How to check a whitepaper
A whitepaper is arguably the most important document for any crypto ICO. However, the style and contents of whitepapers can vary drastically. We reached out to several crypto industry leaders to find out what they look for when reviewing a whitepaper. Read their quotes and gain valuable insight regarding what aspects of a whitepaper are considered to be the most important, and what some red flags might be. This post is updated monthly, so be sure to check back to see who else has been added and what their suggestions are for reviewing a whitepaper.
- Ami Ben David, Co-founder and managing partner of SPiCE VC: “We specialize in tokenization, so my initial focus is first to see if the project is suitable for our specific investment criteria – in our case, I’m checking if it is delivering a key building block of the blockchain / tokenization ecosystem that we know is missing, or has room for more players and massive growth, or is it a new revolutionary protocol with some following, or a tokenized business which has a unique edge in the market because of the use of the blockchain or the smart use of a token economy. If the basics are not there, its a quick No for us. But if the story does meet our focus criteria, we look at the team (which we need to talk to anyway to form an opinion), what is their story and the way they choose to tell it, and I try to compare the big vision and big words with how much they actually achieved in terms of execution in the time they had to spend on the project so far. If it all makes sense, I schedule a call.”
- Ofir Beigel, Owner of 99Bitcoins.com: “I make the same suggestions to crypto investors and blockchain startups alike. Look at the team, the tech, and the market. Additionally in the white paper look for an alignment of interest. What are the long and short team motivations for all stake holders? Are the interests of the founders and advisers in parallel with the large investors and are they in line with the users of the platform, protocol or service? Even before the blockchain the old adage of “follow the money” provided an enormous amount of insight. For example: Are the issuers offering discounts or bonuses? Are they transparent about this and are they putting in vesting or lockout periods? Some founders check the box saying “yes we have a vesting period so investors cannot flip the token.” But when that vesting period is only three months and the first deliverable is four months out, that is pretty much worthless.”
- Lou Kerner, Partner, CryptoOracle: “While we take a holistic view of projects, for CryptoOracle, the team is the most important aspect of the Whitepaper. We actually use machine learning/AI to help us evaluate teams. We are also very focused on the problem being solved and the role the tokens play in that solution, starting with, does the solution really require a token (and blockchain)? Then we look at token economics to ensure the token economics align the different players in the ecosystem. Governance is critical for decentralized projects. We also look for realistic roadmaps. For the most part, poorly written Whitepapers are more hurtful to projects than well written Whitepapers are helpful.
- Motti Peer, Co-CEO of Blonde 2.0: “We receive hundreds of whitepapers, and as most investors with little time, I review many of them. With this being said, if the whitepaper does not immediately state the company’s purpose and process, chances of continuing to read them are slim to none. With so many white papers, it’s crucial to remain relevant by stating and emphasizing the clear message of the company and its product. This is the difference that can make or break successful projects.”
- Yaniv Feldman, Co-founder & Chairman, Cointelligence: “Today’s whitepapers are different from what they used to be in the past. Satoshi’s whitepaper was nine pages and was almost entirely technical. Today’s whitepapers are 30-80 pages long and are full of marketing info, roadmap, team and investor offering. While Bitcoin is very different from today’s ICOs, I still try to focus on what matters. I try to understand if the company is solving a real problem, for a real, big-enough, relevant market, instead of just building a “decentralized” solution to the same problem other have solved centrally without any relevant additions (besides so-called decentralization) or a made-up problem that doesn’t really have a real-life, big enough use case to sustain the existence of such a project. Most project fail at this level. If a project passes the first stage, I take a brief look at the team and try to understand if their token economics structuring makes sense (how many tokens, inflation rate, built-in incentives to stakeholders, consensus mechanism, etc).”
- Eric Turner, Research Lead, Messari: “Whitepapers are still the best way to gauge how well a project will execute. I have learned it is best to skip to the end and see who is leading, advising, or investing in the project. With that in mind, start from the beginning and don’t skip the “fluff”. This is often dismissed as marketing speak but can give you a good idea of how realistic the project is. High hopes are to be expected, but if a project thinks they can overtake multiple existing markets or only want to offer a slight change to existing solutions, you should put on your skeptic hat. Be more skeptical if the team and advisors have limited experience in the space. Give the technical details a good read but realize that anything too technical is a distraction. A great whitepaper will address the “why” and the “how” of a project. Most projects today want to be the AWS, Uber, Airbnb, eBay, Facebook, etc., of the decentralized world. The “why” is how you will be better than these solutions. The “how” is even more important. The best whitepapers will give details on how their solutions will outpace competitors, gain a community, and incentivize developers. A detailed roadmap is something to look for. Even though whitepapers are early-stage ideas, having a defined timeline for development is important. If you really want to understand a project look at who is running it and map that against how feasible it is they can execute on their goals.”
- Melanie Mohr CEO and founder of YEAY, Creator of WOM: “When reviewing a whitepaper, I look for the following: simple, concise language that cuts to the point quickly – there’s absolutely no point filling up the word and page count for the sake of the thud factor. A well articulated and watertight vision – I need to see a clear and inspiring concept that I can get behind. Credibility and expertise – I need to feel faith in the team behind the idea. User experience – does it have a good UI/UX? Technical detail – what’s actually being built and what’s the go-to-market strategy. It’s easy to say “this is x, built on the blockchain, to disrupt y” but how will it actually do this?”
