Inside Binance Launchpad: ICO 2.0

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In an earlier article in which we summarized the ICO landscape of 2018, we made several predictions for 2019. One of these included the “Return of the crowdsale towards the end of 2019 in some shape or form” – and it has come true ahead of schedule.

2017 and 2018 were the years when initial coin offerings (ICOs) came to the forefront – over $22 billion were raised through this mechanism over that time frame. The vast majority of ICOs were issued on Ethereum and ether was the primary investment currency. This propelled ETH all the way to the $1,500 mark by January 2018. But towards the second half of 2018, there was a considerable slowdown – if some successful private sales were still going on, the public sale was all but dead.

Over the past couple of months, IEOs (Initial Exchange Offering) have supplanted the ICO as the most successful and most hyped crowdfunding method.

These are the basic differentiation points for IEOs:

  1. An exchange is used as a crowdfunding platform;
  2. Typically, the only currency accepted is the exchange’s native token;
  3. Investors must be registered users of the exchange.

Since this is a new phenomenon, it is impossible to delineate all the intricacies – and much will depend on a particular exchange where the IEO takes place. Binance, by conducting three highly successful IEOs, created enough buzz that many exchanges either have entered this space already (EXMO, Dobi, Coinbene, Upbit, Probit) or have announced such plans (OKex, Huobi, Bittrex).

Binance has created a special platform for this, called Binance Launchpad. The price of BNB has reflected the exchange’s leadership in this sphere as its price has increased 2.5 times in 2019, making it number seven by market capitalization at press time.

The company started off meekly, still testing the waters. The first two IEOs were under $1 million each and ethers were accepted along with BNB. Unlike the three offerings that have taken place this year, there is limited information about the first two on Binance’s website. In addition, even the information that is available is incorrect.

On the website, the date for Gifto offering is December 21st, 2018, whereas according to the Binance’s Twitter account, it took place on December 14th. The is the same misalignment for the Bread offering; the site says December 26th, 2018, and the Twitter account points to December 19th, 2018.

Furthermore, according to the CoinMarketcap, both GTO and BRD had been trading on the exchanges since 2017. Thus, apparently, this was a sort of a secondary offering.

These early attempts did not generate much buzz and had little or no effect on the price of BNB. Thus, this year, Binance has revamped its approach and the second time around, it is much more successful.

Binance has not responded to our numerous requests for an interview, but we were able to speak to the founders of Fetch and Celer Network.

Fetch.Ai

Fetch is promising to build a smarter economy with the help of autonomous agents. It combines some of the trendiest modern technologies such as blockchain, AI, IoT as well as something a bit older – multi-agent systems. According to the company’s co-founder and CEO, Humayun Sheikh, Fetch is busy working on its own proprietary blockchain protocol which will serve as the base layer. None of the existing blockchains satisfy the needs of a truly smart economy which requires millions of transactions per second throughput. The protocol which the company is developing is based on proof of stake and employs sharding.

Fetch is able to move fast with its development as they “are not building it from scratch but utilizing many of the tried and tested technologies. By the end of the year, we’ll have it up and running”. Mr. Sheikh believes that supply chain vertical and travel industry may benefit the most from the ecosystem that his company is building. However, as a showcase project, the Fetch is building a fully-decentralized Uber-like app that will incorporate on-chain intelligence such as “search and discovery and schedule optimization”.

Celer Network

Celer Network is founded by four enthusiasts with PhDs, is a layer two scaling technology similar to the Lightning Network, but as co-founder Mo Dong notices “whereas the Lightning Network is just focused on payments, Celer Network is also speeding up more elaborate smart contracts”. Already, it supports any EVM blockchain and plans to become compatible with as many blockchains as possible.

Even prior to the Binance offering, the company had raised over $30 million mostly from VCs. There is a Celer app available both for Android and iOS devices which offers a P2P Gomoku game where players stake testnet tokens. This is congruent with the philosophy espoused by Mr. Dong: “the only way this technology will get adopted is if we enable human interaction; that’s what happened with the Internet, interaction based on the transfer of value”.

In conversations with Mo Dong and Humayan Sheikh, more information was revealed:

Crypto Insider: What led to your decision of doing an IEO on Binance Launchpad?

Humayun Sheikh: Binance reached out to us. We had been fundraising for a while already. They were looking for some legitimate projects that weren’t a scam, that is why they picked us.

Mo Dong: We applied online and then the conversation began.

