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Decentralized finance is beginning to embrace a hot new phrase: real yield. It refers to DeFi projects that survive purely on distributing the actual revenue they generate rather than incentivizing stakeholders by handing out dilutionary free tokens.

Where does this real yield come from? Are fees really a sustainable model for growth at this early stage?

It depends on who you ask. 

The DeFi ponzinomics problem is our natural starting point.

Ponzi farming

DeFi started to arrive as a concept in 2018, and 2020s DeFi summer saw market entrants DeGens piling headfirst into DeFi to early mind-blowing returns of 1,000% a year for staking or using a protocol. Many attributed the real explosion of interest in DeFi to when Compound launched the COMP token to reward users for providing liquidity. 

But these liquidity mining models were flawed because they were based on excessive emissions of protocols native tokens rather than sharing organic protocol profits.

Liquidity mining resulted in unsustainable growth, and when yields diminished, token prices dropped. Depleting DAO treasuries to supply rewards programs or simply minting more and more tokens for new joiners looked like a Ponzi scheme. Known as yield farming to some, others preferred to call it ponzinomics.

While recognizing these returns were unsustainable, many sophisticated investors became enthralled with staking (locking up tokens for rewards). One VC told me they paid for their lifestyle by staking tokens during 20202021 even knowing it was akin to a Ponzi scheme about to collapse. 

The dangers of unsustainable yields were seen in mid-2022, when the DeFi ecosystem and much of the rest of crypto were gutted in a handful of days. Terras DeFi ecosystem collapsed with grave contagion effects. Its founder, Do Kwon, is wanted by South Korean authorities and is subject to an Interpol red notice but says he is not on the run. High-profile hedge fund Three Arrows Capital (3AC), which heavily invested in Terra, was liquidated in June 2022.

The reality is that returns based on marketing dollars are fake. Its like the Dotcom boom phase of paying customers to buy a product, says Karl Jacob, co-founder of Homecoin.finance of Bacon Protocol a stablecoin backed by United States real estate. 

20% yield how is that possible? Marketing spend or digging into assets are the only way to explain those returns. This is the definition of a Ponzi scheme. For an investor, high yield indicates a tremendous amount of risk.

Henrik Andersson, chief investment officer of Apollo Capital, notes the yield in Terra wasnt actually coming from token emissions. I wouldnt call Terra a Ponzi scheme even though the yield wasnt sustainable; it was essentially marketing money, he says. 

Real yield enters the chat

Its easy to be cynical, then, when the phrase real yield started to emerge to popular applause recently. Bankless analyst Ben Giove wrote recently, DeFi isnt dead. There are real, organic yields out there, in a piece explaining that real yields are opportunities for risk-tolerant DeFi users to generate yield at above market-rates through protocols such as GMX, Hop, Maple and Goldfinch. With the bulk of their yield not coming from token emissions, it is also likely that these protocols will be able to sustain their higher returns for the foreseeable future.

Real yield is a hashtag reaction to Terra LUNAs collapse, but that means people agree more on what it isnt than on what it actually is, argues Mark Lurie, founder of Shipyard Software, which operates a retail-focused DEX, Clipper.exchange.

Ive been on the real yield train for a year and a half and Im glad someone is paying attention. He says there are a few potential definitions, but sustainable returns on capital is one that actually makes sense.

An example of real yield is interest on a loan, like Compound Finance. Another example is fees charged on transactions and returned to capital providers e.g., gas fees in proof-of-stake layer 1s, trading fees in DEX protocols.

Manufactured narratives

Jack Chong, who is building Frigg.eco to bring financing to renewable energy projects, says there are a lot of manufactured narratives in the crypto space. Real yield is one of them, he posits.

The meaning of real yield depends on which corner of crypto you sit in, and theres two variants, says Chong, an Oxford graduate and Hong Kong native. One definition suggests that real yield is a protocol that has cash flow. It is a digital native cash flow denominated in ETH or crypto. 

In other words, its a business model that has revenue.

The exact wording of many threads on Twitter is that real yield is staking for cash flows. The distinction is the source of that yield a lot of crypto ecosystems are self-reflexive, Chong argues, referring to the digital money circulating and creating gains for investors without coming from actual revenue, like Terra.

Linguistically, real yield doesnt have to be about trading protocols, he continues. The other meaning is yield from real world assets. An example is a rental return from a tokenized piece of real estate, such as a fractionalized city car space split among investors.

Chong, who founded a biotech startup and once studied Arabic in Jordan with diplomacy in his sights, has a mission to deploy crypto for productive use. Any North Star for any financial system should be to deploy capital and make a profit. The whole real yield story is just common sense in TradFi, he points out.

Real yield is of course linguistically disparaging of all that came before it as fake yield. So, what are these yields?

DeFi will eat TradFi. The key is via Real World Assets (RWA).

But the industry lacks a rigorous case….

So we wrote a 70-page primer to walk through our idea maze

Here's a sketch of the report so that you can skip to the section you like pic.twitter.com/WnrhXA8aKM

— jackchong.eth (@jackchong_jc) September 27, 2022

Real yield: Interest and fees

Real yield can involve lending and borrowing models in which higher risk equates to higher interest rates for borrowers and, consequently, higher yields for lenders. Thats the model of the under-collateralized lending platform and real yield pin-up boy Maple Protocol. 

Maple enables institutions, such as market makers or VCs, to take out under-collateralized loans via isolated lending pools. A pool delegate assesses the risk of a borrowers creditworthiness. To date, Maple has originated $1.8 billion in loans and recently launched a $300-million lending pool for Bitcoin mining firms.

Interest from loans (or usury) is an obvious but lucrative business model. Banks mostly make money from loans. 

Holly Satoshi! $sUSD rewards this week from staking at @synthetix_io is huge!

Usually $sUSD value vs. $SNX value is +- 30%, but now it is reaching 68%!!

The future of staking is getting closer. Almost time to switch off the brrrrrr.

— CT (@0xToit) September 21, 2022

One of the most obvious sources of real yield is providing tokenholders with a slice of the revenue generated by fees imposed on users of the platform. In other words, there is an actual product or service earning revenue.

Jacob, an OG dating back to Web1, argues that proof-of-work staking returns on Ethereum now incorporate real yield.

ETH could be considered a real yield. With Eth1, most money flowed to miners proof-of-work (or mining transactions to prove their validity) was a kind of real yield already. Miners were getting real yield. Now stakers are able to earn yield from network transactions. Transactions happen often, and a lot of more people get paid. For every transaction, ETH stakers make money.

In other words, transactional revenue is a reward for ecosystem building. 

Others are joining the real yield trend or emphasizing that part of their protocol.

Synthetix is a highly successful decentralized protocol for trading synthetic assets and derivatives. Tokens on that platform are actually synthetic assets designed as a tokenized representation of investment positions.

Its too complicated to explain here, but the elevator pitch is that users stake the native token SNX to mint the stablecoin SUSD, which underpins all the liquidity and other tokens on the platform. Stakers are handsomely rewarded with token emissions sometimes over 100% APY as well as a cut of the SUSD fees paid by traders to use the platform. 

All of a sudden this year, SUSD fee revenue went through the roof when 1inch and Curve realized they could use Synthetixs synthetic assets for no slippage trading between things like BTC and ETH.

As a result, Synthetix is now considering a proposal by founder Kain Warwick to stop inflationary rewards and move to rewarding stakers based entirely on real trading fees.

Thats the very definition of real yield. It will be interesting to see if their real revenue is enough to incentivize stakers on the fairly risky and complicated platform.

But how does this all succeed in a bear market?

The most profitable narrative in the bear market:

“Real Yield.”

But what is it and how does it work?

Here's a Breakdown and 7 Protocols that Fit the Criteria:

(including a few hidden gems)

— Edgy – The DeFi Edge (@thedefiedge) August 12, 2022

Impermanent loss and other risks

Another way fees might be earned for providing liquidity is to assist in cross-blockchain liquidity. Liquidity providers risk facing exposure to the price volatility of the underlying asset they are providing liquidity for. Impermanent loss happens when the price of your deposited assets changes from when you deposited those assets. This means less dollar value at the time of withdrawal than when deposited. So, your rewards or headline real yield from staking liquidity may be offset by the losses upon withdrawal. 

Lurie says:

Ponzi yields may be defined as the unsustainable granting of speculative tokens. But yields from protocol transaction fees can also be fake if the underlying economic model is unsustainable. For example, liquidity providers to SushiSwap earn fees from transactions, but typically lose more to impermanent loss than they make from fees, which means they are losing money.

The important thing, obviously, is income minus expenses, says Lurie. The biggest problem in DeFi is that actual gains are complex to measure because of the concept of impermanent loss, Lurie tells Magazine. This is the greatest trick in DeFi, he says. 

Protocols that are fundamentally unsustainable make themselves seem profitable by relabeling revenue from fees as yield and relabeling loss in principal as impermanent loss.

Naturally, they advertise revenue (which can only be positive) while claiming that losses are impermanent and/or hard to measure. At the end of the day, real yield should mean profits to capital providers. Focusing on revenue without expenses is just the Ponzi principle in another form.

Questions to Ask:

Where is the yield coming from?

How much revenue does the protocol generate?

What is the native token supply and emissions?

What tokens are they paying the shared revenue in?

What is the overall base network traction?

— Edgy – The DeFi Edge (@thedefiedge) August 12, 2022

Traditional investors like real yield

Real yield has emerged due to current investment cycles and market conditions. Chong points out, Real yield more closely reflects TradFi and has a lot to do with the cycle of market participants.

During the DeFi summer, hedge funds acted as speculative vultures. Now institutional investors like Goldman Sachs are looking for new directions in crypto on what will survive the bear market. Others such as Morgan Stanley, Citigroup and JP Morgan are all watching closely and writing their own reports on crypto.

Apollos Andersson notes that real yield means that while there were historically wide question marks around the value of crypto assets, since 2020, protocols that generate revenue as on-chain cash flow are not that different from equities in that sense.

He defines real yield as on-chain derivatives protocols with profit to earnings multiples that make sense, without incentives like liquidity mining.

Traditional investors like real yield because it enables them to use traditional metrics like price-to-earnings ratio (P/E ratio) and discounted cash flow (DCF) to value whether a token is cheap or expensive and whether its worth investing in. 

The P/E ratio is a stock (or token) price divided by the companys earnings per share for a designated period like the past 12 months. DCF refers to a common valuation metric that estimates the value of an investment based on its expected future cash flows.

