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“I think OGs are hard core believers who went all-in when nobody else was paying attention to the space.”

In Part 1, we detailed three of the different kinds of crypto OGs you might meet at an industry party.

They were: (1) shadowy super coders and/or anon founders, (2) reputable and respected OG industry leaders like Vitalik Buterin and Brian Armstrong, and (3) the comeback OGs, who were trying to shake off the stink of a failed project.

This time around, we meet even more categories of crypto OGs, with insight from the insiders most familiar with them.

The NeoGs market makers and traders

There are a select few crypto players who joined the game late, yet they rose to prominence to become behemoths in terms of net worth and impact. Usually, these are savvy market makers and traders who are often mistaken for OGs.

Take, for example, Sam Bankman-Fried, the founder of FTX trading exchange and quant trading firm Alameda Research. Amid the recent crypto collapses, he gained even greater prominence as he stepped in big to provide bailouts and minimize the contagions.

Noobs may mistake SBF as an OG, but he only joined the industry in 2017. Bankman-Fried made his wealth from arbitrage crypto trading, which he leveraged to build his empire.

The 30-year-old is a self-made billionaire who is a regular in legacy financial media, invited to speak at all the top crypto conferences, and one of the default industry representatives weighing in on U.S. congressional hearings. His wardrobe seems to consist exclusively of FTX T-shirts.

SBF has famously stated that he does not necessarily believe in the future of any cryptocurrency, yet he sees them as attractive opportunities. Bottomline, he is the type who is in it for the money (but only for the purposes of altruistic donation at some later stage).

I dont think you can call those who joined in 2017 an OG, says Darius Sit, founder of successful Singapore-based crypto trading firm QCP Capital, which he also founded that year.

Thats my definition anyway. I think OGs are hard core believers who went all-in when nobody else was paying attention to the space, so thats certainly way before 2017.

Like SBF, Sit was also in crypto primarily to make money, and since its founding, QCP Capital has become one of the worlds larger crypto option trading firms with $1.5 billion in assets deployed back in 2021. Its

venture arm was an early investor in many prominent projects, such as Deribit, dYdX, Algorand, Tokocrypto and Nansen.

Judging from their successes, and the fact that the top three highest net worth in the cryptocurrency industry currently come from market-making businesses, one may wonder whether the winners in the industry are the savvier opportunists, instead of the holding believers.

Sit insists that market making is also a concrete use case and innovation of blockchain, instead of merely a money-making endeavor.

I think Sam and I shared and probably still share very similar views, and maybe I can provide some nuance here. Many crypto or blockchain initiatives promise incredible things that may or may not happen. But what is very real to me and what I believe in is the crypto capital markets.

To some extent, this is nothing new, he continues. It is the same market structures and practices with a different underlying: crypto assets. At the same time, it is also completely different.

Crypto is not attached to any particular country or authority; it is a non-aligned asset class that is accessible to anyone from any jurisdiction. It is the only scalable financial ecosystem that is independent.”

He adds: “In a world where geopolitics has become increasingly unstable, I think that counts for something. I enjoy being part of this developing market.

In the wake of this years macro sell-off and the liquidation of many Singapore-based whale trading firms and exchanges like Three Arrows Capital that sent shocks across the cryptocurrency market globally, QCP Capital has held its ground.

 

 

 

 

We were always wary of the leverage and rehypothecation in the borrowing and lending markets, and so, we never participated in a big way. I did feel quite stupid at times, especially when folks around us were making billions from the balance sheet expansion and easy leverage. In the end, the choice to just focus on trading and developing the derivatives markets might not have been the most profitable, but it was the right one, Sit comments.

At any networking party, you can find Sit having a quiet conversation outside with a couple of other people. I dont like crowds and prefer deep, quality conversations, he says.

 

 

 

 

The flashy influencers and YOLO bros

Last but not least, influencers are the OGs most likely to throw a networking party in the first place, in order to convert normies into crypto investors.

Even the letters OG conjure up images of swaggering, bling-bling-studded social media shiller types, wearing loud Bitcoin paraphernalia (cue The Bitcoin Man), driving lambos and popping champagne in the clubs, or otherwise chilling on a yacht somewhere in the Bahamas.

Often derided, theyve played a critical role in painting a dream of what is possible when one jumps onto the bandwagon of a deflationary asset class. Theyve all made life-changing amounts of money early from cryptocurrency due to astute intuition or dumb luck, and they want the whole world to know about it.

Whether buying flashy Lambos or super yachts or setting up a commune on a tropical island, these people are passionate about enjoying life to the fullest. They tend to be attractive and inspirational with larger-than-life personalities, making them suitable as event promoters, marketers, content creators and social media influencers. For better or worse, they are the face of the crypto industry in the mainstream.

 

 

I think people like me, like Kyle Chasse, are doing the hard work daily of preaching the gospel of Bitcoin to the masses, explains The Bitcoin Man aka Herbert Sim, a social media influencer with hundreds of thousands of followers on Instagram and Twitter.

An easily recognizable regular at conferences, Sim wears a Bitcoin necklace everywhere he goes and regularly posts on his social media about the virtue of investing in cryptocurrency.

I am very public about my identity because I have never done anything shady in the past. Plus, I am only shilling Bitcoin, and I 100% believe that it is safe and advisable for everyone to invest in Bitcoin.

Back in the days, I remembered a bunch of us would be partying hard at a club, and we would flaunt to everyone that we got rich from Bitcoin. We would hire girls with big boobs wearing tiny T-shirts with Bitcoin logos to drink among us in the club, Sim recalls fondly.

 

 

 

 

Sim got into cryptocurrency during his college years at Oklahoma City University in the United States. He was helping out a professor researching blockchain and got deep into the cypherpunk movement. This was as early as 2009 and 2010. In 2010, someone I cant disclose gave me some funding around 100 grand to host CryptoChainUniversity, one the worlds oldest academic repositories for research and education of crypto and blockchain.

The definition of OG is rather fluid, but I would say that the latest deadline for OGs to enter cryptocurrency should be around 2014, said Sim.

He has since worked in many different capacities in the industry, for example as the global operations director of Huobi Exchange and as the chief marketing officer of Cryptology. He also founded a U.K.-based venture capital fund trademarked The Bitcoin Man. In his free time, he likes to draw illustrations and write fantasy short stories inspired by the crypto industry.

People like us, we are the life of the party; we are not jaded at all with the industry, chips in Harry Horsfall, CEO of Zebu Digital a Web3 launchpad accelerator and marketing agency based in London, United Kingdom.

Horsfall bought his first Bitcoin in 2011 and went all in around 2013. I am not a whale, and I am certainly not Lambo rich. I have lost my crypto throughout history, but the most important thing is to get back on it and to keep believing in the future! gushes Horsfall enthusiastically.

Before crypto, Horsfall used to run music festivals, and now he organizes a lot of Web3 parties, for example, Zebu Life, Defi Life, Avalanche Summit, Ethereum Collective, Hijack Collective and so on.

The thing about crypto parties is they are not that great because they are predominantly male. So, we used to hire girls all the time. Now things are changing, and we are happy to see more and more girls coming into the ratio of 50:50.

OG is a spectrum

This guide is a rough sketch of the different types of OGs based on their roles and characteristics in the industry. But many OGs may straddle a few different categories, and others defy easy categorization.

What if you invested $1 in Bitcoin back in 2010? Would you count as an OG?

No, an OG would be a person who originated the technology or utilized the technology in creating new business opportunities that addressed key pain points previously ignored or unbeknownst. I wouldnt consider myself an OG, but an early casual believer-adopter, as I invested $50 SGD into Bitcoin back in 2014. To this date, this has become my best performing investment, says Victoria Au, now a business director at fractionalized real estate investing platform RealVantage.

Zing Yang, who first bought crypto in 2014 and became one of the board directors of Litecoin, has an identity crisis around this label.

I think I am an OG from timeline and participation, though, by my definition, I feel like an imposter, as I am not techy enough or part of the developer community who got in early since the 2009 days because of ideological reasons or enamorment with the tech, she says.

Yang has now switched careers completely to join a global food production conglomerate Cargill, where she feels like she can make a more concrete contribution with her talent and skills.

Being an OG is not all kittens and rainbows, says Marcus Eng, a rare former child OG, who got into cryptocurrency 11 years ago when he was just 14. I stumbled into crypto in a Bitcoin talk forum. And I have had my fair share of adventures since then. I was also an early Dogecoin OG.

Now 25 years old and working as an investment lead for QCP Capital, Eng thinks that he has finally started making concrete contributions to the industry.

When I was 14, I was so young. I was just fooling around. I was a rebel, and I got in for crypto idealism. I also could not manage my fortunes well and lost a lot of it throughout the years. Now I am much more discerning and critical towards the industry and able to help others navigate this space.

Being rich overnight so early also brought him some mental health issues. For a while, I was depressed because I lost motivation to do anything else in life besides for my own amusement, he says.

In conclusion, OG should simply mean anyone who has believed in the vision of blockchain since its early days, made contributions to the industry, and adopted and invested significantly in cryptocurrencies since 2014 latest.

Bear in mind though, theres always someone who is going to be more OG than you in so many different ways. It is not binary it is a spectrum, adds Yang.

 

Check out Part 1 of our Guide to Real Life Crypto OG’s below.

 

Insiders guide to real-life crypto OGs: Part 1

 

 

 

 

“Is there a need for more than one internet? And we know the answer is ‘Hell no.’”

Theres a version of the future thats tantalizingly possible in which Ethereum becomes the base layer for pretty much everything.

Recent advances in a technology called zero-knowledge Rollups from StarkWare, Polygon and zkSync enable the blockchain to move from fewer than 20 transactions per second to well, an infinite number of TPS.

In theory, it would allow the entire worlds financial system to run on Ethereum.

I think its theoretically possible, explains Declan Fox, product manager for rollups at Consensys, which provides Ethereum infrastructure and apps like MetaMask. We have the technology to achieve that kind of throughput necessary.

With recursive rollups and proofs, we theoretically can infinitely scale.

He adds it obviously hasnt been proven in production yet, so thatd be the next step.

The tech is so new and so promising that soon after it became viable, Ethereum rearranged its entire roadmap to take advantage of it. This weeks Merge is arguably the least interesting bit of the coming changes.

One of the pioneers of zero-knowledge proofs or validity proofs as he prefers to call them is StarkWare co-founder Eli Ben-Sasson. He worked on the problem for two decades, helping nurture it from an abstract theoretical concept something that is completely galactic and impossible, not enough atoms in the solar system to record even one such proof down to something that can efficiently be generated on a laptop.

At its most basic, the process employs high-level mathematics to generate a tiny validity proof that verifies that a whole bunch of other transactions has been carried out correctly. Instead of putting all the transactions on the slow and creaky blockchain, you just record one proof in a transaction.

This technology lets you send a very succinct proof that asserts that a computation was done correctly even when you werent watching, which I think is the most magical aspect, he explains.

What validity proofs deliver, they deliver integrity; they let me know that the right thing was done by others that someone processed 10,000 transactions, even when I wasnt watching, and they didnt steal my money. Thats what they deliver.

Tens of thousands of transactions being compressed into a single transaction on Ethereum is impressive enough, but the magic doesnt stop there.

Validity proofs work a little bit like fractals the closer you look, the further into the distance they stretch. You can take 10 validity proofs each representing 10,000 transactions and generate an entirely new validity proof verifying that those other 10 proofs are correct.

Suddenly you have 100,000 transactions rolled up into one. This is called a recursive proof, and you can just keep doing it over and over again.

It is a proof of proving. And so, you can further compound the savings because each time you generate a proof, youve compressed the process of verifying computation. So, basically, you can compress again and again.

 

 

 

 

Our interview is held the same week that StarkWare puts recursive proofs into production. The zkSync project, which uses the slightly different zkSNARKS instead of zkSTARKS starks, has implemented its own version of recursive proofs.

StarkWare has already rolled up as many as 600,000 NFT mints into a single transaction on ImmutableX, and Ben-Sasson says theyll be able to cram 6 million NFTs into a single transaction soon and then 60 million with more engineering and tweaking.

While there are still some problems to overcome, this type of scaling capability puts crypto back in the game for everyday payments and microtransactions such as paying a few cents to read a paywalled article rather than being forced to take out a monthly subscription. Long hampered by high fees and 10-minute wait times for payments to go through, crypto finally has the opportunity to fulfill Satoshi Nakamotos original vision of becoming peer-to-peer cash.

Ethereum co-founder Vitalik Buterin told attendees at last months Korea Blockchain Week that scaling meant payments were back on the table:

Its a vision that has been, I think, forgotten a little bit, and I think one of the reasons why it has been forgotten is basically because it got priced out of the market.

Do you even need another blockchain, bro?

Infinite scaling on Ethereum means some people mostly Ethereum people, to be fair can no longer see the justification for competing layer-1 blockchains like Solana or Cardano. Delphi Digital calls this the Monolithic view of cryptos future as opposed to a multichain view.

It doesnt necessarily mean there wont be any competitors, just that its likely that there will be far fewer of them as the space coalesces around a single general-purpose execution environment. (For the record, Delphi Digital Labs is throwing its research efforts into the Cosmos ecosystem, not Ethereum.)

 

 

 

 

Chatting downstairs at ETH Seoul, I ask Ben-Sasson if he can see any need for any blockchain other than Ethereum in the future.

His bespectacled face breaks into a grin.

I can argue both sides because one side says: Is there a need for more than one internet? And we know the answer is Hell no. It would be a completely stupid idea to have two internets.

One side of me says that that is the case. The other one says that maybe because this has all kinds of macroeconomic considerations, maybe its a little bit more like fiat currencies, where in that aspect, you probably want more experimentation.

 

 

 

 

Sergej Kunz, co-founder of DeFi aggregator 1inch Network is less circumspect. He sees Ethereum dominating the entire space, with layer-2 and layer-3 recursive-proof solutions running on top of it and benefiting from its decentralization and security.

I dont think any layer 1 apart from Ethereum will get a huge share on the market, he says.

Yeah, I see layer-2 solutions on top of Ethereum (because) Ethereum is kind of a safe haven and super decentralized after proof-of-stake. He adds:

I love also that the Ethereum guys tried to keep it as simple as possible, the main chain. Other layer 2s above it can be very complex, providing proofs to the safe chain that everythings fine.

