Cryptocurrency Regulation in the Caribbean: Is It the Perfect Sandbox?


How many Caribbean countries do you know off the top of your head? Out of almost 700 Caribbean islands only about 30 are inhabited, each with their own stance on cryptocurrency.

The Caribbean Islands are first and foremost known as tourist destinations, but they have also, over time, picked up a reputation as shady offshore havens. The local regulatory stances on cryptocurrency are slow to evolve but are consistently pointing towards a more transparent future.  

Despite their reputations, efforts are underway to regulate cryptocurrencies in the Bahamas and elsewhere in the Caribbean. A hotbed for fintech, the Caribbean has been revitalized by the growing and largely unregulated Bitcoin market. 

Here is an overview of the Caribbean cryptocurrency industry from Solomon Brown, Head of PR for Freewallet, a cryptocurrency wallet developer

Islands, regulations, and cryptocurrency usage

Cryptocurrency regulations vary from island to island. Caribbean countries have different views of distributed ledger technologies and blockchain. Islands like the Bahamas and Antigua and Barbuda are well on their way to having established cryptocurrency regulations, Haiti’s viewpoint on the matter can be called controversial and Cuba is a bit behind the ball on passing cryptocurrency laws. 

Image via Pixabay

The Bahamas

Legislators in the Bahamas have signaled that they would like to incorporate cryptocurrency into the legal framework of the island’s economy, but with the way things stand now, there’s still a lot of work to do for that to happen. 

Graham Thompson Attorneys, a leading Bahamian law firm, concluded in a whitepaper, titled, ‘’The Bahamas’ place in a Cryptographic World’’: “It is important that the Bahamas seek to not wedge virtual currency business into a legislative framework that doesn’t quite fit but to develop a piece of legislation, either by amendment to the PSA or otherwise, that is virtual currency specific.”

 Indeed, the only official law offering regulatory treatment in the sphere is the old Central Bank of the Bahamas Act that dates back to 2010 when we had hardly heard of legal framework and standards in the digital token sphere

Image via Pixabay


The act defines currency as follows: “8. (1) The currency of The Bahamas shall be the notes and coins issued by the Bank under the provisions of this Act. (2) The unit of the said currency shall be the dollar, which shall be divided into one hundred cents.” It mentions that it is the “Sole right of the Bank to issue notes and coins”. Obviously, as it makes no specifications for digital tokens, it is hardly able to regulate the emerging local cryptosphere. 

Little by little things are beginning to change. On November 7, 2018, the Central Bank of the Bahamas issued a discussion paper on proposed approaches to the regulation of cryptocurrency assets. This paper describes the proposed regulatory posture on cryptocurrency assets and related instruments for supervised financial institutions (SFIs) under the remit of the Central Bank of The Bahamas. 

This includes the application of government-imposed limitations on the range of cryptocurrency payment instruments called the Exchange Control (EC) regime. The planned operations will allow Caribbean countries to better stabilize their economies by constraining in- and out-flows of currency, and subsequently keeping exchange rate volatility at bay. 

In 2019, the Securities Commission of Bahamas (SCB) took cryptocurrency a step further by releasing the draft called “Digital Assets and Registered Exchanges Bill, 2019.” 

The DARE Bill, 2019 regulates the requirements for issuing or selling digital tokens in the country, and how sellers and related firms must conduct their businesses. It also covers the sections that ensure the entrepreneurs comply with anti-money laundering (AML) and counter-financing of terrorism (CFT) laws and protect their clients’ data and assets.

Cuba

In Cuba, cryptocurrency may be the ultimate solution for US economic sanctions-caused problems. Not supported by the government, Bitcoin has been extensively used to top up phones, shop online and send funds after the roll-out of mobile internet in 2018. The founder of the Telegram channel CubaCripto estimates about 10,000 Cubans trade cryptocurrencies. Some use it as a side job, some get remittances from abroad. 

Brazil-registered Fusyona can be called the first cryptocurrency exchange operating in Cuba. It helps with remittances, charging up to a 10% fee and working via larger exchanges. As other platforms hesitate to develop activity in the country, cautious of the US penal fines, Fusyona’s founder is using Bitcoin, saying “for Cubans it is a necessity and can be a solution to their exclusion from the global financial community.” Nevertheless, the exchange is planning to get authorised by the Cuban government. 

Image via Pixabay

Funnily enough, in July 2019 the Cuban government was considering issuing its own cryptocurrency coin, but it decided to hold back on it to avoid money laundering and/or clashing with its communist principles. 

The state’s central bank has been investigating the pros and cons of cryptocurrency and will soon discuss the prospects of using cryptocurrency at a meeting with global financial leaders in Washington. But, in the meantime, there are no administration bills that specifically place cryptocurrency under regulation. 

Haiti

The legal status of cryptocurrency in Haiti is controversial. Cointobuy’s analysis tool has ranked Haiti 208 out of 249 countries in terms of cryptocurrency safety. Obviously, it isn’t secure to invest in ICOs or trade cryptocurrency in this country. Nevertheless, cryptocurrency entrepreneurs of this small island have come up with a number of brilliant ideas. It is safe to say Haiti is enjoying a real blockchain boom led by a number of exciting and meaningful startups that are trying to shape the future of agriculture, production, and other spheres.

For instance, AgriLedger is a project that will enable users to trace the food supply chain and find out how products are grown or transported. The Blockchain Cotton Project (BCP) works in a similar way: it will endorse smallholder cotton farmers that provide cotton for US clothing producers. Farm locations will be tracked by GPS and BCP will also verify whether the cotton is organic or fair-trade and guarantee the farmers a fair price for their cotton. 

Apart from this, Haiti is the homeland of groundbreaking educational projects like Cryptocurrency for Haiti and the Haiti Blockchain Alliance. They help common people get acquainted with the potential of blockchain. The Haitian Central Bank announced at the Haiti Tech Summit in June 2019 that it will be launching its own digital currency.

Dominican Republic

Little is known about the cryptocurrency industry in this region. After the Dominican Republic government banned using any kind of cryptocurrencies in transactions, all the financial institutions in the country cut down on crypto. However, citizens have kept using it at their own risk. 

Barbados

In Barbados, cryptocurrency regulations are still on the fence. The Central Bank of Barbados has expressed a positive attitude towards BTC and is starting to make changes on this front. 

On July 5th, Bitt Digital Inc. became the first blockchain-based company to complete and exit the 8-month-long regulatory sandbox guided by the Central Bank of Barbados and the Financial Services Commission. Governor of the Central Bank of Barbados, Cleviston Haynes, confirmed that the Regulatory Review Panel (RRP) considered the type of business activity trialed by Bitt to be a candidate for regulation under legislation that is currently being drafted. 

In June 2019, the Central Bank of the Republic of Haiti invited Bitt to present the likely benefits of a national blockchain-based digital currency.

Jamaica

Currently, the legal framework in Jamaica does not deal with crypto. Digital currencies are hardly defined or regulated under the Securities Act or the Bank of Jamaica Act. The Banking Services Act deals with e-money which is closer, but still distant from BTC and cryptocurrency. However, recently efforts have been made to rectify the situation and take digital currencies into account.

Jamaica is bigger than most Caribbean countries. Lately, it has economically outperformed many of its neighbors. In 2018, the Jamaica Stock Exchange (JSE) was identified by Bloomberg as the fastest growing exchange in the world. It was the second time the publication had named the JSE the best performing exchange.

In April 2019 the JSE announced that it was going to enable the live trading of security token offerings (STOs) and digital assets with the support of the Canadian FinTech company, Blockstation. The move was aimed at helping businesses raise capital through STOs and establish themselves in the financial community, while also promoting safe digital asset transactions in the market. Presumably, the JSE, the Financial Services Commission and the Bank of Jamaica (BOJ) will shortly issue the regulations and guidelines that will facilitate this new digital trading.

The Organisation of Eastern Caribbean States

This inter-governmental organization aims at promoting economic development along with other legal aspects. Protocol members and Anguilla use the Eastern Carribean Dollar issued by the Eastern Caribbean Central Bank. 

In spite of having no cryptocurrency regulations, these 11 countries have signed up to participate in a pilot program that will test the use of cryptocurrencies alongside the country’s national currency. Only time will tell if the blockchain-based digital version of XCD is OECS’s short cut to a cashless society.

Saint Kitts and Nevis

This OECS member is willing to take part in the Digital Eastern Carribean Dollar ‘test drive’. However, the Saint Kitts and Nevis government is negative about accepting Bitcoins as a payment for the Citizenship by Investment Program (CIP), which has been warmly welcomed in many Caribbean countries. 

Antigua and Barbuda

Unlike their Caribbean counterparts from Saint Kitts and Nevis, government officials from Antigua and Barbuda are drafting laws to regulate Bitcoins. According to local media outlets, Antiguans are interested in using cryptocurrency to pay for public services.

The authorities of the Caribbean jurisdiction are developing a special bill with the aim of securing the status of legal currency for Bitcoin, the circulation of which is allowed in the territory of Antigua and Barbuda.

The decision was made during a meeting of the Cabinet of Ministers with experts from the Antiguan Leisure & Gaming Association, dedicated to best practices in accepting Bitcoins as payment for goods and services. Thus, very soon, Bitcoin could turn into an official means of payment in Antigua and Barbuda.

Interestingly, while enumerating the benefits of Bitcoin, Antiguan officials who promote its legalization in their home country noted that Bitcoin makes it easy to track transactions, which is very important considering how many see the Caribbean country as a “tax harbor. ”

Saint Lucia

In recent consultations with the authorities of Saint Lucia, representatives of the mission of the International Monetary Fund (IMF) said that central banks should not ignore Bitcoin. According to IMF experts, virtual currencies can compete with existing currencies and also challenge monetary policy.

Subsequently, it was reported that the Saint Lucian government was considering Bitcoin’s prospects and was exploring options on how to “make it work.” A corresponding statement was made by the Prime Minister of Saint Lucia, Allen Chastanet.

Caribbean cryptocurrency evolution

The 2018 BIS Annual Economic Report suggested that cryptocurrency is the “new petal in the money flower.” The taxonomy of money can be defined by four properties: the issuer, the form, the degree of accessibility and the payment transfer mechanism. Cryptocurrencies combine three key features:

  1. They are digital. Cryptos aims at providing security and rely on cryptography to prevent hacking and fraudulent transactions. 
  2. They are private, and by design, they have no intrinsic value, unlike commodity money. “Their value derives only from the expectation that they will continue to be accepted by others” – the report states.
  3. They allow for a digital P2P exchange.

The competitive advantage of cryptocurrency is its underlying distributed ledger technology. It enables each user to verify transactions in their copy of the ledger, ensure the accuracy of each transfer and rule out the possibility of double-spending.

Image via Pixabay

What does this mean for the Caribbean islands?  BTC has a number of potential benefits that could let the financial genie out of the bottle. 

For the small Caribbean countries that made a name for themselves as tax havens in a similar way to the Latin American Panama, cryptocurrency offers a way of evolving into the future. After a massive leak of financial files tied to the fourth-biggest offshore law firm in the world, it was hard for Panama to recover from reputational losses. Panama shifted its focus onto cryptocurrency at the official level by working out taxation protocols and supporting blockchain technology. 

The Caribbean seems to be following Panama’s example. The Bahamas are drafting regulations of cryptocurrency assets. The British Virgin Islands are issuing a national cryptocurrency coin. Antigua and Barbuda are offering citizenship for BTC. In other words, a good many Caribbean governments are willing to put themselves on the map in the cryptocurrency space. 

Image via Pixabay

In the opening stages of introducing cryptocurrency into the global economy, it is crucial for blockchain-based projects to keep security issues crystal clear. Gaining user trust is key to the mass adoption of Bitcoin. With operational security in the spotlight, it is important that locals use reputable cryptocurrency services such as top market leaders like Binance, Coinbase, and Bitfinance. As far as safe wallets are concerned, Freewallet is proud to work side by side with these big names to make cryptocurrency more available to a wider audience. It’s been a privilege for us to join our efforts in order to modernize the financial services sector. 

The Caribbean is boldly stepping into the future with cryptocurrency and we are happy to help this process along.

This article is Originally posted on CoinCentral.com
Author: Alex Moskov

Crypto’s New Deal: This DeFi Platform is Putting Unused Tokens Back to Work


Decentralized Finance “DeFi” has experienced tremendous growth in the past few months, and it looks like it’s only going to continue ramping up. According to DeFi Pulse, there is roughly $1.13B locked into DeFi contracts, nearly double the amount at the start of 2020.

The underpinning of DeFi’s recent rise to popularity is the series of unconventional financial tools that are helping democratize the future of global peer-to-peer lending and transactions. 

We connected with the Chintai team, a Cayman-based platform that seeks to enable the leasing of unused utility tokens. If you haven’t heard about utility tokens in a while, you’re not alone. Utility tokens, or tokens that are essentially a promise to access a future product or service, were exceptionally hyped in the 2017 ICO craze, but the ensuing bear markets cooled off the utility market landscape. 

Utility tokens are meant to be used, but most of them are lying dormant. Utility token holders have seen some of their utility token values plummet upwards of 95% and have moved onto focus on other things. 

Chintai wants to let utility token holders get some actual utility out of their tokens. With over 250M in transaction volume, Chintai appears to be offering a significantly attractive value proposition, if not at least demonstrating the DeFi ethos of enabling uncaptured financial opportunity in action. 

We spoke with Ryan Betham, Chintai COO, about DeFi, Chintai’s recent growth, and the utility token landscape. 


Why is DeFi an exciting space right now? 

DeFi pioneers are producing tangible use cases that deliver on the dreams which ignited the cryptocurrency movement in the first place. It’s about giving people control of their money, and democratizing access to opportunity – all while eliminating value extractors. 

So, here we are today with a plethora of DeFi protocols. Many of which are offering decentralized lending. And it’s working, really well. We’re seeing proof that we don’t need 3rd parties to facilitate one of the most basic building blocks of a new economy – borrowing and lending. 

And it’s being done on a global scale, without borders, all executed with code. It’s like watching sprouting seeds for a vision of a new digital economy. How cool is this stuff?!

Can you hypothesize how much more the DeFi space has to grow? 

If you broaden the definition of DeFi to include any financial instrument that relies on smart contracts and distributed ledger technology to function, the sky’s the limit. The total monetary value of the global financial system is somewhere around $300 trillion– with a “T”. Not everything needs to be on blockchain.

 But there’s a good case to be made that we could see a global financial system that is mostly reliant on blockchain tech. It’s simply too efficient and secure compared to the existing infrastructure. Market principles would suggest you either adapt or die.   

Take the $109 trillion bond market as an example. That’s something we’re trying to help fix and blockchain technology is a perfect instrument to bring massive efficiency gains in bond markets. And the great thing is that the solution is disruptive while still being beneficial for big banks, small banks, businesses, and investors simultaneously. Incentives align and everyone wins. 

So once people understand the value proposition, we expect this stuff to catch on like fire. It’ll be one of those leaps in evolution that seems slow in the moment, but fast in retrospect. 

