Counterparty Introduces Fully Trustless Games On The ...

All you need to know about Yield Farming - The rocket fuel for Defi

All you need to know about Yield Farming - The rocket fuel for Defi
Source
It’s effectively July 2017 in the world of decentralized finance (DeFi), and as in the heady days of the initial coin offering (ICO) boom, the numbers are only trending up.
According to DeFi Pulse, there is $1.9 billion in crypto assets locked in DeFi right now. According to the CoinDesk ICO Tracker, the ICO market started chugging past $1 billion in July 2017, just a few months before token sales started getting talked about on TV.
Debate juxtaposing these numbers if you like, but what no one can question is this: Crypto users are putting more and more value to work in DeFi applications, driven largely by the introduction of a whole new yield-generating pasture, Compound’s COMP governance token.
Governance tokens enable users to vote on the future of decentralized protocols, sure, but they also present fresh ways for DeFi founders to entice assets onto their platforms.
That said, it’s the crypto liquidity providers who are the stars of the present moment. They even have a meme-worthy name: yield farmers.

https://preview.redd.it/lxsvazp1g9l51.png?width=775&format=png&auto=webp&s=a36173ab679c701a5d5e0aac806c00fcc84d78c1

Where it started

Ethereum-based credit market Compound started distributing its governance token, COMP, to the protocol’s users this past June 15. Demand for the token (heightened by the way its automatic distribution was structured) kicked off the present craze and moved Compound into the leading position in DeFi.
The hot new term in crypto is “yield farming,” a shorthand for clever strategies where putting crypto temporarily at the disposal of some startup’s application earns its owner more cryptocurrency.
Another term floating about is “liquidity mining.”
The buzz around these concepts has evolved into a low rumble as more and more people get interested.
The casual crypto observer who only pops into the market when activity heats up might be starting to get faint vibes that something is happening right now. Take our word for it: Yield farming is the source of those vibes.
But if all these terms (“DeFi,” “liquidity mining,” “yield farming”) are so much Greek to you, fear not. We’re here to catch you up. We’ll get into all of them.
We’re going to go from very basic to more advanced, so feel free to skip ahead.

What are tokens?

Most CoinDesk readers probably know this, but just in case: Tokens are like the money video-game players earn while fighting monsters, money they can use to buy gear or weapons in the universe of their favorite game.
But with blockchains, tokens aren’t limited to only one massively multiplayer online money game. They can be earned in one and used in lots of others. They usually represent either ownership in something (like a piece of a Uniswap liquidity pool, which we will get into later) or access to some service. For example, in the Brave browser, ads can only be bought using basic attention token (BAT).
If tokens are worth money, then you can bank with them or at least do things that look very much like banking. Thus: decentralized finance.
Tokens proved to be the big use case for Ethereum, the second-biggest blockchain in the world. The term of art here is “ERC-20 tokens,” which refers to a software standard that allows token creators to write rules for them. Tokens can be used a few ways. Often, they are used as a form of money within a set of applications. So the idea for Kin was to create a token that web users could spend with each other at such tiny amounts that it would almost feel like they weren’t spending anything; that is, money for the internet.
Governance tokens are different. They are not like a token at a video-game arcade, as so many tokens were described in the past. They work more like certificates to serve in an ever-changing legislature in that they give holders the right to vote on changes to a protocol.
So on the platform that proved DeFi could fly, MakerDAO, holders of its governance token, MKR, vote almost every week on small changes to parameters that govern how much it costs to borrow and how much savers earn, and so on.
Read more: Why DeFi’s Billion-Dollar Milestone Matters
One thing all crypto tokens have in common, though, is they are tradable and they have a price. So, if tokens are worth money, then you can bank with them or at least do things that look very much like banking. Thus: decentralized finance.

What is DeFi?

Fair question. For folks who tuned out for a bit in 2018, we used to call this “open finance.” That construction seems to have faded, though, and “DeFi” is the new lingo.
In case that doesn’t jog your memory, DeFi is all the things that let you play with money, and the only identification you need is a crypto wallet.
On the normal web, you can’t buy a blender without giving the site owner enough data to learn your whole life history. In DeFi, you can borrow money without anyone even asking for your name.
I can explain this but nothing really brings it home like trying one of these applications. If you have an Ethereum wallet that has even $20 worth of crypto in it, go do something on one of these products. Pop over to Uniswap and buy yourself some FUN (a token for gambling apps) or WBTC (wrapped bitcoin). Go to MakerDAO and create $5 worth of DAI (a stablecoin that tends to be worth $1) out of the digital ether. Go to Compound and borrow $10 in USDC.
(Notice the very small amounts I’m suggesting. The old crypto saying “don’t put in more than you can afford to lose” goes double for DeFi. This stuff is uber-complex and a lot can go wrong. These may be “savings” products but they’re not for your retirement savings.)
Immature and experimental though it may be, the technology’s implications are staggering. On the normal web, you can’t buy a blender without giving the site owner enough data to learn your whole life history. In DeFi, you can borrow money without anyone even asking for your name.
DeFi applications don’t worry about trusting you because they have the collateral you put up to back your debt (on Compound, for instance, a $10 debt will require around $20 in collateral).
Read more: There Are More DAI on Compound Now Than There Are DAI in the World
If you do take this advice and try something, note that you can swap all these things back as soon as you’ve taken them out. Open the loan and close it 10 minutes later. It’s fine. Fair warning: It might cost you a tiny bit in fees, and the cost of using Ethereum itself right now is much higher than usual, in part due to this fresh new activity. But it’s nothing that should ruin a crypto user.
So what’s the point of borrowing for people who already have the money? Most people do it for some kind of trade. The most obvious example, to short a token (the act of profiting if its price falls). It’s also good for someone who wants to hold onto a token but still play the market.

Doesn’t running a bank take a lot of money up front?

It does, and in DeFi that money is largely provided by strangers on the internet. That’s why the startups behind these decentralized banking applications come up with clever ways to attract HODLers with idle assets.
Liquidity is the chief concern of all these different products. That is: How much money do they have locked in their smart contracts?
“In some types of products, the product experience gets much better if you have liquidity. Instead of borrowing from VCs or debt investors, you borrow from your users,” said Electric Capital managing partner Avichal Garg.
Let’s take Uniswap as an example. Uniswap is an “automated market maker,” or AMM (another DeFi term of art). This means Uniswap is a robot on the internet that is always willing to buy and it’s also always willing to sell any cryptocurrency for which it has a market.
On Uniswap, there is at least one market pair for almost any token on Ethereum. Behind the scenes, this means Uniswap can make it look like it is making a direct trade for any two tokens, which makes it easy for users, but it’s all built around pools of two tokens. And all these market pairs work better with bigger pools.

Why do I keep hearing about ‘pools’?

To illustrate why more money helps, let’s break down how Uniswap works.
Let’s say there was a market for USDC and DAI. These are two tokens (both stablecoins but with different mechanisms for retaining their value) that are meant to be worth $1 each all the time, and that generally tends to be true for both.
The price Uniswap shows for each token in any pooled market pair is based on the balance of each in the pool. So, simplifying this a lot for illustration’s sake, if someone were to set up a USDC/DAI pool, they should deposit equal amounts of both. In a pool with only 2 USDC and 2 DAI it would offer a price of 1 USDC for 1 DAI. But then imagine that someone put in 1 DAI and took out 1 USDC. Then the pool would have 1 USDC and 3 DAI. The pool would be very out of whack. A savvy investor could make an easy $0.50 profit by putting in 1 USDC and receiving 1.5 DAI. That’s a 50% arbitrage profit, and that’s the problem with limited liquidity.
(Incidentally, this is why Uniswap’s prices tend to be accurate, because traders watch it for small discrepancies from the wider market and trade them away for arbitrage profits very quickly.)
Read more: Uniswap V2 Launches With More Token-Swap Pairs, Oracle Service, Flash Loans
However, if there were 500,000 USDC and 500,000 DAI in the pool, a trade of 1 DAI for 1 USDC would have a negligible impact on the relative price. That’s why liquidity is helpful.
You can stick your assets on Compound and earn a little yield. But that’s not very creative. Users who look for angles to maximize that yield: those are the yield farmers.
Similar effects hold across DeFi, so markets want more liquidity. Uniswap solves this by charging a tiny fee on every trade. It does this by shaving off a little bit from each trade and leaving that in the pool (so one DAI would actually trade for 0.997 USDC, after the fee, growing the overall pool by 0.003 USDC). This benefits liquidity providers because when someone puts liquidity in the pool they own a share of the pool. If there has been lots of trading in that pool, it has earned a lot of fees, and the value of each share will grow.
And this brings us back to tokens.
Liquidity added to Uniswap is represented by a token, not an account. So there’s no ledger saying, “Bob owns 0.000000678% of the DAI/USDC pool.” Bob just has a token in his wallet. And Bob doesn’t have to keep that token. He could sell it. Or use it in another product. We’ll circle back to this, but it helps to explain why people like to talk about DeFi products as “money Legos.”

So how much money do people make by putting money into these products?

It can be a lot more lucrative than putting money in a traditional bank, and that’s before startups started handing out governance tokens.
Compound is the current darling of this space, so let’s use it as an illustration. As of this writing, a person can put USDC into Compound and earn 2.72% on it. They can put tether (USDT) into it and earn 2.11%. Most U.S. bank accounts earn less than 0.1% these days, which is close enough to nothing.
However, there are some caveats. First, there’s a reason the interest rates are so much juicier: DeFi is a far riskier place to park your money. There’s no Federal Deposit Insurance Corporation (FDIC) protecting these funds. If there were a run on Compound, users could find themselves unable to withdraw their funds when they wanted.
Plus, the interest is quite variable. You don’t know what you’ll earn over the course of a year. USDC’s rate is high right now. It was low last week. Usually, it hovers somewhere in the 1% range.
Similarly, a user might get tempted by assets with more lucrative yields like USDT, which typically has a much higher interest rate than USDC. (Monday morning, the reverse was true, for unclear reasons; this is crypto, remember.) The trade-off here is USDT’s transparency about the real-world dollars it’s supposed to hold in a real-world bank is not nearly up to par with USDC’s. A difference in interest rates is often the market’s way of telling you the one instrument is viewed as dicier than another.
Users making big bets on these products turn to companies Opyn and Nexus Mutual to insure their positions because there’s no government protections in this nascent space – more on the ample risks later on.
So users can stick their assets in Compound or Uniswap and earn a little yield. But that’s not very creative. Users who look for angles to maximize that yield: those are the yield farmers.

OK, I already knew all of that. What is yield farming?

Broadly, yield farming is any effort to put crypto assets to work and generate the most returns possible on those assets.
At the simplest level, a yield farmer might move assets around within Compound, constantly chasing whichever pool is offering the best APY from week to week. This might mean moving into riskier pools from time to time, but a yield farmer can handle risk.
“Farming opens up new price arbs [arbitrage] that can spill over to other protocols whose tokens are in the pool,” said Maya Zehavi, a blockchain consultant.
Because these positions are tokenized, though, they can go further.
This was a brand-new kind of yield on a deposit. In fact, it was a way to earn a yield on a loan. Who has ever heard of a borrower earning a return on a debt from their lender?
In a simple example, a yield farmer might put 100,000 USDT into Compound. They will get a token back for that stake, called cUSDT. Let’s say they get 100,000 cUSDT back (the formula on Compound is crazy so it’s not 1:1 like that but it doesn’t matter for our purposes here).
They can then take that cUSDT and put it into a liquidity pool that takes cUSDT on Balancer, an AMM that allows users to set up self-rebalancing crypto index funds. In normal times, this could earn a small amount more in transaction fees. This is the basic idea of yield farming. The user looks for edge cases in the system to eke out as much yield as they can across as many products as it will work on.
Right now, however, things are not normal, and they probably won’t be for a while.

Why is yield farming so hot right now?

Because of liquidity mining. Liquidity mining supercharges yield farming.
Liquidity mining is when a yield farmer gets a new token as well as the usual return (that’s the “mining” part) in exchange for the farmer’s liquidity.
“The idea is that stimulating usage of the platform increases the value of the token, thereby creating a positive usage loop to attract users,” said Richard Ma of smart-contract auditor Quantstamp.
The yield farming examples above are only farming yield off the normal operations of different platforms. Supply liquidity to Compound or Uniswap and get a little cut of the business that runs over the protocols – very vanilla.
But Compound announced earlier this year it wanted to truly decentralize the product and it wanted to give a good amount of ownership to the people who made it popular by using it. That ownership would take the form of the COMP token.
Lest this sound too altruistic, keep in mind that the people who created it (the team and the investors) owned more than half of the equity. By giving away a healthy proportion to users, that was very likely to make it a much more popular place for lending. In turn, that would make everyone’s stake worth much more.
So, Compound announced this four-year period where the protocol would give out COMP tokens to users, a fixed amount every day until it was gone. These COMP tokens control the protocol, just as shareholders ultimately control publicly traded companies.
Every day, the Compound protocol looks at everyone who had lent money to the application and who had borrowed from it and gives them COMP proportional to their share of the day’s total business.
The results were very surprising, even to Compound’s biggest promoters.
COMP’s value will likely go down, and that’s why some investors are rushing to earn as much of it as they can right now.
This was a brand-new kind of yield on a deposit into Compound. In fact, it was a way to earn a yield on a loan, as well, which is very weird: Who has ever heard of a borrower earning a return on a debt from their lender?
COMP’s value has consistently been well over $200 since it started distributing on June 15. We did the math elsewhere but long story short: investors with fairly deep pockets can make a strong gain maximizing their daily returns in COMP. It is, in a way, free money.
It’s possible to lend to Compound, borrow from it, deposit what you borrowed and so on. This can be done multiple times and DeFi startup Instadapp even built a tool to make it as capital-efficient as possible.
“Yield farmers are extremely creative. They find ways to ‘stack’ yields and even earn multiple governance tokens at once,” said Spencer Noon of DTC Capital.
COMP’s value spike is a temporary situation. The COMP distribution will only last four years and then there won’t be any more. Further, most people agree that the high price now is driven by the low float (that is, how much COMP is actually free to trade on the market – it will never be this low again). So the value will probably gradually go down, and that’s why savvy investors are trying to earn as much as they can now.
Appealing to the speculative instincts of diehard crypto traders has proven to be a great way to increase liquidity on Compound. This fattens some pockets but also improves the user experience for all kinds of Compound users, including those who would use it whether they were going to earn COMP or not.
As usual in crypto, when entrepreneurs see something successful, they imitate it. Balancer was the next protocol to start distributing a governance token, BAL, to liquidity providers. Flash loan provider bZx has announced a plan. Ren, Curve and Synthetix also teamed up to promote a liquidity pool on Curve.
It is a fair bet many of the more well-known DeFi projects will announce some kind of coin that can be mined by providing liquidity.
The case to watch here is Uniswap versus Balancer. Balancer can do the same thing Uniswap does, but most users who want to do a quick token trade through their wallet use Uniswap. It will be interesting to see if Balancer’s BAL token convinces Uniswap’s liquidity providers to defect.
So far, though, more liquidity has gone into Uniswap since the BAL announcement, according to its data site. That said, even more has gone into Balancer.

Did liquidity mining start with COMP?

