DeFi Pulse unveils safety ratings to allow users to compare risk

DeFi Pulse unveils safety ratings to allow users to compare risk

DeFi Pulse and Gauntlet have released a new tool to improve users’ risk awareness of major DeFi projects.

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Decentralized finance (DeFi) analytics platform DeFi Pulse has launched new safety ratings in alpha to enable users to compare the risks of on-chain protocols. However, the ratings system is still in development and does not factor in all risks, such as smart contract risks. 

In partnership with digital asset modeling platform Gauntlet, the grading tool looks at key factors including user behaviour, collateral volatility, relative collateral liquidity, protocol parameters, and smart contract risk. Each project is then given a risk profile ranking them between 1-100.

DeFi Pulse and Gauntlet’s new project ranking scores

DeFi Pulse and Gauntlet’s new project ranking scores. Source: Gauntlet

Decentralized lending protocols Aave and Compound are the first projects to be reviewed in the new Economic Safety Grade scheme, receiving scores of 95% and 91% respectively. MakerDAO is the next protocol scheduled to receive assessment.

DeFi Pulse stated, “In this initial alpha, these grades are formed by analyzing the historical liquidity and volatility data to find the collateral most likely to cause issues.” The team added that findings must be normalized before a rank can be given:

“The risk of the system for users borrowing stablecoins against this collateral is estimated and normalized to create the 1 to 100 grade you see on DeFi Pulse.”

The assessment tool does not aim to model smart contract risks, Gauntlet noted, asserting that “auditors and formal verification tools are best suited for assessing this form of risk.” 

Gauntlet highlighted that its safety assessment metric is still in the early stages, emphasizing that there are many potential risks associated with lending protocols not currently incorporated within its scoring system:

“An astute observer might have noticed we omit the case where the protocol is illiquid. We hope to model this as well as a few other things as we build towards a beta release.”

For now, Gauntlet’s system seeks to “determine the chance of insolvency in audited on-chain lending protocols.”

Earlier this year, severe price volatility resulted in DeFi platform Maker suffering from a mass liquidation event where $8.32 million disappeared in one day that was later called “Black Thursday”. Gauntlet hopes its tool can help prevent future Black Thursday-like crises within the crypto sector.

The growing popularity of DeFi has seen a corresponding increase in risk. It has given rise to an increasing number of fake tokens and scams. Last week, liquidity mining pool DeFi project Yfdexf.Finance completed an exit scam, taking $20 million in locked funds with it. Earlier this month, Uniswap’s rival SushiSwap caused a stir after the protocol founder Chef Nomi’s sudden departure. The new safety ratings tool won’t necessarily address all of these issues, but it’s a welcome start.


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DeFi Pulse and Gauntlet have released a new tool to improve users’ risk awareness of major DeFi projects.

Comparing Apple to Bitcoin? Crypto Occupies a Class of Its Own

Comparing Apple to Bitcoin? Crypto Occupies a Class of Its Own

Is it even fair to compare Bitcoin to younger versions of tech giants like Apple?

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A recent article by a Cointelegraph Markets contributor proclaimed that “Bitcoin is the ‘new’ Apple,” explaining just how Bitcoin’s (BTC) price could reach $60,000 by 2023: “Bitcoin hangs near the chasm of the adoption curve, and its price looks similar to Apple’s stock in 2008 before it broke out with a 520% rally.” 

The technology adoption curve referenced was Everett Rogers’ famous “diffusion of innovations” model, published in 1962, which described the five stages through which technology becomes “diffused” — i.e., goes mainstream: innovators, early adopters, early majority, late majority and laggards. 

Everett Rogers's diffusion of innovation model

In 2008, manufacturer Apple’s United States smartphone penetration was stalled at about 11% and still waiting to cross the “chasm,” the gap between the “early adopter” stage and the “early majority” stages in the Rogers lexicon. Any technical innovation worth its salt needs to cross that threshold. Apple’s smartphone surmounted that chasm, of course: Usage exploded, and Apple’s share price soared into the ionosphere. Bitcoin may well be in a similar place today.

