COTI Rating Review
We have reviewed project's progress as of December 2018 and mentioned that the team is behind their initial roadmap in terms of both adoption and technical features. Alpha has been released, however, testnet which was scheduled for Q4 2018, was not released. Not all calimed additional features have been imlemented and the team does not provide information on the actual roadmap. Therefore, we decreased rating score to "Risky" .
We consider the COTI project promising and see great potential in the technologies and ideas described in the documentation. Distributed networks based on DAG are considered a promising development, which is able to outshine traditional blockchain. Together with the reputation and arbitrage systems that COTI also intends to use in its own network, the security and transparency of the ecosystem being developed could attract both the community in general and the merchants that the project is aimed at.
A great idea is never a panacea for a successful start-up, the development of a project of course also plays a significant role. In the case of COTI, perhaps the most powerful side of the project is the overall degree of its development and the quality of the documentation. There are three full-fledged documents that disclose the project from the parameters of the token sale, the business model and technical features. Each document is well-worked, including design and presentation. Having studied the documentation we get the impression of a good strategic view, detailed elaboration and a deep awareness on the part of the team about their field of activity.
We also note the mature ICO marketing policy in the early stages of the crowdsale, which is not typical for the ICO market and is an absolute plus. Further maintaining community interest can create an excellent reputation for the project and attract many investors.
Key issues for the COTI project are typical for projects of an early stage of development. First of all, the lack of a MVP - the development of the platform is at an early stage.
The presence of reliable partners has a positive effect on the project. At the moment, Processing.com and Transact Europe are the largest partners. The first has a large network of customers, the second is a European bank able to issue debit cards. Both partnerships will clearly be extremely useful for COTI’s development.
Despite the long development horizon, the project needs to think about finding an initial favorable environment for market expansion.
Less significant drawbacks are the large quantity of tokens issued, and a lack of information in the documentation: for example, lack of a financial plan and pricing.
Regarding the prospects for the COTI platform, it is accompanied by one significant risk; technologically it is in a strongly competitive environment; there are a large number of projects and platforms to rival it.
It is unlikely that standard approaches such as “we combine all technologies in one ecosystem like no one else” will work here, and it is not surprising that one popular community question is about competitive advantages.
General Information about the Project and ICO
COTI is a project for the creation of a payment service for consumers and merchants on the basis of its own distributed network, which uses the most advanced methods of building blockchain and transaction confirmation.
If initially it seems that COTI is a regular project for a financial service, when we take a more detailed look at the project and its documentation, we see the potential application of many promising solutions that are described qualitatively, and the possibilities for their application in the real market are also described. So, we are talking about decentralization based on the directed acyclic graph (DAG), and the principle of confirming a transaction based on a Trust Engine with an assigned Trust Score. The network also uses a Trust Scoring Mechanism to solve the problem of trust between parties to transactions, including those in goods and services. Transactions become safer with the use of escrow. A mediation system for dispute resolution is also presented.
The final ecosystem can be applied both as separate cryptocurrency, a means for online payments and in the format of a payment system for individuals and businesses.
The project is led by a competent team led by Shahaf Bar-Geffen, the co-founder and former CEO of WEB3. A huge pool of consultants has been created; they include representatives of financial structures such as the former CIO of BlackRock.
There is no MVP at the current stage of project development and the road map is quite lengthy; development will continue until 2021.
At the time of writing, COTI does not disclose timings for the ICO; the project is at the private sale stage, with a public pre-sale and ICO expected shortly.
The project’s marketing is at a high level, and the community is actively engaged in discussions with the team. At the same time, number of subscribers does not always reflect a real interest - for example, the group on Telegram has Airdrop support and other social media have a bounty program.
