Blackmoon Crypto, describing itself as ‘The bridge between the crypto universe and the traditional investment market,’ is the creation of an Ireland-based financial management group that is developing a blockchain-based investment management platform.
Blackmoon’s platform allows managers to host and manage their own tokenized funds with Blackmoon providing infrastructure and services to support and simplify fund management. Managers are able to focus their funds on either traditional investments or cryptocurrency and blockchain-focused funds. In either case, Blackmoon offers a platform it claims will easily manage the analytical, regulatory, and administrative complexities of creating and operating a tokenized fund. Blackmoon also argues its fund structure will simplify and reduce the costs and complexity associated with creating a new fund, an interesting prospect in the context of widespread and ongoing closures of hedge funds over the last few years, which presumably has left a number of competent managers without funds to manage. Finally, Blackmoon also argues that having investment fund structures tokenized will increase the appeal of such investments for investors by adding both transparency relative to the holdings of their managers and liquidity to their own holdings as their tokenized ownership becomes transferable on the blockchain. Managers creating funds on the platform will be required to hold an amount of BMC tokens relative to the size of their funds. The amount of funds should vary between 10,000 and 1 million BMCs depending upon the size of the fund, though they haven’t yet defined specific BMC pricing.
Of note, and a potential point of concern for prospective token holders, is that Blackmoon has established a suggested fee schedule for the funds operating on its platform, indicating that management fees may average 2% annually, and that performance fees, to be paid monthly or quarterly, will average 20%. It will be interesting to observe how this proposed fee structure fares, for while it resembles the “2 and 20” long followed by hedge funds who retained a 2% management fee and 20% of profits, the recent, steady declines of these fee structures under investor pressure could mean that Blackmoon will also encounter resistance trying to impose this fee schedule. That Blackmoon advertises its fund management platform as promising to reduce costs by simplifying structures may even increase this resistance. Any reduction the company might choose or be forced to make to this fee structure would presumably impact the value of the tokens over the longer term.
What is the Project?
Rather than representing a breakthrough in blockchain technology, Blackmoon’s project is more accurately viewed as the development of a novel blockchain-based business model. Just as traditional hedge fund administration services exist off the blockchain, Blackmoon’s model appears largely similar in many ways, although a particularly useful service when they offer to guide managers through the challenges of ensuring regulatory compliance in launching a fund.
A novel feature of the project is Blackmoon’s creation of the “Continuous Contributor,” designation, requiring token holders to register as a participants in the Blackmoon ecosystem by selecting from amongst the titles for which they can offer services, whether investment analyst, legal advisor, fund manager, platform promoter, advisor or auditor. Blackmoon has indicated that the list of titles will be large enough for non-investment professionals to find appropriate and acceptable roles, through the inclusion of roles such as platform “promoter”. Each “Continuous Contributor” role will have specific minimum amounts of BMC tokens that can be deposited while executing the role, although it is noted that most positions aside from fund manager will not have a minimum required amount. BMC holders will only be eligible to collect fees generated on the platform if they are registered as a Continuous Contributor. This is explained in more detail below.
BMC holders registered as Continuous Contributors will be able to participate in “members-only” discussions regarding the platform and its operations and directions. Continuous Contributors will also have the opportunity to vote on strategies and development for the Blackmoon platform, though decisions will still be made off-chain and BNC holder votes will be “considered” by management. Whether these somewhat unclear descriptions suggest that “Continuous Contributor” is more an effort to shape legal perceptions of the token than to actively create a community where token holders contribute to the success of the funds operating on the platform remains to be seen, and may well evolve over time, but the idea is unique.
Blackmoon’s management, drawing on their own financial and investment management backgrounds, have developed plans to create and manage the initial 15 funds on the network, starting with a high-yield fixed-income fund in 2018 and adding both crypto and conventional funds through 2022, with an eventual goal of having $1.8 billion under management from these funds. The clear intention is to establish a series of demonstration test cases that encourage others to consider hosting their own funds on the platform.
What is the Token Being Sold?
Blackmoon’s ICO will offer the Blackmoon Crypto Platform tokens, BMCs. 30 million tokens will be sold, out of the total 60 million token supply, but no further tokens will be created once the sale is complete. Management has estimated initial development and operational expenses for the Blackmoon platform at around $33 million for the initial five year period, with the sale of tokens during the ICO as well as generated fees to cover these requirements.
BMC Holders classified as “Continuous Contributors,” will have fractionalized rights to the entirety of proceeds Blackmoon Crypto collects from the funds operating on its platform. Those fees include:
- Structuring and Promotion Fees, an amount between 0-10% of the issued fund tokens of the funds operating on the platform. Expected to be 2.5%
- Maintenance Fees, annual average of 0.5% of fund value of platform funds, paid to Blackmoon in tokens
- Transaction Fees, a one time setup fee of 0.25% when subsidiary funds are established
Blackmoon also plans to create a program where BMC holders unable or unwilling to register for one of the Continuous Contributor roles can lend their tokens to a third party, negotiating an agreement for the lending fees.
Prospects and Valuation for the Blackmoon Crypto and the BMC Token
Without question, there are several appealing features of the Blackmoon project and the BMC token, as well as a number of questions and a few points of apparent uncertainty. In terms of questions, we cannot help but wonder about the token’s legal status and whether the SEC or any other regulatory body would consider the Continuing Contributor role as satisfactorily earning the token participatory rather than investment status. As well, the attractiveness of the overall platform to outside managers is something we will be interested to observe going forward. The are many reasons to think the Blackmoon platform and its structure will attract a considerable community of interested managers, but that may take some time.
