We have previously done a precursory article covering Bancor, but now, with the impending launch of its Initial Coin Offering, it’s time to analyze the thing in-depth.
In our previous article, we discussed the primary novelty of Bancor, its “smart token” asset contracts. A reader wrote in with concern over this aspect, and wants more in-depth information into how this can work or is safe. Clearly new concepts like this do need more explanation, so let’s see what we can understand here.
Perhaps the top-tier objection to the Bancor protocol are its roots, of course:
The Bancor protocol is named in honor of the Keynesian proposal to introduce a supranational reserve currency called Bancor to systematize international currency conversion after WWII.
The name is, of course, quite apt for the purpose of the token. Is Bancor itself Keynesian? Not exactly, but we must dutifully check over the offering here to ensure that there are not value-murdering features like centralized institutions being able to introduce inflation, or supposedly immutable smart contracts being thwarted through appeals to authority. These are the real risks that many Bitcoiners, and others, take with Keynesian economics, and so this platform requires thorough review to ensure that it is not going to introduce such risks by design.
The Bancor protocol enables built-in price discovery and a liquidity mechanism for tokens on smart contract blockchains. These “smart tokens” hold one or more other tokens in reserve, and enable any party to instantly purchase or liquidate the smart token in exchange for one of its reserve tokens, directly through the smart token’s contract, at a continuously calculated price, according to a formula which balances buy and sell volumes.
Especially in recent offerings, a number of tokens have come to the game which could find themselves without any value at all. The Bancor notion of “continuous liquidity” seems to be based on the idea of previously proven value from other assets the token offering might have access to. Thus a “smart token” can always be liquid because it always retains value from another economic source.
This is higher-level thinking, from the get-go, in terms of tokens and crypto-economics. While Ethereum and Counterparty, and others, serve a similar purpose by allowing anyone to issue their own tokens, those tokens are overwhelmingly defined by their utility, and so they can be difficult to assess. But if one can point to a metric such as “each token contains X bitcoins, X ether, X ___, and so its intrinsic value is at least equal to the value of one or all of those,” then there is a new metric that is useful in determining the likely trajectory of projects. In short, one function that smart tokens can perform is that of token issuers providing collateral.
The current exchange model for currencies/assets has a critical barrier, requiring a certain volume of trading activity to achieve market-liquidity. This inherent barrier makes it nearly impossible for small-scale currencies (such as community currencies, loyalty points or other custom tokens) to be linked (exchangeable) to other popular currencies using a market-determined exchange rate.
So, in the current world, where BTC, ETH, DASH, and LTC make up a large portion of the cryptocurrency wealth, a token creator might decide to issue a token that is contains assets around 50% Bitcoin, 25% ETH, 12.5% DASH, and 12.5% LTC.
This is sort of the same principal that mutual funds operate on: mixing various similar instruments so that when one or more of them have poor performance, the others can pick up the slack. But the token holder, through the Bancor protocol, is able to extract that given value at any time and destroy their tokens issued on the Bancor protocol. An FX mutual fund, made up of the world’s currencies, would be the closest thing to this, but instead there is no firm managing and the individual currencies can be obtained by the investor at any time, via the protocol.
This aspect could give rise to other cryptocurrencies being used in actual settlements, regardless if exchanges are offering such pairs at that time or not. The speed of value proposition would become more important than the speed of human change – ie, new currencies which come after Bancor but have exceeding merit will not need for recognition from the wider community before being used as the base currency with which others are denominated and traded. The control that exchanges as a whole have over the way we think about our coins would be lessened in such a world where this became commonplace.
The term “instant liquidity” is used a lot in the documentation and promotional materials surrounding the Bancor protocol, and they make the case in their whitepaper that liquidity for newer cryptocurrencies is a problem. However, the words “instant liquidity” are perhaps misleading. The term liquid means different things for different users. Some would consider getting to Bitcoin itself to be liquid, while others wouldn’t consider the assets liquid until they were in an account they can spend anywhere else in the world – ie, fiat. So let’s leave aside the “instant liquidity” as either a plus or a minus, and instead focus on the structure of a smart token and how it can actually be used, in practice, in concrete terms.
