EOS Cold Takes

now that everyone has taken a deep breath...

Your daily snapshot from our OnChainFX markets dashboard.

Well hello again old friends!

And thanks for bearing with us these past couple of weeks as we worked towards the roll-out of our new and improved Pro research briefs. The first new “Pro” brief will come out this Sunday evening, NYC time. Otherwise, you can expect shorter daily digests M-F daily with links to some of the infographics, videos, and interviews our Messari analyst team produces, including full coverage of DevCon next week.

EOS Cold Takes

The SEC’s settlement with Block.One (B1) over its EOS sale is in the top 5 most meaningful events of the year in crypto. I’ve hodl’d my thoughts on this for the past 48 hours in order to properly digest what it means for the industry (a glimmer of hope), the legacy financial system, and Messari as a company. This led me to avoiding some pretty shoddy hot takes we’ve seen elsewhere on twitter from otherwise smart people.

Recap, must-read summaries:

  • The U.S. Securities and Exchange Commission charged B1, the company behind EOS ($EOS), with conducting an unregistered securities offering related to its multi-billion token sale from 2017-2018. The SEC order finds Block.one violated the registration provisions of the federal securities law by failing to register its token sale as a securities offering or seek proper exemptions. Block.one consented to the order without admitting or denying its findings and will pay a $24 million civil penalty…just 0.6% of the $4 billion raised.

  • Want to learn more about EOS and how it’s going? I learned a tremendous amount about the governance inner workings from Brady Dale’s excellent analysis piece two weeks ago on CoinDesk. You can also check out our full profile on the asset (duh).

  • As usual, KWu, Marco Santori, and Coin Center had three of the hottest takes on the settlement. KWu dropped another one of her awesome annotated guides to the settlement document that she published, while Marco (one of the original proponents and authors of the controversial SAFT white paper) took a bit of a victory lap, as the SEC’s settlement seemed to align with his original argument that an asset could start as a security, but ultimately gain utility as another type of non-security asset. The SEC’s recent settlements and actions also seem to be in line with Coin Center’s 2016 (!!!) policy recommendations.

  • Perhaps most interesting, there’s been some controversy about whether B1 really raised all that money. $4 billion is a lot. And there were rumors that some of the raise was “recycled” ETH or BTC that the principals kept reinvesting for new tokens. Now that would truly be a scandal, as I can’t imagine a settlement being reached with the SEC if B1 was manipulating the optics of the fundraise and defrauding investors (and indeed, fraud seemed to be ruled out in the consent order else the SEC would not have settled).

An example bad take I read (combining several bad takes):

“Well, this is bullshit, and a slap on the wrist to a company that advertised moon gains on billboards at TIMES SQUARE to kick off its token sale. This shows there will be no repercussions for teams that skirt securities law.”

Nay. Nay. The ICO market is not about to come roaring back: 

1) The SEC is clearly willing to settle in tricky, precedent setting cases that would be risky to pursue. Cracking down on EOS and “winning” in court might harm existing investors. Losing would be bad precedent, and this wasn’t an easily winnable case given B1’s foreign domicile and their “ban” on US investors during the sale. They are using the DAO report from July 25, 2017 as a bright red line for their leniency. “We told you then ICOs were securities. Pre-report, we’ll work things out. Post-report, well, you were warned.” Some other pre-July 2017 projects that may be in the clear, then, which you can access via the Messari Pro screener (seriously, what are you waiting for?):

The EOS news this week is especially bullish for BAT, Cardano, Cosmos, and Tezos.

2) ICO bubble is unlikely to be repeated. History won’t repeat itself, and we don’t know yet what the rhyme will be. I can't see people buying into the hysteria because the SEC grandfathered in a pioneering / gray area project early on. That’s especially true since the ICO boom was such an obvious bubble in hindsight, and we'd need a fuckload of momentum in bluechip assets before any of that happened.

3) A necessary condition for the ICO boom was that VCs wouldn't touch this shit. Now that they can (and do) the private market affords more flexibility and less bullshit pre-mainnet launch. Bagholders are (and should be) much more suspicious of the funds trying to dump on them from here on out. Just like it is in the public markets. Don’t expect many rocketship IEOs or distributions.

What this does mean for the industry and the SEC.

  • There is a glimmer of hope here. The door is open for settlements, and teams might look at the stark contrast of Kik’s approach (“we’re going to fight you”) and B1’s (the more classical “we’re going to hire expensive lawyers, and work with you on a resolution behind closed doors.”) This is GREAT for crypto lawyers.

  • On an ongoing basis, this is bullish for pre-mainnet crypto assets and their investors. Maybe the SAFT…will…actually…work as a new model for how tokens can come to market? Certainly very bullish for Telegram, Filecoin, Polkadot and the other mega-illiquid projects coming to market in the next twelve months.

  • As we’ve written from Day 1, when it comes to protecting investors, and cleaning up the excesses of the 2017 bubble, salvation lies within. Messari now has 60+ projects committed to our disclosures registry, and a handful of major exchanges exploring asset monitoring services and product integrations with us. With the birth of the Crypto Ratings Council, we expect that self-regulatory work to accelerate. It’s better for the market to rationalize, than for free-market proponents to begin begging for SEC oversight.

