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TokenLend Rating Review

Stable

Investment Rating

Expiry date: Expired 10 Aug 2018

We assign the TokenLend project a "Stable" rating.

Penetration of cryptotechnologies into lending and the building of p2p business models for various types of loan has increased in recent years. The TokenLend team is planning to develop a lending marketplace platform, combining the primary and secondary markets and providing security, transparency and low cost via the use of Ethereum smart contracts and LPN virtual securities.

Given the obvious advantages of p2p, cryptocurrency and blockchain over traditional loan issuance and securitization schemes, TokenLend’s solutions seem fresh and attractive. If the team is able to create a system secure for investors, where risks in investing will be similar to ones associated with traditional lending, the platform will receive its share of market demand.

In addition to an original idea, TokenLend’s assets include the professionalism and experience of its team. All the listed team members have a direct relation to the DAEMON Tools project, which we consider to be a good example of the development of a major IT business. Therefore, we see no reason to doubt the competence of the team or their ability to implement proposed functionality.

The project's liability is its early stage of development. There is no MVP; platform development is planned to commence after the ICO. However, it is too early to talk about the creation of a loan portfolio or about any work in this direction, since the team is focused on development.

Another feature of the project is the configuration of the ICO token, TLN. Despite the possibility of using the token for payment transactions or as the currency for a loan, platform participants have no direct motivation to pursue it. Taking into account currency risks and the volatility of cryptoassets, which could deter users from using TLN as loan currency, we cannot say that TLN is a traditional utility token. Instead, TLN involve payments of platform profits, making it a security token similarly to a dividend share.

It is important to understand that on the one hand this model looks good in the long term, as it aligns the motivation of the team and investors. At the same time, it increases token risks due to heightened attention from regulators, entailing possible problems with listing on exchanges. Also, in this regard the team gives approximate calculations for TLN token profit in the first year of operation, however these seem currently superficial, providing only a general idea of the prospects and any correlation between payments and business growth.

TokenLend is a project aiming to create a platform for P2P lending, as well as a secondary market for loans with the use of cryptocurrency and blockchain technologies. The team is planning to create primary and secondary markets for lending in its own ecosystem which will operate on the basis of fiat and cryptocurrencies, as well as a Loan Participation Note validating the right to request a loan (LPN).

The scheme of the platform uses a model of lending via LPN as a financial instrument, where the financing of the company through a mediator is undertaken by a wide range of investors in exchange for issued shares. Such papers have a value in the future like any asset, and can circulate in the secondary market. By adding cryptocurrency and smart contracts to this scheme, one can draw an analogy between TokenLend and this scheme.

A characteristic feature of the project is its focus on reliable secured loans (for legal entities and individuals), as well as involving third parties in the process of granting a loan to guarantee the legal purity of a transaction and be responsible for claiming debts. Thus unlike many projects in the lending market, emphasis is placed on large capital and compliance.

In terms of technical architecture and innovation, TokenLend is developing a centralized platform that uses Ethereum smart contracts to create loans and issue LPN. The secondary market is also centralized; its transparency is ensured by the Ethereum blockchain due to the transactional transparency.

From a legal point of view, the project is represented by DT Soft Ltd., registered in Belize. The business model focuses on Eastern Europe: first of all on Estonia and Latvia, the two European jurisdictions most accepting of cryptocurrency; in the future, platform activities are planned to be expanded to include other large countries.

The project is led by a strong team headed by Sergei Naiden; the team's portfolio includes some known projects such as DAEMON Tools. A number of consultants from different jurisdictions with specialized experience have also been engaged.

The TokenLend ICO is being staged in two phases: A presale, and the crowdsale itself. Presale participants are offered a special discount, as well as exclusive rights to access the beta platform testing. TLN tokens sold in the course of the ICO are security tokens; the basic mechanism of internal value creation is the distribution of a portion of TokenLend’s net profit among tokenholders.

