Preface: HelloGold represents a somewhat unique entity in the cryptocurrency industry and the universe of token sales, primarily for its linkages to existing industries (banking and savings institutions, as well as gold mining and storage) allowing for a more exacting quantitative analysis than is usually possible for token sale stage projects. Perhaps most interestingly, and rather unusual for many projects, we are also able to show how HelloGold can be evaluated alongside many traditional and non-blockchain projects and to illustrate how this project can be accorded a place within many traditional investment portfolios and management strategies. The availability of data and precision of their forecasts allowed the Smith + Crown research team to apply a more critical lense than is typically possible for other token sales. This shouldn’t be interpreted as veiled criticisms of the HelloGold team or their ability to deliver on their stated goals.
As always, we never accept payment for our research and we always disclose financial relationships and potential conflicts of interest. Smith + Crown research does not constitute an endorsement. We strongly encourage potential investors to conduct thorough due diligence research of their own before deciding to invest and to only participate with funds they can afford to lose.
HelloGold, a private limited company incorporated in Malaysia, is a financial services platform enabling retail clients to access micro savings in allocated, investment grade gold. Targeting small-scale savers and underbanked individuals in developing economies, with a particular focus on Asia, HelloGold looks to expand access to saving in gold by leveraging blockchain technology. Currently, purchasing small amounts of gold (in the form of a gold coin, for example) comes with high buy, sell, and shipping fees which makes gold somewhat inaccessible as a savings vehicle for many middle income earners in developing countries. Through the HelloGold platform, users will be able to access secure, transferable savings in fractions of ounces or grams of gold with low fees that they can ultimately choose to convert to an ERC20 token called Gold Backed Token (GBT), a tradable token with a relatively stable value backed by 1 gram of gold. In the future, HelloGold plans to develop additional features allowing customers to mobilize their gold savings to access collateralized loans at reduced rates. Backed by an experienced business team with strong rooting in its target region, HelloGold arguably represents less of a technological advance than a useful expansion of the range of blockchain based projects through the creation of the gold-backed GBT and its efforts to increase savings opportunities to those traditionally lacking accessible, affordable means of saving in gold.
The sale of the HelloGold Token (HGT) through the HelloGold Foundation will provide funds to allow HelloGold to expand operations and strengthen its technical teams. The object of the token sale, the HelloGold Token, represents a claim on 10% of HelloGold’s 2% management fees generated from holding customer gold (both tokenized gold and their current digitized gold product), payment of which will be made through fractionalized distributions of GBT to HGT holders. While certain aspects of the project look very attractive, particularly a team well-suited to the challenges they have taken on, and a laudable goal of increasing financial inclusion, the lukewarm reception many blockchain-based precious metals project have received in the marketplace, and the question of whether HelloGold represents the most promising avenue for an investor seeking exposure to precious metals markets, raises many issues. Here are a few key observations that potential token purchasers can consider as they evaluate whether to participate in the sale.
- Despite its relatively simple design the HelloGold project is an ambitious undertaking. HelloGold has aggressive targets for expansion and the growth of clients and assets under management, in addition to challenging technological goals.
- Modelling HelloGold’s baseline assumptions for gold assets under management using estimations of a gold price rising along recent historical patterns of a 5% annual increase and strong customer growth, HelloGold’s HGT token offers considerable leverage to the gold price, outpacing gold’s gains on a 7:1 basis, with the HGT offering a 10x return over a nine year period.
- More aggressive scenarios (higher gold price, faster growth, and/or the development of additional products and revenue streams to HGT holders) could accelerate the achievement of this goal and/or revise price targets higher.
- Conversely, lower growth, imaginable in a scenario of sluggish company growth combined with a lower gold price, could lead to the valuation of the HGT remaining below the ICO gold price for many years.
- While HelloGold represents a leveraged bet on the gold price, it is not the only nor even the most leveraged approach, and may even offer a greater downside leverage than some roughly comparable investment options, as discussed below.
What is the project status?
Having begun operations in Malaysia, HelloGold has plans to expand throughout Asia, then beyond, with the Middle East and Africa as eventual targets. HelloGold launched its first Android app in November 2016 and an IOS app in February 2017, with savers in Malaysia able to purchase Shariah compliant digital gold with a 2% fee on transactions and a 2% annual management fee. Growth has been relatively modest–the company’s list of vaulted holdings includes only three bars (approximately 51 troy ounces)–but these initial operations have allowed the team to develop much of its core technology while preparing the partial transition to the blockchain that represents the next stage of its development.
