London Recap

VeradiVerdict - Issue #49

Last week, I was in London meeting with companies and investors. I was able to meet a few friends for drinks on the rooftop of The Ned on a clear day!

International trips are very insightful, as you really get to learn/get updated on a different ecosystem.

Did you know that London ranks just behind San Francisco in terms of FinTech unicorns? Check out this article which says that San Francisco has 9 unicorns while London has 7. London is the FinTech hub of Europe and theoretically should have the characteristics for a lively blockchain startup ecosystem.

Yet while London is closing in on San Francisco on the traditional FinTech side, it seems farther away on the blockchain side. Pitchbook has San Francisco with more than 3x as many VC-backed blockchain startups as London. The two London startups that have most of their team members in the city and are achieving scale are Blockchain (which just launched their exchange) and Elliptic (which has been doing fraud analytics on the blockchain for a while and is expanding its team).

There are a few different challenges that London crypto faces:

  • Banking - Getting a UK bank account is extremely tough for companies, as funds and companies have to resort to getting banks that are outside of the country. For example, Coinbase just had their Barclays bank account shut down.

  • Regulations - The equivalent of the SEC in the UK is the FCA, and while they have been progressing on their framework regarding licensing of crypto companies, the process currently still takes quite a while.

  • Funding - Institutional limited partners in Europe are pretty conservative and have not started investing into crypto funds yet. The crypto funds that exist are smaller in AUM size. The legacy traditional VC funds might have one person on their team dedicated to crypto and have barely scratched the surface in terms of deals. Some of these dedicated crypto folks end up leaving due to the inactivity in the space.

What can be done to change this?

  • More education on the conference level, either separate tracks or even a large-scale industry conference. Early this year, Fabric Ventures organized the Web3 Track at CogX.

  • Accelerators or blockchain verticals within accelerators or co-working spaces dedicated to the space should exist. I think these will happen sooner rather than later

  • University participation in conferences and hackathons would help. The ChainSpace team was from UCL while the upcoming DeFi Summit London is going to be at Imperial College. What about Cambridge and Oxford?

Once there are more quality blockchain startups in London, it will drive traditional VC and crypto fund activity into the ecosystem, create use-cases that will educate the local LP base, and then drive more LP capital into local funds, completing the flywheel.

Thanks to all the folks in London for the inspiration.

DIGESTS

Cleared to Launch

Bakkt’s bitcoin futures and warehouse to debut in September

Startup Success Outside Silicon Valley: Data from Over 200 Exits in 17 Cities

The Bay Area has been the best place to build a startup for the last two decades. Some experts are questioning if that’s still true, but it’s clearly not the only place an entrepreneur can create a transformative company.


IN THE TWEETS


NEWS

Ethereum Coders Approve 6 Changes for Upcoming Istanbul Hard Fork

Ethereum core developers finalized late Thursday a list of six different code changes to be activated for ethereum’s next system-wide upgrade, Istanbul.

Bitcoin Price Spikes in Argentina, Hong Kong

Data gathered by Bloomberg reveals that, despite a recent global drop-off in cryptocurrency price, bitcoin is attracting investment from Argentina and Hong Kong.


REGULATIONS

Bakkt confirms September launch date after getting green light from regulators

Bakkt says it will launch its physically-delivered bitcoin futures product in September – months after its initial planned deadline.

IRS Sends Warnings to Crypto Investors Over Misreported Trades

The U.S. Internal Revenue Service (IRS) is stepping up a campaign to send warning letters to cryptocurrency investors, urging them to make sure that they have accurately reported all transactions for tax purposes.


NEW PRODUCTS AND HOT DEALS

Coinbase Custody acquires Xapo’s institutional business, becoming the world’s largest crypto custodian

Crossing $7 billion in assets under custody, Coinbase Custody is now the most popular and trusted choice for institutions to store cryptocurrency.


MEET WITH ME

Berlin, Web3 Summit, August 19-21

Los Angeles, August 23

New York City, September 3-6

Shanghai, Shanghai Blockchain Week, September 16-18

Montreal, September 27-29


ADDITIONAL INFO

Hi, I’m Paul Veradittakit, a Partner at Pantera Capital, one of the oldest and largest institutional investors focused on investing into blockchain companies and cryptocurrencies. The firm invests in equity, pre-sales/IEO rounds, and cryptocurrencies on the secondary markets. I focus on early-stage investments and share my thoughts on what’s going on in the industry in this weekly newsletter.

👋 Working on building new technologies? I’d love to hear about it, shoot me an email

🙏 I’d appreciate it if you forwarded this email to someone who would might benefit from it

💡If you have any content you want to share on this newsletter, please send it to me and we can make it happen

Please click here to help me improve this newsletter and your experience by filling out this NEW survey!

