Zerostate ICO Review: Not Our First Choice

1.ICO Overview

We’ve been writing a lot lately about passive mining, particularly Social Mining. Mainly, that’s because every man and his dog seems to want in on the space.

The dog in question this week is Zerostate.

Zerostate is a tack-on. An existing social app that hasn’t got very far and decided to milk the ICO cow. How? By tacking on a token and wrapping an EQ (emotional intelligence) bow around it.

2.ICO Proposition

Ticker: ZSC

Token Type: ERC20

Token Price: 1 ZSC = 0.00047 ETH

ICO Soft Cap: $4m

ICO Hard Cap: $20m

Total Tokens: 100m

Tokens for sale: 65m

Investor Proposal:

Company Incorp

According to AppAnnie, the company that owns the current Zerostate App is called IdeMind IC. We can find:

• No company registration about IdeMind online;
• No information about their previous funding in 2016.

Planned Token Replacement

Zerostate say they will generate an ERC20 Ethereum token for ICO but, “that will become a temporary replacement of the future token in the ZeroState Blockchain infrastructure’’. After the ZeroState Blockchain development and scaling are finished, the holders will be able to exchange ERC20 tokens for ZSCoin tokens in the ZeroState Blockchain infrastructure.

Startup Proposal:

Zerostate are convinced by enabling consumers to make a one-word comment on an advert, a picture, then giving users a tiny almost invisible token reward for doing this, that it will be enough to drive advertisers away from Facebook (NASDAQ:FB) and toward them.

How It Works

1. User installs the Zerostate App and signs up
2. User searches for adverts to review
3. Advertiser creates an account (Smart Contract with Rules and Wallet) and loads up funds
4. Advertiser creates an Ad campaign. This is done by creating a ‘product card’
5. Advertiser launches the Ad campaign
6. User discovers that Ad campaign
7. User either reviews the campaign or confirms someone else’s review
8. User submits a review by entering one word which is classified as an emotion.
9. Each time a user does a review, they earn ZSC coins.
10. Each emotion gets captured and rated on the campaign’s product card
11. All the product cards are then displayed on the advertiser’s page (in the App)
12. Users can then filter product cards by emotion or rating
13. Product cards can contain ‘buy’ links to the advertiser’s site

3.Feasibility of idea/business model in current market

Existing user base

Zerostate claim their app has already been downloaded 60,000 times in 2018. We checked this claim against download data from Sensortower.com. Sensor tower found that in April, Zerostate got 10,000 downloads from its IOS and Android App. Based on that data, this suggests their download figures are accurate.

Transaction approach

Zerostate will aim to process 300,000 to 3 million transactions per minute by:

• Wrapping multiple transactions from one sender into one transaction confirmation (saving the sender multiple transaction fees);
• Numbering all transactions and messages sequentially so they can be processed simultaneously.

Flawed: Their concept

Zerostate ‘aim’ to partner with the likes of iTunes. They also plan to either compete with or try partnering with Social Networks and Search Engines (depending on who they can tie up deals with).

Zerostate believe they offer a superior concept for advertisers compared to what exists today on sites like Facebook and Google (NASDAQ:GOOGL). They claim:

“On social networks, you can only search for people by their interests, but they do not always reflect their personality”.

This has to be one of the most moronic statements we’ve ever read in a White Paper.

Think about it. Why would the interests you select on your social profile NOT reflect your personality, your taste?

Facebook profile users for advertising, based on interests, things people talk about, post about, tag pictures about. If these things are such a poor indication of someone’s personality how come (according to Zerostate) Facebook have managed to become the biggest mobile advertising platform in the world?

Zerostate also claim sites are inefficient for matching people, because they can’t do this:

“If you live efficiently, you need only to type «efficient» in Zerostate, to find people who do the same”.

Now call me crazy but that isn’t something new, is it?

Isn’t that called keyword search and doesn’t it exist today on millions of sites?

Zerostate go on to say...

“Google search will produce a lot of hits for «romantic» restaurants and none for the nearest one that has been previously rated as «romantic» and actually turned out to be such.”

That may be true for Google, but there are thousands of reviews sites out there that already offer this filter criterion. We searched Tripadvisor for restaurants near us, and it offered us reviews by ‘romantic’ filters.

So Zerostate’s arguments about why they are better than other online players is ludicrous. In a nutshell, they have built a solution to a problem that does not exist.

