Selling Tokens? Why Now? Not Yet in Production? How Come?
In this article we’ll review our current state in fund raising, what we’ve accomplished so far, and describe our tactics and strategy going forward
Q: why is 2key selling 2KEY tokens before rolling out to Production? Wouldn’t it be better to test first that the product is working and that there’s a demand for it?
A: every project / startup is a risk, and staking in such projects entails taking a risk, in return for a bigger potential reward. As the risks grow smaller, so does the potential upside. It’s very important for each potential purchaser of 2KEY tokens to understand exactly what’s their appetite for risk, and act accordingly. The sooner you join, the higher your potential gains, but the more risk you take. It’s ultimately a question of belief vs doubt, in the project, the team, the tactics, strategy and the vision.
Also, very important to note that even if we were now “in main-net, and after collecting some fees”, this would have made the purchase of 2KEY just a tiny bit less risky, not safer, because collecting some fees is very simple (you can even fake this like many exchanges do with their volume, and in our case we actually also have a real waiting list of businesses and partners that are waiting to use the system on main-net), but we should note clearly that collecting some fees has no relation to actually conducting real product-market fit, finding sustainable long-term traction, focusing in on geographies, cultures and use cases that show adoption to the tech and product etc.. And these processes of fine tuning the product and finding the right markets etc.. take a lot of time. There’s no avoiding the risk, that’s why it’s called Venture Capital.. So, without a lot of experience in VC, it’s important to try and learn from the masters:
Any serious project/startup in web2.0 usually launches with at least 3M$ of runway, speaking from past experience working on startups funded by some VCs representing the smartest money on earth, but that’s true for web2.0. In Blockchain space, since all the infrastructure itself is also a work in progress, the required runways to safely launch a new product/protocol become much greater, especially in a project like 2key which is both a product project and a protocol project.
If you look at how the smartest money operates, you’ll see blockchain projects backed by giant VCs often being given runways of 15M$, 20M$, 60M$ a long time before main-net is reached, and often even before an MVP/beta is reached. These funds are very smart money representing Venture Capital (Venture == Risk), staked by early adopters / supporters that are willing to accept the risk in return for much greater potential upside (e.g. algorand, SKALE, SpaceMesh etc..). In these regards, 2key has been showing to be as lean and mean (and decentralised) as possible. We have raised very little to date, and only from angels and early supporters with very small tickets. We have tried to avoid VCs with controlling stake etc, since this would be bad for our distributed economy, as having fewer players with larger stake makes the economy weaker.
We have used our raised funds in the highest efficiency possible. From our previously raised token sale funds (1.5M$ circa May2018), we still have 10 months worth of burn rate today (October 2019), yet we’ve already pushed a fully working product and protocol to a 1:1 production-compatible testnet which has allowed us to already test and validate that the product and protocol are “working and needed to society”: (A) The ropsten testnet is identical to POW EVM 1.x, AND (B) based on this deployment we’ve received interest from multiple parties, partners and clients in various domains, showing that this greatly interests them. So we have been successful in proving that it works and generates interest.
The token economics has been in full play on ropsten, campaigns have been run by actual users, fees have been collected, 2KEY has been auto-sold to campaign contracts, conversion ETH has been auto-hedged to DAI (Exchange contract on ropsten already holds more than 300K ropsten DAI) etc.. etc..
What is now missing is main-net launch and product-market fit, but that’s a process which can take up to 36 months following main-net launch, and once we start that phase, we need to be fully concentrated on it, which will not allow us to also focus on fund-raising. For this reason, we are now seeking early stakers to purchase 2KEY tokens, which will allow us both the initial bootstrap of the 2KEY distributed economy, as well as to secure the funds for the product-market fit phase. After we launch main-net, the entire project and team will be focused on running with the initial clients, setting up sales channels, managed services to test traction in various geographies, cultures and verticals, developing new verticals, marketing to reach users and contractors in various potential markets and use cases etc..
As for timing of the token sale, this is an ongoing process, and a natural one. A country doesn’t get built in one day, neither does an economy, and we must remember that without early supporters, participants and contributors, that stake their time, money and effort long before the “production” proves itself, it’s impossible to actually build any successful web2.0 product, let alone a new global distributed social economy.
Thus, in a gradual process, as more early supporters join, the economy gets stronger, and gets ready to launch. Some will join before main-net, and many will join after, and all are important to ensure a solid launch and viable growth of the 2key economy. In general, now is the time for us to build our sourcing seed, which is the root set of influencers, users and supporters, which will be given the opportunity to bootstrap the 2key social economic network. Building this sourcing seed (both in terms of participants and in terms of 2KEY stakers) is instrumental in the process of launching the economy, and that’s why we’ve started engaging and building our communities worldwide a couple months ago.
