On the 12th of March, Astronaut Capital (ASTRO) released a report stating that they have become an investor in FIC Network (eFIC). View the full report here
FIC network is a US-based company which is seeking to create a decentralized securities network that includes an array of different assets including bonds, loans and asset-backed securities.
FIC Network aims to improve upon traditional systems in the fixed income market by integrating blockchain, therefore hoping to reduce costs, operational friction and commercial risk while increasing transparency.
The main goals of the company can be broken down into the following:
• Allow companies to obtain loans, issue bonds and raise funding in fiat and crypto
• Allow lenders to securitize and sell loan portfolios
• Allow investors to invest in fixed income financial products
• Allow service providers such as auditors, lawyers and ratings agencies to carry out their tasks
Commercial & Technical Strategy
FIC Network is deploying a combination of on-chain and off-chain processes in their technical strategy.
The lenders originate the loan off-chain and thereafter list it on FIC Network. Investors are able to invest in the loans listed on FIC Network in fiat or crypto.
One of the key features of FIC Network is the development of Expected Cash Flow (ECF) financial asset, which allows investors to slice up the cash flow of the asset in multiple ways — by interest, principal and maturity. The ECFs are tokenized on the FIC network.
FIC Network has also detailed the lifecycle (refer above) of the multiple participants in the investment and lending process.
From a commercial perspective, FIC Network is focusing heavily on institutional players such as asset managers, investment banks, hedge funds, credit funds, insurance companies, family offices and corporations. Several institutions are already testing the platform.
The roadmap provided indicates deployment of Testnet in Q2 2018 and the launch of the FIC Network for loan trading (initial fixed income product) by end of 2018.
Relatively longer-term roadmap indicates cryptocurrency implementation and listing of other fixed income products and financial instruments.
FIC Network will be issuing 316,500,000 tokens under the ticker eFIC, which will be converted to FIC at a later date. The breakdown of the sale is as follows:
ICO participants: 50% of the funds are offered over various stages: Private, Presale and Public sale. Approximately 25% of the total sale is allocated to private sale and the remaining for presale and public sale, if required.
Reserves: 30% will be utilized for corporate needs (25% each year vesting over 4 years).
Company / Team: 20% will be utilized for team (25% each year from year 0–3 vesting over 3 years)
FIC tokens have a two-fold role:
• Staking: eFIC tokens can be staked to carry out certain actions such as the creation of new financial instruments and the listing of new loans
• Fees: FIC tokens are used to pay fees and these tokens are spent and gone forever
As adoption of the network increases it is anticipated that supply will get tighter while the token value of eFIC appreciates.
Use of Proceeds
The use of proceeds indicates that the majority of the funds will be used for setting up the team (39%) and development (35%). The remaining is split across marketing/business development, legal and other services.
The website and marketing material indicates that there are seven core team members split across operations, technology and product.
Arturs Ivanov: Arturs is the CEO of Factury Inc. (parent company of FIC network). His past experience has involved working with various industries including investment funds and the government. Arturs worked on problems and remedies in the predatory lending sector for his undergraduate thesis.
Alvar Soosaar: Alvar is a co-founder and COO of Factury Inc. Alvar has over 20 years of experience as an investor and most notably has managed a portfolio of $7.8 Billion of fixed income securities handling origination, structuring, monitoring of loans.
Aigars Staks: Aigars is a co-founder and FIC Network Architecture advisor. His background is in handling large scale IT projects and spent his early career in PwC and Microsoft
There are five advisors in total listed in the whitepaper. Notable names include:
Jed McCaleb: CTO and co-founder of Stellar.org. Well known in cryptocurrency circles and been involved with Ripple and Stellar projects
George Popescu: Advisor to three ICOs, multiple start-ups and an entrepreneur. He is also the Editor-in-Chief of Lending Times, a media company in the P2P and online lending space
There are three notable VC firms and start-up accelerators backing FIC network:
Boost VC: leading accelerator for blockchain/crypto. Investments include Blockcypher, Etherscan, Coinbase and Polychain Capital
Bialla Venture Partners: early-stage VC firm along with an executive search firm specializing in the financial services space
Startupbootcamp Fintech NYC: leading Fintech accelerator
- The global credit and bond markets exceed equities volume and size substantially.
- Current practices of credit/debt origination, sale and settlement are extremely fragmented in the traditional markets. In some instance, settlement for company bonds is still processed manually. FIC Network could create a very streamlined, efficient and cost-effective process to disrupt the market.
- FIC Network is backed by several accelerators, VC’s and credible advisors. We anticipate the company will be well supported from an institutional perspective.
- Deal structure of the offer is compelling. The hard-cap puts a ~$30m market capitalization on the company (depending on bonus inclusion).
- The team has sufficient experience from both a commercial and technical perspective. The company has been in operation since 2014.
- There are several institutions already experimenting with the platform.
- Full testnet is expected Q1 2018 and already available for viewing.
- We anticipate some of the business development activities to be slow due to ever-changing licensing and regulation requirements. FIC Network will likely need to be registered in every jurisdiction it operates in which is generally a slow process.
- Marketing and business development allocation is ~$2m if the hard-cap is reached. We expect that this might be quite low given the length of sales cycle.
- With 13 out of 21 staff positions yet to be filled (including CTO, VP Engineering and VP Product), it may be difficult for FIC Network to stay on track of its ambitious roadmap.
- The existing systems/infrastructure have a huge potential for improvement in terms of price, risk and transparency. FIC Network seems well positioned to capture at least a portion of this large market opportunity.
- Multinational bank UBS estimate that clearing and settlement costs anywhere between $65b-$85b per annum. Banking and financial institutions have also been seeking ways to improve the process through blockchain.
- The entire cryptocurrency ecosystem faces regulatory risk. However, due to the nature of the space that FIC Network is choosing to operate in (i.e. traditional and crypto-assets), the regulatory risk is further heightened.
- FIC Network is choosing to compete in a space where the incumbents are well capitalized. If the incumbents choose to venture into this space, then FIC network will potentially face commercial risks
- We identify several other companies/tokens that are seeking to pursue similar opportunities (albeit some in different verticals:
- Ripple (XRP)
- Polymath (POLY)
- Blockex (DAXT)
Astronaut is attracted to FIC Network and believes that it is working towards disrupting one of the largest opportunities in the financial ecosystem.
For the reasons listed below, Astronaut is taking exposure to FIC Network:
- The deal-structure is compelling with a small hard-cap and tight allocation
- Market opportunity is significant, even if FIC Network are only able to secure a small number of major jurisdictions
- The company have been in operation since 2014, showing a large amount of commitment and prior success in gaining the support of several accelerators and venture capital firms
- While we don’t usually place a substantial amount of importance on company advisors, we believe that FIC network are supported by some leading personnel
While we are attracted to FIC Network and its ambitions, we do acknowledge the regulatory hurdles it may face. Given the nature of the ever-changing legal landscape, we would anticipate that some jurisdictions will be much harder to gain licensing than others. We highlight this as a potential risk prohibiting growth.
In light of the preceding, the Astronaut Investment Committee (IC) have agreed to take conservative exposure for the medium-term with the possibility of further investment during the presale and public sale phase of the ICO.