Aion Token Project Estimates 18-Month Runway After Bitcoin and Ether Sales

Cash is king – especially during a crypto winter.

That’s the takeaway from a report out Wednesday from the Aion Foundation, which raised $23 million worth of bitcoin and ether through a token sale in October 2017. Compiled with the help of Deloitte, though not formally audited by the Big Four accounting firm, the report details how Aion has been managing its crypto war chest.

According to Aion Foundation CEO Matt Spoke, the foundation has sold off half of the bitcoin and ether it raised for fiat. The sales were well-timed to take advantage of the gains in crypto prices through the beginning of 2018.

Even after spending more than $10 million launching its unique blockchain platform and opening offices in Canada, Barbados, and China, the nonprofit had $14 million left as of October 31 of this year, $5.8 million of it in fiat, the report shows.

“We’ve liquidated a decent amount of our bitcoin and eth that we raised as proceeds to make sure that we are stable in this type of period,” Spoke told CoinDesk, adding:

“As we continue to spend in our operations we’ll end up liquidating more bitcoin and eth over the course of the next few months”

The Aion protocol already has active users such as the video game startup ClanPlay experimenting with how this network could support applications, Spoke said, but for now the nonprofit will “lean more heavily on cash” to fund its growth.

The foundation has roughly 18 months of runway, Spoke estimated, and it will take up to five years for the network to offer services comparable to centralized alternatives like Amazon Web Services. Aion is scheduled to support its first Java-based virtual machine, so developers can use decentralized software tools, by Q2 2019.

In the meantime, Spoke said his team might seek additional funding from crypto funds and accredited investors in return for Aion tokens.

The goal is to avoid layoffs for the foundation’s 61-person team by modeling itself somewhat like the ethereum-centric conglomerate ConsenSys, led by Joseph Lubin, in that the foundation would sponsor projects across the network.

Going forward, the foundation will publish quarterly reports and participate in the Messari disclosure database to boost token holders’ confidence.

Risks ahead

Aion tokens are currently traded on more than two dozen exchanges, including large ones such as Binance and Bitfinex, according to CoinMarketCap.

Despite that apparent liquidity, Meltem Demirors, founder of Athena Capital and chief strategy officer at the asset manager CoinShares, expressed concern that the foundation listed its holdings of Aion tokens as assets on its balance sheet.

“I think they should be really careful about that,” Demirors said. “I don’t think that we’ve definitely proven the token model works.”

Both she and Nic Carter, co-founder of Castle Island Ventures, warned against viewing token treasuries as a substitute for traditional equity investments or employee stock options.

“You have to pay progressively more of that stack as it declines in price and you become a forced seller at certain points,” Carter said. “A lot of these projects are going to face liquidity crises.”

There are other risks as well. Regulators have forced some crypto startups to refund tokens to buyers, a task that would prove challenging for the Aion Foundation since Spoke said it only has records of accredited investors who participated in the private pre-sale before its public token sale.

So, instead of worrying about whether its token will be deemed an unregistered security, the foundation is completely focused on amping up the platform’s utility.

“Our grant and bounty program has been very active and focused heavily on tooling,” Spoke said, speaking to how it rewards external developers with Aion tokens for creating software tools for its platform. “Over time we should not be the most important member [of the Aion ecosystem].”

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Kik Selects Stellar Over Ethereum for Token Launch

Messenger app maker Kik is quitting ethereum for good as it continues to develop its cryptocurrency, dubbed kin.

Launched on ethereum early in the ICO boom, Kik has now announced that it will close kin’s atomic swap with ethereum. Without specifying a date, the Kin Ecosystem Foundation said Wednesday that it would soon release a tool for kin holdings off of ethereum.

Kik’s token has had several homes in its short life.

The company raised just shy of $100 million in crypto during a September 2017 initial coin offering. By November, ethereum scaling issues resulted in talk that kin could find its way onto an alternative blockchain – something that Kik founder and CEO Ted Livingston later confirmed that December.

By March, Kik had developed a two-chain strategy slated for stellar, with ethereum for security and stellar for speed; the plan was that users could switch back and forth.

