Cointelegraph Consulting: Gaming tokens usher in altcoin season

December 1, 2021 Coin Telegraph

Gaming tokens are preceding an altcoin season with substantial rallies as the DeFi sector posts losses against Bitcoin.

While Bitcoin remains in a cool-off period after thrusting to its all-time high in early November and the decentralized finance (DeFi) sector in an apparent dry spell, gaming tokens seem to have taken the spotlight as massive gains are seen across the industry.

The Sandbox’ SAND captured headlines as it spearheaded the enthusiasm for gaming tokens, with over 340% gains in the past month. Another one is GALA, with a similar 300% rally in November. Such coins, including those under the metaverse sphere like Decentraland’s MANA and Illuvium’s ILV, gained momentum after Facebook’s rebranding to Meta, suggesting that gaming tokens could be preceding a new altcoin season.

An altcoin season is defined as when a majority of the top altcoins outperform Bitcoin (BTC) over a set period. For example, Cointelegraph Markets Pro uses two weeks in its algorithm, and it currently broadcasts a 40% reading in favor of altcoins. This means altcoins have fared better than BTC over the two-week time period.

However, the top 10 cryptocurrencies by market capitalization had mixed results against BTC over the past month, and it is the leading tokens in the gaming sector that outclassed Bitcoin. SAND, of course, has been the frontrunner since October, but Axie Infinity Shards (AXS), Enjin Coin (ENJ), ILV and Ultra’s UOS had better gains compared with Bitcoin throughout November.

An investment in ILV back in September would be up by more than threefold and one in SAND by at least sevenfold. Overall, most of the tokens in the gaming sectors have appreciated by more than 100% against Bitcoin in the last month.

Why did gaming tokens take off?

The apparent popularity of gaming tokens stems from the marriage of cryptocurrencies and gaming. The two are forging a new ecosystem where crypto enthusiasts and gamers intertwine. Most are aware of Axie Infinity by now, as the Pokemon-like game exploded in popularity due to its play-to-earn (P2E) model. Initially, players breed monsters called “Axies” using experience points rather than a “currency” within the game. The Smooth Love Potion (SLP) token was not introduced until the release of the Community Alpha on Dec. 19, 2019. From there, the game picked up steam, particularly among developing countries like the Philippines since it provided a way to earn income amid the pandemic last year.

Moreover, nonfungible tokens also play a part in the success of the sector. The NFT hype was hot on the heels of 2020’s DeFi summer, and 2021 has been its breakout year. While artworks and collectible items gained the most publicity early on, games like Axie Infinity and Dark Country buffered the industry in May’s market downturn.

NFTs introduced the element of ownership within games. For Axie Infinity, this could be the Axies, which are valued by their rarity and aesthetic elements or its game’s in-game assets. Battle of the Guardians has quite the same concept, while for something like Splinterlands, these are the trading cards. Ostensibly, the capability to uniquely verify the attributes and uniqueness of digital assets is what breathed a new dynamic for gaming.

Attracting investments

As the popularity of gaming tokens continues to rise, more investments get funneled into the space. In 2021, about $3.7 billion has been raised by blockchain companies involved in gaming, a 414% increase from 2020, per BlockchainGamerBiz.

Forte, the most notable among these, secured $725 million in a Series B funding round led by Sea Capital and Kora Management. Forte plans to expand its product offerings and services and attract more game publishers onto its blockchain gaming platform. Fantasy soccer game Sorare also bagged a whopping $680 million back in September, which boosted its valuation to $1.2 billion.

OpenSea, an NFT marketplace that deals with game assets and other digital assets, is also among the unicorns in the space. Such deals signify the burgeoning growth of this class of tokens.

Future of blockchain gaming

The gaming sector of the broader cryptocurrency market is still relatively small. The top gaming tokens only boast about a $21 billion market cap — which is inconsequential compared with Bitcoin. This means that sector dominance is still there for the taking, as the market can change rapidly, especially since games, by design, may come and go. The argument, however, is whether the play-to-earn model can keep everyone interested.

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For instance, Axie Infinity’s scholarship program lets users with more capital bear the initial costs of playing the game for players (called “scholars”) who can't afford them, and the two parties share the SLP generated.

Axie Infinity has created a new digital ecosystem, and it continues to rake in more users. However, if players are more interested in playing for money — i.e., cashing out — then the price of SLP suffers. This has been the case for a while now. Suppose it gets to a certain level where players under its scholarship programs find the dollar value of SLP (after profit sharing) to be significantly less. In that case, it could discourage them from spending time playing the game at all.

However, Sky Mavis has also entered the Metaverse, as it recently sold virtual land for 550 Ether (ETH), or $2.3 million. It also plans to have developers create other games to keep things interesting for users, hoping to attract players drawn in by playing the game rather than the financial aspect. But whether this could buoy the price of SLP in the future remains to be seen.

The gaming industry appears to have more advantages when merged with blockchain. If the current altcoin season seeps into 2022 with new developments, particularly the Metaverse, market dominance could quickly shift between tokens that further advance in the space.

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NFT sales aim for a $17.7B record in 2021: Report by Cointelegraph Research

November 30, 2021 Coin Telegraph

Coin Telegraph

2021 is proving to be a breakthrough year for NFTs, but what is driving such impressive performance? This Cointelegraph Research report has the answers.

In 2010, if someone had told you that Internet memes, digital artwork and Twitter avatars would sell for hundreds of thousands of dollars, would you have believed them?

Well, these are nonfungible tokens, or NFTs, in a nutshell. NFTs are driving blockchains toward uncharted territory on the backs of cute kitties and pixelated punks. What may appear to be a shroud of speculation over pointless collectibles is actually the clouded horizon of fintech innovation. NFTs represent a turning point. Blockchain technology is now being used to represent assets beyond the chain.

In order to understand the thriving and intriguing world of NFTs, the Cointelegraph Research team delves deep into this new space, presenting the findings in the latest report “Nonfungible Tokens: A New Frontier.”

This report covers the history and development of NFTs, how NFTs are stored, traded and exchanged, how to mint an NFT and what platform to choose, how the NFT market works and how the prices are formed, how to find exciting new NFT projects, how NFTs are regulated in various jurisdictions, how much energy is used when creating and trading NFTs and what future awaits this emerging market.

