ICO Analysis: Debitum Network

Debitum Network is a decentralized financing platform primarily focused on small- and medium-sized enterprises (SMEs). The platform aims to connect SMEs to financiers enabling them access to capital from all across the world.

Debitum has centered its financing platform around SMEs on the premise that a majority of small businesses are not able to access credit. This situation is especially difficult in emerging markets where around 70% of micro, small and medium enterprises do not have access to adequate financing.

Banks are the primary culprit for this credit gap. Banks generally have low-risk tolerance, which makes them seek larger and stable businesses for lending. It is also not feasible for them to evaluate each business individually when the amount to be invested is so low.

‘Alternative finance’ has emerged in the past decade to work upon these limitations. At present, however, most of these lenders cannot be trusted; they are also highly inefficient.

Using a trust-based blockchain solution, Debitum Network brings in the needed trust for all counterparties especially the investors. The solution offered by Debitum is based on three core pillars:

  1. True Decentralization.
  2. Hybrid- connecting fiat and crypto.
  3. Trust-Based.

Debitum will create a truly decentralized platform by facilitating the creation of self-governing communities within each geography. For example, there will be communities of service providers like risk assessors and debt collectors. Poor performance by an individual affects the scoring of the entire community, incentivizing the community to bring in credible members. Borrowers and investors can trust the platform as they will now put their trust on an entire community rather than on an individual.

The Debitum Network will create a hybrid model of crypto and fiat currency wherein crypto will only be used for fees and other operational services, while actual loan disbursements will take place in fiat money. This model has been designed for the short and medium time frame until crypto achieves scalability.
Each component of the ecosystem, such as risk assessors, will be given a trust rating based on a Debitum’s algorithms. The ratings will be accessible for both the investors and borrowers, allowing them to make informed decisions regarding the intermediaries.

Token

The Debitum token will be used to access all the services provided by the network. The token is the only means of payments within the network. Another important value add of the token is that all service providers or intermediaries need to freeze some amount of tokens to be eligible to offer services. As the platform grows in multiple geographies, the number of service providers will increase adding more tokens into a frozen state. This will appreciate the value of circulating tokens.

The total hard cap for the sale is 50,000 ETH (roughly $23 million) for a total supply of 400 million tokens. Sixty percent of the 400 million tokens will be distributed in the ICO.

The crowdsale will be done in two rounds. The first round will be conducted from December 7 to December 21 with a hard cap of 4,000 ETH. There will be a 30% discount for participants in the first round.

The second round will be conducted from January 25 to February 25, 2018.

Fifteen percent of the tokens have been kept in reserve for further raises.

The token is priced at around 0.1 USD for the initial rounds. You can check further details here.

A majority of the funds raised will be used in business development and expansion in multiple geographies. The funds raised up to the hard cap will allow expansion in around 50 countries.

Team

The Debitum team has developed two successful projects in the past. One of them is Debifo which is one of the leading alternative financing platforms in Europe. Established in 2015, Debifo has traded over 20 million euro of funded invoices. Debifo has been able to raise 3 million euros in venture capital funding. Having prior entrepreneurial experience in the same industry is a big credibility boost.

There are 13 members on the team and nine advisers. One of the advisers, Eyal Hertzog, is the co-founder of BANCOR.

The team is active on the Telegram channel. One important consideration about the team is that Debifo is an operating company, making it unclear whether the team will be able to actively work on both of these projects. When we asked about this, the CEO assured that once the ICO is done, a fully dedicated team will be allocated for Debitum.

Verdict

The business of Debitum revolves around multiple intermediaries. The frameworks for risk assessment depend on the intermediaries, while only the governance bit is done by Debitum. This model has the benefits of decentralization but makes it reliant on third parties. There are always possibilities like risk evaluators creating subpar evaluation metrics to facilitate more volume on the platform especially in a very subjective segment like risk assessment.

A decentralized financing platform for SMEs has not been created before. Similar solutions in the industry like Hive and Populous have centralized risk assessment systems. Considering the nature of the project, we are happy that the team has decided to select a target geography in the initial phases and thoroughly test the ecosystem.

Risks

  • As discussed above, the project’s core idea of financing via decentralized entities is untested.-3
  • The project’s hard cap was lowered from 200,000 ether to 50,000 ether just a week ago, which is a huge differential. Ideally, an ICO should be done based on the funding requirements of the project. If the business requirement was 50,000 based on their financial projections, the hard cap should have been kept as it is. This makes us wonder whether how much thought was given to the finances of the project. -2

Growth Potential

  • Debitum is addressing a real problem, which is also very urgent. It is very difficult for SMEs to get credit, especially when a majority of the banks in emerging markets are burdened with NPAs. +4
  • The team is credible and is experienced in the alternate financing industry. We have tested their basic MVP, and it looks clean and easy to use. +3
  • The team is planning on targeting around 50 emerging markets in the future. As this is a decentralized model, it is flexible enough to suit the individual requirements of each geography. This gives Debitum an edge over competitors like Populous. +3

Disposition

We arrive at a score of 5 out of 10 for Debitum. We will reevaluate the score depending on how the project fares in the target geography.

Investment Details

The first round of the ICO begins on December 7 with a 30% discount. You can participate in the ICO here . US investors are not allowed to participate in the ICO.

Featured image courtesy of Shutterstock. 

Author:
Aakash Kawale is a financial analyst based out of Mumbai, India. He is the lead analyst at a Singapore based organization and has extensive experience of analyzing US and Indian equities. Aakash is a strong advocate of the Blockchain technology and has been analyzing cryptocurrencies since 2015.