N.B: In the spirit of full transparency, the following Coin Report on Lykke is a Sponsored Post.
Welcome to the 41st Coin Report. In today’s report, I will be assessing the fundamental and technical strengths and weaknesses of Lykke. This will be comprised of an evaluation of the project’s community and development and its latest Annual Report. The report will conclude with a grading out of 10. I hope you enjoy the read!
This Coin Report is going to be very different to the regular form, as, for the first time, the featured project is an exchange: Lykke. In some ways, this can be considered the first Exchange Report published to this blog. The guys over at the exchange got in touch to see if we could get a report out, as they have quite a few interesting things going on at the moment. I mentioned that I only publish Coin Reports on projects, but that I’d be happy to take on an exchange-focused report in a similar vein. As such, this report will omit the section on metrics, focusing instead on the community, developmental progress, the exchange itself and its most recent Annual Report, which reveals much about the business.
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 Lykke prior to reading this report, here are some primary links:
Lykke is an exchange that was founded by Richard Olsen (co-founder of OANDA) in 2016, with the exchange offering LKK – a coloured coin – to investors as representative of shares in the exchange. LKK are fragments of Bitcoin or Ethereum with metadata assigned to them designating their value and these allow for holders to receive dividends in the future. 100 LKK is equivalent to 1 share in Lykke Corporation. The corporation is located in Switzerland.
The exchange raised 1.5mn CHF (~$1.51mn) in an ICO, offering 30mn LKK at 0.05 CHF per coin in September-October 2016. This represented 2.33% of Lykke’s equity. LKK Supply is only subject to change pending shareholder approval.
More recently, the exchange has launched service tokens, dubbed LyCI and Short LyCI, referring to the Lykke Crypto Index, which allow market participants to take long and short positions in the top 25 cryptocurrencies without leverage. I will discuss these at length a little later.
The primary aims of Lykke differ vastly from the majority of projects in this space; firstly, because it is an exchange, and secondly, because it is not exclusively concerned with cryptocurrencies. In short, it is seeking to connect traditional finance to blockchain and digital assets, providing liquidity and issuance.
As stated in its FAQ:
“Lykke is a movement to build a global marketplace for the free exchange of financial assets such as Bitcoin, Ethereum and our Lykke Index. By leveraging the power of emerging technology, our platform eliminates market inefficiencies, promotes equal access from anywhere in the world, and supports the trade of any object of value.
Lykke bridges conventional finance with digital assets on the public Blockchain. To ensure this, we plan to be fully compliant with the regulatory regimes in all jurisdictions where Lykke operates.
Our marketplace is highly efficient and seamless. We provide immediate delivery and direct ownership. The transaction costs on our marketplace are low, thanks to our efficient corporate structure and new technology.
Lykke is not a cryptocurrency or distributed ledger technology venture; we are building a marketplace that integrates seamlessly with the existing financial system. “
I look forward to evaluating their progress.
Let’s begin by taking a look at the Lykke 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.
Concerning social media presence, there are four main platforms to examine: Twitter, Facebook, Telegram and Discord.
Lykke is present on three of these platforms. To begin, let’s look at the various social metrics that I calculated from the Lykke Twitter and Facebook accounts:
Twitter Followers: 6,629
Average Twitter Engagement: 0.08%
Facebook Likes: 1,561
Facebook Posts (30-Day): 41
Average Facebook Engagement: 0.35%
As usual, I will be using RivalIQ‘s social benchmark report for evaluation purposes.
Lykke has a moderately-sized audience on Twitter of 6,629 followers, which places it somewhere in the middle of the pack among prior reports. Less impressively, it has very weak engagement. The average engagement rate is 0.08%, which is the lowest, relative to other featured projects. Relative to global benchmarks, this is 8.8x greater than the Media industry and 1.66x greater than the average across all industries. Clearly, there is plenty of work to be done here on improving engagement.
Lykke’s Facebook page is modest in its audience with 1,561 Likes; the 12th-largest among prior reports. Further, its engagement rate is 1.35%, which is significantly better than its Twitter account. This is 15x greater than the average across all industries. It seems the Lykke Facebook audience is more receptive to their content than on Twitter. Perhaps a different strategy needs to be created for the latter – social platforms are even more important for an exchange than they are for regular projects in this space.
There is no Discord group for Lykke.
There are 1,680 members in Lykke’s Telegram group.
Despite the moderate group size, there is very little activity. I found a few dozen messages over the past week, with discussion involving some user issues that were then resolved; Lykke are not currently distributing dividends; and the exchange supported the Istanbul upgrade for Ethereum recently. Beyond this, there was no real discussion around the exchange and its future plans, nor any palpable commitment from its users.
The Lykke BitcoinTalk thread was created on 17th March, 2016, and has since generated 2,536 posts spanning 127 pages in 1,359 days. This equates to 1.86 posts per day, on average. However, in the past 90 days, the thread has had 10 posts via 1 individual poster, effectively rendering the thread dead.
Regarding the ANN itself, it is sparsely branded but informative, with its tagline reading “Lykke is building a global marketplace for the free exchange of financial assets.” Below this, we find links to an FAQ, whitepaper, the website, news, fees and limits and LyCI (the token representative of a crypto index, which we shall come to in the following sections of this report). There are also links to the Lykke Wallet on Android and iOS, which is the primary tool for interacting with the Lykke trading ecosystem. We also find a brief overview of how to use the wallet, as well as an outline of the mobile app’s primary features, including: a wide array of assets, such as FX currencies, Bitcoin and other cryptocurrencies; full control of assets; clear organization via trading and private wallet; margin trading; private key imports; seamless deposits; and strong security, including the ability to remotely disable access to the phone if it is lost or stolen.