A smart token holds a balance of least one other reserve token, which (currently) can be a different smart token, any ERC20 standard token or Ether. Smart tokens are issued when purchased and destroyed when liquidated, therefore it is always possible to purchase a smart token with its reserve token, as well as to liquidate a smart token to its reserve token, at the current price.
Okay. How does this work?
A given “smart token” will base its operations on what Bancor refers to as a “constant reserve ratio.” All figures within the smart token will be in relation to the smart token’s market capitalization as a whole, which is its supply multiplied by its price. Instead of Bancor token authors creating tokens at the beginning of an ICO offering or what have you, they are issued as they are purchased, and destroyed as they are liquidated.
A Bancor token must be funded by one of its reserve currencies. If the CRR of a given token is 100% of a given other currency, then a traditional increase in the price of the token will take place. However, if a token’s CRR has a variety of reserve tokens, then the price increase due to the purchase will be mitigated. This is what they mean when they say they are creating a new method of price discovery: a variety of markets are held within each token, potentially, creating more interesting and even accurate price definitions at market. And while a token may be issued on the Bancor protocol and consist of multiple traded cryptocurrencies making up its Constant Reserve Ratio, it, itself, can be traded elsewhere. People purchasing these tokens on other markets would not be able to simply say something had lost all value because its Bitcoin value had significantly dropped, for example, if its corresponding values in other pairs also represented in the token have not dropped likewise. Similarly, traders would have to watch themselves when pricing sales of such tokens, because saying “this token is worth .01BTC” does not mean much if any of its other reserve currencies are not trading at a similar level. (This is why Bancor can make the claim that there is “no spread” for individual Bancor tokens, because while there actually is a spread, the settlement of any token issued by the Bancor protocol will wind up with its holder gaining the reserve currencies within it.)
From a traditional financial perspective, this all sounds an awful like the type of instruments which got us into the bubbles and crashes of the early 2000s. Traders were packaging millions of low-value, low-performance loans and other financial instruments together and selling them as packages of “diversified assets” and then speculating on their performance from there, in some cases even managing to bet against them and profit being the only ones with the real information as regards their likely performance. The complexity of these instruments was part of the reason the whole musical chairs act went on so long.
Yet, while there is potential that bad actors will use the technology to scam others into investing into nothing at all, there is still a lot to be said for innovating in the market strategies of a tokenized future.
How People Will Use It
The Bancor team themselves list a number of use-cases that will be immediately obvious. Rewards programs, decentralized asset baskets similar to those being developed by ShapeShift’s Prism platform, and federations of similar tokens. Lower-volatility tokens can be created in-house by trading groups, and such products can be offered for sale on the market. Cryptocurrency mutual funds become much easier to envision, despite the volatility of the various markets. This part of finance will eventually become much more important in the Cryptocurrency space as things mature and more and more legacy institutions integrate with cryptocurrency payment, receipt, and trading rails.
The Bancor token itself will be the most prominent for the Bancor Protocol, as it will be the one that funds all future advancement and development. Its actual cap is not published until 80% of that cap has been reached, but 100 tokens will be issued per 1 ETH spent. BNT tokens will have a 20% Constant Reserve Ration of ETH. BNT itself will be based on the value of the Bancor Network and its reserve currency, ETH, although the Bancor Foundation can issue more tokens later.
Bancor tokens themselves will hold value for as long as the Bancor Foundation and Ethereum do, and users will have the option to liquidate them at any time. This would mean, essentially, a 20% Ethereum redemption is possible. In assessing this ICO, you must be aware that some people are going to do exactly that.
The Bancor foundation itself is not going to be doing the creation of the Bancor Protocol, but instead directing it. It is composed of financially-focused executives including Eyal Hertzog, who is the primary spearhead behind all of it. Hertzog’s success has been in IPO technology companies, such as the first major Israeli video sharing site, MetaCafe.
