7 ms·

Goodbye ICOs, hello ILPs?

134 points by raleighm 9y ago

lordnacho 9y ago
> While debate around the use of ICOs continues, Initial Loan Procurements (ILPs) have emerged as a new fundraising method. Similar to an ICO but in the form of loans rather than coin acquisitions, ILPs enable borrowers and creditors to enter into a loan agreement through legally binding smart contracts. With an ILP, a creditor's investment is contractually tied to the performance of the company and eliminates the wild swings of volatility that have been associated with a vast number of ICOs. In simple terms, as long as the company makes a profit, the creditor gets annual returns. > Two Estonia-based companies, Blockhive and Agrello, have formed a partnership to provide the first ILP of its kind, 'Blockhive'. Blockhive's model removes the issuance of tokens (in the anticipation of future appreciation of those tokens) and replaces it with a contractual entitlement to 20% of their annual operating profits. That sounds more like equity to me than a loan. Whatever the structure, it isn't new. Putting it in a fancy blockchain is new, but the agreement to pursue some endeavour and share in the revenues, either as an obligation or as a percentage of profits, is ages old. And just as old is the fact that you have to actually do what you said with the money, or else it's fraud.
- cies 9y ago
  I think that ICOs are about the initial creation of a virtual commodity that can easily be made fit for use as currency; and ILPs indeed more like digital IPOs where the shares are traded on-chain instead of on-SE. Since the trading of the ILP stock happens on-chain, a chain traded virtual "crypto" currency comes in very handy. > That sounds more like equity to me than a loan. I agree wholly.
- JumpCrisscross 9y ago
  > sounds more like equity to me than a loan One can structure preferred stock to walk like a bond and quack like a stock (as well as the other way). This structure is an incredibly stupid solution to a regulatory problem.
- notahacker 9y ago
  Yeah. I'm open to the idea of loans being an actual practical use for smart contracts (they are well suited to payment automation and offer some degree of transparency of debtors' use of and receipt of digital assets) but what is actually proposed actually sounds even more like a way for shady startups to earn money from suckers than ICOs. At least with some ICOs there was a theoretical logic behind selling tokens supposedly used to acquire product (and liquidity benefits) This is just equity crowdfunding with the word blockchain involved, and as a result probably more dishonest or deluded companies and a greater likelihood the securities aren't even legally valid never mind attached to genuine prospects of profit, never mind attached to prospects of profit adequate to make up for the asset's lack of liquidity. (Reading more details in their terrible white paper, the only difference between this and a completely standard security is that in order to pretend it's a "loan" they've offered to "repay the principal" at "maturity" i.e. buy back the security in 10 years' time at the price you paid for it. Which would theoretically be a good idea for an stock in a low growth business, and also a great way of creating a relatively stable Ponzi scheme...) Seriously though, just look at this utter nonsense: https://blockhive.ee/ilp https://blockhive.ee/ilp
- wdewind 9y ago
  > Whatever the structure, it isn't new. But now maybe it's order of magnitude or two cheaper and so you can do a whole bunch of them where you used to be able to only do a few. Does that change anything? I really don't know, maybe, maybe not. Maybe it makes it practical to break a company up into many many smaller pieces and allow investors to provide more specific investments, or many smaller companies in general, due to greatly reduced legal/operational fees? And maybe that let's you do something cool? Imagine if facebook (or more likely whatever is post facebook) had hundreds of smaller investment vehicles that mapped to teams and projects, and we could all choose not to invest in the privacy invading ones? Or at least had to more explicitly do it? Sure, it's not philosophically completely novel: structural changes like this fractalize throughout technology and ultimately boil down to "that's just this, but one level of abstraction up," which makes it easy to understand, but doesn't necessarily make it useless. Sure, there's nothing new under the sun, the internet is, after all, just a really fast xerox machine, and we already have libraries. I don't look at crypto currency and think, "Oh this is obviously the future, fiat currency and banks are bullshit" and I don't even fully buy the argument I made above myself. But when I look at all the criticism to crypto, it looks a helluva a lot like 1993 and "The internet is a fad" all over again. "It's slow, it's shitty, it wont scale, it doesn't solve any real problems for real people, it's better having publishers/banks intermediate this stuff anyway" etc. etc. We'll see.
  - JumpCrisscross 9y ago
    > now maybe it's order of magnitude or two cheaper Keeping track of investors and paying them dividends isn’t even close to the most expensive part of fundraising. This is akin to starting a car company differentiated solely by the material of the muffler.
    - wdewind 9y ago
      Sure, that's true if you are raising from a few, relatively speaking, large investors, and also only if you care about fundraising as a one time event, instead of funds management as an ongoing process. The entire point of ICOs seems to be to raise from many small investors at once, perhaps skirting, among other things, accredited investor laws. Even for large companies: say we want to do my crazy invest at the team level idea: I don't really agree it would be simple to operationalize all of that money flow, and I do actually think having a blockchain could help if that is your goal, which is a big if. I'm not here to hard sell anyone on crypto, but I also am not comfortable with the wholesale dismissal of it either, so I'm definitely hoping a lot of people disagree with me and we can tease some of this stuff out.
