Factom: Building an Immutable Audit Trail

Question Is, Does Anyone Actually Need This?

Summary

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Overview of the Crypto Jungle methodology used to conduct this token audit.

Overview

Cryptoeconomics (3.5 points out of 5)

Purchase of entry credits requires acquisition of Factoids. Once acquired Entry Credits can be purchased using Factoids at the going rate. So if an FCT is worth a $1 it can be used to purchase 1000 Entry Credits. If the price of FCT would rise to $2, 2000 Entry Credits could be purchased.

Users are expected to purchase Entry Credits soon after acquiring Factoids so they are able to post their entries at the intended rate of $0.001. Where-as FCT holders are speculating increased demand for access to the Factom blockchain will result in higher demand for Entry Credits leading to a rise in value of the FCT token.

FCT tokens used to purchase Entry Credits are burned. This burn is not permanent though as the long term intent is to reissue Factoids used to purchase Entry Credits to maintain a fixed supply of ~8.7 million FCT. Currently, there is annual inflation in supply of ~10% to give the project room to grow as user demand increases (tk insert link Onchain). When the project achieves sustainability this supply should be burned without being reissued.

Entry Credits are the stablecoin of the Factom blockchain intended to provide certainty to users on costs. While FCT is the collateral instrument absorbing the price volatility as demand ebbs and flows for the projects services.

Investability (2.5 out of 5)

Adoption has stagnated over the last year with minimal network growth. If adoption does pick up the requirement to purchase Entry Credits using FCTs provides a mechanism for value capture by token holders.

Factom has done a good job branding the project as a resource for customers who need an immutable audit trail. Monetizing these efforts via user growth has not yet come to fruition.

The project does not appear to have strong defensibility characteristics because of its lack of network effects. With the right skillset, other teams could straightforwardly offer a similar solution.

And,

There is evidence the Bitcoin Satoshis Vision blockchain is being used for Factom’s intended purpose. Because it is so cheap to transact on its blockchain. Even though no specific efforts were put forth build out this functionality.

Distribution (3.5 out of 5)

The continual issuance model the project employs is optimized for long term usage of the product. The supply of FCT is projected to increase 10% annually. If the model works properly 10% of FCT supply will be burned acquiring Entry Credits. Offsetting issuance and stabilizing supply around 8.7 million. This churn makes it easier for new users to acquire and use the FCT token.

Team (2.5 out of 5)

While skilled, the team does not possess unique qualifications for tackling the problem. In their defense the primary reason is because this is not a problem anyone appears to have attempted to tackle before.

The team does not have a background building distributed computing systems. Transparency is a challenge as it is not always clear were Factom the company ends and Factom the project begins.

Project (4 out of 5)

Gaining traction has been a challenge with network volume amounting to only $2 on some days. This indicates work still needs to be done by the team understanding how its unique value proposition of an immutable audit trail fits into the broader industry landscape.

It has been open source since initial release.

Scalability (2.5 out of 5)

One potential reason for the project struggling to gain traction is the lack of a road map clearly defining timelines for protocol enhancements. Instead, the focus is on marketing to verticals the project could be useful in serving with no detailed information provided on how it plans to go about doing so.

Developer experience has been continually improving with updates and releases happening on a consistent basis.

The project appears to have proactively reduced expenses to lower its burn rate and extend the runway for finding protocol market fit. The concern is even with staff trimmed and the burn rate reduced can they gain traction before funding runs out.

Usage is not high enough to properly evaluate its geographic dispersion. It is not uncommon for there to only be 1 user entering records on any given day.

Securability (2 out of 5)

The servers are split into two categories Federated and Audit. Federated servers are responsible for actively maintaining the network’s security. While Audit servers verify Federated servers are not acting maliciously. If a problem is detected with a Federated server it is replaced by an Audit server.

Servers are selected via an application process and rewards for securing the network are limited to the operators running the selected servers. Factom’s network was intentionally designed this way because it also leverages bitcoin’s security using bitcoin’s blockchain for record-keeping.

Factom runs an ongoing bug bounty and has a systematic process for fixing bugs when they are identified.

Entry Credits were designed to be held in low security environments as their singular purposes is facilitating data entry onto the bitcoin blockchain via the Factom protocol. A variety of options exist for securely storing Factoids.

Decentralization (2 out of 5)

It is unclear where Factom the company ends and the project begins. For now, it does not appear the Factom project could function normally absent the support it is receiving from the Factom company.

Factom lacks a robust set of exploration tools. So detailed information on concentration of holdings is not readily available, ownership appears to be concentrated with the Factom company.

To date, the project has been US-centric with high profile support from the US Government and US-based philanthropic organizations like the Bill and Melinda Gates Foundation.

Engagement (1 out of 5)

What the Factom community lacks in numbers it makes up for with intensity, possessing an active Reddit community and Discord. Twitter engagement is minimal and mentions on google trends are in a downtrend.

Risk Management (4.5 out of 5)

The Factom Company has raised extensive capital in USD. So funding risk is low compared to projects more dependent on funding from their native asset.

Attack risk is minimal because entry credits are essentially worthless unless used to add data to the Factom blockchain. There is some regulatory risk because Factoids are intended for speculative use to stabilize the price of entry credits

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