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COTI ICO Evaluation



The following is an objective review of COTI ICO. The review is based on certain criteria, which we think are important for an ICO project to succeed. We measure a successful ICO by short term and long term ROI estimation. The following is not a financial advice.

1. Background

COTI (Currency of The Internet) aims to build a decentralized and scalable payments network to facilitate efficient global commerce. Combining distributed ledger technologies with traditional payment solutions, COTI aspires to set a next-generation decentralized payment solution that is trust-driven, instant, and cost-effective. COTI sets itself apart from other payments solutions, by providing a thorough solution that consists of innovative trust mechanism, decentralized mediation system, multi-currency wallet (Fiat and Crypto) and native currency exchange. The driver of the COTI ecosystem will be the COTI coin, a native digital currency.

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COTI’s distributed ledger is based on a directed acyclic graph (DAG) data structure, similar to the underlying technology of IOTA network. Using the DAG, COTI will allow 10,000+ transactions per second, much more than is needed (VISA peak hours requires ~4,000 t/s).

The team, which consists of 27 full-time members, is hard working on COTI and have laid out a detailed structure for their future network. COTI is to raise ~30 M USD via a private and public coin offering. They already attracted a large and dedicated community, and successfully raised ~10M USD in their private sale.

Let’s get going with our evaluation!

2. Introduction

2.1. The Need

The online payment industry is currently encompassing over 1.6 billion people worldwide with annual transaction volume that exceeds 3.265$ Trillion. According to recent researches, the industry is expected to show an annual CAGR of 13.5 % between 2018-2022, resulting in the total amount of $5.411 Trillion in 2022. Along with the growth in the market value, the industry is rapidly changing. New forms of commerce are springing up, and the power balance within the industry is changing. In accordance with the spread of mobile devices like smartphones and tablets, the mobile payments volume is swiftly rising and expected to gradually capture a sizeable market share within the online payment market. The rapid growth and changes of the industry, has raised the demand for faster, easier, more scalable, and more reliable payment systems.

2.2. The Problem

Despite the intense competition within the online payment industry, neither digital currencies nor traditional electronic payments, has yet introduced a comprehensive solution for the online payment industry. While traditional online payment systems (e.g. PayPal and Visa) have the ability to scale high-volume of transactions, with fast execution time, they represent major drawbacks in terms of transactions fees. Mainly in cross-currency and cross-border transactions. On the other hand, Digital currencies could represent an alternative, as they have the potential to facilitate payments with greater security and lower transaction fees. However, in practice, they face scaling challenges, low rates of adoption in the context of online payments, and their price is very volatile. In fact, to date, only less than 0.1% of the online payments are made using digital currencies.

The following table represents the major benefits and drawbacks of traditional payment systems and digital currencies, along with COTI objectives:

3. The Solution – COTI Ecosystem

The COTI ecosystem consists of four participants: end-users, nodes’ operators, mediators, and merchants. The network was designed with the goal of creating a decentralized payment network that will integrate the benefits of both, traditional payment systems and digital currencies (outlined in the above table). COTI comprises of the following components:

3.1. The Cluster

Instead of using a blockchain-based database, COTI’s distributed ledger is based on a directed acyclic graph (DAG), which they call the Cluster. In DAG-based networks, each transaction must validate two previous transactions in order for it to be confirmed. Hence, the transaction confirmations rate is increasing in accordance with the rising in the number of the network users. COTI found the DAG ideal to achieve their objectives, as it enables to connect transactions simultaneously and asynchronously.

The Cluster will be performed by three types of nodes:

  • Full Nodes: these nodes are the user gateways to the network. They choose sources for new transactions to attach to, perform proof-of-work (PoW) and allow new transactions to attach to the Cluster.
  • DSP (Double Spend Prevention) Nodes: these nodes maintain an updated copy of the Cluster at any given point in time and monitor transactions to mitigate any possibility of double-spending attacks. To run a DSP node, a large amount of COTI coins must be deposited in a specialized multi-signature account. All DSP node operators are remunerated by the COTI network for their efforts.
  • History Nodes: the nodes store the entire history of the Cluster. Full account history can be retrieved from the History nodes. In case the History Node is unable to operate for any reason, COTI’s History Servers can be used as a proxy.

