ICO Review: Enjin Coin

Our guide to understanding Enjin Coin and its upcoming ICO.

Introduction:

In our first ICO analysis, we covered the widely-popular Enigma Catalyst project. For this installment, we take a look at a less well-known ICO project, Enjin Coin.

One of our goals at CryptoBro is to bring our readers the highest-quality information about upcoming ICOs through our in-depth analyses (this article came out even longer than our last one, we apologize for the detail 🙏 😆.) The hope is that our article will make you better informed when making your decision to participate in an ICO.

To this end, we have done things slightly differently for this article where we reached out to the Enjin team with our concerns and open questions regarding the project, and gave them the opportunity to address those issues.

We have received responses from Witek Radomski, CTO and Co-founder of Enjin Coin, and included them in our article in the format below:

Example responses text from Enjin Team

For all of our future analyses, we plan to reach out to seek clarifications / comments from the founders team. We hope this additional data point will help you in forming your opinion about each project.

Happy reading and thank you!

Disclaimer: this article constitute our opinions and is for information purposes only. It is not intended to be an investment advice. Seek a duly licensed professional for investment advice.


The Enjin Coin ICO essential:

  • Amount being raised: USD 25–30Mn
  • Implied market cap: USD 31–38Mn
  • Tokens created: 1,000,000,000 fixed supply of ENJ tokens
  • Presale date: 21st August — 15th September 2017
  • Public sale date: 3rd October — 31st October 2017
  • Token distribution date: Tokens available after Public sale ends; presale tokens will become available before public sale but only tradable after public sale ends
  • Token sale website: https://enjincoin.io/#section-crowdsale

Quick Summary:

If you are already familiar with Enjin Coin and just want to know what we think about it, we have summarized what we like about the project as well as some of our concerns in this section.

What we like:

  • Proven concept: GameCredits and MobileGo showed that virtual currency focused on gaming industry is a viable concept. We have also seen successful example of virtual currency on Minecraft. (Minecraft is the largest gaming community on Enjin)
  • Interesting use cases: in addition to being a virtual currency to handle payment, Enjin Coin has additional interesting use cases. For example, it can be “attached” to in-game items, giving those virtual goods Enjin-backed value which can be redeemed back anytime; many other use cases can be customized by developers.
  • Utility token: ENJ token is unlikely to be classified as security by regulators; easier to get listed on prominent exchanges. The team also published a detailed Howey Test which categorized its token as “unlikely” to be security.
  • Large captive audience base on a vibrant game platform: 18+ millions registered users on the Enjin; compared to average gamers, Minecraft players are much more active. It is also comprised of young demographic, making them more likely to adopt a new technology.
  • Sizeable economy and incentive for merchants: millions of USD worth of virtual goods being traded on Enjin platform monthly. If Enjin Coin becomes widely adopted, the ICO valuation at USD 30Mn is sensible as the coin would come to represent those trades; merchants also stand to receive 5–10% higher revenue from lower transaction cost.
  • Heavy focus on marketing and adoption: 30% of fund raised will go towards marketing and growth; this should help accelerate adoption of their already large user base.

Some of our concerns:

  • Heavy reliant on one game: Minecraft is the primary target for adoption and largest community by far on Enjin. Potential risk if Minecraft declines in popularity in the future
  • Early developmental stage vs. competitor: GameCredits already has a working product; If many platforms start adopting GameCredits when Enjin Coin is still being developed, it could become harder to get users to switch to Enjin Coin
  • Priority from the team: team members also have roles in existing Enjin business; competing business priorities could mean slower development time for Enjin Coin
  • Short token vesting period (as stated in White Paper): 6 months is low compared to other projects; we would have liked to see a longer period to ensure incentive is aligned with project long-term success; however, given its an existing business the, chance of the team “running away with your money” is lowered

Witek’s responses to our concerns are in the main section of the article, some of them are long so we didn’t include them here

Conclusion:

  • Enjin wants to revolutionize the Virtual Good Creation and Management process through a new smart token — Enjin Coin. We think the project has good potential for both short term and long term because Enjin Coin 1) brings interesting differentiating features and value propositions beyond what competitors currently offer, 2) has a capable team to execute on the vision, 3) has a sizable community that is ready to adopt its technology, and 4) raise reasonable amount of capital compared to similar projects and current economic activities on its platform. If execution goes well in the coming months, we can see it becoming a widely-used currency in the gaming community
  • Catalyst for price movement likely to come in the next 6 months when core product features alpha / beta are released and we start to see the coins being adopted by communities. The first alpha will be released in January 2018, with support for Minecraft.

