The Crowdsale Analyst: Golem — Final Thoughts

Golem is a very interesting project for many reasons with an end goal of building a decentralized supercomputer and a software service marketplace for the next generation of the web (web 3.0, aka the decentralised web). It’s very ambitious, they have an open and inclusive approach and in the end I think they will contribute a lot back to the Ethereum community.

A few weeks ago they released a draft white paper for the upcoming ICO and asked for feedback. That’s a great initiative in my opinion. No one knows (yet) the ultimate strategy and mechanics for crowdfundings that will give the right balance of information and expectations to participants as well as give the project the highest long term chance of success. Being open to improve this process is a great step forward.

The Golem team later published a release candidate of the white paper together with comments about the main points in my preliminary analysis. Of course it makes me happy to see how they considered not only mine but also the other feedback they got during this process. Compared to the draft white paper the final white paper is vastly improved, it is easy to read and follow now and everyone slightly interested in Golem should read it from start to finish.

What I must make very clear is that I do not believe that the community should control what the Golem team (or any other team out there) should or should not do, they should make their own strategy, decisions and plans. But, this is a diverse and inclusive community with so many talented and skilled people in various fields that I truly believe that listening to constructive feedback can improve the projects and change them in positive ways.

I’m subjectively scoring each of the below categories from 0 to 5, where 3 should be neutral in the eyes of the crowdsale participant. Below 3 is bad for the investor and above 3 is good for the investor (and could be good for the project as well). At the end I’ll add a conclusion where I rate the whole ICO based on the combined information I have as negative, neutral or positive.

Project: The Golem Project

I earlier wrote that the easiest way to understand Golem is like a decentralised Amazon AWS service, well that was a bad description by me. Golem is something bigger and I see two main parts to it:

A decentralised marketplace for computer resources. In the design this includes services like Amazon AWS that could sell excess capacity (or all capacity) on the Golem marketplace, together with and in direct competition with resources from other cloud services, data centers and all the way down to end users with spare capacity.
A microservice platform and decentrlizaed software registry that will provide the computational resources needed for web 3.0 and other direct use cases.

The current paradigm of Ethereum development (if we have one yet) is to build the complete decentralised application (smart contracts) on Ethereum and then use services like IPFS to add functionality that is not available on Ethereum. I share the future vision with Golem where Ethereum will handle only the parts needing consensus, immutability, transparency and accountability — in short the literal meaning of smart contracts. The other parts of the applications will be handled off-chain, by services such as Golem. Ethereum is not well suited for general software development (for efficiency, security and upgradability reasons). I can see how Golem could be an important piece of the puzzle that will give the smart contracts access to needed services and resources to scale out to fully decentralised platforms with possibility of almost unlimited capacity.

Team/Founders 4/5

Do these guys have what it takes to succeed as entrepreneurs? Track record and previous projects? Experience and formal education?

The Golem team is already at 12 people (up from 10 since the draft white paper). This means they already have a critical mass of people and will be able to scale their operations efficiently if/when raising a lot of funds. They mention a goal of growing the team to 20 people which is absolutely doable given their current size.

Since the release of the draft white paper they not only published a blog post about the founding team, but also added a very good section about them in the white paper for us that don’t know the team and founders since before. What is most important is that we now know that the founders both have startup, operational and business experience from running a company, while also having a track record of delivering advanced technological solutions.

The rest of the team they have gathered so far looks very competent, with great experience that already cover key parts of the technology stack and with people who’s contributions are known to the Ethereum community.

Market Potential 4/5

The cloud compute market is a multi billion market dominated by large IT companies (such as Amazon, Google, Microsoft and IBM). On the IAAS (infrastructure-as-a-service) side Golems key advantage will be the possibility to offer a completely transparent market for compute resources. Since large scale data centers will compete with excess home capacity (where the marginal cost is more or less electricity), costs should go down and that will drive adoption. The problem is the tight integration and ecosystems of the other platforms. Amazon AWS does not only provide compute, storage and transfer. They have so many services built around this to create full stacks with connected networking, DNS services, shared files systems etc. All of this will probably be possible to replicate on Golem, but it will take time and considerate effort, and the switching cost from Amazon to Golem will be high.

For the SAAS (software-as-a-service) part of the service the key driver for the legacy cloudification market will be the openness of the software registry platform (and price of course). It is a very flexible system and it will be very interesting to see new payment and reimbursement models be built on top of the transaction framework.