Kunz says 1inch is eagerly awaiting the launch of zkSyncs mainnet by the end of the year and is even toying with running its own layer 3 for 1inch Pro.

What I heard is possible; the plan in the future is that it would be possible to have a layer 3 above the layer 2, he says.

Were thinking about spinning up our own network for 1inch to manage because of our centralized entity in Switzerland kind of only allow specific addresses to interact in this compliant DeFi environment. And it makes sense to spin up our own network and all those who can pass KYC/AML can participate in this network.

And we can use zkSync technology for layer 2 In our layer 3, we would have also… our throughput would be affected by the throughput of layer 2.

Polygon also has a variety of zk-Rollup solutions in development but was, unfortunately, unable to put forward an interviewee in time for this piece.

 

 

Stay tuned
Documentation is coming.#Bitcoin and #STARK proofs in action. pic.twitter.com/BoLW4lex3i

Abdel#1559 a.k.a The StarkPiller (@dimahledba) September 1, 2022

 

 

The original P2P cash: Bitcoin

Obviously, Bitcoiners will be getting extremely annoyed reading about Ethereum eating the world with zk-Rollups, but heres the thing: Bitcoin could also scale massively using zk-Rollups, and StarkWare and various others have been researching that possibility.

Although it lags behind in smart contract capability, Bitcoin may be able to underpin the worlds financial system if it fully embraces rollups, too.

But there is a major problem: Ben-Sasson says itd require a fork to allow a Stark verifier. The block size wars of 2017 and the jealous guarding of the original code and principles by Bitcoiners to ensure its integrity suggest the community may be unwilling to embrace change.

Ben-Sasson says he was orange-pilled way back at the San Jose Bitcoin conference in 2013 and that former Bitcoin core devs Greg Maxwell and Mike Hearn had expressed strong interest in exploring ZK tech. He adds:

Its not a technological problem. Its only a political problem. But its a big political problem.

In fact, zk-Rollups can theoretically scale any blockchain out there, but having no capacity constraints anymore undermines the primary appeal of competing layer 1s, which is that they are either faster or cheaper than Ethereum.

There are major advantages to using the most decentralized and secure chain available. And if Bitcoin is out of the picture, Ethereums slow and cautious development could be about to pay off.

 

 

 

 

As Ethereum stans are fond of pointing out, its easy enough to scale blockchains if you cut corners on reliability (like Solana, which has been knocked offline half a dozen times in recent months) or just require all the nodes to spend millions buying super fancy computers to run the network (like Internet Computer).

The embrace of proof-of-stake in the Merge has been carefully designed so that a poor farmer in Ecuador running an ancient secondhand laptop can easily validate transactions on the network. (No one knows why and how a poor farmer would get the 32 ETH required to join the network with an old laptop, but it is possible.) But anyone can join a decentralized pool with a mere 0.1 ETH.

In theory, this should make it more decentralized and secure than any other smart contract chain (although not everyone agrees). Ethereum already has 420,000 validators and encouraging network effects, in terms of users, developers and apps, than any other blockchain.

 

 

 

 

So, why deploy on a competing layer 1, when its instead possible to use a layer 2 (or layer 3) solution with infinite scaling on Ethereum and spin it up as fast as you need while still inheriting Ethereums underlying decentralization and security?

We are not quite at that point yet, however, and while zk-Rollups are a key component of scaling, they dont solve all of Ethereums problems by themselves.

Starknet solves the problem of computation. It doesnt solve the problem with data availability, Ben-Sasson explains.

To simplify this to very broad brushstrokes: Basically, a zk-Rollup still has to verifiably publish enough data on-chain about the transactions it performed off-chain so that if the rollup stopped working or fell into the hands of super villains or something, then another group could step into the gap and figure out who owed what to who i.e., recreate the state. This is an important part of what makes blockchains decentralized and trustless.

While they only publish a very small amount of data on-chain, blockchains like Ethereum are extremely limited in the amount of data they can include in each block.

Warning: Technobabble

There are a few different plans to deal with the data availability bottleneck. Theres Ethereum Improvement Proposal 4488, which reduces the cost of posting data on chains with the aim of supercharging rollups. Theres proto-danksharding, which introduces blobs of data and makes data availability cheaper again, and then theres actual danksharding (named after Ethereum dev Dankrad Feist), which will allow a bunch of chains to work in parallel and enable data availability sampling (which allows blockchain nodes to verify that data for a proposed block is available without having to download the entire block).

 

 

 

 

If youre not a hardcore dev and that sounds like a bunch of technobabble, the important thing to note is that Ethereum blocks currently carry 50100kB of data, which will increase to around 1MB when proto-danksharding is enabled (sometime next year), and 16MB under full danksharding (sometime in the future). Or to put it another way, expect a 10x increase in the current capability within a year, and 160x in a couple of years.

The upgrades are designed to move Ethereum from a monolithic and slow blockchain, where every validator computes every transaction and stores the history of the chain, to something more like a peer-to-peer style torrenting model where the work is dispersed rather than duplicated.

(Note that the above is not a comprehensive breakdown of the many upgrades coming to Ethereum, in the hope of keeping this story vaguely coherent.)

 

 

.@VitalikButerin claims that #Ethereum will be able to to process “100,000 transactions per second”, following the completion of 5 key phases:

The Merge
The Surge
The Verge
The Purge
The Splurge

A quick breakdown of what each stage means for $ETH. pic.twitter.com/FnaWww8mHZ

Miles Deutscher (@milesdeutscher) July 22, 2022

Hold on, when did this all happen?

While hardcore Ethereans are across the plans, loads of crypto traders and enthusiasts are only vaguely aware that a lot of this is even happening. As Professor Jason Potts from the Royal Melbourne Institute of Technology Blockchain Innovation Hub told Magazine in our piece about crypto critics:

This is such a fast-moving experimental space where just the knowledge gap between the frontiers and what we knew before is so vast that unless youre actually involved in the space and building, its really easy just to fundamentally misunderstand whats going on.

Its a full-time job to keep up with everything going on, and Ethereum keeps dynamically adapting its roadmap as new technology is invented and various people propose bright ideas.

An earlier Ethereum layer-2 scaling tech was called Plasma, but it proved too difficult to work with for more complicated applications. Then the roadmap for a long time was the transition to the mythical promised land of Eth2, which incorporated the Merge and scaled the blockchain with the OG version of sharding, which was like spinning up 64 Ethereum blockchains all working in unison.

 

 

 

 

Buterin ditched that plan when Optimistic Rollups and zk-Rollups began to look viable, and he published the new rollup centric roadmap in October 2020. The name Eth2 has been quietly retired ahead of the Merge, possibly because everyday users wont actually notice enough difference post-Merge to justify calling it something new. Its not going to be much faster or cheaper as a result.

During a weird virtual press conference at ETH Seoul, where he answered prescreened questions, Buterin noted that while his ideas about what needs to be done for scaling havent changed over the years, the tech has:

Today, they take advantage of a lot of technological discoveries that we have now that we did not have 10 years ago. So, like, data availability sampling… did not exist before 2017 2017 was when I published my first work on it. Optimistic and zk-Rollups did not exist, like, really before around 2019.

He described that his vision is to get Ethereum into tip-top shape as the base layer blockchain and then stop mucking around with it, with much of the scaling and experimentation to happen using layer-2 solutions.

This concept of a roll-up-centric roadmap, thats a new idea that only became possible because of the technology. Just zkSNARKS becoming a reality and becoming simpler and simpler, I think contributed a lot to that.

The moment of truth for crypto

Proper scaling, of course, will be the moment of truth for blockchain technology. Until now, most of crypto has been about hopes and dreams and speculation about what the technology will be able to do in the far-off future. Thats all about to change.

In the next 10 years, pretty much crypto has to transform into something that is, like, not based on promises of being useful in the future, but is actually useful. And I expect scaling to be the trigger for that, Buterin said.

If an application fails, after we have scaling and after we have proof-of-stake and even after we have zero-knowledge proofs, then chances are that application probably just doesnt make sense for a blockchain at all.

 

 

 

 

Crypto OGs slang for Original Gangsters have acquired almost a mythical and godly reputation in an industry populated with libertarians, anti-government rebels, innovators, get-rich-quick scammers, hackers and degen investors with rampant gambling addictions and toxic social media behavior.

Who are these OGs exactly? Unlike the rich and powerful in the traditional finance and conventional tech sector, crypto OGs are often protected by a layer of decentralized anonymity in a particularly wild corner of cyberspace. Who deserves this mythical label? The year they got into crypto? Their current net worth? Their lifestyle? Their impact on the industry?

How can you separate the randos and wannabes from the OGs? Without further ado, heres our guide to spotting OGs at any networking party, written with insider tips from real-life OGs.

 

 

 

 

1. The shadowy super coders and/or anon founders

These are the OGs that look underwhelmingly and deceptively average.

In New York and San Francisco, theyre the ones going around like starved college students, burying their heads under a hoodie and nodding to electronic beats from their headsets on a subway train. In Singapore, they are the ones blending in seamlessly with any given uncles at Kopitiams, wearing nondescript shabby shirts, slippers and Bermuda shorts.

These OGs are in crypto for the tech; theyre long tokens, and, hence, tend to be crypto rich but cash poor.

 

 

 

 

I dont have fiat, I really dont, Cyclone* tells me. (*Cyclone is not his real fake name.) Hes a shadowy super coder and anon founder who has been collaborating, developing, advising and consulting for many critical projects since he discovered Bitcoin in 2012: from Lightning Network to landmark proto DeFi platforms, to algorithmic stablecoins, such as the infamous UST. He is currently tackling cross-chain, as he sees that as the next critical development in the industry.

I meet him over lunch at a humble coffee shop in Singapore, in between his trips to Europe and the United States. At the end, he fishes around for cash in his pocket to pay for a 5-Singapore-dollar meal. Could you please cover that for me? Ill pay back in crypto. What coins do you want? he says.

This is from a man running a trading aggregator and exchange on Solana with billions in trading volume, moving millions of USDT and USDC regularly, and paying hundreds of thousands of dollars per month in Ethereum gas fees to run his other projects.

He used to have quite a significant Twitter presence almost a decade ago and was among the earliest batch of Crypto Twitter influencers but says the fame did not help him in any way.

If anything, it only exposed me to potential scams, hacks, wrench attacks, fraud, cyber-bullying andlegal action, he explains.

Ironically, anon devs trade on their reputations. Engineering and technical talent is probably the biggest bottleneck in the industry today, with a very limited number of talent who can actually execute a seemingly infinite number of random new project ideas. As a result, theyre paid extremely well, and they have the upper hand to only work for projects that ignite their passion.

Cyclone explains that crypto engineers, and especially the OG talent, know each other through underground social networking on Discord, Reddit, GitHub and so on. They know who is behind what project and can verify themselves if anyone is legit.

Introverted and a self-proclaimed geek, Cyclone hates networking parties. You probably wont find me in any of those. I dont care and I dont need it.

2. The reputable OGs

They may not have the same underground appeal, but reputable OGs have contributed significantly to the industry since its early days.

Unlike the anons, these OGs actually appear in your Google searches and feature heavily in traditional finance media such as Forbes, Bloomberg and Time.

They joined or founded successful projects at the right time, which got bigger and more reputable over time to become legit companies or organizations with hundreds or thousands of employees. Anyone serious about cryptocurrency knows their names.

These are the likes of Vitalik Buterin, the creator of Ethereum; fellow Ethereum co-founder Joseph Lubin, who went on to found ConsenSys; the Winklevoss twins, who started the Gemini exchange; and Jihan Wu, who became a crypto billionaire from his former mining company, Bitmain.

These OGs are highly visible and easy to spot in a networking event, as theyre usually giving speeches and interviews.

I think OGs are the people who have stood behind blockchain and cryptocurrency since its early days and had a concrete impact on the result or outcome of a project, says Brian (not his real name), who contributed significantly to the infrastructure security of early centralized exchanges. Hes now the chief technology officer of a well-known blockchain infrastructure company that builds services for crypto developers and manages over a hundred engineers in his global team.

Brian also wants to remain anonymous to reduce his SEO footprint.

Kidnapping for ransom has been increasing among crypto OGs, he tells me, dead serious. Getting more media attention will not aid him in any way anymore. Hes too OG for any serious industry player not to have known of him.

 

 

 

 

Brian got into crypto in 2012 after being told about Bitcoin by some fellow engineers. He was skeptical, yet he bought a little bit. Since then, hes drunk the kool-aid of the revolutionary promise of the blockchain.

Some OGs may become wealthy, successful and impactful, and they may or may not stay wealthy, successful and impactful moving forward, he explains.

Just like everything else in life, theres ebb and flow to our fortunes and life circumstances.

Ebbs and flows are understating it, seeing how volatile the whole industry is. Brian adds that theres a difference between whales and OGs.

OGs are generally early and visionary, but it does not mean that all of them are rich, he says.

 

 

 

 

The definition of crypto whales is more clear cut. For example, a BTC whale should be able to impact the market, and I believe the definition is to own more than 1,000 BTC. However, not all BTC whales are BTC OGs, and not all BTC OGs are BTC whales. People lost their fortunes in all manners throughout the history of cryptocurrency: exchanges collapse, hacks, scams, robberies, wrong investments

Brian has made a life-changing windfall from cryptocurrency but still chooses to work hard each day, building the infrastructure of the industry.

I want to solve problems and impact others lives. I want to make meaningful changes, and I know I can.

He moved on from centralized infrastructure security because the problem was largely solved, with fewer and fewer successful hacks attacking centralized exchanges.

You can compare this with smart contract hacks that happen almost every other day in the amount of hundreds of million dollars.

Is he still drinking the kool-aid, 10 years down the road, through the ups and downs of the market?

Absolutely. Nobody can predict how things will shape up, but one thing for sure: Blockchain will open up and democratize access to assets, properties, services and data. It will not be a perfect decentralization, but it will be a more open system than what we are currently seeing.

Brian and OGs like him can be found making the rounds at parties, talking to lots of different people with different roles in the industry. I am curious as to what others are up to and working towards. I want to know what others are building.

 

 

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3. The ones making a comeback

These are the OGs who have been embroiled in the downfall of large projects, with losses of millions and sometimes even billions in value, yet pick themselves and attempt to make a comeback.

