Elevator Pitch: A crypto coin with its value tied to time rather than proof of stake or work. ChronoLogic pegs time to a store of value token named DAY based on the Ethereum blockchain. The breaks the coin away from traditional mining and determines its future value solely based on time passed.
Why should you care? A lot of our financial transactions today are based on time. In the White Paper, they give two examples. The first being bond issuance, which is a time dependent product. From their white paper
For example, a debt instrument with a 5 year term paying 12% is effectively a smart contract that can be housed on the future Proof-of-Time Blockchain.
To define the roles:
• Company: Issuer of the debt
• Investor: Subscriber of the debt
• Debt Raise Goal: 10,000 DAY
• Interest Rate: 12%
• Terms: Balloon payment after 5 years • COM: Company’s token
• 1 ETH = 5 COM (I asked the team about this and they said that this is a mistake, it should be DAY)
The Company launches their Proof-of-Time token to help raise & pay their crypto debt via the issuance of a smart contract. When an Investor sends DAY to the specific receiving address the Investor in return receives the Company’s token COM. Investor A sends 200 DAY and receives 1,000 COM.
Chronologic’s Proof-of-Time technology automatically identifies the sending address as a TimeMint and additional COM tokens are produced as interest accrues. In order to pay the debt back the Company needs to send back the respective amount of DAY borrowed plus the additional amount accrued.
Interest payments can also happen automatically by the receiving address automatically sending from its DAY balance the respective interest payment to any addresses holding COM. Because of the interconnectedness of the blockchain, investors can trade COM between each other and repayment then happens across the network depending on who holds COM.
What they are focused on creating is the structure for the proof of time concept. However, I think there are several issues which need to be answered before I can see this being a viable debt instrument investment.
First, how do you create the legal structure necessary to protect the rights of the investor once the COM (for clarity I’m going to using COM here to represent the issuance token). Defaults are an inevitability in any business. Modern bond issuance has been built on a robust legal framework which fully protects the rights of the bondholders. When bankruptcy occurs, bondholders are distributed remaining assets first, guaranteeing them (at least part of) their investment. How would owners of the COM coins enter into a legal contract with the issuing company? Especially if the debt issuance is distributed, which they make clear in the above summary that it can and will be.
I asked the team about legal recourse to COM coin holders in case of a bust, however, they have not gotten back to me with an answer.
Second, if you have long dated contracts, the volatility of the market value of DAY could have a consequential effect on repayment. In case of a price increase, the COM issuer would have less incentive to repay their debt. If the initial value of the debt is 1000 DAY = 1 mil dollars, why would the company pay back debt if the market value of 1000 day = 10 mil dollars?
Third, the Chronologic group said that interest rates would be set by the market and that in the future, rating agencies such as Moody’s would disappear. I don’t agree with them here, as there will always be a need for company analysis and debt pricing to be done. Second, when your dealing with traditional fiat currencies, there are several established methods to determine added risk and discount it into the overall rate. With a volatile crypto currency where price fluctuations could screw with debt in ways which I mentioned up above, the discount rate skyrockets in my opinion.
I’m very skeptical of the usage of DAY in bond issuance.
However, I think there are other uses outside of this, such as their transportation example they give, when in the case a train or plane is late, tokens would be issued to customers at a rate determined by how much time has elapsed. They long the delay, the more tokens are issued. The token don’t have to have a monetary value, but rather can act as a credit for the company’s store or used in the next fare purchase.
In this case, the “issuing” company’s tokens have an arbitrary value and would exist only with their ecosystem. If the company needed to discontinue the program, they simply cancel all of the coins and the holders of them would have no legal recourse because their issuance and destruction would be fully controlled by the company.
There are many other cases where the use of this coin could be integrated into existing company structures. Amazon could offer free points for late packages or pizza restaurants could offer points for late delivery.
So, to sum up, in an unregulated environment, I think there is ample room for this coin architecture to be used. However, once regulated products enter the equation, I think there is much less room to maneuver. There may be a way to build a legal structure on top of the token, but at that point it would have to become a regulated product itself, which hampers part of its value.
Check out the White Paper yourself
What uses can you think of this having? What other problems did I miss? Let me know.