- CryptoPunk 9y ago
  >>That sounds more like equity to me than a loan. It sounds like the principal and interest paid back is a fixed and predetermined value, rather than proportional to the company's revenue, which would make it a loan. The innovation here I believe is conditioning repayment obligations on the company having sufficient revenue. So in a sense it's like a loan contract with a clause allowing you to get a repayment holiday when your business is not earning enough. This, like all loans, has much less upside potential than equity.
- simonebrunozzi 9y ago
  It's almost like equity - the main difference being that with shares you usually get voting power. IANAL, but I also wouldn't equate ILP to non-voting shares. There's still a significant difference (especially in cases where there's bankruptcy, or company liquidation, or other n cases and exceptions.
- deleted 9y ago
  [deleted]
pryelluw 9y ago
TL;DR: Crypto Bonds ... Initial Loan Procurements (ILPs) have emerged as a new fundraising method. Similar to an ICO but in the form of loans rather than coin acquisitions, ILPs enable borrowers and creditors to enter into a loan agreement through legally binding smart contracts. With an ILP, a creditor's investment is contractually tied to the performance of the company and eliminates the wild swings of volatility that have been associated with a vast number of ICOs. In simple terms, as long as the company makes a profit, the creditor gets annual returns...
- nemild 9y ago
  But if it's an entitlement to a % of profits, then it is much more like equity.
  - pryelluw 9y ago
    It's a contract to get dividends on a loan that is based on speculation of profit (not tied to any assets). So, yes, a worse version of equity in a startup.
    - JumpCrisscross 9y ago
      > a worse version of equity in a startup Minus the enforceability or equity and bond claims. So a combination of the worst elements of equity and debt plus additional negatives. Financial innovation at its finest...
      - pryelluw 9y ago
        It being blockchain based makes it innovative. I mean, it's linked lists 2.0: electro bugaloo
  - charlesdm 9y ago
    It's a profit participating loan (PPL)
- deleted 9y ago
  [deleted]
animex 9y ago
Does this shift into a new type of asset class side-step SEC and other regulatory scrutiny? Is this a move for ICOs to dodge the current crackdown?
JumpCrisscross 9y ago
> regulators must act swiftly or risk losing opportunities to newly envisaged 'Crypto Nations' This is a toxic attitude. “Don’t worry if you’re breaking the law; they’ll have to change to stay relevant!”
- hndamien 9y ago
  Worked for Uber.
  - dbt00 9y ago
    I don't want to take the thread away from what a bad idea ILPs are and onto how much Uber sucks, so I will only say that it's not clear to me that anything has actually worked for Uber as an entity yet. Yes the early investors have cashed out sufficiently, but that's true of fraudulent ICOs too.
  - JumpCrisscross 9y ago
    > Worked for Uber Uber deliberately broke rules in an effort to change them and went into their fights willing to pay the penalties. That’s civil disobedience. They didn’t argue the rules wouldn’t be enforced because of regulatory competition or whatever. Furthermore, when Uber broke the rules it was their asses on the line. They had a terrific record of reimbursing drivers who got fined for taxi violations. With ILPs, in the other hand, we have some rando encouraging others to take stupid bets. Night and day.
    - ada1981 9y ago
      >> That’s civil disobedience << Please refrain from putting Travis K. in the same category as Rosa Parks.
      - JumpCrisscross 9y ago
        > Please refrain from putting Travis K. in the same category as Rosa Parks Civil disobedience isn’t inherently good, momentous nor socially activistic. (See the story behind Homer Plessy [1], who was hired by railroad owners in a bid to cut costs related to a segregationist state law. It famously backfired when SCOTUS created “separate but equal”.) It is simply “the active, professed refusal of a citizen to obey certain laws of the state, and/or demands, orders, and commands of a government” [2]. [1] https://en.m.wikipedia.org/wiki/Homer_Plessy https://en.m.wikipedia.org/wiki/Homer_Plessy [2] https://en.m.wikipedia.org/wiki/Civil_disobedience https://en.m.wikipedia.org/wiki/Civil_disobedience
quickthrower2 9y ago
IANAL, but ILPs sure look like a security and quack like a security.
- tomasien 9y ago
  They are securities, without a doubt. Just like convertible debt is both debt and a security.
lossolo 9y ago
They offer equity and it will be interpreted as equity so this can be only available (if you publicly announce that, depending on jurisdictions there is a maximum of people this can be offered to etc) to professional investors (minimal capital etc) in most jurisdictions. You can't just offer this to general public legally even if you call it a loan. It's like running a bank without license and saying that people are not depositing any money, they are only borrowing them to us.
- JumpCrisscross 9y ago
  > You can't just offer this to general public even if you call it a loan Under U.S. securities law, securitised loans are just as much securities as securitised companies (i.e. stock).
FooHentai 9y ago
Man, the language used in this stuff gets closer and closer to sovereign citizen quackery every day. Dodge, wriggle, obfuscate, avoid, confuse, complicate. The only difficulty is determining whether a given article is written by those deliberately writing to capture that audience, or by someone who's bought into it. Much like SC stuff, I'll enjoy watching folks blather this kind of stuff in front of a judge at some point.
