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PARAGON – a Reboot of the Cannabis Industry with Blockchain technology

PARAGON

This project seeks to address some major issues with the medical Cannabis industry – namely:

  • No established standards for purity of products, such as THC and CBD potency
  • Monitoring and collection of quality data along the supply chain from grower to dispensary
  • Difficulty in obtaining office space for the industry, due to complications with federal laws
  • Fragmented community

They intend to do this by deploying a token which will drive an economy, in order to provide the following solutions:

  • To address standards, an immutable ledger that collects quality along the supply chain
  • To address the difficult in renting commercial space, this token and economy will provide a way for companies serving the industry to rent working space using tokens
  • To address the fragmentation of the industry, an online network will be created to allow industry stakeholders to band together and unite politically to work together toward cannabis legalization where it has not been yet achieved.

One thing that we must note about this ICO before we begin our analysis is the fact that it is very, very large.  According to the website, the presale has issued 70,000,000 tokens, which were sold at a price between $.75 and $1.00 each, with another 30,000,000 tokens to be released starting on the 15th of September and ending a month later.  At the projected price points, it amounts to about $100,000,000.

We will be using our standard 14-point analysis methodology for this podcast. These points consist of”

  1. The Concept
  2. The Company
  3. The Team
  4. The WhitePaper
  5. The Road Map
  6. The Token
  7. The Network and Technology
  8. The Presale
  9. Offering Details
    1. Platform
    2. Structure of the Offering
    3. Exchanges Supported
  10. SEC Compliance
  11. Business Viability
  12. Community Response and Anticipation
  13. Possible issues and little bit of devil’s advocacy
  14. Final Takeaway

The Concept

First, we need to again state that one of the things that has to be considered when we examine the concepts put forth by Paragon is the fact that they are seeking $100,000,000.  This is important because with a number that high, one would expect the problems that would be solved conceptually would be 1) universal in nature, 2) extremely urgent and dire and 3) compelling from a business standpoint. So please remember that number as you listen to this analysis.

Monitoring Cannabis Standards and Purity

At first glance, we understand some of the challenges that are listed in the whitepaper and on the website, with the Cannabis industry. We can imagine, similar to last week’s ICO, Ambrosus, how placing sensors at labs, or in grow houses and reporting the results on an immutable database of information would provide some comfort to consumers, but unlike the food and pharmaceutical industry, we don’t see a widespread demand from consumers for quality assurance in this space. It seems that they are letting the market determine the quality of the product, and relying on their experiences as well as the standards that are in place on a state-by-state level – as variable as they are.

Medical Marijuana – a Patchwork of Regulations

Now, Paragon is correct in pointing out the confused state of the Cannabis industry with respect to oversight, regulation and standards. No question about that.  As an example, we can examine a paper by the Washington State Liquor Control Board that was published in August of 2013 immediately after Washington voted to legalize marijuana. This 20-page paper suggested some avenues for the state to take with respect to establishing quality and testing standards. For instance, they examined the possibility of forcing labs to gain accreditation in standards such as ISO 17025 – an international standard which outlines rigorous lab testing standards for any kind of consumable product. But as the paper pointed out, at the time of publication, there was only one lab in the US that held the accreditation and it wasn’t in the state of Washington. So Washington, as an example, opted to go through a route of certifying labs for testing using their own criteria through an application process, and basing certification chiefly on the academic credentials of the “Scientific Director” of the lab, plus submit to periodic inspections by the liquor board. This is just one of over 20 examples, and every state is different.  But here, it’s very difficult to imagine the introduction of a blockchain technology will make much headway in unifying the current patchwork of regulations and standards. Therefore, the only benefit to using the technology will be the comfort achieved by the consumer.  We have a hard time believing that the labs or growers will adopt it, since there is not a lot of incentive for them to do so. It’s also difficult to imagine that the states will adopt a unified standard, blockchain or no blockchain, given the propensity for states to maintain control of state-managed regulations.

