226. 02/11/2018 12:24
Cute Cats Power Serious $15 Million Funding for CryptoKitties Creators

The company behind the viral blockchain phenomenon CryptoKitties is planning to enhance its platform – and it's received backing from some major tech firms to do it.

Announced Wednesday, Dapper Labs, the startup that spun out of parent firm Axiom Zen to continue working on CryptoKitties, has secured $15 million in funding. The round was led by Venrock and was joined by Google Ventures, SamsungNEXT and Andreessen Horowitz (a16z), as well as names not normally associated with venture investing, such as the talent agency William Morris Endeavor and e-sports firm aXiomatic.

The new funding comes months after Dapper Labs secured $12 million in a round led by a16z and Union Square Ventures.

In an interview with CoinDesk, Venrock partner David Pakman struck a bullish tone on what he sees as a massive collectibles market being created in the digital world.

 

 

"For the first time we can make scarce digital items, and I think that can usher in a mega-market of digital collectibles," Packman argued.

While Venrock is not known as a blockchain or crypto-focused investment company, Pakman sees CryptoKitties as a specific case wherein blockchain can allow people to do something online that so far they have only done offline: collect rare (or scarce) things.

"I look for activities that consumers are already doing in very large numbers and then look for the digital equivalent," he explained.

No stranger to digital intellectual property, prior to Venrock, Pakman led eMusic, a pioneering company in digital music sales. Dieter Shirley – Dapper's chief technical officer and the author of the ERC-721 token standard on which the crypto collectable economy operates – said that his startup was especially happy to work with Pakman as it needed guidance as it looks to grow from a small startup team to a much larger company.

With $27 million in new funding so far this year, all signs point to Dapper Labs being on the cusp of a new release.

Shirley declined to give any details about what's to come, but he did say something should come in the next weeks – not months. To that end, the company has put up a teaser page on its website, and one of their engineers shared it in the stream of tweets surrounding Devcon, the ethereum developers conference taking place in Prague right now.

With a possible eye to the future, Shirley said that originally run CryptoKitties would no longer be regularly released at the end of November.

Indeed, he indicated that the company is looking to leverage its latest funding round to build interesting new experiences for users of decentralized apps.

Shirley told CoinDesk:

"Ultimately, our mission here is to bring a billion people to the blockchain. We think blockchain has real value for consumers but we're never going to get them to see that value by explaining it."

Games are coming

CryptoKitties is itself a game, but it's a low-intensity one wherein collectors can create new characters from the CryptoKitties they already possess.

It's not difficult to read the tea leaves around the company's recent news to see that something more energetic is coming, something a lot more like a traditional gaming experience.

"We have a lot more experiences and plans for CryptoKitties and their users," Shirley said.

Among the other indications that games will form a bigger part of their plans going forward: new hires from companies like Ubisoft, Zynga and EA Sports – all major firms that have built huge followings around their interactive properties.

One of the advantages of creating a decentralized system is that other teams can start building on top without asking for permission.

Shirley pointed to some of these examples as proof of the success of the game. Take for instance, the site that lets users dress up their cats, KittyHats. And this past summer, the CryptoKitties team updated its licenses to clarify the rights held by owners of particular cats.

That said, CryptoKitties wants to participate in building these new experiences.

"The sky's the limit. CryptoKitties are characters," Shirley said.

Building out

Dapper Labs' new funding will also support the creation of a U.S. subsidiary for the Canadian company.

On top of that, Shirley spoke broadly of opportunities with brands in an effort to open up additional avenues for business.

"There's tons of IP brands that would love to issue digital collectibles," Pakman said.

Companies that have already done really well in physical collectibles, he said, have been waiting for a way to do it right online.

"The evolution of true digital ownership and the interoperability of smart contracts creates new ways for consumers, creators and platform providers to interact completely peer-to-peer, with no middlemen," explained Dapper Labs' CEO Roham Gharegozlou in a statement.

Shirley said that the work Dapper would do with a brand would vary a lot, depending on the partner. He gave the example of the National Basketball Association – in that case, the basketball league would probably look to Dapper to build most of the experience.

