Kik’s ICO for a centralised “cryptocurrency:” a desperation move at the venture capital drying up

Startup funding is always a tricky one. How about an ICO for struggling instant messaging startup Kik to get money from crypto gamblers without diluting their ownership?

The ICO excuse in the white paper is that the token, Kin, will be usable on the messaging service as a loyalty points system. The problem is that Kik tried a loyalty points system before, and it didn’t work then either. The other problem, as the “Platform limitations and off-chain solution” section of the white paper notes, is that even the previous Kik Points system ran more transactions per second than the whole Ethereum system can cope with. So they’re going for a “centralized off-chain ledger,” i.e., a database, and periodically settling to the public blockchain. A “decentralized organizational model” is so much more efficient when you run it centrally.

This is a desperation move. Kik claimed 300 million registered users in 2016, but admitted in 2017 that only 15 million of those are active. Kik targets teenagers, as you can create an account without phone verification — but kids get phones earlier these days and move to other platforms as they get older. And it really doesn’t help the company’s public image that half the Google News hits on “Kik” are paedophile scare stories.

Venture capitalists had all but given up on Kik. But there’s money in a bubble, and “find a greater fool” has been VC strategy for a while now, so they’ve found funders (three “blockchain hedge funds”) who’ve coughed up $50 million for the Kin token presale ahead of the public ICO — the obvious attraction being the prospect of selling their tokens on exchanges later, and the company explicitly wants their token to become a “general purpose cryptocurrency” with the hope that this will take cryptocurrency “mainstream”. If, as noted above, a completely centralised one, whose only use case for a blockchain is marketing the fundraiser.

Ciaran Murray raises the issue that Kik’s offering probably meets the SEC’s “quacks like a duck” test for being a security, particularly if they allow the token to trade on exchanges. Kik is, unusually, not just allowing but encouraging US buyers, with full KYC/AML-compliant registration; they’re a proper company that’s used to working in a regulated environment, their white paper is written much more like a reasonable prospectus than 95% of ICOs manage (though that’s not hard), and I’d assume they asked their securities lawyers first. The SEC has yet to act against an ICO, so it’s hard to guess who’ll be first. But Kik don’t feel to me like a likely first target. I could be wrong.

edit: by the way, remember last year when left-pad was removed from node.js’ npm repository and a whole pile of node.js-based sites broke? Kik were the company who issued the legal threats against its developer.

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