No, but it was the most-used protocol with the most carefully designed liquidity mining scheme.
This point is debated but the origins of liquidity mining probably date back to Fcoin, a Chinese exchange that created a token in 2018 that rewarded people for making trades. You won’t believe what happened next! Just kidding, you will: People just started running bots to do pointless trades with themselves to earn the token.
Similarly, EOS is a blockchain where transactions are basically free, but since nothing is really free the absence of friction was an invitation for spam. Some malicious hacker who didn’t like EOS created a token called EIDOS on the network in late 2019. It rewarded people for tons of pointless transactions and somehow got an exchange listing.
These initiatives illustrated how quickly crypto users respond to incentives.
Read more: Compound Changes COMP Distribution Rules Following ‘Yield Farming’ Frenzy
Fcoin aside, liquidity mining as we now know it first showed up on Ethereum when the marketplace for synthetic tokens, Synthetix, announced in July 2019 an award in its SNX token for users who helped add liquidity to the sETH/ETH pool on Uniswap. By October, that was one of Uniswap’s biggest pools.
When Compound Labs, the company that launched the Compound protocol, decided to create COMP, the governance token, the firm took months designing just what kind of behavior it wanted and how to incentivize it. Even still, Compound Labs was surprised by the response. It led to unintended consequences such as crowding into a previously unpopular market (lending and borrowing BAT) in order to mine as much COMP as possible.
Just last week, 115 different COMP wallet addresses – senators in Compound’s ever-changing legislature – voted to change the distribution mechanism in hopes of spreading liquidity out across the markets again.

Is there DeFi for bitcoin?

Yes, on Ethereum.
Nothing has beaten bitcoin over time for returns, but there’s one thing bitcoin can’t do on its own: create more bitcoin.
A smart trader can get in and out of bitcoin and dollars in a way that will earn them more bitcoin, but this is tedious and risky. It takes a certain kind of person.
DeFi, however, offers ways to grow one’s bitcoin holdings – though somewhat indirectly.
A long HODLer is happy to gain fresh BTC off their counterparty’s short-term win. That’s the game.
For example, a user can create a simulated bitcoin on Ethereum using BitGo’s WBTC system. They put BTC in and get the same amount back out in freshly minted WBTC. WBTC can be traded back for BTC at any time, so it tends to be worth the same as BTC.
Then the user can take that WBTC, stake it on Compound and earn a few percent each year in yield on their BTC. Odds are, the people who borrow that WBTC are probably doing it to short BTC (that is, they will sell it immediately, buy it back when the price goes down, close the loan and keep the difference).
A long HODLer is happy to gain fresh BTC off their counterparty’s short-term win. That’s the game.

How risky is it?

Enough.
“DeFi, with the combination of an assortment of digital funds, automation of key processes, and more complex incentive structures that work across protocols – each with their own rapidly changing tech and governance practices – make for new types of security risks,” said Liz Steininger of Least Authority, a crypto security auditor. “Yet, despite these risks, the high yields are undeniably attractive to draw more users.”
We’ve seen big failures in DeFi products. MakerDAO had one so bad this year it’s called “Black Thursday.” There was also the exploit against flash loan provider bZx. These things do break and when they do money gets taken.
As this sector gets more robust, we could see token holders greenlighting more ways for investors to profit from DeFi niches.
Right now, the deal is too good for certain funds to resist, so they are moving a lot of money into these protocols to liquidity mine all the new governance tokens they can. But the funds – entities that pool the resources of typically well-to-do crypto investors – are also hedging. Nexus Mutual, a DeFi insurance provider of sorts, told CoinDesk it has maxed out its available coverage on these liquidity applications. Opyn, the trustless derivatives maker, created a way to short COMP, just in case this game comes to naught.
And weird things have arisen. For example, there’s currently more DAI on Compound than have been minted in the world. This makes sense once unpacked but it still feels dicey to everyone.
That said, distributing governance tokens might make things a lot less risky for startups, at least with regard to the money cops.
“Protocols distributing their tokens to the public, meaning that there’s a new secondary listing for SAFT tokens, [gives] plausible deniability from any security accusation,” Zehavi wrote. (The Simple Agreement for Future Tokens was a legal structure favored by many token issuers during the ICO craze.)
Whether a cryptocurrency is adequately decentralized has been a key feature of ICO settlements with the U.S. Securities and Exchange Commission (SEC).

What’s next for yield farming? (A prediction)

COMP turned out to be a bit of a surprise to the DeFi world, in technical ways and others. It has inspired a wave of new thinking.
“Other projects are working on similar things,” said Nexus Mutual founder Hugh Karp. In fact, informed sources tell CoinDesk brand-new projects will launch with these models.
We might soon see more prosaic yield farming applications. For example, forms of profit-sharing that reward certain kinds of behavior.
Imagine if COMP holders decided, for example, that the protocol needed more people to put money in and leave it there longer. The community could create a proposal that shaved off a little of each token’s yield and paid that portion out only to the tokens that were older than six months. It probably wouldn’t be much, but an investor with the right time horizon and risk profile might take it into consideration before making a withdrawal.
(There are precedents for this in traditional finance: A 10-year Treasury bond normally yields more than a one-month T-bill even though they’re both backed by the full faith and credit of Uncle Sam, a 12-month certificate of deposit pays higher interest than a checking account at the same bank, and so on.)
As this sector gets more robust, its architects will come up with ever more robust ways to optimize liquidity incentives in increasingly refined ways. We could see token holders greenlighting more ways for investors to profit from DeFi niches.
Questions abound for this nascent industry: What will MakerDAO do to restore its spot as the king of DeFi? Will Uniswap join the liquidity mining trend? Will anyone stick all these governance tokens into a decentralized autonomous organization (DAO)? Or would that be a yield farmers co-op?
Whatever happens, crypto’s yield farmers will keep moving fast. Some fresh fields may open and some may soon bear much less luscious fruit.
But that’s the nice thing about farming in DeFi: It is very easy to switch fields.
submitted by pascalbernoulli to Yield_Farming [link] [comments]

Wall Street 2.0: How Blockchain will revolutionise Wall Street and a closer look at Quant Network’s Partnership with AX Trading

Wall Street 2.0: How Blockchain will revolutionise Wall Street and a closer look at Quant Network’s Partnership with AX Trading
AX Trading LLC (AX), a technology-enabled registered broker-dealer and Alternative Trading System (ATS) operator, today announced a strategic partnership with Quant Network a pioneering technology company providing financial and regulatory technology as well as interoperability in financial services, payments and capital markets infrastructure. Through this partnership, Quant Network’s technology, Overledger a blockchain operating system, will enable universal interoperability for regulatory-compliant security tokens and digital assets to be traded on AX ATS, a regulated secondary trading market. AX intends to integrate Overledger to help foster the evolution of traditional capital markets infrastructure to facilitate the mass implementation of interoperable regulated digital assets. With the increased market adoption of digital assets and banking “coins” such as JPMorgan Coin, AX and Quant Network are at the forefront to enable the transferability and movement of digital assets. George O’Krepkie, AX CEO said: “we look forward to partnering with Quant. Their technology will allow our blockchain agnostic security token exchange to communicate seamlessly with issuers, traders, investors, and regulators across different blockchain protocols. This is a key technological breakthrough that will help us bring the benefits of security tokens to Main Street and Wall Street.” It is expected that the first interoperable digital asset offering may commence as soon as January 2020, and that the AX Trading ATS may be ready to enable and list interoperable digital assets and securities in 2020.
Let’s have a closer look at what that means to truly appreciate the significance of the partnership by covering the basics for those not familiar with wall street.
https://preview.redd.it/2z8h6uqos0m31.png?width=1200&format=png&auto=webp&s=a1c02216ce4eda8f3e06abdb6fe519b36efd1be6

What is an Institutional Investor / Trader?

An institutional investor is an organization that invests on behalf of the organization's members. They consist of hedge funds, banks, investment banks, pension funds, insurance companies, endowment funds, or any other type of money management firm.
Institutional investors account for about three-quarters of the volume on the New York Stock Exchange (which alone handles more than $20 Trillion a year in volume). In the US, Institutional investors own about 80 % of the total market value of the equity (stock) market, which globally is worth more than $73 trillion.
Wall Street refers to the institutional investors I mentioned above whereas Main Street refers collectively to members of the general public who are not accredited investors and the overall economy as a whole.
Whilst the Equity Market is huge, Institutional investors also invest in other securities which are prime to be tokenised such as Real Estate Market (Globally worth $217 trillion), the Debt Market (Globally worth $215 trillion) and the Derivatives Market (Low end estimates at $544 trillion and high-end estimates at $1.2 quadrillion). All of which makes the current market cap for cryptocurrencies look like a drop in the ocean.

Who are AX Trading?

AX Trading is a SEC-registered broker-dealer and Alternative Trading System (ATS) Operator. They are a member of FINRA (Financial Industry Regulatory Authority)and SIPC ( Securities Investor Protection Corporation) regulated authorities. The SEC has some of the most stringent regulations in the world for listing securities and there are fewer than 50 SEC-registered Alternative Trading System Operators in the United States, of which only a handful are currently implementing Digital Assets. Others are awaiting regulatory approval with Coinbase, Circle etc are all looking at getting into this huge market.
https://www.coindesk.com/stonewalled-by-finra-up-to-40-crypto-securities-wait-in-limbo-for-launch
AX Trading have investors and sponsored brokers including the likes of Credit Suisse, (a multinational investment Bank and Financial services company worth $27.5 billion). AX currently have over 800 Institutional traders (these are not individuals, but corporations such as hedge funds, banks, investment banks, pension funds, insurance companies, endowment funds etc).
AX Trading have also partnered with Euronext, the largest Stock Exchange in Europe with a market cap of $4.65 trillion as of 2018, in the creation of Euronext Block which utilises AX Trading.

What is an Alternative Trading System?

An Alternative Trading System (ATS) is an SEC-regulated trading venue which serves as an alternative to trading at a public exchange. ATS account for much of the liquidity found in publicly traded issues worldwide. They are known as multilateral trading facilities in Europe, electronic communication networks (ECNs), cross networks, and call networks
AX is the world’s first “Electronic Trading Network” (ETN) where institutional traders can proactively connect and trade with other counterparties in a secure environment. Unlike traditional stock exchanges/ECNs that show orders to everyone and traditional dark pools/crossing systems that show orders — presumably — to no one, AX allows institutional traders to pick and choose WHOM they want to notify and also WHAT information they want to share with them.
Institutional investors may use an ATS to find counterparties for transactions instead of trading large blocks of shares on national stock exchanges. These actions may be designed to conceal trading from public view since ATS transactions do not appear on national exchange order books. The benefit of using an ATS to execute such orders is that it reduces the domino effect that large trades might have on the price of an equity.

How does AX Trading Work?

The AX Trading process begins when one trader sends an “initiated” order to AX. The order can be routed to the AX ATS via one of our broker sponsors such as Credit Suisse. The initiated order triggers a “Call Auction” on AX, a period of time when the order will rest in AX to be matched against other orders from auction responders.
The Initiator of an AX auction decides who they want to invite to participate in the auction, whether they be all 800+ institutional members or targeted to specific ones, as well as how much info they want to disclose about the order. Based on these instructions, the AX ATS then notifies the members inviting them to participate in the trade.
The invited members can then participate in the trade by either placing buy orders of their own or placing sell orders. At the end of the AX auction period, all orders are brought together, and a match is performed.
In the traditional, continuous market with displayed bids and offers, traders are often chasing liquidity. In other words, the price may move away from them the more they buy or sell to what is commonly called “market impact.” On AX, the advantage of their call auction model is it brings liquidity — in the form of participant orders to the buyer rather than them chasing liquidity.

What is a Security Token?

Security Tokens are different than Utility Tokens or Cryptocurrencies. A security token is a digital representation of a traditional security. It may represent shares in a company, interest in a fund, real estate, art collectables, or essentially any asset a party can own. Anthony Pompliano wrote an article explaining tokenised securities in more detail which you can see here
Security Tokens are digital assets subject to federal security regulations. In layman terms, they are the intersection of digital assets (tokens) with traditional financial products — a new technology improving old things. If cryptocurrencies like Bitcoin are considered “programmable money” then you can consider Security Tokens a version of “programmable ownership.” This means that any asset with ownership can and will be tokenized (public & private equities, debt, real estate, etc).
https://preview.redd.it/21cz6zvus0m31.png?width=569&format=png&auto=webp&s=883eb844e1061cddd585903549dde829098765c2
Quant Network community member David W also wrote an excellent piece on the benefits of tokenisation of assets in a lot more detail than what I will briefly cover here and strongly recommend you check it out.
The Tokenisation of assets is therefore inevitable, because it is a better way to record, exchange and monitor asset ownership for all parties involved. The amounts at stake represent many hundreds of trillions of US dollars

What are the benefits of a security token?

  • Lower Fees — having Smart Contracts and compliance programmed into the token itself removes the need for middlemen, reducing costs. Post Trade businesses such as clearing houses would also no longer be required further reducing costs.
  • 24/7 markets — Currently the major US stock markets trade between 9:30am and 3pm during weekdays only. Trading can be done 24/7 and globally whilst remaining compliant.
  • Fractional Ownership — This greatly increases liquidity for previously illiquid assets. Real estate, Artwork, even assets such as Oil Refineries are already in talks about being tokenised through Overledger. If you have an asset such as an oil refinery worth billions of dollars, then naturally this limits the market should you ever want to sell it. However with fractional ownership you could own a tiny percentage of it and receive profits from the oil refinery based upon the percentage you own, which exponentially increases the number ofpotential buyers, increasing liquidity.
  • Rapid Settlement — Currently it takes 3 working days to settle a securities trade, this can be reduced to minutes by having the asset and fiat represented on a blockchain and handled through smart contracts.
  • Automated compliance — Security tokens are programmable, and rules and regulations are hard-coded into the architecture of the token to ensure they always remain compliant. This means that they can be traded globally and still ensure they respect the relevant countries regulations that the participants are located in.
  • The benefits that a blockchain provide such as transparency, security, immutability, high availability. Regulators can also run a node and verify compliance in real time.

