Blockchain without token
Key Takeaways. The blockchain space is expanding at extremely fast speeds, exacerbating the scalability problem. Layer 1 solutions are used to tackle the scalability problem. Layer 1 blockchain protocols have to be decentralized, secure and scalable.
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Content:
- Tokenisation
- Hedera Token Service
- CryptoFranc (XCHF) - the Swiss Franc Stablecoin
- Explained: What is coin burning in the cryptocurrency universe?
- Crypto projects are increasingly airdropping free tokens—but investors should be cautious
- Top 100 Crypto Tokens by Market Capitalization
- Know The Four Types of Cryptocurrencies Based On Their Utility
- NFTs, explained
- Non-fungible token
- The wait is over. Parachain launch is here.
Tokenisation
The term decentralized finance DeFi refers to an alternative financial infrastructure built on top of the Ethereum blockchain. DeFi uses smart contracts to create protocols that replicate existing financial services in a more open, interoperable, and transparent way. This article highlights opportunities and potential risks of the DeFi ecosystem.
I propose a multi-layered framework to analyze the implicit architecture and the various DeFi building blocks, including token standards, decentralized exchanges, decentralized debt markets, blockchain derivatives, and on-chain asset management protocols.
I conclude that DeFi still is a niche market with certain risks but that it also has interesting properties in terms of efficiency, transparency, accessibility, and composability. As such, DeFi may potentially contribute to a more robust and transparent financial infrastructure. The author thanks two anonymous reviewers for their valuable comments and especially Florian Bitterli, Raphael Knechtli, and Tobias Wagner for their support with data collection and visualization and Emma Littlejohn and Amadeo Brands for proofreading.
Decentralized finance DeFi is a blockchain-based financial infrastructure that has recently gained a lot of traction. The term generally refers to an open, permissionless, and highly interoperable protocol stack built on public smart contract platforms, such as the Ethereum blockchain see Buterin, It replicates existing financial services in a more open and transparent way.
In particular, DeFi does not rely on intermediaries and centralized institutions. Instead, it is based on open protocols and decentralized applications DApps. Agreements are enforced by code, transactions are executed in a secure and verifiable way, and legitimate state changes persist on a public blockchain. Thus, this architecture can create an immutable and highly interoperable financial system with unprecedented transparency, equal access rights, and little need for custodians, central clearing houses, or escrow services, as most of these roles can be assumed by "smart contracts.
DeFi already offers a wide variety of applications. For example, one can buy U. The backbone of all DeFi protocols and applications is smart contracts. Smart contracts generally refer to small applications stored on a blockchain and executed in parallel by a large set of validators. In the context of public blockchains, the network is designed so that each participant can be involved in and verify the correct execution of any operation. As a result, smart contracts are somewhat inefficient compared with traditional centralized computing.
However, their advantage is a high level of security: Smart contracts will always be executed as specified and allow anyone to verify the resulting state changes independently. When implemented securely, smart contracts are highly transparent and minimize the risk of manipulation and arbitrary intervention. To understand the novelty of smart contracts, we first must look at regular server-based web applications. When a user interacts with such an application, they cannot observe the application's internal logic.
Moreover, the user is not in control of the execution environment. Either one or both could be manipulated. As a result, the user has to trust the application service provider. Smart contracts mitigate both problems and ensure that an application runs as expected. The contract code is stored on the underlying blockchain and can therefore be publicly scrutinized. The contract's behavior is deterministic, and function calls in the form of transactions are processed by thousands of network participants in parallel, ensuring the execution's legitimacy.
When the execution leads to state changes, for example, the change of account balances, these changes are subject to the blockchain network's consensus rules and will be reflected in and protected by the blockchain's state tree. Smart contracts have access to a rich instruction set and are therefore quite flexible.
Additionally, they can store cryptoassets and thereby assume the role of a custodian, with entirely customizable criteria for how, when, and to whom these assets can be released. This allows for a large variety of novel applications and flourishing ecosystems.
The original concept of a smart contract was coined by Szabo Szabo used the example of a vending machine to describe the idea further and argued that many agreements could be "embedded in the hardware and software we deal with, in such a way as to make a breach of contract expensive…for the breacher.
Additionally, this platform allows the contracts to interact with and build on top of each other composability. The concept was further formalized by Wood and implemented under the name Ethereum. Although there are many alternatives, Ethereum is the largest smart contract platform in terms of market cap, available applications, and development activity.
DeFi still is a niche market with relatively low volumes—however, these numbers are growing rapidly. It is essential to understand that these are not transaction volume or market cap numbers; the value refers to reserves locked in smart contracts for use in various ways that will be explained in the course of this paper.
The spectacular growth of these assets alongside some truly innovative protocols suggests that DeFi may become relevant in a much broader context and has sparked interest among policymakers, researchers, and financial institutions.
