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OKCoin CEO arrested then released; Binance and Malta; Bitmain's patent lawsuit invalid; Dovey and Eric's New Fund

What Crypto insiders are reading.

There have been a number of media news this week claiming that China's ban on crypto has been circumvented by VPN and Stablecoins, while folks are going outside of mainland China to do crypto transactions. This is not a surprise to us, and is similar to what we predicted in our previous post when the bans were initially announced.

In fact, while we are speaking, the Shanghai Blockchain Week is going on with lots of activities happening. Bitmain CEO Jihan Wu spoke at the conference making predictions for the next decade of blockchain development. He predicts that within a decade, the global blockchain users may exceed 1 billion.

Even more interestingly, iQiyi, the Netflix equivalent of China, is airing a live series that follows a crypto enthusiast in China who is looking to survive 21 days in Beijing merely living on 0.21 bitcoin, without any help or donations. The story is also being covered by China Daily, a state-run media outlet.

You can see in the iQiyi video that the girl runs around asking all the vendors whether they accept bitcoin as her days are being filmed and streamed.

Do you think she'll survive?

Here is a clue: she is now up to day 15.

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🌟 Top News in Asia from Monday to Wednesday

We have partnered with Hong-Kong based Blockcrunch and 500 startups to sponsor the launch of 500 Blockcrunch, a crypto educational miniseries. The team just released a 30 minute episode covering blockchain scaling, which you can on Apple, Spotify, Overcast and Stitcher. Be sure to check it out!

⁦MaltaStock Exchange ⁩announces MOU with crypto giant ⁦Binance⁩, to set up a security token exchange. http://bit.ly/2p2Trzu

*China Media * Caijing, the Chinese financial news site, has acquired the official documents from the court. It ruled that Bitmain's lawsuit claim on former director of design Yang Zuoxing for patent infringement was rejected. Google translated media | initial story covered by Coindesk

Dovey Wan, formerly investment partner at DHVC, and Eric Meltzer, formerly investment partner of INBlock, have just announced their new fund Primitive Ventures. http://bit.ly/2p1TxaH

WeChat has blocked the official sales channel of Bitmain. http://bit.ly/2p0jXK8

OKCoin's founder Star Xu has been released from a police department in Shanghai after 24 hours assisting an investigation into investors' accusations that OKEx manipulated bitcoin futures on its platform. http://bit.ly/2p2dNJq

💰 Deals and Funds

Shanghai blockchain start-up bets on new crypto custody approach despite mainland ban post-funding by Matrix. http://bit.ly/2CI5SdZ

Bitmain Co-Lead $14.6M Series A Round In Chinese Video Technology Platform 1000video. http://bit.ly/2oVYQs6

500 Startups raising $5m more for Vietnam-focused fund. http://bit.ly/2p0YZKV

💰 Coin and Token News

Former Credit Suisse Managing Director and Head of Corporate Communications Sheel Kohli to Join Block.one as Global Chief Marketing and Communications Officer. http://bit.ly/2oX59fa

💸 Exchange News

*China Media* The former director of the Industrial Economic Research Institute of the Ministry of Industry and Information Technology will become the first president of Huobi University. China Media

Japan’s internet giant GMO rolls out live crypto trading platform. The group has also established more mining facilities and has mined almost 3,000 BTC and over 660 BCH so far. http://bit.ly/2oVu96C

A Crypto trader complained that he lost 20,000 ETH Due to OKEx Malfunction. http://bit.ly/2oZldgE

Singapore's ABCC crypto exchange to actively tap into S. Korean market. http://bit.ly/2oWaovA

Japanese team Quoine has unveiled Liquid, a cryptocurrency one-stop trading portal, which will allow users to access a worldwide network of cryptocurrency exchanges. http://bit.ly/2oXxL8b

Huobi acquires Singaporean entrepreneur Eric Cheng’s crypto exchange Bit Trade. Bit Trade is a Japanese government-approved platform, which Cheng bought for US$49 million in May 2018. http://bit.ly/2p223Xu

🎌 Regulation News

City governments in China have invested $3.57 billion since 2016 to support blockchain startups and R&D. Here’s a guide on who’s doing what. http://bit.ly/2CBQfoe

