How ICOs Can Help Real Economy: The Case of Funding Factory Construction
This week Cointelegraph had a chat with Vadim Sychev, CEO and Founder at ZrCoin, which claims to be the world’s first commodity-backed Blockchain option.
ICO has proved to be an efficient way to kickstart a crypto project given that there is a demand for it and the team working on it has a solid strategy. There are numerous projects working on digital products and services completing their Initial Crowd Offerings in minutes after the launch securing a fortune of millions of dollars but that is in a digital world.
How about the real world? What are the chances to attract investments for producing something touchable and observable?
A few weeks ago Cointelegraph looked into how ICO can be applied for attracting investments into real economy projects, as we spoke with Mikhail Shlyapnikov who launched an ICO to fund expansion of his farm production.
This week we had a chat with Vadim Sychev, CEO and Founder at ZrCoin, which claims to be the world’s first commodity-backed Blockchain option.
Why Blockchain and cryptocurrencies?
A ZrCoin initiative unites a group of international entrepreneurs, scientists, industrialists, financial analysts and Blockchain experts, who came together to develop a new green process for producing ZrO2 from waste materials. Besides integration of cutting-edge manufacturing techniques, the project leverages the latest financial technologies and strategies.
As the Blockchain technology has long been suggested as the solution to the inefficiencies of global markets and financial systems, the ZrCoin team suggests to move forward deploying its advantages in practice for trading Blockchain securities backed by real commodities.
Sychev tells Cointelegraph:
“I have been involved into a complex financing of various types of projects for a few years now, with an experience in private practice for more than ten years, have founded my own company in the finance industry. I have been involved into venture projects for four years now, for me it is something in between the full-time job and a hobby. Recently, I got really interested in application of all sorts of innovative technologies across industries. During all these years in the field, I have built friendly connections with a few developers, At the moment I am working on the application of their solutions.”
Speaking of the potential of the project to attract interest, Sychev comments:
“I think the project has real chances to become successful. Digital world is overflowed with all sorts of crypto projects, ZrCoin seeks to link industrial advancements and innovative financial technologies built using Blockchain.”
A colleague of Sychev agrees saying that the decision to integrate Blockchain is both a practical necessity and an opportunity to facilitate development of a new kind of economy. Andrey Nikonorov, an economist and a specialist in the field of financial analysis and assessment of project investment prospects, explains:
“Mainstream outside investors wanted to own 70-80 percent of the business, which we were not prepared to accept. So alongside our new green manufacturing technologies, we have developed a new way of structuring investment and perhaps pioneered a new means of commodity trading.”
ICO as a way to fund a factory construction
ZrO2 is a scarce material used in the production of ceramics and in other applications where physico-chemical resilience under high temperatures and adverse conditions is required. It is a structural component of alloys used for building atomic reactors, artificial joints and prostheses are made of Zirconium.
ZrCoin team has started working on their project in 2014 with a thorough research aimed at developing of mechanisms for processing of industrial waste and its further recycling for extracting of useful components. The focus was on the refractory applications.
“Our key objective was to design processing methods and mechanisms for the full recycling of industrial waste. One of these developments is going to be integrated into ZrCoin project.”
On May 11th, ZrCoin is launching an ICO seeking to raise a minimum of $3.5 mln for building a production line in Magnitogorsk, in the South Ural Region of Russia. The city is famous for its large steel production facilities.
“There are a few reasons why the choice fell on Magnitogorsk for locating the factory. First of all, as there are numerous factories producing steel and refractory materials. Secondly, the region is rich with raw materials. Besides, all our developers reside in Magnitogorsk, so it will be easier for them to monitor and control the production site.”
During an ICO investors will be able to make deposit via wire transfer as well as with Bitcoin and other cryptocurrencies. In case ZrCoin attracts larger amounts, two production lines will be constructed, which will significantly accelerate the process of ZrCoins buy-back.
The demand for synthetic zirconium allows to repay to investors, at a significant premium, from the profits of the operation. ZrCoin is planning to start buy-backs no later than in eight months from the end of the crowdsale, meanwhile trading token on the market. If desired, ZrCoin will be made redeemable for a unit of physical ZrO2.
