A blockchain start-up has raised more than $US4bn in a year-long auction, topping nearly all initial public offerings this year in the latest testament to demand for ways to participate in cryptocurrency.
Through a so-called initial coin offering, block.one, a Cayman Islands-based company, offered EOS tokens in return for ether, a rival cryptocurrency. The offering brought in the equivalent of $US4.15bn based on Friday’s exchange rates, according to blockchain advisory New Alchemy, which uses multiple services that track transactions on the ethereum blockchain. Block.one declined to provide an official proceeds amount.
At that size, block.one’s ICO surpasses the value of all but two IPOs sold worldwide in 2018, according to Dealogic, and ranks as the largest ICO ever, New Alchemy said.
But unlike an IPO, a coin offering does not give the buyer a stake in the operation. Block.one is developing software that would power a blockchain, but none has yet been launched.
ICOs have surged in the last few years, raising more than $US11bn so far this year, up from $US6.4bn for 2017 and $88m in 2016, New Alchemy data show.
Retail investors, chasing speculative returns associated with the sharp gains last year in bitcoin and other digital currencies, have piled into a wide variety of such deals, some backed by celebrities such as Paris Hilton.
The industry has caught the eye of scammers and, in turn, regulators who have been cracking down. The Securities and Exchange Commission even set up a mock website with all the trappings of a typical ICO — a White Paper on the coins and an auction countdown clock — to warn the public of the risks.
Matt Hougan, a veteran of the exchange-traded funds industry who earlier this year joined Bitwise Asset Management, a crypto fund manager, said that while some buyers of the block.one ICO were following hopes of crypto returns, others could be “ethereum whales” who want to lighten up on their exposure without cashing out into fiat currency.
“The crypto ecosystem is still in its early stage of development,” he said “Like any early stage tech, the long-term winners are not guaranteed. Sometimes Amazon wins, but sometime MySpace loses out to Facebook. You are better off with diversified exposure.”
Highlighting the risks, an FAQ page on block.one’s website said: “The EOS tokens do not have any rights, uses, purpose, attributes, functionalities or features, express or implied, including, without limitation, any uses, purpose, attributes, functionalities or features on the EOS Platform.”
Observers have also noted that block.one only gives broad strokes of information on how it plans to use the money.
Some of the funds raised with the ICO are earmarked for “general administration and operating expense”. Block.one plans to continue to build the software, called EOSIO, that developers could use to build and launch new blockchains. It has said it plans to invest more than $US1bn in businesses that will use its software to add to the EOSIO ecosystem.
Within a day of the end of the auction, the EOS tokens become non-transferable, but token ownership will be digitally recorded. While this is not guaranteed in the offering documents, buyers of the tokens are betting that developers and others will use block.one’s EOSIO software to launch a new blockchain and token holders will receive a pro-rata allocation of tokens on that new blockchain that are equal to the ownership recorded from the auction.
The company employs more than 200 people with offices in Hong Kong, California and Virginia. Among them is Dan Larimer, a well-known figure in the crypto world who created the BitShares cryptocurrency platform. Block.one was founded by Brendan Blumer, a 31-year-old entrepreneur based in Hong Kong.
Block.one excluded US citizens from participating in the ICO so as not to face regulatory hurdles.
Additional reporting by Chloe Cornish in London