🐂The Bull Case for Ethereum-Killer Cardano🐂

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To Operators,

In late 2017 after I had formed strong positions in both Bitcoin and Ethereum I began exploring alt-coin projects that I believed had the ability to deliver on their promises of changing the world. This period in time was the height of the sh*tcoin madness and the crypto market cap was about 99.8% scams or projects that had no merit. I believe Cardano was and still is an outlier.

Overview

Cardano is a decentralized platform that utilizes layer architecture to ensure privacy, accountability, speed, development, and scalability. Its creators have blended the strengths of multiple popular blockchain projects while intentionally mitigating their weaknesses.

The goal of Cardano is one of realism. The project is designed to strike a balance between the needs of regulators and the needs of the market to transfer value unhindered. It aims to do this while scaling performance and functionality to match demand.

The Team

Three organizations, The Cardano Foundation, Emurgo, and Input Output HK (IOHK), are responsible for Cardano’s operations and success.

The Cardano Foundation is an independent standards entity based in Switzerland with a mission to standardize, protect, and promote the Cardano Protocol Technology.

Emurgo is a venture capital/accelerator entity which integrates commercial ventures into the Cardano protocol through incubation, support, and development. Emurgo leverages the resources of Emurgo Finance, Emurgo Legal, and Emurgo Logistics from their headquarters in Japan.

IOHK is an engineering and technology company that focuses on innovating in the financial services industry. Founded by Jeremy Wood (fmr. Operations Manager, Ethereum) and Charles Hoskinson (fmr. CEO, Ethereum) IOHK has a contract to build and maintain the Cardano platform through 2020.

Functionality

Protocol Layers

Two different protocols govern the platform, The Cardano Settlement Layer (CSL) and the Cardano Computation Layer (CCL). CSL governs the transfer of value across the platform while CCL handles the accounting. This system allows for an unrestricted and private flow of value but answers the needs of regulators to address accounting concerns.

Proof of Stake

In a contrast to proof of work protocols, proof of stake requires little computing power and offers the same level of security with many more benefits. Named Ouroboros, Cardano’s PoS protocol enables anyone who holds currency to maintain the ledger. This protocol is infinitely more scalable than its predecessor while maintaining speed and security. In addition, this design allows holders to earn interest (estimated 2–5%) on coins they own and stake, acting as a built in dividend for investors.

Peer Review

A first in the blockchain space, the elements of Cardano’s protocol have been peer-reviewed by academic crpytologists from the University of Edinborough, the University of Athens, and the University of Connecticut. This has resulted in the publishing of 91 academic papers on the project.

Decentralized Applications (DApps) & Smart Contracts

Like Ethereum, Cardano’s end goal is to become a platform that can not only host a multitude of Decentralized Applications but can also settle Smart Contracts. This capability combined with the layered protocols will allow Cardano to handle far more transaction and application volume than Ethereum while maintaining a fast and efficient network.

The Thesis

Cardano is a project addresses a market failure with a realistic view and opens the door for financial transactions, both personal and commercial, to be revolutionized around the globe. The project has taken top talent from an already proven Ethereum and combined it with a global support structure to help it succeed. The technology behind the protocol is sound, peer-reviewed science, and more importantly encourages scaling.

It is a project early in its life cycle with substantial backing from a talented and promising team. As a long-term long position there is significant upside to be found as the protocol matures, executes on timeline, and captures market share. Additional benefits will come from thoughtful design around scaling, something it’s peer Ethereum has struggled with famously in the past and present.

The Data

Like most of the altcoin market Cardano’s price action has been volatile:

There’s been a recent uptick in volume and the price is climbing off of all time lows. With ~8x to go to reach the previous all time high I think there’s room to run if we enter a retail FOMO cycle – though I care less about this as this is a long term position for me.

One of my favorite things to do is to look at more macro level indicators, like any tech-analog these projects require active development and that’s something IOHK has delivered on:

Cardano also led the pack in 2019:

The inference from these charts is that this is an active development team shipping code on a regular basis, and they’re out performing a market incumbent.

In the same thread as active development is execution on the roadmap. Cardano breaks their roadmap out into 5 distinct phases:

Most recently (July 2020) they completed Shelley and are working on Goguen which is slated for a Q2 2021 release. One of the hallmarks of Shelley was the release of staking. With staking you can now delegate your ADA to secure the network and receive ~5.5% in annual rewards.

I will be watching the release of Goguen closely as Cardano will need to execute smart contracts well to compete with Ethereum. Overall execution on the stated roadmap has been excellent albeit a little behind estimates. This is largely bullish but will need close attention over the next 12-24 months.

That’s it for this week, have a great weekend and I’ll talk to you all next week.

Forward.

– M


Situational Awareness

  • PayPal CEO: Financial System 'Not Working,' Users 'Very Eager' For Crypto – Dan Schulman, CEO of online payments giant PayPal, has presented his diagnosis of the current financial system’s shortcomings, claiming it is inefficient and causing millions of people to be excluded, as the company expands into cryptocurrencies. (via CryptoNews)

  • Millions of Americans Expect to Lose Their Homes as Covid Rages – Millions of Americans expect to face eviction by the end of this year, adding to the suffering inflicted by the coronavirus pandemic raging across the U.S.

    About 5.8 million adults say they are somewhat to very likely to face eviction or foreclosure in the next two months, according to a survey completed Nov. 9 by the U.S. Census Bureau. That accounts for a third of the 17.8 million adults in households that are behind on rent or mortgage payments. (via Bloomberg)


The Portfolio Rundown

Not a lot of movement in the portfolio this week, notable change is the removal of the entire precious metals segment in favor of cash (see last Thursday’s letter on the why of this move). It’s time to get aggressive targeting digital assets, will aim to keep the cash allocation ~5% going forward. This is mainly to combat volatility in the portfolio and keep the Sharpe Ratio up.


Nothing in this email is intended to serve as financial advice. Do your own research.


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