Polygon: Ethereum’s Scaling Sidekick

Polygon: Ethereum’s Scaling Sidekick

Nathan Frankovitz

Ethereum is the leading Blockchain for decentralized applications (dApps) globally. With net value locked in Ethereum surpassing $50 billion in mid April this year, the network’s growing list of decentralized finance (DeFi) protocols are beginning to rival formidable financial institutions. However, growing adoption is causing network congestion, making Ethereum too slow and cost prohibitive for certain applications and user bases. With Ethereum 2.0’s uncertain implementation timeline, many projects are vying for the title of “Ethereum killer”, if not the more humble “Ethereum scaling solution”. Among these solutions, Polygon is perhaps the most promising.

Polygon, previously Matic Network, takes a unique approach to scaling Ethereum by leveraging instead of fighting against the diverse ecosystem of existing scaling solutions. By providing “…a framework for building and connecting Ethereum-compatible blockchain networks”, Polygon creates value through fostering Ethereum network effect expansion. Accordingly, its valuations have skyrocketed in 2021.

The growing list of projects using Polygon architecture shows how embedded the network has already become in the DeFi ecosystem. Liquidity providers like Aave, exchanges like Curve, and prediction markets like Augur are examples of DeFi protocols whose combined efforts are automating and threatening to replace large segments of the legacy financial system. So long as Polygon continues to add value by aggregating Ethereum’s diverse set of scaling solutions, it will likely continue its rapid growth.

Because the subject is so technical, there is uncertainty among investors with regards to Polygon’s long term prospects. Since Ethereum 2.0’s shard chains will upgrade Ethereum’s scalability, it is natural to wonder whether solutions like Polygon will still be needed. However, we believe that Polygon’s value proposition is complementary to Ethereum 2.0. Vitalik Buterin, who is the founder of Ethereum, shares his perspective on the long term concerns for Ethereum in an October 2020 post:

It seems very plausible to me that when phase 2 finally comes, essentially no one will care about it. Everyone will have already adapted to a rollup-centric [a type of scaling solution] world whether we like it or not, and by that point it will be easier to continue down that path than to try to bring everyone back to the base chain for no clear benefit and a 20-100x reduction in scalability.

In other words, the current ecosystem of Ethereum scaling solutions may be so robust that by the time Ethereum 2.0 is fully implemented it would be counterproductive, or economically irrational, for network participants to bring all activity back to the base chain. Vitalik furthers his point, writing, “This implies a ‘phase 1.5 and done’ approach to eth2, where the base layer retrenches and focuses on doing a few things well – namely, consensus and data availability.”

We look forward to monitoring the ongoing development of the Ethereum ecosystem. As DeFi protocols continue to scale in breadth of applications and depth of user adoption, it is likely that many more blockchain scaling and bridging projects will be integrated. By offering an adaptive framework for combining these projects’ strengths, we are confident Polygon will continue to add value to the crypto asset space for the foreseeable future.

Helium Network: Powering the People’s Wireless Economy

Helium Network Token The Peoples' Wireless Economy Mining

The Helium Network Token Wireless Economy Hotspot Miner

Helium Network: Powering the Peoples’ Wireless Economy

Nathan Frankovitz & Zachary Profeta

Without a doubt, the internet has made the world a better place. By distributing near-instant access to information across the globe, virtually all industries have become more efficient. Moreover, the standard of living around the world has climbed rapidly as humans have gained access to internet-based devices with an ever growing set of applications. Now, the Internet of Things (IOT) is enabling devices themselves to communicate with one another in unprecedented ways, making it possible for new synergies to be discovered. Through decentralization, crypto assets are helping to scale these in-demand networks. By offering public access to wide ranging coverage at low energy costs, Helium Network Token (HNT) has become the leading crypto network for the rapidly growing IoT space.

Air quality monitors, GPS asset trackers, and temperature sensors are just a few examples of devices that can make use of the Helium Network to collect and relay information. As the number of such devices grows, the network will afford users unparalleled access to robust real-time, real-world data. The value potential of this next chapter in the age of information is incalculable. Accordingly, demand for IoT connected devices is projected to rise exponentially in the coming years.

Traditionally, costly infrastructural barriers to entry limit competition and network scalability, enabling private internet service providers to siphon wealth that is created by the public’s growing interconnectivity. However, because Helium’s network grows organically through its decentralized community of investors, it is capable of providing unlimited data usage with no need for the sim cards and fees associated with traditional private networks like AT&T or Verizon. Helium’s disruptive token economy is simultaneously a threat to private networks and an opportunity to forward-thinking investors. 

By rewarding Hotspot providers with Helium Network Token (HNT), the Helium Network incentivizes individuals to invest in “Proof-of-Coverage” miners that provide miles of coverage for surrounding IoT devices. Using radio frequencies, Helium LongFi transfers data and credits using only 5W of energy per Hotspot, which is less than most light bulbs. Though tech enthusiasts are capable of building their own miners, commercial third-party manufacturers sell Helium Community approved HNT miners starting at approximately $426 USD. Depending on demand and location, many of these miners earn upwards of 100 HNT per month. As HNT is valued at $16.61 per token on the day of writing, these sold out miners frequently resell for multiples of their retail price on secondary markets.

Above: Helium Hotspot in Manhattan and surrounding network participants. Source: explorer.helium.com

Because the Helium Network is able to pool data from a virtually unlimited number of devices, it is especially useful for scientific endeavors that require extensive monitoring such as agriculture, weather forecasting, and environmental biology. Of note, a joint study titled “Advances in Smart Environment Monitoring Systems Using IoT and Sensors” between the Italian University of Sannio and the Myanmar Institute of Information Technology (MIIT) cites air, water, and radioactive pollution as “major factors that pose genuine challenges in the environment”. With better data, researchers can make better decisions to overcome these challenges. The study also reviews research trends wherein emerging IoT technology can be used to enrich other environmental factors.

