Review on Proposal #123252 - Create Hot or Not's SNS DAO
Author: @spnrapp
Date: June 24, 2023
Recommendation
Vote: Yes
Proposal
SNS ("Service Nervous System") public sale on IC ("Internet Computer") requires 2 NNS ("Network Nervous System") proposals. Hot or Not's CTO Saikat Das announced Hot or Not's plan to launch SNS in a post published on DFINITY's Developer Forum on May 12, 2023, to solicit community's feedback. On May 31, 2023, Hot or Not submitted the first NNS Proposal #122654 to create the SNS canisters, which received 49.374% Yes votes and 4.277% No votes when the voting ended on June 4, 2023, totaling 239 million voting power or 53.6% out of total NNS voting power of 445 million. On June 24, 2023, Hot or Not submitted the second NNS Proposal #123252 to create an SNS-DAO. Its voting window will end before June 28, 2023.
Context
Given that the first NNS proposal was already adopted by the IC ("Internet Computer") community, if the second NNS proposal is also passed, Hot or Not's SNS will commence, which means that the Hot or Not team will start a public sale for its token $HOT, raise funding from ICP holders (and Neuron's Fund controlled by NNS), create a DAO ("Decentralized Autonomous Organization") owned by its token holders, and transfer the ownership of its product Hot or Not to this newly created community DAO.
If this decentralization sale goes through, Hot or Not would become the third IC project team after OpenChat and Kinic to adopt SNS, an innovative fund-raising method in the IC ecosystem to issue tokens, create a community-owned DAO, and transfer DApp's ownership to this DAO in a major step toward decentralization.
| Project | Sale Closed | Fund Raised | Buyers | Price Now | Market Cap |
|---|---|---|---|---|---|
| OpenChat | 2023-3-3 | 1,000,000 ICPs ($5.5MM) | 2,375 | 0.069 ICP | $30.0MM1 |
| Kinic | 2023-6-25 | 501,362 ICPs ($2.0MM) | 663 | 0.43 ICP | $11.2MM2 |
Background
Hot or Not bills itself as Web3's answer to TikTok. It's a short-video social media platform with gamification features where users can upload/share/like videos. Its central thesis is that most of passive users ("lurkers") on social media nowadays (98% or 4.7 billion out of all social media users) receive very limited financial incentives, despite of their average spending of 2.5 hours everyday on those platforms. Hot or Not aims to provide monetization to this cohort with stronger user data protection.
Hot or Not was initially known as "GoBazzinga" that started in June 2021. After racking up 8k users in 6 months, it was rebranded into "Hot or Not" in April 2022. Its user base has grown to 82k as of June 2023 with 36% Week 1 retention. In recent months, its users averaged 16.5 minutes on the platform everyday, according to its FAQ. Hot or Not has three co-founders, CEO Rishi Chadha, CTO Saikat Das and CFO Utkarsh Goyal, with a total team of 5 full-timers and 6 part-time contributors. The three co-founders used to work together on an Airbnb-like startup VR1.ai.
Hot or Not supports two login/user authentication methods, Google login and Internet Identity that's developed by DFINITY. For in-app NFTs and its $HOT tokens, it supports Plug Wallet. It has open-sourced its code base on GitHub with a frontend repo and a backend repo.
Hot or Not team has been invited to attend DFINITY's global R&D call to demo its product, which is now featured as a Showcase IC project by DFINITY under "SocialFi" category. It recently attended the ICP.Lab - Storage & Scaling bootcamp hosted by DFINITY in Zurich, Switzerland. The team interacts frequently with DFINITY. It maintains an active profile on Twitter and industry events. The team writes a bi-weekly newsletter The ICP Summary on Nuance and Medium.
Sale
As explained in the tokenomics section in its whitepaper, there are two types of tokens from Hot or Not. $COYN is an in-game utility token with unlimited supply. $HOT is the governance token for participation in the decision-making of the platform and will be made available for the SNS sale.
$HOT will be initialized with 1 billion tokens at SNS genesis. 33% of the total supply or 330 million $HOT will be available for the public SNS sale, which will be transacted with a maximum limit of 2 million $ICP tokens and a minimum of 1 million $ICP. According to CoinMarketCap's price on June 24, this would value Hot or Not between $26.363 million and $13.18 million and equivalent of raising up to $8.70 million. 501,000 ICP is expected to come from Neuron's Fund controlled by NNS. DFINITY will also decide its vote according to guidelines laid out in the post "DFINITY’s voting on upcoming SNS launch proposals".
