Chasing the Next Bitcoin, Investors Shell Out $700 Million for Coins With ‘No Purpose’Startup block.one is benefiting from a boom in initial coin offerings as bitcoin’s price surges to dizzying heights
One of the hottest cryptocurrency investments of 2017 comes from a software startup that doesn’t plan to sell any software and describes what it is selling—something called a digital token—as having “no purpose.”The company, block.one, has raised about $700 million and counting. That is larger than all but 10 of the 195 U.S. initial public offerings this year.
The sale of the token, called EOS, has benefited from a boom in initial coin offerings, a fast-growing fundraising method tied to investors’ desire to get in on cryptocurrency mania. Those offerings took off this year as bitcoin’s price surged 19-fold.
Overall, 165 firms have raised more than $4 billion in 2017 through coin offerings, which resemble crowdfunding campaigns more than traditional fundraising tactics like selling equity or attracting venture capital.
The block.one offering is by far the largest to date—its market value is now about $4.5 billion—and it illustrates both the promise and concerns of this opaque marketplace.
It also shows that investors are looking to get in on anything related to virtual currencies.
Started late last year and registered in the Cayman Islands, block.one essentially is a software company, writing code for its main project: a bitcoin-like operating platform, akin to Google’s Android, for hosting any variety of applications. The company has about 50 employees but no central office, according to a person familiar with the matter. Developers work on their code via an open-source development website.
EOS is the idea of Brendan Blumer, a relatively unknown 31-year-old internet entrepreneur in Hong Kong, and Dan Larimer, a gifted programmer who has jumped around after brief stints at various startups. Brock Pierce, a former child actor and prominent bitcoin investor, is a minority partner and adviser who talks often about the company at conferences.
Block.one’s website doesn’t say much about its key employees. It has pictures of 16 “team” members, but no biographical information or titles. Its 14-page white paper posted on the site describes new software that promises to handle millions of transactions per second. It also links to a collection of videos and blog posts describing how the company could use bitcoin’s decentralized “blockchain” technology for various purposes. “What would a blockchain Constitution look like?” Mr. Larimer asked in one post.
On a different part of the site, investors in many countries, excluding the U.S. and China, can click a link that takes them to a daily auction. Each day, block.one sells two million new tokens to investors who sign up in the auction to buy.
By contrast, fashion startup Stitch Fix Inc . sold shares to the public last month after six years of methodical growth. Its 159-page offering document drafted by seven major investment banks featured detailed backgrounds of top managers, along with a letter from the company’s founder and CEO, Katrina Lake. The company with 5,800 employees and $977 million in annual revenue raised only about $120 million, less than a quarter of what block.one did.
Unlike some coin offerings, which offer virtually no details, the EOS software code is posted publicly and the firm last week released an early version of it. Block.one is planning a full rollout next June, which Mr. Pierce recently predicted would be “like Windows launching, but much bigger.”
The twist, though, is that unlike Microsoft Corp., block.one plans only to write the initial code for EOS and then release it publicly. It won’t build or develop the platform itself, leaving that task for unrelated third parties. Whether any groups would do that is unclear.
Because of that, the EOS tokens have no actual relationship to the software. A purchase agreement that investors must sign states the tokens “do not have any rights, uses, purpose, attributes, functionalities or features.”
Even though the language of the agreement suggests the tokens have no intrinsic value, investors have been eagerly bidding for them. Mosala Sehloho, a 32-year-old media producer in Johannesburg, said he understands the EOS tokens made no contractual promises, but he thinks the $10,000 worth he bought will rise in value. “I’d buy more” if the price dropped enough, he said in November. “This will be the technology that will be the best of its kind.”
Matthew Roszak, one of block.one’s early investors, said EOS holders shouldn’t worry too much about the warnings the company has given about the tokens. “I don’t think it’s fair reading into that language too tightly,” he said. Given the “regulatory environment is as clear as mud,” he said block.one needed to write something to provide the broadest protection possible.
Other investors, including Rik Willard, founder of consulting firm Agentic Group, have avoided EOS tokens because the technology is unproven and the token may not benefit even if the company does well. The demand for a token like EOS “just shows the frenzy,” Mr. Willard said.
Block.one’s EOS deal is now about three times as large as the next biggest coin offering. It plans to keep raising money until next June and is on pace to raise “well north of” $1 billion, according to Mr. Pierce’s remarks in a panel discussion in October.
Mr. Blumer has said that block.one will use that revenue to invest in companies that could develop the EOS code into products. What EOS token holders will get out of that is unclear. Some coins have been designed to give users discounts or access to such products. Block.one and EOS have avoided making similar promises.
The company has aggressively courted the public. It announced itself at a May conference in New York City, going so far as to buy ad space on a Times Square billboard. Executives have spoken at myriad conferences and met colleagues and potential clients at “meetups” in cities like London, Amsterdam, Singapore and New York.
Mr. Blumer, raised in Cedar Rapids, Iowa, skipped college to work at a videogaming company in Hong Kong. He later launched a startup dedicated to Indian real-estate listings, then shifted to block.one last year.
After a 12-year stint in Hong Kong, Mr. Blumer is now planning to relocate to London and open an office there, the person familiar with the matter said.
In March, Mr. Blumer hired Mr. Larimer, a digital-currency veteran in Blacksburg, Va., who had previously worked on coin offerings in 2014 and 2016. He left the first, a decentralized trading exchange called BitShares, and the second, which ran a social-media site for bitcoin fans known as Steemit.
“He hasn’t finished a project yet,” said Charles Hoskinson, who worked with Mr. Larimer on BitShares.
Mr. Larimer, who declined to comment, said in a recent video interview that he has made “long-term commitments to block.one” and that he doesn’t expect to leave anytime soon. “Building communities is a lot of work,” he said. “Starting over is not something I do lightly.”
Another key backer is Mr. Pierce, who is described on his LinkedIn page as block.one’s co-founder. In 2005, the company Mr. Pierce ran, Internet Gaming Entertainment, which traded virtual goods used in videogames, bought a similar startup that Mr. Blumer founded while he was in high school.
At age 18, Mr. Blumer moved to Hong Kong to work for IGE. Around the same time that IGE bought Mr. Blumer’s company, it sold a small stake to Steve Bannon and brought him in as an adviser.
Mr. Bannon, who went on to lead Donald Trump’s presidential campaign and served as his chief strategist in the White House, helped in early 2006 to arrange a $60 million investment in the company by Goldman Sachs Group Inc. and two other firms. In 2007 as IGE experienced difficulties, Mr. Bannon replaced Mr. Pierce as CEO.
In June, after the Securities and Exchange Commission warned investors about coin offerings, block.one released a statement saying it is being represented in its token distribution by lawyers at Debevoise & Plimpton LLP and that its sale isn’t open to U.S. residents, citizens and entities. The law firm declined to comment.
The deal is also closed to investors in China, another country that has cracked down on the offerings. While such restrictions are common in the token deals, enforcing them can be tricky since the demand stretches across so many countries.
https://www.wsj.com/articles/chasing-the-next-bitcoin-investors-shell-out-700-million-for-coins-with-no-purpose-1513602000
Simplesmente inacreditável.
