Part #8
Step By Step to ICO (Initial Coin Offering) is the highlighted topic of today. Some key points, which we learnt from Ajarn Aor -Dr. Karndee Leopairote – CEO of ICORA are as follow:
Photo Source: ICORA
- What is ICO?
Initial Coin Offering (ICO) is a new fund raising mechanism that integrates the applications of crowdfunding, blockchain, and crypto currency. ICO has become a means for startups or new project owner to use for fund raising executed via primary market to bypass the strict fund raising process (IPO) in capital market. With ICO, the company can raise the fund without diluting their ownership.
If the funds raised do not meet the minimum funds required within the specified timeframe, the fund is returned to the investors as the amount may not be sufficient to accomplish the project and that ICO is deemed to be unsuccessful.
- Is ICO suitable for every business?
No. ICO can be applied to any industry. However, it may not be suitable for every businesses / projects. There are 3 key factors to assess before starting an ICO
1. Financial Feasibility
Review financial projections, benchmark with industry and incorporate the cost of capital into financial. There is no point to successfully raise an ICO but the business has a cashflow problem at the end.
2. Market Feasibility
Identify potential investors of projects and collect feedbacks from them. It’s never too early to test the market. Since ICO is rather new, the investors are clustered in some certain groups of crypto holders. This group of ICO investor is having different project judgement concepts. Therefore, some business may be viable, but may not be so attractive for ICO investors.
3. Regulatory Feasibility
ICO is designed to be a borderless fund raising mechanism where different countries have different stages of regulation development. To avoid legal complications down the road, it would be wise to understand different territory of regulations, especially in the territory of main investors, users, and the market.
- 3 Key components of a successful ICO
1. Idea (Business Model and Token usage)
2. Whitepaper
3. Community Management
- 10 Things to do to launch an ICO
1. Decide value proposition and token usage of project
1.1. Good projects are engineered and developed with a purpose. -define the clear benefit e.g. to solve pain point or to manage for the better society or new technology development
1.2. Token usage – each token should have its own features and functions. The token that is purely speculative without clear function in the business model has a high tendency to risk and fraud. Furthermore, some regulation boundary such as Thailand doesn’t support the idea of speculative token.
2. Project Roadmap and milestone
The project should present the clear roadmap and milestones – key activities the company would like to achieve and by when. The investors must understand the business landscape and should use their own judgement on activity and timeline feasibility. Some projects promise a fast turn around which is too good to be true.
2.1. Some case may be scams even if the whitepaper looks good
2.2. Avoid over-promised cases
3. Form team & advisor
3.1. Team members should consist of different skill combination that will ensure the success the of the project.
3.2. We should do some due diligence of the team and advisor. The project with the big name advisor does not guarantee the project success. In many cases, it is found that those big names advisors do not even know what project all about.
4. Set token allocation
4.1. Decide token allocation e.g. to public, team & advisor, etc. (not too much on particular group to avoid market manipulation)
4.2. Design plan for the usage of funds e.g. operation, investment, etc.
5. Issue whitepaper
5.1 Consisting of background, technology, governance model and etc.
5.2 Try to make it simple. – A good whitepaper does not have to be complicated. But it should be written in in easy term enough for most people to understand.
5.3 Some whitepapers try to put all the “buzz words” of technology and trends together. But in reality, we probably don’t need that much complication to deliver the project.
6. Create and manage social channels
6.1 Good ICO project will engage the community both offline and online
6.2 Create effective communication via online channels
6.3 Telegram is also recommended as a communication tool among people in the community.
6.4 Community manager can make a difference and increase success by responding to questions in timely manner and updating project to community effectively.
6.5 However, we have to be well aware of the fraud in the telegram too.
7. Clear regulatory/legal issues
7.1 To ensure that the business will not be sued. Before starting an ICO, it’s a must to ensure that the ICO is fully compliant with law & regulations e.g. corporate formation, right jurisdiction/licenses, type of token, AML(Anti-Money Laundering)vs KYC (Know Your Customer) law, Taxation, with ads of token sales and whitepaper reviewed by legal firm.
8. Clear token & ICO website
8.1 Ajarn Aor cited a sample web namely Howeycoin, which looks good but too good to be a real investment opportunity. This site was generated by a U.S. regulator with the purpose of illustrating a sample of a well-designed mock but fake ICO.
