EOS, an infrastructure developed on top of the Ethereum protocol to provide a flexible and scalable ecosystem for decentralized applications, recently raised a total of $185 million in its initial coin offering (ICO).
The successful ICO campaign of EOS surpassed the amount of capital raised by billionaire investor Tim Draper-endorsed Bancor Network in its ICO. EOS raised approximately $35 million more than Bancor to become the most successful and largest ICO to date.
However, the criticism against ICOs including EOS and Bancor has been the bubble-like ICO market and the emergence of traders looking to profit off projects, blockchain projects in particular, with no viable products, prototypes and codes.
For instance, CCN previously reported in an article entitled “Cornell Professor: $150 Million Bancor is Flawed” that Bancor raised around $150 million for 40 lines of code that were untested. Bitcoin and security expert Andreas Antonopoulos and Augur co-founder Joey Krug also expressed their concerns over the ICO of Bancor, considering the minimal work it has presented in order to secure millions of dollars in investment.
To avoid any controversy from the start, EOS introduced a document called Token Purchase Agreement to offer investment advice to potential buyers, traders and investors. The document emphasized that investors residing in the US can’t invest in EOS and that the native token of the EOS blockchain network has no purpose. These two points triggered controversy within the ICO and cryptocurrency communities.
To begin with, the Token Purchase Agreement specifically emphasized that the EOS token has no purpose. It read:
“As mentioned above, the EOS Tokens do not have any rights, uses, purpose, attributes, functionalities or features, expressed or implied. Although EOS Tokens may be tradable, they are not an investment, currency, security, commodity, a swap on a currency, security, or commodity or any kind of financial instrument.”
To potential investors, EOS emphasized that EOS is not an investment and its tokens are not considered as cryptocurrencies. Such explanation questioned the necessity of the EOS token and the reason why the vast majority of investors purchased $185 million worth of EOS tokens.
In essence, the native tokens of cryptocurrency or blockchain networks are developed and distributed to serve specific purposes. The Ethereum network’s Ether is utilized as gas or transaction fee to fuel decentralized application. Bitcoin was developed to operate as a store of value and as a digital currency. However, EOS clearly stated that its token is not a commodity, investment, and a currency.
Thus, by the definition provided by the EOS team, the sole purpose of EOS tokens is to fuel applications in the EOS network such as potential decentralized applications that may launch on top of the EOS network in the future. But, EOS does not have an active ecosystem of decentralized applications and users. Hence, it is evident that the vast majority of investors bought into EOS for profit, perceiving EOS as an investment.
Prominent cryptocurrency traders including WhalePanda criticized the investors of EOS for misunderstanding the purpose of EOS and its offerings.
More to that, the Token Purchase Agreement of EOS also noted that EOS tokens can’t be purchased by and for US residents. The document stated:
“EOS Tokens are not being offered or distributed to US persons. If you are citizen, resident of, or a person located or domiciled in, the United States of America including its states, territories or the District of Columbia or any entity, including, without limitation, any corporation or partnership created or organized in or under the laws of the United States of America, any state or territory thereof or the District of Columbia, do not purchase or attempt to purchase EOS tokens.”
Yet, decentralized application and user interface engineer at ConsenSys Jeff Scott revealed that EOS primarily advertised in New York, Time Square to be specific, to attract investors within the US and in that region.
"No US Investors"…
*advertises in times square* pic.twitter.com/Vwk9WapFp0
— JSW (@jeffscottward) June 26, 2017
ICOs are becoming more aware of regulatory conflicts that may arise in the US, particularly due to the strict regulations established by the US SEC. Still, EOS remains as the 9th largest cryptocurrency in the world with a $681 million valuation, despite not being a cryptocurrency.
Featured image from Shutterstock.