JAMES BOWATER INITIAL EXCHANGE OFFERINGS: WHO …...CITYAM.COM CITYAM.COM TUESDAY 23 APRIL 2019...

CITYAM.COM 23TUESDAY 23 APRIL 2019 FEATURECITYAM.COM

It is almost as if someone from Bi-nance thought: ‘how can we revive thedead ICO market, convince investorsthat it’s safe to invest in speculative to-kens again, while creating a mecha-nism that diverts the flow of money onto our own platform?’. And thus, IEOswere born. It’s alarming that the crypto commu-nity’s initial response to the BitTorrent(BTT) IEO – the first ever IEO – was not

one of outrage, but excitement. Thesale, which took place on Binance overtwo sessions on 28 January, came to aclose in just 18 minutes and raised over$7.2m. Since then, however, BTT has un-ravelled by more than 40% from itspeak two months ago and struggled tobudge a pip during the recent bull mar-ket.Perhaps the most alarming point isthat since the first IEO in January,more than 22 new IEOs havelaunched across several competingplatforms; highlighting an exponen-tially-rising demand for more of thesecentralised, high-risk offerings. Notonly does this showcase how imma-ture the market still is, but it also re-veals how little we learnt from theICO era.

Ollie Leech (http://linkedin.com/in/ollie-leech-9582318a), Crypto A.M.contributor & financial journalist, inconversation with James Bowater

IMPORTANT INFORMATION: THE VIEWSAND OPINIONS PROVIDED BY CITY A.M.'SCRYPTO INSIDER AND IN THE CRYPTOA.M. SECTION SHOULD NOT BE TAKEN ASINVESTMENT OR FINANCIAL ADVICE.ALWAYS CONSULT WITH YOUR FINANCIAL ADVISOR.

Smarter Contracts, a blockchain-focusedsoftware and services consultancy, waslaunched earlier this month by company

founder and CEO, Wayne Lloyd. Located near to London’s Cannon Street

station, Smarter Contracts has been workingwith the C-Suite of the UK’s most recognisablebrands, helping them understand the digitallytransformative impact that blockchaintechnology, and its convergence with otheremerging technologies, can have.“We start by helping our clients understand

the technology and we love taking them onthat journey of discovery,” says Lloyd.“The reason for that is, once clients begin to

understand it, they themselves start torecognise the potential the technology canoffer. It’s extremely rewarding being able towitness clients think differently about theirbusiness before our eyes, knowing you haveinspired and been a significant contributoryfactor for that new way of thinking.” Smarter Contracts has been approached by

brands covering financial services,commodities, retail, technology and sport.

But Lloyd is conscious about remainingfocused on a manageable number of sectorswith the aim of becoming the market-leadingblockchain technology partner in each.In addition to consultancy services, Smarter

Contracts is also building its own blockchain-based tools aimed at driving transparencyand security across digital supply-chains.Meanwhile the firm also has plans to launchdata services using blockchain oracles. It has been a great start for Smarter

Contracts but given the quality of his team, itis nothing less than Lloyd expected: “Theteam is made up of exceptionally talentedpeople who are working tremendously hardto deliver our collective vision –to enablebrands to build brand new, immersiveexperiences through the power of blockchaintechnology. Our vision resonates with ourclients and the wider blockchain communityand, in the coming weeks, we will beannouncing some further key hires andpartnerships that I believe will make thecompany even stronger.”Members of the Smarter Contracts team

the first place. A vast majority of leadingexchanges that currently support IEOs,namely Binance – the instigator of thiscrazed revolution – KuCoin, OkEx, Bit-trex and Huobi have all chosen not topublicly disclose their IEO listing fees.Clearly they don’t want to spread fearsof the IEO market turning into yet an-other ‘pay to play’ system, where thevalues of a quality-driven market areoverlooked in order to make fast, easymoney.

TRUST IN AUTHORITIESSo how is this an improvement on the

Iwrite this column from Miami where I havebeen attending the IOHK Summit 2019. Attime of writing (18 April: ahead of the

