How Expensive Is Your Cryptocurrency Infrastructure? (Tokenisation Part 5)

This post is part of a series of articles on tokenisation dealing with general analyses such the possibilities opened up by tokenisation, what should be tokenised, to analyses of specific choices made by some tokenisation initiatives such as whether or not to be a platform play. This blog is also focussed on the nuts and bolts of an ICO by raising some of the decisions that need to be made in designing an ICO and the potential transaction cost consequences of those decisions in terms of your post-ICO token management cost. This is of course assuming your are tokenising an asset like real estate like www.globalrebitcoin.io , realisto.io, caviar.io that will generate returns for token-holders.

So, you’ve decided to sell tokens for your ICO. The question then becomes what you are doing to pay for your infrastructure.

There are at least four components to the infrastructure you choose:

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How deep is your (technical) love? (Tokenisation Part 4)

In part 1 (here) of this series of posts on tokenisation, I looked at the possibilities opened up by tokenisation of assets using cryptocurrencies and in part 3 (here) I looked at some specific implementations of asset tokenisation and reviewed the benefits (or lack thereof) of creating a platform for asset tokenisation. In this post I intend to look at other specific aspects of implementation, considering the risk impact of how the technical the asset tokenisation process is, given the state of the technology.

Generally speaking the issue at large is how much of the process of raising ICO funds you want to carry-out on-chain, i.e on the blockchain and how much do you want to do off-chain?

Maturity

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Platform or not ? (Tokenisation Part 3)

In earlier posts I discussed how cryptocurrency based tokenisation opens up new ways to representing and trading assets worldwide (see Part 1), and discussed what types of assets are best for tokenisation (see Part 2). In this post, I’m going to look at platform and non-platform based approaches to raising funds in ICOs.

I will start with a bit of a tear-down of platform -based approaches for token based ICOs.

Generally speaking, successfully launching a platform is better and more lucrative than launching a product. That’s why Microsoft made so much money off DOS and Windows, Apple makes so much off iTunes, and Facebook …exists. Platforms allow companies to make money as transactions intermediaries, as rent seekers for people wanting to use the platform, and finally as a platform for the platform owner to launch products that implement the most lucrative aspects of applications that have been implemented by other people on that platform. However, successfully launching and sustaining a platform is incredibly hard. Just ask Google that has spent billions of the money it made on search, subsidising its efforts at competing with Apple. First mover advantage and the ability to execute flawlessly are key. Building a platform means getting your potential competitors to stop being suspicious of your intentions, making the value proposition in terms of their clients so unbeatable and cheap they want to join you. It also means doing the same thing for their clients on the other side. So it’s a lot of work, and the matchmaker of a product between providers and clients has to be so well executed means that unless you are creating an industry, or you are Microsoft and IBM wants to gift you an industry, or like Google or Amazon, you have unlimited reserves of money to burn, you’re going face a tough time.

However, the amount of money on offer is large and some people might be correct in assuming that the cryptocurrency industry is so new and immature that there is actually first mover advantage. However, that doesn’t get rid of the cost and product execution requirement. You may be early on the spot  but your platform still needs to be good enough for people who don’t like you to want to use it. So, you’re running an ICO to make the money, which you obviously don’t already have, to get your one shot at making the platform good enough it’s going to take a lot of money off the backs of others. Sounds a bit far-fetched, a bit of a hail-mary, and a great recipe for wasted money (if you are being truthful about the use of your ICO.) If you’re poor enough to run an ICO, you’re probably better off building a product that you could possibly turn into a platform.

And so that leads us to the second more direct approach building the product before the platform, i.e. make sure you can get a horse before building a cart. If you read my earlier pieces (here and here ) you will know that I commented favourably on both tokenising real estate worldwide as well as doing it with  acquisition of assets rather than pure income streams. So I’ve looked at a few different real estate plays in cryptocurrency ICO space, such as atlant.io, realisto.io, and caviar.io, and all appear to take what appears to be a no-brainer, global investment in tokenised real-estate, and make a lot of noise about platforms. In fairness to Realisto, after reading the song and dance about building a platform it is clear they are implementing their projects first to get momentum and return money to investors, then moving to “waste” money on platform and software. Caviar appears to be favouring income streams and discussing a platform involving sophisticated algorithms which, let’s face it, is for lending out money for mortgage income streams and …may not need it. Goldman Sachs may need sophisticated lending algorithms but this may be a little premature. Atlant.io sounds like it has been sinking investor money into building a DAO (lord help us for such ether-eal dreams), then a platform, for whom to use, I wonder.

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What should be tokenised (Tokenisation Part 2)

 

In an earlier post  (see Part 1) I discussed how cryptocurrency based tokenisation  opens up new ways to representing and trading assets worldwide. In this post I will discuss what types of assets are best for tokenisation.

The Link Between Assets and Tokens

When considering buying a cryptocurrency token based on assets, one of the first question that springs to mind is – how are the target assets tied to the tokens I have purchased?* From the perspective of a company’s owners the issue of how much security to give token-holders is a thorny one. This is because laws in different countries that protect investors, also protect companies, in providing them a framework in which they give to and take back control from investors.

No overarching law means it is very much the wild west for both sides and investment and return are very much about doing your homework both as a token issuer and as a token purchaser.  On the investor side the concern is all about the structure of the company running ICO, and its intentions as to how to use the raised money and on the company side, about the types of money taken, the ways in which money is taken, from whom it is taken, and what promises are given for taking it. The management of a company that issues shares can as easily run off to far-off destinations with the money as the one that issues tokens. Both will be breaking the law. There is no blank cheque for token issuers that doesn’t exist for share issuers. On the company side, giving tokenholders the same rights as shareholders is an open invitation to so much liability that token-issuers have to look at other ways to provide comfort to potential token purchasers.

