Ethereum has been seeing a bullish trend in its adoption and applications ever since it was invented. Though the ETH coin isn’t the most valued of cryptocurrencies, Ethereum revolutionized the applications of blockchain technology by being the first open-source blockchain platform where developers could develop their decentralized applications (DApps) and introducing smart contracts.

However, despite its huge popularity, Ethereum’s full potential has been held down by being less scalable because it was developed to use the Proof-of-Work consensus mechanism just like its predecessor, Bitcoin. Though Ethereum’s program was slightly improved to make transactions faster compared to those of Bitcoin, Ethereum still lags behind some newer blockchain technologies like DASH, Ripple and the like, which use Proof-of-Stake consensus mechanism. Initially, Ethereum could only handle 15 transactions in 16 seconds.

Change of the consensus mechanism

Ethereum users are egaelry waiting for the mich anticipated ETH 2.0 update that is expected in the last quarter of 2020. However, things seem to be moving faster than expected after Ethereum’s founder tweeted about the success of the initial deployment of Ethereum’s layer 2 scaling strategy.

With the success of the initial deployment, what is remaining is only the refinement and complete deployment of the layer 2 scaling strategy.

What layer 2 scaling strategy means

After identifying that Ethereum blockchain has scalability issues, Vitalik Buterin identified strategies of improving the blockchain’s scalability. Those strategies included “sharding”, also referred to as the “layer 2 strategy” or HackMD or ETH2 shard chain simplification.

Initially, the Ethereum blockchain network was designed for every transaction to be processed by all the nodes before being declared successful. This ended up taking a huge amount of the networks activity that would be used for other things.

To free up the system, sharding will make it possible for transactions to go through without the need of being verified by all the nodes. Transactions involving token transfers will be done on the layer 2 protocol to free the rest of the system.

In the new strategy, the amount of shards is brought down to 64 from 1024 while the number of shards required per slot is increased to 64 from 16. Then for every beacon chain block, there shall be a published crosslink to allow for optimal workflow. Additionally, the EEs shall be simplified, smaller shard chain logic shall be needed and it will not be mandatory to pay transaction fees via decentralized exchanges.

 What the scalability overhaul means for users

Once the overhaul is complete, Ethereum users will enjoy transaction speeds of thousands of transactions per second. This will only make Ethereum better especially for DApp developers.

It will also be good news for Ethereum’s use cases which span across a wide range of fields ranging from supply chains, health, Initial Coin Offerings (ICOs), Initial Exchange Offering (IEOs), transportation, Structural health monitoring and finance among many more.

Business Remodeling

After the COVID-19 pandemic, business startups may have to restructure their business plans to remain viable in the market.  While doing so, it is important to note that the pandemic has left the economy in a bad state and majority of people, including your customers, are facing tough economic times and may therefore not be able to afford your services or products at the previous prices.

Though lowering the prices would work, it could be difficult for you to just slash the market price of your products/services because you will still need to cover your production cost. To achieve a balance, you may have to restructure your business model to include ways of reducing your production cost that will enable you to avail quality products and services at a price that your customers can afford.

Some of the technics may include automation of the production processes to reduce the cost of labour. In addition to the Internet of Things (IoT) and Artificial Intelligence (AI), blockchain technology could also come in handy.

Branding

Being unique and giving your customers a unique selling proposition would certainly place you at the hearts of your customers.

You should concentrate more on your customers’ experience. You could achieve this by getting the right e-Commerce platform to position your startup firmly in the marketplace.

Reconsider the target audience

Probably, before the pandemic struck, you had targeted a wide audience. However, with the current situation, there could be reduced feedback from your audience, which may require you to narrow down your target audience. That way, you shall also be able to make your services/products more innovative and unique for the specific target audience.

Consider crowdfunding

For blockchain-based fintech startups, crowdfunding could help.

However, this will require a balanced approach. Conducting an ICO, STO or IEO could be a great way to raise funds, but it may not be as successful as before the pandemic struck especially with the current economic conditions.

Nonetheless, if your startup shows great prospects of growth, investors may still be interested in investing in it. However, to avoid frustrations you might consider lowering the target while ensuring that the raised amount is sufficient to fund the development of your startup’s project.

Legal assessment of a project is one of the most important factors that dictate the success of an ICO, IEO or STO. In the past few months, we have seen various blockchain project receive penalties and some even being forced to close down due to issues with the law.

BitClave, for example, will have to pay back the $25 million it raised in its ICO back in 2017 after the U.S. Securities and Exchange Commission (SEC) said that the ICO was unregistered. Meta 1 Coin will also have to refund $9 million after a court ruled in favour of the SEC, which argued that the initial coin offering (ICO) was fraudulent. Telegram, on the other hand, had to completely throw in the towel on its TON blockchain project after issues with SEC about its ICO.

To avoid falling into the same trap with your blockchain project, it would be wise to seek a competent legal advisor to handle the legal assessment of your project.

As in the above case scenarios, legal issues could jeopardize the whole project. If a case is filed against the way you raised your capital, you could end up being forced to refund the money. This would throw you back to the drawing board to try and find sources of funds to run the project. However, this time, things could prove to be hard since it would be hard for investors to trust you again and you would be forced to abandon the entire project altogether just like Telegram did.

