Chiliz (CHZ) Review: The Fan Token Ecosystem
With the recent craze in NFTs there are a number of previously underappreciated projects that have gained some prominence in the blockchain community. One of those is Chiliz, which is a project working on the tokenization of sports teams.
Its multiple platforms and native cryptocurrency CHZ are creating the world’s first blockchain powered fan engagement and rewards ecosystem. With Chiliz fans are able to purchase and trade Fan Tokens, and use those same tokens to vote in surveys and polls linked to their favorite teams.
In the future these tokens could even provide governance over the teams, effectively decentralizing and gamifying the act of managing professional sports teams and figures.
There are three primary elements to the Chiliz ecosystem:
- Socios.com where Fan Tokens are created and sold in exchange for CHZ. It is also where governance decisions are made and where users can earn rewards and purchase more CHZ.
- Chiliz.net is the world’s first cryptocurrency exchange for sports, allowing crypto-enthusiasts and traders to speculate and trade existing Fan Tokens.
- The CHZ token, which powers the entire ecosystem.
The Chiliz mainnet and Socios platform were envisioned by founder Alexandre Dreyfus all the back in 2016, but it wouldn’t be until 2019 when the ecosystem was finally launched.
Now, just 18 months later the company has over 80 professionals from more than 25 countries and continues expanding rapidly. And after humble beginnings in 2019 the Socios platform is now home to 34 elite sports properties, primarily in soccer and most recently NASCAR racing.
The Socios platform and CHZ token was designed to permit fans to support their favorite sports teams through blockchain-based dealings. The Chiliz team is hoping to engage fans in the everyday business of running sports teams, and is providing the sports teams themselves with the necessary blockchain tools to both engage and monetize their fans easily.
In the following article, we will talk about the Socios platform and its role in the athletic fan community and discuss the recent tokenization tendencies in sports and esports, as well as discover what Chiliz cryptocurrency is and how to use it.
The Chiliz platform will give the hundreds of millions of sports and esports fans the ability to participate more directly with their favorite teams by giving them voting power of certain decisions. The team has already been able to develop nearly three dozen partnerships with a number of major international soccer franchises, and as the platform grows it is increasingly easy to draw in additional partners.
While Chiliz began with soccer as its very first sports vertical it also has plans of adding other sports such as football, baseball, and basketball. As of May 20 the platform also includes NASCAR racing and Formula 1 racing as it has added several racing teams. Aston Martin Cognizant Formula One Team and Alfa Romeo Racing ORLEN, have become the first Formula 1 Teams in the world to launch Fan Tokens.
Chiliz has seen rapid adoption, and the token use case is very strong, especially as NFTs become increasingly popular among investors. The team can expand the token use case even further by partnering with NFT platforms such as Sorare.com.
Sports teams will be increasingly attracted to Chiliz as they see how easy it is to engage and monetize their fan base through the platform.
It is also positive that there is no direct competition for Chiliz, and it now has an 18 month head start on any potential competitors, such as Bethereum and Asura Coin, both of which could eventually adopt similar use cases if they were so inclined.
Technology and System Architecture
The Socios platform runs on two different blockchains:
- A permissioned sidechain
- The main Ethereum blockchain
The permissioned sidechain has been called out for centralization concerns since it is a private rather than public chain, however using a permissioned sidechain also provides superior security for Chiliz.
Everything in terms of voting and trading occurs on this sidechain and all the data is stored permanently in a public ledger. By using a permissioned sidechain Chiliz is able to dramatically reduce the transaction costs by using a Proof of Authority consensus mechanism to confirm the new blocks created. The sidechain also means the platform can scale as needed.
The main Ethereum blockchain is used for everything that occurs in terms of CHZ ERC-20 transactions. That includes the creation and exchange of Fan Tokens and any account balance exchanges that occur as part of other service features on the platform. All these transactions are stored permanently in an auditable manner on the Ethereum mainnet.
Connected to both of the blockchains is the Socios platform, which effectively acts as an oracle that connects the permissioned sidechain with the Ethereum mainnet chain.
Effectively the CHZ tokens are emitted on the Ethereum blockchain, while the NFT Fan Tokens are emitted on the permissioned sidechain.