- debacle 9y ago
  It's like people expect the SEC to throw their hands up and say "Aww, you got us!"
- CryptoPunk 9y ago
  >>Much like SC stuff, I'll enjoy watching folks blather this kind of stuff in front of a judge at some point. I don't understand why people get joy out of seeing someone punished for a victimless crime. Criminalizing entire categories of economic exchange, based on sweeping and prejudicial generalizations that they're all scams, is the preemptive approach to crime that makes for a more repressed society with greater wealth inequality.
  - FooHentai 9y ago
    Hmm. Lemme see if I can understand how you're seeing things here: Do you believe tax avoidance is a victimless crime?
    - CryptoPunk 9y ago
      We could certainly have a discussion about taxation and my views on it, but I'd rather discuss a more clear cut subject. That subject is someone being prosecuted under criminal law for offering a security to another consenting adult without having met the mandated requirement of having that security approved by the ordained regulatory agency. Edit: responding to below: >>why you might also believe that securities frauds are victimless. It's not "securities fraud" though. No fraud need happen for someone to be prosecuted under criminal law for offering a security to the public. The fact that you label all securities offerings without government approval "fraud" supports my earlier point that your position is "based on sweeping and prejudicial generalizations that they're all scams".
s73v3r_ 9y ago
Nobody has satisfactorily explained why the majority of ICOs are not securities, and thus should be regulated as one. It all sounds like the mid-90s and early 2000s situation, where people were taking existing processes, and getting existing patents for them by adding the magical phrase, "On a computer".
- snissn 9y ago
  i can't speak to the "majority" but for a hypothetical one - how do you feel about ICO's as pre-sales of a product?
ohazi 9y ago
What exactly is "smart" about a contractual entitlement to X% of the profits of some company? What's to stop the operators from hiding profits from the automated hands of the smart contract? How smart contracts are supposed to work: 1. I decide to enter into some agreement with an untrusted third party. 2. Both parties put the collateral related to the agreement into some sort of smart escrow account. 3. Events unfold. Smart contract system needs to be able to observe and validate these events somehow. 4. Depending on what happens, the smart contract system decides who gets the collateral. Neither party can back out of the deal after the fact, or claim that some loophole makes the deal void -- the software is the final arbiter. There's no way to make "give me money, and if I manage to turn it into more money, I promise to give some of it back to you" into a grifter-proof smart contract, despite the wishful thinking of anarcho-libertarians everywhere. This whole thing reeks of sleazebags trying to trick unsophisticated investors/speculators who are catching on to the idea that "basically every ICO is a scam" into thinking that they've created a financial product with less risk. There is absolutely nothing stopping someone running an arrangement like this from running away with the money, just as with ICOs.
Taek 9y ago
This isn't decentralized though. The ILP claims to be a legally binding smart contract - legally binding implies the use of a government, which involves courts and all that other sludge that tokens can help us get away from. As it were, it's not even necessary. The Sia platform (disclaimer: I'm a founder) has a token which does something similar, but in a fully decentralized way. Sia is a storage platform, and each time someone forms contracts on the network, a fee is taken from those contracts and automatically distributed to the fund token holders. It's a similar model, but revenue is excluded to the blockchain, and it's fully decentralized. Tokens are exciting because of what it allows us to achieve in the absence of any form of government. We can make storage contracts that are roughly analogous to SLAs, but without needing paper contracts, courts, lawyers, lawsuits, ambiguity, or drawn out battles about who was right and who was wrong. The blockchain takes care of all of that in a very compact, definitive, predictable way. And no, it's not about skirting regulations or doing things that the law won't allow. It's about enabling things that the law already enables, but enabling them in more efficient ways.
- bottled_poe 9y ago
  Hmm.. Contracts are between two parties. If it’s not the government providing recourse in the case of a contract breach, then who? I don’t see a realistic alternative.
  - Taek 9y ago
    The blockchain! For something like file storage, you can use cryptographic techniques to prove that a party is or isn't holding the data that they were contracted to hold. This doesn't expand to the physical world well (for example, how can the blockchain measure whether or not you damaged a rental car?), but for digital resources like storage, certain types of computation, and digitally owned assets, loans, etc., you can use blockchain arbitration.
- return1 9y ago
  exactly, however this fully decentralized/untrusted model is only applicable to a few types of businesses, in the digital realm. in this case just stamping shares with a blockchain is not a particularly inspiring application. and "legally binding cryptocurrency" is a quite the oxymoron, like the venezuelan petro.
AdamM12 9y ago
Is it just me or is there no "Event of default" clause to these? They state that there is a maturity date, which is automatically extended unless terminated, but again not explanation of the creditors rights on default. Speaking of maturity what exactly happens at that date? Do you get your principal back? No explanation of what happens then either. Seems like everyone is trying to end around securities law. I'll stick to my dividend paying ETFs. Edit: Read the white paper more in depth. Principal paid at maturity. Edit2: Seems kinda similar to an ETN (exchange traded note)
