The Summer When “Sushi” And “Hotdog” Burnt The Noobs

The DeFi space is notorious for copycat blockchain projects which don’t really deliver anything useful other than a quick pump and dump. Those who get in first benefit, dumping on those who come much later in the anticipation of ginormous returns. It just is not going to happen, unless you aren’t the “fool” (e.g. Greater Fool Theory). The problem is due to human nature. Many are looking at these DeFi projects as “get rich quick” schemes as they try to get in early and exit early with profits while leaving those who followed nothing.

It all started when developers followed the success of projects like Uniswap and Yearn.Finance. Since the code is open source, and there are plenty of resources available from GitHub among other places, developers can just copy and paste the code and create their own fork of the software. It has worked well in fact that we have Uniswap clones with catchy names like SushiSwap and HotDogSwap. They may sound like the next big thing in the crypto space, but that is not the case.

These copycat projects offer high yield products, that just seem out of this world. You must be in another dimension to expect 1,000,000x (1 million times) returns on a token. This reminds me of scamcoins like Bitconnect, but only more technical and neatly packaged for those who think they are on to quick gains in the crypto space. None of these tokens are sustainable if every holder ahead of you dumps and there is no further liquidity to maintain the liquidity pool. They were illiquid to begin with and have no other purpose other than speculation.

A developer who goes by the name of “Chef Nomi” has become well known for the SushiSwap token. It is another clone of Uniswap that issues its own token for Liquidity Providers to lock their digital assets. Despite its relatively short existence, it suddenly surged after August 30, 2020 with huge gains for those who hold the token. All they did was launch a new liquidity pool provider using “vampire mining” methods to siphon off tokens from Uniswap. At this point some holders were thinking things were going well, until SushiSwap dumped and Chef Nomi exited the project taking $14M (which he would later return). Later Chef Nomi apologized, stating the reason for exiting the project was more due to turning it over to the community. It was just that the way he left was not in a genuine way to assure the community that things will be all right. Actually, what does Chef Nomi care since no one should be in control of the platform. It is a decentralized protocol that no one, not even its developer should be able to control.

SushiSwap was eventually saved by Sam Bankman-Fried, head of startup Alameda Research and trading platform FTX. Perhaps SushiSwap was worth saving. If you look at the code, it was not just a clone of Uniswap. The project also added governance features for the community. At least things ended well with SushiSwap but not for the Yam project. Yam, a clone of YFI or Yearn.Finance token, became one of the hottest “Yield Farming” projects in DeFi in August 2020. Many people fell for the hype and soon many were putting their tokens to gain huge yields. However, the code was never subjected to an audit and it had a serious bug that would affect its operation. The bug has permanently affected the platform with $750,000 worth of Curve tokens locked. Perhaps this should be the DeFi example of who not to follow when launching a new project.

Following the heels of SushiSwap is another project called HotDogSwap. Once again the hype brought in a huge pump in its initial release in September 2. The token was valued at $5,000 at some point before crashing to less than $1.00. The value has since plummeted further below $1.00 as of this posting and it may not recover again, unless it has real liquidity and actual use cases. That cannot be stressed enough. Utility is what makes a token a GPT (General Purpose Technology). One of the failures of HotDogSwap is a lack of community governance that could have prevented large dumps through improvement proposal protocols (e.g. like EIP or Ethereum Improvement Proposal). Otherwise, there is no way to stop “Degenerate Farmers” who pump to push prices up and then cash in when the FOMO begins.

Perhaps the DeFi space needs to keep an eye out for regulators. With all the money being generated in this space, it will begin to catch the attention of regulators like the US SEC and tax authorities like the IRS. Compliance can be circumvented because these platforms are decentralized, but we shall see just how decentralized a platform is. If they use a form of on-ramp with fiat or digital exchanges, it could lead to requirements for users to submit personal KYC data. The use of CeFi (Centralized Finance) exchanges like Binance can provide the compliance requirements to some of these DeFi projects using a CeDeFi bridge.

Between Yam and HotDogSwap, users have lost plenty of money. These copycat projects are burning those who FOMO into the project with the expectation of high yield returns. The failed DeFi projects can serve as a cautionary tale to those who dare get into this space. These projects are digital ponzi schemes, and even much worse. With ponzi schemes you have a chance to recover your funds. With smart contracts and the blockchain, the problem is the immutability of data means there is no backdoor or master key that can unlock these funds. It is locked in the blockchain forever, thanks to reckless developers.