Then, in May, Kik determined that even stellar’s extremely low transaction fees were too much at scale, so it decided to fork stellar so it could eliminate transaction costs entirely. Kik’s Ory Band recently gave a talk on the advantages to kin with pursuing a federated consensus model.

Now, Kik is breaking away from ethereum entirely.

Reiterating his goal to make kin the most used cryptocurrency in the world, Livingston said in a release:

“One Kin on one blockchain. That’s our vision, and our strategy continues evolving as we work toward building an infrastructure that supports this.”

Flown the coop

Kik isn’t the first company to start building on ethereum only shift away to alternative platforms. Indeed, ethereum has served as an incubation hub of sorts for a number of tokens that later broke away.

For example, EOS and Tron both migrated their tokens off the original blockchain that made their fundraising possible.

For the Kin Foundation, the network’s limitations hit home especially hard when some of its early network testing in December became impossible due to the growing activity around the CryptoKitties app.

The matter has since become more urgent as the team rolls out new mobile products designed to give users ways to both earn and spend kin.

A spokesperson for the Kin Foundation explained that it has been making arrangements with exchanges, ensuring that as users move their tokens onto exchanges, they will make a one-way move onto the kin blockchain – burning the original ERC-20 token in the process.

There’s no deadline for users to make the move, however. The spokesperson said that existing users can sit on their tokens on ethereum as long as they like.

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PwC Is Advising (Not Auditing) Another Stablecoin Project

The Hong Kong division of global accounting and consulting firm PwC is exploring the best practices for issuing stablecoins, as part of an initiative with the non-profit Loopring  Foundation.

Announced Tuesday, PwC Hong Kong’s Asia-focused study on stablecoins follows a PwC partnership in the U.S. to advise decentralized lending platform Cred, which is working on a U.S. dollar-tied coin.

Stablecoins or one sort or another are suddenly all the rage, with the likes of Circle issuing its dollar-backed USDC on exchange giant Coinbase, and even big players like IBM getting in on the act.

In addition, the current fervor for price-stable crypto coins seems to have coincided with something of a meltdown involving Tether, the issuer of the USDT stablecoin, following long-festering doubts about its dollar reserves.

“There’s a need for enhanced trust,” William Gee, PwC’s risk assurance emerging technology leader for China and Hong Hong, PwC told CoinDesk. “So we are asking how things would look inside a regulated context; what are the standards, protocols, best practices and how would they fit?”

The Loopring Foundation, which drives decentralized exchange protocols, said PwC’s involvement will help with its own drive for transparency around the creation and management of stablecoins and securities token offerings.

“The level of security and auditablity empowered by the Loopring Protocol will play an essential role in regtech applications,” Daniel Wang, founder of Loopring Foundation said in a statement.

Audit? Not so simple

Stepping back, a continuing interest in this area from a firm like PwC seems to raise the question, wouldn’t third-party audits of stablecoins carried out by Big Four accountancy companies be the next logical step?

“We are obviously looking at this area. So are all the major firms. I would say even beyond the Big Four,” said Gee, who pointed out the PwC has been appointed as auditor of Tezos, an early blockchain ICO bonanza which experienced its own bumpy ride since fundraising.

But regarding stablecoins in particular, an absence of recognized standards or even a baseline regulatory approach means we are currently looking at “a very diverse scenario,” said Gee, adding:

“This may look like a very simple ask from the crypto community, but auditors are in the public trust business, operating under a very robust set of standards, so it’s not a simple question that we can actually give an answer to overnight.”

Indeed, Cameron Winklevoss, co-founder and president of the Gemini Trust Company, which recently launched the Gemini Dollar (GUSD) stablecoin, has made a similar point.

“There is no financial report framework w/r/t to audit conformity w/ a stabelcoin,” Winklevoss tweeted last month. “So you can’t perform an ‘audit.’ You must instead rely on a 3rd party to attest to whether an assertion (that there is a 1:1 peg) is accurate.”

Tether, which parted ways with accounting firm Friedman LLP this year before it could produce a full audit of its reserves, has likewise claimed that an audit for a business like its own is not available in the marketplace.

