Decentralized Derivatives

VeradiVerdict - Issue #55

Pantera recently led a $5m round into Vega, a decentralized protocol for financial derivatives that allows for safe and non-custodial margin trading. Read how it works and why it’s compelling:

  • Vega is a decentralized protocol for creating and trading financial derivatives on the blockchain. It automates tons of “middleman” steps in such markets, such as settlement, collateral, risk management, and fee pricing to create a seamless experience for traders and market makers alike.

  • Vega’s protocol has three main defining qualities:

    • The protocol has built in incentives that reward price makers and market makers for providing the liquidity to power various financial markets. These incentives adapt to draw market makers to financial products that need their support.

    • The protocol uses cryptocurrency-based collateral, but can plug into a variety of blockchains and take collateral in the form of Bitcoin, ERC20 tokens, stablecoins, and more. This offers users a high degree of customizability.

    • It’s exceedingly easy to make markets on Vega’s network, as they automate much of the financial infrastructure necessary for that market to persist. Markets are approved through a proof-of-stake (PoS) protocol from Vega’s participants.

  • Vega offers powerful market making and trading engines that automate intermediate processes. Making a market is as easy as setting the parameters for the market and submitting it for review, and trading is as easy as plugging an existing infrastructure or interface into an API or submitting an order through the dapp created by Vega, which is then automatically executed by Vega’s protocol.

  • Ultimately, Vega represents a major step forward in diversifying decentralized finance and breadthening the kinds of financial products available for trade using blockchain infrastructures.

The DeFi Ecosystem

Decentralized finance (DeFi) is one of the hottest applications of cryptocurrency and blockchain technologies––taking traditional financial concepts like securities, bonds, money markets, and more, and putting them on the blockchain puts significantly more power in the hands of those who participate in these markets, not just the middlemen who manage them.

Though DeFi is a very nascent field, there’s an incredible amount of rising interest in trading on the blockchain and extending the financial capabilities of cryptocurrency.

Introducing Vega

Vega is a protocol for creating and trading financial derivatives on the blockchain. Vega removes the middlemen often present in derivative markets and automates the entire market-making and trading through smart contracts, consensus, and other applications of blockchain. It enables anyone to create a decentralized derivative market and facilitate fully automated margin trades.

Vega supports literally any kind of financial product, not just those based on cryptocurrencies. It can even support tokenized securities. The idea is to set up a generalized marketplace for assets with a critical time horizon, like futures, options, etc.

If DeFi is so popular, why is Vega different?

Vega is one of the first automated derivative protocols for cryptocurrency, so it’s a huge development for the broader financial investing market in the context of blockchain. On top of that general application, Vega has three key differentiating factors.

First, built-in liquidity incentives. The protocol has liquidity tools baked into its architecture to support market makers and traders for literally any financial derivative. It automates the liquidity pricing process individually for each market, by ingesting the volume and prices of trades and real-time liquidity prices in order to calculate an accurate price. The prices are also algorithmically set to draw liquidity to markets with the greatest need, and to ensure that all markets are operating at the greatest efficiency possible. It then uses the revenue generated from the liquidity price to reward market makers and infrastructure operators––this incentivizes market makers to continue creating and managing markets on Vega’s protocol, increasing the total volume and diversity of transactions occurring on the network. This cycle of positive reinforcement draws more and more attention to Vega’s product and also the broader sphere of decentralized derivatives––rewarding market makers incentivizes them to make more markets.

Second, a breadth of collateral options. Vega’s derivatives are all collateralized by cryptocurrency, but Vega’s decentralised infrastructure supports a variety of cryptocurrencies to be used as collateral. Vega connects to most major blockchains and supports collateral in the form of digital assets like Bitcoin, ERC20 tokens, various stablecoins, and more. This is critical because it gives users the power to choose their preferred medium for collateral, rather than having an arbitrary middleman define the underlying infrastructure of the trades. Vega’s high degree of customization with respect to collateral truly makes the cryptocurrency derivatives markets as personalizable and adaptable as possible. The network also calculates the minimum collateral necessary to maintain open positions in near-real-time, which optimizes the cost of margins and maximizes leverage. Vega’s interface also allows traders to see their collateral balance at any time, simplifying the process and putting more control in the hands of traders and market makers.

Third, the simplicity of making markets. The entire ethos of Vega is making it exceedingly simple to create markets in an otherwise complicated (decentralized, P2P) system. Vega will eventually offer a library of product features and cash primitives from which market makers can easily architect cash flows and settlement infrastructures for various options, futures, and more. Vega has pre-built risk models that automate margin and leverage calculations; participants in these markets simply must feed in parameters like underlying assets and dates.

How does market making actually work on Vega?

