Note: this article also appears in our ICOs Section
Cashila, a European exchange, is launching an ICO for ICONOMI, a decentralized fund management platform on which investors can buy cryptocurrency investment products. They plan to launch two funds focused on cryptocurrencies: a passive fund (similar to an exchange traded fund or ETF) and an active fund (similar to a hedge fund). Later, they will create a platform in which anyone can launch their own fund. ICO participants will receive a token that entitles them to dividends based on management fees for such funds. Money raised in the ICO will mostly cover operational expenses in setting up the funds and the platform; funds in excess of $10 million will help seed the two initial funds.
Things to think about:
- Due to the crowdsale structure and ICONOMI’s business model, ICONOMI will not return value to token holders until it’s generated as much money in fees as it raised in the ICO, what at time of writing is just north of $4.5 million. (1) [Note: Smith+Crown will be updating these calculations; consider this estimate a draft]
- The team has deep experience in the financial sector, but launching anything similar to a market for crypto ETF’s is extra-ordinarily complex from a technical, legal, and managerial perspective. Existing materials acknowledging the challenges–much less proposing responses–are thin. The whitepaper lays out a set of considerations for how an ETF-like product should be designed, but they don’t lay out a design. They also don’t mention the regulatory issues involved in financial products, which presumably will eventually impact groups like ICONOMI. Addressing these more directly could help alleviate this concern.
- The idea is a good one: more traditional financial products based on cryptocurrency. This would make investment both more stable and user-friendly, hopefully allowing more capital to flow into the cryptocurrency market. Startups like ICONOMI likely the gumption to pre-empt regulation and get into the market before established financial providers who will not pre-empt regulation. Even long-term structural challenges in their model doesn’t preclude short-term returns.
What is the project?
ICONOMI will be a decentralized fund management platform. It will launch with two financial instruments: Coin Traded Fund (CTF) and Coin Managed Fund (CMF). The former is a passive fund, similar to an ETF, while the latter is a managed fund, similar to a hedge fund. The language of the ICO and website refers to the CTF as ICONOMI.INDEX and the CMF as ICONOMI.PERFORMANCE. The whitepaper suggests that the CMF (ICONOMI.PERFORMANCE) will focus on app tokens. (2)
It will also create an Open Fund Management (OFM) platform where anyone can launch their own fund and investors can invest in those. However, there aren’t many details provided on how this will be done, what types of fees will be charged, fraud concerns, what currencies will be used, etc.
The tokens–ICN–will exist on the Ethereum blockchain, with smart contracts governing distribution of funds.
What is the token being sold?
The token ICO participates are buying is called an ICO token. It is not a share in either CTF or CMF–rather it is an independent token that will receive weekly dividends in the form of ETH from all ICONOMI revenue streams. Early on, this will be management and/or performance fees from the funds managed by ICONOMI. While the performance fee is, as the name suggests, dependent on the actual performance of an individual fund, a management fee is paid to ICONOMI as long as there are assets in the fund, regardless of its performance. Later, when the open fund management platform is launched, revenue streams will include fees for all funds on this platform. (3)
The team has not specified what the fees for either the CTF or CMF will be.
The tokens will be issued 10 days after the close of the ICO. ICO participants should “expect ICN to be listed on several major exchanges.” (4) The first investment fund should launch in Q4 2016.
ICO participants will also be able to investment in the CMF/ICONOMI.PERFORMANCE, which will otherwise be open by invitation only.
What are the terms?
100 million tokens will be created in total, of which 85 million will be distributed to ICO participants, based on their contributions (with adjustments for bonuses, as given below).
- week + 15% bonus = August 25, 2016 08.00 UTC END September 1, 2016 08.00 UTC
- week + 10% bonus = September 1, 2016 08.00 UTC END September 8, 2016 08.00 UTC
- week + 5% bonus = September 8, 2016 08.00 UTC END September 15, 2016 08.00 UTC
- week = September 15, 2016 08.00 UTC END September 22, 2016 08.00 UTC
- week (final week) September 22, 2016 08.00 UTC END September 29, 2016 20.00 UTC
The minimum threshhold of 2,000 BTC was reached quickly, and the team has installed a cap of 21,000 BTC to ease concerns about investor dilution. They have also stated that any amount raised in excess of 10,000 BTC will be put into ICONOMI.PERFORMANCE fund.
The remaining 15 million will be divided among thee existing team (8%), future team members (3%), advisors (2%), and bounties (2%).
Who is the team behind the project?
The two co-founders, Tim Mitja Zagar and Jani Valjavec, also founded Cashila, a Bitcoin Payment GAteway based on Prague. Promiz Kordez, their investment lead, has six years of finance experience and currently works as an investment associate at Elements Capital PArtners. Their lead developer Aleš Lekšet doesn’t have much of a digital trail, but his linkedin says eight years in development at sonce.net, a digital creative shop in Slovenia. He is also the lead developer for Cashila, and has a github account here. They have a legal lead in Ervin Ursic Kovac, a recent law graduate from the University of Ljubljana, although it is odd neither of their whitepapers includes the words “legal” or “regulatory.”
The four escrow providers include Max Kordek, CEO of LISK, but Lisk has clarified their involvement is only as an escrow provider.
- Website for ICONOMI
- Bitcointalk announcement
- Whitepaper (more of an overview of the company)
- Whitepaper (more technical in nature, though does not provide many details about rules of the fund)
- Website of Cashila, the company behind the ICONOMI project
- TheMerkle article
(1) Smith+Crown’s back-of-the-envelope calculations: assuming a 1.5% management fee (based on net assets) for management investment, one would need a total seed fund of $300 million to hit this threshold. Assuming a .5% fee for a passive ETF-like investment, one would need $900 million invested, which is 7.5% of the entire cryptocurrency market today. These fees are industry average fees for traditional financial products today, which only cover operational fees. ICONOMI fees will need to cover both fees and dividends. Even with a distribution of this over time, sufficient revenue to pay back investors seems unlikely. For example, if 1% of the entire cryptocurrency market went through ICONOMI funds (half in a CMF and half in a CTF), and a full quarter of industry-standard management fees actually went to dividends, then ICN tokenholders would wait 15 years before $4.5 million was returned, even without adjusting for inflation or discounting to present value.
(2) The whitepaper actually states that “The Coin Traded Fund will focus more ont he second group of currencies or more properly ‘app tokens,’ “ but we (Smith+Crown Research) believe this is a typo, because it occurs in the context of explaining CMF investment policies.
(3) Quoted from the ICONOMI FAQ: https://ico.iconomi.net/faq
Smith + Crown does not collect money or bounties for posting these announcements. All of Smith + Crown’s announcements for ICOs should not be construed as investment advice or an endorsement. In addition, some of the information contained above may be changed after we posted this; we urge the reader to read all source material before investing or passing judgment. If you see anything that has become obsolete, let us know.