Map of Crypto Projects By Token Type And Industry

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Autonomous NEXT has analyzed crypto projects by token type and industry. The three token types consist of: (1) core infrastructure projects that seek to build new or supplement to the existing crypto ecosystem platforms to promote efficiency and effectiveness, (2) financial services projects are crypto projects aligned to the financial industry, and (3) Vertical apps are crypto projects that support a specific business process and targets a niche user base.

** A note on methodology. We primarily look at ICOs that have raised or are raising over $1mm USD, which filters for more reputable projects but may miss the longer tail of seed-stage token investing. To collect the data, we leverage and cross-check multiple primary and secondary data sources, and then categorize projects based on use-case into industries. The starting and ending dates of ICOs are also a moving target, therefore we use the earliest of the dates where possible. Our goal with this data is highlight the direction of travel, which appears to be from the protocol level to the application level

Unified Token Taxonomy

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Autonomous NEXT analyzed multiple taxonomies that categorize projects noting emerging common themes. We used these taxonomies to build the unified token taxonomy which seeks to incorporate elements of each taxonomy, and their means to breakdown a crypto asset into multiple use cases.

Our findings showed that: (1) Monetary instruments are the payment unit of crypto economic activity, with (a) coins like BTC attempting to be used everywhere for all use-cases, (b) protocol tokens like ETH attempting to be used generally within its protocol, and (c) we further break out coins by their monetary policy. (2) Application utility tokens where “Utility” correctly points out generalized functionality, i.e., something being useful, and is not limited to consumer or enterprise use cases but generally how software is powered when interactions provide surplus and are valuable.

The first split is between (a) tokens used in applications on public, decentralized networks, like Filecoin and (b) tokens or units of account used in applications on private, enterprise networks, like the UBS Utility Settlement Coin project, which we believe in the long run will be interoperable. Finally, (3) the category of financial instrument primarily refers to the coming wave of security tokens, which are akin to equity or real estate crowdfunding sitting on more modern, decentralized infrastructure. These assets have an established and clear role relative to capital tables of corporate entities. We expect a convergence of enterprise and public blockchains as consortia digitize existing capital markets, insurance and asset management, and thereafter become interested in crypto liquidity. Economic participation in decentralized applications (e.g., DAO, profit sharing, referrals) will inadvertently qualify as a financial instrument even if not explicit in the capital structure We include digital assets, such as tokenized commodities (e.g., a tokenized share of a painting) and digital collectibles (e.g., Cryptokitties), as a financial instrument when they function as a store of value and are legally structured as to become a regulated commodity.

Analysis of Global Crypto Regulation Map

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Autonomous NEXT and Latham & Watkins LLP analyzed the regulations covering most of the crypto hubs of the globe. The criteria for mapping each country’s respective regulation standpoints are: (1) Negative, (2) Neutral, (3) Mixed, and (4) Positive. Our findings show that the most active countries in the crypto space such as Japan, South Korea, U.S., and Russia have both positive and negative indicators of support within the space; whilst some countries such as Brazil, China, India, and Nigeria have implemented outright bans on cryptocurrencies, mining, or ICOs.

Breakdown of Investment in the Crypto Economy

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Autonomous NEXT analyzed the investment in the crypto economy from 2013 till June 2018. Our findings show the first wave of investment from traditional venture firms in Bitcoin associated companies was between 2013 and 2016, with $400-700 million annually. The second wave of investment from corporates into enterprise blockchain was between 2015 and 2017, with $250-400 million annually. The third wave of public crowdfunding flowed into ICOs, with an unprecedented rise in prices for crypto currencies, with $7 billion of investment going into the space, 4x greater than equity investment in crypto companies. Many ICOs formed to take advantage of the “gold rush” and created questions of quality and regulation for tokens

But nearly half of the $12B in funding raised in 2018 is EOS ($4.2B) and Telegram ($1.7B) hiding emerging weakness in the system.

Analysis of Crypto Funds by Inception & Strategy and Estimated AUM

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Autonomous NEXT has kept a running tally on the number of crypto funds within the space, as well as their respective estimated assets under management.  Our findings indicate that over 300 funds currently exist, most of which started in 2017 and 2018, with a variety of strategies including Venture, Trading, Quant & Artificial Intelligence, Fund of Funds, Indexes, Token Baskets, Credit and Ecosystem Funds; with the majority (56%) of total AUM controlled by liquid venture funds. The inception of 61 funds in the first half of 2018 means barriers to entry such as market volatility and significant start-up costs do not pose as significant deterrents to new entrants seeking exposure into the crypto space.