What is Enjin Coin?

Enjin

To understand what Enjin Coin is, we first need to take a short detour to learn about Enjin existing business.

Founded in 2009, Enjin provides community management services (CMS) platform for gamers (developers, clan leaders, server owners, etc.). Enjin platform allows users to build websites, forums, stores, and many other modules including in-game plugins.

Some statistics about Enjin business:

  • 18+ million registered users
  • 250,000+ communities
  • 60 millions global views per month
  • Millions of USD per month in virtual goods sales across Enjin community stores

The most popular game on Enjin platform by far is Minecraft. Many Minecraft communities are hosted on Enjin with largest one having over 1 million registered users. Some statistics about Minecraft:

Acquired by Microsoft in 2014 for USD 2.5 Bn, it has massive followers and continuous development — for example, Minecraft for VR was launched last year with Oculus Rift.

Enjin Coin

Enjin Coin is a smart token that will be fully integrated on the Enjin platform, allowing communities to use it for many purposes. The key functionalities are:

1 ) Payment: many communities on Enjin have stores to sell virtual items, upgrades, in-game privilege, etc. Enjin Coin can become a preferred payment option, providing users and stores the added benefits that come with block chain — minimize frauds, faster settlement time, and lower transaction cost.

2 ) Create and manage virtual goods: developers can issue custom tokens, unique items, or privilege tokens (e.g., special access to certain areas of the game) all backed by Enjin coins — meaning Enjin coins are locked into a smart contract when they are created. Enjin coin can be redeemed back at anytime by users through smart contract, and the item will be burned.

3 ) Real-time subscription: instead of the typical monthly subscription, Enjin Coin combined with smart contract can create a pay-as-you-go subscription model where users can cancel game subscription anytime. Enjin Coin balance will only be deducted proportionately to the actual subscription time.

Along with Enjin Coin, the team is also developing a Smart Wallet that will streamline user experience by integrating it to Enjin websites. User can manage their virtual goods on the wallet in addition to the basic send / receive functions— making it easier for players to adopt new technology.


What pain points is Enjin Coin trying to solve?

  • High fee: this is the biggest pain point. The fee charges by credit card companies and Paypal to merchants comprised of fixed and variable portion. For example, Paypal charges 2.9% + USD 0.30 for a transaction. Given most of the items purchases are small amount (USD 20–30), the fixed portion makes fee as a percentage of total purchase value very high, compared to ETH where transaction fee can be in the order of few cents.
  • Payment fraud: according to Enjin, for every legitimate virtual item purchase, 7.5 items are lost to fraud — this is due to identity theft, stolen credit cards info, etc. This results in lost revenue to stores and damaged reputation, reducing people willingness to spend.
  • Slow to receive funds: It generally takes 48–72 hours before merchants receive funds from credit card transaction. Payment via Enjin Coin would get confirmed based on ETH network speed which reduces the time down dramatically.
  • Lack of true ownership: this is an interesting point; currently any virtual item you own in game is not truly yours. If a server shuts down or if your account got banned, there is a limited recourse on how you can get back value on those items. With Enjin Coin, you ownership is recorded on a block chain. You can also redeem back the underlying ENJ value attached to the item anytime through a smart contract.
  • No open standards: currently no widely-accepted standards for decentralized currencies and assets in games.

Overall, Enjin Coin is tackling some of the real pain points in gaming with lowering transaction fee and true ownership of items as its strongest value propositions.


Economics:

In this sections, I would like to do two things:

1 ) Estimates the size of economy that Enjin Coin can potentially come to represent: since Enjin Coin aims to become a virtual currency in the gaming community, we need to have an understanding of the size of virtual goods transaction volume.

Global virtual goods market size is ~USD 15 Bn, with Asia Pacific having more than 50% market share. While data around virtual goods is scarce, let’s try to get a sense of how much of this market Enjin Coin can penetrate.

