What is Chiliz? CHZ Explained

• Chiliz tokens cannot be mined. This is because Chiliz raised all funds through a private placement.
• The Chiliz Blockchain Campus is a fintech hub connecting some of the blockchain industry’s largest stakeholders across Asia and Europe.
• The Chiliz 2.0 upgrade on the Chiliz blockchain pushed its value up by nearly 12% in 24 hours back in March 2022.

Chiliz (CHZ) can be defined as a cryptocurrency for sports tokenization that brought to the table the first scalable sports engagement and rewards crypto platform for sports and entertainment fans. The cryptocurrency is built on the Ethereum blockchain.  

Apart from being an altcoin that caters to a specific niche, the Chiliz (CHZ) ecosystem laid down the Chiliz.net platform which also serves as the first sports-based crypto exchange. The platform enables fans to trade tokens and participate in sports team polls and surveys.  

In other words, by exchanging Chiliz tokens for fan tokens on the Chiliz exchange or the Socios application, users are enabled to have a voice in decisions made by their favourite teams.

Essentially an ERC-20 token, the Chiliz token presents the main currency of the fan engagement platform known as Socios. Fans can buy fan tokens and sell them on the Socios marketplace, along with participating in projects delivered by their favourite sports teams.

ERC-20 is a token standard. To learn more about this topic, check out this article: 'What are token standards?'.

The Chiliz project solves two main issues – fans' engagement and funding. Fan tokens provide them with voting rights and the right to access limited content, discounts and promotions. On the other hand, sports enthusiasts can now own fractional shares of sports teams.

The vision behind Chiliz (CHZ) - A new place for sports fans

Starting from the premise that not every sports enthusiast can give away $250,000 for a rare digital card of Messi or $120,000 for an NFT avatar of Lebron James in action, Chiliz entered the scene with a better idea for many sports fans.  

This crypto project was primarily inspired by Spanish football teams – fans who purchase an annual subscription get access to early tickets and club voting rights. Chiliz (CHZ) decided to take this route by leveraging blockchain technology to provide a point of contact between sports fans and teams. 

It was created with the vision that the whole future of monetisation in sports will depend on the transformation of passive sports fans to active ones, meaning that a wider engagement of fans can enhance the sports industry. 

Who created Chiliz (CHZ)?

A few versions of the Chiliz concept were created back in 2016, yet actual work took place in 2018 when the product was developed further. The company behind this crypto project managed to fundraise $66 million through a private sale. Most of this money was used to create the Socios platform. The Chiliz platform was listed on major crypto exchanges such as KuCoin or Binance. 

The Chiliz team is led by Alexandre Dreyfus, the company's CEO. The serial entrepreneur was involved with several sports betting projects, online poker and business across the entertainment industry before he co-founded Chiliz. The main goal of Chiliz has been defined as providing millions of sports and esports fans a cryptocurrency to purchase direct voting power within their favourite teams.

Chiliz is actually a subsidiary of the Malta-based sport and entertainment organisation Mediarex Group which was founded back in 2006. Currently, the Chiliz team is made of more than 250 experts of divergent nationalities and cross-industry skill sets.

The link between Chiliz and Socios

Socios can be defined as a fan influence and rewards platform that aids sports teams in attaining digital transformation by leveraging blockchain technology.

The connection between Chiliz and Socios refers to the fact that Socios is a digital interactive platform on which the Chiliz (CHZ) cryptocurrency runs. Being built on the Chiliz blockchain, a side chain running on Ethereum, Socios enables fan engagement, along with many rewards, promotions, and opportunities to purchase branded fan tokens from notable sports teams.  

A side chain is a Layer 2 solution. If you're new to the crypto space, all these terms may sound confusing. We suggest reading this article to gain more insight: 'What is Layer 2 and how does it work?'.

Sports teams issue their fan tokens on the Socios applications; token holders can participate in decision-making activities using the Socios infrastructure. Tokens can be traded on the Socios marketplace; to buy a fan token one needs to have the CHZ currency.  

Major sports clubs embracing Chiliz (CHZ)

This project has achieved global visibility by partnering up with major sports teams. Chiliz and its associated fan tokens provide fans with an active presence within the operations and functioning of their favourite teams. On the other hand, Chiliz enables sports franchises to monetize their fan bases in a novel manner.

It all started with the football team Juventus as the first sports club that issued fan tokens (JUN) and enabled sports enthusiasts to vote on blockchain. Since Juventus embraced Chiliz, the project managed to partner up with more than 100 teams.  

Currently, the Chiliz platform includes some big names in the sports world such as FC Barcelona, A.S. Roma, Paris-Saint Germain and many others.

The global visibility became even bigger when Inter Milan and Valencia promoted their fan tokens on their jerseys back in the 2021/2022 season. English Premier League clubs followed that route by issuing their fan tokens on the platform. 

If you are interested in what is in it for clubs, the answer is simple; for example, when AC Milan listed its fan tokens, it managed to generate $6 million in its revenue over the course of only a few hours.

However, fan engagement on the platform is available for other sports than just football; esports teams, Formula One, the Ultimate Fighting Championship (UFC), the National Basketball Association (NBA) and many others have embraced Chiliz as well. 

Does Chiliz have any drawbacks?

If you scroll through social media threads discussing Chiliz (CHZ), you may stumble across users asking whether the project in question is a ‘pump and dump’ scam. Even though it has been determined by a major part of the crypto community that this crypto project is valid, it encompasses a few other downsides. 

