Tokenised is your weekly read to navigate and mine the rich vein of crypto developments that flow through India and SouthEast Asia
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Tokenised is a weekly newsletter aimed at helping you navigate and mine the rich vein of crypto developments that flow through India and Southeast Asia. In last week’s edition, we broke down how Ethereum co-founder Vitalik Buterin’s $1 billion Covid relief donation to India shrunk to $381 million.
This week, we’ll look at why an Indian TikTok aspirant has raised $19 million to build a crypto token of its own. We’ll also touch upon what governance tokens are and how El Salvador’s bitcoin-as-legal-tender experiment seems to be going.
So without further ado, let’s jump right in.
Chingari's $19 million off-shore crypto adventure
Short-video app Chingari has raked in $19 million to build a currency of its own.
Well, not Chingari technically—the funding has been raised by Chingari Foundation, an entity registered in the Cayman Islands and controlled by Chingari's chief executive Sumit Ghosh.
A funding round, especially one associated with a social media company, wouldn’t usually be relevant news for Tokenised. But this one did not involve the sale of any ownership stake. Instead, Chingari conducted a “token sale” that saw participation from investors such as crypto exchange Kraken, Alameda Research, Galaxy Digital, Republic Crypto, and Solana Capital.
To put it simply, token sales involve the creation of a blockchain-based asset—in this case the GARI token—which is sold to investors, who usually agree to a lock-in period during which these tokens cannot be sold on a crypto exchange.
The raised funds will be used to build and launch the token to the general public, after which the token will function “both as a future in-app currency and a governance token,” according to a white paper released by Chingari. (If you are unclear about what a governance token is, check out our Back of the envelope section below this piece). Therefore, GARI in its final form would resemble something of a hybrid between an ownership stake in the foundation and a currency for the short-video app.
Without going too deep into the weeds on this, it'd be fair to deduce that Chingari Foundation was off-shored to avoid the regulatory uncertainty surrounding crypto assets and token-sale fundraisers in India. The foundation has plans to transition into a decentralised autonomous organisation (DAO)—a way of setting up a token-issuing entity in which all token-holders act like shareholders do in a traditional company.
While Chingari itself is headquartered in Bengaluru, Ghosh told The Ken he chose Cayman Islands for Chingari Foundation because, “most of the crypto projects … are registered there and our lawyers suggested we use the same geographies”.(Nishith Desai Associates have been hired as its attorneys). Since the money has been raised outside India, the matter effectively falls outside the purview of Indian regulators.
The foundation will mint a total of 1 billion tokens that will be operational on the Solana blockchain and, after early private transactions, 20% of them will be made available for public sale. Another 5%, or 50 million tokens, will be airdropped—distributed without solicitation—to Chingari’s users.
If you’re feeling a little lost (or even a bit queasy) by this point, I don’t blame you. It’s unusual to see a startup raise $19 million to create a currency of its own through a foundation that is controlled by its chief executive. Though Ghosh said that the Chingari Foundation will be run by a “community” of users, video creators, and token holders in the future, it’ll be interesting to see when and how effectively that transition plays out.
For now, the only visible use case for this token is making transactions on Chingari’s platform.
Could this mean that the tokens issued by the foundation are likely to fluctuate in value depending on the success of Chingari’s video application? The short answer is yes. Some might say that this is quite close to issuing a proxy stock for your company, but Ghosh vehemently argued that the token isn’t anything close to a security.
“We have taken adequate precautions to ensure that it is not a security,” he said, adding that owners of the GARI token have nothing to do with the Chingari app in terms of ownership. The use cases also could diversify if other social media apps elect to use GARI as their in-app currency, but Ghosh admitted that such a proposal hasn’t crossed his desk yet.
Two finance attorneys The Ken spoke to said that while the offering has elements of a security issuance, considering the absence of clear regulations and the overseas nature of the token sale, the situation is likely to be complicated from a regulatory standpoint. The attorneys requested anonymity because of their occasional interactions with regulatory bodies.
“Token value gives all holders skin in the game, incentivising them to become evangelists to increase their own wealth,” Chingari noted in its white paper.
