Crypto Industry Report #31
Balzers (LI), 5 May 2020
This week, our blockchain experts assessed the following headlines:
Our weekly Crypto Industry Report news ticker provides you with the latest information on the global crypto industry – picked and analysed by our blockchain experts.
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The WEF releases a report and toolkit to deploy blockchain technology in supply chains and help reboot the economy
The World Economic Forum (WEF) announced last week a 244-page practical report to deploy blockchain technology in the global supply chain sector.
While the report and toolkit were developed for over a year, the release was accelerated due to the Covid-19 pandemic.
Over 100 global entities, both public and private, participated in the report to identify how the blockchain technology could improve inefficiencies in supply chains.
According to the WEF, the current pandemic has shown important issues in global supply chains that could be solved by applying blockchain-based solutions.
The released toolkit aims to accelerate the integration of blockchain within the global supply chain sector.
Assessment
The trade finance gap is a major issue for supply chains, in particular in developing countries in Asia and Africa.
Since importers prefer to pay after receiving goods while exporters prefer to be paid after shipping the goods, this creates a gap that has been partially filled by banks through credit to cover these risks.
It is estimated that over 80% of the global trade relies on this trade finance credit. However, small businesses and in particular those based in developing countries have difficulties obtaining this trade finance credit.
Therefore, this has created an estimated of around $1.6 trillion trade finance gap globally, and it is expected to increase to $2.5 trillion by 2025.
The consequences of this trade finance gap are a slowdown of growth and development and preventing a large percentage of small businesses to supply global markets.
Blockchain could be a solution for the trade finance gap since all entities involved in a supply chain such as importer, exporter or banks could share a common ledger with the details of the transactions.
In addition, the tracking of the goods could also be done through blockchain. This reliable tracking combined with trusted data and documents shared in a permissioned ledger could help to reduce the trade finance gap since more banks would accept to provide credit to small businesses, in particular to those based in developing nations.
Moreover, through stablecoin payments and fiat conversion for example it would be possible to send payments more efficiently among the participating banks and entities, thus reducing traditional delays affecting the delivery of goods.
While blockchain could be applied in different business sectors to provide certain efficiency and trust advantages, the global supply chains could significantly benefit from applying blockchain with clear advantages.
It seems that the WEF decided to focus the report and toolkit on supply chains since with the Covid-19 pandemic ensuring secure and efficient global supply chains is important to support the recovery of the global economy.
In particular, the report is targeted at governments and businesses to adapt their supply chains, especially in the medical supply, pharmaceutical products and food sectors.
Blockchain traceability could help ensuring the origin of medical equipment or masks received to reduce risks related to fake goods. In Italy for example blockchain has already been applied to help fighting fake news using traceability and blockchain immutability.
The toolkit released covers topics of consortium creation and its governance, different types of blockchain such as public or private and technical issues like scalability or interoperability.
Additional topics covered include data protection and integrity, legal and tax issues and different risks. There are also detailed explanations and checklists with the practical goal of facilitating the integration of blockchain within supply chains and not simply as an informational report.
In addition, IT best practices and project management principles within the context of blockchain technology are also presented in the toolkit.
The WEF report and toolkit could accelerate the integration of blockchain in the global supply chain sector which could show some clear advantages of applying the blockchain technology.
In crtain supply chains such as those related to food or medicines it is urgent to ensure transparency and efficiency especially within the current context of the pandemic.
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Telegram offers investors a 72% refund following the deadline to launch TON on April 30
As announced last week, the previously postponed deadline to launch the TON network on April 30 was missed due to the US court decision not allowing Telegram to distribute Gram tokens to any investor, whether based on the US or not.
As a consequence, Telegram will offer investors a 72% refund, but an additional option will be possible to receive the funds a year later on April 30, 2021, in an amount of 110%.
In the initial purchase agreement to obtain Gram tokens, there was a refund clause indicating that if Telegram missed the deadline to launch TON then investors could claim a refund.
Assessment
Investors had to decide last week whether they preferred an immediate 72% refund or instead a 110% refund on April 30, 2021.
Telegram claimed that there will be further documents with the details of the 110% option including the possibility of receiving a crypto asset as a refund.
However, in order to justify keeping certain investors’ funds, a loan agreement will be required.
Moreover, since Telegram is offering 110% to investors a year later, there will be an important debt if most of the investors choose this option instead of the 72% immediate refund.
While Telegram claims that this debt could be paid using part of its equity, this would depend on the progress of Telegram during the next year.
Although the court ruling was related to the Gram tokens, since these tokens are required for the TON network as staking tokens, by not being allowed to distribute tokens to any investors the launch of TON was also stopped.
Given the serious consequences of not fully respecting the US court decision, Telegram informed investors of the refund following the deadline to launch TON on April 30.