Berlin Blockchain Week

VeradiVerdict - Issue #49

This week I’m traveling to Europe to visit what I think are the two cities with the most blockchain activity on the continent, London and Berlin.

London has been known as a FinTech hub and blockchain startups revolve around exchanges, settlement, and decentralized finance. I look forward to catching up with companies and investors. If any folks are around for a Thursday happy hour in London, let me know.

Afterwards, I’ll head to Berlin for Berlin Blockchain Week and Web3 Summit. For the last couple of years, this summit and the events surrounding it have brought together a strong community of technical talent and mindshare. Berlin is known to be the developer hub of Europe and some of the most well-known scalability projects have headquarters or offices in Berlin. This is my first time visiting Berlin since joining Pantera and look forward to participating.

Pantera will be hosting a meetup on August 19th on the Web3 Stack, and I will be speaking at a few events, all listed below, so hope to see everyone around!

August 19: The Web3 Stack with Pantera, bloXroute, Enigma, LivePeer, and Near (click at attend)

August 20: Token Wirtschaft 2.0: The Evolution of DeFi from Global Perspectives (click to attend)

August 21: Cryptocurrencies and Blockchain: The end of Venture Capital as we know it? (click to attend)


DIGESTS

Bitcoin is a Demographic Mega-Trend: Data Analysis

What follows is data and analysis from a survey of American adults regarding general sentiment toward Bitcoin — the survey was conducted online by The Harris Poll, on behalf of Blockchain Capital, from April 23–25, 2019 among 2,029 American adults.

10 Global Enterprises Looking to Issue Their Own Cryptos

The growing popularity of cryptocurrency has led to a revolution in the digital currency industry. Enterprises that were of noncrypto origin now have or plan to have their own crypto product. 

IN THE TWEETS


NEWS


Goldman Sachs Analysts’ Slide Suggests Now’s a Good Time to Buy Bitcoin

Market intel from Goldman Sachs suggests investors should capitalize on the current price dip and buy bitcoin.

Justin Sun: Tron’s Listing on Major US Exchange Is #1 Priority

Tron (TRX) founder Justin Sun has said that getting the cryptocurrency listed on the American version of Binance or Coinbase is his company’s number one priority.


REGULATIONS

SEC Delays Decisions on 3 Bitcoin ETF Proposals

The U.S. Securities and Exchange Commission (SEC) delayed making a decision on three bitcoin exchange-traded fund (ETF) proposals Monday.


IRS Warnings to Bitcoin Traders Offer Clues to Coming Tax Guidance

The IRS’ recent warning letters to 10,000 traders offer hints at what its forthcoming guidance on crypto taxes might say.


NEW PRODUCTS AND HOT DEALS


Blockstream Launches Bitcoin Mining Farm With Fidelity as Early Customer

Blockstream has launched a colocation mining service and already counts the Fidelity Center for Applied Technology and LinkedIn founder Reid Hoffman as customers.

Blade raises $4.3M from Coinbase, SV Angel to reshape cryptocurrency derivatives trading

Exchanges like Coinbase have ballooned in size by taking the mechanics of equity markets and fitting them to cryptocurrency markets, but as the space expands in its scope and craftiness, new exchanges trading asset classes native to cryptocurrency are taking off and attracting the attention of top Silicon Valley VCs. Oh, and Coinbase, too.


MEET WITH ME

London, August 15-16

Berlin, Web3 Summit, August 19-22

Los Angeles, August 23

New York City, September 3-6

Shanghai, Shanghai Blockchain Week, September 16-18

Montreal, September 27-29

London, September 30


ADDITIONAL INFO

Hi, I’m Paul Veradittakit, a Partner at Pantera Capital, one of the oldest and largest institutional investors focused on investing into blockchain companies and cryptocurrencies. The firm invests in equity, pre-sales/IEO rounds, and cryptocurrencies on the secondary markets. I focus on early investments and want to share my thoughts and what’s going on in the industry in this weekly newsletter.

👋 Working on building new technologies? I’d love to hear about it, shoot me an email

🙏 I’d appreciate it if you forwarded this email to someone who would might benefit from it

💡If you have any content you want to share on this newsletter, please send it to me and we can make it happen

Please click here to help me improve this newsletter and your experience by filling out this NEW survey!

Pantera Blockchain Summit

VeradiVerdict - Issue #48

Pantera started hosting influential summits around blockchain starting in 2013. Since then, the firm has launch multiple funds around investing into venture capital and tokens (ICO/IEOs and off the secondary markets). During our journey, we’ve invested into over 100 companies and accumulated almost 1000 limited partners. The firm decided to keep the minimum investment amount for investors at $100,000 knowing that many folks are still getting educated and comfortable with the space. Limited partners include individuals, family offices, corporations, and institutions. We’ve seen limited partners over the years invest more into the same funds, across other funds, and eventually into subsequent vintages of funds.

