Blockchain Insider Ep. 2 Tokenomics, FOMO and $566M in a month
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ST:	We are here at 11FS headquarters in London WeWork, for Episode 2 of Blockchain Insider. Thank you so much to everybody who made our first ever show a giant success. As we speak right now, Blockchain Insider is Number 14 in the UK Business Podcast chart. Thank you so much to everybody who’s made that a success. On today’s show, we talk Governments getting into Blockchain, the fear of missing out now has its own coin, and later in the show, of course, we talk to William Mougayar, the author, expert and speaker on all things tokens and Blockchain. On with the news.
	Okay, and joining us for the news this week, we got the returning Colin Platt. Colin, how are you Sir?
CP:	Good, Very well. Thanks Simon.
ST:	Fantastic, and Maya Zehavi. Maya, thank you so much for being on this show this week
MZ:	My pleasure. Hello everyone.
ST:	Guys, thank you so much for being with us. We’ve got a lot of stories, and not a lot of time to get through. So, Colin, first story up is a story in Coindesk about the People’s Bank of China setting disclosure standards for initial coin offerings. What’s going on here?
CP:	Yeah, so we’ve discussed token sales quite a bit on the show. So, the People’s Bank of China, or the PBOC, is one of the major regulators and the Central Bank of China. They have looked at token sales, ICOs as well as just basic cryptocurrencies and what that might do to things from monetary policy to money leaving the country, which is very tightly controlled in China. They are very worried, from the perspective of how this may hurt investors, if they don’t have sufficient information before they invest, or if money could be lost or stolen, or that this could negatively affect their economy. They put out a couple of different ideas, and this is just from one advisor inside the PBOC, put out a couple of ideas in a local newspaper, talking about the different aspects that Investors need to worry about. They are looking at some of these first day returns, in excess of 10x, as soon as these things launched, and they’re worried about what might happen when that excess liquidity dries up, if that is going to harm the people in China that are trying to invest to make money out of these. For good reasons or bad reasons, they may only be speculative or they may be the beginnings of something new.
ST:	I think that’s a very interesting point, Colin, because what we are seeing is regulators really grappling with, are these things something new, and are retail investors going to get hurt here? And the fact that the PBOC, and others, are now stepping into this space is interesting. Maya, are we seeing the same outside of China? Have you seen any other examples of this?
MZ:	Yes, I think about a month ago, the FCA, in private discussions of Blockchain that was open to the press, they said that they are looking into how to regulate ICOs. And the SEC also said that they are looking into it. So it’s pretty interesting that the first framework of the how that would happen is actually starting, and is coming in from China.
ST:	Isn’t just. So, Colin, what do we think is actually going to happen here? Are we going to get regulations in this space, and it’s going to become safe? Or is it still, kind of, the wild, wild west? And what should we be doing? Should we be investing? Should we be diving in with both feet, or taking sensible steps?
CP:	I think sensible steps always a good approach. I mean, this could be anything from regulators coming in and putting in some high level guidelines to any prospective ICOs that do want to sell in to China, and its worth bearing in mind that a lot of these ICO groups are quite international, thus hard to regulate from within China itself, and a lot these have taken steps to translate their white papers, their documentation, into Mandarin, so that it is more accessible for investors, even though they may be based in London or New York or Moscow or wherever. So it is something that they do-,
ST:	I think that’s the reality of where capital is coming from these days, right? You’re finding that a lot of Capital is coming out of Asia, and if what you’re raising capital on the back of is a white paper, then your white paper needs to be in a local language, and you raised another interesting point, which is the sales of tokens are, by default, international. They’re not as obviously linked to the region they come from, as it would be with a traditional security or derivative instrument. Open to thoughts there.
MZ:	I think it’s really interesting that a lot of these companies are registered in one country, whereas all the people that identify themselves publicly on these white papers, or so, are usually residing somewhere completely different. And the fact that it is the PBOC that came out with these regulatory rules of conduct, if you will, it’s a sign that a lot of Chinese investment money is going into that, whereas, what we are exposed to, we see a lot of asset managers starting to buy in, and hedge funds, funded by Silicon Valley. Maybe that’s not where a lot of the ICO money is right now, if it’s the Chinese stepping up.
ST:	So, Colin, are we seeing that the PBOC and China might be setting the pace of what future regulation’s going to look like here?
CP:	So far China’s been really avant-garde in their thinking, when compared to the US regulators, or some of the regulators around Western Europe. For good or bad, I think it wouldn’t be surprising to see the likes of China, and possibly Singapore, leading in what these regulations look like. I think it’s also worth bearing in mind that they may not have the same feeling in every country, because different regulators have different concerns, and different approaches to these things. The other thing I’ll just throw in there is, the PBC is not the only relevant regulator. SAFE, the State Agency for Foreign Exchange, in China, is very important as well, because it is their responsibility to make sure that there is not too much money sloshing in or out of the country at any point.