However, Telegram may still believe that the legal case could be in their favour and it is likely that this legal case may continue, especially if a large percentage of investors choose the 110% refund option.
Telegram seems to aim to borrow funds from investors with a loan offering an important interest a year later.
This could indicate that Telegram may have considered the funds raised from TON to continue operations and if they refund all investors then they may encounter liquidity problems.
It seems that a large number of investors may have chosen the second option given the proposed return and the option to receive Telegram equity, which reportedly several funds had been trying to obtain previously unsuccessfully.
Therefore, if most investors choose to loan the funds to Telegram, the company could continue operations for another year but then it is unclear whether they will be able to refund all the debt, to extend the loan or to successfully appeal the US court decision regarding the Gram tokens.
In parallel, efforts continue to improve the code and technology of the TON network. In particular, the TON Community Foundation may launch an independent version of TON and TON Labs, which is a technical partner of Telegram, announced the TON OS for smartphones and computers to interact with blockchain applications.
However, since the TON network requires staking tokens, if most of the initial investors choose the loan option refund in April 30, 2021, then it would be challenging for the alternative version of TON to hold significant value beyond being used as a testnet.
Staking tokens are similar to mining devices in proof of work, therefore if tokens of the alternative version of TON hold a low value, a malicious entity could acquire a large amount of staking tokens to attack the network, similar to a 51% hashrate attack in proof of work blockchains.
If most investors choose instead an immediate refund and to collaborate with the TON Community Foundation, it may then be possible that this TON version captures a significant value.
Nevertheless, certain comments from investors indicate that the majority is likely to choose the loan option until April 30, 2021.
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Andreessen Horowitz surpassed the initial goal and raised $515 million for its second crypto fund
As announced last week, Andreessen Horowitz, known also as a16z, raised a total of $515 million for its second crypto fund.
The amount is $65 million higher than the goal of $450 million previously mentioned.
This second fund is significantly larger than the first crypto fund which raised $300 million in 2018. According to the announcement, a16z plans to invest for the long-term with a period of several years and up to 10 years.
Assessment
The $515 million raised, which is significantly higher than the $300 million of the first crypto fund, is positive since it indicates an increased interest in the blockchain sector.
Furthermore, given the current macroeconomic environment and volatility, the second crypto fund of a16z indicates confidence and trust in the long-term success of the blockchain technology.
This fund could provide additional credibility and confidence on the technology which could then benefit also crypto assets and the crypto markets.
The fund could help ensuring that the most innovative teams can continue improving and developing the blockchain technology with enough capital even in the current economic environment.
The VC a16z previously invested in several successful startups, and also well-known crypto businesses and projects such as Coinbase or Libra for example.
This second crypto fund will focus only on blockchain projects which means that an important amount of liquidity and capital will enter the crypto markets.
Andreessen Horowitz expects several major blockchain projects to finally launch in 2020.
In order to have additional flexibility for investments, a16z was reportedly registered as an investment adviser with the Securities and Exchange Commission (SEC) to be able to invest in assets like crypto tokens.
The VC investor a16z is close to the Libra project by being part of the Libra Association.
In addition, Katie Haun who will lead the $515 million crypto fund at a16z is part also of the board of the Libra Association.
Therefore, it seems that a16z is significantly involved in the blockchain sector with two crypto funds and an important involvement in the Libra project and association.
The financial support for the blockchain industry and in particular for the most innovative projects with such crypto funds from major VC firms is positive, especially currently with the uncertainty and economic impact of the pandemic.
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Ousted Bitmain co-founder Zhan wins partial victory in the latest legal battle
As reported in the media last week, the request of ousted Bitmain co-founder Zhan to block the business from registering a new legal representative at its Beijing branch was approved by the Beijing Haidian District Bureau of Justice.
In particular, the current registered representative is Jihan Wu and Bitmain wants to switch the legal representative to CFO Luyao Liu.
However, Zhan was not registered as the legal representative but he managed to reverse the change from Wu to the CFO Liu.
Assessment
Since the co-founder Zhan was ousted he began a legal battle regarding his 36% stake in Bitmain’s subsidiary Fujian Zhanhua Intelligence Technologies and also regarding certain decisions of other shareholders related to his voting power.
While Zhan seems to be trying to prove and confirm his major share of Bitmain and therefore his influence on the company, there has been resistance from Wu and Bitmain.
However, by managing to reverse the decision of the change of legal representative, this confirms that the legal case is likely to continue until the situation of Zhan can be resolved.
Bitmain has claimed that the ongoing legal case will not impact the operations or the manufacturing production of the company.
However, given that Zhan managed already to block or reverse certain decisions, it is unclear what the outcome would be if he is successful and able to return to Bitmain.
In addition, given the upcoming halving event of Bitcoin with significant demand for the new efficient Antminer devices and the difficulty to deliver the devices with the current pandemic, the ongoing legal case adds additional pressure and complexities both for Bitmain and the bitcoin mining industry.