- Martin Wos, Co-Founder, Co-CEO and CVO of Block Stocks: “Firstly, the validity of the business model. The model should make economical sense. If an idea already exists, not important if off- or on-chain, a new idea have to be 10x better. Just because an idea is decentralized, does not attract clients. Think from a client’s perspective. Then, start looking at how the technical components (technical whitepaper) and the token sale structure. Under which conditions does the currency appreciate in value and why? What are the underlying drivers and do I fully profit from it or are there any constraining conditions? Also do research about existing business models. What are the differences, advantages and disadvantages of similar business models.”
- Evgeny Ponomarev – Co-founder and CEO of Fluence: “First of all, you have to understand the difference between the Whitepaper and Primer. The first is a technical document while the latter is for pitching. Since the decentralized technology landscape is yet full of “terra incognita”, don’t expect the team to answer all the questions, but at least they must understand the challenges that exist and the obstacles they face. The best way to understand how a proper whitepaper looks is by reading ones made by great, successful projects: IPFS and Filecoin, Plasma, TrueBit, Polkadot — these served as an inspiration for our team.”
- Dr. Omri Ross, CEO of Firmo Network: “When reading a whitepaper, I always look for academic rigor. Is the paper describing an existing product or does the team have the skillset to execute on the vision depicted in the paper? Does the product cater to a relevant niche and is the business model and go-to-market-strategy carefully designed to suit the customers needs? If the product is distributed or decentralized, has appropriate measures been put in place to provide a feasible governance model?”
- Sharon Shineberg, In-House Blockchain Maximalist at Blonde 2.0: “When I first read Satoshi’s white paper, I could not sleep many nights. I was up restless and obsessive over bitcoin. In my experience, I can only compare this occurrence to the ‘rabbit hole effect’ from Alice in Wonderland. From afar, there’s a dark hole in which another world exists; once you’ve stepped foot in the hole, there is no turning back. Curiosity is contagious, and this is the exact effect I am looking for when reviewing white papers.”
- Dror Futter is a Partner at the Rimon, PC law firm: “Whitepapers should provide a description of the regulatory compliance of the token. At this point in time, any ICO claiming to be a “utility token” should be viewed very skeptically. Potential token buyers should be very leery of overinflated legal claims. For example, many ICO’s claim to be issuing “SEC compliant” tokens with little explanation of the basis of this claim. This is critical because at this time, there is not a single ICO that has received the express approval of the SEC. In other instances, whitepapers identify the prestigious law firms ICO’s have hired and leave it unclear what advice they received. Our firm was approached by an issuer three days before their ICO after their global law firm withdrew from the representation. Their whitepaper still said they had consulted with the firm – which, while technically true, was also misleading. Potential token buyers should also look for details about how the tokens will trade after issuance and what the issuer will do to ensure ongoing regulatory compliance. While ICO issuances have gotten all the press, the after-market trading poses as many regulatory issues.”
- Jonathan ben Shimon, CEO of Matchpool: “It is more important to look at the formation and the architecture to determine whether it is original or not. I care more about new architecture and existing technology than about those who are trying to force the economy on our business.”
- Liron Langer, Chief Investment Officer at Nielsen Innovate: “Based on experience and involvement in subsequent projects, the most important factor is the team, and in particular, do they have true understanding in Blockchain technology and DLTs (Distributed Ledger Technologies), and fully comprehend the token usage, utility and value model and whether the cost of the challenge they address significantly lower than the benefits the adoption will provide. In addition, it’s important to look at what the team has achieved so far, the use of funds and how the economy will interact with the token once it hits the market. I am glad to see that the market evolves slowly but surely, towards addressing real challenges in a much more professional manner.”
- Jon Buck, President, B&B Content Management: “Think of a young person going on their first date. They spend hours making sure that they look their very best – picking outfits, fixing hair, agonizing over every detail. Why? They want to attract the person they are meeting. The same is true with a whitepaper. Investors who look at a whitepaper are ‘dating’ the company. To attract the best investors, the whitepaper has to look its best. Typographical errors, broken English, punctuation and grammar mistakes – these are like massive red flags to investors that the company is not mature enough to even clean up on a first date. If a whitepaper is clean, well written, properly edited, with excellent grammar, it shows a care and consistency that makes a company investment-worthy. Companies that don’t take the time to produce a professional whitepaper only prove that they are not professional, and generally, destined for failure.”
- Adi Karmon Scope, Founder of Fractal Boutique: “When I review a whitepaper, I’m most interested in the token economics section. The reason is that a company must justify the creation of a new token, if it would like to embark on the ICO route. If I’m convinced that a new token is indeed needed, then this means that the idea and eco-system are much larger and more valuable than the company itself which is conducting the ICO. Most of the whitepapers I read are vague about their economy and lack lots of details about how they’re planning on creating intrinsic value to their token. A healthy economy is about creating new value, which is captured via the token and not about only creating artificial scarcity.”