For stablecoins to be audited, Gee said, several things would have to be addressed, first among them compliance with know-your-customer (KYC) and anti-money-laundering (AML) regulations.

Another central aspect is how the entire issuance and redemption cycle is handled plus its mechanism and controls. Then there is the custody and safekeeping technology, Gee said, concluding:

“It’s not just looking at the $10 million or $10 billion in your accounts. It involves looking at the entire operation: the entry and exit and all the controls surrounding them.”

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Israeli Startups Raised $600 Million Through ICOs in 2018: Report

Israeli startups have brought in more than $600 million in funding from initial coin offerings (ICOs) in the first three quarters of 2018, according to an industry report.

Crypto analytics and research firm One Alpha surveyed ICOs and blockchain projects globally, from the past year, aiming to provide an overview on the status of the blockchain and ICO ecosystem, with a particular focus on Israel.

One Alpha’s survey counted 140 active blockchain-related companies in Israel, which, when combined with other forms of investment, have received $1.3 billion worth of investments. “More than 60% of the companies and 88% of the funds are ICO-related,” the report noted.

Further,  the token sale figures surpass the funds raised for industry startups through traditional angel and seed venture capital investments for that period as well.

The $600 million figure represents an increase over 2017’s numbers, in line with the overall jump in ICO growth seen this year. But it wasn’t a huge leap for Israel-specific ICOs, with One Alpha finding that firms in the country raised $586 million in total during 2017 between less than 20 token sales.

Yaniv Feldman, CEO of One Alpha, told CoinDesk, said the figures speak to the strength of the blockchain ecosystem in Israel more broadly.

“Israelis are less than 0.1 percent of global population while making 3 to 5 percent of global ICO fundraising amount is definitely something that shows that Israel is one of the most important in terms of blockchain innovation,” he said.

As previously reported, 2018 saw Israeli regulators clarifying their positions on matters related to cryptocurrency in blockchain. For example, back in March, the Israel Securities Authority recommended regulations that sought to differentiate so-called utility tokens from crypto-assets that are considered securities, a move that came several months after officials released a draft plan for the taxation of ICOs in January.

Looking to the future, Feldman remarked that Israel isn’t interested in being overly crypto-friendly, compared to jurisdictions like Malta or Gibraltar. He contended that Israel would rather regulate the industry in such a way that uplifts local businesses, adding that the nation is specifically looking to U.S. regulators as an example.

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The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.



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The Incoming Wave of ICO Regulation (Yes, It’s Coming)

Alex Sunnarborg is a Founder of Tetras Capital. Previously, he was a research analyst at CoinDesk and a founder of the crypto investing app Lawnmower.


As you may know, securities classification analysis in the U.S. today primarily revolves around the Securities Act of 1933 and the SEC v. W.J. Howey Co. Supreme Court case of 1946.

The Securities Act of 1933 was established to require issuers to disclose certain pieces of information to potential investors prior to any public securities offering. This law was enacted to reduce misrepresentation by issuers and to help protect investors, but applies only to the sale of “securities.”

In 1946, SEC v. W.J. Howey Co. broadened the definition of securities by including any “investment contract”, defined as: (1) an investment of money (2) into a common enterprise (3) with the expectation of profit (4) to come solely from the efforts of others.

This criteria has come to be known as the “Howey Test,” and has now been used to evaluate a wide variety of investment schemes. Howey’s own securities sales involved selling real estate and service contracts for citrus groves he owned in Florida.

Combining these two pieces of regulation, the registration requirements defined by The Securities Act of 1933 must be satisfied prior to the sale of any investment contract as defined per the Howey Test of 1946.

71 years after the citrus groves, the SEC used the Howey Test to determine that the tokens sold in The DAO ICO were securities.

  1. Participants in The DAO invested money: ETH (defined as a “virtual currency” like BTC)
  2. into a common enterprise: The DAO
  3. with an expectation of profit: DAO (tokens purchased in the ICO)
  4. deriving from the efforts of management: Slock.it, the project’s founders, and The DAO’s curators.

Thus:

  1. DAO tokens were securities.
  2. The DAO ICO was an unregistered securities offering.

Instead of levying action against management, the SEC did not pursue charges.

