CWC Newsletter #43 (November 4, 2020)
By Taylor Ryker, Analyst
Keep Your Eye on the Regulations: Block.one, EOS VC, and Community Support
Over the course of the past week, EOS token holders have voiced their frustrations and concerns on social media about Block.one and their perceived lack of financial support for the EOS public mainnet and promising dApps.
On the surface of this situation stands two primary groups. On one side stands those who believe that Block.one has lied to the token holders by not deploying the promised funds of $1 billion dollars in addition to not releasing promised application tools like a wallet. Here we have Dr. Defi enumerate the many broken promises of Block.one:
On the other side, there is the belief that Block.one needs more time and tends to defend them for their perceived misgivings. In a rare occurrence, Douglas Horn, the lead developer of the Telos blockchain, an EOSIO-based blockchain, asked for more patience towards Block.one. Usually a little more antagonistic towards EOS due to a tenuous relationship with the EOS community, Horn even jokes that in this moment of support it is "funny that I have more faith in B1 than a lot of EOS maxis seem to."
Although both sides have warranted points, I would like to speculate what might be happening behind the scenes that is not privy to the average token holder. To the average token holder, the price of EOS is of paramount importance and nothing else comes close. And when token holders see that projects are folding and developers are walking away - what should you think? That the ecosystem is dead? No.
Regulations appear to be a significant roadblock. Working with the regulators, being compliant with all crypto laws and regulations, and enduring the slow process of bureaucracy with the fear of incarceration can wear thin almost anyone.
The lead developer of the community-driven loan-platform, Vigor, this past week left the project due to regulatory uncertainties surrounding decentralized financial (DeFi) applications.
With the explosion of DeFi on Ethereum, EOS token holders have lamented about the stagnant EOS token price in relation to the boom in prices of Ethereum and Ethereum-based DeFi tokens. However, Ethereum's DeFi has witnessed countless DeFi hacks that have lost millions of dollars for users, impermanent loss in token liquidity, and prohibitive transaction fees.
However, crypto pundits and analysts have begun to sound the alarm that by large all of Ethereum DeFi are breaking securities laws. The majority of these platforms do not follow regulations of requiring users to submit formal verification and identification to comply with anti-money laundering laws. The SEC and the US federal government is watching and I can only guess when they will bring down the hammer and prosecute the many unregistered DeFi applications.
So that brings me back to the main point of this newsletter: What should we think about Block.one with this nuanced perspective?
Well, it appears that Block.one is currently lobbying the US federal government to pass legislation that will support and promote not only the EOSIO and EOS blockchains but also the entire blockchain industry.
Spending a little more than half a million dollars on three issues related to government policies and cryptocurrencies shows that Block.one is fighting for the EOS token holders behind closed doors. If the crypto industry does not receive comprehensive guidelines from regulators, how can any blockchain entrepreneur truly succeed in this space in developing and releasing new innovations and products?
To stay nimble and flexible, Block.one has not explicitly released any formal roadmap of their future goals nor have they fully explained their past actions, which have been subject of immense scrutiny by the community in the past week.
Perhaps we should review and rethink these current concerns with hindsight and a nuanced understanding that Block.one is navigating a difficult regulatory environment:
1. EOS and EOSIO were perhaps synonymous to Block.one at launch. The shift from EOS to EOSIO by Block.one was to deflect any accusations that they centrally controlled the EOS public blockchain, which could potentially break securities laws. Block.one is committed to the entire EOSIO ecosystem, which also includes the EOS public blockchain.
The confusion between EOS and EOSIO can also be traced to Daniel Larimer's expectations of a multi-chain EOS ecosystem from the beginning. Larimer was hoping that many blockchains would comprise EOS not just one.
2. A vision of a multi-chain EOS was expected by Daniel Larimer at launch in June 2018:
Now this is a speculation but I think that Larimer was hoping that in June 2018 the hundreds of small Block Producer teams would launch several complementing EOS-based blockchains. The token holders would be airdropped the same amount of tokens from each new launched blockchain -- the developers of the blockchain would be incentivized to airdrop to token holders to have a ready-made community and to fund more development of tools and applications.
