I've been following Tezos for at least three months now when I first heard about them and read their Whitepaper. What really caught my attention was when Tim Draper decided to put forth his vote of confidence with investing in the ICO as well. Until that point I had never heard of a single major investor coming into the crypo-space so I decided to do more digging and everything I've uncovered has left me concerned about the current state of Tezos as it is structured.

I decided to document my findings for myself here, and in case it helps someone else considering investing in it, great. But, it must be made clear that this is not investment advice in any way.

The Differentiators

1 - As Good Performance as Other Platforms

We're looking at a platform like Ethereum that provides for Smart Contracts and is Proof of Stake driven. Tezos is not selling its technology on how much faster or scalable it is based on my readings. It is geared to be as good as any other platform, performance wise.

2 - Governance Resolutions

Governance is THE Core differentiator for Tezos and what it is building its platform to deal with. The implied belief is that governance can dictate future performance as much as the underlying technology can drive innovation. Understanding the scaling issues Bitcoin has been facing over the past 2 years, this concern is ripe for making Tezos appear incredibly appealing. Let's go over the unique governance aspects of Tezos

Self Amendments

Tezos is unique because it can amend its governance model. Other systems rely on hard-coded rules and cross their fingers that the model they chose will work. We think this architecture scheme is ripe for failure as it is impossible to design the right governance set-up on a first pass, in a vacuum. Human institutions rely on centuries of experience, laws, and precedents in order to govern themselves. These rules must be discovered progressively and organically, not be decided at the onset. -- Kathleen Breit

Bitcoin has faced internal politics and ideological divides on how to manage its scaling issues by the core stakeholders. Tezos is built to manage around just that, similar in some ways to how TheDAO was intended to function back in 2016. Remove politics and focus on being able to self update as is needed and done in a way to prevent the hard fork issues we saw in Ethereum and possible in Bitcoin.

Constitutionally Driven

Tezos wants a structured set of principles to set the path of how Tezos evolves. Any suggested amendments would need to come with proof that these principles have not been violated. It sounds very similar to how countries fall back onto their guiding Constitutional document as a baseline set of rules before considering new directions to ensure there is no violation in the proposals.

3 - 3 Year History of Development

The founding couple behind Tezos, Kathleen and Arthur Breitman, have been working on this project since 2014.

Whitepaper Published in 2014

A Tezos White Paper and Positioning Paper were published in the summer of 2014 and Tezos appears to be following the approach on par with what was written. That shows consistency and determination towards seeing the fruition of their earlier plans come to pass.

4 - Funding before the ICO

Until September 2016, Tezos was self-funded. Since then they have received USD $612,000 from 3 Hedge Funds and 7 High Net Worth Individuals (some LPs of the same Hedge Funds). If the couple has been working on the project for over two years before receiving a dime, then it continues to show their dedication to the project, raising funds only when they were ready to move things to the next level in preparation for a 2017 ICO.

Most ICOs seem to bypass traditional funding vehicles entirely, pushing the risk onto the ICO investors entirely. In this case, there was already vetting done by the existing investment space, who obviously saw potential in the future of Tezos and the team behind it. They put their money in before the ICO was ever underway. This can potentially provide further confidence to why subsequent rounds of investment through an ICO can make sense.

Tim Draper's Vote of Confidence

Billionarie VC Investor, inventor of Viral Marketing on the internet, and Bitcoin Connoisseur publicly backed Tezos. It's likely he is one of the key investors in the project and would receive a handsome sum in return for a successful ICO here, which is absolutely acceptable of course. However, his stamp of approval is what really turned heads towards Tezos.

Does Draper's vote of approval indicate the project will be successful? No. But, it certainly is a great marketing vehicle to bring more investors into the space, which has clearly been the case.

5 - Company Structure: Two Business Entities Involved - DLS and The Tezos Foundation

Tezos is owned by Dynamic Ledger Solutions, Inc. (DLS). However, there is a second entity, The Tezos Foundation (the Foundation) located in Switzerland which appears to be doing the technology development and receiving advice from DLS.

The idea is for The Tezos Foundation to acquire DLS after a Tezos proves to be a successful project. The exact terms of that success I cannot find at this stage. At which point, it is uncertain in what capacity the founders of Tezos will play in the future developments of the token itself.

