One of crypto’s longest-running exchanges has been sold

One of the longest-standing crypto exchanges has new owners after Europe-based Bitstamp was sold to South Korea’s Nexon, marking the gaming firm’s second such acquisition.

The acquirer is NXMH, a Belgium-based PE and investment firm owned by NXC — the parent of Nexon — and it will take a majority 80 percent stake in the business for an unknown fee. The New York Times’ Nathaniel Popper suggested earlier this year that Bitstamp was in the process of being sold “to South Korean investors” for $400 million, but NXC declined to comment on the price when asked by TechCrunch.

NXC acquired 65 percent of Korea-based exchange Korbit one year ago for 91.3 billion KRW, or approximately $79.5 million at the time.

Bitstamp was founded in 2011 by Slovenian entrepreneur Nejc Kodrič with an initial €1,000 and it survived the heady early days of crypto, unlike a certain peer named Mt. Gox. Today, Bitstamp is ranked inside the world’s top 30 exchanges based on trading volume with more than 100 staff. Bitcoin and XRP are among its most traded tokens, according to data from Coinmarketcap.com.

The company has a license to do business across the EU but it also works with customers worldwide.

Bitstamp has been profitable since its early life, but Kodrič revealed the sale is down to the potential to work with NXC, which he sees as a like-minded partner.

Bitstamp has been regularly approached by suitors for quite some time. The reason why we finally decided to sell the company is a combination of the quality of the buyer, the quality of the offer and the fact that the industry is at a point where consolidation makes sense. A major factor in agreeing to the sale is that the mission, leadership and vision of the company remains the same.

We believe this acquisition is the logical next step in Bitstamp’s growth as a company and I look forward to the future with this team.

The Bitstamp CEO said business will continue as normal — he’ll retain his position as CEO and keep 10 percent of the company.

Interestingly, he told Fortune that regulatory compliance meant the deal took some ten months to close after first being agreed in December 2017 when crypto market valuations hit a peak — with Bitcoin, in particular, getting close to a record $20,000 valuation.

Bitstamp raised around $14 million in capital from investors along its journey, with U.S-based Pantera capital one of its major backers.

Note: The author owns a small amount of cryptocurrency. Enough to gain an understanding, not enough to change a life.

As Tether flails, cryptocurrency exchanges launch rival stablecoins

The promise of Tether, the digital currency pegged 1:1 to the US dollar, was that it could provide the benefits of a cryptocurrency while providing a fiat -backed peg against price fluctuations.

But the currency has fallen below the $1 in recent weeks, right as a range of competing currencies are becoming available to meet the growing interest in the so-called “stablecoin” sector. It’s certainly not a coincidence.

Stablecoins are digital currencies pegged to a stable asset, such as gold or fiat currencies, or backed by collateral (that could also be a cryptocurrency), or even an algorithm that governs the approach to expanding and contracting the money supply. The goal of every stablecoin project is to achieve the scale and adoption of modern monetary systems, as a store of value and also as a medium of exchange.

As we see Tether decline in adoption, opportunities arise for a number of new exchange stablecoins to become the go-to-coin. At the moment, we are seeing a commoditization of the space, and it won’t be until when trading volumes picks back up again when a new (or perhaps the same) Tether arises.

What’s been going on with Tether lately?

Tether (USDT), the largest stablecoin to date, seems to be in a terminal decline following intense scrutiny this year over dubious accounting practices. USDT is a widely tradable stablecoin created by Tether, a company run by the same executives behind the exchange BitFinex. Tether has been criticized for its failure to prove that the reserve has enough US dollar to back its digital currency on a one-to-one ratio, which it promises for its dollar-pegged cryptocurrency.

The pro-USDT narrative has been that despite its failure to provide transparency into its reserves and failing to acquire a proper audit, USDT is still the most widely traded stablecoin with significantly more volume than other stablecoin competitors. It previously compromised over 90% of market cap of all stablecoins and was listed on the most exchanges than any other stablecoin.

Nevertheless, that narrative seems to be breaking in the last 2 weeks. USDT has since seen its market cap go down by almost a third, from its peak of $2.8 billion to $2 billion in the course of 2 months.

In the past, users would purchase USDT via the Bitfinex platform for two major reasons, which is to buy bitcoin or transfer USD between countries. Given these two major applications, USDT has attracted users both outside and inside the cryptocurrency industry.

Recently, TechCrunch has gathered from investors that believe the price gap developed between Tether and USD is concerning. Because in the traditional markets, one would expect that big players and market makers would be capitalizing on that opportunity and closing the spread.

There have also been claims made by crypto researchers that Tether may be buying up USDT and planning to exit the stablecoin market. This can be driven by increasing scrutiny on the business and that having a stablecoin is no longer sensible and profitable for the company. There are increasingly signs pointing so on Tuesday this week when Tether announced that it has destroyed 500 million worth of USDT from the Tether treasury wallet.

Current stablecoin adoption and real world implementation are still in early stages. Despite more stablecoins getting introduced this year, there have not yet been any set of standards established for the space. If Tether really is winding down its market presence, that means there is room for other coin(s) to rise at least for the existing market demand. But really it’s about stablecoins potentially going mainstream one day

Below is a brief look at the other coins coming on to the market, and what they have done so far.

