Newsletter Crypto Weekly #8

(first published in French here)

Catenae is a consulting office specializing in blockchain protocol intelligence. Its news letters and analysis are here : https://medium.com/@Catenae. Its reflection notes can be communicated on request.

1/ Algorand: after the launch of two stable coins on the protocol, Coinbase announces the listing of the underlying token

• After the announcement in June of the launch of dollar stable coins by Circle and Tether on the latest generation protocol, it is now Coinbase’s turn to announce its listing on its exchange platform.
• These news underline the recognition by the ecosystem of a protocol that is nevertheless very young. While the protocol has only been live for just over a year, it is now listed on the main exchange platforms and has stable coin dollars
• This last point is a major advantage, as it facilitates the possibility for applications to work with fiat currencies. Not all the latest generation protocols can say the same, so Cardano, although older and more important in terms of capitalization, still does not have a stable coin.
• After a first launch in May 2019, Algorand released version 2.0 of its protocol in March 2020. Centered around uses, the primary ambition of Silvio Micali, its founder, seems to persist with this new version, namely the resolution of the trilemma of decentralization.
• Numerous functionalities are proposed, including tokenization standards, new possibilities offered by a smart contract language, as well as new inter-tokens settlement logic.
• The road map shows that the next steps will always go through use cases and a development kit for all languages.

→ Why does it matter ?

• Because it is still little known, it is appropriate to insist on the genesis and the founding bias of Algorand : a protocol with an essentially financial purpose. Unlike its competitors, Ethereum or other smart-contracts platforms, Algorand follows the path traced by Bitcoin by offering smart-contracts while maintaining a complete non-turing logic. Considering the numerous medals and awards of its founder, S. Micali, the originality of the thing will not fail to surprise many readers!
• This strategic decision is based on the idea that reducing the number of possibilities, will allow to offer a reliable framework with higher speed standards. This is how Algorand promotes easier adoption, faster integration and lower risks.
• It is this same financial nature that was decisive in the choice of Algorand by different institutions, public in the case of the Marshall Islands currency, or private, with the USDC’s Coinbase carry.
• Finally, we would like to underline the high speed of development, with the delivery of new functionalities on time with regard to the announced provisional schedule, accompanied by concrete development kits enabling the various players to easily grasp them.

→ Catenae Insight

• The choice of Algorand introduces the question of the non-necessity of turing-complete languages, a debate that lies at the heart of what gave birth to Ethereum, the split between Vitalik Buterin and Bitcoin. Bitcoin uses predefined scripts, whereas it is possible in Ethereum to make much more complex loops, and with great freedom.
• But according to a German study (Do Smart Contract Languages Need to be Turing Complete?) and after checking more than 53,000 contracts on Ethereum, it appears that the functionalities offered by a turing complete language are in fact very little used: less than 7%.
• Moreover, a large number of these contracts could be rewritten without necessarily using a function requiring a turing-complete language.
• Finally, in its very “bitcoin-like” approach, Algorand takes advantage of a certain simplicity that Ethereum and its competitors lacks.

2/ Chainlink: the success of a middleware protocol

• It’s hard these days to miss the dazzling success of the protocol, so we’ve decided to focus on it at the request of our readers.
• Chainlink is a protocol/middleware initiated in 2017 with the ambition to create an ecosystem of decentralized oracles allowing the inclusion of data in the different blockchains. This would notably enable smart contracts to interact with extrinsic data (off-chain), through an ERC20 token associated with its service: the LINK.
• Since its launch, the price of the Chainlink token has not exceeded the $1 threshold. However, as of spring 2019, its price has risen significantly, reaching over $8 in 2020, making Chainlink one of the 20 most highly valued tokens, with a market capitalisation of between $2 and $3 billion.
• A recent report by Zeus Capital (an investment fund about which we have little information) accuses Chainlink of pump and dump and price manipulation. This report was not really taken seriously and would itself be an attempt to manipulate the market. The case has even recently taken a new twist with suspicions raised against Nexo, which may be behind this paper. To be continued…
• However, we can easily explain this price explosion by the explosion of DeFi dApps requiring to recover the prices of on-chain tokens. In addition, many major players, such as Coinbase, have taken advantage of this to become Chainlink data providers themselves.

