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15 reasons Why investing in Tezos ICO can be risky


Jul 07, 2017 Posted /  7169 Views


15 reasons Why investing in Tezos ICO can be risky

15 reasons Why investing in Tezos ICO can be risky:


Applancer provides you the 15 reasons why investing in Tezos ICO can be risky:


1. What is Tezos:


Tezos is a new decentralized blockchain that governs itself by establishing a true digital commonwealth. It allows formal verification, which is a technique which deterministically proves the accuracy of the code that facilitates transactions and increases the security of the most sensitive smart contract. It is a new project which aims to compete with Ethereum and works on a Proof-of-Stake algorithm. It aims to be more decentralized and flexible than the existing cryptocurrencies.

2. No hard fork as in Ethereum:


This is the primary difference in between Tezos and Ethereum. Ethereum uses a hard fork for the upgrade of their protocol. A hard fork is a radical change to the protocol that makes previously invalid blocks/transactions valid (or vice-versa), and as such requires all nodes or users to upgrade to the latest version of the protocol software. Tezos can upgrade by itself by using its consensus and there is no need for a hard fork.

3. The language of Tezos smart contracts-Michelson Language:


Tezos is using a new language Michelson language for building their smart contracts. Ethereum can just implement a functional language amenable formal proofs and have it compile down to EVM code and indeed there is already work in this area. Tezos is a VM level language and it does not have any advantage over using a functional language at programmer level and compiling to EVM code. Moreover, the language of Tezos is incompatible with Ethereum Ecosystem and tools since it is not EVM based.

4. The potential DAO 2:


“The DAO” as it was called, aimed to be a Decentralized Autonomous Organization. It ended up gathering around $150 million, being the biggest crowdfund in history, even surpassing the Star Citizen game. “The DAO” code is a smart contract written using the Solidity language, created to be used on the Ethereum blockchain. As it turned out, the contract contained a serious flaw which allowed the attacker to exploit it and drain the funds. Now Tezos is establishing another version of DAO which can remove the flaws of Ethereum DAO. But the problem is people will find it so difficult to understand and since it's new, there is not even a way to refer whether it's right.


5. Tezos ICO is uncapped:


The most important risk that is with the Tezos is that their ICO is uncapped. The crypto community is currently living some sort of “bubble” regarding ICOs (Initial Coin Offerings/Crowdsales). Many projects get huge sums of money without having much to show. This situation has reached a point where ICOs are reaching their goals of millions of dollars in minutes. Some examples are Cosmos who got $17 million in 30m in their crowd sale and the Gnosis crowd sale which gathered $12.5 million in a few minutes. This gives the yet undelivered project a value of around $300 million. The 1st Blood Crowdsale a few months ago also gathered $5.5 million in around 5 minutes. This made Tezos opt for uncapped ICO. This may be good for the long-term investors, but with short term investors, this will be a disadvantage.

6. The ICO Hype:


If their uncapped ICO raises $100mm+, it will be 4x larger than any ICO to date. It says a lot about the founders' strategies and they are totally ignoring cryptocurrency self-policing and standards and not capping the project at a reasonable value as every company. Many companies would have made much more money with their ideas and their products than what Tezos is aiming to get, but they capped their projects. It's frankly reckless. It's their project, it's their choice, but nothing happens in a vacuum. The founders will also be acquiring 8.5% of the total fiat proceeds of the ICO too which is the first time happening with any cryptocurrency.

7. Dilution:


When an uncapped ICO occurs, there is no limit for the funding they can receive. When more money comes and more people participate there is a high chance of dilution. The hype caused by Tim Draper and the company itself will easily make Tezos raise greater than $100 million. Could easily see it raising way more funds than “The DAO”.

8. Due to uncapped nature of ICO, demand on tokens will be less:


There is always a big pop on the first day of trading when a stock IPO starts trading. An investor in Tezos can’t expect that pop here because the uncapped nature of the Tezos ICO means that every last bit of demand, down to the last Bitcoin and very last satoshi, will be soaked up by the ICO’s infinite supply of Tezos tokens. When there is no pent-up demand because everyone who wanted Tezos already bought them in the ICO, there is no one left to flip your tokens to when they start trading on an exchange.


9. From ICO, founders get 8.5% fiat money along with usual 10% tokens:


This is the first ICO in which the founders are getting 8.5% of the fiat proceeds in addition to 10% of the tokens. This means if things go well, they will be extremely wealthy even if their projects fail in 1 year. This 8.5% is the Breitman controlled US entity, DLS. Many ICO investors do not know that Tezos Foundation have a direct alignment with DLS and all the funds raised by the ICO will be directly going to them. The conflicts of interest are many and the structure is murky.

10. The scope of their roadmap is preposterous:


The scope of their roadmap is ridiculous and belies that investors should not have confidence that the team will use the raised money well. The plans are massive and random and the team doesn't have the necessary expertise to handle the variety. The scope is way too big. This looks like empire building and it's an unfocused plan. The detail in the plan reads fake. It is pretty obvious that it comes from smart, talented people without much experience but with a lot of confidence.

11. Conversion of ETH to BTC while calculating ICO investments:


Investors should be very careful in donating Ethereum to the Tezos ICO. They specifically say they will convert ETH on a best efforts basis, as the crowd sale is being denominated in BTC.

12. Tezos Foundation and DLS are aligned:


Dynamic Ledger Solutions, Inc. (DLS) is a US-based company currently controlled by its founders, Kathleen & Arthur Breitman. The company owns the code of the project, all the Intellectual properties of the Tezos foundation and even the goodwill produced when people invest in the Tezos company. So all the investments and funds are directly going to DLS, not to Tezos Foundation.

13. Involvement of high profile venture capitalists like Tim Draper:


The reason the Tezos ICO is so hotly anticipated is the involvement of high-profile venture capitalists, such as Tim Draper and Polychain Capital. This is spurring regular schmoes into dreaming of VC-like returns with an investment in Tezos tokens. Tim Draper will leave with his money just as ICO investors are pouring theirs in. Investors in this ICO are not investing alongside Draper. To the contrary, investors are providing the liquidity for his exit from his investment. In short, the dumb money is cashing out the smart money.

14. Tezos protocol don't have anchor clients or anchor uses yet:


Tezos is still an immature protocol that no one has seen in the wild, still in alpha. Kathleen Breitman says it herself in her recent interview, she acknowledges that there are no anchor clients nor anchor use cases for the protocol yet and that following up with potential partners now would be a “massive time suck,” unworthy of her time.

15. Founders are husband and wife:


Husband and wife team as founders is worrying politically. Tezos is lead by Arthur Breitman and Kathleen Breitman. It’s a risk worth considering. What happens in the unfortunate case where they diverge and separate from each other? What impact will this have on the project? Are they able to work together? If not, who quits the project? What importance does that person have on the project, giving they have been working on it for years and know it better than anyone else?


Applancer is an open platform for discussion on all things like Blockchain , Cryptocurrency and Ico news updates. As such, the opinions expressed in this article are the author's own and do not necessarily reflect the view of Applancer .

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