Enigma Catalyst — ICO Review
Co-authored with
Token: ENG
ICO Date: September 11th 2017
Enigma: “ A decentralized data marketplace that allows people, companies and organizations to share data”
Catalyst: “Platform that enables traders to build programmatic trading strategies and investors to benefit from valuable information Bloomberg-style”
TOTAL 19 / 25
1 Business opportunity: 4/5
Description:
Enigma-Catalyst project is two-fold:
- Enigma: this is the long term vision of the team, a very ambitious project to completely revolutionize the way data is managed on the web, and decentralized computing in general. The Enigma protocol is thought as a necessary piece of the decentralized apps puzzle, bringing more scalability, speed and privacy features.
- Catalyst: this is a platform that allows quants/traders who use it to easily create trading algorithms that they can test offline. To do so, they use curated datasets stored by the Enigma protocol. If those algorithms bring uplifts to investors, then quants/traders are rewarded (ENG tokens). Basically, the first application of the Enigma marketplace will be to act as the “Bloomberg” of crypto-ecosystem, as its marketplace will be allowing people (eg: hedge funds or large investors) to get access to valuable information that the platform will have collected through individuals — called curators — that will have accepted to share their information. This information is supposed to help these actors to make insightful and data-driven decisions. Obviously, the data will be stored in secure and distributed databases.
If the short-term value of the ENG token will be driven by the Catalyst platform usage, the longer term value will be driven by the Enigma decentralized data marketplace which has a much higher potential. Still the much longer time frame of this project makes it riskier investment-wise. Although the Enigma vision is less tangible than Catalyst for example, the idea of a new data marketplace for the web is already present in their founding whitepaper and team’s thesis. In their various communications, the team has a clear vision and is convinced that the highest potential value will come from Enigma.
Competition:
By trying to solve three issues at once (decentralized databases, easy access to crypto-knowledge & smart-investment strategies), Enigma & Catalyst are facing a lot of competition on each of these segments.
Regarding the Catalyst trading-algorithms platform, we see one main competitor, Iconomi ($152M as of Oct 4th) and other smaller ones like:
- Santiment (ICO on July 4th, $16M marketcap as of Oct 4th) or Red Pulse (for the Chinese market) are trying to address the same issues Enigma marketplace is trying to solve, i.e. the lack of knowledge about cryptos,
- Prism or Astronaut recently tackled the “how-to-invest-smartly” part.
On the Enigma decentralized data marketplace, the most obvious projects addressing the decentralized storage are Storj ($44 M as of 10/04), Filecoin ($257 M raised in ICO) and Siacoin ($130 M as of 10/04). However Enigma goes further than the simple “storage” part by adding the marketplace component and the ability for a third-party to subscribe and query to a given dataset.
Enigma-Catalyst seems to be the only fully integrated solution which understands that providing potential investors with both market data information AND methods & tools is key to support the investment in cryptos. This is a VERY ambitious project but if the implementation succeeds, they could provide much more efficiency than their current competitors.
Market:
Indeed, the crypto-industry is thriving but if we were to put a name on that period we are experiencing, we would call it “The Far West”: the information is asymmetric, whales dictate the rules and can decide more or less whether a coin is going to survive. The ecosystem needs some structure. And this is exactly what Bloomberg and Thomson Reuters brought to the stock market in the 90’s.
When one realizes the growing number of investors willing to deep-dive in potential investment in cryptos, creating a data marketplace is completely relevant. And helping investors on their strategy through programmatic algorithms is even more crucial.
Just a few points to bear in mind:
- This is a niche market. Only large investors (hedge funds, whales) will be able to pay to get that information. Mr. Average won’t pay for it. This will not really become popularized. This is definitely not a blocker (Ripple does not target Mr.Average neither but still has a $7B+ marketcap).
- Do not be confused by the “trading algorithm” buzzword. We’d better call them “automated trading strategies”. A strategy proposed by a trader could simply be: “Buy this coin. Every time it reaches +10%, you sell it and buy it again 1 hour later”. Not that sophisticated…
- Something that is worth mentioning: in the long-term, Enigma is not only about providing financial data information. It will allow everyone to share any kind of dataset. Example: one could share a dataset of all the tweets from Vitalik (and the projects mentioned in them) that investors could analyze to better understand the correlation between a name of a token dropped in a tweet and the fluctuation of the token price on exchanges.
How do you use the ENG token?
As a hedge fund portfolio manager you want to subscribe to a database that contains all the trades for BTC & ETH on Bittrex, Kraken & Poloniex. This will help you assess the daily volume and variance of orders on the BTC & ETH. To do so, you need to pay a monthly fee of 10 ENG to get access to this dataset.
