FANTOM Rating Review

The project has the following strengths:

• A significant and promising market niche (DAG-based infrastructure platforms).

• Large team and notable advisors/partners.

• Reasonable forecast of the distribution of funds.

• Detailed description of the technical features of the project in the Whitepaper.

• Based on the current market capitalization of the project’s competitors, the FANTOM project may be significantly undervalued.

However, there are still some risks linked with this ICO:

Absence of an MVP. At the time of analysis (May 2018), the team had not yet released an MVP/alpha. According to the project’s roadmap, the MVP/alpha are due to be release on June 15th, 2018. The absence of an MVP seriously compromises the ability to assess the team’s competencies, the capabilities of the suggested product, the level/degree of product development and other crucial factors that investors in an ICO must consider before making any decisions. Once the MVP/alpha is released, and the team’s progress becomes clearer, the level of risk may go down.

Commercial risks. The FANTOM project faces tough competition, with many competitors already in the market and the majority of them having scheduled their product launches before 2020, whereas FANTOM is not scheduled to launch until mid-2020. However, we note that the FANTOM project is significantly undervalued when compared to its peers which creates investment opportunities for investors.

Team composition and competence. We would like to mention that 14 out of 27 team members do not state that they are working on the FANTOM project in their official LinkedIn profiles which increases the team risk for potential investors. However, LinkedIn is not a commonly used platform in South Korea.

The Whitepaper is not comprehensive. The Whitepaper does not include an analysis of direct competitors and it has unclear token and project economics (e.g. fees are nor specified, token flow within the system is not visualized, etc.). It is unclear how the project will be monetized once released. The Whitepaper also does not discuss the changes in the use of funds if the Hard Cap is not reached and, finally, the nature of partnerships with Oracle, Quantum Equity partners, King & Wood Mallesons, SB CK, SIKSIN, Coinhills, Lee & Ko, Coinsillium, SL Blockchain partners and KBIPA are not disclosed in the Whitepaper or on the website.

Given that there is no actual MVP yet, all of the factors above significantly increase the level of risk for the investors.

Based on our analysis and taking into consideration all of the risks associated with the FANTOM project, as of May 2018, we assign FANTOM a “Stable +” rating. We would like to note that once the major issues are resolved by the team (i.e. technical Whitepaper published, the alpha/beta released, etc.), the project rating will need to be reassessed as the level of risk linked to the project may change.

The FANTOM team proposes a DAG-based blockchain protocol for instant transactions and significant scalability at a cost close to zero. The FANTOM team has set a threshold of 300,000 transactions per second (TPS) as a target.

Website

Whitepaper

Twitter

Telegram

LinkedIn

Blog

Facebook

Medium (not working)

GitHub

We note that although the company has a public account on GitHub, the publicly available smart contract code as of the date of analysis (May 2018) did not allow us to draw any conclusions regarding the significant ICO terms fixed in the contract.

There is no bounty/airdrop campaign for the FANTOM project.

The ERC-20 token will be swapped when the FANTOM mainnet launches in Q3 2019.

It is worth noting that there was no publicly available contract code at the date of our analysis. Although it is acceptable for a company publish its smart contract code not long before the ICO, the risk of unclear ICO terms remains to date (May 2018). The smart contract code is available on FANTOM’s website for public review.

According to a representative from the team, all tokens unsold during the ICO (i.e. if the Hard Cap is not reached) will be burned.

There will be 3,175,000,000 (three billion, one hundred and seventy five million) FTM tokens supplied, of that the team intends to sell up to 40, 1,270,000,000 (one billion, two hundred seventy million) FTM tokens. Token distribution will be as follows:

The team specifies the following vesting terms:

• Team and founders – 24 months lock-up, to be vested monthly.

• Advisors/contributors – 3 months lock-up.

Given that the project roadmap states that a stable release is expected by Q2 2020, the vesting terms for the team cover all of the milestones on the roadmap.

The team discloses its forecast for the use of proceeds from the ICO as follows:

Marketing expenses (30%) include the following:

• Direct marketing for acquiring FANTOM services.

• PR marketing for FANTOM.

• Content marketing of FANTOM through social networking sites (SNS), such as related articles and videos.

• Events for the growth of the community.

Operation expenses (20%) include the following:

• Sales/Operation.

• Legal.

• Additional expansion overseas.

• Preparation for contingencies.

R&D/Development and application of ecosystem include the following:

• R&D for the OPERA platform.

• Development and expansion of OPERA Ware.

• Development and expansion of OPERA Wallet.

