Blog

How NEO succeeds in 2024 and beyond

Happy 4/20 to the meme enjoyers, partakers, and degenerates across the globe. Not only is today a giant meme in the crypto space, but the Bitcoin halving took place yesterday! To celebrate the day and milestone in the crypto space, I present my top-down and bottom-up thesis for Neo’s approach to success in 2024.

(It should undoubtedly go without saying that the thoughts expressed in this essay are those of mine, and mine alone. They don’t reflect those of any project I’m affiliated with, or the people who work on those teams. In this essay, I am merely a degenerate providing entertaining content for other degens.)

Cryptocurrency markets are all about narrative

The proper narrative can propel or thwart a project at any time, but especially during bull markets. Make the wrong choice, and the ecosystem will have to deal with its consequences during the bear market that will inevitably follow.

A botched product launch in a bull run can result in detracting new devs and users from joining the ecosystem.

This makes that inevitable bear market even more difficult, as it becomes saturated by a community of OG’s who have “round tripped” the underlying asset (possibly for even two cycles).

Likely, this will result in a “loud minority” of upset HODLers who misdirect their anger – that should be geared toward their own decision making process – at the developers and builders who continue to create during the bear market.

We saw this happen with Neo N3, which launched in Aug. 2021 at the top of the recent bull run and wasn’t able to attract any of the waning attention in 2022. 2022 was plagued with the collapse of blockchain networks like Terra-Luna, large-scale investing firms like 3AC, and the world’s second largest exchange, FTX. 

Price of NEO since launch of N3.
Price of NEO since the launch of Neo N3 in August 2021.

This was not a market for attracting new Web3 users, and those who remained were members of whatever community they joined the year prior.

Alternatively, Neo can successfully launch a functioning network during the current 2024 bull run, which has been accentuated by the approval of Bitcoin ETFs, stablecoin legislation in different parts of the world, and new EVM L2’s attract massive amounts of liquidity (i.e., Base).

A solid Neo X launch can attract developers and users that will stick around during the hard times and keep BUIDLing.

My NEO thesis is simple: there is a top-down and bottom-up approach, and Neo must pursue both in order to take off in 2024 and beyond.

First, keep making positive headwinds in Hong Kong – aim for real-world assets on Neo as a result. (Top-down.)

Second, ship a secure and usable Neo X during the current bull run, and make sure to bridge to as many projects as possible once live. (Bottom-up.)

Neo’s double-pronged path to success.

From the top-down, Neo Global Development is engaging with centralized entities and locating their offices in jurisdictions that have favorable regulations for blockchain companies. 

What Neo Foundation and Neo Global Development can do

At the regional regulatory level, NGD needs to ride any momentum coming out of the positive strides being made in Hong Kong. The ETFs and Neo’s connections are one such opportunity, but there are others, like onboarding real-world assets (RWA) onto the Neo blockchain.

At the Neo APAC Hackathon Finale in Oct. 2023, Hong Kong’s regulators were very present and participated in multiple panels. Beyond the attendance of regulators, companies were on-stage talking about the relationships they’ve built with the regulators and the forthcoming assets the region hopes to attract via tokenization: US debt instruments.

Back in October, the primary focus of conversations was on stablecoin legislation and using RWAs like US Treasury bills to back digital assets. Hong Kong legislators were actively pushing forth stablecoin legislation and guidance, and financial companies located in the region were talking about digitizing RWAs and building products. The region is well positioned to capture market share for product digitization, especially as larger firms like Black Rock start to enter the Web3 space.

Stablecoins

In April 2024, Hong Kong-based stablecoins issuer First Digital Trust announced planned expansions of its $3 billion dollar-pegged FDUSD token to the Sui blockchain network. FDUSD is the fourth-largest stablecoin and is backed by US T-Bills and bank deposits to peg the price to US $1.

Sui is a smart contract platform that launched in May 2023. The blockchain was built by ex-META employees who worked on Facebook’s failed Diem stablecoin project. The ecosystem is purportedly largely backed by VCs and has seen its fair share of positive (i.e., transaction speeds, throughput) and negative (i.e., lack of airdrop, manipulated on-chain activity) articles. 

None of this to bash on Sui, all of it to say that Neo has a proven track record of liveliness dating to 2015. The blockchain can serve as an equally viable network, with ties in the region, that can host RWA-backed stablecoins. According to CoinGecko on 4/20 2024, Sui sits at a market cap of US $1.8 billion, whereas Neo sits at $1.3 billion.

Tokenization

Another trend to keep an eye out for is tokenization via large scale financial behemoths. Fund tokenization is simply the creation of an on-chain contract that represents a portion of ownership in a fund and its underlying asset.

Tokenization has the potential to revolutionize traditional funds by making them more liquid, transparent, and accessible. Deloitte, a large tax, audit, and financial advisory services firm, believes tokenization will impact private equity, private debt, infrastructure, and real estate verticals.

Current workflows for asset managers are siloed and intermediated, which increase administrative burdens and operating costs. Tokenizing traditional financial instruments and funds can potentially become a solution that addresses these distribution challenges and drives $400 billion a year in revenue.

In March 2024, Black Rock announced plans to tokenize its wide holding of diverse assets, from bonds and equity to real estate and cultural assets. The international firm is the largest in the world and manages $10 trillion across various asset classes. Black Rock CEO Larry Fink said,

ETFs are step one in the technological revolution in the financial markets. Step two is going to be the tokenization of every financial asset.

Black Rock’s first tokenized fund was recently issued on Ethereum, the BlockRcok USD Institutional Digital Liquidity Fund, or BUIDL Fund. It currently offers qualified investors the opportunity to earn US dollar yields. 

In February, the Hong Kong Monetary Authority released guidance on tokenization to local authorized institutions (i.e., banks). These guidelines pertained to structured products, that are not securities or tokenized commodities, and focussed on due diligence, risk disclosures, risk management, and custody.

Cyberport

In addition to regulatory relationships, Neo has prime access to build upon guan xi, a Mandarin business term for forming relationships through networking. In Jan. 2024, Neo opened an office in Cyberport, Hong Kong’s government-founded digital technology flagship and incubator business park.

Following Hong Kong’s push to establish itself as an international hub for Web3, Cyberport reported that more than 150 Web3 firms registered to get an office in the professional park.

