Weekly Insights #22

Written by on March 10, 2019

March 8: A relatively calm week in the crypto space has had a few anomalies as some alts surged by more than 100%. Institutions are increasingly diving deeper into the blockchain space, with Swiss Stock Exchange SIX tokenizing equity. Enjin’s recent development news had a very positive effect on the ENJ token price. Below, we also look at what’s ahead for the decentralized finance space.

NOTEWORTHY NEWS

French Finance Committee President Calls For Ban on Anonymous Cryptocurrencies—Mar 7, The Block Crypto

The Finance Committee of France’s National Assembly has prepared a report on crypto assets and blockchain with an introduction from Éric Woerth, the committee’s president. In the introduction, Woerth explains that the Committee supports blockchain as it offers great innovation, but he cautions against cryptocurrencies that provide complete anonymity to users. In fact, he proposes a ban on crypto assets designed to deliberately “prevent any possibility of [the] identification of their holders,” giving the examples of Monero, PIVX, DeepOnion, and Zcash.

Kraken Futures Trading Nears $1 Billion in Its First Month—Mar 5, Coindesk

Since Kraken acquired Crypto Facilities at the beginning of February, the futures provider has seen more than a 500% increase in trading volume. Nearly $1B has been traded in crypto futures in the past month across bitcoin, ether, litecoin, bitcoin cash, and XRP based products. Crypto Facilities’ user base increased by 400% since the acquisition, with the majority of new customers coming from Kraken. Crypto Facilities is best known for providing bitcoin and ether reference rates to CME group.

Swiss Stock Exchange SIX Will Tokenize Equity on R3’s Corda Blockchain—Mar 7, Coindesk

Like many traditional financial institutions, the SIX stock exchange is also developing a blockchain-based platform for trading, settlement, and custody services for tokenized DLT-based digital assets. They picked the R3 Corda Enterprise platform after researching various distributed ledger technologies. The platform will launch in the second half of this year and will initially be used for traditional bankable assets such as equities, bonds, funds, and structured products, all of which will be issued on their DLT to avoid issues with split liquidity between the DLT market and the traditional one. Later, other financial products may be tokenized.

 


DIGITAL ASSETS ON THE MOVE

Enjin Coin Soars Amid SDK Announcement and Samsung Partnership Rumours

Enjin is a company working on a platform for building blockchain games. It’s one of those promising projects built on Ethereum that are often overlooked due to their near constant ability to focus on development rather than putting all their efforts into marketing. The project is nearly two years old, and their recent development announcements have been strongly reflected in the price of their token, Enjin Coin (ENJ). ENJ is a cryptocurrency for virtual goods or in-game items and can be exchanged, traded, or swapped across platforms. This has the potential to create entirely new in-game e-commerce ecosystems utilizing the ERC-1155 token standard based on the Ethereum blockchain.

In the past week, the token price has seen an increase of nearly 120%, reaching 12th place on CoinMarketCap (CMC) by trading volume—even overtaking Monero. This price appreciation can be attributed primarily to the rumor of a partnership with Samsung in which Samsung would integrate Enjin into their new Blockchain Keystore on their new smartphone, the Galaxy S10; these rumors were confirmed today.

The speculation regarding Samsung began on February 25 and sparked a frenzy of continuous investor interest, as the price rose 206% before retracing. Another major spike happened a few days ago on March 5, after Enjin announced that their Blockchain Software Development Kit (SDK) is due to launch in the Unity Asset Store on March 14. For those unfamiliar, Unity is a video game engine that more than half of current mobiles games are based on, and mobile gaming is expected to grow in the coming years. All this helped fuel investor interest, currently keeping ENJ’s USD price nearly 400% above where it was 30 days ago.

THE WEEK AHEAD

Decentralized Finance (DeFi) Space Growing Rapidly, Primarily Built on Ethereum

Decentralized finance encompasses financial decentralized applications and services built on top of public blockchains. The space is very interesting and important, as the essence of public blockchains comes from the idea of permissionless money and freedom of usage. Bitcoin was the first to materialize this idea, but currently, the majority of decentralized applications (dapps) that offer complex financial operations are being built on Ethereum. This space is very broad and includes services in the fields of borrowing and lending, decentralized asset exchange, derivatives, payments, and asset tokenization. Some services are completely permissionless, some are governed by DAOs, and some are semi-centralized, as private entities are necessary for some parts of the service.

The first DeFi applications to gain traction weredecentralized exchanges (DEX). This space is evolving very quickly, and new DEXes are constantly entering the space. One DEX currently growing rapidly in popularity is Uniswap, which was launched in November on Ethereum. This dapp differs from others, namely EtherDelta and IDEX, in that it does not have an order book; instead, it offers a liquidity pool for specific markets and uses a formula relative to order size and the amount of liquidity to determine the price of assets. Anyone can create new markets and provide liquidity for existing ones, receiving trading fees in exchange, which are collected from traders in proportion to their liquidity share in that specific market.

