Data is a hot topic in every area of tech, but is especially interesting when we dive into the realms of blockchains. I had a chat with Sid, one of the founders of TokenAnalyst, a really interesting platform that I often look to when I want to better understand what’s going on in Ethereum and Bitcoin.
Colin (CP): Thanks for coming on, I really like TokenAnalyst. Can you tell our readers a bit more about who you are and what you guys do?
Sid Shekhar (SS): Hi, thank you for having me. I’m one of the founders of TokenAnalyst. I’ve got a machine learning and data background. Before starting TokenAnalyst, I worked in GE doing data analytics. Later I met my co-Founder at Entrepreneurs First in London towards the end of 2017.
At the time there weren’t many people looking at blockchain data in any kind of depth, it was the middle of the ICO craze and everything was around trading and prices. We saw a lot of value in the data actually in the blockchain and thought that if there was something in the way of fundamental valuations to be done, it would be through insight taken from onchain data.
CP: That’s a really interesting background, can you explain how you look at the data a bit more?
SS: Sure, we don’t look at things individually like the chain analysis companies, our data focusses on transaction clusters. We were able to look at behaviours and transactions and build models around the types of entities and patterns that we were seeing and derive value added metrics on that raw data. We can use this to look at inflows and outflows to and from exchanges, old HODLers that are moving, what miners are doing, as well as looking at balances at large entities. We can also look at some metrics like the transactions volumes and what’s happening in onchain services.
CP: And who is buying this data from you?
SS: We have several types of clients, but one of our biggest segments are the cryptocurrency focussed hedge funds and institutions. It started out that they were interested in historical data to help design their strategies, but then they became very interested in real time data. We have APIs and the fastest Websocket connection, so traders are able to see what is going on quickly and react. For instance our clients can be amongst the first to know if a large amount of Bitcoin has moved into BitMEX which helps them react in an environment where milliseconds count.
CP: Looking at the last few years that you have been around, can you talk to me about the changes you’ve seen in the industry?
SS: Yes, so as I said, we started out in the middle of the ICO rush. In the early days we spent a lot of time looking at what ICO teams were doing, tracking ETH moving to exchanges, and the teams that sat on their ETH through the price collapse in 2018. There was a lot of retail interest in the early days and they looked into the long tail of tokens.
After 2018 there was a lot of consolidation into purely focusing on BTC and ETH and greater interest from more sophisticated institutions with more complex strategies. Really that’s where all the investment and trading consolidated, but looking at the metrics around usage it’s even more stark.
CP: We hear a lot of people talking about institutions coming to the crypto space. What do these institutions that you work with look like?
SS: A lot of them aren’t the larger established names, though occasionally we’ll also speak with them as they do research on crypto. But most of our clients tend to be 8-30 person teams, globally distributed but with a majority coming out of Asia and the US. There are also a few around Europe. Many of them look at shorter term strategies and price movements rather than long term price moves.
CP: One thing that I’ve noticed , when you look at the data over time, especially in Ethereum is that transactions have become more complex. Is this a trend you’re seeing too?
SS: Yes definitely and actually on that point, people often talk about the number of transactions in Ethereum as the wallet to wallet transactions. Within an individual contract there are about 10x “internal” transactions, so when you get into the numbers it’s not the 100m that gets reported but closer to 1 billion movements. One thing to consider is that if we get another increase in retail traffic like we saw in 2017, the greater usage of DeFi and other smart contracts could really amplify the traffic.
CP: What are your thoughts about being an entrepreneur in this space generally?
SS: It’s a bit different. One of the things that we understood early on is that you need to be very strategic and have strong convictions about where the industry’s next two steps will be. We’ve made some naive assumptions that didn’t pan out, and this forces you to think deeper about how to build your business. We’ve seen a lot of people come into the industry looking at blockchain use cases but not accounting for the difficulty in implementing those, we found it helpful to be really pragmatic about where the industry can practically go over a two to three year time horizon.
CP: What’s your main conviction about where we’re going?
SS: A big trend we’re seeing is financialization. People talk about laudable goals like banking the unbanked, but the reality of these technologies is that they are of more interest to more sophisticated actors, and the target market is very different from what you hear people preaching about. But with this we are likely to see more interest from institutions and less interest from the hype metrics around the unbanked. There are some benefits around open sourcing some things that were only available to accredited investors before however.
CP: One of the areas that people talk about in that is DeFi and specifically around stablecoins, what are you seeing there?
SS: The transaction flows for stablecoins have grown massively in both transaction volumes and supply. There has been a lot of usage in this area and it’s proven to be a good area for experimentation. What is really interesting is that different stablecoins have different uses, USDC and DAI are heavily used in DEX and the DeFi ecosystem. We estimate somewhere between 20-30k users.
USDT is more used amongst larger exchanges, and has millions of active addresses. Stats can be tricky as they balance them over Ethereum, Omni and Tron. The Omni system is quite old and clunky, we run a node for it and devote a lot of resources to it. There are a lot of people on it that haven’t moved over yet, and Tether can’t force them, which is an interesting dynamic as there is about $1.7 billion still on that older system.
CP: Outside of what you are working on, what else interests you in this space?
SS: I’m quite interested in what FTX are doing. It’s a derivatives platform that essentially occupies the space that Augur was trying to go for. They’re very reactive and offering lots of new products on a regular basis. I’m also quite interested in the no-loss lottery projects on Ethereum as well as some of the viral games that you see. Custody is another trend that I’m interested in as there are quite a few unique challenges.
CP: Sid, thank you very much for joining me today, I learnt a lot.
SS: Thank you, this has been fun.
As always, nothing here should be construed as financial advice, recommendation or endorsement of any project or cryptocurrency.