Protocol Labs sent out a blast to all their accredited investor registrants delaying the Filecoin sale 3 days and asking for people to submit questions to them to help clarify aspects of their sale. What follows is what I sent to Protocol Labs. We'll see what they answer in their FAQs over the next few days.
I have been following Filecoin/IPFS for years and looked forward to this event with great interest. As a fan, it's been a tough few weeks.
Q1) "A significant portion of the proceeds of the Offering will be used by the Company to achieve the Minimum Viable Product and subsequently to buildout a decentralized storage network, powered by a blockchain and the Filecoin protocol token."
How is "significant amount" defined? How is that enforced and by whom? How is the rest to be spent? Are there limitations on dividends to equity investors in Protocol Labs? Who controls the money?
Q2) Protocol Labs is a for profit entity whose interests are not necessarily aligned with FIL holders and those interests could diverge. What happens then? One example (of many):
"Guys we've determined FIL doesn't work and have decided to create a different storage network called Holdem -- all FIL holders will get their ratable share of 1% of all Holdem. Thanks for your support. We also have created a business called ChargemHigh for IoT locks. It's doing great. You get nothing from it. Thanks for your support."
Q3) Can PL invest in non-Filecoin dependency projects? To what extent? Who decides whether they are doing this or not?
Q4) Why are you not just giving 100% of the proceeds to Filecoin Foundation or something whose charter forces the recipient of the proceeds to develop Filecoin?
Q5) Why aren't the advisors subject to much longer vesting, if they are truly long term partners? Vesting looks the same for the pre-sale advisors and the public. I am sure many public sale investors would take 5yr vesting in exchange for the prices that the pre-sale investors got.
Q6) Are you aware of any private placement under SEC's Reg D 506(c) or any IPO that used a pricing structure that allowed for certain investors to pay 10x or more than other investors? Did you socialize this with the SEC and get permission that this pricing structure and the disparity it creates would fly and be consistent with Reg D 506(c)? This is the first use of CoinList for a supposedly compliant ICO structure, but it has features that seem dangerous to investors and unproven in normal security offerings. That's a big contrast with a desire to be fully compliant. There are several bad precedents being set and to have a thought leader make these actions normative is disappointing. This may or may not be legally compliant. It's absolutely not compliant with the spirit of the securities laws or the spirit of the SEC's mandate or the spirit of Filecoin circa 1 year ago. It's your prerogative to launch your project, CoinList, as you see fit, and the same goes for Filecoin. But this all stands out.
Q7) Are there any precedents found in normal, compliant security offerings for the pricing structure and the day-one disparity it creates as well as the fact that the raise gives investors an asset but takes the cash on non-recourse basis other than delivering a MVP within 5yrs? It's more asymmetric to the detriment of investors than anything I have seen in regular capital markets and I have done this for a long time. This could be solved easily by giving all the proceeds to the Filecoin Foundation.
Q8) How separate is Foundation from Protocol Labs? What mechanisms are in place to ensure that all their dealings are at arms length and that Foundation will not be a captive proxy to PL?
Q9) Will people who sell FIL token in the future be selling a security? Have Filecoin / Protocol Labs lawyers gotten the SEC to opine on that or not? Removing the ambiguity would derisk this situation for investors.
Q10) I would ask that if you want to raise money for Protocol Labs -- that's great! I am sure you would get a ton of support -- that you do that explicitly by going to VCs, filing an IPO, or an ICO for Protocol Labs and not by selling FIL tokens. It really muddies the waters and isn't fair.
Q11) It's easy to joke about the Dot Com Bubble in hindsight and ask "what were they thinking?" Dot Com Bubble comparisons have been a facile attack on crypto since 2011; I've found them to be trite and to miss the point. Capital formation and tech revolutions happen in cycles. But I find myself looking at the Filecoin ICO in real-time and wondering "what are YOU thinking?" Given the sums involved, the Filecoin ICO seeks to make normative asymmetrical incentive structures, excessive raises, rushed/everchanging details, and FOMO fostering pricing mechanics. You guys will set these precedents and you will see the next ICO push the boundaries even more and worse ICOs mimic aspects of your structure and justify it by saying "Well Filecoin did this." Is this the legacy you want to leave for the space? Is this what you want to have to dig out in conjunction with the public introduction of your great technology and your awesome projects (including CoinList!) to the world?
