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Winding Tree Token Sale: Disintermediation of the Travel Booking Industry

Winding Tree is creating a decentralized, wholesale-level inventory distribution platform for the travel industry where hotel rooms, flights, tours, and related services can be advertised, queried, and purchased. Winding Tree’s low-fee, open-source structure will allow it to challenge existing monopolies within the travel industry not by mounting a new online travel agency (OTA) to compete directly with established names such as Orbitz or Expedia, but by creating a blockchain-based platform operating at the protocol level. Developers can build marketplace interfaces on top of this protocol that new or existing businesses can utilize to sell travel inventory. This approach holds the potential of fundamentally altering the dynamics of the travel industry should adoption become widespread over time.

As noted in the Winding Tree whitepaper, the travel reservation space has long been dominated by a small group of centralized, highly-profitable companies. Their dominance has led not only to the high profits one would expect from an industry controlled by a small group of players, but the industry as a whole suffers from inefficiencies due to lagging or even non-existent adoption of modern technologies in areas such as communications and payments. The larger result is that travellers are burdened with high fees or poor performance while vendors face a variety of economic and operational burdens and inefficiencies.

Winding Tree is also focusing its project on an industry that has surprisingly seen relatively little attention from the blockchain space–the chart below from our 2017 year-end report illustrates how little attention the general transportation sector has received (with most of the transportation companies represented in that chart focusing on the supply-chain aspect of the transportation industry.)

Nevertheless, for an industry where merely two companies (Priceline and Expedia, with a combined valuation of $105 billion) account for 95% of the OTA market in the United States, it is surprising that Winding Tree is effectively the first blockchain-based company to turn its attention to this massive space in a serious manner. But if Winding Tree stands out for this reason, equally noteworthy is how the team behind it have built into its structure a number of features representing ambitious efforts to incorporate and advance best practices across the industry, from a novel token design and sale process to thoughtful governance practices aiming to create a truly decentralized project where users have meaningful input in platform development and evolution. While the project faces several substantial challenges, we nevertheless find it to be a highly promising project worthy of consideration both for its promises of meaningful real world impacts and its efforts to advance best practices in the decentralized and token sale spaces.

What is the Winding Tree Project?

As noted, the travel distribution space is especially ripe for disintermediation due to its domination by a small group of centralized rent-seeking companies lacking incentives to innovate or offer competitive fee structures to suppliers on their platforms.

A somewhat predictable slew of monopolistic market factors have resulted, including exorbitant commissions to hotels, not uncommonly in the neighborhood of 25%, in addition to OTAs often forcing smaller hotels into rate parity agreements whereby a hotel is contractually obligated to maintain a consistent price for their rooms across all booking sites, then to pay the OTA commision from that sales number. Platforms are able to enforce these unfavorable terms as many hotels cannot risk limiting their online visibility and opportunities by being rejected by them. Airlines too have their own long-standing frustrations with the fees OTAs require for selling their inventory, with some airlines simply refusing to work with OTAs.

An additional aspect of the virtual monopoly exercised over the industry has been a strikingly low rate of technological innovation across the sector, to the extent that this has come to represent a burden on both companies in the space as well as consumers confronted with inconvenience and added expense. Winding Tree’s founders, motivated both by experience in the travel sector as well as backgrounds as developers, have deliberately sought to address each of these angles in developing their own platform.

How does Winding Tree work?

Winding Tree’s system will work by allowing travel industry vendors such as hotels or airlines to post their inventory onto the network, with hashed records stored on the blockchain, from where it can be accessed by any reseller who is connected to the system. The listing of inventory will require no platform fees, merely a payment to cover network gas costs. Resellers, such as travel agents or online platforms, can then search the network for free. Upon booking a room or seat from inventory on the platform the booking agent would pay the required room charge, plus a further amount (to be determined, but likely as low as 0.02 LIF–or approximately $.25 if the ICO reaches $10 million and ETH is $800), which would also pass to the miner confirming the transaction. Winding Tree would take no platform fee or commission on transactions within the platform, a tectonic shift from existing arrangements.

Winding Tree will also address core aspects of the transactional components of travel booking, particularly questions of bundling sales into larger packages, such as a hotel or flight with a rental car. Their use of the blockchain eliminates the need for the complex multi-step currency exchanges that often happen when booking travel from an OTA today–for example when a traveler uses USD to book a flight, that payment may need to be converted into other currencies upwards of 5 times, especially when bundling that ticket with add-ons like insurance or a rental car. Identity verification during these transactions is also especially costly and prone to security breaches under centralized systems, since the identity documentation submitted with a travel booking is passed between the OTA to the airline, government agencies, transaction processors and other relevant parties. Winding Tree will enable more efficient and secure identity verification using the blockchain.  

