While others settled this year, Ted Livingston chose to fight.
Whether he was brave or foolhardy to fight is an open question. People disagree about whether he can win and whether he’s been responsible to his staff and investors in fighting, because they’ve lost fortunes in the conflict. But this is certain: The 32-year-old founder of Kik and kin didn’t take the easy path. He stood by a principle, even as an industry that claims to stand by principle looked the other way.
Some background. Livingston is the Canadian founder of Kik Interactive, a messaging app that gained one million users in 15 days when it launched in 2010, well before rivals like Facebook Messenger got off the ground. By the time Tencent, the Chinese internet giant, invested $50 million in the summer of 2015, Kik was valued at $1 billion. Then, in 2017, Livingston made a fateful decision. Rather than raising more VC money, he launched an ICO, selling off kin tokens for more than $100 million.
Fast forward to the winter of 2019 and Kik is nothing like a unicorn now. Livingston recently sold off Kik to MediaLab, which operates Whisper and other apps. He’s all-in on kin, even though few apps transact in the cryptocurrency these days, and only one mid-sized exchange will list it. Meanwhile, Livingston is spending what remains of his cash pile fighting the U.S. Securities and Exchange Commission (SEC), which continues to crack down hard on the excesses of the 2017 run-up. The SEC says kin is a security and that Kik broke the law in hosting an unregistered token sale. Livingston says the SEC is wrong and he’s willing to prove it.
"We are getting sued by the SEC. We are going to go to court to fight them. We believe they are wrong," he told us. Several times, and in different ways, he asserted: "It's not that we did something wrong. It's that we did it first."
"Somebody had to lead the good fight. This is the good fight," said William Mougayar, an investor in kin and one of two board members of the Kin Foundation. "What they are doing right now with the SEC is quite brave. No single company has had the courage to take on the SEC on its own."
The chess board
We spoke at length recently with Livingston during a visit to Toronto.
The Kik office, a Canadian spin on WeWork called Workhaus, has all the hallmarks of a coworking space: hunched private rooms, people working at tables bigger than they need, prints on the walls in Pantone’s least intense color swatches.
Livingston is genial with a big voice and a big personality. But, like a politician, he speaks heavily from well-worn personal scripts and laughs like he wants you to know you just scored a point. He’s got a winning way, but you also always have that sense that he's winning, as if he’s selling something, even if you don't understand what he wants you to buy. So, you can't help but wonder at the end of the conversation what you might have bought.
He's a big guy: tall, fully shouldered, but with soft features and hair kept short enough that he doesn't have to think about it. He's known, like many tech CEOs, for wearing a uniform (a hoodie and a plain t-shirt). He’s Canadian, but wired to Silicon Valley. When it came time to grab something to eat, he couldn’t join in because he’s doing the one meal-per-day thing that many tech founders, including Twitter/Square's Jack Dorsey, have bought into lately.
Livingston believes his number one talent is seeing the moves on the chess-board-of-life faster and more clearly than his peers. "I’m able to very quickly work through options," he said.
"He’s the main product architect," said Mougayar. "He's a really good visionary. One of his biggest strengths is to become really passionate about his vision."
Which sounds like bluster, except that Livingston has built several successful networks before, only to have those networks either sabotaged or taken away from him.
The first time he had big success came when the Kik app went live in 2010. Within weeks, Blackberry’s owner Research in Motion, where Livingston had worked, sued Kik for "patent infringement" and kicked the app off its network, killing its momentum.
Kik’s second resurgence came in 2011 and 2012. Then Facebook put out a standalone chat app on mobile. Everyone moved onto Messenger or Instagram instead of Kik and Menlo Park did something Waterloo never had: tracked users, analyzed their habits, and badgered them with ads.
"We learned a lot about when these big organizations are threatened and how to respond," he said. Livingston argued that Kik was the first to the notion of a super app, a messenger as a platform that includes other services. WeChat has perfected this in China and messengers like Line and Kakao are following its lead. They have also launched their own kin-like cryptocurrencies. Now Signal, Telegram and the Facebook Messenger-WhatsApp-Instagram trifecta are all following again in different ways, or at least they are trying to. Both Telegram and Facebook are bogged down with regulatory issues, at least for now.
