David Z. Morris: The bear case for bullish is spelled EOS
There was a wave of what I’ll call perplexity Last Friday, in crypto circles, when blockchain company Block.One and investors, including Peter Thiel, announced they would go public with the Bullish cryptocurrency exchange. Listing would be via a specific purpose acquisition company (SPAC), or a merger with a listed company, for a valuation of $ 9 billion. There are a number of uncertainties surrounding the plan, not least because the exchange does not yet exist.
David Z. Morris is the chief ideas columnist for CoinDesk.
In fact, Bullish was almost invisible until May of this year, when Block.One announced that it was committing bitcoin and EOS tokens, then worth nearly $ 10 billion, to create a large pool of liquidity for the exchange. The exchange itself is slated to launch later this year – when it faces a half-dozen much more established players in the U.S. forex market, although forex activity tends to decline with the installation of ‘a bear market.
All of this is reason enough to question Bullish’s wisdom as an investment. But the real eyebrow for my money is the involvement of Block.One and its underdog EOS smart contract platform. Given years of consistently disappointing results from the company and affiliated projects, and a strange push to use EOS in the otherwise fully centralized Bullish’s operation, many longtime cryptologists immediately questioned whether the creation of ‘A profitable crypto exchange was the sole motive for PSPC.
The Brief, Tragic History of Block.One and EOS
Block.One was founded in 2016 as the launch pad for EOS, a so-called ‘Ethereum killer’ which raised a record $ 4.1 billion through an initial coin offering in the first half of 2018 Like many ICOs, this increase was later considered unrecorded. offering of securities by the United States Securities and Exchange Commission. Block.One paid a $ 24 million fine in 2019 – seen by many at the time as a comically paltry slap on the wrist compared to the amount raised.
Despite its huge war chest, EOS has failed to become a credible long-distance competitor to Ethereum, in large part thanks to a failure to correct deep design flaws. EOS was designed by Dan Larimer, co-founder of Block.One with CEO Brendan Blumer, using a “delegated proof of stake” design that Larimer touted as the next generation of blockchain technology. But that didn’t really work: A few months after EOS launched, it became clear that the voting process for selecting validation nodes was being aggressively played by cartels seeking to capture block rewards.
This led to a “brain drain” as the base node operators were effectively excluded from the network. The issues have also put developers off: EOS currently only hosts one of the top 25 distributed applications (dapps), according to DappRadar. No EOS dapp has a daily volume greater than $ 100,000, while Ethereum has at least 25 dapps with a daily volume greater than $ 1 million. Binance Smart Chain, Tron, and Polygon systems have all attracted more activity than EOS, although BSC and Polygon have launched more recently.
Larimer joined the brain drain in January when he announced his departure from Block.One and EOS to work on “personal projects.” This continued a trend for Larimer, a once prominent cryptocurrency leader who over time gained a reputation for moving quickly from projects he founded. This has happened both at BitShares, Larimer’s first major project, and at Steem, a decentralized multimedia project. BitShares is now essentially dormant and Steem struggled after Larimer left.
These missteps and failures led to an abject bullish performance for the EOS token, which has fallen over 30% in the past 12 months in BTC terms. Since its peak in May 2018, the token has fallen almost 95% against BTC. Formerly one of the top 10 tokens, EOS has fallen to 27th by market cap, according to CoinGecko. EOS, remember, is the raison d’être of Block.One.
Block.A said in may that the exchange would use “EOSIO and the public EOS blockchain to produce a cryptographically validated, provable, and immutable audit trail of all transactions processed on the bullish platform.”
This has led to some confusion that Bullish will be a decentralized exchange, or DEX – a category that has seen explosive growth over the past year or so. But Bullish would be just as centralized as Coinbase, with the slight addition of receipt writing to EOS. This could have advantages in terms of transparency, but does not make the exchange significantly decentralized.
But the architecture hints at a possible secondary motivation behind Bullish: Whether it’s a successful exchange or not, Bullish’s use of EOS for record keeping will make EOS more successful, or at least promising. , by creating a volume of on-chain transactions. as well as fees and other income. Block.One currently owns just under 6% of all EOS, worth about $ 250 million, according to EOS Authority.
(The transaction costs on EOS are quite complicated. Some transactions are nominally free, but the costs are arguably just shifted to staking requirements and RAM charges for onboarding app users. Last year, Block.One introduced a pay as you go fee option.)
These fees and costs would ultimately be paid by the bullish users – for the benefit of Block.one. In other words, Block.One is creating a spin-off company that will essentially be its own long-term customer, for a service whose usefulness is unclear.
The theory of microstrategy
Another compelling angle on Bullish came Friday from Sam Bankman-Fried, co-founder of FTX, who in a Twitter feed focused on the $ 6 billion in crypto reserves that Block.One and other investors have pumped into Bullish. These reserves stand at about two-thirds of the bullish SPAC’s proposed value.
This led SBF to speculate that, rather than a competitor to Coinbase or Bakkt, “Maybe Bullish is really another MicroStrategy”. In other words, the real investment here may not be in the innovation that Block.One and Peter Thiel could bring to crypto exchanges, but in the crypto reserves of Bullish. The public listing will, like the MicroStrategy share, be investable by certain entities that cannot directly buy crypto, such as (in theory) institutions. As a Grayscale Bitcoin Trust showed , some investors are willing to pay a premium for these crypto-equity workarounds, although the nearly 50% mark-up on Bullish’s holdings can be a bit steep. (Grayscale is a sister company of CoinDesk.)
Another key distinction is that while MicroStrategy has laser-focused bitcoin, the reservations behind Bullish will be much more mixed. The $ 10 billion provided by Block.One to support Bullish in May (which has since declined in value) was more than 90% bitcoin, but also included 20 million EOS tokens, or about 2.5% of the total. (It is not known if these funds have ever moved from Block.One’s EOS wallets). As an exchange, Bullish would end up owning an assortment of other coins as well.
So, hey, maybe there really is a demand for a public stock that looks like MicroStrategy but with a jumble of altcoins on a barrel of bitcoin! It certainly seems more likely that there is a huge demand for another centralized exchange.