Coin Report #81: Gelato

Welcome to the 81st Coin Report. In today’s report, I will be assessing the fundamental and technical strengths and weaknesses of Gelato. This will be comprised 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 10. I hope you enjoy the read!

Introduction

For the second Coin Report of 2022, I thought that I would take a look at a fledgling project operating in an important emerging sector: smart contract automation. I will preface the report with full transparency, in that I currently hold a small position in Gelato but I am looking to build a larger, long-term position if the fundamentals are sound and I see value at current prices based on this report. I have been keen to do a deep dive on Gelato for a while and clearly readers of this blog were also keen, so I’ll refrain from any further preamble and get stuck in.

I hope this report will prove objective where it must be and fair on more subjective matters. For those who’d like to learn a little more about Gelato prior to reading this report, here are some primary links:

Fundamental Analysis

General:

Name: Gelato

Ticker: GEL

Token Type: ERC-20

Sector: Smart Contract Automation

Exchanges: Uniswap, Xt.Com, BKEX, MEXC Global, Gate.io, LBank, BitMart, LATOKEN, BingX, CoinEx and Hotbit

Launch Overview

Gelato was announced in early 2020 as a solution for smart contract automation, with private funding allowing for the development and release of the protocol on mainnet in July 2020. Following this, the team continued to develop the protocol over the course of a year, releasing v2 in April 2021, before announcing a public sale for the GEL token in May. This public sale went ahead in September 2021, raising $5,000,000 for ~4% of the maximum supply of 420,690,000 GEL at ~$0.30 per GEL. GEL was then issued as an ERC-20 token.

Beyond this, the team had previously raised funding via three private sale rounds: a seed round priced at $0.019 per GEL, a builder round at $0.1189 and a venture round at $0.2971. The total raise is undisclosed but across the three rounds, 21% of the maximum supply was allocated to these private investors. Of the remaining maximum supply, 15% is allocated to the founders, 10% to the future team and 50% to community development.

Price-History Overview

As GEL has only been trading for ~6 months at present, there is very little price-history available to us, but what is available will be combed through in depth a little later in this report. For now, it will suffice to say that GEL formed its all-time high against the Dollar at $4.21 in late November 2021, whilst its all-time low formed at $0.38 in mid-March 2022. Against BTC, the token formed its all-time high at 7740 satoshis in early December and its all-time low at 980 satoshis last month.

Project Overview

The overall mission of Gelato is exceedingly straightforward: they are seeking to become the smart contract automation protocol across EVM-compatible blockchains.

As stated in their whitepaper:

‘Bitcoin and Ethereum enabled everyone to move their funds permissionlessly from one place to another, however, currently only a small number of highly specialized bot operators have the required technology to harness the real benefits of what this new financial world has to offer.

From its origins in 2019, Gelato’s mission has been to level the playing field by enabling everyone to harness the full potential of moving their capital to where it is most productive, fully automatically and without ever having to give up custody.

As a piece of critical infrastructure in the Web3 stack, the long-term vision of Gelato is to export its existing transaction automation functionality to as many dapp developers and users as possible across all widely adopted public blockchains of the future.

Our vision is to become the backbone of all automated smart contract execution on every smart contract platform, focused on reliability, decentralization, and developer friendliness.’

I look forward to evaluating their progress towards these aims.

Let’s begin with some Metric Analysis:

Metric Analysis:

Below are listed a number of important metrics, all of which are accurate as of 5th April 2022. 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.

Metrics:

General:

Price: $0.93 (1995 satoshis)

Circulating Supply: 17,269,700 GEL

Total Supply: 420,690,000 GEL

Maximum Supply: 420,690,000 GEL

% of Max. Supply In Circulation: 4.11%

Network Value: $16,082,684 (344.53 BTC)

Network Value at Max. Supply: $391,774,294

Exchange Volume: $822,687 ($146,574 excluding wash)

Exchange Volume-to-Network Value: 0.91% excluding wash

Category: Lowcap

Average Price (30-Day): $0.718

Average Exchange Volume (30-Day): $156,506 excluding wash

Average Network Value (30-Day): $11,125,404

Average Exchange Volume (30-Day)-to-Network Value: 1.41%

Volatility* (30-Day): -0.167

Average Daily On-Chain Transactions (30-Day): 67.8

Average Daily Transactional Value** (30-Day): $1,325,346 (source)