Real Estate .. Shared for the Marijuana Community

The second major concept is that of a shared office space. In this case, the idea is for Paragon to use most of the proceeds from the token sale – which appears to be heading toward $100,000,000, to purchase and refit shared office space that will be rented to tenants using the Paragon token. This is a little bit confusing. First, the investors of the ICO, which are supplying the $100,000,000, are not granted any stake in the property acquired by the company. This is, of course, necessary from a legal standpoint, because of SEC regulations, where if that were the case, then the offering would need to be registered as a security. But the question has been asked  — why purchase the real estate?  Why not lease it, and then sub-lease it using the Paragon token.  This would, it would seem, reduce the need for $100,000,000 in capital. And finally, although the whitepaper mentions that dispensaries could use these spaces, other comments from officials of the company in other forums, such as BitCoinTalk and Reddit have mentioned that the spaces would be used by companies that serve the industry, such as lighting companies, hydroponic manufacturers and others.  But as someone pointed out at Reddit, those types of companies have ZERO problems obtaining commercial spaces.   So the market for shared space in this industry seems confined a pretty narrow use case.

Fragmented Community

Finally, to address the current fragmentation of the industry, the concept is to create an online community on a blockchain, like Steemit, and incentivize and compensate the community for posting and contributing – and they would be rewarded with the Paragon token. But because it is illegal in most places for consumers to purchase medical marijuana with a token, the community would mainly consist of people who would use those tokens in the rental spaces, plus people in the industry who would hope to profit from the token by exchanging it for fiat currency.  But the main issue, Steemit-type forums work based on volume. The cannabis community is inherently small when compared to the use base of Steemit, or Reddit, which is not tied to any one topic.

Is Blockchain the Answer Here?

So purely from a conceptual perspective, and in using the important question of “why blockchain,” we frankly don’t see compelling reasons for a blockchain or decentralized solution.  We should remember that fundamentally, one of the main problems that the use of a decentralized platform seeks to solve is that there is very often a large, central authority (like a bank) that is standing in the way of many peers who want to interact, and that central authority  is extracting onerous fees to allow those peers to interact. That’s the fundamental concept and driver for a decentralized platform. But in the Cannabis industry, there is no central authority. Sure, there is a state-by-state authority that governs all kinds of aspects, but legally, it’s impossible at the moment for consumers to circumvent the approved payment systems that are in place, so here, a decentralized currency will not help.  The utilitarian case for the token, therefore, is extremely narrow, and we cannot see how it warrants $100,000,000.

 

The Company and the Team

There really is no company to examine, as the company appeared fairly recently as a vehicle for the ICO and project. This in and of itself is not unusual with these ICO’s as we have seen.  Therefore, we need to examine the team.  This is where, in our opinion, the project begins to unravel. The CEO is a former Miss Iowa, and a model, and who has started a high-end marijuana confectionary company in San Francisco. She seems like a nice enough person, but she does not seem to have the business or technical background to lead a $100,000,000 technical company that is embarking on an ambitious decentralized platform to solve tricky problems in a brand-new, chaotic industry such as legalized marijuana. Her husband, and “Chief Creative Officer” is a Russian semi-celebrity, but who is perhaps best known for antics of conspicuous consumption, and downright silliness. As an example, he organized and hosted a challenge where he collected a large amount of money in an auction-based event where he would tattoo his hand with the design of choice of the winner of the auction. When you examine the social profiles of this couple, you see what amounts to two people extremely focused on making and spending money. Not very much more than that. The only technical person listed on the core team, the Chief Technology Officer, has almost no credentials, papers, blogs, or hardly any information we could find other than the claim, by other members of the team, that he owns a digital currency exchange. His responses to technical questions on Reddit have been, to be frank, not very technical at all. There are no developers listed on the core team, and I have examined the 246 projects on Github associated with the term “Paragon” and none of them are related to this company or project.  When asked for the identity of other team members which might be programmers, and when asked for GitHub repositories, both were questions on the Slack channel, the team declined to provide that information. The person listed with apparently the most technical experience in crypto currency or blockchain technology is on the advisory board, not the core team. So from what we can gather, there really is no core technical team and no evidence of work completed.  When we examine the core team, the only somewhat relevant experience we can find is with the Chief Operating  Officer, who appears to have 20 years of experience in supply chain management. The Chief Strategy Officer was thanked for his contribution in a popular O’reilly book about the SSH protocol, so … that’s something. But as you might be able to tell, I’m sort of reaching here. If you were to ask me whether the people listed on this team could pull of a complicated blockchain project like this, I would say that I doubt it.

Whitepaper

This whitepaper is forty-four pages long. The first five pages discuss the general state of affairs with the Cannabis industry. Section 2 lists a mission statement that consists of 9 bullet points, some of which mention the platform, and some of which provide their intentions. These nine bullet points are somewhat generalized, and not what you might call cohesive. That is to say, they don’t all point in the same direction. Some points are regarding their honorable intentions and integrity, others make statements to the platform, yet others make reference to advantages gained by focusing on “hot topics” such as Crypto and Cannabis.

