Startup life is full
of quick, lateral thinking. “Move fast and break things” is the mantra.
However, with the rise of token sales – essentially vehicles for untested
startups to raise millions in a few minutes – lots of stuff gets broken and
little gets fixed.
Take BCT – the
Blockchain Terminal – for example. This frothy project led by Bob Bonomo, a
former hedge fund guy turned Blockchain guru, features some interesting
breakages.
Yesterday at about 3pm
Eastern Time the company’s FAQ – which has since been updated but is still
hidden here – read something like this:
While this sort of
techno greeking is fine if you’re sending mock-ups back and forth, the token
sale had been running since April 1st, a fact that was baffling to me and
another reporter. Was this an April Fool’s joke? No, because when I visited the
sale’s Telegram room I found a group of happy buyers asking questions about
their future tokens.
Ever the reporter, I
asked if anyone had seen the terminals and a community manager sent me this:
Fair enough. In fact,
crypto needs a product like this to legitimize it with Wall Street. But clearly
they were moving so fast that the wheels were falling off.
Finally I did the
obvious thing: visit the white paper. There we find that the Terminal is being
built in conjunction with FactSet, a venerable research company that has seen
all the vicissitudes of financial data. In fact, the paper is a tour-de-force
on par with the best of the white papers I’ve seen. But we also discover that
the white paper is a draft.
In short, BCT wouldn’t
pass the average human investor sniff test but is definitely well on the way to
completing its token sale. This is a problem.
BCT is not alone. I’ve
spoken to development houses working with founders who barely understand
cryptocurrency let alone understand their own token sales. I’ve seen founders’
eyes light up like the Big Bad Wolf eyeing Porky Pig when they talk about all
the capital they will unlock. And I spoke to a founder on stage who said he
would be very careful with the $80 million they raised for a company designed
to raise money for ICOs. Greed is clouding this market in ways that are at once
dangerous and comical.
There
is precedent for this. In the early days of the Internet and even the frothiest
dot-com days you could see the avarice in the eyes of Pets.com and Cisco executives who knew that big
money was just around the corner. And we can’t begrudge these founders their
excitement. What founder wouldn’t want the sweet feeling of being fully funded
for, we presume, the next decade?
I’ve been following
token sales with great interest over the past few months for a few reasons.
First, I understand the hype cycle. I’ve seen tactics used by token sellers used
before by hardware sellers, most notably with flops like the Phantom gaming
console and the Notion Ink Adam, and there is a stink that permeates projects
that are, at best, half-baked.
I want token sales to thrive
as a method to raise capital. I want small startups to be able to turn on a
spigot previously available to the well-connected and well-heeled. But the
exact opposite seems true. Bankers are moving into a technology space that they
little understand while carpetbaggers – lawyers, PR folks, advisors – are
working hard to extract cash out of these windfalls. In the end the token sale
industry should formalize itself and become as boring as the VC industry. I
just hope it survives long enough to get there.
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