One of the benefits of the Pantera family is the network of entrepreneurs and investors that we can bring together, so this year’s Pantera Blockchain Summit will be in San Francisco on October 22nd. The speaker list and breakout sessions revolve around our portfolio companies and we are excited about having Nick Szabo returning to speak, as he is attributed with coining the term “smart contract”. It will be a wonderful opportunity for networking, learning, and business.

The summit is only for limited partners of our funds, so if anyone has questions, feel free to contact ir@panteracapital.com


DIGESTS

10 Blockchain Ideas That Are Out-of-This-World, or May Change It

Blockchain technology has proven to be a great invention since it was introduced about a decade ago. Since then, it has powered several inventions that will have a lasting impact on humanity. Some notable examples are the Internet of Things (IoT) and smart

What Is the Difference Between Blockchain and DLT?

"Blockchain" and "distributed ledger technology." Many of us have been guilty of confusing these two terms and using them interchangeably. 


IN THE TWEETS


NEWS

Kraken Boosts Institutional Offerings With Acquisition of Dan Held’s Interchange

Cryptocurrency exchange Kraken has just acquired a firm offering a way for institutional investors such as hedge funds and asset managers to better manage their portfolios.

BitMEX Ventures invests in Bahrain-based licensed crypto exchange Rain

BitMEX Ventures, the investment arm of cryptocurrency derivatives trading platform BitMEX, has invested in Bahrain-based licensed cryptocurrency exchange Rain, which went live today.

Bitcoin’s Computing Power Sets Record as Over 100K New Miners Go Online

The total computing power now dedicated to securing the bitcoin blockchain has set yet another record.


REGULATIONS

MIT’s AI Lab Analyzed 200,000 Bitcoin Transactions. Only 2% Were ‘Illicit’

Blockchain analytics firm Elliptic collaborated with researchers from the Massachusetts Institute of Technology (MIT) to publish a public dataset of bitcoin transactions associated with illicit activity.

US Federal Reserve Launching Payment System, Crypto Bulls Nonplussed

The United States Federal Reserve Board is planning to release a real-time payments and settlements service in order to boost the payments infrastructure in the country.


NEW PRODUCTS AND HOT DEALS

Walmart Wants to Patent a Stablecoin That Looks a Lot Like Facebook Libra

Retail giant Walmart has applied for a cryptocurrency patent that bears some similarities to the Libra token proposed by Facebook in mid-June.

Sony Co-Leads €13 Million Raise for Crypto Banking Startup Bitwala

Germany-based blockchain finance firm Bitwala has raised €13 million (almost $14.5 million) in a Series A funding round.


MEET WITH ME

London, August 15-16

Berlin, Web3 Summit, August 19-21

Los Angeles, August 23

New York City, September 3-6

Shanghai, Shanghai Blockchain Week, September 16-18

Seoul, September 19-20

Montreal, September 27-29


ADDITIONAL INFO

Hi, I’m Paul Veradittakit, a Partner at Pantera Capital, one of the oldest and largest institutional investors focused on investing into blockchain companies and cryptocurrencies. The firm invests in equity, pre-sales/IEO rounds, and cryptocurrencies on the secondary markets. I focus on early investments and want to share my thoughts and what’s going on in the industry in this weekly newsletter.

👋 Working on building new technologies? I’d love to hear about it, shoot me an email

🙏 I’d appreciate it if you forwarded this email to someone who would might benefit from it

💡If you have any content you want to share on this newsletter, please send it to me and we can make it happen

Please click here to help me improve this newsletter and your experience by filling out this NEW survey!

What is a Reg A+ (SEC-registered) Token Offering?

VeradiVerdict - Issue #47

TL;DR

  • Historically, companies raise funding through public (stock market, available to all) or private (high-amount investments from accredited investors, called Regulation D) means. That dogma has been changing.

  • In 2015, the SEC passed “Regulation A+,” a rule that makes certain securities offerings exempt from registration, in order to facilitate capital raises for smaller U.S.- and Canada-based companies and startups. Reg A+ offerings allow companies to raise money from both accredited and unaccredited investors, democratizing their investing sphere greatly. There’s two major kinds of Reg A+ offerings.

    • Tier 1 allows companies to raise up to $20 million in one year, with fewer regulatory requirements on the company and more flexibility about who can invest.

    • Tier 2 allows companies to raise up to $50 million in one year, but subjects the companies to more regulatory requirements, including disclosure and public financial reporting requirements, and includes limitations on how much certain investors can own.

  • Both tiers place restrictions on the amount of secondary selling that can be done by company affiliates.

  • Reg A+ offerings might be suited for companies seeking mid-stage investment that want distance from institutional investor control over the company, and deeply care about customer engagement and support.

