GAW Miners and the Disappearing $20 Paycoin Floor
At issue is that, in contrast to bitcoin's decentralized network, in which no companies or entities have overarching control of the market, paycoin could arguably be seen as a more centralized alternative.
In addition to managing the development of the decentralized paycoin currency, GAW Miners operates a paycoin brokerage (PayBase), an exchange for the currency (Coin-Swap) and a network of coin-generating wallets – an ecosystem that many suggest counters the decentralized spirit of the cryptocurrency movement.
Opponents claim that GAW Miners and its CEO, Josh Garza, reneged on promises to back the coin at $20 on the open market, as well as a broader commitment to provide a mechanism – the floor – that was meant to shield it from market speculation.
By contrast, GAW Miners argues that the plan to ensure customers can "use your paycoins in PayBase at a $20 value” was attacked by groups opposed to the success of its project. GAW has since issued a statement on the subject of how the $20 valuation was reached.
Furor over the floor support and $20 value recently dominated the front pages of r/bitcoin and elicited comment from several notable figures in the industry.
Since then, the company has seen businesses like exchange service ShapeShift drop support for paycoin, while a growing chorus has called for Garza to cancel an appearance at the North American Bitcoin Conference in Miami, Florida, of which it is a sponsor. Sensitive customer information was also exposed during a PayBase security failure on New Year’s Eve.
Complicating the situation has been the sometimes rabid anti-GAW sentiment that has pervaded bitcoin websites and forums. In turn, the company's backing by experienced inter-dealer broker Stuart Fraser, confirmed by the Wall Street Journal, casts doubt on accusations the company is a scam.
Underlying the debate is a lack of clarity among some in the community on whether GAW and Garza definitively committed to the floor and its $20 value, and if they did, how long such a price support mechanism was meant to be enacted.
Signs that GAW staff and representatives have edited, deleted or restricted access to content that could prove significant to the ongoing discussion have also complicated matters.
Ultimately, the plan to institute the floor was put aside after what the company described as uncontrollable paycoin sales volume and concerns that GAW could be held liable for manipulating the market should it become more involved with its actions in the market.
A review of posts from Hash Talk, as well as insights gleaned during a new interview with Garza, suggests that GAW actively used language that was likely to invoke the idea of both the floor and the $20 value when pitching the project.
By directing the development of the coin and establishing an online platform that conducts market operations across all exchanges, GAW sought to make known its strong presence in the market.
In the run-up to the launch of PayBase, Garza divulged market movements, indicated that so-called "whales" were about to enter the market, and used language that, while inconclusive but unquestionably energetic, is suggestive of the pump-and-dump culture that GAW said it sought to fight with paycoin's stability mechanism.
Forum posts suggest that GAW had reason to suspect that customers and observers were perhaps misunderstanding GAW's claims regarding its intentions in the market, as well as the relationships that would add value to its core products. However, the firm did not act to put the record straight.
The misconceptions extended past paycoin. The idea that retail giant Amazon may partner with GAW to accept paycoin for purchases in particular had been circulated by Hash Talk users, but according to Garza, GAW opted not to correct prior misconceptions about the anticipated partnership because “we thought it would add more issues to things, so we just ignored it and just moved forward".
“What was happening at that time behind the scenes, we bought a company at the time that made that announcement that had the relationships with those merchants to be able to allow us to technically or programmatically be able to fulfill those purchases.”
Garza's comments suggest that perhaps overenthusiastic community members could have also played a role in shaping the public discourse about its market movements.
“That was another miscalculation,” he continued. “I didn’t realize that people would continue to talk about it over and over and over and it would snowball into something much bigger than we intended it to be.”
GAW's original post on the subject of the floor could be seen as an indicator that it was aware that perception about the project was perhaps being distorted.
Origins of the floor
Garza told CoinDesk that GAW never explicitly committed to buying paycoins at $20 without question.
He suggested that assumptions about the floor mechanism spread among customers and acknowledged that GAW “should have done a better job of managing” customer expectations about the exact nature of the stability mechanism. Today's statements could be seen as a move to correct this.
Garza informally announced a public offering of what was then known as 'hashcoin' for a suggested price of around $20 in late October.
During this period, more details about the coin emerged and a development roadmap was released that included the $20 public offering price.
Plans for a coin adoption fund were also disclosed. According to the plan shared with customers prior to the launch of paycoin, the fund's purpose is to “provide a safe floor price”, as well as facilitate other projects like developing apps, building data centers and developing relationships with merchants.
On 28th November, a question-and-answer session hosted by Garza on Hash Talk focused on GAW's HashStaker service and involved another reference to both the market floor support and indications of a $20 value.
The floor in action
On 22nd December, Garza published a post on the company’s Hash Talk forum entitled 'Spread the Word' in which he referenced the much-discussed $20 floor he and his company have invoked both prior and since to the launch of paycoin.
In the post, Garza told users that the company was beginning to institute the floor:
The use of these measures was first disclosed on 22nd December, when Garza indicated that trading bots controlled by GAW were actively participating in the paycoin market on cryptocurrency exchange Cryptsy.