ST:	So, definitely one to watch. I’ve got to move us on, Colin, because there’s another regulatory story here, as these token sales come at us thick and fast. The story here, in, again in Coindesk, who’ve filled us up with stories this week, is one where the CFTC has registered a company called LedgerX as a swap execution facilitator, who are the second company to get that type of registration from the CFTC. What is a swap execution facilitator?
CP:	Yeah, so we know these in the business, colloquially, as SEFs. What they are is very akin to an exchange, like the New York Stock Exchange, or the London Stock Exchange, specifically for swaps. And what those are is, they are financial instruments that tend to be long dated, which means they could last for 10 to 20 years, and they help one investor and another investor, a speculator or a hedger, lock in the price of something. So, this could be, generally, interest rates, it could be the price of a commodity, versus a fixed number, generally. What this allows is for real big investors to come in a very regulated market and say, “I want to trade the price of bitcoin or Ethereum, versus a payment, potentially in dollars or in sterling or any other major fiat currency,” and take on as an investment inside a very traditional portfolio. So, these could be now opening doors to all kinds of new hedge funds. This could be opening up the doors to, potentially, anybody that wants to receive bitcoin on an ongoing basis, as a payment for goods and services.
ST:	I find this one interesting, Colin, because the CFTC seems to be kind of leading the way on a lot of the US front here, whereas you think it would be the SEC that would be most interested in what’s happening. Maya, what do you think this really means? Does it mean that retail investors are going to get into this space? Does this mean that the institutional space is changing? Like, what does this actually mean?
MZ:	Well, the fact that it is the CFTC means that it’s not retail investors, right? It’s more sophisticated investors that know how to hedge, know how to price and are following this big rise and the returns that crypto had in the past six months, and they want in on the game, and they want to hedge it, because of the volatility of the currencies. However, there is still some point, in terms of how are these instruments going to be priced? How are they going to be evaluated? And Is the cryptocurrency market mature enough for these financial instruments, in itself? The other more interesting part, and you alluded to this, is that the CFTC, I mean they have been stepping up their game in the past three months. They have a new innovation lab, they’re looking into blockchain, how to regulate it, how to play along with it. Located (ph 08.19) in New York, meeting a tonne of blockchain and crypto startups, and trying to see how they can work with that and what they can authorise, and what framework they are going to need.
ST:	So, I was talking to some senior folks in the industry earlier today, over lunch, and I was kind of suggesting that the idea here that they may be trying to look at, kind of, regular costs and efficiencies, and trying to build slightly faster horses, whilst actually, what’s just happened under the CFTC is somebody’s driven a car onto their lot, because now you have regulated bodies by the CFTC who are trading in crypto assets, and actaully, if you are going to build new asset class in future, would you build it as a crypto asset or  a token? Or would you build it as a traditional financial instrument? The genie may be out of the bottle here.
MZ:	And what’s really interesting about it is the old market, kind of, responded to blockchain and tried to implement all these blockchain strategies, and it might as well come from the crypto community, bringing in new clients of asset classes, pegged to commodities, to futures, equities, on the sly and just opening it up to hedge funds, and not necessarily clearing houses and traditional banking.
CP:	I was going to say, that said, it’s really interesting that a lot of this coming, kind of, from that outside community because this is a greenfield, but it’s worth noting that the CME is also taking a very keen interest in this, as well as the Nasdaq, and several other big market infrastructure firms. So, it’s not solely the Wild West of hedge funds in the Cayman Islands or anywhere. There is a lot of stuff happening across the market, but it is really encouraging, I think to see cryptocurrencies in their own right, not just the blockchain technology, being taken seriously.
ST:	I would agree. I think it’s been very financial services heavy, has this show, from the start, but I think actually it does touch every industry, and if we can really find a way in which the financial services world moves from the old technology to the new, rather than just trying to replace the old with something slightly newer, I think that sort of Trojan horse of people just start adopting this new thing in the corner is possibly a lot of people haven’t really considered. That’s what I think this story may mean. But in the more traditional space, Colin, we did see that 22 banks joined SWIFT’s blockchain trial, SWIFT being the, kind of, organization of payment banks. It’s sort of 19,000 banks in the world on the SWIFT network, I believe, or 100-something, and I can’t remember what the number is. A lot of banks. And this is about improving reconciliation. Can you talk a little bit about the concept of reconciliation, and why banks might want to improve that?
