Category Archives: coindesk

In 2014, Erik Voorhees founded ShapeShift. By the end of 2021, ShapeShift will cease to exist as a company. It will become a DAO, a Decentralized Autonomous Organization. The owners of their FOX token will have complete governance over it, and they will “Open source all ShapeShift code and infrastructure.” That’s according to the company’s official announcement, which also states:

It has become clear to us that decentralization is the only way to achieve borderless, immutable finance. Therefore, decentralizing ShapeShift is how we choose to maintain fidelity to the principles first established by Satoshi and the Bitcoin whitepaper.

In Voorhees own blog post about the change, the CEO promises, “Our corporate entities will be dissolved completely toward the end of the process.” Voorhees also details all of the red tape they encountered while trying to establish ShapeShift’s vision, and states that right now, “The frictionless trading of digital assets across chains, without custody, done in a manner that respects and protects users is once again possible.”

Related Reading | After Crypto Giants Bitmain & ShapeShift Cut Staff, So Does Blockfolio

In a phone interview with Coindesk, the CEO gave them a candid answer that explains the situation plainly:

“It’s definitely radical. A year ago I would have thought this was sort of fanciful, but at this point I’ve seen how this tool is getting built and I’ve seen how these communities get built around a token instead of an equity structure. The fact that ShapeShift is really closing its corporate entity sets it apart.”

It really does. ShapeShift’s navigating uncharted waters. 

Ok, But, How Will The ShapeShift DAO Work?

In the next few months, ShapeShift will airdrop 340 million FOX tokens all over the DeFi space. The “largest airdrop in history.” Everyone who used ShapeShift in the past is eligible. And users from other well-known DeFi projects will get their share also. The company hopes that the process will spread its seed around, and bring more people into the project. 

With time, governance over the entire ShapeShift open-source platform will move to FOX holders. This will be a process in which decision making moves from the fully centralized shareholder/board structure of ShapeShift today to a fully decentralized community/token structure in the future.

Said shareholders aren’t walking away empty-handed. They will have no special privileges, but they can be as involved as they choose. According to Voorhees blog:

Our shareholders will receive all financial assets of the corporation as it unwinds. Further, they have received pro-rata FOX Tokens, which unlock over three years, and with these they can participate in governance going forward. They can be as involved as they wish, but they have no special privileges.

And Voorhees himself will still be heavily involved:

For transparency, I will be the largest FOX holder, with just over 5% of max total supply, unlocking linearly over three years, all on chain. The next largest holder has roughly 1.6%, and the long tail extends from there.

Will the experiment succeed or are they trying to fly too close to the sun?

ETH price chart on Poloniex | Source: ETH/USD on TradingView.com

How Will Voorhees And Company Handle The Transition?

The CEO for the time being explains what they’re trying to accomplish:

Governed by its users, ShapeShift will integrate with the most desired crypto and DeFi protocols, a neutral interface to the future financial system that everyone can influence, and no one can control.

And Voorhees told Coindesk what he thinks their service ultimately is:

“We’re essentially a crypto interface,” Voorhees said, and it has been built with an eye toward integrating with any wallet, app, blockchain or primitive entrepreneurs want to build.

But, how will they get there? Well, there’ll be a foundation, as ShapeShift’s announcement explains:

ShapeShift will establish a well-funded non-profit organization—a Foundation—with the narrow objective to promote and facilitate a transition to a completely decentralized, community-owned project. As sufficient decentralization is achieved, this Foundation has a mandate to dissolve away.

And Voorhees elaborates via his blog:

The ShapeShift DAO treasury has been established, endowed with over 242,000,000 FOX Tokens (24% of max total supply). Any FOX unclaimed from the airdrop after three months will be added to this treasury.

Related Reading | “Check Out Thorchain (RUNE),” ShapeShift CEO Erik Voorhees Says

So, in conclusion, ShapeShift will dissolve and decentralize itself. They will open-source their software and organize around the FOX token. Or, in their words, “economics that revolve around a borderless, liquid token rather than a traditional equity structure bound by jurisdiction.”