- Chad Pankewitz, CEO of Coinage: “Evaluating crypto and blockchain companies can be done in a similar way to how a venture capitalist would evaluate an investment. Here are a few things that we look for when reading a whitepaper: Will the company’s main product be useful? What problem will the company solve? Do they have a great vision for their company and for their products in the market? Is the product and the technology truly great? Do they have the team to execute the vision? Does the project have traction – in terms of product readiness, users, community, and revenue? Who are their competitors? To be able to do our own research, I want to be able to understand from their whitepaper where they fit in the market; such as, are they a cryptocurrency, blockchain platform, or a protocol? Furthermore, if they are a cryptocurrency, are they a privacy coin, a stable coin, to be used for fast payments or just a storage of value? The more drilled down the categorization is, the better we can understand the competition and evaluate accordingly. Last but not least, longevity is one of the factors that you want to be certain of after reading a white paper: Will the product and company have a good chance of succeeding over the long term in this space?”
- Adi Ben-Ari, Founder and CEO of Applied Blockchain: “There’s an old joke about the physicist, the chemist, and the economist stranded on a desert island with a single can of food. How are they to open it? The economist’s answer is, ‘Assume we have a can opener.’ The joke should be updated for the Cryptoeconomist. Check the technical and token economy assumptions made in the whitepaper, look out for bold assumptions about technology that doesn’t exist, or gaps in the token economy model. A few more important areas to consider are the idea and solution that they are proposing, is the company creating something new, or just building an existing technology? Also, in regards to the token, whilst reading ask yourself, does this solution need a token? Is what they are proposing really a blockchain solution from the ground up, or simply a regular tech startup looking for funding by issuing a token? Most tokens are generally created as a utility token, so the question needs to be, does this serve as a true utility or has the token been added to the solution so they could raise capital through an ICO? And lastly, in terms of competition, is this solution part of a dozen others that are already successful, or is it different enough to add value to the blockchain ecosystem?”
- Tai Kaish, CEO of Wemark: “Traditional investors get a chance to do their due diligence by meeting the founding team and asking in-depth questions. The whitepaper is often the only way for ICO investors to evaluate the company, its product, and future plans. When reviewing a whitepaper, investors should compare the associated risks of the project, to the potential gain. Projects will usually outline the market size and opportunity early on. Realizing the risks, however, is something each investor has to do on his own. Each key factor presented in the whitepaper (team, product, token economies, roadmap, competition, etc.) might hold potential risks and prevent the projects from reaching its goals. Following deep research, investors should support projects that demonstrate the lowest risk along with the biggest potential outcome. It’s great when teams get technical and explain how their protocol works with code samples and architecture flowcharts. It’s easy to get carried away in technical descriptions, but it’s crucial to understand why people will want to use it, not just how it works. For some projects – marketing, sales and UX are more important than expertise in smart contracts or blockchain development.”
- Johnny Kolasinki, Head of Media at XYO Network: “The first thing I look at when reading a whitepaper is the project’s purpose. Are they solving a real problem? Does a blockchain-based solution to this problem make sense? I’ve seen projects that had amazingly innovative implementations of blockchain technology or DLT; however, they were trying to replace existing platforms without actually addressing any flaws in the models that are already in place. If a project is going to compete with existing technology, it needs to clearly lay out how it will either augment or improve upon what’s already out there.”
- Mark Vermeeren, Global Marketing Manager of MobileBridge Momentum – “For us, one of the most important aspects of a whitepaper is that it correctly communicates the value of the service or product. No matter how well written, how awesome the design of the paper is, or how cool the graphics used look, the offer needs to be strong. Additionally, the reasons indicating “why blockchain” or “why an ICO” should provide an understanding of the product or service’s USP, and specify the way it changes the paradigm of its respective market. Naturally, investors and crypto enthusiasts will consider funding a project whose likelihood of success is high; so, in order to properly assess the value proposition, it is important to also detail the competitive advantages, and the specifics that relate the strengths of the solution to the market dynamics.”
- Darvin Kunaiwan, CEO of Crowdvilla: “The first thing that I would look for is the problem area that the project aims to solve. After that I’ll look at the detail surrounding their token economy: what does the token represent, how will the token retain value and how will the token be distributed initially. I’ll come up with my own conclusion on whether this type of token will be considered as securities or otherwise, which then allows me to see whether the project is being done in a legally responsible way. Next I’ll look at the team – not so much on finding hyped up factor (personally I don’t believe ex-big mnc matters much in this case) – but more towards seeing that there are indeed real people fronting the project, and that it is not an elaborate scam. Finally, if applicable, I’ll look at their basic approach from the technical point of view, on whether it makes any sense in achieving what they set out to do.”
- Avishai Shoushan CEO of Carats.io: “When you review a whitepaper there are several crucial issues that must be addressed. For us, the things that are most important for reviewing the project through it’s whitepaper is the order of the content, while looking for the known entity, team and partners who stand behind the project and the token. Another important criteria is the token usability, while asking if there is a real need and use for the token, except for fundraising. The last aspect is the technology and value standing behind. In which stage the company is in, regarding technology if it is deploying, alpha, or beta and what will the token bring considering it’s long term value, beyond of speculation.”
