We are excited to ask Johan Eleveld, Chief Marketing Officer of Deribit, 5 questions. He brings years of legal and creative power to the Deribit team. Get to know a little bit more about Deribit with Johan in this edition of “5 Questions”.
Questions & Answers
Q: First of all congratulations on your transition to Deribit as CMO. Can you give us a little background about where you’re coming from and how you got involved with crypto fintech?
Johan Eleveld: After finishing law school, I started working as a creative in advertising for over 15 years. John Jansen (our founder and CEO) is a long time friend of mine. He told me around 2014 that he would build the first crypto derivatives exchange in the world. That’s how I got involved.
Q: A driver of rapid growth for Deribit was delivering a stable and performant trading platform during a time where volatility would take an infamous competing platform offline. How do you see Deribit continuing to achieve strong user growth?
Johan Eleveld: We will always be focusing on being the most technologically advanced platform. Crypto derivatives are complex products. One way to achieve user growth is to get more people interested by explaining our products better through education, hence our extensive free options course. Another way is to add less complex products to our portfolio in the near future.
Furthermore, from a development perspective, we will remain focused on continuous performance increases facilitating further user and messages per second growth and platform stability.
Q: How should trading platforms like Deribit aim to drive efficiency while at the same time staying ahead of the curve with innovation? Is it possible to do both?
Johan Eleveld: We deliberately choose to keep our team relatively small. We believe that we have a good balance between enough innovation power and enough agility to be efficient. We like to see ourselves as a small but robust ship.
Q: We’ve seen powerful regulating bodies around the world clamp down on cryptocurrency trading in unison. Why should Deribit’s former and prospective clients embrace KYC/AML during the maturation of the cryptocurrency industry?
Johan Eleveld: I think that it’s a natural evolution. Mr Benz invented the car, and afterwards, there became a need for traffic rules. We have many big institutional clients, and no one left because we voluntarily introduced a strict KYC/AML. Our new clients wouldn’t join Deribit if we didn’t have these strict rules. Over time we have expanded our KYC/AML requirements and monitoring and we recently announced to join Veriscope to be able to abide by Travel Rule requirements. When you’ve been driving in a busy country with hardly any traffic rules, you’ll learn to appreciate them.
Q: It was not too long ago anything crypto related would fall under a global advertising ban on the majority of traditional marketing channels. What marketing challenges do you see Deribit facing in the next 6 months?
Johan Eleveld: That isn’t easy to predict. We are based in Panama, and this week Gabriel Silva unveiled a bill to make Bitcoin a legal tender in Panama. If crypto gets more accepted by governments over time, the marketing challenges will also slowly disappear.
Our former CEO Andras Caron chose not to do aggressive marketing but relied on a reverse solicitation model where the client comes to us instead of the other way around. A wise decision. Deribit always focused on the product, education and things like excellent customer support. Some competitors may have grown faster, but got into a lot of problems also. We will try to be on the safe side, no need to poke the bear with a stick.
Deribit was founded in Amsterdam in 2016. It is a global cryptocurrency derivatives platform and the leading crypto options exchange by volume and open interest. High matching engine capacity, low latency, advanced risk management, and high liquidity make Deribit a unique industry player that has been tested by time and trusted by its users. It offers numerous futures and options products and is among the top crypto derivatives exchanges in the world.
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The concept of how stablecoins work is not difficult to understand. Simply put, they aim to combine the best of both worlds: the decentralized operational model of cryptocurrencies and the price stability of fiat currencies.
In this article, we’ll cover all you need to know when talking about stablecoins: methods under which they operate, the mechanisms that stablecoins use in doing so, as well as the limitations from the perspective of a potential stablecoin user. What makes stablecoins stable? Which ones are the most popular? Let’s see.
How Do Stablecoins Work?
In a nutshell, stablecoins are digital currencies created to mirror the value of a particular currency, like a fiat currency (USD or EUR, for example). As they’re run through the blockchain network, users can transfer stablecoins quickly and securely worldwide while preserving the same price. Bitcoin, Ethereum, and other altcoins have evidently made a firm basis in the investment ecosystem in less than a decade.
Yet, their sharp volatility prevents them from being a well-suited payment method for daily transactions. That being said, despite the growing number of services that allow Bitcoin payments, its value can rapidly grow or drop between two clicks, leading to a drastic shift in the price of the good or service you intend to buy. In other words, cryptocurrencies did open a thrilling marketplace, but concerning usability, they are still uncertain grounds. This is where stablecoins enter the picture, as they tend to peg their value to an external reserve asset.
Stablecoins handle sharp fluctuations by tethering the cryptocurrency value to other, more persistent assets, most frequently fiat money. The team behind the stablecoin does so by setting up a “reserve” where it keeps the backup asset. Accordingly, the reserve is nothing but a regular central bank that matches the amount of circulating stablecoins. These are the most common ways of how stablecoins achieve that.
The most widely spread stablecoin type is the one that is tied to a fiat currency with a ratio of 1:1. They are usually referred to as fiat-collateralized stablecoins, supported by a central issuer (usually a bank) that holds a particular amount of fiat money in reserve while issuing a proportional amount of tokens.
For example, the issuer possesses 2 million dollars and distributes the same number of tokens with a value of 1 USD. Users can afterward trade with and withdraw this stablecoin, in the same manner they do with any other cryptocurrencies or tokens – according to the rules each cryptocurrency marketplace or trading platform sets up individually.
It’s important to mention that you should find a well-established, trustworthy issuer. There is no way for you to know whether the issuer really holds the money. Tether (USDT), BUSD (Binance native stablecoin), and TrueUSD are some of the most reputable fiat-collateralized stablecoins on the market.
As their name suggests, crypto-backed stablecoins are tethered to other cryptocurrencies. They have a fiat-backed counterpart since the crypto reserve itself is subject to short-term volatility as well. More specifically, these stablecoins are “over-collateralized” meaning that a huge number of cryptocurrencies serve as a reserve for issuing a smaller number of cryptocurrencies.
