N.B: In the spirit of full transparency, the following Coin Report is the second Sponsored Post on my blog. The Dero team recently contacted me with a request to write up a Coin Report on the project. After they had agreed to my sole stipulation that this report would conform to the rigour of the previous reports, with all strengths and weaknesses being explored and evaluated, I agreed to write the report. Regarding future Sponsored Posts, I have 3 spots open before the end of January 2019. If you would like a Coin Report written for a project, please ask the team to get in touch.
Welcome to the sixth Coin Report. In today’s report, I will be assessing the fundamental and technical strengths and weaknesses of Dero. This will comprise of an analysis of a number of significant metrics, an evaluation of the project’s community and development and an overview of its price-history. The report will conclude with a grading out of 5. I hope you enjoy the read!
Introduction
Prior to receiving a request to write this report, I had never heard of Dero. I had no idea what the coin did; where it traded; or what its goals were.
Having now completed my research, I am very much intrigued by the project, and I believe this report will be insightful as to the privacy development flying under the radar at present. There is quite a lot to get through, and I will do my best to accurately and fairly assess the various strengths and weaknesses that I perceive. Overall, I hope this report will prove particularly useful for those interested in lesser-known privacy coins.
If you’d like to find out a little more about Dero prior to reading on, here are some primary links:
Fundamental
General:
Name: Dero
Ticker: DERO
Algorithm: CryptoNote
Sector: Private Smart Contracts
Exchanges: TradeOgre, STEX, SouthXchange, Crex24 & Tokok
Dero was launched in December 2017 – as the market began its ascent to the January highs – with a 2,000,000 DERO premine (~10.87%). 1mn of this premine is unlocked and 1mn is released over the course of four years. Dero operates using a Proof-of-Work consensus mechanism under the CryptoNote algorithm, and has done so since launch. There was no ICO.
Though we’ll delve into the details of supply emission a little later, it is important to note that Dero has a progressively diminishing block reward, and, as such, the inflation rate decreases incrementally with every new block minted. Dero will operate under its Proof-of-Work consensus mechanism indefinitely, with the diminishing block reward tapering off to a static reward approximately 8 years post-launch.
As Dero was only launched a little under a year ago, and as it has only been available on exchanges since March, there is very little price-history; price did, however, find a peak of $5.23 (~62k satoshis) on May 21st, 2018. It then experienced a prolonged decline into the autumn period but has recently reversed, as we’ll discuss in the Technical section.
Dero, as a project, seems solely concerned with innovating privacy technology and improving on existing solutions. There are no masternodes, as is common practice with privacy coins, and all development efforts are directed at improving the overall security and anonymity of the coin. As you’ll all know, privacy is the hot-topic in this space and deservedly so; it is integral to the community and has been since the very beginning. As such, there are a plethora of projects all working on privacy tech, many of which are just junk clones of other, more established privacy coins. Let us discover whether Dero is one of those junk clones or not… (spoiler: it isn’t)
Firstly, let’s take a look at some important metrics:
Metric Analysis:
Below are listed a number of important metrics, all of which are accurate as of 26th November 2018. For anyone reading this who has yet to read a Coin Report, it might be worth reading this section of the first report, where any potentially unfamiliar terms are explained. For any terms or metrics specific to this post, I will provide explanations besides the figures. Also, Transactional Volume, NVT and Network Staking Weight have been omitted due to lack of functionality of the block explorer (and integrated privacy, obviously) for such calculations. Further, another symptom of integrated privacy is that distribution cannot be determined; as such, there is no rich-list analysis.
