
Tezos Raised $232M in a Hot Coin Offering, Then a Fight Broke Out - jeremyrwelch
https://www.wsj.com/articles/tezos-raised-232-million-in-a-hot-coin-offering-then-a-fight-broke-out-1508354704
======
laxatives
I had been following Tezos closely since November and was really excited about
the ICO. But it became incredibly apparent that the Breitmans were dishonest.

Firstly, the compensation structure was ludicrous. Many people were upset
about an uncapped ICO -- I thought this was fine, until it became apparent
that they would make hundreds of millions of dollars IMMEDIATELY. They have
absolutely no incentive to continue the product or work another day in their
lives. A huge portion of their new found wealth doesn't have a vesting period
or depend on any tangible benchmarks.

Secondly, the background of Tezos is completely revised and modified according
to their whims. They claim they had a large team working on the project for
4-5 years full-time. Even a cursory glance exposes that one person worked on
Tezos while working full time for a major bank and that the team grew
insignificantly 6-12 months before ICO. They even changed their LinkedIn
profiles to revert this history.

Lastly, both Arthur and his wife are completely inept socially, or knew they
would get rich enough to not give a fuck. I'm not one to judge a person, but
its certainly not ideal as a manager and figure-head of a billion dollar
project. I didn't even think it mattered until I heard they were incredibly
rude to just about everyone in their Slack channel asking the most innocuous
questions. I thought it must have been one bad experience. I joined the
channel and the very first few words I spoke were met by flaming from Arthur
himself. Not a couple hours later, he's raging on another person in the chat
room at a time when there might be 100 messages/week. Every interaction he had
over the next week oscillated between flaming and get rich memes. Later they
would delete channel history and eventually shut them down completely under
the guise of "preventing fishing attempts", though I never saw a suspicious
link anywhere. Arthur stepped down as President because of these issues, but
his wife did not fare much better (although I never interacted with her
directly).

The ICO seemed worse than burning money. It would be like giving money to
organized crime or the opposition party.

IMO they have no intention of delivering anything, except maybe to save face.
If the past is any indication, they don't give a shit about saving face
either.

~~~
atomical
> They claim they had a large team working on the project for 4-5 years full-
> time.

There are two repositories. A public one and a private one. The Breitmans
contracted with an OCaml shop

> They have absolutely no incentive to continue the product or work another
> day in their lives.

The article disproves your point. They haven't walked away. I think it's
commonly accepted that if you pay someone upfront they either don't do the
work or do a shitty job. That isn't always the case.

> I didn't even think it mattered until I heard they were incredibly rude to
> just about everyone in their Slack channel

I was there for most of its existence. They weren't rude. He never posted
memes and wasn't that active in the chat compared to others and their
community manager. It was pretty cool to see him respond to questions, but
they were mostly short answers because A) he's busy and B) the questions tend
to be quite repetitive because no one reads the white paper.

> Later they would delete channel history and eventually shut them down
> completely under the guise of "preventing fishing attempts", though I never
> saw a suspicious link anywhere

I was there for the end. Because of the way Slack is setup anyone can join and
message other members. The scammers were messaging everyone telling them the
ICO started and they should contribute at a fake URL. Because there is a lot
of FOMO in this space their strategy works quite well.

The scammers also tried to take control of incoming webhooks. I'm not sure if
the configuration was wrong or whatever, but I was quick to point out who was
causing the deception. They were banned but the channel was shutdown shortly
after that. I can dig up the screenshots if necessary.

> IMO they have no intention of delivering anything, except maybe to save
> face. If the past is any indication, they don't give a shit about saving
> face either.

The commits on Github prove that isn't true. They have put a lot of work into
this blockchain and smart contracts that can be formally verified.

These are a lot of untruths in your comment.

~~~
laxatives
> They claim they had a large team working on the project for 4-5 years full-
> time.

[https://www.tezos.com/static/papers/Tezos_Overview.pdf](https://www.tezos.com/static/papers/Tezos_Overview.pdf)
cites development began in 2014 and with a full staff of 10 core developers. I
suppose I misread and was wrongly under the impression that they always had
those numbers. But it doesn't change that Arthur and the gang modified their
LinkedIn pages after the fact to remove full time employment at their day jobs
and replace it with full time employment at Tezos.

