The Oracles Network ICO Report

cyberanalytics (50)in #blockchain • 7 years ago (edited)

The information contained in this report is neither legal nor financial advice and presented for informational purposes only. The projects included in cyber•Fund 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.

At the moment of publication the Oracles Network Pre-ICO is over with target of 41,176 ETH reached in a minute. ICO will not be conducted because it's no longer needed. You can check the results on their blog.

The Oracles Network intends to build an open public permissioned blockchain employing Ethereum protocol with adoption of proof-of-authority (PoA) consensus. The project’s goal is creating an opportunity for small and medium-size communities (or, enterprises) to build an own blockchain-based permissioned network with fast transactions processing and affordable costs. According to founders, the network has successfully been tested on its own testnet, and now it is ready for immediate use. The project’s token sale is supposed to fuel further R&D: the goal for proceeds set equal to 41,176 ETH through issuing the native token (“POA”). This token sale deemed to become the first cross-chain crowdsale: collection of proceeds on the main Ethereum blockchain with issuing native tokens on the POA blockchain.

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About

The main concept idea is implementing the PoA consensus reached by independent individuals that can make the smart contract platform run faster and reduce the costs in comparison the the proof-of-work (PoW) predecessor. Another key conceptual solution is creating the bridge between the blockchains built on the principles of Ethereum protocol enabling interoperability of blockchains with different consensus types: proof-of-authority and proof-of-work (PoW).

The Oracles Network evolves out of the Block Notary project developed by the Oracles Network’s founders in May 2016. The same “proof-of-identity” principle has been adopted for the current project. The team has tested the network on the testnet and embarked the initial pool of validators (network participants maintaining the PoA mechanism); their detailed identification process is disclosed in the Whitepaper. For the time being, 13 of decentralized applications (DApps) has been created in several categories:

Network DApps necessary for governing the network itself
Management DApps supporting the use of the Oracles Network
ICO DApps
Identity DApps

The project is an open source, and its code is available on Github.
The Oracles Network mainnet launch is planned in December, 2017.

Platform use-cases

The Oracles Network will serve well where fast transactions processing is a vital need of the network. Its PoA consensus mechanism works faster than PoW: validators create blocks every five seconds. This rate has been tested by platform developers on Oracles POA Network testnet and proved its viability in a long run. A faster network gives an opportunity to create applications where response rate from the distributed consensus is crucial.

The network facilitators:
- Master of Ceremony - a person who initiates the network, creates the initial pool of validators and checks their legal status (notary licence)
- Validators - create blocks, validate them and generate a reward for the network security: For each generated block, a validator who created it will get one coin and all fees for transactions. Validator have equal rights for block creation
User transaction needs:
- cross-chain crowdsale is a good example that cross-chain bridges enable a cross-chain tokensale, a new way of organizing crowdfunding. The Oracles Network’s ICO will be the first to use it: harnessing the cross-chain crowdsale contracts, the issuer will collect funds on the main Ethereum blockchain while issuing native tokens (POA) on a different Ethereum-compatible blockchain
- business cases when relatively small, fast and frequent value transactions among a closed group of users are needed, for example:
  - a virtual casino might create “chips” that circulate among gamblers, and all these transactions do not reflect to the casino’s main ledger (say, the root-chain Ethereum)
  - blockchain-based game industry where the players might receive a reward in the form of inner-game coins
Organizations can deploy permissioned blockchains without the need of creating their own consensus facilitating system that might be costly and unaffordable for small and medium-size businesses
Developers:
- obtain an opportunity to create fast reacting apps, at the same time utilizing all the benefits of decentralized consensus and interoperability with Ethereum-compatible blockchains
- can shift heavy computations from Ethereum to the cost-effective blockchain layer

Market

Market potential for such a solution as Oracles Network’s blockchain with fast processing, scalability and interoperability exists in different fields: banking, insurance, healthcare, governments, etc. - all cases where a public chain needs to be governed by independent validators. The Oracles Network’s work on establishing connectivity with Exonum illustrates the potential of cross-chain value transaction (crucial for E-voting, E-auction, E-coin, and Government registry) from any user-tailored private or permissioned blockchain to POA network and back. BitClave has unfolded the market potential for the Oracles Network’s solution for the decentralized search engine: multiple sub-chains assigned to specific geographic regions enable localized search customization for its users.