Given the size of HelloGold’s target demographic in Asia, where a highly mobile-connected population with a strong propensity towards saving has a long-term cultural affinity with gold–Asia represented 71% of the global gold market in 2016 according to World Gold Council data–HelloGold’s Shariah compliant product should meet with considerable enthusiasm. Given that HelloGold has already developed partnership agreements with Aeon, a retailer with 100 million customers in Asia, and is concluding an agreement with a well-known telecom operator with 300 million customers, HelloGold’s growth projections are likely to be met if not handily exceeded.
HelloGold’s objective of offering easy access to gold-backed saving should provide considerable value to the company’s target demographic of emerging middle class and small-scale savers. Offering customers the ability to source conventional loans backed by their account balances, to convert their holdings into physical gold under certain circumstances, and to convert their account holdings into blockchain-based and tradeable GBT will also appeal to different segments of their client base. These functions will significantly improve the liquidity and transferability of gold savings for HelloGold clients, removing further barriers to the accessibility of gold as a savings instrument. The appeal of the project is obvious, as the platform, featuring live iOS and Android apps, is accessible to a broad, mobile-connected audience while fees appear reasonable for the ability to save in smaller quantities of allocated gold. Opening an account is relatively simple, and after customers download the app, signup and complete KYC verification, they can fund their accounts and begin buying gold.
Currently, HelloGold’s technical stack is based on a centralized architecture with user account information stored and maintained in centralized servers. HelloGold plans on migrating their operations to a decentralized system. The date for this transition was originally estimated as late 2018, but has since been updated to year-end 2017. The white paper provides some high level architecture diagrams for how this might be achieved, but many of the technical details still haven’t been defined. Ultimately HelloGold plans on spinning up a private fork of the Ethereum network using a Proof of Authority consensus process in which a cohort of pre-authorized nodes will have the sole authority to create new blocks. The use of a private chain will allow HelloGold to process transactions quickly and ensure that data stored on the network is only viewable by HelloGold clients, rather than the whole Ethereum Network. The private chain will eventually serve a number of functions including
- Storing customer account data,
- Transferring data between clients and partners (such as banks and loan providers), and
- Monitoring transactions between fiat and gold and acting as an oracle to the public Ethereum network to verify that GBT in circulation perfectly matches physical gold under management in HelloGold vaults.
In the earliest release of the HelloGold private blockchain, it is unclear how many of these functions will be live. The HelloGold team has indicated that they will need to hire additional blockchain developers to meet the goals outlined in their roadmap. At the time of writing, no code relating to the private HelloGold blockchain has been made publicly available.
HelloGold will ultimately be serving two markets for gold–users who want to use gold as a savings vehicle and users who want to use a cryptographic token backed by gold reserves as a medium of exchange. With its centralized business model, HelloGold is currently serving the market for savers. At launch, they will continue to primarily serve the market for savers with the addition of the profit-sharing HelloGold Token. Before HelloGold can serve the market for tokenized gold assets, they will need to develop a blockchain infrastructure that can manage the issuance of their Gold Backed Tokens in a way that is secure and auditable. This may prove to be technically difficult. Other projects such asDigixDAO have been working on the issuance of tokenized gold for sometime and have yet to release a product. While the white paper outlines a process in which investor payouts are made in GBT, the same result could be achieved without the existence of a fully realized blockchain infrastructure for issuing tokenized gold. In the interim, HelloGold could simply credit HGT holder accounts with the appropriate amount of gold using their existing centralized server–in other words, they could return value to HGT holders relying solely on their off-chain digitized gold product.
What is the token being sold?
While the appeal of HelloGold’s project for its retail clients is clear, less certain is the potential response from prospective token sale investors. Given that the HGT themselves derive value only via the distribution of GBT to holders, and that GBT themselves are backed by only a portion of HelloGold’s management fees, this makes for a project which enjoys relatively modest leverage to a rising gold price, a fact that may turn off some portion of the precious metals investing community. While supporting HelloGold’s attempts to bring increased savings opportunities to the unbanked and underbanked is an admirable endeavor, under certain scenarios this may be the most meaningful return for a holder of the HGT awaiting further distributions of GBT to recover the value of his initial ICO investment.
