POA (Oracles) Network report

Gorodnitskii Oleg
16.06.2018

Contents
1 General overview. 1
1.1 Validators. Network vulnerability. . . . . . . . . . . . . . . . . 2
1.2 Horizontal scaling. Internet of Blockchains. . . . . . . . . . . . 3

2 Token pricing. Investment attractiveness. 4

2.1 Pre-sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Price analysis. Presence of buyers. . . . . . . . . . . . . . . . . 5
2.3 4-h chart analysis. . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.4 Listing on exchanges. . . . . . . . . . . . . . . . . . . . . . . . 9
2.5 Competitors. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

3 Summary. 12
3.1 Pros. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.2 Cons. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.3 Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

1 General overview.
POA Network (Oracles Network in past) is an open, permissioned blockchain
based on Ethereum protocol (5).

Permissioned blockchains maintain an access control layer to allow cer-

tain actions to be performed only by certain identifiable participants. Such
blockchains are popular among industry-level enterprises and businesses, for

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which security, identity and role definition are important.(6)

Unlike POA Network, Ethereum blockchain is not permissioned, but per-

missionless.

Suggestion 1. POA Network target users are industry-level enterprises and

businesses, for which permissionless blockchain can be unsatisfactory solu-
tion.

POA Network uses Proof of Authority (PoA) consensus. Proof of Au-

thority is a modified form of Proof of Stake (PoS) consensus where instead
of stake with the monetary value, a validators identity performs the role of
stake (3).

Because PoS concept requires node to hold amount of coins proportional

to its desirable mining capability, one of the concerns often associated with
the PoS is a hoarding. Hoarding can undermine use of coin as a currency
and lead to centralization.(2), (9)

PoA consensus does not require validators to hold a stake in the network,
so it is free from dangers associated with hoarding.

Suggestion 2. Unlike PoS networks, POA Network is not subject to danger

of hoarding.

1.1 Validators. Network vulnerability.

In PoA consensus responsibility to secure network is provided to limited num-
ber of respectable individuals securing the network in exchange for the block
rewards (3). Those individuals are called validators.

Validators are required to have a known and verified identity and be in-
dependent from each other. In POA Network Core Layer validators were
required to have an active notary public license within the United States.

Procedure of distribution of keys allowing to secure the network is called

Initiation Ceremony. During POA Network Core Layer Initiation Cere-
mony twelve keys were distributed among first validators.

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 Taking into consideration role of validators, for the stable functioning of
the network following two requirements have to be satisfied.
Suggestion 3. Validators must be protected from criminal threats consider-
ing their publicly known identities.
Suggestion 4. It has to be possible to initiate criminal prosecution against
any validator, in case of malicious actions on his part.

Figure 1: Example of publicly available data about validator personality.

This information is presented on the POA Network official website, making
validator vulnerable to direct physical persecution.

Therefore PoA consensus networks cannot be deployed under circum-

stances, when validators personal security cannot be guaranteed.

1.2 Horizontal scaling. Internet of Blockchains.

POA Network is designed as a general application blockchain. Organizations
can quickly and inexpensively build other specialized networks on top of it,
with the same or different set of validators (3).

Cross chain transactions allow to create range of specialized networks ca-

pable to exchange information between each other. This forms the concept
of Internet of Blockhains (IoB).

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 IoB consists of connected child blockchains with individual specifications.
Child blockchains in IoB are independent from each other.

Suggestion 5. POA Network version of IoB solves problem of scalability for

each of its child blockchains, maintaining decentralization of the network of
blockchains as a whole.

Suggestion 6. In IoB each child blockchain can specify access hierarchy

among its participants independently from other blockchains, allowing each
blockchain in IoB to have its own specialization.

2 Token pricing. Investment attractiveness.

Currently POA token is used as an instrument of payment and reward inside
POA ecosystem.

Suggestion 7. Demand for POA token will increase with the number of
projects implemented on the POA Network platform.