“Utility tokens are meant to be used, but most of these tokens are lying dormant, collecting virtual dust for the investors that purchased them.” How does Chintai aim to address this issue? 

We built the first high-performance, decentralized exchange for lending and borrowing token utility. Not borrowing the currency – borrowing the utility itself. We started with an EOS token leasing market. 

For people that don’t know, EOS tokens give you ownership of network CPU and NET. You can think of CPU and NET as the battery power you need to run an application or transact on the network. Without CPU and NET you can’t use the network.

So people who own the EOS token, but don’t need to use the CPU and NET, can set an interest rate and lend out their resources to someone who needs CPU and NET. 

The borrower pays that interest rate for a fixed period and receives the CPU and NET for their applications or transactions. The cool part is that the borrower doesn’t actually have possession of the tokens because you can delegate CPU and NET while maintaining custody of the token itself. 

The whole process is handled by smart contracts so counterparty risk is virtually non-existent. We saw $250 million in transaction volume within six months, had 33,000 unique accounts using the instrument, and roughly $3 million in interest generated for lenders. 

Now we’re taking that concept and applying it to any utility token and even NFTs, which represent unique or bespoke items. So you know virtual items in games? Swords, skins, characters – whatever. We want to enable leasing of those items too. We’re also launching a handful of new leasing markets in early 2020 and we’ve already seen promising outcomes. It’s hard to not get excited about this stuff. 

What milestones does the non-fungible token (NFT) ecosystem need to hit to reach a point of critical mass? 

Generally speaking, the most important milestone is having developer tools that can enable smooth UX. Let’s take gaming for example. 

It’s an ecosystem that is ripe for disruption, but doesn’t quite have the tools that game devs need to fully utilize the benefits of blockchain tech. 

Gamers are already accustomed to in-game economies. But do you really think they’re going to manage private keys and login to a blockchain account for tokenized virtual assets? Mostly no. So game developers need tools to embed virtual items into games in a way the end-user doesn’t realize they’re using a blockchain at all.

We’ve built instruments for this use case specifically. The same engine that facilitates token leasing can also facilitate transactions for NFTs in games. 

And that engine can be used in the background, using our API, to embed the process of exchanging virtual items directly into games. No friction for the end user, but all the benefits of blockchain for the gaming industry. 

Can you explain how what Chintai is offering is different from competitors? 

We’re kind of like a swiss army knife for DeFi. The reason why we can have such a diverse offering is because of our high-performance on-chain order management system (OMS). This is super FinTech geeky stuff so bear with me. 

OMS’s match orders and execute agreed terms between buyers and sellers – it’s how an order book is populated on say a crypto exchange except those order management systems are offchain so you lose the transparency that comes with an on-chain OMS. 

Our on-chain OMS is agile and highly configurable. It allows us to rapidly build markets for anything from token leasing, to decentralized bonds, NFT trading, and everything in between. 

The other cool aspect of our OMS is that we can white label businesses to take part in any Chintai market by allowing them to curate their own front-end UI, set their own fees, and use our exchange in the background to facilitate order management and execution. 

This allows people to create highly customized portals or UIs for very specific needs. And the liquidity for every market is shared, so you don’t end up with fractionalized markets.

“Decentralized exchanges that lack compliance with global regulators are at risk of being shut down due to lack of consumer protection and anti-money laundering laws.” – What alternative does Chintai offer?

The on-chain OMS I just mentioned is a big part of it. Regulators want transparency. Since our OMS is on-chain they can trace and see token movements. In our case, accounts will link back to a person’s identity using KYC. 

Our users will have their compliance laws encoded into their accounts. And tokenized securities will also have compliance controls coded in as well. So as a user you can only access tokens that are considered legally compliant within the jurisdiction you live.

“Chintai lowers the cost for those who are trying to use the tokens while also providing yield to those who lend them.” – What interest rates does Chintai offer?

Chintai enables markets that have fluctuations like any other market. We’ve seen APR as high as 40%. But usually the APR is more reasonable. Somewhere around 3-10% depending on the market. 

Chintai’s suite of products looks pretty, well, sweet. Which of these is the most popular among your users? Which product do you think is being underutilized and offers a ton of value? 

The token leasing markets are most used. Mostly because they’ve been live the longest and the DEX is awaiting licensure approval from the Monetary Authority of Singapore so it’s not yet live. The most underrated aspect by far is the Chintai Merchant Network, i.e our OMS white labeling service. 

Merchants can set their own fees, build their own custom UI, and Chintai takes care of all order management and execution. It’s extremely powerful. After all, what good would it be if we had all these cool tokens, but couldn’t make a proper market to exchange them within applications or for various use cases? 

Can you walk us through how the most popular one works?

Talk to us. We explore exactly what market you want to make and we customize it for you. Or if we already have a market you want, but think could benefit from a better UI, then we white label you to use our OMS and share liquidity that’s already been established. In either case you need to build your UI and set your own fees. But we take care of the rest.

Why EOS?

Chintai was designed to be a high performance, enterprise-grade, fully on-chain Order Management System (OMS).  This inherently required us utilizing a blockchain that can handle high transaction volume with low cost; this made Etheruem an unsuitable choice in late 2017 when the project launched.

While the Chintai tech stack does utilize eosio, we are deploying on multiple instances including Worbli (for DeFi) and WAX, Ultra (for commercial gaming) – the EOS blockchain itself features as only a small component of the markets and services.  

Additionally, Chintai will shortly be utilizing Liquidapps DAPP Network for horizontal scaling, which includes their LiquidLink service to enable dApps on Ethereum to also leverage Chintai, with the benefits of the on-chain transactional throughput and reflecting back to Ethereum at settlement to minimize gas cost.

From financial service industry discussions to date, indications in terms of preference have been towards leveraging or spinning up an industry/private instance of eosio as the basis for DeFi services, and there is a reluctance to leverage any of the existing public blockchains. 

We will continue to make decisions based on our partner feedback and customer needs in that regard, but feel we have the right tech stack to be able to service and scale while leveraging the efficiency benefits of blockchain.

What does the Chintai Roadmap look like for 2020? 

2020 is a year of accelerated takeoff. Our primary focus is readying our tech and business for the DEX. We’re establishing our business development team in Singapore to enlist a consortium of banks to issue decentralized Bonds and securities and we’re opening a branch in Germany for our technical team.


This includes lining up a few companies that will pilot STO issuances on the regulated DEX. We are also launching a handful of token leasing markets and formalizing partnerships that will integrate our OMS for gaming, tokenized commercial real estate, and FinTech. 

To help power it all we’ve just opened a pre-seed round in early 2020. But what ambitious startup isn’t trying to raise money? So you probably knew that already. 

How can someone get involved with Chintai?

We are probably one of the more transparent and interactive teams. If you ask us what we’re doing at any moment we will tell you as much as we can. 

We’ve really enjoyed building a culture where our followers, users, and supporters can go on the ride with us. The best way to get close to the action is telegram or twitter. Both handles are chintaiEOS.

Twitter: @chintaiEOS
Telegram: https://t.me/ChintaiEOS
Email: [email protected]

This article is Originally posted on CoinCentral.com
Author: Alex Moskov

Lendroid Foundation Founder Vignesh Sundaresan Speaks on His Entrepreneurial Philosophies – CoinCentral


Vignesh Sundaresan is a serial entrepreneur and software architect with over 10 years of experience in product development. He’s the Co-Founder of BitAccess, a YCombinator alumni company that has grown into a large network of Bitcoin ATMs. Sundaresan has also helped fund projects such as Ethereum, Polkadot, Dfinity, Omisego, and Decentraland. 

Sundaresan has his eye on open protocols, back-end programming, and more specifically, facilitating a paradigm shift towards a more decentralized finance world. Recently, he founded and conducted a successful token sale for the Lendroid Foundation, a Singapore-based non-profit organization developing a non-rent seeking open protocol for Decentraland Lending and allied financial applications.

Your Twitter bio is “Software eats everything.” – Can you explain this quote?

This is a paraphrasing of something Marc Andreessen Horowitz said – Software is eating the world. On the surface, this seems like a catchphrase for disintermediation or ‘Uberization’. Of technology making conventional businesses obsolete. 

Uber ate the taxi medallion system, Amazon ate bookstores, DeFi will eat banks, and so on. 

But to me, this represents a very optimistic belief. Software is power, accessible power. If software eats the world, and anyone can access software – anyone can eat the world. That story of truly equal opportunity – that’s what this quote is about. 

How did you get into the cryptocurrency and blockchain world? What was your first experience with digital assets?

I had no crypto, to begin with, and no money to buy crypto. I got on bitcointalk and built an escrow service for people to be able to swap crypto. The transaction fee I earned was my first crypto. 

Could you describe your BitAcces experience?  What was it like setting up 100 Bitcoin ATMs in 18 countries? 

It was a heady, extremely optimistic time for me. There was this naivete that’s rare today, that what we were building would spread all over the world. There was also the gratification that comes from introducing something new to the world. In many of these locations, this was the first bitcoin ATM – Toronto, Montreal, Winnipeg. 

We were the coolest kids in town. I got to travel a lot, meet a lot of crypto OGs. They were the ones who bought ATMs, with the excitement of buying an arcade machine. In fact, that’s how I met Anthony di lorio, the co-founder of Ethereum. He was my first customer. He bought the first ATM in Toronto, around a BTC meetup. 

What were the trials and tribulations you had to overcome? 

BitAccess was a YC Alumnus, it was characterized by fast growth. Beyond a point, the hardest thing was the shift in focus from pure tech to tech that had to orient itself around compliance. Compliance related tools began to eat into more than half our time. 

The other hard part was the culture shock of moving from India to Canada. I was embraced by the crypto community, but I was figuring out entrepreneurship, how the world works…the culture shock never fully wore off until later.     

What’s the next big thing for cryptocurrency?

I believe virtual worlds and NFTs are in a very interesting zone, on the threshold of something incredible. Check out Cryptovoxels. They’re pushing the boundaries of how creatively a human can live. 

In your opinion, what does the cryptocurrency space need to make its next evolution? 

The obvious answer is scaling. The day we figure that out, transaction costs will come down to a few cents and will trigger a profound change across the board. The other change this space needs, now more than ever, are strong stories around the blockchain. 

Stories that hearken back to the optimism of 2014. The past two years have forced much of this community into a shell. There’s a lot of undirected aggression, skepticism. We need to mainstream big stories that bring back the ability to trust one another. 

According to your site, your investment secret is “not invest expecting it to boom, but to invest because you simply love the idea”

What are some companies (or industries) with ideas you love (not limited to cryptocurrency)?

If not crypto, then space exploration. It’s inspiring, another frontier. 

In crypto, I have always loved Decentraland – the core philosophy that your land, once it’s yours, can never be taken away. In an increasingly authoritarian world, this reality is an anchor. A galaxy on Urbit is another example. Digital art – say in makersplace or opensea. The truly original application of AI in Numerai. 

What do you view as the key growing moments for you as an entrepreneur in your life? What key lessons can you dispense for the entrepreneurs in the audience?

Entrepreneurship can work only if two things come together. 

The first is that you need to define your antithesis to an existing thesis. 

And the second is to understand and be at peace with the fact that you will at most achieve synthesis, a sort of a meeting point between the existing thesis and your antithesis. 

There’s a philosophy at the heart of this – an understanding that when you begin with an aspiration to reach somewhere, you recognize the transits in the middle, planned and unplanned, as things that augment your journey, not as burdensome wastes of time. 

This is inspired by the works of Deleuse, a French philosopher. In fact, we have named the current version of our protocol after Deleuze, if anything to remember that how we got here was not in a straight line, and where we go from here won’t be either. 

What are the most important things to follow in the cryptocurrency and blockchain space (ie. DeFi, international regulation, Libra, etc)? Why?

The three major issues that will impact layer 1 of the blockchain – Regulation (know your jurisdiction!), scalability, and governance. Everything that happens in these three arrowheads is relevant, and important. 

In your opinion, who are some of the brightest minds in cryptocurrency today?

Off the cuff, I follow Gavin Wood, Fred Ehrsam. And one off-kilter entry – @CryptoDonAlt. His viewpoint and take on this space is fascinating. 

If there was one single takeaway you can impart on our audience, what advice would you leave them with? 

Well, I can’t give advice, really, but I do have a suggestion – that we practice optimism, to attempt to reach back to the mindset of the crypto world before it became rich. To be more open, to give people a chance, maybe even a second chance. And to not confuse optimism with gullibility. Life is community, a multi-player game. We shouldn’t forget this when we’re playing crypto. 

This article is Originally posted on CoinCentral.com
Author: Alex Moskov

6 Blockchain Startups Taking on the Freelancer Economy


Freelancing is an excellent starting point for the discussion about the impact of technology on the evolution of a highly active and entrepreneurial microcosm within the grand professional workforce.

A decade ago, freelancing was seen as somewhat of an island of misfit toys – people who were otherwise barred from the larger corporate workforce either by job qualifications, geographic location, or discriminations such as tattoo sleeves, or those crazy few that decided to start their own business.

Today, the blossomed freelancing ecosystem has shaken up the traditional professional itinerary.

Instead of working at the local restaurant or bar, college students are opting to monetize their nascent professional skills by programming or writing web content for $20-$45 an hour. It’s no shocker that many in their early 20s are jumping on the digital nomad rocketship and traveling the world and making a full year’s salary at their own pace and hours.

A 2017 study by Upwork and Freelancers Union estimates that 57.3 million Americans (roughly 36% of the U.S. workforce) are freelancing in some capacity, and add $1.4 trillion to the economy every year, a jump of nearly 30% since 2016.

Extrapolating this current growth rate puts the majority of the U.S. into the freelance spectrum by 2027.

Skilled professionals are entering the freelance economy to soften the blows of of post-gentrified San Francisco and New York City rent, if not to at least make a few extra dollars at $65-$150+/hour.

Internet-savvy labor-seekers all over the world is also able to earn a much higher wage in comparison to their native wages. Take this writer’s motherland of Bulgaria, where the monthly minimum wage is about $290 USD (235.20 EUR). A simple web content gig that averages around $15/hour at a typical 8-hour workday puts this employee at 12x the minimum wage line at $3,600/month (2,900 EUR). That’s a lot of shkembe chorba and Kamenitza beer.

63% of freelancers stated they freelance by choice, an 18% jump from 2014 to 2017. Additionally, 63% freelancers noted that they prefer the security of a diversified portfolio of clients rather than a single employer.

Upwork infographic

Image from Upwork

The rise of the freelance economy and the seismic shift of talent gave birth to intermediaries that are able to make an absolute killing connecting freelancers and clients.

Intermediaries such as Upwork, Toptal, and Fiverr act as talent marketplaces, escrow agents to release payment when the freelancers and clients mutually agree on the completion of work, and as a sort of search engine to place the “Top Rated” freelancers at the top of the new job listing suggestions.

Upwork: Target Practice for Blockchain Startups

To put this opportunity in perspective, let’s take a look at Upwork, one of the world’s most popular freelancing platforms.

