Tezos – the notorious ICO of 2017

Still making headlines in 2018

In a nutshell

In what was considered a record $232MM Initial Coin Offering (ICO), Tezos now becomes the second highest-funded ICO ever, with only the Telegram ICO, at $850MM, to compete.

However, since raising funds, Tezos has been stricken with a host of legal and regulatory problems to overcome.

In spite of being embroiled in legal difficulties, Tezos has found potential solutions via the T2 foundation and intends to release tezzies to its investors.

About the Tezos ICO

Via an uncapped ICO, The Tezos Foundation in accordance with Swiss law, raised $232MM to support the launch of a Proof of Stake (POS) blockchain whose function would be to combine smart contract execution with a formalized on-chain governance mechanism.

The founders are a husband and wife team, Arthur and Kathleen Breitman, who have been working with a group of developers since 2014 to create Tezos and corresponding cryptocurrency futures, tezzies (XTZ). The intellectual capital (and code) are held by Dynamic Ledger Solutions Inc. (DLS) – a Delaware company owned by the Breitmans and the funds from the ICO (in bitcoin and ether denominations) are being held by the Tezos Foundation, but also reported to be in several smaller corporations.

Based on an estimation using today’s prices, the foundation controls nearly half a billion dollars after the ICO.

Four lawsuits and a break up

In October, Tezos was slapped with a lawsuit by San Diego-based, Taylor-Copeland Law on behalf of plaintiff and Tezos ICO contributor Andrew Baker.

Around the same time, news dropped that the Breitmans and Johann Gevers, President of the Tezos Foundation, were (and continue to be) in disagreements. The Breitmans accused Gevers of self-dealing and Gevers in turn, accused them of character assassination and unlawful coup attempts. Gevers had indicated that he had no intention to leave the Foundation.

This all resulted in the value of tezzie futures diving by a whopping 75%, as investors panicked.

Shortly after, the Tezos foundation got hit with three additional lawsuits in November and December. All lawsuits combined have allegated the Tezos foundation of selling unregistered securities and investor fraud. The latest class-action lawsuit has also requested a temporary restraining order on assets.

There is a palpable eagerness amongst investors to see tezzies freed up for trading just as there is an eagerness from the team behind Tezos to share updates in true open-source fashion. However, only one day after posting an important update about next steps, Johann Gevers was legally required to take it down.

Coindesk reports that Gevers’ update included a new CEO for the Foundation and temporary oversight from an unnamed figure as an “interim measure.” Gevers also proclaimed he would take a “step back” from duties once these measures were in place.

A “legal” opinion

As it stands, recent ICO skirmishes have piqued the interest of several private law firms. It appears that there could be lucrative horizons in ICO litigation, this article reports:

“The ICO most appealing to a plaintiff lawyer would be large in terms of total money raised, have a strong U.S. nexus, would have promoters and participants in the ICO who are U.S.-based, and the tokens that it would issue would reflect a claim on the share of the company’s future revenue,” explained Joel Fleming of Block & Leviton.

Tezos perfectly fits the above specifications and appears to be amongst the first into the trenches of “precedent”, which is a win for regulation from a legal perspective as it has been trying to gain some foothold in the wild west of crypto.

Unfortunately, being under legal fire has required the Breitmans to turn to the Tezos Foundation for help with legal fees.

Enter T2

The Breitmans still intend to ensure the launch of the tokens despite the current turmoil they are experiencing. Even as they are at odds with Gevers, the T2 foundation enters the scene to ensure that the Tezos network has “an adequate, safe, and timely place to launch.”

With T2, everyone would get the Tezos tokens they paid for, but the reserve tokens (10 percent of the total pool, vesting over four years) would be turned over to the control of T2 rather than the Tezos Foundation. This would solve resource limitations, say reports.

In closing

Should the entry of T2 into the picture make viable and legal sense, based on the initial agreement signed by DLS and the Tezos Foundation, the Breitmans can certainly breathe a sigh of relief. All lawsuits could likely be overturned and dismissed.

With the mixed bag of emotions and opinions that has collected around the Tezos ICO since July 2017, whatever unfolds once the tokens are released will be quite interesting to see.

Chessboard image from Shutterstock.

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