The transparency of blockchain revenue also provides a stream of data to constantly update decisions thanks to protocols like Token Terminal and Crypto Fees. In crypto, you dont have to wait for a quarterly statement like stocks, says Andersson. Revenue minus or divided by the newly minted token for incentives can generate cleaner numbers, he suggests. Real yield is revenue without incentivizing volume, such as in the cases of Uniswap and GMX.

Yet Andersson cautions investors that in crypto, income and revenue can be very similar, as the cost base looks very different than for a traditional company. This makes yield for crypto protocols highly attractive in comparison. But cost bases and margins can be higher in crypto as there is often an initial distribution of tokens when a project launches. He asks:

What is the protocols revenue compared to the value of the tokens minted? is the question.

Will the real yield trend stay?

The real yield trend shows that DeFi is maturing and beginning to act like genuine businesses. Its also growing in popularity. 

One way to validate a DeFi protocols use case can be to assess if it has been forked by other founders looking to leverage the original code and design, says Apollo Capital VC analyst David Angliss.

In this case, protocols such as Gains Network, Mycelium.xyz and MadMeX are all replicating GMX, by offering real yields to stakers in the form of fees earned via swaps and trading on a decentralized derivatives trading platform.

Sunny Aggarwal has vivid memories of some of the worst days of his life earlier this year. The blockchain co-founder and his Osmosis protocol were hit hard by the TerraLUNA collapse and are still recovering from its fallout today.

The Terra crash hit us incredibly hard because we were one of the biggest DEXs for providing liquidity to TerraUSD and Luna Classic, he explains, At one point, it made up over 50% of our liquidity. 

I always tell people that the Terra Luna protocol was created by someone with either an IQ of 50 or 150. And frankly, I cant tell which one.

Aggarwal is a co-founder and leads the development of the $225-million Osmosis DEX, which, at one point, eclipsed $2 billion in TVL before the coming of the crypto winter.

pic.twitter.com/Im1Fmlz4ci

— osmo1sunny (@sunnya97) May 16, 2022

The rise of cross-chain bridges 

Osmosis is a decentralized exchange (DEX) operating on Cosmos, the creator of the interblockchain communications protocol (IBC).

At the time of the last bear market, the development of interchain technologies, allowing users, data and tokens to port between chains, was close to being on the edge of the unknown. 

Laser-focused on price movements of tokens, few traders were across terminology, such as IBC, Tendermint or Cosmos. But fast forward five years, there are now nearly 50 blockchains using IBC to conduct more than 10 million IBC transactions daily across the ecosystem. And it still has more than $1 billion in total value locked across the protocol despite the market sell-off. 

Apart from his work in blockchain, Aggarwal is known for his eccentric selection of hats.

The meme that started a crypto career

A good friend of mine walked up to me and said, Did you know that Dogecoin just sponsored the Jamaican bobsled team? he recalls. And I was like, What the hell is Dogecoin? What does it even mean?

Aggarwal first became aware of cryptos existence during his senior year at Bridgewater-Raritan High School in New Jersey. At the time, crypto was a relatively new phenomenon and there were no extracurriculars or school clubs about the subject. Instead, the idea of blockchain spread the old-fashioned way. 

That sentence didnt make any sense to me, Aggarwal tells Magazine. But Im always fascinated by what I dont know, so I went home that night and looked up Dogecoin for the first time.

Like many others, Aggarwal found the idea of Dogecoin interesting and quite funny but did not really expect the coin to evolve into a billion-dollar-market-cap asset with celebrities fussing over it as it has. 

Instead, Dogecoin became a gateway token for Aggarwal to explore the vast realm of digital currencies. And so, during his freshman year majoring in computer science and political economy at the University of California, Berkeley, Aggarwal joined a small blockchain club and began teaching the subject to a class of roughly 80 students in his first semester. 

For me, the best way to learn something is to teach it. At Berkeley, theres this cool concept where students can teach courses as long as its backed by professors. And so, my computer science professor Dawn Song gave us the green light. 

A lateral path toward the interchain 

From the pool of students who attended his lectures, Aggarwal invited them to a new club he founded called Blockchain at Berkley, which is still ongoing and has since evolved into an award-winning blockchain consulting and development team. After learning the required knowledge, Aggarwal interned at Consensus, the creator of the popular MetaMask wallet, after his sophomore year in the summer of 2017. 

All of us in the club were pretty much Bitcoin maximalists at the time, but we felt like something was missing in the ecosystem, he says. At that time, Ethereum was gaining a lot of traction, and I wanted to learn more about it.

Contrary to expectations, Aggarwal did not find Ethereum to his liking. It just didnt click for me, and there was no roadmap as to how the network could have worked out in the long term. But the experience turned his attention toward a novel mechanism called proof-of-stake consensus. 

And so, Aggarwal went out and read all the proof-of-stake white papers he could lay his hands on. Out of all of them, it was the Tendermint piece that I liked the most, says Aggarwal, citing the protocols simplicity. Devs could build this in, like, a couple of months if we all wanted to. 

That summer, Aggarwal reached out to the Tendermint team, which is the core developers of the Cosmos and IBC ecosystem, and asked if any positions were available. At the time, the would-be Osmosis co-founder didnt even know that Tendermint was behind Cosmos. But after hearing about its projects in development, such as IBC and cross-chain bridges, Aggarwal felt that the ecosystem was a perfect fit. 

Everything just clicked. The idea of Cosmos solved all the issues I saw with the Ethereum model. So, I dropped out of UC Berkeley that September and began working on Cosmos full-time. Ive been doing it for the last five years. 

According to Aggarwal, what really fascinated him about IBC was its scalability on both the technical and social levels. Just take a look at Ethereum, he says. It has gotten so big to the point where theres tens of thousands of DApps building on it. And that, in my view, means that technical advancement on the blockchain grinds to a halt. 

Aggarwal explains that its simply unfeasible to consider all Ethereum projects needs, given the sheer numbers. Things would be much simpler if instead of you had fully vertically integrated app chains that could iterate the protocol layer very rapidly like IBC. In addition, the history of Ethereum hard forks further solidified his belief in IBC.

Each application and community should have sovereignty over their own system. We cant fork a blockchain every time there is a disagreement. If one application wants to fork, that shouldnt cause my application to fork as well.

Users of the Osmosis DEX can make use of 89 cross-chain bridges across 45 blockchains on Osmosis. That means one can swap in and out of connected tokens in a noncustodial manner, as well as earn swap fees for providing liquidity. 

Like most co-founders, on an average day in Osmosis, Aggarwal spends most of his time taking calls and coordinating the teams internal focus. About 25% of his time is devoted to coding and the remainder is spent networking with stakeholders in the ecosystem and with those looking to join.

But the event made Aggarwal and his team think long and hard about the protocols vulnerabilities. Experiencing two tokens making up over half of our liquidity crashing to zero in a matter of days made us implement stricter safety controls. On Osmosis, bridge rate limiting is now in place where, for illustrative purposes, a pool containing $100 million of digital assets can only have $5 million or so moved across an IBC bridge every six hours.

Reflections and the road beyond

Moving forward, Aggarwal sees himself working for Osmosis in the next five years or so. What Osmosis means will change over time; will it always just be a DEX, or transition into some other element? I cant say for sure. But its Aggarwals firm belief that most crypto projects will be built on Cosmos in the next decade. Hence, he says, I can definitely see myself working on this stuff for the long term.

As to his ultimate vision for DeFi, Aggarwal says it all boils down to one catchphrase hes polished over the years: 

Its all about enabling privacy for the individual and transparency for the system. 

He points to the example of Robinhood and the firms practice of selling customers order flow to big hedge funds to make a profit: Thats why we want to build a privacy-enabled DEX where none of that stuff happens. But at the same time, we want the system to be accountable. We want users to see, for example, how much overall leverage the protocol has. And not some clouded manifestation like in CeFi. Thats the vision I want to give. 

Coming every Saturday, Hodlers Digest will help you track every single important news story that happened this week. The best (and worst) quotes, adoption and regulation highlights, leading coins, predictions and much more a week on Cointelegraph in one link.

Top Stories This Week

Breaking: Google taps Coinbase to bring crypto payments to cloud services

Starting in early 2023, Coinbases payment service, Coinbase Commerce, will facilitate crypto payments for customers purchasing Googles cloud services thanks to a deal between the two companies. Google will only allow certain crypto assets for payment, including Bitcoin. Initially limited to certain participants, the option to pay with crypto will eventually be expanded to other customers, an executive at Google Cloud told CNBC. Google Cloud has taken several other steps toward crypto and blockchain industry involvement in 2022. 

BNY Mellon, Americas oldest bank, launches crypto services

Banking giant BNY Mellon has entered the crypto custody field, offering certain customers Bitcoin and Ether custody services via a new platform. The 238-year-old bank will provide bookkeeping for clients crypto in a similar fashion as it does for traditional assets, while also handling clients private keys. BNY Mellons CEO of securities services and digital, Roman Regelman, said: With Digital Asset Custody, we continue our journey of trust and innovation into the evolving digital assets space, while embracing leading technology and collaborating with fintechs.

SEC rejects WisdomTrees application for a spot Bitcoin ETF… again

Following multiple delays, the United States Securities and Exchange Commission (SEC) has denied WisdomTrees spot Bitcoin exchange-traded fund (ETF) proposal, which the firm filed in January. The SEC cited fears of market manipulation and fraud as the rationale for its decision, which is consistent with its previous rationale for denying spot Bitcoin ETFs. The SEC also denied a spot Bitcoin ETF proposal from WisdomTree in 2021.

PayPal says policy to punish users for misinformation was in error

PayPals Acceptable Use Policy was set to change in early November to include a $2,500 fine for any platform users that promote, post, send or publicize so-called misinformation. PayPal has since claimed that the policy provision was added in error. PayPal is not fining people for misinformation and this language was never intended to be inserted in our policy, said PayPal. The fiasco has reignited concerns about centralized platforms among crypto users who view self-custody as an important pillar of self-sovereignty and financial inclusion.

Blockchain games and metaverse projects raised $1.3B in Q3: DappRadar

Data from DappRadar revealed that $1.3 billion worth of venture capital flowed into metaverse projects and blockchain games in Q3 a bright spot amid crypto bear market darkness. While venture capital funding for these sectors was down 48% compared with Q2, the Q3 figure was still more than double the amount invested in all of 2021.