> IMO they have no intention of delivering anything...

>> The commits on Github prove that isn't true.

[https://www.reddit.com/r/tezos/comments/7791ex/the_path_forw...](https://www.reddit.com/r/tezos/comments/7791ex/the_path_forward/dok4kx9/)

Yes development continues, but they've downsized the now unnecessary
development team to from 10 to 4 and instead are relying on 3 outsourcing
shops. They more or less have to spend the money they raised that belongs to
the foundation, which requires significant public auditing and transparency
while reducing their own involvement and spending their own windfalls as they
please. The entire team except the leadership is gone. And now they are
removing the head of the foundation.

> They weren't rude.

You're wrong. Arthur made everything conversation personal and used 4chan
style name-calling all the time. Really obscene insults flowed from him almost
everytime I heard him speak. He used memes to respond to questions he was
probably admittedly tired of answering. But the content was ludicrous. They
were Shkreli-like get rich or die trying memes. It might have been tounge-in-
cheek, but its impossible to tell with him because he couldn't handle a normal
conversation.

~~~
atomical
Please post proof of "obscene insults." I find this impossible to believe.
Arthur didn't engage in that way on the Slack server.

------
th0br0
Oddly enough, even Reuters picked this up: [https://uk.reuters.com/article/us-
bitcoin-funding-tezos-spec...](https://uk.reuters.com/article/us-bitcoin-
funding-tezos-specialreport/special-report-backroom-battle-
imperils-230-million-cryptocurrency-venture-idUKKBN1CN35K)

~~~
jacquesm
Given the amount of money involved that's not so odd.

------
relyio
It's still an interesting project, even if drama like this sucks.

Of course, I'd have preferred to see a technical article about the engineering
backing the project. Rather than one about a bad apple making its way to a
foundation board member sit and caught self-dealing by the rest of the team.
But, it's not the end of the world. I hope people will move on soon. Guy was
caught. He has been suspended. I guess his removal is pending modulo some
legal process.

That being said, I'm a bit surprised the project hasn't had much more interest
from HN readers though. Why is that?

It's going to be one of the largest commercial application of OCaml, alongside
Jane Street's. There's lots of cool hacking going on and software engineering
challenges associated to it e.g replacing wasteful Proof-of-Work with PoS,
hot-swapping protocol upgrades (voted on by stakeholders) safely, figuring out
constitutionalism etc.
([https://github.com/tezos/tezos](https://github.com/tezos/tezos)).

Among the thing that I'm most excited about is the inflation-funded
innovation.

Every voting cycle, you can submit an amendment to the protocol alongside a
potential token issuance (i.e an amount of tokens that will be issued to you
if the amendment is accepted). That means you get directly rewarded for the
added-value you bring to the protocol.

That's a great positive feedback loop. Right now, I believe that there can
only be one amendment approved every cycle. So, the "great engineer quits
menial technical job to work on state-of-the-art amendments to the Tezos
protocol" scenario isn't quite feasible on the short term horizon. I'd wager
that is a limitation that will be eventually engineered out. It has so much
potential.

Disclaimer: author donated to the Tezos fundraiser.

~~~
pavlov
Do you have Tezos tokens? If so, it’s polite to disclose your stake, like on
stock investment forums. Promoting an ICO that doesn’t have a shipping product
is much like promoting a penny stock.

~~~
relyio
I'll edit my post. I have donated what I could afford to donate at the time
($200). Thanks for the heads up.

~~~
koolba
I’m confused. When you say “donated”, what does that mean I’m this context? I
thought ICOs are something you buy into to own the coins.

And as a follow up, why donate to an org that has $200M+?

~~~
relyio
In early July, the Tezos foundation ran a fundraiser to fund the project's
development (R&D, Bizdev, etc.). At the time it did not have funding (or very
little). Its current treasury comes from that fundraiser.

It is an "ICO" because in exchange of your donation, the foundation will
recommend a token allocation for you in the genesis block. Nothing prevents
anyone to create a "concurrent" genesis block with different allocations
though. It's just that the chances are people are going to follow the one the
foundation recommends.