Livingston said he’s most proud of “our consistent ability to predict something about the future, to be contrarian and have it ultimately be right.” He made this point several times. Sometimes he ascribed this ability to his company, sometimes to himself. It seems like the difference between the company and the man isn't a big one.
According to the most recent report on kin user activity, 800,000 people have used it at some level in the last month (as of writing in November) mostly in amounts that come out to much less than a penny. Kin has 80 apps in the system, though probably only a handful with real user-bases. Still, that's a nice start.
So kin has led people in, just as Kik led people into new spaces before it. Back when the web was still on version 2.0, Kik was one of the first cross-platform mobile messengers. WhatsApp beat it to market, but Kik kept evolving its user experience. When Lana del Rey was still blowing up her “BBM Baby,” the tweens were moving over to Livingston's app – because: stickers.
Kik got immediate traction after launch. Then RIM robbed it of roughly a third of its audience, which was enough that users who still had access on iOS and Android didn't want to stick around.
Blackberry followed up the ban with a lawsuit alleging patent and trademark infringement and that dispute informs everything about Livingston's approach to the SEC now.
The Blackberry case took three years and then it just ended unceremoniously without ever going to court. It wasn’t the case that hurt so badly. It was the time it took to play out. All of this explains Livingston's determination to fight the SEC now. He took the lawyers’ advice to stay quiet before and it ended badly. Now he wants it all over as soon as possible.
Livingston wouldn’t say it this way but it seems likely: Kik's rope is short enough now that going hard against the SEC could wreck it, but just letting it play out almost certainly will too.
This will be the third time he has risen up only to be knocked back down by someone or something much bigger. He has been “the first through the wall” again and again and he’s always got bloodied. The latest wall he’s breached is U.S. securities laws, but he’s done so amidst a wave of other companies that want to try some version of what Kik tried.
As Livingston asserted his right to launch a cryptocurrency on a messenger app, he expected the industry to support him. But it largely hasn’t.
For instance, the industry's think-tank/lobby group, Coin Center, offered its analysis on the Kik case in June and it doesn't like it. Nothing about it, it argued, turns on law. It all comes down to facts and Coin Center doesn't like Kik's facts. "We wonder whether this is the best case for those seeking to set a precedent that clarifies Howey in the context of token sales," it laments. (The Howey Test being the Supreme Court precedent for clarifying whether transactions qualify as investment contracts.)
"I think one of the things that has been disappointing to me is how little the crypto industry has decided to speak up," Livingston said. "We thought others would speak out behind us. And almost nobody really did."
The SEC declined to comment for this story.
If the case gets there, the courts will decide Kik's fate on the law, but everyone else gets to decide something much more important: Was its token sale the right thing to do, or not? Which is more important, the letter of the law or the point of the law?
The point of securities law is to protect regular consumers and make sure people don't take on undue risk or get hurt by fraudsters. And it's not clear that people have been hurt by the sale of kin. No one has alleged that in a substantiated way yet. It's fair to ask whether the regulations have protected users from more wealth they might have gained instead of wealth they might have lost.
Livingston recognizes that regulators need to err on the side of caution, making sure regular people don't get screwed or get in too deep. He just wants different ways to make sure that happens.
"This is where we think there should be some thresholds. This is something I think crypto could do pretty well. You could prove to us how much bitcoin or ethereum you actually have, such that you should be able to put a part of that toward projects that you believe in," Livingston said.
The consensus may one day come down on Livingston's side (on the ethics, if not the law), but that could be cold comfort if his company doesn't survive.
So, Livingston continues to fight, both the SEC and data-ravenous companies like Facebook, which he believes are fundamentally unethical.
Livingston would argue he is still leading one way, anyway, as the open source, non-invasive super-app that can provide the same services as Facebook builds, but with less creepiness attached.
"Mark Zuckerberg wants to build the WeChat of the world. It's the operating system for daily life," Livingston said.
Livingston does not like Zuckerberg. He does not like the idea of his company having so much power.
"That's why, to me, I fight hard every day to build kin, to build a competitor to that global operating system that is not only controlled by – not one person – but is controlled by no person."
He sounds happy that Kik is in the hands of MediaLab. “The idea that the app is owned by someone who really cares about it,” and someone who intends to continue to use kin with it, is a “great win-win,” he said.
