What is Tezos (XTZ)?
In the Blockchain world, Tezos is a project that, for better or worse, got a hell lot of attention. Tezos is the product of many years of crypto-economic and philosophical reflections led by its masterminds Arthur and Kathleen Breitman, and who laid them out in their 2014 White Paper.
Previously, Arthur Breitman was a research engineer for Google X and Waymo. In his early career, he worked as a quantitative analyst for Goldman Sachs and Morgan Stanley. Arthur graduated from the École Polytechnique and the Courant Institute of NYU where he studied applied mathematics.
His wife and partner Kathleen Breitman is also a graduate of New York University. She previously worked as a Strategy Associate at R3 CEV and at Accenture, and as Management Associate at Bridgewater Associates. They are assisted by a team of developers as well as board members Ryan Jesperson, Lars Haussmann, Michel Mauny, Olaf Carlson-Wee, Pascal Cléré, Marylène Micheloud and Hubertus Thonhauser. More on their accomplishments here and here.
The Tezos co-founders
Andrew Miller, Emin Gün Sirer and Zooko Wilcox are advisors to the project. At a very early stage, the Breitmans were able to attract pioneers of the crypto world like Tim Draper and board member Olaf Carlson-Wee among others, who bought into their vision of a brand new decentralized, self-regulated and security-focused smart-contract platform. The combination of the vision, the team and the ecosystem allowed Tezos to raise 232M$ in an uncapped ICO in 2017, the biggest crypto-fundraiser at the time and much more than what they had expected at first.
However, things quickly turned into a nightmare as “real life” governance issues started to arise, leading to a lock-up of ICO funds by the Swiss foundation that was supposed to manage them. These obstacles created ICO participant disappointment, class action lawsuits and delays in development and the product launch date.
One year after the ICO finished, it seems that Tezos has dealt with most of its issues and is now ready to deliver. We thought this would be a good moment to understand what the project is all about and where it comes from.
Let’s dive into the story and the tech.
Tezos, the gigantic ICO, then the problems
The Tezos ICO was a bit different from others, in the sense that the team made several design choices that were questioned by the community and made it a different kind of investment compared to flip-a-coin-for-profits ICO types that were mostly the norm back then.
First of all, the ICO was active for 2000 bitcoin blocks – or a bit less than two weeks – which was considered a very long time considering many projects were raising tens of millions of dollars in less than a minute. It was also uncapped, meaning there was no limit to the amount they could raise. Also, no ERC-20 token was to be issued before the network launched, which means that Tezos had to build a functional product before the network could go live, and thus investors would have to wait for an undetermined period of time to get their hands on the tokens.
According to the Tezos team, these decisions were intended to drive a more widespread distribution of tokens among investors by allowing more people to get in, distributing the wealth between many more individuals, as well as discouraging make-a-quick-profit investors in favor of tech-enthusiast investors who would help build up the community and the network.
History proved that the recipe was a winning one.
Tezos raised 65703 BTC and 361122 ETH, for a total value of 232M$ at the time. At today’s prices, that’s roughly 500M$. That is a lot of money, and the Tezos team had a plan for it: they would foster their ecosystem by committing 50M$ to venture capital investing in projects building on the tezos platform and hedge the risk on their war-chest by buying different types of traditional financial assets.
For the sake of transparency, the Breitmans decided to rely on a Swiss foundation to manage the funds. The goal of the Tezos foundation was to disburse funds in order to promote and develop the Tezos protocol and related technologies, as well as promoting and supporting applications using the Tezos protocol. As good as the picture looks, things didn’t go quite as planned. The Breitmans made some mistakes that were going to taint the whole project.
First of all, they totally excluded themselves from having any connection to the foundation other than a contractual one that put them in charge of developing the Tezos protocol from their company Dynamic Ledger Solutions. In the end, the deal was that the Foundation would own the Tezos source-code and trademark from the Breitmans’ company for 8.5% of the funds raised in the ICO, plus 10% of the tokens allocated in the genesis block. Furthermore, they put their trust in the wrong individual as the President of the Foundation. Johann Gevers had a good reputation within the community and his past experiences made him an ideal pick as President of the Foundation. The Foundation’s board even ended up giving him in single-signature access to the funds.
However, it turned out he had no interest in fostering the Tezos project. He tried to link his own companies to the project to promote them, he hired people linked to him, and changed his status to “Executive Director” in order to pay himself a substantially higher salary than what he could have made as President of the Foundation.
In light of these problems, the Tezos community even started building their own Foundation called the T2 Foundation with Ryan Jesperson as leader and which was supported by prominent individuals like Olaf Carlson-Wee. The goal was to launch the network even “if the Tezos Foundation is not able to do so adequately or in a timely manner.”
When the Breitmans threatened to expose him and cancel the contract they had with the foundation, Gevers shut off the money tap. The delays in project development and the fact that investors couldn’t see the end of it (and didn’t even have an ERC-20 token to sell their positions) led them to begin questioning the project and several class action lawsuits were started.
The T2 Foundation entered in partnership with the Breitmans, allowing them to pay developers with their own money for several months to keep the project running. In the end, after lots of hassle and drama, Ryan Jesperson and Johann Gevers met in-person and Gevers agreed to step down from the Foundation. This marked the end of this ironic governance situation, which was unexpected from a self-governing project…
In the second part, we focus on the technology and the governance model behind the Tezos blockchain.