Pre-sale

Start: 1 March 2018

End: 11 March 2018

Hard cap: $3,010,000

Minimum investment: 1 ETH

ICO

Start: 26 March 2018

End: 10 May 2018  

Soft Cap: $4,300,000

Hard cap: $35,000,000

Price: 2500 TLN = 1 ETH

Minimum investment: 0.0004 ETH

Token: TLN, ERC-20 standard

Accepted currencies: 

Total issue: 130,411,585 TLN

Allocation of funds:

  • 75% — Tokensale
  • 14% — Team
  • 7% — Pre-sale
  • 1% — Bounty

For sale: 93,750,000 TLN

  • TLN tokens received by contributors will be transferable 7 days after the end of the Initial Coin Offering campaign
  • All unsold tokens will be burned
  • Core Budget is 800 ETH, the amount of funding needed to develop, launch and promote the lending platform.
  • Partner tokens will be frozen for 12 months after the ICO
  • 50% of the team's tokens will be locked for 24 months after the ICO, the remaining 50% will be locked for 48 months.

The ICO involves bonus tiers depending on the purchase total as well as on the sale’s progress. Depending on purchase total, the bonus tiers range from 20% (less than 5 ETH) to 25% (more than 80 ETH). Depending on sale progress, bonus tiers start at 10% (tier 1) and decreases to 3% (tier 4).

TokenLend is developing a p2p lending platform with three main components:

  • Loan Marketplace — the primary p2p lending market where borrowers are businesses, and lenders (investors) are platform users.
  • Loan Participation Note (LPN) market — a secondary market for p2p lending where users can trade ongoing investments for immediate liquidity.
  • Payment gateway — a service that enables users to deposit and withdraw funds from the platform.

It would be prudent to carefully review all the mentioned services; however, the Loan Marketplace is the basis of TokenLend.

Strictly speaking, the description of platform services in the documentation is not particularly comprehensive, but the general picture is given: The marketplace will be filled by intermediaries (third-party licensed firms which are loan originators) and borrowers (investors). Lenders will participate in the process only through loan originators (legal entities and individuals that provide secured loans). According to the logic of the project, the emphasis is placed on real estate-secured loans — reliable mortgage loans. This will allow it to create an ecosystem with a low probability of borrower default in the first stages of platform development.

Loan originators are licensed intermediaries who have a legal relationship with both the borrower and TokenLend. In the case of any problems with a loan, loan originators risk all assets on the platform, and they are obliged to compensate for all delays and defaults before further debt collection.

TokenLend illustrates an example of the loan lifecycle in its white paper; the example uses TLN tokens, but the scheme is valid for any supported currency (fiat and cryptocurrencies):

 

  1. The loan originator adds a new loan to the system via the Dashboard, fills out all necessary forms and submits the documentation. After the loan details are validated and successfully verified by the system and by TokenLend, the loan smart contract is created with all the relevant parameters.
  2. Users (investors) acquire the LPN by transferring TLN tokens to the smart contract address. Then the loan smart contract generates the LPN contract with loan repayment terms and a schedule.
  3. Tokens collected from investors are sent to the loan originator, and each LPN is linked to the user's ETH wallet address for transfer of the interest and loan principal.
  4. In accordance with the loan smart contract schedule, the loan originator makes interest payments and principal repayments; funds are transferred to the LPN contract from the loan smart contract. The LPN contract sends the funds to the investor's wallet.
  5. After the last transaction on the loan, the loan is closed, the address of the wallet is removed from the LPN, and the LPN contract is considered to be fully executed.

If there is any delay, default or other extraordinary event, the mechanism and actions of platform participants are not specified. Given references to the legally pure relationship between the end borrower and loan originator, it should be considered that it is the intermediary that will be responsible for debt recovery or bankruptcy of the borrower. At the same time, it is difficult to predict how this mechanism will be executed in reality since the legal scheme is ambiguous.

Even based on the description, the financial flows for lending services are still unclear to us. Despite the fact that LPN can be issued and sold in different currencies, when using TLN the end borrower or the end lender must convert funds, which entails currency risk.  It is not quite clear to us who will carry these risks because the conversion process is not detailed; logically, the risk falls on the investor, but in this case, they have an opportunity to use fiat for platform operations.

There is no process for creation of interest rates or of default loan realization on the platform; this mechanism will be an intermediary's responsibility. However, if the interest rate against the quality of the borrower does not satisfy the market, funds will not be raised, which will not benefit the marketplace.

