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The Fourth Era of Blockchain Governance

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Stephanie Hurder, a CoinDesk columnist, is a founding economist at Prysm Group, an economic advisory focused on the implementation of emerging technologies, and an academic contributor to the World Economic Forum. She has a PhD in Business Economics from Harvard. 

If you follow our writing at Prysm Group, you know one of our mantras is that governance is essential for the long-term survival of blockchain projects. Blockchain projects are complex technical and economic systems that require a systematic and architectural approach to design. Governance enables blockchain projects to continually innovate, upgrade their protocols and adapt to changing market conditions while maintaining the desired level of decentralization.

Blockchain governance design has faced a steep learning curve. I have described the evolution of blockchain governance design since 2018 as having three eras:

  • Era 1: Informal/ad hoc governance design. The original blockchain projects, such as Bitcoin and Ethereum, had no formal governance. Decisions regarding upgrades and crises were made by developers and other influencers based on ad-hoc procedures. 
  • Era 2: Copy and paste governance design. Realizing that projects need well-specified decision-making procedures to succeed, projects copied and pasted voting and proposal mechanisms from other, non-blockchain platforms.
  • Era 3: Bespoke governance design. Projects realized blockchain is a new and distinct environment and began to design systems ground-up based on first principles.

After a briefing I gave two weeks ago jointly with Mark F. Radcliffe, Partner at law firm DLA Piper, I believe we have entered Era 4: the era of systemic governance design. Systemic governance design also takes a ground-up approach based on first principles while explicitly considering the ways in which a project’s governance must be designed to work in harmony with the governance of other projects in the blockchain ecosystem.  

And this era, unlike the previous three, will be led by enterprise blockchain. Enterprise use cases not only require cross-platform development but also frequently undergo rigorous, multi-year planning cycles. Enterprises considering deploying blockchain solutions want to know how various platforms and their governance designs function in sum, so they can minimize unnecessary uncertainty and deliver on their project goals.

Mark is a corporate securities and IP lawyer who advises many blockchain projects and consortia. In his view, many of the current blockchain offerings do not have sufficient governance from both an economic and legal perspective to be effectively used by enterprises.  

Enterprises considering deploying blockchain solutions want to know how various platforms and their governance designs function in sum.

Having well-defined governance is one of the best ways that an enterprise blockchain consortium can incentivize new users to join. A shared ledger with distributed control can reduce costs and provide benefits for businesses in a variety of industries. But getting enterprises to attain and sustain the cooperation required to keep these consortia functioning – via contributions of time, money, and expertise – requires transparent and well-functioning collective decision-making.  

For the earliest blockchain consortia, having any specified governance process put them at the head of the pack. But governance designed in isolation is no longer sufficient. Understanding the governance of the underlying technologies the consortium is using and the impact it will have on a consortium’s own governance also is essential.

Protocols and stablecoins

Consider two examples: protocols and stablecoins. Most blockchain applications will not build their own protocols, but will instead choose to build on existing options such as Hyperledger or Hedera. Each of these protocols has its own processes that determine development projects, upgrades and use rights. Poorly designed governance at the protocol level can have harmful and unintended impacts on the projects building on it.

Projects built on Ethereum, for example, have spent over three years wondering if and when Proof-of-Stake will be implemented and two years watching the community debate which changes, if any, to make to the transaction fee mechanism.  

Projects may also choose to adopt a third-party stablecoin rather than establish and manage their own token. MakerDAO, the builder of the U.S. dollar stablecoin (dai) with the third-largest market cap, is planning to dissolve its governing Foundation and replace it with a DAO over the next two years. This is a risky path forward: DAOs have been notoriously difficult to run well and are slow in making decisions. The transition adds significant complexity to any enterprise project choosing to use dai.

Enterprise blockchain projects can make progress in the face of such uncertainty. But having the appropriate systems in place for designing governance is more important than ever.   

See also: Stephanie Hurder – Why Enterprise Blockchains Fail: No Economic Incentives

First, embrace that governance design is a complex process drawing on a combination of economics, law and other disciplines. Like all parts of a blockchain project, it involves iteration over time using multiple areas of expertise.  

Second, vet the governance of potential tech partners just as thoroughly as you would vet their technology. Just having a voting system in place is typically not sufficient governance. Including more sophisticated steps such as soliciting and distributing expert feedback on proposals, introducing mechanisms to ensure timely implementation of upgrades, and having well-defined crisis governance with clear delineation of decision-making all increase the probability that governance will be reliable.    

Finally, resist the urge to regress in the face of this challenge: to design myopically and to copy and paste without context. While blockchain governance best practices are rapidly evolving, there are frameworks projects can use to minimize the prospect of overlooking essential elements. The more innovative a project, the less likely an out-of-the-box governance solution will meet its needs.

But all blockchain consortia should recognize that governance practices are evolving and should pay particular attention to the processes for changing governance procedures. Successful consortia will need to adjust their governance procedures as the business, protocols and consortia evolve.

Disclosure

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.

Source: https://www.coindesk.com/the-fourth-era-of-blockchain-governance

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Bitcoin Rising Correlation With Traditional Market Undermines ‘Non-Related Asset’ Narrative

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Despite the fact that Bitcoin has been long-touted as a “non-correlated asset”, there have been many instances when the largest cryptocurrency behaved similarly to the mainstream market.

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Altcoins undergoing another major pullback was occasioned with occurs not as drop significantly in the traditional markets and additionally in gold’s price which took a massive hit as markets opened. Amid rising fears of the pandemic, the US Stock market fell to a 2-months low with the Dow Jones Industrial Average dropping over 700 points in the afternoon trading sessions.

