Blockchain – Crypto

EU Blockchain Resolution

In the EU Blockchain Resolution we Trust

In the EU Blockchain Resolution we Trust 1300 797 Efi Pylarinou

In the EU Blockchain Resolution we Trust

It was my name day on September 20th – a significant day for a Greek Orthodox – but I was by no means going to miss the “Blockchain: Building Trust in Society”event with Dimitrios Psarrakis, a Greek leading specialist in European regulatory policy. This was the first event in PwC Switzerland’s joint thought leadership series with the blockchain hub Trust Square. I was not disappointed; on the contrary, both the speech, the panel discussion with Daniel Gasteiger, Founder, Trust Square & Founder, Procivis, Doris Fiala, Chairwoman, Swiss Control/Parliamentary Oversight Committee & President, Swiss FDP Liberals Women, Guenther Dobrauz, Dimitrios Psarrakis; and the party; were unique.

Greeks built the principles of Democracy. Eva Kaili, is the Greek EU parliamentarian that is leading a team with a mission to raise awareness in the European Parliament on the revolutionary potential of Blockchain and how to grab the opportunity to lead in the 4th industrial revolution with relevant and powerful policies.

EU Blockchain Resolution

At the opening of his speech, Dimitrios Psarrakis, spoke about their team work in the EU parliament to educate, raise awareness and understanding about blockchain. They slowly but surely managed to obtain nearly 750 votes in the parliament for the Blockchain Resolution, a long and detailed policy for the EU which is based on the principle that Blockchain holds the potential to build Trust in our society in a different and better way, at many levels.

Driven by the fact that the internet has been a technological development that has undoubtedly created more convenience and connectivity, but has fallen short in creating more fairness and trustBlockchain presents an opportunity to build trust and fairness in a very different way.

Driven by the belief that Blockchain will restructure several sectors: energy, healthcare, capital markets, Intellectual property etc.; the EU wants to mobilize capital to fund this revolution – the 4th industrial revolution.

The Blockchain Resolution includes several articles and aims to be fully in place in 2019. It has no intention to regulate any instruments – like coins, tokens etc-. It will only regulate the use of them on the newly created platforms. The Blockchain Resolution sees these new digital assets as legitimate instruments and does not attempt to categorize them as securities or commoditiesThe Blockchain Resolution sees them as alternative investments or contractual arrangements. Therefore, applying the Regulation in the EU for alternative investments, which is fairly flexible, is appropriate. The due diligence process on the platforms should be similar to the due diligence process in crowdfunding.

In Europe there is no consensus on the definition of a Security. Europe has MIFID, without a standard definition of a Security.

The Blockchain Resolution sees digital assets as alternative investments and the regulatory framework that applies is fairly flexible. Europe, through the Blockchain Resolution, wants to create policies that will mobilize capital to fund the next wave of restructuring the way several markets / sectors function.

The view of the EU is to present regulatory principles that are Technology neutral, Business-model neutral, and pro-Innovation.

The main principle is to allow for Disintermediation Economics that build Trust.Such economics promise to (a) reduce transaction costs and create new efficiencies, (b) reduce operational frictions by increasing liquidity, (c) automate monitoring processes with limited informational asymmetries (e.g. agency frictions, moral hazard, adverse selection).

The Blockchain Resolution is brave enough to look into the promise of Blockchain for Public infrastructure. The view is to restructure (a) traditional public services like land registries, licenses, certificates etc. (b) ways to reduce tax evasion and fraud, (c) cross-border transactions, regulatory reporting, data transactions between European citizens via smart contracts.

The Blockchain Resolution just got support from the Strasbourg Plenary.

“Blockchain has united this House, as all the parties in the Committee on Industry, Research and Energy (ITRE) voted in favor of the resolution under the principle of being technology neutral and innovation-friendly in Europe.” “One of the core messages of our text was to signify that the European Union aspires to become the global leader in the fourth industrial revolution,” said Eva Kaili.

The European Commission will be next in November at the European Parliament Blockchain event. This will be followed by the Blockchain and international Trade Report. In December, the Crowdfunding Regulation will be updated.

Some of the recommendations that the resolution makes are[1]:


For member States to establish non-profit “innovation hubs” to promote research, education and training among their citizens


For the Commission and ECB to identify dangers for the public and incorporate cryptocurrencies into the European payment system.


