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State of Blockchains 2019: Green shoots of adoption emerge from 2018 crypto crash

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Leading blockchain and Web 3.0 venture capital firm Outlier Ventures published the 2018 Q4 report in its State of Blockchains series, which provides an overview into blockchain investment and market trends worldwide. The report highlighted multiple key trends including increasing user adoption and data showing the decline in ETH price isn’t due to ICO sellers

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State of Blockchains 2019: Green shoots of adoption emerge from 2018 crypto crash

  1. 1. Lead Analyst: Joel John Contributors: Jamie Burke & Lawrence Lundy-Bryan Crossing the Chasm: 10 Green Shoots of Recovery The State of Blockchains January 2019
  2. 2. 1 — Crypto markets bottom out 2 — What caused the crash? Not a ETH sell off 3 — VC consolidates as “Blue Chips” emerge 4 — Developer activity recovering 5 — Winner from the crash: Stablecoins 6 — Developers look for “Ethereum Killers” 7 — First “Killer App”: Brave 8 — Taming the wild west 9 — Private chains shine 10 — BATFAANGs go crypto 10x Green Shoots
  3. 3. Outlier Ventures | The State of Blockchains — Q4 2018 A venture platform for the decentralised future We support tokenised communities to build the new decentralised economy Outlier Ventures is a venture platform focused on building the infrastructure for the next generation of data technologies. As the first European venture firm dedicated to blockchain technology, we’ve developed an industry-leading investment thesis, based on the convergence of decentralised technologies such as blockchains and distributed ledgers, with ‘deep tech’ such as artificial intelligence, robotics, the Internet of Things, and 3D printing. We focus on early stage, seed and pre-seed projects where direct support to investee founders and creating value post-investment is integral to our business model. We have consistently proved our ability to identify exceptional projects, allowing us to constantly expand. Our team is 30 people strong, with a new office in the US, and with specialists in crypto-economics, research, legal, marketing, and tech, we bring a powerhouse of support to founders. Investing in both equity and crypto-tokens we have invested and partnered with some of the most impressive projects in the decentralised space including, IOTA, Ocean Protocol, Fetch.AI, SEED, Sovrin and Haja Networks.
  4. 4. Engage with us Outlier Ventures | The State of Blockchains — Q4 2018 Research enquiries Lawrence Lundy-Bryan lawrence@outlierventures.io Media and communication enquiries Charlotte Baker charlotte@outlierventures.io Corporate partnership enquiries Catherine Thomas catherine@outlierventures.io Our reputation has originated as a consequence of our deep commitment to open research and thought leadership in the decentralisation space broadly, and more specifically our Convergence Ecosystem thesis. We engage regularly with start-ups, academia and the corporate ecosystem and are open to collaboration and consulting opportunities with the community. Current research themes are focused on smart cities, energy, mobility, connectivity, augmented reality, and “crossing the chasm” to mainstream decentralised technology adoption. If you with to discuss your project or initiative further, please contact Lawrence, Charlotte or Catherine.
  5. 5. Outlier Ventures | The State of Blockchains — Q4 2018 Crypto market bottoms out • Hash wars involving Bitcoin Cash SV and Bitcoin Cash ABC rocked confidence in the markets and drove total market capitalization to a low of $125 billion in mid December. • The postponement of Bakkt’s futures launch due to the US Government’s shut down added to concerns about a short term recovery. • Market recovery during the latter end of the quarter seems to have stemmed around buzz around the Ethereum Constantinople upgrade (now delayed). 1 Source : Synaptic.io $0 $50,000,000,000 $100,000,000,000 $150,000,000,000 $200,000,000,000 $250,000,000,000 10/1/2018 10/8/2018 10/15/2018 10/22/2018 10/29/2018 11/5/2018 11/12/2018 11/19/2018 11/26/2018 12/3/2018 12/10/2018 12/17/2018 12/24/2018 12/31/2018 MarketCapitalisation Combined Market Capitalisation - Q4 BCH BTC EOS ETH XRP Others