The rise of the exchange stablecoins

A number of stablecoins have been in existence since 2017 but exchange stablecoins pegged to the dollar have been a big trend in the last few months.

Among the latest movers, crypto exchange Gemini issued the Gemini Dollar and financial blockchain solution Paxos issued the Paxos Standard. Both coins were approved by the New York Department of Financial Services (NYDFS) last month, which set a precedence for the first regulated, digital representation of the U.S. dollar to be approved in the US. Similar to Tether, both exchanges assert that their stablecoins will be fully backed by a USD reserve. Gemini touts that the balance will be examined monthly by an independent registered public accounting firm to verify the 1:1 peg. Paxos was listed a couple weeks ago on top cryptocurrency exchange Binance.

Unlike non-exchange tied stablecoins, exchange- tied stablecoins enjoy certain benefits by being directly and immediately being put to use when launched. With Tether’s ongoing issue in the last few weeks, we are seeing exchanges either double downing on their own stablecoin, or diversifying to multiple different stablecoins to ensure they can capture majority of the market. Exchanges are incentivized to have their own in-house stablecoin because it allows their customers to turn any of their portfolio tokens trading on the market into stabilized tokens that they can keep as reserve — without having to rush to exchange it into fiat and worry about their portfolio change in value. Once more people hold a common stablecoin, they can transact with each other more easily and the coin could potentially grow adoption that way. This thereby indirectly raises the market cap of the exchange.

In mid-October, other top exchanges also started picking up their adoption and introduction of their own in-house stablecoins. OKEx, one of the top three cryptocurrency exchanges by volume, listed TrueUSD, along with Paxos Standard, Gemini Dollar and Circle’s stablecoin USD Coin. Huobi, another top ranked exchange by volume, followed with the same listings.

Huobi also listed its own stablecoin solution, called HUSD, which initially is launching by being the stablecoin replacement on its own exchange. And just on Tuesday this week, Coinbase backed Circle in forming the new CENTRE Consortium, and announced the support for USD Coin (USDC).

On the side, we also see numerous existing institutions that have announced and are making way into stablecoins. PWC has started getting into stablecoin advisory through partnerships, while IBM most recently announced its exploration into stablecoins through a collaboration with Stellar by building a stablecoin on the Stellar blockchain.

Which stablecoin could go mainstream?

For the launched tokens, the question now is: can they maintain their stability as their name alludes, and reach the adoption scale that Tether used to dominate?

Success to the public will be the 1) number of exchanges these coins get listed on and their float, 2) the number of transactions and size of transactions committed, and now hopefully 3) ongoing verified amount of reserve.

There are a few early indicators of who is moving ahead, even as many stablecoin projects are still building out their products or are in the process of launching.

Despite recognizing the importance of Tether, the Binance research team has said that they are evaluating almost all the other stablecoins on the market to add to its platform.

Additionally, as reported by Coindesk this last week, HBUS, the U.S. affiliate of the Singapore-based Huobi exchange, have seen both deposits and withdrawals of USDT “increased by over 10x over the last two days,”.

Per the spokesperson: “For deposits, users are transferring their USDT into HBUS from other exchanges to take advantage of our USDT/TUSD trading pair. There has been over a 30% increase in trading on the TUSD/USDT pair over the last two days.”

It is important to note that HBUS still only ranks 129th by adjusted total trading volume according to CoinMarketCap. However, these anecdotes explain how a number of these newer stablecoins broke their one-to-one fiat peg this week, and rose above $1 rather than falling below it. At least it gets some investors excited.

But once a token trades below or above the peg, it misses the whole purpose of stablecoin. It is evident that we are still in the early stage of the market, and over time, the token should stay stable regardless of market conditions, regardless location, and truly weather the most volatile of market times.

As stablecoin is still such a new arena in the cryptocurrency world, one can probably expect further insolvencies or regulatory shocks like what we saw with Tether, but in a lesser magnitude. After all, it certainly is a positive sign that many of these exchange stablecoins are now being regulated and recognized legally, as it is crucial for US-operating crypto companies’ adoption and scaling.

It will be most telling when trading volume returns to the scale of late 2017 to early 2018 time frame. As the market evolves, we may see true differentiation in the space, beyond yet another stablecoin maintaining reserves that are verified by a third party.

PlusOneCoin made a cryptocurrency for upvotes

A team of developers have made something called PlusOneCoin, a clever cryptocurrency that essentially allows owners to upvote content on two financial sites, ADVFN and Investorshub. The idea – to reward people for accessing content and, more importantly, interacting with it – is something many services like Steemit have tried and failed to pull off.

Created by ADVFN founder Clem Chambers along with blockchain experts Michael Hodges and Jon Mullins, the coin is now listed on many major exchanges and lets you “reward other users and empower a community.”

“This bitcoin-like currency enables content providers and platform owners to monetize their social media sites while giving their audience more power to affect the social media content they consume,” said Chambers. “PlusOneCoins can be bought, swapped, given or mined by users just like Bitcoin or other cryptocurrencies.”