Zerostate say “The average CPM in ZeroState does not exceed $2, while the market average is $4. Placing an advertisement on ZeroState is twice as efficient and attractive”

It doesn’t matter how cheap something is; if it delivers no value, it won’t attract advertisers.

Flawed: The validity of their reviews

Zerostate say, “When customers are not forced to praise a product, we can obtain a fair and full evaluation”.

We agree but when you financially bribe customers is that any better, or does it fundamentally undermine the impartiality and credibility of those product reviews?

Feasibility of their Business Model

Unsubstantiated: Growth & Break Even

What are Zerostate’s user growth projections (below) based upon?

Where’s the research? Whose historical growth did they benchmark against to arrive at these growth projections?

Zerostate claim they have a proper financial model. Where is it? Is it hiding? How are investors expected to make an educated guess at whether Zerostate have massively overhyped their user projects without knowing what assumptions those projections were based on in the first place?

Flawed: Impression Cost Claims

Zerostate claim, according to their ‘statistical analysis’ “by spending $10 on a campaign, an advertiser gets an average of 15,000 impressions”. Yet Zerostate charge $2 for 1000 impressions. So that would mean 15,000 impressions would actually cost $30, and not $10?

Confusing: Advertiser Fees Description

We found three different descriptions in Zerostate’s White Paper that explain how they charge Advertisers:

“ZeroState fee will be 20% of each advertising budget as payment for the services and company costs.”

“The company charges 20% of each advertising budget for hosting and supporting the campaign.”

“All transactions and account service go with a fee. Advertisers pay 20% of all transactions from their accounts to the ZeroState account as a service fee.”

We found this confusing. Why? Because the first two descriptions justify their fee in different ways. The last description makes it sound like they are charging 20% for payment processing which would be mind-blowingly expensive.

Limitations: Social Mining Models

Zerostate say, “The price of ZSCoin is directly linked to the number of active users and ongoing promotions. The more users and promotions there are, the more ZSCoins are bought for settlements in the market. As the quantity of tokens is limited and the number of users is growing, the token price will grow as well.”

Now, a lot of ICOs like to dangle this carrot to investors, but investors, think it through.

If Zerostate stop FIAT for advertisers, advertisers will be forced to pay using tokens. If token prices rise, so does entry to Zerostate for its advertisers.

Social mining might seem like a really cool model right now, but the core concept has flaws.

4.ICO Team

The CXO team make claims in their White Paper that they have decades of experience. We tried to find something on Linkedin, but the team couldn’t be bothered to complete their profiles.

We tried contacting Zerostate several times on their telegram channel to request their help in verifying their executive team.

Eventually, the CTO came on, and here is what he said:

Not a public person yet? Is this idiot for real? He is the public face of a company asking for $20 million right now, he is the Chief Technology Officer of a public listing, and he couldn’t be arsed to complete a simple LinkedIn (NYSE:LNKD) profile to verify he actually has 21 years of Tech credentials.

Investors, now I want you to imagine this guy armed with $20 million dollars of your money. Imagine him not doing his job, not delivering. Do you feel confident you’d get answers from this guy?

5.SWOT

Strengths:

• Technology: They’ve built an existing platform, and the team seems to understand Blockchain architecture.

Weaknesses:

• The Proposition: we don’t think this one-word review approach, wrapped up as ‘emotional intelligence’ is substantial, and we are skeptical that advertisers will find it valuable enough to want to continue paying 20% to use Zerostate’s platform.

Opportunities:

• If Zereostate can bring in some Emotional Intelligence experts and data scientists, to flesh out the EQ side, this could be a proper differentiator.
• If Zerostate offered users the ability to cash out in FIAT

Threats:

• Facebook, Google, Tripadvisor, Reddit, FourSquare, Renren, Badoo, Tagged, Twitter, WeChat, Baidu, Instagram, Sina Weibo, Line, Snapchat, Stumbleupon etc. In fact, any online platform that has millions of users, photo sharing capacity, and ability for users to comment is a threat to Zerostate.

6.Conclusion

We see this as a minor player in the Social Mining space, possibly with a run time of five years maximum.

7.Score 0 – 5

• Idea/Business Model 2
• Scope/Potential 2
• Team/Advisers
• Token Economy 4
• Marketing 4
• Community/Communication 4