Note: This is not investment advice and should not ever be taken as if it is any kind of investment advice. These are my personal thoughts, opinions, and findings. Nothing more.
In the world of cryptoassets exists an abundance of overvalued tokens fighting to be #1 on the leader board. Premiums are being handed out to those offering the most “scalable solution”, yet little attention given to those with greatest likelihood of mass adoption. As history has shown, the “better” tech doesn’t always come out on top. While there is undoubtedly a plethora of tokens overly hyped and lacking originality, there are diamonds in the rough. For reasons I discuss below, OmiseGO appears to me as a token capable of having a huge societal and economic impact, while also being incredibly well positioned to surprise investors in 2018.
In this report I provide everything you need to know about OmiseGO, what’s to like about it, and how I came up with a price target of $74.25 for 2018. Enjoy.
Table of Contents:
I. What is OmiseGO (OMG)?
II. The Problem
III. OmiseGO, The Solution
IV. What’s In It For Omise?
V. Partnerships, Investors, & Acquisitions
VI. The Management Team & Advisers
VII. The RoadMap
VIII. What’s To Like About OMG?
1. The Opportunities
2. An Inevitable Societal Shift
3. The Decentralized Exchange
5. The Very First Plasma Project
6. The Team Behind The Show
7. Regulatory Positioning
8. Lack of Competitors Legal
9. Risks, Concerns, & Questions for Management
IX. Valuation, Price-to-Hype, Recent Moves
X. Concluding Remarks
I. What is OmiseGO (OMG)?
OmiseGO is a subsidiary of Omise, a Thailand based payment gateway service for merchants and enterprise businesses. OmiseGO is on the forefront of providing those in Asia, particularly Southeast Asia, greater financial inclusion and a more efficient digital payments offering. OmiseGO plans to offer businesses and users a mobile eWallet (electronic wallet) that will run on the OmiseGO decentralized exchange (DEX) by way of blockchain technology. OmiseGO is designed to run both on and alongside the Ethereum network to provide users payments, remittances, payroll deposit, B2B commerce, supply chain finance, loyalty programs, asset management & trading, and other on-demand services in a completely decentralized and inexpensive way.
OmiseGO completed their initial coin offering (ICO) on July 5th, 2017, with $25 million in proceeds raised. Approximately 65.1% of total tokens were distributed to participating investors. An additional 5% of supply was distributed to those holding more than 0.1 Ether via an “airdrop” on September 24th, 2017. More than 460,000 accounts received airdropped tokens in proportion to their ownership of total outstanding Ether. Source code & additional details can be found here.
Learn More & Stay Up To Date
Omise — www.omise.co/
OmiseGO — https://omisego.network/
Facebook — View on Facebook
LinkedIn — View on LinkedIn
Twitter — View on Twitter
Contact Email — firstname.lastname@example.org
EtherScan.io — View on EtherScan
GitHub — View Here
II. The Problem
Billions around the world lack access to traditional banking, in Southeast Asia that number is approximately 483M, or 73% of its population. While bank accounts are few and far between, nearly everyone has a phone. Services exist, typically at convenience stores, where mobile users can load money onto an eWallet for spending. The downfall to this is that in order for users to spend with their eWallet, a merchant must support said wallet. Not ideal for consumers or businesses.
It is incredibly cumbersome to transact across different payment service providers, for example sending money from WeChat to Alipay. There exists a long-tail of entities wishing to provide eWallet services, which requires greater coordination among multilateral participants. Allowing users to exchange value across networks would yield greater network usability, a win-win for all.
Costs and Trust Required of Payment Service Providers (PSPs) — When transacting with another network IS possible, a clearing house acts as a middle-man to handle interchange (SWIFT and ACH for instance). These exchanges often require significant overhead costs, trust with the interchange facility, and will take several days to process. Networks offering services like local/national payments, international payments, credit, equities/asset exchange, and derivatives can control transaction costs via information costs, due diligence, and contractual enforcement between all parties. Transparency & reliability is non-existent and a lot can go wrong. Moreover, merchants who want to accept electronic payments have to deal with the headaches of PSPs; cumbersome documentation to apply, monthly agreements, high transaction fees and a lengthy approval process.
Remittance across Southeast Asia is incredibly common and remains nearly the only means of money transfer back home. But these services cost on average 7% and up to 10%. While fees have grown by 3% over the past six years, remittance has surged 102% over the past 10 years ($63.9B in 2016). MTOs, like Western Union, have maintained high fees through exclusivity agreements with local agents and banks. This has prevented a competitive pricing landscape from forming.
Limitations of Digital Payments — Although cash currently rules broader Asia, there is an ever increasingly shift towards a cashless society. In December of 2015 Thailand cabinet approved the Finance Ministry’s national e-payment master plan to promote electronic payments to one day be a cashless society. Today’s digital wallets are typically limited to payment for taxi services or the purchase of goods and can only be spent with supported merchants.
For instance, while one may be able to purchase Starbucks with their Starbuck’s eWallet, the end user cannot do anything beyond spending at Starbucks. Transferring back to a bank account, or sending to another user, is not supported. As technology continues to connect us more and more, the opportunity and value in transacting with one another domestically and internationally continues to grow.
Access to Banking — According to KPMG, a study in 2016 found that 73% of Southeast Asia lacks access to traditional banking infrastructure like cards, loans, etc. Fiat is used for everything from getting paid to buying groceries. For poor countries, like Cambodia, this number is 95%! Of the 27% with banking access, there is much debate as to whether they’re being offered the best service possible.
Because nearly everyone has a smart phone in Asia, many companies have started building “eWallet” apps where one can walk into a store, give the teller cash, and load it onto a siloed utility wallet app. Although this may sound like a bank account, restrictions and costs associated with spending, sending, or loading cash makes it far from a bank account. Lack of infrastructure and the extensive resources required for eWallet development has also dampened mobile banking innovation.
