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Brendan Dillon, Brian Fabian Crain & Felix Lutsch
A research paper by Chorus One
About Chorus One | Introduction | Crypto & Gaming
Loom Network Analysis | Appendix
Content
Loom Network
Investment Thesis
www.chorus.one
/chorusone /chorus-one /chorus-one
chorus.one/slack chorus.one/youtube chorus.one/telegram
About Chorus One
Chorus One provides infrastructure services for Proof-of-Stake networks. We enable
token holders to securely earn interest on their cryptoassets and to shape the evolution
of the decentralized networks they are invested in. We ensure that crypto networks are
secured against malicious attacks, protecting the assets you own. At the same time,
we help you ensure your future financial security by maximising the investment returns
you can achieve. We provide a range of value-added services for the retail investors
and institutional partners (funds, custodians, OTC desks and exchanges) that delegate
to us. These services include:
Our best-in-class offering provides a highly robust, resilient and secure infrastructure,
built around the layered security model shown below. 

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Disclaimer
The following report is the by-product of an in-depth analysis that we carried out in the
process of evaluating whether to run a validator node on the Loom Network. This
process included interviews with key team members and research on all publicly
available information on the Loom Network. It covers important aspects such as the
Loom Network's value proposition, technology, strategy, token economics, and
potential risk factors. The report dives deep into the opportunity of crypto and gaming,
which is Loom's focus market. The goal of this report is to provide the reader with an
encompassing view of the Loom Network, how Loom fits into the gaming and
blockchain ecosystem, and the staking opportunity associated with the LOOM token.
This report is provided for informational purposes only. It is in no way intended to be
interpreted as investment advice.
Disclosure
Chorus One runs a validator node on the Loom Network. Every validator node is
required to hold and stake LOOM tokens as a security bond to ensure good behavior.
Therefore, the Chorus One team are holders of LOOM tokens. The content of this
document should be interpreted with this fact in mind.
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Loom Network
Investment Thesis
1 Introduction
The Loom Network is a decentralized platform for building games and social apps. It
can achieve very high transaction rates, using DPoS sidechains that are bridged to
Ethereum, combining a Plasma Cash-based integration with a Tendermint-powered
consensus layer. Loom raised $25M in January 2018 in a private sale. Investors holding
Loom tokens include Techstars, MW Partners, Fengshui Capital, JM3 Capital, The
Ventures, Lunex Ventures, Nirvana Capital, YouBi Capital, Cipher Ventures and
RocketFuel. The LOOM token has been publicly tradable since March 2018 and is
available on notable large exchanges such as Binance and Coinbase Pro.
!
Loom’s thesis is centred around domain-specific chains, each enabling specific
features optimised to meet the problems specific to that domain. Loom provides a
hybrid mechanism that allows for domain-specific chains to exist as Layer 2 side
chains on the Ethereum mainchain. There initial target market will be the gaming
industry but they are also working on a chain optimised for social networking. The
features they enable for gaming are high transaction throughput, frictionless UX (no
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gas fees, subsecond confirmation times), special NFT support (ERC721x standard) and
an SDK with specific gaming capabilities (2D, 3D). Their traction to date has been
impressive, most notably with their gamified Solidity tutorial CryptoZombies, which
has over 370,000 registered users.
This document focuses on the investment thesis for the Loom Network. It explores the
reasons why an investor would invest in LOOM tokens. It starts by exploring where the
Loom Network might fit into the crypto industry as a whole. It explores new features
that crypto technology can provide, with a particular focus on assessing the alignment
of these features with the overall needs of the gaming industry. We then explore the
competitors to Loom, in the context of the overall gaming ecosystem, which we also
map out. After exploring the potential market size of the crypto gaming market, we
finish up up with a summary of the project’s potential.
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2 The Gaming Industry
Much like the internet did over the last 25 years, crypto-powered incentives will
transform all industries over the next 25 years. Some industries will take a long time to
change e.g. supply chain, healthcare, government / regulatory and oil & gas. The open
finance (or DeFi) model of crypto will evolve independently to legacy finance and it
remains difficult to determine if and how DeFi and legacy finance will converge.
However, there are some industries that are likely to move very fast. These industries
will have customer bases that are young, open-minded, curious and tech savvy. They
will have largely unregulated, information-based products, where nimble startups can
shake up the existing industry very quickly, to move fast to adopt crypto.
It therefore seems likely that music, news media, blogging, social and gaming will
make up the first wave of mass adoption of crypto. This is what Loom Network is
betting on. You could argue that this thesis has already played out throughout Web 2.0,
where we saw major disruptions in social (Myspace, Facebook, Twitter, Instagram,
Snap), in music (Napster, iTunes, Spotify, Soundcloud) and in gaming, where we saw
breakout companies like Rovio (Angry Birds), King (Candy Crush), Supercell (Clash of
Clans) and Zynga (Farmville).
But was there really a disruption in gaming? Many of the largest gaming companies
date back at least two decades (Nintendo, Activision, Ubisoft, EA, Sony, Valve) to before
Web2. So you can also argue that the structure of the gaming industry hasn’t changed
all that much and where new platforms succeeded they did so through financial
muscle. Microsoft spent many years and billions of dollars to break into the game
console market to take on Nintendo and the Sony Playstation. Facebook is doing the
same with VR gaming. And Google used profits from search to subsidize their takeover
of the mobile OS (and therefore mobile gaming) platform, while Apple played the long
game over 20 years to dominate in mobile.
So while the internet transformed gaming distribution by destroying the market power
of retailers with a shift to online marketplaces, the gaming platforms made the
transition without too much damage to their business models. In fact, platforms like
iOS, Android, Xbox and Oculus are well set to extend their market power. As Loom’s
goal is to build a new gaming platform, this has serious implications for them.
Below we explore if the next gaming platforms will come from well-funded corporations
rather than crypto startups. Are their unique aspects of crypto that would enable a
major industry disruption? But before we go there, let’s explore the unique aspects of
crypto as they relate to gaming.
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3 Crypto and Gaming
3.1 Assessment and Criteria
Here we use the Multicoin Capital criteria for assessing the alignment between a1
platform and crypto and use it to analyse the alignment between crypto and gaming.
Unlike networks like Peerplays and Funfair, Loom is not specifically targeting gambling
and casino games. The Loom blog does refer to cases where game arcades have been
shut down by governments, however we have made the decision to exclude things like
regulatory arbitrage, censorship resistance and anonymity from our analysis.
The core criteria for expanding the global gaming market are: (5) permissionless,  (6)
trust minimised and (9) asset ownership. We also think that (8) competing front-ends
and (10) logic+assets are relevant in gaming and will discuss these in more detail later
in the document.
https://multicoin.capital/2019/01/08/12-markets-crypto-decentralization-can-actually-improve1
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As Multicoin explain, the permissionless nature of crypto is key. In established markets,
millions of children rely on their parent’s credit card to pay for their access to games.
Elsewhere in developing markets, billions of adults and children don’t have a bank
account. However, this potential to expand the reach of gaming globally doesn’t solve
the access problem for those without the financial resources to pay for games. Many
successful online games have built highly complex in-game economies, and some of
these have even evolved into highly lucrative real-world businesses. Later in this
section (Bridging Real World / Virtual Economies), we will explore how crypto takes this
concept even further, by removing many of the asset ownership risks relating to in-
game economies. The interplay of trust minimisation and secure asset ownership,
gives the new global gaming audience a way to earn their own rewards, and build up
their own assets, in a way that they can be reassured that their efforts will be fairly
rewarded and adequately protected. In-game activities could provide gamers with both
the resources to fund their own gaming activities and a financial surplus to encourage
them to spend more time gaming. So there seems to be a compelling argument that
