The Upcoming Ethereum Cartel…
My last article Why is the Price of Ethereum Rising? The Centralisation of Ownership… discussed how Initial Coin Offerings (ICO’s) are slowly centralising ownership of Ethereum. Since this article, Tezos and EOS have raised over $250m in Ethereum, and this appears to just be the start…
A recent article by CoinTelegraph reported that Gurbaksh Chahal of Gravity4 intends to launch the largest ICO ever, aiming to raise between $500m-$1bn. Unlike almost all that have come before him, Gravity4 (The AI marketing engine) is already a seriously successful company which is on track to deliver $200m in revenue in 2018.
“We intend to take what we have done in AI marketing and connect it to the Blockchain. We have already created the world’s first Artificial Intelligence Big Data Cloud called Mona Lisa and we are already way ahead of SalesForce, Oracle and Adobe.”
This, alongside the Mark Cuban, who has voice his intent to invest in one of his portfolio companies ICO’s, Unikrn, shows how this form of capital raise is beginning to be taken seriously. The Growth in ICO fundraising has been explosive, and with the expectation of established players entering this market to raise funds, it would be hard to bet against this growth continuing.
What does this mean for Ethereum?
I believe we are going to see a continuation of centralised ownership in Ethereum. Every ICO which takes place essentially takes Ethereum from 000’s of investors, and places it in the hand of one project. The numbers are getting bigger and bigger with ICO's collectively raising over $1bn this year alone, and with Ethereum market cap currently standing at $19bn, this is already significant.
This poses the projects with a problem. They need to liquidate Ethereum to fund operations, however if each project tries to do this at the same time, it will trash the value of Ethereum, and give each project less fiat funding to make their projects become a reality. This is the exact situation that many nation states find themselves in, when working through their Oil Production Strategy.
OPEC - The Organisation of the Petroleum Exporting Countries - mission statement is to
“coordinate and unify the petroleum policies of its member countries and ensure the stabilization of oil markets, in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers, and a fair return on capital for those investing in the petroleum industry”
With Hundreds of Millions of Dollars on the line, and possibly soon to be $Billions, would such a structure present itself?
It would be hard to imagine how project in the blockchain space would be able to make a public commitment to each other in the manner that OPEC have. It does feel counter intuitive to what the Blockchain and Crypto Currency space stands for. But this being said, the Bitcoin New York Agreement put together by Barry Silbert shows movement towards such accords.
With the value of all ICO projects Ethereum holdings reliant on each other not dumping at the same time, we are faced with an interesting Prisoners Dilema scenario, or one step further, they are all holding weapons of mutually assured destruction. My feeling is that there will be a certain level of collusion behind the scenes in the future, but if we assume that none of the ICO's have an intension to harm the price of Ethereum (which at a certain point in the future maybe in the interest of projects like EOS and Tezos) there is a reasonable argument that economic incentives will keep everyone in check.
I for one am interested to see how all this plays out...
I think this premise is silly overall, not the least because these ICOs still amount in total to about as much as Ned and Dan hold of Steem. Neither situation should be an issue for the respective ecossytems. The OPEC comparison is lunatic -- OPEC is much more comparable to Chinese POW miners -- a cartel with a unique geographical endowment of advantages in the production of a commodity.
These "centralized" ICO owners of ETH are themselves not centralized, so it's a strange thing to even care about. They are not coordinated, they are not a monolith, some -- like EOS and Tezos -- are likely adversarial with the rest.
Beyond that, these ICOs also sell down their ETH over time in small pieces --> they don't just hold forever. So this article misunderstands that ETH in these ICO usecases is being used as a currency and as a fundraising rail. Ownership of currency swishes around and changes hands as its used.
If centralization of ownership of a currency's concern, your focus should be to examine the stagnant unused small cryptocoins that get very very centralized as only a few insiders care and typically build and hold giant positions. You see this in Dash, in Litecoin. I mean 1 holder in Bitcoin holds 5% or more and it's never been a problem. Dan and Ned hold close to 1% of Steem -- it's not a problem.
This is pretty close to Concern trolling/FUD...
Hey mate, curious as to where you went?
Thank you for your thoughts, very interesting.
Well done. I wonder if there is a point where ethereum has diseconomies of scale and other crowd funding tokens arise. Waves etc could be candidates.
Yep, that is a good point. I think we will see more crowdsale's demanding BTC over ETH. Vinny Lingham couldn't wait to liquidate the Ether raised for his project Civic...
Very interesting article. Thanks for sharing. I will follow you to keep up to date with such things.
Keep up the good work!
Right now Ethereum is correcting its price.
will see where its goes till August 1.
Good point. But is 'pure' decentralization really achievable? Just as perfect competition is rare, the monopolistic competition is a more common market model, the more centralized models being oligopoly and monopoly
Interesting analysis.
On the one hand it may actually represent a small diversification of the holdings. I am sure the majority of ether tokens are in the hands of a relatively small few of initial investors. It would be good to see some analysis on this. But your point is still well made and the risk of collusion is going to be a growing pain for some time yet.
I hope they improve on the scalling issue of Etherium.
You are indeed a living heroe. Nice explanation about the ethereum. Just following u new.. Nice job here