On the 9th of November, Solarplaza hosted a webinar on blockchain applications: ICOs and tokens in the energy field. It was organized in the run-up to the 2-day Blockchain2Business conference in Amsterdam, the Netherlands on the 5th and 6th of February 2018. Leoncio Montemayor, project manager at Solarplaza, was joined by Abraham Cambridge, founder of The Sun Exchange, Artūras Asakavičius and Nikolaj Martyniuk, co-founders of WePower, and David Orban, founder of Network Society Ventures, to give an in-depth look at past experiences in developing markets and discuss the future of blockchain technologies, applications and how it relates to Initial Coin Offerings (ICOs) and tokens in the energy field . The entire video recording of the webinar and the speakers’ slides can be freely accessed here.
The webinar started with Leoncio Montemayor, Future Grid project manager at Solarplaza, introducing key concepts on blockchain, as well as describing what an ICO actually is. An ICO is a new way of crowdfunding for blockchain companies that are interested in raising capital to develop products, services or platforms. It allows blockchain companies to tap into the potential of people interested in offering funds to the company. Participants can choose to send capital in the form of dollars, euros or even cryptocurrencies, such as Bitcoins, to the blockchain company in return for tokens. These tokens can be seen as personal digital “assets”. The tokens can then be exchanged with the company for future products or services from the blockchain company. An example from the energy field would be: A participant exchanges his/her tokens with the blockchain company in return for electricity.
Abraham Cambridge, founder of The Sun Exchange and co-founder of “The Renewable Energy Cooperative”, states that the predictability of the yield of solar energy makes it one of the best investment opportunities, not just in developed markets, but around the world. The fact that solar energy produces around 10% of yield per year in an optimized solar power plant, together with the fact that solar power is the cheapest form of energy in developing markets (such as South Africa, where The Sun Exchange is based), has caused the entire industry and nation to switch to solar energy as their primary form of energy.
Other businesses and communities around the world, particularly in developing markets, do not have the capabilities to access the capital needed or lack tailor made financial products geared towards solar, which are needed in order to make such a drastic switch. To combat these issues, The Sun Exchange developed ‘SunEx’ tokens for people that want to invest in solar energy, but do not have a roof where they can install solar panels. Each SunEx token is linked to an actual solar cell in a Sun Exchange solar power plant that could be powering either a school, a factory or a whole community with the use of a microgrid. These tokens can help users earn decades of rental income as a result of their contributions towards powering the developing world with solar energy.
Nikolaj Martyniuk, co-founder of WePower, started off by explaining that he and his fellow co-founder, Artūras Asakavičius, started WePower as a way to combat the problems that currently exist in the green energy market. They have seen that for the past two years the support from governments towards driving renewable energy development has been slowing down. Nikolaj believes that the reason for this could be that governments want to phase out of tariff support, which was previously dominantly present in those markets. At the same time, he claims that renewable energy has the capabilities to compete with other sources of energy. The green energy market is indeed moving forward, however financing from banks has been significantly reduced. Therefore, the goal of WePower is to promote renewable energy by allowing anyone to participate directly in the energy market.
The WePower system of tokens is a bit different than the platform operated by The Sun Exchange. WePower offers a “real asset-based token model” called the ‘WPR’ token. This model allows each active contributor to the project to receive part of the energy that has been released on the platform in a form of a contract. These users can then choose to use the energy for themselves or sell it on the market at the current market price. According to Nikolaj, the WPR token is backed by a real value asset and has clear growth projections. He also adds that, although the price of energy fluctuates, it usually does this between the barrier of the true price of energy production and the price of energy production from traditional energy sources.
While structuring the WePower token model, both Nikolaj and Arturas gained much legal knowledge and experience on the details of setting up an ICO. According to them, the legal perspective of token models can be divided into 6 steps.
- The first step involves the token model design. Before issuing an ICO, a company needs to look at its business model and analyze whether or not tokens actually contribute to the business model.
- After that, it is advised to consult with a legal advisor to conduct some tests to see if the model falls under any financial regulation or not. If the model is considered as a security, it could face some financial risk, as well as problems with token sales, distribution, marketing of the product, and it could even effect listing the token on exchanges.
- Once step number two is completed, a company can proceed to work together with the legal advisor on the jurisdiction of the token model. Artūras states that a company should not only look at the jurisdiction on tokens, but also at the jurisdiction on the company’s business model.
- The following step would be to find a commercial bank that would be able to open up a bank account for the company. This part is a bit more difficult, as not all commercial banks want to deal with ICOs. It is crucial to find a bank partner for the implementation of the project, otherwise the situation becomes much more complicated, since problems will probably arise when changing cryptocurrencies to fiat currencies.
- After a bank account has been opened, its time to look at the regulation. Because ICOs are on the edge of regulation, it is always better to consult with a regulator. A company should avoid setting up a business in a jurisdiction where a regulator is against the company’s business model.
- As soon as the ICO is issued, the company should map the jurisdiction where it will actively market the sale of its tokens. Some countries have banned ICOs all together, whilst others do not allow tokens to be marketed in a specific way, or simply obligate companies to comply with some disclosure requirements. These disclosure requirements are very important in order for companies not to mislead contributors/investors and face regulatory sanctions.
David Orban, founder of Network Society Ventures (“NSV”) and author of “Something New” and “Network Society”, has analyzed ICOs thoroughly and starts by asking a simple but important question: How does a token actually benefit the network that uses the application and is it intertwined with the healthy growth of the network?
In the venture capital business there are different stages of investment and different types of investment firms/funds. NSV acts as a seed stage investor making sure that it is well aligned with the projects it backs, seeing that those projects are going to use the funds that the NSV makes available to grow their businesses and organize their tokens sale. Benefits for investors include network growth, financial returns and oversight over how the tokens will be spread out. Token sales also allow founding teams to retain control over their projects/startups.
In most cases, when cryptographic digital tokens are sold, they may have different mechanisms and different names. However, the standard is based on Ethereum, which has only been around fairly recently. It is the most popular way of designing and issuing cryptographic digital tokens and has been evolving quite rapidly.
Today, only a very small number of people are actually familiar with Bitcoin, Ethereum, cryptographic digital tokens, token generating events, and how exciting new business models based on these could be. David believes that one of the most important things for people to know about ICOs is the value of backing projects like The Sun Exchange, WePower, or many other similar projects in order to create a global, sustainable, and interconnected 21st century civilization.