The structure of the ICO is a unique one, with the HelloGold Foundation originally intending to sell 500,000,000 HGT over three rounds expected to occur at 12 month intervals, with the funds intended to allow HelloGold to build out its technical teams and expand geographically. (This amount was subsequently reduced to 340,000,000 as a result of a decision to sell 200,000,000 million shares through a Chinese presale, reducing ICO amount to 80,000,000 in round 1, and 130,000,000 in rounds 2 and 3.) The HGT sold during the ICO will be tradeable on the Ethereum network but will themselves have value only within the context of anticipated distribution of GBT from the HelloGold Foundation to HGT holders. HelloGold has pledged to endow 10% of its annual management fee back to the HelloGold Foundation, with HelloGold then converting any such funds into GBT. GBT will be backed by 1 gram of 99.99% investment grade, allocated, vaulted gold and will be distributed to HGT holders. Given their gold backing, it is expected that the GBT will track the price of gold and evolve as a stable coin amidst the wider volatility of the crypto world. HGT, in turn, will fluctuate, influenced by the gold price and quantity of assets under management.
As noted, the token sale is expected to take place in three annual rounds, with 500 million tokens to be sold in total. A further 500 million tokens are reserved for strategic investors during the pre-sale(200 million), staff(200 million, vesting over 36 months), and suppliers or to defray costs associated with the token sale(100 million.) Round one is expected to occur over five tranches, with an initial HGT price of $.0292 and diminishing discounts ranging from 20% down to 0%. The structure of the ICO, as well as the 36 month distribution and additional 12 month vesting period for project insiders, both point to a confident management group committed to the project’s long-term success. In particular, holding the ICO over three rounds is a way of allowing investors in rounds two and three to evaluate the project’s success prior to committing their funds, and a realistic assessment by management of how the resources needed for expansion in years two and three cannot prudently be spent in year one, as the project’s geographic expansion will take time.
The overall structure of the project, with HelloGold retaining a 2% management fee on all gold held by customers, and 10% of those fees forming the backing for the GBT to be distributed to HGT holders, means the quantity of assets under management (AUM) will be critical to the valuation of HGT, as illustrated below where we model potential valuations of HGT under different scenarios. Crucially, the 3.8 million gram lifetime cap on the total distribution of GBT to HGT holders makes the HGT, in effect, an expiring asset with theoretically limited upside. This concern would disappear should HelloGold introduce new products that could create additional revenue streams to HGT holders. The Hellogold white papers suggest that new products will be developed, but any such plans remain speculative and thus cannot be modeled into this analysis.
Valuing the HGT Tokens
In the following section, we explore potential valuations for the HGT using HelloGold’s own customer growth and AUM projections before considering alternative scenarios that help develop a fuller image of potential prices for the HGT over time. While HelloGold’s projected growth models for both customers and gold under management are clearly aggressive, we consider them to be generally realistic given the size of the target demographic and the retail appeal of the product. The table below summarizes HelloGold’s base case scenario for client and AUM growth over the next five years.
A Note on Methodology: Given that HelloGold management fees represent 2% of the value of gold under management, and that 10% of those fees are granted annually to the HelloGold Foundation as the basis for the creation of the GBT which are to be proportionally distributed to the holders of the 1 billion HGT, we are able to arrive at valuations for the HGT over time and as additional GBT distributions are received. By calculating how much of a GBT a single HGT would own during any year, and multiplying that amount by the gold price, we can arrive at an estimation of how the HGT should be valued by the market. In every case, we model the HGT at the undiscounted ICO price. Factoring in potential ICO discounts would have only modest impacts on the scenarios below.
Modelling HelloGold’s assumptions for AUM and using an estimation of a gold price rising 5% annually, and modelling alternative scenarios with gold rising faster, as well as gold remaining unchanged we are able to develop several potential scenarios for pricing HGT. We also model scenarios where HelloGold’s AUM growth is lower than projected, in order to provide a fuller sense of potential outcomes and specifically to point out how, should the projected growth not materialize, a token sale investor would have a lengthy wait to recover their funds.
The tokens retain substantial leverage to a rising gold price, as illustrated in the chart below showing the return of investment(ROI) on physical gold holdings under different gold price scenarios alongside ROI projections for the HGT tokens in each scenario.