CP:	Yeah, so, the way the SWIFT and the correspondent banking system works is really odd, especially when you start to grasp the idea of what blockchains are. So, effectively the way money moves between, let’s say a bank in the UK and a bank in Mongolia, is there may be three or four different steps before your money leaves London and ends up in Ulaanbaatar. That-, what happens is effectively, a bank with connections, let’s say, between UK and China, receives money in one side and ups the balance in for a bank in Ulaanbaatar, that’s held inside of Beijing. What they are looking to doing is not necessarily replacing that entire system, which in itself sounds very complicated, and it is. They’re taking about the messaging system, and that’s actually where SWIFT is responsible. So, although SWIFT is much maligned amongst the blockchain and cryptocurrency community, for operating this really weird correspondent banking system, what they are is just a secure message passing system, and they’re talking about using these new technologies to say, “I want to standardise the way that this message is sent from Point A to Point B, rather than looking at the underlying thing.” Now, that may come, in time, but that’s not necessarily what they’re being looked at (? 12.04).
ST:	So, it’s interesting that they-, when we talked to Stefan Thomas, the CTO of Ripple last week, I kind of described it to being like the banks are sending an email from party A to B, and then from B to C, and then C to D, but what we really need to be able to do is to copy everybody into the same email here, for everybody to get the message, and for everybody to know they’ve got that message, and to see that everybody’s read that message. Which we kind of don’t have, in today’s SWIFT world. But, Maya?
MZ:	Well, I think it’s really interesting, because SWIFT, in corresponding banking, always had to use different transit banks in order to make the messages route, right? And Ripple is very similar in that sense, that it’s not really a decentralised blockchain. However, we’ve been looking, and seeing that even the design of the blockchains themselves, if you want to send assets from one person to another, and all the corresponding data, it always is going to come in to incoming/outgoing messaging system, via the blockchain. What that standard is, you are going to need an entity, like SWIFT, in order to be able to reconcile what the standards are. So, this is a very welcome approach. I just think it’s very initial. There’s still a long way to go, and notice that this is fabric.
ST:	Indeed, it’s definitely using the, kind of, more conservative versions of the flavours of blockchain that are out there, and it’s definitely something where it’s focusing on, potentially, more in that faster horse category than in the truly revolutionary side. But maybe that’s what makes it credible. Maybe that’s what means everybody will adopt it, and maybe what it means it has a chance. And I think this is an interesting position we find ourselves in, that the two sides could converge.
MZ:	The question is whether this is going to be those better VHS discussions, in terms of standards on messaging on blockchain. Is it going to be whatever most of the financial institutions agree to? Or just like we were talking earlier, about the CFTC, is it going to be just something from the outside, greenfield innovation that is going to take off? And that’s part of the problem.
ST:	I think, if I’m in a bank, I’m more worried about the greenfield stuff, because that’s the thing you don’t know about, and that actually, trying to do, kind of, the efficiency stuff, is a really easy business case to make, but looking outside that field of view, you definitely get some fear of missing out. And I want to finish on a story here about fear of missing out, because this is something that we sold this week. There was the launch of FOMO Coin. FOMO, for the uninitiated, is the acronym for “Fear of Missing Out”, and FOMO Coin is a 100%, I think, spoof coin, designed for people, really as a commentary on what we’re seeing in the whole token sale, cryptocurrency space, to say that a lot of people have been rushing into the space, and we could launch any old coin, and people would buy it, and, yet another initial coin offering is live, get it before it’s too late with the countdown to when it goes live, and seems like they’ve already received some money. I mean, what are your thoughts on this one, Colin? I found this one quite funny.
CP:	A lot of these things have been very new, unique. We’re getting some great ideas that wouldn’t necessarily have seen the light of day before, and not all of them will succeed. But the sums that are going into this are just enormous, and although we may be losing more money in high profile collapses of unicorns, a lot of these are going into companies that have maybe two or three people, who maybe have never even met before in real life, just set up a website and go out and raise $10, $20, $50, $100 million. This is kind of tongue in cheek capitalising on that, and lot of people come in just to laugh at these things and say, “Sure, I’ll throw you $10,” and that’s how they get a tonne of money. I mean, there was another that came out called the Useless Ethereum Token, UET. Josh Cincinnati, a few weeks ago came out with “Ponzi ICO”. A lot of people are capitalising on the fact that they don’t really see the value in a lot of these things, and it’s true, as I have said before, not all of them are going to be unicorns. But it’s silly to see where this has taken us in life, and I think a lot of people who have been in this from the early stages, when the big projects were raising $2, $3, $4, $5 million, outside of Ethereum, which itself raised only $20 million, and was a very developed project, as an ICO, it’s crazy to see where this world has gone, and this could be the start of something new, or it could be a bubble. We’ll see.
MZ:	I think the original FOMO Coin was Dogecoin or Mastercoin, back in 2014. I mean, we’ve been through this cycle before, and I think it’s just got more and more ridiculous in the last couple of weeks. There was one ICO that literally, their white paper was an academic paper that they hadn’t even written. They just literally copy pasted it. I think there is a group out in Asia, that just-, their websites with the same advisors just pop up every couple of weeks, the websites look the same, and this does have scam written all over it, despite the fact that there are some legit projects, and I find it terrifying.
