Augur Assassination Markets

Augur Assassination Markets

Twitter user, WhalePanda, tweeted,

It didn't take long... there are now multiple assassination markets live on @AugurProject. (not posting a screenshot/link for obvious reasons) $REP $ETH

It goes without saying that this is a huge problem. The idea of assassination markets isn't new. Jim Bell first developed the idea in 1992. The paper called, "Assassination Politics" laid out the benefits of how a cryptocurrency could enable this type of market. 

This overall system achieves a number of goals. First, it totally hides the identity of the predictor to the organization, which makes it unnecessary for any potential predictor to "trust" them to not reveal his name or location. Second, it allows the predictor to make his prediction without revealing the actual contents of that prediction until later, when he chooses to, assuring him that his "target" cannot possibly get early warning of his intent (and "failed" predictions need never be revealed). In fact, he needs never reveal his prediction unless he wants the award. Third, it allows the predictor to anonymously grant his award to anyone else he chooses, since he may give this digital cash to anyone without fear that it will be traced.

For the organization, this system also provides a number of advantages .By hiding the identity of the predictor from even it, the organization cannot be forced to reveal it, in either civil or criminal court. This should also shield the organization from liability, since it will not know the contents of any "prediction" until after it comes true. (Even so, the organization would be deliberately kept "poor" so that it would be judgment-proof.) Since presumably most of the laws the organization might be accused of violating would require that the violator have specific or prior knowledge, keeping itself ignorant of as many facts as possible, for as long as possible, would presumably make it very difficult to prosecute.

Augur creates the system that Jim Bell predicted 26 years ago. An anonymous person can offer a bounty that incentivizes someone to assassinate a person with no way of tracing who committed the act. However, could the law hold Augur responsible, more specifically, the Forecast Foundation for allowing these types of markets? This market will genuinely test the decentralized nature of Augur. Will the government be able to shut it down? 

Matt O'Dell tweeted,

Augur is the type of project you should launch anonymously without a centralized kill switch.

The only reason they didn't go that route was because of $$$. Anonymous teams don't get those big ICO hauls. Extremely shortsighted.

Bitcoin launched anonymously and has been the most successful application of blockchain so far. I think the anonymous bootstrapped launch is going to be the best way to create decentralized applications. 

Crypto Utopia & Grayscale Digital Asset Investment Report

Crypto Utopia

Lex Solkin of Autonomous Research published a 120-page report titled, "#CRYPTO UTOPIA". Lex is one of the best analysts in the cryptocurrency space and his report is excellent. There was a lot to digest so I encourage you to read it on your own. I shared the executive summary from the report below:


Grayscale Digital Asset Investment Report

Greyscale, the largest crypto fund manager, announced they have raised $250MM YTD from investors. This is a staggering amount of money for the cryptocurrency space. Greyscale has done an excellent job of establishing itself as a powerhouse in the space. It's the only US-based fund that you can invest in via a brokerage. I can just log on to my ETrade and buy GBTC. 

The problem with GBTC is that it trades at a Premium NAV. In simple terms, you are overpaying for the asset. If GBTC owns 10 BTC valued at $1MM, GBTC is trading at a value over $1MM. The reason this premium NAV exists is that investors are so desperate to own Bitcoin, they are willing to pay a premium to own it. My friend Mo tweeted,

Silly that Grayscale is calling record inflows into their product in the last 6 months as the “other side of the story” when $XBT has been down over 50% in the same period. Interesting stat but hardly the other side.

Grayscale's brand is so strong that institutions are willing to pay 1% management fee and a premium on NAV just to buy Bitcoin. These are the same institutions that complain about 2/20 for hedge funds. Imagine if an investor paid 1% and a premium NAV for an S&P 500 index. Stakeholders would be calling for the CIO's head, but because it's Bitcoin, it's okay. I can't speak for the CIO's of the institution buying Bitcoin because I don't know their situation. However, I can draw two conclusions. CYA is very important and CIOs would rather blame an external fund manager than invest in Bitcoin directly if the investment went awry despite high fees. Second, if there is a demand for a vehicle with high fees that invests in Bitcoin, imagine the demand for an ETF on the NYSE with low fees. 

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Coinbase Approved to List Securities and IBM Launches a StableCoin

Dear Readers,

Happy Tuesday! Kodak's blockchain venture has collapsed. This is such a big surprise! (Sarcasm)

Coinbase Approved to List Securities

Coinbase's purchase of a broker-dealer, alternative trading system and a registered investment advisor was approved yesterday. This approval comes after Coinbase announced they were looking into adding other tokens. The move into listing securities on their platform is a significant one. Security tokens seem like a natural evolution in ICOs. At the moment, many ICOs skirt security laws by allowing non-accredited investors to invest.

