Ethereum founder Vitalik Buterin has historically discouraged the storage of material value in ether (ETH), as it is by nature, an expendable gas created to manage network resources. Therefore, there is significant demand for stable stores-of-value operable within the Ethereum ecosystem. The most popular ‘stable coins’ today focus on pegging their token value to the dollar (USD) and design centralized systems to minimize volatility.
Currently largest by USD market cap, Tether (USDT) utilizes a dubious off-chain custody approach that relies on centralized trust to create a stable coin which is released into circulation via centralized exchanges. Despite USDT’s dominance, this approach has been met with discontent and mistrust in the market. In the long term, TFL Holdings believes the decentralized alternative MakerDAO will emerge as the dominant stable coin in the Ethereum ecosystem for highly-liquid dApp commerce.
For a decentralized stable coin to function, a large on-chain collateral source must exist to back the liquid stable coin supply. As an ERC-20 token, MakerDAO currently utilizes ether (ETH) as its collateral source. A suboptimal solution due to ether’s relatively-high volatility versus other collateral sources. However, the project plans to release a multi-collateral DAI which will ultimately support other on-chain collateral sources.
Due to physical gold bullion’s dominant position as a stable store-of-value in global trade, a decentralized platform capable of digitizing gold ownership on the Ethereum blockchain has a high probability of capturing ‘store-of-value’ market share in the emerging global dApp ecosystem. One byproduct of a project emerging as a dominant store-of-value on Ethereum will be its use as a ‘collateral coin’ in dApps which facilitate long-term contracts such as MakerDAO’s CDP.
Based on this thinking, TFL Holdings believes DGX market cap will outpace DAI market cap in the long term. Due to ‘haircuts’ native to CDP lending structure, for every one DAI created utilizing DGX, a greater amount of DGX will have to be locked as collateral. In addition, DGX’s utilization as a collateral coin will extend its utility beyond financing stable coin systems such as MakerDAO, ensuring its dominant market capitalization.
However, TFL Holdings believes DAI will turnover faster than DGX resulting in higher daily volumes. In short, DAI will be the highly-liquid, short-term ‘stable coin’ utilized in daily trade. But DGX will emerge as the long-term collateral token with dominant market cap.
Since the 2008 financial crisis, central banks have turned to unconventional monetary policy in an attempt to spur global economic growth. Featuring ultra-low interest rates and unprecedented quantitative easing, trillions of dollars have been released into the financial system and near-zero interest rates have become the new normal. Today, total debt held by global central banks exceeds $18 trillion and multiple countries such as Switzerland and Japan have implemented a negative interest rate policy, charging depositors for holding funds in the central banks.
For over five years, the US Federal Reserve has maintained a target Federal Funds rate between 0.00-0.50%, exerting significant downward pressure on global interest rates and forcing investment capital into exceedingly risky markets in pursuit of yield. The Fed has quadrupled the US monetary base via debt purchases yet the velocity of money has dropped sharply. This means additional dollars flooding into the financial system are not being lent to consumers, but utilized by institutional banks to double down on risky bets in various equity, debt and derivative markets.
Markets have responded well to this influx of capital aided by the global accumulation of debt by central banks. The current bull market has lasted for over seven years, with all three major US stock indices topping all-time highs in 2016. The question is how will central banks normalize monetary policy and begin to raise interest rates? As noted by prominent economists, extended periods of zero (or negative) interest rates could have adverse consequences for the global economy.
In 2009, as central banks took these unprecedented steps to spur economic growth, Bitcoin was anonymously released with the aim of revolutionizing digital value transfer and restructuring the global financial system. The Bitcoin protocol introduced the idea of distributed ledgers, i.e blockchains, an innovative technology that is now being applied in various industries such as record management and distributed computing. Neha Narula's TED Talk, 'The Future of Money' does a exemplary job explaining this disruptive concept.