cellis 9y ago
Maybe I’m too old school, but can someone explain to me how this is any different than a stock with a dividend or a bond? Both transferable? Yup. Both guarantee the holder some percentage of future revenue? Check. Both are advertised to the public? You betcha! What am I missing?
- gowld 9y ago
  Legally protected against fraudulent activity? Nope.
juicy-fruit 9y ago
For some reason I initially read the title as "Google ICO" and damn near blew my mind.
fiatjaf 9y ago
I thought you were referring to the InterLedger Protocol.
bastawhiz 9y ago
Let me get this straight. It's a "loan" that's managed as a smart contract that pays off investors as the company turns a profit. It would seem to me that in order to make this not just a pipe dream, the company would have to operate 100% on the blockchain, presumably Ethereum. Otherwise, how could the smart contract do anything? If I pay one of these "companies" cash, the smart contract knows nothing about that. I would have to pay the business in cryptocurrency, and specifically through the mechanisms defined by the smart contract. This seems RIPE for abuse. What if they just...don't? Crooked "founders" doing a chunk of revenue through some off-chain business or anonymously outside of the smart contract. "Investors" get decreased returns because the business does not appear to be performing well, all while the "founders" laugh their way to the exchange. > To access and transact on the Blockhive platform, users must fully register and receive the protocol's Future Loan Access Tokens (FLAT) (transferrable loans that can be assigned to third parties) as soon as they lend funds to the company. That sounds an AWFUL lot like a debt security to me. They're not even trying to hide it at this point. So in essence, they've invented an ICO where tokens pay dividends over a fixed term, where you just have to pray that the company is being truthful about their revenue. This sounds like the setup for a giant pyramid scheme. I can totally see a company doing one of these "ILP"s and using the revenue from newer "loans" to pay the interest on older "loans".
dmichulke 9y ago
Here's an alternative structure that I have been discussing with one of my clients: 1. Start-up defines token buyback rate in terms of revenue (not profit!) 2. Start-up sells tokens 3. At every defined interval (e.g., monthly), start-up updates revenue statistics and buys back tokens according to 1 and destroys them. This means: - it's an eternal bond if you never sell your tokens - the actual interest rate payment is done via token buybacks, so it's also kind of a dividend - token value is largely determined by future revenue of company Some thoughts: - Re 1: You have to scale the token buyback according to the number of outstanding tokens (otherwise the long-term holders benefit relatively more per time held than short-term holders) - You might want to define a cap after which you will stop your buybacks (still haven't thought this fully through) - You may want to start 3rd party audits after some predefined event (to increase trustworthiness), e.g., after reaching an annual revenue of X - This is especially suited if you have some quantified business metric like "loans repaid", so you don't even have to define it in terms of company revenue.
- slivym 9y ago
  What do you mean by buyback in terms of revenue? * For every $X we will spend $0.0001 buying back tokens? * For every $X we will buy back Y coins? * For every $X we will buy back Y coins at a set value? I guess it's got to be the first or third since the second would imply that the cost of buying back the coins could be greater than the revenue of the company (let's saying I buy all the coins and refuse to sell them, whachagonado?) Basically what you're describing is selling a royalty interest with a fixed buyback value. Which whilst technically achievable seems like a strange thing to do. Since when you're starting a company it's very difficult to calculate your margin. The result would be that you could very well end up finding that the royalty makes your company unprofitable.
  - dmichulke 9y ago
    IMO only the first makes sense. The third would imply a "non-market" setting which kind of defeats the purpose of an ICO. The company I talked with was in the loan business, so if you set a target rate of 10% on every interest rate payment, it's possible it's gonna break your neck but then you didn't have a very good business model to begin with. The idea is that after 5 or 10 years you already bought back a decent amount of your tokens and initially you can set different buyback rates (e.g, X% for the Xth year up to 10) to "soften the blow" in case you're entering a highly competitive market (aka shark pool). The good news is that it's kind of self-regulating: if you underperform, the tokens will be worth less so your buybacks in terms of coins will be higher and your subsequent buybacks therefore cheaper.
deleted 9y ago
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deleted 9y ago
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JackFr 9y ago
>Agrello is a legal technology start-up that builds legally-binding, self-aware agreements on blockchain. Big, if true.
beefield 9y ago
> The ultimate objective is to continue the decentralised crowdfunding opportunities that are similar to ICOs, only this time, with improved functionality and without restrictions imposed by regulatory bodies. Emphasis mine. Why do these people think regulatory bodies exist? Further, could someone ELI5 how this works. I issue ILP, what is my liability? Do I pay 20% of my profit in USD? If yes, why the blockchain? Do I pay 20% of my profits in cryptocurrency? If yes, what cryptocurrency I use and who defines the exchange rate, and why I would want to pay the profits in cryptocurrency?

