Ledger proposal for the DAO #1 - Ethereum Hardware Wallet

[EricLarch]

Ledger proposal #1

Manufacture 6,000 units batch of a “DAO Edition” Ethereum Hardware Wallet with a projected 25% ROI for the DAO.

Ledger is a well known hardware wallet manufacturer having successfully commercialized three different devices: Ledger HW1, Ledger Nano and Ledger Unplugged. In the recent year and half, the Ledger team has been developing a new generation of hardware wallet based on the BOLOS technology and including a trusted screen: the Ledger Blue (already available as a Developer Edition, and scheduled to release in July 2016).

The requests to support ETH in our hardware wallets have been more and more important, and with the success of the DAO it appears that it will continue to get an even bigger traction.

We were planning initially to bring support to existing software wallets such as Jaxx, but we’d like to provide an opportunity for the DAO to invest in a bigger and better project.

Our project proposition is the following:

• build 6,000 units of a “DAO Edition” (laser engraved) Ethereum Hardware Wallet, based on a secure ST31 chip, BOLOS technology, USB connection and featuring a screen. The target public price will be 59 EUR (without tax).
• develop an open source BOLOS app for secure Ethereum key management (address generation, transaction signature with on screen validation)
• build a fast and scalable API based Ethereum explorer to power the back end of the wallet
• build an open source Ledger Wallet Ethereum Chrome application

The DAO proposal for investment is the following:

• financing of 6,000 units hardware wallets devices (PCB, parts and casing only)
• financing of the Ledger Wallet Ethereum Chrome application (fully open source, released on Apache 2 licence)

Cost breakout of parts for 6,000 units

• Electronic parts 10 000 €
• Screens 15 000 €
• PCB 30 000 €
• Casing 22 000 €
• Packaging 6 900 €
• USB cables 2 700 €
• Flyers (doc) 2 400 €
• Assembly & tests 15 000 €
• Chrome app 15 000 €

Total: 120 000 EUR

Paid in two installments: 50% after acceptation of the proposal, 50% after verification of available stocks (assembled HW units, casing & packaging)

What the DAO is NOT financing, and therefore NOT getting IP rights from:

• R&D of the reference electronic design (schematics, prototypes, tests…)
• BOLOS firmware implementation
• BOLOS Ethereum app
• Ethereum API block explorer

The product will be put on the market in July 2016 (assembly of final pakaged units - with firmware flashing and blistering - will be done in batches).

The DAO proposals for benefits are the following:

• The DAO will get 25 EUR per unit sold. The expected return is 150,000 EUR in 12-18 months (time to sell all the units), which is a 25% ROI
• The product will be packaged with explicit reference to the DAO (“DAO Edition”) + notice stating it has been financed by the autonomous corporation. It will create a positive communication

Additional important notes:

• this proposition is for the financing of a 6,000 units batch of a ETH HW with benefits for the Ethereum community, this is not the financing of the design nor the acquisition of IP rights of anything.
• Ledger will also put on the market a regular edition of the same hardware wallet for the Bitcoin market (without any reference to the DAO, these units will have the regular Ledger brand laser engraving)
• Ledger will sell both edition on its websites
• interested resellers will have the possibility to buy bulk order of the DAO edition HW (10 units minimum) at a price of 40 EUR / unit.
• the DAO will be able to purchase the full stock (with 3 month delay notification, time to assemble all units) of the HW for an additional price of 15 EUR / unit (Ledger fees for its IP)

FAQ

Why 6,000 units?

This is our estimate of the best compromise of minimum order needed to get good prices, without having too much stock on hands if the market is going bearish

What are the guarantees of success of the project?

We are 100% sure to deliver. The HW has already been prototyped with success and a first batch is already in production (for the Bitcoin market). All suppliers have already been selected and vouched. Moreover, Ledger has already put on the market three different HW products and has therefore a good experience on this.

Will the “Bitcoin” edition will be compatible with Ethereum?

Yes. The products will be the same, the difference being only in the marketing and casing laser engraving. This means also that the DAO Edition will also benefit from all other apps available (Bitcoin, FIDO U2F…)

How will the hardware wallet look?

