Helium, Pump and Dump
Founders Made Dough, Participants, Bag Holders
I have been a fan of Helium since it started. I bought three miners and gave two to my daughters. I had one. We thought it was a cool idea and could provide a viable competitor to some big telecoms and other big entrenched corporates.
In my blog, when I have written about crypto, I highlighted Helium as one of the companies that seemed to be building something of note, not just a spec coin.
However, it looks like something else was afoot. At Fortune, they wrote an article. Here is an excerpt.
With miners’ profits and installations tanking, Nova Labs is now attempting a second act. After hinting at building a 5G network last year and acquiring hardware companies, Helium announced it would be launching a separate mobile network in June, powered by a different type of hotspot and a new crypto token called MOBILE.
The question, as Nova Labs pushes into 5G, is whether the company can pull off an ambitious, new project while its other is mired in turmoil. For critics like Nicholas Weaver, a researcher at Berkeley’s International Computer Science Institute, Helium Mobile isn’t a new attempt to create a decentralized wireless network, but a distraction.
“They’ve been trying to keep the scam going by doing a shift to a model where it’s cellular connectivity, because people can understand that better,” he said. “They need to keep the grift going.”
Forbes showed how the insiders ran the value of the coin up, and dumped them.
A review of hundreds of leaked internal documents, transaction data and interviews with five former Helium employees suggest that as Helium insiders touted the democratized spirit of their “People’s Network,” they quietly amassed a majority of the tokens earned at the project’s start, hoarding much of the wealth generated in its earliest and most lucrative days.
Forbes identified 30 digital wallets that appear to be connected to Helium employees, their friends and family and early investors. This group of wallets mined 3.5 million HNT — almost half of all Helium tokens mined within the first three months of the network’s launch in August 2019, according to a Forbes analysis that was confirmed by blockchain forensics firm Certik. Within six months, more than a quarter of all HNT had been mined by insiders — valued at roughly $250 million when the price of Helium peaked last year. Even after the crypto price crashed, the tokens are still worth $21 million today.
Hey, anyone that bought a miner knew they were taking a risk. Anyone that has followed crypto knows full well that crypto has melted down. Anyone that has watched startups knows it takes a long time and there are bumps along the way. That’s part of it.
What’s not part of it is insiders selling at the expense of investors.
In a traditional startup company, a CEO or management team couldn’t sell equity unless they had the approval of the board of directors. In succeeding funding rounds, they need board approval but also the approval of the new investors. A huge problem with crypto is no adults are in the room minding the store. The whole, “we don’t need a board of directors” is not a great idea.
Boards are fiduciaries and responsible to all investors. I have made hard decisions on a board that would hurt my investment but were better for the company.
One of the other problems with crypto is who do you sue? Suppose you think there is fraud. Who do you name in a lawsuit? How do you prove it?
It’s generally a sign of weakness if founders sell equity at the early stages of the company. Also, if a founder sells at early stages that’s not someone you want to back. You want them to build a business so they can buy an island and you can buy a Porsche.
Part of the risk of building a startup is assuming risk by holding illiquid equity in the company. I have made fun of coin companies where founders sold early, leaving their investors as bagholders. I remember the one but forget the name where the guy was crying about selling his holdings and the coin tanked. He walked away with millions and his investors were holding the bag.
Crypto has a huge problem with ethics in general.
A few things would be good for Helium to actually restore some confidence. They center around transparency and ethics.
All first-round Investors such as Fred Wilson and USV ought to be transparent about their holdings and if they hold as much as they held post initial investment. Did they sell? Did they get special treatment? I want to be clear, I am not accusing first-round investors of pulling a scam and USV/Fred have pretty good ethics so I would be surprised if they did.
All other investors ought to be transparent about what they hold and what they did.
Any insider that sold should have to buy back tokens equal to the amount they sold post-tax. They presumably paid taxes on the profits of their sale.
For what it is worth, I still own all my Helium. It was worth over $100k at one point but it’s worth a pittance now. Helium also changed the rules on mining, and now is going to use the Solana chain instead of their own.
It’s time for ethical investors to talk, enforce some discipline, and provide transparency. It’s also time for the founders to show some ethics.
I am not hopeful for either.
I'm going to be honest - I feel like this whole industry is nothing but a speculative Ponzi scheme. I don't understand it, and the more I hear about it, the less I "get" of it.
If the intent is to provide a secure store of value then I think this is being conflated by many to be the same as wealth. A representation of value -- e.g. a currency -- is not the same things as wealth. It is merely a system designed to transfer wealth. A tool. Maybe it's more efficient than the dollar, but how much value does that create? We haven't yet seemed to figure that out, as far as I can see.
Wealth is created when someone produces something, whether a service or a good. "Mining" a digital coin and then calling it "wealth" simply because you've said so means absolutely nothing to me.
Plus, you are competing with governments of the world and established currencies that are centuries old in many cases. Yes, you can "print" a dollar and it feels like the same thing, but the difference is that dollar is issued by a government, whereas a cryptocurrency is an unknown store of value (or something) that is only backed by founders who insist that "it's the future" while dumping it in the background. Time and again.
I know, I don't get it. Sometimes I get interested, and then I see too many stories like this, where these companies are just houses of cards.
And what of private crypto when the Fed creates a digital dollar? At that point is the only value privacy? Well, yeah, that has some value, but not what they are thinking.
Can someone explain the point of these things in a paragraph or less? How does it generate wealth?
NFT's are another one. Millions of dollars for a file showing Lebron dunking a ball. "But it's the original!" Uh huh. Zeros and Ones arranged in a particular order.
"It's art!"
I'm a dinosaur...hear me roar.