Experiment Series — Note 1

Content not to be construed as a solicitation or offer. None of the material presented here is to be construed as a solicitation, recommendation, or offer to buy or sell any security, financial product or instrument.

The analysis was compiled from desktop research into online reports, news media, video interviews, and social media communications platforms.

While the discussion below presumes some knowledge of blockchain technology, the later sections provide additional context to assist with the understanding of this investment sector and cultural movement.

Introduction

VEVE is an app-based, digital collectibles marketplace, asset wallet, and investment system. It is owned by ECOMI, an early-stage company registered in New Zealand with a head office in Singapore and regional offices in Auckland, Taipei, and Shanghai. In order to raise start-up capital, ECOMI launched the OMI coin in 2018 and raised US$10 million via an initial coin offering. As of 15th April, the OMI coin price is US$ 0.008295.

This experiment note provides an outline of the market, business model, and product development roadmap for VEVE and the OMI coin. The note concludes that the current OMI coin price is significantly undervalued given product development milestones and market tailwinds. The OMI coin is a solid entry point into a business that is 2–3 months to market and looks poised to take full advantage of the significant opportunity ahead of them.

Experiment Idea

The OMI coin price as of 15 April is US$ 0.008295 with a 24-hour trading volume of US$23,166,727. From February 2021, it has traded up approximately 1,605% from US$ 0.0004908. At fractions of a cent, the share price is substantially undervalued given the market headwinds and business milestones the company has achieved to date.

VEVE has already onboarded over +260,000 users[1] and is currently sitting in the top 4 most downloaded entertainment apps in the global markets and in the top 10 in the United States. Collectables are released weekly. On the recent drops of collectibles, VEVE has sold 20,000 editions in 20 minutes.

In the calendar year 2021, VEVE generated over revenue from marketplace commissions and In-App Revenue (IAP). NZ$2.5 million of this revenue was from in-app purchases. As a comparison, Epic Games (the developer of Fortnite, a computer game that is played by 125 million players worldwide) saw monthly revenue of US$40 million on the back of IAP when it was launched.

Artafakt’s View

Our view is that the OMI coin is underpriced at US$ 0.008295. This is due, for the most part, to information and communications efficiencies in a market that is exploding with new headlines each day.

For economic comparison, the $Whale coin, representing fractional ownership of a bundle of NFT assets valued at US$ 42 million (see linked audit) is currently trading at US$ 26 dollars.

If the underlying business value of VEVE increases, driven by user monetization from trading commissions on licensed content and In-app Purchases, OMI’s valuation should continue to rise, driven by the utility of a coin within an engaged stakeholder group.

[1] According to the company in video interviews. Active user count is not public

Experiment Thesis

ECOMI: A NFT-assets wallet, collectibles marketplace, and investment system.

ECOMI is an early-stage company registered in New Zealand with head office in Singapore and regional offices in Auckland, Taipei, and Shanghai. Previously, ECOMI developed Secure Wallet, a means of storing cryptocurrencies and assets. Secure Wallet was one of the only cold storage (offline and secure) hardware devices on the market. After a first-round fundraise of venture capital and private investment, ECOMI eclipsed NZ$7 million in their first valuation.

Beginning with the Secure Wallet, ECOMI has expanded its vision to build one of the world’s best digital collectibles platform, VEVE. As a mobile app, VEVE offers premium, licensed, digital collectibles in an entirely new way. The technology is unique — 3D Augmented Reality art and collectibles. Collectors can superimpose them in real life, record videos, or take photographs of them in their environment. Collectors can also share purchases in-app or on social media creating an inbuilt viral marketing loop.

Coupled with Secure Wallet, the company is poised to revolutionize the way consumers will buy and distribute collectible content and digital art.

Since founding VEVE 3-years ago, the ECOMI team has developed (1) a stable product, (2) robust supporting tokenomics[1], and (3) major licensing agreements with some of the biggest brands in the entertainment industry including, DC Comics (valued at US$3 billion), Marvel (valued at US$$4 billion) and Paramount Group (valued at US$2.3 billion), amongst many others. These three factors are analyzed in more detail below:

1. Stable Product

Critically, because NFT’s are a store of value, they rely on a secure system to store that value online. ECOMI has already committed significant capital and resources to develop Secure Wallet. This development is consistent with other NFT marketplaces. Nifty Gateway — a popular NFT art marketplace owned by the billionaire Winklevoss Twins — offers wallet solutions via their parent company, Gemini, for example.

Early user adoption for VEVE is positive. For the first few months of the app’s lifetime, it saw little to no action. Then, from mid-February through March 2021, the app increased downloads by over 5,000% and daily active users by almost 50,000%. Having been downloaded 100,000 times in a little over a month, VeVe appears to be the largest NFT marketplace on mobile.

2. Supporting Tokenomics

In addition to successfully launching the VEVE platform, ECOMI has built robust Tokenomics to fund the growth of the business and incentivize positive behavior with stakeholders (such as artists, licensors, collectors, and investors). The OMI coin is a utility coin that is used as a medium of exchange when a user buys, sells, or trades their digital collectibles on the VEVE platform.

In order to raise funds and begin building VEVE, the OMI coin was sold in a private/pre-sale investment round, and to the public through an initial coin offering (ICO). VEVE’s ICO sold out a NZ$10 million round in 12 hours. 50% of tokens were purchased within the first 5 minutes of buying before demand overloaded the ICO exchange hosting the offering. Current ownership of the OMI is distributed amongst the ECOMI team, industry partners, and early investors, with a maximum of NZ$250,000 OMI allocated to each individual stakeholder.