For instance, $1,000 worth of Ether can be stored as a reserve for issuing $500 worth of a stablecoin allowing up to 50% shifts in the reserve currency (Ethereum, in this case). DAI is the most widely spread example of this type. It is primarily pegged against the U.S Dollar, allowing other crypto assets to use it as a reserve.
In order to acquire such a stablecoin, you’ll need to lock your cryptocurrencies into a contract issuing the token. So, to obtain your collateral back afterward, you’ll pay stablecoins within the same contract, with some calculated interest.
Algorithmic stablecoins are mistakenly referred to as non-collateralized as they aren’t pegged against any other fiat asset nor another cryptocurrency. However, they reach a peg by algorithms and smart contracts that supply the issued tokens. So, if the price happens to drop below the price of the fiat currency in which the algorithmic stablecoin is tracked, the system will automatically reduce the supply. Basecoin (dollar-pegged) is a typical example that uses such a technique to adapt the supply of tokens.
Most Influential Stablecoins
Launched in 2014, Tether is the first thing that comes to mind when talking about stablecoins. Since the very beginning, Tether has been one of the overall leaders on crypto chart trackers measured by the market cap. You needn’t go further than how frequently it’s offered as an underlying party in trading pairs on the majority of relevant crypto exchanges. The main role of Tether is the fast transferring of funds between exchanges so users can benefit from the arbitrage offers occurring when the cryptocurrency price is different from one exchange to another. Furthermore, Tether helps users keep record of their investments and convert them without going through Bitcoin first.
Recently, some suspicious signals were raised by experts about the legitimacy of USDT, which was followed by several lawsuits against the Tether parent company BitFinex. However, it doesn’t seem to have affected its popularity to any notable extent.
Dai was designed in 2015 as a stablecoin on the Ethereum blockchain that runs on the MakerDAO protocol. It’s pegged against the US dollar and cryptocurrency-backed by Ether. Dai is the asset that MakerDAO users borrow and repay, created when a loan is pulled out on MakerDAO.
Dai is the only stablecoin that can be entirely defined as a widely used, decentralized model, which means that no centralized authority will conduct the transaction system. Accordingly, it will be automatically executed by Ethereum smart contracts.
Diem is a product of Facebook and you may have heard about it under its original name, Libra. The greatest digital influencer, Mark Zuckerberg, decided to take part in the crypto scene by launching a stablecoin, which has become influential even before its release. Yes, you read well: Diem hasn’t been released yet, but its introduction to the public is impatiently expected any moment now. From what we’ve known so far, Diem is meant to be backed by several currencies including EUR and US. Diem’s launching has been delayed due to international regulatory issues, but this ambitious Facebook project is speculated to make a boom with an updated idea to develop multiple stablecoins, matching individual national currencies.
Even though stablecoins are an outstanding support in the smooth running of the blockchain industry, there are still some limitations in the way of public acceptance. If you analyze the first stablecoin type we spoke of – fiat-collateralized stablecoins – you will easily conclude that they’re far more centralized than regular cryptocurrency, with a central(ized) authority as the main holder in their issuing. Crypto-collateralized and uncollateralized stablecoins, on the other hand, require a technical background in the source code and complete trust in the wider DeFi community, but they’re definitely closer to the decentralized model of crypto. All in all, they’re a relatively new field and their moments of glory are yet to come.
Wrapped Bitcoin, known as WBTC, is an innovative way of bridging Bitcoin, the world’s most popular cryptocurrency, with Ethereum-friendly DeFi and Dapps. Simply put, Wrapped Bitcoin allows you to explore opportunities created by different blockchains without selling your Bitcoin.
We prepared a guide that will help you to understand what Wrapped Bitcoin is, how it works, and the benefits of using WBTC.
How Does Wrapped Bitcoin Work?
Wrapped bitcoin is not really Bitcoin. It is an ERC-20 token based on the Ethereum network. Wrapping is a way of converting your BTC to WBTC and vica-versa. 1 WBTC is always equal to 1 BTC, which means you can convert your BTC to WBTC and reverse it easily without changing the number of coins you hold or the value of your Bitcoin assets.
You might think that wrapped bitcoins are not very special. After all, you can always sell your Bitcoin and buy Ether (ETH) to use for Dapps and Defi. What is the difference? Well, the neat thing about wrapped Bitcoins is that you don’t actually have to sell your BTC. Instead, your Bitcoin funds are held in reserve by a custodian which allows you to exchange your WBTC to BTC at any time without worries.
Converting BTC to WBTC is a fairly transparent operation. A protocol known as proof-of-reserve verifies that 1 WBTC is minted for 1 BTC that is being reserved by custodians. The custodianship was originally started by BitGo, Ren, and Kyber, and now it is maintained by the WBTC Decentralized Autonomous Organization (DAO), which has multiple members representing different organizations.
WBTC is backed by Bitcoin.This means that when 1 Bitcoin is reserved, 1 WTBC is minted through the blockchain. Conversely, when a token is redeemed for 1 Bitcoin, the token is “burned” to prevent re-use. Blockchain transparency makes it possible to verify minting and burning operations. WBTC custodians regularly perform audits to provide transparency and secure the public’s trust.
WBTC is a two-for-one solution. Since most DeFi apps are based on the Ethereum Network, the introduction of WBTC allows Bitcoin owners to participate in the decentralized finance (DeFi) and decentralized application (Dapp) markets, without having to sell their Bitcoin. Since Bitcoin is the most widely used cryptocurrency in existence, the interoperability of Bitcoin with Ethereum-based assets delivers a much-needed liquidity to DeFi and Dapp markets.
How Is Bitcoin Converted to Wrapped Bitcoin?
The process of “wrapping” bitcoins is initiated once a Bitcoin user requests WBTC, the special ERC-20 token, from a merchant in exchange for BTC. After receiving this request, the merchant verifies the identity of the Bitcoin owner and sets up a transaction with the custodian. The custodian is authorized to mint the new WBTC tokens. The merchant receives the newly minted WBTC, and sends the BTC to the custodian. In the last step, the merchant and the Bitcoin owner trade the BTC for WBTC either through a centralized cryptocurrency exchange or by performing an atomic swap.