Metrics:
General:
Price: 26288 satoshis ($1.05)
Exchange Volume (24H): $49,312
Circulating Supply: 4,727,576 DERO (1mn of which is unlocked premine funds)
Total Supply: 5,727,576 DERO
Maximum Supply: 18,400,000 DERO (calculated as supply ~8 years post-launch, prior to static block rewards)
% of Max. Supply Minted: 31.13%
Network Value: 1242.79 BTC ($4.960mn)
Network Value at Max. Supply: $19.304mn
Category: Midcap
Exchange Volume-to-Network Value: 0.99%
Average Price (30-Day): $1.69
Average Exchange Volume (30-Day): $75,917
Average Network Value (30-Day): $9.393mn
Average Exchange Volume (30-Day)-to-Average Network Value: 0.81%
% Price Change USD (30-Day): -39.9%
% Price Change USD (1-Year): N/A
USD All-Time High: $5.23
% From USD All-Time High: -79.7%
Premine % of Max. Supply: 10.87%
Premine Location:
Devs premine second year wallet viewkey:
fabe3d21316fc1c9a1fdd3526dc3be2c1e4c3da4faa72b280bf07500481222792e2237737d01c6a1cd9147afdb3552c84e016ce06d08bd68e66ff27353a7530f
Wallet viewkey of third and fourth year:
4685a4f7d86ecd6f2493291fdb26329f97ea5e7af48629c120dcb175df7c62ac09dd096278efec8df52c531298f5cf73aa9d6ee722d64521efdf97c f69172505
(the above two are directly copied from the whitepaper)
Premine viewkey: f221cf4f77d11f0061f3e4c9615540cbc2d2d532ac2f08c623d2a72ad0145d702b7e5941737e041 6eebaba30c3c30b517a14db1efa9aa13b119e31c380313603
(the above is copied from the Bitcointalk ANN)
Liquidity (calculated as the sum of BTC in the buy-side with 10% of current price across all exchanges): 2.568 BTC
Liquidity-to-Network Value %: 0.21%
Supply Available on Exchanges: 104,039 DERO
% of Circ. Supply Available on Exchanges: 2.2%
Supply Emission & Inflation:
Block Reward Schedule: 12-second block times = 7200 blocks minted daily on average. Smoothly-varying block rewards (progressively-diminishing) – currently ~1.34 DERO per block. After 8 years, the rewards become static with 157,000 DERO minted yearly.
Below is printed the supply emission curve:
Current Block Height: 1200411
Circulating Supply in 365 Days: ~8,000,000 DERO
Annual Supply Emission: Using the above printed supply emission curve (and the estimated circ. supply in 365 days) = 3,272,424 DERO (860.25BTC at current prices)
Annual Inflation Rate: 39.68%
Analysis:
Unlike the usual Metric Analysis sections in these reports, we have a mole-hill of metrics to delve into rather than a mountain. This is primarily due to the lack of staking/masternodes and the integrated privacy in Dero that renders distribution analysis impossible. That being said, there is plenty to get stuck into, so let’s crack on…
Firstly, let’s determine which of these metrics are most insightful. As ever, the most insightful metrics for coins like Dero, which seek to have high velocity with exceptionally secure, private transactions, are those that we cannot obtain due to their private nature; Transactional Volume and NVT. Nonetheless, the next-most important metrics are those concerning Exchange Volume, Liquidity and Supply Available on Exchanges, as all of those metrics relate to Dero’s supply and demand. We’ll begin by looking at Exchange Volume and its relationship with Supply Emission and Inflation:
Dero experienced ~$50k of Exchange Volume in the past 24 hours, and has averaged ~$76k of Exchange Volume daily for the past month. This equates to 0.99% and 0.81% of the Network Value and Average Network Value, respectively. Now, as I’ve mentioned before in these reports, I tend to look for 1% or greater Exchange Volume-to-Network Value, but, given the current market conditions (and, most promisingly, the fact that Dero is on zero prominent exchanges with significant volume), I think an average of 0.81% is perfectly reasonable as an indicator of sustained interest. Comparing these figures to those of other coins I’ve written reports on – all of which are traded on far larger exchanges – Dero looks strong: Stakenet is the only coin of the previous five Coin Report posts that beats Dero on the volume metrics. Promising.
Further, the relationship between Exchange Volume and the inflation metrics depicts more strength for Dero: as expressed above, Dero is likely to have around 8mn coins in circulation this time next year, which means there are around 3.3mn DERO to be minted in that time. This equates to 860.25 BTC of annual supply emission at current prices, or 2.35 BTC on average daily (~$9.4k). Dero’s Exchange Volume over the past 24 hours covers this supply emission by around 525%, and its Average Exchange Volume covers it by 800%. This is highly indicative of sustained demand at current prices. Relative to coins from previous reports, Dero’s volume metrics cover its average daily supply emission to a far greater degree than Bulwark or ALQO, but not quite to the same extent as Stakenet.
