CWC Newsletter #4 (Nov. 8, 2019)

By KJ Kingsley, Analyst

Top 10 Updates:

1. Federal Reserve Interest Rate Cut and Global Liquidity Crunch. The Federal Reserve cut interest rates to 1.5% from 1.75%, banks in Lebanon and the Central Bank of Argentina are instituting capital controls, and China continues their capital controls. What this means is that for those countries imposing capital controls on their citizens, liquidity is drying up and that these central banks and governments are worried that there will be a bank run and cause a recession or depression in the economy. The Federal Reserve’s interest rate cut may stem the inflation of housing prices and equities in the stock market, but the rate cut also signals the fact that the Federal Reserve will not have the monetary firepower to offset any recession or depression in the future. In the aftermath of the 2008 Recession, the Federal Reserve cut interest rates that were at around 5% to help stimulate the economy with cheap money. Now, with interest rates at 1.5%, the Federal Reserve will have to tread lightly and hope that there is no large economic downswing in the near future. For the cryptocurrency markets, Bitcoin has been seen as a safe haven for Argentinians and Lebanese who want to protect their stores of value while having the luxury of holding their own capital rather than the banks to avoid the capital controls. Hopefully, the cryptocurrency markets will benefit from these capital controls and the cutting of Federal Reserve interest rates that dilute the value of the USD.

2. An Ethereum-Code Auditor Publishes Thoughts on the Superiority of EOS. A coder named Dexaran, an “Ethereum contract developer and auditor since the very first days and I know it from inside,” explained that “it is obvious for me that Ethereum is not viable and I have clearly stated it long time ago.” What Dexaran is trying to say is that the base tokens for Ethereum (called ERC-20 coins) that created the frenzy initial coin offerings (ICO) in the crypto bull run of late 2017 is not secure. That same base token is still being used as a way for developers to create their own tokens on the Ethereum blockchain network. It is not secure because it does not protect the user if they send their coins to the wrong address or contract. Literally frozen or inaccessible, these users are unable to access and transact tokens that they sent by mistake to the wrong address, which has amounted to losses in the tens of millions of dollars. However, Dexaran illuminates the strengths of EOS by showing that it resolves this issue by allowing developers to upgrade contracts, to have secure token standards, and to use better addresses to not confuse the user. This is a known fact in the Ethereum community but has been grossly downplayed for the past two years and it is only resurfacing with the interest of Fortune 500 financial companies looking into using the Ethereum network for what pundits call the “decentralized finance” wave. [source:]

3. China telecommunication companies release 5G network ahead of schedule. On Friday, Nov.1st, China turned on their 5G network ahead of schedule (initially believed to be launched in 2020). China is on track to be the largest 5G market in the world, but there are some obstacles preventing from mass adoption in the near term, including limited 5G-capable devices in circulation, consumer convincing, and price. However, 5G is needed for the next revolution in technologies, such as blockchain, driverless vehicles, and the internet of things (IoT). With President Xi’s pronouncement of his ambitions within the blockchain space, it is no surprise that the Chinese are rolling out their 5G network in order to begin creation of what pundits are calling the Third Industrial Revolution.

4. EOS’s Resource Exchange Explodes with 15%APR over the weekend. In the EOS ecosystem, there is a leasing platform called the Resource Exchange (REX) that allows people to rent the EOS coin for a 30-day period. The EOS coin gives the privilege to the user or developer to interact with the EOS ecosystem whether that be to transact EOS tokens from a wallet to another one or provide developers with the opportunity to host their Dapps (decentralized applications) so users can interact with them. It is similar to having Amazon Web Services (AWS) credits where you could in theory be able to host a website or use their data services. This past weekend saw a huge explosion over a three-day period, with REX APR reaching about 15% in contrast to under 1% Annual Percentage Rate (APR) of the past 7 months. The takeaways from this incident are: (1) passive income from REX is substantial and could rival other traditional financial instruments such as bonds, (2) there is a demand for the EOS token and an increased use of the EOS mainnet, (3) users rented EOS via REX primarily for one Dapp (EIDOS) that was giving away a token for a future crypto exchange, (4) the surge in REX revealed some limitations of the REX model and allowed developers to witness a “stress test” on the EOS network, and (5) the EOS token revealed its real estate qualities by showing that the holders that leased out their EOS were rewarded.

5. Scaling Solutions on EOS are looking to solve Ethereum’s Scaling Problems. Two important scaling solutions on EOS, dfuse and LiquidApps, have provided affordable resources for developers to host their Dapps in an efficient and scalable manner. They call themselves “Dapp Service Providers” (DSP) which is somewhat like Amazon Web Services (AWS), where companies provide all the resources and services to help onboard Dapps for the mass public. With resolving many of the scaling issues on EOS, these companies are now poised to help solve Ethereum’s scaling problems so that in the future, the ecosystems of EOS and Ethereum may be interoperable. This is similar to the ways in which Gmail, Hotmail, and Yahoo email can all speak to each other and the user is not limited to only sending email between Gmail accounts or Hotmail accounts. This is an important step in creating bridges between the different cryptos.