Right after getting access to it, you also find a trading algorithm on the Catalyst platform, developed by a Tanzania quant, which has been delivering +1200% since the beginning of the year on ETH & BTC trades. You decide to use this trading algorithm to manage your portfolio and gives a reward of 20 ENG to our Tanzanian quant.
2 Technology: 4/5
Whitepapers:
- Enigma Decentralized Marketplace: https://token.enigma.co/pdf/Enigma-Full.pdf & https://token.enigma.co/pdf/Decentralizing-Privacy.pdf
- Catalyst Machine-based investment platform: https://www.enigma.co/enigma_catalyst.pdf
Team released an alpha in July 2017, which tends to prove:
- They have not raised millions of dollars without any tangible product.
- They know how to link theory to delivery.
The core of the technology, as far as we understood it, lies in:
- A Decentralized Privacy-oriented Data Marketplace — Enigma — allowing actors looking for data to access databases created and maintained by data curators. The former would remunerate the latter using ENG tokens. In the first days of Enigma, the team will take care of bringing the first datasets onto the platform and curating them in order to feed Catalyst in crypto financial data.
- A web-platform — Catalyst — allowing quants and any actors interested in building trading algorithms to develop them using information hosted on the Enigma marketplace. This platform would also let financial investors look at and select the best trading algorithms to manage their portfolio.
Enigma is the fuel behind Catalyst & any future platform relying on its stored datasets
Given the early stage part of the project, we’ll try to summarize what is the Enigma vision as we understood it (from what was described in the various announcements on the topic).
The Enigma vision is to completely change the way data is managed (shared consumed and monetized), thanks to the Enigma decentralized data marketplace protocol relying on the ENG token. The team’s objective is to benefit from the decentralization inherent with the Blockchain technology, while adding an off-chain data network that will address the two main flaws that remain, according to them: scalability & privacy.
The long term goal is to challenge the current web ecosystem, dominated by a few large companies. The Enigma marketplace is described as decentralized, open and secure so that storing, sharing and processing of data are improved in depth.
The ambition of Enigma goes far beyond the management of financial data, that is addressed by Catalyst. As detailed in their communications, the aim is to revolutionize decentralized computing more generally, putting the project at the scale of Filecoin or Ethereum! The Enigma protocol, acting as a second-layer network, is presented as a necessary piece of the decentralized apps puzzle, bringing more scalability, speed and privacy features.
A recent article was released by the team to further detail the global Enigma vision and roadmap.
Enigma marketplace involves 3 types of actors:
Subscribers: They are the demand side of the platform. They use ENG tokens to access the datasets available on the Enigma marketplace.
Curators: They are the supply side of the platform. They curate and maintain the datasets available on the Enigma marketplace. To register a dataset, they have to set-up a deposit & submit a script to the platform specifying how the data will be curated and how frequently will it be updated. They are incentivized to submit high-quality data for two reasons:
- The more users will subscribe to their datasets, the more ENG tokens they will earn & the higher they will be in the discovery tool of the platform (see formula below)
- Every time their dataset goes offline or is proven to be corrupted, curators will have to pay it from their deposit. Such actions are also likely to decrease the number of subscribers, hence making it unprofitable for malicious nodes to provide corrupted data.
Enigma Nodes: They are the supply chain of the Enigma platform. Within these. Two types of nodes exists
- Worker node: They execute the scripts designed by the curators in order to collect the data and store them in the datasets.
- Persistence node: They serves as a storage and query engine for the data.
These nodes gets remunerated whenever datasets they are related too get used. The curators are the ones setting-up which nodes will be remunerated when someone subscribes to their datasets.
How is that related to the blockchain?
Enigma relies on a dual-system based on both on-chain & off-chain processing. In order to keep the access to the databases as fluid as possible, most of the queries to access the data will happen off-chain and will be taken care of by the Enigma network. The main transactions that will be written on the Ethereum blockchain will be related to read/write access to the datasets on the Enigma marketplace & registration of new datasets to the Enigma marketplace.
The whole Enigma & Catalyst technologies are very ambitious but also contains two main risks:
- They will need to rely on a new network of nodes for their offchain processing & scaling such a network can be very difficult if the ENG token remuneration is not competitive enough.
- Just like any marketplace, it’s always a matter of bringing both the supply and the demand in order to make it scale. In the case of Enigma, because data is the new gold, they will face a real marketing challenge in convincing people to curate data and make them available on the platform. We should expect high prices to access this data which could prevent the potential data-buyers from subscribing to any dataset.