The thought that a media site needs a cryptocurrency to “prove” that an upvote took place is at once goofy and important. Publishers need a way to monetize content and encourage audiences to visit. A system for “proof of view” is vitally important for the ecosystem although it might be hard for a financial media company in London to get the groundswell needed to grow general acceptance of the concept.

“PlusOneCoin (PLUS1) is a social media validation coin based on a proof of work, ASIC-resistant blockchain,” said Chambers. “In the future, PlusOneCoin could be integrated into more mainstream social media websites and applications.

Chambers said that is company, a decades old publicly traded media organization, is ready to manage the currency. It is currently trading at 0.077 cents with minimal trading volume.

“PlusOneCoin has a use case beyond the Hodl and transactions application all coins have,” he said. “Coins with more use cases are the ones to watch especially if that use case can grow. PlusOneCoin is also managed by a long established company, which is regulated by a stock exchange not a bunch of mystery folk from who knows where.”

It looks like Coinbase is preparing to add a lot more cryptocurrencies

Coinbase aspires to be the New York Stock Exchange of crypto, and it is taking a small — but not insignificant – step to offering a lot more cryptocurrencies after it revamped the process of listing new digital assets.

The exchange currently only supports just five cryptocurrencies — Ethereum, Bitcoin, Bitcoin Cash, Ethereum Classic and Litecoin — and the process of adding each one has been gradual. The company would announce plans, and then later announce when listing the asset. The idea being to reduce the potential to send the value of a token skyrocketing. (Since support from Coinbase potentially adds a lot more trading volume.)

That clearly isn’t a sustainable process if Coinbase is to add “hundreds” of tokens, as CEO Brian Amstrong told an audience at TechCrunch Disrupt it eventually plans to.

Regulatory concern is high on the scale when evaluating support for new cryptocurrencies, so now Coinbase is speeding up the process by limiting trading of some tokens to specific locations where necessary.

“Today we’re announcing a new process that will allow us to rapidly list most digital assets that are compliant with local law, by satisfying listing requests in a jurisdiction-by-jurisdiction manner. In practice, this means some new assets listed on our platform may only be available to customers in select jurisdictions for a period of time,” the company said in a blog post.

That’ll mean an end to the double announcement — ‘token X is coming soon’ and ‘token X is now supported’ — and instead a single reveal. That indicates that a large number of new assets may be incoming — for an idea of which ones, Coinbase recently said it is looking over a number of cryptocurrencies.

Interestingly, the company also noted that it may introduce a listing fee — this is common with many other exchanges — in the future in order to cover costs around adding some projects.

“Initially there will be no application fee. Depending on the volume of submissions, we reserve the right to impose an application fee in the future to defray the legal and operational costs associated with evaluating and listing new assets,” it explained.

The company has opened a listing proposal link, here. If similar features from other exchanges are anything to go by, Coinbase’s will be flooded by naive token holders who think they have a shot at getting listed on Coinbase, which will take them to the moon. Good luck maintaining that list, guys.

Note: The author owns a small amount of cryptocurrency. Enough to gain an understanding, not enough to change a life.

SparkLabs is launching a cybersecurity and blockchain accelerator program in the US

Investment firm SparkLabs has run accelerator programs across APAC, now it has announced its first that’ll be based on U.S. soil and it’s a cybersecurity and blockchain program that’ll be located in Washington, D.C. from next year.

The program will be led by former Startup Grind COO Brian Park and Mike Bott, who is ex-managing director of The Brandery accelerator. Advisors signed on to work with the batch of companies includes top names like Microsoft’s former chief software architect Ray Ozzie, Litecoin creator Charlie Lee, LinkedIn co-founder Eric Ly and Rich DeMillo, who was the first CTO of HP.

Named “SparkLabs Cybersecurity + Blockchain,” the program will kick off with an inaugural batch of companies in March next year, with applications opening accepted from January. SparkLabs co-founder and partner Bernard Moon told TechCrunch in an interview that the plan is to run the program for four months with two intakes per year.

It’ll use SparkLabs’ standard investment approach that sees selected companies offered $50,000 for up to six percent equity. That’s variable on a case-by-case basis — for example for those that have raised significant early funding at a large valuation — but Moon said that the priority for the security and blockchain program is to seek out companies that are bootstrapped or at least have not raised much.

Moon said that the general focus is not on cryptocurrency but instead enterprise-led technologies. So, on the blockchain side, that might mean protocols and other infrastructure layer plays, although Moon said he does believe that there is scope for more consumer companies, too.

SparkLabs has a dedicated blockchain fund — SparkChain Capital — but neither that fund nor its principal, Stellar founder Joyce Kim, is directly involved in the accelerator. That’s very deliberate, Moon said, because SparkLabs wants to grow its network in the blockchain space outside of SparkChain, although he did explain that the program will be “a vetted deal source” for the fund, so graduates could potentially look it to when they want follow-on funding.

Outside of SparkChain Capital, SparkLabs is active in crypto, primarily through its presence in Asia — especially Korea where it operates its first accelerator program. The company is even tokenizing two of its accelerators — a six month IOT-focused initiative in Korean smart city Songdo and Cultiv8, an accelerator for agriculture and food tech in Australia — although Moon said that the project has been delayed but remains on track to happen soon. Investment-wise, it has backed over 10 blockchain companies and a dozen in the cybersecurity space.