In order to convert WBTC to Bitcoin, another request is made to the merchant. The Bitcoin owner receives the same number of bitcoins they traded and the WBTC is sent to the merchant. The used WBTC is then “burned” on the blockchain, which means it is deducted from the merchant’s account, reducing the total number of WBTC on the network.
How to Buy WBTC
In order to buy WBTC, you need an account on a cryptocurrency exchange site that supports Wrapped Bitcoins. Pick a trustworthy exchange with a good reputation to open an account if you don’t already have one. Buy or deposit Bitcoin to your account. With Bitcoin in your account, you can order WBTC through these exchanges.
You might want to get a software or hardware wallet to transfer your WBTC token from the exchange wallet it arrives at. This will be the safer storage option for security purposes.
Note that it is possible to swap the Ethereum tokens you already own for Wrapped Bitcoin using a decentralized exchange service.
You pay merchant and custodian fees for converting BTC to WBTC. You can check the fees on the exchange you are using to convert Bitcoin to Wrapped Bitcoin.
What Are the Benefits of Wrapped Bitcoin?
The DeFi market has grown exponentially since its launch, paralleling the ubiquitous rise of Bitcoin in the last years. However, Bitcoin and DeFi Markets each grew separately from one another, and often have been compared to each other as competitors. Intense market speculation agitated the rivalry between Ethereum and Bitcoin supporters and fed the maximalist perspectives that predicted total domination of the market by their favored blockchain.
With the introduction of Wrapped Bitcoin, the rivalry between the Bitcoin and Ethereum blockchains turned into a collaboration that benefits both sides. Thanks to WBTC, decentralized exchanges and DeFi applications gain much needed liquidity resources from Bitcoin users. On the other hand, Bitcoin holders who are reluctant to sell their digital assets are now able to engage in decentralized finance and earn interest without losing their bitcoins. Since the introduction of Wrapped Bitcoins, more and more merchants and exchanges have started to accept WBTC. A new and fruitful ecosystem of finance is growing out of this collaboration.
One particular advantage WBTC has over Bitcoin is speed. Wrapped bitcoins transactions are accomplished through the Ethereum blockchain. The Bitcoin blockchain validates a new block of transactions every 10 minutes on average, while Ethereum is able to validate a block every 15 seconds. This means that WBTC transfers take a shorter time compared to Bitcoin transactions.
What Can You Do With WBTC?
WBTC is one of the largest and fastest growing digital assets. Once converted, wrapped bitcoins can be used for numerous Dapps. The DeFi market provides many opportunities for WBTC holders.
You can use WBTC as collateral to borrow crypto loans from DeFi platforms thanks to smart contracts.
Another possibility is to put WBTC to decentralized lending pools. WBTC brings precious liquidity to lending pools and holders are able to make interest on their investments.
There are also liquidity pools which accept WBTC. You can deposit WBTC to these pools for yield farming. There is a higher risk to these operations, but the payouts are much more rewarding.
You can also margin trade with WBTC on decentralized derivative trading platforms. These exchanges are non-custodial and work through smart contracts that ensure the security of funds during trades.
A Few Words Before You Go…
Wrapped Bitcoin is an innovative solution that allows Bitcoin holders to participate and bring liquidity to decentralized finance operations. It links Ethereum and Bitcoin, two of the most popular blockchains in the world, and facilitates the growth of DeFi operations in general. Bitcoin holders have the opportunity to explore the Dapp and DeFi platforms rising on the Ethereum blockchain without having to sacrifice their digital assets.
The transparency provided by WBTC Community and WBTC DAO make this a trustworthy alternative to cryptocurrency trading between ETH and BTC. Bitcoin holders can easily swap Bitcoin for Wrapped Bitcoin to make investments and earn an interest. They could also use it to borrow loans from DeFi platforms for their businesses. The opportunities for WBTC grow rapidly, as more exchanges and merchants start to accept WBTC. If you are a Bitcoin holder and you want to dip your fingers in the DeFi and Dapp markets, but you don’t know where to start, Wrapped Bitcoin is an excellent choice to test the waters.
We are excited to ask Matt Mamigonian, Business Development Manager of Bitstamp, 5 questions. Matt is no stranger to finance as he holds a Master of Science with a major in Finance, including Series 7 and 63 FINRA licenses. Get to know a little bit more about Bitstamp with Matt in this edition of “5 Questions”.
Questions & Answers
Q: Bitstamp holds the title of longest standing crypto exchange, and similarly we are the oldest crypto trade automation product dating back to late 2013. How does being a veteran in the crypto space influence the business relationships and social responsibility that Bitstamp pursues?
Matt Mamigonian: Being the longest standing exchange globally means we have the responsibility of providing a mature approach to the way we run our business and the relationships we pursue and maintain. We work with an incredibly large number of clients globally and ensure that security, reliability, and ease of use are all at the forefront of the client experience. Finally, since we operate with a compliance first approach, global regulation and operating within the letter of the law is of utmost importance.
Q: With your background at J.P. Morgan, BNY Mellon, and currently Bitstamp, do you see cryptocurrency fintech replacing traditional investment vehicles and infrastructures that you previously worked with?
Matt Mamigonian: To say that I am bullish on crypto would be an understatement. The current total market cap of the asset class currently sits at about $2.1 Trillion, which is less than the market cap of Microsoft or Apple. Traditional financial infrastructure will be disrupted, the capital raising process will look different, and more value will accrue to the end users and not the rent seekers. Capital markets will truly become global in nature and we haven’t even seen more than 1-2% of what this space is capable of achieving.
Q: Bitstamp boasts over 4 million clients; it’s known that whales and professional traders choose to trade with Bitstamp. In your opinion, will Bitstamp need to offer new products, like derivatives or margin trading, to compete with other growing trading platforms?
Matt Mamigonian: I believe that we will need to continue to innovate, add products and services, and expand our platform to keep our current institutions and clients happy as well as win more business. We continue to look at new products and services to offer – within the regulated framework we operate – and derivatives, futures, and options could be considered. We currently offer a margin product in partnership with Silvergate Bank and we have onboarded many firms who are using it day in and day out.
Q: Being in business development, you have a lot of conversations with startups and established companies in crypto fintech. Are there any themes that stand out over the past 6 months? How has your role changed?
