Summary

• A security token backed by a growing company in an enticing market: Chinese road freight
• Not just a speculative asset but an incentive for platform users
• While Trucpal has made inroads and has huge potential, it is far from the market leader

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First love

It all started with a 3,000 kilometer road trip. Wendong Zhang’s Dad and brother bought a truck in China’s northernmost province of Heilongjiang, where Zhang was studying computing, and the three of them drove it 3,000 kilometers back down south to Fujian province. Zhang’s Dad and brother started a trucking business in their hometown and Zhang fell in love with trucking.   

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The problem

In 2010, Zhang joined a truck refueling service company. It was there that he talked to hundreds of truck drivers and learned about their frustrations with the complicated and disjointed Chinese road freight system. 

While the Chinese freight system works as a whole and supports the world’s most dynamic manufacturing sector, problems emerge when you start to look more closely. It is like the dance of the dragon at New Years (神龍), from the top it looks glorious and coordinated but underneath the prop there are countless individuals blindly bumping into each other. 

At the base of the road freight system are individual drivers and fleet companies. Many still rely on paper-based systems and have little insight into the profitability of their activities. They then have to deal with different suppliers, often, each with their own systems and methods. If any data is collected it is siloed within the different companies, providing little transparency over the movement and financials of goods across the supply-chain. At the end of the road, the consumer waits in blind hope.    

Inspired by a biography of Saleforce’s Marc Benioff, in 2013, Zhang decided to start a company to help the Chinese freight industry - the largest in the world. HGC Info Tech Ltd. ("HGC") was born. 

However, it was not until 2018 and in the wake of some complex tax changes for truck drivers, that Zhang decided to focus on providing a SaaS, called Trucbook, to the freight industry. The move was prescient as the pandemic saw an uptick in the digitization of the Chinese freight industry.

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Trucbook

Trucbook provides a range of services to truck, fleet, and cargo owners. Services for truck owners include freight settlement, Electronic Toll Collection access, and the collection of tax tickets. Fleet owners can also use Trucbook to manage their drivers, vehicles, and waybill. Cargo owners can pay freight and other fees through the system, manage their partners, get their tax invoices directly, and view the waybill records.

As of June 2023, Trucbook reached 21,735 registered users with an enviable user rate of 72% and user retention of 98%. Total trading volume on the platforms was $14.6 million and $81.7 million so far for 2023.  

“We’ve built a consumer-centric app designed with ease of use in mind. It simplifies the process of using the Chinese freight market, including the tens of millions truckers who use it each day,” said Vincent Kong, the Chief Strategy Officer of Trucpal.  

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Using the power of blockchain

However, Zhang had even bigger plans. He wanted to expand Trucbook and create an open platform for logistics called the Trucpal System. He envisioned that the Trucpal System would eventually operate on a blockchain. 

Blockchain is the perfect technology to bring transparency and trust to an industry made up of millions of participants and their disparate systems. Suppliers, drivers, and cargo owners would all have access to the blockchain to record and view data. This would drive efficiencies in the flow of goods and the operation of the participating companies. Smart contracts would also standardize interactions and replace paper-based systems with seamless electronic data. Beautiful! 

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Leveraging tokenomics

After talking to Magic Circle, Zhang also decided to issue a security token, called the Trucpal token, to raise some capital for the project and to provide an incentive for users to use the Trucpal System. Magic Circle is a pioneering STO (Security Token Offering) service provider and token exchange.

Users gain reward points called “TrucPoints'' by using the Trucpal System (based on Gross Merchandise Value) and by referring the system to new parties. TrucPoints can be used to gain credit, discounts, and DeTrucpal Tokens. It can only be used on the Trucpal system. So far over 24 million TrucPoints have been generated.

DeTrucpal Tokens are an ERC-20 (DeFi) token on the Ethereum blockchain. Initially, 500 million DeTrucpal tokens will be made available with a six-phase progressive scale for the conversion of TrucPoints into DeTrucpal Tokens. More DeTrucpal tokens may be issued in the future. The DeTrucpal token can be traded on the Ethereum blockchain but only residents of the People’s Republic of China can hold the tokens.

DeTrucpal tokens can be exchanged for Trucpal tokens, with potential worldwide investors. Initially this will be on a 1:1 basis but this may change over the future. 

Trucpal tokens are a ERC-1404 token on the Ethereum blockchain. Holders are entitled to a regular dividend in USD with a combined 75% share of Trucpal’s Qualifying Revenues. Only holders who have been vetted in accordance with KYC and AML requirements can receive a dividend. This includes US accredited investors. There are no voting rights. 

The Trucpal tokens have some transfer restrictions built in, using the ERC- 1404 functionality. US investors cannot transfer the token for 12 months after purchase, while non-US investors cannot transfer to US investors for 12 months after purchase.

The first dividend was distributed on the blockchain as USDC, and it was made 6 months ahead of schedule in March 2023.

One billion total Trucpal tokens will be issued in total. 50% or 500 million are reserved for users of the Trucpal System who want to convert their DeTrucpal tokens into Trucpal tokens. 20% have been given to the founder and shareholders, 10% to the core team, and 20% are available for investors. 

The Trucpal STO (Security Token Offering) began on July 25, 2022 on the INX platform and is still open. Zhang and HGC are currently raising $20 million. That is 200 million tokens (20% of the initial total supply) at $ 0.10, with a minimum investment of $ 2,000. 

HGC is also looking to expand the trading of Trucpal to other exchanges beyond INX. In August 2022, it entered into an agreement with STO operator and token exchange Hong Kong Digital Asset Ex Limited (HKbitEX). 

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Is it a US security?

We all know that the SEC has been taking a hard line on token offerings. Thankfully for US investors, the Trucpal token is a US security. However, Trucpal didn’t have to register it under the Securities Act because it is only offering the token to accredited US investors which provides it with an exemption under rule 506 of Regulation D of the Act. It also has an exemption under Regulation S Offshore Offers and Sales.

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Verdict

Investing in Trucpal tokens presents an enticing opportunity to tap into the revenues of the Chinese freight market. However, with stiff competition and a small market share, it's a bet on the ambition and tenacity of Trucpal's founder, Wendong Zhang.

The Chinese market is huge. For example, between 2016 and 2021, China held around 26% of global trade. Further, as HGC explains in its Trucpal token whitepaper, there are large efficiency gains to be had in the market. 

At the moment the Chinese economy is not recovering as fast from its pandemic reopening as expected, but the World Bank is still forecasting GDP growth of over 5% this year. Growth may slow in the future and its share of global trade but it will remain a huge market for Trucpal.

On one hand, Trucpal’s share of the market is small. Of the potential millions of users it has around 20 thousand. But on the other hand, 20 thousand users are a good start as was its ability to already provide a dividend to investors in March.

Trucpal does however face stiff competition from the likes of Chinese logistics unicorn G7 which uses IoT technology and AI to provide payment and settlement services to over 2 million trucks. Similarly, Logory Logistics’ truck platform has over 2.5 million users. These companies appear to have a much bigger critical mass than Trucpal. 

Trucpal does have an ace up its sleeve with its security token to incentivize users. There are also efficiency gains to be had when it switches its platform to a blockchain-based system.

I love to see security tokens backed by real companies in growing industries, and it does not get better than Trucpal and the Chinese freight market. But in terms of the business side, it is definitely a bet on the tenacity and ambition of Trucpal founder Wendong Zhang. He has a lot of ground to cover before Trucpal finds itself in pole position. However, with over 13 years of first-hand experience in providing services to the Chinese freight industry and his computing background, Zhang is a good bet.