Fret non, anon, Neo has already begun to take strides in making a footprint in Hong Kong.

In March 2024, the first eight participants in the Web3.0 Global Acceleration Program were announced. The program is a collaborative initiative with Web3Labs, a gateway for Web3 startups in Hong Kong. Neo contributed US $1 million to the $10 million fund.

And that’s it – those are the things from the top-down that leadership can go after to bring real-world, actual use to the Neo blockchain by leveraging their geographic positioning. Neo needs to keep making strides toward bringing RWAs on-chain, onboarding institutions that are exploring technological innovation, and making fruitful relationships with local entities. 

Pardon the interruption, but I’d like to take us on a completely theoretical exercise designed wholly for the speculator. With approval of spot BTC and ETH ETFs, perhaps  we start questioning other digital assets that might also gain approval for these “TradFi token wrappers.”

When Neo ETF? 

The Smart Economy becomes a tangible concept when thought-exercising on how Hong Kong regulations might have an impact on the Neo network.

HashKey is one of the two regulated VASPs in Hong Kong, which basically means it’s one of two exchanges that retail users can trade on. Further, HashKey is going to be responsible for providing the infrastructure for Bitcoin and Ethereum ETFs that launched in the region in April 2024.

After the listing of the two “blue chip” digital asset ETFs, the next question is, who’s next?

Though speculative, if we assume that other assets are granted approval for ETFs, then let’s examine the HashKey and Neo relationship.

Per Neo News Today, the HashKey Group is a suite of professional, stable, secure, and compliant blockchain services catering to international clients. The services within the umbrella include an exchange, a brokerage, venture capital, custody solutions, and Web3 infrastructure.

HashKey provides a cradle-to-grave solution for both institutions and retail token buyers in one of the world’s most forward-looking jurisdictions.

Reading tea leaves, there could be a there, there with this relationship.

At the very least, should there ever be anything as monumental as a NEO ETF being approved, then there’s a direct relationship with the asset manager that would provide the infrastructure to custody the underlying NEO. 

The last time an entity with such regard was a consensus node on the Neo blockchain was KPN in 2018. KPN is a Dutch telecom company that offered landline phone service, cellular phone service, and internet access to over 30 million customers across Western Europe at the time. 

Given that telecom companies move in quarters and years, this relationship likely formed in the prior year or so, when Neo was experiencing peak mainstream attention in late 2017, early 2018. Connecting the dots, the last time Neo had such a large and respectable name securing the network, it was a chain that many people talked about (and its price was parabolically moving upward).

While such a financial instrument and an ETF would be a major contribution to Neo’s success, it’s speculative, and outside of the Neo Foundation’s control. However, shipping tools that people use is wholly within its power. 

Neo X Will Empower Grassroots Developers and Enhance Interoperability

For the bottom-up approach, Neo needs to launch Neo X and lets the BUIDLers BUIDL.

Neo was such a large name in 2017/18 because it served a simple market need: the ability for any project to launch an initial coin offering. Neo must also go back to its beginnings, and offer an environment for bootstrapped project founders to grow their visions from the grassroots.

Bane Labs (a collection of developers from NGD, AxLabs, and Neo SPCC) is building Neo X, an EVM sidechain that will run concurrently with the Neo N3 blockchain. With EVM compatibility, the Neo ecosystem can natively build into other products/dApps/ecosystems and leverage the tools of composability to create multi-chain use cases. 

Ethereum’s EVM is the most robust developer ecosystem in Web3, boasting more developers than any other blockchain community. It has the largest market share of developers, features, toolkits, and composable “building blocks” for others to iterate on and build a new dApp.

As the Ethereum Layer One becomes increasingly congested, EVM Layer 2 solutions are so popular because they leverage the code stack that was pioneered by the builders on the first chains. It is easy to copy-paste code, and begin building. 

Over the years, many project teams have expressed interest in the builders and unique features available in the Neo ecosystem, as well as the potential in connecting their projects to Neo.

However, the time-consuming nature of migrating code to NeoVM’s tooling and tech stack is not as intuitive to Web3 developers as that of EVM. It becomes a costly burden for the project looking to add support for Neo N3, and they opt to move on.

With Neo X, Ethereum’s composability now becomes a positive factor for Neo. Builders can simply migrate their existing EVM dApps to Neo, or vice versa. The amount of new dApps that can spring forward in the Neo ecosystem will exponentially increase. With new dApps comes the migration of assets from Ethereum into other ecosystems.

Furthermore, relationships with teams between EVM ecosystems can improve cross-chain interoperability, and establish a resilient ecosystem of multiple blockchain networks that will thrive for decades.

GAS Games

With the launch of Neo X, Neo Council members have a new source of “leverage” with the GAS income they generate on N3. While nothing is finalized, plans are for GAS include:

  • Vote for consensus nodes on Neo X
  • Reward for voters on Neo X
  • Pay for transactions on Neo X

Many of the Council members are independent developer communities from within the Neo ecosystem. They have a different perspective on tools, community, and development than that of the NF or NGD. With this unique view, the arbiters of the GAS can choose to wisely invest into teams that build tools they deem valuable for the Neo ecosystem, either on X or on N3.

There’s potential to see a whole new breadth of developers bringing concepts from projects they’ve worked on in EVM land, and for Neo’s Council to embrace and support those teams! Ultimately, the new network can garner excitement from both developers and users alike, and new community members for years to come. 

Wrap it up, sir

At the end of the day, this degen’s formula for Neo’s success in 2024 and beyond is simple.

Leverage relationships in Hong Kong, add real world use cases to the Neo blockchain and ecosystem. And, launch Neo X in the bull run to expand the Neo ecosystem to EVM, where the ecosystem will connect to the largest community of blockchain builders in the world. 

Both of these approaches create fertile ground for people, businesses, and enterprises to plant and nurture their visions into fully conceptualized use cases. When there’s increased activity in an ecosystem, there tends to be a positive correlation with the underlying asset price going up – but, hey, this is all speculation.

0

Angle’s Away

“The anchors are fucking up there,” Z said as he got out of his beat up pickup truck. 

Z’s a local to Taylor Canyon in Gunnison Valley and he was mad that the mountain bikers had taken more parking spaces than they needed. They were planning load their bikes into their vehicles.

That morning, Z hadn’t really brought the “Aloha” vibes with him. 

