Hemang Subramanian


Insights from Ethereum Analytics

What is truly amazing about Ethereum Analytics on ethinfo.com is that it provides data backed evidence of all aspects of the blockchain ecosystem. As we’re ending 2019 – here are some insights:

  1. The network transaction fees has remained mostly constant for all of 2019 except for occasional spikes indicating that there is no surge in the number of transactions happening on the network.
Network fees

2. The total ethereum network utilization chart shows that the ether network utilization has been between 80 and 100 for almost all of this year, with some instances where the network utilization has been upto 98%.

The above image shows how much of the ethereum network is spread around the world. What is interesting to note is that despite the severe ban on “Cryptocurrencies” and other allied technologies in mainland china, there seems to be more than 1073 ethereum nodes active at this point. However, it is likely that these nodes are being run out of Hong Kong’s datacenters and not on mainland china. Similarly, India has about 160 ethereum nodes active at this point – despite the legal ambiguity.

The above graph shows that the overall network difficulty as measured in TeraHashes has continuously increased over the past year.

In conclusion – we have a network that supports cryptocurrencies that is sufficiently decentralized and is bursting at its seams in terms of network throughput with the utilization of about 90% with near-constant/predictable transaction fees. If this network moves toward Proof of Stake and some of the changes such as sharding were to play out on schedule, we will see a significant number of apps being deployed on the global platform.

Maker DAO’s decentralized Governance model

Maker Token Holder

Often, two detrimental factors affect open source software development.


One, the team that builds and later maintains the open-source software is often under-compensated or have to look out to organizations for funding. More often than that the extremely talented software developers and leaders have to engage in other professions or freelance for corporations so as to sustain their own lifestyles which allows them to contribute to open source. Later these organizations themselves impose rules/restrictions and such on these teams of developers leading them to lose track. The fallacies and problems of development are outlined in the Eric S Raymond essay on “The Cathedral and The Bazaar”. Quoting from the essay —- Brooks (the author of The Mythical Man-Month) even made an off-hand observation related to this: “The total cost of maintaining a widely used program is typically 40 percent or more of the cost of developing it. Surprisingly this cost is strongly affected by the number of users. More users find more bugs.” [emphasis added].


While governance, management and enhancement of software has had its own perils, very often open-source software development projects have no particular structure. Very often leaders emerge from within and are strongly supported by sets of developers in their direction of development and vision. However, these single team led projects or leadership-driven approaches have shortfalls – they often do not incentivize the crowd or the public to contribute to the software’s development direction. They also are limited by the leader’s vision, the team’s bandwidth, and limitations. It’s almost like planetary exploration. Those who got there first and created the universe control everything therein. Those who come later or who want to improve the planet have only so much say, and if they want to are free to fork the code base and recreate the entire network – which is almost impossible.

MAKER DAO elegantly solves both these problems through an innovative governance protocol. Firstly, Maker allows for public financial innovation wherein individual teams are allowed to propose enhancements to the Maker platform. Each proposal submitted as a smart contract is voted on by the holders of the Maker Token. Each proposal is submitted as a smart contract and has two parts :

  1. The actual proposal to be implemented on the Maker platform and the details of the implementation. An example proposal is given here: https://vote.makerdao.com/executive-proposal/adjust-debt-ceilings-sai-stability-fee-and-the-dsr
  2. The fee that the team demands in order for the proposal to be implemented and released to the public is attached as part of the proposal.
  3. Later those who hold the Maker tokens vote for or against the proposal (http://vote.makerdao.com). Once they vote for change and this change reaches a majority count, the proposal becomes “Active”
  4. The Maker Platform generates the fee demanded by the team in order to execute the corresponding proposal improvement, and the proposal goes live after execution. Once the proposal goes live, the team is compensated with the corresponding tokens.
  5.  However, problems persist with this mode of governance. Often, voting is proportional to the number of maker tokens held by the voter. This is currently not yet centralized, however, given that the distribution of tokens as seen from etherscan.io   is as follows: i.e, https://etherscan.io/token/tokenholderchart/0x9f8f72aa9304c8b593d555f12ef6589cc3a579a2   – A total of 884,824.48 tokens held by the top 100 accounts from the total supply of 1,000,000.00 tokens. Secondly, such forms of voting- accomplished via a smart contract often suffer from the same problems as other cryptocurrency-related problems i.e, anonymity, collusion, multiple-accounts for the same individual, lack of identity, etc…. These problems are definitely extremely difficult to solve and need potentially different types of smart contracts and multiple layers of incentives and punishments to prevent a systemic breakdown of governance. Interesting problems to solve….for those interested in computing and in-game theory.
Maker Top 100 Token Holders

Unstoppable Blockchain DApps – via smart contracts on Ethereum – The true power of the blockchain

Unstoppable Blockchain DApps

This past week was a revelation after working for 3.5 years in the blockchain space, after listening to Dr. Stephan Karpischek’s Keynote speech on “Decentralizing Insurance” at the PreICIS SIGBPS 2020 workshop.