Chief Monetary Architect Dr. Bernard Lietaer was involved in the creation of the Euro, and so it is no surprise that much of the thrust of Bancor is in trying to unite and stabilize disparate cryptocurrency assets.
As far as development goes, they are currently contracting LocalCoin, Ltd, which, like many similar ICOs we have seen, seems to have been created specifically for the purpose of Bancor. The model seems to work like this:
- Have a new idea related to cryptocurrency.
- Flesh out that idea.
- Create a firm to develop the idea, to be funded by sales of the new token.
- In some cases, profit on both sides of this.
This is why we we will review the token distribution before getting to the verdict on Bancor, but let’s see who is working for LocalCoin.
At the helm they have Yehuda Levi, who formerly worked on AppCoin, one of the earlier cryptocurrency plays to get traditional VC backing. They list a litany of other competent, established developers, all based in Israel, working on the development of Bancor Protocol smart contracts.
Distribution of the Token
As we can see here, the token distribution is confusing on first glance. Let’s think about this. We know that 10% are going to the “team,” in the form of BNT tokens. Then we know that 40% of the 50% of tokens (20% of the total supply) are also going to fund development. That means somewhere in the neighborhood of just over 20% are going to be awarded to LocalCoin in the form of paid software development and initial awards. 20% are also held back by the foundation for later conversion and usage. The foundation is free to offer later crowdsales to continue work on the platform.
But, this ICO is also different than most. The tokens’ only enduring value is in the enduring value of the Bancor Protocol, which means there is little or no incentive for the coins withheld to be liquidated right away, but instead to create value for the protocol and liquidate them at a later time.
The proceeds of the crowdsale and future tokens issued by the Bancor Foundation will continue to develop the distributed marketplace that is Bancor’s primary function. BNT themselves will have speculative values related to the value of the protocol itself, it seems. The problem of team coins is mitigated by their vesting structure, which only allows them mature up to a sixth of withheld coins every six months.
There’s a lot to like about the Bancor Protocol, but one can totally forego this crowdsale and still benefit from it. So let’s talk about the value of the BNT token, and whether or not you’re going to be able to profit by purchasing it. The odds are definitely on you profiting in the short term, although long-term it’s easy to see bigger entities, like the Ethereum DAO themselves, offering alternative ways of conducting the same type of business.
BNT gets an immediate boost in safety rating since you are able to liquidate it for 20% of the Eth that was put into it in the first place at any time. That is to say, it’s impossible to lose your entire investment, in terms of actual Ethereum, so that must be accounted for.
The level of confusion Bancor-created instruments have the potential to create must also be accounted. We have to deduct a full two points for that, as there will probably be some hiccups in the beginning, and these could even be catastrophic and unrecoverable. The nature of mixing assets may be looked down upon parts of the community it looks to serve, so another .25 points should be taken for that. Because this entire concept is nascent in an excessively nascent industry, another full point must be deducted to account for the potential that overshadowing plays are going to be made in the near future.
This leaves a score of 6.75 on a scale of 0 to 10 in terms of safety, and that feels about right. This means the author is betting in favor of the idea that within 7 days after the purchase of tokens, you will be able to divest them at a rate of about .01 Eth each or more. It does not mean the author is not betting. It simply takes into account all of the factors, most of which are based on his past experience watching similar things launch. While every project is different, the tendencies of this market are analytically-assessable.
You’re able to make an investment into the Bancor Protocol at a rate of .01 ETH per Bancor Network Token in less than 7 hours. The minimum time this sale will run is one hour, and they had to develop a special method to ensure this would be the case. There is a hidden cap on how much ETH will be raised, but no one will know that figure until 80% have been raised – this is to prevent early investors from being able to accurately dominate the token pool.
Investments are subject to terms and conditions. The address which will be handling the investments is 0xBbc79794599b19274850492394004087cBf89710. Transactions already sent to this address at launch time fall under their one-hour-minimum policy, which dictates that if more than 100 million Ether are raised in the first hour, additional funds will be allocated specially. This post goes into a lot more detail about the funds and the minimum time period. No funds should be sent from a wallet which you do not have direct control over.