In the short-term, given there are virtual goods being traded on Enjin platform in the range of millions USD per month, we believe the ~USD 30 Mn being raised is reasonable as its in the same order of magnitude of economic activity on the website. If a large portion of these transactions are done by Enjin Coin, its price will be well supported making the downside minimal.

For longer-term, according to its whitepaper, Enjin plans to develop plug-in for two games (Minecraft and Unturned) and SDKs for two gaming engines (Unity and Unreal) so let’s try to understand the size of these games and platforms:

If we look at the current 18 million user base of Enjin, there will be a lot of room left for future growth and Enjin Coin appreciation.

Response from Enjin team: Other than [Minecraft and] the Unturned plugin, we’re going to be distributing Enjin Coins from our Marketing & Partnership pool to thousands of existing Enjin communities that play many other games. Beyond that, we will also be partnering with Indie and larger game developers to help them integrate Enjin Coin into their own games.
The Enjin Coin will also be integrating into our CMS, social network and mobile app. This will also expand ENJ beyond games and into community based rewards and activities.

2) Quantify the incentive for developers / community managers to adopt Enjin Coin: understanding the incentive would inform us the likelihood of Enjin Coin being adopted.

I will focus on the incentives from lower transaction fee in this analysis. While there are also monetary benefits from receiving money sooner, its dollar impact is lower and harder to estimate (need to understand company’s working capital requirement, loan rate, etc.)

I make estimates of the # of transactions and avg. USD / transaction based on articles and reports I have read.

  • Avg. USD / transaction: $5.00
  • # of transactions / month (medium — large community): 25,000
  • Current transaction fee: 2.9% + USD 0.30 per transaction
  • Enjin coin transaction fee: ~USD 0.10 (estimate; actual fee based on on gas price, ETH/USD exchange rate, etc.)
Incentive to merchant analysis

Based on our analysis, merchant would see an increase in revenue by ~7.6% by switching to accept Enjin Coin. In our example, a store with 25,000 transaction / month would see an increase of almost USD 9,000 in revenue. While the absolute savings will depend the total # of transactions, the 7% increase in revenue should be a strong incentive for merchants to start accepting Enjin coins in their stores.


Competitors:

The most notable competition of Enjin coin is GameCredits . Launched in 2014, its goal is to become a universal currency in the gaming industry. The project is in advanced stage with a working product. GameCredits secured its partnership with Datcroft — a game developer with over 12 million users. In December 2016, they launched a payment gateway solution to facilitate in-game on FRAGORIA — an MMORPG with 8 million users.

In Q2 2017, GameCredits launched MobileGo — a mobile game store (i.e., like Google Playstore or App Store) with over 300 games and 150 developers signed on. The platform allows for payment in GameCredits and provide incentives for developers through faster payout (from 60 days to 60 hours) and higher revenue share ( from 70% to 90%)

I present my competitive analysis of GameCredits and Enjin Coin and present my conclusion below:

Comparison of three block chain projects focusing on gaming community

1 ) Own blockchain vs. ERC20 token: GameCredits has its own chain while Enjin Coin will be hosted on the Ethereum blockchain. Implications of this difference are couple of things:

  • Blockchain security: Ethereum, with its large network of miners, has larger hashing power and should be more secure
  • Future upgrades: ENJ will benefits from future Ethereum network upgrades, while GAME will have more flexibility to implement changes to suit its future needs given it has its own chain
  • Supporting ecosystem: for example, Enjin can be stored in hardware wallets that support ETH vs. a more limited wallet options for Gamecredits (as of this writing in September 2017, there is no hardware wallet support for GameCredits)

2 ) Token utility: both tokens will support the payments for games and in-game items. However, Enjin will have more utilities for its coins. As mentioned earlier, for example, a developer can attach Enjin Coin to in-game items, providing them with ENJ-backed value which can be redeemed back at anytime by owners.

3 ) Community: At this stage, the immediately addressable community size for Enjin is slightly larger than GameCredits. Enjin has access to 18 millions users mostly from the Minecraft community while GameCredits partnered with Datcroft — a game developer with over 12 million users — to integrate GameCredits onto Datcrofts’s games.