But this comparison, satisfying as it may be, raises some questions. Is BTC even a technology — like radios, PCs, and smartphones — or is it something different: unique, sui generis — i.e., in a class by itself? Is BTC’s global penetration really anywhere close to 11% — its putative U.S. penetration rate? Also, while smartphone usage indubitably crossed the chasm more than a decade ago, how does one extrapolate BTC’s future price from AAPL’s share price? Shouldn’t it be compared with smartphones’ price? 

The resemblance between Bitcoin and Apple in terms of growth and adoption is indeed there, but in short, is it fair to compare Bitcoin to younger versions of tech giants like Apple?

Not so simple

Arvind Singhal, a professor of communication at the University of Texas at El Paso, whose academic research has focused on the diffusion of innovation, told Cointelegraph that Bitcoin did indeed seem singular: “It has tremendous barriers to adoption for most individuals and operates in a space of multiple familiar currencies — and that peculiarity would greatly influence its adoption.”

Michel Rauchs, the head of Paradigma — a consulting firm focusing on the digital assets sector — and a former research affiliate for the cryptocurrency and blockchain research program at the Cambridge Centre for Alternative Finance at the University of Cambridge, told Cointelegraph: “Bitcoin is not a technology in itself, and any comparison [with traditional technologies] is misguided.” He added: “It is a social/economic system,” a new monetary order that uses technology to represent its unit of accounts. “Technology is just a secondary component, a means to an end.”

Additionally, it may be important here to separate Bitcoin from the more generalized blockchain technology in which it partakes — or risk misapplying Rogers’s diffusion of innovation theory — suggested Theophanis Stratopoulos, PwC Chair Associate Professor at the University of Waterloo’s School of Accounting and Finance, who further explained to Cointelegraph:

“When decision-makers consider whether to implement blockchain — in, let’s say, their supply chain — they develop expectations in terms of the cost of making the investment — e.g., paying for the implementation of the software — versus the benefits, such as increased revenues or cost savings. It is the difference in expectations among decision-makers that explains the adoption cycle that was observed by Rogers.”

But Bitcoin does not behave the same way as other technologies typically adopted by firms — like CRM systems, for instance. “When it comes to Bitcoin, it’s the expected price that drives people to ‘invest’ in Bitcoin.” It is a matter of speculation, Stratopoulos continued, closer to a pyramid scheme than a capital expenditure. “If I believe that more people will want to hold Bitcoin in the future, the price of the Bitcoin will rise. In a case like this, it makes sense for me to ‘invest’ today rather than tomorrow.”

A paradox: More users, less efficiency

Oliver von Landsberg-Sadie, the CEO and founder of the BCB Group — a digital assets financial services group — agreed that BTC’s adoption cycle was anomalous, telling Cointelegraph: “The reason Bitcoin’s adoption path has broken formation with established adoption curves is quite technical: In the short term, the more users there are, the less useful it is as a currency.”

With more users, the Bitcoin network “self-regulates by raising the network fees as the mem pool bulges up in busy periods and breathes out in quieter ones.” But this makes Bitcoin less effective as a payments processing system. As von Landsberg-Sadie explained: “When fees are high, no one is going to pay a $5 transaction fee on a $5 coffee.”

Many technical solutions have been proposed to solve this dilemma, some in the form of forks, others like the Lightning Network project that makes use of a second layer, “but none have truly stuck in the core Bitcoin protocol, which has been the slowest to evolve.” The good news is that it is evolving, and the increase in off-chain transactions is reducing barriers, but all of this means one can’t expect Bitcoin to follow a classic Rogers technical adoption curve, according to von Landsberg-Sadie.

Price volatility in 2008 and 2020

When U.S. smartphone penetration stalled at around the 11% mark in December 2008, Apple’s share price became volatile — three-month volatility stood at 92%, according to the July 6 Cointelegraph article. In June 2020, with BTC penetration at 11%, three-month volatility was at 64%, indeed also a very high figure. 

