How to tell if a cryptocurrency project is a Ponzi scheme

August 26, 2022 Coin Telegraph

Crypto Ponzi schemes have increased over the past couple of years. This is how to spot them.

The crypto world has experienced an increase in Ponzi schemes since 2016 when the market gained mainstream prominence. Many shady investment programs are designed to take advantage of the hype behind cryptocurrency booms to beguile impressionable investors.

Ponzi schemes have become rampant in the sector primarily due to the decentralized nature of blockchain technology which enables scammers to sidestep centralized monetary authorities who would otherwise flag or freeze suspicious transactions.

The immutable nature of blockchain systems that makes fund transfers irreversible also works in the scammers’ favor by making it harder for Ponzi victims to get their money back.

Speaking to Cointelegraph earlier this week, KuCoin exchange CEO Johnny Lyu said that the sector was fertile ground for these types of schemes due to one main reason:

“The industry is full of users eager to invest their money, and there is virtually no regulation that would stop projects from hiding their malicious intentions.”

“Until clear and internationally approved financial regulation of the crypto industry is set in place, it will continue to witness the rise and collapse of Ponzi schemes,” he added.

How Ponzi schemes work

The Ponzi scheme phrase emerged in 1920 when a swindler named Charles Ponzi marketed a high-returns program to investors which supposedly leveraged postal reply coupons to achieve impressive earnings.

He promised investors returns of up to 50% within 45 days or 100% interest within 90 days. True to his word, the first group of investors got the claimed returns, but unbeknownst to them, the money they received was actually from later investors. The cycle was designed to lure new investors and enabled Ponzi to steal over $20 million.

While he wasn’t the first to use such a scheme to scam people, he was the first to use it to such a scale; hence the technique was named after him.

In a nutshell, a Ponzi scheme is a fake investment program that promises astronomical gains to clients but uses money collected from new investors to pay early investors. This helps the swindlers behind such operations to maintain some semblance of legitimacy and entice new investors.

That said, Ponzi schemes require a constant flow of cash to be sustainable. The ruse usually comes to an end when the number of new recruits falls or when investors choose to withdraw their money en masse.

How to spot a crypto Ponzi scheme

There has been a sharp rise in the number of Ponzi schemes in recent years in tandem with the crypto market’s uptrend. As such, it is important to know how to spot a Ponzi scheme.

The following are some of the aspects to look out for when considering whether a crypto project is a Ponzi scheme.

Promises of ridiculously high returns

Many crypto Ponzi schemes claim to reward investors with hefty returns with little risk. This, however, contradicts how investing in the real world works. In reality, every investment comes with a certain amount of risk.

Typical crypto investments fluctuate according to prevailing market conditions, so such claims should be viewed as a red flag. In many cases, investors who join such networks never get any returns on their money.

Khaleelulla Baig, the founder and CEO of KoinBasket — a crypto index trading platform — told Cointelegraph that transparency should be the topmost factor to consider before investing money in a crypto project:

“What really matters is the transparency about the project details. Most founders build their business on hope and rosy projections. Check the past track record of the founding team’s delivery track record vs commitment.”

He also advised investors to stay away from projects with obscure fundamentals that are based on external influences.

Unregistered investment projects

It is important to confirm whether a crypto company is registered with regulatory organizations such as the United States Securities and Exchange Commission (SEC) before investing any money. Registered crypto companies are usually required to submit details regarding their revenue models to their respective regulatory authorities to avoid penalties. As such, they are unlikely to participate in Ponzi schemes.

Projects registered in jurisdictions with lax crypto regulations that additionally have Ponzi-like characteristics should be avoided.

Some jurisdictions, such as the European Union, have already come up with elaborate crypto regulations designed to protect crypto investors against these types of scams. According to a recent proposal passed by European Council, crypto companies will soon be obligated to abide by Markets in Crypto Assets (MiCA) rules and will be required to have a license to operate in the region.

Putting crypto companies under MiCA will compel them to reveal their revenue models, and this will temper the rise of crypto enterprises relying on Ponzi-like plans in the bloc.

Use of sophisticated investment strategies

Ponzi schemes usually allude to complex trading strategies as part of the reason why they are able to obtain high yields with minimal risks. Many of their outlined growth strategies are usually hard to understand, but this is usually done on purpose to avoid scrutiny.

The Bitconnect Ponzi scheme that was unveiled in 2016 is an example of a Ponzi scheme that utilized this tactic to trick investors. Its operators encouraged investors to buy BCC coins and lock them on the platform to allow its “sophisticated” lending software to trade the funds. The platform claimed to provide monthly yields of up to 120% per year.

Ethereum co-founder Vitalik Buterin was among the first notable figures to raise the alarm on the project. The scheme was brought down by U.S. and British authorities, who declared it a Ponzi scheme. Its closure in 2018 triggered a BCC price drop that led to billions of dollars in losses.

High level of centralization

Ponzi schemes are usually run on centralized platforms. One crypto Ponzi that was based on a highly centralized network is the OneCoin Ponzi scheme. The pyramid scheme, which ran between 2014 and 2019, defrauded investors out of some $5 billion. The project relied on its own internal servers to run the ploy and lacked a blockchain system.