To give some context, the mobile concentration as a percentage of population is 133% in Southeast Asia, according to Hootsuite. If we make the assumption that there are 1.5 phones for every person, then we get ~569M unique phone users. That implies 88% of the population are unique mobile phones users — a reasonable assumption given the remaining 12% could account for adolescents, physically disable, elderly, and/or those living in severe poverty. An astonishing statistic…
III. OmiseGO, The Solution
OmiseGO is creating an eWallet solution that’ll sit on top of the OMG blockchain. From the eWallet shoppers, merchants, payment service providers, and businesses can connect to the OmiseGO Decentralized Exchange (DEX) to send, buy, sell, or trade fiat currencies, digital assets, and cryptocurrencies. This can all be done without PSPs compromising their own network effect and/or brand. Users can even issue digital currencies backed by fiat, loyalty points, gift cards, documents, data, patents, music, etc. OmiseGO is intrinsically agnostic between fiat, digital assets, and decentralized money. There is minimal online identification, no minimum monthly commitment and low transaction fees. Users can accept payments instantly, and for non-developers accepting payments via social network will be possible. Let’s break it down further…
OmiseGO White Label Wallet SDK — The OmiseGO wallet is a mobile wallet where everything is stored. It is a white label wallet, meaning that while the back-end technology has been created by OmiseGO it can be re-branded and used for FREE. The wallet comes with a SDK (software development kit), a programming framework with pre-defined functions and capabilities that developers can use right away for design, develop, and deployment of eWallets for their customers. OmiseGO is already testing this technology with multinational strategic partners, a promising sign.
Example: Grab, “Ubers biggest competition in Southeast Asia”, offers a wallet that can store funds for their cab service. Users can transfer funds to other users for free, but cannot transfer out to a bank account. If Grab were to connect to the OmiseGO network through the supporting OMG wallet, Grab could deploy tokens that users could then spend, purchase, sell, send, or even trade with others in exchange for native currency or other digital assets (like frequent flyer points).
The OmiseGO wallet is no different than a bank account, except that it can store digital assets with ZERO deposit risk. Because digital wallet licenses are different from banking licenses, eWallet licensors cannot lend out network funds (contrary to a bank). No minimum balances are required and there is no need to worry about what kind of investments your deposits are funding (think 2008 U.S. housing bubble).
OMG Blockchain — A PoS (Proof-of-Stake) consensus blockchain that acts as a decentralized exchange, liquidity provider, clearinghouse, messaging network, and asset-backed gateway. Being decentralized means no central authority and all entries/activity are recorded to the blockchain indefinitely. As previously mentioned, anyone can issue digital assets on the blockchain network. Users can also track past and present transactions, providing especially useful for businesses who want to track exchanging of assets and/or information.
Activity on other blockchains will be interlinked via interchain committed proofs to allow for trading across token/asset classes. The OMG blockchain will validate the activity of participants and activity on other chains. Settlement will take place on OMG and costs of protecting transaction value is externalized to other chains. The OMG ledger holds the general balance of funds per eWallet service (or any user/node) and will be capable of holding funds across many different currencies/digital assets.
OMG Network — While the Omise network already exists as a standalone payment gateway, the network is intended to move to the OmiseGO blockchain for transactional support. Partners of Omise will also move over to the blockchain solution when the time is right, kick starting network adoption and activity right out the gate. Wallet applications will be built on top of the blockchain and all wallet activity will be recorded.
OMG Tokens — An ERC-20 token (deployed on the Ethereum blockchain) designed to provide computation and enforcement of transactions on the OmiseGO blockchain. By owning OMG tokens, one has the right to validate transactions and be rewarded via the transaction processing fee. Fees will be 100% dynamically determined by supply and demand, there is no way for OmiseGO to control the fee structure. The token acts as a bond for its activity on the blockchain and any kind of bad behavior will result in demonetizing/burning of the user’s staked tokens. The incentive to approve transactions truthfully makes for a cohesive and secure network.
A Few Problems Solved By OmiseGO:
▪ The ability to transact with merchants, businesses, and users on different networks
▪ Sending, trading, buying, and selling fiat currencies or digital assets domestically and internationally in an efficient and affordable manner
▪ Storing fiat or decentralized assets securely
▪ Creation and deployment of loyalty points, digital currency, and/or digital assets
▪ Consumers are protected from their data being used
▪ Easily developing & deploying eWallets with the ability to enhance, add, and customize payment solutions for various industries and market verticals
▪ Greater liquidity for payment channels using other cryptocurrencies
▪ Ledger tracking of asset transfer across organizations
▪ Fraud, theft, and manipulation when sending, receiving, and storing fiat currencies and digital assets
▪ An ecosystem with no centralized entity in control or at risk
IV. What’s In It for Omise?
While Omise is the creator and main contributor of the OmiseGO project, it is not a protocol centrally owned by Omise. Just like other blockchain projects, no one holds central ownership. So you may then ask, “what’s in it for Omise?” Once the blockchain has been deployed, Omise will move their existing payment gateway service over. The added efficiency and lower cost of running the existing payment network on the blockchain will be beneficial to Omise’s core business. That said, interests are aligned — what’s good for OmiseGO is good for its users, and great for Omise.
V. Partnerships, Investors, & Acquisitions
Like any other business, relationships matter. Omise’s payment gateway service already supports more than 500 merchants in Southeast Asia and new partnership discussions seem to be ongoing. Here are a few of the partners, investors, and acquisitions of Omise/OmiseGO:
In October 2017 Credit Saison and Omise agreed to partner together to focus on servicing tuition payments for university students through credit cards, marking the start of a potentially promising relationship. Credit Saison is a Japanese based affiliate of the bank holding behemoth, Mizuho Financial Group, and holds more than $24B in assets. Credit Saison has more than 20 million credit card holders and is the 3rd largest credit card issuer in the country.