Upwork home page

Upwork’s home page.

Upwork as we know it today was born in 2015 as a rebranding from the merge of Elance (founded 1999) and Odesk (founded 2003). With an estimated over 9 million registered users (much fewer active) in 180 countries with over $1 billion in annual freelancer billings, Upwork is largely regarded as a pioneer of the freelance economy.

Upwork makes for excellent target practice for blockchain startups because it has been able to accomplish what few freelance platforms have failed to do: create a trusted platform with a bustling ecosystem of active and satisfied users. For every Upwork, there are dozens of terrible and scammy platforms charging higher fees without offering nearly the same experience as Upwork.

Upwork acts as an intermediary and escrow agent and charges freelancers a fee on every transaction (20% up to $500, 10% from $500 to $10,000, 5% $10,000+, and clients a payment processing fee of 2.75%.) Upwork earns an estimated revenue of around $68,826,417 per year, the majority of which comes from these fees.

A single user making $65,000/year from multiple clients on the Upwork is making Upwork anywhere from $3,250 to $13,000 every year with very little upkeep – not too shabby for an algorithm!

Whatever human upkeep required for mediation and customer support happens via chat through Upwork’s support staff, which is most likely a network of inexpensive scripted virtual assistants from around the world.

Thousands of full-time freelancers with active rosters of clients and steady streams of work will happily express gratitude to Upwork for getting them started on their journey. The platform presents utopia for ambitious skilled talent with a penchant for taking full agency of their livelihood, setting their own hours and contract terms, and working wherever they choose – whether that be on a beach in Thailand or the coffee shop down the street from Mom’s house.

Unfortunately, all that glitters is not gold. Thousands of freelancers that put the full weight of their subsistence on the platform have complained of having the floor pulled from underneath them by unfair account freezes, reputation-shattering negative feedback from bad apple clients, as well as notoriously bad customer support.

Even a pleasant experience with Upwork doesn’t guarantee loyalty. Freelancing is not without its expenses. Rent, food, health insurance, co-working spaces, plane tickets, and the vices that come with an essentially self-ostracizing career path add up.

With freelancing also comes the imminent threat of one of your core clients falling through, leaving you staring down mounting fixed expenses and scrambling to make up the difference.

At some point, freelancers need to make the business decision of whether having 10% to 20% of their paychecks going to an intermediary is worth it. That 10% to 20% could be the difference between a new car, a down payment on a home, or health insurance. 

High fees are a huge reason why freelancing platforms like Upwork are seeing an exodus of their otherwise loyal users into off-site agreements where trust is hardly a factor with long-term clients they have become familiar with and from whom they can reliably expect work.

Without a need for Upwork’s core value proposition of trust, freelancers can shift their entire business to Gmail/Skype and Paypal or crypto. Clients also don’t mind using their own preferred methods of communication and saving on the 2.75% payment processing fee.

What attracts millions of freelancers and clients to the platform is the concept of trust and the enforcement of it, a value proposition that has become existentially threatened by a “trustless” blockchain.

While freelancing platforms are already caught in a vice with their user retention dilemma, dozens of blockchain-based competitors offering a smart-contract solution have come out guns-blazing.

The overhanging threat of disruption looms over any intermediary in a post-blockchain world, and the high traffic and easily monetizable freelancing economy is ripe for the taking.

Canya.io is the closest upcoming platform to Upwork. This blockchain-powered marketplace of services raised over $12m AUD in their November 2017 ICO and claims to have over 7600 users and 3,400 service providers.

CanYa's home page.

CanYa’s home page.

CanYa will offer essentially the same services as traditional freelance platforms with fees set around 1% carried out in the native utility token CanYaCoin. The CanYaCoin is used to power the network of transactions as well as incentivizing platform growth and user behavior.

What sets CanYa apart from online freelancer platforms (other than the advantages of blockchain and a decentralized network) is that it also aims to provide in-home services, such as hiring a plumber.

For more information, check out the CanYa website and whitepaper.

Although Steemit isn’t necessarily a platform for freelancers to connect with clients, it leapfrogs past the need for clients by offering content producers a means of monetizing their content.

The typical engagement between web content freelancers and is as follows: 

The traditional content monetization model involves leveraging content for traffic in hopes of generating advertising revenue or affiliate commission. Digital marketing savvy entrepreneurs with an understanding of what sorts of content performs well, how it should be written, how it should be optimized for search engines, etc. hire freelancers to create the content.

Freelancers receive a contract for something like “24 Benefits of CBD Oil to Cure Your Hangovers” and submit the article to the client for approval. If approved, the article goes live, and the clients utilize their skills to drive traffic to the content (or they hire someone that can). Hundreds or thousands of interested users read the article. The site owner gets paid by the advertising revenue from AdWords, a commission from the affiliate links on the site, or other sorts of partnership deals.

Steemit's home page

Steemit’s home page

Steemit essentially cuts out the need for the intermediary client and allows freelancers to post their content on https://steemit.com/, where users will read, comment, and engage with the content.

The content creators are then rewarded in Steem in proportion to the number of people reading and engaging with it based on the amount of “Steem Power Units” of that particular user.

The Steemit platform is architected to generate new units of “Steem” in order to keep the network running so that there will never be a need for third-party advertising or affiliate marketing to keep the lights on.

Ethearnal is a blockchain-based freelance platform that primarily focuses on tokenizing reputation as its main differentiator. It also provides the same money escrow and moderation services.

Ethearnal's homepage

Ethearnal’s homepage

The reputation of freelancers is calculated based on how much ERT they have. Freelancers then “stake” an amount of ERT set by a client in order to enter into the particular smart contract.

Employers must stake ERT to hire freelancers, and moderators must stake ERT to solve disputes.

Whenever a contract finishes without the need of arbitrage, the Ethearnal platform uses $ of the contract to purchase ERT tokens on the open market to reward both the employer and freelancer with 0.5%, allowing them to receive reputation boosting tokens in proportion to the contract value.

To learn more, check out the Ethearnal site and whitepaper.

The Origin Protocol seeks to decentralize the entire sharing economy and has the likes of Uber, Airbnb, Fiverr, and Getaround in its crosshairs. Although the scope of its mission is broader than the laser-focused freelancer model, it plays an arguably larger role in the conspiracy to undermine the entire sharing economy, which is estimated to grow to $335 billion by 2025.

Origin Protocol's home page.

Origin Protocol’s home page.

By using the Origin Protocol, businesses or individuals can conduct their operations on the decentralized web. CanYa, for example, is building their marketplace of services for the gig economy on the Origin Protocol.

Origin Protocol

To learn more, check out the Origin Protocol site and whitepaper.

OpenBazaar is the world’s largest decentralized marketplace and charges no platform fees.

Spun out of the winning idea of a darknet marketplace of a Toronto hackathon in 2014, OpenBazaar was made to be completely peer-to-peer with no central controlling organization.

OpenBazaar's home page.

OpenBazaar’s home page.

The founders then started a company called OB1 with $1 million of venture capital investments from Union Square Ventures and Andreessen Horowitz. OB1 received a second round of investment for $3 million in the fall of 2016.

OpenBazaar functions as a sort of global Craigslist that also allows freelancers to connect with new clients.

Users are able to pay with over 50 cryptocurrencies such as Bitcoin, Ethereum, Litecoin, Zcash, and Fash, and sellers are able to receive payment in Bitcoin, Bitcoin Cash, or Zcash.

To find out more, check out the OpenBazaar site.

Moneo is a blockchain-based freelancer platform that vets and verifies its freelancers with a primary goal of providing an array blockchain experts for hire.

Moneo's home page.

Moneo’s home page.

To learn more, check out the Moneo site and whitepaper.

Blockchain Out the Woodwork

Soon after the popularization of the awareness of blockchain’s potential came a near commoditization of blockchain-based platforms.

Iterations upon iterations on the “blockchain-based smart contract freelance platform” concept started rolling out en masse with names that aren’t necessarily trying to compete in the Creativity Olympics.

Blocklancer is offering a Distributed Autonomous Job Marketplace (DAJ) run on the Ethereum blockchain. This platform aims to be entirely self-regulatory with minimal fees and a decentralized tribunal system to guarantee fair dispute settlements and minimize fraud.

Coinlancer does the same thing and is hardly anything more than a smart contract platform draped with a user-friendly experience.

As is in the traditional Silicon Valley tech entrepreneur world, countless companies will start seeking a product-market fit in a monetizable niche, but this time with blockchain as a competitive advantage over the old guard.

Final Thoughts – Are Blockchain-Based Freelancing Platforms the Future? 

Theoretically, a trustless blockchain appears to hold the keys to freelancer emancipation, or at the very least potentially an impetus to a substantial restructuring of the current king’s ransom high fee structure imposed by intermediaries.

However, the keyword is theoretically.

Platforms like Upwork have spent millions in simplifying the user interface and user experience for all parties, as well as educating the general population on the ease of use and benefit of the freelancer economy.

Sure, a startup can reverse engineer of the UI/UX of the reigning platforms, but the challenge of branding is real.

The lowest hanging fruit for new platforms is users who have the time, flexibility, and patience to test new options, which isn’t necessarily a large demographic.

Blockchain startups certainly have their work cut out for them on the user acquisition front, especially now since Facebook and Google have both taken hard stances against cryptocurrency advertising. And even then, these startups need to jump over the next hurdle of building a two-sided community that competes with the activity of digital metropolises like Upwork.

On the other hand, the incumbent freelance platforms are mired in their own problems. The leading solution to the problem of high fees, blockchain, requires the surrender of the intermediary’s core value proposition and surrender of its main source of revenue.

Should a platform like Upwork pivot to blockchain to reduce fees, they’d be gutting their near (estimated) $70 million in annual revenue. That might make meeting payroll for their 250+ employees a tad difficult.

So, the narratives being to reveal themselves.

Will small, nimble, and adequately funded post-ICO blockchain-based startups be able to successfully onboard massive amounts of freelancers and clients and create a self-sustaining ecosystem or will they prematurely exhaust and doom themselves to a tiny esoteric circle of cryptocurrency aficionados?

Will ailing old-guard platforms be able to stop the drain of their most valuable cash cows talented freelancers, or will they become another set of relics antiquated by the raging tide of technological innovation? 

Only time will tell.

However, one certainty has started to manifest: the booming freelance economy has yet another avenue to exercise optionality when it comes to monetizing experiences, skills, and labor, as well as connecting ambitious talent with potentially civilization-advancing projects.

This article is Originally posted on CoinCentral.com
Author: Alex Moskov

Donald Trump’s Senior Economic Advisor Is Working on a Stablecoin


There’s at least one blockchain bull in Washington D.C. 

Stephen Moore currently serves as Donald Trump’s senior economic adviser. Moore played an instrumental role in the writing and passage of the Tax Cuts and Jobs Act (2017) and briefly entertained a Trump nomination to serve as a governor of the Federal Reserve and help manage the nation’s currency (Moore would withdraw his name from consideration.) 

Moore, a self-ascribed policy geek, counts over 35 years of working in public policy. During this time, Moore was also on the Wall Street Journal editorial board, Fox News Channel, and CNN as a senior economic analyst. 

Worth Magazine ranked Moore as the 32nd most powerful person in global finance. In 2018, Moore met the Founder and CEO of Frax (then Decentral Bank) Sam Kazemian at the SALT conference, a bi-partisan investment conference hosted by Former White House Director of Communications Anthony “The Mooch” Scaramucci. Kazemian is the co-founder of Everipedia, a for-profit Wikipedia “fork” that uses the EOS blockchain and incentivized content creation using a cryptocurrency token called IQ. 

Today, Moore serves as the Chief Economic Advisor of Frax, a decentralized fractional-reserve-based stablecoin. By its nature, Frax will compete with central banks by offering a stable digital alternative. 

We connected with Moore and Kazemian to discuss the future of stablecoins, the current political climate surrounding blockchain and bitcoin, and how the Frax team aims to establish Frax as a widely adopted digital asset.  

What does the role of Chief Economic Officer at a cryptocurrency project look like? 

Moore has spent the bulk of his career advising politicians and rallying stakeholders in advocacy of lower taxes and decreased government spending. As a senior economic advisor to Trump, Moore helped work on overhauling the US tax policy, which was passed into law by Congress in 2017. 

Today, Moore is dedicated some of his schedules to something out of the immediate wheelhouse of most in Washington: advising a blockchain startup on its creation of a stablecoin.

“One of my roles is to make sure Frax grows and grows into billions of dollars but keeps a stable value,” says Moore.

Moore also wants to help Frax escape and better navigate a murky regulatory atmosphere. 

 “Another role is to help the company navigate this undefined regulatory climate,” says Moore. “We don’t know what regulations are coming but we know there are regulations coming.  It’s not much an economist role but I’ve been in Washington for 35 years and I know how these agencies work. Regulatory agencies might try to slam the door shut on a lot of these cryptocurrencies and we want to find a way to prevent these currencies from being shut down.” 

What’s it like being a proponent for blockchain and digital assets in Trump’s administration? 

“Trump administration has had some skepticism,” comments Moore. “Not hostility, but skepticism. We want to work with the administration and ease some of their fears. Stablecoins and blockchain are not something that will blow up the economy. It should be viewed as an asset or a liability.” 

“People inside the Trump administration are intrigued. One role I’ve helped play is to increase the visibility of blockchain and digital assets. They raise objections and complaints, and I try to talk them down from the ledge. I view this as the Internet age where the government can’t stop progress. I think crypto and digital currencies are the next big thing.” 

You can’t stop technology. Let it proliferate, let people use it, and let it become the Wild West. It would be very advisable for the Trump administration to let people work this out and make their own decisions. Regulators are trying to solve yesterday’s problem and far away from the curve of solving where the best things are.”  

“Early adopters will realize its potential. We’re at a stage where 95% of people probably don’t know what it is.”

Will cryptocurrency be a topic for future Presidential elections?

“2020 no,” comments Moore. “2024 yes”

Why does the world need another stablecoin?

Frax differentiates itself from other stablecoins as an algorithmically managed reserve of cryptocurrency and digital bonds.

“We’d like other stablecoins to continue growing so we can use them as collateral to back Frax,” notes Kazemian. “We’re not another Tether or Maker clone that over-collateralized Ether.” 

But why now? Kazemian looks at the industry’s progress in the past few years as extremely productive in setting the foundation for decentralized finance. 

“I don’t think something like Frax would have been possible until the industry grew into what it is today,” says Kazemian. “Money markets like compound.finance have hundreds of millions of loans coming in. People are paying interest on those products. Tether and Dai getting a strong foothold. Tether is the fifth-largest cryptocurrency by market cap. Also, the psyche in the industry has changed that stablecoins are an important part of the ecosystem. We needed the whole atmosphere to change.” 

There is nearly $700 million locked in loans locked in decentralized finance (DeFi) contracts.

“To me, Bitcoin isn’t really a currency; it’s a commodity,” says Moore. “A speculative commodity at that. I’m not saying that to be negative. A currency retains its value over time without going way up and down in value.”

