DeFi and Credit on the Blockchain: Why Loans Are Better When They’re Decentralized

Decentralized credit and loans: better for borrowers and better for the economy.

In the feverish quest to decentralize anything even remotely open to decentralization, one of the most promising areas is finance and the financial industry. This shouldn’t be too surprising, given bitcoin and the origins of blockchain technology, but at a time when even babies are being put “on the blockchain,” the emergence of decentralized finance (DeFi) provides welcome proof of crypto’s real utility and applicability.

And while DeFi is covering a wider range of areas — from remittances to derivatives and investments — its most promising sector involves credit and lending. That’s because, thanks to the openness, security and transparency of blockchains, it’s possible to make loans and credit available to a larger pool of people than ever before, while the interoperability of blockchains opens up the possibility for creating a spectrum of new lending products and services.

But even though the sector has expanded considerably over the past year or so, decentralized finance still needs to put in plenty of work before it can compete with legacy financial systems. At the same time, users need to be careful when using early stage and untested DeFi platforms and services, just as they need to be aware that not all DeFi systems are truly decentralized.

The big decentralized lenders

DeFi might be a relatively new and ill-defined term, but its meaning is simple, referring to the use of blockchains, cryptocurrencies and/or smart contracts in providing financial services to clients. And when it comes specifically to loans and credit, there are numerous platforms, services and companies that are harnessing decentralized ledger technology for the purposes of lending services.

The most well known of these is MakerDAO, which lends its stablecoin — DAI — to users, who gain their loans by depositing ether (ETH) with the Maker system as collateral. According to the recently launched DeFi.Review website, it’s the biggest decentralized finance platform by a comfortable margin, having roughly $508 million in ether locked up in its platform. Behind it is EOS REX, which has deposits of EOS worth around $437 million, and which lends to users who want extra EOS in order to stake the cryptocurrency for extra CPU/NET bandwidth on the EOS blockchain.

Both of the platforms above are infrastructural, in that they serve primarily to support crypto economies and ecosystems — be this the EOS blockchain in the case of EOS REX or various cryptocurrency markets in the case of DAI. As such, they arguably don’t satisfy the common sense or traditional definition of lending and credit, given that they aren’t awarding loans to the general public. Meanwhile, the fact that they both account for approximately 86% of the total amount of assets locked up by DeFi platforms (according to DeFi.Review) is an indicator of how young the sector still is.

Why lending is better when it’s decentralized

Nonetheless, as young as DeFi lending may be, there are many other platforms besides MakerDAO and EOS REX that are offering credit via decentralized means. Launched in September 2018 and having around $42.4 million locked up, Compound is a decentralized money market where you can lend your own stores of crypto in order to earn interest, while the peer-to-peer lending platform Dharma was launched in April and has roughly $23.91 million locked up, either as ether or DAI. On top of this, there’s a long list of competing platforms, including Cred, BlockFi, Lendoit, SALT, NUO, ETHLend and Colendi.

Another one of these new DeFi lending platforms is Bloqboard, which lets users borrow or lend a range of crypto assets on the Ethereum blockchain, from Wrapped Ethereum to BAT, ZRX and DAI. Its dashboard is fairly simple, with visitors being able to choose to borrow or lend any supported crypto and with them being presented with the variable interest rate they’ll benefit from or have to pay. It also enables customers to use Ledger or MetaMask to interact with the Ethereum blockchain and track their transactions. And as Bloqboard’s head of growth, Nick Cannon, explained to Cointelegraph, such transparency is a big part of the reason why decentralized lending and DeFi more generally is likely to take off.

“DeFi brings magnitudes greater accountability and transparency to investors making for a healthier financial system. These products will broaden access to sound financial investments no matter what geography you reside in.”

On top of greater accountability and transparency, decentralized finance will also bring the benefit of greater security for users and their funds, something pointed out to Cointelegraph by Guillaume Palayer, a co-founder of decentralized crypto asset management platform Betoken.

“The main advantages are the control, security and permissionless nature offered for the end users by DeFi products,” he said. He went on, saying:

“Permissionless because everyone can access it without conditions and independent of your local financial system’s health. Security and control because the vast majority of DeFi products are non-custodial and offer the option to opt-out of their service with a simple transaction.”

As both Palayer and Cannon suggest, the decentralized and geographically nonspecific nature of blockchain means that DeFi lending is more open to a wider market of customers than centralized alternatives. But in addition to this, decentralized lending is more open in a financial sense, and for two primary reasons.

First of all, most blockchain-based credit platforms don’t actually require users to have a good credit score or even a credit history, with many covering the risks they take on by requiring collateral — often in the form of crypto — from borrowers (as in the case of MakerDAO, for instance).

“With a decentralized loan, you’re not dependant on having access to a credits system and you are able to customize the duration and the cost of the loan however you want,” Palayer explained. “As far as I know, no centralized loan providers offer this kind of advantage in a trustless fashion.”

The fact that you don’t require a credit score is in evidence, for instance, with Nexo, which offers instant loans in over 45 fiat currencies. Nexo co-founder Antoni Trenchev told Cointelegraph:

“As long as you have crypto assets, you can immediately borrow cash that is delivered straight to your local bank account.”

