Getting Enterprises to use Blockchain with Ivan Golovko of LTO Network - Ep. 15

Bobby Ong (00:02):
Welcome to the CoinGecko podcast. I'm your host Bobby Ong. Each week we will be interviewing someone from the blockchain industry to learn more about this fast moving crypto currency economy. If this is your first time listening, then thanks for coming. The CoinGecko podcast is produced each week to help you stay ahead of the curve. Show notes can be found at podcast.coingecko.com. I highly encourage you to join our newsletter where we send out top news in the crypto industry every Monday to Friday. Come back often and feel free to add the podcast to your favorite RSS feed or iTunes. You can also follow us on Twitter and Telegram at CoinGecko.

Bobby Ong (00:39):
Welcome to the CoinGecko Podcast. For today’s episode, we would love to welcome Ivan Golovko, Chief Marketing Officer at LTO Network. LTO Network is Europe’s leading hybrid blockchain platform with GDPR compliance. It’s driving forward new standards for data security and collaboration, supporting B2B and enterprises with easy blockchain integrations. A little bit of introduction for Ivan before we jump in. Ivan joined the crypto space in 2017. He was previously the CMO of ICODrops and later worked with VCs on deal flow and research. In mid-2018 Ivan joined the LTO Network as the CMO. Welcome to the CoinGecko Podcast, Ivan.

Ivan Golovko (01:15):
Hi, Bobby. Thanks for having me.

Bobby Ong (01:15):
Yea, it's very great to have you on the show. I think for the first question right, maybe can you explain to us what is LTO Network to our audience here at CoinGecko - what it does, how it got started and some of its business model, for example?

Ivan Golovko (01:15):
Yeah. So to get a bit into history, LTO started not as a blockchain project but as a normal real world company. So it was doing CRM systems, document engine stuff, and they just customize use cases for B2B back from 2015. And while it grew with the real world client base, it understood they have problems like with the data exchange and data security that after experimenting the Bitcoin and Ethereum, ended up being its own blockchain, the hybrid solution. So what it now do, and it's still actually evolving is that now we do process automation, workflow automation, data security, like timestamp and digital signatures, timestamping workflow steps and the flows in the data exchange for instance. So that has been our bread and butter building those use cases for companies for the past two years. And actually we are adding / removing some things and upgrading in the next month. So would also love to tell you about that, yeah.

Bobby Ong (02:26):
So what sort of businesses that are currently using LTO network? Yeah. Maybe you can explain like maybe a couple of examples of businesses specifically using LTO network and some of the use cases of it.

Ivan Golovko (02:38):
So I think the most meaningful use cases to the audience would be digital signatures timestamping. So services like a DocuSign, for instance. When you sign the documents, sometimes you have the problem of trust. You want to actually validate it from both sides from the deal concerns a lot of money or a lot of the operational overhead there. So we had a company SignRequest, which is a competitor to DocuSign in Europe. They're doing exactly that. Because as you know, DocuSign was trying to do it on Ethereum. I don't know if they ever launched actually properly. Not sure. But SignRequest is the main apply for LTO. So that's digital signature. The other company is kinda a SaaS solution for let's see, waste shipments.

Ivan Golovko (03:19):
So when you have a shipment of waste, it's a supply chain process. The supply chains are very understandable to people because, you know there are a few parties involved, a few steps and they all has to follow the procedure and the guidelines. So that company automates the workflows and the steps in a centralized way. And we timestamp it. So again, just timestamp in a very basic way, what you call anchoring. Bitcoin has been doing it for quite a while. And that has been one of the most meaningful use cases for B2B in blockchain in general. Apart from of course, DeFi and asset trading. Yeah. What else could I mention? Just general data exchange. So for instance, if you have a company that does KYC procedures and you want to upgrade to a more secure and efficient way for data reuse, that's also another way to add there with the blockchain. So there you would be using the other part of the hybrid solution for the data exchange and it would be more in a P2P manner.

Bobby Ong (04:15):
It's a lot of these time-stamping elements. It's like you mentioned like DocuSign but instead of building on a centralized database and all, you kind of timestamp and put it on a blockchain so that we know that this is tamper proof and verifiable on a blockchain and its docking on the LTO network. Yeah?

Ivan Golovko (04:29):
Yeah. Tamper proof is a good word of that. Because essentially why do we see many use cases failing in the blockchain is because of course the space is still new. I mean, people have been saying this for five years, but it's still new. Have to accept it. People just try different stuff. However, if you look at the blockchain, what are the basic features? It's a self custody, right? So you can control when it comes to asset trading or it just a permissionless database which cannot be tampered with. So if you look at the very basics of the blockchain from that perspective, time-stamping the digital signatures, any steps, it's just cross verification, cross authenticity basically, for everything you do. Yeah. So from our perspective, we provide the infrastructure for that. But any company having a centralized service can all support them. And that's the advantage of LTO because you don't have to rebuild your entire infrastructure, your database or your company based on how the blockchain works. You can just port different things to the blockchain for anchoring or for data flow exchange. And then you would get the benefits of the blockchain. Yeah.