Start: Q2 2018
End: 15 days after start date
Soft cap: $10,000,000 (according to team, already achieved)
Hard cap: $30,000.000
Price: 1 COTI = $0.1
Token: COTI, standard ERC-20
Accepted currency: ETH
Total emission: 2,000,000,000 COTI
On sale: 600,000,000 COTI
30% - Token sale
22% - Reserve
15% - Team
10% - Backers, partners and advisors
13% - Incentive program for partners, merchants, validators and users
10% - Liquidity
Distribution of funds:
50% of tokens for Private sale contributors will be frozen for a period of 6-24 months. Tokens for the team, early backers and advisors will also be frozen for 6-24 months.
Lock-up periods vary depending on discount received during the crowdsale:
- Unsold tokens will be allocated to the reserve.
An additional 2 billion tokens are issued during the token sale. Additional COTI backup tokens (2,000,000,000 COTI) will be created but will not be issued before the launch of COTI's mainnet. The emission of reserved tokens will require the approval of most COTI mediators.
48% of tokens will be retained by COTI, while 52% will be available to the community (30% during the token sale and 22% through the reserve)
Description of the Project Services
COTI is an atypical payment service. Most ideas for payment services are based on existing blockchain systems and support for a wide range of cryptocurrencies. COTI is developing its own blockchain with its own currency, and this is combined in an ecosystem using various mechanisms of trust and arbitration. Thus, considering COTI’s services involves considering the architecture to be built and the options for its use in end services.
The distributed ledger (the so-called Cluster) is based on directed acyclic graph (DAG) technology, i.e. it consists of a unidirectional chain of transactions. Using such a construction principle avoids the scalability problems with traditional blockchains. In the case of DAG, a positive correlation of network size and speed of transaction confirmation are observed. The transaction confirmation process is based on a Trust Chain Consensus Algorithm where a Trust Score is assigned to each transaction, and only the most trusted transactions are acknowledged.
The COTI network consists of nodes, of which there are several types:
Full Nodes - the main infrastructure component of the network. Full Nodes enable confirming transactions and initiating proof-of-work (PoW). They also receive Trust Score data from the Trust Score Servers.
Double Spend Prevention (DSP) Nodes - these nodes contain and update the current copy of the Cluster, monitor network transactions, preventing the possibility of double-spending attacks. Along with the full nodes, they receive remuneration for their work within the COTI network.
History Nodes – they are designed to store earlier versions of the Cluster and its entire history. A complete account history can be obtained from these nodes.
The next level of ecosystem architecture is composed of a Trust Scoring Mechanism (Trust Scoring Engine) and a Mediation System. These are the most important components of the network, since a high level of transaction security, transparency, decentralized control, etc. is ensured by them.
The Trust Scoring Mechanism is a reputation system for COTI; it enables the network to be more transparent and reliable. A scoring assessment corresponds to each participant, formed on the basis of users’ behavior and conscientiousness. A final evaluation is created without the subjective opinion of other people. It is generated by the system automatically, minimizing the human factor and avoiding manipulation. In addition, the valuation is related to the network in such a way that the most valuable transactions have smaller commissions and vice versa.
Evaluation is created on the basis of the following variables: Account balance; Dispute occurrence; Disputes won; Disputes lost; User ratings (rating assigned by the second party of a transaction, which is calibrated according to its Trust Scores).
The next important architecture in the COTI ecosystem is the Mediation System. This is a high-level system for preventing unscrupulous behavior, fraudulent actions, counterparty mistakes, etc. The system complements Trust Score in providing security.
A key role in the Mediation System is played by Mediators. These are trusted users of the platform - to register as a Mediator, a user needs to undergo additional verification and confirm a competence (e.g. Language proficiency level). When initiating a dispute, Mediators are selected randomly from the total number of participants. A matrix of votes is drawn up after voting and the system determines consensus on the dispute.
If a consumer wins a dispute, funds from the Reserve Credit Fund (RCF) are returned to him. RCF is created from deductions from each deal by a merchant; its volume depends on the reputation of the merchant (Trust Score). In the event that a merchant wins a dispute, no action is required.