Helium also finds adoption in asset tracking. As PR Newswire explains, “Preventing asset loss and theft, followed by enhancing operational efficiency are the two highest drivers of [IoT] adoption.” According to Helium’s Head of IoT Product Dal Gemmell, “Based on inbound demand and outbound efforts, asset tracking demand remains high, and yet legacy connectivity technologies continue to be costly and complex.”

Similarly, IoT networks like Helium can monitor movement of vulnerable people such as patients with dementia, who are increasingly treated in outpatient settings, making the monitoring of these people vital to ensure their safety and well being. Using the Helium network, Careband monitors movement and wearable device data of cognitively disabled patients to alert caretakers of irregularities in the patients daily routine. The same technology is being incorporated in proximity and contact tracing in COVID-19 outbreaks. Regarding integrating Helium, Careband’s CEO Adam Sobol stated, “So much of what we are doing today is possible because of them [Helium] and The People’s Network. Together, we are giving employers, administrators, and caregivers the much-needed tools they need to help protect their teams, students, and loved ones.”

Helium’s integration with Airly is another example of how decentralized IoT networks can further public health objectives. According to the UN, worldwide air pollution causes some 7 million deaths and $5 trillion in costs annually. Airly Sensors, air quality maps, and API tools help both individuals and institutional researchers stay informed with hyper-local real time air quality data. With obvious congruence between Airly’s emphasis on sustainability and recent heightened public discourse on crypto’s environmental and social impacts, we anticipate future integrations between crypto networks to produce even more efficient, net-positive changes for the globe.

In essence, the Internet of Things empowers humanity by delivering rich, timely, and actionable data. If air sensors and asset trackers are like nerve endings on the human body, then the Helium network is much like the nerves running to the brain. Combined, these tools enable us to make informed decisions on how to respond to the unpredictable world we live in. As we increasingly sense, respond to, and learn from such powerfully precise data, we will be capable of building a more beautiful future for all. 

When In Doubt, Zoom Out: Crypto & the “Lengthening Cycle Theory”

When In Doubt, Zoom Out: Crypto & the “Lengthening Cycle Theory”

Nathan Frankovitz

Recently, the crypto asset market cap fell from a peak of $2.502 trillion to as low as $1.351 trillion in the wake of growing high-profile concern over Bitcoin’s energy usage. Though climate change is a legitimate problem facing humanity, we remain confident in crypto’s net positive impact on global environments as explained here

Of course, no amount of research will change the fact that Bitcoin’s price, along with the rest of the crypto asset market, was heavily impacted by the fear catalyzed by Elon’s tweet. Look no further than the Crypto Fear & Greed Index, which set its lowest low in over a year on April 16th, to confirm the significance of this wave of amplified skepticism. As humans, we are inevitably subject to the visceral responses these sudden changes in market sentiment and the volatile values of our portfolios can bring. However, we are reminded of the adage “when in doubt, zoom out”. Bitcoin is still the best performing asset of the last decade. Fundamentally, its value proposition to society remains unchanged.

Gemini’s The State of U.S. Crypto Report 2021 is telling. According to their survey, Gemini estimates 14% of U.S. adults now hold cryptocurrency. Other studies estimate the number to be even higher. This marks a crucial transition along the crypto adoption curve. As history has shown, the percentage of customers that adopt an innovation over time can be split into 5 distinct categories across the risk tolerance spectrum: innovators (2.5%), early adopters (13.5%), early majority (34%), late majority (34%), and laggards (16%). Accordingly, crypto asset adoption is nearing the end of the early adopter phase as it tests entry into the early majority phase. Importantly to investors, this is where market cap growth begins to accelerate along the s-curve.

As we watch to confirm this transition, it is important to understand what distinguishes innovators, early adopters, and the early majority. Describing innovators, Icon Ventures Europe’s Michael Mullany writes, “…because they’re always enthusiastic about their latest Hot New Thing discovery, the Majority of the world tends to tune them out.” He continues, “The Early Adopters are where markets are made or broken. Early Adopters are the respected gatekeepers for new Innovations.” In contrast, “If Innovators care about what’s NEW and Early Adopters care about PROVEN VALUE, then the Early Majority cares about what’s POPULAR.” 

Prior to 2017’s ICO mania, Bitcoin and most other crypto assets’ narratives largely purported to be stores of value and peer-to-peer electronic cash (cryptocurrencies). Without widespread adoption, however, these networks were essentially proof-of-concept in comparison to their endgame visions for a decentralized monetary future. We can think of crypto asset users in this phase as the innovators.

In 2017, smart contracts built on the Ethereum network began to show promising development. Utility tokens for protocols like Compound, MakerDAO, and Bancor appreciated sharply as crypto assets gained traction on a new use case: decentralized finance, or “DeFi”. Filled with exuberance by the potential for crypto assets to supplant multi trillion dollar industries, investors threw a collective $4.6 billion at 430 ICOs (initial coin offerings) worldwide. For most of these projects, expectations were never realized. Though the bear market of 2018 was bleak on paper, early adopters paved the way for today’s market by monitoring progress and backing the most fundamentally sound crypto projects.

