Kik’s KIN ICO Review

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The Messaging and Social Token

Introduction

Kik is a mobile messaging service with over 300M users worldwide that began in 2009. The main demographics are young adults and have an emphasis on user privacy. Interestingly, Kik is located in the same city in Canada as us — Waterloo, ON, which is also where Ethereum was created by Vitalik Buterin in 2015.

The Kin ICO sale took place over two weeks, from Sept 12th to Sept 26th, 2017. It was one of the most popular ICOs of 2017, raising 168,732 ETH, or around $50M USD (an additional $50M was raised from institutional investors in a pre-sale) from 10,026 individuals in 117 countries. This fell short of their fundraising goal of $125M. The fact that Kin could only be purchased with ETH, and that their fellow Canadians were exempt from purchasing (this was to keep their ICO in a regulatory green zone) likely influenced them failing to meet their fundraising goal.

The Idea — a Marketplace Token

Their goal is audacious. Founder and CEO, Ted Livingston, has spoken on numerous occasions about the dangers of competing against the near monopolistic big tech companies for advertising dollars. His aim is to take Kik in a different direction by creating a two-side marketplace where interactivity between users and the production and consumption of digital services (bots that help you with tasks, etc.) is how the platform will be monetized. Kik feels this will allow them to produce higher quality products than competitors by allowing them to focus exclusively on user experience (and not advertisers’ interests).

“Developers would take a percentage of the daily reward in proportion to the number of transactions their service was responsible for…this creates a reward engine, a beautiful network effect” — Ted Livingston

Kik has history in digital currencies. They implemented Kik Points, a digital currency within Kik messenger with a similar flavour to WeChat, over a 2.5 year period beginning in 2015. During that time users completed over 253 million offers and spent their earned points on 74 million purchases. According to the whitepaper, the average daily transaction volume was 300,000 with a peak of 2.6 million. Importantly, Kik Points showed that users did not need to be technologically savvy to use digital currency.

Kik wants to be a participant in this digital services ecosystem that is fair and open, rather than a landlord, and so are investing in making the platform run on blockchain. The money they are raising is to help them implement the infrastructure needed to build this decentralized system and to establish Kin’s fundamental value.

Kik will ‘kickstart’ the ecosystem by exposing its millions of users to the ecosystem. Fundamentally, Kik is trying to create a two-sided market. A big question will be whether Kik’s existing users will take to this new ecosystem to a large enough degree to be able to entice new services to enter and create a stable environment.

To create this community of ecosystem partners, Kik needs to separate themselves from managing the supply of Kin. Kik will initially set up the Kin Foundation as a 3rd party to administer the tokens and support the digital services being provided. Over time it will be replaced with a fully decentralized autonomous organization (DAO).

What has happened so far?

Image taken from Coin Market Cap on KIN

It’s been half a year since KIK’s ICO. The market has adjusted since and the token has gained and lost value during this period. Interestingly enough the token gained its peak value and market cap ($1B USD) at the beginning of January. Most likely due to the overhyped sensation of the market that we saw at the beginning of the year.

The effects of that hype were felt by almost every single token including Bitcoin, Ethereum, Ripple, and pretty much any of the top 100 tokens by market cap. The market has lost billions of dollars in value in the last month so this may also explain KIN’s steady loss of value lately.

The current state of KIN is much more stable than it has ever been before, however it is clearly been deflated in value and Market cap to about a quarter of what it was worth at the beginning of the year.

It is likely too early to tell whether the token will continue being successful in the next 5 years, and it will most likely depend on the amount of useful applications that will be created within the ecosystem.

What’s in it for Me? Why is Kin Valuable?

Basically, you make money by participating. You can earn Kin by creating valuable content, curating content and through offering digital goods & services to others in the community. You can then spend your Kin on other products, services or other valuable things on the platform built by other members of the community. Imagined use cases of Kin include:

Image taken from Kik’s KIN White Paper Pages 14–15

VIP Groups — Celebrities and thought leaders can create VIP groups which cost Kin as an entry fee, users could then engage such celebrities, generating tangible value for their time and attention.

Premium User Generated Content — creating an open market for content will create higher-quality content on the platform that will reward the creator and create higher engagement with consumers.

Shoutout Messages — Users can decide to gain attention by paying Kin to post messages to groups, and users who receive these shoutouts will receive Kin.

Tipping — Users can reward creators of content they like by tipping them for their contribution.

Bot monetization — Bots can do useful things like order food, which you could pay for in Kin

Brand Missions — Brands can pay Kin to users in exchange for completing tasks like answering a survey or curating content.

Because the supply of Kin is finite and users (demand) will grow over time, the value of the Kin tokens purchased now will grow in value. Because Kin is still very early in their roadmap, the Kin is a solid long-term investment strategy.

Token — Bait and Switch?

The initial plans for Kin was for it to be based on Ethereum’s ERC-20 standard token. Since their ICO however, Kik has announced they plan to move to the Stellar network to better deal with congestion issues. This announcement has been met with some criticism from the developer community who feel Stellar is too close to centralized networks of today (the platform uses ‘anchors’, or trusted entities, to hold your money and honor withdrawals more quickly).

We don’t yet know what will happen to coins that have already been circulated, but it is assumed that they will be exchanged for a Stellar compliant token on a one-to-one basis.

We still know that the intent is to have Kin be a general-purpose cryptocurrency that is open sourced, with a fixed supply, that is fractionally divisible and tradable on exchanges. This last fact is important, because it allows users to exchange their tokens for USD.