CP:	I’ll throw it in there Maya. There are companies out there that now will set up everything you need, a turnkey solution for an ICO. So, you go and pay them 200 bitcoins and they will launch and do everything to help you raise 10,000 bitcoins, or whatever it is.
MZ:	But one thing this system is missing is, despite the fact that we have been talking about how greenfield it is, it’s pretty amazing that the community, the crypto community, hasn’t come up with a third party to, kind of, assess what these projects are, who these people are, who are their advisors, what is really in the white paper and how much is feasible beyond different Twitter rants. And I think we’ve been starting to see some more established initiatives, in this sense, from Consensus, on the one hand, and some Microsoft and Deloitte partnership looking to audit ICOs.
ST:	That auditor, standards, best practice kind of space is definitely evolving, and I know when we speak to William later, we’ll have some thoughts on that. But you’re right, I have spoken to a number of folks who fear that ordinary people on the retail side are getting burned, but also, institutional capital is now coming into this space and can’t tell a good ICO from a bad ICO, because they’ve all got funny names, they’ve all got a white paper and its all speaking gobbledygook. Like, how do I know what I’m investing in here? I need to know who to trust. And the traditional auditors and legal firms are definitely seeing an opportunity here, and I think there are some good examples of that being done right. Guys, I’ve got to call this one to a close, we’re up against it on time. Really appreciate for you being with us here on Blockchain Insider for another week, Colin, where can people find out more about what you do?
CP:	Twitter. @colingplatt.
ST:	Fantastic. And Maya, where can people find out more about you and what you do?
MZ:	qed-it.com, or Twitter @mayazi.
ST:	Fantastic. Thank you so much. Coming up, we are speaking to William Mougayar. 
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ST:	So, we are back, and I’m joined by Mr. Token Sale, Mr. Blockchain, William Mougayar. How are you, sir?
WM:	I’m fine man. Good to be here.
ST:	Great to have you on the show. You and I have been, kind of, involved in this space for quite some time, but for our listeners, tell us a little bit about who you are, what’s your background, how you got into this whole space.
WM:	Sure. So, I’ve been in technology for the last 35 years, and working both at big companies and starting on my own. I was founder three times. And in terms of the blockchain, I had a taste of peer to peer technology in its first rendition. In 2000, 2001, as you recall, we had the first generation, with file sharing. At the time, I was running a site called Peer Intelligence, and it was just all about music sharing, mostly. And then we had to wait a good eight to nine years, until the bitcoin paper came along. As far as my involvement with the blockchain, recently, that started at the end of ’13, when I met Vitalik. At the time, he was finishing the paper, and I had heard of bitcoin in 2012, but I was busy running my last startup, Engagio, at that time and I kind of ignored it. During the internet years, I also wrote another book called Opening Digital Markets, in ’97, and the reason why I left Hewett Packard in ‘95 was specifically because I saw the internet as the big catalyst for reengineering a lot of the businesses. And when I saw the blockchain in 2013, I realised that we had another internet on our hands here, that is going to be very important in terms of what it’s going to change, business-wise. So, I started to immerse myself into learning the technology. I got more excited, obviously, when I learned that there was something called blockchain behind bitcoin. When I first heard about what was going on, I thought of it as a cryptocurrency. That wasn’t too exciting, on its own, but the technology behind it is really, as we all know today, and It’s obvious, that is the really biggest story.
ST:	I completely agree. We hear a lot of people talking about the third incarnation of the internet, Web 3.0 and these sorts of things. You know, Web 2.0 was Facebook and Amazon. Web 3.0 is really the next generation that comes, kind of, after that. So, where do you think we’re at in the evolution of blockchain, DLT, given your experience in the internet, kind of, revolution? “Are we there yet?” if I can be the kid in the back of the car, briefly.
WM:	Yeah, I mean I have said-, I mean, we are still early, and you could almost wind the clock back 20 years, almost to the day, and some people will argue, yes, plus or minus, but I think we are probably at-, in 1997, more or less. Not a lot of big companies have jumped on the blockchain bandwagon in a serious way. There is lots of experimentation at the enterprise level, as you well know, obviously you have come from that background, but I’m talking about the big financial players. I’m waiting to hear the big players like the Nasdaq and the New York Stock Exchange, and others, really jumping both feet into it. Right now, they have a toe in, or a little bit of interest, but I’m waiting to hear those big exchanges, for example, allowing cryptocurrency to be there as an asset. I mean, I want to see a recognition of the fact that a crypto asset is not this beast. It is something that is just another asset that is recognised, and I think that would be a turning moment, as we see bigger players get into it.