Mizuho Financial Group
A financial conglomerate based in Japan and a partner of OmiseGO. Mizuho offers an array of services within retail & corporate banking. They’re considered to be one of three Japanese “megabanks”, alongside MUFG and Sumitomo Mitsui Financial Group, with more than $1.7T in total assets (13th largest in the globe). The bank recently announced plans to issue “J-Coin”, a digital currency designed to offer lower processing fees paid by merchants than already offered by credit cards. The coin will be pegged to the Yen and will also allow for faster transfer of money through a mobile device. There is speculation that at some point down the road Mizuho will have J-Coin distributed over OmiseGO.
On Sept. 25th, 2017, it was announced by Omise that McDonald’s Thailand picked Omise to be their exclusive payments gateway for the McDonald’s Thailand website and McDelivery Thailand mobile app. We can assume McDonalds Thailand will be one among the many merchants that will move over to OmiseGO with the Omise Network. More importantly, backing by a well known worldwide brand makes for incredible brand recognition for Omise and OmiseGO.
TrueMoney - A private fintech company based in Thailand and provides e-payment services in Southeast Asia. TrueMoney is a partner and shareholder of Omise, leveraging the companies transacting capabilities and participating in collaboration efforts. TrueMoney is currently owned by Ascend group, whom recently received an investment from Ant Financial (owned under Alibaba). Services offered includes TrueMoney Wallet, WeCard with MasterCard, TrueMoney Cash Card, Kiosk, Express, Payment Gateway and Remittance. They’re also known for their extensive support of 9000+ 7’Eleven branches in Thailand. Both Google and Alipay are partnered payment platforms of TrueMoney.
PaysBuy — Acquired by Omise in July 2017 to capture payment processing market share in Thailand. PaysBuy is one of the 3 largest payment service providers in Thailand. The purchase allowed for Omise to capture access to tier-one enterprises with a strong footprint in target industries (telcos, insurance, hospital, travel, and e-retail). Additionally, PaysBuy will help kick-start the adoption of OmiseGO’s decentralized wallet solution given the existing user base and brand loyalty.
Bank of Ayudhya (Krungsri) — In September of 2017 Omise received an undisclosed investment from the Thai bank Krungsri (Bank of Ayudhya). What’s worth noting here is that Krungsri is apart of the much larger Mitsubishi UFJ Financial Group (MUFG), valued at around $19B and spread across 50 countries. MUFG is known for having conducted several crypto trials, including the use of blockchain technology and creation of its own digital token, and are a member of the Enterprise Ethereum Alliance. I believe there is a possibility of more going on behind the scenes here…
Sumitomo Mitsui Banking Corp (SMBC) — A Japanese multinational banking and financial services company headquartered in Tokyo. The bank offers services ranging from trade financing, cash management services, yen clearing, and custody & securities services. SMBC’s investment in OmiseGO reflects the banks broader interest in exposure and experimentation with blockchain technology. SMBC’s prior testing of Cross-Border Trade Operations using Hyperledger is a great example.
Sinar Mas Digital Ventures (SMDV)- A tech-focused Venture Capital firm that partners with entrepreneurs building exceptional technology companies aimed at positively impacting the Indonesia region. SMDV does such by providing venture investments, strategic network, and mentorship. Headquarters are in Jakarta, Indonesia.
GreyLock Partners — An early stage, late stage, and seed venture capital firm focused on investing in disruptive, marketing-transforming consumer and enterprise software companies. GreyLock currently has committed capital of over $3.5B under management and an investor of OmiseGo. GreyLock is based out of Menlo Park, CA. Past investments include Airbnb, Coinbase, Facebook, Instagram, LinkedIn, Pandora, and Tumblr. If you’re unfamiliar with GreyLock, take a moment to conduct a Google search. Although not an investor of OmiseGO officially, there is what appears to be a meaningful and potentially prosperous relationship in the works.
Central Bank of Thailand —
On August 15th, 2017, the OmiseGO team and Vitalik Buterin (co-creator of Ethereum) met with the Central Bank of Thailand to discuss the future of the Thai economy and more. In the same month of August, the Ministry of Finance announced a test pilot of Omise’s “FacePay” mobile face scan technology for cafeteria purchases. The Omise FacePay technology allows for rapid identification of users to conduct seamless retail transactions. Although it is too early to say what may come of the relationship with the government of Thailand, we do know a healthy one exists.
