Monaco has a nifty premise: it’s a debit card that lets you avoid currency conversion fees by the magic of cryptocurrencies. Just swipe your card to pay in local currency, so the pitch says, and it will send some Ethereum (ETH) or Bitcoin from your account to the merchant at “perfect interbank exchange rates without markups or fees”, saving you 6-8% on every $1000 you spend.

That’s a pretty bold claim in itself, and I’ll get back to it later, but the even more interesting thing is that this company’s Initial Coin Offering (ICO) has been backed to the tune of 54,800 ETH, or around US$20 million at time of writing.  (Update: The final number was 71,392 ETH, worth US $73m in January 2018.)  That’s a lot of coin for a debit card, and I became curious: what kind of margins these brave investors can hope to get back?

Revenue and profit

Investors in Monaco become holders of Monaco Card Tokens (MCO).  Monaco promises these investors exactly one source of revenue: a flat 1% licensing fee on all debit card transactions paid with cryptocurrencies, which is converted into ETH immediately and added to a pool called the Asset Contract.   This also means that any transactions made using Monaco but funded by fiat, which in Monaco’s own opinion will account for 60% of transactions in the first year, will net investors precisely nothing.

The Monaco whitepaper (PDF, page 24 onward) has “Conservative” and “Optimistic” scenarios that purport to sketch out the vast profits to be made.  Once you puzzle your way through what the numbers mean, three things jump out quite quickly.

First, they assume that Monaco will pick up 165,597 or 281,515 regular users in the first year. That’s a mighty ambitious uptake number given that some estimates for the total number of cryptocurrency users hover around the 1 million mark, meaning 1 in 4 of them would need to start using Monaco within a year (and not competitors like Token or TenX). By the second year, the optimistic model has nearly all of those million on board and churning through $2 billion, and by five years (2022), we’re at 5 million and $16.6 billion. The conservative model, on the other hand, calls for a mere 3 million users and $9.8B by 2022.

Second, there’s a blandly named factor called “Growth in Underlying Assets” which purports to project how ETH will appreciate against the US dollar, and has nothing whatsoever to do with Monaco itself.  The conservative model assumes a mere 40% year, compounded forever, while the optimistic model assumes 100%/year.  This translates to a source of 3200% growth within five years, irrespective of Monaco’s popularity!

Third and most strikingly, while the whitepaper presents lovely big numbers for the value of the pool as a whole, there’s nothing about profit per MCO, the value of each MCO, or the expected return on investment (ROI).

So I did my own math: I computed the ROIs for the whitepaper’s numbers, and I added two models of my own.  In my “optimistic” model, I assume that each of the ~2,000 investors manages to convince 5 other people to get a Monaco and use it with cryptocurrency to the tune of US$2,500 a year, and that ETH stays at its current valuation.  In the “pessimistic” model, I assume that the only people using it are the investors themselves, they only spend $1,000/year, and that ETH prices fall back to $150, a level they last plumbed in the dim antiquity of four weeks ago. Here are the numbers for the first year for all four models (raw data):

Source	Gyrovague		Monaco
Model	Conservative	Optimistic	Conservative	Optimistic
Profit per MCO (USD)	$0.0008	$0.0100	$0.0873	$0.1484
Return on investment	0.04%	0.47%	4.07%	6.93%

That’s not looking too great unless you’re hitting the Kool-Aid pretty hard.  But since investors have bought their MCOs at around 140 MCO per ETH, which works out to around $2.14 per MCO at current exchange rates, you might naively assume that after the ICO is over, they can at least sell them back for more or less the same price.  Right?

Not so: all of that sweet, sweet ETH now belongs to a future Swiss company called Monaco GmbH, not the investors.  The MCO Creation Terms section 2.4 helpfully spells out what their investors do get if they sell (“burn”) their MCO:

the right to claim … a pro-rata share of net license revenue (License Revenues) … if – and only if – the Monaco Card Project successfully generates such License Revenues.

In other words, the original price is completely irrelevant.  When measured in USD terms, one MCO is worth only the revenues computed above divided by the number of MCOs, plus, since they’re in ETH, the natural appreciation (or lack thereof) of those revenues.  With an estimated 10 million MCOs sold, here are what the models predict two years in:

Source	Gyrovague		Monaco
Model	Conservative	Optimistic	Conservative	Optimistic
Value of MCO (USD)	$0.0008	$0.03	$0.90	$2.20
Profit/loss per MCO	-$2.14	-$2.11	-$1.24	$0.05

In other words, if the card goes completely gangbusters and ETH continues to skyrocket, an MCO will be worth slightly more than what it originally cost, whereas if the card is moderately successful, it’s worth about 3 cents.

But I mentioned ETH skyrocketing.   What if our investor had just held onto the original ETH instead of turning it into MCOs?

Source	Gyrovague		Monaco
Model	Conservative	Optimistic	Conservative	Optimistic
Value of original ETH	$0.54	$2.14	$4.20	$8.57
Profit/loss per MCO, compared to holding ETH	-$0.53	-$2.11	-$3.30	-$6.37

Oops.  Perversely enough, it looks like the better ETH itself is as an investment, the worse off you are putting any of it into MCO!

Using the card

So that’s the deal for investors. How about ordinary users who just want to use the card to realize those great 6-8% savings?

That’s a very good question, since there aren’t any users yet. In fact, Monaco has yet to announce when the cards will be available or what costs like annual fees will be associated with them. Their website also has lots of pretty pictures of their mobile app, but this app, too, remains firmly unreleased.

The other big mystery is the promise of “perfect interbank exchange rates without markups or fees”, since cryptocurrency exchanges do charge fees, which are often quite meaty at that (for example, 4% at Coinbase).  It is unclear how Monaco intends to make these costs go away, and the whitepaper (4.6) handwaves this away as “proprietary”, but one obvious option would be to take a leaf from the credit card playbook and quietly tack it onto the exchange rate itself, which would of course defeat Monaco’s primary purpose.  The currencies themselves also charge for transactions, which particularly for Bitcoin have recently been prohibitively high with fees of several dollars a pop, and as far as I can see Monaco never discloses who pays these.

If you signed up for a regular credit or debit card, details such as these would be found in the terms and conditions of that card. However, despite promising free “Monaco BLACK” cards to the first 500 investors, Monaco has yet to publish such a document.

Conclusion

Monaco looks like a great deal if you are Monaco.  Otherwise, steer clear.