“A recession or a bear market is just a bull market for stability,” says Kazemian. “What happens when prices go down? Everything flees for the dollar. Just by logic, when there’s a bear market on one end, there’s technically a bull market for what the assets are priced in. It just makes sense. We’re seeing the same thing in crypto. Seeing utility coins and shitcoins plummet, and stablecoins like Frax are there to give investors stability and sound value.” 

What are your plans for user adoption? What does the stablecoin need to succeed?

“We view it as a multi-layered approach,” says Kazemian. “In order for Frax to grow, it needs institutional or exchange backing so people can actually use it. The second phase is once people can get access to Frax, we’ll start figuring out how to get out to the general public. We’re looking into more retail-based things like Robinhood or Cashapp and slowly move into the consumer space.” 

What’s in it for you guys?

“With most decentralized coins, there’s a 2 token system,” comments Kazemian. “People who want exposure to growth hold the volatile token. Frax works the same way. Frax shares (FXS), those tokens are hopefully going to be worth a lot. They work in a similar way. The total value of frax shares is the DCF [discounted cash flow] of all fees paid in Frax. Part of the shares has value in the entire system. It’s pretty exciting because it’s like having shares in a decentralized central bank. The original shares generated are distributed to the founding team and investors, partners– similar idea to MakerDao token.” 

Much of Moore’s blockchain support seems to be rooted in his strong Libertarian leanings. 

“I want the government to know as little about me as possible,” says Moore. “I think millions of people are like me around the world. The idea you can have a currency that’s not monitored or controlled by the government is very valuable. You can’t discount the value of a decentralized currency.”

Why peg Frax to the Dollar?

“If the value of the USD changes, we’d have to wonder about how to update the protocol to follow another peg,” says Kazemian. “It’s possible in terms of software. I can’t see a world where the USD doesn’t lose its value.”

“This is a great question,” says Moore. “Is the dollar the best thing to peg this to? There are flaws in many currencies. I lived through the 70s where we saw 15% rates of inflation. What else would you want to peg it to? One idea we thought about was pegging it to the price of gold, but it fluctuates more than the dollar. Many currencies have had much bigger peaks and values over time. It’s the best choice out there. The Dollar is simply the least rotten apple in the bunch” 

The team sees Frax co-existing and even supporting the U.S. Dollar. 

“Frax helps solidify the dollar’s role as the world currency,” comments Moore. “We see Frax as a digital world reserve currency.”

“Since Frax is pegged to the U.S. dollar, it’ll help keep it relevant,” says Kazemian. “You can move the same dollar value using a blockchain infrastructure. We’re not trying to do a weird floating currency like Libra that has a unique exchange rate to the USD. We’re actually excited because it’s a very American project.” 

Hypothetically, can Frax be shut down?

There’s nothing illegal about what we’re doing,” comments Moore. “There would be a lot of problems for the government trying to shut down. It’s a legal product. Government regulators recognize it’s a clear and present danger to their current status. They will try to figure out a way to slow it down. Government regulators, especially when it comes to technology, are always like three chess moves behind the industry.” 

“In a hypothetical world, it’s a decentralized financial product,”  adds Kazemian. If they try to take out Satoshi after they release code, people are already running it.”

In other words, once the cat is out of the bag, you can’t put it back in.

How will governments react to a widely adopted stablecoin?

According to Moore, stablecoins can serve as an important policy function that isn’t recognized by the people in policy powerhouse cities like Washington, Brussels, Tokyo, and so on.

“These cryptocurrencies will have a very disciplining effect on government currencies,” comments Moore. “As Sam was saying, there’s a saying good money drives out bad money. People are going to flow to the currency they trust. People flee to the dollar, which forces other countries to think twice about devaluing their currency.”

The large number of viable substitutes that exist, the less likely governments will be able to manipulate their currencies outside of the best interest of the public.  

“When countries get into a debt crisis, they try to depreciate the debt currency and then try to pay back debtors,” explains Moore. “It’s a way of screwing over the debtors. Now, when you’re going to have currencies like Frax out there, you’re going to see a migration to more transactions being done in Frax instead of itself.” 

The availability of substitutes such as Frax and other stablecoins is going to make it difficult for central bankers to successfully inflate or deflate a country’s currency.

“It’s going to force central bankers that they will have to keep their currencies stable. Markets will instantly punish them for not. Over time, you can see some of these debts paid back in Frax instead of a certain currency.” 

Is stability necessarily always a good thing?

“Stable currency is optimal,” says Moore. “You always want your currency to be level in value. We know from history for hundreds of years, high inflation and high deflation can have negative consequences for an economy. It gets back to Economics 100: why do you have a currency in the first place. If it doesn’t retain its value, people will use other things to trade with.”

Final Thoughts

To learn more about Frax, check out the first version of the whitepaper on Frax.finance. Currently, the team is testing some of the smart contract features on EOS and planning Ethereum integration.

It’s estimated Frax will be available on the market at some point in 2020.

This article is Originally posted on CoinCentral.com
Author: Alex Moskov

How Blockchain Can Eliminate $592M in SNAP Benefit Fraud

The Supplemental Nutrition Assistance Program (SNAP), formerly known as the Food Stamp Program, is the largest program of the US Department of agriculture in terms of the number of recipients and budget. 

Thanks to SNAP, over 40 million (2018) low-income Americans are able to receive financial assistance to buy food, offering an average monthly payout of $125 per qualifying member.

In 2018, SNAP costed US taxpayers over $65 billion. However, a small, but manageable chunk of this massive sum went to fraudulent uses. Orbs, a company that created a hybrid public blockchain designed for large scale consumer applications, recently released a blog post highlighting how SNAP is often abused. 

The SNAP State Activity Report found that roughly $592.7 million in SNAP benefits were “Fraud Dollars”, meaning that they were likely misused, traded for cash, unapproved items such as controlled substances. Other abuses of SNAP even implicate some retailers, who would charge an EBT with a certain amount in exchange for a discounted cash amount, or simply overcharging the EBT to sell unapproved items. 

While the fraud may seem small as a percentage of the total expenditure (about 0.8%), $592.7 million is still a significant amount that could be better utilized to either provide more benefits for qualifying SNAP participants or other public programs. 

Orbs is making the case for blockchain as a seamless solution to eliminate SNAP fraud with a limited overhaul of the massive public platform. 

We connected with Netta Korin, the co-founder Orbs to discuss. 


How does SNAP benefit fraud impact families in need?

Fraud leads to a reduction of the benefits received by qualifying recipients who do not abuse the system. 

Those most affected by fraud include those whose benefits are collected on their behalf, with a majority including children and individuals with disabilities. 

Furthermore, abuses to the system by recipients of service-providers provide individuals lobbying against SNAP and general social benefits with ammunition; which can, in turn, influence the reduction in aid and commitment to families in need. 

Could you explain how SNAP benefit fraud proliferates?

SNAP fraud is typically defined as the exchange of benefits for cash or other ineligible items (trafficking), or purposefully misrepresenting information on your SNAP application with the aim of receiving more benefits.

Although the overall percentage of program participants participating is still relatively low (.9%) – the extent has been on the rise. According to data from the U.S. Department of Agriculture, benefit fraud increased by a staggering 61% in 2016 from $367.1 million in 2012. 

As a result of increased fraud, administrative overhead and costs related to enforcement against fraud have swelled. If these costs were to be minimized, greater benefits for eligible persons would become available. 

How can blockchain slow SNAP benefit fraud, or completely stop it?

SNAP participants already receive their benefits through an electronic benefit transfer (EBT) card, which is de-facto a digital wallet. We suggest migrating the EBT platform to the blockchain, rather than leaving it centralized. 

Notably, this migration would not cause any adverse changes to users’ day-to-day experience. Users would also have the ability to use their EBT cards as Digital IDs provided by the US government, essentially making them dual purpose.  

Our recent blog post highlights how various federal support programs are managed separately. This separation often leads to confusion among applicants who are unaware of their eligibility for support from other programs, as well as an aversion to enrolling due to the barriers involved. 

A Digital ID platform, based on data collected from certain programs, could reduce applicant confusion and frustration by helping them navigate applications and automatically matching them to additional programs where they meet the criteria making the overall process much faster, easier and efficient. 

In short, the migration of the EBT platform to blockchain serves two key benefits:

  • Direct – Being upgraded to a digital ID that acts as a key for additional benefits, rather than “just” a digital wallet for SNAP benefits, will immediately increase the intrinsic value of the EBT card in the eyes of its holder. Subsequently, EBT cardholders will be less likely to “traffic” it for cash, which is one common form of SNAP fraud.
  • Indirect – If participants are eligible for aid from additional welfare programs, they can easily and efficiently apply, cutting bureaucracy to a minimum.

Do you see this being implemented in the reasonable future?

Yes. We see more and more governments, NGOs and enterprises looking into blockchain-based Digital ID solutions. Due to the Hexa Foundation’s focus on blockchain for social impact, I was invited to join the WEF Global Future Council on Humanitarian Systems which met in Dubai in November. 

One of the Council’s goals is to unlock new technological solutions to increase the efficiency of global humanitarian efforts. A significant portion of our discussion involved how to use solutions such as digital identity to enable greater program efficiencies.

While there are certain aspects that require careful attention such as privacy and regulation, etc., the overall trend is clear: Blockchain provides a solid solution for managing one’s ID and these organizations realize that. The migration to a blockchain can also be carried out gradually, allowing agencies to adopt it in small, easily manageable steps

With SNAP, we recommend the first step as transitioning the EBT cards to a blockchain-based platform; then adding on the Digital ID layers later on. The solution we suggest does exactly that. 

What are the major obstacles we need to overcome to see blockchain being utilized in the public sector?

Education of the public sector. There is still deep confusion concerning blockchain, including what it’s good for and what it is not good for so we’ve spent a great deal of time investing in educating both college students and the international community through our membership in the Mousebelt Blockchain Education Alliance and our participation in the United Nations hackathon for social impact where a solution built on Orbs won! 

Most people still tend to confuse blockchain with cryptocurrencies, and are therefore deterred from it. Others try to present as a “fix all” solution. We take a realistic approach – it can make a big difference in tackling certain use cases but it isn’t always the best solution for everything.  

In terms of technology, there is still a way to go, but we already have enough in order to launch and support successful projects for meaningful causes. We’ve had ongoing discussions of this topic which can be found in previous publications of our Foundation, such as the one on blockchain aid for the refugee crisis

We spend a lot of time and effort educating global leaders as to the added value of blockchain technology to enable more trustworthy, efficient and transparent systems as part of our Hexa Foundation.

Lastly, it’s important to note that the public sector is primed for blockchain innovation since in most countries, transparency in the process is already mandated by law. 

What are other simple use case parallels a similar blockchain solution can be used for?

Blockchain can be used to improve transparency and accessibility in a variety of ways. For example, migrating government centralized registries. e.g. car ownership, real estate, trademarks, certifications, to blockchain-based registries. Additionally, public procurement tenders, which would provide transparency into the use of public proceeds, as well as the distribution of humanitarian aid in refugee camps, ensuring it is received by the end-user.

Thank you, Netta!

This article is Originally posted on CoinCentral.com
Author: Alex Moskov

Digital Advertising is Broken– Lin Dai Wants to Fix It with TAP Network

Lin Dai is a self-described nerd. He started his professional career in the first dot com boom while he was a student at Carnegie Mellon. Dai built one of the first social networks for teenagers called Kiwibox Media Inc. with about two million people on the website. After taking the company public, Dai moved to New York City and lived through the dot com crash and burn. 

Dai went on to help major media companies such as Viacom and Alloy branch out into the digital advertising industry. After a few years in corporate, Dai itched to get back into the startup world and joined a mobile video social network startup called Keek, which he helped grow to 75 million users in about three years. 

Today, Dai’s primary focus is running TAP Network, a blockchain-based network that powers an ecosystem that cuts out the third-party data merchant.


What’s wrong with the current digital advertising ecosystem?

No matter how you cut it in the current digital advertising ecosystem, Facebook and Google will win 99% of the business.

Every other media brand is struggling. Media companies need ad revenue, which is under assault from Facebook. 

Part of the solution for media companies is diversification of revenue streams. A future mix of revenue could be ⅓ subscription-based products, ⅓ media advertising, and ⅓ commerce. 

What does the digital advertising landscape look like today? 

The bulk of user data is aggregated by two companies: Google and Facebook. These companies leverage that data by providing it to third parties. These third-party marketers then use that data to advertise. 

Advertising targeting runs over two sets of identities: a device ID (anything that happens on your phone they can target) and a browser ID (cookie or something that tracks you, and it doesn’t matter where you search). Your browser ID is tagged with something that advertisers can deliver advertising to. Hundreds of companies can collect your data through GPS location, different preferences you set, actions you take through browsers.

Advertising is very different today than its early days. Before it was like,  “we’re a shaving company and wanted to advertise on Men’s Health magazine!” 

Now, advertisers are just buying programmatically. They don’t necessarily even see where their ads are, nor do they need to. They can target you, who they believe to be a potential customer, wherever you’re at. That’s fine in our eyes, as long as you’re giving them permission and are being compensated. But that’s just not how it works today. Multi-billion dollar companies are middlemen that allow marketers to take advantage of this data, and it’s not in the benefit of the individual nor the marketer. 

While this model works, we don’t really see it as being sustainable. Most of this data is collected without a user’s permission, or at least the use of it by third parties isn’t explicitly approved by users. 

The consumer is being targeted without their consent, and the intermediary is taking their commission regardless of a sale or not. 

We’re imagining a way the consumer can delegate permission to a brand, and brands can understand their “opted-in” audiences better. 

We started thinking about how we could create more value for users while also giving them ownership of their data. Part of that solution meant finding ways to collect data that is superior to what Facebook and Google are collecting. Also, we had to find a way to help make consumers aware of when their data is being arbitraged to monetized. 

The last frontier for data is finding the actionable data that does a much better job of qualifying how an individual or audience will respond in the future. For example, if I’m Dominos, I can target people who liked a photo of pizza. But, if I can target people who liked a photo of pizza who ALSO purchased something from Papa John’s in the last 10 days, I’ve got a much higher quality audience. 

The problem is getting people to willingly share that type of data. 

How is the data collected by TAP superior to what Facebook and Google are collecting?

TAP members directly opt-in their purchase data, which is far more accurate than other behavioral data such as “likes” or interests on Facebook. 

For example, if a consumer is willing to share how often and how much they spend at Domino’s every month, that’s far more accurate than if they simply “like” a photo of a pizza on Facebook. 

Also, the major differentiator is TAP obtains first-party permission from the consumer directly on collecting the purchase data, as well as directly compensates the consumer in the form of rewards points or rewards dollars from brands. This is fundamentally different from major social network and internet platforms collecting and monetizing your data without direct compensation to you.

How does a company extract monetary value out of the data collected?

Accurate purchase data allows our network of brands and merchants to cater to specific deals and rewards to the individual consumer and generate higher ROI.