After users enter in the necessary parameters for their desired financial product and market on Vega, the market then enters a review process by participants on Vega’s network. Market makers must also submit a financial bond to the Vega network to ensure that the market maker complies with Vega’s processes. Vega uses a proof-of-stake (PoS) protocol to vote on markets––essentially, the weight of any given participant’s vote is proportional to their stake, or the value of assets, in the network. Once a market passes the review period, Vega automatically launches it.

As the market evolves, market makers must continuously provide book order volume that’s proportional to their market making commitment. They are also responsible for providing and maintaining liquidity in the market. In exchange, they receive a portion of the trading frees from when any trader decides to take the price of a financial product. Trading fees are dynamically calculated by Vega to ensure that market makers are supporting the markets with the greatest need. The dynamic updating of various parameters can be highly computational, which is why a platform like Vega is so critical; it provides near-real-time updates about the state of any given market, which is super useful for users who face time-complexity challenges when interacting with the layer 0 blockchain or alternatives like Ethereum virtual machine.

How does trading work on Vega?

Vega uses the same genius of its decentralized protocols to create a fair, efficient trading environment. Users can place orders for any of the markets listed on Vega’s protocol; once they’ve been placed, the network uses a consensus protocol to rank them in terms of time priority. The protocol then deterministically executes the trade on all nodes of the network to ensure that the same matching, risk management, and settlement occurs for all orders and participants in the protocol; in this regard, Vega’s tech is particularly robust, with complete entire matching engine, risk engine, collateral engine, settlement engine, and governance engine. The entire network is thoroughly architected to provide the highest degrees of automation and create truly fair and decentralized markets. When price takers issue a trade, they also pay the trading fees which then go back to participants in the network like node operators, price makers, and the market makers that provide liquidity for the protocol.

Vega’s also working to increase the modalities of trading it supports, including requests for quote, auctions, limit order books, good-til-time, and more.

Vega also has various APIs that users can plug into to automate trading with their own infrastructure and interfaces; it will also have a dapp that provides a UI to help users visualize positions and various financial products for which they can take trades.

An early stage prototype of Vega’s trading UI.

Final Thoughts

Vega provides a robust and customizable decentralized protocol for creating financial derivatives on the blockchain and trading them. Though relatively early in development, Vega’s market making and automatic trading capabilities hold great promise for decentralized finance; it gives users the necessary power to create their own markets and define their own parameters, while providing enough second-layer scaffolding to simplify the DeFi experience and automate as much as possible. This extends far beyond simply blockchain and cryptocurrency, but serves as a decentralized model for how financial products can be equitably and efficiently created and traded online.

Ultimately, Vega represents a major step forward in the sphere of decentralized finance; high degrees of control over financial products and derivatives greatly diversify the applications of technologies like blockchain and consensus in the financial sector. 


DIGESTS

Order Disapproving a Proposed Rule Change Relating to the Listing and Trading of Shares of the Bitwise Bitcoin ETF Trust Under NYSE Arca Rule 8.201-E

Although the Commission is disapproving this proposed rule change, the Commission emphasizes that its disapproval does not rest on an evaluation of whether bitcoin,10 or blockchain technology more generally, has utility or value as an innovation or an investment.


NEWS

Multi-Collateral Dai system to launch on Nov. 18

Multi-Collateral Dai (MCD) is ready to launch on Nov. 18, according to Rune Christensen, CEO of the Maker Foundation.

SEC Halts Alleged $1.7 Billion Unregistered Digital Token Offering

The Securities and Exchange Commission today announced that it has filed an emergency action and obtained temporary restraining order against two offshore entities conducting an alleged unregistered, ongoing digital token offering in the U.S. and overseas that has raised more than $1.7 billion of investor funds.


IN THE TWEETS


REGULATIONS

SEC Orders Blockchain Company to Pay $24 Million Penalty for Unregistered ICO

The Securities and Exchange Commission today announced settled charges against blockchain technology company Block.one for conducting an unregistered initial coin offering of digital tokens (ICO) that raised the equivalent of several billion dollars over approximately one year. 

Leaders of CFTC, FinCEN, and SEC Issue Joint Statement on Activities Involving Digital Assets

The leaders of the U.S. Commodity Futures Trading Commission today issued the following joint statement to remind persons engaged in activities involving digital assets of their anti-money laundering and countering the financing of terrorism (AML/CFT)obligations under the Bank Secrecy Act.

Facebook-led Libra Association secures 21 signatures at inaugural charter meeting

Twenty-one organizations have formally joined Libra after Monday's Association meeting. The commitments follow a string of significant departures, as Visa, PayPal, MasterCard, Stripe, eBay and Booking departed from the Facebook-led stablecoin project.


