Trouble For Tezos

Trouble For Tezos

When Tezos launched, their ICO took in $232 million USD equivalent in a mix of Bitcoin and Ether, which has since appreciated to nearly double that value. The funds are controlled by a Swiss based foundation run by 52 year old South African expat Johann Gevers, who is at odds with the Tezos creators, 35 year old French born Arthur Breitman and his American wife Kathleen, now 27, who met and currently live in New York.

The Tezos software project is owned by Dynamic Ledger Solutions, a Delaware LLC controlled by the Breitmans, while the ICO funds are controlled by the Gevers. Draper Associates provided $1.5 million in early funding to DLS in exchange for a minority stake. When asked about his stake in the Tezos ICO, he said “You mean how much I bought? A lot.”

The foundation is required to be independent of DLS under Swiss law, but the Breitmans are attempting to oust Gevers by enlisting the two other members of the foundation's three person board. The other board members have suggested the Gevers step down for a month while they investigate, but per Reuters reporting he characterizes the move as “an illegal coup”.

The origin of Andrew Breitman's relationship with Kathleen McCaffrey provides a clue to the seeds of the conflict. Their first meeting was at a crypto-anarchist lunch and he is still listed as an organizer for the New York Anarcho-Capitalist Meetup and which self-describes as “a type of radical libertarianism that favors the abundant wealth production, rapid technological development, and high standards of living produced by capitalism.”

They selected Crypto Valley, a nickname given to the Swiss municipality of Zug, as their European location, and then took the unusual step of using a foundation, which denotes a non-profit entity, as the vehicle to hold the funds. While not specifically illegal under Swiss law, per the Reuters article, an expert on foundation governance characterizes it as irregular, and speculates that the authorities will ban the practice.

The funds were raised under the premise that they were a “non-refundable donation” to avoid the authority of the U.S. Securities Exchange Commission, but none of the people who put up money view it as anything other than a speculative investment. Given the curious structure, with the intellectual property held by a U.S. Limited liability company and the funds held by a Swiss non-profit operating outside the normal bounds, this seems like the sort of thing that should have been spotted as a risk right from the start.

These radical Libertarian views are quite common in the cryptocurrency world, but the hints here would seem to spell trouble brewing with the SEC or IRS. This $232 million ICO is the largest ever, making it precisely the right place for U.S. Authorities to make a statement.

We spoke to an early Tezos enthusiast who got 3600 for about $1500 USD worth of Bitcoin. The futures on them are worth about $6700, after peaking at $9500. This is a small part of their portfolio and they say they are holding and hoping.

We are hoping that this dispute resolves in a satisfactory way for all parties involved, as that would be best for them, as well as for the rest of us in the cryptocurrency sector.