3 Team: 4/5
5 team members, 4 of which come from MIT. They have been working on blockchain since 2014 with a background which is more related to Research about all Quantitative Analysis related topics.
- CEO: Guy Zyskind — MIT and background in Research (he started to work on Enigma at that time).
- CPO: Can Kisagun — MIT, ex-McKinsey, and founder of 2 start-ups. He might bring the “business” background that could miss in the other profiles.
- Head of Growth & Marketing: Tor Bair — MIT, background in Analytics. Very complementary with other profiles.
- Two Senior Software Engineers (Victor Grau Serrat and Fred Fortier — the only non-MIT) with more than 10 years experience in the software development.
3 positive signs:
- Many large VCs have already invested in Enigma (Digital Currency Group, Pantera ICO Fun, Fenbushi). This proves that Enigma is solid and has passed VC filters.
- They are a member of the MIT STEX25, a startup accelerator focused on fostering collaboration between MIT-connected startups and member companies of MIT’s Industrial Liaison Program (ILP).
- They are hiring (it is announced on LinkedIn) showing they want to scale as fast as possible.
However, it is worth mentioning that none has a start-up notch in his belt so far and it will be interesting to see how they will manage the $45M they just raised.
4 ICO details: 3/5
After the pre-sale (conducted earlier in August with a minimum investment of $100K), hardcap of $45M was hit during the ICO, corresponding to 75M tokens.
5000 contributors have received ENG tokens.
There are some interesting points about their ICO and some points that did not work:
Positive:
- Enigma used a whitelist (and a waiting list) to control the amount of participants.
- Enigma enforced individual caps to avoid whales getting all the tokens.
- Enigma was concerned about timings. Indeed, when subscribing to be whitelisted, the timestamp of the subscription mattered and the sooner you were registering, the higher cap you could get.
- Enigma designed one unique address for each participant to minimize the risk of being scammed.
- Enigma responded quickly to the hacking of their Slack and found a solution to refund the victims.
- Above all, Enigma listened to their community and had the courage to roll back some of the decisions they had made (the refunding model for instance).
Negative:
- Enigma has been hacked: $500K have been stolen! This is insane and for Mr. Average, it puts at risk team’s credibility to secure and protect their assets.
- Enigma has changed ICO terms and conditions a week before the actual date. They raised the amount of tokens to be sold (and thus the hardcap), diluting the share of every participant. Justifying this decision by the growing demand was not satisfactory for early adopters (and people who participated in the pre-sale) who felt “betrayed”.
- Enigma could have gone through a KYC process that is now more and more used by the different ICOs, preventing from generating dispute/legal issues afterwards.
- Enigma announced they would release the token within 1 month, which is quite long compared to other projects (note that the ENG smart contract had been audited by OpenZeppelin). Although the token distribution began as expected on October 11th, 2017 there was some delay in the process and the full delivery was completed on the next day. They suffered from a congestion on the Ethereum Network and had to rush for solutions while still respecting their priority of safety. Considering the team had a full month to prepare for the token release, they could have been more prepared for this with backup plans, testing under different congestion scenarios etc. In the end no major issue were brought up appart from the fact that some had to wait longer then expected.
5 Community & Communication: 4/5
At the moment of the ICO, there were 12K+ people on Slack and 9K+ on Telegram, which is significant (if we do not compare to Kyber project). Enigma has a relatively active Medium blog and participated in an interview on Youtube (available here).
There are dozens of Enigma reviews on Youtube and on different websites, which is always a sign that the project is driving enthusiasm.
6 Verdict
=> POSITIVE SHORT-TERM & HODL
Summary:
The project is very solid, answers an actual need from the investors and is led by a complementary team (with different skills even though they almost all come from MIT).
Enigma is ambitious and should be careful not to fly too close to the sun. Indeed, tackling all these issues (trading tools, data information, exchange platforms) is risky. The team needs to have a clear strategy (resource allocation, roadmap & objectives, deadlines) about how to deal with every part of the project.
If they succeed in handling all of this, the outcome is huge. 2 positive signs for us:
- They have already released an alpha (so they know how to deliver)
- We believe VCs supporting them will do their jobs and provide Enigma with all the support they need to make this project a success.
We recommend investing in Enigma both for the Short Term given they already have a usable product with the Catalyst platform & for the long term with the Enigma platform that could become a true game changer in data storage. To do so, they will have to compete with a much stronger competition going from all the Cloud Storage (Google Drive, Dropbox etc…) to all their applicative tools (Google Big Query, Microsoft Azure SQL Database, Amazon RedShift etc…). A higher risk for a potentially much higher return.
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