Investments in Decentralized Computing

What Pangea & Blockstack tells us about Decentralized computing

This week at Crypto News Over Nonsense, we start with a story that does not involve a direct investment you can make but may help us see some trends in the future. Both stories have the same theme of looking at decentralized computing. Let’s take a look.

Tony Zerucha, the award-winning fintech journalist from Bankless Times is back with another story for us. Let’s see what he has to say and what important information we can learn….

Story #1: Pangea Blockchain Fund Makes First Investment

by Tony Zerucha

In an industry where innovators are battling to establish first mover advantage in every sector, Pangea Blockchain Fund is itself a first mover as a venture fund focused on early stage blockchain companies. Founders James and William Duplessie discuss their approach to working with companies.

Pangea’s first partner company is StrongBlock, which empowers enterprises to look to the blockchain to solve business problems. Its founders led the successful EOSIO build as Block.one executives.

“They are a group with previous success building platforms,” James said.

They deliver practical solutions to issues plaguing businesses today. Businesses have identified these problems and StrongBlock uses blockchain technology to clearly address them. Such cases make sense to investors more than dazzling technology which purportedly cures problems people don’t even know they have.

Pangea also distinguishes between cryptocurrency and blockchain.

“A lot of people think blockchain means cryptocurrency, but for us it doesn’t,” James said. “As a fund the technologies we are interested in are the ones providing great efficiencies, that is why we’re building the investment system we are.”

For the rest of the article, please go to the Bankless Times and check it out there.

Our CNON Take: Aside from the fact that anyone in the industry will talk to Tony, which is why he’s one of our secret weapons here, there are some interesting pieces from this story:

  • Pangea found setting up in the US too difficult, so they decided to look to Europe (Switzerland) to find financial rules they found sensible for compliance. This is a long-term trend that COULD lead away from the US and to Europe and Asia for blockchain leadership. It’s something we need to watch closely. As Americans it’s easy to think we are at the center of everything. We may not be on blockchain.

One of the leaders in legal frameworks and compliance for blockchain in the US is Caitlin Long (@CaitlinLong_) on Twitter and she’s someone you should follow if this topic is important to you. Check out her work in the State of Wyoming.

  • Pangea chose for it’s first investment Strongblock, which is building an enterprise blockchain solution for businesses and they are doing so on the EOS blockchain.

One of the important investment questions from this is can EOS overtake Ethereum as the leader for decentralized computing on blockchain and the building of apps? If you think so, then EOS is worth a longer look for a spot in your portfolio. If not, then maybe long Ethereum is the way to go or an Ethereum project of your preference like Augur or Maker.

  • Lastly, the quote “A lot of people think blockchain means cryptocurrency, but for us it doesn’t,” is an area I don’t talk about often since cryptocurrencies and tokens are usually the way we can invest in the technology. However, there are blockchain investments you can make that have nothing to do with issuing a token. From IBM and its Blockchain as a Service for verification of foodstuffs on the supply chain to an article I wrote back in July on 10 Publicly Traded Blockchain Companies that You Can Buy Today, it’s certainly possible that blockchain as a technology can be successful without needing to issue its own tokens.

If this is a type of investment that interests you, then there are many options available to you as lots of firms are experimenting with blockchain including many tech incumbents like IBM and Microsoft with its Azure platform.

Story #2: Blockstack Files 1st Reg A+ Offering in Crypto

This is something I’ve been waiting for, ever since the JOBS Act created the Reg A+ offering. Often nicknamed the mini-IPO, Reg A+ has a limitation on funds raised (up to $50 million) that means lesser compliance standards than a standard Reg A offering, which is too expensive in compliance for anyone to seriously consider as a fundraising tool.

So here’s the story, right from the Blockstack blog.

Blockstack filed with the SEC for a $50 million regulated token offering using the Reg A+ framework. They did a token offering in 2017 for their Stacks token as an ICO, and purchasers may be able to redeem their tokens for this SEC regulated token (if approved).

Blockstack is most famous for BitPatron, where people can subscribe to get content they want and Graphite Docs, a more private version of Google Docs that privacy seekers seem to like. You can buy the token with USD, Bitcoin, or Ether.

This is the Offering Circular filed with the SEC. The money will be used in 3 ways (Circular, p.1):

  1. Swap out the ‘voucher program’ (initial token holders) at a discount to market of 12c each for existing token holders

  2. Raise funds at 30c each per token

  3. Allocate some of the tokens for app mining and system development

Our CNON Take: I’m very excited to see this and hope it gets approved by the SEC. Here are some observations.

  • The token, while raising funds so it clearly is a security, is meant to be used as a utility token and default currency for in-app payments and purchases (Circular, p. 2)

  • They use an App Mining program to encourage and reward developers for building apps on their network. This is pretty smart

  • With a minimum purchase amount of $100 (Circular, p.6) and as a Reg A+ offering, anyone can participate up to 10% of their annual income or net worth per Reg A+ rules

Here are some of the risks, as outlined in the Circular:

  • You are forced to hold your tokens in a ‘time lock’ (Circular, p.20) that is equal to 1/24th of your holdings per month (an approximate as it’s based on 4320 blocks, p.20). ~ 23 months after issuance, the lock will be released and you can sell any or all of your position in the Stacks token. Tokens also have a burning mechanism.

  • The token has no vote (Circular, p.23). If governance is important to you, then this is a sign to avoid this token.

  • Blockstack may be exempt from certain reporting requirements in the future. If they are, they will likely exercise that option and not report with audited financial statements or other information that informs token holders and is more transparent (Circular p. 24).

  • Blockstack has to issue a hard fork of their network to issue this token and there is no guarantee that the consensus vote will allow it. However, my guess is with all this time and money spent they believe they can get the consensus necessary to issue the token.

  • There is risk if Blockstack can continue as a ‘going concern’ meaning an existing business in the future as they have barely funded their operations for 2017 and 2018 (Circular, p. 46). But they did have a profitable 2018 of $9.3 million on $34 million in Revenue (Circular, p.73). Impairment of Digital Currencies, which is the need to account for their value during the 2018 bear market, kept the 2018 numbers from being even more profitable as this impairment (taken as an expense) was $8.2 million (p.73).

  • Blockstack is doing a Regulation S offering, a securities offering to non-US persons, concurrently with this offering (Circular, p.46). The performance of one can affect the performance of the other. The Reg S offering looks like its going to affiliates and other contacts in Hong Kong as a private placement sale. This is pretty routine for a business that has global investment but you should still be aware.

  • As of December 2018, Blockstack had crypto reserves of $5.7 million of Bitcoin and Ether (worth more now as they haven’t sold any), some of which is restricted (Circular, p.76)

And like our Pangea story, is Blockstack a threat to Ethereum? Are they a potential player in the crypto-economy for decentralized computing blockchain networks?

And while there is more to look at since the Offering is 184 pages long, this is a good start on getting a feel for whether this offering is right for you. If you need to do further research to decide, then I recommend the following:

  1. Read the Offering Circular in its entirety

  2. Read both the Blockstack and Blockstack token white papers

  3. Follow CEO Muneeb Ali (@Muneeb) on Twitter

  4. Download a wallet and/or start using one of the Blockstack apps to see how well they work or don’t work

  5. Join their Telegram (https://t.me/BlockstackChat) and ask them questions