Subsequently, OneCoins could only be traded on the OneCoin Exchange, its native marketplace. The tokens could be exchanged for cash, with fund transfers being made via wire.

The OneCoin marketplace also had daily withdrawal limits that prevented investors from withdrawing all their funds at once.

The scheme went down in 2019 following the arrest of some key members of the operation. However, there is an outstanding federal arrest warrant for OneCoin founder Ruja Ignatova who is still at large.

Multi-level marketing

Speaking to Cointelegraph about crypto Ponzis, KuCoin CEO Johnny Lyu noted that the ominous red flags haven’t changed much over the years and multi-level marketing (MLM) was still at the heart of many Ponzi schemes:

“Complex earning schemes involving multiple tiers of users, referral programs, percentages, sliding scales, and other tricks are all signs of a Ponzi scheme that feeds the upper tiers using the funds injected by the lower tiers without actually doing any business.”

Multi-level marketing is a controversial marketing technique that requires participants to generate revenues by marketing certain products and services and recruiting others to join the network. Commissions earned by new recruits are shared with the up-line members.

One Ponzi scheme that recently made headlines for making use of this hierarchical system is GainBitcoin. The pyramid scheme headed by Amit Bhardwaj had seven primary recruiters who were based in India and different continents around the world. Each of them was tasked with recruiting investors into the network.

The scheme guaranteed users 10 percent monthly returns on their Bitcoin (BTC) deposits for 18 months.

The scheme is alleged to have collected between 385,000 and 600,000 BTC from investors.

Ponzi schemes have been used by scammers for over a hundred years. However, they have been able to thrive in the crypto industry due to the lack of elaborate regulations governing the sector.

Because the crypto world is susceptible to these types of schemes, it is important to exercise caution before investing in any novel project.

How blockchain technology is changing the way people invest

August 25, 2022 Coin Telegraph

Coin Telegraph

Blockchain technology has changed the way modern people invest into assets, attracting younger and less affluent investors into the space.

Over a decade after the release genesis block on the Bitcoin network, blockchain technology has changed how people invest their money, with many platforms in the crypto space having much more relaxed requirements for investors when compared to traditional finance.

It’s easier for investors to buy into cryptocurrency when compared to traditional assets. Anybody can download a free Bitcoin (BTC) or multi-crypto wallet and sign up for one of the many available cryptocurrency exchanges. Many exchanges still don’t require users to verify their identity, while others only require ID verification once certain limits have been reached.

Compare this to buying stocks, where almost every platform has Know Your Customer (KYC) procedures that users must complete before buying their first stock. On top of this, users can only buy stocks from publicly listed companies and cannot own any shares from a private company.

On the other hand, crypto investors can invest in tokens that public or private companies have created. Investors in the crypto space can also participate in early-stage funding rounds, including seed stage funding.

In traditional markets, usually only accredited investors and high-net-worth individuals are allowed to participate. In contrast, seed-stage funding in crypto projects can allow anyone with a wallet to take part. It’s all at the discretion of the founding team.Jeremy Musighi, head of growth at Balancer — an automated portfolio manager and trading platform on Ethereum — told Cointelegraph:

“Crypto investors have access to a level of transparency that goes way beyond what’s possible in other asset classes. In contrast to stock market investors who can analyze quarterly reports written by a self-reporting company, a crypto investor can permissionlessly dig into data on a decentralized protocol’s performance and track key metrics in real-time or on a historical basis.”

Musighi continued to say, “The transparency of communication between a crypto project’s core contributors amongst themselves and with the wider community is also lightyears ahead of the way publicly traded companies operate. Access to accurate and thorough information is key to investing and I think that’s night and day when comparing crypto to any other asset class.”

Due to the lack of centralization and lower barriers to entry for crypto investors, the industry has seen a lot of popularity in developing countries. In Nigeria, for example, 35% of the population aged 18 to 60 (33.4 million people) have owned or traded crypto this year, with 52% (17.36 million) holding half of their assets in crypto. This is due mainly to the lack of access to affordable traditional financial services in the nation. Cryptocurrency is an easier and more widely accessible alternative to traditional financial (TradFi) services. TradFi usually comes with restrictions and red tape that make it different for the average joe to partake in.

Cryptocurrency has also attracted younger investors into the space, with competition between friends and family being one of the driving factors behind this. Unfortunately, many of these young investors mistakenly believe that the crypto market is regulated, despite its low barrier to entry. Easier access to financial tools may attract younger investors who may not meet the requirements to participate in traditional finance.

Musighi, believes that younger investors are more inclined toward cryptocurrency since they have grown up around technology, saying, “Younger investors are more tech-native; they spend more time online, they recognize the value of digital assets more naturally, and they more easily grasp the concept of cryptocurrency. It’s no surprise that the digital generation is more attracted to digital money.”

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Misha Lederman, director of communications at Klever — a decentralized crypto wallet — told Cointelegraph, “Anyone with a smartphone and a passion for learning can invest in cryptocurrencies. Wall Street has played the stock market and commodities markets by different rules than Main Street for decades. With Bitcoin and crypto, a new generation of average investors is able to participate, compete and accumulate early and fairly in the most exciting industry of our time.”

How investors are making money in the crypto space

Cryptocurrency isn’t just easier for investors to access and provides multiple avenues for investors to make money. There are different sub-sectors within the crypto market, including token sales and decentralized finance (DeFi).

