Good morning! This is “The Leaders of the Market” with me, Elena Khrupova Cryptocurrency alternative of getting investments, ICO, is getting more and more popular. We’ll discuss the phenomena of ICO with most successful cases with our experts Vladimir Smerkis – founder of cryptocurrency fund “The Token Fund” Sergey Sergienko – the founder of ChronoBank and Stepan Gershuni – main partner of “Bits.Capital” We’re happy to have you here and thank you for your participation. Lets start with a such reference. The traditional form of getting investments – – initial public offering or IPO has it’s own cryptocurrency analogue – ICO The process of getting investment in ICO is much easier than IPO but much riskier, because of lack of legal regulation and mechanism of investor insurance. ICO stands for Initial Coin Offering In the process of ICO project sells its digital coins or tokens for cryptocurrency to investors. ICO organisers announces that they need some sum and after they get it, they emit and distribute tokens infproportion to investors Investor can use this new cryptocurrency later on the project platform as inner currency or trade on exchanges. Frequently ICO is being made on early stages of the project before having infrastructure and the product itself. Thats why ICO is very similar to crowdfunding. One of the first ICOs was Ethereum platform by Vitalik Buterin. In August 2014 it got more than 18 million dollars through offering of Ether. ‘The biggest and the most profitable ICOs to June 2017 were Brave and Aragon” – says Rusbase Brave is blockchain based web browser made my Mozilla’s founder Brendan Eich On May 21st 2017 Brave got 35 million USD as target amount by selling BAT tokens in just 24 seconds. In a week after ICO rate of return was 680% for primary investors. Aragon project is a blockchain business management platform, for example, you can distribute tasks between your workers. On May 17 2017 in just 15 minutes Aragon got 25 million dollars within ICO In a month after ICO it’s tokens grew up 170% it’s tokens grew up 170%. However when ICO took place the fraud was detectеd. There was a clone of original Aragon twitter account and some user transferred more than 10.000 USD to scammers because they thought they invest in Aragon tokens. By ICOstats, the most profitable ICO right now By ICOstats, the most profitable ICO right now is Stratis – blockchain developer service. ICO was in June 2016. In s year the price on tokens are up 151.000%. In s year the price on tokens are up 151.000%. Spectracoin (bitcoin owner service) had an ICO in November 2016 Spectracoin (bitcoin owner service) had an ICO in November 2016 Spectracoin (bitcoin owner service) had an ICO in November 2016 and the rate of return is more than 18.700% for primary investors for now. and the rate of return is more than 18.700% for primary investors for now. Along with successful ICOs there’re ICO that fails where investors suffer losses or lose money completely ICO that fails where investors suffer losses or lose money completely because it is impossible for them to convert their tokens to other assets. because it is impossible for them to convert their tokens to other assets. – Vladimir, let’s sort out what is ICO and it’s mechanism. What do you need to do to make and ICO? – ICO is a way to get investment to a project It is quite innovative way to do it and it became possible because of blockchain technology.
– Usually startups use it, right? which has no fundamental base or money.
– Well, there’re companies with real business who make an ICO right now. More and more of it appears now. But, of course, at the beginning it was all about tech startups. at the beginning it was all about tech startups. – All right, what infrastructure do you need to make an ICO? Can I do it myself as a project? Or I will need some people from aside? – ICO contains 4 main stages: 1 – legalisation It depends on a country of a project. In USA or Russia there are it’s own regulation. In USA or Russia there are it’s own regulation. – You mean legal regulation?
