Circle research

Weekly Crypto Recap 12/7-12/13

Know & go

  • Highlight of the week: Nuances in an Augur market could result in disputes between groups of participants. Check out the Messari podcast this week, where Katherine Wu and I discuss prediction markets.
  • Three things to know: (1) CFTC submits Request for Information (RFI) on Ethereum, (2) Basis shutters due to regulatory concerns, (3) As of last month, only 10 companies were approved for a New York Bitlicense since it rolled out mid-2015.
  • BVOL (the rolling 30-day annualized Bitcoin volatility as calculated by Bitmex) fell to a low of 14% on Nov 14. It has been above 111% since Nov 30 and is now at 119%.
  • Total crypto market capitalization is around $104 billion at press time, down 4.6% w/w. BTC is trading at $3301 (down 2.8% w/w), ETH is at $86 (down 0.8% w/w).*
    *As of 12/14 10:00AM ET

Weekly market snapshot

Top Stories

Augur Leaves Room for Interpretation

Augur is a decentralized prediction markets platform. In Augur, market creators create markets on future events. They set a designated reporter to report the correct outcome when the market closes. They are required to stake funds in ETH and REP as incentivizes to create legitimate markets and report on time - they lose their stake if a market is invalid and if outcome is not reported on time. Traders can trade shares while the market is open and pay fees to the market creator and reporters. After a market closes, it enters a 7-day dispute period during which anyone can dispute the reported outcome if they think it's incorrect. This process is Augur's decentralized oracle.

During the US mid-term elections on Nov 6, someone created a market, "Which party will control the House after 2018 U.S. mid-term election?", phrased the exact same way as the same market on Predictit (a centralized prediction market platform). The market closed on Dec 10, 2018. Initially, it seemed that the market would resolve "Democrats", until a trader bought thousands of dollars of "Republicans" shares. Why?

Because the market does not specify what it means by "after". While Democrats won the House, it won't be implemented until Jan 3, 2019. Thus, through Jan 2, 2019, Republicans still control the House. And, as Nick Tomaino shares, the creator/designated reporter of the market said "the intention is, and always has been, to measure the status of the House of Congress on the 10th of December, NOT the status after the new Congress takes office."

However, this is not how most participants in the market perceived the question, with the market results indicating only a few days ago that there was a 97% chance Democrats control the House. Therefore, it is likely that participants will dispute the reporter's outcome, when the 7-day dispute period begins next Wednesday (Dec 19).

A few things could happen. Participants could contribute to the "Democrats" dispute bond, which if not further disputed becomes the winning outcome. Participants could contribute to the "Invalid" dispute bond, which if not further disputed becomes the winning outcome. Participants could contribute to “Invalid” because the intent was not clear.

Alternatively, the disputes could continue back and forth between the three outcomes (Democrats, Republicans, Invalid) over the 7-day period. With each new dispute, the dispute bond size rises. If the size of the dispute bond reaches 2.5%+ of the REP in circulation and is filled, the system enters a 60-day fork period.

Nick Tomaino pointed out that the outcome can be disputed 13 times before reaching this threshold, with $1+ million staked. A fork could result in up to three Augurs - one where participants believe the correct outcome is “Republicans”, one where participants believe the correct outcome is “Democrats”, and one where participants believe the correct outcome is “Invalid”.

This is not the first time Augur markets have entered dispute rounds and will likely not be the last. Rather, situations like these test the effectiveness of the dispute and oracle system Augur has in place. Ben Davidow even says situations like these help Augur come back stronger. Ryan Selkis provides his thoughts in Messari’s Unqualified Opinions (to which we highly recommend subscribing!) and Nick Tomaino provides his thoughts here. It will be interesting to see what the outcome of this dispute will be.

For more information on Augur and prediction markets, check out our Prediction Markets report and Messari’s profile of Augur.

In other news

  • According to a report by the Cambridge Centre for Alternative Finance, verified crypto users climbed from 18 million to 35 million. Source.
  • A new project called UMA launched this week. UMA is a decentralized financial contracts platform that aims to allow anyone to design an build their own universally accessible financial products. Source.
  • Basis, Intangible Labs’ stablecoin project and algorithmic central bank, announced that it would shut down and return all funds to venture capital investors because it believes it cannot avoid securities regulation after meeting with the SEC. Source.
  • Pantera shares a letter saying that 25% of its ICO fund holdings could be impacted by the SEC's recent decisions to refund investors of unregistered securities. Source.
  • Coinbase announces that it could list up to 30 new assets on its platform. This is surprising because Coinbase has historically been conservative with the assets it lists on its platform. Source.
  • Cubits enters administration to address funds stolen in February 2018 hack. Source.
  • Samsung is developing a crypto wallet app that could launch with its Galaxy S10 phone. Source.
  • Ethereum developers have proposed taking Constantinople live at block 7,080,000, which means the update could go live between January 14 to 18, 2019. Source.
  • Dfinity to delay the launch of its internet computer, which was slated for 1Q19, because it believes launching a "cut down" version will delay launch of a full product. Source.
  • Block.one published a candidate for EOSIO software v 1.6.0, which contains multiple updates, including the resource exchange (REX) expected to solve multiple problems. With REX, dApp developers would be able to borrow EOS tokens to access bandwidth, which has been a key issue for developers. Source.

