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Ilias Louis Hatzis
The Blockchain Bitcoin & Crypto Weekly CXO Briefing is all you need to know, each week, jargon free for CXO level business leaders and investors who will use this technology to change the world. Each week we select the 3 news items that matter and explain why and link to one expert opinion.
For the intro to this weekly series, please go here.
Story 1: Cryptocurrency firm Tether releases law firm report attesting to U.S. dollar reserves
Decrypted: Tether is the largest stablecoin, with a market capitalization of around $2.6 billion, and the third-largest cryptocurrency by trading volume, behind Bitcoin and Ethereum.
While Tether claims to have 100% currency reserves, this has been the topic of much debate, since Wells Fargo, severed ties with Tether in March 2017.
Since, Tether has been under scrutiny from investors and the government. In December 2017, the U.S. Commodity Futures Trading Commission and the Department of Justice started to investigate whether the price of Bitcoin is being manipulated. The CFTC sent a subpoena to Tether and Bitfinex in December..
Because of the CFTC investigation, Tether (USDT) hired in January Freeh, Sporkin & Sullivan LLP, a Washington DC based law firm, to conduct an independent review of its bank account balances. Supposedly, the firm was then granted full access to all relevant bank and account documents and selected a random rate for review without Tether’s knowledge or involvement.
The report by FSS was released on 20 June 2018, and it describes the work that FSS did for Tether, by performing random checks of their account balances, to confirm USDT is backed 1:1 by USD. The report stated:
"FSS is confident that Tether’s unencumbered assets exceed the balance of fully-backed USD Tethers in circulation as of June 1st, 2018."
Our take: If you use cryptocurrencies exchanges like Poloniex or Bittrex, you've probably seen the Tether (UDST).
Tether was developed to allow traders to have a USD-pegged currency to buy or sell into, particularly on exchanges that do not accept fiat deposit or withdrawal. Because very few exchanges allow traders to deposit or withdraw any significant amount of fiat, there was a real need for Tether. Every Tether token created would be backed by a $1 USD on deposit at Tether’s bank account.
One of the most common complaints against cryptocurrencies is the fact that they don't have price stability, and so cannot be used as currencies. This creates an huge limitation in the use of cryptocurrencies, when prices of goods and services are measured through to fiat currencies.
Stablecoins like Tether try to limit price volatility, ideally at one constant price.
There are three major approaches so far for stable coins:
1) to peg the token value to fiat currencies,
2) to collateralize the token with a variety of cryptocurrencies, and
3) to simply control the token value with a pricing algorithm.
Tether is an 800-pound gorilla that's been holding a monopoly on stablecoins for some time now. While it still holds a huge lead over its competition, it lacks is transparency and regulatory cooperation, and this has given room to alternative stablecoins, such as Circle or TrueUSD and Basis, to enter the market, .
TrueUSD is already known for working closely with regulators and more significantly it can be claimed for US dollars, using smart contracts, adding further credibility to the token. Circle, which is backed by Goldman Sachs, is another attempt to create a trustworthy stablecoin pegged to the US dollar. Its customers will have to hold the money, required to generate the same amount of the coin, meaning more stability to the project.
Only time will tell whether we will ever see a mainstream stablecoin. Smart contracts can keep a stablecoin’s value constant and make it an effective unit of account. The outstanding problem, however, is that no team so far has been able to develop a universally accepted stablecoin, that does not compromise features of either privacy, security or decentralization.
Story 2: These Coinbase customer complaints submitted to the SEC are depressing as hell
Decrypted: Coinbase, the cryptocurrency exchange that is considered by many to be one of the most trusted and widely used trading platforms, has been heavily criticized by its customers. According to the documents that were sent to the editorial office of Mashable, clients accuse the trading platform of fraud.
According to Mashable, 164 pages of complaints have been filed with theUS Securities and Exchange Commission (SEC), by investors that use the cryptocurrency exchange. Some investors are claiming that the exchange has frozen their cryptocurrency holdings without explanation, while others complained they have been repeatedly ignored while trying to resolve issues related to missing funds.
Some of the complaints include:
• “Coinbase has not credited $21,000 wired to my account, and has not responded to my multiple attempts to contact them to get this issue resolved. I now believe that they are acting criminally.”
• “Coinbase accepts money from users under the pretense of being able to return gains, but systematically disallows that ability once tested...and then cuts off all contact with its customers.”
• “Coinbase suddenly and erroneously froze... my account containing more than $100,000 of Bitcoin without explanation more than one month ago... Coinbase does not get back to you... Coinbase effectively cuts off consumers from their rightful property and forces risk of loss and lost profits.”
Our take: Without a doubt, Coinbase is one of the most influential cryptocurrency platforms in the world. Throughout last year, demand for Coinbase's services has soared exponentially. Coinbase had 12 million users as of November 2017, and at some point it added 100,000 users in just 24 hours. Last December, Coinbase's app became #1 on the Apple App Store.
