▲ Fintech Series
Dalibor Cerny, Finance Lawyer, Crypto Enthusiast
Gabriel Dusil, Co-founder & Board Member, Adel
An Ecosystem of Participation
Initial coin offerings (ICOs) are a very popular way for ventures to raise funds for their endeavours. Digital companies are developing novel ways of governance as existing models become dated, and needs to be modernized. A new enterprise called Adel is a refreshing example of how blockchain is being combined with traditional venture capital seed funding while exposing the challenges and controversial topics in the fintech evolution.
In this new decentralized community model, Adel created an environment whereby experts, investors, and future employees can co-exist based on their participation in its ecosystem. This is instigated by a less regulated and very user friendly ICO. Several ICOs have used existing cryptocurrency protocols to create cryptocurrency tokens. The most notable are blockchains such as Nxt, Counterparty, Bitshares, or Mastercoin (now Omnicoin). One advantage of an ICO, compared to traditional Initial public offerings (IPO), is that it is done outside of heavy regulation and oversight. Compared to modern funding models such as crowdfunding, ICOs are executed without an intermediary. A growing number of digital technology startups are raising cash this way, by creating and selling their own cryptocurrency tokens and bypassing the need for banks or venture capital firms.
ICOs represent a new way of funding because people can invest their money very flexibly from all corners of the world. Participants of the ICO are investing in the future of the company and in the anticipated success of the solutions they are developing. Contributors to the ICO help to raise awareness in their respective communities. The investors are also motivated by the speculative growth of the cryptocurrency token market price as early buyers. They also provide early liquidity for the cryptocurrency tokens when trading starts. Once funding is completed, the cryptocurrency tokens are listed on cryptocurrency exchanges such as Poloniex to trade against other cryptocurrencies. This allows the participants to immediately trade their tokens based on the speculative movement of the token’s market value. In some cases, this can result in lucrative short-term gains. The token’s price is a reflection of the ICO’s overall vision, market sentiment, project news, and momentum regarding the ideas of project flow, innovation, and future revenue potential. Some well-known cryptocurrency tokens that were developed through an ICO are NXT, Mastercoin, Bitshares, Ethereum, Maidsafecoin, NEM, Synereo, Factom, DigixDAO, Lisk, Waves and others. What can be a potential disadvantage of ICOs is that most of them are not regulated or registered with any government organization and there is usually no investor protection (other than those built into the given platform itself). Also, cryptocurrency tokens have no legal meaning and do not represent an asset in many government jurisdictions. This is why ICOs can be currently deployed, since digital currencies are not considered securities.
A New Type of Company
Adel’s organizational structure consists of two major parts. First is membership. Stakeholders of ADL are invited to join the Adel community after the ICO, following a minimum investment of 1 bitcoin (BTC). Membership allows the participant to exercise their right to collaborate and vote on projects based on the amount of Adelphoi coins they hold in their account. Second is an established service company called Adel Ecosystem Ltd., which oversees the rules of the community and AML/CTF rules to meet regulatory requirements. Adel Ecosystem’s advisory and expertise umbrella offers services such as research and development, a project review committee, marketing services, a legal and accounting team, a business development team, and a board of directors. Adel will retain a 15 % stake from the ICO for these services and will also own 30 % of the projects launched in the ecosystem.
From an organizational perspective, Adel combines the best of both worlds: regulatory, legal and ethical compliance, together with an innovative governance structure. Unlike the DAO or similar models (as explained in our previous article of this series), Adel is not governed by smart contracts. Day-to-day decision making maintains a “human element”, rather than computer code. Given the fact that smart contracts are still a concept yet to be proven resilient in the real world, this is a safer solution for the time being.
The role of stakeholders in the Adel ecosystem will consist of collaborating on idea development, participation in business planning, and voting on new projects that emerge from the ecosystem. Through democratic voting, stakeholders will be able to influence which projects will be deployed. Because Adel will be community driven, stakeholders will have the opportunity to raise the necessary capital for projects. Once deployed, the stakeholder can then follow the project’s progress, or even get the opportunity to participate actively as an expert (Figure 1).
Traditional companies are mostly based on a structure where the board of directors oversees the officers of the company and ensures operations follow corporate mandates and legal procedures. Directors have, among other duties, a fiduciary duty to act in the corporation's best interest, as opposed to their own. These duties are in place to protect the shareholders' investments. Adel’s board of directors has documented a similar function.
Figure 1: Adel’s Currency vs. Ownership Funding
The protection of intellectual property within the Adel ecosystem is not the same as in a traditional company, mainly due to its transparency. Social media and the internet has largely done away with the notion of secrecy anyway, as evidenced by WikiLeaks, government monitoring, and Facebook’s and Google’s ongoing correlation of user behaviour. Adel realizes the difficulty of balancing transparency with confidentiality, and has stated their interest in withholding secret information that may be critical to a project’s success. This is mainly positioned to protect both stakeholders in the community and the rights of the projects’ authors (referred to as Innovators, in the Adel ecosystem).
Whatever becomes of Adel’s final structure, it is important to emphasize that the world of cryptocurrencies and ICOs is still a Wild West when viewed from the perspective of traditional financial vehicles. It is strongly advised before taking part in any investment of such nature to do your due diligence on a given ICO and on the people running it. There are risks involved and the possibilities of being scammed are well documented.
There are also grey areas where regulators still need to catch up. Blockchain startups need to have a proper legal structure for an investor to fall back on in the case of trouble. However, the same reasons why this space is so risky also make it so attractive. Innovative projects are being created using untested structures and technologies, which may either evolve into something marvellous or won’t make it out of the starting gate. The choice is up to the investor whether to be a part of the blockchain movement, but informed decisions should always be made. Participants are given an opportunity to enter a playground of high innovation, clever minds, and the creation of cutting-edge projects that may positively change the world. To say you were a part of it from the beginning has its own prestige.