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Superfluid Collateral in Open Finance

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What happens when collateral becomes liquid?

Superfluid ETH

While the past year was a tough one for the public crypto markets, talented and dedicated teams spent it heads down, shipping what appear to be some of the building blocks of a truly open financial system. As a result, while 2017 was the year of the ICO and 2018 was the year of continued massive private token sales, 2019 is shaping up to be the year of Open Finance.

Most significantly, Maker, which launched at the tail end of 2017, has created a system for minting a USD-denominated stablecoin (DAI) using Collateralized Debt Positions (CDPs). The system has performed incredibly well, with DAI smoothly retaining the dollar peg and CDPs sucking up >2% of all ETH, during a year in which ETH declined as much as 94% from its all-time high.

Source: ETH Locked in DeFi

Maker isn’t the only way to borrow or lend cryptoassets. Dharma allows users to request or offer loans for any ERC20 (fungible) or ERC721 (nonfungible) asset, dYdX enables derivatives and long/short margin trades, and Compound offers money market borrowing/lending for ETH, DAI, and a handful of other tokens.

Decentralized exchange (DEX) protocols (e.g., 0x, Kyber), are now functional, as are 3rd party exchanges and interfaces to access them (e.g., Radar Relay, Easwap), allowing non-custodial trading to become a viable reality, though liquidity is still somewhat lacking across the board. In November, a new completely on-chain DEX launched that makes it possible to provide liquidity and earn fees automatically using basically the same approach as Bancor, but simplified to remove the unnecessary token. Hello, Uniswap!

And, of course, Augur shipped v1 of their long-awaited prediction market protocol, for which both Veil and Guesser have recently launched centralized services that enable vastly improved UXs.

We now have (almost) fully decentralized options for borrowing, lending, and trading cryptoassets, creating derivatives around any asset or event, and even a USD-denominated stablecoin that allows risk-off positions and greatly improved UX without ever needing to directly touch that dirty, dirty fiat.

One of the core tenets of Open Finance is that of permissionlessness. But if there are no gatekeepers, then how can we be sure that a borrower won’t default on a loan or that a derivative will pay out as intended?

Collateral.

In a nutshell: collateral is posted as a form of insurance for the other participants in the system, so that you can be trusted to take certain actions without anything else being known about who you are, where you live, how competent you are, and so forth. If your actions ever come close to harming the system, you are automatically booted out and some or all of your collateral is handed over to more responsible parties.

In the Maker system, in order to borrow dollars in DAI, you must lock more than 150% of the equivalent value in ETH in a CDP. If your collateral ratio ever drops below 150%, a “Watcher” will step in, and *POOF* — your collateral is liquidated at a 13% penalty to repay your loan. Compound and Dharma employ similar structures to ensure lenders don’t need to be worried that borrowers won’t repay their loans.

Naturally, builders and participants in the Open Finance ecosystem have tended to think of assets used as collateral as just that: assets in use as collateral. Those assets may eventually be released and used for other purposes once a loan is repaid, but for now, their raison d’être is to be collateral.

But what if it doesn’t have to be that way?

There are currently over 2 million ETH locked in Maker CDPs, generating around 78 million DAI. That means at current prices, more than half the ETH in CDPs isn’t even technically required for collateral. It is a completely dead, unproductive asset.

Sowmay Jain, founder of InstaDApp, recently proposed automating the process of sweeping excess ETH out of CDPs and into Compound’s money market protocol to earn interest (the process of moving ETH back to the CDP as needed would also be automated, of course). That is a great first step and one that is relatively straightforward to implement by integrating the Maker and Compound protocols as they exist today.

But what about the rest of the ETH that is sitting in the CDPs, ensuring that they meet the minimum 150% collateral requirement? Why couldn’t that also be sitting in a Compound money market, available for others to borrow and earning the current 0.27% APR?

While a single unit of ETH can’t literally be in two places at once (one of the primary breakthroughs of Bitcoin was in solving the “double-spending problem”), there’s no reason why deposits into Compound couldn’t be made through a “deposit token” contract, which issues an equivalent number of “Compound ETH” or cETH (or cDAI, cREP, etc) ERC20 tokens. These cETH tokens would always be redeemable 1:1 for ETH in Compound. Ryan Sean Adams points out the same approach could be used in the future by staking pools with staked ETH.

