Finra Issues Warning On Crypto-Related Stock Scams

Yesterday morning we explained the latest and greatest get rich quick scheme in the stock market as follows:

Now that it is abundantly clear that for a stock to explode higher, all that is necessary - and sufficient - is a press release mentioning the company"s name and throwing in the word "blockchain" in the same sentence (see Riot Blockchain, LongFin Corp, Net Element, and Nova Lifestyle) other public microcaps have decided that if that"s all it takes, then by all means they will gladly take investors" money."

This morning, the microcap formerly known as Long Island Ice Tea did just that when it changed its name to Long Blockchan Corp, sending its stock 500% higher.

Needless to say, idiocy like this will end in tears, and when the various sequential bubbles burst, they will sweep away with them any value-adding and non-fraudulent products and services that have emerged out of the cryptocurrency and blockchain technology. Which is why it"s about time for the regulators to step in and start halting such examples of manic investory stupidity before more people get hurt, or worse, suicided.

This morning, the market"s self-regulator FINRA, did just that, when finally it issued a warning titled "Don’t Fall for Cryptocurrency-Related Stock Scams" which, literally, boils down to one simple warning: "Do your research before purchasing shares of any company offering investment opportunities in cryptocurrency", a warning that is applicable to every single investment, yet when people see 500% gains in seconds after an illiquid microcap company adds "blockchain" to its name, nobody actually bothers with.

Here is Finra"s full warning which of course, will be ignored until the whole sector crashes.

Don’t Fall for Cryptocurrency-Related Stock Scams

 

Cryptocurrencies (such as Bitcoin) are in the news daily. FINRA is issuing this Alert to warn investors to be cautious when considering the purchase of shares of companies that tout the potential of high returns associated with cryptocurrency-related activities without the business fundamentals and transparent financial reporting to back up such claims.

 

Do your research before purchasing shares of any company offering investment opportunities in cryptocurrency. And don’t be fooled by unrealistic predictions of returns and claims made through press releases, spam email, telemarketing calls or posted online or in social media threads. These actions may be signs of a classic "pump and dump" fraud.

 

The SEC suspended trading in a number of securities due to questions regarding the accuracy of cryptocurrency-related activities. For example, trading was suspended when the SEC questioned the accuracy of claims regarding:

 

• the liquidity and value of a company’s assets in DIBCOINS, a cryptocurrency;


• assertions by several companies that each planned to conduct an Initial Coin Offering (ICO); and


• a company’s claimed transition from a vape products business to one involved in  cryptocurrency and adoption of blockchain technology.

 

Tips to Avoid a Cryptocurrency-Related Stock Scam

 

Especially in today’s “hot” cryptocurrency environment, it’s easy for companies or their promoters to make glorified claims about new products, services and other cryptocurrency-related connections. And, even when legitimate companies flock to a hot, new sector, fraudsters almost always follow suit, exploiting the news to launch their latest frauds du jour. Follow these tips to avoid costly mistakes.

 

• Do not say "yes" to cryptocurrency stock purchases from an aggressive cold caller, even if the claims sound plausible, particularly if the recommended stocks are very low-priced. Don"t feel guilty about hanging up. Not answering at all, or putting down the phone, are generally the best and safest responses to a cold caller or anyone aggressively pitching low-priced stocks or other investment opportunities.


• Be suspect of anyone who makes guarantees that an investment will perform a certain way, or makes pushy sales pitches that encourage you to “act now.”


• Use FINRA BrokerCheck® to the check registration status of, and additional information about, the people and firms who tout these opportunities.


• Check the SEC"s EDGAR database to find out whether the company files with the SEC. If so, read the reports and verify any information you have heard about the company. But remember, the fact that a company that has registered its securities or filed reports with the SEC doesn"t mean that the company will be a good investment.


• Be wary of stocks with huge spikes in price: this could signal potential manipulation or fraud


• Know where the stock trades and pay attention to any cautions associated with the stock. Most stock pump-and-dump schemes tend to be quoted on an over-the-counter (OTC) quotation platform like the OTC Markets, which provides icons to warn investors of concerns associated with a given company. These include a stop sign to indicate the company cannot or will not provide important information to regulators, exchanges or the OTC Markets—and also a skull and crossbones to warn that the security, company or a person who controls the company might be involved in a spam campaign, questionable marketing, regulatory action or more.

If you"re suspicious about an offer or if you think the claims might be exaggerated or misleading, please contact us.

Stunning Visualization Of The Explosion Of ICO Activity In The Last Four Years

Via Elementus.io,

This graphic shows every token sale that successfully raised at least $100k, from the beginning of 2014 through the end of last month, November 2017. The bar chart at the bottom displays the total dollar amount raised in each month (details below).

How big is the ICO (aka token sale) market really?

It seems like this should be an easy question to answer. After all, blockchains are open data layers that contain a complete record of every transaction ever made. However, we"ve found the answer to this question to be surprisingly elusive.

We surveyed the web for data on token sales and turned up over 100 ICO listing sites. Estimates on the total dollar amount that has been raised via ICOs to date range from about $3.5 billion to $4.5 billion.

Why such a big discrepancy?

As far as we can tell, all of these estimates rely strictly on reported figures -- either by the ICO issuer itself or by another third party. There is nothing wrong with this approach. Many data providers in the financial world collect their information this way. However, why rely strictly on reported figures when the actual transactions are available directly from the blockchain?

We decided to estimate the size of the ICO market ourselves by going directly to the source.

The figures in this post are based on our own deep dive into the Ethereum and Bitcoin blockchains. We searched for every token, crowdsale, and multisig wallet we could find. We then identified the corresponding owners and added up the total amount of contributed funds -- taken either from the blockchain itself or as reported by the fundraiser.

In total, we estimate about $6.4 billion has been raised via ICOs to date - materially larger than what is being reported elsewhere.

Perhaps more surprising than the fundraising total is the trend over time. The ICO market is not dying down, as many have reported. It"s still growing.

The rise and rise of ICOs

This chart is a labeled version of the one at the top of the post. It shows the ICO fundraising amounts by month.

Contrary to the commonly heard narrative that the ICO party is coming to an end, ICO fundraising in November was only slightly off its high point the month before.

The current run rate of over $1.3bn per month surpasses traditional early stage fundraising by a multiple. Angel and seed-stage VC investments were running at less than $300 million per month as of July (Goldman Sachs via CNBC).

The trend is even more stark when you look at the total count of ICOs that closed each month (minimum raise of $100k).

By this measure, the token sale market is not only still going strong. It"s accelerating!

November set a new record for number of closed token sales with 148, an increase of 36 compared to the month before.

We view this metric, the number of token sales, as a better gauge of market activity than the fundraising total. The total dollar amount raised is not only susceptible to fluctuations in crypto exchange rates, it may also be driven by just a handful of outliers, rather than the true underlying trend. For example, just two ICOs (Tezos and EOS, which raised $236m and $200m respectively) account for nearly half of July’s total fundraising.

The number of ICOs completed each month shows a much clearer trend, and one that shows no sign of slowing down.

To play around with the graphic yourself, click here to view the interactive bubble chart.

TL;DR

• ICOs have closed over $6.3bn of fundraising to date.


• Contrary to widespread perception, the ICO market is still growing.


• Total fundraising in November was down slightly from its high point in October ($1.38bn vs $1.39bn).