2.1 Pre-sale.
To understand how the initial investors evaluated POA Network project, we
take into consideration its pre-sale results:

• Returns since pre-sale (as of 16/06/18):

– In USD: 3.23x
– In ETH: 1.97x
– In BTC: 3.87x

• Pre-sale started: November 17, 2017

• Pre-sale ended: November 17, 2017

• Hard cap: 12,500,000 USD

• Maximum market cap at pre-sale: 18,000,000 USD

• Time to reach the hard cap: 58 secs

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 • Minimal initial investment: 100 ETH

• Pre-sale token price: 0.0715 USD (0.000233 ETH)

• Blockchain protocol: Oracles native chain (not ERC20)

Because the hard cap was reached during the pre-sale, ICO was not con-
ducted.
This demonstrates a high demand among the initial investors.

2.2 Price analysis. Presence of buyers.

Although POA-BTC, POA-ETH and POA-USD pairs are available for trad-
ing, POA-USD pair has significantly lower average daily trading volume com-
pared with POA-BTC and POA-ETH pairs.

Therefore price analysis should be carried out mainly using POA-BTC

and POA-ETH pairs charts.

First, consider POA-BTC daily chart (full-size charts are provided sepa-
rately from the report).

Figure 2: POA-BTC daily

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 Relatively to BTC, current token price is close to its historical minimum
value (excluding pre-sale price).

At the same time, the price did not fall below the historical minimum.
This can be evidence of the fact that majority of initial investors keep tokens
that were bought during pre-sale.

From Market Profile examination, conclusion can be made that in case

of market growth price will test resistance around 4300 satoshis, possibly en-
countering additional dynamic resistance formed by Volume Weighted Mov-
ing Average (VWMA is presented as a thick black curve on the chart), with
further movement up to 5000 satoshis target.

In case if resistance at 5000 satoshis will be broken, price can reach tar-
gets within 6500-7500 satoshis range in a short term.

Horizontal Volumes (presented on the right side of the chart) show that,
in case if price will reach 6500-7500 satoshis range, it should stay there for a
while because majority of trades were conducted inside this price range.

For POA-ETH pair situation is similar.

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 Figure 3: POA-ETH daily

POA-USD pair is presented for trading on Bitfinex and Ethfinex ex-

changes. Considering low trading volume and liquidity it should not be used
for price predictions.

Figure 4: POA-USD daily

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2.3 4-h chart analysis.
For short-term investments POA-BTC 4 hours chart has to be analyzed sep-
arately.

Figure 5: POA-BTC 4 hours

In case of growth in a short-term, price can test weak resistance around

4300 satoshis with possible further movement up to 5000 satoshis.
On the other hand, presence of the hidden bearish divergence indicates a
weakening of the current upward movement.

Current buyers interest can be tracked using Net Volume.

Net Volume equals to the volume of purchases after subtraction of volume
of sales (For example: 50 BTC of buys and 20 BTC of sells will result in 30
BTC of Net Volume).

Consider Net Volume for POA token on Binance exchange as of 11.23

UTC-0 15/06/2018:

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Figure 6: POA-BTC Binance Net Volume increase, 11.23 UTC-0 15/06/2018

This data shows that 29.68 BTC were invested in POA token on Binance
during the morning of 15/06/2018. POA 24-h trading volume on Binance
was 1,712,730 USD as of 15/06/2018. Therefore increase of Net Volume by
29.68 BTC is notable.

This suggests about presence of resourceful buyers willing to invest in

POA Network at the current price. (3300-3600 satoshis)

2.4 Listing on exchanges.

According to CoinMarketCap.com (1) currently POA Network token is traded
on 5 exchanges: Binance, Bancor Network, Ethfinex, Bibox and IDEX. Addi-
tionally POA-BTC and POA-USD pairs are presented for trading on Bitfinex.

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 Figure 7: POA Network Markets

POA Network token is currently not presented for trading on

many popular exchanges including Bittrex, OKex, Huobi, etc.