For example, a customer’s purchases greatly impact the value of their data. For example. if my purchase data and history indicates I’m a heavy traveler that travels 14 times a year and spends $20,000 or more annually on hotels and airfare, major hotel groups in the TAP Network will offer up to 70% off publically available rates specifically to me next time I’m booking travel via the TAP booking engine. 

TAP Network receives a commission on the sales generated and splits the majority of the proceeds in the form of rewards to the consumer.  

Could you describe the marketplace for finding buyers for this data?

TAP doesn’t sell user data, ever. User data is secured and anonymized in the TAP system, and TAP works directly with brands and merchants who are looking to make offers to TAP rewards members that fit certain criteria or purchase patterns. 

Perhaps a major pizza chain would like to offer a bonus reward to anyone that purchases $100 or more per month on pizza, or a streaming service would like to offer everyone who hasn’t used their service yet a trial offer. The data will be leveraged anonymously for building each campaign but never sold outside of the TAP ecosystem.

What incentivizes the merchant partner to partner with TAP?

Through offering Universal rewards, TAP Network encourages rewards members to actively shop with merchant partners in the network to earn rewards points. 

Merchant partners generate additional sales from new and existing users, and can accurately measure sales revenue or frequency lift through TAP analytics.

How does TAP plan to fix the digital advertising landscape?

If your data will be touched, you should be compensated. You should have full control over who has access to your data. You can say, it’s my data and I don’t want to share it with a specific brand or person. 

We started an experiment with Hooch, a rewards app that rewarded people with free drinks. They would get one free drink per week as long as they shared their purchase data. 

We used the OpenFinance API, which allows them to connect all their credit and debit cards to us. Then, we’re able to scan their transactions and understand their purchases. For example, if you’re an active bargoer, and that data is supported by your transaction history, you’re a very valuable person to target for alcohol companies. They’ll reward you and compete for your business. 

Drinks were a clunky denomination of rewards. We decided to evolve into a full rewards program where users could accumulate rewards points for anything from a $5 coffee or a $500 hotel room. 

Rewards points is a concept many people already understand. They can easily convert $20 in TAP with vendors in the network. 

Traditional rewards programs are designed to take advantage of the consumer. For example, if you fly enough, you can accumulate enough points for free stuff. The thing is 80% of users don’t really accumulate enough points to do anything with. We want to make rewards fairer and more accessible to the consumer. You can accumulate one single currency and spend it with hundreds of brands.

Have you guys raised capital yet?

Hooch developed the TAP technology and its network, and as of its Series Seed round has raised $7.8m. We are in discussions with VCs and strategic investors about a Series A round early 2020.

Where does blockchain come into play?

An overwhelming number of consumers started sharing their data. Our hypothesis was that only 20% of our users would share their data, but about 80% of people shared it. Blockchain came into play because we wanted to secure this data responsibly. 

We wanted to allow users to delegate their data without sharing any personal information. It’s done with a token connection with the issuing bank, similar to how Mint and Acorn use similar APIs. We don’t record card numbers and names. They are not linked or traced back to you. 

You’re assigned a blockchain wallet address, your pseudo-identifier in our system. 

How do you guys make money?

We set up deals with about 250,000 merchant partners, travel, dining, hotels, retailers, eCommerce companies, etc. 

When you make a purchase with them, it’s either tracked with a digital link or detected from the card. We can detect the wallet personally. Those partners pay TAP Network for driving that sale. About 50% of what we receive is converted into TAP Coin ( a stablecoin pegged to USD) and deposited into the user’s wallet. 

We wanted to build a project for the mass consumer, so their rewards have to be easily converted to something tangible they can use rather than some obscure confusing token. 

If you’re a consumer, you’d download the Hooch app and link any number of debit and credit cards. The app starts detecting purchases. If you go to one of our partner merchants, let’s say Starbucks, we detect a transaction is made with that partner. Once the transaction is verified, the TAP Network receives a commission from that partner. Then, part of that commission is deposited into a user’s wallet. 

**Editor’s note: The link included is an affiliate link that gets you $5 in TAP. **

On the merchant side, it’s all about owning the relationship with your customer. In the early Facebook days, Facebook would tell someone like Pepsi to bring their audience on the Facebook platform because they can do a lot of cool stuff like target them in different ways and learn so much more about them. Years later, they flipped the script. They changed their algorithm so companies could only reach a small % of their own audience and would have to pay Facebook to reach the rest. It’s one of the biggest corporate bait and switches ever. 

Merchant partners are incentivized to build their own direct channels with their customer data. 

What’s the future hold for TAP?

We have a plan to reach 30 million users over the next two years. 

We’re doing that by working with existing enterprises such as major media and entertainment companies to license and label our technology in their own name.

Every new digital advertising dollar that comes into the market, Facebook and Google take about 94 cents of it. Major companies are fighting over 6 cents of every dollar because the data Facebook and Google provide is very actionable. 

We want to go to these companies and tell them we have a way to have their consumers send their data directly to them. They can white-label a rewards program in their own name within 60-90 days, which would take them maybe 2 years to build out internally. 

We have our first white-label launch mid-November so that’s really exciting. It’s a company in the entertainment industry with 10m+ users. We want to scale to tens of millions of users very quickly. 

We want to help usher in the second wave of consumers and do our part in bringing blockchain to the masses. 

Thanks, Lin!

This article is Originally posted on CoinCentral.com
Author: Alex Moskov

The Blockchain Art Market is Here. This is What You Need to Know.

Technology Meets Creativity

Some people say that technology is a form of art. With the recent boom of the blockchain art market, this is looking to be more fact than fiction these days. From digital kittens and meme trading cards fetching prices of over $100,000 to artificial intelligence (AI) driven artwork, blockchain technology has officially entered the art world.

Blockchain art consists of more than just slapping a piece of art online, though. There are a few things you should know about this emerging market and how it’s changing art for the better.

People are Creating Blockchain Art

There are a few different methods artists are using to incorporate blockchain into their work. Some artists are creating pieces in which blockchain is the subject while others are actually using the technology in their creations.

Collectibles

Currently the most popular form of blockchain art, collectibles like CryptoKitties and Rare Pepe trading cards have garnered a cult-like following. These digital pieces of art are directly created, stored, and traded on blockchain platforms like Ethereum and Counterparty.

Like Beanie Babies, the rareness of each collectible is what drives its value and price. You can easily pick up collectible blockchain art for as little as $5, but some pieces have price tags of over $100,000.

Blockchain-driven Art

scarab artwork

Current Scarab Experiment Artwork

Beyond collectibles, artists are finding other ways to utilize blockchain technology for their artwork. One example of this is the Scarab Experiment. The Scarab Experiment combines artificial intelligence (AI) with tokenized memberships to create one piece of art from the combined 1000 submissions of community members. Once you submit your art, you receive a tradeable Scarab token that gives you voting rights for what artwork the project includes.

Plantoid is a self-replicating “life form” also driven by AI and blockchain, specifically Bitcoin and Ethereum. It’s a robotic plant with a DNA structure on the Ethereum network that interacts with the people that donate to it. Once it receives enough Bitcoin donations, the Plantoid enters the “reproduction phase” in which it puts out a call for artists and designers to create another Plantoid. The person that gets the bid must create another Plantoid following the same DNA rules as the Plantoid before it. In return, the creator receives the Bitcoin donations from the original plant through a smart contract.

Blockchain-based Art

Although not built with blockchain, there are numerous works of art that use the technology as inspiration. Recently, the first-ever publically commissioned Bitcoin monument was erected in Kranj, Slovenia. Citizens of the city submitted ideas for the monument via Facebook, and officials chose Bitcoin because of the region’s ties with the industry.

Blockchain has also influenced Bitcoin graffiti art, renditions of Satoshi Nakamoto, and even the Last (Bitcoin) Supper.

last bitcoin supper

You Can Track And Verify Art On The Blockchain  

Perhaps more important than creating art is being able to verify that the art you purchase is authentic. The Fine Art Experts Institute (FAEI) in Geneva stated in 2014 that over 50% of the artwork that they examine are either forged or misattributed to the incorrect artists. With pieces in the fine arts market selling for tens or even hundreds of thousands of dollars, it’s important that you’re buying what you think you’re buying.

Similar to blockchain’s use in agriculture and supply chain, you can use the power of public immutability to maintain art’s integrity. To do so, some projects are working to tokenize art provenance. Blockchain art provenance is a method of proving the ownership of original creations via blockchain. It works like this:

  1. An artist creates a new piece and certifies it with a token on a blockchain.
  2. When you buy the artwork from the artist, they transfer the associated token to you.
  3. When you sell the piece, you transfer the token to the buyer.
  4. And so on, and so on.

The token transactions are stored publicly, so you, as a buyer, can easily track the entire history of ownership back to the artist. If the token doesn’t originate with the artist’s wallet, the artwork is a fake.

You can use this process for physical pieces of art as well as digital works. Because digital works are easily reproducible, associating them with tokens preserves their rarity which, in turn, retains their value.

Blockchain in Art Eliminates Middlemen…Once Again

As with most industries, the blockchain art market is best at making middlemen obsolete. Decentralized art galleries are popping up left and right giving most (if not all) of sale proceeds to the artists.

Curio Cards are GIFs and images tied to Ethereum in which artists receive 100% of their sales. Because the cards are on the blockchain, you, as an artist, can choose exactly how many you want to sell. There’s no need to worry about copying, forgery, or massive fees. This opens up a whole new world of monetization for digital artists.

Even with physical works of art, galleries are using blockchain. Maecenas is a decentralized platform that democratizes fine art. If you’d like to get involved with art investing but don’t have the bankroll to purchase a multi-thousand dollar piece, this platform is for you. On Maecenas, you can invest in a portion of artwork using the platform’s ART tokens. Additionally, to finance new pieces, galleries are able to list their artwork to Maecenas users at a fraction of the cost of what an auctioneer or loan would cost them.

Participate in the Blockchain Art Market

Whether you’re a collector, creator, or just a casual observer, art’s blockchain revolution probably affects you in some way. Even in this young industry, there are still plenty of ways to get involved and stretch your creative muscles.

Don’t let a lack of artistic ability stop you. Projects like Slothicorn, which provides a Universal Basic Income for all crypto art (including “shitty GIFs”), give you the support you need when first starting out.

Who knows? You could just become the first meme-making millionaire.

This article is Originally posted on CoinCentral.com
Author: Steven Buchko

Brock Pierce on Crypto, Blockchain Gaming, Rebooting Mt. Gox, and More

Brock Pierce is seemingly everywhere in the cryptocurrency and blockchain space.

One can trace Pierce’s fingerprints on a dizzying amount of industry-shaping events. Today, Pierce is still behind the steering wheel of some of the space’s largest happenings and projects. Pierce is currently the Chairman of the Bitcoin Foundation, a co-founder of Block.one, EOS Alliance, Tether, Mastercoin, and Blockchain Capital, and advises companies like BitGo, DNA, and Patrick Byrne’s tZERO.

2019 is already shaping up to be a big year for the billionaire master storyteller, with his plans to relaunch the infamous Mt. Gox, a cryptocurrency exchange hacked for about 740,000 bitcoins (~$2.664 billion) in 2014.

Pierce’s reputation is built on years of entrepreneurship and venture capital, cryptocurrency and blockchain evangelism, being what Rolling Stone calls “[the cryptocurrency] world’s first cult leader”, being a blockchain billionaire, and amusingly enough, a child actor in Disney’s 1992 classic The Mighty Ducks.

Although Pierce may have retired from the acting world at seventeen, he still holds a flair for storytelling and showmanship, placing much of his focus on nurturing and growing a young, but flourishing cryptocurrency sector.

We got the chance to interview Brock Pierce regarding his thoughts on the growth of the space, cryptocurrency entrepreneurship, Bitcoin, gaming and blockchain, Puerto Rico, Seasteading, and the McAfee Campaign.

entrepreneurship

How does entrepreneurship in the blockchain & cryptocurrency space differ from the more traditional startup world?

I guess one of the main things you realize when you work as an entrepreneur is that it’s long days, long hours. When you start working as an Internet entrepreneur, the world is moving at a million miles an hour and is changing rapidly.

Crypto is just a further acceleration of that. It’s like a billion miles an hour. It’s more difficult than any other space that I’m aware of just because of the speed of change. This industry is moving so rapidly. What would be more realistic? The Internet took 40/50 years to get to where it is today. We’re moving probably about three times faster. We’re basically the speed of the Internet times Pi.

The evolution has been crazy to watch. Especially during the ICOMania in 2017-2018, which added another element of acceleration. So many random companies were popping out of the ether and raising millions to build projects of either world-shattering or completely dubious value. 

A good thing is that the ICO market has had a nice correction. We needed to slow down a little bit. We were getting in front of our skis, as they would say.

It’s been interesting to see how so many cryptocurrency and blockchain entrepreneurs have become very public figureheads for their projects.

The figurehead is normally the storyteller. In a band, you’ve got the lead singer, I prefer to use the term conductor. The figurehead is normally the conductor and the storyteller. It’s often lost in most Silicon Valley startups, the importance of storytelling when most people are thinking about they assemble their team and the critical functions that the team needs to be successful. Storytelling is normally not on the list.

It’s almost a lost art, but when you start looking at projects that are successful versus those that aren’t, you’ll find that there’s a common thread and that common thread normally involves a good storyteller.

What’s a day in the life of Brock Pierce look like?

These days, I get up by 6:00 AM, meditate, journal, Yoga. I’m trying to get all that stuff done by 7:00 or 8:00 in the morning, all of my morning rituals. Then I work long hours and rinse, repeat.

Often, I’m on a plane. If you take just the last month, I was in Puerto Rico. Then I was in Vegas for one night, LA for one night, New York for one night, LA for one night. West Palm Beach for one night, Miami for one night. London for one night, Versailles for one night. Normandy for one night, Paris for one night, DC for two nights. New York for one night, LA for two nights, Tokyo for three nights. This is often how I roll.

How do you keep your brain narrowed and focused on producing at a high level every single day, especially with all the travel?

It’s all training. I’ve been doing this a long time.

2019 and 2020

Do you think there’s going to be a make or break type moment for cryptocurrency in 2019/2020, and if so, what would you hypothesize it would be?

Well, I don’t see a break happening. I only see a make.

We’re in a bear market, but we’ve been in bear markets before. This is kind of like a regular cycle. Remember the price of cryptocurrency is the primary barometer of sentiment. It has very little to do with fundamentals. The fundamentals of the ecosystem have been consistent and up and to the right. Number of users, number of entrepreneurs, amount of capital coming in, all of it. Transaction volume, pretty much everything has consistently been up and to the right, sometimes accelerating faster than at other times.

The foot is off the gas right now versus pedal to the metal. We’re still moving forward even though the price might be down.

We go through these cycles and it’s very necessary because what happens is when the price rockets, the mentality of the ecosystem is “when moon, when Lambo”? That is not what we are or how we want to be represented. Whether people realize it or not, we are building the technology framework that’s going to change the world and hopefully make it a much better place. The outcome will be determined by the quality of the people that do it.

Do we want “when moon, when Lambo” mentality being the designers of the new world or do we want it to be people of high integrity that are hunkered down and doing the work to build the necessary infrastructure to build a better future for all of us?

