What directional liquidity pooling brings to DeFi

October 22, 2022 Coin Telegraph

Directional liquidity pooling is a new way for liquidity providers to add liquidity to exchanges while avoiding impermanent loss.

Modern decentralized exchanges (DEXs) mainly rely on liquidity providers (LP) to provide the tokens that are being traded. These liquidity providers are rewarded by receiving a portion of the trading fees generated on the DEX. Unfortunately, while liquidity providers earn an income via fees, they’re exposed to impermanent loss if the price of their deposited assets changes.

Directional liquidity pooling is a new method that is different from the traditional system used by DEXs and aims to reduce the risk of impermanent loss for liquidity providers.

What is directional liquidity pooling?

Directional liquidity pooling is a system developed by Maverick automated market maker (AMM). The system lets liquidity providers control how their capital is used based on predicted price changes.

In the traditional liquidity pool model, liquidity providers are betting that the price of their asset pairs will move sideways. As long as the price of the asset pair doesn’t increase or decrease, the liquidity provider can collect fees without changing the ratio of their deposited tokens. However, if the price of any of the paired assets were to move up or down, the liquidity provider would lose money due to what is called impermanent loss. In some cases, these losses can be greater than the fees earned from the liquidity pool.

This is a major drawback of the traditional liquidity pool model since the liquidity provider cannot change their strategy to profit based on bullish or bearish price movements. So, for example, if a user expects Ether’s (ETH) price to increase, there is no method to earn profits via the liquidity pool system.

Directional liquidity pooling changes this system by allowing liquidity providers to choose a price direction and earn additional returns if they choose correctly. So, for example, if a user is bullish on ETH and the price increases, they’ll earn additional fees. Bob Baxley, chief technology officer of Maverick Protocol, told Cointelegraph:

“With directional LPing, LPs are no longer locked into the sideways market bet. Now they can make a bet with their LP position that the market will move in a certain direction. By bringing a new degree of freedom to liquidity providing, directional LPing AMMs like Maverick AMM open the liquidity pool market to a new class of LPs.”

How does this benefit users in DeFi?

The AMM industry and related technologies have grown quickly in the past few years. A very early innovation was UniSwap’s constant product (x * y = k) AMM. But, constant product AMMs are not capital efficient because each LP’s capital is spread over all values from zero to infinity, leaving only a small amount of liquidity at the current price.

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This means that even a small trade can have a big effect on the market price, causing the trader to lose money and the LP to pay less.

In order to solve this problem, several plans have been made to “concentrate liquidity” around a certain price. Curve made the Stableswap AMM, and all of the liquidity in the pool is centered around a single price, which is often equal to one. In the meantime, Uniswap v3 made the Range AMM more popular. This gives limited partners more control over where their liquidity goes by letting them stake a range of prices.

Range AMMs have given LPs a lot more freedom when it comes to allocating their cash. If the current price is included in the chosen range, capital efficiency may be much better than constant product AMMs. Of course, how much the stakes can go up depends on how much the LP can bet.

Because of the concentration of liquidity, LP capital is better at generating fees and swappers are getting much better pricing.

One big problem with range positions is their efficiency drops to zero if the price moves outside the range. So, to sum up, it’s possible that a “set it and forget it” liquidity pooling in Range AMM like Uniswap v3 could be even less efficient in the long run than a constant product LP position.

So, liquidity providers need to keep changing their range as the price moves to make a Range AMM work better. This takes work and technical knowledge to write contract integrations and gas fees.

Directional liquidity pooling lets liquidity providers stake a range and choose how the liquidity should move as the price moves. In addition, the AMM smart contract automatically changes liquidity with each swap, so liquidity providers can keep their money working no matter the price.

Liquidity providers can choose to have the automated market maker move their liquidity based on the price changes of their pooled assets. There are four different modes in total:

Static: Like traditional liquidity pools, the liquidity does not move.
Right: Liquidity moves right as the price increases and does not move as the price decreases (bullish expectation on price movement).
Left: Liquidity moves left as the price decreases and does not move as the price increases (bearish expectation on price movement).
Both: Liquidity moves in both price directions.

The liquidity provider can put up a single asset and have it move with the price. If the chosen direction matches the price performance of the asset, the liquidity provider can earn revenue from trading fees while avoiding impermanent loss.

When the price changes, impermanent loss happens because the AMM sells the more valuable asset in exchange for the less valuable asset, leaving the liquidity provider with a net loss.

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For example, if there is ETH and Token B (ERC-20 token) in the pool and ETH increases in price, the AMM will sell some ETH to buy more Token B. Baxley expanded on this:

“Directional liquidity represents a significant expansion of the options available to prospective LPs in decentralized finance. Current AMM positions are essentially a bet that the market will go sideways; if it doesn’t, an LP is likely to lose more in impermanent loss than they make in fees. This simple reality arguably keeps a lot of potential LPs from ever entering the market.”

When it comes to traditional AMMs, impermanent loss is difficult to hedge against since it can be caused by prices moving in any direction. On the other hand, directional liquidity providers can limit their exposure to impermanent loss with single-sided pooling. Single-sided pooling is where the liquidity provider only deposits one asset, so if impermanent loss happens, it can only occur on that single asset.

UNI tokens delegation was a ‘misunderstood situation,’ according to Binance’s CZ

October 20, 2022 Coin Telegraph

Binance

CZ replied to users on Twitter about Binance's becoming the second-largest voting entity in the Uniswap DAO.

