Illuminating The Dark Age Of Blockchain: Algorand

In this paper, we argue that blockchains are trapped in a dark age of technology centralization. The wars of multi-chain DeFi push the market to abandon decentralization, its oldest and most foundational principle. Crypto’s citizens search for “fast” technologies that optimize for DeFi yield generation, even if this hands power to a new class of kingmakers – from centralized exchange operators to political figureheads who guide the destiny of these networks.

This dark age presents users with a choice: performance or decentralization, but not both. Following on from our 2019 report at the launch of MainNet, we argue that Algorand represents an opportunity to transcend this paradigm. It is the first “fast L1” which can coordinate between billions of people without trending toward plutocracy. Consensus is fast yet open to anyone: Algorand currently performs 1,000 TPS with < 5 second finality without sacrificing decentralization.

Solving the “blockchain trilemma” compromising other networks, Algorand has been live for two years with no downtime. A series of novel cryptographic and political breakthroughs create a new system of self-government and evolvability unlike any other L1 blockchain. The end result: a way forward for DeFi without forsaking decentralization and a ground-up network for risk-averse TradFi applications like Central Bank Digital Currencies (CBDCs) and asset securitization.

If the Enlightenment – an 18th century intellectual movement focused on the ideals of reason, liberty and constitutional government – was humanity’s new base layer protocol, then the scientific method and industrial revolution were simply the apps that followed.

What apps could emerge in an Algorand age of reason? One simple application is “fast DeFi” without centralization and inefficiencies like miner extractable value (MEV). Another application – arguably the ultimate goal – is the eventual merger of DeFi and TradFi. We could see a wave of hybrid experiments where DeFi plugs into TradFi, bridging old and new capital pools.

This, perhaps, is crypto’s industrial revolution – a productivity boom that will come long after the end of the DeFi wars. In our view, Algorand could be the immutable home of high-value assets, where hybrid experiments emerge and grow to global scale.

DOWNLOAD OR VIEW THE REPORT HERE.

History Is Made: Propy Completes First Ever Real Estate Property Sale Via NFT

A couple of weeks ago I was asking people to Buy My House. I first bought the property, located in Kiev, Ukraine, in 2017. That was exciting. I paid ETH for the property (about $60k at the time) and title transferred via Propy on a blockchain, all approved by the Ukrainian government. Never before had real estate officially changed hands via a blockchain. Ethereum founder Vitalik Buterin was even gracious enough to be included in a picture when we physically transferred the (physical) keys to apartment.

Fast forward to this year. Moving title to real estate on a blockchain is now common – Propy has facilitated title transfer on more than 1,000 properties via the Ethereum blockchain. Those transactions represent over $1b in total dollar value.

But all those real estate sales still usually use the old method of buying and selling a home – the hiring of real estate agents and all of the agreements that go with it.

That process isn’t going anywhere for now. But one thing is going to change – we believe more and more real property, including real estate, will begin to have a digital representation on a blockchain via a NFT. And a legal framework has now been created such that when the NFT is sold to someone new, rights to the real property go with it.

Last week, on June 9, the Propy auction for the Kiev property NFT was completed on Seen.haus. The NFT was transferred to its new owner. That person, who has agreed to be named – is San Francisco based engineer Devon Bernard. Here’s the NFT:

The final price was 36 ETH – about $93,000. So I made a little profit on the house, although with all the upgrades and finishing I think Devon got it for a steal. No word from him on whether or not he’s going to live in it, rent it out, or sell it. I look forward to seeing what he does with the place!

For press coverage of the event, see my original blog post. Congratulations to Propy for changing the world again. Based on the number of people who’ve reached out to learn how to sell their own properties via NFTs with Propy, I’m quite sure we’ll see many more sales like this in the near future.

Propy blog post on the auction closing is here.

UPDATE: The new owner Devon shares his plans for the property.

Announcing The Arrington ALGO Growth Fund

We are big fans of Algorand. We first invested in their private rounds years ago and have accumulated additional ALGO since. And over the years we have stayed close to founder (and Turing Award recipient) Silivo Micali, CEO Steve Kokinos, COO Sean Ford and VP Marketing Keli Callaghan. This is one of the best all around teams in crypto. Professional, zero hype, all signal.

In 2019 we published a research report on the Algorand product and burgeoning ecosystem, titled The Monetary Experiment: Algorand. In that report, we outlined how we see Algorand, and gave a glimpse of what the project could become with hard work and just a little luck. They have exceeded our expectations, and have grown in ways we did not foresee (it’s time to update that research).