NVT*** (30-Day): 12.13

% Price Change USD (30-Day): +41%

% Price Change USD (1-Year): N/A

USD All-Time High: $4.21

% From USD All-Time High: -77.9%

Premine % of Max. Supply: N/A

Premine Location: N/A

Liquidity (calculated as the sum of BTC in the buy-side with 10% of current price across all exchanges): 3.25 BTC

Liquidity-to-Network Value %: 0.94%

Supply Available on Exchanges: 1,178,223 GEL

% of Circulating Supply Available on Exchanges: 6.82%

*Volatility is calculated by taking the average price over the given time-period, calculating the difference between it and the highest price and it and the lowest price over that same time-period, and multiplying those figures together. The closer to 0, the less volatility during that period, and vice-versa. Read this for more on volatility.

**Transactional Value in $ is calculated by taking the daily transactional value in GEL and multiplying it by price.

***NVT is calculated by dividing the Network Value by the Average Daily Transactional Value. See here for more on NVT.

Supply Emission & Inflation:

Block Reward Schedule: N/A (and no indicated token curve available)

Average Block Time: N/A

Current Block Height: N/A

Annual Supply Emission: ~81,000,000 GEL* (1615.95 BTC at current prices)

Annual Inflation Rate: 469.03%

Circulating Supply in 365 Days: 98,269,700 GEL

*Given that there is no detailed or indicative token curve available, I have opted for a 10-year emission schedule for the community development tokens, which I think is fair, and thus would give us ~21mn GEL of emissions over the forthcoming year. On top of that, you have 44mn GEL of private sale unlocks and 16mn GEL of team and founder tokens unlocked after one year, giving ~81mn GEL of potential emissions.

Token Sale:

The following details were taken from this source.

Public Sale Period: 13th September 2021

Total Tokens: 420,690,000 GEL

Total Tokens Available for Public Sale: 16,827,000 GEL

Total Raised: $5,000,000

Average IEO Price Per Token: $0.30

Total Tokens Sold: 16,827,000 GEL

Further Details:

Gelato raised funding with three rounds of private sales prior to the public sale. These included a seed round priced at $0.019, a builder round priced at $0.1189 and a venture round at $0.2971, with no details disclosed as to allocations within those, with the team instead confirming that 21% of the maximum tokens were sold across those three rounds.
Regarding token distribution, 50% of the maximum supply is allocated to community development; 15% to the founders; 10% to the future team; 21% to the private sale and 4% to the public sale.

Distribution:

Address Count: 2357

Supply Held By Top 10 Addresses: 14.12%*

Supply Held By Top 20 Addresses: 20.53%*

Supply Held By Top 100 Addresses: 45.67%*

Inactive Address Count in Top 20 (30 Days of No Activity): 6**

*Calculated as a percentage of circulating supply controlled by non-exchange and non-smart contract addresses.

**Excluding team, exchange and smart contract addresses and including subsequent private addresses.

Analysis:

If we begin by taking a look at on-chain data, we find that Gelato has averaged 67.8 daily transactions for the past 30 days, equating to an average daily transactional value of $1,325,346, which gives it a 30-day NVT of 12.13, which is exceptionally low and gives some indication as to potential undervaluation of the protocol.

Now, looking at the remaining General metrics, let’s take a look at Volatility:

I calculated this to be -0.167 for the past 30 days, which is actually quite high, and thus not indicative of an accumulation range, where volatility is low for an extended period of time. Instead, we can assume that price has recently exited a range, and we will take a look at this more closely later in the report. For now, the conclusion I would draw is to suggest that more opportune entries may come up if we can wait for a period of lower volatility.

Next up, we have the metrics relating to Liquidity:

Firstly, I found that there was 3.25 BTC of buy-side liquidity within 10% of current prices to be found across all exchanges, equating to 0.94% of its Network Value. This places Gelato somewhere in the middle among prior reports, which is not particularly impressive, particularly in the face of its vast fully diluted valuation. I would like to see more buy-side liquidity here to show that there are plenty of willing buyers at market.