Download the full report here, complete with charts and infographics.

How it all started

Bitcoin pioneer Hal Finney first mentioned an early version of NFTs in 1993. He called them “Crypto Trading Cards.” In a forum discussion, Finney touched on definable scarcity, exclusive ownership and provenance. These concepts are now at the core of every NFT.

The idea of NFTs wouldn’t see much development until 2012 when Yoni Assia wrote about “colored bitcoins,” which eventually became “colored coins.” Built on top of the Bitcoin blockchain, Colored Coins created semifungible tokens that were supposed to represent real-world assets such as real estate, commodities and bonds.

One of the earliest NFT iterations “Quantum” was created in 2014 by Kevin McCoy and Anil Dash and presented at the New Museum in New York City. In 2015, the first Ethereum-based NFT called Etheria was launched at Devcon 1. This is largely considered to be the first truly nonfungible token.

The term “NFT” emerged in 2017. Although little known at the time, two very significant NFT projects, CryptoPunks and CryptoKitties, were launched in 2017. This same year, the first NFT house was sold through Propy. This marked the first wave of NFT popularity which synchronized with the crypto market cycle.

Market growth

NFTs have become a booming market that expands year after year. For example, sales have grown from just $41 million in 2018 to an astonishing $2.5 billion in the first half of 2021, representing a 60-fold growth in three and a half years.

Even compared to 2020, the growth is staggering. Total sales in 2020 reached $340 million and in 2021 so far the sales have already surpassed $9 billion which is more than 25-fold growth according to data from NonFungible.com on NFTs on Ethereum.

The rich, famous and influential began collecting or issuing NFTs in 2021. By May, monthly sales volume reached $360 million. Shortly thereafter, a deep downturn in the crypto markets briefly ended the NFT euphoria, causing daily volumes to drop significantly — a reduction of up to 90% from their highest levels. By July, NFTs rebounded and once again reached record-breaking highs, astonishingly attaining $2.6 billion in total volume in August on Ethereum alone based on data from NonFungible.com.

While Ethereum continues to dominate NFT market activity, there is interest growing in alternative layer-one blockchains due to their cheaper transaction fees and faster block times.

Ethereum holds approximately 80% of NFT sales volumes in 2021, but only 37% of total NFT traders. This is a reflection of the higher average NFT valuations on Ethereum and larger transaction fees. Flow and Wax both hold a large share of total traders, 32% and 25%, respectively, but with significantly less volume. Their cheaper transaction fees enable lower-priced NFT transactions and use cases for high-volume applications such as games.

What categories are among the most popular?

A breakdown of transactions by popular NFT categories, discussed in section 1.3 of the report, reveals that early sales were dominated by collectibles such as CryptoKitties and CryptoPunks. In late 2019, the gaming NFT category surged in transaction count, as player bases expanded on games such as F1 Delta Time, Gods Unchained and Decentraland.

In mid-2020, the number of transactions that included sports and metaverse NFT projects began climbing as these platforms increased in popularity. Around the same time, art NFTs also drew increased attention, peaking in January 2021 with Beeple’s record-breaking sale.

Although the overall share of transactions for collectibles has decreased, they still dominate total sales volume and lead projects by a significant margin. The art category follows behind collectibles in sales volumes, reflecting the similarly high valuations in the art and collectibles categories.

Will NFTs survive the next crypto crash?

This year, there are over $9 billion in NFT sales on Ethereum so far. Total NFT sales are expected to achieve at least $17.7 billion by the end of the year, as new traders look to boost secondary market activity.

Historically, the NFT’s dependence on cryptocurrency has been quite high. NFTs waned in popularity during the 2018 bear market in cryptocurrency and again in June and July of 2021 when the cryptocurrency market pulled back. Elevated interest in NFTs has coincided with the overall uptrend in the digital asset market, which may indicate that NFT prices will drop if cryptocurrency prices drop.

This article is for information purposes only and represents neither investment advice nor an investment analysis or an invitation to buy or sell financial instruments. Specifically, the document does not serve as a substitute for individual investment or other advice.

Cointelegraph Consulting: Recounting 2021’s biggest DeFi hacking incidents

November 3, 2021 Coin Telegraph

Coin Telegraph

There are a total of 169 blockchain hacking incidents that have taken place in 2021, with nearly $7 billion in funds lost.

Compound Finance is just one of the latest victims of DeFi hacking incidents in 2021. On Sept. 30, its errant token distribution bug within the Proposal 062 exposed a flaw in which $70 million–$85 million in excess COMP tokens were wrongly distributed to users.

Yet, an extra $65 million was placed in a vulnerable vault a few days later, resulting in at least $150 million in COMP tokens at risk. But, while Compound was able to remedy the entire situation, it shows how vulnerable the decentralized finance (DeFi) sector can be at times due to its nascency.

Last year, the total value locked (TVL) in DeFi was a mere 5% of what it’s current worth — $255 billion. The change marks an explosive 1686% growth. Even with the Compound debacle, and most recently with decentralized trading platform BXH drained of $139 million from an attack due to a leaked admin key, TVL actually increased over the last month, appreciating by 14.27%.

One reason why investors have flocked to DeFi protocols is to search for higher returns. The rock-bottom interest rates of 2020 lacked a clear framework for an increase caused investors to look for other avenues to park their cash. Locking crypto assets to DeFi protocols and supplying liquidity for such services became an attractive option, as it offers more attractive returns. What ensued was a yield farming boom in 2020 that prevailed up to this year.

Counting the incidents

The rising popularity of DeFi is a double-edged sword for the young sector and the entire cryptocurrency space as a whole. Since 2012, 534 blockchain hacking incidents have taken place with 169 events coming in 2021 alone, according to Chinese cybersecurity firm Slow Mist. Hacks grow in sophistication and target various areas in the space.

Nevertheless, the biggest hack to ever take place occurred in 2021 and was carried out by an unknown hacker on cross-chain protocol Poly Network. The result was an equivalent of $610 million in tokens stolen, topping MtGox and Coincheck. The attack pocketed about $273 million from the Ethereum network, $85 million in USD Coin (USDC) from the Polygon network and $253 million from Binance Smart Chain. It also removed sizable amounts of renBTC, wrapped Bitcoin (wBTC) and wrapped Ether (wETH).