The millions of UNI (UNI) tokens delegated by Binance were a "misunderstood situation," said Binance CEO Changpeng “CZ” Zhao in a Twitter post, in response to questions about 13.2 million UNI tokens delegated on Oct. 18 that made Binance the second-largest entity by voting power in the Uniswap DAO.

According to CZ, a UNI transfer between internal wallets caused the automatic delegation. He denie allegations about the crypto exchange using users' tokens to vote.

UNI transferred between internal Binance wallets, causing the UNI to be automatically delegated. This is part of their protocol, not "we intended". Binance don't vote with user’s tokens. Uniswap misunderstood the situation. Tokens come to popular platforms. #Binance https://t.co/KYPqFx5GrW
— CZ Binance (@cz_binance) October 20, 2022

In a statement to Cointelegraph, Binance stated:

“Binance doesn’t vote with user’s tokens. In this case, there has been a misunderstanding of what has happened during the transfer of a large balance of UNI (around 4.6M) between wallets. We’re currently in discussions to improve the process to prevent any further misunderstandings happening again.”

On Oct. 19, Hayden Adams, Uniswap’s CEO, stated that it was unclear how Binance intended to engage with Uniswap decisions and demanded explanations about the case, which he classified as a "very unique situation, as the UNI technically belongs to its users."

Yesterday @binance delegated 13M UNI from its books, making it one of the largest UNI delegates (this is only 1.3% of current delegated UNI so governance voting power remains quite distributed)

Very unique situation, as the UNI technically belongs to its users. pic.twitter.com/bwsVb1IwKR
— hayden.eth (@haydenzadams) October 19, 2022

Tokens delegated in the transaction represented 5.9% of the voting power in the governance forum, positioning Binance's voting power behind the venture firm Andreessen Horowitz, according to the on-chain list of delegates.

The amount delegated represented 1.3% of the total supply of UNI — a percentage that allows Binance to propose governance votes, as the threshold is settled at 0.25%. The exchange won't be able to pass votes on its own, however, due to a 4% quorum requirement.

Earlier this month, Uniswap disclosed a $165 million Series B funding round led by Polychain Capital with additional existing investors to expand its existing product offerings and improve user experience. The company also intends to launch nonfungible tokens (NFTs) projects in the future.

The decentralized exchange became prominent during the DeFi hype in 2020. The cumulative trade volume of Uniswap surpassed $100 billion for the first time in February 2021.

Crypto adoption: How FDIC insurance could bring Bitcoin to the masses

October 20, 2022 Coin Telegraph

Banks

FDIC insurance is highly sought-after by crypto exchanges, lenders, and other service providers. Is it the key to mass adoption?

Over the years, several cryptocurrency companies have claimed that deposits with them were insured by the United States Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) as if they were regular savings accounts. While so far, no crypto firm has been able to offer depositors this type of insurance, some speculate it could be the key to mass adoption.

The most notable case is that of bankrupt lender Voyager Digital, which saw regulators instruct it to remove “false and misleading statements” regarding FDIC insurance. Crypto exchange FTX has been a beacon of hope looking to backstop contagion in the cryptocurrency industry, but it received a cease-and-desist letter from the FDIC to stop suggesting user funds on the platform were insured.

As it stands, even major players in the cryptocurrency space aren’t FDIC-insured. Coinbase, for example, details on its pages that it carries insurance against losses from theft but is not an FDIC-insured bank and that cryptocurrency is “not insured or guaranteed by or subject to the protections” of the FDIC or Securities Investor Protection Corporation (SIPC).

The exchange, however, points out that “to the extent U.S. customer funds are held as cash, they are maintained in pooled custodial accounts at one or more banks insured by the FDIC.” Speaking to Cointelegraph on the subject, a Coinbase spokesperson only said she can confirm “that Coinbase is aligned with the latest FDIC guidance.”

So what is FDIC insurance, why is it so sought-after in the cryptocurrency industry and why does it remain so elusive?

What is FDIC insurance?

The FDIC itself was created amid the Great Depression in 1933 to boost the financial system’s stability following a wave of bank failures during the 1920s and has managed to protect depositors ever since.

FDIC insurance refers to the insurance provided by this agency that safeguards customer deposits in the event of bank failures. Cal Evans, managing associate at blockchain legal services firm Gresham International, told Cointelegraph:

“FDIC insurance is basically a layer of protection that covers one individual for up to $250,000 and its a backing that’s given by the United States government. It says ‘look, if this company goes bankrupt, we will guarantee your account to the value of $250,000 per person, per company.’”

So, if an FDIC-insured financial institution fails to meet its obligations to customers, the FDIC pays these amounts to depositors up to the assured amount while assuming the bank and selling its assets to pay off owed debt. It is worth noting that FDIC insurance does not cover investments like mutual funds.

Other countries have similar schemes, with deposits in the European Union being guaranteed up to $98,000 (100,000 euros) to protect against bank failures, for example. These schemes improve confidence in the financial system.

Speaking to Cointelegraph, Noah Buxton, a partner and practice leader for blockchain and digital assets at consulting firm Armanino, said, “No customer’s crypto holdings are FDIC-insured today,” but added that crypto platforms often hold customers’ dollar balances in financial institutions that are FDIC-insured.

There is a distinct difference between users having their funds insured, and the impact of a cryptocurrency firm having FDIC insurance — even for only United States dollar deposits — is hard to estimate.