The FANTOM team intends to provide a DAG-based smart contract platform which addresses scalability issues based on the Lachesis protocol. dApps built on the platform will benefit from almost instant transactions at almost zero cost. FANTOM aims to process 300,000 TPS once fully developed.

The Opera Core Layer processes event blocks with payments, information and reputation. The Opera Ware Layer supports dApps within the platform.

In the project’s Whitepaper the team lists the following applications in the ecosystem:

According to the Whitepaper, the FANTOM Foundation has partnered with the South Korea Food Tech Association, whose members include the top 90 leading companies in the USD 200 billion food market in South Korea. The foundation will provide dApps, including those used for food reservations, geolocation delivery services, and supply-chain management, all of which are points of sales to be built on top of the FANTOM platform. Additionally, the foundation’s top sales team will promote FANTOM to retailers and street vendors whose current transaction fees (e.g. for VISA / Mastercard etc.) cost up to 5% of each sale.

We would like to make a note that the technical features of the platform are quite detailed and comprehensive in the Whitepaper. Furthermore, the team says that they will publish a more detailed technical paper in June 2018. However, we note that the absence of the MVP, as of May 2018, makes the assessment of the product’s services and the platform itself almost impossible, and significantly increases the level of risk for potential investors.

It is also worth noting that currently there are similar models using Fiat currency, that successfully operate in the online gaming industry, which increases the chances of the FANTOM project succeeding.

We also believe that the Whitepaper has the following issues:

• Absence of direct competitor analysis.

• Unclear token and project economics (e.g. fees are nor specified, token flow within the system is not visualized, etc.). It is unclear how the project will be monetized once released.

• The Whitepaper does not discuss any changes in the use of funds in the case where the Hard Cap is not reached.

• The Whitepaper and website do not disclose the nature of the partnerships with Oracle, Quantum Equity partners, King & Wood Mallesons, SB CK, SIKSIN, Coinhills, Lee & Ko, Coinsillium, SL Blockchain partners and KBIPA.

The team provides the following project roadmap:

At the time of writing (May 2018) no MVP was available. The project’s roadmap says that a beta version of the middleware is to be released in Q4 2018. A functional language beta and a virtual machine beta will be released in Q1 2019 and the mainnet in Q3 2019. As can be seen from the image above, the major releases will not take place until 2019, which implies a mid-term/long-term nature of investing in this project as far as investors are concerned.

The absence of an MVP before the ICO increases the risk for potential investors. We note that the middleware beta launch is scheduled for June 29th, 2018, after the ICO starts.

The only issue with the roadmap which can be considered a disadvantage is that it is not very comprehensive – e.g. the team might disclose business development goals, participation in conferences, etc.

Market analysis.

As of May 28th, 2018, the cryptocurrency market was as follows:

DAG-based projects account for around 2% of the whole market reaching approximately USD 4.5 billion in capitalization. If Bitcoin, Ethereum and Ripple are excluded, DAG-based projects would account for 4% of the remainder of the market.

For the purpose of analysis of the macro-level factors affecting the FANTOM project a modified PESTEL framework will be used. The PESTEL framework analyzes the political, economic, social, technological, environmental and legal factors of a project. As far as blockchain projects are concerned, the environmental and social factors are usually not applicable or have a relatively small impact.

Political – Infrastructure blockchain projects like FANTOM usually do not bear political risks.

Economic – The market niche of infrastructure blockchain platforms is significant and projects concerned usually perform well in terms of economics.

Technological factors – Given the youthfulness of the blockchain market as a whole, the development infrastructure blockchain platforms is a good idea as the market needs such solutions at this development stage.

Legal – Infrastructure blockchain projects like FANTOM usually do not bear legal risks.

Competitive landscape

We will use Porter’s Five Forces framework to perform an initial competition assessment for the FANTOM project.

Threat of new entrants - High

The overall threat of new entrants is high, as new infrastructure projects in blockchain come out very often and the market is not full yet. When it comes to DAG-based projects, this idea also became very popular in late 2017/early 2018.

Threat of substitutes - Medium

The threat of substitutes is medium, as new infrastructure platforms are released quite often, however, transitioning from one to another is not an easy process.

Bargaining power of customers - Low

The key advantage of DAG-based platforms like FANTOM is usually considerably lower costs when compared to common platforms.

Bargaining power of suppliers - Low

Since there is only labor (developers) and expertise (and maybe node holders) on the supply side for the FANTOM project, the bargaining power of suppliers can be assessed as relatively low.