As Gemini’s study suggested the imminence of 15% U.S. crypto market penetration toward the end of 2020, it reasons that the 16% threshold marking the transition from “early adopters” to “early majority” is taking place in the bull market of 2021. Unprecedented institutional adoption, fundamentally void speculative mania, and a host of new financial on-ramps all exemplify key characteristics of early majority technological adoption as explained by Mullany: “They’re influenced by customer marketing: they care deeply about references and they trust Early Adopters to gate-keep new products. They often skip the detailed, show-me-the-value proof of concepts and trials that Early Adopters require.”

Once adoption reaches critical mass as the early majority enters, total percent adoption tends to accelerate. KPMG’s Consumer Adoption: How to predict the tipping point substantiates this idea, illustrated by the S-curve adoption model. Despite being the most dangerous four words in finance, we are open to the idea that in this crypto bull cycle, “this time is different.”

Source: KPMG

Dubbed the Supercycle, this theory suggests that mass inflow of retail investment will break convention. We believe this theory pairs well with the Lengthening Cycle Theory, popularized by prominent crypto analyst and founder of Into The Cryptoverse. Broadly, this theory suggests that Bitcoin’s market cycles are lengthening while producing diminishing returns. Unbelievable as it may seem today, this implies Bitcoin’s volatility will approach zero in 10-15 years. For Bitcoin to remain pursuant to both the supercycle and lengthening cycle theories, it must undergo even more massive adoption before stabilizing at the top of its theoretical S-curve.

Of course, digital assets are extraordinarily competitive and difficult to predict. Even among crypto enthusiasts, there are many who hope that Bitcoin’s narrative for perfect scarcity will be overtaken by assets like Ether. Only time will tell. What do you think will happen? Please drop a like, follow, share, or reach out to us. Crypto is all about community.

Crypto, Climate, & Confusion: Clearing the Air on Blockchain and the Environment

Cryptocurrency Sustainability

Cryptocurrency Sustainability

Crypto, Climate, & Confusion: Clearing the Air on Blockchain and the Environment

Nathan Frankovitz

Millennials lead other generations on investing in two hot topics: Crypto assets, and climate and energy issues. Yet, some still argue that these investments are diametrically opposed due to the Bitcoin network’s considerable electrical demand. As of March 18th, 2021, the annual power consumption of the Bitcoin network was estimated to be 129 terawatt-hours (TWh), a staggering figure when compared to the entire country of Norway, which consumes 124 tWH annually. 

Counterintuitively, however, this doesn’t mean Bitcoin has a negative net impact on the environment. Like warm and cold air forming a tornado in the Great Plains, a whirlwind of colliding hype and doubt is obscuring the facts underlying today’s crypto assets. Bill Maher went so far as to say, “Almost all the people who tout Bitcoin, the millennials, the Gen Zers, the Silicon Valley types, are money-hungry opportunists and you’re not allowed to pretend you care about the environment.” Strong words for someone who, just minutes earlier, admitted “I’ve read articles about cryptocurrency, I’ve had it explained to me, and I still don’t get it, and neither do you or anyone else.” Even Elon Musk seems conflicted, having taken actions for and against Bitcoin’s case for sustainability in the last month. 

Accordingly, we must keep an open yet critical mind as we explore the interplay of finance and energy globally. Tweets and talk shows are insufficient for developing informed opinions on such a complex topic. We suggest Bill reads up on our industry-leading research before completely dismissing the fastest growing trillion dollar industry on earth.

Harvard Business Review’s May 2020 article “How Much Energy Does Bitcoin Actually Consume?” makes an important distinction: “…you cannot extrapolate the associated carbon emissions without knowing the precise energy mix — that is, the makeup of different energy sources used by the computers mining Bitcoin.” In other words, not all energy consumption incurs equal costs to the environment. Bitcoin mining is a game of margins, with the price of electricity being the chief factor. These incentives are driving miners towards “…better access to sustainable and renewable energy”, according to Argo Blockchain. In fact, data illustrating cost-efficacy improvements in wind and solar explain the 11% reduction in U.S. energy-related emissions of CO2  in 2020. As demand for decentralized finance grows, crypto mining is actually accelerating renewable resource adoption. Props to General Electric for predicting this trend in 2016.

The economic mechanism by which Bitcoin demand accelerates clean energy integration can be referred to as “energy arbitrage”. Essentially, certain places at certain times are exceptionally efficient at producing clean energy—the trouble is that these regions’ demand for electricity don’t always match production. In west Texas, Layer1’s Bitcoin mining operation perfectly illustrates the power of arbitrage. Most of the time, Layer1’s miners are busy converting cheap west Texan energy into Bitcoin. However, pursuant to their “demand response” contracts, Layer1 will shut down their machines to allow their 100 mw load to flow into the electrical grid. CEO and co-founder Alex Liegl explains, “We act as an insurance underwriter for the energy grid.” Ed Hirs, a University of Houston lecturer in energy economics adds, “It’s a lot cheaper option than building a whole new power plant or battery system just to keep it on standby.”

This form of arbitrage is replicated globally. In Iceland, “…abundant water and underground heat is harnessed by hydroelectric dams and geothermal power stations to produce cheap, green electricity that facilitates the energy-intensive process of confirming cryptocurrency transactions”, according to wired.com. In Sichuan China, Bitcoin enables overbuilt hydroelectric operations to make use of excess energy, as explained by Coindesk’s Nic Carter. “If your local energy cost is effectively zero but you cannot sell your energy anywhere, the existence of a global buyer for energy is a godsend.” The existence of Bitcoin’s global market de-risks renewable energy development as investors seek optimal conditions on the edges of civilization. 