There are a couple of prominent statements in this whitepaper that form the heart and soul of it, which bear repeating and analyzing. The first is  “Blockchain-built smart contract technology is ideally suited to organize, system­atize, and bring verification and stability to a traditionally unchecked industry.”  The second is “Putting cannabis data and transactions on blockchain smart contracts will increase the speed of service and save companies hundreds of thousands in reduced paperwork.”  First, it’s not clear from the whitepaper how precisely the blockchain would organizes, systematize and bring verification and stability. They go on to mention the following – an immutable ledger that offers permanent verification of every past transaction. And then … stores all product lifecycle information forever in an easy-to-retrieve system. But who would need to retrieve and use this information once of the product is consumed?  Attorneys, perhaps, if there was a lawsuit or death from the consumption of a product?  Possibly, but in order for this to be adopted, profound legal changes would need to happen, in more than 20 states at the time of this podcast.

The whitepaper is full of broad statements like this. Here is another “The combination of decentralized encryption, anonymity, immutability, and global scale turns Paragon into the ultimate online community for the legalization of Cannabis across borders.” Beyond that statement, however, there is no explanation of precisely how.  On page eleven there are nine specific use cases listed in the Cannabis industry.  Superficially read, these nine bullet points sound like reasonable ideas.  But they are really just that – ideas.  There is no analysis or proposal or technical solution that explains precisely how any of these ideas would be implemented. The treatment of this topic that most closely resembles something technical is a series of steps that are undertaken in a typical supply chain starting with the cultivation of the crop and leading to the purchase by the consumer.  There are a lot of steps listed, but the method of monitoring is RFID tags on the pots contain the plants, and which somehow would record days in vegetation, days in drying, days in cure, hydroponic vs. soil – how this is achieved with something tied to the pot is not explained.

Just to take one example – this paper mentions “Assign or verify certifications or certain properties of physical properties ..” but absolutely nothing about the types of sensors, the capabilities off the sensors, or the application of the sensors. There is one vague comment about a 24-hour camera recording the possibility of selling plants out the back door of the grow house, but what’s the plan – to upload the footage to the blockchain?  Contrast that to a project like Ambrosus, which offered detailed design documents, and whose lead engineer held more than one US patent for piezo electric dynamic ambient sensors.

IOTA

Section 4 is titled “collaboration with IOTA”, and which appears to have been inserted as an afterthought.  I should explain what IOTA is – it’s actually a somewhat revolutionary and brand-new technology which consists of a distributed platform, but without a blockchain.  It’s very existence is due to the simple fact that it’s almost impossible to scale a traditional blockchain platform when working with an “Internet of Things” concept like Paragon is offering, where hundreds of thousands of transactions reported by sensors are intended to be written into the blockchain.  It appears that along the way, the Paragon team realized that this issue would appear and so they contacted the IOTA team. In fact, there is an Ask me Anything sub-reddit, held by both Paragon and IOTA where they answered questions together. The issue is that the whitepaper wasn’t edited completely to change the concepts from a purely Ethereum-based project to a project that leverages IOTA, and the whitepaper contains no real understanding of how the IOTA platform actually works and how it would be applied to the Paragon solution.

The Risks

Besides the almost complete lack of technical information, I think the most alarming aspect of this whitepaper is section 9, which is titled “Risks.”   This section of the whitepaper consists of no less than nine densely-written pages. It’s over 3,500 words of dire warnings, mostly around the fact that the token could become worthless from a wide variety of reasons. To give you an idea of how much information we are talking about – if I were to read all of this text out loud it would consume more than three-quarters of this 41-minute podcast. Now, I applaud the fact that they team listened closely to their attorneys to document in detail all of the things that could possibly go wrong, but I have to say that I have not seen anything quite like this in an ICO whitepaper. If I myself were to consider investing in this project, I would focus on this section, since it’s probably the most substantive part of the whitepaper itself, which tells you something.

Road Map

An interesting aspect of this road map, as it is shown in the whitepaper, is that the very first step in the road map is November 15th, 2017, when the token will be listed on the major exchanges.  This reveals some interesting information:

  1. There has been no work done yet. Most road maps start a year or so BEFORE the ICO, and talk about what has been done leading up to the ICO.  This road map seems to indicate that nothing starts until fifteen days after they collect the $100,000,000.
  2. It’s the first thing they are thinking about. Before any coding, before any other aspects of the project, the first thing that has to happen is that the token must be listed.