As for sell-side liquidity, I found that 1,178,223 GEL was available for purchase in the orderbooks, equating to 6.82% of the circulating supply. This is the 5th-highest figure recorded in these reports. At first, this appears a poor show on both the bid side and the supply side, as regards overall conviction in the market, but it must be mentioned that 90% of this supply is held of Uniswap, and thus likely to be in part provisioned by the team itself for liquidity purposes. There is actually very little GEL being held on the orderbooks of centralised exchanges, from what I can see.

Moving onto volume, Gelato is reported to have traded $822,687 of Exchange Volume over the past 24 hours, equating to 5.12% of its Network Value. However, much of this is wash trading on less reputable exchanges, and if we discount the wash, the actual traded volume appears closer to $146,574, which is 0.91% of its Network Value (or market cap). Further, Average Exchange Volume was $156,506 (accounting for wash) for the past 30 days, equating to 1.41% of Gelato’s Average Network Value for the same period. This indicates a moderate level of speculative interest of late.

Now, let’s take a look at Supply Emission:

This is a much murkier area than I had wished for, simply because we have not been provided with any detailed nor vague indications of expected token emission over time. We know that all of the maximum supply is already in existence because GEL is an ERC-20 token, but much of this is locked in various smart contracts and held by the team. We do have access to a vesting schedule for some of the supply, using which I determined that ~44mn GEL will be unlocked to private investors after 1 year and ~16mn team tokens will be unlocked across that period also. However, given that 50% of the supply is allocated to community development and none of this is beholden to a vesting schedule, I have opted for a 10-year release schedule, where I expect 10% of that allocation to join circulation on average per year. As such, that gives us another ~21mn GEL of potential supply joining circulation. Given this, we can determine that ~81mn GEL is likely to be free to join circulation over the coming year, equating to 1615.95 BTC at current prices, which gives a 469.03% annual inflation rate. Naturally, this is not ideal from a speculator’s perspective, as this is potentially significant headwinds to price growth over the forthcoming year.

Now, more important than the nominal figures for emission alone are their relationship with traded volume and liquidity.

If we take the above figure of 81mn GEL possibly joining circulation in the forthcoming year, we can work out that average daily supply emission during that period will be 221,917 GEL. This equates to 4.43 BTC, or $206,664-worth. Given this, Gelato’s 24-hour traded volume of $146,574 is insufficient to support such emission. Further, its buy-side liquidity is 30% lower than that of its expected average emissions, which again is not promising.

Finally, let us take a look at some Distribution:

Using the rich-list, I found that there are currently 2,357 holders of GEL.

Of the maximum supply of 420.69m GEL, the top 10 currently control 96.5%. However, as most of this is held in smart contracts, if we look specifically at circulating supply and exclude team, exchange and smart-contract addresses, the top 10 control 14.12%; the top 20 control 20.53%; and the top 100 control 45.67%.

Among the top 20 non-exchange, privately-owned addresses, 6 were inactive over the past 30 days, whilst only 1 address was found to be distributing and 13 were accumulating, with net inflows into these addresses of 2,009,091 GEL over that period, equating to 11.6% of circulating supply. This, in contrast to many other metrics mentioned here, is extremely promising stuff for a speculator. Much of this accumulation appeared to also occur around March 15th, which, when we look at the chart a little later, is particularly interesting.

And that concludes this section. Onto the Gelato 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.

Gelato is present on all platforms except Facebook. To begin, let’s look at the various social metrics that I calculated from the Gelato Twitter and Facebook accounts:

Twitter Followers: 34,708

Tweets: 1,398

Average Twitter Engagement: 0.15%

Facebook Likes: N/A

Facebook Posts (30-Day): N/A

Average Facebook Engagement: N/A

As usual, I will be using RivalIQ‘s social benchmark report for evaluation purposes.

Twitter:

Gelato has a moderately large audience of 34,708 followers. Its engagement rate, however, is quite poor at 0.15%. Relative to global benchmarks, this is 3.3x greater than the average across all industries of 0.045% and 5.5x greater than the average in the Tech and Software industry of 0.027%. That being said, relative to other projects featured in these reports, it is right near the bottom of the pack. Much more work needs to be done here: whilst there is a clear commitment to keeping the audience informed, with regular content posted, much of this is clearly missing the mark and the audience is unengaged.