- Ran Avidan, Founder & CTO of Mobilechain: “The first thing I look at when reviewing a whitepaper is ‘The Team’ section. Do they have past experience building and creating a new business in the targeted industry? The Mobilechain team has a lot of experience in the mobile industry, so we try to focus on that in our whitepaper. The next thing I look at is the solution itself and if blockchain is really needed to solve the issue. There needs to also be business potential in the idea. Like every investment, I expect to see a bit of market research and thought into how the solution will make an impact.”
- Barak Ben Ezer, CEO of Neema: “My advice for reading a whitepaper: I’m more interested in projects that solve the three underlying barriers to adoption: (1) interface, volatility and solving the legal status of crypto (what we are doing with SOV.Global), (2) looking for impressive team more so than impressive advisors, (3) explain to me what you’re doing in the first paragraph. The more concise and clear the better. Long convoluted is explanations and lots of fluff are a red flag. I’ve noticed that geniuses are typically people who can explain very complex issues in very clear terms. Satoshi’s bitcoin white papers from the 2009, was nine pages of pure gold. Less is more.”
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Your most comprehensive guide to stablecoins
The term stablecoin refers to any cryptocurrency coin or token pegged or backed by an asset with a relatively stable price, such as fiat currencies or gold. A stablecoin can be under control of a central entity, such as Tether (USDT), or a Decentralized Autonomous Organization (DAO), such as Dai, a stablecoin which is issued on the Ethereum network. Nubits is another stablecoin which is partly controlled by a DAO, but is also under control by a central authority, representing a hybrid issuance model.
A stablecoin is typically backed by a reserve asset that has the exact equal value of the coin/token. The reserve can be a fiat currency, a precious metal (e.g. gold), or a cryptocurrency. The issuer, whether it is a central entity, or under control of a DAO, should only issue an amount of stablecoins equal to the reserve they own. New coins can be issued only when the reserve grows.
How do we define stability?
What is stable? To be considered stable, a currency or asset’s value has to experience only minor fluctuations, such that its value remains relatively steady over time. Is bitcoin stable? As of yet, we have not seen bitcoin stable in terms of value.
Why do we need stablecoins?
Why are we seeing so much interest in stable crypto? The truth is that while the volatility of cryptocurrency values makes them a popular choice for those who enjoy high-risk investments, this volatility isn’t ideal for those who actually want to use their cryptocurrency. Until we start to see a stable BTC value, people are going to look for alternatives. A stable coin can be seen as an attempt to marry the best parts of digital currencies with the relative stability of real-world assets.
The four most common uses of stable cryptocurrency are as follows:
- To create stability in cryptocurrency trading pairs in forex-style trades. Tether (USDT) was frequently used for this purpose, though recent concerns about that currency (explained later in this article) has lead to many exchanges replacing it with other stable coin options.
- Professional investors and hedge funds can use stablecoins to diversify their portfolios in times of market instability. You’ll see institutional investors in the coming months and years trying to determine what is the most stable cryptocurrency to use for this purpose.
- Because a stablecoin has a steady and predictable value, it can be used for transactions as easily as a fiat currency. Those with an interest in seeing mass adoption of cryptocurrency see stablecoins as a natural step towards this goal.
- Similarly, their stable value makes stablecoins the ideal medium for recurring payments such as salaries and rent. The current volatility of major cryptocurrencies can make it difficult to use them for monthly payments, as the value can swing wildly from month to month. Stablecoins may be especially attractive to blockchain startups who want to make a statement by paying their teams in cryptocurrency.
Let’s take a look at some of the most popular stablecoins across the cryptoverse.
Tether (USDT) is a stablecoin that is issued by Tether Limited, which claims that each USDT is backed by one USD (often cited when making a stable currency definition). However, the company has never managed to provide audits for the token’s USD reserve. Most cryptocurrency experts believe that Tether Limited was printing millions of Tether that had no USD backup. The main objective of USDT is to facilitate exchange transactions between cryptocurrencies and fiat currencies with a rate pegged to the USD.
USDT is issued on Bitcoin’s blockchain via the Omni Layer Protocol. Tether Limited claims that each USDT is backed by one USD held in the company’s reserve, yet users cannot necessarily redeem them via the Tether Platform or partnering exchanges. USDT can be stored and transacted just like any other cryptocurrency. To transact and store Tether, users have to have an Omni Layer-enabled wallet such as Holy Transaction, Ambisafe, or Omni Wallet. USDT offers an alternative means to Proof of Solvency via introduction of a Proof of Reserves process.
The USDT Proof of Reserves system, the number of USDT tokens in circulation, can be checked on Bitcoin’s blockchain via the tools available on Omnichest.info. The amount of USD comprising the backup reserve can be proven via publishing the company’s bank account balance and undergoing periodic audits performed by professional auditors, who publish the financial transfer statement and the bank’s account balance of Tether Limited.
During the period between January 2017 and September 2018, the volume of circulating USDT rose from around $10 million to more than $2.8 billion. During the early months of 2018, USDT represented around 10% of bitcoin’s total trading volume, yet during the third quarter of 2018, it accounted for around 80% of bitcoin’s trading volume.
In June 2018, USDT was the tenth biggest cryptocurrency by market capital. Researchers and crypto experts proposed that a price manipulation scheme that exploited USDT, accounted for around 50% of the rise in bitcoin price during the fourth quarter of 2017.