Token sales were one of the first sub-sectors to increase in popularity within the crypto space. Token sales are fundraising rounds where investors can buy a crypto project’s native tokens before they hit the open market. The idea is that investors can “get in early” and make a profit once the tokens are listed. This is due to the expectation that a token’s price will increase after a listing due to speculation and increased liquidity.

Token sales come in different forms, including:

Initial coin offerings (ICO): Projects sell tokens directly to investors through their site via smart contracts.
Initial exchange offerings (IEO): Projects sell tokens to investors through centralized exchanges.
Initial DEX offerings (IDO): Projects sell tokens to investors through decentralized exchanges (DEXs).
Initial game offering (IGO): Projects sell in-game assets, tokens and nonfungible tokens (NFTs) to investors.

The ICO market first peaked in popularity, surpassing the $1 billion mark in 2017. ICOs and the newer iterations (IEOs, IDOs, IGOs, etc.) were attractive to investors since they were initially very easy to get into, with users needing only a crypto wallet to participate. Now, however, there are additional requirements such as KYC (for IEOs), whitelists and limits on how much investors can contribute to a crowdsale.

Regardless of these new requirements, it’s still relatively easier for users to get involved in token sales than TradFi token sales. Initial public offerings, for example, have tighter requirements. Also, some platforms require investors to have at least $250,000 in their account or to have traded three times before they are eligible.

DeFi is another sector in the crypto space that has attracted a lot of investor interest. This is because the sector has many protocols within the space, including yield farming — a process where liquidity is provided to DEXs in exchange for rewards in a project’s native token, crypto lending and borrowing platforms and staking, which enables investors to earn interest on crypto assets locked into a particular network.

Such platforms usually require investors to have a personal noncustodial wallet where they control the private keys. Investors need to connect this wallet to a protocol they’ll be using. For example, many investors use MetaMask to connect to DEXs and other platforms when engaging in DeFi. Users then interact with protocols directly with their related smart contracts to carry staking, liquidity farming or lending/borrowing.

Decentralized finance has given investors more control over their finances than TradFi, where users normally have an asset manager or broker to handle the processes. However, some protocols automate specific processes within the DeFi sector.

HyperDex, for example, is a platform that enables standard financial products to be accessed via DeFi. The platform works via containers called cubes, similar to liquidity pools on DEXs. Smart contracts power these cubes, and users can choose a cube according to their preferences. In addition, they can engage in different protocols, including fixed income staking, algorithm trading and race trading, a protocol similar to prediction markets.

Yearn.Finance is another platform that uses smart contracts, in this case, to automate the process of yield farming. The smart contracts automatically switch liquidity pools based on which one has the highest payout. So, while DeFi does require users to be more hands-on with their investments, there are still protocols that can handle particular tasks via smart contracts. Contrast this to traditional finance, where a third party would be required to handle tasks instead of automated smart contracts that keep the user close to the protocol and their holdings.

Volatility is a double-edged sword

Volatility is another factor in the crypto market that has affected how people invest their money. Since cryptocurrencies are much more volatile than traditional assets, investors can expect much higher returns. For example, the average return in the stock market is 10% annually.

Conversely, cryptocurrency investors have seen anywhere from 50% in a month with blue chip coins like Ether (ETH) to 100% in a day with memecoins like Dogecoin (DOGE). However, increased volatility brings a possibility of a higher downside, too. For example, this year alone, many cryptocurrencies, including 72 of the top 100 coins, dropped over 90% during the recent market downturn.

While the cause of this high volatility may not be known, experts have speculated that it could be due to factors such as lack of regulation and a low amount of institutional money in the space.

Regardless of the reason for the high volatility, many investors have tried to capitalize on it. For example, many investors in the United Kingdom tend to see cryptocurrency as a “get rich quick” scheme, according to a study covered by Cointelegraph in 2019. Many of the respondents in the study lacked an understanding of cryptocurrencies and were more likely to invest without any due diligence.

Ellie Le Rest, CEO of Colony — an Avalanche ecosystem accelerator — spoke to Cointelegraph about volatility in the crypto space, stating:

“We believe volatility is a good thing, simply because it did draw profit-seeking investors into the marketplace and shall continue to do so. Their presence encourages the development of even more sophisticated protocols and reliable, scalable infrastructure.”

Lack of research by investors has led to many of them getting scammed by fraudulent projects in the space. For example, over $1 billion worth of crypto was lost to scammers in 2021, according to a report covered by Cointelegraph. The same report noted that nearly half of all crypto-related scams came from social media platforms.

“It is still early days for DeFi, so it entails a lot of risks. Hacks and exploits have cost billions of dollars. In order to make DeFi a safe and attractive tool for new investors, DeFi industry players need to prioritize user protection and increased security as a top priority.” says Lederman, continuing:

“That being said, when understanding the risks involved and properly adjusting for those risks, then DeFi can open up a new world of opportunities for young crypto investors in place of centralized lenders or legacy financial institutions.”

