TR 29.09

// LIQUIDITY CLIFFS - THERE IS A SOLUTION

 When excessive and unmanaged liquidity is injected into a market, this presents serious issues for both projects and their token value. This happens when lock-up and vesting periods result in significant volumes of tokens being released simultaneously and investors all rushing to cash out at the same time.

Take a project that vests a third of tokens to investors after 3, 6, and then 12 months. All at the stroke of midnight. All investors know that a third of the token supply will be vesting at that moment. At least some of those investors will want to sell as soon as the lock-up period ends. Economics 101 - the more people that sell this token, the lower the price goes. So, everyone who wants to sell has an incentive to sell before that crash in price. And so begins the race to be the first to offload onto the market.

This is a less than ideal situation for the token and can cause a chain reaction and crash. It is also completely avoidable.

The solution, or at least the best-in-class structure, is simple: implement second-by-second (‘SBS’) vesting. SBS vesting, which can be written into smart contracts, enables investors to access their assets, but incrementally so. Every investor gradually receives tokens - every second - and can make independent choices as to when to sell - or to just keep holding.

The current situation with liquidity cliffs, is an example of poor ‘copy & paste’ practice occurring in the space. 3 month intervals for vesting arises from standard equity / option pool contracts for founders and employees. In these cases the instruments they are being awarded are typically completely illiquid - you may have been awarded options in Uber on day one, but you still can’t shift them; vesting in cliffs in traditional equity causes no market crashes - as there is no market.

So - no to liquidity cliffs, no (or at least less) to market shocks. Yes to actually leveraging the technology our industry is built on.

// MUST READS

  • The Virtual Markets Integrity Initiative report was launched by The New York State Office of the Attorney General to protect and inform New York residents who trade in virtual or "crypto" currency.

  • Check out the main highlights from The Global Blockchain Survey 2018 created by PwC.

  • United Nations partners with Binance to solve Global Issues through blockchain technology.

// DISASTER OF THE WEEK

  • The SEC recently announced in a press release that it filed charges against 1pool Ltd (known as 1Broker) as well as its CEO Patrick Brunner for “allegedly violating the federal securities laws in connection with security-based swaps funded with bitcoins”. The press release stated that an undercover Special Agent with the Federal Bureau of Investigation managed to purchase several security-based swaps on 1Broker's platform, even though he was not meeting the “the discretionary investment thresholds required by the federal securities laws".

// TRACTION

// ROAD TO REGULATION

// PROJECTS

  • Crypto money market platform Compound is live on ethereum. The platform which aims to build a money market for the crypto space enables users to lend out their crypto holdings or to borrow crypto using their holdings as collateral. The smart contract enabled platform is initially offering four different tokens including: Wrapped Ethereum (WETH), 0x (ZRX), Augur (REP) & Basic Attention Token (BAT).

  • MakerDao has raised $15 million from a16z crypto for 6% of MKR tokens. The deal is one of the first for Andreessen Horowitz’s new dedicated crypto fund.  The MKR token stake agreed upon were sold at a 40% discount to the market price at the time of announcement. As part of the investment, MakerDAO will receive operating capital, 3 years support for the projects and full operational support from the a16z team.

// EVENTS

Blockchain for Finance Conference - Dublin, Ireland - Oct 2 - 4, 2018

London Venture Capital World Summit 2018 - London, UK - Oct 3, 2018

MoneyLIVE Lending 2018 - London, UK - Oct 3, 2018

London Family Office & High Net Worth Blockchain Conference - London, UK - Oct 4, 2018

Blockchain Crypto World SEC & Tokenomics Workshop - Washington DC, USA - Oct 4-5, 2018

Crypto Summit 2018 - Zurich, Switzerland - Oct 8 - 9, 2018

 // CRYPTO CHALLENGE FORUM - JOIN US THERE!

 Crypto Challenge Forum, one of the world's major industry events, is taking place on the 28-30th October at the iconic Central Hall Westminster. It will connect global thought leaders, policy makers, investors and startups from across the world for a 3 day top-content event. Come and meet The Reserve team and see our CEO on stage alongside some of the world's most authoritative speakers in the space.

 The Forum's three tracks will cover: Blockchain and Sustainable Development, the Future of Digital Investment and Regulatory Framework of the Crypto. Expect global announcements to be made by attending governments, a exclusive networking opportunity at the Investors' Hub, an ICO contest with 100K prize pool and a black tie Halloween Gala & Awards Giving Ceremony to top things off. Secure your tickets here.

 // OUR MEETUPS

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James Roy PoulterComment