4 ) Stage of development: Once a coin gains popularity and acceptance from the gaming community, it might be difficult for another coin to make an in-road. It’s critical that Enjin gets to working product as soon as possible to compete with GameCredits.

In summary, management of virtual goods is the key differentiation for Enjin Coin. Gamecredits also solves the payment problem, but it does not have additional flexibility and functionalities that Enjin Coin has.


Another competition is from Minecraft market place launched by Microsoft in June 2017 along with Minecraft coin. The platform offers easy way for players to buy item in-game. It is also safe from fraud as contents are curated by Microsoft. While this concept is sound, I believe Enjin Coin could prove to be more attractive to developers and gamers for several reasons:

  • High cut from Microsoft: Microsoft will take a 30% cut on the sales compared to Enjin Platform where developers get to keep all the revenue (less transaction fee)
  • Fungibility between games: Minecraft coins are only usable within the Market Place — there is also nothing innovative about it. Minecraft players are active gamers, on average playing over 22 games over the past 6 months. I would expect them to value coins which can be used across platform more

The most probable scenario is that developers will choose to list their creations both at Microsoft stores as well as their own site (powered by Enjin.) Less experienced players could be more likely to buy from Microsoft store and more advance players would buy directly from community’s websites.

Response from Enjin team on competition: Enjin has a massive existing gaming audience, using our powerful CMS and social platform that we will integrate Enjin Coin functionality into. The combination of game, websites, and blockchain are the ultimate synergy and they will be extremely easy to use together. Enjin Coin stays trustless and decentralized — gamers need to link their wallet to a game developer’s platform, and the player will always retain ownership of their coins and game items.
We are also the only platform that is building such extensive in-game support for gaming items, with plugins and SDKs to allow usage through the game interface and smart wallet confirmations that won’t interrupt gameplay.
Enjin Coin can achieve all of this with snappy response times using off-chain notifications between the game platform and network of smart wallets, followed by the actual blockchain confirmations.

Community Strength:

Data as of September 12th 2017

While the number of subscribers on the usual crypto channels like Slack or reddit appears to be low, we see a high number of followers on Facebook and Twitter where Enjin Coin shares its page with Enjin existing business. The support from existing users appear to be strong. For example, a recent Facebook posts about presale and partnership with coinomi received 3.5k+ likes.


Team

Enjin Coin has a team of 8 persons, led by Enjin Co-founders (Maxim Blagov and Witek Radomski) supported by lead developers (Josh Woelfel and Vyacheslav Volkov) along with rest of the team (Brad Bayliss, Evan Lindsay, Lilia Pritchard, and Chris Hirasawa)

The 7 advisors have well-rounded skills:

  • Pat LaBine — Gaming Tech advisor; 12+ years at BioWare
  • Robin Hanson — Social science & Economics; Prof. at George Mason U.
  • Ryan Lacke — Security advisor; security adviso for Tezos
  • Trung Seng — Marketing advisor; founder of Prymtech
  • Roy Tay — Asia business advisor; ex-professional gamer in China
  • Federick Heartline — co creator of #blocktalk, Decentral Vancouver
  • Daniel He — Biz Dev, economic advisor; 10+ in mgmt consulting

I am overall positive about the team with some few concerns.

Positive signs:

  • Experienced in its domain: operated for almost 10 years in the gaming community space
  • Strong culture / team dynamic: core members have been with Enjin for 4+ years — an evidence of good culture and team dynamics
  • Well-rounded advisor team: advisors’ experience cover gaming, security, social science, economics.

Concerns:

  • Competing priorities: team members all have have roles in Enjin existing business, unclear how much time will be allocated to Enjin Coin project
Response from Enjin team: The Enjin Coin project is getting full time allocation from the founding team. We already have staff in place to handle the Enjin Business. Enjin is a mature service with minimal maintenance required. Of course we’ll continue to release new features, such as Enjin Coin Integrations and other updates to the network. The Enjin business will be hiring more staff to accommodate any possible shortcomings since the founding team are now fully dedicated on the Enjin Coin project roadmap.
  • Level of involvement from advisor: not all advisor list their involvement with Enjin Coin on their LinkedIn profiles
  • No dedicated block chain specialist: developers show C, Java, and full-stack experience only
Response from Enjin team: Blockchain is a very focused and specific skillset, and the few highly-experienced blockchain specialists out there are either working for consulting firms, as freelance consultants, or their own blockchain projects. What we need for the majority of our roadmap is C#, Java, PHP and web development, and game development experience and we have all those bases covered.
As we grow our team, developers with blockchain experience will be very desirable, but it’s not the first item on our list. We’re looking for rounded, competent developers. Since we are not developing our own blockchain but instead using Ethereum, we’re using third party auditors to check every smart contract being deployed

Token sale analysis:

What are the terms of token sale?

