Dent Wireless: Valuation & Analysis
Since cryptos are currently in an accumulation phase, we’ve started to look into the development of our favourite coins.
One of the projects that caught our attention back during their ICO in July of 2017 was Dent Wireless — a mobile data cryptocurrency.
Dent aims to be the currency for mobile data allowing users to trade their excess data to other users in exchange for DENT tokens.
Let me give you an example, say you were traveling to Sydney and needed roaming data. You could purchase it from a resident in Sydney with DENT.
Vice versa, if you had excess capacity on your data plan you would sell it for DENT which you could then trade into any currency through an exchange.
This Won’t Work
Now, I hear what you are saying — this could never work because telcos wouldn’t allow it plus we all have unlimited data plans so…
On the point of unlimited data, in the West there is clearly a move towards unlimited plans but this is not the case in 3/4 of the world.
Most people have monthly caps and are charged high prices for data compared to what the telcos actually pay to provide the service.
Moreover, if you have travelled abroad you’ve noticed how expensive it is per GB and/or how high the daily rate is for services like Roam Like Home.
The telcos themselves are working in silos having to negotiate airtime with telcos in other countries. Nobody is winning and the process is hard.
The Grand Plan
Enter Dent.
Their immediate goals were to re-sell existing wholesale data and sponsored data sold through aggregators to users for DENT tokens.
Once they amass a large enough user base they would negotiate with the telcos on behalf of these users to facilitate trading of data for tokens.
Kind of like a mobile data union of users.
Each prospective user is worth $460 each to telcos so a group of 2 million is almost a $1B opportunity for a telco to sell data and services.
Dent Wireless is succeeding on this first phase with close to 4.5M users along with 115 carriers in 35 countries globally in just over 1 year.
Next Steps
Looking at their roadmap, it is clear they have many exciting new developments planned that could turn them into one of the early crypto success stories.
Expanded Coverage
Dent’s stated plan was to cover 400 mobile operators in over 130 countries by the end of 2018, however they appear to be falling short.
However, their rapid growth to cover 35 countries in under a year clearly shows success and proves their ability to one day achieve global coverage.
As proof of their popularity, they have achieved several #1 positions on App Stores which has catapulted user growth in 2017/2018.
User Data Trading
In February 2018, Dent completed their first successful data trading Proof-of Concept with PLDT Hong Kong taking only 3 weeks to setup.
Customers were able to use the DENT mobile application to buy & sell their unused mobile data from other users for DENT tokens.
A study by Ericsson showed the average mobile user is left with 31 GB of unused data over a year and would like to see it treated as currency.
With eSims rolling out allowing users to instantly swap between carriers, the market now is asking for a trade-able currency for mobile data.
A carrier agnostic global application like Dent could be the first one to unlocked the $5 billion monthly un-used data market for consumers.
Big Pipe Data Trading
One of the most interesting ideas Dent is exploring is a “Big Pipe” Data Trading between carriers to augment their user focused platform.
As Dent describes it, carriers build in a 30–40% data reserve with international partners to supply data to customers when travelling.
Dent is working with Telcos on a real-time spot market that would allow them to scale up and down in real-time saving carriers millions.
When data is treated as a trade-able currency with one underlying data layer — the Dent token — a lot of market inefficiencies can be eliminated.
Loyalty Program
Dent is creating a loyalty program called “Dent Afterburner” where you lock up between 2,000 and 10,000 Dent tokens for select benefits.
These include:
- 100–500 free calling minutes between countries (all levels)
- Trading discounts of 20–50% on the DENT exchange (red & above)
- 10–30% discount on apparel (all levels)
- 10–50% referral bonuses for family and friends (all levels)
While I believe this will slow the token velocity thereby raising the price and incentives usage of the tokens, it reeks of centralization.
As I’ll cover below, this strikes me as a loyalty coin like AirMiles not an underlying data structure upon which anyone can build applications.
Remittance
Several factors are conspiring to make remittance a major source of growth for mobile operators and Dent in particular.
These include:
- Air-Time Top-ups as Remittance: One estimate of the global international money transfer and cross border payments industry is estimated to be $1.025 trillion annually with air-time top ups representing 2% or $20 billion annually. Source.
- Wide-Usage of Pre-Paid Sims: Over 70% of the world’s mobile phone users are using prepaid SIM card, requiring users to regularly “top-up” credits to be able to use data, voice, and SMS. Source.
- Rapid Growth in Developing World: Global mobile subscriber penetration is 63% and 90% of new subscribers are forecast to come from the developing world. Source.
Mobile phone users in the developing world are already accustomed to sending money home by way of air-time top ups to family and friends.
They are able to reduce fees, provide quick transmission of funds and provide it on a device (mobile phones) with wide-spread penetration.
It is hard for people to change ingrained habits, as a result — Dent plans to facilitate these norms through an even faster, cheaper alternative.
World Telco
Dent plans to have free voice calling and SMS between Dent app users by Q1 2019 with video added in Q2 2019 turning them into a global telco.
Furthermore, users can use DENT tokens to pay for calling to anyone within 50 countries by the end of the first quarter.
While I don’t think this is a huge advantage as people have many options to call long-distance that are free, it provides another use case.
