I originally wrote this in a thread on Reddit about Tezos after having several interactions with the Breitmans, the husband and wife team who have designed Tezos and who are raising an uncapped ICO for Tezos. I have modified and updated this in response to the Breitmans' imminent ICO for Tezos and in the spirit of Emin Gün Sirer piece on Bancor's Red Flags, which he co-authored with Philip Daian. Those guys are great. Emin also happens to be an adviser for Tezos, which I think has its own more dangerous red flags. For Arthur Breitman's responses, I encourage you to follow through and read the thread and decide for yourself what you think about the merits of our respective arguments [his name should be obvious from the context]. I encourage people to be critical of anyone raising any amount of money, especially those who ask for an unlimited amount of money in this environment. It is on each and every community member here on Steem and across this space to ask tough questions of people asking for lots of money before it's too late. I took the time to put this together because I care about this space. But this is the extent of the time I have to spend on the subject anymore, so from here on out, you're on your own. This is not investment advice and these opinions are my own. Thanks for your time and attention.

While reading all of the below keep in mind how Ned has conducted himself and managed Steem over the last year. He has faced critics, assholes, trolls and The Internet itself. People have told him to his face he is a scammer, that Steem is a ponzi, and that it would never work. Ned has been graceful, respectful and professional throughout and focused on what Steem could do and on building a positive, engaged community. Steem today is the most used blockchain by normal people. Steem never had an ICO, but Ned has led by example and today's flourishing Steem is the result of that leadership and that example.

TLDR

Tezos management has demonstrated character issues. Blockchain projects have huge dependencies on the character and quality of their leaders, Tezos more than most due its structure. Management has come across as overconfident, scope-drunk, mis-experienced, reckless, greedy, rude, obtuse, and unprofessional. They are about to be very rich and in charge of hundreds of millions and maybe billions of other people's money (OPM).

The Tezos ICO structure is uncapped and reckless. This flies in the face of cryptocurrency standards and efforts to self-police. Not only is this likely to lead to worse outcomes for investors in the Tezos ICO, but this recklessness has negative externalities for all other cryptocurrency projects looking to raise much more modest sums of money and all cryptocurrency participants if it attracts more scrutiny from regulators.

The SEC has said that ICO promoters like the Breitmans for Tezos need to "protect investors". When I talk about self-policing and community standards, this is type of guidance I mean: "Whether or not you are regulated by the SEC, you still have fiduciary duties to your investors," said Valerie Szczepanik, the head of the SEC's distributed ledger group. "If you want this industry to flourish, protection of investors should be at the forefront. "

Tezos is scope-drunk and not focused enough. This has morphed from a narrow software project to a giant empire-building exercise with dreams of buying a bank and negotiating with sovereign countries.

Tezos is likely to create a blockchain whose design is structurally captive to a for profit company owned by mgmt. A decentralization technology whose design potentially leads to centralization/capture on-chain, not just socially, is sad.

Tezos gives significantly better investment terms to billionaire investors to the detriment of regular investors. They even state that they prefer connected and powerful Tezzie holders. This, in conjunction with the above, risks creating an Oligarchchain. When it comes to Tezos, some are more equal than others.

There are real governance issues off-chain with their not-for-profit, for-profit, "related party" structure that give rise to agency issues and material conflicts of interest. They are willfully ignorant about this and their lack of experience shows.

/TLDR

Overall, I was biased to like the project, and have participated in ICOs for 50% of all smart contract platforms that have launched to date. I love that they have an MVP, have done the work, and are bright.

But the last couple months have been profoundly disappointing to me with respect to Tezos. Here are some of my concerning negatives.

If their uncapped ICO raises $1bn+, it will be 4x larger than any ICO to date. It says a lot about the Breitman's character that they are ignoring cryptocurrency self-policing and standards and not capping it somewhere from $30mm to $100mm like most other projects have, many of which could have broke away from community standards and raised much more than they did. We're already seeing ICO projects push the limits more and more at the expense of everyone else. The Breitmans' own roadmap shows anything over $20mm in a raise as a "moonshot." So why raise $1bn? Because they can, the worst reason to do anything. It's frankly reckless. It's their project, it's their choice, but nothing happens in a vacuum. I wrote specifically about the dangers that happen when start-ups raise too much, too early -- the culture corrodes, they get arrogant, they build empires, they get scope drunk and they struggle to create value. Arthur Breitman has also taken pains to say that these self-policing efforts come out of an "echochamber" -- no, they come from the mouths of the SEC.

