Telegram Michael Mathias 2021-05-19 Wednesday (pdf)
CCH: comments CryptoChemist.net
A SWOT analysis is a strategic planning framework that assesses internal and external factors, as well as current and future potential. The following is provided as a demonstration of the application of a SWOT analysis applied to a proposal. In illustrating this framework, I chose to apply it to the NetLeaders License proposition (circa 2017-2018) simply because it was a decision familiar to everyone in our community. It’s my intention that the application of this framework will be helpful to our community in evaluating potential directions for the ecosystem. Hopefully, this demonstration will also provide some insight into the dynamics of our ecosystem and the general blockchain industry as well.
The basic framework is straight-forward:
When applying SWOT to a proposal within our industry, I am adding three parameters to provide additional focus to the analysis. These same three parameters are also recommended for use in the evaluation of future directions for our ecosystem.
CCH: it is worth following and applying such analysis in your projects and in important decisions you make. “Congratulations” for those who did such an analysis before purchasing the NetLeaders license …
Strengths: What are the primary advantages?
Verifiable Blockchain Technology – The ecosystem features a state-of-the-art blockchain system, is capable of 100,000 transaction per second and with 6-second block intervals (subsequently reduced down to 3 seconds) and seems well-suited for microtransactions. Real-time information can be verified on the blockchain explorer.
Solid Use Case Targeting Mass Market – A lot of focus seems to be on spreading blockchain technology and enabling the average person to use crypto to make daily purchases as conveniently as using a debit card. A card-based crypto payments concept called DasPay is already under development in collaboration with a world-class payments vendor.
CCH: DasPay was crucial in making my decision. And I was able to personally check in the second half of 2018 that it WORKS !!!
Innovative Distribution Model – A unique licensing model is used as the basis for distribution of value in the ecosystem. The purchase of a license provides the rights to use a certain portion of the available capacity of a proof-of-authority blockchain system. These rights are conveyed through the allocation of certain amount of utility tokens, called Cycles. The utility tokens can either be used for blockchain services or converted to a unit of stored value (known as DasCoin at the time). The conversion involves a minting process that used alternating nodes from the blockchain’s decentralized network to distribute a defined number of newly-minted coins every ten minutes. There are no pre-mine, pre-distribution, air drops (CCH: free distributed coins) or percentages given to teams/advisors.
CCH: from what I remember, 1% of DasCoin coins were kept by the Management Board for companies, employees and contractors for remuneration (incentives) in the cryptocurrency introduced to the market. I have no information about how it was and how it worked, when the fork occurred and the total number of coins was reduced, was this 1% already distributed? And 1% from the original number of coins over 8 billion, or from the new number of coins over 3 billion?
CCH: the next question is how was it to introduce new coins every 10 minutes. to distribute coins for licenses? Yes, you had to wait for the coins from the Cycles. However, after changes in the project, all Cycles were converted into DasCoin coins before the fork and each received as much as indicated in the license conditions.
Global Referral Program – The NetLeaders licensing program offers a multi-tiered reward system to incentivize customer referrals. A strong marketing culture seemed to pervade the project, and growth was accelerating.
Decentralized Structure – The project seems structured for the long-term, as companies have been established in several different countries and are already working together as a strategic alliance.
Experienced Founders – Four founders of ecosystem companies appear to be experienced businesspeople with experience in technology, finance and business management.
DasCoin – DasCoin Ltd, Hong Kong – Michael Mathias, CEO
DasFinancial – DasFinancial AG, Switzerland – Terry O’Hearn, Executive Chairman
WebWallet – WebWallet Pte Ltd, Singapore – George Sarcevich, Director
NetLeaders – CL Singapore Pte Ltd, Singapore – John Pretto, Director
Impressive Advisors – Several well-regarded advisors are associated with the project, which added considerable credibility.
CCH: Soon Hock Lim, Eberhard Wedekind, Tho Yow Yin, KC See, Brian Semkiw (hmmm ….), after NetLeaders Conference in Tokio Anna Hejka.
CCH: pay attention below, System weaknesses: Advisor Arrangement Is Unknown. What, on the one hand, may be a strength, on the other hand, may be a weakness under certain conditions or the lack of them.
Growth Market – The blockchain/crypto market is beginning to break into major growth period after the end of a bear market.
Projects Galore – Lots of excitement and many new projects are launching in the blockchain and crypto space. (This period became known for its many ICOs – Initial Coin Offering – over 2000 of these projects launched.)
Good Timing – The crypto market seems to be in a good place and holds a lot of exciting potential.
Limited Crypto Regulations – Just a couple jurisdictions have passed any regulatory measures related to cryptocurrencies (a slate of stifling laws passed by New York State in 2015 – known as BitLicense – and more supportive measures adopted by Singapore’s Monetary Authority).
Project Seemed Well Positioned – Despite sparse regulation, the leadership from the ecosystem companies seems to be proactive about engaging with regulators and seems well-positioned to handle upcoming regulatory measures due to the decentralized multi-jurisdictional alliance structure.
