Weekly Insights #18

NOTEWORTHY NEWS

Binance Achieves $446M in Profits in 2018 Despite Bear Market — Feb 6, The Block Crypto

Binance CEO Changpeng ‘CZ’ Zhao expected the exchange’s net profit to be between $500 million and $1 billion in 2018, but based on the latest calculations, the firm was a bit shy of hitting the low end of CZ’s prediction, bringing in a total of $446 million. In total, Binance has brought in approximately $655 million in the six quarters of its short existence.

Report: Gold-Backed Cryptocurrency Launched by Iranian Banks — Feb 5, Coindesk

A gold-backed cryptocurrency has reportedly been launched in Iran. The token is called PayMon and was launched by four Iranian banks in partnership with Kuknos Company, a blockchain startup. The most likely aim is bypassing the economic sanctions enacted by US president Trump. In July 2018, it was reported that Iran is seeking a way to tokenize its national currency, the rial.

OUR OPINION: The state-issued digital currency is inevitable, as the majority of central banks are researching a way to remove the M0 monetary base (cash) from circulation. State-issued digital currency is one of the options, but it can be implemented in different ways, use different mechanisms, and be pegged to other fiat currencies or free float. It can use a general public blockchain, e.g. Ethereum, or it can be issued and operated on a private blockchain, e.g. J.P. Morgan’s Quorum. Furthermore, the digital asset can be a tokenized fiat currency or be backed by assets such as gold, silver, or bitcoin.

Sound money is money for which the issuance rate is well-known and predictable. History tells us that currency is either backed by precious metals or is completely based on trust (fiat); the government can always increase the supply, either by diluting its metal reserves (as in WWI) or simply by printing new notes (quantitative easing) and consistently keeping interest rates low (fractional reserve banking). Neither are true forms of sound money, as the issuer is still a centralized entity and gold-backing means nothing when a financing demand arises. It is certain that the current form of cash represents the only means of privacy in a fiat system and will most likely be gone if government-issued digital cash starts circulating.

Vitalik Says High-TPS Projects Are Centralized Trash — Feb 7, EMW

During the Blockchain Connect Conference in San Francisco, Vitalik Buterin, creator of Ethereum, expressed his negative opinion of projects claiming high transaction throughput. The only reason these projects can achieve this is their high level of centralization.

OUR OPINION: We couldn’t agree more. The whole point of the crypto space is to create decentralized networks for information and value exchange. Projects hiding behind Delegated Proof-of-Stake run a complete network on 21 or 27 nodes. In the case of NEO, the situation is even worse, as nobody can become a block producer without the consent of the Onchain company, and if just a few nodes stop operating simultaneously, the whole blockchain will stop processing blocks. They pretend to offer decentralized networks and camouflage the facts by talking about high transaction throughput.

DIGITAL ASSETS ON THE MOVE

Litecoin is Surging. Here’s Why

Litecoin has seen increased market attention lately. The most important reason is that Charlie Lee, the creator of Litecoin, has expressed his intention to advance privacy features and fungibility for Litecoin via a soft fork. The latest idea is to implement MimbleWimble (MW); the Litecoin Foundation has announced a cooperation with Beam, a company backing implementation of MW. The current idea is an on-chain conversion of normal LTC into an MW variant of LTC and vice versa. Given the early stage of crypto networks, privacy is currently the most important feature that cryptocurrencies must provide, and this is a step in the right direction.

The Litecoin block reward is nearing the halving date when the reward will be split from the current 25 coins to 12.5. While the price of anything is a function of supply and demand, we believe that issuance rate is one of the most important price factors in Bitcoin-based blockchains, as it halves the constant supply provided by miners. The halving is expected to occur on Aug 8, 2019.

Litecoin also has a new logo. It might sound funny, but anything that provides additional attention and marketing for specific crypto has a positive effect. There are many projects in the crypto space, and with the rate of new information coming every day, the probability of someone reading about specific crypto is thus directly related to the amount of “buzz,” whether significant or simple rebranding and a new logo. The Litecoin community was very excited about the logo rebranding on social channels.

THE WEEK AHEAD

Binance Chain and DEX Soon Launching on Testnet

Binance is moving its Binance Coin (BNB) token off of Ethereum as it prepares to launch its own decentralized exchange. Built on Binance Chain, Binance DEX’s testnet is set to launch “in the next week or two” according to Binance CEO Changpeng ‘CZ’ Zhao. BNB, which was issued during the company’s $15 million ICO in 2017, will be migrated from an ERC20 token and act as native gas for Binance Chain.

The main advantage of using Binance Chain will have compared to keeping the token on the Ethereum blockchain is higher transaction throughput. By stripping down Cosmos’ Tendermint protocol, Binance Chain will not be as feature-rich as Ethereum, meaning there will be no smart contract functionality and the network will not be as decentralized due to the fact that there will be just 11 nodes acting as validators. With the smaller number of nodes, CZ explained, the new blockchain will be more like NEO or even Ripple. As for the protocol functionality, Binance’s new native blockchain will utilize Delegated Proof-of-Stake (DPoS) and Byzantine Fault Tolerance (BFT), and the DEX interface will allow projects to issue new tokens on Binance Chain, effectively running an ICO by raising funds in BNB.

Binance will receive a small fee from each trade on their new DEX, with an additional listing fee for projects that launch their token on Binance Chain. The listing fee will be as high as $100,000. CZ has stated that he wants to deliberately set the listing fee high to reduce the number of spam or scam projects.

Though we are not very excited about the launch of Binance Chain due to its high degree of centralization, we expect this development to provide continuous momentum for Binance Coin in the coming weeks. Additionally, there may be the potential to “sell the news” in the days following the testnet launch.

Disclaimer: We have a small position in BNB.

MARKET OVERVIEW & METRICS

Weekly Crypto Stats

• Global network value reached $111.7B, with -1.1% weekly delta.
• Global crypto market turnover was $15.1B, 79% from ATH.
• Bitcoin dominance is 53.3%, with -0.37% weekly delta, and beta of 0.81.
• Ethereum dominance is 9.86% with 0.41% weekly delta, and beta of 1.30.
• Bitcoin hashrate is 50.3B TH/s, with 12.3% weekly delta.
• Ethereum hashrate is 139.4K GH/s, with -4.5% weekly delta.

CHART OF THE WEEK

A comparison of tweets on #ICOs and #STOs since December 2017 shows that while discussion of initial coin offerings has fallen 67% since March 2018, discussion of security token offerings is up 872% since December 2017.