VI. The Management Team & Advisers
Jun Hasegawa (CEO/Founder)
- Founder & CEO of Omise Co since May 2013. Currently leads an international team of engineers and business personnel across Asia. Jun is gearing up for the company’s expansion into Indonesia, Singapore and Malaysia
- CEO/Co-Founder of LIFEmee Inc. from Sept 2008 — April 2013. LIFEmee was a tool to help manage one’s daily health condition, assets, life history and even help them prepare their own will
- Director — Alpha-do Inc from 1999 to June 2015
- 16+ years of experience in web & product design, marketing, and possesses a deep understanding of Thailand payment market. With a remarkable vision, Jun looks to expand Omise beyond its existing borders to countries across Asia Pacific
- Has worked on various ventures with Co-Founder Don Harinsut for 15 years
- Former professional skateboarder, Element Skateboards
- LinkedIn & Twitter
Donnie Harinsut (COO / Co-Founder)
- COO/Co-Founder of Omise Co. since June 2013. Among many others, Donnie has assisted with growth and international expansion in Japan, Indonesia, Malaysia and Singapore
- International Trading Managers at Alpha-do Inc from Jan 2000 — May 2013
- Over the course of his career, Don has been involved in 2 large projects with NTT, Japan’s leading telecommunications firm, administering production in China, Thailand and Vietnam
- Graduated from Bangkok University International College in 2002 with a Bachelor’s Degree in Business Management, Marketing, and Related Support Services
- LinkedIn & Twitter
Wendell Davis (Product Design)
- OmiseGo Product Designer
- Special Adviser to Golem Network
- Ethereum founding team member
- Some of his past endeavors include Hive, one of the earliest easy-to-use Bitcoin wallets, Vizor, an open source WebVR development platform, Splice, an online musicmaking/mashup community, and Kitchensurfing, which connected mobile chefs with buyers of their trade
Thomas Greco (Special Adviser)
- Adviser to the Interchain Foundation developing Cosmos Network, the Web3 Foundation developing Polkadot
- Past adviser to the Ethereum Foundation
- Proponent of cryptoeconomics and cryptosocioeconomics
Vansa Chatikavanij (Managing Director)
- Responsible for ensuring efficient project delivery, establishment and realization of the long-term business strategy, business development and partnerships
- Co-Founder & Board Member of Sky Visual Imaging Venture since 2015. Sky Visual Imaging is a Thai-based precision agriculture and UAV image processing start-up. Vansa’s roles include supporting initial stage fundraising, co-leading business development, partnership on-boarding, contract structuring which resulted in 3 long-term contracts in the cassava and sugar cane industry. She worked with partners to design and carry out feasibility assessment to pilot expansion of agriculture-tech solutions including mobile information services and eMarketplace
- Water Resources Specialist at World Bank Group from 2011–2016. Vansa led teams to roll-out international development programs worth over US $1 billion across finance inclusion, infrastructure investments, and environmental and social development areas
- International experience extends South and East Asia, 24 emerging markets including Bangladesh, Cambodia, India, the Maldives, Lao PDR, Myanmar, Pakistan and Vietnam
- Remains an adviser to the World Bank Group, Loxley Public Company Ltd., and Sky Visual Imaging Venture
- Researcher at Marine Biological Laboratory from 2008–2010
- Received a Master’s Degree in Rural Development, Infrastructure, Renewable Resources at Columbia University in 2011
- Received a Bachelor of Arts in Geographic Information Systems (GIS) at Middle Burry College in 2008
Although OmiseGO’s board of advisers consists of highly adept crypto/blockchain individuals, the 3 most notable are Vitalik Buterin (Founder of Ethereum), Joseph Poon (Coauthor of Bitcoin’s Lightning Network and Coauthor of Plasma Network), and Roger Ver (CEO of Bitcoin.com and BTC early adopter). The long list of creditable individuals backing the OmiseGO project speaks to the shared belief in the project’s direction. Support from leaders in the space ultimately translates to greater project awareness, as can be seen from Vitalik Buterain.
VII. The RoadMap
OmiseGO released their roadmap on October 27th, 2017, providing investors a clear path for achieving their end goal of “Tengen”. The release of a roadmap was a power play by management and can surely help an investor get comfortable with the story. For those who do not already know, “GO” is an ancient Chinese board game where two players compete for board territory. Each layer is named after various different moves in “GO”. I have to say that I really did enjoy contextualizing the moves in “GO” relative to management’s set milestone…
- Fuseki & Sente
- Meaning: the whole board opening, allowing various developments and strategies to take place
- Goal: design and develop priority features for the wallet SDK, ensuring users needs are front and center
- Achieved Dec. 21st, 2017
- Meaning: A move that retains strategic advantage for the player and controls the opponent’s response
- Goal: Clearly demonstrate the value of the OMG wallet SDK and its utility in global customer loyalty programs. Sente is planned to be in the hands of developers in 1Q of 2018
- Note: The first users and partners for the loyalty programs use-case will lead the announcement of their adoption of the wallet SDK once the solution has been fully integrated
- Meaning: A solid, simple, and robust move
- Goal: deliver the OMG network and foundations and preparations laid for Plasma. On course to be delivered in 1Q/2Q18
- Meaning: “Latent potential”. Represents how stones provide options for play later in the game
- Goal: Ability to move in and out of fiat and an interface to the OMG payment gateway
- Meaning: A clever and skillful move, almost level of a “trick”. It requires the player to read ahead and pick the best move that might be decisive to the final outcome of the game
- Goal: Utilize the foundations that were built by Honte and Aji and introduce a basic form of Plasma with a novel bonded consensus mechanism
- Meaning: “origin of heaven”, represents the center point of the ‘Go’ board
- Goal: A massively-scalable, cross-chain-compatible decentralized exchange (DEX) Plasma chain up and running
VIII. What’s To Like About OMG?
1. The Opportunities
While there are plenty of ways for OmiseGO to win, the 3 most obvious opportunities include remittance, the mobile wallet market, and cryptocurrency trading. Although the total addressable market for deploying and exchanging digital assets remains unknown, we can take a look at the broader digital economy to provide context.
Remittance: According to The World Bank, Asia ex China remitted ~$135B in 2016 and has grown by 4.8% annually since 2010. Assuming this growth rates persists, by 2022 the remittance market will be roughly ~$170B.
Mobile Wallet Market: Zion Market Research estimates that the mobile wallet market could be $3.1T by 2022, growing at a CAGR of ~32% between 2017 and 2022. According to McKinsey, Asia Pacific accounts for nearly three-quarters of global payment transactions. Last but not least, Global Industry Analysts estimates Asia Pacific will post a CAGR of 33% from 2014–2020.
Cryptocurrency Trading: It goes without saying that crypto truly took off in 2017. Daily trading volume across the market increased 30,208% from January 1st ($119,570,350) to December 31st ($36,238,932,595). If we take an incredibly conservative approach and assume that daily trading volume remains constant at $30B and increases by a modest 15% year over year, annual trading volume in 2022 will be~$22T. While the exponential growth of trade volume over 2017 cannot persist through to 2022, it is safe to say that in this 5-year time frame there is plenty of room to run and ~$22T in 2022 is achievable, if not easy.