The potential impact on crypto

If the FDIC were to insure deposits at a cryptocurrency platform, it would likely gain an advantage over other U.S.-based cryptocurrency platforms, as the perceived security of that platform would gain a huge boost, especially as it would be seen as a green flag from regulators as well.

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Evans said that the FDIC would give the retail market “a lot more confidence because if FDIC insurance does happen and does apply to these companies, that means it’s going to massively, massively encourage people who are in the United States to put their money in crypto because it’s as secure as putting dollars at a bank,” adding:

“It’s going to massively help adoption, because it’s going to encourage the retail market to see companies like this at a parallel, in term of safety, with banks that people know.”

Mila Wild, marketing manager at cryptocurrency exchange ChangeHero, told Cointelegraph that one of the biggest problems the cryptocurrency sector faces is a lack of regulation and supervision, especially after the collapse of the Terra ecosystem “undermined the confidence of many investors.”

Per Wild, the FDIC doesn’t just insure customer deposits, as it also “conducts constant monitoring of financial institutions for security and compliance with consumer protection requirements.”

Dion Guillaume, global head of PR and communication at crypto exchange Gate.io, told Cointelegraph that a “friendly crypto regulatory environment would be critical for adoption,” as “blind regulatory sanctions” do not help. Guillaume added that insuring digital assets can be very different and several factors need to be carefully considered.

How hard is it to get FDIC insured?

As the FDIC could significantly boost confidence in the industry and several large exchanges have shown interest in getting it, it’s important to look at how hard it is for a cryptocurrency-native firm to actually become FDIC-insured.

Evans told Cointelegraph that it’s “actually relatively straightforward to get” as long as specific criteria are met by the organization looking to get it. The organization needs to make necessary applications and prove requisite liquidity and could potentially have to detail its management structure.

To Evans, FDIC insurance would “massively give companies operating in the United States a huge, huge benefit over foreign firms,” as U.S. residents who open accounts with insured firms would have a major incentive not to use decentralized exchanges or other peer-to-peer platforms.

Wild had a more negative stance, saying it’s “not possible to get FDIC insurance,” as it only covers “deposits held in insured banks and savings associations and protects against losses caused by the bankruptcy of these insured deposit institutions.” Wild added:

“Even if we imagine that crypto projects will be able to have FDIC insurance someday, it means sacrificing decentralization as one of the core crypto values.”

She further claimed that the FDIC’s statements on dealings with crypto firms are “trying to infringe on crypto companies and emphasize their perceived negative impact on society.” Wild concluded that the FDIC telling crypto projects not to suggest they’re insured “could further lower” trust in cryptocurrencies.

To Wild, cryptocurrencies will remain a riskier asset for the time being, as users won’t have any type of government protection. As a result, crypto users should “stay vigilant about their assets.” This does not mean fiat savings are safer, she said, as increasing inflation is eating those away.

Noah Buxton, a partner at consulting firm Armanino, went into more detail on the process, telling Cointelegraph that platforms attaining FDIC insurance would “require a modified underwriting regime, the creation of which has many significant hurdles.”

He said the FDIC would need to figure out how to take possession of crypto assets, how to value them and how to distribute them to the customers of failed crypto platforms, adding:

“While this is possible and may happen, we are more likely to see private insurance and reinsurance vehicles fill the void for the foreseeable future. This is a necessary component of any market and the broader coverage availability and competitive set of insurance options will benefit crypto holders.”

Is the insurance worth chasing?

If users are, in the future, able to get insurance through other sources — such as private company solutions or decentralized protocols — it’s worth questioning whether FDIC insurance is worth it in the long run. Insurance from the FDIC could be a significant centralizing factor, as most would likely move to a platform that has its backing.

Evans said he believes FDIC insurance “is not necessarily wanted or needed,” as wherever there’s more protection, “there happens to be more oversight and regulation,” which would mean insured companies would be “very secure and very regulated.”

These regulations could further restrict those who are able to create accounts with these companies, which would add to the question of centralization that the crypto insurance industry already faces.

Bitcoin Foundation chairman Brock Pierce told Cointelegraph that the crypto industry will nevertheless “see more companies try to get it” after the recent wave of crypto lenders going under, which will make it “even harder for them now.”

Pierce did not expect FDIC insurance to “be a big deal or matter much with regards to overall crypto adoption.” Whether it impacts cryptocurrency adoption at all may only be clear once/if the FDIC does insure cryptocurrency deposits.

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It’s worth noting that FDIC insurance may bring in a false sense of security. While no bank depositor has lost their funds since the FDIC was launched, its reserve fund isn’t fully funded. The FDIC, according to Investopedia, is “normally short of its total insurance exposure by more than 99%.”

The FDIC has, at times, borrowed money from the U.S. Treasury in the form of short-term loans. Self-custody may, for the experienced cryptocurrency investor, continue being a viable option, even if a crypto firm is one day FDIC insured.

Institutional crypto adoption requires robust analytics for money laundering

October 20, 2022 Coin Telegraph

AML

Large financial institutions are getting involved in digital assets by investing capital, time and effort into on-chain analytics solutions.

Institutions have begun to take crypto seriously and have entered the space in numerous ways. As noted in a previous analysis, this has resulted in banks and fintechs looking at custody products and services for their clients.

However, as custodians of clients’ assets, banks must also ensure they are clean assets and stay compliant.