  • The offerings aren’t as well-equipped for really early, seed-stage investments, companies with unclear value for customers, and the inability to hire effective lawyers or advisors.

  • Blockstack and YouNow are two companies that have received approval to do Reg A+ offerings through the SEC.  Both plan to launch a token that rewards its users for customer engagement and allows for the public to participate in funding; early indications show that the Blockstack offering will be promising and successful.

With the advent of tons of innovation within technology and blockchain, up-and-coming companies are looking for novel ways to raise capital to fund their growth. Historically, investing in new ventures has been limited to institutions and “accredited investors” –– wealthy Americans who had enough assets to hedge the risk of a questionable investment in a new space.

But the investing world is constantly changing––and more and more startups are looking for ways to get the general public involved in their financial growth.

What is the historic model of raising funds?

When raising funds, companies have two options: public and private investing.

Traditionally, public investing has been executed through the stock market. Once a company reaches sufficient size and scale, they decide to undergo an initial public offering (IPO) where they list their stock on a public exchange, allowing anyone to purchase stock in the company and support it. Buyers are rewarded through dividends, or fractions of the company’s revenue, and through price fluctuations in the stock market that allow them to trade their portfolio for profit. Companies take the investment from their buyers and put it towards growth and funding new products.

Stocks historically have also been a financial instrument for the wealthy of America, but recently, more average Americans have started investing in stocks too. The rise of public information regarding the stock market and how to get involved plus easily-accessible platforms like Robinhood have made public investing truly public.

Private offerings are when companies sell shares of the organization to accredited, wealthy investors. Generally, these shares amount to a much larger fraction of the company than a singular stock would––this gives private investors more stake in the company.  Private offerings are generally seen as a lot more risky. The US Securities and Exchange Commission (SEC) has an offering called “Regulation D” that allows companies to raise private capital without officially registering the shares as securities with the SEC. The process involves filing several disclosure forms and ensuring compliance with various states’ corporate sales laws.

What is Regulation A+?

In 2015, Title IV of the JOBS Act went into effect––without getting caught up in the nitty-gritty specifics of the legislation, this expanded an existing regulation to allow for a new type of offering, commonly called Regulation A+.

Regulation A+ allows companies to raise up to $50 million in capital from the public without a formalized IPO. Regulation A+ offerings still require that companies file with the SEC and get approval, but the restrictions and associated filing fees are significantly less than those for IPOs, meaning it’s much easier for companies to publicly raise capital with a Reg A+ offering. In fact, it’s even donned the term mini-IPO because it functions similarly to an IPO without a formal launch on a stock exchange. 

And unlike Regulation D, Regulation A allows companies to accept investments from both accredited and un-accredited investors, greatly diversifying the populations that are able to invest in such ventures. Importantly, securities sold pursuant to Regulation A are immediately freely tradeable as compared to securities sold pursuant to Regulation D which must be held for at least a year before they can be transferred by the purchaser.

What are the specific Reg A+ offerings, and how do companies go about starting one?

There’s two main Reg A+ offerings: Tier 1 and Tier 2. They’re pretty similar, aside from a few key distinctions.

Tier 1 maxes the amount of capital raised at $20 million––with this lower ceiling, it comes with less regulatory requirements. There’s no regulations on who is allowed to invest, and it doesn’t require a formalized audit from states nor public audited financial reporting. However, when filing for a Reg A+ Tier 1 offering, companies must also be reviewed by the state where they intend to raise capital in.

Tier 2 allows companies to raise up to $50 million, considerably more than Tier 1. But naturally, with this higher ceiling, it has more restrictions for the companies. First, unaccredited investors can only invest up to the maximum of 10% of their income or net worth, whichever is higher. The company is exempt from Blue Sky Laws which require separate registration and qualification in any state where the company intends to raise funds, but their financials must be audited, they must file annual, semiannual, and current event reports, and they have to annually report their financial documents to the public as well as other ongoing disclosure obligations.

In essence, Tier 1 is more geared towards companies targeting smaller investments (under $20M) who want more flexibility with how they raise capital. Tier 2 has more restrictions, but allows for a much larger capital raise (up to $50M).

At a very high level, the steps to launch a Reg A+ offering for both tie are as follows.

First, the issuer files a Form 1-A with relevant information on their company and what they plan to pursue with the SEC.  After filing, companies are allowed to test the waters to gauge their probability of a successful capital raise;

Supposing the investor interest is there, the company then decides to actually pursue a Reg A+ offering the issuer continues with the approval process with the SEC. 

Once all of that is done and the SEC returns approval and qualifies the offering, the company can begin selling securities according to their Tier’s regulations.

Why might companies pursue a Reg A+ offering today?

A few reasons.