• November set the record for number of ICOs that closed with 148.

SEC Wins Injunction Against ICO Organized By Financial Fraudster

The Securities and Exchange Commission is stepping up its long-overdue crackdown on shady initial coin offerings that are churning out suckers at a record clip with one simple promise: Invest in our coin and you, too, can receive an astronomical IRR just like your savvy cousin who bought a handful of bitcoins back in 2011 and decided to hold on for dear life.

In an enforcement action that, as far as we can tell, is the first of its kind anywhere, the SEC just won an emergency asset freeze to stop an initial coin offering that the agency said has defrauded investors by promising a 13-fold profit in less than a month.

While such an outrageous guarantee should immediately set alarm bells ringing in the minds of any experienced investor, bitcoin’s 1,000%-plus return so far this year has inspired many lazy would-be crypto millionaires to throw caution to the wind and approach every new ICO with a level of credulity that’s totally unjustified. But anybody who actually reads the “white papers” that many of these companies release will realize that they typically comprise hypertechnical gibberish designed to convince investors that there is no problem in the world today that can’t be solved with a blockchain and thousands of monetized tokens.

According to Bloomberg, the asset freeze was granted after the SEC sued Dominic Lacroix and his company PlexCorps in federal court in Brooklyn. The firm and Lacroix, described by the SEC as a recidivist securities-law violator (a status that’s not uncommon among so-called “entrepreneurs” in the massively fraudulent world of ICOs), have raised $15 million since August marketing and selling a product called PlexCoin.

The case is the first brought by a new SEC unit created in September to focus specifically on ICOs.

“This first Cyber Unit case hits all of the characteristics of a full-fledged cyber scam and is exactly the kind of misconduct the unit will be pursuing,” said Robert Cohen, head of the SEC’s Cyber Unit.

 

“We acted quickly to protect retail investors from this initial coin offering’s false promises."

According to the SEC, Lacroix and PlexCorps violated securities laws by failing to register the offering and not disclosing Lacroix’s involvement with probes by Canadian authorities, the SEC said. The agency also sued and froze the assets of Sabrina Paradis-Royer, described as Lacroix’s romantic partner. The suit seeks fines and disgorgement from Lacroix and Paradis-Royer, as well as a ban on their participation in offerings of digital securities.

The SEC fired its warning shot in July when its ruling on an investigation into the collapse of the DAO - a sort of proto-ICO that went bust after hackers stole $50 million worth of ethereum tokens (of course, the total value of the tokens stolen has massively inflated in the interveneing period) - officially declared ICOs to be securities that must be registered with the SEC. In August, the regulator warned investors to exercise extreme caution before investing in ICOs, warning that many are classic pump-and-dump schemes obscured by a new techno-veneer.

Even the most successful ICOs are on the verge of collapse. The 800 or so ICOs that have launched this year have raised nearly $4 billion. Yet the market has been astonishingly devoid of success stories.

Yesterday, we reported how frustrated investors in Tezos, which raised more than $230 million in an ICO over the summer, have filed a spate of class action lawsuits against the company alleging that its founders intentionally defrauded investors. The company, which had little more than a white paper to its name when it completed its offering, has yet to produce the digital tokens it promised investors.

Meanwhile, the ethereum and bitcoin that it accepted as payment during its crowdsale have appreciated massively in the intervening months.

But for those investors who still insist on invest in the ICO market - where founders fool investors with nonsensical business plans that they pass off as “too complicated” for the average layperson to grasp - one 16-year-old math whiz has created a product that will reportedly allow investors to invest in a “tranche” covering the entire ICO market.

As the press release explains, the answer is simple:

In a nutshell: We’re going to take a position in each ICO, then wrap those up into their own ICO and then you can buy tranches of that ICO depending on your “risk tolerance” i.e. how strong a person you are.

 

Basically, it’s all a question of how RICH YOU WANT TO BECOME. The bottom tranche is so safe that you can basically put your entire life savings in and earn a fat return.

The notion that diversification can help investors avoid losses in a massively fraudulent market is, of course, a canard. At the end of the day, it"ll be the investors - not the offering"s organizer - left holding the bag once the entire market goes to zero.
 

Frustrated Investors File Lawsuits Against World"s Largest ICO

Here"s the latest sign that the massively fraudulent ICO market is headed for a collapse.

Tezos’s investors are still waiting to learn when they can expect to receive the digital tokens that they paid a premium for during the company’s record-setting crowdsale. But as reports of abuse, internal strife and outright embezzlement have surfaced in the press, three groups of angry investors have filed class action lawsuits accusing the company of fraud and securities violations.

In response, Arthur and Kathleen Breitman, the young couple that founded the Tezos project, are asking the Switzerland-based Tezos Foundation to foot the bill for their legal defense – a controversial move, seeing as that money is supposed to seed the Tezos coin ecosystem, according to Reuters.

Tezos set a new sales record in the white-hot IPO market this summer when it raised more than $230 million in a hotly anticipated ICO that saw several behemoth firms in the northern California venture capital scene invest millions while thousands of individual investors followed suit, enticed by the astronomical returns of digital currencies like bitcoin and ethereum?

However, anybody who stopped to scrutinize the Tezos whitepaper – where the company’s founder laid out his “vision” for a product that he has yet to build – would recognize that the company’s business plan sounds like gibberish.

Despite this, the company raised more than $200 million during the first week of its July crowdsale.

To help shore up investors’ faith in the company, the leaders of Tezos promised to entrust the money they raised during the token sale to a nonprofit organization set up in Switzerland. The Tezos Foundation, is supposed to keep the company on budget until the product is finished. The company initially promised investors that it would deliver their tokens – informally known as Tezzies – by the end of the year.

The Tezos project and its founders, Arthur and Kathleen Breitman, are facing three class-action lawsuits in the United States. Plaintiffs allege federal securities law violations and that the fundraiser defrauded participants, who were told they were making non-refundable donations to the Swiss foundation. The lawsuits are seeking refunds and damages.

 

The project has yet to launch, which is required for contributors to receive new Tezos digital coins, called Tezzies. Meanwhile, their contributions – made in bitcoins and ether – have soared in value.Both lawsuits name as defendants the project’s young founders, their Delaware-based company, Dynamic Ledger Solutions Inc (DLS), which owns the Tezos source code, as well as the Zug-based Tezos Foundation.

 

A Reuters investigation in October found that the couple was in a bitter dispute with Johann Gevers, the foundation’s president, over control of the project.

 

Arthur Breitman told Reuters in Zurich on Thursday that he would not answer any questions. Gevers said he could not comment on the Breitmans’ request that the foundation indemnify them against legal actions.

According to legal experts who are familiar with the arcane rules governing Swiss nonprofits say the legal argument for the Tezos Foundation covering its founders’ litigation expenses is flimsy, at best.

Georg von Schnurbein, co-author of a book on Swiss foundation governance, said he saw no reason for the Tezos Foundation to cover the Breitmans’ legal costs.

 

“In my opinion, there is no reason for that because their activities were connected to their Delaware company, not to the foundation,” he said.

 

The foundation’s three board members could be held liable by Swiss regulators if they were to agree “because the lawsuits have nothing to do with the foundation purpose, only with the collection of money prior to that,” von Schnurbein added.

Unfortunately for investors, Tezos neglected to disclose many of the details about the relationship between the foundation and Dynamic Ledger Solutions Inc, Tezos’s corporate entity.

