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Trade.io White Paper Review

The Financial Token and Trading Platform

Image Caption: Before reading this article, please read our full disclaimer found here and at the bottom of this page. This Paid Story is brought to you by trade.io

Introduction

Trade.io is a Swiss company that wants to revolutionize the exchange trading system, through a decentralized, traceable, transparent platform, that enables its users to trade through the blockchain. The platform eventually wants to enable users to trade both digital, and physical assets, such as cryptocurrencies, precious metals, oil, and other commodities.

The team has a long history of working on trading. The advisors of trade.io have founded successful brokerage firms, such as FXPRIMUS, and Primus Capital Markets UK. The former started 9 years ago, and is a regulated foreign exchange and CFD trading platform with over $180B worth of transactions traded per year.

At the time of writing, Trade.io is going through their Pre-ICO. The company is looking to raise 200,000M ETH in exchange of 200M TIO (their Trade Tokens), or roughly $100M USD. Unsold tokens from the Pre-ICO + 75M more TIO tokens will be added to the ICO, scheduled December 5th for a total possible value of over $100M USD.

Note: The company’s White Paper defers a lot from the numbers on their website. After an interview we verified that the website numbers are the most up to date and accurate in terms of token pricing and quantity.

The Idea

Trade.io is introduced in the white paper as a replacement trading platform for the existing system. It aims to be more efficient and transparent by leveraging a decentralized network such as the blockchain.

The system is building a shared liquidity pool, where users are able to invest their assets through their trade.io membership (by the use of the token), trade.io will in return, share 50% of the profits generated through this pool, but will also share the losses. Joining this network requires the user to own 2,500 TIO Trade Tokens (approx $875 USD pre-ICO or $1200 USD post-ICO).

The company is looking to provide startups with a number of investment and trading options, including the possibility of enabling companies to ICO and IPO through the platform. There is little information about how the company will handle commissions received from those activities, or what the current status is, in the accreditation to enable IPOs or ICOs to happen through the platform.

The company is looking to provide multiple trading and investing features, including:

  • Trading: Their trading token acts as a membership to use the trading platform, in order to trade, a user has to hold 2,500 Trade Tokens
  • Liquidity Pool: Wins and losses from the trading activities are shared amongst traders
  • Investment Banking: The platform will invest for the users and distributes wins and losses at 50%
  • Daily Distributions: Every day the platform will distribute the results of its investment amongst the users holding a membership
  • Compliance: The company claims to be (or will be) compliant with securities rules, and regulations in multiple jurisdictions, as well as Know Your Customer, and Anti money Laundry regulations

There is currently not a lot of information regarding how the profits will be generated in the first place. The company will also be able to trade physical assets by virtualizing them on the network through their own token. This is a very similar practice to the one we discussed on Stable Tokens, and asset-backed cryptocurrencies.

Token

The pre-ICO launches the trade token which is an ERC 20 token and follows the standard specification required by the ethereum clients. It is used as the internal currency while performing trading and investment actions on the trade.io platform. Trade.io drives the usage of trade tokens over other cryptocurrencies by providing preferential payouts for investments with trade tokens over other cryptocurrencies or fiat.

The smart contracts that underlie this token are written using the Majoolr system. The team at Majoolr are well versed in decentralized applications and have a good understanding of the technical side of things. However, due to the ambitious nature of this project it is highly unlikely that just four developers would be able to produce the required platform according to the timelines given by trade.io.

It is also unclear if they have a plan in place to attract the requisite blockchain engineers to work on the platform. Since technical talent is highly sought after in this industry, this is a very important question that must be addressed with high priority.

Use of Funds

One of the most complicated aspects of this ICO, is the fact that the amount of money raised is completely dependent on when the users buy the tokens. The price of the Trade Token during the Pre-ICO is a fixed amount, while the price during the ICO will change depending on the time the user purchases the token.

This is not that uncommon, what’s strange is that there seems to be a huge disconnect between the White Paper and the website. The White Paper states that each ETH will give the user 1000Trade Tokens. On their website, trade.io provides 1000 Trade Tokens per ETH during the Pre-ICO, and 625 Trade Tokens per 1 ETH during the ICO .

This complex and unclear system forces trade.io to give an estimate on the use of funds based on a percentage of how much money they raised, instead of an amount. The reason this system is difficult, is that companies do not scale their budget by percentages. Having twice as many funds doesn’t mean you need to spend twice as much in legal, audits, or advisory. We wished that the company had 3–5 different scenarios, and the use of funds on each scenario, say, one for raising $5–10M USD, another for $50–99M USD, and one for > $200M USD.

The following is the estimated use of funds for the platform:

Image Caption: Image from: Page 26 of trade.io White Paper

Since the White Paper, trade.io has expanded their use of funds through their website. The website now displays a set of goals or milestones that are reached, as funds increase.