On the other hand, if it worked with a gaming giant like Ubisoft, Dapper might be called on to build a much more narrow part of the overall specification.

Regardless, Shirley believes more and more opportunities will arise as the younger generations get older and experience more of their upbringing online.

He told CoinDesk:

"The generation growing up now is the first one that has more relationships through digital means rather than physical means."

Disclosure: This reporter owns five CryptoKitties – two of them are expecting.

227. 31/10/2018 10:05
19 Words Prove Just How Audacious Bitcoin Really Was

There is a phenomenon in anthropology called the "Cargo Cult." It was first observed in Melanesia in the late 19th century and most famously chronicled after World War II when remote Pacific tribes created pastiche airplane runways and mimicked long-departed air-traffic controllers in attempts to stimulate the return of military airdrops.

Cargo-culting consists of groups of people mistaking form for substance, latching on to an easily visible concept without understanding the underlying reason for its existence.

 

 

As we celebrate the 10th anniversary of the email that announced the birth of bitcoin, I have been reflecting on the prevalence of cargo-cults in the blockchain industry, what caused them and what we should do about it.

For example, many of the first business blockchain platforms broadcast all data to all participants, or coarsely-defined subgroups of participants. This isn't how business works – contracts should be private of course. But full broadcast was how bitcoin did it so it sometimes felt like those platforms 'cargo-culted' the same concept, even though it made perfect sense for Bitcoin but absolutely no sense at all for business. They have since revised their designs but, as a community, we should ask ourselves: how did that happen? Can we do better in the future?

Similarly, many business blockchain platforms run on something called the Ethereum Virtual Machine (EVM) and require developers to program in a language called Solidity. Not because businesses want to learn entirely new languages but because that's how ethereum did it.

The problem is that, whilst the EVM was an amazing achievement, it was only ever a temporary stopgap: the Ethereum community publicly plan to abandon it in the near future. So it's hard to think of a reason for adopting it for entirely unrelated purposes, except perhaps for reasons of cargo-culting. This has real consequences: learning new languages costs money and technical decisions made by businesses last for a long time.

If these EVM-based business blockchains take root, one could imagine the world's business ecosystem could be running the EVM long after the platform for which it was invented had moved on!

This slavish adherence to one specific solution to one specific problem even extends to a core tenet of the enterprise blockchain revolution: the existence of blocks.

Satoshi Nakamoto didn't wake up one morning thinking: "What the world really needs is for transactions to be batched up and confirmed slowly in blocks!" No, bitcoin is a batch system because physical reality – the speed of light – means it's impossible to design it any other way if you also want to achieve the system's design goals around pseudonymous cryptoeconomically-intentivised consensus.

If Satoshi could have built a real-time system he would have done so.

So if you don't have some of bitcoin's requirements, what's the argument for why your solution should look identical and work like a 1960s batch mainframe computer?

An Example to Strive For

I've long argued that the world of enterprise blockchains will consolidate far faster than anybody expects, that a "day of reckoning" is coming. On this, the 10th anniversary of the paper that sparked bitcoin, we can, perhaps, use a worked example to see what we can learn from how Satoshi approached this question of design, a design that was truly novel, and free from cargo-culting.

Reproduced below is the email that announced the birth of the entire project. Its first line reads: "I've been working on a new electronic cash system that's fully peer-to-peer, with no trusted third party."

With that deceptively simple sentence, Satoshi Nakamoto announced the arrival of Bitcoin.

Captured in those 19 words was what amounted to a precise requirements specification. Not a cargo-culted replication of an inappropriate idea from the past, but a specific set of requirements, from which a specific design then followed.

Let's unpack some of those words to see how Satoshi did it.

  • Fully peer-to-peer: so no central computers.
  • No trusted third party: so the electronic cash must be intrinsic to the platform. (Otherwise you would have to trust the issuer.)

This also explains why there is such a focus on network participants running their own nodes: if you can't rely on software you operate and control, then you'd be reliant on a trusted third party.

