I’ve been mining for 6 months now. The first 4 were full of plotting, joining various shady pools, plotting some more, replotting to new plots, joining legit pool… Now it seems the excitement and interest has almost died from me, especially as the price goes down…
What actual things are next for Chia that would keep a person interested, and help the value of Chia?
One thing troubling in that TheChiaPlot text is that potentially VCs (investors) were also given (some / a lot ??) of pre-mine XCH. To me, that is a potential issue.
Everyone, but such investors, is more or less focused on the long term (regardless, whether we are HODLing or selling). On the other hand, investors have deadlines for their portfolios, and when those deadlines are up, they will liquidate everything from such portfolios. Basically, they don’t care about the company after that deadline, as there are no other option for them - just sell on that date. Those portfolios usually run for about 5 years, but investments are being made basically throughout the duration of such portfolios.
Just personal experience working with VCs while in various startups (in Silicon Valley).
Such thing is not a problem, if a company goes public, or is acquired, etc., as the stock is at that time on the market, and someone else will buy it. On the other hand, if you are in such startup, and your company is still private, basically they will give up their stock, as they really don’t have any ways to hold it (portfolio ended, everything in that portfolio needs to go, no transfers to other portfolios, as those operate on new investments).
Saying that, when time is up, they need to put everything for sell, and hope for the best for them - basically XCH exchange flooded (if they have substantial share of that pre-mine).
Here is a nice slide deck. Take a look at slide 11, especially “At the end of the life of a fund, remaining investments are liquidated” It basically says that there is no option for VCs to do anything but liquidate all assets.
I guess, the life span of such funds will vary, and potentially be shorter for more aggressive funds. Still, how fast that will happen for a given investment depends how early/late such investment was made relative to the fund life span.
Chia refers to the pre-mine as the Strategic Reserve or pre-farm.
“Controls on the Strategic Reserve
Our board of directors has adopted the following restrictions on the Company’s use of the pre-farm. These may not be changed without a majority vote of the board, which necessarily includes at least 1 independent director.”
“The Company will not sell chia from the strategic reserve. The Company will also not enter into any future contract that would allow or require the Company to later transfer XCH to a third party beyond existing penalty provisions for existing investors as outlined herein.”
“Should any of these controls be so changed, they will not be implemented without at least 90 days of public notice of that change which shall be posted on the Company’s website, in its Keybase channels and/or other similar highly visible methods”
“Again, we do not plan to use chia to fund shareholder activities like repurchases or dividends, or invest in companies or projects using chia until after a registration statement or its equivalent is effective for Chia Network Inc. equity.”
Jacek, you may be referring to the next statement.
“Some existing investors in SAFE agreements (Simple Agreement for Future Equity) have the right to require redemption of a portion of the Strategic Reserve based on the then market price of XCH if the Company has not attempted to file a registration statement in the two years after mainnet launch or effectively registered the Company’s equity within three years from the date of the mainnet launch.”
I am sure that Chia will register in time and not allow these SAFE agreements to trigger. Registering is essential in order to turn the “Strategic Reserve” into equity and is probably at the top of the Chia executives’ to do list.
Only after registration will they effectively become a bank and be able to lend fiat with their Strategic Reserve backing it. This banking ability is the basis of the Chia Inc. business model.
Nothing except triggering of the SAFE agreement gives Chia shareholders ownership of any of the Strategic Reserve. If SAFE was triggered, they are entitled to market value in fiat, not the pre-mine XCH. As shareholders, they do hold ownership in the Strategic Reserve as equity, but not directly.
Reading the Business Whitepaper makes clear that once Chia Inc has filed registration on their equity (also known as the pre-mine or as Chia likes to refer to it, the Strategic Reserve or pre-farm) they intend to use the Pre-mine/Strategic Reserve as a bank, effectively making loans with the pre-mine as equity.
They have no intention or reason to mess with the pre-mine in any way. It is to solely be used as equity.
I think that we are on the same page. Although, we may be reading same things, and interpreting it in a different way. What I was trying to do is just pointing to a different interpretation or consequences when VCs are involved.
I hope you are right. Although, I have to say that I doubt it (based on that article - I will need to watch that video).
To address your quotes:
The minute your company is getting VCs, you are most likely losing control of your BoD, as you will usually not get any investment without investors being on the board. Basically, they control you, so you cannot go to Hawaii with what they invested. In some really hot startups (e.g., Facebook, …), that didn’t happen (Zuckerberg basically thanks to his first CFO maintained majority, but that is rather an exception). So, really, the early intentions of founders have basically no bearing on what happens after those investment rounds. Actually, I believe still in May, on Chia’s website was a page with directors, board members, and investors. That page is gone. Of course, we could trace financial news trying to restore that page.