Bobby Ong (05:30):
So based on my reading and all, it seems like LTO network is like a permissionless blockchain where it's aimed at business sector and has some permission aspects. So some parts are open for all and some part requires a permission. I guess this is what you mean by the hybrid blockchain. I guess my question is, how do you guys build the permission part into LTO, where certain data can't be shared with others but only certain permission individuals, certain permission participants? How does the hybrid permissioned-permissionless system work in LTO?

Ivan Golovko (05:57):
Yeah. Good one. Basically what you want from the timestamp is that you want to make sure that the steps of digital signatures that happen, they will be validated by the permissionless network. See there is a network of nodes, right? But instead of one node where you would have a permissionless network, which is accessible to everyone. So that one has to give permission. There is no point in building some group authority system, because then it just completely invalidates the idea. But when you talk about data exchange, you are immediately concerning GDPR and the privacy. So some networks try to build it with encryption. So for instance, you would even upload your documents to blockchain, which I don't know why you would ever do that, but some tried it, you know, and then they will encrypt it. First of all, it's very expensive, costly, and very cumbersome to do. And also it's illegal from GDPR perspective because encryption is considered to be pseudo anonymization. So what I realized is that we want agents, meaning any actor or any company, you can refer to in different ways.

Ivan Golovko (06:54):
They have control over the data they share. So for instance, let's see we have a supply chain process with you and two other parties, we will build a small permissioned network between ourselves but without anybody else governing it. So you can compare it to consortium chain but the difference is that nobody would control it there while consortium chains are controlled. So the exchange of information of the data itself would happen in a P2P manner. But then you would ask like, what's the difference with the normal centralized system, right? Because of this PTP manner more less. And there are only four parties, why not have it centralized? The thing is that we draw these security settlement features from the public layer. So for instance, we have a supply chain process. I sent a shipment to you, all the data, the documents can be seen by you or for instance, the other party, if they are in the right to do so. And then that step would be anchored on the blockchain. So you would hash the steps and timestamp them from there. So in that case, the data exchange is customizable and private, but the security is still coming from the permissionless layer. I think this is the model that Cosmos and Polkadot were also looking at as well but they're just not a B2B focused. They are still a bit more in the permissionless asset trading space but this is the model they saw them try to design as well.

Bobby Ong (08:09):
I think you brought up an interesting point about a centralized system and also a permissioned blockchain. So my question is why would a business want to use LTO network, which is a hybrid blockchain instead of one of the permissioned enterprise blockchain solution, such as Hyperledger or R3 Corda?

Ivan Golovko (08:25):
Good one. Again, good question, man. There is a saying nobody ever got fired for hiring IBM because when you hire IBM you are probably saved because you can always say, it's the auditor or it's the integrator who messed up. It's not us. So people delegate the responsibility. However, if you're looking into blockchain and you want to really draw the security and permissionless features, which so, why would you do it in the first place, right? Why would you use the blockchain? For instance, if you want your digital signatures to be more secure, it would make sense to use the blockchain. But of course your company has to be forward looking and experimental enough to actually try this, because it still new. And then if you're trying to timestamp digital signatures, for instance, if you use a permission network like Corda has or somebody else, then you're just putting another counterparty risk there.

Ivan Golovko (09:08):
So you just trust another set of validators who might even be your competitors. In that case, it doesn't make too much sense. That's from the architecture perspective. So the vision just doesn't align there. The other thing is the permissionless architecture in terms of how you can build it because in Corda, R3 and IBM, they have good solutions. But as those companies are structured, they have a lot of upsell, right? So you try to use it, but you have to pay for a bunch of software tools and stuff like that. So it's actually very costly to join it as well while we are like a more, not niche but the more, low entry barrier there. So a big company would likely choose IBM because they used the corporate structures, but some of the smaller companies and the ones who actually prefer to have division there would choose LTO or some other network that is more customizable and flexible. Think agility is important there.

Bobby Ong (09:57):
I guess two questions right, from here, with regards to timestamping where this is not exactly a new concept in the sense that people have tried to do timestamping, they have do certificate authentication on the blockchain and they mainly use the Bitcoin blockchain. Why use LTO network instead of just putting everything on the Bitcoin blockchain?

Ivan Golovko (10:15):
Yes. So that's a question we got from some investors back in the days, but it's actually easy to explain. So if you do it on Bitcoin, you're pretty limited to just anchoring. While the Delta network, we build the architecture in such a way that there are different modules that you can plug in and plug out at the same time but in an open environment. So if you start with anchoring, you can later improve and upgrade to data flow with the use of the same environment base. So in that case, you should see it as a more upgradable ecosystem there, apart from just doing anchoring. And I can also refer to fees being expensive, but I don't think people really like to hear that, right. I mean, it's very easy to say we are less, we are cheaper, but as a new network, which has less value, of course, you're going to be cheaper by default. And that's the same argument that the Ethereum team always make, right? Our fees are cheaper. Well that's because your value of the network is cheaper as well, is lower. So yeah, we try not to use that argument too much.