Over the last few years, other peer-to-peer platforms have been created, building upon and tweaking the attributes of Bitcoin's underlying technology. The Ethereum Virtual Machine (EVM) was released into production, allowing for the formation of decentralized autonomous organizations (DAOs) and the development of decentralized applications (dapps). The ethereum platform aims to become the backbone of the Internet of Things (IoT) economy, which will allow inanimate objects to conduct autonomous transactions via micro-payments.
Per coinmarketcap.com, less than $15 billion is currently invested in peer-to-peer platforms and supporting projects. Within this diverse industry, multiple disruptive technologies have come to market offering innovative services at significantly reduced costs. With close to $70 trillion invested on global stock exchanges, even the slightest reallocation of capital into this space will materially increase market values.
Please take a moment to explore the information provided throughout this site and utilize the links as a jumping off point in your research. Feel free to contact us to discuss the purchase of distributed digital property or ask any questions you may have.
With the launch of Digix 2.0 soon upon us, I thought I'd share a workbook I use when analyzing potential DGD annual returns. Make sure to update the prices in blue to get accurate numbers.
Have you ever wondered how the internet actually works? What does a web address signify? Today's internet utilizes HTTP architecture to connect users to websites, recognizable as the http:// heading on every web address. HTTP is a request-response protocol in which a web browser (think Chrome, Firefox, or Internet Explorer) submits a request to the server hosting the website related to the web address submitted. The server then responds with the necessary data to fulfill the request and display the site. HTTP utilizes intermediary network elements to improve response times and fulfill requests during periods of high network volume. Depending on a user's geographic location relative to the hosting server, this request-response connection may be direct, or may involve many servers routing information along the chain.
This client-server approach utilized by the HTTP protocol results in slow downloads, the potential for lost or interrupted connections, and censorship by governments and other network administrators. Computer science entrepreneurs have taken note of these inefficiencies and developed the SAFE network, a decentralized overlay of the Internet based on cryptographically secure consensus among groups of peers. The result is a completely distributed system of authentication and secure storage of data, without any servers, that accomplishes what hitherto had been done only by blockchain technology: secure, global, peer-to-peer consensus.
The SAFE network replaces the idea of a single connection chain between requester and server with a web of simultaneous connections between SAFEnet users. This is accomplished by allowing requesters to also act as network servers. Any SAFEnet user can designate extra storage space to the SAFE network and store encrypted caches of network data on their hard drive. This encrypted data is parsed between multiple locations and can't be accessed directly by individual users. A complex algorithm allocates this web data to the optimal locations and redundantly stores copies across the global network. Since multiple copies of all data exist across the SAFE network, there is zero possibility of downtime or lost/interrupted connections. In addition, accessing sites via a web of simultaneous connections vastly improves download times. The SAFE network is completely free from censorship, empowering users to freely share and access information regardless of citizenship.
Beyond vastly improving user experience, the Internet reimagined via the SAFE network will decentralize the web hosting industry. Every-day users will be able to turn extra hardware space into additional income. If a user volunteers storage space to the SAFE network (acting as a server) they are compensated with a small of amount of the network's native crypto-currency (SAFEcoin) every time a request is fulfilled utilizing data stored on their hard drive. In the same fashion, users who host data on the SAFE network pay a fee in SAFEcoin each time their site is accessed.
The SAFE network is currently under-going extensive community testing. Updates can be found on the SAFE network forum (https://forum.safenetwork.io). A limited quantity of the network's native crypto-currency, SAFEcoin, was offered via a pre-sale to fund network development and is trading on crypto-currency exchanges under the ticker MAID.
Many investors, traders, and financial institutions utilize ETFs to gain exposure to gold without truly understanding the product they are purchasing. "Exchange traded fund" is not a legally-defined term in securities law statute. Rather it is a market term individually defined by each fund's binding legal documents. ETF structures are quite complex and are designed by the best lawyers money can buy to benefit the share issuers and limit their liability.