Matt Mamigonian: There are a few themes that stand out. Startups and fintech players are seeking to more natively build crypto into their product at launch vs. adding features after they’ve been established. They want to build more natively in crypto – and want that to be the foundation or building blocks of their product or service. It’s become much more accepted, and dare I say, mainstream then it was a few years ago as well. Another theme would be building certain products and services to fit a market – or said differently – localizing a product. My role hasn’t changed that much in the last six months; however, I would say it’s only expanded and now encompasses a larger variety of incumbents.
Q: Are there any new partnerships, sponsorships, or projects with Bitstamp that are coming up that you’re excited about (and can publicly share)?
Matt Mamigonian: The next few months are going to be incredibly busy for us and there isn’t anything I can formally announce right now. The best way to follow us would be our Twitter Handle @Bitstamp or our Blog!
Bitstamp is the world’s longest-running cryptocurrency exchange, continuously supporting the crypto economy since 2011. With a proven track record and mature approach to the industry, Bitstamp provides a secure and transparent trading venue to over four million individuals and enables a range of institutional partners to enter crypto markets through their time-proven infrastructure. Whether it is through their intuitive web and mobile apps or arsenal of industry-leading APIs, Bitstamp is where crypto enters the world of finance.
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Uniswap is a completely different concept from regular crypto exchanges like a Coinbase or Binance. This is of course because it is a completely decentralized crypto exchange that runs on the Ethereum blockchain. Most crypto exchanges are centralized, meaning that there is an authority that oversees development, transfers, users, and user activity.
On Uniswap, users are able to swap tokens with nothing more than an Ethereum wallet. As part of the Decentralized Finance (DeFi), Uniswap runs on the Ethereum blockchain and supports decentralized token swaps. It’s basically an interlock of computer programs along with unicorns (yes, unicorns) that make trades possible. Ethereum tokens can swap assets directly or lend their crypto to the liquidity pools and earn fees for supplying liquidity. But we’re getting ahead of ourselves – first, let’s make things clear on what a DEX, or a decentralized exchange, is.
What Are Decentralized Exchanges?
Centralized exchanges rely on the order book method to facilitate trades. Order trading resembles a menu: there is a list featuring orders and the prices for each of them. How liquid a market is depends on how many buy and sell orders are open at any given moment. Trades are executed by matching orders with the party on the opposite side of the order book. There is nothing wrong with using centralized exchanges, as they can offer a vast array of features, speed, and high trading volumes. But on the other hand, they do administer fees on transactions, ask for more personal details, and place a third party in the middle, which DEXes manage to avoid.
Decentralized exchanges, or DEX, are built on trustless protocols that do not need a middleman in order to facilitate and execute trades. It all comes down to blockchain technology and the way it functions. Engineers have had to reverse engineer the whole process in order to come up with a viable solution, where traders can swap assets and currencies with only an Ethereum wallet. Due to rapid innovation, Uniswap has grown into one of the most popular exchanges of the Decentralized Finance (DeFi) movement.
What Is Uniswap?
Uniswap is an open-source software that functions on Ethereum protocols featuring automated liquidity protocols. There is no need for an order book or intermediary approval in order to engage in market trades.
Putting it simply, liquidity, when referring to the market, is how active the market place is. You can think of it in terms of supply and demand. If a seller decides that they want to sell their tokens, a liquid market means that there are a lot of people that would pay their asking price, the regular price. If they try to sell the tokens on a less liquid marketplace, there might not be any buyers willing to pay the asking price, so they either have to lower the price, or wait for other buyers to come to the marketplace and hope that some of them would be willing to pay the asking price.
So, the higher the trade, the more liquidity for the marketplace. The more liquidity a market has, the more stable it is, as trades do not disrupt it by going in and out. Uniswap took the concept of “supply and demand” and modified it by taking the liquidity pools out of the hands of the centralized exchange and decentralized them by placing them into the hands of the traders themselves.
Liquidity pools are generated by liquidity providers. By making use of the system’s decentralized pricing mechanism, the platform doesn’t provide listings. Instead, users are able to swap ERC-20 tokens with no need for an order book, which means that there are no listing fees.
The only thing that is required for a trade to go through is sufficient liquidity,
How Does Uniswap Work?
Hayden Adams is credited as the creator of the Uniswap protocol. Back in 2018, he managed to further develop Ethereum co-founder Vitalik Buterin’s technology and bypass order books by introducing an Automated Market Maker (AMM) model variant called Constant Product Market Maker.
Smart contracts are automated market makers that manage liquidity pools, which allows traders and liquidity providers to deposit tokens and digital assets in the pool. For the service to be possible, traders are subjected to a pool maintenance fee that goes to the liquidity providers based on their shares.
The liquidity providers serve as the market creators by depositing two tokens equivalent in value, or stablecoins like USDC, DAI, or USDT, to the pool. The tokens can be an ETH and an ERC-20 token or a pair of ERC-20 tokens. In exchange, the providers receive liquidity tokens, as a representation of their liquidity pool shares. The Uniswap pool has to provide consistent liquidity for trades to go through. Naturally, larger trades are more expensive than lower trades because they cause more commotion and are harder to balance out.
Uniswap v3 and Uniswap LP Tokens
Uniswap’s technology is constantly being updated and is now on its third generational iteration with Uniswap v3. The implementation of Uniswap v3 brought a whole new way of processing capital, which has made it a lot more efficient. Uniswap v3 LP positions are unique since everyone can customize the price ranges that they support, meaning that their positions are non-fungible and each position is represented by an NFT token.
Uniswap v2 tokens can be deposited as collateral through Aave as well as MakerDAO because their position cannot be customized. So what they do is provide general liquidity across the pool. This way, most AMMs are capital-inefficient because most of the assets that they store aren’t being utilized. Uniswap v3 employs those dormant assets in order to improve pool liquidity when needed. Another interesting piece of programming is that liquidity providers are able to customize the price range which they provide liquidity for, which allows for a more liquid pool in the places where trades are being executed.