Security Token Issuance Platforms

Security token issuance platforms allow issuers to issue Security tokens that represent the security such as Shares in their company etc in return for capital. This is known as a Primary Market. Importantly it’s not just the issuance that they look after, it’s the whole life cycle of a digital security to ensure they remain continuously in compliance as they are traded etc. They also provide reporting to the issuer so they can see who owns the tokens and what dividends to pay out.
Securitize are one of the leading security tokens issuing platforms. They have created the DS Protocol, a blockchain agnostic protocol for security tokens which manages the whole lifecycle of a digital security, ensuring it remains continuously in compliance. They have issued a number of security tokens on the Ethereum network as well as recently working with IBM to tokenise the Corporate Debt Market (worth $82 Trillion). On the back of this they joined Hyperledger, an open source project which includes Enterprise blockchains such as Hyperledger Fabric which IBM is heavily involved with.
https://tokenpost.com/Quant-Network-Securitize-and-others-join-Hyperledger-blockchain-project-1544
They recently also became the first SEC-registered transfer agent, which means Securitize can now act as the official keeper of records about changes of ownership in securities.
There are many companies in this sector which are utilising various blockchains, Other examples include:
  • Harber — R Token protocol for Ethereum
  • Polymath — ST20 protocol for Ethereum
  • Blockstate — a security token issuance platform recently announced plans to migrate a number of ERC-20 tokens from the public Ethereum blockchain to the permissioned blockchain R3 Corda
  • Dusk — Uses the Dusk blockchain
  • Own — Uses the Own blockchain
And many more such as Nefund, Bankex, Capexmove, Swarm, Symbiont, Tokeny etc

https://preview.redd.it/vr6c7jdzs0m31.png?width=520&format=png&auto=webp&s=88431b27906099bb09f31ef1fdee0222dd96674f

Trading Venues

Whilst the issuance platforms above generally also include their own exchange where the token can be traded on, secondary markets such as those offered through traditional stock exchanges and Alternative Trading Systems provide significantly more liquidity.
Traditional Stock Exchanges have been very active in blockchain with some going through proof of concepts, to those like SIX SDX Digital Exchange which is due to launch later this year. They are using various blockchains and cover the full process from Issuance, Trading and Post Trade / Settlement services. I have briefly outlined which blockchain they are using / testing with along with source to read more about it below:
  • Switzerland’s Stock Exchange — SIX Digital Exchange issue, trading, settlement, custody — Corda — Source
  • Largest Stock Exchange in Germany — Deutsche Borse Franfurt Stock Exchange — Corda — Source and Source
  • South Korea’s Stock Exchange — Korea Exchange — Hyperledger Fabric — Source and Source
  • Japan’s Stock Exchange — Tokyo Stock Exchange — Hyperledger Fabric — Source which the consortium has now grown to 44 companies. Tokyo Stock Exchange are also testing JP Morgan’s Quorum for voting on the blockchain — Source
  • London Stock Exchange Group — Hyperledger Fabric — Source . They are also invested in Nivaura which utilises Ethereum — Source
  • Largest Stock Exchange in Europe — Euronext — Permissioned Ethereum via Liquidshare — Source as well as recently investing in Tokeny a blockchain based project based on public version of Ethereum — Source
  • Singapore Stock Exchange — Ethereum — Source

Post Trade — Central Security Depositories

Situated at the end of the post-trading process, CSDs are systemically important intermediaries. They thereby form a critical part of the securities market’s post-trade infrastructure, as they are where changes of securities ownership are ultimately registered.
CSDs play a special role both as a depository, involving the legal safekeeping and maintenance of securities in a ‘central depository’ on behalf of custodians (both in materialised or dematerialised form); as well as for the issuer, involving the issuance of further securities by issuers, and their onboarding onto CSDs’ platforms.
CSDs are also keeping a number of other important functions, including: dividend, interest, and principal processing; corporate actions including proxy voting; payment to transfer agents, and issuers involved in these processes; securities lending and borrowing; and, provide pledging of share and securities.
Blockchain technology will enable real-time settlement finality in the securities world. This could mean the end of a number of players in the post-trade area, such as central counterparty clearing houses (CCPs), custodians and others. Central Security Despositories (CSD) will still play an important role according to reports:
“CSDs could have an important role to play in a blockchain-based settlement system. As ‘custodians of the code, CSDs could exercise oversight of, and take responsibility for, the operation of the relevant blockchain protocol and any associated smart contracts.” Euroclear Report
Another group of 30 central securities depositories (CSDs) in Europe and Asia are researching possible ways to “join hands” in developing a new infrastructure to custody digital assets. The CSDs will attempt to figure out how to apply their experience in guarding stock certificates to security solutions for crypto assets.
“A new world of tokenized assets and blockchain is coming. It will probably disrupt our role as CSDs. The whole group decided we will be focusing on tokenized assets, not just blockchain but on real digital assets.”
You can read more about how blockchain will affect CSD’s here
Examples of CSD’s in blockchain
  • SIX Digital Exchange and Deutsche Borse are utilising Corda as explained in the trading venues section
  • DTCC the largest in the US process 1.7 Quadrillion US Dollars of securities every year and are planning on moving their Trade Information Warehouse to Axoni’s AXCore Blockchain (Based on permissioned version of Ethereum) later this year — Source
  • Canada CDS are using the Quartz blockchain from Indian IT Services Company Tata Consultancy Services — Source
  • Euroclear in collaboration with the European Investment Bank (EIB), Banco Santander, and EY are developing a blockchain solution — Source
  • French CSD’s too soon go live on Setl Blockchain — Source and Source
  • Russia’s National Settlement Depository is launching a blockchain project using D3ledger (based off Hyperledger) — Source

The Importance Of Interoperability

The evolution of DLT and the wide adoption across industries and across different market segments is resulting in many different ledgers networks, but the ultimate promise of DLT can only be realized when all ledger networks can seamlessly interoperate. — from the recent DTCC whitepaper with Accenture
Some challenges and constraints related to the market infrastructure ecosystem remain open and will need to be addressed in the future to sustain the development of DLT platforms for trading and the post-trade process. At this stage, the questions of interoperability and standardization across these DLT (probably permissioned) platforms remain open and we may see a list of platforms offering no scope for interconnection. This will prevent them from fulfilling the key “distribution” criterion of DLT. Another related challenge that may determine whether or not the technology is adopted is the ability to provide Delivery versus Payment (DvP) settlement, in particular in central bank money. Nevertheless, it is worth mentioning that settlement can also be facilitated in commercial bank money. — https://www2.deloitte.com/content/dam/Deloitte/lu/Documents/technology/lu-token-assets-securities-tomorrow.pdf
It’s clear from the above that interoperability will be crucial in order to unlock the true potential of Distributed Ledger Technology. Issuance platforms will seek to interoperate with as many secondary exchanges as possible to provide maximum liquidity for issuers. Issuance platforms and secondary exchanges are each using a wide range of different blockchains that all need to interoperate as part of the trade process. CSD’s will also need to have interoperability between other CSD’s as well as to the secondary exchanges (again each using different blockchains).

Enter Quant Network’s Overledger

Quant Network’s blockchain operating system, Overledger, provides interoperability between any current and future distributed ledger technology as well as easily connecting Off Chain / Legacy networks as well as plans to connect directly to the Internet. Within 10 months it has proven it can provide interoperability with the full range of DLT technologies from all the leading Enterprise Permissioned blockchains such as Hyperledger, R3’s Corda, JP Morgan’s Quorum, permissioned variants of Ethereum and Ripple (XRPL) as well as the leading Public Permissionless blockchains / DAGs such as Bitcoin, Stellar, Ethereum, IOTA and EOS as well as the most recent blockchain to get added Binance Chain. All without imposing restrictions on connected chains, being Internet scalable and able to easily integrate into existing networks / infrastructure.
https://preview.redd.it/8p6hi942t0m31.png?width=1920&format=png&auto=webp&s=b0536ea9981306feb8bd95788c66e9a5727a4d58
Overledger a blockchain operating system, will enable universal interoperability for regulatory-compliant security tokens and digital assets to be traded on AX ATS, a regulated secondary trading market. AX intends to integrate Overledger to help foster the evolution of traditional capital markets infrastructure to facilitate the mass implementation of regulated digital assets. With the increased market adoption of digital assets and banking “coins” such as JPMorgan Coin, AX and Quant Network are at the forefront to enable the transferability and movement of digital assets
https://www.quant.network/blog/redefining-wall-st-with-decentralised-capital-market-infrastructure-the-possibilities-of-quant-networks-overledger-technology-in-regulated-capital-markets
Overledger enables Universal Interoperability where digital assets can move across blockchains so that they can interact with smart contracts on different blockchains. It does this by locking the asset on one blockchain and then representing it on another blockchain either by creating a representing token or representing it via metadata. This will enable all of these different parties such as Issuance platforms, Exchanges, CSD’s, traders etc to move the digital asset from their respective blockchain onto AX Trading’s platform for secure, immediate and immutable trading to take place. Potentially it would even allow Digital Assets / Securities to settled on a public permissionless blockchain such as the recently connected Binance Chain in a completely safe, secure and compliant way.
https://preview.redd.it/a3o9qxq5t0m31.png?width=443&format=png&auto=webp&s=78d7a7e7d47213bbb354336ba9d5ad92c1c2254a
Regulators would be able to run a node and view transactions in real time ensuring that compliance is being kept. Potentially they could also benefit from using Quant Networks Multichain Search capability http://search.quant.network/ to be able to fully track assets as they move across blockchains.
George O’Krepkie, AX CEO said: “we look forward to partnering with Quant. Their technology will allow our blockchain agnostic security token exchange to communicate seamlessly with issuers, traders, investors, and regulators across different blockchain protocols. This is a key technological breakthrough that will help us bring the benefits of security tokens to Main Street and Wall Street.”

Securrency

AX Trading have also partnered with Securrency (who have previously tokenised over $260 million in real estate assets). Securrency provide a protocol that enables security tokens to remain in compliance regardless of what blockchain the token is on. Due to the layered approach that Overledger has adopted from the learnings of TCP/IP, this protocol can be easily integrated on top of Overledger to enable security tokens to move across blockchains as well as ensuring they remain in compliance with regulations programmed into the token.
https://youtu.be/vSQ2fu9iZGs

Delivery vs Payment (DvP)

A DvP transaction involves the settlement of two linked obligations, namely the delivery of securities and the payment of cash. DvP avoids counterparties being exposed to principal risk, i.e. the risk that the seller of securities could deliver but would not receive payment or that the buyer of securities could make payment but would not receive delivery. Following this requirement, a DvP securities settlement mechanism has to ensure that the delivery of securities and the payment of cash are linked in a way where one leg (obligation) of the securities trade is conditioned to the final settlement of the other leg (obligation) of the trade. Thereby final settlement is defined as “the irrevocable and unconditional transfer of an asset or financial instrument, or the discharge of an obligation by the FMI or its participants in accordance with the terms of the underlying contract”. — STELLA — a joint research project of the European Central Bank and the Bank of Japan
We have seen how Overledger can provide interoperability for the securities to move across Issuers platforms, integrate with Stock exchanges, Central Security Depositories and AX Trading. Now we need to be able to ensure that payment is guaranteed and in a way that offers immediate settlement which is irrevocable. To do this we need to represent FIAT on the blockchain so that it can interact with smart contracts and settle transactions on the blockchain.

J.P.Morgan’s Coin

J.P.Morgan is the largest bank in the United States and ranked by S&P Global as the sixth largest bank in the world by total assets as of 2018, to the amount of $2.535 trillion.
J.P. Morgan was the first U.S. bank to create and successfully test a digital coin representing a fiat currency. The JPM Coin is based on blockchain-based technology enabling the instantaneous transfer of payments between institutional clients.
With J.P.Morgan’s $2.6 trillion balance sheet, expertise in blockchain and global payments network, J.P. Morgan can seamlessly and securely transfer and settle money for clients around the world. J.P. Morgan are supervised by banking regulators in the United States and in the international jurisdictions in which it operates.

How does JPM Coin work?

A Buyer purchases JPM coins in advance which get represented on the Permissioned Quorum blockchain ($1 =1 JPM Coin). Quant Network’s Overledger could then provide interoperability to lock those tokens on Quorum and represent those onto another blockchain / AX Trading’s Network. By being able to represent securities and FIAT on the same blockchain (even though the underlying assets are on different blockchains) this provides instant finality / settlements to occur.
Once the seller receives the JPM coin in exchange for the securities they have sold they will be able to redeem them for USD. It also doesn’t necessarily mean that they have to have a JP Morgan account to redeem them, you could imagine in the future that the Bank instead redeems the JPM Coin and credits the users account. Similarly the buyer of the security token redeems the represented token and unlocks the security token on the original blockchain.
You can read more about JP Morgan’s Coin here as well as its use cases
J.P Morgan is betting that its first-mover status and large market share in corporate payments — it banks 80 percent of the companies in the Fortune 500 — will give its technology a good chance of getting adopted, even if other banks create their own coins. “Pretty much every big corporation is our client, and most of the major banks in the world are, too,” Farooq said. “Even if this was limited to JPM clients at the institutional level, it shouldn’t hold us back.”
Overledger enables different securities tokens / digital coins representing FIAT currencies to be brought together from the various permissioned / permissionless blockchains onto one platform where trading / settlement can take place. Overledger is the only technology that can do this today across the leading permissioned and permissionless blockchains as well as existing networks, all in a secure, scalable and easy to integrate way.
https://preview.redd.it/ngt7q7hdt0m31.png?width=738&format=png&auto=webp&s=60166bdc0fcdf72a502e3472a09de5ddb5e1eb69
Quant Network are working with AX Trading to bring more digital assets, securities and tokenised assets to their existing 800 institutional traders in an already live and connected FINRA and SEC regulated exchange. AX Trading is not just about trading securities but other digital assets such as Bitcoin, Ethereum and potentially even Quant in the Future.
https://preview.redd.it/ibecorcft0m31.png?width=1286&format=png&auto=webp&s=94540cf49654e36a8155f424c2a4bdb5fd549558
This is a multi-trillion dollar market with huge global enterprises, traditional exchanges and global banks are all adopting DLT at a rapid pace and going into production at scale in a matter of months, examples include the NYSE Bakkt launching Bitcoin futures later this month, Swiss Stock Exchange ($1.6 Trillion market Cap) is due to launch their digital exchange running on Corda (SDX) by the end of the year. The DTCC are due to launch their Trade Information Warehouse which processes $10 Trillion of cleared and bilateral derivatives by the end of the year. JP Morgan who transfer $6 Trillion every day are due to launch their JPM coin at the end of year and AX Trading is due to offer their first digital asset by January 2020.
Quant Network’ Overledger enables the bridging of traditional finance infrastructure with the new decentralised finance infrastructure DeFi of the future, helping to redefine Wall Street and Capital Markets.
https://medium.com/@CryptoSeq/wall-street-2-0-17252ffd8919
submitted by xSeq22x to QuantNetwork [link] [comments]

Asset classes in systemic crises

Hello everybody,
I'm currently thinking about insurance for extremely rare systemic crises and would like to know your opinion on relevant asset classes.
By systemic crises I do not mean "normal" economic crises (Financial crisis 2008, dotcom crisis 2001, oil crisis 1979 etc.) in which some assets lose value, but structural changes in ownership (currency cut after hyperinflation in Germany 1923), expropriations (Russian October Revolution 1917, German expropriations 1936, Cyprus 2013 etc.) or defaults (e.g. Argentina 2001). So the case I am focusing on is more serious than a normal crisis, but not a Mad-Max-type apocalypse scenario.
In such extraordinary events classic investments are not safe any longer because the legal framework can change significantly. Many super-rich with family offices have already taken precautions, and I wonder what a sort of "insurance" against systemic crises might look like for ordinary people.
So far, I have considered these investment options:
  1. Shares / Bonds: True geographic diversification in uncorrelated states
Although a foreign currency account with Swiss francs at a German bank or a deposit with foreign assets seems to be an apparent security, in systemic crises it would be entirely in the hands of the state (because the value is only guaranteed by a domestic contractual relationship). Due to a high degree of cooperation between states, it can also be assumed that a friendly state such as France or the like will insufficient protection against access.
Some alternatives:
a. A securities account of uncorrelated foreign shares (such as Indonesian shares) held by an Indonesian bank (or other non-friendly / closely linked countries) -> High complexity, but at the same time positive expected return and protection against local systemic crises
b. Government bonds of other states in their currency, which are also held there -> Similar to foreign stocks in local custody, additionally higher default risk
c. A securities account outside the home country with widely spread ETFs -> Problem: Systemic counterparty risk of issuers like Blackrock, Vanguard etc.
  1. Physical assets (optimally anonymous) a. Precious metals (as a crisis classic) -> Hard to expropriate, historically relatively stable investment in crises
b. Physical banknotes in foreign currencies -> Permits physical mobility, but will likely increase cash controls and phased global elimination
c. Other physical assets i. Jewellery ii. Art / Antiques -> Problems especially in lack of liquidity, as well as limited usage value
  1. Real estate a. Home or real estate in non-correlated countries -> The idea is also that land titles in other countries are not influenced by local systemic crises. Unfortunately, the acquisition of real estate in foreign countries is often complex and heavily regulated. An additional danger could be movements against foreign landowners (eg Zimbabwe in the 2000s)
  2. Alternative investments a. Cold-storage cryptocurrencies -> Bitcoin etc. on a USB stick wallet is very robust and not affected by local crises
b. Durable physical assets (barrels of oil, coffee, etc.) in a warehouse -> High administrative burden, but physical expropriation unlikely
c. Information (e.g., exclusive knowledge of oil resources, unpublished and unannounced patents, etc.) -> Non-physical, valuable and non-disposable, but almost impossible to obtain and limited liquid
My questions:
Do you think that systemic crises are in principle conceivable, or is the fact that there has not been any for many years is a reason that there will never be any systemic crisis again?
What is your opinion on asset classes in systemic crises? Does my list make sense?
Have you taken any precautions yourself?
submitted by SkepticalRecursion to personalfinance [link] [comments]

