You Need More than Blockchain to Join the Escrow Market

The author of the column is Alexander Savinkin, our investment expert and co-founder of Howtotoken. It’s #icobusted, where we scan the market for the newest and most remarkable upcoming ICOs and analyze them in-depth, with a focus on the viability of the business concepts behind these projects. This won’t concern pre-ICO/ICO price gaps, no gasps and groans about the team, and no code checking. Here, we will try to break everything down to see if there are any market prospects for the product if, and only if, that product can be delivered.

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Natmin

We chose the Natmin project for its simplicity, it has just one function to deliver on — escrow. And such simplicity could be a great thing. Potential customers could select Natmin because of it is plain, easy to understand, and use.

Product

First of all, I want to take the time to say a few words about what escrow actually is. Escrow a financial service that is used to ensure any kind of transaction by transferring funds to a third party designated with releasing them when the terms of the deal are met. Typically, escrow is a legal arrangement that is primarily focused on protecting the interest of both the buyer and seller involved in any given transaction.

Natmin is one of the many projects that provide escrow services (from small specialized companies to the biggest worldwide banking organisations). While others try to diversify the list of their products, Natmin approaches it’s platform with the sole, concentrated effort of improving escrow services. At least this is what they’re saying; there are no specific figures to estimate this effect.

Without the blockchain this would be yet another company that provides escrow services, but it should reduce the expenses and increase transaction security. They start to charge a 1% commission with additional expenses added as the complexity of the deal increases. Also, security and transaction speed are two sides of the same coin, and no information is available in terms of how this dilemma could be resolved (especially with so many Ethereum-based projects being hacked these days).

Market

There are many diverse escrow market segments such as internet escrow, banking escrow, escrow for the intellectual property, real estate, M&A, etc. Smaller companies usually prefer to focus on one of those segments while bigger financial institutions provide a broad range of services. With the specifics of the services, it’s actually hard to measure the market cap of this segment as the marginality of the operation is not this big compared with the rather tremendous volume of operations. Escrow services are growing fast and blockchain-related projects are one of the core elements for this growth.

There are a lot of financial institutions that provide conventional escrow services, most of them being banks. There is also a rising sub-industry of online escrow that is being led by Escrow.com, while the overall structure of the market is far from being monopolistic. There are a lot of players in this segment, but none of them receives more the $30 millions annually.

Overall, any escrow market could be characterized by the significant segmentation and high level of competition which creates a tight boundary for fees. The average market escrow fees come in the range of 1–4 % (due to the complexity of a given deal), and Natmin does not provide any better conditions.

Alongside the conventional means of accessing escrow services, there are a lot of decentralized services, some of which are oriented entirely on the blockchain market. This being said, the market is overflowing with fresh startups so the competition would be tight. The most prominent startups usually target some specific niche audience as a way to compete with bigger projects. Some choose a specific focus like descrow.com, with its control over investment tranches. Others provide specialized services like bcgroup.io, which in the end might prove beneficial for them. Also, there are a lot of blockchain projects that provide escrow services just as an ancillary part of their platform. Keeping in mind that some cryptocurrencies are built around the idea of the smart contract, this alone might seem to be a futile effort.

There’s also the matter of budget. We have found different figures of Natmin hard cap between Natmin`s white paper and a few ICO trackers, and the highest number is $6 million. Twenty-five percent for the marketing budget makes a maximum of $1.5 million. It’s nice to be humble, but in this tight spot marketing expenses could skyrocket. So with this slow start, Natmin might face the likely situation where it simply could not attract much of a user base.

Summary

It seems like the chances for Natmin to hit it big are getting thinner the longer this article goes on. But there’s more yet. There is nothing in regards to marketing efforts or competition analytics presented in the white paper, so it really makes you wonder if they understand the realities of the market. There are several strong competitors along blockchain projects and Escrow.com that could easily spent a few million on promotion or even to implement blockchain architecture if it would provide that much of advantage. It’s not that we are trying to destroy the Natmin project, it’s just that as of right now, it doesn’t bear the marks of being the best, and like any good investor, you should always pick the best.

Final pros and cons:

(+) Large market (also highly fragmented)
 (-) Weak competitive advantages regarding Natmin’s product
 (-) The presence of segment leaders with steadfast stances
 (-) Lack of product innovation

While some investors may look at this project, we’d rather not.

References

  1. Liquid Domains Market Overview 2nd Quarter 2018 by GGRG brokerage consulting
  2. Decentralized Escrow Service — What is it? by SimpleDex
  3. Escrow Payment Services a boon to B2B Market Place by Finextra.com
  4. PayPal v. Escrow Services: Efficiency and Safety by the Numbers by Byte Technology
  5. What are Home Buyer’s Closing Costs For a Southern California Home by Simi Valley Real Estate Answerman

All materials are for informational purposes only. None of the material should be interpreted as investment advice.

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