Findings further show that many investors are not researching the coins or projects they invest in. Instead, they tend to follow recommendations by social media or YouTube influencers with the hopes of striking it rich. Despite this, there are still many savvy investors in the space. For example, in March this year, many investors followed their favorite projects and profited when their native tokens rose in value after large announcements. This process is known as “buying the rumor and selling the news.” Investors can find insights by joining the project community and finding out about future announcements and news.

Pros and cons of the crypto market for investors

The benefits for investors in the crypto space are reduced entry barriers due to less red tape and regulation in the space. Investors also have more control over their funds since they don’t need to rely on a broker or middleman to manage their holdings. Additional benefits include a higher potential for returns through holding and trading crypto and the many protocols within the DeFi sector.

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The drawbacks to investors include a higher chance of loss due to user error, scams and hacking in the space. However, one of the biggest downsides is the volatility of the crypto market in general, with huge upsides usually followed by large drawbacks.

Investors have an easier path toward building wealth through cryptocurrency since it is much easier to get into than traditional finance. However, investors still need to perform due diligence on the projects they intend to invest in and risk only the money they can afford to lose.

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Decentralized finance faces multiple barriers to mainstream adoption

August 5, 2022 Coin Telegraph

Coin Telegraph

While it may be one of the most popular sectors within the crypto market, decentralized finance still has barriers to overcome before reaching mass adoption.

Decentralized finance (DeFi) is a growing market popular with experienced crypto users. However, there are some roadblocks regarding mass adoption when it comes to the average non-technical investor.

DeFi is a blockchain-based approach to delivering financial services that don’t rely on centralized intermediaries but instead use automated programs. These automated programs are known as smart contracts, enabling users to automatically trade and move assets on the blockchain.

Protocols in the DeFi space include decentralized exchanges (DEXs), lending and borrowing platforms and yield farms. Since there are no centralized intermediaries, it’s easier for users to get involved in the DeFi ecosystem, but there are also increased risks. These risks include vulnerabilities in a protocol’s codebase, hacking attempts and malicious protocols. Combined with the high volatility of the crypto market in general, these risks can make it harder for DeFi to reach wide adoption with average users.

However, workarounds and advancements in the blockchain space can address these concerns.

Regulatory concerns with DeFi

Regulation can benefit the DeFi space, but it also conflicts with the core principles of decentralization. Decentralization means a protocol, organization or application has no central authority or owner. Instead, a protocol is built with smart contracts executing its main functions while multiple users interact with the protocol.

For example, smart contracts take care of the staking and swaps with a DEX, while users provide liquidity for the trading pairs. What can regulators do to prevent an anonymous team from pumping up a token’s value before withdrawing liquidity from DEXs, otherwise known as rug pulling? Due to the decentralized nature of the DeFi ecosystem, regulators will face challenges when trying to maintain a certain level of control within the space.

Despite the challenges, regulation isn’t completely out of the picture regarding decentralized finance. In Q4 2021, the Financial Action Task Force released an updated version of their guidance to virtual assets document. The update outlined how developers of DeFi protocols could be held accountable in a crisis. While the protocol may be automated and decentralized, the founders and developers could be called virtual asset service providers (VASPs). According to the state where they are based, they may also need to be regulated.

Regarding regulation within DeFi, platforms can also build protocols that comply with regulatory requirements. For example, Phree is a platform that builds decentralized protocols while considering regulatory concerns where possible. One of the ways they do this is by working with traditional finance entities to build DeFi protocols that meet standard regulation requirements. This would entail adding processes like Know Your Customer and Anti-Money Laundering checks to DeFi platforms like DEXs and lending or borrowing platforms. In addition, making traditional finance (TradFi) compatible with the DeFi ecosystem would help to spread its adoption due to the dominance of organizations in the TradFi space.

Ajay Dhingra, head of research at smart exchange Unizen, told Cointelegraph, “Incompatibility with traditional finance ecosystem is one of the major challenges. There is a need to connect the CeFi regulatory framework with on-chain identities and real-time regulatory reporting so that Defi becomes accessible to financial institutions that deal in trillions.”

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Central bank digital currencies (CBDC) have been suggested as an answer to stablecoins after the Terra algorithmic stablecoin collapse earlier this year. Swiss National Bank executive Thomas Moser previously told Cointelegraph regulators might favor centralized stablecoins over decentralized ones. However, he also mentioned that it would likely take time and that current financial regulations could make the DeFi ecosystem obsolete due to conflicting principles.

Security concerns within the DeFi ecosystem

Security issues are a major concern within the DeFi sector, with malicious actors in the space taking advantage of vulnerabilities within bridging protocols and decentralized applications (DApps).

Adam Simmons, chief strategy officer of RDX Works — builders of the Radix protocol — told Cointelegraph, “The dirty secret of DeFi right now is that the entire public ledger technology stack has a huge number of known security issues, as demonstrated with the billions of dollars lost in hacks and exploits in the last few years.”

Vulnerability exploits are still taking place in the DeFi space. Recently the Nomad token bridge was drained of $160 million worth of funds. It is also estimated that $1.6 billion worth of funds has been stolen from DeFi protocols this year alone. Lack of security within the DeFi space makes it less likely for new users to get involved while discouraging people who have fallen victim to protocol exploits.