Most ICOs have little to no protection for investors. Security tokens solve many of the problems currently associated with ICOs. It would allow a legal way for any investor, regardless of income, to own a piece of an early-stage startup, immediate liquidity and protect investors from scams. The most logical way to do this is through the Reg A+ process. For those who aren't familiar with the Reg A+ process, it's like a mini IPO. Here are the highlights:

  • Raise up to $50 million in a 12-month period using a “public solicitation” of its shares and have the offering be exempt from SEC and state securities law registration.
  • Confidentially submit its offering memorandum to the SEC
  • Immediate liquidity which isn't subject to accredited investor laws
  • Combine public funding (through Reg A+) with private funds from venture capitalists to create a larger round of fundraising

I've been a big fan of the Reg A+ process. I wrote about the process here for the Gab ICO. The one downside to a Reg A+ offering is that the company must have two years of audited financials. If you think about it though, this will help create more quality ICOs. A company will raise a private fundraising round in anticipation of an ICO. Once, the two-year threshold passes, they will raise a Reg A+. 

This process will also help accelerate investment in the space. Security tokens don't have a lot of the regulatory ambiguity that ICOs have. Institutions will be cleared to invest in them because they know they are regulated and will have access to third-party custody. I'll give an example of a potential security token offering that Coinbase might have. 

I own 100 residential homes in Arizona. I want to sell some of these so I can receive liquidity, but don't have enough homes to create a REIT. I'd launch a security token. I'd be able to sell a portion of my ownership to investors, the investors would have protection because SEC laws govern the sale, and I'd also be allowed to issue dividends from the rental income. It's a perfect compromise to the IPO and ICO process. 

IBM Launches a StableCoin

Coindesk reported that IBM is launching a stablecoin. Here are the details:

Announced Tuesday, a startup called Stronghold is launching USD Anchor, which will run on the rails of the Stellar blockchain and use its consensus mechanism to verify transactions. The token will be backed one-for-one with U.S. dollars held at a Nevada-charted trust company called Prime Trust, which in turn will deposit the cash at banks insured by the Federal Deposit Insurance Corp.

New York City-based Signature Bank was originally expected to be providing the federally insured backing of the stable coin, but it appears to have backed out of the partnership at the eleventh hour, according to IBM.

Let's digest this. This token sounds very much like Tether but being built on the Stellar blockchain. I don't have a problem with Stablecoins that are backed by collateral assets. It's a perfect solution for solving the Fiat-Crypto bridge. For example, Binance doesn't allow fiat deposits. Many users will then be subject to the daily fluctuations of the cryptocurrency markets. If Binance lists a trusted stablecoin, users won't need to transfer their tokens off the exchange to enter a fiat position. IBM is tokenizing fiat currency. 

Reddit explains the use case for IBM's stablecoin:

A huge upcoming feature in XLM is the atomic swaps so say you want YEN, the stellar network will find the cheapest way to get you YEN through multiple paths (pathfinding), it may end up being USD->XLM->EURO->BTC->ETH->YEN for an example, but it is all one transaction to you and if any part fails, the whole transaction fails.

Remember, the whole use case here is simply trading value from one entity to another, so cross borders payments where there is no USD in say Africa or Russia, you can quickly and cheaply (basically free) send value anywhere as long as there is a way to retrieve the value on the other end - such as an anchor in that country’s native currency.

Who knows if this will be a success. I am skeptical of IBM's effort in blockchains. Their focus on permissioned blockchain seems more like a marketing ploy than a true investment in innovation. I hope this stablecoin project proves me wrong. 

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Block.One Fundraising

Dear Readers,

Hope you had a good weekend. Blackrock is apparently exploring cryptocurrencies. On to the daily update. I will try to have a few columns tomorrow. It's been a busy day!

Block.One Fundraising

Block.One, the publisher behind the EOS blockchain protocol, has raised additional funding from Peter Thiel, BitMain, and other investors. I have been critical of EOS in the past. No company should raise $4B in a seed round. It creates perverse incentives for the team. Instead of trying to build a successful startup, the company can overspend on salaries and other perks. The founders get rich while the investors lose money. 20 years from now, the company can announce they ran out of money, but Dan Larimer (founder of EOS) and company will have already cashed out. As Notorious BIG said, "Mo Money Mo Problems." 

Many people might think, "why does a company need to raise money after raising $4B?" The $4B was raised in a token sale, and this current fundraising round is for the equity component of Block.One. This fundraising is interesting for a few reasons. One, the investors could be getting special rights that make the investment attractive. Secondly, the investors could be looking to hedge against other cryptocurrencies like Bitcoin. Thirdly, there is an ideological aspect at play. Block.One writes on their site, " designs free market systems to secure life, liberty, and property." This quote aligns perfectly with the Libertarian-leaning, Peter Thiel. 