Kyle and I were looking at the guide book and looking up at the Second Buttress – taking in a good view of the long 60ish degree looking ramp. Kyle had put some time climbing in “The T” – colloquial bro code for the Taylor Canyon – but he was out of practice and couldn’t remember specifically where the anchors were located. The only piece of solid information Kyle could offer, was that he felt “pretty accomplished” after he’d sent that route for the first time years ago. 

Looking between the guide book and the chunk of rock, I still couldn’t find the anchors. But, Z said they’re up there. So, we grabbed the rope, the rack of gear, water, food, climbing shoes, and helmets, and headed to the base of the route.

The approaches in The T aren’t all that bad. It took about five minutes to walk from the car to the base of the route, and we’d only gained about 80 feet of elevation on the trail. Hardly enough of a trek to begin breathing heavily.

At the base of the route, there were white marks covering portions of the rock wall, signifying where other climbers had previously put their chalked up hands to pull themselves up the route. While it looked manageable, the cracks and places to put gear to protect me from taking a ground fall seemed… sparse, and not all that great.

This was the second harder route I was putting myself on the sharp end for this trip, trying to step my game up in the canyon. The day before I’d been spit out of Sassafras, a stiff crack for the grade, and took a good fall onto a green camalot. 

Though, when I racked up and tied in at the base of Angle’s Away, I wasn’t thinking about the previous days fall. 

I verbalized the pre-climb check-in with my belayer to let them know I’m prepared to climb. “My knot is tied, through both loops, and I’ve got all my gear.”

The beginning of the route has great jugs to hold and pull on with three inch wide ledges to stand up for about the first 15 feet. After that first 15 feet, I was able to get a grey camalot into a shallow crack, hopefully ensuring I wouldn’t deck upon a slip. Should a fall occur, considering rope stretch, I was safe for about the next eight feet.

“You’re going to want to have your blue and gold offset nuts ready to go,” sprayed Z as he comfortably lit his cigarette on the safety of the flat ground.

With each step onto another ledge, the handholds became smaller and the rock more polished. The gear placements for protection either became non-existent, or not quite…. bomber. The flaring cracks weren’t able to hold camalots or nuts very well. 

The gear was becoming less secure with each movement upward, and I was no longer standing on ledges or using my fingertips to hold me up. I was now standing on the balls of my feet, pressing my back into the adjacent wall – using friction and pressure to keep myself wedged on the rock.

As I’d make a move upward, it became necessary to use my palms to push into the rock where my feet were located, and scum my back on the rock wall behind me.

I was about ten feet above the last piece of protection and 50 feet off the ground. 

The last piece, a blue camalot, was not settled in a place that inspired much confidence. Should I fall, and that piece did not hold, I was potentially looking at touching dirt.

My feet smears were starting to slip. The palms that were pushing my back into the other wall were beginning to sweat and leave imprints on the rock. At this point, chalk was all but useless and was not drying my hands.

Exasperated, I’d begun to breath quite heavily and was beginning to lose the battle of the zen-like flow state. I’d begun to lose my composure.

“Breath dude, you really don’t want to blow it here,” yelled Kyle from down below.

Z added, “Yeah, man… this might be a real shitty fall. Maybe you should down climb and regain your composure. You’ll still keep the onsight if you do that!”

“I can do that,” I thought, and began to make the tedious, careful steps to climb down about 12 feet to relative safety.

After that dozen feet of down climbing, I was standing on chips that were good enough, and holding onto one to two inch crimp rails that allowed me shake out the built up lactic acid in my forearms and legs.

“Point your heels down, so you’re not standing on your calves and flexing them,” added Kyle. I’d heeded the mountain guide’s suggestion, which was a good piece of advice. (Note: I typically take Kyle’s advice, because he’s spent a lot of time acquiring certifications to guide people up mountains.)

Normal breathing returned. 

Palms became less sweaty. 

Forearms became less pumped and I felt as if I’d be able to hold a soda can again. 

My feet didn’t feel like they’d unexpectedly slip out from under me. 

I was able to objectively measure my next moves.

It was 12 feet to where I was last stuck and began hyper-ventilating. After that, another seven feet of climbing where I really don’t want to fall. Then, there’s a good pinky lock and I can place a purple camalot that will be totally bomber.

After running through the scenario in my head, I went up.

The sequence went: smear the feet and use my right hands palm to push my back into the other wall. Stand up. Find another place to put the balls of my feet and another place to put my palm. Stand up. Repeat four or five times until I’m near the pinky lock.

I stood real tall and slotted my right hand into the crack, for an amazing pinky lock. Once that hand was slotted, I’d felt as if it was impossible to fall out. While thinking this, I’d instinctively taken the purple camalot off my harness, put it into the crack, and clipped the rope through the carabiner. 

“Gun it,” Z said.

I really had no other choice for the next 15 feet. There was nowhere else to put protection, but the featureless glass-like rock had disappeared and handholds had reappeared. All I had to do was keep breathing, find places to put my feet, and grab onto ledges and jugs to pull my self up.

After five movements that entailed long reaches out left and up high, and the left and right shuffling of my feet as I’d stood up, I’d gotten to the anchors.

“Whooooo! Fuck yeah!” I exalted. 

I faced my fears, I climbed hard (for me), and I didn’t fuck it up. These were all great emotions associated with the route, but was potentially more excited to clip to the anchors and get lowered.

After Kyle had lowered me to the dirt, he’d said, “my bad dude, I think I might’ve sandbagged you. But aren’t you glad you did it?”

Pear Buttress

“Dude, I forgot the rack,” I said to Tony, abashedly meeting his look of incredulity.

After hiking the narrow dusty trail at 8,500 feet of elevation, we were easily an hour from the car. Situated comfortably on the ground at the base of Pear Buttress – a route I’d been eyeing for years – I couldn’t believe that I’d forget something as crucial as our safety equipment in the trunk of my car.

The day before our 5:45 am parking lot rendezvous, I’d agreed to bring half of the protection – most importantly, the alpine draws – and Tony would provide the other half. The alpine draws would’ve allowed up to place stoppers as passive protection, and extend the pieces so they wouldn’t pull out as the climber moved up. 

Had I brought the alpine draws, the lack of camalots would’ve been less detrimental.

