Blockchain startups make the news for many reasons, not all of them good. Claims of scams, fraudsters, and charlatans are rife in the industry.
So how does an investor know which ICO or token generation event to back?
Today, BlockEx, which provides a financial exchange platform for blockchain-based digital assets, announced it has raised over $24 million (€20 million) in presale and institutional investment. The problem this platform solves? It promises to give investors access to a large variety of high-quality ICOs with institutional procedures and standards, operating much like the standard financial securities market.
BlockEx has also announced the upcoming launch of its ICO for its Digital Asset Exchange Token (DAXT). The sale will begin on February 10, 2018.
The DAXT is the utility token used to access the BlockEx ICO Market. Holders of DAXT will be able to get exclusive access to the presale feature for ICOs that feature in BlockEx’s markets, as well as other BlockEx services.
But how does BlockEx know which ICOs are legitimate and likely to turn into something tangible?
“This is a multi-stepped process,” BlockEx CEO Adam Leonard told me. “One step is for the issuer to provide us with a legal opinion that the issue is a utility token. We research the team and speak to the advisers to gauge the legitimacy of the people attached the projects. Are the employees/advisers really involved with the company, and if they are, are they working or just accepting tokens in exchange for their name attached to the project?”
The due diligence process continues with a technical review of the startup.
“We review the white paper and business plans to decide whether the project is financially feasible,” Leonard said. “We force all ICO issuers to subscribe to a set of governance guidelines we have adopted from our regulatory business plan. We have third-party legal teams, accountancy firms, and fiduciaries that help with four-eyed checks, and we use third-party security companies to audit the smart contracts.”
In addition to that scrutiny, BlockEx still employs good old-fashioned checks and balances before adding the startup to its exchange.
“In the end, we use all this information to decide if we will still work with the company,” Leonard said. “In some cases, an ICO has checked all the boxes, and we still took a pass. The very final test, the very last question we ask ourselves before saying yes to a company doing an ICO or token offering is ‘would we sell this to our mothers.’ Even if the company checked all the boxes, if we would not let our mothers buy it, it won’t go on the platform.”
So what is next for BlockEx as it prepares for its ICO?
“BlockEx is currently working on its FCA sandbox test, we are issuing traditional cash bonds on the platform leveraging the benefits of blockchain technology,” Leonard said. “This product we have called the “digital asset creation tool,” or DACT. We have partnerships with Open Text to roll out supply chain finance, leveraging our platform and blockchain technology, and we have a partnership with a government research arm in Asia to build out syndicated loans using the same DACT and DAXT. Additionally, we have nine brokerage clients who are in the process of going live with our white label brokerage software and 10 ICOs launching in Q1 2018.”
The funds announced today have come from accredited token buyers in a private sale. This includes some individuals, some crypto hedge funds, and family offices. Part of that $24 million has come in via traditional institutional investors for equity purchase.