In the case of GLD, the largest gold ETF by daily volume, documents such as the Unallocated Bullion Account Agreement, Participant Agreement, and Trust Indenture Agreement severely restrict investor's claims on the trust's underlying assets and limit the Custodian's legal liability. For instance, the GLD Trust Indenture Agreement states that "the Sponsors, Officers, Directors, Employees and Affiliates of the Trust are indemnified against liability for claims in connection with performance, outside of gross negligence, including securities law liabilities". Essentially, if investors sued to recoup losses in the event of the fund's collapse, any judgement would likely be paid out of the fund's assets, if there were any left. Worse still, the GLD Participant Agreement states "the Authorized Participant (investor) acknowledges that it is an unsecured creditor of the Custodian with respect to the gold held in the Participant Unallocated Account and such gold is at risk in the event of the Custodian's insolvency." Therefore, if there is a major financial crisis in which Custodian or Sponsor banks fail, GLD shareholders would be among the last in line to recoup their investment. We believe this would be news to the majority of GLD shareholders. An in depth analysis of these documents can be found at the following link. http://solari.com/articles/Precious_Metals_Puzzle_Palace/
Beyond the hopelessly complex financial arrangements and legal claims surrounding gold ETF investment, there is an inherent conflict of interest for gold ETF Custodians and Sponsors. Current regulations allow major financial institutions and banks to maintain net short positions in gold futures and derivatives markets while serving as gold ETF Custodians and Sponsors. This means they can "sell" derivatives and future contracts based on the current gold price while purchasing bullion on behalf of gold ETF investors. In our opinion, this goes beyond typical market-making activities as physical gold and financial derivatives based on gold price are not the same asset. Some have alleged price-fixing activities result from this unique financial relationship. In addition, ETF share price is determined by supply and demand on the open market, rather than shares being priced on net asset value per share, as is the case with mutual funds. This increases the potential for price manipulation.
Bottomline, if a gold ETF investor believes they own an outright share in physical bullion, they are mistaken. Until recently, gold ETFs were the most convenient option for investors and traders looking to gain exposure to gold prices digitally. However, technological advances now allow for the tokenization of physical assets on the blockchain, a distributed decentralized ledger.
DigixGlobal has leveraged these technological advances to create the DGX token, the first crypto-currency with each token backed by 1g of physical gold. Utilizing ethereum smart contracts, DGX tokens can be exchanged for an equivalent quantity of physical bullion and redeemed by investors. For example, an investor who holds 100 DGX tokens can exchange their tokens for an 'asset card' representing a 100g bar of physical bullion, or visa versa. The asset card stores all of the bar's pertinent attributes on the ethereum blockchain, including quarterly audit sign offs, and can be used to redeem gold directly from the custodian. Clearly this new tokenized gold system is superior to gold ETFs, as each DGX token is specifically backed by physical bullion with no underlying legal agreements or contractual liens. Furthermore, the conflicts of interest discussed above are avoided. Put simply, investment in DGX is clean-cut gold ownership.
With the creation of The DAO days away, it is time to move past the unprecedented success of its crowd sale and begin to consider the risks, obstacles, and potential rewards this decentralized autonomous organization is likely to face moving forward.
Without the administrative bloat of a traditional corporate structure, The DAO is potentially positioned to manufacture products and provide services at higher profit margins, utilizing "Contractors" to facilitate the execution of proposals on behalf of The DAO and its token holders.
Once a project proposal is submitted to The DAO, token holders have a preset timeframe to debate and vote on funding the proposal. During this time DAO token holders will have the option of pledging their DAO tokens to the proposal, effectively voting to release ether to fund the venture. Initially, if twenty percent of tokens are pledged to a proposal during the voting time frame, the project will be funded. "Curators" serve as The DAO's internal audit function by validating the identity of Proposers and defending token holders from malicious proposals and various majority attack vectors. It is important to note, these "Curators" are not leaders of The DAO, in the sense a Board of Directors leads a traditional public company. The responsibility for proposing ventures and making funding decisions lies solely with DAO token holders.
