In the report the banking regulator analyzes the impact of fintech and DLT on financial institutions, examining two DLT use cases in international trade and so called 'digital identity'
What are the benefits and risks of distributed ledger technology (DLT)?
Blockchain: Utility Tokens — Prevarication or FactTL;DR The long and short of this article is that majority of Utility Tokens as they present in the blockchain ecosystem are majority redundant, useless and/or designed to skirt regulation. In turn are damaging to adoption within a progressive digital economy. I want to be clear that this is not against all projects, nor is it against actual traders.The Year of Money for JamThe year was 2017, every man and his dog were releasing the next generation of Distributed Ledger Technology. Promises of “world first, infinite scalability, privacy preserving” and every other marketing buzzword one could imagine. This phase in cryptocurrency history was that of the ‘Initial Coin Offering’ or better known as ICO. All made possible by the ease of creating an Ethereum ERC20 token to give speculators something to trade in secondary markets and project teams the ability to essentially print money.The outcome of this was wild raises, hundreds of millions, even billions in some cases going to a team of self proclaimed professionals from the pockets of everyday folk — looking to get rich. The teams looked fancy, came touting large company names, but lacked any skills* in distributed computing, networking, game theory or mechanism design. Let alone any form of business value being driven from within the ecosystem — what could possibly go wrong.One thing that went wrong was the legality of such raises, the tokens were majority securities, so getting money for jam without being watched by the eager eyes of government entities such as the U.S Securities and Exchange Commission (SEC) who wanted to slam down the ban hammer as more and more ICOs took investors money and ran was wearing thin. As the teams fried the money attending blockchain conferences, parties or simply pretending to deliver on their promises then exit scamming.There needed to be a plan to save the beloved ICO, the ability to essentially use prevarication (marketing) to get a significant payday with no legal ramification.Enter Utility Tokens, they came near over night, the saviour to the ‘securities’ dilemma. It was like all project teams advisors gave them a copy of ‘The Lean Startup’ by Eric Ries (an outstanding book) and pivoted on the dime to continue the wealth generation events (WGE), a much more realistic name for ICO’s.So What’s Wrong?Within the collective Blockchain Ecosystem across thousands of projects there is a multitude of tokens which have been created through pretend innovation and human greed.Utility Tokens are just one kind of these ‘tokens’, poised to offer 'utility' within a proposed ecosystem or project. This can be via access rights, pay to play, and whatever other methods these projects have come up with. Technically, majority do not even need a secondary token, and could use the native currency of the platform for which they are built on such as Ether on Ethereum.The TRUTH is these tokens are just another way to undertake an 'Initial Coin Offering’ (ICO) and skirt regulation with reverse engineered token economies used to sell pipe dreams. These tokens have ZERO network effects, are designed by overnight ‘experts’ off Fiverr, and are clearly without consideration of market analysis, technical viability, and or user experience.These tokens continue to be sold through questionable marketing practises including technobabble, pretty websites and fancy illustrations— and seemingly all proclaim to be the next bitcoin, as if bitcoin was dead. Oh and don’t forget these comparison charts, perfect for the uneducated speculator to find a hidden gem (I am not serious, do not follow these charts).The absolute stark reality is, that 99% of these ‘utility tokens’ are not useful in their ecosystem at all, and simply add another layer of friction to the underlying business process.What Is NeededThere is currently another shift in the capital raise industry pushing for what is known as Security Token Offerings (STO’s), which gives these unsavvy speculators a legal piece of the pie. However there is a reason why ICO, Utility Tokens and STO’s will continue to fail and why a change is needed, not just in getting legal ownership when trading such new assets but for longevity of the idea past the initial raise running dry. What is the magic sauce you ask? Its simple really, something any normal business has to ask themselves a million times over yet is displaced when it comes to blockchain projects…Business Value Creation: RevenueYou just laughed right? Same, I have been for 2 years as I watch project teams lie through their teeth on how they will have the best payment experience, most market share, most users. None of which take stocktake on the other players or understand the complexity of cryptocurrency transactions if the technology isn’t abstracted correctly. We need to see project teams really spend time on VALUE CREATION. Answering questions on how will the business turn a profit — to be able to continue to innovate past the known.All raises to date are fundamentally the same, they offer a team, an idea, and a bunch of technical dreams to achieve the use case. These teams present the idealistic world of decentralised authority, open source, all that good stuff. The opposite of how the real world survives.However without money coming in the door to maintain such projects, considering the thousands of others out there doing EXACTLY the same thing, these utility tokens offer no value. Once the initial raise money runs dry, if the network effect is not significant enough to generate continued fee revenue which Bitcoin has put out to the year 2140 when it moves to just a fee based model… how will it all survive. The simple answer is that it won’t.At the end of the day we just want “milk that tastes like real milk”, in reference to a great Australian Milk Ad from many years ago. Fair dinkum, realistic project’s that are transparent like the technology, and have really considered the intended network effects and how they intend to survive the test of time — at least in theory.https://medium.com/media/4767bf6ad153f6a70ebe5bba40ad8e07/hrefThe economics of such is not easy, however we need to go back to basics. It’s time to be value creators, not value manipulators.*Of course not all, but majorityThanks for reading,Benjamin Hall (Senior ICT Systems Analyst)Benjamin Hall - Senior Business Systems Analyst - Agile (SAFe) - Australian Government Department of Human Services | LinkedInCrypto Catch UpBlockchain: Utility Tokens — Prevarication or Fact was originally published in Hacker Noon on Medium, where people are continuing the conversation by highlighting and responding to this story.