Further complicating matters is the contractual agreement between DLS and the foundation that was signed in June. The agreement, which is not public, governs the sale of DLS and its intellectual property to the foundation.

 

The agreement, a copy of which was reviewed by Reuters, states that the Swiss federal supervisory authority for foundations must approve the agreement. It also indicates the approval was required before the fundraiser took place.

However, a spokesman for the department that oversees the Swiss authority told Reuters that approving these types of agreements lies outside the authority’s scope of influence: “It is not the Foundation Authority’s task nor its responsibility to approve private law agreements."

The contract also says that some Tezos software code would be put in the public domain prior to the fundraiser. But the foundation later said that it has a license to release the code and will do so “at an appropriate time before the launch of the main network.” Conveniently,  documents provided to investors didn’t mention the required approval by the Swiss authority or the timing of the source code’s release.

Stephen Palley, an attorney at Anderson Kill in Washington who focuses on software development, told Reuters after reviewing the investor agreement that it may help plaintiffs’ lawyers show that contributors to the Tezos fundraiser were purchasing securities, not making donations. According to the agreement, the contributions were needed to launch the Tezos network, he said. Over the summer, the SEC issued a ruling in an inquiry into the implosion of the DAO that effectively deemed all ICOs securities offerings. This means companies that launch ICOs must register their tokens as securities and abide by all pertinent securities laws.

“This weakens the argument that tokens were a discretionary gift, akin to a tote bag given to people who donate to a public radio fundraising drive,” he said.

 

Kathleen Breitman told Reuters in June that participating in the Tezos fundraiser was like making a donation to a public broadcaster and receiving a tote bag.

 

The agreement was signed on June 27 by Gevers and DLS’s shareholders, who are the Breitmans and an investment firm founded by Silicon Valley venture capitalist Tim Draper. The shareholders eventually stand to receive 8.5 percent of the funds raised in the initial coin offering in cash, and additional Tezos coins distributed over four years.

 

Reuters also reviewed a separate agreement between DLS and the foundation. It lists 11 early backers of Tezos, including the living trust of Frederick Ernest Ehrsam III, a co-founder of Coinbase, which operates a U.S. cryptocurrency exchange; Meta Stable Capital and CoinFund LLC.

 

Jake Brukhman, CoinFund’s managing partner, said the fund initially backed the Tezos project but received a refund in May before the fundraiser. “Our teams came to a mutual decision to part ways,” he said.

 

Ehrsam declined to comment through a spokesperson for Coinbase. Other early backers did not respond to requests for comment.

The internal strife at Tezos spilled into public view back in October when the Breitmans accused Johann Gevers, the head of a Swiss foundation which oversees their funds, of attempting to overpay himself using the massive pot of investor capital - despite the fact that the company will likely blow through its promised deadline of allocating tokens to buyers by December (the tokens have yet to be created). The news sent Tezos futures contracts trading on BitMEX spiraling lower.

Of course, Tezos isn’t the only major ICO that’s in trouble: Last month, we reported that Bancor, the world’s fifth-largest ICO by funds raised, has plunged by more than 50% since the company’s June ICO as investors have become disillusioned with its obscure product.

The question remains: Would Tezos’s failure help pacify the investing fervor surrounding ICOs? Or will investors in these products continue to be victimized by fraudsters until the offerings are banned outright?

Luckily for Tezos, if the owners can"t remedy the company"s many intractable problems, PwC is now accepting payment in bitcoin for its consulting services...

PwC Becomes First "Big Four" Firm To Accept Payment In Bitcoin

Regulators may be skeptical of the burgeoning ICO market, where outright fraud isn’t uncommon, but that isn’t stopping some of the world’s largest audit and consulting firms from trying to win their business.

PWC revealed that it will begin accepting payment for its consulting services in bitcoin because it is increasingly working with startups in the city involved in cryptocurrencies and blockchain, the open-ledger technology that processes bitcoin transactions by logging them on a public record. The firm also noted its advisory work for initial coin offerings – which typically collect payment in bitcoin and Ethereum – along with crypto exchanges and crypto funds, according to the Wall Street Journal.

“This decision helps illustrate how we are embracing new technology and incorporating innovative business models across our full range of services,” Raymund Chao, chairman of PwC Asia-Pacific, said. “It is also an indication that bitcoin and other established cryptocurrencies have now developed into more broadly accepted forms of settlement."

ICOs have two important characteristics that would pique PwC’s partners’ interest: Plenty of cash on hand, and many intractable problems.

Of course, PwC isn’t the first major company to accept bitcoin: Overstock.com has been accepting payment in bitcoin for years. Dish Network and Microsoft also accept payment for some services in bitcoin.

The US has taken steps to crack down on ICOs, with the SEC having recently opened several civil actions against them. Meanwhile, China has banned them entirely. As the large pots of money accumulated have spurred internal conflict and in some cases outright embezzlement, some of the largest offerings are already crumbling.

But they’re on track to raise as much as $4 billion this year alone. And despite the bad press and regulatory scrutiny, the market hasn’t cooled.

Overstock.com claims it’s building a trading platform that will help legitimize the market, and at least one other company is building what’s essentially an exchange for ICO tokens.

The move also makes sense from a trend-following standpoint. Bitcoin has climbed more than 950% this year alone. And with several new derivatives products hitting the market, PwC will have more options for hedging its exposure.

However, on Thursday, the price of a single coin had fallen 16% to $9,400 a coin, well below its recent peak above $11,000.

 

Blockchain-Based Platform Spurs Confidence In "Sketchy" ICO Investment Opportunities

If it were a competition, BnkToTheFuture would be a shoo-in for “most meta business plan” of 2017. To wit, the company is building a blockchain-based trading system for selling and trading stakes in blockchain companies in a play to capture a subset of investors who are growing increasingly wary of the sketchy ICO market.

A firm called BnkToTheFuture plans to open a market in the second quarter that will let investors trade equity stakes in companies involved with the blockchain, the transaction-tracking technology that underpins digital currencies like bitcoin. BnkToTheFuture will use a blockchain ledger to keep record of those investments for clients.

While the blockchain tech sector is certainly still in its infancy, there’s little doubt that investors are interested in finding more reputable ways to facilitate investing in blockchain. Presently, the booming market for ICOs, which has seen more than $3.5 billion raised this year, has proven to be rife with incompetence and even outright fraud.

Some of the largest and most widely anticipated ICOs are already floundering with their tokens rapidly losing value, and even drawing lawsuits, in some cases.

Given the lack of honest brokers – and explosion of self-dealing – in the existing market for investing in blockchain solutions, there’s reason to believe BnkToTheFuture’s projection that it will soon facilitated more than 50% of private investments in the space.

“By year-end, we could have 50 percent of the major companies in the sector on our platform,” Chief Executive Officer Simon Dixon said in a phone interview.

As Bloomberg explains, the blockchain is a digital ledger for recording transactions in a secure and transparent manner. The technology is expected to revolutionize industries ranging from finance, to supply chain management to even boring old title insurance, as we recently pointed out.

BnkToTheFuture has already helped some 45,000 accredited investors from around the world invest more than $200 million, Bloomberg reports. It has allowed investors to buy equity in more than 100 companies and projects, including ethereum and storj. The company is planning to implement a blockchain-based ledger to record and facilitate these transactions – something it says it will implement by the second quarter.