Given this reliable, transparent backing, once Multi-Collateral Dai is shipped, it’s not hard to imagine that cETH could be added as a supported collateral type for Maker. Especially with speculation that much Maker activity today is driven by ETH holders who are looking to go long with leverage, it makes sense that there would also be demand for earning interest on the ETH that sits as collateral.

cETH is a fairly basic example of liquid collateral, but what if liquid collateral was actually used to provide… liquidity?

Uniswap is a fully on-chain decentralized exchange. Rather than maintain an order book, Uniswap uses liquidity pools and an automated market maker to determine the price at which an asset can be traded. If you want to supply liquidity to the exchange and earn a proportional share of the 0.3% fee charged on every trade between a given asset pair, you just deposit an equivalent amount of ETH and the relevant ERC20 token. (If you want a deeper explanation of Uniswap, check out Cyrus Younessi’s excellent overview.)

The ETH/DAI pair is currently the second deepest liquidity pool on Uniswap. Both assets are also available on Compound. It would be great for anyone providing ETH/DAI liquidity on Uniswap to also earn interest on their assets by having them simultaneously available on Compound for borrowing. Again, the cETH-type trick would work here for half the equation (cDAI), but it feels like there’s potential to do a more direct integration or re-writing of the two protocols to make this possible.

A different trick with Uniswap that definitely works is using the liquidity pair itself as collateral (e.g., ETH/DAI, as opposed to each of the assets in that pair, ETH and DAI). What does that mean? Well, although most Ethereum wallets don’t show them by default, whenever you deposit liquidity into a Uniswap pool, your share of that pool is actually represented by ERC20 tokens.

Any system willing to accept as collateral both assets in an ETH/XYZ pair should also be willing to accept the corresponding Uniswap pool shares as collateral. Uniswap’s automated market maker function ensures that the combined value of the ETH/XYZ pool share will never drop more than either of those two assets. In fact, all else equal, the value of the ETH/XYZ pool shares will rise over time, based on earnings from trading fees being added to the liquidity pool.

I predict we’ll see Uniswap pool shares used as collateral for millions of dollars in loans in months, not years.

Anyone familiar with the world of prime brokerage services will immediately recognize the process described in the preceding sections as forms of rehypothecation: a lender taking an asset posted as collateral by a borrower, and using that same asset as collateral to take out another loan. Except in this case, we may see collateralized collateral collateralizing collateralized collateral… and so on and so forth. Oy.

This creates a daisy-chain situation: if there’s a failure at any link along the chain, all of the assets further down the chain will also fail, but anything further up (i.e., closer to the original underlying collateral) should be fine.

Credit: Interpower

However, it’s extremely unlikely this chain of collateralization would be created in a neatly serialized fashion. All available evidence suggests that financial engineers will slice, lever, mix, and sling every imaginable asset in every imaginable combination to create new products they can sell to each other or the unwashed masses. It will probably end up looking more like this:

Credit: Cory Doctorow

Is this really any worse than the legacy financial system? Probably not. Technically, this would all be publicly viewable and auditable, rather than hidden behind a series of closed doors and incomprehensible legal contracts. We should be able to devise systems to track and quantify risk when everything is linked together via public ledgers and immutable automated contracts. We should be able to self regulate, put in place reasonable standards, and refuse to interact with contracts/protocols that don’t demand conservative margins and ensure the collateralization chain doesn’t go more than a couple layers deep.

But given what we know of human nature, do you really think we’ll show restraint when the possibility exists to earn an extra point of yield or pay a slightly lower rate on a loan?

There is something undeniably compelling about all of this. If assets can be allocated for multiple purposes simultaneously, we should see more liquidity, lower cost of borrowing, and more effective allocation of capital. Most of the builders I’ve met working on Open Finance protocols and applications are not looking for ways to wring a few extra bips (basis points, not Bitcoin Improvement Proposals… sorry) out of the system; they’re trying to build the tools that will ultimately make every imaginable financial asset, service, and tool available via open source software on the phone of every person on the planet. Maybe we’ll never get there, but based on the hyperspeed pace at which this industry is evolving, if this is all a big terrible idea, at least we’re likely to figure that out while it’s still only a few million nerds losing their shirts, rather than causing the entire global financial system to crash and burn.