The secondary LPN market will operate similarly to an exchange, where users can make requests for buying and selling as well as satisfy counter requests. Transactions will be carried out by transferring LPN from one Ethereum address to another in exchange for cryptocurrency or fiat. If the platform becomes popular and in demand with private investors, this will significantly reduce lending risks as it will enable the project to provide liquidity for LPN.

With regard to the business model, TokenLend does not provide approximate calculations on interest rates within the platform, but instead gives the average rates in Latvia and Estonia and justifies the expediency of such a model for all parties in the ecosystem. According to information from the white paper, loans secured by real estate are offered on the market at rates of 10–14%, and attraction of investment carries rates of 5–8%. This raises questions, because the currency of loans is not specified, however, considering that Latvia and Estonia are part of the Euro zone, the given rates look unrealistic for this currency. No data source was provided for this information.

Regarding the structure of fees, three types of fee will be established within the ecosystem: A loan listing fee for loan originators — 0.5%–1% from the loan principal; an LPN sales fee for users - this fee is to be collected from users for every successful trade of LPN on a secondary market — 1–5% of the market price; and a withdrawal fee (for fiat currency only) at 1% of transaction volume.

Peer-to-peer lending has evolved relatively recently; after the international financial crisis of 2007-2008 it started to actively gain popularity. The erosion of the banking system’s credibility led to a surge of ideas for the elimination of intermediaries in financial services. The first ideas for fintech startups on blockchain also exploited this topic for PR purposes. However, even without blockchain, infrastructure platforms for p2p lending are developing at a high rate.

According to a study by Transparency Market Research, the global p2p market will show a CAGR of 48.2% during the period of 2016–2024 [https://globenewswire.com]. The volume of the market by 2024 will amount to about $900 billion, compared to $26.16 billion in 2015. These figures are certainly very impressive.

Other marketing studies also place the prospects of this market at a high level. The Research and Markets agency predicts that the p2p lending market will grow at a rate of 53.06% in the period of 2016–2020 [https://www.researchandmarkets.com].

The history of peer-to-peer lending services started long before blockchain’s invention. Interestingly enough, this direction originated in the UK rather than in the US. The first p2p lending service was Zopa, founded in 2005. Since then, this service has issued 2.85 billion GBP worth of loans.

Americans followed, and in 2006 two startups appeared in San Francisco — Prosper and Lending Club. Surprisingly, both projects still exist; moreover, Lending Club is the world's largest p2p lending marketplace, with a current volume of issued loans exceeding $7.6 billion [http://peer-to-peer-lending.credio.com].

The evolution of these services began after the global financial crisis of 2008, when banks began to drastically reduce limits, and many borrowers were forced to look for alternative sources. Currently, p2p marketplaces allow them to find acceptable loan conditions without intermediaries, and lenders receive an opportunity for profits higher than that from bank deposits. Notwithstanding the fact that such platforms do not enter into obligations themselves, but only provide an infrastructure for transactions, the business resembles brokerage more than banking. Clients borrow, clients "place deposits", there are scoring rating models for borrowers, etc.

With developments in technology, many fintech start-ups ventured into the p2p lending market. Currently there are a number of fairly well-known projects that have been operating in this segment for quite some time.

Project

Summary

ETHLend is a fully decentralized p2p lending platform, where Ether is used as collateral. The platform supports any ERC20 tokens. All lending on the platform is facilitated by smart contracts on the Ethereum blockchain.

A platform for lending and borrowing, accepting cryptocurrencies as collateral. Everything is simple: security deposit in cryptocurrency; loans in fiat.

Lendoit — a decentralized p2p lending platform. Ethereum smart contracts are used to connect borrowers and lenders. Loans can be provided in any ERC20 currency.

This list is not exhaustive; there are already many projects in the market. The three projects presented above demonstrate the variety of services offered. Thus it is possible to borrow in fiat with cryptocurrency as a collateral; it is possible to borrow in cryptocurrency with cryptocurrency as collateral, and finally, it is possible to borrow in cryptocurrency without any collateral at all (e.g. Lendoit). In a sense, the TokenLend project has gone further and added the possibility of investing in loans secured by real assets, using TLN tokens.

