Tezos Has a New Board, But What About the Money?

Tezos may be embroiled in a back-room brawl, but what does this mean for the funds raised at ICO? The answer to that question isn't so clear.

AccessTimeIconFeb 2, 2018 at 5:00 a.m. UTC
Updated Dec 12, 2022 at 12:42 p.m. UTC
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The on-chain governance protocol Tezos, long stalled by its own crisis of governance, lurched forward in several notable ways this week.

To begin, Johann Gevers, president of the Swiss-based Tezos Foundation kicked off events by publishing a blog post outlining his intent to use the project's proceeds to hire operational staff (before later deleting it). Then on Wednesday, the foundation announcedhttps://tezosfoundation.ch/news/tezos-foundation-appoints-new-board-member/ it had named a new board member, Lars Haussmann, to replace a seat left vacant in December.

Not to be outdone, that same day, a grassroots group aiming to empower the project's founders, a husband-and-wife team who have long been at odds with Gevers, set their own chess pieces in motion. As reported by the Wall Street Journal, a new Swiss Foundation, called T2, will launch with the intent of charting an alternate path to market. (The T2 effort actually consists of two organizations, a foundation and an association).

Taken together, the events mark the latest phase of a drama that began in July, when Tezos raised $232 million, a record fundraising at the time, in an initial coin offering (ICO).

According to the WSJ, the Tezos Foundation has control of those funds, denominated in bitcoin and ether.

But what's less clear is what a new foundation could do to assert control over the funds.

"In the short term this is really just to show that the community has a real voice and say here. It's been very clear to me that the community and the foundation are not in line at all," Polychain Capital founder and T2 board member Olaf Carlson-Wee told CoinDesk.

Carlson-Wee said that he had previously applied to be a member of the Tezos Foundation but was rejected, a move that led him to join T2's seven-member board.

The T2 Foundation was formed by Ryan Jesperson, a member of the Tezos Community who explained in a YouTube video Thursday that he personally funded hiring a Swiss attorney to represent Tezos backers to the authority that supervises these organizations in the country.

He explained to CoinDesk:

"We hope that the Foundation Authority will help fix the situation. That is part of the purpose of the Foundation Authority, to make sure that Foundations fulfill their charter."

Nuclear option

Regardless, T2 has something of a nuclear option available to it.

While the Swiss-based Tezos Foundation controls all the contributions made in the ICO, Dynamic Ledger Solutions (DLS), the corporate entity for the project's creators, holds the keys to something that might ultimately prove more valuable: the technology's codebase.

Along with today's announcement, the T2 Foundation published an FAQ as a public Google document, and in that document, it proposes a radical option – that DLS would release the codebase with the same genesis block as planned.

In this scenario, everyone would get the Tezos tokens they paid for, but the reserve tokens (10 percent of the total pool, vesting over four years) would be turned over to the control of T2 rather than the Tezos Foundation.

If that happened and T2 took over supporting development, "resources would not be a problem," Jesperson wrote.

That is, assuming that DLS goes along with the plan and is legally capable of doing so under its "contractual agreement" with the Tezos Foundation. (Neither DLS nor the Tezos Foundation responded to requests for comment from CoinDesk.)

Jesperson said, "This is a grassroots driven effort, but DLS is aware of what is happening and will ultimately make the decision on what they want to do."

T2 would prefer for Tezos to proceed as originally planned, provided the community supporting it gets more of a voice.

Jesperson added:

"This is not about one foundation being right or wrong, it is about preparing a place for the network to launch and making sure that resources are used for their intended purpose, to support the Tezos protocol."

What's gone wrong?

Still, it's hard to see how likely the scenario above may be. For one, CoinDesk has been unable to confirm how much funds have or have not been distributed by the foundation to DLS for development of the protocol.

"To me there's two legitimate paths: one is you allocate resources and support the community," Carlson-Wee said. "The other path is don't do it, and be extremely transparent about why."

However Carlson-Wee argues that the Tezos Foundation has taken a third path: not allocating resources and not explaining why.

Some of the most needed resources cost little or nothing, he argued, saying that such a project should have basic community building, at a minimum: meetups, conferences, newsletters and blog posts. Additionally, it could also benefit from grants for beneficial but less lucrative projects, such as developing block explorers.

None of those things have happened. If the T2 Foundation isn't able to accomplish anything else, it should be able to start moving some of that community building forward.

Of course, it's essential that community has a protocol to organize itself around. Carlson-Wee has been watching the developments of Tezos codebase closely, via Github and the developers' weekly YouTube posts.

"Given the circumstances, I think it's pretty impressive what they've accomplished," Carlson-Wee said. 

How it ends

In the background, accusations in the community have gotten heated. The Tezos Reddit, for example, has crowdsourced a professional history of the Tezos Foundation's president and former business partners published a similar account on Medium.

Meanwhile, the Tezos Foundation itself has launched a website that doesn't appear in the internet archive before Feb. 1, and all Gevers' old blog posts have been deleted from Medium.

All the while, class action cases against DLS and the Tezos Foundation have been stacking up.

Stephen Palley, an attorney with Anderson Kill in Washington who has long observed Tezos, asked whether the T2 founders were "thinking of how it will look in light of the pending litigation" in a phone call with CoinDesk.

All of the documents and accusations released in the public sphere can be submitted as evidence to the fact that this is a project in disarray, he argued.

"On the contrary, T2 gives all of the contributors more confidence that one way or another the Tezos network will launch and the lawsuits will be dismissed," Jesperson argued.

With a larger board and with more robust dispute resolution procedures, he believes T2 has been designed not to be beset by the Tezos Foundation's trouble.

"The most important part of the project, the code, is getting close to being ready," Jesperson wrote.

Carlson-Wee agreed, arguing that DLS's work is too far along to justify the lawsuits proceeding, concluding:

"I think before anything really comes of that the network will go live."

Image via Swissinfo.ch


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