I should’ve known something was amiss. That I should’ve triple-checked everything I’d embarked with on the hike to the base of the climb. Before we even started hiking, I’d forgotten to put my approach shoes; I was still wearing an old pair of ratty slippers falling apart at the seems. 

I guess I hadn’t had enough caffeine following the 3:00 am wakeup call to make our rendezvous time.

Tony sat in a calm stupor with harness and shoes in hand, making a judgment call of just how bad of a mistake this was.

He asked, “What do you want to do?”

Looking up at the white-washed granite wall housing grainy black flecks – a wall that beckoned for friction-filled foot smears and splitter hand cracks – I’d weighed the options. We only had six camalots for 500 feet of vertical climbing; we were supposed to have 14.

The first option was to walk-jog back to the car, retrieve the rack, and walk-jog back to the base of the route. Cons: this would be a two hour round trip, and I’d have to walk back up the steep approach to the bottom of the wall again.

Or, the second option was to gather what gear we did have, and climb the route. Cons: no alpine draws to extend the distance between the gear in the rock, effectively increasing the drag in the rope as the climber moves up. 

I said, “We’re here, I think we should do it.”

Tony stared at the ground and replied, “Hmm.”

I started putting my harness on, convincing the both of us aloud, “You’ve been doing lots of ropeless climbing in Rocky Mountain National Park, and I’ve been doing lots of climbing in Eldorado Canyon…”

Eldorado Canyon is notorious for its somewhat bold style of climbing. There aren’t always places to put protection into the wall. It requires a leader to make committing moves several feet above their last piece. This type of head game would be necessary for climbing 80 to 100 feet at a time with a minimal amount of protection should a fall occur.

“Alright,” Tony said as he’d begun to put his harness on.

Before embarking upward, I couldn’t believe how few pieces I’d clipped to my harness. Typically, it takes many minutes to place various pieces of gear onto the loops of my harness. I’ve performed this ritual for many climbs accumulated over the years; and, the process is typically calming. The placement of the gear onto the harness loops is always the same. I know where everything is located and what to grab when I need to. 

There are meditative qualities in such repetition.

This occasion, however, was different. The racking the gear onto my harness took a quarter of the time it usually did.

With one end the rope attached to my person, and other tied to Tony, I’d grabbed the first grainy lip of the coarse rock with my right hand, found an edge to stand on with my left foot, and began moving up. 

Then, another edge to stand on for the right foot and a sloping hold to pull upward with the left arm.

Looking down at Tony, I’d thought, “this is going to work out.” Unsure if I was convincing or reassuring myself. 

Thirty feet up, I’d placed the first piece of protection into the hand sized crack. 

By the time we finished the 600-foot route, Tony and I had found we’d been able to maintain the mental composure of climbing well above the last pieces of protection. Further, we’d had an adequate amount of gear to safely build an anchor to belay one another up each pitch. 

Less is more. 

That was the mantra for the day, as the route took a much shorter amount of time to climb than we’d initially anticipated. Without stopping to place the amount of gear I’d typically have placed, ended up shaving off a lot of time.

Leaving behind so much is not something I would recommend to my future self. 

But, I can reassure that future version that if such a scenario occur again, I can rely on past experiences. I can tune into previous climbs and move forward armed with the knowledge that at certain times, certain places force me to move boldly as a climber. That climbing in such a way is possible.

Or, of course, next time I could just remember to bring the right amount of gear.

Choppy seas ahead

April 15th, 2020

The US is well into its third week of shutdown. Despite 16 million Americans currently unemployed and out of work, the stock market has gone up this past month. Just take a look at $VTSAX from March 16th through April 15th below.

Source: Yahoo! Finance

Truly, markets are irrational.

One potential reason for the rise is the injection of $2.3 trillion from the Feds into various programs. Thus far, other actions from the Fed include:

  • Emergency rate cuts
  • Lowered amount of capital banks must have on hand
  • Propped up repo markets
  • Announced a credit program for businesses and consumers
  • Announced a program to buy junk bonds
  • Announced a program to buy bonds from states

It also appears in the past few weeks it seems overall fear has somewhat subsided for the time being. I’ll use the rates for T-Bills as a metric since people typically flock to these assets as they’re a perceived safe haven.

  • March 25th, 2020: -0.04%
  • April 13th, 2020: 0.16%

But, this rise in the price of stocks could be a direct response to the amount of money the Fed has injected into the market. Where else would all this newly printed money go, if not into assets?

Things don’t looks so good for Americans or the US economy in the short- to medium-term.

Outdated software making it difficult to distribute checks:

  • In Colorado, tens of thousands of recently unemployed have faced severe issues with filing for unemployment due to outdated technology.

New claims for unemployment are rising at historic rates (16,780,000 unemployed) and continue to rise:

  • March 21st: 3.2 million new claims filed
  • March 28th: 6.86 million new claims filed
  • April 4th figures: 6.6 million new claims filed

Today, 10% of Americans are unemployed. Beyond the scope off the immediate job losses for those employed in the the restaurants, bars, and service industry, more furloughs are incoming:

Tenants are going to be more and more strapped.

  • Colorado Sun covered a study that proposed there are about 450,000 renters at risk. Many are piling up late feeds because they weren’t able to make all of April’s rent. More are facing eviction when stay at home orders lift on May 1st.

Its these types of figures that lead me to believe the “V-shaped recovery” many hope for (and that the Fed is betting on) may not happen. The longer quarantine’s remain in effect, the longer businesses will have no customers and people will have no jobs.

I hope we don’t get to a point where there’s blood in the streets.

Everyone has a plan until they get punched in the mouth.

March 21st, 2020

In his most recent newsletter, Pomp wrote about fear, uncertainty, and doubt in retail investors. I will not lie and say I am not un-phased – so far, my net worth has dropped 26.8% in the past month.

However, having a plan before the markets took a downturn has helped immensely. I have thought about timing the market and pulling my funds out, but have not done so, as it is not part of the plan. The plan was always to ride the wave. We’re in this for the long haul.

Generally, my investment thesis has been serving me well, just as it has been for the past five years.

Dollar-cost average a portion of every paycheck into the market, make the maximum contributions the Roth IRA every year (VTSAX, VTIAX, and VGSLX), and never touch the funds (other than to rebalance once or twice a year).

Boglehead-like investment thesis.

We’re a week into quarantine, and I’ve spent a lot of time looking at numbers and charts. So, what do I wish I had done for this downturn?