Perhaps more importantly, the lack of a trusted third party also implies that the transaction confirmation providers - miners – cannot be forced to be identified or else the need for an identify provider reintroduces a trusted third party through the back door.

This deliberate absence of real-world identities means you can't implement "one participant one vote" so you need some other way to link to the real world. This leads to proof-of-work that layers one confirmation on top of the last which, in turn, means you have to give time for confirmations to propagate around the world which, in turn, leads to a need for batching, and hence the confirmations must come in the form of blocks. And so forth.

It's only a small exaggeration to say that the entire architecture of bitcoin unfolds inevitably and relentlessly from those 19 words.

You work through the details and the whole architecture falls into place.

Risks and Choices

In sum, bitcoin is an amazingly elegant solution to a very well specified business problem.

It's not without its problems, of course. And many of them are deep and fundamental: technical, environmental and cultural. But we can't underplay the scale of Nakamoto's achievement. Ten years on, the proliferation of "blockchain technology" would seem to suggest Nakamoto has been highly influential.

And yet… As I argued above, not all of the business blockchain platforms of today derive from a precise requirements specification and arduous engineering process. Instead, they feel very different. Some are, effectively, cargo-culted replicas of systems designed to solve very different problems.

The resolution of this problem lies in engineering.

To see what I mean, let's look at Corda, the open-source blockchain platform my team supports and maintains, with the help of a large and growing open-source community. I don't intend this piece to be a sales pitch – so I'll say up front that there are problems to which Corda is an amazing solution… and problems for which is it not! Study it for yourself – and apply it where it makes sense.

But that is also my point: Corda is an engineered solution to a specific problem.

It so happens that Corda shares a lot in common with other blockchain platforms (cryptographically chained transactions, byzantine fault tolerant consensus options, massive scale and far more). But it also looks different in some fundamental regards.

As a result, we in the Corda community have been criticized for these seemingly unconventional design choices. But I believe this criticism was misplaced. The reason platforms like Corda look different is because they solve different problems and were engineered from the ground up to solve them. The differences are a feature, not a bug, so to speak.

For Corda, our mission is to enable people and firms to transact directly, with legal certainty, settlement finality, strict privacy, and total assurance that "what you see is what I see." As a result, its design is different. For example, there is an identity layer, transactions are sent only to those with a need to receive them, transactions are confirmed one-at-a-time in real-time and so forth.

Those platforms that have identified a clear problem to solve and engineered a good solution to that problem are in rude health. Fresh off the back of the largest CordaCon ever, we head into 2019 with production deployments under our belts and large-scale adoption just ahead of us.

Thank you, Satoshi, for showing us the way.

228. 30/10/2018 20:48
What Bitcoin's White Paper Got Right, Wrong and What We Still Don't Know

The Bitcoin white paper has been, rightfully, recognized as one of the most original and influential computer science papers in history.

It has launched a billion-dollar industry and thousands of follow-up papers.

 

 

But it's worth turning a critical eye on the paper (and elements of the original Bitcoin design omitted from the paper) to ask what did the paper get right? What did it get wrong? And what questions do we still not know the answer to?

What Bitcoin got right

This may be the hardest category to compile.

One mark of a truly successful idea is that we forget how people thought about the world before that idea came around. Many of the most fundamental contributions of Bitcoin seem obvious only in hindsight.

It's easy to forget that cryptocurrency was a research backwater for most of the 2000s. After the failure of many attempts in the 1990s to build a working system (largely using the ideas outlined by David Chaum in the 1980s), few papers were published in the area. Many simply believed there was no viable market for a non-state currency.

Prior to Bitcoin, decentralized systems were an active research area in the 2000s (often described as peer-to-peer networks) and anonymity research was coming into its own (with the development of Tor and other systems).

But these were not seen as necessary features for a payment system. What did Bitcoin contribute?

