The GOLD Standard in Cryptocurrencies
Digix in a nutshell?
Digix completed the 1st ever official crowdsale on the Ethereum Blockchain on March 2016, reaching its 5.5 million USD target within 12 hours. This might not seem like a lot of money now (with the likes of Tezos raising $232 million in 2017) , but at that time it was a novelty in the crypto world, paving the way for the proliferation of ICOs today.
Digix is the company that manages development of the DigixDAO (DGD) and DigixGold (DGX) tokens and ecosystem.
What pain point does Digix solve?
The real underlying question would be, why is a stable token such as DGX, and a marketplace to trade it, needed in the cryptoverse? Stable tokens are important because cryptocurrencies are inherently volatile and they can only be easily traded against other crypto.
DGX, as THE ultimate stable token brings benefits to a variety of users:
For owners of DGD governance tokens (instead of DGX), they get to vote on the direction of the company, how funds are used, and other governance topics related to the Digix ecosystem. They are also rewarded based on the trading volume of DGX tokens.
Leveraging on Ethereum blockchain and IPFS technology, and stringent 3rd party audit services, DigixGlobal has developed a process called the Proof of Asset Protocol to ensure that each DGX token can be proven to represent 1 g of physical Gold bullion.
Owners of DGX tokens are legally allowed to take delivery of their allocated physical gold from the custodial vault.
How novel is this project? Competitors?
Currently, the biggest competitor to DigixDAO and their DGX gold tokens is the USDT, otherwise known as Tethers.
While Tethers are theoretically backed and redeemable to 1 USD per USDT, there are no publically verifiable proofs that this is actually the case.
In fact, on Tether’s own Terms of Service, Term 3 states that:
“Once you have Tethers, you can trade them, keep them, or use them to pay persons that will accept your Tethers. However, Tethers are not money and are not monetary instruments. They are also not stored value or currency.
There is no contractual right or other right or legal claim against us to redeem or exchange your Tethers for money. We do not guarantee any right of redemption or exchange of Tethers by us for money. There is no guarantee against losses when you buy, trade, sell, or redeem Tethers.”
The crypto community is increasingly skeptical of Tethers and will try to avoid using them whenever possible. Recently, Tether made headlines for the lack of information on whether there is actual USD reserved somewhere supporting the digital token.
There has never been any fully transparent, public audit of Tether’s holdings. A memo is not an unqualified opinion.However, with no viable alternative in sight, the risk-averse camp within the crypto community, especially traders, are forced to use Tethers.
The other competitor in the stable token arena is MakerDAO’s DAI. It has already been released, however to date, there have only been 232 Collateralized Debt Positions opened on the Maker platform with a total of $6 Million DAI in existence.
The process to create DAI is complicated and while buying DAI is much easier, it is still not easy for beginner users.
On the other hand, DigixGlobal’s upcoming Spectrum client interface would likely make the purchase and managing of DGX and DGD extremely easy to navigate.
What is the Spectrum Lightsuite?
Spectrum is a multi-purpose Ethereum client interface developed by Digix to make it effortless for newcomers to interact with the Ethereum blockchain during the process of creating new wallet accounts, connecting to a node, reading chain data, signing and broadcasting transactions.
According to Digix, Spectrum aims to "marry the accessibility of MyEtherWallet, the portability of Jaxx and the dapp store platform vision of Mist/Parit" - hence providing the eponymous spectrum of blockchain services for any crypto user.
This is a very exciting development that if successful, will drive awareness of the Digix project, as well as provide substantial value to the crypto community. Read more about Spectrum here.
What is the DGD token's utility?
As mentioned earlier, DGD is the governance token for the DAO. There will be quarterly votes where DGD holders are required to participate. In exchange for managing the DAO through reviewing and approving or rejecting proposals, the active DGD holders that participated will receive a reward.
The reward is made up of 2 parts:
What is the DGX token's utility?
DGX is the ERC-20 token that is equivalent to 1g of gold, redeemable for actual gold bars that are kept in a vault in Singapore.
As a 1g gold equivalent, you can expect to have the price stability of gold, yet the divisibility, speed and cost of it being a tokenized crypto asset.
What is the DGX use case?
It is likely that DGX will be mainly used as an alternative store of value, especially by those who dislike the volatility of Bitcoin as “digital gold” and would rather have a more true form of actual, digital gold.
As its popularity grows, it is very possible that DGX could become the de facto base currency or widely accepted stable currency in the crypto space. Gold is a neutral asset without any nationalistic ties, so a break away from USD prices would be a welcome to international traders that constantly have to think in USD.
DGX as a store of value will be likely to be the premier collateral asset in the crypto ecosystem. It is hard to deny the real world value of Gold, even if one is not a believer of Gold as an asset class.
What are the team's credentials?
Digix has a talented and prominent team, with its founders appearing in the mainstream media multiple times.
