The Future of Initial Coin Offerings

Transcription

1 The Future of Initial Coin Offerings Wulf A. Kaal FinTank Chicago July 27, 2017 Slides available at: wulfkaal.com 1

2 Outline Case Study: Ties.Network ICO Basics ICO Trends Problems with ICOs Fixing ICOs Outlook 2

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4 Decentralized Application on Blockchain AKASHA Social EthereumPot Gambling Ethlance Job Site EtherLovers Immortalize Love on BC Ties.Network Ethereum

5 Crypto-Community Traders Investors The community is separated. There is no unique platform for finding partners and making deals. Lawyers Consultants Developers Enthusiasts

6 Ties.Network Business Platform for CryptoCommutity PR in crypto-community Vote and rating system Partners search and business-transaction right in the net Ability to preserve full anonymity

7 Where to store data? Static files Deletable Aggregatable Modifiable Deletable Constraints Posts Photos Ratings Keywords Searchable Modifiable Deletable Full-text searchable Modifiable Deletable

8 Byzantine Problem Tolerance Byzantine fault in the system when one or more components start to behave maliciously. The system is byzantine fault tolerant if it survives malicious behavior of its parts. Trust: You never know if your (anonymous) collaborators tell you the truth Therefore, all the public systems that allow anyone to participate should provide byzantine fault tolerance to ensure stability ATTACK!!????????? This problem has a solution only if the amount of loyal generals is ⅔ (2m+1). Or more than a half if they can t twist each other s words around

9 Ideal storage Public Distributed and Decentralized Mutable data Sharding and scaling support Fast Structured data Advanced search capabilities Byzantine Fault Tolerant

10 Current storage options Blockchain P2P File System (IPFS) Decentralized cloud file storage Distributed Database Blockchain

11 Blockchain Slow confirmation time Small capacity Blockchain Immutable stored data

12 IPFS (InterPlanetary File System) Based on Distributed Hash Table, BitTorrent Pros Cons Peer to peer Only used files are stored locally Necessary to stay online Otherwise your files might not be available Content-addressable Malicious modification is impossible Static files only High throughput Parallel download of popular files Files cannot be removed once they are downloaded by peers No content search

13 Decentralized cloud storage Sia, Storj, Ethereum Swarm (just cloud storages like Dropbox, but difference is that the content is hosted on user s computers who offer their hard drive space for rent, rather than in datacenters.) Pros Cons No need to stay online for your files to be available Static files only High reliability No content search High throughput Not for free Files can be removed

14 Distributed nosql Database Mongo DB, Cassandra, RethinkDB Pros Cons Fast Linear scalability Fault tolerant NOT Byzantine Fault Tolerant (All the nodes of the cluster fully trust each other. So any malicious node can destroy the whole database) Mature realizations

15 BigChainDB Should be: BigPrivateBlockchain Pros As good as RethinkDB Cons Immutable NOT Bysantine Fault Tolerant Build on top of RethinkDB cluster Each BDB node can write directly to the cluster NOT Bizantyne Fault Tolerant

16 Ties DB Bringing BFT to nosql database Special data organization Public - any user can write to the database Record remembers its creator (owner) Record can be modified by owner only Everyone can read all records Each user has its own primary key space Permissions are rechecked on replication Permissions are managed via smart contract public key (owner) id payload signatu re Alice profile {...} Alice Alice Alice rating for Bob rating for Eve {...} Alice {...} Alice Bob profile {...} Bob Bob Example rating for Alice {...} Bob Eve profile {...} Eve Eve is owner, so this record can be modified by Eve only

17 Ties DB Incentives Anyone can participate in the public network with their own hardware Incentives motivate network participants to behave honestly and responsibly Users and nodes should have deposit on blockchain smart contract Users pay for database operations Incentives for retrieval Incentives for storage

18 Incentives for retrieval Coordinator User Coordinator manages the user s request to retrieve data User pays to coordinator and nodes with checks (off-chain)

19 Incentives for storage Coordinator User Receipts Coordinator manages the user s request to store data Nodes return receipt confirming they stored the data User pays the coordinator and nodes with checks (off-chain) Receipt enables anyone to verify that data is stored properly Node violating storage contract can be deprived of its deposit

20 Conclusions TiesDB is public, high speed, high capacity, byzantine fault tolerant nosql database with rich queries EthereumPot EtherLovers... AKASHA Ethlance Ties.Network... Ethereum TiesDB