What an interesting experiment.

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The congressional hearing hilariously titled “America on ‘FIRE:’ Will the Crypto Frenzy Lead to Financial Independence and Early Retirement or Financial Ruin?” is the gift that keeps on giving. NewsBTC already analyzed some aspects of it, but Peter Van Valkenburgh’s testimony merits an article on its own. The Director of Research at Coin Center got several important ideas on the record, and we’d better register and remember them.

The previous article’s introduction still stands:

The U.S. Congress Oversight and Investigations Subcommittee held a hybrid hearing on Bitcoin and cryptocurrencies. The institution summoned Alexis Goldstein, Director of Financial Policy for the Open Market Institute, Sarah Hammer, Managing Director at the Stevens Center for Innovation in Finance, Peter Van Valkenburgh, Director of Research at Coin Center, and others.

Related Reading | New 2021 FATF Crypto Guidelines Labelled as Mass Warrantless Surveillance

Since we at NewsBTC already did the job and covered the ridiculous statements of Representative Brad Sherman, it’s time to give the mic to someone more qualified and informed. Let the record reflect that a full video of the whole hearing is not available at the time of writing. We’ll base our report on everything we could find on the open Internet.

U.S. House of Representatives, "We have the #Bitcoin Lightning Network to bundle millions of transactions without a meaningful increase of energy" – @Valkenburgh pic.twitter.com/xXy9lCqAXN

— Documenting Bitcoin 📄 (@DocumentingBTC) June 30, 2021

What We Know About Peter Van Valkenburgh’s testimony

Luckily for us, Documenting Bitcoin preserved the best bit of Van Valkenburgh’s presentation. The Director of Research at Coin Center sets everything up by explaining why and how the Bitcoin network is censorship-resistant.

“… we have the advantage of knowing everything that the peer-to-peer ledger tells us. It’s shared and open, it’s not a proprietary standard from a corporation. And the peer-to-peer ledger shows us how much work these miners are performing to make sure that transactions get in blocks and they’re not censored by some third party or some government that wants to coerce certain transactions or block certain transactions. It’s this vibrant competition between miners that guarantees that the miner cannot form a cartel, and choose to systematically exclude certain persons from this financial system.”

To complete this idea, let’s quote Van Valkenburgh’s own “Understanding Bitcoin’s energy use” paper.

This competition is healthy because it means that the effort spent securing the network scales automatically with the value of the transaction data on the blockchain—not the number of transactions. So the more value there is riding on the Bitcoin network (because individuals value it more as reflected in the price), the more resources will be devoted to its security. 

This leads us to…

What About Bitcoin’s Energy Usage And The Lightning Network?

This man is a House of Representatives veteran. He knew what he was doing. Van Valkenburgh set everything up, and then he goes to the meat and potatoes of the testimony. He goes for the throat and flips the establishment’s argument about Bitcoin’s energy consumption on its head. He shifted the narrative and put a spotlight on the traditional financial sector’s known inefficiencies. 

“As far as energy usage, it’s worth noting that the traditional financial sector uses an estimated five times more energy than Bitcoin. Granted, the traditional financial sector moves more money. But it’s worth noting that Bitcoin’s energy usage doesn’t scale per transaction. So, most of the costs are the fixed cost of setting up an open peer-to-peer system that’s robust. And we have thechnologies like the Lightning Network that can bundle millions of transactions into that existing system without a meaningful increase in energy. So, it’s possible that we can have an open financial system that’s censorship resistant using one fifth of the energy of the current financial system.”

So yeah, the Lightning Network and its wonders are registered in the U.S. House of Representatives’ record. And, even though Bitcoin’s aim is not to outright substitute the ”current financial system,” the record reflects that Bitcoin is more energy-efficient, plus censorship-resistant as a bonus. Lastly, it’s worth noting that “five times more energy than Bitcoin” is an extremely generous estimate in favor of the traditional sector. 

