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  • GARY GENSLER: So let's turn to this world

  • of initial coin offerings.

  • And so we're going to chat about it today and next Tuesday.

  • Next Tuesday, we'll come back to the regulatory side of this.

  • And in fact, there were some new things out

  • of the Securities and Exchange Commission

  • even last week on initial coin offerings.

  • But we're going to spend a little time on ICOs today.

  • And so of course, we've talked about Bakkt already.

  • And we'll talk about their characteristics.

  • What is an initial coin offering?

  • What is this new form of crowdfunding?

  • How to evaluate initial coin offerings-- and some of this

  • will be familiar, because it's how

  • to really evaluate any blockchain technology

  • project in some regard.

  • And then I'm going to share some statistics,

  • and then hopefully wish you all a Happy Thanksgiving

  • and call it a day.

  • So the study question was, what is

  • this new form of crowdfunding?

  • Does anybody want to tell me?

  • What is an ICO in the easiest way?

  • You're going home for Thanksgiving and somebody says,

  • what have you been studying?

  • And you say ICOs.

  • What is an ICO?

  • Yeah?

  • AUDIENCE: It's a startup that sells its own crypto

  • token to raise money.

  • GARY GENSLER: So it's a--

  • AUDIENCE: Sells its own crypto token to raise money.

  • GARY GENSLER: So it's a way to raise money with a crypto

  • token, pretty simple.

  • AUDIENCE: And in addition to that,

  • it gives people an expectation that the token's value

  • will go up in the future.

  • GARY GENSLER: Did anybody read the optional reading for today

  • about the dude that actually came up with this idea?

  • Do you remember his name?

  • |

  • AUDIENCE: JR.

  • GARY GENSLER: JR, Willett, is it?

  • AUDIENCE: Yeah.

  • GARY GENSLER: Yeah.

  • I mean, I don't know if anybody watched the video,

  • but this individual in 2010 came up

  • with an idea of saying Bitcoin is out there.

  • I mean, Bitcoin was selling for like $0.06,

  • $0.10 a Bitcoin or something.

  • He said, if you could put something on top of Bitcoin--

  • I don't even know if you use the term smart contract.

  • But he did say, if you could put an application

  • on top of Bitcoin-- it was before Vitalik Buterin

  • came along with Ethereum.

  • He said, you could raise a lot of money.

  • And he went to conference after conference

  • and tried to convince people.

  • And there's even this one feedback

  • where somebody said to him in an email exchange,

  • you're probably breaking the law.

  • This can't be legal.

  • But he couldn't get anybody to adopt this idea.

  • And he's not wealthy now either.

  • He missed the whole ICO way, but he was basically

  • the inventor of this initial coin offering,

  • saying that the technology of Bitcoin,

  • even the scripting language, was enough

  • that you could maybe raise money on top of Bitcoin

  • with an application layer.

  • And we'll sort through.

  • Now, I'm going to see if I can do a little video for you.

  • This shouldn't be too hard for me.

  • So this is a two minute video of all the ICOs

  • that have ever happened.

  • And Elementus, I've shown you this picture,

  • but you know there wasn't much.

  • Where we are we?

  • Are we in 2015 now?

  • Nothing.

  • So you see the first ICO that they

  • mark in there is Ethereum itself raised $18 million.

  • I apologize.

  • It's only going to take two minutes,

  • but you're going to see the whole history of ICOs.

  • And then there's nothing.

  • It's really-- so you can see no country,

  • no official sector is really focused on this in 2016.

  • But then there's going to be a big offering

  • in the middle of 2016.

  • Anybody know who that is?

  • Dow.

  • $168 million, and it fails.

  • It spectacularly fails. $50 million of it is stolen

  • and it leads to the Ethereum fork and things like that.

  • But still not a lot, and then, by the summer of '17,

  • Katy bar the door.

  • Tasos and quarter billion dollars, Filecoin,

  • a quarter billion dollars.

  • And then oh, I pulled the one that finished in 2017.

  • I'm sorry.

  • So there's the final chart that goes all the way

  • through August.

  • Now, some say that it's not $28 billion.

  • Some say it's $23 billion, because there's

  • no really good figures.

  • But EOS raises $4.2 billion and Telegram raises $1.7 billion,

  • huge amounts of money.

  • And this is in a period--

  • almost all of this was raised and in about 12 months,

  • from June of '17 to June of '18.

  • Call it $25 billion in that 12 months.

  • And now, it's trickling off.

  • Now, it's less than $0.5 billion month.

  • But that $25 billion in 12 months

  • compares to venture capital--

  • and Simone, you might help me.

  • But venture capital worldwide is about $150 billion

  • a year in a 12 month period.

  • I think the figures range from $125 to $170 billion.

  • So just to give you a sense, in this 12 month

  • period, it's, give or take, 20% of the size of all venture

  • funds, 20% to 30% roughly of all venture funds.