In the realm of uncertainty, one critical question surrounds the state of the necessary and relevant technology for the operation of the Blackmoon platform. The white paper and supporting materials give little mention of the state of the infrastructure required for the project, whether in terms of the on-chain or off-chain elements. Among features Blackmoon indicates will exist there are a number of challenging components that might require considerable effort to satisfactorily implement, and management could have strengthened its case by making clear it had a firm grasp on these challenges, whether internal exchanges to convert fund tokens or promised dashboards. One might assume an experienced, accomplished team such as the one leading Blackmoon Crypto has resolved all outstanding issues, but an eager ICO participant ultimately has no choice but to make this assumption.
On the question of how fees and income will be generated the whitepaper is also decidedly unclear. One section describes fund managers operating on the platform as retaining 2/20 structures like traditional hedge funds, then subsequently describes how fund income will be allocated 25% to reinvestment, 25% to the investment advisor (fund manager) with 50% of income going toward token buybacks. So, if this split is applied to the fund’s performance reward managers will be receiving considerably less than 2/20, which would presumably lessen the appeal of the platform for them. If the 25% to management is on income subsequent the managers’ 20% performance fee then the manager would actually be making closer to a 40% performance fee, and this would presumable not sit terribly well with investors. Perhaps the whitepaper was simply unclear, but management would have done well to ensure that such obvious points of uncertainty were addressed prior to distribution of the document.
Despite these concerns, there are also a number of reasons to suspect the Blackmoon project and BMC token will do well. A fully subscribed ICO will ensure funds for an initial five year operating period (according to management assumptions) and should allow time for any initial challenges to be addressed. Second, management’s plan to seed the initial funds both express optimism in the project and will serve as a valuable demonstration effect for any groups considering hosting funds on the platform, although without additional information, there is no way to verify whether they can follow through on this claim prior to them doing so. Finally, a major reason to suspect the tokens will do well is simply the question of liquidity.
The BMC token should be a highly illiquid vehicle, serving to virtually ensure the price will rise. With only 50% of outstanding tokens available a through the ICO, and with BMC holders wishing to serve as Continuous Contributors required to pledge their tokens while fulfilling many of their roles, the effect will be to remove a large number of tokens from secondary markets. Most significantly is that fund managers will also be required to pledge relatively large amounts of tokens. The effect could well be that even within the context of only modest interest in Blackmoon’s platform the highly illiquid shares will offer substantial gains, at least on paper. Illiquidity works both ways, of course, and prospective buyers may not materialize in any meaningful way, offering few opportunities for holders to exit. However, the need for fund managers to stake tokens prior to launching funds will likely ensure a steady bid beneath the market should the platform acquire even modest traction amongst potential fund managers.
The Questionable Premises of the ‘Downside Protection’ Guarantee
A unique feature of the BMC token sale is what the company calls its ‘Downside Protection’ process. Specifically, Blackmoon says its will retain 30% of the proceeds from the BMC distribution in a reserve that will guarantee token holders the right to sell their tokens back to Blackmoon at 80% of the original price during a 24 month period. While a cursory consideration of this guarantee may provide a sense of security, there are reasons to question how viable this guarantee would be in circumstances where numerous token holders attempted to avail themselves of its supposed protection. Likewise, there are reasons to wonder if this effort at providing investors with a reduced sense of risk might inhibit the fund’s performance.
Blackmoon says it will hold the funds reserved for token buybacks in a basket of the leading cryptocurrencies, ostensibly ensuring liquidity and easy access to the funds. Retaining 30% of contributed funds as a reserve to repurchase tokens at 0.8% of the value at distribution should allow over 35% of token holders to redeem their tokens. However, in precisely the circumstances of a declining BMC price, presumably where token holders would be interested in redeeming, one might also assume the basket of cryptocurrencies assuring the redemptions would also be declining, thus reducing the capacity of the guarantee fund to redeem a large quantity of tokens.
In the alternative scenario, that of a rising basket of the cryptocurrencies guaranteeing BMC redemptions, there would of course be no problem funding redemptions. Rather, token holders would be asking why 30% of the funds they had contributed to the crowdsale were parked in a reserve fund rather than developing the business. Overall, there is reason to question whether this policy of setting aside 30% of contributed funds has any impact other than providing a false sense of security to some who would likely not be able to redeem their tokens in circumstances where they wanted or needed to, or to reduce the funds available to build the underlying business token holders choose to support.
Who is the Team Behind the Project?
Blackmoon’s team appears to have substantial finance and investment management experience, as well as a solid degree of blockchain experience, and appears well qualified for the project they have tackled. The group is led by Founder and CEO Oleg Seydak, co-founder of Flint Capital, an alternative investment manager and former Managing Director at FINAM Global venture fund. Co-founder Ilya Perekopsky is a former VP of VK.com, Europe’s largest social network. Chief Crypto Officer Alexander Rugaev has served as crypto advisor on a number of projects.
|Incorporation status||Blackmoon Crypto(Cyprus 2017) and Blackmoon Financial, (Ireland, 2016)|
|Team openness||Fully transparent|
|Blockchain Developer||Alexander Rugaev|
|Technical White Paper||Available|
|Available Project Code||Not available|
|Role of token||Access rights|
|Distributed in ICO||30,000,000|
|Emission rate||No new coins created|
|Consensus method||Proof of Work|
|Sale period||Sep 12th, 2017 to Oct 12th, 2017|
|First price||proportional to participation|
|Accepted currencies||ETH, BTC, LTC|
|Investment Round||First public offering|
|Token distribution date||2 weeks after crowdsale|
|Min investment goal||not stated|
|Max investment cap||30,000,000 USD|
|How are funds held||Smart contract|
|Minimal Viable Product||Q3 2017|
|Bonus schedule||No Bonus|