Posted on

How BlockEx Went from $24 Million ICO to Layoffs in Less Than a Year

BlockEx’s treasury couldn’t stop taking hits in 2018 – and for the London-based startup, it has meant significant delays, scaled-back ambitions and layoffs.

CEO Adam Leonard confirmed to CoinDesk that “staff reductions” had taken place.

“Some of it naturally as products finished and additionally to reduce burn,” Leonard said via email, declining to offer specifics on how many were let go. “We are not winding down the business and hope to have some good news next week.”

According to a year-end review penned by Leonard earlier this month, the company is working to finalize a new round of fundraising. So, how did BlockEx go from a reported $24 million ICO and equity raise to layoffs in roughly 12 months?

Fund management

BlockEx’s treasury took a number of hits with cascading effects through 2018.

BlockEx first got attention as a platform for issuing tokens, but the company had aimed to offer a place to trade the tokens it issued as well, plus ways for existing trading shops to easily get into crypto trading. The company believed it could have been first to market with a securities token issuer that had the blessing of a European Union regulator, that is if it hadn’t had various troubles with investor funds.

“We would have been up by now,” Leonard explained to CoinDesk in a phone call.

He wrote in the annual review about some of the company’s issues in 2018, calling it “a rollercoaster of a year,” but he expanded on those observations in interview. “You could say it’s setting back the security token industry in Europe,” Leonard said.

BlockEx ran its own token sale last year for the DAXT token, the chief utility of which was giving holders early access to tokens issued by BlockEx. The trouble, the company now believes, was that it insisted on strict adherence to KYC/AML practices. Prices on ETH dropped dramatically from the start of its sale at the end of December 2017 until it closed in early March 2018.

Further, the company chose not to finalize any sale until a buyer had received DAXT in exchange for their ETH. So, if the buyer saw ETH plummeting and wanted out of the position, they would let them go.

Still, many stayed in, but by the time BlockEx got its hands on funds after all the KYC/AML checks, it had lost considerable value.

Leonard wrote in his update: “So, in reality, out of the £20 million raise, we were actually left with just £5.5 million of available funds for the business go-forward basis.”

Nevertheless, as Leonard pointed out, “£5.5 million is a lot of money if the market had been marginally successful.”

The cascading effects set in from here. With ICOs freezing up, there weren’t new offerings on the platform to make. This cut into revenue and the value of the DAXT token. “Most of the ICOs we contracted with killed their ICO or pushed it back into 2019,” he said.

On top of all this, BlockEx had expected an $8 million investment from one fund set up by a blockchain advisory that never came through. It had planned to buy both a large share of tokens and some equity in BlockEx. The fund never succeeded in closing, so it never delivered its promised investment.

Project graveyard

Due to these setbacks, BlockEx ended up not coming through on a number of initiatives for 2018.

Among its unfinished projects: its mobile app, functionality by which DAXT could be staked on the BlockEx exchange for discounted trading, supporting third-party market makers and additional quick-buy features.

BlockEx saw setbacks in its ability to quickly set up white-label brokerage services for equity shops. It also has had to delay an overall audit feature for the BlockEx exchange.

“The plan for BlockEx always was for different auditing firms to run regular audits,” Leonard said, so users and traders would never have any doubt the funds were there. “We wanted to make it 100 percent transparent that the exchange had traders’ money.”

The advantages to using BlockEx as an exchange included its banking rails (for easy exit and entrance from fiat), white labeling features, what should have been a larger liquidity pool and an exchange that should soon be regulated.

But without funds, it hasn’t been able to run the marketing campaign to tell that story. Nevertheless, the company hasn’t shut down and its products are coming out, if more slowly, Leonard says.

“We are nicely in a position to generate revenue,” he added.

Looking back, Leonard wondered if his strict adherence to the rules was more of a bug than a feature.

“If we didn’t follow rules so much, we could have taken in a lot more money,” he told CoinDesk.

Ian Allison contributed reporting.

BlockEx website image via Shutterstock

Posted on

OKCoin Founder Star Xu Seeks to Acquire Public Firm for $60 Million

Star Xu, the founder of cryptocurrency exchange OKCoin, may be seeking a possible backdoor IPO for his firm by buying a majority stake in a Hong Kong-listed company.

On Jan. 10, Xu (under his real name Xu Mingxing) filed with the Hong Kong Stock Exchange (HKEX) for approval to buy a 60 percent stake in a construction engineering firm called LEAP Holdings Group Ltd.

Through his company OKC Holdings Corp., Xu is aiming to purchase approximately 3.2 billion shares of the company for HK$0.15 (around $0.02) per share. In total, the acquisition, if approved, would cost more than $60 million.

To avoid the news affecting LEAP Holdings’ stock price, the firm is currently suspended on the HKEX.