  1. Incentives for miners. One of Bitcoin's core contributions is providing incentives for miners via inflation and fees. This model has generally been successful and it's fair to say few saw it coming. Many P2P systems in the pre-Bitcoin era that offered open participation (anybody can run a node) were plagued by Sybil attacks and other problems. There were many attempts to incentivize honest participation, but prior to Bitcoin no system quite got it to work.
  2. Light clients. Bitcoin's support for both full nodes and light (or SPV) nodes has proven quite powerful, and the block structure embedded into Bitcoin has made it not just possible but natural to implement a light client.
  3. Scripting. While limited, Bitcoin's scripting support (not discussed at all in the white paper) has enabled several useful features like multi-signature accounts and payment networks. It was wise to envision a system supporting more than simple payments.
  4. Recognizing long-term incentives. Satoshi didn't anticipate industrial-scale mining or mining pools, at least not in the white paper. But the paper does include a very prescient line about the risks of centralization: "[an attacker] ought to find it more profitable to play by the rules, such rules that favour him with more new coins than everyone else combined, than to undermine the system and the validity of his own wealth." Despite a large number of theoretical attacks by miners being written about since, none have been seriously attempted in practice. Satoshi recognized a powerful principle – that miners have long-term incentives not to attack since they are invested in health of the ecosystem.

What Bitcoin got wrong

We'll ignore some quaint-in-retrospect features in early versions of the bitcoin code, such as pay-to-IP-address and a built-in e-commerce system, that never saw the light of day.

But there are several features of Bitcoin that appear "wrong" in that no system built today should repeat them.

    1. ECDSA. While this signature algorithm was a far better choice than, say, RSA, it is inferior to EC-Schnorr in all aspects. Most likely Satoshi simply didn't know about this option (a legacy of software patents around Schnorr). Today, it would be clearly advantageous to use Schnorr instead given its support for threshold signing, if not a more advanced signature scheme such as BLS.
    2. Transaction malleability. This unintentional issue has led to headaches for protocols such as payment networks as well as famously enabling the attack on Mt. Gox. Today a prudent design would use something along the lines of segregated witness (SegWit) to ensure transaction hashes are non-malleable.
    3. Features since added. Quite obviously, it was a mistake not to include popular features such as pay-to-script-hash (P2SH) and check-locktime-verify, which have been added since by soft forks.
    4. Limited divisibility of coins. Bitcoin has a limit of 21 million bitcoins, but more importantly, it has a limit of about 2^52 satoshis as the atomic unit. If Bitcoin were to really become Earth's only payment system, this would provide fewer than a million units per human being. This isn't nearly enough to capture both day-to-day transactions (even rounded to the equivalent of tenths of a dollar) and also large holdings. It would have been quite cheap to expand this with a few dozen extra bits such that divisibility would never be an issue.
    5. Blocks in a simple chain. Given how much of a buzzword "blockchain" has become it's worth noting that putting blocks in a linear chain is an oversight that makes it costly for an ultra-lightweight client to verify that an old block is included in the current chain. Bitcoin correctly puts transactions into a tree, so why not the blocks themselves? A skip list would be another major improvement. Interestingly, the Certificate Transparency project (designed independently of Bitcoin in the same era) gets it right and puts each update into a tree, while few successors to Bitcoin have strayed from the linear chain design.
    6. No state commitments. Bitcoin miners all track the system state as the set of unspent transaction outputs (UTXOs). But this is not committed to each block and must be imputed from history. This makes it hard for light clients to confirm what the current state is and if the transaction has been spent. It would be quite easy to add a UTXO commitment to each block and many subsequent systems (such as Ethereum) do a version of this.
    7. Simplistic attack analysis. The Bitcoin white paper devotes a relatively large amount of space (about a quarter of the text) to analyzing the chances of a miner with less than 51% mining power successfully launching a fork by getting lucky. Subsequent analysis has identified many other attack vectors (such as selfish mining) and this analysis now looks dated.
    8. One-CPU-one-vote. Satoshi described Bitcoin as a system where most participants would be miners using their CPUs. This has not been the case for many years now as mining is dominated by dedicated hardware. While it's debatable if ASIC mining is a good or bad development-it's certainly not what was pitched in the original white paper.