While previous reports indicated that Bitmain was under difficulties, it has reportedly earned over $300 million so far in 2020.
In addition, previous comments about laying-off an important part of the workforce have been now replaced by individual bonuses apparently given to employees on May 1st.
While the bitcoin halving is a major event for the bitcoin mining industry, with block rewards reduced by half, for Bitmain as a manufacturer of efficiency mining devices it could be positive.
For pure bitcoin mining companies the halving event reduces revenues significantly and they would need to upgrade with more efficient mining devices to remain competitive and profitable.
However, while Bitmain mines also bitcoin and manages two important mining pools, manufacturing and selling ASIC devices is a major part of its business and the upcoming halving may have created an increase in demand for efficient mining devices which would explain the revenues so far in 2020.
The price of bitcoin combined with the halving event is likely to have a major impact in the bitcoin mining industry.
A low price of bitcoin would lead to a significant percentage of the hashrate to stop, similarly to what happened recently in March with the major price drop.
But even if bitcoin’s price remains stable or increases, the trend will be that the less efficient miners will gradually leave the network and then the overall hashrate would increase with the most efficient mining devices.
Therefore, the bitcoin network would become more secure since the 51% hashrate attack would be more expensive and challenging especially if the hashrate is sufficiently decentralised.
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Ethereum 2.0 Topaz testnet launches successfully and receives support from a major staking pool
Following a successful launch of the testnet, the staking branch of OKEx called OKEx Pool announced that they have joined the Ethereum 2.0 Topaz testnet as a validator.
The Topaz testnet was launched by Prysmatic Labs with mainnet parameter configuration as the launch of the first phase of Ethereum 2.0 with the Beacon chain is expected in Q3 this year.
OKEx claimed that they are collaborating with Prysmatic Labs and that they will support the development of Ethereum 2.0.
Assessment
While the Topaz testnet has launched with the Ethereum 2.0 mainnet parameter configuration, it will still be required to restart the testnet for improvements and to launch also the multiclient testnet before the first phase of Ethereum 2.0 can be officially released.
There are several teams supporting the development of Ethereum 2.0 although Prysmatic Labs seems to be leading with the Topaz testnet.
An important part of the transition from Ethereum 1.0 to Ethereum 2.0 will be the one-way bridge to lock ETH and receive an equivalent amount of ETH2 tokens to start earning staking rewards.
The staking rewards depend on the amount of ETH staked or locked in the network, therefore initially the return is expected to be higher with less ETH staked.
In order to participate in the Topaz testnet, it is required to deposit ETH on the Ethereum 1.0 Goerli testnet.
Then, it is possible to test the 32 ETH deposit contract in order to create validators. The minimum amount to create a validator is 32 ETH, therefore there will be many validators created.
This is in contrast to current staking networks which have a lower number validators with a large amount of crypto assets staked to them.
Another particular property of the one-way bridge is that while ETH2 will be assigned in a corresponding amount to the locked ETH and staking rewards will be earned, until around 2021 when ETH2 transfers are enabled it will not be possible to access the ETH2 tokens.
However, those locking their ETH early after the launch of Ethereum 2.0 would benefit from a higher staking return until more ETH is locked for staking.
In addition, Vitalik Buterin claimed that with Ethereum 2.0 the yearly issuance would be maximum two million while currently it is almost five million on Ethereum 1.0.
That would be similar to a halving event in concept since the issuance of ETH would be reduced by half or even more. However, there will be a transition period during which both chains will be running in parallel until all operations and assets are shifted to Ethereum 2.0.
During this time, there will be ETH issuance in Ethereum 1.0 and in addition ETH2 issuance from staking rewards in Ethereum 2.0.
Therefore, it seems that the issuance and inflation would be higher until the full launch and transition to Ethereum 2.0.
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Crypto Market Update
The last week was positive for the crypto market with an increase of the total market capitalisation from around $220 billion to over $240 billion.
Bitcoin’s price raised from $7.7k to $9.4k with a correction to $8.7k, which is similar to the prices of the CME bitcoin futures.
The 200-day simple moving average (SMA) is around $8k and the bitcoin price development will have a significant impact on the bitcoin mining industry with the upcoming halving event expected on May 12th.
Ethereum’s price raised also last week from below $200 to close to $230, but then it dropped again near $200. The 200-day SMA is at $173 and the expected launch of Ethereum 2.0 in Q3 could continue the positive sentiment for ETH.
Regarding the traditional markets, the volatility index Cboe VIX increased again near values of 40 and the US central bank confirmed that interest rates will be kept close to zero.
In addition, it will continue to increase its balance sheet, which has reached its highest value at over $6.5 trillion and certain reports are indicating that the US is entering into a recession.
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