Dragonchain advocates a hybrid blockchain model, is raising funds through an ICO

The creators of open source blockchain platform Dragonchain are looking to build a commercial business to help other companies quickly and easily start using blockchain. To back up its new commercial venture, Dragonchain is raising money through an initial coin offering (ICO).

Blockchain technology has the potential to underpin a wide variety of transactions without the involvement of trusted intermediaries. Originally built at Disney, Dragonchain promotes a hybrid blockchain platform for business use, leveraging AWS Lambda and powered by Dragons (tokenized micro-licenses).

The 451 Take

Dragonchain's technology is based on Disney's real-world experience, which could help it gain support among investors, although Disney itself isn't involved in the company or the ICO. The company claims that it already runs about 10 solid projects on its platform. The DragonFund project incubator can help the company spur usage of its platform and establish credibility. Its hybrid approach and promised interoperability with other blockchains may be a differentiator, but how the company will make money is unclear at this point. Blockchain itself has potential as a foundational technology to underpin a variety of different intraparty transactions. However, token offerings represent an unregulated and overheated market that seems to be growing well ahead of blockchain's business applications, and there is a lot of experimentation in business models and product development in a background of market volatility.

Context

Dragonchain is an open source blockchain platform originally developed by Disney as the 'Disney Private Blockchain Platform' in 2014-2016, driven by the requirements of its ticketing systems and loyalty programs, and with a significant focus on data privacy. The code was made open source in 2016. Soon after that, former Disney employees created the nonprofit Dragonchain Foundation to manage and maintain the code.

The Dragonchain team is now looking to build a commercial business – Dragonchain Inc. – with the aim of helping other companies to quickly and easily start using blockchain. Dragonchain is a Delaware corporation founded this year by Joe Roets (CEO and one of the engineers behind the original project) and George Sarhanis (chief business officer). The company currently employs about five people and works with a number of contractors – a team of 15 people in total, including the founders. The company has also announced the establishment of an advisory board consisting of professionals with expertise in blockchain, finance, interactive media and entertainment, security, and software engineering. The main goal of this new venture is to help other companies build secure blockchain applications using Dragonchain.

Strategy

According to its creators, blockchain expertise is not required to start using the Dragonchain platform. They describe Dragonchain as a hybrid, where users keep some of the data private and some public. Disney originally built the project as a private blockchain, but according to the Dragonchain team, a hybrid model offers more benefits in terms of authenticity. Its architecture is designed to allow nodes to handle the approval of transactions based on five levels of network consensus (context-based verification) depending on the characteristics of the use case, providing a spectrum of trust for users. Another key differentiator from other open source blockchain platforms, such as Hyperledger and Ethereum, appears to be its built-in capability to interact across the various blockchains. One framework or suite of protocols that addresses the interoperability issue is Interledger, although that is specific to payment networks.

The company has revealed plans to release a serverless blockchain platform (based on AWS Lambda) that is designed for business use, in addition to the launch of a project incubator called DragonFund (as a separate commercial entity) that will support startups and entrepreneurs in developing and deploying applications using the Dragonchain platform. The rollout of the full production platform and project incubator is scheduled for 2018.

Being a creation of Disney (although Disney has no involvement in the company), the platform could see special interest within the entertainment industry; however, according to the Dragonchain team, the platform was designed for use in a wide variety of use cases, and its use is open to all sorts of businesses. The team claims to already have about 10 solid incubated projects. Named users include LOOKLATERAL, an Italian fine-art company that is using Dragonchain to create a secure way to authenticate and pay for art. Another startup is US-based lifeID, which is leveraging Dragonchain to build a secure platform that gives users control over their digital identities.

Business model

With this ICO, Dragonchain is looking to finance the launch of its commercial venture and the ongoing development of its platform. Dragon tokens are not currencies, and will not represent shares in the company that they are used to finance. The Dragonchain team describes Dragons as tokenized micro-licenses that will be used to interact with Dragonchain's commercial platform services. For example, when users want to launch nodes, provision smart contracts or access the DragonFund dashboard, they will be able to do that in exchange for Dragons. Dragons will also be used to reward individuals running public or private nodes for network consensus, and to incentivize developers to contribute to the open source project, according to the company.

Dragonchain's ICO documents are sparse, consisting of 15 pages of architectural specs, a 15-page business plan (using the term generously) and a short slide deck. They contain few details on the offering (no proposed price) or details about Dragonchain Inc., the supposed beneficiary of the offering. A vague business plan, vision statement and a list of 15 team members are the only data about the business. No address, auditor or financial data is given. There is no word about lock-up requirements for the team, who will own a combined 20% of the tokens.

According to the Dragonchain website, Dragon tokens will be distributed as follows: 55% are offered for public sale, 20% are distributed among team members, 10% will be made available to the Dragonchain Foundation for the development and support of the open source code, 10% will be kept as a reserve by Dragonchain Inc., and 5% will be made available to the DragonFund incubator. In total, a fixed quantity of 433,494,437 Dragons will be issued. Early supporters can buy Dragons until November 2, using Bitcoins (BTC) and Ethers (ETH). Every supporter is treated equally, meaning that there are no discounts offered.

The value of a Dragon has not been arbitrarily determined by the startup team, as in the case of the Ethereum ICO, where the initial price of Ether was set to 2,000 ETH per BTC (which linearly dropped to 1,337 ETH per BTC at the end of the ICO). The value of a Dragon will depend on the funds raised during the ICO – the more the funds, the higher the value. According to the company, Dragons will be tradeable after the ICO, given that not all Dragon holders will necessarily want to use Dragonchain services, and some may see this exclusively as an investment that could generate gains in the future.

How the company will make money is unclear at this point. It will likely charge a fee on top of every interaction (e.g., when a user launches a node or a smart contract) and the services provided by the DragonFund incubator (which will likely be a separate entity).

Competition

Dragonchain's biggest competition is currently Ethereum, a blockchain platform that supports open source code and smart contracts, and upon which decentralized applications can be built and deployed. It is used as a foundation for several other blockchain startups and vendor blockchain offerings. Chinese open source public blockchain project NEO is also on the company's radar.

The Hyperledger project is a global collaborative project hosted by the Linux Foundation that focuses on advancing cross-industry blockchain technologies. Hyperledger Fabric is a modular, open source platform for building and running permissioned, scalable blockchain applications. Large IT vendors such as IBM and Oracle have launched their blockchain-as-a-service offerings leveraging Hyperledger Fabric and using their clouds.

DragonFund, in particular, competes with blockchain accelerators and incubators such as the IBM Blockchain Accelerator, Block Chain Space, Blockchain Trust Accelerator and ConsenSys, among others.