WeTrust: Lending Circles Going Blockchain

Disclaimer: I don’t get any compensation for writing my ICO evaluations. I select the projects myself based on what I think is most interesting in the space at the moment, my availability and in regards to the ICO start. These evaluations are a continuation of the ICO evaluations I did before joining ICONOMI, they are done by me personally and any thoughts expressed are purely my own.

One of the great promises of blockchain technology is to be a foundational technology in the (probably) upcoming disruption of the financial markets around the world. The traditional banking institutions will be challenged by agile companies with faster, cheaper and more secure services. One of the results will be that the unbanked population in many parts of the world will get access to new services that traditional institutions cannot provide.

This is a space heating up rapidly. Late last year we saw Branche (a cheque cashing and payday loan service) fail their ICO. Now, WeTrust will launch their ICO on March 1, and over the coming weeks and months several other projects aiming to bring services to currently un- or underbanked will launch ICOs. Among others these include Omise Go and Humaniq.

I’m subjectively scoring each of the categories below from 0 to 5, where 3 should be neutral in the eyes of the crowdsale participant. Below 3 is bad for the investor and above 3 is good for the investor (and could be good for the project as well). At the end I add a conclusion where I rate the whole ICO based on the combined information I have as negative, neutral or positive.

Project: WeTrust

The main tagline from the website is:

A platform for Trusted Lending Circles, powered by people and blockchain.

The slightly longer explanation from the whitepaper is:

WeTrust is a collaborative savings, lending and insurance platform that is autonomous, agnostic, frictionless, and decentralized. WeTrust utilizes the Ethereum blockchain to create a full-stack alternative financial system that leverages existing social capital and trust networks, eliminating the need for a “trusted third party”, allowing for lower fees, improved incentive structures, decentralized risks, allowing a greater amount of capital to reside among the participants, and ultimately improving financial inclusion on a global scale.

Personally I find the concept very interesting. The goal is to build a platform with increasingly complex alternative financial and insurance products. The first product being developed is an application for Trusted Lending Circles (aka Rotating and Saving Credit Association/ROSCA).

They have a website at www.wetrust.io, a blog at medium.com/wetrust-blog and there is a proof-of-concept available on rosca.wetrust.io/. To hear the founders talk more about the project in their own words, watch the CoinFunds Hangout or listen to the Blockchannels podcast with them.

Team/Founders 4/5

Do these guys have what it takes to succeed as entrepreneurs? Track record and previous projects? Experience and formal education? 4/5

As I’ve been arguing before, the single most important aspect of any new venture or startup is the team behind it. It’s up to the founding team to execute and deliver on the promises made, bring value to investors, adapt to the external environment and explain why changes are made to the strategy and products over time.

The on-paper profiles of the founders (linkedin, available in the whitepaper) seem like a strong foundation for budding entrepreneurs. George has startup experience, and he and Ron have also worked for Google for quite a while, giving them exposure to the much more process-oriented workflows used in larger organisations.

From the youtube video and podcasts they have done, I get a feeling of confidence in their abilities. They are able to clearly explain what they are doing and their plans which is a very important skill, and they seem to already have given a lot of thought to all the questions they have been asked.

In interviews they say that the core focus will be on tech development, and that there are a few other developers already engaged.

Altogether, I get a very positive feeling from the information and interviews available.

Market Potential 4/5

Like many other blockchain projects, it is very hard to correctly identify the potential size of the markets they are going after. Just limiting ourselves to the potential ROSCA market, the crypto based ROSCA market is $0 as far as I know today (since no competing services exist). On the other hand, ROSCAs in the old economy are widespread and widely used in many different countries and communities, and this is, of course, what WeTrust is aiming for.

By bringing a simpler, more secure and more structured service the goal is to bring some of the transaction volume in traditional ROSCAs to the platform.

The potential here is huge ($450 billion in the markets listed in the whitepaper), but it’s also very important to not get trapped in the 1 percent fallacy (“if we only get 1 percent of the online search market from Google, we’ll get rich”). With the platform’s other upcoming products listed in the whitepaper I do think there is a potential huge market well worth going for.