The incident with Poly Network is one of many DeFi hacking instances in 2021. Poly Network was fortunate to recover all of the funds. Cream Finance, on the other hand, was not so lucky. The decentralized lending protocol comes in at a distant second, and the attack it took — which was twice this year — had nearly $150 million wiped out and is still trying hard to recover. Overall, the total amount of money lost due to blockchain hacking this year is nearly $7 billion, which is a $2.5 billion increase from last year.

Calls for audit

Poly Network, Compound and Cream Finance have made it to the top three by the number of funds affected (totaling $906 million). Like Cream Finance, there are also other notable protocols in which exploits took place more than once in the same year, like THORChain and Value DeFi.

Also, albeit negligible at $1.5 million in contrast to the affected funds of the rest of the other victims, Merlin Labs, a yield optimizer built on BSC, was attacked thrice — initially twice in the same week and once more a month later. Furthermore, what’s surprising is that it was audited by Hacken 11 days before the attack.

Security experts recommend a smart contract to undergo an audit, usually through independent auditors. An audit could help detect and possibly rectify smart vulnerabilities in code and check the reliability of the smart contract's interactions.

Kava Labs CEO Brian Kerr told Cointelegraph in May 2020 of how critical it is for anyone who wants to use a DeFi protocol to first check audits and peer reviews. But even then, he warns of associated technical and market risks since the sector, again, is still new.

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Among the projects that fell victim to attacks this year, only about 15 DeFi protocols were audited out of the 40 affected. But it’s worth noting that the affected funds for the audited protocols were significantly less than those that weren't audited. For each audited company, the amount of loss was almost 60% less than those that were unaudited. As a whole, 20.3% of the affected funds in all the protocols hacked this year were from protocols that were audited, while 79.67% or about $1.3 billion were from those that were unaudited.

The four major reasons DeFi protocols get hacked include coding mistakes, developer incompetence, misuse of third-party protocols, and business logic errors. The most common among these and possibly the most dangerous is developer incompetence, which is also a direct consequence of coding mistakes. Inadequately qualified developers rushing to launch a project without a rigorous third-party check could be more susceptible to exploits.

This is the reason why there is an ongoing push for an extra measure in improving security protocols in the industry. Audits, particularly smart contract security audits and secondary auditing, are just two ways to achieve this. As Kerr said, an investor's technical diligence is also warranted in scrutinizing a DeFi protocol before investing.

Still, the light at the end of the tunnel is that these hacks could be essential in advancing the DeFi sector. CipherTrace Chief Financial Analyst John Jefferies told Cointelegraph back in August that such crimes will spark an acceleration of know-your-customer, or KYC, procedure acceptance particularly with the decentralized exchanges, orDEXs, which can be critical in getting regulatory approval.

As DeFi matures, especially with the advent of layer-one blockchains competing against Ethereum, the hacking events as of late are perhaps just the tip of the iceberg, and the poorly designed and unaudited protocols could be in a whole heap of trouble.

Cointelegraph Consulting: ETFs listed — What’s next for Bitcoin?

October 20, 2021 Coin Telegraph

Coin Telegraph

The long-awaited futures-based Bitcoin ETF has launched. Did the SEC’s blessing legitimize Bitcoin in the mainstream finance world?

After dipping below $30,000 in June, Bitcoin (BTC) went on a nearly four-month rally, appreciating by more than 100%. On Oct. 15, it was able to recapture the $60,000 level after closing the day with a 7.56% spike. The ensuing rally was attributed to the excitement around the SEC giving the green light on the ProShares Bitcoin Futures ETF. Bitcoin has since successfully defended its current price level and managed to inch closer and closer to its all-time high valuation of $64,899.

The listing of ProShares Bitcoin Strategy ETF on Oct. 19 is believed to provide an additional thrust for Bitcoin and cryptocurrencies to mainstream legitimacy. However, a key fact about the new Bitcoin ETF is that it doesn’t invest in Bitcoin directly but instead allocates a portion of its assets to BTC futures contracts.

“BITO”

Listed as “BITO” on the New York Stock Exchange, ProShares Bitcoin Strategy ETF is the first of its kind, which some argue is 10 years in the making since several Bitcoin ETFs were all mostly held up or blocked entirely by the United States Securities and Exchange Commission.

Some of the high-profile applications that are still in limbo are the Bitcoin ETFs of WisdomTree and VanEck. ProShares got the green light because of a particular distinction: ProShares Bitcoin ETF is a futures-based ETF, and it is also filed under mutual fund rules.

The SEC prefers this structure since it lacks jurisdiction over cryptocurrency trading venues that aren’t registered as exchanges in the United States.

Fund breakdown

As stated on the ETF’s prospectus filed with the SEC, the fund will allocate 25%–30% of its assets to Bitcoin futures contracts. It also notes that it plans to invest in the securities of ETFs organized and listed for trading in Canada as well as other pooled investment vehicles.

These positions are intended to manage inflows and outflows in response to unusual market conditions, increases in margin requirements, or if it becomes too impractical for the fund to obtain exposure to BTC futures. The bigger chunk of the fund’s assets will go to money market instruments, which are then subdivided into U.S. Treasury bills, repurchase agreements and reverse repurchase agreements.

Boosting mainstream acceptance

As mentioned, a Bitcoin ETF helps the entire market gain access, much like the Coinbase listing of a stock exchange earlier this year. This is because investors who may not have direct access to cryptocurrencies but own brokerage accounts will have the opportunity to gain exposure to Bitcoin.

ProShares CEO Michael Sapir said in a statement that BITO provides exposure to investors who buy stocks and ETFs but may not necessarily want to go through the hassles of buying Bitcoin from an exchange or setting up a wallet.

BITO could also be the precursor for other investment product offerings. For one, the largest digital currency asset manager, Grayscale Investments, already plans to convert its flagship GBTC into an ETF “as soon there’s a clear, formal indication from the SEC,” Grayscale communications director Jennifer Rosenthal confirmed. Grayscale CEO Michael Sonnenshein also said that an Ether-based ETF could likely follow suit after BITO’s successful listing.