The cybersecurity and blockchain program has an interesting story. Park and Bott originally spun out AOL’s Fishbowl Labs accelerator program but after a discussion with Moon for advice, the pair ended up signing up with SparkLabs. That’s a move that Moon believes will help bring a global perspective through SparkLabs’ presence in the rest of the world — it has six other programs globally — and marrying that with what’s happening in the U.S.

“We want to foster and grow a robust ecosystem in both cybersecurity and distributed ledger technologies.  We believe these two verticals are synergetic by nature, but we will seek innovations beyond the overlap,” Park said in a statement

“It’s so early within this space that we are only seeing the Friendsters and MySpaces of the blockchain world.  The next Facebooks and Twitters will be developed over the next several years,” he added.

The 21-day bitcoin challenge

There is a documentary series currently airing on iQiyi, China’s Netflix equivalent, about a Chinese bitcoin enthusiast who attempts to survive 21 days by merely living on 0.21 bitcoin, or $1,300, without any help or donations.

He You Bing is traveling and carrying nothing with her, and she has to retrieve food, housing, and basic necessities all through bitcoin transactions done on her phone. Interestingly, she is also doing this challenge in some of China’s largest cities including Beijing and Shenzhen.

Her name is something of a nom de guerre – a nickname, with “You Bing” directly translating to “having a disease,” and the whole name alludes to the girl’s over-enthusiasm for bitcoin.

It’s a fascinating time for making this attempt. In the last few weeks, there have been numerous reports of China’s crypto bans – including Beijing and Shenzhen banning public cryptocurrency-related speeches, events, or activities, as reported by the Wall Street Journal. Also included in the purported ban were a number of WeChat media accounts that promoted cryptocurrencies, which have been permanently blocked. Furthermore, Beijing blocked access to the websites of over 120 offshore exchanges in the mainland and banned large crypto purchases through popular Chinese payments platforms Alipay and WeChat transactions.

Given the sheer number of these bans, readers who live outside of China may be led to think that there is a bleak outlook for the cryptocurrency environment on mainland China. But He You Bing’s Bitcoin challenge reveals a refreshing perspective on the crypto awareness of people living in these local cities as well as the power of WeChat. $1,300 may not sound like much for 21 days of travel in the U.S., but in China, where a cheap meal costs just $1, it can go a long way. The real question is, will people accept bitcoin?

Finding acceptance with bitcoin

Through daily video-log like documentaries, Bing is filmed running around asking different business vendors whether they accept bitcoin. The vendors, varying from small hole-in-the-wall eateries to employees from large chain stores like Uniqlo, express their reactions that are telling of their preconceived notions, or lack thereof, of bitcoin and cryptocurrency. Similar to the U.S., people’s attitudes vary from ignorance and distrust to welcoming. It’s eye-opening to see how different Chinese people think about bitcoin.

On the first day of her challenge, Bing arrives in Beijing, where she wants to go to an amusement park. The entrance fee is 2 Chinese Yuan, or around 30 cents in USD, but the park didn’t accept bitcoin. Bing also asked several fast food restaurants whether they accepted bitcoin so she could buy food, but neither of them did.

As she approaches these vendors, rather than paying in bitcoin, she often has to explain what a bitcoin is in the first place, and finds very little success along the way. One feat on her first day is that she was able to find an unlocked Ofo bike, a dockless bike that can be unlocked and paid for with one’s cellphone. With it, she biked around in an attempt to reach out to more vendors. By the end of the first day, Bing didn’t succeed in finding a food place that accepted bitcoin, and she subsisted on four packets of ketchup and food samples from a supermarket. She slept in a 24-hour McDonald’s on her first night.

The second day, Bing foraged for food. She grabbed fruits from wild trees. Her food intake for the second day consisted of some fruits on a tree and someone else’s leftover burger at a McDonald’s. She ended up getting a stomach ache and threw up, sleeping in another 24-hour McDonald’s. 

Bing was becoming hopeless by the third day. She was on the the verge of fainting and the filmmakers sent her to a hospital. At this point, the challenge had gathered some attention, and supporters were able to contact the filmmakers. They then brought Bing food and she paid for it by bitcoin. On the third night, she slept in an art gallery.

It’s not the currency, it’s the community

Bing’s story soon spread and people started finding her through WeChat where they would offer to exchange bitcoin to fiat. At that point, the challenge would have become too easy, so the filmmakers changed the rules so that Bing had to transact offline and exchange Bitcoin with people in real life.

On the sixth day, Beijing was having the Forum on China-Africa Cooperation Summit, so the filmmakers moved to Shenzhen to continue the challenge. The audience started getting suspicious of the filmmakers, asking whether they were related to scam projects. The filmmakers said that they were approached by crypto projects but that they declined them. By then, six support groups in WeChat had been created to support Bing, with every WeChat group having 500 people (500 is the max number of people one can have in a WeChat group). These chatroom participants included bitcoin believers, real estate agents, and advertising salesmen.