NEW PRODUCTS AND HOT DEALS

Ripple, Coinbase invest in crypto exchange Bitso to help it expand beyond Mexico

Mexican crypto exchange Bitso has raised funds from Ripple, Coinbase, Pantera Capital and others 


MEET WITH ME

Tokyo, October 15-17

San Francisco, Pantera Blockchain Summit, October 21-22

San Francisco, SF Blockchain Week 2019, October 28 - November 1

Singapore, Singapore Fintech Festival, November 11-13

Kuala Lumpur, November 14

Bangkok, November 15

Los Angeles, November 25-29


ADDITIONAL INFO

Hi, I’m Paul Veradittakit, a Partner at Pantera Capital, one of the oldest and largest institutional investors focused on investing in 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 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 InstaDApp?

VeradiVerdict - Issue #55

Pantera just led a seed investment into InstaDApp and below you can find out more about the project:

  • One of the drawbacks of decentralized finance (DeFi) is that a variety of financial actions like lending and trading are distributed among various different products (i.e. Compound, MakerDAO, etc.). It’s hard to keep tabs on what assets in each of these platforms are doing, and even harder to move them between platforms to optimize returns.

  • InstaDApp presents an easy-to-understand front-end portal with an underlying smart wallet layer that visualizes a user’s position across a variety of DeFi platforms. It also leverages smart contracts to translate simple user actions (like moving an asset from one platform to another) to the necessary computational steps necessary to execute those actions.

  • InstaDApp is also entirely non-custodial, which means the decentralization of products and user ownership of assets is still preserved; the only difference is that the experience of asset management is significantly easier. 

  • InstaDApp currently integrates with Compound, MakerDAO, and Uniswap and has $35 million locked into their platform, making them the 3rd largest DeFi platform globally. This is a 9-fold increase in asset value from this past July, indicating that InstaDApp is a promising product for bringing more people into the DeFi space.

The Inherent Complexity of Decentralization

DeFi (decentralized finance) is one of the fastest growing verticals in technology today; new developments in blockchain architectures, consensus protocols, and economic paradigms have created a variety of products for lending, borrowing, swapping, and trading cryptocurrency assets.

Yet, one of the inherent problems about decentralized finance is that it’s decentralized; with more control being given directly to users, DeFi products tend to be fairly separated from one another. There’s no one central agency that provides a user with all of the tools it needs to successfully manage their assets. One might access two products for lending, another for borrowing, and so on––to optimize factors like interest rates and maximize returns.

Navigating these platforms and their interactions is a particularly difficult problem, one that might inhibit more individuals from joining the DeFi space. 

So, what’s the fix?

Meet InstaDApp. InstaDApp is a user interface that allows individuals to track their blockchain assets distributed over a breadth of products and move them around based on financial paradigms and real-time market data.

InstaDApp natively integrates with a variety of decentralized finance protocols to allow users to visualize the position of their assets at any time in a comprehensible dashboard and make informed decisions about where to move their assets. 

The product makes it infinitely easier for users to move assets and set up financial paradigms to maximize returns. It’s essentially a front-end for the collective decentralized financial ecosystem, significantly reducing the barrier to entry for users, particularly non-technical ones.

How does it all work?

InstaDApp links their product to user’s holdings in various DeFi platforms and constantly pulls data to display on its dashboards. Prior to InstaDApp, users would have to manually keep tabs on each individual platform to identify optimal interest rates, collateral, etc. InstaDApp summarizes all this information in one-view, drastically reducing the effort necessary to manage one’s assets well.

More importantly, when users identified a more optimal asset management position, users would previously need to execute a series of complex transactions to move their assets around; they would have to work with each platform individually to complete these steps, making asset movement an incredibly complicated and frustrating problem. InstaDApp leverages the power of smart contracts to translate simple instructions from a user on where to move their assets into the series of complicated steps necessary to actual move them; it then executes those steps, making the experience of managing assets significantly easier for users. They take no fees for any of these executions; the user only needs to supply the funds to pay the gas price for moving assets.

InstaDApp is also completely non-custodial and stores all transactions and assets in a Contract Wallet that’s entirely governed by smart contracts. All data is publicly available, and InstaDApp hold none of the users assets, preserving the security benefits of decentralization but also adding in the convenience of a centralized asset management platform.

What platforms does InstaDApp currently work with?

Right now, InstaDApp allows users to interface with Compound (an algorithmic lending tool), MakerDAO (collateralized loans), and UniSwap (a liquidity reserve). One of its biggest use cases today is its bridge between MakerDAO and Compound which allows users to easily view the advantages of either protocol and make informed, easily-executable decisions on where to move their funds.

How much traction has it gotten so far?

An incredible amount. In July, they had roughly $4 million in assets locked into their platform from users; today, that number is $35 million in assets. Most of that is ETH. This makes them the 3rd largest DeFi platform in the world, only after MakerDAO and Compound (which they integrate with).

