Category: Reloads

“Is artificial intelligence making us dumber?” This is a question that has been on many people’s minds as generative AI continues to grow in popularity. With its applications in fields such as music, art, and healthcare, AI is poised to change the world in exciting ways. But there are also concerns about its impact on human intelligence and critical thinking.

One of the primary concerns is that relying solely on AI-generated content could reduce opportunities for developing original ideas. For example, if individuals solely rely on AI-generated news articles for information, they may not be exposed to diverse perspectives and may have limited opportunities for critical thinking and independent analysis. Similarly, if artists solely use AI to generate their works, they may not be challenged to come up with original ideas and may become less creative over time.

On the other hand, proponents of generative AI argue that it has the potential to enhance human intelligence and drive innovation. To get a better understanding of this perspective, we sat down with Dr. Sarah Kim, a computer scientist and researcher at the MIT Media Lab. According to Dr. Kim, “AI has the ability to process massive amounts of data at speeds that are not possible for humans, leading to more informed decisions and new avenues for creativity.” She goes on to say, “AI-generated content can also serve as a starting point for human artists, inspiring them to create something truly unique.”

In conclusion, the use of generative AI presents both potential risks and benefits. It is up to us to ensure that this technology is used in a way that promotes the advancement of humanity while avoiding negative impacts on human intelligence and critical thinking. Whether AI makes us dumber or not ultimately depends on how we choose to use it.

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ChatGPT, the generative AI model created by OpenAI, has caught our attention lately, and probably yours too. The tool has taken the internet by storm since its public launch for its ability to generate text that is coherent and appears to be written by a human. Our curiosity piqued, we just had to try it out for ourselves and see the extent of its capabilities. And guess what? This very article that you have just read was generated by ChatGPT (with our inputs).

We began the process by asking ChatGPT one question: “tell me two reasons why generative AI makes us dumber and two counterarguments”. Getting answers from ChatGPT is straightforward and easy but getting the answers in a desired format and style is less so. But with a little trial and error, we were able to get some pretty impressive results. It is important that describe your requests as detailed as possible to generate the answer you wanted. For example, we asked ChatGPT to suggest a clickbait title for us, we also asked it to add a short interview with a computer scientist to support the counterargument, especially with credentials and a professional name to make it convincing. However, we did notice that with multiple requests, the tool could forget some of your previous requests. So, would it make us dumber? It depends, depending on how you use the tool, I think the above article made a sound argument.

However, a more threatening concern that we wanted to highlight through this experience is how generative AI can create false but convincing information or ideas that can influence one’s beliefs and opinions. For instance, the computer scientist and researcher at the MIT Media Lab, Dr Sarah Kim, “we” interviewed does not exist, it is merely an identity invented by ChatGPT upon our request. Similarly for the image, it was created by DALL-E, the text-to-image model developed by Open-AI, with a text description suggested by ChatGPT so that we could create an image of Dr Sarah Kim that fits the context of the article. If misused, the spread of misinformation and false narratives can lead to dangerous consequences such as political propaganda and manipulation.

Surely the tool still has its limitations and biases, but overall, we are very impressed and amazed by its ability to take requests and return valuable outputs almost instantly. But while generative AI can bring many benefits, it’s important to keep in mind its potential negative implications and to always utilize the tool responsibly.

We end this blog with a rap song written by ChatGPT.

Verse 1:
Generative AI’s the latest buzz,
ChatGPT’s what everyone does.
A tool so smart and oh so fast,
Gives us answers that’ll last.
But is this technology so great,
Or will it lead to our cognitive fate?

Verse 2:
We tried it out, we put it to the test,
To see what answers it could suggest.
With a detailed description, it delivered,
Results that left us quite a shiver.
But beware, it’s not all sunshine,
Misuse can lead to false narratives, refine.

Outro:
Surely the tool still has its flaws,
But overall, we’re in awe.
Generative AI, it’s a thrill,
Just use it responsibly and all will be still.

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Last week may mark the worst week in history to date in the crypto industry. The downfall of FTX, which was considered as one of the biggest and most reputable players in the market, has stunned all crypto owners.

What was discovered?

Concerns for FTX’s liquidity spurred after the release of CoinDesk’s investigation on the close ties and blurred financials between FTX and Sam Bankman-Fried’s (SBF) trading firm, Alameda Research. It was revealed that Alameda Research held a position worth over $5 billion in FTT, the native token of FTX. It owned $3.66 billion of “unlocked FTT” and $2.16 billion of FTT collateral, combined making the biggest single asset held on its balance sheet. The report revealed that Alameda’s investment foundation was also in FTT, rather than an independent asset like a fiat currency or another crypto token.

An excel file FTX shared with prospective investors before the bankruptcy, providing a detailed picture of the financial hole in the FTX crypto empire.Source: Financial Times

On Nov 6, Binance, the world’s biggest crypto exchange, announced that it would sell its entire position in FTT tokens, worth over $500 million at the time. Unsurprisingly, FTX experienced a bank run following the announcement with customers demanding $6 billion of withdrawals. The value of FTT fell by 80% in two days.

Binance gave a short-lived promise of rescue on Nov 8 after corporate due diligence prompted concerns about the mishandling of customer funds. Having lent more than half of its customer funds to Alameda, it is reported that FTX has a shortfall of US$8 billion on its balance sheet.

A major failed experiment?

Some may say that this fallout has destroyed all confidence and set the industry back again in the eyes of regulators and institutional investors. To us, the cause of the meltdown is simple, those who have been in the financial industry will know, asset-liability mismatch, period.

The clear lack of corporate governance has contributed to the non-existence of risk management at FTX. As reported by the Wall Street Journal, Ryan Salame, co-chief executive of FTX Digital Markets, and Ryne Miller, general counsel of FTX’s U.S. arm, alongside other FTX employees, had no knowledge of FTX’s problems until exposed by the media, despite worked closely with SBF. The lack of transparency and seemingly concentrated control in the founders’ hands are disconcerting.Source: The Information

World frustrated

FTX suffered a $400 million hack which occurred on the same day the firm filed for Chapter 11 bankruptcy protection in the U.S. The internet was flooded with speculations that the hack could have been coordinated by insiders. The attacker appears to have “had access to all the cold wallet storages which he exploited,” Dyma Budorin, co-founder and chief executive of blockchain security auditing firm Hacken, said on Monday in an interview with CoinDesk TV.

Some of the wallets are labeled “fucksbf” and “fuckftxandsbf.eth”, which could be a reverse optics to appear as if it is a hack.

More pain to come

Similar to the Luna fiasco, we would expect a domino effect from the fall of FTX given the number of businesses in the ecosystem that are linked to the exchange. Genesis Global Capital has become the latest fallout from the FTX meltdown, reflecting a sign of contagion outside of BlockcFi, which is reportedly preparing for a potential bankruptcy filing.