Winners and Losers

At the end of the week, Bitcoin (BTC) is at $19,665, Ether (ETH) at $1,329 and XRP at $0.50. The total market cap is at $938.70 billion, according to CoinMarketCap.

Among the biggest 100 cryptocurrencies, the top three altcoin gainers of the week are Huobi Token (HT) at 87.06%, TerraClassicUSD (USTC) at 63.33% and Quant (QNT) at 22.07%.  

The top three altcoin losers of the week are Klaytn (KLAY) at -20.36%, Internet Computer (ICP) at -15.04% and eCash (XEC) at -14.48%.

For more info on crypto prices, make sure to read Cointelegraphs market analysis.

Most Memorable Quotations

Ethereum is the Hotel California of cryptocurrencies. You can check in, but you cant check out.

Charles Hoskinson, founder of Cardano

Elon Musk quotes posts about Dogecoin, you get seven times daily signups.

Alex Harper, co-CEO and co-founder of Swyftx

If we [the crypto industry] want to achieve internet scale, we need a solution for AML/CTF compliance.

John Henderson, partner at Airtree Ventures

A bear market is the best time to start working in crypto and find a job.

Raman Shalupau, founder of Crypto Jobs List

There is protection in gold. But in my opinion, Bitcoin is far superior. It’s got math and code. Its defended by a decentralized protocol. You dont mess with math.

Greg Foss, executive director of strategic initiatives at Validus Power Corp

Its incredibly important not to ever forget that we have an immense responsibility that influencers do not. They have their own risks in terms of their followers trust, but we have our responsibility to keep our integrity as journalists.

Kristina Cornr, editor-in-chief of Cointelegraph

Prediction of the Week 

BTC price hits 3-week lows on US CPI as Bitcoin liquidates $57M

For most of the week, Bitcoin traded sideways, slightly favoring the downside, according to Cointelegraphs BTC price index. The asset sustained a fair bit of price volatility on Oct. 13, however, in line with the release of Septembers U.S. inflation data. Bitcoins price dropped down near $18,200 following the news but subsequently rebounded above $19,000.  

In an Oct. 13 post, pseudonymous Twitter user il Capo of Crypto tweeted about the possibility of Bitcoins drop being a bear trap, noting a potential subsequent rally to $21,000, followed by a stark drop.

FUD of the Week

US Treasurys OFAC and FinCEN announce $29M in enforcement actions against Bittrex

Crypto exchange Bittrex faces charges from two different United States regulators: the Department of the Treasurys Office of Foreign Assets Control (OFAC) and the Financial Crimes Enforcement Network (FinCEN). The regulatory authorities have essentially alleged that Bittrex did not conduct proper due diligence on its customers and transactions between 2014 and 2018, which allowed users from sanctioned regions to use the platform. Bittrex confirmed it would settle with OFAC for around $24 million, which may also be applied as a credit toward its $29 million settlement owed to FinCEN. Looking to move forward from the situation, Bittrex stated that it has been up to date with expected standards since 2018.

$100M drained from Solana DeFi platform Mango Markets, token plunges 52%

Mango Markets, a decentralized finance platform running on the Solana blockchain, reportedly bled around $100 million from its treasury thanks to an exploit. Someone manipulated price data for the platforms native MNGO asset, letting them borrow crypto worth far more than the value of the MNGO they put up as collateral. MNGO suffered a roughly 50% price drop following news of the event. Later reporting saw the hacker coming forward, demanding a $70 million bug reward and other terms to return exploited funds.

CNN to shut down its NFT marketplace and issue 20% refund

After about four months, media outlet CNN has decided to discontinue its nonfungible token (NFT) endeavor, seemingly another bear market casualty. The media companys NFT project, known as Vault by CNN, essentially offered tokenized memories of historical news events spanning multiple decades through CNNs history. The projects roadmap projected six months of development, although the media outlet has since claimed the project was a 6-week experiment, according to an announcement from the Vault by CNN Twitter account. NFT buyers will get a 20% reimbursement of the price they paid to mint their NFTs, according to a CNN staffer on Discord.

Best Cointelegraph Features

Attack of the zkEVMs! Cryptos 10x moment

zkEVMs are launching this month and offer a path to infinite scaling for Ethereum. But who will win the race between Polygon, zkSync, Scroll and StarkWare?

Mass adoption will be terrible for crypto

From reversible transactions to increased regulation and a rising tide of censorship, mass adoption is going to make crypto look more like the systems were trying to escape.

Cryptos downturn is about more than the macro environment

The global economic downturn should not have a long-term negative effect on cryptocurrency prices, even if it is influencing crypto in the short term.

Crypto is currently languishing like the internet did in 1996 with slow speeds and few practical use cases, says Steve Newcomb, chief product officer of Matter Labs.

But a major increase in bandwidth and security soon after saw the internet become a crucial part of daily life across the globe and were right on the cusp of that happening for crypto in the next few months.

“Nobody trusted their credit card on it and everybody thought it was a fad and there weren’t any use cases for it,” Newcomb explains. 

“And then we had 10x moments in bandwidth and then SSL came, and HTPS where you got that lock that was a 10x moment in trust. Suddenly in 2005 ecommerce just went through the roof.”

Cryptos 10x moment could finally be here, with zkSync’s Ethereum Virtual Machine compatible mainnet launching on October 28. EVM is essentially the operating system for Ethereum and enabling it to work using zero knowledge rollups means everything running on Ethereum can seamlessly port over to experience a huge jump in speed and lower costs. 

Theyre not the only ones attacking the problem: Polygon launched its testnet for its own zkEVM this week with Aave, Uniswap and Lens all committing to deploy on it. Scroll launched its Pre Alpha testnet in July while StarkWares zk solution has been ploughing through millions of transactions a month. 

These solutions are all well funded, with Scroll raising $30M, Starkware raising $150M and Polygon raising $450M. Newcomb hints that zkSyncs own funding round is in the same ballpark as Polygons, but its yet to be officially announced.  

StarkWare is way out ahead of the pack, having launched its own ZK rollup solution nine months ago and it turned on recursive scaling in August. But it also made the risky decision to use a custom programming language called Cairo in order to scale more efficiently. This could see adoption by the big protocols move to the path of least resistance on the EVM compatible solutions.

All of the solutions are also working on recursive scaling and/or Layer 3 implementations which will see Ethereum transactions potentially become thousands of times faster, remove the need for interchain bridges, and allow crypto to finally realize its true potential.

What is a zero knowledge rollup, or zk rollup?

ZK rollups are among the biggest buzzwords in blockchain today. The technology allows for thousands of transactions to be computed away from the achingly slow Ethereum blockchain, with a tiny “validity proof” verifying that all the transactions were carried out correctly. So you can “roll up” 10,000 transactions carried out elsewhere into a single ETH transaction. This is a big deal because even after the Merge Ethereum limps along at 15 transactions per second.

ZK rollups have been used for NFTs and financial transactions for some time now on platforms like Loopring, dyDx and others. But as co-founder Vitalik Buterin pointed out during ETH Seoul in August: 

“In general, I think we’ve learned that people don’t just want like a scalable money thing, they want a scalable EVM.”

Its one of what Newcomb calls five magic elements for ZK rollups. In his view a ZK rollup solution should be general purpose, EVM Compatible and support Ethereums programming language Solidity. It should also be open source to fit with cryptos founding ethos, and it should have a token distribution that decentralizes the protocol rather than concentrates wealth among the team.

By curious coincidence, zkSync has achieved all five of these self imposed metrics. (Newcomb says he cant detail the exact token distribution, but says around 30% for insiders seems to be the consensus.)

The checklist is something of a veiled criticism of competitor StarkWare which is set to give 49.9% of its StarkNet token supply to investors and core contributors. Its also not open source, although it plans to give control of the IP to its community. 

Co-founder Eli Ben-Sasson explains that the only way to take full advantage of the scaling afforded by ZK rollups is to use a custom language like Cairo.

“I’m very confident people will realise once they turn on proofs that the goal is not to simulate EVM. The goal is to reach scalability. To put 10,000, 100,000, one million transactions and have their proof fitted inside a single block of Ethereum, he says.

“I’m willing to bet that you won’t see a full blown ZK EVM that can put a million transactions inside a single proof on Ethereum. As we can easily do today and have been doing for months and years.

Scaling versus compatibility

StarkWare’s Odin-Free explained on Twitter there are complicated mathematical reasons behind the need for a custom language because “proof systems like Stark are based on polynomials over finite fields, giving a much more effective polynomial equation.” OK, lets take his word for it.

For Ben-Sasson, trying to soup up the EVM is just dumb:

“If you wanted to solve transportation, you could take a big truck and put it inside a plane and have the plane deliver it, he says.

“There are planes that can fit a truck inside, but that’s a very inefficient way of doing it. Far better way is just taking things and putting them directly in the plane.”

That said, the ecosystem does have a transpiler called Warp that turns Solidity code into Cairo code and which has just been used to port over a fork of Uniswap to StarkNet.

Is StarkNet EVM compatible?

This is a short summary of the giga chad brain talk of @EliBenSasson @PapiniShahar @0xGreg_ and Jorik Schellekens from @nethermindeth https://t.co/ecmzflXhig

— odin-free.eth (@odin_free) March 19, 2022

So essentially with ZK rollups there is a choice to be made between total compatibility with the EVM and scaling. Total compatibility enables DApps and protocols to seamlessly port over and everything just works exactly like on Ethereum for devs and users, but in scaling terms, faster is obviously better.

Newcomb admits StarkWares solution will produce scale better, but says sacrificing accessibility means it is more suited to bespoke enterprise applications than being a fundamental part of Ethereum due to adoption friction.

They’re not EVM compatible, so it’s really hard to port to them. We’ve seen projects that take seven months to port to them.

Compatible but less elegant

Theres no agreed upon definition, but EVM equivalent usually means exactly the same as EVM so you can just deploy the existing smart contract on the solution without any changes.

Scroll is widely agreed to be equivalent, but its also not on a proper testnet yet and is many months behind the others with a comparatively small budget. Polygons zkEVM solution claims to be equivalent (however this is contested.) zkSync meanwhile, will be EVM compatible – which means its almost identical but a few things may not work due to some design choices to make the solution work better.

Polygon launched its zkEVM Public Testnet on Monday claiming Polygon is the first project ever to deliver a full-featured, open source implementation of zkEVM; a groundbreaking milestone, not just for Polygon, but for the whole industry. Polygon says the testnet includes a completely open-sourced zk-Prover the first of its kind to be released publicly.

