Sandra Leonie Ritter and Peter Reuschel from Leondrino Exchange in an interview with Gereon Kruse, boersengefluester.de
Leondrino Exchange: “The ICO process needs regulations”
Investors’ eyes light up whenever the name Staramba is mentioned in the domestic hot-stock scene. The company, originally in the 3D printing sector, is now tackling the next big thing after the smartphone: virtual reality coupled with stars in sport, film and music in digital form. Christian Dauder, CEO of Staramba, presented the virtual reality network, STARAMBA.spaces, during a press conference on the margins of the German Equity Forum in Frankfurt. Staramba is now aiming for nothing less than a revolution in the licensing market using blockchain technology and by issuing its own digital currency. Leondrino Exchange is partner to this ROYALTY project. And as it feels as though half the world is abuzz with concept like Bitcoin, ICO or tokens, boersengefluester.de wanted more precise information and met Sandra Leonie Ritter (CEO) and Peter Reuschel (COO) from Leondrino Exchange in Frankfurt for a background discussion.
Mr. Reuschel, Cryptocurrencies were THE topic of 2017 and on the stock exchange also. What precisely does Leondrino do?
Peter Reuschel: Simply put, we are a service provider for issuing private currencies. Leondrino is a trademark of the Leondrino Exchange for digital currencies. Leondrino is a new class of digital currencies that combines the advantages of money supply control via central banks and the technological advantages of digital currencies including cryptocurrencies and avoids the disadvantage where possible.
Which advantages and disadvantages?
Peter Reuschel: Unlike other virtual currencies, the amount of currency at Leondrino is not fixed. Our control of the money supply is subject to individual monetary policies depending on the brand and is oriented towards parameters of a money cycle. That includes, in particular, a respective brand’s real and planned business data. That limits the volatility and strengthens the acceptance of digital currencies for transactions at the point of sale.
How do companies benefit from issuing a Leondrino currency?
Sandra Leonie Ritter: Companies gain an important advantage by using their own branded currency: the more transactions a consumer makes with the currency, the more improved individual pricing can be offered to reward their loyalty. Our aim is to create a new source of financing with branded currencies and to offer investors an attractive asset class. As a side effect, we contribute to the stability of competing currencies safeguarded by brand sales, and the sufficient liquidity of overlapping money cycles that can sustain the failure of a brand in the event of individual currency .
Peter Reuschel: Our mission is to make Leondrino a trustworthy class among the new virtual currencies and to develop a more stable financial system through competing private currencies. Let me remark on the token concept: When I hit on the idea for Leondrino in 2011, I used the concept of “token“ then also. However, the Leondra music team could not have imagined being able to market the word “token”. That’s why we have continued using the working term “Leondrino”.
ICO, following the classic flotation or Initial Public Offering (IPO), is another concept often mentioned in the context of cryptocurrencies. What exactly is at issue?
Sandra Leonie Ritter: ICO is the acronym for “Initial Coin Offering” which is a new means of financing by issuing digital currencies for companies. Originally, that implied creating purely a currency for a new blockchain implementation. These currencies are used differently depending on the “token design”. Such tokens serve as a means of exchange similar to Bitcoin and Ripple – sometimes as a means of network payment like Ether and Tezos or as part of decentralized applications, for instance, at Golem.
Peter Reuschel: Tokens can earn added value when used for concrete products and services. Leondrino Exchange and our licensees are pursuing such a “token design“ and a clear commitment to securing the regulatory recognition in the respective legal field. We wish to strengthen the three main attributes of money – as a means of exchange, store of value, and bond whereby the emphasis of the three attributes may differ according to the brand.
Is this merely hype or are we about to witness the triumph march of digital currencies?
Peter Reuschel: Start-ups associated with blockchain technologies earned more growth capital in the first six months of 2017 via ICOs than through capital increases, according to the crypto analysts Smith & Crown. Thus, the new means of financing has stood the proof of concept by issuing a digital currency in this limited market environment. Digital currencies will definitely become increasingly present. Clearly, not all of them will “survive”. We are convinced that the digital currencies of global brand companies will be the real winners of the blockchain revolution as these currencies are mostly (at least in the case of Leondrino) secured by the brand’s acceptance obligation. That does not apply to other virtual currencies. The latest wave of ICOs is often marked by the lack of an economic model and governance as well. This wave will subside and potentially the first bubbles will start bursting in April 2018; the next annual review season. That is actually reminiscent of the Neuer Markt and the situation in spring 2000.
A closer look at marketing pages on which ICOs are promoted gives the impression that no clearly defined business models exist yet – except the published white paper. Investors are apparently, not too disturbed. Is there an explanation for that?
Sandra Leonie Ritter: An unexpectedly high number of Initial Coin Offerings (ICOs) occurred over the past nine months. This phenomenon, which some people are calling the “Second Internet Revolution”, was triggered partly by the success of Bitcoin and Ethereum platform. The latter facilitate the issuance of personal, standard tokens that can easily be exchanged for Ether. To avoid conflict with regulators, you can only take part in ICOs via other crytcurrencies like Bitcoin, Litecoin or Ether, which have been on the market longer. As the amounts are stubbornly limited, this inevitably leads to scarcity and thus to a higher price for first-generation cryptocurrencies. That heats the market up even more.
Peter Reuschel: So far, the tokens have been used purely for crowdfunding ideas or to represent a company’s shares. In terms of quantity, rigid volumes of highly volatile tokens were issued. These tokens are only good for speculating on value appreciation, but not in exchange for goods or services. Investors have realized that their own business models are subject to great changes presently. Meanwhile, they are investing in a company’s currency i.e. token rather than in the company itself because they obtain swifter returns on their investment (ROI) by selling the tokens than by retaining shares in the company. At least, that was the case among start-ups linked to blockchain over the past 18 months. Apart from that, we are still at the very start and the likelihood of “catching” the one successful currency “soaring” through diverse ICO participations is still very high. Thus, powerful investors continue to fuel the market.