ST:	Completely. We have seen paper assets, paper contracts for centuries, and now we have these native digital assets and they, in a lot of ways behave quite different, in a lot of ways quite new to Nasdaq, or a London Stock Exchange or a Deutsche Börse etc., but they could be really, really exciting in a whole bunch of ways. So, you use the term, kind of “crypto assets”, we’ve talked about token sales a lot on the show. I’d really appreciate your definition of a crypto asset and a token sale, because you have been in this space for a little while, you’ve got, I think, a very clear mental model of what that looks like.
WM:	Sure, crypto assets, I think come in two flavours. One is a value, something that has value that has been created on the blockchain, meaning that it lives on the blockchain as opposed to the database. Traditionally, everything we do has a representation on a database somewhere, that the bank owns or somebody owns, that can point to it and says, “Hey, here, this is it. Somebody owns it, and this is the value for it.” So, a crypto asset is that new type of value representation, that instead of being on a database is on a blockchain. The second aspect, the second variation on that is something that already exists, but that has a proxy, or that has a link up to a blockchain, where we recognise that this value exists in the real world, but what if we were to have a linkage that would live on the blockchain, and that would be an accurate representation of that asset? And the reason why we are doing that, is because blockchains are going to be a lot more efficient, in terms of the transaction power that they give us. A lot more efficient than databases. Every time you send or receive a transaction that starts with a database, in more cases than none, there will be many hands touching it in the middle. There will be many databases that have to synchronise with each other. And the blockchain’s promise is that we all are synchronised from the beginning, because the ledger is shared by everybody. So that, I think, is a very important aspect. Changing it to the token sale, I mean, the token is another representation of value, but now it has started into a business model. So, the idea is, “What if we empowered users to be compensated for actions that they accomplish, as part of a marketplace, as part of a product, as part of a service?” So this is something that we-, maybe the closest thing that we’ev had to it maybe was loyalty points, or co-op institutions, where the members also are recipients of the benefits. But now, we are taking it to another level where we can imagine that the benefits that accrue from a network, or from a marketplace, can be now shared by all of the participants, and not just by a central force that takes all of the profits and leaves the users with just them giving stuff, but not getting it back. And the example that I give a lot is that of Facebook, for example, where, if we think about it, we give our attention to Facebook on a daily basis.  The average user spends an hour a day on Facebook. We give them our attention. What do they give us back in return, that is monetary? Nothing. They take our attention and they monetise it by advertising that they resell, and they make the bucks, but we are not making anything. And there are many, many jobs, many places that are spending time or doing some kind of work and (? 26.45) was the first person that coined this term as the “third job”. We all have had third jobs in the past 10 years. The first job being the one that you currently have, where you get a pay cheque for. The second job being taking care of yourself, of your family, of your house, doing the dishes, cleaning. And the third job is the job others have given to us, whether it’s online, mostly, you’re booking a ticket, or spending time on Facebook, or writing content that others want you to do, but we haven’t been paid for that job. And the blockchain, with the model of the token, can give us the opportunity now to get compensated in a more equitable way for that third job that we have been doing anyways.
ST:	That’s super interesting. So basically, it’s almost like having, if we organised amongst ourselves to drive each other, and we had an economic model for us to be able to drive for each other and have a mini taxi service, instead of there being Uber in the middle of it, it’s just the software and the economics that are in the middle of it, and its truly decenatralised in the way that bitcoin or bit torrent and the file sharing used to be, but there is no middleperson taking out the majority of the profit, so it’s more equitable. I think that’s an interesting concept, but, you know, the token sale space is extremely hot right now. It’s getting a lot of press, it’s getting a lot of attention. You have been on CNBC and all over the news. But there’s also a lot of people worrying about, you know, it not being done right, are the regulators going to come in? Is there a way to do token sales right? Are people doing them wrong? And can there be such a model for selling these tokens, and doing so in a way that protects users and everybody involved?