It’s worth noting that BnkToTheFuture – despite its implicit challenge to the existing ICO market – is itself an ICO.  The company plans to issue a token next year with which customers can pay BnkToTheFuture for deal analysis, due diligence and investor relations. BnkToTheFuture hopes to raise as much as $33 million in an initial coin offering planned for next February. The largest ICO’s have raised more than $200 million. Indeed, some self-styled ICO “experts” have advised their audience that raising $100 million in an ICO can be more trouble than its worth.

As more regulators crack down on the ICO market – China has banned it entirely, and the SEC has opened civil actions against several accused ICO fraudsters – investors could migrate to BnkToTheFuture’s platform. To be sure, the product has not yet launched, and if ICOs like Tezos are any guide, investors in ICOs shouldn’t count their chickens before they hatch, so to speak.

BnkToTheFuture is registered in the Cayman Islands, and holds a stake in a broker-dealer. The company holds equity in several established digital-currency exchanges, including Bitstamp and Kraken.

According to Kyle Samani, managing partner at Multicoin Capital Management, a crypto hedge fund, BnkToTheFuture is already a hit in Asia.

“Their investment opportunities are vetted quite extensively and it seems only very few get accepted judging from the amount of investments that pass through their platform,” Majid Shah, the co-founder of CoinSchedule and a longtime user of BnkToTheFuture, said in an email. “I would say they provide a lower-return but lower-risk way of investing into the blockchain space, whereas ICOs are more high return, high risk.”

However, BnkToTheFuture isn"t the only company trying to legitimize ICOs: Overstock.com saw its shares pop back in September after revealing that it is building a platform for launching and trading ICOs.
 

Visualizing The Journey To $10,000 Bitcoin

It has been a breakthrough year for the world’s original cryptocurrency. At time of publication, the bitcoin price is at $9,650 – about 10X higher than how the cryptocurrency started the year. Further, as Visual Capitalist"s Jeff Desjardins notes, bitcoins are now on the brink of passing the important psychological barrier of $10,000, and it could do so at any moment based on current momentum.

Today’s infographic from Blockchain Intelligence Group helps to visualize the ups and downs of the cryptocurrency on its journey to $10,000.

Courtesy of: Visual Capitalist

Note: once the price hits the $10,000 barrier, we’ll do a final update on this graphic to make sure that’s represented.

THE JOURNEY TO $10,000 BITCOIN

Here are some of the key events that transpired over the last 11 months:

And here is how long it took bitcoins to hit each $1,000 barrier:

Note: These time periods are calculated based on closing prices for the Bitcoin Price Index on Coindesk.

THE YEAR OF THE ICO

While the journey to $10,000 bitcoin is an incredible one, it is part of a wider story as well.

Initial Coin Offerings (ICOs) for other cryptocurrencies have also boomed, and more than 92% of all funds raised through ICOs happened in this year alone. With this mechanism hitting the mainstream, about $3.8 billion have been raised through ICOs in total.

Further, they’ve been profitable as well for speculators. A report from Mangrove Capital last month noted that the average return across 204 ICOs it was tracking was 1,320%.

Despite being temporarily banned in China and South Korea, ICOs have not been slowing down. So far in this month (up to Nov 26, 2017), ICOs have already hit new highs with $743.2 million raised, surpassing the earlier record-holding month of September 2017 ($662.9 million).

World Largest Reseller Of Virtual "Skins" Raises $40M With An ICO

ICO Investors are about to experience something that’s almost never happened in the brief history of the $3 billion market: An offering by a company with an actual product.

Bloomberg Businessweek has managed to find the one ICO being launched to solve the rare problem that could actually benefit from decentralized, monetized tokens. The company is called OPSkins, and it’s the largest skins site in the $50 billion market. The company has raised $41 million in an ICO it launched last month, and hopes to raise another $7 million before the sale ends on Nov. 28. For those readers who aren’t avid gamers, Bloomberg explains that a “skin” is a decoration for the virtual guns and knives found in video games like CounterStrike: Global Offensive. While the concept of building a company around these products might seem silly, some buyers will pay thousands of dollars for the rarest skins.

The two-year-old company has raised about $41 million by selling what it calls WAX tokens, a virtual currency that will become the default way to buy and sell skins on its intercompany skins exchange, the Worldwide Asset eXchange, which will allow buyers to connect to dozens of disparate marketplaces. The idea is to simplify purchases for gamers from different countries and give everyone a clearer sense of what a particular item is worth, using the same kind of digital-ledger system as the cryptocurrency bitcoin.

Previously, the market for these virtual items was highly fragmented, and wealthy buyers would often play intermediaries a premium to root out the best deals on their behalf.

The company bets that making its exchange accessible to rivals, who can then make a broader catalog available to customers, will expand its audience beyond the limitations of an individual website, says Chief Information Officer Malcolm CasSelle, who’s helping lead the WAX effort. In theory, there’s lots of room for new skins buyers, says Chris Grove, managing director at researcher Eilers & Krejcik Gaming LLC. About 200,000 new people buy virtual items through OPSkins each month, but the site sells gear for online games with more than 125 million regular players.

 

“This could be the perfect on-ramp,” says investor Scott Walker, who helped fund the “initial coin offering,” or ICO. Early investors are getting more WAX tokens for their money, but their value will become another variable once the exchange goes live in December.

 

OPSkins doesn’t disclose its financials, but its revenue is growing at double digits annually, says CasSelle, previously chief technology officer at Tronc Inc., the former Tribune Co. Partly, he says, the WAX token strategy is a way to stave off competitors. Over the past few months, rivals including DMarket, KyberNetwork, and SkinCoin have held ICOs to launch or expand their services. So far, though, no other trader has the muscle to create the kind of intercompany exchange OPSkins is building. Starting next year, websites that install the WAX widget will get as-yet-undetermined fees for resulting sales.

However, before you rush out and buy WAX tokens purely for the sake of speculating, It’s worth considering the fact that OPSkins entire business is essentially at the mercy of the giant video game studio that produces many of the games whose wares Skins sells on the secondary market.

The volatility of the WAX token price may make it a poor place to hold money not being used for short-term item buying and selling. But OPSkins’ biggest potential roadblock is the maker of the games. Industry leader Valve Corp., which publishes Counter-Strike: Global Offensive and the other big hits OPSkins exploits, has the power to ban sites from trading skins. Last year, Valve sent cease-and-desist letters to 23 online gambling sites to prevent them from using skins as collateral, a move aimed at reducing teenage gambling on professional video game matches. “Valve has certainly left the door open to an action in the future,” says Grove, the Eilers researcher.

However, the company’s technology chief says it doesn’t need Valve Corp.’s cooperation to build a successful business.

CasSelle says that the new exchange can work without Valve’s help, including as a way to acquire other virtual goods, and that OPSkins is looking to raise an additional $7 million in WAX tokens before it finishes its ICO on Nov. 28. (The company initially sought a total of $63 million but lowered that goal because the flurry of interest around bitcoin and its spiking value has diverted attention from ICOs.) Alexander, the personal shopper for virtual goods, says he thinks the exchange will be good for people like him in the short term, swelling the overall market for skins. “It makes the entire process effortless,” he says. “It is a massive pain dealing with the payment methods available at the moment.” But he’s hedging his bets, having returned to college to finish his degree in economics. He says he eventually wants to get a job in finance or start his own business.