The longest the crowdsale will run is until June 26th at 14:00GMT.
Do your own due diligence, investments are at your own risk. Do not invest more than you can lose.
ICO Analysis: Worldcore
From the perspective of ICOs, Worldcore stands apart for the fact that it is already known as a successful payment solution. Established in 2014, the Czech-based company offers an online transfer service that specializes in bank wires, prepaid withdrawal cards, instant credit card payments and free money transfers.
The company only recently announced plans to create a peer-to-peer lending platform hosted over the blockchain. While some may say Worldcore is being opportunistic, it boasts a client base of more than 25,000 people across the globe. In 2017, it has already cleared $100 million in transaction volume.
As a regulated payment solution with an EU license to operate in the Czech Republic, Worldcore has had great success in its first few years. It has an established track record, a decent business model and aspirations of global expansion. It also picked the right time to enter crypto.
But that doesn’t mean Worldcore doesn’t have limitations. As we’ll discuss in the following sections, the company’s lofty valuation is more than just a pat on the back for the good work it has done in recent years.
If that isn’t enough, we invite anyone to visit the company’s site (or is it, this one?) and try to make sense exactly what it is that Worldcore offers. The author isn’t proud to admit he had to visit several third-party websites just to figure out that the company is an online transfer service. You might be thinking, bad copywriters? Maybe. But what if we told you Worldcore is also planning to launch a 24/7 TV service? From the scant details we were able to obtain from the whitepaper, WorldcoreTV will be launched if and when the company raises $25 million. On that note, the whitepaper is a 73-page poster that doesn’t offer much to the tech-savvy investor.
Worldcore launched its WRC token Oct. 14 on the Ethereum blockchain. One WRC is valued at $0.10 USD, with a total market cap of $100 million USD. A total of 1 billion tokens will be circulated during the ICO. Investors can participate in the raise using fiat currencies like the euro and U.S. dollar, as well as cryptocurrencies.
Worldcore’s motivation for the crowdraise is to leverage the blockchain in pursuit of bigger business. The company isn’t just dabbing its foot in the ledger technology, but actually converting its business operation to enable greater blockchain capability.
In its whitepaper, the company emphasizes the following target audience for its services:
- Big companies
- Online shops and retailers
- Online marketplaces
- Common people
- All kinds of small business
With a list like that, it’s clear Worldcore is thinking very big. The company’s global reach is demonstrated by the fact that it has translated its website into more than ten languages.
Anyone who wants to send money overseas, facilitate business-to-business transactions and utilize unique security enhancements like voice recognition is Worldcore’s target market.
The company has an aggressive roadmap that begins by obtaining membership of the major credit cards, SWIFT and SEPA networks by Q1 2018. With $10 million in funding, it plans to open “5 fully-packed offices in 5 more EU countries” by Q1 2019. If it reaches $25 million in funding, it will launch its WorldcoreTV service, “the world’s first 24/7 hybrid of TV channel and digital media focused on Fintech & BlockChain industries with online and international 24/7 broadcasting through Satellite and IPTV.”
At $50 million raised, the company plans to transform into a Swiss bank. It believes it can do this by mid-2019.
WRC tokens are essentially a stake in the newly developed blockchain-focused company. In other words, think of your WRC tokens as stocks. There doesn’t seem to be any direct use of the tokens within the company’s network, except to reap profits from Worldcore’s business growth. Worldcore is offering 30% profit to its investors.
If “slow money” isn’t your style, you can trade the WRC token on the digital currency exchange. This option will be available to token holders immediately. The company says it will provide a full list of exchanges where WRC is accepted at the end of the ICO.
In terms of personnel, there’s quite a bit of clout behind the Worldcore executive. Founder and CEO Alex Nasonov was listed in the Financial Times annual ranking of New Europe 100 changemakers in Central and Eastern Europe. The company also has a solid list of general partners that includes Bitpay.