Industry rivalry - High

As of May 2018, FANTOM had a number of direct competitors in the blockchain market and some indirect competitors. Please refer to the summary table below:

At the time of writing (May 2018), the market for FANTOM was very competitive. Competitors are all trying to solve the same problems such as security, low cost and high performance, which increases the risk for potential investors. We must note that there will not be just one solution, so competition is good for the market and also it is worth noting that the FANTOM project is valued much lower when compared to its competitors which is promising for potential investors.

The capability of the team to deliver such a complex project will be easier to assess once the MVP/alpha is released. Without the actual product it is hard to assess the team’s capability.

Yunsung, the CFO of FANTOM, does not state that he works at FANTOM on his LinkedIn profile. His current positions are listed as an Auditor at Natural FNP, Auditor at TCM BIOSCIENCE INC., and CEO of Foodntable.

Han Yo Seob, Choi Sang Min, Park Ji Ho, Jang Ki Young and Cheon Hyun Joon do not include their affiliation with the FANTOM project on their publicly available profiles. They are all either PhDs or PhD candidates at Yonsei University, Korea.

Park Jong Chul does not list his role at FANTOM on his LinkedIn profile. His current position is CEO of Mirincom Co., Ltd.

Kim Kang Ho does not state that he works at FANTOM on his LinkedIn profile. His current position is CTO at Mirincom Co.

Ye Jung Hwa also lists his current position as CTO at Mirincom Co., Ltd. He does not make a note of his role at FANTOM on his LinkedIn profile.

Jo Chan Yeul states that he is the CEO of Sincheon CO. and doesn’t reveal his connection to FANTOM.

Yang Sang Ha doesn’t post any information about his roles at FANTOM on his LinkedIn profile. His current position is listed as Head of System Development at Siksin Ltd.

Lee Eun Jeong’s current position is listed as Solution Leader at J.Bitty Co., he does not mention anything about his affiliation with the FANTOM project.

Kim Sung Hwan does not mention that he works at FANTOM on his LinkedIn profile. His current position is Specialist of Location Systems at J.Bitty Co.

Choi Im Chung does not state that he works at FANTOM on his LinkedIn profile. He lists his current position as Group Manager at J.Bitty Co.

Kim Hak Kyoon and Jo Min Sik do not disclose their advisory roles in FANTOM on their LinkedIn profiles.

The initial supply of FTM token is fixed at 3,175,000,000 tokens. The platform adopts an inflationary model for the token, there will be initially a 5% annual inflation which will decrease as more users join the platform.

FTM is a utility token. As stated in the Whitepaper, it will be used as a platform fuel and is required to participate in the platform, similar to Ethereum. However, we note that it also acts as an internal cryptocurrency for the platform.

The application of the FTM token is justified by the need for the creation of a healthy ecosystem which rewards its contributors based on their input as well as providing necessary tolls for collaboration.

We identified the following key factors that may affect the token price:

Factor	Description	Price effect
Development and release of new products according to the roadmap.	We note that the team plans to release several products which together build up the ecosystem. Each of the products can be considered as a separate project/platform and a successful release for each of them may lead the price up, whereas failure to deliver will push the token price down.
Demand for the platform.	Given that the FANTOM platform is an infrastructural platform, the long-term demand for the platform may lead token price up.
Sale of tokens by the team, advisors and contributors.	30% of tokens are reserved for the founders, team, advisors and contributors. The team and founders receive 15% and the advisors and contributors also receive 15%. We note that a healthy vesting period of 24 months is set for the team and founders and a 3-month lock-up is set for advisors and contributors, which combined, may impact the token price in the short-term.
Significant bonuses during the private sale round.	As of the date of analysis, the project raised USD 6 million (15% of Hard Cap) with 30% bonuses, therefore the current effective price effect was about 4.5%. The token price may face pressure once the private sale participants decide to flip their tokens
Token inflation mechanism.	The 5% inflation (issue) of new tokens annually may lead the token price down if it is not offset by a higher long-term increase in the number of platform users.
Volatility and youthfulness of the cryptocurrency market.	Although the token lacks speculative purposes, it is used as an internal payment mechanism within the system, therefore the high volatility of the crypto markets may cause traders and speculative investors to trade in FTM, which may lead to FTM price fluctuations or even speculative activities (e.g. pump and dump).

Based on our analysis we identified the following risks for the FANTOM project:

The information contained in the document is for informational purposes only. The views expressed in this document are solely personal stance of the ICOrating Team, based on data from open access and information that developers provided to the team through Skype, email or other means of communication.

Our goal is to increase the transparency and reliability of the young ICO market and to minimize the risk of fraud.

We appreciate feedback with constructive comments, suggestions and ideas on how to make the analysis more comprehensive and informative.