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What Happened Today?
Many Tokens Going to 0: Many smaller tokens that completed ICOs in the past year have lost nearly 100% of their value. Research shows that as many as 800 tokens have gone to 0. Many experts are comparing the current cryptocurrency crash to the dot-com crash of the 2000's.
Why This Matters? Let us look at some of the tokens that have done ICOs over the past year. We had Dentacoin, a token for dentists, and Useless Ethereum Token, a token that had no use case. Most of these tokens are going to 0 because they were used solely for fundraising purposes and the tokens had no use case. While the broad cryptocurrency markets have declined more than 75% since its peak, I see no reason to be bearish about legitimate tokens such as BTC/ETH or privacy tokens because they have real use cases and a chance of institutional adoption. Investing to make a quick buck was always going to end up being a disaster.
Tether has more problems: Tether is being used to wash trades according to a recent Bloomberg report. The token was involved in a variety of bizarre trades on the cryptocurrency exchange, Kraken. There is no evidence to suggest Kraken was involved in this manipulation. Tether manipulation concerns many investors because it suggests the cryptocurrency markets aren't "fair."
Why This Matters? Wash trades occur because there is little demand for a product, so you manufacture "fake" orders to make it appear that there is a lot of demand. This trade is illegal in traditional markets. Tether is very much in the grey area of legality. It's impossible for anyone except executives to know if a crime is being committed because the public doesn't have access to the day to day operations. All we can do is speculate. If I were to speculate, something questionable is going on behind the scenes, but I would be wary of using the word illegal. It's unclear if Tether unraveling would affect cryptocurrency prices.
Crypto Commons: Mike Maples, a Silicon Valley Venture Capitalist, writes a wonderful piece on why cryptocurrency allows scalable commons and solves the problem known as Tragedy of the Commons. Imagine, 10 people, fish from a salmon stream and agree to equally divide the salmon. Self-interest ends up taking over and one person will end up fishing as many salmon as possible. This is detrimental to the whole group. You end up sacrificing long-term gains for short-term gains. Tokens allow a governance system at scale to ensure short-term and long-term incentives align to prevent the tragedy of the commons. It's a really unique way of thinking about tokens and I love it!
Zcash & the founder incentive trilemma: Very thought-provoking piece by Arjun Balaji. I don't understand why people have been critical of Z-Cash's "founder reward." It aligns incentives of the founder and the growth of the protocol. If the token does well, the founder does well. This model differs from the pre-mined ICO where the founder profits before any work is performed (This trend is probably ending). While Bitcoin's launch is an ideal model, it's unrealistic to expect anything like that to happen again. Do we think a cryptocurrency launching with an anonymous founder and then disappearing is a bullish sign for a cryptocurrency? We need to align long-term incentives and transparency to have a successful governance model and I think Z-Cash's model is one of the best governance models to date.
Other Interesting Things
- Jill Carlson writes about how freelancers and small businesses could benefit from the concept of "Free Company", an idea to fill recruiting gaps in cryptocurrency protocols.
- Jean-Philippe Jabre writes a list of cryptocurrency custody solutions for retail and institutional investors.
- Block.One will begin participating in EOS block producer elections (sigh).