Aside from these, another futures-based Bitcoin ETF is also set to debut this week. SEC filings show that it accepted the registration request for Valkyrie’s Bitcoin Strategy ETF shares to be listed on the Nasdaq. Melanion Capital, a France-based investment firm, is also set to launch its own Bitcoin-linked ETF on Oct. 22 after getting the nod from French financial regulator AMF. The fund called Melanion BTC Equities Universe UCITS ETF invests in a diversified basket of equities correlated to the daily price movements of Bitcoin, and it will be listed on Euronext Paris.

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Open interest rising

Bitcoin’s positive trading activity has also caused the open interest on BTC futures to rise. Data from cryptocurrency exchange Bybit shows that open interest for BTC futures reached $23.1 billion on Oct. 18. The figure neared its peak in April when total open interest across several exchanges totaled $27.38 billion.

So far, leading the exchanges with the highest dollar value of contracts is Binance with $5.3 billion. The Chicago Mercantile Exchange Group (CME) is in the third spot with $3.5 billion despite its futures open interest recently reaching an eight-month high. Open interest refers to the number of futures contracts that have yet to be settled. It is often used for determining the strength of a trend or market sentiment.

Bitcoin’s resurgence has caused plenty of investors to feel confident that BTC’s price could see a further spike — even if plenty believed that the newly listed Bitcoin ETF was priced in weeks before. Thus, the bullish narrative is springing back, echoing what investors had been betting on at the start of the year.

The futures contract with a settlement date in December began the year with prices stretching to as high as $74,000. This has whittled down amid a cooling-off period in the market but has aligned again with the rising spot price.

Wagers for a Bitcoin price tag of $100,000 are so in fashion that centralized financial organizations, such as Standard Chartered, offered the same price target for this year or early 2022.

One measure to assess whether higher prices have some viability in the future is the growth of wallet addresses. Adoption has a prominent role in this, and while Brazil is not ready to join El Salvador in making Bitcoin legal tender, such moves will likely increase the number of new wallets.

Data shows that since October 2020, the number of wallet addresses has exhibited steady growth. There are now about 77 million addresses. Moreover, there is also data showing “hodlers,” or addresses that have kept their BTC holdings for at least a year, are also growing in number.

So, as new investment products tied to Bitcoin could likely get a similar green light in the near future, more institutional participation could be on the horizon. Even with just BITO, a whole new class of investors opens up, including the heavyweights in the form of (401k) pension funds and retirement accounts. But regardless of whether Bitcoin reaches $100,000 or not, the new Bitcoin ETF at least shows Bitcoin as a respectable investment.

Blockchains vie for NFT market, but Ethereum still dominates — Report

October 8, 2021 Coin Telegraph

Art

Ethereum leads the NFT market, generating more than 97% of recent sales as Flow, Polygon and WAX mount an opposition.

This month, Cointelegraph Research will release a comprehensive report on nonfungible tokens, discussing NFTs in detail and providing a detailed guide to getting into this market.

In collaboration with multiple partners — including Enjin, NFTBank, The Sandbox and others — the report will evaluate the technology behind NFTs, their regulatory challenges, and their prospective growth and current market positions. The report will also outline the hurdles that the market may encounter in the future, and potential ways to overcome them.

At the beginning of 2021, there was increased interest in NFTs, with the largest NFT marketplace, OpenSea, experiencing a hundredfold sales increase in half a year. The total volume of NFT sales reached $2.5 billion in the first half of 2021, almost eight times the total amount in all of 2020.

Being the market leader, OpenSea mainly uses Ethereum, although Polygon and Klaytn are also available. Other marketplaces also allow for the use of alternative blockchains, but Ethereum has dominated the space during the last few months, representing weekly at least 97% of every NFT market sector, including games, collectibles and marketplaces.

However, despite Ethereum’s current superiority, there is a range of significant competitors in the market. As can be seen in the below graph of total NFT sales and traders, the Worldwide Asset eXchange (WAX), Polygon and Flow represent formidable oppositio. Thus far in 2021, every third trader has used Flow and every fourth trader has used WAX, although almost 90% of total sales this year have taken place on Ethereum.

Importantly, the decline in trading volume on Ethereum at the beginning of the year was mainly caused by NBA Top Shot, Dapper Labs’ NFT collectibles project based on the Flow blockchain, which generated approximately $500 million and attracted more than 800,000 users in the first quarter. However, over the longer term, Flow did not succeed in securing a significant market share, despite its lower gas fees (cents vs. tens of dollars) and higher number of transactions per second.

Although WAX only has accounted for around $100 million in sales in 2021 (slightly more than 1%), its website states that it is backed by multiple top-tier companies, including Google, Atari, Funko, Topps, etc.

Considering the sector’s large number of unique traders and the potential to grow through the release of new NFT collectibles and games in partnership with well-known companies, activity on the WAX blockchain may increase in the future. Moreover, the simplicity of NFT transactions on WAX may attract new traders, increasing sales made via the blockchain. However, its peak of activity ($15 million sales per week) occurred in the middle of April. Since then, the blockchain has been processing between $2 million to $3 million in sales weekly, and it is unclear whether those figures will rise soon.

In contrast with Flow and WAX, Polygon has managed to obtain steady, rapid growth over a more extended period, lately generating the majority of its sales through such marketplaces as OpenSea and Aavegotchi's Baazaar. The popularity of Polygon outside of the NFT market, combined with low gas fees ($0.01 to register an NFT on OpenSea vs. $230 with Ethereum), may stimulate NFT market activity on the Polygon blockchain in the long term.

Other notable blockchains — such as Waves (known for the Waves Ducks game), Binance Smart Chain and Tezos (known for Hic Et Nuc, a crypto art NFT platform) — are present in the market yet have accounted for less than 1% of all NFT sales in 2021. There are also other blockchains that are just now entering the space, such as the Devvio blockchain, which focuses on play-to-earn gaming.

Nevertheless, the activity on a particular blockchain is highly dependent on the attractiveness of the collectibles and games released on it. This factor may be tough to predict, and one should inevitably consider this before making any investment.