There is a difference between a failed founder and a scammer, says Cake DeFis Julian Hosp, co-founder and media personality of the defunct crypto payment platform TenX.

Failed founders do their best, yet the project still fails anyway. Meanwhile, scammers and rugpullers are those who intentionally and fraudulently misrepresent their words and actions to gain investors trust. The former are not criminals, the latter are.

Founded in 2015, TenXs app allowed users to store different types of blockchain assets in one place, as well as use its physical debit card to pay with crypto at retailers around the world. It raised $80 million in an ICO in 2017 and positioned itself as the first crypto credit card issuer.

However, in January 2021, TenX announced its decision to discontinue its services and shut down indefinitely. New signups were disabled, and members were told to withdraw all their funds from the TenX wallet.

As of the moment, despite a freeze on all activities, the company has not been wound down properly, and no one seems to know what happens to the treasury of TenX, which includes significant amounts of Bitcoin, Ether and fiat. It has not been subjected to any investigation or regulatory action, and nobody seems to have suffered any consequences.

 

 

 

 

There is a lot of finger-pointing and disputing over who is to blame, however. Hosp tells me that he was pushed out and bought out by his TenX co-founders to his utter shock and disbelief back in early 2019. I did not know that they had been hatching to vote me out I was presented with no other choice but to quit, he says.

Reddit sleuths found out he was selling his governance tokens just before his departure and accused him of insider trading. He denies the accusations, saying that selling the tokens was part of his regular profit-taking strategy to pay for his income taxes, and his departure from TenX was completely unforeseeable. He also claimed that the reserves of the TenX funds from the ICO were not used to buy him out and puts any and all blame for anything that happened at the feet of his co-founders Toby Hoenisch and Paul Kittiwongsunthorn. (Hoenisch, by the way, has also been accused in Laura Shins book The Cryptopians as the hacker of the Ethereum DAO hack in 2016, without any hard proof. Laura consulted Hosp heavily for the writings of this book.)

Towards my departure, I had seen things that troubled me[a] lack of accountability that showed that they were not acting in the best interest of the company. Plus, now they are nowhere to be found. There is no accountability or reimbursement of investors money.

There are a lot of comeback OGs like Hosp in the crypto industry because it is often impossible to determine whether someone tried their best and simply failed or whether one was deliberately lying and scheming.

 

 

 

 

Prior to TenX, Hosp was a medical doctor and a kite surfer, and he was also involved as a network marketer for a controversial multi-level-marketing company Lyoness, whichwas subsequently ruled out in many countries as a pyramid scheme.

Hosp says he invested $100,000 dollars saved from his doctors salary into Bitcoin back in 2014 when it was just $400 apiece, and it was his life-changing investment.

I did not get rich from TenX, but from my Bitcoin investments. I have a long YouTube video explaining how I made $100 million and more from cryptocurrency.

Right now, Hosp is working and promoting his latest company, Cake DeFi, which he founded with fellow OG and former TenX engineer U-Zyn Chua with 50/50 allocation out of their own capital.

Cake DeFi is CeDeFi: a semi-centralized platform allowing users to invest and earn in the DeFi space with more transparency than Celsius Network for example.

I have no fear of making a comeback because I did nothing wrong, Hosp says.

 

 

 

 

Hosp tells me that he no longer needs to go to networking parties, but in any case, OGs making a comeback like him tend to be shamelessly charming public speakers, and you would have no trouble spotting them preaching to a mesmerized audience at any party, convincing them about their latest billion-dollar vision.

Part 2 is out later this week and features NeoGs like Sam Bankman-Fried, flashy influencers with Bitcoin bling and lambos and everyone else who doesnt fit a neat category.

 

 

 

 

NFTs can now serve as court documents but they might also be unregistered securities, illegal loot boxes, or come with impossible tax demands.

Nonfungible tokens (NFTs) are thought of by most people as just funny pictures that degens on the internet spend far too much money on for poorly understood reasons. But Jason Corbett, managing partner of global blockchain law firm Silk Legal, says new and innovative use cases are beginning to emerge.

Weve seen recently the courts allowing the serving of court documents by way of an NFT, Corbett says, referring to a recent decision by a United Kingdom court to allow notice of the case to be served by airdropping court documents as NFTs to wallets allegedly stolen from the claimant.

 

 

 

 

This changes our conception of what NFTs are and what rights and responsibilities come with them. Following this precedent, the sending of NFTs can be understood as a type of electronic communication, with the caveat that it is generally public. The sending of NFTs is more comparable to attaching posters to the outer wall of ones house versus discreetly sliding them into the mailbox.

This comparison to publicly visible posters begs the question of whether this means that individuals controlling blockchain wallets hold responsibility for the NFTs they hold, in the same way as a homeowner would ultimately be responsible for removing obscene or otherwise illegal posters on their property, even if placed there against their will.

Does this mean that, for example, the owners of wallets may in the future be responsible for monitoring them for any type of illegal content sent to them, and act quickly to dispose of them in some manner? Thats just scratching the surface.

 

 

Metaverse Law MA thesis “ENCODED TERRITORY: The Blockchain-based Metaverse as a Special Environment of International Law” argues that the #Metaverse influences the balance of global power & demands special legal treatment @UniTurkuLaw @UniTurku#NFTs #BlockchainGaming #cryptolaw pic.twitter.com/GSvghv6Xoy

Elias Ahonen.eth (@eahonen) June 11, 2022

 

 

The blockchain Metaverse presents challenges to the international order due to the limited ability of states generally to intervene in metaverse-based actions, I wrote in my Masters in International & Comparative Law thesis, The Blockchain-based Metaverse as a Special Environment of International Law. One fascinating, and perhaps off-putting, matter that has continued to come up in my research is the lack of clarity and, at times, the absurdity of earthly legal matters when applied in, and to, the metaverse.

NFTs and cryptocurrencies are a good place to begin exploring the subject, seeing they are effectively the building blocks and lifeblood of the metaverse. Both are, of course, tokens one being nonfungible in the sense that they are unique items, with the other being fungible energy with which the metaverse operates. By metaverse, we of course refer to the blockchain-based version of it, not some corporate-controlled Fortnite version.

Securities regulations

A variety of cryptocurrencies, often known as tokens or coins, began to appear in 2011 as theoretical alternatives to Bitcoin. Growing in prominence, they had their day in the spotlight during the initial coin offering (ICO) boom of 2017, during which hundreds of projects attempted to raise money by issuing tokens to investors.

 

 

 

 

When hundreds of millions of dollars are being raised in an entirely new way, its not surprising that potential legal concerns are lurking around the corner. This was certainly the case with ICOs, which regularly ran afoul of securities laws and the related accredited investor laws, says Randall Johnson, a United States lawyer with 30 years of experience specializing in securities regulations and who advises various blockchain projects.

 

 

What will be the law of the metaverse? . The legal and ethical dilemmas plaguing technology today will only grow more acute in the metaverse, writes Brian Harley. How will real-world laws apply?

Nathan (@shanzi73338680) August 28, 2022

 

 

He explains that one of the key questions around whether a token can be classified as a security is whether the general public would think it is an investment. This means that white papers or presentations that boast that tokens are already on exchanges or, worse, openly describe them as good investments and use to the moon style boosterism, are painting targets on their backs. Another factor that almost always makes a token a security is if it operates like a dividend-paying share in a company, he explains.

A large part of regulator analysis on whether a token might be a security has to do with how it is advertised and promoted.

But how is the financial regulation of cryptocurrencies related to the metaverse and NFTs? Its because NFTs are tokens just the same, and serious questions could arise regarding their status as securities.

What some may view as art might look like little more than stock certificates emblazoned with digitally generated monkey pictures to regulators. Indeed, Johnson himself is co-founder of LiquidEarth, a platform that is turning title deeds into income-producing real estate from around the world into NFTs.

His companies do not fractionalize the deeds because then the NFT is by definition a security, he asserts. The long-term goal is to create a global real estate exchange where one could seamlessly invest across borders, with the actual deeds held in trust.

 

 

 

 

James Woolley, chief marketing officer of Metavest Capital, agrees that while most NFTs do not resemble securities, others are likely to get caught in regulators nets.

There are variations of NFTs that will struggle to pass the Howey Test fractionalized NFTs where there is a lead role played by a marketplace or exchange will likely be more formally regulated by the Securities and Exchange Commission.

Woolley also mentions worrying speculation that the SEC under Gary Gensler, which has remained tight-lipped on the issue beyond declaring Bitcoin a commodity, has its aims on declaring all other fungible and nonfungible tokens as securities a move that would do untold damage to the industry.

Other experts worry that Web3 innovation has left appropriate regulations far behind.

Regulatory authorities worldwide are failing to keep up with the rapid technology developments in the Web3 and the metaverse space, concludes Irina Heaver, partner of Keystone Law specializing in blockchain industry and general partner of VC investment firm Ikigai Ventures.

 

 

 

 

In her work, Heaver describes regularly hearing concerns from regulators because innovative new crypto business models inadvertently trigger existing regulations concerning banking, lending, capital formation and other activities which were traditionally the domain of large players, such as banks.

Developers can code faster than any regulator can regulate.

Yes! We have no bananas

One example of possible triggering of securities regulations may be found in yield-bearing NFTs. Take for example CyberKongz, sometimes credited as the first NFT monkey collection, whose 999 Genesis Kongz yields 10 $BANANA a day, according to the site, in reference to the projects cryptocurrency.

At the projects height, this meant that each monkey-holder earned the equivalent of over $700 per week. In this case, would it not be unreasonable for a regulator to consider each CyberKongz NFT the equivalent of a class-A share paying daily dividends on the project? Its still a gray area, but the possibility is not entirely closed off.

 

 

 

 

If such a precedent is established, it could open a Pandoras Box regarding what the extent of securities regulations could be.

Suppose an artist creates an NFT series titled An Artists Share whose 100 unique works are then included in smart contracts designed to automatically pay the owner of each Artists Share a 0.1% payout of the given artists gross revenue from minting and royalties. Would this be a mere NFT, or would it be a security? According to Johnsons definition, it would seem to fit the bill. Could simple airdrops of new art to existing collectors also fit the bill?

Taxation quagmire

Even where NFTs may not be securities, there are serious uncertainties regarding how and on what basis they can be taxed.

Consider a hypothetical blockchain game, where a player can begin playing for a small cost of $20. With time, however, the theoretical value of their in-game items (NFTs) may grow. Does the mere playing of a metaverse game thus entail potentially hundreds of taxable events per day, leaving an unsuspecting player on the hook for preparing tax returns comparable to those of a medium business in complexity?

 

 

 

 

An example of this can easily be found with Axie Infinity, which, at least until recently, had a massive player base in the Philippines. Mark Gorriceta, managing partner at Filipino law firm Gorriceta Africa Cauton & Saavedra, said that in the country, NFTs have become mainstream due to the rise of play-to-earn games like Axie Infinity.

Cointelegraph previously reported on the countrys Finance Undersecretary Antonette Tionko commenting regarding the play-to-earn model that whoever earns currency from it, its income you should report it. However, this seemed to only refer to the act of actually selling in-game assets (NFTs) or in-game points (SLP and AXS tokens) for fiat currency or other tokens.

What is left unclear is what happens if a player, for example, finds a rare in-game item whose external market value is $100,000. If they simply elect to use this item in a game, will simply having the rare item come into possession be seen as a capital gain?

 

 

 

 

If not, would the situation change if they trade, exchange or somehow convert the item into something else within the game such as using a magic metaverse log valued at $100,000 to manufacture in-game planks with which to build an in-game house to boost the characters in-game building score? Just how many taxable events could an in-game activity like this entail?

Consider a real-world example of finding a gold bar while walking on a beach in some tax systems, you might be forced to pay tax on it that year, potentially meaning that the bar needs to be sold in order to raise the money necessary to pay taxes. Even in jurisdictions where no taxes are owed because simply keeping the gold bar results in no realized gains, things generally change as soon as the bar is bartered for a new car or luxury watch, even if no fiat money was involved. Even personally smelting the bar into personal-use jewelry could spark a taxable event.

This, of course, opens a new can of worms entirely tax authorities would need a system by which to actively evaluate the market value of various, often unique NFTs. Perhaps NFT appraisers will be one of the new metaverse jobs accounting firms around the world will soon be hiring for.

Wealth taxes for NFT collectors?

Speaking of the market value of NFTs, questions arise regarding various forms of wealth tax that are present in various European countries, such as Norway, where residents must annually pay 0.85% of the value of their net worth exceeding $170,000.

This means that each year, Norwegians should estimate the total value of their NFTs, whether game items, art, metaverse real estate, ENS domain names, or good old monkey pictures. While a floor-level Bored Ape Yacht Club NFT worth $100,000 would incur $850 in annual taxes, how much does the owner of a monkey with rare features like laser eyes or gold skin need to dish out? What about subjectively desirable numbers such as Monkey #8888 or #69420? No one knows, but the Norwegian tax office will expect their due regardless.

 

 

 

 

Continuing with the Axie Infinity example, the metaverses mode of operation introduces certain territorial absurdities when it comes to taxation. For example, the Philippines has territorial taxation, which means that, for example, an Australian citizen living in the country would need to pay taxes only on income they earn from the Philippines, while income from elsewhere remains effectively tax-free.

This means that the hypothetical Australian playing Axie Infinity in the Philippines would need to know the tax residency of every person they are selling their NFTs to, especially considering such a large portion of the player base is indeed within the country.

Determining the tax residency of NFT buyers is, of course, not practically possible in the open and decentralized markets as they exist today. This may become a serious issue in the future, for example, with countries that charge sales tax when goods or services are sold within the country.

Meanwhile, in Australia, there are certain circumstances in which NFT owners may need to pay a 10% Goods and Services Tax, depending on if its a Personal Use Asset, a Capital Asset of a business or used as a part of a business.

Though things are still at their early stages, Corbett says that in a few years, tax systems will be reading whats happening on blockchain, referring to advanced versions of tools, such as token.tax, which will be used by both individuals and regulators. The surveillance of exchanges that serve as on- and -off ramps for fiat will also increase, allowing the tax man to uncover positions.

Tax authorities will start kind of cobbling together what the taxable crypto positions of nationals are.