The public ledgers of both chains are indelible and contain the full history of transactions, which are auditable by anyone at any time.
Chiliz Gives Fans a Voice
In the current form sports team fans have only very basic transactional contact with the athletes and management of their favorite teams. They are able to watch their teams in person, or on the television if the games are broadcast.
They can also pay for the licensed products marketed by the teams and individual athletes. However the fans have no control or influence over the teams or athletes. Chiliz can change that.
It’s already well known that there is a huge appetite from fans to become influencers in the sports and esports realms. However the current movement to provide direct fan involvement and engagement has been little more than a novelty.
Currently there’s no way to directly influence team decisions short of buying the team or creating your own new team. That means that there’s effectively no way to make the transition from fan to active team participant.
Creating a new team to gain this type of access to influencing a sports team is not an option for nearly everyone. The barriers to entry are simply too great in terms of capital, time, and talent acquisition. It’s simply not realistic to consider forming a new professional sports team.
Chiliz has created the platform for fans where they do get a voice in their favorite sports teams. And the platform will also be able to help fund and connect with new sports and esports entities.
This is being done specifically through the Socios.com platform, which is a crowd-management system powered by the CHZ token. It empowers fans and gives them the opportunity and ability to take an active and meaningful hand in guiding aspects of the team decision making process. Fans can now become influencers within their favorite sports team organizations.
All f this has been made possible through the creation of a blockchain-based NFT system that allows for the creation, sale, and exchange of limited quantities of Fan Tokens. The infrastructure that makes this possible is secure, trustless and executed via smart contract on the socios.com platform.
Besides simply providing fans with access to decision making for their favorite teams, the Chiliz-fueled blockchain solution also turns team management into an entertainment proposition, effectively gamifying the act of team management.
This creates a massive opportunity, and could lead to a huge new industry as fans voting rights will now have a direct impact on real-world sports organizations and any of their partner organizations.
The Socios Platform
The Socios platform was designed to provide voting for the owners of Fan Tokens, which are also created and distributed on the platform.
Socios focuses on the tokenization of sports club management because the development team believes that using blockchain technology can solve the problems associated with providing fan-based decisions and transparent voting. The Fan Tokens were established to provide voting power, and they work on the permissioned Proof-of-Authority blockchain the powers Socios.
The Socios platform comes with several important features:
Fan Token Offering- When a new organization goes live, their supply of Fan Tokens is offered for purchase by fans on a first come, first served basis at a fixed price.
Voting Rights- All sports and esports teams will debut with a specified, finite number of Fan Tokens tied to concrete voting rights. Fans who obtain voting rights by trading CHZ tokens for Fan tokens, gain a decision-making right for that team.
Buying & Selling Fan Tokens- Fans who are in control of Fan tokens gain access to the marketplace. Here fans can auction off the voting rights (Fan Tokens) they hold.
It is also important to note that Fan Tokens are not used up in the voting process. They are merely a license to participate in governance and users do not lose tokens by voting. Instead they maintain ownership of the tokens and are able to vote again in the future on new decisions.
How it Works
The very first teams to use the Socios platform were Paris Saint-Germain and Juventus, both of which created Fan Tokens to create a crowd-voting economy on the platform.
Each created a pre-determined number of Fan Tokens to offload a given amount of voting power to their fans. Each team that joins the platform gets to decide on how much influence they will provide to fans when creating their Fan Token base.
Fans then use the platform to purchase Fan Tokens using the native CHZ tokens. Each Fan Token gives the fans a set amount of voting power to interact with surveys, polls and decisions posted by the underlying team.
All that’s required is ownership of 1 token to be eligible to vote, and each Fan Token has an equal weight in the voting process. In this way the fans speak and the teams listen
While soccer was the very first vertical the Chiliz team has plans on adding other sports in the future, and as of May 2021 they have already struck deals with Formula 1 racing teams and NASCAR racing teams.
There are already precedents set by sports franchises that support the Socios methodology. For example, the soccer clubs FC Barcelona, Real Madrid, FC Porto & SL Benfica are all partly managed by fan/owner groups who actively participate in the management of the teams by voting and electing the board members and leadership of the teams.