What to expect from good ICO/IEO/STO legal advisor

  1. Whitepaper assessment

Since the whitepaper acts as the main source of information about your blockchain project. The legal advisor should ensure that it contains all the required legal documentation. Of essence, the whitepaper should contain legal disclaimers and the terms of sale for the tokens.

The legal advisor should help in drafting the legal disclaimer to ensure that all the risks and restrictions (e.g. restriction of investors from certain countries) are included.

Again, the terms of the token sale should be clearly stated to ensure that investors make informed decisions.

Another issue that has been a source of conflict, especially between the SEC and blockchain startups, is the token and funds distribution. This information should be laid out bare for investors to see.

  1. Review of the adopted token model for the IEO/STO/ICO

By reviewing the token model used for the ICO, STO or IEO, the legal advisor shall be able to verify the compliance of the token issuance with the laws and regulations and also give remedies in case of any arising issues.

Security tokens have different regulations compared to the utility tokens and this is the main thing that a legal advisor looks at. If the project uses a utility token or a security token, does it comply with the laws set in place in the regions where it expects its investors to come from?

  1. Aspects of the KYC/AML to be used

Know Your Customer (KYC) and Anti Money Laundering (AML) are some of the basic requirements for blockchain/cryptocurrencies around the world. Therefore, the legal advisor gives guidance on the model that should be adopted and also works closely with any of the involved third parties.

  1. Legal audit of the Project internal processes and documentation

A good legal advisor will also do an audit of the internal processes of the project behind the ICO, IEO or STO to ensure that everything complies with any existing local regulations.

The audit could also include an audit of the smart contracts to ensure that they are executed exactly as the whitepaper and website stipulate.

  1. Evaluation of Tax compliance and the company structure

The legal advisor also helps with accounting, bookkeeping, insurances, tax declarations and domiciliation services among other things through the network of its partners.

Depending on the country, companies dealing with digital tokens are taxed differently depending on the type of tokens they involve themselves with. In Singapore for example, there was a recent update on the Digital Tokens Tax Guidelines.

These ensure that the company remains in good books with the authorities within the country where it is registered.

  1. STO prospectus

Where a legal prospectus is required like in Taiwan, Switzerland and the European Union, the legal advisor helps in preparing it to ensure that it meets all the legal requirements.

  1. Commercial agreements

The legal advisors help in drafting terms and conditions, token sale agreements and any other commercial agreements like the Memorandum of Understanding, the Advisory Agreement, the Financing agreement, etc.

Coming up with an innovative blockchain project is just a tip of the ice bag when it comes to pulling through a successful project. You have to find a way of explaining the blockchain project to your potential investors and the whitepaper is your best shot in doing so.

What is a whitepaper?

Before going any further, let’s first look at what a whitepaper is.

A whitepaper is a document that gives a detailed architecture of your blockchain project, elaborating on the problem that your blockchain project intends to tackle, the proposed solution for the problem, and giving a detailed description of the products or services that the blockchain project will be offering. It can be closely paralleled to the business plan of your blockchain project.

The whitepaper is intended to help investors study your blockchain project in detail so that they can decide whether to invest in it or not. Therefore, it has to give investors enough reason as to why they should invest in the project.

Functions of a whitepaper

Let us elaborate more on the specific functions of the whitepaper so that you can hit each of them while coming up with your project’s whitepaper.

 

  1. Introducing the idea or concept

Any investor looking at your whitepaper will be looking to find out what your blockchain project intends to accomplish. Therefore, you should ensure that you let them have a clear picture of the problem you have identified and your solution to the problem. This should be done at the earliest point possible to capture the attention of the reader.

The best blockchain projects are those that address the challenges that the larger society faces while going about his day to day activities.

  1. Explaining this new idea or solution in details

The whitepaper should then take the reader/investor the extra mile of understanding how your idea should work. You have to breakdown the entire project into a simple form for investors to understand how it will function.

Here you have to strike a balance between getting too technical and putting things in the lay man’s language. Technicality shows some sense of sophistication but if you get too technical, you risk losing the attention of the investor, who is most likely than not just a layman looking for a chance to invest in the best investment opportunity that comes his/her way.

  1. Justifying your idea/concept, token and team

You are probably not the only person that has tried tackling the same problem you identified. Therefore, you have to carry out extensive research into any other existing projects related to the problem you are solving and show your reader/investor what your projects bring to the table.

You have to give him a reason to invest in your project and not in your competitors’ projects. Therefore, you have to identify what you intend to do different and how that is an advantage compared to the rest of the solutions.

When justifying your blockchain project, you also have to justify the benefits of your token/coin to those who will invest in your project. After all, the only way investors will invest into your project is by purchasing the project’s tokens/coins either through an Initial Coin Offering (ICO), Initial Exchange Offering (IEO) or Security Token Offering (STO). Therefore, you have to clearly explain your token/coin and also classify it accordingly; shall it be a utility or security token).

Another thing that the whitepaper should justify is why the team behind the project is the best. Remember, investors are looking at investing in a project that has the prospects of going all the way through to become a success. Therefore, they will have to scrutinize your team to see if they are capable of seeing the project through. A strong team will instil confidence in the hearts of investors to invest.