Despite the current ban on crypto activities, the documentary shows that bitcoin is alive and well in China within digital communities, albeit not prevalent in the physical world. Most of Bing’s days are documented on iQiyi. And her encounters are telling of what is actually happening in China when it comes to cryptocurrency and mobile technology adoption. Notably, Bing was able to get through living in China simply through her phone. The power of WeChat brought her supporters directly to her.

By day seven, Bing got in contact with some of her WeChat supporters and was able to purchase face wash from them. The next day, she found a restaurant that accepted bitcoin. She got someone to buy her clothes at Uniqlo by exchanging bitcoin with them and then also found someone who was willing to book a hotel for her by exchanging bitcoin.

Gradually, Bing’s bitcoin challenge started a small movement, where her supporters would also approach shops to ask whether they accepted bitcoin and relay the information to her.

On a daily basis, the filming team recorded how many business and pedestrians Bing reached out to and the number of successful bitcoin transactions she made. From the initial ten days to now, Bing has gradually gained confidence. She now has a strategy on how to find people to exchange her bitcoins and what to exchange them for. Over time, the number of inquiries Bing did increased from ten to twenty a day to over a hundred per day. The number of successful transactions was still only a handful a day, however.

Bing’s story continues, and she is now at day 19. She and the filmmakers have migrated to the southern city of Guangzhou. As she assimilates into this new lifestyle, Bing found people to exchange Bitcoin to fiat with her to purchase her train tickets, her hotel rooms, and her meals. Nonetheless, more often than ever, the pedestrians and small business vendors she approached were ignorant, skeptical, and did not want to be part of the filming.

Finding utility in bitcoin

Recently, China Daily covered Bing’s challenge. The documentary has gotten some media attention in China, and companies and institutions have asked to donate and sponsor the filmmakers. They have claimed that they have turned them all down.

In the last year, the narrative around bitcoin has gradually centered on becoming a “store of value” in the U.S. given the increasing transaction costs on the blockchain. Bitcoin transaction prices have increased from 30 cents at the beginning of 2017 to $40 at end of 2017 during the peak of bitcoin prices. As a result of such large fluctuations in fees, transactions no longer happened as frequently as before. Bitcoin’s transaction cost is now back down to about 60 cents this year.

However, as the market has come down in the last few months, bitcoin has once again become a “safe haven” for individuals to go to, and as a result, bitcoin now makes up more than 56% of the total cryptocurrency market cap, up from 34% at the beginning of January 2018.

Bing still gets people suspecting that she is trying to scam them. Since the rise of crypto prices and bitcoin reaching almost as high as $20,000 at the end of 2017, there have been numerous scam coins coming out everywhere. In China, there are often obscure and random coins that appear with no real value-add, no relationship to any blockchain, and are devised purely to fool non-savvy citizens who think they can make a quick buck. In fact, one of the purposes of Beijing’s ban on commercial venues hosting cryptocurrency events was aimed at purging coins from scamming the public.

Bing will continue and finish her bitcoin challenge, but the greater challenge is on all of us in the blockchain community to continually improve this technology for broader consumption.

Walmart is now selling bitcoins for $1

Walmart is now selling bitcoin for $1. But in a new spin on the volatile and ever-changing world of cryptocurrency, this digital currency is made of chocolate.

Frankford bitcoins, are 1.42 ounces of milk chocolate wrapped in gold-colored foil made by Frankford Candy. They’re reminiscent of the regular old foil-wrapped milk chocolate coins of yesteryear. But of course, entirely different because they’re called bitcoin.

Bitcoin is a digital decentralized currency that’s created and then held electronically. Frankford just added the milk chocolate.

Frankford Candy, which has been in business since 1947, is hardly the first company to see opportunity in the rise of cryptocurrencies. Who can forget Long Island Iced Tea Corp, the non-alcoholic beverage company, that saw its shares rise six-fold after rebranding itself Long Blockchain Corp? (Nasdaq delisted the stock earlier this year because the company’s market capitalization was too low.) Or adult entertainment platform CamSoda that unveiled BitCast, a product that let users pair their vibrator or other sex toy to align with their investments in Bitcoin, Ethereum, and Litecoin.

In this case, Frankford’s bitcoin is more affordable. The price of bitcoin, which surpassed $20,000 in December before plummeting, now trades at about $6,240.

Thailand is becoming a critical country for blockchain

While United States regulators are still trying to figure out how to think about cryptocurrencies, Thailand’s government is already mapping out its own central bank digital currency.

This is just one of numerous examples how Thailand has emerged as one the most interesting cryptocurrency and blockchain countries in Southeast Asia in 2018.

Since the start of the year, the Thai government has become increasingly outspoken and welcoming of cryptocurrency projects and exchanges. In just a few months, Thai regulators have made notable progress, from setting up cryptocurrency company licenses to permitting exchanges and ICOs. More importantly, the country has attracted foreign companies by providing clear and explicit guidelines for foreign blockchain companies to operate. It’s a pattern that we are seeing across Southeast Asia, and one that blockchain and cryptocurrency startup founders should take note as they think about global expansion.