In either of the below two scenarios, the SNS sale will be called off and deemed incomplete (with ICP returned to SNS participants): 1) less than 1 million ICP is raised; 2) fewer than 500 investors participate in the sale. For each investor participating in the SNS sale, he/she needs to buy at least 1 ICP and can purchase up to 150K ICP.
| Party | Initial Token Allocation | Voting? | Voting Power |
|---|---|---|---|
| Founding Team | 15.0% | Yes | 25.7% |
| SNS Sale - Public | 24.75% | Yes | 42.1% |
| SNS Sale - Neuron's Fund | 8.25% | Yes | 14.0% |
| Advisors | 1.0% | Yes | 1.7% |
| Seed Funders | 9.75% | Yes | 16.6% |
| Treasury | 41.25% | No | 0.0% |
| Total Supply | 100% | ||
| Total Voting Power | 58.75% | 100.0% | |
| Total Voting Power by the Community4 | 56.1% |
Highlights
Hot or Not's whitepaper does an excellent job of outlining its technical architecture with detailed explanation of major components that are deployed on IC canisters vs components that are off-chain and the rationale behind those trade-off decisions. As both its front-end and back-end are deployed on IC, Hot or Not is tightly integrated with the Internet Computer and poised to fully tap into the growth potential of the underlying L1 blockchain technology that is being continuously developed by the DFINITY team.
Hot or Not's whitepaper also covers a substantial portion of its Go-to-Market ("GTM") strategies, demonstrating a lot of rigorous thinking by the team on how to acquire users. It's run successful marketing campaigns that have generated a lot of buzz and brought in new users and substantial cycles burn for the IC ecosystem. It's not common to see an IC project team that is able to not only build, but also scale.
We are impressed by both the quality of the whitepaper and the team's track record of operating a non-trivial application on the Internet Computer and making regular updates and improvements.
Concerns
The $COYN token seems redundant and confusing. According to the whitepaper, its main utility is "in-game", while the $HOT token is for "governance". $HOT holders will also get $COYN as "dividend", but there isn't a built-in mechanism of changing $COYN into $HOT, preventing bi-directional flow of value. While some people argued that a dual token model could be a good fit for GameFi, others claimed it is a potential trouble. It remains to be seen whether $COYN adds value to $HOT or it goes off the rails.
Not all DApp components will be managed by the SNS DAO should the SNS decentralization become successful. The DApp heavily relies on the developer team to operate the off-chain components in order to be functional. The whitepaper also made clear that this is a risk, and is betting on that the future improvements of IC will enable the DApp to be fully on-chain. This sounds more like a wishful thinking than a realistic plan towards distributed operations.
Content moderation has been a major challenge (technology-wise or labor-wise) for traditional Web2 players, and there is no reason to think otherwise for Web3 contenders, if not even harder. It remains to be seen how the Hot or Not team can implement effective content moderation mechanism.
Disclaimer
Please note that this review is solely expressing our view regarding Hot or Not's NNS proposal toward its SNS sale. It is NOT meant to be a fully fledged due diligence report or a referendum on the team behind Hot or Not, or the product developed by Hot or Not, or the business model for Hot or Not. That kind of analysis might be useful for the IC ecosystem at some point, but is beyond the scope of the current report.
Regardless of the conclusion of our analysis, please do your own research ("DYOR") on the above-mentioned DApp. Investment has inherent unpredictable risks. This report shall NOT be used as financial advice of any kind.
Footnotes
0.069 (CHAT/ICP) x $4.35 ($ICP's price on coinmarketcap.com) x 100,000,000 (total supply of $CHAT token) = $30.0 million at time of writing. $CHAT's initial listing valuation was 0.04 x $5.5 x 100,000,000 = $22.0 million. Life-to-date premium is 30.0/22.0 - 1 = 36.4% in dollar terms. ↩
0.43 (KINIC/ICP) x $4.35 ($ICP's price on coinmarketcap.com) x 6,000,000 (total supply of $KINIC token) = $11.2 million at time of writing. $KINIC's initial listing valuation was 0.334 x $3.94 x 6,000,000 = $7.89 million. Life-to-date premium is 11.2/7.89 - 1 = 42% in dollar terms. ↩
$ICP is at $4.35 from coinmarketcap.com on June 24, 2023. $HOT's valuation at high end = $4.35 x 2,000,000 / 33% = $26.36 million. ↩
Total Voting Power by the Community = (SNS Sale Public) + (SNS Sale Neuron's Fund) ↩