Questions that the whitepaper should address

To have a good whitepaper, you should ensure that it answers the following questions:

  • What prompted you to come up with the idea?
  • How will blockchain technology be incorporated into your idea?
  • What is the market analysis?
  • Who are your competitors?
  • What is the growth potential of your project?
  • How does your product work?
  • What are the technologies used in your project?
  • What is the commercial application of your project?
  • What kind of token do you intend to use? What platform shall it be based on?
  • How do you intend to raise funds? Do you intend to use an ICO, IEO or STO?
  • What are the conditions if any for investors to invest?
  • What has already been done on the project and what is the approximate time required to accomplish the rest?
  • How do you intend to use the funds raised through the crowdfunding?
  • Are there any bounty campaigns?
  • Who are in your development team?

Steps to writing a good blockchain whitepaper

To answer the above questions, you could follow the following steps:

 

  1. Identify your primary target

Before embarking on drafting or writing the whitepaper, you should first consult with the development team to identify the target of your blockchain project.

Some of the questions that you should seek to answer include:

  • Is it just the ordinary person?
  • Is it a professional e.g. a professional cryptocurrency investor?
  • Is it a blockchain developer who would use your solution to develop other networks?
  • Is it an executive in a business who might influence his/her company to buy your blockchain technology?

Once you identify the target group, you should go ahead and create a detailed profile about them. the profile should point out the following:

  • Gender
  • Age
  • Occupation
  • Location (country, state, province or continent)
  • Interests/hobbies
  • Education level (to understand the language, either formal or informal, that you shall adopt in explaining your blockchain project)

With the above details, it will be easy for you to understand how best to explain your concept. If for example, you are dealing with a target audience who are experts in cryptocurrencies, the use of technical terms won’t hurt. However, if your target is the ordinary man, you will have to use a simple to understand language.

Also, since your blockchain project is something that you would want to be adopted around the world by people with different languages and cultures, you will have to do white paper localization.

Localizing the whitepaper means translating the original version of the whitepaper into different versions fit for the various parts around the world. It might include translating into various languages. The translation should go beyond the linguistics; it should include analogies, norms and examples that are local to the demographic localities you are translating for.

  1. Identify the goals that you want to achieve with the whitepaper

Your goals should be specific, measurable, achievable, relevant, and time-bound (SMART). An example of the goals include:

      i. Raising funds

Most blockchain whitepapers are intended to make investors gain confidence in the blockchain project to a point of purchasing the tokens offered wither in a Security Token Offering (STO), Initial Exchange Offering (IEO) or Initial Coin Offering (ICO). This way, the project developers can raise capital for the project.

If your whitepaper is intended for this goal, you should put in mind that at the end of reading the whitepaper, you want the investor to cash in on the project. Therefore, you have to include the projects potential to grow and how the investor shall make money out of the project. Every investor wants to invest in something that will bring returns and if possible in the near future.

You have to indicate how much you want to raise and by what date. You should also clearly indicate how those funds will be distributed into your project so that the investors can make informed decisions.

You should also include a clear roadmap indicating the various milestone. The roadmap should have realistic timeframes. Remember, if you fail to hit the milestones by the anticipated timelines, your investors will start losing faith in you and probably even want to opt-out.

     ii. Awareness creation

In any case, the whitepaper plays a great role in informing people/readers that there is a blockchain project that is about to be launched.

In some cases, this could be the sole goal, without the need to raise funds. An example of such a whitepaper is the Lightning Network Whitepaper whose main objective was to introduce a new scaling method for the blockchain network. After its launch, various blockchain networks among them, Bitcoin and Litecoin adopted the scaling method while others like ZCash and Ethereum were inspired by the technology to develop their versions of the solution.

    iii. Selling services and products

If your whitepapers goal is to sell a product or service, you should first identify and describe the problem that your audience has and then list the benefits of the solutions (products or services) that you are offering.

Such whitepapers are subjective. However, you should restrain from making in overly promotional.

An example of such a whitepaper is the Sirin Labs Whitepaper that was written to describe how its blockchain-enabled smartphone, Solarin, works and how its users were to benefit.

  1. Make a draft of the whitepaper

Your project’s development team (especially the designer, developer and engineer) should be actively involved in making the draft since it should give the main points that should be included in the whitepaper.

The team that creates the first draft should be keen to provide the necessary information on the:

i. Problem statement

ii. Market description

iii. Product description (how is shall solve the problem)

iv. Tokenomics (Token Economics)

v. Fund distribution

vi. The team

vii. The roadmap

viii. Partnerships

  1. Come up with a structure for the whitepaper

Before delving into writing the final copy of your whitepaper, it is important to come up with the structure. The right structure emphasizes the right points at the right juncture.