Analysis of Liquid Coin Price Performance

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Autonomous NEXT analyzed the price performance of the top 200 liquid coins over the last 1.5 years. The resultant graph looks like a Monte Carlo simulation, except the scale for outcomes is an unbelievable 10%-1,000,000%, graphed on a log scale. The black bar represents BTC and the magenta represents the BITA top 50 coin Index, which immediately highlight the correlation waves between BTC and the other crypto assets. Our findings conclude that such continued outperformance would suggest exponential software-like growth for digital assets, and that after an ICO offering, tokens may be listed on an exchange and experience the price performance of liquid coins.

Breakdown of ICO Launch Costs

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Autonomous NEXT have modelled the cost breakdown relating to launching an ICO. The breakdown has identified 3 key areas of consideration: (1) Crypto law firm cost, (2) ICO platform cost, and (3) Liquidity.

Crypto law firm costs are split into two phases relating to the initialisation of the project and the items relating to the operation thereafter, both of which constitute around 20% of the overall launch costs. ICO platform costs relate to the construction and marketing costs of the ICO, including the payment for positive ratings, which accumulate to around 20% of overall launch costs. Liquidity relates to the launching of the ICO on a single crypto exchange which accumulate to a considerable 60% of overall launch costs.

Our findings were that the capital outlay needed to launch a crypto fund are considerably higher than originally thought, and as the space becomes more institutionalized so it’s likely to see these costs normalise.

Emerging set of approaches to crypto valuation

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Autonomous NEXT has broken down the emerging set of philosophical approaches to crypto valuation which has resulted in various feedback loops.

Our findings show that the lack of concrete definitions behind tokens and coins coupled with the retro-fitting of existing economic frameworks and math from adjacent industries results in finding a commonly used valuation framework close to impossible. The need for a valuation framework is driven by (1) institutional investors used to DCF and comps entering a market that is more appropriate for early stage venture, and (2) the immaturity of decentralized project models, which have no stable equilibrium around long-term instrument pricing and market outcomes. Market manipulation and persistent speculation has skewed activity statistics related to digital assets and hence made real vs. created activity difficult to distinguish. The transition from corporations to networks and from profits to mutualized resources is also a meaningful unknown.

Directions of global regulatory approaches to Crypto

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Autonomous NEXT has analyzed how, from a strategy perspective, global regulatory approaches follow three directions according to their role in the global economy. Our findings show that the adoption of regulatory approaches towards crypto is different across different countries.

Crypto Delaware represents economies that are less concerned with consumer protection and are more attractive regulatory environments for innovation and start-up activities. Sovereign technology sword economies use sovereign power and investment to control and direct technology and economic competition. Consumer protection shield economies favour innovation to be bound by the existing regulations and laws in order to maintain the status quo of economic activity.

The four waves of innovation within crypto themes

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Autonomous NEXT has identified the four key waves of innovation within crypto themes starting with: (1) Bitcoin, (2) Enterprise Blockchain, (3) Decentralised Apps, and (4) Smart Securities.

Firstly, Bitcoin in 2008 exemplified the first decentralised and secure digital store of value from 2008, potentially disrupting $7-100 trillion in the global macro trade. Enterprise Blockchain in 2014 allowed for private consortia within industries to take advantage of the efficiencies of the blockchain whilst retaining necessary elements of privacy, impacting $500 billion of costs in financial services alone. Decentralized Applications commercialised blockchains further by allowing for entrepreneurs to build digital products and services (ICOs) harnessing the security and efficiencies of the blockchain. Finally, Smart Securities launched in 2018 enabling for further institutionalization and tokenization of the crypto space, spreading the overall impact to all asset classes valued at $500 trillion.

2014-2017 ICO Category Breakdown and Funding

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ICO Funding 1H 2017

Autonomous Research have analysed investments in Initial Coin Offerings (ICOs) since their inception. The left-hand side graph depicts funding by category for ICOs from 2014 to 2017. Initial funding in 2014 began at US$26 million, breaking down to $19 million being spent on core tech and $7.5 million going towards cloud innovations. 2015 saw a dip in funding, dropping to a total of $14 million but it was spread out across a wider range of applications, with $5 million being dedicated to financial markets and $2 million being invested in cryptocurrencies. There onwards the ICO market has grown immensely, largely due to The DAO raising $150 million in investments, causing total ICO funding to rise to $222 million in 2016. The first half of 2017 has shown the greatest amount of funding, rising to over $1.2 billion, with over $500 million going towards cryptocurrencies and financial market services in second raising nearly $200 million.

