Just last week, Tezos revealed that it is now mandating a comprehensive KYC process for everyone involved in their ICO. This news has left many taken aback and disappointed, especially since the ICO concluded almost twelve months ago. The Tezos initiative has encountered numerous controversies and legal challenges since its inception, with no sign of launching their main or test networks yet. This unexpected requirement may further mar the already troubled reputation of what was once a hopeful crypto venture.
What is Tezos?
Tezos Competing with Ethereum in multiple ways, Tezos aspires to facilitate smart contracts and bolster decentralized apps. The system hinges on a proof-of-stake scheme, where the Tezos Foundation asserts on its site that the protocol is under the stakeholders' governance.
In July 2017, the company successfully raised over $250 million in Bitcoin and Ethereum through its Tezos coin ICO. But soon after, challenges swiftly surfaced.
While the entire saga is too complex to detail here, some pivotal episodes include legal actions, leadership shifts, fines, accusations of securities violations, and a postponed main net launch leading to widespread investor impatience.
According to an article An article on Coin Telegraph from February of this year noted that a Tezos co-founder vowed to go ahead with the platform launch, lawsuits notwithstanding. Yet, official updates seem to only cover a test net launch which itself has not happened yet.
All Your KYC Are Belong to Us
A draw to ICOs has been the anonymity they offer investors. Previously, one could partake in an ICO and promptly receive tokens without undergoing the cumbersome or pricey know-your-customer checks. Many ICOs previously needed only a simple affirmation of non-American residency.
Read our guide to Money Laundering: Global Regulatory Measures
Everything shifted with the intervention of the US SEC. step up their rhetoric in reference to ICOs.
Presently, it's becoming typical for ICOs, either US-operated or inviting US participants, to require identity verifications prior to engagement. Some are taking it a step further by necessitating accredited investor identity verifications for every participant, irrespective of their citizenship or residency. The approach is due to fewer SEC regulations applying to just accredited investments.
What's notable is Tezos is requesting these verifications almost a year after concluding their ICO.
Ethereum co-creator Vitalik Buterin also shared their views on Tezos' official Twitter platform.
This seems counterintuitive. Why can't third parties simply automate a process to analyze BTC/ETH chains, determine contributions, assess the correct XTZ allocation, and establish the genesis block independent of Tezos involvement?
That's akin to how Ethereum's launch was managed.
— vitalik.eth (@VitalikButerin) June 11, 2018
Apart from Buterin, the community's reaction has been overwhelmingly unfavorable. Many people voiced their displeasure over the constant delays and turmoil, and now, asking for investor identification nearly a year on, strikes many as baffling.
Is this KYC going to exclude US citizens? It's the burning question, yet without a clear answer.
— Charles Douthat (@creiddouthat) June 10, 2018
Numerous US-based investors are growing increasingly impatient for clarification from Tezos on potential retroactive exclusions. Tezos seems yet to address these worries with comments being issued just shortly before this writing, reflecting this ongoing concern.
https://twitter.com/meyou5ick/status/1006320546878054400
Further disillusionment exists with Tezos’ seemingly endless string of scandals and setbacks.
Might Established ICO Campaigns Adopt a Similar Approach?
What remains to be seen is whether other initiatives, aiming to stay within the ambit of ever-changing regulations, will impose similar post-facto KYC demands.
Due to how cryptocurrencies are constructed, if a project has launched or tokens are distributed, such demands might be ignored. Tezos finds itself in a unique spot: it hasn’t formally launched, and its coins aren’t released, positioning them to possibly withhold coins until compliance.
It seems likely more ventures will require upfront identification, and it should be a consideration for prospective participants. Yet, Tezos' abrupt request for post-ICO identity checks seems deceitful and one the community might not readily accept, except perhaps for the ardent advocates.