For investors who have been in the crypto world long before the recent burst in popularity, the Digix team has always maintained its strong reputation of accountability and transparency. This is evident in their excellent handling of the ripple effects of the DAO hack crisis, whereby Digix professionally returned 465,000 Ethereum Classic tokens (ETC) to DGD holders.
This is even more noteworthy considering how dangerous the crypto world has become. Many projects such as Confido raising a lot of money in their crowdsales only to pull an exit scam and disappear right after, and even big exchanges such as Bitfinex might have obfuscated important back-end information on Tethers, putting investors' assets at risk.
The Digix team comprises 3 co-founders and supporting developers:
The core team is supported by developers and also new hires in the areas of community management, especially in the key market of China.
How reputable are their advisors?
Digix doesn't appear to have reputable advisors within the Blockchain space. Their board consists of business-focused advisors, which we suppose lend an air of legitimacy and credibility to the project, among mainstream investors. Having business advisors would also facilitate networking opportunities with institutions and High net worth (HNW) individuals who are potential users of the Digix Spectrum platform to trade DGX / DGD tokens.
We are sure that with their influence and network, Digix is already in close contact with the foremost thought leaders and technical experts in the crypto world, although these people may not be official advisors.
Moving forward, once the Digix 2.0 Marketplace and DGX tokens are launched, the Digix team should consider bringing on board a reputable blockchain advisor, in order for Digix to gain more traction online and among the global crypto community,
Who are their current and potential partners?
Partnerships is an area where Digix has really excelled in. Being the first project to launch a crowdsale on the Ethereum blockchain has opened many doors to new influential blockchain projects in need of a good, stable token backed by cold, hard Gold.
Some of the recent Digix partners are:
Aditus - the world’s first luxury access decentralized platform for crypto-affluents, with DGX made available as a reward currency, and DGD holders having exclusive privileges on the platform.
PundiX - point of sale terminal used at physical retail outlets that allows the purchase of items using cryptocurrencies, as well as purchase of cryptocurrencies such as Bitcoin, Ether, Litecoin and Digix Gold (DGX) and DigixDAO (DGD) Tokens.
RadarRelay - relayer built on top of 0x Protocol to support off-chain order book trading. DGX will be available as a low volatility, gold-backed token.
Airswap - peer to peer decentralized trading platform backed by renowned hedge fund trader Michael Novogratz. Again, DGX tokens will be offered as a stable coin in the repertoire of cryptocurrencies in the Airswap trading platform.
ETHlend - fully decentralized peer to peer lending system on the Ethereum Blockchain, allowing you to pledge tokens as short term collateral while you loan ETH to participate in ICOs or trading opportunities. DGX as the #1 stable token is perfect as a token to be put up as collateral, as lenders will be at less risk of the tokens dropping drastically in value.
TenX - a multi-currency crypto debit card and wallet that aims to allow you to spend your cryptocurrency anytime, anywhere that has Visa/Mastercard terminals. DGX will be integrated as one of the ERC-20 tokens on the TenX wallet, so DGX holders can use their tokens to purchase real world goods and services anytime.
Digix has also closed a seed round raising USD 1.25 million from Global Brain, a large Japanese venture capital fund with over USD 500 mil in assets under management, and Fenbushi Capital, the famous blockchain-focused venture capital firm of which Vitalik Buterin is a partner.
The ability to secure funds via a traditional VC funding route reflects very well on Digix, and gives us a boost in confidence, as it means Digix has passed the due diligence of these professional VC research and audit teams. This stands in contrast to a mere ICO crowdfunding, through which millions were raised from naive, unaccredited investors for many vaporeware, whitepaper-only projects.
Along with OmiseGO, Digix will be supporting Japan-based venture firm Global Brain’s (GB’s) accelerator, GB Blockchain Labs (GBBL).
How good is their marketing and PR?
Digix is highly respected and well-known for being the first official crowdsale or 'ICO' conducted on the Ethereum blockchain. This fact has been and should be widely used in its business development and marketing efforts on all media. Their distribution of extra ETC collected back to DGD holders was also a positive PR statement, highlight how transparent the company was.
Digix has been covered multiple times in mainstream media, such as in Forbes and TechinAsia .
Within Asia, Digix is extremely active in spreading the word about its project, often attending Fintech conferences and organizing Ethereum meetups. Not surprisingly, COO Shaun is the lead organizer for the largest Ethereum meetups in Asia.
The Digix website is eye-catching and well-designed, with colour tones that reflect the gravitas of the underlying asset market backing the DGX token. This is not a website that is meant to be fun or playful like many other projects', but conveys a serious commitment towards ensuring proper governance and execution of the project. Website information is easy to digest, and they have maintained a nice balance of content sophistication and accessibility.