The right-hand side depicts the firms with the most funds raised in the 2017 period so far. Topping the list is Tezos with $208 million followed shortly by EOS at $200 million, both of whom deliver core tech services. BANCOR received the third highest amount of investments at $150 million, dominating the financial market services, with only two other financial market firms with large investments: (1) Gnosis, raising $12 million, and (2) OpenANX, raising $19 million.  Media and social services grew hugely in 2017, with Status raising $95 million, Basic Attention Tokens raising $35 million and the DAO.Casino raising $12 million. Other notable service funding include cloud and payments, with TenX topping payment services at $80 million and SONM leading the way for cloud at $42 million.

* Updated numbers through December 10th, 2017 are below:

 ICO Funding, December 2017

ICO Funding, December 2017

** A note on methodology. We primarily look at ICOs that have raised or are raising over $1mm USD, which filters for more reputable projects but may miss the longer tail of seed-stage token investing. To collect the data, we leverage and cross-check multiple primary and secondary data sources, and then categorize projects based on use-case into industries. The starting and ending dates of ICOs are also a moving target, therefore we use the earliest of the dates where possible. Our goal with this data is highlight the direction of travel, which appears to be from the protocol level to the application level.

Analysis of User Base and Money Supply in Popular Virtual Economies

Autonomous Next has estimated the money supply and user base of popular virtual economies in the period between 2014-2016. Our research provides insight into virtual currencies that existed before Bitcoin in four popular games of the 2000s, including: (1) Runescape, (2) World of Warcraft, (3) EVE Online, and (4) Second Life.  Companies developing these worlds act like a central bank issuing a digital money supply to keep functional economies of entirely virtual activity. Our findings show that World of Warcraft held the largest user base at 5.5 million players and a money supply equivalent to $10 million USD. Meanwhile, Second Life managed a significant money supply of $40 million USD and a user base of merely 0.9 million. Linden Labs, the creators of Second Life, even claims that the GDP for their virtual world was equal to $500 million USD in 2015. Lastly, Runescape and EVE Online held a user base of 1.3 million and 0.5 million respectively and a money supply equivalent to $2 million USD and $18 million USD. This phenomenon shows how entirely digital tokens that represent utility value in a virtual world can have both utility value and speculative value, as some traded on vibrant exchanges.

Analysis of Notable ICOs in 2017

Autonomous Next has analysed and mapped the notable Initial Coin Offerings (ICOs) in 2017. Our findings show that the equivalent of $1.2 billion was raised in token sales across 56 ICOs. The highest funding was raised by Blockchain start-up Tezos at $208 million. The company offers a Point-of-Sale smart contract platform with an emphasis on security through formal verification. Other companies, such as EOS.IO and BANCOR, follow closely at $200 million and $153 million in respective token sales. On average, the new wave of Blockchain companies have raised $22.6 million each and we expect the number of token sales to continue growing throughout 2017.

Breakdown of Current Best Practices for ICOs

Autonomous Research has uncovered the best practices for token sales that are in place to help inform and protect buyers, and to increase the chances of successful token sales. Safety and information resources and measures for ICOs include (1) a white paper, (2) clear development map and (3) open sourced and published code. The white paper is designed to cover technical descriptions of the product and an explanation of how their ICO funding will work. Whereas the development map details the project stages, how funds are escrowed and provides transparent communication on the progress of the firm. The code is typically open-sourced as a form of contributing to the community and helping to accelerate learning, and as a result code that is private is viewed as potentially hiding ulterior motives.

Additional practices performed by ICOs include providing clear and fair pricing, although this varies depending on the pricing mechanism of the firm, with some opting for equal pricing for all and others giving early bird discounts. Developers of the firm also receive a share of the tokens and the ownership percentage is consistent with best-practices in other early stage investing. Lastly, one of the most imperative factors for good practices is a good faith marketing approach. Its aims should clearly outline the function of the network and the tokens, whilst not marketing the product as a high speculative investment. The most notable sites where this information can be gathered will be the home site of the firm, Consenys, Coinbase, Coin Center and USV.