Product/Business/Operating Plan 2/5

(Update, March 1: 3/5)

Proof of concept available? How many iterations are done? MVP available? Is the product validated by outside users? 4/5

There is a proof-of-concept available at rosca.wetrust.io, and as far as I have tested it, it is limited in functionality but operational. I have not seen any usage reports from outside users who have completed an entire epoch in the system, but I would assume that works for now.

By having a proof-of-concept available, the WeTrust team shows a good example of where technically a project should be when launching an ICO.

What is the current operating plan and why do they need funding now? 3/5

To make this work for the target audience there is, of course, a lot of work to be done. I think a smartphone interface is an absolute must, and with that come deep dependencies on other projects, such as status.im.

On the roadmap presented in the whitepaper, it is understood that the current ROSCA implementation is ready to be used. In Q2 2017, the first full-featured version will be launched (that includes fees), and Q4 2017 will see the integration of off-chain social accounts to this product.

The roadmap then goes on to map out the main product launches and features until Q1 2019, when the insurance products should be ready to launch and integrate into the platform.

I think it’s clear that funding is needed now, and will be used to develop the products and platforms.

What I’m missing from the roadmap is that this is purely a technical roadmap, it does not cover any market development goals or what value they plan to bring to users and token holders during this time. Also, I would assume a lot of the progress is dependent on other projects (such as status.im) and this is not covered in the roadmap.

Update, March 1: The whitepaper is updated with a short section on the value they bring to different stakeholders in the system. Notably absent in this stakeholder overview is the crowdsale participants.

What is the go-to market strategy? 2/5 (Update, March 1: 3/5)

This is one area I think is clearly lacking in the whitepaper.

The only clear market strategy communicated is a focus on collaborations with NGOs and other organisations in order to drive user adoption to the platform. This sounds like a good strategy, but there should be testimonials and preferably commitments that this product is interesting and needed by them, otherwise investors will have no way of knowing whether the go-to market strategy has any merit.

The other major drawback is that the product as it stands now requires users to be fully crypto literate. This means users must have access to buy and sell crypto, often requiring access to the same banking institutions the platform is built to work around. Users must also have access and know how to use crypto wallets and at least the foreperson must have access to a computer with Ethereum integration.

The buying and selling of crypto could potentially also be handled by the forepersons, but this is a big task. Also, finding and educating suitable forepersons in all of these communities around the world will be a serious challenge.

Another huge adoption hurdle not covered in the whitepaper is how dependant this project is on general crypto adoption. Without well-educated forepersons that can explain to the members of the circles in a correct and trustworthy manner how everything works, ROSCAs will not form and user adoption will not come.

One positive strategic choice is the structure of a ROSCA. Since each ROSCA has a limited number of participants, the whole platform is not dependant on a big network effect in order to be successful. That would, of course, help and be the best marketing engine they could wish for, but it’s not required in order to get circles started and get users to the platform.

Getting heads down to develop a great product is a clearly defined and rewarding task, but in most startups this is the easiest one. Getting paying users and evangelists is in the end the only thing that matters, and that is really hard. I wish we could see much more information on the marketing strategy before the ICO is launched, and this is for me one of the weakest points in the whole project right now.

Update, March 1: A new section about go-to market strategy and their focus on collaboration with NGOs have been added. An agreement has been reached to run a collaboration with growmyfuture.com, an organisation based in San Fransisco’s bay area. The result of this partnership should be a great test of the strategy and give the team a lot of valuable feedback for future operations.

Competition 4/5

Do they have a clear view of the competition? How do they plan to beat them? 4/5

I would say yes, the founders are well connected in the blockchain sphere and know what is happening and, by highlighting examples of other fintech startups (i.e. in the p2p lending sector), we get a clear picture that they keep track of the competition. What I think is really interesting is that this platform has a good shot at productifying a very large financial sector that is currently unstructured and unproductified. If they can they solve that by recruiting users to their platform (see go-to market strategy above), they have a big chance of doing something great.

In competition with other services that aim to bring banking services to the unbanked, they also have a huge strategic lead by starting with the ROSCAs. As discussed above, a ROSCA is functional without a large network of users, which means that the platform will be usable without reaching a critical mass of users in any specific market.