Digital Economy: The digital economy in 2016 was estimated to be $11.5 trillion globally, or about 15.5% of global GDP. By 2025 this number is estimated to be $23 trillion, or 24.3% of global GDP. The digital economy is all economic activity that results from billions of everyday online connections amongst people, businesses, devices, data, and processes.
Loyalty Points & Rewards: Estimated to be a $4.59B market by 2021. 61% of customers want to redeem points or miles to pay for purchases directly from their mobile wallet. Almost the same number reported a desire to have access to all loyalty programs in one app. OmiseGO’s ability to allow for businesses to create and maintain loyalty partnerships without adding complexity or costs is an especially attractive value proposition.
Gaming Publishers & Platforms: Gaming and mobile gaming is absolutely flooded with digital wallets for in-game purchases. Wallet services are offered by various game publishers, but no universal wallet exists to fulfill all purchases (among many other issues). Southeast Asia’s PC online and mobile game revenue is projected to reach $2.2 billion by the end of 2017 and could be $4.4 billion by 2021. Users and publishers continue to face issues with payment, whether it be user’s limited access to a credit card, a bank account, or costly direct billing by telco companies. OmiseGO would provide seamless transacting for users all over the globe, creating a greater revenue opportunity for publishers.
Messaging & Communication: Digital messaging has exploded since the rise of the internet. As messaging platforms evolve into fully integrated ecosystems with financial product offerings, messaging services can leverage the OmiseGO network through micro-transactions, tradable currencies, and cash-in and out capabilities. Facebook is a great example of the kind of payment features that will become integrated with social media networks overtime.
2. An Inevitable Societal Shift
We all know money has evolved drastically since the beginning of mankind. Each and everyday we move one step closer towards completely digitizing our money, whether we like it or not; OmiseGO is a direct play on such inevitable shift. But how and why are we shifting towards digital money?
- Governments are beginning to push for cashless transactions to boost tax receipts, improve transparency of the financial system, and reduce overall costs of transacting.
- Mobile payments offer a platform for financial inclusion for those who do not have access to a bank.
- Conducting cashless transactions has become incredibly convenient and much more seamless.
- Mobile ticket and mobile money transfers have continued to see incredible momentum to date.
- Mobile wallets allow for customers to purchase digital content, like mobile gaming apps and videos.
- Retailers are incentivized to support eWallet transactions because it translates to more consumer spend, lower operating costs, fewer cases of fraud-related losses, and improved consumer satisfaction. Retailers can also boost brand recognition through mobile payment apps.
An Ever Growing Digital Economy
While GDP measures a country’s overall economic output, there is a dramatic shift in the relationship between digital technologies and the broader economy. A digital economy is one where businesses across the industrial spectrum are investing in digital assets and using it for greater efficiency, which encompasses all economic activity that results from billions of everyday online connections among people, businesses, devices, data, and processes. Digital assets are broadly anything that exists in a binary format and comes with right to use, such as logos, presentations, medical, reputation, spreadsheets, email, data, patents, art, knowledge, music, virtual property, computational power, storage, etc. The number of digital assets continues to grow exponentially as we become more connected technologically.
The Digital Spillover report by Chinese Telecom Giant Huawei Technologies Co. and Oxford Economics identified and measured the true impact of the digital economy. This was done by quantifying the value generated by businesses each year from their stock of digital assets, reclassifying certain digital expenditures that are not considered investments in pure accountancy terms, and including indirect spillover effect from digital assets. The research concluded that:
- The true size of the 2016 digital economy is US $11.5 trillion globally. That is, 15.5% of global GDP. This is roughly three times larger than traditional measurements. The base digital assets comprise one-third, or $3.8 trillion, while digital spillover effects account for the remaining two-thirds, $7.5 trillion.
- The digital economy is 18.4% of GDP in advanced economies — which ranges from 35% to 10% of GDP — and 10% in developing economies, with a range of 19% to 2% of GDP. The U.S. has the largest digital economy at 35% of GDP.
- The global digital economy almost doubled between 2000 and 2016, growing 2.5 times faster than global GDP over this period. China’s share has tripled, from 4% of GDP in 2000 to 13% in 2016.
- During the past three decades, every dollar invested in digital technologies added $20 to GDP on average, 6.7 times higher than non-digital investments which added $3 for every dollar invested.
- Assuming current growth rates of digital investments over the next 10 years, the report estimates that by 2025 the digital economy will be $23 trillion globally, or 24.3% of global GDP.
3. The Decentralized Exchange (DEX)
At the heart of OmiseGO is the OMG decentralized exchange, a powerhouse running all of the platform’s transactions. One should not be as foolish as to overlook the fact that it will be decentralized. The benefits of being a decentralized vs. centralized is an attractive quality of OmiseGO. Benefits include:
1. User’s private keys containing all digital assets will not be stored on centralized servers. The risk of theft, from internal or external forces, is minimized.
2. Insider trading cannot take place, as we saw when CoinBase recently announced Bitcoin Cash addition to their exchange. This activity makes markets inefficient and unfair.
3. A scalable exchange where influxes of new and existing users pose no threat to exchange performance. Issues with scaling and support for new users on centralized exchanges continues to be big.
4. No central entity in complete control. While more money has flooded into the crypto market, so have hackers and thieves... One of the biggest risks within the market today are the trading exchanges themselves. While some exchange’s legitimacy remain in question, others operating ethically are cash cows for hackers and are prone to attacks. These kinds of threats could be devastating for the crypto market if they came to fruition (Mt. Gox for example).