Global regulatory roundup

Americas

  • Bi-partisan congressmen introduce two new bills "The Virtual Currency Consumer Act of 2018" and "U.S. Virtual Currency Market and Regulatory Competitiveness Act of 2018" to address price manipulation and promote competitiveness in of the U.S. Source.
  • The CFTC published an RFI ("Request for Input") to the community to learn more about Ethereum and its ecosystem. The comment period will last 60 days and the input received will inform how the agency regulates Ethereum and its derivatives. Source.
  • The SEC settled token sale fraud lawsuit charges with former executives of AriseBank. Source.
  • Fortune's The Ledger submitted a Freedom of Information Law (FOIL) to the NYDFS for information on the BitLicense and found that as of last month (Nov 2018) a total of 36 companies have applied since mid-2015, 10 companies have been approved and 5 rejected, and only 10 companies have applied in the last 2.5 years. Source.

Europe

  • The Netherlands plans to regulate crypto companies by requiring them to acquire an operating license from the country's central bank. Source.
  • French parliament members want to spend ~$570 million in state-level blockchain projects over the next three years. Source.
  • Revolut secures European banking license that will allow the UK company to offer traditional banking services, which it plans to do next year in the UK, France, Germany and Poland. Source.

APAC

  • Prosecutors in Japan propose a 10-year prison sentence for former CEO of Mt. Gox, Mark Karpeles, accusing him for embezzling funds from clients. Source.
  • The PBoC stated that the STOs (security token offerings) that have surfaced are illegal, but it has embraced blockchain technology, for example, to protect the IP of online writers. Source.

Crypto funding focus

  • Social crypto startup, Good Money, raises $30 million round led by Galaxy Digital. It is building an app-based bank with incentives for downloading the app, referring friends, and setting up direct deposits. Source.
  • Kraken is raising funds by appealing to a select group of clients to purchase a stake in the firm, valuing the company at $4 billion. Source.
  • BlockFi raises $4 million in convertible debt from multiple companies including Fidelity subsidiary, Devonshire, Akuna Capital, Galaxy. BlockFi currently offers fiat loans to companies and individuals holding crypto but plans to expand its services next year. Source.
  • Thai exchange, Satang, plans to raise $10 million in a security token offering with backing from the government. Source.

What we’re reading

  • State of Bitcoin Report - Delphi Digital. In this in-depth report, Delphi Digital discusses Bitcoin's short term performance expectations and the long-term potential of the crypto asset.
  • 2nd Global Cryptoasset Benchmarking Study. The second benchmarking study focuses on four key industry segments - mining, exchange, storage, and payments.
  • 4 eras of blockchain computing: degrees of composability. Jesse Walden discusses the priorities of four eras of blockchain composability - Calculator Era, Mainframe Era, Server Era, and Cloud era. In his words, "a platform is composable if its existing resources can be used as building blocks and programmed into higher order applications".
  • Decentralized Governance Today: A Case Study on AGP-1. Devin Walsh of Coinfund reviews Aragon's 0.6 release and the results of a recent Governance Proposal vote. Her findings include that the proposal passed with 99.97% in favor. 2.6% of the ANT supply participated and one address held 57% of the tokens that participated.
  • Bitcoin and Ethereum: Prices Are Down More Than Fundamentals. Chris Burniske finds that the network value of Bitcoin and Ethereum are down more than performance of demand and supply side fundamentals such as number of daily of transactions (demand side).
  • Bitcoin is a Decentralized Organism (Mycelium). In part 1 of a 3-part series, Brandon Quittem begins comparing Bitcoin to fungi, saying "bitcoin's best characteristics are simply reflections of successful evolutionary strategies found in nature, specifically in the fungi kingdom.

What we’re listening to

Circle in the news

Where we’ll be in January

  • 1/10: CFA Society of Boston - Exploring the State of Cryptocurrencies and the Path to Main Street Acceptance, Boston, MA
  • 1/22-1/25: World Economic Forum Annual Meeting, Davos, Switzerland
  • 1/29-1/30: Paris FinTech Forum, Paris, France

If you have any thoughts or questions, please reach out at [email protected].

Disclosures

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