What is their Business Model?

Winding Tree intends to function as a true open-source protocol. The platform will be free to use, and will be sustained by proceeds of the token sale, through two separate mechanisms. Proceeds above $10 million from the ICO will be available to sustain the foundation, with those funds to be released to the foundation on a monthly basis over a 12 or 24 month period, depending upon the amount. A further 5% of the total token supply will be allocated to the Winding Tree Foundation, to be used in 2 – 4 years, once ICO funds above $10 million that are routed into the Market Validation Mechanism (see below) are exhausted. Winding Tree has also reserved the right to conduct a second token sale in the future, at a point four years after any foundation revenue stream from the token sale (see below) will have been exhausted. These funds, presumably, will be dedicated to the foundation.

The LIF Token

Winding Tree’s operations are animated by the ERC-20 compatible LIF token. Airlines, property managers or other vendors sending inventory to the platform will be required to hold a balance of LIF tokens, with which network gas fees will be paid at the moment inventory is listed on the network. Likewise, after searching inventory at no charge, purchasers of the product will pay to complete the transaction by paying for the reserved service as well as network gas fees. Winding Tree will not retain any portion of these fees, or another commision, with all payments passing directly to the Ethereum miners. This should make Winding Tree transactions more attractive than normal Ethereum transactions to miners.

During the token generation event, which is underway and running through February 15th, Winding Tree proposes a somewhat unusual sale model that strikes us an innovative way of allowing all supporters to acquire tokens, creating a broad community of supporters, and ensuring ample token supply while avoiding the excesses and criticisms that frequently assail projects hosting uncapped or particularly large sales. Specifically, Winding Tree has indicated that while an unlimited number of tokens will be available, token sale proceeds going immediately to the Winding Tree Foundation will be capped at $10 million.

Beyond the $10 million threshold, buyers will receive their tokens at the same price, but the funds will themselves be held in a smart contract being termed a Market Validation Mechanism (MVM). The MVM will serve as a price floor for LIF, if necessary. Should the token USD price fall below the ICO USD price once secondary trading begins, the MVM will allow subscribers to redeem their tokens at or near the original ICO subscription price through a buyback and burning mechanism employing funds held in the MVM. Should the LIF tokens trade above the ICO price then a portion of ICO funds held in the MVM will be available to the Winding Tree Foundation on a monthly basis. The ratios guiding of either the buyback mechanism or MVM allocations to the foundation are dependent upon funds held and the market price, and are explained in detail in the whitepaper, but essentially operate in a manner intended to disburse funds from the MVM over 48 months, whether to the foundation or through buybacks.

While we criticized Blackmoon Crypto for a somewhat similar device during 2017, we find Winding Tree’s proposal strikes a reasonable balance between promoting wide token distribution and limiting the overall amount allocated to the foundation. We also appreciate that Winding Tree much more accurately describes its MVM as a mechanism that should allow a subset of token holders to recover a portion of their subscription amount, as compared to Blackmoon’s portrayal of a system “ensuring” token holders “against possible losses” should the token price decline. Any LIF distributions to the Foundation will allow Winding Tree to develop a range of features and initiatives that could integrate into the platform beyond the initial rollout. The Winding Tree foundation, for instance, has tentative plans to serve as a grantmaking body for startups looking to create new OTAs atop its platform.

Overall, we appreciate Winding Tree’s sale process as a thoughtful one that aims to avoid the frenzy of investors racing to contribute during the initial hours of the sale, while also ensuring supporters and users of the network are able to acquire as many tokens as they desire.

Winding Tree also has a unique mechanism for token allocation for team members and early supporters. Winding Tree is proposing that supporters will be able to purchase 75% of the overall token supply through the ICO. Whatever amount of LIF Tokens is purchased, the Winding Tree foundation will then issue a further 20% of tokens to a pool for the founders, employees, and early supporters, and an additional 5% to the foundation itself to support the foundation’s long-term budget. While the amount of available tokens is effectively uncapped, this method incentivizes the team to create the strongest possible project, as their own 20% is not a fixed number but a portion of, and dependent upon, the overall raise amount. The better the project and the greater its reception, the larger the team’s own token holdings, an alignment of incentives we find reasonable. This method of token allocation was much more common prior to 2017 but seemed to fall out of favor as projects sought to retain a fixed portion of tokens they didn’t sell for future fundraising events.