Credit: Kyle Kim/Bloomberg

What to trust going forward?

Although it’s an extremely painful lesson to learn, individuals will now understand the importance of being their only owner of one’s digital assets. Crypto users are rushing to take control of their digital assets in the wake of the exchange’s collapse.  This will be better off for the market as a whole in the long run, to achieve the holy grail of decentralization, rather than being dependent on the notoriously centralized exchanges.

Indeed, there is evidence that crypto owners are increasingly moving to hardware crypto wallets. A major hardware wallet provider, Trezor, has recorded a major uptick in wallet sales in the aftermath of the FTX contagion. According to Josef Tetek, the firms’s brand ambassador Josef Tetek told Cointelegraph on 15 Nov, Trezor saw its sales revenue surged 300% week-on-week and it’s still growing.

And despite sell-offs, decentralized exchanges (DEXs) and decentralized finance (DeFi) platforms have been functioning smoothly and experiencing a double digit increase in the number of users in the past week. According to data share by Nansen to The Defiant, MakerDao, DeFi’s largest protocol with $6.5 billion of total value locked, has increased addresses by a third in the last week. And other top 10 protocols have also attracted huge jumps in users, with Aave notching a 70% increase, and a 63% spike for Curve.

Regulations are clearly needed for CeFi

The crypto community continues to learn the lesson of decentralization the hard way in the previous months. From Celsius Network to BlockFi, Voyager Digital, and now FTX, and probably more casualties to come, these are all centralized exchanges and financial platforms (CeFi). Similar to the situation of the 2008 falls of some of the largest American banks, we witnessed the consequence when market players under-collateralize and take risks with consumer funds. The only difference this time is that there is no government backing in the CeFi world, the CeFi companies are left to play out by themselves.

The collapse of FTX will spur more calls and urgency for crypto regulations. Both CFTC and SEC are experts in regulating the financial markets. What the regulators have essentially been trying to do is to replicate the regulatory framework for the traditional financial (TradFi) market to the crypto market, at least for CeFi, which would be challenging. The Federal Reserve took six years to create after the 1907 Wall Street panic, so it will not be surprising if it takes few years to come up with the regulations for CeFi.

The flaw in CeFi is that the reliance on trust that Satoshi Nakamoto was trying to avoid has been reintroduced. The collapse of FTX once again reminds us of the importance of decentralization. DeFi platforms are designed to preserve transparency and self-sovereign custody of assets. Regulations that do not overprotect those with an upper hand could be beneficial for the industry. Although unclear with the approach yet, we believe the crux of regulating decentralized projects would be to regulate on a protocol level rather than on an entity level. Nonetheless, the ultimate solution remains to leave governance in the hands of consensus mechanisms.

The meltdown of FTX was a failure of CeFi, not DeFi. If there is a silver lining for the FTX meltdown, it would be to redraw the ecosystem’s focus on its original purpose of decentralization, reaching consensus on who owns what cryptographically across nodes rather than relying on a central source of trust.

 

 

 

Reference

Divisions in Sam Bankman-Fried’s Crypto Empire Blur on His Trading Titan Alameda’s Balance Sheet. CoinDesk.

CZ Strives to Show Binance is Different From FTX. The Defiant.

FTX Tapped Into Customer Accounts to Fund Risky Bets, Setting Up Its Downfall. The Wall Street Journal.

FTX’s Collapse Leaves Employees Sick With Anger. The Wall Street Journal

Trezor reports 300% surge in sales revenue due to FTX contagion. Cointelegraph

FTX balance sheet, revealed. Financial Times

FTX Hack or Inside Job? Blockchain Experts Examine Clues and a ‘Stupid Mistake’. CoinDesk

FTX’s New Boss Reveals Chaos Left Behind by Bankman-Fried. Bloomberg

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The aftermath of Luna and its stablecoin TerraUSD is no doubt more devastating than one would have imagined. The fallout reminded us about financial crises and how leverage could be a detrimental double-edged sword: while your investment return is maximised, so is your risk. In this aspect, DeFi is no difference than TradFi, but the mechanism, hiding behind all the ‘smart contracts’, is much less understood. We try to explain what happened and the implications in this blog.

The domino effect of the Luna fiasco began as Celsius, a cryptocurrency lender, froze customer withdrawals on their platform in mid-June and subsequently declared insolvent. On that same day, Binance, one of the largest crypto exchanges, also halted withdrawals from their exchange for a few hours before resuming them later in the day. While all eyes were fixated on the crypto lenders and exchanges, few noticed the looming of a bigger victim.

Singapore-based crypto hedge fund Three Arrows Capital (3AC) transformed into an almost exclusively crypto focused fund in 2018, 3AC initially focused on trading Bitcoin and Etherum in the derivatives markets. Over the years, 3AC has diversified its investment strategy and has become a force in DeFi by backing some of its most important platforms. It has invested in Solana, Ethereum, Avalanche, Aave and Terra, as well as GameFi names such as Axie Infinity and NFTs.

Being one of the largest investors in Luna (seeking for its attractive staking yield), 3AC suffered large losses on the back of its collapse. Industry report said that 3AC has bought 10.9 million locked LUNA for $559.6 million, which by June 2022, was worth $670.45. The firm failed to meet margin calls from its lenders as the market was facing massive selloffs, triggering unforeseen liquidations for the firm.

Source: @FatManTerra, Twitter

The chain effect of 3AC’s insolvency has led to multiple crypto lenders halting withdrawals from their platforms. Amongst the sufferers is Voyager Digital, which wears the broker, custodian, and lender’s hat at the same time. The demise of 3AC, which was one if Voyager’s biggest borrower, has ultimately led to the firm filing bankruptcy shortly afterwards.

The Money or Cryptocurrencies Flow Chart

But there can be more domino effects along the way as the complicated relationships reveal themselves through the epic centres of Terra and 3AC.
Source: Coindesk, Bloomberg Intelligence, Three Arrows Capital, Heyokha Brothers

Source: Q2 2022 Cryptocurrency Report, CoinGecko

Lessons learnt

What happened in this collapse echoed past financial crises. The dependence on assets that were overvalued or at massive risk of large price corrections, and more importantly, the greed and fear that overtook the market players, have been the same forces at work this time round. Greed led 3AC along with other crypto lenders to misjudge systematic risks and entered highly levered positions in assets the values of which are highly correlated with each through engineering supply and demand. So when one falls, all have brought to their knees.