Gold

I’m still not convinced of holding gold, but for this black swan event, it certainly would’ve helped to maintain the value of the portfolio. But, on a long-time frame, the total US stock market index will outperform gold – VTSAX returns dividends, and has historically risen at a higher rate.

However, I may explore the potential of allocating 5% or less of my portfolio to gold in the future. At this point, it feels like gold has a premium, as the value of the US dollar is much higher, and any other asset I’d convert to gold would be doing so at a loss as well.

Outcome: Potentially buy gold once markets return.

Put options

I watched the Big Short but never quite figured out how I could short a shit show. It wasn’t until stumbling on Wall Street Bets and its degenerate gamblers that it clicked. Here’s how the retail investor can make a bet on upcoming catastrophes: call and put options.

On Friday the 6th, President Trump hosted a press event that was scheduled to begin at 3:00 p.m., an hour before the NYSE closing bells. He was 30 minutes late to the event, and when he spoke, the market rose 10% in the final 30 minutes of trading. (Years in crypto would lend one to think this was just a pump; one with no real value or merit.)

I was tempted to sell all my funds and ride the downturn for the next month, but my investment thesis says that it is not an option.

What would’ve been ideal would be having opened an options account with Vanguard. I’ve got the Robinhood application, but many who used Robinhood on the days of the most massive market drops faced issues with selling their calls on the app and missed out on big wins. It appeared that institutions (like Charles Schwab, and Vanguard) had a better ability to handle the activity.

I don’t know how options trading works. But, if I did, I would’ve won on that bet that Monday the market tanked 10%.

VIX

In 2016/2017, I recognized that the market was very stable. Instead, I picked up on the signal from a podcast, and examined the current situation. The podcast mentioned VIX, a non-equity index option that uses the CBOE Volatility Index as its underlying asset.

I remember thinking, “this would be a good time to buy VIX.” I knew there’d be volatility and strife in the markets at some point in my investing career, and this would’ve been a very valuable time to have held a correlating fund.

But, I didn’t go down the rabbit hole and learn how to invest (or bet) with the asset.

In the future, I should have a little more conviction with some of my intuitions. (I also recall thinking it’d be an excellent idea to buy BNB in 2018 when it was only $2. The exchange was very obviously growing exponentially.)

Since I can’t go back in time and buy VIX, or convert all my holdings to cash, or short the market with put bets, I’ll keep doing what I was doing in the past few years.

I’ll keep dollar-cost averaging into VTSAX, VTIAX, VGSLX, and Bitcoin.

I’ll likely buy BTC when there are sharp decreases.

Other than that, sit on my hands and learn about these things I wish I knew a year ago.

Stabilization or the eye of the storm?

March 20th, 2020

Things seem to have calmed down a bit in the past couple of days, at least in the market. The global death rate for the novel coronavirus continues to grow exponentially daily, which seems kind of shallow to have such a focus on the markets.

I’ve been further compounding the perception that the only thing I can control is not the outcome of the event, but my reaction to it. So, this is why I’m so focused on the markets.

I may have some more meaningful thoughts about the virus on another day, but today I’ll let the medical professionals focus on covid-19, and I’ll keep to my office/home.

The markets have stabilized in the past couple of days, and Bitcoin has gone up a little bit. Currently, I am sitting on a 24.57% reduction in net worth since all time highs just one month ago.

I am still not tempted to sell anything at all. Iron hands. It does seem like the giant losses I took in the crypto market in 2017 and 2018 have helped prepare me for this black swan event.

So far, the most difficult decisions I’ve faced are that I’m sitting on dry powder that I will eventually put to work in the market. This market timing approach feels like the exact antithesis of what I should be doing, which is lump-sum investing any spare capital, and dollar-cost averaging every month. Or at least, that’s what I’ve been doing for the past five years.

I will continue to sit on cash and keep dollar-cost averaging with each paycheck.

Another signal is becoming more and more aware for me, buy when I’m scared. When I woke up on March 16th, Bitcoin was at $4,600. My initial reaction was an aversion to losses in my current holdings. What I should’ve done was bought more. I was on the fence but didn’t pull the trigger.

Note for crypto trading: sell when you feel like you’re going to be rich, and buy when you feel like you’re going to zero.

Someone smarter (or dumber) than me.

The country is finishing its first week of relative quarantine measures. Here in Colorado, restaurants, bars, and ski resorts have been shut down. Retail stores and banks are announcing temporary store closures.

The massive lines and abnormal amount of shoppers at grocery stores are beginning to subside, but there is a visible reduction in the supply of food on shelves. Two days ago, eggs were completely sold out – the day before that, chicken. My roommate said he couldn’t find canned beans until the second grocery store.

I wonder if the makings of a depression are in order. Mnuchin said the Feds think up to 20% of the country could be unemployed. The conservatives are putting together a universal basic income plan.. I still think things will get worse before they get better.

Until then, I’m extremely lucky to have a remote job that it is an industry that just survived one of its most volatile bear markets. I hope it is resilient through this global crisis.

A moment of zen amongst a sea of red

March 17th, 2020

Yesterday was a bloodbath. My net worth dropped by nearly 9% and is down 25% from February 19th (market all time highs). It’s funny, in February I had a sense that something was awry in the markets, but couldn’t have fathomed what we’ve seen so far.

Overall, this isn’t as painful as I thought it would be; I’m actually quite numb to the whole experience. I’m quite amazed at how my risk tolerance isn’t really phased by the recent market downturns. It seems two years in the cryptocurrencty bear market have really hardened me after the drastic market losses and scams I’ve suffered.

While I’m not predicting anything, I am anticipating we’ll see further drops as quarterly earnings reports come back negative, supply chains continue to halt, Main Street is forced to close, and large portions of low income individuals lose their jobs.

In such times of uncertainty, the market will likely react emotionally; likely in a downward trajectory.

Thinking of this, I’m doing my best to mentally prepare for what that looks like. It’s not out of the realm of possibilities to see up to a 50% decline in total net worth. I’m no investing genius, so I try to look towards those who are for nuggets of wisdom.

In 2009, Munger was asked about how worried he was that stocks had fallen by 50%. He responded:

Zero. This is the third time that Warren and I have seen our holdings in Berkshire Hathaway go down, top tick to bottom tick, by 50%.