  1. It just broadens the investing pool significantly. It can be hard to convince accredited, institutional investors to take a bet on a venture, so by allowing non-accredited individuals to also invest, it greatly opens the options for a company in terms of successfully raising capital. Additionally, tons of companies end up with different visions of their future compared to their institutional investors; this can create a lot of problems later on when the company and its investors disagree as to how the company should pivot (if they even should) and what markets they should go after.

  2. It’s a fantastic way to engage with customers. First, Reg A+ offerings essentially require that companies have robust, well thought-out value propositions that they can deliver to literally anyone. It’s no longer about convincing people that a specific business model or a specific feature can create 10x returns; it’s about showing people that they’ve made a product that meets a genuine need in people’s lives. This inherently means that Reg A+ companies are more inclined to be customer-obsessed and focused on fostering real value. Second, it’s a great way to propagate the customer ecosystem. If a customer buys products from a company, realizes how great they are, and then decides to buy a share of the company to support it, they’re essentially supporting the ongoing growth of the company; it’s incredible if the company is able to reward customers for that kind of ongoing support, creating a cycle where customers are highly engaged with the company in terms of buying more products and funding new ventures.

  3. It’s a great model for mid-stage companies. For companies that are just making it big in the market, and have already pursued a traditional seed round and aren’t really ready for the big guns yet, Reg A+ is a great way to raise just enough money to take the company to the next level without getting excessively caught up in investor relations. It’s a, agree.  Delete substantial source of capital that really allows the company to do the most with their money in a way that can gear them up for larger institutional investments later on.

What about some reasons not to?

  1. It can be expensive. Institutional investors generally have their own lawyers that they work with to make investments a reality; hiring the right lawyers to get SEC approval and deal with all of the regulations might be too costly of a step to get companies interested in the Reg A+ model. Additionally, such approvals can take 3-6 months to close, which are critical time periods in a company’s early stages, and would increase company obligations to more investors, which can great tangles for the company’s vision and drive.

  2. There might not be sufficient interest for the general public to take a bet on the company, or maybe the public doesn’t know enough about the problem space, so the company might not raise enough money. Institutional investors can direct you towards a better value proposition and might understand the nuances of a company’s market and see where the 100x returns can stem from in the future. Less experienced public investors may not have the same acumen, which can make it hard for more out-there companies to raise funding and create risks that investors unfamiliar with the company seeking a quick profit could sue the issuer.

  3. If you’re still seed stage as a company, the amount of funding from a mini-IPO would greatly exceed what you’re looking for. Generally, these campaigns target investments on the scale of $3-50M dollars, even though the investor market is diversified to include the general public. This is more useful for mid-stage and later-stage companies looking for continued investment. To get a company or product off the ground, companies aren’t looking for that scale of funding; an institutional investor with a smaller amount and the wisdom to mentor the company might be a better fit here.

  4. Managed a huge cap table can be difficult.

Have any companies pursued the Reg A+ model so far, and how has it gone?

Yes! Two of the notable ones in the crypto space are Blockstack and YouNow verify.

Blockstack is essentially a decentralized app and computing platform that lets people build their products on decentralized, distributed technologies that also gives them 100% autonomy over their data and privacy. They’ve raised funds from Foundation Capital, Winklevoss Capital, and Blockchain Capital. The Wall Street Journal reported earlier this month that the SEC has approved a $28 million offering of digital tokens under Tier 2 of Reg A+.  Blockstack  is offering 62 million units of a token called STX, each of which is priced at $0.30. This is the first SEC-qualified token offering, but it was costly for Blockstack, which reportedly  spent $2 million just on getting SEC approval for the sale.

YouNow is an online broadcasting service where users can live-broadcast themselves, and share and interact with other live broadcasters. Their infrastructure uses an Ethereum-based token called Props that easily integrates with the application. YouNow developed the Props blockchain and intends to reward content-creators with Props for driving platform engagement. The SEC qualified YouNow’s Regulation A offering to sell 133 million of the Props tokens  at a price of $0.1369 per token, with an additional 45 million tokens to be granted to YouNow’s content creators. The company pre-sold $22 million of the tokens, so it looks like the Reg A+ route is off to a good start.

Final Thoughts

Just like the tech sphere, the investment world is rapidly changing. Reg A+ presents a new, highly-customizable way for companies to raise substantial amounts of capital from unaccredited and accredit investors alike; it’s a huge step towards the vision of a decentralized, democratized financial system that enables everyone to participate. Whether Reg A+ is the end-all-be-all of mixed public- and private- mid-stage-offerings is yet to be seen, but it definitely ushers the investing sphere towards a more democratized future.


DIGESTS

Blockchain in the Telecoms Industry: Revolutionizing Cell Phone Usage?