Nexo claimed to have issued $300 million in loans to over 170,000 users in the seven months leading up to March, while Trenchev also reports that the use of blockchain and crypto-based collateral means that loans can be made extremely flexible for users, both in terms of the amount borrowed and in terms of the conditions attached to lending: “There is no fixed repayment schedule, no strict maturities. As long as you have sufficient collateral to secure your borrowed funds, you have the flexibility to repay your loans at any time with cash or crypto assets.”

Secondly, in many cases, the decentralized, blockchain-based nature of DeFi lending systems allows companies to offer credit at a lower cost, something that obviously makes obtaining loans more affordable for a wider group of people. “Borrowing and potentially the costs of payments in distributed systems are lower,” Alexey Ermakov, the CEO and founder of decentralized payment apps Aximetria and PayReverse, said. He continued:

“Among other reasons, this is due to the fact that in the case of blockchain-based credit systems there are no compliance costs and/or they are significantly lower, and costs are also lowered by the ability to make electronic mortgages and provide loans on the basis of smart contracts.”

Feeding into the openness of decentralized lending platforms is the burgeoning area of blockchain interoperability and atomic swaps, which promise to give users more options when taking out loans or lending crypto.

“Another huge advantage that stems from DeFi’s permissionlessness is interoperability,” Palayer said. “You could take out a DAI loan from MakerDAO and convert it to Ether using Uniswap or Kyber Swap to gain leverage. The possibilities are endless, and we feel everyone should be excited about this.”

And from a more general and macroeconomic perspective, the increased openness and accessibility of decentralized loans should result in higher productivity for the global economic system, as outlined by Cannon:

“As the market matures, decentralized lending services will source more ‘dead capital’ from around the world.”

Put differently, blockchain-based loans will have the effect of putting “dormant” crypto to work in the wider economy, with hodlers having the opportunity to borrow or lend without ever renouncing the underlying ownership of their cryptocurrency.

“Many have been purchasing cryptocurrencies as a very long-term investment, expecting their value to grow hundreds even thousands of times,” Trenchev explained. “Naturally, such investors do not use their crypto for payments. They do not trade it. They simply keep their assets with the expectation of having exponential returns by just holding.”

Future challenges and future promise

There’s little doubt that the world of blockchain-based lending is a tantalizingly promising one, but the fact that it’s still in its infancy should give potential customers and the industry more generally pause for thought.

First of all, the vast majority of DeFi platforms are still untested and in development, and as SALT’s head of product, Rob Odell, told Cointelegraph, this means that users should be careful when choosing a service:

“Be vigilant about researching your options,. For all its advantages, most DeFi applications are still very new — they need time to work out all the kinks and be battle tested.”

Odell also noted that users should consider “how limited the offerings of some of the DeFi loan products can be. For example, right now, MakerDao only works with Ether,” and while MakerDAO is (like certain other platforms) planning to add more cryptocurrencies in the near future, its current limitations are one indicator of how much distance DeFi has to travel before it can compete on the same level as legacy systems.

As with pretty much every area in which blockchain technology is being applied, education will be one of the first key areas in ensuring that DeFi can expand, mature and realize its potential. “There are a number of challenges but I think education is the greatest,” Jeremy Lam, product lead at OmiseGo, a finance-oriented scaling network for Ethereum, said. He added:

“DeFi platforms will often require the capacity of the individual to be in control of their own private key. I don’t think most people are ready to handle such a responsibility. Also related to education, we have to consider who is using DeFi services. How do we protect people with insufficient financial knowledge from losing money on products they don’t understand?”

One thing that potential users need to be educated about is that some DeFi platforms will be more — or less — decentralized than others, something that could potentially put them and their money at risk. “A Service provider needs to fulfill certain conditions to be a true DeFi service,” Stani Kulechov, the CEO and co-founder of the Swiss-based AAVE, which runs the Ethereum lending service ETHLend, warned. He went on to say:

“First and foremost, ensure that the service provider does not hold your assets. This means that there must be a smart contract that holds the funds and secondly ensures that the transactions are conducted via smart contract and not through a third party signing. You should choose DeFi projects based on transparency and track record.”

More fundamentally, decentralized lending won’t succeed and make significant headway until the industry pinpoints — and builds itself around — gaps in the credit and loans market it’s well-positioned to solve. “As mentioned, education is a large challenge,” Lam said.

“The other huge challenge is to properly understand what problems DeFi is trying to solve and onboard the users that are experiencing that pain.”

And while there is certainly a demand for loans that don’t require a credit history, the fact that most no-credit DeFi platforms ask for crypto as collateral would mean that the success of such platforms is predicated on the general and widespread adoption of cryptocurrency.

And while we certainly haven’t yet reached the “widespread” adoption of crypto, there is some indication that adoption has increased in recent months, with around 9% of Americans now owning bitcoin (according to an April self-selected survey from Blockchain Capital), compared to only 2% in November 2017. There is, then, genuine hope that the DeFi sector will capitalize on this growth, with figures belonging to this sector confident that it will overcome its challenges and make good on its potential.

“I’m very confident about the tremendous ecosystem’s growth we could witness in the next coming years,” Palayer affirmed. Similarly, Odell said, “While it’s still very early, decentralized finance will eventually be the norm if the promises of transparency, openness and access are fulfilled by these solutions.”

