There’s another way to look at Crypto Tokens

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Crypto tokens, and their ICOs, have taken a fair amount of bashing in the media over the past few months, but a paper published by two researchers from MIT and University of Toronto, argues that utility tokens might have a “valuable price discovery role,” according to Coindesk. It also suggests that tokens that act as ‘true commodities’, which the report authors attribute to Bitcoin and Ether, could offer the same service.

When you look at crypto tokens form this perspective, it looks like consumers could turn out to be the biggest winners, provided the tokens are correctly designed.

The paper, called, Initial Coin Offerings and the Value of Crypto Tokens by Christian Catalini (MIT) and Joshua S. Gans (University of Toronto) explores how entrepreneurs can use initial coin offerings — whereby they issue crypto tokens and commit to accept only those tokens as payment for future use of a digital platform — to fund venture start-up costs. It makes interesting reading for ICO entrepreneurs, because as the paper’s synopsis states, “the ICO mechanism allows entrepreneurs to generate buyer competition for the token, which, in turn, reveals consumer value without the entrepreneurs having to know, ex ante, consumer willingness to pay,” amongst other things.

In fact, it goes so far as to claim that in the future, tokens will “empower consumers to choose an optimal price for a service collectively.” It also looks at the benefits of tokens, including the aforementioned benefits of entrepreneurs being able to test the token fundraising model with consumers to see how it goes. This could greatly minimise risk for ICO startups and their founders.

As we have seen, regulatory bodies like the SEC have started to show more interest in ICOs and the remarkable sums of money they are capable of raising. However, Gans, told Coindesk: “”The problem the regulators have is they don’t know what the goals are. Instead the regulators are coming in saying ‘I don’t really know how the market should be working, but it smells terrible.'”

This new paper and its authors want to start a new conversation about “the right way to think about tokens so that societies could rationally consider the correct approach to managing them.”

It’s a more helpful and sane approach than the ‘just ban them’ rhetoric that is coming from some corporate entities and other organisations. It is not against regulation; that is necessary for transparency and consumer comfort. As the guys admit, they have no idea how the ‘token economy’ will play out, but they have laid the groundwork for more research and more balanced thinking. That’s a good start.

 

 

 

A ‘ Crypto Bubble’ with benefits?

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Michael Casey, chairman of coindesk’s advisory board and a senior advisor at MIT’s Digital Currency Initiative has a different view of the much-discussed ‘Bitcoin Bubble’. While most commentators present a ‘bubble’ as a harbinger of doom, he sees it as a positive situation.

He likens it to the late 1990s dot-com boom, and while he acknowledges that there are some who will disagree with him, he has suggested that what he refers to as the “Pets.com phenomenon” was a constructive event and that we should approach the ‘crypto bubble’ from the same perspective.

How does he reconcile the ‘boom and bust’ of the dot-com era with a positive outlook? Read on and find out.

Yes, he admits that many crypto coins will fail and people will lose money. But, he applies a theory from Carlota Perez, a Venezuelan theorist who wrote about the interplay between technology and capital markets in an influential book called “Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages.”

She claims that bubbles and their collapse are “an integral, in fact necessary, part of the economic dynamics through which transformational technologies take root in society.” Speculation, she says, is unavoidable element during time of technological transformation. Actually, the same could be said of gold, spices and tulips. As Casey puts it, “Whenever a new technology contains a wide-enough accepted promise that it can redefine core aspects of how our economy functions, people start throwing money at it.”

Why do we behave like this? According to the theory it’s because nobody really understands how things will turn out, and who the winners and losers will be. We just know that something big and important is happening, so we all get involved in wild and unstructured speculative behaviour.

Mike Casey believes we should see the ‘crypto bubble’ as “an affirmation that the technology we’re all so excited about it does indeed have huge potential even if it is still too nascent for major, disruptive deployment in the mainstream economy.”

How this will play out, nobody yet knows, but if Casey is right, we can be fairly sure that we’re on the road to building a transformational open-access platform that represents a collective evolutionary step – even if the bubble bursts along the way.

 

 

 

 

The ICO Chill Factor

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Parts of Western Europe have been at the mercy of the “Beast from the East”, an icy wind that swept down from Siberia bringing havoc in its wake. Now a different kind of chilling wind is blowing in from the USA as regulatory bodies talk about putting ICO token trading on ice for 12 months.

As Mike Lempres, chief legal and risk officer at Coinbase put it, “the market is being chilled.” As crypto entrepreneurs in the U.S. shiver, it seems that months of uncertainty about how the country’s regulatory bodies would approach “wanton market growth” is coming to a head, if perhaps not an end.