  6. 6. 0 25 50 75 100 Substratum BAT Kyber Indorse Hero POANetwork HOQU Fusion 0x Cindicator District0x CPChain Atonomi Tezos DMarket AirSwap Aeternity Maecenas Storj Status SingularDTV Mysterium Bloom Monetha FirstBlood TenX Bancor DigixDAO iEXEC OAX Aventus Raiden Request Network Etheroll Gnosis Santiment Percentage of Raised Tokens In Wallet Outlier Ventures | The State of Blockchains — Q4 2018 What caused the crash? Not an ETH sell off Sell pressure may continue until the moon • Although it is believed that ICO wallets offloading their token holdings was a key reason for the ETH price decline, a high number of projects held on to their ETH. • An analysis of 40 prominent ICOs showed that roughly 2.7% of Ethereum’s supply continues to be locked up in ICO wallets. By as late as September 2018, roughly 3.7% of all Ethereum was locked up in ICO wallets. • On average, ICO wallets held roughly 37% of their token’s raise in Ethereum. It is likely that any recovery of the token’s price will be affected by sell side pressure from tokens that continue to hold on to their Ethereum. • The key drivers for the Ethereum price crash seem to have been a combination of declining interest in ICOs, lack of demand for dApps and shorting opportunities enabled by exchanges like BitMEX. Source : Crunchbase 2
  7. 7. VC consolidates as ‘Blue Chips’ to emerge A swing back to being conservative • Venture capital investments have begun concentrating increasingly in equity follow-on rounds. A total of over $550 million was raised through 147 deals in the last quarter of 2018, but roughly 70% of it was captured by just 20 deals. Conservative investing has become the norm. • An emergent trend has been to invest larger sums into late stage ventures that have demonstrated traction and some sort of product-market fit. The Coinbase recent $21 million F round is an example. Expect to see more money consolidating around a few clear winners in different segments of the market. • The recent crash in the broader equities markets would have also pushed investments toward more conservative bets. Outlier Ventures | The State of Blockchains — Q4 2018 Source : Kraken Transparency Report 3 21 15 16 30 35 35 15 20 18 50 547 84.5 133 17 36 35 15 20 18 0 100 200 300 400 500 600 Coinbase BitGo Orbs Mythical Games StarkWare Industries Ltd. Conflux Foundation Adhara Kucoin Aspen Digital Security Token CredDollarsRaisedInMillions Q4 Venture Capital Financing Last Funding Amount Total Equity Funding Amount
  8. 8. Developers activity recovering Developers weather the storm • Ethereum’s price decline laid out an interesting scenario to test two key themes this quarter. One, that a substantial price dip would not affect niche users that use decentralised applications currently. Two, that a dip in gas prices do not necessarily contribute to an increase in daily average users. • We are currently in a phase where early stage, organic adopters display high stickiness to a few apps they prefer using routinely. • With major browsers like Opera integrating tokens into their mobile applications, it is likely that we will soon see a decentralised application seeing substantial scale very soon. Outlier Ventures | The State of Blockchains — Q4 2018 Source : StateOfTheDapps.com 4 0 50 100 150 200 250 0 20000 40000 60000 80000 100000 120000 2018-10-01 2018-10-08 2018-10-15 2018-10-22 2018-10-29 2018-11-05 2018-11-12 2018-11-19 2018-11-26 2018-12-03 2018-12-10 2018-12-17 2018-12-24 2018-12-31 DailyAverageUsers Ethereum Activity Vs Price Transactions Daily Active Users Ethereum Price
  9. 9. Winner from the crash: Stablecoins Decentralised finance needs stability • Ethereum’s substantial crash over the course of the year meant ecosystem stakeholders required an alternative to hedge their tokens. The same resulted in a stablecoin boom. • MakerDAO’s ability to give a non-banking based alternative for entrepreneurs to build trading (derivatives, margin trading) and lending based products have been another key driver of its adoption. • With large players like Basis shutting down due to government scrutiny, it is likely that MakerDAO maintains its leadership as a decentralised stable token alternative. Outlier Ventures | The State of Blockchains — Q4 2018 Source : Mkr Tools 5 - 200,000.00 400,000.00 600,000.00 800,000.00 1,000,000.00 1,200,000.00 1,400,000.00 1,600,000.00 1,800,000.00 2,000,000.00 19/7/2018 19/8/2018 19/9/2018 19/10/2018 19/11/2018 19/12/2018 NumberofEthTokens Pooled Eth In MakerDai Contract
  10. 10. Developers look for ‘Ethereum Killers’ Slow, steady and healthy • The Blockstack team’s focus on incentivising developers is beginning to pay off as a healthy range of apps that solve genuine problems for early adopters being deploying. • Unlike EOS or Ethereum’s dApp ecosystem, the bulk of Blockstack’s growth seems to be emerging from productivity suites (Graphite docs), messaging apps and alternatives to social networks. • Blockstack has also invested in an app mining initiative that currently pays developers on basis of the quality of their apps. The same solves issues around helping developers monetise before a large enough user base is onboarded to the ecosystem. Outlier Ventures | The State of Blockchains — Q4 2018 Source : Mkr Tools 6 0 500 1000 1500 2000 2500 3000 3500 4000 4500 5000 2018-10-23 2018-10-30 2018-11-06 2018-11-13 2018-11-20 2018-11-27 2018-12-04 2018-12-11 2018-12-18 2018-12-25 DailyAverageUsers Date Blockstack DAU Growth - Q4 2018 Travelstack GraphiteDocs Stealthy.im Postly.co HiHermes