All Eyes Are on $8,200 as Bitcoin Continues Consolidating in Lower $8,000 Region

Despite incurring some upwards momentum over the past couple of days, Bitcoin has continued to struggle to break above its current resistance levels that exist in the lower $8,000 region, and its lack of buying pressure could signal that further downwards pressure is imminent.

Analysts are now closely watching a relatively tight range between $8,200 and $8,400 as the next region of resistance that BTC must close above in order for its journey towards the coveted $10,000 region to continue on.

Bitcoin (BTC) Stuck in Lower $8,000 Region as Sideways Trading Persists 

At the time of writing, Bitcoin is trading up marginally at its current price of $8,050 and is down from 24-hour highs of just over $8,100.

Over a one-week period, BTC has posted a strong recovery from lows of $7,200 and is only down slightly from its highs of $8,300 which were set last weekend. While looking at its weekly price action, however, it is clear that BTC is currently being restrained by a strong amount of resistance existing throughout the lower $8,000 region.

Although this resistance may ultimately lead to further downside in the near-future, it is important to note that Bitcoin’s recent price action constitutes a pattern of consolidation, which may be followed by an extension of the cryptocurrency’s upwards momentum, assuming bulls step up and generate a surge of buying pressure.

Luke Martin, a popular cryptocurrency analyst on Twitter, discussed the strong resistance the crypto currently has in the lower-$8,000 region, noting that a break above this reason could lead to further upwards expansion.

“$BTC needs to crack the 8200-8400 resistance to keep the positive momentum going. Close above there and I’m expecting expansion similar to 4100, 5600 and 6800 breakouts,” he noted.

Is $10,000 BTC’s Next Stop?

Trader Mayne, another popular cryptocurrency analyst on Twitter, echoed Martin’s sentiment, explaining that although Bitcoin does have resistance between roughly $8,100 and $8,400, he believes that a break above this region could send the crypto to, or even past, $10,000.

“$BTC We broke thru the OB I was talking about yesterday and have just tested what I believe to be the final resistance between us and Namek. If we can get thru it, I expect $10,000 and possibly higher very quickly. Not a bad place to hedge/TP in case of rejection and breakdown,” he explained in a recent tweet to his nearly 50k followers.

As the weekend continues on and Bitcoin further attempts to confirm its footing within the lower-$8,000 region, all eyes will continue to closely watch to see if it is able to break above its imminent levels of resistance.

Featured image from Shutterstock.

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Trading App Robinhood Set to Raise at Least $200 Million: Report

United States-based stock and crypto trading app Robinhood is set to raise at least $200 million in a new funding round, Bloomberg reports.

United States-based stock and crypto trading app Robinhood is set to raise at least $200 million in a new funding round, Bloomberg reported on May 24.

Per the report, an unspecified source familiar with the matter told the outlet about the company’s plans to raise further funding. Moreover, Bloomberg reports that the round would increase the firm’s value to between $7 billion and $8 billion, but that the details could change.

Other people familiar with the matter also told Bloomberg that the new funds come from existing investors, all of whom asked not to be identified and to keep the details private. While the funding talks are reportedly ongoing, a further funding round could increase the company’s worth to $10 billion, but the numbers are subject to change until the deal is closed.

Robinhood, which allows for zero-fee stock trading, first introduced bitcoin (BTC) and ether (ETH) trading in January last year.

As Cointelegraph reported earlier this week, Robinhood has officially launched its crypto trading app in New York following the acquisition of a BitLicense by the New York State Department of Financial Services in January 2019.

Also during this week, the new April 2019 Exchange Review from crypto data provider Cryptocompare revealed that centralized cryptocurrency exchanges saw a major uptick in trade volume this April.

Is Bitcoin (BTC) Basically A Tech Stock On Steroids?

There’s been a lot of talk about bitcoin being “digital gold”
but could a comparison be better made with high-flying tech stocks?

For crypto followers looking for an answer to the critics who say it isn’t backed by anything and no one really uses it to buy stuff, the digital gold idea is a handy riposte.

If bitcoin is indeed digital gold then it is the cost of
mining it that informs the measure of its intrinsic value, and that has been
variously calculated to be anywhere between circa $4,000 and $2,000.

However, Charlie Morris, the founder of data site ByteTree.com, thinks tech stocks should be the preferred candidate for similarities with bitcoin and he has found a persuasive pattern in the price movements of bitcoin and tech stocks to prove his point – with the comparator for both being network growth.

So if we look past the breakeven for bitcoin mining and unpack the metrics of the network the miners do the bookkeeping for, then we have a valuation approach that owes more to Metcalfe’s law (value is proportional to the square of connected users) than it does to a latter-day digital version of the labour theory of value or Austrian School “hard” money.

Like a tech stock “with extra vigour”

Talking to the Daily Telegraph newspaper in the UK, Morris takes the network approach, as do many others. “The more people who use it, the more valuable it becomes,” he explains.

But instead of likening bitcoin to gold he says the better match
would be with technology stocks, or at least a subset thereof.

“Bitcoin is an ultra high-growth asset that behaves just
like internet stocks, just with extra vigour,” Morris told the Telegraph.

