DeFi(ance), AntChain and Virtual Real Estate
Off The Blocks, Vol 120, July 28, 2020
|Amanjyot S. Johar||Jul 28, 2020||5|
The COVID-19 pandemic is still amongst us and shows no signs of life returning to normalcy anytime soon. We are working with our partners, clients, and portfolio companies, creating strong ecosystems for their mutual growth. Simultaneously, we are trying to resolve some of the most complicated and challenging issues to create a trusted environment for people to go back to work and get the economy back on its feet. You can read about our efforts in a 4 part series here. To be a part of the solution, reach out.
The DeFi Defiance
In the last few months, DeFi, or Decentralized Finance, has reached its own escape velocity in terms of the capital allocated and distributed under various digital assets, smart contracts, and DApp projects built on the Ethereum blockchain. By some accounts, the $ value of ETH driving these projects stands at $3.5B, a 3x increase in the last 30 days. The craze probably started with Compound’s token, COMP, distribution
The allure of DeFi is an outright defiance of the legacy financial system - worldwide. This trend has been in the making for a while now and with the disruption in global world order (due to Covid19) and the central bank response to it, many have sensed an urgency and an opportunity to push the boundaries and expand the ecosystem. I have previously said that anything that can be tokenized will be tokenized and we are seeing the first embodiments of it play out right about now.
The world still works on fiat money. Bitcoin and Ethereum (plus stablecoins and other virtual coins) have created a new asset class. This intersection of real-world and virtual currencies is creating a narrative that virtual assets can be good stores of value (at the moment) and/or be used in place of currency. This seems to be the thinking behind the most popular product on the market - loans. Users can stake their digital assets as collateral and take out loans. They can borrow for example about 60% of the collateral value (in dollar terms) and pay about a 10% interest rate on the loan. The underlying assumption is that these digital currency collaterals can be a good store of value. If they increase in value, the loan is akin to free money. Another product in the market is an interest bearing service - much like a traditional bank savings account, users can stake their digital holdings and earn interest.
The comparative ease with which these services can be set up and running has given rise to a large number of offerings from competing players. It is somewhat baffling that for a stablecoin like USDC, BlockFi can offer an 8.6% interest, whereas Coinbase offers a mere 0.15%. The answer again seems to be at the intersection of real and virtual worlds. BlockFi is not FDIC insured, whereas Coinbase deposits are, and the costs of compliance seem to be priced in.
As the market frenzy increases, it is more than likely that “tokenization of everything” is here to stay. The near-frictionless, permissionless, decentralized structure allows entrepreneurs to bloom regardless of geographical constraints. The instant success of simple loan and savings products are bound to translate into complex derivatives that will be hard to understand hidden behind layers of smart contracts. This is where there are hidden, inherent risks that should be understood before investors pool in their holdings to chase arbitrary yields. This tweet from Vitalik, just before this last month of the bull run seems prescient.
Much of what we are seeing in the ETH price increases, volatility and twitter enthusiasm is not based on fundamental improvements over traditional financial structures. Instead, it is speculation and arbitrage on a one-way street of irreversible transactions. A singular case of a flash crash in the price of ETH (most recently March 2020) can and will trigger an avalanche of margin calls, collateral liquidations, and trades where people lose a lot of (real) money. Those who were early or acquired ETH on the cheap have little to lose and are playing a different game than those getting introduced to the DeFi ‘defiance’ just now. The prior set has large holdings and often use third party insurance services to cover their losses. Newcomers will be well advised to tread cautiously. I am not bearish about crypto and tokenization. Quite the contrary, I am excited about the airdropped OSTKO (Overstock’s digital dividend token) and the listing of the Aspen coin on tZero.
Now for some news from the world this week:
Finance | Advancing Our Approach to Digital Currency: An interesting blog post from Visa. Today, fiat-backed digital currencies, commonly referred to as “stablecoins,” have emerged as a promising new payment innovation, combining the benefits of digital currencies with the stability of existing currencies like the US dollar. It’s a concept that is gaining traction beyond fintechs, and now includes financial institutions and central banks. Consumers and businesses are also adopting digital currencies and circulation is growing rapidly, reaching over $10B in May. Visa has been working to provide a bridge between digital currencies and our existing global network of 61 million merchants. Around the world, more than 25 digital currency wallets have linked their services to Visa, giving users an easy way to spend from their digital currency balance using a Visa debit or prepaid credential — anywhere Visa is accepted. … Read more on Visa
Gaming | Gaming Industry Use of Blockchain May Lead to Mass Adoption Blockchain technology is especially suited for gaming, and gaming can directly benefit from blockchain technology, both technically as well as in unlocking value from in-game items, tournaments, character development and gamer recognition. This paves way for esports being a leader in the sports and entertainment sector, much like the internet is now. Today, traditional media is mostly run on the internet, so perhaps through blockchain technology, all sports could one day contain elements of esports. … Read more on Cointelegraph
Enterprise | How the 'AntChain' Blockchain is Taking China by Storm: Valued at $200 billion, Ant Group is the largest unicorn in the world. Its flagship product Alipay, which has a mere 1.2 billion users globally, has provided Fintech solutions to both consumers and businesses, ranging from payments and lending to wealth management and insurance. the company released its latest version of “Ant Blockchain Open Alliance.” The consortium aims to bring small businesses and developers to the nascent industry, and help them build applications on top of Ant’s blockchain at a lower cost.
There’s no token economics, no fancy crypto incentive mechanism, no Defi... but guess what? They have made the most noise and struck the most deals so far.
Domains | Gemini Exchange To Offer Custody Of .Crypto Blockchain Domains: Domain registrars like 101domain and EnCirca will use Gemini’s custody services to make it easier for customers to buy blockchain domains without worrying about storing blockchain assets. Blockchain domains are used to access the decentralized web, and are Non-Fungible Tokens (NFTs) built on Ethereum and stored inside of a user’s wallet. This creates an opportunity for secure storage through custody services, just like with cryptocurrencies. Although it is possible for users to store their own digital assets, many users trust third-parties like cryptocurrency exchanges and custodians to store assets for them. … Read more on Aithority
Opinion | Why We Shouldn't Have AI Without Blockchain: It is possible to salvage the best of the internet while starting to solve some of its most pressing concerns. The underlying problem is that database security never caught up to the raw computer power that allows companies to collect and store more consumer data than ever thought possible. Instead of rethinking databases from the ground up to adjust to this new reality, the growing trend has been to introduce point fixes, further exacerbating the mess of APIs that have bogged down "modern" internet architecture. Blockchain provides a tamper-proof public record, ensuring each individual piece of data’s end-to-end traceability. Using this digital audit trail, AI decisions and results become easily explainable. … Read more on Forbes
Global tech giant Samsung is adding support for blockchain-based virtual world Decentraland to its wallet app. The Ethereum-powered platform allows users to monetize and build a virtual world using non-fungible tokens (NFTs), or crypto collectibles. According to a Decentraland announcement on Monday, the platform’s native tokens, LAND and MANA, are now supported by the Samsung Blockchain Wallet App. Non-fungible LAND tokens represent parcels of virtual real estate, according to the marketplace’s website, making it easy to trade land parcels with other Decentraland inhabitants. Fungible MANA tokens, based on the ERC-20 standard, are used to make in-game purchases and are burned (destroyed) in order to buy LAND.
Proteum is a global blockchain investment and advisory firm that works with public, private and start-up companies to help them transition into the world of blockchains and decentralized applications. We help companies strategically build their ecosystem and unique capabilities so that they can own and control their future. Velocity, our innovation hub, invests in and accelerates the time to market for startups and emerging ideas.