Mickael Costache, Author at Espeo Software

A spotlight on our client, Gabro, who noticed loyalty program management wasn’t working and decided to fix that using blockchain. We’ve talked to their CEO, Andy Chen, as well as the architect of the blockchain solution, our very own Marcin Zduniak. How exactly will Gabro work, is it a blockchain loyalty program? How will Gabro innovate on customer loyalty program software? Read on.

What made you feel there were problems that needed fixing in customer loyalty management?

Let me start by telling you a little secret about loyalty programs. Most of them don’t work.
What do I mean by that? Our research shows that 78% of customers are dissatisfied with their loyalty programs because they have to carry all these plastic cards/paper coupons or remember so many accounts and passwords. There’s no good customer loyalty program software that can help the user. Not only that, but loyalty program management operators bring in additional obstacles by setting blackout periods and ridiculous expiry dates. So, it’s highly difficult for consumers to redeem their points or coupons.

It’s actually not an accident. Every expired point becomes profit for the company. So you may ask why bother having all these programs in the first place if the redemption is only 7% and all the customers walk away feeling cheated…

So that’s how Gabrotech was born? How did the team come together?

Yes, pretty much – it was born out of frustration. The loyalty programs often seemed like a waste of time and money. I remember how many points I’ve wasted.
So, the 6 of us wanted to resolve this problem: how can we make loyalty programs really work for the customer? We all went and analyzed different solutions, and we have all came to the same conclusion – we need to use blockchain to resolve this – let’s do a big blockchain loyalty program! Only after some time, we then realized that our blockchain solution could really disrupt the loyalty industry. Finally, we decided to create Gabrotech to get more like-minded people on board.

Speaking of like-minded people. How did you find Espeo, and how is our cooperation going?

Espeo has a great reputation in this industry. Like Gabrotech, they are creative in their solutions and our partnership has gone from strength to strength.
Actually, Espeo is part of what makes us different from other ICOs. We incorporated the most innovative blockchain technology with customer loyalty management, thanks to you. Our Token GBO will be a currency as well as a trading tool to use, exchange, and sell on one blockchain-based platform.
Our blockchain solution provides proof of ownership for rewards, contracts (terms) and conversion capability at low operating costs. New partners and coalition could be added to the program almost instantly, with low security risk even if a partner is unknown and not trusted yet.

So what exactly are you offering? Customer loyalty program software? Or an app?

No, it’s something completely different. It’s not the question of having another discount app. At Gabrotech, we have designed a whole new ecosystem based on decentralization. It’s also more than just a blockchain loyalty program. Customer loyalty programs can no longer set these ridiculous rules or charge you with hefty fees, making it hard for you to redeem the points you’ve earned.
Also, users can freely trade their loyalty points between different programs. When you don’t have enough hotel points, how about using your air miles to get the upgrade you want instantly?
As a part of our special customer loyalty program software, our digital wallet 2.0 will allow you to manage all your programs with only one app and one password. And if you have idle points, you can give them to your friends, swap them with something else or even sell them. Additionally, when you’re traveling abroad and don’t have the local currency, you can use your Gabro pre-paid card and spend your air miles just like cash.

Why did you choose blockchain for customer loyalty management? Is it truly as ‘revolutionary’ as people say?

Since we are targeting 60,000 merchant outlets and 60 million customers, blockchain is the secret sauce for our customer loyalty management ecosystem. It’s because:

The complicated terms and conditions and conversion rates could be developed using smart contracts for speed (4 weeks vs 5 mins)
Blockchain is immutable and could reduce fraud or running the risk for being redeemed twice
Adding a new merchant in blockchain is fast and could greatly reduces costs

Let’s take a closer look at the technology behind Gabro. A few words from Marcin Zduniak, Head of Blockchain at Espeo.

The initial scope of Espeo Blockchain’s involvement was to design the architecture of the complete GabroTech solution, both the centralized part of it and all of the blockchain related building blocks and internal components. All the details can be reviewed in the technical whitepaper we prepared (see it here). But let’s look at some of the more interesting technologies we’re planning on implementing.

our own Plasma Cash implementation for trustless, cheap and rapid loyalty points transfer
private permissioned Ethereum ledger (PoA) for the trustless loyalty points redemption and issuance rules
advanced cryptography and schemes (BIP-32, PBKDF2, Shamir’s Secret Sharing) for the secure wallet development
user-friendly access and authorization to the wallet (biometric factors like face recognition using 3D scanning directly from the mobile phone)
multi-currency exchange (with decentralized and also centralized processes, depending on the needs of given market — like level of trustlessness, liquidity needs, pace of the trading)
atomic swaps of the points and tokens where it is technically feasible and economically practical
integration with existing loyalty points providers and issuers and the way these legacy points could be fairly tokenized and redeemed and/or exchanged for other providers’ points
a scheme of using the blockchain technology in the off-line Point-of-Sale scenarios (similar to NFC in regular micropayment schemes)
integrated analytical tools employed with machine learning algorithms and Big Data-type of storages that could suggest the best loyalty point deals for the end-users and points-holders and also suggest ideas for new profitable promotions to the merchants

After an extensive research period, we came up with the technology stack and process flow design. Right now, we can say it’s both secure and economically viable. What’s more, it appears to be attractive to the end customers. Both loyalty points holders and merchants that are about to redeem them will likely find this an improvement on customer loyalty program software. We’re now planning on the next phases of our cooperation, namely the implementation phase and the precise release roadmap.

Why invest in GBO?