If a token holder is unsatisfied with the direction of The DAO, or if a malicious proposal seems likely to pass (such as an attempt to transfer DAO funds with no return on investment), the token holder will have the ability to "split" The DAO. At this point, an identical DAO is created, funded by an amount of ether equal to the token holder's proportional ownership of DAO tokens. This ether is transferred from The DAO funds. This newly formed DAO would be independent of The DAO, with its own Curator(s), proposals, and rewards.
The ability to "split" The DAO opens an endless realm of possibilities. With over one billion DAO tokens created to date, it is conceivable that The DAO may give rise to numerous decentralized autonomous organizations, each with their own Curators, investment objectives, and funded proposals. To date, multiple planned proposals have been made public, such as Slock.it's Universal Sharing Network (centered around the Ethereum Computer) and Mobotiq's modular electric vehicle rental network.
Consider a situation where Slock.it's project is the first proposed to The DAO. If a token holder wanted no part in this venture, they could immediately "split" from The DAO, potentially convincing other token holders to join their new DAO. However, since this DAO would be independent of The DAO, the token holder would miss out on future proposals made to The DAO, such as Mobotiq's p2p rental network.
Clearly this disruptive form of venture capitalism / crowd funding will face obstacles as this concept is actualized. For instance, who is legally responsible for The DAO's actions? Individual token holders? Contractors? Proposers? Is a DAO token a "security" by conventional definition? What government / regulatory agency has authority over this decentralized autonomous entity (if any)? Clearly The DAO's interaction with traditional business and legal structures will have to be considered in depth. Any new laws or regulations will directly affect the reach and scope of this revolutionary venture. Whether in a positive or negative light, only time will tell.
After raising north of $150 million USD in the largest crowd funding effort in history, the international crypto-community is hopeful The DAO will spawn a new age in international finance, free from unnecessary trust, middle men, and corrupt business practices. At the same time, the future of this ground-breaking corporate governance structure is wrought with uncertainty and risk. For a detailed analysis of The DAO concept and its governance contracts, download The DAO white paper.
2016 marks an exciting year for investors eager to own and transact gold in the digital economy. Technological advances are setting the table for tectonic shifts in the way we transact online.
With combined daily transaction volume of approximately $21 million USD and combined assets in excess of $42 million USD, digital assets such as SPDR Gold Shares ETF (GLD) and iShares Gold Trust ETF (IAU) are currently among the most popular options for mainstream investors holding and trading digital gold.
Though backed by physical gold, ETF shares don't represent a specifically identifiable gold bar or coin, rather they represent a share in a large amount of gold bullion held in trust. Constant arbitration on the open market ensures the ETF share price stays in line with the value of the underlying holdings.
Until recently, if an investor wanted to use gold ETF holdings to purchase goods and services online, the investor must first liquidate the ETF position for digital cash before spending the funds. In other words, it isn't possible to purchase a book on Amazon with GLD shares. This demonstrates gold's historic inability to function as a digital currency in the online marketplace.
In comparison, the Digix Proof of Asset (PoA) protocol is the first to successfully 'tokenize' gold bullion on the Ethereum blockchain utilizing the Inter Planetary File System (IPFS). 'Tokenization' is the process of securely storing pertinent asset information onto a unalterable public ledger. That 'token' can than be traded in trust-less peer-to-peer markets. Once a PoA Asset Card representing a specific gold bar is created via the PoA Verification Process, the Minter Smart Contract can be utilized to parse the PoA Asset Card into Digix tokens (DGX). Each DGX represents 1g of specifically-identifiable physical bullion. These DGX tokens can be converted back to PoA Asset Cards via the Recaster smart contract at any time.
With the Digix platform live, now is an opportune time for gold investors to tokenize their bullion holdings via the Digix Proof of Asset (PoA) protocol. As DGX tokens gain traction as a digital store-of-value and online collateral, the tokens may trade at a premium to physical gold prices.
We believe this premium would be justifiable and could represent the market's desire for physical bullion's registration & audit via the Digix PoA Verification Process. As a global DGX market develops, investors could potentially profit from purchasing gold bullion and minting DGX to sell on the open market, increasing DGX supply and the value of the DigixDAO platform.
