Tezos may go down alongside the DAO and Mount Gox as one of the most significant failures in cryptocurrency history. In July 2017, Tezos raised $232 million in funds for its project, which proposed to build a new governance model. At the time it was the biggest amount raised by an ICO. The Tezos ICO raised 65,703 BTC and 361,122 ETH. At current prices, with BTC at $6820 and ETH at $531, this is equivalent to approximately $650 million. So far, investors have not been given any of the promised “Tezzies,” and the ICO is battling two class action lawsuits.
To add insult to injury, early investors are now, a year later, being forced to comply with KYC requirements which were not in place when they invested initially. The Tezos Foundation, which supports the project, has stated that due to a changing regulatory landscape it is necessary to fulfill these requirements, but that it respects the privacy of its investors. The Foundation is currently working with a third party to satisfy these KYC requirements. It is now standard policy to undergo KYC for ICO investment purposes.
The Tezos co-founder has said that is it “not my call.” And this is the heart of the scandal itself, linked to a battle between the initial founders, Arthur and Kathleen Breitman, and Johann Gevers of Monetas and former President of the Zug-based, Tezos Foundation. The Tezos Foundation is a not-for-profit organization based in Switzerland that was selected to manage the finances of the ICO. The issue seems to be that the Breitman’s have no access to any of the funds and are locked in a dispute with the foundation.
Gevers has since stepped down as President of the Tezos Foundation and has been involved in a number of scandals. According to the Breitmans, Gevers was attempting to pay himself a large bonus which they could not allow. The Breitmans are going ahead with the launch despite no access to the raised funds. As dubious as the history of Johann Gevers may be, he was still selected to control the enormous funds of the organization by the initial founders who cannot shift responsibility for this decision.
Ironically, Arthur Breitman argued that Bitcoin had a poor governance model and sought to build a network capable of modifying its own rules in line with users who vote on them flexibly and democratically. But the project never really got started. It bears similarities to the DAO in some ways, though the DAO was up and running before a security vulnerability was exploited.
The backlash among the community has been swift and understandable from those who have yet to receive any tokens but are still forced to upload their details in an invasive KYC process. Tezos sold tokens for a network that did not yet exist, with people investing $232 million in what could be called, with no exaggeration whatsoever, a piece of paper.
This is not even that uncommon in the ICO industry. The ICO market is, thus far, the epitome of free-market capitalism, with no regulation, huge successes, and huge failures. The Tezos project is without question of the latter category right now. Then again, it does have a claim, though no access, to nearly $700 million in cryptocurrency, and the Breitmans are still fighting.