Astronaut Capital takes exposure in the Loki Network token sale.

On the 14th of March, Astronaut Capital (ASTRO) released a report stating that they have become an investor in Loki Network (LOK). View the full report here.

Overview

Loki Network and its team is based in Australia. The project seeks to provide services and transactions that are decentralized, private and untraceable. With a core objective of privacy, Loki Network is a modified version of the Monero source code built upon a foundation of service nodes.

Commercial Product & Strategy

Loki seeks to establish itself as a secure and private network, at the same time resolving several underlying issues of Monero.

Mixin Distribution — Altering the methodology of sample mixins spent by users to increase Loki’s resilience against attacks

Ring Size Signatures — Adopting the methodology of churning, Loki will enforce a fixed minimum ring size of 10 to prevent attack on ring signatures

Block Reward — A hybrid proof of work/proof of service system will be utilized through a block reward equilibrium algorithm. On average the split to miners, service nodes and governance pool will be 50%, 45% and 5% respectively.

Staking — Staked tokens will be dynamically adjusted based on block height and will decrease overtime as compared to a fixed amount (Figure 1).

Bulletproof Declaration — Loki uses a modified version of Monero’s range proofs called bulletproofs to verify service nodes, which revealing the actual amount of LOK that a service node operator holds.

Roadmap

We find the full development roadmap for 2018 and 2019 lacking some depth and information. More details on both business and technical developments could have been included. Nevertheless, we are optimistic regarding several of the developments:

Release of mainnet in Apr 2018, shortly after the pre-ICO sale

The availability to set up service nodes within six months (This gives Loki a significant advantage in terms of its token valuation against other similar blockchain projects that have yet to launch their mainnet.)

Token Sale

Loki has its own blockchain, hence its own token type. Tokens will be issued alongside the mainnet release. The sale structure is only one funding round — a Private pre-sale with no planned public ICO. The token sale information is not made public and the following information is conveyed to Astronaut analysts:

Total supply — 150m tokens, of which 15% is pre-mined (22.5m LOK)

Crowd — 59% of Pre-mine being sold (13.275m LOK)

Circulating Supply — Effective circulating supply at launch will be 16.31 LOK (this would translate into an effective market cap of $11.09m)

Airdrop — An airdrop will be made in the coming months to drive community engagement

Mining — First 7 months in Loki’s operation will consist of PoW mining before Service Nodes go live

Tokens for the advisors and founders will have a vesting schedule of 12 months, where 20% is released upon token launch and the remaining 80% is released each quarter over the 4 quarters. The seed allocation follows a vesting schedule of 12 months with an initial release of 30% and 20% every quarter until the final 10% is released.

Token Use

1) Currency — Similar to most currency tokens, LOK is used to facilitate transactions and act as an exchange medium for digital service or payments in anonymity. For example, LOK can be used as form of payment to another party in complete privacy. In addition, it could create value in the community through the services of future SNApps. More information on this to be released in the future.

2) Staking — Token holders can earn LOK by running a service node through staking. The amount of LOK required to run a node is dynamic and will decrease over time.

Use of Proceeds

A detailed use of proceeds has not yet been provided. It is anticipated that capital raised will largely be used for ongoing development and operational costs.

Team

The team consists of ~7 employees that boast a balanced blend of technical and business skillsets. One of the most notable persons in the team is the head developer who is the third largest Monero contributor. Some of the notable team members include:

Simon Harman (Project Lead, Founder) — A blockchain development contributor and facilitator at blockchain centre. Simon has a background in web development and project management.

Kee Jefferys (Tech Lead) — Cryptographer and architect with a background in Infosec.

Chris McCabe (Operations Lead) — A blockchain educator and consultant with Digital Technology & Electrical Systems Background.

Tom Winget (Head Developer) — Third largest Monero contributor with a background in computer Science & Cryptography.

Paul McLean (Performance Engineer) — Over 28 years of experience in IT performance consulting. Paul specializes in load testing, system performance and scalability.

Partners & advisors

There are a total of 8 advisors. Some notable advisors include:

JP Thor — CEO @ CanYa, Director @ MasterNode Ventures, Founding partner @ Consortium

Ismail Malik — CEO @ BlockChain Lab, Editor-in-Chief @ ICO Crowd

Dorjee Sun — Director @ HOME Group, COO @ Santiment

Zhang Taiyang — CEO @ Republic Protocol, Founding Partner @ Virgil Capital

Investors

Loki has a few notable investors.