There are three most commonly used structures when it comes to writing whitepapers:

  • The Before (current world with the problem) — After (World without the problem) –Bridge (Your solution as the one eradicating the problem) structure
  • The Problem (identify and explain the problem) — Agitate (show the ugliest part of the problem) –Solve (introduce your solution to the problem) structure
  • The Features (Describe the features of your solution) — Advantages (outline what makes your solution to stand out) — Benefits (describe how the users shall benefit from using your solution) structure

The first structure is best for explaining a solution that is completely new in the market. The second structure is best for writing a whitepaper that is intended for marketing purpose. The third structure should be used if the problem you are tackling is obvious to the target audience and there are very many solutions out there.

  1. Hire an expert to write the final copy of the whitepaper

Since the members of the development team may be too busy on the project and lack time to write the whitepaper, it is advisable to hire an expert writer to write the final copy. The writer should be experienced in writing blockchain-related material; meaning he/she should have some knowledge of blockchain technology so that he/she can explain some technical issues well.

As the writer writes the whitepaper, the writing should be closely monitored by someone on the development team. The writer should be able to freely interact with the team to get assistance with concepts and things when the need arises.

If the writer is someone from the outside, the team should understand that the writer is too green on the project and shall require explanation on many things so that he/she can understand the concept and objective of the project. That way the writer shall be able to relay the information better on the whitepaper.

You can hire a freelance writer from one of the online working platforms or get a referral from your colleagues for the writing task.

What to include in your whitepaper

Let’s now look at what your whitepaper should look like. We shall first give a general template and then get to explain what should be included in each section of the template.

You could use the following template when writing your whitepaper. It has all the necessary sections that a good blockchain whitepaper should have.

The above headings should cater for everything that a good whitepaper should have.

Now let’s get into explaining what should go to each section.

Introduction

This introduces your blockchain project to the reader. It should be a summary of the entire project and it should be presented in a compelling manner that leaves the reader in thirst of knowing more about the project.

You could choose to use an executive summary or introduction as the title of this section.

In some cases, the summary is written as a letter from the CEO addressing future token holders or investors.

Disclaimer

In this section, you should place any legal notice or disclaimer about your project or the ICO, IEO or STO you intend to issue. The disclaimer or legal notice should contain information on any restrictions or notifications.

This is the section where you should explain any exceptions of countries if any. For instance, it would be an exception of residents from certain countries from buying the tokens. This could save you a great deal in future since you may not have registered with the regulatory authorities from those countries. It could save you from issues like the ones we witnessed with Telegram where investors from the USA bought the tokens without Telegram following the rules outlined by SEC for issuing ICO tokens to US citizens.

Table of content

The table of content gives a clear outline of all the heading and subheadings used throughout the whitepaper.

You could also include a table of the graphics that you have used.

These help the reader in navigating within the whitepaper, which is normally a large document.

Problem statement

In this section, you should outline the problem that your blockchain projects seek to solve. You may delve into why it is important to solve the problem or explain its effects on society.

You could also explain the consequences of not solving it.

You should capture the readers’ attention and give him/her enough reasons as to why they should read the document and even give an overview of what they expect to come across.

You could use graphics, photos or charts to expound more on the problem and its effects.

Market description

This section is especially important for ICO, STO or IEO whitepapers. Investors would like to see how your project shall perform in the market.

You should, therefore, explain to the investors where your project fits in the market. Though numbers are sometimes convincing, if you choose to include them, they must be backed by facts, research or analysis.

You should give a clear picture to investors of how your project shall be adopted and its growth projection.

Product description (how it shall solve the problem)

This is the key part of the whitepaper. You should start by explaining the technology behind your solution. How it is unique from any of the currently available solutions if any.

Secondly, you should explain how the users shall benefit from the project.

You should use diagrams, graphics and photos to explain hard concepts so that the investors can get a clear picture.

Tokenomics (Token Economics)

Since your solution is blockchain-based, you have to explain the token that you intend to use for your project. You should clearly state the type of token it is; is it a utility or security token? Is it an ERC-20 token?

This is the section where you also state how and when you intend to distribute the tokens. You should state the date when the token issuance shall start and state the price of each token.

If possible, you should draw a graph showing what percentage will go to who.

Fund distribution

In this section, you should outline how you intend to use the raised funds. Investors need to know where their money is going. They also need to see how much is needed to accomplish certain tasks.

It is not a must for you to go into the details of the expenditures. Just group them generally. Like product development, marketing, team and so forth. However, it is important to allocate more funds for product development. You should avoid using terms like miscellaneous.

The team

This is an integral part of any blockchain project. Besides the whitepaper, you should also indicate the team on your project’s website.

You ought to include photos and short biographies of all the members of your team.  You should also include their contacts. The biographies help in instilling confidence to investors that the team behind the project is qualified and that they shall deliver. The contacts make it easy for investors to verify that the team members are real and not just a scam.

It is also important to state any past projects or positions that the team members have held in other institutions or projects.

A good number of investors will invest in your project because they are confident in the development team. That is why it is important to use qualified individuals for various positions.

The roadmap

In this section, you should include a detailed development roadmap of your project. The roadmap should clearly outline the milestones of the project while clearly outlining the timelines.

The roadmap should be for the next 12 to 24 months.

If some milestones are already accomplished, it is important to state that too. That will go a long way in convincing the investors that the team is serious about the project. Majority of investors will only cash in on projects that already have something to show. Nobody wants to invest in something that only appears on paper with no hopes of it ever starting; some have turned out to be mere scams!