I think it’s in the nature of long term shareholding of the normal vicissitudes, in worldly outcomes, and in markets that the long-term holder has his quoted value of his stocks go down by say 50%.

In fact, you can argue that if you’re not willing to react with equanimity to a market price decline of 50% two or three times a century you’re not fit to be a common shareholder, and you deserve the mediocre result you’re going to get compared to the people who do have the temperament, who can be more philosophical about these market fluctuations

Personally, living through a such a historic moment isn’t as panic inducing at I’d thought. While it’s not overwhelming, the biggest emotion I’ve been feeling is the urge to throw all of my money into the market. I’ve thus far silenced this voice in favor of dollar-cost averaging lump sums as I get them.

I’m also not nearly savvy enough to have known to go all into cash, nor am I savvy enough to time the bottom of this historic drop (after drop, after drop). But, I’ve got some dry powder that I should just put into the market. And, in the coming months I will put it in the market, but I’m doing an experiment based off past results.

In September 2017, Equifax was hacked and its stock dropped drastically.

  • September 1st, 2017: $141.59
  • September 15th, 2017: $92.98

Trying to be a contrarian, I saw a good purchase opportunity, but I bought in very quickly, when the stock had dropped to ~$125. I later sold at a loss to convert to another asset.

The lesson I learned was: be patient.

Eventually, I’m going to put my dry powder to work. But for now, I’m going to breath, be patient, and follow the markets until I’m ready to make a long-term, contrarian purchase.

Another bloody Monday

March 16th, 2020

In 2016 I read a book called “The Great Depression: A Diary: Benjamin Roth,” which was a first-hand experience of one lawyer’s perspective of the markets during the Great Depression. At many points in the book, Roth (of no relation to the tax-advantaged investing account here in the States) mentioned numerous times throughout the multi-year ordeal that he saw ample buying opportunities. He didn’t have the capital.

I’m going to journal during these tumultuous financial and epidemiological times spurred by the exponential growing coronavirus.

It’s just before the market opens on Monday, March 16th, 2020, and we’re expecting yet another red day. Potentially even circuit breakers are pausing trading for 15 minutes; within a moment of the market’s opening.

I’m expecting another 5% drop in my traditional investments today, and potentially another very red week. (PS, markets just opened, and VTI began 10.9% down!)

Last night, the Feds announced a series of measures that the futures markets didn’t take too kindly. Many are saying, “the Fed has no more ammunition” about the tools they’ve got to handle this crisis. At this point, I perceive they can only further devalue the dollar by printing more money. Here are the Feds plans (as of 3/15/2020):

  • US interest rate is now in a range of 0 to 0.25 percent
  • Banks required to hold 0% in reserve (down from 10%)
  • Buying $500 billion in treasuries
  • Buying $200 billion in mortgage-backed securities

Maybe in another journal article, I’ll go into the repackaged collateral debt swaps that crippled the US markets in 2007, and how they’ve made a resurgence in 2020. There may be a connection with the $200 billion in mortgage-backed securities the Fed is purchasing.

Yesterday, I bought more Bitcoin at $5,300 and woke up to a $4,600 price. I still feel like I’m catching the falling blade, but I also don’t want to miss buying Bitcoin at these prices. I’ll likely continue buying more on the way down and allocating some extra capital.

Despite all this madness, I’m very happy to have an investment plan that I’ve been following religiously for the past five years. It’s quite simple: dollar-cost average. Every payday, I put as much money as I’m allowed by the IRS into tax-advantaged accounts. Currently, I’m invested in the Total US Stock Market Index (VTSAX), Total International Stock Market (VGTSX), and Vanguard Real Estate Index Fund (VGSLX).

The only thing I’ve been fighting is the urge to plow more money into the markets, which is something I didn’t expect when establishing my plan five years ago. I’d always anticipated I’d be afraid of losing capital, but my experience has been the opposite.

If this downturn is anything like the Great Depression, then I’ll likely have ample opportunity’s to buy.

I grew up in Miami and have seen many people panic. This mentality is something I’ve carried through this coronavirus scare. I might have been a bit callous in understanding the exponential threat this disease offers (even though I’ve been social distancing, and avoiding crowds)

This is one of the first articles that helped me better understand the nuances of the public health crisis that might loom: https://medium.com/@tomaspueyo/coronavirus-act-today-or-people-will-die-f4d3d9cd99ca

Final thought: Hardcore Bitcoiner’s are talking about potential bank runs. I think it’s a bit overblown, but only time will tell.

Also, yesterday I got into it with an ETH maximalist and was blocked by a Bitcoin maximalist. Irrationality and emotions are beginning to take over.

So far, a long-term perspective has helped dampen the blow of a shrinking portfolio.

March 10th, 2020

“Over the short run, however, the fundamentals are often overwhelmed by the deafening noise of speculation.”

Jack Bogle

This past quarter has been a tumultuous one for the domestic and international markets. Currently, on Twitter, there is so much talk about the Coronavirus, as well as its impacts on global markets. With the threat of global pandemics and financial meltdowns, everyone tries to consume as much information as possible to arm themselves with knowledge for safety.

However, emotions take over, and sometimes opinions are regarded as facts. Many people take hard stances on differing views, which has created an environment of contradiction. In this environment, it can be easy to make irrational, short-term decisions. Especially as investors are battered with headlines and opinions like:

  • The REPO market is going to implode the US economy.
  • The US has been on its biggest bull market ever, and it has to end soon.
  • Bitcoin is going to be $xxx,000.
  • Bitcoin is going to be worth $x00.
  • Treasury yields are lowering at an alarming rate.
  • The Chinese supply chain is going to disrupt the entire global economy.
  • The Fed cuts 50 basis points in response to Coronavirus.
  • The Fed rate cut did not effect the US market.
  • Russia dropped the price of oil to squeeze out US producers.
  • Bonds are the only safe place to be.
  • “This is what 2008 felt like.”

This noise is propagated and repeated by many as they witness their investments take a turn downward. For those who have their assets invested in US and international markets, their portfolios have plunged this quarter. With so much uncertainty across all the markets and various financial sectors, investors might be seeking (maybe desperately so) “safe” places to allocate their funds and investments.

When you don’t know what to do, do nothing.