– Yes, legal regulation. – Is there any legal status? – Well, ICO as a phenomena has no legal status except 2 countries: Singapore and Switzerland. except 2 countries: Singapore and Switzerland. And even there it is more a project of a law, than real laws. And even there it is more a project of a law, than real laws. In Russia we have no special regulation but it is not prohibited or illegal though. but it is not prohibited or illegal though. Except legal side, when you prepare ICO, you need an economic model. when you prepare ICO, you need an economic model. You emit cryptographic tokens and not stocks. These tokens give some rights to investors, for example, to get profit (mean – dividends) – Can we make an analogy to stocks for example? Are tokens like stock on exchange? – It is a decision of emitting company. They can issue their tokens like stocks so investors have a right to vote and a right to get dividends. However a lot of projects decide not to do it this way and the emit token as a bond or just a right to vote without a right to get dividends. without a right to get dividends. Or they can decide not to use it in financial side of a project Or they can decide not to use it in financial side of a project. And this token will be a part of inner economy, for example for a platform projects like Uber or AirBnB. If this kind of projects make an ICO, token for them is not stock, but it is used between buyers and sellers inside of a project. And along with a platform growth it grows itself. – And as for Brave and Aragon, it is a mean of payment for services of a company.
– So is it more of a crowd investing? – Yes, it is a crown investing. Getting financing with a help of people all over the world. And it became a truly international thing which develops rapidly and that’s why everybody’s attention is on it. – Okay, Sergey, tell us more about your experience. – Okay, Sergey, tell us more about your experience. This thing came to Russia from the west, I think. At first, what does investor need to do to participate in ICO? And how ICO came to life and where did it come from? – Okay, it is a new way to call it ITO – Initial Token Offering. Because it has different jurisdictions. From investment point of view, every project has a huge motivation not to call it an investment. Because after you call it this way Securities Exchange Commission (SEC) Securities Exchange Commission (SEC) of USA, for example, can come to them and ask: Alright, folks! What kind of investments you have here? And they have very interesting jurisdiction. So if American investor even thought about getting some profit, it is a reason for SEC to interfere. – So here you have to have guaranteed rights? – Yes, if you say roughly you need a prospectus and etc here. – Paper red tape? – Yes, paper bureaucratic work.
At first ICO looked like this: There were guys in a garage who made some project. And they make post in Twitter
or whatever, something like “Guys, help us to test a project. Drop us some bitcoins!” They did it – the project is made. After that Ethereum happened with other ICOs. There’s still no precedent, no world class precedent, so anybody was punished, let’s say. – Well, but it might happen in future, right? – Yes
– What are the risks for a new project coming to ICO and for it’s investors? – Risks? For investors it is losing all the money you invested in a second. You know, yesterday there was a rumour about Vitalik’s death and everything went down You know, yesterday there was a rumour about Vitalik’s death and everything went down minus 10 billion dollars etc.
– Let’s get some more experience from Russia. We have Konstantin Lomashuk on Skype. He is a CEO of Satoshi.fund, founder of cyber.fund and open source social net Golos.io.
Hello, Konstantin! Tell us, as a person with experience in running ICO, what opportunities and risks do you see here? do you see here? – Well, we not just run ICOs, we invest in this ICOs. And I think we are at the top-10 biggest investors worldwide who invest in ICO. Also we made our own crowd sale about half a year ago, we were getting bitcoins for Golos.io we were getting bitcoins for Golos.io and we had a success in it. If we compare it to some russian crowdfunding platforms If we compare it to some russian crowdfunding platforms, we got more money plus it was bitcoin. If you ask why did we do it in bitcoins, I say it is much easier to get access to money with bitcoin from all over the world. You don’t need to open a bank account or anything like that. – Okay. And in what crypto or fiat currencies is it able to get financing? – Okay. And in what crypto or fiat currencies is it able to get financing? – It doesn’t matter for crowd investing, you can do it in every currency. – I’m talking about ICO
– ICO situation is the same. Right now by it’s nature we’re in the wild west. Every project coming to ICO invent it’s own rules, any rules: it can accept any currency, make any emission. So…. it is like a big zoo right now. And every new project is special. – Thank you very much! It was Konstantin Lomashuk, CEO of Satoshi.fund, founder of Cyber.fund and open source social net Golos.io Do you have something to add? – I just wanted to mention that it very important not to accept fiat currencies. Because as soon as you start accepting it… – You mean dollar and euro?
