Introduction
IN the last 12 months, a variety of old (Bittrex) and new (Binance) players have established themselves as key exchange/trading platforms in the vast, high-paced marketplace of cryptocurrencies, from bedrock assets such as Bitcoin and Ethereum to hundreds of obscure alt-coins such as SALT, LINK, Waves, Kyber, Walton , and many others.
Entering into a such a red-hot, crowded space at this moment may seem unwise, yet a company known as Cobinhood, led by young serial entrepreneur Chen Tai Yuan (Popo Chen), is doing just that. What’s the source of their confidence? Well, it turns out Cobinhood is not just a trading exchange platform like Binance. They have positioned themselves as potential king-maker in by providing a key service: liquidity, underwriting, and due-diligence on future Initial Coin Offerings (ICOs) hosted on their platform, that more than makes up for those lost trading fees.
Image source: https://www.theatlas.com/charts/BkauliAGZ
You may ask: well aren’t ICOs happening naturally anyways? Indeed, they have been at least as large of a source for block-chain related capital as traditional VC- as visible above. But while hundreds of ICOs have occurred in 2017, not all of them have been legitimate-- many were poorly done or outright scams; worse, there are probably hundreds of legitimate projects and teams who would love to raise money on the blockchain with funders from around the world, who lack the legal guidance, time, operational capacity, or upfront funds [1] to execute this procedure. Another problem is security, as poorly designed smart-contracts could lead to loss of millions of dollars from funders. Folks who purchase the COB tokens, available in their pre-sale until Oct 22 and thereafter freely purchasable at market price on their own trading platform ( www.cobinhood.com) therefore will act as point-people for the largest crowd-funding experiments in history, hosted on the block-chain, making it truly international and open.
A Deep Dive
Given that COB’s basic model is now understood, the rest of this post explores some of the less obvious aspects of Cobinhood’s strategies, even some thorny or complex scenarios that may arise. It is by analyzing these complexities that we can deepen our understanding of whether COB is a good buy ultimately. Let’s look at three topics in turn:
Why aren't unsold tokens burned by COBINHOOD?
Cobinhood plans to release 1 billion tokens total, and 50% (500 million of these) are being sold during the main sale (concluding October 22). Based on current estimates, this will leave at least 200 million COB tokens left to buy. Why aren’t they burned, driving up prices? Simple: the existence of more COB tokens to buy , after being released from the vesting pool, will be important to those looking to seriously invest in ICOs. This is because the amount of tokens owned by a given ICO would be determined by the following formula: (x*y)/T, where x is the amount of COB tokens owned by the customer, y is the amount offered for that particular ICO, and T is the total supply (T= 1 billion). Meanwhile, the existence of a large healthy community of investors on Cobinhood is crucial to drawing future small businesses that want to host sales there. Note that, the availability of future COB tokens for other non-iCO buyers, certainly doesn’t negate any special privileges due to those buying in the ICO period (such as the bonuses, as well as the 50% off margin trading loan interest).Why does COBINHOOD vest 10% of COB tokens each year?
Following the above logic, the availability of COB tokens on the open market over a longer time period is important. If everyone bought up the entire 500m and held, then no COB tokens would be available to others who wanted to participate in an ICO investment through this platform. While such a scenario is certainly unlikely, it makes the role of the 10% vesting each year quite clear, as it adds liquidity to a red-hot market. In addition, this strategy is also quite democratic, as over time the Company will be more and more owned by COB holders than by the founders and early employees themselves.How will COBINHOOD survive if more and more regulations come out?
In some sense, the existing crypto-currency markets are massively under-regulated, and so the roll-out of new regulations must remain major concern for small and large players alike. Even the designers of major crypto-currency platforms, such as the CEO of Ripple, have spoke out about the issues with under-regulation [2]. Given this, are new trading platforms going to be OK? Actually, Cobinhood is well positioned to survive in almost any regulatory scenario (except the worst one, in which the governments of the world wage an all-out war against crypto ):
a) Since ICOS that want to go through the Cobinhood clearing house will have on-board legal advice to increase compliance and to reduce code errors in smart contract, the risk that ICOs hosted on Cobinhood will create lost money for investors and/or entrepreneurs is low. As a result, government regulators are bound to see Cobinhood as a natural ally in their efforts.
b) If Cobinhood becomes a dominant market player, which is very possible, it will indirectly drive down the total number of scam ICOs. This is because scam ICOs don’t stand any chance of being hosted on the COB platform, while COB-hosted ICOs will gain a powerful fundraising platform automatically. Again, as a result, regulators will prop up companies like Cobinhood rather than seek to tear them down.
c) Lastly, the appointment of Tony Scott as a Chief Strategy Officer is a brilliant move that will put Cobinhood in a great position to stand on the right side of regulatory developments in the United States, an important market which is nonetheless prone to overly burdensome regulation at times. As a Taiwanese company friendly nudging both USA and Chinese markets in healthy directions, they help drive the entire market forward, and it goes without saying they are natural friends with markets from around the world that seem to be intrinsically friendly towards cryptos at the moment such as EU, South Korea, Japan, and much of the developing world.
Conclusion
As the above discussion has illustrated, not only are the basic strategies Cobinhood has laid out sound, but many implementation details have it poised for success. This certainly increases our confidence that they can achieve their goals. Creating a platform that maximizes profit through raw trading is hard, but isn’t novel; building a platform that pays-it-forward into future new businesses and projects, is harder still, and truly new. Best of all, if they do succeed, this strategy massively benefits not only COB holders, but all who believe in the power of distributed (block-chain) computing to remake the world’s markets.
Footnotes
[1] High listing fee (500 to 1000 Bitcoin) are required for listing on world’s top 10 exchanges. Source: https://cobinhood.com/assets/whitepaper/whitepaper_en.pdf