Art by: Jing Jin
[Update: Coinfire and members of the Bitcointalk forum have reported that Circle, Paybase/Paycoin's credit card processsor, has cancelled Paybase's account, presumably for violating Circle's TOS policy on virtual currencies]
At the center of the Paycoin controversy is the disagreement among critics and GAW over if the US $20 price floor was ever actually something they promised to enforce. The company recently released a statement explaining their side of the argument.
They claim that the US$ 20 figure was based off of figures “very much like a mathematical equation” and that their plan of “expanding market capitalization, and crafting the mechanisms to ensure the market did not grow faster than the rate of adoption among users, the overall growth rate” should have been enough to hold the US$ 20 price point, and blames the lower price on “dumpers.” (Paycoin currently sits at US$ 4.05 according to CoinMarketCap).
Nowhere in the updated statement does it talk about Paybase using its market to influence the coin's price, nor plans to use the Coin Adoption Fund to help keep “stability” as was previously spoken about.
Back in November, Garza and a few other members from the GAW team held two Google Hangout chats where they fielded curated questions from the community. At that time, the story did sound significantly different than what GAW is saying now, but Garza did state that the US$ 20 price point was not “guaranteed”.
The hangouts were transcribed and posted on the hash talk forum. The transcript of the later video pretty much accurately captured everything that was said, minus a few comments. The other transcript does not follow the video currently posted as the Hangout at all, it is unclear as to why this is. The transcript got favorable reviews from the community, including Josh Garza himself, when it was posted in Mid November. It has since been deleted. Archive.today has the post as it was up until January 1st, 2015. The post was apparently deleted sometime after that, during the midst of the ongoing controversy. This is appears to be the first time that the post has come to light since its deletion (although, the Bitcoin Talk thread is well over 700 pages at this time, so it is possible it appeared there before).
According to the transcript of the October 1 Q&A, which doesn't match the video, when asked how he will guarantee the US$ 20 price, Garza takes a moment to stress that the US $20.00 price is not guaranteed, but he does go on to make claims that it is the “minimum price” outside investors have indicated they are willing to pay for the coin. He also says that it is “highly likely” that the price will be above US$ 20 when the coin launches in the public.
In response to an earlier question, Garza once again touted outside experts as the reason for coming to the US$ 20 price point. “The analysts and banks have stated that they have determined the coin will be 'at least' $20.00 per coin, once it is released for sale to the public.”
The second hangout, from November 4, sounds a little less confident, but echos largely the same tune.
Interestingly, a sentence by Garza during his answer was omitted from the transcript without explanation. In the video, Garza can clearly be heard saying “What we can do is make it difficult [for Paycoin] to go below a certain price.” that seems to imply that GAW and Paybase would do what they could to keep the $US 20 pay floor in place.
But, to GAW's credit, Garza never quite promised that the floor would stand no matter what. Allen, the author of the transcript (that again, received accolades from Garza) further expanded on the video by explaining how if one exchange is willing to pay more, it in turn affects the prices at other exchanges “because in theory, no one would be willing to sell something for significantly less benefit one place, when they can get so much more value in another (a.k.a. GAW’s Hashbase or exchange).” This would seem to be implying to investors that Paybase will buy Paycoins at a more expensive price than open exchanges if the value fell below the US$ 20, but it is not an official statement of that claim.
The official policy of the forum is to delete posts that can be defined as “trolling” but these posts were either praised by Josh Garza or written by the man himself, as far as we know, Garza has not commented on why they have been deleted. Another post, discovered by the Bitcoin Talk community has Garza stating point blank that a US$ 20 floor would be offered.
“Want to know how we will offer a $20 floor? The answer is easy. We will move the market with our buying power. So the market will be above the floor.”
While Garza never quite says that the floor is guaranteed, he does states it as an inevitable fact: they will move the market which will be above the floor.
There are a number of other posts deleted on the Hashtalk forums that the Bitcoin talk forum community has dug up, each with various levels of Garza seemingly, at the least, exaggerating the coin's capabilities at launch. There is also a number of threads where Hashtalk forum members post ad-nasuem about the US$ 20 pay floor and no one, even on threads where Garza was active, correct the claim. In fact, conversations continue from that point as if the US$ 20 pay floor is a given.
There are also posts where Garza promises to “stabilize” the currency's price, and it seems as if everyone takes that to mean at US $20. Regardless, the currency has not been stabilized at any price. In another post, he states that Paycoin can be “used” as $20 in PayBase. It is unclear how “use” is supposed to be different than “sell”.
Among the claims made before the coin's launch was the promise of thousands of merchants and the ability to spend Paycoin anywhere Bitcoin can be purchased. Nothing approaching that has yet materialized. Early versions of the website also included testimonials of a service that didn't exist (and still doesn't) as well as Target, Wal-mart, Best Buy and other major retailer logos that, to this point, still have not begun accepting Paycoin. (Although it was at times claimed they would allow users to spend Paycoin at those locations through technical wizardry on Paycoin's side, without needing those merchant permission. That does not appear clearly on the early iterations of the site and later the logos were removed.)
A way to spend the coins at Amazon was also promised, something Amazon stated it would not allow, according to Coinfire.
But, it is the disappearance of the expected pay floor that pains investors the most. I have yet to see an official announcement where Garza or anyone official from GAW or Paycoin, flat out claim that the US$ 20 floor will never be broken. Instead, I see a lot of claims where they did everything to assure investors, without unequivocally guaranteeing, that it would not be broken, pending circumstances that GAW gave every assurance would not happen.
According to statements made post-launch, Paycoin attempted to keep the US$ 20 floor up, but were overwhelmed by a large number of dumpers. Garza and others insisted before the coin's launch that they did not expect many people to dump, despite that happening in most every cryptocurrency and despite multiple posts from long time users of the Hash talk forum explaining to them that their low dump numbers are unlikely.
They insisted that they expected that people would break the mold and hold these coins, despite miners foregoing a month of profit to “mine” the hash stakes. A 16 dollar spread between early “phase 1” purchasers and the public IPO is almost too attractive for investors not to dump at that point. For this to be completely unexpected would mean a complete lack of comprehension of the basic principals behind traditional investing, human nature and how every other cryptocurrency in existence has worked until this point. If we are to take their claim at face value and they do understand the principals behind investing, they must have felt that their coin was so powerful it would override those basic principals and were so confident that it would, that they didn't bother to factor it into their “mathematical” equation used to determine the price.
The “investors” and “banks” that reportedly helped Garza come to the US $20 evaluation have not been disclosed, nor has Paycoin released the “mathematical equation” to the public. One claim of Garza has turned out to be true, the investment group behind GAW has confirmed that they have invested.
We have reached out to Josh Garza for comment, and have not heard back as of yet. We will update this space if and when we do.
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