3.2. Trust Scoring Mechanism

COTI has implemented another layer of data on every user – the Trust Scores. These scores are the key mechanism by which new, unconfirmed transactions select prior transactions to validate in order to reach transaction confirmation consensus.

Determining Trust Scores: A participant’s Trust Score is initially determined by a general questionnaire and document verification. In the course of time, the Trust Scores will be automatically updated in accordance to the (1) users’ activeness (value of transactions over a set time period), (2) amount of dispute that the participant has been involved (3) number of disputes that were resolved in favor of the participantcounterparty (4) and the rating that other transacting parties have assigned to the participant. [The parameters outlined above is non-exhaustive. COTI’s technical whitepaper provides further details of the mechanisms used to determine Trust Scores.]. The Trust Scores are relative values plotted on a scale of 0 to 100, with 100 being the highest possible score. They provide an indication of how participants rank relative to one another within the COTI network, as measured by their contributions to the network’s efficacy over time. 

To incentivize users to gain Trust Scores and to foster a trustworthy environment, COTI designed that scores to be associated with the transaction fees: high scores are associated with low fees, while low scores are associated with comparatively high fees; as well as with merchants’ rolling reserve requirements.

The Confirmation Process:  as mentioned, to be added to the Cluster, each transaction (represented by the user’s Trust Score) must validate two previous transactions which are in the range of their Trust Score. As transactions are attached to the Cluster, they collectively form Trust Chains or transactional sets characterized by similar Trust Score thresholds. The Trust Chain Consensus Algorithm ensures that trusted users (i.e. those with higher Trust Scores) are incentivized with optimized transaction confirmations, as their Trust Chains can reach the required cumulative Trust Score threshold faster. In simple words: the transactions’ confirmation time is correlated with the users’ Trust Scores.

To get a better understanding please refer to the following simplified example. The new transaction is the bold one (67). The new transaction validates two transactions which are in the range of its trust score. In the flow of time, the transaction is being confirmed by the path of highest cumulative trust (the cumulative Trust Score is boldened and the path of highest cumulative trust is highlighted in green).

 

Using the DAG structure along with the Trust Chains Consensus Algorithm, the Cluster may achieve transaction confirmation rate of 10,000 TPS – as compared to Blockchain systems that can process an average of 20 TPS. To keep things in perspective, Visa handles on average around 2,000 TPS, while its daily peak rate is around 4,000 TPS.

3.3.  The Mediation System

Mediators are simply taking responsibility if disputes arise within the network. The Mediations do not approve transactions, but rather solve disputes. They are required when one of the following scenarios occurred: Billing errors, Inadvertent transfers (when a user inadvertently sends funds to the wrong party), Unauthorized charges, Undelivered goods or services, and Non-conforming goods or services. In each of the above scenarios, if the sender and receiver of funds are unable to resolve the dispute directly, the unsatisfied party can initiate

Each dispute involves fewseveral Mediators who work independently to validate real-world information regarding the transaction disputes. The mediators are encouraged to reach similar conclusions on a dispute in the absence of being able to coordinate (similar in certain ways to Augur consensus mechanism). After the Mediators validate the information, they then cast votes using the mediator client. Along with their votes, the mediators deposit COTI coins. The votes are then calculated and based on the majority of the votes, the system compensates the winning party and returns that party’s balance to its rightful state. The mediators that their votes are consistent with the majority of the votes, will be remunerated by the COTI network for their efforts. Mediators who chose to act maliciously, will not be subject to any sanction, but rather they will lose their deposited tokens (those tokens will be used to pay for the other mediators).

To ensure full distributed governance, COTI is taking the following steps: (1) prevent collusions: COTI designed an algorithm that will route mediators who have the least likelihood to collude with one another; and if mediators are found to have engaged in any form of collusion, they will be severely penalized. (2) Mediator recruitment and training. Individuals who wish to register as mediators must satisfy certain requirements before being admitted to the mediator platform. COTI will also make available online training programs that can assist candidates in acquiring the requisite knowledge for contributing to the dispute resolution process effectively.