Regarding the content of the thread over the past 90 days, as mentioned above, this has all come from one poster, thus it is unlikely that many are paying attention to the thread anymore. Within the 10 posts, I found that the exchange had its fourth birthday, launched Short LyCI that allows for market participants to bet against the crypto market, an interview with Richard Olsen, the launch of a trading competition, a new listing for Dynamic and some details on an upcoming market data service dubbed Black Cube. Clearly, despite the lack of interest in the thread by potential users, Lykke are continuing to active develop the exchange and its services.
And that concludes this section. Onto 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:
There are 10 core team members listed on the website, with 83 employees listed on LinkedIn.
Regarding the core team, there are 5 listed in Leadership, including the CEO, Richard Olsen, who was co-founder of OANDA. There is also a Chief of Staff, with 20+ years of experience in strategy and international finance; a Chief Product Officer; a Chief Technology Officer; and a Chief Innovation Officer. There are two listed under Lykke Future, with Sergey in Products & Operation having 20 years experience in the finance industry and Mihail in Technology having 10 years experiencing in creating market solutions. Niklaus Mettler, with 30 years of experience in project management, is working in B2B, and there are two members listed under Board Members and Advisers.
The website, as one would expect of an exchange, is well-designed and moderately well-branded. The header includes real-time prices for various assets, including the Lykke Crypto Index (LyCI). The tagline read Swiss Quality Exchange and an overview is provided of the exchange beneath this. The mobile app is featured in the centre of the homepage. Below this, we find an overview of the Lykke Wallet and a link to sign up to create an account, from which users can then interact with the ecosystem. Following this, we find an introduction to the LyCI (Lykke Crypto Index), which is “a weighted index that consolidates and tracks a selection of the world’s top performing cryptocurrencies.” There is a link provided here to further reading and an image provided breaking down an example weighting of the index. This is depicted as the primary tool for market participants to invest in crypto, as a whole, rather than selecting their own portfolio. Further down the homepage, we find the latest publications to their blog (great to see that this is regularly updated). We also find testimonials and social links towards the footer of the homepage.
Regarding the LyCI and ShortLyCI tokens themselves, which are prominently advertised on the homepage, we find two separate informational pages. The Lykke Crypto Index service token is an ERC-20 token that mirrors the top 25 cryptocurrencies, allowing users to invest in the bulk of the entire market without having to manage their own portfolio. The fee is 1.45% per annum, deducted from the the basket value upon settlement; given the volatility of the market and the work required to provide this token mimicking real-time changes in the value of the top 25 cryptocurrencies, this seems fair as an option for those who do not have the time nor the skill to select their own investments. There are also smaller, more specific index service tokens provided, including PayLyCI, which tracks the top 10 payment cryptocurrencies, including Bitcoin, Monero, Litecoin and Dogecoin, and SmartLyCI, which tracks the top 10 projects involved in smart contracts, including Cardano, Ethereum and EOS.
Conversely, the more recent Short LyCI provides users with an option to short the top 25 cryptocurrencies without having to margin trade, allowing for limited downside risk. At first glance, this appears to me to be a great idea for a potential hedging option when bull cycles appear to be reaching euphoric heights. This certainly would have been valuable as an option in 2017/18. The fee for Short LyCI is 3.45% per annum. The token works inversely to that of LyCI, with each percentage increase in the valuation of the top 25 cryptocurrencies equating to a percentage decrease in the value of Short LyCI. The primary issue I have found is liquidity, which is quite poor for the token at the moment, though it has only been in existence for a couple of months.
Finally, regarding the trading exchange itself, which is found once one signs up to the Lykke Wallet on the site, I find the interface to be appealing and easy-to-use, with integrated TradingView charts, dark mode and clear order depth charts (often missing on many exchanges). There is also a high degree of control over the decimal grouping of the orderbook; a useful tool when determining liquidity. Overall, it is simple in design but functional.
There is no roadmap available for Lykke.
The Lykke whitepaper is not concise by any means at 105 pages, but this is to be expected of an exchange, given the innumerable moving parts. That said, it would be unfeasible to cover the entire document here, and, given that it is dated December 2017, some of the information is either out-dated or inaccurate.
For the purposes of this report, I believe it is more important to take a look at the most recent Annual Report, given that these are published with full transparency every summer and contain more applicable data, which I have done in the General section of this report, found below.
There are a few bullet-points about the exchange itself that I would like to highlight here, having not had the opportunity to do so above. All of the below has been taken from their most recent available Annual Report, released in July 2019 for 2018:
- Lykke is currently awaiting receipt of its Organized Trading Facility licence from FINMA.
- They have an established user-base of over 100,000 registered users.
- They offer zero trading fees on over 100 assets at present.
- Despite lower operating expenses in 2018 than 2017, operating results were -11.8mn CHF for 2018. This was due to negative operating income, where 2017 had 11.9mn CHF operating income.
- Lykke had post-tax profits of -0.5mn CHF in 2018.
- Lykke had 5.5mn CHF cash on-hand and net assets of 3.3mn CHF in July 2019.
- The exchange averaged ~1000 new registrations throughout July 2018 – July 2019.
- In July 2019, there were 1385 active users (those who make at least one trade per month).
Clearly, Lykke has suffered significantly with the severe bear market experienced in 2018. That said, there is a very large user-base that can be capitalised on as trend begin to change and as new products and services are offered, which include the LyCI and Short LyCI service tokens.
And that concludes this final section of the report on Lykke.
This report is now approaching 3,000 words, and it is time to draw it to a close.
My final grading for Lykke 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.