The venture capital arm of Pennsylvania’s economic development office is tokenizing one of its funds.
Ben Franklin Technology Partners of Southeastern Pennsylvania, one of four regional outposts formed by the Pennsylvania Department of Community and Economic Development in 1982, launched the Global Opportunity Philadelphia Fund, or GO Philly Fund, in February with $15 million committed.
Unlike Ben Franklin, which receives funds from the Commonwealth of Pennsylvania and is restricted to investing in the companies based in the Greater Philadelphia area, GO Philly can raise funds and invest globally, but will focus primarily on the Philly area-based companies, Scott Nissenbaum, Ben Franklin’s chief investment officer and a managing partner of GO Philly, told CoinDesk.
Working with the California-based token platform Securitize, GO Philly is looking to raise another $35 million by selling GO Philly Fund tokens to accredited investors.
“GO Philly Fund has been a trailblazer, not only in the blockchain space, but also as an impact fund,” Securitize CEO and co-founder Carlos Domingo told CoinDesk via a spokesperson. “We are proud to be partnering with them as their technology provider.”
Built on top of the ethereum blockchain, the GO Philly Token will be available for purchase by accredited investors at $0.50 apiece, in dollars, bitcoin or ether – but the minimum buy-in is $250,000.
Big investors first
The $50 million fund was created in partnership with a publicly traded IT company, EPAM. GO Philly raised more than $15 million pre-launch: with $5 million from Ben Franklin, $5 million from EPAM and the rest from investment firms including Fulton Financial Corporation, SRI Capital and Provco Group.
These investors have already secured their bags of GO Philly tokens, with the first batch being sold on Feb. 7. Nissenbaum sees that early action as an assurance to new investors:
“There are so many question in this market about what’s real and what’s not. So we decided that we are going to bring big companies first, and then the rest of the entire globe can also buy in.”
GO Philly is expecting to sell 100 million tokens in total, including the portion already sold. The tokens will be “a digital representation of a limited partnership contract” and comply with the SEC’s Rule 506(c), Nissenbaum explained.
The token holders’ money will fund GO Philly’s efforts and earn them a profit if the supported startups flourish.
“All the value we will create in those companies will flow back to the token holders,” Nissenbaum said.
The advantage of the token model, he said, is that, if an investor wants to get out, it’s easier to sell a token than a limited partnership in a venture fund, given that GO Philly is going to create a secondary market for such tokens in the future – though the legal structure of that future entity is not yet disclosed.
However, the tokens won’t have the profit distribution functionality: instead of smart contracts, traditional bank transfers will deliver money to the owners of the digital securities. GO Philly also won’t hold crypto, even though it’s allowing investors to buy tokens with bitcoin and ether. The BTC and ETH will be immediately sold for cash, Nissenbaum said.
The Philly-area Ben Franklin invested $8.1 million into 51 startups in 2018, according to its annual report. Its total portfolio includes 227 companies leveraging $354 million in assets.
Securitize, a Coinbase-backed digital asset platform, recently announced the launch of a “one-stop shop” for various token-related services, with Coinbase Custody, OpenFinance, Rialto Trading and CBlock Capital as the first participants. Earlier the firm partnered with over-the-counter trading platform OTCXN.
A new filing with the U.S. Securities and Exchange Commission (SEC) shows that prominent venture fund Polychain had $591.5 million in assets under management at the end of March.
That’s down considerably since the firm’s August 2018 filing, which showed $967.8 million in assets under management. That’s a loss in value of $376.4 million.
The Wall Street Journal was the first to report that the company was no longer a billion-dollar operation.
Polychain is one of the most elite funds serving startups in the crypto industry. Founded by Olaf Carlson-Wee, the first employee of Coinbase, Polychain was among the earliest funds to invest in tokens rather than companies, as CoinDesk reported in 2016.
Part two of the most recent form describes the company as managing five funds: Polychain Master Fund, Polychain Master Fund II, Polychain Ventures, Dfinity Ecosystem Fund and Polychain Opportunities Fund I.
The document acknowledges significant risks in investing in crypto assets, writing:
“There is no assurance that digital assets will maintain their long-term value in terms of purchasing power in the future, or that acceptance of digital asset payments by mainstream retail merchants and commercial businesses will grow.”
Polychain did not reply to multiple requests for comment.
Enterprise-focused distributed ledger tech startup Digital Asset (DA) has landed another high-profile partner.
Announced Thursday, software virtualization giant VMware is integrating DA’s smart contract language into its own blockchain platform.
Further, VMware, a publicly traded company majority-owned by Dell Computer with more than 24,000 employees, will distribute the Digital Asset Modeling Language (DAML) with its VMware Blockchain platform directly to customers and through partners.
“DAML has been proven to be one of the few smart contract languages capable of modeling truly complex workflows at scale,” said Michael DiPetrillo, senior director of Blockchain at VMware, in a press release.
According to the companies, VMware Blockchain “is deployed in enterprises worldwide,” although further details weren’t provided.
Palo Alto, California-based VMware first revealed last August that it had developed an open-source blockchain designed to be both scalable and energy-efficient, known as Project Concord. In 2017, the firm sought a patent for a system that would use blockchain as part of a wider effort to boost the speed of data transfers. Its main business is providing cloud computing and platform virtualization services to companies.
The team-up is the latest in a string of announcements by New York-based Digital Asset, which is best known for its former CEO, JPMorgan alum Blythe Masters, and its multi-year contract to rebuild the Australian Securities Exchange’s aging CHESS system using DLT.
The startup recently open-sourced DAML and began working with the International Swaps and Derivatives Association (ISDA) to aid the Wall Street trade group’s effort to standardize data in complex financial contracts.
