In early 2020, Dominic Williams was celebrated at the World Economic Forum in Davos, Switzerland, as the next king of blockchain technology. Mr. Williams is the founder of the Dfinity Foundation, a Swiss non-profit organization that launched an ambitious project called Internet Computer, backed by Andreessen Horowitz, one of Silicon Valley’s most prestigious venture capital firms.
The project, years in the works, generated a lot of buzz last month ahead of its initial coin offering, the crypto equivalent of a public and publicly traded company for investors to buy. At the start of trading after market debut, the total market value of the Internet Computer, or ICP, token was worth tens of billions of dollars, making it one of the top 10 most valuable cryptocurrencies at the time. .
The ICP token is designed to help leverage a decentralized layer of web infrastructure built by Dfinity that believers believe will free users from reliance on companies like Amazon and Google. The technically complex network would make it easier for people to create software and publish it directly to the Internet without going through the platforms of the tech giants.
But last week, ICP’s value had fallen by about 95%.
Even in the famous volatile crypto market, ICP stands out. The astonishing rise and crash of this landmark project puzzled market watchers as to what happened – and who might have benefited from it.
Miguel Morel, the founder of Arkham Intelligence, a crypto analysis firm that has tracked the movements of ICP tokens on the blockchain, said price action and flaws in the coin offering process suggested that “some thing was wrong “. In an analysis that Arkham first shared with the DealBook newsletter, the company noted that “a token that drops over 90% in the first month after launch is highly unusual for a project of this magnitude. “.
The ICP token claim process stands out because “Dfinity has not followed the playbook of other successful projects,” Arkham said. “Instead, it appears they have quietly allowed the Treasury and insiders to send billions of dollars in PKI to exchanges, while making it extremely difficult for their long-time supporters to access the tokens that are theirs. were promised. “
Arkham has identified 44 “probable insider addresses” who deposited 10 million ICP tokens worth more than $ 2 billion at exchanges after the initial coin offering, making it appear that they were transferred for transaction and not backup purposes. These transfers coincided with significant drops in the price of ICP, according to the report. Small investors, excluded from the process, remained blocked.
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Dfinity gave late and complicated instructions to small investors who bought ICP tokens when they were very cheap during a crowdfunding round in 2017, Arkham said. The process was buggy and investors complained about limited customer support, according to the report. Mr Morel, who co-founded Reserve, a cryptocurrency created for hyperinflationary economies, said that based on his experience with initial coin offerings, the Dfinity approach was unnecessarily complicated.
Dfinity said in a statement that bad social media players were undermining its plan: “Day traders with alternative agendas and unethical crypto projects have used Reddit and Twitter to confuse the public.” Dfinity said the original ICP offering was transferred to a securities account at Coinbase, a major crypto exchange, to be transferred to various categories of investors, many of whom “immediately transfer tokens” to avoid fees. or “protect their PKI”. Dfinity said it was important “not to confuse the transfer of tokens from Coinbase Custody to other exchange wallets for safekeeping as a” token sale “.
Dfinity also denied that the process for claiming tokens for early stage investors was too technical; holders who had difficulty negotiating got the support they needed, the company said. Michael Lee, a spokesperson for Dfinity, said the company is taking the “high road” and focusing on developing its Internet Computer project, noting that backers like Andreessen Horowitz remain committed. (A spokesperson for the venture capitalist declined to comment)
Some industry watchers say the ICP crash was simply bad luck for a hot project that turned out to be listed as extreme enthusiasm for crypto waned.
But Mr Morel said that during the recent downturn, ICP fell more than any of the top 100 cryptocurrencies by market cap, even worse than the drop in Shiba Inu Coin, a joke token based on the meme Dogecoin cryptocurrency, which itself was intended to poke fun at crypto and internet culture. In other words, a postmodern comedy project without a tech proposition backing it has seen less distress than the token underlying Dfinity’s grand goals – and that’s serious business.