How the Tezos dream turned into a raging nightmare


It began with a dream and a $232 million USD initial coin offering, and ended with four lawsuits and a nightmare.

That’s the epitaph of Tezos; the digital currency project which promised to build a decentralized commonwealth of ideas and a cryptocurrency without the friction witnessed in Bitcoin s community.

Humble beginnings

Tezos started life as the brainchild of Arthur and Kathleen Breitman and their firm, Dynamic Ledger Solutions Incorporated, as a decentralized project that would enable developers to propose and vote on technical improvements to the initiative’s core protocols.

Arthur – an early fan of Bitcoin and employee at Goldman Sachs and Morgan Stanley – and Kathleen – a former employee ad Bridgewater Associates and R3 – first released the white paper that illustrated the Tezos network under a pseudonym.

The central thesis behind the Tezos network proposed the idea that its governance system would be devoid of the hard forks that have wedged many cryptocurrency communities apart. Like Ethereum, Tezos would accommodate a smart contracts platform, but would feature built-in governance and formal verification and would further function by delegated proof of stake.

As new proposals were accepted, their authors would be rewarded in ‘Tezzies’ – creating a self-sustaining technocracy and, potentially, the internet’s first true commonwealth – where developers could sustain themselves through Tezzies, and work towards the betterment of the platform without having to ask for donations, rely on their own capital, or be sponsored by a foundation or another organization.

The incorporation of delegated proof-of-stake would enable Tezos holders to delegate the responsibility to verify transactions to another user on the network, while the addition of formal verification would accordingly enable developers to self-verify their own smart contract code.

The Breitmans established Dynamic Ledger Solutions in 2015, where Arthur was first listed as chief executive. In 2016, Arthur had left Morgan Stanley where together with Kathleen he began to develop the online fundraiser that developed into the project’s initial coin offering (ICO).

At the outset, Tezos seemed like a compelling project – and if its ICO was any indication, wallets around the world agreed. In little over two weeks, Tezos managed to raise a massive $232 million USD in its ICO in the form of both Bitcoin (some 66,000 BTC) and Ether (some 361,000 ETH).

Yet, ultimately, Tezos has never reached the general public.


A mid-life crisis

The unraveling began slowly. Arthur and Kathleen Breitman, while establishing Tezos’ successful ICO, set up the official Tezos Foundation in Switzerland. The nation reportedly represented an attractive location for the managing board of the project considering the nation’s relaxed financial regulation.

The plan was simple; the Breitmans would set up the Tezos Foundation to manage the Tezos ICO, and would then use the foundation to acquire Dynamic Ledger Solutions and all of its intellectual property rights – placing the stewardship of the project firmly in the Foundation’s hands. The agreement would see Dynamic Ledger Solutions’ investors (the Breitmans, included) rewarded with 8.5% of all funds raised and 10% of all circulating Tezzies.

Complications swiftly arose thanks to the fact that Swiss law cites that the board members of foundations must be independent – meaning that while the Foundation itself would be able to purchase intellectual property from Dynamic Ledger Solutions, the Breitmans would be unable to sit on the Foundation’s board.

Subsequently, Johann Gevers – the founder of the Crypto Valley association – was swiftly appointed as head of the board in place of the Breitmans themselves. Under Swiss law, which offers loose ownership statutes, this meant that Gervers effectively took control of the Foundation.

Shortly thereafter, an explosive report published by Reuters revealed that things had taken a turn for the worse.

Reuters revealed that Arthur and Kathleen Breitman had filed a 46-page latter to the board of the Tezos Foundation, calling for Gerver’s immediate removal and demanding that the couple be given a “substantial role” in a new structure. Reportedly, issues ranged to include objections over employees Gervers wished to hire, to the fact that Dynamic Ledger Solutions had not released the official Tezos Foundation domain to the Foundation itself.

The Breitman’s attorney had reportedly accused Gervers of “self-dealing, self-promotion and conflicts of interest”, and had demanded his suspension for the period of one month, to which Gervers reportedly objected.

Gervers subsequently refused to step down, quipping that the move was “attempted character assassination” and part of a “long laundry list of misleading statements and outright lies.”

At the outset, Tezos appeared to have met its end. According to Gervers, the initiative had kept its stash of Bitcoin and Ether secure in wallets that no single party had control over – leaving it unclear as to who precisely would be left to claim the reward and develop Tezos into the project it was envisioned to be.

In the wake of the impasse, four different class-action lawsuits were filed against the Tezos Foundation and Dynamic Ledger Solutions over their failure to deliver the Tezos network as advertised.

Death and rebirth

As hopes withered and faded, a grassroots movement named T2 founded itself in Switzerland. The genesis of several concerned investors, T2 was intended to chart Tezos’ course to the market as the relationship between Gervers and the Breitmans broke down.

Comprised of a seven-member board, T2 was led by Ryan Jesperson – a member of the initial Tezos Community and an early investor in the project. T2, a ‘backup’ entity, then, was comprised with the view of reclaiming Tezos’ funding under two subsidiary organizations – a foundation and an association – and was designed to support Tezos in the event Dynamic Ledger Solutions planned to launch the project underneath a different entity.

Jesperson clarified that he had hired Swiss representation to approach local authorities in a bid that would grant him the legal authority to disburse the funds Tezos raised during its ICO.

Eventually, the levee broke – Gervers subsequently stepped down in March of 2018, and members of T2’s board subsequently moved aboard the Foundation’s, giving both the project and beleaguered investors a new lease on life.

Despite the drama that underpinned the battle for custody over Tezos, the project may have ultimately have been saved thanks to the fact that its development did not cease during the Breitmans’ protracted legal battle with Gervers.

Jesperson, the board’s new chair, subsequently announced that work has fully resumed and Tezos might finally see a release – The Tezos Foundation has now clarified that the project is expected to launch in the third quarter of 2018 after a beta release as well as a technical and security review.

In a statement, the Foundation elaborated that “…as we move closer to the Tezos network launch, we are exploring structures for how to effectively provide capital investment into projects to be built on top of Tezos and its ecosystem. More information on this will be coming. We also continue to explore opportunities to fund research topics related to Tezos. Thank you again for your support as we move toward the launch of the Tezos network.

In an interview at MIT Technology Review’s Business of Blockchain conference, Kathleen Breitman remained steely-eyed despite the months of infighting that have threatened to derail Tezos. Remarking on the fact that Bitcoin is “extraordinarily resilient” and could be likened to the ‘coca-cola’ of the cryptocurrency world, Breitman quipped that she would still like to see Tezos become analogous to Pepsi.

While it remains to be seen what might come after Tezos’ final release, the project remains a sharp reminder that both blockchain enterprises and the wider cryptocurrency ecosystem are ultimately both novel entrants on the global stage – and that even the smartest code cannot resolve bitter differences between human beings.

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