This is where on-chain analytics solutions have a huge role to play in understanding patterns in transactions to identify money laundering and other spurious activities within the cryptocurrency and digital assets space. According to a report by Chainalysis, over $14 billion of illicit transactions took place in 2021.

Therefore, it is critical to build the foundational infrastructure around Anti-Money Laundering (AML) to support the growing institutional appetite for digital assets. Before getting into various types of money laundering patterns that exist in crypto, let us understand what an on-chain analytics solution is.

What are on-chain analytics?

All transactions on public blockchains are visible to anyone. Analytics tools query these blockchains to help us understand trends in transactions. Platforms like Glassnode, Nansen and Dune analytics offer ways for retail audiences to see the flow of money in the ecosystem.

Using on-chain analytics, it is possible to see the net flow of Bitcoin (BTC) into crypto exchanges from private wallets. This typically happens when someone chooses to sell their Bitcoin on an exchange. The net outflow of BTC from exchanges, on the other hand, represents someone wanting to hold on to their Bitcoin. Both actions have implications on the price of the asset.

However, at an institutional level, on-chain analytics can help with identifying spurious transactions. Firms like Chainalysis, Elliptic and Coinmetric are critical for banks to build digital assets capabilities that are foundational as this asset class grows in significance.

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Banks already have mechanisms in place to check for money laundering and terrorist financing activities. Therefore, any digital assets-related AML solution must ensure alignment with a bank’s existing AML controls.

What are money laundering patterns?

There are patterns that banks must keep an eye on to spot money laundering and other illicit activities. Referred to as “typologies” in traditional AML frameworks, not all of them are unique to the digital assets industry. However, on-chain analytics solutions can proactively track them.

Layering

Layering involves converting one crypto into another or moving assets from one chain to another. It makes AML efforts incredibly harder if there are multiple small-sized transactions that are generally beyond the monitoring radars.

Layering can also involve blending crypto assets across different exchanges and sources, making it harder to trace back to the original source of the assets.

Money mules

A money mule is someone who receives crypto assets from a third party and sends it over to another party. Alternatively, they could withdraw assets as fiat cash and hand it over to someone else and receive a commission for this.

Money mules are typically used when criminal syndicates want to be anonymous yet keep their money flowing through the system.

Dusting

Dusting involves creating many small transactions across several wallets that trigger AML monitoring systems. These small transactions would clog the pipeline of AML support teams whose workload increases and make them overlook the illicit transaction that really needed their attention.

Wallet laundering

Wallets used by crypto users make it hard to trace owners. As a result, a money launderer could just hand over the custody (private keys) of their wallet with assets in it to another party. In turn, they would receive payment in crypto on another wallet, thereby making the two transactions seem completely unrelated.

Darknet transactions and mixers

The darknet is an overlay network on the internet that is accessible through special software and configurations. It has earned a reputation for hosting anonymous illicit activities like drugs and arms sales.

Many platforms have flagged crypto addresses from darknet users and marketplaces and do accept assets that are sent therefrom.

However, some illicit actors have taken to crypto mixing services like Tornado Cash to hide the providence of their crypto.

Tornado Cash scrambles crypto transactions in an attempt to anonymize assets that have entered the platform, hiding their point of origin. It has become so associated with perceived criminality that the United States Treasury’s Office of Foreign Assets Control sanctioned the platform in August, and many trading platforms will not touch coins that came from a mixing service.

How are banks addressing this issue?

The money laundering methods described above are not exhaustive. A recent report from Elliptic covers over 41 typologies (patterns) observed within the digital assets space.

So, given the myriad ways that illicit actors attempt to use digital assets for money laundering, how can banks react?

Robust Know Your Customer (KYC) standards are a good starting point when onboarding digital assets customers. However, proactive screening and transaction monitoring should be in place through on-chain analytics solutions.

These solutions can automate AML and sanction checks, identify address clusters associated with illicit activities, map the flow of digital assets across addresses to perform forensic analysis and monitor how assets are moved through activities related to dark-web markets, smart contract frauds, oracle hacks, cross-chain bridge hacks and more.

Furthermore, banks and fintech firms have ramped up their digital assets AML capabilities through partnerships with on-chain analytics firms, as the below graphic shows.

Even though Barclays began its journey with Chainalysis in 2015, this space really has taken off only in the last 18 months. Be it investments or partnerships, it is highly critical that before offering custody services, banks must put AML controls in place to ensure they are handling clean assets.

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More institutional capital has flown into the digital assets space in the last two years. At the same time, more innovative models have emerged in cross-chain bridges, decentralized finance, nonfungible tokens and transaction mixers.

In order to protect assets while innovating at breakneck speed, AML and transaction monitoring controls must be in place. That is essential to keep attracting more institutional capital into digital assets.

Aptos Foundation airdrops 20M tokens to its early testnet users

October 19, 2022 Coin Telegraph

Airdrop

The company said that 20 million APT tokens were airdropped to about 110,235 eligible participants.

Layer 1 blockchain company, Aptos Foundation, announced on Oct 18 that it had rewarded its early network participants with free APT tokens.

1/ The Aptos Foundation has provided early network participants with APT tokens. If you are eligible to claim, you will receive an email from airdrop@aptosfoundation.org in the next few hours.
— Aptos (@AptosFoundation) October 18, 2022

The foundation shared that it had allocated an estimated 20 million APT tokens, representing 2% of its initial total supply of 1 billion APT, to about 110,235 eligible participants. The airdropped tokens had an estimated value of about $200-$260 million USD based on the token's market price at the time the drop took place.