We must also consider the impetus for Bitcoin’s rapidly growing global market: demand for a decentralized financial system. Progress towards this vision has been considerable since the onset of the COVID-19 pandemic, which spurred unprecedented manipulation of the monetary supply by centralized banks. This begs the question: how energy intensive are the financial systems that currently exist which Bitcoin and its orbiting crypto assets show promise to replace?

Let’s begin with the predominant narrative on Bitcoin today: Bitcoin replaces gold as a store of value. A 2019 study by Arca demonstrates how “gold mining in terms of crude oil usage accounts for 0.27% of worldwide oil consumption (directly comparable to Bitcoin’s electricity share)”. This approximation of equal environmental costs comes before factoring in gold transportation, storage, etc., in addition to the energy mix concept previously addressed. It also doesn’t account for decentralized finance’s ability to replace enormous shares of the traditional financial systems which expend energy across countless verticals. Bank branches, capital expenditures, employee commutes, aluminum mining, currency smelting, distribution, custody, etc. are just a few of the ways the legacy financial system expends energy to uphold a far less egalitarian and convenient monetary system. By virtue of being more perfectly scarce, more durable, and easier to transport, Bitcoin’s “distributed ledger technology” reduces the friction associated with gold’s (and other financial instruments’) existing use cases while opening new possibilities through its composability in smart contracts. The resulting reduction in friction allows financial systems to scale, accelerating financial inclusion for the “unbanked” and “underbanked”, as described in Deloitte’s Inside magazine issue 19

Equalizing access to financial services is not only a moral imperative, but an economic interest for all global-minded citizens. Many governments around the world practice ineffective and even abusive monetary policies that stifle innovation, such as in Venezuela. As the Venezuelan bolivar collapses, people are investing in food and water and resorting to bartering to preserve their purchasing power. These ancient ways of storing and exchanging value are clearly inefficient, and regression towards their use robs people of their life savings, time, and humanity. As we progress towards an increasingly globalized world, the billions left behind under such tumultuous economic conditions have little chance of realizing their potential. As a result, we all suffer.

In 1999, Forbes published an article titled, “Dig more coal — the PCs are coming”. In retrospect, these old skepticisms seem absurd. Inevitably, disruptive technologies create fear, uncertainty, and doubt—especially among those who hold stake in the aging systems. Like JP Morgan in 2017, incumbents cry foul until they realize what’s happening. “If you can’t beat them, join them” would make a great title for a memoir of these times in which financial institutions are piling into the crypto universe.

At Sarson Funds, we are not dogmatic about crypto investments. Our role is to provide evidence-based educational content on the rapidly developing realm of crypto assets while managing a broad set of portfolios for investors. We deeply respect the complexity of these emerging markets. Accordingly, we carefully choose which crypto projects we back. Though many projects will rise and fall in the coming years, a fundamental truth remains: We are dedicated to championing a future where all global citizens are united by access to fair monetary systems, financial services, and digital sovereignty. 

Man’s Best… Crypto? How Dogecoin Could Become “The Peoples’ Money”

Dogecoin to the moon

Dogecoin to the moon

Man’s Best… Crypto? How Dogecoin Could Become “The Peoples’ Money”

Nathan Frankovitz

According to the American Kennel Club, the Shiba Inu is an ancient breed of dog “…named after its history as a hunter in the rugged mountains of Japan.” In modern times, it also happens to be the face of an $81 billion dollar cryptocurrency named Dogecoin. The crypto asset’s meteoric rise owes its 9537% YTD (as of 05/04/21) gain to Kabosu, the original “Doge” that went viral in 2010. Admittedly, beyond its sensationally cute mascot and absurd catchphrases like “wow much coin,” “how money,” “so crypto,” “plz mine v rich very currency,” DOGE’s underlying value proposition is dubious. 

Of course, Dogecoin’s lightheartedness appears to be its greatest virtue. The crypto asset ecosystem is intimidating, veiled behind jargon that blurs the lines between finance, computer science, governance, and even religious fanaticism. Fortunes come and go easily for many cryptocurrency speculators, who often don’t understand the technologies underlying their investments. In contrast, Dogecoin.com makes no promises of grandeur. Opening in bold with “1 Dogecoin = 1 Dogecoin”, Dogecoin’s official site simply states, “Dogecoin sets itself apart from other digital currencies with an amazing, vibrant community made up of friendly folks just like you.” Born as a parody to Bitcoin in 2013, Dogecoin has and continues to grow from internet meme culture’s fertile grounds.

But if Doge’s fundamental value proposition is truly barren, how does it continue to climb the charts? Where is the “smart money,” and why aren’t they taking profits to reinvest in “real” projects? At the time of writing, Dogecoin is the fourth largest cryptocurrency by market cap. It has surpassed the leading oracle network Chainlink, the leading decentralized exchange Uniswap, and even the leading “Ethereum-killer” Cardano. With tens of billions of dollars invested in these crypto assets, Dogecoin’s success isn’t trivial. Rather, its massive capital inflows are drawing eyes.

On Tuesday, Galaxy Digital Research issued a report titled, “Dogecoin: The Most Honest Sh*tcoin.” Despite citing “zero development,” “no market infrastructure,” “barely any wallet software,” and the fact that “many exchanges still don’t support it,” the report acknowledges unique strengths possessed by Dogecoin’s rare breed, “…despite its deficiencies, Dogecoin has remarkably strong fundamentals and powerful forces supporting its rise: a genuine origin story, longevity, and a growing community of users who appear determined to meme a Shiba Inu-themed global currency into existence.”