Why I Sold My Bitcoin

Disclaimers:
I think it's important to share a contrarian view here, given the hype and euphoria over the last few days. I think I also have a some-what unique perspective on cryptos. Educated as an economist, I've spent a career in the technology departments of large banks. I've also taken the licensing exams to open my own investment manager, though I haven't launched one yet. I held some bitcoin as a speculation, but have exited on this rally because the mania is getting out of hand - even for a believer in the technology with high risk tolerances.
I'm not trying to be a downer or spread FUD - just provide a sobering reality check based on my understanding of investing and market structure. After all, it is extremely easy to lose sight of reality when you're sitting on fat paper profits. That type of complacency is an integral part of market cycles and one of the core weaknesses that professional traders exploit.
I do believe bitcoin is both something of tremendous value, and a bubble. History shows that bubbles form as society digests new forms of value - it happened as humans minted their first coins, their first paper currency, their first stocks and bonds, etc. Every new innovation in financial instruments is typically accompanied by some sort of bubble - the 2008 innovations in mortgage securities should be fresh and memorable for most.
The size and scale of the bitcoin bubble's inflation speaks about the underlying technology. It will, no doubt, be transformative across society - in many ways we cannot foresee now. However, that doesn't mean it has unlimited value, and "it'll go to the moon!" Or that it's even an investment. In fact, the hallmark of a bubble when people buy for fear of missing out on a price, without connecting that price to underlying economic activity. That's exactly what's happening here.
Why Bitcoin is NOT an Investment, and that's Okay
First, let's talk about what an investment is. By definition, an investment is an asset that yields a return above its purchase price.
If you invest in bonds or equities, you're usually looking at some kind of discounted cash-flow to decide whether to invest or not. Either your bond will pay a coupon of $X per year, or your company will generate $X amount of cash annually - and you project these values over time. Then you compare that to the return on less risky assets, like the US 10 year Treasury, and decide if the return is worth the risk.
But bitcoin doesn't yield anything. No matter what industries it disrupts or entrenched powers it destroys, it will never yield anything. If you own 1 BTC today, it's still 1 BTC in the future without any dividends, coupons, or splits. By definition, it cannot be an investment - there's no return. Non-yielding assets can never be an investment.
This is why bitcoin is a cryptocurrency. Crypto for the source of authority (proof-of-work or proof-of-stake), but currency for the asset's behavior. You don't invest in a currency, you can only speculate in it. You can buy a currency in order to buy investments denominated in that currency (eg. trading dollars for yen to buy Japanese Government Bonds), but the currency itself is never an investment.
Now, it's perfectly okay to buy another currency in expectation that it's price (against your 'native' currency) will rise. But that's just a trade, and one fueled by speculation. And some speculation is okay, it helps grease financial markets and discover 'real' prices. It's just important not to fool yourself, and to realize what you are doing. This also means no HODLing - every transaction has a lifecycle that ends in liquidation.
Some professionals make a living doing this, but typically they're not just speculating - they're helping institutions and companies intermediate between their 'native' currency and wherever they do business.
Are you Toyota selling a car in the US, trying to bring your dollars home as yen? A currency trader can help you. It's probably also probably worth noting here the recent settlements between the world's biggest banks and their regulators for openly fixing currency markets. The professionals tend to stay in business with a healthy dose of fraud and trading against their clients.
This is not behavior to emulate, and should give pause to anyone speculating in cryptocurrency. Who do you think you're trading against when you buy bitcoin from an exchange? There's a concept that everyone trading needs to know - the 'greater fool trade.' Are you buying because you have reasonable ideas about what the asset will return, or because there's a greater fool who will pay you more for it?
From what I've seen, and the yield on bitcoin, it seems like most people are betting there are greater fools out there.
'Hard Money' and Metcalfe's Law
These are common arguments I've seen posted here. A lot of people don't trust the Federal Reserve, or think of bitcoin as some technology that can be priced according to a model that describes the adoption of ethernet. Neither make a ton of sense in the light of day.
The bitcoin mining curve is modeled after gold, the original 'hard money'. By design, it's supposed to be deflationary. I'll admit I've never gotten along well with gold bugs and usually don't persuade them, but I'm happy to trade against them.
There's hundreds of year of economic history demonstrating that deflationary currencies are bad for economic growth. Where deflationary currencies have existed, they've been out-competed by mildly inflationary currencies. This is why they don't exist anymore, except for brief periods of severe economic stress. The idea that real economic activity can occur with a deflationary bitcoin is contrary to both experience and theory, which shows that 'real' economic activity slows as people anticipate further gains in currency value. The incentive is to hoard instead of spending or lending, so they don't, and economic activity falls.
Likewise, gold has been a bad inflation hedge, and there's no reason to expect bitcoin to do better. The last hundred years of data shows that even in inflationary periods, stocks have performed better than gold (inflation adjusted, anyone who bought gold at it's local maxima in 1980 at $650/oz would still be underwater at 2011's global maxima at $1,900/oz). And needless to say, stocks have yielded many-fold the return over gold in that time period by dividends alone.
If you're holding bitcoin because you don't trust the dollar or are worried about inflation, you should ask yourself why you don't also hold gold. It's the same logic. Then you should ask yourself why you would hold either.
As for Metcalfe's Law, this is a bit of a red herring. The idea is simple - networking effects produce exponentially more value as more people join the network. Champions of this idea point to fax machines, the internet, and Facebook - and publish interesting graphs showing the price of bitcoin neatly following Metcalfe's curve.
But we need to remember what we're examining - users of the network. If I register a Coinbase account to speculate on bitcoin, am I really using the bitcoin network? Is bitcoin's value proposition becoming more valuable intrinsically? Or is the price just increasing, because of the money flowing into it?
Twitter provides a good example. It's dominated by bots who are 'on the network', but provide marginal value and don't conform to Metcalfe's Law. It's taken a few years, but the price (what you pay) has caught up to the value (what it's worth), as the market has digested that many nodes in the network don't really count.
If the value proposition of bitcoin is in trustless transactions, how many of it's exponentially growing users are actually using bitcoin to perform trustless transactions? Transaction volumes are relatively flat year-on-year, while the number of new wallets have skyrocketed - so let's not fool ourselves about Metcalfe's Law. Correlation does not mean causation, and the network is not becoming more intrinsically valuable because more people are trying to speculate on bitcoin's price.
There IS some real growth here from adoption in jurisdictions where cryptos have been recognized as legal tender, but we can't fool ourselves about the impact there. Again, bitcoin is deflationary, and the incentives are hold instead of spend. If recognition and accessibility were really driving adoption, transaction volumes shouldn't be flat year-on-year.
But What About the MASSIVE DISRUPTION?
This is where bitcoin shines - it has tremendous disruptive potential. It allows counterparties to interact without trust or central authority, which removes the role for banks, money transfer agents, and other folks who would usually clip some part of a transaction. Open, distributed blockchains will revolutionize many industries and social institutions.
However, this doesn't go too far in helping bitcoin's value. An asset's value depends on the rights it bestows to the owner - just like above, where we could value a stock or bond by the rights to the cashflow it grants. But what does bitcoin grant the owner?
We come up short. Bitcoin is a token representing a proof-of-work for authenticating transactions on the network. All it grants to the owner is a high mathematical likelihood that the token is not fraudulent or double-spent. So what's that worth?
Depends on who you're transacting with. When we pay in dollars, there are systems in the background looking for fraud. These costs get spread across society in the fees we pay for credit cards (both in our interest charges, and the fees charged to merchants for accepting cards). If we don't need a card issuer and bank to back the transaction and guarantee that it's legitimate, there is substantial value that can be recaptured.
Likewise, bitcoin's portability can be a source of value. If you can send bitcoin across borders, there's no need for money transfer agents to send remittances. There's no need to be scammed by a cabal of currency traders. This is all value that can be recaptured as old, expensive institutions become irrelevant.
However - is that value recaptured by the owner of the bitcoin? Or is it captured by the nodes on the network authenticating the transaction?
Bitcoin would substantially reduce the fee for sending money, but the actual fee would go to the miners - not the holder of bitcoin tokens. Holders of bitcoin would see no direct benefit.
Now - it's reasonable to think, "if bitcoin replaces those institutions, that's trillions of dollars that will have to flow into bitcoin, and the price will skyrocket!". And there's some truth to that. Based on money flow and bitcoin's illiquidity, it will have to rise. But it's not realistic that things will happen that way, as it embeds some bad assumptions:
The first two points are fairly straightforward. Even if bitcoin replaces existing institutions, it's important to consider how and when - and whether the market price for bitcoin today is being too optimistic and forward-looking. Likewise, bitcoin is not the only game in town, and other cryptos already have value propositions that can out-compete in certain niches. All the big banks are already working on their own blockchains, which aren't as revolutionary as bitcoin, but will likely be easier for mass consumer adoption.
The last bullet point is the real rub. Bitcoin is deflationary, and a main purpose of banks is to create leverage throughout the monetary system. $1 deposited in a bank can become $5 throughout the whole system, and extended further with clever credit structures and derivatives. Because bitcoin is deflationary, that kind of leverage (and face amount of fiat) cannot be lifted-and-shifted into bitcoin. No one would lend, except at interest rates high enough to contract the money supply. Several trillion dollars in the banking system today would shrink by orders of magnitude in a bitcoin economy. The initial inflows would create a spike in the dollar value of bitcoin, but economic activity would grind to a halt shortly after.
This is why the really smart folks like Andreas Antonopolous comment far more on what the technology can do than what the token is worth. It's why he's testified to the Canadian Senate that we will see many different 'monetary recipes' across different cryptos, and the future is wide open for any mix of them to dominate. It's why he talks about the bitcoin protocol as a base layer, which may be abstracted from any future end-use and doesn't speculate on the price.
If you're sitting on a big profit, maybe it's time to re-examine exactly why you think there's substantial value ahead. And if you're buying in at these levels, you should be asking yourself why it's worth paying ~$10k. As prices go up, the risks get bigger - not smaller. The rate of advance means there are a lot of people who have bought in the last three months, and could quickly leave if they see a big profit turn to a loss. Anytime a market moves like this is a time for greater caution, not greater greed.
** TL/DR ** There's a lot of enthusiasm, backed by naive and childish arguments, saying that bitcoin should keep advancing at a rapid clip. But there are still serious impediments, and even success of bitcoin (the technology) doesn't mean the tokens are worth anywhere near where they trade today. Everyone should be taking this rally as an opportunity to reality check their assumptions, and figure out if they're long because they're bullish - or if they're bullish because they're long. You can still love bitcoin without the hype.
submitted by The_Scho_Empire to Bitcoin [link] [comments]

What Billions in Fed Repo Injections Reveal About the Promise of Bitcoin

What Billions in Fed Repo Injections Reveal About the Promise of Bitcoin


Article by Coindesk: Michael J Casey
Last week, the Federal Reserve injected $278 billion into the securities repurchase, or “repo,” market over four days, all so that banks could meet their liquidity needs. It was the first time the Fed had intervened in this vital interbank market, where banks’ pawn financial assets to fund overnight cash needs, since the financial crisis of 2008.
Fed officials and bankers dismissed the rare liquidity breakdown as a hiccup stemming from a series of coincidental factors in bond markets and corporate tax payments. It wasn’t a very comforting explanation, not when other economic warning signs are flashing, too: $17 trillion in bonds worldwide showing negative yields; a worsening U.S.-China trade war; and manufacturing indicators signaling an impending global recession.
Predictably, certain crypto types have viewed this alarming scenario with glee. More than a few HODLing tweeters responded to the repo story with two words of advice: “buy bitcoin.”
But it’s actually hard to predict what all this means for crypto markets, at least in the short- to medium-term.
If and when a 2008-like financial panic takes hold, will bitcoin rally as a new kind of uncorrelated “safe haven” or will it decline in a broad-based “risk-off” dumping of all things speculative? (Notwithstanding a sharp dip and rebound midway through last week, bitcoin has proven quite stable of late, at least by its own volatile standards.)
Other questions: do these vulnerabilities in traditional credit markets highlight the promise of new blockchain-based ideas? For example, would wider use of security tokens allow speedier settlement and, by extension, reduced counterparty risks and greater market confidence? Or, far more radically, would MakerDAO’s on-chain #DeFi lending markets enable a more reliable clearing mechanism, with collateral calls locked in by a decentralized protocol? Or might these underdeveloped ideas simply be recipes for systemic risk, a single hack or software glitch away from setting off a vicious spiral of collateral calls and bankruptcies?
The jury is out on all this untested stuff.
Still, if nothing else, the many signs of stress in the traditional financial system offer a valuable framework for thinking about how the world could be different and the role blockchain technology might play in enabling that new world.
Let’s look at some of them:

Negative-yields

The rare phenomenon, where creditors are essentially paying issuers for the privilege of lending them money — head scratcher, right? — reflects excessive demand for “safe” assets, especially for government-issued bonds. It has historically been a strong indicator of impending recession, since it reflects an overwhelming reluctance among investors to take on risk.
Now, another way of thinking about that reluctance is to express it as a perceived shortage of good investment opportunities. That perception can be fueled by a worsening economic outlook, but it’s also dictated by the barriers to entry that make it difficult for otherwise investable businesses of offer new opportunities.
Here, certain blockchain-based credit ideas offer hope. There’s the prospect for distributed-ledger asset registries that better track collateral and enable new emerging-market lending in developing-country land, commodities and energy markets. Or there are ideas such as having exporters tokenize their receivables to tackle a major structural limit on global trade finance, where a majority of small-and-medium enterprise are denied letters of credit because bankers don’t trust their documentation.
Effective use of blockchain technology could boost trust in assets and lien registries and help bring to life the $20 trillion in “dead capital” that economist Hernando de Soto says the world’s poor are sitting on.
Just as importantly, it would open a world of new alternative assets to draw in investors’ capital, giving them less of a reason to park it in low-yielding bonds.