Easy Remedial Fixes
- Specify that all proceeds from this Private Placement go to the Filecoin Foundation.
- Create strong controls that ensure that Foundation operates at arms length from Protocol Labs.
- Create simple, easy to follow time-based price changes for the ICO like the Ethereum ICO and many others. Reinventing the wheel with a pricing mechanism that requires calculus to understand it is not an improvement. There still exists a motivation for a bad actor to DDOS CoinList for the first hour as soon as the bad actor's payment is confirmed.
- Get clarity from regulators as to how they would view a SAFT holder selling FIL tokens later on on the secondary.
- Consider selling the supply in multiple tranches over time, not in one big single raise. There is no reason to overfund today like a capital camel.
You guys are leaders in this space and have earned all the credibility you have. You are awesome. What you do sets the direction for everyone else -- you create what's normative by how you choose to act. Do you want to be long term greedy (the good kind) or do you want instead to recreate 1999 all over again? It's your call and your choice.
Thanks for your time and consideration,
Eeks from the Internet
I haven't been following Filecoin until recently, but I've been a big Storj supporter. Decentralized file storage isn't something that's terribly hard to do via blockchain, it's sad that a dominant company hasn't emerged yet.
Hopefully Filecoin can get past these points you've brought up and deliver a product that isn't plagued with the payment problems Storj currently is.
What are Storj's payment problems? Can you go into detail?
Filecoin's ambit is greater than Storj's btw.
Just take a look at the mess in /r/storj. Farmers are unhappy that a large portion of the payout seems to be going to people either cheating the system entirely by generating traffic pointed only to their node, or breaking the rules and having multiple payout addresses so they can have tons of farmers getting the minimum payout. The moderator Helmex:
It seems like these issues are technically fixable, but there's still a huge problem with communication between farmers and the Storj team.
There's also been some confusion/drama because people have been changing positions at Storj. Again, it's 90% communication problem with farmers.
Good color. You should write on a recommended series of fixes that Storj leaders could apply that you think would improve the situation and post it on Steemit.
And what is with Swarm? Last news from them were in Dec. I hoped they should be first. Btw, I think that direct competitors to IPFS are only Maidsafe and Swarm, and (low probability) Meredith Rchain. SIA, StorJ etc - they are rather Dropbox or Google Disk while IPFS is like FAT, but instead of hard disk it uses all internet
Yep, fair enough and I neglected Swarm!
Hi @eeks, in your opinion, do you believe that filecoin has great potential and is a good investment to start with? Thanks for a detailed blog by the way. Steemit community is about high quality content same as yours.
I will leave it up to you to decide for yourself based on what I present.
great info
Are there any better options than Filecoin out there? It seems like a lot of problems to go through. Do you believe in Filecoin?
Thanks! @ronni
The tech seems great so does the team and it's more mature than most projects looking to raise money. I love their ambit.
Other projects vaguely looking to do similar things include: Siacoin, Storj, Maidsafecoin, Byteball, and arguably Golem and iEx.ex (RLC).
Thank you eeks!
Maybe it would be possible to build a similar system on EOS in the future. Fast and easy. But that is going to take a while though...
It probably would not be. Fast and easy doesn't mean it can do anything. Everything is a tradeoff.
Also...EOS doesn't exist yet.
Complex post to say the least. Not going to have many comments on this post, I read this twice & still scratching my head a little:) ..my conclusion I think I want to create a crypt o coin!
That is a very strange conclusion.
If you knew me...you would understand my conclusion! But I will help, I like Challenges! Hence why i'm competing on ninja warrior & why I defensive train & more...I love challenging myself. Ok i'm "strange" Peace & Love !!!
Thanks @eeks for the great post.
Can you help me find the terms of the ICO: How much will the coin cost? and How can I pay (is it ETH based)?
If you are not an accredited investor and already registered than it won't be possible. Current price is $9bn fully diluted valuation.
Thank you for continually supporting me as a new member of this community. I have followed you and appreciate all of your support! I noticed that you have helped me out quite a bit, going back through my posts. I appreciate it.
It takes all of us to make Steem something worthwhile and interesting!
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read this interesting blog about bitcoin latest update
https://steemit.com/bitcoin/@dhabal/bitcoin-s-meteoric-rise-is-costing-some-investors-billions