Generally, it’s always a risk-reward balance. You could find ways to secure funds on a cryptocurrency blockchain, before the money gets to the company and to the asset that is being bought with the tokens. Similarly in the non-cryptocurrency world you could handcuff the management of the company you lend to … but less risk will always correspond to less reward, whatever anybody may promise.

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Cryptocurrency Token Possibilities (Tokenisation Part 1)

When discussing the benefits of cryptocurrencies and blockchain, it is important not to overlook the importance of Tokenisation. 

What Is Tokenisation?

The way I use the term, Tokenisation is the process of representing some asset like land, money, shares, in terms of electronic units.

Tokenising an asset, in this context, is using a number of electronic identifiable units, say one million tokens, to represent portions of that asset.

Thus, if you tokenise a piece of land with one million tokens, then each token would represent on-millionth of the value of that piece of land. (Using this definition, a token would be a “security” but that is not really important to this blog post.)

Tokens/electronic units can be a real driver of value if you can trade them securely, across the internet, across the world, like you do cryptocurrencies.

An Example

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Why US startups should use online arbitration with an international seat

This blog entry will first provide some basic reasons why businesses should use arbitration, and then provide specific reasons why US startups should locate their arbitration outside their country using an online arbitration process.

First the reasons for arbitration:

Speed

Court cases take time, even for disputes that are relatively simple or over small amounts of money. You should use an arbitration process with rules from an institution that allow you to flexibly resolve disputes faster. If your arbitration is managed properly, you could get results in a third of the time required in court proceedings.

Cost

Litigation in court can be extraordinarily expensive, even in the preparation until the day before you get to court. This is over and above the time you sit waiting for money owed to you to come in. This  high cost adds unnecessary stress to your business life and may scare you away from actually making claims. Your arbitration, properly designed or using good institutional rules, could be streamlined to avoid costly courtroom-style procedures. A properly designed arbitration process will prevent you getting muscled out by a party that is much richer than you. Continue reading “Why US startups should use online arbitration with an international seat”

Lessons from Persero: Everything gets to be final.

When is an interim arbitral award a final arbitral award?

When final is redefined to be “final until revised.”

This is what was done by the Singapore Court of Appeal in

PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation, [2015] SGCA 30

See the following at para 51:

 

51. The term ‘final’ award can be understood in a number of ways. First, it can refer to an award which resolves a claim or matter in an arbitration with preclusive effect (ie, the same claim or matter cannot be re-litigated). Even provisional awards are ‘final’ in this sense. As Born states (at pp 3013-3014): 

‘… Even awards granting provisional relief can be considered to be “final”, notwithstanding the fact that they will be superseded by subsequent relief, because they finally dispose of a particular request for relief … [E]very award rendered during the course of an arbitration, before its final conclusion, is “final” because of the preclusive effect that it enjoys.’

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Time, Costs, Lessons from the Persero arbitration

Justice delayed is justice denied. The Persero Cases are three cases fought out in Singapore between 2011 and 2015 that relate to the enforcement of arbitral awards from construction contracts. They are a series of fascinating battles between two Indonesian parties (PT Perusahaan Gas Negara (Persero) TBK, an Indonesian company, and CRW Joint Operation, an Indonesian joint operation (a jv that doesn’t involve the setting up of a new legal entity) to a FIDIC construction contract with the amount in dispute ranging between 13 and 18 million dollars. The cases are complex and bring up numerous important points that merit mention as separate blog posts. This particular post highlights the potential implications of time and costs in arbitration, if done badly.

Timeline

Consider the timeline:

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PPSA Registration

PPSA REGISTRATIONS

In this post we discuss how and why you may want to do a PPSA Registration. We are assuming that you, the reader, are a holder of a “security interest” in property.

Security Interest?

Very simply, a security interest is one legal expression describing your economic right to the value in someone else’s property. If someone borrows money from your company to purchase a car, you may get a security interest in, and file a lien on the vehicle. If your company invests in another company using convertible debt, in the agreement you sign, that company may grant your company a right to the economic value in its intellectual property through a security agreement.

In the examples above, if you are able to secure your interests properly using the Personal Property Security Act (the “PPSA”), if the debtor can’t repay you, your claim against the secured assets (the car, the Intellectual Property) will get preference over other claimants that do not have such a registration. The PPSA provides a framework for the registration, recognition and enforcement of these secured interests and provides rules for a pecking order between the different registered secured interests. Each Canadian province has its own PPSA rules and regulations which are broadly similar.

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DRAG ALONG CLAUSE

In this post we will discuss what a drag along clause is, how it is triggered and its use in a shareholder agreement. A drag along clause is used when there are majority and minority shareholders. It usually favours the majority shareholder. A drag along clause is essentially a right that enables the majority shareholder to force a minority shareholder to join the sale of the company. As the term ‘drag along’ suggests, it allows the majority shareholder to drag the other shareholders along.  As a founder, while setting up your company, you should be aware of what options are available to you in the event of the sale of the company. At the time of drafting the shareholder agreement, it is crucial that rights, obligations and exit options are clearly defined. A drag along clause is usually found in the shareholder agreement.

What is a drag along clause?

A drag along clause is the clause in the shareholder agreement that allows a majority shareholder to force the minority shareholders to join in the sale of the company. The majority shareholder who triggers the drag along clause must give the minority shareholder(s) the same price, terms, and conditions as any other seller. The drag along clause is usually negotiated into a shareholders’ agreement by an institutional investor such as a business angel, venture capital investor or private equity investor for whom the exit from the investment is of particular importance. The power to trigger the drag along lies with the majority shareholder so that the minority shareholders are not able to hinder the selling process.

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