Stephan’s definition of a blockchain based software system appealed to me as the right way to create software systems and development ecosystems.

Software LIFE Cycle and Stoppable Software Systems

A software system has a life cycle which starts with a team building it. Often the team that builds this system is centralized heavily on three types of resources: i.e., (1) human capital provided by the management of the firm that owns the software (often licenses it and the source code), (2) the hardware needed to run the software( often single server systems installed and run on a set of nodes in single data-centers) and (3) software tools available to the developers and adopters (by means of developers invested in the system).

Each of these three components necessary to create an maintain software applications have multiple points of failure, both technical, economical and human resource related leading to a process known as “End of Life” for the corresponding software.   For example, management of firms that create these software projects can often shut down these  projects and relegate them to obscurity. The hardware and software on these systems can become outdated often and frequently.


When all the 3 aspects of a software system that are (often) centralized disappear, then we have a true software system that is unstoppable. Public decentralized blockchains widely adopted makes this happen. For example, on the Ethereum Blockchain which is a global network with nodes around the world and hosted by different individuals, decentralized applications have the requisite hardware and software to live on for ever. Similarly, when teams developing the software is distributed globally and there is no single organization determining what can/what can’t be done, and governance of software is accomplished through governance models that are public, transparent and open to all, such a system becomes unstoppable.

Such unstoppable systems cannot be regulated, pulled down or forced to abort unless the entire network of computing nodes are stopped. For example, when one country regulates access to these network of nodes, other countries which provide free access to computing resources will provide environments for this innovation to thrive. Similarly, when investors decide to impose regulations such as geographic blocking on the corresponding software, the entire source code of the software can suddenly be forked and start to execute on nodes without the geo-blocking feature.

Ethereum nodes distributed globally

Source – https://etherscan.io/nodetracker

This in my opinion is the most important and critical aspect of Decentralized applications that Software development firms have to pay attention to.

Such a one Blockchain DApps is  –Uniswap

Earning interest while you HODL

currency and coin image

Cryptocurrencies and primarily Ethereum backed ones create new modes of earning interest. What was once an ICO backed increased adoption of cryptocurrencies – after being hyper-regulated, and banned by countries, has now transformed into an economy of regulated less riskier Decentralized Finance.

The premise for earning interest in cryptocurrency markets is simple, and below I list a few means to do so* . As a disclaimer, users who choose one of these means do so at their own risk.

  • Crypto-Exchanges and Margin Trading
    • Writing a crypto-exchange allowing traders to trade coins in exchange of small commissions per trade. There are more than 100+ decentralized exchanges which use smart contracts to swap one cryptocurrency to another. This approach needs deep expertise in a variety of areas including cybersecurity. The list of known ones is here (State of Decentralized Exchanges)
    • Margin Trading – On exchanges such as Poloneix.com users can lend their HODL-coins to others who trade on their behalf.
  • DeFI interest earning applications
    • With applications such as compound.finance, nexo.io, celsius.network and a host of others, users can invest their HODL -coins and earn interest off those coins based on rates determined by the network. These applications provide extremely high liquidity and enable users to withdraw the very same day.
  • Staking networks
    • Cryptocurrencies such as Tezos enable users to delegate their Tezos to bakers, who pay them interests. In fact, staked.us provides support to stake more than 10 different cryptocurrencies.
  • Collateralized Debt Bonds using Maker Platform
    • The Maker Network and crypto-platform enable users to set collaterals in their own bonds such that their existing crypto-currencies (e.g., ethereum, augur, etc) can be baked from the maker platform. The smart contract which locks the users’ cryptocurrency then issues a stablecoin known as DAI based on the existing governance rates of exchange. This DAI can either be invested in other DeFI platforms or can be locked into a savings platform through a Dai Savings Rate contract thus enabling them to earn interest on existing Dai holdings.