Technology

The Kin token is currently based on Ethereum’s ERC-20 standard token and was first intended to be built on the Ethereum blockchain. Initially, the Kin foundation will host a private blockchain on centralized servers. The intent of a private blockchain is to improve user experience by:

· minimizing the time to confirm transactions

· avoiding ETH transaction fees; and

· improving speed by avoiding putting stress on the public network

To illustrate this potential issue with congestion, we can look at the success of the Kik Points experiment.

There are currently 740,000 daily transactions of Ethereum each day, Kik could introduce somewhere between 300,000 transactions (the average daily transaction volume for Kik Points) and 2,600,000 transactions (peak daily transaction volume of Kik Points).

Since ICO, Kik has announced their intention to move to the Stellar platform, which can better handle larger transaction volumes. We expect more to be released on this shortly, likely through a technical white paper. However, we know the goal will still be to transition the Kin network to a fully decentralized and autonomous system over time.

ICO Details & Toke Distribution

Image taken from Kik’s KIN White Paper Page 22

Kik offered 1 trillion Kin tokens during the 2-week ICO (out of a total supply of 10 trillion Kin). The purchased tokens are 100% of the available liquid supply.

At the time of the ICO, 3 trillion (or 30% of the total supply) were pre-allocated to Kik as the founding member of the Kin Foundation. They will be subject to a vesting schedule of 10% per quarter for 10 quarters.

The remaining 6 million is under control of Kin Foundation, locked under the Kin Rewards Engine Schema (which will be used to grow the Kin Ecosystem and fund the operations of the foundation). Each year 20% of the remaining kin out of this pool will be released to reward ecosystem partners. Rewards will be transparent, auditable and secure. Early partners will receive higher number of kin.

The Kin Foundation will use up to 5% of the reward allocation (up to 3% of the total supply) for operations and marketing, to help ecosystem partners acquire users and bring other partners to the ecosystem.

Image taken from Kik’s KIN White Paper Page 22

Inflation Schedule — New partners are given proportionately more for early adoption. This table describes the inflation rate, or how much kin as a percentage of total supply will be introduced into the ecosystem each year (it is assumed Kik’s 30% is fully vested).

Traction

Kik is an established company with over 150 employees, they have raised $120.5M in venture capital money and have a private valuation of over $1B.

Kik has a track record of innovations. They were the first chat app to become a platform (2011), the first western app to integrate bots (2014) and tested out Kik Points back in 2015. The Kik Points experiment provides some evidence that they are likely to succeed. During the experiment users completed over 253 million offers and spent their earned points on 74 million purchases. There were more transactions involving Kik Points than Bitcoin transactions over the same period. Importantly, Kik Points showed us that users did not need to be technologically savvy to use digital currency.

Team

One of the ways that the Kin ICO stands out is through a demonstrably excellent team with a deep background in running digital communications, consumer mobile apps, and digital media.

Ted Livingston, the founder and CEO of Kik, has led the company since inception, raised VC money, grown the team and the user base to 300M. Kik’s other executives have impressive backgrounds in finance, operations, communications, mobile and consumer apps and enterprise sales & partnerships. They have worked at organizations like Rounds, Spotify, Google, AOL Time Warner and Citizens Business Bank.

The core Kin team is deeply technical and includes software developers with experience in blockchain architecture, blockchain security and anti-fraud.

Advisors — Kik also has a top tier group of advisors, including Amir Chetrit, one of the cofounders of Ethereum.

Criticisms

While Kik has a large user base, its number of monthly users stopped growing as of September 2016. This is likely due to the popularity of other apps catering to similar demographics, like Snapchat. Importantly, this raises questions about if they will begin to lose users over time, which could hurt the value of their two-sided marketplace. The fact that their messaging service is used heavily by child pornographers could further hurt their popularity.

The use of hybrid on-chain and off-chain technologies is ultimately logical and supports the company’s mission. It is critical that they offer a great user experience to help foster adoption into this new economic model.

Kik has yet to release their technical whitepaper, likely due to the fact they are still identifying how things will change by moving to the Stellar blockchain. This will be an important release for current holders of Kin.

Another potential issue is that the Kin Foundation, and its executive team, must remain arm’s length from Kik until the legal and governance structures can be put in place to make the Kik Foundation into a DAO. It is also important that the Rewards Engine will be governed by a well-defined process based on an objective, performance-based methodology that will be auditable and open for anyone to see.

Conclusion

What makes the Kin ICO so exciting is that this is a proven team, with demonstrated traction, working on an ambitious goal to change products that have hundreds of millions of people interacting with each other.

While the partly centralized nature of the token may turn off some, we think it could actually be a good strategy to introduce cryptocurrencies to their youth audience. It is also clear that they have a plan in place and intend to transition to full decentralization.

One of the largest issues with this ICO is the change from the Ethereum network to the Stellar network and the questions that this raises. The bar is set very high for user experience in consumer apps and any sort of friction points will cause them to lose users.

However, even with these challenges, Kik has a large existing user base to leverage and has demonstrated their ability to execute and innovate over time. It is likely they will be able to transition the Kik platform to a two-sided marketplace, albeit with some effort.

The mission Kik is undertaking is valiant. If they can successfully demonstrate they can succeed without the advertising business model, it will likely influence others to do the same. Inhibiting the powerful network effects that companies like Facebook have generated is good for the public at large, but it will also make users happy, especially those with the growing concern with privacy.

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