So, in that sense... it's an ICO. Although not quite like an ERC20 token sale.

~~~
hudon
lol. I love how careful you are with your words. You know the SEC doesn't care
how it's phrased, right? It's substance over form. Basically, "if it quacks
like a duck, it's a duck".

~~~
relyio
I'm actually describing the process, which is what OP asked. I figured that
the SEC doesn't seek legal advice from randos on HN.

~~~
hudon
That's true, that's true. However to other randos reading HN who may read your
comment and take your word for how Tezos' ICO is different than the rest: it's
not. Please do your due diligence and ask yourself if you actually want to
send money to a couple that has no track record, no product, who is fighting
with its development foundation, and whose plan is to re-implement an idea
that isn't even proven to be useful yet ("decentralized turing-complete smart
contracts").

Typically with securities, there is a bar of quality to meet before you are
allowed to sell it, but in this case there is not. So we all need to be as
honest and helpful as possible so that investors who don't know any better
don't get scammed by those who are claiming to change the world.

------
coldcode
At this point I wonder if people will soon be doing ICOs and then skipping the
country. Why are people investing in random things at such a ridiculous rates
just because they are cryptocurrency based? You invest in things hoping it
pays off for you, not handing out free "money". The Mafia must be envious.

------
jacquesm
Is there a list of ICO's that delivered on their initial promises (or even a
substantial fraction of them)?

~~~
atomical
It requires a great deal of time and resources to develop blockchain software
because everything has to be built up front. Doing an upgrade is not easy
because nodes can choose not to upgrade and fork instead. Also, bugs mean
people lose money and consequently faith in the project.

Tezos intends to solve the contentious fork problem by incorporating the
governing structure into the protocol. Whether this works better than what is
currently happening in the Bitcoin community remains to be seen.

Back to your initial question. Ethereum is a good example, but most of the
ICO's that raised money recently won't launch until 2018-2019 at the earliest.
In fact, some of them have innovation gaps. It's a long road.

~~~
hudon
> Ethereum is a good example

How? I have yet to see anything useful built with it. Except for more ICOs
whose use for now is moot, what problem does Ethereum successfully solve today
that makes you say it delivered on its promises?

~~~
dreit1
[https://lunyr.com/](https://lunyr.com/) is a pretty cool project that I've
been following. It's in alpha stages now.

Edit: I also have some of their tokens

~~~
kirillseva
"decentralized" wikipedia with a flat UI that requires 1.5Mb .js just for the
landing page and running either a full eth node or a half-assed chrome
extension (and hence isn't available on mobile).

As Jimmy Wales of Wikipedia says, "If everyone reading this donated $20, we
would only have to fundraise for one day a year". Sounds like that would be a
better way to spend money rather than on a vaporware pre-alpha token

------
Animats
Better coverage in Reuters: [1]

[1] [https://www.reuters.com/article/us-bitcoin-funding-tezos-
spe...](https://www.reuters.com/article/us-bitcoin-funding-tezos-
specialreport/special-report-backroom-battle-imperils-230-million-
cryptocurrency-venture-idUSKBN1CN35K)

~~~
laxatives
> The Breitmans had also hired Strange Brew Strategies, a U.S. communications
> company, to promote their project, and Reuters wrote a news story on May 5
> about Draper’s involvement.

> In pitching the story to Reuters, John O‘Brien, a principal of Strange Brew,
> had made claims about Tezos’ progress. He wrote: “The applications of Tezos,
> ranging from derivatives settlement to micro-insurance, are real and
> recognized by industry giants. Ernst & Young, Deloitte, LexiFi, etc. have
> adopted Tezos in their development environments and labs.”

> On Oct. 3, a spokeswoman for the accounting firm Ernst & Young told Reuters:
> “The statement is not correct. EY has not adopted Tezos.” A spokesman for
> Deloitte said Tezos’ code is “one of many technologies we’re considering”
> with blockchain, but it’s “still early stage and we haven’t used the
> technology for a client project.”