9. Execute whitelisting & KYC
9.1 Whitelist means to register in advance to participate in an ICO
9.2 The first steps, after whitelist has been closed, is to validate KYC to ensure that
customer is not part of a sanctioned list, a criminal, etc.
9.3 Second, after whitelist is finalized then Communication is issued about when and how the token sales will be placed.
10. Get token out of exchange
10.1 Should have clear listing strategy from lower tier exchange to top exchange. However, many projects try to avoid to name the exchange explicitly. This is due to the past incident that some project referred to well known crypto exchange to boost their price.
Her advice on how to spot scam project are as follow:
1. Quality of Team & Advisor
• Massive red flag if this team is anonymous
• Beware of fake profiles e.g. LinkedIn
2. Whitepaper
• Plagiarized white paper
• No clear use of blockchain
• No comprehensive roadmap
3. Token Structure
• Disproportionate token distribution structure
• Too high guaranteed token price
4. Website
• Insufficient information
5. Community management
• Not clear message regarding the project update
Photo Source: ICORA
Time flies!
During the session, Ajarn Aor also added the gamification via online tool, www.kahoot.it We considered some quick & entertaining questions. For example: the definition of “whale”? The meaning of a bitcoin whale is an individuals or entities that holds large amounts of bitcoin. We were also able to pick up some of the knowledge tips via our line group among CAR classmates.
Part #9
The second speakers of the day was K. Archari Suppiroj, Director of FinTech Department, SEC. She talked about hot issues regarding ICO Regulatory Framework.
- SEC decided to create a regulatory framework over ICO
• The case is unlike that of IPOs, for which the SEC can research information of what happened in other countries then apply appropriate rulings.
• In the case of ICOs, it is really new circumstance. The development occurred like a tsunami – sudden & about the same time around the world. Not much in the way of case study can be applied.
• Lots of bad news regarding ICO cases and also high volatility in the market where some people enjoy to the “moon” (The meaning in crypto term is when the price goes up quickly), while others may go opposite way to the “mao” (Thai word- representing losses due to the market crash/correction conditions)
• SEC considers the benefit of ICOs, thus stepped-in to draw the broad framework at least to eliminate a certain level of concern.
- Royal Decree of Digital Asset Business
Covering electronic data units with similar purposes as specified by SEC board; these are mainly:
• Cryptocurrency – purpose: to be medium of exchange for goods, services, other rights/ digital assets.
• Investment token* – purpose: to specify the right to participate in an investment e.g. revenue or profit sharing right (similar substance as securities)
• Utility token* – purpose: to acquire specify the right to acquire specific goods/services (can be used as tool to add incentive for society e.g. motivate taxi drivers to drive in specific areas)
*Both Investment Token & Utility Token are offered via ICOs
- Activities governed by the Decree
Offering of newly issued digital tokens to public
• Issuer must be established as Companies (Co.Ltd./ PLC.)
• Deal screened by ICO Portal* before submitting to SEC
(note: Now in the stage of finalizing the regulation for the ICO Portal/ The ICO Portal is similar to a financial advisor with the role of screening the possibility of deals, with a filing & prospectus requirement)
• Offering token through ICO portal recognized by the SEC
• Require final approval from the SEC
• Investors obtaining return or goods/services as specified by token issuers
• Investment Amount Limit for retail investor is Baht 300,000
2.2 Digital asset business
• Digital asset exchanges/brokers/ dealers must be licensed by the Ministry of Finance
• In compliance with standards set by SEC e.g. adequate capital; proper risk management (including against cyberthreats); Know your client/ Customer due dilligent process; Measure to prevent anti-money laundering
• In secondary market for crypto/token, people who wish to obtain crypto or token can execute transactions via licensed operators
Photo Source: ICORA
Part #10
Crypto & ICO from the Bank of Thailand (BOT)’s Perspective by Dr. Thammarak Moenjak, Financial Strategy Director of BOT. He talked about the role of BOT which is mainly responsible in term of financial stability & development
- Classification of money or cryptocurrencies
1. Money:
• Cash/coin
• E-money (fully backed by cash) e.g. Rabbit Line Pay; AIS m pay; True money; Air Pay
2. Cryptocurrencies +Money
• Central Bank Digital Currencies (CBDCs) in other countries e.g. wholesale CBDC in Canada, Japan or retail CBDC in Cambodia
3. Cryptocurrencies
• Decentralized cryptocurrencies e.g. bitcoin, ethereum, litecoin
• Privately issued cryptocurrencies –type 1: stable coins back by fiat e.g. USC(Utility Settlement Coin), MUFG, J coin
• Privately issued cryptocurrencies –type2: asset-like crypto e.g. Omisego, JFIN coin
- Mapping with Characteristic of “money”
1. Central Bank Digital Currencies (CBDCs) and Privately issued cryptocurrencies – stable coins back by fiat both can be “Medium of exchange”, “Unit of account” and “Store of value”.
