ChainLink Short ICO Report

in #blockchain2 years ago (edited)

UPDATE: As of September 19, 17:00 UTC ChainLink ICO was already closed with 350M LINK tokens sold and $32M USD raised of which only around $3M is reported to be raised via ICO.

The information contained in this report is not legal or financial advice and is for informational purposes only. The projects included in Satoshi•Fund ICO Reports vary significantly in terms of investment risks. Before considering any investment, make sure you read the report below carefully and take time to do your own due diligence.

The ChainLink network will be a fully decentralized network of nodes acting as oracles that will connect real-world data and the Ethereum blockchain. Nodes will retrieve data to the blockchain via APIs and data feeds, and app developers on the platform will be able to buy specific data they need for their applications. Nodes will be rewarded by the platform’s LINK token for their contribution to the platform. The project is backed by already established partnerships, a proof of concept product tested in a common pilot with SWIFT, there are a partially available codebase and a technically strong white paper. On the negative side, an internal economics is only superficially described, a token distribution is very vague, and important ICO details are communicated via Slack, but are not even mentioned in Terms of Sale.

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About

ChainLink is a product of SmartContract, a provider of data and services in consulting and smart contracts development. Since 2014 they have been working on a solution allowing to connect real-world data delivered through data feeds and APIs to the Ethereum blockchain. The version 1.0 of the network has already been tested in partnership with interbank messaging platform SWIFT. The network allows to connect any API to a smart contract on SmartContract.com or using their open source software. LINK tokens offered via ICO should incentivize the ChainLink network nodes so that the network can function as a fully decentralized oracles network.

Implementation

  • Problem being solved
    The current technical specification of such blockchains as Ethereum does not allow smart contracts to connect directly to external data resources. This limits a range of application possibilities and slows an evolution of decentralized applications since many of them rely on real-world data. Unlike ChainLink, most already existing solutions are either centralized (Oraclize), or they rely on manual human input of unstructured data (Augur, Gnosis), and/or they require changes to existing off-chain infrastructure (TLS-N).
    At the same time, among the blockchain startups preparing to enter the market ChainLink is not the only one trying to solve this problem. For instance, Streamr is also building a decentralized network of nodes for automatic retrieval of real-world data that can later be used in various applications. However, Streamr has a different focus which results in a different ecosystem design: Streamr distinguishes nodes, data providers and data consumers whereby the main interactions are conducted between data providers and data consumers. On the ChainLink network data are provided by nodes directly and these nodes are matched by a smart contract with users who are not any kind of data consumers but developers of decentralized applications (DApps).
  • Platform users:
    1. Data providers (node operators, payment providers, and other online service providers) provide real-time data to the network performing retrieval of data from off-chain data feeds, formatting data into blockchain-readable formats, and performing off-chain computation
    2. Smart contracts developers will be able to build applications based on real-world data, they are considered users of the ChainLink ecosystem
  • Examples of platform usage:
    • Security smart contracts (bonds, interest rate derivatives) can get access to APIs that report market prices
    • Insurance smart contracts can use data feeds about IoT data related to an insurable event
    • Trade finance smart contracts can use data such as GPS shipments data or supply chain ERP (Enterprise Resource Planning) systems data in order to confirm fulfillment of contractual obligations
  • How it will work:
    • A user (DApp developer) sets criteria for requested data, selects a node matching these criteria and completes an agreement with the node operator
    • Users and nodes do not find each other directly, but are matched by a smart contract
    • Once the agreement is completed, the node executes the agreement off-chain, while the answer is returned to the user on-chain
    • Data users pay nodes for the data provided
    • The network will also allow to channel the data in the opposite direction pushing them back to APIs on behalf of a smart contract
  • Smart contracts will be used to request external data from ChainLink nodes which act as oracle service, track the performance metrics of oracle nodes, maintain and log service-level agreements, collect bids from oracle providers to match them with users’ requests, collect the oracle providers’ responses and calculate final results
  • Initially built on the Ethereum blockchain, but will later support other leading smart contract networks as well
  • Source code: is already partially available

Economics and token

  • Platform token: LINK token (LINK), ERC20 compatible, with the additional ERC223 functionality allowing tokens to be received and processed by contracts within a single transaction
  • Total supply: 1,000,000,000 LINK tokens
  • Token utility:
    1. Access to platform and means of payment on the platform
    2. Incentives for the nodes running the ChainLink network (the ChainLink Incentives Fund with 35% of total token supply will be established for this purpose)
      • No further distribution details are available
  • Fees
    • The only fees mentioned on the platform are the costs of the data provided by nodes. Nodes will set a price tag defined by market
    • Information on the platform’s fees is not available. Obviously, Ethereum standard commissions on transactions will apply

Team and partnerships

ICO

UPDATE: As of September 19, 17:00 UTC ChainLink ICO was already closed after reaching the hard cap.

