ICO Analysis: Kik’s New Token Kin
To date, we’ve raised $120.5M from Foundation Capital, RRE Ventures, Spark Capital, SV Angel, Tencent (maker of WeChat), Union Square Ventures, and Valiant Capital Partners.
We have acquired and mostly burnt off about an eighth of a billion dollars. We do not currently have a relevant revenue model, and our prospects for future funding rounds are not getting brighter as a result.
Then, in the Whitepaper, we get their excuse:
As a company, Kik has been searching for a sustainable monetization model that does not compromise user experience or privacy.
A Niche Token (Kin) Without A Promising Niche?
Great idea. Maybe it will make the platform huge. The trouble is, for this vision to work, the platform has to become huge. If a split minority of chat users are on Kik as opposed to the myriad of other options, then the actual utility and value of a Kin token are not going to be exponential, it’s going to have a cliff at best.
Rather than opt for mass display advertising or the selling of consumer data, Kik has decided to adopt a decentralized organizational model. Its goal is to encourage the development of a digital services ecosystem that is fair and open. Kik prefers to be a participant rather than a landlord in this user-first economy.
We don’t want you to see us as rent-seekers.
Fine. So you want to create a system and act within it. Why then should it be a Kik system? In terms of cryptocurrency plays, a more broad-based strategy is going to have a higher chance of flourishing. You’ve already admitted so far in this Whitepaper that the base concept of your “currency” is to put your Kik Points system on the Ethereum blockchain. You can do that without a token sale. You can just issue tokens to Points-holders, and convert the system.
By creating a Kik-only token, you run the risk of an industry-wide token launching which serves all the rest. Therefore, from a consumer point of view, if (when) such a token were launched, it would seem more valuable from the very first moment, because it would not “lock them in” to a specific platform, although in this case by “lock in” we mean “require significant effort to exit.”
Kik seems to understand this, and they address it a few paragraphs later. They insist that creating an ecosystem of valuable goods and services is paramount, and then go on to say that Kin is intended as a general purpose cryptocurrency. Again, if this is the case, why tie it to Kik at all? Why not simply have Kik spearhead its adoption, but separate everything else, hoping that a consortium of industry peers join in? Would anyone you know prefer a gift card to a specific store or a Gift Debit Card that can be used at any store? Other companies will now have to overcome the “not-invented-here” syndrome, if any of them decide to integrate Kin at all. More likely, they’ll create their own alternatives, meanwhile, someone else will create a master token for all of them. Kik could have done everyone the courtesy of getting its peers on board. Tencent invested in them, despite offering a similar, competing project. Tencent’s involvement would already make this token more attractive if they were involved in this part of it.
In character, Kin is a pure cryptocurrency of fixed supply. It is fractionally divisible and long-term non-inflationary. However […] only a small portion of the Kin supply will become liquid in the near future, as most of the Kin supply is reserved for the Kin Rewards Engine. […] Like other cryptocurrencies, units of Kin are fungible and transferable, and they will be expected to trade on cryptocurrency exchanges.
Fine. Great. Newcomer, please understand: this does not mean a thing! Kin gets a full 4 points guaranteed based on Kik’s backing in terms of likelihood of trader profit, but this backing is also its biggest drawback. Further, the method of distribution is wonky. Let’s get into that now.
Kin Distribution – “Rewards Engine”?
As shown above, “most of the Kin supply is reserved for the Kin Rewards Engine.” That makes it requisite to understand what the heck the KRE is.
The goal of the Rewards Engine is to create incentives for digital services and applications that create vibrant services within the Kin Ecosystem. It will accomplish this by periodically unlocking a specific amount of Kin and distributing it among ecosystem partners, favoring digital services in which the Kin cryptocurrency is highly utilized.
So, you’re going to have a board of people (the Kin foundation) who get to decide where the funds are allocated, and allocation will focus on “digital services in which the Kin cryptocurrency is highly utilized.”
We can see what they are going for here, but the trouble is that this method still lacks significant incentive for the rest of their industry to get on board with Kin. Instead, it will propel more disparate services and services that are Kin-specific. The walled garden only gets higher walls with this model. The “open governance” terminology used here could be seen as a ruse – this is something akin (pun intended) to the iTunes model.
One of the most compelling features of Kik Points was that users were not required to purchase them. […] Instead, millions of mainstreamers were able to earn Kik Points simply by performing valuable actions. As Kik expands its economy to include cryptocurrency that holds real value both inside and outside of the chat application, the economic possibilities for users are vastly enhanced. This makes it possible to transform attention, curation, and creation into real-world value simply by having a smartphone.
Again, you’re not doing anything to create a real promise of “economic possibilities.” You are raising money from the crypto-economy, and you are creating a tradeable asset that could generate dividends for Kik users, but you have to trust that such services will actually arise. That people will actually trade Kin tokens. That a competitor who is universal in nature will not simply remove the brand-specific parts of Kin and usurp it. You have to trust all of these things to accept that there will be an expanding Kik-based economy. Facebook would have a better shot at it, as would Google or Tencent.