Philippine Digital Asset Exchange is cleared to exchange crypto and the Philippine peso- coins include BTC, ETH, XRP, BCH, and LTC. http://bit.ly/2oYs2Pi

Chinese Government accepts blockchain records as evidence in court. http://bit.ly/2oYupl6

S.Korea’s Central Bank continues to sweat over ‘Kimchi Premium’ in cryptocurrency prices. http://bit.ly/2oVtCBE

The final court battle for India’s cryptocurrency exchanges begins. http://bit.ly/2p04zgK

💼 Business News

Chinese holding company Wuhan General Group, Inc. has entered negotiations to transform a U.S. Defense Department facility into a crypto mining farm. http://bit.ly/2oYROCW

Australian Blockchain delegation heads to China to foster fintech ties. http://bit.ly/2p2aemw

Chinese Government to use blockchain for tracking charity donations by 2019. http://bit.ly/2p0WisN

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Don't Forget

Check out our guest Interview with Eigen Capital Partner Maomao Hu

Joyce Yang from Global Coin Research interviews Maomao Hu, partner at Eigen Capital, a Chinese market maker, and also CTO of Eigen Capital’s sell-side business, Calculus Network, to discuss the evolution of Crypto capital markets in China and the US.

Time and Topics discussed in Our Interview

1:18- Introduction to Maomao and Eigen Capital

4:52 — The state of market making in China and the US

11:00- How to hire in China

13:45- Differences between funds in the US and China, is there a difference?

17:00- China’s labor arbitrage

20:17- Chinese Crypto companies’ token incentive structure

26:44- Why Maomao believes that Bitcoin is a threat to the USD

32:01- Is Crypto financial technology?

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Sunday Night Reading — On Token Incentives for Startup Employees

What Crypto insiders are reading.

Happy Sunday. Check out our first attempt to write about tokens incentives and how it can potentially disrupt the future of HR and employee compensation.

The token compensation model for employees is still very early, especially in the US, but as someone who has worked in a pre-IPO company that at some point was going through hypergrowth stage, but ended up with equity options completely under water after the company IPOs, being able to have the option of liquidating my shares just like the CEO can (i.e. during various rounds of fundraising) is immensely valuable.

I look forward to everyone’s feedback.

🌟Don’t forget- Check out our guest Interview with Eigen Capital Partner Maomao Hu

Joyce Yang from Global Coin Research interviews Maomao Hu, partner at Eigen Capital, a Chinese market maker, and also CTO of Eigen Capital’s sell-side business, Calculus Network, to discuss the evolution of Crypto capital markets in China and the US.

Maomao spent a significant amount of time in fintech and crypto in both China and Asia. He is experienced in building financial trading platforms.

In our conversation, we talk about China’s labor arbitrage, the development of crypto capital markets ecosystem in both China and the US, and how after years of being in crypto, Maomao now believes in Bitcoin more than ever.

Eigen Capital is a market maker that provides trade execution and market making services. The company is also building out a dark pool, and they are funding open source development for a decentralized dark pool.

Time and Topics discussed in Our Interview

1:18- Introduction to Maomao and Eigen Capital
4:52 — The state of market making in China and the US 
11:00- How to hire in China 
13:45- Differences between funds in the US and China, is there a difference?
17:00- China’s labor arbitrage
20:17- Chinese Crypto companies’ token incentive structure
26:44- Why Maomao believes that Bitcoin is a threat to the USD
32:01- Is Crypto financial technology?

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🌟 Sunday Night Reading

Tokens Can Better Incentivize Startup Employees than Equity; See Case for Ontology, NEO

Token structuring and tokeneconomics are among of the most important considerations when designing a blockchain. When thinking about how best to distribute these tokens, founders often think about how the tokens will impact external stakeholders such as their investors, the community, and stakers (people that can mine or validate block transactions according to how many coins he or she holds). But token economies are also bringing disruption to organizations internally, especially when it comes to HR and compensation.

If the tokens are structured properly for a blockchain, external stakeholders will be directly aligned with the goal of the project. Those incentives can encourage participation on the blockchain platform and/or drive token demand with community-building and marketing. Similarly, if internal stakeholder incentives are structured correctly, the project could accrue long-term value by motivating employees to work towards the same goal, while reducing adversarial behavior and also bad actors.

