As of April 1st, our ITO public fundraising was officially closed. It’s a time to look ahead, but first we need to do some retrospection. Let’s look where it all started.
Aerum has started officially in November 2017, although its roots go back to at least half a year earlier. Back then Aerum’s co-founder and CEO, Alex Randarevich, while participating in building blockchain-based startups, has realized several critical issues with probably all general non-purpose-build public blockchains. Those issues were blatant when applying public blockchains as a platform for building robust, scalable sustainable business. There were multiple problems with trying to run business applications catering specific audience on these blockchain. And, unlike what most people think, scalability was not the only one. Indeed, having a scalable infrastructure is a must but that is not the only or even the most important aspect.
Having a proper blockchain economic model accommodating integrating businesses and providing them with an economical way to cater their customers’ needs is critically important. That means having a model where customers don’t need to worry about transaction costs, having a certain cryptocurrency in their wallet to complete a totally unrelated to this cryptocurrency transaction, learning the ropes (how much gas do you need, what price of gas to set, how much sats/byte will make wait 30 minutes instead of 30 hours?) all while businesses don’t need to go broke buying volatile cryptocurrencies only to subsidize their customer transactions. Last but no least, for a modern application, especially in FinTech sphere, having a real-time or nearly real-time executing is very important. Having to wait often unpredictable times without the possibility to get transaction completed in a very reasonable time will distract majority of potential users.
The Aerum team initially set to build a closed-loop solution that would cater a couple of friendly projects. When work started it because apparent, that for any business solution looking to gain public trust and transparency the protocol must be based on a public permissionless ledger. Building a public blockchain requires so much more research, economic model design and development that it was decided to make Aerum a stand-alone project with the goal of building a robust, SLA-grade protocol for building economical and scalable business applications on top of it by anybody. It would be based on Ethereum code base with certain critical improvements, such as a completely novel consensus mechanism.
Consensus is a process of network stakeholders of agreeing what information should be included into a blockchain. Ethereum currently runs a Proof-of-Work consensus, such as Bitcoin. It is expensive, energy-inefficient, requires big capital expenditures and ultimately it is very easy to highjack in 51% attack in its early days. When Bitcoin and several other top public blockchains started and were very vulnerable, very little people were interested in doing 51% attack, since it was known only to hard-core enthusiasts who believers were in the good that blockchain technology bring, and the value of cryptocurrencies was relatively low, so the attack would not yield much rewards. Nowadays situation is much different. There is a lot of purpose-built hardware capable of mining multiple coins with different cryptography schemes, that can be bought, and event rented, making taking control over the network easy and relatively cheap. And certainly, that was the case for multiple 51% attacks and subsequent double-spend on smaller PoW networks in 2017 and 2018.
On another spectrum lies Proof-of-Stake protocol, where no mining is required, and network security is gain through “staking” its cryptographic tokens. This technology has been gaining popularity since days of BitShares and is now used by multiple public blockchains such as BitShares, Waves, EOS, Tron, Tezos to name a few. However, there are few issues with this approach as well. Instead of infamous 51% attach it is susceptible to “nothing-at-stake” attacks and “sybil” attacks. First is like 51% and happens when network validators (an equivalent of miners) deliberately fork the network and join both (or multiple) chains effectively gaining an equivalent stake in all of them. This attack might be detrimental to any tokenized assets on these chains, causing double spends and general uncertainty. This is a very critical issue for any serious business to consider running their application on top of such network. Another issue with PoS is related to the network governance. When voting for the network control is executed within the same network, Validators can control what votes go through and what do not. It is similar to a situation when you would cast a paper ballot in a real-world voting and then election committee can simply remove and burn votes that don’t really suit their agenda. We can easily see powerful cartels growing in these networks that have an assurance of always being in power. The self-governing aspect of these networks can easily be lost in these situations. For business owner it poses a real risk of doing a capital expenditure to building an application on top of such a network only to realize that it is running by non-accountable cartel that pretty much highjacks the whole decision-making within the network, prompting those who do not agree with this situation to fork the network causing uncertainty, disruption and possible double spends.
Aerum came up with a unique idea. We designed a consensus mechanism where staking and decision making would be happening outside of Aerum’s own blockchain. Instead, it would be placed on Ethereum PoW mainnet blockchain, secured by its already immense hash rate. It provides with best protection about abovementioned “nothing-at-stake” attacks, prevent forking since no additional stakes can be gained, and prevent cartel formation through a well-though system of governance. We currently are unaware of any similar design. Besides that, we also designed an economic model tailored for business participants as they have an economic advantage to become network validators and receive free gas as block reward, allowing them to subsidize transaction cost to their customers without having to buy this gas from the open market. Having a purpose-built network also ensures that investments required in a stake for the active validator are much lower that it would be in the upcoming Ethereum 2.0 Proof-of-Stake system, while providing with a stable source of free gas to subsidize customers’ transactions.
Aerum founders decided to self-fund the development of the software to make sure Aerum can confidently demonstrate it is able to fulfill its promise before doing external fundraising. By June 2018 we had a functioning alfa-version of key software components and in August 2018 a public beta was released. Back then it appeared that doing an Initial Token Offering (similar to Initial Coin Offering) would be a great idea since public and professional investors alike were enthusiastic about the concept. While Aerum was more looking towards B2B economics the blockchain and protocol were intended to be used by the public. Hence the idea of doing a public ITO sounded right.
As we started our business development and first partnerships were established, we started to realize, that our offering is more suitable for businesses not the end users or public ICO investors. As more time has passed it became more and more apparent that Aerum needs to focus on business development and strategic investors, not on public investors, whales and syndicates. It was confirmed by a range of successful strategic investments from our partners moving our fundraising towards its goal. The realities of the severe bear market in cryptocurrencies and growing speculator apathy only strengthened our view. However, since announcements were made, and a public campaign started it was reasonable to continue with it. If anything, it would bring us public attention and brand awareness. That was the main reason behind our public campaign that ended March 31st, 2019.
As we are looking ahead now, we must focus on expanding our ecosystem, bringing new partners and catering their needs. Our focus needs to be fully B2B and that means we need to make certain adjustments.
For our business to have a strong footing around the world, including United States, Canada and China we need to minimize any legal risks that might arise in an uncertain situation about public token offerings, given lack of solid regulatory frameworks, and no clear guidance.
To protect our company from legal risks related to ICO/ITO fundraising activity and given the fact the absolute majority of raised capital comes from corporate investors and not from public, we have decided to cancel our ITO and refund all public investors. By the end of April 2019, all ITO/IEO investors, contributed directly to Aerum token sale, ExMarkets or Latoken platforms have been refunded while the tokens they purchased originally were provided to them as a gratitude, free of charge.
Since so many things have changed, we decided to close this thread in order to communicate with our supporters using a new thread which will be created, in addition to our other official channels: Twitter, LinkedIn, Reddit and Telegram.
This thread will be updated with a link to a new thread once it is ready.
