Despite the fact that the team over at Plexus make this regular newsletter possible and have a fascinating insight on the industry from a completely different angle, insight not commonly discussed in publications, we don’t often get to cover them directly.  This week however, I cornered them for a chat about their trip to Consensus 2019, the showcase event at New York’s annual Blockchain Week.

For those of you who aren’t aware, Consensus is the largest and most well-known conference in the blockchain and cryptocurrency calendar. Now in its 5th year, the event is a global gathering which mixes some of the largest companies in the world, with scrappy start-ups, and features stunts from made-up protests by “bankers against Bitcoin”, to hired Lambos lining the street in front of the Midtown Manhattan venue. Given its prominence, the event has spawned a host of other events before and after, as well as numerous parties.

Zeth and Shaun went out to join in the fun and ended up doing some business as well as getting into some interesting conversations. I got the lowdown for us.

CP: Hi, welcome back, hope that you’ve gotten over the jet-lag. Thank you for taking the time to sit down and talk to us about Consensus. First question, did you get me any good crypto swag?

Zeth Couceiro (ZC): Thank you for getting us here to talk about it, it was a great trip.

Shaun Potts (SP): Yes, thanks for this. And no, we didn’t get you any shirts, next time.

CP: Too bad, but I’ll survive. Zeth, a lot of crypto events noted that numbers were down over the last year, how did you find it at Consensus?

ZC: This was our first time at Consensus, but from speaking with people who were there previous years and comparing with what we saw this year, it felt pretty busy and was a pretty good atmosphere throughout the event. Apparently last year, it was rumoured that there were about 9,000 attendees and this year about half that. That said I would also note that there did seem to be a lot of activity outside the event in the bar and lobby. I also read an article talking about how there was quite few people who didn’t have tickets and were just networking in the lobby. I could definitely see this as there were people all over the lobby discussing their projects.

CP: Shaun, what was the overall atmosphere like at Consensus this year?

SP: There were stacks of enterprise businesses there, and relatively few traditional crypto business – the ones that were there were really focused around crypto as a vehicle for cash/trading (wallets, exchanges etc), rather than people building decentralised tech solutions. I saw more businesses trying to capitalise on that, rather than ERC20 type projects claiming they were going to change the world or be the “AirBNB of crypto” or similar grandiose/B.S statements. The space is growing up, and people are realising that they can’t spend/blitz investor/ICO cash at the rate they were in 2016-17, so more obvious use cases (stuff that makes money now) appeared most prominent. Come to think of it, the only time I really heard the term ‘decentralised’ was in the Maker talk. The session with Maker was also very interesting as they got challenged by the moderator about the stability fees shooting up to ~20%.

CP: Interesting, and that’s a great place for me to jump off on my next question. What were your highlights? Were there any moments in particular that stood out?

SP: We absolutely have to mention Andrew Yang’s interview. He was on relatively late, on Wednesday afternoon, by which point most people were conference-fatigued and the crowds had thinned, but what started as a small audience grew pretty rapidly. I had never heard of a presidential candidate speaking at a tech conference, though I’m sure they must have, but it may be a first for a crypto conference, especially when other senior politicians in the States have been bashing crypto recently. It’s a pretty risky position for him to stick his neck out and say he’s going to be crypto friendly – maybe he doesn’t really think he can win and was just being sycophantic to the crowd, who knows. But if he does win next year –even if he only wins the nomination– then that’s pretty big.

ZC: I felt that the conference overall felt a little more enterprise than I expected and with that naturally some of the talks were a little less controversial than previous years. I did like the Pete Rizzo interview with Justin Sun, the founder of Tron. Pete really seemed to be challenging him, to the point where he quoted Peter Todd [a controversial and opinionated figure in the Bitcoin community] saying why the industry doesn’t take Tron seriously.

CP: Looking back, what do you guys think could have been done better?

