Etherparty Short ICO Report
blockchain·@cyberanalytics·
0.000 HBDEtherparty Short ICO Report
**UPDATE: The ICO contract address and the updated allocation of tokens for pre-ICO investors were added to ICO section.**
**The information contained in this report is not legal or financial advice and is for informational purposes only. The projects included in Satoshi•Fund ICO Reports vary significantly in terms of investment risks. Before considering any investment, make sure you read the report below carefully and take time to do your own due diligence.**
Etherparty will be an application that allows users to easily create and execute smart contracts utilizing various tools and templates. The project’s goal is to make the deployment of smart contracts accessible to non-professionals. The application is being developed by an established company that have regularly released their code on Github. However, the code of the Etherparty application will be mostly closed what constitutes investment risks. A beta is currently available for a limited group of users. The tech specification in the whitepaper is not detailed enough. The FUEL token will serve as the means of payment for the features provided by the application, but neither the exact prices nor the fees for using the network are known. The distribution model for the incentives pool is not clear either. The Terms of Sale contain contradictory information about the total supply of tokens: it is fixed, but at the same time the document vests the Company with a right to create any more FUEL tokens in the future. Pre-ICO and ICO investors are allocated 54% and 26% of the total supply respectively which means the ICO share of tokens is not big. As another 5% is reserved for sale via the application when it is functional, the share of pre-ICO and ICO investors may be diluted over time. In terms of legal risks, the tokens are not likely to fall under securities. The existence of the Chinese version of the website poses a risk of violating the recent Chinese ICO restrictions. Etherparty is working on a potentially very helpful solution, but at this stage the team has no proof of concept available to broad public and there are many open issues in the token economics which makes the investment quite risky.
              [Image source](https://etherparty.io/wp-content/uploads/2017/06/Etherparty_Logo-transp.png)
## About
[Etherparty](https://etherparty.io/ico/) is being developed by the [Vanbex](https://www.vanbex.com/), a firm providing consultancy on an array of aspects including marketing, business strategy and technology for the blockchain industry. It has worked with almost 50 companies in the blockchain space since 2013 and is a member of the [Enterprise Ethereum Alliance](https://entethalliance.org/). Etherparty plans to make smart contracts mainstream, so that non-professional users could easily create and execute smart contracts. In terms of democratizing the access to complex technologies, the project is similar to [Wix](https://wix.com/) in web development industry or [LegalZoom](https://www.legalzoom.com/) in legal consulting industry. Etherparty has a beta version (only a [demo video](https://www.youtube.com/watch?v=a_HhMAXMF-Y) is currently available) which is integrated with real-world data to settle smart contract agreements in such application areas as creating and crowdfunding ERC20 compliant tokens, and sports betting. The beta launch [is scheduled](https://medium.com/@etherparty/etherparty-pre-sale-sells-out-receives-over-25m-50d4d541c973) for the end of September (first available for pre-registered subscribers only).
## Implementation
* **Problem being solved**
The adoption of smart contracts by industries where payments, contractual relations, and milestones are actively used seems to be just a matter of time as the automation of contractual agreements can substantially reduce transactional friction and costs. Still, smart contracts remain difficult to create and manage for non-professionals. One needs good Solidity programming language skills and appropriate software and hardware infrastructure to write code, test it for bugs and deploy smart contracts on the blockchain. This all makes the development of smart contracts time consuming and costly. Etherparty wants to automate and simplify this process. The team is developing a wizard application (app) that will utilize smart contract templates combined with a high level of security
* **App users:**
* Users of Etherparty can be any kind of individual or company who can benefit from using a smart contract for their activities:
1. Consumers will be able to create consumer-to-business or consumer-to-consumer contracts
2. Small business can build business-to-business contracts using security-tested and audited smart contract tools and frameworks
3. Large enterprises can integrate their existing apps and workflows into any smart contract
* **Examples of usage**
* A library of smart contracts created by Etherparty should suit the needs of a variety of industries such as finance, supply chain management, insurance, trade, and real estate. E.g. in finance, smarts contracts can be used for managing a payment process with another party. A smart contract can offer high-level security and bind both parties to solid rules that are followed exactly as written eliminating the possibility of disagreement
* **How it will work**
* Users will be able to create smart contracts via an app through online drag and drop tools. Users may add functionality using a variety of smart contracts templates. Demo video
* API aimed at enterprise customers will also be implemented. It will allow to back the companies’ existing contracts and processes by blockchain technology
* **Implemented using the Ethereum blockchain**