2. Privately issued cryptocurrencies -Asset-like and Decentralized cryptocurrencies can be only “Unit of account”.
- Decentralized cryptocurrencies will never be money
Dr. Thammarak cited the source from BIS Annual Economic Report 2018 that reason why Decentralized cryptocurrencies will never be money is as follow:
1. Scalability
Imagine the size of ledger if it were to hold all payments of Thailand and the world thus it could have transaction congestion.
2. Stability of value
In case of money, BOT plays key role in monitoring and adjusting interest rate to ensure the stability while no one keeps the supply in line with demand in cryptocurrencies market resulting in high volatility.
3. Trust in the finality of payment
Unlike money , which allows for the verification of the settlements immediately
Software update in 2013 caused the inequality among countries
Forking
Fork*: In the cryptocurrency world – a fork is when a there is a change in the rules of the blockchain that the coin operates on or the nodes disagree on a historic transaction(s). *”source: www.Quora.com
- Concern of Thai regulators
Thai regulators include Ministry of Finance, Anti-money Laundering Office, BOT and SEC have been working together. Many concern were raised such as
• Money laundering (ML)/ financing terrorism (FT)
• Investor protection
• Ponzi scheme
• Exchange control
• Taxation
• Financial stability (possible risk if banks invest in crypto currencies)
• Means of payment
• No conclusion whether they are assets or payment
- BOT’s action
1. create awareness/ financial literacy/ communication
2. On 12Feb2018, BOT circulated letter asking financial institutions’ cooperation:
• Not to invest/trade crypto
• Not to provide crypto exchange/broker/dealer services
• Not to provide crypto platform services
• Not to allow credit card purchase of crypto
• Not to support or advice on crypto investment/ exchange
Photo Source: ICORA
Part #11
On the night of 3rd week in the Cryptoasset Revolution (CAR ) class by ICORA, we were pleased to meet Mr.Thanawat Taro Lertwattanarak, CEO, J Ventures.
Mr.Thanawat shared us his invaluable experience with us and his fruitful thought process regarding the 1st ICO case in Thailand.
- Background:
This is the story of J Ventures, Subsidiary of SET-listed JMart Plc. In Feb 2018,
J Ventures completed ICO of 100 Million JFinToken at Bath 6.6 per token (Timing : before Royal Decree of Digital Asset Business)
- Why making decision this way:
Welcome change
• Started from business aiming to improve margin
• Considered to adapt the new core tech trend : Blockchain, Big Data, Credit Scoring, IOT, Fintech, eWallet
• Prepared for future by setting new venture (J Ventures) and initiating new business model
• Quickly executed within only 6 months due to support from the owner, Mr. Adisak Sukumvitaya. Founder, Chief Executive Officer, Jay Mart Public Company Limited. In order to be benefit to Thai society, this project is intended to be the first case study in Thailand
Strategy
• J Ventures is small compared to other players in the digital lending market. Thus to compete with bigger players, they decided to fight in the fintech way and ICO is considered as a good option for fund raising. The fund will be used to develop the JFIN Decentralized Digital Lending Platform- JFIN DDLP”
• The system, JFIN DDLP, is intended to support the Jaymart Group with technological innovations for growth
• Normally Fintech has good initiative but may not have solid reputation as yet. In this case JMart ‘s branding is leveraged. This is regarded as the first ICO case backed by a listed company
The first ICO case study in Thailand
• The success can be claimed from this ICO
• Mr.Thanawat shared that the next step still need to be proven. Let’s stay tuned and wait for the completion of JFIN DDLP system.
• He recommended those who would like to do an ICO should have a clear story. In his opinion, it’s a really impressive & challenging experience, even after finish ICO and apart from the completion of proposed project development, marketing &communication are also important.
Author: Waleeporn Sayasit, Corporate Communications Director, TCC Technology
Advisor: Dr. Karndee Leopairote, CEO, ICORA
Editor: John Bickel, Senior Consultant, TCC Technology
Source: ICORA ‘s class, CryptoAsset Revolution (CAR) #1