  • Pre-ICO: a portion (amount varies from 30 to 50% of the hard cap according to Sergey Nazarov on Slack) is already sold with 20% bonus (1 ETH = 2400 LINK)
  • ICO is available only for registered participants, as the team claims on Slack. According to that, investors had to apply on link.smartcontract.com/crowdsale before 18 September, 2017, at 12:01 PM UTC. However, the information on the requirement to pre-register is not provided in the Terms of Sale, on the website or any other official and easily accessible source
  • ICO starts on 19 September, 2017, at 15:00 UTC with Round 1; prior to that each registered participant will be communicated a specific maximum amount of contribution via e-mail (already known and equals 7 ETH). Round 1 will continue until 20 September, 2017, 01:00 UTC or until the hard cap is reached, whichever earlier
  • Hard cap (pre-ICO and ICO): $32,000,000
  • In case the hard cap is not reached in Round 2 only those registered participants that filled their initial individual cap in Round 1 will be able to contribute a larger amount of ETH specified via e-mail. Round 2 will start on 20 September, 2017, 03:00 UTC and will end on 20 September, 2017, 15:00 UTC or when the hard cap is reached, whichever earlier
  • In case the hard cap is not reached in Round 3 only those registered participants that filled their initial individual cap in Round 1 and Round 2 will be able to contribute any amount of ETH until the target cap is reached or until the ICO end date is reached on 19 October, 2017
  • ICO token price and bonuses:
    • First 24 hours: 1 ETH = $285 USD = 2000 LINK (although in a personal e-mail sent to registered investors the price was set at 2600 LINK per 1 ETH)
    • Week 1: 1 ETH = 1750 LINK
    • Week 2: 1ETH = 1650 LINK
    • Week 3: 1 ETH = 1550 LINK
    • Week 4: 1 ETH = 1450 LINK
  • Accepted currencies: ETH
  • Token distribution
    35% - pre-ICO (up to 50% of token sale supply) and ICO (the rest)
    35% - ChainLink Incentives Fund to incentivize node operators
    30% - SmartContract ChainLink, Ltd. to be used at the company’s sole discretion
  • Vesting: not specified
  • ICO website: https://link.smartcontract.com/crowdsale
  • LINK token security audit: was conducted by Nick Johnson (creator of Ethereum Name Service (ENS) and an expert in solidity smart contract security) with no security issues found

Legal overview

  • Level of information accessibility: LOW
    • ChainLink ICO Terms and Conditions (further - Terms of Sale, or ToS) can be accessed here. As of 19 September, 2017, the link to the document is only available in Disclosures section of the whitepaper, but not on the main webpage of the project’s website which limits investors’ access to ICO-related information
    • SmartContract ChainLink, Ltd (the company), the counterparty of the ToS, is incorporated in the Cayman Islands. The company’s final beneficiaries, the information about its shareholding structure, as well as the company’s address and telephone numbers are not provided in ToS (the address can only be found in the team’s e-mails)
    • The team is not transparent enough about the token distribution details. Section 5 of Exhibit B of the ToS prescribes a creation of the “ChainLink Incentives Fund” with an allocation of 350M LINK tokens. Except for the ToS, neither in the whitepaper, nor on the website does the team mention that this allocation aimed at incentivizing node operators will be managed by a fund administered by the company
  • Legal assessment of token: HIGH
    • In the ToS the team is clear on the function of their (utility) token (excluding the allocation plan for the Incentives Fund which is a blank space as already mentioned above). In Sections 2 and 10 of Exhibit C of the ToS investors are warned that LINK tokens cannot be treated as investment product. The US and Canadian citizens and residents are excluded from participating which signals that the Company did not communicate to the CSA and SEC. It is very likely that LINK tokens do not meet the Howey Test criteria and cannot be considered securities as they do not guarantee any future incomes and are in fact a means of payment on the platform

Conclusion

  • ChainLink is solving a significant problem of connecting in a secure way a blockchain and real-world data sources. If smart contracts are capable to interact with off-chain resources, it will open up endless commercial opportunities for such industries like finance, legal, gambling and any kind of payments
  • ChainLink is different from most of its competitors as it intends to operate as a fully decentralized network of nodes. However, it is already not the only decentralized blockchain startup oriented at connecting the real-world data to the blockchain
  • The established partnership with SWIFT means the opportunity of cooperation with thousands of financial institutions
  • The ChainLink network will be developed by an already established company; the only two team members mentioned are experienced, but such a small team does not seem enough to implement such a project
  • ChainLink approaches ICO start date with a proof of concept version of the product and a partially available codebase
  • The white paper is almost explicitly technical
  • The LINK token value will depend on the network effect: as more real-world data are connected to the blockchain, more developers and data providers are expected to join; also, the higher the competition on the internal market will be, the lower the average price tag for developers and the more they are encouraged to join
  • LINK is a utility token and it is not likely to fall under securities legislation
  • Only 35% of the total token supply will be sold to token sale participants, while 65% of all issued tokens will initially be controlled by the team and a legal entity behind it. Details of the 30% token allocation for the company (the shares of the team, advisors, other personnel, and the applicable vesting) are totally unclear. The same holds true for the distribution of another 35% of the total token supply via the "ChainLink Incentive Fund" meant to incentivize the operation of ChainLink nodes
  • The level of access to ICO-related information provided by the team is very poor: the document cannot be accessed directly from the website
  • Key ICO terms are communicated via Slack, but are not even mentioned in the ToS (e.g. the hard cap, the three tiers in which the token sale will be held, the requirement of a necessary pre-registration etc.)
  • Little is known about the use of proceeds for development and the commercialization plan of the project
  • The team does little marketing and the community’s awareness about the project is quite low

Useful links: website, whitepaper, Slack, Terms of Sale.

Satoshi•Fund  —  blockchain investment company that invests only in blockchain assets since 2014.

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