Of funds raised, Winding Tree will allocate 50% to project development, 10% each to operational expenses and marketing, 15% to foundation reserves, and 15% to legal and related expenses. The four year vesting period for founder and employee tokens is an additional encouraging sign of a team focused on long-term success. Promises for the Winding Tree Foundation to issue monthly reports and quarterly financial updates reinforces the commitment to token sale best practices and bolsters the impression of a leadership team looking to establish a community for the long-term, and also of the more general convergence between the ICO space and trends in best practices that draw heavily from traditional securities markets.

The token sale will be organized and overseen by the Winding Tree foundation, incorporated in Gibraltar. Winding Tree has previously raised $500k through a SAFT during their early contribution stage, and aimed to raise $1.5 Million more by Feb.1st, 2018 when their public token generation event began. The token generation event will last for 2 weeks, ending on February 15th. During the first week of the token generation event, 1 ETH will purchase 1000 LIF, during week two 1 ETH will purchase 900 LIF, giving a slight incentive to early participation. The smart contracts used by Winding Tree during their token sale were reviewed by Coinfabrik, and the results of that audit made public.

Project Status

Initial response to Winding Tree’s model has been most enthusiastic among airlines, including Europe’s largest airline Lufthansa Group, which includes Swiss air, Air New Zealand, Austrian, Brussels airlines and Eurowings, and which has become an early partner and investor through their Lufthansa Innovation hub organization that invests in relevant technology opportunities. One might imagine that the costs and complexity for airlines of switching from existing distribution systems would be high, even very high, so this interest on the part of airlines is intriguing. However, given the well-documented tensions between the Lufthansa companies and the OTAs, stretching back several years, it is not altogether surprising they would recognize the potential of a project such as Winding Tree has developed.

Winding Tree has also publically partnered with Nordic Choice Hotels, a franchisee of Choice Hotels International and one of Scandinavia’s largest hotel chains. Other small hotels, independently-owned and thus able to move more quickly, could easily be envisioned as amongst the first to jump to the Winding Tree platform as it comes online.

Currently, Winding Tree has made their alpha open source smart contract code available and it has been verified by a third party. In 2018, Winding Tree plans to integrate with hotel providers, launch an Alpha version smart contract for airlines, launch their own testnet, and continue to investigate state channels along with the capabilities of an ERC827 token protocol for scalability.

Winding Tree does not face the same challenges start-up OTAs do in competing with incumbents. As a searchable resource open to all in the industry, Winding Tree can be easily accessed by travel agents or OTAs that build interfaces for its data. This means that even with only a modest number of flights, or a limited number of hotel rooms in a particular city, the system can begin to operate and gradually let its advantages serve as a de facto marketing effort. Perhaps more likely is that a large number of industry suppliers show a surprising willingness to abandon established OTAs in favor of a system offering considerably lower fees and no commissions. Existing OTAs presumably will not simply abandon the space in the face of Winding Tree’s competition, so how they adapt their own practices and business models will be interesting to observe. If the results make themselves felt across the entire industry we would not be surprised.

Prospects and Challenges

A potential challenge that Winding Tree has identified is scalability, specifically their need to write significant quantities of meta-data to the blockchain along with each transaction, since it’s necessary to describe the attributes of hotel rooms and flights in order to effectively market them to buyers. They are still identifying their data storage and indexing solution. They are also developing the new ERC827 token standard allowing both value and data to be transferred upon the blockchain in a single transaction. They will also utilize state channels as described in their blog post, and are investigating the potential to build on ethereum and bitcoin blockchains simultaneously, so that they are not dependant on a single blockchain. The team acknowledges the complexity of scalability especially as it pertains to data heavy transactions that only increase as a marketplace reaches critical mass. Mastering these technologies will be a significant feat, but not one that is unique to Winding Tree.

Another potential challenge is dealing with bad actors who might be inclined to post fake inventory under a fake hotel in order to dupe unsuspecting buyers, or post fake inventory under the guise of a real hotel that they are impersonating. While nuanced identity and reputation management solutions are likely needed to address this issue long term, Winding Tree has also thought of a short term solution by incorporating a lag time into the release of payments to a hotel. One solution might be that funds could only be released only after a review was submitted by a buyer, until an arbitrary threshold of reviews, say 100, had been met, at which point the hotel’s reputation would be considered robust enough to bypass this waiting time.