At 2:40 AM EST, Garza wrote:
“Just made another wall on cryptsy,” he wrote one minute later.
In a currently restricted post entitled “GAW is About to Move the Market”, Garza outlined the push in some detail:
That morning, Garza wrote that GAW would be using its resources to push the price higher than the $20 floor and suggested that the purpose of doing so was to avoid technical challenges.
When asked about disclosing the PayBase purchases to customers, Garza argued that leaving indications about the deployment of market-stabilizing mechanisms was "appropriate", telling CoinDesk:
“I think that if you’re going to go out and buy a significant amount of paycoins and you have a community that is invested in paycoins, it seems appropriate to let them know. There’s a good chance that that’s going to change the price because of how many you need to buy, it seems appropriate to let them know that before you do it, so they have the opportunity to purchase more or sell them if [they] want to.”
“We’re in the kind of a unique position because we’re aligned with the coin,” he continued. “Unlike BitPay or Coinbase, where the coin that they use in their system is independent of them.”
On the 22nd, Garza also pointed to the involvement of large investors with outsized influence in a marketplace owing to their significant buying power, telling Hash Talk users that undisclosed market movers were getting into the market.
“I just had all our 'whales' contacted,” he wrote. “They are moving in.”
Garza told CoinDesk that the whales constitute a network of individuals connected to GAW composed of those “significantly invested in paycoin”, noting:
“It’s a touchy situation, because we don’t want to get into a scenario where we’re making large purchases behind the veil without letting people know because if we do that, we think we could see a reason why a customer would have a problem with that.”
“Every time we’ve done a significant purchase, or a significant sale, we’ve let customers know about it,” he said.
On the 22nd, customers received an email from GAW's cloud mining platform, ZenCloud, which said that the current market conditions were “the last opportunity” before the market floor was expected to be put in place. That night, GAW announced it would delay the launch of PayBase.
In a post that, at the time of this writing, is unavailable for public viewing, Garza outlined the reasoning for the delay and emphasized the promise of the project, including a commitment to charge no fees at launch. He also suggested that the trading methods previously deployed would be temporarily slowed until the PayBase launch.
Garza told CoinDesk that early market activity using the trading bots was, at the time, a process to acquire paycoins prior to the launch of PayBase. Garza stood by the decision to both inform customers about the market deployment, and called the move by PayBase to end plans for a hard floor “a way to clarify our position”.
“We want to send a clear message that the value of paycoin ultimately needs to be driven from the utility and use of paycoin, versus doing one thing on one market versus another,” he said.
Twilight of the floor
On 30th December, Garza posted on Hash Talk that he would cease providing information on GAW’s actions in the paycoin market. However, he alluded to preplanned market support prior to the PayBase launch, writing:
The next day, PayBase beta invites were distributed to users. In a launch message posted by Garza, he stated that GAW had “moved the market” and was honoring the $20 price.
“As of this writing, we have moved the market to above $20 to create the floor, just like we said we would,” he wrote. “Should there be a rush on PayBase, we will hold the value of paycoin with our existing resources.”
In a post later that day, Garza outlined how plans to keep the floor at $20 were disrupted by high selling volume on the PayBase site, as well as a coordinated effort on the part of malicious actors to drive the price below the floor using previously accumulated paycoins, citing evidence collected by GAW staff.
Documents provided to CoinDesk by GAW point to posts by a Bitcoin Talk user bragging about past and planned market actions, as well as IRC comments outlining the potential for investors to sell in big numbers amid market highs.
Garza wrote to customers at the time:
“I always said two things. We would buy paycoins at $20, or we would use our resources to manage to $20. They both mean the same thing. We will do everything in our power to make the price $20. And that's what we are doing.”
He disclosed that GAW had expended significant amounts of money during the process and implored customers to decide whether they supported the long-term vision of paycoin.
“I’ve made my choice,” he concluded.
In the following days disagreements rose among customers of GAW, as well as observers in the cryptocurrency community, as to whether the company was turning its back on a commitment to keep the price at $20.
It was during this time that calls for Garza to drop out of his speaking slot at The North American Bitcoin Conference first arose, prompting organizer Moe Levin to ultimately arrange a question-and-answer session, which is set to take place during the Miami-based bitcoin conference.
On 3rd January, ShapeShift announced that it would be withdrawing support for paycoin. The exchange stated that GAW had failed to fulfil “a guarantee” to shore up the value at $20. The move followed calls from some community members to boycott exchanges that listed paycoin.
“People make business mistakes all the time, and it doesn't mean its a scam,” ShapeShift founder and CEO Beorn Gonthier told CoinDesk at the time. “But deleting former promises is unacceptable, and we couldn't in good conscience continue listing paycoin on ShapeShift.”
The growing fallout has also ensnared at least one exchange that previously saw significant paycoin volume. Coin-Swap, which according to a recent CryptoCoinsNews report was purchased by GAW, received requests from representatives of several altcoin communities to have their coins delisted from Coin-Swap.
Representatives from the blackcoin, dogecoin, litecoin and neoscoin communities cited concerns that GAW would use its ownership stake to influence the price of paycoin.
Pete Rizzo co-authored this report.
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