Investigating the Top 50 Cryptocurrencies, Part 5/50: DigixDAO

DigixDAO performed the world’s first Ethereum ICO in March 2016. They offer smart cryptocurrency tokens built on the ERC-20 standard, starting with the “DGX” gold-pegged token.

Important: DigixDAO is NOT the same thing as “The DAO,” the organization that raised more than $100 million in ETH and then was famously hacked for the majority of those funds in June 2016. DigixDAO, despite the similar name and timing, is a different institution.

This token is a simple, humble concept that seems to have worked well so far. I’m not sure if it has the depth or utility to survive in the long term, but so far so good for DGX.

About This Series + Disclaimer

This post is part of a new series where I investigate each of the top 50 coins by marketcap (based on coinmarketcap.com's rankings on October 11, 2017). My goal is to help steem’s userbase become the most knowledgable blockchain community in the world.

Disclaimer: I am not an investment expert and will not be providing investment advice. I will teach you about the top 50 coins, and you can do what you want with that info.

How DigixDAO Works

The premiere token to be issued by the DigixDAO project will be “DGX”, or “Digix Gold Tokens.” These tokens will be smart assets pegged to the value of gold, as the website puts it:

”Each token represents 1 gram of 9.99 LBMA standard gold and secured in Safehouse vaults. On-chain proof of auditing; no fractional reserve; fully allocated.”

_{DGX gold pegged tokens}

The proposed purpose of the DGX token is to become the standard “stablecoin” of the ethereum ecosystem. By holding a stable peg along with the value of gold, DGX can provide a reliable method of buying and selling goods for non-speculative purposes.

The DGX gold supply will be audited four times a year - pretty good!

DigixDAO has one other token which already exists: The “DGD” token, or Digix DAO Tokens. There are exactly 2,000,000 DGD tokens in existence with no inflation, and the holders of DGD can claim quarterly rewards paid by the transaction fees of DGX tokens.

_{The DGD speculative token}

DGD tokens serve an additional purpose: holders can pledge them to developers on the condition that the devs complete projects which will increase the adoption of DGX tokens.

If you want a stable currency, you will use DGX. If you want to speculate on the success of DigixDAO, you can buy and hold/trade DGD. This separation between stable token and speculative token is a standard practice in the crypto space - it’s what we use for steem (steems vs SBD).

The Team

You can look at the team over on DigixDAO’s website: https://digix.global/participate/

There are eleven people listed, with a lot of experience across several important fields. You’ve got devs, businesspeople, lawyers, and community people. It’s an impressive looking team at a glance.

I will note that the CEO doesn’t have a ton of experience: ”Kai worked on Wall Street as an EMFX trader in a global investment bank for the past 4 years. He was an International Program student at Upenn - Wharton and graduated with honors from NYU - Stern.”

_{Kai C. Chng, Founder & CEO of DigixDAO}

Four years isn’t that much when you think about the traditional status of the finance industry. In cryptocurrency these things are different though… four years can be pretty good.

It’s more experience than the two founders of Siacoin had, for example. Other members of the team have worked in related industries going back decades, such as Tony Wong (Senior Advisor) and Anthony Eufemio (Founder & CTO).

_{Tony Wong, Senior Advisor for DigixDAO}

Overall I’m impressed with the team. This is a token economy that is simple, effective, and has a lot of experienced people behind it.

The Beta Product for Digix Gold Tokens

You can’t buy real DGX tokens yet. There is a beta site where you can “purchase” fake tokens using test currency - none of it has real value, but it’s a way to use the app and see how it will feel to buy and sell with it.

Here’s the signup page:

Unfortunately I wasn’t able to sign up and try it out - onboarding requires a lot of personal info and verification, so it wasn’t worth it just to run a quick test transaction on a beta network. At this point I assume they can pull off a simple digital exchange, especially for a beta token on a testnet.

You can get a better sense of how your tokens will connect to a physical bar of gold via this diagram, taken from the white paper:

You’ll be able to use a “Gold Asset Card,” to exchange your physical asset (gold) with other people via a digital token. If you want, you’ll be able to exchange tokens for physical gold (a minimum of 100 tokens worth).

Here’s some more specific info on how the asset card and digital token relate to each other, again pulled from the white paper:

There are three “proof of asset participants,” whose incentives are aligned in such a way as to theoretically ensure ethical actions from all three.

To be honest, this part seems overly centralized to me and is a major point of concern with the protocol. You have one corporation responsible for each element:

Company 1: ValueMax Singapore, provides the gold.

Company 2: Bureau Veritas Inspectorate performs quarterly audits.

Company 3: Malca­Amit stores the gold in Singapore.

There are no provisions within the whitepaper for decentralizing or replacing any of these actors should they fail to live up to the task of supplying/auditing/storing gold. That seems like a big weak link to me… hopefully they will/have thought of ways to mitigate the worst case scenarios for each company.

This paragraph from the white paper contains the, in my opinion, faulty reasoning on securing the network:

This is my biggest concern about the entire DigixDAO model… it doesn’t seem to have a recovery mechanism in case an audit is failed, for example. Does anybody have more/different info on this?

Market History

The DGD token was issued in the March 2016 ICO… here’s how its value has held up over the last year and a half.

The token value was stable for the first year… then everything went haywire in July 2017. Ever since then, it’s been up and down like crazy.

Right now each token costs $70, but can it maintain that high valuation? A lot depends on the successful launch of the real DGX token. DigixDAO needs to move from theory to actual working token, and it needs to happen before competitors eat their market share.

At the time same, you can’t rush these things. Security will almost be the most important factor. It’s a tough Catch-22, can they move fast enough without compromising the integrity of their token?

Final Thoughts

DigixDAO is an overly centralized team, but a strong one. They have a good, simple concept that they are working patiently to execute in the right way.

I like their approach, even if I have some concerns about the long-term integrity of the protocol itself. The team seems trustworthy. Overall I’m waiting to see how the launch of the GDX token goes before I form any more firm of an opinion about this.

What do you think? Do you have any experience with DigixDAO?