In Shift from White Paper, Substratum to Begin Trading ICO Treasury
The CEO of decentralized computing startup Substratum Network announced the company is planning to begin actively trading some of the $13.8 million USD it raised in its 2017 ICO. In doing so, it appears the company is backtracking on its white paper, where it promised to hold its treasury funds in a predetermined portfolio.
UPDATE: The video posted to the official Substratum YouTube channel was deleted after this article was published. It has since been relinked.
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Up to $850,000 of ETH to be Traded on Exchanges by Substratum
The video, posted to the official Substratum YouTube channel by CEO Justin Tabb, featured Tabb discussing the token swap that Substratum began on December 17th.
At about five minutes in, however, Tabb switched topics to discuss the management of the funds which Substratum raised in its ICO.
According to both ICOBench and ICODrops, about $13.8 million was raised in the token sale. The funds were raised in ether (ETH) and possibly other cryptocurrencies and took place last fall. As such, a cryptocurrency called SUB was issued to investors by Substratum.
Tabb explained in the video that the company is planning to have a cryptocurrency trader begin trading some of the company’s remaining ETH to speculate on its value (see 6:50 in the video):
“So, we’re taking advantage of the trader that we have in full-time. And we are going to be actively trading a portion of the Ethereum so that we can trade up, basically. So we can sell at the top of the bands and buy at the bottom of the bands.”
In-House Trader to Speculate on ICO Treasury Funds
Tabb said the decision had been taken due to negative price predictions of ETH by the trader, who is a full-time staff member of Amplify Exchange, a decentralized cryptocurrency exchange created by Substratum.
As a result, Tabb said that Substratum is planning to begin selling some of its ETH holdings into Tether (USDT) and then buy back into ETH at an unspecified future time. ETH was valued at between $225 and $250 during the Substratum ICO, but it is now currently valued at $95, per CoinBillboard.
Currently, Substratum has about 78 ETH remaining in an ether wallet dubbed “Substratum_TokenSale.” In the video, Tabb announced that the company had moved 8,900 ETH (presently valued at around $850,000 USD) from that address to another wallet.
It’s not clear whether this is all the ETH that Substratum has left from the token sale, but Tabb claimed that that the company had sold off 1,000 ETH on October 11th, when the price was $189.
Allocation of Treasury Funds Laid Out in White Paper
Tabb claimed that the move is completely legitimate because it was laid out in the Substratum white paper:
“And actually, we’re not doing anything any different than what’s in our white paper, because we’re not doing anything but trading it off to USD Tether. And that’s in the white paper, the original white paper, you can take a look.”
When contacted by Bitsonline, Tabb pointed out page 14 of the white paper, which reads:
“To ensure the development fund is not subject to big market fluctuations, we’re hedging it four ways. By doing this we ensure we have the capital needed to finish each phase of the project budgeted for in the Initial Coin Offering (ICO).
USD Fiat (25%) …”
Tabb offered no specifics about how much ETH Substratum would sell off, saying only that it would be a “portion.” But such a move could be a violation of the percentages laid out in the white paper and a reneging of the promises made to investors during the ICO.
Bitsonline communicated with Cuba, an admin on the Substratum Telegram group who identified themselves as a volunteer and investor in the company. When questioned about whether Substratum was keeping the treasury funds to the portfolio allocation laid out in the white paper, Cuba said:
“U can’t purely on the fact prices go up and down on each of them so the % dollar values can change”
Cuba also said they didn’t know when or whether the original funds raised in during the ICO had been allocated per the portfolio laid out in the white paper.
Lack of Transparency Common in ICOs
Bitsonline further contacted Justin Tabb and Substratum for comment about the current allocation of the ICO funds and whether they could be verified, but they didn’t immediately respond.
Substratum has disclosed some of what they have done with the funds they received from the ICO, specifically some of the ETH held in the ICO account. But they have not provided verifiable information about their cash position, BTC, or USDT holdings.
It appears that some time ago, Substratum pivoted from decentralized computing to creating a decentralized crypto exchange called Amplify. Per Tabb, there is a full-time cryptocurrency trader on the staff of Amplify who is also working for Substratum.
This change in focus to trading is substantial, as during the ICO Substratum provided this description of itself:
“Substratum is creating an open-source foundation for a decentralized web which will provide unrestricted access to content and sharing of information for users across the globe. Our mission is to bring forth the free and fair internet of the future by combining proven technological building blocks with emergent technologies in an innovative and holistic way to help solve many of the problems that plague the modern internet.”
With most ICOs prior to 2018 operating under few or no regulations, there is little legal oversight of what the managers do with the funds raised after the token sale. The U.S. Securities and Exchange Commission (SEC) recently issued a report looking at its enforcement of ICOs in 2018.
It’s possible that other blockchain startups that raised money with ICOs in the past years are following a similar strategy as Substratum.
And more could do so in the future if cryptocurrency markets continue to decline. The market cap of all cryptocurrencies has fallen from a high of $831 billion in early 2017 to the current level of $114 billion, a drop of 86 percent. SUB itself has fallen from a high of $3.10 to its current level of $.047 cents.
What do you think of Substratum’s decision to begin trading the funds in its ICO treasury?
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