Their 9-fold increase in value after a very short period of time is highly promising, indicating high interest in a front-end product like this and also growing general interest in the DeFi ecosystem.

InstaDApp’s Growth Since Launch [Source: DeFi Pulse]

Final Thoughts

Ultimately, InstaDApp significantly simplifies the experience of asset management in the decentralized finance world. It preserves the benefits of decentralization by operating as non-custodial and leveraging smart contracts to ensure that users always have 100% control and ownership of their assets. However, it greatly improves convenience for users by providing them with a single product that can help visualize their assets’ positions and easily move their assets around to optimize returns and maximize profits.

InstaDApp’s convenience add is critical in advancing the stage of decentralized finance. Though decentralization is valuable, it inherently has some friction with onboarding new users because there is no central entity through which a user can control all of their positions and assets. InstaDApp makes it much easier for new users to engage with the decentralized space, creating a promising future for the product, but also the ecosystem of DeFi itself.


DIGESTS

VPN⁰: A Privacy-Preserving Distributed Virtual Private Network

This research presents VPN⁰, the first distributed virtual private network offering a privacy preserving traffic authorization and validation mechanism.


NEWS

Major Department Store Chain in Venezuela Adds First Bitcoin ATM

Prompted by a flailing economy and plunging fiat currency, Venezuela is one of the world’s largest markets for bitcoin adoption. According to data from LocalBitcoins, Venezuelans have purchased over $250 million worth of BTC in 2019 to date.  

Announcing $2.4 Million Seed Round

InstaDApp is a DeFi portal that aggregates the major protocols using a smart wallet layer and bridge contracts, making it easy for users to make the best decisions about assets and execute previously complex transactions seamlessly.


IN THE TWEETS


REGULATIONS

SEC reaches settlement with the firm behind Sia Network

The firm has reached a settlement with the SEC regarding the sales of two financial products it offered in 2014 and 2015.

Bitfinex, Tether Subject to Trillion Dollar Class Action Lawsuit

A group of individuals is lobbing a $1.4 trillion class action lawsuit against the company behind Bitfinex and Tether, the latest in the company’s looming legal battles.


NEW PRODUCTS AND HOT DEALS

Pantera Leads $5 Million Round for Decentralized Derivatives Market

A protocol built to put financial middlemen out of business has secured a $5 million seed round led by Pantera Capital.

Ethereum scaling network SKALE raises $17.1M in new funding to speed up its mainnet launch

Ethereum scaling network SKALE has raised over $17 million in new funding.


MEET WITH ME

Osaka, Devcon 5, October 8-11

Tokyo, October 15-17

San Francisco, Pantera Blockchain Summit, October 21-22

San Francisco, SF Blockchain Week 2019, October 28 - November 1

Singapore, Singapore Fintech Festival, November 11-13

Bangkok, November 14-15

Los Angeles, November 25-29


ADDITIONAL INFO

Hi, I’m Paul Veradittakit, a Partner at Pantera Capital, one of the oldest and largest institutional investors focused on investing in 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 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 at DevCon & Bakkt Launch

VeradiVerdict - Issue #54

DEVCON 5

Pantera will be participating in the largest gathering of Ethereum developers, enthusiasts, and supporters at the annual developer conference in Osaka, Japan. A large part of the investment team will be around, and we are co-hosting an event with some of our portfolio companies with support from the Yahoo Japan and their lovely office space.

Come by to hang out with us or reach out to meet up!

Click here to register for the event before it sells out


BAKKT LAUNCH

Summary

  • Bakkt (operated by Intercontinental Exchange) launched a Bitcoin futures platform last week that is physically settled in cryptocurrency. ICE plans to leverage their successful history to bring confidence to Bakkt’s platform and increase institutional interest in Bitcoin and cryptocurrency futures investing.

  • Bakkt received regulatory approval to physically settle their cryptocurrency futures, making them the first physically settled futures platform in the US.

  • The launch has received good early traction in its past week, with its first trade at $9875 and a volume of 165 over the past seven days. Early traction is a key sign in the ongoing success of the platform and rising demand for physically settled Bitcoin futures.

Bitcoin Futures with Bakkt

Bakkt is a digital assets platform founded by the Intercontinental Exchange (ICE), one of the largest financial exchange companies in the United States. Last week, Bakkt launched their futures platform, a product that allows institutional investors to trade physically settled Bitcoin futures with a significant degree of confidence.

Futures contracts are either physically settled or cash settled. Cash-settled cryptocurrency futures are settled in cash, as the name would suggest, and have been around for a while through the CME Group. Recently, however, there’s been huge demand for cryptocurrency futures that are physically settled in cryptocurrency tokens. Eris X and Ledger X both recently received approval from the CFTC to offer physically settled Bitcoin futures but have not yet launched their platforms. Bakkt offers the first cash-settled Bitcoin futures platform in the United States. Their futures are either monthly-settled or daily-settled.