134 points by raleighm 9y ago

> While debate around the use of ICOs continues, Initial Loan Procurements (ILPs) have emerged as a new fundraising method. Similar to an ICO but in the form of loans rather than coin acquisitions, ILPs enable borrowers and creditors to enter into a loan agreement through legally binding smart contracts. With an ILP, a creditor's investment is contractually tied to the performance of the company and eliminates the wild swings of volatility that have been associated with a vast number of ICOs. In simple terms, as long as the company makes a profit, the creditor gets annual returns. > Two Estonia-based companies, Blockhive and Agrello, have formed a partnership to provide the first ILP of its kind, 'Blockhive'. Blockhive's model removes the issuance of tokens (in the anticipation of future appreciation of those tokens) and replaces it with a contractual entitlement to 20% of their annual operating profits. That sounds more like equity to me than a loan. Whatever the structure, it isn't new. Putting it in a fancy blockchain is new, but the agreement to pursue some endeavour and share in the revenues, either as an obligation or as a percentage of profits, is ages old. And just as old is the fact that you have to actually do what you said with the money, or else it's fraud.

cies 9y ago
I think that ICOs are about the initial creation of a virtual commodity that can easily be made fit for use as currency; and ILPs indeed more like digital IPOs where the shares are traded on-chain instead of on-SE. Since the trading of the ILP stock happens on-chain, a chain traded virtual "crypto" currency comes in very handy. > That sounds more like equity to me than a loan. I agree wholly.
JumpCrisscross 9y ago
> sounds more like equity to me than a loan One can structure preferred stock to walk like a bond and quack like a stock (as well as the other way). This structure is an incredibly stupid solution to a regulatory problem.
notahacker 9y ago
Yeah. I'm open to the idea of loans being an actual practical use for smart contracts (they are well suited to payment automation and offer some degree of transparency of debtors' use of and receipt of digital assets) but what is actually proposed actually sounds even more like a way for shady startups to earn money from suckers than ICOs. At least with some ICOs there was a theoretical logic behind selling tokens supposedly used to acquire product (and liquidity benefits) This is just equity crowdfunding with the word blockchain involved, and as a result probably more dishonest or deluded companies and a greater likelihood the securities aren't even legally valid never mind attached to genuine prospects of profit, never mind attached to prospects of profit adequate to make up for the asset's lack of liquidity. (Reading more details in their terrible white paper, the only difference between this and a completely standard security is that in order to pretend it's a "loan" they've offered to "repay the principal" at "maturity" i.e. buy back the security in 10 years' time at the price you paid for it. Which would theoretically be a good idea for an stock in a low growth business, and also a great way of creating a relatively stable Ponzi scheme...) Seriously though, just look at this utter nonsense: https://blockhive.ee/ilp https://blockhive.ee/ilp
wdewind 9y ago
> Whatever the structure, it isn't new. But now maybe it's order of magnitude or two cheaper and so you can do a whole bunch of them where you used to be able to only do a few. Does that change anything? I really don't know, maybe, maybe not. Maybe it makes it practical to break a company up into many many smaller pieces and allow investors to provide more specific investments, or many smaller companies in general, due to greatly reduced legal/operational fees? And maybe that let's you do something cool? Imagine if facebook (or more likely whatever is post facebook) had hundreds of smaller investment vehicles that mapped to teams and projects, and we could all choose not to invest in the privacy invading ones? Or at least had to more explicitly do it? Sure, it's not philosophically completely novel: structural changes like this fractalize throughout technology and ultimately boil down to "that's just this, but one level of abstraction up," which makes it easy to understand, but doesn't necessarily make it useless. Sure, there's nothing new under the sun, the internet is, after all, just a really fast xerox machine, and we already have libraries. I don't look at crypto currency and think, "Oh this is obviously the future, fiat currency and banks are bullshit" and I don't even fully buy the argument I made above myself. But when I look at all the criticism to crypto, it looks a helluva a lot like 1993 and "The internet is a fad" all over again. "It's slow, it's shitty, it wont scale, it doesn't solve any real problems for real people, it's better having publishers/banks intermediate this stuff anyway" etc. etc. We'll see.
- JumpCrisscross 9y ago
  > now maybe it's order of magnitude or two cheaper Keeping track of investors and paying them dividends isn’t even close to the most expensive part of fundraising. This is akin to starting a car company differentiated solely by the material of the muffler.
  - wdewind 9y ago
    Sure, that's true if you are raising from a few, relatively speaking, large investors, and also only if you care about fundraising as a one time event, instead of funds management as an ongoing process. The entire point of ICOs seems to be to raise from many small investors at once, perhaps skirting, among other things, accredited investor laws. Even for large companies: say we want to do my crazy invest at the team level idea: I don't really agree it would be simple to operationalize all of that money flow, and I do actually think having a blockchain could help if that is your goal, which is a big if. I'm not here to hard sell anyone on crypto, but I also am not comfortable with the wholesale dismissal of it either, so I'm definitely hoping a lot of people disagree with me and we can tease some of this stuff out.
CryptoPunk 9y ago
>>That sounds more like equity to me than a loan. It sounds like the principal and interest paid back is a fixed and predetermined value, rather than proportional to the company's revenue, which would make it a loan. The innovation here I believe is conditioning repayment obligations on the company having sufficient revenue. So in a sense it's like a loan contract with a clause allowing you to get a repayment holiday when your business is not earning enough. This, like all loans, has much less upside potential than equity.
simonebrunozzi 9y ago
It's almost like equity - the main difference being that with shares you usually get voting power. IANAL, but I also wouldn't equate ILP to non-voting shares. There's still a significant difference (especially in cases where there's bankruptcy, or company liquidation, or other n cases and exceptions.
deleted 9y ago
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pryelluw 9y ago

