How ATOM Went From Fundraising Initiative to a Vital Part of the Blockchain Ecosystem

FACTS

VIII. THE CRYPTO ASSETS TRADED ON THE BINANCE.COM PLATFORM AND BINANCE.US PLATFORM INCLUDE ASSETS THAT WERE OFFERED AND SOLD AS SECURITIES.

E. ATOM

427. “ATOM” is the native crypto asset of the Cosmos Hub. The Cosmos project was launched in 2017 by Jae Kwon and Ethan Buchman. According to Cosmos’ website (https://cosmos.network), Cosmos is an ecosystem of blockchains designed to scale and interoperate with each other, and the Cosmos team aims to “create an Internet of Blockchains” or “a network of blockchains able to communicate with each other in a decentralized way.” Cosmos is built on a proof-of-stake consensus mechanism.

428. The Cosmos Hub is a central blockchain that provides services to other blockchains connected to it, including “the largest interchain token exchange, shared security through interchain security, bridges to ethereum (ETH) and bitcoin (BTC), and secure custodianship of digital assets.” Cosmos described the Cosmos Hub as “the first hub among many hubs that [w]as launched within the Cosmos Network of sovereign blockchains.”

429. ATOM is described as “a license for the holder to vote, validate, or delegate to other validators” and “can also be used to pay for transaction fees to mitigate spam.”

430. In 2017, the Interchain Foundation (the “ICF”) (a Swiss non-profit organization of which Buchman is President) sold ATOM by conducting what it termed the “Cosmos Fundraiser” to collect so-called “donations” for the development of the Cosmos network. Pursuant to this offering, participants received ATOM tokens in exchange for BTC or ETH. The ICF offered ATOM at a value of $0.10 per token, with a 25 percent discount on that price for partnering “strategic funders” and a 15 percent discount for individual “Pre-Fundraisers.” By April 2017, ICF had raised approximately $17.3 million in BTC and ETH through its “fundraiser” by selling ATOM tokens.

431. At least four entities are currently or have been significantly involved in the development of Cosmos: (1) the ICF, which was created in 2017 by Kwon and Buchman, and— according to Cosmos’ public website—was formed “to support the development of Cosmos and the ecosystem that will contribute to the Cosmos Network”; (2) Interchain GmbH, LLC, a German limited liability company and subsidiary of ICF, which employs a team of approximately 35 software engineers and operations personnel working primarily on the Cosmos network; (3) All in Bits, Inc. d/b/a Tendermint (n/k/a Ignite, Inc.) (“Tendermint”), a Delaware corporation created by Kwon and headquartered in Berkley, California, with which the ICF contracted in 2017 “to develop the initial portion of the CESS [Cosmos Essential Software and Services]”; and (4) NewTendermint, Inc., a Delaware corporation of which Kwon is CEO and which supports and develops the Cosmos ecosystem.

432. In February 2022, NewTendermint was spun off from All in Bits, Inc. (d/b/a Tendermint), which, at the same time, was rebranded to and became Ignite, Inc., which has focused on developing products and developing tools “to onboard the next wave of developers and crypto enthusiasts to Cosmos.”

433. ATOM has been available for buying, selling, and trading on the Binance.com Platform since April 2019, and the Binance.US Platform since October 2019.

434. The information publicly disseminated by ICF, Kwon, and Buchman has led ATOM holders, including those who purchased ATOM since April 2019, reasonably to view ATOM as an investment in and to expect to profit from ICF’s, Kwon’s, and Buchman’s efforts to grow the Cosmos protocol, which, in turn, would increase the demand for and value of ATOM.

435. The ICF collected and pooled the $17.3 million raised from investors in the Cosmos Fundraiser. In promoting the Cosmos Fundraiser, the ICF represented that the funds raised would be deployed to develop the Cosmos network. For example, the March 31, 2017 “Cosmos Plan” posted on the Cosmos GitHub page provided that the raised funds would be used “to contract with entities”—including Tendermint—“and their agents for the development of the Cosmos Essential Software and Services (CESS) and to help foster a community around CESS.” The ICF later disclosed how they spent investor funds, for example in a 2019 post, “Projects Funded in 2018” posted to the ICF’s public GitHub page.

436. In the 2017 Cosmos Whitepaper and “Fundraiser Plan” (both of which were publicly available on the Cosmos website), Kwon and Buchman described the Cosmos Fundraiser and said that the 236 million ATOM tokens initially minted would be distributed: 10% to the “Cosmos Network Foundation” (the ICF), 10% to All in Bits, Inc. (Tendermint), 5% to initial or “lead donors,” and 75% to “the donors of the Cosmos Fundraiser” (investors).

437. In public statements on the Cosmos and ICF websites, including statements made and available during the period when ATOM was available to trade on the Binance Platforms, the ICF described its expertise in developing blockchain networks and the efforts it and related entities (including Interchain GmbH and Tendermint) have made and that they will continue to make to develop the Cosmos network and attract users to the technology. For example:

a. Cosmos’s website stated that “Cosmos is supported by the Interchain Foundation” and identifies Tendermint, Interchain GmbH, and 15 other “Cosmos core development teams”;

b. The ICF website stated that it “funds, stewards, and responsibly advances the Cosmos ecosystem” and its “core teams maintain the protocols and applications” in the “Cosmos tech stack” (including Cosmos Hub and Cosmos SDK), and identified 35 “Team” members, including Cosmos Hub and Cosmos SDK project, strategy, and developer relations leads, and software and developer relations engineers,” that “[w]e help support projects like the Cosmos Network,” and that with its “Engineering and Product” work “[w]e are primarily interested in general purpose technologies that expand the environment, capabilities, and security of the Cosmos ecosystem”;

c. The 2019 “Projects Funded in 2018” post on the ICF’s GitHub page (referenced above) identified grants, service agreements, and investments to develop the Cosmos network in 2018; and

d. The ICF website has touted the “Builders Program,” which supposedly “provides mentorship, structured support and access to a wide network of partners”; “is led by a team experienced in building the ecosystem’s software and infrastructure”; “is made by builders for builders, linking together our team of entrepreneurs, software engineers and designers with years of experience in building and launching chains”; and is a vehicle for ICF to “help teams navigate the ecosystem by giving access to our large network of investors, exchanges, custodians, auditors, development and design agencies, data providers and infrastructure partners.”