The ICO boom

At the time of the SEC’s DAO report in July 2017, global token sale fundraising had just crossed $2 billion. Rather than cool the market down, in the next 12 months ICOs boomed and issuers raised over $20 billion (over 10 times the all-time total in just one year).

Almost none of these ICOs were registered pursuant to the Securities Act of 1933.

Moving forward to today, not much has changed. ICOs have not stopped and large rounds continue to be raised both publicly and privately.

Aside from the uncertain regulatory risk, an ICO is nearly a no-brainer for capital hungry entrepreneurs. ICOs have long since trumped VC as the preferred method of raising capital. Why would you bother pitching a critical VC firm when you can collect capital directly from anyone in the world?

Who’s still investing though? Despite many altcoin prices being down 90 percent or more this year, and much of retail feeling exhausted, many venture-style crypto funds were still raised in the last 12 months and thus are nearly forced to make large bets in new early stage deals.

The resulting pool of ICO risk

What’s done is done at this point for the majority of ICOs. Assets that were created as a result of an ICO and those involved in the issuance process can not take that ICO back. Token sales now date back five-plus years and the money involved has now dissipated through the world.

Many of the largest ICOs and crypto assets presently hold substantial risk as the following questions remain unanswered:

  1. Is the crypto asset a security now?
  2. Was the crypto asset a security during the initial or any subsequent sale?
  3. If not, did an exemption apply or was it an unregistered securities sale?
  4. Is U.S. securities law even relevant?

The SEC highlighted three key parties at risk of future action:

  1. Issuers of unregistered securities offerings.
  2. Investors in unregistered deals.
  3. Exchanges facilitating unregistered securities trading.

Regulatory action against any of these parties would likely result in selling and negative pressure on the underlying asset’s price. An action against exchanges would also likely coincide with a decrease in liquidity. Not only could exchanges be liable for previously facilitating the exchange of securities without necessary licensing, but in the event the exchange was currently listing the asset for trading and needed to delist the asset, overall market liquidity could drop severely.

Many crypto assets trade on only one or very few exchanges and thus an exchange delisting can suffocate liquidity and price. In addition to bad PR, the diminished liquidity would likely make it more difficult for new capital to buy in the future due to decreased on-ramp options. Further, other exchanges without securities trading licenses may also immediately follow suit and delist the asset to reduce regulatory risk and scrutiny, further centralizing liquidity.

What will regulatory action look like?

The DAO ICO illustrates a clear situation where:

  1. An issuer sold unregistered securities to unaccredited investors in the U.S.
  2. Both global retail and sophisticated institutional investors invested (many also leading the development of both The DAO and ethereum).
  3. Several exchanges (with users including unaccredited investors in the U.S.) facilitated the unregistered exchange of unregistered securities.

In their conclusion that DAO tokens were securities, the SEC took no enforcement action against the ICO issuer. Similarly, no investors or exchanges have been charged.

Many relative high profile ICOs are in a similar situation.

In June 2018, SEC director William Hinman stated “putting aside the fundraising that accompanied the creation of Ether, based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions (as with Bitcoin)”.

This statement. I believe, illustrates a few things:

  1. Hinman does not believe bitcoin and ether are currently securities due to their “decentralized structures”. (I would love to see more of his analysis.)
  2. Hinman purposefully “put aside” ether’s ICO and likely believes ether may have been a security at the time of the initial offer. (Presumably because he believes ether was more centralized at the time.) 
  3. Hinman likely believes that ether became decentralized enough to lose its securities classification at some point. Thus, he likely believes that the ether ICO was a securities offering and perhaps some exchanges were facilitating securities trading at some point in time. (I would love to see his analysis on when ether changed to decentralized.)                                                                                    
  4. SEC staff can make relatively bold statements in public. Statements from SEC staff are not the same as official reports from the SEC. Hinman speaking at a public Yahoo Finance conference is not the same as a report from the full SEC (but many could perceive it as such).

If Hinman thinks like his colleagues though, ethereum’s ICO may very likely be seen as an unregistered securities offering.