He isn’t buying the scarcity school of thought that is often
seen as the critical value property of bitcoin in likening it to gold.

Morris thinks that perhaps as little as 5% of price appreciation is because of supply-side factors. The main driver of prices is the growth of the network and the demand that implies.

 “It was indeed
designed around the idea of gold, in that it has limited supply, but that’s as
far as it goes. By my calculations, the surge in Bitcoin is mainly attributable
to network growth – demand – with perhaps less than 5pc due to supply factors.”

If the digital gold approach is anywhere near correct then it is makes sense to divide the amount of gold above ground by the total supply of bitcoin to arrive at a figure of $333,000, assuming 100% displacement of the yellow metal.

Bitcoin network demand is on the up

Morris says a valuation methodology makes much more sense and
that means looking at transactions. Again, Morris is by no means unique in that
regard.

Others have done work on this, notably Willy Woo on the network
value to transactions (NVT) ratio, so Morris is not saying something new but
does draw out the parallel with “internet stocks”.

Looking at the value of transactions, Morris notes that bitcoin:
“is on track to see $600 billion transacted this year, a number that will soon
pass a trillion”.

He continues: “To put that into perspective, $18 billion of
Bitcoin changed hands in 2013, when there was a widely reported bubble, and
$576 billion in 2017, when there was said to be another bubble.”

The $333,000 valuation for bitcoin as digital gold, assuming
demand is constant and 100% displacement, is lofty indeed but the tech stock
valuation thesis could see a future price much higher still.

If bitcoin becomes the reserve currency of the crypto space,
if not, initially at any rate, the wider financial system, then the room for “network
growth” will be immense, assuming progress on scaling solutions.

With Facebook going all in on crypto, Amazon offering
blockchain as a service on Amazon Web Services and going Google beating a similar
path to name just three of the US giants, not to mention how the tech cold war
is likely to turbo-charge blockchain and AI development in China, it doesn’t
take much of a leap to see how bitcoin could find itself at the centre of the crypto-secured
digital money world.

Striking correlation

According to the report, Morris “pointed to a striking correlation between the price of the cryptocurrency and the share prices of technology companies, as measured by the Solactive Social Media index”.

Courtesy Telegraph

The two follow each other extremely closely which may also
be partly because the investors in stocks such as Facebook and Twitter overlap
somewhat with the same demographic of investors driving bitcoin buying.

However, the “tech stock” view may have a downside, given that the stockmarket by most measures is looking pretty frothy, with the bull market likely at or near its end.

Big tech might not be so hot from here on out, but bitcoin’s just getting started

So, could Morris’s line of thinking see the bitcoin price
follow tech stocks lower?

Also, how much further does the likes of Facebook have to grow? And Twitter and Snapchat, for example, have basically stopped growing.

And the cost of competing is rising. As Clem Chambers, Forbes contributor and chief executive of ADVFN and Online Blockchain recently put it regarding the computing power consumed by the bitcoin network, “don’t worry about bitcoin, AI will fry the oceans”.

The huge capital outlays are starting to eat into the profit of the tech giants, even before the regulators get their teeth stuck into the social platforms.

And it’s also assuming some tech stocks actually make a profit – hopefully no readers had any money in the Uber or Lyft IPOs because the VCs and private equity sucked all the value out a while back.

The truth is the market opportunity that bitcoin is
attacking is more fundamental than social networks – it aims to disrupt the
entire monetary realm and if it only partly succeeds it could be a network of
value transmission far greater  order of
magnitude than even the largest of tech stocks.

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Building XRP Use Cases, Will Stefan Thomas AMA Trigger a Ripple Rally?

  • Ripple consolidating with caps at 40 cents
  • After Kava and Switch, Stefan Thomas’ AMA may drive XRP prices

Coil is a blogging platform monetize content, rewarding creators with XRP or USD. It is a creation of Stefan Thomas, a former employee of Ripple. In an AMA session, the community is waiting for gems that will probably spur participation, driving XRP above 40 cents.

Ripple Price Analysis

Fundamentals

Stefan Thomas, the former Ripple Chief Technical Officer (CTO) and creator of the InterLedger Protocol, will hold an ask-me-anything (AMA) session on May 30th.  Hosted in Reddit, it will be interesting to hear what the founder of Coil has to say about their plans. The AMA will be a few days after Kava labs announced the launch of Switch.

“Switch sidesteps the problems of traditional DEXs by employing a novel solution: streaming micropayments, which work by moving little bits of value piece-by-piece until a complete payment or trade is complete.”

While at it, David Walsh, a Senior Web Developer and Software Engineer at Mozilla, is testing Coil. The revelation is five years after he created an account. It is understandable. David is an educator and regularly blogs.

On the other hand, Coil’s ambition is to reward content creators, launching their beta platform in early May. The blogging platform includes an optional $5 monthly subscription that pays content creators as subscribers browse.

Candlestick Arrangements

Ripple XRP

At the time of writing, XRP is changing hands at 38 cents. It is constant against the USD and held within a broader 10 cents trading range. Although traders expect higher highs in line with recent candlestick alignment and trend set by Sep 2018 bull bar, XRP is under pressure.