Today I’m happy to announce that we are partnering with Algorand for the long term. We are launching a dedicated $100 million fund to invest in the Algorand ecosystem and other promising crypto products. The fund is called the Arrington ALGO Growth Fund and will begin deploying capital soon.

You can read the news on this:

Coindesk: Arrington Capital Launches $100M Algorand Ecosystem Fund

The Press Release

CoinTelegraph: Arrington Capital to back Algorand projects with $100M growth fund

We now run two publicly announced funds – Arrington XRP Capital and Arrington Algo Growth Fund. Arrington XRP Capital was formed in 2017. We continue to grow and manage that fund, and work with the dozens of companies and protocols that we have funded along the way. Now we will also manage this new ALGO fund, and I’m quite sure that in a few years time, I will be able to say the same things about this fund – amazing things will come from our investments in founders.

Thinking back to those days, none of us really had any idea of the roller coaster ride we were on. Crypto has its ups and downs, but the amount of founder passion for building, deploying and growing new infrastructure and apps is sort of stunning. And that’s coming from someone who’s been building and investing in Silicon Valley since the mid 90s. Crypto moves faster, a lot faster, than the old tech world. Things you learn become redundant almost before you’ve mastered them. I consider that a feature, not a bug.

It’s survival of the fittest, and ALGO, along with XRP, have proven that they are here to stay. I don’t know exactly what’s coming next, but I feel comfortable that ALGO will be a big part of it. Thank you, Algorand, for choosing us to be your partners.

Here’s to the Pirates. Here’s to ALGO. Let’s build.

The Space Race For Open Markets: Vega

Are modern markets open markets? Markets are part of our lives in unimaginable ways yet have never been more mysterious. Today, trading is a game of warring algos and enigmatic finance, addicted to obfuscating collateral and hiding system risk. Crypto promised to get us a step closer to open markets, gifting us perfect and incorruptible collateral as well as the power to verify everything without a ratings agency or bank.

Yet the mysteries of market structure linger, and are in some new ways worse than TradFi. Nobody can contest the pristineness of crypto collateral, but crypto market infrastructure is addicted to its own redlining – from the existential CeFi cascade to HFT’s adversarial cousin, MEV.

Vega is the world’s first open protocol for creating, maintaining and aligning markets. It is a decentralized launchpad for all trading. In some sense, Vega concepts are more than a subset of DeFi – they represent an evolution in the history of markets. If Vega succeeds, it will become a modular galaxy for everything from market creation to risk modeling and incentive alignment. It marries active and passive liquidity, encourages risk model experimentation and ultimately solves the derivatives trilemma.

A true Blue Ocean opportunity, Vega is the multi-verse of markets, dragging humanity out of an adversarial war of all and leading us to a new space race for open liquidity.

DOWNLOAD OR VIEW THE REPORT HERE.

Buy My House

In 2017 I bought a condo apartment in Kiev, Ukraine. This wasn’t a normal purchase – I used the then-nascent Propy protocol to make the purchase and have the property title recorded, for the first time ever, to a blockchain. I also paid for the condo in Ether. These days, property title transfers on Propy are an everyday occurrence. The Wall Street Journal, Newsweek and others covered the news.

Today Propy announced a new first – that same home, which is owned by a U.S. domiciled LLC, is being auctioned and sold as a NFT. The auction begins on June 8, 2021 (a couple of weeks from now).

The auction information page is here.

TechCrunch: Blockchain startup Propy plans first-ever auction of a real apartment as a collectible NFT

Coindesk: TechCrunch Founder’s Apartment to Be Sold as NFT

This isn’t a gimmick – but it is a proof of concept. Ownership of the NFT will allow that owner to claim ownership of the property via the LLC.

Why is this interesting? This NFT, backed by real world property, has value. NFTs are already being inserted into DeFi protocols, allowing, for example, people to borrow against the value of the NFT. In the real world, we can use mortgages. They take months, require the approval of a middleman, and are extremely difficult to get in some countries, particularly if you aren’t a resident of that country. With DeFi, none of that matters.

From the Coindesk article: “We are increasingly excited about the role of NFTs in DeFi,” Arrington said. “With homes and really anything in the real world being tokenized, you can plug that physical item into DeFi, assuming the legal niceties are ironed out, and that’s fascinating.”