However, the EOS community experienced the creation of one chain, the airdrops were deemed unsuccessful because token holders sold their airdrops on exchanges immediately (LiquidApps ran a successful airdrop btw), and EOS became synonymous with the mainnet and not the larger ecosystem of EOSIO/EOS blockchains.
Between the launch in 2018 until now in November 2020, the EOSIO ecosystem has expanded to include many different EOSIO-based blockchains like Telos, WAX, Ultra, UX Network and others.
There are many hard-working teams releasing new tools, applications, wallets, and guides each and every week. Shout-out to the team behind Scatter for their unpaid labor and contributions to the EOSIO community.
But, with the low EOS token-price and morale worsening, token holders and community members are directing their anger towards Block.one and are asking them for financial support through investment arms like EOS VC.
3. EOS token holders and community members criticize EOS VC. This past Spring 2020, the community led by the Everything EOS Twitter account followed-up with the progress of investments by Block.one and it seemed like they held Block.one accountable. Fast-forward several months and now in early November, the same issue has surfaced.
For one, the community needs to come to grips with the fact that there are several funded projects in the EOS VC investment portfolio that will not make it. In any venture capital fund, there will be losses with the expectations that the winners will gain large multiples. Similarly, we should not expect that every investment will bear fruit.
Secondly, a hotly discussed issue is the fact that EOS VC has made substantial investments in Ethereum-based projects.
Here, Alexander EOSIAN is suggesting that EOS VC is making investments to incentivize tech companies to use blockchain technologies. But the bigger take-away is what is he referring to when he writes "proof of my theory"?
The theory is based around an uncertain regulatory environment. One that Block.one does not want to violate, and their investments in projects without token sales may suggest this. Without clear guidelines and regulations, token sales are still in a gray zone of the law and a heavy-handed regulator could possibly interpret it against Block.one.
Regulations are preventing Block.one from unleashing capital to deserving projects; however, we shouldn't only rely on Block.one. Other crypto companies like Newdex, eosfinex, and Everipedia have stepped up to fund future innovation and developments on the EOS public blockchain.
We would like to see Block.one invest in projects that the community deems as worthy, such as Emanate, Eva, Scatter, Chintai, LiquidApps, and others. However, I think that Kurt Braget said it well:
"I was always of the belief, and I said it pretty frequently, that it was not
Block.one's responsibility to build every tool in their platform. EOS is an
open marketplace that will have thousands of services built on top of it,
and there is no way in hell Block One [sic] could be tasked with building
all of those."
People will benefit from eosio; maybe not the early investors who left prematurely but the foundation is being laid in terms of developer education, enterprise consulting, user on-boarding, and industry partnerships.
But ultimately, I think Chaney Moore summed up the current sentiment of the community towards Block.one the best:
Laying the Foundation: Talking with Block.one
Although token holders and community members are upset with Block.one, the team behind Block.one is not ignoring them. This past week Zack Gall of Everything EOS and Nathan Rempel of LiquidApps interviewed Bart Wyatt, VP of Blockchain Engineering at Block.one.
The interview shows that Block.one is still committed to the community and token holders, the advancement of the EOSIO software, and the success of the ecosystem.
With the growing frustration in the community, CEO Brendan Blumer also made an appearance on Crypto Twitter to pacify stoked fears.
Some of these actions that Blumer is referring to are recent announcements of Block.one's new venture into enterprise blockchain services and consulting, Block.one's release of EOSIO developer courses, and Block.one's partnership with Google Cloud.
Keep your eye on the prize, do not despair, and in time, the rest of the industry will see that things have been under the hood, cooking for months to years. Let's put in the work, support the community, and get this party started.
See you all next week for another issue of the CoolWave Capital Newsletter.
Go EOS!
For More EOS and EOSIO coverage: EOS Nation's Hot Sauce and EOS Go's What Happened This Week on EOSIO.
Disclaimer: KJ Kingsley is not a financial advisor and holds the digital tokens or cryptocurrencies represented in the content above. This content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained in this post constitutes a solicitation, recommendation, endorsement, or offer by myself to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. The opinions expressed in this publication are those of the author. They do not purport to reflect the opinions or views of any of the author’s employers.