However, while the returns of the HGT tokens meaningfully outperform gold under these (generally optimistic) scenarios, the assumptions underpinning the token valuations rapidly fall apart under different scenarios. The result is to illustrate how the HGT also retains substantial leverage to a falling gold price. The chart below illustrates how different combinations of reduced AUM and sluggish gold prices, either of which could result in slower than anticipated growth for HelloGold, could be reflected in the price of HGT.
As these charts make clear, participation in the HelloGold ICO requires a generally positive view of the prospects for the gold price in order to justify participation. But for a holder of such views another important consideration is the question of alternative means of acquiring exposure to the precious metals markets and whether greater potential return can be identified elsewhere. Unlike so many ICOs that are pioneering new industries or operating models, HelloGold’s entry into a well-established sector with a variety of existing investment vehicles suggests that evaluating the tokens within the context of investment alternatives is also necessary.
Who is the competition?
Given established views of precious metals as important long-term savings vehicles, HelloGold must be evaluated both on its merits as a blockchain project and within a range of competing investment and savings options related to precious metals. As HelloGold readily acknowledges, alternatives are numerous. In the blockchain universe, other tokenized gold storage and investment options exist, such as OneGram, which includes a proposed mechanism to reinvest a portion of management fees into additional gold by its digital token, thereby increasing the token’s value regardless of the underlying movement of gold. OneGram looks to be making reasonable progress towards its token sale target. At the time of writing, the OneGram token sale had completed 73% of its targeted sale with over a month remaining. Another project that was ultimately unsuccessful in reaching its ICO minimum was Panama-based Orocrypt, which also proposed to tokenize gold holdings. Orocrypt offered a different structure from HelloGold, with ICO tokens representing one class of ownership and voting rights in the underlying company. The Orocrypt sale was ultimately unsuccessful. A similar bout of uninspiring progress appears to be the fate of SLVRMine, a company proposing to mine, vault, and offer tokenized holdings of silver from a previously producing mine in Mexico the company has stated it intends to return to production.
In the traditional investment world, there are also a variety of vehicles through which exposure to precious metals can be found, ranging from the relative safety of unleveraged physical coins and bars held in a vault or one’s possession, allocated and unallocated gold pools, allocated and unallocated ETF’s tradeable on security exchanges, and even mining stocks. Debates over the relative merits and risks of each form are plentiful, even overly so, and are easily available. Given HelloGold’s structure, where the bulk of the features (secure, allocated, tradable gold) offered to ICO investors are available in roughly similar forms through other non-blockchain vehicles, because only 10% of management fees are allocated to HGT holders, suggesting returns to HGT holders are somewhat diluted, careful consideration of the relative risks and upside of the range of competing options seems warranted. The chart below, exploring how a select handful of precious metals royalty companies have performed over the last five years, illustrates the leverage these companies contain even in a gold market without any strong trends, and suggests how at least one alternative offers arguably even greater upside to a modestly rising gold price and, crucially, considerably less downside and implementation risk.
As opposed to precious metals royalty companies, traditional gold miners, offer the greatest leverage to the gold price, in exchange for both the greater risks and leverage they also carry. The period since early 2016 clearly illustrates how competent miners can, in a period where gold is generally trending up (gold’s gains were slightly above 20% during this period) offer substantial gains far outpacing projected returns from HelloGold’s HGT. Traditionally, investors seeking exposure to gold have looked to gold miners, especially when leveraged gold exposure was the objective. Whether potential gains from the HGT tokens could entice this portion of the gold investing community remains unclear.
Comparing HelloGold’s HGT with highly leveraged mining companies may seem inappropriate, but it is precisely the downside leverage of the HGT to the potential underperformance of HelloGold relative to its own projections that justify these comparisons. Whether through a flat or declining gold price that weakens the argument for saving in gold or operational difficulties, if HelloGold is not able to meet its AUM projections, resulting in issuance of GBT at a lower rate than anticipated, ICO investors will be waiting many years to see the return of their investment. In this regard, HelloGold is also unlike an ETF for gold, at least initially while it is unclear what amount of AUM the company will hold and what the pace of issuance of GBT will be. During this period the downside risk of the HGT far surpasses that of a comparative ETF or simple holding of physical gold. This is because, as illustrated in earlier, in a flat gold price environment, where holding physical gold would return 0%, it is possible that an ICO participant will see their entire investment decline far below the initial purchase price. This suggests that thinking of participation in the HGT ICO as simply purchasing exposure to physical gold as if one was buying a gold coin or ETF is inappropriate, as it overlooks the potential risks involved.