While the effort has yet to be approved by the stock exchange, the successful purchase of the stake could provide a route for OKCoin to become a public company in Hong Kong via a back-door listing. That is, rather than go through the process of applying for an initial public listing (IPO) and jumping through all the necessary regulatory hoops, they would simply buy a firm already listed in Hong Kong.

Last August, crypto exchange Huobi took a similar step, becoming the largest shareholder of a HKEX-listed firm called Pantronics Holdings for around $70 million.

Other major firms in the crypto space, specifically mining companies Bitmain, Canaan and Ebang, have filed for IPOs in the same jurisdiction, but seem to be making little progress with the HKEX. Canaan has now let its application expire, while a HKEX insider told CoinDesk in December that the stock exchange was “hesitant” to approve the offering for Bitmain.

A Bloomberg report early this month suggested that Canaan is now seeking to IPO in New York, but nothing has been officially made public to date.

Wolfie Zhao contributed reporting.

HKEX image via Shutterstock

Posted on

QuadrigaCX Crypto Exchange Users Still Can’t Get Their Money Out

QuadrigaCX customers are complaining they still can’t get their money out more than a month after the cryptocurrency exchange won a court dispute that had held up $19 million of funds.

While that would be worrisome enough, users’ concerns were compounded by the company’s announcement Monday that its CEO and founder, Gerald Cotten, had died more than a month earlier.

In a statement attributed to Jennifer Robertson, Cotten’s wife, the exchange said he died on December 9 from complications arising from Crohn’s disease while traveling in India. The same statement also said QuadrigaCX was working through a backlog of withdrawal requests and had set daily withdrawal limits.

Then, on Tuesday, QuadrigaCX sent its customers an email, a copy of which CoinDesk obtained, stating that it was processing withdrawals “slowly” and that the team is “actively working on having the funds deposited and distributed.”

“While we don’t have a specific update pertaining to this situation, our goal was to resolve this issue within the next two weeks and we remain committed to that goal,” says the email, which was signed by Aaron Matthews, QuadrigaCX’s interim president and CEO.

QuadrigaCX user and Canadian resident Xitong Zou told CoinDesk that he had filed multiple support tickets in recent weeks and received a response saying the withdrawal could take a week or two each time. “If only the [QuadrigaCX] customer support were better I think it could go a long way, and it’s not like they aren’t active,” he said.

“I see them on Reddit and Facebook and Twitter answering minor questions about cash pickup times etc., but they don’t answer any of the big questions we have regarding the CEO’s recent death,” he wrote in an email, adding:

“The fact that it happened a month ago, and they just announced it now, and no proof of death, no obituary, no linkedin profiles of any of the staff, no physical addresses, limited crypto withdrawal limits, etc all makes people suspicious.”

As a result, “there’s a bunch of warning bells going off in most people’s heads right now,” Zou said.

QuadrigaCX did not respond to multiple requests for comment.

When contacted by CoinDesk, a spokesperson for Global Affairs Canada, the government agency that manages diplomatic relations, appeared to confirm QuadrigaCX’s account of Cotten’s death overseas, but did not mention his name or give a date.

“Our thoughts and sympathies are with the loved ones of a Canadian who recently died while visiting India,” said the spokesperson, Sylvain Leclerc. “We are providing assistance to the family at this very difficult time.”

Leclerc said he could not disclose any further information, citing Canadian privacy law, and did not answer follow-up questions by press time.

When reached by phone, a spokesperson for the Indian Bureau of Immigration was unable to confirm that Cotten had been in the country.

Banking bottlenecks

QuadrigaCX blamed the withdrawal backlog on its recently resolved court dispute with the Canadian Imperial Bank of Commerce (CIBC), which froze funds held by the exchange’s payment processor, Costodian, Inc., over concerns about their origin.

While the Ontario Superior Court of Justice briefly took custody of these funds last year, Judge Glenn Hainey released the majority of them back – $70,000 in U.S. dollars and $25 million in Canadian dollars (about $19 million USD), less $200,000 that was withheld, according to a court document published in December.

These funds were then frozen by the processor’s new bank, the Bank of Montreal, according to a statement by the exchange on Reddit.

A subsequent update stated that the bank had released the funds, but said there would be another delay while Billerfy, a payment processor, endorsed the bank drafts.

When reached by CoinDesk, Billerfly managing director and owner José Reyes said the company had finished endorsing the drafts “but no banks have the appetite to take the drafts so we are looking around for crypto-friendly banks that will take the drafts so we can use it to payout clients. Even lawyers are having a hard time getting a bank.”

When asked if that meant customer withdrawals would remain delayed until a banking partner could be found, Reyes responded:

“Yes. Hope not long. We are really working very hard to work with crypto-friendly banks.”

Billerfy and Costodian are both owned by Reyes, and were all listed as parties in the now-concluded legal fight.

Long delays

A number of QuadrigaCX customers have been complaining about withdrawal issues on social media platforms like Reddit and Twitter, with most claiming long delays – some several weeks or even months long – in receiving funds.

Some users even say their open tickets on the exchange were marked as “complete,” despite the fact that they had not received their funds.

