Beware of the Token nature and the Business Model of a digital company before jumping into its ICO
Source : www.coindesk.com/ico-tracker
With an ICO funding level year to date of 2.3bl$ equivalent (see graph below), the ICO market is the new phenomenon of the funding raising since the dot.com venture capital adventure in the early 2000’s.
Indeed, this new opportunity of raising money for entrepreneurs and making potentially high (but volatile) returns for investors surfs on the crypto wave and its libertarian approach to massively disrupt classic business branches and bring economic and usage revolution. The perfect match for all the relevant parties is when the raised money serves to finance an exponential business development with scalable positive economic repercussion.
It is a common sense to say that there is no return without risk taking. However, taking a risk does not mean gambling. At NaPoleonX, we have always affirmed that a way to distinguish and judge the intrinsic value of a token relies on 2 pillars: the compliancy of the token sale and the robustness of the business model associated. We could have added the quality of the team, but this is true to any projects, not just ICOs.
1/ Legal considerations
As in most countries crypto currencies or assets are not well defined, Regulators all over the world have difficulties with the existing legal framework to accommodate for these ICOs. Moreover, all tokens are not of the same legal nature even though technically speaking they might just be ERC20 tokens. Given the sharp rise in ICO issuance, Regulators have no choice but to step in even though regulation is not in place. That is why most of them are asking that they should be consulted before any new launch.
· STEP1: NapoleonX ICO
Many regulators are now thinking of how to protect investors from scams and fraudulous practices given the massive money playing in the cryptofield and the lack of formal legal frame. For instance, the SEC (and the FINRA) has warned since 2013 of Pump&Dump stock practices, Ponzi schemes and finally published in July 25th its investor bulletin dedicated to ICOs. The qualification of the token was in the heart of its thinking, focusing more specifically on the security characteristics (fulfilling the Howey test) of a coin and its incidence in terms of registration.
Because Napoleon Crypto is a French company, we have pro-actively decided to present our business model and token design to the French Regulator (Autorité des Marchés Financiers) in the context of its « Unicorn consulting » launched on October 26th, in order to comply with all existing known regulations, taking into account that the ICO legal framework is not yet completely designed yet.
NPX token — how it works in practice
As mentioned in our Whitepaper, in simplified terms, our NPX token gives right to 2 key features:
1. Trading signals
2. 85% of performance fees over the first 10 DAFs (described in our Blackpaper)
In practice, each token materializes a license right over a set of information, the trading signals, given by the ten first proprietary algorithms described in the Blackpaper. This license may be exercised by unlocking a software or a web portal through the private key associated with the ETH address holding the NPX token. This license is freely transferable. The holder of such license, may transfer it by transferring the NPX token attached to this license.
The license may also be sub-licensed freely, albeit on an exclusive basis (i.e. one license can not be sub-licensed twice at the same time). In practice, sublicensing may give right to a sub-license fees, to be negotiated between the sub-licensor (the NPX token holder) and the sub-licensee.
The ICO consists in selling these licenses, valuating the R&D provided to create the first 10 trading algorithms described in our Blackpaper. Tokens’ buyers are companies or people used to manage or sell financial information.
As only a limited number of tokens will be issued at the end of the ICO, these licenses will represent a scarce asset and its value will be derived from the quality of the trading bots.
Access to feature 1 : the trading signals
The access to the information, will be obtained through a software downloadable directly from our platform when it is fully operational, or directly through the platform. To activate it the token holder will need the private key associated to the ETH address detaining one or more NPX tokens. In case of a NPX transfer, the associated private key will change and only the new NPX owner will have access to it. This is to avoid forgery.
The software or platform will provide trading signals of the first 10 trading bots as described in our Blackpaper. To run properly, it will need to be fed by the right market sources which can be freely accessible from the internet or through professional market data provider.
There will be 3 levels of speed at which the signals will be provided depending on the number of tokens (represented by their keys) that one ETH address holds:
· up to [999] tokens you will get the standard signal 30mn after market close
· from [1,000] up to [9,999] you will get the signal 15mn after market close
· above [10,000] NPX token you will get the signal 15mn prior market close with a refresh less than 1mn after market close.
This mechanism will avoid NPX holding dispersion and should act as strong price support for the token.
Access to feature 2 : 85% of performance fees over the first 10 DAFs (described in our Blackpaper)
Each NPX token is associated to a license that can be freely be sub-licensed. However, the sub-license can only be granted one at a time according to terms that need to be negotiated individually with the contracting party.
That means that anyone will be able to monetize on their own with any counterparty. The choice that might drive this choice may involve profit sharing levels as well as asset under management offered. They could also be sub-licensed for a flat fee. Potential bidder might be online platform such as eToro or Quantopian, asset managers or wealthy individuals.
The asset management company launched by Napoleon Crypto will be amongst the potential bidders for such sub-licensing. We will set the conditions at 1 / (number of issued NPX tokens) x 85% of performance fees charged by the asset management companies over the first 10 DAFs launched. The DAFs will be charged 25% performance fees.
Each sub-licensing contract will run for a year and can be renewed at the same condition. In particular, this contract will be coded in a smart-contract deployed on the ETH blockchain.
The rationale for this offer is that we want to control competition once the sale has been done. At each anniversary date, the NPX token holder can retake control of his license and use it as he wishes.
However, disparity between Regulators exists and the qualification of a token has to be assessed jurisdiction by jurisdiction. Each project should seek for legal advice before deciding to restrict a token sale to a particular country. In our case, we have decided to exclude US residents and US citizens from our ICO, together with Iran, North Korea, Syria, Lybia, Sudan and Cuba.
· STEP 2: launch of DAFs
The NPX token issuance will be the first step of the Napoleonian Business Model deployment. This first ICO will allow the set up the asset management company with a full license and regulated. It will be followed by several ICOs to seed respectively the various DAFs implementing the trading bots’ army. At that point of time, the Napoleonian asset manager which will be fully regulated and licensed (under a European jurisdiction) would have no particular issues regarding the DAFs’ tokens that could potentially be qualified as security.
2/ Business model
Because the token is not usually associated with capital rights, this point is crucial for sustainable investment. A step back on the latest massive ICOs and the volatility of their market capitalization perfectly illustrate this requirement.
Our vision is that crypto currencies will become a true asset class that will be used by existing institutional investors in the next few years to diversify their portfolios. Because, they do not have in house experts, we believe that they will delegate this management to third parties. That is why we have launched NaPoleonX and plan its ICO to build its foundation. NaPoleonX will create the first professional and regulated crypto asset manager, notably able to handle substantial assets under management to meet this future demand. To fulfill our engagement, we have already disclosed our plan to the French Regulator in order to respect our future roadmap.
NaPoleonX stands over three specificities:
1. A team of ex-trading professionals having managed several billions, used to go thorough due diligence of large investors, and able to get/acquire an Asset Management license from a EU Regulator,
2. A focus on low frequency algorithmic trading of highly liquid assets only, to achieve high scalability, low execution risks and best performing techniques. Our team has developed this expertise over the past 10 years more and we currently have than 20 performing absolute return algorithms,
3. A technique to tokenize quantitative strategies trading on real assets, so that performance and liquidity are brought back to the crypto-world, enabling to offer highly scalable investment solutions providing a return on your BTC or ETH.
Combining the legal approach with the pertinence of a business model should allow an investor to minimize regrets. This is the NaPoleonX method to enter into a win-win deal with our customers.