Competitors

The competitive environment of the Oracles Network includes several Ethereum-based scalability solutions like chain sharding, Plasma, state channel technology implementation like Raiden network. However, they don’t support cross-chain transactions. The Oracles Network’s cross-chain bridge creates a competitive advantage: POA blockchains can comply with specific regulations of local jurisdictions and connect with each other transferring the value over the bridge.

Such projects as Polkadot that also promises cross-chain value transfers have a sound potential. This solution, however, requires extensive development and implementation timeline, while the Oracles Network is available for immediate use.

Since PoA consensus enables avoiding significant computations necessary for running the PoW algorithms, the POA network proposes cost advantage comparing to other Ethereum-compatible solutions.

Technology

The Oracles Network borrows some technical solutions available from open source, namely: Ethereum protocol and subset of protocol binaries from Parity Technologies (developed to bridge blockchains in Polkadot project, see Technology section in the Polkadot ICO report ), and adopts them with own modifications. This toolkit is compatible with Parity Ethereum client (v.1.7 or later) exceptionally. Adopting those solutions, the project team focuses on DApps development and deployment of a higher level of the blockchain. The DApps provide functionality for identity verification, governance and network administration. The project’s Whitepaper provides the detailed description of each DApp.

Initial ceremony DApp. PoA consensus mechanism implemented in the network bases on the AuRa algorithm available in Parity. The adopted concept starts with an initial ceremony, where the master of ceremony triggers a smart contract to distribute keys to 12 independent validators. Initial pool of validators adds another “a dozen plus one” validators necessary to fulfil initial PoA consensus requirements.
Proof of Identity DApps. The master of ceremony requires each validator to hold a notary licence valid in the USA. Those licences are subject for confirmation from a third party concerned. The person identification process is realized through a set of identity confirmation DApps. The individuals are required to fill the forms providing their related personal info through a web DApp connected to a DApp server. The confirmation processes workflows (explicitly described in the Whitepaper) are designed to exclude cheating by the individuals, and executed by the the following set of DApps:
- Proof of Residency (a person’s physical address)
- Proof of Bank Account
- Proof of Social Network
- Proof of Phone Number (mobile)
Governance DApp. As mentioned above, maintaining the PoA consensus needs managing a pool of validators. This process starts from the initial group of validators and is realized through a “voting on ballot” function maintained by the Governance DApp run as a client-side DApp. Valid notaries can create ballots and vote for / against a new notary nominants. The voting process design prevents from double voting, sole governing of other notaries, voting for nominees with counterfeit notary licenses and other fraught cases.

The cross-chain bridge solution proposed in the mentioned above Polkadot project and employed by the Oracles Network’s provides interoperability of Ethereum-compatible blockchains, irrespectively to their consensus mechanisms. Transactions can flow from the Oracles Network to Ethereum and in the opposite direction. That makes it possible different Ethereum-compatible networks (such as Ethereum Classic, Ubiq, Expanse, Rootstock and others) interact via the Oracles Network.
The network proposes a new concept for scalability specified as “horizontal scalability”: it enables creating a number of independent blockchains with PoA consensus (ensured with validators’ identity at stake) and communicating via the cross-chain bridges, thus leveraging the whole network productivity.

Economics and token

The Oracles Network has its own token POA (not being a cryptocurrency or ERC-20, as outlined by the issuer in the General Terms and Conditions)
Token utility:
- A motivation mechanism to reward validators (also regarded as “miners” in the Whitepaper) for creation of blocks
- A sort of “payment tool” to fuel frequent value transactions, network apps usage and processing of computations in the network
Total token supply: 252,460,800 POA
Inflation rate starts at 2.5% in the first year, with further disinflation (meaning that the rate of inflation will decrease over time).