→ Why does it matter ?

• Chainlink is an important, if not pioneering, project in that it demonstrates the possibility of issuing smart-contracts with real-world data without having to rely on a single third party for the inclusion of on-chain data.
• Chainlink is thus based on a network of oracles giving a weighted measure. The service then proves that it is possible to implement any stand-alone contract requiring external data flows. Its implementation is limited only by the multiplication of oracles and processed data.
• Another notable fact is that Chainlink becomes the first protocol focused on a specific service to achieve such a valuation. The most valued protocols were generally those addressing the problem of value transfer (Bitcoin, Litecoin, Monero, Dash, …) or the problem of agnostic decentralised calculation (Ethereum, EOS, Cardano, Tezos, …). Here, and for the first time, we have a complementary brick to other blockchains, itself valued at more than a billion dollars.
• It is finally the first “service” in the ecosystem to reach such a valuation. This shows once again that many new verticals and elementary bricks are still to be created and developed. One can think of identity or storage, for example.

→ Catenae Insight

• Chainlink’s recent success has paved the way for other decentralized oracles protocols, such as BAND, supported by Sequoia, among others. For the moment, it seems that the differences between these different projects are quite subtle. However, this shows that the increasing maturity of this almost elementary brick, that of the oracles, and paves the way for a competitive environment (with the best network effect). A race comparable to the one led today by protocols wishing to surpass Ethereum.
• Chainlink solves the problem of data flows in a rather interesting way. However, other protocols will undoubtedly be necessary for datasets integrating human factors, and de facto less automated. One thinks in particular of data of the “bailiff” type which requires a human report.
• If Chainlink opens the door to the logic of contracts using off-chain data, new protocols should emerge in the segment of non-automated data. Kleros comes to mind.

3/ The success ofAVA labs’ recent ICO

• Avalanche is a protocol co-created and promulgated by Emin Gün Sirer. He is extremely well known within the crypto ecosystem, considered one of the world’s leading specialists in decentralized networks, and a project advisor like Tezos.
• The Avalanche project also aims to solve the trilemma of decentralization through a new family of consensus algorithms called Avalanche.
• The Avalanche protocol performed a remarkably successful ICO a few days ago, raising in less than 5 hours more than 42 million dollars that will be allocated to the development of the protocol.
• This success is impressive : the operation was designed on the old “first come first served” model, so some investors had to pay a very significant fee (“gas” amounts) to be included.

→ Why does it matter ?

• ICOs are not dead: following the madness of 2017 and the bursting of the bubble in 2018, one would have thought that ICOs would not be able to reappear because of their sulphurous reputation and the many losses they generated. However, it must be said that it is still possible to raise funds on a global scale in a matter of hours. The problem would lie more in the quality of the ICOs and the fever that followed than in their mechanism itself, which remains highly effective.
• Basic (or “low-level”) research is not being interrupted: in the same way, in view of the very strong competition for agnostic protocols in terms of applications, which are therefore intended to accommodate all kinds of calculations, it is normal to think that new protocols of this type could not prosper, as the various entrepreneurs try to join an existing project or move into unexplored segments. But this is not the case, and once again we see that research in cryptos is actively continuing, with all protocols wanting to solve all known problems with different architecture choices.

→ Catenae Insight

• ICO and private sales: The last cycle has been fuelled by the multiplication of the number of tokens and the continuous increase in the capitalization of the cryptocurrency market. It could be reasonable to think that this new movement of capital (we see it through the DeFi’s tokens, some ICOs and private sales like Polkadot) and this new movement of innovations (whether in protocol or application terms) are the new drivers of the sector.
• Once again, for the moment Ethereum seems to be uncontrollable because of its network effect. The mockery on the cost of gas, the Arlesian of version 2.0 or the questionable figure of Vitalik Buterin do nothing about it. Ethereum continues to trigger trends as with DeFi, also continues to be the network with 95% of dApps and developers. However this does not prevent the competition from being fierce and aiming to replace it. The interblockchain protocols will perhaps be the technological brick allowing the specialization of agnostic protocols on this segment; calculation allowing Ethereum to unload itself on certain uses which would then come to populate other protocols.