CrossTower Classroom 2021
Our collection of CrossTower Classroom pieces written in 2021, for your enjoyment.
What Are Wrapped Cryptocurrencies?
by Justin Caccappolo | December 20, 2021
Although decentralization is an integral characteristic of the majority of digital assets, certain tokens can lean away from decentralization to further expand the infrastructure of the digital asset industry. Stablecoins, such as Tether (“USDT”) or USD Coin (“USDC”), are centralized tokens that have allowed for users to exchange their crypto holdings for a U.S. dollar pegged token without having to fully exit the crypto markets. These tokens also allow for markets to be quoted against USDT or USDC, which added further liquidity and revamped the crypto markets to break away from trading pairs being solely quoted against Bitcoin. Wrapped assets are another type of digital assets that can be considered centralized and have an infrastructure on the Ethereum blockchain and other layer 1 protocols.
Often regarded in decentralized finance (“DeFi”), wrapped assets have expanded the limits of multiple decentralized applications throughout the Ethereum blockchain. Wrapped assets or tokens are 1:1 pegged representations of other crypto assets often in the form of ERC-20 tokens – therefore usable on the Ethereum blockchain. Some may wonder why you would need to wrap an asset. For example, Ethereum was created before the ERC-20 token standard. Therefore, in order to interact with other ERC-20 tokens or decentralized applications you will need to convert your Ethereum or alternate cryptocurrency to an ERC-20 token. Ethereum is not the only token you can wrap. Other wrapped assets include wrapped BTC, wrapped MATIC, and more. Allowing assets to become wrapped on the Ethereum network improves liquidity and usability as users can deposit and trade BTC on other blockchains and with decentralized applications. This increase in interoperability increases capital efficiency and cross chain flow of assets, which benefits DeFi on Ethereum, Solana, Avalanche, and other layer 1 protocols.
The Function & The Opportunity
In order for wrapped assets to be created, custodians and merchants are required to play individual roles in creating and removing wrapped assets from the market. Instead of relying on a single institution like USDT or USDC, wrapped assets need multiple entities to perform different functions to ensure usability. In summary, wrapped assets are created through custodians minting the wrapped asset on the specific network after being initiated by any merchant. Merchants must provide collateral equal to the minted amount and can only redeem their collateral once they send back the wrapped asset to be burned and removed from the total supply. This interaction is reputable as quarterly audits are conducted by third parties to verify that all wrapped tokens minted have an equal amount of collateral under management by custodians which is transparent on the public blockchain. Additionally, custodians cannot mint wrapped assets without the initiation from a merchant, further securing the total supply of wrapped assets between these two parties. Protocols such as Ren have also developed decentralized alternatives to wrapped assets by locking the original collateral provided by a user in a smart contract vault, sending that user renBTC, and only allowing users to redeem their original collateral once the renBTC has been burned. Overall, wrapped assets provide a method for multiple entities to cooperate and provide solutions to global liquidity, reduced transaction fees, increased fractional ownership, and enhanced smart contract programmability.
The opinions expressed in the CrossTower Classroom are those of the author(s) and not necessarily that of CrossTower. We appreciate diverse perspectives of our employees and we thank them for having a voice.
The Metaverse Is Slowly Coming Together
by Martin Gaspar | December 15, 2021
Web 3.0 Involvement – Big Brands
It’s incredible to see the amount of big brands getting involved in Web 3.0 and the Metaverse. We first saw companies like Visa and Budweiser purchasing NFTs like Crypto Punks this summer. Then, more major brands followed as NFTs continued to prove they are not just a passing fad. Pepsi recently announced their NFT collection, for example. Then, on December 13, Nike announced in a press release that it acquired digital collectibles platform RTFKT.
Digital Sneakers & Virtual Shopping – Nike & Adidas
RTFKT, founded in 2020, may be best known for making NFTs of digital sneakers that can also be redeemed for the physical sneakers, allowing a unique experience for holders of the NFT. Considering this, it’s clear why Nike would be interested in them. Nike’s foray into Web 3 here is notable and it highlights where items, our activities, and interactions are headed. What could digital sneakers be used for? One possibility is as footwear for our Metaverse avatars, allowing us to flex an exclusive sneaker collection in front of our online friends.
I see virtual shopping in the Metaverse as another possibility for NFTs. Nike would be able to showcase its apparel and footwear in the Metaverse, allowing customers to shop from the leisure of their home, and have a more “hands on” approach to items in the Metaverse given that users would be able to interact with the items more directly, leading to a better experience compared to the mostly 2D online shopping we do today.
Meanwhile, according to VentureBeat, Adidas has acquired a plot of land in The Sandbox, a Metaverse in which users can build games and experiences. It plans to launch virtual wearables on The Sandbox as well as other platforms.
Metaverse Adoption To Continue
We are seeing the early innings of adoption in the Metaverse with such major brands and companies becoming involved. NFT enthusiasts will point out we are just at the tip of the iceberg on what NFTs can do. As Web 3.0 technology develops and Metaverse graphics and hardware improves, it will be fascinating to see such firms innovate to bring forth their offerings virtually. In the meantime, we will be watching Nike and Adidas for a glimpse of what a future in the Metaverse can look like.
The opinions expressed in the CrossTower Classroom are those of the author(s) and not necessarily that of CrossTower. We appreciate diverse perspectives of our employees and we thank them for having a voice.
What Is The Fear & Greed Index?
by Katherine Webb | December 13, 2021
What Is An Index?
An index is defined as a method used to track the performance of a group of assets in a standardized manner. A person may typically think about an index as a measure of the performance of a basket of securities or assets intended to replicate a certain sector of the market. An Index can also be used to create other measures from financial and economical data, and can be thought of as a market indicator.1
Traditional Markets Fear & Greed CNN Index
In traditional finance, the Fear and Greed Index was developed by CNN Money in 20122 as a way to measure the primary emotions of investors, which are broken down into fear and greed. It is believed that these emotions influence how much an investor is willing to pay for a certain stock at a certain time. During periods of extreme fear a stock can trade below its intrinsic values, while periods of extreme greed can result in investors paying above the stocks intrinsic values. There are 7 different factors that make up the CNN fear and greed index, these are: stock price momentum, stock price strength, stock price breadth, put and call options, junk bond demand, market volatility and safe-haven demand. Each of the 7 indicator scores are scaled to be a number between 0 and 100, and the index is calculated by taking an equaled-weighted average of each of the indicators. 50 is considered a neutral score, anything higher is considered a signal for greed, and anything below is a signal for fear.3
Crypto Fear & Greed Index
The website alternative.me launched a crypto version of the fear and greed index, as the site believes that the crypto markets can be driven by the same emotional behavior seen in the stock market.4 When the market is going up, investors become very bullish and become greedy with investors experiencing fear of missing out (FOMO). When the market is going downwards investors experience fear in reaction to seeing their investment portfolios decrease in value, and this can lead to them selling their tokens as they fear further market downturn. What is interesting is how an investor can use this indicator. Typically when we see periods of high greed, a correction in the market occurs and when there is extreme fear we tend to see a market rebound, so some investors use this index as a way to determine when to take profits and when to buy.
How Is The Index Calculated?
The crypto fear and greed index is based on 6 sources, some of the sources are the same as the CNN index such as volatility and market momentum, but the crypto index also includes market sentiment in the form of Twitter analysis and Google searches. Each new data point is normalized to the previous days to visualize the meaningful change in the market sentiment. The index is calculated each day at 00.00 UTC time. It is worth noting this index only captures Bitcoin (BTC), as there is a perceived strong, positive correlation between Bitcoin and the crypto market as a whole.
The 6 sources which make up the Bitcoin crypto fear and greed index are:
Their fear and greed index score can be broken down as follows:
Fear And Greed Against BTC Price
We compared the historic fear and greed index against Bitcoin price, starting from February 2018. The times where the fear and greed index was above 80, we classified as extreme fear and are shown as green circles, and below 20, classified as extreme fear, shown as red circles.
Here we can see that during the end of the 2028-2019 bull run, the fear and greed index was showing extreme greed from July 2019 until September 2019, which was followed by the market downturn and a long period of extreme fear from September until December of 2019. We can also see for much of the first half of 2021 we have been in a state of extreme greed, this was then followed by the May 2021 market crash where the index was showing extreme fear, between May and June 2021. The most recent example of extreme fear was on November 9th 2021, and we have been seeing a decline in Bitcoin price since that date.
The Crypto Fear and Greed Index can be a useful tool for checking market sentiment changes. It can be useful when looking at when the market is getting too greedy and use that as a signal to exit long positions, but from the graph above, we can see that it is not able to predict when the market has reached an ultimate top, as we see a four-month period of greed at the beginning of this year. When we look at the % returns on the day following we do find on average a downturn of at least 1% following an “extreme” greed signal. But it does appear to be a useful tool for investors to use when deciding whether to buy an asset over a longer time frame (e.x., using dollar cost averaging into a position).
The opinions expressed in the CrossTower Classroom are those of the author(s) and not necessarily that of CrossTower. We appreciate diverse perspectives of our employees and we thank them for having a voice.
November 2021 Crypto Recap
by Martin Gaspar | December 10, 2021
Growth & Product Launches
One trend we have seen within the crypto space throughout 2021 is growth, and this continued throughout the month of November. Bitcoin’s Taproot upgrade was finally activated in the middle of November and it appears institutional interest continues to increase. Twitter announced that it was launching a dedicated crypto team. Two Sigma, the quantitative hedge fund, announced it was hiring a crypto operations manager and Citigroup appointed a new head of digital assets for institutional clients. Several new products also launched. Three worth highlighting include: 1) Fidelity’s institutional Bitcoin custody service in Canada; 2) Osprey Fund’s NFT-focused investment vehicle; and 3) Switzerland’s Six Digital Exchange launch of a blockchain bond.
Although we saw Bitcoin’s price fall during November, institutions are still coming in to purchase the asset. For example, MicroStrategy bought over $414 million of Bitcoin. El Salvador also bought 100 more Bitcoins, and Morgan Stanley funds increased their exposure in Bitcoin through GBTC. Large capital raises have also continued to occur and ConsenSys closed a $200 million raise at a $3.2 billion evaluation.
Blockchains & DeFi
CME announced this month that it plans to launch micro Ether futures in December. Interest in Solana has also been growing. Grayscale launched a new trust dedicated to Solana, while Bloomberg and Galaxy Digital partnered to create a new index that tracks the price of Solana. Within the DeFi space, $31 million was stolen in a hack from MonoX Finance on Polygon and Ethereum. A DAO named ConstitutionDAO attempted to purchase a copy of the U.S. Constitution in a Sotheby’s auction, but was ultimately outbid by billionaire Ken Griffin.
Live By The Sword
by Chad Steinglass | December 8, 2021
Leverage Is A Blade
We hear it over and over and see the results again and again, but we often quickly forget that leverage is a blade that cuts in both directions. We saw the headlines and read about the fallout of the hedge fund Archegos that blew up this past spring, fully imploding and nearly kneecapping several large banks that they had swaps positions with. In the crypto world we’re all too familiar with bouts of frantic market turmoil when a sharp down move causes cascading liquidations in the futures market. In the past week or so, we got to see it again, this time across a broad array of assets.
Protection And Hedges
After thanksgiving, the one-two punch of fears over the Omicron covid-19 variant, paired with Jerome Powell showing his hawkish side for the first time in years, sparked a massive scramble to de-lever and reach for protection and hedges. As soon as Powell said the words “it’s time to retire the word transitory”, referring to his favorite description of inflation over the past 8 months, the sell orders started rolling in. Rates started rising in anticipation of aggressive Fed tightening, which strengthened the US Dollar and simultaneously sent shivers through markets as investors updated future growth estimates based on tighter monetary policy.