Global economic slowdown

An alarming, synchronized downturn in manufacturing indicators, most notably in purchasing manager indexes, which measure current and future business spending on inventory and equipment, flows directly from the U.S.-China trade war. In cutting off Chinese goods exporters from U.S. consumer markets and driving up costs for their U.S. importers — and vice versa for U.S. farmers selling to food distributors in China — the conflict has added a massive new burden on global economic activity.
But let’s look at the starting point for this trade battle. It lies in American companies’ mostly legitimate complaints about China’s mercantilist, centrally planned approach to supporting Chinese companies at their expense, all enabled by a system of surveillance and control over people and businesses. This where there’s a crypto angle.
Cryptocurrency and other decentralizing technologies could work against the Chinese government’s capacity to control its economy in this interventionist manner. If Chinese businesses and hundreds of millions of Chinese citizens used bitcoin to circumvent capital controls, for example, the ever-present risk of monetary flight would act as a pressure valve, compelling Beijing to pursue a more open economic model to maintain competitiveness. That would give anti-free-traders like President Trump less of an excuse to ratchet up protectionist attacks against it.

The repo intervention

Some innovators have sought to apply blockchain technology to the back-office structural problems that periodically roil money markets, such as those now manifest in repo. They see a distributed ledger as a superior mechanism for tracking the IOUs of money and pawned securities upon which inter-institutional credit markets are based.
One was former J.P. Morgan credit market maven Blythe Masters, who founded Digital Asset Holdings in 2014 on the idea that on-chain settlement and a universally auditable ledger could improve transparency in global finance’s opaque, complex matrix of interconnected credit relationships. This way, she argued, it could mitigate the mistrust and counterparty risks that fueled the financial crisis.
The DAH model and those of others working on back-office blockchain solutions for capital markets have not come to fruition. This is at least partly due to the reluctance of incumbent financial institutions and their regulators to kill off existing functions that a blockchain would make redundant; they instead designed cumbersome hybrid distributed-ledger models that sustained vested interests but were expensive and difficult to collectively implement.
Either way, a blockchain back-office fix for traditional finance isn’t coming any time soon — whether because of internal politics or the limitation of the technology.

Shining a light

A more important question is why we even tolerate a system that’s so vulnerable to those back-end markets’ problems at all. The only reason central banks ever intervene to support interbank credit markets is because society’s means of payment depends on avoiding cash shortfalls and maintaining confidence in fractional-reserve banking.
If banks don’t have enough cash to meet short-term creditor calls, they would suffer runs on their deposits, companies wouldn’t make payroll, tenants would have to skip rent, ATMs would run out of banknotes, etc. The economy would seize up. The worst of it is that, because of this ever-present threat, banks hold our political system to ransom, knowing that they can always rely bailouts: the too-big-to-fail problem.
But what if banks just stuck to longer-term lending? What if there were no checking accounts or debit/credit cards, and we simply exchanged value with each other via cash or digital currencies that we hold ourselves?
If people used bitcoin, or fiat-backed stablecoins or central bank digital currencies to exchange value instead of the IOUs of an inherently fragile fractional reserve banking system, institutional cash shortages simply wouldn’t matter as much. Banks’ biggest creditors might take a hit against their risk-adjusted positions and their stock prices would fall, but the rest of us, including the Fed, could ignore the problem.
As the journalist and commentator Heidi Moore astutely observed in a tweetstorm last week, the reason the repo market tumult is so worrying is because it speaks directly to the core problem of trust in the banking system.
If nothing else, this is where blockchain technology provides a valuable lens with which to assess the current stress in the financial system. It helps us think about how the trust problem creates vulnerabilities, power imbalances and systemic risks and how we might design a system that’s better able to resolve it.
Federal Reserve image via Shutterstock
submitted by GTE_IO to u/GTE_IO [link] [comments]

Ethereum's advantages for Bitcoin highlight how Ethereum has won the smart contract market for years to come - at a minimum

If you're new to Ethereum, but in love with Bitcoin, you may be thinking, "well, Ethereum is winning now, but Rootstock is still a contender". This topic come up frequently and has been addressed community members quite well. Because posts get censored elsewhere, and deleted over time, I thought I'd reiterate the points here.
tl;dr Using Ethereum to create bonded side chains has advantage to Bitcoin holders that cannot be obtained by non-currency agnostic chains (such as the proposed chain called Rootstock). Ethereum is better for Bitcoin, and with PoS, is more secure.
Rootstock is currently a proposal to be the path to creating smart contracts with Bitcoin. There is this idea out there called “bitcoin maximalization” in which a some cryptocurrency enthusiasts will only accept Bitcoin as THE blockchain of the future. Well, the challenge with that idea is that, while Bitcoin was the first successful blockchain, it is also slow, expensive, and the least-developed. Bitcoin maximalists believe that will change. They believe that bitcoin will adapt. They think Bitcoin will incorporate more technological innovation and maintain global dominance. Sadly, this belief still holds true for many, despite the clear conflicts between mining, development, and exchanges that have driven the long drawn out block size debate. Bitcoin ability to adapt and incorporate new technology is clearly questionable.
One technological revolution brought on by Ethereum has been the smart contract (programmable automated contracts). Ethereum has had a year long monopoly on this innovation, and the monopoly appear to be maintain for the foreseeable future. Bitcoin maximalists do not like that idea. They feel it is a threat to Bitcoin dominance.
While bitcoin and Ethereum COULD make lovely music together, the idea that Bitcoin could lose its dominant position (by market cap) is likely true. Ethereum has many more use cases. This doesn’t mean Bitcoin will go extinct. As a streamlined, non-bloated, currency, it may still be very useful, but I digress.
What if Bitcoin could simply gain Ethereum’s technological sophistication? Rootstock desires to do just that, well, sort of, and for a piece of the pie. For that reason, it’s often promoted by /Bitcoin (a highly censored bitcoin community similar /btc).
So how will Rootstock plan to achieve this?
First, understand Rootstock is currently vapor. An idea and an implementation can be worlds apart. At the time of this post, there is not a single line of code on Github, while Ethereum has just matured to "Homestead" and is running perfectly. While some describe Rootstock as “open source”, currently, nothing is open. Ethereum development took years to get where it is today, and the open aspect of the development led to Etherum’s current remarkable sophistication and stable platform.
But let’s assume, fairly, that Rootstock does eventually emerge from vapor. Rootstock developers are borrowing some of Ethereum’s technology. Thus, in some sense, some of the work is provided for them thanks to Ethereum. Of course, it is easy to overstate. You can’t just cut and paste Ethereum and have it work. It requires a massive amount of development.
So what will Rootstock look like.
Currently, they have two major version planned:
vovobov (throwaway account) had this nice contribution:
Ethereum as a bonded sidechain of Bitcoin with advantages over Rootstock
What is a sidechain?
According to block stream:
A sidechain is a blockchain that validates data from other blockchains
Ethereum already does that with BTC Relay. So how about pegged assets?
This is an idea for an Ethereum contract that makes Bitcoin-backed tokens without any softfork or trusted Bitcoin multisig managers. Instead, Bitcoin IOU's are created on the Ethereum blockchain and backed by Ether bonds which are governed by Ethereum contracts like BTC Relay or price oracles. The Bitcoin IOUs are backed by Bitcoins held by the escrow managers but if they steal/lose the Bitcoins (or refuse to redeem them) the Bonded Escrow Contract will observe their naughty behaviour and sell their Ether bond to redeem the Bitcoins from someone else!
Rootstock vs Bonded Escrow Contract on Ethereum
There are two methods that Rootstock developers plan to use for issuing Bitcoin IOUs (called "Roots") on their Bitcoin "sidechain". AFAIU the first involves merged mining and a multisig wallet that entrusts a quorum of Bitcoin miners with the entire basket of Bitcoin eggs that were "moved" to the Rootstock chain. The second method requires softforking the Bitcoin blockchain for a two-way peg.
Pseudonymous, distributed, untrusted issuers
Rootstock dev maaku7:
“It's a known trade-off made by any presently deployable implementation of the 2-way peg. It's also something that we were very upfront about in the sidechains paper, and part of the reason why many of us are so concerned about decentralization of bitcoin mining.
In any non-SNARK, non-extension-block version of the 2-way peg a bitcoin node does not perform full validation of the sidechain as part of the consensus rules. Therefore it is perfectly possible (by design) for a threshold majority of the miners / signers to steal the coins in the peg pool, and censor any attempt to stop them. Why by design? Because that's the promise of sidechains: performant permissionless innovation at the cost of SPV trust in the honest majority of signers / miners.
Sidechains we are working on (e.g. Alpha, Liquid) and Rootstock, by the looks of it, make use of a fixed set of signers instead of or in addition to reliance on >50% honest hashpower. This is because while less pure, it is ultimately safer to work with known, contracted entities as functionaries rather than 50% hashpower which at the moment is just a small handful of unaccountable people.
EDIT: Although obviously the ideal end goal is fully decentralized mining, where creating a 50% hashpower cabal requires organizing thousands of people at minimum. In such a case we may be able to consider a pure SPV peg to have a reasonable security model. But we're a long way from there yet...”
says this about sidechain security:
“In any non-SNARK, non-extension-block version of the 2-way peg a bitcoin node does not perform full validation of the sidechain as part of the consensus rules. Therefore it is perfectly possible (by design) for a threshold majority of the miners / signers to steal the coins in the peg pool, and censor any attempt to stop them. Why by design? Because that's the promise of sidechains: performant permissionless innovation at the cost of SPV trust in the honest majority of signers / miners.”
Ether bonds can remove most of the need for this trust and allow pseudonymous, permissionless participation in issuance and escrow management. Without anonymous, untrusted validators, distributed around the world, Bitcoin is looking more and more like Chinese Liberty Reserve or E-gold. …
Bonded sidechains decentralize pegged assets
Even with a Bitcoin softfork, Rootstock has just one Bitcoin IOU with all the Bitcoins sitting like a duck in one "wallet". Since Roots are just one Bitcoin IOU from one issuer, they can't be used to back/bond IOUs the way Ether can. If Rootstock's multisig/SPV wallet is robbed by it's signers/miners or (as they always say) hackers, the value of Roots become "zero" along with any asset or contract using Roots. Ether continues to have value if Bitcoins are stolen. Theft just thins out the herd and makes people more cautious. Ether bonds make issuers mostly responsible for their IOUs with IOU holders assuming some risk if Ether loses too much value to Bitcoin.
Issuing servers and indie issuers
A basic Bonded Escrow Contract is practically complete since BTC Relay does the difficult part. "Bonded Escrow Contract" is completely decentralized and requires no modification to Bitcoin. It would allow anyone to "anonymously" manage Bitcoin escrow wallets or issue Bitcoin IOUs. They only need to obtain Ether for the bond, send it to the Bonded Escrow Contract along with their Bitcoin escrow address and the terms of the IOU they wish to create. Indie issuers don't have to babysit a "server" (that needs to be online all the time) if they create IOU contracts that won't have harsh penalties if they take some time to redeem the tokens. IOU buyers who want faster redemption can buy IOU's from issuing servers. Issuers are free to choose alternatives to SPV such as prediction markets, to verify Bitcoin transactions.
Bonded Escrow Contract options
Here are some options that the Bonded Escrow Contract could make available: * Designate how much Bitcoin the IOU tokens are to be worth and how much Ether will back them. This may be a fixed rate or it may be based on other Ethereum price oracle contracts. If a price oracle is used the issuer may have to add Ether to prevent the IOU from going into default if the Ether price goes down relative to Bitcoin. * Set exchange or rental rates for the Bitcoin IOUs. These rates may be in Ether and/or Bitcoin and could be based on oracle/derivatives contracts.
When IOUs aren't redeemed (right away)
What happens if the IOU's are sent back to the issuer but the Bitcoins aren't released right away?
In more recent news:
Rootstock devs (RSK) clarified that instead of creating a token, like Ether, which is sold to the public to fund initial development. With Rootstock, “every time a person or a corporation runs a smart contract on RSK, 80% of the fuel paid goes to the miners and the remaining 20% to RSK Labs, so we can continue the development of the open source platform”.
In other words, Rootstock is a sidechain business venture centrally controlled by RSK. Unlike Ethereum, it is NOT a public resource. This does not foster independent, open source, development, such as what we are seeing with ventures like Ethcore and Consensys and well, the many many other Ethereum developers well deserving of attention. If you’re planning to build on Rootstock, RSK labs get a cut of your expenses. Enjoy having a new boss. That doesn’t exist with Ethereum!!! The Ethereum Foundation started the enterprise, but Ethereum development is already much bigger than a single foundation.
sjalq also makes these fair comments:
Add to this is that Ethereum's PoS will be far more scalable, with Casper development reaching high levels of sophistication.
Basically, unless you absolutely refuse to hold anything but Bitcoin, there is no reason to ever use what's proposed for Rootstock. It's less capable, less secure, less scalable, more centralized, and will be two years behind Ethereum's remarkable network effect (at a minimum). Ethereum's monopoly is going no where for the foreseeable future.
Update: March 18th 2016
What About Counterparty?
  • In most repects, Counterparty's model has the exact same issues as Rootstock's outlined above, so it's the same problems as that described above. Unlike Rootstock, there will be an altcoin, but instead of currency agnostics, it's connected only to bitcoin.
  • Counterparty is also greatly limited by bitcoin's slow blocktime.
  • Detail discussion here.. Basically, Counterparty's model is a model that the Ethereum founders abandoned because it is a technologically poor decision.
  • More perspective from Ethereum dev Alex van de Sande.
    • "many ex-xcp developers who are migrating to Ethereum due to ease of development and better tools. [such as Bitnation] ... Also I don't understand the advantage of counterparty 'using Bitcoin': they also have their own token and their own Blockchain, what is gained by having a ten minute block time?"
    • "The 'there's only one Blockchain' crowd is what we call 'Bitcoin maximalism'. I think this is more a political position than a pragmatic one: Ethereum Blockchain is secure and created from the ground up for contracts. Counterparty is hack trying to put them into a Blockchain that wasn't made for it and doesn't seem to want contracts. I do wish them the best, I just never saw their software stack."
    • "... they claimed they had cloned us and then the next day Vitalik answered that he had implemented counterparty in X lines of codes in ethereum."
  • VB response to "What Ethereum can do that Counterparty cannot"
    1. <15s block time
    2. Light client support
    3. Lack of exposure to Bitcoin development politics (personally, I think this point alone is enough to outweigh whatever 8x difference in dollars wasted per hour on PoW the maximalists like to wave around, and was the original reason for not making ethereum itself a bitcoin-based metacoin)
    4. Lack of exposure to the possibility of Paul Sztorc convincing bitcoin miners that XCP decreases the value of BTC and so should be censored by miners.
    5. Lack of artificially low block size limit
    6. Has a coherent long-term scalability roadmap
    7. Just to throw a bitcoin maximalist argument right back at them, ETH has way better liquidity than XCP so there's less overhead in acquiring the token to pay fees (alongside other network effects like developer tools, user community, etc)
    8. We have DELEGATECALL implemented, they as I understand don't
  • VB does give Counterparty one benefit
    "That said, counterparty is more closely linked to the bitcoin blockchain, so it's easier to make crowdsales that accept bitcoin directly; that's the primary point in favor of a bitcoin blockchain-based metacoin. Though now btcrelay makes up for quite a bit of that difference."
What About Lisk?
It's basically trying to be Ethereum, but using javascript (rather than Ethereum's clients which make a hell of a lot more sense, such as Go, C++, Python, Rust, Java, Ruby, .net). A Javascript Ethereum is a terrible idea, and even if it wasn't, why devote a whole new blockchain to it. Seems pointless, leading to some to suggest this may be an elaborate scam. I doubt it's a scam, but it does seem poorly thought out.
Ethereum's Solidity is VERY close to Javascript, but MUCH better for smart contracts.
As noted by Itsaconspiracy and Nevermindthequestion :
  • The javascript is sandboxed but unrestricted. They have half a dozen rules you're supposed to follow in contracts, to avoid breaking consensus. Nothing's stopping you from putting a call to math.random() in your contract and then nobody gets the same results. Every contract runs in its own sidechain so at least you're not breaking global consensus, but contracts can call each other so it's not totally isolates easier for bugs to sneak in. For example, if someone passes the string "1" into a parameter where you're expectd either.
  • Javascript numbers are all floating-point, so you can get rounding errors in your contracts. (It's possible that they provide a bignum library, but I don't think so, their rules for contract writers don't say "please use our bignum library.")
  • Javascript has weak dynamic typing, so it'ing a number, and you haven't written explicit code to convert it to a number, then you can end up with the wrong answer. ("1" + 2) / 3 = 4 in Javascript. (Try it yourself online).
  • Not to mention that the LISK contracts will be stored in plaintext, which means they'll be vastly more expensive to publish.
OK, so Bitcoin focused smart contracts and LISK are bad ideas, but sometimes bad ideas win, after all, bla bla "network effect"
Ethereum already has its own network effect within the smart contract space. Bitcoin is far behind. There really is no mechanism to catch up. At this time, there appears to be just as much fresh money going into Ethereum development as Bitcoin, if not more (200+ project and counting) and over a billion dollars in investments estimated this year by Vinay Gupta. Bitcoin is certainly used as a currency in more places, but its use as a currency is still pretty much a joke. An Ethereum credit card would make this "currency network effect" absolutely pointless. What people don't seem to get it that Bitcoin's market cap is larger as an artifact of it being around longer, but soon, that will change. The amount of new investment in Ethereum, the number of devs deeply involved in Ethereum projects, has already made Bitcoin's history irrelevant. It seems very obvious to me. In my opinion, it really is over already. Ethereum has already won its place as the primary public blockchain. It's just a matter of time before people realize it. And some very clever investors, already have.
submitted by nbr1bonehead to ethtrader [link] [comments]