In order to combat this problem, there needs to be a greater emphasis on vetting protocols within the space to discover vulnerabilities before hackers can take advantage. There are already platforms like CertiK that carry out audits on blockchain-based protocols by checking the smart contract code, so that’s a good start. However, the industry needs to see increased auditing of DApps before they go live to protect users in the crypto space.

User experience issues

User experience (UX) is another potential roadblock for users who want to get involved in the DeFi ecosystem. The way investors interact with wallets, exchanges and protocols isn’t a straightforward intuitive process, leading to some users losing their funds due to human error. For example, in November 2020, a trader spent $9,500 in fees to execute a $120 trade on Uniswap after getting the “gas limit” and “gas price” input boxes confused.

In another example, a rock nonfungible token (NFT) worth $1.2 million was sold for less than a cent when a user listed it for sale at 444 WEI instead of 444 Ether (ETH). These examples are known as fat finger errors, where users lose money due to mistakes they make when inputting values for prices or transaction fees. For DeFi to be widely adopted by the masses, the process must be simple for regular, everyday people.

However, that is currently not the case. In order to use a DeFi application, users need to own a noncustodial wallet, or a wallet where they control the private keys. They also need to back up the recovery phrase and keep it in a safe place. When interacting with a DApp, users need to connect their wallet, which can sometimes be complicated, especially when using a mobile wallet.

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In addition, when sending or receiving payments, users need to copy the addresses involved in the transactions, and in some cases, they need to input the amount of gas they want to spend on a transaction. If a user doesn’t understand this process, they could use a low gas setting and end up waiting hours for their transaction to be sent since the gas fee is so low.

The process gets even more complex when dealing with tokens built on networks such as the ERC-20 and BEP-20 standards. When you transfer these tokens, you need to pay for the transaction with the cryptocurrency of the network it belongs to. For example, if you want to send an ER-20 token, for example, USD Coin (USDC), you’ll need to hold ETH in your wallet to pay for the gas, which adds more complexity to the transaction.

Developers in the DeFi space need to make the ecosystem more user-friendly for beginners and regular non-technical users in the space. Building wallets and DApps that prevent fat finger errors (by auto-inputting values, for example) is a good start. This is already the case with centralized exchanges, but it needs to be brought into decentralized platforms and noncustodial wallets for the DeFi sector to grow.

Lido’s market dominance and Ethereum decentralization post-Merge

August 4, 2022 Coin Telegraph

Coin Telegraph

Lido’s liquid staking derivative token has over 90% of the Ethereum market share as the network ultimately transitions to proof-of-stake.

After a successful third testnet merge, Sept. 19 was recently proposed as the tentative target date for the Ethereum Merge. Ethereum is set to fully transition from proof-of-work (PoW), the original consensus mechanism used by the Bitcoin network, to the more energy-efficient proof-of-stake (PoS) used by younger networks like Solana and Cardano.

“The Merge won’t solve Ethereum’s scaling concerns on its own. It is just the beginning of a road map to achieve future scaling upgrades,” Jacob Blish, head of business development at Lido, shared with Cointelegraph.

The staked Ether (ETH) on the Beacon Chain, the PoS network that mirrors Ethereum’s transactions, is expected to remain locked up for at least six months after the Merge is completed. After the Merge, staked ETH liquid tokens will start benefiting from transaction fees and maximal extractable value, meaning yields will go up.

There has been a lot of hype around the Merge. It is the single biggest event in crypto for a very long time, Rocket Pool founder Darren Langley told Cointelegraph, adding, “The lockup period is testing liquid staking protocols now but this is mainly due to macro conditions and the ongoing Centralized Finance (CeFi) drama. Once it blows over, liquid staking will explode.”

Currently, ETH staking yields are earning close to a 4% annual percentage rate (APR), with just over 10% of the ETH supply being staked, according to StakingRewards.

Lido’s liquid staking service

The launch of the Beacon Chain created a need in the ecosystem for a decentralized liquid staking solution that would compete against centralized exchanges (CEX) and could be used within decentralized finance (DeFi) for lending, borrowing and more.

The staking service offered by Lido has gained popularity as the first protocol to implement a liquid staking derivative on Ethereum through the minting of the stETH token. Contrary to popular belief, stETH is not meant to be pegged to ETH. As Blish shared:

“Staked ETH issued by Lido is backed 1 to 1 ETH but the exchange rate isn’t pegged. It can fluctuate and trade at a premium or a discount as the secondary market forces dictate the price. This doesn’t affect the underlying backing of stETH.”

Lido’s first mover advantage to launch a liquid staking product has helped the protocol move ahead with more DeFi integrations for stETH as well as other multichain-staked products for Solana, Polygon, Polkadot and Kusama. The team recently announced that stETH will expand to layer-2 solutions to further their DeFi integrations.

*Various staking protocol balances as of May 2022. Source: Twitter*

The protocol attracted liquidity to the Curve pool with incentives in the form of additional rewards of the Lido token (LDO) and a referral program to further its growth strategy and consolidate itself as a temporary winner within the liquid staking space.

When compared to other protocols in the DeFi ecosystem as a whole, Lido stands out as the only product that has been able to compete and even surpass its centralized counterparts, like the Binance ETH (BETH) token, in terms of total value locked.