  • Amount raised: USD 25— 30Mn
  • Implied market cap: USD 31— 38Mn
  • Token type: ERC20 on Ethereum blockchain with Bancor protocol
  • Token supply: 1 Billion fixed supply of ENJ tokens created
  • Presale date: 21st August — 15th September 2017 (extended by 1 week)
  • Public sale date: 3rd October — 31st October 2017
  • Token distribution date: tokens available after public sales end; presale tokens will become available before public sale but only tradable after public sales ends

Pricing

  • Presale: USD 0.03 (3 cents) / 1 ENJ with up to 50% bonus tokens (based on contribution amount
  • Public sale: 1 ETH / 6,000 ENJ in first week

Token Distribution:

  • 40% Presale
  • 40% Public sale
  • 10% Team and advisors
  • 10% Marketing and partnerships

Token pricing structure makes it a bit difficult to compare the actual discount (presale price is fixed to USD while public sale price is fixed to ETH.) I do some conversion here to make for apples-to-apples comparison.

Presale pricing structure
ENJ price during public sale at various ETH price level

Depending on ETH price, the ENJ price during public sale can be 60% — 100% higher than presale in USD term. So if you are certain that you would like to purchase ENJ, you may want to do it during the presale period to take advantage of the discount. Of course, the trade-off for contributing in the presale is that you will have your tokens locked-in for up to 50 days (assuming you contribute today and you get your tokens at end of October.)

Use of fund:

  • 50% development
  • 30% marketing and growth
  • 5% security
  • 5% legal
  • 5% hosting & infrastructure
  • 5% contingency

What we like about the terms of sale:

  • Focus on marketing: I like that this team allocate a substantial amount of fund to marketing. Many project under estimate the effort and resources required to acquire users, as seen by their small allocation to marketing effort.
  • Utility token: given its utilities, ENJ token is unlikely to be classified as security by regulators; the team also published a detailed Howey Test which categorized its token as “unlikely” to be security. You can read the full report here

Our concerns:

  • Short vesting period: 6 months for team members and 2 months for advisors are on the lower end compare to tenX: 4 year vesting period, and Status: 24 month vesting period with 6 month cliff. Generally, you would like to see a longer vesting period as it helps to further align the team’s interest with long-term project success.
Response from Enjin team: The total vesting period is 24 months. 25% of the team tokens will be sent out to team members after the first 6 months, then afterward 12.5% will be distributed every 3 months. The team member list can be modified during the vesting period depending on the situation.

Conclusion:

  • Enjin wants to revolutionize the Virtual Good Creation and Management process through a new smart token — Enjin Coin. We think the project has good potential for both short term and long term because Enjin Coin 1) brings interesting differentiating features and value propositions beyond what competitors currently offer, 2) has a capable team to execute on the vision, 3) has a sizable community that is ready to adopt its technology, and 4) raise reasonable amount of capital compared to similar projects and current economic activities on its platform. If execution goes well in the coming months, we can see it becoming a widely-used currency in the gaming community
  • Catalyst for price movement likely to come in the next 6 months when core product features alpha / beta are released and we start to see the coins being adopted by communities. The first alpha will be released in January 2018, with support for Minecraft.

References:

  1. Enjin Coin website: https://enjincoin.io/
  2. Enjin Coin White Paper: https://enjincoin.io/enjincoin_whitepaper.pdf
  3. Enjin community page: https://www.enjin.com/communities
  4. GamesCredit website: https://gamecredits.com/
  5. MobileGo website: https://mobilego.io/
  6. Microsoft Minecraft Market Place: https://minecraft.net/en-us/marketplace/

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