Liquidation pressure stems from fundamental factors as well as price action. Note that buyers are yet to clear the 40 cents mark with this being the sixth month. All the same, it is likely that a breakout above 40 cents (or below 30 cents) shall spur participation.

If there is a surge, odds are XRP will rally to Dec 2018 highs of around 50 cents. That will be the primer for 80 cents especially if the breakout bar registers a spike in participation. Nonetheless, before that, aggressive traders should be accumulation on dips with safety nets below 34 cents, our minor support line.

Technical Indicators

Although May 14th and 15th bars are conspicuous, May 19th bull bar is where XRP/USD price action is consolidating in. It has average volumes of 56 million. Nonetheless, it is wide-ranging and bullish.

Therefore, for trend continuation, any bull bar signaling continuation of buy trend and closing above 40 cents must be propelled with trading volumes above 56 million.

Chart courtesy of Trading View. Image Courtesy of Shutterstock

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Confident in the Future: EOS Developers Attempt 10% Buyback Ahead of Major Announcement

EOS developer Block.one is attempting a 10% buyback of its stock.

Earlier this week, it was revealed that EOS developer Block.one is attempting a 10% buyback of its stock, reportedly the second one in less than a year.

It seems that some of the company’s investors are up for a big payday: The earliest backers could expect a hefty 6,567% return on their initial investments, while Michael Novogratz has already managed to secure a much more modest, though still profitable, 123% return.

But why would Block.one buy its shares back in the first place? It appears that the startup’s executives are confident about the future of their network — and a marketed announcement scheduled for June 1 could be one of the reasons.

What is Block.one?

Block.one is a private company known for developing and publishing the EOS.io protocol. It is registered in the Cayman Islands, lead by CEO Daniel Larimer and chief technology officer Brendan Blumer.

EOS.io, in turn, is a blockchain-powered smart contracts protocol for the development, hosting and execution of decentralized applications (DApps). In other words, it’s a decentralized alternative to cloud hosting services.

EOS.io is supported by its native cryptocurrency, EOS, currently the fifth-largest by total market cap. The tokens can be staked for using network resources: As per the project’s white paper, DApp developers can build their product on the top of the EOS.io protocol and make use of the servers, bandwidth and computational power of EOS itself, as those resources are distributed equally among EOS cryptocurrency holders.

The platform was launched in June 2018 as open-source software, with its first testnets and original white paper emerging earlier in 2017.

Notably, Block.one holds the absolute record in terms of funds raised during an initial coin offering (ICO): It has managed to gather around $4.1 billion — or about 7.12 million ether (ETH) — worth of investments for EOS.io after fundraising for nearly a year. The second-biggest campaign of the sort, the messenger Telegram, has raised less than half the amount — i.e., $1.7 billion.

What is the purpose of the new buyback?

Having raised a record-breaking amount of money last year, the EOS.io publisher is now performing a 10% buyback of its shares.

A Block.one spokesperson has confirmed to Cointelegraph that the stock repurchase is “closing,” and hence at the final stage. The company’s representative also said they are unable to reveal the participants.

“Buybacks are a normal activity for many companies,” the spokesperson told Cointelegraph. “Block.one is confident of its growth prospects and industry opportunities. We are pleased with the support from investors, and that they have been able to benefit from, and participate in, the success of our company.”

Notably, this isn’t the first buyback for Block.one. As per Bloomberg, this stock repurchase offer comes “less than a year” after the initial buyback, in which Block.one reportedly aimed to acquire 15% of its outstanding shares at $1,200 each, but gathered a total of 13.8% in the end, which equaled around $300 million.

The new buyback, in turn, values the company at around $2.3 billion, up from about a $40 million valuation in 2017. The repurchase price being offered is reportedly even higher this time, at $1,500 per share — up 6,567% from the original price of $22.50.

Later backers — including PayPal co-founder Peter Thiel, crypto mining hardware billionaire Jihan Wu of Bitmain, as well as hedge fund managers Louis Bacon and Alan Howard, who all bought into Block.one in July 2018 — could also be in for a massive payoff, if they agree to sell.

According to Bloomberg, Bacon and Howard have declined to specify whether they are going to sell their shares, while Thiel is not responding to messages. Cointelegraph has reached out to Bitmain to clarify whether Wu is planning to participate in the buyback but has not heard back as of press time.

Nevertheless, there is at least one confirmed investor who has agreed to participate in the stock repurchase. Novogratz’s crypto merchant bank, Galaxy Digital, accepted the offer and sold shares in Block.one for $71.2 million — securing a 123% return on the initial investment.

In an accompanying press release, Novogratz stressed that “substantial outperformance” from Block.one had contributed to the decision and that his bank will continue to work with the startup. “We continue to work closely with Block.one as a key partner across a number of our business lines, including the Galaxy EOS VC Fund, which invests in companies building on the EOS.IO protocol, and remain excited about the EOS.IO protocol,” the Galaxy Digital CEO said.

Later, Novogratz took to Twitter to reiterate that Galaxy Digital is still a shareholder in Block.one as well as a “large holder of $EOS tokens.” To explain why his crypto merchant bank sold the shares, he stated the following: “Took profit to rebalance our portfolio.” The investment bank had a net loss of $272.7 million in 2018 — evidently due to the bear market — and the recent deal might be an attempt to mitigate those losses.