“[X-Number of] Industries Blockchain Will Disrupt” — How often do you come across articles with a headline like this? Every time, we discover new ways to implement the tech and, while being filled with inspiration, look around to see no practical change. Speaking about blockchain in use, we should therefore consider its potential rather than today’s use cases.

SWIFT Vs. Ripple — The Importance of Speed in Cross-Border Payments

The emergence of blockchain technology has undoubtedly altered the course of global digital payments development. With the likes of Ripple and Facebook’s Libra challenging the monopoly of banks and other financial institutions, mainstream players like SWIFT, Visa and Mastercard have been forced to seek significant improvements to the legacy system.


IN THE TWEETS


NEWS

Facebook Libra Might Never Launch, Company Concedes in SEC Disclosure

Facebook has acknowledged what many have been saying – that regulatory issues may be an insurmountable barrier to the launch of its Libra global cryptocurrency project.

Millions in Crypto Is Crossing the Russia-China Border Daily. There, Tether Is King

Chinese importers in Russia are buying up to $30 million a day of tether (USDT) from Moscow’s over-the-counter trading desks.

Capital One Hack Exposes 100 Million Accounts as Bitcoin Unaffected

The massive-scale hack of major United States credit card issuer Capital One has left the personal data of over 100 million individuals exposed.


REGULATIONS

Judge Rules to Extend Bitfinex and iFinex Case in New York

Justice Joel M. Cohen of the New York Supreme Court (NYSC) has ruled to extend the preliminary injunction in the ongoing case of crypto exchange Bitfinex and Tether’s parent company, iFinex, against the New York Attorney General (NYAG), on July 29.

U.S. Senate to Hold Hearing on Crypto, Blockchain Regulation Next Week

After getting its feet wet last week with hearings on Facebook’s forthcoming digital currency Libra, the United States Congress is taking a deep dive into the Bitcoin industry.


NEW PRODUCTS AND HOT DEALS

US Defense Dept. to Experiment With Blockchain-Based Security

The United States Department of Defense (DoD) is pursuing blockchain solutions for cybersecurity as part of its digital modernization strategy.

Branson-backed cryptocurrency firm launches a super-fast exchange to take on Coinbase

Blockchain’s exchange is the result of work led by a team of former trading industry executives. The exchange can execute orders in a matter of “microseconds.”

‘Multi-Threaded’ Blockchain Solana Receives $20 Million in Funding

Solana claims that the platform is the first web-scale blockchain, since they believe it to be the first solution capable of hosting applications with computational bandwidth akin to the modern internet. 


MEET WITH ME

London, August 15-16

Berlin, Web3 Summit, August 19-21

Los Angeles, August 23

New York City, September 3-6

Seoul, September 9-10

Singapore, Consensus Invest Asia, September 11-12

Montreal, September 27-29


ADDITIONAL INFO

Hi, I’m Paul Veradittakit, a Partner at Pantera Capital, one of the oldest and largest institutional investors focused on investing into blockchain companies and cryptocurrencies. The firm invests in equity, pre-sales/IEO rounds, and cryptocurrencies on the secondary markets. I focus on early investments and want to share my thoughts and what’s going on in the industry in this weekly newsletter.

👋 Working on building new technologies? I’d love to hear about it, shoot me an email

🙏 I’d appreciate it if you forwarded this email to someone who would might benefit from it

💡If you have any content you want to share on this newsletter, please send it to me and we can make it happen

Please click here to help me improve this newsletter and your experience by filling out this NEW survey!

What happened during the Facebook hearings?

VeradiVerdict - Issue #46

TL;DR

  • Facebook recently launched a cryptocurrency called Libra, which is governed by an independent association called the Libra Association. Facebook is also working on a product called Calibra, which serves as a wallet to interface with Facebook’s products (Instagram, Facebook, WhatsApp).

  • This past week, Congress held 2-day hearings regarding the anticipated impact and regulation of Libra and Facebook. Some of the biggest concerns raised included:

  • Defining Libra within the current financial ecosystem. It’s unclear whether Libra will function purely as a payment vehicle, or also has the potential to act as a commodity, security, or ETF.

  • Financing criminal activities. Concerns abound about how a decentralized, unregulated financial ecosystem might be a gateway for those looking to finance human trafficking, drug trade, terrorism, etc.

  • Widespread, economy-threatening growth. Libra’s potential almost entirely relies on Facebook’s 2.4 billion user base. Once Libra launches for the general public, rapid widespread adoption might drastically hurt the value of the US dollar, threatening the country’s position in trade and economic systems.

  • Poor data privacy. Facebook’s no stranger to its data privacy scandals; though Libra is supposedly independent from Facebook, the ties between the two are undeniable. Libra may present a vehicle for Facebook to access financial information from its users, hurting its data privacy even further.

