Smart Contracts: A Future of Frictionless Commerce

Smart Contracts: The future of financial operations - Sarson Funds Cryptocurrency Financial Advisor

Smart Contracts: The future of financial operations - Sarson Funds Cryptocurrency Financial Advisor

As finance becomes more digitized, it is important to consider the different ways our preexisting financial infrastructure can be more decentralized. One of the major shifts in peer to peer, business to business, and global commerce is the movement toward smart contracts as the mediation between transactions. Smart contracts are an application of blockchain technology that automatically facilitate transactions between two parties, removing the need for banks or middle institutions to be the intermediary in a transaction, and record the history of the transaction on the blockchain. The purpose of this blog is to inform the finance community on one of the most lucrative trends in the crypto industry to help them prepare for the changing landscape of fintech innovation.

Removal Of Counterparty Risk

In the current financial framework, interactions between people and businesses have always required some sort of intermediary to approve and execute a transaction. While the traditional system works, it is inefficient. The costs of involving a third party intermediary to approve a transaction are not only steep but unnecessary. Depending on the distance a transaction must travel, these transactions take several days to fully execute, changing hands multiple times and accruing more and more unnecessary costs. As each transaction passes through different banks, the risk of loss and hack grow higher. Smart contracts simplify transactions by removing unnecessary steps, creating a smoother pathway for transactions to occur, removing counter party risk, cost and time inefficiency for both of the involved parties.

Enabling the Future of Commerce

P2P Use Cases

One of the most prominent use cases for smart contracts in the current financial landscape is between individuals engaging with decentralized exchanges like Aave, Compound, and Uniswap where users can lend and borrow crypto for high yields. In these exchanges, users join lending pools where they can lend and borrow crypto with other users at agreed upon interest rates, agreements that are executed by smart contract deployment on the platform. These smart contracts, which are written code on the blockchain, execute these lending and yield agreements automatically to ensure both parties meet their agreed upon contract terms.

B2B and B2C Use Cases

Another critical use of smart contracts are in supply chains. Supply chains are using smart contracts to confirm and track shipments and deliveries as they take place, creating an instantaneous way of payment, transaction validation, and record keeping throughout the processing and delivery of consumer goods. Smart contracts are making supply chains more efficient by digitizing the payment, validation, and record keeping of the processes that goods go through from production to consumer, creating quicker and more cost efficient ways of running a supply chain.

Use cases for financial institutions

While banks are slow to adopt blockchain, the use cases for the finance community will shape the future of financial operations. Banks like JPMorgan are pioneering the future of smart contract deployment in banking as they recently launched their own blockchain, Liink, and stablecoin, the JPM coin. JPMorgan uses the JPM coin with smart contract mediation to perform risky interbank transfers and international payments instantly and without the need for an intermediary, removing the inefficiencies described above from their affairs. JPMorgan is blueprinting a lucrative landscape for other banks to follow suit with blockchain and smart contract deployment.

At Sarson Funds, we believe the financial community must keep a close eye on the development of smart contract capabilities as these automated systems enable greater, frictionless financial freedom. We believe that as the ecosystem develops, smart contracts will become the future of P2P, B2B, and B2C commerce.

By Liam McDonald

Understanding Decentralized Finance: DeFi 101

Decentralized Finance 101

Decentralized Finance 101

In 2020, the cryptocurrency market cap surpassed $1 Trillion. This year, you owe it to yourself to learn how you can get involved in digital asset investment opportunities.

We get it. We live in a digital age full of constant technological changes – keeping up with these changes can be overwhelming. This is especially true for digital assets like Bitcoin. With access to an abundance of information on the topic, sometimes it can be hard to make sense of new terminology and the cultural memes born from societal change. As this ecosystem surfaces, it can be hard to understand even the most basic terms that industry experts take for granted. 

Despite the seemingly overwhelming nature of the digital asset industry, it really isn’t so complicated once you learn the basics. In our view, once you understand the basics, you’ll see that adding digital assets to your portfolio is one of the most critical investment decisions you’ll ever make. That’s why we left Wall Street – to bridge the gap between crypto and traditional finance. You don’t want to be on the sidelines for this emergent industry. 

Start your cryptocurrency and blockchain education with some basic themes and terminology, here:

Decentralized Finance (DeFi)

Decentralized Finance, also known as “DeFi,” refers to a broader series of financial services that uses blockchain technology to reimagine traditional finance. Using publicly available and verifiable ledger systems, DeFi systems support financial transactions that remove many of the costs of counterparty risk. For example: instead of paying an organization to act as an escrow service, you’d use software known as a smart contract to verify financial transactions. 