TokenLend did not choose Eastern Europe at random. Currently, this region is the most active in p2p lending market development [https://tokenlend.io/tokenlend_whitepaper.pdf]. Cambridge University in conjunction with KPMG published an interesting study on the alternative finance industry in Europe [https://assets.kpmg.com]. This study presents a diagram of market distribution by segment:

It clearly shows that the leading place is occupied by Peer-to-Peer Consumer Lending and Peer-to-Peer Business Lending, and these services for business grew with a rate of 131% over the last three years. Moreover, absolute value of the total share of p2p lending was 578 million EUR (i.e. 57% of the entire European market).

The TokenLend project team is quite experienced in the software market; the founders already have one well-known product, DAEMON Tools which is a virtual drive and optical disc authoring program. Many years of experience in the management of large IT projects (e.g. DAEMON Tools) indicates professionalism on the part of the team, including its ability to properly organize business processes.

Specified experience of team members does not include work with any other blockchain projects, but their existing experience should help them implement the technical aspect to a high level.

We did not find any information to discredit the founders or other team members. Given their already implemented projects, it is fair to say the team has a good reputation.

 

Sergei Naiden, Chief Executive Officer

Robert Morris University, USA:

Master of Science, Banking, Corporate, Finance and Securities Law. Serial entrepreneur with 25+ years experience in managing large enterprises and 10+ years experience in the ownership and management of an international IT company. Developer and vendor of the world famous software product DAEMON Tools.

More details: Linkedin 
 
 

 

Ivan Kovtun, Chief Operating Officer

Business analyst and product manager with 10 years experience in managing international business operations and 5+ years of experience in software product ownership and project management.

More details: Linkedin

 

 

 

Vitaliy Russkih, Chief Technical Officer

Senior developer with 12 years experience in developing complex systems and 10 years experience in software team management.

More details: Linkedin

 

Alexandr Petrov, Blockchain Architect/Lead Developer

Senior developer with more than 12 years experience in designing and implementing enterprise-grade solutions including kernel driver development and embedded systems development.

3+ years experience in designing blockchain solutions for IoT and FinTech.

More details: Linkedin

Maria Viter, Chief Marketing Officer

Industry professional with more than 8 years experience in software product marketing and 5+ years experience in business development of the DAEMON Tools product line.

More details: Linkedin

Tanya Chuh, Chief Communications Officer

Senior specialist with more than 5 years experience in public relations activities, specialising in  building PR and Community management strategies for companies operating in stock markets and international software vendors.

More details: Linkedin

 

The project has specified four advisors. Judging by their descriptions, all four are entrepreneurs and have been working successfully in different sectors of the economy for many years. That being said, these advisors have not provided services for other blockchain projects in the past. We hope that their expertise will prove valuable to the TokenLend project.

Advisors

Leo Matveev

Linkedin

CEO and Founder of SearchInform, Russia

Maksims Matulevics

Linkedin

CEO and Founder of Money Express Credit, Latvia

Anton Kolomyeytsev

Linkedin

CEO and Co-Founder of StarWind Inc., USA

Nikolajs Timofejevs

Linkedin

CVO of MONEY EXPRESS, Estonia

 

The TLN token has primarily a security function within the TokenLend business model; however, it also carries some utility functions, as it is also possible to invest in TLN on the platform.

The fundamental component in the price of TLN is the distribution of TokenLend’s net profits. However, this mechanism is only valid for tokenholders i.e. investors in the ICO are offered a kind of "dividend" in return for early participation in the project. According to information from the documentation, the amount of reward from net profit will be determined proportionally to number of tokens purchased at the ICO.

The model of the platform's net income breakdown, where ICO investors receive shares also raises some questions. Firstly, a detailed mechanism, the amount of reward or the expected financial results after launch of the platform are not disclosed. At the same time, such a model implies recognition of a token as a security; here it is necessary to have a clear legal position with regards to regulatory issues and to ensure maximum possible liquidity, because trading platforms will try to avoid supporting the token.

Another problem for the dividend mechanisms is the lack of a legal basis; investor rights are not protected by anything. And if in the case of the utility, the internal price is closely related to business, and any infringement of rights will occur at the expense of the business, in this case the team’s obligations are independent of the business and the mechanism is built on trust.

Regardless of legal risks, we positively assess such a mechanism if the team is able to make it work and comply with obligations. In this case, it is more beneficial to buy the token during the ICO itself, and even in the case of a further price reduction, the team will receive the funds needed for development and will be able to implement the roadmap.

