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ICO Analysis: adToken

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The problem of digital content has long been foremost on the list of those which can be addressed by the blockchain and cryptocurrency. Without someone paying for the creation of good content, there would be very little of it available. In the beginning of the Internet days, there was not even a secure way to transact over the Internet, let alone the mechanisms to secure its contents. because of that, the idea of paid subscriptions was incredibly hard to swallow, though over the years it has matured in the form of premium services and the likes of Netflix. Thus, advertising is still the dominant way that content online is paid for, and the creators of adToken don’t see that changing in the future. Rather, the problem they intend to address is not the method of paying for the content, but the fraudulent conditions in which advertisers currently are forced to operate.

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As CPM rates have declined, downstream publishers and those who rely on advertising have begun resorting to cheating the algorithms with bots which can mimic human behavior and falsify traffic statistics. The decreasing cost of these methods has made the average advertising dollar of a given firm far less effective, as it’s said in the adToken Whitepaper:

Ad buyers are increasingly frustrated by having their money stolen. While programmatic ad buying is undoubtedly the path forward for quantifying the value of ad buys relative to direct dealing and is the highest growth area of digital advertising, programmatic is, at present, a morass for quantifying efficacy in advertising non-installable goods. The behaviors of humans on web pages are easily mimicked by bots and the flagging of bot network signatures is essentially a cat and mouse game. This leaves advertisers mostly powerless against the incentive structure of the downstream supply chain.

The solution that adToken presents is a registry of valid publishers who are not scamming the system for ad buyers to consult. Applications can be made and challenged in a decentralized manner and changed later on through the same governance model. The idea is that by becoming involved and moderately exposed in the adToken economy, ad buyers will save money long-term by only dealing with publishers who have been verified as honest. Additionally, the governance model is also used to change constants in the same; meaning that the periods for challenging new domain entries or the period of validity can be changed by token holders.

The Economics of Virtue

The purpose of the registry will be to provide value to ad buyers, so the whole system will rely on honesty and virtue from its participants. If a bad domain is submitted and no one challenges it, for instance, then the whole system can be tainted, with that bad domain siphoning funds and giving adToken a bad reputation. However, this point clearly illustrates a more important one: the incentive for adToken holders themselves to desecrate the system is not there because it will inevitably affect the exchange value of their token. Therefore, as a liability, this is limited in terms of rational self-interest to outside parties who likely have a competing service.

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However, adToken does not appear to be trying to monopolize the digital advertising verification through the cryptography sphere. Instead, applicants will also be able to indicate if they are accepting Basic Attention Tokens as well, which are part a similar effort operated by Brave Software that is also creating a browser, which will allow web users to earn money for allowing advertising through.

The economics of virtue appear faulty at first glance, but when one thinks about it a bit deeper, one sees that it can be viable. For instance, a single attack of the kind outlined above would result in significant governance changes within the system. Perhaps a mandatory challenge/review would then be introduced, in which someone actually has to prove the site has never engaged in botvertising.

The voting process is interesting. The applicant provides a domain and an adToken deposit.Then, there is a challenge period during which another person can put up an equal deposit as a challenge. If a challenge is present, adToken holders are able to put up tokens to vote against or for the application. If the application fails, the person who challenged it receives half the deposit they put up, and everyone who voted in their favor also receives an even dispensation from the other half. The applicant loses all their deposit, but anyone who voted in favor of them receives their own voting deposit back.

This does leave the system vulnerable, still, to attackers with large bank rolls. However, one can guess that the parties with the most interest in this platform succeeding have deeper pockets than those who fear its success. One is a group which must resort to fraud to profit, the other is a group which simply wants its advertising dollars to effectively perform (by actually reaching humans instead of robots). From the whitepaper:

Token holders have one concern, which is to flag fraudulent and low quality applicants to the pool and win votes to reject those applications.

The adChain Team

adToken itself is actually a conglomerate of various operations, including ConsenSys, MetaX, the Data & Marketing Association, and the adChain Association. The DMA obviously has little technical input on the project, but having their backing earns this project significant credit, as it is their purview to better the conditions for their industry. The team is composed of elements of ConsenSys and MetaX, beginning with Mike Goldin, who works full-time at ConsenSys and had previously interned there during college a couple years ago. He has to his credit a successful smart contract for something called Ujo Music, which operates in the same space as several others regarding the identification, licensing, and payment of music artists.