Not only is this poor risk management, but also a reflection of the opaque world of DeFi (that can also be said for TradFi). Like any centralised crypto fund, 3AC does not share much about its inner workings, this means that market participants have no insights as to where, when and how these funds invest and leverage. For instance, the Monetary Authority of Singapore (MAS) has reprimanded 3AC for misleading information and exceeding asset under management (AUM) threshold. The fund’s asset holding was estimated range between $4-10bn, which exceeded more than 22-fold the permitted AUM of SG$250 million under its status as a registered fund management company (RFMC).

Bringing transparency to crypto market

All the events contributed to the crash reveal just how opacity could lead to massive losses for consumers – two trillion dollars of crypto asset’s market cap have been wiped out. As a result, a call for consumer protection is crucial, and decentralisation could be a solution to the problem. The crisis occurred over the past few weeks tell us how reckless some institutions can be in pursuit of high returns. As a result, a call for consumer and investor protection is crucial, and decentralisation could be a solution to the problem. Decentralisation, such as a decentralised fund, offers market participants transparency. Imagine if everything is run on-chain with real-time reporting, meaning anyone can audit and analyse these funds anywhere, at any time, would fund managers continue to take on huge risks? Or would investors have pushed back on some of the risks had they known? Transparency mitigates moral hazard, it allows the market to differentiate high quality from low quality, effectively imposing self-regulation to the market.

Regulations spell the end of algorithmic stablecoin

In the wake of the catastrophic collapse of TerraUSD (UST), hedge funds and crypto lenders, one after the other, regulators are now in a sprint to formulate regulatory frameworks, particularly for stablecoins. For instance, just three days after 3AC was ordered to liquidate, EU officials secured an agreement on the Markets in Crypto-Assets (MiCA) proposal which covers issuers of stablecoins, as well as trading venues and wallets where crypto-assets are held. Under the new rules, stablecoins will be required to maintain sufficiently liquid reserves to meet redemption requests in the event of mass withdrawal. The stablecoins will also be supervised by the European Banking Authority (EBA). This law implies the consensus that algorithmic stablecoins are the weakest among the four types of stablecoins we discussed in a previous blog post (link). For fulfil the requirements under the new law, algorithmic stablecoins will require legal tender backing. Despite a bumpy road ahead, we see the new rules as a positive movement overall, not only does it provide regulatory clarity and assurance, but also lowers the risk for abuse. Indeed, following the agreement, Shiba Inu and Aave both announced their plans to launch a stablecoin for their respective ecosystem. This shows that effective regulation is paramount.

Defi will evolve, but it will not go away

We have long been a proponent that it will be years until Web 3.0 or crypto economy to truly take off. What we are currently observing are many proofs of concept. Therefore, there are bound to be successes and failures along the way. The crypto winter we are facing now may be the perfect opportunity to clear the underbrush that could be kindling for the next firestorm.

Reference:

MAS Reprimands Three Arrows Capital for Providing False Information and Exceeding Assets Under Management Threshold. Monetary Authority of Singapore.

Crypto hedge fund Three Arrows fails to meet lender margin calls. Financial Times.

Digital finance: agreement reached on European crypto-assets regulation (MiCA). The Council of the European Union.

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As the world become increasingly reliant on the connection to the Internet to function, the current infrastructure such as cellular, Wifi, and Bluetooth coverage could be suboptimal, especially when many places today still do not have a reliable mobile network (if at all), let alone the high costs faced by users.

According to a report released by GSMA in February 2022, there are 4.2 billion mobile internet subscribers worldwide by the end of 2021, representing 53% of the world’s population. Around 450 million people globally still live in areas without access to internet services. In addition, data collected by SpendMeNot shows that people in the world, on average, spend $8.53 for 1GB of mobile data. In some countries in Africa, a gigabyte of data can cost a staggering $50!

Source: SpendMeNot.com

As an increasingly commoditized business, telecom operators are facing decreasing revenues from voice services and increasing costs due to the high bandwidth demands, there is a need for them to both reduce costs and find new sources of revenue. As a result, these operators have reduced their efforts at expanding coverage to underserved communities in disconnected areas – in semi-rural regions and urban outposts.

Given operators in this oligopolistic industry have no commercial incentives to invest in disconnected areas, and together with the emergence of blockchain technologies, groups of individuals have taken the matters in their hands and attempt to democratise mobile network service.

Helium is one of the blockchain protocols building a decentralised wireless network. It expands a crowd-sourced, self-funding global LoRaWAN infrastructure, where data transactions are immutable in blockchain ledgers. The LoRa technology in the sub-GHz unlicensed spectrum (beneath the GSHA licensed spectrum of 3G, 4G and 5G) allows for a wide range for very small data transfers. The Helium network applies this technology to a multitude of peer-to-peer ‘hotspots’ that allows users to host wireless devices on their network and earn cryptocurrency (HNT, Helium’s own currency). The more a hotspot is used, the more HNT tokens it generates. In just two years, Helium has expanded to over 850,000 hotspots in around 64,000 cities in 177 countries. And for consumers who use the Helium network, they pay for use in data credits that are valued in HNT.

Despite trying to democratise internet connectivity, Helium does come with its limitations. Right now, most hotspots are in high density cities, making it less useful for people in more remote areas where the coverage gap remains. A Helium miner cost varies depending on its make, region, and provider. The price point of most hotspots rests in the $500-$1,000 range. Therefore, it can be a major investment for an individual consumer, profitability may only come in the long term.

Our thoughts on how telecom operators can leverage blockchain technology

Helium is a proof of concept that blockchain can be applied to mobile network and solve some of the long existing problems faced by consumers. With such evidence, we wonder if, with the right economic incentives, would telecom operators be able to better capitalize the blockchain technology and more effectively resolve the mobile bandwidth coverage gap issue? Therefore, we let our imagination to run wild and propose another idea of how blockchain and mobile network can be combined.

Image credit: Lasani Logistics, Pinterest

Consider a mobile device embedded with micro mining capability to host hotspots, where there are nodes that simultaneously mine tokens for building and securing permissioned network, while providing connectivity to nearby devices. In return for purchasing the device and contributing to the network, users may enjoy free (or much cheaper) mobile network service. With the broad customer base that telecom operators already own today, an extensive network can be established swiftly, as compared to a blockchain protocol which requires building a network from scratch.

From operators’ perspective, in addition to taking advantage of a more robust and secured network, operators may also benefit from substantial costs reduction by eliminating intermediaries. For example, roaming settlement costs can reach 15% of operating profits from providing communication services for a telecom operator, mostly spend on data clearing house and also on roaming software solution. With blockchain technology, every pair of operators with a roaming agreement could be connected peer-to-peer via two nodes on a network, eliminating the need for a clearing house and for licensing end-to-end roaming software. Overall, this creates a win-win situation for both the operators and end users by reducing costs faced by both parties.