Comparison of Dotcom Bubble and Current ICO Rage

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Autonomous Research have analysed the resemblance between the dotcom bubble and the current ICO rage that is being experienced currently. The left-hand side graph depicts initially the amount of IPOs between 1997 and 2000, totalling at almost 900, which since then has dwindled down significantly. By 2005 the amount of survivors had reduced to 600 and continued to fall to 175 by 2010 and 128 by the end of 2010, equating to an 86% company failure rate. Annual share-price return for this cohort was 3.7% between 2000 and 2010.

Despite the vast majority of companies from the dotcom bubble performing extremely poorly, those who survived went on to dominate their industries. The two companies exemplified in the graph above are Amazon and Netflix, who are then contrasted with the NASDAQ composite. It can be noted that despite initial turbulence these companies went on to dominate their respective industries and performed well above the NASDAQ composite. Netflix’s market capitalisation rose from $320 million to $70 billion and Amazons grew from $429 million to $475 billion, equating to increases in market capitalisation by 225x and 1000x respectively.

Opportunities of ICOs for Financial Services Incumbents

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Autonomous Next has analysed the opportunities for Financial Services incumbents to incorporate ICOs as an asset class into their business models. We measured opportunities in two dimensions: (1) proximity to end-client financial assets and (2) time horizon of financial activity. Our findings show that the opportunities for businesses with relatively short term financial activities, such as payments, are limited. However, companies operating in longer time horizons, such as investing, experience more methods of creating value through ICOs. For example, an incumbent operating in payments has the opportunity to aggregate payment data for financial management, but cannot leverage ICOs as an asset class closer to the end-client. However, with investing, an incumbent can create value close to the end client by adding tokens as part of asset allocations in client advisory , while using AI to extract sentiment from crypto-discussions on the other end.

Sources of Capital for ICOs and Bitcoin Whales

Autonomous Next has analysed the sources of capital for the recent surge in Initial Coin Offerings (ICOs). Our findings show that the digital currency ‘whales’ are split into five categories: (1) mining pools, (2) exchanges, (3) currency traders, (4) ICO investors, and (5) traditional financial investors.

Firstly, the mining pools (e.g.  Antpool) are the early beneficiaries of the crypto-currency wave and represent a collection of specialised computing clusters that centralise their computing power to gain the next coin distribution. Exchanges represent the retail and over-the-counter venues that allow for the conversion between fiat and digital currencies (including coins/tokens). Currency traders are funds that focus on the trade of crypto-currencies with the aim of making a profit rather than the investment into tech projects. ICO investors, however, are larger funds with institutional or private capital to invest in emerging technology projects. Finally, traditional financial investors represent venture and Angel investors in the equity of companies working on Blockchain solutions. Together, these groups account for over $700 million of ICO funding.

Bitcoin Transaction Volume and Marketcap Comparison

Autonomous Research have analysed and compared transactions and market capitalisation between Visa, MasterCard and the blockchain platform, Bitcoin. In the fourth quarter of 2016 Visa and MasterCard transacted volumes of US$1.9 trillion and $1.2 trillion respectively, with their market cap approximately equalling 1% of transactions volumes. Alternatively, Bitcoin had $107 billion in transaction volume in 2016 and its ecosystem is valued at $11 billion, although another $30 billion can be priced into Bitcoins market cap as a growth prospect. That number can be discounted due to the high correlation between funds and speculation, lack of full scale and technical and regulatory issues. However, it can also be buffered by the other 50% of Cryptocurrency assets and next-gen growth technology that is being integrated into the ecosystem.

Digital Tokens Economic Model and Self-Imposed Price Ceilings

Autonomous Next has modelled the increasingly popular market for digital tokens to show how Blockchain start-ups are responding to excessive funding. Digital tokens are a form of crypto-currency released during a new method of crowd-funding known as Initial Coin Offerings (ICO). The price of digital tokens during ICOs is determined by supply and demand with current demand being insensitive to price. Our view is that a high demand for tokens is leading to excessive funds being raised for unproven projects that should be at seed stage. These irregular outcomes show similarities to the Dotcom bubble and have forced start-ups to show signs of constraining supply or demand in order to avoid negative backlash. As a result, a large number of start-ups have experimented with limiting supply and initiating auctions. Our chart shows a popular incremental solution where a self-imposed price ceiling creates a gap between supply and demand. Upon starting the ICO, this self-restriction is often relaxed by companies to raise a vast amount of capital in a short time period.