But Stratopoulos was unimpressed. “I would not compare Bitcoin to the performance of Apple or Amazon or any other high-tech company. Rogers’s adoption cycle applies to innovations — emerging technologies — not to the price of stock.” Kevin Dowd, a professor of finance and economics at Durham University in the United Kingdom, agreed, telling Cointelegraph: 

“Since BTC is a form of product, then the natural comparison is with Apple’s smartphone product. Apple’s share price might have risen strongly, but the better comparison is with the price of smartphones, which have not.”

“It is relatively easy to find correlations” — like between AAPL in 2008 and BTC in 2020, commented Stratopoulos. “It does not mean that there is causation,” or it could be just a spurious correlation. 

What stage is Bitcoin at?

What, then, can be said about Bitcoin adoption? If measured by awareness — e.g., recognition of the term Bitcoin — “then it has already entered the mainstream,” said Rauchs. A Blockchain Capital survey reported 89% awareness of Bitcoin in the U.S. as of Spring 2019. A U.K. Financial Conduct Authority survey conducted in December 2019, which was recently published, found that 73% have heard about crypto, compared to 58% in 2019. 

As for BTC ownership, the Blockchain Capital survey reported: “In total, 9% of the [U.S] population owns Bitcoin — including 18% of those aged 18–34 and 12% of those aged 35–44.” The firm originally reported 11% but that was later corrected. In the U.K. survey, by comparison, an estimated “3.86% of the general population currently own cryptocurrencies.” This projects to approximately 1.9 million adults within the U.K. population (over 18) of roughly 50 million.

Rauchs finds the lower U.K. adoption estimate “more realistic” if generalizing; that is, he would peg crypto ownership at 3%–5% of the global population, which also includes indirect ownership — e.g., individuals participating in a pension fund that invests in Bitcoin. But this clearly means that all crypto is in the first half of the early adopter stage — nowhere near the so-called chasm. 

It’s not much different for blockchain technology. Stratopoulos co-authored a paper on blockchain technology adoption — exclusive of cryptocurrencies — that concluded: “Despite the recent hype, the current adoption rate is relatively low, and blockchain has not become mainstream yet.”

Different applications, different adoption scenarios

Bitcoin clearly means different things to different people. “It’s most popular use today is as a store of value, while back in 2011, its principal use was as a payment method — for gaming” and other purposes, said Rauchs. Depending on its applications, different adoption curve scenarios are possible. For his part, Rauchs believes that BTC’s most likely future usage will be as an alternative, non-sovereign store of value.

According to von Landsberg-Sadie, Bitcoin’s true adoption pattern will be “more like a wave, oscillating higher at each cycle.” In this view, “the biggest bets are on the most extreme outcomes: Bitcoin will either ripple slowly out of relevance, or it will amplify meaningfully into the mainstream. My money is on the latter.”

In sum, BTC following the same growth pattern as Apple sounds like a fun version of what may happen, but ultimately, one shouldn’t quibble that it is “not based on a statistically valid experiment,” as Dowd reminded Cointelegraph. Still, according to several experts, it doesn’t make sense to compare Bitcoin to traditional technologies “because Bitcoin does not have the ability to create value — either in the form of increasing revenues or reducing costs,” as Stratopoulous noted. Moreover, global BTC penetration is arguably closer to 4% than to the 11% mark where smartphones stood in 2008, immediately before they went mainstream.


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Is it even fair to compare Bitcoin to younger versions of tech giants like Apple?

Crypto Industry in Numbers: How Does Q2 2019 Compare to the Past

Crypto Industry in Numbers: How Does Q2 2019 Compare to the Past

Beyond the bitcoin rally, the blockchain industry pulled off a spectacular performance in the second quarter of the year

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For crypto markets, the second quarter of this year has been the best three-month sequence since the bear turn of early 2018 put a brutal end to the dreams that the explosive growth of coin prices was to go on forever. Market capitalization ballooned from $144 billion on the last day of March to $339 billion on the last day of June, while bitcoin (BTC) caught both cryptocurrency aficionados and skeptics off guard by pulling off a spectacular rally from just over $3,000 to $11,000.

