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What's going on?
Tezos, a blockchain technology company, raised $232 million earlier this year in what was the biggest Initial Coin Offering (ICO) at the time (tweet this). Reports on Wednesday of management infighting are now threatening the deal, spooking investors and raising concerns about cryptocurrencies.
What does this mean?
An ICO is an event where a business issues a new cryptocurrency to fund its operations and invites investors to buy it (analogous, in some ways, to an IPO), although the investors typically do not get an ownership stake in the company (instead they get tokens that can, in theory, be used as currency in the future).
In the case of Tezos, the founders set up a separate, independent company designed to act as a guardian of the funds raised. But the founders, essentially, allege that the head of this independent company is not disbursing the funds to foster product development and that he is acting in his own interest. The battle has resulted in a delay of the launch of Tezos technology until the launch, investors will not receive their tokens (tezzies).
Why should I care?
For markets: Tezzies fell as much as 75% in a matter of hours following the news!
Tezos raised money in July, but investors may not be able to trade the tokens until next year (they can trade them informally on exchanges where they trade future promises to buy or sell tokens). Based on those transactions, tezzies have lost a lot of value. Investor contributions to Tezos are technically considered a non-refundable donation to the foundation which means investors have a lot to be nervous about!
For you personally: ICOs are risky business.
ICOs have raked in $3 billion this year despite the lack of transparency in their operations and little protection offered to investors. With so much money going into cryptocurrencies, regulators have started to take note (e.g. the US regulator cautioned against their use). This weeks events are a reminder for the ordinary investor of just how risky such investments can be.
Originally posted as part of the Finimize daily email.
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