What we still don't know

  1. SHA-256 puzzles. Bitcoin's use of hash-based computational puzzles ("proof-of-work") has been one of the most active topics of debate. Does it consume too much energy? Do ASICs encourage centralization? Would puzzles designed for GPU-based mining or storage-bounded mining produce better incentives at lower cost? Will proof-of-stake eventually win out?
  2. The block size and other parameter limits. To say the least, the 1 MB block limit has been a source of debate, as has been (to a lesser extent) the 10-minute interval between blocks. Many follow-up systems have thrived with larger or more frequent blocks. Is Bitcoin's conservative design going to prove wise in the long run?
  3. Anonymity. The arguments sketched in the white paper about Bitcoin providing anonymity as only public keys are posted are now known to be incomplete due to the development of transaction-graph analysis. Systems such as Confidential Transactions, Monero or Zcash offer stronger cryptographic privacy. On the other hand, many backwards-compatible schemes have been proposed to obfuscate activity on the Bitcoin blockchain by mixing. Is anonymity a critical feature requiring built-in support that Bitcoin overlooked?
  4. Inflation. Bitcoin's design seeks to avoid inflation, but many economists have pointed out it is actually deflationary, as eventually coins can only exit circulation when keys are lost (or coins are intentionally made unspendable via "proof-of-burn" transactions). Zero inflation actually requires a small amount of new currency issuance just to keep pace with lost currency. If this was a mistake in Bitcoin, we may not realize it for many years as inflation is slowly wound down.
  5. The switch to transaction fees. Bitcoin hardcoded a slow transition from rewarding miners primarily by inflation to rewarding them primarily via transaction fees. Nobody knows how this will play out but some research suggests that this may cause significant instability in the post-inflation world.
  6. Limited programmability. Bitcoin imposed severe limits on its programmability to keep transactions easy (and predictable in cost) to verify. The Ethereum project has demonstrated significant demand for a richer programming model, though its model introduces additional scaling concerns. Will Bitcoin be handicapped in the long run by its weaker programming model?
229. 30/10/2018 10:27
Institutions Are Coming for Your Crypto

The following article originally appeared in CoinDesk Weekly, a custom-curated newsletter delivered every Sunday exclusively to our subscribers.


The term "institutional crypto" sounds like an oxymoron. There's something quite ironic about financial institutions adopting a renegade technology that was designed to do away with them.

Yet a string of developments this past month suggests that – to put it bluntly – the institutions are coming for your crypto.

 

 

Whether this is something to be alarmed, excited or bemused by, depends on what you want out of cryptocurrencies and blockchain technology. Do you want fully independent control over your assets, a more efficient and inclusive global economy, or just to get insanely rich?

What is clear is that, for a time at least, there will be an awkward and increasingly intensified clash of cultures between the pinstripes of Wall Street and the hodlers of crypto land.

And while an influx of institutional money may at some point drive up crypto prices, that clash portends more uncertainty and volatility for at least a while longer.

Institutional-grade custody

An important development came with the news two weeks ago that Fidelity will offer a digital asset trading service. The sixth-biggest fund manager in the world announced a project catering specifically to the trading demands of large institutional investors in which, most importantly, they will provide services such as "institutional-grade custody."

For believers in the "be your own bank" philosophy of bitcoin, the very idea of third-party custody is contradictory to the "trustless" ideals of cryptocurrency's origins.

But this was inevitable. If corporations – banks, hedge funds and brokerages, first, then non-financial enterprises, second – are to participate in the crypto economy, the legal, compliance, insurance and risk management demands they live under almost require that they pass off the risk of holding such assets to outside custodians.

And let's face it, an increasing amount of the world's crypto holdings is in the custody of third-party operators, whether it's with custodial wallet providers such as Coinbase or at centralized crypto exchanges that comingle customer assets with those of others.

A key difference is that these kinds of services are now being developed for hedge funds and other professional investment firms by more heavily regulated firms such as Fidelity. Custodial banks such as State Street and Northern Trust are also working on delivering similar services.

At the same time, a number of providers that started as crypto companies have earned regulatory status as qualified custodians, allowing them to also go after compliance-sensitive institutional investors as clients. These include BitGo, which received a charter from the South Dakota Division of Banking in September and Coinbase, which only last week received a similar qualification from the New York Department of Financial Services.

