LIBEREUM: ICO REVIEW (Spoiler: I’m not investing)

Disclaimer: this is my personal view on the project and I am not giving advice. Some of the quotations have been translated by me (from Dutch to English). This article is exclusively written in a private capacity. Assumptions or statements might be incomplete.

So Libereum has just announced that they have acquired the majority stakes in the football club Elche FC. It seems that Libereum has acquired 64% of the shares in Elche FC. The other shareholders seem to be on board with the takeover by Libereum. According to the media, Libereum has the goal to make Elche FC promote back to La Liga.

The current director of Elche FC does not seem to be on board. The website of Elche FC contradicts the takeover:

Elche Club de Fútbol, in conjunction with certain information published, wants to STRONGLY DENY the sale of the Club to any company dedicated to the cryptocurrency or to any other activity. In this way, the Club wants to settle the rumors that have occurred due to the different reports that may disturb and lead to confusion among the franjiverde fans.

Libereum is not concerned, even though this does not seem to be a great start.

I will discuss the (in my view) most important elements and red flags of the ICO.

Team

First of all the team. This is often the first thing that study when a new project announces an ICO. Without discussing every team member in detail, the team does not look very convincing. There have also been a lot of changes in the last couple of months, which is often not a good thing. Some team members left and a couple of new advisors have been recruited.

Recently the brother Ploum have left the team. Even though the community has often asked for a clarification as to why they left, the team insist there is “not much to tell”. This seems odd, because the brothers Ploum have been important core team members (from the start). Also, they seemed to be mostly in charge of the finances. Who will replace the brothers Ploum is uncertain.

Libereum is headed by Cem Kumlar. Cem Kumlar has no real experience in football and/or with managing a football club, nor with Blockchain as a technology. Dutch media has covered him a couple of times because he made some videos in which he showed not one but two Audi’s. This seemed to be an attempt to convince investors that he knows what he is doing. It’s safe to say that I was not convinced.

Cem has also made some very risky claims on Telegram. He has often confirmed that the price of Liber won’t go down and that his investors will not sell. SEC are you listening?

Questions were asked why pre-sale investors that bought for $0.60 won’t instantly dump all their tokens because the ICO pre-sale price was suddenly set at $15. That would give an instant profit of 2300%. His most iconic reaction (that I know of) was the following:

“People are more educated when it comes to ICO’s. If you look at the product you will see that it’s solid. I think the chances are very small that you will sell at a profit of x23 while you know that you will be able to reach profits of x150. It’s wrong to assume that the price of Liber will go down.

Ah well; daytraders will be daytraders I guess. But I can say that 95% of the people that have invested in Libereum will not sell in the next 2 years.”

ICO

As discussed above there have been various changes to the ICO-structure. The pre-sale investors had the opportunity to buy Liber tokens for $0.60. Now the website shows the following (only showing the first bullet-point, there are more):

Libereum’s pre-sale price has increased to $15 per token due to achieving key milestones:

1. We have reached an agreement to acquire a football club worth €80 million — an official announcement will be made soon.

The team seems to have linked the value of Liber-token with the value of the (underlying assets of the) football club(s). Does this remind you of something? Something like shares in a company that will give right to ownership of the company? This is obviously not the case. The Liber-token is nothing like a share, which I will discuss in a minute.

Recently, the team has announced that there will be a sale of 10 million Liber for $5 each on the exchange LAToken. This is 1/3 of the pre-sale price (??). After LAToken has sold out, the price will go back to $15 according to the team (on which Exchange?). The team has also stated that the price on the other exchanges is subject to change. I’m very confused.

The economics of the Liber-token are very confusing and the team seems to change their mind more often that my girlfriend changes her clothes prior to a night out.

Liber token (use-case)

I’ve read the whitepaper but to be fair; it’s a terrible read. It’s badly written, full of bold statements and without proof. The way Libereum will make money is as follows:

If the clubs are doing well, Libereum will do well because of its coins Liber as a direct result of it. Well performing clubs can ask for more money from their sponsor, more fans will come to stadium,the players will be worth more, etc. All elements that will be beneficialto Libereum.

This is what I don’t understand. The Liber-token will function as a means of payment. Supporters will be able to pay for drinks and food in Liber-token. Maybe even players and sponsors will be paid in Liber-tokens. It will be the “coin” for the Libereum clubs. How does Libereum earn when clubs are doing well? Dividends? No. There does not seem to be a connection.