One key element of Bakkt’s new platform is its organizational structure under ICE; ICE’s history and institutional ties bring a great deal of trust to Bakkt’s platform, which has contributed to its growing traction in just the first week. 

Traction

Bakkt’s platform launched on September 23 with a trade at a price point of $9875 for 1 BTC. In the past week, the platform has seen a volume of 165 trades with prices following the drop in the price of BTC. Multiple institutional investors, from hedge funds to family offices, have announced their intentions to trade larger volumes on the platform as it matures. On-boarding onto any institutional-grade platform is always a process.

Bakkt’s early traction dually signals (1) its success as a physically settled Bitcoin futures platform and (2) an opportunity for higher institutional interest in Bitcoin as a legitimate asset. Though a seemingly niche market, futures are part of the bread and butter of the financial industry; launching Bitcoin futures is an important symbolic step in bringing traditional financial concepts to the sphere of cryptocurrency and bringing it into the mainstream as a tool for wealth management and everyday use. Below is the first week of Bitcoin monthly futures trades on Bakkt.

Regulation

Cryptocurrency and futures are primarily regulated by the Commodity Futures Trading Commission (CFTC); cryptocurrencies like Bitcoin are still recognized as commodities by the US Government, and thus are subject to the futures regulations imposed by the CFTC.

Bakkt received approval from the CFTC to trade futures in June of this past year, which was critical to allowing them to launch their platform. They also set up a trust company to execute custody in August, which is based in and regulated by the NY State Department of Financial Services. Bakkt has also received approval from Bitlicense for their futures platform.

Final Thoughts

Bakkt’s launch and traction thus far signals its own success as a viable futures-trading platform and growing institutional interest in cryptocurrency as a legitimate asset. Regulation and products are catching up to the demand of investors, both cryptocurrency enthusiasts and those from traditional financial backgrounds. Ultimately, Bakkt is the next step for a futures and broader financial ecosystem for cryptocurrency.


DIGESTS

Aggregators

In December 2017, MakerDAO launched Dai, a crypto-collateralized stablecoin built atop the Ethereum network. 

Understanding Ethereum Gas, Blocks and the Fee Market

Gas is one of the most fundamental concepts on Ethereum but it also seems to be one of the most misunderstood. 


IN THE TWEETS

Katherine Wu@katherineykwu
Update to the
Block.one $24 million settlement with the SEC: I compiled both the SEC settlement order AND the settlement letter that their lawyer sent to the SEC. And annotated it. Trust me, you're going to want to read this. Dissecting the Block.one Settlement with the SEC — Katherine WuBlock.one (of EOS) did a $4 billion ICO in 2017. Today, they settled with the SEC. Here’s an annotated guide to understanding it all.katherinewu.me

NEWS

LedgerX CEO writes an expletive-laced blog post on diversity

Paul Chou, CEO of bitcoin derivatives exchange and clearinghouse LedgerX, penned an expletive-clad blog post to address sensitive issues relating to women in the workplace.

Meet SoundCloud rival Audius, free & anti-takedowns

Today Audius launches its music streaming and free hosting service backed by DJs like deadmau5 and Zed’s Dead, plus $5.5 million in A-list venture capital.


REGULATIONS

SEC Orders Blockchain Company to Pay $24 Million Penalty for Unregistered ICO

The Securities and Exchange Commission today announced settled charges against blockchain technology company Block.

Harbor’s Regulatory Wait Ends as FINRA Awards Broker-Dealer License

Harbor Square Investments, a subsidiary of tokenized securities platform Harbor, has received a broker-dealer license from the Financial Industry Regulatory Authority (FINRA), company executives told CoinDesk on Friday.


NEW PRODUCTS AND HOT DEALS

Token Tech firm Securitize Raises $14 Million from Santander, MUFG

Regulated token issuance technology provider Securitize has raised $14 million from investors including the investment arms of major financial companies.

Honeyminer Acquired by Blockchain Firm Core Scientific

Today, Stax Digital–creator of popular cryptocurrency mining product Honeyminer–announced its acquisition by Core Scientific, an AI and blockchain firm. Through the deal, Core Scientific is bringing in Stax Digital’s key assets including Honeyminer’s entire staff and intellectual property.


MEET WITH ME

Osaka, Devcon 5, October 8-11

Tokyo, October 15-17

San Francisco, Pantera Blockchain Summit, October 21-22

San Francisco, SF Blockchain Week 2019, October 28 - November 1

Singapore, Singapore Fintech Festival, November 11-13

Los Angeles, November 25-29


ADDITIONAL INFO

Hi, I’m Paul Veradittakit, a Partner at Pantera Capital, one of the oldest and largest institutional investors focused on investing in 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 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!