If ethereum’s ICO was an unregistered securities offering, the list of ERC20 ICOs and tokens built upon its blockchain looks something like a minefield on top of a house of cards. Not only are the majority of these ICOs likely unregistered securities offerings, but many of them have likely not cleared the bar of becoming decentralized that Hinman believes ether did.

Thus these assets not only had unregistered securities offerings in the past, but they are also currently securities. These token projects are not only at risk of enforcement against the issuer, but also most heavily at risk of a sharp drop in liquidity due to action towards exchanges without securities trading licenses and the subsequent delistings.

If my conclusions are correct, the SEC’s wrath has not yet passed. Rather, I believe the SEC is simply taking its time in organizing the facts and appropriate actions towards hundreds of ICO issuers, investors and exchanges.

The wave is building and I believe action is coming. The current list of enforcements in 2018 may be minuscule to what it will look like in a few years.

It is clear that many ICO issuers as well as the investors and exchanges that traded the tokens have taken some questionable actions. However to be fair to entrepreneurs, regulatory guidance has been extremely minimal and trying to navigate the industry generally feels like you’re wearing a blindfold.

In the long term, more regulation should lead to a higher quality marketplace for entrepreneurs and investors, and a better reputation for the eventual end user and industry as a whole.

In the short and medium term, though, we should be in for an interesting ride of regulatory action around ICOs.

Investing and avoiding regulatory risk

Investing in the crypto asset class is obviously extremely risky. Diversification within the asset class is somewhat of a myth. Liquid crypto asset price movements are highly correlated and many early stage crypto investments share exposure to (1) risk around securities regulation and (2) ethereum as its base blockchain.

Bitcoin leads the crypto asset class in terms of market cap, liquidity, age and security. I thus believe bitcoin should be most long crypto investor’s primary benchmark, and any alternative crypto investment should be analyzed as to the opportunity cost vs holding BTC. In modeling out various scenarios, one of the greatest weaknesses of many alternative crypto assets is the uncertainty around future liquidity.

If you invest in a very early stage deal, before even the ICO (in a pre-ICO, SAFT, or similar round), the journey to liquidity may entail:

  1. Waiting for the team to build initial software.
  2. Waiting for the team to decide on a public offering or token distribution strategy.
  3. Waiting for the team to distribute you tokens after any vesting or lock-up period.
  4. Waiting for an exchange or similar liquidity avenue to open a market you can sell on.

In addition to that daunting gauntlet of hurdles, at any point during this journey or after, regulatory risk can persist. The token can be deemed to have been a security when it was sold without proper registrations in the past, likely severely harming its liquidity.

When investing in any early stage deal, you need to be (1) very confident on your early stage deal’s estimated timeline to liquidity, and/or (2) confident that it can outperform BTC on any time horizon (as BTC will be liquid on all timeframes).

A VC portfolio can have many strikeouts that one home run like ETH can make up for, but I do believe many (especially institutional) crypto investors make the mistake of over-allocating to illiquid positions.

On recent time scales the ROI of ICOs vs liquid asset alternatives just doesn’t make sense unless you are extremely lucky or diligent and active with your ICO selection and trading. The lack of liquidity means that early stage investments that are going poorly are unable to be sold, leading to retaining underperforming regulatory risky and correlated positions. In my opinion, the benefits of the ability to actively re-balance a crypto asset portfolio cannot be overstated (2017–2018 alone should be proof of the advantages of liquidity alone).

Outside of early stage illiquid deals, I generally group liquid asset ICO regulation exposure in three buckets:

  1. Least risky: asset has had no sales (no ICO, etc.) – e.g., BTC, XMR, DCR
  2. More risky: asset had a private ICO or sales (restricted to institutions, accredited investors, etc. only) – e.g., FIL, ZEC, XRP
  3. Most risky: asset had a public ICO (totally open to anyone in the world) – e.g., ETH, EOS, SNT

To minimize risk to future securities regulation, minimize overall exposure to early stage illiquid deals without clear registration and liquid assets in bucket 3.

The SEC has not forgotten or overlooked any deal, the wave of ICO regulatory action is coming.

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Global AML Watchdog to Release Crypto Regulations By Next June

A global money-laundering watchdog has said it will begin publishing rules for international cryptocurrency regulation by next summer.