Maker DAO – a Decentralized way of solving the volatility problem in cryptoeconomics

Maker Log with keyboard image

Maker DAO bring stability for the blockchain and solving the volatility problem in cryptoeconomics. 

Hard problems in cryptocurrency

One of the many hard problems   in cryptocurrency ecosystems is the price instability of  most direct to trade crypto-assets.  The lifecycles of these cryptoassets begin with the mining function, and the network effects that accompany the blockchain.

These network effects often accentuate the ability of different stakeholders such as market makers/takers/traders/miners/app-developers, etc. to strategize in order to maximize their own rent making ability in these markets. Due to multiple sides of the markets continuously contributing in the face of entries and exits, the underlying asset faces significant volatility. 

In such circumstances, despite the promise of decentralized-fungible equivalent cryptocurrency that can be transferred without an intermediary, these cryptocurrencies often become risky for trade which expects some amount of stability vis-a-vis the current stable fiat (USD or Euro).

A solution in the form of stablecoins has often been sought wherein each cryptocurrency has collaterlized to some asset (either money in the bank or something else). Nevertheless, each such stablecoin is controlled by a trust or a consortium which is responsible for auditing the assets and ensuring that the right supply-demand-balances exist in these markets.

DAI and the Collateralized Debt Position

DAI is a type of collateralized cryptocurrency that is pegged to 1 USD and  operates purely on the Ethereum smart contract platform. The decentralized governance makes this a unique stable coin which any user can  exchange to fiat currency. 

How is DAI generated?

The way DAI is generated is through CDPs where users deposit a certain quantity of Ethereum (usually more than the number of DAI needed), into a smart contract. The ratio of the value of the collateral to the DAI generated is known as the liquidity ratio, and this liquidity ratio is pre-set by the Maker Platform voters through a governance mechanism considering several factors.

Once the  collateral (i.e., a certain quantity of ethereum that is accepted) is  locked into the smart contract DAI is generated. The DAI is generated and the user is now free to use this DAI to do anything he wants to. Once the DAI is paid back to the smart contract, with the interest (labeled as the stability fee) into the Maker account, the collateral is released to the user.


The governance of the DAI token exchange values and several intervening conditions such as a flash crash in collateral prices, or an emergency price variation,etc.  are handled through a transparent and collateral system overall.

Why go through the trouble of creating  DAI?

Firstly, DAI is accepted on many crypto-fiat exchanges as a mechanism to trade on various markets due to its price stability of 1USD. This is almost equivalent to borrowing money against cryptocurrencies at the rate of the stability fee (i.e., approximately 5% per annum with the risk of liquidation).

Secondly, DAI due to its decentralized nature enables users to participate on several decentralized  finance platforms such as dydx or celsius.network. These platforms offer an interest rate on DAI between 5.5 % and 9%. This gives people the ability to use their cryptocurrencies as a means of earning interest directly. 

How to create and use DAI

Step 1.

You own 10 Ethereum. You create a smart contract on the Maker Platform and send your 10 ETH to it. This is the website to make this https://cdp.makerdao.com/

You now have a CDP created.

Step 2.

You send another small transaction to the smart contract, which then locks up the CDP, making the 10 ETH temporarily inaccessible, and generates Dai. The CDP must be 150% overcollateralized, so depending on the price of Ether, the amount of Dai received will change. If ETH = $300, then 10 ETH = $3000. Then, the CDP would generate 2,000 Dai.

Step 3.

You could then do whatever you wanted with the Dai. Many people use it to trade other crypto, while still being able to hold on their ETH. So, say you then use Dai to purchase another cryptocurrency, such as Bitcoin. After a period of time, which could be days or even years, you sell you your Bitcoin for a profit back into Dai. You now have 3000 Dai after BTC goes up 50%.

Step 4.

You then now send the original 2000 Dai plus the 5% Stability fee (50Dai) and unlock the CDP, receiving back your ETH. Now, you have $950 in profit and the original 10 ETH.


The whitepaper lists several risks.

  1. Mkr governance can choose to liquidate the collateral if the risk is too high at any point in time, holding 13% as a penalty.

0X and the mission to enable “almost” free value flows

0X Token Symbol

The 0X token and protocol is one of the several generalized decentralized token exchange enablers. Their mission has been to decentralize the exchange of value.