We need these corrections because they act as a cleansing or purging event and it gets everything out of the industry that is not in resonance with what we’re doing and what we’re building. I for one am very happy the market is down because the market is now becoming rational again and the people that are not operating with integrity are disappearing because they don’t see a quick buck anymore. What’s left are the true believers and the people that are here to change the world.

Let’s assume that we continue on this current trajectory. How do you see your average non-technical person interacting with cryptocurrency and blockchain solutions on a daily basis within the next few years? 

Remember, this space has only been around 10 years and very few people were working in it 10 years ago. You can count them on two hands. It’s really only been the last six or seven years that you’ve had any critical mass of people working on things and that mass has obviously expanded exponentially over these last six, seven years.

We have a lot of really talented people all over the world focused and participating. The Internet, as it was being developed over the 60s, 70s, 80s, and 90s, wasn’t usable to consumers until 1995. In 1995, Netscape was created. The Internet was not usable to average people until you had an internet browser, until you had an email client until you had search engines and content and things to consume and things to buy. Until you are at a critical mass of infrastructure, until the bridges, the roads, and the tunnels had been built, it was not ready for mainstream.

Crypto has been in a very similar state. I think we’ve now had our Netscape moment and that was with EOS. I believe EOS is our Netscape. EOS is the first scalable blockchain that has low latency, meaning it’s fast, and no fees on to the consumer, meaning no friction. I think we’ve had our Netscape moment. You remember when Netscape launched, no one recognized its significance until you had the benefit of hindsight, meaning a few years later. I believe we’ve now had our consumer internet moment. This is the equivalent of when the Apple iPhone came out and the app store. We’re in the beginning stages.

The first apps in the app store are early, they’re not where it’s all going to end up. I’m also not saying that EOS is definitely the future. I’m entirely chain agnostic and there’s a lot of generation three protocols that are going to come out that are scalable and fast and things of that nature.

Ethereum will have an upgrade at some point. I’m just saying it was first and keep in mind there was Netscape, Internet Explorer, Safari, Chrome, Firefox, Brave, ETC. There will be a number of browsers, to use that analogy. I think we’ve had our consumer moment and so, I think that’s now. I think over the next year or two or three, we’re going to see meaningful consumer adoption because we now have systems that can scale and can deliver that now. 

There’s still a handful of other things that need to be improved. User interfaces, but that’s getting better as more marketing people and designers come into the space. It’s not just great engineers anymore and great cryptographers.

Obviously, to get mass consumer adoption, you need things that are consumer usable and you also need applications that appeal to the masses. The three categories where I think we’re going to see the first killer apps emerge are going to either be in social, things that are going after Facebook and Instagram or it’ll be in messaging, things that are going after WhatsApp and Skype or it’s going to be in gaming.

I think those are the three areas where we’re going to see the first sort of killer apps emerge that deliver meaningful scale to blockchain. I think that we’re going to see our first app this year hit a million users.

This bear market has many projects laying off significant amounts of their staff, if not shutting down completely. Do you have any words of wisdom for any entrepreneurs in the blockchain and crypto space?

Have faith. You’re in the right space at the right time and most likely doing the right thing. A poem comes to mind. The poem by Rudyard Kipling and the poem is known as “If”:

If you can keep your head when all about you   

    Are losing theirs and blaming it on you,   

If you can trust yourself when all men doubt you,

    But make allowance for their doubting too;   

If you can wait and not be tired by waiting,

    Or being lied about, don’t deal in lies,

Or being hated, don’t give way to hating,

    And yet don’t look too good, nor talk too wise:

If you can meet with triumph and disaster and treat those two imposters just the same, it feels like an appropriate poem for everyone. For anyone that hasn’t read it, maybe that’s the best piece of advice I can give everyone today.

Having a very Zen-like or stoic resolve and ignore the explosions around you. Just keep focusing on what’s going on in front of you.

Exactly, be present, stay present.

gaming

The intersection of gaming and blockchain has been very interesting to follow. Why would now be the best time for game developers to start building as opposed to a few years ago?

You didn’t have the infrastructure a few years ago. What kind of game are you going to build on a blockchain a few years ago? The only thing that was done recently that had any success was Crypto Kitties, and Crypto Kitties couldn’t scale.

What type of video games do you expect to see that are supported by blockchain? Would it be like your typical Fortnite and World of Warcraft on blockchain? Would it just be more of an NFT solution?

It definitely won’t be Fortnite or World of Warcraft. Those games take years to develop. Those things won’t happen on blockchain for some time. They’re going to be more simple games. Things like Crypto Kitties, things with NFTs. Gambling games, we already have a lot of adoption there. You’ve got the gambling side and we’re going to have more and more and more of that, but then you’re also going to have casual games, but I also think we’re going to see something where gambling games and casual games converge.

I like to call that category “reward-based gaming”. It looks like a video game and it doesn’t look like a gambling game, but you’re actually earning things of value. Things like trivia games. A lot of the same stuff that you see that’s popular on mobile today. They’re going to be simple because these are the things that you can turn around and crank out quickly.

We’ll see hundreds of simple games, most of which will fail, but we’ll end up with a few hopefully killer apps and by playing the game, you earn value. You’re collecting coins, think Farmville, stuff of that nature except for those coins have value like in games like World of Warcraft. The games need to be designed so that people want more of them and there has to be a reason why we would buy and sell them, the utility or whatever else.

It’s basically the industries I’ve worked in most of my life, which is gaming and specifically, marketplaces around gaming and game currencies.

I was the biggest market maker of game currencies in the world. I built a supply chain of 400,000 people in China to play games professionally to mine digital currency. I’ve done $20,000,000 worth of sales in that business.

That’s pretty much where my crypto roots are as well. I was selling Runescape items and gold for real dollars at like 12 or 13.

That was my business. I was doing that for RuneScape and every game.

Were you using Chinese bots?

I taught the Chinese how to do that. I’m the guy that taught the Chinese.

It’s funny to think about how many people that used to play World of Warcraft and RuneScape eventually got in cryptocurrency and general internet entrepreneurship. What were some of your favorite video games while you were growing up?

I was a pro gamer, so I played every game I could get my hands on as a kid. I was also a mall rat, so I loved hanging out in arcades back when they still existed. I’m dating myself now, but Mortal Kombat was probably my personal favorite in terms of arcade games. The one that I played in a lot of tournaments, but I love role-playing games more than probably anything else.

The Final Fantasies and everything else. I also played a lot of card games, things like Magic the Gathering. The first persistent games were coming online. I played a lot of Everquest, World of Warcraft, things of that nature.

Mt gox rising

So, you guys are looking to bring back MtGox from the so-called abyss. How are you guys planning to go about doing that? I’m very curious about the actual process of rescuing funds.

How do we plan about going and doing that? There’s a couple of priorities here. Number one is that there are 24,000 victims that have filed claims with the bankruptcy trustee in Japan. There are 24,000 victims that made an early bet on Bitcoin back in the day and they’ve been deprived of the benefits of having taken that risk and their money’s been locked up in a bankruptcy process for five years now. Number one on the list of priorities is getting them that money and that bitcoin as quickly as possible

What does the actual task of recovering the funds look like?

MtGox lost 850,000 bitcoin. They found 200,000 of those, so there’s still 650,000 missing bitcoin. Now of the 200,000, the bankruptcy trustee sold about 50,000 of them for $630,000,000. The MtGox estate today has about $630,000,000 and about 150,000 bitcoin. That cash and that coin needs to be distributed to creditors, the victims, as soon as possible. 

How about the bitcoin that’s not on the table, are there going to be any efforts to recover that or is that something that is beyond the immediate scope of the MtGox uprising?

I’d say that one more step down the road. The number two thing that needs to happen to get that money paid out is a simple rehabilitation plan, a CR plan, that needs to be approved by the bankruptcy trustee. That’s number two. Number three is that CoinLab filed a lawsuit against the MtGox estate for $70,000,000 back in 2014.

That lawsuit was a frivolous lawsuit in my opinion because they breached their contract and failed to perform. In addition to that, they embezzled $3,000,000 of Mt. Gox customer money. The firm that failed to perform was in breach of contract and embezzled $3,000,000. It’s suing MtGox for $70 million. Does that make any sense to you? It’s insane. The gall to do something like that is crazy.

Now, fast forward to today. Once CoinLab realized that it’s coming out of liquidation and going into civil rehabilitation and that the value of the bitcoin has gone up so much and that there are $630,000,000 there, they’ve amended their lawsuit and now they’re claiming they’re owed $16,000,000,000 ($16 billion). They want all of the money.

They’re basically saying that if MtGox had stayed in business and if MtGox had not canceled their contracts from which they were in breach, and have they not embezzled the money which they chose to do, had they actually performed and done something which they did not, they believed their company would be worth $16 billion today.

They believed that they would be bigger than Coinbase. The only thing that I’m surprised by is why they’re not saying they’d be Facebook or Google or both. The gall to make that statement is out of this world. They’re claiming that they’re owed all the money and creditors should get zero. They believe that 100% of the money should go to CoinLab. That needs to be addressed. They need to be stopped.

One way we’re stopping it is I bought the MtGox equity in 2014. It looks to me like I own 100% of MtGox. As the equity holder, it looks like I would be entitled to $700,000,000 or $800,000,000 of excess capital. I want all of that to go to the creditors.

We want the creditors to receive all that cash and coin as quickly as possible. Call it the good guys. On the other side of the house, you’ve got CoinLab that did nothing, stole money and breached contract and they’re saying they deserve everything. Let’s call them the villains.

It’s very Joseph Campbell-esque.

This is a Joseph Campbell story. This is why I’m getting involved. It’s because MtGox, you had the rise and the fall, and the story is not over. We have the power as an industry to write the end of this story. How do we as an industry want the story to end and I would say let’s write a Joseph Campbell ending.

The rise, the fall, like a phoenix rising from the ashes, the rise again. Let’s stop the villains. Let’s stop the bad guys from taking all the money and as an industry, this is our Lehman Brothers. This is our Bear Stearns. Let’s show that we’re different than the old financial system. Let’s show that we’re better than the old financial system. Let’s get creditors all their money back and demonstrate that we’re resilient as an industry and we’re still standing.

It’s a very hot topic, especially recently with this whole Quadriga exchange scandal.

That’s the other piece, let’s raise the bar. Let’s raise the bar and operate this exchange as a lighthouse, as a demonstration of best practices of how exchanges should operate today so that this story that has continually plagued our industry, even quadrangle, as recently as now, Cryptopia, but this has been going on.

This story is happening over and over and over again, and the technology is there. The tools are there, the skills are there to prevent this from happening going forward. For one, decentralization of the custodianship, noncustodial exchanges. We can do that with the crypto. This shouldn’t be happening anymore. Multisig, this most recent one. You didn’t even use multisig. What is going on here? It looks intentional.

It looks very suspicious because we should all know better at this point. It’s time as an industry that we stop tolerating exchanges that do not implement the current best practices. This needs to stop.

A lot of people that are storing their cryptocurrencies aren’t even aware of what types of measures are taken to protect their money. A single person, unfortunately, passing away with the keys to $190,000,000 or whatever the amount was, it’s bonkers and it’s definitely not winning any points from a mainstream audience.

Most people got their introduction to Bitcoin through the MtGox story. That’s how people learned about the industry. They think it’s used for drugs or it goes up and down a lot and it’s really risky and not safe and it’s always getting hacked.

That’s the perception of the average person because of the MtGox story and the stories like it that have continued to plague our industry. It’s time to bring that to an end.

Number one, creditors, the victims, the 24,000 creditors, getting them that cash and coin as quickly as possible.

Number two, stop CoinLab. Stop the villain.

Number three, establish a foundation on behalf of the creditors governed by the creditors to pursue the recovery efforts of going after the missing coins and pursuing any and all claims to get creditors what they deserve. You get the victims what they deserve.

Number four is to relaunch the exchange.

Remember when Bitfinex got hacked? Bitfinex was able to pay off their creditors through the proceeds of operating the exchange. If MtGox had been operating for the last five years, creditors might have already been made whole. Let’s not let another five years go by. Let’s get this thing up and running quickly.

It’s my belief that this story, the creditors are the most important piece, 24,000 creditors, but we’ve all been victims. Anyone that’s ever held a bitcoin is a victim of the MtGox hack because MtGox getting hacked has set back our industry by one or two years. Every time there’s another one of these hacks, it sets back, and it damages the public perception of the work that we’re doing. What’s good for Gox is good for the ecosystem in my opinion.

What would you say would be the biggest hurdles in building back that Gox brand beyond reimbursing the creditors?

Building a best in breed, best in class exchange that has solved for the custodianship of the coin so that you can’t have the money stolen again. Then getting people to trust it again. That’s obviously a long process. Clearly, people have been burned. We’ve all been burned, but there’s a bit of a redemption story here.

puerto rico, seasteading, mcafee

Could you tell us a bit about how things are going in Puerto Rico?

Things in Puerto Rico are moving along. More and more amazing people are showing up with intellectual capital, human capital, financial capital, spiritual capital, and good intentions. Little by little, we’re making progress. You now have a number of angel investors in Puerto Rico, which had never been the case previously. You have a number of mentors that have built successful startups in the past that are there to help each and inspire the next wave of entrepreneurs.

There had never been any startups in Puerto Rico that had raised even a million dollars historically. Two startups raised over a million bucks last year at the second app. I think we’ll have a number of more this year. There’s a whole startup ecosystem emerging, and this is Puerto Rican entrepreneurs.

Puerto Rican people are so talented. Puerto Ricans have more bachelor’s degrees per capita than anywhere else in the United States. They’re the most educated on average. They also have more artists per capita than anywhere in the United States. meaning they’re very creative.

Puerto Rican people have talent. It’s a place we should all be spending more time. Puerto Rico’s main export is humans, human capital, but most of it ends up in San Francisco or in New York because there’s not enough opportunity in Puerto Rico. This has been this sustained brain drain where the most talented Puerto Ricans are continually leaving because they don’t have the tools to do what they want back home. That’s starting to change and hopefully continues to.

Especially with the digital revolution where you can pretty much start a multimillion-dollar company just from your laptop, no matter where you are. What are your thoughts on Seasteading and a self-sustaining autonomous blockchain built economies?

I love playing around with new forms of governance. I spend a lot of my time thinking about nation building. I’m friends with Patri Friedman, Milton Friedman’s grandson who started Seasteading. Randy, who was the CEO of Seasteading up until maybe a couple of months ago, has been living in Puerto Rico with us. I’m a very big fan of the Seasteading process.

The concept itself is fascinating, especially with the beauty of the internet connecting everybody, even if you’re pretty much nowhere. I’m just curious about your thoughts on McAfee’s campaign to become president.

I introduced John McAfee to Bitcoin. I think that’s what he’d tell you. John’s an extraordinary guy, very interesting. He has lived one of the most extraordinary lives and has certainly been a big and very public advocate for crypto and the things that we’re doing. If you get the pleasure of hanging out with him, you will be thoroughly entertained.