TL;DR: Crypto Bonds ... Initial Loan Procurements (ILPs) have emerged as a new fundraising method. Similar to an ICO but in the form of loans rather than coin acquisitions, ILPs enable borrowers and creditors to enter into a loan agreement through legally binding smart contracts. With an ILP, a creditor's investment is contractually tied to the performance of the company and eliminates the wild swings of volatility that have been associated with a vast number of ICOs. In simple terms, as long as the company makes a profit, the creditor gets annual returns...

nemild 9y ago
But if it's an entitlement to a % of profits, then it is much more like equity.
- pryelluw 9y ago
  It's a contract to get dividends on a loan that is based on speculation of profit (not tied to any assets). So, yes, a worse version of equity in a startup.
  - JumpCrisscross 9y ago
    > a worse version of equity in a startup Minus the enforceability or equity and bond claims. So a combination of the worst elements of equity and debt plus additional negatives. Financial innovation at its finest...
    - pryelluw 9y ago
      It being blockchain based makes it innovative. I mean, it's linked lists 2.0: electro bugaloo
- charlesdm 9y ago
  It's a profit participating loan (PPL)
deleted 9y ago
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animex 9y ago

Does this shift into a new type of asset class side-step SEC and other regulatory scrutiny? Is this a move for ICOs to dodge the current crackdown?

JumpCrisscross 9y ago

> regulators must act swiftly or risk losing opportunities to newly envisaged 'Crypto Nations' This is a toxic attitude. “Don’t worry if you’re breaking the law; they’ll have to change to stay relevant!”

hndamien 9y ago
Worked for Uber.
- dbt00 9y ago
  I don't want to take the thread away from what a bad idea ILPs are and onto how much Uber sucks, so I will only say that it's not clear to me that anything has actually worked for Uber as an entity yet. Yes the early investors have cashed out sufficiently, but that's true of fraudulent ICOs too.
- JumpCrisscross 9y ago
  > Worked for Uber Uber deliberately broke rules in an effort to change them and went into their fights willing to pay the penalties. That’s civil disobedience. They didn’t argue the rules wouldn’t be enforced because of regulatory competition or whatever. Furthermore, when Uber broke the rules it was their asses on the line. They had a terrific record of reimbursing drivers who got fined for taxi violations. With ILPs, in the other hand, we have some rando encouraging others to take stupid bets. Night and day.
  - ada1981 9y ago
    >> That’s civil disobedience << Please refrain from putting Travis K. in the same category as Rosa Parks.
    - JumpCrisscross 9y ago
      > Please refrain from putting Travis K. in the same category as Rosa Parks Civil disobedience isn’t inherently good, momentous nor socially activistic. (See the story behind Homer Plessy [1], who was hired by railroad owners in a bid to cut costs related to a segregationist state law. It famously backfired when SCOTUS created “separate but equal”.) It is simply “the active, professed refusal of a citizen to obey certain laws of the state, and/or demands, orders, and commands of a government” [2]. [1] https://en.m.wikipedia.org/wiki/Homer_Plessy https://en.m.wikipedia.org/wiki/Homer_Plessy [2] https://en.m.wikipedia.org/wiki/Civil_disobedience https://en.m.wikipedia.org/wiki/Civil_disobedience

quickthrower2 9y ago

IANAL, but ILPs sure look like a security and quack like a security.

tomasien 9y ago
They are securities, without a doubt. Just like convertible debt is both debt and a security.

lossolo 9y ago

They offer equity and it will be interpreted as equity so this can be only available (if you publicly announce that, depending on jurisdictions there is a maximum of people this can be offered to etc) to professional investors (minimal capital etc) in most jurisdictions. You can't just offer this to general public legally even if you call it a loan. It's like running a bank without license and saying that people are not depositing any money, they are only borrowing them to us.

JumpCrisscross 9y ago
> You can't just offer this to general public even if you call it a loan Under U.S. securities law, securitised loans are just as much securities as securitised companies (i.e. stock).

