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The Hard Fork – Weekly Market Commentary

This Week’s Topics:
1) “DeFi” tokens soar, raising valuation concerns
2) Bitcoin mining company seeks $100m in IPO
3) Reddit begins Ethereum based project

Indices Round-up


TradeBlock Index Asset1 Price ($) 7d∆2
ETX Ethereum 235.30 5.79%
XLMX Stellar Lumens 0.07 5.39%
ZCX ZCash 52.48 5.38%
XMRX Monero 64.74 4.20%
ECX Ethereum Classic 6.33 3.94%
XBX Bitcoin 9431.03 3.90%
BCX Bitcoin Cash 236.21 3.87%
EOSX EOS 2.55 3.38%
LTX Litecoin 43.62 2.73%
XRX XRP 0.19 1.92%
1. Underlying asset sorted in descending order by 7 day price movers.
2. 7 day price movers monitored from 06/15/2020 06:00 ET thru 06/22/2020 06:00 ET.


7 day price movers

Digital currencies traded modestly higher on the week, with one sector in particular, DeFi based digital currencies posing a strong rally (see topic 1 below). Among our indexed currencies, ETX traded up the most, rising 5.79%. Conversely, XRX traded up the least, gaining a modest 1.92% on the week. In traditional markets, US equities ended the week up 3.5% despite incurring a deep sell-off on Friday. Gold traded up on the week with bank vaults accumulating near record amounts of physical gold.

“DeFi” tokens soar, raising valuation concerns

Decentralized finance applications, “DeFi”, have seen an increasing wave of interest over the last year as new apps launch to support decentralized financial services with a focus on lending and derivatives trading. At time of publication, nearly $1.5 billion in assets were deposited across DeFi applications, with the largest share being deposited on Compound’s lending platform.

Compound is a lending platform for digital currencies which uses smart contracts and digital currency, mostly ETH, as collateral for lending/borrowing. More than $350 million in loans were originated across Compound YTD. This past week, the Compound began initial distribution of its COMP token. Shortly thereafter, exchanges began listing the token, which has seen it’s market price soar over 280% over the past week. With the considerable price increase of the token, valuation concerns are being raised.

Currently the COMP token gives holders the rights to vote on various governance proposals, including the potential of including a token buy-back schemata or dividend like distribution in the future. We constructed a rough, approximate financial model of what a token buy-back and/or dividend like distribution would look like if it were initiated–which is already being discussed. Platform fees would be used, similar to existing centralized exchange tokens in the buy-back process. Our assumptions include aggressive volume growth over the next few years while interest rates on the platform stay roughly similar to current levels. At time of writing, the fully diluted market cap of COMP was more than $1 billion.

Figure 1: Approximate COMP token model


Our DCF model is intended as a rough sanity check to see to what extent value would accrete back to token holders in such a commonly initiated exchange token buy-back/dividend distribution schemata.

Bitcoin mining company seeks $100m in IPO

Chinese bitcoin mining manufacturer, Ebang, has moved one step closer to launching its IPO with a recent SEC filing. Ebang applied to list on the Nasdaq and anticipates its shares will price between $4.5 and $6.5. The mining manufacturer will offer 19.3 million Class A ordinary shares in total. The raise ranges from ~$85-125 million depending on where it is priced.

Ebang’s IPO follows other bitcoin mining companies that IPO’d last year. Share prices in previous publicly listed bitcoin miners have fared poorly. Canaan (CAN), listed on the Nasdaq last year, has seen its share price fall considerably since its IPO. At close on Friday, CAN shares changed hands at $1.90, down from its IPO price of $8.99.

Bitcoin mining has come under pressure following the bitcoin halving in May, when new token supply was reduced by half. Mining revenues are down as the market prices of bitcoin have hovered around $9,000 per coin but new supply has fallen by 50%. Immediately following the halving, the network hash rate declined as miners struggled with new levels of profitability. However, in recent days hash rate and mining difficulty have risen as miners have increased utilization of newer, more cost efficient machines, and as electricity costs have come down in China.

Figure 2: Bitcoin hash rate and difficulty over time


Reddit begins Ethereum based project

This past week it was revealed that the social platform, Reddit, was moving forward with an Ethereum based community rewards system for its users. In particular, Reddit is looking for development expertise in order to increase scalability on Ethereum to support its millions of monthly users.

The Reddit announcement asks if existing projects can introduce a “scaling solution (that) can be used to bring Community Points to mainnet. (Reddit’s) goal is to find a solution that will support hundreds of thousands of Community Points users on mainnet today, and can eventually scale to all of Reddit (430 million monthly users).”

Reddit currently ranks as the 20th most visited website worldwide. In addition to Reddit, various other large enterprises have built or are building on Ethereum, including JP Morgan, Ernst & Young, and MetLife.

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