Co-founder Mihailo Bjelic tells Magazine early tests show that Polygons zkEVM can reduce Ethereums network fees by approximately 90% and increase the networks throughput by several orders of magnitude.

He says that open sourcing the technology “proves our alignment with the ethos of the industry and increases security of the solution since anyone can review it and point out potential bugs. This is not the case with StarkNet or zkSync, which keep critical parts of their implementations closed source, at least for now.”

Technical bit

According to Scroll’s Luozhu Zhang there are three potential types of zkEVMs: bytecode level, language level and consensus level. zkSync and StarkWare are at the language level and require a compiler or transpiler step, while Scroll and Polygon are bytecode level approaches. The human readable form of bytecode is called an opcode.

Bjelic says that Polygons solution is designed to be EVM equivalent whereas:

“Projects like StarkNet and zkSync are taking a different route they have their own custom virtual machines, and then they try to transpile Solidity, the most popular language built on top of EVM to the languages these virtual machines can interpret, he says.

There are two major challenges with this approach: (i) it is hard to build a transpiler that will support 100% of Solidity smart contracts and (ii) even if you have the transpiler you still can not leverage all the developer and end user tools like Polygon zkEVM can.”

Newcomb says there is bad information circulating. We do not transpile, we compile, he says. And he takes a shot back at Polygon saying that from looking at the projects Github that they are yet to develop a working general purpose prover integrated with a working sequencer.  

If this is the case then it means they have an undefinable amount of work to be done. The last 10% of any complex system is always the most difficult. This looks similar to where we were or even behind where we were when we launched testnet. And then after that it took us nine months.

Mostly compatible

zkSync meanwhile is compatible with all but three of Ethereums 141 Opcodes one of which has been deprecated, another is being deprecated and the third one is used by  less than 1/10th of 1% of projects according to Newcomb.

So what did we get for not being fully equivalent? We got two things, our cost for performance is way better than any solution going after equivalence. We’re way faster, way cheaper. And the second thing we got is we were able to stick an LLVM compiler inside of our chain which you can’t do if you’re doing equivalent. And what an LLVM compiler does is we’re already looking at layer three.”

The LLVM would let a Python, Rust or C++ developer code on their solution, which then compiles down to work the same way with Solidity. 

“That is huge for adoption. So where this project that took seven months over here in Cairo that same ecosystem project ported to us in seven days. That’s compatibility.”

He concedes it would take just one day to port over if zkSync had total equivalence but would miss the LLVM and the increased scaling. So he says its a trade off worth making.

Layer 3 and recursive scaling

The coolest thing about being able to compress a large number of transactions into a single validity proof, is that the technology allows you to compress numerous other proofs into a single proof as well. 

Its called recursive scaling and Declan Fox, product manager for rollups at Consensys, believes its so powerful that in theory the entire global financial system could run on Ethereum. We have the technology to achieve that kind of throughput necessary, he says. With recursive rollups and proofs, we theoretically can infinitely scale.

Also read: Ethereum is eating the world: You only need one internet 

StarkWare turned on recursive scaling back in August and has processed more than 30 million transactions since using the tech.

Recursion has already, at this early stage, increased the number of transactions in a single proof by approximately 8x, explains Ben-Sasson. What is more, its proving so efficient, soon after it went into production there’s a reduction of around 40% to our own cloud cost for proof generation.

These arent predictions or numbers we hope to see, but rather numbers from whats in production today. And I stress: this is just the start, and changes well make will mean these numbers will get more and more impressive.

Polygon is about to implement its Plonky2 solution according to Bjelic. It’s an open source zk-SNARK solution. “This recursive SNARK can be used to verify transactions orders of magnitudes faster than existing alternatives. Plonky2 is also natively compatible with the Ethereum Virtual Machine, which allowed Polygon to develop the zkEVM.”

And the testnet for zkSync’s Layer 3 will be released soon, in time to take advantage of an Ethereum upgrade called Proto-Danksharding early next year designed specifically to give rollups the space on Ethereum to blossom. Newcomb expects Layer 3 to be in production within a year. They’re calling it Pathfinder, an ecosystem of ‘fractal hyperchains.’

‘We could probably go on for hours engineering wise, but functionally the further up the recursive chain you get away from Etherium the cheaper the data costs get and it’s a 10x, 10x, 10x, 10x, as you recurse off up with data costs, and that’s unique to zk.”

That’s where we get to 100,000 TPS and a million TPS,” he says. Visa chugs along at around 4000 TPS on a normal day, spiking up to around 65,000 TPS at peak times like Chrismats.

“ZK is the only way to get to like 100,000 TPS so that you can get to the levels where something like Visa replaces its underlying protocol with a blockchain. And when you do that, that’s your mass adoption moment.”

Another astonishing development according to Newcomb is that Layer 3 can get rid of the requirement for interchain bridges, which is where all more than $2 billion of hacks have occurred this year alone.

“One of the other things that we’ve already achieved up in Layer 3, we get rid of all bridges. And when you can have one prover doing the circuit for all of the hyperchains up in L3, any communication from one blockchain to another now is native. That’s the other reason why Vitalik said this is the end game because there are no more bridges.”

‘If you make it faster, cheaper by orders of magnitude, if you make it easier to use and more welcoming to a broader audience of developers by having more languages available, and then you make people trust it because you get rid of bridges. That’s what I always say is a star cluster of 10x moments up in L3 and that’s where the game is going to be had.”

The demo launch was successful, and now our goal is to get our project on the path of regular updates. @zksync is scheduled to launch on October 28th, and you'll soon see the release of @zkSync compatible version of Homespace Metaverse.

Get ready, it's going to be hot! pic.twitter.com/O6sRm3tryz

— Homespace.is (@HomespaceNFT) September 29, 2022

Not fixed yet 

So that’s it? With the arrival of ZK rollups and EVM compatible scaling solutions everything has been solved?

Unfortunately not. ZK rollups are currently very good at taking computation off of Ethereum, but they still need to write enough data back to the main chain so that if the rollup stopped working or it taken over by bad guys, then some other outfit could step into the breach and work out who owes what to who.

Its called the data availability problem and a considerable amount of Ethereum’s roadmap with proto danksharding and full danksharding aims to solve it and allow for more data to be included. There are a couple of ways around this at present including storing data on Validiums, which are cheaper but less secure. 

So the way we describe it is if you have a baseball card collection, and many of these cards don’t cost a lot and you’ve saved them in Validium but then one rare card that is worth a lot of money you will probably save on Layer 1,” says Ben-Sasson.

Polygon is working on a number of solutions to this same problem including Avail “a blockchain where information is available to everyone at any time, was designed specifically for this purpose, Bjelic says. 

zkSync’s Pathfinder will enable devs to choose from three options for data availability, a Validium, zkPorter (mixing on chain and off chain) and ZKRollup (full security).

Dont expect a big bang from zkSyncs mainnet launch on October 28. It will be kind of underwhelming at first, with a couple of months of just Matter Labs testing and offering users bounties to try to hack it or exploit it. Then DApps will be allowed to port over, and start building and testing security.

“And then when we feel like we got everything done, we do what’s called lift in the gate,” says Newcomb. “And then all the users can come into the system simultaneously and it’s called a fair release program. So we don’t favor any project over another. He says that 150 projects will launch at that point and there will no longer be any reason a project would wait around for Polygons solution to be finished.

It’s like they’re going to a racetrack and they’re showing up with the chassis of a car that doesn’t have any wheels, no steering wheel and absolutely no engine, he says.

And we have the whole product done. You know we have the Ferrari and we’re ready to go.

Coming every Saturday, Hodlers Digest will help you track every single important news story that happened this week. The best (and worst) quotes, adoption and regulation highlights, leading coins, predictions and much more a week on Cointelegraph in one link.

Top Stories This Week

Musks deal for Twitter looks set to go with original $44B price tag

Elon Musk is back on track to buy Twitter. The billionaire originally decided to buy the social media network back in April 2022, settling on a price tag of roughly $44 billion. He subsequently attempted to cancel the agreement, claiming inadequate transparency from Twitter regarding the firms financial health as well as fake account and spam bot prevalence on the platform. Musk now intends to complete the original $44 billion deal, according to a legal filing.

EU regulators ban cross-border payments from Russian crypto accounts

In light of recent escalations in the Ukraine-Russia war, the European Union has banned crypto activity between member regions and Russia, no matter how small the transaction. The ban covers all crypto-asset wallets, accounts, or custody services, irrespective of the amount of the wallet, according to an Oct. 6 statement from the European Commission. Russia, on the other hand, has taken the opposite stance, evident in its approval of cross-border crypto activity in recent weeks.

SWIFT says it has reached a breakthrough in recent CBDC experiments

The Society for Worldwide Interbank Financial Telecommunication (SWIFT), a key cog in the global payments system, unveiled a successful test related to central bank digital currencies (CBDCs). In short, the test proved interoperability between CBDCs globally. For CBDCs, our solution will enable central banks to connect their own networks simply and directly to all the other payments systems in the world through a single gateway, SWIFT chief innovation officer Tom Zschach said in an Oct. 5 statement. SWIFTs other test pertained to tokenized assets.

Middle East and North Africa are fastest-growing crypto markets: Data

The Middle East and North Africa, known as the MENA region, took the cake for fastest crypto growth this past year. Between July 2021 and June 2022, the volume of crypto transactions in the region hit $566 billion, a 48% increase from the year prior, according to a Chainalysis report. Crypto usage in the MENA region ranged from capital preservation and remittance payments to institutional activity. Latin America took second in terms of growth at 40%, and North America came in third with 36%.

FTX and Visa partner to permit crypto payments in 40 countries

Crypto exchange FTX unveiled that it has teamed up with Visa to produce a reportedly feeless debit card. Launching such a card has been a long-standing goal of FTX CEO Sam Bankman-Fried. The FTX Visa card will reportedly be available in 40 countries. The cards website states the card is also free to own.

Winners and Losers

At the end of the week, Bitcoin (BTC) is at $19,604, Ether (ETH) at $1,336 and XRP at $0.49. The total market cap is at $947.07 billion, according to CoinMarketCap.

Among the biggest 100 cryptocurrencies, the top three altcoin gainers of the week are Casper (CSPR) at 20%, Elrond (EGLD) at 12.98% and Convex Finance (CVX) at 12.44%.  