To develop technical standards for Distributed Ledger Technologies


Conduct a clear analysis of legal enforceability of smart contracts among EU member States


Decentralize the storage of EU citizens’ data in preventing the misuse of data


Decentralize infrastructure to ensure no monopolies are held, for instance the storage of nodes and servers


Use blockchain for tracking EU funding to achieve greater accountability


Evaluate blockchain-based e-voting systems as a use case for the EU


The creation of funding opportunities from the EIB, EIF and EFSI 2.0


The creation of an Observatory for the Monitoring of ICOs and clarification of utility tokens and security tokens as unique asset classes


For any regulations on blockchain to remove barriers and founded on principles of technology neutral and business model-neutral

We live a world in which Trust is lacking, Trust is being re-defined, Trust has to be re-built.

Are Decentralized Exchanges part of the Bottom-up decentralized monetary policy?

Are Decentralized Exchanges part of the Bottom-up decentralized monetary policy?

Are Decentralized Exchanges part of the Bottom-up decentralized monetary policy? 1000 667 Efi Pylarinou

Are Decentralized Exchanges part of the Bottom-up decentralized monetary policy?

It was 2 days before Christmas that Lykke publicly announced it had to switch to a centralized operational model! Up to then, Lykke could claim to have been the only exchange that was semi-decentralized and charging no commissions to its users. Think of a Robinhood for all fiat foreign exchange pairs plus cross pairs with BTC and ETH; with every user storing their own private keys and Lykke using a multi-signature process for storing client funds. So, if Lykke’s key is stolen, each and every private key would need to hacked to get to the funds. Seems wonderland, doesn’t it? Commission free with the security of decentralized settlement. The only centralized piece was the matching engine that Lykke uses to execute the trades.

This past winter not only brought more snow to Switzerland but also made the blockchain scalability issues show their ugly face and force Lykke to switch to a centralized operational mode, as blockchains became slow and very expensive! “Let’s talk numbers: since Lykke Exchange was launched in June 2016, we’ve seen Bitcoin transaction fees increase by more than 24,000%. In first three weeks of December 2017 alone, Lykke has paid more 45 BTC (around USD 740,000) in fees for offchain settlement channels.” Lykke Changes Operational Mode

Decentralized exchanges (DEXs) have not taken off yet, for several technical reasons around scalability and security. And for the other simple reason, that centralized exchanges (like Coinbase and Binance) can grow so much faster so why bother. Lower hanging fruit always has priority.

#AndTheIronyIs[1] is that several crypto businesses that are scaling fast, as the demand and the supply of digital assets has grown over the past year, are focusing on establishing ties with the conventional system as if they were some Fintech looking for distribution channels, low customer acquisition cost, and offering financial services using somebody else’s license.

Since evidently, so-called professional investors, like financial institutions, asset managers, hedge fund managers, endowments etc and the so-called whales, are not begging for fully decentralized services; why bother to fund such true DEXs?

At last week’s 2-day Crypto Valley conference, the first one that had a full academic track and a focus on research and innovation, there were several 30min presentations from blockchain startups that belong to the Web 3.0 generation. The Lucerne University of Applied Sciences was the facilitator and the IEEE computer society involvement made the event a global bestseller.

Kyber Network was one of them and their CEO and founder Loi Luu gave us a great overview of the DEX space. Evidently, the eye-catcher damaging the reputation of centralized exchanges, are the continuous hacks. However, we must never forget that None of these losses have been socialized, from Mt. Gox to the $530million worth of Coincheck in January 2018.

Some of the DEX ventures that have launched already are:

As most of the insights are out of the talk that the CEO and co-founder of Kyber Network, Loi Luu, gave at the first 2day IEEE of CryptoValley conference last week, I will refer to them in a little more detail (albeit last in the list above).

It became clear to me while listening to Loi Luu, that the devil is in the details, so every time we use the term DEX, we should understand the differentiations and the “degree” of decentralization.

The factors that are relevant are:

  • The user on-boarding requirements
  • The custody of funds
  • The order matching
  • The settlement
  • The liquidity
  • The clients/users

IDEX is an example of a partially decentralized exchange because it takes custody of funds and there is settlement risk with IDEX and order matching through IDEX, however it requires No registration.