A publicly-listed company recently announced that it was on the verge of creating the third most important currency after Bitcoin and Ether. How does that work and how can such forecasts be made?
Sandra Leonie Ritter: That is just market shouting – on the other hand, the company in question was successful with this communication strategy thanks to the press echo.
What role will Leondrino’s ecosystem play in blockchain and cryptocurrencies? How would you describe Leondrino’s target group? Who is your offer for?
Sandra Leonie Ritter: The offer targets mainly large, global companies and rapidly growing start-ups. Apart from creating a third source of financing by raising capital or shares, for us, revolutionizing customer relations is at stake. Ultimately, intelligent systems can yield entirely new knowledge about customer behavior and pricing, if the customer agrees. Particularly companies that are exposed to digital transformation, can build up and secure a new ecosystem with noticeably more clients, and also offer smart services to other partners in it.
The readers of boersengefluester.de include many corporate decision-makers. Your concept of digital market currencies could meet with interest there. Can you describe such a process?
Peter Reuschel: We offer an hour’s telephone conversation or a first meeting when a company contacts us. During the phone call (usually involving the CEO and CFO), we discuss how a personal Leondrino currency can support the interested company’s strategy. If it is suitable, we offer to prepare the introduction of a branded currency and formulate this in an initial contract with Leondrino. The emphasis is on planning the monetary policy based on a business plan, scenarios for introducing the currency during the freemium distribution phase (distributing part of the currency to loyal clients) and shaping the pre-sale phase i.e. advance sales of part of the currency to investors before launching public trade at discounted terms.
During the initial phase, more and more partners in our ecosystem support us in terms of legal aspects, marketing and communication concepts. When the initial planning phase ends, which is often accompanied by limited market tests and talks with potential investors, the Leondrino main contract is signed. That outlines the concrete procedures for launching the currency in public trade and the acceptance obligation of the branded currency, stipulated in the initial contract, is fine-tuned for products and services. Additionally, the fundamentals of the concrete monetary policy are also agreed in writing.
The exchange rates for Bitcoin, Ether and other cryptocurrencies have gone through the roof in the past months. Well-informed sources say this rise is due to the Darknet, on the one hand, and to the massive increase in derivate brokers’ activities. The alarm bells are sounding for some people. The keywords money-laundering and regulation come to mind. How do you rate this development?
Sandra Leonie Ritter: As mentioned before, restrictions on the ”money supply” (fixed maximum amounts) in cryptocurrencies are driving the prices. This restriction is impacting a rising number of ICOs, who can often be reached only via Bitcoin or Ether. The derivate trade has fueled the soaring prices even further. This early bubble will burst and is quasi foreseeable. The entire ICO process needs rules. The broad range of so-called token design innovations (all rights and obligations linked to a token) is difficult for investors to digest in the long term. A few tried and tested standards will establish themselves. No market participant can bypass the laws for preventing money laundering. Potential black sheep will not last long. Larger investors will opt for market participants and legal areas with standards for avoiding money laundering to live up to their own governance and reporting requirements.
Those aiming to go public must first undergo thorough due diligence by auditors. By contrast, ICOs have no duty to report nor are there overseers like supervisory authorities. Isn’t that a great shortcoming and a considerable risk that investors might invest in a Blackbox?
Peter Reuschel: Yes, indeed, there are no guidelines at present. That will have to change in the mid- to long-term – whether the still fledgling scene (see the German Blockchain Association‘s activities ) regulates itself or responsible regulators do so. Before investing, you can get a good idea of whether it’s a serious or fraudulent offer by reading the white paper on the ICO, examining the status of the project and the maturity of the product as well: Is it purely an idea that will be implemented sometime in the future or does the product (or parts of the product) already exist and how concrete is the roadmap (planning) and naturally, the team and the company’s structure. Thus, the overall assessment of ICOs of start-ups does not alter considerably from to the work of an investment manager of a VC firm. Not every investor has time to do such an analysis, so experienced VC investment managers do not have to fear for their jobs.
Many ICOs are launched in Switzerland or offshore…probably for good reason. How do you feel about regulatory issues and the location Germany?
Peter Reuschel: The financial markets compete with each other – and thus the regulators. The regulatory thresholds are very low in some areas e.g. Switzerland and Singapore to attract the FinTech scene. ICOs are banned in other regulatory areas e.g. China. BaFin, the responsible supervisory authority in Germany, has been hesitant so far and warned consumers on its website about ICOs in early November (HERE). So far, no clear assessment i.e. regulation on virtual/digital currencies exists. However, that is for sure: In Germany, there will be no low-threshold regulation like in Switzerland, but a much stricter one. We certainly welcome that as the quality and trust in digital currencies will rise as a result. In addition, we welcome BaFin’s case-by-case scrutiny of each ICO There is a chance of sensible concepts being financed through ICOs and ultimately, the German market would not be as weak when financing growth compared to other markets.
Leondrino Exchange recently announced it’s own digital currency in a press release. Can you give us some background information?
Sandra Leonie Ritter: We plan to introduce our own bridge and reserve currency of the Leondrino ecosystem, called XLEO. Thus, we are pursuing the following goals: we want to create liquidity at the point of sale with extremely short response times and thus raise the acceptance of new Leondrino currencies. On the other hand, we want to use our own reserve currency, in addition to fiat currencies, to do intervention support for individual Leondrino currencies e.g. in the event of attacks by competing brand currencies in the same industry. Our long-term goal is to make XLEO a very stable digital currency.