By Ria Bhutoria and Wilson Withiam
Know & go
- An inside look – Shop & L(earn): The crypto rewards space has received a lot of attention and support from the community — and rightly so. In our top story this week, we highlight recent announcements from three popular companies (Lolli, Fold, and Casa) offering bitcoin rewards and outline their similarities and differences.
- Insights – The great Ethereum funding debate: The discussion of EIP-2025 on a recent core dev call sparked a heated debate within the community. In this piece, we explain why and highlight alternative, less contentious funding models.
- ICYMI – 2Q19 Crypto Retrospective: We published a comprehensive review of the second quarter in our 2Q19 Crypto Retrospective last Friday.
- Three things to know: (1) Square bitcoin sales nearly double q/q (2) Zooko Wilcox, founder of Zcash suggests extending dev funding from block rewards (3) UK’s Financial Conduct Authority (FCA) finalized crypto asset guidance.
- Market snapshot: Total crypto market capitalization is around $271.2 billion at press time. BTC is trading at $10,454 (up 8.9% w/w), ETH is at $217 (up 1.8% w/w). BVOL (the rolling 30-day annualized Bitcoin volatility as calculated by BitMEX) is 97.3%, down from 112.1.3% last week. (8/2 12:45PM ET)
An inside look: Crypto rewards
The crypto rewards space has received a lot of attention and support from the community — and rightly so. Companies offering bitcoin rewards for conducting everyday activities like shopping aim to increase interest in and adoption of bitcoin. Multiple crypto companies have made announcements in the past month, which compelled us to write about a few options available and how they compare.
We’ll start with Fold’s Kickbacks announcement this week. Fold is a startup that is working on improving cryptocurrency payments at traditional retailers like Starbucks, Amazon, Target and more. The team rolled out ln.pizza earlier this year to show users the power of Lightning payments (see Connor Dempsey’s write up on the process of ordering pizza through the service). To summarize, users place an order through the ln.pizza portal, making a payment over the Lightning Network. Fold then pays Domino’s in fiat on behalf of users.
This week, the company rolled out Fold Kickbacks, a bitcoin-denominated rewards program that gives users up to 20% back on a purchase made on the Fold portal in-store or online (as we understand it, the startup does not have an app – users access the interface through a web or mobile browser). Fold suggests that users can combine Kickbacks with other sales or offers the retailer or some other third-party service provides, allowing them to compound rewards they receive on a given purchase.
In order to receive Kickbacks, users must buy credits (in the form of a gift card or prepaid card) to a retailer partnered with Fold using bitcoin or Lightning Network. Fold receives discounts for “introducing new customers, lowering processing fees and reducing exposure to charge-backs for merchants,” which it shares with its users. Existing retail partners include Amazon (3.5%), AMC (5%), Starbucks (10%) and Burger King (20%) among others. The company also offers incremental rewards to power users through Boost. The caveat is that users can only earn sats (short for satoshis) if they spend their bitcoin – as it stands, there’s no way to earn Kickbacks without already holding bitcoin. Unlike alternatives, users have to either (1) take the additional step of acquiring bitcoin or (2) decide to part with the bitcoin they already hodl. Also, Fold does not currently allow users to withdraw their sats to a personal wallet, though the team hinted that it may roll out this functionality soon.
Lolli was the first company to make a splash in the bitcoin rewards space. It launched in September 2018 with 500+ retail partners and now boasts over 900 retailers where users can earn sats back. Top merchants include Walmart/Jet, Sam’s Club, Adidas, Sephora, Priceline and many more. The team raised $2.25 million in a seed round in November 2018. Lolli has been on a tear announcing partnerships. The company most recently announced a partnership with Safeway (up to 3.5% back) and Udemy (up to 18% back) and also mentioned that it is working on a mobile app. Prior to Lolli, Alex Adelman (the CEO) founded Cosmic, a company that was eventually acquired by Ebates (the biggest cash-back company in the US), a program that Lolli is modeled after.
Lolli’s mission is to make bitcoin more accessible and improve/diversify its distribution. The team believes one of the best ways to do so is to allow people to earn bitcoin by doing an everyday activity – shopping online. Once someone receives sats in their Lolli wallet for checking out as they normally would, the idea is that they are more inclined to explore, learn, and share their findings about bitcoin. Lolli’s retailer partners pay the company a commission for directing shoppers to their store via the Lolli extension (available on Chrome, Firefox, and Safari) or via Lolli’s website. The extension notifies users when they are on a partner site, similar to Ebates. Lolli keeps a portion of the fee for itself and converts the remainder to bitcoin and sends it to a user’s Lolli wallet. The user can either accumulate sats in Lolli’s custodial wallet, transfer it to their personal wallet, or convert their bitcoin rewards to USD once the value of rewards reaches at least $15 (though hodling is recommended 🙂).