Therefore token price has significant growth potential. Listing on each of

these exchanges can increase token price in the mid-term.
Suggestion 8. Because POA Network token is currently not presented on
many popular exchanges, its price has significant growth potential in the mid-
term.
A natural question arises, as to why the token is still not presented for
trading on so many popular exchanges.

Presumably, this is because initial POA Network token is not

an ERC-20 token. Therefore its integration into structure of ex-
changes requires additional time and expenses.

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 On April 29 POA20 token was released, which is an official ver-
sion of the POA token on the Ethereum blockchain.(4).

As an ERC20 token, POA20 can be easily integrated into structure of

any popular exchange.
Therefore appearance of POA20 can accelerate adoption of the POA tech-
nology and increase the number of exchanges on which the token is traded.

2.5 Competitors.
Because POA Network token is used as a payment for DApps usage in POA
Network, token price depends on the Project adoption and its recognition
among users (see Suggestion 7).
Wide adoption and recognition are possible only in the case if POA Network
will be able to overcome its main competitors.
Therefore competitors progress can have strong impact on the POA token
price, especially in the long-term.

POA Network main promoted features are:

1. POA Network transactions are cheaper and faster compared with Ethereum
PoW transactions.

2. POA Network allows to establish inter-blockchain connections between

separate networks, therefore giving birth to the Internet of Blockchains
(see Suggestions 5).

3. Permissioned blockchain allows POA based networks to individually

specify access hierarchy among their participants (see Suggestion 6).

Because POA Network addresses the problem of Ethereum network scal-

ability, some users may consider POA Network as an Ethereum competitor.

Such confrontation should be avoided by POA due to the significantly

greater authority and size of the Ethereum network.
And this confrontation can be avoided because POA Network is based on per-
missioned blockchain, unlike Ethereum. Therefore POA Network has partic-
ular target audience that includes industry-level enterprises and businesses,

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for which Ethereum permissionless blockchain can be an unsatisfactory solu-
tion. (see Suggestion 1)

Second group of competitors is formed by the projects that propose alter-

native approaches for inter-blockchains connectivity. For example Polkadot
project (8).

In case if PoS consensus will be implemented on Ethereum network and

projects similar to Polkadot will gain wide adoption at the same time, long-
term attractiveness of the POA Network can be significantly decreased.
Mainly due to the fact that it will become possible to construct highly effec-
tive swarms of blockchains that are free from vulnerabilities associated with
PoA consensus (see Suggestions 3, 4).

Suggestion 9. For POA Network long-term financial success it is essential

for the Network to gain wide adoption faster than those competitors, that
offer alternative solutions for cross-blockchain connectivity and scalability.

3 Summary.
To make a final statement about the investment attractiveness of the Project,
let us compare arguments for and against its financial success.

3.1 Pros.
1. From Suggestion 1 it follows that POA Network has particular target
audience that is not overlapped by Ethereum target audience.

2. Suggestions 5, 6 indicate significant fundamental value of the Project.

3. To date, POA Network is capable to generate new blocks within 5 sec-

onds, which proves the fact that this technology significantly increases
the throughput of blockchain networks.
Therefore, unlike many altcoins projects, POA Network already able
to present a working product that possesses a real value.

4. The fact that hard cap for the project was reached in 58 seconds after
the pre-sale start evidences a high demand for it among initial investors.

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 5. Recent release of ERC20 version of POA token can significantly expand
list of exchanges on which token is available for trading (see Suggestion
8).

6. On June 6 POA Ambassador Program was launched (7), which

purpose is to promote the Project through its representatives, selected
from the community members.
This action demonstrates that developers are aware about how im-
portant it is for POA Network to gain public recognition faster than
competitors, which pose a serious threat for the long-term financial
success of the Project (see Suggestion 9).

3.2 Cons.
1. PoA consensus relies on assumption that all validators stick to their
reputation and are interested in acting on behalf of the network. In
case if gains from malicious actions are significant enough, nothing pre-
vents validator from acting dishonestly (see Suggestion 4).
This fact can convince some users in insufficient reliability of PoA con-
sensus networks and can be exploited by competitors.