The Basic Use Of Tokens In Cryptoeconomics

A token is basically a means of exchanging value or service using a form of currency. In the traditional sense, we use tokens for a variety of reasons. It is used as a way to validate a service or transaction, representing money. Back in the days, tokens were used on tolls, subways and in arcades. You purchase the tokens first using real money in your native currency. For example, to ride the subway you would first pay $1.50 to the attendant at a booth. The attendant then gives you a token which you then use to insert into a slot at the turnstile. If the token is accepted it opens a gate that allows entry to the subway train deck. Likewise at the arcade you pay first for tokens before you can use the video game machines.

Tokens provide a means to control the use of a device, like the video game machines in the arcade or account for usage, like passengers using the subway. It has its purposes as a means to exchange value for the use of something (e.g. transportation, entertainment, etc.). The use of tokens can also help regulate or secure the use of services, for management purposes. In an arcade, the operator wants only their customers to use their machines. They want to to be able to track the machines as assets and only have customers use it. A rival arcade’s tokens will not be allowed by their establishment. By issuing tokens, they are able to accomplish that.

In cryptoeconomics, tokens are also used. It has the same purpose, but it is in a digital format. Tokens from a cryptoeconomic context store a value that can be exchanged for something. It is also expended as a fee to perform computations to secure and process transactions. Tokens are also called coins, but there is a difference in their purpose when using these terms. A coin refers more to the cryptocurrency itself. You can call the coin as Bitcoin, while its token is BTC. When expending the coin you can refer to it as a token of the cryptocurrency’s blockchain network. It is a unit of value for that particular blockchain. On Ethereum, there are different token types that can be exchanged for value. The ERC20 token, used for funding projects, can be exchanged for Ether and converted into other cryptocurrency using smart contracts.

Tokens in cryptocurrency are also used to verify a user’s ownership of a coin. All tokens are associated with a public address that refers to the holder of the coin or token. This cannot be disputed on the blockchain since it is validated and tamper resistant. This provides a way to verify if a person is being honest when conducting a transaction. There is always a trail of provenance that records the history of a token when used in a transaction. Bad actors attempting to forge fake tokens will not be able to because tokens can only be issued through the blockchain by way of consensus (e.g. proof-of-work, etc.).

A token is like a certificate of authenticity or proof of ownership regarding a coin. During a trustless transaction on the public blockchain, if a user Alice and another user Bob conduct a transaction, their public address is recorded along with the transfer of value of the token they hold. It transfers ownership from one user to the other. Supposed Bob wants to sell his unused television to Alice directly, they enter into a P2P (peer-to-peer) transaction. Bob asks for 5 Ether which Alice then pays using a smart contract on the Ethereum blockchain. The smart contract executes with consent from both parties and the token exchange takes place allowing 5 Ether to transfer from Alice to Bob. The good thing about smart contracts is that before any transfer of value can take place, a condition can be created that the physical item must first be delivered to Alice before Bob receives a payment.

Tokenized economies based on smart contracts allow more transactions to be conducted directly without middlemen or third party platforms. The blockchain is the layer of trust that facilitates the transaction, and never blocks or censures anyone. Like in traditional economies, tokens are used for tracking and accountability purposes. This also transfers value in exchange for goods and services.

BTT: Tokenized and Decentralized File Sharing

Do you remember back in the 2000’s there was a file sharing program called Napster? Actually it was for music but it allowed us to share files of different types, from movies to images. It was the start of mainstream peer-to-peer or P2P file sharing, allowing anyone to share files and download them as well. Basically, everyone who has Napster installed connected to a centralized location where the communication is established with the network. Napster’s server’s then control the data that allows users to share their files. It did not last however, it was shut down by the government because of complaints of copyright violations and the risk of sharing of intellectual property protected information. This would be a stab at file sharing on the Internet, but it would be replaced by something else.

That something else would allow users to continue to share files but without a central server like Napster. It would be decentralized, but also direct P2P using a different protocol. The protocol has become synonymous with the name of the application itself, BitTorrent. It is the most commonly used file sharing application on the Internet and it was purchased by the cryptocurrency project called the Tron Foundation. It now delivers a tokenized decentralized file sharing network that runs on the BTT token. So it seems that file sharing and cryptocurrency is a match.