Bobby Ong (11:10):
The other question I have is in regards to, once you start doing data storage on the chain, right? Will it come to a situation where there's a blockchain bloat as well, and then there's too much data on the LTO network, for example?

Ivan Golovko (11:21):
Yep. So we don't do data storage actually on the blockchain. The data that you transmit for instance, documents, the data that happens in the more advanced chain style and on the PTP manner. And only the hashes, the anchoring happens in the public chain. So the public chain was forked from [inaudible]. Some features were removed and stripped down, some features were added but it's very basic there. So the public blockchain is the essential thing there. It captures all the value and all the usage, but it doesn't store too much data in it because it has to be light. And just perform its basic function, which is the decentralized notary for hashes and all the transaction types. And transaction types can be, for instance, we add a new ones, related to business identities and stuff like that, which are just a few lines of code and they're very light and simple. And that's the goal with that.

Bobby Ong (12:10):
So I understand with LTO network, there is a token, LTO Network token. And I believe you guys did an ICO sometime in January 2019. Perhaps can you share with us some stats behind LTO network and how the token got launched on multiple exchanges and your experience running it?

Ivan Golovko (12:24):
So we did an ICO in January 2019. Yup. It was a bit of a difficult one because that was the market downturn. I think Ethereum was back at $80-$90 then, which was like the bottom bottom of the market there. And while we realized that, we also saw an opportunity there because community members like to get in early. They like to follow the project and grow together with it. So lucky let's just launch in the more lean way. Let's try to build up the value from the bottom to get them the help of the supportive community members and it worked out so far. And it was working out further, which we are proud slash humbled with. Yeah, exchange list and so, since we had the mainnet from the start, even before the last stage of ICO, each of the exchanges are still low key reluctant to add mainnet though that required more security. They want more testing and actually more fees for that.

Ivan Golovko (13:15):
So we just launched a bridge to Ethereum right away. We issued a coin, we launched the network and then we issued the ERC-20 compatible token. And we had a bridge in between there. So you could be traveling there and back. And it made it very simple. I think a few projects after that picked up the same model. It does make it a little bit less secure because you have a bridge, right? So another risk factor, but it has been live so far for over one and a half years and there have been no issues with it. So I think projects are more or less content with the idea now that having the bridge and mainnet at the same time is okay.

Bobby Ong (13:48):
Basically the mainnet is life, there's LTO token on the LTO network. Mainnet and also you guys have a bridge and the ERC 20 version of the LTO network is the one that's being traded around all the exchanges at this point in time.

Ivan Golovko (14:00):
Yup. But recently we had BitMex and Binance also at the mainnet one. So we have actually a main net, We have ERC20 and we have BEP-2, Because at some point we got added to Binance X and we made a third chain. Yeah. So there is like a triple, a triangle of tokens here, but this applies the same. So if you travel from one side to another, it just becomes less on one side, more on the other. So there is no issue with the supply or anything.

Bobby Ong (14:25):
It's interesting that all this inter-blockchain connectivity thing is really happening now and we can start seeing it manifest, for example right now in LTO. How much did you raise in the LTO ICO? And also like your token price seems to have been on a roller coaster ride. I believe it started trading around like two cents, going up 10X around 20 cents and now it's probably hovering around 5 cents. How has it been like managing the expectation of the community? Because community always have insane expectation of what the price should be and how it should always go to the moon but obviously that's not possible. Just wanna hear your experience managing community as a CMO and how you do you manage all these things.

Ivan Golovko (15:00):
Yeah. This is especially a funny question for me yeah. So first of all, how much we raised? We had really very little raise, We raised over [inaudible] and crowd sale around $4.2 million, which of course by the time we raised already part is burned on the runway. But we have always been a revenue making company. So while we build use cases on our own blockchain, we are like into a third party integrator because we don't control the blockchain. We build use cases for other companies to basically pay for us in dollars. And then when they use it at the margin or they themselves buy tokens to pay for the blockchain, the transaction fees, which makes it a much more coherent business model than some of the utility tokens have, I would say.

Ivan Golovko (15:40):
So because of that, the raise was for us a boost, but it's not a long term sustainable thing as a company, because that has to come from revenue and for us, it has been good so far. Now about managing expectations. Yes. It cannot always go to the moon, unfortunately as much as we want to. And as much as everyone would want to. The initial hype, I would say was when, there was somewhat of an out season in February, March 2019, right after our launch. And of course, as this happens with many tokens not all of the supply was certainly to that. I think you see very similar thing to DeFi tokens now. I don't want to sound like bearish, but if the token gets only 2% of circulation at a certain moment, you cannot ever think that that's the total discovery there because that is likely going to change drastically, at least in the midterm. Longterm might stay. So who knows.