Merchant rolling reserve: A rolling reserve is a risk management strategy to protect the payment service provider and its banks from potential loss due to chargebacks, it is commonly used in traditional payment systems (Paypal). Rolling reserve requirements are calculated based on the merchant’s turnover and Trust Score. The rolling reserve requirements are expected to be lower than existing payments networks. Every merchant transaction will incur a rolling reserve fee, in COTI native currency, that is reserved for a number of days. When the rolling reserve term has ended, funds are released back to the merchant’s account. As mentioned earlier, the rolling reserve is used when a merchant has lost a mediated. Merchants that do not meet the rolling reserve requirements will be unable to sell goods and services within the COTI network.

3.4. Native Currency (COTI)

COTI’s native currency will drive the networks and fuels the interactions between consumers, merchants, mediators and node operators. The currency will serve the following functions:

  • Medium of exchange that can be used when making and receiving payments in the COTI ecosystem. While the COTI network supports multiple fiat and digital currencies, participants are incentivized to use COTI over other currencies for its efficacy as a payment method and low-to-zero transaction fees.
  • Mediation stakes and payouts are denominated in COTI coins. As such, mediators are required to hold COTI coins whenever they wish to engage in mediation.
  • Merchant rolling reserve funds are denominated in COTI coins and automatically accumulate in the merchant’s account for a defined term.
  • Incentives for Node Operators. All nodes operators will be incentivized in COTI coins and will be required to hold COTI whenever they wish to validate node activity.
  • Fees: All the COTI network’s fees can be paid solely with COTI coins.

3.5. COTI’s Currency Exchange

To provide an easy-to-use payment solution, COTI is developing a currency exchange that provides network participants with continuous access to liquid markets in a range of digital and fiat currency pairs. Meaning that end-users will be able to transfer their holdings from one currency to another, without having to withdraw their holding from their COTI’s wallet. Moreover, it will allow network’s participant to pay and receive funds directly in whichever currencies they wish, regardless of their counterparties’ preferred currencies.

Security: All traffic in COTI’s exchange is encrypted end-to-end using Transport Layer Security (TLS) 1.2 (utilizing SHA256 keys), and all data-at-rest is secured with AES-256 encryption. Each step in the currency exchange process is transactional, such that if any part of a step in the exchange process fails, the entire step fails.

3.6. Decentralized Governance

COTI intent to provide voting rights for executing changes in COTI’s base protocol and deciding future use cases of the COTI coin.

4. Applications and Services:

4.1. The consumers

Due to scalability challenges and relative complexity, digital currencies are rarely being used in payment use cases (compared to traditional payment systems). Thus, a primary focus of COTI’s application has been on making digital currencies as easy to acquire and use as their fiat equivalents.

Wallets: COTI’s main consumer offering is a multi-currency wallet that provides instant and easy access to the COTI payments network and supports a variety of consumer payment use cases, including peer-to-peer transactions with peers who hold COTI wallets and nearby wallet-to-wallet transactions. COTI wallets can further be used simply as a “bank account” for the purpose of holding funds (both, digital and fiat currencies). The COTI wallet is being developed as a native mobile application and as a web application accessible via COTI’s website. Users will be able to open wallets via the COTI website and applications, as well as during the checkout procedure on COTI-powered merchants’ websites.

Debit cards: COTI is offering users access to debit cards that link directly to COTI wallets. The rationale for offering these cards is that they will enable users to effect payments from their COTI wallets when dealing with merchants that have not yet integrated with COTI. COTI users will be able to specify their preferred currency each time they create a virtual debit card. When a purchase is made using a card linked to a currency that does not match the payment currency, COTI’s exchange will automatically convert the required amount of the card linked currency to the purchase currency.

4.2. For Merchants

COTI is developing a suite of merchant tools and services that make COTI a compelling proposition for merchants, as an addition to, or as a replacement for, their existing payment systems.

