Tezzie the Magic Dragon

Crypto Fairy Tale IRL

Once upon a time, two smart young crypto-anarchists met and fell in love. Let’s call them Jacques and Diane.

They got married, worked hard, and had a blockchain. A few years later — thanks to dedication, hard work, and good graphic design — they convinced people everywhere in the world to send hundreds of millions of dollars in the hope that in return they’d get magic beans called “Tezzies.”

What made the beans magic? When sold, they’d grow in value far beyond their initial price and blossom into fabulous sums of money. And the funding they provided would be enough for Jacques and Diane to buy countries, media outlets, endowed chairs at universities, and other fancy stuff.

Like all fairy tales, this one had treasure and monsters.

The treasure took two forms.

First, our crypto-heroes thought they’d get a generous payout: a large part of the loot (currently around $40 million), plus many Tezzies. They’d worked hard on the blockchain, put 2 or 3 years of time in (while working other jobs for a while) so a large percentage seemed only natural. Second, the fine folks who sent their cash from everywhere in the world thought they’d get magic beans too (though they were told there’d be no guarantee).

Many monsters lurked along the way. Regulators were one, particularly the fierce American monster SEC. To avoid SEC’s sharp fangs, our fearless crypto-heroes made a moated castle in the magical land of Zug. Known as Stiftung, or Foundation, the castle would take contributors’ money and (hopefully) send them their magic beans some months later.

Another monster? Our crypto-heroes crossed swords with one of the Stiftung’s guardians, who they installed in that position. They accused him of greed, self-dealing, and blamed him for stalled development and the general lack of magic beanage anywhere. The guardian (a creature named Gevers) denied the whole thing, and said Jaques and Diane have improperly meddled in Stiftung’s care and feeding.

Meanwhile, every week, Stiftung sells ten or twenty million dollars in crypto, and puts the money in its bank account, not Jacques and Diane’s. And those magic beans? Nowhere to be seen.

The fine folk who sent their money? They’re getting old waiting, and receiving solicitations from US class action lawyers.

The ending has yet to be written. But you get the idea.


When I set out to write this piece, I didn’t think it would be a fairy tale. I thought I’d focus on legal issues (enforceability of terms of service, class action waivers, choice of law, etc).[1] I am after all a lawyer (though neither your lawyer nor Jacques and Dianes). And I’ve written about the perils of blockchain jurisdiction in the past.[2] But as I wrote and re-wrote this, the law seemed less interesting to me than what Tezos’ current state of affairs tells us about mass psychosis and the willing suspension of disbelief.

Are the terms of service enforceable? It depends on which country’s law you’re looking at. Jacques and Diane solicited contributions from eveywhere in the world. So it’s not a hedge to say that I can’t answer that definitively here. No-one can, at least not without applying the law of every country in the world to this truly convoluted fact pattern. We may see this resolved by a U.S. court. We may not.

But the law is ultimately answerable and if our heroes and the guardian can’t work things out we will see one (or maybe many). Where things get really interesting is in the relation between fiction and real life. Jacques and Diane created an independent foundation. They probably did this because it was a way to protect the venture (in their minds) from US regulators. They also said — repeatedly — that the money was a contribution. The terms of service say this explicitly.

It’s just my opinion, but I think the gift and the foundation are both clever but transparent sleights of hand. Surely most if not all people really expected tokens to arrive from the magical land of Zug. Jacques and Diane no doubt expected the Foundation they created to bend to their will. But it appears that the Foundation — which currently has more than $400 million in cash in crypto — is actually independent. And Jacques and Diane don’t control it.

The terms of service really do say that the money is a contribution. Repeatedly. Some Court somewhere might just agree that’s what it was. I wouldn’t bet against that. We’ll see. (On the other hand, there is also evidence that at least some participants, at least the really rich ones, thought that they would be getting tokens).[3]

Where does that leave Jacques and Diane? They may or may not get paid.

Where does that leave our “contributors”? They may or may not get their magic beans.

The Foundation is real. And so is the money people gave it. The independent foundation became just that. And the gifts — it may be that’s exactly what they were.

Like all fairy tales, this one does have a lesson: be careful about the stories that you spin. Sometimes they take on a life of their own. You may not like the ending.

*** These are my opinions and my opinions alone. They don’t represent the views of any client, partner or employer, past, present or future. I may change my mind. Thanks to Kate Stein for reading an early version of this and providing substantial input and feedback (and suggesting this was actually a fairy tale). This was originally published on LinkedIn, which I am told “no-one in this space reads.” So here. ***

[1]. Are the click-through terms of service enforceable? Courts have taken different positions on this issue, but if you were to apply the Second Circuit’s reasoning in its August 2017 opinion in a case involving enforceability of an arbitration clause by Uber, the fact that they were long and provided by a link doesn’t moot them: “[a]lthough the contract terms are lengthy and must be reached by a hyperlink, the instructions are clear and reasonably conspicuous.” Meyer v. Uber Technologies, Inc., 2d Circuit (16–2750, 8/17/2017, available at http://caselaw.findlaw.com/us-2nd-circuit/1871227.html (Reversing District Court).

[2]. https://www.linkedin.com/pulse/blockchain-jurisdiction-stephen-palley/; https://www.coindesk.com/legal-liability-dao/.

[3]. See, e.g., “Polychain hedge fund embraces Tezos”, 2/17/2017, https://medium.com/tezos/polychain-hedge-fund-embraces-tezos-9075603456fa (“We are proud to announce that Polychain Capital has added Tezos to its hedge fund by preordering Tezos tokens. We are among the first blockchain platforms to be backed by the fund.”) How do you pre-order something that is a gift? Do hedge funds really give their money away in exchange for bupkis? Also, see Tim Draper’s comments published here: https://cointelegraph.com/news/tim-draper-there-was-nothing-secretive-about-our-purchase-of-tezos (tokens were “purchased”).