– Yes, dollar, euro, rubles, doesn’t matter. The regulation will come to you. – Alright, the regulation is in the process of development of regulatory framework right now. Let’s get back to what should investor do to take part in ICO? Does he need to get access to some special platform or anything? – If we talk about any ICO, you check it’s website, the main document there is a white paper the main document there is a white paper where in 15-20 pages you can get any information about the market, technology, token distribution system etc. Investor gets to know it, checks the community response to it. There are a lot of ICO trackers right now or ICO ratings. After that he buys cryptocurrency and sent it to a project. For that he gets tokens right after that of later. – So at first he have to have cryptocurrency. – Yes, that’s correct. – So at first you but bitcoin
– Yes, bitcoin to ether or any other – Okay, let’s see what he get for that. What makes him to go and send money, and what rights will he get? send money, and what rights will he get? So if everything is ok with business, you get some dividends and it is a fail ICO. What’s next? – Yes, Sergey was completely right mentioning that we have completely no regulation and nothing says that investor has any guaranties or protection from regulatory’s point of view, like SEC or any national…. – Does the ICO platform itself steps in in giving some guarantees or protection? – ICO platform – is a tech platform which host an ICO process…
– So nothing is guaranteed? – Look there’re two big groups of ICO. First is tech project ICO like Ethereum, where investor gets ether… like Ethereum, where investor gets ether… – And it is an tradable asset for the exchange
– Yeah, he got that instrument and since then it grows – And it is an tradable asset for the exchange – Yeah, he got that instrument and since then it grows When ICO was made ether was 0,3 USD, now it is about 200-300 USD and this is a huge profit for investor and this was inevitable, because this coin is often used inside the system and this was inevitable, because this coin is often used inside the system However, if some plant or some real business makes and ICO… However, if some plant or some real business makes and ICO… – You mean business with real assets? – Yeah, real business. So it is not obligated to pay anything to it’s investors even if it promise some dividends… to pay anything to it’s investors even if it promise some dividends… The business owner lose his reputation. – It is necessary to understand that when we say investors it is not a traditional investors it is not the guys in suits putting their money in projects. It is more guys like us. Guy who… I like to say that it is a first time in human history it is a first time in human history that smart, very smart guys are able to do thing they want using ICO as an instrument and finance something they want. We invest money in ICO all the time, I support ICOs based on…
– What ICO? Tech? – Yeah, tech – The problem with non-tech ICO is that you have no legal framework to prove something. Imagine, you have tokens, you come to a plant and you say “Hello, I want my dividends”… At first, never use word “dividends”. So, they come and ask for dividends from a plant And they get answer like “What? ICO? We don’t know this word, it’s a plant!” You know. And they get answer like “What? ICO? We don’t know this word, it’s a plant!” You know. – And local projects who run an ICO with real project get way less money because there’re risks of a country, geographical risks. Because the assets is located in some exact location. Technology has no borders, like ethereum, it is spread everywhere in the world and people all over the world use it. – People have to understand that ICO movement and cryptocurrency in common is based on decetralization, which means that there’s no only one man or government or anybody to control it. That’s why the plant, for example, or something located in some exact place means control by itself. There’s a risk of a failure. Because, for example, someone can come and arrest it. – Any Force Majeure can happen, lightning strike or something like that. – Yeah, that’s why decentralisation is so important. It is a very important word in any cryptocurrencies. – Alright, let’s talk to another expert. Please, welcome here, in Ararat Park Hyatt studio, Evgeniy Grankin, senior analyst of Center for Economic Forecasting in Gazprombank. Evgeniy Grankin, senior analyst of Center for Economic Forecasting in Gazprombank. Evgeniy, good afternoon! It was said here, that decentralisation is the future. Do you agree? And please compare ICO with traditional form of getting investment like IPO or some other alternative ways of getting investment. What are the pros and contras of ICO? What are the pros and contras of ICO? – Good afternoon, colleagues! I