They go on to mention some “Initial Functionality” which are things like a web application, an online dashboards with up-down vote capability, a doctor database, and other databases, but no timelines for those.  The first real estate purchase is slated for February 2018 in Oakland, CA. Then in November, 2018, the flagship location and Headquarters will be opened, the blockchain smart contract (singular) will be fully functioning, and all services operational for all use cases described.

When we consider the team, the use cases they have suggested, and the lack of any prior work or public code anywhere, it becomes very hard to take this timeline seriously.

The Token and the Technology

The token will be named “Paragon” – with a symbol of PRG, and in the whitepaper it’s defined as an ERC-20 token created on the Ethereum Platform, but this is called into question with the reference to IOTA, which is most definitely NOT an ERC-20 token, and is, in fact, an different platform altogether from Ethereum.  Having said that, however, we should keep in mind that the IOTA developers themselves have stated more than once that their platform is not designed as a competing or replacement platform for any other hard-chain technolology (like Ethereum), but should be considered as a complimentary platform to shore up issues that blockchain platforms like Ethereum struggle with – such as scalability with Internet of Things. So there’s a chance that this could work if there is good integration between the platforms, but the architects of the Paragon platform, and the authors of the whitepaper provide zero details as to what parts would be on Ethereum and which parts would leverage IOTA.  We can imagine, but I would maintain that we should not have to in an offering of this size.

The PRG token will be used to provide a payment mechanism for various services in the Cannabis industry, such as doctor’s prescriptions, materials for growers, and rental space for companies in the community that will leverage the shared commercial space.

This is where I would normally cover the technology underlying the platform, but because there is no information, I can’t really comment on it.

Presale

The presale started on August 15th, 2017.  During the presale, contributors received a 25% discount from the $1.00 USD per token price with a minimum purchase of $25,000 in the first ten days. This was reduced to 15% in the second 10 days with a $15,000 minimum contribution and in the remaining days a 10% discount was provided with a $10,000 minimum contribution. According to the very latest data on the website, the presale consisted of 70,000,000 PRG tokens sold at these varying discounts. There is, of course no way to precisely know how much money was raised, but if 70,000,000 tokens were indeed sold, it was clearly a substantial amount of money. In the mission statement, it’s mentioned that the funds will be escrowed, and the books will be audited by the likes of Deloitte, Grant Thornton, an other well-recognized international accounting firms. In the months ahead it will be interesting to review these audits, if they are made publicly available.

ICO Details

  • The ICO began on September 15th and will end October 15th, 2017
  • The ICO appears to be open to U.S. investors
  • The hard cap of the sale is 100,000,000 PRG tokens, but according to the website, 70,000,000 of these were sold in the pre-sale. That leaves 30,000,000 tokens, and as of 24 hours after the start of the sale, the website shows that 1,500,755 tokens have been sold thus far.
  • There is an exchange that is listing the token – it’s HitBTC. At the moment the price is around .0035 ETHER, which is, right now, about $.87 USD per token.
  • It is possible to join the crowdsale right now at paragoincoin.com, but there are no precise instructions.
  • In order to contribute to this token offering, you would need to sign up for an account at paragoncoin.com. A dashboard is provided, and it appears that the method is to simply send payment through a variety of coins directly to wallets of the respective crypto-currency. There are about a dozen currencies accepted.
  • The somewhat odd feature of this token offering is that the price of the token goes up $.05 every twenty four hours for the offering.
  • Finally, with respect to the allocation of funds, they are allocated as such:
    • 10M for the founders
    • 7M for the team
    • 2M for institutional investors
    • Friends and family get $5M
    • Advisors get $1.95 M –
    • The rest is allocated to later stages of fundraising.

