Tezos ICO: Complete analysis on its roller-coaster ride from raising $232 million to seeing one of the biggest downtrends.
Tezos is a brainchild of Arthur and Kathleen Breitman that literally aims to be the world’s last cryptocurrency (source: Tezos whitepaper). The building blocks of this project are on-chain governance and self-amendment which are some of the critical issues that Bitcoin has been facing in recent years.
Tezos project capacitates the stakeholders by involving them in decisions and governance of the platform. To simplify further, stakeholders will have the power to approve or veto the changes in the Tezos protocol.
Already existing blockchain networks are prone to forks owing to the inability of its user base reaching a consensus and Tezos believes that it can solve this by launching a decentralized self-governing blockchain network that resorts to proof-of-stake protocol.
Tezos was professed as the only existing cryptocurrency that would not have any governance concerns. This project gained so much traction since it raised 10 times more than what the founders have expected and of course, with Tim Draper as an investor, everyone thought that Tezos has got it all right.
However, Tezos is now seen as the most controversial projects and its popularity has eroded with every class action lawsuit filed against them!
Where did they seemingly go wrong?
Arthur Breitman after failing to raise funds from banks and investors through the company named Dynamic Ledger Solution, Inc. (DLS) registered in Delaware, the USA, decided to raise funds through an ICO. He then started a Tezos foundation in Zug, Switzerland while the source code remained as an intellectual property controlled by DLS in the USA.
However, the Breitman’s were themselves not part of this foundation as the law in Switzerland requires that the foundation and it’s board members be independent. So they appointed Johann Gevers, founder of Crypto Valley association, as the person in charge of the board. The Swiss regulations also state, whoever controls the board, controls the foundation itself.
After the ICO ended, madness began!
The idea was to acquire DLS by Tezos foundation, post the successful raise of funds through an ICO. Everything was going according to the plan up until Tezos raised 10x more than what was expected. Tezos ICO raised over $230 million and since it was through a foundation for which Mr.Gevers was in charge, all the funds raised were controlled by Mr. Gevers and two other members of the board.
It did not take long before the Breitman’s and Mr.Gevers had a difference of opinion and their relationship was compromised which resulted in months of delays in the launch of their initial version.
Ideally, after the planned merger, the protocol was scheduled to release as a free software license and 3 months later, the DLS’s shareholders (the Breitman’s and Tim Draper) were supposed to receive 8.5% of the total fundraiser proceeds in cash, in addition with the 10% of the all the tokens issued from Tezos foundation.
But with Brietmans and Mr.Gevers fallout, the dynamics changed completely that also affected the much-awaited release of Tezos platform. These actions did upset the investors and attracted a lot of criticism towards the Tezos project.
As a result, the angry investors filed class action lawsuits against all DLS Inc., the Breitman’s and the Tezos Foundation accusing them of Selling unregistered securities misrepresenting the project roadmap, falsely advertising under state laws and for following deceptive trade practices.
However, after all this drama and launch delays, Tezos finally released their beta network on June 30, 2018, which is said to be the ‘inflection point’ in the project timeline.
How does Tezos operate?
The 3 key layers in Tezos are network layer, transaction layer, and consensus layer. These modular components make it easy to upgrade by swapping modules in and out seamlessly.
Tezos runs a proof-of-stake model where it allows XTZ owners to vote on the direction of the blockchain, so theoretically, there is no need of hard forking the blockchain.
In an official announcement on Monday, July 23, Tezos claimed to be the “first large-scale blockchain organization” to be audited by PwC.
One of the most reputed and accredited international auditor, Price water house Coopers, Switzerland (PwC) will be conducting an external audit of Tezos finances and operations. This audit report from PWC can potentially repair the damages caused by the lawsuits and all the speculations will be put to rest.
Return on investment (ROI)
Tezos saw its all-time high with 1256% returns during the third week of December 2017, during the Bitcoin boom. However, by the last week of December 2017, the returns dropped to 1064%. In 2018, after the release of its beta version in June 2018 Tezos peaked again with a 969% ROI. However, since then Tezos has only been in a bearish market trend.
Tezos still is one of the top 30 altcoins in terms of total market cap with a value of over $240 million giving over 100% returns (as of 2nd Dec 2018).
The class action lawsuits have affected the Tezos market trend significantly. Disparagement is the last thing you want to attract when it is evident that the market is volatile and the trend feeds on the news.
Was Tezos the catalyst to migrate from ICOs to STOs?
Tezos ICO is a classic example to explain how important it is to maintain the market reputation if you are wishing to operate in crypto space for long. Tezos did few things right but did many things wrong which is why it is termed as the controversial ICO in crypto world.
The irony is that the cryptocurrency that started off with a goal solve governance issues on the blockchain, crashed due to the same.
ICOs like Tezos have ignited the shift towards STOs since they provide with underlying asset backing in the form of regulations and compliance’s in most jurisdictions and holds companies behind the projects accountable to their investors.
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