Recently, a new decentralized Ethereum-based exchange service called SwapMarket was released to the public. SwapMarket has a novel new feature, offering many-to-many trades, including of ERC20 and ERC721 tokens, and token swaps between multiple assets and addresses (e.g. swapping an entire portfolio for another portfolio or selling a portfolio for ether).

There are also new kinds of DEXes being built on Plasma sidechains such as Leverj. These offer much faster and cheaper on-chain trades on the sidechain while still enjoying the security of the main chain. In the future, many dapps will utilize Ethereum sidechains.

The largest segment of the DeFi space by locked-in assets is lending services. Most of these services work on a simple principle; you provide more collateral than you wish to borrow, and the collateral is liquidated if you are unable to repay the debt. The largest and most dominant DeFi lending service is Maker, which enables anyone to issue debt to themselves in the form of Dai, a stablecoin on Ethereum, for the price of an annual interest rate called the stability fee. Individuals and companies do this either to open leveraged positions or to pay for ongoing operational costs. On the other side of the trade, buyers of Dai use it to hedge their portfolios or for payments in other dapps and services, as well as for trading pairs on exchanges.

Another relatively new dapp offering alternative token borrowing for short positions is Compound. Compound is a pooled source of ether and a few ERC20 tokens. Suppliers of assets earn interest with each block, and borrowers can open a short sell position by selling the borrowed assets. Compound offers a way to open a leveraged long or short position or just earn interest by providing supply for the pool.

In the derivatives segment, we find products similar to traditional derivatives and margin trading as well as products like prediction markets. The most well-known companies building prediction markets are Augur and Gnosis, while Dydx is building an open-source decentralized protocol for margin trading and derivatives. Prediction markets allow for all kinds of different bets and financial positions that are defined by each market separately and are very broad. Examples include markets about who will be the next US president or whether the price of ether or any other asset will be above or below a certain price on a specific date.

Asset tokenization is the most centralized segment of DeFi, as a central entity is required as a gateway for an asset to be tokenized on a public blockchain. Currently, the most notable tokenized asset is Wrapped BTC (WBTC), a service provided by BitGo and several other organizations building on Ethereum that allows anyone to transfer their bitcoin to Ethereum. The whole service can be audited by anyone, as all assets are native to the transparent nature of public blockchains.

Another notable player is DigixDAO, which offers tokenized gold. The DGX token is backed 1:1 by one gram of gold. Once again, this works through a centralized entity that stores the physical gold. Asset tokenization on public blockchains started years ago in 2014 when Tether started offering tokenized USD (USDT) via Omni Layer on Bitcoin. Since then, many companies have started providing tokenized fiat currencies on Ethereum, and traditional companies are also entering the space, but on their permissioned blockchains.

The final section of DeFi is services for payments built on top of public blockchains. These are basically second-layer state channel networks such as Lightning Network on Bitcoin or Raiden and Connext Network on Ethereum.

The DeFi space is growing quickly, with new innovations coming out almost every month. Many things are being developed in tandem, namely layer 1 protocols, layer 2 scaling solutions, and applications that utilize this new infrastructure. Currently, the majority of services in the DeFi space are being built on Ethereum, pushing it further toward becoming the dominant global decentralized financial and legal infrastructure.


MARKET OVERVIEW & METRICS

Weekly Market Overview, 1 to 8 Mar 2019. Source: Coin360

Weekly Crypto Stats

  • Global network value reached $133.56B, with 2% weekly delta.
  • Global crypto market turnover was $31.4B, 56.3% from ATH.
  • Bitcoin dominance is 51.7%, with -0.4% weekly delta, and beta of 0.81.
  • Ethereum dominance is 10.83% with -1.8% weekly delta, and beta of 1.32.
  • Bitcoin hashrate is 42.86B TH/s, with -5.3% weekly delta.
  • Ethereum hashrate is 154.5K GH/s, with -1.4% weekly delta.

 


CHART OF THE WEEK

Commodity trading plotted from 1982 to 2017 shows a big shift towards digitalization and dependency. Throughout each phase of this trend, it seems that one asset paves the way, and others follow. Bitcoin’s emergence as a new type of asset (top right quadrant) is expected to have a similar effect and pull other assets in this direction as well.

 

Source: Coinshares

This content has been put together by Marko Štemberger and Tilen Držan. Feel free to contact us for any feedback or if you have questions.

Information provided above is not to be considered as an investment advice.

ANNOUNCEMENT

Block Analitica, the company behind Squared Capital, has just launched its digital asset metrics dashboard to the public. Though still in beta, if you are interested in a more in-depth analysis of blockchain fundamentals — everything that’s happening with stablecoins, development activity, exchange balances, and much more — we invite you to register for a free account.


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