ICOs are risky business. On the other hand however, they can be highly lucrative for both developers and investors. But what if there was a way to take advantage of the exponential growth without assuming so much risk? Enter tZERO and Templum, two ICO platforms that will revolutionize coin offerings and make them available in the United States.
ICOs: The good, the Bad, and the Ugly
As of August, ICOs had raised well over $1.3 billion, according to VentureBeat.com. Undoubtedly, that number has grown since then, as cryptocurrencies tracked by CoinMarketCap.com have grown from 873 to 1219 during that same time frame. Current estimates place that figure at $2.5 billion. Cryptocurrencies, facilitated through ICOs, have built more millionaires than any other asset class this year, and consensus dictates that many more will be born. Many investors delve into ICOs hoping to fulfill that dream.
While more investors continually pour into what has become the most lucrative asset class today, let’s remember that it is not all fun and games.
Remember the DAO (decentralized autonomous organization)? Launched April 30th 2016, the DAO is the largest and most successful crowdfunding event in history. By 15 May, investors had dumped more than $150 million into the project expecting windfall returns. That dream may have come to fruition had it not been for what followed.
Although several people had expressed concerns about code vulnerabilities, the DAO creators pressed forward, addressing proposals that had been waiting for some time in an effort to move the project forward. On June 12th, Stephen Tual, who helped create the DAO, reported that he had found a “recursive call bug” in the software. “No DAO funds are at risk,” he said. Unbeknownst to him and the rest of the team, however, a hacker used that exact mechanism to siphon over 3.6m ether into a copycat DAO. As a result, ether dropped from roughly $20 to below $13, and the rest is history. The hacker stole over $50 million in funding, and crippled the confidence of many investors.
The “ugly” part of ICOs is a bit more elusive. As new coins saturate the market, the attrition felt by existing currencies is difficult to pinpoint. Some of the new coins hitting the market offer few concrete offerings, if any. It is impossible to research every project with there being so many, making it difficult to locate the best ones. This leads to capital dilution, sometimes choking out what would otherwise be promising projects.
Regulated ICO Platforms to Save the Day
Most tokens launched today are considered “utility tokens”. These tokens allow users to function and transact within the micro-ecosystem for which they were intended. SEC compliant ICO platforms will introduce a new brand of token called “equity tokens” which represent a tangible share of an audited and regulated company. This new token class promises to deliver comparable investment opportunities under a more secure umbrella.
As of now, only two companies are building platforms to promote this.
Overstock.com Builds tZERO
Overstock.com, one of the largest online retailers, has taken initiative as the first operative in the space. Led by CEO Patrick Byrne, tZERO aims to offer blockchain based equity tokens through its own regulated exchange. To raise capital for this venture, it will launch its own prototype ICO.
This initial news release came from the Money 20/20 event in Las Vegas on 24 Oct 2017 (See also: MasterCard Blockchain API Launches at Money 20/20 Event). 50 million tokens will be sold during the ICO lasting from November 15th – December 31st. Instead of a typical presale, a mechanism known as SAFT (future agreement for future tokens) will be used to market the t0 tokens. No minimum threshold is known to be set for the launch.
Holders of tZERo tokens will benefit in a few ways. First, they will enjoy a steady, quarterly distribution of its profits. As more projects are built on this platform, revenue will rise, bringing more reward to shareholders. Exchange fees on the platform will be denominated in tZERO tokens, and this will be their primary use. They will also be used for speculation, as with any other digital asset.
Overstock is building their exchange around the existing SpeedRoute system which it acquired in 2015. Put simply, it is a Wall Street securities firm already licensed by the SEC. Initially, the software was not able to handle blockchain transactions, but they have already modified it to serve that purpose. The best part is that the technology is already tried and tested! Overstock issued its own blockchain-based securities almost a year ago, distributing over 100,000 company shares on the platform. All that is left to do is go public!
tZERo Ushers in a New Paradigm
Cryptocurrencies are considered property for the sake of taxes. This brings with it a confusing tangle of tax ramifications that must be sorted and adhered to (Watch: Crypto Currency Taxation: The Definitive Guide (2017) ). The IRS has left too many questions unanswered, which explains why only 802 taxpayers reported crypto-related earnings last year. Some have tried to use the IRS legal process for carrying forward capital gains by filing a 1031 exchange, but because the verdict is still out on whether or not different cryptocurrencies are considered “like-type assets”, this action may backfire if the IRS renigs on or clarifies its current position.
Tokens launched on tZERO, however, will be considered securities. IRS guidance on securities is more straightforward, and this should help simplify the tax code as it relates. Thank goodness!
Byrne is incredibly confident in this project. In an interview with Bitcoin Magazine, he stated:
The idea is to make tZero the largest exchange in the world, and the tZero ICO is a part of that.
He continued, driving home his point:
“We are thinking very big. I’m not just talking crypto exchange; I’m talking exchange.”
Templum and Liquid M Capital Build Self-titled, Regulated ICO Platform
Templum will provide competition for tZERO. Just yesterday, the LLC announced that it had sealed its first seed funding round, taking in $2.7 million to be used for project development. The project is led by Founder and CEO, Chris Palotta, who had this to say about ICOs:
“ICOs offer innovative organizations an efficient alternative for raising capital. However, ICOs in their current form can be highly risky for issuers and investors. Templum will provide the necessary transparency, accountability and investor protection to reduce risks and encourage more widespread acceptance of ICOs.”
ICOs have had no place in the US due to its intense regulatory structure. Templum aims to change this by providing a compliant platform from which development teams can launch their own projects.
Templum takes its service even a step further, though. It is afraid that some ICOs that have already launched under virtual organizations based in the US could come under fire from the SEC. It has pledged to lobby the SEC to extend a 180 day grace period to any ICO in question. This would allow them the opportunity to prove their legitimacy and strive for compliance by the deadline.
The Final Take
ICOs have been overdone recently, and without some regulation and backing, the entire idea could lose traction. Several countries have begun exercising capital controls to halt the unchecked proliferation of sketchy ICOs, most notably China, with its outright ban of ICOs and exchanges. With the help of tZERO and Templum, that sort of extreme action should no longer be necessary, as developers naturally become compliant by abiding by the rules of the exchange.
Between the two, I’ll let you draw your own conclusion as to which is the more promising project. Overstock has several advantages: a sizable head start, notoriety through its well-reputed online marketplace, and a pre-existing relationship with the crypto community (it has accepted Bitcoin as payment for merchandise for years). Templum, on the other hand, seems very committed to its project as well, and securing $2.7 million in funding will certain kickstart it in the right direction. With any luck, both projects will be successful, and we the consumer will have options!
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