  • Processing tools: COTI is developing processing tools that will enable merchants to start accepting payments from COTI wallet holders. Merchants will be able to choose whether they wish to connect to COTI’s payment rails via API or by embedding an IFrame (Inline Frame) into their websites. COTI-powered merchants will have access to a dashboard that provides detailed data and reporting functionality on their COTI network transactions. Within this dashboard, merchants will choose which COTI supported currencies they wish to accept, as well as their preferred settlement currencies. Moreover, the dashboard will provide merchants with wallet-like functionality that enables them to make payments to COTI wallet holders and to other COTI-powered merchants, as well as to use COTI’s currency exchange facility. Merchants will also be able to run their own Full Node with a customized wallet to streamline the transactional experience for customers.

    * To understand the next paragraph, make sure you familiar with options terminology, or at least with the following terms: callput options, option strike price, and the option premium.

  • Hedging services COTI recognizes that one of the barriers preventing merchant acceptance of digital currencies is the volatility they may be exposed to between the time a payment is received and the time of settlement. COTI will remove this barrier by creating an internal derivatives market that enables network participants to enter forwards contracts and buy and sell put/call options that are denominated in COTI coins. A Black-Scholes option model will be used for the put option price, while the option premium (the income received) will be calculated based on the option strike price (for put options, the price at which shares can be sold), the option term (the period during which an option is active) and COTI’s price volatility. In the early stages, these options will be limited to a 30-day period and will only cover payments denominated in COTI coins.

    COTI will operate a marketplace where market makers will be required to deposit collateral into a special margin account that is denominated in COTI coins. The margin requirement will be lower for network participants with high Trust Scores and higher for those with low Trust Scores. COTI is currently in discussions with several institutes that are willing to serve as market makers. 

4.3.  For Mediators

To address the volume of disputes occurring in the network at any given time, COTI is developing an application that will allow mediators to accept invitations to receive and review caseload data, to place wagers, and, in the event of successfully contributing to a mediated outcome, to receive payouts in COTI.

5. Token Economy

Initially, an ERC-20 tokens will be issued for the purposes of providing an official record of tokens sold. Following the launch of the COTI main net, the ERC-20 tokens will be converted into tokens issued on the COTI network’s transaction ledger. The ERC-20 tokens are expected to be listed on at least one major exchange no later than the end of September 2018.

Token allocation

The total supply of COTI tokens during the formative stages of the network will be limited to 2,000,000,000 COTI. These tokens will be allocated in accordance with the table below:

Tokens supply: Due to the Directed Acyclic Graph (DAG) structure and the decentralized nature of the COTI network, it will not be possible for additional COTI tokens to be created following the genesis transaction. Therefore, an additional 2,000,000,000 COTI will be created and locked in reserve, so the maximum supply of the token will be 4,000,000,000 COTI. These tokens won’t be released before the COTI’s Main net launch, and they will be subject to harsh restrictions (Token sale summary, p.5 )

According to the team, COTI may occasionally initiate additional token sales from the reserve.

5.1. Token Sale

 5.2. Vesting Discounts

Private sale contributors must commit to a lock-up period of 6-24 months on 50% of their tokens, while the team, early backers and advisors must commit to a lock-up period of 6-24 months on the entirety of their tokens. The discount rate is relative to the vesting time: 6 months – 5%, 12 months – 10%, and 24 months -20% ; These discounts are in addition to the discounts given during the private and pre-ICO rounds.

6. The Team

6.1. The core team consists of 27 full-time members.

  • David Assaraf (Co-founder, Business Development). David previously served as the chief internal auditor at HSBC Israel and as an examiner in the credit risk unit of the Bank of Israel’s banking supervision department.
  • Shahaf Bar-Geffen (CEO). Shahaf is the co-founder and former CEO of WEB3, a leading multinational digital marketing firm. Shahaf holds a BSc degree in biotech and economics from Tel Aviv University.