crypto doesn’t just compete with the existing game developers - it significantly
expands the global gaming market.
3.2 VR – Titanically Important
There is also a nice synergy between crypto and VR. VC Marc Andreessen has recently
suggested that VR will be “titanically important” . As VR headset prices continue to2
drop dramatically over the next few years, more and more hours will be spent in virtual
worlds. VR will become accessible by the billions of users who do not have the
abundance of distractions available to people in developed economies. It seems likely
that crypto will not only power the economies in these virtual worlds, crypto rewards
will also accelerate the adoption of VR, with more and more people spending time and
earning a living in virtual economies.
3.3 Platform Power – Why Game Developers Need a Commons
Another important thing to consider is the mismatch in power between gaming studios
and gaming platforms. As we have seen, huge players like Facebook, Microsoft, Apple
and Google dominate the platforms space. As crypto networks can provide a gaming
commons, not owned or controlled by any one entity, this will be a very interesting
disruption that gaming studios of all sizes will want to take advantage of.
For startups or struggling established players, this new market is the perfect
opportunity to create new business models. For the larger gaming studios, the ability of
crypto to grow the global market for gaming will be very attractive. However, the
established companies that succeed in crypto will need to go through a huge cultural
transformation. Crypto business models are very different, where the companies that
https://techcrunch.com/2019/01/05/marc-andreessen-audio-will-be-titanically-important-and-vr-will-be-1000-times-bigger-2
than-ar/
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embrace open data, open-source code, interoperability etc. will win. So established
studios that are used to proprietary source code, tight control over in-game assets,
strict licensing and aggressive copyright actions may not make the transition.
3.4 Modding Culture and the Evolution of Gaming
Gaming has evolved from being a hobby of enthusiasts to a multi-billion dollar
entertainment industry. E-sport competitions pay huge sums to winning teams, events
are live-streamed across the globe, and money spent on games has experienced
enormous growth within the past decade.
Free-to-play games with in-app purchases that allow players to modify the experience
or advance faster in the game have overtaken the once common buy-and-play model.
The effects of this can be seen when looking at some of the most popular games in
recent years: e.g. Fortnite, League of Legends or Hearthstone, all of which can
theoretically be played without spending a single dollar, yet they are returning record-
breaking amounts of money to the game studios that develop them through in-app
purchases. Blockchain is uniquely setup to extend this model by fully transferring value
to game assets via true digital asset ownership and native digital payments.
One dimension of this development that is not as clear at first sight is the role that
extensibility has played in this evolution. Mods have long been a part of gaming culture:
enthusiastic gamers have always altered the rules, maps, or graphics of their favorite
games (when possible) to create a richer gaming experience.
This culture has resulted in some of the most popular game modes that have then
been copied by other game developers in their new games, some of which became the
highest grossing games that the world has ever seen. Many mods became more
popular than the games on which they were based upon. An example of this is the Half-
Life mod Counter-Strike that was created by a group of gamers as a side project and
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soon became a standalone game that has been among the most popular multiplayer
games ever since.3
This pattern can also be seen in popular game modes like Battle Royale that originated
in DayZ, which was a mod of ARMA 2. This mode was popularized by games like
PlayerUnknown's Battlegrounds (PUBG) and more recently the free-2-play shooter
Fortnite that amassed over 100 million monthly active players within less then a year.
Similarly, Defense of the Ancients (DotA), which used to be a map in Warcraft III soon
developed into a standalone game with various extremely successful adaptations such
as League of Legends.
Modding ties into what Multicoin refer to in (8) above as “competing front-ends”. The
combination of open-source code and the shared data and asset layer of crypto
networks allow developers to build unique experiences, what is sometime referred to as
a “multiverse” approach; i.e. there is no one way to play a game (a “universe”), there are
multiple parallel worlds that have a lot in common but evolve along their own individual
paths.
3.5 Bridging Real World / Virtual Economies
“Digital ownership, as we have come to know it, is largely
illusory. The centralized computing environments that
govern the value, ownership, and makeup of traditional
digital assets contain proprietary biases that prevent
players from ever enjoying the same full freedom of
ownership that they would with a physical asset.”
Horizon Games - A New Dimension of Gaming4
As we can see from the quote above, current in-game asset ownership is an illusion:
everything is owned by the game studio. They can shut down the game, ban a user or
change the rules of the game. This extends to in-game economies. We believe that
crypto will change this due to the Multicoin criteria of (6) trust minimisation and (9)
asset ownership. As these assets will exist outside the context of a game, stored as
crypto-secured non-fungible tokens (NFTs), they can be traded on open markets. As
users no longer have to trust a game studio, the user can safely invest more time and
effort to accrue these assets, which are genuine property for the first time. This will
massively expand the real world usefulness of virtual economies.
The final Multicoin criteria (10 - Embedded logic in assets) is also likely to highly
relevant to gaming. Trading an asset might be restricted for a period of time. An asset
https://newzoo.com/insights/rankings/top-20-core-pc-games/3
https://medium.com/horizongames/a-new-dimension-of-gaming-728d7ae301c54
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might morph into another asset after a period of time or when certain outside criteria
or met. Assets can merge to form new assets. This could be Cryptokitty-like breeding,
or it could require any number of assets to combine, to create a new asset with some
special power or a very high value. As these assets merge with AI, maybe we see
assets that are programmed to maximise their own value e.g. a self-driving chariot that
maximises its own income by renting itself out to players. The game industry will
experiment in this area and we expect to see some very creative new business models
powered by these innovations.
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4 Technology
4.1 Loom Network Architecture
Loom Network’s technology uniquely enables high throughput in-game economies at a
low cost, while maintaining crucial guarantees like trust minimization and true digital
asset ownership. To learn more details about the technical architecture and Loom’s
Plasma implementation, check out the appendix for links to resources the team has
published on this.
Overview of the Loom Network’s Design5
Loom is a network of side chains connected through the central PlasmaChain, which is
maintained by external validators (such as Chorus One) via Tendermint-powered Proof-
of-Stake consensus (utilizing the LOOM token). Applications and games run on third-
layer sidechains that can be maintained by various parties, e.g. gaming studios,
PlasmaChain validators or other third-party validators. The tracking of digital asset
ownership, transfers and payments are handled on the PlasmaChain that bridges to
Ethereum via the world’s first Plasma Cash implementation.
The Loom design allows games and applications on the Loom Network to host their
digital assets on a decentralized network that no single party controls, with security
guarantees inherited from the Ethereum mainchain, which is securing multiple billion
dollars of assets already. At the same time, applications and games running on Loom
stay scalable, because their main logic can be handled by centralized parties.
https://loomx.io/developers/docs/en/intro-loom-sdk.html5
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Additionally, Loom’s recently announced token bridge implementation will enable
applications built on the Loom Network to receive cross-chain payments from any
other blockchain (e.g. Bitcoin) using the Cosmos Network’s Inter-Blockchain
Communication (IBC) protocol.
4.2 Loom SDK & First Applications
The Loom team itself is building the PlasmaChain and also two of the networks’ first
sidechains, namely GameChain and SocialChain. Their approach is to develop the first
applications and games on their network themselves. This allows them to optimize the
tools (i.e. the Loom SDK) they provide to their target audience (other game developers).
All chains built by the Loom team are designed to allow third party developers to
leverage their capabilities. This includes any type of Solidity-based Ethereum Dapps,
which could utilize PlasmaChain, but also Unity-based games, which can be easily
integrated into the Loom Network through the GameChain sidechain.