The top three altcoin losers of the week are UNUS SED LEO (LEO) at -11.93%, Chiliz (CHZ) at -9.04% and Lido DAO (LDO) at -8.06%.

For more info on crypto prices, make sure to read Cointelegraphs market analysis.

Most Memorable Quotations

A year ago, nobodys asking me questions about bankruptcy. A year ago, everybody was asking me questions about DeFi and things like that.

Diogo Mnica, president and co-founder of Anchorage Digital

NFTs can give you the technical ability to take ownership of a game asset out of the control of the publisher of the game.

Alex Dunmow, CEO of Ninja Syndicate

This recession is in its earliest stages, and the smarter play is to let the Feds monetary policy shifts play out and save capital.

Richard Gardner, CEO of Modulus

As it stands, owning digital art is still relatively foreign to most people and, at most, its a cool concept.

Ted Mui, CEO of Kuma Games

All financial goods will move across blockchain networks in the future.

Matthew Hougan, chief investment officer at Bitwise Asset Management

That’s our mandate: not to make a world with Bitcoin or Ethereum, or not make that world it’s just to understand what’s going on, set up a system where we [] make sure people have good resources to understand what’s happening.”

Curtis Loftis, treasurer for the U.S. state of South Carolina

Prediction of the Week 

A crumbling stock market could create profitable opportunities for Bitcoin traders

Bitcoin posted another week of largely range-bound price action, trading between $19,000 and $20,500 for the most part, according to Cointelegraphs BTC price index.

Cointelegraph analyst Marcel Pechman detailed the potential importance of Q3 earnings announcements expected in October from big companies such as Tesla and Apple. If negative, the announcements could lead to a falling BTC price if the asset remains correlated to mainstream markets. In contrast, Bitcoins scarcity could appeal to investors if inflation woes continue.

FUD of the Week 

Kim Kardashian pays SEC $1.26 million to settle EthereumMax charge

Kim Kardashian faces legal action from the United States Securities and Exchange Commission (SEC) for not disclosing one of her Instagram posts as being sponsored, according to the regulator. The celebrity accepted $250,000 in exchange for publishing a promotional post about crypto project EthereumMax (EMAX) on her Instagram account. The act will cost Kardashian a total of $1.26 million in fines, which she has agreed to pay despite not confirming or denying the charges.

BNB Chain back online after suspension due to a cross-chain exploit

BNB Chain was paused briefly this week to combat a cross-chain attack related to the BSC Token Hub bridge. The exploit resulted in extra BNB, according to an Oct. 6 tweet from Binance CEO Changpeng Zhao. Although the chain was able to freeze $7 million, estimates say roughly $70 to $80 million was stolen, down from earlier estimates of $100 million. BNB Chain successfully resumed activity on Oct. 7.

South Korean judge dismisses warrant for individual involved in Terra collapse: Report

The broad hunt for members of the Terra team has resulted in its first arrest: head of Terraform Labs business team Yoo Mo was taken into custody by South Korean police. A Seoul Southern District Court judge dismissed the arrest warrant shortly after, questioning the regulatory claims of the accusations, although Mo is not allowed to leave South Korea. The Terra crypto project collapsed in outlandish fashion earlier in 2022. Project leader Do Kwon remains at large.

Best Cointelegraph Features

Wall Street disaster expert Bill Noble: Crypto spring is inevitable

Its 10% up or 10% down each day. I dont have to wait five years in between crises. As a matter of fact, I only have to wait about 45 minutes.

What remains in the NFT market now that the dust has settled?

From profile pictures to celebrity endorsements, the NFT space has changed a lot since the market boom in 2021.

Federal regulators are preparing to pass judgment on Ethereum

The Securities and Exchange Commission is moving to take action against Ethereum that reaches far beyond the United States borders.

Want to sue a crypto project that ripped you off? That will be $1 million, thank you. Luckily, there are options for those who face the daunting prospect of spending a small yachts worth of money in lawyer fees for their chance at crypto justice.

In practice, the majority of victims of international blockchain scams find themselves with little hope of recovering their money. According to crypto law expert Jason Corbett, a normal court case to recover $10 million$20 million dollars in the blockchain sector can easily cost between $600,000 and $1 million, with an average timeline of 2.5 years.

But there are a range of cheaper and better options to get a successful outcome if you learn how to work with the system. Legal investment funds can finance your case for a share of the judgement sort of like a VC firm for lawsuits.

The vast majority of lawsuits up to 95% are privately settled before they go to court, Corbett says.

Common blockchain disputes

Corbett has six years of experience in crypto law as a managing partner of international blockchain-specialized boutique law firm Silk Legal. Speaking with Magazine about his new crypto litigation financing project Nemesis, Corbett notes a clear increase in disputes stemming from deals gone wrong, contractual breaches and bad actors over the past months due to the bear market, which has seen many projects go sideways.

There are a variety of common disputes involving blockchain, from misuse of funds to smart contract failures, which are listed below.

Misuse of investment proceeds happens when fundraising proceeds go to founders Lambos and villas instead of legitimate business needs, he explains. While the occasional boat party networking or team-building event might be justifiable, salary packages are the main permissible routes by which invested capital can flow to the founders even dividends can only be paid from profit, not incoming investments.

12 Big Class-Action Lawsuits in Crypto: What, Who, How and Why – Ep.121 https://t.co/ttCUofPPEU

— Cryptocurrency Community Network (@cryptoccnetwork) September 15, 2022

The sale of fraudulent crypto happens when a token is sold to investors based on false claims. A possible (though not tested in court) example is found with the automated market maker protocol SudoRare, which suddenly shut down and disappeared with investors money. Such cases can easily cross the threshold into criminal territory, according to Corbett. However, he admits that pursuing the culprits can be very difficult unless the scammers have been reliably identified.

Illegal securities offering. One way that investors in flopped tokens can attempt to claw back money is by claiming securities fraud, demonstrating that the offering was illegal in the first place, such as an unregistered securities offering masquerading as a utility token sale. There are currently several U.S.-based class action lawsuits running against U.S. projects, such as those against Bitconnect and Solana. Corbett explains that such claims fall under securities law, being civil claims as opposed to those brought by the likes of the SEC classifying projects like Ripple as securities.

Difficult organizations to sue. Another area that can present a legal minefield is DAOs, which are often not registered anywhere and dont have any kind of legal personality, and individuals are just working on their behalf. Corbett warns that such arrangements can easily expose unsuspecting DAO workers to vicarious liability since the entity they believe they are acting on behalf of may not actually exist.

Even smart contract disputes can lead to the courtroom. If two parties agree to act according to a certain trigger on a smart contract, but it somehow malfunctions, that can put a lot of liability on the coder or smart contract audit firm, Corbett says. In such cases, the insurance policies of audit firms become critical.

When it comes to IP infringement, it is easy to imagine NFTs where copyrighted images are being minted and sold without permission. Even code, however, can be protected by copyright or patents, in which case implementing the code of other projects or even forking certain tokens may result in a serious claim. (This is obviously not the case with open-source software, which is why Uniswaps code has been forked so often.)

High costs

Irena Heaver, a Dubai-based lawyer specializing in blockchain, explains that while the aggrieved party is responsible for funding civil lawsuits, criminal cases are pursued by the state. As criminal cases deal with criminal matters rather than mere torts or mistakes, like a breach of contract and can result in prison instead of monetary judgements, the bar is set much higher in regard to evidence.

As an ideal, a criminal conviction can happen only when all reasonable doubt is removed, whereas a civil judgement can be made on a balance of probabilities, meaning that one party is at fault more likely than not. It is also the state, instead of the victim, that decides whether to pursue a criminal case something that happens infrequently when the alleged thieves are far overseas.

If the state isnt going to fund it and you cant afford to drop seven figures on the uncertain outcome of a court case, what can you do?

Alternative dispute resolution, involving either arbitration or mediation, is a cheaper option than formal courtroom proceedings. While arbitration is usually a binding process that can be viewed as court lite, mediation is a lower-cost private process in which a third party actively helps the parties come to a mutual understanding and agreement, Heaver explains. I always recommend mediation, she says, explaining that she has mediated dozens of crypto disputes where both parties have reached a satisfactory conclusion.

When a case does go to court, Heaver emphasizes that the judge needs to understand what is going on, which is far from self-explanatory when it comes to complex questions involving newfangled monkey-DeFi derivative crypto meta-chain utility tokens.

That means judges rely on expert testimony, and we all know about the fake experts in this space. These experts are selected and paid for by the parties themselves, and Heaver laments that for the right amount of money, you can find an expert whatever you want, naturally requiring the other party to pay for their own expert to refute the other.

When there are a large number of potential claimants, class-action lawsuits can pool them together into a single case. These are often undertaken by law firms as entrepreneurial undertakings, where the law firm does not charge claimants, who instead agree to give the firm a share of any settlement or winnings. 

An example can be found in a class action against billionaire Mark Cuban, who Moskowitz Law Firm argues used his fame to dupe millions of Americans into investing in many cases, their life savings into the deceptive Voyager platform and purchasing Voyager Earn Program Accounts, which are unregistered securities.

DeFinance

Another way to raise an army of lawyers without selling both kidneys is legal financing, also known as settlement funding or third-party litigation financing, which happens when a private investor gives a plaintiff money in return for a percentage of a legal settlement or judgement. This is effectively an outside investment toward a successful lawsuit, and the invested funds are generally directed toward funding the lawsuit in question.

Its about pairing someone with a risk appetite with a plaintiff who has a lawsuit but no funds, explains Bill Tilley, managing partner of legal venture fund LegalTech Investor, who has been working in the legal financing industry for 15 years. Funds like his look into an average of 20 cases for each one they take on, with the full due-diligence process costing up to $100,000 before a decision can be made to fund. This involves not only determining that a case is likely to succeed but that the defendant can actually be made to pay.

The big challenge in a crypto case is whether you can find and collect the money, even if you win the case resources need to be spent to trace the money. 

Determining the jurisdiction in which a case can be tried can also be a huge challenge in itself. In his own litigation funding research, Tilley has come across a perplexing trend of crypto-mystery. Weve looked at some crypto cases where just nailing down the jurisdiction is a nightmare theyll have multiple entities domiciled in multiple countries, he recalls. Crypto law is not an easy industry to crack.

Breaking: In a lawsuit funded by Coinbase, crypto investors are suing the US Treasury to block the sanctions it issued which bar Americans from using Tornado Cash.