The basis of all the factors affecting the TLN token is its security nature, based on the model of platform revenue distribution. Despite the technical existence of utility functions (payments can be made in tokens), they cannot be seriously considered as increasing market demand, as there are no direct incentives to use the token. At the same time, the ecosystem enables the token to "work" when it is held in a portfolio by an investor, that is, to generate additional profits on an equal basis with TokenLend interest shares.

When considering important factors in the price of of TLN, firstly, we note the early stage of project development. This generates risks of development and bringing the product to market; this especially concerns early ICO investors. TokenLend compensates for such risks with its model of platform profit distribution, that is, investors are motivated to participate at the time of the ICO rather than later when liquidity and price may be lower than expected. This additional risk of investment correlates with further future profitability; this is facilitated by bonuses and discounts.

Contrary to established practice, TokenLend does not offer users a UI or an MVP. According to the published roadmap, the first development products will become available in October 2018, and the development itself is scheduled to commence only by April 2018. The team actually needs the ICO to start developing their own product. The end of development and the release of the finished platform will be in a year’s time; there are also a number of milestones for expanding and upgrading the ecosystem.

Given the roadmap, we see no fundamental short- and medium-term triggers for the price of TLN after the ICO. The prerequisites for increasing fundamental demand for the token on the open market may arise after the initial loan portfolio of the platform and the first payments are implemented; reassessment of the risk after these events is likely to be significant and so the price will grow.

The marketing campaign can be assessed positively, especially regarding the actual dynamic of interest in the project; however, we recognize that the project is not the strongest in terms of hype and recognition among the community. If this situation remains, there would be no reason to expect speculative demand for the token. The rather high hard cap also mitigates against speculative demand.

Long-term fundamental attractiveness of TLN is supported by the business model. The higher the turnover of the business, the greater the return on investment will be given. The white paper provides approximate figures on dependence on payments from the loan portfolio: From each loan listed on the platform the platform will receive up to 2% in fees, and up to 5% of operations in the secondary market. As a result, an income of about 3 million euros is expected for the first year of the platform's operation; a corresponding scaled calculation is given in the white paper. Depending on the period of participation in the ICO, an investor will receive 77–89% of annual profit from the token.

Despite the presence of specific figures and forecasts, the current stage of the project obviously only enables discussion of actual projected tokenholders' ROI with assumptions. It is also unclear how the company will be accountable to them and on whatn basis it will determine the share of paid dividends. Again, this will be at least a year from now, after the launch of the p2p marketplace.

In terms of long-term fundamental analysis of the TLN business itself, the difficulty for TokenLend is in the need to combine efforts to attract clients from two sides, lender and borrower, in order to avoid skew either from the demand side or from the supply side. Otherwise, the impact on the market demand for the token will be scaled according to turnover on the platform (in the primary and secondary LPN markets).

The TokenLend project is at an early stage of development, and the majority of associated risks arise from this fact. The project primarily offers a p2p lending marketplace, but implementation of the declared functionality will not happen soon, and as of yet TokenLend has neither an MVP nor strong marketing support. As a result, the community is still viewing the concept in its "pure" form.

A common issue for p2p lending platforms is the risk of default. It is obvious that any financial institution has such risks, but in this case the important question is to what extent the investor will be legally protected. At the moment, enforcement of law concerning cryptocurrency loans is limited. However, TokenLend customers will have an advantage over clients of other p2p platforms, as offered loans are analyzed by experienced counterparty entities (loan originators) that will be responsible for repayments in cases of default.

We cannot ignore competitive risks either. TokenLend is not the only project in the P2P lending marketplaces field, and overall success for the project will depend on the development of competitors who have a temporary advantage.

Questions about the economy of the project remain. On the one hand, implementation of the project significantly depends on the amount of funds raised during the ICO: the more funds it is able to raise, the faster the platform will reach "liquidity". On the other hand, the early development stage inhibits the project’s investment attractiveness in the medium term, which could prevent it from raising significant funding amounts.

Any participant in the TokenLend ICO also should to take into account the token’s security nature and all associated risks, including possible problems with exchange listing.

 

 

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.