Next, let’s look at Dero’s Liquidity and supply-based metrics: across all of its listed exchanges, Dero has ~2.5 BTC of buy support within 10% of current prices, which equates to 0.21% of Network Value. This is weaker than Stakenet and Bulwark but stronger than ALQO, but I think it is important to again take into consideration the lack of highly liquid exchange listings for Dero. There is also a little over 100,000 DERO available in the orderbooks across all exchanges, which is 2.2% of the circulating supply. This is the exact same available supply as was calculated for Stakenet but more than Bulwark, and it is suggestive of moderate levels of demand. This is also despite the fact that Dero does not have masternodes, unlike the other two coins, so it is all the more impressive that there is relatively little available to buy on exchanges.
Now, before I move on to talk a little more on inflation to conclude this section, there are a couple of other metrics from the General section that need highlighting. Firstly, the ~11% premine is not something I like to see – there’s no way to get around that. However, I do appreciate the transparency via the viewkeys provided by the team. I am well aware that development cannot be funded from nothing; it’s just that I tend to prefer buying coins with premines lower than 5%. That being said, the fact that the entire premine is not made immediately available and instead will be unlocked over the coming years is a positive. More specifically, 1mn DERO is immediately available but will be used in conjunction with the community’s proposals (note: in future this will be via the Dero Foundation) and 1mn DERO will be unlocked over the course of four years. Secondly, I very much like that price is still ~80% below all-time highs against the Dollar. This suggests a possibility for a profitable entry at current prices, given that the fundamentals of the project are sound.
To draw this lengthy section to a close, I’d like to discuss some more of the data pertaining to inflation. We’ve looked at supply emission and its relationship to average traded volumes, but what about the block reward schedule? Well, unlike the vast majority of coins that are programmed to have several block reward stages that incrementally decrease over time, Dero’s block reward decreases by a fraction every block. This produces a smooth supply emission curve that makes it somewhat difficult to accurately predict future circulating supply and inflation rates. Thus, I have included the coin’s supply emission graph from Dero website. Using this, we can see that in a year’s time, there will be roughly 8mn DERO in circulation, leaving a little under 3.3mn to be minted in that time. This equates to an annual inflation rate of 69.22%. This is higher than both Stakenet and Bulwark. Looking forward to the end of the curve, 157,000 DERO will be the static annual emission, which will equate to roughly 1% annual inflation.
Now, let’s take a look at the Dero community:
Community:
There are two primary aspects of community analysis: social media presence and Bitcointalk threads. I’ll begin with the former before moving on to the latter.
Social Media:
Concerning social media presence, there are four main platforms to examine: Twitter, Facebook, Telegram and Discord.
Dero is present on all except Facebook. To begin, let’s look at the various social metrics that I calculated from the Dero Twitter accounts:
Twitter Followers: 2763
Tweets: 136
Average Twitter Engagement: 3.64%
At first glance, it is evident that less effort is focused on generating a social media presence than is ideal. ALQO and Bulwark are two coins from previous reports that were launched around the same time as Dero, and yet they have around 7,000 and 8,000 followers, respectively, and both have well over 500 tweets.
Dero does not have a large following on Twitter, but it certainly has an engaged one, which, in part, makes up for the smaller presence. Their Average Twitter Engagement rate is 3.64%. This is almost twice that of Stakenet, over 2.5x that of ALQO and 9x that of Bulwark. Using the RivalIQ benchmark report, as usual, we can see that this engagement rate is also 79x greater than the average across all industries, and a whopping 280x greater than that of the Media industry (the closest industry in the report). This is a very impressive level of engagement.
Moving onto the Dero Discord, there are 1796 members in the group, which, whilst smaller than other Discord groups from previous reports, is actually quite large given the overall small social media presence that Dero possesses. On average, the Announcements channel seems to be updated once or twice a week, and there is an FAQ channel containing a link with all relevant resources for new users. This could be streamlined by having the information native in the channel itself. Looking at the Joins channel, I can see that there are around 40 new members a week, which is ~2.2% weekly group growth. Consistency in growth is good – it means that there is sustained new interest in the coin.
