First up, when I see pictures like the one below I instantly become skeptical.
At this point, the coin bubble has reached new heights, TMT Mayweather legitimizes ICO’s, at the same time that the SEC released guidance stating US securities laws “may apply” to Token sales. It’s the dawn of a new day really. I was just a kid during the dot.com boom, however from what I have read, there are many similarities in the rush of companies to get to market and the use of major celebrities to shill their product. In fact, there is a long history of sports celebrities endorsing online gambling and its negative effects on society.
However, the online gambling market is massive, topping $35 billion in 2017. There are many, many Bitcoin and altcoin gambling sites which have ICO’d already and there is huge demand for it as regulated gambling is banned in the US at the moment. This is the niche Stox.com is trying to fill with their new “open source, Ethereum based platform for prediction markets where people can trade the outcome of events in almost any imaginable category – sports, celebrity marriages, election results and even the weather.” The design is not that of a true gambling site, where the odds are set by the bookies, rather, the crowd has the power to determine the probability of an event occurring. For example, in the upcoming Mayweather-MacGregor fight, each user could buy or sell the probability to take “odds” of an event happening or not. If there is a 99% chance of Mayweather winning and he gets hit with a lucky punch, those who shorted the event would see a 100-fold return. In the lead up to the event, the probabilities change dynamically, allowing for traders to profit from swings in the supposed probability of the event occurring.
Before I dig into the Whitepaper, I want to cover some of the issues surrounding the company, its creation and history. All of this information was pulled from this great post on Reddit by user burningpet. Stox.com is a subsidiary of invest.com, which is not to be mistaken for the financial news site Investing.com. Originally, Invest.com raised 20mil to create an online social trading platform similar to Etoro, before they pivoted to creating their current prediction market platform. Prediction markets are not new, Predictit.com has been around for many years, as a real money binary options gambling site. Invest.com’s initial trading platform bombed, they had to fire 30 staff members because they couldn’t maintain revenue and their self-reported 50mil turnover was really just a few mil.
The turning point came when Invest.com purchased Israeli binary option site AnyOption.com for an undisclosed sum and retained their database of customers and where given shares in Invest.com. Invest.com then claimed the trading volume of the former as their own. AnyOption.com had destroyed their reputation by refusing to pay out investor funds. From the article:
Tali Yaron-Eldar, Israel’s income tax commissioner from 2002 to 2004, in 2007 founded eTrader, a binary options firm that targets Israelis, along with Shay Ben-Asulin, who also co-founded AnyOption, one of Israel’s largest binary options companies with revenues in the tens of millions of dollars. In 2011, Ben-Asulin was indicted by the United States for securities fraud, and last month he was convicted of fraud by an Israeli court for helping an Israeli credit card company, ICC-CAL, illegally clear billions of shekels of charges from porn, binary options and gambling websites, as well as conceal the number of canceled transactions.
Given all this, I don’t think Stox.com is a scam. However, by investing into Stox.com your are rewarding a convicted tax evader, scammer, and a person who I would never invest money with. Stox responded that Mr. Ben-Asulin owned no shares in the company, however, they failed to provide any documentation or proof of this claim.
Looking past the governance of the company, lets dive further into the whitepaper.
Wait. No. There is one other major issue to deal with before all of this and that is regulatory compliance. Similar online platforms have appeared in the past, only to be shut down by the DOJ/FBI. Online gambling is illegal in the United States, who defines it as the following:
“(1) Gambling.—The term ‘gambling’ means any legalized form of wagering or betting conducted in a casino, on a riverboat, on an Indian reservation, or at any other location under the jurisdiction of the United States. Such term includes any casino game, parimutuel betting, sports-related betting, lottery, pull-tab game, slot machine, any type of video gaming, computerized wagering or betting activities (including any such activity conducted over the Internet), and philanthropic or charitable gaming activities.” (Highlighted for emphasis).
The decentralized nature of the platform though could serve to make compliance easier, but this is an unknown right now. In the whitepaper they write:
“It is yet unclear how this activity is treated from a regulatory viewpoint. In the past, certain prediction markets were treated as financial activities as they predicted financial instruments and the regulator treated it as futures trading. It is clear that financial predictions will continue to be monitored by financial regulators, however it is not certain how other predictions such as political events, product releases, etc.. will be governed, especially in a decentralized world and whether such activity will be captured by online gaming regulations. Stox is committed to following all required regulations.”
As an investor, you need to be aware that Stox.com could be shut down at any time in the near future. I would even wager that after the Mayweather post, US authorities are definitely taking a look into the legality of Stox.com. At the moment there is no guidance, but expect it to be issued soon.
If they can keep the site up, it could be a very profitable business model. The before mentioned site Predictit has over 29,000 active traders with 9.4 mil in revenue in 2017. The platform is limited to $850 bets and a maximum of 5,000 participants per prediction. Another example is SMarketsit who almost doubled its trading volume between 2014 to 2015, increasing its pre-tax profit by 1,568%. These companies are limited in their scope, Predictit primarily focuses on politics and SMarkets on sports. Stox will cover any topic a person wants to come up with and hopes to eclipse these two services.
One of the more interesting parts of the Stox platform will be its ability to act as a platform for other decentralized apps. This way a provider could customize the user experience and release their own app using the Stox blockchain system. Additionally, operators (third party sites) can create prediction events, promote and act as the market maker for them. Stox will actively promote affiliate marketing and compensation to those who bring in new clients, similar to other forex and binary options brokers, called their “syndication mechanism.”
If the company can stay open long enough, I think it will be able to reach its roadmap’s milestones within the next year or two. These include development of the Stox platform, releasing an app, launch with Invest.com’s customer network and an ecosystem member SDK, allowing for third party apps to be launched on the Stox platform.
The hard cap for Stox is set at 30m USD. More than 50% of the raised capital from the ICO will towards employee expenditures. The previously stated roadmap requires very code heavy development and will be pricey. Marketing costs (like paying for more IG posts) will comprise 20% of the budget and the JV affiliate program will require 15%.
Only 50% of total tokens will be available during the pre-sale and ICO. The other 50% will be divided between Invest.com, the Stox team and Stox Ltd. After ICO, 4% of raised capital will be kept in Bancor (BNT) as a reserve for liquidity reasons.
Stox will operate as a market maker using two variants:
- Liquidity-Sensitive automated Market Maker
- Standard LMSR
This system is already in place with Augur, a competing prediction platform. More about this type of market making and the theory behind it can be read here.
Prediction markets have existed for sometime, however, what Stox will bring to the table is its decentralized platform which will be able to customized by third party developers to create Dapps. They will seamlessly be able to integrate with the underlying blockchain system and facilitate the creation of many different apps using prediction markets for different purposes. I’m sure the prediction data will be sold as well on the back end to researchers and other big data companies. Looking past the cringe inducing IG post (hopefully Mayweather gets knocked out for it) and their shady past, Stox could wind up being one of the big ICO winners of 2017.