Besides providing cheap and secured mobile network using blockchain, there are other use cases for the telecommunications industry. They include:

• Fraud prevention

There are many ways in which a subscriber’s identity can be compromised. Public-private cryptography which is inherent in a blockchain can be used to identify a device and link that device to a subscriber’s identity. As such, a subscriber can be uniquely identified by a public key generated by the device. This public key can be used to authorize the device on the network while keeping the private key information confidential. In this way, the services can only be used by the subscriber who has subscribed to the mobile network services and the ID cannot be easily stolen.

• Identity-as-a-service

A blockchain can be used as a shared ledger that stores identity transactions. A telecom operator can create a virtual identity for its subscribers when they open an account, every time the subscriber wants to visit a partner website, e.g., an e-commerce site, a copy of the ledger entry can be sent to the e-commerce site, the site can use the public key from the virtual identity to obtain the information related to the identity. Not only does Identity-as-a-service creates an additional revenue stream for the telecom companies, but it also provides a secure transfer of data with third parties as well as convenience to customers.

Although the proposed idea remains to be theoretical, it demonstrates the vast amounts of applications that blockchain technology may deliver across the telecommunications industry, enabling operators to offer utilities which were previously non-viable without blockchain technology. Comment below to let us know your thoughts on the application of blockchain in the telecom industry!

 

 

Reference:

The Mobile Economy 2022. GSM Association

Petrov C. (2022). Mobile Data Cost Around the World. SpendMeNot.

Helium Explorer

Helium Network: How much does a Helium Miner Cost? Emrit.

Blockchain @ Telco: How blockchain can impact the telecommunications industry and its relevance to the C-Suite. Deloitte.

 

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Stablecoins: /ˈsteɪblkɔɪn/

As the name implies, stablecoins always aim for one goal: stability. They bridge the gap between fiat currencies and cryptocurrencies by letting crypto users to make transactions easily and quickly without needing to leave the digital asset ecosystem or rely on intermediaries whilst worrying about the value of their coins fluctuating.

There are four primary types of stablecoin, classified by their underlying collateral structure.

1. Fiat-backed

2. Crypto-backed

3. Commodity-backed

4. Algorithmic

#1 Fiat-backed stablecoins

Fiat-backed stablecoins are the most popular type among the four. They are fully backed by fiat currency such as US dollar and short-dated US government obligations which are always redeemable at 1:1. Fiat collateral remains in reserve with a central issuer or financial institution, and it must remain proportional to the number of stablecoin tokens in circulation. The most prominent fiat-backed stablecoins include Tether (USDT), USD Coin (USDC).

#2 Crypto-backed stablecoins

Crypto-backed stablecoins are backed by another cryptocurrency or a basket of cryptocurrencies as collateral. This process occurs on-chain and employs smart contracts instead of relying on a central issuer. When purchasing this kind of stablecoin, you lock your cryptocurrency into a smart contract and obtain tokens of equal representative value in return. To redeem, you can swap the stablecoin back into the same smart contract for the original collateral. An example of this type of stablecoin is DAI. What gives some crypto-back stablecoins a layer of robustness is that they don’t solely depend on one single cryptocurrency, for instance, Maker Protocol (the Dai stablecoin system) accepts any Ethereum-based asset that has been approved by MKR holders as collateral.

#3 Commodity-backed stablecoins

Commodity-backed stablecoins are collateralized using physical assets such as precious metals, oil, and real estate. Tether Gold (XAUT) and Paxos Gold (PAXG) are examples of gold-backed stablecoins. Different from the other three types of stablecoins, commodity-backed stablecoins also provide investors access to these assets which may otherwise be out of reach as well as a fractional ownership.

#4 Algorithmic stablecoins

Algorithmic stablecoins rely on specialized algorithms and smart contracts to manage the supply of tokens in circulation. An algorithmic stablecoin system will increase or reduce the number of tokens in circulation depending on the token price in relation to the price of fiat currency it is pegged to. A case in point would be the TerraUSD (UST).

The Terra protocol consists of two main tokens: UST and LUNA.

UST uses LUNA to maintain its 1:1 peg to the US dollar which could be swapped for UST and vice versa to keep the price of UST where it should be.

To make it easier to understand, imagine that the price of UST is currently above $1, let’s say $1.01. A LUNA holder can then swap 1 USD worth of LUNA for 1 UST. In this case, the market, using an algorithm, will burn 1 USD worth of LUNA and mint 1 UST. The holder can sell 1 UST for $1.01 – profiting $0.01 from the arbitrage mechanism. The logic works the same for the opposite – when 1 UST is trading at $0.99, a UST holder can swap 1 UST for 1 USD of LUNA. The swap will result in the burning of 1 UST and minting of 1 USD of LUNA, holder profit $0.01 from the swap.

Mayday! Mayday!

Terra Protocol and its ecosystem have been all over the headline of news for the past week. TerraUSD (UST) – the protocol’s algorithmic stablecoin has lost its peg twice in three days which ultimately led to a permanent de-pegging. At the time of writing, UST fell as low as $0.15. Meanwhile, LUNA – the protocol’s governance token is almost worthless, trading at almost $0 from a high of US$119.18 last month. This has led to the Terra Validators officially halted the blockchain on 13^th May.

Source: CoinGecko

The event has sent shockwaves throughout the crypto ecosystem, making one to wonder what caused the blowup. The root cause of the fatal crash has not been confirmed, but speculation laid out by the Onchain Wizard suggests that it could be caused by a coordinated attack which has led to the drop of UST deposits on Anchor protocol from $14 billion to $11.8 billion over the weekend. As the Wizard sees it, the problems for Luna began in March when the Luna Foundation Guard (LFG) began purchasing Bitcoin (BTC) for UST’s reserve pool. And at some point, the attacker began building a BTC short position and a $1 billion OTC UST position, knowing that LFG will be creating a new liquidity pool – the 4pool, and requires transferring liquidity between pools. On 8^th May, LFG removed $150 million in liquidity in anticipation of 4pool from Curve. At the same time, an attacker drained $350 million of UST, kick-started the de-pegging. Once LFG began selling its BTC from reserves to save the peg, it put downward pressure on BTC. The attacker also began to offload the remainder of the OTC UST position. With strong UST liquidations, LUNA price starts to collapse because of the Terra’s algorithmic mechanism. The token then went down a “death spiral.”

However, it seems as though fiat-backed stablecoins such as USDT and USDC have managed to kop their head above the water and investor sentiment remains relatively intact. Although USDT briefly dipped to $0.95 last Thursday amid the UST meltdown.