There are two applications that are being developed in-house by the Loom team:
• DelegateCall, a Stack Overflow-style Q&A website that is using ERC20 tokens as
Karma points.

• Zombie Battleground, a trading card game that utilizes NFTs hosted on the
PlasmaChain and uses the Loom Marketplace for buying and exchanging these
digital assets.
Loom short-term (Q4 2018 - Q1 2019) focus areas .6
The team’s current focus lies on building out the components needed for crypto-
enabled in-game economies (see graphic).
https://medium.com/loom-network/loom-network-roadmap-update-q1-2018-q2-2019-66a8403193ef6
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5 Competition
The leading competitors to Loom are Fuel Games, Xaya, Enjin and Smart Holdem. Fuel
Games, Xaya and Smart Holdem are building out scalability solutions for blockchain
gaming using either state channels or sidechains. Enjin competes more on the
marketplace side, along with OpenSea, Rarebits, Auctionity and Wax. There are also
many adjacent projects in the space. There are general purpose blockchains like EOS,
Tron, Ethereum and Plasma-based solutions like Matic, SKALE, LeapDAO. Messaging
platforms with a gaming angle include Kin from Kik.
Other projects focus on the gambling aspect of casino games, like Peerplay, Sp8de
and Funfair. Loyalty and rewards platforms include Flux, Plair, Refereum, Buff and
Gamertoken. Distribution platforms like Equiti, Ultra, Force and Fig. Esports specialists
like Firstblood, Azarus and Play2Live. Vryx is working on VR and Playkey provide hosted
resources for PC gaming.
Some leading game studios include Loom pipeline companies like Axie Infinity,
Blockade Games, Coins & Steel, Experimental and Moss Land. The list of blockchain
gaming studios and games also includes Cryptokitties, Fuel Games (Gods Unchained),
Mythical Games (Blankos), and Decentraland.
A more detailed list of the crypto gaming ecosystem is available in the appendix.
In the ecosystem map above we show Loom competing in Layer 2 General Purpose,
Specialist Platforms and Collectible Markets. The key market that Loom need to
dominate is the Specialist market, i.e. the space that focuses on the intersection of
blockchain scaling and crypto-specific gaming functions. They appear to have
achieved a sizable lead in this Specialist space, by identifying the key features needed
for successful crypto games, by making pragmatic technical trade-offs and by their
speed of execution. If they succeed in the Specialist space, then their ability to ensure
liquidity in the Marketplace segment also looks likely, even in the face of the tough
competition that is building up here. Finally, the ambitious vision of being the leading
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general-purpose Layer 2 implementation is within reach for Loom. However, failure to
achieve this goal would in no way preclude them from growing a very large and
successful network dedicated to gaming.
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6 Token Economics
The Loom Network token (LOOM) is mainly used as a staking token that determines
validator influence and the rewards stakers receive for maintaining the network. The 21
validators with the largest stake are responsible for ordering transactions on the
blockchain. Any LOOM holder can delegate to one or more of these validators and, in
return, earn rewards for participating in securing the network. Validators charge a
commission rate on rewards to compensate for the costs of operating the node
infrastructure.
Of the one billion token issued (fixed issuance), 300mn are reserved for rewards to
stakers. The remaining tokens were issued to investors in the private sale (450mn), to
the team (100mn) and their advisors (100mn). Most of these tokens have already
vested. An additional 50mn tokens are reserved for future use.
A maximum of 20% of the staking reward allocation can be distributed each year. This
means that over time the block rewards paid to stakers will decline. Whether the 20%
cap is reached within a year depends on how many LOOM holders decide to participate
in staking (more on staking returns below). Should this cap be reached within the first
year, then 60mn tokens will be paid out to stakers. After that, 240mn would be the
remaining reward allocation at the start of the second year. Should the cap be reached
again 48mn tokens (20% of 240mn) will be distributed in the second year, and so on.
Gamers can earn rewards, paid out in LOOM tokens for trading on the marketplace,
broadening the distribution of tokens (as it is currently highly centralised). The
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remaining marketplace fees are shared between the validators and the game
developer.
On the demand-side the key actors are the developers / game studios, who are
required to lock  LOOM tokens to run their applications on the Loom Network. There is a
minimum amount they need to lock up. Every month they are charged “bandwidth”,
which is proportional to the transactions per second their apps consume on the
network. The tokens they consume are paid to the validator nodes in fees. Private chain
apps would need to lock up a larger amount of tokens (details currently  not provided).
Players additionally have a chance to utilise LOOM tokens. They can stake their tokens
to earn game membership, which entitles them to freebies, including new game cards.
They can withdraw their staked tokens any time, in which case they no longer receive
these rewards. Users are required to hold at least one LOOM token to enable them to
move assets back and forth to the main Ethereum network.
6.1 Staking Returns
As mentioned above, 300mn LOOM tokens are reserved to be paid out as rewards to
stakers. Because of the allocation for this purpose declines each year, staking returns
from block rewards will also decline. The rationale is that block rewards are used to
fund operations during the bootstrap phase of the network until the platform is
established and running infrastructure can be compensated through other sources,
such as fees on marketplace transactions (as described above).
The following factors determine the actual token-denominated return for staking LOOM
tokens:
• Chosen Lock-up Period: Staking requires locking up tokens and committing to
longer lock-up periods results in higher returns for stakers.

• Staking Participation Rate: If there is high interest in staking, the allocation cap
will be reached and rewards for all staking entities will decline. The two
determining factors here are: 1.) the amount of circulating tokens that are being
used to stake and 2.) the lock-up periods stakers choose. 

• Remaining Reward Allocation: when there are fewer tokens left in the reward
pool allocated for block rewards, the cap will be reached quicker and stakers will
subsequently receive lower rewards.

• Fees: transaction fees on the PlasmaChain and fees on marketplace
transactions that are partially paid out to stakers.

• Validator Commission Rate (when delegating): validators are able to set a
commission rate that automatically gets deducted from the rewards earned by a
delegating entities’ stake. This is the implicit compensation delegators pay to
validators for operating the infrastructure required to participate in maintaining
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the network.

• Validator Slashings: not following protocol rules by double-signing (attacking
the network) or being offline for an extended period (which may influence the
network’s performance) can result in the destruction of stake (also referred to as
slashing). Slashings will lower the return and potentially result in a loss for the
validator and his delegators. Slashing conditions in Loom are still undefined, but
are planned to be “lenient” in the beginning, as validators are vetted by the
team.

The analysis below only considers returns from block rewards, as fee revenues are
currently unpredictable and potentially negligible in the bootstrapping phase of the
network. We will monitor fee levels and growth metrics once there is more data
available, at which point we will update this return forecast for our delegators.
The maximum token-denominated annual interest is 20%, however delegators should
expect to pay up to 25% commission to top-tier validators, as infrastructure set up
costs will be high for professional validators. This sets the delegator returns to 15%.
This return is achieved when the allocation cap isn’t reached, the staker committed to
locking up his tokens for a year and no slashings take place. If a staking entity chooses
a lower lock-up period, the maximal possible return declines. Choosing the shortest
possible staking period (2 weeks) translates to an annual interest rate of 5% at
maximum.
The following table highlights some possible return scenarios for the first four years
assuming different lock-up periods. All rates given assume a similar staking
participation pattern that was observed in other Proof-of-Stake networks (in this case
we used Tezos ). Lock-up periods from other stakers are assumed to average 6 months,7
a commission rate of 25% is applied and slashings are not considered. The values
represent the token-denominated return a delegator would make on his initial stake
through block rewards year-by-year for the first four years of the Loom Network
operating, given that he is staking throughout the year setting his lock-up periods as
shown in the columns.
Lock-up period 2 weeks 3 months 6 months 12 months
Year 1 3.75% (max.) 5.63% (max.) 7.50% (max.) 15.00% (max.)
Year 2 3.44% 5.16% 6.87% 13.75%
Year 3 2.59% 3.88% 5.17% 10.35%
Year 4 1.98% 2.96% 3.95% 7.9%
https://medium.com/figment-capital/tezos-new-year-update-b89e6021954b7
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These numbers show the declining returns from block rewards over the years. The
implications are that committing to stake for longer periods are the best way to
achieve higher rewards.
Note that this analysis does not include transaction and trading fees. Once dapps start
taking off, the additional fees from network transactions and marketplace trading will
reverse the downward pressure on returns.
A hypothetical delegator that stakes 10,000 LOOM tokens for four years choosing the
maximum lock-up periods will end up with 15,574.73 LOOM tokens using these
assumptions when compounding his rewards. When only locking up tokens at the
shortest possible interval (2 weeks) over four years, the final balance would only
amount to 11,226.60 LOOM respectively.
When we factor in the effect of transaction and trading fees, with the assumption that
these will increase at the same same pace that block rewards are declining (i.e. we
assume we can sustain 15% per year for four years), the first hypothetical delegator’s
final balance would be 17,490.06 LOOM (11,586.50 LOOM for the second, where the
return is 3.75%).
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7 Market Sizing
Some key facts on the gaming market from Newzoo :8
• Gaming market: $137.9B in 2018, growing at 13.3%

• Biggest markets: China ($37.9B), US ($30.4B), Japan ($19.2B)

• APAC is 52% of total market

• Mobile quickly took 50% of market - shows that crypto could do the same

• Mobile +25.5% year on year to reach $70.3B

• Console gaming -  $34.6 billion

• PC gaming -  $32.9 billion

• 2.3 billion gamers in the world

• Expected to growing to 180B by 2021 (10.3% CAGR)

• Mobile gaming $106.4 billion in 2021 (59% of total)