Ivan Golovko (16:29):
But after that, we had a period when we just building up use cases and then we got added to Binance X. And a few months later Binance approached us and said, "Hey guys, do you want to be listed?" They were like, "Is this even a question?" And then just kind of rolled into it. Up until February I think the price was stable. Then with the Binance list it went to the moon as always, then it went down with the coronavirus and now it has been growing steadily nicely with the community as well. So because if you compare to the initial ICO price, the performance is quite good because it's now at X2 still at USD.

Ivan Golovko (16:59):
And I think the same in BTC. So we didn't overprice our initial round and we kept building value. And we see that as a more genuine approach. If you talk about short term cycles, maybe it hasn't been as successful as some of the other coins, but you never know how the short term goes. So I don't think you should focus on that. They should focus on cycles like marketing shouldn't ever works in just like every day, right? People have attention span and they will follow the token for sometimes for a few weeks. [inaudible] and then they will be like kind of a cool off mode. So approaching it as cycles, I think really help because then you can really take the full advantage out of the market and the attention of the users.

Bobby Ong (17:40):
So let's talk about the tokenomics behind the LTO network. How does it work? What's the tokenomics, what's the utility of a LTO network and do businesses that use the LTO network need to hold these LTO tokens, for example? Like to hear it from you.

Ivan Golovko (17:51):
I would say one of the, not groundbreaking features, but realistic things to be added to the idea of the business model is that first of all, anything that's happening on the p2p layer or on any kind of solution or use case built around here will result in token value capture. And that's important because there is no way around it. Because every step, every event, every transaction is a transaction fee that is paid to the network. Now the question is, how do you actually manage to pay for the network, right? Businesses cannot buy tokens. They cannot do [developmental assets], not even so from the security standpoint, but more so from the financial. So we've worked with integrators in the software providers, which is a B2B service. So for instance, if you add digital signatures timestamp into LTO blockchain, you as an end user, don't pay for it.

Ivan Golovko (18:41):
The company that provides you the service pays and you pay for the company in USD for the SaaS model. And then there is a margin. And if you build a supply chain use case for some companies, we take USD for the hour developer time, right? For any company even. You can also make your own company do it. And then you pay that margin to the blockchain, which isn't the transaction fees. So in that case, the businesses and the end users, they are not required to deal with volatility because it's the system integrators would do it for them. And that's a much more simple model because system integrators are already used to volatility and stuff like that. And they can also extract more value from it if they want. For instance, if you would compare the digital transaction timestamping in bitcoin and LTO, it would still be cheaper in LTO, of course. But you can price it to the end user in a more or less similar way. And then as an integrator he will have better to margin in between there. But yea, so every business is build on top every use case, results in transactions. And transactions that paid for in LTO fees on main net, and then those have become rewards for staking. That's what we call non-inflationary staking.

Bobby Ong (19:43):
So how much does it cost to put a transaction on LTO network? Is it denominated in LTO token, I suppose. And then like, does it change or is it denominated in US dollars, for example?

Ivan Golovko (19:54):
It's denominated in LTO token. So it's point 35 LTO for all the business transactions there, which is anchoring or other data transactions. When we integrate with the recent margin in between, right? If the price is within the range, that is fine. And that's range is quite large still because it's too much, it's still cheaper. They are fine with the nominal USD price being higher. They are okay with it. And with the price goes too high, the network can vote for the fees to go down. So for instance, if LTO would to go, I dunno, let's just say a few times the integrators would likely ask the network to lower down the fees because then it becomes economically feasible. And if the stakers say, "No, we don't want to lower down the fees." They can probably see the economic activity diminish. That's making the network value go down. So it's a very circular feedback loop thing there.

Bobby Ong (20:41):
So let's now talk about the staking part, right? So what's this staking program in LTO network? Is it, I think on your website, it say this is at least proof of stake algorithm. Is this similar to delegator proof of stake? How many delegates or how exactly does it work? And if you were a staker on the LTO network, how much can you get from stacking LTO, for example?

Ivan Golovko (21:01):
At least proof of stake is very similar to delegator proof of stake. So let's just say it's the same, just for the sake of the argument there. The big difference is that our staking is not inflationary. So if you look at other networks, how did the performance staking? Staking is subsidized by printing tokens for nodes to participate in secure network. So they're trying to fix the supply side. The idea of course, for the network is to longterm become sustainable where the fees are the major driving force of the network value, because if nobody actually pays for it, what is the value there? That has been the argument for Bitcoin and Ethereum for a long time. And we now see Ethereum, while being subsidized with Yield Farming still demonstrating the very strong need for transaction fees, which makes it much more economically sustainable system.

