How blockchains organizations are finding a business model with Initial Coin Offerings
Stellar co-founder is a genius
Jed McCaleb, one of Stellar’s co-founders, is most likely the only person who has built two crypto-currency companies at scale. Jed Co-founded eDonkey2000 in 2001, a p2p file sharing company. In 2010 he got excited by Bitcoin and the possibilities of decentralized currency and realized that it needed a marketplace to trade and so he created Mt GOX. Within three years it was handling more than 70% of the World’s Bitcoin transactions. After Jed sold Mt GOX, the exchange was re-coded by its owners and unfortunately hacked. After Mt GOX Jed founded what became Ripple. He brought on David Schwartz, Arthur Britto, and Chris Larsen to create this new network. Jed left after disagreements with Chris Larsen.
For a year, he was somewhat missing in action but made a swift return with his new brainchild: Stellar. Stellar uses the same open sourced code base from Ripple, but this time Jed was able to strike the deal with Stripe. He understood how a non-profit organization could serve the development of a cryptocurrency and a commercial ecosystem.
Stellar was born in 2014. Stripe invested $3 Million, which was repaid with 2 Billion Stellar coins called Lumens (XLM). The Stellar team attracted prestigious advisors like Patrick Collison, (Stripe), Sam Altman (President at Y combinator) and Matt Mullenweg (Founder of WordPress). Stellar is now poised to redesign how people interact with payment systems and banks.
Ethereum found a business model
We take a step back to 2014, where I met with Ehereum co-founders Vitalik Buterin and Gavin Wood at the Battery Club in San Francisco.
I remember how complicated the value proposition was back then. I understood it was based on the same technology as Bitcoin, but that this time the goal was to enable the recording of information in the blockchain through the creation of smart contracts. Several remote distant parties could agree and trust each other thanks to the reliable and distributed ledger. To record information in the blockchain, you would need to use Ethereum tokens. Even if I could have imagined the potential of such technology and the number of potential use cases, I admit it was hard to believe how this could scale.
The tipping point: Coinbase and ICOs
I understood that the Ethereum model was going to pivot in July 2016 when Brian Armstrong, Coinbase co-founder, announced that Coinbase was going to offer Ethereum along with Bitcoin. Since then Ethereum has started to gain real traction. At the same moment the number of Initial Coin Offerings started to grow. One year after in July 2017, Ethereum value had reached more than 50% of the Bitcoin cryptocurrency market capitalization and 100% of ICOs were happening through its blockchain. Together Ethereum and Coinbase had sparked a revolution.
Source: icostats.com via Forbes
Stellar has all the potential to become the next big ICO platform
Overview of Stellar
On a high level, Stellar connects banks, payments systems and people around the world. You can think of it as infrastructure for payments — designed from the start to make it easy for financial institutions to issue tokens representing fiat currencies.
Stellar also features a built in distributed exchange which allows people to not only buy and sell currencies like in a typical foreign exchange but also to seamlessly convert from one currency to another during cross border or cross currency transactions. It works like a distributed exchange.
What makes Stellar an ideal platform?
Liquidity
There are thousands of tokens being issued right now and each one is going to want to be issued on these 3rd party exchange. But the exchanges don’t have the capacity to list all these coins or they make you wait a long time or they charge a fortune. With Stellar you don’t need to depend on these 3rd party exchanges to list your token because Stellar’s built in distributed exchange allows you to list your token yourself as you issue it — that means you can have day one discoverability and transferability. Token issuers can customize tokens to satisfy securities, consumer protection and AML regulatory requirements. A Stellar token can also be added to a 3rd party exchange.
Performance
Stellar is significantly cheaper and faster than other protocols, including Ethereum (5 seconds median settlement time on Stellar vs 3.5 min on Ethereum for execution and secure confirmations). It costs 1 cent to make 100,000 transactions on Stellar.
Security
Stellar’s expressive but purposely limited system for smart contracts limits potential to write exploitable code. Ethereum has a Turing-complete programming language, which means you can write any complicated smart contract; whilst the flexibility is nice, in practice it allows the developers to write exploitable code. Anonymous hackers have stolen millions of dollars by exploiting vulnerabilities. The simplicity of the Stellar model helps avoid these situations. It’s ideal for applications that don’t require the full generality of Turing-complete smart contracts (which applies to the vast majority of ICOs).
Ease of Use
Launching a token on Stellar is super easy. Simple tokens can be created in a matter of hours and more complex ones take a day or two. Because Stellar supports simple programming, you don’t need to hire expensive solidity smart contract developers. Investors can also participate in Stellar-based ICOs using ETH or BTC just like they’re used to.
Mobius, Stellar’s first ICO
The first ICO to happen on the Stellar blockchain is mobius.network. Mobius was co-founded by David Gobaud, it is a sort of middleware for app developers, enabling the creation of decentralized apps, these are called “DApp”, to avoid the GooglePlay and AppStore pay tolls and to also link easily to different blockchains. They define themselves as the Stripe for blockchain. For Mobius Stellar offers a level of expressivity that’s very practical with significantly greater security and lower attack surface compared to Ethereum, plus transaction speeds and cost are highly attractive.
The difference is this time there is no major consumer friendly exchange like Coinbase that is selling Lumens but Bitcoin and Ethereum holders can easily buy Lumens on the major exchanges like Kraken. Since the market cap and the number of people who started to buy crypto has increased since a year, the first ICOs on Stellar should attract a lot of Ethereum and Bitcoin holders.
A big thanks to Katerina Stroponiati for her help on this post.