The amazing growth of the gaming industry to date, and it’s continuing double-digit
growth, bodes well for Loom. We expect that crypto will serve to accelerate this growth
by enabling permissionless innovation (extending the game experience via modding),
making gaming services accessible to hundreds of millions of users who are currently
excluded, and by opening up many new business models and opportunities for people
to get paid for gaming.
The Apple / Google duopoly in mobile could pose a serious threat for Loom, as mobile
continues to take a larger share of global revenue. However, even if there was a crypto
backlash from Apple / Google (and Microsoft / Sony on the console side), the PC
revenues are still healthy enough for Loom to grow a large user base. Any serious
attempt by the corporations to wield market power is likely to result in a backlash by
consumers and accelerated adoption of open-source operating systems on devices.
Loom’s strong presence is APAC might also help them gain traction there, where China,
Japan and Korea make up three of the four largest markets .9
The crypto games market is still too young to make serious predictions on revenues,
however Chorus One will continue to analyse the space as more data becomes
available and will provide an updated analyses over the coming months.
https://newzoo.com/insights/articles/global-games-market-reaches-137-9-billion-in-2018-mobile-games-take-half/8
https://newzoo.com/insights/rankings/top-100-countries-by-game-revenues/9
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8 Risk Factors
While Loom is well positioned and a large upside exists, there are many risks that could
undermine the success of the Loom Network or the translation of such success into
investor returns.
We see the following as major risks:
Lack of Adoption of the Loom platform
Loom may fail to attract game developers to build on Loom or these developers may
fail to build successful applications. There could be a large number of causes for this
ranging from lack of product-market fit to problems with the technology.
Amount of Staking Returns
If many Loom holders stake and choose long lock-up periods, then returns for everyone
will decrease. Also over time returns from block rewards will decrease, while revenues
from fees are uncertain.
Value Capture Through Fee Revenues
In the long run, the value of the Loom token depends on transaction fee capturing a
significant percentage of the value creation. While this is a reasonable assumption, it
should be noted that no blockchain platform has as of now generated large revenues
from fees. There is also a risk that higher fees will decrease the attractiveness of the
Loom Network, so a careful balance will have to be struck.
Off-Platform Trading
The success of the Loom Network depends on strong network effects around
PlasmaChain, especially as fees from trading of in-game assets constitute a majority
of revenues. A potential threat could be if trading of in-game assets ends up
concentrating on an exchange that is not part of the Loom Network.
Regulatory Uncertainty
While gaming is largely an unregulated market, a core part of the Loom thesis is that
blockchain will allow a more sophisticated economic system to emerge around
gaming. It’s likely that the boundaries of what a financial service is will become
increasingly blurry. A likely consequence is a rising regulatory burden that could affect
many parties in the Loom ecosystem including validators, game developers and the
Loom company.
Team Incentive
The tokens allocated to the Loom team are already fully vested. This limits the
economic incentive for the core team to stick around for the long term.
of21 26
Competition
Other platforms like EOS are also targeting the gaming market. Some of them have
very large amounts of funding. In particular, Loom doesn’t have a budget to directly
incentivize game developers to build on Loom. The result could be that others pull
ahead.
Technology Risks
While Loom has made pragmatic choices and executed well, significant technology
risks remain. Plasma Cash hasn’t been proven in practice. Loom could fail to execute
on this or fail to execute in time.
Platform Risks
It’s unclear how Loom’s platform will interact or integrate with dominant gaming
platforms like iOS and Android or the console market. The incumbents controlling
these platform have significant market power and may be able to significantly limit the
market reach of Loom.
Developer Adoption
The success of Loom depends on an external developer community building games on
the Loom platform. While building developer communities is difficult, Loom has
achieved some early wins in this area.
Many of these risks are common across all startups, especially things like technology
risk, the strengths of incumbents and existing platforms, developer adoption, user
adoption, competition, and regulatory uncertainty. Issues around governance,
cryptoeconomics, cost competitiveness, validator economics etc. are also common
issues across many crypto projects. Therefore we don’t see any major risks for Loom,
beyond the standard set of challenges that any ambitious crypto startup would face.
of22 26
9 Summary
Overall, Loom has demonstrated a deep understanding of the opportunity in crypto
gaming. As we have already seen, there are significant challenges ahead for Loom. But
we have also seen that these challenges are in no way unique to Loom. They are
challenges every startup faces, including many of Loom’s competitors. In fact, Loom’s
pragmatic approach to technology choices, governance and go-to-market, have
already gone a long way to reduce these risks. On the technology side, they understand
that working functionality in the hands of real users is more important than solving
every technological issue today. In governance, they have understood that building
trust-based relationships with partners today allows them to postpone complex
decentralisation issues until later. They understand that the incentives need to work for
everyone in the ecosystem and they have carefully studied and learnt from the
mistakes of other networks. They know that “build it and they will come” is not a viable
approach to launching a platform. Instead they have opted for an approach that is
more like: “show them how to build it, by going through the dogfooding pains yourself,
and then they will come”.
Loom has shown that they understand the crypto gaming market. Their work on game
mods shows they understand the power of customisation to gamers. Their focus on
marketplaces for NFTs show that they understand how in-game assets will drive crypto
gaming. The combination of superior scalability while maintaining security guarantees
through their Plasma Cash implementation, has allowed the Loom Network to
demonstrate how well they understand the competing trade-offs, i.e. scaling
challenges can’t be allowed to reduce asset security. Finally, they have integrated 2D
and 3D tools to their SDK, putting them in a good place to ride the mobile app wave
today and be ready to ride the VR wave when it finally happens.
Loom is targeting a very large market that’s ready for exploitation in the near term
showing great alignment with crypto incentives. They have an important technology
lead, and if their strong execution to date can continue, there is no reason why they
cannot become one of the leading platforms in the crypto gaming space.
of23 26
Appendix
Ecosystem Companies
& Projects
Loom Network Resources
Loom Website - https://loomx.io/
Loom SDK - https://loomx.io/developers/
Loom Github - https://github.com/loomnetwork
Loom Blog - https://medium.com/loom-network
Competitors
Xaya - https://xaya.io/ - State channels (called “Game Channels”)
Enjin - https://www.enjin.com/ - focused on creating, trading and melting (liquidating)
virtual items, wallet for in-game items, Efinity “lightning” network for scalability on
Ethereum
Ludos - https://ludos.one/ - main chain + multi-sidechain infrastructure, virtual items
exchange
Smart Holdem - https://smartholdem.io/ - 2 layer blockchain using DPoS for layer 2
Fuel Games - https://www.fuelgames.io/ - a platform for in-game economies using
state channels
Horizon Games - https://horizongames.net/ - building Arcadeum, a platform for in-
game economies
of24 26
General Purpose Platforms
EOS - https://eos.io - Gaming: Mythical Games
Kik (Kin) - https://www.kik.com/kin/ - Gaming: Kin Developer Program Gaming
Tron - https://tron.network/ - Gaming: TRON Arcade
Ethereum - https://ethereum.org - Ethereum games
Matic - https://matic.network - Plasma-based layer 2 scaling
SKALE - https://skale.labs - Plasma-based layer 2 scaling
LeapDAO - https://leapdao.org - Plasma-based layer 2 scaling
Adjacent Spaces
Playkey - https://playkey.io/en/ - rent GPU resources for PC gaming
Peerplays - https://www.peerplays.com/ - network for gambling / casinos
Equiti - https://equiti.io - tools for payment, licensing and digital assets
Flux - https://flux.games/ - marketplace for games, loyalty platform with rewards for
playing games, tournaments
Ultra - https://ultra.io/ - games distribution platform
Plair - https://plair.life/ - loyalty platform with rewards for playing games, tournaments
Bountie - https://www.bountie.io - loyalty platform with rewards for playing games
Buff - https://buff.game/ - loyalty platform with rewards for playing games
Vryx - https://vryx.org/ - build VR worlds in IPFS/Ethereum
Force - https://forceprotocol.io/ - games distribution platform
Sp8de - https://sp8de.com/ - provably random tools for gaming
Firstblood - https://firstblood.io/ - tournaments, rewards
Play2Live - https://play2live.io - eSports streaming
Funfair - https://funfair.io/ - provably fair gaming
Gamertoken - https://gamertoken.io/ - marketplace, loyalty token
Azarus - https://azarus.io - loyalty for eSports viewing
Fig - https://www.fig.co - games crowdfunding, distribution
Auctionity - https://www.auctionity.com/ - NFT auctions
Alto - https://alto.io/ - tools & marketplace for NFTs
Refereum - https://refereum.com/ - referrals, crypto rewards for gamers
Crypto Collectible Markets
of25 26
OpenSea - https://opensea.io/
Rarebits - https://rarebits.io/
Wax - https://wax.io/
Games
Cryptokitties - https://www.cryptokitties.co/
Gods Unchained - https://godsunchained.com/
Decentraland - https://decentraland.org/
BlockMagic - https://blockmagic.xyz/
Bitguild - https://www.bitguild.com/
Mythical Games - https://mythical.games/
Huntercoin - https://huntercoin.org/
HashRush - https://hashrush.com/
Rankingball - https://www.rankingball.io/
Experimental - https://e11.io/
Coins & Steel - https://coinsandsteel.com/
Etheremon - https://www.etheremon.com/
Moss Land - https://moss.land/
Blockade Games - http://blockade.games/
Axie Infinity - https://axieinfinity.com/
SkyWeaver - https://skyweaver.net/
of26 26