Santiment’s tweet read,

“As has been the case since Black Thursday, the correlation between the US stock markets & gold, and BTC, ETH, and rest of the crypto markets has been much higher now than any year in crypto’s history.”

Additionally, data from Skew shows that the one-year realized correlation between Bitcoin and S&P 500 reached 52.9%.

Source: Skew

Commenting on the latest price movement, popular Podcaster, Lark Davis tweeted,

“Historically the S&P 500 has done poorly in September, and quite badly in October of election years. Bitcoin’s high correlation to the equity markets could mean that we are in for some big bumps over the next 6 weeks. GOOD NEWS is that November is usually a strong month.”

Besides, the one-year realized correlation between Bitcoin and Gold was also hovering a little below its ATH. Notably, prior to 2018, the Bitcoin-Gold correlation was negative and hence the narrative was mostly dismissed. Similar was the case with other tech stocks or stock indices such as VIX. The recent trend could also potentially signal to the point Bitcoin has slowly evolved into a mainstream asset over the last two years and hence its correlations with non-crypto assets are important to gauge its price movement in the coming days.

The coronavirus crisis has impacted every industry, from tourism to real estate, health care to manufacturing and the cryptocurrency industry is not exempt. While Bitcoin did start with an impressive streak in the first quarter of 2020, it hit a snag as the pandemic’s economic blow quickly affected all markets. Similar to the traditional market, the collective crypto market crashed by more than 50% from its February high.


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Author: Ketaki Dixit




Experienced writer and editor with a demonstrated history of working in the industry. Skilled in Copywriting, Web Content Writing, Copy Editing, Writing, Cryptocurrency News Writing, and News Editing.

Source: https://coingape.com/bitcoin-rising-correlation-traditional-market-undermines-non-related-asset-narrative/

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World’s First Bitcoin ETF Approved with Expected Launch in Bermuda by End of Year

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The first-ever Bitcoin ETF will be launched on the Bermuda Stock Exchange (BSX) by Hashdex, a regulated Brazilian fund manager, and Nasdaq after garnering approval for the “Hashdex Nasdaq Crypto Index” four days ago.

The news continues Bermuda’s legacy of being a crypto-friendly offshore international business and financial center.

Three million Class E shares will be issued for trading and the exchange-traded fund is expected to go live by the end of 2020.

Hashdex currently boasts $46.4 in assets under management across four funds and uses Xapo, Kingdom Trust, and Vo1t for services relating to crypto custody. KPMG is the firm’s auditor.

‘When Bitcoin ETF?’

For years now, many Bitcoin proponents and cryptocurrency enthusiasts have been asking the question “when Bitcoin ETF?” While one is officially on the way for the Bermuda Stock Exchange, the prospect of such a regulated, insured, and institutional-focused vehicle for BTC exposure appearing on exchanges in the United States appears grim.

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Bids from various parties — such as the Winklevoss twins, VanEck, SolidX, and Wilshire Pheonix — have all been rejected by the U.S. Securities and Exchange Commission or pulled by the applicants. The securities regulator has frequently claimed that applicants failed to provide enough evidence that the BTC market is resistant to manipulation.

Speaking on the matter was the SEC’s Chair, Jay Clayton, who said that a Bitcoin ETF in the US is possible, but there’s a lot of work to be done.

‘Biggest Front-Running Opportunity of Your Life’

However, former Goldman Sachs executive and well-known fund manager Raoul Pal believes that a Bitcoin ETF is coming to the U.S. very soon. He recently stated:

“I’m going to give you the biggest front-running opportunity of your life: they will get an ETF across the line. There will be billions of dollars that pour into it. Every pension plan will allocate some money to it. Every family office will allocate some money to it. And the more the price goes up, the more they will allocate.”

Whether or not Pal’s prediction comes to fruition remains to be seen. However, it stands to reason that the SEC is objectively aware of the BTC market’s continued maturation and correlation to the equities markets. As such, it may take a more favorable stance as new Bitcoin ETF applications come across its desks.

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Source: https://cryptopotato.com/worlds-first-bitcoin-etf-approved-with-expected-launch-in-bermuda-by-end-of-year/

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US Binance CEO says companies not adopting crypto are “ignorant.”

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In an interview with Joe Weisenthal and Tracy Alloway on Bloomberg’s Odd Lots podcast, US Binance CEO Catherine Coley said crypto had the ability to offer “uses beyond speculation” wherein investors could engage in e-commerce transactions, drive new businesses, and other real-world applications like mortgages. She said, “If you’re building a company in the next five years and you do not consider digital assets as a component, you’re ignorantly going into this. It’s an adoption case that is pandemic resilient.” Crypto-related startup stories have become more frequent this year. 

“Companies should take their cues from cryptocurrency.”

Catherine Coley, the CEO of crypto exchange Binance’s United States branch, said that in the future, companies should take their cues from cryptocurrency, which has made conversations about money more convenient for the average person but also more accessible to professionals in traditional finance. The crypto industry is an industry that is reaching a significantly different audience than finance,” said Coley. “I’ve been able to stay off the streets because of crypto, and there is so much benefit in that, that people underestimate,” she added. 

Binance launches its crypto debit card. 

Crypto exchange giant Binance revealed that its Binance Visa Card is now available for use throughout the European Economic Areas earlier this month. The rollout was initially announced in July this year. Crypto cards allow users to preload their accounts using supported digital currencies, which are then converted to fiat and deducted from the balance during the time of payment at a retail location. In Binance’s case, the money is taken directly from the user’s trading account. Binance card, powered by Swipe, works like your traditional debit card. But instead of fiat, you’ll be holding digital assets, such as BTC, BNB, SXP, and BUSD. 

Source: https://coinnounce.com/us-binance-ceo-says-companies-not-adopting-crypto-are-ignorant/

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