Could Golem be as profitable as Ethereum

ICO - corporate finance in the ether bubble?

Banks are becoming less and less involved in corporate finance - regulation prohibits the associated risks, so that, in addition to real estate finance, there is often only supposedly risk-free public finance. For equity financing, on the other hand, the transaction costs are often too high. An ICO - Initial Coin Offering - promises an impressive way out for young companies with an affinity to Blockchain and cryptocurrencies. In the refreshing freedom of regulation, uncomplicated liquidity sprouts, which offers venture capital in breathtaking amounts for innovative ideas. The project Bancor, ironically named after a political idea by John Maynard Keynes, of all things, was able to raise funding at a market value of $ 153 million. The market value corresponds to the then stock exchange price of Ether, the crypto currency that was exchanged for Tokens provided by the "investors". Other projects that are financed in this way are the browser, for example Brave ($ 35 million), the computing power marketplace Golem (approximately $ 300 million) and the SingularDTV entertainment platform (nearly $ 100 million). How does this funding work?

The EthereumPlatform, which owns its own cryptocurrency Ether uses, allows a relatively simple self-construction of so-called Tokens - which function like a cryptocurrency and are the subject of smart contracts, of programmed contract rules. In the case of an ICO, those "investors" who are convinced of the company's offerings send Ether to one of them smart contractwho for it Tokens issues. This exchange can be programmed as required; it usually takes place in the form of an auction - often a reverse auction with tranches of each limited Tokennumbers. Ether, the cryptocurrency that is required for “investment”, can be easily obtained on cryptocurrency exchanges, now even against euros or even more simply against other cryptocurrencies such as Bitcoin.

I chose the quotation marks above because of the character of the Tokens is unclear. These are not securities with evidenced title to ownership, which correspond to shares. Hence the name ICO misleading. Tokens are de facto digital vouchers that could in principle be redeemed for shares, but this is where the big problem of the parallel development of increasingly regulated official markets on the one hand and increasingly innovative unofficial crypto markets on the other. A share is a legal right to dividends and voting rights. Both can in principle be granted, and digital codecision over Tokens is easy to implement. But there is no legal claim, which is ultimately a claim to legitimate third-party violence for one's own benefit. That leaves only trust or hope in later life Token-Buyers - if only the latter remained, the rest of the trust would also be lost in a great pyramid scheme.

Such purely trust-based financing would have no chance against functioning official institutions in which trust is supplemented by sanctions. But the institutions have long since only worked for the big ones. For smaller and younger companies, there is a threshold of many millions before the issue of shares and thus really liquid equity financing, which must be earned or burnt by the state. Of course, there are still in between Venture capital, but that is all too rare and greed for large shares. Regulation and the “liberal professions” cartel make any equity solution such as employee participation more expensive and more difficult. Step around it smart contracts as a direct declaration of war against notaries, trustees and lawyers - in fact it is of course a declaration of war against politically inflated transaction costs, which make the market economy look more and more like an exclusive corporate event. In that sense, each is ICO a revolutionary act of self-liberation from entrepreneurship. Unfortunately, with revolutions there is seldom the time and leisure for caution, deliberation, moderation, or even for learning something from history. That always provokes backlash. The current ICO-Trend is overstretched and amounts to a correction. It is uncertain what will remain then - and whether the regulators and stranglers will not gain the upper hand because they can be seen to be confirmed.

Equity financing for companies has often been subject to overstretching in the past. They are particularly difficult because the uncertainty of entrepreneurship leads to particularly counter-cyclical phenomena. Those entrepreneurs with the greatest added value create new products and markets - but that means that hardly anyone can tell their success. At the moment they are indistinguishable from the myriad of nuts who will never succeed. That is why it is hardly possible to raise equity in normal phases - normal people do not risk total losses, because otherwise they would be crazy. In crazy times, on the other hand, in phases of revaluation of values, the pseudo-risk, the high-risk one, intensifies FOMO(Fear of missing out) - the fear of missing out. The unlimited chances of success are particularly suitable for promises and fantasies. The few competent books of recent economic history are full of equity manias and the reactions that follow. We are dealing with a psychological peculiarity of corporate financing - the good weirdos arrive on time, but these are indistinguishable from the bad ones, and the latter only then accumulate in the hype. That is why the old formula of corporate finance from the three is just right Q: Family, friends and fools. These three groups are the addressees of equity financing. And if there are suddenly so many weirdos that they outnumber family and friends, that's not a good sign.