We have considered the general architecture of the COTI platform, so let us consider end-user services. There are several options for their use, depending on type of client.
The ecosystem has the following participant types:
Individuals who use COTI currency as a means of payment, saving, etc. A card service is also available - issuing both virtual and physical debit cards.
Those engaged in trading goods and services. They have access to separate processing tools that enable trade within the ecosystem using COTI currency, the Trust score and the Mediation System.
Merchants also have access to a hedging service due to currency risks and periods of increased volatility in cryptocurrencies and COTI in particular. Initially, only short-term 30-day options contracts will be available. A market for intra-platform derivatives will be created by means of the service, i.e. there will be no need to compensate for the deal by a market maker outside the ecosystem in the long term. It is noteworthy that margin requirements will be associated with the merchant’s Trust Scores.
These participants will have a separate virtual terminal, where it will be easy to carry out functions within the Mediation System: receive rewards for successful disputes, view invitations and dispute data, etc.
Before we start to review the market for the COTI project, we once again wish to emphasize the high quality of project documentation. We support the approach of all necessary information being set out in the WP, but we admit that the desire to present a large amount of information often requires separate additional documentation.
In the case of COTI, description of the project’s business is made in the "Overview Document". We note that selection of material in the document is impeccably done, and the reader can obtain a comprehensive view of the market situation that has developed around the COTI project.
E-commerce is difficult to call a trend, since it is an integral aspect of our lives. Sales through this channel have long exceeded trillions of dollars’ worth, but the industry continues to actively grow. eMarker updates its forecasts annually and it is appropriate to show the following diagram from their latest research:
The graph turns out to be highly informative. It can be seen that steady growth is projected and absolute figures are becoming more impressive. E-commerce turnover will reach $4.5 trillion in 2021 and its total share in retail will reach 15.5% with a CAGR of 19.22%. The e-commerce industry remains one of the most promising on the global market.
The industry is not homogeneous. On the one hand, widespread digitalization of the economy pushes the market upward, decreasing the share of classical retail. On the other hand, the biggest players such as Amazon and Alibaba are buying up new local platforms, thereby acting as a deterrent.
At the same time, the success of Amazon is inspiring other local projects in their development. This turns out to be a vicious circle for a growing industry that will remain in the coming years.
The satellites of this "celebration of life" are the payment systems that ensure execution of transactions. There are many payment systems but Visa, MasterCard and American Express are known to everyone. For the user/buyer, the subtleties of the payment system are not as important as the payment service which is based on it. According to Worldpay’s research, payment services have the following distributions in the total volume of transactions.
Details for each service can be read about in the original report; here we note that there is an obvious trend for the popularity of eWallets. By eWallets we mean payment by electronic money such as Alipay, Tenpay, PayPal, Qiwi, Yandex.Money, etc. It is unclear whether the authors have considered research into cryptocurrency, but from our point of view cryptocurrencies fit perfectly into the declared trend.
COTI team sees the following shortcomings in the payment solutions industry:
High processing fees
Long settlement periods with high rolling reserves
Absence of a shared trust mechanism
Lack of multi-currency support
The essences of the shortcomings are clear from their titles, but if a more detailed justification is required, we refer the reader to the Overview Document.
Popular cryptocurrencies in their current form do not compete well with centralized payment services. There are many reasons for this; the COTI documentation highlights the main issues as scalability, speed and consistency, legality, fungibility, third party vulnerabilities, volatility, immutability, complexity.
COTI aim to move the online blockchain payment industry to a new level. The founders themselves call this a "next generation payments network" and illustrate this with the following table:
Blockchain online payments are a fundamental topic, and it is not necessary to talk about a lack of competition. It should be understood that projects are competing not only as creators of payment systems, protocols and smart contracts but also as service providers for end customers. The success of a particular project often depends on the quality and convenience of these services for end customers. In the case of COTI, it has all the opportunities to attract a market share to the platform with its thorough approach to project management.