Transcript from Ravencoin Open Developer Meeting - Nov. 16, 2018

Tron at 2:03 PM

Topics: Messaging (next phase) UI 2.2 - Build from develop - still working out a few kinks Mobile - Send/Rcv/View Assets - In progress Raven Dev Kit -Status

RavencoinDev at 2:04 PM

Hey Everybody! Let's get started!Thanks Tron for posting the topics.Tron is going talk about Messaging Plans.Let's start there.

Chatturga at 2:06 PM

It looks like this channel is not connected to the IRC. One moment

RavencoinDev at 2:07 PM

Well, we going to move forward as the tech guys fix the IRC connections.

Tron at 2:07 PM

I wanted to have a doc describing the messaging, but it isn't quite ready.I understand this isn't going to IRC yet, but I'm starting anyway.

RavencoinDev at 2:08 PM

Look for it soon on a Medium near you.

Tron at 2:08 PM

Summary version: Every transaction can have an IPFS hash attached.

Vincent at 2:09 PM

any plans for a 'create IPFS' button?

RavencoinDev at 2:09 PM

Yes

Vincent at 2:09 PM

on asset creatin window also?

RavencoinDev at 2:09 PM

Yes

Vincent at 2:09 PM

sweet

Tron at 2:09 PM

IPFS attachments for transactions that send ownership token or channel token back to the same address will be considered broadcast messages for that token.The client will show the message.Some anti-spam measures will be introduced.If a token is in a new address, then messages will be on by default.The second token in an address, the channel will be available, but muted by default.

RavencoinDev at 2:11 PM

That way I can't spam out 21b tokens and then start sending messages to everybody.

Tron at 2:11 PM

We'd like to have messaging in a reference client on all six platforms.

corby at 2:11 PM

Hi!

Tron at 2:11 PM

Photos will not be shown. Messages will be "linkified"

RavencoinDev at 2:12 PM

and plain text.We'll start with the QT wallet support

Tron at 2:12 PM

Any other client is free to show any IPFS message they choose.The messaging is fully transparent.

Rikki RATTOE at 2:13 PM

ok, so messaging isn't private

Tron at 2:13 PM

Anyone could read the chain and see the messages.

RavencoinDev at 2:13 PM

No, never was planned to be private

MSFTserver-mine more @ MinerMore at 2:13 PM

irc link should be fixed

Tron at 2:13 PM

It is possible to put encrypted content in the IPFS, but then you'd have to distribute the key somehow.

RavencoinDev at 2:13 PM

Thanks MSFT!

Chatturga at 2:13 PM

Negative

Tron at 2:14 PM

Core protocol changes Extend the OP_RVN_ASSET to include for any transfer: RVNT <0xHH><0x12><0x20><32 bytes encoding 256 bit IPFS hash> 0xHH - File type 0x00 - NO data, 0x01 - IPFS hash, 0x02 through 0xFF RESERVED 0x12 - IPFS Spec - Using SHA256 hash 0x20 - IPFS Spec - 0x20 in hex specifying a 32 byte hash. …. (32 byte hash in binary)

corby at 2:14 PM

By it's nature nothing on chain is private per se. Just like with wallets you'd need to use crypto to secure messaging between parties.

Tron at 2:14 PM

Advantages: This messaging protocol has the advantage of not filling up the blockchain. The message information is public so IPFS works as a great distributed store. If the messages are important enough, then the message sender can run nodes that "PIN" the message to keep a more durable version. The message system cannot be spoofed because any change in the message will result in a different hash, and therefore the message location will be different. Only the unique token holder can sign the transaction that adds the message. This prevents spam. Message clients (wallets), can opt-in or opt-out of messages by channel. Meta-message websites can allow viewing of all messages, or all messages for a token. A simple single channel system is supported by the protocol, but a channel could be sub-divided by a client to have as many sub-channels as desired. There are no limits on the number of channels per token, but each channel requires the 5 RVN fee to create the channel.

RavencoinDev at 2:14 PM

So, somebody could create their own client and encrypt the data on the blockchain if they wished.

corby at 2:15 PM

Wow Tron types fast

Rikki RATTOE at 2:15 PM

yeah there was some confusion in the community whether messaging would be private and off chain

Tron at 2:15 PM

Anti-Spam Strategy One difficulty we have is that tokens can be sent to any Ravencoin asset holder unsolicited. This happens on other asset platforms like Counterparty. In many cases, this is good, and is a way for asset issuers to get their token known. It is essentially an airdrop. However, combined with the messaging capabilities of Ravencoin, this can, and likely will become a spam strategy. Someone who wants to send messages (probably scams) to Ravencoin asset holders, which they know are crypto-savvy people, will create a token with billions of units, send it to every address, and then message with the talking stick for that token. Unless we preemptively address this problem, Ravencoin messaging will become a useless spam channel. Anyone can stop the messages for an asset by burning the asset, or by turning off the channel. A simple solution is to automatically mute the channel (by default) for the 2nd asset sent to an address. The reason this works is because the assets that you acquire through your actions will be to a newly generated address. The normal workflow would be to purchase an asset on an exchange, or through a ICO/STO sale. For an exchange, you'll provide a withdrawal address, and best practice says you request a new address from the client with File->'Receiving addresses…'->New. To provide an address to the ICO/STO issuer, you would do the same. It is only the case where someone is sending assets unsolicited to you where an address would be re-used for asset tokens. This is not 100% the case, and there may be rare edge-cases, but would allow us to set the channels to listen or silent by default. Assets sent to addresses that were already 'on-chain' can be quarantined. The user can burn them or take them out of quarantine.

RavencoinDev at 2:18 PM

Okay, let me know when/if you guys read through all that. 📷📷2

corby at 2:18 PM

To be clear this is a client-side issue -- anyone will be able to send anything (including messages) to any address on chain..

RavencoinDev at 2:18 PM

It'll be in the Medium post later.

Tron at 2:19 PM

@corby The reference client will only show messages signed by the issuer or designated channels.Who is ready for another wall of text? 📷

corby at 2:19 PM

I hear that's the plan 📷 just pointing out that it is on the client in these cases..

Tron at 2:20 PM

Yes, any client can show anything gleaned from the chain.Goal: A simple message format without photos. URL links are allowed and most clients will automatically "linkify" the message for valid URLs. For display, message file must be a valid json file. { "subject":"This is the optional subject", "message": "This is required.", "expires": 1578034800 } Only "message" is required {"message":"Hello world"}

bhorn at 2:21 PM

expires?

Vincent at 2:21 PM

discount coupon?

Tron at 2:21 PM

If you have a message that worthless (say after a vote), just don't show the message.

bhorn at 2:21 PM

i see - more client side operation

corby at 2:21 PM

/expires

Tron at 2:22 PM

Yep. And the expiration could be used by IPFS pinners to stop worrying about the message. Optional

RavencoinDev at 2:22 PM

If the client sees a message that is expired it just won't display it.

Vincent at 2:23 PM

will that me messaged otherwise may cause confusion?"expired'

RavencoinDev at 2:23 PM

YesWe'll do our best to make it intuitive.

Tron at 2:24 PM

Client handling of messages Pop-up messages or notifications when running live. Show messages for any assets sent to a new address - by default Mute messages for assets sent to an address that was already on-network. Have a setting to not show messages older than X IPFSHash (or 8 bytes of it) =

Rikki RATTOE at 2:25 PM

will there be a file size limit for IPFS creation in the wallet?

RavencoinDev at 2:25 PM

We'll also provide updated documentation.

Tron at 2:26 PM

Excellent question Rikki. Here are some guidelinesGuidelines: Clients are free to show or not show poorly formed messages. Reference clients will limit message display to properly formed messages. If subject is missing, the first line of the message will be used (up to 80 chars). Standard JSON encoding for newlines, tabs, etc. https://www.freeformatter.com/json-escape.html Expiration is optional, but desired. Will stop showing the message after X date, where X is specified as Unix Epoch. Good for invites, voting requests, and other time sensitive messages that have no value after a specific date. By default clients will not show a message after X blocks (default 1 year) Amount of subject shown will be client dependent - Reference client may cut off at 80 chars. Messages longer than 15,000 (about 8 pages) will not be pinned to IPFS by some scanners. Messages longer than 15,000 characters may be rejected altogether by the client. Images will not be shown in reference clients. Other clients may show any IPFS content at their discretion. IPFSHash is only a "published" message if the Admin/Owner or Channel token is sent from/to the same address. This allows for standard transfers with metadata that don't "publish".Free Online JSON Escape / Unescape Tool - FreeFormatter.comA free online tool to escape or unescape JSON strings

RavencoinDev at 2:26 PM

We're hoping to add preferences that will allow the user to customize their messaging experience.

Tron at 2:27 PM

Also, happy to receive feedback from everyone.

corby at 2:27 PM

In theory though if you maintain your own IPFS nodes you should be able to reference files of whatever size right?

Steelers at 2:27 PM

How about a simple Stop light approach - Green (ball) New Message, Yellow (Ball) Expiring Messages, Red (Ball) Expired Messages

RavencoinDev at 2:27 PM

Yes please! That's the point of sharing it here

Chatturga at 2:27 PM

Fixt

push | ravenland.org at 2:28 PM

Thanks @Tron can you provide any details of the coming 'tooling' at the end of november, and what that might enable (apologies as I am a bit late to meeting if this has been asked already)

VeronicaBOT at 2:28 PM

sup guys

Tron at 2:28 PM

Sure, that's coming.

RavencoinDev at 2:28 PM

That's the Raven WebDev Kit topic coming up in a few mins.

push | ravenland.org at 2:29 PM

oki 📷 cheers

RavencoinDev at 2:29 PM

Questions on messaging?

Jeroz at 2:30 PM

Not sure if I missed it, but how fast could you send multiple messages in succession?

BruceFenton at 2:30 PM

Some kind of sweep feature or block feature for both tokens and messages could be useful Certain messages will be illegal to possess in certain jurisdictions If someone sends a picture of Tiennneman tank man in China or a message calling for the overthrow of a ruler it could be illegal for someone to have There’s no way for that jurisdiction to censor the chain So some users might want the option to purge messages or not receive them client side / on the wallet

Tron at 2:30 PM

Messages are a transaction.

RavencoinDev at 2:30 PM

So it'll cost you to spam messages.They can only send a hash to that picture and the client won't display anything not JSON

corby at 2:31 PM

purge/block is the age old email spam

Tron at 2:31 PM

The Reference client - other clients / web sites, etc can show anything they wish.

RavencoinDev at 2:31 PM

You can also burn a token if you never want to receive messages from that token owner.

UserJonPizza|MinePool.com|Mom at 2:32 PM

Can't they just resend the token?

Tron at 2:33 PM

Yes, but it would default to mute.📷2

RavencoinDev at 2:33 PM

meaning it would show up in a spam foldetab

bhorn at 2:33 PM

is muting available for the initial asset as well?

RavencoinDev at 2:33 PM

Something easy to ignore if muted.

Tron at 2:33 PM

@bhorn Yes

BruceFenton at 2:33 PM

Can users nite some assets and not others?

Tron at 2:33 PM

@bhorn It just isn't the default.

BruceFenton at 2:33 PM

Mute

RavencoinDev at 2:33 PM

YesYou can mute per token.

BruceFenton at 2:34 PM

Great

Tron at 2:34 PM

And per token per channel.

Jeroz at 2:34 PM

channels are the subtokens?

BruceFenton at 2:34 PM

What’s per token per channel mean ?

Tron at 2:34 PM

The issuer sends to the "Primary" channel.Token owner can create channels like "Alert", "Emergency", etc.These "talking sticks" are similar to unique assets.📷1ASSET~Channel

RavencoinDev at 2:37 PM

Okay, we have a few more topics to cover today.Tron will post more details on Medium and we can continue discussions there.

Jeroz at 2:38 PM

Ah, I missed channel creation bit for each token with the 5 RVN / channel cost. It makes more sense to me now.

RavencoinDev at 2:38 PM

The developers are working towards posting a new version 2.2 that has the updated UI shown on twitter.

Vincent at 2:39 PM

twit link?

RavencoinDev at 2:39 PM

The consuming of large birds (not ravens) might slow the release a bit.So likely the week after Thanksgiving.

[Dev] Blondfrogs at 2:39 PM

The new UI will contain: - New menu layout - New icons - Dark mode - Added RVN colors

Dan1666 at 2:39 PM

+1 Dark mode

RavencoinDev at 2:39 PM

DARK MODE!

Dan1666 at 2:40 PM

so pleased about that

RavencoinDev at 2:40 PM

I can honestly say it'll be the nicest crypto wallet out there.

[Dev] Blondfrogs at 2:40 PM

A little sneak peak, but this is not the final project📷📷6📷3

!S1LVA | MINEPOOL at 2:40 PM

Outstanding

Dan1666 at 2:41 PM

reminds me of Sub7 ui for those that might remember

UserJonPizza|MinePool.com|Mom at 2:41 PM

Can we have an asset count at the top?

[Dev] Blondfrogs at 2:41 PM

Icons will be changing

Vincent at 2:41 PM

does the 'transfer assets' have a this for that component?