The sum of all loyalty points issued across industries globally is more than $500 billion. Most of these points are idle. So, essentially, Gabrotech is helping to monetize your idle loyalty points. This will attract millions of consumers to give up their points in return for GBO. Our merchant partners would also want to hold GBO for hedging purposes. So, when reaching our target of 6,000 merchant outlets and 10 million users, we will become a loyalty currency on our own. The merchants might even reward their customers with GBO directly rather than their own branded customer loyalty points. Just like banks buy air miles to reward the customers spending on their credit cards.
The network effect is created when we add more merchants to our ecosystem. This means they will bring more of their loyalty members into our platform. It will then attract more merchants to join us in order to increase their customer base. Gabro clearly offers more benefits than regular customer loyalty program software.
Our tokenomics model shows that 43 to 50% of our tokens would end up in the hands of consumers and our merchant partners. This creates a huge demand of GBO and boosts up the price steadily. Just like bitcoin, the more widely it is accepted and used, the more the price will go up.

Can I convert my GBOs into real money?

Yes! Our Multi-Currency Conversion Engine allows you to rapidly convert your GabroToken to fiat currency at the real time market value. In addition, Gabro may also be exchanged to points in any blockchain loyalty program.

How do you see yourself and Gabrotech in the future – say, in 5 or 10 years?

Gabrotech will revolutionize customer loyalty program software! It will be the largest loyalty exchange platform in Asia and cover all industry verticals. Closed loop loyalty platforms become obsolete. Gabro releases billions of dollars from the idle points sitting everywhere… sounds amazing, but it’s not unrealistic!

Utility tokens and security tokens represent the two main categories of the ICO token. People easily get confused about their differences and use cases. I’ll go through a quick presentation of their key characteristics and dig deeper into the security token topic. Let’s highlight the benefits to investors and the trading aspect of those tokens.

The difference between a utility token and a security token

Utility tokens provide their holders with an access to the company’s services and/or products. Yet, they aren’t issued in the form of an investment asset. That means that the purchase of a utility token doesn’t have to comply with securities laws at this point. A utility token has a certain use case inside a project, but it isn’t designed as an investment. It ‘s not a company share. However, this can still be profitable In fact, the price of a utility tokens can grow over time if the demand for the service or product increases. So, buying a utility token that brings value may bring profit to its holder.

A security token is quite different. It gives its holder a right of ownership and is subject to securities regulations. In the US for example, the SEC has ruled that security tokens are subject to the same federal laws that regulate traditional securities. This brings a limit to the type of investors that can invest in security tokens. Therefore, their trading is also extremely limited and restricted.

The main problems for ICOs using utility tokens:

The rise of ICOs in the last 18 months has brought some major issues in the market. Investors are getting more and more cautious after numerous scams have been widely publicized in the media.

One other major issue has been brought to light when it comes to ICOs using utility tokens. Regulators all over the world (especially the SEC in the United States) are investigating tokens according to their actual usage, as opposed to how they were intended to be used. This is very important because a utility token might actually be considered as a security token. A very high number of ICO tokens are expected to rise in value over time. Therefore, investors are holding on to them as an investment, instead of actually using them within the project. This is where the regulators see a problem, and that’s why they consider those tokens as securities. The SEC chairman, Jay Clayton, even said: “I believe every ICO I’ve seen is a security” . Though, to be fair, he did also say that not all ICOs are scams.

This is why a lot of companies have decided not to let US-based investors invest in their ICO, or look into building a project with security tokens instead of utility tokens.

Why is a security token so appealing?

Issuing security tokens during an ICO is seen by a lot of industry professionals as more efficient and less expensive compared to using utility tokens. It reduces legal risks and brings safety for companies in the long term. On the other hand, a lot of ICOs still try to avoid using security tokens because as I mentioned earlier in this article, it brings about the restrictions about who can invest and trade the tokens, which limits the potential of fast and wide adoption.

Strong ICOs backed by very solid teams are using security tokens more and more often these days. The reason is simple – they don’t want to risk any issues with the regulator. What’s more, they often don’t have any problems raising funds from accredited investors. Plus they’re able to operate on the US market.

You’ve been warned

As we mentioned earlier, a company issuing utility tokens that are later considered as securities by the regulator could bring huge potential liabilities. So, it’s natural that founders are becoming more and more aware of this.

The bottom line is that if you are a company founder dedicating all your time and resources to building a massive business, you want to be sure that your ICO is compliant with ever-growing regulations. Otherwise, it leads to liabilities. On the same note, if you are an investor in an ICO, you’ll definitely want to invest in a token that brings you maximum protection. A regulated security token is often the best way to achieve this.

I’m not saying that utility tokens are good or bad. Or that security tokens are the best way to go. However, as a company founder or as an ICO investor, you’ll probably need to take the elements I’ve mentioned into account. Those two types of tokens have very different aims. As you could see above, security tokens are designed to represent shares of the company, while utility tokens represent access to the company’s product or service. It should also be noted that sometimes, a security token is the only way to go. For example, a lot of projects promise buy-backs of their tokens which makes them a security to the regulator.

The trading of security tokens is its major disadvantage:

The major issue with a security token is that only accredited investors can invest.
The requirements include the following. Only one of these elements needs to fulfilled):

An annual income of over $200,000 as an individual or $300,000 with a spouse.
Net assets of more than $1 million excluding the primary residence of the investor.
An institution with more than $5 million in assets.
An entity fully owned by accredited investors.

Meeting the criteria above is fairly hard for most investors. This is why a lot of companies go for a utility token: to attract the largest number of investors without being limited to their net worth or geographical location. Using a security token enables an organization to provide token holders with benefits like dividends, voting rights as well as profit shares. This is something a lot of investors are looking for. Also, a security token can still have a utility use case. It can be used within the project’s service or product as a native transaction value.

If you’re still not sure how to handle your ICO, write to me using the form below, or see my contact at the bottom of the page. I’m sure I can suggest something.