The Kik Saving Grace
Kik wants a warm and fuzzy economy where users can come in and provide value in exchange for Kin tokens. They want initial investors to underwrite this. And, for whatever reason, it will probably work. Beginning at the intangibility of cryptocurrency, everything in this market is topsy-turvy. There is no reason to suspect that Kik will fully fail, at least not in the same way that some ICOs do. The token’s chart will not be a vertical line, but a short-term gain can probably be taken before later price rises, as the token gets added to exchanges.
In China, many daily goods and services are paid with mobile technologies, and one of the biggest ways of doing this is through WePay. Given its corporate nature and industry interest, Kik could certainly make this happen in the US with its Kin offering. One can imagine checking out at a Millenial-specific shopping outlet like PacSun for example using kins on their smartphone. This real world utility will always lend value to a given token.
Of course, Kik doesn’t note such a vision in its whitepaper. Their vision is all digitized, meaning we’re likely to get what we’re paying for here: a weak answer to a big opportunity.
Nevertheless, we need to be objective. Just because the author thinks this is an undercooked, badly executed idea, does not mean that those who are executing it are going to fail. The winds of the market will likely carry this one.
Kin Distribution and Fundamentals
In order to finance the Kin roadmap, Kik will conduct a token distribution event that will offer for sale one trillion units out of a 10 trillion unit total supply of Kin. The proceeds of the token distribution event will be used to fund Kik operations and to deploy the Kin Foundation.
What did you just say?
Kik is openly admitting here that they are not solvent, despite raising many millions of dollars! Here is the size of their team:
Kik has not yet undergone an initial public offering, so the details of their finances are unavailable. What we do know is simple math. Less than 100 people, more than $100 million, less than ten years. Something is not right here, but that’s beside the point. The point is that Kik is dipping into the honey pot here and quite flagrantly. Companies must provide value to the economy or fade away. What we see here is a company which normally gets its free money from those who have large supplies of it, attempting to do the same from those who have smaller supplies of it.
1 trillion coins enter the economy, and these coins can be traded openly in exchanges. Whatever value they hold on such exchanges will be tempered by a 90% plus-minus based on the murky, unavailable supply. The open governance model is meant to answer these concerns, but it really doesn’t. Let’s see what we have in terms of reassurances:
As of the conclusion of the sale, the distributed Kin will constitute the entirety of the available liquid supply. Another three trillion Kin will be preallocated to Kik as the founding member of the Kin Foundation and subject to a long-term vesting schedule. In exchange, Kik will provide startup resources, technology, and a covenant to integrate with the Kin cryptocurrency and brand.
Again, none of this matters. It all contributes to the same problem we’ve identified: the entire concept relies on Kik encompassing a huge swath of communication preferences, much larger than it does today, in order to not be dwarfed (by virtue of network) by something superior.
Using Hype Bubbles to Our Advantage
So it’s clear by now the author is not a big fan of this idea. That doesn’t mean we can’t make money from it. Truth is, if Google or anyone else were doing the same thing, we’d still see the same problems, but the idea of user attrition would be lessened since virtually everyone already has a Google and Facebook account.
Kik is dreaming big and that’s great for them, but investors need to take caution in calling this a long-term hold. Hype bubbles are carried purely on the steam of those who stand to gain from them, so after a time, that steam will dissipate, and downward pressure will latch onto the token like an octopus. As such, if you’re going to go in on Kin tokens, get out while they’re still actually liquid.
This rating is going to confuse some people, so let’s clarify why it’s so high. As stated earlier, although the rating system here at Hacked is still in development, we generally lend some free points if big outfits are behind something. Their potential for failure is lessened by virtue of experience and rescue capital, and being known entities, they have more on the line than those not even in business yet. As such, Kin gains 4 base points for being backed by Kik.
Being the first of the chat apps to achieve this in a pure cryptocurrency way earns it 2 novelty points. A quarter-point is deducted from this for the ease with which another platform could precisely copy the entirety of their platform.
Kin gets another 1.5 points for hype value. The odds of being able to actually achieve ROI if you are cognizant and attentive are significantly higher than other ICOs as a result of the widespread hype – panic selling is done with greater caution when so many good, promising things are said about a token.
The author allows a full point for his own instinct and lends .25 from this reserve, out of the belief that those who truly want to will manage to take profit from this investment.
4 + 1.75 + 1.5 + 0.25 = 7.5.
Kik has decided to be mysterious about the actual launch of the token creation event. They have a mailing list, and that’s about all the information that is available:
A supply of 10 trillion dictates the on-boarding cost will probably be low, but, again, there’s little to no details on that. We’ll have to update you on that. As the community manager says above, if you want more information at investment time, you’ll have to subscribe.
Featured image from company presentation.