FooHentai 9y ago

Man, the language used in this stuff gets closer and closer to sovereign citizen quackery every day. Dodge, wriggle, obfuscate, avoid, confuse, complicate. The only difficulty is determining whether a given article is written by those deliberately writing to capture that audience, or by someone who's bought into it. Much like SC stuff, I'll enjoy watching folks blather this kind of stuff in front of a judge at some point.

debacle 9y ago
It's like people expect the SEC to throw their hands up and say "Aww, you got us!"
CryptoPunk 9y ago
>>Much like SC stuff, I'll enjoy watching folks blather this kind of stuff in front of a judge at some point. I don't understand why people get joy out of seeing someone punished for a victimless crime. Criminalizing entire categories of economic exchange, based on sweeping and prejudicial generalizations that they're all scams, is the preemptive approach to crime that makes for a more repressed society with greater wealth inequality.
- FooHentai 9y ago
  Hmm. Lemme see if I can understand how you're seeing things here: Do you believe tax avoidance is a victimless crime?
  - CryptoPunk 9y ago
    We could certainly have a discussion about taxation and my views on it, but I'd rather discuss a more clear cut subject. That subject is someone being prosecuted under criminal law for offering a security to another consenting adult without having met the mandated requirement of having that security approved by the ordained regulatory agency. Edit: responding to below: >>why you might also believe that securities frauds are victimless. It's not "securities fraud" though. No fraud need happen for someone to be prosecuted under criminal law for offering a security to the public. The fact that you label all securities offerings without government approval "fraud" supports my earlier point that your position is "based on sweeping and prejudicial generalizations that they're all scams".

s73v3r_ 9y ago

Nobody has satisfactorily explained why the majority of ICOs are not securities, and thus should be regulated as one. It all sounds like the mid-90s and early 2000s situation, where people were taking existing processes, and getting existing patents for them by adding the magical phrase, "On a computer".

snissn 9y ago
i can't speak to the "majority" but for a hypothetical one - how do you feel about ICO's as pre-sales of a product?

ohazi 9y ago

What exactly is "smart" about a contractual entitlement to X% of the profits of some company? What's to stop the operators from hiding profits from the automated hands of the smart contract? How smart contracts are supposed to work: 1. I decide to enter into some agreement with an untrusted third party. 2. Both parties put the collateral related to the agreement into some sort of smart escrow account. 3. Events unfold. Smart contract system needs to be able to observe and validate these events somehow. 4. Depending on what happens, the smart contract system decides who gets the collateral. Neither party can back out of the deal after the fact, or claim that some loophole makes the deal void -- the software is the final arbiter. There's no way to make "give me money, and if I manage to turn it into more money, I promise to give some of it back to you" into a grifter-proof smart contract, despite the wishful thinking of anarcho-libertarians everywhere. This whole thing reeks of sleazebags trying to trick unsophisticated investors/speculators who are catching on to the idea that "basically every ICO is a scam" into thinking that they've created a financial product with less risk. There is absolutely nothing stopping someone running an arrangement like this from running away with the money, just as with ICOs.

Taek 9y ago

This isn't decentralized though. The ILP claims to be a legally binding smart contract - legally binding implies the use of a government, which involves courts and all that other sludge that tokens can help us get away from. As it were, it's not even necessary. The Sia platform (disclaimer: I'm a founder) has a token which does something similar, but in a fully decentralized way. Sia is a storage platform, and each time someone forms contracts on the network, a fee is taken from those contracts and automatically distributed to the fund token holders. It's a similar model, but revenue is excluded to the blockchain, and it's fully decentralized. Tokens are exciting because of what it allows us to achieve in the absence of any form of government. We can make storage contracts that are roughly analogous to SLAs, but without needing paper contracts, courts, lawyers, lawsuits, ambiguity, or drawn out battles about who was right and who was wrong. The blockchain takes care of all of that in a very compact, definitive, predictable way. And no, it's not about skirting regulations or doing things that the law won't allow. It's about enabling things that the law already enables, but enabling them in more efficient ways.

bottled_poe 9y ago
Hmm.. Contracts are between two parties. If it’s not the government providing recourse in the case of a contract breach, then who? I don’t see a realistic alternative.
- Taek 9y ago
  The blockchain! For something like file storage, you can use cryptographic techniques to prove that a party is or isn't holding the data that they were contracted to hold. This doesn't expand to the physical world well (for example, how can the blockchain measure whether or not you damaged a rental car?), but for digital resources like storage, certain types of computation, and digitally owned assets, loans, etc., you can use blockchain arbitration.
return1 9y ago
exactly, however this fully decentralized/untrusted model is only applicable to a few types of businesses, in the digital realm. in this case just stamping shares with a blockchain is not a particularly inspiring application. and "legally binding cryptocurrency" is a quite the oxymoron, like the venezuelan petro.