Final Thoughts

You’re known to be fairly accessible for virtually anybody who’s very interested in the cryptocurrency industry. I always see you at conferences chatting up with the crowds an all sorts of other events. 

I make a point of being accessible. I give talks at conferences and I hang out for a couple of hours afterward always. Over the course of my entire life, every major speaker gives a talk and they exit out of the back door. I’ve only seen a couple of people in my entire life that doesn’t do that.

It’s a very unique aspect of the cryptocurrency space as well because you have a lot of the people that are doing the innovating are also engaging in building the community up. It’s awesome to see.

That’s what separates us from the old world is we’re building communities. That’s what this is. The technology is not what differentiates one project from another. It’s open source, copy paste.

What separates one project from another is the quality of its community and the stewards that help support it. Those stewards putting their community first, not themselves. That’s what separates us from the old world because we’re building open source systems with open hearts and open minds

What’s the next piece of the puzzle for you in your projects and how can our readers help out with any of the things that we’ve talked about today?

If you’re a Gox creditor, come to Gox Rising and sign up so that you own some of the new exchange and be informed. If you are not a Gox creditor, keep doing what you’re doing. It takes teamwork to make the dream work. It takes all of us and all the work that we’re doing.

There are so many ways that each and every one of us can contribute in our own unique, special way. Let’s change the world and make it a better place.

Thank you for your time, Brock! 

This article is Originally posted on CoinCentral.com
Author: Alex Moskov

Innovative Margin Trading Solution To Stimulate Growth At DDEX

The DDEX team recently unveiled its new margin trading facility to the general public. The new margin trading solution has been going through a rigorous beta test over the last few days of volatile cryptocurrency trading.

Tian Li

Tian Li, DDEX Cofounder

Last week, CoinCentral’s Munair Simpson had the occasion to sit down with Tian Li, DDEX cofounder, at his office in Seattle. The interview was focused on the design choices made by Tian and other members of the DDEX team.

Tian spent 45 minutes to reveal the amount of thought put into designing the new platform. The new platform is significant. DDEX dug in deep to innovate in areas where they could uniquely add value.

In conjunction with recent advancements in decentralized finance, or DeFi, the DDEX team was able to innovate in the following ways:

  1. Improving liquidity with a USDT bridge and bootstrapping systemic risk-aware lending pool.
  2. Making liquidation less terrifying with stop/loss orders and Dutch auctions. 
  3. Integrating an insurance scheme.

There are other advancements. However, there just wasn’t sufficient time to uncover them all. The interview below will have to suffice for now.

Would you like to introduce yourself, your background, and how you got into cryptocurrency?

Sure, I’m the founder of DDEX along with Bowen and David, my two co-founders. I’m an engineer. I worked at Microsoft and in the Valley for five years. Then I did two startups in Asia in mobile/Internet and was also an EIR for a few venture capital funds. 

That was my history prior to coming to crypto. I got really interested in Solidity programming while I was an EIR at a fund. I was very bored doing research, so I taught myself how to write basic smart contracts. This was April of 2017. That’s why I first got into it. Just as a programmer, downloading MetaMask, and writing these very simple game contracts. Then, near the end of 2017, I decided that smart contract programming is definitely a new type of technology. 

There are some different things that you can build. As an entrepreneur, that’s really what I look for. That’s when I approached Bowen and David to do this project together. That’s how we jumped in, almost two years ago now.

You’ve known them to from before, correct?

I’d known David for years. David was the best engineer at both of my previous startups. So he was the first person I asked. Bowen was working as an investment analyst in Zhenfund, which is a general VC fund. They invest in a lot of things. Bowen was looking at the crypto space. This was really early. I think May of 2017. This was before the ICO hype. I remember Bowen was one of the few people I met that was interested in assets and projects. 

The first project we looked at together was 0X. This was before their ICO. Which was interesting, because we eventually ended up doing something in the decentralized exchange space.

The first time we really sat down together we were like, oh, what do you think about this project? He’s like, I know this project’s that. What do you think about this project? We went through a bunch of projects, and then eventually, yeah, you know definitely a great, complementary team.

Would you like to describe the product and tell us how it will be launched?

Just to summarize what we did… At the end of 2017, we started with a decentralized exchange called DDEX. At the time, it was very simple. The idea was, can you swap tokens trustlessly? Until the end of 2018, we just worked on a decentralized exchange that was not too painful to use, and a set of smart contracts that are robust, simple and secure.

That took us pretty much a whole year to really understand the space. In 2019, we felt the market was quiet. We thought that this was the best time to make bigger investments. Technically, when there’s not much going on operationally, I think you can really afford to invest six months into a project.

In 2019, under the radar, we looked at, what’s going on with the DeFi space. We realized that step one was trading. Step two, with the rise of Compound and these lending platforms, was lending. We thought that was the second most interesting thing. Financially, if you take trading and lending, and you mix them together, you get margin trading. So we were just fascinated by the possibility to compose. 

Our second project, which you can call a feature addition on the original DDEX, underneath this is brand new territory. It’s a “margin” decentralized exchange. The idea was that we would compose a decentralized betting pool. Borrow some money and trade with the borrowed money. Allow the user to do so. In doing so, you can create leverage long and short positions. It is a sort of a derivative on the top of a spot exchange. So that’s our new project.

We didn’t give it a new name. It’s still called DDEX. When we launch and you open DDEX, you will have margin trading. Margin trading is pretty much an upgrade over spot trading. We will still have all the spot trading functionality, but now, in addition, you can do margin trades. 

We actually tried to make it so that, from the product perspective, the users will still be familiar. We still use all the old trading paradigms of order form, order book, and stuff, but now you are basically able to increase your purchasing power.

What is the URL that they can visit?

Sure. We’re just low key right now. So you could use the main net. Our contracts are audited. You can find the new product at margin.ddex.io.

Yeah, check it out. You will be one of the first users because we haven’t really published this URL. We do have 50 to 100 early-stage users. Using it and giving us feedback. We are iterating. We are planning a public launch in October.

What distinguishes yours from other platforms out there? 

First off, if you look at these lending platforms, one question that really interested us is: Why are people borrowing? These loans are over collateralized loans. In essence, you have to pretty much give them $150 of collateral to take out $100. This is not how you typically think about a loan. 

So the first question that anyone asked is, why are people borrowing? Everyone understands why people are lending, because right now your tokens are just sitting there. Earning zero percent. If you can even earn 1% that is just strictly better. 

We always thinking about motivations. Why do people do this? Particularly from a product perspective. Lenders are easy to understand. But borrowers are not. Why are you paying 15% interest the whole time?

Then we really looked into the data. The analysis, and there’s really only one answer, is that you borrow to create leveraged positions.

To be clear, to performant margin trade, you don’t need a specialized product. I could say margin is more like a way of doing things. I could borrow a Bitcoin from you and then sell it. I’m shorting it. Now I have USD. Someday I have to pay you back.

If Bitcoin goes down, I can buy it back cheaper to repay you. I can barter trade by just borrowing it from a friend. Of course, the whole point of margin trading is to increase the efficiency and decrease the trust dependency at which you can do these things.

I think one innovator in the space, a sort of pioneer of margin exchange, was dYdX. From the very beginning, since we were creating the DDEX, they’ve been thinking about how to do this right. 

We started probably around the same time, late 2017, early 2018. Then we see them go through a few iterations.

I think that the main difference… We want to bring something unique to the table. We weren’t a first DEX. Back then [in development] we were looking at decentralized exchanges. We were like, oh… Here are the three things where we can improve on. We did the same thing with margin trading.

We were looking at margin exchanges in its various forms and I think there are three things that can be drastically improved. One is that we want to be less dependent on Dai liquidity. Dai is amazing. It is like the oasis that bootstrapped all of DeFi. 

Absolutely, that’s the perfect name for it.

When it comes to liquidity, the more the better. So we were thinking, in addition to Dai, we bring additional stable coins. This will increase the liquidity of these markets.

I think one really big, untapped source is centralized USDT, USDC, TUSD. We’re talking about actual fiat-back stable coins.

Very huge… There are a lot of people using them… Very high liquidity when you look at Coin Market Cap.

Yeah, but there’s a technical challenge. I think the reason everyone started on Dai is that Dai is completely on-chain. These completely on-chain DEXes are in theory able to provide a source of, what we call contract-fulfillable liquidity. USDT is not contract-fulfillable liquidity.

There needs to be an adapter. Something that takes USDT and converts it into a form of liquidity that decentralized protocols can use. We basically have to build an adapter. That takes something from the non-totally decentralized world, pass it through this filter, and make it decentralized. It’s not just about liquidity. So that’s the challenge.

I think we’re the first one to do it. It’s not like a trade secret. We’re hoping that when other people see us do this, they will enter the game and do this as well. This is one way to really bridge.

Philosophically, the way we look at it is that something like Dai is really trying to bootstrap liquidity from within the DeFi ecosystem. It is creating liquidity out of nothing. Whereas bringing something like USDT or USDC, you bring from outside of the DeFi ecosystem. We call it bootstrapping liquidity inside and out.

There’s a really good effort on the inside front. We want to try to contribute from the outside. So that’s like the first part. 

The second part of what we do differently is that we actually don’t compose. What we mean is that to build a margin exchange you need two things. You need a spot trading exchange (a DEX) and you need a lending pool. 

There are multiple permutations of how to bring these together. You can actually just take an existing exchange like Kyber, and an existing lending pool like Compound, and then you could just build a very thin layer on top. That is a margin exchange without building either of these two components.

One project that this was called Opyn. It was a very interesting experiment. Unfortunately, they shut down.

They shut down… October 15th is the last day.

I read their post mortem. The reason that their business shutdown was because they were too thin. That is because they’re just composing out of existing components. The unique value offering they have, which is most likely usability, is maybe not enough to justify existence. 

Which does really make sense. When you compose, there are a lot of imperfections on the product level. It’s a leaky abstraction. The users sense the complexity because, underneath you’re still interacting with multiple protocols.

DYDX, the first version, I think they take one step earlier. Like… We’re not going to use an external. We’re going to build our own landing pool. Then we’ll compose it with an external DEX. For example, Eth2Dai. By building one thing externally and then using one thing internally, they can drastically improve the usability. 

We just were looking at the trend and we felt like a natural progression was to just to do both pieces internally.

Yeah, I think it’s been a good decision.

It’s a trade off, right? As an engineer, you never want to reinvent the wheel, right?

How do you bootstrap that liquidity for your lending pool?

Yes, definitely. The third feature is that, because we’re doing this integrated solution, we’re able to really restructure certain things. One thing we focus on is that, although there are two things you can do on such an exchange, which is lending and trading, we really don’t put them in parallel. We still believe, which I’ll explain, and which answers your next question, we think we have to start with margin trading first because there is no shortage of lenders. We have $20 billion worth of Ether sitting there earning essentially zero percent. 

I think if there is a safe, risk free rate, the supply side of it will come. At the end of day someone’s paying interest and someone’s earning interest. Everyone wants to earn interest. You don’t have to do very much to get it. 

Who actually pays interest? It’s the traders, right? If you can make the traders happy, then they are willing to pay interest and this interest will attract lenders. 

It is a chicken egg problem. We bootstrap on this side.

We designed our contract in a way that will bias towards what we believe the borrowers want. I can give you a few examples. For the borrowers, what they want is really stability. 

There’s some innovation in this space. For generalized lending platform, like Compound, I think they’re doing some very interesting things. For us, we actually reduce a few of the advanced features to increase robustness.

One example of this is that, on these innovative lending platforms, they made a choice to allow the collateral to be lent out as well. So what I am saying is, imagine I want to borrow some Dai. I will put up some Ether as collateral. 

It’s like mortgaging your house. Or going to a pawn shop and saying take this valuable watch I have. Then I am going to make some cash, right? 

Now the interesting part is, I don’t think any centralized or CeFi projects do this. They [Compound] allow the collateral to be also lent out. So this Ether, which is somebody’s collateral, also enters of lending pool. That can also be lent out. Which is, sometimes even when you’re borrowing, you could be earning interest on your collateral. It’s a really cool feature.

We’re not judging. Or saying this is bad. But when we look at it from a very practical perspective, from the perspective of a margin trader, we think this is unnecessary.

We think is unnecessary. One you’ll notice that the interest rates are very unbalanced. You’re earning 10% on Dai, but you’re earning 0.1% on Ether. The demand to borrow Ether is just not there. 

This trivial amount of interest is close enough to zero that it does not drastically increase the utility of the lending pool. But what’s the downside? It sounds like there’s no downside. The collateral is there as collateral. Which means if something goes wrong, it supports liquidation. This collateral gets sold, right?

So the question is, what happens if there was a really huge price drop? You’re trying to liquidate Ether, but the Ether is actually not there. It’s lent out. So you have to do cascading liquidation, right? 

You have to liquidate again. Someone has borrowed that Ether, and they’ve put up some other collateral. Now you have to liquidate that collateral too. Just so that you can liquidate the Ether to get Dai, right?

No one knows how it’s going to play out, and it could be this catastrophic event.

It could just be that we are overthinking things, but who knows?

I mean, we actually, we have less pure asset utilization. In some ways, you could say we have an inferior lending pool. But just in case something really bad’s happening, we are a little bit more confident in our liquidation process.

So these are the trade offs that are very hidden. We don’t really tout this as a product competitive advantage. But, it makes us sleep a little bit better at night. We thoroughly went over our liquidation process. 

In line with that, for the counterparty, it’s this notion of insurance, right? When you are lending out on one of these platforms, what you are really worried about is not being able to get your money back. It is the liquidation process that protects users assets. That’s because there’s a trustless system.

At the end of the day, if the liquidation was successfully, users are guaranteed to get their money back. This notion of insurance, to be specific, there are two types of risks for a lending pool. You have the liquidation risk, and you have smart contract / bug risk. 

The second one is hard to insure against, but the first one is completely measurable. That’s because the liquidation process itself is just some logic in the smart contract. We can just add logic and say, if the liquidation fails, because there was not enough incentive for someone to participate in liquidation, then there’s insurance. Which essentially act as one more trader. Except it will do the liquidation at a slight loss. 

So we actually have a full implementation of a trustless liquidation insurance. Which we think is a neat addition to this to this game. One that we’re kind of proud of.

We’re hoping that it doesn’t kick in. Since when it kicks in, something went wrong. Still, it is one more guard against catastrophic situations.

Do you want to disclose how you structured your liquidation penalty?

Sure. There is a liquidation category. Which just means that when the collateral approaches a percentage of the loan debt, the collateral gets put up for liquidation. It could be, 110%. It could be 105%. If you set it too high, then it’s just inefficient. The liquidation is kicked off. It’s just too early, like a false alarm. But if you keep it too close to 100%, you risk falling further and not being able to liquidate. 

It’s part art, part science. We have it set at 110% right now.

For all assets? 

Yes. Right now, we’re mainly just looking into two markets. The Ether to USDT market and the Ether to Dai market. In the contract, every market gets their own parameter. 