According to a Blockforce Capital analyst Charlie Smith, the most likely scenario is that Block.one believes it is worth more than the price it is buying back at. In an email to Cointelegraph, Smith wrote:

“By buying back shares from investors, Block.one can clear some names off the cap table and establish more centralized decision making. Even if the investors that sold shares had no say in the direction of Block.one, by clearing them off the cap table, Block.one can focus more on its own interests.”

What is Block.one planning to do with all that money?

Block.one’s total assets, including cash and investments, amounted to $3 billion at the end of February, according to Bloomberg, who reportedly obtained that number from a March 2019 email to the company’s shareholders.

$2.2 billion of this was held as what the company called in its email “liquid fiat assets,” with most of it invested in U.S. government bonds. The letter also reportedly revealed that the company’s crypto portfolio had halved to around $500 million during the crypto winter. However, in a more recent email sent out in May, the company ostensibly said those losses were “more than fully recovered,” given that bitcoin has been on a rally over the previous months.

The new buyback as well as the “few outward signs of progress since the sale of EOS tokens,” as Bloomberg puts it, raise the question: What is Block.one’s plan, and why does the startup need all that money?

“Basically, Block.one raised a massive fortune with the EOS ICO, and most of it just sat there,” Mark D’Aria, founder and CEO of Bitpro Cryptocurrency Consulting, told Cointelegraph. “They used some to fund development of the ecosystem but as the Bloomberg report points out, there was never any need for billions of dollars to create something like EOS.”

Blumer, CTO of Block.one, strongly disagrees with the idea that his company has not largely advanced since the ICO phase, citing an earlier Bloomberg article penned by Alastair Marsh to prove his point. “I guess taking 48% of active Dapp users in market share in its first year is what Alastair interprets as showing ‘Little signs of progress,’” he wrote in the official EOS Telegram group chat, adding:

“Last year’s buyback was to make room for new investors without unnecessarily inflating our balance sheet. This round included highly strategic shareholders such as Peter Thiel, Alan Howard, and Louis Bacon, and was a very positive thing for the company. This year’s buyback positions us for the same, and we also expect it will be another milestone for us.”

According to Blumer, this information, “along with a lot of other material,” was presented to Bloomberg’s Marsh, but “facts were chosen and arranged deceitfully and with poor journalism standards.”

When asked by a Telegram group member to specify why Block.one needs to make room instead of doing equity dilution, Blumer replied:

“Block.one was a VC funded startup and after so much growth it’s prudent to allow liquidity to earlier investors to make room for larger more strategic ones.”

According to Larimer, who also joined the Telegram chat to address investors’ questions regarding the stock repurchase, Block.one couldn’t have chosen to buy EOS tokens instead, because the company cannot own more than 10% of the total supply, which it has already maxed out. “We […] want eos to remain decentralized,” the CEO added. “We keep our non-EOS treasury in a blended portfolio of Crypto and Fiat.”

Is centralization a problem for EOS?

Notably, decentralization might be one of EOS’ weakest spots. In November 2018, its governance model was exposed, as evidence suggesting that some confirmed transactions were reversed surfaced on social media, which puzzled some pundits as well as ordinary crypto enthusiasts.

Around the same time, blockchain-testing company Whiteblock published the results of “the first independent benchmark testing of the EOS software.” The investigation came to several conclusions about EOS, the most bold of which was that “EOS is not a blockchain, rather a distributed homogeneous database management system, a clear distinction in that their transactions are not cryptographically validated.”

Further, in October 2018, allegations arose accusing the platform’s major Block Producers (BPs) — entities that essentially get to “mine” the EOS blockchain after being elected — of “mutual voting” and “collusion,” suggesting that the entire model of governance might be corrupt.

However, full decentralization is not necessarily paramount to the project’s success at this point, D’Aria of Bitpro acknowledged to Cointelegpraph:

“Yes, EOS is unequivocally more centralized than Bitcoin or Ethereum. Decentralization has a tremendous cost in terms of performance and efficiency, and EOS gets around those limitations by simply being less decentralized. It’s not fully centralized, it’s just further down the spectrum than ETH. So then the question becomes, ‘is EOS decentralized enough’? For a lot of use cases, I do believe it is.”

In D’Aria’s view, EOS has a high chance of effectively competing with Ethereum as the main platform for DApps, which seems to be Block.one’s current primary aim. D’Aria opined, “If you asked me whether ETH or EOS would ultimately be more successful 10 years from now, I’d have a really hard time answering that question because they’re both legitimate competitors for that space.”

EOS’ future is looking bright — at least in the eyes of its creators

Notably, Block.one’s leaders appear to be confident about the future of their product. “We sold a product, a place on a snapshot list that could be used by the community to create the highest performance and most used blockchain,” Larimer wrote in the Telegram group chat. “We sold the community tools that enabled them to create $6b in value.”

“If we had not sold our funds on an ongoing basis we would have inflated Ethereum to the moon and then crashed it when exiting,” Blumer also wrote in the chat. “One day btc will probably run on eosio chains.”