To solve the problems associated with USDT, USDX was created to bridge the gap between cryptocurrencies and fiat. The USDX token is pegged to the USD via a novel logarithmic protocol, mitigating the risks that accompany the usage of USDT or other stablecoins.
USDX promotes stability of its value through its algorithmic central bank, which boosts and reduces the total supply of USDX tokens to match the value of USD in real time. A market price feed is delivered via Oracle Feed, which extracts price data from multiple exchanges. To boost transparency, exchange rates have to be accepted or dismissed via randomly selected token holders. Through this process, the system boasts a decentralized, trustworthy means to accommodate value indicators.
Despite the fact that USDX is not the only stablecoin that utilizes a transparent, elastic supply mechanism, its founders claim that it promotes superior decentralization and stability via its innovative algorithmic protocol.
TrueUSD (TrueCoin) was developed to solve USDT’s problems, as it is based on regular auditing, maximum levels of transparency, full backup reserves (collateral), and legal commitment to exchange TrueCoin tokens to USD whenever needed. The company plans to create stablecoins pegged to the Euro, Yen, precious metals (gold and silver), and other assets (real estate, stocks, etc).
While USDT is marked by a centralized and suspicious architecture, TrueCoin has partnered with a wide range of chartered banks and trusts to make sure that there is a transparent reserve of USD backing up the stablecoin. The strong legal architecture of TrueCoin represents a clear improvement upon the questionable nature of USDT. When you buy a TrueUSD token, you are legally an owner of one USD that is fully redeemable upon request.
Reliance on unrelated assets such as fiat currencies or altcoins poses a serious challenge when it comes to the development of stablecoins. Havven was established to provide the market with a decentralized payment network and a stablecoin solution that defies volatility. nUSD is Havven’s first nomin, which is a stablecoin pegged to the USD. Havven is planning to issue nomins for several fiat currencies, towards the end of 2018, including nGBP, nEUR, nJPY, and nAUD.
Havven’s system is based on a dual token design that offers a stablecoin solution that is on-chain, asset backed, and decentralized. Nomins are backed up by the value of the system’s collateral token, havven. The value of havvens originates from fees charged by nomin transactions, which reward holders of havven tokens for staking their tokens. Overall, nomins’ value is stabilized via nomin holders, who are rewarded with the ability to control the overall supply via the percentage of fees they receive. Havven, the company, holds 80% of the total supply of havven tokens in escrow, to shield the system against the aftermaths of price drops accompanying large scale sell-offs.
Havven is endorsed by a group of the world’s top cryptocurrency investors and funds, including AlphaBlock Investments, BlockTower Capital, and GBIC. Furthermore, the company has also announced future partnerships with some projects that will rely on nomins for providing a stable medium for transacting including intimate.io, MARKET Protocol, Swapy, and others.
Rockz is a stablecoin that is pegged to arguably the world’s most stable currency, the Swiss franc (CHF). For every Rockz token issued, one CHF is held as a backup reserve, legally enforceable by the company. 90% of the total CHF backup reserve of Rockz is held in paper form and stored in vaults secured high in the Swiss mountains. The remaining 10% is held in some of Switzerland’s most trusted and secure banks to promote liquidity.
Every holder of Rockz tokens has the full enforceable legal right to the corresponding amount of CHF. As such, in the event of the company declaring bankruptcy, token holders will have direct access to their funds secured in the vaults and/or Swiss banks.
Every month, Rockz’s holdings are audited via a trusted third party auditor, so that token holders are transparently assured that 100% of their investments are solidly backed by the CHF collateral. Rockz is a stablecoin that can help crypto investors ride out periods of extreme price drops without having to convert their crypto holdings to fiat and deal with high fees and taxes.
DAI has been issued to solve some of the problems associated with stablecoins, especially those pegged to fiat currencies. Mainly, whenever a stablecoin is backed by fiat currencies saved in bank accounts, manipulation and legal actions taken against the holder of the bank accounts will jeopardize the token’s value.
The creator of the MakerDAO coin solves this problem via the use of Ethereum’s smart contracts to promote stability. Instead of purchasing DAI coins, users create it after locking up their ETH in the Maker system. When a user doesn’t need their DAI coins any more, the CDP smart contract will return to them the same amount of ETH that was collateralized. To mitigate the problems associated with ether’s price volatility, DAI boasts an automatic liquidation process whenever ether’s price drops. The ETH locked up by the CDP smart contract is proactively auctioned off right before its price falls below the value of the DAI it backs up.
Basecoin’s approach to stablecoins is very innovative. In contrast to other stablecoins, the concept behind Basecoin is very simple. Basecoin’s value is pegged to either an asset or an index, such as the Euro, USD, Consumer Price Index, SP500, or others. Via continuous monitoring of price feeds, the total supply of Basecoins is automatically modified to offer a stable value.
Basecoin also relies on another pair of currencies; Base Shares and Base Bonds. These currencies serve as an economic incentive for holders of the token to adjust the token supply by exchanging their Basecoins for bonds, which opens the door to users to earn profits on their investments. Shares are issued whenever the supply has to be boosted. Both of these processes promote the stability of Basecoin’s value.
Even though Basecoin will be initially pegged to fiat currencies, this is planned to shift to an index offering promoting decentralization of the whole system, price stability, and complete independence from reliance on fiat for token pegging.