“Sell” - The first thing, this is future tense. Second, giving investors equity/XCH is not really selling it, so that language is rather vague (e.g., the next sentence is using “contract” as a way to transfer ownership, and that is not a sale per this language),
“Future contracts” - Again, that doesn’t really explain what happened before that language was adopted. It also doesn’t address potential changes requested by new VCs to be done. Again, a bit vague language.
“Existing investors” - This is a standard anti-dilution language from any investment terms. It holds up the the next round of investment (when new investors are there, as there is a need for money (e.g., company may tank), as such they can say that they don’t care about previous investors, and request whatever changes). This is rather a standard game with VC investment.
Let say that is says what it says. They post it for 90 days, and after that whatever needs to be done will be done. Again, VCs are in the driver sit here.
This is a good one, as long as it holds. Although, again it is future tense.
Again, I dealt with VCs here in Silicon Valley, and it is not fun. I have already stated some time ago, that I would rather have Chia to use their pre-mine for funding, as it has more value than what has been invested, and what is the most important, there are no strings attached here (e.g., term sheets).
Also, assuming that you are investing in Chia (as a VC). Would you take just a stake in company equity, or rather in pre-mine as well? The potential is that company equity (stock) will go down the tube; however, XCH value may hold. My understanding is that pre-mine is owned 100% by Chia Net. Therefore, if you invest $100 as a VC and are given 20% of shares (stock), I think that you own 20% of pre-mine. Again, unless we see those term sheets, it is just a guess work, so no point to go down this line.
I was referring to this section:
“They talked a little bit about their investment structure, and what investors do and don’t have a claim to. This seems a lot like more fear about the pre-farm, and whether investors will exercise their option on the coin and trash the market.”
That to me implies that investors have rights to at least some part of pre-mine. As I stated, each fund has a life cycle, and let’s hope that the funds that those investments came were in the early phases. This gives us plenty of time to have Chia matured. However, when such fund hits the exit, investors really don’t have any other option, but to liquidate whatever is left there. If your startup was “lucky” and was not acquired / IPOed, you may get back all your stock for basically no cost. However, if that is not stock, but some “physical” equity (e.g., XCH), the only option is to really sell it, not really give it back to Chia company.
On the other hand, as long as the fund is still alive, there is no reason for investors to dump their XCH, as they are also (strongly) interested in XCH growth. They do want to maximize their investment, and they operate on a fixed time window.
So, I fully agree with your sentiments and your explanation, and really wish that it is true. At this point, I don’t see reasons to panic. I also understand that all those term sheet related stuff is private, so we are just guessing here.
As mentioned, my take is that those investors through their stock were also given XCH options. What I mean is that they were given XCH “options,” as such they may not be registered as sold/transferred until they will exercise those options. Again, I am not sure whether that is a case or not, but if it is, it will not register in that explorer. So, not seeing those term sheets, unfortunately, we know nothing about that.
Another thing is that if that would be true, there would be no need for this language (although again, I am not 100% sure how to read that line):
“require the Company to later transfer XCH to a third party beyond existing penalty provisions for existing investors as outlined herein”
This is basically a standard anti-dilution clause for previous investors, as such if not XCH was assigned to those investors, there is no need for that clause - I think.
Again, for you and me, investment means that we pay, we get something, and we can do whatever we want with that. For VCs, they got percentage of the company, and it is in their best interest to build up that company, so the value of that percentage will go up. They cannot sell/exchange what they got for something else.
That is not a video, that is the Official Chia Inc. White Paper. The statements made are fact, not quotes from an article.
Investors do not have any such option. Stockholders do not own any XCH and have no options to acquire XCH.
The Board is well setup in order to retain control of the members and of the majority vote. There is no danger of stockholder takeover of this board.
“We intend to have a five person board composed of three outside directors. Currently our board is made up of three members; Bram Cohen, Gene Hoffman, and Chuck Stoops. Mr. Cohen and Mr. Hoffman are not independent as that concept is defined by stock exchange rules while Mr Stoops qualifies as an independent director. Additionally, Mr Stoops is audit committee chair qualified.
We have an ongoing discussion with an additional independent director candidate and have a search open for the third. Once the two board vacancies are filled, the board expects to increase the approval threshold to require a majority of the outside directors as well.”
If you read the White Paper in full you come to understand that the entire Chia project is about using the pre-farm as equity. Basically a bank backed by XCH. If the board chose to sell ANY of the pre-farm or even announced their intention of doing so (as they must with 90 days warning) the entire concept would collapse.