In terms of funding, we need to secure a runway that will enable us to conduct proper product-market fit, as the protocol for running smart contracts over HTTP, and social sourcing in general, can be applied in many different domains, in many different verticals, in many different cultures and geographies. This process, called a product-market fit, is what usually entails a Seed and Round-A funding in traditional VC structures, and in these terms, within the blockchain space, we’ve barely even raised Seed (in comparison with similar scope projects in terms of technological breadth and depth, and product).
To conclude, this timing in which we engage and build our initial communities, both participants and stakers, is correctly timed, and the incentive model is very clear, and is very natural — the sooner you join, the more risk you take, but the bigger your potential rewards will be.
Q: Do you have any expressed interest from potential clients? Can you show it?
A: The interests range from verbal, to written, to formally verified in LOI. Many smaller players simply see the project, and say, wow, when can we test this out on main net? For these we don’t collect LOIs, but for some bigger players we indeed gather LOIs and these are to be found in the public Due Dilligence Folder. We have exchanges, web2.0 websites, and other platforms on the list, as well as strategic partners and potential integrators on the list. In general, businesses are always looking for new marketing channels, and since we’ve created a new kind of referral tool that is zero risk for businesses (zero integration, SMB/SME friendly, set your price, pay only per validated result) — every business we come to just says — sounds good, when can I try. So many will be willing to test it out, but that’s not the required de-risking. Just rolling out to production and running the first 1000 campaigns isn’t the hard part, the challenge is to conduct good product-market fit in the first 24–36 months from production launch, and to successfully zoom in on use cases and geographies which show traction.
For more info, just visit our Public Due Diligence folder here.
Q: Couldn’t the 2key team just make some small mvp and test it out already in production proving that there’s demand? Why are you still not in production?
There are quite a few cognitive biases at play in this kind of perception:
- Discounting creation, innovation, spec, design — i.e. it takes time to invent, to spec, to design. Once these are known, the time to deliver falls significantly — but it is not an original delivery — it’s cloning of existing work. Of course that cloning work would take much less time than actually originally producing the work.
- Discounting pivots, spec changes, preliminary product-market fit phases — The perception only looks to the current implementation, discounting the time it would take to develop and refactor the previous implementations on top of which the current one is estimated.
- Discounting actual technology developed — There are multiple devops, infra, data engineering, backends at play here. Just as an example, the 2key app frontend integrates 6 types of backends — Layer1 ETH Nodes, Layer2 Plasma Nodes, Layer2 State-Channels, Serverless API Backend, The Graph Smart Contract Query Index, IPFS. All the underlying infra was also developed by us. As a small example, even AWS with seemingly endless budget hasn’t been able to roll out a managed ETH node service, let alone one which dynamically scales. We have developed such.
- Discounting iterative bug fixing — each version includes bugs and these are solved iteratively, so looking at a current version judging the time to develop a clone, discounts the time it took to develop versions towards this current version
- Discounting energy and time required for invention/innovation — up till 2key, there was no solution for HTTP-based multi-party-state-chains. Re-inventing something is always infinitely easier (and faster) than actually inventing it, which is why, for example, it’s quite common to see math challenges that haven’t been solved for centuries, but than after one mathematician solves it, just the fact that it has been solved allows for others some backwind and inspiration and it gets re-solved days after the publication of the fact of the solution (not even the solution itself). This is why the 2key IP is patented, globally.
- Discounting Decentralisation — if it weren’t for the decentralised nature of the network, development could be much quicker, but developing scalable decentralised networks is something not previously done (i.e. scalable without sacrificing decentralization). We’ve worked hard to enable this uniquely novel feature in our domain, and the mere fact we’ve succeeded is above and beyond reasonable in terms of ROI on the invested time and resources.
- Discounting Novel Infra required to obtain Accessibility and UX — enabling an MVP without the 2nd layer innovations and UX developments we’ve worked hard on, would be much faster to push to production, but mostly useless. Users will not create a web3 wallet, get ETH, register, etc.. just to refer a link, the referral has to be seamless, yet marked on the smart contract. We’ve worked hard to enable this. Without it, we could be earlier to production, but with a UX that will lead to very small conversion rates, and a wrong market reading. The UX must be seamless before production is pushed. This is a user centric approach that is required in B2C products, quite unsimilar to B2B products. For correct product-market fit, the UX must be good from the start, otherwise the feedback from the market will be unusable.
- Discounting the Band (Team) — It takes a lot of time to build a world class well rounded R&D team to pull off a project like this. The skillsets required range from devops, infra, blockchain R&D, smart contracts development, backend (python, nodejs), serverless devops, data streams and high throughput data analytics, frontend, cryptography, algorithms etc.. It took us time to build a world class level with the full skill set range, while adhering to our low monthly burn rate. That is, we couldn’t just go to silicon valley and pick the top of each field, as we didn’t have even remotely enough money to accomplish this. We instead assembled a globally distributed team of peers, that have come together to further the project, and that can progress while keeping the budget constraints in tact. Once the team is assembled and playing harmonically like a band, development time decreased dramatically, and delivery times become much quicker. But the time it took to build and sync this team cannot be overlooked as it cost the project time, efforts and money.
