Could The Real Factoring Tokens Please Stand Up?

Prudent management now yielding results in the $3 trillion global invoice finance industry

Photo by Christine Roy on Unsplash

When interpreting data showing a lack of new entrants to the crypto market since 2017, Crypto Potato provided the following simple explanation to Binance and the other big exchanges.

“If cryptocurrencies are to grow, they need to continue seeing increasing interest, not because of speculation, but because of real-world applications, usability, and utility, in general.”

Hearing this from a potato cannot be easy. However, after a prolonged bear market, it is now clear that they are right. Utility tokens with revenue generating platforms are the best horses to back — just as was originally intended. Time-honored investment principles, such as a strong use case, effective tokenomics and the potential for mainstream adoption, are now thankfully back in vogue.

When trying to predict the future blockchain landscape, many have understandably looked toward the Big 4. A term used for the four largest accounting and auditing firms: PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young, and KPMG, these certified public accounting (CPA) firms perform most of the audits which are required of U.S. corporations having stock that is publicly traded. As such, their opinion tends to matter. Despite some investors doubting blockchain’s applicability to finance and audit, the Big 4 have long disagreed. They consider the $3 trillion global invoice financing and factoring industry to be particularly ripe for blockchain disruption.

However, Millennial investors, which is the dominant demographic in the crypto world, are yet to fully agree with this logic. In a world of instant gratification, they tend to expect the same for their token holdings. To nobody’s surprise, their relative youth and inexperience mean they often lack the business nous to identify strong commercial use cases — a big marketing budget is far more persuasive to them. But time is the greatest teacher, and Millennials are now starting to re-evaluate their prejudices. With some huffing and puffing, they are now reluctantly accepting that platform driven demand for a token is far more sustainable and ethical than crypto marketing pumps. And just in time too.

Either way, facts don’t care about feelings. Those with experience and a traditional investment background understand the power of government lobbying, which the Big 4 has clearly mastered. They also look to signs from the big players in mainstream finance to second guess what lies ahead for the crypto world. That latest confirmation of factoring’s suitability for blockchain came in the form of the Barclays-backed $5.5 million Series A funding round for blockchain-based B2B payments startup Crowdz. Since then, almost all skepticism regarding this technology’s applicability to factoring and invoice factoring has died down. And rightly so.

However, Crowdz is a very new entrant to the factoring world. Although their arrival is very pleasing confirmation to those who already understood the benefits of blockchain for financial instruments, it is nothing new. There are some factoring companies already using blockchain technology in this growing industry. Four of these have their own native tokens and a significant headstart on their Barclays-funded counterparts. They have also experienced vastly different fortunes as a result of their varying approaches over the past 12–24 months. The purpose of this blog is to make a brief and impartial analysis of them all, so let’s take a look, shall we?

The Factoring Three

Photo by David Pisnoy on Unsplash

Populous surprisingly neglected platform development during their first year of operation, instead pushing for price increases through multiple exchange listings to attract speculators. This worked well, however, and satisfied their speculating supporters, pushing them into the top 100 tokens on CoinMarketCap. The downside, however, was that their launch had to be delayed until earlier this year. Regardless, this was still a magnificent achievement and beyond the abilities of almost all token-based blockchain platforms.

Now listed on over 30 exchanges, including Binance, Populous are however still reeling from the damage to their reputation that was sustained after the discovery of the executive team’s criminal history, a fact which was unknown to many until after they had raised $10.2 million during their token sale. In a world where credibility is key, investors are now understandably warier, and it gives me no pleasure to say that Populous represents the perfect case study on how to risk your utility token categorization and alienate token holders at the same time. Although not completely hopeless, their situation is bleak. From now on, being considered anything more than just a speculation token will be very difficult.

Another factoring competitor, the Vancouver-based PayPie focused on platform development over baseless hype. Although their crypto marketing was also not as effective as Populous’s, their hard work on the business behind the scenes is now finally paying off. Just this week, they had cause for celebration after agreeing on terms with the British Columbia Securities Commission in Canada regarding their regulatory compliance, further underlining their determination to take a huge chunk out of the $3 trillion factoring industry. This excellent progress has also been reflected in their token price. Despite some rather odd pumps and dumps, as shown below in the chart for the last month, their market cap of $20 million does appear to be an accurate reflection of their worth. PayPie is a solid business and doing great work to promote the use of blockchain in factoring and invoice financing.

Last month’s price data for PayPie on CoinMarketCap

The last of the three factoring companies in this list is the unheralded factoring startup, Hiveterminal. Since announcing their landmark deal with Gosocket a year ago, which was set to change the world, there has been nothing but radio silence from their South American partners. Over time, this served to crush confidence in Hiveterminal, destroying the price of its native token, HVN. And it’s been back to the drawing board ever since. This has now developed into a bleak warning and stark reminder to any company looking to do business with Gosocket, and they have failed to provide any public comment or justification for their unprofessional approach.