3. Global Licence Agreements

ECOMI has spent 3-years developing over 100 licensing agreements to produce trademarked collectibles with a variety of blue-chip entertainment brands. These include DC Comics, Marvel, and Paramount Group to name a few. DC Comics alone owns numerous culturally iconic heroic characters, such as Batman, Superman, and Wonder Woman. Batman is the most licensed of DC Comics characters and makes the company over US$500 million in retail sales annually. There are multiple, licensed versions of Batman in existence. Consistent with a strategy to limit supply (and therefore increase organic demand) VEVE has recently launched a black and white series with 26 individual characters.

The possibilities to monetize these licenses across multiple brands and iconic characters are numerous. The licensing agreements are confidential but it’s clear that the licensor stands to make a percentage of primary market sales. Licensors are therefore incentivized to leverage their significant marketing resources to drive thousands of potential artists, collectors, and investors to VEVE in search of the next digital Batman or Superman NFT. Furthermore, a unique aspect of blockchain technology allows a licensor to earn a percentage of sales in the secondary market in perpetuity.

This is only the beginning. As more artists join the party to launch their own collections, entirely new forms of collectible expression will emerge and artists will begin to build global brands themselves.

ECOMI Team

ECOMI is led by David Yu.

David is an experienced business builder, having established his first business at 17 years old. In 2004 and 2008, David was a finalist in the Ernst & Young New Zealand Entrepreneur of the Year award. In 2006, he founded Retail Management Group which earned 12th place in the 2014 Deloitte NZ 50 Fastest Growing Companies. Importantly, over the last 20-years, David has worked creating collectible licenses for globally recognized brands. Through prior experience, he has developed relationships with major entertainment companies and was instrumental in licensing Pokémon for the Australasian market. Pokémon is a US$15 billion digital character franchise.

ECOMI has two other co-founders, Dan Crothers and Joseph Janik based in Auckland, New Zealand, as well as a small core team of about 6–8 people. Head of Global Licencing is Alfred Kahn, a veteran American executive with deep knowledge of the acquisition, production, and licensing of entertainment assets.

Responsible Investment

Like most businesses operating in the wider creative sector, NFT platforms have a negative impact on climate. Every transaction on blockchain networks using a Proof-of-Work consensus protocol consumes significant amounts of electricity, linked to greenhouse gas emissions — a key driver of climate change. Over 90% of NFTs are currently minted[2] using the Ethereum blockchain, which is the worst offender from a climate perspective.

VEVE operates using blockchain technology that is >99% more energy-efficient than Ethereum. On March 18, VEVE announced plans to become the first carbon-neutral NFT platform, beginning with a commitment to offset 100% of the carbon footprint caused by the minting of NFTs, negating the environmental impact caused by distributed ledger technologies. Furthermore, ECOMI has allocated a significant proposition of OMI coin/token to offset the cost of designing and producing NFTs for fundraising efforts by environmental non-profits.

Risk Mitigation

1. Crypto Market

We are currently in a cryptocurrency bull market. Cryptocurrencies are an inherently risky investment class, subject to extreme volatility. We can expect any market correction in the near term to flow down to affect all other digital assets, including NFTs. However, Cryptocurrency coins that are not just a store of value (like Bitcoin) and have utility (like OMI has with participants in the VEVE marketplace), are likely to bounce back fastest. This is because organic user growth of VEVE, via the marketplace, drives base demand for the underlying coin. In this scenario, VEVE will have to focus on creating a unique collector experience as the value proposition of VEVE shifts to how the app enhances how the collector interacts and engages with his collection on an emotional level for entertainment.

2. Non-exclusive Licences

NFT market chatter suggests that some of these licenses are non-exclusive. In one instance, Paramount Group has signed deals with VEVE and Terra Virtua, a competing marketplace, based in the United Kingdom.

A critical competition factor will be which company can scale marketplace adoption fast enough to demand better terms when negotiations of licenses. We have seen this recently with Spotify, where their scale to distribute music to 155 million users gives them leverage when negotiating royalty percentages with the biggest music labels in the world.

3. Counterfeit collectibles

Anyone can make a digital collectible. In fact, comic book artist José Delgo was involved in the creation and sale of a Wonder Woman NFT collection that netted US$1.85 million in March 2021. This collection was not licensed by DC Comics. Interestingly, these counterfeit sales figures have resulted in brands like DC Comics coming to the table and deal with VEVE, as they would rather work with VEVE and produce authenticated collectibles, than have counterfeit collectibles permeate through NFT marketplaces worldwide. A recent statement from DC Comics reads “We expect that participation of DC’s freelance talent will be an integral component of any NFT program that DC Comics puts into place.”

3. Competitors

VEVE has possibly 2–3 direct competitors. Terra Virtua, as mentioned above, is the main one and has closed a US$2.5 million investment round that was 5X oversubscribed. Terra Virtual has released NFT collectibles of blockbusters movies like The Godfather and Top Gun. Terra Virtua’s coin is called TVK. TVK is currently trading at US$ 0.619. It has traded up 1760.7% from US$ 0.0033 in December 2020.

While the market has space for more than one marketplace serving different entertainment brands and creative niches, VEVE is well-positioned to compete in the near term with a superior product, consumer experience, and long-tail list of signed entertainment brands and their collectible characters.

[1] Tokenomics is the economic theory of how cryptocurrencies work within the broader ecosystem. This includes such things as coin sale and distribution, as well as how they can be used to incentivize positive behavior with stakeholders.

[2] Minting is the process of creating an NFT on a blockchain, making the asset unchangeable and tamper-proof.

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Artafakt

Artafakt

A digital assets fund that specializes in identifying early-stage projects at the intersection of decentralized finance and the creative economy.