While this mission per-se is genuinely a hard problem, whenever exchange of value happens – many intermediaries extract “fees”. Consider a simple case where you go to a store and buy a $5 item. Often there are several costs associated with the good’s sale, which we don’t pay attention to. For example, the state taxes, the value taxes, the surplus earned by the seller and many others. Often – despite the buyer willing to pay for the good immediately, the good itself is not available for sale. These challenges though multi-fold increase the difficulty in trade for the seller and for the buyer too….

Very often however, certain types of financial products are not even made possible by financial restrictions and often by meagre lack of imagination in the financial industry. For example, if one wanted to sell a portion of his mortgage to a lender who offers a lower rate than the current mortgage rate, that is difficult, since there are transfer fees in between. The transfer fees are significantly high that it discourages such transfers…. All of this though 99% of the regular checking accounts and savings accounts give their billions of holders less than 2% interest rates in the US, and in some cases like in Japan a negative interest rate. This 2% in absolute terms, if inflation adjusted would also be negative.

Similarly, if one were to create a peice of art or an e-book and sell it, the intermediary seller recieves a huge commission for the same. Often if the intermediary is a platform, the platform shares a meagre amount to the end seller. With smart contracts and tokenization of assets through smart contracts, it is possible to convert any asset (physical or virtual or even nonphysical) to tokens. Later those tokens can be put out on sale on a marketplace where takers (i.e., buyers) can buy it. Buying again can be apportioned using traditional bidding or at a fixed price. Similarly, apportioning of value based assets, token based assets, etc… all can facilitate the same.

0X (ZeroX) is a platform and a protocol that provides APIs, programming toolkits and interfaces that are user friendly. It is a layer atop Ethereum’s complex Solidity based interface, that allows users to create decentralized exchanges for “custom” tokens. The decentralized exchanges can then be used to trade “standard” established tokens such as bitcoin, ethereum, etc.. in exchange for “custom” tokens created by the user.

In fact within a few minutes one can create a simple web based interface ( with a Javsascript frontend) to create a simple token exchange for a “custom” token to be exchanged with any “standard” token, which underlying it can embody any complex smart contract. Such flexibility in creating newer types of financial assets and allowing a meaningful trade which is instantaneous, at almost no transaction cost – that too decentralized without a large intermediary firm controlling all transfers, and monitoring it, etc.. gives rise to several possibilities….

A future post will walk through the decentralization process using 0X.

DeFi- Decentralized Finance through Smart contracts & Stablecoins

DeFi Text with cryptocurrency image

It is well known that stable coins and stable coin issuance has given rise to accelerated adoption of cryptocurrencies and blockchain finance overall. Nevertheless, the reason for this adoption increase is in the ability to transport cryptocurrencies i.e., stable coins across exchanges, accounts, boundaries and even physically store it on a ledger or software such as exodus.

Decentralized finance using smart contracts and stable coins has seen profitable innovation in financial management, some of which are incomprehensible with traditional forms of money or other assets. For example, an exchange/defi institution situated in the USA can attract capital in USDC and then can lend it out to banks/financial institutions/retailers in other geographies for a higher rate of interest. In the process, they can then return a part of the profits to their end customers. The crux of the rule is that while retailers cannot lend internationally, institutions can.

Smart contract applications such as compound.finance which operate on the Ethereum network using ERC220 standards, attract investments in stable-coins such as DAI, USDC as stable coins and BTC, ETH, BAT, 0X, WBTC as cryptocurrencies. They create a lending contract between borrower and lender and facilitate paying back the borrowed amount in cryptocurrencies.

There are also a host of exchanges, wallets and applications like Celsius, nexo.io, Coinbase and Blockfi which provide interests ranging from 7% to 1.25% on your stablecoin holdings. The nexo.io also insure your stablecoin holdings using a federal program like the FDIC assuring customers of the safety of one’s holdings…

You might actually be better off just converting your fiat holdings to cryptocurrencies and earning interest off the holdings. This way it is a win-win situation for you. We are still scratching the surface of decentralized finance and as time goes by newer and newer innovations in this space will make finance accessible, decentralized and viable to both lenders and borrowers.

What should be developed on Ethereum?


This was a question posed by Elon Musk to Vitalik Buterin, in what has now become a widely public debate about market creation on a public blockchains. The response of Vitalik spanning across 5 tweets (https://twitter.com/elonmusk/status/1123126001171517440?lang=en) . Each market creation idea is tremendously powerful and can have multiple players that facilitate the decentralization of market functions.