Every asset should get their own price. Every asset and every market should have different liquidity depths and risk. Right now, the 110% percent rate is the current rate of the ETH – USDT market. 

When liquidation kicks off at 110%, it doesn’t mean that the borrower gets penalized 110%. It’s not like a 10% penalty. It’s just that the liquidation starts at 110%. 

We actually use the Dutch auction mechanism. There’s two matrices in terms of liquidation design. One is how and when do you kick off the liquidation. Two is how you execute the liquidation. 

There are really two ways to execute a liquidation. One, is to give the smart contract full control. It just takes all the collateral and sells it at market on Kyber. That’s one way to do it. 

Two, is that you will open gradually increasing auctions. Whoever wants to swap, as long as you’re able to help me pay back the loan, then you get the collateral. 

In some ways, because an auction is a price discovery mechanism, the second way is more decentralized. It is actually more fair. You’re more likely to get to market rate. 

There is a drawback. The drawback is that the action takes some time. Maybe, it takes 10 minutes. In that 10 minutes, the price could drastically change in a way that increases risk.

There are always these tradeoffs. At the end of the day, without a doubt, Dutch auction was the better way to go. It’s more elegant. I think it scales better into the future. So we use this.

So basically, when I say Dutch auction, at 110% it starts by auctioning a portion of the collateral. Let’s say there was 100 ETH in there as collateral. You don’t sell all the ETH. You offer 80 ETH for any one to pay back the loan. No takers? Then I’ll offer 81 ETH to pay back the loan. So on a block-by-block basis, it increases the percentage of collateral that you will get. The remainder of the collateral goes back to the borrower. In that way, they don’t lose all of their collateral in the case of the liquidation. 

That’s very good.

It’s a cool mechanism. Even though we’ve been beta testing for weeks, and because Ether has has risen a lot recently, some short positions got liquidated. One of my short positions got liquidated. I was testing. I’m actually very long on Ether.

Same here. So I’ve been in trouble.

It’s pretty cool to see this whole mechanism work out. There’s no tangible difference between liquidation and a stop loss, right? 

At some price, you’ve already lost the money. At some price, you just settle.

What we found in our beta testing was that people have to psychological avoidance. They feel getting liquidated is a very bad thing.

Let’s say your liquidation is at $200 and you get to $195. I’m still okay. It’s not liquidated, but you’ve already lost most of your equity. People just don’t want to get to that final point where their whole position gets liquidated.

A stop loss is really just a partial liquidation. It’s a liquidation of maybe 50% of your margin account. 

I want to design a way that people don’t also don’t feel emotionally bad. I think that part of the product design challenge is also interesting.

What are your thoughts about the HOT token and its utility?

When we designed the token, it’s basically a Costco membership or frequent flyer mileage. It’s a decentralized version of BNB. 

All it means is that.. What is the value of the DEX? It’s actually the place that’s able to aggregate enough buy and sell demand to form a market. In other words, its only asset is its liquidity. Or, the depth on its books. If all DEXes have the same liquidity, then transaction fees will just go down to zero. That’s because like people will trade on the cheaper one. 

If you look at Coinbase, if you look at Binance, the reason that these fees aren’t zero is that they have this competitive advantage. They just have the best liquidity, right? 

The value of this network is its liquidity. If you were to have a token to incentivize it, then you will incentivize the people who create liquidity.

For any token, I think there are two questions. One is who gets the token? Who is doing the work? Two is what utility does this token have, right?

Fundamentally, at some point, the only value a decentralized exchange protocol can offer is a discount on its fees. The token is a marker for people who trade and thus provide liquidity to the network. Thus increasing the value of the network. Therefore the network rewards these contributors, with basically a discount.

We looked at all the token mechanisms. The only ones that really make sense are some sort of medallion. It’s not really in itself some reward, but it’s the right to do work in this case. For the people who hold the tokens, HOT is basically a marker for contributing liquidity to the community.

Historically, when you look at 2017 – 2018, people will make these very fancy, elaborate, or complicated token mechanisms. When it was cool.

The next batch of projects had no tokens. It was so uncool. I think now if you look at it from a rational perspective, a token is just a tool. It’s a tool to achieve the goal, which is to bootstrap a network. Bootstrapping any network is the hardest part. But if you are able to start the network, then that network can have long-lasting value.

In some ways, a token could be like a very elegant solution to the bootstrapping problem. I think it’s never really changed. But it is very hard to do in practice.

In terms of inspiration, look at something like the Maker DAO token. It’s not completely unnecessary. It is like a piece in the liquidation mechanism. 

At the end of the day, in the Maker ecosystem it earns interest. This interest gets paid with the token. Basically, the total holders are just like the interest earners, which is beautiful. 

Compared to the P2P market, where users are earning interest, in the Maker system no one earns interest except for the token holders.

I think that is a valid way to design something to be able to bootstrap the network. Fortunate teams are those that have venture funding or have revenue. They have the ability to wait, over-promising on this grand token. They can slowly iterate.

Not all teams have the opportunity to do that. At the end of the day, everyone has to figure out some revenue model.

When you do the work, it is expensive and exhausting to create smart contracts. In terms of hiring the best engineers and then doing the auditing. Everyone needs to funding from somewhere. There’s always a promise. You take funding from venture investors. For three years, five years, and one day they are going to ask, what is the revenue model of this thing?

That is something that I think dYdX, Compound, they’ll have to figure out. We all have to figure it out. If you figure it out, I think it’s actually not that hard to either create a tokenized system or just use stock equity to pay back the investors.

You guys don’t charge trading fees, is that correct?

We have been charging fees. Since day one, DDEX charged fees. We thought that was a fine thing to do. In some ways it is proving value. I personally believe if it is the only thing you can compete on is just being cheaper, then maybe you’re not that competitive.

I think people mix free with decentralization. I think that they’re two completely separate issues. 

It doesn’t mean that you charge fees that therefore you’re a centralized system. Even in a decentralized system, for example in Ethereum, gas is a fee to users of the system. It is also what keeps this whole machine running.

If you can’t charge fees, then how can you possibly have a working token economy. In the long term, our goal is to create some viable, sustainable business model. That is actually really hard to do. 

If you’re relying on outside investment and funding, then you’re not truly decentralized. Self-sufficiency is one of the key design goals. That said, there’s the trend that everyone is not charging fees. 

One thing that really hurt us is these aggregators who’re comparing dApps and bid-ask spreads. We’ve always had one of the best bid-ask spreads. But… If you add fees into it, the fees effectively increase our spread on the order book. Then we’re no longer ranked number one. It kind of bothered us a little bit. Everyone’s basically undercutting the fees to a point to try to compensate for the lack of liquidity.

So with this new product, we’re just like, let’s just go with free as well. I don’t know what will happen, but it definitely makes us way more competitive. After we dropped fees, now we have the best spread for both margin and spot trading.

I’ll come back to your question about Dai. Dai is our secondary market. We have been focusing on the USDT market more. For the USDT market it is not even close! We have substantially better spread than any other Ether to stable coin market on DeFi systems. Regarding the Dai spread, it is our observation that no one can really do substantially better than anyone else. That’s because Dai is completely onchain liquidity. It is very cheap to marry the liquidity between DeFi projects. In our observation the liquidity, depth, and spread of Dai will probably be similar on the top three to five platforms. That is not something that we can do substantially better than anyone else. It’s also not something that can actually do substantially worse than anyone else. If you knew how liquidity stuff works, everyone probably does achieve parity.

From a competitive strategy perspective, it makes more sense to put our focus on markets that don’t reach parity automatically.

The USDT market is something that we could, if we spend a lot of effort, do much better than everyone else. So that’s our goal. 

Dai is a core component of the DeFi ecosystem and we definitely support them. But we can only support them as well as anyone else, not substantially better.

Is it possible to generate revenue from charging a little more to borrow?

We actually looked at centralized exchanges for how the world used to work. If you look at a lot of centralized margin exchanges, they don’t even have a lending pool. They just supply their own lending. They are the lenders. They charge. People talk about 20% APR being a really high Dai fee. The average, that we’ve seen, is that they charge 0.1% per day, which is 36.5% annually. No one cares.

Like you’re telling us, your mentality is, I’m only going to short this for like, a week. You’ll play 0.1% daily. That’s playing 0.7% weekly. But I’ll be making 50%.

Fundamentally, we actually don’t think the interest rate spread is where the biggest money is. To generalize a generalized lending pool like Compound, one day they will go beyond financial use cases for these loans.

They’re talking about payday loans, and there’s obviously other cool stuff like cDAI. That could potentially open a much bigger market.

If you make the assumption, which is that 100% of the borrowing will occur due to margin trading, then any interest rates spread you can earn is going to be an order of magnitude smaller than transaction fees. Do the simple math. You’re talking about a percentage on top. Compound takes 10% of the interest of spread. That’s 10% on top of 10%. 10% of 10% is only so it’s 1% annually, right?

We’re talking about a one week loan. That’s 1/50th of 1%. The smallest trading fee centralized exchange charge is maybe 0.1%. That’s still 10 times bigger than 0.5% of 10% of 10%. 

Also, I’m not actually sure that Compound is pocketing the difference. They could just be using this for insurance funds. I think that is one good way to supply insurance. This is what BitMex does. You take a percentage of the interest rate spread to cover liquidation failures. That’s a very nice mechanism. We’re not going to mess with that.

One of the more attractive features about DDEX is that the spot facility has no KYC or AML involved, allowing for more privacy than competitors. Are there any plans to change the way this is done for the margin product?

I’m not sure if the KYC is the way to go. Once you do the KYC, you do lose. 

The thing is that a decentralized exchange is never going to be as fast. It’s never going to be as efficient as a centralized exchange.

Fundamentally, if you go through all the effort to implement exchange in a decentralized way, and then you drop KYC on top of it, you lose all the advantages. Then you might as well build a centralized exchange. 

That is the first principle argument of why KYC is not the way to go. I do think that it should be compliance friendly. What I mean is that I think people talk about, the early DEXes as a way to avoid being compliant.

What people forget is that DEXes fundamentally have some properties that are very beneficial in terms of compliance. 

Why are exchanges regulated? There are two fundamental answers. One, is that you want to avoid money laundering. Two, you want to avoid fraud because custodial exchanges take custody. They can run away with everyone’s money. It’s an exit scam.

With decentralized exchanges, because they’re noncustodial, there is no possibility of an exit scam. That’s a very nice property, one. And two, because all the transactions actually happen onchain, it doesn’t break linkability. 

The reason someone will take stolen funds and deposit them into a ShapeShift or a Coinbase is that they can withdraw it and the money will be “washed”. If you perform a transaction on a decentralized exchange, like DDEX or Radar Relay, the likability is not broken. You know exactly where that money came from. You know exactly where it went.

These are two very elegant properties. We should be taking advantage of these properties. To create better products where people cannot do bad things. 

DEXes already have these properties but no-one is really talking about that. Overall, it’s just about how early we are. It’s just the fact that we don’t have any sort of identity system. Even if you implement a KYC system, it’s a very centralized, isolated, KYC system. Only a particular DEX may have some SQL database of a mapping of some addresses to some people’s information. 

Maybe that’s not the solution. That thing could get hacked, or get lost. Maybe it’s not big enough. I am also excited about the identity problem that people are trying to solve. Imagine if we had a decoupled third-party identity system. One that has credit history and other stuff that you also would be able to tap into. I think that is the solution. I don’t think the solution is for any one particular DeFi project to roll his own, effectively siloed identity system. That’s what these KYC system look like to me. 

How are you going to get the word out?

In my previous mobile internet startup, with our my first product, we went from zero to 16 million users in the first year. We did so much growth hacking. I don’t think DeFi is like that.

There are two things. One, you’re talking about even the most successful projects, you’re talking about the very small user base. If you look at the Makers and you look at the Compounds, we’re talking about in the order of thousands of users not millions.

To reach this very, very niche crowd, I am not saying it’s not hard, but it’s more that you just have to have unique value offerings. Then they’ll probably find you. Think about the type of people who will use a decentralized product. These people are incredibly sophisticated. First of all, they have a MetaMask, Ledger, or a D’CENT wallet. That alone takes some expertise. Then they have to understand the financial operations of creating a margin trade and the implications of that and the risks. People talk about “usability is a barrier”. Yes, someday… But we’re not there today.

We’re talking about the intersection of some who’re both engineering savvy and financial savvy. Right now we’re under the radar. Yet we’re surprised how many people actually found us. How did you find us? We didn’t even publish our URL anywhere. We’re not talking about a lot of people. 100 people found us. That’s a non-trivial portion of the potential user base that we could reach at this point.

I think you got to take a step-by-step. All the first-tier teams in Defi our patient. The people who are trying to make moves and try to utilize tokens or viral marketing, they burn themselves out very fast. If you look at the people who are actually writing and shipping, actually getting traction, like the Compounds and the Makers, they took a long time. They’re all on six-month ship cycles and not a lot of growth hacking and PR.

At this stage, of course, we want to grow faster. We want to have exponential growth. But you can’t force it too hard. There’s still a long way to go before anyone will build a DeFi product that is ready for public consumption.

We are very focused on getting the first hundred users, the first thousand users, the first 10,000 users. But 10,000 users actually is very small. Literally, we could talk to our first thousand users one-by-one. We don’t have to skip. To sum up that position and to answer your questions, we’re willing to do things that don’t scale. We don’t need to scale. Then we’ll figure out the hard questions for the scale later.

What are your thoughts about high gas fees and how that impacts financial inclusion?

In some ways we’re talking about scaling now. There’s layer one scaling, maybe changing the consensus model. Or layer two scaling, maybe batching transactions. You could take something like zero knowledge proof, and maybe you could compress, a thousand transactions into one transaction.

These two things we definitely look closely at. At the end of the day, there’s not any one team that can solve all the problems. We are a layer two DeFi product. From our perspective, we want to validate on Ethereum. The most secure, maybe expensive, but secure network. You’re paying for the security.

You really validate your use case here. Then you try to figure out a path where you can take it. Maybe it’s Ethereum 2.0. Or maybe it’s with the aid of level two solution. Maybe a better blockchain. Our job is to evaluate these things and figure out their legitimacy and to build our protocol in a way that it is migrateable.

Fantastic Tian! Thank you so much for taking the time with us today. 

Thank you so much love talking about this stuff. If anyone has questions, reach out.


Final Thoughts

For the time being, the new margin trading platform does nothing for those holding HOT tokens. DDEX is under fire. Competition in the margin DEX space is fierce. The most clear example of this is the upcoming close of the Opyn margin trading service on October 15, 2019.

Hopefully, DDEX’s focus on spread/depth and network security will be of great service to the existing community of sophisticated traders and engineers propelling DeFi forward. This focus should ensure a path forward for DDEX.

Please feel free to reach out to the DDEX team with questions:

Twitter: Tian Li (CEO/Cofounder), Scott Winges (Head of Product)

Telegram: Bowen Wang (COO/Cofounder)

Margin Trading Platform: https://margin.ddex.io

This article is Originally posted on CoinCentral.com
Author: Munair Simpson