Alternatives to liquid staking derivatives

New products tend to start out having strong market leaders, but soon competition develops and innovation ensures fresh entries that have the potential to take up market share. The network effect achieved by Lido in a short period has made it challenging for its competitors to catch up and seize a substantial share of the market.

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Other liquid staking projects have small differences in fees, product decentralization and the token characteristics they offer, but the value proposition remains the same: to empower users to maximize their capital efficiency and compound their yield while securing the network.

“The Ethereum ecosystem is built on trustless decentralization. That much voting power in the hands of one organization is certainly counter to that ethos,” Jordan Tonani, head of institutions at Index Cooperative, told Cointelegraph, adding, “Having a healthy competition between multiple liquid staking protocols is a better outcome, and shortly after the Merge, a new crop of liquid staking protocols will be propped up to promote decentralization.”

Rocket Pool represents over 1.5% of all Ethereum staked, with 1,300 individual node operators across 84 geographic locations. Because of this, it could impact Lido’s market dominance and grow its relevance in the liquid staking space with new scaling solutions.

Stakehound, Stkr and Stakewise are some of the other projects trying to make a dent in Lido’s market share but still lag behind in terms of liquidity depth and utility as collateral in DeFi.

It is worth highlighting that Rocket Pool’s permissionless approach seems to appear more decentralized at first sight, contrary to Lido’s permissioned one, which was a trade off in order to ensure the reliability of node operators at the early stages of the protocol. The Lido team has been working on permissionless onboarding based on performance reputation to shift from their current model.

Monopoly or oligopoly, it has to be decentralized

Considering the data, Lido currently has a monopoly on the immature liquid staking derivative market.

Lido, as a decentralized autonomous organization (DAO), opened the debate on its governance forum around stETH being limited to a fixed percentage of the whole ETH staked. Blish explained:

“We are aligned with Ethereum’s decentralization ethos at the core. Governing the protocol through a DAO ensures Lido will not pursue any actions that can enter into conflict with our community and values.”

Also, a dual token governance proposal was recently passed that allows holders of stETH to veto governance proposals by LDO token holders that can harm stakers on the Ethereum network.

Similar to the liquid staking dilemma proposed above, Bitcoin (BTC) mining appears to show centralizing forces. The space has matured into a market where the three biggest mining pools have over 50% of the network’s hash rate. And, the top six mining pools account for more than 80% in the last three months, according to data from BTC.com.

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It is hard to predict the changes we will experience after the Merge and what implications it might have on liquid staking products. Even though liquid staking derivatives trend toward centralization, an optimistic middle-term evolution might come from other alternative products gaining ground and dividing the market into an oligopoly.

“Realistically, there will be many players in the ecosystem, but maintaining a strong level of decentralization is critical to Ethereum’s success — particularly its credible neutrality,” said Langley, “The key to decentralization is lowering barriers-to-entry, including lowering the collateral requirement and the technical challenges.”

Some volatility is expected in the following month as the hype around the Merge continues to build around liquid staking products. Demand for these products has never been stronger. Further developments will prove if the space will be run by one, a few, or many liquid staking derivative products.

Canadian taco franchise uses NFTs for customer loyalty program

August 3, 2022 Coin Telegraph

Coin Telegraph

A Canadian restaurant franchise is putting their customer loyalty program on the blockchain through a new Tenacious Tacos NFT collection.

With 19 locations across Canada and a plan for expansion into the United States, this $6 million taco franchise wants to capitalize on their growing customer base.

The collection, Tenacious Tacos, allows holders to receive both Web3 and real benefits. Moreover, for those who wish, they can stake their NFTs to earn additional digital rewards.

According to the official statement, staked Tenacious Tacos can be redeemed for rewards such as the chance to win a lifetime of free food or monthly payouts in ETH/WETH.

Previously Landry’s restaurant group, which includes Bubba Gump Shrimp Factory and Rainforest Cafe, introduced a Bitcoin loyalty program. However, in that instance customers were able to earn rewards in Bitcoin (BTC), such as $25 worth of Bitcoin for every $250 spent at one of many restaurants in the brand.

StrEAT’s method simultaneously adds additional value to traditional loyalty programs and utility to NFTs.

A Canadian-based restaurant franchise is adding more utility to the growing number of NFT use cases. The StrEATS franchise plans to utilize NFTs in their new customer loyalty program.

Joe Klassen, CEO of Joeys Group of Restaurants and founder of the Tenacious Tacos NFT project, highlighted the importance of their community: “The vision with this project is to become closer with the community while simultaneously creating the opportunity for them to share in our growing success.”

The loyalty program’s real-life NFT benefits include a 20% off at all StrEATS locations, VIP event access, and voting rights on new menu features.

In June of this year the major burrito and taco chain Chipotle introduced cryptocurrency payments at nearly 3,000 locations across the U.S. Last month, the chain also announced a crypto giveaway to customers through a digital game.

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Crypto contagion deters investors in near term, but fundamentals stay strong

July 29, 2022 Coin Telegraph

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Many experts believe that the recent slew of insolvencies may be good for the market in the long run, weeding out any weak players from the industry.

The past six-odd months have been nothing short of a financial soap opera for the cryptocurrency market, with more drama seemingly unfolding every other day. To this point, since the start of May, a growing number of major crypto entities have been tumbling like dominoes, with the trend likely to continue in the near term.