  1. Store of value markets : for payments, value exchanges, and for innovative financial products like insurance (hurricaneguard from etherisc). I have widely discussed the economic properties of etherisc in a Managerial Finance journal paper co-authored with their former CTO Alpen Sheth.
  2. Markets that manage private identity (e.g., single -signons without giving single firm access to all of an individual’s private information that the firm can now use to sell downstream to marketeers) – an approach that has long caught the imagination of individuals and companies but still experiencing difficulties that are related to usability and user acceptance. Imagine remembering 12 or 22 words each time you need to login….or having to download software to login.
  3. Markets of registries of public information.
  4. New forms of decentralized organizations – this form of organization completes Hart and Holmstrom’s – incomplete contracts – hypothesis wherein they argue that firms are incomplete structures of organization for human interactions.
  5. Markets for facilitating micropayments across organizations and individuals – this also extends into microfinance and microlending which is a global phenomenon with a hugely unsuccessful business model. Altering financial behaviors of entire societies is a difficult proposition with lots of entrenched incumbents opposing such a move. Nevertheless, such a mechanism can possibly be developed with the right partnerships, incentives, and structures.
  6. Markets for data/business analytics – that use homo-morphic encryption to enable private data to be analyzed and modeled without providing access to the actual underlying data.
  7. Markets for spam prevention in blockchain-enabled social media- several problems of incentive incompatibilities exist, and greedy user maximization inefficiencies face public social media blockchains e.g., collusion amongst providers as in the case of steemit, bad actors reaping excessive benefits, etc… incentive models that include a combination of recommendation systems, moderation facility, social mobilization, and crowdsourcing can facilitate this extremely complex functionality.
  8. Markets for rewards – creating unique reward mechanisms that are based on economics and can just be deployed by either traditional web-based businesses or blockchain-based businesses. These rewards should be based on incentive maximization economics.
  9. Stickers and Badges – These are an extension of either art created on the blockchain and of rewards on the blockchain and are valuable propositions.
  10. p2p markets for anything that is incentivized – Peer to peer marketplaces for internet connections are already taking shape in the form of helium.io wherein devices that operate with radio frequency transmit the internet over a large area and are owned by individuals and not by firms. the device owners are incentivized by usage in cryptocurrencies.
  11. Identity systems, reputation systems, and credit systems for those that are resourceless – these systems could help refugees and several stateless people who have no means of livelihood.
  12. Decentralized alternatives to DNS which is today centrally controlled by ICANN and a few government organizations, which can at the word go shut it down entirely.

National Cryptocurrencies: Boon and Bane

cryptocurrency bitcoin ethereum ripple images together

Nation states such as China India US and Senegal have embarked on an agenda to either propose or start creating cryptocurrency infrastructure to replace existing “note” based infrastructure. Singapore, a trailblazing technical powerhouse is at the leading edge of implementing such technology through their well publicized Project Udin experiment. Such an initiative has several advantages:

  1. The robustness of a permissioned or permission less blockchain ecosystem is extremely well known and well understood. It is secure and extremely robust to all kinds of attacks on its cryptographic protocol.
  2. Dynamic monetary policies will enable governments and national financial institutions to accurately create, tweak and develop new forms of monetary policies that did not exist earlier.
  3. The cost of printing, regulating and preventing fake -or duplicate physical fiat currencies is reduced to 0 – since digital cryptocurrencies can never be duplicated and/or faked. The ledger validates with 100% surety.
  4. Problems such as double spending, money laundering, etc. are easily stoppable and recognizable.
  5. Governments, now need not necessarily introduce different fiat nominations and digital nominations and over a period of time, can wield significant control over the country’s money supply, flow and accounts which today – due to the percolation of physical fiat currency notes  is very difficult to ascertain.
  6. Nevertheless, e-commerce and regular commerce will significantly become easy.

There are some disadvantages too for the national cryptocurrency system.

  1. the volume of cryptocurrencies needed will significantly be large – and as a result will need decades of developing a robust infrastructure to support both high cost and high speed of transactions.
  2. If national monetary systems become completely digitized over time then existing business models including those of currency notes, banking infrastructure i.e., money transfer systems, ATM networks, connection infrastructure among banks,  that has existed over the past 100-150 years will have to be replaced in its entirety. Imagine if one just needs an internet connection and a digital wallet to access one’s account – what would be the need for a bank?
  3. Such national cryptocurrency systems will need to interoperate among different nation states since each nation state will want to build its own infrastructure.
  4. Lastly, monetary freedom of a nations citizens and people can completely disappear when central control of digital currencies happen.