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November 2, 2020

Episode 026

Bitcoin Volatility, How R3’s Corda Platform Differs From Bitcoin and Insuring Smart Contracts With Nexus Mutual and Nayms


Bitcoin Price Volatility Is Back With ByteTree 

In this week’s episode, ByteTree CEO James Bennett discussed the latest onchain insights and observations in the Onchain Reaction segment. Bitcoin price volatility has returned after falling to close to an unprecedented level of 20-22% a couple of weeks ago, which for Bitcoin was extraordinarily low. Now that the bitcoin price has risen to approximately $13,500, as of Oct. 28, volatility has returned and has jumped from 22% to nearly 31%. This trend is expected to persist. Transaction value has risen alongside the increase in price volatility, which is being fueled by the rising bitcoin price. 

Bitcoin fees surged to 24% of total miner revenue, which is the highest level of the year so far. Miner revenue is approximately $12 million in fees per day, and it shows that there is a lot of competition for blockspace at the moment. There are more transactions than there is space for blocks.  Bennett went on to explain that miners are struggling to keep up with block production as difficulty reaches new all-time  highs. 

Once again, difficulty is hovering at all-time highs but we are very much likely to see a big correction downward in the next few days, which is the next difficulty retargeting, Bennett explained. Miners have been heavily offloading their newly minted coins into a strong market bid.

‘What I See Is What You See on Corda’ With R3

Richard Brown, R3 chief technology officer, joined Teana Baker-Taylor for the Market Spotlight segment to discuss how the company’s Corda platform has evolved over the past five years and where it is headed. 

Brown explained that Corda is a platform for writing applications, comparing it to Ethereum. On Corda, software firms, banks, insurance companies and anybody that wants to write applications where the purpose of those apps is to be deployed to and among all participants in the market who are executing a certain type of transaction. 

“The catch phrase we use is, when I’m looking at my Corda note, I know for sure that what I see is what you see. We both know that we see the same thing,” said Brown, adding that unlike cryptocurrencies, you only see things you’re supposed to and not transactions you’re not supposed to see. 

R3 started out looking to address the banking use case, which was the most obvious sector. They designed it for the back offices of investment banks, the original R3 backers. Along the way, however, the number of use cases grew. Now Corda is being used across sectors, from trade finance to healthcare to oil and gas to gold trading and beyond. 

As for what’s next, Brown pointed to SPUNTA hitting prime-time, noting that there are a bunch of other projects behind them in the early go-live that will hit scale next year. There are some big firms doing projects with Corda, including the likes of Mastercard and the Swiss Digital Exchange, that should hit the mainstream by year-end or into 2021. Meanwhile, the R3 team is deep in planning for Corda 5.

Insuring Smart Contracts With Nexus Mutual and Nayms

Ethereum’s success has proven the demand for smart contracts, but not without risks, as many high-profile hacks have shown. The rise of the smart contract insurance market is helping to fix these issues, with companies like Nexus Mutual and Nayms at the forefront.  

Nexus Mutual Founder Hugh Karp explained how the company is a decentralized alternative to insurance with the ambitious goal to become the blockchain-based Lloyd’s of London, saying, 

“Anyone should be able to bring any risk to us, and we should be able to cover it…starting with crypto risks for now.”  

Karp explained the problem they are looking to solve, pointing to security breaches like the DAO Hack and other big events to illustrate that the Ethereum ecosystem needed insurance-type solutions to cover risk if it is going to develop, saying “otherwise it won’t be adopted.” 

Nexus operates with a group of people voting on claims to determine which ones are legitimate. 

For its part,  Nayms is starting from a more generalized approach. The problem they are looking to solve derives from a huge amount of emerging risk across different categories — including smart contracts. This poses a big opportunity for the brokers and underwriters in the traditional space. Big brokers as well as grass roots brokers were coming out of the woodwork to serve this new area of risk, each with their own approach. Nayms from its own calculations determined that to be constantly using traditional dollar-based capital to cover the liabilities would create a scaling issue. 

“If the space is really going to grow as we are all expecting, then you need infrastructure and capital that will scale alongside that growth,” said Nayms CEO and Co-Founder Dan Roberts. “There’s always going to be this asset liability mismatch of dollars covering a big bitcoin loss or an ether loss that feeds into pricing problems, caps in dollar values, meaning that capital is technically underexposed or overexposed.”    

As a result, the company started by focusing on the needs of the brokers and came to the conclusion that the insurance problem A.) would be a collaboration between underwriters, brokers and the capital markets, and B.) underwriters in the space that can assess different types of risk will be the gateway to bridging the capital markets and native crypto markets into different types of risk. 

The two companies are quite compatible, with Nayms solving the problem for the underlying capital base because insuring crypto with fiat creates an FX risk. By underwriting the policy in crypto, you mitigate that risk. Nexus Mutual is providing new types of products surrounding smart contract risk, and the two can be combined together.  

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Gerelyn Terzo
Gerelyn caught wind of bitcoin in mid-2017 and after learning about the peer-to-peer nature of Satoshi's creation has never looked back. Previously she covered institutional investing and fintech for several major trade publications. Gerelyn resides in Verona, N.J.

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