Insights From China

VeradiVerdict - Issue #53

Last week, I was able to speak at the Global Blockchain Summit during Shanghai Blockchain Week, my first trip to Asia this year.

Each time I travel to a new geography, I’m looking to meet potential investors for our funds, learn from co-investors, meet potential investment opportunities, and connect with strategic companies for the benefit of Pantera and our portfolio companies. That’s the playbook and here is what I learned this time around:

  • Investment into funds - Chinese individual investors really prefer strong relationships, trust, and liquidity. So far, quantitative crypto hedge funds and funds that buy tokens on the secondary markets have been targeted. I believe that institutional money into the space isn’t there yet but when it does happen, investment into funds that invest into equity will start.

  • Co-investors - At one point during the 2017 boom, there were likely 400 “funds” in Asia investing into the space. Now we’re down to like 15-20 funds. Investors are seeing an opportunity to just buy undervalued tokens off the secondary market or incubate projects really early. What they aren’t doing as much is investing into illiquid instruments like equity or SAFTs. There are some funds that see infrastructure companies as part of their thesis and want to invest in equity. Those investors are working on raising funds that will invest in equity and targeting investors in the US that might be interested in gaining geographic exposure to blockchain.

  • Startup companies - I saw similar companies around infrastructure emerging in Asia as they have in the US. Spaces such as prime brokerage, wallets, big data, custody, and security. Since China is not a big fan of cryptocurrencies, projects that focus on enterprises have emerged targeting supply chain, energy, and smart cities, getting support from the government. The next phase for those is interoperability with public chains.

  • Strategic companies

    1. The top class of strategic companies would be the exchanges as liquidity in the space goes through Asia and these companies have the largest balance sheet. The exchanges are still focused on listing great projects but have been creating a more structured and detailed process. Therefore projects should start early and be prepared to put in the time. Investments and acquisitions have been a bit more rare for exchanges, as they see it being cheaper to build vs buy. Joint ventures remain a strong possibility if they can see the synergy.

    2. The other class of strategic companies would be those that are helping foreign projects enter the Asian market through help with connecting with exchanges, marketing/community, content, offline events, and influencers. Most folks would just target Tier 1 cities like Beijing, Shanghai, and Hong Kong, but Tier 2 cities and localization of content are also extremely important. Projects like Polkadot (which Pantera is one of its largest seed investors) and Algorand have spent much time building up education/awareness.


DIGESTS

Ethereum Miner Test — Results

This past month we ran a test on the Ethereum mainnet, working with large mining pools like SparkPoolBTC.comF2Pool and others, including projects and companies working on top of ETH and running their own nodes. This is our first public testing on a mainnet and the results thus far have been extremely positive.

InstaDApp Audit

InstaDApp is an autonomous banking portal that runs on top of emerging blockchain-based financial protocols such as MakerDAO, Uniswap, or Compound. Its mission is to simplify everyday banking needs, such as taking loans, lending money, swapping tokens, and taking leveraged positions.

Staking and DeFi: Can They Coexist?

Part1: Staking Rewards in Proof of Stake are Economically Flawed

Bakkt to the Future :: Pantera Blockchain Letter, September 2019

Bakkt, the highly-anticipated subsidiary of the parent company of the New York Stock Exchange, Intercontinental Exchange (NYSE: ICE), is launching daily physical settle bitcoin futures contracts today.


IN THE TWEETS


NEWS

Tron’s Justin Sun is Giving Away $1.2 Million in Support for Andrew Yang’s UBI Initiative

As part of the UBI initiative to weather the onslaught of automation, Tron’s Justin Sun give $1000 to 100 people every month from next year totaling $1.2 million in one year.

Will the Bakkt Launch Help Bitcoin Go Mainstream?

If the exchange works as planned, it will give institutional investors a secure, well-monitored place to trade Bitcoin, the world’s most widely used cryptocurrency. 

Pantera partner says there’s still room to invest in exchanges across the globe

Paul Verdattakit, a partner at blockchain investment fund Pantera Capital, said there is still reason to invest in exchanges. On last week's episode of The Scoop, Verdattakit explained part of Pantera's strategy is to invest in a variety of geographies.


REGULATIONS

VanEck, SolidX withdraw bitcoin ETF proposal

VanEck and SolidX have withdrawn their bitcoin Exchange-Traded Fund (ETF) proposal, according to a September 17 filing to the Securities and Exchange Commission (SEC). This news comes weeks after reports that VanEck and SolidX have begun to offer the sale of privately placed securities to “qualified institutional buyers.”

Kik Messaging App to Shut Down Following SEC Lawsuit Against ICO

Following reports its crypto-focused subsidiary Kin had laid off 70 employees, Kik Interactive CEO Ted Livingston announced Monday that Kik will also be shutting down its core messaging services.