  • Ultimately, the hearings raised more and more concerns about the potential for Libra to change the world; but the key here is that all of these concerns demonstrate the genuine potential for Libra to disrupt the status quo of payments. Whether that disruption is for the better or worse is still up for debate.

To no surprise, the talk of the cryptocurrency town this week has been Facebook’s new cryptocurrency Libra. This past Tuesday and Wednesday, executives and developers from Facebook testified in front of the US Congress defending the good intent and financial potential of Libra amid concerns around Facebook’s data privacy laws, incredible user base, and monopolistic tendencies. The hearings delivered some key questions about how to regulate a monolith like Facebook in the modern-day and if decentralized financial systems truly benefit society if architected by a centralized, profit-driven agency.

What is Libra anyways?

Put simply, Libra is a cryptocurrency that Facebook developed to allow for decentralized financial transactions and wealth management across the world with hopes of bringing financial power to millions of unbanked individuals, easing the process of sending money internationally, and creating a user-driven financial system where individual users own their data. Though developed by Facebook, Libra is managed by the Libra Association, which will ultimately have 100 partners that govern the Libra blockchain; some current partners include Facebook, MasterCard, Visa, etc. but that list will only grow in the next few months.

Libra is starting as a permissioned blockchain––meaning only a select few will have the ability to mine transactions, interact with the blockchain, and use it for financial means. The idea behind this is to allow Libra to simmer with a few users for a short period of times to identify pain points and problems in the blockchain architecture; once the Libra Association and Facebook works that all out, the blockchain will become permissionless, allowing anyone to use it. 

Facebook also announced their new product, Calibra, which is a wallet for the Libra blockchain that makes an easy user interface for non-technical users to use Libra to carry out transactions. Calibra natively integrates with all major Facebook products (Facebook, Instagram, Whatsapp––bringing access to the Libra blockchain and the decentralized payment ecosystem to its 2.4 billion users worldwide.

You can read more about Libra here.

So, what is Congress so worried about?

The U.S. Senate and House of Representatives had a two-day hearing this past week to discuss how to think about, interact with, and regulate Libra today and after its anticipated growth. A lot of concerns from tons of different representatives were raised during the hearings, but most of the discussion boiled down to four main spaces.

1. Understanding What Libra Is

Cryptocurrency is a nebulous concept to most, so it’s no surprise that Congress had a ton of questions regarding how to financially define what Libra is and what that means for the US and global economy. Many lawmakers consider Libra to be a security or an exchange-traded fund (ETF), since the Libra coin is tied to a basket of securities. 

David Marcus, head of the Libra project at Facebook, denies that Libra is a commodity, security, or an ETF. He reasoned that Libra is purely a payment tool; since Libra’s intent is to be an entirely new payment mechanism, it is not a security. Securities generally create profit from speculating the value and price of the item, and trading to optimize one’s own individual profit based on the current price. Libra is a stablecoin, meaning its price or value will not be as subject to fluctuations as securities or ETFs, creating little value over trade due to speculation. 

Still, Congress, particularly former CFTC chair Gary Gensler, retained many concerns regarding the nature of Libra. Many other cryptocurrencies today function similarly to securities and are traded to profit off of price fluctuations, rather than to purchase items like conventional fiat would be. Libra might try to act like pure cash, but the way people use it might differ drastically.

2. Illicit Potential

If Libra is a decentralized currency regulated by an independent association and not the US Government, many critics argue that it has the potential to fund illicit activities including money laundering, human trafficking, illegal drug trade, and even terrorism. A decentralized currency could theoretically allow criminals to entirely avoid the security protocols implemented by the US financial system, removing a ton of the roadblocks set in place to avoid financing such criminal activities.

Marcus responded that most criminal transactions today occur through cash anyways, because it’s incredibly hard to record the spread and history of hand-to-hand paper transactions. An online banking ecosystem would reduce the ability of criminal transactions to go wholly unnoticed by regulatory agencies. Moreover, he claims that Calibra is building identity protections designed to recognize and invalidate transactions tied to criminal behaviors. 

Nonetheless, many Congresspeople have doubts about Marcus’ vacuous claims about Facebook’s potential to properly manage the security of their financial ecosystem. Representative Brad Sherman from California went so far as to claim “the number of deaths that will occur in America, if this is successful in playing the role it's intended, will exceed what was lost on 9/11.”

3. Rapid, Economy-Threatening Growth

Much of Libra’s potential to truly disrupt the current financial ecosystem is tied to Facebook’s user base of 2.4 billion monthly active users. Though cryptocurrency has been booming in recent months, its scale has never reached anything like that of Facebook’s; if Facebook natively integrated Libra through Calibra into its products, Libra would almost inevitably see huge growth and adoption in its very few months when it goes permissionless.