For a detailed outline of the Digix platform and it's smart contract processes, please see the Digix WhitePaper.
First of all, I would like to congratulate you on having the foresight and technological ability to secure an investment in Digix DAO during the hours-long crowd sale. Thanks to the successful ICO procedures facilitated by the Digix Global team, there are high levels of interest in DGD tokens leading up to the platform's launch. On April 28th, the actions of DGD token holders will begin to reflect in the overall value of the DAO. With that in mind, I ask you to consider the long-term value of the DAO when assessing profit-taking opportunities in the coming months.
In the infant days of this corporate governance experiment, it will be tempting to sell large portions of your investment at 10x, 20x, and perhaps even 30x valuations, but remember these transactions will be forever known by other members of the DAO community. For the first time in the history of venture capitalism, ownership data is public knowledge and available for audit on a blockchain.
Imagine organizing future ventures such as the p2p lending platforms, decentralized exchanges, or virtual nations mentioned in the most recent Progress Update. Founders could potentially devise DGD reputation systems which consider the token age of DGD in a wallet, as well as the quantity. Such a system may become necessary, as a top 50 ICO investor could dump his/her DGD tokens at a substantial gain yet hold the Proposal Badges to influence the community in the future. In other words, there may one day be additional value in holding ICO tokens over DGD tokens purchased in the secondary market.
As DigixDAO builds the industry standard in digital gold platforms, the DAO community must continuously focus on productive efforts to enhance the architecture of the global DGX market and maximize daily DGX transaction volumes, all to the benefit of DGD holders. As DGX gains widespread popularity and traction, DGD tokens could one day become the most attractive asset to own in the global financial system.
On April 28th, remember to keep thinking long term.
By now, most individuals who follow the cryptocurrency industry have heard of ethereum. With a market capitalization that has risen over 500% in 2016, the ethereum platform is now more valuable than Ripple and Litecoin combined.
So what is driving this meteoric rise in value? Is this another speculative bubble forming in a 'hot' altcoin? What sets ethereum's protocol apart from other cryptocurrencies entering the cryptofinance space? These are questions I will attempt to answer for you today.
To me, two technical attributes differentiate the ethereum protocol from other cryptocurrencies in existence today. The creators of ethereum went beyond the idea of cryptocurrencies as a digital store of value and created a 'Turing complete' platform that supports smart contracts on a blockchain.
I know, I know... "Turing complete smart contracts on a blockchain" sounds bleeding-edge enough to throw your money at, but what does it really mean? Well after some research, I found that in a 'Turing complete' programming language a developer can create an algorithm to solve any system of rules, states and transitions and lock those rules / conditions into the distributed, trust-less blockchain. Therefore, ethereum essentially allows the creator of a smart contract to define any environment, solve any problem, and govern any community in a completely decentralized and trust-less manner.
The technological innovations available via the ethereum protocol have given rise to a new and innovative online business model coined the 'decentralized application' or Dapp for short. By paying ether to the network of ethereum miners, developers can record Turing complete smart contracts onto the ethereum blockchain. Then anyone can anonymously execute the developer's smart contract by paying the developer a small amount of ether. Complicated I know... but try to conceptualize a self-sustaining, profitable, and potentially artificially-intelligent Dapp existing in perpetuity on the ethereum blockchain.
For instance, imagine the Uber of today, but running autonomously on a distributed network where rules are determined by community consensus. Instead of a room full of eggheads centrally determining the multipliers on Uber rates out of a swanky office in San Francisco, the community of users (drivers and passengers) could determine rates based on supply and demand algorithms written into ethereum smart contracts. Users are then empowered with knowledge of the rules they are playing by, and can trust that their commands will be executed without interference, not a given in today's market economy.
This economic concept of the decentralized application can be applied to any industry that is realizing efficiencies through the internet today. Imagine developing a Dapp capable of independently performing a service / selling a good, governing its community of customers, and collecting payment. All of this without the possibility of ever being shut down. Crazy right?