Their primary development efforts seem to be at the behest of Miguel Morales, who works at MetaX and has worked at two other software-focused firms in the past. Morales is a highly competent developer. In relation to this current project, he recently wrote a tutorial regarding interactive bid requests.

In advisory roles, they have Shailin Dhar and Raleigh Harbour, both of whom share massive experience in the digital advertising world. Dhar is the author of an influential document on the subject, while Harbour formerly worked for AOL, who pioneered the industry early on, becoming one of the first important and sizable advertising networks.

Presumably, the team will rely on the vast human resources of ConsenSys and MetaX for actual development, so the significant lack of highly-technical people listed in their team section does not necessarily equate to technical debt. The major organs of this project will function in management and advertising anyway, since getting the word out to publishers and advertisers will be paramount in the success of the platform.

Investment Details

The adToken crowdsale will go live via Ethereum only on June 26th at 9 AM Pacific time. 500 million tokens will be for sale that day, with 100 million already being sold in pre-sale funding arrangements. An additional 400 million are split evenly between MetaX and ConsenSys, for a total of 1 billion coins in the economy.

This distribution is arguably a red flag, in traditional ICO analyses, due to the high level of coins that are not being released to the public. The least they could have done is pull the 100 million tokens they used for fundraising already from the 400 million being distributed between the firms, correcting the balance so that the majority are in the wild, while 40% remain in the citadel. Instead, 10% are unknown, 50% are in the public, and 40% are held by the founders. The pre-sale arrangements could be fictional or falsified, as well, making the thing suspicious on these grounds. In general, a small pre-mine or with-holding is acceptable to fund development, but the coins should be left to the market by and large for value and legitimacy.

A more in-depth map of the distribution is here:

No real information on how to actually invest is present yet, but presumably, that information will be available on June 26th. However, the site does say a MetaX GUI for participating will be built in the meantime. You can sign up for a reminder at the adToken website. A specified starting price has not been listed, but it does not that only the sending address will be able to receive the tokens, so do not fund the investment with an exchange account that you do not control.

The Verdict

adToken is a great idea with limited drawbacks. Let’s go over the drawbacks:

  • Potentially lots of others in the space, creating a sense of attrition in terms of growth. If a site cannot get whitelisted at adToken, perhaps it can somewhere else. This could lead to confusion in the market, and mean that reputation will be the primary factor in the value of adTokens. If this happens, the trajectory of the token itself could be straight up or down.
  • The vulnerability of deep-pocketed attackers from other whitelist operations or those who benefit from the problem’s existence. Penetrating the reputability of adChain would not be trivial, but could be possible. The system relies on there being enough active, rational participants to ensure against these types of denigrations. Anytime such problems were to arise, other plays in this market would have an opportunity.
  • The period between launch and gaining a reputation as a way for advertisers to actually save money and as something they should participate in could be prolonged, which means that the token and project themselves could be overshadowed by later efforts that get luckier in the beginning.

All of these things being the case, people could still profit in adChain. If you wanted to make money on the side, picking up some adTokens and making it your businesses to challenge faulty domains could be profitable. Entire firms could be built around this concept, and confederations of such firms could raise oceans so all ships float higher. The value of adTokens themselves will ultimately be determined by how badly submitters – publishers – want them, so the more of this virtuous work you did, the better the platform and higher the value of the token would be. This is somewhat unique in terms of tokens and cryptocurrencies, in a sense that the holder is not entirely powerless to influence the value of the token; instead, by doing good work, the holder can potentially increase the value of the token.

Of course, you’re also relying on the notion that others will do this by signing on. This is problematic. It’s not all there is to it, though, but let’s dock two points based on that fact. Now we’re at 8 remaining. We’ll take another half point for the risk of non-self-correction, another full point for 500 million tokens withheld from the market, and call adToken, as a whole, 65% safe in terms of likelihood of recouping your investment.

This is not a guarantee in any sense. Just as Exscudo appears to be moving forward without any issues, despite the concerns of this writer, adToken could fall flat on its face and receive no interest at all, thereby devaluing your purchased tokens to nothing at all. But given the assessment above, this seems unlikely.

 

 

 

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5 Comments

5 Comments

  1. embersburnbrightly

    June 6, 2017 at 10:19 pm

    A very thorough and informative analysis you have presented here; thank you!

  2. GhostCap

    June 7, 2017 at 12:44 am

    Been interested in some analysis on this one. Thanks for the breakdown! Very helpful.