Snowball Effect to DeFi

A chain reaction started a crypto bloodbath, over $350 billion has been wiped off the value of the global crypto market since the UST collapse. And the total value locked (TVL) in decentralized finance (DeFi) protocols has dropped from US$142 billion to US$87 billion, losing over 39% over 7 days. Tokens like Avalanche and Solana that underpin some key DeFi protocols posted over 40 percentage loss at one point.
Source: CoinMarketCap

Source: DefiLlama

The Postmortem

UST was a darling of DeFi. The protocol that seeks to power a stable global payment system with affordable and fast settlement amassed a market cap of $18.7 billion and was the fourth largest stablecoin by market value within 20 months since its launch.

A key implication from this fiasco is the vulnerability of algorithmic stablecoins. This type of stablecoin is uncollateralized in nature. It requires a complex engineering to hold its value steady. In addition, its reliance on the Anchor protocol which offered a high yield (a whopping 19.57% APY!!) to UST depositors adds skepticism to the sustainability of the protocol. For instance, the success of UST relies entirely on the belief that LUNA, a token that is created out of thin air, has value. Once a portion of investors begin to lose faith in Terra, a sell-off could trigger FUD (Fear, Uncertainty, and Doubt) which thereafter cause a loop between further selling of UST, which exacerbates the de-pegging of the stablecoin, and thereafter leads to more FUD and more selling – the tokens go down a ‘death spiral’.

What we observe as the flaw that has led to the meltdown of LUNA and UST is that the stablecoin is still prone to bank runs that happen in the traditional world, except there is no reserve backing the UST which made the problem worse. So when everyone try to withdraw their money at the same time, draining liquidity of a token, the token price plummets.

Nonetheless, the search for fiat alternative will continue, stablecoin is just one of the experiments that take advantage of the blockchain technology. Better iterations and new experiments will be attempted. Indeed, during the same week, Economist Nouriel Roubini, who has been a long-term crypto skeptic known as “Dr. Doom,” revealed over the same week that he is developing a tokenized asset called the United Sovereign Governance Gold Optimized Dollar (USG) that will be backed by real assets including U.S. Treasuries, gold and real estate investment trusts. Whether this attempt to create a more resilient dollar will play out or become just another experiment, only time will tell.

Despite being an unfortunate loss to many, Terra was the biggest algorithmic stablecoin that tried to achieve the decentralized mission of crypto. Afterall, any asset-back stablecoin is fundamentally centralized around a financial institution that opened the bank account. The collapse of Terra reinforced the credibility of the underlying blockchain technology and drew the attention of lawmakers and officials. Their call for stablecoins to be regulated may be a positive news to crypto enthusiasts and investors.

Following the devastating fiasco, US Treasury Secretary Janet Yellen cited the incident during a Senate Banking Committee hearing on the Financial Stability Oversight Council’s (FSOC) annual report, reiterated the importance for robust regulation.

“There was a report this morning in the Wall Street Journal that a stablecoin known as terrausd [UST] experienced a run and had declined in value.” Yellen said.

“I think that simply illustrates that this is a rapidly growing product and there are risks to financial stability and we need a framework that’s appropriate.”

As blockchain and crypto are unprecedented technology and asset, policymakers have been careful trying to understand and develop rules for the sector while leaving the industry guessing. Although the outcome of any new regulation is unclear, the terra meltdown becomes a catalyst to speed things up and would ultimately more stability to the market. The elimination of uncertainty surrounding cryptocurrencies could potentially entice a wider range of investors, particularly cash-rich institutions, providing a boost to innovation.

Reference:

https://www.gemini.com/cryptopedia/what-are-stablecoins-how-do-they-work#section-algorithmic-stablecoins

https://cryptonews.net/news/security/6356357/

https://news.bitcoin.com/us-lawmakers-push-for-urgent-stablecoin-regulation-fed-warns-of-stablecoin-runs-janet-yellen-cites-ust-fiasco/

https://news.bitcoin.com/dr-doom-nouriel-roubini-to-launch-tokenized-dollar-replacement-with-payment-and-esg-features/

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While China’s push in technology is hardly news, its rising tensions with the West have sped up their need to become less dependent on foreign technology. In its 14^th Five-Year Plan on Digital Economy, China’s leaders emphasise, once again, their ambitions for the country to seize the leading position in the global technology race. The plan highlights China’s intention to boosts its global competitiveness in advanced technologies such as semiconductors and artificial intelligence. And blockchain was listed as a “key digital technology” alongside AI and cloud computing, which we coined as the “ABC”.

China’s Ambition in Blockchain Begins with Digital Currency

Over the past decades, China’s technological advances have mixed performance. While leading in 5G deployment, it lags behind western countries in technologies with more strategic positions, such as artificial intelligence and semiconductors. The catch up race has been painful and costly.  However, China may have indeed established a strong head start when it comes to blockchain.

While the initial concept of blockchain technology is underpinned by its decentralised nature, China’s version is different. It is a centralised operation which guarantees complete state control over the development and application of the technology. China’s drive for blockchain technology goes beyond economic ambitions. The technology essentially allows for effective government surveillance capabilities at both micro and macro levels.

The Chinese government has been investing in the financial application of the blockchain technology. The development of the digital yuan is among the core strategic priorities. The large scale domestic rollout of the digital yuan would align with Beijing’s push for financial security. The use of its CBDC not only increases its ability to monitor financial activity and tackle illicit activities, it provides Beijing an independent source of valuable customer data, meaning they will no longer need to obtain customer information from payment companies to monitor citizens’ transaction.

Image credit: TechNode/Jiayi Shi

But the Ambition Goes Far Beyond Digital Currency

The digital yuan is positioned to serve as the infrastructure for the country’s international economic agenda which is underpinned by the expansion of a China-centric digital ecosystem that encompasses technologies such as 5G, IoT, AI and big data. And since blockchain run on the internet, it is imaginable that China will try to control the underlying  communication protocol, domestic national cloud infrastructure and AI at the same time. However, the government is having a difficult time censoring and controlling the exchange of information between computers due to the distributed nature underpinning TCP/IP (transmission control protocol/internet protocol), the communication protocol that governs how data moves around the Internet.

Noting this stumbling block, Huawei proposed the “New IP” to replace TCP/IP. The New IP proposal emerged at a 2019 meeting of the International Telecommunication Union, a UN agency responsible for all matters related to information and communication technologies. The New IP is designed to offer more efficient addressing and network management than the existing TCP/IP standard, but it is likely to come with hooks that allow authoritarian nations to censor and surveil their residents, including features such as a “shut up command”. The new model is said to replace current centralised parts of the internet, such as Domain Name system (DNS), with Distributed Ledger Technology (DLT) solutions. However, as aforementioned, the blockchain technology proposed by China is likely to differ from commonly known definition of the technology, decentralisation is out of the question in China, but advanced adoptions of the ABC can be expected in areas ranging from energy conservation to urban management and law enforcement.