WM:	Sure. So, we are seeing the whole gamut of the ways of doing token sales. It would be a bit presumptuous for me to say, “This is right, this is wrong.” I mean, there are excesses right now that have taken place, and like any technological revolution, there will be excesses before we realise what is normal, what is perceived to be a best practice, and what is not. One area of an excess that I’m seeing is in raising too much money. So, I’m still not able to grapple in my head why does a company, a startup, need to raise so much money? I mean, everybody is running on the best-case scenario. Everybody is running on the fact that everything is going to be great, everything is going to be beautiful, everybody is going to get millions of users, and it’s going to be a great decentralised world. But the reality is that that’s not the way it’s going to happen. All of these ICOs are startups. At the end of the day, they are all small companies that still have to prove that they can not only build a product, but that they can get it adopted by users and by developers, and that takes a lot of time. There is no escaping the natural laws of a startup evolution, and that takes time, and that takes, the unfortunate truth, that many of them will not succeed. I want to say one more thing about the tokens, because one area that I’m seeing a little bit of slippage here, is that the token is started to get used-, you know, typically when a word becomes very popular, then it starts to lose its meaning. It starts to get used, abused and misused, and right now, the token is being used, in a way, to incentivise users. And some of the recent token sales, when you look at the token distribution, which is one of the data points to look at, which is how they will distribute the tokens between the fundraiser sale, versus how much they keep to themselves, how much do they keep in reserve? What they do with those tokens? One big slice of the pie is, that I’m seeing recently, is to incentivise users. But there is a nuance between incentivising users and bribing them. So, a token is not a short term carrot. It’s not a bribe that you can give users. If you have a bad product, if you have a service that’s not going to stick, yes you can bribe anybody to try it something once or twice with a token but will they come back? So, you have to be very careful in not using the token as a bribe too early, before you find out that you have a market fit for the product, and that could be another-, that’s one of the risk factors, that’s one of the blind spots that we could run into. Imagine a company has set aside a bunch of tokens to incentivise users, and they issue them, and then they give to users. Users come in, they (? 31.43) once or twice and then never come back and that would be, yes.
ST:	Yes, that makes complete sense. That makes complete sense, William, that you could potentially see people buying these tokens purely for profit, which I think we see a lot of. We see people buying the tokens and then dumping them shortly after they’ve been raised. And, we see people raising lots of money without necessarily a plan, or any guarantee of quality of product. And now I’m starting to see people saying, “Well, okay, we’re actually going to raise this lump of cash upfront, and then we are going to drip feed that cash out of a Foundation that will hold the funds that we’ve raised, to an operating company, and that operating company is allowed to build the next stage of the product, if that product reaches certain milestones. If not, something philanthropic will happen with the money, or there will be some governance wrapped around what happens with the money.” Because you can see that regulators and investors would say, “I’m buying this thing based on that I think the price is going to go up, but am I buying this thing because I actually think I’m going to use the service in the future and I’m going to need those tokens?” I always think of them as being like fairground tokens, or like passes. You can take this little token and then you can go on one of the rides at Disney World, but actually, if I buy it now, it’s 10% of the cost what it would be in a year’s time, so buying a whole bunch of them makes complete sense. But if the ride at Disneyland never gets built, then what’s the point in my token?
WM:	That’s correct. At this point in time, valuations are far ahead of value, and there is fuzziness between the actual usage and the utility of the token in reality, because the reality always comes later. Right now, again we are running on a lot of optimism, and on the best-case scenario that everything is going to be great. Another risk factor that I’m sensing here is, at some point in time, there is a lock-up period that expires. See, a lot of these ICOs, a big part of the funding has been coming from other hedge funds, or wealthy investors, and in many cases, the pre-sales have a lock-up period, a lock-up period being anything from six months to 12 months, typically. So, you have to watch for when does this lock-up period expire? Because I can tell you for a fact, all of these funds are looking for a profit, and they will start to sell a part of what they have invested as soon as the lock-up periods are able to give them the liquidity that they are looking for. So, this is why, right now, there is not a lot of transparency into when these lock-up periods expire, but you can pretty much, kind of, go six months ahead after the sale has happened, and assume that there will be a dip in those prices, unless the ICO is doing some great work, and that there are buyers that come in to the rescue and buy those tokens. So, right now, there is a not lot of transparency in figuring this out, and I have an initiative that I’m working on, that I’m very close to talking about, to releasing, where there will be more transparency in terms of knowing exactly what these companies are doing. I think it’s going to complement what’s already out there. It’s very difficult to go and find out the information. I mean, like, I just spent the last few days, I knew that June, for example, I’ll give you a data point that I’m going to blog about later today. I was-, I knew that June of 2017 was a turning point, in terms of the total token sales, so I took it upon myself to find out how-, I wanted to know how much was raised in June, specifically, and it me hours and hours. I just completed this last evening. And finally, I have that count, and nobody have done this in a very thorough manner. So, the count for June is $566 million have been raised in ICOs by 34 companies. So, I said earlier on, at one point of time, we are going to have one a day. So, we are now at a point where we are having more than one a day. So, before it was, like, one every week. One a month, before that. So, at this point in time, the headlines are still there for when an ICO happens, but pretty soon we are going to have two a day, and three a day, and five a day, and it won’t be the headline anymore, and I think we are heading to that point.
ST:	I think that’s exactly right, William. There is so much happening here, it is happening so fast and it’s very different to the traditional venture capital route, where you would get a small amount of money, if you did okay, you’d get a little bit amount of money. I know you have been speaking to West Coast VCs quite a bit, and what do you think their take on this space is? Is this an alternative funding model, by the geeks, for the geeks? Is it something that they see as a threat to their model? Can it be a threat? Should it be a threat to their model?