But, the software registry will also be a key piece of infrastructure for the decentralised web 3.0. If (when?) we see the decentralised web develop it will have profound implications for how we interact with the web we know today. This will create a completely new market where Golem will provide a key part of the infrastructure.

Also, because the possibilities and the vision is so big they will have a lot of work over the coming years to showcase and build solutions and concepts that showcase these possibilities. Without knowing too much about the detailed plans and skills of the Golem team, for me it seems like the first applications that will be available are either computer resources (as a Amazon EC2 marketplace) and on the software repository side microservice like applications that will run independently and handle direct requests or by working on job queues. To get into highly parallel applications that do distributed supercomputing (which I guess is the end goal) a LOT of work is required and this is a research field in itself. Maybe we will see third parties develop this, but it will take time.

My main concern is the lack of a direct monetization plan. The Golem team will have around four years to figure out a viable monetization strategy which I don’t think will be a major concern. Building on their expertise with the platform I expect them to bring apps to the software registry themselves, and probably also find other income streams on the platform (such as escrow services, web 3.0 infrastructure services etc.). The ICO participants will get their tokens, and because there is no reissuance of tokens they should appreciate in value as usage of the Golem platform grows.

Product/Business/Operating Plan 4/5

Proof of concept available? How many iterations are done? MVP available? Is the product validated by outside users? 4/5
They have an alpha release available github with a working implementation of distributed Blender/LuxRender rendering, which will also be the first public use case.

What is the current operating plan and why do they need funding *now*? 4/5
Up until now the Golem project has been privately funded. From what I understand they have now reached the first proof of concept stage and to scale out and finance continued accelerated development they need additional funding. Also, because the Golem is built as a network a crowdsale in the proposed form is also a very good way to bootstrap the network of potential requestors, providers and software developers.

What is the go-to market strategy? 5/5
This is one of the sections that is vastly improved in the final white paper and is now by far the best in any ICO/white paper I’ve read. It’s not too elaborate, but very much to the point. We are given an overall market strategy and for each of the four major milestones the main objectives and value proposition for that release and how this relates to each of the major stakeholders in the network (requestors, providers, software developers). Even if this was internally clear before I think it’s hugely important to show to us as potential investors. At least to me this explains the purpose of each release and what we can expect in a much clearer way than the feature propositions.

Roadmap 4/5
This is another section that is so much improved. It is impossible to estimate and promise exactly what will be delivered several years from now in a project like this, but it gives us a much better understanding and helps us set the right expectations for the long term development of the project. So not only is it good for potential ICO participants, but also for the long term value of the token itself.

Brass Golem — 6 months after crowdfund
Clay Golem — 6–15 months (depending on scope and financing level reached)
Stone Golem — 15–24 months
Iron Golem — 24–48 months

Depending on the level of financing reached the scope for each release will be adjusted, with extra features built in. I cannot say of this is realistic or not, but it seems they have made a considerate effort to realistically estimate each release. What is important for all potential investors to understand is that this is a multi year project, and with this roadmap this should be very clear.

Competition 3/5

Do they have a clear view of the competition? How do they plan to beat them? 3/5

Clearly they know about the other cloud PAAS and IAAS providers. Instead of addressing the competitors directly, they describe how Golem will be a more efficient and competitive market, the potential and benefits of the application repository and web 3.0 infrastructure. They don’t address the competitors directly, which is why I score this section neutral (3).

Valuation 3/5

Is valuation sane? 3/5
They will be raising between 150 000 and 820 000 ether, with 6 % going to the founders and an additional 12 % to Golem Factory GmbH. This puts a maximum current value of Golem to 1 000 000 ether or roughly 12 million USD. This is a lot of money, but it includes the funds raised and a team of 10 people that I believe already have worked around a year on the project which is why I score it neutral.

Crowdsale and token structure 3/5
I think the crowdfund structure as described is neutral (not worse than the other recent successful ICOs, but not better either). There are still a couple of points that I would have liked to be be different from the eyes of an investor:

All money is available upfront, there is no safety mechanism if something happens in the project. I would have liked a yearly progress fund release schedule (or a third at a time), with the investors being able to halt the next payout in case of some grave mishandling
No vesting for the founders — at least it’s not clear if the team and founders are vesting their tokens. I hope we will see a standard emerge where teams and investors always vest their tokens for at least 2 years, with a 6 month cliff (meaning no tokens at all for the first 6 months). In Golem they have a 6 month holding period (i.e. cliff) but no vesting after that
Unclear strategy to raise more funds if needed (there is a token upgrade option, but unclear how that will be used)

The three points above are not unique to Golem, but very standard practice in the venture capital world and something the crypto world should adapt as soon as possible.