Easter Weekend), Bitcoin (BTC) is trading atUS$5,260.54; Ethereum (ETH) at US$172.67;Ripple (XRP) at US$0.3364; Binance (BNB) atUS$21.81 and Cardano (ADA) at US$0.08231.Overall Market Cap slightly down at US$179.15bn (data source:www.CryptoCompare.com). Market prices may have changedconsiderably by the time I am back in London. One of the best things about the Blockchain and Cryptoasset

industry is how close-knit the global community is. After all, itreally is still nascent and, compared to mature markets, relativelyinsignificant in size. The downside is that with the identity ofBitcoin’s creator, Satoshi Nakamoto, unknown there is a vacuumfor competing egos to be seen as ‘top dog’. There is no moredivisive a figure as Dr Craig Wright who famously claimed to beNakamoto before withdrawing the claim. The trouble is that thematter has flared up again: Wright is accused by the family ofdeceased former business partner Dave Kleiman of stealing onemillion BTC from his estate, with a value exceeding $5bn. Enter stage-right his ‘partner’ Calvin Ayre who with him created

a forked version of Roger Ver’s Bitcoin Cash (BCH) called BitcoinSatoshi Vision (BSV). Ayre is a controversial figure himself and hastaken to Twitter to ramp up the war of words. Of course he hasreignited the ‘Craig is Satoshi’ claim, and is suing people left, rightand centre. This has gone down extremely badly in the industry,and appears to have galvanised the great and the good into acounter-offensive. CZ, the eponymous founder of the world’slargest Crypto exchange, Binance, laid down the gauntlet bydelisting BSV, quickly followed by ShapeShift and Kraken.In contract to all this turbulence, Charles Hoskinson, the

founder of IOHK and Cardano, demonstrated his credentials asone of the great proponents of Crypto and Blockchain in a 45-minute keynote speech here in Miami. Undeterred by market forces, Charles espoused an altruistic

vision of the future. He focused on the potential of the continentof Africa, having just seen the completion of a training course inAddis Ababa for 22 women in programming language Haskell. He said: “This is the opportunity for three billion people to come

into ‘our economy’; the Crypto economy –not the US economy,not the European economy and not the legacy system.” Headded: “It’s going to be Crypto first and always!”. Charles’s message is that “when you get three billion people

into the kind of ethics [Crypto is about], you get rid of ‘too big tofail’ and you change the world - that’s what I signed up for.”

Charles Hoskinson writes about Africa’s potential in ‘CryptoA.M. Industry Voices’ on the opposite page

ICO market? Well the truth is, it isn’t atall. Yes, the ICO era wreaked havoc oncountless unsuspecting investors andheavily tarnished the reputation of thecrypto space, but at least they had an airof decentralisation about them. IEOsare the complete opposite ofdecentralised. They are fundamentallycentralised. They actively involve amiddle-man as opposed to removingone, and encourage investors to placetheir trust in central, overridingauthorities instead of fostering trustlessecosystems where wealth can bedistributed equally.

Initial Exchange Offerings (IEOs)are rapidly gaining in popularityas the latest fundraising solutionfor blockchain-based start-upsseeking to raise seed capital fast –

as in, under-30-seconds fast in somecases. At a foundational level, an IEO is nottoo dissimilar from its predecessor,the infamous Initial Coin Offering(ICO). They both allow investors to pur-chase tokens at wholesale prices,based entirely on speculation thattheir value will increase over time,and they both conflict with interna-tional securities laws as ‘unregulatedsecurities offerings’. Unlike its regu-lated cousin, the Security Token Offer-ing (STO), tokens offered in IEOs arenot backed by real-world assets, nordo they grant any ownership rights tothe purchaser post-sale.The only notable difference that sep-arates an IEO from other crypto offer-ings is that instead of the underlyingproject hosting the token sale, a cen-tralised cryptocurrency exchangebrings the offering in-house and actsas an intermediary counterparty.

PROMOTION OUTSOURCEDSo what are the benefits of doing it thisway? For a start-up, advantages of usinga crypto exchange to host a tokenoffering include the access to highliquidity, an established infrastructureto process the sale and a guaranteedlisting on the platform once theoffering has ended. The marketing and promotion of thetoken offering is also outsourced to theexchange, to leverage their trusted rep-utation and brand recognition.From an investor standpoint, the solebenefit of participating in an IEO overan ICO is the assumption that the hostexchange has performed rigorous duediligence on the underlying projectprior to the token-sale. This is allegedlydone to protect investors from fraudu-lent platforms, but it also prevents theexchange from receiving backlash ifthe project turns out to be a scam.