OPSkins doesn’t disclose its financials, but its chief technology officer - who was previously the CTO at Tronc Inc. - explained that the WAX token strategy is a way to stave off competitors. Over the past few months, some of OPSkins rivals, including DMarket, KyberNetwork, and SkinCoin have held ICOs to launch or expand their services. So far, though, no other company has the muscle to create the kind of intercompany exchange OPSkins is building.

If it succeeds in being the first platform to capture a dedicated customer base, maybe - just maybe - the WAX token might have a future.

Unfortunately for investors, most of the other 799 tokens trading on one of hundreds of exchanges scattered across the Earth, probably won’t.
 

Ethereum"s Creator Mulls Limiting Supply In Novel Ways

While the ICO craze has got out of control in 2017, the two leading cryptocurrencies – Bitcoin and Ethereum – have gone from strength to strength. We’ve seen frequent gut-wrenching (for bulls) drawdowns, wallet freezings (Ethereum several days ago – see here), exchange closures (China) and high-profile criticism from speakers engaging forked-tongues (Jamie Dimon"s famous fraud comments, etc).  Nonetheless, like fledglings learning to leave the nest, a broad swathe of opinion senses that there is progress. Like the early days of the internet, investors will suffer losses on those ICOs which were poorly planned and/or poorly executed – which might be most of them. As this process unfolds, however, the better cryptocurrencies will be tweaked, refined and sometimes “forked” to make them better suited to a range of decentralised applications which are, themselves in state of flux.

Talking of tweaks, the co-founder of Ethereum, Vitalik Buterin, is mulling one for Ethereum which might happen before the end of 2017. Watching the firehose of ICOs, Buterin has been asking himself whether, with Ethereum (ether), he’s creating too much of a good thing. According to Bloomberg.

The 23-year-old helped sell one of the first digital currencies in 2014 when he introduced ether to the public. Three years later he’s witnessed scads of other digital currencies raise more than $3 billion in 2017 via so-called initial coin offerings. The sheer number of coins now being created has made him ponder the previously imponderable: limiting the supply of ether.

 

“I’m concerned a lot of these token models aren’t going to be sustainable,” Buterin said in a rare interview last week at the Ethereum Developers Conference in Cancun, Mexico. So what’s the problem? There’s a hard limit -- 21 million coins -- on the supply of bitcoin, the first successful cryptocurrency, that helps underpin its value. Buterin isn’t mulling a cap like that, but he’s intrigued by the idea of imposing fees on applications built atop ethereum. Those fees would destroy -- or burn, in Buterin’s parlance -- ether tokens over time.

Finite supply is hardly a new concept, but it’s certainly entered the consciousness of Bitcoin investors. There’s been much debate on Ethereum supply and while there isn’t a hard limit, the inflation in Ethereum supply is set to decline exponentially, with the maximum amount somewhere in the region of 100 million. There is a quote on Reddit that is attributed to Buterin on this subject.

During the interview at the Ethereum conference, Buterin pondered – at times in slightly less than coherent fashion - the need to limit Ethereum supply in order to differentiate it from fiat currencies.

“If the token is being burned, then you have an economic model that says the value of the token is the net present value of basically all future burnings,” he said.

 

Otherwise, “it’s just a currency that goes up and down. It feels kind of like voodoo economics and the price of the token isn’t really backed by anything,” Buterin added.

 

“That’s a very spooky thing.” Reminded that he created such a coin himself, he said going forward that could change. “It’s a fact that’s definitely informing a lot of design choices,” Buterin said. “Introducing some kind of sinks into ethereum is definitely something we’re looking at,” he said. “By sinks, I mean fees that lead to the token actually being destroyed.”

If he decides against “burning”, another possibility is essentially warehousing some of the supply, eliminating it from circulation.

Another way to limit supply, at least temporarily, is through locking up some of the ether currently in circulation. That’s the plan as ethereum moves to a new way of verifying transactions on its network. Known as proof-of-stake, it requires users who want to be rewarded for validating transactions to deposit ether for a set amount of time. The more ether they set aside, the bigger the reward for verifying the network. Buterin said the ethereum community may transition to proof-of-stake as early as the end of the year.

While Bloomberg notes that Ethereum’s abundance has obviously not adversely affected its price this year, our question is what impact would limiting supply have on Ethereum? Especially when  cryptocurrency prices are so sensitive to newsflow, even when it’s ill-informed, in Dimon’s case, for example. Talking of limiting supply, Buterin had some cautionary words on the ICO boom although, given the nature of financial market regulation, nothing will be done until something really bad happens, which is sadly inevitable.

Buterin said ICOs had both good and bad attributes. The way they’re currently structured skews the incentives of the startups that have raised over $3 billion this year. In nearly all ICOs, groups have pitched tokens to fund projects still in development, leaving open the question of what happens if they fail to deliver on promises. “The token models we have right now are lopsided and give skewed incentives,” Buterin said. “The worst part is the front-loading. Basically getting $140 million before you have a product. The right way to do that is to come up with a mechanism that either splits the ICO up across rounds or has a mechanism where if it doesn’t go well people can get refunds or anything similar.” ICOs have solved a key problem, making it easier for developers to raise money to fund their work, he said. But that doesn’t mean that every project should start with an offering, Buterin said. “It’s definitely a complicated balance,” he said.

The ICO boom is definitely not balanced.
 

Ethereum Proposes "Guidelines" To Stop ICO-Related Fraud

It looks like Ethereum’s developers and entrepreneurs have finally recognized the perils of being associated with the massively fraudulent ICO market.

ICOs have exploded since the beginning of the year as companies equipped with little more than a white paper sketching out some grandiose (and often highly improbable) killer app that somehow incorporates a monetized token trading on a blockchain much like bitcoin. So far, these offerings have raised more than $3 billion this year, and many of them are built on top of Ethereum’s platform, which enables the creation of decentralized “smart contracts” that can carry out higher level functions beyond simple transfers of value.

Last year, the collapse of the DAO - a kind of crowdfunded project meant to provide early stage financing to blockchain startups - sent the price of ethereum spiraling lower. Apparently, Ethereum’s top people are afraid the collapse of the ICO market might be even more damaging, CoinDesk repors.

"Grotesque" might not be the word you"d think ethereum developers would ascribe to today"s ICO scene.

 

But that"s exactly how some of the platform"s ardent supporters described the current state of affairs. At Devcon3 in Cancun, Mexico, last week, developers were decidedly unenthusiastic when approached for thoughts about the new funding method, some going so far as to allege that many projects that use it to raise money are little more than "scams."

 

Even Fabian Vogelstellar, the developer behind the technology standard that helped make ethereum tokens so easy to launch, was keen to join the ranks of ICO critics, echoing remarks made by a colorful cast of commentators as diverse as MIT Media Lab Director Joi Ito and the "Wolf of Wall Street" Jordan Belfort.

 

"The problem right now is that too many people outside of the blockchain space focus on tokens and ICOs; frankly speaking, it"s the least interesting part of ethereum." 

The tone of these remarks stands in stark contrast to the optimism about ICOs , which just earlier this year were being hailed as a groundbreaking tool for capable of revolutionizing how companies raise money.