How to Use Uniswap
Getting started on Uniswap isn’t difficult. Users just need an ERC-20 wallet, such as Coinbase wallet, Portis, WalletConnect, MetaMask, or Fortmatic, to store Ether on it. This way, they can cover gas fees and participate in trades. The gas fees are calculated based on the network traffic and the speed at which trades are processed and executed by miners. Most of the time, users will be given three payment speed options, ranging from slow to fast. Naturally, quicker processing comes at higher gas fees.
Does Uniswap Make a Profit?
It might come as a surprise, but all Uniswap fees go to the liquidity providers, as the platform is run by decentralized protocols. Transaction fees for liquidity providers are 0.3% on a per-trade basis. The fees are added to the liquidity pool automatically, but providers do have the option to transfer them to their balance accounts if they please.
A Few Words Before You Go…
Uniswap took the industry a step further because it welcomes virtually everyone who has an Ethereum wallet to participate in trades without a central governing party. The problem is that the mining craze on Ethereum 1.0 is killing the planet’s environment through wasteful energy spending. In any case, once Ethereum 2.0 and POS replaces POW for good, Uniswap will probably be launched to new unprecedented heights.
Asset tokenization may be a bit perplexing at first glance, but we’ll try to explain it in plain English as an improvement on something that has existed for a long time in traditional finance. If you’re familiar with what an NFT is, then you’re already on the right path.
In fact, trading with assets was one of the earliest business ventures of human civilization. People have been trading commodities, private equity, real estate, artworks, and precious metals for centuries. However, the investment industry has reached a point where the very materialization of such trades became complicated, expensive, and exhaustingly time-consuming. This becomes more noticeable when the trading process involves a physical transfer or cross-border legislation. Both incur multiple layers of intermediaries, a bunch of paperwork, and take weeks to settle.
At the same time, the blockchain industry is quickly reshaping the world of finance, bringing the apparent advantages of a decentralized economy: immutability, transparency, and a distributed structure. Even though the blockchain was primarily created to generate cryptocurrency, it has been gradually applied in various segments of global business. The tokenization of assets is one of the most notable instances that divert investors towards exbracing new products from the blockchain ecosystem. Let’s see how real assets can be converted into digital assets using the process of asset tokenization.
So… What Is Asset Tokenization?
Asset tokenization is a method of digitizing both tangible and intangible assets by converting them into digital tokens. The newly converted tokenized asset is stored on a blockchain network. What is important to remember is that one asset (e.g. an apartment or painting) is not the same as one token. Through tokenization, the asset is broken down into hundreds or many thousands of smaller pieces that make up the entirty of the token’s equity.
So, once people have their desired personal assets tokenized and recorded on a blockchain ledger, they can either store or sell the assets on one of the various marketplaces, either fully or partially, or simply transfer them to other users.
Tokenization is closely associated with the concept of STO (Security Token Offering). STO platforms allow users to digitize their assets and convert them into a certain number of tokens. Then, the owners will need to create their so-called STO campaign and offer the tokenized assets to anyone who wants to invest.
How Does Asset Tokenization Work?
The best way to understand the process of tokenizing any asset is through an example. Let’s start from a real estate investor’s point of view. Imagine you want to invest in a property with an initial capital of $4,000. According to the industry standard, you can technically buy several square feet of the property, but things don’t go that way in today’s real estate industry. Now, let’s reverse the position. You have a property worth $250,000, but you want to cash out $30,000 equity, and logically, you can’t an evenly divided portion of the property.
This is exactly where asset tokenization comes to play. Your $250,000 property can be turned into 250,000 tokens, with each token representing a 0.0005% share of the complete property value. When your asset is converted into tokens, they are issued on a blockchain network that supports smart contracts (e.g. Ethereum). When someone buys a token, it means that they obtain a 0.0005% ownership of your property. If any investor decides to buy 125,000 tokens, then they would technically own half of your property.
By its very nature, blockchain is an immutable ledger ensuring that users’ ownership can’t be modified or deleted, regardless of whether or not the asset is registered within a government-run institution.
Benefits of Assets Tokenization
This trend is becoming highly attractive among a great number of investors, owners of valuable assets, and startups. As of February 2021, the market cap of tokenized assets is showing a disruptive upward tendency. Certainly, there are strong reasons behind it. You can already feel how tokenization contributes to low costs and faster transactions, but let’s discuss the benefits in detail.
Higher Accessibility and Liquidity
Physical obstacles are easily overcome with the decentralized model of blockchain technology that allows users to tokenize their assets or invest in tokens from anywhere in the world, at any time of the day. Furthermore, the list of “tokenizeable” assets is highly extensive, including substantially liquid ones such as valuable pieces of art, real estate, vehicles, etc. Hence, removing the multiple burdens and delays arising from geographical restrictions directly contributes to providing greater liquidity.
Blockchain is a public ledger that allows access to all participants out there. From a user’s perspective, transparency is of crucial importance when handling finances. The blockchain network enables users to track the entire transaction history, verify assets’ origin, and watch the entire transaction flow.
All information stored on the blockchain ledger is immutable. More particularly, once the data is recorded and verified on the network, nobody can change or manipulate it. The data is accurately updated in real time.
The tokenized asset can be seamlessly divided into as small parts as it’s necessary. The opportunity to split the asset enables a broader investment audience, which adds to the asset’s liquidity.
Blockchain technology excludes any interference from a third-party intermediary since both participants in the transactions settle the terms of the transaction independently. This significantly reduces the intermediary costs from multi-layer provider services. On top of this, transactions can be completed within minutes.
What Types Of Assets Can Be Tokenized?
As we have already implied, all kinds of assets can be tokenized, ranging from art and real estate to precious metals and even digital assets like securities. Here, we’ll focus on the most applicable examples:
Real Estate Tokenization
Blockchain and the real estate industry have been closely related in terms of using smart contracts to reduce intermediaries and costs. According to the research by Cushman & Wakefield, a leader in the industry, the most prosperous use cases of the blockchain network will be demonstrated in the tokenization of assets.
As tokenization fractionalizes ownership, real estate will become more accessible to a wider base of investors and available on various types of virtual marketplaces, reducing the initial barriers and disputes between buyers and sellers.