Against this backdrop, the author has little doubt that Worldcore is home to a solid team. However, very little information is provided about them, their credentials or the advisers they’ve selected.
Based on the whitepaper, Worldcore is home to at least three developers, 20-plus support and development staff and a core team of managers. The company also consults with advisers, but does not name them.
The team operates in accordance with EU law, so there’s little to be concerned about from the perspective of legitimacy, regulation and business ethics.
Worldcore is a highly ambitious company with a proven track record in its niche market. But as an outsider, understanding the company’s service offerings and assigning it a valuation has proven difficult. We feel that the strategy behind the capital raise veers away from the company’s core service offering. As an outsider, the roadmap for growth seems a little far fetched (as a reminder, Worldcore says it can become a full-fledged Swiss bank in less than two years).
- At $100 million USD, Worldcore is significantly overvalued. Although the company doesn’t state its revenues, the price tag is too high for what it currently offers. Of course, this hard cap is based on potential, but the author isn’t too excited about WorldcoreTV. -5
- The roadmap for growth makes very little sense. Capital raise via ICO makes even less sense from the information we gathered from the whitepaper and the website. -3
- Although the development team has been involved in blockchain since 2016, there’s no mention of blockchain or cryptocurrency expertise or experience. The team has done a good job offering an online payment service, but what exactly does this mean from the perspective of blockchain? By the looks of it, Worldcore is taking a deep dive into this technology. Can we really be sure it’s going about it the right way? -3
- Competition looms large for any blockchain-based payment service. This will work against Worldcore, which, again, has very little experience. -3
- Worldcore is scaling up its core services quickly, and the company expects to clear $150 million in transaction volume this year. +4
- The company’s CEO has established a good track record that has not gone unrecognized. +1
Based on the above, we assign the Worldcore ICO a rating of 1 out of 10. The holes in the business plan are simply too glaring to even consider funding a project of this nature. We certainly don’t take anything away from the company’s growth, but the project idea does not compute.
Hacked.com members have a high propensity for spotting shoddy whitepapers. The Worldcore write-up is one of the weakest seen. Once again, we invite our members to give it a read and share if they have any unique or differing perspectives.
For more information about the Worldcore token raise, visit the main website.
- Project Type: Crowdsale
- Opening Date: Oct. 14, 2017
- End Date; Nov. 14, 2017
- Platform: Ethereum (ETH)
- Total Supply: 1 billion tokens
- Token Price: $0.10 USD (all unsold tokens will be burned upon the ICO’s closure)
Featured image courtesy of Shutterstock.
ICO Analysis: Genesis Vision
Genesis Vision is creating a platform for a private trust management market based on blockchain and smart contracts which will serve as an ecosystem for traders, investors and brokers.
Gensis is proposing a system which will enable investors to passively invest in BOTH cryptocurrencies and traditional assets. Trust management in this reference is a system where investors transfer their funds to wealth management companies/fiduciaries/experts who manage and invest these funds in assets which match the investor’s risk profile. The total amount of funds under management globally were at $70 trillion in 2016, and are expected to reach $100 trilllion in 2020.
Having personally worked in this industry for a few years, the author has seen some of its grey areas very closely. Wealth management companies measure their success by the amount of funds they are managing, which incentivizes them to attract as much capital as they can. While investors select fund managers based on their past performance, these numbers can be easily overstated by creating personalized statistics for performance measurement and working in tandem with brokers. Even the fee structure is kept opaque in many instances, with many types of “hidden” fees being charged to the customers. Many fund managers receive bonuses which are 15-20 times of their base salaries, which incentivizes them to keep the fee structure high and opaque. While investors have kept investing money with wealth managers, numbers show that only 17% of them have managed to beat their respective benchmarks in the past 10 years.