Is it possible they will start combing through those immutable records back to today and apply laws and taxes retroactively to current NFT owners? Will there be a new generation of prison gangs forming around NFT affiliations Apes Anonymous, anyone?

 

 

In the upcoming FLIP Buzzwords webcast, we explore how the #metaverse impacts legal issues such as personal injuries, copyrights, patents, contracts, claims by users against companies, and claims against other users under crime and tort law. Register: https://t.co/zqBMCOg0nI pic.twitter.com/FHKvoiBOeH

LawSocietyNSW (@LawSocietyNSW) August 24, 2022

 

 

Loot boxes and gambling

Many countries regulate gambling, which would likely include metaverse-based casinos. Some governments even place restrictions on the inclusion of purchasable loot boxes in video games, often citing a desire to prevent young people from gambling.

This is likely to become a concern with play-to-earn games, where loot boxes might take the form of NFT minting.

 

 

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This raises wider questions over whether NFT minting itself could be considered a legal equivalent to loot boxes or gambling in general. This is because NFT minters often pay significant sums of money in hopes of getting a particularly rare or valuable version of the NFT being minted.

Beyond loot boxes, one might be concerned whether the entire play-to-earn model, where players can be understood to bet money in various ways, might itself be classified as gambling with a broad brush. Woolley, however, is optimistic, explaining that in 2012, a U.S. federal judge ruled ruled that poker is not gambling under federal law because it is primarily a game of skill, not chance, a model he hopes will be applied to metaverse gaming.

Despite this, the jury is still out on whether games like Axie infinity and their successors can be considered gambling its a question that hasnt been formally answered. The South Korean government has already banned such games due to gambling fears, but there are signs the ban may be reversed or amended.

Have you encountered strange or bizarre legal questions relating to the metaverse? Feel free to contact the author at eliasahonen@cointelegraph.com to share your story.

 

 

 

 

The collapse of crypto shadow banks like Celsius demonstrated just how problematic centralized, opaque finance can be, says Sunny Aggarwal of Osmosis DEX.

Centralized finance platforms have taken a huge credibility hit due to poor risk controls, but decentralized finance protocols havent escaped unscathed either. So, is DeFi or CeFi likely to emerge stronger from this current period of turmoil, or is the future likely to see some sort of hybrid of the two?

In November 2021, Zhu Su, co-founder and chief investment officer of hedge fund Three Arrows Capital (3AC), was a big name within the CeFi industry. Having just closed a purchase of more than $400 million worth of Ether using the funds assets, together with his friend Kyle Davies, the two had become among the worlds largest crypto holders.

As a crypto bull market mesmerized the attention of return-hungry investors, funds poured into the Singaporean-based 3AC. After all, all investors had to do was to make a wire transfer, sit back, relax and enjoy the fat returns generated by the hands of professionals, right?

Fast forward just eight months later, both Su and Davies are in hiding after the collapse of the firm blew up the CeFi sector and wiped hundreds of billions off the overall market cap. A court in the British Virgin Islands ordered 3ACs liquidation with an estimated $2.8-billion hole in the balance sheet.

 

 

 

 

It turned out that a series of highly leveraged directional bets made by 3AC went horribly wrong as the crypto bear market intensified in May, wiping out whats likely to be all of its investors capital. 3AC had taken large loans from all the big CeFi lenders Voyager, BlockFi and, to a lesser extent, Celsius, leaving them all exposed, too.

Crypto-brokerage Voyager Digital reportedly lent $665 million to 3AC for trading purposes. It issued a default notice to no avail, and the firm was forced to file for bankruptcy. Crypto broker Genesis recently announced it will cut a fifth of its staff and replace its CEO after lending $2.4 billion to Three Arrows Capital. BlockFi suffered huge losses after liquidating 3AC; Finblox closed withdrawals; Derebit filed a liquidation application; and Blockchain.com got stung for $270 million and laid off 25% of its staff.

Celsius Network wasnt as affected directly by 3AC, as it only had $75 million in loans outstanding to the fund. However, falling crypto prices and a bank run following the collapse of Terra and ongoing contagion saw its net assets swing to negative $2.85 billion and was forced to halt withdrawals from more than 1.5 million customers indefinitely. Its currently trying to trade its way out of bankruptcy.

 

 

This is literally the best advert for DeFi we could ever hope for. pic.twitter.com/BZQm6Ntzav

— drnick X (@DrNickA) July 19, 2022

 

 

How did DeFi perform?

Decentralized finance, or DeFi, has performed a lot better at least in terms of contagion and by and large kept chugging along. Just before the crypto crash this year, never before seen developments, such as collateralized peer-to-peer lending, decentralized exchange swaps and liquid staking, led many crypto enthusiasts to believe that the world was on the brink of a new decentralized finance revolution.

Within a span of two years, the total value locked in DeFi projects had gone from nothing to over $300 billion. Heck, even traditional financial institutions (TradFi) skeptical of blockchain, such as the Bank of International Settlement, praised the technological innovations brought forth by DeFi.

 

 

 

 

However, investors confidence was harmed by the collapse of Terra and further shaken by ongoing hacks, which saw losses of $678 million during the second quarter of 2022 alone. Malicious actors, such as North Korea-backed Lazarus Group, have wreaked havoc in the sector by finding clever and intriguing new ways to break into critical smart contracts and draining them of users funds. Axie Infinity, a popular nonfungible tokens monster battle game, saw its Ronin cross-chain bridge lose $612 million in just one single Lazarus exploit earlier this year.

Its no doubt that opacity regarding investors money along with poor risk management and a lack of accountability has severely damaged CeFis reputation. But many crypto investors who werent big fans of custodied funds in the first place did not expect DeFi to fall so hard so quickly as well.

The cryptocurrency bear market has led to the value of certain DeFi tokens falling more than 90% within months, while some have been completely wiped out. Even reputable blue chip projects, such as lending protocol Aave, decentralized exchange Uniswap and stablecoin liquidity platform Curve, could not shield their tokens from the bloodbath, falling 60%70%.

Losing funds through bugs, poorly written code and security exploits have dealt severe blows to confidence in the emerging sector. And the recent sanctions against Tornado Cash have revived concerns over the decentralization of Ethereum. So, how likely is it that crypto enthusiasts visions of a decentralized future will recover?

Secure the funds

Luckily, talented developers and savvy project leaders are already on their way to addressing DeFis shortcomings, which were learned through the market downturn. Immunefi is a bug bounty and security services platform that has paid out over $40 million in bounties to white hat hackers. It currently offers bounties on over 300 DeFi and crypto projects that hold an estimated $100 billion in user funds.

Immunefi CEO Mitchell Amador said security expertise is sorely lacking in the DeFi sector, and this lack of more profound knowledge means that many developers launch projects by simply copying and pasting code from other projects.

When one of these projects has a vulnerability, others also have that vulnerability. This is a vulnerability peculiar to crypto rather than centralized Web2 firms. He says, The Web3 industry is unique because smart contract vulnerabilities can mean a permanent loss of funds.

 

 

 

 

With billions of dollars in user funds locked in smart contracts, black hat hackers can study those contracts, discover where theyre vulnerable, and exploit them simply due to their transparent, open-source nature. In addition, state-backed hacker groups, such as Lazarus Group from North Korea, are also dedicating a lot of resources to plundering protocols.

The problem is especially focused on cross-chain bridges, which tend to have much more moving parts than regular decentralized applications and are also riddled with complexity and a lack of standardization. Having far more funds locked up also makes them an ideal target for hackers.

Bounties posted by Immunefi and protocols have encouraged whitehat hackers to ethically exploit protocols to fix problems before funds are lost. In June, Ethereum bridging and scaling solution Aurora paid out a $6-million bounty to ethical security hacker pwning.eth via Immunefi. The protocol could have suffered a $200-million loss had malicious attackers decided to capitalize on the vulnerability.

Not all cross-chain bridges are created equal. Sunny Aggarwal, co-founder of Osmosis DEX, says that such hacks mostly occur on Ethereum Virtual Machine-connected bridges and not on the inter-blockchain communications protocol (IBC) that runs on Cosmos.

The major bridge hacks are a reminder to victims that bridges are, in fact, too brittle to be allowed to custody significant amounts of capital at this stage in their lifecycle. Nearly 50 blockchains use IBC to conduct over 10 million IBC transactions daily, across an ecosystem with over $1 billion assets in it.

Its a fully trustless system, Aggarwal comments. I think the future has never been brighter for DeFi. Protocols such as Terra Luna were positioned with binary success; it was either going to fail or be wildly successful due to its extremely risky dual-token conversion design. But in the end, the Terra meltdown proved that IBC works as promised and was a helpful stress test for Osmosis as a whole.

 

 

 

 

For Aggarwal, the entire point of this industry is to allow such experimentation to happen so that builders and researchers in the space can continue to iterate, integrating the things that work and blacklisting those that dont. This way, the technology will ultimately improve across boom-and-bust cycles as time goes on.

Why not both?

Neither CeFi nor DeFi is going anyway, so the future is likely to contain a blend of both.

SEBA Bank is a crypto-first custody bank licensed by the Swiss Financial Market Authority (FINMA). Matthew Alexander, head of digital corporate finance and asset tokenization at SEBA Bank, tells Magazine that more traditional financial institutions will want to engage with open and decentralized finance if rates on loans are comparable or better than TradFi, which will attract much more liquidity to the ecosystem.

Daniel Oon, head of DeFi at Algorand, also believes that theres huge potential in integrating DeFi with TradFi concepts, but the emphasis needs to remain on decentralization.

I would say the industry will witness a new growth spurt within the next year or so. Right now, services such as borrowing and lending are overcollateralized. And a move into loans collateralized on decentralized trust could have huge effects in the future.

 

 

 

 

The concept of fractional collateralized deposits for decentralized lending, as opposed to full collateralization, could, in theory, be aided by DeFis inherent nature of transparency. Unlike CeFi products, DeFi protocols usually provide real-time updates to applicable profits, losses, total value locked, token emissions and project reserves.

This transparency contrasts with opacity we witnessed in CeFi, where its been a major contributing factor in the meltdowns, troubles and scandals that many CeFi products are experiencing during the market downturn, says SEBAs Alexander.

 

 

 

 

Due to strict regulations, institutional investors are often prohibited from accessing wild west financial products in DeFi. But custodians such as SEBA Bank are helping to bridge that gap. Cryptocurrencies held with SEBA can be traded 24/7 against fiat currencies while gaining exposure to DeFi yields. More importantly, the Swiss Deposit Protection Scheme also guarantees the fiat funds in clients accounts used for trading.

Nah, lets go DeFi

For true believers in decentralization, nothing beats pure DeFi, though. Marvin Bertin, partner and chief scientific officer of Genius Yield a DeFi protocol operating on the Cardano blockchain thinks that a decentralized financial system will be much more inclusive. Bertin points out that profits generated by DeFi protocols will often trickle down to users themselves:

Take the example of traditional banks. Customers deposit their fiat money into accounts where they receive interest of 0%1%. The same banks then lend out customer funds at 10x or greater. Many people use these institutions because they dont have a choice. DeFi can allow customers to lend out their savings to other customers, essentially capturing this profit themselves instead of giving them to big CeFi institutions.

Ironically, of course, that is very similar to the one that Celsius founder and CEO Alex Mashinsky would often make to explain how the protocol returned such high yields to depositors. In January 2021, he told Magazine, DeFi, CeFi, it doesnt matter what you call it. Everybody is chasing yield because central banks and commercial banks are just not paying you anything for your money.

All weve done is basically use some of the best ways that Wall Street created to earn yield or extract value out of capital, he added.

Hopefully, transparent and truly decentralized platforms will be able to avoid a similar fate to the risk-taking, centralized and now bankrupt Celsius.

 

 

 

 

Bertin says another advantage of DeFi is that many people are eliminated from funding startups or other ventures because they dont have a high enough net worth. He says this is government-mandated in many developed countries and gives special privileges to people of a higher financial status. But in DeFi (at least in theory), anyone with an internet connection can access financial services, thus breaking down the usual barriers.

DeFi offers new and innovative ways to access finance, and some protocols are even experimenting with ways to avoid investment risk. Zug-based Genius Yield managed to raise its own seed funding via a community-based initial stake pool offering (ISPO) on Cardano.

In an ISPO, a new project that needs funding first opens up a public stake pool. Cardano users then delegate their ADA token rewards of 4%5% annual percentage yield (APY) in exchange for receiving the native tokens of the project.

Unlike traditional fundraising mechanisms, the principal is not at risk, as it is delegation only, with no exchange of funds. The maximum loss, all else equal, is the 4%5% opportunity cost of the yield that would have been earned via ADA staking should the project go bust.

 

 

 

 

Risk is a relative concept though: How do you weigh up the chances of a centralized service collapsing against the risk of a smart contract being exploited? SEBA Banks Alexander points out that DeFi is more likely than CeFi to be victims of devastating hacks, but it offers other tangible benefits, too.

It really depends on what users value most out of factors such as openness, transparency, permissionless, security, risk, compliance, etc., he says. Genius Yields Bertin believes the core reason DeFi will outcompete CeFi is self-custody. Crypto can be held in personal wallets where only the user has the private spending key.

You have sole control over your funds period. Your funds cant be seized or spent by any other party, he says.

 

 

It's clear that the “DeFi” sold to retail users across 2021 and 2022 to attract deposits was nothing more than irresponsible and unsecured trading of user funds via centralised management.

In some cases, even via single private keys (not even multi-sig!)

— THORChain (@THORChain) July 8, 2022

 

 

In contrast, CeFi institutions like banks or centralized exchanges can freeze, seize or restrict access to your funds at any time. Self-custody also protects users from the failures of the centralized entity. When Celsius and Voyager became insolvent this year, customers who had millions of dollars worth of crypto on these platforms had their funds frozen.

These customers may lose all their funds not due to their own decisions or mistakes, but to the decisions of those who ran these CeFi firms, he says. On the other hand, theres no reversing transactions or recovering stolen funds in DeFi, and if you lose your seed phrase, youve lost your funds forever. So, some will choose to trust centralized institutions, while others will choose to trust themselves.

 

 

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So, while theres a place for both CeFi and DeFi, Genius Yield co-founder and association president Laurent Bellandi is much more bullish on DeFis future.

Despite the many unknowns, factors suggest that this sphere could become a major force in the financial world, he says.