In the meantime: superfluid collateral, anyone?

Source: https://tokeneconomy.co/superfluid-collateral-in-open-finance-8c3db15efac?source=rss—-fbbd350c08fc—4

Blockchain

Charted: Ripple (XRP) is Primed For a Rally And Only 1 Thing is Holding it Back

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Ripple started a downside correction below $0.6500 against the US Dollar. XRP price is likely preparing for the next major move, similar to bitcoin and ETH.

  • Ripple corrected lower, but it remained stable above $0.6000 against the US dollar.
  • The price is struggling to clear $0.6500, but it is well above the 100 simple moving average (4-hours).
  • There is a major contracting triangle forming with resistance at $0.6340 on the 4-hours chart of the XRP/USD pair (data source from Kraken).
  • The pair is likely to surge above $0.6500 and $0.6800 as long as it is above the $0.5500 support.

Ripple’s XRP Price is Holding Key Supports

After trading as low as $0.4566, ripple’s XRP price started a fresh increase above $0.5500. Bitcoin price climbed back above $19,000 and ETH broke the $600 resistance.

XRP is now struggling to clear the $0.6350 and $0.6500 resistance levels. The last swing high was formed near $0.6896 before the price declined below $0.6000. It tested the 50% Fib retracement level of the upward move from the $0.4566 low to $0.6896 high.

The price remained well bid above $0.5750 and it recovered higher. It is now trading well above the $0.6000 support and the 100 simple moving average (4-hours).

Ripple’s XRP Price

Source: XRPUSD on TradingView.com

More importantly, there is a major contracting triangle forming with resistance at $0.6340 on the 4-hours chart of the XRP/USD pair. The triangle support is close to the 61.8% Fib retracement level of the upward move from the $0.4566 low to $0.6896 high.

If there is an upside break above the triangle resistance, the price could attempt to clear the $0.6500 resistance level. A successful close above the $0.6500 resistance could lift the price towards the $0.7000 resistance level in the next 3-4 days.

Downsides Break in XRP?

If ripple fails to surpass the $0.6340 and $0.6500 resistance levels, it could slowly move down. An initial support on the downside is near the $0.6000 level.

The first major support is now forming near the $0.5750 level. The main support is near the $0.5500 level, below which the price may even struggle to stay above the 100 simple moving average (4-hours).

Technical Indicators

4-Hours MACD – The MACD for XRP/USD is losing pace in the bearish zone.

4-Hours RSI (Relative Strength Index) – The RSI for XRP/USD is currently just below the 50 level.

Major Support Levels – $0.6000, $0.5750 and $0.5500.

Major Resistance Levels – $0.6340, $0.6500 and $0.7000.

Source: https://www.newsbtc.com/analysis/xrp/ripple-xrp-is-primed-for-rally-065/

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Bitcoiners Moved Nearly 185,000 Dormant Coins During November Price Rally

Approximately $3.5 billion worth of Bitcoin moved out of long-term storage amid a 40% price jump.

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Unchained Capital, a bitcoin-focused financial services company released its HODL Waves metrics today, which shows that bitcoiners moved 185,000 dormant coins (approximately 1% of the total BTC supply) during the month of November.

According to the data compiled by Unchained, the mentioned bitcoin remained dormant for the last 12 months as the percentage of dormant coins (6months – 12 months) dropped significantly during November. Coins that had not moved in the last 6-12 months dropped from 11.03% to 9.86% in the last month.

Bitcoin price rallied from $13,700 to nearly $20,000 in November, the recent numbers indicate that the non-active BTC addresses are moving to take advantage of the price jump. A similar trend was spotted in coins that had not moved for the last two to three years.

“Nearly 1% of the total supply of Bitcoin moved out of long-term storage (>1 year in the same address) during the price run-up from $13,700-$19,670 in November,” unchained mentioned in a tweet.

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The financial services company pointed out that nearly 61.5% of the total supply of bitcoin remained non-active in the past 1 year. Only 38.5% of the total supply has been active since November 2019.