agree that ICO is a very interesting way of getting investment. It is very modern and quite simple It is very modern and quite simple but still you have to remember that it is a very risky variant for an investor. There are a few risk factors. At first, unlike IPO, where real business coming to this public offering is active and, in fact, it generates some cash flow which can be used in future to pay dividends to it’s shareholders. In ICO… in most of the cases project teams has no working prototype. In some rare cases, ICO project teams have a working prototype but there’s some time needed before introducing it to the wide use. The question is whether this ICO will be successful, will it make a good rate of return to investor. It is a very big question. Second thing is regulation problem. At least, in Russia ICO is non-regulated in any way, unlike IPO. So, investing in ICO you get all kinds of the risks of a possible fraud, unstable work of payment systems, what we saw in the latest ICOs. So, investor get all of the risks. Third problem is huge cryptocurrency market volatility. Even if ICO is successful, if tokens come out to the market and exchanges, it can get touch a very deep lows. Every investor has it’s own risk tolerance. Some of them can consider this high volatility as too risky. You have to remember this. Well, it doesn’t mean that you shouldn’t participate in ICOs you should just run a good risk-management. Don’t invest a big stake of your portfolio in such kind of investment but anyway it is a great interest in it. – These words are golden! This was Evgeniy Grankin, senior analyst of Center for Economic Forecasting in Gazprombank. – Thank you. – Risks, risks and once again risks! How can you avoid fraud and minimise risk of your losses? – That’s absolutely correct It is very risky instruments, I mean all of blockchain projects. Of course, market is very volatile, at first, because it is very small. Common cryptocurrency capitalisation is about 100 billion dollars And this is the reason why we think in 2-3 years we have a huge growth potential of a cryptocurrency capitalisation and it’s value. Sure, this colleague was right when he mentioned that you shouldn’t bring your last money to the market or get credited for it. It’s dangerous. Today we’ve talked about Aragon and Brave. For example, after Brave run an ICO token price grew up 300%, and Aragon… – In our reference we had information about 151.000% rate of return… – 151.000 is too much it seems to me. – 151.000 is too much it seems to me.
– Yeah, too much but… – It was not about Brave. – Yeah, not exactly Brave, but it was Stratis. So how can you avoid fraud? In our reference we were told about Aragon when some some scam-mirrors were created and you send money but it doesn’t reach right ICO destination. How can you minimise it?
– Well, it is more technical question we know that Ethereum, as a technology, had some problems with transaction capacity. It was down and couldn’t pass there transactions but investors did not lose their money. It was first thing. Second thing is legal status. There are jurisdictions where officially and legally… Maybe Sergei can confirm it. You can legally register a company which accept cryptocurrency for tokens from investors and release tokens officially and legally. It is Switzerland, Singapore and many other jurisdictions. – Singapore is slightly different and interesting way of it. DigixDAO ICO took place there. They collect not more that 5 million Singapore dollars, only this way is legal. Oh, by the way, I would like to add, it is important to say, it it s very very risky instrument. When I say, in the west, you can invest not more than 2-3% of your portfolio it it s very very risky instrument. When I say, in the west, you can invest in it not more than 2-3% of your portfolio. If we talk about Russia, it is not about sophisticated investor If we talk about Russia, it is not about sophisticated investor not an investor who deals with it through his whole life and not a fund not an investor who deals with it through his whole life and not a fund if someone offers you to invest money somewhere in the street or in Facebook, it is important to say, people, please, if you’re being offered an ICO or other crypto investment with $100 entrance, for example, or 5000 rubles, you’re being lied to! You will lose your money! If you see no difference in bitcoin or ether, do not deal with it. – Thank you very much! You have to be extremely vigilant especially with ICOs. Thank you. We were discussing biggest ICOs with our experts: Vladimir Smerkis – founder of cryptocurrency fund “The Token Fund” Sergei Sergienko – the founder of ChronoBank and Stepan Gershuni – main partner of “Bits.Capital” Thanks for coming to our studio and taking part. This was “The Leaders of the Market” with me, Elena Khrupova.