Southeast Asia regulators are keen to understand cryptocurrency and blockchain 

To understand how a small country like Thailand can move so quickly in the blockchain space, it’s crucial to understand the strategy of regulators and local companies. Unlike their U.S. peers, most Asian blockchain companies and exchanges work with local regulators right from the beginning, even as they are first building their products and growing their communities. These teams use formal and informal relationships to get buy-in from their respective local governments in order to bolster their credibility. This pattern is particularly true for Southeast Asian countries such as Thailand.

However, it isn’t just startups that are trying to curry ties with government officials – these relationships work in both directions. Take for example Pundi X, which is a technology company building out a blockchain-based point of sale solution in Southeast Asia and globally. Its CEO, Zac Cheah, is Malaysian and local to the Southeast Asia region, and discussed with me how regulators are engaging with the startup community:

I think government is morphing and changing and many governments that we know are not you know exactly the ones that we say that are lagging behind. They, in fact, have like people, young or not so young people, that are very knowledgeable about what is happening right now. So in fact sometimes when we go to core blockchain meetups, we actually see some very core people from the regulatory side […] they know that this will change the landscape a lot so I think they are trying to think through the, if I may, the ‘tokenomics’ of how they want to get involved.”

No longer Thaied up in regulation

These types of regulatory engagements are encouraging signs for the region and particularly for Thailand, where regulators have been working quickly to provide a legal path for blockchain and cryptocurrency technologies.

In June, Thailand’s government legalized seven cryptocurrencies (Bitcoin, Ethereum, Bitcoin cash, Ethereum classic, Litecoin, Ripple, and Stellar). It has also permitted a limited number of cryptocurrency exchanges and broker-dealers to apply for operating licenses. Then in July, the Thailand SEC permitted additional digital token issuers to file for applications. In the same month, the securities regulator categorized ICOs into three types: investment tokens, utility tokens, and cryptocurrency. As should be clear from this timeline, the speed at which these regulators execute decisions has surpassed that of most countries in the West as well as the rest of Asia.

Part of that speed is that in Thailand, regulators have shown an openness to knowledge exchange. For example, recently the Thailand SEC held a dialogue with Vitalik Buterin and the OmiseGo team on the status of exchanges and Initial Coin Offerings (ICOs). For Thailand, having a local, knowledgeable, and well-established team such as Omise is very helpful to building a clear regulatory environment for companies.

Photo by Juan Antonio Segal used under Creative Commons.

In fact, we are seeing foreign companies already starting to gravitate towards Thailand’s crypto opportunity, with both Western and Eastern businesses seeking opportunities in the country. In early July, Bithumb, the second largest cryptocurrency exchange in Korea, announced that it plans to open in Thailand after receiving the required regulatory approval from the local government. IBM and Krungsri, one of Thailand’s largest financial institutions with 8.6mn credit cards, sales finance, and personal loan accounts, announced a five-year $140 million engagement to build out digital banking, including blockchain technology. The crypto momentum will likely continue in Thailand, and more announcements and developments should come in the second half of the year.

Not only has it become open to private cryptocurrency companies, but the Thailand government is also testing its own blockchain technologies. For example, it has allowed the Thai Bond Market Association to create a “BondCoin,” a custom token on a private blockchain between permissioned participants including issuers and investors alongside regulators and registered firms.

Then just last week, Bank of Thailand (BOT) outlined a preliminary roadmap for ‘Project Inthanon,’ its central bank digital currency (CBDC) initiative. This is following similar projects initiated by other central banks, including the Bank of Canada, the Hong Kong Monetary Authority and the Monetary Authority of Singapore. BoT plans to work with eight participating banks to start building a prototype. The announcement of Project Inthanon says: “The BOT and the participating banks will collaboratively design and develop a proof-of-concept prototype for wholesale funds transfer by issuing wholesale Central Bank Digital Currency (Wholesale CBDC).”

Phase 1 of Project Inthanon will involve development and testing of key payment features such as a liquidity-saving mechanism and risk management. It is expected to be completed by the first quarter of 2019, and its outcome will be very telling of Thailand’s progress in Southeast Asia.

Building strong local Thais?

For new companies going into the region, it may become increasingly more difficult to enter. Traditionally, a large part of doing business successfully in many parts of Asia requires forming the right connections and business relationships. As the blockchain space evolves, regulators are establishing more stringent requirements and higher standards to accept additional tokens and exchanges into the country. They’ll likely be influenced in their decisions by existing teams that they already have a relationship with. That dynamic is something cryptocurrency companies should think about as they build out their communities in Asia, as the most established countries may not necessarily provide the most opportunities.

One positive though is that we are still in the relatively early stage of adoption in Southeast Asia, and every country in the blockchain adoption phase is at different stages. A healthy competition between Southeast Asian nations is still brewing, which may benefit newcomers. That said, the strategies used to enter one of these markets will almost certainly change and mature compared to when these opportunities were very green.

In the long run, it’s very possible for many cryptocurrency and blockchain companies to develop a codependency with their respective local government. This doesn’t just apply to Thailand and Asia but to the rest of world too. Each region’s regulators will want to further advance their own interest and form allies with local token companies. So for a project that is thinking globally, forming too close of a relationship with a small set of regulators may pull the company in directions that it otherwise would not want to.