Valuation
I want to start off by saying it’s impossible to provide a typical valuation for an asset that doesn’t produce any cash flows as with all crypto-currencies.
Given that, if Dent Wireless does reach its stated goals, there is clear utility in the network and there are ways to look at valuing networks.
Metcalfe’s Law
It is said that 75% of the value of the FAANG stocks can be explained by the growth of the network or more specifically, Metcalfe’s Law.
The value of a telecommunications network is proportional to the square of the number of connected users of the system (n2).
Currently, Dent has ~5 million users along with a fully-diluted market cap of ~$300 million which is based on the 100 million tokens outstanding.
This seems like an absurd number given most of those users are probably inactive and again this is a crypto asset that isn’t producing cash flows.
Nonetheless, if Dent achieves their mission (and it is ambitious) — this could be an important crypto network and would have real utility.
In November 2015, Bitcoin had 5M wallets with a valuation of ~$5 Billion. If we then say Dent is 6% of Bitcoin’s ($0.3B/$5B) market and grew to the current size of Bitcoin’s users, we would arrive at a value of $6.6B or 17x.
I realize this is a stretch but it puts you on the timeline of the growth of this network and provides perspective on where we are in the lifecycle.
For further perspective, let’s look at the total addressable market of mobile data to see the opportunity in front of the Dent platform.
Total Addressable Market
Global mobile operator revenue was $1.05 trillion in 2017 and is expected to grow by $500 billion to $1.10 trillion by 2025.
Mobile data specifically is 50–60% of revenues creating a ~$500 billion addressable market annually for Dent to interrupt.
Furthermore, Dent estimated that 15% of data sits unused at the end of the month and would be present a $75 billion annual waste for users.
From above we mentioned the remittance market from airtime top-ups is $20 billion annually as users send data back home to family.
Finally, the carriers themselves have waste in terms of 30% reserves held and the inefficiencies within siloed networks which is hard to estimate.
Either way, it is clear the $6.6 billion valuation eluded to previous is achievable if Dent is able to make headway on these hard problems.
Other Considerations
Partnerships
Dent is part of the Ethereum Alliance which includes the most prominent Ethereum projects but also telcos like T-Mobile, SK Telecom, etc.
Furthermore, Dent is a member of the Telecom Infrastructure Project which brings together over 500 operators, startups and other providers.
This commitment to industry groups will allow Dent to interface with both providers and telcos looking to lead the mobile industry forward.
Concerns
No GitHub Repository
One of my primary concerns about this project is unlike other open crypto projects, Dent doesn’t have a Github account or publish their codebase.
After reaching out on their Telegram group, they claimed they have proprietary connections to MNVOs they are not allowed to share publicly.
While I believe this project is a step in the right direction (freeing data from carrier silos), I hope they one day go open source.
As Linux has shown, open source often wins as the speed of innovation dwarfs proprietary, closed solutions.
Incumbents
Although Dent is the only cryptocurrency project tackling this issue (don’t bother talking about Telcoin) , it could still face competition from carriers.
If they decide to launch their own network and capture the value themselves, then all the inroads Dent has made will be for naught.
Given the head start this project has, the crypto expertise in-house and the fact that incumbents are always slow to move, I think telecom companies will embrace Dent rather than build their own.
Token Velocity & Pricing
Everyone knows the following formula:
P (price) x Q (quantity) = M (supply) x V (velocity)
Chris Burniske explains the problem in detail but basically if the velocity of a token is high, it drives down price according to the equation.
The question remains to be seen if people hold their Dent tokens or decide to exchange them for a more stable token like Bitcoin or DAI.
Projects typically create sinks like Dent’s Afterburner program where funds are locked up and thereby artificially slow velocity of the token economy.
While this is a concern for any utility token, if the network has real usage people will speculate (see oil markets) and hold rather than exchange.
Tokens Outstanding
Our final concern relates to the total tokens outstanding which stands at 100,000,000,000 with 800,000,000 being held by Dent Wireless.
In my previous discussions with the team, I was told this was to incentivize users during on boarding with free tokens and carriers to join the program.
While this may be true, you are leaving Dent with ~$240M in tokens that they could dump on the market at will.
This alone should scare a lot of people away from this project as this massive pre-mine leaves you with having to put full faith in the team.
Closing Thoughts
Dent’s plan is to have 15M app users by the end of 2019 which would put them behind only Ethereum and Bitcoin in terms of user base.
Mobile data usage is set to explode over the next 5 years with the average smartphone user consuming 17GB up from 3.2GB; ~5.5x more data.
This is in addition to IOT and driverless cars. To give you an idea, driverless cars use as much data as 3,000 average mobile subscribers.Source
Carriers will now have to handle 107 exabytes of data per month (7x more than today) and will be looking for ways to manage that data.
Dent’s Big Pipe data trading platform could help carriers reduce their 30% reserve funds while making their data more liquid and interoperable.
Meanwhile, most consumers are still tied to fixed quantity data plans and have expressed their desire to start trading their data as currency.
While bullish from a macro-perspective, it is yet to be resolved whether Dent can be the one to deliver on this vision of data-interoperability.
Given that, as a speculative bet with significant upside there’s an opportunity to get in early on a network that can be the cornerstone for mobile data.