Facebook:

There is no Facebook page for Gelato.

Telegram:

There are 12,076 members of the Gelato Telegram group.

I have provided my key takeaways from recent activity in the group below:

Whilst there is some degree of daily discussion, this is fairly limited considering the size of the group.
The team are active in the chat and thus community queries are responded to promptly.
The community appear highly interested in the upcoming $SPICE token, which will be airdropped in exchange for locking up GEL.
There are plenty of questions from the community about actually using the products, as opposed to simply focusing on price, which is good to see.
There is some palpable excitement about the products being developed and their expected impact.
The closest competitor for Gelato is expected to be Chainlink Keepers.
Beyond this, the group is used to push out updates from the Medium blog, with little else as regards activity. Again, a conclusion that can be drawn from this is that a greater focus on community engagement is required: sure, there are 12k+ members in the group, but if less than 1% of these are involved in discussions, it becomes irrelevant.

Discord:

There are 10,136 members of the Gelato Discord group.

Given that the activity within this group is very similar to that of the Telegram, I will refrain from repeating myself and elongating this report. What I did find is that activity is even more limited than in Telegram but more focused on development, with many channels inactive.

BitcoinTalk:

There is no BitcoinTalk thread available for Gelato.

And that concludes my evaluation of the Gelato community.

Let’s take a look at its development:

Development:

For the following Development analysis, I will be evaluating project leadership, the whitepaper, the roadmap, available wallets and finally providing a general overview of developmental progress:

Project Leadership:

There are 12 team members listed on the website and 7 employees listed on LinkedIn.

More specifically, the team is comprised of:

Moreover, the team are hiring for 9 positions, which is promising.

Whitepaper:

The whitepaper can be found here.

Below, I have provided my key takeaways:

Smart contracts are inherently lazy and within DeFi the need for automation of smart contracts is paramount.
Bots are required to power smart contract automation. These bots would need to operate as a decentralised, reliable network.
Gelato seeks to increase reliability and improve upon the sophistication of automations whilst reducing centralisation. This infrastructure has already been built and is continuing to be developed.
Gelato has already proven that it can power smart contract automation without custody, having launched a v1 in July 2020 and a v2 in April 2021.
Every month, thousands of automations are executed on Gelato.
Gelato functions as an open marketplace between developers that seek to automate to improve user experience and operators who want financial rewards. This is a permissionless marketplace where all parties are held accountable whilst remaining decentralised in its core functionality.
The protocol comprises an Executor module, a task registry, use-case contracts and software clients.
The focus at present is automation on Ethereum, followed by EVM-compatible blockchains and then other blockchain protocols and Layer 2s.
Gelato generates revenue – and as more transactions are automated, executors needs to be paid less to cover fixed costs and can justify costs based on transaction quantity: the goal is therefore more and more transactions rather than higher value transactions, per-se.
Live integrations and customers include: Instadapp, with $10.4bn in AUM, utilising automation for over $290mn in collateral and debt, as well as enabling users to migrate debt from Ethereum to Polygon, plus utilising G-UNI (Gelato’s automated liquidity management system) to incentivise liquidity; Limit Orders on AMMs, including QuickSwap, Sorbet Finance and Spookyswap; G-UNI, which is an automated liquidity management framework, which has been integrated into Zerion with 200k+ monthly active users; ETHA Lend, utilising automation for harvesting yield farm rewards; KeeperDAO and Cono Finance for liquidation protection; and NFTs and Gaming via Seascape, to automate basic tasks.
Future use cases include: combining off-chain conditions with on-chain actions (the example given here is purchasing x amount of a token if y tweets about it); becoming a transition layer; automated DAO fund management; automated trading strategies; automated NFT reward minting and more.
DeFi on Ethereum is the primary target market.
Gelato DAO will be the on-chain governance system where GEL holders are stakeholders.
The GEL token is expressly for governance and for staking in order to hold executors accountable. There are no expected cash flows associated with it.
Investors include Gnosis, MetaCartel Ventures, Galaxy Digital, D1 Ventures and many others.