Ivan Golovko (21:46):
So if you see at Cosmos or Tezos, the transaction activity, because the network's early on is still almost low, like the PE ratio, the price that release one is just abnormally high. So the multiplier is very high there. For LTO it's actually very low on the level of Kyber network and some DeFi protocols because there are fees that users pay. So the fees that users pay become the staking rewards. And that's called non-inflationary because the more usage there is, the higher the APR. The higher the APR is, the more people are incentivized. All of the [inaudible] basically gets redistributed among all stakers. And now it's around 7%, 8%.

Bobby Ong (22:26):
So basically there's no inflation. Basically everyone who uses LTO network will have to pay fee to timestamp or to anchor the data on the LTO blockchain and all these fees are collected and distributed to all the stakers in the LTO network and all the delegators, I suppose. And how many delegators are there on LTO network and how much, do you get voted upon to be the top 20 delegators or so, or is it more like Ethereum proof of stake, where if you stake like 32 ETH or so, you get to run a node and collect the staking rewards, for example?

Ivan Golovko (22:56):
You actually explained the business model in a much more coherent and easy way. So maybe you should replace me. So exactly that is a very much easy model for people to understand. The more business partnerships there are, the more usage, the better this network value. Because usually what we saw in the last year is that you just make partnerships with people like others relate to the tokens. Here it's very clear. Now about the delegation, so there is no [inaudible]. It's just that your percentage of what, you can stake in 1000 LTO, which is like $40.

Ivan Golovko (23:26):
You can stake as much as 40 million LTO or more if you buy. So there is no low threshold requirement. You can either make a node yourself, but at some point, unless you make enough, you will just spend more USD for the host and so it wouldn't make sense unless you want to support the network. Or you can just lease it to me and delegates to other nodes. Which is how a small community are formed and that makes it very exciting to see. So there's no Top 20 anything like that. You can become Top 20 if you just have a stronger vote. That's it.

Bobby Ong (23:56):
So there is no minimum required. I mean, and then I just have to run like a small number of LTO tokens or a large amount. I can run a node and then collect the fees proportionately, I suppose.

Ivan Golovko (24:06):
Exactly. Yes. So just proportional.

Bobby Ong (24:08):
Or I can delegate my work to someone else and then he can share the fees with me for delegating it, I suppose.

Ivan Golovko (24:13):
Yeah. Yup, yup. And the fees, the nodes now in post is around 3%, 5% of the rewards.

Bobby Ong (24:19):
3% of the entire reward. And then you say the annual APR is roughly 7% per annum. And if I were to ask you like, let's say there's like a billion LTO token. How many percent of these tokens are stake in the network? And how many is that?

Ivan Golovko (24:35):
So now we have around 60 million LTO stake, which is now $3 million worth. And that is 27% of circulating supply. It's quite high in the circulating supply because the other tokens are either just sleeping or they in transactions or they just in Binance people trading there. That's more or less the ratio there. And if you've counted from the total supply, I think it's about, I think around 15%. I'm not a math major. Sorry, I can count it later.

Bobby Ong (25:02):
Yeah but we get the idea. Around 15% of total and 27% of the circulating supply is currently staked at this point in time.

Ivan Golovko (25:08):
Yup. But majority of the total supply left is team tokens. Some community in MNA fund as we call it. And most of those wouldn't even become like inflation. So they're not to be released. They're just there either to acquire companies. So do something else with community incentive. So that's why we prefer to look at this strictly to supply. Cause that's like a fully diluted apart from the circulation more like.

Bobby Ong (25:31):
And how do you be a staker? Do you have to run like some server, some nodes, or is it like delegate to someone? I'm just curious, like what's the steps involved running a staking node LTO?

Ivan Golovko (25:36):
Actually very simple. So because the public network is stripped down to very basics. It's extremely simple because the requirements are just like as low as it gets. So you can run it on your own raspberry Pi if you want, or you can just run it in a server, like an AWS, just port it there. Or you can just lease it through some other delegators. Let say if your stake, I think at this point is less than 300,000 LTO, which would be $15,000. You better off lease to somebody because then your cost ratio with the pay for the host is better. And how to lease it to delegator? Literally one button. So you just have it in your mainnet wallet, you press 'lease', and you press the address of the delegator, that's it.

Bobby Ong (26:20):
Okay. So I guess that's the web interface or something like that. And you can hold it on your ledger, for example.

Ivan Golovko (26:24):
Unfortunately not ledger yet. So ledger at the mainnet has been very slow, but it's [inaudible] history. And while we submitted the application while ago. Because we are not a Silicon Valley coin, it would take a bit more connections to get to them.

Bobby Ong (26:39):
So recently you guys announced a fee burn mechanism proposals. So I've seen some of your, in your Medium posts about it. Tell us a little bit more about this transaction fee revenue. I think you talk about the PE ratio earliest, like having the lowest PE ratio comparable to Kyber and how does your proposal improve transaction fee revenue and the PE ratio?