Genesis Value Proposition
Genesis Vision is a decentralized trust management platform built on blockchain technology and smart contracts. Blockchain technology provides indispensable advantages, such as openness, immutability, and censorship-resistance of all stored information, whereas smart contracts, which will be carrying out investment and profit distribution, make these processes completely transparent and open. Each manager in the Genesis Vision network has his own cryptocurrency. The size of the issue depends on successful trade statistics. The process of transferring funds to the manager is carried out by buying a manager’s cryptocurrency on the internal exchange.
There will be 3 core elements of the Genesis ecosystem: investment managers, investors and the brokers. Investors and the investment managers will interact with the platform using the mobile app or the web based application. Each manager will have his own Ethereum based token. Investors will contribute the funds that they want invested and will get the manager’’s tokens in return. A manager’s tokens gain their value from the performance of his portfolio and will trade on Genesis’s internal exchange. The manager shares the profits from the portfolio after fixed intervals, which are shared with his token holders. Smart contracts facilitate all the transactions. Every trade that a manager makes is stored in the decentralized IFPS which is visible to all and makes the system transparent.
The part of the ecosystem discussed above is enough for cryptocurrency based asset management, however when dealing with traditional assets, the brokers come into play. As of now and maybe for a foreseeable future, Genesis will only facilitate cryptocurrency and Forex based asset management. When an asset manager includes Forex in his portfolio, the investor’s funds will be routed through a broker who will buy the required fiat currency and supply it to the asset manager.
The proposed business model has benefits for all participants which includes investors, managers and the brokers. The investors benefit from the transparency while the investors and brokers get to access a larger demographic.
If you remove the Forex part of the project, the idea is similar to what Melonport and CoinDash are doing. All three of them facilitate any trader to create and manage crypto based portfolios. Genesis differentiates itself by including the traditional asset part as well as creating individual tokens for each asset manager.
Token and Crowdraise
Genesis Vision has its own token: GVT ( Genesis Vision Token). GVT is based on ERC20 Ethereum token standard.GVT will be used for all investment operations, profit distributions, and managers’ token trading on the internal Exchange.
Along with GVT, each manager will have his own token. The manager’s tokens will only trade on the internal exchanges where users can buy them in exchange of GVT.
The GVT are limited in number and as demand for the platform grows, so does the value of GVTs.
The ICO started on 15th October 2017 and is open till 15th November. 75% of the 44 million tokens are available for the ICO and 1 GVT is valued at 1 USD (hardcap $33 million). A 20% bonus is available for the next 2 days. 40% of the funds raised will be used for product development while 30% are dedicated to marketing. Genesis will be marketing the product heavily amongst users and brokers, hence the higher allocation. The team will keep 11% of the tokens.
The Genesis Vision team ranks highly on credibility. With transparency at the core of the Genesis Vision project, the team had their Initial Coin Offering certified by The Financial Commission successfully. The Financial Commission is “an independent self-regulatory organization and external dispute resolution body, primarily dedicated to Forex.”
Genesis is the first ICO to be certified by the Financial Commission. One of the 3 cofounders Alexey Kutsenko is the CEO of Tools For Brokers. Tools For Brokers (TFB)is a fintech company working exclusively with brokers and has around 300 brokers as clients. The close relations of TFB will facilitate broker participation in Genesis Vision. The other two cofounders Ruslan Kamenskiy and Dmitry Nazarov started working on the project in 2016 and won the HackRussia all-Russian hackathon in the nomination “Finance and Blockchain” with the Genesis Vision project. There are 10 members in the team and 13 prolific advisors, many of them being CEOs and founders of Russia based wealth management companies.
Credibility is always a top priority when looking at ICOs and Genesis has plenty of it.
Genesis builds up on the existing blockchain based asset management firms by enabling a window for traditional assets. Although the initial product focuses only on cryptocurrencies and Forex, many investors will find value in holding multiple fiat and cryptocurrencies together. The concept of each asset manager having his own currency seems really cool and will help attracting many potential traders/analysts. However, there is intense competition in blockchain based asset management space with companies like Melonport already working on betas with a thousand users. We hope Genesis does not lose a significant market when it rolls out its first version in 2019.