Dogecoin traces its origins to Litecoin. In 2011, Litecoin forked from Bitcoin in an effort to provide faster and cheaper transactions while maintaining many of Bitcoin’s traits such as its proof-of-work mechanism and hard cap supply. Litecoin itself was forked numerous times, with one fork of a fork of a fork eventually resulting in Dogecoin. Like Litecoin, Dogecoin inherits many of Bitcoin’s core technologies while offering its own unique properties. Notably, Dogecoin transactions take only 1 minute to verify. In contrast, Litecoin takes about 2.5 minutes to verify transactions. Bitcoin transactions can take anywhere from 10 minutes to several hours, sometimes days, to confirm. While Bitcoin’s properties have attracted strong narratives for its use as a store of value, it remains a poor vehicle for day-to-day transactions. Dogecoin may prove itself fit to fill a niche for these types of payments because it is relatively quick, widely accepted across crypto communities, and satisfies needs for small but rapid daily transactions.

It is no secret that Elon Musk, CEO of Tesla and SpaceX, has played a pivotal role in Dogecoin’s recent growth. Renowned for his brazen sense of humor, Elon’s record for viral meme-inspiring tweets earned his candidacy and eventual status as “community-appointed CEO” for Dogecoin. The ensuing correlation between Elon’s tweets and Dogecoin’s price action demonstrates the power of Dogecoin’s community and value of network effects, illustrated by Metcalfe’s Law. Tech investor billionaire and outspoken crypto enthusiast Mark Cuban has joined chorus, tweeting, “As long as more companies take doge for products/services, then Doge can be a usable currency because it MAY hold its purchasing value better than a $ in your bank.”, adding, “…yes, a joke is now legit.” Consistent with his words, Cuban’s Dallas Mavericks began accepting DOGE as payment for tickets and merchandise online in early March.

On May 4th, leading crypto custodian and exchange Gemini (founded by the Winklevoss twins in 2014) announced it now supports Dogecoin. The blog post states, “Dogecoin is the people’s money. It’s organic, irreverent, and fun. It’s not forced on us by a government or some other central authority, it’s chosen by us, for us — by the people, for the people. Wow.” Strained as the non-satirical arguments for Doge may be, Gemini’s post raises considerable philosophical questions. “Yes, it’s a meme coin, but all money is a meme. And all money is both an idea and a matter of faith or belief in it.” Consistent with many pro-crypto arguments, it falls back to the fundamental supply and demand argument. “No one person, organization, or authority decides the value of a crypto – its value is determined by its supply and your demand for it. In Dogecoin’s case, its money supply is transparent, predictable, and disinflationary.”

Empowered by crypto, it is up to ordinary people to decide what money is to them. If the global financial system will one day operate predominantly on a decentralized monetary system, many ideas will rise and fall before then. In the meantime, the burden falls on investors to research and place their bets accordingly. Perhaps Musk said it best in his February Clubhouse interview. “Dogecoin was made as a joke to make fun of cryptocurrencies. But fate loves irony. The most ironic outcome would be that Dogecoin becomes the currency of Earth in the future.” If you want to see the next part of Elon’s Dogecoin saga unfold live, tune in to NBC’s Saturday Night Live May 8th. The Dogefather is hosting.

Atari Meets Blockchain: The Half-Century Journey from Silicon Valley to the Metaverse

The future of gaming: Atari Token

The future of gaming: Atari Token

Atari Meets Blockchain: The Half-Century Journey from Silicon Valley to the Metaverse

Nathan Frankovitz

Earlier this month, Atari restructured its business to create two separate divisions, Atari Gaming and Atari Blockchain. The announcement comes after years of development in the space, since Atari first publicly expressed its interest in crypto assets in early 2018.

In his foreword to the Atari Token Whitepaper, Atari CEO Frederic Chesnais points to the gaming industry’s progressive decentralization as support for the gaming giant’s strategic move. “Atari means ‘Revolution, Technology and Entertainment’. When I started to work on blockchain and cryptocurrencies, I immediately thought of creating a virtual currency that could be used in any video game.”, Chesnais wrote.

Launched in the fall of 2020, Atari Token ($ATRI) aims to “become the token of reference for the interactive entertainment industry”. The token’s first use-case is within crypto-casinos, where players can gamble in virtual blockchain-based games. Described by Reuters as “The ‘Metaverse’ Bet”, Atari has already initiated a two-year lease term on virtual land in Decentraland, a popular Ethereum-based virtual world. After licensing its own retro arcade, Atari celebrated its Decentraland Casino’s Launch Party with $10,000+ in prizes and a live set played by the platinum selling artist Dillon Francis.

With a growing economy of finite in-game lands, currencies, items, and services, Decentraland and its peers are blurring the lines between reality and virtual worlds. According to an article by Coindesk, an in-game competitor to Atari named Decentral Games began hiring for its virtual casino as early as February this year. 

More broadly, Atari seems to subscribe to the zeitgeist for crypto assets demonstrated by the rapid growth of DeFi, or decentralized finance. Chesnais continues in his foreword, “Like many other people, Atari fully supports the idea of ‘finance without borders’. That is why the number of people actively using crypto-currencies is steadily growing and approaching the psychological mark of 50 million.” Indeed, unlike the privatization of profits in the classical free market, Atari’s Blockchain initiatives appear to embrace publicly-distributed, player-owned virtual assets.