Meanwhile, the Intercontinental Exchange, or ICE, which owns the New York Stock Exchange, is preparing to launch Bakkt, a new bitcoin futures trading service – likely in December, the company said last week. The key difference with the futures contracts that were launched late last year by both the Chicago Mercantile Exchange and the Chicago Board of Options Exchange, is that Bakkt's will be for physical delivery rather than merely a cash-based settlement. That will, in turn, require custodial and other services.

Goodbye ICO, hello STO

This race to serve institutions comes as the mania for initial coin offerings, or ICOs, has waned on account of the dramatic downturn in the prices of tokens attached to decentralized applications. That was in turn mostly due to a regulatory pushback from the Securities and Exchange Commission, after commissioners argued that most, if not all, ICOs were in breach of securities registration rules.

Now, a new buzzword is emerging in the ICO's place: the "STO."

This is the idea of a security token offering. In many respects, it is far less revolutionary than an ICO. Most ICOs purport to be selling "utility tokens" whose governance structure includes a unique cryptoeconomic model for rewarding and incentivizing certain behavior within decentralized networks. STOs, by contrast, are a crypto-based version of more traditional assets such as bonds or equity.

Still, R3, the distributed ledger technology consortium founded by large banks, is already calling security tokens the "third blockchain revolution."

It's perhaps a little ironic that a group founded by Wall Street firms, which scoffed at the absurd hype in the ICO market last year, is now using language that could also be deemed hyperbolic. Still, it's true that STOs could have a big impact, especially in terms of smart contracts helping to more efficiently manage cap tables and, potentially, bypass underwriters in a more direct issuer-to-investor model.

To be clear, though, the impact will mostly be felt by traditional investment firms and other accredited investors who participate in primary securities markets. It might make it cheaper to raise capital and open up new models for doing so with institutional investors.

But it's not really about democratizing finance, as the ICO phenomenon, with its direct reach into retail markets, was purported to be.

Institutional framework, non-institutional model

There's a pattern to all this: new custodial and trading services being offered by large, regulated entities, all in preparation for an expected influx of new securities that use smart contracts and blockchain technology to manage transfers of more traditional assets. All are aimed squarely at the expected arrival of institutional investors into the crypto world.

Holders of bitcoin, ether and other crypto assets that might now receive a flood of incoming orders from these deep-pocketed investors sometimes salivate at this idea – essentially because they expect prices to rise.

That might be the case, but this is not going to be a smooth ride.

One reason is that, for all the efforts to jam the square peg of cryptocurrencies into the round hole of regulated, intermediary-managed capital markets, there is a fundamental contradiction that won't be easy to reconcile.

Wall Street types like to talk about crypto as a new asset class, one to add next to stocks, bonds and commodities in their clients' portfolios. But for the time being at least, while early-adopting retail players of varying size still dominate the crypto community, this "asset class," if it can be called that, is going to behave in a very different way from others.

That's because, for now at least, when you buy bitcoin, ether or other pure cryptocurrencies, you're not just buying a piece of real estate or a claim on a company's equity, you're buying into an idea.

And that idea, one that's supported by a very motivated, enthusiastic—if not always rational – community, supports a paradigm that would see these very same intermediating institutions removed from the economy.

I feel Wall Street analysts are going to have a hard time grappling with that contradiction. There will be a lot of surprises. And surprises create volatility.

230. 29/10/2018 19:34
The Race to Replace Tether (In 3 Charts)

The crypto market has a dominant stablecoin, make no mistake.

Tether, which aims to keep its token (called tether or USDT) at parity with the U.S. dollar by backing each token with $1 in bank deposits, accounts for the vast majority of the stablecoin market by total value, exchange volume and other metrics.

But the market has begun to show signs of anxiety around tether, centering on the firm's access to banking services and its claims to have fully collateralized the outstanding tether supply.