Consider yourself $14.1 million closer to buying your morning coffee with bitcoin.
New York-based payments startup Flexa just raised that amount in a private token sale involving Pantera Capital, 1kx, Nima Capital, Access Ventures and others.
The startup’s token, Flexacoin, is an ethereum-based ERC-20 token that will eventually be used by developers and businesses to stake value on Flexa’s network for merchant payment processing.
While Flexa co-founder Tyler Spalding declined to specify which merchants will accept bitcoin through this app, video tests show users buying Starbucks with it. (A Starbucks spokesperson told CoinDesk it is not working with Flexa.)
Spalding emphasized that Flexa is a business-to-business startup. Shoppers won’t need to hold or interact with Flexacoins at all. Flexa co-founder Trevor Filter said the details related to such governance and participation are still under development.
“The long-term goal is to give over the network to the merchants,” Filter added. “A sort of consortium of their own that allows them to accept crypto.”
Return of the token sale
Stepping back, Flexa is one of several companies to fundraise over the past six months through a private token sale without equity options. The predictions market startup Numerai announced a similar raise in March.
Access Ventures partner TJ Abood told CoinDesk his firm would have been interested in an equity offering as well. But as he’s also satisfied with Flexacoin because it allows his firm to participate in growing the network.
Businesses, from Access Ventures to merchants, can stake Flexacoin to the network and earn token rewards in a model comparable to proof-of-stake systems like Cosmos or Tezos. Flexa plans to launch a custodial crypto wallet app for its network, with users being able to spend crypto at point-of-sale with a type of QR code scan, similar to Apple Pay.
“We wanted the total Flexacoin supply to represent how much money can flow through the system right now,” Spalding told CoinDesk, adding that the network will launch on May 13. “All the participants earn money.”
Unlike Numerai’s token-fueled platform, Flexa’s network is not blockchain-based. Flexa’s approach to ethereum-compatibility, without complete reliance on that network, fit into Abood’s investment strategy.
“We subscribe to the idea of being a user-owner. Any company that we invest in, we immediately look to be a user,” Abood said. “Making use of the developer tools and all the system tools that exist to be able to deliver a superior product, that’s what drives us.”
On the other hand, 1kx cofounder Lasse Clausen told CoinDesk his firm also plans to become a staker because he believes for-profit tokenized networks are inherently better than traditional businesses. Speaking to Flexa’s symbiotic merchant acquisition strategy, Clausen added:
“If Flexa were a traditional for-profit venture, how would merchants be able to trust them that they won’t end up raising fees once they have reached enough network effects?”
Bridges not blocks
Instead of building a blockchain-based network, Spalding described Flexa’s protocol as an “elegant pipe” that processes payments from various cryptocurrency networks, including bitcoin, ethereum, bitcoin cash and litecoin, to the merchant’s own payment processing system for direct bank transfers.
“We wanted to build essentially the Stripe for these type of transactions,” Filter said.
Abood said this merchant-oriented structure could entice mainstream brands that are crypto-curious by offering the ability to accept bitcoin without risk. According to Spalding, Flexa will partner with exchange platforms for liquidity on the back-end. Plus, the Flexacoin collateral could be used to compensate if there’s an issue with blockchain settlement.
“Flexa plays a critical role in blockchain adoption at-large because it is bridging this digital payments landscape into a brick-and-mortar setting,” Abood said. “It’s opening up the idea of spending cryptocurrency to a much broader audience.”
Filter described the Flexa protocol as bolting merchant’s traditional infrastructure to a crypto-friendly bridge, rather than relying on debit cards or credit cards. Since the process uses crypto wallets, there’s no personal information exposed the way a credit card payment would.
“I don’t think that blockchains are good for many things,” Spalding added. “But, they are amazingly powerful for fraud-free payments.”
In the future, Flexa plans to add support for various exchange-issued stablecoins and other crypto assets. Until then, the focus is on partnering with exchanges and merchants to make custom on-and-off ramps via the Flexa protocol.
“A driving source in [mainstream] adoption will be the availability to accept cryptocurrency and that’s a merchant decision,” Abood concluded.
Bithumb, South Korea’s largest cryptocurrency exchange, has posted a net loss of 205.5 billion won ($180 million) for 2018.
CoinDesk Korea reported the news on Thursday, saying that the loss was mainly due to a sharp decline in the cryptocurrency market last year, though the company’s operator BTCKorea also cited infrastructure investments and labor costs as factors.
The figure marks a big swing into the red for Bithumb, having recorded a net profit of 534.9 billion won ($469 million) in 2017.
The exchange’s revenues, on the other hand, grew around 17.5 percent to 391.7 billion won ($343.4 million) in 2018, compared to 333.4 billion won ($292.3 million) the year prior.
The figures also show that the exchange’s operating profit declined 3.4 percent to 256.1 billion won ($224.5 million) last year from 265.1 billion won ($232.5 million) in 2017.
Meanwhile, operating expenses rose from 68.3 billion won ($59.8 million) to 135.6 billion won ($119 million), while non-operating expenses increased sharply from 4.1 billion ($3.6 million) won to 381.9 billion won ($334.8 million).
Bithumb has been going through some tough times. Just two weeks ago, the exchange suffered its latest hack, losing around $13 million in the EOS cryptocurrency and about $6.2 million in XRP. Last year, Bithumb was also hacked for some $30 million-worth of cryptocurrencies, but later claimed to have retrieved $14 million-worth of the hacked funds.
Since the latest theft, Bithumb has disclosed that it holds all customers’s assets in cold (offline) wallets to prevent losses through such attacks.
Amid its financial issues, Bithumb, said last month that it plans to cut its staffing levels by up to 50 percent, from 310 employees to around 150.