If, at some point in the future, HelloGold has established itself as an important force in the world of gold-backed savings and has a meaningful amount of vaulted gold holdings under management the company will be justifiably evaluated alongside of relatively low risk investment vehicles such as ETF’s. In this initial ICO stage, however, where it remains to be seen if, and at what pace, HelloGold will grow its business, the risk is actually closer to that of a traditional mining company, offering both upside and downside leverage based upon gold price and operational realities.
Who is the team behind the project?
HelloGold is led by a strong, highly capable and experienced team with considerable background in the precious metals, business, and technology sectors. The team is also strongly rooted in HelloGold’s target region.
CEO Robin Lee was formerly CFO of the World Gold Council, where he served as the principal accounting officer for the SPDR Gold Trust in addition to working with the Industrial and Commercial Bank of China developing highly successful gold savings programs. His gold-industry credentials as the leader of HelloGold could hardly be stronger.
CTO Wykeen Seet, holder of a PhD in computer science from the University of Manchester, was previously VP at Bangkok Bank in Thailand where he led multiple projects including Mobile Banking, B2B Gateway, International Remittance, and Credit Related Systems over a period of 8 years, also strong background for a retail-focused product similar to what HelloGold is developing.
Blockchain expertise comes from Dave Appleton, who is listed as a member of the HelloGold technical staff. Dave is also working part time as a member of the Indorse technical team. Dave has a BSc in Electrical Engineering from the University of London and a MSc in Management of Technology from National University of Singapore. His 40 year career as an engineer in the tech sector has primarily been spent in start-up environments, and largely in SE Asia.
Technical advisor Andras Kristof, an entrepreneur and digital technology expert, has considerable experience with a number of cryptocurrencies and blockchain projects, as well as years of experience in the SE Asia region.
Overall, the composition of the team makes a strong case that HelloGold is well prepared to deal effectively with whatever challenges may arise, whether from the precious metals sector, a technology standpoint, or local populations and sensibilities.
Unlike many token sales today that are developing new blockchains, protocols, or technologies, HelloGold’s significance lies more in its novel approach to bringing blockchain advances to an already working product. The fact that the company has already developed a working retail product facilitating savings in gold for those traditionally lacking access to reasonably priced precious metals savings strategies shows the company to be serious, capable, and well-intentioned. Taking the next step of allowing those retail savers to acquire exposure to the blockchain through the convertibility of their gold-based savings promises real world advances that will impact individual lives. In doing so, HelloGold’s HGT and GBT also promise investors exposure to relatively stable, blockchain-based assets backed by allocated gold.
While HelloGold’s HGT likely does not represent a particularly aggressively leveraged asset relative to gold, it also contains operational risk and downside leverage to gold’s underlying movements in a manner that is different from a traditional ETF or vaulted gold holding, requiring ICO investors to carefully consider the assumptions being made in supporting HelloGold. On the positive side, HelloGold balances this risk with a solid degree of leverage to gold’s underlying movements, as well as access to the security and transferability of exposure to the blockchain, and represents a viable asset that can form a meaningful component of an individual strategy for managing a portfolio or gaining exposure to precious metals.
Finally, the potential for the HelloGold team to expand more rapidly and to develop new products increasing the reward streams to HGT holders is substantial. In a best case scenario where HelloGold meets its aggressive expansion and AUM targets and subsequently introduces new products we would expect that the projected token valuations modelled here would be quickly and substantially surpassed and that token sale investors would reap the double reward of supporting a difference-making project while enjoying strong investment returns.
|Incorporation status||HelloGold Foundation|
|Team openness||Fully transparent|
|Blockchain Developer||Dave Appleton|
|Technical White Paper||High level technical white paper|
|Available Project Code||Contract code in Github|
|Prototype||Centralized Product Live|
|Role of token||Profit sharing rights|
|Token supply||1 billion|
|Distributed in ICO||80 million|
|Emission rate||No new coins created|
|Consensus method||Proof of Work|
|Sale period||August 28th, 2017 to October 2nd, 2017|
|First price||20% Bonus|
|Investment Round||First public offering|
|Token distribution date||2 weeks after crowdsale|
|Min investment goal||1 million USD|
|Max investment cap||9.6 million USD|
|How are funds held||Smart contract|
|Minimal Viable Product||Already live|