Etherscan CEO and founder Matthew Tan went so far as to call ICOs ethereum"s "killer app," a statement that aligns with the more than 10,000 token projects launched to date – 13 of which have eclipsed $100 million in total market value, according to Etherscan data.

 

It"s an interesting take seeing how ICOs are typically touted as a means to circumvent traditional fundraising methods. But, du Rose"s sentiments hint at a crucial criticism: that many ICOs are simply executing incorrectly. 

The criticism comes as regulators in US, China and many other major markets for cryptocurrencies have taken steps to curb or regulate the markets. The SEC has been slowly clarifying its stance toward ICOs since this summer, when it first declared - in a finding about the DAO fiasco - that ICOs are securities that must be registered with the SEC and subject to US securities laws.

To their credit, Ethereum developers have suggested some helpful “guidelines” of their own.

Here’s Jack du Rose, co-founder of ethereum startup Colony:

Ethereum developers largely believe that, at the very least, the individuals or company behind an ICO should have a prototype to prove their idea could theoretically work in practice. For instance, ethereum-based casino game platform FunFair launched an ICO over the summer, but only after releasing several prototypes.

 

And FunFair founder and CEO Jez San Obe had strong words about issuers that do it differently.

 

"You should have a product before you ICO, you should know how to run a company, you shouldn"t have an anonymous team and you should release a prototype first," he told CoinDesk.

It’s something that, in conventional markets, should go without saying. But ICOs are anything but conventional. So Ethereum’s developers reminded investors and the companies doing the offering not to "risk other people"s money on something, when there’s a reasonable likelihood we"d be prosecuted."

Issuing  a token before the product is not only foolish from a regulatory standpoint, but also "incompetent and greedy."

Du Rose also insisted that ICOs be reserved for companies building a product that is decentralized, like the ICO being used to finance it.

"For a token to be interesting ... it should be a totally decentralized protocol, not just glitter on top of a centralized company with its own revenue models," du Rose said.

 

In this way – although probably curiously for some – Giveth founder Griff Green pointed to The DAO as an ICO success story. Though its code had a bug that led to millions of dollars in ether being stolen from users, it was at least decentralized, said Green, who was the community organizer of the project.

 

He thinks about The DAO in a more abstract way, though, saying that, in the future, people will be able to launch their own cryptocurrency to push against the power of the banks.

 

"The power of creating currency is unfathomable. Banks are in a really good spot today. They have a lot of money and a lot of power. They can create money out of nothing. Instead, with ICOs, you can give that power to every person," Green said.

While regulators, investors and - increasingly - the general public believe the ICO space is fraught with bad actors, some crypto investors see this as the beginning of a learning process. ICOs could still revolutionize corporate fundraising, they believe, the market just needs to work out the kinks first.

"What I"ve seen is kind of unsurprising," said DappHub software engineer Andy Milenius. "People"s first experience with an idea is allowed to be wrong."

As we"ve reported, two of the world"s largest ICOs have already hit the rocks this year.

And we imagine those won"t be the last...

Crypto Mania - Why "It Is Currently Rational To Be Irrational"

Following JP Morgan CEO, Jamie Dimon’s, now infamous rant about Bitcoin being a fraud, a great product for criminals and having no value, Adam Ludwin, CEO of Chain.com, wrote “A Letter to Jamie Dimon”, which received some coverage in the financial media for its balanced discussion regarding the outlook for cryptocurrencies.

In his letter, Ludwin noted...

In short: there’s a lot of noise. But there is also signal.

 

To find it, we need to start by defining cryptocurrency. Without a working definition we are lost. Most people arguing about cryptocurrencies are talking past each other because they don’t stop to ask the other side what they think cryptocurrencies are for.  

 

Here’s my definition: cryptocurrencies are a new asset class that enable decentralized applications. If this is true, your (Jamie Dimon’s) point of view on cryptocurrencies has very little to do with what you think about them in comparison to traditional currencies or securities, and everything to do with your opinion of decentralized applications and their value relative to current software models. Don’t have an opinion on decentralized applications? Then you can’t possibly have one on cryptocurrencies yet…And since this isn’t about cryptocurrencies vs. fiat currencies let’s stop using the word currency. It’s a head fake. It has way too much baggage and I notice that when you talk about Bitcoin in public you keep comparing it to the Dollar, Euro, and Yen. That comparison won’t help you understand what’s going on. In fact, it’s getting in the way.

Back in your box, Jamie.

As Forbes reports, Ludwin was invited to speak at a recent SEC meeting...

The Securities and Exchange Commission Investor Advisory Committee held a public meeting regarding blockchain and distributed ledger technology earlier this month, and one of the individuals who was invited to participate in the meeting was Chain CEO Adam Ludwin. During his opening remarks, Ludwin shared his perspective on the entire blockchain ecosystem (both public and private models), but the most compelling part of his appearance may have been when he shared his views on the current price mania around cryptocurrencies and initial coin offerings (ICO).

 

“I think you have to look at it from the perspective of the buyer and the seller mentality,” Ludwin said of the current digital asset market. “In essence, it is currently rational to be irrational as a buyer [or] a seller in this market.”

In Ludwin’s opinion, the buyers of ICOs are either people who made tons of money in Bitcoin/Ethereum or people who missed Bitcoin/Ethereum, because they didn’t understand them, so have resorted to buying tokens they don’t understand either.

When discussing the kinds of people who are participating in ICOs and token crowdsales during his appearance at the public meeting, Ludwin was quick to point to those who have already made large sums of cash by speculating on the prices of bitcoin and ether over the past few years. “On the buyer side, there are many, many people who invested early in bitcoin, made a tremendous amount of money and now have, effectively, a house money effect weighing on them where it’s found money — it’s a windfall — and they’re diversifying into every new project that comes along because: Why not?” explained Ludwin.

“If you’ve made money, you might as well say, ‘I’ll keep going.’” Ludwin also pointed to those who sat on the sidelines while bitcoin and ether went up a hundredfold or more because they didn’t understand the technology as probable buyers of new digital assets.

 

“Now, you almost have this inverted mindset where you tell yourself, ‘Alright, I have to look for things I don’t understand, and the more confusing it is, the better investment it probably is,’” said Ludwin. “It’s a very perverse mentality, obviously.”

As for the sellers of ICOs, Ludwin explains why it’s even crazier than the dot.com boom.

From Ludwin’s perspective, the irrational exuberance from the buy side of the market has led to the creation of many new projects willing to meet that demand. The Chain CEO shared three reasons as to why it’s extremely tempting for individuals and teams to create, issue, and sell new cryptocurrencies. “Number one, there’s no dilution (it’s not equity in the traditional sense) and there’s no debt — you don’t have to pay it back,” said Ludwin.

 

“People are buying for the appreciation expectations. It’s really free financing; it’s a remarkable instrument. [Secondly], there’s a belief out there that, by selling tokens, you’re creating evangelists for your project and they will tell their friends [about it]. And the truth is that’s probably right. People are interested in spreading the news about a new token in order for their tokens to go up in price and the sellers do have a kind of product/market fit. Of course, the thing that people are buying is a dream of making money, not interest in the underlying service usually. Finally, there’s an ability now by issuing these tokens to actually exit before you start. Normally, when you build a company, the exit comes at the end (and that’s why it’s called the exit). Here, if you issue a token and you can clear tens of millions of dollars before your project even launches, it’s an even better deal than we had in the 90s [dotcom bubble].”