Ivan Golovko (26:59):
So the utility of a coin, the burning or any value capture is you can compare it to business model in any normal company. So even if your business model is amazing and you don't have any clients, it still won't help. Right? Because then it just, there is no revenue coming in. When you have clients then and when you have the real usage, then the question is that, how can you improve the value capture to the best extent possible. What we saw in that course, that's the staking adds value in terms of the narrative. So that's one is good and we have it since the very beginning, but what we also see is that tokens like BNB and exchange tokens, who had revenue and clients, the burning mechanics works best. It's more like a stock buy back model. You could also make a dividend model. However, as we see in projects, dividend models don't play out well with communities because they prefer the burn one.

Ivan Golovko (27:46):
So, okay, it's more or less the same and we decided that one is better. The thing is that when in DeFi protocols like Kyber or others who have fees that people pay for usage, part of those fees gets burned. And then okay, we have the usage and then we have the clients, why not just make part of the transaction fee burn. So making the token economy more deflationary. Considering there is no protocol mincing, and there is no inflation apart from the outstanding wallets and just making like a note there so people don't think that I am scamming them into some trap, you know. It's just good to have all the data available. So then we just burned a part of it. And the more usage there is, and if the usage sustains it, then this supply will constantly shrink. Both the circulation and the total. That's the idea there. Clients would pay the transactions fee to the network as before, a part of it with would go to stackers as a reward and a part of it would get burned.

Bobby Ong (28:37):
So wouldn't you say that this advantage the existing stakers. So previously all transactional fee, 100% of transactional fee will be distributed to stakers. But now with this proposal, only a fraction of them will go to the stakers, let's say 80% go to stakers and 20% will be burned.

Ivan Golovko (28:52):
Yea that would be the case in the more negative sense, but what we did actually, we raised the transaction fee in LTO there. So the thing is that, as I mentioned before, for B2B the cost of using LTO are still reasonably lower than the competition side. So the margin there is okay to increase and they were totally fine with it. So we get the APR the same and then we added the burning on top. So it actually is more interesting to stakers because your rewards are as good as before, or even better if the usage increases. But you also have the deflationary part in the equation there.

Bobby Ong (29:25):
I'm just curious, earlier you mentioned the fee for a business is 0.25 LTO per transaction, right? And basically what is happening now is you increase the fee to the businesses. What will be the increase in fee so that, I would like to calculate like how much would the tokens to be burned in that?

Ivan Golovko (29:41):
So the total fee would then be 0.25. 0.35 sorry. 0.35 would be the fee in general and 0.1 would be burned. So 28, let's say 30% of every transaction will be burned. And considering that annualized revenue of the protocol has been around $140,000. No, sorry. That was actually for the only Q1 and Q2. So I think annualized is around 250 at the current rate of usage, USD in fees. That's what we mentioned in our paper. The transaction fees for most networks are just about zero. There is not much usage. The only usage there is, is actually in the DeFi protocols because people use them to do all the financial iterations and LTO then as well. So that would be burning around $100,000 worth of coins on an annual basis, considered in the same usage is now and would actually become more if the users increases. There are like a few factors you would play around with here, but those are the rough numbers.

Bobby Ong (30:37):
I'm very curious, right? You brought up the PE ratio just now and it's something that people in the crypto space are looking about when valuing tokens these days. I look at this metric as well, and I see a huge difference in PE number. Like you have tokens like Kyber, LTO that has a low PE ratio. And then you have tokens like Tezos, Maker that has insanely high PE ratio. Why do you think this is the case? And you think this means that Maker token, Tezos will probably go down in price to have a more normalized PE ratio between all these different things. And then the ones at low PE ratio will go up at some point of view. What's your take or thoughts about these things?

Ivan Golovko (31:10):
Love this question. Yeah. So I think we can actually talk about this one for a while. Let's start with the fact that crypto is still only an investor base and there are very few users who use. So everything people touch and do, is their belief in the future of one or the other product. Therefore, the revenue has always been not a topic in crypto because they were just not. So the only thing you would look at, how would you justify buying something either for yourself or for your LPs? Like as a VC. You have to give them some estimations right? Before they were decide that, "Oh, this person wrote the PhD paper so the network will go up." Right? 2017 story, Then people like, "Okay, this is a bit too much for me. Let's do something else." Then they're like, "Oh, look at them. They have big partnerships". With Deloitte or something. And then people who are like, "Yeah, that's just a partnership on paper. Again." Doesn't add much apart from a bit networking. So then, "Okay, let's do something else". What you now see is that people always need something. I'm not trying to say it in a negative way, but people always need some confirmation bias. People always by default have confirmation bias. If they like something, they will find reasons to like it. And the more convincing that is, the more people believe it. Like stock the flow model for Bitcoin. It has been loved one for so long. And actually today and yesterday you saw so many memes about people saying, "Stock to flow, doesn't work". It's just a thing that people use to convince themselves. But if you can revenue, you can actually close the estimate. So what now is happening is that, why Kyber and DeFi protocols have a low PE ratio, and PE ratio is basically evaluation multiplier.