According to a Reuters report Friday, the Financial Action Task Force (FATF) – the France-based intergovernmental body founded in 1989 to develop policies for tackling money laundering – said that global jurisdictions will have to bring into force licensing schemes or regulations for crypto exchanges and possibly digital wallet providers under the new rules. Companies offering financial services for initial coin offerings will also be included, the report states.

The news comes after the FATF plenary meeting this week with officials from 204 global jurisdictions to discuss crypto regulations and other matters.

Reuters also reports that FATF’s president, Marshall Billingslea, designated June as the month in which the group will begin publishing its guidelines and enforcement expectations.

He was quoted as saying:

“By June, we will issue additional instructions on the standards and how we expect them to be enforced.”

As reported in July, the G20 member countries had been eyeing at an October 2018 deadline for movement on a global anti-money laundering (AML) standard around cryptocurrency.

With the G20 seeking “vigilant” monitoring of cryptocurrencies, FATF was called on to clarify how its existing AML standards could be applied to cryptocurrency.

In a statement released on Friday, the group said that “there is an urgent need for all countries to take coordinated action to prevent the use of virtual assets for crime and terrorism.”

“As part of a staged approach, the FATF will prepare updated guidance on a risk-based approach to regulating virtual asset service providers, including their supervision and monitoring; and guidance for operational and law enforcement authorities on identifying and investigating illicit activity involving virtual assets,” the FATF explained in its missive.

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Media Startup Civil to Issue Refunds as $8 Million Token Sale Fails

Civil, the New York-based startup aiming to put journalism on a blockchain, has announced it will issue refunds to users who participated in its token sale, as it failed to meet a pre-set minimal requirement.

Matthew Iles, Civil’s chief executive officer, wrote in a blog post on Tuesday that the startup closed the sales process of its proprietary CVL tokens on Oct. 15, which was not able to reach the goal of collecting at least $8 million.

Having received a $5 million funding from the ethereum startup Consensys last year, Civil started the token sales on Sept. 18 to raise somewhere between $8 million to $24 million by Oct. 15 in its bid to launch a blockchain journalism platform.

Now that it has failed to cross that threshold, Civil said participants will be able to request an immediate refund, or “they will be automatically refunded by Oct. 29.”

CoinDesk reported early this month that Civil didn’t manage to bring in $1.34 million toward its $8 million minimum until Oct. 10, five days prior to the deadline.

That fact, perhaps, made the refund announcement on Wednesday not entirely surprising. As Iles said in a blog post on Oct. 10, “the numbers will show clearly enough that we are not where we wanted to be at this point in the sale when we started out.”

Recently, a Wall Street Journal article said Civil had tried to pitch its blockchain-powered platform to several major media including the New York Times, the Washington Post and Dow Jones, without success. Forbes, however, has recently announced a partnership with Civil to publish its content on a blockchain.

That said, Civil is still not giving up and is looking to start another round of token sales – “happening in weeks, not months”  before it can officially launch the platform.

“We’re also working on a new token sale process, very different from the last one and, we hope, much easier,” Iles wrote.

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Crypto Reckoning? Industry Vets Strike Humble Tone in San Francisco

Many at San Francisco Blockchain Week 2018 are warily reflecting on the lessons of the 2017 token sale boom, the pride that came before this current bear market fall.

Veteran investor and AngelList co-founder Naval Ravikant told conference goers on Monday the last “hype cycle” was a “coming of age” for many cryptocurrencies such as ethereum, the second largest crypto by market cap.

“We almost got Wall Street completely involved, but we didn’t quite get there,” Ravikant said, adding that although some of the world’s leading financial institutions are tiptoeing into the crypto markets, “that’s not where the dream is.”

Overall, the question on everyone’s mind is how to scale products and services for routine usage. Highlighting this point, event organizers told CoinDesk roughly 800 people participated in the first two days of the week-long conference, notably fewer than the almost 1,000 people who joined the ETH San Francisco weekend hackathon, where scaling and onboarding solutions dominated the conversations.