Dangers Of Leverage
Just as risk markets, crypto included, were starting to shake off the initial panic over Omicron, with Bitcoin getting close to reclaiming 60k and Ethereum within spitting distance of 5k, markets turned sharply lower. The rest of the week was another lesson in the dangers of leverage. Equities that had been the favorites of Robinhood traders and Reddit users started plummeting. Growth Technology companies that had been highflyers until the spring and had already had their wings clipped once took another hit. Liquidations started to pour through the market.
December 4th Selloff
Unlike in crypto markets where liquidations tend to be automated and trigger quickly, when a hedge fund gets liquidated their prime broker usually works out of their positions a bit more slowly, exiting over hours or days. Through Friday December 4th, the pattern started to be clear: someone (or someones) was in trouble and getting taken out of their positions. When this happens, sharks can smell blood and the pile-ons can come quickly. In addition to the funds apparently getting liquidated, no short sellers joined the party pushing prices lower still. A favorite of short sellers recently, pretty much any stock in Cathy Wood’s ARK Innovation ETF came under severe pressure, as traders anticipated that redemptions in the ETF would force Wood to sell shares. Wood also holds a sizable amount of GBTC, and as the selloff intensified the GBTC discount to NAV started expanding quickly, and the pressure there added fuel to the selloff in BTC.
The Following Spike Down
Even after the carnage of the stock market on Friday, crypto wasn’t quite done. In the middle of the night, a large seller finally broke the back of crypto markets, causing a 10-20% spike down in minutes across almost all digital assets. This spike down finally accomplished what almost a month of downward trending prices had not: it caused massive liquidations, clearing out a huge amount of leverage in the market. Prices slowly recovered about half of the dip over the next two days, but confidence had been shaken, and many traders who were using leverage – either trading on margin or utilizing futures contracts – had been taken out of their positions and suffered their maximum losses.
Reminder From The Equity Markets
It appeared as though the bears had been victorious. Then on Tuesday the equity markets reminded us again that leverage cuts both ways, and what had been a massive scramble for the exits and bid for puts and the CBOE Volatility Index only days ago cut immediately the other way, with equities turning in a dizzying rally as suddenly the short sellers who had piled in against the growth equity stocks got whiplashed. The selloff turned into a short squeeze and stocks rocketed higher. The stock market managed to make both the levered longs and shorts pay dearly.
So far, we have not seen any signs of the leverage flush out turn towards a short squeeze (or even a supply shock squeeze) in crypto markets. Though there is hope that the resetting of leverage in the market overall could pave the way to a healthier marketplace. And we have all walked away with another important reminder that as much as leverage can help magnify gains, it can magnify losses just as easily.
CrossTower Classroom 201 publications often discuss sophisticated trading techniques and strategies that may not be appropriate for all cryptocurrency customers. If you’re not sure whether a particular trading strategy is right for you, please consult with an investment professional. The opinions expressed in the CrossTower Classroom are those of the author(s) and not necessarily that of CrossTower. We appreciate diverse perspectives of our employees and we thank them for having a voice.
Rari-Fei Merger Talks Showcase Opportunity And Challenge Of DeFi M&A
by Martin Gaspar | December 6, 2021
DeFi protocols Rari Capital and Fei have been in talks to merge since mid-November 2021. Rari is known for its Fuse offering, which allows users to create their own permissionless money market pools. It has roughly $1.4 billion of total value supplied across Fuse as of writing. Rari has its own governance token, RGT. FEI is a decentralized algorithmic stablecoin that is backed by decentralized assets, largely ETH. It has approximately $1.2 billion of protocol-controlled value that backs the FEI stablecoin. The Fei protocol has a governance token, TRIBE.
The original proposal called for the following:
- $1:$1 conversion of RGT to TRIBE, created from both the existing treasury and newly minted TRIBE
- Fei creating proper contributor incentives as a mechanism to scale Fuse / yield aggregator
- Fully pay back the Rari DAO’s debts from the ETH yield aggregator exploit (to REPT-b holders) in Fei (full compensation in Fei, at Dai price at hack time)
- Keep independent communities (Fei, Rari) building together under a shared Tribe family
Potential merger synergies could include broadening FEI’s use via Rari’s yield aggregator and Fuse offerings. Rari’s pools already accept FEI and TRIBE, so expanding these offerings could make sense. Rari could benefit in that its pools would be bootstrapped with initial liquidity via the FEI stablecoin. Moreover, FEI could generate a more resistant oracle source for Fuse pools on Uni v3 or Balancer v2 through Fei’s partnership for liquidity as a service with Ondo Finance. Furthermore, Rari users impacted by an exploit earlier in 2021 would be made whole from Fei, for a total of approximately $11 million.
The proposals were simply that – it is now up to the Rari and Fei DAOs to draft terms both communities can vote on. Third parties have approached the protocols with potential merger plans. On November 29, 2021, crypto firm GFX Labs, which appears to be independent of the two protocols, released its detailed merger plan, a key component of which is that RGT would be exchanged for TRIBE at a rate of approximately 26.7 TRIBE per RGT, which solicited many responses from TRIBE and RGT holders.
What The Market Implies
As of writing, TRIBE is trading for approximately $1.10. At an exchange rate of 26.7 TRIBE per RGT, each RGT would be valued at approximately $29.37 in the GFX merger proposal (~$360mm valuation). Currently, RGT is trading at $23.60. This implies the market is discounting the possibility of the merger going through as proposed, and could pose an attractive arbitrage opportunity for traders who have conviction the merger will pass.
A Plot Twist
A plot twist came from GFX on December 3, 2021, when it withdrew its proposal, noting “everyone’s strategic visions may not be fully aligned”. It’s now unclear whether the Rari and Fei communities will continue forward with the original GFX proposal, or whether it will be significantly amended as discussions draw on. Regardless, with forum posts on both sides heated about whether the RGT and TRIBE tokens are being properly valued in the merger proposals, an opportunity could persist for event-driven investors.
by Mike Platis & Bergen Sanderford | December 3, 2021
What Is The Nakamoto Coefficient?
As the wave of adoption in decentralized blockchains continues, it is important we pay attention to how decentralized these blockchains are. One metric to gauge the decentralized nature of a blockchain would be the Nakamoto Coefficient. The Nakamoto Coefficient represents the number of validators (nodes) that would have to collude together to successfully slow down or block any respective blockchain from functioning properly. The higher the Nakamoto Coefficient relative to the total number of validators, the lower the risk of collusion disrupting a decentralized blockchain.
Byzantine Fault Tolerance
Think about Bitcoin’s Byzantine Fault Tolerance design, where 51% of the validators would have to be in agreement in order to make changes to the chain. With just about 14,409 nodes in the Bitcoin Network, according to bitnodes.io, it would take a Nakamoto Coefficient of 7,349 validators to slow down the network. For other blockchains, there are different byzantine fault tolerance designs, and usually less validators.
Let’s take a look at the Nakamoto Coefficient for some of the most popular blockchains.
(Author’s Note:while we have provided a chart below, it is important to note that blockchain teams often have dedicated resources to ensure they are one of the top validators of their network. A proportionally higher amount of voting power may come from internal validators present in these systems. This may skew the Nakamoto Coefficient to look like only a few nefarious validators are needed to disrupt the network from functioning properly, but in reality, a much higher amount of validation power would be needed to do so.)
As you can see, many budding blockchains may be susceptible to coordination between only a few validators within their system. This is understandable for their early stages. A blockchain’s growth happens naturally, but a rigorous attention to decentralization should be front and center. Understanding the incentive structure of validators is important too. It will never be economically feasible to buy enough computing power to disrupt the network that you own a massive percentage of.
Why is Ethereum not included in the above chart?
Because of the large network size of Ethereum, the total number of validators is undetermined.
Is the Nakamoto Coefficient the only metric to gauge the decentralized nature of a blockchain?
No, there are other metrics that may help gauge the decentralized nature of a blockchain.
Let’s take into account the analysis of Balaji S. Srinivasan and Leland Lee in Quantifying Decentralization. The Lorenz curve and the Gini coefficient are two tools for measuring the non-uniformity within a population. The Lorenz curve is generally a mathematical function estimated from an incomplete set of observations. From the area under the Lorenz curve is where the Gini coefficient is calculated. The closer the Gini coefficient is to zero, the more uniform the distribution of resources. When the distribution of resources is more skewed to one party, the closer the Gini coefficient is to one.
When G=1, there is one decision maker to capture to compromise the system. When G=0, there are multiple decision makers needed to be captured to compromise the system. This means that a low Gini coefficient equals a high degree of decentralization.
Image for reference:
It is important to note the difference between a decentralized system and a decentralized subsystem. The calculation is dependent on the chosen subsystems. If you were to choose an alternate subsystem, the measure of decentralization would be different. For example, Bitcoin is a decentralized system composed of decentralized subsystems.
While the Gini Coefficient is another metric for measuring the level of blockchain decentralization, the 0-1 scale restricts the data because it is not a direct representation of the number of entities required to compromise a system. That is why the Nakamoto Coefficient is an additional approach to configuration. The Nakamoto coefficient is based on the Lorenz curve, from which the Gini Coefficient is calculated.
The Nakamoto Coefficient is just the beginning of measuring the numerics of decentralization. With little information, we are able to start crediting changes in decentralization to individual deployment of code or network activities. With the limited resources we currently have, we are already able to detect either the need for deployment or for additional client developers in order to improve decentralization of a blockchain. The overall goal is to optimize decentralization, and it is necessary to begin with quantitative metrics such as the Lorenz curve, the Gini coefficient, and the Nakamoto coefficient. It is important not to look at the Nakamoto coefficient as the finish line, but as the start to a great race.
Play To Earn Games
by Katherine Webb | December 1, 2021
What Are Play-To-Earn Games?
Play-to-earn (P2E) gaming is a rapidly growing sector of the crypto market, with a combined market cap accounting for over $40 billion and a 24-hour trading volume of over $10 billion.[i]
These games allow players to earn or collect crypto tokens or NFTs, which can be sold on a marketplace. The mechanics behind each game can vary greatly, and allow gamers to earn regular rewards just by playing the game.
There are 3 main ways for a player to earn rewards:
- Staking: Some games allow players to lock up their NFTs or tokens in smart contracts to generate rewards.
- NFTs: These can be earned or collected by playing the game, or acquired via trading with other players.
- Game Tokens: Tokens can be earned as a reward by completing in-game missions.
A user can sell their NFT or gaming tokens either on the marketplace of the gaming platforms or by using a number of other decentralized and centralized exchanges.
Benefits Of Using Blockchains
Initially, blockchain-based play-to-earn games had their reward distribution method focused on using random distribution models. But the games have evolved and now focus on their own in-game economic business models, which reward players for interacting and playing the game. Blockchain technology allows for the NFT items to benefit from digital scarcity, as each item is uniquely identifiable and stored on the blockchain, meaning that items cannot be duplicated.
The ability to own a digital asset is a new and relatively unfamiliar notion within the gaming industry. Recent advances in gaming have enabled “micro-transactions”, which allow players to pay a fee to obtain in-game items and currencies. Blockchain revolutionizes the ownership and tradability of this content, by allowing gamers to cash out their gaming assets for cryptocurrencies.
Requirements For Playing
The following are typical requirements for participating in play-to-earn gaming:
- Stable internet connection.
- Cryptocurrency wallet to connect to the blockchain.
- Prerequisite purchases, where some games require players to make purchases before playing, such as NFT characters or other in-game items. This is akin to buying a computer game before you start playing, and the in-game purchase upgrades.
- Gas fee token for interacting with the blockchain in order to transfer gaming tokens or NFTs.