Roadmap:

The roadmap can be found here.

This roadmap is a little outdated as most of the content on it predates 2022 and is taken from the token sale page, with no updated roadmap available since, which is a shame.

That being said, 2022 will see the development and release of off-chain condition verification and payload generation, as well as cross-layer automation on ETH and the launch of the on-chain Gelato DAO. As we move away from 2022 into 2023-2025, the team will be focused on seamless automation between web2 & web3 apps and launch of cross-protocol automation on Cosmos, Polkadot, Near and ETH.

It really is a shame that there is no other roadmap available, as an updated roadmap with greater detail now that we are into Q2 of 2022 would be vastly helpful in determining the direction of Gelato and would also help the community to better understand where progress is being made and where it is currently stalling.

Wallets:

As GEL is an ERC-20 token, it can be stored on any compatible wallet, including hardware wallets like Ledger and Trezor, web wallets, mobile wallets and desktop clients.

Developmental Progress:

I have provided a breakdown of key events and milestones below, garnered largely from Gelato’s public blog:

In 2021, Gelato executed over 458,000 transactions.
Gelato’s core team has grown to 20 members.
Gelato v2 was released in 2021 as a more cost-effective and reliable automation protocol.
The team released a Limit Order SDK to allow for ease of integration into DEXs.
G-UNI – Gelato’s LP management – grew to over $500m in TVL. As such, the team have put forward a proposal to which a counter-proposal has been accepted to separate G-UNI and form a separate entity with its own DAO given its size, with SPICE as the governance token. This will be rebranded as Arrakis.
Sorbet Finance was released as an in-house DEX for the team to showcase features.
Gelato Ops was released as a smart contract automation hub, being utilised by MakerDAO.
Gelato released the private beta of their MultiChain Relay API, allowing for gasless transactions using a single API.
Gelato was deployed on multiple chains including Polygon, Fantom, BSC, Avalanche and Arbitrum.
Gelato is doing over 23k transactions daily across these chains, with most growth on Polygon.
Minimax Finance integrated Gelato for stop loss processing automation.
Gelato Ops grew 86% month-on-month in March 2022.

And that concludes my fundamental evaluation of Gelato.

Technical Analysis

GEL/USD

GEL/BTC

Given that GEL has only been trading for 6 months, both pairs look identical and I will be focusing on the Dollar pair as it has cleaner structure. Thus, if we glance at GEL/USD, we can see that price began trading in mid-September 2021 with a small rally that was swiftly retraced into an all-time low at $1, which then acted as the base for Gelato’s first bull cycle, rallying into resistance at $2.97, retracing to find support again above $1 and then ramping up into euphoria as the all-time high formed at $4.21 in November. Following this, we saw the first bear cycle begin, which for all intents and purposes remains in play today. This began with a complacency shoulder at $3.88, leading to a slow bleed back towards that $1 low, holding above it at the beginning of this year but capitulating through late in January, forming a new low at $0.72 before retesting support as resistance up at $1.37 and then continuing to bleed lower into the current all-time low at $0.38 on March 15th. This ultimate high-volume capitulation into a new all-time low also just happens to have occurred on the same day that a large amount of accumulation occurred within the top 20 addresses, which indicates a potential bottom.

Following this, we have seen a rally and reclaim of support levels, with price pushing up into the 100dMA and just shy of prior support at $1.18, where it has now rejected. That does look to me like the first rally out of the depression stage of the cycle and if this is a cyclical bottom forming, we would now want to see that all-time low protected, with any retrace back into the $0.53-$0.72 area likely to be a re-accumulation range. If we do see price range-bound around there with the all-time low protected and large holders continuing to add, that is a strong sign that speculators should want to be involved at those prices, particularly for longer-term positions.

And that concludes my evaluation of Gelato.

Conclusion

This report is now approaching 4,000 words, and it is time to draw it to a close.

My final grading for Gelato is 6 out of 10.

Here, you can find my grading framework, for reference.

Lastly, here is a link to a Google Sheets file with any significant data from previous reports compiled for cross-comparative purposes. I will keep this updated as I continue to write these reports.

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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