The benefits of tokenizing gold are evident in the reduced level of bureaucracy while storing or transferring gold, which has been a leading store of value for a long time. Furthermore, the immutable nature of blockchain prevents selling the ownership to multiple buyers.
In general, trading tokenized gold is just as convenient as trading cryptocurrency. There are a lot of existing coins backed by hard gold, with a value corresponding with the current gold price. These include PMGT, DGX, Meld Gold, and XAUt.
Apparently, the art market hasn’t modernized its bureaucratic business model for ages, leading to considerable barriers as concerns transparency, liquidity, and copyrights.
The tokenization of artwork will possibly solve these obstacles and unlock the art market for the general public. Art tokenization is also a systematic method of developing an immutable archive of copyright records providing liquidity at lower costs.
Monart and Maecenas are currently the most popular marketplaces for tokenized art. The first encourages users to invest in prospective artwork while the latter enables artists to tokenize their pieces of work.
The utility of tokenization seems to be endless. This global phenomenon has already entered various industries, from finance to real estate, and has even spiked the attention of investors in the entertainment business, music, and sports. However, there are certain challenges this decentralized approach is still facing, mainly as a result of lack of regulation.
In the years to come, the need for a general framework on cross-border mechanisms of interpretation will become more apparent. Moreover, tokenization lacks a clearly defined set of legal regulations within trans-national jurisdictions, which is currently the greatest concern of individual market participants and corporations when it comes to the tokenization of assets. It isn’t something that can’t be easily settled, though properly adjusted KYC and AML practices can help a great deal for the broader acceptance of tokenization in every industry.
DeFi is part of the new financial terminology arising from the crypto revolution that reshaped the basic operational principles of the world’s economy. DeFi stands fordecentralized finance, a general term that covers a broad range of blockchain-related applications, with the single purpose of avoiding third-party intermediaries.
This article will discuss the core features and components upon which DeFi is built. After our overview designed to help you understand the Ethereum background behind the majority of DeFi apps, there is a carefully considered list of Ethereum apps and the most popular DeFi tokens. Don’t let the high-tech framework discourage you. Once you understand the straightforward principles behind it, you will see why DeFi is considered to be the future of financing.
How Does DeFi Work?
DeFi is a financial approach where assets are accessed through an open decentralized blockchain network. Contrary to bank or centralized exchange accounts, users aren’t by any means required to provide an ID or other forms of personal identification to access DeFi. Transactions are code-handled and open to public access.
More precisely, DeFi is a blockchain software that enables users to connect themselves on a peer-to-peer basis and buy, sell, borrow, or lend assets without a centralized authority to facilitate the transactions. Since there is no corporate intermediary, payments can’t be blocked or denied, and neither can they be delayed or misguided due to a human factor.
Because of its decentralized nature, Bitcoin is considered the first DeFi asset. However, it’s an inescapable fact that while cryptocurrencies have been making their way to global charts over the past decade, Bitcoin has been mainly bought and sold through mainstream centralized exchanges (CEXs).
Etherium, on the other hand, which is the next-largest cryptocurrency, has been used for building DeFi applications, as it has proved itself to be more practical for creating other forms of decentralized apps.
All DeFi products are in tune with Ethereum, which enables seamless cooperation in, for example, borrowing tokens from one platform and trading them on a completely different application. Plus, ETH and other tokens built on Ethereum have a shared ledger that keeps a full record of ownership, accounts history, and executed transactions.
The easiest way to understand DeFi is by differentiating between the five component layers and the several types of DeFi apps or functionalities.
There are five DeFi layers, each with a clearly defined objective:
The settlement layer refers to the blockchain and the asset of its native protocol. The settlement layer enables the network to store all previously mentioned records securely under a predefined set of rules.
The asset layer consists of all tokens that are issued on top of Ethereum, the settlement layer. It includes the native asset and all other tokens supported by the blockchain.
The protocol layer’s role is to provide functionality by implementing a set of self-executing smart contracts between the two parties involved. Smart contracts ensure stable transactions between the buyer and the seller or the lender and the borrower with agreement terms directly written in code lines. The code tracks and controls the transaction securely without involving a third party or any other type of escrow service.
The application layer consists of user-focused apps connecting to separate protocols. They appear in the form of online platforms like decentralized exchanges, for example, accessed through a web browser that abstracts the necessary interaction for concluding the smart contract.
The aggregation layer refers to an extension to the application layer. It is also a user-oriented app that provides tracking and comparing tools, simplifying complex tasks by a simultaneous connection of various protocols, and combining relevant information more practically. Typical aggregation layer examples include lending and banking services as well as incorporated crypto wallets.
Types of DeFi Applications
Decentralized exchanges (DEXs) are the most commercially spread DeFi apps. They allow users to exchange fiat money or cryptocurrencies for other cryptocurrencies such as USD for Bitcoin or Bitcoin for DAI. They are rapidly growing in popularity among the crypto community as a result of the full control and custody users have over their accounts and balances.
Popular DEXs on the market: Changelly, ShapeShift, Bisq and Uniswap.
Stablecoins are cryptocurrencies that are bound to a regular currency in order to keep price balance and stability.
Popular stablecoins on the market: Tether (USDT), True USD (TUSD), Paxos Standard (PAX), USD Coin (USDC), and Binance USD (BUSD).
Lending platforms use smart contracts to avoid centralized intermediaries that handle the process of lending.
Popular decentralized lending platforms on the market: InstaDapp and MakerDAO.
Wrapped Bitcoins (WBTC) are a method of sending Bitcoin to the Ethereum blockchain network enabling the Bitcoin to be directly used in an Ethereum DeFi system. Users can earn interest from the Bitcoin they lend through the lending platforms mentioned above.
Prediction markets are online spots where users can bet on the outcome of multiple upcoming events. The purpose of DeFi in such prediction markets is to offer a more practical and secure functionality without the expensive intermediary services.
Right after cryptocurrencies, DeFi tokens have been in the spotlight of the financial ecosystem since the rapid digital transformation in 2020 that happened as a result of Covid-19. They are decentralized financial apps that run on blockchain networks, executing well-established trading practices with a decentralized approach.