The design and full specifications of the device will be shared in the same time than the final proposition for the DAO.

ETH/EUR volatility

If ETH raises a lot during the project period, and as we are pegged to EUR when we sell the products, the DAO could at the end get less ETH than it initially gave (even with the 25% ROI accounted for). This is true, but the opposite could also be true. Moreover, payouts will be done monthly and therefore volatility will be smoothed.

This issue will be valid for most of the projects anyway, as people negotiate goods and salaries in EUR/USD. Our opinion is that It will be up to the DAOLink to provide hedging solutions, it is part of the scope of its expected value added services.

How to audit sales?

We don't think it makes sense to deploy a complex audit system to verify the reality of our sales. It would require an auditor from a reputable company analyzing our accounting and stock, and the price tag of this service would absorb a good chunck of the profits.

A simple solution is to make the sales feed public, and when someone buys a HW on a direct sales channel he'll be able to check the +1 on the feed. Other sales channel (resellers, like Amazon or physical shops) are not real time but can be sanity checked.

What about giving discount to DAO holders?

Subsidising stuff to the benefit of the shareholders with the DAO assets is a slippery slope. It seems more business wise to give an affiliate link for the DAO and ask all DAO holders to buy through this link. The DAO would then get an additional 25% of the net sales for itself (on the whole cart, not only the DAO HW).

EDIT

Following some feedbacks and discussions on various channels, here are some added benefits to the DAO in this proposal:

• we would grant the "Ethereum edition" exclusivity to the DAO for 2 years, with a stipulation of priority for the DAO for any ulterior batches (but if the DAO declines doing other batches, the exclusivity wouldn't apply anymore). Thus, if ETH HW are a great success and multiple batches ensue, the DAO will continue to benefit from it
• in case of commercial or market failure (no one wants to buy ETH HW), Ledger pledges to buy back first the stock of parts from the DAO when needing to build new batch of BTC HW before ordering new batches. Thus, this gives some possibility of the DAO to recoup its investment in case of very bearish Ethereum market

Added FAQ entries.

[TeknoTeddy]

• If the bitcoin ledgers will be the same internally why two different types? I'm assuming you have good marketing reasons, but I would like to know what they are.

• If your proposal was passed and we also decided to buy "full stock" would The DAO version get as much marketing and general effort put into it as the Bitcoin version? You would get more out of trying to sell more of the bitcoin version (I assume).

I hope we can all work together and believe it could lead to an exciting adventure!

[profitofthegods]

It would be great to get a proposal from such an established and great company - I bought a ledger wallet myself and liked it.

But I am also concerned about the fact that the product would be exactly the same as your regular Bitcoin version. I would worry that you are just counting on DAO holders themselves to buy all the DAO version while other customers will all buy the bitcoin version - even if you are promoting the two equally I can't see why somebody who isn't involved with The DAO would buy the DAO version, and as stated above it would clearly be in your interests to promote the Bitcoin one more to your customers.

[yeungsammy2002]

I admitted that this proposal bring win-win solution for us. Ledger co. can earning and it will let dao token holders could trade and store their tokens securely.
Just one question: will the wallet allow us to vote in "cold" envirnoment (without expose our private key online when we voting). Our wallet should allow us to do various functions rather than just store and send tokens.

The wallet support Digix DAO would also be good to attract new customers.

[EricLarch]

@TeknoTeddy

If the bitcoin ledgers will be the same internally why two different types? I'm assuming you have good marketing reasons, but I would like to know what they are.

Yes, they will be the same from a technical and functionnal point of view. Differences are only in marketing/branding. We have already done some (small) experiments with special editions, and results have been very positive. We also believe that the size of the Ethereum market justifies such marketing differentiation.

If your proposal was passed and we also decided to buy "full stock" would The DAO version get as much marketing and general effort put into it as the Bitcoin version? You would get more out of trying to sell more of the bitcoin version (I assume).

If the DAO buys out all the stock, it'll be the owner of it and be ultimately responsible of it. It'll be up to the DAO to find ways to sell its stock through established sales channels. Most probably, the DAO would take such action to equip some other projects with HW, and not to resell it for profit.