The roadmap should also state when investors can start getting returns from their investments. This could include things like when the token shall be listed on crypto exchanges for trading.

You could have a graphic of the roadmap and also explain each of the milestones outlines on the graphic.

Partnerships

In this section, you should list any company that you have partnered with. Also, you should list any venture capitals that may have invested with you already.

Partnerships go a long way in promoting your blockchain project since they show that companies are confident that your project shall become a success.

France became the first European Union country to craft bespoke regulations for digital asset/token offerings that are not based on past security laws. However, from the time the ICO regulations were enforced in 2019, the AMF has only approved and white-listed two Initial Coin Offerings (ICOs), with the WPO’s GreenToken ICO being the second.

France ICOs regulations

The French regulatory authority, the Autorite des Marches Financieres (AMF), started by conducting consultations on the risk, structure, volatility and applicability of coin offering in crowdfunding between mid-2017 and December 2017. This was after recognizing that digital coin offerings were becoming a global phenomenon and it did not want to be left behind as other countries around the world embarked on coming up with rules to regulate security tokens.

By fall 2018, a bill was tabled in parliament and it went on to be signed to law in early 2019, making France first EU country to have an ICO law in place.  The law which is referred to as the Pacte Law (or Loi Pacte), regulates defines digital tokens and lays out regulations for ICOs and intermediaries providing services related to crypto-assets.

Under the Pacte Law (or Loi Pacte), ICO issuers can legally raise funds by conducting an online ICO. Then after issuing the digital tokens, the tokens can be listed on a crypto exchange to be traded. The ICO issuers are given the liberty to choose to register for a VISA with the AMF to be ‘white-listed’ or to simply proceed with their ICO without the VISA but after submitting a document of disclosure to the AMF to enable token buyers to make an informed decision regarding the ICO.

However, the AMF emphasized that:

Although this approval is optional and ICOs without AMF approval will, therefore, continue to be legal, only those public offerings that have received the AMF approval may be marketed directly to the public in France.

It is also important to note that the new rules only apply for utility tokens. Digital securities are regulated under the old/existing securities regulations

The role of the AMF in the ICO regulations

Under the Pacte Law, the AMF:

  • Examines the disclosure document plus any advertising or promotional material that is circulated or published by the ICO issuer. The issuer should ensure that the disclosure document contains accurate, clear, non-misleading and detailed (outlining the risks that investors would face by purchasing the tokens) information.
  • Verifies that the ICO issuer has adopted enough procedures to protect and track the funds raised in the ICO.
  • Ensures that the issuer conducts themselves per the submitted disclosure document while complying with the regulations. If the issuer violates any of these, the AMF can compel the issuer to stop selling or offering the tokens, stop any advertising campaign and also remove its approval.
  • Verifies that the issuer is a legal entity registered under the French law in France. The AMF can only issue Visas to French-based issuers. Foreign corporations and entities seeking ICO market in the French market are free to do so but without the approval of the AMF.

Once the AMF approves an issuer to conduct an ICO, the issuer gets a VISA and is added to the whitelist of the approved ICOs.

However, it is important to note that the AMF approval is not advisability of the project behind the ICO. The AMF does not verify the technical and financial elements of the project. It also does not verify the computer programs behind the blockchain project. Therefore, it is up to the investor to research these before investing in the ICO.

The first ICO approved by the AMF

The AMF approved the first ICO in December 2019. The ICO was a company called French-ICO that has a platform for funding projects through cryptocurrencies. The ICO was scheduled to start in March 2020.

The AMF Visa that the French-ICO was issued with expires on June 1, 2020.

The ICO targets a minimum of €100,000 and a maximum of €1 million. Once the offering is finished the tokens will be tradable on Zebitex, which is a partner exchange to the French-ICO.

The second ICO approved by the AMF

On May 12, 2020, AMF approved the second ICO, which was for a firm called WPO.

WPO is a renewable energy company that services over 600 solar parks and wind firms across Europe and outside Europe.

In the ICO, WPO is offering its GreenToken (GTK) with a minimum target of €1.5 million and a maximum target of €10 million. According to the firm, one token will be going for €95 and the minimum amount that an investor can invest is €100.

The ICO is scheduled to start on September 8, 2020.

In the future, the GreenToken could be used to acquire goods and services from the GreenToken Network, which taps into the renewable energy industries serviced by WPO.

The tokens are expected to start trading on the SAVITAR exchange, which is a French crypto exchange.

In 2018, Telegram announced its intention to build Telegram Open Network (TON) blockchain and opted to use Initial Coin Offering (ICO) in raising capital for the project. Following this revelation, the social network company joined several other technology companies like Facebook, WhatsApp and Signal in aspirations of building blockchain networks and even issuing cryptocurrencies.

However, most of these blockchain projects have not gone down well especially with the Security Exchange Commission (SEC) in the US. Facebook, for example, has faced rigorous case battles aimed at its Libra cryptocurrency making hard for the company to go ahead with the project.

Telegram, on the other hand, decided to throw in the towel at the beginning of May 2020 after a long court battle with the Security Exchange Commission in the USA. Let us look at the sequence of events that led Telegram to abandon its blockchain project.

