Remember BlockMEX? Well the firm has limped along for several years. They have tried various business models. None have made any money. But that doesn’t matter, VC firms continue to shower the company with cash, and its valuation continues to rise. The CEO now has a great new idea. Let’s listen in on the recent board meeting.
Billy – Billy is the CEO of the company. He just joined as the previous dude got ousted. The VC firm The Blind Fund, who supplies most of the cash, ousted the previous CEO in favour of Billy who they thought would play ball better.
Kaiser Soze – One of the general partners at The Blind Fund.
Kaiser Soze – So Billy, what are we going to do to get some traction? It’s been over four years, and BlockMEX still makes zero revenue. You guys need to do something new.
Billy – Well, I have a new idea. ICOs are toxic. The projects are trash, and the regulators hate them. What about STOs, Securities Token Offerings?
Kaiser Soze – Tell me more.
Billy – Ok, so imagine you want to buy a fraction of a piece of real estate. And then you could trade your fractional ownership, which is represented by a token.
Kaiser Soze – Call me old fashioned, but isn’t that just a Real Estate Investment Trust (REIT)? Most stock markets around the world already have those.
Billy – But do REIT’s ride on a Blockchain? Do they use Distributed Ledger Technology to hold the record of the title?
Kaiser Soze – No, but they trade billions of dollars a day already, and you can easily trade them with your local broker almost everywhere in the world.
Billy – You don’t get it. If the token rides on a Blockchain, like the Ethereum protocol, then they reach help anyone anywhere. Like those poor investors in North Korea who have nowhere to put their savings. Now they can own a token.
Kaiser Soze – Anyone, really?!! It’s pretty clear these are securities, right?
Billy – Yes.
Kaiser Soze – So that means they are regulated, and in most places the exchange needs some sort of license.
Billy – Yes, that’s correct.
Kaiser Soze – The same license the incumbent exchanges already possess?
Billy – Correct.
Kaiser Soze – And the technology stack that operates the matching engine must also be approved by the regulator, right?
Billy – Correct.
Kaiser Soze – So you are replicating the same technology, getting the same license, to go after the same client base?
Billy – Correct.
Kaiser Soze – Ok, sounds like a winner. We can keep pumping money in, and make it up on volume. [The Blind Fund never saw a negative gross margin business they didn’t like.]
Billy – Exactly what I was thinking. Everyone is talking about STOs and how they are the future. Another type of STO is an equity offering of a startup.
Kaiser Soze – So how would that be different than doing an IPO?
Billy – Well many companies these days are staying private, the cost of doing an IPO and all the regulatory and compliance costs, are daunting—-especially for smaller companies. There should be a way for smaller technology companies to raise funds by selling some type of equity.
Kaiser Soze – Would these companies pay dividends? I’m assuming these are unprofitable companies.
Billy – Not only would they not pay dividends, there would be no audited accounts, or any duty to really explain anything to their investors.
Kaiser Soze – Wow, that’s amazing. How would this STO thing fit in on the balance sheet?
Billy – Not sure on that one yet.
Kaiser Soze – Traditional financial theory would suggest that this token is worthless because there is no cash flow.
Billy – Come’on Kaiser. We have been through this before. Traditional finance is dead. We are in a new paradigm. Don’t be a luddite.
Kaiser Soze – I know, I know. But if you are selling equity like securities, wouldn’t that need to be registered with a national regulator?
Billy – Shhhhhh.. Don’t tell anyone. We are just going to shoe horn this one in. Because we use a Blockchain and or Distributed Ledger Technology, those rules don’t apply. The best part is, we can absolve ourselves of any legal liability by basically telling investors when they buy these things they actually have zero rights. ROFL.
Kaiser Soze – Man, this Blockchain shit is LIT! You can do anything.
Billy – I know, right? Maybe the only thing we can’t do is become revenue positive.
Kaiser Soze – Don’t worry about that. I know some people in the desert, who have more cash than brains. They won’t let us down.