@profitofthegods

I can't see why somebody who isn't involved with The DAO would buy the DAO version, and as stated above it would clearly be in your interests to promote the Bitcoin one more to your customers.

That's a fair question and I see your point. It is debatable to market it "DAO Edition" or "Ethereum edition", we would obviously chose the solution with the highest marketing outcome (input of the DAO communauty would be of course valued).

Our belief is that the market is big enough for two options (Bitcoin/Ethereum), and we would build specific Ethereum related pages for the ETH/DAO edition. The communauty effect would be huge and beneficial, but we are not solely counting on DAO sharholders to buy the product. We would apply our marketing efforts to Ethereum blogs, forums and meetups; what we want to achieve is double sales, not just sit on a stock.

Just one question: will the wallet allow us to vote in "cold" envirnoment (without expose our private key online when we voting). Our wallet should allow us to do various functions rather than just store and send tokens.

The wallet support Digix DAO would also be good to attract new customers.

We plan to release a "basic" Ethereum wallet app, with first objective to secure ETH. The development of advanced features could be done trough other small proposals to the DAO.

[TeknoTeddy]

This could be promising.

• To my understanding The DAO version would be the only ethereum marketed ledger for this model?

• If this proposal passed would we be considered for exclusive ethereum marketed ledgers in the future?

[EricLarch]

To my understanding The DAO version would be the only ethereum marketed ledger for this model?
If this proposal passed would we be considered for exclusive ethereum marketed ledgers in the future?

It's not stated in the proposal, but we could grant the "Ethereum edition" exclusivity to the DAO for 2 years, with a stipulation of priority for the DAO for any ulterior batches (but if the DAO declines doing other batches, the exclusivity wouldn't apply anymore).

[TeknoTeddy]

It's not stated in the proposal, but we could grant the "Ethereum edition" exclusivity to the DAO for 2 years, with a stipulation of priority for the DAO for any ulterior batches (but if the DAO declines doing other batches, the exclusivity wouldn't apply anymore).

This part sounds fair to me. I will let others discuss the matter as I don't have much else to add right now.

Good Luck!

[craigrant]

After the details are worked out, if this proposal passes, the exchange value of DAO tokens will rise from being linked to a reputable company such as ledger, so the ROI is not the only benefit in play. I like the "Ethereum edition" more than the DAO edition. Perhaps the it can be labelled "Ethereum Edition, financed by The DAO"

[profitofthegods]

I think I like 'Ethereum Edition' too as it widens the appeal a bit, but didn't want to say until someone else made a comment about it because I'm no expert in these types of thing. As you say, there could hopefully still be a reference somewhere to it being financed by The DAO for the promotional benefit

Also, I agree there is a benefit for such a novel enterprise as this to work together with a company that is already having some success and has a solid reputation.

[Beez]

Now this is a proposal. Very nicely written, everything's laid out neat and it has a good potential ROI. I also see the benefit of the hardware wallet, and get the feeling that it would sell well enough, but I'd have to defer to people more experienced in the field on that one. Overall though, I like it.

[SpaceMonkey]

nice idea!

1. what happens for purchases and the buyers will send them back?
2. how many wallets did you sold for the bitcoin community? i do not know if 6000
   will be to much or to less
3. the risk/return ratio should be better i think 25% is not enough to cover the risks
4. worst case scenarios:
   a) no wallets procuced we pais upfront 60.000 Euro
   b) you produced and we are selling only 10%,. 25% , 50% etc. of the produced pieces

we are recovering if you sell 4.800 pieces. i think the risk/ratio is not in our favor.
i think what would be better to put 1,2,3 scenarios like slock.it so the community
could choose the path of risk they want to take.

at the moment we take a lot of risk with not much win potential.

[SpaceMonkey]

a "normal" affiliate will get 25% - source - https://www.ledgerwallet.com/affiliates

i think we should also sign up the DAO as an affiliate so we can get this portion for all the users coming from this community. this will give your proposal a nice boost and makes it more attractive.