Cities of the Future

The government sees blockchain as a key pillar of its smart city infrastructure initiative that is currently being built across China. A smart city is an ideological term that refers to the development of cities that utilises advanced digital technologies including the likes of blockchain and IoT, as well as robotics and AI to optimise urban management and services including road network management, public health, energy generation, communication and food safety.  Local tech giants including Alibaba and Tencent are also heavily involved in supporting the development.

At present, there are 11 regions in China using blockchain technology to build a smart city system. Among them, the Xiongan New Area (possible future capital) was the first to be transformed into an intelligent city prototype. In 2018, Ant Financial, serving as the core blockchain technology provider, launched the blockchain rental application platform in Xiongan. This means that individuals will have their own credit score based on their rental related record. Blockchain also became an integral part of Shanghai’s smart city program, where it helps to collect and store vast quantities of data to assess optimisation levels for garbage classification management. The blend of blockchain with other technologies within the smart city ecosystem is likely to expand as China’s ambitious aspirations to take the lead on blockchain meets its equally ambitious aspirations to accelerate itssmart city development.

Xiongan Railway Station of the Beijing-Xiongan intercity railway in Xiongan New Area, north China’s Hebei Province.

Image credit: Xinhua/Xing Guangli

Invest in the ABC Before They Change the World

The above are only a few examples among the many use cases of blockchain in China. The Chinese government’s approach towards blockchain and its integration with other cutting-edge technologies provides it a first-mover advantage over other countries that are yet to make a move in this field.

Having said that, it may be many years till the country reaches notable success in the advance technology sphere given it is still far from technological self-sufficiency and remains reliant on foreign technologies such as chips design and manufacturing. China will likely face stiffer challenges in acquiring foreign technologies such as on semiconductors due to growing western consensus to curb its access. Its roadmap to becoming a global leader in critical technologies of the future will require the integration of advanced technologies which will be crucial to the development of other advanced industrial sectors. As such, the ABC strategy may present profitable opportunities in years to come as countries increasingly dedicate resources in technology sector as part of their national strategic plans.

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One of the wake-up calls during the still on-going Russia’s invasion of Ukraine is how the market witnessed the US and EU utilising the powerful tool of economic warfare by barring Russia from accessing its billions of foreign reserves (except using the reserves for energy payments.) As a result of this sanction imposed against Russia, calls have been raised for the need for alternative holdings.

Being the top holder of foreign currency reserves with $3.22 trillion as of January 2022, with over two and a half times more than the second-largest reserve holder, as well as a friend of Russia, it will come as no surprise if China decides to unshackle itself from the dollar-dominated system in order to reduce their reliance on US dollar.

De-dollarisation is not only limited to China, it is reported by The Wall Street Journal that “Saudi Arabia is in active talks with Beijing to price some of its oil sales to China in yuan,” a move that could further erode US dollar reserve currency’s status. And one should also notice that the Middle East, led by Bahrain and the UAE, is setting up some of the world’s largest crypto exchanges spearheaded by FTX (who have decided to leave HK) and Binance.

No matter how the war of tragedy unfolds, it has signalled to some countries the need to reduce their reliance on SWIFT – the global messaging system between banks to ensure financial security. In fact, Russia’s central bank has developed its own alternative to Swift called the System for Transfer of Financial Messages since 2014, when the US government threatened to disconnect Russia from SWIFT. But it is nowhere near as big as the former.

Having said that, with cryptocurrencies becoming more mainstream, the long race to catch up may not be necessarily if blockchain technology is here to provide a powerful alternative to the legacy global messaging system in the coming years.

Blockchain as a backbone for global finance may still be remote, but we have witnessed how crypto has marked its place in the war.

With Ukraine’s central bank limiting its citizens from withdrawing foreign currency, some Ukrainians have turned to crypto as an alternative. Crypto trading volume on Ukraine’s Kuna Exchange had surged 200% in the last week of February, reaching its highest level since May 2021. The country has also raised over $50 million in crypto donation, as indicated on its official donation website.

Source: CoinGecko

On the other hand, crypto could also be used as an escape route for Russia.

The fact that cryptocurrencies cannot be frozen (let’s rule out centralised crypto wallets for now), has made these tokens an extremely important tool. The Bank of Russia has been developing the digital rubles and has already started the pilot stage of its CBDC before the war began. The call to ban selective Russian banks from the international payment system may have motivated the Russian government to speed up the progress.

Despite no clear evidence of Russians rushing to crypto for a safe haven as information is limited about the country lately, we are witnessing regulators around the world ramping up their efforts in the cryptocurrencies space. Perhaps one of the motives behind this could also be the attempt to close any potential loopholes in the sanctions. While we hope that the conflict can be quickly resolved, if sanctions have become a norm rather than exception, we should all think about what self-sovereignty means to our wealth.

The global CBDC race

On 9^th March 2022, US President Joe Biden signed an executive order on digital assets, including cryptocurrencies. While the order did not specifically launch any new policies, but only guidelines for the upcoming steps, it marked the first official strategy on digital assets set forth by the US government and has given the crypto industry the regulatory clarity that has been long sought after.

The executive order outlined a number of policy priorities and risks related to the implications brought by digital assets, first and foremost is customer and investor protection, followed by financial stability and systematic risk, national security, energy demand and climate change, etc. The executive order contains a well balance of discussion on both the opportunities and risks.

No commitments were made to a US Central Bank Digital Currency (CBDC), but the executive order specifically called for the “urgency” for the Fed to double down their research on CBDC. We see this as a pursuit to put the US on a level playing field with China who has launched its CBDC pilot last month.

Just days after the executive order was signed, the European Parliament voted to advance a draft of the Markets in Crypto Assets bill, or MiCA, which is a regulatory framework for crypto assets that has been in development since 2018. A lot of similarities could be found between the executive order and the MiCA.

The uniform framework for the EU’s 27 member states also covers rules on supervision, consumer protection and environmental sustainability of crypto assets. An earlier addition to the bill that aimed to limit the use of cryptocurrencies powered by the energy-intensive consensus mechanism known as proof-of-work, which essentially means banning crypto such as Bitcoin and Ethereum in the EU, was voted down by the committee.

Alternatively, the committee voted in favour of a proposal to include crypto-assets mining in EU taxonomy for sustainable activities by 2025 to reduce carbon footprint. The EU has begun its digital euro project since July 2021 and the current investigation phase is expected to take two years. One thing to note is that the MiCA will not be applied to CBDCs.