ICO

POA tokens offered for sale 176,722,560 POA (70% of the total supply)
Pre-sale period: November 17th, 2017 - November 30th, 2017
(with min. 100 ETH personal contribution)
Prospective investors were required to register via the Whitelist and pass the KYC procedure
Currency accepted: ETH
Token price at the pre-sale stage 1 POA = 0.000233 ETH
Proceeds target: 41,176 ETH
Token pre-sale results: the hard cap of 41,176 ETH has been reached straight away: POA tokens sold to 111 contributors (out of 584 whitelisted); and the token sale closed on November 17th, 2017
Pre-sale address: 0xc8fe4a2d14Cb9027Ef955D15E8BF811a6DB0Bf74
Audit of the Oracles Network’s Pre-sale Contract has been performed: no potential vulnerabilities identified
POA token distribution to purchasers: on December 15th, 2017
POA tokens become transferable since December 15th, 2017

Tokens vesting:
- Founders’ stake (10%): 2 years vesting with distribution every 3 months starting from the 6th month after the mainnet launch; the first portion will be released in 6 month after the launch with the subsequent proportional 3 months distributions
- Foundation’s stake(10%): 2 years vesting with distribution every 3 months starting from the 6th month after the mainnet launch; the first portion will be released in 6 month after the launch with the subsequent proportional 3 months distributions
- Unsold tokens will be transferred to the foundation with the above mentioned vesting terms and will be used for R&D only

Company

Information is not available for public use. General Terms and Conditions of the token sale indicate POA Networks LTD as the selling company. Unfortunately, there is no accessible information for regular visitors. All details can be obtained by requesting the information from Cayman Islands General Registry.

Legal

We believe that The Oracles Network tokens successfully pass the Howey Test. The platform, where tokens circulate, has already been developed. Hence, there is no common enterprise investment. Tokenholders do not expect the issuer to maintain the development process for transferred virtual currency. Additionally, the tokens do not entitle any right to obtain profit. The fact of token possession does not guarantee the price increase for owners.
Next, we believe that the tokens do not fall under the Risk Capital Test. The funds that will be obtained by purchasers are at a very low risk because their stability is guaranteed by the internal economics of the ecosystem and PoA consensus model. The platform has already been developed. Therefore the criterion of “powerless investors” is inapplicable in this case.

Team

The project’s core team embraces four R&D team members and six open source contributors: Solidity developers and DApps developers.
Key positions:

Igor Barinov, Co-founder of the Oracles Network and Block Notary. Earned Bachelor degree in Material Science from Russian State Technological University (MATI), studied Open Systems in Lomonosov Moscow State University. Previous engagements include data engineering and blockchain consultancy experience
Viktor Baranov, Core Developer, previously (in cooperation with Igor Barinov) developed Block Notary project, a notary based on blockchain technology (the products exclusively licensed to banks located in North America)

Advisors and partners

The project’s advisory board:

David Thelander, Fellow of Vermont Law School, Center for legal innovation
Special Counsel, holds the Bachelor’s degree in Political Science with Economics concentration. As a Managing Director at PwC led a team of Risk Assurance practice in the United States
Mark Pui holds MSc degrees in Economics for Development and Public policy, Executive Director at PwC
William Mougayar, holds BSc degree in Electrical Engineering and completed the Executive program at marketing management. Author of the Business Blockchain book with broad advisory experience, including Advisory Board Member of Ethereum foundation

The Oracles Network attracts attention of blockchain industry players who partner with the project at its early stage:

BitClave in partnership with the Oracles Network plan to pilot the decentralized search engine on the Oracles POA blockchain
Trust Wallet, the application that supports ERC-20 compatible tokens will support the POA native token, according to partnership details announced

Summary

The Oracles Network is the first blockchain notary secured by the US notaries staking their identity
The project creates a native POA blockchain compatible with other Ethereum-based blockchains supporting interoperability of chains with PoA and PoW consensus
Employing the PoA consensus in the native POA network is beneficial comparing to the PoW Ethereum algorithm (requiring significant computations), thus enabling faster and cost-efficient transactions
The Oracles Network introduces a new scalability approach regarded as “horizontal scalability” that allows launching a family of independent PoA networks and connects them via cross-chain bridges (the technology adopted from Parity’s Polkadot Brigde) that improves the overall network productivity
The network is an immediate ready for use solution that places the project in a prominent position now, though this advantage might be challenged in a long run by Ethereum’s switch to the Proof-of-Stake and by rival cross-chain projects in the pipeline
The native POA token is intended as a utility token to reward validators, to fuel network transactions and to serve as a payment tool for usage of network applications; though there is no detailed information about applicable fees