* Initially the Ethereum blockchain will be supported, later - other smart contract platforms will be added as well. Etherparty [is already working](https://cointelegraph.com/news/rootstock-etherparty-deal-will-accelerate-bitcoin-smart-contract-adoption) with [Rootstock](http://www.rsk.co/) to enable smart contract creation on the Bitcoin blockchain
* **Source code** of the future developments will not be open for business and security reasons, only some smart contracts will be public, [according to the team on Telegram](https://t.me/etherparty/21347). Etherparty’s previous development updates have been regularly released on their [Github](https://github.com/etherparty) since 2014. Also, user authentication will be provided by a [Keycloak server](http://www.keycloak.org/) which is an open source identity and access management platform
## Economics and token
* **Application’s token**: FUEL, ERC20 compatible
* **Total supply**: 1,000,000,000 FUEL; note, however, that [the Terms of Sale](https://etherparty.io/wp-content/uploads/2017/09/Etherparty-Crowdsale-Terms-and-Conditions.pdf?75ba47&75ba47) mention that the Etherparty company will be free to create more tokens at its discretion (see Legal Overview section for details)
* **Token utility**:
1. Access to and means of payment for smart contract tools and templates and for the execution of smart contracts provided by the Etherparty app
2. Access to and means of payment for the app’s additional functionality such as security monitoring tools and a network monitoring dashboard
3. Payment for using the network similar to Gas on Ethereum, although the fees on the Etherparty network will be pegged to a fixed amount of USD (not yet announced), so that using the network will cost a certain amount of FUEL based on the USD/FUEL price
* **Fees for services provided**
* There will be a tiered subscription structure, but the price tag for each tier (package) of services is not yet announced by the team. For instance, tier 1 offers a limited access to the app’s features and ability to execute one to two contracts per month. Each next tier will offer a higher contract limit and more functions than the previous tier (see page 15 [here](https://etherparty.io/wp-content/uploads/2017/09/presentation_deck.pdf?75ba47&75ba47) for more details)
* **Rewards**
* There should be a pool of tokens for incentivizing participants but no information is provided about the pool’s distribution
## Team and advisors
* [The team is 23 people](https://etherparty.io/team/) with various commercial and technical background
* [Lisa Cheng](https://www.linkedin.com/in/chenglisa/?ppe=1), Founder & Head of R&D, worked in business development (including and product strategy. Founder of [Vanbex](https://www.vanbex.com/), worked for the Mastercoin Foundation (currently - [Omni Layer](http://www.omnilayer.org/))
* [Kevin Hobbs](https://www.linkedin.com/in/kevinhobbs007/), Etherparty CEO, is also CEO of [Vanbex](https://www.vanbex.com/) and founder of the [Genisys Project](https://launchpad.net/genisys)
* [Derek Spratt](https://www.linkedin.com/in/derek-spratt-59537b33/), Executive Chair, has over 35 years of experience in the Canadian tech space and founded two companies, [PCS Wireless](http://www.pcsww.com/) and [Intrinsyc Software](https://www.intrinsyc.com/)
* No mention of CTO in the team’s official sources
* The project’s strategic advisor is: [DigitalX Ltd.](https://digitalx.com/), a publicly listed blockchain technology company providing clients expansion to the Australian and Chinese markets
## ICO
* **Pre-ICO**: sold out, with a 15-35% discount (a minimal individual contribution was $50,000) and raised [approx. $25M USD of contributions](https://medium.com/@etherparty/etherparty-pre-sale-sells-out-receives-over-25m-50d4d541c973) with [540M tokens sold](https://etherscan.io/address/0xea38eaa3c86c8f9b751533ba2e562deb9acded40#readContract)
* **ICO starts** on 1 October, 2017, at 16:00 UTC and will continue until 1 November, 2017 at 7:59 UTC or until the hard cap is reached, whichever earlier
* **ICO contract address** according to Etherscan info can be viewed [here](https://etherscan.io/address/0x5884412fc79c2b3dd037f21169a3341fc936ba72)
* **Hard cap** in tokens for ICO: [260M FUEL tokens](https://etherscan.io/address/0xea38eaa3c86c8f9b751533ba2e562deb9acded40#readContract)
* **ICO token price**:
* Week 1: 1 ETH = 3000 FUEL
* Week 2: 1ETH = 2250 FUEL
* Week 3: 1 ETH = 1700 FUEL
* Week 4: 1 ETH = 1275 FUEL
* **Accepted currencies**: BTC and ETH
* **Token distribution**
54% - pre-ICO investors
26% - ICO investors; all unsold tokens from ICO will not be burned but held by the Etherparty Company and intended for sale through the Etherparty app only, at a minimum of $1 USD or the highest traded market price
10% - reserved by the Company to incentivize the community, beta testers, and strategic partners (no further details available)
5% - retained by the Company to be offered for sale directly through the Etherparty app at a minimum of $1 USD or the highest traded market price (locked for 6 months from ICO end date)
5% - retained by the Company and distributed to the Etherparty team (locked for 6 months from ICO end date)
* **ICO website**: https://etherparty.io/ico
* **FUEL token security audit** by [Zeppelin Solutions](https://zeppelin.solutions/) can be found [here](https://tokensale.doc.ai/pdf/securityaudit.pdf?_t=1505879057623)
* **Distribution date**:
* For pre-ICO investors, tokens [are already released](https://medium.com/@etherparty/how-to-add-fuel-tokens-to-your-wallet-10ad2b3ea0be)
* ICO investors will receive FUEL tokens immediately after contributing
* All FUEL tokens will be time locked and non-transferable until the end of ICO
## Legal overview
* **Level of information accessibility: LOW**
* The Etherparty project presented by Etherparty Smart Contracts Inc. (the Сompany), demonstrates a high standard of transparency. The Сompany published its address, contact numbers, e-mail, etc.