Mark Cuban

At the time of writing this, I’m down approximately 9% from the end of January. However, from my portfolio’s peak in February – from a combined uptrend in the cryptocurrency and equity markets – I’ve witnessed an 18% loss.

It’s a bit frustrating to look at these paper losses and wish I could’ve danced in an out. However, something that has helped a bit – so far – has been sticking to a plan I formulated years ago.

In 2015 I developed a firm investment philosophy, which dictates contributing as much as possible to tax-advantaged accounts (i.e., 401k, IRA, etc.) and maintaining a 20+ year horizon. I engrained this habit, during a general uptrend in the international and domestic stock markets. It was easy then.

In today’s volatile market, it is this philosophy that is helping to minimize the sting from watching the Total US Stock Market Index dropped 5% in a day and nearly 8% the following day.

Dollar-cost averaging has removed anxiety about investing in these markets. One puts in ‘x’ amount each month, no matter what, then doesn’t think about it anymore.

In 20 years, I’m betting the US will have grown its equities markets, Bitcoin will become a larger asset class than it is today, and the countries from around the world will continue to produce great companies.

It’s this long-term perspective that is helping downturns in the equities market, cryptocurrency bear markets, and general volatility taste less bitter.

I hope it continues to do so if the markets become even more implosive.

An Overview: Before NEO, there was Antshares.

In February of 2014, Da Hongfei and Erik Zhang founded Onchain, which designs and develops blockchain solutions for businesses. As a company, Onchain envisioned its role to encourage the wide-scale development of “distributed ledger” technologies across private and public sector organizations. A ledger is the mechanism used to record transactions, and when distributed, the record can not be altered across so many computers.

Onchain’s first major project entitled, “Distributed Networks Architecture” (DNA) focused on various scenarios where digital asset applications might support a plethora of businesses through multiple forms of private and public blockchain. The company’s goal is to enhance DNA to the point that comprehensive distributed ledger systems might provide solutions to enterprise-level challenges.

As a company, Onchain believes blockchain must be transparent, and has made Onchain DNA a free, open-source project. This enterprise-oriented company’s dedication to open-source and transparency spawned a public-blockchain called “Decentralized Autonomous Corporation” (DAC), which was later rebranded to “Antshares.” DAC or Antshares was originally funded by one of the two Onchain partners, Da Hongfei.

Antshares (Whitepaper 1.0): A Distributed Ledger Protocol that Digitalizes Real-World Assets into Digital Ones

The public blockchain was founded as an open-source project in compliance with the MIT open-source protocol (permissive free software licensing) and opened a repository on GitHub in September of 2015. In its whitepaper, Antshares offered “digital tokens generated by e-contracts [that] function as general underlying data and [can] be used for recording rights and assets like equities, creditor’s claims, securities, financial contracts, credit points, bills and currencies.” These sort of financial transactions “could be applied for areas like equity crowdfunding, equity trading, employee stock ownership plans, P2P financing, credit points, funds and supply-chain finance.”

Antshares was not designed to be a digital currency, but rather a blockchain protocol that aims to eliminate currency-related legal issues, as well as partner with banks and third-party payment providers. The “transfer and trade of equities on the Antshares is essentially an e-contract digitally signed by parties involved.” To curb concerns about enterprise and third-party partners losing their private keys in case of a faulty transaction, Antshares sought to provide an “asset-retrieving mechanism” developed to save assets inside an address that might’ve been lost.

Antshares (ANS) coins provided partial ownership of the Antshare blockchain, which generated AntCoin (ANT) tokens to be used to develop applications/write onto the ledger. This is the same stake- and utility-token model NEO and GAS use in 2018.

On September 7th, 2016, Antshares closed its initial coin offering (ICO), which raised a total of 6,120.08 Bitcoin (BTC) from 1,493 participants; or, the equivalent of nearly $4 million USD. Additionally, the ICO was conducted with a refund feature that allowed participants to reclaim their investments if they so chose; regarded to be the first fully-refundable token sale.

Antshares was initially focussed on digital assets, not smart contracts.

In the ‘Antshares era,’ as Hongfei has stated, the blockchain was more focussed on digital assets, with less focus on smart contracts. In its whitepaper, Antshares’ goal was to provide access to “digital assets for everyone,” and “build a financial system [to bridge] real-world assets.” To transfer assets on Antshares, ‘e-contracts’ required both the sender and receiver to utilize their private keys as digital signatures.

Digital signatures act as the solution to traditional paper-based financial systems, where “transaction instructions and authentication information (sign and seals) are stored separately” within the parameters of a particular financial institution. Such transaction and authentication information is stored in bundles on a blockchain and stored on nodes, removing the necessity for a trusted third party to verify validity of the sending and receiving parties. It is within this realm digital signatures are able to remove the need for trusted third parties. Digital signatures perform “self-authentication on the [untampered] integrity, and validity (accessible to the signer) of the transaction instructions.” This self-authentication ensures consensus on the content of the transactions, and its validity, on a distributed basis supported by the nodes that store the data.

In blockchain, consensus is simply the general agreement of previous transactions between two parties. As peer-to-peer (P2P) networks have high-latency, the chronological order of transactions may not always be recorded properly. To address this issue of consensus many blockchain projects have used methods such as Proof of Work (Bitcoin, Ethereum), Proof of Stake (OKCash), Delegated Proof of Stake (Lisk, Steem), and the method Antshares adopted, delegated Byzantine Fault Tolerance (dBFT). A whole chapter will be dedicated to the dBFT consensus mechanism.

To link this ideology with the real world, Antshares opted to replace tokens with e-contracts, and user-controlled identity authentication.

Token sales and ICOs have been used to tokenize assets onto the blockchain. Fiat currency can be transferred from the sender to the receiver, with or without the receiver’s consent of the transaction. However other assets such as stock equities, bonds, and creditor’s claims have complications with rights and obligations. Not to mention issues conforming to every jurisdictional law surrounding the transfer of assets. The Antshares white paper sought to address the “transfer of assets [with] the digital signatures signed with the private keys from both the sender and the receiver.”

This allowed Antshares to record the transfer of assets as an “onchain solution to the transfer of offchain assets.” Otherwise stated as, giving a digital identity to real-world, physical assets. Using this method of assigning a digital identity, there are no new legal relationships that parties enter into. This is unlike tokenization (that could be labeled as a security), as flaws in many international laws are now reduced, or even eliminated. Additionally, digital certificates removes the need to trust third-party verifiers, and provides user-controlled identity authentication.