While the US and the EU have just started with the entrée, China is enjoying the dessert. After eight years in development, China has debuted the digital yuan, its version of CBDC, during the Beijing Winter Olympic Games last month, subsequent to its trial launched in late 2019. According to the data released by the Chinese government, the digital yuan was accepted by more than 8 million merchants and over RMB 87 billion in transaction value was reached as of the end of last year. The next step for China would be to follow its plan outlined in the 14^th Five-Year Plan, further expanding the development of the digital currency alongside its digital economy.

Image Source: Kyodo

Last but not least, the Hong Kong Secretary for Financial Services and the Treasury released a letter through his blog yesterday, announcing the government’s latest development in regulating the virtual asset industry. Although there is no explicit timeline for the next steps, the letter highlighted the government’s consideration to introduce a new licensing regime for virtual assets service providers in accordance with the requirement imposed by the Financial Action Task Force which requires all virtual assets exchanges to apply for a license from the Securities and Futures Commission.

If 2021 was marked as the year that made crypto and NFT broke out of their niche, 2022 would be the year of crypto regulation. And with over 80 countries currently exploring a CBDC, we think digital currencies are here to stay and disrupt the traditional financial system. These are still early days for CBDCs and we do not know how fast and far they will go.

But we are excited.

 

Reference:

https://data.imf.org/regular.aspx?key=61280813

https://www.wsj.com/articles/saudi-arabia-considers-accepting-yuan-instead-of-dollars-for-chinese-oil-sales-11647351541

https://donate.thedigital.gov.ua/

http://www.gov.cn/xinwen/2022-02/23/content_5675094.htm

https://www.atlanticcouncil.org/cbdctracker/

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As the saying goes, time is money, inventors of play-to-earn games and esports have certainly taken note of it. One may consider that these two sectors in the gaming industry are the same in the way which both provide an opportunity for gamers to monetize their time spent on playing video games. This has led our analyst to study how the rise of play-to-earn games may potentially change the esports scene. And how may their convergence fit into the gaming industry?

Pro Earners – P2E phenomenon

Play-to-earn – GameFi – is the combination of video games and blockchain where players can earn cryptocurrencies and NFT by spending time in the games. The additional feature of being able to transfer values created from online games to the real-world is the key component that makes play-to-earn games differ from conventional games.

Play-to-earn has come exploded in 2021 with the growth of Axie Infinity, a metaverse game developed by Vietnam-based Sky Mavis that, that comes with its in-game token called Smooth Love Potion (SLP). And the play-to-earn phenomenon took off in the Philippines when Covid-19 destroyed jobs and forced many to stay at home. According to several news platform, Axie infinity gamers in the Philippines could earn USD 5 to 20 on daily basis during summer 2021 – comparable or even better than the country’s minimum wage of USD 10.5 per day. Not only does the play-to-earn model presents a new and flexible income stream, it also represents the beginning of shift in the socioeconomic paradigm.

Source: Axie Infinity

Pro Gamers – E-Sports ecosystem

Esports, rose in popularity in the 21^st century, has turned games from a casual hobby to a professional sport. And it has been taking the world by storm in recent years with impressive audience numbers. Insider Intelligence forecasts that there will be 29.6 million monthly esports views in 2022. The 2021 League of Legends World Championship grand final accrued an audience of over 73 million peak viewers, an increase of 60 percent compared to the previous year’s tournament. So what exactly is esports?

According to NewZoo, a market intelligence specializing in esports industry, esports is defined as:

“Competitive gaming at a professional level and in an organized format (a tournament or league) with a specific goal (i.e., winning a champion title or prize money) and a clear distinction between players and teams that are competing against each other.”

One of its sound merits is no doubt the loyalty of its fanbase. Despite not necessarily for all esports games, but most games have their own audience, best esports players even amass their own legions of fanbase. The network effect of such a community is the winning formula in esports market. According to an analysis done by Newzoo in 2019, between League of Legends, CS:GO, and Overwatch, only 6% of consumers watched esports content from all three games within the previous 12 months. Overall, 71% of viewers watch only one of these franchises. League of Legends and CS:GO have the most loyal audiences, with 29% and 25% watching only that title, respectively.

Source: Newzoo

The loyalty of the hyper-social, millennial fanbase of the esports industry has attracted not only an explosion of investments from venture capitalists and private equity firms, global brands such as Mercedes-Benz, Coca-Cola and Intel also saw this powerful branding medium and have all poured funding into this market by carving out sponsorship and partnership deals as an attempt to reach this largely millennial fanbase. These investments are being woven into the fabric of the entire ecosystem, such a multiplier effect has led the esports scene to grow and mature.

Both esports and play-to-earn games have set the foundation of their positions in the playfield. Let us now explore how a convergence of the two may change the scene.

What can happen when they are combined

For play-to-earn games, attracting true gamers has always been the top challenge. There are two reasons to why true gamers are deterred from participating in these games. Firstly, the play-to-earn feature has become a double-edged sword as it allures players who are fundamentally drawn purely by the potential value of the tokens, as opposed to the game itself. This creates an unhealthy player-base where these players will switch as soon as other games offer higher rewards. And when a large portion of players decide to leave and exchange the tokens for other digital currencies, the value of the token collapses. The second reason being that the play-to-earn games lack the most fundamental aspect of game itself – fun. Reviewers say that the missions are repetitive as if doing chores to grind 100 SLP a day. And one may notice that most noises or articles surrounding these play-to-earn games are how one can make a living, rather than how one can have fun, through playing these games.

It is clear that play-to-earn games need to be more entertaining to sustain, the gameplay and graphics of play-to-earn games are still very basic. A merge of play-to-earn games and esports will imply an increasing adoption of token mechanics by AAA gaming studios, leading to a big leap up to the quality of play-to-earn gameplay. What esports can also bring to the play-to-earn game model is the huge social component inclusive of media, pop culture, and commerce. One of the reasons that contributed to Fortnite’s popularity is that: Fortnite is built to be social. Esports and gaming are a highly social activity which people share opinions, talk and engage. So essentially, the problem here is to make “play-to-earn” to become “play-and-earn”.

As for esports, not only very few become good enough to play professionally, a career of a pro gamer is usually rather short-lived compared to a conventional career. Esports is also a “game developers say it all” model, all the in-game skins, characters and items bought are maintained by these corporates. Once a career ends or once you stop playing, gamers walk away with nothing. Play-to-earn model provides an extra level of protection to the gamers, who will be rewarded based on their skills. Having said that, a robust economic model is required to ensure the value of their time spent it not wiped out due to token volatility driven by external manipulation. In addition, with the introduction of game assets and NFT into esports, these game publishers could expand their reach into a whole new market – the cryptocurrency investors. The tokens also provide an easier channel for investors who may have previously found it difficult to navigate within the esports industry.