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Loom Investment Thesis - Chorus One

  • 1. of1 26 Brendan Dillon, Brian Fabian Crain & Felix Lutsch A research paper by Chorus One About Chorus One | Introduction | Crypto & Gaming Loom Network Analysis | Appendix Content Loom Network Investment Thesis www.chorus.one /chorusone /chorus-one /chorus-one chorus.one/slack chorus.one/youtube chorus.one/telegram
  • 2. About Chorus One Chorus One provides infrastructure services for Proof-of-Stake networks. We enable token holders to securely earn interest on their cryptoassets and to shape the evolution of the decentralized networks they are invested in. We ensure that crypto networks are secured against malicious attacks, protecting the assets you own. At the same time, we help you ensure your future financial security by maximising the investment returns you can achieve. We provide a range of value-added services for the retail investors and institutional partners (funds, custodians, OTC desks and exchanges) that delegate to us. These services include: Our best-in-class offering provides a highly robust, resilient and secure infrastructure, built around the layered security model shown below. 
 of2 26
  • 3. Disclaimer The following report is the by-product of an in-depth analysis that we carried out in the process of evaluating whether to run a validator node on the Loom Network. This process included interviews with key team members and research on all publicly available information on the Loom Network. It covers important aspects such as the Loom Network's value proposition, technology, strategy, token economics, and potential risk factors. The report dives deep into the opportunity of crypto and gaming, which is Loom's focus market. The goal of this report is to provide the reader with an encompassing view of the Loom Network, how Loom fits into the gaming and blockchain ecosystem, and the staking opportunity associated with the LOOM token. This report is provided for informational purposes only. It is in no way intended to be interpreted as investment advice. Disclosure Chorus One runs a validator node on the Loom Network. Every validator node is required to hold and stake LOOM tokens as a security bond to ensure good behavior. Therefore, the Chorus One team are holders of LOOM tokens. The content of this document should be interpreted with this fact in mind. of3 26
  • 4. Loom Network Investment Thesis 1 Introduction The Loom Network is a decentralized platform for building games and social apps. It can achieve very high transaction rates, using DPoS sidechains that are bridged to Ethereum, combining a Plasma Cash-based integration with a Tendermint-powered consensus layer. Loom raised $25M in January 2018 in a private sale. Investors holding Loom tokens include Techstars, MW Partners, Fengshui Capital, JM3 Capital, The Ventures, Lunex Ventures, Nirvana Capital, YouBi Capital, Cipher Ventures and RocketFuel. The LOOM token has been publicly tradable since March 2018 and is available on notable large exchanges such as Binance and Coinbase Pro. ! Loom’s thesis is centred around domain-specific chains, each enabling specific features optimised to meet the problems specific to that domain. Loom provides a hybrid mechanism that allows for domain-specific chains to exist as Layer 2 side chains on the Ethereum mainchain. There initial target market will be the gaming industry but they are also working on a chain optimised for social networking. The features they enable for gaming are high transaction throughput, frictionless UX (no of4 26
  • 5. gas fees, subsecond confirmation times), special NFT support (ERC721x standard) and an SDK with specific gaming capabilities (2D, 3D). Their traction to date has been impressive, most notably with their gamified Solidity tutorial CryptoZombies, which has over 370,000 registered users. This document focuses on the investment thesis for the Loom Network. It explores the reasons why an investor would invest in LOOM tokens. It starts by exploring where the Loom Network might fit into the crypto industry as a whole. It explores new features that crypto technology can provide, with a particular focus on assessing the alignment of these features with the overall needs of the gaming industry. We then explore the competitors to Loom, in the context of the overall gaming ecosystem, which we also map out. After exploring the potential market size of the crypto gaming market, we finish up up with a summary of the project’s potential. of5 26
  • 6. 2 The Gaming Industry Much like the internet did over the last 25 years, crypto-powered incentives will transform all industries over the next 25 years. Some industries will take a long time to change e.g. supply chain, healthcare, government / regulatory and oil & gas. The open finance (or DeFi) model of crypto will evolve independently to legacy finance and it remains difficult to determine if and how DeFi and legacy finance will converge. However, there are some industries that are likely to move very fast. These industries will have customer bases that are young, open-minded, curious and tech savvy. They will have largely unregulated, information-based products, where nimble startups can shake up the existing industry very quickly, to move fast to adopt crypto. It therefore seems likely that music, news media, blogging, social and gaming will make up the first wave of mass adoption of crypto. This is what Loom Network is betting on. You could argue that this thesis has already played out throughout Web 2.0, where we saw major disruptions in social (Myspace, Facebook, Twitter, Instagram, Snap), in music (Napster, iTunes, Spotify, Soundcloud) and in gaming, where we saw breakout companies like Rovio (Angry Birds), King (Candy Crush), Supercell (Clash of Clans) and Zynga (Farmville). But was there really a disruption in gaming? Many of the largest gaming companies date back at least two decades (Nintendo, Activision, Ubisoft, EA, Sony, Valve) to before Web2. So you can also argue that the structure of the gaming industry hasn’t changed all that much and where new platforms succeeded they did so through financial muscle. Microsoft spent many years and billions of dollars to break into the game console market to take on Nintendo and the Sony Playstation. Facebook is doing the same with VR gaming. And Google used profits from search to subsidize their takeover of the mobile OS (and therefore mobile gaming) platform, while Apple played the long game over 20 years to dominate in mobile. So while the internet transformed gaming distribution by destroying the market power of retailers with a shift to online marketplaces, the gaming platforms made the transition without too much damage to their business models. In fact, platforms like iOS, Android, Xbox and Oculus are well set to extend their market power. As Loom’s goal is to build a new gaming platform, this has serious implications for them. Below we explore if the next gaming platforms will come from well-funded corporations rather than crypto startups. Are their unique aspects of crypto that would enable a major industry disruption? But before we go there, let’s explore the unique aspects of crypto as they relate to gaming. of6 26
  • 7. 3 Crypto and Gaming 3.1 Assessment and Criteria Here we use the Multicoin Capital criteria for assessing the alignment between a1 platform and crypto and use it to analyse the alignment between crypto and gaming. Unlike networks like Peerplays and Funfair, Loom is not specifically targeting gambling and casino games. The Loom blog does refer to cases where game arcades have been shut down by governments, however we have made the decision to exclude things like regulatory arbitrage, censorship resistance and anonymity from our analysis. The core criteria for expanding the global gaming market are: (5) permissionless,  (6) trust minimised and (9) asset ownership. We also think that (8) competing front-ends and (10) logic+assets are relevant in gaming and will discuss these in more detail later in the document. https://multicoin.capital/2019/01/08/12-markets-crypto-decentralization-can-actually-improve1 of7 26