Atari cites upcoming trends backing their investment in Atari Token, echoing narratives already seen driving DeFi. According to their Whitepaper, the number of people with access to the internet will quickly climb from 4.5 billion to 8 billion. Many of these internet newcomers will have less robust identification records than existing users. These “under-documented and/or underserved individuals” lack access to financial systems that offer improvement to their economic condition, which may be alleviated by the maturing DeFi ecosystem. Atari also cites diminishing hardware costs, rising rates of self-education, and the replacement of cost-prohibitive financial services with increasingly reliable smart contracts. Each of these narratives bolster Atari’s assertion for an overarching “Mega-Trend: The Emergence of Online Smart Platforms Offering the Future of Work.”

“What we anticipate is the explosion of online platforms that offer tasks through smart contracts, using cryptocurrencies as the utility token that acts as the conduit for value or the medium of exchange.”, says Atari. For those already following crypto asset trends, this is not a bold claimit’s already the reality. The real question is, which tokens have the real “utility”? Further, which tokens’ prices, if any, will reflect value not just for the tokens’ utility, but also as a generally accepted “medium of exchange” derived from mass adoption network effects? With long-standing conflicts over which crypto assets best serve as money, Atari Token’s ambitions for utility beyond powering video-gaming platforms will not be realized overnight. 

Overall, however, we think Atari Token is poised to make strides in the crypto ecosystem. With a long-term, people-first strategy loyal to the broader ethos of decentralization through blockchain, Atari’s leadership and brand reputation could make its $ATRI token an indispensable part of the quickly emerging gaming metaverse. Ultimately, crypto assets depend on community consensus. If Atari Token demonstrates effective governance, trust, performance, and integration while fueling next-generation gaming experiences the brand was once known for, the best may be yet to come for Atari’s legendary history.

Beyond Beeple: NFTs & The Future of Financial Access

NFTs and Tokenization: the future of finance

NFTs and Tokenization: the future of finance

Nathan Frankovitz

Today’s crypto market stands in striking contrast to last year’s. One year ago, crypto assets were recovering from March’s sell-off as they set up the “DeFi summer” of 2020, a period of rapid growth for many DeFi protocols. These bear market rumblings reflected strengthening fundamentals for crypto asset networks, despite a chaotic macroenvironment. With a more favorable economic backdrop entering Q2 of 2021, the maturing DeFi ecosystem provides a foundation for the next trending category of crypto assets to bring value to the blockchain: NFTs, or “non-fungible tokens”. By enhancing the possibilities of digital asset ownership, tokenization is poised to disrupt enormous industries. In this article, we will explore how mass market access to tokenization is set to change our economy forever.

“Tokenization” is the process by which assets are issued unique identifiable digital representations on a blockchain, or NFTs. Because NFTs can be programmed to capture creator royalties, trade globally on secondary markets, and are easily verifiable via the blockchain, they are an attractive new technology for artists. Market excitement for NFTs skyrocketed in Q1 2021, famously culminating in the $69M sale of Beeple’s “Everydays: The First 5,000 Days”. However, even Beeple himself ushers caution. “I think there’s just a lot of hype right now…” “…it [the hype] might wipe out a lot of projects that didn’t have real, actual value. But I think the technology [tokenization] itself is sound enough that it’s going to outlive that and it’s something that’s going to be around for a while here.” Indeed, more complex NFT applications continue to develop beneath the surface. Beyond art and collectibles, NFTs show promising ability to revolutionize how we interact with real-world assets, virtual worlds, and even govern. Most importantly, NFTs are revolutionizing the world of finance.

Let’s imagine a tokenized property deed. The NFT representation of a deed could be used to compose smart contracts to automatically enforce leases or mortgages. In this hypothetical, Person X agrees to lend Person Y $400,000 to fund the purchase of a property. However, if person Y fails to keep up with their contractual obligations, the smart contract automatically returns the property deed NFT to Person X, as outlined in X and Y’s original agreement. By choosing to use NFT-enabled smart contracts, both Person X and Person Y save money by eliminating a costly and historically self-serving intermediary, the mortgage industry. This is the magic of “trustless” smart contracts. No trusted third party is needed to enforce the agreement, nor is any legal counsel needed to arbitrate potential disputes, since X and Y’s contract was designed to account for all possibilities before settling irreversibly. This gives rise to the popular crypto adage, “Code is law”. By disintermediating third parties, smart contracts reduce risks and costs associated with human capital, error, law, fraud, etc., freeing resources for redeployment.

Deloitte’s Inside magazine issue 19 supports the case for NFTs as evidenced by the above hypothetical: Greater liquidity, faster and cheaper transactions, and more transparency are all benefits offered by NFT technology. However, we at Sarson Funds believe the most profound benefit offered by NFTs is accessibility. Tokenization reduces financial friction by making assets easy to divide and retrade, eliminating a costly barrier to entry for investors. As more people realize the opportunities that DeFi applications offer, services traditionally reserved for financial institutions (such as lending) will become more efficiently powered by the individually small yet collectively massive efforts of ordinary people. We believe that this economic revolution will heighten America’s ideal of equality of opportunity for the foreseeable future.

Dollars Gone Digital: Visa Leads Fintech Integration with Crypto.com

Visa allows crypto payments for Crypto.com

Visa allows crypto payments for Crypto.com

By Nathan Frankovitz

Major news outlets started this week off with headlines reporting Visa’s new pilot program with Crypto.com. According to Yahoo Finance, Crypto.com has traditionally sold crypto assets to settle its obligations with Visa. Instead, the 10m+ user exchange will now be able to pay directly with USDC. In yet another milestone bridging the old world of finance with blockchain protocols, Visa told Reuters that it “plans to offer the option to more partners later this year.”

