By Camila Russo Startups have been ditching venture capitalists and raising millions of dollars in minutes by issuing digital tokens in what have become known as initial coin offerings. One company says that process is about to become even easier. A Toronto-based firm called Polymath Inc. wants to be a one-stop shop for issuers of tokens that have similar properties as financial securities.
The platform, which the proprietors say doesn’t require advanced technological knowledge, guides users through every step — from creation, to fundraising, to secondary-market trading — while complying with ever stricter regulations, according to a beta version seen by Bloomberg. If a platform such as Polymath gains steam, it could magnify the consequences of the booming world of token sales, which has spurred the rise of more than 800 coins. The digital fundraisers have given entrepreneurs greater access to capital and opened the tech-startup scene to a broader investor base, while also providing plenty of opportunities for fraud. The ease at which companies could issue tokens has the potential to raise the already high levels of skepticism surrounding the offerings.
In less than two years, companies have raised almost US$2 billion in ICOs, with token prices doubling in a week, and often falling just as fast. Companies have been able to rake in millions with little more than a white paper and a website. Bitcoin, the biggest cryptocurrency, has more than tripled in value this year, raising concern of a bubble. “The reason most securities aren’t on the blockchain is because it’s a daunting task; it’s opaque, expensive and hard to do, so we’re trying to break all that down to bite-size steps,” Polymath Chief Executive Officer Trevor Koverko said in an interview. Koverko said he had tried to tokenize his private equity fund and realized how hard it was, so decided to build a platform to do that instead. “We’re aiming to be the interface between financial securities and the blockchain.” Most tokens issued in ICOs are application tokens, or tokens made to be used inside an application. They’re largely based on the Ethereum network, as that blockchain-based platform facilitates building these types of tokens.
A tiny fraction of the approximately US$160 billion cryptocurrency market are securities tokens (only US$50 million according to Polymath). Unlike application tokens, securities tokens represent a stake in a company or fund and directly benefit from earnings or capital appreciation, much like shares do. Polymath, with advisers including Ethereum co-founder Anthony Di Iorio and Bitcoin Foundation board member Bruce Fenton, is betting securities tokens will end up dwarfing application tokens to become a US$10 trillion market in 10 years. The closely held company officially launches Oct. 1, and said it has a handful of prospective ICOs lined up.
Securities tokens will help ease concern about the overvaluation of tokens sold at ICOs, Koverko said. “There’s a lot of excitement and hope, but not a lot of tangible assets,” Koverko said. “We’re going to bring a new era where tokens represent real assets. I think that is what this eco-system needs.”