TLDR Capital — Headquartered in London, TLDR is an investment firm that focuses on blockchain technologies and digital assets. Via TLDR, Tom also advises a number of crypto projects, including Quantstamp, GBX, Gifto, IAMA, Cardstack, Kowala, Essentia, Qiibee, Constellation, etc.

1KX Capital — 1kx is a reputable blockchain angel fund with its headquarters in Berlin. Invested projects include FundRequest, Aelf, Dock, RequestNetwork

Master Node Ventures — A prominent ICO advisory and incubation consultant set up in Australia, Melbourne.

Fengshui Capital — With a focus in the blockchain sector, Fengsuhi capital has develop a one-of-a-kind investment strategy based on the principles of feng shui. The firm has invested in over 25 ICOs that includes Waves, NEO, TenX, STK, Quantstamp, Nebula, Loom, Lending Block, Dragon Chain, Dock, Dadi, DAV, Bluzelle.

Strengths

Market capitalization of privacy coins has continued to grow at a faster rate than most other benchmarks in the ecosystem

Loki Network’s mainnet will be launching soon (a month after pre-sale), which reduces short-term pricing risk

Strong technical team with third largest Monero contributor (Tom Winget)

Attractive deal structure and token economics with funding opened only to pre-sale investors. The project has a low hard cap of ~$9m that will translate into unmet demand

Good mix of advisors with different background that includes CEOs, founders and directors of other blockchain projects

There is a growing need for privacy blockchain and Loki is a technically more advanced solution in this space given that it is an improved version of Monero

Github contributions by Tom Winget to Monero

Weaknesses

A young team relative to some other projects

Airdrop to be made in the coming months that could dilute value of tokens

Roadmap lacking depth and information, more details would be preferred

No use of proceeds

No explicit marketing plans mentioned

Opportunities

Astronaut is a big proponent of data privacy and we believe this will continue to be a major trend for blockchains in 2018. Privacy tokens have seen tremendous growth in 2017 with a market cap increase from $283m to $16,381m (Figure 2) among the top 4 privacy coins (XMR, ZEC, DASH, XVG).

Comparing them against the top 2 coins (BTC, ETH), the proportion of privacy coins has increased from 1.72% to 5.43% in 2017 alone. We continue to see strong growth in privacy-related blockchain projects in 2018, with more skewed to solving pertinent issues relating to scalability. Therefore, Loki remains in a good position to take advantage of this opportunity.

The global messaging market is projected to reach 2.1b users with the number of mobile messaging app users growing from 24.5% in 2017 to 29.1% in 2019. Our analysts estimate the market value of this industry to reach $60bn by 2020.

As most existing applications are built without user privacy and data security, the growth in this market will be accompanied by an increasing demand for such solutions. Therefore, Loki’s comprehensive privacy network could be pertinent in answering these scalability issues.

Threats

Strong competition against more matured privacy blockchains (Monero, Dash, Zcash) and private messaging blockchains (Status, Mainframe)

There is a trade-off between privacy and regulation. Changes in the regulatory environment could pose a threat.

Conclusion

Overall, Astronaut has a positive view on Loki Network. Our analysts expect a high demand for privacy blockchain going forward as the traceable feature of decentralized blockchain has been too transparent (for some).

For the reasons listed below, Astronaut has taken conservative exposure to Loki.

Having anonymity, security and scalability as its differentiating factors, we believe there is enormous potential for this project as compared to its competitors

Compelling deal structure with small hard cap and single funding round

Loki’s mainnet is slated to launch soon, which reduces the risk exposure over the medium term

Astronaut Capital is taking an early-stage view on Loki, acknowledging that regulatory changes could create challenges in the private blockchain market. We highlight this as a potential risk that could restrict Loki’s growth. Nevertheless, we foresee significant adoption by the community given the need to transact with absolute freedom.

Exposure to the private sale was limited due to excessive demand from participants.

In light of the preceding, the Astronaut Investment Committee (IC) has agreed to take a conservative level of exposure for the long-term with the possibility of further investment once more details become publicly available.