Two months ago I received a call from a good friend of mine, who told me that I needed to be in Hong Kong in 3 days. I was in. My wife and I packed our bags and we boarded a plane not knowing what the ICO was or what was in store for us. The ensuing craziness of the weekend was fun to say the least. We jetted around on helicopters, sang high class karaoke and ate more food than I ever thought I could. The theme of the moment was Dragon Coin.
Dragon Coin is a credit system for gamblers and will be the only coin accepted by the Macau Junkets.
First up, a Junket is an independent gaming house. In Vegas, there is only one entity, the hotel or the casino, which controls all of the games. In Macau, centralized gaming houses are banned, meaning that smaller independent gaming houses, aka Junkets, are the ones who facilitate the games. More so, they providing “staking,” or taking the other side of bets, for high rollers who come to the casino. If I want to bet $1 million, someone needs to take the other side of the bet in order for it to occur. This is the service the junkets provide.
Currently, if a rich Thai businessman like Dragon CEO Chris Ahmad wanted to take $1 million to gamble with in Macau, there would be several issues. Cross border transfers of large sums of money into Macau are not so simple as going to a bank and setting up a wire. Instead, Chris would use a credit providing service in Thailand to front the money for him in Macau. He wires his cash to this company and when he arrives to Macau, a similar amount of funds are made available when he arrives. The problem though, is that the fees for this credit service are 5% each way. So that $1 mil is only 950k by the time it arrives in Macau and close to 900k when it comes back to Thai after the trip is over.
The credit providers make a killing with this business model. According to the numbers “total Gross Gaming Revenue (GRR) for Macau … can be estimated to be between $2.49 billion to $3.3 billion USD monthly,” and “VIP gaming accounts for 50% to 57% of the GRR. This makes VIP gaming revenue between $1.42billion to $5.79billion USD monthly.” In comparison, Vegas accounts for only 900 million at best. If this much capital is coming into Macau every month, think of how much the middlemen are making and, of greater importance, how much misallocated capital the casinos are losing.
One thing the blockchain does really well is disintermediation, which is the process of cutting out middlemen. Dragon Coin will allow VIP clients to directly send their DRG tokens to the junket, paying only .5%, a tenth of the cost. Based on the above data, if the entirety of Macau was to switch to Dragon for credit provision, they would be able to increase their revenue by 500 mil to 1 billion monthly.
Dragon, by its own account, is going to be a brand new junket. All of Macau won’t be using their token at first. They are going to have to carve out a space for themselves and attract new crypto based clients to their gaming rooms. However, if they can capture 2% of the market in the next year or so, would bring them around 50-150 million in turnover daily, putting them into the top 30 cryptocurrencies globally. I don’t think that Macau is going to switch over fully to crypto in the next decade or two, but I do believe that Dragon can take a piece of the market share due to the cost savings.
The hard cap for Dragon Coin is 420 million, which could be seen as a lot in this environment.
But in reality, as Dragon is a new junket, they need funds to be able to provide the credit service. For every dollar they raise, they will be able to leverage it up to 2.5 times. Thus, if they raise 420 mil, they can lend out 1.05 billion to gamblers. The more the raise, the more they can use for daily operations. 83.3% of the funds raised will be used for this purpose. Operational costs will only be around 35 million in the first year.
When Dragon Coin launched, a ex-con triad gang boss was prominently featured during the signing ceremony. I actually got to meet the guy, Broken Tooth, who served 14 years in prison for illegal gambling, loan-sharking, criminal association, and the attempted murder of Macau’s chief of police. He was pretty open about the casino’s and said that it was naïve to think any casino was completely “white.” Living in Russia it’s not hard to see the truth in this. But for a lot of Westerners, this could be hard to digest.
Chris later denied any connection between Broken Tooth and Dragon, stating that “He came to the event introduced by someone else as a prominent figure in Macau… He is not involved in Dragon and he is not financing Dragon in any way.”
As an advisor to the project, Dragon has come a long way from where it was 2 months ago. I can say that Chris and the rest of the team are committed to providing a real solution to the issues I listed above. They have listened to the blockchain community and are working to ensure that their system is fully legal in the eyes of the regulators.
I hate to use the word disruption, but these credit provision services are done right now with SMS. A switch to crypto would be a lightspeed boost forward. Plus, it would these transactions onto a permanent record where a full record of funds transferred could be audited by third parties.
I’m fully aware of what happens in Macau and the seedier aspects connected with gambling. However, Dragon is a step forward in the right direction towards greater openness and transparency for the industry.