The contagion, for the lack of a better word, was sparked by the collapse of the Terra ecosystem back in May, wherein the project’s associated digital currencies became worthless almost overnight. Following the event, crypto lending platform Celsius was faced with bankruptcy. Then Zipmex, a Singapore-based cryptocurrency exchange, froze all customer withdrawals, a move that was mirrored by crypto financial service provider Babel Finance late last month.

It is worth noting that since December 2021, nearly $2 trillion have been wiped out from the digital asset industry. And, while markets across the board — including equities and commodities — have been severely affected by the prevailing macro-economic climate, the above-stated slew of collapses have definitely had a role to play in the ongoing crypto drain. To this point, Ben Caselin, head of research and strategy for crypto exchange AAX, told Cointelegraph:

“The contagion has played a big part in the recent downturn, but we cannot ignore the wider market conditions and the change in fiscal policy as important factors playing into price. The situation concerning Celcius, Three Arrows Capital but also Terra is expressive of an over-leveraged system unable to withstand severe market stress. This should in the least serve as a wake up call for the industry.”

He went on to add that increasing mass adoption of digital currencies in the future should be done by expanding the scope of crypto beyond its prevailing “sound money narrative.” Caselin highlighted that the market as a whole now needs to take into account and implement financial practices that are sound and sustainable in the long run.

What do the recent insolvencies mean for the industry?

Felix Xu, CEO of decentralized finance (DeFi) project Bella Protocol and co-founder of ZX Squared Capital, told Cointelegraph that the past month has been a “Lehman moment” of sorts for the crypto market. For the first time in history, this industry has witnessed the insolvency of major asset managers such as Celsius, Voyager and Babel Finance within a matter of months.

According to his personal research data, while ailing projects like Voyager and Genesis collapsed due to the fact that they had the most exposure to Three Arrows Capital (3AC), the collapse of 3AC, Celsius and Babel Finance emanated due to rogue management practices associated with the assets of their users. Xu added:

“I believe the first wave of forced liquidation and panic selling is now over. As asset managers and funds file for bankruptcies, their crypto collaterals will take a long time to be liquidated. On the other hand, DeFi lending platforms such as MakerDAO, Aave and Compound Finance performed well during this downturn, as they are over-collateralized with strict liquidation rules written into their smart contracts.”

Going forward, he believes that the crypto market is likely to move in correlation with other asset classes including equities, with the industry potentially taking some time to rebuild its lost investor confidence. That said, in Xu’s opinion, what happened last month with the crypto market is nothing new when it comes to the traditional finance space. “We’ve seen it in the 2008 financial crisis and the 1997 Asian financial crisis,” he pointed out.

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Hatu Sheikh, co-founder of DAO Maker — a growth technologies provider for nascent and growing crypto startups — told Cointelegraph that the aftermath of this contagion has been strongly negative but not for the reason many people would imagine:

“A key loss here is that many of the cenrtalized finance platforms that went bankrupt due to the contagion were active onramps to the industry. Their unsustainable and often deceptive means of attracting new industry participants brought millions of people to trickle deep into nonfungible tokens and DeFi.”

In Sheikh’s view, while DeFi onboarding may come to a halt or at least slow down in the near term, many venture capital firms operating within his space have already raised billions and are thus capable of continuing to inject funds into many upcoming startups. “We’ll have a new roster of companies that’ll replace the lost ones’ role of being an onramp to the industry,” he said.

Undisputed damaged to the market’s reputation

Misha Lederman, director of communications for decentralized peer-to-peer and self-custody crypto wallet Klever, told Cointelegraph that the recent crash has definitely damaged the reputation of the industry but believes that the aforementioned insolvencies have helped cleanse the industry of bad players, adding:

“This presents a huge opportunity for blockchain platforms and crypto communities with a responsibility-driven approach to innovation, in which user funds are protected at all costs. As an industry, we have to be better than the fiat debt system we aim to replace.”

A similar opinion is shared by Shyla Bashyr, public relations and communications lead for UpLift DAO — a permissionless and decentralized platform for token sales and swaps — who told Cointelegraph that the industry has been hit hard and is currently shrouded with more negativity than ever before.

However, she believes such scenarios are sometimes needed since they present new opportunities to build transparent products that provide additional insurance, hedging and security for peoples’ investments.

Sheikh pointed out that while there’s rampant criticism that DeFi apps have lost billions, it is worth noting that the losses accumulated by CeFi lenders are notably higher:

“The fact remains that the notable blue chips of DeFi have remained mostly unscathed, yet the losses in CeFi are from industry leaders. However, as crypto CeFi is a stepping stone in people’s journey to DeFi, the industry’s adoption will be steeply hurt in the short term.”

He concluded that the “CeFi contagion” could eventually prove to be a powerful catalyst for the growth of its decentralized counterpart as well as a validation of crypto’s core use case, such as being self-sovereign wealth.

The future may not be all bad

When asked about what lies ahead for the crypto market, Narek Gevorgyan, CEO at CoinStats, told Cointelegraph that despite the prevailing conditions, the market has already started showing promising signs of recovery, stating that institutional investors are back on the playing field and exchange inflows are on the rise.