Known as a “stablecoin”, USDC (USD Coin) is redeemable at a 1:1 rate for US dollars. Built on standards governed by Centre, a “membership-based consortium that sets technical, policy and financial standards for stablecoins,” USDC is fully backed by reserve assets and is issued by a variety of regulated financial institutions. By digitizing the dollar through blockchain technology, USDC offers greater transactability and smart contract functionality than its cash predecessor.

Meanwhile, China, Japan, and numerous other countries are piloting their own “stablecoins,” called central bank digital currencies, or CBDCs. According to Josiah Hernandez, head of the CBDC Group, “What has spurred interest in CBDC issuance is the realization that it offers a holistic solution for updating financial infrastructure and enables instantly settled payments at no cost to customers.” With fintech giants and central banks alike working toward greater blockchain adoption, we are excited to see what’s next.

Bananas, Bitcoin, and Beyond: Blockchain Insights from Mark Cuban

Bitcoin-And-Beyond-Blockchain

Bitcoin-And-Beyond-Blockchain

Bananas, Bitcoin, and Beyond: Blockchain Insights from Mark Cuban

Nathan Frankovitz

You’d be hard-pressed to find a more recognized tech investor than Mark Cuban. The serial entrepreneur founded multiple 90s tech companies including Microsolutions and Broadcast.com before becoming a prominent investor in the 2000s. With many claims comparing today’s blockchain hype with the internet of the 90s, we’re investigating the ideas of leaders like Cuban who successfully emerged from that explosive tech era.

In recent tweets directed at popular gold enthusiast and Bitcoin critic Peter Schiff, Mark Cuban, owner of the Dallas Mavericks, wrote, “…BTC/Eth are technologies that can make you a banker, allow friction-free exchange of value, and are extensible into an unlimited range of biz and personal applications.” He continued in a second tweet, “What we are seeing built w/ crypto today is just proof of concept…” “…But Gold won’t ever change. This is why it will die as a SOV [store of value].” For those who recall the October 2019 headline “Tech Billionaire Mark Cuban Picks Bananas Over Bitcoin“, Cuban championing Bitcoin might come as a surprise. Fortunately, the billionaire has recently appeared on numerous talk shows to explain why he has newfound enthusiasm not just for Bitcoin, but also for trending cryptocurrency applications such as DeFi and NFTs. Let’s take a closer look at Mark Cuban’s latest thoughts on the world of cryptocurrencies.

DeFi

“DeFi”, or decentralized finance, is a quickly growing cryptocurrency category that makes financial services more accessible through decentralization. DeFi’s recent maturation seems to be making the choice between bananas and bitcoin more difficult for Cuban. As the standalone guest on March 9th’s “Blockchain & Booze” episode, Mark updated listeners on his position, saying, “In terms of utility, pre-DeFi, a banana had more utility than bitcoin because I can eat a banana. Now the utility has changed. There are so many things that you can do now. If I’ve got my bitcoin, whether it goes up or down in value, I can take a percentage of that and borrow and lend and earn income, and be my own personal banker.” So, while Mark still believes that “Bitcoin is an algorithmic source of scarcity and a store of value”, the broader DeFi ecosystem is what gives it real utility. 

As a true leader in crypto, Mark isn’t just subscribing to a popular narrative—he’s getting his hands dirty. According to an interview with Decrypt, he’s teaching himself Solidity. Solidity is the programming language native to the Ethereum blockchain, where most DeFi smart contracts have been built so far. While Mark isn’t shy about the risks of investing in crypto assets, he speaks enthusiastically about his predictions for the future of the space. In the same Decrypto interview, Mark imagines a future where smart contracts remove the need for inefficient intermediaries like insurance companies or accounting firms, which are vulnerable to human error and corruption. In short, Mark says, “…simplification of smart contracts is what gets me excited. Because now, all these SaaS [software-as-a-service] companies, all these different companies, I could see just disrupting the f–k out of them” Well put, Mr. Cuban. 

NFTs

While DeFi’s growth exploded in mid-2020, NFTs are the latest hot topic in crypto. In essence, “non-fungible tokens” are uniquely identifiable blockchain-based assets that grant their owner immutable ownership. By enabling digital assets such as art, music, video-game items, etc. the ability to give true ownership to consumers, many digital services are ripe for disintermediation. Though the value proposition behind NFTs may be unclear at first glance, Mark thinks they are more digestible among younger consumers. “The crypto natives, particularly Gen Z, their most valuable assets are on their phone…” “…That’s why people my age don’t fully understand that this is not a transition, this is not hard, this is natural.”, Mark wrote in his January 31, 2021 Blog Maverick post titled “The Store of Value Generation is Kicking Your Ass and You Don’t Even Know it”.

Ever the early adopter, Mark has already tried out creating his own NFTs. “I just took GIFs of me going to work out and I put them out there for $25 apiece, thinking no one’s gonna spend any money on this. Then I was asked, ‘What would you like your royalties to be?’ Oh my god. What a game-changer, that just changed the nature of selling anything digital, period, end of story.” Traditionally, the “starving artist” is paid only once for their work, even if it goes on to resell for millions. Similarly, musicians face restrictive gatekeepers and costly distributors to get their music to the masses. The “game-changer”, as Mark points out, is NFT technology’s ability to make digital collectibles more rewarding, both financially and intrinsically, for artists and collectors alike. 

What’s next?

We’ve previously covered why the unprecedented institutional interest in crypto assets is changing the game this market cycle. Now more than ever, we can look toward prominent investors for clues on the next cryptocurrency trends. As a veteran of the dot-com bubble, Cuban’s cautiously optimistic involvement in DeFi and NFTs is exciting for many crypto enthusiasts. Still, many wonder: Are we in a bubble? Only time can tell. Irrational exuberance seems inevitable for certain crypto assets, especially among NFT markets where prices may become more driven by financial motivation than subjective intrinsic valuation. But with leaders like Mark seemingly long on the space, we remain focused on finding the best projects in the crypto universe.