As the market recovers, laws are created, trust is restored, and more people become aware of the potential of DeFi products and services, the scene will only draw more capital.

The stats seem to bear that out. Capital investment in the crypto sector reached $31.3 billion year-to-date in July 2022, surpassing the entirety of 2021. And at the time of publication, the total value locked in DeFi protocols per DefiLlama stands at $61.55 billion. To be fair, thats half the amount of TVL as August 2021, but its several orders of magnitude greater than in August 2020. Despite setbacks, it looks like the trajectory is very much headed upward for DeFi.

 

 

 

 

 

 

 

Hiring in the crypto world can be difficult. Web3 companies are often disorganized and lack HR departments. Developers sometimes want to remain anonymous even to their potential employers.

Some employees dont exist at all, while others are secretly juggling three other remote gigs. Then there are those who pretend to be employees but are really just plotting to rug everyone.

The job of a hiring manager is no easy one. This goes doubly so for the Web3 world, where expectations both from employers and employees can be drastically different compared to the Web2 corporate world.

Magazine spoke to Declan Strain, managing partner of Dubai-based talent consultancy BlockDelta, which helps companies in the Web3 industry connect with workers of all levels. After 20 years as a recruiter, he became involved in the blockchain space in 2015 and set up his specialist consultancy in 2017.

A traditional recruiter wont be as successful as someone who lives and breathes this space, he says, referring to his efforts to be part of the fabric of the metaverse by attending events and making connections in person.

 

 

 

 

The ICO craze of 2017 saw projects being organized by small groups of developers who often lived in different countries, perhaps never meeting together. Still clearly in a gray-market industry phase, new hires could not be easily recruited via job boards but were often found online via Twitter or in chat groups on apps like Telegram.

There was no due diligence, so projects were often hiring the wrong staff, Strain laments, which can quickly get expensive considering the average blockchain developer earns $12,500 per month according to Dataconomy.

Compared to more established industries, Strain describes many Web3 companies as still being particularly disorganized, without human-resource managers let alone internal recruitment departments, which come standard for more established technology companies of comparable size. This often stems from the fast pace of the industry, where things simply change so fast that established procedures are not put in place. Job board Indeed.com reports that there are 118% more postings for blockchain jobs compared to last year, with a larger share of these being remote when compared to the software industry generally.

 

 

 

 

He argues that in the wild west of a new industry that crosses borders seamlessly, it is important to have a trusted recruiter to do due diligence in order to keep out bad actors. What exactly does he mean by bad actors?

Pitfalls

One situation that companies can face when hiring a candidate, according to Strain, is that they will come across a nearly perfect hire who ticks off all the boxes initially. But despite initial appearances, they are unable to verifiably back up their previous work with, for example, a strong GitHub profile in the case of a developer.

Once these applicants are hired, it can take several weeks to find out that the new employee is not what they say they are, with the project being delayed due to having to restart the hiring process again. Often, the over-inflating candidate is more than happy to deal with the embarrassment of being fired because a one-month blockchain developer salary can go a long way in certain parts of the world.

Another common pitfall for Web3 companies, where most work is done remotely, is the hiring of full-time candidates who are in reality juggling three to four jobs, which are naturally left undisclosed to the new employer. Others are more honest, explaining that they already have a job but try to convince them that they can take on a second, simultaneous full-time commitment. While there may indeed be 168 hours in a week, one is advised to stay away from such candidates.

 

 

Urgently seeking #GAMEFI Devs/CTO's and additional candidates for our network of global clients. Please feel free to email jobs@blockdelta.com to initiate a confidential chat. #BlockDelta – #blockchain specialists since 2017.#crypto #nft $BTC $ETH #nftcommunity #gaming #tech pic.twitter.com/4xELetPR8G

— BlockDelta (@block_delta) April 1, 2022

 

 

A more complex version of this issue is when the person being interviewed merely pretends to be a candidate, being, in reality, the business developer for a team of subcontracted developers who work on a number of projects simultaneously, essentially operating as a consultancy while pretending to be a dedicated employee.

Say, a Vietnamese employee with good English basically fronting as an individual but has a team working behind him, explains Jason Corbett, managing partner of Silk Legal a commercial law firm specializing in blockchain with offices in New York, Bangkok and Dubai. Such situations are especially troublesome from the perspective of trust and security around who is controlling any kind of private keys.

If you wanted to hire a consultancy, youd go to a consultancy, Strain stresses, explaining that such arrangements are a problem for a number of reasons, from data protection to competing deadlines where the employer may not end up getting the attention they expect. Strain describes such situations as surprisingly frequent. These are most common in Asia, but it can happen anywhere, he notes.

 

 

 

 

Moving from bad to worse, there are truly malicious actors who do their work but dig deeper to try to get what they want, whatever it is. This could include infiltration by corporate spies or worse black-hat hackers who end up getting access to things they shouldnt have access to and initiate hacks, which can have dire consequences for a blockchain company. While he does not have direct experience with competitors sending moles, hacks perpetrated by insiders are an unfortunately common occurrence.

One bad hire can ruin your project.

Corbett confirms this, saying he has had clients that have been rugged by their external developers, and we are now dealing with legal issues and trying to enforce recovery on their behalf. This is, however, difficult because there is little evidence regarding the hackers identity, as projects often fail to obtain proper KYC of new hires in the onboarding process.

 

 

 

 

Hiring for Web3

There is often a perception among applicants that people from western countries will earn higher salaries, which Strain admits can be true.

(The controversial practice of location-based pay is said to be related to the cost of living, and big companies, from Apple to Meta, pay employees differently even depending on where in the U.S. they live.)

This has led many candidates to lie about their nationality or country of residence, including one time when a candidate appeared on video link as an Asian national with a strong accent who claimed to be from London with the name John Smith, clearly wearing a wig and fake beard.

Most interviews happen via Zoom, and its an immediate red flag if a candidate does not use video. We had one candidate who point-blank refused, as he claimed he had facial reconstruction surgery the day before and was in no fit state to show his face, Strain recounts, adding that this was not the only dubious point for the person in question.

Another claimed to be in Poland but sounded South African, which he explained by having moved to Poland when he was two years old. Despite this, the 25-year-old said that he had not yet learned Polish and hung up the call when questioned further.

Credible crypto

The big question is: Have they worked for a credible project before? Strain says, explaining his hiring process.

He describes different classes of blockchain workers, particularly developers. Those whose past projects can be described as well-known, respectable, official, corporate and top-level are easily the most desirable employees; however, many candidates will have projects that arent exactly at the top of CoinMarketCap on their resume, he says, referring the site ranking over 20,000 cryptocurrency projects by market capitalization.

You want to be careful about people who have been involved with pump-and-dumps, which, unfortunately, is a large portion of applicants it can call their integrity into question and reflect badly on your project.

This does not mean that someone needs to have worked on Ethereum, Solana, BNB Chain or Polygon in order to be competitive even projects in the top 400, which includes projects in the $50-million-market-cap range, can provide excellent experience. In many ways, the list functions like the Fortune 500 of crypto: Any high-level employee from such a company comes with a certain confidence-instilling pedigree.

 

 

 

 

For any recruiting agency, this is likely to go both ways questionable projects want to hire staff, too. Strain says that at BlockDelta, we make sure the entity we work with is registered and has the right structure, adding that the company has turned down clients failing to meet their own threshold.

 

 

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Salaries in big crypto, like Big Tech, can be high. Blockchain developers with three to five years of experience on major projects and with strong testimonials command north of $300,000 per year. In what he calls the mid-range, $60,000$70,000 is a starting point, and those with more experience, especially in managing a team, rake in $130,000$140,000. Those rising to the role of chief technology officer can bring in half a million dollars, while chief marketing officers make roughly half that. When it comes to the top-20-ranked projects, salaries can rise substantially higher.

 

 

11 HIGHEST PAYING JOBS IN BLOCKCHAIN

Blockchain and crypto are fast becoming one of the best industries for career prospects and opportunities at the moment. It can offer higher job security and salaries than many other industries

Is your profession listed? pic.twitter.com/Yr4aMM7PFd

— Moralis Academy (@MoralisAcademy) October 23, 2020

 

 

Unique aspects of the industry

Perhaps uniquely to the industry due to its cypherpunk roots, Corbett notes that a notable portion of workers wants to be anonymous. The problem with this, according to him, is counterparty risk, which can amount to a breach of basic fiduciary duties on the part of the business, which would have little recourse if cheated by their anonymous worker. He laments that some teams have ignored his advice, hiring anonymous workers only to have them prove to be a significant liability.

You can get stuck in a situation where your community and investors are yelling at you because somethings happened, but you have no idea who you actually contracted.

When people tell me they want to be anonymous, I tell them thats nice, but this is the real world, and this is how it works, Corbett says.

Shafeeq Qureshi, managing partner of London-based financial industry recruitment agency Bright Mile, which now operates in the blockchain space, agrees that challenges in crypto hiring sometimes begin with the employer. I have come across quite a few projects where the founders do not want to share their public profiles, he notes, which presents certain difficulties considering many members of the workforce are not comfortable working for anonymous bosses. Qureshi has also found many less-than-reputable companies to have created fake employee profiles on LinkedIn something he screens for before taking on clients because both our time and credibility are at stake.

 

 

 

 

Borderlessness is another remarkable factor in the blockchain industry, and that extends to the geographical distribution of the workforce.

Strain surmises that as long as a candidate is happy to work, normally, the project is happy to pay working out payment structure is usually the main thing.

I dont hear companies saying that we cant hire a person from a certain country I think thats a beautiful thing.

But it also means that it is not often possible for employers to support employees directly by way of country-specific benefits, such as medical insurance in places like the U.S., instead paying a fixed amount and leaving the employee to look after their own insurance. Luckily, there are solutions like Opolis, a DAO providing insurance for freelancers.

This borderlessness also means that companies do not usually report directly to the tax authorities of an employees country, which, in many cases, leaves them with additional responsibility in filing income reports correctly. I think most of them report their income to relevant authorities, Strain says, though acknowledging that not doing so may be easier than with other industries.

While some projects looking for personnel believe that the recent downturn has slowed hiring and brought wages down, Strain happily points out that top candidates who lost their jobs recently from the larger heavyweight projects are getting snapped up very quickly, adding that there is still plenty of hiring going on.

 

 

 

 

Decentralized autonomous organizations come in all sizes and flavors. Some can seem sweet; others turn sour. It can be fun and interesting to create one that suits your needs and satisfies your hunger for something new.

We talk to the master chefs Noam Hof of DeepDAO, Stru Delman of Aragon, and Fabien of Snapshot who are mixing up new and exciting recipes for participatory goodness that you can bake at home.

A DAO is an online community that collectively controls a cryptocurrency fund to achieve a particular goal whether buying a copy of the United States constitution or running a DeFi protocol explains Delman from Aragon, an organization that midwifes DAOs and has helped usher almost 4,000 DAOs into existence.

The idea is attempting to automate as many exchanges between people as possible and making it trustless so you dont need to trust people, Delman explains. This makes it easier to collaborate with people that you meet online or to create a global team.

Youll need a good idea and a recipe for how to achieve success. Is it going to have the substance to make a fulfilling meal, or will it collapse like a badly done souffle?

Youll also need a set of tools and unique ingredients and some collaborators to help you bring this banquet to the table for more people to enjoy.

 

 

 

Just five ingredients:

1. Establish a common goal, mission or objective.
2. Build a community of like-minded people using Discord or Telegram.
3. Create a shared fund to finance your goal.
4. Construct a governance framework.
5. Communicate to the group how the project is developing and disburse rewards as appropriate to contributors.

Lets take a look at the different flavors of DAOs:

 

 

 

 

Protocol DAOs

These are DAOs that facilitate the running of protocols.

ENS DAO governs the Web3 protocol that allows users of the Ethereum Name Service (ENS) to create Ethereum names that are both human- and machine-readable. Its the Web3 equivalent of a DNS service provider.

The Uniswap community uses voting for decision-making on the development and some operations of the Uniswap DEX. UNI tokenholders vote on Uniswap governance, protocol fee changes and UNI community treasury funds alongside other aspects.

Philanthropy DAOs

Philanthropy DAOs are also one of the rarer types of DAO right now. They focus on supporting socially beneficial initiatives that have a shared goal. As the sector matures, it is likely that more philanthropic DAOs will emerge.

Big Green DAO is a U.S.-based 501c3 nonprofit that specializes in giving grants to growing food projects, believing that DAOs simplify and empower nonprofits. It supports schools, families and communities to grow their own food.

 

 

 

 

Giveth is a DAO that facilitates sending donations to charitable projects. There are 1,578 projects listed on its website, which include food growing in Costa Rica and feeding the homeless in Canada. There are trusted third parties like JustGiving that already do this, but Giveth claims to be more open, transparent and decentralized without taking a large cut of the fees.

Collector DAOs

Many people in the crypto ecosystem are interested in collecting. Collector DAOs focus on accumulating funds so the group can purchase valuable NFTs and other digital collectibles. Some people call collector DAOs NFT DAOs if they are about collecting those specifically.

Flamingo, which was the first, specializes in collecting premium NFTs. For example, it paid over $700,000 to own the CryptoPunk #2890 NFT.

PleasrDAO is an art collecting club, where participants purchase what they believe is important art for the community. It describes itself as a platform for collective experimentation at the nexus of community ownership, DeFi and digital art.

Investment DAOs

Investment groups have been common for a long time, where a number of people get together to share investment knowledge and split the risk.

Investment DAOs work similarly to traditional investment funds. They operate the same model of using a pool of funds as in the traditional investment funds, although without any centralized controlling entity. In this type of DAO, tokenholders vote on decisions regarding projects for investing funds. Syndicate is an umbrella organization that has facilitated the creation and operation of investment clubs through decentralized mechanisms. It calls these Web3 Investment Clubs, where participants can create a group of up to 99 investors, pool their capital, and vote on where to invest those funds.

 

 

This morning over 20,000+ investment clubs have now been created on Syndicate

And this is just the beginningour next phase is coming. Join us.

Start a club on Ethereum Mainnet or Polygon today:https://t.co/9Mma3mH2xh pic.twitter.com/JybBDsu7Du

— Syndicate (@SyndicateDAO) July 21, 2022

 

 

Grants DAOs

Similar to investment DAOs, there are also grants DAOs. These are tailored for funding and nurturing new projects and ventures, particularly in the DeFi space. Grants DAOs put their funds into projects to advance a particular scheme, which could be to fund scientific research or environmental activism or a whole range of different types of projects.