Also, Block.one has scheduled an event for June 1, which will take place in Washington, D.C. While the company has not revealed what product might be presented there, the most common prediction is that it could be a social media platform.

Major Swiss Telecoms Firm Swisscom to Distribute Tokenized Artwork

Major Swiss telecommunications firm Swisscom announced its plans to distribute tokenized artwork through its Swisscom TV television network.

Major Swiss telecommunications company Swisscom announced its plans to distribute tokenized artwork through its Swisscom TV television network. The news was reported by Cointelegraph auf Deutsch on May 24.

Per the company’s press release, limited artworks — initially 100 works by 30 artists — from selected artists are exclusively available on the Swisscom TV box through the NOOW app. The app was developed by Swiss tokenization startup Dloop. The works have been chosen by Stefanie Marlene Wenger, who commented in the press release on the development:

“This is about more than creating a virtual gallery; the next step will be to include curated exhibitions on the platform and a close collaboration with galleries.”

Since its launch, NOOW app reportedly allows users to select pieces and buy certified copies, which will be issued in limited numbers. The press release claims that digitization has eroded the value of original art by allowing it to be copied without any quality loss.

As the announcement claims, in the Swisscom system “the owner receives a certificate of authenticity and knows how many copies of a work exist.”  Basel artist Jonas Baumann is also quoted, praising the distribution advantages of digitization:

“NOOW helps me to bring art to the screen. It also offers new creative opportunities to experiment with animated images and offer them to a wider audience.”

As Cointelegraph reported in March, the blockchain-based art registry startup Artory has acquired auction house database Auction Club.

Also, in May last year news broke that American online art auctioneer Paddle8 and The Native, a Swiss tech company, were launching a blockchain-based art authentication service.

Crypto Market Remains Strong: Bitcoin Cash, BNB, EOS, TRX Price Analysis

  • The total crypto market cap grinded higher and tested the $245.0B resistance area.
  • Bitcoin price is currently consolidating near the $8,000 level.
  • EOS price broke the $6.30 resistance and it is currently moving towards the $6.40 level.
  • Binance Coin (BNB) is surging higher and it recently broke the $35.00 resistance.
  • Bitcoin cash price is trading nicely above the $400 support area.
  • Tron (TRX) price is slowly moving higher towards the $0.0292 and $0.0295 resistance levels.

The crypto market cap is gaining bullish momentum, with positive moves in bitcoin (BTC) and Ethereum (ETH). Binance coin (BNB) is surging higher, while BCH, ripple, tron (TRX), litecoin and EOS are consolidating gains.

Bitcoin Cash Price Analysis

After a major downside correction, bitcoin cash price started a fresh increase above the $390 and $400 resistance levels against the US Dollar. The BCH/USD pair settled above the $400 level and it recently tested the $410 resistance area.

The price is currently consolidating and it seems like the price may continue to rise above the $410 and $415 resistance levels. On the downside, the main supports are $402, $400 and $395.

Binance Coin (BNB), EOS, Tron (TRX) Price Analysis

EOS price climbed above the $6.15 and $6.20 resistance levels. It opened the doors for more gains and the price recently traded above the $6.35 level. The next key resistance is near the $6.45 and $6.50 levels, above which the price could accelerate above the $6.60 level.

Tron price managed to stay above the $0.0265 support level and recently moved above the $0.0272 level. TRX price is currently trading above the $0.0280 level, with many resistances on the upside near $0.0290 $0.0292.

Binance coin (BNB) is performing really well and gaining momentum above the $30.00 and $32.00 levels. BNB price broke the $35.00 level recently and it seems like it could accelerate above the $36.00 level. On the downside, the price may find strong bids near the $34.20 and $33.50 levels.

Crypto Market Cap Bitcoin Cash BTC BCH EOS TRX BNB

Looking at the total cryptocurrency market cap 4-hours chart, there was a slow and steady rise above the $225.0B and $230.0B levels. The market cap even broke the $240.0B resistance and a major contracting triangle resistance. It moved towards the $245.0 level and it is currently consolidating gains. An initial support is near the $240.0B level, below which the market cap could find support near the $232.0B level. The main support is near the $226.0B level and the triangle lower trend line at $226.5B. The overall technical structure is positive and it seems like the market cap could continue higher towards $245.0B and $250.0B. Therefore, there could be gains in bitcoin, Ethereum, TRX, LTC, EOS, ripple, ADA, XLM, WTC, BCH, and ICX.

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Research: ICO Sector Signals Uptick After Crypto Winter

A new report from ICObench claims that the initial coin offerings sector is showing signs of an uptick due to positive investor sentiment.

The initial coin offerings (ICO) sector is showing signs of an uptick due to positive investor sentiment, apparently spurred by the recent crypto market rally. The data was revealed in a new report from token rating platform ICObench, shared with Cointelegraph on May 25.

Providing data as of May 21, the report notes that the success rate of ICOs has increased, ostensibly reflecting a rise in projects’ quality. 85% of total funds raised so far in May reportedly belong to projects with a high (3-3.5) rating — as compared with 68% in April.  

According to ICObench’s data, the number of published projects in May has increased by 157 to hit 5,512 projects, with 287 ongoing ICOs and 140 upcoming token sales expected.