WM:	Today, the majority of the VCs, by virtue of their limited partnership agreements, that they are bound to, cannot invest in ICOs, cannot invest in cryptocurrency directly. So, they are all bound by these agreements they have with their limited partners who really fund them. And nowhere in there does it say anything about cryptocurrency. Now, some of the very progressive VCs, and you can count them on one hand, have been able to get around that by investing in other funds that invest in cryptocurrencies. So, I’m seeing a number of new funds today. They start out as hedge funds, and some of them are calling themselves crypto asset funds. I’m seeing a lot of them, and we are talking dozens. Probably under 100 over the next year will just be focussed on cryptocurrency. So, right now, the VCs are not in the forefront of these investments. They have been caught a little bit behind it, and they are trying to wonder what to do with it, and how to get involved. Now, another way to get involved is to invest in a company in the pre-ICO stage, where the company goes and raises a token later on, and the token becomes an asset for that company. So, if I’m an owner of a company, then by virtue of that fact, I’m recipient and a beneficiary of their asset appreciation, when that happens. So, it’s kind of an indirect way of seeing your money appreciate, in that way. And we are seeing that happen, not just with blockchain companies, we are seeing, we are going to see more of that happen with companies that did not have anything to do with blockchain, like the case of KIK, which is a messenger that teenagers use, and they have more than 200 million users. And they have nothing to do with blockchain, but they recently announced that they are creating a token called KIN, which will be the token that their users will use, to lubricate their usages inside of their marketplace. And I predict we are going to see more and more traditional companies buying into the token model
ST:	I think we will, too, and I think it’s pretty interesting that, yes, as you say, it’s not just financial services that are in this token space. It is not just people going after that. It is people building real services. I look at services like Steemit, by the guys behind-, now behind EOS and BitShares, where individual contributors are, kind of, creating news stories, almost like on Huffington post, people can write their own stories, but they get directly compensated with micro payments from a currency called Steem Dollars, and that currency is printed and minted every day, and there’s a market buying and selling those things to create liquidity, kind of, in that space. There are some really interesting business models, once you start diving into how the individual tokens work but talk me through, like, the lifecycle of a token sale. We see people talking about pre-sales, we talk about the traditional blockchains and ICOs, we talk about the challenges of it. What does the lifecycle for a token sale look like. if I’m going to do that, and kind of where should that landscape start to evolve, and who are the competing ones? Because we are seeing, not everybody does the same type of token sales. Tezos would look different to EOS, that would look different to Ethereum. So, talk me through the lifecycle, and talk me through some of the competing approaches that we’re seeing.
WM:	Sure. It still (? 40.41), in terms of ways to do it and best practices. We are not there yet, in terms of standardisation. There is an emergence of a new segment, and again this is an upcoming blog post that I’m going to write, a new segment called ICO service providers. I think it was hinted upon in the news segment just a few minutes ago, and we are seeing the landscape emerge, in terms of companies that can help you do an ICO, and in some cases it’s a turnkey process and some others, they just do one aspect of it, but in a nutshell, there is a financial aspect, which is, “How do I get the money? How do I get the tokens to be generated, and how do I get that into my wallets, or my number of wallets?” and that is becoming a little bit more standardised. So, there is not a whole lot there that is too much rocket science, or too difficult. However, I’m still amazed by the creativity that some of these latest ICOs keep thinking of, in terms of ways to do it, whether it’s a capped sale, meaning that they put a market cap, a maximum market value on it, or whether it’s an uncapped sale, or whether it’s a one-time deal meaning, we just issue a number of tokens and we raise once, or whether we raise again in a year, or in the case of EOS, they raise every month. I mean, it’s all over the place, and in a way, it’s kind of confusing. It’s confusing if the terms are different, and in the long term, yes it speaks to the fact that entrepreneurs are creative, but if you are a recipient, if you are a buyer, you have to decide for each sale, and figure out whether the terms are favourable or not favourable, and that’s an area that I think hopefully will normalise going forward. So then, once you figure out the finance aspect, then you have to figure out the legal aspects, and what we are seeing a lot of here is, many of these companies have dual jurisdictional structure. One being, in a place where they started, it could be Canada, it could be the US, it could be anywhere in the world. But then what gets tricky now is, where is the jurisdiction of the foundation? The foundation is a word that is used, modelled after the Ethereum foundation, which kind of started that trend, and they realised that there was this little county in Switzerland, called Zug, that had a very progressive set of governors there, that allowed cryptocurrency based organizations to be incorporated. So, they are kind of like the Delaware, in US speak terms, they are like the Delaware of the cryptocurrency world. But they are not the only ones. I mean, Singapore has done a very good job, recently, to attract these ICOs in terms of where the crypto jurisdiction is going to be based. I mean, they want to be in-, they need to be in places that are friendly to these jurisdictions. So, once you figure out the legal aspects and the finance aspects, then you have to figure out the role of the token, and this is something that is sometimes overlooked, at least from a thoroughness perspective, and I have written at length at that, I call it Tokenomics, and you have to really have a very clear view about the token usage, and its value and its utility, and yes, at the beginning it’s a theory, you have to prove it and you have to iterate on it, in the same way startups iterate on their products. So now, the problem here is that you have to iterate on your product and you have to iterate on the token usage. So, that leads to the other aspect of a successful ICO, which is the product itself. And sometimes it starts with a white paper. That means that the product may or may not have been developed yet. And sometimes the white paper comes at the same time as an early product. But that becomes very important, and sometimes it’s an alpha product, or a beta product because companies did not have the money to hire engineers. I have seen ICOs raise money with two people only, so then now you have to talk about creating a company, you have to talk about hiring people, and how you will just get back to work and develop the product, and put it in the hands of the users. And that can take a year to two years, and that’s the part a lot of companies underestimate. I mean, Ethereum did not happen overnight. It’s been in the works for a good three years.
