[header date=”19 October 2018″]Crypto companies crack Y Combinator’s top 100, donations by Ripple execs help XRP find new markets, and a CFTC official opines on decentralized app developers.[/header]
What you need to know—and why
Three blockchain and crypto companies cracked Y Combinator’s top 100 companies by valuation. Crypto exchange Coinbase, valued at more than $1 billion, nearly made the startup accelerator’s top 10, but was edged out by Reddit. SFOX was founded in 2014, and helps funds, family offices, and other well-heeled people trade crypto. Its investors include Tribe Capital and Social Capital. Axoni, which builds blockchain-based trading platforms, also flies under the radar, even in crypto circles. In early 2017, it was tapped by the US Depository Trust & Clearing Corporation to develop a derivatives trading platform. Its investors include Goldman Sachs and Nyca Partners.
[takeaway]While declining trading volumes may threaten crypto company valuations, the trio’s inclusion on Y Combinator’s high-profile list lends legitimacy to the virtual currency and blockchain sectors. ↗️[/takeaway]
Binance is bolstering its anti-money laundering and regulatory compliance. On Wednesday, Chainalysis announced its partnership with the exchange, which is the world’s largest by trading volume. Binance is now using Chainalysis KYT (“Know Your Transaction”), a compliance product introduced earlier this year.
[takeaway]This is a show of good faith by Binance, but privacy freaks won’t be happy about the increased scrutiny. Keep an eye on Binance’s trading volumes to see whether Chainalysis weeds out fake or malicious orders. ↗️[/takeaway]
Malta welcomes Zebpay. After Indian authorities restricted financial service providers from doing business with crypto exchanges, Zebpay—once India’s largest crypto bourse—has moved to Malta, a crypto-friendly jurisdiction. Although the island nation has embraced crypto businesses as part of its “Blockchain Island” initiatives, Malta’s crypto licensing exam has proven difficult for the 250 or so lawyers, accountants, and auditors who have taken the multiple-choice test. The Times of Malta reports that even after the grading scheme was changed, just 39% of test takers passed.
[takeaway]Despite the influx of blockchain companies into Malta (and other crypto havens), the country might not be prepared to handle the industry. It takes time to study and set up appropriate compliance regimes, and even careful oversight might not prevent calamitous hacks (just ask the Japanese). ➡️[/takeaway]
A novel way to earn XRP. Omni, a storage and rental startup, raised $25 million in January, in part in XRP provided by Ripple execs in a personal capacity. Now, Omni is looking to unload the XRP portion of its funds to customers, who can get paid in the cryptocurrency for renting out their items stored via the company’s platform. Omni won’t charge withdrawal fees to users who accept XRP payouts, but they will face crypto market volatility, making it a risky alternative to old-fashioned US dollars.
[takeaway]Omni’s XRP announcement bolsters Ripple’s narrative that it doesn’t manage the digital asset… but we’ll see how that plays out in court. ➡️[/takeaway]
Maybe blockchain won’t save journalism after all. It’s back to the drawing board for Civil, the media company trying to incentivize ethical journalism with cryptocurrency. The project failed to gain traction during its token sale, and most of its funding continues to come from venture outfit ConsenSys.
[takeaway]Everything from Civil’s white paper to the process for participating in its ICO was excruciating. With proposed partnerships rejected by most major media organizations (aside from Forbes), Civil’s first draft has been sent back for editing. The project is now gearing up for a second token sale, while offering refunds to its initial supporters. However, without major changes to its platform and a proper explanation for why journalism needs a crypto token, it’s tough to see blockchain-based media taking off. ↘️ [/takeaway]
[supplemental headline=”Reasonable doubt”]
Was the spike in ZRX due to insider information or bots? Neither would be flattering for the token, but this week CoinDesk suggested that the surge on other exchanges prior to Coinbase’s announcement that it would list ZRX might be attributed to ultra-advanced trading bots rather than trading on insider info. Just before the exchange’s announcement, the global price of ZRX jumped by 35% (see chart below). Similar volatility ran ahead of Coinbase’s listing of bitcoin cash. Like CoinDesk, Coinbase is one of VC Digital Currency Group’s portfolio companies, adding intrigue to the story.
Some also speculate that ZRX, the token for the 0x (pronounced “zero-ex”) protocol that powers decentralized exchanges, might have been listed ahead of other tokens because of overlapping interests between Coinbase and the project’s advisors. 0x’s advisors include Coinbase co-founder Fred Ehrsam, former product manager Linda Xie, and the exchange’s first hire, Olaf Carlson-Wee. It’s fairly common, however, for crypto execs to advise on multiple projects.
[mailto filter=”ZRX” subject=”0x”]Do you see a future for decentralized exchanges?[/mailto]
[/supplemental]
Crypto meets finance
This week, Fidelity announced the creation of Fidelity Digital Assets, a division dedicated to trading and custody of cryptocurrencies. The new arm, the fund giant says, offers “institutional solutions for a new asset class.” Digital currency fans have long prophesied the arrival of institutional investors, the “serious money.” The theory goes like this: If the old boys buy in, then bitcoin and its descendants will really explode in value. Indeed, Fidelity’s strategy signals that the firm thinks it can cash in by making digital assets more widely available to its biggest clients.