According to the blockchain company, eligibility for the airdropped tokens was based on two categories: “Users who completed an application for an Aptos Incentivized Testnet” and users who minted “an APTOS: ZERO testnet NFT”. Only the original minters of these NFTs were eligible, not the current or secondary owners of the NFTs.

The company shared that Aptos tokens could only be claimed via the official Aptos Community page with additional information provided in the eligibility email sent out by the company. They cautioned users to exercise extreme caution and only trust official sources and channels to avoid being defrauded.

Aptos Foundation’s first airdrop to its community members comes at a time when the project has been under much scrutiny by members of the crypto community on Twitter.

Solana Blockchain developer Paul Fidika, who had allegedly worked on Aptos staking, claimed in a series of tweets that the project had “Dodgey tokenomics” and “Fake POS."

1. Dodgey tokenomics. The FTX / Coinbase / Binance tokens going on sale tomorrow are already owned by the exchanges and are already staked (I think???) However these exchanges are marketing as if these tokens are being sold by the community (which is impossible—there was no ICO)
— Paul Fidika | OpenRails.dev (@PaulFidika) October 18, 2022

Aptos was created by former Meta employees Mo Shaikh and Avery Ching, who were involved in Mark Zuckerberg's failed Diem blockchain project. Diem wound down in February of this year, with Meta selling its intellectual property and other assets.

In July, Aptos closed a $150 million funding round co-led by venture studios FTX Ventures and Jump Crypto, with additional participation from Andreessen Horowitz, Apollo, Franklin Templeton, and Circle Ventures. According to Bloomberg, the funding round more than doubled the startup’s valuation, which was over $1 billion as of March.

Nubank to launch loyalty tokens on the Polygon blockchain

October 19, 2022 Coin Telegraph

Brazil

Dubbed Nucoin, the token creation process will receive collaboration from 2,000 clients in the following months.

Nubank, a fintech bank in Brazil, announced the creation of the Nucoin token on the Polygon blockchain on Oct. 19, paving the way for a rewards program for its 70 million clients across Latin America.

The company said that the token will be available in the first half of 2023, and will recognize customer loyalty and engagement with the bank products without cost or fees for its users. The tokens can be redeemed for perks, discounts in selected products. Fernando Czapski, General Manager for Nucoin at Nubank, stated:

"This project is another step ahead in our belief in the transformative potential of blockchain technology and to democratize it, even more, going beyond the purchase, sale and maintenance of cryptocurrencies in the Nu app.”

As of this month, approximately 2,000 clients will be invited to participate in a discussion of the project details, including the decentralized process of product creation and its Web3 features. "We decided to bring a group of customers into this co-creation process precisely to refine our product ahead of the public launch, to ensure we get to a program that truly resonates with our customers' expectations and needs," noted Czapski.

“One of the largest digital banking institutions in the world, offering its own cryptocurrency is a strong testament to the utility blockchain and crypto have to offer," said Sandeep Nailwal, co-founder of Polygon in a statement.

In May, the bank announced a partnership with Paxos to allow its clients to buy, sell and store cryptocurrencies through its app, a moved the aimed to expand and improve access to crypto assets, eliminating complexity and friction for customers to buy, hold and sell digital currencies through the bank's app, requiring no new account opening or transfer of funds.

Earlier this year, Warren Buffett's Berkshire Hathaway dumped a portion of its Visa and Mastercard holdings and increased exposure in Nubank, purchasing $1 billion worth of stocks, after selling $3.1 billion worth of Visa and Mastercard stock's combined.

Blockchain gaming adoption means more options for gamers

October 16, 2022 Coin Telegraph

Coin Telegraph

Blockchain games are cropping up across various genres, giving games options for what they can play.

Over the past couple of years, games that use blockchain technology have increased their presence in the gaming industry.

While there were early examples like CryptoKitties — launched in 2017 — the trend has truly gained steam, with major gaming studios even exploring the technology.

At the beginning of 2022, the market capitalization of blockchain games was around $25 billion and it doesn’t seem to be decreasing anytime soon, even in the depths of a bear market. According to the analytical service DappRadar, the two most stable areas this year in the cryptocurrency market are blockchain games and nonfungible tokens (NFT), which have recently become very tightly intertwined, creating a new economic phenomenon.

A striking example here is the well-known game Axie Infinity, the token price of which rose above $150 last fall, providing the project with a capitalization exceeding $9 billion. During the same period, the daily audience of the game was approaching 2 million people.

In December 2021, when Bitcoin (BTC) began to fall from its record highs, the Axie Infinity (AXS) token also began to sink, but the Axie Infinity audience grew to almost 3 million people a day, and the transaction activity in its network increased four times.

There are objective reasons for such dynamics. Firstly, most blockchain games use browsers and the creators use HTML5 and WebGL technologies, which have radically expanded the possibilities for developing browser games. Such games repopulated browsers and, at the same time, provided the ability to connect crypto wallets and withdraw NFTs to external marketplaces without any regulatory restriction.

Secondly, blockchain games have no competition as such, as the traditional PC game industry still refers to the blockchain as an incomprehensible or even “toxic” space. This gives small studios, which are not yet able to create large gaming franchises, a huge head start on development. The ability to quickly launch the in-game economy allows developers to immediately fund the continued development of their game worlds without getting into debt and without inflating working capital.

Finally, blockchain games are mostly about income because in blockchain-based games players can earn money just by playing. For completing tasks and spending time in the game, users receive tokens that can then be invested or converted into real money.