Although prices are the most visible and convincing indicator of the markets’ health, they do not necessarily correspond with the deeper currents that define the state of the industry at large. This time, however, there are multiple signs that the recent upward trend is not just a product of hype, speculation or whale activity. Disparate metrics, ranging from network activity to the rates of institutional adoption, suggest that the blockchain sector is steadily on its way to recovery. But how did Q2 stack up against preceding periods in terms of these and other dynamics, and what are the crucial macro trends?

Markets

According to a report produced by PwC and the Swiss Crypto Valley Association, the aggregate value of digital assetsd reached its 21-month low in February 2019, before starting a low-angle — yet steady — upward movement in March. As the first quarter of the year concluded, the movement grew steeper, inspired by bitcoin’s rapid advance. The original digital asset continued to lead the charge throughout the whole of Q2, raising bitcoin’s dominance and recording a 30% growth in June alone. The authors of the report attribute these dynamics to the clarification of crypto-related regulation and institutional investors’ revitalized interest in digital assets. Other experts largely concur with this explanation — noting, however, that not all digital assets enjoyed the same regulatory benefits. Ryan Alfred, president of Digital Assets Data, told Cointelegraph:

“The only asset with sufficient liquidity for institutions today is bitcoin. The Digital Assets Data platform shows us that bitcoin’s dominance climbed from 50% at the beginning of the Q2 to more than 60% at the end of the quarter. This asset is pulling the market higher on the strength of its brand and growing worldwide acceptance as an alternative to gold and fiat currencies. Part of this relative outperformance was caused by the lack of regulatory clarity for altcoins in the US, with several of the largest exchanges delisting assets or turning off trading in the US.”

According to Aditya Das, the in-house market analyst for blockchain and crypto asset market data company Brave New Coin, the shifts in the structure of crypto trading could also be responsible for both the general upward trend and bitcoin’s robust performance:

„The crypto trading ecosystem enjoyed an excellent Q2 2019 led by market benchmark, bitcoin. BTC prices have more than doubled since the beginning of April, and over the quarter bitcoin’s dominance of the overall crypto asset market cap has grown from ~45% to ~62% — an 18-month high. One factor behind BTC’s growing dominance is the emerging popularity of leveraged bitcoin trading as an alternative to altcoin investment. BTC Margin trading can generate similar high yields but with better liquidity and more robust fundamental/price data allowing for more straightforward decision making and fund management when trading.”

Dave Hodgson, the director and co-founder of Nem Ventures, the venture capital and investments arm of the Nem blockchain ecosystem, added that part of the reason for the growth of crypto markets lies in the weakness of the traditional financial markets:

“This is all happening against the backdrop of traditional equity, bond, and commodity markets which are generally becoming unattractive, and a financial system in which we are seeing negative interest rates. When you consider there is further talk of quantitative easing and multiple political decisions by national governments that appear to be against their national interests and for the benefit of small sections of society. I believe that within this context, these trends are likely to increase and propel us further toward global, cross-border systems that work for the general population, rather than solely for national interests, such as blockchain/DLT and cryptocurrency.”

It would be an overstatement to suggest that bitcoin was the only major winner in the Q2 wave of market expansion. For one, Das from Brave New Coin pointed to the success of several middleware protocols:

“Beyond Bitcoin, Chainlink, a blockchain platform that aims to connect smart contracts to external data sources, has become the first middleware protocol to achieve a billion-dollar valuation. Other visible middleware protocols generating buzz in the space include Kyber Network and Aragon.“

Institutional adoption

Unsurprisingly, Libra, a prospective cryptocurrency that social media giant Facebook announced toward the end of the quarter, has been the talk of the crypto town ever since, especially in discussions of both mass and institutional adoption. The majority of analysts tend to view the development in the context of increasing global awareness of blockchain technology, which should benefit public and private blockchain systems alike. In an interview with Cointelegraph, Michael Ou, the CEO of blockchain security company CoolBitX, observed:

“Q2 has seen truly remarkable developments in the blockchain space, indicating a clearer path to wider global impact. International market movements continue to show the strength of the digital assets space, as the harsh ‘Crypto Winter’ which characterised Q1, thaws and the market makes a significant comeback. The recent announcement of Facebook’s Libra launch rivals JP Morgan’s announcement of JPM Coin from earlier this year in terms of industry impact — belying a renewed enthusiasm for blockchain adoption globally and consumer and corporate interest in the benefits that emerging technologies can accrue.”