The principles of the BitTorrent network is based on a “Tit-for-Tat” algorithm. That means that to download files or to “leech”, you must also contribute files to the network or “seed”. Therefore, it is an ecosystem of “leechers” (downloaders) and “seeders” (uploaders). This is to make sure that there is fairness in the amount of contribution made to the network from all users. The network also becomes faster with more “peers” aka computers or users. Another feature users get on BitTorrent’s network is anonymity. In no manner is a user required to provide their ID or personal information for other users. There is more privacy in using BitTorrent than let’s say Google Drive when it comes to sharing files. With Google Drive, the owner of the shared file can be tracked to their Google account and g-mail which has an identity often attached to it. In order to understand the concept of BitTorrent, we must take a look at how their network functions.

When a file is uploaded to the network, it is not stored in one place. It is actually broken into fragments called “pieces” and identified by their cryptographic hash. The pieces are stored across the network on different computers. A cryptographic hash function is used to verify the authenticity of the pieces for security purposes as well. That means that no one can just tamper with the pieces, they are protected with cryptographic technology. Pieces of files are then distributed across the network and as more seeders join, the faster and more reliable the network becomes. BitTorrent also does not let the user download the file immediately. It must go through a process first which involves having the torrent file to point users to the location of other peers who have the pieces to the file.

How BitTorrent works

A torrent file is accessed by users when they want to download a file. The BitTorrent client gets a list of file locations for torrents that users download. The communications protocol is beyond explaining in this article, but in simpler terms it allows information to propagate across the network. The torrent file does not actually contain the content. It just contains information about the location of the file’s pieces which the user’s client will download from. The content’s pieces can be downloaded as .torrent files. Once the pieces have been downloaded, the client then puts the pieces together to reconstruct the content. Thus downloading a large movie file becomes more efficient and reliable by breaking it into pieces rather than one large file. This is because when the connection times out, you don’t have to download everything again if you already have pieces of the file.

BitTorrent has been controversial because of the way it circumvents the law regarding file sharing. Music companies are against the sharing of music on various platforms unless there is paid royalty to the musician and recording studio. Copyright laws also protect intellectual property as well as published content. BitTorrent makes pirated movies easier to share and there is a market for leaked Hollywood films that make use of P2P technology. It also allows the sharing of games, music, software and photos. Just about anything digital can be shared using BitTorrent’s network. There is not much the government can do however because of the decentralized nature of BitTorrent. Another complaint comes from users who were infected by malware since some files can be disguised to appear legit, but the truth is as a leecher you have no right to make a claim since you are using the software somewhat at your own risk. Despite these claims of piracy, patent infringement, viruses/malware and illegal file sharing, BitTorrent was able to continue unlike Napster. Besides its distributed and decentralized nature, BitTorrent is more a software or protocol rather than a company, so that is another issue for the legal sector.

The slippery slope is that in some jurisdictions, or nations, what is legal may not be legal and vice versa. BitTorrent gets around this argument since the peers are decentralized and BitTorrent itself is not the one providing the data. Through the years since it started in 2001, BitTorrent has faced lawsuits and has had to meet compliance to regulations on certain occasions. It was too decentralized to stop since there are millions of users worldwide, not just in one country or geographic location. When BitTorrent does comply, it does so by removing links to content which creators requested.

The protocol or software itself is legal, you are not violating the law by having it installed. Other controversy involves BitTorrent trackers, which provide the links to the content that may or may not be copyright protected. In the US alone, there are over 200,000 lawsuits against BitTorrent since 2010. Because of this outrage, it would only be a matter of time before more BitTorrent protocols are blocked by ISPs on the request of regulators and legal departments. If that is the case, then it would not have a good future and will likely thrive more underground rather than finding mainstream use.

This is where Tron steps into the picture. It seems that the BitTorrent network would be an ideal platform to add to the Tron network’s ecosystem and blockchain. To get this started, Tron would issue a token for the BitTorrent network called the BTT coin. What Tron aims to do is use the network as a platform for DApps based on BitTorrent’s decentralized file sharing. Tron can utilize this for its entertainment and media based content sharing platform. BitTorrent would remain distributed and decentralized and with Tron’s vision of censorship resistant, open source and incentivized communities. In a nutshell, the BTT coin allows Tron to tokenize the BitTorrent network. This is in order to connect creators to users and in return get paid in BTT coins for their content. It will actually be more compliant to copyright laws and intellectual property for the platform to remain clear of violations.