There also appears to be quite a lot of activity in the General channel, which tends to be the most used, with near-constant back-and-forth between the team and the community. There is a lot of talk on price recently, which is expected given current market conditions. I would like to see more interest shown by the community in the project’s future, as this is a little scarce. There is, however, confirmed talk of an upcoming Cryptopia listing, which the community seem excited for. Moving onto the Technical channel, this seems to be the spot for discussion project development. One thing that does come up a lot is the Dero Virtual Machine (which I’ll dig into in the Development section) – this is promising as it highlights the aspects of Dero’s development that distinguish the project from others. There also seems to be fewer support queries than usual, which is a positive as there are evidently less problems that occur for the Dero community. Any support questions are swiftly answered.
Overall, there seem to be around 50 members in active discussion, which is a little shy of 3% of the group. This is quite promising and is in line with the engagement found on their Twitter. However, there is room for improvement in both engagement and, of course, community growth, and I think this can be achieved by incentivising the current community to be more vocal about Dero’s accomplishments. The Discord scores four out of five, just about.
Moving onto the Telegram group, we find much more strength here. Despite having only 824 members (less than half the size of the Discord), there is a lot going on here. 28 new members joined in the past week, giving the group 3.4% weekly growth. The conversation is also even more constant than in the Discord. Promising.
Looking through recent conversation, I can see an update on the Cryptopia listing, with Cryptopia now beginning wallet integration; support queries on cold wallet offline transactions; far more discussion about Dero as a project rather than just price; back-and-forth about deroDAG and the new codebase etc. Overall, the conversation is much more focused on what makes Dero Dero. This serves to highlight the distinguishing features of the coin. As a new user, you’d immediately find out that Dero has 12-second blocktimes with no orphan blocks and, most importantly, is working on private smart contracts. Further, I found out that a Dero Convention was organised, which is great for brand awareness and community growth. There seems to be a genuine and active interest in helping find and develop solutions to present or anticipated future problems. There also seems to be more members involved in discussion than in the Discord, despite there being half the members. I saw around 60 individuals posting over the past week, which is 7.28% engagement. This is stronger than the engagement in any Telegram group of a coin I’ve previously written a report on. 5 out of 5.
BitcoinTalk:
The Dero BitcoinTalk announcement was created on December 5th, 2017. It has generated 4338 posts spanning 217 pages since then, equating to an average of 12.19 posts per day. There have been 183 posts in the past 90 days, however, which is a little over 2 posts per day on average. This indicates a dwindling of interest on the thread of late. This is reinforced by the fact that there have been only 4 posts in the past week. That being said, the thread did generate more posts over the past 90 days than the equivalent periods for ALQO and Bulwark, but less than Stakenet.
On the content of the thread, there seems to be some community input on the requirement for more effective marketing. The general consensus is that marketing for the project is weak but the development is very strong. There is also very little support-related discussion, which aligns with Discord, suggesting that fewer issues crop up than usual when using Dero. Also, there seems to be some excitement stirring around the current development of smart contracts. 4 out of 5 for the BitcoinTalk thread.
That concludes the section on Community. Onto Development:
Development:
For the following Development analysis, I will be evaluating project leadership, the website, the roadmap, the whitepaper, the wallets and finally providing a general overview:
Project Leadership:
Concerning project leadership, Dero has a small core team of 3 developers, all of whom remain anonymous. Each developer has, according to the Dero website, a decade of experience in cryptography. In addition to this core team, there is a Dero Community Advisory Board, which was appointed this summer. This comprises of 12 members of the community with experience in: computer science; marketing; Cloud migration; start-ups; systems engineering; software engineering; and senior management.
My suggestion would be to employ a marketing specialist as part of the core team so that there is better balance. After all, it’s all well and good having a unique and well-designed product, but if there is no effective marketing plan, it may be fruitless.
Website:
The website is clean and informative and features a useful introductory video on the homepage. There is clear explanation of use-cases, what distinguishes Dero from other projects, the coin’s specs etc. and all relevant resources are clearly linked. I like that there is a dedicated forum for the community and it seems to be quite active. Monthly updates are provided at https://forum.dero.io/t/dero-monthly-update/446/5.