In a recent article released by The Block, the cryptoanalyst and economist Alex Krüger analyses the paper released by John Griffin and Amin Shams that investigated whether the stablecoin Tether (USDT) was used to manipulate Bitcoin (BTC) prices. During 2018, several reports were linking Tether with market manipulation. Perhaps, the most popular article related to this issue was released by Bloomberg back in June 2018. According to the investigation conducted by Griffin and Shams, Bitcoin was manipulated by using the Tether stablecoin. At that time, Griffin said that he has looked at several markets and if there is fraud or manipulation it is possible to see it on the available data. According to him, the data that they have is very consistent with a manipulation hypothesis. As per the paper, purchases with USDT are timed following market downturns, which results in Bitcoin price increases. At the same time, the paper concludes that these patterns are consistent with USDT is used to provide price support and manipulate crypto prices. Krüger explains that he found the analysts made unwarranted conclusions showing a lack of understanding of financial markets. However, according to Krüger, the paper has not yet received peer review. The financial analyst explains that there is nothing extraordinary in witnessing the purchases of BTC with USDT after market downturns. This shows that there are investors that prefer to purchase the asset during market drops rather than when its trading higher. The paper seems to ignore market strategies of buying retracements and also it confuses speculation with manipulation. Alex Krüger explains that when the price of Tether deviates considerably from $1, arbitrageurs tend to bring USDT back to synchronization. This is why it is not strange to see large USDT flows from Bitfinex to Tether exchanges to purchase Bitcoin. As Krüger illustrates, large market participants that provide price support happen in different markets and this does not mean that there is market manipulation. As per the paper, USDT flows tend to be highly sensitive to the BTCUSD pair but bears little relation to the USDTUSD pair. “In fact, the flow is not sensitive to the first and second lags of USDTUSD,” reads the report. “It does become marginally significant at higher lags, but the magnitude is considerably smaller than the BTCUSD pair.” However, Alex Krüger says that these statements are misleading since it classifies the relationship as ‘highly sensitive.’ For him, a more accurate approach would be to say that Bitcoin returns are related to USDT flows in a small, but yet statistically significant way. Furthermore, the adjusted-R squared value is extremely small. This suggests that between 0.4% and 1.5% of the total variance of these dependent variables is explained by the regression model. Thus, the results are not significant. Krüger concludes by saying that Bitcoin purchases using USDT are related to market downturns. Nevertheless, this does not mean that there was manipulation in the market, but instead, it could be related to investors ‘buying the dip’ or just arbitraging spreads across exchanges.
Ripple has been growing in the market as a company that offers services for financial companies and banking institutions. Furthermore, the intention is to integrate Ripple with the XRP digital currency to process cross-border payments. Ripple has recently published a blog post in which the company informed that the RippleNet surpassed more than 200 institutions. However, there are some individuals that are sceptical about these announcements made by Ripple and the real usage of XRP. The YouTube user Crypto Reckoning has recently published a video in the popular social network in which he suggests that XRP is not being used by some companies that seem to have partnered with Ripple. The video is titled “Factchecking Ripple Part 1: Are financial institutions really using XRP?” and there is a part 2 that could be uploaded in the near future. The user behind the video decided to make an investigation related to XRP and its usage by companies in the crypto space. Indeed, he decided to contact companies that apparently were using xRapid and XRP for cross-border transactions. These firms are Cuallix, Mercurey.fx and Catalyst. Marjan Delatinne, the global head of banking at Ripple, said that regulatory frameworks around the world are making it difficult to expand and promote xRapid and XRP. Crypto Reckoning decided to start contacting these companies to see whether they were using Ripple’s technologies. In the video, he reached different support employees that work for these companies and were able to provide the necessary information about remittances. However, none of them knew anything about Ripple or XRP. Crypto Reckoning mentioned on the matter: “It’s hard not to wonder whether Ripple’s executives are selling a false reality, dramatically overstating he scope and significance of these partnerships in order to temporarily pump the price of XRP, which they then sell vast quantities for personal profit.” Nevertheless, the video is not proof that XRP or xRapid are not being used by these three firms. Indeed, there is one firm that he could not reach. One of the employees did not know about cryptocurrencies while the other didn’t show a clear knowledge on this issue. Thus, this video remains inconclusive, even when the user says that he would be presenting more proofs. At the time of writing, XRP is the second largest digital currency in the market. It has a market capitalization of $13.35 billion and each coin can be purchased for $0.325.