5. Greater liquidity, pricing, and transaction speeds among various different cryptocurrencies and digital assets.
The difference between OMG’s decentralize exchange and other decentralized exchanges (CryptoBridge, Bisq, etc) lies in that the OMG network is its own blockchain infrastructure, while most other DEXs work on top of an existing blockchain. All order book matching, commitment, and trading execution happens in the consensus layer of the network. Final money transfer is delegated to the Ethereum blockchain. Intermediary blockchains for cross chain trading is not needed and security is provided by Ethereum main net.
Responsible Right Out The Gate
In 2017 the name of the game was launch an ICO, raise as much money as possible, pump your token to the moon, and cash out if so desired. While perhaps a profitable strategy for management teams & ICO flippers, HODLers were at the mercy of irresponsible management and poor tokenomics.
OmiseGO initially planned on raising $20m during their ICO, but decided to increase their target to $25m given high demand. While CEO Jun Hasegawa said in a statement that more than $100m could have been raised, the team wanted to be “responsible” and guard against wealthy backers from owning a majority stake. Management’s aversion to price inflation and centralized ownership prevented collusion, price manipulation, dumping, and overall volatility. A responsible move by the OmiseGO team that truly separates them from the crowd and supports the case for a premium relative to peers.
Thoughtful & Strategic Distribution
The 5% total supply airdrop that completed in September 2017 also reflects management’s desire to diversify token ownership in the face of a somewhat whale infested market. The airdrop was unique in that it was the first successful ERC-20 airdrop to market and represented effective monetary policy. The decision to airdrop was a two-fold success in that it opened the door for greater awareness of the OMG network, while also bringing additional liquidity to market; all without compromising OmiseGO’s integrity and token price.
The remaining share of OMG tokens not in circulation (29.9%) are locked up for 1 year among the OmiseGO reserve and members. Approximately 9.9% of tokens are owned by team members and key contributors who worked on development, supporting structures, and implementation of the OmiseGO project. The other 20% is held in a smart contract that will be released for future costs and network validation. Such clarity reassures investors that interests are aligned with the long term success of OmiseGO and it provides insight as to when remaining supply may come to circulation. These are important details you cannot find in a majority of projects.
5. The Very First Plasma Project
When OmiseGO was coming to market it had been announced that they’d be the very first to implement Plasma. Exciting for many, not just because it gave OMG first mover advantage in utilizing the highly anticipating on chain scaling solution, but because it signaled to the market that the OmiseGO blockchain would have some serious firepower behind it. Plasma implementation will be like none other and it will allow for the team to focus on the real challenge in the world of crypto, ADOPTION.
Plasma, The On-Chain Scaling Solution
For those who may not know, Plasma is a framework, designed in part by Joseph Poon (an OmiseGO adviser), to allow for incentivized and enforced execution of smart contracts. Plasma is said to be capable of potentially billions of state updates per second and will allow the underlying blockchain to handle plenty of decentralized financial applications all around the world. This is done by minimizing the amount of data being computed for transaction authentication through child chain networks connected to the parent chain. The Plasma scaling solution has long been of debate in the crypto community and could help bring much deserved attention to OmiseGO upon delivery.
Plasma Explained By Joseph Poon: Click Here
Plasma Announcement to Drive Price Higher?
OmiseGO Tweeted on January 5th a link to a post by Vitalik Buterin where he explains details for a minimal viable plasma implementation. Though somewhat technical, the post goes into depth on the structure of a plasma contract and its implementation. As we know from the roadmap, Honte is set to be delivered in 1Q/2Q18 where the OMG network and foundations will be delivered in addition to preparation layers for Plasma; worthy of excitement and potentially a big price move. The GitHub repository for OmiseGo’s Minimum Viable Plasma implementation was officially opened on 1/17/2018. We could be close to very big news.
6. The Team Behind The Show
Behind every great product is a great team, OmiseGO is no exception. Since day one management has been incredibly articulate with their vision & how they plan on getting there (roadmap). The team recognizes that the cryptocurrency market today is highly speculative and moves violently on momentum & rumors. Conservative guidance is consistently given and announcements are made when the time is right, not when investors want. Focus resides in deploying a top quality network and less so on token appreciation. While the conservatism may not be appealing to all, I believe that it positions OmiseGO incredibly well to surprise. There is still a lot that has yet to be revealed, those who have patience and strong hands will surely be rewarded…
Omise’s presence, value, and proven track record is exemplified among their many awards to date, such as one of Forbes 2016 “Fintech Rockstars” , Prime Minister Digital startup of the year, and Forbes Japan: Best Startups Top 10. There is arguably no team more knowledgeable, capable, and experienced than Omise to provide a blockchain solution for the electronic payment and eWallet vertical in Asia.
7. Regulatory Positioning
While the legality behind cryptocurrencies and blockchain networks is an evolving battle with regulators, all regulatory requirements and guidelines reside on a country-by-country basis. However, because the OmiseGO network is not a centralized entity and merely an open protocol, central ownership does not exist and thus Omise is not bound by any regulatory requirements. More importantly, OmiseGO’s Wallet SDK is for existing wallet providers, whom are already compliant with regulations for the jurisdiction they operate in. This alleviates many potential headwinds that could set OmiseGO back from adoption.
8. Lack of Competitors
Although OmiseGO is well equipped to change the current state of banking and digital transactions in broader Asia, the competitive landscape is not entirely desolate. I consider competitors to be those who offer a similar blockchain solution and who are addressing the same issues. For example: 0x is also a decentralize exchange, but it has not been designed to be a liquidity pool to target the inefficiencies of payments and banking in Asia. Although 0x will compete for cryptocurrency trade volume, it is not necessarily a pure play competitor to OmiseGO. The total addressable market for crypto trading and exchanging is large enough for plenty of players to participate and it is far from the crux of OmiseGO’s success. There has yet to be a true pure play competitor for OmiseGO, but it is important to look at a few others possessing a somewhat similar offering.