— Mario Nawfal (@MarioNawfal) September 8, 2022

Enter Nemesis

For the past several years, Corbett has been planning to create a blockchain-specialized litigation fund. There was no point launching this when everything was going up, he says, but now with the bear market bringing increasingly disappointed investors to law offices around the world, things are looking up for crypto law. His litigation fund, Nemesis, has now gone live.

The litigation funding industry is growing fast and becoming a financial solution for a handful of use cases. Part of its maturity is increasing competition on investments, which requires the funder to, in addition to providing capital, add value to the case. Therefore, there is a rise in domain focus funds, he says.

Like any investor, it is important to build a trustable relationship with the plaintiffs and make sure their expectations from the case are reasonable and their motivations are in the right place. It is also important to have legal teams, consultants and experts with a proven track record in the subject matter.

Jurisdiction plays a decisive role. We cant enforce judgements against people in certain countries, so we have to pass on matters like that, he says, adding that the United States and the United Kingdom, where enforcement of court orders is relatively straightforward, are the biggest markets for blockchain law. The British Virgin Islands are also interesting because a lot of blockchain projects have used those structures, he notes. The EU, U.S., U.K. and Australia have mature legal funding industries, he says, adding that not all jurisdictions allow for cases to be financed by third parties.

Similarly to Tilleys firm, Corbett says that his Nemesis team vets cases to select those which are most attractive from an investment perspective. We look to earn either multiples or a percentage of the investment, he says, explaining that much of the potential outcomes are determined by the defendants directors insurance plans, which often become the payers of last resort. If the opponent has no money, the action often goes by the wayside, Corbett concludes.

In addition to making oodles of money, Tilley explains that legal funders get the added benefit of helping some people that have been wronged that wouldnt otherwise have had access to the justice system today.

We can be part of fixing the problem of the bad actors by holding them accountable so crypto will be bigger, stronger and better 5 or 10 years from now.

Have an idea for a kickass story? Find me at eliasahonen@cointelegraph.com, or on Twitter

“Index investing can be boring, but it saves you from the worst possible outcomes.”

When Redditor Joe Greene started the Top 10 Cryptos experiment in 2018, he bought $1,000 of Dash, NEM and Iota, among others, only to watch it crash to $150. But five years on, his experiment has paid off big time.

The rules: Buy $100 of each of the top 10 cryptocurrencies on Jan. 1, 2018, 2019, 2020 and 2021. Hold only. No selling. No trading. Report monthly.

Every January since 2018, Greene has reviewed a list of the top 10 cryptocurrencies by market cap from his tropical office in Bali. He puts $100 of his own money into each, tracks the performance every four months or so, and publishes the findings on his website and on Reddit.

When he began, crypto indexes were few and far between, so there wasnt an easy alternative. Having invested in stocks for years before moving into crypto, Greene predicted that chasing tokens on a hot streak was dangerous unless done consistently and this was indeed proven so by his experiment with the Top Ten Crypto Index Funds.

Bitcoin 2017

Like almost everyone else that year, Greene was mesmerized by the sudden rise of Bitcoin during the 2017 bull market. I remember looking to buy a rig to do some mining, but it turns out they were all sold out. So, I thought, Whatever, Ill just go out and buy some coins instead, he tells Magazine. A combination of the underlying technology, the financial elementsand the future direction of the asset class kept Greene in the sector. He has been blogging with the project ever since.

At the beginning, Greene was relatively new to crypto like his audience. He explains:

I came through Reddit and some online articles, and everyone was pretty much shilling sketchy returns, although there were a few diamonds in the rough.

Faced with uncertainty, Greene decided to stick with his normal investing philosophy of holding on to what he purchased and refraining from excessive trading. Outside of crypto, Im not a trader, and Im convinced that very few people are traders. Something like only 0.5% of traders are profitable over the long run, says Greene. So, yeah, I aint a trader. And I learned my lessons long ago. Greenes basic philosophy is that its safest to invest in low-cost, super diversified index funds which is Warren Buffetts advice for the majority of investors, too. But there simply wasnt anything like it at the time in late 2017. So, Greene decided to make his own.

 

 

 

 

Winner takes all

The thinking was that, like stocks, cryptocurrencies have also exhibited signs of winners take all, where over a long period of time, the winners keep winning and the losers keep losing in terms of investment gains. After all, the best performing cryptocurrencies attract all the media attention, Google searches, institutional interest, retail euphoria, etc. So, Greene theorized that for individuals who didnt know much about the crypto space, their best bet was to just stick with the top players and be consistent about doing so.

And so, from 2018 onward, Greene compiled a list of the top 10 cryptocurrencies on CoinMarketCap at the beginning of each January and tracked their performance over time.

 

 

Greene says that the best lesson he has learned during this period is the power of dollar-cost averaging purchasing an asset on a regular basis without any regard for its market price. This smooths out the volatility in the purchase price and brings it closer to the average price over the period in which it was bought.

What goes up doesnt always stay up, but the risks can be mitigated with monthly rebalancing, he said. My initial portfolio in 2018 consisted of tokens such as Dash, NEM, Iota, etc. Even though there was a bull market from 2020 to late 2021, none of the tokens I spoke of managed to recover their all-time high prices witnessed five years ago. But there were rallies thereafter, and if you stuck with rebalancing, you would have done well.

 

 

 

 

Crypto winter OG version

In fact, when Greene placed $1,000 in each of the top 10 cryptocurrencies in January 2018, his portfolio slid to be worth less than $150 just 12 months later.

However, patience is rewarded, and for someone who consistently invested $1,000 into the top 10 cryptocurrencies by market cap every January from 2018 onwards, the model portfolio would have returned a cumulative 87%. During the same period, the S&P 500 benchmark would have yielded 24%.

 

 

 

 

Greene points out that the strategy of sticking to the big winners if done consistently would have worked out in the long run. The 2019, 2020, 2021 and 2022 Top 10 crypto portfolios he tracked have returned +126%, 338%, +177% and -69% (not surprisingly), respectively, to date, essentially offsetting any poor performance made during the bear years.

 

 

 

 

Its not anything spectacular, like how Twitter shills claim you can get 10,000% in a week by putting your life savings into crypto, he says. For any kind of an index, youre never going to get the best return, but its going to protect you from the worst possible outcomes.

Greene elaborates that his method would have worked out better if the index was able to track the entire market, and not just the top crypto. Over the same period, an all-market crypto index would have yielded 224% growth, he stated.

Thats the beauty of index investing. I have a normal job and a family to take care of. Because of that, I cant spend 10 hours a day like on Twitter and Discord and trying to figure out which crypto is going to go up the most. I also suck at NFTs. So, we need an investing method for ordinary people whose lives arent devoted to crypto.

Greenes experiment and methods have attracted a lot of interest among the crypto-curious on social media. When asked about any interesting investment behavior or trading pattern he has observed among his followers over the years, Greene says that there are lots of people who view price movements with the benefit of hindsight: Its like saying, Hey, I bought Doge because it went up, you should have gotten it as well. I cant respond to that, and theyre right. But the trick is predicting that beforehand.

 

 

 

 

There have also been plenty of surprises: A lot of Bitcoin fans switched to Ethereum over the years, for starters. Then there was BNB Coin, nobody really expected that coin to become big, and I think not even Binance CEO Changpeng Zhao expected that.

On his blog, Greene also has a section dedicated to financial literacy, pointing out that retail investors should track their bills and have their finances in satisfactory condition and never risk more than they can afford to lose. His approach means he became acquainted with folks of a more conservative mindset.

 

 

 

 

Its folks that arent day trading crypto, he explains. And I tell them, Dont throw everything you have into crypto thats a bad idea.

A decade of Top 10

Greene plans to continue Top Ten Crypto Index Funds until it hits a decade or so. After all, I have a family and a full-time job commitment, which can get quite stressful at times.

 

 

 

 

But Greene warns that even though the experiments cumulative performance has been good, its important to be on the alert for severe drawdowns: Take this year: Theres now four stablecoins on the top ten list. Its a bit boring, so I would have to move things around a bit, he says, adding, But I should probably stick to what I know best. I also tried this year to get a bonus on DeFi. It was 130 bucks starting with USD Coin, which I swapped for TerraUSD, just for fun, and then I sent it to anchor on LUNA, which crashed magnificently.

 

 

“The collaboration-maxi nature was a welcome breath of fresh air.”

Increasing numbers of employees are quitting 95 corporate jobs to work for DAOs. While the moneys great, DAOs fall into a legal gray area, and it can be tricky to get your foot in the door.

Researchers Nataliya Ilyushina and Trent MacDonald from the Royal Melbourne Institute of Technology Blockchain Innovation Hub take you through how to get started.

This year could see two emerging workforce dynamics come to a head. Twenty-one million Americans quit their jobs in 2021 heralding the Great Resignation era after an extended experience working remotely during COVID-19 lockdowns and dissatisfaction with conditions upon reentering their workplaces.

One in 5 workers reported an intent to quit their jobs in 2022. At the same time, the peak number of members of decentralized autonomous organizations at the start of August 2022 was 3.4 million, with over 140,000 new members joining in July 2022 alone.

Although the Little Migration to DAOs pales in comparison to the Great Resignation, we might still wonder if these two trends are connected in some small way.

For one, the demographics of both groups are strikingly similar: workers typically between 30 and 45 years old and with the tech industry most affected. Secondly, DAOs are digitally native organizations and a natural fit for many of the disaffected workers seeking new remote employment opportunities.

So, why are people migrating from working in traditional corporations to become digital nomads working in new settings such as DAOs? Could this be your next career move?

 

 

 

 

Decentralized alternative

DAOs are a new form of organizational structure offering an alternative to corporations. For workers, the critical difference is the horizontal structure, where there is little formal hierarchy and no bosses.

DAOs offer a revolutionary new type of employment: a hybrid of ownership, traditional employment, freelancing and volunteering. Every member is a boss and a worker (both paid and unpaid) and is free to contribute when and where they see fit. Each member is free to choose how much time they want to spend working, voting and participating in discussions. Moreover, one can be a member of multiple DAOs and choose how much time and effort they devote to each.

According to DeepDAO, numerous top DAO contributors are members of dozens of DAOs at once, with the most prolific contributor currently part of more than 80 DAOs. In other words, employment in a DAO is flexible, discretionary, overlapping and deregulated.