The value of ZrO2 is priced in USD and is relatively stable, therefore, ZrCoin will have a protection from the volatility which is endemic for cryptocurrencies. Investors will be able to receive their money back at any point after the end of the ICO.
Boosting crypto economy while advancing industry production
Sychev believes that ICO is an interesting way to attract investments into development of a new real economy sector project.
“We decided to launch an ICO to fund industry project pioneering in this field. There is a number of advantages offered by ICO as a model of attracting investments, including transparency, decentralization and simplicity. However, there are also certain risks mainly associated with high volatility of cryptocurrencies.”
As for the latter, Sychev believes that cryptocurrencies possess a huge potential to improve existing financial systems and particularly investment mechanisms for funding projects often overlooked by the state and big investors.
He continues by saying:
“If at least part of cryptocurrencies were directed to finance successful projects in industrial sector, it would give a boost to development of crypto economy, as token price would be increasing due to its connection to real products and services, not due to the hype on the market. If our project becomes successful, I believe it will allow for further development of technologies and production methods, eventually advancing industry sector in Russia.”
Symbiosis of a digital and real worlds
Indeed, there is a belief that ICO as a model has a potential to revolutionize the way real economy projects are funded. ZrCoin project is issuing its own token through the Waves platform, which is currently focusing on developing mechanisms to attract investments into objects of the real sector of economy, allowing small enterprises to set free from expensive bank loans.
The strategy they have developed so far implies going beyond the cryptocurrency space giving real businesses to issue a token, sell it securing investments for expansion of the business. Token in this case represents some sort of a voucher linked to an existing product, and can be easily traded.
While it is beneficial for businesses, it is attractive for users as well, as it gives an opportunity to earn. This is some kind of symbiosis of digital world with the real one, which is beneficial for both as it transforms former and allows for more opportunities to invest into traditional businesses.
Sasha Ivanov, CEO at Waves platform, and advisor and guarantor for Zrcoin project said in one of his recent interviews to the Russian media:
“Absence of regulatory framework,has some implications for the development of the industry. In the legal sense, this type of financial activity is in the shadow. But in practice, it is nothing more than selling of a digital product or a coupon. If someone asks whether it is legal, well, it does not imply violation of any regulations. Any operation with token can be considered as a delayed debt claim, which obeys existing regulatory framework. However, it does not mean that there is no need to regulate cryptocurrencies and transactions with them. There is a huge need to define the legal status of Blockchain technology and a legal validity of the information stored on it, because to this day, running ICOs on Blockchain is beyond legal.”
Sychev agrees that developing a business with involvement of cryptocurrencies is not an easy task in Russia, and there is a number of hurdles, which inevitably occur.
“There are a few difficulties when it comes to regulations. We have tried to develop a strategy which does not contradict to the current regulations. As a result we have found a way to connect our company with an investment fund in Cyprus. There is always going to be some degree of disbelief and skepticism, but we are trying to make our project as transparent and understandable for everyone. After all, everyone is free to make its own decision whether to get involved or not. We are integrating innovative solutions, so far there hasn’t been anything similar.”
Concerns about the security of invested funds
ZrCoin initiative raised many questions from the community concerning security of invested funds, mechanisms of pay-outs and overall transparency of the project. For instance, many were wondering about the Cyprus-based investment fund.
“The fund was created for controlling of the investments, as well as making cryptocurrency transactions, as there is currently no legal framework developed in Russia. Investment fund is among the shareholders of the company created in Russia. Funds accumulated in the Cyprus fund will be transferred to Russian company according to the loan agreement, which will guarantee the full reimbursement of borrowed funds.”
ZrCoin team aspires to ensure the highest level of transparency of all financial operations, as well as production processes, therefore, as said by Sychev, ZrCoin will make available the live streaming for production site, as well as forward reports to all investors.
ZrCoin is actively engaging with the local administration and other authorities, who are assisting with land acquisition. According to the roadmap, the factory is to be launched by the end of 2017, which as Sychev reassures, is a realistic task:
“The factory itself is not a very complicated manufacturing facility. Basically, it is a fabric building with a set of production equipment. To this point, everything is ready to start construction works, however, there is a number of technological issues, resolving of which depends on the available resources.”
If you got curious about the project, please visit their webpage or contact the ZrCoin team, they seem to be very open providing answers to any questions that may arise.