Telegram Open Network (TON)

TON, the designated blockchain network that Telegram is set to launch, is intended to offer decentralized cryptocurrency, called Gram, to the users of Telegram who have smartphones.

The cryptocurrency was largely viewed as a rival to the much-publicized Libra of Facebook. However, both cryptocurrencies (Libra and Gram) have faced significant scrutiny by the SEC, which has greatly hampered their development and issuance.

Telegram Pre-ICO in 2018

The messaging app established by the Russian tech expert, Pavel Durov, conducted a Pre-ICO early 2018 raising $1.7 billion from about 171 investors. However, the firm got into trouble after it emerged that about 39 of those investors were from the USA and the SEC had its reservations since the company had not registered the pre-sale.

After, the Pre-ICO, investors were very eager to cash in in the much-hyped ICO. However, the SEC stepped in and ordered Telegram to halt the post-ICO sale due to issues it raised with how its pre-ICO was conducted.

The legal battle

SEC launched a vicious legal battle against Gram ICO in October 2019, after ordering Telegram not to go ahead with its much anticipated Post-ICO.

The SEC accused Telegram of conducting an unregistered token sale to USA citizens. As a result, SEC pressured Telegram to disclose financial documents and answer a couple of questions to shed more light on the disposition of the investors’ funds it raised through the 2018 pre-ICO as required by its regulations.

In March 2020, a US judge dealt a blow to Telegram’s TON project by ruling that it cannot launch the blockchain network nor issue the Gram tokens before the case is settled. This led to a postponement of its April 30, 2020 deadline to launch TON.

However, it was also an early win for Telegram since the same judge barred the SEC from fully accessing Telegram ICO’s financial and banking details. Initially, Telegram’s lawyers had urged the court to throw out the case.

After, the court ruling in March, Telegram wrote to the court promising to issue the required information on the token distribution to investors and the funds collected from the investors to the SEC. Telegram was also to provide the SEC with all the communications, written agreements and amendments of the token sale agreements (including cancelling of the contracts).

All along the court battles were badly hurting the TON project after several postponements until the deadline for the activation of the refund clause in the Telegram’s purchase agreements was reached.

The refund for Gram investors

With the nearing April 30, TON launch deadline, and without any hope in sight for the launching of the blockchain network, investors had the rights to claim for refund as stipulated in Telegram’s purchase agreements refund clause.

According to the refund clause, investors could ask for a 72% refund.

The firm specifically urged the US investors who had invested with it to immediately agree the 72% refund so that they could pull out, claiming that there is an uncertain regulatory environment in the US.

To the investors from other parts of the world, Telegram offered a refund of 110% if they wait till April 30th, 2021.

“As a token of gratitude for your trust in TON, we are also offering you an alternative option to receive 110% of your original investment by April 30, 2021, which is 53% higher than the Termination Amount”

Telegram also announced that the company would allow investors who wait till 2021 to receive Gram or another cryptocurrency on the same term as to what was in the original Gram agreement.

“Purchasers who opted for the loan will have the further option to receive Grams or potentially another cryptocurrency on the same terms as those in their original Purchase Agreements.”

Throwing in the towel

Sadly, after all the drama with the SEC, and trying to retain investors with lucrative 110% returns if they held on till 2021, Telegram finally decided to abandon its TON project.

Early May 2020, Pavel Durov, the founder and CEO of Telegram, announced that telegram had stopped any further involvement with TON.

“Telegram’s active involvement with TON is over………You may see – or may have already seen – sites using my name or the Telegram brand or the ‘TON’ abbreviation to promote their projects. Don’t trust them with your money or data,” Pavel Durov wrote on his channel.

Being the 22nd richest country in the world and with the 7th largest economy in Asia, international investors including blockchain companies have lots of interest in Taiwan. With security tokens proving to be a go-to option for most blockchain companies, Taiwan’s Financial Supervisory Commission in July 2019 recognized the need to officially incorporate security token offering (STO) into the Securities and Exchange Act, which entails the regulatory framework for trading securities, by defining security tokens as securities.

According to the FSC, a security token is a cryptocurrency that is transferable and hold the following features:

  • The owners make capital contributions to the issuer
  • The owners invest in a common enterprise/project
  • The owners expect to receive profit depending on the efforts of the issuer or a third party.

The new Security Token Offering regulations

In January 2020, the FSC proposed deregulating STOs with an equivalent of up to NT$30 million. These STOs are characterized as “Exempt STO” in Paragraph 1 of Article 22 of the SEA. According to the article, these STOs are exempted from the obligation of reporting to the FSC.

Although the deregulation of STOs seemed to be a step in the right direction, the exemption comes with a tight set of restrictions. Additionally, the NT$30 million limit is relatively low, meaning that most of the STOs will not be exempted since most of them have targets above NT$30million.

However, the main objective behind the new regulations is to ensure that STOs in Taiwan are issued by regulated issuers and issued to professional Taiwan investors.

Issuer’s Qualifications

For a company or startup to issue security tokens in Taiwan, it has to be a company listed by shares, meaning it is incorporated per Taiwan’s Company Law.