The unique features of play-to-earn and esports model complement each other. Despite still a long way to go, the start is promising. There are around 3 billion gamers worldwide, and only a small fraction of them is playing blockchain games. With more people getting involved in play-to earn games, it is only a matter of time when play-to-earn becomes too big that gaming studios cannot afford to ignore. Ultimately, as development continues to grow, more investment will be attracted. So we say there is a big opportunity still untapped.

 

Reference:

The Esports Observer, https://archive.esportsobserver.com/newzoo-report-august/

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In the 1Q21, we published a quarterly report titled “Into the Rabbit Hole”. We provided our view on the investment landscape in the next wave of technology revolution, Web 3.0. Many investors seek guidance as the next landscape will be unknown, unknowable, and unique. Due to these traits, investing in the Web 3.0 today possesses a high risk and a potentially life-changing return condition.  

In web 3.0, blockchain, peer-to-peer network, and the spatial web becomes the key characteristic with other technology revolving around the 3Ds (digitalisation, decentralisation, and democratisation) of the internet. This force of changes is reversing what the web 2.0 and the 3Cs (connectivity, content, and commerce) has brought, inequality and abusive monopolistic power. 

The rising blockchain adoption, NFTs valuation, and the attention from regulators on the previous two subjects might be a signal of how disruptive they could be.  

This time, we feature our team member’s blog, Simon Chan, who is not only an expert in tech but also very passionate about blockchain.  Here is his take on the Web 3.0 and the 3D Economy: 

Some people see that Web 3.0 is still far away and virtual. This is particularly the case in topics about blockchain and crypto. This impression comes from the fact that the focus has so far been more on the technology rather than its economic constructs.  

In other words, most people don’t care about which technology is being adopted as long as they are dealing with a counterparty or a middleman that they trust.  So, it is now time to redefine the counterparties that did not exist with new definitions.  

In this issue, I will discuss such possibility, knowing that there may be inconsistencies or conflicts with what we know and believe today.

Wallet to replace banks 

Under Web 3.0, the basic unit of all transactions will be a token. It is an indisputable record (or rather the state of a record) enabled by a distributed ledger technology (such as blockchain). Ultimately, the central place of all record keeping will be a personalised wallet. All really means ‘all’. For now, you can think about it as ID, Money, and Trust (Credentials).  

As transactions are made on a: (1) permissionless (to participate in a blockchain); (2) trusted (with all records showing consistent states such as ownership), and (3) peer-to-peer (including robots) basis; banking and finance will carry new meaning. 

Basically, what it means is that financial transactions can be carried out between two wallets. Financial needs remain as they are (i.e. borrow and lend money, borrow and lend time, borrow and lend trust, etc.) and may continue to exist in various disguised forms (e.g. saving plans, investment funds) currently offered by hundreds of thousands of financial institutions or intermediaries.  

Going forward, all such needs will be fulfilled by two smart wallets negotiating with each other and complete a transaction in no time. Wallets are smart because they can be instructed and trained but yet they shall verify automatically before asking you to proceed and such verification is genuine and indisputable.  

You can already see that such a possibility shall mean that the financial economy is powered by wallets rather than banks. In other words, what you need are wallets, not banks. And wallets are not owned by anyone, with no single point of failure.  

People may be confused by the digital wallets that many banks are offering as part of the digital banking business. They are still owned by the banks and are limited to their services. Those are NOT the universal wallet I am discussing here.  

Crypto likes to talk about DeFi, meaning finance being decentralised, and this has a similar meaning of wallets replacing banks as real economic constructs. Finance is just one of the applications of tokens in Web 3.0 and the 3D (digitalisation, decentralisation, and democratisation) economy. It may also be referred as the token economy.   

NFT to redefine MMO games 

MMO stands for massive multiplayer online. It is usually used to describe internet games such as MMORPG (RPG stands for role-playing game). They got so popular that professional teams are sponsored by nations and corporates to compete in international tournaments.  

NFT (non-fungible token) is a new breed in crypto that can be referred to as private tokens which can only be transacted through auctions. Internet games, be they RPG or Fantasy Sports (players play as a manager managing virtual sports team composed of real players such as EPL, NBA, etc.) which involves MMO are most suited to be redefined using NFT. 

To excel in any game, players have to either spend time, money, or cheat. There are professional gamers who earn their living by playing other players’ games (power level up and can be considered a form of cheating). Game companies are very good at selling to players gears, skins, or even landscapes so that they feel more powerful and satisfied within their gaming community (that also mingled with the real-life community sometimes).  

Stealing, cheating, and starting over are among some of the biggest pain points for gamers.  

NFT, which sits on a blockchain, has the same security as other tokens. And when applied to games, it brings with it portability (of accumulated property of time and money spent genuinely) even though a game company may no longer operate the game. It is a perfect solution to gamers’ pain points. 

3D perfectly applies to NFT games. The best way to answers gamers’ feedback is to democratise the application of rules setting without cheating. NFT gives players another layer of commitment and addition to the games. This should be big, really big. 

On-Chain infrastructure to redefine businesses 

Web 2.0 gave us on-line business as opposed to off-line business. E-commerce was born. The technology angle is electronic, and in order to be electronically (and electromagnetically) transmitted, things have to be digitised, securely stored, and seamlessly transmitted on the Internet (and many technologies and standards that enable it).  

Now that almost anything can have a digital twin on the Internet, it has created the problem of digital abundance that make the internet not trustworthy and the heavy reliance on trusted parties, regulators as well as brands (those which you feel comfortable to trust their single sign-on solutions to replace hundreds of login’s). Convenience still trumps security, a trade-off that most people make under digital abundance.  

Social media may make the situation even worse as it adds to the problem with an identity crisis. Web 3.0 may give us an alternative to live in digital abundance by introducing mathematical trust (for ID and Money) layered with human trust (provider of some Credentials) that will provide us with a business model that has a very high standard of security (no single point of failure), privacy (ID reveals no unnecessary information about the owner), as well as default opt-out ability (permissionless to join and leave the chain) and full transaction record in a personal smart wallet. 

All of these require a web of ‘chains’ that can ‘talk’ to each other. This is perhaps the biggest infrastructure to be built.  

Each token represents a real-life function and only those that are in demand will continue to exist. But the ledgers should always exist and the web of ledgers is the infrastructure that must be built to enable on-chain business. It requires further built out of the internet, massive digital twins adoption using IoT, globally acceptable governance protocols (chains) to reduce (legal) cross border fictions, and lots of education such as this series of Web 3.0 and 3D Economy. On-Chain business will be huge. 

I believe that smart wallet, NFT games, and On-Chain infrastructure will be the three key areas where investment opportunities are attractive, IMHO.  

Link to the original Simon Chan’s blog: https://www.cnomis.org/post/web-3-0-and-the-3d-economy-7

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