- The gateway to traditional assets will not be easy. Genesis will face many regulatory headwinds when it eventually expands in traditional assets beyond Forex. -2
- As mentioned above, Genesis faces intense competition in cryptocurrency asset management space. -3
- Although the concept of asset managers having their own currencies sounds interesting, it makes the project much more complicated. -0.25
- The first version of the product will be released in 2019, which seems a bit stretched. -1
- Although the share Forex asset management is lower than other forms of asset management, it still is humongous considering the total market size of $70 trillion. +4
- Credible management and the advisory team is a big positive. +3
- Genesis already has a solution for trust management market used by 80 financial companies. The working solution is based on a b2b model and is centralized. +3
- Genesis has good relations with around 400 brokers and 50+ wealth management companies. This will help them scale very quickly. +2
We arrive at a score of +5.75 out of 10 for Genesis Vision. There is no softcap and unsold tokens during the ICO will be burned which might result in potential upside in case the hardcap is not reached. Overall we have a positive view of Genesis.
The ICO is live. You can buy the tokens here.
ICO Analysis: Bloom
Credit scoring serves an integral function in the lending process. Yet, in 2015, U.S. Congress declared credit scoring to be a monopoly controlled by one organization: FICO. The data analytics company is responsible for scoring more than 90% of top U.S. lenders, leaving some 26 million Americans unable to obtain credit.
A similar monopoly exists globally. More than one-third (38%) of the world’s population does not have a bank account, and 3 billion people are unable to qualify for a credit card. Although creditors would love to serve this untapped market, traditional credit bureaus cannot score prospective borrowers unless they’ve already taken on debt.
Against this backdrop, Bloom has emerged as a global, decentralized credit protocol that addresses existing limitations in lending by applying blockchain technology to credit scoring and risk assessment.
Bloom is a protocol for assessing credit risk through federated attestation-based identity verification and the creation of a network of peer-to-peer and organizational creditworthiness vouching (“credit staking”). – Bloom Whitepaper (2017).
Through the Bloom protocol, lenders will be able to issue complaint loans on the blockchain at affordable rates. In doing so, the Bloom protocol seeks to address five overlapping issues:
- Cross-border credit scoring: Credit histories in one jurisdiction do not apply to other jurisdictions, forcing borrowers to re-establish their credit score when they relocate.
- Backward-looking credit assessment: Borrowers with no credit history are at a significant disadvantage when it comes to obtaining a loan or credit card.
- Lenders are limited in terms of global reach: Lenders are usually unable to serve borrowers in underdeveloped markets because they lack identity and scoring information to base their decisions.
- Risk of identity theft: When applying for a loan, borrowers must bear all their personal information, giving potential hackers more information to commit fraud.
- Lack of competition: The credit scoring industry is heavily concentrated, resulting in an uncompetitive market.
The Bloom protocol is based on three components. Together, the seek to overcome the five challenges posed above.
- BloomID: Identity attestation allows borrowers to obtain a global secure identity, making it easier for creditors to assess them.
- BloomIQ: A credit registry that tracks current and historical debt obligations tied to a borrower’s BloomID.
- Bloom Score: The credit score measuring consumers’ creditworthiness.
While certainly making a strong case for a decentralized credit scoring platform, Bloom doesn’t specifically address how the system will solve the five problems highlighted above. Instead, it seems to show that BloomID, BloomIQ and Bloom Score will address the problems by creating a globally portable credit profile that will: (1) apply across borders; (2) enable a backward-looking credit assessment regardless of jurisdiction; (3) safeguard consumer information through a secure system as well as globally-recognized identity attestation; and (4) create a global market place for creditors to access borrowers who have fallen outside the purview of traditional finance.
Although the author’s conjecture may be sound, the whitepaper does not provide specific details on how this system will work, let alone explain the regulatory challenges standing in the way of this vision. This is discussed in greater detail in the Verdict section.