This article is for information purposes only and represents neither investment advice nor investment analysis, nor an invitation to buy or sell financial instruments. Specifically, this document does not serve as a substitute for individual investment or other advice.

Cointelegraph Consulting: How Avalanche is reimagining DeFi

September 23, 2021 Coin Telegraph

Coin Telegraph

Avalanche is rapidly redefining the DeFi landscape with lower costs and faster transactions. Should Ethereum holders worry?

It’s not the first time that the native token of the Avalanche blockchain has encountered wild fluctuations. In February, AVAX shot as high as $60 only to reach a nadir in June–July. But after bottoming at $9.34, AVAX is now beyond $60 and is currently trading at $76. This has earned it a spot in the top 20 cryptocurrencies by market capitalization with $16 billion, according to Cointelegraph Markets Pro. Avalanche is among the layer-one blockchains tagged as “Ethereum killers” that appear to have reduced the dominance of the top altcoin in terms of total locked value (TVL) lately. Of the $170 billion in TVL, Ethereum presently controls 67% based on data from Defi Llama. But while the number appears high, it’s actually much lower than February when it contained about 96% in TVL.

Background on Avalanche

Avalanche was developed by Cornell computer science associate professor Emin Gün Sirer and Ava Labs in 2018. The blockchain protocol boasts high throughputs and a swift finality time. In 2019, it received initial funding through the sale of 18 million AVAX tokens priced at $0.33 each, which amounted to nearly $6 million. The following year, an additional 24.9 million tokens were auctioned in a private sale, this time at $0.50 each, bringing in an extra $12 million in funding. In July 2020, Avalanche secured another $42 million through a public token sale. And on Sept. 16, 2021, Avalanche’s most recent funding bagged $230 million from various investors led by Polychain and Three Arrows Capital. This brings a total funding amount of $290 million for Avalanche despite its mainnet launch just celebrating its first anniversary.

How is Avalanche reimagining DeFi?

Avalanche is caught in the midst of intensifying layer-one competition, with the likes of Binance Smart Chain (BSC), Polkadot and Terra vying for a larger market share from their main competitor, Ethereum. And much like its counterparts, scalability for Avalanche is similarly crucial. Avalanche boasts 4,500 transactions per second (TPS) with less than a three-second finality. In contrast, Ethereum processes 15–30 transactions per second with over 1-minute finality. Moreover, transaction fees are a lot more desirable on Avalanche compared to Ethereum. Avalanche’s fees range from 75 nAVAX up to 225 nAVAX ($0.0000048 to $0.0000144 at the coin’s present value).

However, it takes more than lower costs and faster transactions to compete with the first-mover in Etheruem. Developers willing to build applications on Avalanche are necessary to foster adoption. In this regard, it’s clear how Ethereum has the upper hand with 2,585 listed decentralized applications (DApps). But despite it being only a year old in existence, Avalanche already has attracted 320 projects.

Source: Avax-Projects

Projects such as SushiSwap, Chainlink, Circle and The Graph have benefited from the smart contract infrastructure provided by Avalanche. Nonfungible tokens, or NFTs, have also found a home on Avalanche; for example, Topps, a sports-themed trading card company, has minted a Major League Baseball NFT collection on Avalanche called “Inception.” Topps has also partnered with the German football league Bundesliga, releasing video moments from the league in two available card packages — all as NFTs on the Avalanche blockchain. What’s more, the $230 million raised by Avalanche in 2021 will be earmarked to support this flourishing decentralized finance, or DeFi, ecosystem.

Ethereum Bridge

One of the significant steps that Avalanche has undertaken in redefining finance is its cross-chain Ethereum bridge, wherein it facilitates “seamless ERC-20 and ERC-721 transfers between Avalanche and Ethereum.” The bridge helps migrate Ethereum’s DeFi infrastructure to Avalanche, allowing users to conduct faster and cheaper transactions.

Pangolin, a notable player in the DeFi space, is built on Avalanche and benefits from the Avalanche–Ethereum bridge. The decentralized exchange (DEX) enables trading of all tokens issued on Ethereum and Avalanche. This enables users to circumvent the high and sluggish transaction times in swapping assets. Apart from Pangolin, other DApps, such as bZx, Union, JellySwap, Prosper, e-Money and others, have joined the Avalanche ecosystem.

So far, a total of $1.72 billion in assets have been transferred using the bridge.

More DeFi growth

Also, in a move to further its burgeoning DeFi ecosystem, Avalanche is bringing on board two of the leading DApps on Ethereum to the Avalanche blockchain. Avalanche Rush, a $180-million liquidity mining incentive program, was partially distributed to Curve Finance and Aave. In the program’s initial phase, AVAX will be used as liquidity incentives for Aave and Curve users over three months. About $27 million worth of AVAX has already been set aside by the Avalanche Foundation to fund the program, and there are also additional allocations planned for its second phase.

In addition to Aave and Curve Finance, Pangolin also joined Avalanche Rush, supplying $2 million in AVAX incentives for a single-sided pool of Pangolin (PNG).

What’s under the hood?

Perhaps Avalanche’s strongest suit is its network infrastructure, which is touted to provide better decentralization. Avalanche is composed of three integrated blockchains: The Exchange Chain (X-Chain), Platform Chain (P-Chain) and Contract Chain (C-Chain). The X-Chain is primarily for creating and exchanging assets, while the P-Chain is for creating subnets and coordinating validators, and the C-Chain is for executing Ethereum Virtual Machine contracts. Most of the transactions take place in the C-Chain as Ethereum developers can easily build Ethereum-compatible applications using this blockchain.

The three blockchains are validated and secured by a its main network, which is a special type of subnetwork or subnet. Anyone can secure the network by staking at least 2,000 AVAX, currently $152,000. Avalanche defines a subnet as a “dynamic set of validators working together to achieve consensus on the state of a set of blockchains.” Essentially, a subnet is a new network capable of hosting multiple blockchains that can have its own consensus model and its own virtual machine.

These subnets open up opportunities for certain niche use cases as they are highly customizable. This can be useful for different organizations, companies and even governments because the network’s architecture also supports private subnets, meaning that those who want to deploy private blockchains can do so.

Why has the price of AVAX spiked lately?