Bitcoin Holders

The report outlined the power of bitcoin holders as a large amount of the supply remained non-active in the last 5-10 years. Nearly 10% of the total bitcoin supply remained dormant since 2010. The percentage of supply that didn’t move in 7-10 years jumped from 7.08% to 7.28% during November. While the overall trend shows significant activity in short term holders of BTC between one and three years, a large part of the supply remained non-active. It seems like long-term holders are still not ready to move their coins, even at $20,000.

Finance Magnates earlier reported about the dominance of top crypto companies in bitcoin holding as Grayscale Bitcoin Trust and Block.one held more than 640,000 BTC by the end of November 2020. Institutional adoption in the recent months helped BTC in terms of price gain but the dormant supply remains a key issue.

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Amazing Blocks attended the European Blockchain Convention

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One month after the official foundation, Amazing Blocks attended the renowned European Blockchain Convention. At one of the most influential conferences in blockchain, panel discussions regarding the hottest topics in the blockchain were attended and informative insights gained. Further, the range of diverse attendees from traditional sectors and the blockchain space provided perfect conditions to network. This was supported by the smooth AI-powered networking software Brella. Consequently, it was possible to obtain a clear picture of the current state of the market. – Author: Nicolas Weber

Amazing Blocks at the EBC

“As a creator of art, I believe that legally compliant tokenization can finally enable artists to be in full control over their product. The token management software by Amazing Blocks provides unique tools for digital legal entities that could be for instance one of my animation movies.” Quotes like this by Toonxr founder Özgül Gurbuz followed us throughout the whole conference. Legally compliant tokenization can finally enable artists to be in full control over their work without having to adhere to costly intermediaries. It made us proud to see interest and potential use cases emerging from all the different spheres of business, not solely the world of blockchain. At the convention, Amazing Blocks met with entrepreneurs from a heterogenous spectrum of countries and sectors, and various synergies were found. They stemmed from meetings with for instance asset custodians, established financial institutions, blockchain startups, and Entrepreneurs from various traditional industries such as real estate, consulting, and energy.

However, the most surprising potential synergies were discovered when talking to Pretty Kubyane. She is the founder and COO of Coronet Blockchain – a startup from South Africa which runs on IBM’s blockchain solution. Coronet securely tracks human hair pieces from source to customer, a market that racks up more than 100 million human hair extensions sold every year. Even here diversely applicable tokenization finds its use case. She issued the following quote for this article: “The European Blockchain Convention was a great blessing as a platform that provided global best practice insights, within an ecosystem of like-minded blockchain enthusiasts, experts, thought leaders and trailblazers in their own right, seeking to co-create the new reality, a world leveraging blockchain capabilities, together.”


Diverse attendance meets AI

The conference was attended by over 1500 pioneers and more than 100 world-class speakers provided in-depth knowledge. an exceptional lineup of blockchain industry leaders from companies and associations such as Dash, Cointelegraph, Crypto Valley, Libra, and many more. On par with the household names of the blockchain space are the leaders from other sectors that attended: American Express, the European Union, Commerzbank, Santander, Carrefour, IKEA, and many more. Therefore, the EBC perfectly merged politicians, industry leaders with tech entrepreneurs and enthusiasts to build a platform aimed to foster mainstream adoption for blockchain. A few speakers are illustrated in Figure 1 below. Ultimately, real-world use cases are rapidly approaching due to increased interest from the traditional sectors. Many who attended last year’s conference backed this statement and mentioned that now even a more diverse spectrum of attendees had been experienced.


 

The whole event was conducted virtually through AI-powered networking software Brella. The software enabled interest-based matches leading to much greater efficiency in terms of planning to find counterparts for synergy building. Furthermore, it was easy to schedule and arrange meetings through the request and chat functions integrated into Brella, while meetings could be directly accessed through the platform. Live-streamed panels lasted from the 21st till the 23rd of September and networking was open from the 20th till the 24th of September. And if you were not able to attend panels? No issue at all as all since they were all recorded and subsequently free to watch. Therefore perfect conditions for connecting had presented themselves, as networking possibilities were boosted by the extended time frame and flexibility to absorb panels.


The perks of a virtual conference

When a whole event is structured virtually a much better scalable networking emerges. Generally, this substantial conference aspect was far more dynamic throughout the course of the EBC. The mixture of live-streamed and recorded panels established the ideal preconditions for having the most informative experience possible. Also, high-quality networking in terms of similar interests with an individually planned schedule was enabled. The long networking times from 8 am to 10:40 pm CEST transformed time differences into obsolete issues. Seamlessly, live appointments could be scheduled back to back in 20-minute time-slots. Jet lags could be jettisoned, due to increased flexibility in picking a suitable time.