This is an indirect management of the teams and provides some guidance of the top down management decisions made by each individual team.
The NFL also has one team that is community owned – the Green Bay Packers. The Packers have more than 300,000 stockholders who make decisions regarding the organizations management and leadership. No one entity is permitted to own more than 4% of the over 5 million outstanding shares, keeping the process democratic.
Real World Application
In June 2020 FC Barcelona made history by creating the Barca Fan Token, or $BAR, on the Socios platform. Fans snapped up more than $1.3 million worth of these tokens in a span of under two hours. Since then these fans have been more engaged and active in the management of FC Barcelona.
Going on sale on a Monday at around 11:00 UTC, more than 600,000 tokens were sold each at €2 (~$2.26) apiece. The sale finished within the space of two hours. By Wednesday, prices shot up to just under €6 (~$6.72), seeing a volume of just under $2.5 million traded across 24 hours.
History was made again on April 23, 2021 when a mixed martial arts bout between British featherweight fighter Brendan Loughnane and Brazil’s Sheymon Moraes was the first such bout brought about by the direct voting of the fans.
This MMA fight was made possible by the Socios platform and the sale of Fan Tokens. The bout was chosen by the fans who purchased PFL-related tokens on the Socios platform. The PFL asked token holders to vote on who they would like to see fight in the event and they chose Britain’s Brendan Loughnane and Brazil’s Sheymon Moraes.
The fight was broadcast on ESPN+ and Loughnane won by a knockout just 2:05 into the first round. There was obviously intense interest in the Fan Tokens as they sold out in under 10 minutes, generating $500,000 in sales.
Chiliz Business Model
There are a number of monetization methods provided by the Socios platform. One of the chief methods is the small micro-fee charged for all transactions completed on the platform.
Basically there are two major revenue streams that have been identified by the Chiliz team. One is the trading fees generated on the Socios platform and the other are the future sub-feature service fees that can be implemented as the platform grows, evolves, and matures.
Marketplace Trading Fees: All P2P transactions conducted on the Socios platform’s marketplace will be subject to a micro-fee. This includes fans buying and selling ownership of Fan Tokens for specific teams, leagues and events.
Sub-feature Service Fees: All socially and competitively minded sub-features on the platform, including possible entertainment features like Leaderboard Leagues, P2P Daily Challenges and Digital Asset Trading, will be subject to set provider fees for users.
The micro-fees generated through the sale and exchange of Fan Tokens will be split between all the team, league, and event entities who are listed as partners in the Fan Token.
And of course when the Fan Tokens are initially listed and sold on the Socios platform the majority of monies collected go directly to the listing partners, which is a huge incentive for teams to join the Socios platform and engage with their fans.
One area that is not monetized, and that the Chiliz developers say will always be free, is the act of voting and decision making by the holders of Fan Tokens.
The Chiliz Team
Chiliz is a global team that is comprised of more than 80 individuals spanning 25 different countries. There are also a large number of project advisors who are helping to get the word out about Chiliz and thus benefitting the growth of the ecosystem.
Alexandre Dreyfus is the founder and CEO of Chiliz. He has a long history in internet media and gaming, stretching back to 1995, when he founded Mediartis, the first web-agency focused on the "communication side" and not on the technology. That was followed by the founding in 1997 of Webcity.com, the first network of cityguide in Europe. By the 21st century he moved into the online gaming space and was the co-founder of Winamax (largest French online poker room) & Chilipoker.
Thibaut Pelletier is the Chief Technology Officer at Chiliz. He also has a long experience in online gaming, beginning with his stint as the CTO of Chilipoker. After than he moved into the role of Senior Manager for Application Development at Bally International, where he was instrumental in the development of the iGaming platform that’s used to manage real-money gambling operators online. After a short hiatus to spend time with family he returned to the tech industry and joined Chiliz as the CTO.
Max Rabinovitch is the Chief Strategy Officer for Chiliz and Socios.com and he brings over 10 years of experience in business strategy, creative direction, and strategic consulting for digital businesses. In the past he produced commercial concepts from pitch to production for clients including Famous Footwear, McDonald’s, Nestle & Sony as a freelance consultant with MadHat Creative.