While that might be true as long as this gravy train keeps running, if it is derailed by a large investor exiting the investment after the end of the lock-in period, things could go very badly for those at the bottom rung of the food chain. They could be left holding bags of significantly depreciated assets overnight, as could content creators on Chingari’s platform, since all transactions on the app are to be made only in GARI tokens once this rolls out.
Given that Chingari will also take a 3% bite out of each transaction on its platform, the company will end up accumulating a bunch of these tokens in the long run. “A part of these tokens will be burned [destroyed] from time to time to support the price,” Ghosh said. For all its big talk about handing over control to a community, Chingari seems pretty keen on keeping the token tightly within its grasp.
While Ghosh argues that the Chingari Foundation and the Chingari video platform are two distinct entities, efforts to issue a token aren’t likely to be cost-intensive given that it’ll run on a Solana standard. This raises the question: What will the $19 million raised by Chingari Foundation be used for? Ghosh admitted that some of this money will go towards building “creative economy features,” for the app, such as building a paid video call function.
Though Ghosh says the two entities seem distinct and with different purposes, the separation doesn't seem to be airtight. So who really benefits from selling tokens that are pegged to Chingari’s success? A yet-to-be-formed amorphous community? Or a creative company that’s found a nifty way to raise cash by tapping the crypto trend?
It might take a while to distill down a clear answer. But for now, Chingari has boarded this train and it’s anyone’s guess where it’s going.
On that note, let’s turn to some other notable things that happened in crypto over the past few days.
Crispy Bytes
Raghuram Rajan, former governor of India’s central bank, has urged caution on central bank digital currencies (CBDC). Badly designed CBDCs, he said, could lead to poorer choices for consumers and deter innovation in the private sector. [The Hindu]
Hatten Land, a mall and property developer in Malaysia, is exploring business opportunities in crypto mining—including using energy from solar panels placed atop malls managed by the group. [Bloomberg]
An umbrella group of global financial regulators has issued guidelines on regulating stablecoins. The International Organization of Securities Commissions noted in its report that such assets should have “little or no credit or liquidity risk,” and warned that customers could be exposed to significant downsides if stablecoins broke their peg to/with fiat currencies. [Financial Times]
The Biden administration is considering an executive order towards regulating crypto-assets in the United States, including the possible appointment of a White House “crypto czar.” [Bloomberg]
China has added crypto mining to a draft list of industries in which investment is restricted or prohibited. [Reuters]
Back of the envelope
Governance token: Such tokens allow holders to govern a blockchain protocol or project. Similar to how traditional stocks work, governance tokens let individuals vote on project-wide decisions and derive dividends when they are issued.
Popular examples: UniSwap [UNI], Aave [Aave], and Maker [MKR] are three leading governance tokens. The first is used by the crypto exchange Uniswap, and the other two by automated borrowing and lending protocols Aave and Maker.
Market capitalisation: The three tokens mentioned above have a combined market capitalisation of about $18.8 billion.
Caveat: While the jury is still largely out on such tokens, in some cases—like if the token isn’t widely distributed enough and is offered as an investment opportunity—it could be considered a securities offering and run afoul of regulations.
It’s been four months since the Latin American nation of El Salvador granted bitcoin legal tender status. But international bond markets aren’t impressed.
The value of El Salavdor’s government bonds due in 2035 has fallen 17% since the adoption, according to a recentreport by the Wall Street Journal. And it’s not just the bond markets, citizens have also staged protests against the move and have reported troubles accessing and transmitting money via ATMs. “He is playing Russian roulette with public money,” Ruth López, a Salvadoran lawyer, toldThe New York Times, referring to El Salavador’s President Nayib Bukele.
While President Bukele has put out enthusiastic tweets about mining bitcoin using volcanic energy, early fiscal returns seem to indicate that the gamble is probably better PR than economics.
[Bonus: What’s a better asset? Bitcoin or an Arabian hunting falcon? I recommend you read this thread to find out. Full disclosure—I am rooting for the falcons]
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