Ultimately, for a cryptocurrency company going into any foreign markets, it is important for one’s team to have a multi-country strategy to avoid developing biases and become overly influenced by one local government. However, to succeed locally, the teams on the ground will also have to be very deeply knowledgeable and experienced in understanding the business culture and regulatory environment there.

As Thailand proves, the ground is changing rapidly on which countries are most open for blockchain and cryptocurrency business, and adapting to these changing market dynamics is critical to the success of startups and companies in the space.

Security tokens will be coming soon to an exchange near you

While cryptocurrencies have generated the lion’s share of investment and attention to date, I’m more excited about the potential for another blockchain-based digital asset: security tokens.

Security tokens are defined as “any blockchain-based representation of value that is subject to regulation under security laws.” In other words, they represent ownership in a real-world asset, whether that is equity, debt or even real estate. (They also encompass certain pre-launch utility tokens.)

With $256 trillion of real-world assets in the world, the opportunity for crypto-securities is truly massive, especially with regards to asset classes like real estate and fine art that have historically suffered from limited commerce and liquidity. As I’ve written previously, imagine if real estate was tokenized into security tokens that you could trade as safely and easily as you do stocks. That’s where we’re headed.

There’s a lot of forward momentum around tokenized securities, so much so that based on their current trajectory, I believe security tokens are going to become a common part of Wall Street parlance in the near future. Investors won’t just be able to buy and sell tokens on mainstream exchanges, however; “crypto-native” companies are also throwing their hats into this ring.

The starter pistol has been fired

The race is on to bring security tokens to the masses

Because Bitcoin and other cryptocurrencies are not classified as securities, it’s been much easier to facilitate trading on a large scale. Security tokens are more complex, requiring not just capabilities around trading, but also issuance and, critically, compliance. (See more of my thoughts on compliance here.) It’s a major undertaking, which is why we haven’t seen the Coinbase or Circle of security token trading emerge yet (or seen these companies expand their platforms to address this — more on that later).

Meanwhile, regular exchanges are blazing the trail and moving into providing tokens trading. The founder and chairman of the company that owns the NYSE announced a new venture, Bakkt, that would provide an on-ramp for institutional investors interested in purchasing cryptocurrencies. Last month, the SIX Swiss Exchange — Switzerland’s principal stock trading exchange — announced plans to build a regulated exchange for tokenized securities. The trading and issuing platform, SIX Digital Exchange, will adhere to the same regulatory standards as the non-digital exchanges and be overseen by Swiss financial regulators.

This announcement confirms a few things:

  1. Most assets (stocks, bonds, real estate, etc.) will be tokenized and supported on regulated trading platforms.

  2. Incumbents like SIX have a head start due to their size, regulatory licensing and built-in user base. They are likely to use this advantage to defend their position of power.

  3. Most investors will never know they are using distributed ledger technology, let alone trading tokenized assets. They will simply buy and sell assets as they always have.

I expect other major financial exchanges to follow SIX’s lead and onboard crypto trading before long. I can imagine them salivating over the trading fees now, Homer Simpson-style.

Live shot of financial exchanges drooling over crypto trading fees

Crypto companies are revving their engines

The big crypto companies are preparing to enter the security token arena

Stock exchanges won’t have the space to themselves, however. Crypto companies like Polymath and tZERO have already debuted dedicated platforms for security tokens, and all signs indicate announcements from Circle and Coinbase unveiling their own tokenized asset exchanges are not far behind.

Coinbase is much closer to offering security token products after acquiring a FINRA-registered broker-dealer in June, effectively backward-somersaulting its way into a state of regulatory compliance. President and COO Asiff Hirji all but confirmed crypto-securities are in the company’s roadmap, saying that Coinbase “can envision a world where we may even work with regulators to tokenize existing types of securities.”

Circle is also laser-focused on security tokens. Circle CEO and co-founder Jeremy Allaire explained the company’s acquisition of crypto exchange Poloniex and launch of app Circle Invest in terms of the “tokenization of everything.” In addition, it is pursuing registration as a broker-dealer with the SEC to facilitate token trading — it could also attempt to take the same backdoor acquisition approach as Coinbase.

If there’s a reason Circle and Coinbase haven’t moved into security token services even more rapidly, it’s that there simply aren’t that many security tokens yet. Much of this is due to the lack of compliance and issuance platforms, keeping high-quality securities on legacy systems with which issuers feel more comfortable. As projects like Harbor ramp up more, this comfort gap will grow smaller and smaller, driving the big crypto players deeper into security token services.

The old guard versus the new wave

Expect a battle between traditional and crypto exchanges

This showdown between traditional finance incumbents and crypto giants will be worth watching. One is incentivized to preserve the status quo, while the other is looking to create a new, more global financial system.

The Swiss SIX Exchanges of the world enjoy some distinct advantages over the likes of Coinbase — they have decades of traditional financial operating experience, deep relationships throughout the industry and a head start on regulatory compliance. Those advantages probably mean that such incumbents will probably be the first to make infrastructural and logistical upgrades to their systems using security tokens. The first time you interact with a security token, it is likely to be through the Nasdaq.