What genre to choose

Just like classic PC games, blockchain games cater to all tastes. They have a number of common features: They work from a browser or a mobile app, have simple controls and have a user-friendly interface that even a beginner can handle.

Blockchain games relate to different genres, while they all have one common feature: They are developed by using smart contracts. That is, they provide an opportunity to receive valuable virtual assets. Therefore, all games, no matter what visual component or story they have, are all play-to-earn (P2E) games. Genres of such games include actions, strategy, online multiplayer arenas, sandboxes and more, but it is possible to define the most popular.

Massive multiplayer online role-playing games (MMORPGs) usually have a dynamic reward system where players get tokens by completing in-game tasks. Tokens are used to upgrade characters in order to gain an advantage over opponents in the form of a fortified arsenal or the development of character abilities. The most popular games in this genre are CryptoBlades, My Crypto Heroes and, of course, Axie Infinity.

If pocket monsters and endless battles seem boring, gamers can pay attention to collectible card games. Such games use the NFT system so that the digital cards look like real collectibles. Players need to strategically outplay their opponents by building decks to counter different tactics, and cards can be bought, sold or traded — just like real cards. Some of the most popular card games are Splinterlands, Gods Unchained and Sorare.

Another interesting genre is “x-to-earn,” that is, to do something to earn income and not necessarily just “play” the game. The concept of “X-to-earn” was first proposed by Ben Schecter, head of operations at RabbitHole — a platform that rewards users for learning about crypto. In this equation, “X” can be any daily activity like eating, exercising, sleeping, shopping or studying. “To earn” is the financial profit received as a result of performing these specific actions.

In blockchain games, the concept of “x-to-earn” was developed primarily in the form of move-to-earn, with the example of the famous STEPN game that rewards users for playing sports or exercising. In the English learning game Let Me Speak, the main way to earn money is to buy NFT avatars and start learning English in the app. Every few minutes, players are instantly rewarded with tokens for their progress.

The most ambitious and large-scale projects are AAA games, or games developed by a major publisher, which require a lot of time, a lot of resources and a lot of money to develop. Such games are designed not only to attract players with the opportunity to earn money but simply to enjoy the gameplay. The combination of real AAA gameplay and stunning graphics sets them apart from the rest. The best example of a AAA game right now is Illuvium, which has been in development since 2020 and was released this year. The Illuvium “ILV” token is currently trading at around $60, according to CoinMarketCap, with a market capitalization of $560 million.

Lesley Fung, a content operation specialist from Footprint Analytics, believes that AAA games are the future of GameFi:

“Some of the AAA Games combine the experienced team with delicate production. The teams behind these projects have a record of success in both blockchain and gaming, and the resources to potentially make a AAA title work. The narrative in GameFi is that current games lack quality and have unsustainable tokenomics. However, once AAA games come out, these will bring GameFi to the masses after the bear market, solving much of the current problems.”

According to Footprint Analytics, which is engaged in discovering and visualizing blockchain data, the most popular blockchain game genre for the first nine months of 2022 was card games such as Splinterland, leaving x-to-earn and AAA games behind.

So, the gaming space is replete with various blockchain games for any taste. Here we chose some unique games from each genre.

Nine Chronicles

Nine Chronicles is an Idle MMORPG developed by Planetarium in partnership with Ubisoft. The client works on the Unity engine, and the backend is completely on the blockchain.

Robert Hoogendoorn, head of content at DappRadar, told Cointelegraph:

“When we’re talking about gameplay, it’s difficult to really point one out. However, on a technological level Nine Chronicles is very unique. While most blockchain games rely on existing blockchain ecosystems like Ethereum, Polygon or BNB Chain, Nine Chronicles runs on its own custom blockchain.”

Furthermore, the entire set of game rules exists on the blockchain, making it impossible for gamers to cheat. Each player can manage a node, participating in the maintenance of the network. Therefore, updating the game also requires all users to update their nodes.

The game focuses on crafting and in order to develop a character, the player has to constantly loot in player-versus-environment (PvE) and craft more powerful equipment.

All fights are resolved automatically, with victory determined by the level of a player’s equipment, its element and randomness in hits. Using the same equipment, the player can both win and lose.

In March 2022, the developers made a global change in the gameplay, wherein equipment level restrictions were introduced.

Solitaire Blitz

In the genre of card games, the fantasy game Splinterlands is now very popular. But, what if a gamer wants to play an old-fashioned card game on the blockchain?

One of the most widely played card games of all time was the classic Solitaire, a game that can be played by people everywhere and of almost any age. Perhaps that is why the developers of Solitaire Blitz took the game as a basis for their project, which now enjoys a considerable number of active players. It is the standard Solitaire card game built on the Flow blockchain. The game has seamless and fairly simple gameplay that makes it attractive.

In Solitaire Blitz, a player competes with opponent players who have similar ranks. The player with the most points wins the game. With a unique algorithm, the skill-based matchmaking system ensures fair competition. Solitaire Blitz is a mobile game and can be downloaded from Google Play or the iOS App Store.

XCAD Network

When thinking of the x-to-earn genre, the first image that comes to mind is move-to-earn games, but this genre is not limited to movements. One of the most intuitive variations of x-to-earn is watch-to-earn, a model that allows players to earn tokens by watching videos.