Coinbase, currently supports Bitcoin, Ether, Litecoin, and Bitcoin Cash and is quite selective when it comes to supporting additional cryptocurrencies. Coinbase has also recently made a series of announcements announcing new ventures. Most notably, the announcement of its index fund, aimed at institutional investors who hold the position of a U.S. accredited investor.
But as its user base has been growing, so have the complaints from from unhappy customers. Some of the complaints are quite worrisome, ranging from people losing money due to platform issues, deposits not being credited, accounts frozen for no reason, and the list goes on.
Cryptocurrency exchanges have witnessed first hand the pain to scale and Coinbase is not the only one. All exchanges suffer from similar scaling issues, and it seems that the situation won't be changing anytime soon. These issues will need to be resolved sooner rather than later, hopefully these issues will improve gradually.
Story 3: Stellar In Talks to Acquire Blockchain Startup Chain
Decrypted
Stellar is buying Chain for $500 million in Stellar’s digital currency Lumens.
Stellar was financed by selling Tokens called Lumens (XLM, which has a current market cap over $3.5bn).
Chain financed by traditional VC Funds, such as Khosla Ventures, RRE Ventures, Blockchain Capital, Pantera Capital, Nasdaq, Visa, Citi Ventures, Thrive Capital, BoxGroup, and Haystack, to the tune of $43 million.
Stellar, like rival XRP, is in the business of payments and has also received funding from Stripe and claim KIK and IBM as customers. Stellar founder, Jed McCaleb had earlier founded Ripple.
A key deal term as per the Fortune article was no lockup “ Chain’s backers will receive payment in the form of Lumens, which they should be able to hold or sell immediately after the transaction, Fortune understands.”
Our Take
In ye olden days, companies did an IPO and then made acquisitions with public currency. This seems like a crypto version of that old story – change one letter from IPO to ICO. For Chain it is an Exit. Expect to see more of these.
The payments space is hot. As we reported recently, Visa is struggling in India as merchants and consumers look for lower cost.
For a full review of Blockchain and payments, please see this extract from a serialised book called The Blockchain Economy by Daily Fintech CEO Bernard Lunn.
This will be one to watch. Will it bring down XLM price as speculators come to terms with the realities of building a payments venture? How will this impact Stripe, which has invested in Stellar but which also publicly mulls the IPO route for their own payments venture?
Payments has been the boulevard of broken dreams with incumbents always winning, but the payments market maybe finally opening up. This deal may go down as evidence of a crypto bubble, or evidence of a new form of financing being used to build a big global payments venture.
For the intro to this weekly series, please go here.
Story 1: Cryptocurrency firm Tether releases law firm report attesting to U.S. dollar reserves
Decrypted: Tether is the largest stablecoin, with a market capitalization of around $2.6 billion, and the third-largest cryptocurrency by trading volume, behind Bitcoin and Ethereum.
While Tether claims to have 100% currency reserves, this has been the topic of much debate, since Wells Fargo, severed ties with Tether in March 2017.
Since, Tether has been under scrutiny from investors and the government. In December 2017, the U.S. Commodity Futures Trading Commission and the Department of Justice started to investigate whether the price of Bitcoin is being manipulated. The CFTC sent a subpoena to Tether and Bitfinex in December..
Because of the CFTC investigation, Tether (USDT) hired in January Freeh, Sporkin & Sullivan LLP, a Washington DC based law firm, to conduct an independent review of its bank account balances. Supposedly, the firm was then granted full access to all relevant bank and account documents and selected a random rate for review without Tether’s knowledge or involvement.
The report by FSS was released on 20 June 2018, and it describes the work that FSS did for Tether, by performing random checks of their account balances, to confirm USDT is backed 1:1 by USD. The report stated:
"FSS is confident that Tether’s unencumbered assets exceed the balance of fully-backed USD Tethers in circulation as of June 1st, 2018."
Our take: If you use cryptocurrencies exchanges like Poloniex or Bittrex, you've probably seen the Tether (UDST).
Tether was developed to allow traders to have a USD-pegged currency to buy or sell into, particularly on exchanges that do not accept fiat deposit or withdrawal. Because very few exchanges allow traders to deposit or withdraw any significant amount of fiat, there was a real need for Tether. Every Tether token created would be backed by a $1 USD on deposit at Tether’s bank account.
One of the most common complaints against cryptocurrencies is the fact that they don't have price stability, and so cannot be used as currencies. This creates an huge limitation in the use of cryptocurrencies, when prices of goods and services are measured through to fiat currencies.
Stablecoins like Tether try to limit price volatility, ideally at one constant price.
There are three major approaches so far for stable coins:
1) to peg the token value to fiat currencies,
2) to collateralize the token with a variety of cryptocurrencies, and
3) to simply control the token value with a pricing algorithm.
Tether is an 800-pound gorilla that's been holding a monopoly on stablecoins for some time now. While it still holds a huge lead over its competition, it lacks is transparency and regulatory cooperation, and this has given room to alternative stablecoins, such as Circle or TrueUSD and Basis, to enter the market, .