Play-to-earn games can be split into 3 main categories[ii]:
This is where a player’s focus is on earning and completing missions to earn different NFTs as rewards. Different items within the game have different levels of scarcity unique to a particular item. When this concept is expanded to the Metaverse, these items may become transferable and usable across multiple games. By issuing these incentive rewards to players, there is a shift in power from the game issuer toward those players skilled within the game, although the developer retains ultimate control.
Token and Transaction-earned Games:
This is a form of NFT gaming that allows players to progress by collecting in-game assets, which can be traded via NFTs. This is different from the NFT-earned games as players can cash out these assets into other cryptocurrencies. Rules for each game can greatly vary, but players can normally earn tokens one of two ways; the first is by levelling up their NFTs until they generate crypto rewards themselves or secondarily via the sale of the NFT items.
Free-to-play NFT games:
This area is especially exciting as it engages players through educational content, via a game-like user interface. There is no upfront cost for playing these types of games, which is one of their key benefits. Some free-to-play NFT games depend on random number-generating machines to generate random events within the games themselves, such as whether a player receives a rare or normal in-game item. Other games feature a pay-to-win mechanism on top of the free-play mode, where the rarest in-game assets are only available to paying customers.
Examples Of Blockchain Play-To-Earn Games
Axie Infinity is a play to earn game, which is monetised via NFTs, which represent uniquely identified characters within the game. The game was initially developed on top of the Ethereum blockchain, but the company recently implemented the Ronin blockchain protocol, a scalability solution, which uses its own sidechain to speed up transactions without gas fees.[iii] The characters are minted as NFTs to authenticate the uniqueness of the digital item, meant to represent an Axie’s genetic signature. Players can sell their NFT characters using an online Ethereum NFT marketplace. The number of daily active users in Axie Infinity has now grown to two million, the players and the company generating more than $2 billion in NFT in transactions.[iv] Axie Infinity recently raised $152 million, giving the company a $3 billion valuation.[v]
A user requires at least 3 Axie to start playing the game, which can cost around $300, based on the recent NFT prices.[vi] Rewards are in the form of “Smooth Love Potions” (or “SLP”) which are given for completing missions when playing in their adventure mode and player-Vs-player (PVP) competition. Both SLP and Axis Infinity Shard (AXS) are ERC-20 tokens. AXS serves as the governance token of the platform and users pay a given amount of AXS tokens to breed a new Axie. Axie inhabits an open-world which is owned and controlled by players. This week, a virtual plot of Genesis land, which is located in the center of the map and capped at only 220 plots, sold for a record breaking 550 ETH ($2.5 million, at that time).[vii]
Gods Unchained is a free-to-play NFT-based card trading game, using ERC-721 tokenized versions of their cards. The game is focused on tactics and skills, with players earning cards by winning PVP matches or purchasing cards from other players. The combination of the players’ ability and the quality of the card decides the winner of a battle. The platform has an on-line marketplace allowing players to exchange tokenized versions of their cards for payment in GODS, the game’s native token, as well as on other open marketplaces. In August of this year the 2nd most valuable card within the game sold for a record 146 ETH, which was worth over $60,000 at that time.[viii]The Sandbox 3D is a voxel (the 3D version of a pixel)[ix] based community-driven game which allows players to customize and monetize an open world physical sandbox. The Sandbox refers to their virtual world as a metaverse, and define it as “a collective and persistent virtual shared space where digital worlds and games will be created collaboratively without central authority.”[x]
The game is a blockchain game similar to the popular game Minecraft. Players can create custom 3D objects which can be sold on the platform’s on-line marketplace, and even create their own 3D games. The platform encourages users to create, publish and monetize their creations using cryptocurrencies. The Sandbox 3D, makes use of the token SAND, an ERC-20 token which is used to facilitate in-game purchases. Users can buy NFT LAND tokens, which represent ownership of virtual parcels of land within the game. These are some of the most valuable assets on the sandbox 3D and allow users to build on the plot of land specific to that token. Sandbox announced that they had received $93 million in investment, with SoftBank leading the funding round as recently as the beginning of September.[xi]
It’s seeming like the beginning of an entirely new gaming revolution with the ever-increasing headline grabbing news about record token sales and the increasing investment into the space and greater attention from players. One of the issues facing game developers is maintaining player interest and interaction with the game. The value associated with both game tokens and NFTs will always be correlated to the popularity and success of the game. However, the trend is clear within the space, and fads will come and go, but major AAA titles are coming to the space such as Illuvium and Star Atlas, this is the future direction of gaming, with many of the top gaming companies looking to start their own blockchain based games. The value of a gaming NFT is very much related to the sentiment attached to that item, so determining their real-world value is difficult. Even with these challenges, the future for this sector looks very bright and exciting, and one to be followed closely.
Blockchain 1.0 <> 2.0 <> 3.0
by Justin Caccappolo | November 26, 2021
After a month of metaverse projects being the main discussion of the technology industry, let’s step back and revisit some concepts around the evolution of blockchain.
Insights for the first development of an electronic cash system started in the 1980s/1990s by a group labeled as “cypherpunks.” Believing that the future of the internet would be monitored and censored, cypherpunks attempted to develop an electronic cash system that would ensure privacy and preserve the open internet from an economic perspective. However, after multiple projects failed to overcome full decentralization and government intervention, these efforts set the groundwork for the launch of Bitcoin and Blockchain 1.0. Blockchain 1.0 technology incorporates nodes, peer to peer decentralization, wallet softwares, and mining rigs to keep the blockchain in function.
Building on top of the concepts of Blockchain 1.0, Blockchain 2.0 is centered around the rise of Ethereum. Integrating smart contracts, Ethereum was built as a medium for other decentralized applications or dApps to be established on. This expanded the playing floor as developers could now deploy smart contracts to the Ethereum blockchain in an open sourced, permissionless method. This led to the creation of decentralized finance (“DeFi”), decentralized autonomous organizations (“DAOs,” initial coin offerings (“ICOs”), and non-fungible tokens (“NFTs”).
A recent development of blockchain technology that is increasing scalability is allowing blockchains to transact with other blockchains. For example, the Cosmos ecosystem has permitted users to build interoperable applications that allow for connection among other chains through the inter-blockchain communication (“IBC”). However, what is in store for the future? Although there are no clear cut definitions of Blockchain 3.0, the main talking points appear to be the creation of solutions for services and industries outside of economics. As technology continues to develop and innovate, the potential for blockchain technology branching into other sectors appears limitless. While the development may be further than we think, blockchain technology can be integrated into supply chains, cybersecurity, voting, healthcare, and more. All of these industries have the potential to benefit from a scalable, centric ledger which would enhance traceability, increase efficiency while reducing disruptions, and improve security and transaction speed.
by Katherine Webb | November 24, 2021
What Is A Smart Contract?
A contract is an agreement between parties which binds them to certain obligations in the future. The term smart refers to an automatic digital contract, which is self-executing if the contract conditions are met and verified. A smart contract can handle transactions ensuring they are secure, accurate, fast, and cost-effective without involving third parties, such as bankers and lawyers. Smart contracts can be used to govern the transfer of digital assets. Moreover, smart contracts can govern traditional financial instruments, property sales, inheritance, marriage and employment contracts and much more.
History Of A Smart Contract
Smart contracts were initially proposed by American computer scientist and cryptographer Nick Szabo in 1994 and again in 1997. Who interestingly also invented the virtual currency Bit Gold in 1998, a full 10 years before Bitcoin! The initial definition of a smart contract was “a computerised transaction protocol that executes the terms of the contract.”[i] In 2013, Vitalik Buterin went on to propose a decentralized blockchain-based smart contract platform called Ethereum.[ii] In 2015, Gavin Wood, Co-Founder of Ethereum added more formalisation to smart contracts and their implementation on Ethereum, and invented the smart contract programming language Solidity.[iii]
Currently the largest smart contract blockchain is Ethereum, but in recent months we are seeing the development of other smart contract blockchains including Solana, Binance Smart Chain (“BSC”) and Avalanche.
How Does A Smart Contract Work?
Smart contracts are self-executing computer codes, which follow very simple programming logic statements, to define an agreement between parties. Smart contracts are stored on a blockchain and are therefore replicated across multiple nodes. Meaning the contracts will benefit from the blockchain’s security, permanence and immutability. This allows a network of nodes to automatically execute the contract when predetermined conditions set within the contract have been both met and verified. If no transaction has been called, then no transaction will take place. Once a contract has been executed and the transaction is processed, a new block is created, meaning that the transaction cannot be cancelled or altered after it has taken place. Smart contracts rely on data from oracles, as well as data associated with any public address or with another smart contract on the blockchain. Smart contracts can become very complex in nature, as there can be as many different prerequisites as the contract’s participants require. For example, Aave, a decentralized lending protocol, stores tokens within its smart contracts, and uses a system of smart contracts to manage their assets.[iv]
Why Are Smart Contracts Important?
The foundation for all decentralized finance (“DeFi”) protocols and dApps functionality is via smart contracts. Current interactions through web server applications such as Amazon and eBay don’t allow the user to see the internal logic function for the application and have no control over the environment in which they are executing that transaction. This requires a user to trust the application due to the lack of transparency. Smart contracts solve this by being in a trustless environment, a blockchain and therefore the contract itself, its transactions, and the tokens being held within that contract can be seen publicly. An additional benefit of smart contracts is security because the blockchain provides cryptographic encryption for any sensitive information that is stored. This data is therefore permanently stored on the blockchain and cannot be altered because the smart contract cannot be changed once it is deployed on the blockchain. Smart contracts work autonomously, without any central authority, legal entity, or external enforcement agency. This massively increases the speed for the transaction as well as reduces the cost compared to traditional financial transactions.
Smart contracts are deployed on a blockchain, for example the Ethereum network. In such circumstances, a given contract will be executed on all the nodes attached to the ETH virtual machine. In order to power the computational resources needed to execute any transaction a gas fee is required to be paid to compensate the miner, by the party making the transaction. The more complex a transaction is, the more gas it costs to execute. The introduction of gas fees means it is expensive to spam the network, so only transactions that users are willing to pay gas for will be sent. Each operation that a smart contract performs costs gas, a user therefore must set a gas limit, which is the maximum amount of gas they are willing to pay for the transaction. As the price of a gas fee is paid in the network token (ETH for Ethereum, SOL for Solana and BNB for BSC) they are not set and can fluctuate. Gas fees also increase when the network is experiencing high transaction volumes.
Risks Of Smart Contracts
Smart contracts can be exploited via security breaches, vulnerabilities in the smart contract code, or improper administration by the protocol team. There are also technological infrastructure failures to consider including the blockchain going offline, like Solana did in September 2021.[v] Developers should ensure they robustly test their smart contracts to ensure they have the ability to mitigate potential risks to its functionality. The team’s network administrator will require a governance process as well as control over the smart contract to deploy or amend an existing smart contract. Oracles provide blockchain networks and the smart contract themselves with data feeds, any issues or attacks (typically implemented using flash loans) on an oracle’s data feed could result in disastrous results, including token price manipulation.
We are seeing ever growing numbers of smart contracts being used on an increasing number of blockchains, with a new DeFi dApp going live almost daily. Ethereum still remains the largest smart contract ecosystem. But briefly in January 2021, we saw transaction volumes and number of unique addresses on the BSC network overtake those on Ethereum, with many users citing expensive gas fees as the reason for migrating to BSC.[vi] This has led to other smart contract platforms gaining popularity, which is reflected in their underlying token prices increasing, as well as the number of active users and transactions. We are also seeing huge amounts of investment activity into smart contract enabled ecosystems, including Solana, Avalanche and Algorand. The recent Alonzo hard fork update will allow smart contracts to be written on the Cardano blockchain.
To learn more about the world of DeFi please see the previous educational article by Mike Platis by clicking here.
