The drama from Tezos just keeps coming. A top attorney in the cryptocurrency space, once involved with setting up the Tezos Foundation, has issued sharp cautionary notes for those who wish to dabble within the burgeoning initial coin offering (ICO) market.
Swiss foundation Old, Inflexible, Stupid
Dr. Luka Müller, partner at Switzerland and Crypto Valley based law firm MME, can be said to be that rare bird: an expert on initial coin offerings (ICOs). The firm counts among its clients Ethereum, Bancor, and the ill-fated Tezos Foundation. When he speaks, it’s probably a good idea for future ICO participants to listen.
“The Swiss foundation actually is a very old, inflexible, stupid model,” Dr. Müller told Reuters. “The foundation is not designed for operations. You as a user must be absolutely clear — and if you don’t understand it, keep your fingers away — that if you have an ether or a bitcoin, and it does not work, you have nobody to claim against,” he insisted.
If Dr. Müller appears salty, that’s to be expected in the light of Tezos’ ongoing drama, of which the Swiss foundation concept is front and center. News.Bitcoin.com reported recently of how the Tezos meltdown now includes an entire community in revolt. About two weeks before Christmas, its top board member abdicated. Weeks prior to that, The Foundation was to be tapped to pay for legal expenses stemming from its ICO lawsuits. Clearly, its strategy needs serious reevaluation.
The foundation idea is for a kind of non-profit status, and as such list investments as contributions, especially for rigorously tech-involved projects that might need incubation. Dr. Müller suggests building a corporate structure instead of a foundation umbrella for most ICOs:
“If you structure your token sale in a way that it would look like an initial public offering, then even if you launch a (blockchain) protocol, the foundation is maybe not suitable. If…the background is more an investor environment rather than a technical environment, yes, do all the registrations. If you want to sell it, if you want to be active and actively promoting it in the US, apply U.S. law.”
Foundations for Tech, Companies for Most ICOs
Tezos was able to snag a quarter billion USD during its ICO in a year that saw over 5 billion USD in ICOs overall. Switzerland alone hosted over 600 million USD in ICO projects, and so its professional financial sector is among the most experienced the world and highly sought in consultation as a result.
“Under MME’s guidelines, tokens become property with an enforceable right once the blockchain launches and the token receives a spot on the first block. Before the launch contributors have no such rights,” Reuters notes.
Dr. Müller’s foundation concept was to earmark funds expressly, protecting developers ultimately in terms of liability. “It’s a concept of a donation, from which it is clear you donate. You donate into a structure and you donate to a team and to their idea,” he explained. Without liability it’s potentially much harder to find a counterparty to hold responsible, especially in terms of lawsuit. Instead, going forward ICOs should involve themselves in Gesellschaft mit beschränkter Haftung (Gmbh), a Northern European variant on limited liability corporations, LLCs in the United States, or even an Aktiengesellschaft (AG), he recommends. An AG arrangement is basically a corporation that divvies up shares.
Experts also warn of the near impossibility of Swiss foundation models to cough up refunds should the project turn sour, an issue now being hammered out in US courts.
*UPDATE: Dr. Luka Müller wants it made clear the Swiss foundation concept was appropriate for Tezos, but not for other instances as mentioned above.
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Images courtesy of Pixabay, MME, Tezos.
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