This is the first ICO to my knowledge in which the founders get 8.5% of the fiat proceeds in cash in addition to 10% of the tokens. This means if things go well, they will be extremely wealthy even if their projects fails in 1 year. This 8.5% is through the Breitman controlled US entity, DLS. I wonder how many potential ICO participants do not understand that this ICO is endowing not just the Tezos Foundation (10% of tokens, plus fiat), handpicked by the Breitman's and "philosophically aligned" with them, but also the Breitman's via DLS (8.5% of the cash, 10% of the tokens). The conflicts of interest are many and the structure is murky. This also will put heightened regulatory scrutiny on the Breitmans personally and Tezos in general. If we can't self-police, the SEC may do it for us. And the largest ICO ever, one that solicited US investors and funneled cash to a US entity, seems like the most obvious target to date. Unlike TheDAO, which was a disembodied pooling of capital and in which no one gained any money whatsoever, Tezos has actual targets who are actually raising money. Slock.it was considered greedy but never saw a dime from their ICO the way it was designed. The Breitman's will walk away from their ICO as ultra high net worth individuals (UHNWIs for people who love lingo). If Tezos ever becomes as successful as Ethereum is today in terms of market cap, the Breitman's will be billionaires. That doesn't seem like the appropriate out-of-the-box incentive structure for a decentralized technology platform. The Breitmans are paying themselves upfront and in cash. If Elizabeth Holmes from Theranos infamy had done the same thing, she'd be a billionaire, despite having delivered no working product.

The character of the Breitmans is a concern. Any blockchain project is in part a social project, one that takes its cues from the leaders. You can see this in a million ways but the difference between Ethereum and ETC is one example of how important leadership is and how communities build around their thought leaders. You can see it in Augur, Monero, Synereo, Bitcoin, Steem, Aragon, Maker, Digix -- the leaders and the team set the tone and the community evolves around that seed. I have seen the Breitman's be overconfident, dismissive, and rude to potential investors while they are trying to raise $1bn. The structure of their raise alone is reckless for themselves and the cryptocurrency/blockchain space, given the SEC's guidance has been clear that they expect us to self-police and not do anything crazy for the time being.

In the real world, when a mgmt team has a Jeff Skilling moment, it's just a big red flag. It's great that you are the smartest guy in the room -- but that's not enough, character matters, and being able to work with people and build a community matters. EQ is as important as IQ. I asked Arthur Breitman a critical question and his response to me was "this feels like a negotiation" and then he questioned my motives and responded that Tim Draper disagreed with me (appeal to authority, so it goes. TD also has a different opinion on Theranos than I do). It didn't leave me with the warm and fuzzies. I was pretty shocked when he insulted another potential investor, followthechain, whom I know to be reasonable and diligent and helpful to others. In response to @followthechain allegedly getting the math wrong on an involved bit of financial engineering in their fundraising ICO structure, Arthur Breitman called him "innumerate," said "This isn't scrutiny, this is failure to understand fractions" and then said "kthxby." Worse, by my checking, Arthur was clearly wrong (I show my work below). It was not an example of the kind of leadership that will lead a $1bn social/tech project to greatness. Again, context matters -- Arthur Breitman is the one who is soliciting $1bn in money for his project and himself and in that context, it was a low EQ move, the kind of thing that if it happened in the real world would crater a fundraise. I've met with unicorns and big real world companies' mgmt teams during fundraising processes, including one very large logistics unicorn famous for being difficult who proved it to my face -- and yet that unicorn's hubris was less than what I've experienced from Tezos. My takeaway has been: is this someone you want to be in control of $1bn? Are they ready as leaders? Do they have what it takes? We are learning in project after project that character and the quality of the team are integral.