Forbes comments on how many ICOs are merely exploiting Ethereum’s ERC-20 standard. 

The perfect example of the inability for some companies or projects to resist the urge to do their own ICO might be messaging app Kik’s Kin token. According to CoinJournal, Kik CEO Ted Livingston admitted that they were essentially launching the token because they had no other way to compete with Facebook. Kik was able to raise nearly $100 million in their token distribution event — money that comes with all of the benefits mentioned by Ludwin. Ethereum’s ERC-20 token standard has also made it extremely easy for anyone to launch a new digital asset with the click of a button. BitTorrent creator Bram Cohen discussed the ease with which tokens can be launched on top of Ethereum at the Blockstack Summit earlier this year.

 

“A lot of what people are doing now are these like ERC-20 tokens and stuff on Ethereum for their ICOs mostly because they don’t possess the skills to roll out an actual altcoin for the most part, which is not confidence inspiring,” said Cohen. “As a general rule, if you don’t possess the skills to roll out an altcoin, you probably shouldn’t be doing an ICO.” In the past, those who wanted to launch a new, tradeable token needed to create their own blockchain from scratch and convince exchanges to take the time to add it to their platform. The ERC-20 standard has made the process of adding a new token to an exchange much simpler because many of the new tokens follow the same general structure.

In the opening section of his letter to Jamie Dimon, Ludwin stated....

It’s easy to believe cryptocurrencies have no inherent value. Or that governments will crush them. It’s also becoming fashionable to believe the opposite: that they will disrupt banks, governments, and Silicon Valley giants once and for all. Neither extreme is true. The reality is nuanced and important. Which is why I’ve decided to write you this briefing note. I hope it helps you appreciate cryptocurrencies more deeply.

Let me start by stating that I believe:

• The market for cryptocurrencies is overheated and irrationally exuberant


• There are a lot of poseurs creating them, and some scammers, too


• There are a lot of conflicts of interest, self-serving hype, and obfuscation


• Very few people in the media understand what’s going on


• Very few people in finance understand what’s going on


• Very few people in technology understand what’s going on


• Very few people in academia or government understand what’s going on


• Very few people buying cryptocurrencies understand what’s going on


• It’s very possible I don’t understand what’s going on

Also:

• Banks and governments aren’t going away


• Traditional software isn’t going away

Ludwin argues that all asset classes exist to allocate resources to a specific form of organization.

Despite the myopic focus on trading crypto assets recently, they don’t exist solely to be traded. That is, in principle at least, they don’t exist for their own sake. To understand what I mean, think about other asset classes and what form of organization they serve:

• Corporate equities serve companies


• Government bonds serve nations, states, municipalities


• Mortgages serve property owners

And now:

• Crypto assets serve decentralized applications

If you haven’t read Ludwin’s letter, you’d probably assume that he argues for the superiority of decentralized application over centralized applications, but you’d be wrong. He explains.

In fact, on almost every dimension, decentralized services are worse than their centralized counterparts:

• They are slower


• They are more expensive


• They are less scalable


• They have worse user experiences


• They have volatile and uncertain governance

And no, this isn’t just because they are new. This won’t fundamentally change with bigger blocks, lightning networks, sharding, forks, self-amending ledgers, or any other technical solutions. That’s because there are structural trade-offs that result directly from the primary design goal of these services, beneath which all other goals must be subordinated in order for them to be relevant: decentralization.

Here’s the important bit about crypto assets for Ludwin.

Thus, bitcoin, for example, isn’t best described as “Decentralized PayPal.” It’s more honest to say it’s an extremely inefficient electronic payments network, but in exchange we get decentralization. Bottom line: centralized applications beat the pants off decentralized applications on virtually every dimension. EXCEPT FOR ONE DIMENSION. And not only are decentralized applications better at this one thing, they are the only way we can achieve it. What am I referring to? Censorship resistance. This is where we come to the elusive signal in the noise. Censorship resistance means that access to decentralized applications is open and unfettered. Transactions on these services are unstoppable. More concretely, nothing can stop me from sending Bitcoin to anyone I please. Nothing can stop me from executing code on Ethereum. Nothing can stop me from storing files on Filecoin. As long as I have an internet connection and pay the network’s transaction fee, denominated in its crypto asset, I am free to do what I want. (If Bitcoin is capitalism distilled, it’s also a kind of freedom distilled. Which is why libertarians can get a bit obsessed.)

Here are his “big picture” thoughts from the letter on the challenge for cryptos.

Given how different they are from the app models we know and love, will anyone ever really use decentralized applications? Will they become a critical part of the economy? It’s hard to predict because it depends in part on the technology’s evolution but far more on society’s reaction to it. For example: until relatively recently, encrypted messaging was only used by hackers, spies, and paranoids. That didn’t seem to be changing. Until it did. Post-Snowden and post-Trump, everyone from Silicon Valley to the Acela corridor seems to be on either Signal or Telegram. WhatsApp is end-to-end encrypted. The press solicit tips through SecureDrop. Yes, the technology got a little better and easier to use. But it is mainly changes in society that are driving adoption. In other words, we grew up in the rainforest, but sometimes things change and it helps to know how to adapt to other environments. And this is the basic argument that the smart money is making on crypto assets and decentralized applications: that it’s simply too early to say anything. That it is a profound change. That, should one or more of these decentralized applications actually become an integral part of the world, their underlying crypto assets will be extremely valuable.

Despite his use of words like “irrational” and “perverse”, Forbes notes that Ludwin’s view on the outlook for cryptocurrency prices is positive.

Although Ludwin took part of his time to address the obvious (some would call) bubble in the cryptocurrency market, he still sees a bright future for this new asset class. “Despite what probably sounds like a bit of cynicism here on cryptocurrencies and the fact that it’s obvious, I think, to every fair observer that we’re witnessing a mania that will have a correction . . . you should not bet against cryptocurrencies in their long term sustainability or viability and the reality that they are a new asset class, that they’re enabling a fundamentally new and important segment, and I think [they] will only increase globally in value over time,” said Ludwin.

 

Norwegian Mining Company Launches First Asset-Backed ICO

While the world debates whether blockchain-based Initial Coin Offerings are a fraudulent pyramid scheme, meant to take advantage of gullible investors who are desperate to get rich quick, or a revolutionary "post-equity" way of raising capital, a Norwegian mining company, Intex Resources ASA, has taken the next step in the latter, and last week announced it was issuing the world"s first asset-backed Initial Coin Offering, with the resulting tokens being exchangeable for the physical collateral.

Although Intex is not the first corporation to approach ICOs as a means of raising capital, with Overstock revealing last week that it will launch an ICO on Nov. 1 using its proprietary tZERO platform, a strategy that will allow Overstock to raise capital without diluting its common equity float, Intex approach is somewhat different: the Company intends to issue asset-backed tokens which are backed by the Company"s metal reserves; currently Iron Ore  and Nickel Ore.

Where Intex" approach is unique, is that the newly issued Tokens will be based on blockchain technology and will be exchangeable into the physical product, i.e. Iron Ore, Nickel or products derived  thereof. As a result, the company"s Tokens are being pitched as an alternative tool for investors who are looking for Iron Ore or Nickel exposure/hedging or investors who simply want exposure in digital Tokens which have the security of underlying value assets (as opposed to Bitcoin and other unsecured and un-asset backed crypto currencies).