Weaknesses: What is lacking or needs improvement?
Proprietary Blockchain – The project features a proprietary blockchain that uses a Graphene code base and then builds customization on top of it. There are numerous technology risks associated with such a customized proprietary blockchain.
Difficult Use Case – The realm of payments includes the interplay between fiat and crypto systems. This is an extremely difficult realm in which to create solutions due to the operational complexities, the leverage of the card associations (Mastercard/Visa) as well as the potential need to have to resolve interjurisdictional regulatory issues. Despite the attractiveness of the use case and its huge potential market, the path to solving all the perplexing issues involved was foreboding.
Untested Distribution Model – Despite the promising design of the system, including its use of minting as well as its non-traditional distribution model, it is not known if the results of such a system can be successful.
No Clients Using the System – The blockchain system requires the development of applications to attract users/clients. The ecosystem model is reliant on applications being developed by various ecosystem member companies as well as by license holders, who hold utility tokens that can be used to operate applications.
MLM-Based Marketing Program – Licenses for the system are being marketed through an incentivized rewards program, known as network marketing or MLM. There are many risks associated with the operation and management of these types of MLM marketing programs, including the lack of transparency regarding payments to the marketing force, potential company abuse (e.g., nonpayment or delayed payments), potential for overpayment to the marketing force and the possibility of unexpected changes to the compensation plan. In addition, the incentives offered in these programs can create considerable risk due to their potential for abuse by the marketing agents, such providing misleading or inaccurate information, withholding information, and making personal promises within the sales process that they are unable/unwilling to fulfill. It is also exceedingly difficult to monitor the conduct of marketing agents and enforce policies while the marketing process is going on.
No Centralized Management Team – The ecosystem is comprised of a decentralized alliance of companies working together towards a common objective, and so there is no central decision-making mechanism. Consequently, the ecosystem must rely on private agreements between companies and the protocol to settle disputes between entities has not been developed to a point where it can yield enforceable decisions.
Non-Traditional Approach – In addition to being part of the blockchain industry (which was in a very early stage of development), the project has a non-traditional structure (i.e., decentralized alliance of companies) and features a licensing model that is unique in the industry.
Founders Have No Past Experience with Blockchain Projects – While the founders seem to have considerable business experience (including technology and finance), none of the founders has led a blockchain project prior to this creation of the ecosystem.
Advisor Arrangement Is Unknown – Although the advisors are impressive, it is unclear what the arrangement is between them and the project, which company they are affiliated with and the amount of their compensation.
Unknown Market Dynamics – Still the early days of the blockchain industry. While growth is likely, there is no real understanding of the future directions of the industry or how volatile the broader market might be.
Increased Competition – Competition is increasing dramatically. Many new projects are coming onto the market. This dynamic raises the risk of the project not keeping up with what’s happening in the rest of the industry.
Unknown Regulatory Environment – It’s so early in the development of the industry that there have been few formal positions taken by regulatory agencies around the world. Navigation of potential regulatory risks could be more predictable once the industry was more mature.
Opportunities: What are the positive possibilities of the future?
Blockchain Positioned for the Future – The blockchain has been structured in a way that makes it one of the most energy efficient blockchain systems in the world. As an alternative to proof-of-work systems that have enormous energy requirements to keep secure, it is well positioned for the future.
Prime Utility Case – There is an opportunity to be the first blockchain system to make crypto payments useable for virtually everyone, featuring debit cards capable of spending cryptocurrency (DasPay).
Expansion Possibilities – There seem to be avenues to expand into other promising use cases including crowdsourced financing (Das33) and decentralized crypto-marketplaces (DasMarket). In addition, limitless future applications can be built on a system with so much processing capacity and that is so energy efficient and inexpensive to maintain.
Potential for Significant Global Adoption – The person-to-person referral model combined with the other benefits of blockchain has the potential to popularize the technology to a very wider audience. This mechanism carries the potential for true democratization of blockchain technology.
Global Utility – Opportunity to become a leading ecosystem in the development of a better global system for exchanging value.
Market Value – Significant value can be created in the market if the project can become one of the successful systems leveraging emerging blockchain technologies.
Cooperation with Regulators – Opportunity to build relationships with regulators who are starting to be supportive of the emerging blockchain and cryptocurrency industry.
Leadership Within Regulation – Possibility of becoming a leading ecosystem in the realm of regulation of the industry, especially with an ecosystem that embraces its hybrid structure and its intention to operate in the payments realm.
Threats: What threatens the future?
Network Structure – All consensus mechanisms have trade-offs. The one used by this blockchain would become known as proof-of-authority. To achieve its superior speed and transaction capacity, the blockchain features a less decentralized network architecture. In addition, proof-of-authority requires an authority to initially convey the license to a new masternode. This lesser degree of decentralization can potentially be
exploited by insider technology personnel or malicious hackers.
