Initial Coin Offerings: Tezos and How to Make a Quarter Billion Dollars Disappear

By | August 2, 2017

For investors familiar with only the North American stock exchanges, the wild and wacky (and unregulated) world of cryptocurrency can be a little…hard to believe.

But I swear this story is true.

On July 14th, 2017, the self-amending cryto-ledger project called Tezos raised US $232 million, with the first $160 million raised in 32 hours by means of an initial coin offering (ICO).

In case you are a normal person and don’t get the lingo, Tezos is a project that will be a competitor to Bitcoin and Ethereum. Specifically, Tezos will be designed in a way to avoid the current “civil war” going on in Bitcoin right now.

If you don’t know what an ICO is about, you can go here and here to read my personal experiences in participating in a ICO (which is essentially an initial public offering, minus any oversight from an exchange or regulatory agency)

Note: I did not participate in this ICO. But I can summarize what happened to Tezos investors very briefly:

  1. Investors visited the Tezos ICO website to participate in the ICO.
  2. Investors were given various cryptocurrency addresses to send their Bitcoin and Ether (which is a cryptocurrency second only to Bitcoin), which presumably they purchased with fiat money (regular currency).
  3. Investors were given accounts and presumably a dashboard where they could check their balances, which is here: https://check.tezos.com/

Investors did not, and will not receive share certificates. They will not, indeed, receive any type of security. Instead, they have a PROMISE that they will receive a new type of digital coin, called a Tezos.

When will these new Tezos coins be distributed? Hopefully before the end of 2017. Yes you heard correctly, the coins MIGHT get distributed before 2018.

Investors have paid for something that doesn’t exist yet and may never exist.

But wait—the story gets better.

The founders of the ICO – the initial coin offering not only get 10% of the coins that have yet to be minted, but have the right to convert 8.5% of the funds raised into fiat. That’s $19.72 million USD.

Other cryptocurrency news sites have noticed. Applancer.co, is newsletter focused on blockchain technology.  It caters to techies, hosted wanted ads for developers and is filled with images for upcoming ICOs. But it hates how the Tezos project was financed.

In fact, it found so many things wrong with the ICO that it posted an article listing 15 reasons why investing in Tezos can be risky.  My personal favourite is #12

“Tezos Foundation and DLS are aligned:
Dynamic Ledger Solutions, Inc. (DLS) is a US-based company currently controlled by its founders, Kathleen & Arthur Breitman. The company owns the code of the project, all the Intellectual properties of the Tezos foundation and even the goodwill produced when people invest in the Tezos company. So all the investments and funds are directly going to DLS, not to Tezos Foundation.”

Veterans of the junior stock exchanges would call this a shell game.

So who are Kathleen and Arthur Breitman?

His linkedin profile is here: https://www.linkedin.com/in/arthurbreitman/

His wife’s profile is here: https://www.linkedin.com/in/breitwoman/

Note that neither Arthur nor Kathleen have ever run a company before. Arthur Breitman is a former Goldmans-Sachs associate before coming  a vice-president at Morgan Stanley, while Kathleen’s operational experience consists being a consultant and a strategy associate.

And they have just been handed $232 million USD.

Interviews with the Breitmans have been few and far-between and not very… promising.

Here is the most comprehensive interview I have found. It’s not from any major news organization, but rather from a social media platform called steemit (again, mostly populated by techies) by an user called @eeks. Here is the introduction:

“Tezos management has demonstrated character issues. Blockchain projects have huge dependencies on the character and quality of their leaders, Tezos more than most due its structure. Management has come across as overconfident, scope-drunk, mis-experienced, reckless, greedy, rude, obtuse, and unprofessional. They are about to be very rich and in charge of hundreds of millions and maybe billions of other people’s money (OPM).”

The whole article is here: Beta-ing the Tezos Experience: Red Flags for the ICO and Open Questions

Now what assets are controlled by Dynamic Ledger Solutions? Well the executive summary of the Tezos Ledger solution can be found here. The Tezos groups is starting with TEN core developers, that’s $23 million USD each for those who are counting. When you raise US$232 million, you can afford to pay A LOT of developers.

By comparision, Github shows at least 50 developers contributing to the code base for Bitcoin. Ethereum has 35-40 core developers at best estimate not including independent development teams building apps around the coin.

But with Tezos:

At present, there is no revenue.

At present, there are no sales.

There is also no product.  That is to say, there is no coin, there is no software there is not even a demo that can be shown to the outside world.

What was offered to investors was an executive summary, a nice website (which hasn’t been updated since the funding was finished) and some white papers about how Tezos is going to work.

For $232 million USD.

Where has the money going? Where has the money gone?

Investors should have many questions—but sadly right now there are no answers.  Personally, I can’t believe the mania that is causing these situations to happen; investors are losing their minds and their money.  I really hope this doesn’t end badly.

I’ll be tracking this story as it develops.  To get a better understanding of how cryptocurrencies work, which ICOs I’m investing in (and I have done a few) and to overall increase your net worth in this sector, please sign up for notifications (at the top right in sidebar).