A Tale Of Two Airdrops
by Martin Gaspar | November 22, 2021
What Is An Airdrop?
Airdrops, events in which a protocol gives users governance tokens for free, were pioneered by Uniswap in September 2020. It did a surprise launch of its governance token UNI and announced that all users, up to a certain date, were eligible to claim their UNI tokens. Uniswap set the precedent for airdrops, and few projects sought to reinvent the wheel until this year. Times are changing, however, and major airdrops are becoming more exclusive. Take the ParaSwap airdrop on November 15, 2021, in which only 1.5% of all addresses (“users”) that interacted with the protocol were eligible for the airdrop.
What Do Airdrops Accomplish?
Airdrops serve several key purposes: decentralization (in the case of governance token airdrops), marketing, and liquidity for early investors through the creation of a token, known as a Token Generation Event (TGE). Decentralizing a protocol is important because it allows the protocol to move to a DAO structure, giving the community (users and stakeholders) a voice in the future of the development of the protocol.
Marketing is another potential benefit of airdrops. A well-executed airdrop generates excitement and social media activity from users of the protocol and onlookers. It creates visibility for the protocol, and the buzz from its token launch and liquidity mining campaign can draw in new users to it. In addition, while airdropped tokens typically start trading on decentralized exchanges, they may also be added to centralized exchanges after launching, which can be further advertising for the protocol.
Finally, creating liquidity for early investors is also a key component of airdrops, as the governance token can be traded on exchanges. While this is good for the protocol’s investors, it also benefits crypto investors generally in that they now have a means to gain exposure to the protocol through its token.
Uniswap’s airdrop was notable because it gave basically all of its past users its token – there were no restrictions on which users were eligible, except a snapshot date. This made it an equitable airdrop, even more so considering that few, if any, users were expecting Uniswap to launch and distribute a token. It generated a lot of marketing for Uniswap and strengthened its community, who now could use its UNI token to shape the future of the protocol.
On the other hand, the ParaSwap airdrop of its PSP governance token was quite restrictive. To be eligible, an address had to have used ParaSwap at least 6 times in the last 6 months, have a certain minimum token balance, among other criteria meant to filter out airdrop “hunters”. Moreover, addresses tied to US or Chinese IPs were also apparently excluded, according to Unchained Daily. This led to many valid users being excluded from this airdrop, and induced outrage from users on Crypto Twitter, with some users vowing not to use the protocol again. Consequently, it is clear that the marketing aspect of the airdrop did not work out as favorably. Considering that only 1.5% of addresses were eligible to claim the airdrop, the airdrop also did not seem to do a good job of decentralizing the protocol by getting the token in as many hands as possible. The contrast between ParaSwap’s and Uniswap’s airdrops is stark, and suggests that a more equitable airdrop, that does not exclude any user, may be the better strategy, as demonstrated by the positive reception from Uniswap’s airdrop.
Looking Past The Noise
by Chad Steinglass | November 19, 2021
Ups And Downs
There have been a lot of ups and downs in the BTC world in the last several weeks. Starting with an incredible run into the launch of the first futures-based ETF, and then a choppy seesaw ever since, culminating in a bit of a fall from grace this week. One of the things I’ve been focusing on this whole time is attempting to filter out what I see as quick moves caused by fast money or retail traders jumping in and out of the market, and lower frequency but larger volume moves made by large players or OTC desks executing through VWAP orders (Volume Weighted Average Price).
I touched on this last week and noted that there was one or several large traders vwapping sell orders every time we saw spurts of strength in the market. I’ve been searching for signs that this (or these) traders are finally done with the inventory they want to unload, but so far, each sign has proven to be a false alarm. One thing that I didn’t get into too much last time we spoke about this was thoughts on who is vwapping and why. A couple weeks ago I would have said it was likely traders who had positioned long specifically to trade against the bid from fresh inflows from the ETF unwinding any residual positions they had. But since then it has become apparent that there is likely something larger at play.
Mt Gox Trustee
On October 20th the trustee managing the distribution to victims of the Mt Gox hack of 2014 announced it finalized the terms of the award. The trustee holds about 150k BTC and BTCH, as well as a fair amount of JPY, and will be distributing these holdings to the claimants in the near future. Now, “near” in this case might still be 6-12 months from now, but finally it appears that the distribution will happen. Even though the Mt Gox trustee will distribute BTC and not fiat currency, I believe that there has been a significant amount of selling in the market associated with this development. Perhaps some of the selling is coming from traders who wish to get short (or less long) into the distribution with the idea that when the coins are finally transferred there will be a large number of sellers, and the traders think they’ll be able to buy the coins back cheaper.
Fortress Investment Group LLC
Another quite interesting possibility is that Fortress Investment Group LLC, a large private equity and hedge fund manager backed by the likes of SoftBank, has bought up a large number of the Mt Gox claims, and is the largest single claimant in the whole situation. It’s likely that Fortress has bought most of these claims paying fiat, and therefore now that the distribution details are becoming clear, they have a massive amount of long BTC risk, some of which they probably want, but maybe they don’t want all of it. It’s possible that Fortress is selling in order to reduce that risk.
Determining The Seller
The truth behind the question of who it is that has been unloading inventory these past few weeks might not become clear for some time. But while we are in this regime of strong support but even stronger resistance, I will continue to try to look past the noise of any quick rallies or sell offs and focus on looking for signs that the large seller (or sellers) are finally running out of the inventory they are trying to unload. If the selling really is associated with the Mt Gox distribution, there would be an absolute maximum of 150k BTC to sell, and the likely amount should be less than that. Of course, there are always traders who recognize what the big players are doing and pile on in the same direction. But those traders will be quick to cut and turn the other way when they sense the trade is over.
We’ve all been waiting patiently for this chop to resolve itself, and for the seller’s inventory to run out. It looks like we’ll have to be patient at least a while longer. But if we can manage that, I think we’ll be rewarded for that patience in the long run.
We The People: ConstitutionDAO
by Mike Platis | November 17, 2021
Brief And Vague History Of The U.S. Constitution
A group of people during the 18th century got together, deliberated, and coordinated with one another on how best to accomplish a common goal. This group had a wide range of ages, backgrounds, and perspectives. They came together with a common purpose, which was agreed upon as necessary and nearly impossible to achieve. Those on the outside believed this group was delusional in attempting to accomplish their goal. That is, the mission of creating a more perfect union.
A few inspiring figures and their respective ages at the time of the creation of the U.S. Constitution:
Deborah Sampson – 15
Alexander Hamilton – 21
Thomas Jefferson – 33
Benjamin Franklin – 70
The signers of the U.S. Constitution were on average 44 years old, a dozen of them 35 or younger. Yet age did not hinder them from codifying a document that would live on and govern over the longest standing democracy in the history of the world. An objectively impressive feat for the hodge podge of ideals and personalities that accomplished what they set out to do.
U.S. Constitution Is On Sale
Over 234 years later, one of the 13 original print series of the U.S. Constitution, and the only one still in private hands, is up for sale. Sotheby’s is holding an auction tomorrow for an exceptionally rare and extraordinarily historic first printing of the United States Constitution.
I, too, was unaware that original copies of our most important governing document were available for purchase. Being the only U.S. Constitution in private hands, this is potentially one of the rarest collectors items in the world. Artifacts of this caliber of rarity are commonly reserved for only the most well-capitalized of collectors.
That is why the story of one bidder, ConstitutionDAO, is such an interesting one.
ConstitutionDAO is a decentralized autonomous organization focused on one thing, buying the U.S. Constitution at Sotheby’s auction on Thursday.
DAOs are communities with a shared treasury. Decentralization and cryptocurrency have created structures, such as DAOs, that help align people to self-govern. It’s fitting that a DAO, which is as much a technological tool as it is a social one, can orchestrate the purchase of the greatest example of human governance: the U.S. Constitution.
Just five days before the first bid, online strangers and Constitution enthusiasts from around the world set out to achieve what seems like a preposterous mission, purchasing the U.S. Constitution. A founding member of the ConstitutionDAO, Munam Wasi, mentioned, “Purchasing the Constitution thanks to crypto is actually the easy part, the fact we have a real chance to do it so quickly is what is actually hard to believe.” Should they be successful, a document for the people by the people will also be owned by the people.
ConstitutionDAO highlights why DAOs can be considered one of the most innovative tools in the history of human coordination. The “D” and “A”, which stand for decentralized and autonomous, are the main reasons why this organization was able to happen, and happen so quickly, in the first place.
Decentralized means that anyone in the world is able to take part in this historic bid for the U.S. Constitution. In addition to the interest from thousands of everyday people who are simply fans of the oldest governing document. Members of the team informed me they’ve had interest from various institutional bidders and long-time collectors willing to contribute to the ConstitutionDAO’s treasury. The autonomous nature of collecting funds is also why this organization was made possible. If the bid is somehow unsuccessful, all participants will automatically have their contributions set aside to be returned in-full.
In my opinion, DAOs are one of the most important trends to pay attention to in crypto right now. Empowering like-minded communities to do things they love, together. Allowing DAO participants to share the risks and rewards of what their community sets out to accomplish. Governing your own organization with voting rights that are fairly distributed to each stakeholder. In many ways, the U.S. Constitution is the ideological predecessor of the decentralized organizations that will govern the future. I would find nothing more beautiful than if the U.S. Constitution was owned by the trailblazers of our decentralized world.
Regardless of the outcome, this is a cultural watershed moment for the promise of a decentralized future.
Bonus: Who Is Selling The Constitution?
It is important to highlight the generosity of the owner and what the purchase of this historic document will mean for her. Dorothy Goldman is the current owner of this Constitution. Her late husband, S. Howard Goldman, was a collector of historical American books and manuscripts. Howard purchased this Constitution back in 1988 for $165,000.
As the current owner, Mrs. Goldman has always made this document available for the people by lending it to a variety of public institutions across the United States. Dorothy Goldman’s actions during her custodianship show that it truly is a document for the people, by the people, and that should be shared with all people.
Proceeds of the auction will benefit The Dorothy Tapper Goldman Foundation. The Foundation focuses on advancing the principles of America’s founding documents through educational programs for students across all media. It is the hope that with this Foundation we can further the understanding of why the acts of all citizens can truly make a difference.
NFTs On Secret Network
by Justin Caccappolo & Mike Platis | December 15, 2021
Users of the metaverse from all over the world travelled to Manhattan this past week as NFT.NYC encapsulated the Big Apple. A conference dedicated to non-fungible tokens, NFT.NYC held its third annual conference with a record number of attendees ranging from artists, technology enthusiasts, and investors. Having panels by day, flashing billboards of specific NFT projects in Times Square, and after party gatherings at night – the phenomenon of NFTs were the discussion of New York City during this fall week.
Movie Industry <> NFTs
During the conference, an intriguing panel was conducted by famous director Quentin Tarantino, who announced his partnership with Secret Network to publish a collection of seven NFTs. This private collection will contain seven NFTs of uncut, never before seen scenes from Tarantino’s 1994 movie Pulp Fiction with commentary from Tarantino regarding untold notes about the specific scene and the first handwritten script. Each scene will be auctioned off on OpenSea and users can place bids in the native token Secret.
Secret Network is a Layer 1 blockchain that is public by default, but supports a privacy preserving smart contract application layer. Secret Network allows users to build and integrate applications that are permissionless and private by refining traditional smart contracts to support encrypted smart contracts.
Currently, any NFT on other Layer 1 protocols (Ethereum, Solana, Polygon, etc) are on public-facing metadata and can be found via transaction hash or wallet address to view the original token.