One example of how DeFi is changing the world is how money is transferred through it. Global remittances total nearly $700 billion a year. Remittance services typically charge high fees and take time to transfer money from one country to another. With DeFi, those transactions can be done rapidly, for a fraction of the cost, and are done directly from peer to peer, offering a more private and secure transaction. 

According to the OCC, DeFi is on pace to overtake traditional financial services.

Smart Contracts 

But what exactly is a smart contract? And why does it matter whether there are 3rd parties involved in a transaction? Smart Contracts are a new type of software that facilitate a cryptographically secured transaction on a blockchain. Smart Contracts function as rules written in code which dictate the execution of the transaction. 

Decentralized Applications – DApps and DEXs

Decentralized Apps (DApps in the crypto world) are unique applications that use smart contracts for different purposes. Smart Contracts have allowed for the creation of decentralized exchanges (DEXs), which are smart contracts that facilitate peer-to-peer market making using complex smart contracts, rather than relying on 3rd party clearing houses, broker/dealers and bank custodians. These applications run exchanges using a permissionless network (no 3rd parties are involved), therefore making DEXs secure. Popular DEXs include Compound and Uniswap.

You may be wondering, why wouldn’t you just use a centralized exchange like Robinhood or Coinbase? The real value behind decentralized applications like a DEX is that you own and maintain custody of your asset up until the transaction takes place. The application cannot restrict your ability to transact with any asset as what recently occurred with the Robinhood’s restriction of Gamestop stock. 

Becoming your own Bank: Decentralized Lending Platforms 

Lending platforms offer a flexible alternative to traditional banking services. They provide users the ability to borrow and lend cryptocurrencies on a peer-to peer network, insinuating the idea of “being your own bank.” Privacy is heightened as classic bank requirements such as identity and credit scores are not required through the platforms.

Stablecoins 

Most people are familiar with Bitcoin and the cryptocurrency industry because of industry wide price volatility. Stablecoins were created as a way to mitigate volatility risk in the DeFi space. These coins are pegged to the value of traditional fiat currencies. For example, USDC is a stablecoin pegged to the U.S. Dollar.

Decentralized finance is in for a wild ride in 2021. As you follow along, it will be critical to be educated on what powers these technological advances and how they are changing the future of finance.

Final Thoughts

At Sarson Funds, we understand that you’re not going to jump straight into a new investment opportunity without educating yourself first. That’s why our core mission is to thoroughly educate financial advisors on this emergent investment class with Wall Street-grade standards. To learn more about how digital assets can support your investment objectives, stay tuned for more educational materials or reach out to schedule an appointment with one of our experts today.

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For more updates on the world of digital assets, follow the journey via our Twitter, LinkedIn and Facebook, or here at: https://www.sarsonfunds.com

By Abigail Almonte

Crypto Likes the Stock: How Blockchain Empowers WallStreetBets to Trade “Stonks” on Their Own Terms

Wall Street Bets Finds Easy Solution to Censorship in Mirror Finance

Wall Street Bets Finds Easy Solution to Censorship in Mirror Finance

The market revolution surrounding WallStreetBets (WSB), Gamestop (GME), and electronic trading platforms Robinhood and TD Ameritrade is inspiring a renowned cry for financial freedom in traditional finance markets. The overarching realization many investors are experiencing is that the United States’ “free market” is not so free after all, as Robinhood and TD Ameritrade took actions to limit trading on GME and AMC to protect Wall Street hedge funds from collapsing. At the cost of small-scale investors, Wall Street’s vulnerabilities are being protected by the platforms originally designed to empower we the people, and we the people are furious. 

Crypto and blockchain-based solutions have quickly surfaced to quench the modern investor’s need for a censor-free, frictionless financial system. Mirror Finance is bridging the gap between Wall Street, everyday investors, and crypto, as this decentralized financial (DeFi) protocol gives barred investors a pathway toward true financial freedom. Mirror Finance is a DeFi protocol on the Terra blockchain that allows the creation, use and trading of synthetic assets known as Mirrored Assets (mAssets). mAssets are designed to mirror the price behavior of real-world assets on a blockchain, giving traders all over the world 24/7 access to financial markets without actually owning or transacting with real assets.