Back from the conspiracy theories. Here is the likely reason behind the investment. Bitmain creates mining machines for cryptocurrencies. Bitmain also mines cryptocurrencies. This reasoning makes Bitmain the ideal candidate to be a block producer. The equity investors will earn a consistent income from being a block producer. Their equity stake in Block.One creates an incentive for Block.One to encourage holders to vote for Bitmain's block producer. I'm not saying this is happening, but it makes sense. Bitmain can milk the network for the next few years. If it succeeds, it's a new revenue source and the downside is minimal. 

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Short-Selling Cryptocurrency and Augur Post-Launch

Short-Selling Cryptocurrency

Forbes wrote an article titled, "How To Short Sell Bitcoin, And Why More People Aren't." For those who are new to trading cryptocurrency, you might log-on to Coinbase and wonder, why can't I go short? The simple answer is that the infrastructure for cryptocurrency trading is immature. 

I want to explain how shorting works. Pretend I am going to short Coca-Cola stock. I'd first need to enable margin trading on my account. Margin trading allows an investor to lend from the broker. Anyone who'd like to short a stock needs to obtain margin trading because they could lose more than 100% of their position (e.g., if the stock more than doubled you'd owe more than 100% of your principal). I'd then enter a trade on my account, and I'd be short Coca-Cola. Behind the scenes, the broker is lending you 10 Coca-Cola stocks, and you are immediately selling them. When you want to cover your position, you'd buy (also known as covering) the Coca-Cola back in the open market and exit out of the position. 

So why can't Coinbase or other exchanges faciliate lending cryptocurrency? Bitcoin and other cryptocurrencies are incredibly volatile. It's not unlikely to see moves of more than 10% in one day. This volatility rarely happens in other markets. As such, volatile assets are dangerous to short because the counter-party (the one lending the asset) takes on a lot of risks. Some companies will allow you to short cryptocurrencies, but you'll have to pay a high rate of interest. If I can't short Bitcoin or other cryptocurrencies through Coinbase and other brokers, how can I go short? Great question, here is the answer:

  1. Contracts for Difference - A contract for difference allows you to short Bitcoin without actually taking a loan. In essence, you are making a deal with a counter-party and hoping that they will honor the agreement when push comes to shove. 
  2. Future trading -  CBOE and CME offer futures on Bitcoin where you can short the futures. Technically, you aren't shorting Bitcoin, but Bitcoin Futures (which closely tracks the price of Bitcoin).
  3. Option Trading - Ledger X allows you to buy puts and calls on Bitcoin. 
  4. BitMex - Technically, BitMex's contracts are considered futures, but they operate differently than traditional futures because the contracts are in perpetuity and act more like swaps. 
  5. Short ETF/ETNs - Instruments like Greyscale's Bitcoin ETF which trades over the counter can be shorted. However, the ETF doesn't always correlated with the price of Bitcoin. 

As cryptocurrency markets mature, expect traditional exchanges to offer the ability to go short. For now, you are left with the options above.

Augur Post-Launch

A few days ago, I wrote about Augur's launch. Today, Coindesk published a story about how Augur surpassed Crypto Kitties in daily active users (DAU). I'm not a huge fan of using DAU as a metric for dApps. The way DAU is measured is by looking at on-chain transactions. If I log onto a dApp, but don't complete an on-chain transaction, I am not considered a user for that day. Augur has about a few hundred DAUs. Coindesk writes:

That makes Augur a big fish in a very small pond, though, with just 300 wallet addresses (a flawed proxy for users) interacting with its smart contracts. It does better – third place – in terms of the volume of ether those smart contracts have processed, as the figure is 910 ETH (or around $400,000). By comparison, CryptoKitties saw just 23 ETH (or $10,000) in volume.

Let's assume all the wallet addresses are unique users and let's assume that each account wagered an equal amount of money. This would mean that the average user wagered ~$1,333. This would be an impressive number if REP (Augur's token) wasn't valued at $330MM. Let's look at a wager placed a few days ago:

France played Belgium and about ~$17,000 has been wagered on the result. However, the resolution period hasn't ended. 

Screen Shot 2018-07-12 at 3.40.47 PM.png

These are bugs that should've been fixed months ago. This Reddit post summed it up, "put yourself in the shoe of the end user": 

I think you've done a terrible job aiding and guiding users through the installation and setup process. Unless you're an Ethereum developer, how on earth would you know what to connect to? "use" doesn't help anyone. What was the reasoning behind launching the app without any preconfigured settings for mainnet?

I'll bet you 9/10 users will never get past the first page on the app because they don't know how to connect and sync and your guide doesn't mention, and the people who do get past that hurdle will not get past the cert error. The barrier of entry for using Ethereum for regular folks is steep enough to begin with. You need to take the end user by the hand and explain step by step, field by field or people will never figure this out.

People talk about the wonders of cryptocurrency and blockchain, but if a person with "basic" computer skills can't use your product, it will not succeed!

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