WHO REALLY BENEFITS?IEOs are almost all about creating

significant returns for the hostexchange and helping the start-upreach its hard cap (the maximumamount of money that can be raised)as quickly as possible. IEO participants merely act as thefuel that powers this new money-mak-ing machine. Once the tokens offi-cially launch onto the market, theyexperience the same pump-and-dumpcycles that we saw in the ICO marketwhere investors fight it out to dumptheir coins as quickly as possible.Meanwhile, exchanges bank enor-mous profits from transaction fees as

well as benefit from restricting the useof non-native exchange currencies dur-ing the token sale. For example, Bi-nance requires investors to hold atleast 100 Binance Coins (BNB) – worth$2,400, at time of writing – on its plat-form for 20 days prior to the IEO. Investors who do not have the mini-mum amount in their exchange walletduring the snapshot cannot partici-pate in the IEO.Perhaps the biggest profits for ex-changes come from the hefty fee thatthey charge each project for the privi-lege of featuring on their platforms in

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CITY A.M.’SCRYPTO INSIDER

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JAMES BOWATER

PARTNER CONTENT

Our series on AI, Blockchain, Cryptoassets and Tokenisation

Fast cars, cash and market volatilityare common preoccupations in ourindustry – but the real promise of

blockchain lies elsewhere. This move-ment is not about ‘When Lambo?’: thismovement is about changing the wayeverything works. And where better tostart than Africa?In recent weeks, IOHK – the company Ifounded after quitting as CEO ofEthereum – completed training its firstbatch of Ethiopian and Ugandan develop-ers. At the Ethiopian government’s re-quest, the entire intake was women. Wesifted hundreds of very qualified appli-cants down to 22, and held a class overtwo months in Addis Ababa. The stu-dents’ enthusiasm for blockchain tech-nology was overwhelming, as evidencedby their commitment to learning com-plex programming language, Haskell. Of the graduates from that free course,we’ve hired 10 so far – six directly withIOHK and four with Ugandan partner or-ganisation, CryptoSavannah. The rest willgo on to contribute their new skills totheir local economies.Here lies blockchain’s true potential: tobring the technology to the three billionpeople worldwide who are shut out ofthe banking system. With blockchain,people can gain access to loans, microfi-nance and other financial services thatbanks will never provide because thatmarket is too costly for them to enter.Blockchain also opens the door to prop-erty registration, allowing people to dis-pense with fraudulent or missing paperrecords and prove their ownership. Peo-ple will be able to demonstrate theiridentities using the technology, creatingaccurate and reliable public records. Allthis will cut fraud, waste and abuse, andincrease transparency, not to mentionkickstart a revolution in local economies. This is why we decided to go toEthiopia, Africa’s second most populousnation, and work with the governmentto train local people with skills that willtransform communities. We don’t claim to have the solutions tolocal problems, but we do know how to

build a solid blockchain, and we canteach others to employ that technology. Astrong partnership is key to the success ofthis – and Ethiopia’s ministry of scienceand technology has been a solid partner,keen to explore the benefits thatblockchain could bring. Last year, wesigned a memorandum of understanding(MoU) with the ministry to look at usingblockchain in the supply-chain for coffee,Ethiopia’s biggest export product. Thiswould allow farmers to track the move-ment of produce as it passes to wholesalebuyers, and will see their earnings in-crease as abuse is cut from the system. In Miami last week we announced a sec-ond MoU with Ethiopia. This is to create adigital currency, to be used for transportand utilities payments in the capital.Ethiopians will be able to pay for trans-port and utility bills with this new cur-rency, pegged to Ethiopia’s currency, thebirr. The token will be part of the ecosys-tem of Cardano, a leading global cryp-tocurrency we released in 2017. We expectthe digital birr to be used by millions. And it’s not just Ethiopia. Wherever wehave travelled in Africa, we have found of-ficials, leaders and entrepreneurs excitedabout this emerging technology. Africa iswhy we choose not to focus on short-termswings in the market, but instead to con-centrate on fundamental computer sci-ence research and development. IOHK is built on the brightest mindsfrom around the world in fields such asdistributed systems and programminglanguage design. We are inspired by soft-ware engineering practices from indus-tries such as aerospace to ensure thesystems we build are secure enough tocarry billions of dollars-worth of value,and will be fit for generations to come.This will put everybody in charge, notjust a small group. The opportunity isfor three billion people to leave the in-adequacies of the legacy financial sys-tem and enter the Crypto economy.That is how you change the world.