The Concerns

I'm relatively certain Tezos is a legitimate project, but does it deserve the level of hype it has received? As with most ICOs nowadays, not really, for a number of reasons. Let's dive deeper.

1 - Unfocused Scope

Tezos doesn't seem to know what it actually wants to do after launch. At least they are clueless with what to do if they raise more than USD $10M! And they're at over $200M right now.

Questions like who is going to be building on it Tezos first? What types of Dapps should be a prime target to showcase the governance factor best? Which industries can we disrupts with this immediately?

These are the questions that should be asked and answered clearly. Instead, their answers are all over the place. Here are just a few quotes I found in terms of what has been documented. When reading it I laughed out loud out of how ridiculous it all sounded.

"Negotiate with a small nation-state the recognition of Tezos as one of their official state currency, which would immediately give Tezos favorable treatment in terms of financial regulation. Attempt negotiations to purchase or lease sovereign land."
"Purchase a banking license and deploy the Tezos blockchain as a backbone for business operations. Experiment with automation using a blockchain for basic processes.
"Acquire mainstream print and TV media outlets throught [sic] token issuance to promote and defend the use of cryptographic ledger in society."
"Sponsor a leading computer science department with endowed professorships and extensive grants to graduate students in the field of formal verification."

2 - Leadership Concerns

What happens to the Breitmans (co-founder husband/wife duo)?

After the company is acquired to The Tezos Foundation it becomes unclear what part the husband/wife couple will play in the evolution of Tezos. They'll have received a fat pay check along with a share of the tokens. From there what happens? It seems unclear after their firm is acquired.

Founder's Incentive Structure

Looking through the documents DLS shareholders will receive 8.5% in cash and 10% allocation of the tokens vested over 48 months from the ICO. The cash outflow will occur within 3 months of Tezos being launched "successfully." Again, we don't know what that even means. It's important for founders to get their fair share, but I have yet to read about such a high payout in cash and tokens as with this project.

Where is the incentive for the founders to continue working on Tezos? What about the investors? It's a little unclear what their roles will be in The Tezos Foundation since their investments appeared to be in DLS exclusively.

3 - An Uncapped ICO and Valuation

This is my biggest issue with the ICO, it being Uncapped. There were issues with earlier ICOs where Whales would come in and acquire a majority stake in the ICO itself. As such the uncapped ICO has become a popular one.

Currently, Tezos is sitting at over $200 Million in raised funds. From an incentive structure that is perfect for the founders and investors to cash out with. But, does this project actually deserve a valuation this high? Consider functioning projects like STEEM or ones that solve real problems today, like Gridcoin. What makes these platforms valued at an amount less than something like the whitepaper Tezos is built on top of? If Tezos walks out with $500M at the end of its ICO do we actually think it deserves that at this stage?

4 - No Working Concept is Live

Related to the last point, Tezos is on paper. It is a platform no one is using today. It hasn't been put through its paces. Something so untested... does it deserve $200M+ when we have platforms that are live and working well that are valued far under this level?

5 - The Team is who?

We have names of the development team but we don't even know if the team building Tezos is capable of pulling it off. I have reservations with the EOS ICO too, but there we can at least state there is a veteran at the helm of the project, and a dev team that is highly skilled. But here?

Looking through the Tezos documentation, there isn't a single developer tied to another crypto project highlighted. Does that break the project? No. But it continues to bring up questions about the project's viability.

Conclusion

This article is not meant to push you to invest or not to invest in this ICO. However, it is important to understand that the hype is astronomically gigantic for the recent ICOs, and Tezos is just another one bathing in that same craze.

One major reason for this is because we've noticed that post ICOs the valuation of the coin skyrockets for a period of time before settling back down. At least in the short term the hyped ICO tokens tend to settle above the ICO price. Hence, short term speculators make out well and the rest cross their fingers that the project actually has legs to fulfill its promise to reaching 100-1000x.

What do you think about the Tezos ICO? Are you investing?

Disclaimer: I have not invested in the Tezos ICO as of the posting of this article.

Sources:
https://medium.com/@kathleenbreit/but-how-does-tezos-compare-to-19bb69efe659
https://www.tezos.com/
https://www.tezos.com/dls