DigixDAO was the first company to issue a stablecoin pegged to gold. DigixDAO issued two tokens on Ethereum’s blockchain; DGX and DGD. One DGX token has the value of 1 gram of gold, and is backed up by real gold. DGD tokens offer their holders voting power that is proportionate to the amount of tokens they hold.
Seigniorage Shares is a non-collateralized stablecoin. It is intended to form a central bank via smart contracts that can continuously issue a currency with a value of $1 to control the overall supply. The smart contract is programmed to issue new coins and offer them for sale whenever the price skyrockets, until the price drops back down to $1. As such, the smart contract will generate profits. On the other hand, buying Seigniorage Shares coins takes place to reduce supply, which will lead to a rise in price.
Basis.io is an algorithmic stablecoin offering, designed to expand and contract supply, similar to the way central banks buy and sell fiscal debt. The intention is therefore to stabilize purchasing power, as when demand rises, the blockchain will create more Basis. This expanded supply is designed to then bring the Basis price back down. It’s important to note that there are no tangible assets with Basis, but the system creates incentives designed to build up a stable equilibrium for the currency. The more that Basis grows, the stronger its status as a potential medium of exchange, and the stronger its stable equilibrium. The company has raised $133M from an impressive list of top VCs.
This is another stablecoin which expands and contracts supply algorithmically, with a Stability Reserve intended as a decentralized guarantee of solvency. Most central banks maintain reserves via foreign currency and gold, and similarly, Terra’s Stability Reserve finances contraction of the Terra money supply whenever necessary. The company has the ambition of Terra becoming a global currency, and it is designed for mass adoption, with an eye to making everyday transactions possible. Terra has raised $32M from Exchanges and VCs.
Other stablecoins that are backed by crypto include Shelling Coin and TruthCoin. Digix Gold and OneGram are backed by gold. Kowala, Stably, Augmint, Carbon, Nubits, Gemini dollar, Paxos, Nushares and USDC are stablecoins pegged to the USD. GJY is a stablecoin backed by Japanese yen. EURS which is stable crypto backed by EUR
Even though some of the stablecoins discussed might seem promising, picking the winning horse among them can be quite confusing. Governments might have begun to accept cryptocurrencies, especially in that they support the shift towards a cashless society. However, the high volatility of crypto and the fact they are non-collateralized currencies are the main reasons that governments remain reluctant to accept mass adoption of crypto. As long as governments have to ask “How stable is bitcoin?” we can’t count on them to trust it. Stablecoins might be the answer to governments’ fears, but we have yet to witness the birth of a stablecoin that perfectly adheres to the principles of the blockchain technology: decentralization, full transparency, optimum security, and immutability.
This article is part of Cointelligence’s Stablecoin Week! For more information and opinions about stablecoins, see What does ‘stable’ mean? and Subjecting stablecoins to the duck test and A stablecoin fairytale.
An Overview of Security Token Exchanges Expected to Launch in 2019
The year 2018 has definitely witnessed the breakthrough of security tokens. The blockchain technology has permitted the tokenization of various forms of securities and assets. It is inarguable that security tokens have made it possible to tokenize almost everything that bears a value including equities, goods, real estate, fundraising, futures, credit, time based rentals, service leases, creative products such as music, art, and literature, credit, futures, and more.
Security tokens are revolutionizing security markets and mitigating most of the problems associated with conventional security trading. The blockchain technology promotes transparency as all trades and ownership records are stored on public ledgers which cannot be tampered with. Security tokens make it possible to tokenize securities, so financial assets such as stocks, bonds, futures, equities, swaps, and forwards can all be managed via distributed ledgers.
However, where will security tokens be traded? Presently available cryptocurrency exchanges are not equipped to support security token trading. Moreover, most exchanges don’t have the necessary licenses to permit the trading of securities. As such, licensed security token exchanges have begun to emerge to fill this gap and provide liquidity for the security token market.
Obviously, security tokens will attract an enormous share of Wall Street’s money during 2019. This expected shift has urged many venture capitalists and entrepreneurs to invest in the establishment of security token exchanges during the past couple of years. Throughout this article, we will take a look at security token exchanges that are expected to launch in 2019 and 2018’s fourth quarter.
Before we get started, let’s explore the most important security token exchanges that have been already established and are currently promoting liquidity of the security token market.
Current Security Exchanges
BTF is a crypto security investment platform that is only open to professional investors. To qualify to join BTF, investors have to have an annual income of over $200K, and should be able to invest at least $1,000 with them.
BTF is trying to establish itself as a market for blockchain-based projects that issue security tokens, shares, conventional bonds, futures, and other forms of tokenized securities.
By issuing their native token, BFT, they have taken a big step towards bringing together the highest net worth investors interested in tokenized securities, cryptocurrencies, and other forms of Fintech solutions.
tZero is the brainchild of Overstock which has been established to serve as an exchange for security tokens. The greatest thing about tZero is its user interface which is extremely friendly and easy to use. The platform boasts front-end integration of a risk management system, an order management system, an order matching engine, place orders, market orders, proprietary technology, and full support for security token trading.
tZero has partnered with Polymath to simplify the legal process of issuance and trading of security tokens. Polymath has innovated a new Ethereum based token standard, the ST20, which can only be owned and held by a list of authorized Ethereum wallet addresses, which have completed KYC verification procedures, which enforces compliance with government regulations.
tZero recently concluded the private sale phase of its security token (TZRO) which lasted til the end of August; that’s when the trading platform went live.