TrueUSD is already known for working closely with regulators and more significantly it can be claimed for US dollars, using smart contracts, adding further credibility to the token. Circle, which is backed by Goldman Sachs, is another attempt to create a trustworthy stablecoin pegged to the US dollar. Its customers will have to hold the money, required to generate the same amount of the coin, meaning more stability to the project.
Only time will tell whether we will ever see a mainstream stablecoin. Smart contracts can keep a stablecoin’s value constant and make it an effective unit of account. The outstanding problem, however, is that no team so far has been able to develop a universally accepted stablecoin, that does not compromise features of either privacy, security or decentralization.
Story 2: These Coinbase customer complaints submitted to the SEC are depressing as hell
Decrypted: Coinbase, the cryptocurrency exchange that is considered by many to be one of the most trusted and widely used trading platforms, has been heavily criticized by its customers. According to the documents that were sent to the editorial office of Mashable, clients accuse the trading platform of fraud.
According to Mashable, 164 pages of complaints have been filed with theUS Securities and Exchange Commission (SEC), by investors that use the cryptocurrency exchange. Some investors are claiming that the exchange has frozen their cryptocurrency holdings without explanation, while others complained they have been repeatedly ignored while trying to resolve issues related to missing funds.
Some of the complaints include:
• “Coinbase has not credited $21,000 wired to my account, and has not responded to my multiple attempts to contact them to get this issue resolved. I now believe that they are acting criminally.”
• “Coinbase accepts money from users under the pretense of being able to return gains, but systematically disallows that ability once tested...and then cuts off all contact with its customers.”
• “Coinbase suddenly and erroneously froze... my account containing more than $100,000 of Bitcoin without explanation more than one month ago... Coinbase does not get back to you... Coinbase effectively cuts off consumers from their rightful property and forces risk of loss and lost profits.”
Our take: Without a doubt, Coinbase is one of the most influential cryptocurrency platforms in the world. Throughout last year, demand for Coinbase's services has soared exponentially. Coinbase had 12 million users as of November 2017, and at some point it added 100,000 users in just 24 hours. Last December, Coinbase's app became #1 on the Apple App Store.
Coinbase, currently supports Bitcoin, Ether, Litecoin, and Bitcoin Cash and is quite selective when it comes to supporting additional cryptocurrencies. Coinbase has also recently made a series of announcements announcing new ventures. Most notably, the announcement of its index fund, aimed at institutional investors who hold the position of a U.S. accredited investor.
But as its user base has been growing, so have the complaints from from unhappy customers. Some of the complaints are quite worrisome, ranging from people losing money due to platform issues, deposits not being credited, accounts frozen for no reason, and the list goes on.
Cryptocurrency exchanges have witnessed first hand the pain to scale and Coinbase is not the only one. All exchanges suffer from similar scaling issues, and it seems that the situation won't be changing anytime soon. These issues will need to be resolved sooner rather than later, hopefully these issues will improve gradually.
Story 3: Stellar In Talks to Acquire Blockchain Startup Chain
Decrypted
Stellar is buying Chain for $500 million in Stellar’s digital currency Lumens.
Stellar was financed by selling Tokens called Lumens (XLM, which has a current market cap over $3.5bn).
Chain financed by traditional VC Funds, such as Khosla Ventures, RRE Ventures, Blockchain Capital, Pantera Capital, Nasdaq, Visa, Citi Ventures, Thrive Capital, BoxGroup, and Haystack, to the tune of $43 million.
Stellar, like rival XRP, is in the business of payments and has also received funding from Stripe and claim KIK and IBM as customers. Stellar founder, Jed McCaleb had earlier founded Ripple.
A key deal term as per the Fortune article was no lockup “ Chain’s backers will receive payment in the form of Lumens, which they should be able to hold or sell immediately after the transaction, Fortune understands.”
Our Take
In ye olden days, companies did an IPO and then made acquisitions with public currency. This seems like a crypto version of that old story – change one letter from IPO to ICO. For Chain it is an Exit. Expect to see more of these.
The payments space is hot. As we reported recently, Visa is struggling in India as merchants and consumers look for lower cost.
For a full review of Blockchain and payments, please see this extract from a serialised book called The Blockchain Economy by Daily Fintech CEO Bernard Lunn.
This will be one to watch. Will it bring down XLM price as speculators come to terms with the realities of building a payments venture? How will this impact Stripe, which has invested in Stellar but which also publicly mulls the IPO route for their own payments venture?
Payments has been the boulevard of broken dreams with incumbents always winning, but the payments market maybe finally opening up. This deal may go down as evidence of a crypto bubble, or evidence of a new form of financing being used to build a big global payments venture.
Ilias Louis Hatzis is a Blockchain entrepreneur who writes the Blockchain Bitcoin & Crypto (BBC) Weekly CXO Briefing each Monday.
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