Avalanche Rush was a major factor that contributed to the price of AVAX jumping by 192% in August. But another reason why the price of AVAX appreciated recently is due to more upcoming initial DEX offerings (IDO). AvaXlauncher, the launchpad and incubator for the Avalanche ecosystem, has announced two new IDOs on Twitter. One is Oracle on Avalanche, and the other is Gaming Project: Breed, Play and Earn.

And with those two IDOs, stakers and holders of AvaXlauncher (AVXL) tokens will get airdropped a small portion of those IDOs. An IDO is a new type of crowdfunding model in the crypto space. It offers immediate liquidity, immediate trading and lower costs for listing compared to anteceding models such as initial coin offerings and initial exchange offerings.

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Factoring the tokenomics

The tokenomics behind AVAX may also play a small role in its increasing value. There is a cap on token supply at 720 million AVAX, but it’s worth noting that 40% of it is already allocated to private investors and the AVAX team. Then, about 360 million is allotted for staking rewards, and 10% went to public sales.

Source: Avalanche

Moreover, the fees for each transaction also follow a similar burning mechanism akin to Ethereum Improvement Proposal 1559. To date, nearly 278,000 AVAX tokens ($21 million) have been burned since its inception, placing further deflationary pressures in addition to its limited supply. At present, the total circulating supply of AVAX is around 220 million AVAX.

Source: Avascan

There is no doubt that the growing popularity of layer-one protocols is reimagining the DeFi landscape. But even with Ethereum’s dominance tapering slightly, as evidenced by its reduced TVL, it remains in an enviable spot that competitors may find hard to uproot. So, to count out Ethereum before Ethereum 2.0 could be premature. Still, these “Ethereum killers” are on the rise, and sooner or later, one may emerge as a worthy adversary.

Cointelegraph Consulting: Going down the Metaverse

August 27, 2021 Coin Telegraph

Coin Telegraph

The metaverse allows people to interact with one another, digital objects, and the physical world through their avatar in a virtual environment.

As NFT sales appear reanimated after a nearly two-month dry spell from its apex in May, a particular NFT application is gaining popularity more than ever: Metaverses. Metaverses have gained its fair share of media attention lately, with big moves coming from companies like Facebook and Epic games. However, not everyone -- even those who have been in crypto for a long time -- has caught on to what metaverses are despite the hype. But as more companies, celebrities, and artists venture into the space, it has become another domain that deserves some thorough consideration.

The metaverse is a network of virtual environments in which people can interact with each other, digital objects, and the physical world through their avatar. While definitions of the metaverse vary, they orbit around technologies including VR, AR, digital twins, and blockchain. Herman Narula, CEO of Improbable, describes the metaverse as “something more than a game but less than the real world. The metaverse is to virtual worlds as a website is to the internet."

Metaverse bandwagon

For weeks, Mark Zuckerberg has been beating the drum for metaverses. The Facebook founder views virtual worlds as the next iteration of human interaction online. Zuckerberg sees Facebook transitioning from a social media firm with a set of connected applications to a metaverse company with a set of interconnected experiences. And its recent move to introduce Horizon Workrooms is a step in that direction. It’s also in a prime spot to run after its metaverse objectives since it has invested heavily in VR technology for several years.

Another one bursting onto the scene is game and software developer Epic Games. Epic Games, of course, already has something to show for when it comes to metaverses with the successful virtual concerts of Ariana Grande, Travis Scott, and Marshmello that was held inside its flagship game, Fortnite. And the $1 billion in funding that it received in April with an additional $200 million deal from Sony Group will help it pursue long-term growth opportunities with metaverses, especially as it is already remodeling the future of live events.

Why the metaverse?

The metaverse offers a vastly unique experience for everyone. It's a way for artists to connect with fans more interactively and perhaps individually, which is a step up from the live stream format delivered by artists like Post Malone, Dua Lipa, Gorillaz, and many others when the pandemic struck in 2020.

On the other hand, Facebook's Horizon Workroom is geared towards replacing boring Zoom call meetings with a more interactive environment, a virtual conference room, if you will, for remote workers. Others also see a wide variety of applications that metaverse is going to be useful for. Education systems, for one, can benefit by allowing students, particularly in the medical field, for simulation training as opposed to just a one-way communication where teachers merely deliver the lessons to the students.

Metaverses and NFTs

The tie-in between metaverses and nonfungible tokens (NFTs) comes from NFTs’ capability of adding a certificate of ownership or authenticity to the assets belonging to the digital world. Projects like Decentraland, The Sandbox, Landemic, CryptoVoxels, and SuperWorld involve acquiring a piece of this digital asset, which is primarily virtual land. NFTs help in verifying its uniqueness, and even its provenance.

For instance, Decentraland is based on the Ethereum blockchain and uses ERC-721 tokens called LAND to facilitate trading plots of virtual lands called parcels. This makes each land distinct and helps users establish ownership of a piece of the entire Decentraland real estate. This is built on its consensus layer, which maintains a ledger that tracks the ownership of each parcel.

LAND tokens enable owners to do various things within their digital real estate, like hosting games or experiences, organizing contests and events, or even renting it. The same concept applies to The Sandbox, the second-largest metaverse NFT project in terms of sales to Decentraland.

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Metaverses and cryptocurrencies

Cryptocurrencies play the medium of exchange within the metaverse, allowing users to exchange virtual goods. The two metaverses mentioned above enable players to transact using cryptocurrencies. Decentraland’s ERC-20 based token, MANNA, is the legal tender for users to purchase plots of digital land and SAND tokens for The Sandbox. Such coins also give users the opportunity to participate in its development.

Users can use MANNA tokens to vote on policy updates, land auctions, and subsidies for new developments on Decentraland, while users can use SAND tokens for more or less the same purpose. Moreover, cryptocurrencies can further open up the possibility of transacting goods from different games or metaverses on interoperable marketplaces.

Growth of Metaverses

At this stage, metaverses haven’t reached their full potential, and companies are just beginning to explore the ways they could penetrate the space. Facebook and Epic games are just the two most recent examples of big names jumping on the bandwagon. However, companies like Microsoft and Amazon are also getting in on the act. Amazon, in particular, is developing a virtual “Amazon mall” where users can shop and interact with the products they want to buy. But whether or not these are going to support NFTs is still uncertain and maybe even unlikely.