To a ICO to “draw” you have to be a weirdo. The early ones were still partly in a good sense, for example with the former Ethereum ICO, the launch of the platform on which today's ICOs are often based. Their pioneering work was rewarded by a thousandfold increase in value, which aroused expectations and greed. The high Ether investments in today's ICOs are explained by this: Since the stock market price for Ether rose so much, thousands are now sitting on unbelievable dollar values ​​- which, however, are still largely unredeemed, and stock exchange prices cannot simply be multiplied. The legitimate suspicion of the dollar explains why there is no need to “cash in” - and put it in quotation marks. After all, ether as a cryptocurrency is also an uncorrelated investment set with historically impressive "performance", so that selling against digital dollars, which are then lying around in the accounts of shaky banks (because all other assets are already too expensive), does not feel like securing value. “Investors” shift hundreds of ethers, with which so far little interesting can be done, into interesting-sounding projects - the early beginners got them for fractions of a dollar.

But couldn't it be an innovative form of financing for a company to issue digital vouchers? We are then in the vicinity of crowd investing - but this is also more of a phenomenon for fools than for investors in the classic sense, as this analysis showed. Vouchers only have a market value if they allow a cheaper purchase of products or shares, or - and digital vouchers could make this possible - are issued in limited numbers and are necessary to purchase the products. The former leads to a disadvantage for future investors, the latter to a disadvantage for future customers - in contrast to the growth interest of the early "investors".

The first case corresponds to a bond with warrants, convertible bonds or heavily discounted vouchers for product quotas. For the “investor”, the added value that compensates for the risk of default is to get more value for less price in the event of success. In Silicon Valley, a simpler alternative to the option bond is gaining acceptance in order to bypass transaction costs - the contractual assurance of company shares in exchange for a pseudo bond with no interest or term. The Venture capital-Companies Y combinator calls his model contracts SAFE (short for: simple agreement for future equity). The pun is at least as misleading as ICO - it is high-risk mezzanine financing. Without the crazy money bubble of our time, it would be hard to find investors who invest in a company after it has already blamed a significant part of the company as a debt. But FOMO leads to Y combinator some lucrative deals succeed: If the price is already on one Exit There is no upper limit, without any profitability or an IPO, the details no longer play a major role.

The latter case is even more interesting because it is more unusual. Digital vouchers could gain value because the company bills them - i.e. later customers have to inquire about these vouchers in order to get the company's goods and services. But this makes these goods or services more expensive: On the one hand, the detour is via Tokens More cumbersome for customers, unless it is seamless and direct - i.e. an automatic one at the digital and analog cash desk in the company TokenExchange is operated. On the other hand, the effort for the company is greater. A competitor could copy the products and by foregoing the Token- Produce the system more cheaply - provided that no proprietary technology is used. Lots BlockchainProjects are Open sourcewhich excludes the latter. Hardly any of the current ICOs has so far made a convincing proposal with regard to the token value, often if only because there are still no products at all that can be used to formulate a value proposition with regard to the payment modalities and conditions. So it is a mixture: instead of ownership shares, there are digital vouchers, but actually none Wellcan be bills because there is still no good. This leads to extremely poor incentives for entrepreneurs, or to put it another way: to an extremely attractive form of financing for entrepreneurs. This cannot be sustainable, because now everything is pushing for an ICO - at some point, however, real companies have to adopt the established one Ether at interfaces with the official world, in which rents and taxes are due, exchange them and thus throw them on the market. Is it actually a bubble? When does it burst? What will stay


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