The company has laid out how this protocol will improve on the current system of credit evaluation:
The Bloom protocol improves the current credit ecosystem by creating a globally portable and inclusive credit profile, reducing the need for traditional banking infrastructure and opaque, proprietary credit scores. This means both traditional fiat lenders and digital asset lenders will be able to also securely serve the 3 billion people who currently cannot obtain a bank account or credit score.
The Bloom token (BLT) is powered by the Ethereum blockchain, and will serve both as a currency and governance mechanism on the network. In other words, BLT will allow organizations to evaluate user identity and credit worthiness. The companies using the Bloom network will pay for identity verification and risk assessment using BLT.
As such, the BLT token can be used in three ways:
- Scoring Proposals: The BLT token essentially serves as the governance mechanism for the network. Through token-based voting, bad actors are held to account.
- Security: BLT allows the Bloom network to implement fees for invitations. By imposing small costs on each transactions, attacks are not economically viable.
- Payment: The token serves as the primary currency on the Bloom network.
The Bloom team consists of four core members: Jesse Leimgruber, Ryan Faber, Alain Meier and John Backus. The founding team members have backgrounds in computer science, digital marketing and blockchain. John Backus’ resume strikes our attention given his role as research scientist at the Stanford Bitcoin Group.
In addition to the founding team, Bloom has three advisers on board, including Meg Nakumura, CEO of Shift Payments. Joseph Urgo has also been recruited from District0x, an Ethereum dApp. David Raphael of Infinity Media also brings with him experience in conversion rate optimism. Overall, the brains behind Bloom appear to be well qualified and highly focused.
Very few ICOs are as highly regarded as Bloom. This massive undertaking has the potential to become a highly lucrative enterprise. Bloom’s expansion into credit card services is also commendable. To speed up adoption, the company will launch the BloomCard, a blockchain credit card intended to serve as the model for all future credit providers.
On the flip side, significant challenges remain. Unless they are addressed, the company may struggle winning over institutional adoption. Providing a clearer implementation timetable is also needed to win over investors. The author believes that an updated whitepaper is warranted as Bloom moves forward with its raise.
- The credit scoring industry is mired in regulations that become even more complex when the moment we cross borders. Bloom has not outlined how it intends to navigate these issues. -3
- Although the team has outlined a roadmap for implementation, no dates are provided. How fast will they be able to scale? Is the existing team sufficient in reshaping the global credit scoring industry (i.e., overtaking FICO)? -2
- There’s probably a good reason why many people struggle to get credit. Is Bloom’s business model inherently risky? And will creditors be willing to take a gamble on borrowers with bad or no credit? -2
- Bloom is presented with an undeniably lucrative opportunity to link creditors with unbanked populations. More than one-third of the world’s population does not have a bank account and many more do not have access to credit. +4
- The credit industry has been under the microscope following Equifax’s massive data breach, which exposed the private information of 143 million users. The combination of BloomID and security for invitations makes Bloom a much more secure platform. +4
- Unlike other ICOs, Bloom’s multi-purpose token adds real value to the business. +2
- The Bloom platform is likely to benefit from positive publicity tied to its admirable business objective of expanding credit options to all. +2
Factoring all the above, we give Bloom a generous score of 5 out of 10. It should be noted that the ICO launch date has yet to be announced, which means our rating may be revised once details of the pre-sale surface.
Bloom is a highly ambitious project that, if realized, will benefit society in many ways. But there are glaring concerns related to regulation, credit risk and implementation that still need to be addressed. Combined, these factors could adversely impact institutional adoption.
The Bloom protocol will be developed in six major phases, culminating in the democratized autonomous credit infrastructure. The pace and timing of that roll out has yet to be determined, a clear sign that Bloom is still in its early concept stage.
Another review of Bloom is likely warranted once the company provides more explanation regarding its technical features, and how it plans to tackle the five problems discussed in its whitepaper.
No ICO pre-sale information has been provided yet. Users are encouraged to follow Bloom’s website or subscribe to their newsletter for the latest information.
Featured image courtesy of Shutterstock
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