The team is professional, and fully complies with best practices for start-ups. There are specialists from all areas of project development; the experience of team members is unquestionable, but it is important to note the following - it is easy to trace connections of the team members through Israeli universities and work places. Therefore, we can hope that the founders recruited their team based on personal interaction with specific people.
As often happens, the staff listed on the website and in the WP are slightly different. We were guided by the list from the website as a more complete one. The project team is quite large so here we limit ourselves to a truncated list from the main page of the project website.
Shahaf Bar-Geffen, CEO
Shahaf is the Co-Founder and Former CEO of WEB3, a leading provider of digital media advertising solutions. Since founding the company in 2006, Shahaf has led WEB3 to become a leading multinational digital marketing firm. Shahaf holds a B.Sc degree in Biotech and Economics from Tel Aviv University (magna cum laude) and is an Israeli Air Force officer (Major, reserves)
More detail: https://www.linkedin.com/in/shahafbg
Erol Hallufgil, Research and Software Engineer
Erol previously headed up the developer team at TechChain Solutions. He holds a master's degree in mathematics from the Technion, Israel Institute of Technology.
Tal Dadia, Research Engineer
Tal was a former back-end developer and blockchain academic researcher. He holds an MA in financial economics and financial engineering from IDC Herzliya.
More detail: https://www.linkedin.com/in/tal-dadia-aab71b107/
Yoni Neeman, Software Engineer
Yoni is a full-stack software engineer, with extensive experience in fintech and mobile applications. He previously worked as an integration team leader in the risk management project of UMTB Bank, and as a mobile gaming SDK engineer. Before joining COTI, he developed DSS software for algorithmic trading purposes. He holds a degree in Computer Science from Tel-Aviv University.
More detail: https://linkedin.com/in/yoni-neeman-64672247
Dr. Nir Haloani, CTO
Nir is an innovator in the areas of data compression, AI and machine learning and has earned the prestigious Master Inventor title for authoring over 13 patents in these fields. He has over 19 years’ experience leading research and development teams at a number of tech companies and was the former co-founder and CTO of Infima Technologies, which was later acquired by IBM. Nir holds a BSc degree in computer science and mathematics from Tel Aviv University, as well as a PhD in applied mathematics from Bar-Ilan University.
More detail: https://www.linkedin.com/in/nir-haloani-324876/
Anton Suslonov, Data Science
Anton brings to COTI wide-ranging expertise in blockchain technology, applied mathematics and data science. Recently, he has contributed to the Wings Foundation as an Economic Analyst dealing with various blockchain projects. Previously, he worked in IT and risk management roles for a finance company in Russia. He holds a degree in Applied Mathematics from the Moscow Institute of Physics and Technology.
The advisory board is encouraging. The people represented on the list are respected and competent experts. We trust that their experience will help COTI to create a better service.
Dr Matt McBrady
Former CIO & MD of BlackRock
Matthew was the CIO for the hedge fund platform BlackRock. He has held senior roles at Silver Creek Capital and Bain Capital.
Co-founder, CEO Processing.com
Avi is the co-founder and CEO of Processing.com. He was previously chair of the board of directors of Transact Europe Holdings.
Former CEO, Investec Bank UK
Steven has served as the global head of private banking and the joint CEO of Investec Bank in London.
Former CRO, Ripple Labs
Greg is the co-founder of Hard Yaka and an early investor in numerous startups in the exchange space including Ripple, where he served as CRO, Shift, Coinbase and 3taps, and previously Square and Twitter.
Earlier in his career he served as a senior analyst for payments for the Board of Governors of the Federal Reserve. Greg holds an MBA from Yale University and MPA from Harvard University.
WINGS Foundation Co-founder
Stas heads up the WINGS Foundation, a Swiss nonprofit organization focused on decentralised finance and governance systems.
