Last week I asked, basically, what do you wanna know? Your questions were intriguing! Thank you, as always, for reading and thinking with me. Especially when it comes to sexy topics like market infrastructure 🤓 One of Satoshi Nakamoto’s under-acknowledged achievements was making finance cool again. The frontier lives!
First question: "Why are certain cryptocurrencies not listed on certain exchanges, sometimes not on any exchanges?"
To answer this I enlisted my brother Morgan, Hedgehog's head of trading. He also runs our clearing partner Hopscotch. Yep, this is something of a family business — Hedgehog cofounders Colton and Jason Dillion are brothers as well! Anyway, here is Morgan's explanation of why not every cryptocurrency is listed everywhere:
From personal experience at a HFT crypto OTC desk [high-frequency trading; over-the-counter] the largest factor determining whether we supported a token or pair was demand. Did we have customers and users which would trade that pair and generate volume? Volume = profit.
Take an exchange like Bittrex — lots of tokens, lots of markets, but very little volume on many of those markets. Now take an exchange like Binance.US — fewer tokens, fewer markets, but consistent volume on supported pairs. Different exchanges have different pain points and desired user bases. [Eric Wall mentioned this too!]
More markets = more development support = more market-making deals = more large-size token transfers = more work. When more work does NOT lead to more trades (AKA revenue), it doesn't make sense to list a token or pair.
You can learn a few things from analyzing the markets of Binance.US vs Bittrex. Binance.US maintains tight spreads on every supported pair (i.e. ~50bps spread or smaller), whereas Bittrex lists every token and has some markets that are 1000's of bps wide.
Additionally, when you run a large exchange, you end up running your own full nodes for supported tokens. If you support more base layer 1 chains, you need a larger dev team to maintain that infrastructure.
In short, listing a new token or trading pair costs the exchange money, so the company has to judge whether the listing will be worth the resources. Especially in terms of time spent by highly paid engineers.
Tldr: Complicated things are complicated. My brother is brilliant. If anyone asks though, I'm still taller than he is.
Next question: "Have you ever thought of a way crypto and esports could be incorporated together? Not just a sponsorship but using the actual blockchain tech?"
I stumbled over a cool story about this! The answer is hell yeah:
Gabby Dizon [is the] co-founder of Yield Guild Games, or YGG. Long before Gabby was into crypto he was into gaming, and that’s how he started playing Axie Infinity, a blockchain-based game where players earn cryptocurrency just for playing. Gabby eventually became a well-known figure in the Axie community, spreading the word especially in his home country, the Philippines, as he saw that crypto earned for playing was making a real difference in people's lives.
He started doing so well, collecting Axies, which are NFT tokens linked to digital, mystical animals, that he started renting out his NFTs. He realized this could lead to an entirely new business model, and that’s how Yield Guild Games was born. YGG scholars, or those who lease out NFTs, generated about $3.3M dollars in revenue in July alone, 70% of which went to players.
Gabby believes YGG's play-to-earn model, where groups of people put up the initial capital needed while others perform a job or task, and then split the revenue, will extend beyond gaming. Still, that's way into the future. Right now he's focused on making sure YGG becomes an on-ramp for anyone in the world to easily start earning from playing, even if they have never heard of crypto.
On top of that, the established video game industry has been watching the NFT craze with hungry eyes. Their beloved IP will be powerful in this innovative format.
And there are wilder ideas out there being developed right now. For example: "Floor perpetuals give NFT holders access to liquidity and protection against fluctuations in the floor price without requiring them to give up ownership of their NFTs."
Less prosaically, consider the musings of social theorist Justin Murphy: "initial purchase of a worthless JPEG is genuine Bataillean expenditure, exuberant and conspicuous wastage, but the anthropological mechanism Bataille identified is now subject to strategic exploitation after the fact." Put that in your pipe and smoke it!
Those of you who only feel more lost now, 1) solidarity, 2) read "The Meme Economy"!
Tldr: Five years from now, I would not be surprised to see someone use a vintage CryptoKitty as collateral to buy a house.
Last question for this week: "How do you plan to market or incentivize people to use Hedgehog in this highly competitive market?"
This might sound stupid, but honestly, our plan is just to make a really good product and tell everybody about it. One of Hedgehog's investors is startup accelerator Y Combinator, where the motto is make something people want. It's not as simple as it sounds — or rather, it is, but still extremely difficult. However, my CTO and cofounder Colton and I helped make the magic happen at Acorns and we're loving the chance to do it ourselves. Things are going pretty well so far, knock on wood for us!
Can't let you go without the giveaway question of the week. To be entered to win a Ledger Nano S, reply to this email with a short description of your dream NFT. It can be a real one or made up!
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