 

 

 

 

DAO employment offers considerable worker flexibility in terms of their overall supply of labor, working hours and variety of tasks due to the digital, remote and asynchronous nature of DAO operations.

Today, it is possible to earn a living working for a DAO or across multiple DAOs, with some earning as much as $300,000 a year in 2021. A survey of 422 DAO members conducted by Gitcoin and Bankless showed that half of the respondents were able to earn a living from working in one or more DAOs.

 

 

 

 

A long road to be paid

However, the remuneration rarely comes as a traditional salary and is commonly paid in tokens. Furthermore, the moment one starts working for a DAO and the moment they get paid can be two entirely different points in time.

Here is how the evolution of working for a DAO typically looks. The moment one joins a DAO (usually by purchasing a token), they can start contributing by participating in a community forum (often on Discord) and voting (using Snapshot or something similar). At this point, however, there is a slim chance of getting paid. As ones reputation grows, the DAO community may reward them based on discussion and participation KPIs (usually via airdrops).

 

 

Once a member has familiarised themself with the DAO and proved their reputation, they might start contributing to the core DAO project. At this stage, this usually happens in the form of completing a bounty: a small, disconnected task. Bounties are paid and lead to further accumulation of reputation and DAO-specific skills.

 

 

Not everyone is skilled to work for a #DAO right now.

A DAO in its current form requires skills not everyone possesses, and thats ok.

A lot of ideas are still getting tested, and there wont be one single way to work in a DAO there will be many.

ivanlozada.eth _ (@ivan7538) September 6, 2022

 

 

The next step is to secure a part-time or full-time position within a DAO. While relatively rare and hard to get, these jobs are very well-paid. Longer-term or ongoing positions such as these are usually associated with the core operations of the DAO project: for example, a software developer role in a protocol DAO or a graphic designer role in an NFT art production DAO. If one does not want to have a fixed arrangement, they can continue contributing when convenient, and the peer review process will decide how to remunerate the value they add to the DAO.

Everyones story transitioning to work for a DAO is different for example, an anon dev called Squelch tells Cointelegraph he went through this entire typical lifecycle of DAO employment in merely a week.

Before joining DAOs, they built carbon market trading exchanges and natural disaster insurance, worked in investment banking, and helped to create an alternative interest rate benchmark to Libor called Ameribor and ran an insurtech company.

Theyve been interested in blockchain since first hearing about Bitcoin in 2009, but it wasnt until the DeFi summer in 2020 that they began to spend every waking moment learning about protocols and smart contracts.

 

 

 

It was still a big leap to ditch their eclectic financial services job but took the plunge when they saw a job ad for Tracer DAO (now Mycelium) looking for someone to build a decentralized derivative. After chatting with the Tracer people, it turned out they idolized Richard Sandor, who was Squelchs mentor.

I jumped on a call with and told them about my experience, and they asked me to be a pro-bono type advisor to the project. Within a week, they asked me to join as a full-time paid contributor and, a week later, asked me to run a core team providing services to the DAO.

Despite earning big bucks in their prior role, money didnt come up in the Tracer DAO chat, and it rarely comes up as the main motivation for joining a DAO. Most say the appeal is in no longer working for a boss. The absence of a hierarchical structure promotes teamwork and the feeling of being part of a community. DAO contributors often mention the fairness and transparency of the organization. They operate like worker collectives operating via blockchain in which each member has a say about how to reward the work of others. The community makes all the decisions.

The collaboration-maxi nature was a welcome breath of fresh air, Squelch says.

It is interesting in that you are connecting and collaborating with people that are also passionate about similar ideas and ideals. However, the challenge is creating coordination mechanisms and incentives so that everyone is working together in tandem to help solve these goals.

They go on to add, Even with the struggle of working in a DAO structure, I see them as being incredible tools to bring people together full-time, part-time and every so often to help bring things together.

 

 

 

 

Irregular hours and no job security

The benefits of decentralization and deregulation also come with risks.

The flexibility of the work comes with a lack of job security and employment entitlements. Like rideshare drivers and other gig economy workers, who work when they want but often do not receive the same entitlements as standard full-time employees, DAO workers are not guaranteed sick, maternity and annual leave provisions.

 

 

Blockchain law expert Aaron Lane from the RMIT Blockchain Innovation Hub says that working for a DAO is in a regulatory gray zone at present. There are established legal tests in most jurisdictions about whether someone is treated as an employee or an independent contractor, he says, adding, Organizations structured as a DAO cannot limit its liability just by virtue of that structure.

DAOs are not immune from other issues, such as workplace discrimination and harassment, but their deregulated nature does not easily allow the prosecution of those practices. After all, which jurisdictional authority does a global DAO fall under?

 

 

The Hustlers Guide to making $1M+ working for DAOs or Web 3 projects.

The 10 DAO Commandments

The 7 Figure Crypto Consultant (@BowTiedDAO) September 3, 2022

 

 

The lack of job security and a legal framework might discourage women from joining if they are worried about the lack of provisions for careers or maternity leave as well as the overall perceived high-risk nature of the industry. There is no data on those issues yet, but it may be one factor in the lack of gender balance in the sector. A Bankless survey of DAO members found seven times more males than females.

But Lane remains optimistic: While critics may say that there is potential for workplace rights to be eroded under a Work-for-the-DAO model, workers have a lot of power, as blockchain and crypto skills are in high demand, and this new technology could actually allow new forms of collectivized employment terms to emerge.

 

 

 

 

While DAO employment still needs to be more clearly defined, there are significant benefits, and its only set to rise throughout 2022. The new employment relationship is attracting talent by offering flexibility, transparency and ownership along with the prospect of generous remuneration.

And the few risks posed by the deregulated nature of DAO employment do not seem to have hampered the growth in DAO membership yet. How all this plays out with respect to the Great Resignation is still unknown, but DAOs have been picking up at least some of the slack in terms of employees moving away from traditional corporations during the pandemic.

Read more: How to bake your own DAO at home with just 5 ingredients!

 

 

“Putting Paris Agreement carbon markets on Ethereum and connecting the national carbon accounts of the world, is blockchain’s killer app.”

The sustainability movement has emerged as a 21st century megatrend, and it shows no signs of abating. Record heat in Europe, wildfires in the U.S. West, floods in Pakistan, drought in China, and accelerating ice cap melt in Greenland and Antarctica have driven home to many the looming threat of climate change.

Meanwhile, the New York Times declared in December “the sustainable industrial revolution is just getting started,” and even heavy industries like shipping, steel, and plastics are beginning to grasp the importance of an ecologically sustainable future developing products like “green steel,” which is a fossil-free steelmaking process.

But hurdles remain, including questions about transparency, accountability, traceability, trust, data integrity, and even greenwashing (making false or insincere environmental claims.) Or as the Times asked: “Can some of historys highest-polluting industries be trusted?” in spite of their professed good intentions.

This is where blockchain technology could make a difference. Like the sustainability movement itself, blockchain tech is global, 21st century, and mostly unformed though likely to be shaped soon by new laws and rules. Blockchains can simplify and lower costs of ESG (environmental, social and governance) reporting, build trust in “collected” data, develop new eco-related trading markets, and suggest new sources of innovation.

In March, for instance, automaker Volkswagen announced that it was using blockchain technology to help ensure that electric vehicle (EV) charging stations were using sustainable sources to recharge their electric cars. This move is aimed at consumers who want validation that the energy being used to recharge their vehicles isn’t coming from brown coal-powered electric companies or the like. BMW is said to be developing something similar.

Elsewhere, energy giant Shell announced in June the launch of Avelia, a sustainable aviation fuel (SAF) solution for business travel. The project uses a public blockchain to promote and validate SAF, which can reduce lifecycle emissions by up to 80% compared to conventional jet fuel.

Many now foresee a blossoming partnership between environmentalists and blockchain developers, especially as Ethereum with its big Merge, as well as other networks, move closer to carbon zero and even carbon negative platforms.

I continue to believe that putting Paris Agreement carbon markets on Ethereum and connecting the national carbon accounts of the world, is blockchains killer app, Joseph Pallant, climate innovation director at Ecotrust Canada and founder and executive director of the Blockchain for Climate Foundation, tells Magazine.

But if this promise of a blockchain/ESG alliance is to reach fruition, some questions need to be resolved, including:

• Are public permissionless blockchains sufficiently scalable to handle the sheer amount of data to be tracked for sustainability use cases?
• Looking off-chain, do blockchain-based sustainability-related projects face an oracle problem? Who is going to attest, for example, that carbon offset credits entered on the blockchain are legitimate and that they are really doing something beneficial for the environment?
• Finally, blockchain technology might be a useful tool in the quest to develop a global sustainable future, but is it a necessary one? Does the sustainability movement really need public blockchains to succeed?

 

 

We are pleased announce the launch of the “Pilot Project on Peer to Peer (#P2P) Trading of Rooftop #Solar Power on #Blockchain” in Lucknow, Uttar Pradesh ~The first of its kind project in #SouthAsia and #India

Tags: @rejipillai @UPPCLLKO @PowerLedger_io pic.twitter.com/iydmQz9cm1

India Smart Grid Forum (@IndiaSmartGridF) December 17, 2020

 

 

Tokenizing for more efficient markets

Many think that blockchain tech can make ESG-related markets more efficient, including the rapidly growing Voluntary Carbon Market, or VCM, where parties voluntarily buy and sell carbon credits that represent certified carbon removals or reductions of greenhouse gasses (GHGs).

Corporations can purchase carbon credits to meet their carbon neutrality commitments. A significant proportion of carbon credits issued this year have been minted on-chain, Charlie Moore, head of Carbon and ESG Solutions at Chainlink Labs, tells Magazine, adding:

The carbon credit market has historically been manual, slow, opaque, and inefficient. By moving carbon credit markets on-chain, the market inherently becomes automated, fast, transparent, and highly efficient.

Globally, carbon dioxide (CO2) permits grew to $851 billion in 2021, a gain of 164% compared with the previous year, according to Refinitiv, with most trading taking place within the European Union.

But multiple challenges remain in scaling Web3 carbon markets, adds Moore, including the lack of market standards. In addition, there are hundreds of layer-1 blockchains with little interoperability between them.

The blockchain trilemma looms, too. In building networks, its commonly believed that developers must choose among three key benefits decentralization, scalability and security. They can have two but not three. So a project can have decentralization and security, but not scalability. Or scalability and security, but not decentralization, etc.