AdamM12 9y ago

Is it just me or is there no "Event of default" clause to these? They state that there is a maturity date, which is automatically extended unless terminated, but again not explanation of the creditors rights on default. Speaking of maturity what exactly happens at that date? Do you get your principal back? No explanation of what happens then either. Seems like everyone is trying to end around securities law. I'll stick to my dividend paying ETFs. Edit: Read the white paper more in depth. Principal paid at maturity. Edit2: Seems kinda similar to an ETN (exchange traded note)

cellis 9y ago

Maybe I’m too old school, but can someone explain to me how this is any different than a stock with a dividend or a bond? Both transferable? Yup. Both guarantee the holder some percentage of future revenue? Check. Both are advertised to the public? You betcha! What am I missing?

gowld 9y ago
Legally protected against fraudulent activity? Nope.

juicy-fruit 9y ago

For some reason I initially read the title as "Google ICO" and damn near blew my mind.

fiatjaf 9y ago

I thought you were referring to the InterLedger Protocol.

bastawhiz 9y ago

Let me get this straight. It's a "loan" that's managed as a smart contract that pays off investors as the company turns a profit. It would seem to me that in order to make this not just a pipe dream, the company would have to operate 100% on the blockchain, presumably Ethereum. Otherwise, how could the smart contract do anything? If I pay one of these "companies" cash, the smart contract knows nothing about that. I would have to pay the business in cryptocurrency, and specifically through the mechanisms defined by the smart contract. This seems RIPE for abuse. What if they just...don't? Crooked "founders" doing a chunk of revenue through some off-chain business or anonymously outside of the smart contract. "Investors" get decreased returns because the business does not appear to be performing well, all while the "founders" laugh their way to the exchange. > To access and transact on the Blockhive platform, users must fully register and receive the protocol's Future Loan Access Tokens (FLAT) (transferrable loans that can be assigned to third parties) as soon as they lend funds to the company. That sounds an AWFUL lot like a debt security to me. They're not even trying to hide it at this point. So in essence, they've invented an ICO where tokens pay dividends over a fixed term, where you just have to pray that the company is being truthful about their revenue. This sounds like the setup for a giant pyramid scheme. I can totally see a company doing one of these "ILP"s and using the revenue from newer "loans" to pay the interest on older "loans".

dmichulke 9y ago

Here's an alternative structure that I have been discussing with one of my clients: 1. Start-up defines token buyback rate in terms of revenue (not profit!) 2. Start-up sells tokens 3. At every defined interval (e.g., monthly), start-up updates revenue statistics and buys back tokens according to 1 and destroys them. This means: - it's an eternal bond if you never sell your tokens - the actual interest rate payment is done via token buybacks, so it's also kind of a dividend - token value is largely determined by future revenue of company Some thoughts: - Re 1: You have to scale the token buyback according to the number of outstanding tokens (otherwise the long-term holders benefit relatively more per time held than short-term holders) - You might want to define a cap after which you will stop your buybacks (still haven't thought this fully through) - You may want to start 3rd party audits after some predefined event (to increase trustworthiness), e.g., after reaching an annual revenue of X - This is especially suited if you have some quantified business metric like "loans repaid", so you don't even have to define it in terms of company revenue.

slivym 9y ago
What do you mean by buyback in terms of revenue? * For every $X we will spend $0.0001 buying back tokens? * For every $X we will buy back Y coins? * For every $X we will buy back Y coins at a set value? I guess it's got to be the first or third since the second would imply that the cost of buying back the coins could be greater than the revenue of the company (let's saying I buy all the coins and refuse to sell them, whachagonado?) Basically what you're describing is selling a royalty interest with a fixed buyback value. Which whilst technically achievable seems like a strange thing to do. Since when you're starting a company it's very difficult to calculate your margin. The result would be that you could very well end up finding that the royalty makes your company unprofitable.
- dmichulke 9y ago
  IMO only the first makes sense. The third would imply a "non-market" setting which kind of defeats the purpose of an ICO. The company I talked with was in the loan business, so if you set a target rate of 10% on every interest rate payment, it's possible it's gonna break your neck but then you didn't have a very good business model to begin with. The idea is that after 5 or 10 years you already bought back a decent amount of your tokens and initially you can set different buyback rates (e.g, X% for the Xth year up to 10) to "soften the blow" in case you're entering a highly competitive market (aka shark pool). The good news is that it's kind of self-regulating: if you underperform, the tokens will be worth less so your buybacks in terms of coins will be higher and your subsequent buybacks therefore cheaper.

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JackFr 9y ago

>Agrello is a legal technology start-up that builds legally-binding, self-aware agreements on blockchain. Big, if true.

beefield 9y ago

> The ultimate objective is to continue the decentralised crowdfunding opportunities that are similar to ICOs, only this time, with improved functionality and without restrictions imposed by regulatory bodies. Emphasis mine. Why do these people think regulatory bodies exist? Further, could someone ELI5 how this works. I issue ILP, what is my liability? Do I pay 20% of my profit in USD? If yes, why the blockchain? Do I pay 20% of my profits in cryptocurrency? If yes, what cryptocurrency I use and who defines the exchange rate, and why I would want to pay the profits in cryptocurrency?