Take a look at the most popular DeFi tokens, but remember that their ranking frequently changes due to the volatile nature of the crypto market. Although HaasOnline TradeServer can monitor thousands of tokens, we’re not quite ready to fully support DeFi platforms. You can monitor tokens’ current position and compare market caps with third party tools such as DeFi MarketCap.
Aave is a dominant protocol utilizing an AAVE native token to ensure and handle the protocol. Aave is now in the process of migration from LEND to AAVE at a 100:1 rate, executed through the Migration Portal.
Total Supply: 16,000,000 AAVE
UNI is a native token of Uniswap, one of the leading decentralized exchanges in DeFi. It’s recognized for being a so-called “governance” token, allowing holders to vote on further developments regarding UNI’s distribution and fee schedule. This token can be earned by providing pool liquidity.
Total Supply: 1,000,000,000 UNI
Synthetix is also a widely recognized derivatives protocol supported by its native token SNX. Users can earn new derivatives known as Synths only if they stake no less than 750% of the Synths value in SNX. This proportion is referred to as cRatio allowing users to earn both native inflation and proportional rate of trading fees on Synthetix.
Total Supply: 190,075,446 SNX
SUSHI is a lending protocol supported by the Sushiswap governance token. Once users link their Ethereum wallet to their Sushiswap account, they can lock the pool’s assets into a smart contract with an offered ratio of 1:1. So, if a user planned to add 4 ETH worth of liquidity to the existing SUSHI-ETH pool, they would need to convert 2 ETH into SUSHI. Users can also leverage their earnings by providing liquidity to various supported pairs on Sushiswap.
Total Supply: 250,000,000 SUSHI
yEarn is an automated liquidity aggregator that allows a broad range of yield farming possibilities. This protocol is conducted by its native token YFI offering users to enhance their gains on assets through lending and trading services.
Total Supply: 30,000 YFI
We hope all this cleared up any questions regarding DeFi. It’s true, decentralized finance is still a developing part of the cryptocurrency eco-system, but its liberating approach is on a way to overpower the traditional, time-consuming, and pricey financial system. It’s definitely worth giving it a shot.
A piece of digital artwork has been sold for a substantial $69 million at Christie’s auction house, but the winning bidder will not go home with a sculpture, painting, or even a print. Instead, they’ve received a non-fungible token, or NFT for short, which is a one-of-a-kind digital token.
As you might imagine, the transaction made international headlines, as this is the first time that an NFT-based artwork has been sold at a renowned auction house, sparking the interest of artists and collectors alike.
Still confused? Don’t worry, we’ll do our best to keep things simple and explain everything from the top.
What Is an NFT?
You’re not alone if you heard the words “NFT” or “non-fungible token” and had no idea what they meant. It was a pretty unusual concept before 2021, but in recent months, it’s become increasingly popular to hear it mentioned in relation to digital artworks being sold for millions of dollars.
NFTs are the new trend in the cryptocurrency world. They are cryptographic blockchain-based assets that have unique identifiers and metadata that differentiate them from one another. A Bitcoin, for example, is exchangeable, meaning that it can be traded or exchanged for another Bitcoin without sacrificing its value. A non-fungible token, on the other hand, represents a digital object such as a painting, animation, piece of music, picture, or video, that comes with a certificate of authenticity generated using blockchain technology.
You can think of them as collectibles of the Internet. A digital producer, for example, may create music, a video, or a picture file, and we can all copy it once it’s been published. It is neither unique nor valuable.
But if that producer transforms the file into an NFT, the system adds digital information to it, and the holder of a file containing that data is the rightful owner of the authentic (original) copy. It’s almost as if you’re keeping a certificate of authenticity. This may seem absurd, but these digital collectibles are worth a lot of money. They are sold through online auction websites or through direct buyer-to-seller transactions.
NFTs transform the crypto concept because each of them is created as a unique token, making it unlikely for one non-fungible token to be identical to another. NFTs, like Bitcoin, have ownership information that makes it easy to identify and exchange tokens between holders. In NFTs, owners can also include metadata or information related to the asset.
It all makes sense when you realize that NFTs were developed from the ERC-721 standard. They contain the same fundamental interface – ownership information, protection, and metadata.
When Did NFTs Become a Thing?
NFT technology has been available since the mid-2010s, but it has only recently become popular with CryptoKitties, a digital trading game based on the Ethereum cryptocurrency platform that enabled users to buy and sell unique virtual cats that were stored on the blockchain.
Each crypto kitty is one-of-a-kind. They replicate amongst themselves producing new offspring with different characteristics and attributes from their parents. In a few weeks after their launch, $20 million were invested in Ether on buying, feeding, and caring for these crypto kitties.
NFTs are a perfect match for sports memorabilia, another type of speculative asset whose value is based largely on the prices paid by its fans. The NBA announced a partnership with Dapper Labs in October to sell clips and photos of popular basketball players as NFTs. By the end of February, they had earned more than $230 million.
The sparked interest of NFT is as a result of people appreciating independent artists’ work by purchasing their works, while others are fascinated by the idea of claiming ownership of a digital asset, which has fueled the growth of NFTs.
Why Do People Pay for NFTs?
NFTs are a breakthrough from the reasonably simple idea of cryptocurrencies. Contemporary finance mechanisms provide complex trading and lending processes for a variety of asset types, including real estate, lending contracts, artwork, etc. NFTs are an evolution in the reinvention of this framework since they allow a virtual version of physical assets.
Investments in works of art, photos, videos, and other types of digital files are often made since unique items hold their value for decades, if not centuries. In fact, art is an investment tool that provides artistic enjoyment and a certain kind of reputation, but also holds monetary value.
Here, you might be asking yourself, “How is it possible for a digital item like a tweet or an image to be distinctive when it can be copied with a single click?” Everyone can download Van Gogh’s Starry Night from the Internet or photograph the Venus de Milo while at the Louvre. However, this doesn’t mean that they own the original artworks.
The element that adds value to these digital products is blockchain technology. The blockchain provides true ownership of the product thanks to its special cryptographic features. To put it another way, the product you purchase is a “real digital copy,” and no one can claim your NFT.