Wallet Structure – The wallet system could be described as having a hybrid structure, in which customers started out in a centralized wallet (with the private keys held by a centralized company) and then have the option to transition to a decentralized wallet (in which they would hold their own private keys). There are likely to be difficulties for people making the transition to the decentralized wallet and managing the responsibility associated with it. There are also risks associated with centralized wallet accounts, such as theft by insider technology personnel or malicious hackers.
Marketing Company – As a centralized company that is responsible for making thousands of weekly payouts as part of a highly rewarding marketing program, there is the constant threat that the company may not being able to continue making timely payments (for any number of potential reasons). There is also a threat related to the fact that the marketing program payouts are not yet recorded on the blockchain. Not having the marketing commissions clearly viewable on the blockchain could create a range of future issues.
Marketing Program – There are a number of risks associated with marketing programs built on principles of network marketing, or MLM. While it can be a powerful promotional mechanism, this form of marketing can be abused and is vexed by a history of misuse by organizers and leading promoters. Instances of abuse have been prevalent enough to have led to the emergence of a contingent of crusaders who are firmly against any company that uses MLM marketing structures. There is also a cottage-industry of anti-MLM press that could be used to engineer social media smear campaigns against the company. The risk of MLM-related backlash when applied to an enterprise operating in the blockchain industry is likely to be high. Possibly the most significant risk is the potential for the marketing program to overpay. The particular program offered by NetLeaders has been structured with potentially outsized rewards and could lead to significant overpayment of the marketing force. Historically, these types of marketing programs are extremely difficult to correct once they come off the rails, as any adjustments made are very negatively perceived and carry the risk of demotivation (and possible defection) of the entire marketing force.
Consolidation of Power by Marketing Leaders – The NetLeaders marketing program was essentially designed by its own marketing leaders (and those who were in position to gain the most from the program) and so it carried additional threats. Extreme accumulation of benefits (e.g., marketing commissions and coin holdings) could lead to a consolidation of power among the top marketing leaders. This leverage could then be wielded to increase the leaders’ influence in other ecosystem matters. In addition, there is potential market risk created by a group of marketers accumulating a large number of coins at effectively no cost (since their actual cost for their license purchases could effectively be returned to them through the commissions earned from the marketing program). Given the patterns of disloyalty among top leaders in the MLM industry, the potential exit of a large contingent of top marketers coupled with a systematic dumping of their coin holdings posed a catastrophic threat to the ecosystem. In addition, such a consolidation of influence could make it even more difficult for the management team of the marketing company to make necessary changes to the compensation program should the plan begin to overpay beyond a critical level.
Industry Tribalism – There were risks posed by the fact that the project may not fit into the emerging norms of such a new industry and could lose credibility and be shut out of wider industry events. “Tribalism” dynamics are rampant within the industry.
Unknown Dynamics – Since the industry is so undeveloped, it’s difficult to know what to expect. Market may grow significantly, or it could crash to nothing – no one knows. Risk throughout the industry is very high.
MLM Risks – The use of an MLM program in a legitimate blockchain project is unprecedented and has the potential to lead to problems from a variety of groups, including conservative industry groups (e.g., Bitcoin associations), established blockchain projects, competitors in the MLM industry, and the anti-MLM press.
Trends in the Industry – In such a new and undeveloped market, trends can change extremely quickly. It can be very difficult to know where the true growth of the market lies and which paths lead to irrelevance. In a highly competitive and rapidly changing industry, it can be easy to get left behind.
Possible Manipulations in Early Market – There could be various challenges on the way to developing a truly liquid market, including the potential for market manipulations (especially in the earliest stages of developing markets).
Potential Abuses by Lower-Tier Centralized Exchanges – One of the primary difficulties in developing a market is getting a token listed on exchanges [virtually all of which were centralized at that point in the market]. New coins usually begin the process by getting listed on smaller exchanges. There are a number of abuses that can occur especially in the lower-tier exchanges, including front-running, exorbitant fees, poor trade execution, “rug pulls” and trading against their own customers.
Possible Overregulation – As a young industry with immense potential to disrupt the status quo, there is a high risk of overregulation by certain jurisdictions.
Potential for Regulatory Misunderstandings – There is also the potential for regulators to not understand aspects of the new technology or be unwilling to allow it to develop in particular jurisdictions.
Protectionist Action – There is also a high likelihood that in the future some jurisdictions may feel threatened by the industry and adopt a slate of protectionist measures that would limit the growth potential in those countries.
Once the information has been laid out in the above categories, the process of weighing the different factors can begin. At this juncture, it can help to visualize the information into a grid. This way, you can get a sense of what the most important factors are among the full list and where each is located on the grid.
On Friday, I will share some very important information about our journey as a community – and this will include some of the specific ways the above dynamics played out. The information will play a particularly important role in the evaluation of our future direction for the ecosystem.
Sincere thanks for your attention. It is making our ecosystem stronger.