SEC Compliance

With respect to the SEC and the infamous Howey Test – first, quickly, in case this is your first episode the so-called Howey Test refers to a supreme court case which decided whether an investment could be considered a security or not. This has profound implications for the ICO industry, particularly those open to US investors, in that if an offering could be considered a security by the SEC, then the company issuing the offering would need to register it with the SEC as such. This is an long-tem and expensive process which ICO’s generally want to avoid at all costs. Paragon is no exception, and they have hired an attorney that specializes in such matters to guide them – he is listed on their team.  If there is one part of the test that is the most important, it’s whether or not the offering implies a return on the investment.  The whitepaper is careful to avoid any direct statement, and seeks to present a classic “utility” token, complete with “voting rights”.  But the public statements on social channels like Reddit and BitCoinTalk by the leaders of the project indicate otherwise, whether they understand that or not. An example is when someone asked the Chief Creative Officer and husband of the CEO whether a $200,000,000 valuation (that figure came from the total planned cap on the issued token) was a representation of the balance sheet of the company, the response was “When our crypto is listed on a major exchange and if market cap shoots to a billion, are you going to ask the same question?”  In the same thread, he also stated, “The more our company has to build an ecosystem around this token, the more valuable the token is going to be.”  And then there is the tweet by the rapper “The Game”  which said something to the effect of “time to make our investor’s millionaires!”.  All of this pretty much indicates a complete failure of at least the spirit of the Howey test, and it’s probably for good reason that they have received, in these public forums, advice from people apparently trying to help them with statements like “please try to refrain from promising returns on investments.”

Business Viability –

In terms of business viability, if the company does manage to collect as much money as it appears they are collecting, and they buy real estate and convert it to rentable shared space, there’s a possibility that the company will actually make money, because real estate itself has been a lucrative investment in general. But as an investment in the ICO, unless the token itself rises in value, investors who purchase the tokens will not have stake in the real estate holdings, nor the business. Instead, the potential for investors lies in the success of the token, and for that you must believe in the vision for the use of the token – not in the real estate holdings that are purchased with the money from the ICO. Thus, the success of the business itself is not material to the discussion of the success of the ICO from an investment perspective.

Reaction from the Community

The reaction from the community has been, to put it charitably, extremely skeptical.  And the communication from the leadership has been amateurish, lacking substance, and questionable at best.  It is absolutely true that almost every ICO these days is subject to attacks, spiteful behavior, trashing in the forums, and so forth, but in this case, I see a lack of acceptable answers to tough, but well-posed questions.  When asked probing questions about the lack of technical detail, lack of experience, and other factors missing from a respectable offering, the responses were almost always an accusation that the person making the request was part of some kind of conspiracy to extort money from Paragon.  It’s a bit bizarre, actually. There was one strange situation wherein someone on the Slack Channel made a negative post and then sent a message in what appears to be a request for money to edit or remove the post – and this turned into a huge campaign by Paragon to loudly proclaim that they were the victims of extortion. This led to interviews and blog posts from sympathetic bloggers, and lots of press and Sub-Reddit wars, but all it did in my opinion was to deflect from the serious questions – which were never really answered adequately.

Gotchas

Normally, the Gotchas section of this podcast consists of a few items that might be construed as potential issue, whether it be due to the concept, the team, the company, the technology. But in this analysis, our opinion is that the entire ICO is one big “gotcha.”  Almost every point of the fourteen we normally discuss has a major problem.

Takeaway

Our final takeaway on this ICO is that while it may be true that this group is successful in raising money – and if you believe their numbers that 70,000,000 tokens have already been allocated, they have been – we nevertheless believe that the ultimate vision expressed in the whitepaper is unlikely to come to pass.  But then, judging from the perspective of both the team and their investors, this unfortunately doesn’t seem to matter.

 

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Real Estate and Peer-to-Peer Rentals .. Transformed

ATLANT

Our brand-new, upcoming ICO for this week is ATLANT, which is launching the ICO on September 7th,  and has all the markings of a successful ICO. I would be very surprised if this ICO didn’t knock it out of the park.

The main reason for this is because of the size of the vertical market the ICO plans to disrupt, professionally planned cadence of activity leading up to the ICO, the fact that there is something to actually log into,  the whitepaper, and the team behind the project. The CEO is named Julian Svirsky and he’s a Wall Street veteran  who introduced the project at FinTech 2017 in New York (August 21-24) – in fact they investing in a sponsorship of that event, and the team has, so far, hit all of the marks that go into a solid ICO. Since this is the Episode 1, I’ll explain the format.  Each week, I will need to cover the following points:

  • The Concept
  • The Company
  • The Team
  • The Whitepaper
  • The Road Map
  • The Network – Ethereum, plus ATLANT (secure communication between)
  • The Presale, if it exists
  • Offering Details
    • Platform
    • Token/Coin
    • Structure of the Offering
    • Exchanges Supporting the token/coin
    • Pre-ICO Price, if available (~$6.00)
  • SEC Compliance
    • Hawley Test (Token Holders can change elements of the network)
  • Community Response and Anticipation
  • Possible gotchas
  • Overall Take