Crypto-Curious? A Guide to Digital Asset Exposure

Crypto-Curious? A Guide to Digital Asset Exposure

Nathan Frankovitz

Gone are the days when Bitcoin was only for basement-dwelling tech geeks. Though the cryptocurrency frontier was pioneered by such computer science enthusiasts, the new wave of digital asset investors represent a much broader cohort. Massive institutions and working-class professionals alike are demonstrating unprecedented demand for digital assets. For many, the question is how, not if, to invest in Bitcoin and other cryptocurrencies. Accordingly, new investment products are quickly emerging. From self-custodied wallets to actively-managed portfolios like those at Sarson Funds, we will explore the spectrum of products offering digital asset exposure to help you determine which are best for your investing needs.

Brokerage-Custodied Direct Exposure

Commission-free brokers like Robinhood and Etoro have surged in popularity in recent years due to their accessibility and ease of use. Popular amongst millennials, they offer a low barrier to entry for new crypto investors to gain direct exposure to select digital assets like Bitcoin. However, Robinhood doesn’t support crypto withdraws, while Etoro’s crypto wallets only support certain tokens. Customers purchasing crypto assets without withdrawal capabilities give up the ability to move their cryptocurrency freely. This is a major disadvantage long-term. Customers unable to withdraw their crypto give up yield earning, collateral staking, and value transferring opportunities while still relying on a third party to securely store their digital assets. For these reasons, more sophisticated crypto investors often employ methods such as self-custody, trusts, and actively managed crypto funds to gain digital asset exposure.

Self-custody: An ideal for some, a nightmare for others.

Customers can achieve a hands-on relationship with their crypto assets by getting started at centralized exchanges like Coinbase. Coinbase offers a user-friendly interface for buying and selling popular cryptocurrencies like Bitcoin, Ethereum, and Chainlink. While users can employ Coinbase’s digital wallets and vaults, they are also free to send their crypto externally. By moving their crypto to institutions like BlockFi or Nexo, investors can make use of lending and borrowing services to make more from their crypto portfolios. Or, in alignment with the old-school crypto adage, “not your keys, not your coins”, users can send funds to an address they control themselves to eliminate custodial counterparty risk. However, self-management of cryptocurrency funds can be time-consuming, stressful, and vulnerable to human error.

If stories of early investors losing millions of dollars of Bitcoin have made you wary of self-custody, you’re not alone. Unfortunately, human error is the usual cause for these funds being lost. You must understand a few Bitcoin basics to appreciate this: Because the Bitcoin blockchain is a public digital ledger, the public addresses of all Bitcoin are visible to anyone. When Bitcoin is transacted, it simply moves from one public address to another. Think of this public address as a username. For every public address, there is a corresponding private key, much like a password. Ownership of Bitcoin, therefore, lies in having the private key which corresponds to your public address

Naturally, your private keys need to be stored securely to keep your Bitcoin safe. At the same time, your private keys must be accessible if you ever want to transact your Bitcoin. There are numerous methods to private key self-custody, but each carries a considerable risk of a total loss due to user error, computer viruses, theft, destruction, etc. Since many people find these details too technical to self-custody their own cryptocurrencies, companies like Grayscale Bitcoin Trust and investment funds like Sarson Funds have emerged. With operational security measures, diversified asset storage, and insurance protection, these institutions offer products that give crypto-asset exposure without many of the drawbacks of self-custody.

Bitcoin Trusts

If you’re looking to trade cryptocurrency exposure just like stocks, Grayscale Bitcoin Trust (GBTC) could be for you. According to Barron’s, Grayscale’s own Managing Director Michael Sonnenshein explained, “We’re taking something that has a lot of frictions behind buying, holding, storing, and safekeeping, and making it familiar and transparent.” With over $27 billion in assets, Grayscale’s GBTC commands significant premiums for its accessible and trusted bitcoin-backed shares. In fact, demand is so great for this simplified method of exposure that investors have bought GBTC shares priced 40% over their underlying Bitcoin value. GBTC and other trusts may continue to trade at such premiums until cheaper alternatives, such as U.S. based Bitcoin ETFs, become available. However, investment vehicles like GBTC still lack a major feature seen in investment fund products: active management.

Investment Funds

Crypto funds combine strengths seen in other financial products to deliver what we believe is an ideal solution for many investors. At Sarson Funds, we leverage institutional-grade security to reduce risk while taking advantage of market movements via actively-traded funds. With this combined approach, our fund values are guarded while remaining liquid enough to take advantage of emerging opportunities. Because the technologies and use cases surrounding cryptocurrencies are growing rapidly, there is a robust market for quality research and risk-adjusted fund allocation. We exploit this opportunity-rich environment by monitoring the market, developing strategies, and executing trades on a routine basis. This dynamic approach enables investment funds like ours to outperform trusts which are more vulnerable to volatility. Our Crypto & Income Strategy became the top-performing crypto hedge fund in Q4 2020, testifying to active management’s ability to harness volatility to investors’ advantage.

No matter how you choose to invest in cryptocurrency, Sarson Funds is committed to providing transparent education as we report from the market forefront. We are thankful for you, our readers, and look forward to your continued engagement. If you haven’t already, follow us on Twitter, LinkedIn, and check out our newsroom. Or, send us a message! We’re always happy to talk crypto.