For an STO to qualify for the exemption, the STOs must be conducted to on the same trading platform with the cumulative placements not exceeding the NT$30 million. The issuer must also ensure that the raised funds are denominated in the New Taiwan Dollar (NT$).

Additionally, the issuer should show the relevant issuance documents in an application to a security firm like the prospectus and security token application.

The prospectus, in particular, should include:

  • The Company Profile and Risks.
  • The Operation Overview.
  • The Operating Plan and Execution.
  • The Financial Overview.
  • An Expert’s Opinion on the Information Technology used in the issuance of the security token
  • Financial (non-certifying CPAs or securities underwriter) Expert’s Opinion about how reasonable the issuance price is.
  • Attorney’s opinion on whether the issuance of the security token complies with the set regulations and if the fundraising project adheres to the set legal rules.
  • Any other documents that should be disclosed and supplemented as per the securities firm notification.

The security firm that the issuers choose to use should have a securities dealer license.

Investors’ regulations

STO investors should be professional investors that qualify as per the criteria under paragraph 3 of Article 3 of the Offshore Structured Products regulations.

For the Exempt STO, the amount that a professional investor can subscribe should not exceed the limit of NT$300000.

Key Takeaways

For an STO to qualify for the “Exempt STO” it should target raising NT$30 million, which is equivalent to $1003764 USD. This is relatively low and means that most of the security token offerings will most likely not fall under the Exempt STO category. The Exempt STO category is however good for the small startups looking to raise a small capital.

Secondly, only professional investors as per the Offshore Structured Products regulations can participate in an STO. Also, the maximum amount that an investor can cash in cannot exceed NT$300,000 on a single STO.

Thirdly, STO funding is limited to the New Taiwan Dollar (NT$). This makes it increasingly difficult for foreign investors. Also, issuers cannot raise funds in other cryptocurrencies or USD as is the norm with most STOs.

Fourthly, an STO can only raise funds through one platform. Therefore, one STO cannot use different platforms to issue security tokens. Also, there is a limit to the number of STOs that can be accepted by each trading platform. This reduces market participation of STO issuers and operators of the trading platform.

Fifthly and lastly, there are many business restrictions and strict qualifications for security token trading platform operators.

After conducting a successful IEO of its stablecoin, JST, on Poloniex on 5th May, the TRON-based stablecoin lending platform succeeded in getting the JST coin listed on MXC Exchange only two days after. The JUST (JST) IEO sold out in just 4 minutes 26 seconds according to TRON’s CEO, Justin Sun.

JST token sale price was $0.00202 during the IEO. Upon its listing on MXC Exchange, its price spiked to $0.04, which was 18.8 times its token sale price, breaking the record of IEOs Return of Investment (RoI) in such a short time. This also thrust the JUST project into the league of the best performing IEO funded projects.

Let’s take a look at what this MXC Exchange means to investors. If an investor had purchased 1000 tokens, it probably cost him/her $2.02. If the investor decided to register on the MXC Exchange and trade the stable coin, he/she would sell it at $40 making a profit of $37.98 in just two days.

Although JST price then lowered from $0.04 in the following minutes, the stablecoin is currently trading at $0.0088, which is 3.36 times the price at which the coin was sold at.

Ideally, if an investor decided to trade in the purchased JST tokens, he would make substantial profits.

The TRON-based stablecoin lending platform, JUST

JUST is a decentralized lending platform that is built on the TRON blockchain. Users in JUST can stake TRX, the TRON cryptocurrency, to generate the JST stablecoin that can be used to pay for a number of things.

The platform uses a decentralized finance (DeFi) lending and governance protocol.

Poloniex’s Tron-powered IEO launching platform

Interestingly, the CEO of TRON, Justin Sun also holds a substantial share at Poloniex Exchange. Sun was among a number of Asian investors who bought Poloniex towards the end of 2019.

By volume, Poloniex is considered the 15th largest cryptocurrency platform. It launched its IEO launching platform, the Poloniex’s LaunchBase, which carries a lot of resemblance to Binance Launchpad.

Projects looking forward to conducting IEOs on Poloniex’s LaunchBase will issue tokens in exchange of TRON’s TRX token. In exchange, the project behind the IEOs will receive professional advice and guidance.

By launching its IEO launching platform, Poloniex joins the growing list of crypto exchanges providing blockchain startups with a lifeline by providing a platform for them to conduct IEOs.

JST was the first IEO to be conducted on Poloniex’s LaunchBase, barely a month after the platform was launched, proving that the platform is up to the task.

As the novel coronavirus ravages the world, killing thousands, almost everything tangible including paper cash has been classified as a medium of conducting the COVI-19. Physical money isn’t safe anymore. You cannot know who touched it; did they have the virus!

And as a result, governments have resulted in the use of electronic payment methods with countries like Kenya upping its use of mobile money transfers. Other countries like South Korea had temporarily removed cash from circulating while China had recalled its paper cash for sanitization using ultraviolet rays.

However, mobile money and some of the other electronic payment methods that are currently in use are dimmed to be slow and could not possibly be efficiently used to deliver government stimulus to households or businesses.