Lilin Sun, co-founder of PlatON — a computing architecture for open data sharing — echoed Ou in bringing up Libra’s relationship with JPM Coin and its general impact on adoption and regulation:

“Q2 witnessed the launch of Facebook’s Libra heralding a new era for the blockchain and cryptocurrency space. It will surely collaborate well with JPM Coin and other stable coins with its consensus, nodes, business model, and focus on regulatory compliance. Entering into Q3, we can expect Libra to keep itself hot and alive as a topic of interest in global governmental, financial, and blockchain circles. […] If successful in overcoming privacy concerns, Libra may be best-positioned to lead the revolutionary change of global financial infrastructure and blockchain development.”

Over on the financial markets, some of the second-quarter developments appear to mark impressive advances. According to 2Q19 CME Bitcoin Futures Analysis, the combined value of CME and CBOE-traded regulated bitcoin futures increased more than 270% compared with Q1 of the year. This could be considered a sign of growing institutional interest in bitcoin-based financial instruments. However, the overall pool of traders is shrinking and remains quite concentrated. Thus, the dynamics on the BTC futures front cannot provide conclusive evidence of the general uptick.

The venture capital-related metrics also look respectable but fail to surpass the rates of the record-breaking year of 2018. As stated in the recent report by Outlier Ventures, the first half of 2019 saw blockchain-related startups raise $822 million in 279 deals. Analysts in the space also observe a dramatic rise of a new funding model in the first half of 2019: initial exchange offerings (IEOs). An enhanced version of an initial coin offering (ICO), an IEO entails conducting a token sale on a reputable platform (e.g., Binance), which puts its reputation on the line. As a result, exchanges have to carefully vet every project before making its token available to investors.

Mass adoption

One of the basic indicators of popular interest in digital assets is the Google Trends interest index associated with relevant search terms. In the case of bitcoin, the global values predictably follow market prices, going from a score of 27 in the last week of Q1 to 100 (peak interest) in the last week of Q2. When it comes to searching for the term “blockchain,” however, the increase wasn’t nearly as dramatic: from 6 to 7 index points between the two quarters.

At the end of June, the leading United States digital currency exchange, Coinbase, published a report that recognized a considerable growth in cryptocurrency adoption and awareness. One of its key findings is that 58% of Americans reported having heard of Bitcoin, while 37% could proactively name it when asked to name any cryptocurrency. The growing awareness of digital assets and blockchain seems to be triggered not just by speculation and hype around surging prices: A huge part of it has to do with implementation of real-life solutions, Corentin Denoeud, CEO and co-founder of Blockchain Studio, a platform for the creation of decentralized applications, said:

“Following the monumental crash of 2018, we have witnessed a significant shift in the conversations surrounding blockchain and cryptocurrencies. As we enter the latter half of 2019, the move from a more theoretical, research-based ecosystem to one where projects are actually being built is tangible. Already this year in Europe we have witnessed an abundance of projects go live including French startup Equisafe, who launched the first ever European Blockchain Real Estate Sale, luxury brand Vacherin Constantin launched its first decentralised application to certify watches, and the largest French utility company EDF and Engie, originally competitors, launched a consortium (Archipel) with French Post and a French state institution (Caisse des depots) to certify documents to improve KYC for banks. This represents significant positive progression in our move towards mainstream adoption of blockchain.”

Blockchain network indicators

Throughout the second quarter of 2019, analysts have registered significant improvements on several dimensions of blockchain networks’ operation and usage, such as the amount of computational power applied to mining, number of transactions and active wallets. For one, between the last week of Q1 and last week of Q2, the hash rate of the Bitcoin network expanded from about 44 to 62 terahashes per second (TH/s). Digital Assets Data President Ryan Alfred also mentioned that another indicator of network activity is on a sharp rise, saying, “Active addresses also continue to climb from lows in the 600k range in January, to cresting 1 million several times in Q2, near previous cycle highs.“ Additionally, against the backdrop of rising crypto prices, some mining companies reported surging profits. Chjango Unchained, the director of community at Cosmos, said:

“The continued, steady growth of Bitcoin’s hashrate is a good indication of the condition of the network. […] Across the board, numbers of transactions are up for all the major cryptocurrencies. ETH, XRP, and USDT increased in usage, with all having higher numbers of transactions in Q2, when compared to Q1. ETH and XRP are particularly noteworthy examples as those platforms actually handled a higher overall number of transactions than even Bitcoin (as per CoinMetrics).”

