ONT: Is Ontology’s Token Supply Accurately Reported?
The Number of Free Float ONT Tokens is Likely Lower Than Commonly Reported, but it Doesn’t Appear that Lockups are Being Enforced
We recently completed an in-depth research report on Ontology ahead of its network launch. While our findings about the project’s technology, economic structure, competitive set, and legal and technical risks are available to our institutional clients, we have general findings about the project’s token supply that have benefit and applicability to the crypto community at large: there is a discrepancy and lack of standardization of token supply measurements across projects and publicly available aggregation sites. Our measurement of the free float supply of ONT tokens is significantly lower than the tokens that are simply vested or unlocked. In addition, in our effort to more accurately measure supply, we found that Ontology tokens that were supposed to be locked with vesting schedules have instead been moved to other addresses.
Ontology, like many other new cryptocurrencies, has a centralized token distribution plan managed by the founding team because they did not have an ICO and they do not have a programmatic way of releasing new coins, like mining rewards. The Ontology token distribution is controlled and managed by the Ontology team. The team specifically decides who they are going to initially distribute their tokens to as well as the schedule of when they’re going to release them. Many other cryptocurrencies like NEO, Stellar and Ripple also do this, although some are more transparent about it than others.
On that note, there has been a debate about an accurate measurement of supply of Ontology tokens. To its credit, the Ontology team publish a post in March about the distribution of its 1 billion tokens. In the post, the team outlined two things: the number of total tokens reserved for specific distribution use cases (community, ecosystem development, etc) and number of tokens that were unlocked at the time but not necessarily distributed, meaning they were not subject to vesting schedules. Their conclusion was that, on March 12th, there were 537.5M ONT tokens in “circulation.”
Unfortunately, the term “circulating supply” has no commonly agreed upon definition across the community. A quick glance at some of the most popular public resources reveal stark differences in reporting methodologies that have significant implications for valuation. CoinMarketCap (CMC) for instance, currently reports 151.3M tokens in circulation, a number that has bounced around quite a bit: 3/30/18, 5/2/18, and 5/11/18. Furthermore, the 151.3M tokens today has no clear source but was somehow implicitly endorsed by the mods in the Ontology subreddit. We attempted to figure out where this number came from but were unable to confirm its calculation. If the community knows how that number was derived, please get in contract with us.
Many other sites, like OnChainFX (OCFX) and Binance, cite the 537.5M of unlocked or vested tokens reported by the Ontology team. Others, like Brave New Coin (BNC), have made no attempt to adjust circulating supply and simply use the 1B ONT. Unfortunately, this has caused a wide variance the reported market cap, or network value (our preferred term), of Ontology, from $793M on CMC to $5.2B on BNC. This is not an insignificant difference.
It has also revealed inconsistent application of supply definition of different tokens on the same site. We’ll compare XRP to ONT on Binance for example. Like ONT, XRP has a large supply that is locked in escrow accounts, something they went to great efforts to do, mostly after pressure from the community. That supply is programmatically unlocked monthly, made available for distribution purposes, and any remaining balances are then re-locked in escrow accounts. The amount available among three buckets, escrowed balances (owned by Ripple Labs), undistributed and owned by Ripple Labs (non-escrowed), and distributed, is easily called through their API. On Binance, they consider the 39.2B (protip: make an API call, it’s 39.3B now) distributed balance in the market cap calculation. They exclude the XRP balance still owned by Ripple Labs, but not under escrow. However, with ONT, they only use the 537.5M vested (non-escrowed or not locked), regardless of who owns it. If they applied the same methodology for XRP, the supply would include the amount owned by Ripple Labs not under escrow (7.2B XRP) and total 46.5B. Again, these are not insignificant differences.
Our own research, however, shows two things. First, the free float of ONT tokens (unlocked and not owned by Ontology or an entity or person associated with Ontology) is likely much less than even CMC’s definition. Second, it does not appear that tokens are even “locked.”
Regarding the number of free float tokens, we tracked down the addresses that originally held all of the tokens outlined in Ontology’s distribution plan and tracked all of their transactions through the blockchain. We found that the team has distributed at most 120.1M tokens, which is actually a positive for valuation and owners of ONT tokens. A more precise free float network value should be $618.7M, rather than some of the other publicly reported figures. On the flip side, this also illustrates that a large amount of supply is still under the control of the core team behind the project and potentially represents a centralization risk.
Unfortunately, our analysis also called into question whether or not ONT tokens were ever even locked at all. You’ll notice that ONT’s Institutional Partners program has distributed 79.1M tokens from its initial address, 19.1M more ONT than the 60M tokens that were supposed to be unlocked according to their Medium post. Maybe they were unlocked in accordance with their Institutional Partners vesting schedule, something we have not found, but it seems too soon for it to be unlocked according to “unlocked within the next two years in four batches.” Furthermore, our transaction analysis shows that more than 60M tokens were distributed from that address (77.7M ONT to be more precise) as of March 9th, before the distribution article on Medium was posted on March 12th. Perhaps Ontology controls one or more the secondary distribution addresses and therefore considers them not part of circulation, but the fact that tokens continue to move (as recently as April 13th) tells us those balance are not actually locked.
We made part of our work public not to point fingers or shame public outlets, for which we rely upon greatly ourselves, but to point out how difficult this work actually is. Tracking addresses and balances took considerable resources from one of our developers, a research analyst, and our CEO. In the end, we also know there are shortcomings to our own methodology and process, but by making available portions of our work publicly available, we can start a discussion and build a community that has a better understanding of the economic and technical aspects of this technology.
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