Nonetheless, NFT sales from metaverses are gradually gaining a strong foothold against other categories. In the second quarter, its weekly sales topped $8 million at one point.

Source: Nonfungible.com

Total sales from 2017 to August 2021 amounted to $138 million, which is enough to take a 6.77% share of NFT sales by category. This puts the Metaverse NFT category at third place in NFT sales behind digital collectibles and artwork.

Source: Nonfungible.com

And as more and more well-known personalities and big companies take part in the trend, the numbers could very well improve before the end of the year. The growth of metaverses and NFTs, in general, is unprecedented, especially in 2021. Sales of NFTs in the metaverse are already up by 428% from 2020 and averaged 149% growth in the past four years. If this explosive growth keeps the same pace, it would not be hard to see sales breach the $120-million mark by early 2022.

Will Polkadot save decentralized finance from Ethereum’s scaling problem?

August 26, 2021 Coin Telegraph

Coin Telegraph

Polkadot is trying to achieve scalability without compromising network security. Early signs suggest it may beat Ethereum 2.0 in the transaction fee race.

Web3, interoperability, and layer 0 are all terms tossed around when describing Polkadot. But what do they mean, and how will they impact the Internet and cryptocurrency market? Cointelegraph Research’s new report explores how Polkadot is tackling distributed ledger scalability and centralization of the web simultaneously.

For starters, imagine a world where Facebook is replaced by a decentralized social media application built on Polkadot. This is what projects like Subsocial are building in their platforms, which lets users determine what data to keep private and to share. Users can profit from selling their data stored in the blockchain to 3rd party companies by minting Ocean Protocol tokens, OCEAN, and selling them on a decentralized exchange like Polkadex.

Not happy about the bank charging overdraft fees when your account balance reaches below $0.00? Well, one Polkadot-based project called Acala has built an onchain automatic scheduler that is similar to a decentralized version of Stripe. This enables users to automatically transfer staking rewards to their wallet address, which can be linked to a physical credit card. This means that a person can be paid for helping to secure a decentralized money and banking system, and that the money they earn can be sent to a credit card and used to buy a coffee at Starbucks.

This report covers:

How Polkadot allows blockchains with different structures to co-exist in an interoperable environment with shared security.
How the system of slot auctions allows projects to compete for the right to remain connected to the network.
How the ecosystem around Polkadot gave rise to a wide variety of decentralized products, from social networks to cloud computation and prediction markets.

Download the full report here, complete with charts and infographics.

Does Polkadot Deliver What Ethereum Promised?

Ethereum’s consensus mechanism forces all nodes to validate all transactions. In contrast, the Polkadot blockchain breaks up batches of new transactions into many shards and processes them in parallel. The blockchains plugging into the network can have very different rules of operation, transaction processing, and capabilities, giving the whole system much more flexibility.

Polkadot is trying to achieve scalability without decreasing the network’s security. This famous problem known as the “blockchain trilemma” was elucidated by the founder of Ethereum himself, Vitalik Buterin.

In contrast with Ethereum’s single blockchain design, Polkadot has many different blockchains called parachains that plug into one main blockchain, also referred to as the Relay Chain or layer 0. Similar to the hub and spoke model commonly used in airport design, connecting disparate blockchains via the central Relay chain establishes a way to send messages and transactions across multiple blockchains without slowing down traffic on the transaction highway. Layer 0 refers to the concept that Layer 1 protocols such as Bitcoin and Ethereum could be spokes and Polkadot could be the hub. For example, the NFT project Bit.Country is a Substrate-based blockchain that uses a bridge with Ethereum. This enables assets to flow between Ethereum and metaverses built on Bit.Country’s TEWAI blockchain.

No Smart Contracts on Polkadot

Since Polkadot’s Relay chain does not have smart contracts, it's up to the blockchains plugging into Polkadot to enable smart contracts. For example, one parachain called Moonbeam has full compatibility with Ethereum contracts. Moonbeam’s developers have created a way to interact with digital currencies built on Polkadot via Metamask, the popular web browser wallet for decentralized finance. This means that tokens built on Polkadot’s Substrate, which is a blockchain development tool, can be seamlessly sent to Ethereum wallets and smart contract addresses.

The next layer of the Polkadot ecosystem includes the projects building on top of the blockchains that are built on top of the Relay chain. For example, Ocean Protocol is in the process of deploying their smart contracts onto the Moonbeam blockchain. By building on top of Moonbeam, the OCEAN token will be compatible with both Polkadot and Ethereum blockchain applications.

Rebuilding Ethereum’s Network on Polkadot

The increased scalability of Polkadot enables many projects to overcome Etheruem’s high transaction fees and low number of transactions per second. Similar to Ethereum’s decentralized data storage projects such as FileCoin, Sia or Storj, Crust Network is building a similar solution on top of Polkadot. Unlike Ethereum-based projects, Crust Network isn’t constrained by Ethereum’s scalability problems. Many of the applications we have come to love on Ethereum are being re-built on the Polkadot network or integrated via chain-agnostic gateways.

The Polkadot ecosystem appears to be brimming with projects ranging from decentralized cloud computing with Phala Network to cross-chain custodial wallets such as the browser based Math Wallet. The hardware-based virtual private network project Deeper Network has already sold over 10,000 physical devices on Indiegogo, Amazon, and BestBuy. Deeper’s blockchain solution coordinates all devices and routing in a privacy-preserving way, holds the device registry (in the form of a public key infrastructure) and manages staking and reputation subsystems.

Only time will tell if this nascent blockchain technology can successfully achieve the affordable fees, high transaction throughput, and impenetrable security needed for a fairer future of finance and communication.

The 40+ page report is published by Cointelegraph Research.

Will Polkadot save decentralized finance from Ethereum’s scaling problems?

August 26, 2021 Coin Telegraph

Coin Telegraph

Polkadot may beat Ethereum 2.0 in the transaction fee race.

Web3, interoperability, and layer 0 are all terms tossed around when describing Polkadot. But what do they mean, and how will they impact the internet and cryptocurrency market? Cointelegraph Research’s new report explores how Polkadot is tackling distributed ledger scalability and centralization of the web simultaneously.