  11. 11. First ‘Killer App’: Brave? Outlier Ventures | The State of Blockchains — Q4 2018 As Brave stands at the intersection of the current form of the web and what a decentralised web would look like, its traction is an indicator of the fact that a well built product that is aimed at a large enough user base will see little struggle in seeing adoption. While still in the early stages of growth, Brave has seen 28.000 new publishes on the platform, 10 million Android App downloads, and 5.5 million monthly average users. We still have a long way to go to reach Google Chrome’s 1 billion monthly average users but it’s certainly a start. With other browsers like Opera imitating integration of wallets into their browsers, a new influx of users that can readily store coins in their browsers will enter the dApp ecosystem. With Apple’s strategic focus on privacy as a human right, do not be surprised to see Safari exploring the use of decentralized features being pioneered by Brave. 28,000 New Publishers Brave browser currently features over 28,000 verified publishers including prominent players such as Dow Jones Media. 10 million Android App Downloads In addition to the substantial growth in mobile app users (80% of their userbase), the project has partnered with HTC to integrate the browser as a default installation. 5.5 Million Monthly Average Users The project claims to currently have over 5.5 monthly average users. The initial hook for most new users is the ad free environment combined with a better browsing experience when compared to incumbents like Chrome. 7
  12. 12. 38 20 28 74 105 94 120 156 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Number of Law Enforcement Requests Received QoQ Kraken Taming the wild west Decentralised ecosystems need approval from centralised bodies • The token ecosystem learned a quick lesson on the need to comply with the law when Etherdelta’s (a decentralised exchange) founder was arrested over trading of unregistered securities. • The number of lawsuits filed within the ecosystem, law enforcement requests at exchanges and government expenditure on chain-analysis solutions have seen substantial increase over the course of the year. • The rise in law enforcement requests is a proxy for the extent to which agencies have begun scrutinising the industry. As the ecosystem institutionalises, ensuring compliance will become a key component of operations. Outlier Ventures | The State of Blockchains — Q4 2018 Source: Crunchbase 8
  13. 13. Private chains shine Outlier Ventures | The State of Blockchains — Q4 2018 As public chains like Bitcoin and Ethereum continue performance, privacy and security enhancements, companies are looking for solutions that are ready for real-world use cases today. This has led to an increased interest in private chains which don’t offer the full permission-less innovation and censorship resistance features of public chains but make different technical design trade-offs to meet specific business and market requirements. SBI Holdings partners with R3 Japanese banking behemoth SBI holdings has agreed to a joint partnership with R3. In addition to a capital commitment, the collaboration will see the bank helping R3 expand their presence in Asia. CULedger joins R3 consortium Denver based CULedger joined the list of 200 organisations currently in R3’s consortium. CULedger works towards disrupting the lending space with the help of DLTs. They are currently in the process of launching a DLT based self sovereign identity solution for credit union members. The Juncker Plan The Juncker Plan is an initiative by the European commission to enable the transfer of EUR 360 Million to Spanish SMEs by the European Investment Bank and BBVA. Hyperledger is being used to record all negotiations by multiple parties involved. Waves Raises $120 million Waves joined the league of public blockchains offering private implementations in December. The team raised $120 million in December with London based financial firm Dolphin Investments leading the round. ConsenSys partners with AMD ConsenSys partnered with Halo Holdings on W3BCLOUD, a custom blockchain implementation built around AMDs hardware offerings. An early instance of hardware and software experts combining skills to create better implementations. 9