NEW PRODUCTS AND HOT DEALS

Binance makes its first investment in China in crypto media startup Mars Finance

The world’s largest cryptocurrency exchange Binance has made its first investment in China, in crypto media startup Mars Finance.

Wells Fargo to Pilot Dollar-Linked Stablecoin for Internal Settlement

U.S.-based financial giant Wells Fargo is developing a U.S. dollar-linked stable coin that will run on the firm’s first blockchain platform.

Fidelity Investments and Morgan Creek back $3.5 Million Funding Round for Elementus

Blockchain analytics firm Elementus has raised funding from several funds, including one linked to Fidelity Investments and Morgan Creek Digital.

Facebook acquires chatbot maker for Calibra wallet

Facebook has acquired Servicefriend, a startup developing chatbots for messaging apps, according to a TechCrunch report.


MEET WITH ME

Montreal, September 27-29

London, September 30

Osaka, Devcon 5, October 8-11

Tokyo, October 15-17

San Francisco, Pantera Blockchain Summit, October 21-22


ADDITIONAL INFO

Hi, I’m Paul Veradittakit, a Partner at Pantera Capital, one of the oldest and largest institutional investors focused on investing in 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 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!

Meet RAY (Robo for Yield)

VeradiVerdict - Issue #52

TL;DR:

  • Decentralized finance, or DeFi, is basically traditional finance hosted on a decentralized blockchain; assets take the form of cryptocurrency. DeFi has become incredibly popular in recent years as another vehicle for trading and investing.

  • Staked just announced RAY, or Robo-Advisor for Yield. It’s a smart contract that automatically allocates a Staked user’s ETH, DAI, or USDC assets as collateral for three different lending markets (Compound, dYdX, and Fulcrum) optimally.

  • Prior to RAY, investors would have to constantly monitor the market manually, which is highly unlikely––meaning most investors just hold onto their cryptocurrency without profiting much. RAY finds the most profitable allocation strategy using smart contracts and helps investors maximize their returns.

  • When users deposit into RAY, they receive a non-fungible token (NFT) for the assets they invest. RAY then invests Staked’s collective pool of that asset in the optimal way to maximize returns; when a user wants to redeem their assets, they can exchange the NFT for the assets they invested, plus their fraction of the returns.

  • Users don’t have to pay additional for the RAY service; Staked profits by taking a share of the returns that RAY makes. Users only have to cover the gas for the investing.

  • Ultimately, RAY represents a major step forward in maturing the DeFi ecosystem and presents a very promising tool to help maximize investors’ returns on crypto lending.

What’s all this hype about DeFi, and what is it anyways?

DeFi stands for decentralized finance––essentially, everything you can think of in the traditional financial sphere but hosted on a decentralized blockchain. DeFi broadly covers when individuals invest in, trade, and hold cryptocurrency assets to make a profit or maintain value.

In recent years, DeFi has become increasingly popular as cryptocurrency and blockchain technologies become notably more mainstream; not everyone sees it as a replacement for the current system, but a good share at least see DeFi as a vehicle to make a profit, since you can trade and invest cryptocurrencies like any other financial asset. Thus currently, the biggest use case for DeFi is investing.

Cool. So basically, you can trade cryptocurrencies and make a profit, just like conventional financial assets?

Exactly! There’s a huge market for individuals who use DeFi as an infrastructure for trading and arbitrage. Admittedly, the landscape for this isn’t as mature as traditional financial assets like stocks, ETFs, bonds, etc. but there’s a lot of customer- and company-interest in this space so naturally, it’ll evolve soon.

So what’s the next big thing for DeFi investing and trading?

Staked is an institutional investing platform that allows investors to stake (essentially, use their own assets to fuel to activities of the blockchain) and lend their crypto assets to maximize their returns. It’s received a lot of attention among the DeFi community for being one of the premier platforms of its kind.

Staked just announced a new tool called the Robo-Advisor for Yield, or RAY. In a traditional financial sense, robo-advisors are what the name would suggest; automatic, software agents that help advise investments to maximize desired outcomes. RAY is just that, but specifically for yield-generating opportunities presented by DeFi.

How does it work?

When an investor puts funds into Staked, they might put any given number of units of a single cryptocurrency into a specific lending market. A lending market in this case is a DeFi app – like Compound or dYdX. Before RAY, the investor could leave their assets in that market and hold onto it without paying much attention; this might be a relatively stable and low-effort way to manage crypto but doesn’t necessarily optimize for the most profitable outcomes.