The first complaint is related to the fact that it cannot be mined. The token can only be purchased and traded. Fans failing to adopt cryptocurrency or those who lack monetary funds are still sitting outside the Chiliz circle. 

Even though some big exchanges listed the token, it is not yet used widely across crypto exchanges.  CHZ can be staked but only a small number of exchanges enable that.

Despite forecasts of a successful long-term performance, short-term metrics have been a bit uncertain. Basically, CHZ had higher exchange inflows than outflows, leaning slightly to the bearish side. If the selling pressure from top addresses increases, CHZ might be facing some more downside.

How does Chiliz work?

Chiliz’ functioning is easy to understand; users need to purchase CHZ tokens on a crypto exchange, and then they can buy fan tokens of their favourite team. The whole Chiliz network lies on top of the Ethereum blockchain which provides security in terms of transactions.  

When fan tokens are purchased by users, the CHZ cryptocurrency is converted into ERC-721 non-fungible tokens (NFTs). The Chiliz chain also plays a significant role in ensuring that fan tokens and CHZ tokens are immutable, traceable and easy to audit. 

Back in 2018, Chiliz issued a fixed supply of approximately 8.8 billion CHZ tokens on the Ethereum blockchain. These tokens began their journey as ERC-20 tokens, yet they were redesigned to be able to accommodate the BEP-2 token standard as well. The redesign was important because of Binance’s partnership with Chiliz and the issuing of novel fan tokens.

In contrast to CHZ tokens, fan tokens are issued on the Socios platform. Voting rights, provided by fan tokens, are executed as a series of smart contracts which run through the Chiliz blockchain.

All activities conducted on Socios are stored on the Chiliz side chain instead of Ethereum. Therefore, the Chiliz chain runs smart contracts that store the decisions made on polls and surveys. Basically, the Socios app presents an oracle linking the Chiliz side-chain with Ethereum.

Which consensus mechanism is used by Chiliz?

Chiliz uses the Proof-of-Authority (PoA) consensus mechanism where a small number of verifiers are required as opposed to a broad network of nodes. The algorithm is accountable for verifying the tokens on the Socios application. 

As opposed to other consensus mechanisms, the Chiliz blockchain is not as decentralised. On the other hand, it provides a high degree of scalability and speed.

The Chiliz tokenomics

The Chiliz ecosystem is made of a few divergent tokens. Let's check them out briefly.

CHZ tokens

As mentioned above in the text, the CHZ token exists in two forms – as an ERC-20 token on the Ethereum blockchain and a BEP-2 token on the Binance Chain. Primarily, the CHZ token serves as the currency on the Socios marketplace.

We may think of the CHZ token as a utility token that is used to process transactions of fan tokens on the Socios application. A user buys CHZ tokens and with said tokens, they purchase fan tokens to obtain governance rights of a particular team.

CHZ tokens are scarce – there is a total supply of approximately 8,8 billion of these tokens that will ever be created. Many cryptocurrencies include a limited total supply, starting with Bitcoin. If you want to know why, why not read this article: ‘Why there’ll only ever be 21 million Bitcoin’. 

As for the initial token distribution, a broad share of CHZ was reserved for private placement; in simple terms, they were sold to private investors, along with being allocated to team members, advisory board and seed investors. The other half of the total supply was assigned to strategic acquisitions, marketing operations and user base reserve.

Fan tokens

We have already mentioned throughout this text that fan tokens grant their holders with voting rights and access to exclusive promotions and rewards. Fan tokens are team-specific tokens because each sports club issues their own. A fan token of each club has been referred to as a finite digital asset.

Clubs issue and distribute fan tokens through the so-called Fan Token Offering (FTO). In simple terms, it is a launchpad that enables issuing and token-burning features. 

Interestingly, users can also hunt fan tokens by playing games on the mobile app, winning a few tokens for free. Even though there are no mining options, Chiliz provides other opportunities for its user base,

Locker tokens

If you wonder how teams join Chiliz, here is the answer. After a sports club sends an application request to join the ecosystem and Chiliz approves it, the team in question gets a locker where investors can hold their CHZ tokens for a period of four months and exchange them for locker tokens. 

Once the team launches their fan tokens, Chiliz swaps all these locker tokens for fan tokens, along with a 10% cashback in CHZ tokens. In case the team fails to launch fan tokens, investors get back their CHZ tokens.

Chiliz ERC-1155 NFTs

Back in 2020, Chiliz decided to level up its NFT game by cooperating with Enjin, a blockchain technology developer, to create branded digital collectibles for sports clubs. In simple terms, Chiliz utilises Enjin tools to mint NFT collectibles. 

ERC-1155 stands for a multi-token standard used for creating tokens, either fungible or non-fungible. Chiliz’ vision was to develop a token that utilises similar functions as an ERC-20 and ERC-721 and enhance the functionalities of both standards.

Is Chiliz a good investment?

Being undervalued at first, Chiliz managed to gain popularity in a short period of time. Chiliz popularity is logical taking into account its target audience. Sports fans have always felt a connection to their favourite teams, yet never had a direct influence.

Prior to Chiliz, fans could only engage with their favourite sports clubs by watching games or purchasing merchandise. Therefore, Chiliz interacts with its target audience efficiently because it provides them with direct engagement.

However, the future of Chiliz may depend on the underlying technology, upgrades, and strategic partnerships. Similar to any crypto project, the user base shall grow if the project provides fast trades, low fees, and multiple opportunities to keep them engaged.