For any blockchain company to succeed long-term and scale, it’s inevitable that they need to structure their tokens to retain and reward the best employees sustainably. This is as important if not more important than incentivizing external token holders.

How does an employee look at tokens vs equity?

Currently, equity in the form of stock options is widely distributed as part of compensation packages amongst startups. When employees join a company, they are usually offered a combination of cash and stock options. The options become a way for the employees to meaningfully participate in a company’s upside should they succeed. Often, employees can negotiate between taking a higher cash comp or higher options amount, depending on their risk appetite.

There are many ways tokens and equity are similar. For one, both assets motivate individuals to align their goals with that of a company’s. If the company becomes more successful, the value of its tokens and equity should theoretically go up. Nonetheless, one of the downsides of stock options is that they usually require a liquidity event for an employee to convert them to paper money. Historically, that was when a company went public and the employee could convert their options into stocks and then sell them in the public markets.

However, in the last decade, with the increasing amount of private capital and subsequent larger private fundraising rounds, companies are taking way longer to IPO. Companies such as Dropbox took eleven years from founding to IPO, while Airbnb has been around ten years and still hasn’t gone public. As a result, private companies started doing option buybacks to provide liquidity for their employees. Simultaneously, this phenomenon has caused the secondary market to thrive in Silicon Valley.

Token liquidity changes the game

One of the largest differences between tokens and equity is that tokens are immediately liquid, assuming that they have already been listed on an exchange. To put simply, equity options only prove their value at the end, whereas tokens have certainty values from the beginning.

Now in cryptocurrency and blockchain companies, employees could get paid in tokens in lieu of equity or cash, primarily outside of the U.S. Many tokens have a liquidity advantage over equity. For example, it can be immediately sold upon reception, assuming that the token has been listed on an exchange and there is enough trading volume.

This is also one of the reasons why exchanges are so important for the cryptocurrency space because 1) it’s one of the easier ways to gauge the value of a company given that the industry has yet to figure out a proper valuation methodology, and 2) it provides immediate liquidity for employees who have been burned by the hopes a billion dollar company not coming to fruition and all the options going to zero.

For an employee looking for a job in a technology-based company, consider two companies that are exactly the same, with the same team quality and same targeted industry, but one company has a token incentive structure instead of an equity incentive structure, and the token is already traded on an exchange. Why would the employee ever want equity? With tokens, you’d still share the upside in the company’s success, but also have immediate liquidity.

Additionally, outside the U.S., often employees can also get paid in tokens or stable coins in lieu of cash to take advantage of tax benefits given the lack of regulatory sophistication. That may change very soon, however. Token structure, therefore, is a disruption to a company’s internal structure and we will share some examples below of how that’s already affecting a number of Chinese crypto companies.

Token incentives will disrupt traditional ways of compensating employees

These changes to employee compensation have already become popular in places like China, where a number of Chinese blockchain companies have started on the foundation of distributing tokens as compensation. Companies like Ontology, NEO, Huobi, and Binance pay their employees in their own tokens. Many of these teams operate worldwide but they are able to manage hundreds of people, often with just a handful of HR staff, through a shared incentive structure.

In the case of NEO, the original founding team, in fact, didn’t have anyone with a computer science background. When they were looking for developers, they would pay tokens to people to do development work for them. For Ontology, it was even more extreme. The founding team initially set up the Ontology Foundation. They didn’t want to hire people, so instead, they listed out a list of things that needed to be developed and paid tokens to all the developers who contributed.

CZ will shill BNB supporters; Korea to offer exchange insurance

What Crypto insiders are reading.
 

Quote of the Week

" There is a significant labor arbitrage in China, if you're hiring like a really good distributed systems person in China, it's probably gonna be like $100k USD, which is a lot of money.  But in the US it would be like $500k [...] Let's say we're trying to build cross-chain relay project,  if I'm a US project and I've raised ten million and then you have a Chinese project that raised ten million, that ten million is gonna go for much longer in China.

