07/12/2017: TEZOS TOKEN SALE ANALYSIS
“ THE DOG DAYS OF ICO SUMMER”
Country of incorporation: US, Delaware (planned non-profit at Zug, Switzerland)
Token Sale launch: July 1st 2017
Token Sale end: July 14th 2017
Cap: 2000 blocks
Blockchain competitors: Ethereum, QTUM, Aeternity, Dfinity
Blog and updates: https://tezos.com/blog/index.html
Product: Compilable code is available on Github
Tezos is, by some definitions, one of the most overwhelming ICOs to date. The crowdsale is well under way, with about 24 hours to go until the projected closing time, with over $217,000,000 contributed in both Bitcoin and Ethereum. What could possibly cause such excitement and keen contribution? The answer is both simple and complex: a promise to solve very pressing problems and a team that can deliver on these promises. Tezos aims to build a smart contract platform with a new decentralized blockchain that tackles two major challenges faced by existing blockchains: decision making and security. The idea behind Tezos is to take blockchain “a step further” than Bitcoin and Ethereum and build the first “self-governing ledger” in the industry. An especially powerful aspect of this offering is the fact that the Tezos blockchain will be capable of upgrading and evolving with no fard forks. In light of the looming Bitcoin fork that is wreaking havoc across the cryptocurrency markets, the community met this proposition with great enthusiasm and open arms.
The crowdsale is uncapped, but will last until Bitcoin block #475622 (about 24 hours away). A minimum investment of 0.1 BTC or ETH equivalent is required to participate in the Tezos token sale. Throughout the crowdsale, investors have been entitled to a bonus in Tezzies (XTZ) on top of their contribution. The bonus started at 20% and has been diminishing since. The Tokenguide team has prepared some points for you to consider if you’re debating whether to contribute to this ICO before time runs out.
- Existing blockchains are slow to evolve and adapt and that is a known problem. A decentralized system with no functioning governance structure can be paralyzed by internal opposition, making it slow and inefficient in responding to market demands. Sounds familiar? Welcome to the Bitcoin dilemma of 2017. Tezos wants to address this inherent problem within existing blockchains by integrating a special governance system into the platform. Users will not only be able to vote on proposals, but they will be able to direct funds towards proposals that they deem necessary for the system. The theory behind this model of governance is that the platform will organically develop according to the market needs. Since the platform users are first in line to experience any shortcomings, the theory goes, they should be the ones deciding on solutions. There is an interesting aspect to this from the investment perspective as well: the weight of your vote will be based on the number of tokens you own, so the tokens could increase in value if the system works as a whole. To us, an effective consensus mechanism which contributes towards token value sounds like a positive aspect of this investment.
- The Bitcoin fork is a fairly recent concern for the community, while the catastrophic DAO attack is somewhat of a communal trauma. Therefore, apart from addressing the question of consensus, Tezos addresses the question of security as well. Tezos promises to tackle the inherent security issues within Ethereum-based smart contracts by introducing an alternative (and specially developed) Turing complete programming language for smart contracts, called Michelson. The language has been tested in a closed environment and, according to the creators, it incorporates a plethora of experience from other smart contract projects. Michelson was specifically built to allow formal verification, which means that mathematical guarantees are given that the smart contract does what it was programmed to do. This could be especially beneficial for industries where large volumes of funds are exchanged, or where tampering with smart contract functionality could come at a high cost (for example, finances and healthcare). We see this as an interesting improvement with a well-defined target market.
- Several indicators, all pointing towards the team’s integrity and experience, really made Tezos stand out from the ICO crowd. The project has been in development since 2014, which means that the core ideas behind it were developed long before the dawn of the ICO hype. This means that the project comes with a thick stack of technical documentation, filled with innovative and elegant programming solutions. Another plus side of the long development process is the fact that the team obviously had plenty of time to do their networking. Few ICOs receive support from traditional VCs, who remain apprehensive towards the whole practice. Tezos, however, managed to secure the vocal support of billionaire Tim Draper (early investor in Skype and Baidu) and a number of hedge funds. Keep in mind though that this support comes at a price: early investors l receive a fixed amount of $893,201, as well as a 20% bonus from the crowdsale proceeds. Tezos, however, is being fairly open about these aspects of the deal.
With apparent solutions to some of the most pressing problems in smart contract technologies and keen industry-wide support, Tezos may look like a no-brainer investment. We do have some concerns about this project, however, and these are mainly related to the crowdsale terms and the potential length of this investment.
- The biggest red flag, in our opinion, is the fact that the crowdsale is uncapped in volume. Although this strategy ensures that anybody who wants Tezzies can get Tezzies, it also means that Tezos is not a great choice for the short-term investor. An uncapped crowdsale could also be interpreted as the Tezos team not having a specific goal in mind, which puts in questions the conscientiousness of their development roadmap. The long and short of it is that the potential number of Tezos tokens in circulation is limited only by the investors’ willingness to participate. This helps to avoid scarcity, but at the same time creates a danger of overflooding the market with tokens when they hit the exchanges.
- The crowdsale terms further point that the uncapped structure could be greed rather than necessity. According to these terms, 8.5% of the sum raise (which currently stands at roughly $217,000,000) will go straight into the creators’ pockets and consequently not used for platform’s development. This is especially worrying, since constant development in response to community needs is (on paper) what Tezos is all about.
- Finally, it’s worth pointing out that the timeline for Tezzies hitting exchanges is unclear at the moment. All crowdsale contributions are currently handled through paper wallets, holding information about each specific contribution towards the crowdsale. On the one hand, this ensures security. On the other, this means that allocation will be long and slow. Somewhere down the line, in about 4 to 5 months, the owners of the paper wallets will receive their Tezzies. This is expected to happen once the Tezos network launches. This will also be the point, supposedly, when XTZ will become tradeable on the secondary market. They could experience a short burst of growth right at that moment, but crowdsale participants should be mindful of the fact that the investment horizon for this project will probably be over 4 months. At Tokenguide, we see how the Tezos proposition is valuable and, if successfully executed, it will be a beautiful addition to the blockchain landscape. We also see the logic, albeit not entirely altruistic logic, behind raising over $200 million while the market is so hot. However, it eludes us as to how the Tezos team could reasonably use or grow the value of these funds.
This is another project with a well-thought-out value proposition and a pristine track record of successful technological development. In the current market, it was fairly obvious from the start that Tezos would raise enough money to raise a few eyebrows. In reality though, even according to the most generous estimates, $10–15 million would be more than enough to develop the project to the state that’s laid out in the whitepapers and roadmaps. So how will the Tezos team use the remaining $200 million gathered in its crowdsale? And, importantly for investors, how will the XTZ token grow in value? Unfortunately, these important questions remain unanswered.
Consequently, we would consider investing in Tezos but only about 50–75% of our average ICO investment with the intention for a long-term hold, as total funds raised (and current state of the market) will definitely put a strong downward pressure on the price when the token is listed.
We would like to remind you that all opinions expressed in this piece are our own and are based on the research our team conducted independently. It is not an investment advice. If you are serious about participating in an ICO, token sale or crowdsale of any kind, we strongly recommend that you conduct your own due diligence by familiarizing yourself with the projects, their background, white papers and the market(s) in which they operate. Stay safe!