RAY runs a network of smart contracts that are constantly polling various markets to see where assets might produce the most return. So, if the investor puts $10,000 of ETH into a specific market, but later a different market might provide a higher return, RAY uses smart contracts to identify that discrepancy and move the assets to the most profitable place. Ultimately, a user can just dump their assets into Staked and trust that RAY will provide them with at least non-negative returns. It’s low management and has pretty good payoffs.

Currently, RAY supports lending for ETH, DAI, and USDC through the DeFi platforms Compound, dYdX, and Fulcrum. In the future, they hope to support staking, arbitrage, market-making, DAI savings, and anything else the DeFi ecosystem can come up with.

Awesome! But how does it really, really work?

From the user’s side, it’s not too complicated. Essentially, a user gets a non-fungible token (NFT) whenever they make an investment on Staked; the NFT allows the user to redeem their assets and any returns that RAY was able to make with it. The NFT token Staked uses is a standard ERC-721. The token allows RAY to be non-custodial in the way that it manages the user’s assets; it ensures that the assets can only be transferred back to the wallet from which they originated.

From Staked’s side, they have their own pool of assets, comprised of what investors put in and a bit of their own, which RAY algorithmically allocates in the most profitable way. Right now, that algorithm is essentially seeking out the highest return rates and moving assets; as RAY matures and more people start using the platform, this algorithm will likely mature as well and hopefully generate even higher returns. When users redeem their token, they essentially redeem the quantity of Staked’s assets that they invested plus their fractional share of the returns. The token itself doesn’t touch RAY, but rather serves just as a point of exchange between Staked’s larger asset pool and the amount that a specific user invests.

This technology is all open-source and is heavily based on smart contracts that are monitoring the different markets every 30 minutes and making decisions based on pricing metrics and various baselines. These smart contracts are openly available on Ethereum for anyone that wants to take a look, or maybe even play with them. It’s also all been reviewed for security and stability by several external auditors, meaning that RAY theoretically has a good, stable start, technically speaking.

What does it cost the investor?

Investors must pay for gas to help mobilize all of these transactions. But RAY itself doesn’t necessarily cost the investor anything; Staked makes profit by taking 20% share of the alpha (essentially, added return) generated by RAY. It’s a win-win situation.

Final Thoughts

The hype around DeFi is growing day-by-day, and cryptocurrency is becoming more and more popular as a vehicle for investing and trading. It’s time that tools for managing crypto assets caught up with the traditional financial sector.

RAY is an important step forward in creating tools to help investors optimize returns on crypto. By algorithmically allocating assets across different lending markets, RAY both provides higher returns to investors, but also increases the viability of crypto lending as a highly profitable modem of investing. It represents the start of an ecosystem where investors can track and use real-time market data to make informed and optimized decisions about their crypto assets.


DIGESTS

LivePeer:A 10-MINUTE PRIMER

How Blockchain Will Fix Internet Communications

With 70% of data being created by individuals and 80% of data managed by companies, the frustration over how our data is managed is becoming untenable.


IN THE TWEETS


NEWS

Staked Automates the Best DeFi Returns With Launch of Robo Advisor

Investors in decentralized finance (DeFi) have a new way to generate the best possible returns.

Exclusive: From CryptoKitties To Cardi B: Warner Music Joins $11 Million Investment In Ethereum Replacement

Now that Warner Music Group has mastered streaming, generating $2 billion in revenue from the technology, the music giant behind Cardi B, Ed Sheeran and Bruno Mars have set its sights on blockchain, joining an $11.2 million investment in Dapper Labs, best known for making the viral blockchain game, CryptoKitties.


REGULATIONS

Facebook’s David Marcus Responds to Critics Over Libra ‘Threat’

The head of Facebook’s Calibra – the entity created by Facebook to provide financial services including a digital wallet for the planned Libra cryptocurrency – has spoken out in response to claims from authorities that the project poses a threat to nations’ “monetary sovereignty.”

OKEX Korea Drops 5 Privacy Cryptocurrencies Citing FATF Rules

Regulatory pressure on cryptocurrency exchanges to stop providing users with access to so-called privacy coins is growing.


NEW PRODUCTS AND HOT DEALS

Sparkswap Desktop Lets Users Deposit Bitcoin Directly Into Their Lightning Wallets

Lightning service provider Sparkswap now features a desktop application with a first-of-its-kind killer feature: USD-to-bitcoin purchases that deposit sats directly into a user’s Lightning wallet.

You Can Now Buy Lightning-Powered Bitcoin With a Credit Card

Payments startup Breez has unveiled a new feature allowing lightning-based bitcoin purchases directly from its mobile app.


MEET WITH ME

Montreal, September 27-29

London, September 30

Osaka, Devcon 5, October 8-11

Tokyo, October 15-17


ADDITIONAL INFO

Hi, I’m Paul Veradittakit, a Partner at Pantera Capital, one of the oldest and largest institutional investors focused on investing in 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 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!

Loading more posts…