Regardless of which approach crypto businesspeople prefer, most are preparing for a period of slower growth. Indeed, while conference organizers said 3,389 people attended events at the Hilton in Union Square by Thursday, attendees often commented on sparse attendance and dampened investor enthusiasm. As such, entrepreneurs like MyCrypto wallet startup CEO Taylor Monahan are cautious about hiring, fundraising, and adding support for new cryptos. Many of her peers watched summer layoffs at the crypto exchange Kraken and now prefer to tighten their belts rather than have to slash budgets after the next dip.

“For some of the other blockchains [beyond bitcoin and ethereum], are they going to be around next year?” Monahan asked. “If you scale your support team 100X, then you have a bear market, are you going to have enough work for these people?”

Another continued source of uneasiness is regulation. Joseph Weinberg, co-founder of the financial services platform Paycase and chairman of the data network Shyft, is participating in an alliance of crypto veterans advising the Organisation for Economic Cooperation and Development about how the token economy requires a different regulatory approach than bitcoin.

He told CoinDesk:

“If we don’t have jurisdictions that will give our ecosystem clarity, then we’re in trouble. It’s about making sure we have a future.”

Sharding dreams

Perhaps no project encapsulates the scaling and sustainability challenges faced by crypto more than ethereum.

“The eth guys have really woken up,” Ravikant said.

Since most of the projects that fundraised through initial coin offerings (ICOs) over the past year rely on ethereum, which is taking a different approach to scaling than the bitcoin community, all eyes are on ethereum’s evolving governance model.

For the scaling solution known as sharding, for example, “the governance bottleneck is just as real and the technical bottleneck,” developer Vlad Zamfir told CoinDesk at the hackathon on Sunday.

“It’s going to take Vitalik time to convince everyone,” Zamfir said, referring to ethereum creator and sharding proponent Vitalik Buterin.

As a general matter, “we’re super limited by the legitimacy of our governance,” said Zamfir, who recently published a blog post detailing how his views on governance differ from those of Buterin and others.

The current governance model is “obviously not sustainable,” Zamfir said. Speaking to all the companies that now participate in the ethereum ecosystem, he added:

“You have to engineer their interests to make them align with the outcomes you want.”

At the hackathon, Zamfir’s team focused on a way to get different branches and sections of a sharded network to communicate. His teammate Alexander Skidanov, founder of the ethereum competitor Near Protocol, told CoinDesk he is concerned about the lack of documentation and proven experiments that clarify this scaling approach.

“It isn’t sufficient to build a blockchain,” Skidanov said. “It’s important that the people who use it will be able to analyze it and know that it’s secure.”

Even though Skidanov expects it will take years for ethereum’s updated model to be ready to support consumer applications, litecoin creator Charlie Lee said on Monday that ethereum is actually moving too fast and relying on a small number of businesses to run nodes as demand increases. For example, the crypto wallet startup Parity appears to run 3,293 nodes out of 14,198 total.

“Ethereum nodes are being run by corporations and miners, which is a bit more centralized than bitcoin,” Lee said. “Ethereum sacrificed decentralization in order to get that scaling.”

Community building

On the bright side, the trend that sparked the most excitement during blockchain week wasn’t funding announcements or new products, it was the influx of new talent.

“Now it’s very acceptable for the top tier talent in Silicon Valley to be working on crypto, and they’re not going anywhere,” Ravikant said.

A few participants at the hackathon told CoinDesk they are leaving corporate jobs to join the blockchain industry, including employees at some of the region’s most established tech companies.

While many of the weekday conference panels had just a few dozen participants listening to Bay Area celebrities like TechCrunch founder Michael Arrington, crypto veterans were generally thrilled about community growth during the bear market.

Highlighting the quality of newcomers as opposed to their quantity, Monahan said over the past year MyCrypto support requests revealed that users’ understanding has drastically improved during the downturn. Instead of just asking “what happened to my money,” people are asking her about compatibility with specific hardware wallets, for example.

Monahan, previously a co-founder of MyEtherWallet, is still bullish on ethereum, believing the influx of fresh blood will help the network mature, regardless of the recent price rout. In the long run, she said institutions like Parity could become “guiding stars” that help guide governance throughout the scaling process.