In general, please remember we’ve been limited to a 50K$ monthly burn rate and have been working on the implementation of the spec for only 12 months (from May2018-May2019) before we published our ropsten test-net version. We believe given our budget and resources we’ve accomplished a lot over these 12 months. We’ve already put forward:
- We’ve implemented Groundbreaking multi-party-state-chain cryptography and
- We’ve implemented an innovative 2nd Layer protocol allowing to operate our smart contracts via HTTP
- We’ve implemented our own dynamically scalable ETH node clusters on K8S
- We’ve implemented our own k8s based plasma chain (POA)
- We’ve implemented our own ipfs node cluster
- We’ve implemented a gas station and meta-tx capabilities into the app
- We’ve developed our own in-app wallet
- We’ve delivered integration with on-ramps (simplex)
- We’ve integrated with kyber network
- We’ve developed a highly complex and completely novel smart contract architecture, fully upgradable yet immutable for the end users, including novel CICD methodologies for smart contracts, integrated with our 2nd layer protocol off-chain browser network, integrated with our plasma network, integrated with our scalable ETH nodes clusters and IPFS.
- We’ve also developed automated QA capabilities
- We’ve implemented a highly complex graph integration to build a search index over our smart contract events
- We’ve developed and implemented a highly complex serverless backend, as well as other data streaming and checksum solutions to enable a low latency cache and data consistency check mechanisms for blockchain based mass scale transactions.
- We’ve also developed KYC functionalities integrated into the product, as well as identity checks, conversion validations etc..
- We’ve fully implemented the first two verticals of the product — Tokenised Asset Sale Campaigns, and Donation Campaigns.
- We’ve conducted successful POCs of Voting and Petition campaigns, as well as Specified and delivered initial POC candidate for the CPC campaigns which will be our next vertical to launch.
We’ve done all this in about 12 months of work, which came after a period of pivoting, specification writing, POC development, white paper writing, yellow paper writing, initial market surveys, initial business development and collecting market signals etc..
All in all, we’ve accomplished quite a lot using very stringent burn rate to make sure we can survive the crypto winter. We’re very proud of the work we’ve accomplished, and we welcome anyone who believes they can make us progress faster, to join us in our efforts to introduce a new kind of link to the web, one that embeds an economic model, and pays you back for paying it forward.
If you want to get a better grasp of what we’ve built, here’s the general architecture we’ve developed, and keep in mind that each of these boxes contain a lot of tech we’ve often had to invent, and then in a lot of other cases these contain tech we’ve had to modify, optimise and fine tune to our own needs:
If you want to learn more about the core cryptography we’ve developed powering our 2nd layer solution, as well as some more in depth review of the architecture, please read on in here Tech Summary Doc .
Why is most of your code closed source? Show me all your Code!
All our decisions revolve around one target and that is creating a sustainable, inclusive distributed social economy around the 2KEY token. That is, we always choose to do what we believe will make the 2KEY token economy greater and stronger. In that, we believe that in its early stages, any new distributed economy and decentralised ecosystem needs to safeguard its core assets to promote initial inertia around the project. This is why our core technology is both patented and close-sourced to begin with. This incentivises the community to join the efforts in a united front, rather than fork off and dissipate efforts and value from the main 2key Network core initiative.
2key Team has written over 500K novel lines of code in over 15 code repositories in github and gitlab. Currently, three of the repositories are open sourced for public auditing (https://github.com/2key), primarily of interest is the Smart Contracts repository (https://github.com/2key/contracts). We will strive to eventually open source the typescript repositories of the protocol cryptography itself, as well as others.
Our aim is to open source any web3.0 code required for more developers and entrepreneurs to interface with the 2key Protocol and/or to join the 2key Network as independent peers.
The heart of the tokenomics behind the 2KEY token are positively affected the greater adoption is obtained with integrators, and thus it is our intention to provide as many integrations as possible, e.g. SDK, API, and the 2key Protocol NPM package itself (comprising the contracts solidity and the typescript cryptography of the 2nd layer). The more distributed the integrator base, the stronger the foundations of the 2key collaborative economy.
We will also aim to open-source any web3.0 devops code which can ensure the community is able to learn from our work and also validate the web3.0 resources that we run, e.g. the 2key sub-graphs (https://github.com/2key/2key-subgraphs) — a distributed query layer based on a graph index over smart contract transactions and events logging.
However, we will happily review with any party of serious interest and stake a live code review, and we’ll aim to soon publish a video reviewing our repos from a high level.
What’s Next? When Production Date?
Going forward, we’re continuously working to improve the product, while making security audits and preparing for main-net launch. Today we’ve released the final batch of smart contracts for official auditing, meaning we have an initial production release candidate version. This means that in 5–8 weeks from now we should be able to deploy to production (As it takes 2 weeks for initial audit results, followed by 3 weeks of fixing and re-audits, than another 2–3 weeks to prep the production environment and other repos for the version and new environment deploy, than a week for deployment, regression testing etc..)