One improvement that could be made is to briefly highlight all of their partnerships and large financial backers on one page on their website, not only announcing on Medium. With such strong partners, it is a tremendous waste to keep them hidden from the public eye. Hopefully, in their revamped website, they will present them in full force.
We recommend that marketing and promotion be enhanced 2 weeks before the official launch of Digix 2.0, to build anticipation and release the product to more fanfare.
How hyped is this project?
Although highly respected, Digix has lost much of its initial hype over the years. This is mainly due to the failure of meeting their stipulated timeline on the launch of the Digix 2.0 platform and DGX. Newcomers to the crypto space have also been seduced by new ICOs promising fast execution on milestones and extraordinary returns.
Hence Digix is currently not among the most exciting topics in the crypto world.
However, we feel that this temporary setback and lull period has presented us with a great opportunity to accumulate DGD tokens at a steep discount. With Digix 2.0 expected to be launched sometime around March/April, we believe hype on this project will really pick up by end February, along with DGD prices.
Risks and concerns?
In the short term, the biggest risk faced by DGD is that of vulnerabilities being found in its code during its audit. Any major vulnerability would have to be fixed and ideally re-submitted for more testing. Even minor vulnerabilities can delay the launch of DGD if there are multiple issues that are being faced.
In the long term, the biggest risk of DGD is just a general reject of the market for the need of a gold-backed stable token. Maker’s DAI has a unique advantage of being pegged to the USD, which is very similar to USDT. If the market rejects the use of DGX and instead adopts another stable token, the use cases of DGX narrows drastically to be a niche token for gold investors within the crypto-space. That risk would be extremely small in our opinion.
If acceptance is weak, it is likely that DGX will be just an interesting idea used by goldbugs and that DGD tokens will hover around the price of the ETH backing it in the DAO.
Digix is perhaps in a grey area when it comes to its current DGD token rewards mechanism, which might be subject to claims that the token behaves like a security. We believe this is the reason for the recent de-listing on major US exchange Bittrex. Minor adjustments on its rewards process might be expected.
Operationally-wise, there is lack of concrete information whether the team is prepared for scaling up to store huge amounts of Gold and to issue and manage huge amounts of DGX tokens.
Opportunities? Important milestones?
The next milestone to look forward to is the launch of DGX 2.0 which we expect to be no later than Q1 2018. Any further delay will likely win the DGD team "The most delayed project award on Ethereum".
After DGX goes live, work will be done on the governance contract to transition to the DAO governance model, so that governing can actually be done and that rewards can be paid out by those who vote on proposals.
DGD with their DGX token are (hopefully) releasing at a time where an easy-to-use, reliable and trustworthy stable token is severely lacking in the crypto ecosystem. If DGX 2.0 can be launched successfully and the market decides to slowly move towards DGX as the defacto stable token, the upside potential is enormous.
However, with USDT entrenched in all the exchanges and are beginning their move to issue USDT on the Ethereum blockchain instead of the Omni blockchain, it will not be an easy walkover.
Sample Calculation of rewards?
Sam owns 200 DGD tokens, about USD 40,000 at current price of USD 200 per DGD.
If DGX is able to capture just 0.1% of the entire gold stock in the world and tokenize it, it would have $7.9B in gold assets.
If the value of daily on-chain transactions is just 1% of the entire stock, that would be equal to $79M a day.
Quarterly rewards for all DGD owners would be:
Part 1 (AUM): $7.9B * 0.6% * ¼ = $11.85M
Part 2 (Transactions): $79M * 0.1% * (365/4) = $7.2M
Total Quarterly Rewards for all DGD owners = $19.05M
Rewards for Sam per quarter = $190.5M * 200 / 2,000,000 = $1,905
As a side note, USDT currently has $1.3B in assets, but has a whopping $1.8B of off-chain transactions.
Q1 : January to March
Q2 : April to June
What is this project's purchase potential?
Despite its repeated delays, we highly recommend supporting the DGD project. With huge reserves of Ethereum in its DAO, the actual downside risks of DGD is extremely low. In fact, it might even be possible to earn a profit from the dissolution of the DAO since the ETH in the DAO often exceeds the market trading price of DGD!
The upside potential is largely based on how readily the market accepts the idea of a gold-backed stable token. The easier the acceptance and the larger the user base, the more likely that DGX will make stand a good chance conquering this market and that would make the DGD token extremely valuable.
We believe the crypto market is ready for this, especially since this year, more institutional investors (who understand deeply the importance of the Gold bullion markets) are entering the scene and would very much want to get their hands on some DGX to hedge against overall crypto volatility.
Based on our Chainhammer scoring model, we give the Digix project, and its associated DigixDAO and DigixGold tokens an excellent score of 86.2%
All comments are our own personal opinions, and DO NOT represent professional investment advice. Cryptocurrencies are highly volatile and many Initial Coin Offerings are scams. Contribute at your own risk. Chainhammer.io will not be held responsible for your investment decisions.
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