VitaDAO is an open cooperative that anyone can join, granting funds to research new therapeutics and science aiming to increase the human lifespan.

Meta Gamma Delta is a collective that supports and empowers women-led projects through grant funding.

The way your DAOs will bubble up when mixed together would customarily include:

1. Planning
2. Drafting and programming smart contracts, wallets and tokens
3. Establishing an initial community
4. Reaching out to new participants
5. Development and change.

Organizations in the conventional world tend to be slower moving, less flexible, and very much less transparent and decentralized than DAOs.

 

 

 

The tools you will need:

Aragon Client, Snapshot, a wallet, and some crypto. ETH is a good choice, but there are others, including any decentralized cryptocurrency that supports DAO creation, such as Cardano (ADA), Solana (SOL) or Polkadot (DOT).

Step 1: Lightly toast governance

Once you have your concept, you will need to put some form of governance in place. Hof of DeepDAO, an organization concerned with researching and supporting better DAO governance, says:

You need to know what you want to do, and you need a strategy for how to achieve that. You also need research and planning.

Hof emphasizes the need to be flexible and effective: a rigid plan that is not adaptable in practice is a hindrance. Some DAOs can accommodate fairly passive participants for example, in investing in companies or NFTs. However, community-led or charitable ventures often demand a degree of commitment from the participants. Hof continues:

If it is a project where committed activists are important, it is better to set up a governance structure and rules that take this into consideration in advance. Since this is all very flexible and even playful and the tools are there for almost any strategy or method of decision making that we are aware of, then you can construct a governance structure that fits your projects needs.

You essentially create a mini economy around a token. You have to decide what the different activities and priorities and contributions are. You have a token, which might not just be a unit of value, but also symbolizes all the incentives and goals, so you can align different stakeholders to your objective, Hof says.

For example, you could have one person, one vote, the norm in conventional systems, or you could have a token structure where votes are weighted to those with the most of them: That might be appropriate where there are core active members, or in an investment project where some have staked more money than others, so they have more risk. It really depends on the circumstances.

Hof recommends creating a founding document, a mission statement, and a guide to what you are doing: nothing too rigid, but important nonetheless.

Step 2: Stir in some expertise

Hof continues, If you had an investment project, you might want to be guided by five people who were experts in the field 90% of the members might agree to delegate authority to them to make the decisions.

Likewise in areas of scientific expertise, VitaDAO grants funds to groups to explore life extension science. This is at the cutting-edge of science, and while the members are often interested laypeople, VitaDAO needs scientists to carry out the research. The scientific projects do not need to join the DAO its a consensus of the participants who decide what studies to fund.

Hof also stresses the importance of getting good technical people to program your smart contracts because that is a major area where things can go wrong.

Step 3: Heat up the stakes

Delman of Aragon is a former real-world community activist turned DAOist. He says, I see a DAO as a little like Kickstarter. Instead of giving you a free T-shirt or free product, a DAO gives you a stake in what you are building.

It is a new model of high-risk and high-reward community activity facilitated by technology. Over 3,800 DAOs have been built with Aragons tools since its inception in 2016, managing billions of dollars worth of assets.

Theres just a big culture around Web3 people that have a different mindset for collaborating. Most people [in the DAO ecosystem] are not working a normal job. Maybe theyre in three or five DAOs that they contribute to and theyre floating around, so you have a much more fluid way of working.

Aragon put out a manifesto that summarizes its mission statement and philosophy: a pledge to fight for freedom, exclaiming, We believe humankind should use technology as a liberating tool to unleash all the goodwill and creativity of our species, rather than as a tool to enslave and take advantage of one another.

Thus, Aragon is a fight for freedom. Aragon empowers freedom by creating liberating tools that leverage decentralized technologies.

 

 

Excited to formalize our partnership with @StarkWareLtd.
We believe that the future of DAO governance needs to be fast and inclusive and that users shouldnt have to choose between security and cheap fees. https://t.co/GGPpT1IOZg

— Snapshot (Hiring!) (@SnapshotLabs) June 9, 2022

 

 

Step 4: Mix and match voting methods

Developer and entrepreneur Fabien developed Snapshot as a side project on weekends. His day job is working for Balancer as a developer, which is an automated trading platform.

Snapshots taken off because it is a simple and free method of voting in DAOs, which is off-chain and efficient in utilizing resources. On-chain voting uses hard-coded voting systems built into the blockchain smart contracts. Tezos is an example. On-chain voting is effective but quite resource-intensive, so keeping voting off the main blockchain is often desirable.

 

 

 

 

Fabien says, We have 300 voting strategies, and then they all have a different way of working, and you can pick one of them if the way you want to calculate voting was already there, or you can create a new one and upload it to our site. Its free and allows all kinds of optimization of voting between participants.

Fabien believes that DAO-enabled voting structures will eventually enable a greater degree of democracy and more flattened decision-making than is conventionally organized in Western politics.

 

 

 

 

Step 5: Bake it, then the DAOs ready for public consumption

Delman says, The tool that Aragon operates is basically you can press a few buttons and then you are ready. If this proposal passes, then the money should move to this account. Everything is tied together with smart contracts.

Delman gives as examples two projects that used Aragon as their backbone: Ocean DAO is a DAO to clean up the oceans. Delman continues, This is a big vision with social ownership. There is no overall plan: The community will take it step by step.

 

 

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Bankless DAO is a decentralized community whose mission is to move the world away from banks. Given the power that banks have over everybody, this seems an interesting project.

Delman notes, Theres also a lot of stuff that DAOs do thats not on the blockchain. This speeds up the process and stops blockchains from being clogged up with information that could easily reside elsewhere.

Recipe note:

DAOs are in their infancy. Clearly, there is a massive amount of development needed and also outreach so people who might consider a more conventional vehicle for their project a voluntary group, a charity, a club need to be made aware that DAOs could also fulfill this purpose in a much more democratic and transparent way than most conventional organizations.

There needs to be more work by regulators on the legal status of DAOs. So far, only Wyoming has passed legislation to enable people to incorporate a DAO LLC in the state, therefore, giving all the participants a degree of legal protection that a normal DAO cannot. (Australia is also considering legislation to address this.) The legal status of DAOs is a thorny issue, particularly if large amounts of funds are involved, but given the sluggishness of both the law itself and legislative bodies, it doesnt seem that there will be much clarification of this in the near future.

 

 

 

 

To serve: Cut the cake and pass it around

Delman feels a major difference between DAOs and both conventional finance and even the rest of the cryptocurrency sector is exit to community. Many startups get big, then they sell out, and the founders leave.

Delman feels that selling tokens and exiting to members of the community is a more positive way of moving on from a project. With the flexibility of DAOs, the departure of the founder or a large change of direction is not the shock it can be in other types of organizations.

NOTE: The nutritional value of DAOs may vary, and some can have indigestible ingredients, so you need to check the small print before you consume them.

 

 

 

 

The traditional film industry is one of the most centralized and traditional of them all. Just a handful of movie studios and streaming conglomerates control the lions share of the global film market.

But nonfungible tokens (NFTs) and a growing crypto-centric community of enthusiastic filmmakers might just disrupt the industry.

Some independent projects offer a glimpse into Web3 filmmaking, while others provide a window into distribution. Decentralized streaming also demonstrates what community-based film development and exhibition might look like in the not-so-distant future. Thanks to the popularity of NFTs, the Film3 ecosystem is about to evolve beyond its embryonic stage. Although the trend is very fresh and a multitude of kinks need to be worked out, keep an eye on this emerging crypto sector as it continues to pick up steam.

 

 

 

 

Start the tape

During panel discussions at the Cannes Film Festival in May, director Miguel Faus talked about how hes using NFTs minted from his short film Calladita to finance a million-dollar feature of the same name. In 2019, Faus produced his short film with fiat using traditional crowdfunding. Today, hes selling tiered NFT packages to subsidize the feature-length movie. The intended budget is $950,000. So far, weve raised $650,000 all through NFT sales. The goal is for all the funding to come from NFTs, Faus tells Magazine.

Filmmaker Mark OConnor, also a panel participant at Cannes, introduced his first Web3 distribution model at the film festival: the Stalker Movie Pack, an NFT version of the 1990s-era DVD movie pack.

 

 

 

 

In 2012, OConnor produced and directed the psychological thriller Stalker. The feature film subsequently won the Underground Cinema film festival and, in 2014, was released on DVD in Ireland. Still, OConnor wanted the film to be fully independent and opted not to release it internationally. Eight years and a thriving NFT ecosystem later, OConnor fully controls the intellectual property and believes that this traditionally crowdfunded film will be the future of how movies are distributed.

Do filmmakers really need decentralized filmmaking?

According to OConnor, its all about controlling the intellectual property. Often, Web2 filmmakers find themselves in circumstances where they lose control of their IP. Losing control of the rights to a film also means losing access to its potential profits.

OConnor believes that there is a waterfall system currently operating in the industry. When you release a movie in the traditional way, the cinema will take 70% and then, out of whats left the distributor takes 15%. Then you have to pay sales agent fees and different fees, OConnor says. At the end of the day, a filmmaker with a successful project can often wind up with no share of the profits.

Faus tells Magazine that filmmakers often create the IP and do all the heavy lifting, only to become contracted employees temporarily attached to their own projects. Writer and directors like myself start with an idea, develop a whole project, write a script, do the whole thing, make the movie, direct it, but end up doing all of that as work of hire for a company, or a producer or a financier that is the actual owner of the film, and sometimes that system is not great.

Faus believes that Web3 filmmakers can utilize the power of their communities to finance movies in a decentralized way. When a like-minded community gets behind the project and opts to support it, it greenlights the film. There are no studio executives and no deep-pocketed gatekeepers, Faus adds:

Filmmakers can decide together with their community how the power of owning the IP, and the ownership of the film, is going to be used both financially and strategically.”

Where to see a Web3 film?

Filmmakers who prefer full control of their IPs require a decentralized space to stream their projects, an independent technical solution that doesnt milk profit from the movies. According to CEO Mihai Crasneanu, Beem provides exactly that. You own your own IP. You have the keys to that, so that you dont have to rely on us, Crasneanu tells Magazine.

 

 

 

 

Presently, there are just a small handful of online, Web3 streaming and distribution models. According to Crasneanu, Beem was established in 2018, and it isnt a platform or a destination. Its essentially an end-to-end toolkit that allows creators, distributors or any content company to become their own platform. So, thats why I dont want to call us a platform because we dont aim to become a destination by ourselves. Although Beem still works with Web2 technologies, filmmakers and other creators can use the tools to stream their Web3 content in full HD. Creators can upload their films and do live events and screenings. Beem co-sponsored and livestreamed many of the Web3 panels at Cannes.

Creators on platforms such as Beem can use the tools to build their online communities and can generate revenue by charging fans to view films, in fiat or crypto, and can token-gate access for community members who have specific NFTs in their wallets. Beems customer isnt the audience, its the content creators, the filmmakers. Dissimilar to the waterfall system where the filmmaker is at the bottom of the revenue food chain and is only paid after everyone else, in Web3 spaces, a filmmaker and their community should control all streams of revenue.

 

 

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The artist and production incur one set of fees for distribution and exhibition. Beem takes 15% of paid streams and videos as well as paid live events. It takes 3% of any tips, merchandise sales and NFT sales and/or resales. Filmmakers receive branded space and emails, dedicated domain and custom URLs, access to an admin console and analytics. For a monthly fee, creators can purchase technical support, a custom mobile app, digital rights management, geoblocking (restricting viewers from geographical areas) and watermarking.

OConnor plans to stream Stalker on Vabble. According to Vabbles Twitter account, the platform hasnt launched yet and is hosting giveaways and competitions leading to its beta release later this summer. On its website, Vabble brands itself as a Multi channel streaming entertainment platform for viewers, investors and studios and plans for a full platform launch within the next two years.

Whats in it for the fans?

YouTube, Twitter, TikTok and Instagram chat feeds are nothing new for live streaming events, but the opportunity to discuss your favorite film, in real-time, during its premier is unique. OConnor believes that watching a movie on Web3 is a communal experience.

You can set up a movie club. There can be Q&A after with the directors, and you can comment during the movie. So, theres all these different features that have come along with Web3 and with crypto. I feel its a massive shift in the industry.

OConnor plans to host community streaming events when Vabble launches. Until then, fans can purchase the Stalker Movie Pack on Rarible. In the coming weeks, community members will begin to receive NFT drops with special features. The first drop will include a movie poster with subsequent drops every few weeks. The Movie Pack includes unreleased posters, a making of documentary and non-generative PFP characters called The Stalkers. All the NFTs are individually tradeable, and OConnor intends to offer free NFTs and premium access drops for years to come.

 

 

 

 

For Calladita token holders, interactions between the community and the filmmaker will happen on Beem before the film premiers. Well take them along for the whole behind-the-scenes ride, Faus said. For other projects, Crasneanu told Magazine that for casting interviews, location scouting, and costume design, community members could theoretically participate in all the elements of pre-production, production and post.

 

 

 

 

Calladita also offers its NFT holders utilities and perks. A Tier-1 buyer purchases the NFT for 0.18 ETH and receives their name in the credits, a private link to watch the film, access to a private Discord server and governance rights to the films DAO. For 6 ETH, Tier-4 NFT holders receive all the previous perks plus an NFT mint pass for an on-set photo, a physical piece of the films memorabilia and an avatar in the movies credits.

Is the industry ready for Film3?

Businesswire reported that the global film and video market is well consolidated, with a small number of behemoth players operating in the market. Large corporations such as Disney, Comcast, AT&T (Warner Media), Sony Pictures Digital and ViacomCBS control just over 35% of the total market. According to the Motion Picture Associations 2021 Theme Report, eight of the top 10 most-watched streaming films were viewed on Disney+, while two were seen on Netflix.

Its fair to say that the movie industry is entrenched and centralized.

 

 

 

 

Although its hard to imagine Hollywoods gatekeepers voluntarily relinquishing full control of a filmmakers IP, Web3 elements are starting to pepper the industry. Actor and producer Reese Witherspoons company, Hello Sunshine, recently inked a deal with NFT powerhouse World of Women to create feature films and TV shows.