> Jean-Marc Eber, CEO of the French software company LexiFi, said, “The
> sentence, as stated, isn’t accurate and unfortunately exaggerated, to say
> the least.” While there had been “informal contacts,” he said, “at this
> stage, LexiFi has not adopted Tezos’ technology in its development
> environment or labs.”

Jesus.

~~~
Animats
That's grist for the SEC enforcement mill.

Understand how the SEC works. They're complaint-driven. After a few "I lost
money on Zowiecoin after they didn't do what they said they'd do" complaints,
a case gets assigned to a staff investigator. They dig up the obvious stuff
quickly, and if it looks like there's enough bad stuff, the slow process of
doing something to the people behind Zowiecoin starts moving forward. The SEC
announces about two enforcement actions a day.

We'll start seeing SEC actions once ICOs crash and there are angry investors.

------
wmf
Primary non-paywalled source: [https://medium.com/@arthurb/the-path-forward-
eb2e6f63be67](https://medium.com/@arthurb/the-path-forward-eb2e6f63be67)

------
dmitrygr
I've read half the article and still don't know what a Tezos is.

~~~
warent
I skimmed their white paper[1] and saw this beauty:

> In order to reduce uncertainty regarding the monetary mass, addresses
> showing no activity for over a year (as determined by timestamps) are
> destroyed along with the coins they contain

It is, however, followed by this footnote:

> (inactive addresses will no longer lose their funds after one year as
> initially proposed in the white paper, they will only lose their staking
> rights until they become active again. What it means is that if an address
> is inactive, it will not be selected to create blocks (which would slow down
> the consensus algorithm), and it will not be allowed to vote until it is
> reactivated (to avoid uncertainty about participation rate).

1\.
[https://www.tezos.com/static/papers/white_paper.pdf](https://www.tezos.com/static/papers/white_paper.pdf)

Edit: Added footnote

~~~
SilasX
Yes, it's easy to penalize hoarded money. The hard part is penalizing
_substantively_ hoarded money. If I just make sham exchanges back and forth
between some ring of addresses that I own, then we're right back to square
one.

Does it do anything to distinguish sham transactions from real ones? Or have
any theory about the difference? If not, then it's not doing anything novel.

(I know you're not the advocate of this, just a general reply to technical
solutions to low money velocity.)

------
Timumba
New messenger [https://ico.echat.io/](https://ico.echat.io/) with crypto

------
hamburglar1
Does it really take 232M to make a formally verifiable smart contract
language?

~~~
atomical
When money flows freely you raise what you can. It's more than just verifiable
smart contracts though. With money comes the ability to do a lot of research
and lots of independent projects.

Take a look at the stuff Ethereum is researching. Watch one of Vitalik's talks
on YouTube.

------
kilimchoi
You can bypass the paywall with this link,
[https://outline.com/WthVfn](https://outline.com/WthVfn)

------
touchofevil
After the ICO, I started trying to figure out who was on the board of the
Tezos Foundation. I found it strange that there was very little info about who
was on a three person board that controls hundreds of millions of dollars.
What I found was that one person seems to be a company formation agent, Mr.
Schmitz-Krummacher. Another is, Gevers, who is now being accused of self-
dealing by Arthur Breitman. And the third is a virtually unknown software
engineer named Diego Olivier Fernandez Pons.

I'm assuming that Diego Pons is a friend of Arthur's because they are both
from France and both lived in NYC. I also have a hunch that there is a secret
agreement in writing in place that compels Mr. Schmitz-Krummacher to vote
according to someone else's wishes, perhaps Mr. Pons. If there is such an
agreement in place, hopefully Mr. Pons is staying loyal to Arthur Breitman.

Handing over 200-400 Million to a three person foundation that is 1/3 company
formation agent, 1/3 alleged crook, and 1/3 random software engineer seems
like it may not have been the best idea after all. But the reason for this is
probably to take advantage of the lack of know your customer laws in
Switzerland.

[https://forums.tezos.community/t/who-is-running-the-tezos-
fo...](https://forums.tezos.community/t/who-is-running-the-tezos-
foundation/649)

~~~
literallycancer
What's the logic behind having a secret agreement in writing?