Tron at 2:41 PM

Build from develop to see the sneak preview in action.There may be small glitches depending on OS. These are being worked on.

Rikki RATTOE at 2:41 PM

No plans for the mobile wallet to show an IPFS image I'm assuming? Would be a nice feature if say a retail store could send a QR coupon code to their token holders and they could scan the coupon using their wallet in store

[Dev] Blondfrogs at 2:42 PM

@Vincent That will probably be a different section added later📷1

RavencoinDev at 2:42 PM

Yes, Rikki we do want to support messaging.Looking into how that would work with Apple and Google push.

push | ravenland.org at 2:42 PM

sub7📷1hahaoldschoolit so is similar aswell

[Master] Roshii at 2:43 PM

Messages are transactions no need for any push

Tron at 2:43 PM

@Rikki RATTOE There's a danger in showing graphics where anyone can post anything without accountability for their actions. A client that only shows tokens for a specific asset could do this📷1

RavencoinDev at 2:43 PM

True, unless you want to see the messages even if you haven't opened your wallet in a week.

Rikki RATTOE at 2:44 PM

the only thing I was thinking was if you simply linked the image, somebody could just copy the link and text it off to everyone and the coupon isn't all that exclusive

UserJonPizza|MinePool.com|Mom at 2:44 PM

Maybe a mobile link-up for a easy way to see messages by just importing pubkey(edited)

RavencoinDev at 2:45 PM

Speaking of mobileWe are also getting close to a release of mobile that includes the ability to show assets held, and transfer them.Roshii has been hard at work.📷6📷1

Vincent at 2:46 PM

can be hidden also?

RavencoinDev at 2:47 PM

We're still finalizing the UI design but that is on the list of todos📷1

Under at 2:47 PM

Could we do zerofee mempool messaging that basically gets destroyed after it expires out of the mempool for real-time stealth mode messaging

corby at 2:48 PM

That's interesting!

RavencoinDev at 2:49 PM

There are other solutions available for stealth messaging, that's not what the devs had intended to build. It does sound cool though @Under

Under at 2:50 PM

📷 we’ll keep up the good work. Looking forward to the db upgrades. Will test this weekend

RavencoinDev at 2:50 PM

Thanks!That leaves us with 10 minutes for the Dev Kit!Corby has been working on expanding some of the awesome work that @Under has been doing.

corby at 2:52 PM

Yes -- all of the -addressindex rpc calls are being updated to work with assets

RavencoinDev at 2:52 PM

Hopefully we'll be able to post the source soon once the initial use cases are all working.

corby at 2:52 PM

so assets are being tied into transaction history, utxos, etc

RavencoinDev at 2:52 PM

The devs want to provide a set of API's that make it easy for web developers to build solutions on top of Ravencoin.VinX is investigating the possibility of using Ravencoin to power their solution.

corby at 2:53 PM

will be exposed via insight-api which we've forked from @Under

[Master] Roshii at 2:53 PM

Something worth bringing up is that you will be able to get specific asset daba from full nodes with specific message protocols.

corby at 2:54 PM

also working on js lib for client side construction of asset transactions

Tron at 2:55 PM

Dev Kit will be an ongoing project so others can contribute and extend the APIs and capabilities of the 2nd layer.📷3📷3

RavencoinDev at 2:55 PM

Will be posted soon to the RavenProject GitHub.

corby at 2:55 PM

separate thing but yes Roshii that is worth mentioning -- network layer for getting asset data

RavencoinDev at 2:55 PM

Again want to give thanks to @Under for getting a great start on the project

push | ravenland.org at 2:56 PM

Yes looking forward to seeing more on the extensive api and capabilities, is there a wiki on this anywhere tron?(as to prevent other people replicating eachothers work?)

RavencoinDev at 2:56 PM

The wiki will be in the project on GitHub

push | ravenland.org at 2:56 PM

im guessing when the kit is released, something will appear, okok cool

RavencoinDevat 2:57 PM

Any questions about the Web DevKit?

push | ravenland.orgToday at 2:57 PM

well, what kind of support will it give us, that would be nice, is this written anywhereI'm still relatively new to blockchain<2 yearsso need some hand holding i suppose 📷

bhorn at 2:58 PM

right, what are initial use cases of the devkit?

push | ravenland.org at 2:58 PM

i mean im guessing metamask like capabilitysome kind of smart contract, some automation capabilitiesrpc scriptsstuff like thiseven if proof of concept or examplei guess im wondering if my hopes are realistic 📷

RavencoinDev at 2:59 PM

You can see the awesome work that @Under has already don that we are building on top of.

push | ravenland.org at 2:59 PM

yes @Under is truly a herooki, cool

RavencoinDev at 2:59 PM

https://ravencoin.network/Ravencoin Block ExplorerRavencoin Insight. View detailed information on all ravencoin transactions and blocks.

push | ravenland.org at 2:59 PM

ok, sweet, that is very encouragingthanks @Under for making that code public

corby at 3:00 PM

It will hopefully allow you to write all sorts of clients -- depending on complexity of use case you might just have js lib (wallet functions, ability to post txs to gateway) or a server side project (asset explorer or exchange)..(edited)

Tron at 3:00 PM

Yeah, thanks @Under .

RavencoinDev at 3:00 PM

What's your GitHub URL @Under ?

push | ravenland.org at 3:00 PM

https://github.com/underdarkskies/ i believeGitHub· GitHubunderdarkskies has 31 repositories available. Follow their code on GitHub.📷

RavencoinDev at 3:00 PM

Yup!

push | ravenland.org at 3:00 PM

he is truly a hero(edited)

RavencoinDev at 3:00 PM

LOL

push | ravenland.org at 3:00 PM

damn o'sgo missing everywhere

RavencoinDev at 3:01 PM

teh o's are hard... Just ask @Chatturga

push | ravenland.org at 3:01 PM

📷

Chatturga at 3:01 PM

O's arent the problem...

push | ravenland.org at 3:01 PM

📷📷

RavencoinDev at 3:02 PM

Alright we're at time and the devs are super busy. Thanks everybody for joining us.

push | ravenland.org at 3:02 PM

thanks guys

RavencoinDev at 3:02 PM

Thank you all for supporting the Raven community.📷6

corby at 3:02 PM

thanks all!

push | ravenland.org at 3:02 PM

keep up the awesome work, whilst bitcoin sv and bitcoin abc fight, another bitcoin fork raven, raven thru the night📷5

Vincent at 3:02 PM

piece!!

RavencoinDev at 3:03 PM

We're amazingly blessed to have you on this ride with us.📷5📷9📷5

Dan1666 at 3:03 PM

gg

BruceFenton at 3:03 PM

📷📷12📷4

UserJonPizza|MinePool.com|Mom at 3:55 PM

Good meeting! Excited for the new QT!!
submitted by Chatturga to u/Chatturga [link] [comments]

Bitcoin ETF- the holy grail?

Bitcoin ETF- the holy grail?

What is an ETF?

ETF stands for exchange traded fund, which is basically a security that tracks some underlying assets (for example equities, bonds or commodities). The issuer of the ETF takes custody of the underlying assets it tracks and then issues a number of shares that represent ownership. These shares can be easily traded (like stocks) and therefore remove a lot of barriers for investors who are willing to invest in this particular asset.

If an ETF-issuer wants to create new shares, they turn to an authorized participant (AP). An AP is someone who is responsible for purchasing the underlying assets an ETF wants to hold. APs require a license from the ETF provider and then buys the underlying asset on behalf of the ETF-issuer. Subsequently, the AP sends these freshly purchased assets to the ETF-issuer and then ETF provider sends shares of the fund back to the AP. The value of these shares is equal to the assets the ETF provider just received.
The redeeming process works in the opposite direction: AP sends ETF shares it wants to redeem to the ETF provider, which then
returns the underlying assets back to the AP.

There are times when the price of the ETC can become higher than the price of its underlying assets, or net asset value (NAV). Then the ETF is said to be trading at a premium. If the ETF is trading below NAV it is called trading at a discount. The AP arbitrages premiums and discounts to keep the market price tightly coupled to the NAV.

What is the benefit of an BTC ETF?

The shares of an ETF can easily be obtained and traded and lowers the barrier of entry for investors. With Bitcoin, these barriers are buying the asset and, most of all, safe storage of the asset. A BTC ETF enables technologically inexperienced investors to profit from BTC price movement without going through the hassle of securing their private keys. Hedge funds, pension funds, and 401ks can easily invest in this ETF, so we expect a lot of new capital to flow in Bitcoin. Increased capital inflow decreases volatility and therefore making BTC more stable.

What types of Bitcoin ETFs are proposed?

There are two types of Bitcoin ETF proposals:
ETFs that Physically Hold Bitcoin (VanEck & SolidX ETF)
ETFs that Purchase Bitcoin Derivatives (ProShares, GraniteShares, Direxion)
ETFs that physically hold Bitcoin

This type of ETF owns the underlying asset it tracks. Every share is backed by the real deal.

Pros:
low transaction costs
tracks the performance of the underlying asset directly
high liquidity

Contras:
counterparty risk (custody of the asset)
ETFs can only be traded through specific daytimes where the BTC market is open 24 hours

ETFs that purchase Bitcoin derivatives
The second kind of ETF does not actually hold any Bitcoin. Instead, the ETF tries to mimic the performance of Bitcoin by trading Bitcoin futures, options, swaps, money market instruments.

Pros:
no worrying of custody of BTC, since these types of ETF don't hold BTC directly

Contras:
approximating the performance of Bitcoin
active management risk
active management cost
margin call risk
leveraged trading risk
rollover risk
ETFs that are holding physically Bitcoin are far superior to the derivatives-based one. And I expect the first type to havesignificant higher chances of approval. BTC-futures are only a few months old and I cannot imagine that the SEC will approve an
ETF that tracks these highly speculative and brand new derivatives as underlying.

Requirements of the SEC

The U.S.- Securities and Exchange Commission (SEC) has certain requirements for an ETF to be approved:
Custody solutions
immune to manipulation
sufficient liquidity
coorect valuation of the NAV

Current situation

All derivatives-backed ETFs were rejected by the SEC on August 23. These ETFs were filed by ProShares and Direxion.
The decision came down to the risk of market manipulation & fraud. The SEC can only approve an ETF that is designed to
prevent fraudulent and manipulative acts and practices. The Winklevoss ETF (backed by the underlying asset) was rejected
earlier this month. The main argument for rejection was the fact that the price determination of the NAV would only happen
on the Gemini exchange (which is owned by the Winklevoss twins). The only remaining big proposal is the ETF from
VanEck & SolidX which backed by the CBOE (Chicago Board of Options).

The VanEck & SolidEck ETF proposal backed by the CBOE

This proposal is vastly superior to prior ETF proposals and addresses most of the concerns the SEC has expressed when rejecting prior ETF applications. Reasons are:
holds physical BTC
backed by the CBOE, which is a very serious institution
shares are big (25 BTC = 1 share), this excludes retail investors
Involved parties:
Fund: SolidX Bitcoin Shares.
FileExchange: CBOE BZX Exchange.
Trust/Fund IssueBTC Custodian: VanEck SolidX Bitcoin Trust.
Trust’s SponsoManager: SolidX Management.
Trust’s Administrator & Cash Custodian: BNY Mellon.
Marketing Agent: Foreside Fund Services.
Marketing: Van Eck Securities Corp.

Comparison with a Gold ETF

The SEC approved the streetTRACKS Gold Shares ETP even though the spot gold market were largely unregulated.
On March 28, 2003, the first gold-backed ETF, developed by ETF Securities, was launched. It trades on the Australian stock exchange as the ETFS Physical GoldGOLD, +0.06% with assets under management at about $602 million.
“We can certainly track the growth of gold ETFs since their invention, and see how investor interest in gold has growth significantly,” said Will Rhind, managing director of U.S. operations for ETF Securities. Globally, there are now 143 gold ETFs available, with the latest data showing assets under management at roughly $132 billion, he said.
In the first few years after the first Gold ETF was introduced, the Gold price rose by over 600%. The ETF lowered the barrier
of entry for many investors.

Final deadline

The Sec can postpone the final decision until 21. February 2019 and we expect them to do so. The developement of Bitcoin markets made big leaps forward since the filing for the Winklevoss ETF, for example we have now very advanced custody solutions
(from Coinbase for example) and with increasing liquidtiy volatility decrease.


submitted by MICH3R to swissborg [link] [comments]

LVX: The Coin That Expands Financial Inclusion To OVER A BILLION NEW INVESTORS Worldwide

LVX: The Coin That Expands Financial Inclusion To OVER A BILLION NEW INVESTORS Worldwide