Valuation 3/5

Does the valuation make sense? 4/5

A total of 100 million tokens will be issued and of these 80 million will be distributed to funders with the rest going to founders, future contingency and bounties (see below). The value of each token will be set depending on the total amount of funding the project receives. In this case I think holding off 20 percent of the tokens is perfectly reasonable.

Crowdsale and token structure 2/5

This is one area that I don’t like so much. First of all, they have set a very wide financing range, from 1000 BTC to 6000 BTC, a 6x range from the minimum funding. This automatically raises questions of how efficiently funds will be used close to the top range. The whitepaper loosely mentions investments into global partnerships and grants to organisations with a similar vision (among more relevant use of funds). When raising that much money, there should be a clear plan for how to use it, even though this might change in the future.

In the whitepaper they describe the same end goal regardless of funding (a savings, lending and insurance platform), and we are given a table of different levels of sophistication for all the planned services depending on the level of funding. What is missing is an explanation or forecast of how the different funding levels will affect the roadmap, user adoption and traction of the platform. This is important information for potential investors.

Of the 100 million issued tokens, the distribution will look like this:

2 million to bounties
8 million to future contingency
10 million to founders
80 million to funders

In general I think this is OK, with one exception — bounties. On the bitcointalk page there is a detailed breakdown of how these bounties are earned. Bitcointalk-based bounties are OK, I guess; many blockchain projects do them in some form. But encouraging people to retweet and Facebook share at least 15 times per week to earn stakes in the bounty program just promotes spam, and I really don’t like spam.

Next up, bonuses. High bonuses also promote short-term speculative behaviour and does not reward the long-term serious investors that a project like this really should be going for. The bonus structure (only available on bitcointalk) looks like this:

1st Day — 30%
1st Week — 25%
2nd Week — 20%
3rd Week — 15%
4th Week — 10%
5th Week — 5%
6th Week — 0%

Even though the steps are pretty small, a structure like this will result in the majority of investment coming in the first week and then it will die off. This is a problem for the project that instead could leverage the network effect of investors, and who could promote the great project they just invested into to friends and contacts over the entire time of the ICO.

Legality 2/5

As an investor? 2/5 (Update, March 1: 3/5)

The current norm for high-profile ICOs is to clearly explain what the token is, how it relates to the main securities regulations (in the US and other jurisdictions) and what measures are taken in order to incorporate in a way that is compliant for the targeted investors and the jurisdiction where the service company will be created. I cannot find any information regarding this in the whitepaper which is a big oversight. I hope this will be clarified before the ICO starts.

Update: Information given to me by the team clearly express that this is an application token with no rights or ownership of the company etc. All of this should be covered in a full legal disclosure document that if I understand correctly will be distributed together with the whitepaper once the ICO is ready to launch. They are also working together with an established law firm to make sure the token is designed in a way to be compliant with US SEC regulation. However, none of this information is publicly available at the time of writing and I suggest potential investors should wait and fully review this information once it is publicly available. Also, I would like a summary of this information together with a reference to the full document to be present in the whitepaper, as all relevant information regarding the sale should be available in one place.

Update, March 1: The whitepaper now includes a comprehensive overview of the characteristics of the issued token and the risks in acquiring tokens in the crowdsale. It is clearly stated that the tokens should not be considered securities, and since the tokens have clear usage on the platform (as earned by the forepersons for performing services), to my limited knowledge this is not a security according to the Howie test.

Legality of the business 3/5

Unfortunately this is not discussed in the whitepaper. Financial regulation and keeping control of the financial system is a highly prioritised task of many governments around the globe. Just like for crypto currencies and investments in general, this is most probably an area without any clear answers. Therefore it’s all the more important that the team describes the current regulatory situation and their current strategy and plans, even if they will change in the future.

Update: Comment from the team regarding this, and I hope this will get discussed in the whitepaper: “We are moving slowly, and have received specific guidance from our legal counsel — our first product, the ROSCA/ Trusted Lending Circle — is viewed as an accounting/ automation tool. WeTrust itself does not provide any lending services. It merely helps people group together and helps with the communication between users.

For future features, we will engage with legal counsel continuously to ensure that what we’re building does not get us into any regulatory troubles.”

