Happy Friday defiers! Lots going on in decentralized finance:
Dapper Labs is building a new blockchains and some Ethereans aren’t thrilled
Santander issued and settled a $20 million bond on the Ethereum blockchain
KyberSwap added a fiat on-ramp
Staked launched a robo-advisor for yield
Seven Eth2 clients are interoperable
CryptoKitties Team is Building its Own Blockchain
CryptoKitties maker Dapper Labs is building a new blockchain called Flow to support all the mainstream applications the company wants to build.
Highlighting just how big it wants to go with this new chain, it brought on famous venture funds and entertainment giants for its $11.2 million new round of financing, including Warner Music Group, Andreessen Horowitz and Union Square Ventures.
Many in the Ethereum gang criticized the move to create yet another blockchain, when Ethereum is working fine. Maybe competition is scary, but maximalism for the sake of it is a bad look. I haven’t seen much substance behind the objections and Flow’s answers seem reasonable. The following quotes are from their primer:
Objection 1: Why do this on a blockchain?
If you want to create a highly viral game, why not just make another version of Fortnite like any other gaming company.
Answer: Dapper Labs want users to have ownership of their digital assets, rather than be locked up inside a centralized game.
With Flow, developers can build applications that keep consumers in control of their data; give them true ownership over the digital assets they’ve created, earned, or paid for; and let them move freely from app to app without losing access to the community, history, and value they’ve generated.
It also wants developers to have composability, which comes from separating different parts of the open source code and letting others build on top of those blocks.
Similar to open source software, composability allows developers to innovate faster, ultimately leading to more consumer choice.
Objection 2: Why not use any of the existing scaling solutions?
If you want scaling, why not use all of the many Layer 2 solutions already available, like side chains and plasma. Eventually, Ethereum will even have a Layer 1 scaling solution with sharding.
Answer: It didn’t want to accept some of the compromises that come with Layer 2 solutions, and instead it wanted to try to build a blockchain that was relatively decentralized and scalable in Layer 1.
Most decentralized systems propose to improve throughput by fragmenting the blockchain into a series of smaller, inter-connected networks forced to communicate asynchronously. This approach comes under a variety of different names (sharding, side-chains, etc.), but the essence remains the same: break the blockchain’s state into independent pieces.
Building smart contracts that needs to access data across fragments is more difficult and makes it harder for apps to go viral, Dapper Labs argues.
Sharding isn’t typically a problem for simple token transfers, but even simple interactions between smart contracts become very complicated in a sharded environment. This dramatically limits the composability and therefore network effects of smart contracts.
Objection 3: Why do they even need so much throughput?
A prototype for Flow performs about 1,000 transactions per second, compared with Ethereum’s current 15 transactions per second, “and is expected to scale to 10,000 transactions per second by the time it launches in 2020,” according to a Forbes article. Why do they need that if CryptoKitties users have plunged from over 6,000 daily in 2017 to a few hundred now.
Answer: Dapper Labs had to tweak CryptoKitties when it clogged the Ethereum network in December 2017, increasing gas costs to slow use. Its new game Cheeze Wizards was specifically designed to work without massive throughput. It’s made to attract crypto-native speculators who want to make big bets.
Maybe CryptoKitties at the end of 2017 is the best Dapper Labs can do, but it’s also possible that it’s been limited by Ethereum’s scalability at the moment (Eth2 aims to support thousands of transactions per second with sharding). Maybe Flow, a new blockchain with no liquidity or huge developer community, won’t be the answer. But maybe it will, and why shouldn’t they try.
Objection 4: It’s not very decentralized.
Dapper Labs arguably isn’t as decentralized as Ethereum or Bitcoin because of the way it’s structured. It attempts to increase scaling by having five different types of node, each type performing a different job: Collection, Consensus, Execution, Verification, and Observation. That means that some nodes will take care of computation, and others will take care of securing the network.
Node operators overseeing consensus and verification are designed to be as decentralized as possible, because they ensure the security of the network.
The roles of Consensus and Verification are streamlined to allow high levels of participation, even by individuals with consumer-grade hardware running on home internet connections.
Node operators in charge of computation on the other hand, can’t be as decentralized, because they require more specialized hardware. They also aren’t as secure, because they rely on consensus and verification nodes to confirm transactions.
Collection and Execution Nodes are what give the network its scale. Operating these nodes requires dedicated server hardware in a professionally managed data center as well as significant amounts of stake available for slashing.
Answer: Dapper Labs says its proof-of-stake chain that divides computation and consensus “increases throughput by a factor of 56 compared to conventional architectures without loss of safety or decentralization.”
Also, maybe users and developers won’t care that the network isn’t fully decentralized. Dapper Labs CEO Roham Gharegozlou said on Twitter, “what really matters is building something people want to use, and working back to the technology needed to deliver it.”
Santander Issued and Settled a $20 Million Bond on Ethereum
Banco Santander, the 14th largest bank in the world by assets, is experimenting on the Ethereum blockchain with real-life transactions.
The Spanish bank is itself the issuer of the $20 million, 1.98 percent quarterly coupon bond, while one of Santander’s units bought it at market price. Santander Securities Services is acting as “tokenization agent and custodian of the cryptographic keys,” the press release said, which gives a glimpse of how traditional banking will start to adapt its functions for digital assets.
The bond issued directly on the Ethereum blockchain and will also continue to exist only on the blockchain.
It’s a first step towards a potential secondary market for mainstream security tokens in the future, the bank said.
The bond, the cash used to complete the investment and the quarterly coupons have all been tokenized. Santander’s head of investment banking tweeted more details on the transaction here.
Thanks to this automation, the one-year maturity bond has reduced the number of intermediaries required in the process, making the transaction faster, more efficient and simpler.
The next step will be to see whether Santander’s clients want to try tokenizing their own debt too.
KyberSwap Adds a Fiat On-Ramp
KyberSwap partnered with Coindirect.com, a fiat on-ramp backed by MakerDAO, for users to buy crypto with fiat currencies and debit/credit cards.
The non-custodial exchange for Ethereum-based tokens is promising lower fees to buy crypto with credit cards, at 3.5 percent on their platforms compared with up to 5 percent, and a competitive ETH price. Notably, users trading small amounts won’t have to go through KYC, which is the lengthier part of the process when buying crypto with most on-ramps.
Going from traditional currencies to cryptocurrencies is usually the biggest hurdle users have to go through before they can start using decentralized finance. Anything that makes the process faster and easier will help increase still meager use.
DeFi Now Has a Robo Advisor for Yield
Staked is launching a Robo-Advisor for Yield, or RAY, for a holders of ETH, DAI or USDC to seamlessly transfer their digital assets to the highest yield-generating platform in decentralized finance.
The New York-based blockchain startup backed by investors including Coinbase, Pantera Capital, Winkelvoss Capital, will initially support lending on Compound, dYdX and bZx, on RAY.
Just this week we’ve seen DeFi platforms create tokenized trading strategies and a way for anyone to issue synthetic assets. This is another step forward in making investment easier and more accessible than with traditional finance.
Lastly, please check out this video of seven software implementations running Ethereum 2.0.
This means developers are likely on track to launch phase 0 of the revamped Ethereum in January. Reminder that it will be Ethereum’s new proof-of-stake chain, where validators will already be able to stake their ETH to start gaining interest when the following versions launch. What ether bulls hear: Less ETH supply.
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About the author: I’m Camila Russo, a financial journalist writing a book on Ethereum with Harper Collins. I was previously at Bloomberg News in New York, Madrid and Buenos Aires covering markets. I’ve extensively covered crypto and finance, and now I’m diving into DeFi, the intersection of the two.