The Concept

  •   The Concept – This is project takes on the real estate market. The first point is that the real estate market is the largest market on the planet, dwarfing all others, with $1.4 trillion dollars in transactions on an annual basis. This ICO takes on two fundamental components of that market:
  • Real Estate Transactions, which are opaque, notably complex and terribly inefficient to begin with, particularly the ability to sell partial shares in real estate asset, and
  • Peer-to-Peer rentals – specifically the likes of AirBnB, VRBO and other peer-to-peer rental exchanges.

The project aims to use certain aspects of blockchain technology, combined with traditional aspects of real estate transactions to improve these processes and most importantly, drastically reduce fees.  The ultimate question for all  ICOS’a s well as this one is, simply – what is preventing the solution of these problems now, without a blockchain platform? How will blockchain help?

  1. With respect to the first – that is, monetizing and exchaning partial shares of a real estate property, the main vehicle that exists for this now is the Real Estate Investment Trust (or REIT.)  Now this vehicle bundles properties together to into a tradeable instrument and allows an investor to invest partially in real estate through this REIT mechanism. But while this can be used for a single property, it’s prohibitively expensive to list on existing exchanges. The registration of a REIT can cost up to a million dollars a year. So you can see how this would be impossible for the majority of real estate assets – even large ones. The use of a distributed blockchain ledger hosted on a secure network made of peers will remove this barrier to entry, because exchanges that run on blockchain do not need to charge prohibitive fees for the inclusion of properties on their exchanges. Not only that, but the legal, contractual and administrative information can be made immutable and trusted by using crypto-technology that cannot be reversed. Thus providing great efficiencies as well as transparency in transacting real estate. Concepts like escrow can be built into smart contracts, as well as both machine-readable and human-readable contract equivalents knows as “Ricardian Contracts” introduce major efficiencies into the process, and that leads to lower fees.  The projected fee to list and complete the transaction is projected at 7%.
  2. Now let’s consider the second – the Peer-to-Peer Rental platforms like AirBnB and VRBO are absolutely disrupting the traditional hospitality market, essentially by making it easy for just about anyone to rent their real estate property to just about anyone. But there are some dreadful inefficiencies in these models that are only mitigated by very high transaction fees. Between all parties, as much as 15% of the transaction can go to fees to the administators of the service – such as AirBnBand uip to 30% for services like Expedia.  The use of blockchain can reduce these fees by using built-in escrow, and an efficient method of arbitration for disputes.  The sponsors of this ICO claim that transactional fees for peer-to-peer rentals on a blockchain based platform might be lowered as much as 90%

    The Company

 

Let’s talk about the company. The web page for the ATLANT ICO specifically states that there is a legal structure, with a company named TENSIGMA registered in the British Virgin Islands. The BVI is an offshore jurisdiction, and details about the filing are only available through a paid search.  Whether this is a red flag or not is not something I am qualified to comment on. All I can say is that a lot of ICO’s use this structure, and I imagine it’s mainly due to the tax advantages in countries like the BVI, which is pretty important for a startup.

The Team

I would submit that the team is more important than company structure. There is much more information about them.  This team consists of 4 executive business leaders with a respectable amount of experience at enterprise levels. The advisory team is composed of men and women with significant financial and real estate experience – leaders in their respective fields. The technical team appears solid – young, of course, but solid in the sense that you could imagine that they would be capable of pulling this off.  The CTO was instrumental in building digital currency exchanges, and as you’ll hear in a moment, the team has already completed a somewhat working exchange platform, using open source technology, which can be examined on GitHub – which is system where developers can store and maintain their source software.

