WeTrust Reveals Why ICO Is Better Than Venture Capital Financing
Another day, another ICO. The total amount of investments raised by The DAO, Ethereum and Waves alone comprised nearly $195 million. However, most crypto fundraising campaigns still occur in legal vacuum. So why do crypto projects prefer the crypto-based way of raising funds over those traditional, like venture capital financing?
ForkLog contacted George Li and Patrick Long of WeTrust to figure out the real reasons behind conducting crypto fundraising, and to find out more about the project, which is set to launch its ICO in a few days.
FL: Could you please briefly explain what WeTrust is about?
WeTrust: WeTrust is a collaborative saving and insurance platform. It is autonomous, frictionless, and decentralized. WeTrust utilizes the Ethereum blockchain to create a full-stack financial system that leverages existing social capital and trust networks, eliminating the need of a “trusted third party”, which allows for lower fees, improved incentive structures, decentralized risks, and a greater amount of capital to reside among the participants.
FL: Why did you decide to work on this project?
WeTrust: There are a lot of inefficiencies in the current financial system, and banks/ insurance companies take a huge cut for not doing very much, incentives are misaligned, and a lot of people have suffered. The current system isn’t fair and only favors those who have money already. I picture a future where people from all over the world have an equal chance for success, and their communities can help them.
FL: How will this platform work?
WeTrust: At WeTrust, we want to enable communities to save and lend amongst each other without relying on third-party banks. We take a “grassroots” approach by going after the end user on day one improving on what they do currently. Our first product is the Trusted Lending Circle (ROSCA or Rotating and Saving Credit Association), inspired by around 1 billion people around the world who are using mostly informal organizations to lend/ borrow, and support each other financially within their communities. Trusted Lending Circle will allow friends and family to save and lend amongst each other in the easiest way imaginable.
The Trusted Lending Circle will have an agreement between a group of trusted parties, who agree to contribute a fixed amount of money at set intervals, called rounds. For example, you and three friends could agree to contribute $10 per month. In this case, each round is one month long, and the ROSCA will contain four rounds, one for each participant. At the end of each round, the pot should contain the sum of everyone’s contribution. In our example, that would be $40. Users bid on this amount in a reverse auction manner, where the lowest bid wins. The winning bidder then receives the amount in the pot, minus the difference between their bid and the pot amount. For our case, if someone bid $35, they would receive $35, with the remaining $5 being split between the other participants.
In the event that no bids are received, the winner of the pot is chosen pseudo-randomly.
Each round is won by only one user (in the simplest case), and each user is guaranteed to win exactly one round. This ensures a pareto optimal outcome, where everyone is at least as well off as they would have been had they saved the money alone.
This is merely the simplest use case, but even this method of distribution is used by many people around the world today. As WeTrust grows, we will introduce additional tools such as a credit scoring system, or mechanisms to allow people to scale their lending circle to better serve their needs. Additional ways to contribute fund and disburse funds will also be added.
FL: Are you sure that this is the best way to distribute the funds? Why do you want to use exactly this distribution method? It doesn’t help to determine who needs the funds most.
WeTrust: This method of bidding is essentially an ‘interest rate’ bidding, where one says I am willing to pay 5% interest, another can say 5.5%. This is a very common method used by ROSCAs around the world, because money is allocated at a market determined rate, based on supply and demand. This method is often used in China and India, these funds are used as a source for investment funds into businesses.
However, we will also create other methods, based on voting. For example, some groups will choose specifically based on need, and they will receive the full amount. However, in this situation there is less incentive for savers to participate and this becomes more of a social activity, and not a free-market activity.
FL: Am I required to pay fees for using your service or not? How are you going to make any profit?
WeTrust: For groups under 5 people, we will charge zero fees, for groups larger we will charge fees around ~0.3% on distributions.
FL: Have you already developed a prototype?
WeTrust: Yes, the prototype is developed and running live on the Ethereum mainnet. It is at ROSCA.WeTrust.IO. There you will find an introduction video on what Trusted Lending Circles (aka, ROSCAs) are, a video tutorial on how to use the dApp, and a FAQ.
FL: Can you guarantee that the final version of your product will be released?
WeTrust: I don’t think any company can guarantee that something will be done no matter what – we will put in our best effort based on the resources and team that we have.
We will do our best to follow the timeline laid out on our Bitcointalk post/ website. WeTrust and our community will be working hard to push out products per our timeline after the crowdsale!
FL: Do you have lending specialists in your team?
WeTrust: We have Michael Hexner as our business strategy advisor and he has a plethora of experience. He is a seasoned entrepreneur and investor with over 40+ years of experience running companies in both the retail and technology space (Wheel Works, SmartPillars, Fundamental Capital, etc.). He is an expert in creating businesses from the scratch by identifying real world problems and creating a crystal clear vision to lead his organization. He holds a B.S. in Political Theory from Williams College and a M.S. in Conflict and Dispute Resolution from Creighton University.
