Chapter 8 - Crypto Flashcards
What is a smart contract
A protocol that enforces a contract
They ensure distributed ledger technology works
What is distributed ledger technology?
Allows recording of data in multiple places at the same time
What is the main platform for smart contracts?
Ethereum
What is an ICO?
An initial coin offering
Crypto equivalent of an IPO
What does an ICO allow a company to do?
Raise capital quickly instead of taking the company public
How does an ICO work?
Company mints a token which it then sells to investors.
These tokens do not grant ownership
Why are ICOs risky?
The value of the coin is entirely speculative
Why did ICOs decline post 2018?
The SEC began to investigate ICOs which killed market confidence
What is an IDO?
Initial Dex Offering
Similar to an ICO but done on an decentralised exchange
as opposed to on a recognised crypto exchange
How do IDOs differ from ICOs?
1) Listed on a decentralised exchange
2) Do not require a high fee
3) Do not have to wait for approval
Cost effective way of providing liquidity
What is a STO?
Security Token Offering
- Tokens created
- Can be used to trade real financial assets
- More compliant as they are regulated as securities
Why did STOs gain popularity?
Following the death of ICOs a regulated offering proved popular
Even though STOs are growing, why are they still unattractive to investors?
A lack of publicly available data.
What is a crypto exchange?
An exchange to buy, sell and trade cryptocurrencies
Who do crypto exchanges appeal to?
Less tech-savvy individuals who don’t wish to mine their own crypto
How can crypto exchanges vary?
1) Number / range of currencies on offer
2) Frendliness - e.g - Coinbase is friendly and binance is for experienced
3) Opaquness - E.g. binance it is unclear where they are even headquartered.
How does regulation of crypto and crypto exchanges vary
1) some places like el salvador have accepted it
2) Switzerland have approved two crypto focused banks
3) China have outright banned it
What is bitlicense?
1) A licence issues in New york which is required for any business engaged related to virtual currencies
How have the EU regulated crypto?
“Markets in crypto assets regulation”
- Aims to trace crypto transfers
- Prevent money laundering
How are Hong Kong regulating cryptocurrencies?
Issues a paper setting out a framework seeking to end the unregulated status of crypto.
Other than governments who have tried to regulate the crypto industry?
Self-regulators
1) CryptoUK - Advocatres self regulation and greater transparency
2) Crypto rating council - rates an asset 1-5 to determine if it is a security
Give 3 examples of services for institutional crypto trading:
1) Gemini Prime - premium esrvice for OTC trading, algo orders and margin. (named after prime hedge fund services)
2) LMAX is a london MTF
3) State street partnered with Gemini to report consolidating of assets
As Crypto does not offer yield, how have some tried to solve this?
DeFi - Securities lending for renumeration
Known as yield farming
How is Defi lending different from traditional securities lending
(what are the shortcomings)
1) UNregulated exchanges
2) Underlying code is unaudited - could have vulnerabilities
3) 82% of crypto theft has taken place here.
4) No KYC
5) Do not need to provide a reason for borrowing
Why are the yields on offer a De-fi schemes too good to be true?
They often offer double digit yields which cannot actually be achieved.
What is an NFT?
- Digital ownership certificate
- Encoded by safe software as crypto
- Used to buy and sell digital artwork
exploded in 2021 to 40bil, lost 50% 1 year later.
