2017 was an amazing year for the crypto space. Here’s hoping that 2018 will be similar!
Allow me to share my thoughts on 2 projects that have caught my eye enough for me to back them financially.
1) 0x (ZRX)
The 0x protocol is my top pick to buy and hold for this year. It is a protocol that allows for the decentralized exchange of ERC-20 tokens- basically any token that runs on the ethereum blockchain. This list is extensive, and growing. As the list grows, the demand to buy/sell/trade them will also grow, and that’s where ZRX comes in.
The ZRX protocol has several attractive characteristics. First of all, it is trustless; users can place orders directly from their Ethereum wallets with no need to send funds to an exchange; therefore there is no counterparty risk.
Secondly, it allows for much greater liquidity because anyone using the protocol can access orders from anyone else. So there may be an unlimited number of exchanges built upon the protocol, but each of them have access to the liquidity on all of the others. Therefore, ZRX itself does not depend on any single exchange, but stands to benefit from the sum of all exchanges. Likewise, all exchanges built on it benefit from access to the entire liquidity pool. The network effect is strong for both investors of ZRX, and those creating and using exchanges with it.
Thirdly, the protocol is written in such a way that it can have its cake and eat it too. Generally there are limitations to decentralized exchanges- specifically the speed at which orders can be place and executed. However, with the ZRX protocol, the orderbook can be run off-chain, with the blockchain being only used for the settlement portion of the transaction. This allows exchanges using ZRX to have both the speed and feel of a traditional exchange, with the trustlessness of a decentralized exchange.
As of now, there are quite a few prominent teams building exchanges on the protocol, including Ethfinex, Radar Relay, and Paradex. It is also very likely that Augur will incorporate ZRX down the road.
Those are the fundamental/merit-based reasons I like ZRX. However, there are also some other reasons this token is attractive to me now.
There are rumors that ZRX will be added to Coinbase and Gdax sometime this year. While Coinbase’s CEO Brian Armstrong recently tweeted that the exchange has no specific plans to add new assets, there are compelling reasons to believe that ZRX will be added. (Including the fact that Brian made a similar statement a week before Bitcoin Cash was added to Coinbase).
To start, there are simply a lot of connections between the two entities. Three of ZRX’s four advisors are former coinbase employees, and all three of them still have close associations with coinbase. (Olaf Carlson-Wee, Fred Ehrsam, and Linda Xie). Additionally, the ZRX team has been to Coinbase headquarters several times in recent months.
While none of this is concrete evidence of ZRX being added. . . it simply makes sense. Coinbase has said it will add some ERC-20 tokens, and has laid out criteria it uses to choose new assets. ZRX fits all of those criteria.
Additionally, not only would it make sense for Coinbase to add ZRX, it would make sense for Coinbase to use the ZRX protocol to exchange its current and future ERC-20 tokens.
On one final note, the last reason ZRX is attractive to investors is purely psychological- the relatively low price per token. For a new crypto investor arriving on the scene with $1,000 to spend, it is somewhat unsatisfying for them to buy 0.06 of a Bitcoin. Whether rational or not, people like the feeling of owning a lot of something. And 700 ZRX feels a lot better than that 0.06 BTC!
Kin is a very interesting potential investment to me because it is somewhat of a contrarian play compared to other projects. Perhaps contrarian isn’t exactly the correct word, but as a crypto project it is somewhat of a mirror image of most projects. Let me explain.
First off, an introduction to the project. Kin is the native currency that will be used within the Kik messaging app. Kik is already a successful company, and its messaging app has 15 million active users. The company has been valuated at 1 Billion dollars,
The Kik team created the Kin token to be used as an incentive for Kik users, as a vehicle to offer rewrds to users, as well as to drive a network effect. Users can earn Kin by creating content that others then reward by giving Kin, by performing small tasks (like watching an ad), or any other number of ways.
The appeal to users will be that Kin has actual monetary value that could be used to purchase real merchandise.
This project is extremely ambitious for a crypto project, and in my book falls in the category of very high risk/very high potential reward. As I mentioned, Kin has some of the opposite challenges of many projects. Most new ICO projects face the challenge of creating a viable product, and then the challenge of attracting a user base to use that product. Kik has a functioning product with a robust user base. Their challenge will be to incorporate Kin into that ecosphere successfully.
Their biggest challenge lies in the inherent problem of scaling that currently plagues the entire crypto space. With a user base of 15 million, if even 10% tried to make a single daily transaction with Kin, it would swamp the Ethereum network.
The Kik team realizes this, and is actively pursuing options, including potentially changing from the Ethereum blockchain to Stellar. The Raiden network, using state-channels, could also be a viable option, but as of this moment it is not completely functional.
Getting their users to use Kin will be the next challenge. I believe this is a much smaller challenge; they raised enough with their ICO to be able to incentivize users (read: give away Kin for a while to enough users, and let users see that they can actually spend their Kin on real goods). However, this still depends on how well they implement the integration of Kin into their existing platform.
From a pure investment standpoint, one other challenge has been getting the token listed on a major exchange. I don’t believe this has been a big priority for the Kik team; to the best of my knowledge they have put no effort into this, which I both love and hate. I love it because I think they are more focused on making the product work than on flipping coins for huge profits. However, I personally would like the option of turning over some of my coins, and having more options for exchanges would be nice. As of now the bulk of the trading is done on Etherdelta and Mercatox.
If Kin ends up listed on a major exchange, I believe it will benefit from the same psychological advantage as ZRX- again that being people attracted to tokens they can own a large number of compared to owning a few or fractions of larger coins.
All in all, if Kin can find a way to scale and implement successfully, this could be one of the first real-world use cases for crypto tokens, and the potential profits are substantial. As I mentioned, the challenges and risks are equally substantial. However, the potential reward is enough for me to throw a little of my dry powder at this project.