Therefore, all NFTs on these networks are visible to all on that blockchain. With the Pulp Fiction scene NFTs being launched on the Secret Network, the owner of these scenes can decide on keeping the tokens private or public. Integrating the core development of SCRT Labs, Tarantino has leveraged NFTs with exclusivity and expects there will be a higher demand from his followers who will not only view these never before seen scenes, but also have bragging rights of owning a one of seven NFT. This isn’t the first NFT collection to utilize Secret’s savvy NFT architecture. Anon Army, a collection of 580 “Anons”, were the first NFT to exercise the Secret Network’s privacy application layer. While the wallet associated with the NFT is unviewable, the owner has rights to change the metadata behind the NFT. With one change to the metadata, inputting your Telegram username, your Anon now allows you access to a “Secret Anon” chat – protecting the authenticity of the community. NFTs on Secret Network are slowly innovating within both the Art and NFT industry by allowing creators and owners more flexibility in their ability to privatize/publicize their work, opening doors for further potential use cases for NFTs.
CrossTower provides this information for educational purposes. Tokens referenced herein may not be available to buy, sell, or trade on CrossTower’s platforms.
ENS Airdrop Shows Interest In DAOs
by Martin Gaspar | November 12, 2021
Ethereum Name Service
This week the crypto market was abuzz from not only fresh all-time highs in Bitcoin and many tokens, but also the airdrop from Ethereum Name Service (“ENS”). ENS is a blockchain naming standard that allows users to link their Ethereum and other crypto addresses, as well as metadata and content hashes, to a human-readable string of text that ends in “eth”. This allows users to interact with crypto wallets and apps more easily than typing in a long string of letters and numbers which a crypto address typically consists of. An ENS domain can be considered a Web3 username. According to its website, there have been approximately 425,000 names registered across 166,000 owners.
Earlier this month, ENS announced that it would be decentralizing its governance process via the creation of a decentralized autonomous organization (“DAO”) and would be airdropping past users of the service ENS governance tokens. Users were allowed to claim the airdropped tokens on Monday, November 8, and the results were impressive as the governance token’s price has increased to around $60.00 as of writing, on strong investor demand. Many users received 200 or more ENS tokens, which means that their airdrop was worth over $10,000, a considerable amount relative to other airdrops.
Concentration Of Talent And Capital
The price action of the token following its claiming period demonstrated that crypto investors may be getting more bullish on DAOs. The concept behind this seems to be that DAOs are the future form of companies – they are a concentration of talent and capital. Investing in DAOs may be seen as betting on the power of community and the possible crypto applications they can invent. It will be interesting to follow the evolution of ENS in this context, and whether investors are right in valuing it at a market cap of approximately $1 billion ($6 billion fully diluted) as of writing.
CrossTower provides this information for educational purposes. Tokens referenced herein may not be available to buy, sell, or trade on CrossTower’s platforms.
Polkadot, Parachains, And Their Auction
by Katherine Webb | November 10, 2021
What Is Polkadot?
Polkadot positions itself as a true interoperability blockchain. It is made up of a network protocol that allows arbitrary data to be transferred across open and permissionless blockchains as well as private and permissioned blockchains. It can be thought of as “a blockchain of blockchain’s” or a multichain. The native token for the Polkadot ecosystem is DOT. DOT is used for network governance and can be staked for the operation of the network. It can also be bonded to create a parachain [i].
Polkadot Main Operation
Relay chain: Relay chain acts as the main blockchain and is responsible for the network’s security, consensus (Nominated Proof-of-Stake validation mechanism), and parachain auctions. Its main role is to coordinate all the parachains connected to it. Although this base layer of the Polkadot ecosystem has no smart contract functionality, this can be solved by a connected parachain.
Parachains: Parachains are individual blockchains that connect to the main relay chain (via nodes called collators). But there is no specific reason why parachains should be limited to only blockchain technology. They are built and optimized to serve a single purpose. For instance, smart contracts implementation or to complete transactions at speed. Each parachain can have its own governance rules, but it must be able to pass blocks that the relay chain can interpret. Parachains lease their space in the Polkadot ecosystem by locking the funds for the duration of the lease. Each chain has the ability to disconnect and connect back to the relay chain.
Parathreads: Parathreads are the same as a parachain, but they are used for non-continuous connection to the Polkadot network and use a “pay-as-you-go” model for their leases.
Bridges: Bridges provide cross chain interoperability which allows both the parachains and the parathreads to connect and communicate with external blockchains.
Find below the layout for a single Parachain connected to the Relay chain:
Scarcity Of Parachains:
Polkadot supports a limited number of parachains, currently estimated at around 100.[ii] Parachains are allocated in the following ways: governance granted parachains which contribute to projects that provide “common good” to the Polkadot ecosystem. There are also auction granted parachains as well as parathreads.
What Is A Parachain Slot Auction?
For a parachain to be added to the Polkadot network it needs to inhabit one of the available parachain slots. Parachain slots are sold using a modified un-permissionless candle auction system. This system is where bidders submit increasingly higher bids. The one who submits the highest bid at the conclusion of the auction is the winning bidder.
Some projects use a crowd loan campaign to fund their auction bid, which allows them to accept contributions from DOT token holders. Crowd loan contributors get their DOT back at the end of the lease. Parachain teams can also reward contributors with prizes, for example: an airdrop of the parachain’s native token.
Auctions for Polkadot parachain slots have an open bidding period of roughly one week. The precise moment for the auction ending is determined retroactively to prevent last minute auction sniping. If successful, each parachain slot can be leased for a maximum duration of 96 weeks. The length of the lease is chosen by the parachain when they bid for the slot, with 12-week minimum set lease periods. This allows multiple parachains to win a single auction if they bid on non-overlapping lease periods.
When Is The Next Auction?
The auction starts on November 11th, 2021, with the bidding ending on November 18th, 2021. The winning parachains will be onboarded from December 17th, 2021, with the maximum 96-week lease ending on October 20th 2023.
For more information on the latest actions, click here.
CrossTower provides information on tokens and unique protocols for educational purposes. Certain tokens may not be available for purchase, sales, or trading.
Nearing The End Of Consolidation?
by Chad Steinglass | November 8, 2021
The rapid rise in crypto asset prices, especially BTC and ETH, out of the September pull back came swiftly in the beginning of October, culminating in a wave of euphoria as the first SEC approved BTC ETF (albeit futures based and not spot based) started trading on October 20th, pushing BTC to fresh all-time highs as money rushed into the new product. Since then, however, the market pulled back a little and has been in a choppy consolidation period, causing many to question if the ETF launch was indeed a true “sell the news” event that marked the end of a bull run in much the way that the Coinbase IPO put in the top in April.
Strong Support And Quick Rebound
Since the initial pull back after the ETF launch the market has been defined by quick isolated gains followed by significant profit taking selling coming in the form of vwaps (value-weighted average prices) that have been ratcheting prices slowly lower in somewhat of a “one step forward, two steps back” fashion. However, each time we’ve fallen back two steps, we have found solid support, albeit slightly lower each time. During the last two weeks, we’ve seen two momentary sharp declines, once on October 28th and again on November 3rd, but unlike in previous parts of the cycle, these large downticks did not cause cascading liquidations or even the slightest bit of panic. They were met with strong support and a quick rebound. And so we have remained in a relatively tight range throughout the last two weeks: any sharp decline is immediately bought, and any sharp rise is met with slow steady selling.
This type of action can lead to significantly reduced volatility, which is exactly what we’ve seen, but also probably can’t last forever. At some point, either the capital waiting to buy any dip or the inventory that long holders want to take profits on may become exhausted. I believe we might start to see that this week, and though it is early, early indications seem to point to the sellers running out of gas before the buyers.
To make this observation, I try to look for patterns in price action that look like vwap orders. This is how large traders and institutions execute trades when they have a significant amount of size to trade, and they want to minimize price impact. Rather than executing the trade all at once, they use an execution algorithm that splits the trade up into hundreds or thousands of small orders and slowly executes those orders over time. The result ends up looking like a very long and slow but steady price trend throughout the day. Unlike quick moves that can come from aggressive traders trying to trade in and out or from retail traders chasing a price as it starts to move, these vwap trades tend to be signals of larger, slower, and stickier money that is positioning for a longer-term trend.
Is Institutional Money Actively Buying?
For the last two weeks, the vwap trades were mostly sellers of strength, profit taking as we hit new all-time highs. However, starting Saturday morning I started to see the first sign of real vwap trades come in from buyers. As I said, it’s still early, but I find the price action Saturday and Sunday to be very encouraging as an indicator that institutional money is actively buying, not just offering support on dips. But also, it’s important to remember that this is the weekend, and I always handicap weekend signals a little relative to any information I might glean from weekday price action. I think that if we see continued strength through the day on Monday, and that strength isn’t immediately countered by more profit taking selling, that we could be looking at the light at the end of this 2 week consolidation tunnel. Crypto traders are an impatient bunch, and two weeks seems like a long time to us, but I think there’s a good chance that we’ll be rewarded for our patience.
CrossTower provides information on tokens and unique protocols for educational purposes. Certain tokens may not be available for purchase, sales, or trading.
Bitcoin Activity Increasing, But Fees Remain Low
by Martin Gaspar | November 5, 2021
One thing to keep an eye on when considering Bitcoin’s price is the level of on-chain activity, as this paints a picture of the usage of BTC and can reflect whether bullish or bearish price action is reflective of user behavior. Today, Bitcoin is often considered as a store of value or as a method of payment. It is important to consider metrics with these use cases in mind.
Active Entities – Senders & Receivers
The number of active entities, defined as unique entities that were active either as a sender or receiver, continue to march higher on a rolling 30D basis, according to data from Glassnode. This metric is a good proxy for the number of people transacting with BTC, given that holders tend not to move or spend their coins. It tells us that users are either returning or being onboarded into the Bitcoin ecosystem. Moreover, the fact that we are trending higher despite prices remaining above $60,000 in recent weeks suggests that these prices partly reflect increasing user activity.
Bitcoin Addresses Tick Up
The number of Bitcoin addresses with a non-zero balance is also beginning to tick up on a 7D basis after pulling back from September levels and has been rising since mid-October. This metric is a good proxy for overall Bitcoin users on-chain, as it captures holders that do not spend or move their BTC. As of November 2, 2021, this figure remains roughly 1% below its April 2021 all-time highs.
Bitcoin Transaction Fees
These two metrics suggest upward momentum, but interestingly Bitcoin transaction fees remain relatively low. According to data from Glassnode, these have averaged around the equivalent of $3.00 in recent days, which compares to fees that were the equivalent of tens of dollars earlier this year. Bitcoin’s mempool remains relatively uncongested relative to past price run ups, which is keeping these fees down. So, while there may not be a stampede of users rushing to transact on BTC yet, it’s clear that user activity is picking up – we could well be back to much higher transaction fees later this quarter if these trends continue.
CrossTower provides information on tokens and unique protocols for educational purposes. Certain tokens may not be available for purchase, sales, or trading.
Explaining The Metaverse
by Katherine Webb | November 3, 2021
Why Are People Talking About The Metaverse?
Facebook’s CEO, Mark Zuckerberg, recently announced that the previously known “Facebook” will soon be known as “Meta.” The change is based upon his belief that the metaverse is the “next chapter for the internet.” Facebook plans to invest $150 million over the next decade in training – employees how to build the metaverse and to subsidise devices that users will need to interact and access the metaverse. Facebook describes the metaverse as “a set of virtual spaces where you can create and explore with other people who aren‘t in the same physical space as you.“
What Is The Metaverse?
The term ‘Metaverse’ is derived from science fiction, such as the 1992 novel Snow Crash, written by Neal Stephenson and from other science fiction stories like Ready Player One and The Matrix.