0X and EtherDelta are hybrid DEXs because they also require No registration, take No custody of funds, the settlement is on-chain, and order matching is through EtherDelta for EtherDelta, and 0X uses an ecosystem of Relayers (DDExEthfinexRadar, and Paradex). Relayers in simple words, are facilitators for the order book and allow the trade to happen in an 0x smart contract while you remain in control of your private keys (read more here). This latter part makes 0X a hybrid model.

Airswap, is a hybrid P2P DEX, because it has the same characteristics as 0X except it targets P2P users and the order matching is via done via an Indexer (more here).

Liquidity in these DEXs varies. It is high in the P2P DEXs and not so stable in the others.

Kyber Network has a different focus altogether. They want to take on the role of a decentralized liquidity newtork and target not only individual users but also vendors that currently, only accept very few main cryptos. Kyber Network wants to make token swaps an invisible transaction for everybody, be it a wallet, a payment provider, a fund manager, a Dapp, or a DEX. Loi Luu used the example of a OMG token holder that wants to shop from a vendor that accepts ETH only. Kyber Network works with the vendor so that all customers can pay with any token they like, no extra cost, no extra information needed from the client. Same with an app that accepts BTC but client wants to pay with any other token he or she holds.

Melonport, the protocol for fund management of digital assets, that operates with the Melon token, can use the Kyber Network so that fund managers on the Melonport protocol can liquidate and rebalance the portfolio seamlessly.  Kyber Network is the liquidity provider that enables instant token swaps within a wallet, multiple token acceptance for vendors, acts as a market maker to financial dDapps, and increases token usage.

Kyber Network ICO’d last September and has already traction.

Are Decentralized Exchanges part of the Bottom-up decentralized monetary policy?

[1] #AndTheIronyIs is my own Twitter tag, that of course anyone can use anytime, for any kind of incident where the disruptors are choosing to be retrofitted to the status quo.

I started using this tag line during my long talk at #CryptoMountainsRocks in March at Davos, on a “Wall Street perspective of crypto as an alternative asset class”.

It was such a hit, that I decided to keep thinking along those lines.

Misery, Velocity, and the Github for the new financial analysts

Misery, Velocity, and the Github for the new financial analysts 1000 667 Efi Pylarinou

Misery, Velocity, and the Github for the new financial analysts

With or without a Finance 101 course in your history, it is normal to gravitate towards known metrics and analytics for the new asset class of cryptocurrencies and tokens. Technical analysis is being used left and right for long and short-term trends, by all the crypto-exchanges and the new “research” subscription sites. Metrics that can be categorized as fundamental ones are being discussed as we speak on Twitter chats, at conferences and businesses are being built to serve this conventional need. Institutional appetite, the recent surge of M&A between Wall Street incumbents and crypto, increased listings on exchanges of derivative (structured products and futures) is also beckoning for more of the conventional structure.

The market is looking for crypto economists, cryptoanalysts, and all the models, tools and ways that we built over the years for stocks, bonds, derivatives, etc. I shared publicly my thoughts on “A Wall Street perspective of Crypto as an alternative asset class” at the CryptoMountains Rocks unconference in Davos in late March. It had strong elements of a stand-up comedy to make sure that the 40min on stage (stuck in a chair due to my then fresh injury) was not going to put the audience to sleep.

New technical tools from incumbents

From the incumbents’ world, we already have Thomson Reuters that has a developed a Bitcoin sentiment gauge for traders in collaboration with MarketPsych Data, a sentiment analytics company using behavioral economics using NLP and ML. These sentiment gauges will be developed for other cryptocurrencies soon.

Fundstrat Global Advisors, a traditional independent research, and strategy US firm, has developed the Bitcoin Misery Index (BMI) which is designed as a trading tool for investors to take advantage of volatility in BTC exchanges. BMI is calculated on a scale of zero to 100, taking into account factors such as volatility and the number of winning trades out of the total. When the indicator is low, the buying opportunity is at its best, and vice versa. Thomas Lee, the co-founder of FG says “When the bitcoin misery index is at ‘misery’ (below 27), bitcoin sees the best 12-month performance. A signal is generated about every year,” “When the BMI is at a ‘misery’ level, future returns are very good.”