  • 8. As Multicoin explain, the permissionless nature of crypto is key. In established markets, millions of children rely on their parent’s credit card to pay for their access to games. Elsewhere in developing markets, billions of adults and children don’t have a bank account. However, this potential to expand the reach of gaming globally doesn’t solve the access problem for those without the financial resources to pay for games. Many successful online games have built highly complex in-game economies, and some of these have even evolved into highly lucrative real-world businesses. Later in this section (Bridging Real World / Virtual Economies), we will explore how crypto takes this concept even further, by removing many of the asset ownership risks relating to in- game economies. The interplay of trust minimisation and secure asset ownership, gives the new global gaming audience a way to earn their own rewards, and build up their own assets, in a way that they can be reassured that their efforts will be fairly rewarded and adequately protected. In-game activities could provide gamers with both the resources to fund their own gaming activities and a financial surplus to encourage them to spend more time gaming. So there seems to be a compelling argument that crypto doesn’t just compete with the existing game developers - it significantly expands the global gaming market. 3.2 VR – Titanically Important There is also a nice synergy between crypto and VR. VC Marc Andreessen has recently suggested that VR will be “titanically important” . As VR headset prices continue to2 drop dramatically over the next few years, more and more hours will be spent in virtual worlds. VR will become accessible by the billions of users who do not have the abundance of distractions available to people in developed economies. It seems likely that crypto will not only power the economies in these virtual worlds, crypto rewards will also accelerate the adoption of VR, with more and more people spending time and earning a living in virtual economies. 3.3 Platform Power – Why Game Developers Need a Commons Another important thing to consider is the mismatch in power between gaming studios and gaming platforms. As we have seen, huge players like Facebook, Microsoft, Apple and Google dominate the platforms space. As crypto networks can provide a gaming commons, not owned or controlled by any one entity, this will be a very interesting disruption that gaming studios of all sizes will want to take advantage of. For startups or struggling established players, this new market is the perfect opportunity to create new business models. For the larger gaming studios, the ability of crypto to grow the global market for gaming will be very attractive. However, the established companies that succeed in crypto will need to go through a huge cultural transformation. Crypto business models are very different, where the companies that https://techcrunch.com/2019/01/05/marc-andreessen-audio-will-be-titanically-important-and-vr-will-be-1000-times-bigger-2 than-ar/ of8 26
  • 9. embrace open data, open-source code, interoperability etc. will win. So established studios that are used to proprietary source code, tight control over in-game assets, strict licensing and aggressive copyright actions may not make the transition. 3.4 Modding Culture and the Evolution of Gaming Gaming has evolved from being a hobby of enthusiasts to a multi-billion dollar entertainment industry. E-sport competitions pay huge sums to winning teams, events are live-streamed across the globe, and money spent on games has experienced enormous growth within the past decade. Free-to-play games with in-app purchases that allow players to modify the experience or advance faster in the game have overtaken the once common buy-and-play model. The effects of this can be seen when looking at some of the most popular games in recent years: e.g. Fortnite, League of Legends or Hearthstone, all of which can theoretically be played without spending a single dollar, yet they are returning record- breaking amounts of money to the game studios that develop them through in-app purchases. Blockchain is uniquely setup to extend this model by fully transferring value to game assets via true digital asset ownership and native digital payments. One dimension of this development that is not as clear at first sight is the role that extensibility has played in this evolution. Mods have long been a part of gaming culture: enthusiastic gamers have always altered the rules, maps, or graphics of their favorite games (when possible) to create a richer gaming experience. This culture has resulted in some of the most popular game modes that have then been copied by other game developers in their new games, some of which became the highest grossing games that the world has ever seen. Many mods became more popular than the games on which they were based upon. An example of this is the Half- Life mod Counter-Strike that was created by a group of gamers as a side project and of9 26
  • 10. soon became a standalone game that has been among the most popular multiplayer games ever since.3 This pattern can also be seen in popular game modes like Battle Royale that originated in DayZ, which was a mod of ARMA 2. This mode was popularized by games like PlayerUnknown's Battlegrounds (PUBG) and more recently the free-2-play shooter Fortnite that amassed over 100 million monthly active players within less then a year. Similarly, Defense of the Ancients (DotA), which used to be a map in Warcraft III soon developed into a standalone game with various extremely successful adaptations such as League of Legends. Modding ties into what Multicoin refer to in (8) above as “competing front-ends”. The combination of open-source code and the shared data and asset layer of crypto networks allow developers to build unique experiences, what is sometime referred to as a “multiverse” approach; i.e. there is no one way to play a game (a “universe”), there are multiple parallel worlds that have a lot in common but evolve along their own individual paths. 3.5 Bridging Real World / Virtual Economies “Digital ownership, as we have come to know it, is largely illusory. The centralized computing environments that govern the value, ownership, and makeup of traditional digital assets contain proprietary biases that prevent players from ever enjoying the same full freedom of ownership that they would with a physical asset.” Horizon Games - A New Dimension of Gaming4 As we can see from the quote above, current in-game asset ownership is an illusion: everything is owned by the game studio. They can shut down the game, ban a user or change the rules of the game. This extends to in-game economies. We believe that crypto will change this due to the Multicoin criteria of (6) trust minimisation and (9) asset ownership. As these assets will exist outside the context of a game, stored as crypto-secured non-fungible tokens (NFTs), they can be traded on open markets. As users no longer have to trust a game studio, the user can safely invest more time and effort to accrue these assets, which are genuine property for the first time. This will massively expand the real world usefulness of virtual economies. The final Multicoin criteria (10 - Embedded logic in assets) is also likely to highly relevant to gaming. Trading an asset might be restricted for a period of time. An asset https://newzoo.com/insights/rankings/top-20-core-pc-games/3 https://medium.com/horizongames/a-new-dimension-of-gaming-728d7ae301c54 of10 26
  • 11. might morph into another asset after a period of time or when certain outside criteria or met. Assets can merge to form new assets. This could be Cryptokitty-like breeding, or it could require any number of assets to combine, to create a new asset with some special power or a very high value. As these assets merge with AI, maybe we see assets that are programmed to maximise their own value e.g. a self-driving chariot that maximises its own income by renting itself out to players. The game industry will experiment in this area and we expect to see some very creative new business models powered by these innovations. of11 26
  • 12. 4 Technology 4.1 Loom Network Architecture Loom Network’s technology uniquely enables high throughput in-game economies at a low cost, while maintaining crucial guarantees like trust minimization and true digital asset ownership. To learn more details about the technical architecture and Loom’s Plasma implementation, check out the appendix for links to resources the team has published on this. Overview of the Loom Network’s Design5 Loom is a network of side chains connected through the central PlasmaChain, which is maintained by external validators (such as Chorus One) via Tendermint-powered Proof- of-Stake consensus (utilizing the LOOM token). Applications and games run on third- layer sidechains that can be maintained by various parties, e.g. gaming studios, PlasmaChain validators or other third-party validators. The tracking of digital asset ownership, transfers and payments are handled on the PlasmaChain that bridges to Ethereum via the world’s first Plasma Cash implementation. The Loom design allows games and applications on the Loom Network to host their digital assets on a decentralized network that no single party controls, with security guarantees inherited from the Ethereum mainchain, which is securing multiple billion dollars of assets already. At the same time, applications and games running on Loom stay scalable, because their main logic can be handled by centralized parties. https://loomx.io/developers/docs/en/intro-loom-sdk.html5 of12 26
  • 13. Additionally, Loom’s recently announced token bridge implementation will enable applications built on the Loom Network to receive cross-chain payments from any other blockchain (e.g. Bitcoin) using the Cosmos Network’s Inter-Blockchain Communication (IBC) protocol. 4.2 Loom SDK & First Applications The Loom team itself is building the PlasmaChain and also two of the networks’ first sidechains, namely GameChain and SocialChain. Their approach is to develop the first applications and games on their network themselves. This allows them to optimize the tools (i.e. the Loom SDK) they provide to their target audience (other game developers). All chains built by the Loom team are designed to allow third party developers to leverage their capabilities. This includes any type of Solidity-based Ethereum Dapps, which could utilize PlasmaChain, but also Unity-based games, which can be easily integrated into the Loom Network through the GameChain sidechain.
 