One must be cognizant of the fact that while eWallet payment services are plentiful in Asia, their biggest downfall is the network that they’re built on and confined to. OMG’s disruptive ability to make wallet communication agnostic is a huge threat among their arsenal of competitive advantages. Below are a few competitors coming to market:
An ERC-20 token for remittance in Africa and Southeast Asia. Telcoin’s ICO is currently underway with a hard cap of $25M to represent 25% of total supply. Another 25% of supply will be held by Telcoin Pte Ltd. and the remaining 50% to be distributed to telecom providers over the next 10 years. Telcoin’s approach focuses on telecom partnerships to provide Telcoins to mobile users for remittance, which can be used for transacting with others on a supporting network. But because the telco companies will ultimately be the ones storing and transmitting money across their network, a banking license is required. The process for acquiring a banking license is incredibly time consuming, costly, and typically unsuccessful. Telcoin has several challenges that poorly positions it for competing with OmiseGO in the remittance market — namely the need for a banking licenses, abnormal tokenomics, and reliance on both telco and user adoption.
A two-coin system designed to provide all the benefits of blockchain based payments, but also protecting users from suffering from high price volatility. Transaction Coin is designed for all sorts of financial transactions, while Progressive Coin will grant owners 20% of revenue generated from UniquiCoin’s ecosystem monthly. The ICO is currently underway with a $400M cap for their Progressive Coin sale. A digital wallet will be provided to users to store their funds on a smart phone device and users will be able to receive a debit-like card linked to their digital wallet for purchases. Like any other existing electronic payment provider, success is contingent on merchant acceptance. Debit-cards are also on a trajectory for being a thing of the past. Ubiquicoin hopes to incentive merchants to accept Ubiquicoin payment by offering lower transaction fees and faster payment. Ubiquicoin is currently targeting those unbanked in emerging and developed economies, such like Asia, by offering their wallet to store funds and transact with. However, competition from other electronic payment/eWallet providers remains stiff and success is based on the ability for their network to grow in isolation.
9. Risks, Concerns, & Questions for Management
Much like life, there are no guarantees when it comes to investing. It’s crucial to always ask yourself “what could go wrong and what might I not know?” Although I believe OmiseGO has the potential to truly deliver, one must assess the risks in place and be willing to poke holes in a thesis to learn more.
Risks & Concerns
- Correlation with broader crypto market remains strong, despite having shown sell-off resilience in the past.
- Success is contingent on broader mass adoption by users of e-payment services, in addition to e-payment services themselves.
- Functionality is tied to operational capabilities of the Ethereum network and Plasma.
- Delay in achieving laid out milestones.
- Decentralized exchange reaching economies of scale where transaction processing fees are competitive and attractive.
- In a previous Medium post I discuss the importance of a project’s source code being accessible for further analysis. OMG’s GitHub source code has yet to be released, despite reassurance that it’ll be released “soon”.
- Unforeseen regulatory actions/changes in the Asia market, especially with South Korea.
- Crack down on decentralized exchanges. Although more secure for users, they typically do not offer record keeping for transactions like centralized exchanges do. Problematic for tax reporting purposes.
Questions For Management
- Data analytics has become increasingly more valuable for businesses. Will wallet developers be able to efficiently grab data to perform basic data analytics? Data analytics such as peak time demand, purchase correlations, etc.
- When will source code be released?
- Although China is full of regulatory tape to prevent flight of capital, do you see any potential for partnerships with Chinese payment providers?
- Any concern around airdrop tokens being distributed too broadly, perhaps to those not entirely aware of OMG?
- What do you believe are your biggest hurdles for 2018?
IX. Valuation, Price-to-Hype, Recent Moves
The cryptoasset market is incredibly nascent and remains heavily speculative driven. Although an emerging asset class, valuation frameworks are but a work in progress for now. However, tokens providing cash flows to stakers can arguably be modeled similarly to stocks offering cash flows.
I have derived a value of $74.25 per token by looking out to 2022 and discounting fees from transactions (Discounted Fee Flow/ DFF). My price target is based on several assumptions (discussed below) and potential share of the remittance market, mobile wallet market, cryptocurrency trading volumes, and digital economy that I believe OmiseGO could capture. Although a bullish price target from current levels, I believe I could be severely underestimating the value of OmiseGO given conservative assumptions, lack of global market data, and other market opportunities not addressed. I’ve also included a sensitivity analysis to further analyze the impact of tweaks to discount rate & transaction fees. Note: I am modeling for Asia markets ex China.
Global Mobile Wallet: Zion Market Research estimates that the global mobile wallet market could reach $3.1T by 2022, growing at a compound annual growth rate (CAGR) of ~32% between 2017 and 2022. In 2017, the Global Wallet market was ~$804B.
APAC Mobile Wallet Share (%): According to McKinsey APAC’s absolute spend on digital commerce grew 2.6-fold from 2012 to 2015. Through 2020 APAC is expected to post the fastest growth, despite digital spending growth expected to slow to 14% annually. McKinsey also found that Asia Pacific accounted for nearly three-quarters of global payment transactions, which I assume is in line with mobile wallets. I took 75% share and grew it annually by the expected CAGR of 14% through to 2022 to better understand the mix shift over time.
APAC Mobile Wallet Share: APAC Mobile Wallet Share (%) multiplied by Global Mobile Wallet.
China Mobile Wallet Share: China is without a doubt the largest user of e-wallets and mobile transactions. According to McKinsey, China accounted for 72 percent of e-wallet spend in 2015. While China will continue to grow in users, the rest of the world will play catch up and grab more share over the next 5 years. That said, I assume China’s share of mobile wallet will decline 1% annually (starting at 2015), or down to 65% in 2022.
Global Mobile Wallet ex China: Global less China Mobile Wallet Share.