Years ago, before Kik had ever talked about crypto publicly, he spent some time with Pavel Durov, founder of VK.com (a Russian Facebook clone) and Telegram (an app that's much like Kik or WhatsApp). While neither of them discussed any sort of token ambitions, they did talk about Kik’s frustration at trying to survive in a world with a giant like Facebook.
Durov's advice, according to Livingston, was: “You need to out-small them.”
Being distinct, agile and creative in ways a giant like Facebook couldn't manage was the answer, Durov suggested. It would be Kik's answer. Kik just had to let go of almost all of its staff, going from 151 people to only 18. Durov went through something similar when he left VK and started Telegram.
Durov told Livingston that he found it liberating to go back to a small staff. It meant he could be part of the work again. Livingston says he feels the same way now. He's surrounded by the best of the best from his former team, a once unicorn company now functioning out of a coworking space like a startup living on a modest seed round.
"At a team of 18, I have the freedom to do it again," Livingston said.
He still sees the bright side. "Despite all those challenges, we are ahead. Libra is not in market. It seems to be blocked. TON is not in market. It seems to be blocked."
And though he may no longer run the app that’s kept his company going for a decade, that doesn’t matter to Livingston anymore. He said “kin is growing.”
Kik would have been happy to take a settlement that Block.One, which develops EOS, got. In other words, a settlement where Kik was found at fault, paid some kind of fine and the SEC left it to go on its way.
But for Livingston to sign off on a consent order, he “needed them to say kin was not a security," Livingston said.
This was the moment the two armies could have come together and agreed terms, but they didn't. Instead, the SEC, like Goliath, threatened Kik with single combat, this time in front of a judge. Like David before him, Livingston accepted the fight, even if it’s unclear how much he has left in his arsenal.
Public sentiment isn't there. The kin coin, as it exists today, is having a hard time in the market. Few exchanges will list it and none of the major ones. CoinTiger is its biggest exchange, doing $637,903 in volume over the last 24 hours, as of this writing (in November). CoinTiger did 98 percent of its volume in that timeframe.
To Livingston, this explains why the token price is so very low versus its initial sale price (0.00012 then, versus $0.000004 now). Yes it's getting used, but all the tokens being used are largely being given away as promotions, or in limited numbers of advertised sponsored activities (such as completing product quizzes to earn kin).
"If the SEC's cloud was not hanging over their head the token would have had a different trajectory. The SEC has had an impact," Mougayar said.
Developer interest is promising. There are some apps that have real activity and maybe some of those users would buy kin every now and then if it were easy, but it's not. That's what the Kik Interactive skeleton crew is working on now: a wallet specifically for kin that makes buying it and using it easy. The new app will be called Code, and his company has taken the same name.
While Livington waits for his day in court, others are looking to legislation to clarify the regulatory environment around cryptocurrencies.
Mougayar said that it’s up to the U.S. Congress to create new legislation that would move the SEC to act differently and Livingston believes now is the time to push for that. But he doesn't see other companies doing it. He’d love to see his peer ICO projects team up to push legislation, but it’s not happening. "Most people in the industry are hoping that, if they just keep their head down, it will all just go away," he said.
Like everyone else in crypto, Livingston said he's fine with being regulated, but he wants rules updated for a crypto era. If he had his way, his peer founders would get together and articulate a shared vision of crypto-era rules. But few of his peers, publicly at least, seem that interested.
Livingston believes the SEC has no idea what it wants to do about crypto or how existing laws apply. He said if the agency would share its internal communications, he can prove it. When asked why, if the SEC is a public agency with a mission to serve the public, it would deliberately go after his company, his enigmatic response was: "I'm not ready to answer that question, but I do have an answer."
In 2020, we’ll see what kind of answer Livingston might have and whether he was foolish or brave, or both, to pick a fight with an agency as powerful as the S.E.C. It may be he felt little choice.
The paintings in this article were commissioned from Trevor Jones, an artist based in Edinburgh, Scotland. Trevor became fascinated with art and tech collaboration soon after graduating from university in 2008. He was one of the first professional painters to incorporate augmented reality. Since 2017, his work has concentrated on cryptocurrency. These original oil paintings will be auctioned by the artist at Bitify.com, with 20% of the sales being donated to two worthy charities, BitGive and the Manny Pacquiao Foundation. Contact Trevor at trevorjonesart.com / @trevorjonesart for more information.