Why the world’s largest ICO equates to crypto-roulette
The following is a translation/adaptation from German of a story that appeared in the “Handelsblatt” on April 2, 2018, written by their East Asia correspondent Martin Koelling.
The story of the Dragon Coin sounds almost too good to be true. Hidden behind the cryptic name is a technical revolution that could revolutionize the multi-billion dollar casino industry. And along for the ride: Chinese gambling dens, mafia bosses from Macau — and a lot of money. But let us start at the beginning.
It all starts with a message: the world’s largest virtual IPO has supposedly been completed — and this time it is not a US company that won the race, but an Asian project. Virtual IPOs are also known under the abbreviation ICO (“Initial Coin Offering”). Companies collect money from investors and then they do not issue shares, but virtual coins or tokens, which are traded on Internet exchanges.
While the big cryptocurrencies like Bitcoin and Ethereum are today showing some weakness after hitting peaks in 2017, unbelievable speculation gains lure on the ICO market. In 2017, the volume of ICOs increased more than twentyfold to $5.6 billion. More and more investors are hoping to get rich quick. The fact that nine out of ten ICOs fail and that the financial supervisors in the US, China and South Korea have exposed many projects as frauds disturbs very few.
In the case of Dragon Coin, the creators claim to have raised the incredible amount of $340m. Naturally, they also beckon with a radical vision to promote their coin.
The man behind the project is the Thai Chris Ahmad. His start-up Dragon does not want to rival Bitcoin and Co. with his own cryptocurrency, but is revolutionizing the casino world — at least that is the promise. Ahmad wants to start in Korea and then blow up the biggest casino in the world, China’s gambling paradise Macau. The former Portuguese colony and current Special Administrative Region is considered the gambling house of Asia and makes almost five times as much money as Las Vegas.
Ahmad is not easy to reach, only through the Dragon group in the chat app Telegram can we get to a conversation. He has taken in about $340m at the ICO of his Dragon Coin, he tells the Handelsblatt. That’s $83m more than Filecoin, the largest project to date. Filecoin wants to build a global cloud, a decentralized data store.
Ahmad’s number cannot be verified. Much of the total, $320m, Dragon has already raised in the first private round of financing, reports the industry side ICO Drops. Key investors included large private gaming operators from Macau, Ahmad says.
A 21st Century Casino
At the first crypto exchanges, the Dragon Coin is already traded. But to date, the startup has not published any official results of the ICO that closed on March 15. On Handelsblatt’s request, Ahmad promised the final balance for the next day. That was almost two weeks ago. Online, however, he keeps the hope awake to the main prize, which he has promised the investors.
Dragon plans to open its own exchange soon and also by April the first gambling room under the Dragon brand.
His mission sounds ambitious. “I want to merge the world of virtual currencies with the real world and provide the first real use of blockchain technology,” Ahmad told Handelsblatt the day after the ICO. Blockchain is the database technology on which cryptocurrencies are based.
Ahmad wants to solve with it an old problem of the casinos: taking care of the “High Roller”. This is casino slang for super-rich gamers. These oligarchs and oil billionaires fly from all over the world into the gambling paradises and make the business in Las Vegas, Monaco, Macau truly lucrative. Since they often use millions of dollars, cross-border money transfer is their biggest problem.
So far, the VIP gamblers pay their gambling money in the home country to agents whose partners then grant credit in the respective casino country. To do this, the agents are giving the operators of private VIP rooms in Macao — the so-called “junkets” — a fee of around five percent. Players pay another five percent when they bring their winnings home. In view of the millions of dollars transferred, the agents earn a splendid income.
The Thai now wants to eliminate these human agents through the cross-border use of the Dragon Coins by passionate gamblers. That way the total fees could fall to one percent, he claims. By the way, his start-up also wants to run casinos himself, including a floating casino called “Dragon Pearl”.
