BitClout, a social-media-on-the-blockchain project, is selling a type of token (called “creator coins”) tied to influential Twitter accounts—without account holders’ permission.
And folks are getting understandably pissed off.
At first, I thought these creator coins were NFTish due to their artificial scarcity and being a way to trade influence. But it turns out they are more HYIPish.
Creator coins are fungible, similar to ERC-20 tokens on Ethereum. And each BitClout creator coin has its own supply. Elon Musk’s creator coin is worth $84,000, for instance, and there are currently 434 of them in circulation.
The BitClout “one-pager” tells us a little bit more about how these creator coins work:
“Creator coins are naturally scarce, with fewer than 100 to 1,500 coins in existence for each profile. This is because as more people buy a profile’s creator coin, the price of the coin goes up automatically at a faster and faster rate. This means that, eventually, it could take billions of dollars to mint even one more coin.”
According to the paper, if you want to buy new coins associated with a creator, the profile will “happily mint them out of thin air” and sell them to you according to a price curve.
Like a lot of things in this project, the formula for calculating the price of creator coins is complicated and hard to follow:
Price in BitClout = .003 * creator_coins_in_circulation^2
Price in USD = .003 * creator_coins_in_circulation^2 * bitclout_price_in_usd
Essentially, what you need to know is, the price of the creator coins goes up exponentially based on demand, thus, you are encouraged to buy early and hold on to your coins for as long as possible. However, the only value in the coins comes from new investors. The coins themselves are intrinsically worthless.
It all sounds very much like a Ponzi scheme, where folks who get in at the ground level are able to cash out, but the news is not so good for late investors. (Eventually, you run out of suckers, and someone gets stuck holding the bag.)
BitClout also has its own blockchain and its own BitClout token (BTCLT). The project actually did a premine of 2 million BTCLT for founders and investors.
If there is an expectation of profits from an investment in a common enterprise based on the efforts of others, that’s generally a good sign something is a security, according to our friend Howey.
The project mints creator coins of Twitter profiles and assigns them dollar values, but you can only buy creator coins with BTCLT. And if you want BTCLT, you have to buy it with bitcoin via the BitClout website.
Your money goes in, but how does it get back out again? The BitClout token so far is not listed on any major exchange. But there is good reason to believe that could change soon, based on the influencers behind the project.
BitClout controls a wallet containing nearly $190 million worth of bitcoin, most of it raised from notable VCs, including Andreessen Horowitz (a16z), Coinbase Ventures, Digital Currency Group, and the Winklevoss twins.
Social Capital CEO Chamath Palihapitiya was recently on a podcast discussing how BitClout is funded by him and others.
Aside from Coinbase Ventures itself backing the project, a16z is one of the major investors behind Coinbase, so I’m sure there is a plan here somewhere to get that token listed pronto. And it’s not like Coinbase isn’t already listing a slew of coins that resemble securities.
BitClout’s pseudonymous founder, who refers to himself as “Diamondhands”—meaning someone who is willing to take risks and hold on to an asset to the bitter end—is allegedly Nadar Al-Naji, the former Basis founder. And we all know how well that project went.
Basis was a “price-stable cryptocurrency with an algorithmic central bank,” according to its white paper. After raising $133 million, Al-Naji eventually shut Basis down blaming regulatory constraints. He ended up returning 90% of the money. (Andressen Horowitz was also an investor in Basis, by the way.)
Basis and BitClout share a lot in common. Both projects are totally confusing. And they both appear to have the same founding team and the same investors. “We are investors. Same team behind Basis [from] a few years back,” Tyler Winklevoss of Gemini Capital told Decrypt.
You could be forgiven for thinking this is just grifters jumping between grifts.
Robert Stevens wrote up a great report in Decrypt describing how BitClout works and where the funds are getting shuffled off to. Brady Dale also penned a good story in Coindesk.
By the way, I love how Diamondhands told Coindesk that BitClout is not a company, it’s a blockchain. As if that will spare it from an SEC enforcement action. Everything about this project is dumb and bad.
Anyhow, last week crypto law firm Anderson Kill sent a warning letter to Nadar Al-Naji on behalf of Brandon Curtis, the product lead for decentralized token exchange Radar Relay, for using Curtis’ private information without his consent. I have no idea why VCs are pumping money into this project.
Updated on March 29 to add Tyler Winklevoss’ quote from Decrypt.
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