WINGS Foundation Co-founder
Sebastian is the co-founder of WINGS, a smart contract facilitation platform operating on the dAPPS Ethereum blockchain.
An entrepreneur at heart, Ophir has a strong track record of developing market-leading products, including Stox.com blockchain prediction, and invest.com which he co-founded. Chosen as one of the top blockchain influencers in Israel, Ophir is renowned in the industry and considered as one of the most sought after advisers for decentralized projects.
COTI tokens issued during the ICO are ERC-20 tokens, used as a means of crowdfunding. At the same time, the ecosystem is separated from Ethereum; COTI currency has an infrastructure function in this ecosystem – all transactions and commission fees to the nodes are paid in it. ICO tokens will be exchanged for the intra-platform currency after the ICO and the launch of the full version of the COTI network.
It is worth noting the atypical structure of token emission: in addition to the distribution of the 2 million issued tokens, the same number will be created. Only 15% of total tokens will be allocated to the sale. Admission to an additional pool of tokens will be possible only with the agreement of most Mediators; otherwise the company will not have access to them.
Even with all assumptions, the quantity of back-up tokens is large. In addition to a restrained policy of token freezing and the absence of burning of unsold tokens, we see risks arising from such parameters of the token sale. From the community's point of view, these parameters could be perceived negatively, since many other projects aim to provide investors with maximum guarantees for maintaining token demand in the market.
Analysis of factors affecting future value of the token
Since COTI tokens will be converted into a cryptocurrency after the launch of the platform its value should be considered only within the context of the COTI network as cryptocurrency and payment system.
The main factor in the value of COTI currency will certainly be the popularity of the ecosystem among the community and business. The project is aimed at a wide range of merchants and the e-commerce sector. Development in this direction could bring great benefit to the project. Nevertheless, there is no innovation in the COTI platform - the ideas of arbitrage and reputation on a decentralized basis are often used in fintech start-ups and no matter how the developers try to optimize the system data, they are not the most secure solution for trading. Against the backdrop of the development of the IoT concept and tighter integration of commerce and the internet, ideas that completely eliminate the human factor and the need for third-party systems are being developed (ratings, arbitration, independent intermediaries).
The situation is as follows: COTI's ideas are certainly relevant to the economy. The level of security and efficiency of the architecture in combination may prove to be one of the highest among the competitors. However, there are no guarantees that the paradigm will stay the same until 2019-2020 or that the team’s ideas will be in-demand. If not, increase in the fundamental value of COTI tokens may not occur.
Without taking into account the above factor, the project focuses on the huge market for payment services and online commerce. The potential for business scalability and hence the growth of the value of the token is high, and it could further increase as online trade and transactions continue to grow.
We do not see mechanisms for stimulating speculative value in the framework of the project: The portion of tokens not for sale is high, an active bonus campaign is being conducted and the platform is at an early stage of development. Currently, there is no MVP. If it is not difficult for other projects based on the existing blockchain system (e.g. Ethereum) to develop a beta version on testnet, COTI requires more effort, since the architecture is detached.
The project roadmap is long term in nature, but the release of the final COTI ecosystem is planned by the second quarter of 2019. Further milestones assume the expansion of network functions and the service line, API and SDK development, etc.
Analysis of investment risks
The project is an example of an ideal start-up, in a sense. It has an experienced team with an academic and business background, a well-developed idea with a number of innovations, quality marketing and documentation. We again highlight the fact that the project is mature and is conducted professionally. Therefore, specific risks and shortcomings with many start-ups are minimized here.
The project founders are bringing a new platform to the payment system market - one of the most popular markets among fintech start-ups. Therefore, a main risk for the platform comes from the competitive environment.
In order that a specific platform is preferred to other analogues, many factors must fall into place. Bitcoin has been waiting for this opportune moment for many years; it remains the top project even in the currently growing competitive environment.
The project team should believe in their project and move according to the declared plan. Despite all the stated technical advantages, only a really convenient service can count on a significant market share.