One definition of the Metaverse that is commonly used by Virtual Reality investors is from Matthew Ball’s book, The Metaverse Primer: “The Metaverse is an expansive network of persistent, real-time rendered 3D worlds and simulations that support continuity of identity, objects, history, payments, and entitlements, and can be experienced synchronously by an effectively unlimited number of users, each with an individual sense of presence.”
From a technological standpoint, the internet may evolve into the metaverse, making it the next major computing platform. Billions of people use the internet daily as their main source for information, communications, purchasing and selling goods, and method of socialization via social media platforms and online gaming. We currently have pieces of the metaverse in a standalone form, which are location-based games such as ‘Pokemon Go’ and ‘Wizard Unit,’ virtual live conference rooms like Facebook’s ‘Horizon Workrooms’ and ‘Vibela.’ We also have Virtual Reality online games like ‘Fortnite’ and ‘Minecraft’ and the ability to buy real estate in virtual worlds like ‘Decentraland’ and ‘The Sandbox.’ Currently NASA uses both Virtual Reality and Augmented Reality to control robots and complete maintenance tasks on-broad the International Space Station. Healthcare clinicians use Augmented Reality to view 3D scans, access patients’ data and contact other clinicians. Athletes can now wear motion captured cameras, which allows memorable moments from a game to be digitized and potentially converted into NFT.
What Will The Future Of The Metaverse Look Like?
The main difference between our current view of the Metaverse versus the future is the physical sense of being in another location and in the company of other users. In other words, the distinction between being online and offline will be much harder to differentiate. Most interactions are done via controllers while wearing a Virtual Reality headset which can be fully immersive, leaving the user “aware” that they are experiencing something out of the ordinary. We are very much in the early days of the Metaverse, and we still need major advancements in both Virtual Reality and Augmented Reality technology. Another factor is the expensive computer power required for the Metaverse to run. It will also require many engineers and designers to create it, as well as network admins to maintain.
The potential for this technology is enormous, with users being fully immersed within a virtual world. Current barriers include getting users to try and be comfortable with the new technology, and the high expense of the equipment. This will become less of an issue for the younger generation who will grow up with this technology and see economies greatly benefit. It is very exciting to see the developments and advances in technology that the metaverse will bring with it. Major internet companies will not want to be left behind, especially if this is the future of the internet. We are witnessing this through the recent Facebook public announcement and the increased number of Venture Capitalist funds looking to invest in the metaverse (e.g., Metaverse Ventures). This is sure to be an exciting space to follow and one to watch for the future.
Numerai: A Crowd-Sourced Hedge Fund
by Mike Platis | November 1, 2021
Here at CrossTower Classroom, we want to prepare our students and users for the future. This is why I wanted to explain the utility of Numeraire, an asset listed on CrossTower Global and the token incentivizing the world’s first crowd-sourced hedge fund, Numerai.
Numerai is a data science platform where users, usually data scientists, can compete in weekly data science tournaments. The goal of these tournaments is to build machine learning models on top of Numerai’s shared financial data to help create predictive models for the stock market.
Numerai shares data that is clean, obfuscated, and regularized, designed to be usable right away. Users then apply machine learning models to track correlation between trading data. Those who pair Numerai’s digital asset, NMR, to their model can earn rewards based on their model’s performance. Pairing NMR to predictive models incentivizes users to continually and creatively enhance their market prediction models.
Data Science Tournament
Numerai is marketed as the hardest data science tournament on the planet. Data scientists find correlations throughout the data and the fund uses this predictive modeling to create a market-neutral strategy. Numerai outperformed other market-neutral hedge funds by an average of 29%. Since inception, Numerai has paid out approximately $82,464,915 to active participants with the most accurate models. With incentives offered to any data scientist, Numerai has been able to source better predictive modeling than the likes of Renaissance Technologies, Aurum, and Two Sigma.
Numerai is just one example of how open, aligned, and decentralized networks can redefine human coordination. Any user can participate in building the world’s first crowd-sourced hedge fund with Numerai.
Looking to participate?
Looking for an internship?
Apply to work at CrossTower ([email protected])
Looking to read more?
Some Signs Of Profit Taking Emerge With Bitcoin
by Martin Gaspar | October 29, 2021
We are seeing some indications of profit taking by BTC holders over the last several weeks. Although still up significantly over the past few months, accumulation addresses have declined slightly since the end of September and have plateaued most recently, according to data from Glassnode. This indicates some investors have been moving (assumes selling) their BTC at these recent high price levels. The balance held in accumulation addresses investors currently stands approximately 3% below that of late September, further confirming this profit taking.
Long-Term Holder Supply
According to Glassnode data, long-term holder supply has also pulled back since hitting all-time highs with the launch of the BTC futures ETFs, suggest some selling by these types of investors. This has recovered in the last several days, however, and we are now nearly back to the prior peak levels.
by Chad Steinglass | October 27, 2021
BTC & ETH Markets
BTC and ETH are both in consolidation markets after reaching and then being rejected from new all-time highs. For many, none of this is a surprise, it was never a matter of if, but only when. The run starting October 1st, coming out of the month-long consolidation in September, was nothing less than a rocket ship move. While parabolic moves do happen, they can also be followed by catastrophic selloffs, and for any bull run to rest on solid ground, it is important for it to be tested along the way.
Reality Check Phase
We’re currently in the middle of one of those tests. While the market does feel bearish simply because it seems like an anticlimactic letdown immediately after reaching new highs, I think that we are really just in a reality check phase, and how prices perform over the next one to 3 weeks will offer either confirmation of the bull market or kick us back into a no man’s land of uncertainty.
What The Charts Warn
After the quick pull back that started towards the end of last week, BTC has found strong support right around the 60k level and ETH has been holding strong near or above 4k. These are both very high levels for these assets, and so by no means is the outlook dire. But watching the charts does give some warnings: though support has held, rallies have been sold quickly and optimism bludgeoned and have brought prices right back to that support level.
No Rush For The Exits
During this pull back, BTC dominance has been on decline (after rocketing higher all of October so far). Strength is being sold, but there is no rush for the exits. And while buyers haven’t been aggressive, they also have not gone away, with the support yet to flinch each time it has been tested in the past week.
I will be watching anxiously over the next few days, however. If the support wall holds, I expect prices to drift back above 63k by the end of the month. If that happens, I expect sellers to evaporate quickly, and a rush of new money entering to propel us higher to start November.
The Narrative Of The Bull Market
But if the wall of support around the 60k level can’t hold through the end of this week, that could shake the confidence of long holders and could cause a quick selloff into the 53-55k level. While that doesn’t sound too bad as far as price corrections are concerned, it could potentially derail the narrative of the expected strong bull market into the end of the year, and could put us in a prolonged period of chop which might take quite a while to emerge from.
Precarious Position, Brief Consolidation
It seems like markets are always on a precipice, just a slight push from tipping in one way or the other. But that is doubly so for crypto markets right now as we play out the final days of October. It’s a precarious position, but not a bad one. And if we do hold through the end of the month and then start to move higher, the next leg of the bull market will be built on that much stronger foundation for having gone through this brief consolidation.
CrossTower Lists UST And Luna
by Mike Platis | October 25, 2021
UST & LUNA Listed!
In celebration of listing Ethereum-based UST and LUNA from the Terra Ecosystem we wanted to explain the relationship between the two assets. This piece is meant to introduce you to Terra’s mission and its importance in the digital asset ecosystem. We do this by understanding the design behind UST, a decentralized algorithmic stablecoin collateralized by LUNA.
Introduction To Terra’s USD And LUNA
TerraUSD (“UST”) is a decentralized algorithmic stablecoin built on the Terra Blockchain. Unlike most stablecoins backed by fiat currency, UST is collateralized by Terra’s native asset LUNA. A “decentralized algorithmic stablecoin” may sound a bit intimidating at first, but in my opinion, it could be one of the most important financial innovations within the digital asset industry.
Decentralized applications need decentralized money to be truly decentralized.
In my opinion, the beauty of crypto is self-sovereignty, where you can verify that the money you are holding is yours. So with existing stablecoins it is difficult to verify that the underlying fiat backing your stablecoins are there. Generally, you have to place your trust in the institution’s reports claiming the stablecoins are backed by fiat and fiat equivalent financial products.
UST is the stable unit of account of the Terra ecosystem. The decentralized stablecoin is also present on many other blockchains such as Ethereum, Solana, Harmony, and Cosmos’ Inter-connected Blockchain (“IBC”).
Relationship Between LUNA And UST
UST allows applications across the crypto ecosystem to have a stable unit of value used for their medium of exchange. Since it is a stablecoin, this may give confidence to transact and know that the volatility of crypto-assets won’t affect their commerce. LUNA, on the other hand, may go up and down in value based on supply and demand.
Terra’s mechanics work so as to mint 1 UST, $1 worth of LUNA must be burned. This ultimately allows UST’s supply to be infinitely scalable as long as LUNA’s market value is above 0.
As there is more demand for UST, more LUNA will be burned.
And vice versa. In times of contraction of demand for UST, more LUNA will be created when users burn the UST for LUNA. This is the entire relationship in a nutshell. UST demand goes up, LUNA supply goes down. UST demand goes down, LUNA supply goes up.
LUNA best represents a user’s deferred spending. In order to create UST, you need to burn $1 worth of LUNA.
Akin to other blockchain models, fees from transactions on Terra’s blockchain are earned by the validators who secure it. Specifically, LUNA can be easily staked to one of these validators that secure the network. Those staking LUNA receive a portion of the fees from the validator. This is important because as long as there is activity on Terra, LUNA stakers will have a claim to their fees, and should be priced above $0.
Developers, via new applications on the Terra blockchain, have created even more use cases for LUNA. For example, Anchor Protocol built on the Terra blockchain aims to increase the productivity of LUNA. Proof-of-stake assets, such as ETH and LUNA, are accepted as collateral for taking out a UST loan within Anchor Borrow. At the time of this writing, users are borrowing over $1,000,000,000 UST and have over $5,000,000,000 UST in Total Value Locked, which means the total value of collateral and deposits.
In my opinion, Terra’s stablecoin design is in a unique position to deliver on the promise of a truly decentralized future for money.
More About LUNA And UST
While I tried to keep this short and sweet, there are many great minds writing about the Terra ecosystem. There is much more to learn about this ecosystem. If you are interested, here are a few of my favorite resources to learn more!
How Does UST Work? (Angel Protocol)
Introduction from Terra
The stablecoin printing press that’s just getting warmed up (Steve McKeon and Derek Schloss)
Nearly All Bitcoiners In Profit
by Martin Gaspar | October 22, 2021
With Bitcoin soaring past its previous all-time high on Wednesday, October 20, we look at some on-chain stats that capture this moment in time. Data from Glassnode indicates early all Bitcoin addresses are in profit as of the end of Tuesday, October 19 – a whopping 99.94%. But how can this be given that Bitcoin fluctuates so much daily? It indicates that much of the action we are seeing is occurring on exchanges – whose BTC does not show up on the blockchain until it is withdrawn.
Driving Price Action
Another indicator that BTC currently held on exchanges is driving price action is “exchange net position change”, which is the 30-day change of the BTC balance on exchanges. In the last several days, this has hovered closer to 0, indicating users are not sending BTC to exchanges or withdrawing from them, and marking a reversal of the recent trend of exchange outflows.
Market Value To Realized Value
The Market Value to Realized Value (MVRV) ratio has also gone above 2.75, a level that has preceded the start of past run ups in price, such as in December 2020. This indicator is a measure of the market cap of Bitcoin and the realized cap (the last price at which coins were moved), and can be thought of as another measure of the profit Bitcoin holders are in. The peak of Bitcoin’s 2017 run coincided with MVRV of above 4.00, so this can be a guide on how far Bitcoin can rally.