ZC: As a general trend, the conference showed that we have moved from ICO marketing to enterprise promoting. I feel like if Consensus wants to market itself as the go-to event in blockchain crypto then it should be an opportunity for these enterprises to make big announcements around what they are actually doing/achieved, rather than just appearing.

SP: Zeth made a great point, I’m not sure if it’s an American thing, or just a Consensus thing, but pretty much everyone we saw was just using it as a platform to push their own project which got old quickly. And it wasn’t just the enterprise guys, although they were generally more secretive, it was everyone, small and big projects alike. On the secrecy thing – you might argue that they were being secretive because they aren’t actually doing anything – ie “oohhh we can’t talk about that at this time…” read “yeah, we aren’t really doing anything but I want to make it sound like we’re doing some really cool shit in stealth mode”.

CP: I feel like Consensus is usually a pretty good “state of the industry”. What’s your TL;DR on the state of the industry right now?

SP: Shit projects who haven’t thought about how they’re going to actually generate income, like those just spending ICO cash, or worse watching it dwindle with the ETH price, are starting to fail or be cut back. All the interesting stuff is happening in enterprise with the exception of some of the DeFi [Decentralised Finance] stuff. Take the move from ICOs to IEOs – and it’s pretty much the same thing just repackaged and already on an exchange – why has this happened? I think that people still want to raise, but investors want immediate liquidity so they can jump ship if they want to. There are plenty of bitter bag holders out there, and I count myself in there – the bear market has increased levels of cynicism!

ZC: Having been in the space for years, I have noticed the flip flopping of “crypto bad; blockchain good” and vice-versa. At the moment it feels like we are moving back to the “crypto is good; blockchain is great”. By this I mean there is still a dichotomy of ideologies around this but both parties seem a lot more accepting of each other and in some instances the lines are starting to blur.

CP: And Zeth, how about specifically the state of the US crypto/blockchain industry?

ZC: In terms of a commentary of the US crypto market specifically the conference was in NYC, which generally lends itself to more finance use cases. That said I am sure this is completely different to San Francisco. I would say that generally a lot of these firms are doing business in New York but are perhaps their engineers building their platforms sit elsewhere – London, Berlin, Hong Kong. To me it this is mainly due to the sky-high salaries in the US versus Europe and the East.

CP: Ok, last question. Is it worth going to Consensus 2020?

ZC: I personally really enjoyed Consensus and it feels like ‘the’ place to be if you are working in the blockchain space. It remains to be seen if this changes, due to events like Deconomy or others. The US and in particular New York have not been particularly friendly in terms of regulatory environments, i.e. recent commentary from the SEC, as well as the [2015] introduction of the Bit License in New York state.

CP: Amazing, thank you both so much. Really interesting colour.

SP: Thank you.

ZC: Thanks for getting us on our own blog.

We also have a blog about the Deconomy 2019 event, get the lowdown here. 

Reggie Fowler, Bitfinex, Tether Funds, IEOs
FinCEN, MSBs, Crypto Jumps
We didn’t start the fire…

Colin Platt here again, so it’s been a busy few weeks for cryptocurrencies, hasn’t it? Rather than a deep-dive, we thought it would be helpful to recap some of these things just to help map it out. 

By far, the biggest story –which was actually four stories in one– centred around Bitfinex and Tether parent company iFinex.

To explain this one, we have to go back a little way to October 2014 when Tether was launched as “Realcoin”. The goal of Realcoin was to offer a token, which used a network linked to the Bitcoin network to trade an asset backed by US Dollars held in a bank account.

One month later, Realcoin was rebranded to Tether, and announced a partnership with Bitfinex. In January 2015, Bitfinex became the first exchange to accept Tether for deposits and withdrawals from customers.

August 2016, Bitfinex suffers a hack that results in $72 million being stolen. Bitfinex spreads the losses across clients’ accounts, and delivers the BFX token to represent that loss.

Then, in April 2017, Bitfinex announces that it was repaying all BFX token holders to compensate them for the losses. Later that month, Tether announced that Wells Fargo and several Taiwanese banks were blocking transfers to and from Tether.