Crypto synthetic assets are blockchain-based financial instruments that combine derivative products like futures, options and swaps to imitate and track the value of any traditional asset, allowing for crypto integration with traditional finance. These crypto synthetics enable users to trade these mirrored-assets at their real-time value 24/7, 365 days a year regardless of stock market hours. Mirror brings the financial freedom that crypto offers to traditional finance, permitting fractional ownership, open access and freedom from censorship for everyday investors.

WallStreetBets investors looking for more exposure to WSB-pumped stocks that were censored by Robinhood and TD Ameritrade can regain their stance with these assets through synthetic replicas on Mirror’s protocol. 

The collusion between Wall Street and electronic trading platforms is awakening our society to the true need for decentralized finance. Inspired? So are we. We hope the capabilities that Mirror brings to the world will empower the finance community to continue bridging the gaps between traditional and decentralized finance to inspire the next frontier of financial services.

By Liam McDonald

Market Update: Crypto Market Cap Breaks Past $1 Trillion

Crypto Market Cap Reaches 1 Trillion

Crypto Market Cap Reaches 1 Trillion

BREAKING: Last night, the entire crypto market cap broke past USD $1 Trillion. This escalation is indicative of the global pace of crypto adoption as Bitcoin, Ethereum, and crypto tokens around the ecosystem break past all time highs as the world is awakened to the true utility of digital assets. Fueled by the economic uncertainty posed by the COVID-19 pandemic and the macroeconomic response of countries worldwide, we expect this momentum to continue as regulation strengthens, Wall Street and global institutions validate the utility of crypto, and the world leans more and more on digital commerce. 

As global sentiment shifts to embrace crypto, we are here to educate the world on the power of the blockchain ecosystem and enable true financial sovereignty. Please reach out to us for educational inquiries and our recommendations on how to get involved in the next great shift in global finance.

By Liam McDonald

Cryptocurrencies and Quantum Computing: A Future of Coexistence

Sarson Funds - The Future of Crypto - Cryptocurrency Financial Advisor

Sarson Funds - The Future of Crypto - Cryptocurrency Financial Advisor

Recent developments in both quantum computing and the crypto ecosystem indicate that neither are going anywhere. As both continue to grow, it is crucial for the crypto community to understand that quantum computing poses both an existential threat and lucrative opportunity towards crafting the future of the ecosystem. As we have expressed in previous segments, quantum computers will soon be fully capable of cracking into crypto wallets only through knowledge of wallet addresses, as they are able to use these addresses as the foundation to further derive the public and then the private keys. As this quantum functionality arises, the future of crypto depends on quantum-resistant encryption solutions.

The bottom line is that crypto and quantum computing must coexist. At Sarson Funds, we believe that an upside to quantum computing risk is that it will push blockchain to become truly unbreakable, pushing cryptocurrencies to be the indisputable medium for future commerce. Thus, quantum computing should not be viewed as an existential risk, but rather a tool to drive crypto towards a future of quantum-resistance and assured value protection. The future-proof security that will emerge from the next wave of crypto advancements will provide a pathway of irrefutability for crypto as a means of consensus for our future financial system.

The next wave of crypto advancements will likely see an emergence of two key avenues towards quantum-resistance: quantum-proof blockchains and digital assets wrapped with quantum resistant encryption algorithms. While we are only beginning to understand what the future of crypto will look like with the recent release of the Crown Sterling token, we know that the crypto community will respect the pace of innovation and understand that even the most underlying mechanisms that we’ve trusted for so long are at risk.

By Liam McDonald

2020 in Crypto: Top Stories of the Year and a Look Towards the Future

Crypto 2020 - Sarson Funds Cryptocurrency Financial Advisors

Crypto 2020 - Sarson Funds Cryptocurrency Financial Advisors

Reflecting on a year that brought its handful of challenges, 2020 proved the importance of adaptation. Life in a digital world became inevitably crucial, and as changes in everyday life were made rapidly, the cryptocurrency ecosystem followed suit.

With more talk than ever surrounding the world of decentralized banking, we’ve compiled the top stories of 2020. 

Throughout the year, our team focused on understanding the importance of digital asset data security. With the emergence of quantum computing capabilities, we’ve identified Crown Sterling as one of the leading engineers of the future of quantum-resistant data security. Led by mathematician Robert Grant, Crown Sterling has created the first quantum-resistant digital asset, the Crown Sterling token. The token, protected by their new quantum-proof encryption algorithm, CrownEncryptOTP, provides lifelong protection of user-sensitive data. As cryptocurrencies grow vulnerable to quantum-hacking, this future-proof digital asset provides a pathway toward progressive and sustainable encryption advancement. 

