IPOs not ICOs — Ryan Singer (Co-Founder, Chia)
Recap of a talk from Ryan Singer, co-founder of Chia Network, at the (Off) The Chain Summit presented by Pillar as part of Boston Blockchain Week.
Written By: Katie Mulligan
Ryan Singer is the Co-founder and President of Chia Network, a blockchain project working to build a better, greener bitcoin. The project focuses on making a more decentralized and less wasteful cryptocurrency and mining network, by using proofs of space and time instead of proof of work.
No stranger to the blockchain industry and it’s constantly changing regulatory environment, Singer has worked in the digital currency space since 2012. He previously founded TradeHill, a large bitcoin exchange that is no longer in operation, before moving on to be CEO of a few other blockchain projects. In 2017, Singer partnered with Bram Cohen, founder of Bittorrent, to launch Chia.
Singer recently spoke at the (Off) The Chain Summit presented by Pillar on April 26th as part of Boston Blockchain Week. Highlights from his talk, IPO’s not ICO’s: Transparency and Integrity Bring Better Investors and Regulatory Clarity, can be found below.
ICOs are Broken
What does Singer think about Initial Coin Offerings (ICOs)?
Singer pointed to two projects — EOS and Filecoin — as examples of what he feels is fundamentally wrong with ICOs. EOS raised a record $4B in an ICO ending at the beginning of June. However, outlined in the offering documents is a clear statement noting that the tokens mean nothing. In theory, this is fine, but Singer believes there is a clear expectation on the investor side that the tokens they are buying will be somehow useful to the EOS platform once released, and that the tokens will appreciate in value as the platform gains popularity.
From Singer’s perspective, this is a fundamental issue. If Company management is using investor funds to carry out a business activity, the tokens are securities, and should be treated as such. He noted, “If you [the business] say things in the offering statement that are different than the community expectations, and you don’t make a special effort to correct the community expectations, that’s called fraud.”
Singer asserted that Filecoin had a different problem with their ICO. They followed the SEC regulations clearly, verifying accredited investors, and using Reg D. But in their SAFT, Filecoin said if the Company launches a token product in the next 5 years, investors will automatically convert to tokens under specific terms, and if they don’t, they would give the money back. He believes, “It’s going to be very difficult for Filecoin to in any way give a token to these SAFT holders that’s not deemed a derivative security. The only thing they can’t do safely, is the only thing their investors expect.”
Neither situation is desirable for the Company or its investors.
So What’s the Solution? Sell Equity.
Singer says the solution to the ICO problem is simple. “Do what everyone has been doing since 1933, and just sell stock in your own company. Everyone knows how to do it. It’s also a lot cheaper than an ICO.”
All you have to do is three things:
- Get a lawyer
- Get a financial audit for your company
- Write down all of the ways in which you can mess it up — be honest!
By doing this, investors will be fully aware of the risks. As Singer noted, “Investors know why they want in. It’s your job to tell them why they might want out, so they can make a fully informed decision. You’ll be the SEC’s friend instead of their enemy.”
Chia is following Singer’s advice — after taking a $3.4M seed round in March of 2018 from investors including Naval Ravikant, Greylock Partners, and Andreessen Horowitz, Chia plans to announce a $50M auction to the public this summer. Think similar to how Google completed their IPO. Chia will then launch their network in March 2019.
Sharing the Success of the Network
But how do you share success in the network launch without tokens?
“The answer is simple,” says Singer. “Cryptocurrency is property. The only way you make it into an investment is by promising it to investors in exchange for an investment and profit. If instead, what you promise them is equity in a speculative enterprise that may not launch, then, when you do launch… you can have a pre-mine and when the network is useful, there are legal methods to share your property with your shareholders. In the US we call them dividends.”
In the end, it’s all about honesty and integrity. Reward your investors with both, and keep the SEC on your side.