  3. Navster

    June 7, 2017 at 3:25 am

    I would have liked to see more about how adToken competes or works in the same market as Basic Attention Token. It was mentioned very brief but I think it’s a lot to think about considering the ‘hype’ and ‘brainpower’ behind BAT.

    Thank you for the good insight as always Mr Madore.

    • P. H. Madore

      June 7, 2017 at 10:57 am

      My understanding of this aspect is that site publishers are allowed to indicate if they accept BATs for advertising payments. Applicants are allowed to supply limited additional metadata, including payment types, but the example given in their whitepaper is BAT, which to me is more of a philosophical move to say: we’re not trying to compete with BAT, but could be a way to facilitate its usage.

      Specialized smart contracts could be written using BAT and adChain, I reckon. Other tokens will probably come to the fold. Adult entertainment advertisers will probably want their own version as well.

      Actually, thinking about this all in depth makes me want to analyze and maybe make some bets on the future of advertising and the plays therein.

  4. GRACE88

    June 10, 2017 at 2:52 pm

    Thank you. Very useful analysis in comparison to BAT.

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Analysis

Daily Analysis: Dollar Rally Continues amid Fed Chair Confusion

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Tuesday Market Recap

Asset Current Value Daily Change
S&P 500 2554 -0.09%
DAX 12995 -0.07%
WTI Crude Oil 51.53 -0.66%
GOLD 1287.00 -1.22%
Bitcoin 5652 -0.86%
EUR/USD 1.1751 -0.38%

Yesterday’s trends are mostly continued in financial markets, such as the low-volatility levitation in stocks and the slightly more active trading in currencies with the apparent Dollar strength. The Great British Pound continued to be under pressure amid the amplified Brexit-related worries, but most of the other majors also lost ground to the Greenback.

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The Dollar rally has been fueled by the rise in the odds of some of the hawkish Fed Chair candidates, while overall, the “race” for the positions looks more chaotic than ever. Interestingly, the long-end of the yield curve is refusing to follow the short-term moves, and without the effects of the Fed’s QE program, the yield curve would probably be inverted by now, signaling strong recession risks.

Dollar Index (DXY), 4-Hour Chart Analysis

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The major stock indices are virtually unchanged yet again and even the previously surging Nikkei entered a consolidation, adding to the unusual October lull. Commodities have been quite active thanks to the Dollar’s vigor, with crude oil and gold both turning lower. Oil gave back most of yesterday’s gains as the Iraqi-Kurdish conflict turned out to be less violent than previously feared, and the brief rally fizzled.

WTI Crude Oil, 4-Hour Chart Analysis

Cryptocurrencies

The major coins are having a mixed session at best, as yesterday’s rebound wasn’t durable, and most of the coins turned back lower again. That said, despite the recent choppy price action, the total market cap of the segment is close to its all-time high, even as only Bitcoin is trading near its own record price level.

The optimism regarding Ethereum major Byzantium upgrade wasn’t enough to lift the second most valuable coin today, and the price of the ETH token retreated below the key $330 level after touching $350 yesterday after the upgrade’s lock-in. Ripple and NEO have been among the most active majors today, but with opposing performances, as Ripple fell significantly after yesterday’s break-out attempt, while NEO defied gravity and jumped above the $30 level after a corrective period.

BTC/USD, 4-Hour Chart Analysis

Technical Picture

The S&P 500 is grinding higher despite the overbought short-term momentum readings, and the benchmark is trading very close to its all-time high. The 2550 level is still in focus, but until volatility remains near record lows, the minuscule moves are unlikely to change the technical setup. While a sudden drop in prices could quickly negate the recent break-out, the consolidation could very well lead to further upside, as bulls remain firmly in control, despite the lofty valuation levels.

S&P 500 Futures, 4-Hour Chart Analysis

Key Economic Releases on Tuesday

Time, CET Country Release Actual Expected Previous
02:30 AUSTRALIA RBA Meeting Minutes
10:30 UK CPI 3.00% 3.00% 2.90%
11:00 GERMANY ZEW Sentiment 17.6 20.3 17
12:00 EUROZONE Final CPI 1.50% 1.50% 1.50%
15:15 US Industrial Production 0.30% 0.40% 0.20%
15:15 US Capacity Utilization Rate 76.00% 76.20% 76.10%

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Analysis

Technical Analysis: NEO Jumps as Broad Markets Turns Lower

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As the new waves of regulatory changes keep on hitting the segment, the major cryptocurrencies are mostly lower today. After the major update of Ethereum, and the recent surge in the price of Bitcoin, choppy conditions developed, with no clear short-term trend in most of the coins.