Security 2/5

Update, March 1: 3/5

Proof of external security evaluation? Testing methodology? 2/5 (Update, March 1: 3/5)

To date there are no published security evaluations, even though they should be performed before the platform is launched to the public. From the whitepaper:

In order to ensure that underlying smart contracts that move funds are secure and working as intended, the WeTrust team commits to subjecting its platform to a comprehensive security audit and bounty programs prior to launching the platform to the public. We will hire the most reputable security experts to conduct security audits prior to our public launch, release all results of the audit and fix any flaws that are identified.

This is all good, but in my opinion this does not solve the security question and it does not comfort me that funds will be secure on the platform. Security reviews are all good, but it is still just another paper review of the code. Writing secure code is hard, and writing secure smart contracts is even harder (I’ve covered this before). To give confidence that a secure product is developed, there should be extensive validation testing planned, and that takes time (just look at Augur). I hope the team will sort this out by hiring people with extensive experience from aerospace, old-school fintech, medtech or other sectors where there are very high security demands today.

Update, March 1: Zeppelin has published a security audit of the Ethereum contracts, with no severe warnings. In fact, the Zeppelin team thinks “This was one of the most well written contracts we had to audit.”. However, just like me the Zeppelin team also highlights the fact that a security audit is not enough to make secure contracts, other forms of actions must be taken (such as bounty programs and extended validation testing).

Special security needs for this project? 3/5

Except the fact that this platform will handle and hold tokens, there are no aspects that stand out for me.

Conclusion — Neutral (with a possibility of being positive)

I know the WeTrust team were contemplating running an ICO In late 2016, but given the progress they’ve made since then in defining the overall strategy, building an MVP and collecting a good team, I absolutely think they made the right choice. I argue that ICOs are a form of advanced seed funding bridging into and replacing traditional Series A venture capital funding. Because of this proof-of-concepts, a well-defined strategy and the foundation of a good team should be in place before the ICO is launched. The WeTrust team now have all of that in place.

From what I have seen of the founders they seem strong and capable, and with many core people already committed they are ready to launch pretty quickly.

They are going for a very interesting market where I think innovation and blockchain technology (although perhaps invisible to the end user) can make a big difference. I’m also very fond of the strategic choice of first launching a ROSCA platform, where no minimum market penetration is needed for a useful service and then over time launching products that will require and leverage network effects more and more.

On the downside I have several issues, some of which I hope will be addressed in the coming days before the ICO is launched. To summarise:

  1. Roadmap: Does not explain or discuss what value is given or lost to different stakeholders, how user adoption is affected and growth will change with different funding levels (Updated, but updates does still not address what happens at different funding levels)
  2. Go-to market strategy: Does not address crypto adoption at all, treating it as a non-existing problem. In general very little is discussed about the go-to market strategy. (Updated, but does not still address crypto adoption and if that is a requirement)
  3. Legal: No legal or regulatory discussion or information, either for the tokens/investors or for the service (Updated for crowdsale participants)
  4. Security: Discussion does not cover the most important aspect of dApp development, validation testing.
  5. Token sale/structure: Large min/max range, sale structure that encourages speculation instead of long-term investments, spam-promoting bounties

My general conclusion is neutral. I’m positive about the team, product plan and product strategy. But information is lacking and recent major changes and the design choices regarding the token sale structure does imply a focus on short-term thinking and not a focused and well thought out long-term plan.

I would change my conclusion to positive if relevant information is shared regarding the first four points above, and if the team committed to a staged release of funds. For example, a third of the funds are immediately released to the team and when the team needs more funds token holders are given the right to vote against the release of another third of the funds.

Update: I’ve shared this evaluation with the team around 24 hours before publishing, to give them a chance to comment and correct any errors and oversights on my side. I got news on several updates that are not yet publicly shared regarding the go-to-market strategy, project focus in case it does not reach the full financing and relating to a staged release of funds. If I understand correctly, the whitepaper will be updated and information will be shared by the team soon, and when it is I’ll go back and review my conclusion.

Update, March 1: Several additions have been made to the whitepaper partly covering issues 1–3 above, an FAQ is added to the website, and a code review is published by Zeppelin. The team is making progress and seems genuinely interested in listening to feedback (from me and others) to improve which is a very good sign.

If you’re interested in an evaluation of your project or need advice regarding an upcoming ICO, please contact me. A private comment here on Medium or via LinkedIn works fine.