Investment Thesis (from a perspective of long term investing) – what kind of market are they targeting and how can they capture value?
Devv USP is scalability (measured in TPS) and aims to cater to market of blockchain for business platforms and in extension smart contracts, remittance etc.. They also aim to solve privacy in regulatory friendly way and price volatility by introduction of stable tokens (mechanism not specified). Devv aims to be BaaS solution for compliance heavy, corporate international environment.
Team decided to forgo most of decentralization properties and as such can only be successful in case that permissioned business blockchains will prove to be desired by market, as opposed to open permissionless blockchains. This will also require Devvio to become a defacto trusted party to all the participants on their platform.
For this, business development and big partnerships will be as crucial as tech. development from the early stages. Devvio will be the central company directly profiting from adoption of Devv blockchain. Investors need to estimate not only the probability of long term success of the project but also how will the adoption of Devv blockchain affect the price of token. Devv token will be a part of permissioned centralized chain.
TAM (Total Addressable Market): 7 – 15 billion USD (expected value of business blockchain market in 3-7 years).
Speculation Thesis (from a perspective of quick speculative trade) – is this project capable of attracting short term attention via social media buzz and marketing, in order for early stage ICO buyers to liquidate their positions on the exchange with a big enough premium?
Devv is still in very early phase, there is almost no social presence and no marketing. Also it is not clear what exchanges will list their tokens and when. If bear market continues during and after their ICO, we do not advise considering speculative approach.
Most of team members connected their Linkedin, but state they only work on Devv.io for couple of months. Founders have experience with successful projects (CEO Tom Anderson built a successful non-crypto/blockchain company) there is not a single team member with really outstanding practical nor academic track record of blockchain protocols and platforms, or with previous expertise in designing decentralized networks, smart contracts etc.
In FAQ there is a claim of 6-8 developers working various hours on the project, but there is only one (non-management) developer in the team.
Such a small team with no experienced blockchain researchers has only a low chance to solve just one, not all problems they are promising. Thus, further hiring of talented developers and researchers is needed.
Zilliqa is their closest technical competitor, because it also focuses on solving scalability via Sharding.
One of the target markets mentioned is remittance. In this market Stellar is their main competitor.
Being permissioned blockchain, they are targeting regulated environment of corporations. As such, their competitors here are Hashgraph, Ripple and VeChain.
We, crypto investors, are in an environment with lot of noise. Full of marketing claims, unrealistic expectations and new, untested technologies hiding behind buzzwords. Our research approach aims to balance this situation with focusing mostly on red flags, negative information and sceptic view of the project.
This proved to be crucial for diminishing downside risk especially in 2018, when it is no longer enough to buy everything that is momentarily popular and ride the wave (as it was the case in 2017).
Please note that all these red flags are subjective. With lack of concrete data, there was no way for us to verify or disprove most of the claims. If we were to continue with our Due Diligence, we would reach out to the team to provide us with more fact-based data.
Pre-launch valuation – Team claims they need between 6M and 40M raised in order to finish the product. 40M as a hard cap is pretty high in current environment and there is no clear budget presented to investors to see what they need the money for. Also the big cap between soft cap (6M) and hard cap (40M) indicates that they do not real need as much, but they try to aim high anyway.
Team allegedly lowered the hard cap from 75M to 40M, which further indicates that these valuations are more or less arbitrary and do not reflect realistic budget needs of the project.
Large scope – Devv claims to solve all the big problems of current blockchain platforms:
Scalability (8M TPS), Governance, Stability of price (Stablecoins) etc. These problems are inherently hard to solve in decentralized environment and there are many projects trying to solve each of them. It is hard for us to trust there will be one project that can solve them all at once, with limited manpower and resources and against such a big competition.
Vague wording – Phrases like “we believe” (5 times in FAQ), “we feel” (13 times in FAQ), and “it appears” are just an example of “no hard promises” policy when it comes to communication.
Together with grandiose claims to solve all big problems of current blockchain space, this rhetorics may be seen as intentionally vague to create unrealistic expectations.
Next example: “We have a large list of industry partners we’ve spoken to, and there appears to be a lot of interest in our solution” – This claim is not supported with any solid data, such as list of future partners. It creates just another feel of vague promise.
