Friday, 07 August 2020

Today’s popular use cases for smart contracts

Crypto as money

2018 was the year of the Stablecoins. This occurred because many exchanges only trade crypto-to-crypto and not crypto-to-fiat. Trading crypto-to-fiat requires going through the banking sector which charges a higher fee and requires extra KYC/AML processes. Also as bitcoin prices fell, so did most all other coins so if owners wanted to come out of BTC/ETH holdings, they needed to go to another asset which was closer to the valuation of the US dollar.

There are 3 types of Stablecoins:

- Backed by USD, EUR or Gold (e.g. Tether, CENTRE, Paxos). Business model is unclear. Mostly done for strategic purposes, to create liquidity in exchanges.

- Backed by cryptoassets (e.g. Maker). Business model is to have a token where holders receive fees proportional to the activity of the network. Today, nearly 1.5% of the total ETH supply is locked in Maker’s smart contracts.

- Backed by an algorithmic “central bank”. Business model is unclear. It’s worth noting that Basis, one of the most funded stablecoin projects, recently shut down and returned all their capital to investors.

Besides cryptocurrency exchanges such as Coinbase, Circle and Bitfinex, traditional tech companies are jumping into the space and working on their own stablecoins.

Crypto as property

Due to the rise of the Non-Fungible Token (NFT), unique digital assets were made possible. While activity is still low, today’s main application seems to be gaming (e.g. Cryptokitties, Land in Decentraland). There are also companies working with high-profile brands to create branded digital assets and take them to mainstream adoption.

Business model here seems to be either creating and selling these assets or building a platform for others to do so and collecting a transaction fee.

Decentralized Finance

Projects building open source, decentralized financial infrastructure. These include protocols for trading (e.g. 0x), credit and lending (e.g. Dharma, Maker, Ripio Credit Network), and margin trading (e.g. dY/dX), among others.

Main challenges around Decentralized Finance include how to create and manage a decentralized identity and reputation system to access these services, and how these protocols fit with current regulation and KYC/AML requirements.

For these reasons, companies building these kinds of protocols are also becoming their first relayers — centralized entities that connect to the decentralized protocol to provide a compliant and smooth experience for end users (e.g. Coinbase for BTC and ETH). This is the case with Dharma’s Lever and dY/dX’s Expo. Protocol-native tokens don’t make much sense here, where the business model seems to be charging a fee for all transactions happening through their centralized relayer.

Data ownership and exchange

Blockchain tech allows users to hold their data and access applications without relying on centralized entities to do so (e.g. FANG). Once users own their data, they could sell it via decentralized data exchanges (e.g. Wibson, Ocean protocol).

However, UX challenges around data storage and management, coupled with the fact that mainstream users are OK with trusting entities, and that the economic value of their data is relatively low to trigger behavioral change, make adoption for this use case quite challenging.

Final thoughts

While 2018 was more about trading, experimentation and laying out the initial infrastructure, 2019 will be more about solving problems for real users, deploying scalable and robust infrastructure, crafting great user experiences and driving sustainable businesses. I’m curious to see how these trends evolve and what opportunities emerge next year.

By Demi Brener
Legal disclaimer: The insight, recommendations and analysis presented here are based on corporate filings, current events, interviews, corporate press releases, and what we've learned as financial journalists. They are presented for the purposes of general information only, and all the information belongs to the original publishers. These may contain errors and we make no promises as to the accuracy or usefulness of the information we present. You should not make any investment decision based solely on what you read here.

Creamcoin Marketcap