Additionally, another major benefit is cost-saving caused by lower ticket prices and avoided travel. Moreover, it was perfectly plannable how much time to invest in the convention. Flexibility and convenience thrived through the option to attend from home or any other remote location. Another crucial perk was the fact that the virtual structure positively affected the environment. Sustainability is caused by zero travel emissions and material waste produced by the conference directly. Pain points like capacity constraints could be deemed obsolete while conversely inclusivity through one on one meetings was guaranteed.

 

Amazing Blocks – a unique business model ready for mainstream adoption

The unique solution of Amazing Blocks ushers a new chapter of legally compliant tokenization of digital legal entities. Liechtenstein’s membership in the EEA (European Economic Area) jettisons any potential restrictions. Aspects like bankless incorporation allow a remotely managed SPV (Special Purpose Vehicle) in Liechtenstein. At Amazing Blocks, tokenization was even applied to our own shares and consequently, we are the first in the world to issue equity tokens in line with the Liechtenstein Token Act. Additionally, we were founded with ETH as an initial contribution (rather than cash), which can be verified here. Anything from participation certificates to equity or debt tokens can be tokenized with various use cases like company shares or assets such as machines, patents, diamonds, real estate, art, or even private assets.

The unique software Tokenpad supports an entire company life cycle of the legal entity in terms of administration. Within its layer, diverse features like a digital share register and easy onboarding of new investors are positioned. Hence, fundraising-on-the-go disrupts the way to receive funds and administer the entire process and subsequently mint and issue security tokens. With the solution Amazing Blocks provides, costly intermediaries, become obsolete and time is significantly saved. The concept works from anywhere in the world, thus broader access to investors is granted. The token functions as a container for the tokenized rights. Amazing Blocks can provide a blueprint to reduce the establishment of the entity in Liechtenstein from up to 4 months to around 3 weeks. Paired with this, the software solution is a unique tool, and in this form not available anywhere else in the world.

Future outlook and conclusion

Multiple connections were made to grow our ecosystem and stakeholder base which will flourish growth. This was a great opportunity to introduce Amazing Blocks to the blockchain market while exploring synergies. The EBC further established itself as one of the most influential and important blockchain conventions in Europe, where the convention itself and participants can dually grow their ecosystem. Amazing Blocks looks forward to attending the next conference from the great host’s Victoria Gago and Daniel Salmeron. At Amazing Blocks, community building and connecting in the industry are considered as crucial to really provide the best possible solution to our clients. Consequently, the conference provided the perfect opportunity to start this on a large scale.

 


Do you like this article? We would be happy if you share it on social networks or forward it to your colleagues. If you are an expert in the field and want to criticize or endorse the article or some of its parts, feel free to leave a private note here or contextually and we will respond or address.

Amazing Blocks offers a software-as-a-service that enables its clients to tokenize shares of a Liechtenstein legal entity. Legal entities can then be founded based on equity tokens and administered with less effort, in a digital way and remotely from anywhere. The best use cases are legal entities for blockchain startups and as a legal wrapper (special purpose vehicle, SPV) for any tokenized asset (e.g. machines, cash flow generating contracts, trademarks, real estate, classic cars). Our goal is to standardize legal entities which then dramatically reduces the cost and time needed to tokenize assets and rights. Digital legal entities are easy to administer (e.g. ownership transfer of equity in a few minutes) as they rely on tokenized shares in line with the Liechtenstein Token Act. Here, our software helps guarantee a high degree of automation and standardization. In a similar way, fundraising and ESOP for your legal entity can be done anytime: A few clicks in our software and the shares for the new investors or employees are generated and transferred – in line with the legal entity’s articles of association.


Interested? Then, contact us!

Are you interested in what Amazing Blocks are doing? Visit our website, write an email to [email protected], or follow us on LinkedIn or Twitter. Or provide your email address here and we will immediately send you more information.


 

Source: Nicolas Weber works in the department of Business Development Europe at Amazing Blocks and is your direct contact for any regards. You can contact him via email or connect with him on LinkedIn.

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