Having said that, incumbents’ greatest disadvantage will be transporting an old-finance-world mentality to these innovations. Coinbase, Circle, Polymath, Robinhood and other newer players are better suited to harnessing the stepchange elements of security tokens — particularly asset interoperability and imaginative security design.

University of Oregon professor Stephen McKeon, an authority on security tokens, told me that “the potential for programmable securities to enable the expression of new investment types is the most exciting feature.” Harbor CEO Josh Stein explained why private securities in particular will be transformed: “by automating compliance, issuers can allow their investors to trade to the limit of their liquidity across multiple exchanges. Now imagine a world where buyers and sellers around the world can trade 24/7/365 with near instantaneous settlement and no counterparty risk — that is something only possible through blockchain.”

Those hypergrowth startups are going to experiment with these new paradigms in ways that older firms won’t think of. You can see evidence of this forward thinking in Circle’s efforts to build a payment network that allows Venmo users to send value to Alipay users — exactly embracing interoperability, if not in an asset sense.

The race is on

As Polymath’s Trevor Koverko and Anthony “Pomp” Pompliano have been saying for the past year, the financial services world is moving toward security tokens. As the crypto economy matures, we’re inching closer to a new era of real-world assets being securitized on the blockchain in a regulatory compliant manner.

The challenge for both traditional and crypto exchanges will be to educate investors about this new way to buy and sell investments while powering these securities transactions via a smooth, seamless experience. Ultimately, security tokens lay the groundwork for granting investors their biggest wish — the ability to trade equity, debt, real estate and digital assets all on the same platform.

Lolli launches to give you free Bitcoin while you shop

Bitcoin has had tremendous success as a cryptocurrency, with millions of people around the world having traded the currency through command lines and wallets like Coinbase. Yet, for all of the excitement in the space, BTC remains largely the province of technically-sophisticated finance and software junkies and their Uber drivers. How can everyone in the world use crypto?

For Alex Adelman, that challenge proved an enigma. Partnering with Matt Senter, he had previously founded Cosmic Cart, a “universal shopping cart” that would allow companies to sell their goods anywhere online. The company was eventually acquired by POPSUGAR, and acquired a second time by Ebates, a Rakuten-owned affiliate marketing platform. Adelman wanted to get into the blockchain world, but didn’t want to leave behind his network in the retail world.

After reconnecting and exploring, Adelman and Senter realized that scaling consumer demand for Bitcoin is the critical challenge for widespread adoption of the technology, and that retail rewards and loyalty could represent a port of entry for consumers new to cryptocurrencies.

Out of that thinking was born Lolli. Lolli is a rewards platform that offers users BTC when they shop at participating online retailers. Consumers install a browser extension or start from Lolli’s website to discover retailers offering crypto rewards (smartphone and tablet apps are “coming soon”). Each retailer sets their own “cashback” (cryptoback?) rate, and that BTC reward is then moved into a Lolli wallet.

Lolli allows users to receive Bitcoin for their online purchases

The company’s name is inspired by the lollipops that Adelman received as a kid when visiting his bank. The dream is to massively expand the number of consumers who have Bitcoin wallets, while also educating them on what cryptocurrency is and how to use it.

What makes Lolli compelling though isn’t the concept — loyalty in the crypto space isn’t particularly unknown nor are airdrops — but rather the deep bench of online retailers that are included right from the startup’s launch. Adelman told me that users can already shop at more than 500 retailers, including Jet, Forever21, Bloomingdales, and ClassPass, avoiding the chicken and egg problem endemic to many rewards startups.

As with all rewards and loyalty programs, there is a two-sided marketplace component that can make these challenging to scale. One interesting dynamic though is that retailers are increasingly looking for ways to engage with cryptocurrencies. Adelman explained to me that the retailers he has been talking to have been surprised at the wide excitement among consumers around crypto and what it means, and they want to use that excitement to engage with potential new customers.

Lolli’s browser extension allows users to find retailers who offer free Bitcoin for purchases

While many retailers have flitted back and forth about whether to accept Bitcoin and other cryptocurrencies as a valid payment method, there is less concern on the rewards side about the volatility of cryptocurrencies. Plus, connecting with consumers around the technology can give retailers an early look into how consumers think about their wallets, and how they might change their online shopping behaviors in the future.

In many ways, Lolli is symmetrical to another recently launched loyalty app called Bumped. Bumped partners with retailers to drive loyalty, but instead of handing out BTC, it hands out free shares (or microshares) of the stock of the company a consumer just shopped at. The idea there, as with Lolli, is that few consumers own stock these days, and rewards and loyalty can be a mechanism to drive shopping behavior while also providing an initial financial portfolio for consumers.

While gross transaction volume and user engagement are valuable themselves, what really drives the valuations of these companies is the wallet or brokerage accounts behind them. Investors highly value these sorts of gateway financial products, which is one reason why Robinhood is valued at $5.6 billion with just more than 4 million accounts. Lolli’s bet is that it can become the de facto wallet for millions of consumers.

Lolli only supports Bitcoin at launch, and Adelman is certainly a strong proponent of the view that Bitcoin is likely the one cryptocurrency to rule them all. With many more consumers potentially getting their first satoshis though, Lollis’ dream, and the dream of many crypto investors, may well have a chance to come to pass.