21 ICO fall 2017 after MVP out (American citizens cannot participate) Looking for long-term partners in the USA Moving business to the US after ICO later Invest in developing decentralized technologies in the US Possible Partner Companies OR potential clients of TIES DB: Companies that deal with structuring and organizing big data (our DB can manage HUGE amounts of data) Catalogs of music files, photo, video, and audio content Social networks, messengers, and forums Healthcare blockchain-related projects. We received requests to use our DB for Clinical Blockchain LLC for example. Public court records (any law firm can use our database as well) Public domain records Copyright and trademark records 21

22 ICO Basics

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26 Unique ICO Properties Tokens compare to a futures contract because token holder makes a prediction about the future success of a company/project. Tokens provide right to buy goods and services, like a currency. If a project or company succeeds token value can increase. Independent store of value that can succeed even if the company/project fails. 26

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28 Sequence of ICO Work Requirements: Basic Description: Whitepaper ICO Framework Technical Setup Landing Page Marketing Professional Relations Description of market, Purpose of the ICO, Company business, Intended use of proceeds Consulting with client s legal team to create structure for accepting money in crypto from investors Smart contract (coding) development to receive money from users in crypto Landing page - web-site development and integration Social Media Marketing (Facebook, Reddit etc.), representation of ICO at conferences, Network introduction to ICO etc. Writing and placing articles about ICO in crypto market media Banners Banners on the web Marketing Team Crypto Marketing Team - working for 2-3 months Community Managers Crypto Community Managers - working 2-3 months Project Management Project Management - working for 2-3 months Source: Kaal Consulting LLC Generic ICO Work Requirements 28

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35 Zombie ICOs often cannot answer: What is the business/infrastructure problem the investment proposition solves? How will investor money be spent to build the idea? Team can show MVP, pre-production solution or asset? Business plan credible / provides clarity on how proposition works and why customers would buy it? ICO team qualified with experience starting and running a business? 35 Sufficiency of information for investment decision?

36 Core Problems in ICOs Uncapped raises with no product Tokens trading before underlying protocol, network or application is live Webpage focus on ICO with project timeline but less content on product, project, technology, and team. Lacking disclosures on vesting and lockup periods Manipulating the smart contract to change ICO sales rules mid-course during the ICO Uncertain use of proceeds pie chart: % on software development, % marketing, % operational, % legal Uncertain treasury role for ICO: currency conversion plans into actual company reserves unclear Non-disclosure of changes in company via 10k 10q 8k equivalence Promoting advisers whose tokens vest immediately 36

37 Fixing ICOs Appropriate Due Diligence Vesting Know Your Customer Anti Money Laundering Leadership and team with a proven ability to execute Viable business with a solid value proposition and business model Team with deep technical skills Whitepaper suggesting efficient use of funds and business-based thresholds for minimum and maximum raise Well-Defined legal framework, outside United States (Howey) Scam protection Transparent ICO process Escrow Controlled release of funds Delayed founder liquidity Governance Structures Opt-in to crypto dispute arbitration platform 37

38 Trends in Future ICOs Increased accountability. Developers carte blanche for ICO raised funds less likely Crypto companies becoming transparent and accountable for ICO fund spending Fixed funding targets. Open-ended funding campaigns can create suboptimal results, e.g. DAO. Future projects have more concrete development targets with fixed budgets Government regulation. Investor fraud + increasing ICO quantities = government involvement 38

39 Short-Term Outlook on ICOs ICO promoters will be prosecuted by the SEC for: Violations of securities laws Promoter / team misappropriates funds ICO team implodes due to lacking governance structure and basic bookrunning ICO mainstream in the next 12 months. Following Singapore several jurisdictions will formally determine and announce that, as defined in such jurisdictions, network access tokens are not inherently securities unless marketed as such First smaller EU states with Blockchain history like Estonia, Gibraltar, Malta, Luxembourg United States last country to adopt this position Next 18 months: Pushed by their VCs, existing pipeline of zombie startups (no growth, stalling, lack vesting periods for existing investors) ICO so VC can liquidate positions 39

40 Long-Term Outlook on ICOs Because of ICO mainstream trend: Employees and/or user communities orchestrate ICO takeovers of underperforming Web 2.0 platforms But lack of proper crypto-economic design results in failure to turn the Web 2.0 platforms around longterm Proven/commercial managers with hand-selected teams are installed by activist investor forks to lead protocols ICO Scrap Yards: Hedge funds / private equity firms begin scouting failed ICO teams to relaunch under new management 40

41 Thank You

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