Commenting on the new capital raise, Lars Beitnes, Chairman of the Company, said the "the new world of secure digital currencies and tokens opens up a whole new way for listed companies to raise capital. We believe our ICO would be the first of many to come from other companies in Norway and internationally."

While it remains to be seen how accepted it is, by effectively pledging collateral behind the ICO, the company eliminates of the biggest concerns the rightfully skeptical investing public has regarding ICOs: the fact that they have no "fair value."  However, once pegged to an underlying asset, that argument loses much of its potency.

What exactly is the collateral behind the new ICO? The answer, according to the press release, are the iron ore assets in the company"s Ambershaw mine in Canada:

As the Iron Ore asset owned by Ambershaw Metallics Inc. (AMI) is the closest to production the parties anticipate initial development of a Token with Iron Ore (or products derived thereof) as the underlying asset, in cooperation with AMI. The Company has 5% direct ownership and an option to acquire majority control in AMI. AMI expects to start concentrate production in Q2 2018. AMI estimates that in the initial mining phase it can produce approx. 330,000 tonnes of concentrate annually. The current sales price for 65% Fe concentrate is estimated to approximately USD 93 per tonne, with production cost of USD 35 and estimated freight cost of USD 15-20 per tonne.

Beitnes pointed out what Overstock CEO Patryck Burne noted last week, namely that "one of the great benefits with raising capital through an ICO is that there is no dilution for the shareholders, in addition to the benefits of transparency, the asset backing and it being attractive compared to traditional capital funding."

Beitnes then notes the interest in digital currencies by other international companies - such as BP, BNY Mellon, Credit Suisse, Deloitte, Intel, J.P. Morgan, MasterCard, Microsoft and UBS, among others - and notes that "seeing these great companies taking interest in this new world of financing, gives us comfort that this is the future for corporate capital raising. They are all members of the Enterprise Ethereum Alliance, where we also plan on becoming a member."

As for the chief reason for the company"s decision to use an ICO to raise capital - besides euporic investors who are more than eager to allocate capital to the new platform despite repeat warnings by regulators that these may be fraudulent - Beitnes writes that the Tokens could offer "interest-free financing to the Company and its mining subsidiaries by selling future production in advance" and adds that "for the Company the most obvious potential of issuing Tokens is the possibility of bridging the gap between current reserve-value and equity value, in addition to providing a possibility  for non-dilutive financing for our shareholders."

Going one step further, Intex" partner in the launch, Harmonychain, said that it is already preparing a market for the ICOs as a surrogate for trading the underlying iron ore and nickel assets that collaterlize the ICO:

"We have already registered IRON and NICKEL on the EC20 blockchain"  said Bjorn Zachrisson, CEO of Harmonychain AS, "and we are looking into ways to distribute the tokens and have them tradable on reputable token exchanges". 

Needless to say, it is still far too early to know if this proposed asset-backed ICO will be a success, although the concept of an asset-backed ICO is certainly novel and may eliminate many of the fears of ICOs blowing up worthless in the future, in the process opening up the pathway to another capital raising process, one which gives ICO investors at least some implicit collateral protection behind their investment.

One thing that"s clear: the market"s euphoric response to the announcement, with Intex stock soared on the Oslo Stock Exchange, nearly doubling on huge volume.

Meanwhile, as we wait to see if the Intex experiment is successful, a more ominous development is the unchecked proliferation of older, shadier ICOs, many of which are certainly frauds. Here, the problem as laid out by The Business Blockchain author William Mougayar is that the world continues to be flooded with legacy ICOs, which may end up imploding in the not too distant future, crushing investor interest in the asset class, and killing off ICOs as a potentially credible, regulated way of raising capital.

This was my Inbox this morning. 15 ICOs closing in 36h. As @fredwilson writes this morning, buyer beware. https://t.co/0crLDDUxKB pic.twitter.com/YmlP8JyPB9

— William Mougayar (@wmougayar) October 29, 2017

SEC Files First-Ever Civil Fraud Charges Against ICO Companies

That didn"t take long.

After issuing a ruling in July that officially declared that the tokens sold during initial coin offerings must be registered as securities - a ruling that many hoped would lend a badly needed veneer of legitimacy to the shady ICO market - the SEC is following through with what we imagine will be the first of many civil actions against ICOs and the individuals who launch them.

The agency on Friday announced civil actions against two companies and their founder, businessman Maksim Zaslavskiy, for violating anti-fraud and registration provisions of federal securities laws after misleading investors in a pair of so-called initial coin offerings (ICOs) purportedly backed by investments in real estate and diamonds.

It"s important to remember that this is civil complaint - the SEC doesn"t have the power to make arrests; to do that, it must work in tandem with the FBI. Zaslavskiy is a free man. However, his assets - and those belonging to his companies - have been frozen. Instead, the agency is seeking to permanently ban Zaslavskiy from participating in any future digital-currency offerings, along with what we imagine will be hefty fines.

In its press release, the SEC accused Maksim Zaslavskiy and his companies of selling unregistered securities, while also alleging that the digital tokens or coins he was peddling didn"t really exist. According to the SEC"s complaint, investors in REcoin Group Foundation and DRC World (also known as Diamond Reserve Club) were told (presumably by Zaslavskiy) that they could expect sizeable returns from the companies" operations, when neither had any real operations to speak of.

As we"ve previously reported, the ICO market has exploded since late last year. The total sum raised has already reached $1.3 billion, with more expected by year"s end. However, the ease with which unscrupulous people could fraudulently market their tokens (and earn big money) has attracted attention from regulators all over the world. China cited fears about abuses related to ICOs as the reason for shuttering all local digital-currency exchanges. Russia briefly flirted with the idea as well.

Earlier today, FINMA, the Swiss government body responsible for regulating markets, said it was investigating several ICOs for possible fraud. In its press release announcing the investigations, the regulator explained that because ICOs are structured in a similar way to traditional stock offerings, they fall under the agency"s purview. So every time it has received a complaint related to ICOS, its representatives have pursued that complaint.

To the best of our knowledge, these are the first indications that any official regulatory action is being taken against ICO purveyors in either the US or Switzerland.

In its civil complaint, the SEC alleges that "from July 2017 to the present, Zaslavskiy, the President and sole owner of the Companies, fraudulently raised at least $300,000 from hundreds of investors, through various material misrepresentations and deceptive acts relating to supposed investments in digital “tokens” or “coins” offered, first by REcoin, then by Diamond, during the ICOs."

Zaslavskiy allegedly touted REcoin as "The First Ever Cryptocurrency Backed by Real Estate."  Alleged misstatements to REcoin investors included that the company had a "team of lawyers, professionals, brokers, and accountants" that would invest REcoin"s ICO proceeds into real estate when in fact none had been hired or even consulted. Zaslavskiy and REcoin allegedly misrepresented they had raised between $2 million and $4 million from investors when the actual amount is approximately $300,000.

Zaslavskiy then carried his scheme over to Diamond Reserve Club. He marketed the organization as one that invests in diamonds and obtains discounts with product retailers for individuals who purchase "memberships" in the company. Despite their representations to investors, the SEC alleges that Zaslavskiy and Diamond have not purchased any diamonds nor engaged in any business operations. Yet they allegedly continue to solicit investors and raise funds as though they have.

Read the rest of the complaint below:

2017.09.29icocomplaint by zerohedge on Scribd