BTC price chart on FTX | Source: BTC/USD on TradingView.com

What Does Van Valkenburgh Think About Regulation?

The fine people at Coindesk got hold of Van Valkenburgh’s prepared testimony. In a recent episode of their “The Breakdown” podcast, they cover an altogether different area of it:

There are a couple of key shifts in perception he tries to make, first, around the idea that crypto isn’t regulated, that’s wrong. It’s regulated all over the place at the state and federal level. It’s just fragmented. Second, crypto is for crime: wrong again, in 2020, only 0.34% of all cryptocurrency transaction volume involved a criminal sender or recipient and remember, those numbers came from Chainalysis, an organization that a huge number of government agencies spend multiple millions of dollars with every year. 

Related Reading | Bitcoin Lightning Network Sees Storm Of Activity And Adoption

This ties up nicely with the above discussed, and with this direct Van Valkenburgh’s quote:

“For every transaction we want blocked, there’s a transaction that we should celebrate for being unstoppable. Yes, there are criminals making payments on the Bitcoin network because banks won’t bank them. There are also pro-democracy activists and Belarus and anti-police violence protesters in Nigeria, taking donations on the Bitcoin network because local banks won’t bank them. For every decentralized app that’s trying to scam investors. There’s another that’s testing out ways to disperse universal basic income, will remove the corporate control over social networking, or eliminate the hacking risk inherent in centralized identity solutions.”

Suffice to say, this man went into the belly of the beast and spoke the truth. The Bitcoin movement will be forever grateful.

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CFTC Commissioner Dan M. Berkovitz has called for a crackdown on unregulated DeFi derivatives platforms.

Commissioner Dan M. Berkovitz of the Commodity Futures Trading Commission (CFTC) believes DeFi derivatives platforms may contravene the Commodity Exchange Act (CEA).

Speaking as part of a June 8 keynote address dubbed “Climate Change and Decentralized Finance: New Challenges for the CFTC,” Berkovitz notes that:

“Not only do I think that unlicensed DeFi markets for derivative instruments are a bad idea, but I also do not see how they are legal under the CEA.”

Berkovitz noted that the “CEA requires futures contracts to be traded on a designated contract market (DCM) licensed and regulated by the CFTC,” however he asserts that no DeFi platforms are registered as DCMs or SEFs.

During the keynote, the commissioner emphasized the need for regulators to become familiar with DeFi derivatives and other applications amid the booming growth of the sector.

He referenced the huge amount of liquidity pumped into the market over the past twelve months, noting that now that “you’re talking real money” there needs be stringent regulation in place to protect DeFi consumers:

“Given the explosive growth of this sector, federal regulators should become familiar with this new technology and its potential uses and be prepared to protect the public against misuse.”

Interestingly, Berkovitz references a Wikipedia definition of DeFi, and notes that his research was based in part on a Google search. "If you type “DeFi” into Google search, a top link is to a CoinDesk article, 'What is DeFi?';" he said."[It's] an umbrella term for a variety of financial applications in cryptocurrency or blockchain geared toward disrupting financial intermediaries.”

The Co-founder of Coin Metrics Jacob Franek was quick to criticize the commissioner's research, noting that he “needs to do more than read a CoinDesk article”:

And if this is the end stage of the CFTC's analysis -- ooh boy -- we have some educating to do or the Commissioner needs to do more than read a Coin Desk article. https://t.co/AERH4IOTUa

— Jacob FranΞk (@panekkkk) June 9, 2021

The commissioner warned that the emergence of the unregulated entities from the shadow banking system may result in competition with regulated entities, leading them to assume either “more risks in order to generate higher yields “ or to seek less regulation to “level the playing field.”