At the moment, the watch-to-earn industry is run by the XCAD Network project, not a game but a platform that allows YouTube content creators to make fan tokens and release NFTs, thus opening up new sources of monetization and ways to attract fans. As for the fans themselves, they earn fan tokens for watching the content of their favorite bloggers.

XCAD Network differs from other x-to-earn projects in that the amount of reward directly correlates with user activity. The total number of subscribers of all bloggers working with XCAD Network is already more than 260 million.

Another unique feature of the project is that on the XCAD Network, users do not need to watch what the platform offers them. Instead, they simply install the XCAD plugin and watch the same videos as before. And, since the platform is built on the Zilliqa blockchain, users do not face any minimum withdrawal amounts.

MIR4

MIR4 is a AAA game that appeared on the crypto game market in August 2021 and became successful both on mobile platforms and Steam, the largest online store for computer games.

The most important distinguishing feature of the game is partial automation. Auto-battles, auto-collection of game resources and auto-completion of tasks will partly replace manual gameplay, which is suitable for players who do not have enough time.

The storyline continues The Legend of MIR3 PC game, which was closed back in February 2012. The player takes on the role of an archmage’s apprentice guarding the princess, and the main attraction of the game is to upgrade everything, mining hundreds of components and resources.

The interface of the game is quite pleasing to the eye and the game world is huge. The game store has a great selection of items, including leveling boosters, currency, scrolls, power-up stones and others.

As a mobile game, MIR4 is quite beautiful. Of course, for a player who is not used to such projects, it seems that the screen is too loaded with information and inscriptions, but everything is done compactly. Models of characters and monsters are well-detailed.

Interestingly enough, the developers officially allow four windows to be played: one on Steam, two on the official game client and one on a phone. It is worth noting that the Steam version, according to the terms of the platform, is not tied to cryptocurrency and money withdrawal.

The controls are better on the PC version, but the graphics are much nicer on mobile.

PC screenshot of a fight between the author’s character and a monster.

In terms of earning real money in the game, the game is filled with “dark steel,” a resource that after level 40, can be exchanged for DRACO tokens. This metal is required for crafting and upgrades. The rate varies but roughly corresponds to the value of 100 thousand dark steel for 1 DRACO. The tokens can be converted into fiat currency and transferred to a bank card.

Trading on the in-game market also starts at level 40. Goods and resources are sold for gold coins, which can later be exchanged for dark steel and converted into DRACO.

MIR4 has good graphics, animation, special effects, dynamic battles and beautiful characters. It attracts with the cross-platform, automation, branching development system and a lot of tasks.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com.

Ukraine’s Kharkiv Art Museum Launches NFT Collection With Binance to Raise Funds, Secure Jobs

October 14, 2022 Bitcoin.com

To HODL or have kids? The IVF Bitcoin Babies paid for with BTC profits

October 14, 2022 Coin Telegraph

Coin Telegraph

A Bitcoiner in London brings new meaning to the phrase “generational wealth.” Noodle sold some Bitcoin to pay for IVF treatments for two babies

Hold Bitcoin till the very end or sell a little bit to start a family? For one Bitcoiner in Northwest London, it was a no-brainer.

Noodle, (a nickname) a Brit who first heard about Bitcoin around 2012, took profits on his Bitcoin buys to pay for in vitro fertilization (IVF) treatment for his wife. He told Cointelegraph he has “no regrets,” about his decision to start a family using fiat-denominated profits from buying, holding then selling Bitcoin.

Welcoming Noodle Jr II to this crazy world. After a tough 6 days in hospital due to unforeseen complications, Mrs Noodle and I, couldn’t be happier to bring this little hodler home! pic.twitter.com/JvlLfzABgg
— Noodle ⚡️ (@NoodleNakamoto) June 14, 2022

Noodle first found out about Bitcoin at the tail end of 2012, when one Bitcoin was worth roughly $13.

“I was in the gym chatting to this guy that I get on well with. We were speaking in the changing rooms, and it’s funny because he was trying to explain this Silk Road thing to me — which was on the dark web.”

The now-defunct marketplace Silk Road was a place where early Bitcoin users could buy and sell pretty much anything using Bitcoin as the in-house currency. At the time, Noodle didn’t necessarily dismiss Bitcoin despite his gym buddy's recommendation, but it passed him by until a close friend explained how to buy cannabis with Bitcoin on the Silk Road.

To HODL or have kids? The IVF Bitcoin Babies paid for with Bitcoin profits — *The Silk Road was a popular website for buying and selling just about anything using Bitcoin.*

Once his close mate had explained that they might be able to use the Bitcoin to buy real-world items, Noodle was convinced:

“And I thought Let's do it… So we bought seven Bitcoins and at the time — they were $57 a pop."

The price of Bitcoin has since risen almost 400 times higher, to a $20,000 bear market value in 2022. For Noodle in 2013, he explained it was actually quite difficult to obtain Bitcoin — it was “a really convoluted process.” However, he persevered and managed to obtain Bitcoin to buy goods. Unknowingly, Noodle had also tripped down the rabbit hole and his Bitcoin journey had just begun.

Once the weed arrived, I was fully down the rabbit hole, like I was looking into everything. I never, ever thought I would have any interest in fiscal policy, in macroeconomic outlooks, etc — any of this stuff!

For Noodle, Bitcoin opened his eyes to finance, education and a whole world of new information. From fractional reserve banking to the Federal Reserve to currency debasement and how money works, Noodle was hooked. Naturally, Noodle’s wife with whom he’d been since 2008 was exposed to Noodle’s newfound passion.

