Most recent update: [March 3rd , 2022]
No securities regulatory authority has expressed an opinion about the Crypto Contracts or Chiliz, made available on the VirgoCX Platform, including an opinion that Chiliz is not itself a security and/or derivative.
What is Chiliz?
How much do you love your team? Malta-based FinTech provider Chiliz is giving fans a new way to experience their favourite sports clubs. Through Chiliz’s engagement platform ‘Socios,’ fans have the opportunity to go from passive spectators to active influencers within the sphere of their fandom. By using Chiliz’s native token CHZ, fans have a direct hand in team decisions such as which jerseys they wear to games, what music plays at stadiums, and potentially even major contributions like influencing starting line-ups or draft picks. Chiliz is partnered with a multitude of sports and esports clubs, including teams like Barcelona FC and Paris Saint-Germain, allowing fans from all over the globe to have a hand in the goings-on of their teams.
The team behind Chiliz
Based out of Malta, Chiliz was founded by its current CEO Alexander Dreyfus. Dreyfus has over 20 years of experience as an entrepreneur, launching several successful business across the travel and entertainment industry. Some notable ventures include Webcity, an interactive travel guide, and Winamax and Chilipoker, both online poker projects.
Chiliz’s partners include Sam Li, the former Vice President of the National Basketball Association, Nicolas Maurer, CEO of esports enterprise Vitality, and Dr. Disrespect, one of the most popular video game streamers in the world. Dreyfus has stated that his goal with Chiliz was to “fully establish Fan Tokens as the ultimate fan engagement tool and as a powerful new revenue generator for the sports industry.”
How does it work?
According to their official Medium channel, the CHZ token is a digital currency for sports tokenization, powering ‘the world’s first scalable fan engagement and rewards app.’ Users can buy and trade branded tokens (called Fan Tokens) belonging to their team of choice so they can participate in voting directly tied to the team. The token powers Chiliz’s engagement platform on Socios.com; here, fans can stake their Fan Tokens in a way similar to the governance of a DAO.
While CHZ tokens are the exclusive currency of the platform, Fan Tokens are issued by the corresponding sports organization and are tokenized representations of the voting rights for each team. The voting process is enabled via smart contracts executing automatically and transparently on the Chiliz blockchain. Each franchise can customize their Fan Token price, supply, distribution, as well as the special rewards and abilities that the Fan Token enables. Organizations that fully embrace the concept have even allowed fans to vote on draft picks and merchandise designs, leading to Fan Tokens being recognized as ‘Vote Tokens.’
Each time a new franchise joins Socios, they decide the initial sale price of their Fan Tokens, denominated in CHZ. These tokens are made available on a first come, first serve basis at the going price point known as a Fan Token Offering (FTO). Before launching an FTO, Socios will publicly disclose relevant information to the release, including the beginning and end dates of an FTO, the opening price, and the fully diluted marketcap – this makes sure that fans can make a well-informed investment decision.
The CHZ token operates both as an ERC-20 token on Ethereum’s blockchain and as well as a BEP2 token on Binance’s Smart Chain. CHZ tokens are bought directly from the platform’s eponymous exchange, Chiliz.net, as well as from any other major exchange (including VirgoCX). The Chiliz Exchange is Socio’s peer-to-peer marketplace, and can be accessed through the web or via the mobile app.
Fan tokens exist on a permissioned Proof-of-Authority (PoA) sidechain; this is different from other traditional proof-of-work (PoW) or proof-of-stake (PoS) consensus algorithms as it relies on a smaller number of approved verified nodes rather than a network of anonymous nodes to uphold the integrity of the network. These authority nodes have the power to validate and create new blocks, thus the organizations or individuals that run an authority node are usually revealed to the public in order to maintain trust and integrity of the system. Consequently, the Chiliz Chain sacrifices being truly decentralized for scalability and efficiency, although it can be argued that this makes it perfect for a commercial collaboration platform like Socios.
All of Socios’ trading activity and voting results are securely and transparently stored on the sidechain rather than the main Ethereum network, allowing the Chiliz Chain to control the network’s gas fees and to ensure timely and cost-effective transactions more easily. The sidechain is also responsible for the automated smart contracts that execute the results from fan influence voting. The Socios platform thus acts as an oracle that connects the project’s permissioned sidechain to the Ethereum network, making it the only bridge that allows the exchange of CHZ and Fan Tokens.
Supply and Incentive
The total supply of CHZ tokens is 8.8 billion, minted at the project’s launch in October of 2018. CHZ was distributed first to early contributors with no public sales beyond was originally made available at exchanges, although there is a specific distribution of CHZ tokens in the ecosystem. According to CoinMarketCap, the distribution is as follows:
- 15% to Strategic Acquisitions
- 5% to the Team
- 7% to Seed Investors
- 3% to the Advisory Board
- 15% for Marketing
- 20% as a Userbase Reserve
- 34.5% for the Token Sale
Notably, Fan Tokens can also be burned (or removed from circulation) based on factors that could directly correlate with a team’s performance; winning games or scoring goals could result in burnt tokens, increasing the scarcity of a team’s Fan Token and therefore increasing its value.
Due to its PoA-based consensus algorithm, the Chiliz Chain is considered to be highly secure and is regularly audited by Certik.
Risks and Drawbacks
Although Chiliz operates in a relatively untouched market with a huge potential for growth into other sports or eSports sectors, Chiliz is limited by the fact that it is built on the Ethereum network. Like all other ERC-20 tokens, CHZ is beholden to Ethereum’s gas fees – the higher transaction volume on the network, the more a user will need to pay gas doing something as simple as moving the token to a different wallet. During busier periods on the network, this can often be expensive, so investors should be aware of network activity when conducting CHZ transactions.
Chiliz is partnered with decentralized oracle network Chainlink, a service that provides real-world data to smart contracts. Using this, Chiliz has its sights set on creating unique NFTs that are aimed at commemorating special events such as player milestones or championship wins in real time. Combining the attributes of blockchain technology to popular, real-world commercial pursuits, projects like Chiliz and NBA’s Top Shot are creating a new future for the sports fandom experience.
If you would like to learn more about Chiliz, check out these resources below:
Chiliz’s official Medium: https://medium.com/chiliz/chiliz-faq-376aafa0e18e
Chiliz on Swissborg: https://swissborg.com/blog/what-is-chiliz
Chiliz on Kraken: https://www.kraken.com/en-us/learn/what-is-chiliz-chz
Chiliz on CoinMarketCap: https://coinmarketcap.com/currencies/chiliz/
Prior to listing Chiliz on the VirgoCX Platform, VirgoCX performed due diligence on Chiliz and determined that Chiliz is unlikely to be a security or derivative under Canadian securities legislation. VirgoCX’s analysis including reviewing publicly available information on the following:
- The creation, governance, and location of Chiliz and/or its primary development team;
- The supply, demand, maturity and liquidity of Chiliz; and
- Legal and regulatory risks associated with Chiliz.
Statutory Rights under Securities Legislation
VirgoCX is offering Crypto Contracts on crypto assets in reliance on a prospectus exemption contained in the exemptive relief decision Re VirgoCX Inc. dated May 30, 2022 (the Decision). Please be aware that the statutory rights in section 130.1 of the Securities Act (Ontario), and, if applicable, similar statutory rights under the securities legislation of each other province and territory in Canada, do not apply in respect of the Crypto Fact Sheet to the extent a Crypto Contract is distributed under the prospectus relief in the Decision.