This also means that the Liber-token does not have a use-case. Most tokens have a use-case such as the following;

1) holders can stake their tokens to support the network earning more tokens,

2) tokens can generate dividends,

3) tokens can offer a right to vote,

4) tokens can (like shares) represent a share (of ownership) in the company.

The Liber-tokens offers none of these elements. It’s just an alternative to paying with Euro’s or Dollars.

So why would people want to buy and hold Liber? That’s right; because the price of Liber might go up. If I understand the team correctly, the price will only go up. This means that the token will be highly speculative. If the team can deliver I can understand why you want to hold Liber; if I buy €20 worth of Liber and within a month I can buy €30 worth of drinks in the stadium, it’s a good deal.

But what if it goes down? Exactly; if the price of Liber can fall, the basis of support and the trust in the Liber-token will also fall, and this will most likely be the end of the project. Supporters of Elche FC, the players, the sponsors; why would they want to speculate (and take the chance of losses) with their earnings by accepting Liber instead of Euro’s? I don’t see it.

Luckily, Cem has confirmed the price will only go up.

I’ve asked the team for their vision on my criticism of the use-case and got the following reply:

“It’s about the acquiring of assets. The assets won’t belong to the token holders, but the acquiring of assets will make sure that a lot of media attention will follow, causing a lot of hype. We can argue about the use-case of the token, but we will have to see how it works in practice. This is the best answer that I can give.”

In my opinion not very comforting.

Liber token (volatility)

Another big red flag; the volatility of the token (assuming the price cannot keep going up). Let’s say Elche FC has a solid liquidity- and cash-forecast. They have to pay their suppliers (food, drinks, other products) in Euro’s, but they only accept Liber from customers in the stadium. A hamburger will cost (let’s say) €3,50 and a beer costs € 2,50. How will the club handle the rise and fall of the price? Will the price be “locked” during football matches? What if Liber suddenly falls 10%; will the club make a loss by selling hamburgers and beers, or will the club have to wait until the price is back up again? Again; highly speculative and risky.

And what about the volatility on certain (monthly or weekly) moments. Prior to a game the demand will be high because a lot of people will want to buy Liber. On the other hand; Elche FC will have to sell all its Liber after the match, because Elche FC needs Euro’s to pay to its suppliers for new products. Imagine the consecutive rise and fall of the price. And what about the players that are getting paid in Liber? They will sell their Liber right after payday, because they will need Euro’s to pay for everything in their life. How will the markets react to millions of dollars’ worth of Liber being sold at the same time? Again; this will crash the markets. Again; highly speculative.

Implementing a monetary system as complicated as this is of course very challenging. I have asked the team for their vision, and got the following reply:

“The ultimate answer is: mass adoption. The combination of guaranteed purchase and the not-infinite minting of tokens will at least prevent or correct a total collapse of the value of Liber. We will now have to figure out a way to prevent a total collapse, especially regarding the small-economy that we are building for the football club. There are multiple ways to do this and we will have to test the best way using trial and error. This can also differ from country to country. Some options that we are considering:

1) Create a closed economy similar to nightclubs and festivals

2) Freeze the price of Liber on match days

3) Allowing people to pay with fiat money together with Liber”

They have some thoughts but a solid plan seems to be missing. They are hoping for (and counting on) mass-adoption and a steady rise in demand for Liber. Especially the “trial and error” remark of the team is spooky. I think you have 1 shot at this, and you can’t keep adjusting your methods using trial and error.

Conclusion

My conclusion is that the team is very ambitious but they have not thought this through at all. They have built their entire plan based on the assumption that the value of Liber-token will keep rising. To be honest, every plan works as long as everyone who buys your token makes a profit. This is pretty obvious. The reason why the value will keep rising is because the team will create a big demand for the token by acquiring new football clubs.

I don’t buy it. First of all I’m convinced that no project can guarantee that the value will keep rising. And this will be nearly impossible for a token without a use-case. My estimation is that the project will fail as soon as the value of Liber will fall instead of rise. The football clubs will have problems with their cash-forecasts, the supporters won’t be able to buy as much beer and hamburgers as they should, and the trust in the token will be gone. Game over.

On another note; most of you remember the financial crisis of 2008. Millions of mortgages were granted based on the assumption that the price of the real estate would keep going up. As soon as the real estate prices fell, the house of cards collapsed creating one of the most devastating financial meltdowns of the past century. Sounds familiar? I think so.

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