XCH would crash, Chia stock would crash, and the equity that they have so carefully created would disappear, defeating the whole point of the venture.
Chia is creating a crypto coin based bank. This is not at all comparable to most Silicon Valley start-ups.
I am very glad that we got into this conversation as I now understand what Bram and company are actually trying to achieve. It is not at all what I first thought.
As stated, I agree with you on most counts, and hope that you are right on those that I don’t. (I didn’t mean to say that I will just watch that video, I was just stating that I will watch/read it later today.)
Although, I have hard time to square the ownership of that pre-farm.
If company issues stock to investors for X% of the company, they own X% of everything, no exclusions. The only way to prevent investors from having that X% share of pre-farm is to make pre-farm not owned by the company. In such a case, who owns that pre-farm?
You make some fair points, most of which cover stuff that is not available to the general public. What the company has stated multiple times is that they will not sell any of the prefarm before they IPO. Once they get closer to their IPO, maybe they’ll announce more guidance about the prefarm. Until then it’s all speculation.
Chia will get securities registration done as quickly as they can, almost certainly within 12 months. Once they do so, they can start making loans backed with (today almost) $3,000,000,000 USD of XCH backed equity.
I do not think they will start any major lending immediately as they have a more lucrative hurdle first.
Once registered they can move to the IPO. Hoffman said, “the company is looking to a traditional initial public offering as soon as this year”.
An IPO will transform Chia from a small private bank with 3 billion to loan into a much larger and better capitalized bank, but a bank it will still be.
There is no need to lose control of the board. Chia need only retain 51% of the stock issued and/or issue non voting stock to ensure control of their board and their bank.
Yes, but the pre-farm is part of the equity. A stockholder owns a percentage of the company and it’s equity of which the pre-farm is a part. A Chia stockholder could not get access to to the pre-farm XCH any more than you could get gasoline via ownership of BP stock.
What does this mean to farmers and traders of XCH?
As XCH is the underlying equity its value is intrinsic to Chia’s success. In the long run, XCH value will become largely based on the quality and return of the Chia XCH backed loans.
Very interesting stuff …
For farmers I worry. There is no incentive for Chia Inc. to make farming more profitable. If farming does become more profitable then the network will grow until bare profitability has been reached again.
There is of course greater value in coins mined now that are worth more then. The HODLer may not win that many coin, and will have a small negative ROI for years, but in the end, massively increased value of XCH could make for an excellent return.
I know I am repeating old thought in the last paragraph. It just sort of ties into my thinking that anyone hoping for an ROI farming Chia is in the wrong game. Farming Chia at this point is a HODLer’s game.
I hope the Bank of Chia ends up making good loans…
If it does, the value of XCH will rise exponentially. If not, the bank will crash.
Also, I think that I got it squared with the ownership.
When investors get their stock, they are not really getting physical XCHs (i.e., physical part of the company), but rather a percentage of the company, thus that pre-farm. Therefore, they cannot sell it, as one can look at that pre-farm as a single non-divisible entity. So, I really do not see anymore how they could crash anything by dumping “their” XCH.
With that said, the only things that investors can do is either wait for the IPO and sell their shares (and hopefully get their fund above the water), or if there is no IPO, and their fund needs to exit, just abandon their stock. Neither one is basically detrimental to XCH, or Chia Net.
For pre-farmed XCH,
There are various opinions,
Chia fans can unconditionally believe that they will not sell at least not suddenly in large quantities.
Professional investors may be more rational. They will look at legally bound commitments. The so-called start-up company’s commitments have no value on the commercial battlefield.
In reality, smart contracts (binding agreements are written in the code) are better than legally bound commitments, after all, the laws of each country or region are different.
A large number of CHIA fans will mostly increase netspace, but a large number of professional investors will mostly increase the price of CHIA.
To be successful in the market, fans and professional investors are both important, but the proportions are different at different stages.
Despite what they have said, I believe that even after the IPO they have no intention of moving more than an in insignificant percentage of a percent of the pre-farm XCH out of their two wallets, if any at all.
Selling the equity that allows you to make loans is doubly counter productive. If they sell from the pre-farm they lose the ability to loan that much fiat. In addition, the drop in XCH price would further erode their remaining XCH equity and further decrease their loan ability.
Bram did not just create a POS coin. With the pre-farm and the White Paper he has created the first bank backed by a blockchain.
They have explicitly declared what they are doing in their White Paper but not so much in their press releases and statements.
IMOP Chia’s public face as a green POS crypto coin is partly smoke and mirrors to avoid the less palatable and understandable Bank of Chia.