However, the team has shaken off this tragedy and is back in a celebratory mood. On the same day that ERP Solutions, Inc. unveiled the new release of its Total Quality Control Management (TQCM) Software for Microsoft Dynamics 365 Finance and Operations, Hiveterminal announced that Microsoft had approved its plugin for use on 365FO and NAV. In essence, this development makes Hiveterminal the first factoring token to have successfully integrated with a leading global ERP of the stature of MS Dynamics and is great news for HVN demand. Their management argues that this strategy represents the quickest and most efficient way to ensure the adoption and normalization of blockchain and cryptocurrencies in the traditional financial world. And with other ERPs like SAP and Oracle more likely to want to work with a company that has already integrated with an ERP, it is difficult to argue with this assertion.

Their tokenomics make sense too — they have a small market cap, but that is in line with having processed only EUR 50,000 in funding so far. Like PayPie, they have resisted paying the high fees demanded by the more glamorous exchanges, and the vast majority of its trading volume can be found on HitBTC. This listing is perhaps their biggest weakness and is precisely why their forthcoming listing on AUSTRAC-regulated Nauticus this month has been so hotly anticipated. To follow progress, you need to sign up as a platform user here, but if you just want to get a feel for them, check their blogs and unofficial Telegram community.

Also check out the community-run tracking website, soldonhive.com. There you will find full details on platform performance.

Exchanges And Regulation

Photo by André François McKenzie on Unsplash

As most crypto newbies instantly understand, a token’s success is closely linked to the success of exchanges where it is listed. If you use Telegram or Twitter, you will notice these people immediately because they say things like “moon” and “Lambo”, often with no context. However, the industry’s wiser heads also realize that listing the wrong token can destroy an exchange. That is why exchanges like Kraken and Coinbase are now finally understanding Bitstamp’s wisdom and putting regulation above short-term gain. As a result, the list of cryptocurrencies they could potentially list is getting increasingly smaller.

For example, the ultra-conservative Bitstamp lists only BTC, ETH, XRP, BCC, LTC — and it is obvious why. Any whiff of behavior that could position a token as security is obviously frowned upon by the US authorities and would jeopardize that token’s continued existence as well as that of any exchange that lists it. Red flags include but are not limited to: (1) being listed on more exchanges than necessary to fulfill the basic volume required for the token’s purchase and sale; (2) token burning; (3) price manipulation; (4) price commentary; and (5) airdrops.

As regular readers of my blog will be aware, the Tomahawk case speaks directly to this airdrop issue and how it jeopardizes a utility token’s categorization. In this case, the SEC concluded that the distribution of tokens in an airdrop is a security offering that requires registration. Prudent firms have therefore assumed that this decision will make all airdrops security offerings that require registration with the U.S. Securities and Exchange Commission (SEC). As a result, they have decided never to run them since they value their long-term compliance over short-term financial gain.

Bucking this trend, however, Binance has already run airdrop campaigns for BNB, its native token. It could, therefore, be argued that they will eventually be considered non-compliant for the listing of utility tokens if they ever decide to allow US customers to use their platform. This is despite them being the biggest exchange for utility tokens in the world with the largest user base. However, most observers can see that the decision to relocate to Malta from Japan and China exposed a worrying lack of regulatory planning that will eventually catch them up and put a stop to any potential US expansion.

Unfortunately, the pressure exerted by reckless exchanges to encourage utility tokens to behave like securities has crushed the future aspirations of almost all of them. In their hunger to offer listings for up to $1 million, they almost destroyed the industry in the process. It was simply a matter of good judgment that almost all of the factoring tokens managed to retain their utility token integrity. They are also still on course to continue meeting the exacting regulatory standards to come. And yes, following the logic above, that could mean choosing not to pursue a listing at Binance, despite it being the most popular exchange in the world.

Since Binance is not US-based, and therefore unlikely to ever meet the USA’s stringent criteria, there is a risk that any listing there could jeopardize a token’s future place on the fully regulated US-based exchange all token holders want. As everyone accepts deep down, the global blockchain community would be incomplete without the United States of America, and so it is completely understandable that PayPie and Hiveterminal (listed on less than 10 exchanges between them) have all avoided getting listed on any more non-compliant exchanges than absolutely necessary. And it is equally unsurprising to see Populous listed on so many too.

In the summer of 2017, all ICOs had the same choice: spend your ICO funds on product development or exchange listings. As you can see, the prudent PayPie and Hiveterminal mostly chose the former, whereas Populous mostly chose the latter. Only time will tell as to which decision was correct.

So, there you have it! I hope you feel slightly wiser and better acquainted with what’s going on among blockchain’s factoring tokens. These are just my own personal opinions, so if you are a platform used for any of the tokens listed above, please use the comments section below to let me know your own experiences. I’d be very interested to hear an inside view, especially if it is supported with links and evidence.