Stay Away From LAToken ICO
I don’t usually go looking for poor ICO’s to review. There’s too much muck to dig through to try and find decent investments for my investors. As a lot of these ICO’s are niche specific, and I’m not an expert, I try to focus on unpacking the business model to see if it is viable, making sure I get good, clear, accurate responses from the team, and that the whitepaper fleshes out the entire business model without hiding anything.
To none of my surprise, LAToken failed all three of these tests.
LATokens (Liquid Asset Token) are asset backed tokens, similar to SmartRE and Real, however, unlike these companies they are not niche specific and have fees which look to be too good to be true. With LAT tokens users will be able to purchase tokenized equity, debt, real estate and art assets.
I’ve been following LAT for a while, I’ve seen their whitepaper be revised to add the equity tokens. From the beginning though, every single time I would speak to anyone not connected with the project, they seemed wary about it.
Trust Community Feedback
The first interaction was with someone who interviewed to work for LAT. He told me that LAT was a rebranding of aibanks.com which was a rebrand of Zalogo.ru, a high end lending service. His first impression of the company was that it was “just way to recycle Russian cash that has been sanctioned.” During his interview with CEO Valentin Preobrazhnisky he asked about several detailed questions about how the contracts would work, because he didn’t fully understand it. What happened next though, he told me was that “when i asked him to specify, he moved on.” Additionally, the team was happy because they had hit their targets and they said “we are all getting bonuses.”
Ultimately, he was turned away from the interview, however, his final impression was “it looks like the guy had a great idea, built an idea, realized it didn’t work in Russia, blew his cash, thought about what he could do, looked abroad, took his basic (possibly real and functioning – but maybe not) idea, souped it up with a few current buzzwords, convinced a few people that there is gold in dem dar hills, and —-.“ More so, he said “they are building the current LAToken platform upon the Zalogo platform, and highlighting the successes of Zalogo, calling it profitable and highlighting the already, ongoing partnerships with banks which would suggest that it is still operational and working.” He continued saying “in the interview, the guys specifically told me they need a native speaker because they don’t want investors to know it is Russian.
“Trust Us,” Doesn’t Work
The bulk of the issues I have with LAToken is with the business model. In their whitepaper, they say they will offer fees of 0.0001% to trade their equity assets, while illiquid assets will have fees of 0.001%. I know the blockchain lowers transaction costs significantly, however, LAToken is still a business and must generate revenue somehow. Just as a rough calculation, for every 50 billion in assets, 6 million in fees will be generated yearly (I’m probably wrong about this). LAT said in their chat they want to have 1.5 trillion in assets (right) in 10 years. But until they get to that point, their fees are not going to be generating much cash. Plus, they are dependent on transaction fees, and for illiquid products, people won’t be buying and selling daily.
With such small listing fees for their illiquid assets, I can see why they added liquid equity assets. Operating like a forward contract, LAT owners can exchange their tokens for equity tokens, such as APPL tokens, for just 0.0001% of the total transaction size. So for a $1 mil trade, only $100 would be charged in transaction fees. More revenue will be generated this way, however, it raises the much bigger issue of counterparty risk.
LAToken stated in Telegram that they will have a separate fund which will actually purchase equity shares on the NASDAQ to provide backing for their tokens. Dmitry Sokolov, whose title is not listed, also told me that “We are hedging positions in ETH vs US Dollar, which is far more volatile than Apple stock. At the moment, we’ve issued a very small amount of Apple tokens & warrantied them with cash rather than with Apple equities positions. We are setting up a fund to offset positions in equities.” The cash backing of Apple stock brings up issues of counterparty risk. If there is a rush for redemptions and the fund doesn’t have the capital to keep the price of LAT up, LAToken will no longer be able to redeem their tokens, for LAT at market price. I and others inquired several times about this factor and were not given answers. This was typical of my interactions with LAToken.
While LAToken says their equity assets are backed by real shares, the equity tokens are just IOUs for LAT redemption. There is no possibility to actually trade your equity tokens for equity shares. Token holders will not receive dividends and they will have no voting rights. The value of the tokens will be dependent on the value of the previously mentioned fund, however, LAToken said they will not be making it public, nor will they be releasing audited accounts of the fund. This is a red flag. LAToken will not be transparent about their business practices, nor will they inform investors as to their counterparty risk. On this alone I urge others to stay far away.
No Art, Just Air
The second major issue is that they have no possibility to sell art tokens on their platform. When I spoke with LAToken, they told me that art owners could leave the art in their homes, they would just need insurance. This is complete erroneous. I spoke with a few other experts in the space and they told me that art presents a special case, because the legal complexities of it are incredibly difficult, especially when contracts are made cross-border and also that no insurer would allow an expensive piece of art to remain in someone’s home. A $20k piece of work might have some possibility of gaining insurance, but expensive pieces, no insurer would take on $1 mil unless there was crazy premiums, negating the equity sale ultimately! The cross border enforcement issue alone is enough to stop this line of business. Art, if its equity will be sold, must be kept in a secure storage facility under strict lock and key. The risk of keeping at home is too great to allow. My contact who advised me on this even had a chance to speak with Valentin and said that he knew nothing about the complexities of facilitating art equity trades.
Lastly, the LAToken community managers and people associated with the company consistently dodged and gave non-answers to my questions, as well as deleted messages I wrote when they couldn’t provide answers to my questions.. If you haven’t been to their Telegram, it’s just a bunch of shilling about how great the token is and how amazing it will make everyone’s lives. But when you start to ask more detailed questions, good luck getting any concrete answers. First, the community managers don’t understand the specifics of the contracts they are working with. Second, if you do get an answer from one of the senior staff members, it’s very general and evades giving details.
The biggest gripe I have is they deleted my messages to make their chat history look better. Below is a screenshot:
Above “Great” I had actually written, “so your equity tokens are IOUs back by accounts which you will not make public and you admit that you don’t understand the art trade well enough that you have to dictate your business practices to third parties and insurers.” This didn’t sit well with them and they deleted it to seem as if I came away from that conversation in a positive light. This type of blatant censorship is horrible and they need to find better CM’s.
I’ve written too much about LAToken already. In my opinion, stay far away from it. Choose one of the better suited niche companies such as REAL, SmartRE, Maecenes or the others. Just do not give any money to LAToken. There are too many holes in their business plan and they refuse to give details about them when requested. Stay away.