Bancor has innovated the Smart Token protocol which is the seed for a decentralized cryptocurrency exchange. Smart Tokens can be continuously and autonomously converted to other tokens on the network using a technology that operates in a manner that is somewhat similar to Atomic Swaps.
Bancor has joined the world of Security Token exchanges. Literally, the Bancor protocol is fully compliant with security token trading and the BNT token will act as a connector token, or a bridge token, that can intermediate the exchange between any pair of security tokens.
Now, let’s take a look at the security token exchanges that are expected to launch during Q4 2018 and 2019.
Forthcoming Security Exchanges
Gibraltar Stock Exchange
The Gibraltar Stock Exchange (GSX) is a Gibraltar based stock exchange. GSX was the first fully licensed stock exchange in Gibraltar. The exchange was fully operational in 2015’s first quarter. In October 2017, the CEO of GSX announced the establishment of a new subsidiary for the exchange, the Gibraltar Blockchain Exchange (GBX), which aimed at the establishment of a regulated utility token marketplace. Soon after the GBX announcement, GSX Group Ltd. confirmed that it was planning to revamp the group’s stock exchange (GSX) to become the world’ first ever regulated security token exchange.
Even though trading of security tokens was planned to kick start by the fourth quarter of 2018, delay in regulatory approval by the Gibraltar Financial Service Commission (GFSC) led to adjournment of the process to the first quarter of next year. The launch of security token trading on GBX will mark a big moment for the crypto community as security tokens become recognized by an EU licensed stock exchange.
Coinbase, the popular US-based cryptocurrency exchange, has announced that it is on track to enable security token trading on its platform. Being based in the US, acquiring the necessary banking licenses and brokerage statuses can take years. To overcome this, Coinbase has decided to merge with companies that already have the required licenses and registrations. That’s why Coinbase has successfully purchased three financial institutions: Venovate Marketplace Inc, Keystone Capital Corp, and Digital Wealth LLC.
Approval of these acquisitions by the government will help Coinbase acquire the legal standing of a full brokerage, which will enable the exchange to launch security token trading on its platform. It is expected that users will be able to trade security tokens on Coinbase in 2019, yet a specific date for the launch of Coinbase’s security token exchange hasn’t been announced.
Templum is another US based security token exchange that is planned to launch in 2019. Templum Markets LLC is a subsidary of Templum that is established to permit issuance and trading of various forms of tokenized assets.
Last February, Templum acquired Liquid M Capital, which gave the company access to an ATS, enabling a secondary market for the institution. Via the ATS, Templum will be able to offer security token trading on its platform in compliance with the US SEC regulations.
Even though Templum’s trading platform is live, the listed tokens are very few. So far, BanQu was the only company to conduct a TAO, and BCAP is the only secondary trade successfully completed. Templum has just partnered with CUSIP Global Service to be able to bring the standardized identification number to ICO security tokens.
The platform is expected to be completely developed in 2019, enabling security token trading that is fully compliant with the US SEC regulations.
In 2009, SharesPost was established to open the door for online private equity secondaries. Today, SharesPost has over 50k accredited investors and has executed more than $4 billion worth of shares transactions for over 200 technology companies.
Last May, SharesPost announced that it would revamp its current ATS to be able to offer security token trading on its platform. Thereafter, the company announced in June that it managed to close a $15 million Series C round that had been led by LUN Partners and Kinetic Capital to expand their ATS and open markets in Asia. SharesPost’s CEO aims at creating a global marketplace for trading of both conventional and tokenized security assets of various private companies.
Australian Securities Exchange
The Australian Securities Exchange (ASX), Australia’s primary stock exchange, announced in 2017 that it was working on becoming the world’s first stock exchange to develop an infrastructure for its trading platform based on the blockchain technology. ASX planned to use public ledger technology to replace its clearinghouse framework, known as Clearing House Electronic Subregister System (CHESS) to offer traders improved system efficiency, security, and reliability. Australia’s top stock exchange is actually developing their own blockchain, i.e. “permissioned blockchain”, to tokenize securities for the equity market in Australia.
Even though ASX planned on launching its security token trading platform in Q4 2020, the exchange’s board has announced recently that the launch date was adjourned to March/April 2021. ASX started exploring various applications of the blockchain technology in 2015, in order to be able to replace the exchange’s settlement, registry, and clearing system with a blockchain based system developed via collaboration with Digital Asset (DA), a software company specializing in the development of distributed ledger based solutions for financial institutions.
The new trading platform will operate on a permissioned blockchain where registered account holders will have to obtain clearance to be able to use it, while ASX will represent the only party with the ability to commit financial transactions to the ledger. As such, the new platform will represent a centralized network for trading of tokenized securities.
Malta Stock Exchange
Malta Stock Exchange has just inked a number of deals aiming at enabling MSX, the fintech arm of the exchange, to launch a trading platform for tokenized securities. These deals will see MSX partner with Neufund, a platform for the issuance of security tokens, to build a decentralized, fully regulated, stock exchange for trading of tokenized securities in addition to security tokens.