Image Caption: Image from: trade.io website as of November 22nd, 2017

Token Distribution

The tokens of this ICO will be distributed based on the following chart:

Image Caption: Image from: Page 23 of trade.io White Paper

The company has an interesting strategy to distribute tokens during the Pre-ICO and ICO. Their plan is to launch 200 million tokens during the Pre-ICO and if there are any unsold tokens, they will proceed to add the leftovers to the ICO and increase the prices, which is a very common practice.

The ICO itself will have 75 million tokens plus the leftovers of the Pre-ICO. Any tokens that are not purchased through the ICO (concluding December 15th, 2017) will be destroyed. Assuring that the platform has a stable supply of tokens.

Pre-ICO Details

The Pre-ICO period for token.io is November 7th to November 25th, 2017. During this period they have raised over $9M USD. Based on their websites statement, each 1 ETH = 1,000 Trade Tokens. With a price of $360USD, this means that over 25 million Trade Tokens have been sold, out of the possible 200 Million.

ICO Details

As previously mentioned, all the leftover Trade Tokens from the Pre-ICO + 75 Million will be for sale during the December 5th ICO. As it stands, there should be around 175 Million Trade Tokens remaining from the Pre-ICO plus another 75 million, or approximately 250 million Trade Tokens will be available for sale.

Blockchain Test

Certainly the decentralization of transactions allows for shifting of trust from a central organization (like a bank) to the entire node network, and this is the prime use of the blockchain. A trading platform also can benefit from the same trust transfer, and can avoid dangerous situations where large amounts of funds are lost due to hacking or improper asset management by the trading platform (like Mt. Gox).

Trade.io’s trading platform is definitely a very good use of a blockchain and utilizes its decentralized nature to the fullest extent. However, how they will execute certain classical trading features like marginal trades and stop loss remains to be seen. (There is no existing implementation of marginal trading on a decentralized exchange).

Counter to this however is Trade.io’s liquidity pool which requires entrusting liquid assets (trade tokens) to the trading platform (something which entirely negates the decentralized aspect), and while trades can still happen in a decentralized manner, the storage of the shared liquidity pool is still subject to hacks and arbitrary draining by the signing keyholders of the liquidity pool (i.e the platform).

Traction

One of the weakest parts of the trade.io White Paper is the lack of information on traction. From the company’s timeline, the intend is to launch the trade.io exchange by April 2018. With only 5 months to go, we would like to see an established MVP or some sort of technical update.

Team

The team at trade.io has clearly worked in the trading industries for a number of years. The brokerage firms FXPRIMUS and Primus Capital Markets UK were started by some of their advisors. This means that the founders have a good understanding of what is required in order to trade, and the regulations and due diligence that they will possibly be facing.

The White Paper references 15 members of the management team, and board. As well as 10 advisors. Some of their team members are based in Cyprus, EU.

Transparency

The company claims to use blockchain technology to increase transparency for transactions. However, we have certain doubts about complete transparency regarding as claimed by their promise of no backroom trades. The Raiden network (and any off-chain networks) enable backroom trades, and while they publish the final transaction to the blockchain, it still enables some manipulation to happen.

However, we recognize that off-chain payment channels are necessary to enable thousands of transactions to happen in a blockchain-hybrid environment. Moving forward, the platform could demonstrate how they are planning to achieve this, or the steps they are taking to improve transparency.

Conclusion

The trade.io whitepaper is one of the most ambitious ICOs we have seen. The document leaves a lot of questions in terms of regulations, current status of the token and platform, and a clear plan of how they are planning on mitigating risks and delays. Furthermore, there currently exist decentralized exchanges with a platform that has been built and thus competition in this category is quite stiff, and the business plan for trade.io has failed to address how they will retain market-share when they are late to market.

There are also questions regarding regulation and status, while trade.io White Paper explains how the token is a utility and not a security, we still recommend this decision to be stated by a securities regulator, or at least some information from securities attorneys.

Furthermore the raiden network is currently untested and would require heavy development to be able to launch to fit in the timeline provided by trade.io.

The company is also looking to go public in only 12 months. That’s approximately 8 months after their launch, and less than 6 before the anticipated swiss banking license and within 6 months of the MetaTrader 4 platform incorporation. Our concern will be that without having the platform fully launched for even 12 months, it will be very difficult for investors on the public market to determine the price of the company and expectation of sales.

It is also currently unclear what would happen in the case that the company IPOs in December 2018, what would happen to the tokens, and how would token holders be rewarded? What if the token is regarded to be a security? What if they don’t receive swiss banking license? Or if the MT4 platform connection has security vulnerabilities, like last week’s $300M Ethereum Hack.

If the platform is successful, it would be a monumental development on the financial system, as creating a physical/virtual token system could potentially revolutionize the ways people trade, crowdfund, and support companies.

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