I made similar comments to TechCrunch:

Arrington added: “Coming at this from a crypto angle, we’ve seen what happens how DeFi gets plugged into credit markets. If I have an NFT or any DeFi asset I can then borrow against it, without a middleman. Right now, if I have a real piece of real estate, there is no way for me to borrow against it, without a middleman, because I have to go through a bank and get a mortgage or whatever. And it’s also the friction, all of the costs in terms of speed and how long it takes.

“If we can find a way to plug real estate and other real-world assets into DeFi, I think that the amount of credit that can be created around that is in the trillions, eventually. And so I think that has to happen. The questions around this are legal and regulatory… The legal stuff around this is tough, and so Propy has done a lot of work with that. But if they do, I think that the idea of an NFT representation of a real-world asset purely from the point of view of ease of trade and ease of access to credit markets is a big idea.”

If you are interested in participating, details are here.

We’re Hiring! Arrington XRP Capital Hiring Analyst and Developer Roles

Arrington XRP Capital, founded in late 2017, is a crypto-focused hedge fund with a multi-pronged investment strategy. We invest in private companies with new products and protocols, and we employ a variety of trading strategies for the liquid part of our portfolio. We are based in the United States and have additional offices in Asia. We are aggressive investors, fight hard for our companies and trade to win. We are expanding our team to include two new positions:

(1) Investment Analyst: https://pompcryptojobs.com/job/2107/investment-analyst/

(2) Software Engineer: https://pompcryptojobs.com/job/2404/software-engineer/

The software engineer role is ideally Asia based, but we will happily look at all qualified candidates. Our analysts can live anywhere as long as you are willing to travel to the home office at least a couple of times per year. If you think you might fit the roles above or know anyone who could, please send an email to careers@arringtonxrpcapital.com. We look forward to hearing from you!

MobileCoin Cracks The Privacy Code: Marrying Crypto with P2P Messaging

Signal and MobileCoin join forces.

News today on our portfolio company MobileCoin: Read Signal’s blog post here and the Wired article here.

In the last ten years, two parallel trends have emerged: Mobile P2P and group messaging, and crypto. While many have tried to introduce crypto-based P2P and e-commerce payments to popular messaging apps, nobody has cracked the code.

The marriage between mobile P2P and crypto is a powerful proposition: Bring together global communication with global payments. What could arise from this union? Fast P2P payments. Secure e-commerce. Fast & reasonably priced remittances. One possibility is realizing the crypto trope of “banking the unbanked”: In places where financial systems are weak but social messaging apps are mainstream, crypto-based P2P has the potential to create sudden and rapid financial connectivity.

We backed MobileCoin as investors because MobileCoin is the first real attempt to merge these two worlds. The protocol’s unique focus on privacy and transaction speed matches the instantaneous delivery model for popular apps worldwide. Mobilecoin will live inside these mainstream messaging apps, starting with the most cryptographically secure: Signal. As the first massively popular mobile messaging app to include MobileCoin for P2P and e-commerce payments, Signal is the best possible validation of MobileCoin’s privacy, security, and speed, just as Signal set the bar for end-to-end encryption within mobile messaging apps prior.

MobileCoin makes it easy for messaging apps to offer digital payments without compromising user privacy. By integrating a MobileCoin wallet, a mobile app can send transactions without maintaining a copy of the blockchain or sharing keys with a remote server. Transactions are final within just a few seconds, and all transactions are kept private.

MobileCoin takes a defense-in-depth approach to user privacy. This begins with established technologies like ring signatures, one-time addresses, and RingCT. They’ve added a suite of cutting-edge privacy tech on top of this existing foundation, from secure enclaves and information management designed to delete the final traces of Cryptonote on the blockchain. In MobileCoin, even if malicious attackers manage to compromise a node, they can never access user keys or data.

With this privacy layer at the heart of the protocol, MobileCoin also introduces microservices designed to enable mobile usage. This starts with MobileCoin Fog, a service run by apps to help find user transactions, check balances, and build new transactions, all without downloading the ledger (a prohibitively expensive task for mobile devices).

This is where cryptography gives users a feeling of security that no existing messaging app can provide: While Fog will be run by app providers, user privacy is entrusted to MobileCoin technology, not to the service provider. In other words, users don’t need to trust the company; they instead put their trust into the integrity of the MobileCoin Foundation’s open-source software.

We believe MobileCoin is the beginning of crypto’s marriage with mobile messaging apps. We hope to see far more experiments in the next year, as crypto marches us into a new era where users sleep at night with their faith in cryptography.