Whilst all this was happening, notional issuance of Tether grew from $7 million in January 2017, to $320 million in July of that year. By December it had grown to $1.3 billion+ in issuance.

Some figures in the cryptocurrency community became skeptical that Tether could offer this service at this scale whilst staying below regulators’ radars, and –pointing to evidence in Tethers’ terms and conditions as well as banking trouble– accused Tether of issuing some or all of these tokens without corresponding USD balances to back them. The goal of which, these accusers asserted, was to push the price of bitcoin up. Recall that in 2017 the price of one bitcoin (BTC) went from ~$900 in January, to nearly $20,000 by mid December. Naturally Tether denied this, and by September 2018 Tethers in issue had exceeded $2.8 billion.

Several rounds of conversations between Tether executives and the CFTC, as well as attestations by lawyers, bankers and accountants later, and rumours of surrounding Tether had not been laid to rest.

Fast forward to March 2019, Tether quietly updates their website to change the assertion that each Tether is backed by cash, to include “other assets and receivables from loans made by Tether to third parties.”

Now, last month, April 2019, two big things hit the news. The first was an announcement by the New York State Attorney General (NYAG) announced that they were investigating iFinex (Bitfinex and Tether) for fraud, including the allegation that Bitfinex took a three year loan from Tether balances to cover a $850 million hole due to bank accounts seizures by Polish, Portuguese and US law enforcement due to their link with a company known as Crypto Capital Corp.

Soon thereafter, things got more interesting, when the US Department of Justice’s Southern District of New York announced that they were charging Reginald Fowler and Ravid Yosef in connection with providing shadow banking services to cryptocurrency exchanges through a company known as Global Trading Solutions. This included charges of running an unlicensed money transmitter business. The SDNY stated in the court documents that Global Trading Solutions had ties with Crypto Capital Corp.

Legal letters between lawyers for iFinex and the NYAG later ended up revealing that the loan made by Tether, from its funds, to Bitfinex, represented 26% of Tether’s funds. While the price of Tethers fell briefly following the NYAG’s allegations, the market largely shrugged off the news.

Since the revelation of the NYAG investigation, Bitfinex announced that it had raised $1 billion to shore up capital, through an “Initial Exchange Offering” (IEO) –an ICO but done via a cryptocurrency exchange. Bitfinex’s CTO later disclosed that half of that capital had come from parent company iFinex.

Staying in the United States, and on regulators, the US Treasury’s Financial Crimes Enforcement Network (FinCEN) put out guidance last week on cryptocurrency related business models. The press release announced that “new FinCEN guidance affirms its longstanding regulatory framework for virtual currencies”.

Naturally, those involved in cryptocurrencies took a very moderate approach and considered how they were already conforming to longstanding rules… just kidding! It was mayhem on Twitter, with everyone interpreting it however they wanted. Worth noting that several of the things covered in their note hit on the topic of money transmitting, the same rules that caused a headache for Reginald Fowler.

While the document is quite technical, some highlights were that ICOs, Stablecoins, custodial wallets, some mining pools, dapps, exchanges and a host of other businesses could fall under money transmission rules. On the plus side, mixers (services that help hide transactions in a blockchain) as well as coding services aren’t likely to fall under these rules. If you’re involved in anything that looks like these, it’s worth checking that you’re complying with all the relevant rules.

With all of this drama, objectively much of it quite negative, you would think that the price of cryptocurrencies would have continued their downward trends… Well… Bitcoin moved up more than 60% over the last month, at one point nearing $8400 on Bitstamp. Of course the move north wasn’t isolated with many other cryptocurrencies registering sizeable gains.

That’s it. Well of course there are lots of other things going on in cryptocurrencies and DLT. Stay tuned, we’ll keep following up.

As always, nothing here should be construed as financial or legal advice, recommendation or endorsement of any project or cryptocurrency.