This article is targeted at individuals from these organizations with an economics or legal background and serves as a survey and an introduction to the topic. In particular, it identifies opportunities and risks and should be seen as a foundation for further research. DeFi uses a multi-layered architecture. Every layer has a distinct purpose. The layers build on each other and create an open and highly composable infrastructure that allows everyone to build on, rehash, or use other parts of the stack.
It is also crucial to understand that these layers are hierarchical: They are only as secure as the layers below. If, for example, the blockchain in the settlement layer is compromised, all subsequent layers would not be secure. Similarly, if we were to use a permissioned ledger as the foundation, any decentralization efforts on subsequent layers would be ineffective.
This section proposes a conceptual framework for analyzing these layers and studying the token and the protocol layers in greater detail.
Now that we understand the conceptual model, let us take a closer look at tokenization and the protocol layer. After a short introduction to asset tokenization, we will investigate decentralized exchange protocols, decentralized lending platforms, decentralized derivatives, and on-chain asset management. This allows us to establish the foundation needed for our analysis of the potential and risks of DeFi. Public blockchains are databases that allow participants to establish a shared and immutable record of ownership—a ledger.
Usually, a ledger is used to track the native protocol asset of the respective blockchain. However, when public blockchain technology became more popular, so did the idea of making additional assets available on these ledgers. The process of adding new assets to a blockchain is called tokenization, and the blockchain representation of the asset is referred to as a token.
The general idea of tokenization is to make assets more accessible and transactions more efficient. In particular, tokenized assets can be transferred easily and within seconds from and to anyone in the world. They can be used in many decentralized applications and stored within smart contracts. As such, these tokens are an essential part of the DeFi ecosystem. However, most of these options can be ignored, as the vast majority of tokens are issued on the Ethereum blockchain through a smart contract template referred to as the ERC token standard Vogelsteller and Buterin, These tokens are interoperable and can be used in almost all DeFi applications.
Almost 90 percent of all listed tokens are issued on the Ethereum blockchain. The slight deviation in terms of market cap originates from the fact that a relatively large portion of the USDT stablecoin has been issued on Omni. From an economic perspective, I am more interested in the asset's nature than in the underlying technical standard used to implement the asset's digital representation.
The main motivation for adding additional assets on-chain is the addition of a stablecoin. While it would be possible to use the aforementioned protocol assets BTC or ETH , many financial contracts require a low-volatility asset. Tokenization enables the creation of these assets. However, one of the main concerns with tokenized assets is issuer risk. In contrast, when someone introduces tokens with a promise, for example, interest payments, dividends, or the delivery of a good or service, the corresponding token's value will depend on this claim's credibility.
If an issuer is unwilling or unable to deliver, the token may become worthless or trade at a significant discount. This logic also applies to stablecoins. Generally speaking, there are three backing models for promise-based tokens: off-chain collateral , on-chain collateral , and no collateral. Off-chain collateral means that the underlying assets are stored with an escrow service, for example, a commercial bank.
On-chain collateral means that the assets are locked on the blockchain, usually within a smart contract. In this case, the promise is entirely trust-based. On-chain collateral has several advantages. It is highly transparent, and claims can be secured by smart contracts, allowing processes to be executed in a semi-automatic way. A disadvantage of on-chain collateral is that this collateral is usually held in a native protocol asset or a derivative thereof and, therefore, will experience price fluctuations.
Take the example of the Dai stablecoin, which mainly uses ETH as its on-chain collateral to create a decentralized and trustless Dai token pegged to the value of 1 USD. Whenever anyone wants to issue new Dai tokens, they first need to lock enough ETH as underlying collateral in a smart contract provided by the Maker Protocol.
If the value of the underlying ETH collateral at any point falls below the minimum threshold of percent of the outstanding Dai value, the smart contract will auction off the collateral to cancel the debt in Dai.
Figure 3 shows some key metrics of the Dai stablecoin, including price, total Dai in circulation, and the stability fee, that is, the interest rate that has to be paid by anyone who is creating new Dai see Section 2. There are also several examples of off-chain collateralized stablecoins. They are both available as ERC tokens on the Ethereum blockchain. Off-chain collateralized tokens can mitigate exchange rate risk, as the collateral may be equivalent to the tokenized claim e.
However, off-chain collateralized tokens introduce counterparty risk and external dependencies. Tokens that use off-chain collateral require regular audits and precautionary measures to ensure that the underlying collateral is available at all times. This process is costly and, in many cases, not entirely transparent for the token holders. While I am unaware of any functional designs for unbacked stablecoins, that is, stablecoins that do not use any form of collateral to maintain the peg, several organizations are working on that idea.