Another example of such rhetoric is comparing this project to Google: “In 1999 many people were dismissive of Google…” In this stage there is no reason for investors to believe that Devv is the “next Google”, among all the projects which are trying to get ahead. Such claim will mostly appeal to uninformed retail investors.
Red ocean market – Devv is targeting an extremely competitive space of well capitalized smart contract platforms which aim to solve TPS scalability (EOS, Nano, Ethereum Plasma, Stellar, Zilliqa, Holochain, Quarkchain, NEM, Cardano), which provide BaaS (Vechain, EOS, Stratis, Hashgraph) as well as stable value (MakerDAO and similar stablecoin platforms).
These are only examples of projects which are already competing in this space and attracting all the talented blockchain protocol developers (which are in limited supply) as well as business customers (many of whom are already talking to big names in the industry and will have troubles in trusting new, untested player).
Velocity problem – Devv tokens will be used to pay fees on the platform, but there is no incentive for anyone to hold tokens, instead of just to buy and spend them quickly (there will be no staking). Thus, tokens move through the ecosystem quickly and are almost never withdrawn from the circulation for long term holding. This means that they probably will not become a Store of Value and their price will not rise symmetrically with success of the platform. This situation is known as token velocity problem and is a problem for long term investment thesis of a platform (while short term price speculation based on marketing hype is usually not affected).
Permissioned blockchain – Permissioned blockchain is inherently centralized (although the rhetorics of most centralized blockchains is trying to persuade us that it is decentralized) and prone to censorship. This might defeat the purpose of building a blockchain at all, since permissioned shared databases already exist and are much easier to deploy in businesses than completely new infrastructure.
Centralized Consensus – “Validators are chosen by Devvio, the trust based company overseeing the operations of the Devv blockchain.” The benefit of having permissioned access to Validating rights compared to have Devvio to validate blocks is very small. This beats the whole point of blockchain as a decentralized solution.
Patents: It may not be the best course of action to try and patent your solution, if you are building an open, decentralized protocol. In Devv this is probably not the case, and the solution will be centralized. However from the FAQ, it is not clear if there are any patents at all – there is no citation of such, just vague claim of “great experience in IP” and only “believes” it will own “some significant blocking patents” in the future.
Cayman Islands – while popular tax haven, enforceability of investors rights might be much lower, than in more established and reputable crypto-hubs such as Gibraltar, Malta or Switzerland. This is especially important with centralized projects.
No Github access – There is no verifiable code on github or any other repository.
Majority of tokens in company reserve – This not only increases further need to trust Devvio as a centralized issuer and authority, but also increases the risk of tokens becoming a security and thus needing to oblige by worldwide security laws.
Project will manage to prove their scalability claims in open conditions and starts onboarding top developer and research talents early on.
Marketing and media presence will catch on. Devv will become one of the hyped projects, and it will manage to get backed by big name funds in the industry (which are taking most of ICO action of protocols today).
Team will also be able to execute on business level, build superior reputation and strike crucial partnerships early on.
Velocity problem will not be a problem short term and long term will be beaten by superior utility of Devv token which will become a transfer value standard and as such will incentivize many parties to hold it without hedging to minimalise economic friction.
Project will not manage to catch attention early on. Also the claims of their superior technological solutions will prove invalid.
Permissioned blockchains will have only limited market upside, which will be quickly filled by big players such as Hedera, IBM, VeChain, as businesses realize that the need of smart contracts is limited and shared permissioned encrypted access databases suit their coordination needs better.
Even if Devv platform is successful and Devvio will be profiting directly, Devv tokens will fail to capture value due to velocity problem.
Long term view: We believe it is too early to assess if this project has a reasonable chance of long term success. Investing into it now, with a plan to hold for 3-5 years is very risky, especially given the state of the market and competition.
If successful, project could target valuation in hundreds of millions. In short term, such valuation would be mostly speculation driven and we have still much time to wait for them to prove their claims if we aim to be longterm investors.
Short term view: Short term ICO speculation with the goal to sell majority of position after exchange listing would be more viable option, if the social presence and marketing efforts were higher, however the project prides itself to be “under the radar” for now, and thus the viability of this approach is very unclear.
This research is performed by Sigil PCC Limited for information purposes and is not to be taken as an investment or a financial advice. Sigil PCC Limited does not hold any position in researched project.