Finality, bookkeeping, and consensus

The finality mechanism for Antshares was detailed in the whitepaper as “One Man Bookkeeping vs. Joint Bookkeeping.” In One Man Bookkeeping, a single node performs the bookkeeping of a block, but other nodes might add transactions to the blockchain. Blockchains such as Ethereum, and Bitcoin utilize the One Man Bookkeeping standard. However Joint Bookkeeping introduces the ‘weak trust’ concept, such as to believe that no major number (1/3 or more) of the bookkeeping nodes may act in a nefarious manner. This requires identity authentication of the controlling parties of the bookkeeping node to judge on their reputation and technological capacity. Also, should the nodes act in a nefarious manner, cryptographic evidence will be available for future investigation. This leads to the conclusion that Joint Bookkeeping is suited for public blockchain with identity information or for Consortium/Private blockchains.

These bookkeeping nodes were designed to be the center of the Antshares blockchain, and to convey a clear division of the system’s workload. Full (bookkeeping) nodes were designed to store the entirety of a blockchain — even after its data is large after years of use and attached data- and in reaching consensus and building new blocks. The full node operators were to act as service providers, who store complete historical data; whereas individual users could access the network with their own web browser or mobile application. As Antshares adopted a weak-trust-based Joint Bookkeeping methodology, the digital signatures of the bookkeeping nodes are included in blocks. Users do not have to download full historical data to verify the current block.

The Antshares consensus mechanism was built to account for the weak-trust; it has low-latency (high volume of data messages with minimal delay) and high-throughput (the amount of computing resources dedicated to accomplishing a computational task). At the time, the latency was set at 15 seconds to generate a block, and a bandwidth of 100 megabytes per transaction. This meant with external cryptographic computing hardware, “the Antshares Blockchain was capable of handling thousands, if not tens of thousands, of transactions per second.”

Financial and real-world application scenarios

Application scenarios envisioned of the Antshares whitepaper included crowdfunding and trading of stock equities, credit point management, supply chain finance, and employee stock ownership programs (ESOP) and cap table management.

The Antshares platform sought to allow companies to launch their own funding campaigns, which would provide companies the opportunity to register the ‘stock equities’ on the Antshares blockchain and issue them to the investors. “With Antshares, start-ups could acquire a market evaluation and liquidity of their equities while the users are granted with an exit mechanism, which is the pain point of stock equity crowdfunding.”

Blockchain-based ESOP programs would aim to remove the single-point issue with current ESOP provider, that if the server is hacked, the equity and data of client companies have been compromised. Additionally, the Smart Contract functionality was designed to provide companies with flexible control over equity transfers, limits on stock equities that can only be held by designated employees or investors, or the establishment of limits on a number of equities that are transferrable or tradable.

The Antshares whitepaper sought to make “Antshares-registered claims became transferrable, eligible for mortgages, and even programmable.” Users of the platform would be able to purchase long-term claims, without worrying about emergency monetization. For example, long-term bonds could be monetized under discount, or even mortgaged. Companies that might utilize the Antshares platform for their equity management could mortgage those equities to issue company bonds.

The whitepaper had also outlined how the databases for a company’s credit point management exist within silos. Airlines, telecom operators, banks, and hotels issues credit points as a means to attract and retain customers, but the silos make it very difficult for two separate companies to interoperate their customers’ credit points. As the Antshares blockchain is open, transparent, and can be reviewed by any users, there could be potential new markets for multiple kinds of industries that utilize credit points.

Another real-world application scenario involves supply chain finance. Supply chain finance is a culmination of a set of solutions businesses utilize to lengthen payment terms to their suppliers, while creating options to pay their large or small and medium-sized enterprise (SME) early. This can include multiple types of business uses that include “factoring, trade finance, warehouse receipt finance, accounts receivable finance to corporate notes and credit financing in the supply chain.” Blockchain-based solutions can provide cost-efficient solutions fo “participant verification, transaction validation, timeliness validation, bank due diligence and corporate financing documentation, thus enhancing the general efficiency of the supply chain finance.”

The Antshares economic and token distribution model

The Antshares platform built two assets into the blockchain: Antshares (ANS) and AntCoins (ANT). ANS stakeholder-token model was adopted so coin holders could vote in elections, bookkeeping, and generating dividends (for holding ANT). Whereas ANT utility-tokens were to be utilized to pay for system process fees.

Such systemic fees included “accounting charges collected by bookkeepers” and “extra services charges collected by Antshares holders.” Accounting fees were to be charged to compensate bookkeepers for their storage costs, connection, and computing resources. The charging rates would be determined by the bookkeepers, as long as 2/3 agreed. Additionally, AntCoins could purchase advanced functionality of the Anthshares blockchain such as “asset creation and registration for bookkeeper nominees,” and potential future “altering, writing-off, and freezing of assets.”

A total of 100,000,000 Antshares coins were created at the genesis block, with no plans to alternate the amount of coins created. Each ANS coin was made to be indivisible, which meant no coin could be less than the value of 1.

100 million AntCoins were coded to be generated at the onset of every new block. However, since block generation would slowly decrease in pace over time, ANT generation would take 22 years from genesis to token number 100,000,000. Using a predictive model to establish how long blocks would take to generate in the future, 16% of ANC would be created in Year One, 52% created by Year Four, and 80% created by Year 12.

Distribution plan for ANS coins:

  • 10% provided to the early supporters of Antshares
  • 17% for participants of the first ICO round
  • 23% for participants of the second ICO round
  • 50% to be held by the Antshares team, locked for the first year, then later to be used on projects in the Antshares ecosystem

What was to come next?

After studying Ethereum, the Antshares team diagnosed Ethereum’s potential issues surrounding its consensus mechanism (Proof of Stake), and opted to take a different approach through a Virtual Machine (VM). The VM uses compilers, which allows for the input codes of various programming languages, to go through the VM’s compilers and create an output of a single language that can operate on the blockchain.

This concept, among others was further described in the NEO (Whitepaper 2.0) documentation released when Antshares was rebranded. Antshares was upgraded and renamed to NEO on August 8th, 2017.

Proudly powered by WordPress | Theme: Baskerville 2 by Anders Noren.

Up ↑