  • And again, it's tailing off, but it's significant.

  • If you can come up with an idea in these 12 months

  • and raise the money, JR Willett's idea,

  • this was the moment.

  • So what are initial coin offerings?

  • What's the more detailed characteristics?

  • Well, number one, they're proceeds

  • that help build a network.

  • That's what Vitalik Buterin actually did back

  • in 2013 is when he published, in 2014 is when he went live.

  • But he was raising $18 million, hired a law firm, big, big law

  • firm in--

  • I can't remember if it was Perkins or Skadden Arps,

  • but a big US law firm, partnered up with a Canadian, Joe

  • Lubin, who saw this potential in a 19

  • or 20-year-old kid who had great writing skills.

  • He knew a lot about Bitcoin.

  • He had been writing about it for a number of years,

  • but he also had a great idea.

  • He moved off to Switzerland for regulatory and other reasons

  • set up a foundation for tax and other reasons,

  • and did it in a very professional way.

  • But you can look at their sources and uses.

  • You can go back to the original offering

  • and say they were willing to say what they were going

  • to use the $18 million for--

  • law fees and counting fees and the usual things you

  • do when you start something.

  • So it's proceeds to help build up a network.

  • But just like that moment, it was before the network

  • could be used.

  • So that was pre-functional.

  • We're going to show statistics later,

  • but anybody want to take a gander in the last three

  • months.

  • So this isn't back 2014.

  • I'm talking about third quarter of 2018.

  • What percentage of token offerings

  • were offered before the network is functional, fully

  • functional?

  • Alin?

  • AUDIENCE: 99%.

  • GARY GENSLER: Anybody else want to take a--

  • argue with Alin?

  • Just because he is a computer scientist?

  • Tom?

  • AUDIENCE: I was going to say 95%.

  • GARY GENSLER: All right, 95%.

  • All right, so we've got a market.

  • So 95%, 99%.

  • Does anybody want to say that more than 5% were functional?

  • No?

  • All right, I'll give you the number later.

  • It's in between the two of you.

  • It's in between the two of you.

  • So it's raising money before something is functional.

  • It's like raising the money for a Broadway play

  • before you've got the actors and the script.

  • Or it's even worse than that.

  • You don't even have the idea.

  • But usually, you have an idea.

  • Usually-- what percentage of ICOs

  • are marketed on just an idea?

  • Anybody?

  • I have that statistic later, too.

  • Rahim, you have a view?

  • What do you think?

  • AUDIENCE: I would think maybe of these

  • with an idea, maybe 60% to 70%.

  • GARY GENSLER: 60% to 70%.

  • Sean?

  • AUDIENCE: I would say 90%.

  • GARY GENSLER: 90%.

  • All right, no, it's in between the two of you.

  • Rahim is a little closer.

  • It's about 75%, just an idea, or at least as defined

  • by a certain tracking center.

  • So it's usually you have an idea, you market it,

  • you raise some money, or at least

  • during these boom periods in the last 15 months.

  • The development, while open source, is largely centralized.

  • But in fact, in the last quarter,

  • the last three months, well over half

  • isn't even open source technology any longer,

  • partly because it's so based on just an idea

  • that people aren't publishing their source code until later.

  • They will eventually publish some source code.

  • But at the moment of the initial coin offering,

  • a majority don't even have open source software at that moment,

  • even though they say later they'll publish this software.

  • But even if it's open source, it's highly centralized.

  • Please.

  • AUDIENCE: I don't understand how open source is related

  • to [INAUDIBLE] if I say I'm going to sell something,

  • these are the coins you should use to pay me back.

  • Where is open source connected?

  • GARY GENSLER: So there's a movement

  • in technology and software development--

  • certainly, it was started in the 1990s,

  • but it may have been earlier.

  • But now, it's very prevalent-- where

  • you publish your software and everybody can see it.

  • So it's transparency in software.

  • That's called the open source movement.

  • In the blockchain technology, when Satoshi Nakamoto first

  • published the Bitcoin software in January of 2009,

  • it was open source.

  • It meant everybody could see the computer code.

  • And you could even--

  • it's actually published under an MIT

  • license, which meant you didn't have to pay any fee to use it.

  • Zero fee, you can copy it, you can use the Bitcoin core

  • software.

  • That's the definition.

  • That's the best definition of open source,

  • because it's with an MIT license.

  • But it's truly open.

  • That's what I'm referencing here.

  • And the relevance is that, though there

  • is a big open source movement in a lot of fields

  • and in blockchain and certainly in Bitcoin

  • and the Ethereum network is open source,

  • many, many developments and initial coin offerings

  • don't publish their code until months later.

  • They raise the money, they're still developing their code.

  • Are you with me?

  • So Brotish?

  • AUDIENCE: So why do investors put in their money

  • even before the code is published?

  • GARY GENSLER: So why do investors