Legality 4/5

As an investor? 4/5
The short version is that the GNT token is used in much the same way as Ether (for gas) in the Ethereum ecosystem. Also, they use the same incorporation structure with a company based in Switzerland that controls the funds from the crowdsale and the holding company in turn employs various contractors for development and the completion of the project. If it works for the Ethereum foundation it will work for Golem as well.

The longer version can be read in the 8 page [GNT Terms Document](https://golem.network/doc/GNTterms.pdf).

Recently I’ve seen a lot of discussions around ICOs and their legality in relation to the US SEC (Securities and Exchange Commission) rules. Remember, Golem Factory is a European company controlled by European citizens, the SEC has no jurisdictions there and it’s up to each participant to figure out if they are allowed to back this project or not.

Legality of the business 4/5
Should be the same as other cloud computing operators, so nothing special.

Security 4/5

Proof of external security evaluation? 3/5
Each major release will be audited by external auditors, and a significant amount of funds are set aside for this. In the GNT terms document they state the code is audited (I assume the GNT token contract code), but I have not seen a public report on it. But, all development of the Golem project is pushed to their public GitHub page, it has been publicly available for at least 10 months so no secrets there.

Special security needs for this project? 4/5
Throughout the text they describe the complexity of a project like Golem and many different security implementations they are planning, so all investors should be very well aware of this. That is really good. This is bleeding edge technology that is not developed yet, and making sure that we as outsiders really understand this is good. As I wrote earlier, I think the security needs of this project are as high or even higher than for the Ethereum project itself. We already see that there are many different security solutions being planned on different levels of the platform, and they have a cautious release plan that will hopefully discover and iron out lots of the security exploits and issues as the following releases are being developed.

Conclusion — Positive

Golem is a very interesting project and in my opinion the white paper is the best ICO white paper released so far. The paper is well balanced and the project itself is fantastically ambitious that use blockchain technology not only to disrupt a huge (and growing) established market, but could also enable a key part of the needed infrastructure for the fully decentralised and autonomous web 3.0.

What I also like and respect is the open and transparent approach they have used since the project start. We as outsiders should not control the project and the team should not act based on wishes from the community. But, they are open and ask for feedback, and when feedback is given they clearly consider it and act on it in order to improve. They have an active blog and from what I have seen so far I am very positive that they will contribute back to the Ethereum community outside of just the Golem project.

Just one example that I personally think speaks very highly of their capacity is the blog post about writing the GNT Crowdfunding Contract. It’s an easy read and this is the best 7 minute introduction to professional software development that I have seen. If you want to know the difference between bedroom hacking and software development this post is well worth a few minutes of your time.

In my preliminary analysis I had some concluding points where I wanted to see improvement and more information. Let’s review these points:

More and better team info — not only did they include team info, but also some very good rationale for their team selection, overall team background and achievements and they have also recruited since the draft white paper
Budget — the min and max cap size differ around 5 times. We now have a much better understanding for how they plan to spend the funds, and how different funding levels will affect the planned scope of the Golem project
A market strategy is needed — the go-to market strategy in integrated into the paper giving a much better understanding of the project and the rationale for each milestone. This was a huge improvement and something I hope other projects will learn from
I hope to see some external due diligence of code they have published so far — I still hope that someone better at software development than me will review the code (that is publicly available) and post something about the perceived quality level. The positive side is the blog post mentioned above and the planned security reviews
A much better roadmap is needed — we got it, and I think they really hit the sweet spot of detail in this as the future will be very uncertain
The crowdsale strategy could be improved — all funds are still available upfront and there is no vesting schedule for the team, founders and early investors (although there is a 6 month cliff)
More and deeper security discussions are needed, along with time tables — check on this. Everyone reading the white paper should understand it will take several years to deliver on the vision of the Iron Golem and the complexity of a project like this

So, point by point they made huge improvements (except for immediate release of all funds) and with the disposition and layout also much improved I think this project is now much easier to understand and to evaluate. I strongly encourage everyone interested in the crowdsale to read it and make up their own mind. I can only say I think it’s the best handled ICO process so far and it has the best documentation I’ve seen, and as a project it’s one of the most interesting we have seen in the crypto space.

eth-archive

ETH price, last 19 hours, $