Magnus Linder is the Head of Partnerships for Chiliz. Previously he held positions as the Head of Media & Sponsorship at Bettson Group and Brand Alliances for over 3 years. He also previously held the role of the Head of Sales & Marketing at Swedish Football League and holds a Master of Science (M.S), in Business and Marketing from Stockholm University.
Chiliz has been very active in securing partnerships, particularly in the soccer space. As of May 2021 they have agreements in place with 34 different organizations, including two with Formula 1 teams, and 1 with a NASCAR team.
They also have agreements with the UFC and PFL in the MMA arena. With a growing number of teams joining Chiliz and Socios.com the trading of Fan Tokens is underway and growing rapidly.
In addition to Juventus and FC Barcelona in the soccer realm AS Roma, AC Milan, and Manchester City FC there are 14 other soccer clubs active on the Socios platform.
The Chiliz team is also working hard to add other sports organizations to the fold, including those in the American football, cricket, basketball, and baseball spaces. In addition, they are able to leverage their relationship with major investors Binance and Ceyuan Ventures.
The Chiliz $CHZ Token
CHZ is an ERC-20 and BEP20 token and has the following utilities:
- Voting on the Socios Platform.
- Serves as bridge for Fan Tokens on the platform (through Fan Token Offerings). Fans must purchase CHZ to acquire Fan tokens.
- Purchase in-app games and challenges, as well as gamified collectibles.
The CHZ token was issued in a private placement at a price of $0.0215. Roughly 3 million of the total supply of 8.9 million tokens was sold off in that private placement, and the team says they have no plans for an ICO in the future.
For most of the time after the release the token remained depressed, trading in a range of $0.01 to $0.015. That came to an end in 2021 as the token got caught up in the broad based cryptocurrency market rally, and on March 13, 2021 the token hit an all-time high of $0.8915.
Since then the token has come well off its highs and trades at a more modest $0.2551 as of May 25, 2021. Of course that’s still much higher than the price for much of the life of the token, however it remains in a downtrend off its all-time high and could decrease in value significantly from here.
The CHZ Token exclusively fuels Socios.com, their consumer facing platform where fans can utilize their Fan Tokens to participate in polls and surveys and be rewarded through active engagement.
CHZ Tokens are required to participate in Fan Token Offerings (FTO) the initial sale of Fan Tokens and Socios Locker Room. The CHZ Token has high liquidity and is also traded on some of the largest and globally recognized exchanges, such as Binance, Bitpanda, HBTC, and others.
CHZ is meant to be deflationary over time with the following burn mechanism in palce:
- 20% of the Net Trading Fees collected in $CHZ of chiliz.net exchange will be burnt
- 10% of the Net Proceed of the Fan Token Offering (FTOs) from Chiliz.net platform collected in $CHZ will be burnt* + 3 months lock on collected $CHZ.
- 20% of the Net Proceed of NFT & Collectibles issued by $CHZ will be burnt
As an increasing number of sports teams join the Socios platform there has been a corresponding increase in optimism from traders and fans. The groundwork to succeed seems to be well placed, with a rapidly growing ecosystem in place.
The team offers an exciting set of technology, professional business development, market potential, and team experience, which is very helpful in generating new partnerships and enthusiasm from the fans that participate in the platform. Moreover, Chiliz has a good token use case and are adding new uses for such.
Investors may want to take care given the recent huge runup in the price of the CHZ token, and the fact that it remains in a downtrend currently. With the volatility currently being experienced in the cryptocurrency markets it may be necessary to wait for things to calm down to avoid getting burnt.
As the team continues adding new partners to the platform it is also building value, which is promising for the long term success of Socio and Chilliz. And when you consider that there are a number of sports not even touched yet by the platform it’s obvious there is opportunity for massive growth.
And each time a new Fan Token is minted there is an amount of CHZ taken out of circulation, thus reducing supply and increasing the value of the remaining tokens.
Overall the project looks quite promising, especially as it gains momentum. If they can begin to add additional mainstream sports teams the value of the project and its token could grow massively.
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.