Examples of Real NFTs that Have Been Sold at High Cost
· Mark Cuban, the billionaire businessman, sold a motivational quote NFT for $1,700. “No one ever changed the world by doing what everybody else was doing,” the statement read. Cuban receives 15% royalties each time his NFT is resold, according to Business Insider.
NFT marketplaces are gaining traction at a growing pace, indicating that NFTs are becoming more popular online. There are many choices out there, so with some research into the different NFTs, you can find the best option for you. Nonetheless, we’ve compiled a list of the most common (and reliable) NFT marketplaces to get you started. Some of them include OpenSea, Rarible, SuperRate, and Nifty Gateway.
A Few Words Before You Go…
NFTs have made major breakthroughs in the luxury and gaming sectors, and there is plenty of room for them to further grow and expand. NFTs bring on new relevance and value to digital art, as the works of digital artists experience massive sales to the new crypto audience. Even celebrities are jumping on board as they see a new way to interact with their fans. Of course, keep in mind that digital art is just one application of NFTs. They can be used to signify ownership of any unique asset in the future.
As a potential digital investor, you must be aware of how your assets are handled on the blockchain network. Remember the first business rule? Learn to manipulate the flow of your assets, before anything else! When we talk about crypto, proper use of crypto wallets is a pillar in managing your assets.
Don’t jump to conclusions. In this article, we’ll provide a clear definition of what digital wallets are and explain how they operate. We’ll also go into the different types of wallets and what you should consider when choosing one for your assets.
What Is a Crypto Wallet?
By definition, a crypto wallet is a software program or a hardware device that enables you to store, exchange, and keep a record of your cryptocurrencies. In comparison, if you possessed a certain amount of cash, you wouldn’t walk around with it in your pocket or hand. Instead, you would look for a safe place to hold the money out of sight.
So, the purpose of holding your regular money in a wallet is practically the same for digital assets. Furthermore, digital wallets allow you to make transactions, i.e send and receive Bitcoin and other cryptocurrencies (there are multi-currency wallets as well). However, since cryptocurrencies don’t have physical representation in the real world, they can’t be physically transferred to an actual location. The blockchain industry operates on different transactional principles. Let’s see how they work.
How Do Digital Wallets Work?
As we previously implied, crypto wallets don’t execute physical transactions of coins. Instead, they serve as tools to provide transactions with the blockchain system. Crypto wallets produce the information required to receive or send altcoins through the blockchain network. The main holders of safety and the information concerning your wallet are the set of public and private keys delivered to you once you activate that crypto wallet. The keys appear in a form of a random, case-sensitive code of numbers and letters. Crypto wallets also include a wallet address, which is related to the public key in that it’s used to send assets to your wallet. The public key is a compressed version of your address to make it easier to conduct transactions.
Let’s illustrate these notions in more familiar terms. If you want to receive an email address you give the address to the potential sender to know where to address the message. Similarly, you provide or ask for the wallet address if you plan to receive or send cryptocurrencies. Private keys, on the other hand, are the password in this email analogy. You must keep them safe and share them with nobody. Once you lose your private keys, you’re no longer the owner of the account.
Therefore, the wallet doesn’t really hold your assets, but the transaction records stored on the blockchain. The Bitcoin and other coins don’t leave the network, it’s only their ownership ledgers that are transferred from one wallet address to another.
Concerning privacy, the blockchain industry is transparent in nature, so everyone is allowed to see the balance of a crypto wallet as well as the full history of previous transactions. Fortunately, the wallet address doesn’t expose the owners’ identity in any respect even though there are technically legal measures to track down the person holding a particular wallet.
Types of Crypto Wallets
A complete understanding of crypto wallets is impossible without clear differentiation between the main types available on the blockchain market. Let’s take a look.
Online wallets are a type of hot storage which allows access from any web browser. Just like any interactive platform, you need to visit the company’s website and set up your wallet following the instructions provided on the homepage. Online wallets are free, practical, and easily accessible. However, your private keys are kept online, which makes online or web wallets an immediate and easy target for cybercriminals. So, despite the convenient navigation, we highly suggest you use this crypto wallet only for short-term purposes and limited amounts of digital assets.
Software wallets are also hot storage as they require an internet connection to be accessed. Unlike online wallets, software wallets are apps you need to download either on your desktop or mobile. In fact, the majority of online wallet services tend to launch mobile apps (software wallet versions) in order to keep up with the dynamic lifestyle of modern generations. Furthermore, they feature considerably more sophisticated design and advanced tracking tools than web wallets. In terms of security, mobile and desktop wallets can be said to be slightly more secure since private keys are kept on your device. Yet, you should keep to the rule that large amounts of cryptocurrencies are not to be stored in hot storage.
Hardware wallets or cold storage are physical devices resembling external drives (like a USB thumb drive) that we use to store valuable documents and photos. Therefore, in order to access your funds, you’ll need to plug the wallet into a supported device (a computer or mobile phone) and navigate through the simple software that comes with the hardware wallet. Hardware wallets are the most secure option for storing Bitcoin or other blockchain-based currencies. Your private key is kept offline and has no connection to online servers, so it’s safe from hacking attempts.
However, hardware wallets are not free. Their price ranges between $50-$200, depending on the model.
Quite an interesting fact is that paper wallets were formerly considered the most secure crypto-wallets. They are created online and printed out on paper consisting of two character strings (your private and public keys) and QR codes. However, due to the massive shift towards digital payment methods, paper wallets are treated as an outdated storage source today. Still, you can use them as you’d use a hardware wallet – keep the majority of your crypto assets there, and move small amounts to hot storage when you need it for a transaction.
What makes a suitable crypto wallet? There is no single answer since different wallet types satisfy the needs of different customers. Don’t let the overwhelming choice of crypto wallets available today distract you from your individual intention of using crypto. Before you set off, try to answer the following:
Do you plan to use the wallet for daily purchases or long-term investment?
Will you focus on Bitcoin or try out less known but promising coins?
Will you need to access your digital wallet outside your home?
Will you trade a large amount in cryptocurrencies or start small?
Once you learn how crypto wallets work and consider their features against your personal crypto goals, you’ll realize that it’s much simpler than it appears.
We hope that you found our guide informative and more important, encouraging. We wish you a safe crypto journey!