The website could do with stronger branding. The overall UI is a little unsophisticated but highly functional. This is also the case with the block explorer, which is functional but with zero branding whatsoever and quite primitive in design. It should be more user-friendly.
Overall, not bad but there are some simple things that need updating and improving. 3 out of 5.
Roadmap:
Firstly, the roadmap is visually appealing and is presented in an easy-to-follow route from the coin’s launch through to the present day. However, at first glance, I can see that there is only detailed information up to August 2018. We are now almost in December and there has been no update or additions to this roadmap since. As the first point-of-reference for many new users as to the direction of a project, this is essential to keep updated.
Other than that, the roadmap is decent: there are clearly segmented goals (most of which have been achieved now) with brief descriptions of the goal itself. I would have liked to see some sort of Show More or Further Info tab for these. Each set of goals is separated by months rather than quarters (as is usual), which is great as there is greater specificity and thus progress and development consistency can be more accurately judged.
However, post-August, we see “Q4 2018” for the rest of this year, which doesn’t have the same strong specificity as the rest of the roadmap.
As for the goals themselves: December 2017 was Dero’s launch; March 2018 was when CryptoNote was integrated in Golang (a first); in April, the mainnet migrated to Golang; June saw the development of Dero Atlantis; in July, Dero mainnet migrated to Atlantis (if I was a new user who hadn’t done any research on Dero, at this point I’d be wondering what Atlantis is, thus there should be some relevant links or further detail. Atlantis is a key part of what makes Dero unique – let users know from the outset); July also saw the integration of Rocket Bulletproofs; August was the month of marketing and targeted exchange listing; and Q4 (the current quarter) will see Dero develop private smart contracts. There is also some vague language like “partnerships” and “marketing”. This needs to be more specific. The roadmap ends with smart contracts on the mainnet before 2019, which is solid.
Personally, I’d like to see more detail on the coming year; just seeing “keep on innovating” under the Future tab gives me no indication of what lies ahead for the project.
Overall, informative but lots of gaps to be filled for a new users. 4 out of 5. It was not quite as thorough and useful as Bulwark’s or Stakenet’s roadmaps but not as brief as Covesting’s or GeoCoin’s.
Whitepaper:
https://dero.io/Whitepaper.pdf
Right off the bat, I like that the document is 13 pages long. This is the perfect range for whitepaper length regardless of the project. It is long enough to be thorough but brief enough to remain concise and interesting to the reader. Further, an October 2nd release date means that it is very recent.
The whitepaper opens by stating that Dero is new in its composition (written in Golang from scratch) and that it is based on DAG (Directed Acyclic Graph) and CryptoNote. It also states that Dero’s primary goal is to create Private Smart Contracts. The content is comprised of jargon-free prose, which ensures reader accessibility, and any potentially unfamiliar terminology is concisely explained. The document explicitly mentions Dero’s unique use-case in private smart contract technology; something not available in other projects at the date of publishing. This is great as it serves to distinguish the project.
There is a brief section explaining potential issues with KYC/verification: Dero suggests the allowance of wallet signatures by publicly known authorities. It then moves on to discuss anonymous voting as a use-case. The following section is quite interesting as it discusses asset management;
assets managed on Dero’s blockchain would be both private and auditable via viewkeys. Further use-cases are then outlined, such as one-time password integration, which will allow for greater security for service users by obfuscating any public address information.
The next section is on Dero’s key features and consitutes the bulk of the document. There are clear and concise explanations of the following features: CryptoNote; SSL; scalability; smart contracts; atomic swaps; mobile/offline wallets; lightweight wallets; subaddresses; escrow on the blockchain; verification; and voting. Of these, it is important to emphasise that Dero is the first blockchain with SSL integrated in the P2P layer, which encrypts all network traffic. It is also the first CryptoNote-based coin with 75 tx/s without off-chain solutions or Lightning Network. Dero also has 12-second block times without orphaned blocks thanks to DAG, which was implemented in the Atlantis codebase. DAG is Directed Acyclic Graph. DeroDAG is a combination of traditional blockchain technology and DAG technology, allowing for the security of the blockchain with the scalability of DAG. As a technical Neanderthal, it would be a lie to suggest that I have anything beyond a surface-level understanding of how the tech works. You can read more about it in the whitepaper.