In October, the crypto ecosystem welcomed PayPal into the space. The company announced they would be adding Bitcoin and crypto transactions to their payment options for users. CEO Dan Schulman hopes this change will drive momentum for PayPal’s 375 million users and registered merchants to become more comfortable with digital payments through the crypto ecosystem. Tech giants Square and Venmo followed suit with integrating buying, holding, and selling capabilities for cryptocurrencies. The commercial adaptation by large institutions is positively shifting public comfortability towards digital payments as they are continuously mainstreamed. 

Aside from the use of digital assets in big tech, Wall Street began to embrace Blockchain as well. Leaders in the finance world such as J.P Morgan, Guggenheim, and AllianceBernstein have all noted that cryptocurrencies are here to stay. Overcoming CEO Jamie Dimon’s 2017 claim that Bitcoin was a “fraud,” JP Morgan proceeded to release their ‘JPM Coin,’ in addition to their new branch for digital asset operations and custody services, Onyx. JPMorgan spearheaded the use of blockchain on Wall Street, and it is no surprise that Guggenheim and AllianceBernstein were so quick to follow as blockchain proves to be a profitable and efficient way to secure transactions without lag time or third-party interference. Bitcoin is becoming increasingly valued as a medium of exchange, as growing adaptation occurs on Wall Street and beyond. 

As Bitcoin continued to gain value with record-breaking prices, business intelligence company MicroStrategy bought  70,470 Bitcoin, a total of 1.1 billion dollars. CEO Michael Saylor says, “The acquisition of additional bitcoins announced today reaffirms our belief that Bitcoin, as the world’s most widely-adopted cryptocurrency, is a dependable store of value.”

A common saying for the new year: out with the old, in with the new. In the world of Fintech, rather, out with traditional financial services, in with decentralized banking. Brian Brooks and the OCC began emphasizing the cost effectiveness and efficiency of removing third parties. As we saw with the shift from postal services to email, instant and direct financial services solutions are now being provided by decentralized finance (Defi) platforms to simplify the future of banking. With Defi’s increasing capabilities, the entire banking system will soon be forced to adopt blockchain technology. 

In September, Kraken, one the largest US-based crypto exchanges, made history as the first digital asset company in the United States to receive permissions as a bank charter. The Wyoming-based Special Purpose Depository Institution will offer depository, custody, and fiduciary services for cryptocurrencies. The integration of both banking efforts along with crypto services is projected to expand into a variety of initiatives including cryptocurrency debit cards, mobile banking, etc., paving the way for regulatory adoption from banks everywhere.

In the last month of 2020, the SEC filed a lawsuit against Ripple Labs. The company had raised over $1.3 billion dollars through the sale and distribution of XRP, which was recently declared an unregistered security.  XRP is one of the largest and most valuable coins in the crypto industry, known for its rapid speed and accessibility in over 50 countries. The SEC plans to ban Ripple’s ability to participate in XRP’s market trading. The case is being referred to as “the crypto trial of the century.” 

In 2021, we expect the pace of crypto adoption and innovation to continue as competition from big tech grows. Crypto’s integration into banks and the strengthening of regulation will add to the continued growth of the ecosystem,  making for 2021 to be another year of crypto’s outperformance of traditional finance.

By Liam McDonald

Nexus Mutual: Empowering Investors with Crypto Insurance

Nexus Mutual Provides Crypto Insurance for Investors - Cryptocurrency Financial Advisor

Nexus Mutual Provides Crypto Insurance for Investors - Cryptocurrency Financial Advisor

Weekly Analyst Thoughts

Involvement in the decentralized finance (Defi) space carries the risk of loss through hacks and flash loan attacks. Since these sophisticated flash loan attacks began in March 2020, users have been more reluctant to provide liquidity to Defi platforms that have not undergone a security audit by an independent third party.

