9 QUESTIONS MARTIN DELLA CHIESA, FRANÇOIS HIAULT AND CLÉMENT TEQUI FROM ACCURACY. (1/3)
- Can you present yourselves and Accuracy’s activities in the crypto-sphere?
We are all consultants at Accuracy, a wholly independent international consulting firm providing advice to company management and shareholders for their strategic or critical decisions, notably in transactions, disputes and crises.
We were passionate about Bitcoin and cryptocurrencies, and decided to set-up an initiative at Accuracy Blockchainaiming to assist our clients with their strategic and financial issues related to Bitcoin, crypto-currencies and Blockchain.
In the crypto-sphere, we can explain Accuracy’s activity by customer type:
- For corporates and institutions, we assist our clients in understanding the potential of the technology and its impact on their businesses, both in terms of threats and opportunities. We can deliver a complete strategic assessment including the analysis of disruption trends, identification/review of start-up targets for M&A or partnership purposes, design of new business models … We take into consideration both strategic and financial aspects in order to provide our clients with the most complete set of scenarios and figures possible.
- For investment funds, with respect to the acquisition process, we offer specific expertise needed to perform relevant strategic and financial due diligence. Indeed, the Blockchain ecosystem comprises various players and projects with complex strategic and financial dynamics, including structuring matters between equity and token holders. We can also assist investment funds by identifying/highlighting strategic Blockchain levers to increase portfolio value.
- For start-ups, we assist in calibrating their business model and token economics, structuring their road map, building their business plan and preparing their investor pitch.
2. Can you present the book you recently published?
We published “Blockchain — vers de nouvelles chaines de valeur” (Prospectives Accuracy) in French in June 2018. The English version “Blockchain — the key to unlocking the value chain” is now also available.
When we first took a deep dive into the cryptosphere, we read a lot of good books, but they were mostly pure computer-science-driven. At the time, we found a limited number of books that dealt with all the questions that we thought should be deal with: What really is money? Where does its value come from? What is a trusted third party? Why is trust such a cornerstone of the economic system? Where does Bitcoin come from? How does it work? Why do we need game theory to understand Bitcoin? How could it be useful?
To answer all these fundamental questions and really explain what Blockchain’s perspectives are, we were convinced that we had to mix history, philosophy, economics, technology, strategy and finance ingredients in the same shaker. That’s why our first chapter does not start with the invention of Bitcoin in 2009, but with the Sumerians’ invention of writing around 4000 BC. This chapter aims to put cryptocurrencies in perspective with regard to the long-term history of media of exchange. Money is based on collective trust and does not have any intrinsic value. Most people are still convinced that dollar reserves are backed by gold reserves, but this has not been the case since Nixon ended the gold exchange standard in 1971. Even for gold, its commodity price is not only driven by industrial demand but also by its solid store of value based on scarcity.
Thibault Gress, a French philosopher, has written the second chapter. He questions the meaning of simple words like trust and decentralisation and considers the Blockchain in its original philosophical school and intellectual roots: cyberpunks for whom the state has no role to play in cyberspace.
The third chapter explains how Blockchain technology works and addresses the following key questions: Why do I need a Blockchain to transfer value? Why is it not possible with the internet? We explain how Bitcoin managed to deal with double-spending problems, which remained a pain point for a very long time. This section also introduces all the new terms of the Blockchain dictionary: public ledger, transaction protocol, proof-of-work, smart contract, mining nodes, hash function, private and public Blockchain, etc.
The fourth chapter deals with economics, focussing particularly on microeconomics and more specifically on game theory, mechanism design and the economic model of Bitcoin mining. Most notably, public Blockchains are economic game producers that enable the alignment of interests on a large scale. This chapter also includes an analysis of Blockchain phenomena from a macroeconomic perspective and, in particular, with respect to monetary theories.
The fifth and sixth chapters are more business-orientated: chapter five introduces a strategic analysis of actual players in the Blockchain market and breaks down the value chain of a Blockchain ecosystem to highlight where and why economic value is created and by which players it has been captured so far; chapter six raises key financial questions raised by Blockchain phenomena, for instance, how much should a bitcoin be worth from a fundamental analysis perspective?
3. What, for you, is a sustainable ICO?
A sustainable ICO is above all a sustainable project: it should have a robust business model, a structured road map, and an adequate team.
The project must be realistic with a strong business model and clear economic rationale. As regards the top line, the white paper should clearly answer the following questions: What is the market size? What is the target market share? Who are the competitors? To what extent is the product different or better? What is the value creation process?
For the cost structure, investors should have an idea of the effective team, the time and the cost required to deliver the road map.
In terms of ICO specificities, there are indeed some key success factors. First, token buyers should be involved in the project in some way; they at least should be future consumers with a real interest in the product. The goal is to avoid free riders who just want to speculate on the tokens and therefore increase volatility. To achieve this goal, we consider that addressing an informed audience with a soft cap per investor of around €10k can reduce the number of investors.
Second, the key point of an ICO is the token; its design will determine whether it can succeed. Two main aspects must be taken into account: token economics and monetary policy.
Token economics relates to the role of the token in the business model: the token should be an instrument to align interests between users at a large scale. It should therefore create an economic model that is a virtuous circle where all users of the newly designed ecosystem are bound together through the use of the token, creating a better alignment of interests with each new user.
The monetary policy of the token corresponds to its characteristics as part of the ecosystem created during the ICO. The ICO generates a ‘cyber-monetary space’, corresponding to the underlying market addressed by the product accessible through the token. The token’s stability is essential to maintaining its sustainability. The token price should reflect the offer–demand equilibrium from a utility perspective, not from a speculative one. The target velocity of the token is therefore key.
If we consider the quantity theory of money formula:
MV = PQ.
The factor V (money velocity) can have a huge impact on the future price of the token and has to be steered accordingly. We believe that most utility tokens should be burned after use in order to have a V of one. In so doing, the uncertainty of the future price of the token is reduced. This burning system also implies managing M (total amount of money in circulation) in order to have a sufficient supply, given the burning of tokens after use and the number of users of the system.
As an example, we think that BTU Protocol is one of the best example of a successful ICO, combining several key success factors previously mentioned informed audience, huge reservation market to address, a simple product from the customer perspective but relying on an interesting token model back-stage.
Get the book: Blockchain “The key to unlocking the value chain”