Specifically, to lending – we have some informal advisors, but we contact them to provide us feedback before we make big decisions. We are working with deep experts in financial inclusion from the NGO community and expect to build close partnerships in the coming months. We’re also part of UC Berkeley’s LAUNCH Accelerator program, so we have the resources of the university and advisors there to help us. Those individuals have substantial experience in this lending/ banking area.
FL: Why are you going to conduct an ICO?
WeTrust: We are conducting a “token sale” so that we can raise funds for development. Our current team is very capable with a plethora of experiences from the technology industry (e.g. Google, Ernst and Young, Berkeley, Stanford, Cornell, etc.) and can’t wait to deliver on our mission. The funds will be used to hire a full time team building out the WeTrust roadmap (e.g., our core developers and necessary operational/ marketing folks).
FL: ICO, crowdsale, crypto fundraising and token sales altogether are all in so-called legal vacuum. Why won’t you consider venture capital financing?
WeTrust: We’ve followed a framework put out by Coinbase, and under guidance from our lawyers are calling our fundraising a Token Sale. In the US, the word ICO is too close to IPO which is heavily scrutinized by the SEC. That’s why I’m calling it a token sale. Anyway, we are working with Goodwin Proctor, 100+ year old technology and financial services law firm to ensure what we are doing complies with the law.
Because our product is community-focused, we believe that a crowdsale is appropriate for this. A token sale will allow us to reach thousands of potential users and have them evangelize our product. We aren’t building something propriety that will enrich WeTrust, rather a community good for the people.
FL: Let’s talk about legal side. You are going to sale tokens. What are these tokens from a legal perspective? Will your tokens entitle users to receive dividends of WeTrust’s revenue?
WeTrust: The tokens – Trustcoins (TRST) as we call them will be the native token on the WeTrust Platform, and on the Ethereum network. Our lawyers have a very long disclosure list they’re finalizing and we will have that all available prior to the crowdsale.
Trustcoins will be the “fuel” on which our platform will use. Forepersons (organizers of lending circles) will quote their fees in Trustcoins and participants will need to pay the Forepersons for their time. As other features are developed, they will also require Trustcoins (e.g. API calls to access a credit scores, collateral, etc…)
There will be no right to receive distributions related to our coin.
FL: You have mentioned that ‘a token sale will allow us to reach thousands of potential users and have them evangelize our product’. How can it allow one to reach thousands of users? Why venture capital financing is not appropriate for this?
WeTrust: It is our belief that a Token Sale will create evangelists. We can see this with many projects (e.g. Bitcoin, Ethereum, etc.) – if you own the coin, you will want to talk about it and spread the word. You believe in what it stands for and also have some personal interest.
VC financing is centralized to a few actors and won’t stir as much community/ social buzz.
FL: But you still develop a product for the community even if you get venture capital funding, aren’t you?
WeTrust: Yes, but there are no evangelists who have a vested interest in the project’s success and growth. You only get a number of VCs who have money in the project. Not the thousands of people with a few coins each who want their investment to grow.
FL: Anyway, by getting venture capital investing, you accept liability to VC investors. In case of token sale, you don’t accept any liability, obligation or responsibility whatsoever to evangelists, right?
WeTrust: Correct, this is more of a legal topic which will be covered in our disclosures.
FL: Why should I invest in your project if you are not liable to anybody?
WeTrust: A few areas that can help with accountability:
1. The founding team’s tokens will be subject to vesting (e.g., we will create rules that lock up the tokens so that team members have an interest in the project’s success).
2. We will have legal structure in place so spending will only be done for the mission as defined by the Company’s charter.
FL: Have you ever participated in crypto fundraising? In what projects have you invested?
WeTrust: Yes, I’ve participated in the Ethereum, Lisk, Waves token sales.
FL: What crypto projects are promising in your opinion? How to choose the right project to invest in? What special aspects should users take into consideration before investing?
WeTrust: I haven’t been analyzing recent projects in the past 6 months because I’ve been working on WeTrust. I actually wrote a piece on how I pick token sales to be apart from.
FL: Could you please provide short summary of your piece for our readers?
WeTrust: The first paragraph is a good summary, but doesn’t really do it justice – you really need to take a deep dive to understand it better. I think the whole article is a “summary”. “Value Investing is a strategy we are most accustomed to in the traditional markets. As opposed to “The ICO Flip” which focuses on short term arbitrage with a short investment timeline, “Value Investing” focuses on long term developments of a project and identifies undervalued and under hyped projects. My strategy uses various metrics such as: management team analysis, overhyped versus underhyped, timeline and release milestones, exchange adoption, and comparative analysis”.
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