The report notes that data for the total funds raised so far in May has been overwhelmed by the reported $1 billion initial exchange offering (IEO) from cryptocurrency exchange Bitfinex — bringing the total amount of funds raised via token sales this month to roughly $1.075 billion.

As reported, an IEO represents an alternative model of token offering wherein a centralized crypto exchange operates the sales and ostensibly vets both the projects themselves and prospective investors.

Aside from Bitfinex, IEOs from Economi and Poseidon each raised around $10.5 million and 2.4 million respectively, according to the report.  The sum of all funds collected from the top 5 IEOs (excluding Bitfinex) so far this month hit almost $15.5 million.

Bitfinex’s major offering has resulted in May being the month with the highest total funds raised so far in 2019. In ICObench’s historical data — which represents May 2018 through May 21, 2019 — only May and June 2018 saw higher levels of total funds raised via token sales.

In terms of geographical distribution, the Brisitish Virgin Islands took the lead in terms of total funds raised, followed by the Cayman Islands. The United Kingdom contributed the highest number of ICOs — with 9 projects — yet scored only 7th place in terms of total funds.    

In mid-May, Bitfinex unveiled its own native exchange utility token, LEO, for which the exchange had ostensibly raised the $1 billion in a private IEO — removing the need for a public offering. Also this month, together with spin-off Ethfinex, Bitfinex has launched an IEO platform.

The exchange meanwhile continues to challenge court proceedings sparked by the New York Attorney General’s (NYAG) recent accusations against it. The NYAG alleges that the firm lost $850 million in user deposits and had subsequently secretly covered up the shortfall using funds from its sister firm, stablecoin operator Tether.

Could Bitcoin Reach $100,000 in 2020? This Indicator Says Aye

Bitcoin is about to get a lot more expensive than it is today, according to Dr. Julian Hosp.

The author of ‘Cryptocurrencies Simply Explained‘ evaluated bitcoin’s future performance based on a textbook indicator that measures abundance in commodity markets. Titled Stock-to-Flow Ratio, the index measures the amount of an asset held in inventories (stock) with its annual production rate (flow). Overall, the ratio describes how much time it would take the Stock to reach the Flow.

Dr. Hosp noted that it would typically take 62 years for available gold to reach from Stock to Flow, which curbs its supply against high demand. At the same time, silver would take approx 22 years to complete a similar flow, making it slightly cheaper than gold.

However, bitcoin would take about 27 years to reach its total circulation of 17.7 million (stock) – at the rate of 657,000 per year. But following the halving, an event that would slash bitcoin’s supply from 12.5 BTC to 6.25 BTC, the bitcoin’s annual Flow would reduce to 328,500 BTC.

Production Rate vs. Price

Gold’s Stock to Flow Ration is Highest Among Commodities

Dr. Hosp said the production was the most crucial factor in determining an asset’s value. Taking cues from Gold, the analyst noted that a higher valued yellow metal typically boosts production since miners expect higher profits which, in turn, increases the Gold’s Stock-to-Flow ratio. Meanwhile, the rise in mining output takes gold to the stage of overproduction, which means supply exceeds demand. As a result, the gold price comes down, makes mining unattractive, reduces the production rate, and eventually pushes the Stock-to-Flow Ratio up.

“In bitcoin,” said Dr. Hosp, “even if the price goes up, you cannot produce more bitcoin – it does not work, not like gold where you can increase production. There is always the same amount of flow because it’s 12.5 bitcoins every minute. The production remains stable.”

Bitcoin SF Model

Dr. Hosp added that bitcoin required to match Gold’s Stock-to-Flow Ratio of 62 years. But because the cryptocurrency’s production is stable, the ratio could only go up by price.

bitcoin

Bitcoin Stock-to-Flow 95% Accurate To Date | Image Credits: PlanB

The analyst applied Bitcoin SF Multiple – a ratio of bitcoin price to its SF model price – to understand the cryptocurrency’s top and bottoms. He found that the indicator had a 95 percent success rate to date, for it accurately called bitcoin’s overvaluation in 2011, 2013, and 2017. At the same time, the indicator was able to notice the cryptocurrency’s undervaluation during 2017 and summer 2018 session.

The SF Multiple showed that the bitcoin rate was 3-13 times higher than its SF model price thrice every time it jumped above 3.

At present, noted Dr. Hosp, the SF Multiple settled bitcoin’s actual price between $8,500 and $9,500.

There are also halvings which briefly separated the SF Multiple cycles. As bitcoin’s supply rate got slashed by half, the Stock-to-Flow Ratio will double to 54 (very close to gold). Dr. Hosp predicted it would take the cryptocurrency to at least $100,000, adding:

“Suddenly, we will have way less [bitcoin] production that what we have now. So in order to keep the Stock-t0-Flow Ratio stable, the bitcoin price will need at least to double. But it so much lower right now compared to Gold, if we get closer and close to the [precious metal], the price should approximately to go to a $100,000 – maybe even $300,000.”

There are also questions about who/what would move large amounts of fiat money into the bitcoin market. PlanB, the cryptocurrency analyst who first brought the Stock-to-Flow model to notice, believes that commodity markets, countries with negative interest rates, troubled economies, and institutional investors would more likely invest money in the crypto market.

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