The passion eventually rubbed off as in 2014, Noodle’s wife took some of the newly married couple’s wedding money to buy Bitcoin. Noodle jokes, “And who would know that that that Bitcoin would then go on to effectively fund IVF — which is not f**king cheap!”

The Noodle family had always planned to have kids. Sadly, due to Mrs. Noodle’s medical condition, conceiving was a challenge. They sought medical advice and soon realized that they may have to undergo fertility treatment:

“We struggled for a long time. We've never really liked the stigma around IVF, which means we prefer to talk about it then kind of keep it sort of hush.”

IVF is a fertility technique in which an egg is removed from the woman's ovaries and fertilized with sperm in a laboratory. The fertilized egg is returned to the woman's womb to grow and develop.

The process is time-consuming, expensive and has a success rate of 4% to 38% depending on various factors. Plus, as Noodle alluded to, there is still a stigma attached to IVF treatment, despite being a regular occurrence in Noodle’s home country, the United Kingdom. Noodle continued:

“The costs behind IVF are astronomical. Most people can't afford it or they go into debt to afford it. Some people said 'you shouldn't sell Bitcoin; you should have got a loan.' But I wasn't prepared to be that pigheaded about it.”

So Noodle sold some Bitcoin. In sum, Noodle converted north of $70,000 in Bitcoin into government-issued pounds sterling over the course of a few years. The fiat-denominated profits paid for several rounds of IVF treatment for both of his children leading to two healthy babies.

Without Bitcoin, Noodle explained would have likely taken out a loan to pay for the treatment: “Family is important to me and I would have thrown anything and everything at it in order to try and make it work. But we were very fortunate that we had some Bitcoin and I didn't sell it for a long time.”

With Bitcoin, Noodle and his wife were able to live their dream of starting a family, but debt free. As for whether or not there might be any more Bitcoin baby Noodles running around North West London soon, Noodle joked, “I think we're done with two kids unless the price goes super crazy!”

Noodle’s story is part of an upcoming crypto story on Cointelegraph’s Youtube channel. Subscribe here.

Industry exec explains why NFT fraud protection falls on brand and not marketplaces

October 14, 2022 Coin Telegraph

Coin Telegraph

Brands that issue NFTs should hold the greatest responsibility to protect themselves and potential investors from fraud, an NFT security executive suggested.

Nonfungible token (NFT) marketplaces should commit to combat fraudulent NFTs, but brands are far more responsible for protecting NFT investors, according to one industry executive.

Brands that issue NFTs should be taking the first step to protecting themselves and potential investors from fraud, BrandShield CEO Yoav Keren said in an interview with Cointelegraph on Oct. 12.

According to Keren, it’s more straightforward for a brand to recognize NFTs that were not released by the company itself rather than marketplaces like OpenSea or Rarible. NFT marketplaces usually have fewer insights into which brands are creating NFTs when they are launching and other details, the CEO noted.

Although marketplaces should not be negligent of the reality of NFT fraud, it’s still a must for brands to keep their audience publicly and transparently updated about any NFT offerings, Keren hinted, stating:

“Brands should understand the legal implications of misuse of their image, and should take action to protect their customers across all platforms, websites and marketplaces.”

The CEO went on to say that counterfeits and copyright infringements have emerged as the two most common forms of NFT fraud so far.

Counterfeit NFT fraud implies unauthorized replicas that are sold despite the existence and sale of an original NFT drop by its creator or authorized party. Copyright and trademark infringements refer to fraudsters hijacking a brand’s likeness or image to create and sell NFTs without prior authorization.

Both types of NFT fraud occur across some of the largest NFT marketplaces, including OpenSea, Rarible and Nifty Gateway, Keren noted.

“We conducted a scan on OpenSea and found 41,500 suspicious NFT listings using unauthorized likenesses or images associated with prominent celebrities who’ve promoted NFTs or cryptocurrency,” Keren said. In these cases, fraudsters utilized copyright or trademark infringements to defraud consumers, he added.

One of the ways to eliminate NFT fraud is for platforms to encourage more reporting of fake listings when a suspicious listing is discovered by a user of the platform. “Ideally, brands and marketplaces should work together on solutions,” Keren stated, adding that attacking a problem from multiple angles is the fastest way to an effective solution.

Despite encouraging brands and marketplaces to do their best to protect NFT investors, BrandShield CEO emphasized that it’s still important for consumers to do their own research while investing in NFTs. It is important to not only double-check the website of the NFT marketplace’s domain but also go for only verified NFT sellers and avoid suspicious shortened links.

“Work to verify an NFT before purchasing because by the time marketplaces catch on to these abuses, it’s oftentimes too late,” Keren added.

The rise of NFTs and metaverse has created yet another way for fraudsters to mislead investors into falling for scams and counterfeits. According to data from crypto risk management firm Elliptic, NFT investors became victims of more than $100 million worth of NFT scams and thefts related to NFTs in a period from July 2021 to July 2022.

Tokens

What is directional liquidity pooling?

How does this benefit users in DeFi?

What is FDIC insurance?

The potential impact on crypto

How hard is it to get FDIC insured?

Is the insurance worth chasing?

What are on-chain analytics?

What are money laundering patterns?

Layering

Money mules

Dusting

Wallet laundering

Darknet transactions and mixers

How are banks addressing this issue?

What genre to choose

Nine Chronicles

Solitaire Blitz

XCAD Network

MIR4

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