 There are two applications that are being developed in-house by the Loom team: • DelegateCall, a Stack Overflow-style Q&A website that is using ERC20 tokens as Karma points.
 • Zombie Battleground, a trading card game that utilizes NFTs hosted on the PlasmaChain and uses the Loom Marketplace for buying and exchanging these digital assets. Loom short-term (Q4 2018 - Q1 2019) focus areas .6 The team’s current focus lies on building out the components needed for crypto- enabled in-game economies (see graphic). https://medium.com/loom-network/loom-network-roadmap-update-q1-2018-q2-2019-66a8403193ef6 of13 26
  • 14. 5 Competition The leading competitors to Loom are Fuel Games, Xaya, Enjin and Smart Holdem. Fuel Games, Xaya and Smart Holdem are building out scalability solutions for blockchain gaming using either state channels or sidechains. Enjin competes more on the marketplace side, along with OpenSea, Rarebits, Auctionity and Wax. There are also many adjacent projects in the space. There are general purpose blockchains like EOS, Tron, Ethereum and Plasma-based solutions like Matic, SKALE, LeapDAO. Messaging platforms with a gaming angle include Kin from Kik. Other projects focus on the gambling aspect of casino games, like Peerplay, Sp8de and Funfair. Loyalty and rewards platforms include Flux, Plair, Refereum, Buff and Gamertoken. Distribution platforms like Equiti, Ultra, Force and Fig. Esports specialists like Firstblood, Azarus and Play2Live. Vryx is working on VR and Playkey provide hosted resources for PC gaming. Some leading game studios include Loom pipeline companies like Axie Infinity, Blockade Games, Coins & Steel, Experimental and Moss Land. The list of blockchain gaming studios and games also includes Cryptokitties, Fuel Games (Gods Unchained), Mythical Games (Blankos), and Decentraland. A more detailed list of the crypto gaming ecosystem is available in the appendix. In the ecosystem map above we show Loom competing in Layer 2 General Purpose, Specialist Platforms and Collectible Markets. The key market that Loom need to dominate is the Specialist market, i.e. the space that focuses on the intersection of blockchain scaling and crypto-specific gaming functions. They appear to have achieved a sizable lead in this Specialist space, by identifying the key features needed for successful crypto games, by making pragmatic technical trade-offs and by their speed of execution. If they succeed in the Specialist space, then their ability to ensure liquidity in the Marketplace segment also looks likely, even in the face of the tough competition that is building up here. Finally, the ambitious vision of being the leading of14 26
  • 15. general-purpose Layer 2 implementation is within reach for Loom. However, failure to achieve this goal would in no way preclude them from growing a very large and successful network dedicated to gaming. of15 26
  • 16. 6 Token Economics The Loom Network token (LOOM) is mainly used as a staking token that determines validator influence and the rewards stakers receive for maintaining the network. The 21 validators with the largest stake are responsible for ordering transactions on the blockchain. Any LOOM holder can delegate to one or more of these validators and, in return, earn rewards for participating in securing the network. Validators charge a commission rate on rewards to compensate for the costs of operating the node infrastructure. Of the one billion token issued (fixed issuance), 300mn are reserved for rewards to stakers. The remaining tokens were issued to investors in the private sale (450mn), to the team (100mn) and their advisors (100mn). Most of these tokens have already vested. An additional 50mn tokens are reserved for future use. A maximum of 20% of the staking reward allocation can be distributed each year. This means that over time the block rewards paid to stakers will decline. Whether the 20% cap is reached within a year depends on how many LOOM holders decide to participate in staking (more on staking returns below). Should this cap be reached within the first year, then 60mn tokens will be paid out to stakers. After that, 240mn would be the remaining reward allocation at the start of the second year. Should the cap be reached again 48mn tokens (20% of 240mn) will be distributed in the second year, and so on. Gamers can earn rewards, paid out in LOOM tokens for trading on the marketplace, broadening the distribution of tokens (as it is currently highly centralised). The of16 26
  • 17. remaining marketplace fees are shared between the validators and the game developer. On the demand-side the key actors are the developers / game studios, who are required to lock  LOOM tokens to run their applications on the Loom Network. There is a minimum amount they need to lock up. Every month they are charged “bandwidth”, which is proportional to the transactions per second their apps consume on the network. The tokens they consume are paid to the validator nodes in fees. Private chain apps would need to lock up a larger amount of tokens (details currently  not provided). Players additionally have a chance to utilise LOOM tokens. They can stake their tokens to earn game membership, which entitles them to freebies, including new game cards. They can withdraw their staked tokens any time, in which case they no longer receive these rewards. Users are required to hold at least one LOOM token to enable them to move assets back and forth to the main Ethereum network. 6.1 Staking Returns As mentioned above, 300mn LOOM tokens are reserved to be paid out as rewards to stakers. Because of the allocation for this purpose declines each year, staking returns from block rewards will also decline. The rationale is that block rewards are used to fund operations during the bootstrap phase of the network until the platform is established and running infrastructure can be compensated through other sources, such as fees on marketplace transactions (as described above). The following factors determine the actual token-denominated return for staking LOOM tokens: • Chosen Lock-up Period: Staking requires locking up tokens and committing to longer lock-up periods results in higher returns for stakers.
 • Staking Participation Rate: If there is high interest in staking, the allocation cap will be reached and rewards for all staking entities will decline. The two determining factors here are: 1.) the amount of circulating tokens that are being used to stake and 2.) the lock-up periods stakers choose. 
 • Remaining Reward Allocation: when there are fewer tokens left in the reward pool allocated for block rewards, the cap will be reached quicker and stakers will subsequently receive lower rewards.
 • Fees: transaction fees on the PlasmaChain and fees on marketplace transactions that are partially paid out to stakers.
 • Validator Commission Rate (when delegating): validators are able to set a commission rate that automatically gets deducted from the rewards earned by a delegating entities’ stake. This is the implicit compensation delegators pay to validators for operating the infrastructure required to participate in maintaining of17 26
  • 18. the network.
 • Validator Slashings: not following protocol rules by double-signing (attacking the network) or being offline for an extended period (which may influence the network’s performance) can result in the destruction of stake (also referred to as slashing). Slashings will lower the return and potentially result in a loss for the validator and his delegators. Slashing conditions in Loom are still undefined, but are planned to be “lenient” in the beginning, as validators are vetted by the team.
 The analysis below only considers returns from block rewards, as fee revenues are currently unpredictable and potentially negligible in the bootstrapping phase of the network. We will monitor fee levels and growth metrics once there is more data available, at which point we will update this return forecast for our delegators. The maximum token-denominated annual interest is 20%, however delegators should expect to pay up to 25% commission to top-tier validators, as infrastructure set up costs will be high for professional validators. This sets the delegator returns to 15%. This return is achieved when the allocation cap isn’t reached, the staker committed to locking up his tokens for a year and no slashings take place. If a staking entity chooses a lower lock-up period, the maximal possible return declines. Choosing the shortest possible staking period (2 weeks) translates to an annual interest rate of 5% at maximum. The following table highlights some possible return scenarios for the first four years assuming different lock-up periods. All rates given assume a similar staking participation pattern that was observed in other Proof-of-Stake networks (in this case we used Tezos ). Lock-up periods from other stakers are assumed to average 6 months,7 a commission rate of 25% is applied and slashings are not considered. The values represent the token-denominated return a delegator would make on his initial stake through block rewards year-by-year for the first four years of the Loom Network operating, given that he is staking throughout the year setting his lock-up periods as shown in the columns. Lock-up period 2 weeks 3 months 6 months 12 months Year 1 3.75% (max.) 5.63% (max.) 7.50% (max.) 15.00% (max.) Year 2 3.44% 5.16% 6.87% 13.75% Year 3 2.59% 3.88% 5.17% 10.35% Year 4 1.98% 2.96% 3.95% 7.9% https://medium.com/figment-capital/tezos-new-year-update-b89e6021954b7 of18 26
  • 19. These numbers show the declining returns from block rewards over the years. The implications are that committing to stake for longer periods are the best way to achieve higher rewards. Note that this analysis does not include transaction and trading fees. Once dapps start taking off, the additional fees from network transactions and marketplace trading will reverse the downward pressure on returns. A hypothetical delegator that stakes 10,000 LOOM tokens for four years choosing the maximum lock-up periods will end up with 15,574.73 LOOM tokens using these assumptions when compounding his rewards. When only locking up tokens at the shortest possible interval (2 weeks) over four years, the final balance would only amount to 11,226.60 LOOM respectively. When we factor in the effect of transaction and trading fees, with the assumption that these will increase at the same same pace that block rewards are declining (i.e. we assume we can sustain 15% per year for four years), the first hypothetical delegator’s final balance would be 17,490.06 LOOM (11,586.50 LOOM for the second, where the return is 3.75%). of19 26
  • 20. 7 Market Sizing Some key facts on the gaming market from Newzoo :8 • Gaming market: $137.9B in 2018, growing at 13.3%
 • Biggest markets: China ($37.9B), US ($30.4B), Japan ($19.2B)
 • APAC is 52% of total market
 • Mobile quickly took 50% of market - shows that crypto could do the same
 • Mobile +25.5% year on year to reach $70.3B