  14. 14. BATFAANGs go crypto Outlier Ventures | The State of Blockchains — Q4 2018 Facebook May Launch Stable Token Facebook went from issuing a complete ban on token related ads to developing its own stablecoin over the course of the year. While it has not been confirmed yet, the key focus of the token may be to enable remittance to and from developing nations with an integration into messenger and WhatsApp Tencent Collaborates With Chinese Government The Chinese government has partnered with Tencent on creating a blockchain security alliance along with 20 other public and private institutions to reduce occurrences of fraud, pyramid schemes and illicit financing in the blockchain space. AWS Launches Own BaaS Implementations AWS announced the launch of Quantum ledger services and managed blockchain implementations. The system currently offers one click solutions for launching private implementations of Ethereum and Hyperledger. The digital behemoths that dominate the Web are beginning to make moves in the blockchain space. They are increasingly coming to realise that blockchains and decentralised systems have the potential to offer new business models. They are using their brand and large user bases to offer their own blockchain variants. For the end user we can expect to see better user experiences and much of the complexity involved in interacting with today’s blockchain-based systems to be abstracted away and hidden from the user. For example, a stable coin implementation in WhatsApp would bring the advantages of stable tokens to the average user without the need to set up a new wallet or sign up with external, third party services. We can expect heated discussions about the BATFANNGs not being truly committed to decentralization. But as the industry looks to cross the chasm, the time is now for the giants to entry the fray. 10
  15. 15. Disclaimer Outlier Ventures | The State of Blockchains — Q4 2018 This document (the “Document”) has been prepared by Outlier Ventures Operations Limited (“Outlier Ventures”). Outlier Ventures Operations Limited is registered in England and Wales, company registration number 10722638. Outlier Ventures Operations Limited is an appointed representative of Sapia Partners LLP (“Sapia”) which is authorised and regulated by the Financial Conduct Authority (Firm Reference Number 550103). No undertaking, warranty or other assurance is given, and none should be implied, as to, and no reliance should be placed on, the accuracy, completeness or fairness of the information or opinions contained in this Document. The information contained in the Document is not subject to completion, alteration and verification nor should it be assumed that the information in the Document will be updated. The information contained in the Document has not been verified by Sapia, Outlier Ventures or any of its associates or affiliates. The Document should not be considered a recommendation by Sapia, Outlier Ventures or any of its directors, officers, employees, agents or advisers in connection with any purchase of or subscription for securities. Recipients should not construe the contents of this Document as legal, tax, regulatory, financial or accounting advice and are urged to consult with their own advisers in relation to such matters. The information contained in the Document has been prepared purely for informational purposes. In all cases persons should conduct their own investigation and analysis of the data in the Document. The information contained in the Document has not been approved by the Financial Conduct Authority. This Document does not constitute, or form part of, any offer of, or invitation to apply for, securities nor shall it, or the fact of its distribution, form the basis of or be relied upon in connection with any contract or commitment to acquire any securities. Any forecasts, opinions, estimates and projections contained in the Document constitute the judgement of Outlier Ventures and are provided for illustrative purposes only. Such forecasts, opinions, estimates and projections involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forecasts, opinions, estimates and projections. Accordingly no warranty (express or implied) is or will be made or given in relation to, and (except in the case of wilful fraud) no responsibility or liability is or will be accepted by Sapia, Outlier Ventures or any of its directors, officers, employees, agents or advisers in respect of, such forecasts, opinions, estimates and projections or their achievement or reasonableness. Recipients of the Document must determine for themselves the reliance (if any) that they should place on such forecasts, opinions, estimates and projections. Information contained in the Document may not be distributed, published or reproduced in whole or in part or disclosed to any other person. The distribution of any document provided at or in connection with the Document in jurisdictions other than the United Kingdom may be restricted by law and therefore persons into whose possession any such documents may come should inform themselves about and observe any such restrictions.
  16. 16. ©2018 Outlier Ventures Sign up to our weekly briefing A weekly summary of news on the convergence of technologies, market trends and updates from Outlier Ventures Click here to sign up www.outlierventures.io

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