Asia Mobile Wallet Share ex China: Now that I know what percent of the mobile wallet will be APAC, I can deduct China share to get an idea of the mobile wallet share for the rest of Asia. China has, and may always be, concerned about flight of capital. For now, I will not treat China as an addressable market, hence the deduction. This could certainly change at some point.
Remittance (Asia, Excluding China): According to The World Bank, Asia ex China remitted ~$135B in 2016 and has grown by 4.8% annually since 2010. Although remittance has becoming increasingly popular thanks to advancement of technology, I’m conservatively assuming this growth rate persists through to 2022. This equates to a total of ~$170B in 2022.
Cryptoasset Trading Volume: I’m assume 15% annual growth of crypto trading volume each year. OmiseGO market share is modeled to linearly increase from 1% in 2018 to 2% in 2022. This could perhaps be my most conservative assumption.
Asia GDP ex China: Calculated from International Monetary Fund, countries included are Cambodia, India, Indonesia, Japan, South Korea, Malaysia, Myanmar, Philippines, Singapore, Sri Lanka, Taiwan, Thailand, and Vietnam.
Digital Economy — Digital Economy as a %age of GDP multiplied by Asia GDP ex China.
Digital Economy as %age of GDP — According to Huawei Technologies Co. and Oxford Economics , in 10 years it is estimated that the digital economy will be 24.3% of global GDP relative to 15.5% of global GDP in 2016, or 5.12% growth annually. Starting in 2016 and growing Digital Economy-to-GDP by 5.12% annually for each year equates to 20.9% in 2022.
Share of Remittance: I conservatively assume OMG can take 1% share of the remittance market in 2018 and an incremental +1% successively, or 5% share of the remittance market in 2022.
Share of Mobile Wallet Market: Assume 1% of share in 2018, given existing users on the Omise network that will move over to OmiseGO, and double market share each year out to 2022 (16%).
Share of Cryptocurrency Volume: Assume 1% share for 2018 and an incremental 0.25% share gain each year. Total share in 2022 of 2%.
Share of Digital Economy: Conservatively assume a linear increase (+1.25%) of digital economy share from 1.25% in 2019 to 5% in 2022. I omit any share in 2018 because I expect that deploying fiat backed digital assets on the blockchain could take the longest technologically.
Fees from Transaction Confirmations: Although I mentioned fees will be 100% dynamically determined by supply and demand, I assume that fees will be on average 1%.
Discounted Fee Flows (DFF): Using a discount rate of 30%, or about 3x the discount rate used for a risky equity, to get the discount fee flows for each year. I’m going to stick towards the lower end of 30%-50% discount range used by others, such as Chris Burniske , because of conservatism and soundness of OmiseGO.
Token Value: Sum of Discounted Fee Flows (DFF) divided by the number of Staked Tokens (98,312,024) to get an estimated token value of $74.25.
At the time of writing, 1/14/2018, the correlation between OMG’s closing price and Google Trends search results over the past few months has ticked up. The relationship between the two raises the question of whether or not recent price action has been driven by investors riding momentum, or by a genuine interest by informed investors. The correlation for the past 3 months is roughly 79%, relative to Oct. 17th — Dec. 17th correlation of 62%. A significant tick up.
Momentum remains an investors best friend in today’s market (for now). Although perhaps a profitable strategy in the short term, one bears the risk of catching a falling knife. What goes up can surely come right back down. While I wouldn’t say this the recent tick up in correl is a red flag and now is not the right time to buy, it’s worth be cognizant of. An ideal scenario would be one where price remains stable, or is appreciating, irrespective of Google Trends search results data. As of right the spread appears to be widening, potentially a promising sign of an attractive entry. If search google results dwindle and the price manages to stay afloat in a range higher than what has been historically, one could argue there is a higher mean price being established.
Recent Price Moves
OmiseGO’s price has seen meaningful appreciation since the beginning of December, having gone from ~$8.50 to ~$25 in such a short period of time. There are a few things in the past month or so that have arguably attributed to the price increase and greater awareness. Here are a few things you should know:
- On December 11th Vitalik Buterin, Creator of Ethereum and Adviser to OmiseGO, tweeted “Right now my favorite token model is OMG-style staking tokens…”. With more than 500K followers and a respectable crypto resume, his words hold incredible weight and credibility. The price of OmiseGO opened at $7.95 on December 11th and closed at $10.38 on December 12th.
2. Pre-Christmas market-wide sell off. The broader crypto market plunged 30% before finding support and climbing back to previous levels into the new year.
3. OmiseGO tweeted that the Fuseki milestone had been achieved as promised and the OmiseGO SDK had officially moved into closed beta. Developers can now begin testing for OmiseGO blockchain interactions.
4. Vitalik Buterin publishes a blog post discussing the minimal viable plasma implementation in detail. OmiseGO subsequently tweets out “…Plasma coming soon.” Plasma remains a highly anticipate released for Ethereum, and even more so for OmiseGO. The community is watching with eyes wide open…
X. Concluding Remarks
As one can see, OmiseGO is undoubtedly running a race against itself. No one else is looking to achieve what the team is after and no one else is perhaps more fit for the job. All things considered, I believe OmiseGO has an attractive risk/reward profile that makes for a worthy a long term investment (for the right investor). Blockchain and cryptoassets possess the ability to change the way we interact, communicate, transact, and trust one another all around the world. I for one would love to see OmiseGO make a positive societal and economic impact in Asia through such evolutionary technology. I am excited to see what 2018 has in store for OmiseGO and hopefully you are too.
If you enjoyed this post feel free to give a “clap” and/or leave a comment below. You can follow me on Medium or Twitter (@Pete_Humiston) for more Blockchain/Crypto content. You can reach me at PeteHumiston@gmail.com. Thanks to Dan Zuller for reviewing my model.