Ivan Golovko (32:38):
So how much more valued that this compared to what it actually produces in terms of the revenue. Kyber and others are a bit closer to their realistic expectations with the low curation in the low multiplier. But Tezos and Cosmos are all about the investment in the future. Most of the investors, they are, I wouldn't say really retail. They're more like big VC holders, who hold because they believe in the future. And that's totally fine. It's just that there is not much to say on it, apart from that, the belief is there. But it's not a negative thing. It's just a different approach to invest in and engage with the ecosystems. Sorry for the long reply, was it what you wanted to hear?

Bobby Ong (33:20):
Yeah. I mean, I was curious myself on why there was a huge divergence in PE ratio between these different projects. And I think what you said about the current valuation model, current expectation of value versus what the other large institutional VCs investors value in the future of a network make a lot of sense. So those value will be justified in the future if the network do grow and the fee collected for that protocol do increase but if the network does not grow as much as expected, then very hard to justify the price and the valuation the market cap on these tokens that's presented at this point in time. So what you say makes a lot of sense, I would say.

Ivan Golovko (34:00):
Okay, cool. Cool. Yeah. It's just basically, how about justify the price? How you look at it. For instance, if you look at the Robin Hood of how companies are flying there now. Bankrupt companies, there is literally no justification like a company suggesting to issue new shares, just to dump on the Robin hood traders to pay back debtors. That's like, how can you imagine that? But it was real in the real world. And when you have more sophisticated investors, so people who have been around the market for a while, for them, sometimes narrative and hype are not enough. You want something more sustainable and the ratio and actual revenue demonstrated in fees in verifiable way is a much more comfortable metric to sleep with. It doesn't mean that your valuation will be right. It doesn't mean that they will be successful one, but at least the LPs and more sophisticated investors prefer that rather than having partnerships on your website which are not approved by [inaudible].

Bobby Ong (34:52):
And it makes it more justifiable to investors, I suppose, to someone more sophisticated, they're familiar with PE ratio. Obviously the burning mechanism is obviously differs from protocol to protocol. That makes it very interesting to value. You can do a financial model based on the cash flow projection based on the token burns and all.

Ivan Golovko (35:10):
Yeah, absolutely. That's the idea. Yeah. To give you the tools to evaluate or also to look into it because the stronger, like you cannot say that if it startups, that your company will be success, because we did A or B steps while it was existing. You have to do A, B, C, D, E, F, G, like all of these things. And some of them do the picked up because the startup is still a game of chance, but the more you work and the more things you try to do in the right way, the higher chances of surviving and growing. And I think that's how we see most of the successful companies in traditional world as well. There is a lot of trial and error. And as long as you keep the feedback loop realistic and you stay along the course, I would say you are better off than other people in the industry.

Bobby Ong (35:52):
Very interesting talking to you. Is there any question that you think I should ask you that I've not already asked for today?

Ivan Golovko (35:59):
I think we touched up on stake and APR, financial models. I would actually like ask the question to you if you don't mind.

Bobby Ong (36:05):
Yeah, sure.

Ivan Golovko (36:06):
Are you a Yield farmer?

Bobby Ong (36:07):
Yes, of course. I am.

Ivan Golovko (36:10):
How does it go for you? What was your experience?

Bobby Ong (36:12):
Yeah. Yield farming is a very interesting thing in Ethereum. I think everyone is joining the hype now. I think the one that is the easiest at this point in time is to farm for curve token. Just put your stable coins in the y-pool or the sUSD pool on curve and then you eventually get a CRV token proportionately to use. So that's the one that has the highest return and the easiest, less steps involved. I think compound Yield farming is very interesting and very dynamic as well. It changes on a day to day basis. Some days this coin has the highest yield, some days you can move to BAT and then, they change the rules. So you kind of have to follow to see how things go. But the fees are ridiculously high. Like I remember putting some stable coins in curve and I had to incur $7 in transaction fee worth of fee.

Bobby Ong (36:55):
Actually Yield farming is interesting but you sort of have to play with some amount of money. I think you need at least like around 10, I think Kerman put a blog post that you probably need like $10,000 at least, some returns on your Yield farming. If you put like a $1,000 you probably just break even, and anything below a thousand dollars, you probably lose money from all the transaction fees. So I think it's interesting, but it disproportionately advantages the large whales in the space. And what I think should be more interesting and I hope it will happen is that the fees will hopefully go down in Ethereum and it allows small time people, like people with a few hundred dollars or $50 who wants to Yield farm. You can put into Yield, get like 10% APL without incurring high transaction fee in the space.