6.2. Advisors

  • Matt McBrady – Matthew was the Chief Investment Officer for the Multi-Strategy Hedge Fund Platform at BlackRock. He has held senior roles at Silver Creek Capital and at Bain Capital. Matthew holds a Ph.D. in Business Economics from Harvard University, and he was a professor of finance at the Darden School and Wharton.
  • Greg KiddGreg is the co-founder of Hard Yaka and an early investor in numerous startups in the exchange space including Ripple, where he served as CRO, Shift, Coinbase and 3taps, and previously Square and Twitter. Greg holds an MBA from Yale University and MPA from Harvard University.
  • Sebastian Stupurac – Sebastian is the co-founder of WINGS, a smart contract facilitation platform operating on the DAPPS Ethereum blockchain.
  • Steven Heilbron – Steven has served as the global head of private banking and joint CEO of Investec Bank in London.

7. Partnerships

COTI has established significant alliances with strategic partners: a partnership with Bancor, that will allow COTI to activate ERC20 tokens in the Bancor Network, and thus, to provide continuous liquidity between COTI coin and various of ERC20 tokens; A Technology Partnership with MicroMoney in order to Enhance their Financial Services; And a financial partnership with Processing.com, which according to COTI’s CEO, will streamline their go-to-market strategy.

8. Roadmap

COTI has recently updated their RoadMap and will launch an Alpha net during Q3 2018.

The Alpha Net will be performed by 10 Nodes, and it will be consisted of the following: Charge-Back mechanism, Buyer-Seller Protection, a few merchants, wallet (Beta), and mediation system (Beta).

The Test net is expected to be launched during Q4 2018, and the Main net during Q2 2019.9.

9. Conclusion Pros and cons

Pros

Comprehensive Decentralized Payment Solution: COTI was developed exclusively to satisfy daily consumer payments use case, and it indeed, provides a thorough solution that addresses properly the market need and solves concurrently the major concerns of consumers and merchants. Aside from the “regular” benefits in terms of scalability, decentralization, security and low fees, COTI also provides an additional trust layer, hedging services (to address the volatility), and an integration with a native wallet and native currency exchange that provides a convenient easy-to-use solution.

Project potential: The project’s targeted market is the online payment industry. A huge and growing market. We believe that the advantages of the future COTI payment network are beneficial enough for it to successfully penetrate as a legitimate payment service provider and therefore, to capture a sizeable market share. COTI addresses a tangible market needs that neither of the current payment systems has addressed, and thus, despite the intense competition, the project potential seems high.

Cons

Early stage: COTI is still in its early stages. Though an Alpha Net will be launched soon after the Tokens Sale, for the network to achieve full scalability and usability, a wide adoption of merchants, market makers (for the hedging services), and mediators should be achieved. Such adoption will not occur before the COTI’s Main Net launch, during Q2 2019 (more than a year from the time of writing).

CryptoPotato ICO Evaluation – results

Team & Advisory board:  The COTI team and advisors are comprised of individuals with extensive experience in the payments, cryptography and financial services domains. Score 8.5

Stage of the project: Relatively early. Although an Alpha Net will be launched soon after the token sale, the Test Net will be launched during Q4 2018, and the Main Net only during Q2 2019.  Score 7.5

Project potential: COTI aspires to evolve into a widely-adopted payment service provider. Considering their innovative mechanisms along with its comprehensive solution, we believe that they indeed have the potential to achieve some of their objectives.  Score 8.5

Community and Media: ~13,130 Telegram members, ~11,900 Twitter followers, 6,000 Facebook Followers. Score 8.5

Token use:  COTI coin will be used for the network fees as well as to incentivize network’s participants to contribute to the network. It’s important to note that COTI’s success doesn’t depend on COTI native currency being widely adopted. Score 9

ICO: Hard Cap – ~30 M USD with 10 M USD already raised via the private sale. The bonuses during the private and pre-ICO rounds are reasonable. Half of the tokens sold during these rounds are subject to lock-up mechanism. Score 8

Whitepaper: Very detailed whitepaper. Clearly represent the need, the problem and the solution. The white paper also provides very detailed numeric examples. Aside from the White Paper, COTI also published a detailed technical White Paper and Token Economy Summary paper. Score 9.5

Backend and Technology: The Cluster, multi-currency wallet, currency Exchange, innovative trust score engine as well as mediation system. Score 9

CryptoPotato COTI ICO score: 8.4/10

 

 



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