if users are protected from the underlying cryptocurrency volatility, they'll find it suitable to use stablecoins for everyday payments instead of Venmo, Zelle or Paypal.

However, what we are actually observing is that these stablecoins have become popular tools to 1) avoid traditional payment rails during cryptocurrency trading and 2) use for leveraged trading.  Traders are happily paying 10-20% interest rates to borrow DAI, USDC or USDT to use for highly leveraged trading.

In this regard, it is important to question if stablecoins have failed in their original mission of spurring real-world adoption and, instead, have turned into tools for even more speculation on cryptocurrencies.

The current uses of stablecoins can bring about a number of concerns including regulatory issues when traders avoid disclosing their profits. Plus, there are significant risks associated with high leverage and high interest rates enabled by stablecoins. These risks can simply accelerate market downturns into black swan events.  


Disclosure: Token Daily Capital and/or its partners may have exposure to some of the cryptocurrencies mentioned in this newsletter.

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