The token has not traded at $1 with any consistency since early October. It hit a low of $0.85 on one market on Oct. 15, and while the exchange rate has largely recovered, it still lags below target, trading at $0.99 Sunday, according to CoinMarketCap.

 

 

Meanwhile, several rival stablecoins have arrived on the market, including – just since September – Circle's USD Coin (USDC), the Paxos Standard Token (PAX) and the Gemini Dollar (GUSD). Older rivals include TrustToken's TrueUSD (TUSD) and Maker's Dai (DAI).

As one might expect in such a perfect storm, tether has begun to lose some market share to these competitors in the week and a half since it broke the buck, data analyzed by CoinDesk shows. Yet while TUSD and USDC have made the biggest inroads, the data shows no clear winner at this stage, and tether remains firmly on top.

All these coins are vying for a critical role in the crypto ecosystem. Stablecoins, in theory, allow traders to move money between exchanges quickly – without having to rely on access to traditional banking. They also allow traders to move their funds into a less risky asset during times of heightened volatility, without having to withdraw funds from an exchange.

Below we dive into the data.

Market capitalization

There are several ways to measure market share for stablecoins, none of them perfect indicators. One is simply by looking at the market capitalization, which, when the asset is supposed to trade 1-for-1 with fiat, should be about the same as the overall supply.

"Tether has definitely lost market share in terms of the supply of USD allocated to different stablecoins," Nic Carter, creator of the blockchain data site Coinmetrics, told CoinDesk. TUSD and USDC, he added, have been "the major beneficiaries."

Indeed, according to Coinmetrics data analyzed by CoinDesk, tether's market capitalization as a share of the broader stablecoin market has steadily declined, with most of that decline coming from a reduction in tether supply (a token's market capitalization is equal to its price multiplied by its total supply).

market capitalization tether stablecoins

Charts by Nolan Bauerle and Peter Ryan of CoinDesk Research. Data for all charts sourced from Coinmetrics.io. Note that vertical axis scales differ between charts.

"Prior to the run," Carter said, referring to a period in mid-October when tether's exchange rate dipped below $0.93 according to CoinMarketCap, "tether consisted of about 94 percent of the total supply in stablecoins; that collapsed to 83 percent after the run."

But it's important not to overstate the competitive implications of that collapse. The primary reason for this shift is that Bitfinex – a cryptocurrency exchange that shares executives and owners with Tether – has sent 780 million USDT to a company-controlled wallet known as the Tether Treasury since Oct. 14.

This process, which the company (controversially) refers to as "redemption," removes tokens from the supply and therefore reduces the market capitalization, which has fallen to around $1.9 billion from a peak of nearly $2.8 billion in September.

Hence, reductions in tether's supply haven't benefited rival stablecoins as much as might be assumed, Carter noted. "It looks like some USDT that were redeemed did not, in fact, flow into other competitors, but simply exited to BTC or fiat."

Volume

Another way to gauge stablecoin market share is to look at what's happening at cryptocurrency exchanges.

Unsurprisingly, during and shortly after the "run," a number of exchanges – including OKEx and Huobi – rushed to list alternatives to tether.

Yet Coinmetrics' data shows only a slight increase in trading volume for tether alternatives over the course of October, and from a tiny base (note that the vertical axis ranges from 96 percent to 100 percent, and tether remains clearly dominant by this metric):

stablecoin exchange volume

Coinmetrics exchange volume data is sourced from CoinMarketCap.

"Exchange volume is small for alternatives because traders aren't really accustomed to them yet," said Carter, adding "tether still is considered a useful (albeit risky) coin for traders to get fiat-denominated risk. It just has the accumulated financial infrastructure."

But there's one more metric to consider: the volume of transactions on the blockchains for these stablecoins.

By this yard stick, tether alternatives have made more headway. Compared to modest on-exchange volumes, total on-chain transaction volumes were considerably higher for non-tether stablecoins throughout the month, and they appear to have increased after tether broke the buck:

onchain transaction volume tether stablecoins

All told, tether is still dominant, but competition from its many rivals is heating up.

According to Carter, however, "it's still too early to say which competitor is best positioned to win long term."