By Charles Hoskinson, co-founder and CEO,IOHK; www.iohk.io

Troy Norcross, Co-Founder, Blockchain Rookies

RECONCILING DIFFERENCES: WHY ABLOCKCHAIN IS THE BEST SOLUTION

The Crypto-sphere reacted strongly lastweek to drama surrounding thecontroversial Bitcoin fork, Bitcoin

Satoshi’s Vision (BSV). After legal threatsfrom BSV backer Calvin Ayre, leadingexchange Binance delisted BSV, resulting inseveral exchanges, including US-basedKraken and ShapeShift, following suit. TheBSV price reacted immediately to the news,dropping more than 10% in under an hour.The Cryptoasset markets experienced a

calmer consolidation week after stronggains in the week prior. At time of writing (18 April: ahead of the Easter Weekend),Bitcoin (BTC) is trading at US$5,260.54 andEthereum (ETH) at US$172.67, according toCryptoCompare data.Social trading company eToro last week

launched its new Cryptoasset exchange,eToroX. The new exchange will initiallyfeature eight stablecoins –cryptocurrenciesbacked one-to-one by fiat currencies –and may prove to be a major rival to top exchanges.Last week leading cryptocurrency

exchange Coinbase added REP to itsCoinbase Pro platform, designed fortraders. The cryptocurrency, created to beused in the Augur prediction markets, sawits price surge 14% over the addition,

seemingly bringing back what’s known asthe ‘Coinbase effect’. In other news aboutthe San Francisco-based exchange, Reuterslast week estimated that Coinbase’srevenue for 2018 stood around $520mn,down more than 40% from 2017.Crypto derivatives provider LedgerX

announced plans to become the first USfirm to offer physically settled bitcoinfutures. Existing bitcoin futures in the USoffered by CME Group, in contrast, are cash-settled. If successful, the company may beatto the punch the highly-anticipated Bakktexchange from NYSE parent company ICE,set to launch later in the year.A report published by global cryptoasset

data provider CryptoCompare has revealedthat unregulated exchanges listingcryptocurrency derivatives have beengrowing faster than regulated alternatives,with OKEx taking the lead with a $1.5bntrading volume from derivatives in March.The biggest regulated alternative, CME,traded $70.5m.CryptoCompare also announced the

addition of a regulatory panel to their DigitalAsset Summit in London on 12 June,featuring speakers from the Bank ofEngland, Financial Conduct Authority (FCA)and HM Treasury.

CRYPTOCOMPARE MARKET VIEW

Africa is a continent of opportunity

Exchanges delist controversial coin

Our vision resonateswith our clients and

the wider blockchaincommunity How many millions are spent and

lost in the process of reconciliation?Whether it is reconciling accounts

between vendor and customer whencounting bales of cotton or reconcilinginternational remittances betweenBrazilian Reals and British PoundsSterling, the cost of reconciliation issignificant.Costs attributed to reconciliation

include not only the process ofreconciliation, data-entry errors and ofcourse the losses resulting from theft andfraud. There are costs when there areinaccurate or incomplete translationsbetween one set of measurements andanother, like when we convert frommetric to English. And of course, there isthe time involved in identifying,

disputing, agreeing and correcting anydiscrepancies.But what if you could do away with

reconciliation and have a single source ofdata that all parties agreed to use? With asingle source of data, there would be noneed for reconciling between records. Alltransactions would use a standardformat for entering the data and for anyconversions. Data would be readilyavailable for audits by independent thirdparties or by internal audit teams.Without the need for a reconciliationprocess, the time associated withreconciliation would be eliminated as well. For businesses that have a digital

transformation process underway,automated procurement and accountspayable systems have moved enterprises

a long way from legacy systems that were(or are) often paper-based. Thesesystems are internally focused andrequire vendors and partners to conformor they require integrations that areexpensive to develop and maintain. Ifeveryone in an industry or ecosystemused the same system –even acrosscompetitive lines –the cost and efficiencysavings to all participants would besubstantial. And yes -–that system works best on a

Blockchain. Where multiple distrustingparties can agree to a single source oftruth.

Get in touch with usinfo@blockchainrookies.com / Twitter @igetblockchain

Wayne Lloyd,founder andCEO, SmarterContracts

CRYPTO A.M. INDUSTRY VOICES

INITIALEXCHANGEOFFERINGS:WHO REALLYSTANDS TOBENEFIT?

have worked for some of the world’s topconsultancies, delivering complex digitaltransformation and technology projects. Itgives the company a structured andmethodical approach to delivering change –this is key given its belief that transformationthrough blockchain will at first beincremental. While building up its client-list, Smarter

Contracts is also focused on harnessing theblockchain industry’s collaborative spirit. Thecompany has recently partnered the LondonDerivatives Exchange (LDX), while it has alsobeen working on building strong relationshipswith some top global blockchain providers.If you want to learn about how blockchain

could transform your business and enhancethe experiences of your customers, SmarterContracts hosts drop-in sessions at itsWeWork office, 33 Queen Street.

For more information and to book yourdrop-in session seewww.smartercontracts.co.uk

IEOs actively involve a middle-man

as opposed toremoving one

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