“In my view it is untenable to allow an unregulated, unlicensed derivatives market to compete, side-by-side, with a fully regulated and licensed derivatives market,” he said.

Berkovitz questioned the argument put forth by DeFi proponents that cutting out intermediaries can offer investors better returns and more “control over their investments.”

He argued that intermediaries such as “banks, exchanges, futures commission merchants, payment clearing facilities, and asset managers” have developed a banking and finance model over 200 to 300 years which reliably support “financial markets and the investing public.”

“One of the key reasons our financial system is so strong is the legal protections that investors enjoy when they invest their money in U.S. markets, most often through intermediaries,” he said.

Michael Saylor has provided more context on the Mining Council, and hopes to combat the anti-crypto narrative with greater Bitcoin mining transparency.

MicroStrategy CEO, Michael Saylor has explained the details and thinking behind the formation of the Bitcoin Mining Council.

The council was formed on May 25 after Saylor brokered a successful meeting between Elon Musk and several top North American Bitcoin mining firms. The miners involved will provide current and planned renewable usage transparency, and will lobby other mining operations across the globe to do so as well

Michael Saylor describing the formation of the Bitcoin Mining Council and @ElonMusk's shared interest in seeing #Bitcoin succeed: pic.twitter.com/7MfODadi8p

— Documenting Bitcoin (@DocumentingBTC) May 25, 2021

Speaking at the virtual Consensus 2021 conference, Saylor emphasized that the council was formed out of the need to provide greater transparency on the Bitcoin mining industry, and promote sustainable initiatives moving forward:

“The only reason we had the meeting is because we wanted to ensure the success of a decentralized cryptocurrency, and the source of decentralization is energy usage,” Saylor said.

“It turns out that Bitcoin miners don't actually have a good forum for communicating how they generate their energy. We don't have a standard model for Bitcoin energy usage right now, and we don't have a future forecast model that we commonly use.”

However the Bitcoin Mining Council has proven controversial in some quarters with comparisons to the oil production cartel OPEC. Podcaster Marty Bent, the co-founder of Great American Mining, which utilizes wasted gas from energy plants to power its Bitcoin mining operations — drew comparisons to the controversial Bitcoin scaling plans emerging out of the 2017 New York Agreement, in his May 24 newsletter:

“Do they not recall the last time there was a closed door meeting that involved stakeholders who attempted to speak on behalf of an entire industry?”

But Saylor was quick to rebuff notions there was anything clandestine or non-transparent about the meeting. “If it was a secret meeting, I wouldn't have told millions of people the next day that it was a secret meeting. Trust me, you know, we told everybody in the world that we had a meeting,” he said.

He emphasizing the need to fight back against a hostile anti-cryto narrative portrayed by some institutions and media outlets:

“We need to make sure the people that are hostile to Bitcoin and hostile to the crypto industry aren't defining those narratives and defining those models and defining those metrics. In the absence of any good information or any response on our part, they will define those models.”

The council is made up of North American miners, including Argos Blockchain, Blockcap, Galaxy Digital, Hive Blockchain, Hut 8 Mining, Marathon Digital, and Riot Blockchain.

Elon Musk's involvement

Saylor revealed that after a “very long conversation” with Elon Musk, the MicroStrategy CEO reached out to the Bitcoin mining firms and asked if they’d like to meet the entrepreneur. During the "constructive" meeting, the other attendees reportedly asked Musk for advice on how to combat the growing carbon anxiety surrounding Bitcoin:

“We asked Elon for his advice about how we might actually manage concerns in the mainstream. We had a detailed conversation about it. We talked about how we might be able to surface better data. “

Musk’s reported “first-order ask” was “can we come up with a way to publish or create transparency for Bitcoin mining energy usage?” and Saylor echoed this sentiment when he stated:

“I think the first step is, let’s come up with a protocol for us to publish energy information in a way that we can share it with the world and then work together to make sure that we pursue sustainable energy goals.”