2. Because functioning of the PoA consensus network depends on ability

of validators to secure network, the network cannot be deployed in cases
when personal safety of validators cannot be guaranteed (see Suggestion
3).

3. In case if PoS consensus will be implemented on Ethereum network and

projects similar to Polkadot (8) will gain wide adoption at the same
time, long-term attractiveness of the POA Network can be significantly
decreased due to the fact that it will become possible to construct
highly effective swarms of blockchains that are free from vulnerabilities
associated with PoA consensus.

4. Considering that the POA token price depends on the number of users
adopted the technology, in case if developers fail to promote their prod-
uct or explain to the public advantages of POA Network over competi-
tors, the price of the token will remain low.

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3.3 Conclusion.
Short-term investment attractiveness: Above average

Current token price is close to its minimal historical value. Noticeable

increase in Net Volume indicates presence of resourceful buyers willing to
invest in POA token at the current price. (see 2.2/2.3 subsections)
On the other hand, the hidden bearish divergence has been formed on the
4 hours chart, which evidences about weakness of upwards movement and
further possible retest of support at 3100 satoshis.
In case of increase, price will likely move up to 4300 and 5000 satoshis tar-
gets, as it can be seen from Market Profile.

Overall, the Project is attractive for short-term investments and optimal

entry point may be searched in price range between 3300 and 3600 satoshis.

Mid-term investment attractiveness: High

Currently POA token is not presented on many exchanges with high trad-
ing volumes, such as Bittrex, OKex, Huobi, etc.
Release of the ERC20 version of POA token suggests about possibility of
its listing on many popular exchanges in future, which should lead to price
increase in the mid-term (see Suggestion 8).

Project has strong fundamentals due to its approach to Internet of Blockchains

concept. (sess Suggestions 5, 6)
Moreover, team has already presented working product capable to solve
Ethereum scaling problem.
On April 29 developers released first production cross-chain bridge (4) which
is a significant step towards creation of Internet of Blockchains.

Altogether these factors form basis for attracting new investment funds
to the project in the mid-term, before it becomes clear whether the project
will be able to defeat competitors in long-term.

Long-term investment attractiveness: Average

Because POA token is used as an instrument of payment and compensa-

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tion inside POA ecosystem, demand for it depends on width of adoption of
POA Network technology (see Suggestion 7).

Width of adoption depends on the ability of the developers team to cor-

rectly promote their product.

Because validators in many ways represent a weak point in PoA con-

sensus networks (see Suggestions 3, 4), POA potential users can consider
the technology as insufficiently reliable and switch to solutions submitted by
competitors, after their release.

It is not clear yet whether developers will succeed keeping potential users
from using competitor technologies after their release, leaving POA Network
in the long-term.

Considering attractiveness of the mid-term investment described above,

long-term investment may be formed as an extended mid-term investment in
case if the project team will show its ability to overcome described long-term
challenges.

References
[1] CoinMarketCap.com, POA Network. https://coinmarketcap.com/
currencies/poa-network/#markets.

[2] The economics of the Proof of Stake. https://medium.com/

@gertrammeloo/the-economics-of-the-proof-of-stake-
consensus-algorithm-e28adf63e9db.

[3] Introducing POA. https://medium.com/poa-network/introducing-

oracles-network-864d1d7e37e2.

[4] Introducing POA Bridge and POA20. https://medium.com/poa-

network/introducing-poa-bridge-and-poa20-55d8b78058ac.

[5] Oracles Network. https://hackmd.io/s/HkV8Vw7 -#fn1.

[6] Permissioned Blockchain. https://www.investopedia.com/terms/p/

permissioned-blockchains.asp.

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[7] POA Ambassador Program! https://medium.com/poa-network/poa-
ambassador-program-d88ca5139951.

[8] Polkadot. https://polkadot.network/.

[9] Proof of Stake leads to centralization, with worse consequences

than PoW. https://www.reddit.com/r/ethereum/comments/6d1mca/
proof of stake leads to centralization with worse/.

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