 • Console gaming -  $34.6 billion
 • PC gaming -  $32.9 billion
 • 2.3 billion gamers in the world
 • Expected to growing to 180B by 2021 (10.3% CAGR)
 • Mobile gaming $106.4 billion in 2021 (59% of total)
 The amazing growth of the gaming industry to date, and it’s continuing double-digit growth, bodes well for Loom. We expect that crypto will serve to accelerate this growth by enabling permissionless innovation (extending the game experience via modding), making gaming services accessible to hundreds of millions of users who are currently excluded, and by opening up many new business models and opportunities for people to get paid for gaming. The Apple / Google duopoly in mobile could pose a serious threat for Loom, as mobile continues to take a larger share of global revenue. However, even if there was a crypto backlash from Apple / Google (and Microsoft / Sony on the console side), the PC revenues are still healthy enough for Loom to grow a large user base. Any serious attempt by the corporations to wield market power is likely to result in a backlash by consumers and accelerated adoption of open-source operating systems on devices. Loom’s strong presence is APAC might also help them gain traction there, where China, Japan and Korea make up three of the four largest markets .9 The crypto games market is still too young to make serious predictions on revenues, however Chorus One will continue to analyse the space as more data becomes available and will provide an updated analyses over the coming months. https://newzoo.com/insights/articles/global-games-market-reaches-137-9-billion-in-2018-mobile-games-take-half/8 https://newzoo.com/insights/rankings/top-100-countries-by-game-revenues/9 of20 26
  • 21. 8 Risk Factors While Loom is well positioned and a large upside exists, there are many risks that could undermine the success of the Loom Network or the translation of such success into investor returns. We see the following as major risks: Lack of Adoption of the Loom platform Loom may fail to attract game developers to build on Loom or these developers may fail to build successful applications. There could be a large number of causes for this ranging from lack of product-market fit to problems with the technology. Amount of Staking Returns If many Loom holders stake and choose long lock-up periods, then returns for everyone will decrease. Also over time returns from block rewards will decrease, while revenues from fees are uncertain. Value Capture Through Fee Revenues In the long run, the value of the Loom token depends on transaction fee capturing a significant percentage of the value creation. While this is a reasonable assumption, it should be noted that no blockchain platform has as of now generated large revenues from fees. There is also a risk that higher fees will decrease the attractiveness of the Loom Network, so a careful balance will have to be struck. Off-Platform Trading The success of the Loom Network depends on strong network effects around PlasmaChain, especially as fees from trading of in-game assets constitute a majority of revenues. A potential threat could be if trading of in-game assets ends up concentrating on an exchange that is not part of the Loom Network. Regulatory Uncertainty While gaming is largely an unregulated market, a core part of the Loom thesis is that blockchain will allow a more sophisticated economic system to emerge around gaming. It’s likely that the boundaries of what a financial service is will become increasingly blurry. A likely consequence is a rising regulatory burden that could affect many parties in the Loom ecosystem including validators, game developers and the Loom company. Team Incentive The tokens allocated to the Loom team are already fully vested. This limits the economic incentive for the core team to stick around for the long term. of21 26
  • 22. Competition Other platforms like EOS are also targeting the gaming market. Some of them have very large amounts of funding. In particular, Loom doesn’t have a budget to directly incentivize game developers to build on Loom. The result could be that others pull ahead. Technology Risks While Loom has made pragmatic choices and executed well, significant technology risks remain. Plasma Cash hasn’t been proven in practice. Loom could fail to execute on this or fail to execute in time. Platform Risks It’s unclear how Loom’s platform will interact or integrate with dominant gaming platforms like iOS and Android or the console market. The incumbents controlling these platform have significant market power and may be able to significantly limit the market reach of Loom. Developer Adoption The success of Loom depends on an external developer community building games on the Loom platform. While building developer communities is difficult, Loom has achieved some early wins in this area. Many of these risks are common across all startups, especially things like technology risk, the strengths of incumbents and existing platforms, developer adoption, user adoption, competition, and regulatory uncertainty. Issues around governance, cryptoeconomics, cost competitiveness, validator economics etc. are also common issues across many crypto projects. Therefore we don’t see any major risks for Loom, beyond the standard set of challenges that any ambitious crypto startup would face. of22 26
  • 23. 9 Summary Overall, Loom has demonstrated a deep understanding of the opportunity in crypto gaming. As we have already seen, there are significant challenges ahead for Loom. But we have also seen that these challenges are in no way unique to Loom. They are challenges every startup faces, including many of Loom’s competitors. In fact, Loom’s pragmatic approach to technology choices, governance and go-to-market, have already gone a long way to reduce these risks. On the technology side, they understand that working functionality in the hands of real users is more important than solving every technological issue today. In governance, they have understood that building trust-based relationships with partners today allows them to postpone complex decentralisation issues until later. They understand that the incentives need to work for everyone in the ecosystem and they have carefully studied and learnt from the mistakes of other networks. They know that “build it and they will come” is not a viable approach to launching a platform. Instead they have opted for an approach that is more like: “show them how to build it, by going through the dogfooding pains yourself, and then they will come”. Loom has shown that they understand the crypto gaming market. Their work on game mods shows they understand the power of customisation to gamers. Their focus on marketplaces for NFTs show that they understand how in-game assets will drive crypto gaming. The combination of superior scalability while maintaining security guarantees through their Plasma Cash implementation, has allowed the Loom Network to demonstrate how well they understand the competing trade-offs, i.e. scaling challenges can’t be allowed to reduce asset security. Finally, they have integrated 2D and 3D tools to their SDK, putting them in a good place to ride the mobile app wave today and be ready to ride the VR wave when it finally happens. Loom is targeting a very large market that’s ready for exploitation in the near term showing great alignment with crypto incentives. They have an important technology lead, and if their strong execution to date can continue, there is no reason why they cannot become one of the leading platforms in the crypto gaming space. of23 26
  • 24. Appendix Ecosystem Companies & Projects Loom Network Resources Loom Website - https://loomx.io/ Loom SDK - https://loomx.io/developers/ Loom Github - https://github.com/loomnetwork Loom Blog - https://medium.com/loom-network Competitors Xaya - https://xaya.io/ - State channels (called “Game Channels”) Enjin - https://www.enjin.com/ - focused on creating, trading and melting (liquidating) virtual items, wallet for in-game items, Efinity “lightning” network for scalability on Ethereum Ludos - https://ludos.one/ - main chain + multi-sidechain infrastructure, virtual items exchange Smart Holdem - https://smartholdem.io/ - 2 layer blockchain using DPoS for layer 2 Fuel Games - https://www.fuelgames.io/ - a platform for in-game economies using state channels Horizon Games - https://horizongames.net/ - building Arcadeum, a platform for in- game economies of24 26
  • 25. General Purpose Platforms EOS - https://eos.io - Gaming: Mythical Games Kik (Kin) - https://www.kik.com/kin/ - Gaming: Kin Developer Program Gaming Tron - https://tron.network/ - Gaming: TRON Arcade Ethereum - https://ethereum.org - Ethereum games Matic - https://matic.network - Plasma-based layer 2 scaling SKALE - https://skale.labs - Plasma-based layer 2 scaling LeapDAO - https://leapdao.org - Plasma-based layer 2 scaling Adjacent Spaces Playkey - https://playkey.io/en/ - rent GPU resources for PC gaming Peerplays - https://www.peerplays.com/ - network for gambling / casinos Equiti - https://equiti.io - tools for payment, licensing and digital assets Flux - https://flux.games/ - marketplace for games, loyalty platform with rewards for playing games, tournaments Ultra - https://ultra.io/ - games distribution platform Plair - https://plair.life/ - loyalty platform with rewards for playing games, tournaments Bountie - https://www.bountie.io - loyalty platform with rewards for playing games Buff - https://buff.game/ - loyalty platform with rewards for playing games Vryx - https://vryx.org/ - build VR worlds in IPFS/Ethereum Force - https://forceprotocol.io/ - games distribution platform Sp8de - https://sp8de.com/ - provably random tools for gaming Firstblood - https://firstblood.io/ - tournaments, rewards Play2Live - https://play2live.io - eSports streaming Funfair - https://funfair.io/ - provably fair gaming Gamertoken - https://gamertoken.io/ - marketplace, loyalty token Azarus - https://azarus.io - loyalty for eSports viewing Fig - https://www.fig.co - games crowdfunding, distribution Auctionity - https://www.auctionity.com/ - NFT auctions Alto - https://alto.io/ - tools & marketplace for NFTs Refereum - https://refereum.com/ - referrals, crypto rewards for gamers Crypto Collectible Markets of25 26
  • 26. OpenSea - https://opensea.io/ Rarebits - https://rarebits.io/ Wax - https://wax.io/ Games Cryptokitties - https://www.cryptokitties.co/ Gods Unchained - https://godsunchained.com/ Decentraland - https://decentraland.org/ BlockMagic - https://blockmagic.xyz/ Bitguild - https://www.bitguild.com/ Mythical Games - https://mythical.games/ Huntercoin - https://huntercoin.org/ HashRush - https://hashrush.com/ Rankingball - https://www.rankingball.io/ Experimental - https://e11.io/ Coins & Steel - https://coinsandsteel.com/ Etheremon - https://www.etheremon.com/ Moss Land - https://moss.land/ Blockade Games - http://blockade.games/ Axie Infinity - https://axieinfinity.com/ SkyWeaver - https://skyweaver.net/ of26 26