Maybe you’re sick of EOS takes by now. I can’t help that I have a low time preference for thinking through this type of thing. Hopefully, it’s still helpful.

Speaking of time preference transformation, NLW has an amazing segment on the bear market trend towards forming a new resilient base of HODLers.

We’ll see you daily again from now on (as promised), and we have some amazing new podcasts we’re dropping and highlighting tomorrow including my favorite to date.


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Messari Compression Algorithm

Content and thoughts from around the web as summarized by the Messari team.

🌋 [Analysis] How will bitcoin behave if the global economy erupts?

Economic conditions become increasingly turbulent after a decade of stimulative monetary policy & negative interest rate policies. A forward-looking indicator which has preceded every recession since the 1950s has recently signaled that a recession is in store. Using the limited evidence available, this deep dive from John Quigley of Adaptive Analysis suggests Bitcoin has limited downside risk in the event of an economic crisis. (share or read more)

😨 [Analysis] Privacy coins face an existential threat amid regulatory pinch

Privacy coins are consistently intriguing to libertarians and frustrating to law enforcement, writes Bloomberg's Olga Kharif. Cryptocurrencies like Monero ($XMR), Zcash ($ZEC), and Dash ($DASH) are feeling the pinch of a step up in global regulatory efforts to combat these privacy protocols as some exchanges are finding it easier to delist the coins rather than figure out how to adhere to the additional risk management requirements. A couple of exchanges are already delisting these assets, and Kharif reports that Jesse Spiro, the head of policy at Chainalysis, a blockchain analytics firm, anticipates more exchanges will drop support for these coins.

“It’s certainly seen as creating a huge hurdle to the existence of privacy coins,” said Spiro. (share or read more)

Quick Bits (Don't read that, I read it for you)

Choke Points (Exchange News)

  • ✅A group of crypto exchanges and custodians have joined forces to decide which assets they should list. The newly created Crypto Ratings Council will decide which tokens are most likely to be securities, and therefore should not be listed, using a rating system that assigns a score between one and five, with five meaning the asset is a security. 

  • 💱The $333 million deal to buy Bithumb may be in trouble according to The Korea Herald. BK Global Consortium, which planned to purchase 51 percent of the exchange from BTC Korean Holdings, missed a Sept. 30 payment deadline. Despite the missed payment, an investor close to the deal says it is still on.

  • 🇺🇸 Binance US, the America-based exchange arm of Binance, added 7 initial assets for trading last week: Bitcoin ($BTC), Ethereum ($ETH), Ripple ($XRP), Bitcoin Cash ($BCH), Litecoin ($LTC), Binance Coin ($BNB), and Tether ($USDT). (share or read more)

Startup Signals (ICOs, Cryptos, and Startups)

  • Bitcoin developer Rusty Russell disclosed a critical bug in the Lightning Network allowing an attacker to claim to open a payments channel but either not pay to the peer, or not pay the full amount. All major lightning software clients have been updated to fix the vulnerability.  

  • Ripple has acqui-hired Iceland-based cryptocurrency trading firm Algrim to expand operations in Europe. Algrim will continue to build its On-Demand Liquidity (ODL) product which utilizes XRP ($XRP) for cross border payments. As part of the deal, Iceland will serve as an engineering hub for Ripple according to the announcement.

  • 💰 Immutable Games, maker of Gods Unchained, raised $15 million to build out their digital card game designed for non-fungible tokens (NFTs). Players can register their cards on Ethereum ($ETH) allowing them to self-custody their cards' and prove its scarcity. (share or read more)

  • ⚡️A pair of researchers have released the results of a formal verification of bitcoin’s lightning network, CoinDesk reports. The paper, released last month by researchers Aggelos Kiayias and Orfeas Litos from The University of Edinburgh, brought a dose of good news on the underlying security of the nascent payment network. To date, lightning hadn’t been tested mathematically by way of formal security, which is a means of establishing how secure a computer science idea is with the help of mathematics. (share or read more)

  • 🧺 Facebook has revealed the percentage breakdown of the basket of global currencies underpinning Libra. It will consist of 50% U.S. dollar, 18% euro, 14% yen, 11% British pound, and 7% Singapore dollar. (share or read more)

The Powers That Be (Legal/Reg/Policy)

  • 🚧 The Ukranian government plans to legalize cryptocurrencies according to a report from local news publication Ligamedia. Though not currently illegal in the country making the move to legalize crypto will allow the government to tax it according to Digital Transformation Deputy Minister Alexander Bornyakov.

  • An investor has launched a class action lawsuit against Overstock and its former CEO and CFO. In the complaint, the investor alleges that the defendants published “materially false and misleading statements” regarding the company’s financial state which allowed them to inflate the value of the stock. The complaint also alleges that Byrne created a digital dividend with a six-month lockup in order to get revenge on short-sellers who would be unable to deliver the tokens before the end of the lockup. 

Did I miss something?

Send me the link, your twitter handle and your best imitation compression algorithm write up. If I like it, I’ll include your bit next issue (with attribution).

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