The Whitepaper

It’s interesting about these ICO whitepapers.  You might think that a whitepaper offered in the English language that was worth potentially worth millions of dollars would be checked and re-checked for grammar and usage at least as much as a half-page New York Time article, but you would be wrong.  Even the most impressive and sensible of these papers sound like they were written and then reviewed by people who use English as a second language.  But of course I’m quibbling – showing my age, I guess, since we now live in a sort of post-literate phase in human development. ANYWAY .. as an ICO whitepaper , this one comes in a 40 pages, and it’s mostly well-thought out and sensible. About a year ago, there was a notorious Twitter post when the whitepaper of Steemit came out  – a full 90-page, line-by-line rant – and while I suppose it could be possible to rip this apart like that was, I think you’d have to be a pretty aggressive troll to do so – like that poster was. Some significant and beneficial aspects of this concept expressed through this whitepaper is that there is a work component – people will be able to perform work in arbitration of disputes in the peer-to-peer rental network and collect fees. Ostensibly, this is currently done by employees of companies like AirBnB. A token mechanism running on a distributed network not owned by any one company will allow for these workers to collect money for what they do directly from the network. This kind of concept in an ICO whitepaper lends credence to the project. Another aspect that we like to see in whitepapers is the ability for token holders to vote to govern the platform. This egalitarian concept is another that should be in an ICO whitepaper, and is well-expressed in this one. Finally, the mechanism by which real estate is converted into a tokenized and tradeable asset through the use of a Special Purpose Vehicle, followed by a Property Token Offering and using an Ethereum-based Distributed Autonomous Organization is clear and makes sense – at least to me.

The Road Map

  • According to the road map, this ICO should have a working beta of the platform by the 7th of September. What I have found is that they are a little bit behind as you will see when I talk about the network. In terms of schedule, however, they are ambitious. They plan to have a fully-working platforrm launch by March of 2018 and a P2P Rental platform live by April of 2018. So not a lot time to wait to see if they can pull this off. They get points for having a schedule and a road map, and they seem to have a team that can execute.

The Network

The Network – Ethereum, plus ATLANT (secure communication between) – According to the whitepaper, they will be using the Ethereum virtual Machine and Ethereum network, plus they will launch an ATLANT network as well. There will be secure communicate between those two systems. Smart Contacts will handle rental contracts, but the management of those contracts will be on the ATLANT network. They will make use of the Platform DAO and each property will have its own DAO and Property Token Offering. All certificates and contracts, as well as transactions are digitally signed, of course.

Pre-Sale

  • Soft Cap of $1.5M, which is the amount reached at the Pre-Sale, which started on August 1, 2017 and ended 19 days later when the $1.5M cap was reached.

Offering Details

  • Platform – Ethereum Platform and a standalone P2P ATLANT Platform. The software stack is multi-tiered, with data, logic, presentation and high-level logic tiers. The Ethereum Virtual Machine runs the high-level logic, and an External Ethereum node helps power the presentation node, with the Atlantic Desktop, which speaks to Ethereum through the API.

  • Token/Coin – the main platform token is the ATL, which will be eventually traded on exchanges. When you log into the trading platform, which is alpha at the moment, you see ATL, ATLE, ATLF, ATLG and a few others that you can trade, all of which have different valuations. ATL is .0017 BTC now (About $6), and the highest is trading against BTC at .004, which is about $37.  I am still in the process of verification and so I can’t fund the account or trade, and anyway the FAQ indicates that trading ATL will occur after the ICO is complete.

  • Structure of the Offering

    • Begins September 7th and runs until October 31, 2017
    • Soft Cap of $1.5M, which is the amount reached at the Pre-Sale, which started on August 1, 2017 and ended 19 days later when the $1.5M cap was reached.
    • Hard Cap of 225,000 ETH which is roughly $76M (the original cap was higher but they announced a reduction because of the rise of ETH in recent weeks)
    • Total Supply of ATL tokens will be limited to 150,000,000.
    • Unsold Tokens will be burned.
  • Exchanges Supporting the token/coin
  • ICO Price ($.67 – $.80) If you buy before 10% of the tokens are sold, then you will get 505 tokens for 1 Ether, which is about $340 at the moment. If you wait until the last 90%, you will get about 425. So the range you may pay for these tokens during the sale is between $.67 and $80 per token.