Source: Fundstrat March 9, 2018

Fundamental tools 101

The book of Chris Burniske and Jack Tatar “Cryptoassets: The Innovative Investor’s Guide to Bitcoin and Beyond” published last October is a must. The authors cover the basic fundamental framework for thinking about cryptocurrencies.

First, we all agree that their value has a utility component and a speculative component. You can think as the speculative part, as the number of bitcoins that are held out of circulation as an investment.

The utility component can be captured by estimating the actual usage. For example, if 100,000 merchants are using bitcoin for their international trade transactions and those average 100,000USD per trade; then the number of bitcoins needed are 1.25milBTC (at a rounded price of $8,000/BTC). This is an estimate of the current utility value.

Then, we need to consider the velocity of Bitcoin, much like we look at GDP and divide by the money supply. We can start by making assumptions about the remittance market and if we expect that bitcoin may be used for 20% of that market, then say the global remittance market is 500billion then divide by max amount of bitcoin and get a value. Then assume, bitcoin grabs 10% of the gold market as a store of value, you do the same calculations.

Finally, one has to decide a discount rate. Based on this kind of framework, one can get some theoretical boundary valuations.

The one metric that is now floating around (despite its limitations) is the NVT which is seen as a PE analog from the stock market. The NVT ratio measures the dollar value of a crypto asset transaction activity relative to the network value. This is a simple way to compare how the market values one unit of on-chain transactions across different networks. Generally speaking, a “low” NVT indicates an asset which is more cheaply valued per unit of on-chain transaction volume. The main shortcoming of NVT is that it is lagging and it is not a powerful short term indicator (which, unfortunately, now is more in focus since the speculative component is overwhelmingly higher than the utility component in most cryptos). Willy Woo, who analyses crypto assets discusses thoroughly the nuances around using the NVT ratio charts or the smoothed out NVT signals by Dmitry Kalichki.

More on Fundamentals

Digital Asset Research is a startup that wants to become a top independent cryptocurrency research player.

In their standardized research reports, they include many indicators of the new fundamental metrics. These give metrics around inflation, actual usage from developers, the network, and the competitive landscape. Ivan on tech is not the only one, that has been using raw data and stats from the Github to analyze altcoins.

The first decentralized and or crowdsourced fundamental research platform with data and analytics are just being built as we speak. I will cover these in an upcoming post. If you know of any such ventures, please note them in the comments below.

Notes: Next year’s CryptoMountainRocks is on 21-23 March in Davos of course. Skiing in the morning, talks and battles in the afternoon. Watch the recording of my talk here:

Without any permission, experimenting with tech for decision making on a global scale

Without any permission, experimenting with tech for decision making on a global scale 1000 667 Efi Pylarinou

Without any permission, experimenting with tech for decision making on a global scale

The Blockchain Leadership Summit at the Dolder hotel in Zurich last Friday, was an amazing international experience. Immersed in the stunning art installations of the Dolder hotel; amongst an international crowd from Russia, Kazakhstan, Liechtenstein, the Americas,…; and with panel discussions on a variety of short-term and longer-term topics of concern. Organized by Innmind, a global community of all stakeholders in the startup scene, and in partnership with Kickico

I had the pleasure to participate on a panel on the broad topic “Blockchain financial and social implementation and impact. How can the world benefit from the implementation of new technologies?”Even though we had 40min, a wonderful moderator, Tanja Schug from Brand-Trust, and a diverse group of panelists (William Mougayar, Marc Taverner – Bitfury, Olinga Taeed – CCEG, Mauro Casellini – Bank Frick) there was so much more that we could have discussed.

In this post today I will zoom in and zoom out on a few insights that the Blockchain Leadership Summit triggered as I prepared for the panel discussion.

We are already better-off

The impact of blockchain technology has already arrived and can be measured by the mere fact that

an increasing part of human resources are devoted to thinking, experimenting, building upon the seeds of the Bitcoin blockchain, without permission.

The driving force of this reality is

the consensus that “We are not able to make decisions on a global scale”

(simple or big ones like solving poverty, climate even though we have the resources) with the current societal structure. Our civilization to date is based on collaboration processes that are central (e.g. corporations, governments, institutions etc) and even though we have adopted the internet as a global tech enabler for communication at scale, we have not yet found a tech solution to scale TRUST and decision making.