Regulation and government adoption

In terms of regulation, as it happens, Q2 has been full of a tug-of-war situation between the industry and policymakers globally. The developments in this domain were not all roses, but roses have been sporadically present as well. For example, many members of the U.S. Congress got spooked by the grandeur of Facebook’s crypto project and requested that the company halt Libra’s further development. At the same time, Bank of England Governor Mark Carney sounded more supportive of the prospective system.

While the U.S. Congress has yet to release the data on lobbying activity in Q2, the steady expansion of both the number of blockchain lobbyists and the amount of money spent on their efforts in the previous periods justifies the expectation that this trend is continuing. CoolBitX’s Ou observed that realignment of regulatory frameworks is a necessary component of the blockchain sector’s maturation:

“Additionally, regulations are likely to play an increasingly fundamental and necessary role in promoting blockchain’s continued maturation, both as an industry and technology. The Financial Action Task Force’s (FATF) recent recommendations on tackling issues of KYC/AML within the cryptocurrency space is, of course, a major step forward. The first truly international attempt at providing regulatory clarity to the industry, it provides substantial evidence that global governments are recognising digital assets as well as the potential of this rapidly growing industry.”

Beyond just regulating blockchain technology, governments increasingly implement the solutions that it powers. Pradeep Goel, CEO of global health care platform Solve.Care, commented:

“One of the most significant trends we’re experiencing is the rise in the institutional and government adoption of blockchain in all spheres. In the US, the Federal Drug Administration joined forces with some of the biggest names in blockchain and in the retail sphere to participate in a drug tracing initiative, with the goal of creating an electronic and interoperable system. This indicates that governments are starting to see the possibilities of blockchain technology and that private companies can offer expertise in implementing solutions. Big strides are also being made in the healthcare industry, where the patient is being placed at the center of the healthcare ecosystem.”

The need for data security

One more trend directly related to the blockchain industry that the experts surveyed by Cointelegraph mentioned repeatedly is the growing demand for data security. Yuval Hertzog, co-founder of blockchain privacy firm Tide Foundation, stated:

“The value of personal data continues to skyrocket, as does its theft. Q1 saw a record 1900 reported data breaches with settlements and fines from previous years exceeding hundreds of millions of dollars. Q2 is already on track to exceed Q1 in both respects and we predict 2019 will be another record year for privacy breaches. […] Q3 will see changes in how the general industry view blockchain as a legitimate solution, with Libra pushing mainstream acceptance. This will drive blockchain technologies to offer privacy protection solutions where no other tech can.”

PlatON’s Lilin Sun highlighted blockchain’s relevance to the emerging field of privacy computing:

“Privacy Computing has been one of the hottest topics of 2019 and a common concern for developers worldwide. Thus, we have seen high-end homomorphic encryption technologies and sophisticated privacy solutions launched by leading companies, such as Google’s Private Join and Compute. These advancements greatly promote the development of Privacy Computing and will no doubt have ramifications for the emerging technologies space, including blockchain and Privacy AI.”

In sum, the second quarter of 2019 in the blockchain space was marked by a number of auspicious developments. As prices — the key ingredient of cryptocurrency’s mass appeal — pulled off a long-awaited rally, the fundamental indicators of market health were in place as well. The less visible but consequential work in the way of institutional and governmental adoption — which never ceased, even amid the market’s bleak performance — saw an additional boost. These advancements laid the groundwork for the industry’s continued growth and maturation as new challenges await in the second half of the year.


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Beyond the bitcoin rally, the blockchain industry pulled off a spectacular performance in the second quarter of the year