Users rely on audits for Defi platforms to protect their funds, while some take their asset protection further with incorporating decentralized smart contract insurance on Nexus Mutual. Users who want to buy smart contract insurance for decentralized platforms like Curve and Balancer can purchase a 1-year insurance plan for 2.6% of their assets staked on the Defi platform. Additionally, Nexus Mutual recently integrated insurance for centralized (Cefi) custodians like Celsius and Blockfi that protects users from withdrawal restrictions and hacking risk commonly seen on centralized crypto platforms. Below, see the insurance offerings of Nexus:

Crypto Insurance by Nexus Mutual Sarson Funds

Source: https://app.nexusmutual.io/cover/buy/select-project

Although users can do their due diligence before investing with Defi and Cefi platforms, hacks do occur and one of the best ways users can protect themselves is by purchasing decentralized insurance coverage on Nexus Mutual.

By Jacob Stelter

Bancor Network: Stake and Protect with Liquidity Mining

Bancor Network Provides Liquidity for Yield Farmers

Bancor Network Provides Liquidity for Yield Farmers

This week, Bancor Network launched their liquidity mining program. So far, the addition skyrocketed Bancor’s total value locked and has been a positive catalyst for its token price, which is up 50% this week. The goals for the Bancor liquidity mining program are to increase liquidity to its exchange and encourage LP’s to stick around once the mining period ends through incorporating interesting features like single sided liquidity deposits and a stake and protect feature for liquidity providers.

One of the main reasons why I was originally drawn to Bancor Network was because their stake and protect feature seems to be the perfect hedge against risk of impermanent loss. While Bancor provides inherent risk management opportunities, they originally did not have enough liquidity or volume to make it worthwhile to become a liquidity provider on their platform. Bancor’s liquidity mining program solves the original liquidity and volume issues of Bancor. Below, find images of the total value locked in the protocol and the liquidity mining reward APY’s investors can receive if they became an LP on Bancor.

Source: https://defipulse.com/bancor

Source: https://app.bancor.network/eth/data

In summary, if yield farmers are looking for high returns and mitigation of their impermanent loss risk, then Bancor Network is a great platform to provide liquidity.

By Jacob Stelter

Dodo Dex: Stablecoin Liquidity Provides Greater Returns with Lower Risk

Sarson Funds: Dodo Dex Provides Better Returns and Lower Risk- Cryptocurrency Financial Advisor

Sarson Funds: Dodo Dex Provides Better Returns and Lower Risk- Cryptocurrency Financial Advisor

Weekly Analyst Thoughts

Dodo is a new decentralized exchange (dex) and on-chain liquidity provider for yield farmers. Dodo enables farmers to engage in single-side liquidity instead of providing a 50-50 liquidity split between two tokens, the common requirement of decentralized automated market makers like Uniswap.

An interesting feature of Dodo is that it gives the option to pair Defi coins like Aave, YFI, and SNX with USDC, a stablecoin, which is not a function frequently offered by competing decentralized exchanges. Below, find a picture of the Dodo dex pool offerings.

Dodo Decentralized Exchange Sarson Funds

Source: https://app.dodoex.io/mining

The pairing of Dodo’s pools with the USDC stablecoin differentiates the platform from other dexes as it experiences half the normal volatility and provides higher risk-adjusted returns due to the lower risk of impermanent loss.

In summary, if one is looking for a new Defi yield farming opportunity with less volatility, single side liquidity, and greater risk adjusted returns, then Dodo is the place to look.

By Jacob Stelter

Harvest Finance Hacked: Flash Loans and How to Mitigate Risk of Loss

Harvest Hacked and how to protect against losses

Weekly Analyst Thoughts

This past weekend, Harvest Finance, a Defi yield farming protocol, was hacked using a Defi transaction mechanism called a flash loan. A flash loan is a specific type of transaction where the borrower must repay the loan in the same blockchain transaction. If the borrower does not repay the full loan (principal + interest), the transaction reverts, so as to seem like the flash loan never happened. Like Harvest, Aave also supports flash loan transactions and credits much of its meteoric 2020 price rise to this feature.

The Harvest Finance attack was executed through the Curve Finance Y pool with a flash loan. As seen below, Harvest’s near $3 billion in volume and over 170% APY raised concerns that there was irregular activity in the Curve Finance pool.

Source: Curve.fi

The takeaway from this clever arbitrage on Harvest Finance is that even if a yield farming protocol has multiple layers of audits (as Harvest did), it can still be vulnerable to attacks. So, don’t let the fact that a protocol is audited give a false sense of security when investing in Defi yield farming protocols. Instead, it is safer to diversify risk by investing with several reputable yield farming platforms (Ex: Uniswap, Balancer) to mitigate the risk of lost funds through sophisticated flash loan attacks.

By Jacob Stelter