Crypto Insider: What was like the due diligence on the part of Binance?

Humayun Sheikh: I would say it was thorough. About 80 percent of it was very similar to what a VC would do. They examined our code, they visited our office in Cambridge, the whole process took about two and a half months.

Mo Dong: Binance knew about our project, they knew we weren’t a scam, so the process was quite easy. I think it depends on the project.

Crypto Insider: How much say did Binance have in determining an offering price, amount, market cap etc.?

Humayun Sheikh: We were hoping for a higher valuation, but they kind of made these decisions for us. They ran some simulations etc.

Mo Dong: They weren’t really involved in that, these were our decisions.

Crypto insider: What fees did Binance charge (you don’t have to name the exact amount, just the structure)?

Humayun Sheikh: A small percentage of our tokens.

Mo Dong: I can’t discuss that because I think even the structure is different for every project.

Binance Launchpad

The three projects that have been launched this year have been chosen wisely. Although there is no way of predicting its future success, they have an air of legitimacy. There is no question that the market has taken it well.

Binance has used its preeminent position in the crypto trading space well, as they took a much-maligned ICO model and fixed some of its biggest pain points.

  • Information asymmetry that led to the lemons problem – investors had no way of separating the good projects from the bad and even from outright scams; so Binance has stepped in as a smart filter. Its due diligence is great by the standards of the crypto space, but is still lacking by the old-world’s expectations. The biggest problem we have discovered is an inconsistency with which it seems to be treating projects.
  • Uneven playing field – in the good old days, those investing in the presale or private round (whales) were getting the terms that were unproportionally more favorable than what was being offered to the crowdsale participants (hamsters). The process was very cynical, as those early investors oftentimes didn’t care about the underlying project, but wanted to get in early, secure predatory terms, and dump the tokens when a higher valuation was reached after exchange listings – only to move on to other ICOs. With Binance Launchpad, apparently, everyone is receiving the same price. Furthermore, the IEO price of CELR was lower than the private sale round price and almost the same as the seed round price. I even asked Mr. Dong a question of whether their early investors were upset with this setup? His reply was that all their investors support the project long-term and have lockups anyway. In the vein, Binance has capped individual participation and furthermore, this cap has decreased from $20,000 for the BitTorrent offering to $1,500 for Celer Network.
  • Liquidity – one of the biggest concerns for all ICO investors is when and where the token will be listed. In the past, top exchanges like Binance were commanding multimillion-dollar listing fees (although nowadays probably because of the regulatory pressure, most of the exchanges deny that they ever charged any listing fees). Binance is listing all these tokens.

I tried participating in Celer Network offering. Firstly, it took me about five minutes to log in, then I kept receiving a message that I don’t have enough BNB to participate. Finally, after about ten minutes of struggles I was able to submit my order, which unfortunately was never filled without any explanation.

 

Hopefully, in the future, Binance can make its due diligence process more transparent and consistent. The investing public has a right to know exactly what criteria Binance has for the project selection and what type of due diligence was performed on each project. But what we have so far is a step in the right direction.

ICO 2.0?

Will the IEO hype be as powerful and as irrational as the ICO hype? It’s unlikely – you can’t enter the same river twice. But it is clear already that many unscrupulous players will try to capitalize on the latest trend. Eventually, it will lead to the overabundance of IEO platforms and overproliferation of the IEO offerings. Nonetheless, if Binance will continue to take its IEO platform seriously and improve some of its deficiencies, it has the potential to become a long-term crypto crowdfunding stage.

It may be joined by a few others. I would certainly expect to see at least one such platform in the U.S. (Coinbase?) and another in Europe. Furthermore, in the future, they may be divided into tiers (first tier, second tier etc.). Neither BNB, nor the IEO space will experience the same exuberant bull market as we had experienced in the late 2017 – early 2018, but BNB will engrain itself as a top ten cryptocurrency. Besides the psychological factors, the sheer size of these offerings (which is much more reasonable being capped at a few million dollars) will not support the same growth.

Post Scriptum

  • I have been referring to these offering as IEOs (Initial Exchange Offerings), but out of the three offerings, only BTT is an initial offering Although “initial” may signify that it is an initial exchange offering.
  • Before getting a hold of Mr. Dong, I encountered a fake Mr. Dong, who nevertheless, offered to send me some tokens as a reward for the article.
  • Huobi token has been on the rise since the announcement of the Huobi Prime.

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