 

 

World of Women X Hello Sunshine

This major partnership signs a new beginning for WoW: Feature films, scripted and unscripted TV series, live events, powerful stories

We couldn't have dreamed of a better partner than @hellosunshine @ReeseW to bring our vision to life pic.twitter.com/KUz0V4vqlN

— World of Women (@worldofwomennft) February 17, 2022

 

 

Co-head of Vuele, Cameron Chell tells Magazine that the rights to Anthony Hopkins new thriller Zero Contact were purchased by the NFT collectibles platform. According to James Hickey, team lead at Moviecoin, the Web3 streaming platform partially funded Prizefighter: The Life of Jem Belcher starring Russell Crowe. Decentralized Pictures, a Web3 offshoot of Francis Ford Coppolas American Zoetrope, is actively discovering new talent and funding new projects. The platforms co-founders include Leo Matchett, a Technology and Engineering Emmy Awards winner, American Zoetrope vice president Michael Musante and Coppolas son Roman.

Also, according to a 2020 Forbes report, baseline Web3 technologies, like digital IDs, underpinned by blockchain encrypted biometrically verified tech, will be the norm for the biggest entertainment providers. It is argued that mega-streamers such as Netflix, who lose over $12 billion per year due to password sharing, could benefit financially from digital IDs.

 

 

 

 

Moreover, on April 5, Reuters reported that WarnerMedias recently departed CEO Jason Kilar believes the industrys future is tethered to the blockchain. In a memo to the news outlet, Kilar said, The future of Hollywood is in the Blockchain. In a follow-up interview, Kilar told Reuters, I think thats [NFTs] going to be a potential wave thats going to be coming to Hollywood, in the same way that the DVD wave came to Hollywood in the 90s.

If Film3 eventually makes a splash and captures the full attention of all the streaming and studio giants, will they push back against todays blockchain pioneers? Will they release full control of the artists IP and embrace a decentralized future? Its hard to say, but the Web3 community is undoubtedly hopeful. Crasneanu came to Cannes with limited expectations:

I was expecting a very low level of interest from the traditional filmmakers present at Cannes, and mostly indifference or criticism at best.

But according to Crasneanu, people were more curious, open-minded and open to experimenting. Crasneau tells Magazine that traditional industry members were eager to discover, to find out what can be done in Web3 with filmmaking, in all stages of film development, production and distribution.

 

 

 

 

Many blockchain companies now believe that regulation is inevitable, but theres a growing debate over where to draw the line between protecting users and strangling the lifeblood out of the industry or forcing it outside the United States.

Whether we like it or not, regulation is coming, Sheila Warren of the Crypto Council for Innovation tells me during an interview in the lead up to the recent Collision conference in Toronto, Canada.

The CEO of the industry lobby group for blockchain technology explains that rather than trying to stop the inevitable, many companies are now focused on lobbying for rules that work for them instead.

Why the change? With every week seeming to bring new stories of loopholes, hacks and algo stablecoin failures from the popular Netflix QuadrigaCX documentary to the dizzying world of crypto transaction mixers and the steps law enforcement used to track two Americans accused of selling fraudulent NFTs increased regulation is starting to look like a better idea. And not just for businesses but also for legislators worried about being reelected. People seem to love hearing about crypto scams and lost money… as long as its not their own.

 

 

 

 

Even if regulation is inevitable, the question of how and what to regulate is still controversial. Specifically, what type of regulations and enforcement will actually help keep the industry fair and safe for participants without killing the unique and revolutionary aspects of blockchain, or turning it into another version of traditional finance?

Does regulation mean clarifying the 38 different considerations for the four factors that define a U.S. security? How about defining who owns what rights in NFTs? Or maybe it simply means following Wyomings example and regulating DAOs?

Walking the line

A week later at Collision itself a 35,000-person tech whos-who in Ontario I plop myself down on a chair in the dark area in front of the crypto stage for a discussion with Ripple CEO Brad Garlinghouse about how to regulate cryptocurrencies.

 

 

 

 

Ironically, staring me in the face are a hundred or so branded seat covers sporting an eye-popping white-on-black Crypto.com logo, despite the fact that Crypto.com isnt registered to operate as a crypto asset trading platform in Ontario.

According to the Investment Industry Regulatory Organization of Canada (IIROC) Staff Notice on crypto ads, Crypto.coms seat branding is legal. It avoids statements that could be seen as unfair, misleading or inadequately informative of consumer risk. Most conference attendees a global audience of tech entrepreneurs and CEOs already knew what Crypto.com meant. Matt Damon could have the week off.

The advertising is an example of how regulators have their work cut out for them in finding the delicate balance between deterring bad actors while promoting innovation. For example, the Ontario Securities Commission (OSC) is mandated to protect consumers while encouraging novel businesses and competitive capital markets.

As part of the OSCs mandate, it previously published a report on the suspicious death of QuadrigaCX CEO Gerald Cotten and how what used to be Canadas largest crypto exchange lost its clients millions. It also kicked the worlds biggest crypto exchange by volume, Binance, out of the province for operating without permission.

This years plans include continuing to enforce securities law and engaging with crypto firms to get them to register to do business in the province, says OSC senior affairs specialist JP Vecsi. Another priority will be identifying and addressing misleading information in crypto asset trading platform advertising, marketing and social media, he adds.

 

 

 

 

The freedom to make terrible investment decisions

At the other end of the scale, there are plenty of crypto libertarians who arent convinced much regulation is necessary at all. The Satoshi Island group is attempting to establish a libertarian blockchain-based democracy on an island in the South Pacific (with the cooperation of nearby Vanuatu). Its minting NFTs for citizenship, though the process has slowed thanks to the crypto downturn.

Lizaveta Akhvledziani, CEO of Chexy a rewards card program for renters leans liberatarian with a few ground rules. She believes people should be able to invest in whatever they want, no matter the risk.

 

 

 

 

All that investors need, she says, are Anti-Money Laundering rules and education. When she bought TerraUSD (UST), the algorithmic stablecoin linked to LUNA that would crash in May 2022, she understood it was risky.

If you really go in there thinking its risk-free, but youre going to be making 20% a year, youre an idiot, she says.

What happened was a shitty situation a lot of people lost a lot of money… But if its just market dynamics, you cant just regulate that because that goes against the whole decentralized economy crypto stance.

SEC v. Ripple, the ongoing saga

One pro-regulation argument is that compliance may be easier, market trust greater, and business smoother and more profitable after governments finally issue clear guidelines.

Even though there are a lot of libertarian roots in crypto, my experience is most actors in crypto want to play by the rules. But we have to know what the rules are, Brad Garlinghouse of Ripple tells the conference.

Its incredibly frustrating to be a citizen of a country that is behind almost every other country in providing clarity around crypto. Canada has approved a Bitcoin ETF. The U.S. has not. I think there are so many examples where the U.S. has been out of step with other G7 economies.

Ripple is currently fighting the U.S. Securities Exchange Commission over the latters claim that the companys sales of XRP were investment contracts sold as securities without a prospectus. The case would set an important precedent for other companies, and Garlinghouse said hes fighting for both his company and the entire industry.

The SEC is a hammer, and when youre a hammer, everything looks like a nail, said Garlinghouse. The current chair of the SEC has said he thinks probably everything except Bitcoin is a security. That could be very negative for the U.S. crypto industry. Its the reason a lot of people are moving outside of the U.S. to build and invest in various crypto projects If the country youre based in is making it hard to be successful, you go other places.

 

 

 

 

According to Garlinghouse, the tides have already shifted on the west coast of the United States. I think the big change thats happened is Silicon Valley had an advantage around tech talent. Thats just not true today, he says.

Putting its money where its mouth is, Ripple is opening an office in Toronto. Coinbase is expanding in Europe, despite laying off 18% of its U.S. workforce in June. And Binance is also planning to return to Ontario by 2024 by registering with the IIROC, the national regulatory organization, thereby skipping the provinces registration process.

 

 

 

 

American bills on the table

The U.S. is moving toward regulations, just slowly. Ripple head of public policy Sue Friedman says both the proposed bipartisan Digital Commodity Exchange Act and LummisGillibrand Responsible Financial Innovation Act are good starting points, but the U.S. is falling behind other countries, including the United Kingdom and Singapore.

Warren of the Crypto Council for Innovation agrees. No ones waiting for the U.S. to act, she says. For now, her focus is on states such as Delaware, as well as Europe, India, Australia, Dubai, Singapore and the Bahamas, all of which are embracing more innovative regulations that create certainty for businesses. The Bahamas recent white paper on the future of digital assets in the country reiterated the countrys goal of improving the attractiveness of The Bahamas as a well-regulated jurisdiction where well-run digital asset businesses, of any size, can operate, grow, and prosper.

 

 

 

 

That means encouraging citizens to use the islands central bank digital currency to operate their businesses and even pay their taxes. The U.K. more recently published a bill allowing the Treasury to regulate digital settlement assets, including payments, service providers and insolvency.

However, Warren warns that clearer regulations wont always be beneficial to blockchain businesses. Singapores tone went from wooing blockchain firms and touting itself as a crypto hub to a much stricter regulatory regime.

As the Monetary Authority of Singapore gets closer to unveiling what it wants to do for central bank digital currencies, were seeing less openness in some ways to crypto.

With the LummisGillibrand bill on hold until next year, the timeline for U.S. regulations is still unknown. Whats clear to her, though, is that crypto isnt suddenly going off the radar.

Our view is were actually ready for regulation in many cases. No one wants to see rugs pulled, she says.

Nobody wants to see scam artists thriving unless theyre the scam artist. It brings the whole industry down and gives us a bad name.

Regulators should be helping people identify the scams and potential rug pulls, she says.

To some extent, the industry can help and is willing to help with that. On the other hand, there has to be some guidance on how to do that. Everyone shouting on Twitter is not helpful. No one can distinguish whos credible. For everyone saying Terra LUNA is risky, youve got someone getting a tattoo of a dog, she said, referring to the howling wolf LUNA tattoo that Galaxy Digital CEO Mike Novogratz got just months before the stablecoins collapse.

Oh Canada!

Like the Crypto Council for Innovation, the Canadian Web3 Council is also advocating for responsible blockchain regulation, but the wait will likely be long in Canada, too. Last April, the Canadian federal government announced a financial sector legislative review that will take five years to complete.

According to a Department of Finance official, the focus will be on the digitization of money and maintaining financial sector stability and security, starting with digital currencies, including regulating cryptocurrencies and stablecoins and establishing a CBDC.

Since the department plans to consult with stakeholders and Canadians, the Web3 Council will likely have a lot to say. The government will also be listening to its international counterparts and aligning its regulations with international standards and best practices, whatever those turn out to be.

Canada at least has some clearer guidelines and legal precedents than the U.S., but the wait for clear regulations isnt ideal in either country since the worst regulations might be no regulations at all.

 

 

 

 

According to assistant professor Ryan Clements of the University of Calgary Faculty of Law, regulations create certainty for investors and increase crypto trading volume, prices and the total number of users. Lack of regulation does the opposite, pushing out both hesitant amateur investors and professional traders. It means fewer people lose their savings and fewer Netflix specials about scams, but also less VC and government financing for innovation.

Not everyone agrees with this view, with other scholars questioning whether strong regulations actually do hurt innovation and investment (but not trading itself). A recent study showed that while announcing new regulations and enforcement actions significantly impacted the prices of ETH and BTC in recent years like when China banned ICOs in 2017 neither negative nor positive announcements had a significant effect on the trading volume of those cryptocurrencies, either in the countries making the announcements or globally.

 

 

 

 

While these announcements dont actually scare off traders, the study shows they do push companies out. Its relatively easy for a trader to switch exchanges versus a company moving a brick-and-mortar business, like when Kraken left New York in 2015 and Deribit left the Netherlands for Panama in 2020.

Meanwhile, pushing innovative companies out could be as limiting for a countrys economy as not letting them in. Garlinghouse said 95% of Ripples customers are non-U.S. customers, which means a lot of potential revenue could end up in the U.S. economy if the company is allowed to operate there within a clear framework.

Binance.US doesnt expect the class-action lawsuits against it to succeed

Like Ripple, Binance.US is also facing legal action that could potentially have been avoided with clearer regulations. After the Terra blockchain ecosystem collapsed, a number of class-action lawsuits in several states alleged that the company misled investors about the investment risk involved.

The beautiful and horrible part about America is you can sue anyone for anything, Brian Shroder of Binance.US told the Collision audience.

On our platform, we actually never listed LUNA. He added that the companys due diligence process before listing a coin or token project takes days of research involving questionnaires, internal and external counsel, a listings committee made up of a cross-functional team of legal compliance and business, and a unanimous vote. All that to say, hes not worried.

But if the government had regulated the due diligence process and the criteria in the first place, the lawsuits likely could have been avoided, or at least Binance.US could justify its process by saying it had followed the rules.

One way companies are dealing with risk and the wait for regulations is by hiring former regulators from the SEC and the Canadian Department of Justice. Those employees are helpful when conducting the 38-consideration SEC framework analysis for the four-factor Howey analysis used to determine whether potential token offerings are securities in the U.S., which SEC Commissioner Hester Peirce compared to a Jackson Pollock painting.

 

 

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Ripples Friedman would also like clarification on those factors. The goal for all of us is to be able to take a test, have multiple people apply the factors, and reach a similar conclusion, she says.

Back at Collision, Shroder said the extensive LummisGillibrand bill will not likely be passed as is, but he could see the parts about stablecoins being pulled out and passed separately because of recent media attention, the need to protect consumers, and politicians desire to be reelected.

Anytime consumers are harmed or impacted, Congress tends to speed up or pay attention, he said.

This is an echo of the 1930s banking. This is the same process that led to regulations like the [Federal Deposit Insurance Corporation].

Will we have an FDIC for crypto? Shroder mused. Probably not, but who knows what kinds of regulations we can see put in place to make the industry safer and, of course, more profitable.

 

 

 

 

Economics is the study of human behavior involving scarce resources and the effects those behaviors have on those resources, explains Roderick McKinley.

Tokenomics in crypto is a related but different field. Tokens are a way for projects to raise funds and build communities, and designing the way they work can be much more complex than traditional equity raises and potentially much more problematic.