Unlike Fold, Lolli users do not need to buy and spend bitcoin to earn bitcoin – they pay using traditional payment rails. Lolli wants to make it as easy as possible for any shopper to earn bitcoin without having to go through the still quite tedious process of buying bitcoin, which entails setting up an account at an exchange, doing KYC, depositing funds, transferring bitcoin from one wallet to another, and so on. Users do not need to do KYC to use Lolli. One thing shoppers should be aware of is that, in most cases, they cannot use Lolli in conjunction with other promotions. Additionally, users only receive their rewards after the return period (up to 90 days for some retailers) has closed. Users have earned ~$26 in rewards on average to date.
Casa is a recent entrant into the bitcoin rewards arena. The privacy-focused provider of self-custody and key management products and services rolled out its SatsBack rewards program last month. Users can earn satoshis via SatsBack by interacting with Casa’s new Sats App or and other Casa products. Sats App, now available in private beta for iOS and Android, operates as a mobile, non-custodial wallet that provides a remote connection to individual Casa Nodes so customers can manage their Lightning Network channels and associated payments. Casa designed the new app to leverage the Tor Network, a communication network that obfuscates user IP addresses by default, to establish the connection between mobile device and Lightning node. The company claims using Tor simplifies what is a technically intensive setup process and does so while offering users an added layer of privacy. By integrating SatsBack in Sats App, Casa can incentivize both the crypto-curious and tech savvy to start operating full Bitcoin and Lightning nodes on Tor to help support and secure the Bitcoin network in a private, self-sovereign manner. For instance, the first SatsBack features a 20,000 satoshi reward for linking Sats App to a Casa Node connected to Tor.
Unlike Fold and Lolli, Casa products are all non-custodial. The company’s mission is to put financial control and security back in the hands of users, and democratize participation in the Bitcoin network. SatsBack fulfills this goal by making bitcoin more accessible (earning rather than purchasing on an exchange — an attractive proposition to those new to Bitcoin) and encouraging users to graduate all the way to managing a Bitcoin and Lightning node. However, in Casa’s effort to increase adoption, satoshi rewards will not be limited to Casa Node owners — though SatsBack may favor those that do run nodes. According to Casa CEO Jeremy Welch, “you will be able to earn bitcoin if you don’t have a Casa node, but you will be able to earn bitcoin faster if you have a node.” The company also announced future plans to offer SatsBack rewards in its recently rebranded Sats Extension (formerly Casa Extension), an extension that allows users to control their Casa Node directly through the browser.
The Lolli team highlights that 8 out of 10 Americans shop online and reports that 40% of Lolli users are new to crypto. The upfront cost of earning rewards is zero, which incentivizes participation because users have nothing to lose. Once they have some sats in their wallet and see the value of their rewards fluctuating over time, they may be more inclined to understand why and learn more about bitcoin and eventually other crypto assets — however, we have yet to see apps offering rewards in other crypto assets, possibly due to the uncertain regulatory environment for crypto assets other than BTC and ETH. Bitcoin rewards programs such as Lolli, Fold, and SatsBack, among others, have the potential to expand the distribution of bitcoin to an entirely new group of users. By doing so, these programs can increase general bitcoin awareness, interest, and adoption and that’s a big positive for the space.
Weekly market snapshot
In other news
- According to data from MakerScan (a MakerDAO explorer built by InstaDapp), more CDPs have been created on MakerDAO in the last week than the previous 11 months (h/t Balaji Srinivasan). This spike in CDP activity is likely due to Coinbase Earn launching a new lesson on July 26 that rewards users with $14 worth of DAI for opening a CDP with MakerDAO. Source.
- Vision Hill Group rolled out its proprietary Active Crypto indices, which the team created to serve as non-investable reference indices that provide insight into the crypto and blockchain hedge fund ecosystem. These are an extension of Vision Hill’s in-depth quarterly benchmarking reports. Source.
- Crypto venture capital firm Placeholder announced a new and less manipulable relative valuation metric for smart contract platforms: Network Value to Token Value (NVTV). The NVTV ratio is calculated by dividing the current network value of a smart contract platform by the total value of all assets launched on that network. Similar to PE or PS ratios in stocks, the higher the value of NVTV, the more the market might be overvaluing that asset. Source.
- Ripple’s latest report states the company sold $251.5 million worth of XRP in 2Q 2019, up 50% q/q and highest quarterly total that Ripple has ever sold. Of this total, $106.9 million was sold directly to institutions and $144.6 million through programmatic sales. Source. The company has now sold a cumulative total of $1.14 billion of XRP, with the majority of those sales going to institutions. Source.