For starters, imagine a world where Facebook is replaced by a decentralized social media application built on Polkadot. This is what projects like Subsocial are building in their platforms which lets users determine what data to keep private and to share. Users can profit from selling their data stored in the blockchain to 3rd party companies by minting Ocean Protocol tokens, OCEAN, and selling them on a decentralized exchange like Polkadex.

This report covers:

How Polkadot allows blockchains with different structures to co-exist in an interoperable environment with shared security.
How the system of slot auctions allows projects to compete for the right to remain connected to the network.
How the ecosystem around Polkadot gave rise to a wide variety of decentralized products, from social networks to cloud computation and prediction markets.

Download the full report here, complete with charts and infographics.

Does Polkadot Deliver What Ethereum Promised?

No Smart Contracts on Polkadot

Rebuilding Ethereum’s Network on Polkadot

The improved scalability of Polkadot enables many projects to overcome Etheruem’s high transaction fees and low number of transactions per second. Similar to Ethereum’s decentralized data storage projects such as FileCoin, Sia or Storj, Crust Network is building a similar solution on top of Polkadot. Unlike Ethereum-based projects, Crust Network isn’t constrained by Ethereum’s scalability problems. Many of the applications we have come to love on Ethereum are being re-built on the Polkadot network or integrated via chain-agnostic gateways.

The Polkadot ecosystem is brimming with projects ranging from decentralized cloud computing with Phala Network to cross-chain custodial wallets such as the browser based Math Wallet. The hardware-based virtual private network project Deeper Network has already sold over 10,000 physical devices on Indiegogo, Amazon, and BestBuy. Deeper’s blockchain solution coordinates all devices and routing in a privacy-preserving way, holds the device registry (in the form of a public key infrastructure) and manages staking and reputation subsystems.

Cointelegraph Consulting: Measuring the effects of the London hard fork

August 13, 2021 Coin Telegraph

Coin Telegraph

The London hard fork comes with five EIPs. Most importantly, EIP-1559 impacts transaction fees and miner revenue, but how significant is it?

The much-talked-about Ethereum hard fork finally went live on Aug. 5 after block 12,965,000 was mined. Dubbed “London,” the software upgrade will bring together significant alterations in Ethereum’s code. Overall, the code changes target improvements to the network’s transaction fee market, user experience and much more.

London comes with five Ethereum Improvement Protocols (EIP), with EIP-1559 garnering the most attention due to the impact on transaction fees and miner revenue, which initially caused miners to push back, raising concerns over the protocol consensus and a potential chain split.

EIP-1559 was originally proposed in April 2019 and underwent testing back in June prior to the launch. What’s most pressing about EIP-1559 is that it’s primarily geared toward improving Ethereum’s transaction payment system. Before the upgrade, most users faced uncertainty, as Ethereum network transaction fees can be volatile and potentially spike to hundreds of dollars per transaction. EIP-1559 is unlikely to substantially decrease transaction costs, as it’s more of a scalability issue. However, it aims to reduce transaction fee volatility and delays.

EIP-1559 transaction fees, base fee and tipping miners

The upgrade introduces a fixed-price sale mechanism with a base fee and tip rather than a single gas fee. Miners receive the total transaction fee minus the base fee, which is burned. This base fee is a known value calculated for each block and adjusts according to a target block size. Users can also send an additional tip to miners on top of the base fee to prioritize their transactions.

Miners’ incentives remain unchanged as the most expensive transactions are selected first to fill blocks. However, sender strategies are now clearer than under first-price blind auctions. Rather than guessing fees based on recent transactions, users can refer to the base fee metric directly and add their tip.

Can EIP-1559 make ETH deflationary?

With all these changes, one of the burning questions in the community is if the activation of EIP-1559 will render Ether (ETH) more deflationary? Ether does not have a hard supply limit like Bitcoin but rather has ongoing inflation capped at 18 million ETH per year, which is used to reward miners.

However, there are deflationary forces on Ether’s supply as well. Firstly, the liquidity locked in decentralized finance, around $155 billion at the time of writing, cuts down the tradable supply. Secondly, there is an ongoing rate of lost or irrecoverable Ether. Finally, there is the new EIP-1559 protocol.

Since London went live, a total of 26,965.9 Ether was burned, according to Etherchain.org. At Ether’s current price, that translates to about $86 million worth of ETH. In the six-day period after the hard fork, the new ETH supply from block rewards was reduced by roughly 33% per day due to burning fees.

EIP-1559 has increased deflation in Ethereum, but it is still an overall inflationary asset. To get a gauge of how burning base fees impact Ether’s circulating supply, the report compares last year’s data to create a hypothetical scenario where the London hard fork was activated in 2020. The calculation implies the present burn rate of 3.81 Ether per minute, which assumes that everything remains constant.

Download the 28th issue of Cointelegraph Consulting Bi-weekly Newsletter in full, complete with charts, market signals, as well as news and overviews of fundraising events.

This resulted in a burned supply of 3 million Ether, approximately 17% of the total inflation per year. This is a significant reduction in inflation, which is projected to increase the scarcity of Ether in the long term.

At the current market price, this equates to approximately $10 billion worth of Ether burned since January 2020. Given the current $378-billion market cap of Ether, this is a sizable 3% of Ether’s supply value removed from circulation.

Cointelegraph Consulting

Why did gaming tokens take off?

Attracting investments

Future of blockchain gaming

How it all started

Market growth

What categories are among the most popular?

Will NFTs survive the next crypto crash?

Counting the incidents

Calls for audit

Fund breakdown

Boosting mainstream acceptance

Open interest rising

Metaverse bandwagon

Why the metaverse?

Metaverses and NFTs

Metaverses and cryptocurrencies

Growth of Metaverses

Does Polkadot Deliver What Ethereum Promised?

No Smart Contracts on Polkadot

Rebuilding Ethereum’s Network on Polkadot

Does Polkadot Deliver What Ethereum Promised?

No Smart Contracts on Polkadot

Rebuilding Ethereum’s Network on Polkadot

EIP-1559 transaction fees, base fee and tipping miners

Can EIP-1559 make ETH deflationary?

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