* Token Crowdsale Terms and Conditions (the Agreement) may be accessed [here](https://etherparty.io/wp-content/uploads/2017/09/Etherparty-Crowdsale-Terms-and-Conditions.pdf?75ba47&75ba47)
* The FUEL tokens emission and the project operation is provided by a single legal entity, the Company, that limits risks for buyers
* There is no clear and explicit information in the Agreement about the use of proceeds by the Company. The Company does not employ any escrow for these funds or stakeholders’ governance mechanisms
* Section 15 Exhibit C states that all decisions involving the сompany’s products or services provided by the application or the Company itself will be made by the Company at its sole discretion, including, but not limited to, decisions to discontinue its products or services in the platform (in fact - application), **to create and sell more Tokens for use in the platform** (application), or to sell or liquidate the Company. While Exhibit B declares that only one billion FUEL tokens **will ever be** created. Such contradiction creates uncertainty for investment perspective of FUEL tokens
* **Legal assessment of the token: HIGH (conditional)**
* The Agreement claims that FUEL tokens are not securities or any other type of investment instruments
* FUEL tokens are offered among other to the residents and citizens of the US
* It is highly likely that FUEL tokens do not meet the Howey Test and do not fall under securities. FUEL tokens do not guarantee any profit for buyers. Therefore, FUEL tokens can be treated as pre-paid services and are therefore utility tokens. They will provide access to the use of smart contracts via the application
* Due to the uncertainty of FUEL token supply, it is unclear whether they meet the Risk Capital Test, which can be applied to the emission in particular states
* The Chinese version of the website is available. That fact poses certain risks for the token issuance. The Criminal Law of the People’s Republic of China is applicable to foreign organizations or individuals who commit a crime within the territory of China and who commit a crime against the state of the People’s Republic of China or against its citizens. Buyers should take into account that such type of targeting may be treated as operations under the Chinese jurisdiction. There is a risk that the Company will be forced to comply with the recent ICO restrictions and provide a refund for Chinese buyers
## Conclusion
* Etherparty is solving a relevant problem by enabling non-professionals to use smart contracts in their work and other activities
* There are other blockchain projects that are solving the same problem, but with a different focus, such as [Agrello](https://www.agrello.org/) (application to legal processes) and [Blockcat](https://blockcat.io/) (focus on small independent contracts), both already traded on the market (check [this overview](https://crushcrypto.com/analysis-of-etherparty/) for more detail); a strong competitor is [ZeppelinOS by Zeppelin Solutions](https://blog.zeppelin.solutions/introducing-zeppelinos-the-operating-system-for-smart-contract-applications-82b042514aa8) an open source platform that provides tools for creating and managing smart contracts and is being developed by a well-known team
* Etherparty will be developed by an established company, co-founders and key staff have a solid professional record in tech areas, but not in blockchain industry
* No code available (only some parts of the application’s code may be open to the public later) which creates substantial investment risks
* Technical specification is not enough detailed in the whitepaper
* A beta version is said to be available, but only for a limited group of pre-subscribers
* FUEL token is a utility token; it does not fall under securities from legal perspective
* The value of the FUEL token will depend on how much in demand the app’s services will be
* Costs for using the application are not clear at this stage: no price tag for in-app services, as well as no exact amounts for the network fees are available, except that it can be estimated that the higher the value of FUEL will be, the lower the fees
* The distribution of the incentives pool (10% of token supply) is completely unclear
* ICO investors get 26% of total token supply, another 54% are sold to pre-ICO investors. The staff will get 5% of tokens, but will de facto control 15% more: the incentives pool plus tokens allocated for sale directly through the Etherparty app
* Depending on the outcome of ICO, the share of tokens owned by token sale investors can dilute as at least 5% of tokens are allocated for sale directly via the application. However, these tokens will be more expensive than ICO tokens and in case the demand for them will be low, pre-ICO and ICO investors’ share will not be affected much in the short term
* Although there is a fixed supply of tokens, the Terms of Sale also mention that the company is free to create and sell more FUEL tokens for use within the application. Such contradiction is strange. It creates uncertainty about what to expect of the future value of the token and poses investment risks
* No details about the use of proceeds available
* An additional legal risk comes from the existence of the Chinese version of the project’s website as it may be treated as operations under the Chinese jurisdiction. The Company risks to be forced to comply with the recent ICO restrictions and provide a refund for Chinese buyers
Useful links: [website](https://etherparty.io/), [whitepaper](https://etherparty.io/wp-content/uploads/2017/09/white_paper.pdf?8e1d88), [Telegram](https://t.me/etherparty), [Terms of Sale](https://etherparty.io/wp-content/uploads/2017/09/Etherparty-Crowdsale-Terms-and-Conditions.pdf?75ba47&75ba47)
Done by @cyberanalytics - the team of the [**cyber•Fund**](http://company.cyber.fund/) company that conducts the analysis in fields of crypto-economics and blockchain industry
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