- Crypto wallet provider Abra announced it will start restricting its U.S.-based customers starting August 29, citing regulatory uncertainty as a reason for the impending changes. U.S. users will be geoblocked from holding QTUM, BTG, EOS, OMG and SNT tokens. Further, residents of New York will no longer be able to use ACH, wire or American Express card payments for deposits or withdrawals. Source.
- Microsoft introduced an open source implementation for Ethereum to make machine learning models more accessible. Microsoft’s solution intends to put these models into smart contracts so they can be accessed or updated on-chain and used by interested parties off-chain (avoiding any further transaction costs). Source. (h/t Eric Conner)
- Tether (USDT) launched on Blockstream’s Liquid Network, a federated Bitcoin sidechain designed to offer accelerated transaction throughput that is ideal for traders. As a result, users can now carry out atomic swaps between L-BTC (Liquids native token and BTC price equivalent) and L-USDT, a feature believed to “offer lower counterparty risk for those carrying out OTC trades.” Source.
- Zcash founder Zooko Wilcox is petitioning the Zcash community to create a new “Dev Fund” to support continued development on the network. The current Zcash system features a Founder’s Reward, which allocates a portion of block rewards to pay network developers and early investors (80% to miners, 20% to the Zcash Foundation). The Founder’s Reward was intended to be removed about four years after launch at Zcash’s first halving (scheduled for next year). The new “Dev Fund” proposal would extend the allocation of coins from block rewards to network developers beyond the intended 4 year mark to provide continued support for core development. Source.
- In its second-quarter earnings call, Square reported bitcoin sales through its Cash App nearly doubled sales q/q to $125 million. The growth is notable considering Square’s bitcoin sales reached a (previous) record of $65.5 million last quarter and totaled $166 million for the last 4.5 months in 2018. However, according to an analysis by The Block, the reported bitcoin trading volume across other U.S. crypto exchanges increased significantly more than on Cash App. Source.
- LedgerX announced the crypto derivatives trading firm launched the first physically-settled bitcoin futures earlier this week, only to retract the claim a few days later after the CFTC said it had not yet approved the exchange’s offering. According to the firm, LedgerX is approved as a designated contract market (DCM) but has yet to receive CFTC approval on an amendment to LedgerX’s derivatives clearing organization (DCO) license that would enable it to clear futures. With that said, a CFTC official stated LedgerX’s DCO application “appears to be in the very final stages of the approval process.” Source.
- Crypto data provider Digital Assets Data raised an additional $3.2 million in seed funding led by venture capital firm North Island Ventures with participation from Morgan Creek Digital, Digital Currency Group and Ikigai Asset Management. Digital Assets Data launched its platform in April with the support of $6 million Digital Currency Group, Galaxy Digital and Morgan Creek Capital Management, among others. Source.
- Stock and cryptocurrency trading app Robinhood raised $323 million dollars in it latest funding round, valuing the company at $7.6 billion. The round was led by DST Global, with participation from Ribbit Capital, Sequoia, Thrive Capital and NEA. Source.
- Helis Network secured $500k in seed funding from NGC Ventures, Obsidian Capital, Black Edge Capital, among others. The Singapore-based firm is aiming to build entreprise-grade accessibility to DeFi applications so larger companies can leverage decentralized protocols for payroll, borrowing or loaning assets and derivatives trading functions. Source.
- Switzerland-based startup Smart Valor raised $3.25 million led by Venture Incubator, with participation from Tally Capital and other individual investors. Smart Valor, which received regulatory approval to operate as a financial intermediary in Switzerland last year, is aiming to launch a new exchanged that will provide custody, trading and brokerage services. Source.
- Multicoin Capital led a $20 million Series A for base-layer blockchain network, Solana. Additional participation included Distributed Global, Blocktower Capital and Foundation Capital, among others. Each investor received SOL tokens, the native token for the Solana network, in return. Solana is a PoS blockchain that claims to process over 50k transactions per second, and the team intends to use the newly secured funds to bolster its engineering and project management talent as it prepares for mainnet launch later this year. Source.
- Sony Financial Ventures and NKB Group led a €13 million (~$14.5 million) Series A for blockchain banking service, Bitwala. German-based Bitwala offers a bitcoin wallet and trading services as well as the ability to trade bitcoin directly out of a bank account since it leverages services by solarisBank. The funds will be deployed towards new hires, growing the firm’s customer base and adding new account for businesses. Source.
- Kraken acquired Interchange, a firm that provides crypto asset management services, such as accounting, reconciliation and reporting, for businesses. With the acquisition, Kraken hopes to entice institutional investors by offering better tools to manage and report their crypto portfolios. Interchange co-founder Dan Held will be joining the Kraken team as Head of Business Development. Source.