The scope of the Tezos roadmap is ridiculous (page 19) and belies that investors should not have confidence that the team will use the raised money well. The plans are massive and random and the team doesn't have the necessary expertise to handle the variety. Scope is way too big. This looks like empire building and it's frankly, an unfocused, shoddy plan. The detail in the plan reads fake to me. Pretty obvious that it comes from smart, talented people without much experience but with a lot of confidence. It's not as bad as when TaaS said they would be making a "Bloomberg competitor" on top of running their CEF but it's not far off. They are scope drunk. In my experience with companies, mgmt teams who wants lots of money or a blank check, and have little tangible plan with what they will do with the cash other than "good things" and "humbling scope" burn cash quickly and don't create value. Span of control issues will be rampant here, and it's evident that the Breitmans don't have the experience to even know what span of control is. I like ambition and this whole space is rife with dreamers. But most are not asking for $1bn and derisking themselves with cash payments upfront.

Examples (note that there were also a lot of spelling mistakes on their roadmap -- a document to justify why people should give them $1bn):

"Negotiate with a small nation-state the recognition of Tezos as one of their official state currency, which would immediately give Tezos favorable treatment in terms of financial regulation. Attempt negotiations to purchase or lease sovereign land."

"Purchase a banking license and deploy the Tezos blockchain as a backbone for business operations. Experiment with automation using a blockchain for basic processes.

"Acquire mainstream print and TV media outlets throught [sic] token issuance to promote and defend the use of cryptographic ledger in society."

"Sponsor a leading computer science department with endowed professorships and extensive grants to graduate students in the field of formal verification."

Why won't this evolve into just Breitmanchain or Oligarchchain?

We know from the most similar decentralized project, TheDAO (gathered a lot of money, most ever, was a decentralized organization, was in the spotlight, attracted endless scrutiny) that voter apathy is real and quorums are hard to reach. In TheDAO, this would have let to an inert, unwieldy blob of a closed end fund if it had not unwound.

Tezos has been positioned as a reaction to TheDAO and the overall Ethereum governance fallout of TheDAO and to governance problems in Bitcoin. It can adjust the quorum down to solve for voter apathy, amongst many improvements. Breitwoman started this comparison when she penned her TheDAO op-ed in Feb'17 and they've played up the governance failures of TheDAO (they are ignoring other learnings from TheDAO like ICOs should not be uncapped, and if things go wrong, you're better not having a centralized recipient of crowdsale proceeds around as a traget with legal standing in the US...). [Note: their obsession with Ethereum runs deep. They named their language Michelson, after the Michelson-Morley experiment that proved "aether" doesn't exist... :/ ]. But conceptually, how won't Tezos fundraising structure and adjusting quorum lead to centralized capture by the large holders Day 1? The lower the quorum adjusts to, the easier it is for a large holder to dominate the governance. The apathetic majority will be dominated by the Breitmans' and their cabal.

And the design gives a 20% block to "philosophically aligned" entities. The Foundation does not seem independent enough to disagree with the Breitmans in a substantive way, given the foundation was picked by the B's. Why create a decentralized governance solution and then endow the creators with stakes that look like they will dominate voting?

How won't the most endowed, most influential two people not control the governance? Why in a decentralized solution do some people seem more equal than others out of the gate -- the B's have alluded to having an uncapped sale so that people like Olaf and Tim Draper can get in (ironically these people already have benefited from preferential access, so this rationale rings hollow) suggests that some potential Tezos holders are more equal than others and certainly more desirable. Why won't Tezos be captured by oligarchs and the connected? Why use blockchain to recreate existing power structures? It stands out that an oligarch has already bought in and been used to market Tezos.

At the end of the day, people can take a measure of Tezos based on how they treat others and how they comport yourself. They will dominate the governance of Tezos, its design, and hold more of its economic value than anyone else. Maybe they're out over their skis, maybe they're just going too fast, I don't know. But they're going to be measured now, this week, next week, and for the entire length of the Tezos project.

It's because of these last sets of fears that the characters of the Breitmans really matter. They need to act fair, be pragmatic, and foster a decentralized open community for Tezos to succeed. But they will be rich in fiat, the largest Tezzie holders, and they will have already communicated to the public that some Tezzie holders are more equal than others. What's the point of blockchain?

Open questions from my old notes

The Tezos Foundation is separate from DLS but will control the cash that the Breitmans don't pay out to themselves. The board of the TF comprises: Johann Gevers, Diego Ponz, and Guido SchmitzKrummacher. I've never heard of these people and question whether they have the expertise to manage a $1bn budget.

