How the VC cartel is Destroying ICOs (Episode 3)
Hi guys! In the last episode we looked at the fundamental problems with venture capital investing in ICOs in general. If you haven’t read the last episode I would recommend you check it out first here. These articles are meant to educate investors and propose a better system. One that protects investors and reduces scams.
What does ICO mean and what is it?
The general misconception and misunderstanding of ICOs in the space is beyond me. I met people in conferences that are raising millions and do not even know what ICO even stands for. Lets have a short ICO 101 with ICO DOG!
ICO stands for Initial Coin offering. If you’re offering a NEW coin for the first time to someone, you’re doing an ICO! ICO is NOT just a public Sale! If you’re doing a private sale, you’re still OFFERING a COIN for the FIRST Time to SOMEBODY! The misconception is insane! ICO is not equal IPO. IPO has a P for Public, in that case, yes its true your ONLY doing an IPO if you’re selling it to the Public.
An ICO is not the crypto equivalent of an IPO!
Now that we cleared the definition now it’s time to dive a bit deeper into the concept of what an ICO is actually. An ICO is the first time that a project introduces their currency to investors. The new coin is traded for another cryptocurrency, usually Ethereum in a smart contract. A smart contract is code on the blockchain that make sure that everybody gets the same deal, when investing into the Project.
Yeah your heard it right, everybody gets the same deal, because they code makes it impossible for some investors to get 80% discounts, like nowadays with SAFTs. By using smart contracts ICOs can overcome trust issues with token metrics and transparency. That means, as an ICO investor I know that I will have the same terms as everybody else that uses this smart contract, because I trust the code. If everybody has the same deal, nobody can fuck everybody else by dumping on them.
Venture Capitals and the introduction of SAFTS
A SAFT was a new word play on the traditional SAFE contracts. A SAFE stands for Simple Agreement on Future Equity. The SAFT is a crypto version of SAFE and stands for, yes you guessed it: Simple Agreement on Future Tokens. Let summarize what a SAFT is in practice.
A SAFT is an agreement ICOs give their Private Sale investors about the tokens that they might get in the future because they do not even have a smart contract yet. Put simply a SAFT is a document that tell an investors million ways how they won’t get their tokens, and IF everything goes well you might get your tokens. So it’s a really shitty agreement for the investor. For the ICO is an amazing agreement as it basically taking any accountability from them.
SAFTs are not transparent, and the contract can give any token price that the Project and the investor agree on. Meaning Some SAFTs have 100% unlocked tokens while others only have 20% of their tokens. That’s a big problem because if you’re the only one with liquidity, you can take your 100% and dump it on everybody else.
Even the best Projects do that. Let’s take an example:
Hashgraph Token Metrics Review
Hashgraph was one of the most popular and hyped projects of 2018. During their opening show in March people compared Hashgraph to Apple presentations, the FOMO was real.
Every VC and Pool tried to get into Hashgraph. Around May of 2018 Hashgraph opened their Private Sale Round. The deal was 12 cents per token with a vesting schedule of 20% unlock in March of 2018 and then 10% unlocked tokens every month after for 8 months. That’s pretty hard lockups, but most people followed the fomo and went with it. Including me. Most people were happy and proud, so was I. We got into the world famous Hashgraph project. Pure innovation, gossip protocol massive scaling. Its gonna be epic!
That’s what everybody said at the time. Few months later hashgraph released an article on Medium. I assume they had to bring some transparency or get in trouble with the American regulators. You can take a look at the whole article here:
Let’s take a deep look into the Token Metrics of Hashgraph:
Option A: 12 per token. 20% of tokens to be issued as soon as practicable six months after the network launch, with an additional 10% of tokens per month over the subsequent 8 months.
Option B: $0.096 per token. 20% of tokens to be issued as soon as practicable six months after the network launch, with an additional 20% of tokens per year over the subsequent 4 years.
Okay, that seems fair. The get a better price and their lockup is much longer. Now let’s look at the information they didn’t want to share in public. Hashgraph had a seed round in February of 2018, the price per token was $0.006 USD or in other words 20 times less than the next round.
The unlock schedule for the 0.6 cent tokens is as follows 20% in march 2019, 20% March 2020 and so on for 4 years. Let’s look at the numbers now
1 Public round token could get you 20 Seed round tokens. Both are getting 20% in March 2020. 80% of the initial released tokens is from the seed round. Basically the average price is:
0.005 times 800m (20% * 4B) and 0.12 * 200m( 20% of 1B) divided by 1B gives =
Average price of $0.0276 USD per Token
That’s about 80% less than what people paid in the public sale, that’s pretty bad. But I am gonna blow your mind now, with a little thought experiment.
During the seed round hashgraph raised 18 Million USD at 0.005 cents. So lets say the hashgraph Team had a bunch of cash on the side and together they invested half of that themselves into their own coin, say 9 Million USD. Hashgraph is a great fucking project, their marketing and tech is beyond anything else around. They can really do well even with these metrics. Their Mainnet is already running and they have a lot of clients, so a 3x return on hashgraph from public sale price could happen.
How much do you think those 9 Million are now worth?
$540 Million FUCKING USD
You might be like, but chris what about the 20% lockup, they can’t get that they can only get 20%. Well, SAFTS are bullshit there are at least 3 SAFTS with 100% unlock tokens! 2 for the private sale and this is not confirmed, but we heard that 1 was even unlocked for seed. Now as far as we know, the team’s tokens are actually locked up.
To Make This Clear!
Just to make this clear I did not say that hashgraph will make 1/2 Billion dollars. They did not invest $9 Million USD in their own project. We highlighted this to spread awareness about the problems with SAFTS and lack of transparency. Hashgraph MOST LIKELY DID NOT THINK of doing this, however other ICO Projects can and do. They just make their own terms and push their token with hype and fomo and then dump that shit.
We actually like the hashgraph team, they think they have great tech and want to build something lasting that can change the world. The reason we chose hashgraph for this article is not to cause fud, but because all the terms were published to the general public. We did not want to use private information to write a public article.
How are VCs and Exchanges involved in this?
This already a longer blog, and this is a topic for itself that I could write about for hours. That’s why we will dive deep into how VCs are pushing ICO into this direction, by offering fake value, asking for massive discounts and pushing more and more token Supply into SAFT agreement!
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