Additionally, determining which party will be responsible for the customer service component that will inevitably arise from customer complaints in the case of a cancellation, complication, or supplier failing to follow through on their promises (whether malicious in intent or simple human error) is unclear. Presumably, this is something that would take place on the dapp layer, where developers would be tasked with building a customer service strategy into their application as part of the nature of their business. This must be acknowledged as a potentially significant issue for a project that aspires to operate in a fully decentralized manner and has not, apparently, made particular provisions to assure this function is fulfilled.

Competition and Peers

While there are a small number of blockchain-based efforts to enter the travel distribution space that have appeared, none would appear to offer the prospects of meaningfully impacting the entire travel distribution industry in the way Winding Tree is intending. Lockchain, for instance, is a decentralized marketplace where hotels and property owners can advertise and rent property. While incorporating the blockchain, Lockchain effectively functions as existing OTAs do, with the business model built around charging a monthly fee to list on their platform. Travelcoin, a decentralized ticket booking system for flights, hotels, cruises, sports and events, claims to have completed two token sales, in August and December 2017, without having reported raise amounts in either case. Travelcoin does not have a token listed as trading on coinmarketcap.com and the status of the project is not entirely clear. Webjet, based in Australia, is focused on hotel bookings in Australia and New Zealand. In November 2016 Webjet and Microsoft announced a partnership for a blockchain-based solution for travel distribution, but little news appears to have emerged subsequently. Concierge is another potential competitor as decentralized travel booking marketplace built on NEO blockchain, with an ICO planned to being in mid-February.


Winding Tree emerged from experience in a previous startup launched by CEO Maksim Izmaylov and CTO Jakup Vysoky called Roomstorm, which provided last minute accommodations to travelers faced with emergency situations such as overbooked or cancelled flights. They incubated Roomstorm at YCombinator in 2014, which led to a realization that the travel community and conferences over the past decade were dominated by the product launch narratives of market leading companies, while communities for developers intent on finding more efficient ways to build underlying systems were virtually nonexistent. A testament to the founding team’s history of grassroots community involvement and mission to transform the travel industry from monopoly into meritocracy is Maksim Izmaylov’s founding of Travel Tech Con in 2016, a not-for-profit conference held annually and which also hosts monthly meetups, aimed at supporting technologists innovating within the travel industry.

Other Winding Tree founding members include COO Pedro Anderson, a former business development executive at event planning Saas company Attendify, and COO Augusto Lemble, a full stack developer and blockchain architect with a history of working in the cryptocurrency space stretching back to 2014.

The Winding Tree team of advisors includes Norm Rose, an analyst and consultant specializing in the travel industry, Manuel Araoz the founder and CTO of Zeppelin solutions which is a leading blockchain auditing company, William Niejadlik, founder of travel booking site VayamaDouglas Rice, founder of not for profit trade association HTNG, and Johnny Thorsen, VP of Travel Strategy at travel AI company Mezi.Conclusion

Winding Tree’s ability to eliminate fees in the travel distribution space offers a powerful value proposition and immediate incentive for adoption that will likely find a welcome reception from many across the industry, while their open source principles, open consensus governance and blockchain infrastructure flies directly in the face of how the current centralized travel distribution oligarchy operates. The multiple ways in which the project promises to transform the travel industry, while also contributing to the decentralized community through innovations like the ERC827 standard the team developed, and simply by modeling best practices across a range of project components, illustrate the range of ways the project will likely leave an impact. We are pleased to see a project marrying the decentralized ideals that have always been embedded in the industry’s DNA with actionable strategies  manifesting them in a real world project. And, as frequent travelers, we look forward to Winding Tree’s potential being realized sooner rather than later!

Project Details

Incorporation status Winding Tree Limited, Gibraltar
Team openness Fully transparent
Blockchain Developer Augusto Lemble
Technical White Paper Not available
Available Project Code Available
Prototype Available

Token Details

Role of token Payment rights
Token supply unlimited
Distributed in ICO unlimited
Emission rate No new coins created
Blockchain Ethereum
Consensus method Proof of Work

Sale Details

Sale period February 1, 2018 to February 15th, 2018
First price 1000 LIF = 1 ETH
Accepted currencies ETH
Investment Round First public offering
Token distribution date 2 weeks after crowdsale
Min investment goal $4.3 million
Max investment cap $10 million
How are funds held Smart contract
Minimal Viable Product Q4 2017
Bonus schedule 1000 LIF = 1 ETH during week 1; 900 LIF = 1 ETH during week 2




Last modified onSunday, 11 February 2018 06:26

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