Will the TF be separate from the Breitmans and DLS and will it be captive to the interest of the Breitmans/DLS? Note that when you navigate to tezos.com, and click "Team", you are not shown the 3 Swiss gentlemen above, but the Breitmans. It seems they substantively control both the Tezos Foundation and DLS, while pretending not to control the former. What controls are in place to ensure that Tezos's interests are put before the interests of the Breitmans and their for-profit entity? What controls are in place to prevent the Foundation from acting in the Breitmans' interests further by such actions as making acquisitions of companies with which the Breitmans' have relationships (acquihires and hiring "management consultants" (Kathleen was a management consultant) seem to be on the roadmap, easy paydays for people you know) and to ensure that ALL dealings are at arms length? How do Tezos ICO investors and Tezzie holders exercise their rights to ensure that their best interests are looked after? Honestly this would be an area that in the real world, real investors would be ripping apart a real fundraise even one that was much smaller than this. Check out the "Related Party" section of a typical midcap public company's 10K. These issues and the shenanigans that opaque organizational structures permit are where Enron went wrong.

Are the advisors to Tezos -- all great people I respect bigly! --> Emin Gün Sirer, Zooko Wilson, and Andrew Miller -- "philosophically aligned" with a $1bn or uncapped ICO? Have they vetted the Tezos Foundation board members as suitable stewards of such a large project and people that ICO investors in Tezos can trust? What is the extent of the due diligence of the advisors on the Tezos project overall (org structure, ICO structure, foundation composition) and what does their status as advisors mean with respect to this ICO fundraising process? Their names are about to be used to sell a huge $ value of Tezzies. Do they endorse the Tezos ICO as constructed?

If anything above $20mm+ was considered a "moonshot" level raise, why would capping this at $50mm affect the success of Tezos negatively? The structure of the ICO alone seems needless and reckless in a self-policing environment.

One of the best blockchain community members out there is /u/Dunning_Krugerrands/. He has continually received dead silence from the Breitmans when asking straight questions, as have most people who ask anything critical.

I actually have a ton more questions and concerns than I list here (apparently they may not even own the IP they are selling in this transaction? what recourse do investors have if that IP is not owned and this all falls apart?) but my time and attention are scarce. I have learned enough about Tezos to move on and focus on other things. I'm just editing and reposting this so people out there can benefit from the time attention I did spend and so that those same people are properly equipped to make up their minds for themselves. I saw Emin take Bancor to task and decided I should expend at least this effort.

In the real world, these concerns and the questions implied from them would still be kids' glove level of critical inquiry. You might not believe this, but when companies raise money in the real world through IPOs, they are expected to answer 1000's of pointed questions that get into the weeds not just on what the fundraisers want to talk about ("their dreams! their product!") but about reality --> mgmt, org structure, COIs, experience, track record, recourse, how their model breaks, who they are, why they need so much $, use of proceeds, how much they pay themselves, how much they will pay themselves, who owns the IP, who has title to it and under which jurisdiction, what do you mean you want to negotiate with a sovereign country and buy a bank, the list goes on. In the real world fundraisers are also expected to answer questions respectfully -- how they handle themselves is part of the process because management teams who can't answer questions well in the present or who dismiss criticism correlate with management teams who destroy value in the future. Character matters.

I hope the Breitmans prove me wrong by setting a cap, by eschewing a cash payment upfront, by not favoring billionaire and connected investors over normal people, by rethinking their agency issues, and by designing some great tech to reward their investors who will probably be contributing as much as a billion dollars to the Breitmans' Tezos ICO fundraiser. Shortly, they will be rich and have every opportunity to prove me wrong.

I speak out because I care about this space and I do not want to see it wronged. Always do your own due diligence and always be careful, everybody.

Some helpful links

And another thing: Emin tweeted that people should have more fun in their articles and have some liberty to tweak projects that raise crazy amounts of money. My concession to this was to use an online tool to morph Arthur Breitman from Tezos's face with Elizabeth Holmes from Theranos's face. I'd say that the face looks ethereal but Michelson already proved that "aether" doesn't exist. Instead I'll just say that the face just looks like a bad mistake. My other concession was the inclusion of a Juicero graphic because Tezos felt it worth using Juicero to help negatively market Tezos.

Steemians, if you have good color on or critiques of Tezos, please share them below, good or bad. I'll upvote the best quality information.