 

 

 

 

Powerledger, for example, is an Australian company that uses blockchain technology to enable neighbors in Indias Uttar Pradesh state to trade solar energy on a P2P basis. Its secure network is able to process an impressive 50,000-plus transactions per second, the projects founder and CEO Jemma Green tells Magazine. But Powerledger uses a permissioned network not a public, decentralized one.

By comparison, Nori, an innovative carbon removal marketplace, has expanded using secure, decentralized platforms like Ethereum and more recently Polygon through creating and selling NRT tokens, each one representing one tonne of removed CO2 stored. The idea is that farmers are paid for adopting regenerative agricultural techniques while other stakeholders, including consumers, can purchase tokens to reduce their carbon footprint.

Scaling up is still a challenge, however. We can scale up the amount of supply/inventory that we have by further partnering with agriculture companies who can source large numbers of farmers for us, Nori CEO Paul Gambill says, though we’re sold out at the moment [in mid August] because the demand for carbon removal has outpaced the new supply enrollment. Projects like these may take time to reach a global scale.

Beyond carbon removal

Carbon removal isnt the only sustainability use case, of course. Indeed, a system like Noris which uses two assetsan NRT as a reference token, and NORI as medium of exchange token — could arguably be used in other ecological contexts, like ocean plastic recycling in the developing world.

 

 

 

Yes, I would love to see this two-asset model adopted in other social impact areas, Gambill says. Another intractable problem is wildfires that grow to such huge sizes because of low brush and debris on the ground that acts as kindling. It should be possible to incentivize removal of that in a similar manner. Ocean plastic is also applicable.

Blockchain technology can also help to alleviate a water shortage in parts of the U.S., where water is being diverted away from lakes, reservoirs, and rivers at unsustainable rates, says January Walker, a U.S. Congressional candidate in Utah. Often there is no accountability as to where it goes, she tells Magazine:

Blockchain distributed ledger technology can be combined with IoT water parameter monitoring to track where the water is going, who is using the most, and provide a means of collaboration across state lines to drastically reduce water usage.

The sustainability movement needs to harness the power of frontier technologies like blockchain to help reach its goals in a faster and more efficient way, Amna Usman Chaudhry, a founding member of the Oxford Blockchain Foundation tells Magazine. Blockchain offers various advantages such as increased transparency, security, immutability, and decentralization which can be utilized to find new innovative solutions to age old problems, including plastic pollution, particularly in oceans.

Similarly Blockchain offers immense potential for sustainability for smart cities, such as is the case with Dubai, which through its implementation of the Dubai Blockchain Strategy aims to save USD $3 billion in operational costs, 398 million printed documents per annum and 77 million work hours annually, Chaudhry adds.

 

 

 

 

Volkswagens EV pilot: Pick your energy source

Then theres Volkswagens smart-charging electric vehicle (EV) pilot project which enables car owners to specify their favored source of energy. Drivers pulling into charging stations can select to charge using wind and solar resources, from energy assets within a 10 km radius […] with an accurate breakdown of their sessions carbon footprint, says project partner Jesse Morris, CEO at Energy Web, a firm that claims to have built first enterprise-grade, public blockchain tailored to the energy sector.

An algorithm determines the optimal charging schedule to maximize usage of clean, locally sourced electricity, while a smart-contract deployed on Energy Webs network issues to the EV owner after charging an ERC1888 NFT, a fractionalized renewable energy certificate that proves the provenance and volume of clean electricity generated and consumed. VWs innovation group is now working out how to roll this out at production scale.

A huge catalyst for renewal energy

Solutions like these can help solve the sustainability movements greenwashing problem. Some are skeptical that EVs are really carbon neutral given that they require recharging from electric sources that as far as they know could be generated by brown coal, Anthony Day, global head of ecosystem stewardship at Parity Technologies, commented in a recent LinkedIn post.

This is consistent with Web3 project designs that, generally speaking, seek to make owners out of users and users out of owners. The EV is generating information all the time for the grid — temperature, traffic conditions, and so on, Day tells Magazine. Your vehicle becomes an oracle. It could be identifying potholes on the road.

 

 

 

 

Solutions like VW’s will also be of interest to businesses that own fleets of cars and need to document the carbon footprint of their vehicles, especially in Europe. If you can show that your vehicles are topped up on fully renewable energy, thats a major contribution toward reducing a businesss carbon footprint, Day adds.

A boost from U.S. legislation?

The U.S. Inflation Reduction Act (IRA), signed into law in August, has earmarked $370 billion for the fight against climate change. Could the legislation indirectly spur blockchain adoption? Blockchain technology will provide an immense boost to the impact of climate-related investments embedded in the Inflation Reduction Act, Pallant tells Magazine. On-chain carbon pricing tools can help ensure that the most capital efficient climate solutions are selected in future projects, as well as providing the needed transparency for verifying the ultimate impacts of this third of a trillion dollar spend.

Not all agree, however, that the U.S. legislation will do much for blockchain adoption. Having read through the IRA, I believe that it is unlikely to boost the utilization of blockchain as it does not make specific suggestions to lean into the technology, says Walker.

To make a difference, blockchain would need a champion on every project being funded. The only portion of the bill that I think would even help is the $4 billion for a water project. That however will go mostly to research and replacing a few 90-year-old pipes across the nation instead of innovating water technology and tracking, adds Walker.

 

 

 

 

Is it really helping the planet?

It needs to be remembered, too, that blockchain technology has inherent limitations, and by itself blockchain wont save the world, according to Day, who has a podcast by that title. Before ESG-related projects can be tokenized, someone or group needs to verify that the projects exist, they are useful for the environment and that they wouldnt have happened without tokenized funds they must have ‘additionality,’ in other words. The human factor cant be finessed. The sad fact of life is that the more manual you make that verification, the less scalable the system is, says Day.

Verification in carbon markets is typically done by third parties based on standards developed by offset registries like Verra and Gold Standard. Recent efforts to meld blockchain with the registry process hasnt gone smoothly. Earlier this year, for instance, crypto firms Toucan Protocol and KlimaDAO were criticized for promoting cheap, low-quality carbon credits that dont actually help the environment, according to Bloomberg.

Indeed, a recent analysis by non-profit research organization CarbonPlan found that over 99.9% of Toucans BCT reference token came from CORSIA-ineligible credits, i.e., the low-quality end of the carbon market, Danny Cullenward, policy director at CarbonPlan, tells Magazine, including zombie projects like Dayingjiang-3, a Chinese hydropower dam project that has been operating since 2006. Credits from existing dams dont do much to help the environment, many people argue.

 

 

 

 

Even if the registries are the most culpable actors, Cullenward continues, Toucan, Klima, and other tokenization efforts point to registry standards as proof of quality. Anyone who is professionally engaged in these areas either knows or should know about the underlying quality control problems that remain, so I don’t have any patience for what effectively amounts to passing the buck.

In response to the Bloomberg story that raised similar concerns, KlimaDAO published in April a letter-to-the-editor response, which acknowledged the problem on the supply side regarding the quality and integrity of carbon credits in the Voluntary Carbon Market (VCM), but it also noted that the article fails to consider the widely accepted need to scale up the VCM to meet the emissions reduction targets prescribed by the Paris Climate Accord.

To avoid the worst effects of climate change, according to the Taskforce on Scaling Voluntary Carbon Markets, the volume of the VCM will need to grow by up to 15 times by 2030, wrote Natacha Rousseau.

Other veterans of carbon markets like Pallant stand by Toucan and KlimaDAO, even after their BCT and KLIMA tokens plunged in price this year KlimaDAOs by 99% and Verra announced that it was prohibiting the practice of creating tokens based on retired carbon credits.

Klimas price collapse mirrored […] the crash in crypto prices generally, Pallant tells Magazine. I think the actual story is how crazy it was that KlimaDAOs price got so high, rather than that it has gone low. I dont think anyone at KLIMA expected the price to go to $3,000 plus. Shortly after its October 2021 launch, Klima soared over $3,600. It was trading at $3.84 in early September, according to CoinGecko.

 

 

 

 

Toucan, for its part, acknowledges that many of the criticisms around the tokenization of dormant credits were valid, John Hoopes IV, strategy and ecosystem at Toucan Protocol, tells Magazine, while Toucan is developing technologies to improve the quality and integrity of the VCM, including a system to store the digital monitoring, reporting and verification [dMRV] data that will underpin many credit types. As for the problem of dormant credits:

We also introduced a rule to prevent carbon credits issued more than 10 years after emission reductions have taken place from using our technology and be converted into a carbon-backed token.

Day isnt giving up on tokenizing carbon credits, either. I think it has a significant potential to be one of the largest blockchain use cases. Global climate initiatives often struggle because of local regulation. What is accepted in Argentina may be different from what is accepted in France, says Day. With a standardized token anybody can participate in that system purchase, trade, invest. You can get liquidity into that system. Thats very powerful if those token standards are recognized.

As with many new technologies, a certain amount of patience may be required. Both crypto and carbon are pretty complex and difficult and when you put them together, its like difficulty squared, Ollie Gough, strategy lead for the carbon-rating startup Sylvera, tells Time. Mistakes have been madeand were waiting to see how it pans out.

Is blockchain tech a must have?

Is blockchain technology really essential for the sustainability movement, though? We see blockchain as something akin to using barcodes in supermarkets, Powerledgers Green says. Barcodes and scanners are now integral to a supermarket. […] they facilitate supermarkets operating at high volumes and low margins.

Could supermarkets have taken off without barcode technology? continues Green. The answer is probably, but at a much slower pace, because the high volume, low margin [success] is hard to achieve with just a manual input of prices into a till.

 

 

 

 

New areas may emerge. ESG investing is yet to embrace smart contracts at any real scale, says Chainlinks Moore. There is enormous potential for smart contracts and blockchains to transform areas such as green bonds through tamper-proof automation.

With the European Council and European Parliaments recently agreed-upon rules for corporate sustainability reporting, nearly 50,000 EU companies in coming years will have to report ESG data, up from a mere 11,600 firms at present, according to EY. Blockchain technology could potentially make those filings more accessible, transparent, and credible for citizens, consumers and investors, many believe.

I’m generally very bullish on future blockchain use cases, especially in the sustainability space, Noris Gambill tells Magazine, while Pallant adds that Weve seen an absolute flood of new minds, talent and capital flow into the ReFi [regenerative finance] space over the last year. Well thought out, successful projects in that space will deliver profound value to climate, nature, forests, and seas by leveraging blockchain to deliver credible environmental assets.