In tokenomics, the token or digital asset is the scarce resource. But we can now design features for these programmable digital assets, influencing how people behave and interact with each other, often creating new possibilities for exchange altogether, McKinley says.He explains the distribution of tokens and the outcomes of that distribution are key matters for investors and for how the business ends up operating.

McKinley has worked on a range of different projects, including ParallelChain, GBC AI, Avarta, Fluid, ShopX, Terona and Kasta. But what is it that a tokenomics expert provides to projects?

I typically deliver a range of services to projects. These include a design of the tokens supply alongside other economic features that make the token useful, so it attracts demand, helping clients to understand how to use the technology in ways that fit their business and, finally, how to make a compelling fundraising case, he says.

There are two parts to every tokens value equation: supply and demand. Yet an internet search for tokenomics is likely to take you to colorful fan charts that only deal with the supply side of that equation: describing how a project plans to release its supply of tokens to stakeholders, over time. Making sense of how tokenomics is applied on the demand side is harder because each case is different and potentially unique.

 

 

 

 

A few examples

• Ethereums ETH token was designed to be the only way that users could pay miners for the computational resources supplied to run the blockchain aka gas fees. As long as there is demand for computation to be performed on the Ethereum blockchain, a finite supply of ETH has value.
• Synthetixs SNX token was designed to make up the collateral that backed the issuance of synthetic digital asset derivatives (tokens that follow the price movements of other known financial assets). Stakers receive SNX token rewards while the project is in the early stages, as well as all of the trading fees collected. Synthetix also popularized yield farming by giving users SNX rewards to provide liquidity on Curve and Uniswap. As long as there is demand for the synthetic assets that Synthetix builds, a finite supply of SNX has value.
  
• Heliums HNT token is used as a reward payment paid to users who provide wireless coverage capacity to support Heliums decentralized wireless connectivity platform, and the token is burned for every dollar fee paid by users who connect to this network. As long as there is demand to connect to this decentralized wireless network, a finite supply of HNT has value.

None of these examples describes a fully automated process. In every case, humans are making free choices in response to incentives, and that is why the consideration of human behavior is fundamental to tokenomic design.

 

 

 

 

Human behavior

But real-world facts often diverge in surprising ways from classic economic theory. For example, numerous experiments and papers point to the fact that people will not always work harder for more pay. So, how can incentives reliably work to alter peoples behavior?

When designing tokenomics for a project that then goes live, its like conducting mini experiments into peoples behavior. We can learn from what people actually do instead of what theory tells us they will do, he explains.

Were not into manipulation. People join these communities on a voluntary basis, and they can choose to opt in or out of the project. If the project has collectivized governance, they may be choosing these rules for themselves.

This is very different to what we get with something like Chinas social credit system, he adds. This is dystopian, as there is no choice everyone must take part whether they want to or not.

Instead, McKinley compares behavioral change directed by tokenomics as little nudges, like putting the cookie jar out of sight when you want to eat fewer calories. Influencing behavior does not have to be malicious, he says.All these incentives and interactions are built from freely programmable and endlessly configurable code. That poses a dilemma of choice when the possibilities are so open-ended.

 

 

Tokenomics is one of the most important aspects of Crypto

If you don't understand tokenomics, you're not gonna make it.

Heres everything you need to know about Tokenomics

— Covduk (@Cov_duk) July 15, 2022

 

Its important to be clear-eyed about the value exchange that each project creates, and who the actors and beneficiaries are in that exchange because the possibilities for applications are really diverse. We may be using the code to allow people to trade honestly and transparently with each other. Or we may be using code to automate business logic and processes so that they no longer need to be done by expensive and error-prone humans.

Once these users and the exchanges they make are defined, tokenomic design is applied to create rules that define how those exchanges take place while keeping an eye on the total token supply and the token balances held by different user groups.All of these elements are going to interact to influence the tokens price, and that has repercussions for the ability of your token to work as an incentivizing instrument as intended, he explains.

 

 

 

 

Ponzi-nomics and yield farming

Of course, while influencing behavior using tokens can be a noble aim, on the flip side, there can be the complaint that tokenomics often ends up being a glorified Ponzi scheme. Anya Nova with Power Ledger grapples with this concept, sharing McKinleys views to an extent.

Incentives are part of a business model that generates value, and that value can be defined as enabling a person to complete one of their lifes to-dos faster, better, cheaper, or more enjoyable similar to the way Uber allows us to catch a taxi easier.

She points out that one of the key incentives in crypto space i.e., staking for stakings sake or yield farming does not actually create any value.Im not talking about staking as one of the mechanisms of securing the PoS chain, but staking where you put x into a smart contract and get x+rewards sometime later, but your x actually performed no role in consensus, says Nova.

The staking model Nova singles out is the stake for rewards scheme that many projects have used to lure new users to buy their token. This reward model can be economically sound when early supporters of a community contribute something more to a project by joining it in its early stages. Consider the early users of Facebook or YouTube it was their presence and activity on these platforms that helped create early content that attracted other users and helped these platforms scale. Today, these platforms are already so large that new users no longer make this kind of special contribution when they sign up to these platforms.

The trouble is that many projects used staking rewards for projects, which never stood to benefit from those kinds of early network effects. The rewards offered were simply used as a promotional device to bring in new users. The 20% interest offered on UST deposits on Terras Anchor Protocol was a notable example. This incentive was launched to accelerate user adoption of UST.

The promotion was a victim of its own success and flawed design, with UST deposits growing at a much faster rate than the uses of UST in Terras ecosystem. These kinds of promotions are routinely and successfully used in ordinary retail marketing. But in that context, a known, defined product is being delivered to consumers at a discount. In the blockchain case, what is being delivered is a token whose value depends on long-term demand for its utilities and the token supply, which is increased by the very promotional rewards users are buying.

The net result was that these rewards which were being paid to speculators and individuals with a genuine interest in the project flooded markets with supply without a commensurate increase in demand for the services delivered. Once speculative tension is removed by a large market event or a shinier token elsewhere, the price collapses.

But then again, Nova wonders if everyone sees it that way and if it really matters:

If Im being my own devils advocate, then Id say that capital gains or selling more tokens on the market is a sort of value. In the eyes of a crypto yield farmer or crypto trader, its the ultimate value, and who are we to say that its not? They dont care if its a Ponzi or not a Ponzi as long as they sold a token for more money than what they bought it for or same money but more tokens.

Tokenomics is a balancing act

Tom Serres, co-founder and managing partner of Warburg Serres Investment Fund, which focuses on Web3 projects, views quality tokenomics as a balancing act.

In every economic situation, there is supply and demand, and when supply is equal to demand, then you have perfect equilibrium. Every company should be trying to achieve perfect equilibrium from an economic principle, says Serres.

If there is more demand than supply, then Ive not built in enough supply, and Im losing out on potential revenue. Conversely, if my supply is greater, then Ive overbuilt, and Ive a lot of sunk costs and extra overhead.

The concept of extracting value from open-source software is not a new one, but it was harder to do before crypto. An example might be the company called Red Hat in the United States. Red Hat consultants built software on top of Linux, which is one of the original open-source projects. Red Hat took its expertise and hawked it around to big companies, such as FedEx and Merck.So, while the software was free, this specialized consultancy was very much not. Afterward, the company was bought by IBM for a staggering $34 billion.

But what if you could have tokenized Linux, and so rather than charging a consultancy fee, you add more features, and the software paid out in return? That was, the token is incentivizing good behavior.

Getting into the weeds

McKinley has worked with more than 20 projects over the past two years. He references ParallelChain, a new layer-1 blockchain smart contract development platform. The founders wanted to design incentives that would sustainably reward behaviors and actions to secure the state of the ledger.

 

 

 

 

I couldnt just copy other layer-1 designs because ParallelChain has a consensus process that is unique, with three tiers of authority. The three groups remain decentralized through balanced voting powers. I had to take an approach which took those objectives into account and design a reward system that always offers increasing rewards to smaller nodes as they grow to rebalance governance towards the desired state, and caps rewards that are paid to nodes once they reach a certain size, forcing that nodes rewards to be spread more thinly if they grow any further.

Other examples include GBC.AI, which is creating a whole suite of products and services for the blockchain space using machine learning and AI. The team wanted to fundraise using a token sale, so McKinley worked closely to understand the core capabilities of the team and its technology to come up with a broad array of products that could be accessed using the projects utility token, which would provide demand for it. McKinley also structured their revenues to be denominated in a stablecoin in order to decrease the projects reliance on using its own token to fund ongoing expenses.

 

 

 

 

But then, I still link this key business driver back to the scarcity of the projects utility token by using a policy mechanism to commit a share of stablecoin revenues collected to buy back and burn the project tokens, he says.

Another project he worked on is Iconic, an NFT marketplace and social platform that serves esports and gaming communities. The team had just completed its core product: allowing users to record their gameplay, publish it and mint it as an NFT from within their gaming console.

In this project, I needed to think about the end users, the gamers who have a very specific profile. I asked myself relevant questions about what these users wanted, what they needed, and what would get them excited. Ultimately, I could see a great opportunity to build out the token utilities in a social direction that would allow the gamers to support their favorite esports star or content creator, he says.

One experience designed to support this is a recurring lottery event that allows users to vote for their new favorite new content using the native utility token. The content with the most support wins and gets showcased on the platform, and all the backing supporters receive the total token contributions made to the lottery reward pool.

 

 

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Love it and list it

Once the tokenomics has been designed and the capital has been successfully raised, the next step is to list the token on an exchange. The benefits of following a token sale plus listing approach to fundraising over an early-stage equity sale are the speed and lower costs it offers projects, regardless of market conditions.

The downside can be that there is an expectation of early returns, which puts sell pressure on the project token and interferes with the projects success. This was the opinion of many observers as to what precipitated the enormous 95% crash visited on the high-profile initial listing of Internet Computers ICP token in 2021.

At the moment, I dont think there is enough patience in general. People want to get returns very fast when building a new business still takes a long time. I do not take that to be a critical fault with the token sale mechanism, he says.

Rather, I think we will see terms and controls for token sales evolve in ways that retain some of their attractive advantages over equity fundraising while better aligning investors actions and expectations with the project user community and the realities of growing a startup.

Keep it simple but not stupid

Maarten Ectors, commercial director with Pollen DeFi, a DeFi 2.0 platform, feels the secret of tokenomics is to keep it simple, and he sees utility as key.

Pollens tokenomics operate in a pragmatic utility fashion.

Pollenators (users of the site) create virtual portfolios and stake the PLN token each time they rebalance. Pollenators can also delegate PLN into following the top Pollenators virtual portfolios to benefit from any appreciation, while the creator of the trading strategies gets 20% of the profits.

Theres also a governance token called vePLN given to long-term stakers, which boosts rewards by 20%.

Its about bringing utility to the project and to the utility influencing the tokens value. Thats where it all boils down to. Because too many projects talk up their tokens value, a lot of marketing money is spent, he says.

Really, it should only be about, like Are any of us actually using it? And if re using it, does that really bring win-win situations? So, its all about finding those types of things. You can do a lot of maths; you can do a lot of modeling and so on. But its all about the use, the utility, says Ectors.

Nearly a new stablecoin

There are also times when tokenomics is used to incentivize behavior to generate a whole new token. In the aftermath of the collapse of UST, algorithmic stablecoins have come under the microscope, but it hasnt dampened the ardor other layer-1 platforms have for stable assets. Many of the layer-1 protocols are now looking at creating stablecoins, each with its own tokenomic design.

Scalable Ethereum smart contract platform Telos is doing stealth work looking at a new native stablecoin, Force. Meanwhile, Near Protocol, a layer-1 competitor to Ethereum thats looking to be the fastest blockchain on the block, is also gearing up work on its native stablecoin, USN. Mark Sugden, formerly of the Near foundation, is helping with growth. He tells Cointelegraph that he reckons this is the way forward for all layer 1s:

Near Protocol has a vision of becoming a trillion-dollar ecosystem with applications, protocols, marketplaces, etc. all built on top. And the Near token is simply designed to be the transfer or value mechanism for the gas for paying for transactions on the network, says Sugden.

In many ways, the Near token is not a good medium of exchange, as its too volatile, so in the future, well need something to transfer value across the ecosystem that is maintained or pegged to something we know like the dollar.

 

 

 

 

Sugden says that rather than work on an expensive integration of USDT or USDC, its better to leverage the skills of participants in the ecosystem to put together a stable native coin. And itll be better than an EVM copy, he says. Sugden is part of an independent team called Decentral Bank (DCB), which is a DAO set up to organize the stablecoin.

He explains that USN is over-collateralized, Its basically wrapped Tether on a one-to-one basis. When you mint USN with USDT, the reserve fund is made up of Tether so that if anyone wants to redeem their USN they will always get USDT. In order to mint USN, you need USDT.

USN has a 1:1 relationship with USDT. No Near tokens are involved in the minting process. USN holders are then eligible for yield provided by the rewards of the staked Near that the DCB has in its reserves. The DCB holds a reserve of Near tokens, from when the protocol required Near to mint USN, which is no longer the case. Sugden says being over-collateralized and avoiding unsustainable yield help to avoid the clear issues with the design of the failed Terra UST project.

First of all, the infinite supply for UST created a false economy with regards to the market cap, and then some 80% of the coin was locked in Anchor and getting huge and unsustainable yield. Stablecoins are made to be used not to be staked for an unsustainable APR in what turned out to be a kind of Ponzi scheme.

Sugden also explains that the decision to peg USN to USDT is aligned to the bear market and does not rule out changing monetary policy in the future by adding in future assets. He says building in use cases into a thriving ecosystem is key and that tokenomics without them are just hollow.

We did our soft launch at the same time that UST collapsed, which taught us some lessons and also highlighted core differences not least the fact that we have already a strong ecosystem and the stablecoin is coming later not the other way around. Its transparent, run by the DAO, and, if God forbid, it hits a crisis, the Near ecosystem will keep on chugging along.

USN will incentivize holders by taking advantage of the Near proof-of-stake ecosystem. The validation rewards from participating in that ecosystem will be distributed to holders of the USN coin, taking advantage of the Near consensus mechanism, while affording optionality to the stablecoin holders. Its not simple, but maybe the trials and tribulations of algo stablecoins will help foster more robust solutions going forward.