The Next Chapter: Proshares Bitcoin Strategy ETF
by Chad Steinglass | October 20, 2021
Proshares Bitcoin Strategy ETF
Today is the first day of trading for the new Proshares Bitcoin strategy ETF, the first Bitcoin linked ETF to trade on a listed US exchange. Because this ETF will hold CME listed Bitcoin futures and not actual Bitcoin, it has come under fire from many investors and traders who point that it has so much built in cost and inefficiency that it is simply not a good product for investors. This criticism has ramped up in the last several days, after weeks of optimism and general celebration from the crypto community that it is finally getting an ETF.
So, Who Is Right?
Will the approval of the first official Bitcoin ETF be viewed as a bullish event? Or will this ETF be viewed as an inferior product that more traders will want to try to short rather than to buy?
In my personal opinion, I think the answer is that both of these scenarios are true.
Wall Street & Professional Traders
It appears to me that Wall Street and professional traders are looking at the bear case. They understand the mechanics of how this ETF will work and what its performance relative to the Bitcoin spot price will be, and they see a product that may significantly underperform Bitcoin. Their next thought is a logical one: if there is a new product that is like Bitcoin, just worse, then that can create opportunity. Theoretically, market makers and hedge funds could take a short position in the ETF and a long position in actual Bitcoin to create a position that may benefit the ETF’s inefficiency. Investors see the blazing runup of process so far in October as frothy excitement over an ETF that it could make more sense to sell than to buy, and they may be leaning short into the ETF launch expecting that excitement to wear off once the reality of the situation sets in.
Retail & Whales
On the other side, there has been heavy buying in the spot markets from both retail and whales alike, which has driven prices significantly higher in a short period of time. I believe these traders see the ETF approval as a tacit acknowledgement from the SEC, who had to approve the listing, that Bitcoin is here to stay and that the likelihood of stifling regulation is less of a worry. They see it as a sign of a broadening base and a maturing asset. It is possible that some are buying because they think that new money will rush into the ETF and push prices higher immediately, and are looking to make a quick return, but I personally believe a majority of these buyers have a longer time horizon in their sights, and see an asset moving into a more favorable environment.
As I said, I think both sides are correct in their assessment. As Wall Street surmises, this ETF may be a disappointment from a retail investor adoption standpoint, and it’s possible that prices may temporarily dip as that becomes apparent. But the bulls are also correct. It may not really matter whether or not this particular ETF is a commercial success. The door is now open, and better products may follow, creating an accessible onramp for millions of traditional asset investors to start making some allocations to Bitcoin. In my opinion, that is quite the bullish development in the long run.
by Justin Caccappolo | October 18, 2021
As top tier NFT projects have seen immense price increases over the past year, an average retail investor entering the NFT space is priced out of these investments. Looking to bridge the gap between these price discrepancies, multiple protocols have realized this inefficiency and innovated buying, selling, and minting fractions of NFTs on Ethereum. Through these protocols, users are able to become partial owners of certain NFTs that are powered by smart contracts while unlocking liquidity to the original owner. In some instances, NFT holders may want to take profit or liquidate a portion of their NFT as they reach certain price points. However, NFTs are single tokens and selling a NFT constitutes selling the entirety of it, which is different from regular market dynamics in that you can take profit on a certain percentage of your position. These protocols include Niftex, DAOfi, and Fractional – as an example, we will take a deeper dive into the logistics behind Fractional, below.
What Is Fractional Art?
Fractional is a decentralized protocol where NFT owners can mint ERC-20 tokenized fractions of their NFTs. Through their website, NFT owners can provide their NFT or a collection of NFTs to the NFT vault and receive 100% of the fractional ownership tokens produced. The owner can set a name for the tokens, the total supply, and an annual management fee (the asset under management fee distributed to the curator on a yearly basis). The NFT vault (powered solely by decentralized, audited smart contracts) will take custody of the provided NFT and lock the NFT until further action is taken. Fractional ownership unlocks a multitude of actions allowing the owner to share his art, profit from the popularity of it, and even create a community behind it. Specific examples that have been executed include setting up a liquidity pool on a decentralized exchange such as Uniswap or Sushiswap, airdropping them to community members or owners of certain token’s protocols, or sending 50% to a friend to split ownership of an NFT.
Redeeming Your Ownership Tokens
Distributing the tokens will allow holders of the tokens to vote on a reserve price which is the price at which an external buyer can purchase the NFT that was entered into the vault. The reserve price is set by the weighted average of all ownership token holders who have voted on a set price for the NFT. At least 51% of token holders must vote on a price or a reserve price will not be set. If an external buyer is looking to purchase the NFT that is vaulted, they must offer the amount in the reserve price or above. Once the purchase is confirmed, token holders are able to trade all of their ownership tokens in for the Ethereum that was deposited by the external buyer. The ownership tokens that were traded in for the Ethereum will then be burned by governance via smart contracts. An example of a fractional pool that was successful was CryptoPunk #7171 which has a total supply of 10,000 Hoodie tokens and a current reserve price of 646 Ethereum ($2,495,075 USD)!
Coin Days Destroyed
by Martin Gaspar | October 15, 2021
A Metric Worth Looking To
There was a pullback in BTC and the broader crypto market on Tuesday, seemingly out of nowhere. But these kind of movements in the market can often be explained by on-chain data. In this case, Coin Days Destroyed is a metric worth looking to explain this.
Crypto intelligence provider Glassnode calculates Coin Days Destroyed for any given transaction by taking the number of coins in a transaction and multiplying it by the number of days it has been since those coins were last spent. In the early afternoon on October 12th this metric spiked, reaching its highest tally since September 26th.
This means that coins from longer-term holders were transacted, which is generally regarded as a bearish move. When these types of investors move their coins, it is often assumed it is to take profits, resulting in pressure on the Bitcoin price. In fact, shortly after this metric spiked that day, we saw Bitcoin’s price tumble from around $57,000 to $55,000, suggesting this may have been due to longer-held BTC being sold. So next time we see a spike in this metric, traders may want to be cautious in the near-term.
The Decentralized Dollar
by Mike Platis | October 13, 2021
Decentralized applications need decentralized money to truly be considered decentralized. Recent news surrounding Tether, the world’s largest stablecoin, reminded me of this. If you would like to learn more about Tether, Martin Gaspar just published a detailed report explaining the mechanisms of Tether. Today, I want to talk about the second-largest decentralized stablecoin. The decentralized dollar built on the Terra Blockchain, UST. UST is an algorithmic stablecoin, a digital asset that is pegged to the dollar’s value. UST is created by buying and burning an equivalent dollar amount of LUNA in the market.
LUNA is the asset that collateralizes the UST stablecoin. LUNA needs to be a productive asset to ensure the price will never be $0. $1 worth of LUNA will always be interchangeable with 1 UST. LUNA can be thought of as the native token to Terra’s blockchain, such as ETH is to Ethereum. Demand for UST means more LUNA gets burned, and vice versa. This burning function allows market forces to help maintain the $1 peg. When UST is trading above $1, LUNA holders can swap $1 worth of LUNA for UST at the peg and trade out of it, when thousands of people realize this and carry out the arbitrage trade, the peg will be maintained. LUNA, the collateral backing this decentralized algorithmic stablecoin can be thought of as deferred spending. LUNA needs to be a productive asset for people to be convinced to hold it.
LUNA is the native currency for the Terra Blockchain, which is a Proof of Stake blockchain. LUNA holders can stake their LUNA asset and receive transaction fees from the activity on the Terra blockchain. LUNA holders may also receive airdrops from teams building on Terra. UST is a cross-chain stablecoin, live on the Solana, Ethereum, and Harmony blockchains as well as on Terra. UST’s marketcap is below $3 billion. This is relatively small compared to Tether’s $70 Billion and Circle’s $33 Billion in outstanding stablecoins.
In my personal opinion, decentralized applications will prefer decentralized money.
Is Tether A Risky Asset?
by Martin Gaspar | October 8, 2021
Tether In The News
Tether is a fiat-collateralised stablecoin that seeks to maintain a stable value of one US dollar per Tether, in the case of its most popular cryptocurrency (USDT). It allows users, such as investors and exchanges, to deposit US dollars for an equal amount of Tether. A stablecoin is commonly defined as a cryptoasset that is pegged to a target value through a stabilization mechanism, such as redemptions for the underlying asset it aims to be pegged to.
There is nearly $70 billion Tether outstanding today. While Tether discloses its reserves breakdown on its website, there are concerns about the risk involved in holding instruments other than cash. As of June 30, 2021, roughly 49% of its reserves comprised of commercial paper and certificates of deposit, which some suspect could be comprised of risky Chinese debt from issuers such as Evergrande, or issuers that could be impacted if Evergrande defaults. In its defense, Tether has said it does not hold any commercial paper or debt issued by Evergrande and notes the vast majority of the commercial paper it holds is in A-2 and above rated issuers, which are generally deemed to be non-risky issuers.
The Great Decoupling Of Crypto From Equities
by Chad Steinglass | October 8, 2021
Start Of September
With September mercifully in the rearview mirror we can finally look back and take stock of what was a difficult month across almost every asset class, save oil and energy markets. Looking at Bitcoin, September started with a bang, reclaiming 50k as the rebound that started late July extended. Labor Day weekend started with promise, but we started the month off on the wrong side of the bed and a steep correction as US markets opened on Tuesday after the long weekend. As the month progressed, we saw a particular market dynamic emerge that is the well-deserved badge of a mature risk asset, but also led us down a bumpy road: Bitcoin started to trade with high correlation to equity markets.
Minefield Of Potential Hazards
Towards the middle of the month, financial markets were navigating through a minefield of potential hazards. The September Fed meeting brought the most hawkish statements from chairman Powell that we’ve heard in years, and the writing was on the wall that the Fed would start to taper asset purchases soon. Treasuries started to fall and interest rates started to rise, the US dollar strengthened significantly, easily topping highs of the year. At the same time, the Chinese real estate development conglomerate Evergrande appeared ready to collapse, potentially bringing the Chinese real estate market with it, and the US Senate was in a stalemate over the looming problem of hitting the debt ceiling. Every day that each of these worries gripped, markets drove equities,Bitcoin and Ether down. Every day that we saw some relief from worry, markets drove them all up. Crypto was coupled to equities and bonds, and the road was rocky.
Then just as September was coming to a close, the dynamic shifted. While equities and bonds fretted over Evergrande and a failed vote on an infrastructure bill in the House of Representatives, crypto found its calling. It’s unclear exactly what caused the shift in dynamic, and it’s entirely possible that it was as simple as the conventional wisdom in the crypto world that September is a bad month and October is a good one, but on that Thursday night Bitcoin was able to close just barely over the psychologically important 43k level predicted by PlanB’s Stock to Flow model, and very suddenly became decoupled from equity markets. This decoupling has continued throughout October so far, and that’s a good thing for crypto, at least for the time being.
October: Crypto At The Professional Level
I mentioned earlier that correlation with other asset classes was a badge of maturity. I interpret that correlation to mean that investors are taking crypto, especially Bitcoin and Ether, seriously and are trading them alongside portfolios of equities and bonds and selling them when they need to reduce overall macro risk exposure and buying them when they want to increase overall macro exposure. This could mean that crypto is playing the game at the professional level. But periods of high correlation also mean that outsized upside moves will probably be difficult to come by. In order for Bitcoin and Ether to have a hope of another exponential move higher, they need to break that coupling. They’ve broken it this week, and we don’t know how long it will last or if we might actually see an acceleration to the upside, but for now the stage is set, and that should be music to our ears.
Building Blocks Of DeFi
by Mike Platis | October 6, 2021
Our very first post in the CrossTower Classroom underscored the wave of decentralized applications being built now. You can read that here. And while there are a lot of eyes on NFTs, play-to-earn gaming applications, and DAOs, don’t lose sight of decentralized finance or DeFi.