Note that rebase tokens such as Ampleforth or YAM do not qualify as stablecoins. They only provide a stable unit of account but still expose the holder to volatility in the form of a dynamic token quantity.
Although stablecoins serve a vital role in the DeFi ecosystem, it would not do justice to the subject of tokenization to limit the discussion to these assets. There are all kinds of tokens that serve a variety of purposes, including governance tokens for decentralized autonomous organizations DAO , tokens that allow the holder to perform specific actions in a smart contract, tokens that resemble shares or bonds, and even synthetic tokens that can track the price of any real-world asset.
Another distinct category are so-called non-fungible tokens NFTs. NFTs are tokens that represent unique assets, that is, collectibles. They can either be the digital representation of a physical object such as a piece of art, making them subject to the usual counterparty risk, or a digitally native unit of value with unique characteristics.
Hedera Token Service
A digital token inspired by the popular South Korean Netflix series Squid Game has lost almost all of its value as it was revealed to be an apparent scam. Squid, which marketed itself as a "play-to-earn cryptocurrency", had seen its price soar in recent days - surging by thousands of per cent. However, as the BBC reported , it was criticised for not allowing people to resell their tokens. This kind of scam is commonly called a "rug pull" by crypto investors. This happens when the promoter of a digital token draws in buyers, stops trading activity and makes off with the money raised from sales.
CryptoFranc (XCHF) - the Swiss Franc Stablecoin
Configure, mint, and manage native fungible and non-fungible tokens on the Hedera network without needing to deploy a smart contract. Public and private blockchains offering tokenization carry the burden of expensive fees or upfront infrastructure costs, slow transaction speeds, complexity in managing governance, and regulatory obstacles. The Hedera Token Service enables the configuration, management, and transfer of native fungible and non-fungible tokens on the public Hedera network. Hedera Token Service offers high-throughput, native compliance configurations, and on-chain programmability, such as atomic swaps, without having to deploy expensive and potentially faulty smart contracts. Hedera Token Service offers an opportunity to embrace the disruption of public DLTs for payments in a secure, compliant, and performant manner. Enable secure, real-time, and cost-effective payments in your own stablecoin or cryptocurrency. Tokenized assets change the way ownership and value exchange is defined.
Explained: What is coin burning in the cryptocurrency universe?
The term crypto token refers to a special virtual currency token or how cryptocurrencies are denominated. These tokens represent fungible and tradable assets or utilities that reside on their own blockchains. Crypto tokens are often used to fundraise for crowd sales, but they can also serve as a substitute for other things. These tokens are usually created, distributed, sold, and circulated through the standard initial coin offering ICO process, which involves a crowdfunding exercise to fund project development. As noted above, crypto tokens are cryptocurrency tokens.
Crypto projects are increasingly airdropping free tokens—but investors should be cautious
The disruptive potential of tokens and blockchains initially surfaced with payments thanks to the controversy over and curiosity about their application in Bitcoin. But these two technologies could have much broader application. The technologies can undergird any number of applications that bring together many different parties that often have no reason to trust one another. They can eliminate duplicative and error-prone transactions, and they can help create digital identity. Assuming and it is a big assumption that the tradeoffs among security, functionality, and scale will be largely resolved within five years, a range of radically new blockchain applications are possible. Here are seven potential killer apps.
Top 100 Crypto Tokens by Market Capitalization
We use cookies and other tracking technologies to improve your browsing experience on our site, show personalized content and targeted ads, analyze site traffic, and understand where our audiences come from. To learn more or opt-out, read our Cookie Policy. And by the time we all thought we sort of knew what the deal was, the founder of Twitter put an autographed tweet up for sale as an NFT. Right, sorry. A one-of-a-kind trading card, however, is non-fungible.
Know The Four Types of Cryptocurrencies Based On Their Utility
Get access to the best new tokens before they list on other exchanges. Your funds are secure. We only work with reputable custodians and the vast majority of funds are stored offline. We aim to maintain the highest possible compliance with anti-money laundering laws in the U.
NFTs, explained
While the jury on cryptocurrency is still out, blockchain tokens can be valuable and, in fact, often have nothing to do with cryptocurrency. A token represents a set of rules encoded in a smart contract. Each token belongs to a blockchain address. Source: Blockchainhub Berlin. Tokens, as in the image above, are merely assets or access rights or both. They are a key part of how blockchain technology works.
Non-fungible token
What Is a Digital Asset? What Is a Cryptocurrency? What Is a Token? By Cryptopedia Staff. The two most common blockchain-based digital assets are cryptocurrencies and tokens.
The wait is over. Parachain launch is here.
Company Filings. Commissioner Hester M. Earlier today, I released on GitHub [1] , [2] an updated version of the token safe harbor proposal that I originally suggested in February The updated version reflects constructive feedback provided by the crypto community, securities lawyers, and members of the public.
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