Ivan Golovko (37:40):
Yeah, yeah. Definitely. A Lot of good feedback on that one at all. Cannot disagree with anything. And would also say it's like so far, the game has been mostly for whales, which is fine because of the amounts of you mentioned. But what you see really the cool effect of sector blockchains and social media in general is that the easier you make the entry barrier for just a normal retail, the better the effects would be. So you can look at the protocols based on either they are nominal revenue or they are daily users. And you can price it in differently because you can say total volume shows unbiased revenue or you can see more users actually shows a stronger network effect, which will have a least offer the overall usage later on. And the thing is that what we see in projects, the more people you allow to enter and to play with your protocol and to engage, the better the longterm effects are.

Ivan Golovko (38:30):
Because if you keep it very permission, people don't really like that. So again, yeah, exactly there. If it can be somehow fixed to enjoy, to bring enjoyment for more retail traders or just speculate or so just users, I think it would be even more fun. But Yield farming have definitely been a fun [narrative] with a lot of cool memes going around and very engaging for the audience overall. Yeah. I wish LTO was doing not B2B but DeFi from that perspective because I like it more since I'm more of a retail person, but we try to adapt there to make the model at least resemble DeFi and ride on that wave as well.

Bobby Ong (39:04):
Yeah. I mean blockchain has got to find their own unique selling proposition, unique selling points. If you're just going to copy someone else, then you're just going to be a 'me too. And it's going to be very hard to differentiate yourself from the other competitors out there. So everyone's going to find their [inaudible] point. And if it means a B2B point of view business for LTO, then you've got to stick with a narrative and grow the tokenomics there. And it sounds pretty solid to me, like the transaction fee given to delegators, stackers and then you have an increase in fees. I mean, which is still fine for businesses but then it will be burned. So it sounds pretty solid. I'm actually quite interested to see how things progress over the course of the year. This token fee burning thing, if I remember correctly reading it, it's not live yet. It needs to be approved at some point by the delegators or so I suppose. And when will it be?

Ivan Golovko (39:48):
Yes. Yeah. So any changes in the network in terms of fees or anything else would of course have to require an upgrade, which then requires a vote from a mainnet stackers because it's proof of stake model, it has to from stakers. And it would require an 80% approval. And because stackers are now token holders, I don't think they would really disagree with the burning mechanism because it only makes it better. So that one is scheduled for around end of July or beginning of August max. We already more or less finished with the code. We just need to test it on test net and then we can roll out the mainnet updates.

Bobby Ong (40:21):
And once the sort of voting is probably over two weeks period or something like that. And once that happens in like late July, early August, then when will the transaction fee burning mechanism take place? Would it be towards at the end of the year or next year?

Ivan Golovko (40:35):
No, right away. So as soon as upgrade is done. It will directly [inaudible]. So now transaction is already live on mainnet, it's just that would be increased in part with the burn. That's it. That's the model. And the vote, so the vote in LTO mainnet takes thousand blocks, which is around seven days. So as soon as the vote starts, there is one week for 80% of the blocks to become with the upgrade included. So no one needs to upgrade. And then as soon as it's there, it's life. We already have two, you can even see two and a half mainnet upgrades throughout the course of the network, which has been already one and a half years. And there was never any issue with it. I would say our technical community, very pleased to have them because it's a very much a positive feedback loop with them, helping each other, set up nodes, build statistical tools and everything like that. It's fascinating to see how if you build in the opportunities for people, they will take them and develop them together. And of course help the network and community at the same time.

Bobby Ong (41:31):
Okay. It's very interesting hearing from you. I guess it's time for our last question right now. So if someone's interested to learn more about LTO network, where's the best place to follow and learn more?

Ivan Golovko (41:41):
I would honestly say jump into Telegram chat. We tried to keep it not spammy and very educational. So it should be a very friendly way to learn about LTO. And the community's very supportive. Otherwise you can just follow Twitter if you only like to stay updated.

Bobby Ong (41:54):
All right. Yeah. Thank you very much for taking the time to talk to us and explain LTO network. I certainly learned a lot from this conversation. I'm sure our community will learn more about it as well and enjoyed this podcast episode too.

Ivan Golovko (42:05):
Yeah, love it. Thanks for inviting me, Bobby. It was a pleasure. And I have been an avid user and advocate for CoinGecko, so thank you. Glad to see you guys grow with cool new features. Thank you.

Bobby Ong (42:14):
Appreciate. Appreciate.

Bobby Ong (42:16):
All right, that wraps up the show. Thank you for listening to the CoinGecko podcast with Bobby. If you like our show and want to know more, check out podcasts.coingecko.com or please leave us a review on iTunes. Do you have any feedback? Do drop us an email at hello@coingecko.com. Join us for more next week. See ya.

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