Besides, most of the traditional electronic money transfer methods like mobile money, PayPal, Neteller, and the like are still centralized and depend on traditional banking systems.

As the majority of the world’s population currently works from home, the world could be preparing for the next phase of a technological boom, and blockchain technology could be it.

Central Bank digital currencies

At the beginning of April this year, the Bank of International Settlements (BIS) researchers suggested that the current pandemic would accelerate the adoption of digital currencies and fuel the debate of central banks issuing digital currencies.

And as a matter of fact, several central banks have started looking at the possibility of issuing digital currencies to reduce the use of paper cash which they are being forced to recall back for cleaning or destroying.

China became the first country to announce that it is going to launch a central bank digital currency, with the four largest commercial banks there starting a test of the digital currency this month. The city of Suzhou even suggested it is going to give some of the digital Yuans to government employees in the coming month for use for transport.

In the US, the House democrats suggested a digital dollar in a draft bill for the recently signed stimuli package. According to the members of the congress, the digital dollar would be rolled out by the central bank and distribute money directly to businesses and households. In this way, the process of distributing the stimuli package would be faster and more efficient.

In Europe, the German government is proposing the use of Euro-tokens that could be used in providing consumption vouchers that are based on blockchain. France also launched the atrial phase for testing the integration of the digital euro in settlement procedures.

Cashless economy

Currently, the cashless economy does not necessarily mean a blockchain or cryptocurrency-based economy. Companies like Visa and Mastercard have long been in the market and they have helped promote the cashless economy for a while. Nevertheless, these companies are centralized, and cross border transactions are still expensive and time-consuming thus the need for better infrastructure and blockchain is the best shot at filling the gap.

Though governments have viewed cryptocurrencies as rivals to their centralized financial systems, it is just a matter of time before we witness a complete adoption of digital currencies in government institutions starting with the central banks.

The adoption of digital currencies will mean that government institutions like central banks will have to use blockchain technology to launch digital currencies.

According to WeeTracker media firm, African startups raised about $1.3 billion from venture capital funding in 2019, which is an improvement from the past years. Nevertheless, startups in Africa still face enormous challenges when it comes to funding projects due to a lack of liquidity.

Blockchain technology could step into the gap and help startups especially in the emerging tech hubs like Kenya, Nigeria, and South Africa to raise funds for their projects through blockchain-powered equity crowdfunding. Equity crowdfunding has helped revolutionize the way businesses raise funds from investors.

By adopting blockchain technology, startups do not have to go through the tedious process of getting their companies listed on the stock markets to sell their shares.

Why investors hesitate

In Africa, the ecosystem for doing business is still not that favourable for startups to achieve reasonable growth in a short time span. Most startups struggle to make ends meet due to factors like high taxes, which are common in many African countries. In some worst-case scenarios, some startups end up closing shops. This makes investors shy off from investing since they are not sure if they will live to get the returns.

Also, in Africa, secondary markets are scarce resulting in low market liquidity for investors to exit from investments. Venture capitals, for example, look for entrepreneurs that build sustainable businesses with promising exit opportunities. For a startup to win a venture capital investment, it has to have at least an IPO, merger, or some acquisitions, which are only possible if a startup achieves a certain level of growth.

To create the necessary liquidity, startups in Africa could adopt blockchain technology to enable them to tokenize their assets.

 How token-based financing increases market liquidity

By using blockchain, startups can create tokens (either utility or security tokens). They can then go ahead and sell the tokens through Initial Coin Offerings (ICOs), Initial Exchange Offerings (IEOs), or Security Token Offering (STOs) for the case of security tokens.

Investors will find it safer to invest in startups by buying tokens since the tokens are easily traded in exchanges where the liquidity is high. If an investor purchases some tokens from a startup, and the startup succeeds to get the tokens listed on a cryptocurrency exchange, then the investor can trade the tokens and make some profits. In most cases, the price at which the tokens are listed on the crypto exchanges is usually higher than the price of the tokens during the initial offerings.

Therefore, an investor could decide to exit the market immediately the tokens of the startup get listed on an exchange.

Besides, since a good amount of investment in Africa comes from outside Africa, token financing offers the best opportunity to tap into the external sources. Blockchains are usually decentralized and they allow cheap and fast cross broader transfer of funds. Therefore, investors from any corner of the world can easily purchase the tokens of a startup in Africa without necessarily having to travel to a specific country or sign huge volumes of paper agreements.

Examples of African startups that have reaped big from token financing

Below are some startups that have raised funds through token financing by conducting ICOs, IEOs, and STOs.

  1. Golix

Golix, a Zimbabwean crypto exchange that was started in 2014. In 2018 Golix conducted an ICO that raised $23 million by offering their GLX token.

  1. BlockBank

The UK’s BlockBank that acquired some stake in Kenyan Spire Bank. BlockBank was able to raise about 12.8 million in its pre-ICO conducted in 2018.

  1. Wala

Wala, the “zero-fee money app” South African startup that was able to raise $1.2 million through an ICO conducted in 2019.

  1. Mazzuma

Mazzuma, a Ghanaian startup that was raised over $45,000 in its third token sale phase after successfully conducting a pre-phase, first phase, and a second phase.