Indeed, Parity and the Ethereum Foundation, led in part, by ethereum creator Vitalik Buterin, were just a few of the dozens of organizations sponsoring the weekend hackathon, which Zamfir described as an important community-building opportunity.

Along those lines, Monahan added she loves the diversity and welcoming vibe of ethereum events, which she believes will drive value even as the underlying technology undergoes growing pains.

She concluded:

“One of the reasons we’ve been successful with ethereum is we are emotionally invested in this community.”

Event image via the author for CoinDesk

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North Dakota Securities Regulator Issues Cease and Desists Against 3 ICOs

North Dakota’s securities watchdog is again taking action against ICO projects it alleges are operating illegally in the state.

On Thursday, Karen Tyler, commissioner of the North Dakota Securities Department, issued cease and desist orders against three companies for offering “unregistered and potentially fraudulent securities in the form of ICOs.”

The regulator alleged in a news release that the companies – Crystal Token, Life Cross Coin and Advertiza Holdings – had placed fraudulent statements on their websites with claims of excessively high returns, insufficient disclosures and misrepresentation of facts.

The agency said none of the firms are registered to offer securities in the state. Furthermore, Advertiza allegedly falsely claimed it had filed with the SEC, while Life Cross Coin’s website is operated from a Berlin IP address “associated with ransomware, trojans, and identity fraud.”

“The continued exploitation of the cryptocurrency ecosystem by financial criminals is a significant threat to Main Street investors,” said Tyler, adding:

“In formulaic fashion, financial criminals are cashing in on the hype and excitement around blockchain, crypto assets, and ICOs – investors should be exceedingly cautious when considering a related investment.”

This is not the first time the department has taken action against companies promoting ICOs in the state. Last month, it issued orders against BitConnect, Magma Foundation and Pension Rewards Platform.

Actions are also increasingly occurring at a federal level in the U.S., with the Securities and Exchange Commission (SEC) announcing just yesterday that it is suing an ICO project and its operator for falsely claiming to have received approval from the agency.

The SEC also asked a U.S. district court to enforce a subpoena on Wednesday as part of a probe into alleged pump-and-dump tactics that involved claims of a $100 million ICO.

North Dakota flag image via Shutterstock

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United Arab Emirates to Allow ICOs as Corporate Funding Option

The United Arab Emirates (U.A.E.) has announced plans to introduce new rules that would permit initial coin offerings (ICOs) as a fundraising method for domestic companies.

Intended for introduction in 2019, the new rules would allow firms to raise capital via crypto token sales as an alternative to traditional methods such as IPOs, according to a Reuters report published Monday.

The news was revealed by the head of the U.A.E.’s securities watchdog, Obaid Saif al-Zaabi, who said at a seminar today:

“The board of the Emirates Securities & Commodities Authority has approved considering ICOs as securities. As per our plan we should have regulations on the ground in the first half of 2019.”

Draft rules covering ICOs are already being drawn up by the regulator in conjunction with advisers from outside of the country, Zaabi said, adding that it is also working with stock markets in Abu Dhabi and Dubai to prepare trading platforms for the new digital assets.

Reuters indicates that a double-whammy of low oil prices and lackluster equities markets in recent years have dampened IPO activity in the U.A.E. and across neighboring nations.

As well as providing a legal basis for ICOs, the country may also draw up a new law to boost the number of IPOs by allowing family owners sell up to 100 percent of firms under their control. The measure is currently awaiting approval from the prime minister’s office, Zaabi indicated.

If and when the new ICO regulations come into law, the move would mark the U.A.E. as one of the countries in the world to have brought in a regulatory framework for the blockchain funding method.

Malta, for one, recently passed several bills to provide a legal basis for ICOs, cryptocurrency and blockchain technology earlier this year as part of its plan to become a “Blockchain Island.”

The island nation’s prime minister recently said in a U.N. speech that cryptocurrency is the “inevitable future of money.”

Bermuda, too, is hoping to attract more businesses to the island by providing legislation that would allow initial coin offerings under certain conditions. It has also set up a task force with the remit of boosting cryptocurrency commerce.

U.A.E currency image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.



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