Since the ICO boom of 2017 that attracted many scammers, the Chinese government banned all crypto activities in the country. However, the latest developments suggest that the government could be indirectly participating in a security token offering (STO).
The Nervos Network STO is scheduled to kick off on October 16. It aims to raise an undisclosed amount within two weeks via the CoinList platform. Polychain Capital has so far said that it will contribute $5.7 million to the STO. That amount is an addition to the previous investments.
Kevin Wang, the Nervos project co-founder, confirmed that the Hong Kong-based China Merchants Bank International (CMBI) is also interested in the STO. CMBI is a wholly-owned subsidiary of China Merchants Bank and has also committed to contributing an undisclosed amount to the public STO.
Although CMBI is not directly owned by the government, its top 10 shareholders feature seven corporations that are partly or fully owned by the state. According to the bank’s political context, reports of diplomatic tensions emerged over the alleged sanctions violations. That amounts to the possibility that Chinese banks could be shut out of the dollar economy in the future, as sanctioned Iranian banks already are.
Maybe this is part of the reason why Chain News reported CMBI was investing in Nervos to develop an “open” platform and a “new investment bank.” The bank has not yet responded or commented on this matter. Though Wang avoided specifying what the bank’s plans are, he said:
“CMBI is a strategic partner, both in terms of financial plans and other types of applications they want to utilize for the blockchain. … We want to make sure they can utilize the infrastructure.”
The STO is not the first time CMBI invested in Nervos tokens. Wang affirmed that his token project’s $28 million fundraiser in 2018 featured CMBI and Sequoia China. That was a private sale with contracts assuring 14% of the initial token distribution in late 2019. The Nervos team described the investment as a “partnership” aimed at building “decentralized applications.”
Polychain is also not new in this investment arena. As we reported earlier, Polychain Capital joined hands with Bitmain and others to invest about $10.7 Million in Innovative encryption startup NuCypher. That investment round was referred to as a Simple-Agreement-for-Token (SAFT).
Wang stated that the Nervos platform will operate as a neutral publicly owned ecosystem that supports “other blockchains that are more regulatory compliant.” He was commenting on these different compatible blockchains scheduled for implementation after mainnet launch in Q4 2019. He added:
“They are basically gateways that real-world assets can flow into. Then they will also be running on top of … the bigger ecosystem of Nervos, so that assets can also flow into the permissionless side of the infrastructure and enjoy the wider ecosystem of services, like DeFi services.”
Changing from STO to DeFi
Decentralization remains an ambitious goal at best even when the partners develop a system for capital flows. Thus, the Nervos team still requires enough node operators and miners to enable the system censorship-resistant through diversification. The foundation’s roadmap implies 23.5% of the initial token supply is designated to incentivize open-source contributions and business partnerships. The initial token supply will have control mechanisms but no finite cap.
Joseph Eagan, Polychain’s president, says it is still too soon to determine whether the hedge fund will operate a node of mine crypto for the Nervos project. But he thinks that it is a lucrative investment.
“It’s one of our highest conviction projects, not just in Asia but globally”
Commenting on how Nervos integrates some of Bitcoin’s layered scaling approach to Ethereum’s malleable smart contracts, he said:
“I think the ability to create smart contracts similar to ethereum is very compelling. … From a technological perspective, Nervos and the underlying token offer something truly unique.”
So far, four established crypto mining pools already participated in the most recent testnet competition before the STO. Among them were Sparkpool and F2Pool. On the contrary, the bitcoin network grew gradually and quietly over several years before attracting lucrative speculation. Just several hundred budding network participants would not resist capture from the nation-state actors calling the ‘public’ aspect of the project into question.
Eagan thinks that it is still early to assume that traditional institutions will become major users of the upcoming Nervos platform. He said:
“It’s often one to two years later that developers really start to use those protocols. I still think we’re in ‘wait and see’ mode as to who the primary users will be.”