But it could also be a different market, so I guess they would be appealing first and foremost to a more Chinese audience, but I mean if it's a cross-chain relay,  thenin that case, they would definitely try to support Bitcoin, Ethereum and still compete with the US projects, so that's like a pretty significant labor arbitrage right there.

So for investors, unless you think, after you've looked a team, their background, their Github, unless you think that the US project is just that much better that given like you know three-year kind of time horizon that difference in cost isn't going to add up, then you know it's one factor that I think would be really important to consider. "

- Maomao Hu, partner of Eigen Capital and CTO of Calculus Network. We have a brief interview with Maomao that we will be sharing tomorrow. We will be covering insights on the capital markets, talent and hiring in China.
 

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🌟 Top News in Asia from Wednesday to Friday

Binance CZ- "I will personally shill projects that integrate BNB into their ecosystem, repeatedly". http://bit.ly/2CvnGss

South Korea’s national postal service Korea Post will meet with Goldman Sachs executives to gain “know-how” about cryptocurrencies. https://bloom.bg/2oQay7H

Binance has recruited an executive with wide experience in initial public offerings as its chief financial officer. CZ responded in Chinese media that they are not planning to IPO. http://bit.ly/2oRYcMt

A major South Korean insurance company reportedly will start offering cryptocurrency exchanges insurance aimed at compensating for damages caused by hacking. http://bit.ly/2N1lWfL
 

💰 Deals and Funds

Ringle.AI raised US$30mn angel investment from Bertelsmann Asia Investment and IDG Capital for building AI scheduling system combined with the blockchain technology to ensure security of data transmission and access. http://bit.ly/2M9Z605

"80-90% of our investments are in Asia, Europe, and Israel right now because they’re actually countries where there’s regulatory certainty that entrepreneurs feel safe starting token companies or blockchain companies." - Arrington at Techcrunch speaking about XRP Capital. https://tcrn.ch/2oQONVi

 

💰 Coin and Token News

The EOS blockchain project is hoping to boost the onboarding of new users by reducing the cost of opening accounts. http://bit.ly/2MZSer6

 "Blockchain itself does not provide privacy protection"- Oasis Dawn Song, when interviewed by one of the famous interviewers in China that also interviewed CZ among many other famous crypto individuals. Google translated article
 

💸  Exchange News

CEO of China-based crypto mining pool F2Pool posted an infographic that indicates at what minimum price points the mining of various cryptocurrencies becomes unprofitable. http://bit.ly/2oXzxWZ

Huobi Group is partnering with Singapore’s National Trading Union Congress Learning Hub to launch a joint effort to promote blockchain education. http://bit.ly/2MVQ6kd

Southeast Asia’s largest cryptocurrency exchange and brokerage platform Coins.ph adds 4 million users during 2018 bear market. http://bit.ly/2MWJQZz

 

🎌 Regulation News 

Blockchain-enabled independent power producers in Thailand pose such a threat to the state-run power generator and distributor that they will be required to pay extra in order to cushion the state utility. https://s.nikkei.com/2N0YYoM

The Australian Securities and Investments Commission views cryptocurrencies and crypto-related activities including ICOs as potential threats for traditional financial marketshttp://bit.ly/2MYT6wq

Korean Financial Supervisory Service urged regulators from 14 other countries, including the UK, Japan, Germany, Canada, Australia, and Singapore, to create an international discipline system for cryptocurrency and initial coin offerings. http://bit.ly/2oPoSgP

Korea’s blockchain prowess is gaining international reach as reports show that the Eastern European nation of Belarus is opening its doors for South Korean investorshttp://bit.ly/2oS4Pyq

The Thai Securities and Exchange Commission has approved another crypto exchange to legally operate in the country. There are now six exchanges that have been granted approval. http://bit.ly/2MYQ4YPChengdu, China is providing blockchain subsidy of up to $730k USD; already have over 100 patent application. A report in Chinese on Chengdu's Blockchain Adoption Progress

 

💼  Business News 

Naver, KaKao locked in blockchain platform competition -‘Link Chain’ Vs. ‘Clayton’. http://bit.ly/2NYYTyxA overview of HK Crypto Regulations- Hong Kong is Doing Nothing to Regulate Crypto, and It's Working Great. http://bit.ly/2NWPo2Q

 

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