Toward Credibly Neutral Derivatives: Announcing Our Investment Into Vega

Like a prison tattoo, March 12 2020 is branded into every crypto trader’s mind. Nobody can forget the terror of that fated candle. No trader will ever escape the disbelief of watching a derivatives market that developed over years break within minutes.

Crypto desperately needs credibly neutral derivatives. A year from this PTSD-inducing moment of market history and not much has changed. Put aside the fact that we still don’t know what happened on that day the majority of derivatives volume is still executed off-chain in the opaque land of the centralized exchange. 

The market needs decentralized derivatives that can match the centralized experience, a place where traders can take on leverage, move capital efficiently and hedge risk without worrying about something breaking or someone squeezing them behind a curtain.

We are thrilled to announce our investment into Vega Protocol, which we believe will be the most important player in this emerging world of decentralized derivatives. We are excited to co-lead the round with Cumberland DRW, one of our closest trading partners. The round brings together a strong group of trading firms and DeFi investors including ParaFi Capital, Coinbase Ventures, CMT Digital, Signum Capital, DeFi Alliance, CMS Holdings, Three Commas, SevenX Ventures, GSR, ZeePrime Capital and more.

Vega marries the ingenuity of DeFi with the hard-won wisdom of order books. It unites the AMM with the CLOB, breaking the dichotomy between active and passive liquidity. In Vega, market makers are owner-operators, incentivized to seed markets; while passive LPs provide liquidity to their strategies. The team complements this novel economic design with a heavy focus on risk management and capital efficiency, pioneering solutions to challenges like frontrunning, multi-chain collateral and scalability. 

A snapshot of the Vega exchange interface.

We are stoked to get behind a team of world-class entrepreneurs, engineers, academics and traders and will publish more on our investment in the coming months.

Toward the Wild West Net!

TechCrunch: https://techcrunch.com/2021/03/18/vega-raises-5m-to-give-anyone-the-ability-to-launch-a-derivatives-market/
Crunchbase: https://news.crunchbase.com/news/vega-banks-5m-to-create-derivatives-trading-protocol/
The Block: https://www.theblockcrypto.com/linked/98742/defi-derivatives-protocol-vega-5-million-coinbase-ventures-others

Vega Roadmap: https://blog.vega.xyz/announcing-the-vega-2021-roadmap-4c3c0d80efc0
Vega TestNet: https://testnet.vega.trading/

Twitter: https://twitter.com/vegaprotocol
Telegram: https://t.me/vegacommunity
Discord: https://discord.com/invite/ZNEMCYd

Resurrecting The Saver: Walking Tall With Anchor

The DeFi Standard For Crypto-Native Fixed Income

The macro storm of quantitative easing and record low interest rates has depressed yields in traditional finance beyond measure. Anchor is the first protocol in Decentralized Finance (DeFi) designed to capture the growth of the cryptocurrency ecosystem to offer savers fixed income yield.

The Anchor Protocol is a money market built on the Terra blockchain, leveraging the only stream of unlevered, reliable yield in cryptocurrency: Proof-of-Stake (PoS) block rewards. Anchor synthesises DeFi yield with PoS rewards, creating a fundamentally new economic primitive – the Anchor Rate – providing lenders a stable rate of return. In time, we believe the Anchor Rate will become the reference rate for DeFi investment – a Decentralized Funds Rate – and eventually the gold standard for passive income on the blockchain.

Anchor launches with LUNA as the initial primary collateral asset for borrowers, with a roadmap to integrate other PoS assets including DOT, ATOM and SOL, and decentralize ownership of the ANC governance token through a liquidity mining program.

DOWNLOAD OR VIEW THE REPORT HERE.

Arrington XRP Capital Joins The DeFi Alliance

We are proud to announce Arrington XRP Capital has joined the DeFi Alliance. The DeFi Alliance is an incubator launched by a notable group of Chicago-based trading firms in early 2020, including CMT Digital, Volt Capital, Jump Capital, and DRW.

Today, the Alliance has evolved into the primary hub for DeFi startup incubation and mentoring. When I founded TechCrunch, I witnessed first hand the rapid rise and popularity of Y Combinator, and the immense value that these kinds of organizations provide to startups. We hope the DeFi Alliance grows to have a similar impact.

At Arrington XRP Capital, we have been investing behind the scenes with projects in the DeFi Alliance program, and welcome the Alliance’s support as our portfolio companies go to market. Stay tuned.