Events leading up to this include the SEC’s announcement last week that

it is investigating companies and startups associated with ICOs. As a result, which Brady Dale writes about at Coindesk, “entrepreneurs are largely surrendering on the idea that new cryptocurrencies created and sold to investors could be considered so-called ‘utility tokens,’ a term denoting a digital commodity meant to represent the share of a blockchain protocol.”

However, these companies still have a problem: as yet there are no registered broker-dealers capable of trading security tokens in the U.S. Furthermore, and this view comes from a number f ICO founders, when they do issue tokens under a Schedule D exemption, a 12-month lock-up is still required.

A statement from Nick Ayton, CEO of Chainstarter, who was in a panel discussion at the MIT Bitcoin Expo on 17th-18th March, addressed this issue. He predicted that the SEC will view all tokens as a security and stated: “Most exchanges are listing coins that are securities, and our view is a large number of these exchanges are going to be closed.”

Another voice at the conference, that of Gary Genseler, an MIT professor and former CFTC chair, said: “I think it is without a doubt that numerous exchanges will have to seek exemptions under alternative trading system [rules] because many of the exchanges, not all, have tokens that are securities trading on them.”

Currently, the problem is that even when companies want to comply with the rules, they still don’t know what the rules are. There is some knowledge about what is forbidden, but when it comes to avoiding the wrath of the SEC they are operating in the dark.

Munche is cited as the case that alerted some to what was coming from the SEC. This little known ICO received a bunch of subpoenas from the SEC, requesting information typically includes lists of investors, emails, marketing materials, organisational structure, amounts raised, the location of the funds and the people involved and their locations. In the case of Munchee, “what the federal regulators think of as a utility token and not a security token is so small, and the eye of the needle got even smaller,” said Joshua Klayman, legal counsel at Morrison Foerster.

What will be the end effect of this chill factor in the U.S? Well, Mike Lempres of Coinbase told Congress about one potential scenario if the United States doesn’t “provide a clear, thoughtful regulatory environment, the investment can very quickly move to other countries.”  Perhaps that will encourage the government and its regulatory bodies to bring a little sunshine to its crypto companies.

 

 

 

 

 

Are celebrity brand ambassadors worth it?

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Generally, having a celebrity endorse your product is a ‘good thing’! Advertisers will give their right arms for a famous face to front their product. In 2017, Paris Hilton, Floyd Mayweather, Ghostface Killah (Wu Tang Clan) and Jamie Foxx were among the celebrities who were most vocal about their support for crypto and ICOs and they all used their social media platforms to let their followers know what they’re doing in the crypto world.

One thing that ICOs who use celebrity endorsements need to note is that if celebrities don’t disclose if they are benefiting from making an endorsement, the Securities and Exchange Commission in the USA may view it as illegal.

And that is what has happened to Bitcoiin2Gen (B2G) ICO, which has been using Steven Seagal to endorse its offering. As reported in Cointelegraph and many other outlets, New Jersey Bureau of Securities (BoS) regulators issued a ‘cease and desist’ order on 7th March and have accused the team behind the ICO of “fraudulently offering unregistered securities in violation of the Securities Law.”

Clearly the B2G team didn’t get the memo from the SEC about the dangers of celebrity endorsements!

The BoS order focused on what it said was “the secretive nature” of Steven Seagal’s involvement with the business and its ICO. A statement from the regulators said:

The Bitcoin Websites do not disclose what expertise, if any, Steven Seagal has to ensure that the Bitcoiin investments are appropriate and in compliance with federal and state securities laws.”  And added, “Additionally, there are no disclosures as to the nature, scope, and amount of compensation paid by Bitcoiin in exchange for Steven Seagal’s promotion of the Bitcoiin investments.”

Perhaps Seagal was not the best choice of celebrity for a blockchain business, as he is better known as an actor specialising in martial arts, but then none of the other celebrities backing crypto in 2017 are immediately linked to Bitcoin or the blockchain either.

But, it is easy to see where the problem lies from a regulatory perspective. These celebrities have an enormous power over their fans, so when Steven Seagal tweeted on March 6th that B2G would shortly be listed on major exchanges, his fans will take his word as gospel. If he says, “invest in this ICO because I have” in so many words, then that is what his followers will do, and many of them will not be savvy investors who understand the risks and rewards of crypto assets. This is something that the SEC is well aware of, and now it is acting on its previous warnings.

So, whilst a celebrity may do wonders for your alcohol brand or similar consumer item, they are not quite so desirable when it comes to promoting your ICO – unless every aspect of their involvement is completely transparent and regulators can see that they are active in and knowledgeable about the blockchain and cryptocurrency.