https://preview.redd.it/w1ie272u30021.png?width=800&format=png&auto=webp&s=eb65c52b6a6248ce4363365b9a32b8e6d50ea211
As millenials go, Tyler is a free spirit. He does cosplay in the day, builds websites at night and handles all his financial transactions via PayPal. “I don’t trust the banks and the financial jargons are confusing”, he says. He’s not alone on this. In a study by Scratch, 71% millennials would rather visit their dentist than listen to the banks. This distrust rose over the years, contributing to a total unbanked population of 2 billion people worldwide.
This does not mean that millennials like Tyler prefer to just hang on to their money. On the contrary, in a survey conducted by Blockchain Capital, 30% of millennials would rather invest $1,000 in cryptocurrency than $1,000 in government bonds or stocks. With the millennials being the largest population in the world, it’s hard to ignore their growing interest in this market.
Blockchain’s anti-establishment roots and decentralized system of accountability and transparency, coupled with the global spread of mobile phones created a population of the digital natives we know as millennials who now have a variety of choices for finance at a click of a button. This same technology has also opened doors for hard-to-reach populations and small businesses to harness digital financial services at lower cost and risk.
The global investment landscape is about to shift towards Blockchain platforms as more new players enter the domain. These new platforms offer crypto tokens which act like virtual currency that represent an asset or utility that resides on their own blockchain. Crypto tokens could represent loyalty points, money or assets, depending on the platform’s offer and purpose. These crypto tokens are often designed to be stable, as opposed to crypto currencies like Bitcoin. If the proposition of these Blockchain platforms are compelling enough, it will capture the attention of the unbanked population and provide improved access to secure transactions that can enable people to take charge of their finances and build a better life.
When the hype on cryptocurrency dies down, crypto tokens will be on the rise to replace money as an everyday token of exchange to facilitate commerce and investment. Crypto tokens that function as currency for investment or banking will soon be highly demanded because Blockchain technology takes care of basic investing concerns like transparency, accountability, and security for all transactions. This is a highly attractive proposition for the millennial market because all trade can happen on their mobile phones in a Blockchain system that allows no room for fraud, hacking or long processing time.
Hollywood would soon have to replace the age-old movie depiction of investment brokers on Wall Street to user-centric stories where users are empowered to make their own investments, in their own time. Cutting edge Blockchain platforms like Level01 are seeing to this change by building a digital eco-system that will enable the general public to enter the highly lucrative $1.2 quadrillion global derivatives market with ease and confidence.
https://preview.redd.it/m2jdaozr30021.png?width=983&format=png&auto=webp&s=f25d87a5cecb9b83f8ba5c5cbc69d564ad8fae77
Level01 is the world’s first Brokerless Derivatives Exchange in partnership with Thomson Reuters. The Level01 app interface is as sleek as a gamer’s console and is extremely intuitive for users of all ages and background. With a low initial trading investment cost and user-centric app that empowers all types of investors, anyone can come on board regardless of whether they are new or experienced derivatives investors. An inbuilt trade matching capability makes the investing experience all the better because you are automatically given a selection of trade matches that are fairly priced for your selection and investment style.
Initial users to the Level01 platform ecosystem are primarily individuals, with the potential for businesses or groups to join the platform eventually. True to the nature of Blockchain, Level01 platform works to prevent any individual or group to hoard its native LVX token so that it can remain as a decentralized, and level investing ecosystem with a healthy value creation loop.
When more people participate in the Level01 platform for trading options contract for profit, they add and create value for the collective by improving liquidity. Level01 users create value for each other by becoming counterparties for each other and becoming both issuers of options contracts and also as counterparty matchers. As more people join the platform, the effect is enhanced exponentially creating a virtuous self-enforcing loop.
EVERYONE BENEFITS To encourage continuous trading activities on Level01, users can host trading rooms and tournaments to earn perpetual residual commissions. This clever user-driven mechanism keeps the LVX token active within the network, reinforces its price and reduces the pressure of selling the LVX token for other cryptocurrencies or tokens.
Beyond having just individuals on board, Level01 will allow institutional investors and brokers to trade on the platform. Adding them will increase liquidity and allow all Level01 users to obtain better trade execution and more profitable trades, with better odds. The platform utilizes Thomson Reuter’s data feeds as a trusted source for its AI deep learning algorithms to provide real-time pricing analytics on derivatives contracts; the data is also used to ensure transparent, efficient and accurate settlement of derivative contracts upon maturity. Level01’s partnership with Thomson Reuters will attract institutional traders to come in for their own book balancing. The system also facilitates commercial and institutional trading by providing access to the Level01 platform via APIs. Level01 anticipates other retail brokers will have significant improvements in liquidity, which would enable them to hedge their exposures at lower costs outside of their own platforms. Again, this creates greater liquidity and trading benefits for all.
Does adding institutions and professional brokers to the mix really make the trading environment better? It does. An example of how this would work is BetFair, a peer-to-peer bookmaker in the United Kingdom that acts as a marketplace in its own right to other traditional bookmakers (such as William Hill or Ladbrokes) enabling them to hedge positions.
Value creation is a by-product of trade; two different parties choose to exchange assets of differently perceived value to each own satisfaction. In this case, the speculated price of a market asset could translate to highly rewarding trading profits.
With all the checks in the boxes ticked, the Level01 platform is in a prime position to serve a global market of banked and unbanked populations that demand for lower barriers to entry, financial transparency, accountability and security. Opening doors and extending financial inclusion to a previously untapped market makes trade more lucrative and empowers all types of users with the freedom to build, plan and design their own financial futures.
submitted by Level01Exchange to u/Level01Exchange [link] [comments]

functional colored coins and hybrid consensus, part 1

The text below was originally published in the colored coins mailing list. I'm not sure if it's worth posting to /bitcoin, as it is pretty technical, but still, least technical I could do. So, judge yourself...
EDIT: TL; DR here.
Usually colored coins are described as a simple asset transfeownership tracking system which lacks capabilities for "smart contracts". (Aside from those which are based on Bitcoin scripting and transactions, e.g. these .)
This is largely true, as the colored coins model is limited compared to what metacoins (Mastercoin, Counterparty) or systems like Ethereum can provide: it lacks an ability to use implicit dependencies when computing color values, and implicit dependencies are crucial for implementation of derivatives, betting, etc. (I.e. the value of a coin must depend on something which is outside of that specific coin's history.)
(It's not necessarily a bad thing: one could argue that simplicity makes colored coins more suitable for simple asset transfeownership tracking systems.)
However, this doesn't mean that one must ditch the colored coins model to implement complex smart contracts. There is also an option to build a hybrid system where colored coins exist as one of layers, and extra "business logic" is added on top of it. Quite likely such a hybrid system will require non-fungible colored coins with non-scalar colorvalue types.
I described non-scalar colorvalue types in the follow-up discussion to "The theory of colored coins" article: the model described in the article doesn't require colorvalues to be of a particular type, thus it can be a tuple, vector, or, really anything. I provided several examples, most interested and advanced of which was fully decentralized prediction market.
However, these examples were provided as sketches and ideas and lacked formalized, rigorous descriptions. So this is the problem: we lack formalisms which are necessary to described advanced used of colored coins. The concept of functional colored coins, which I'm going to introduce in this article, is one of such formalisms. (I'm aware of another such formalism which is currently in advanced stages of development, but I can't elaborate on this.)
We will start with a motivating example: CFD/NDF-style derivatives. Formal description will be provided after this example.
Color kernels which are in use now (OpenAssets, EPOBC) work with colorvalues which are concrete numbers. E.g. if we have a USD-denominated e-money based on colored coins, one might have an output with value of $12.45 USD, and he is able to send it to somebody, or split it into several outputs, etc.
But what if instead of concrete numbers we had colorvalues which are ...functions? We still can represent a concrete number as a nullary function: f() = $12.45 But then we will also be able to create contracts with payoff defined as a function accepting some (external) data as a parameter.
Suppose Alice and Bob have $1000 worth of USDcc each, and they wish to enter a CFD-like contract for MSFT shares. Alice is long on MSFT price, and Bob is short.
Initially they own outputs which have concrete value, thus they can be represented as nullary functions:
Alice_output_1() = 1000 Bob_output_1() = 1000 
If the current MSFT price is 48.14, and Alice is long on 10 MSFT shares, her CFD payoff is:
Alice_payoff1(MSFT_price) = (MSFT_price - 48.14) * 10 
and Bob's payoff has same absolute value as Alice's payoff, but a different sign:
 Bob_payoff1(MSFT_price) = (48.14 - MSFT_price) * 10 
They will provide outputs they initially own as collateral (initial margin) of the contract, and after those outputs are used, their payoff can be described by formulas:
 Alice_payoff2(MSFT_price) = 1000+(MSFT_price - 48.14) * 10 Bob_payoff2(MSFT_price) = 1000+(48.14 - MSFT_price) * 10 
However, as there are no margin calls in this system (we want it to be trustless), payoff must not be lower than 0 or exceed 2000. Thus, finally we have:
 Alice_capped_payoff(MSFT_price) = min(max(1000+(MSFT_price - 48.14) * 10, 2000), 0) Bob_capped_payoff(MSFT_price) = min(max(1000+(48.14 - MSFT_price) * 10, 2000), 0) 
So this looks good enough, as law of conservation is satisfied, thus we can use these formulas to describe values of outputs of CFD transaction. That is, to create a CFD contract, Alice and Bob will create transaction with two inputs:
Alice_input() = 1000 Bob_input() = 1000 
And two outputs:
 Alice_output_2(MSFT_price) = min(max(1000+(MSFT_price - 48.14) * 10, 2000), 0) Bob_output_2(MSFT_price) = min(max(1000+(48.14 - MSFT_price) * 10, 2000), 0) 
Sum of inputs is 2000, and sum of outputs is 2000 for all values of MSFT_price, thus this transaction is valid w.r.t. laws of conservation.
As a result of this transaction, Alice owns an output which is worth min(max(1000+(MSFT_price - 48.14) * 10, 2000), 0). Now what? What can we do with outputs whose colorvalues are non-nullary functions?
First of all, we can combine them back. E.g. suppose after some time MSFT_price goes to $52.14. If both Alice and Bob have consensus over MSFT_price and no longer want to hold a CFD, they can create a transaction which cancels it:
Inputs:
 Alice_input(MSFT_price) = min(max(1000+(MSFT_price - 48.14) * 10, 2000), 0) Bob_input(MSFT_price) = min(max(1000+(48.14 - MSFT_price) * 10, 2000), 0) 
Outputs:
 Alice_output_3() = 1040 Bob_output_3() = 960 
This can be proven to be a valid transaction, as the sum of inputs is $2000 and sum of outputs is $2000 too.
In a different situation, if Alice no longer wants to be long on MSFT, she might sell her output to Claire for $1040:
Inputs:
 Alice_input(MSFT_price) = min(max(1000+(MSFT_price - 48.14) * 10, 2000), 0) Claire_input() = 1040 
Outputs:
 Alice_output_3() = 1040 Claire_output() = min(max(1000+(MSFT_price - 48.14) * 10, 2000), 0) 
And then Claire will be able to combine her output with Bob's to get actual money.
So far so good. But what if Bob have lost his private key, is Alice (or a person Alice sold her output to) doomed to hold this CFD forever? What if she wants to redeem her output for actual USD, but Bob is unwilling, or cannot help to cancel the MSFT exposure?
In this case we need CFD-like contract which will expire at some point. Which makes it the same as Non-deliverable Forward (NDF) contract.
Let's replace MSFT_price with MSFT_price_at_T in the original formula: it will denote MSFT price at some concrete point in future (T). After this point, users might reach a consensus of what MSFT_price_at_T is, and thus it becomes a constant. Thus expression min(max(1000+(MSFT_price_at_T - 48.14) * 10, 2000), 0) s also a constant, and thus Alice now has a concrete amount of coins, and this can be recognized by anyone who is in a consensus with Alice over what is the value of MSFT_price_at_T is.
So let's say Alice an Bob specified that MSFT_price_at_T is the closing price of MSFT on NASDAQ on 2015-06-07. Suppose that the closing price of MSFT on NASDAQ on 2015-06-07 is $52.14, as reported by NASDAQ. Thus after this date, all clients which are able to fetch this number from NASDAQ will see the value of Alice's output as $1040. Particularly, the issuer will see it as $1040, thus he will agree it redeem it for $1040 according to the issuance contract.
Note that this requires consensus over data which is provided by an external source (NASDAQ), and this cannot be taken for granted. Thus we have a hybrid consensus system, which combines several different consensus mechanisms:
  1. there is a strong cryptographic consensus over the colorvalue-function of Alice's output
  2. there is a Bitcoin blockchain-based consensus over who currently owns that output
  3. there is a trust-based consensus over the variables which are used in the function
I think it's obvious that this hybrid system has benefits over centralized trust-based systems: we only need to trust a data feed, and only to a limited extent. A data feed doesn't have a power to block anyone's transactions, or charge fees, or discriminate different agents. A big part of the system is fully decentralized (as decentralized as Bitcoin), and thus has all the benefits of a decentralized system: We do not have a single point of failure (if data feed is temporarily down, transaction can still be made, that will only delay "settlements"). If the data feed goes down, clients might elect another data feed, they just need a consensus over what data feed to use. Finally, if a data feed becomes malicious (publishes wrong data, or a different data to different actors), clients might choose to elect a different data feed. As settlements are not recorded in the blockchain, but are a function of the current consensus, the situation can be remedied even after a data feed publishes erroneous data: clients can undo the damage as soon as they discover the error and switch to the correct data. Thus the system can be robust to a very large degree.
It's also worth noting that we can use arbitrary consensus mechanisms on the third layer, not just simple trust-based ones. E.g. there might be a network of trusted oracles which will make sure that everyone has the same view over what data was published. Or there might be some kind of a Byzantine Fault Tolerant network, or a network based on a Ripple-style consensus. At this point we are only describing a framework within which different consensus mechanism can be combined.
(A blockchain-based consensus is possible too, e.g. client might scan the blockchain for the executed trades to find the price which is used for CFD/NDF settlements, and thus achieve functionality similar to that of Counterparty.)
Let's summarize what we've got so far:
  1. We introduced a level of indirection: instead of getting a monetary value of an output directly, we get a function which yields a monetary value once the data is provided.
  2. A color kernel might work with functions instead of scalar values: it will receive input colorvalue-functions and will transform them into output colorvalue-functions according to the data embedded into the transaction.
  3. In order to achieve a global law of conservation (we do not want issuer's liability to depend on the contracts which are created by users among each other, i.e. users shouldn't be able to create more money for themselves), it is enough to ensure that the law of conservation is enforced by the color kernel, i.e. it checks that the value of output colorvalue-functions equals to value of input colorvalue-functions for all values of free variables.
  4. We get to the actual monetary values using a secondary consensus system, which can be arbitrary: based on trust, BFT-systems, blockchain-based, etc.
One thing which is lacking is a graceful handling of situations in which the secondary consensus is lacking: we do not want the system to blow up in such situations. Instead, we want to detect them, and to pause operations until the consensus is restored. This can be done using interactive payment protocols/interactive payment verification.
submitted by killerstorm to Bitcoin [link] [comments]

Crypto Exchanges  Part-4  Bitcoin and Cryptocurrency Course  Hindi 3 Types of People Who Won't Buy Bitcoin Counterparty Risk – How To Protect Your Bitcoin BitCoin ATM Part 1 Counterparty Meaning

Counterparty extends Bitcoin’s functionality in new and unprecedented ways, by encoding data in ordinary Bitcoin transactions. The Bitcoin protocol stays exactly the same, while supporting the development and adoption of valuable new features, all secured by the full power of the Bitcoin network. Counterparty is a peer-to-peer financial platform and distributed, open source Internet protocol built on top of the Bitcoin blockchain and network. [1] It was one of the most well-known "Bitcoin 2.0" platforms in 2014, along with Mastercoin, Ethereum, Colored Coins, Ripple and BitShares. [2] It is a "metacoin"-type protocol. It provides such features as tradable user-created currencies ... counterparty-lib provides a JSON RPC 2.0-based API based off of that of Bitcoin Core. It is the primary means by which other applications should interact with the Counterparty network. The API server is started either through the CLI interface or with the counterparty-lib Python library. It listens on port 4000 by default (14000 for testnet) and requires HTTP Basic Authentication to connect ... In a Nutshell: Blockchain technology has long been associated with financial services, but the open-source Counterparty project is proving that any business can use tokenized economies. Since 2014, Counterparty has allowed users to create and trade their own unique tokens on the Bitcoin network and write in the margins of regular Bitcoin transactions. The program […] Using Counterparty and Bitcoin transactions, the future of online gaming can be like the future of money itself: decentralized. To show you what we mean, we actually built Rock-Paper-Scissors (RPS) and Rock-Paper-Scissors-Lizard-Spock (RPSLS) into Counterparty! And the underlying system allows you to do a lot more than just play rock-paper-scissors… You can play any game of this type with an ...

[index] [31659] [50154] [14405] [10335] [17016] [5848] [4877] [18681] [451] [23087]

Crypto Exchanges Part-4 Bitcoin and Cryptocurrency Course Hindi

Counterparty Risk – How To Protect Your Bitcoin/ Cryptocurrency 1) Lost Bitcoin on crypto exchanges ... What is Counterparty Risk? 6) How to Short Bitcoin without counterparty risk?-----Category ... Bitcoin ATM's are coming! Bitcoins are digital peer to peer currency. Let Todd Bethell take you on an insider's look into the much anticipated global bitcoin... I will share with you the best trusted site ever to double your bitcoins. Free Bitcoins every hour Bitcoin, the currency that is changing the world. Bitcoin ... Video is a Part 4 of Bitcoin and Crypto currency course. In this part we have covered the basics of Cryptocurrency Exchanges There are types of exchanges lik... Bitcoin Q&A: What happens to our bitcoins during a hard fork? by ... Decentralised exchanges and counterparty risk by aantonop. 7:03. Bitcoin Q&A: Explain Bitcoin to my mother? by ...

#