[EricLarch]

what happens for purchases and the buyers will send them back?

In case of return we'll repackage and restock the unit of be sold again. If the unit is damaged then we'll fix with our stock of extra parts and restock.

how many wallets did you sold for the bitcoin community? i do not know if 6000 will be to much or to less

We sold more than 10,000 units for the Bitcoin community last year. 6,000 units on 18/24 months seems to be a fair estimate.

at the moment we take a lot of risk with not much win potential.

The real risk is only systemic: if we don't sell all the units, this would be because the global ETH market is bearish and going down. So if you are bullish on the market (which is the basis hypothesis), a 25% ROI in 18 months with very limited risks is quite nice.

Moreover, you may also factor the "greater good" impact of such a proposal. It's a win win situation from a pure communication/marketing perspective, and having HW for the ETH community will help develop the entire ecosystem.

i think we should also sign up the DAO as an affiliate so we can get this portion for all the users coming from this community. this will give your proposal a nice boost and makes it more attractive.

If the DAO drives traffic from its own ressources and generate sales, it would be completely normal that it reaps the affiliate fee.

[des.kenny]

Looking at it from your perspective, looks like a great deal.
1. you get monies to develop your chrome app,
2. you get to increase your exposure and sales.
3. You have zero risk. If the devices do not sell, you still have the funds given to you by us and you also have the unsold product, which you could rebadge.

From our perspective
Do we have a guarantee that you will not reduce your price to undercut?
You sold 10k last year, but we have to shift an additional 6k on top presumably of whatever you end up selling this year so the market may not support the extra sales. If it doesn't will you reduce your prices so your units will sell before ours.

Could we get some sort of return on any unsold units to reduce our risk?

(All that said... I have been thinking about buying a ledger!... so almost definitely would buy one. And also to add - kudos on the submission, its very clear, simple and well presented)

[SpaceMonkey]

as far as i understood 10.000 are for the bitcoin market and 6000 units are for ethereum, so not the same audiance.

with the chance to sign the DAO as an affilate i like the idear more, because of more return for the DAO.

would this be the only available wallet from ledger for the ether community?

[des.kenny]

I know, it still would be worthwhile to claw something back, in case the full number were not sold. Our breakeven point is sales of 4,800. What if we said for sales less than 4,800 we clawed back cost of electronics, screens, pcb, usb, which could all be reused.

We're taking on a very big risk over 18 months for a small enough ROI

Unit sells for 59, we get 25, pay all the costs and take all the risk.

Fair clawback calculation

ElectronicParts: Total cost 10000, cost per unit 1.6666666667
Screens: Total cost 15000, cost per unit 2.5
PCB: Total cost 30000, cost per unit 5
USB cables: Total cost 2700, cost per unit 0.45

Clawback cost per unit 9.6166666667

So for every sale below 4,800 if we could receive 9.61, that would reduce our risk, while not costing ledger anything, presuming the figures are correct.

[giannidalerta]

Label it:

Be One with The DAO or
The DAO Loves You.

[TeknoTeddy]

would this be the only available wallet from ledger for the ether community?

I asked a similar question and he gave what I thought was a great response.

It's not stated in the proposal, but we could grant the "Ethereum edition" exclusivity to the DAO for 2 years, with a stipulation of priority for the DAO for any ulterior batches (but if the DAO declines doing other batches, the exclusivity wouldn't apply anymore).

[TeknoTeddy]

Personally I don't see a problem with the amount of stock. The reason is because if it does not sell within the estimated time (which I'm assuming it would given Ledgers popularity, brand loyalty, and integration with external apps) then they will still be available for sale.

When the stock is getting low-ish they can make another proposal and if we accept they can make more exclusively with us (until it is out of contract period and then they have the option make another contract with us or move on). If we deny the proposal in funding for more stock then they would have the right to end the contract with us and the ethereum version would no longer be exclusive to us.

This is going off of the assumption that they add a clause for the ethereum ledger to be exclusive for us for X period of time as long as we keep funding new stock.

This is also going based off of the information provided thus far from this thread.