SEC Compliance and the Howey Test

  • The Most important question here is with respect to SEC Compliance. It should be understood that the first mission listed on the Security and Exchange Commission’s website is to protect the investor. However, with respect to ICO’s the most important question to ask is whether the SEC would consider the ICO a “Security Offering” in the legal sense. Because if it is, and it’s not filed as such with the SEC, then regardless of whether the ICO actually is a Security or not, targeting by the SEC could at the very least severely impede the progress of the project you are investing in.  So as investor’s, it’s in our best interest to discern whether the ICO would be considered a Security by the SEC.
  • The best way to do this is the so-called “Howey Test,” named after a landmark Supreme Court ruling decades ago. There’s not enough time to explain the details of the Howey test in this podcast, but from my reading of it, the ATL token would most likely not be determined to be a Security for the following reasons:
    • Speculation is discouraged. In more than one place in the whitepaper it is pointed out that there is “No Passive Expectation of income solely for holding ATL tokens” – while the grammar may be slightly off, the meaning is clear.
    • Voting rights for token holders to make operational decisions for the platform, as well as the token providing an operational use – both implying that the token holders have an active stake in the operations of the network. This is expressed in several places in the whitepaper, from powerful and wide-ranging voting rights to workers using the network and running nodes.
  • Howey Test (Token Holders can change elements of the network) result is a score of “30” which is deemed “unlikely” to be treated as a security.

Technology

  • Technology – Github has 14 repositories of code, with token contracts, pre-sale contracts, an altant and adex (that’s the exchange) clients. Code seems standard and compliant to the Ethereum platform, using web3.js, solidity and go.
  • Community Response and Anticipation
    • Significant – the response on BitCoinTalk was generally favorable, and the team seemed to stand up to probing questions pretty well. The best thread was the pre-sale thread, not the bounty thread, which was mainly lists of bounty proof.
    • Slack channel has a lot of activity – a good deal of it positive.
    • On Bitcontalk, the ATLANT got into a minor fight with a competing ICO named Relest, and after reading both whitepapers I can say that there is very little comparison, and they handled themselves well.
    • On Reddit, there was a complaint that the GitHub “leaves a lot to be desired” and the response was that the team only deployes to GitHub when the code is fully tested and ready-to-deploy. And then on September 3rd there was an announcement that the Exchange was live, as well as wallet and smart contracts.
    • ICO Bench rates the ICO at 4.8 stars of 5.
  • Business Viability – With a $1.4 trillion market, and a 7% fee for listing real estate assets, plus a worker incentive to keep the network running and do the arbitration work for rentals, the business model seems lucrative. However, the gotcha below deflates those number just a bit.
  • Open to US Investment – the Pre-sale terms indicated that US citizens would not be able to participate. This may be the same for the ICO, but please understand that as a US citizen you will have access to exchanges where you can purchase the tokens, so it’s not like you won’t be able to participate in the network.

Potential Issues

  • The whitepaper, as well as discussions posted on YouTube mention the $1.4 Trillion transactional volume of real estate on an annual basis, and the implication is that a very small slice of that market share would be needed to capture significant revenue. With a 7% listing fee for an asset, lets run the number where ATLANT manages to capture just 1% of this massive market. That would amount to $980,000,000 in fees alone. That’s quite a goal to aspire to, but there’s a slight flaw in that math in that the whitepaper mentions that the minimum value for the listing of a real estate asset would be $20,000,000 dollars. So the real market that ATLANT would be disrupting would be closer to 1% of the $1.4 Trillion. This is a much more modest number – closer to about $10,000,000 in fees. Now granted, that’s only half the business – the other half is the Peer-to-Peer rental market, and that market could yield some large numbers, particularly if ATLANT makes deep inroads to the market share that AirBnB  has already captured. One might wonder why they shut out all real estate less than $20M – but it kind of makes sense.  We don’t, after all, want every three bedroom, 2-bath family of four to suddenly start tokenizing their homes. That might be disruptive in a bad way.  So it makes sense – but it does take a little air out of the $1.4 Trillion dollar volume that sounds so very large when first mentioned.
  • Another point that a person knowledgeable in real estate made BitCoinTalk is that operationally, it’s difficult enough to collectively manage a piece of real estate – like a building where capital decisions must be made from time to time. This person’s point was that with a decentralized group of investors, it will be even more difficult. The counter point from ATLANT was that this is done by co-ops already and not very well – and the counter to that was that at least the co-op owners live in the building. So – certainly an interesting conversation with respect to the business model. One slight disappointment that I saw was that as soon as ATLANT got wind that this person was a US resident, they asked him to stop “participating” since ATLANT ICO is not accepting US persons at this time. To which the person responded by the fact that he could purchase tokens anytime after the ICO, and that he was, in fact, entitled to make comments on the thread.

 

Final Takeaway

This ICO has all the hallmarks of a professionally planned and responsibly-delivered project. I have looked at competing real estate ICO’s and I don’t see anything with this level of depth in the whitepaper and response form the community.  I think as ICO’s, it should be seriously considered and worth the effort to perform the due diligence to make your own decision to participate.