Many in Congress hold concerns about what such rapid adoption would do the U.S.’s current financial ecosystem. The transition from the use of the US Dollar to a currency like Libra could drastically bring down the power of the US Dollar in international markets, threatening long-standing trade agreements and financial protocols that are not perfect, but still work.

Understanding the impact of what such rapid adoption of a decentralized currency is a nebulous task, but one that truly highlights the fundamental catch-22 of Libra. Libra’s potential is almost wholly rooted in its connection with Facebook––from its demonstrated engineering talent, scalability, and most importantly, huge user base. Still, many of the concerns with Libra, particularly its potential to hurt the US Financial Ecosystem and concerns surrounding data privacy (see the next section for more) are also fundamentally rooted with Facebook. Big tech may have the unique power to disrupt the status quo, but its anticipated impact is incredibly unclear.

4. Data Privacy 

Aside from Libra, Facebook’s also been in the news for one of the biggest tech scandals in recent history––poor and illicit use of user data. Just last year, Facebook was uncovered for improperly handling and using millions of its users’ data; just one political firm gained access to data for over 87 million users.

At its core, Facebook’s entire business model is principled on ad sales; it drives sales and growth in this sector by selling user data to the companies that want them, allowing for ads optimized to each user’s interests and internet activity. Uncovering just how far Facebook takes each user’s data has threatened much of the public sector’s and general public’s confidence in the social media network’s trustability. A poll once showed that less than 17% of users would feel comfortable letting Facebook handle their financial information, just because of Facebook’s poor use of arguably less critical data, like what Pages they like or who they message.

Facebook tried to sideline this problem by establishing an entirely new independent association, called the Libra Association that will supposedly completely handle the Libra blockchain without oversight from Facebook. David Marcus added that Libra will not share any user data with Facebook without explicit, enthusiastic consent from the user. Yet, Libra’s origins still press concerns for those worried about how Facebook gathers and capitalizes on information from its users everyday. No matter what claims Facebook and Libra make about data sharing and independence, it’s impossible to deny that they both originated from the same thought space and share similar incentives when it comes to making profit, and that can be even further optimized with collusion.

Final Thoughts

At the end of the day, the US Government is so concerned about Libra because of its genuine potential to disrupt the domestic and global financial ecosystem on a possibly irreversible scale. Regardless of the concerns they raise, the common understanding here is that the combination of Libra and Facebook reflects a huge step towards a supposedly-decentralized economy. Whether that financial system truly benefits all and protects security or descends into even worse data handling and crime financing is yet to be seen; but Libra has the ability to change the financial world for better or worse.

Fun Survey - Which companies should be part of the Libra Association?

Respond here and see the anonymous results next week!


DIGESTS

Bitcoin Dominance Growing — What It Could Mean for Altcoins

Bitcoin (BTC) has more than tripled in 2019, moving from under $4,000 at the start of the year and then topping out at a little under $14,000 in June. In the earlier part of 2019, altcoins seemed to be performing strongly, with many calling the trend “altseason.”

Virgin Bitcoin — Most In-Demand Crypto That Is Regulated Differently?

In a world where the global crypto community continues to face a growing number of regulatory hurdles with each passing day, the term “virgin Bitcoin” is starting to become more common among digital currency enthusiasts. 


IN THE TWEETS


NEWS

For $15K, He’ll Fake Your Exchange Volume – You’ll Get on CoinMarketCap

Gotbit inflates trading volumes on obscure cryptocurrency exchanges for a fee and has about 30 token projects as clients.


REGULATIONS

Could Donald Trump Ban Bitcoin?

Bitcoin yet again graced global headlines last week, after the President of the United States, Donald Trump, took to Twitter to declare himself “not a fan” of cryptocurrencies, “whose value is highly volatile and based on thin air.”

Facebook Libra App Development Already Exploding Despite Lawmakers Concerns

As elected officials frantically try to make sense of Facebook’s libra cryptocurrency, application developers are getting down to business.


NEW PRODUCTS AND HOT DEALS

Grin Cryptocurrency Executes First Hard Fork

Privacy-oriented cryptocurrency Grin has just executed its first backward-incompatible upgrade, also called a hard fork.

Bank of America Files Patent for Settlement System Citing Ripple

Bank of America has filed for a patent for a settlement system citing the Ripple ledger, according to a filing on Google Patents.

Blockchain Project Aims to Apportion and Tokenize the Moon

A new blockchain project has launched a registry that would divvy up and tokenize portions of the lunar surface.


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ADDITIONAL INFO

Hi, I’m Paul Veradittakit, a Partner at Pantera Capital, one of the oldest and largest institutional investors focused on investing into blockchain companies and cryptocurrencies. The firm invests in equity, pre-sales/IEO rounds, and cryptocurrencies on the secondary markets. I focus on early investments and want to share my thoughts and what’s going on in the industry in this weekly newsletter.

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