6. EOS ecosystem congestion from one Dapp causing alarm in community. A token called EIDOS has encouraged many users in the EOS community to rent out EOS tokens via REX to claim EIDOS tokens that are being given out over the next year. EIDOS token claims to monetize the idle CPU power that is privileged to any EOS token holder. For example, if you own 1% of the EOS token supply you are entitled to 1% of the CPU network power (to transact EOS coins, to host Dapps, to play Dapp games, etc.). With the majority of the CPU power going to the EIDOS token claim, it has made it difficult for the average user to play their gambling Dapps, gaming Dapps, and other actions/transactions on the EOS network. Although the network is congested, many of the large Dapps are now paying for the CPU resources for their users to interact with their Dapps, such as Karma a social media Dapp. In addition, the congestion has seen the price of EOS rise over 5% due to the need for Dapps and users to own more EOS tokens to have more CPU privileges to interact with the network. However, some skeptics believe that this shows the limitations of EOS because it is now user-unfriendly for those that use Dapps that require the user to front their own CPU power (owning/renting their own EOS tokens). It stands to see how the larger players in the EOS community will respond to this situation. Hopefully there will be new upgrades in code and resource allocation to remedy the pain of the average user.

7. EOS shifts from gambling to gaming Dapps. The EOS network for the past year has been known throughout the crypto space as a platform for gambling Dapps. It was a good first-user need because it incentivized users to flock to the EOS network to play online gambling games; however, this also brought a negative reputation to the EOS network because it catered to the unsavory communities. Now with significant upgrades to the EOS network, gaming developers are seeing the enormous potential of hosting their gaming Dapps on EOS. This is an important shift because this is seen by pundits as the precursor for mass adoption. Other crypto networks such as Tron and Ethereum are also seen as competitors for gaming and gambling Dapps, but they also need to upgrade their own platforms for scalability and better user experience. One significant upgrade for the EOS network that will allow for better user experience on gaming Dapps is that Dapps are able to pay for their users’ resources. In other words, users will be able to play these Dapp games without being forced to purchase EOS tokens. Users will not have to know what EOS is and what it entails in order to play their new favorite gaming Dapps while having better security and potential of payments in comparison to status-quo gaming Apps on your smartphone or tablet.

8. Softbank takes a huge financial hit on private equity investments, WeWork and Uber. For this past quarter, Softbank’s $8.9 billion loss due to their debacles with the WeWork IPO and revenue-losing Uber marked its first quarterly report loss in 14 years. This signals that even the largest funds are having a difficult time finding the next unicorn company and that technology IPOs should probably not be seen as home runs like in the past 5 years. In addition, Softbank’s woes mirror the larger hedge fund industry, where chasing growth over value for the past decade is becoming less attractive. Hopefully, with the overvalued private equity taking down profitability of large funds, they will begin to look towards other investment vehicles such as cryptocurrencies.

9. Billionaire Macro-Investor Ray Dalio tacitly endorses bitcoin. Ray Dalio, billionaire investor and co-CIO of Bridgewater Associates, published a Linkedin post “The World Has Gone Mad and the System is Broken” to highlight a future short-squeeze that will leave investors with losses in the stock and bond market. Dalio highlights that money is cheap, growth is stagnating, corporations are buying back stocks, and central bank interest rates are looming towards negative territory. Dalio, who profited handsomely by predicting the housing crisis of 2008, is now positioning his investment assets to vehicles that will weather the next economic storm. Although not explicitly endorsing bitcoin as a safe haven, Dalio does implicitly signal that bitcoin and other deflationary assets are worthy investments for the future. Dalio believes that the current monetary system is broken and a new paradigm will unfold in the next decade or two that will leave many people with underfunded retirement funds.

10. Blockchain Startup Paxos Makes Alliances with Wall Street. Paxos, a blockchain startup, received the green light from the SEC to settle trades in stocks like General Electric and AT&T. Paxos aims to construct a faster and cheaper process to trade and settle stocks. Although the project is limited to a small corner of the US stock market, Paxos is geared towards reforming stock settlements from two business days to end of the day or sooner. Paxos is appealing to banks because it is faster and more efficient, which could result in reduction in costs to better compete in an environment with declining fees. In order to be faster and cost effective, Paxos will eliminate redundant systems by offering a unified record ledger based on blockchain technology. The SEC is willing to allow Paxos to experiment with stock settlements for the most actively traded and least volatile stocks, which amounts to about 140 stocks such as Exxon Mobil Corp. and Bank of America Corp. The number of settlements that Paxos can handle will be capped at 1% of the average daily trading volumes. This is an important step in gaining the trust and confidence of Wall Street in adopting blockchain technologies.

Disclaimer: KJ Kingsley is not a financial advisor and holds the digital tokens or cryptocurrencies represented in the content above. This content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained in this post constitutes a solicitation, recommendation, endorsement, or offer by myself to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. The opinions expressed in this publication are those of the author. They do not purport to reflect the opinions or views of any of the author’s employers.

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