The partnership is planning a pilot during the next few month, which will include an ICO hosted on Neufund’s primary market, and the ICO tokens will later on be listed and traded on Binance (via means of a separate agreement with Neufund).
MSX is working closely with the regulators in Malta to comply with the Malta Financial Services Authority Act. Malta has emerged as a haven for blockchain investors, with big businesses like OKEx and Binance relocating to the country, which has been referred to as the “blockchain island” during the past few years.
SIX Swiss Exchange
SIX Swiss Exchange, Switzerland’s primary stock exchange, announced last July that it is developing a fully operational trading, settlement, and custody platform for security tokens and tokenized securities. The exchange’s new project, which has been named “SIX Digital Exchange” (SDX), is intended to be the world’s first end-to-end exchange for tokenized asset markets. SDX will tokenize existing conventional securities and other forms of non-bankable assets to boost the liquidity of illiquid assets. Furthermore, SDX’s services will include the issuance, listing, and trading of security tokens. SDX will be fully compliant with the regulations of the Swiss financial regulator FNMA, and endorsed by the Swiss National Bank, similarly to the SIX Swiss Exchange.
London Stock Exchange
London Stock Exchange, one of the world’s earliest stock exchanges, announced last July that it is collaborating with UK’s main financial regulator, the Financial Conduct Authority (FCA), in addition to two UK based firms; 20|30 and Nivaru, to issue tokenized equities in a UK based company in full compliance with the regulations of UK’s Financial Conduct Authority.
The planned partnership will utilize LSEG’s Turquoise platform, a hybrid exchange that offers a broad universe of European equities. The equities will be based on Ethereum’s blockchain and will be mainly comprised of ERC20 standard tokens. Later this month, 20|30 will be the first platform to test the process. Following a one year lock-up period, the service will be launched to the public, enabling startups and corporations to tokenize their shares. Interestingly, a large number of companies are awaiting to test out the process.
Finally, it is worth mentioning that all these emerging security token exchanges and trading platforms for tokenized equities represent just the beginning of a new era that will take equity markets to a whole new level. Blockchain based security tokens offer traders a myriad of efficiencies and advantages that promote transparency and security. Even though a considerable percentage of the world’s conventional financial institutions are resisting utilization of the blockchain technology, the market has just begun to adapt, as we’re witnessing the emergence of many trading platforms for security tokens and tokenized equities during the upcoming year. As more and more people are beginning to realize the advantages of the public ledger technology, the market will definitely start moving towards a new model based on tokenization of assets.
I wouldn’t be surprised if all of the world’s equity markets shift to the blockchain within the next few years. Who knows? Let’s just wait and see!
Quick way to spot an ICO scam
Everybody knows that it’s important to perform your due diligence before any investment in the ICO industry. But few people seem to understand what that actually means. One of our missions is to teach people how to spot a scam, rather than relying on others to do it for them. In the interest of increasing your own self-reliance and ability to outwit the scammers, we’re presenting a new tutorial on how to validate image authenticity on ICO websites.
Know your templates
As we’ve mentioned before in our above-linked guide, many ICOs use ready-made website templates as a way to both present the ICO without a lot of effort and save money on web design. While some of these templates give ICOs a base structure and allows them to use it to create a very personalized page, others offer a completely generic pack with very few possible changes.
Becoming familiar with the most common ICO templates, and what they look like in their unmodified forms, is a valuable tool in your scam-prevention arsenal. One common red flag is when the ICO has not changed the default images that come with the scheme. Let us demonstrate.
In this case, we searched for the image of the mobile application presented on the website of Referpay Network, a known scam. This image was originally used in the template from which this website was created.
By simply searching this image, we found that more than 70 ICO websites had never changed this image and are still presenting it as their “app-to-be-developed” on their website. It didn’t stop there.
We went through each one of these websites to confirm that the actual image is still there. As we discovered two very interesting things:
- The vast majority of these sites were scams. Luckily, about 90% of these scams had already ended in February. Unfortunately, there are 7 scams that are still active (which we will be publishing in the coming week). All initially connected by the same image. One of these scams has actually created a wallet app that looks exactly like the image, yet does nothing.
- Although the majority of the websites had a false link to the various application stores, some of the sites had links for the HB Wallet app on all the stores. We followed up with HB Wallet, and they stated that there is no connection between them and these wallets.
Image searching: quick, easy, necessary
This is a great example of how important it is to Google the images used on an ICO’s website. This wasn’t a team member’s profile picture or something buried in the whitepaper, it was prominently displayed as the mobile app image.
But how do you search for an image? It couldn’t be easier! Simply right click on the image, and click on “Search Google for image”. See many results, from different sources, containing that image? Congratulations, you have found a stock picture.
Not sure which image to Google? Since it’s so quick and easy, we recommend searching every image that presents information about the ICO. Team members, apps, charts, and graphs should all be investigated. And remember, you can save yourself a lot of search time by familiarizing yourself with the most common ICO templates and the images they use, so that you’ll recognize them when you see them later. The more you research and investigate ICO websites, the more you’ll start to develop a hunch about what images have been carried over from the default or stolen from other sites.
We hope that this guide will help you in your efforts to spot ICO scams!