Global regulatory roundup
- The U.S. SEC issued a no-action letter to Pocketful of Quarters (PoQ) so the gaming startup can sell its Quarters token without registering them as securities. The Ethereum-based token is a stablecoin with PoQ as the only seller. This is the second no-action letter the SEC has issued to a company seeking to launch a token sale — the first was granted in April to business-travel startup TurnKey Jet — and is the first to be awarded to an ERC-20. The no-action letter also states PoQ must ensure Quarters cannot be transferred to non-approved accounts outside of its game system, though they can be transferred to third party developers (after meeting KYC/AML requirements) within the PoQ network. Source. For a high-level analysis of the no-action letter and associated requirements, see this thread from Marco Santori.
- In a recent panel reporting to the India’s regulators, the Finance Ministry appeared to be open to discussing a government-controlled cryptocurrency as well as the use of distributed ledger technology for specific purposes, such as maintaining land records. At the same time, the country’s regulators condemned the use of sovereign cryptocurrencies and proposed penalizing general crypto users in India via fines or up to 10 years in prison. Source.
- German startup Fundament received approval from BaFIN, Germany’s financial regulator, to issue a tokenized real-estate backed bond to individual investors. Since the effort is considered regulated, the 280 million (~$280 million) offering will be open to any retail investor and will not be accompanied with a minimum investment restriction, though any investors will need to comply with KYC/AML policies. The token itself will be launched under the ERC-20 standard. Source.
- The U.S. Department of Treasury is suing the now-defunct BTC-e crypto exchange and its owner to recover the $100 million worth of penalties imposed by FinCEN for allegedly violating the Bank Secrecy Act. The Cyprus and Seychelles based exchange was accessible by U.S. customers for crypto trading but made no effort to register with FinCEN, uphold any AML policies or report suspicious activity. Source.
- The U.K. Financial Conduct Authority (FCA) finalized its guidance on crypto assets. The guidance was first proposed back in January, when it was released for public comment. The final guidance does not offer anything drastically new, but it helps specify when certain types of crypto assets fall under existing categories. For instance, bitcoin and ether are classified as “exchange tokens,” and thus are not regulated – though subject to AML policies. Source.
What we’re reading
- Gradually, Then Suddenly by Parker Lewis (Unchained Capital)
- The different uses for bitcoin by Linda Xie
- MIT DCI Working Group on Tokenized Securities by Manasi Vora
- The State Growth Problems Facing Blockchains by Richard Chen
- Rise of the New Crypto Mafia by Ash Egan
- Unbundling Vectors of Centralization in Web3 by Kyle Samani
- Ethereum: The Digital Finance Stack by David Hoffman
- The World is Waking Up to Bitcoin by Gigi
- It’s the settlement assurances, stupid by Nic Carter
- Privacy and Cryptocurrency, Part III: Should You Use a Privacy Coin? by Eric Wall
- Incomplete Contracts (and Scaling Crypto) by Jesse Walden (a16z)
- The Invention of Money by John Lanchester
- Sovereign (Crypto) Networks by Joel Monegro (Placeholder)
- Bancor Raised $153 Million and Found Actual Users. Why Did Its Price Tank? by Leigh Cuen
What we’re listening to
- Unconfirmed: Jeremy Allaire on Why the US Government Needs a New Category for Digital Assets
- What Bitcoin Did: Pieter Wuille on Building Bitcoin
- Unchained: LedgerX on the Reasons to Trade Bitcoin Options
- Chain Reaction: Educational Series Part 1 – Distributed Consensus with Dan Zuller
- Base Layer: Dan Elitzer & Ian Lee (IDEO CoLab)
- Epicenter: Moloch DAO – A Simple Yet Unforgiving DAO to Fund Ethereum Development
- Into the Ether: Improving and Funding Ethereum’s Application Layer
- Blockchain Insider: Libra: The downfall of western civilisation?
- Tales from the Crypt: Richard Myers
Circle in the news
- We released our 2Q19 Crypto Retrospective report on Friday, reviewing the top trends, market performance and critical blockchain and token data insights seen over the last 4 months.
- Circle is expanding its global offerings with the launch and regulatory licensing of a new subsidiary in Bermuda.
- U.S. Senate held a hearing this past week to discuss potential regulatory frameworks for crypto assets and blockchain. In the hearing, Circle CEO Jeremy Allaire testified before the Senate about the need for clear regulation for digital assets.
- Jeremy Allaire joined Bloomberg to discuss his congressional testimony on the regulation of blockchain technology and cryptocurrencies.
Where we’ll be in August
- TPI Aspen Forum, Aspen, CO, 8/18-20
- Blockchain Summit Singapore, 8/20