In a nutshell, this is what Blockchain is promising us. And even if the current Blockchain platforms aren’t adopted at mass scale, there are enough futurists, engineers, and entrepreneurs that will figure it out eventually.

This genie is out of the bottle too. We are steadily marching towards a different way of collaborating and organizing our processes as a global society. Luckily, blockchain technology includes a funding solution too and we also have capital increasingly investing and hoping to capture “the decentralized” technology that will be the tech solution to scale TRUST and decision making.

We are already investing in finding the tech solution to scale TRUST and decision making.

Open source innovation at scale

Blockchain is shifting us into a Linux kind of world on multiple fronts. A 10yr old freemium idea, the Github, is now not only a profitable business but a great example of “network effects and a marketplace” that has been growing organically (like in nature). Two massive asset classes are the result of this, (1) a code repository to tap into any kind of project (79mil), (2) a global decentralized social network of computer engineers and private companies that interact (28mil developers, 117k companies) (3) a powerful open-source database for due diligence and analytics on ICOs. The overhead of managing patches, versioning and hosting are all taken care of by GitHub. There is a business offering for developers, teams, and enterprises that offers an efficient way to manage projects and develop software. Ivan on tech and others are using raw data and stats from the Github to analyze altcoins.

Welcome to the new emerging era of low cost, non-chaotic (no versioning, patching, hosting nightmares) open source software a la Github (public or private)!

A de-risking technology for the finance industry and other regulated industries

 Our memory of the structural problems of the financial industry that led to the subprime crisis and its consequences are not fresh but they are painfully present. One of the top five contributing factors was the huge web of complex financial products (like CDOs, CMOs, CLOs) and the related collateral management and counterparty risks that were out of control. When I say “out of control” I mean that issuers, investors, and regulators were unable to have reliable data and thus any risk management capability. Goldman Sachs had at the time its own relational database (graphic database) that gave them a huge advantage in figuring out within a day or two their exposure and managing it better than others.

Imagine a world that international regulatory standards (whether from the BIS or in another way) require all financial institutions to adopt blockchain technology for all over the counter financial structures, all SPVs and trusts. The process has shyly but surely already started with the fairly standardized but still OTC, Swaps and derivatives world.

Last August, ISDA (International Swaps and Derivatives Association) in collaboration with the global law firm Linklaters released a whitepaper with the legal considerations for the application of executable distributed code contracts (EDCCs) (i.e. smart contracts).

Vitalik Buterin himself has touched upon how CDOs (Collateralized Debt Obligations) can be launched on the blockchain so that the risks associated with the “traditional structure” are mitigated. CDOs are tranches created from a pool of similar loans (e.g., mortgages, car loans, student loans). The tranches created have different seniority levels and risk profiles.  In the traditional structure, there were too many intermediaries involved and an opaque structure that resulted in a disaster when the markets turned sour.

The Dharma protocol (covered last month in Bonds & loans on the Blockchain) can be used for CDOs – Building Collateralized Debt Obligations with Dharma Protocol.

CDOs on the blockchain are one example of automating Trust at scale and de-risking the financial system.

Startup pitches

The BLS conference was packed with panel discussions and parallel workshops (PolyswarmByteBallNiceHash) and startup pitches in the afternoon. The winners were (No.1) LiveTree Adept and (No.2) Digipharm. LiveTree Adept, a blockchain use case for the film and TV industry with the mission to empower and reward the creators of such content and the viewers. Digipharm, a healthcare blockchain use case taking aim at the problem the burden on health systems, the risk of patients being denied innovative treatments, and the barriers to reimbursement for manufacturers.

And two special prizes (Lakeside Partners training) were decided by the jury on the spot, for Wunder and PhotoChain. PhotoChain is a blockchain use case for digital stock photography and Wunder is a blockchain use case to build a decentralized art museum for digital art.

Sources of inspiration: (a) Thought leadership from Antonopoulos: The Courage to Innovate Without Permission (b) Use the Github to analyze: Ivan on Tech youtube

Disclosure: I am an advisor to the Wunder project launched out of the IconiqlabGerman accelerator. Wunder will be the token that will allow Artplus (a startup from Belgium) to integrate their business on the blockchain and create a marketplace for digital artists, collectors, galleries, curators, advisors, art fairs and enthusiasts in the new media art industry (video, sound, etc).

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