(A few users claimed they did receive funds on Reddit, though they were outnumbered by the number of posts listing issues or concerns.)

Some withdrawal attempts were met with a “failed to send” message, a problem that interim president Matthews addressed in his Tuesday email to customers.

He wrote:

“Regarding failed withdrawal notice to customers,

Your pending withdrawal has not failed, it was canceled back to your account. Please restart your withdrawal according to the new limits set out by QuadrigaCX on January 14, 2019.”

He later added that all withdrawals “will occur in the advertised timeframes” of two weeks.

Moving forward

Once the exchange has caught up on its backlog, QuadrigaCX hopes it “will return to normal operating levels regarding withdrawals and punctual timelines,” Matthews wrote.

As part of this process, the exchange has instituted new withdrawal limits on U.S. dollars, Canadian dollars and cryptocurrencies, with different limits for differing levels of customer verification.

“We did this to ensure service levels don’t get to the point where any backlogs or interruptions to banking services happen again,” Matthews explained.

The exchange will also work to diversify the number of Canadian banks it works with, so as to ensure no single bank can freeze funds like CIBC again.

Unverified customers can withdraw between $5,000 and $10,000 in crypto, while “level 1 verified” customers can withdraw as much as $25,000, Matthews noted, concluding:

“These changes were the result of our efforts to continuously improve our service offering. We will continue to review service levels and make any changes that we feel best serve the interests of our customers. We thank you for your patience and look forward to the resolution of this matter.”

Anna Baydakova contributed reporting.

Frozen bitcoin image via Shutterstock

Posted on

European Blockchain Startup Launches Trading in Tokenized Securities

Belarus-based blockchain startup Currency.com has launched a trading platform for tokenized securities.

The firm announced Tuesday that the platform would allow investors to directly trade and invest in financial instruments using the cryptocurrencies bitcoin or ethereum, without first converting to fiat.

The platform will initially host over 150 tokenized securities, tracking the underlying market price of financial instruments such as equity and commodities, it said, while over 10,000 similar offerings could be available in the future.

Currency.com explained that the service lets investors buy a token that would reflect the performance of, say, an Apple share on the Nasdaq stock exchange, at the “same economic costs and benefits of an Apple share.”

“To offer these capabilities, Currency.com leverages the technology of Capital.com, its sister platform regulated by the FCA [U.K. Financial Conduct Authority] and CySEC [Cyprus Securities and Exchange Commission], to offer users access to a tokenized version of a contract for exchange of a specific equity, commodity or index,” the firm said.

Currency.com said it’s “fully compliant” with “Decree No. 8 On Development of Digital Economy” of the President of the Republic of Belarus, which legalizes blockchain businesses, adding it follows anti-money laundering (AML) and know-your-customer (KYC) rules, as well as General Data Protection Regulations (GDPR).

The mobile trading apps of the platform, both iOS and Android, are expected to be available as beta versions from February.

This is not the first platform to enable trading of tokenized securities. Earlier this month, Estonia-based crypto startup DX.Exchange launched a trading platform allowing clients to purchase crypto tokens representing shares in different tech firms listed on Nasdaq. DX.Exchange’s customers will be able to use select cryptocurrencies, as well as fiat currencies to purchase the tokens.

Trading screen image via Shutterstock 

Posted on

Coincheck Wins Crypto Exchange License 12 Months After Major Hack

Japanese crypto exchange Coincheck, which suffered a $530 million hack in January of last year, is now a licensed entity.

Monex Group, the Japan-based online brokerage firm that acquired Coincheck for $33.5 million following the cyberattack, announced Friday that the exchange is now registered with the Kanto Financial Bureau, under the country’s Payment Service Act, effective immediately.

The license was approved by the country’s Financial Services Agency (FSA), on the basis of Coincheck’s improved risk management and governance systems with “concrete internal controls and customer protection in mind,” Monex said.

Following the massive hack of around 500 million NEM tokens in January 2018, the FSA had ordered Coincheck to strengthen its security systems and submit a business management improvement plan to the authority. At the time, the exchange was not registered with the regulator.

The breach also forced Coincheck to suspend its services for some months. Since then, the exchange has been phasing back in its operations. By November 2018, it had reinstated services for all listed cryptos on its platform.

Now with the license in place, Coincheck joins the growing list of regulated crypto exchanges in the country, including financial services giant SBI Holdings, which operates a registered platform called VCTRADE. U.S.-based exchange unicorn Coinbase has previously said it expects to become licensed in Japan in 2019.

All crypto exchanges in Japan came under anti-money laundering (AML) and know-your-customer (KYC) rules in April of 2017 when the country’s legislature passed the Payment Service Act and recognized bitcoin as a legal method of payment.

Over 160 firms are planning to apply for the crypto exchange license, the FSA said back in September, adding that it is looking to increase its staffing levels to speed up the review process.

Tokyo image via Shutterstock