Enough conceptualizing for now. To evidence the amazing solutions already being developed on the ethereum platform, I've provided a list of my favorite use cases below for your convenience. These Dapps are all currently in development on the ethereum network. I will likely speak on these platforms in greater depth at another date... so consider this your sneak peak.
The immediate launch of these disruptive decentralized applications via the ethereum protocol hints at the likely explosion of coming innovation. The more I research and learn, I truly believe that as the ethereum protocol is continually utilized to develop disruptive and autonomous Dapps, the world will begin to pay close attention to this revolutionary platform. This technology has the potential to empower entrepreneurial citizens across the globe and help society realize economic and social efficiencies never before imagined, similar to the opportunities presented by the internet in 1995.
In November 2008, the unknown 'Satoshi Nakamoto' mysteriously released a paper titled 'Bitcoin: A Peer-to-Peer Electronic Cash System' via a cryptology mailing list. Also known as the Bitcoin White Paper, this nine and a half page document provided detailed analysis of a peer-to-peer electronic cash system created to combat the Internet's reliance on "financial institutions serving as trusted third parties to process electronic payments."
We do not believe the timing of events to be coincidental. This well-thought "purely peer-to-peer" network cut out the middle man for a reason. As major Wall St. banks began to collapse, Satoshi Nakamoto identified the "inherent weaknesses of the trust based model" and created a currency free from world government manipulations. Nakamoto aimed to put currency back in the hands of the people and restore faith in global commerce.
Bitcoin is unlike any other currency ever invented in that, the future supply can be determined with certainty. As you can see from the chart below, the logarithmic algorithm regulating the mining of bitcoin has a mathematical limit of 21 million. There will never be 21,000,001 bitcoins in existence. This means that once all bitcoins have been mined, there will be no inflation of the currency EVER AGAIN FOR ALL OF HISTORY. A truly amazing characteristic.
If bitcoins can't be "printed" like fiat government-backed currency, how are they released into circulation? To put it simply, they are "mined" by ultra-powerful server networks as they solve complicated computing problems. As of this writing, 15,075,575 bitcoins have been mined, which is roughly 75% of the eventual outstanding circulation.
Bitcoins have a built-in, predetermined rate of inflation. Currently, the currency is inflating at a rate of 25 BTC for every block added to the Bitcoin 'blockchain', as that is the current reward to miners for attaching a new block. As you can see from the chart below, we've been at a 25 BTC / Block inflation rate since November 2012, the last time the rate halved.
After bitcoin 15,750,000 is mined something interesting happens. The inflation rate drops from 25 to 12 BTC / Block and continues to halve after smaller and smaller increases in bitcoin circulation. Essentially, we are beginning to reach the plateau of the supply curve, a fact that will become more apparent after 15.75 million BTC mined.
With a truly finite supply, the question is, how strong will demand be in the future? Is speculative investment driving bitcoin exchange activity or are citizens of the world putting their trust in the currency? Can society make the transition from fiat cash and plastic cards to personal, encrypted wallets? We believe there will be significant insight gained from analyzing the price reaction to the 12 BTC / Block reward. Stay tuned for further discussion.
Tyler Logsdon is a CPA and Registered Securities Representative located in Newport Beach, California. He is actively employed in the blockchain industry.
ALL CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY. TFL HOLDINGS ASSUMES ALL INFORMATION TO BE TRUTHFUL AND RELIABLE; HOWEVER, THE CONTENT ON THIS SITE IS PROVIDED WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED. NO MATERIAL HERE CONSTITUTES "INVESTMENT ADVICE" NOR IS IT A RECOMMENDATION TO BUY OR SELL ANY FINANCIAL INSTRUMENT, INCLUDING BUT NOT LIMITED TO STOCKS, COMMODITIES, OPTIONS, BONDS, FUTURES, OR BULLION. ACTIONS YOU UNDERTAKE AS A CONSEQUENCE OF ANY ANALYSIS, OPINION OR ADVERTISEMENT ON THIS SITE ARE YOUR SOLE RESPONSIBILITY.