The BTT coin from Tron

The platform sounds good for creators, but the overhaul to the system may not resonate well with users. Instead of a truly decentralized system, it seems Tron’s BTT coin as a token has put more regulation to the platform. Users of BitTorrent do not have to use BTT as a token to get content. Tron is supporting users who want to continue using the software like before. They will not be able to collect BTT coins though, so there are incentives to using the tokens. The incentive here is to keep users to continue sharing on the network, only this time around they will get rewarded for it. Seeders will tremendously benefit from this ecosystem because the more files they upload for sharing, the more BTT coins they can get. The BTT coin as a token can also be exchanged for goods and services on the platform besides just converting into fiat currency.

The benefits it seems are still yet to be explored for the new BitTorrent and BTT. The vision of a truly decentralized file sharing network continues, only this time there will be rewards for everyone. It encourages more file sharing and that way the availability of content can become sustainable (that’s the idea in theory). What remains to be seen are the legality of the content and whether the Tron Foundation will work closely with regulators to make sure that content is not being illegally shared by users unless there is consent from or incentives for the creators as well.

Your Basic Attention, Please … The BAT Token

The Internet is one big advertisement platform led by Facebook and Google. Brands want to get your attention while social media wants to increase your engagement. This is how users are targeted for advertising. In the process, while a user is engaged, their data is collected for analytics. This is not exactly with your full consent, but nonetheless the data you are providing makes you a product to marketers so they can sell you their products much better.

It has become a market for more and more attention. The problem is that it is becoming dominated by middlemen and other intermediaries. When you view a post that is for targeted advertising, there can be so many layers underneath that gather your data for their intents and purposes. Sometimes bad actors are also involved and this leads to massive fraud. Cambridge Analytica is just one example of using analytics to try to influence users on Facebook. Social media is a more common ground for bad actors to not only gather data but influence users to make decisions to not only buy products but to do things based on their politic and beliefs.

The system is full of “malvertisement” and both affiliated and unaffiliated links that can lead to malware and viruses. Yet there is no service actively protecting users from these dangers. For advertisers and publishers, the middlemen involved can also be costing them money. Ad spends are thus not being used efficiently. The Internet is full of bots that automate clicks, likes and comments, it is becoming more difficult to gain organic engagement. This is when a new platform for digital advertising is needed.

The BAT cryptocurrency token is a solution that addresses the problem with digital advertising and browsing on the Internet. It is an open sourced, decentralized ad exchange platform. It aims to remove the middle man by directly linking advertisers and publishers to the users. It is called the BAT triad or triangle. The BAT platform comes with its own web browser called Brave that comes with an integrated digital wallet for BAT tokens.

The BAT Triad or BAT Triangle

The idea behind BAT is to have advertisers and publishers target you directly with your consent to get your attention. In return, the user is incentivized in BAT tokens for engaging the content. This also saves advertisers and publishers money because they are not going through a layer of intermediaries or middlemen. According to the Basic Attention Metrics (BAM) “To improve the efficiency of digital advertising requires a new platform and unit of exchange.” BAT is the token used to connect the marketplace of users with advertisers and publishers. It is based on Ethereum technology so it makes use of smart contracts stored on a blockchain.

According to the white paper “Attention is measured as viewed for content and ads only in the browser’s active tab in real time. The Attention Value for the ad will be calculated based on incremental duration and pixels in view in proportion to relevant content, prior to any direct engagement with the ad.” In return for attention, according to the BAT website “Users viewing ads will be rewarded with BATs. BATs can be used for premium content or services on the BAT platform.

The BAT metric is based on the following formula:

Where a = 13000, b = 11000 and duration is measured in milliseconds. This is the score that determines how long a publisher gets the attention of the user. This is based on what is called the concave score. The scores reward publishers and advertisers for the user time spent on the website, with diminishing returns for longer views. The minimum threshold is 25 seconds duration for a score of 1. These metrics were determined by the BAT project team, so they are not a standard metric for attention so to speak.

The good thing about BAT is that it provides more privacy to users through a feature called the “Anonymity Shield”. This is unlike what browsers like Chrome are allowing with extensions that collect user data. For advertisers and publishers it minimizes fraud and useless ad spends. They can minimize costs and better use their resources for directed marketing. It also provides better tracking because of the blockchain. With the problems in data privacy becoming a more important issue, the significance for BAT is that this is a good option for those that would require these features.