The whitepaper also highlights Dero’s immunity to 51% attacks: where, usually, a block is a single unit of computation, in Dero, a transaction is a single unit of computation; thus all blocks are accepted. There is then a section on Optimized Bulletproofs that is beyond me, but it is important to highlight that these bulletproofs operate nearly 10x faster than a regular bulletproof, and Dero has these already integrated.
The next section is titled Dero Virtual Machine: this explains how Dero’s smart contracts will operate; using a virtual machine environment. Perhaps this may have been a section for further elaboration as it is quite brief for such a significant and distinguishing feature of the project.
This is followed by a rudimentary roadmap and then Dero’s specs. The subsequent section is on future development, in which the premine of 2 million DERO is highlighted and viewkeys are provided for the funds. The justification is long-term development and marketing. These funds
are split 50/50: 1m for the devs to use for development, locked until they are unlocked each year for four years at a rate of 20%/20%/30%/30%; the other 1m is free to use for marketing purposes and general growth, but is utilised in conjunction with the wishes of the community. I like that none of this is hidden – transparency with premine funds is critical.
The final page is a list of areas for continued improvement and refinement for the project and a brief section on the Dero Project Foundation, which will be a future corporation used to expand the team and fund research and development.
Overall, one of the more useful (and certainly concise) whitepapers I’ve read, particularly amongst the coins I’ve written reports for. 5 out of 5.
Wallets:
Concerning wallet, there are Windows, Linux and Mac local wallets, though these are in pre-Alpha stage and thus are bare-bones with no branding. They are very limited in functionality and design. I expect more from future wallet releases.
The web wallet can be found at www.derowallet.io.
General:
In general, there is a lot going for Dero on the development-front. They seem super focused on creating the best possible privacy product, though often to the detriment of their marketing efforts. Of course, building the best product is more important than creating brand awareness, and at this task Dero excels. I like that the code was written from scratch, as there are too few projects with this level of commitment around. Further, DAG technology integrated with CryptoNote, Rocket Bulletproofs and 12-second block-times is quite an achievement given the short existence of the project and that everything was written from scratch. It is clear to see that the team are most concerned with innovating or improving exisiting technologies in the privacy sector. Looking forward, the obvious development goal to highlight is private smart contracts on the Dero Virtual Machine.
Regarding project funding, Dero is currently funded using the premine as well as community support, but will look to the Dero Foundation in the future. On this subject, I would perhaps suggest creating an avenue for revenue generation.
That concludes my fundamental analysis of Dero. Let’s take a look at its chart:
Technical
Whilst Dero hasn’t got all that much price-history to look at it, there does seem to be quite a lot going on. It set its all-time high in May, around 62,000 satoshis, and then bled out for several months, eventually forming an accumulation range between 4400-6200 satoshis in September. Price has since begun a new bull cycle, running 1200+% in less than 6 weeks, and setting a local high at ~42k satoshis. It then dropped off back to an area of prior support turned resistance once again turned support (around 25k satoshis), and it is now range-bound between key short-term support at 23k satoshis and range resistance at 33k satoshis. Given the recent run-up, I would certainly not enter a position in this spot, as the direction is unclear. Price could quite easily form a complacency shoulder here and break below that key support, triggering a decline back towards the 16k-satoshi area, or it could break above trendline resistance and range resistance and begin the next leg up to attack all-time highs.
For me, it would seem much more wise to wait for price to decide where it wants to move. I’d be buying 16k satoshis and below if price was to end its bull cycle here, or I’d buy a close of the Daily chart above 33k with a soft stop-loss below the key support at 23k.
Conclusion
This report is now around 5,000 words, and it is time to draw it to its conclusion.
My final grading for Dero is a 4 out of 5 (just about). It clearly excels on the development front but leaves much desired with regards to marketing. It does seem to have an engaged community, though it is a small one. Further, I cannot discount the fact that price has experienced a 1200% run from the lows recently, and thus is in a potentially precarious and currently unclear position.
I hope this report has proved insightful and that you’ve enjoyed the read! Please do feel free to leave any questions in the Comments, and I’ll answer them as best I can.
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This really answered my downside, thanks!