In this regard, banking titan Citigroup recently released a report stating that the market slide is now in recession, with researchers noting that the “acute deleveraging phase” that was recently in play has ended, especially given that a vast majority of large brokers and market makers in within the industry have come forth and disclosed their exposures.

Not only that, the study also shows that stablecoin outflows have been stemmed while outflows from crypto exchange-traded funds (ETF) have also stabilized.

Gevorgyan believes that the trust investors had built up over the last couple of years has been somewhat dissolved due to recent events. Nevertheless, the blockchain community is still better funded than at any point in its short history, with development most likely to continue. He then went on to add:

“The Terra implosion triggered a meltdown that brought several CeDeFi platforms down with it. The community has become more aware of the shortcomings of the CeDeFi model. Overall, the string of insolvencies has provided the crypto market with a chance to start afresh, as DeFi2 and Web3 are continuing to become more significant. Maybe the Metaverse will take center stage in this new configuration.”

CeFi vs DeFi

Sheikh believes that the best of CeFi has lost more than the worst of DeFi, highlighting that Bitcoin (BTC) has continued to remain one of the most liquid assets in the world. In his view, the next wave of retail adopters will have glaring references to the problem of skipping self-custody, thus paving the path for greater focus on decentralized apps, especially as the market continues to mature.

On the other hand, Bashyr sees a lot of protected projects such as insurance protocols and hedged products flourishing from here on out. In her opinion, decentralized autonomous organizations (DAOs) will become more prominent and functional, providing real governance and allowing users to participate in instrumental decisions by voting on proposals that make a difference.

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Lastly, in Xu’s opinion, the insolvencies have resulted in millions of users calling for regulations like those governing traditional finance within the global crypto economy so as to increase transparency on investment of user assets. Xu added that since DeFi benefits from no single point of control while offering full transparency and autonomous rules, it will eventually take over the crypto asset management business.

Therefore, as we head into a future plagued by economic uncertainty, it will be interesting to see how the future of the crypto market plays out. This is because more and more people are continuing to look for ways to preserve their wealth — thanks, in large part, to the recession fears that are looming large on the horizon — and therefore consider crypto to be their way out of the madness.

CoinGecko open to acquisition but now is ‘too early,’ co-founder says

July 28, 2022 Coin Telegraph

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While CoinMarketCap was acquired by Binance during post-2017 crypto winter, the current bear market is not the right time to sell CoinGecko, its COO said.

Major cryptocurrency tracking website CoinGecko is open to acquisitions, but not right now, according to a co-founder of the platform.

CoinGecko has been hit by the current crypto bear market, but the firm is far from selling off, CoinGecko chief operating officer Bobby Ong told Cointelegraph.

Ong believes that all crypto-related companies are affected by the cyclical nature of the industry as they usually do well during bull runs and struggle during bear markets.

“During this crypto winter, we at CoinGecko are similarly impacted. This will be our third crypto winter and we are focused on improving CoinGecko to prepare for the eventual bull run that will come again,” Ong said.

According to the chief operating officer, CoinGecko had 100 million monthly pageviews in July, experiencing an 85% decrease in traffic compared to the peak in November 2021. The traffic decline comes in line with the price movement of Bitcoin (BTC), which reached an all-time high above $68,000 last November.

“This has definitely impacted revenue, as advertising is one of our major revenue drivers and is a function of pageviews received,” Ong noted. He also said that new token listings on CoinGecko dropped about 70% from last year.

Despite shrinking revenues and the ongoing uncertainty around the crypto market, CoinGecko is still holding strong in terms of its headcount. The firm nearly doubled its staff over the past seven months from 30 to 57 team members and has not laid off any employees. CoinGecko hasn’t instituted any hiring freeze as well, Ong said.

“In fact, we just paid out a small bonus to all team members for the first half of 2022 despite the bear market. We are also in the process of reviewing our salaries to make it more competitive to hire and retain the best talents,” Ong stated, noting that CoinGecko has a few remaining open roles for the rest of the year.

CoinGecko is the biggest rival of CoinMarketCap, the crypto price-tracking website that was bought by Binance in April 2020. The acquisition came during the post-2017 crypto winter, with Bitcoin trading between $7,000-8,000 during the month of acquisition. Binance has never officially announced the cost of the deal, while it was rumored to cost the firm $400 million.

*Bitcoin price chart from May 2017 to April 2020. Source: CoinGecko*

Following CoinMarketCap’s acquisition, Ong said that the firm was approached multiple times by exchanges, venture capitalists and angel investors, but CoinGecko opted to prioritize independence and stay neutral. The company’s views have somewhat changed since, as CoinGecko considers it might sell the platform one day, Ong said, stating:

“At some point in the future, we will be open to selling the firm but right now, it is too early to sell. The crypto industry is still in its first inning and there will be high growth in the coming years.”

Ong once again predicted that “anything that can be tokenized will be tokenized in the future,” which would require a reliable source to track all those tokens.

“CoinGecko aims to empower the decentralized future by being the foundational infrastructure to help people get the information they need on the millions of tokens that will be listed in the future,” the chief noted.

He also emphasized that the bear market is the best time to focus on building great products as there is “significantly less noise and distraction from short-term trends.”

Russia Gears Up to Regulate NFTs Through Legislative Amendments

July 27, 2022 Bitcoin.com

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