[takeaway]Building a trading platform is just step one. Large funds will need to seek internal approval before they speculate in the crypto markets, but a name like Fidelity (the firm handles close to $7 trillion in customer assets) could help smooth the entry of institutional money into the wild world of virtual assets. ↗️ [/takeaway]
[supplemental headline=”Chart interlude”]
The “Coinbase effect” on ZRX
[img src=”https://cms.qz.com/wp-content/uploads/2018/10/atlas_Hy_OkLLoX@2x.png”]
[/supplemental]
Regulatory watch
The man in charge of developing a central bank digital currency for the People’s Bank of China has moved on. Yao Qian, who led the central bank’s Digital Currency Research Institute, has returned to the China Securities Depository and Clearing Corporation as general manager. He previously worked for the CSDC from 2002 until 2010. The PBoC has yet to name Qian’s replacement.
[takeaway]While his departure may stall the PBoC’s plans for a digital yuan, the institution has signaled its continued commitment to a central bank digital currency (CBDC) through blockchain-related job postings. Don’t write off CBDCs just yet. ➡️[/takeaway]
Crypto is not legal tender, says the Zambian central bank. In a brief press release, the Bank of Zambia warned of the risks of cryptocurrency, including fraud and hacking, while cautioning that the digital assets remain unregulated.
[takeaway] Zambia’s negative posture toward crypto contrasts with Kenya and Nigeria’s more open attitudes. ➡️[/takeaway]
Smart contract developers might be legally liable for creating prediction markets. That’s according to US Commodity Futures Trading Commission commissioner Brian Quintenz, speaking at a conference in Dubai. The commissioner differentiated between core developers (programmers who create generalized networks like Ethereum) and smart contract developers (those who build applications on top of decentralized networks). He described it thus: “Think of someone asking you to borrow the keys to your car because they want to rob a bank,” he said. “If you let them borrow your car, it would be reasonable for the government to hold you partially responsible for the ensuing criminal activity. However, it would be unreasonable for the government to prosecute the car manufacturer.”
[takeaway] Quintenz’s speech raised critical issues about the legal status of decentralized applications (dapps), and it’s not hard to read between the lines. Quintenz’s speech seemingly addressed Augur, the predictions-market platform developed Jack Peterson and Joey Krug, in collaboration with the Forecast Foundation. The dapp has infamously been used to create assassination markets, including several for Donald Trump. Those are not legal. ↗️[/takeaway]
[mailto filter=”Smart Contracts” subject=”Smart Contracts”]Should dapp developers be legally liable for how others use their creations?[/mailto]
[supplemental headline=”Hacks, scams, and capers”]
Nearly $930 million of cryptocurrency has been stolen so far in 2018, more than 3.5 times the haul in all of 2017. According to a report (pdf) by crypto forensics firm CipherTrace, in the third quarter of 2018, a pattern emerged of “smaller” hacks in the region of $20 million to $60 million each. These hacks have netted $166 million of crypto while targeting Bancor, Zaif, and Coinrail, among others, through social engineering and platform vulnerabilities.
[/supplemental]
Calendar
🗣 Oct. 21-24: Money 20/20. Speakers at the Las Vegas event range from Coinbase president Asiff Hirji and Andreessen Horowitz’s Kathryn Haun to Senegalese singer Akon and Virgin Group founder Richard Branson.
🗣 Oct. 22-24: Crypto Invest Summit. Hosted at the Los Angeles Convention Center, the event will include Pantera Capital CEO Dan Morehead, Apple’s co-founder Steve Wozniak (who recently became a co-founder of EQUI Global), and VC Tim Draper.
📚 Oct. 22: TD Ameritrade earnings. Earlier this month, the brokerage firm invested in ErisX, a new cryptocurrency exchange, which aims to support futures and spot trading.
📚 Oct. 24: AMD, Microsoft, Nasdaq, and Visa earnings. A big day! For chip maker AMD, we’ll see whether sales of GPUs—used for cryptocurrency mining—continue to slide. Microsoft has made inroads by bringing blockchain-linked services to Azure and acquiring GitHub, but blockchain is still mostly a footnote to the company’s overall performance. Keep an eye on Nasdaq, which is purportedly considering listing individual cryptocurrencies. Finally, Visa, which is often portrayed as the centralized foil to blockchain-based payment networks, doesn’t seem concerned by crypto, but may be quizzed by analysts about it.
🗣 Oct. 27-Nov. 1: Asia Blockchain & Fintech. Hosted by Seoul’s city government, the week-long series dubs itself “the largest blockchain event in Asia.” The conferences, meetups, and hackathons promise heavy representation from Korean, Chinese, and Japanese crypto companies.
🗣 Oct. 29: D1Conf. Covering everything from oracles to social security, this one-day event will bring together incumbents and innovators to discuss blockchain-based insurance and potential improvements for “insurtech.” If you’re already in Prague for Devcon, D1Conf could be a worthwhile opening act.
🗣 Oct. 30-Nov. 2: Devcon 4. This year, the premier Ethereum conference takes place in Prague, Czech Republic. Talks are aimed at a deeply technical audience.
[mailto filter=”Calendar” subject=”This is happening”]Tell us about your upcoming news and events.[/mailto]
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