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NEO is the best performing major today, as it surged back to the $30 level after a frustrating period that was dominated by a downward drift.  The coin is now just below the key resistance level, and it could be ready to test the $34 level, with a further target found at $40. The long-term picture still looks positive, with strong support levels at $27 and $25.

NEO/USDT, Daily Chart Analysis

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Ethereum is in a consolidation after the encouraging rally towards the end of last week, while Bitcoin is also correction after its stellar rise. The two largest coins pulled the rest of the majors lower, while Ripple remained very volatile after touching the $0.30 level yesterday, trading below the $0.26 again.

Litecoin, Dash, Monero, and IOTA are all a bit lower today, while Ethereum Classic found some relative strength, although it remains stuck in a declining short-term trend. All in all, the segment is still in a clear uptrend, so let’s see which coins are the most promising regarding the short-term picture.

(more…)

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Analysis

Daily Analysis: Volatility Near Record Low 30 Years After Black Monday

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Monday Market Recap

Asset Current Value Daily Change
S&P 500 2555 0.12%
DAX 13003 0.09%
WTI Crude Oil 51.88 0.82%
GOLD 1296.00 -0.61%
Bitcoin 5680 2.95%
EUR/USD 1.1793 -0.25%

Stocks markets in the US are at a standstill near their all-time highs, with the major indices trading in extremely narrow ranges yet again. Volatility, as measured by the VIX, is close to its all-time high, in stark contrast to the average October readings, as this month is the most negative for equities regarding seasonality. In fact, this October is the least volatile ever so far, while this week is the 30th anniversary of the most volatile day ever on Wall Street.

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A Riskless Market?

On Black Monday in 1987, the Dow crashed by more than 23% during one session, as widespread bullishness coupled and novel portfolio techniques lead to a massive wave of selling. Although such one-day moves should be prevented by circuit breaking rules in today’s market, the notion that risk is non-existent in the current environment is as dangerous as it was three decades ago.

VIX, Weekly Chart

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Stocks have been very quiet across the globe today, with only the Nikkei continuing its break-out to two-decade highs yet again. In Europe, British assets were the most active, as the Brexit talks seem to be in quite a big trouble, and that pushed the Pound and the Euro lower compared to the Dollar. The Greenback’s rally put pressure on gold as well, and the Japanese Yen also declined, as safe-haven assets were sold in the calm environment.

Nikkei Index, 4-Hour Chart Analysis

Oil has been very active as the Iraqi army took control of Kirkuk defying the Kurdish resistance, the WTI contract rose as much as 2% before retreating below the $52 per barrel level, and as we speculated during the weekend, the spike is unlikely to cause a structural change in energy markets, and we expect the range trading environment to continue in the crucial commodity.

WTI Crude Oil, 4-Hour Chart Analysis

Cryptocurrencies

Today was a big day for the crypto segment thanks to the Byzantium update of the Ethereum network, and although the hard fork went smoothly, the session ended on a slightly negative note. Ethereum pulled back towards the $330 support/resistance level, while Bitcoin remained stuck near the $5700 level after recovering from Sunday’s dip.

Ripple has been the other major mover of the day as the coin first surged higher and hit the $0.30 resistance just to fall back swiftly below the $0.26 level towards the end of the day. Despite the decline, the currency is still in a clear uptrend, but more volatile moves are expected in its price. Among the smaller coins, Stellar Lumens more than doubled in price after the announcement of a deal with IBM, as blockchain adoption continues in full force, pointing out the sound fundamentals behind the boom in the segment

ETH/USD, 4-Hour Chart Analysis

Key Economic Releases on Monday

Time, CET Country Release Actual Expected Previous
3:30 CHINA CPI 1.6% 1.6% 1.8%
3:30 CHINA PPI 6.9% 6.3% 6.3%
14:30 US Empire Manufacturing Index 30.2 20.3 24.4

Key Economic Releases on Tuesday

Time, CET Country Release Expected Previous
2:30 AUSTRALIA RBA Meeting Minutes
10:30 UK CPI 3.0% 2.9%
11:00 GERMANY ZEW Sentiment 20.3 17.0
12:00 EUROZONE Final CPI 1.5% 1.5%
15:15 US Capacity Utilization Rate 0.4% 0.2%
15:15 US Industrial Production 76.2% 76.1%

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