As crazy as the fantastic plan sounds: In the eyes of many investors who praise the ICO in Internet forums, the dollar signs are flashing. Attentive observers, however, see the Dragon Plan extremely critical — like many other ICOs. Unlike with regulated IPOs, ICOs often take place in the gray area of the internet.
Chat instead of a Company Address
Firms do not warn against risks, instead, promises and good faith are traded. “The boom in ICOs has attracted opportunists and swindlers,” warns Thomas Glucksmann, who oversees business development of the Hong Kong-based exchange Gatecoin in Asia. Many would have noticed how easy it is to develop a token and quickly raise a lot of capital.
Gatecoin also provides its trading platform to individual ICOs. “We receive 15 applications per week and maybe accept one,” says Glucksmann. These were then mostly recommended by business contacts.
In the US, the issuance of coins and tokens is already regulated today similar to the issuance of securities. Many ICOs shy away from this regulatory burden and refrain from raising money from Americans from the outset.
This includes Dragon. Citizens of the USA, Singapore and China are officially excluded from the ICO. Additionally, like many ICOs, Dragon preferred barely regulated trading venues.
Dragon claims to be registered in the British Virgin Islands. However, anyone looking for such simple real-world information as addresses, telephone numbers and contact e-mails in the public section of Dragons Homepage or the digital investor prospectus, the white paper, will be disappointed. Digital seems to be the only way to reach representatives of the company.
Contact with the investors is managed through a group in the chat app Telegram, which can disappear into the digital void just as quickly as it surfaced. A skinny internet blog with 49 followers completes the presentation.
The advertised business model is also being critically eyed by observers. “Most in the community do not take it seriously,” says an insider in Japan. For him, Dragon is a greedy cash game aimed at “the gullible Southeast Asian and Chinese investors”.
In fact, many articles on relevant crypto news sites can be traced back to contributions that Dragon itself has written. Positive reviews are often written by bloggers who act as advisors to Dragon. And the announcement of a deal with South Korea’s state-owned casino chain “7Luck” disappeared from the company blog after the ICO. “7Luck” did not respond to Handelsblatt requests so far.
Especially spicy: the Dragon founding ceremony last fall in Macau was not only attended by casino operators and investors, but also by the former underworld boss “Broken Tooth” Wan Kuok-Koi. Dragon founder Ahmad has repeatedly asserted that Wan appeared uninvited and was not involved in the project. The incident nevertheless sheds light on the old entanglements between the casino industry and the underworld in the port city.
Even if the Dragon-ICO is more than a bubble: The German fintech consultant Norbert Gehrke in Tokyo sees an underrated threat even with a functioning start of the coin: the Chinese authorities. “There’s a lot of regulatory risk,” says Gehrke.
Macao’s casino economy depends on the grace of the central government, which triggered a first crisis in 2015 with restrictions on Chinese players. The Special Administrative Region also banned cryptocurrency projects and exchanges in September, following the Beijing model.
In our conversation, Dragon founder Ahmad remains confident that he can convince the supervisors to replace the old-fashioned system of credit intermediaries through a transparent digital solution. But Gehrke doubts whether he will succeed.
The idea of running a casino with a floating gambling den also causes skepticism among observers. “It’s going to be difficult,” said Grant Covertsen, Head of Asia Equity investment boutique Union Gaming in Macau, which specializes in casionos.
Although theoretically there is a small chance, as the Chinese licenses expire in 2020 and will be re-assigned. But: “It’s not that everyone can get a casino license.” Ahmad parries the criticism with his usual virtuoso. We have a plan B, assures the founder. In many countries of Southeast Asia, casinos are currently springing up. True to the motto: If it does not work out in Macau, its floating casino can drop anchor somewhere else.
But that too is a bet on the future. Investors who invest in ICOs have to scrutinize them and be gamers. And perhaps the Dragon Coin from Macau will one day become the symbol of the ICO roulette par excellence: a gamble with high stakes and good chances to lose everything.