ST:	Yeah, Ethereum took a little while, and it’s been successful, but it’s also definitely seeing its scaling challenges, which we see with every VC funded product, right? I mean this is not a thing that’s immune, or something you don’t see in other sectors but, yes, just because you have raised the money doesn’t mean the battle is won, but usually raising the money is something you do after the product. So, now, there’s a whole bunch of things that you need to think about, as you point out there, about what jurisdiction’s going to be best, what the structure of your company needs to be, how is your-, I love the term “Tokenomics”. The idea of-, that you’ve really got to think about the economics of how your token is going to incentivise users, build a market. That’s something that people building products just haven’t had to engage before, and then lastly, of course, you are thinking about how do you make that product successful and gain adoption, so that this amount of money that you raised actually pays back investors and that you have not just kind of walked away having taken a lot of money and not delivered anything. William, I think I’ve got to ask you the final question, because we are up against it on time. Surely we are in a bubble right now. Surely its 1996 all over again, and we are going to see Pets.com, and we are going to see all kinds of bodies on the floor. Do you think we are in a bubble?
 WM:	Well, the thing with the bubble is that you won’t know you are in it until it happens and you are going to look in the rear view mirror and say, “Well yes, this just happened.” The bubble is not going to give any warnings like, “Hey, now it’s going to be-, something is going to happen next week.”  So, it’s going to happen, either via an event of some sort, or via a dwindling of the value of all these cryptocurrencies, but this kind of follows the model of Carlota Perez. She talks about the fact that all of the technological revolutions go through two phases, the installation phase and the deployment phase. The installation phase is the early phase, when the technology is just being installed and played with, and then the deployment is when everyone starts to adopt it. But in between, there is a crash that happens, and there is a reset because we don’t know necessarily what the boundaries are coming into it. We need to push all the limits that are possible, in terms of what can we do with the blockchain, what can we do with the tokens? Before we realise what we cannot do with it. In a way, the bubble will be a good thing that will happen, whenever it bursts, because when it bursts, it’s going to flush out the tri-factor of bad things. The bad actors, the bad ideas and the bad companies will all be flushed out and will be gone, and then we are going to understand, and realise what we can do, and then I see a lot of prosperity after that. And if you ask me when, it’s impossible-, it’s difficult to time it, but if I were to take a guess, I would say any time within the next eight months to 14 months, we could expect something to reset itself here.
ST:	That’s a super interesting prediction. There’s definitely going to be a storm before the calm comes back, and hopefully-, we saw exactly the same with the dotcom, crash and we saw a lot of productivity, but I often ask people, “Would you rather be involved in dotcom before 1996, and have, kind of, knowledge of what Amazon were doing? or would you want to wait until 2004, 2005 when it look like a no-brainer?” and there’s always risk with being early, but there’s a lot of excitement, too. William, thank you so much for being with us on second ever episode of Blockchain Insider. Where can people find out more about who you are and what you do?
WM:	Sure, so I blog on a regular basis at startupmanagement.org/blog and I tweet all the time @wmougayar. So, it’s @wmougayar on Twitter, or startupmanagement.org/blog, for blogging.
ST:	William, thank you so much for being with us on this show this week. What a fantastic interview. Thank you very, very much, and a big thank you to all of our guests today. Thank you very much to you, as well, for listening. If you like what you heard, please do subscribe to our podcast. Leave us a review on iTunes. Tell your friends, colleagues and everyone you can get your hands on to listen to. We are going to have more Blockchain Insider shows coming at you soon, and check 11FS.com if you want to know anything about the team who bring you Blockchain Insider every week, but for now, goodbye.
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