The backbone of DeFI is what people call the “financial primitives.” These are protocols that offer lending/borrowing, interest (that compounds continuously), the economic return of assets, tranched risk – basically any financial product that can be created out of code. There are pockets of people all over the globe that are using open source code to build on top of what has already been built. Basically, anyone with an internet connection or a smart phone can join the party.
This is why financial primitives are also known as the “Money Legos” of DeFi, ie, the building blocks for future innovation of financial products. This is also known in DeFi circles as the “composability” of a protocol. Composability can simply be thought of as flexibility – how easy a protocol can connect with and interact with another protocol. The simpler the contract, and the more use cases that can be built with it, the more likely on-chain partnerships happen and more liquidity can build.
Let’s take a look at three different types of Financial Primitives and a protocol within that category.
Lend And Borrow – AAVE
Finance can be boiled down and understood as the supply and demand of loanable funds. Aave is an open-source, decentralized, non-custodial protocol on Ethereum that allows users to do those two things, supply digital assets and borrow digital assets. Users earn yield on digital assets supplied to the protocol. This yield will adjust automatically and algorithmically based on supply and demand within the protocol. Aave has the largest Total Value Locked (TVL) in DeFi, with over $15 Billion dollars locked in the protocol. Due to the open-source nature of Aave, there are other protocols that have successfully built on top of Aave, such as 88mph. This protocol isn’t only expanding within one blockchain ecosystem, such as Ethereum, either. Aave also operates on the Polygon and Avalanche blockchains. This is a great example of interoperability and composability for a financial primitive DeFi protocol.
Decentralized Derivatives – Opyn
Opyn, is a non-custodial and open-source options protocol that plans to capture value from the large amount of liquidity entering the decentralized derivative market. New applications can be built on top of Opyn – without needing permission or a contract. Ribbon Finance is a fixed-income protocol built on top of Opyn. Ribbon earns yield from selling options and packages those yields into other financial products. With these Money Legos, so many products can be built.
Synthetic Assets – Mirror Protocol
Global stock market value is approximately $100 trillion USD. About half of the total stock market value resides in the US equities, but only approximately 4% of the world’s population lives in the US. The rest of the world has no way to invest and share the risk/reward of US innovation. Mirror is a permissionless, open-source synthetic asset protocol built on the Terra blockchain. The protocol tracks the prices of “Mirrored” Assets so anyone with an internet connection could purchase a real world asset of their choosing. This is as primitive as it gets, buying and selling real world assets reflected on the blockchain. Innovation that can stem from this basic function is up to your imagination.
Basic functionality of finance is now code and anyone can build on top of it. Future of finance will be in the hands of enthusiastic developers creating products that excite consumers. Building blocks have been built and we are witnessing a Cambrian Explosion of financial products.
Accumulation Addresses Rising
by Martin Gaspar | October 4, 2021
What on-chain data can explain Bitcoin’s (BTC) recent strength? One metric is accumulation addresses, which Glassnode defines as addresses that have at least 2 incoming non-dust transfers and have never spent funds. These have been steadily increasing over Q3 2021, which indicates that more investors are choosing to purchase and hold their BTC for the long term. Similar to traditional markets, this kind of activity could be thought of as bullish for Bitcoin’s price as it can lower
s supply available on exchanges in the long term, which may lead to price increasing from a gradual supply squeeze. Bitcoin accumulation addresses hit an all-time high of roughly 550,000 addresses on September 29, 2021, which compares to roughly 534,000 as of the end of Q2 2021 (+3%).
Another metric that points positively for Bitcoin is the supply held by long-term holders (LTH), which Glassnode defines as addresses holding Bitcoin for 155 days or more. Over Q3 2021, this has ticked up to over 80% of the supply being held by long-term holders, indicating that users are increasingly choosing to hold their BTC.
Proof-Of-Work Vs. Proof-Of-Stake
by Justin Caccappolo | October 1, 2021
Proof-of-Work, via Mining, was the first consensus algorithm created and popularized by Satoshi Nakamoto in 2008 through the Bitcoin Whitepaper. Different from Proof-of-Stake, Proof-of-Work is a decentralized consensus mechanism that requires a majority of members within a network to compute solutions to solve a randomized mathematical puzzle. The computation to solve these puzzles is utilized to enforce the rules of the network. Now that we have a concept of Proof-of-Work, we can understand the relationship between Miners and Digital Assets. Miners lend computational power to validate transactions to a Proof-of-Work network and are rewarded with the Asset they validate. Proof-of-Work is an economic mechanism that ensures the blockchain’s success by incentivizing good behavior that keeps the network stable and secure. Recent popularity in Digital Assets has sparked many discussions around the environmental impact of Proof-of-Work blockchains. As Proof-of-Work blockchains, mostly Bitcoin, use a large amount of computational power to secure their network. The more energy used directly correlates with network security. Developers in this space had come up with creative ways to use less energy but still secure a decentralized network through an incentivized system.
Proof-of-Stake, via Staking, was developed as an eco-friendly, less resource intensive alternative to Proof-of-Work blockchains such as Bitcoin. Staking provides a method of reaching distributed consensus and validation on the blockchain network similar to Proof-of-Work. In practice, a holder locks their digital assets in a digital wallet, which in turn rewards passive income in the form of additional crypto. Locking or securing these assets to a Proof-of-Stake network such as Ethereum does not require the holder to buy expensive hardware, use a lot of electricity, or compute complex mathematical problem. A user simply stakes the asset with a validator of the protocol and helps confirm transactions for the blockchain. If a user attempts to go against the algorithm’s ruleset, their staked assets will be taken from their validator and they will lose their staked assets. This incentives healthy behavior for stakers. Proof-of-Stake consensus allows regular crypto owners to assist in strengthening and maintaining the blockchain with minimum preparation.
Below are some popular cryptocurrencies; the following table indicates whether a cryptocurrency uses Proof-of-Stake or Proof-of-Work:
by Mike Platis | September 29, 2021
What Is DAO?
The term DAO has become increasingly popular in the digital asset industry and I want to explain it in simplest terms. DAO stands for Decentralized Autonomous Organization. Abstracting the buzzwords away, this is really just a fancy way of saying Organization.
The main difference between this type of Organization and all others is the fact it lives on the internet and rules of the DAO are governed by code. Whether it is through smart contracts, Discord, or community voting events, the Organization’s participants coordinate their efforts with interactions on the internet.
Today let’s take a look at 3 of my favorite DAOs to showcase the infinite design space for these new internet organizations.
Flamingo DAO is an art investing and collecting group. 64 individual Art Collectors pooled together capital to create a shared Art collection. Their DAO is built on smart contracts with hard-coded rules and governance they all could see and trust. Flamingo DAO participants were able to send money, vote on which pieces they will collect, and hold the art all within the DAO they created. This is thanks to the rules of the DAO being coded in an open-source smart contract – solidifying trust between DAO members.
(Source: The Future of Work by Steve McKeon)
Friends With Benefits DAO
Friends with Benefits DAO is a token-holder only online community. Friends with Benefits is a membership powered community of popular crypto investors, artists, operators, and creators. To join “FWB”, you must hold $FWB tokens, meaning everyone in the community is financially invested in the community’s success. DAO concept here is to have ownership over your community. Token-based communities ensure everyone within the group participates in the upside of the value the community creates together.
Maker DAO is a decentralized bank. Maker Protocol is just a smart contract that facilitates borrowing and lending in a completely decentralized manner. Without getting too technical, users can lock their ETH into Collateralized Debt Position (“CDP”) and Maker Protocol allows the user to borrow against it in their stablecoin DAI. At the time of writing this, DAI is the 4th most popular stablecoin and has a $6.3B marketcap. The primary responsibility of the DAO is to ensure the stability of their stablecoin’s peg to $1. They do this by adjusting policy for the DAI stablecoin, choosing new collateral types, and improving the governance itself. These decisions are made entirely by a voting process of the MKR token holders.
As said before, DAOs are rarely “Decentralized or Autonomous”, but rather just organizations on the internet that can trust each other due to open-source code. These DAOs are also extremely difficult to join. Flamingo DAO is 64 well-known crypto art collectors, a full Friends with Benefits membership costs close to $8,000 USD, and MakerDAO’s major voters are the Venture Capital funds that invested in them.
DAOs are a wonderful experiment in human coordination. Placing trust in the hands of smart contract code instead of institutions. Whether it is for collecting art, fostering friendships, or creating a decentralized dollar – DAOs are vehicles for like-minded persons to align incentives and share the created value.
On-Chain Data, Thanks To The Blockchain
by Martin Gaspar | September 27, 2021
Because the Bitcoin blockchain is open in nature, all transactions on it can be viewed publicly. Consequently, the history of all bitcoins can be tracked and all sorts of metrics can be devised based on the activity of these coins. There is a lot of important information that the blockchain can track. Several crypto intelligence firms have sprung up around to figure out how to interpret and use this data, including Glassnode and CryptoQuant.
One useful on-chain metric is the number of active addresses, which Glassnode defines as “the number of unique addresses that were active in the network either as a sender or receiver.” This is a useful metric in gauging network activity, as it is a proxy for how much use the Bitcoin network is seeing. It tends to tick higher during bull markets and fall in bear markets. Although this metric has declined on a 30D basis from the spring, it has been rebounding since late July, suggesting Bitcoin is beginning to see more use.
The Masterpiece Of The Digital World: NFTs
by Justin Caccappolo | September 27, 2021
Branching off of our last discussion on smart contracts through the Ethereum network, let’s discuss one of the Ethereum tokens that have collided both the Crypto and the Art industry. Non-Fungible Tokens are a result of ERC-721 protocol on Ethereum. This protocol allows you to store specific and unique information such as an image, certificates, or contract details that have digital ownership on the blockchain encrypted to your Ethereum Address. These tokens are forever stored on the blockchain and prove ownership. With a brief spike of popular projects in 2017, NFTs did not fully inundate the art world until this year. The most notable recent achievements include appearing in various auction houses such as Christies.
Beginning in February of this year, artist Beeple worked with Christies to sell his “Everydays: The First 5000 Days, 2021“, which compiled 5000 daily pieces of his artwork over the past 13 years. This sold for $69,346,250 USD in a single lot sale and set the record for the most expensive individual NFT ever sold. Currently, Christies is hosting open bidding until the 28th of September for various Crypto Punks, Bored Ape Yacht Clubs, and Meebits. These NFTs are listed in the collection “No Time Like Present” alongside art from well known names such as Tom Sachs, George Condo, and Rolex. Keep a close eye over the next few days on this auction as multiple Punks and Apes have current bids for over $500,000 USD! The next auction will start on October 1st, titled “Post-War to Present: The NFTs“, including two full sets of Curio Cards and Art Block Curated sets. Let us know what you think these collections will sell for on our CrossTower Twitter and check our previous research on NFTs here.
Decentralized App Boom
by Pratik Shah | September 24, 2021
Applications with smart contracts for financial purposes, protocols for gaming, or NFT’s of your favorite athlete. All of this is happening on the Ethereum Blockchain. It’s an exciting space where new protocols (think interactive software) are coming each day that allow creation of NFTs, digital wallets, and even RPG games. You can play an RPG game from one corner of the world, while someone else creates NFTs from the other side of the world, all made possible by the Ethereum Blockchain. This rapid innovation of decentralized applications lays the groundwork to allow the Ethereum Blockchain to continue growing, expanding, and attracting users.
CrossTower Inc. provides this content for general information purposes, to better inform you on your digital asset investment journey. We do not provide investment recommendations or provide tax advice. Please consult your investment professional or tax advisor if you require assistance in these areas.
Ready to get started?
Subscribe below and get started on your CrossTower journey. We offer a variety of informational content along with our top tier trading services.