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Seeking Alpha 2022-12-02 23:45:15

Chiliz: Add This One To Your Stocking This Crypto Winter

Summary Chiliz is a Proof of Stake Authority blockchain built for creators and community building. The flagship front end application of the blockchain is Socios - a professional sports fan token issuer. Fan tokens are a far more active market than NFTs and figure to have far more staying power than the avatar mania of 2021. US regulators are the major hurdle but the development team behind Socios has been very cautious because of jurisdiction risk. As the broad crypto market tries to find a direction to close out the year, there have been a variety of coins in the space that have held up considerably well since the FTX (FTT-USD) meltdown. Some are even up over 100% since the June lows. One such coin is Chiliz ( CHZ-USD ). Chiliz is considered a "creator economy" or "community token" that was founded in 2017 by Alexandre Dreyfus. In this article we'll look at the token supply metrics, the current focus of the core development team, the market performance of the core product, and key risks to consider before buying the token. Token Specs The Chiliz blockchain is essentially a side chain that was built on Ethereum ( ETH-USD ). There are currently a little over 6 billion CHZ tokens in the circulating supply with 8.88 billion as a supply cap: Max Token Supply: 8.88 billion Circulating Supply: 6.14 billion (69%) Token Price: $0.17 Market capitalization: $1 billion Fully diluted cap: $1.5 billion Market Cap Rank: 41 The original token distribution had over 3 billion CHZ going to early investors from a token pre-mine sale. CHZ Distribution (Chiliz) Those investors include Jump Capital and Binance Labs ( BNB-USD ) among others. The current token distribution shows over 65% of the CHZ is held by the top 10 wallet addresses. Top 10 CHZ Addresses (Etherscan) Two of those wallet addresses are Binance addresses and the largest holder is a multisig wallet that is under the control of Chiliz. This is a fairly large centralization of control compared to other creator economy tokens like Basic Attention Token ( BAT-USD ) for example . But the centralization of the Chiliz chain has been somewhat by design. Socios The first application built on top of the Chiliz blockchain is Socios. Socios is the main consumer front end of the Chiliz blockchain at the moment and the same team behind Chiliz is behind Socios. Socios is a sports entertainment platform that allows fans of certain professional sports clubs to purchase "fan tokens" of those clubs. These fan tokens could be viewed somewhat similarly to NFTs though they have a strong voting power associated with each token. Holders of the tokens are able to vote on real decisions by the clubs for which the tokens are associated. For instance, holders of the Manchester City token can vote on what kind of uniform they want the team to wear on a given day or which songs they would like to hear played in the stadium following goals. These tokens don't give holders influence over organizational decisions like roster building or employee staffing. The tokens can largely be viewed as supercharged fan club memberships with special powers. The important aspect of the Socios platform and all of the fan tokens built on the Chiliz chain is the need for CHZ tokens for the transactions. For fans to buy tokens of their favorite teams, they have to have the CHZ tokens as the in-app currency. While all of the CHZ isn't currently in circulation, the remaining dilution risk is much less of a concern than it is in some of the other popular community or creator tokens. Initially the Chiliz blockchain was a closed chain that was used to focus entirely on building Socios as a proof of concept. The team behind the chain is now calling it a PoSA chain, which stands for "Proof of Stake Authority." Chiliz says this will allow the network to become more open to approved projects and protocols running on the Chiliz network and it will make Chiliz less dependent on Socios going forward. Market Response The fan token experiment has been a fairly large success so far in my opinion. There are just under 1.8 million wallet addresses on the chain and 28.8 million total transactions. The project has had important endorsements from world class athletes like Lionel Messi . Additionally, numerous professional sports organizations in the NBA, NFL, NHL, and MLS have signed on as partners. NFL Partners (Socios) Despite the interest from US-based organizations, to this point only international clubs have released fan tokens to further engage with their communities. But even as the crypto market has struggled and the NFT market has collapsed, CHZ has seen a very positive trend in weekly active users since August: CHZ Weekly Actives (Dune Analytics/lcai) Given the enormous footprint of international club partnerships on the Socios platform, a large part of this surge in weekly active users is no doubt the anticipation for the FIFA World Cup. Additionally, the market for fan tokens seems to have more staying power than the explosion of pointless avatar NFT projects. This is evidenced by the nearly 3 to 1 advantage fan tokens have historically over NFTs in gross sales volume: All time Sales Volume Non Fungible Tokens $41.3 billion Fan Tokens $113.5 billion Source: CryptoSlam To be clear, a large portion of this volume is certainly just speculative swapping of tokens back and forth by a small number of actors. Regardless, I think there is quite a bit of potential for real utility of the Chiliz blockchain if Socios is opened up for the American market. And that gets us to the key risk. Risks There is no guarantee that the Socios consumer front end of Chiliz will ever be viewed positively by regulators in the United States. But the organization behind Socios has taken a very cautious approach with jurisdiction risk as the platform is not available to US consumers and no US sports organizations have issued tokens through the Chiliz blockchain. In my view, that caution has likely been very wise. If fan tokens for professional teams in the US are ultimately allowed, I believe the ceiling for CHZ is very high. If the fan tokens are not allowed domestically, CHZ could still move up considerably as long as there is still international interest in Socios and fan tokens without US clubs. So far, the interest in international club tokens has been real but it is definitely concerning that the tokens have been used for speculation to the degree that they have. Despite the lack of access to Socios, US consumers are still able to purchase CHZ through various exchanges and DeFi swapping protocols. Summary I've explored Chiliz in my BlockChain Reaction service previously and I've gone into quite a bit more detail about what I like about the CHZ token. You can read the deeper analysis here . I've given CHZ the "top token idea" designation in the service and it has been one of the best performing assets in both the BlockChain Reaction portfolio and the overall crypto market since that designation. We're still very much in crypto winter. Nobody knows how long this will last or how low some of these coins will go. But if you're looking for solid long-term speculative bets in this market that have a high potential return, I think CHZ is definitely one to put on your radar while the market continues to weed out poor coins.

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