Lykke is a new kind of currency and asset exchange. It’s built from the ground up to serve as the glue for the decentralized web of trust and value. My name is David Siegel. Here I will tell the story of the Lykke coin, based on interviews with Richard Olsen, founder of Lykke. My goal is to help you realize your goal of creating and issuing a new cryptocurrency, so I’ll tell the story in a way that helps you with your project.
[NOTE: The figures here have been researched and checked, but they may still not be 100% accurate. They are essentially for illustration purposes.]
About Cryptocurrencies and Cryptoassets
The first cryptocurrency is Bitcoin. Recent editions include Ether, Maker coin, Maid Safe, Ripple, Lite Coin, Steem, AMP, and others. These are currencies you store in a wallet using a private key. Cryptoassets can represent the value of anything as a cryptographic token: gold, diamonds, land, commodities, solar energy credits, and more. The one thing they all have in common is that on their first day, they were worth nothing. Zero. To make them worth something, people have to believe in the future value of the coins. That means writing software, doing business, getting customers, getting funding, signing up partnerships, and communicating the vision a hundred times a day. The more value you create, the more people will want the coins that represent that value. Let’s see how it works in the case of Lykke.
The forex market trades over $1.5 trillion daily. While people trade in milliseconds, the ledgers “net out” overnight and still take days to settle. Olsen was no newcomer to this market. He started a company called OANDA (Olsen and Associates), and brought forex trading to the masses. Today, OANDA is a market leader in forex. So in 2015, Olsen asked a few friends for seed money and started Lykke, which means “luck” in Norwegian (In Danish ‘Lykke’ means deep joy and great satisfaction. The word is originally nieder-German — lucke). Lykke’s goal is to reshape the world’s financial markets with a new kind of exchange that we hope will replace not just the current crypto-exchanges but the stock and bond markets as well.
Issuing Paper Stock
When setting up the company, Olsen faced a dilemma: he wanted to use cryptographic tokens to represent the value of the new company, but the legal world doesn’t recognize tokens, it recognizes paper. So he registered the company as a Swiss company using old-fashioned lawyers and paper documents.
Olsen set up Lykke in 2013 by putting in 100,000 CHF and owning 100 percent of the stock (10 million shares). He wrote a business plan and approached friends who believed in him. They gave him the seed money to get started. In 2015, Lykke issued 1.45 million new shares and sold 2.7 million shares to friendly investors for 540,000 CHF at .20 per share. He also gave some of his shares to cofounders. After the investment, there were 11,450,000 shares and the company was worth 2.29 million CHF.
Shortly after, the company created 525,000 new shares for new investors and created the treasury by transferring 3,025,000 shares to that account. Now Olsen owned 60% of shares, the treasury had 24.2%, and investors had the rest.
In spring 2016, the company raised another 500,000 CHF by creating new shares, so the company now had 12,856,900 shares and a valuation of CHF 18 Mio.
In summer 2016, an investor purchased some treasury shares at 2.50 CHF per share, making the company worth 32.1 million CHF. After this, the treasury held 22.2 percent of all shares, Olsen had 58 percent, and the eight employees and several investors held the rest.
Olsen wanted to issue coins and have the coins represent the stock. So the team went to Coinprism.com and created a batch of colored coins — tiny slivers of Bitcoin that will be called Lykke coins and represent the value of the company. The team multiplied each share by 100 and created 1,285,690,000 Lykke coins with the name LKK (my understanding is that this was done in the basement of a Russian art house at 3am). The coins are divisible to six decimal points, which is probably overkill. The point of divisibility here is to make sure you can make trades against many currencies without having to return change.
As the shares were worth .20 each at this point, each coin was worth one-fifth of one Swiss cent (0.002). The treasury held 22.2 percent of all coins.
Lykke team members are now building a mechanism for coin holders to vote on important company issues, and one coin will be worth one vote. This mechanism will replace the voting mechanism in a traditional shareholder bylaw agreement. (Personally, I hope that for multi-choice votes, they will use a Range Voting mechanism.)
After the first investment, the company held a contest to find a programming team to build the exchange. That’s the subject of another story. The winning team elected to be paid in Lykke coins, knowing they could always cash out by redeeming them on the very exchange they were building. After paying those bills in its own coin, the treasury held 15.7 percent of all Lykke coins. Want to see them? Here they are.
Legally, the tokens are a side note — the Swiss government will recognize shares before tokens. But Olsen’s goal is that “the tokens lead, and the paperwork follows.” So while Lykke hasn’t floated shares on the Swiss stock exchange (and never will), Lykke token holders will have the ability to participate in the company’s profits in an identical way. Token holders won’t ever receive paper share certificates — those will always be held by the secretary.
This is a different way of using stock than the traditional paper method. In the traditional method, private funders put in money and get preferred stock, but everyone’s stock is illiquid for many years, until there’s an IPO. In this approach, the company “goes public” after the first round, everyone has liquidity immediately, and it’s up to the company to show investors what they are doing to raise the value of the company. The stock is immediately more volatile but also reflects a real-world valuation given by anyone who’s interested in buying or selling the stock. While this is currently illegal in the US, it could be a new paradigm that US regulators will eventually embrace, because it is far more transparent and much cheaper for companies to raise money.
This could be a new model for companies seeking to raise money. The Lykke exchange could easily some day replace the large, well-known stock exchanges — and that’s exactly what the Lykke team hopes to do.
Preparing for the crowd sale
During the summer, the team launched the Lykke wallet for iOS and then the Android version. People started downloading the wallets, and the exchange went live with several currencies available to trade. The company sold 100,000 more shares, raising another 500,000 CHF. This round set the price of each share at 5 CHF, which makes the coins worth 5 cents. The treasury supports that price by being a market maker on the Lykke platform — anyone who wants to sell Lykke coins can sell to the treasury any time.
The team that won the contest now had doubled their money just by shipping the product. This is exactly the idea behind “going public” early — everyone can see the real-time value of the coins, and people who get paid in coin can decide to hold or sell any time.
The next step was an initial coin offering to the public. While there is now plenty of interest from professional investors, the people at Lykke believe that their most enthusiastic supporters and customers should have a chance to participate in the company’s growth.
At this point, the treasury has 15 percent of all coins, which is 187.5 million coins. For the ICO, they will offer 30 million coins, or about 16 percent of the treasury’s coins. The sale of 30 million coins will result in 1.5 million CHF for the company. After reserving ten percent for coin buy-backs, the company will have 1.35 million CHF to put to work.
Tax Note — if you pay people in coins (or stock), you must be sure to tell them the market value of those coins at the time. In many countries, this counts as income, so people must declare that income at the time they were paid and value received. From there, the upside is counted as capital gains. It’s as if people were paid in cash and decided to buy coins the same day.
Who can legally buy these coins? This turns out to be a huge issue, as many coin offerings are in a gray area of the law. It also depends on which country’s laws apply — the seller’s or the buyer’s?
The United States is the country to worry about most. According to the IRS, if a company outside the US has an offering and does not in any way target American citizens, they can of course sell securities to non-Americans. But if Americans find these offerings on their own and invest, these securities are exempt from regulation. In general, investors from other countries face no issues and can purchase freely. See our FAQ for details on eligibility. Canada is similar enough that it should be treated like the US.
What if your company is based in the United States or Canada? Then you should have a look at the JOBS act and various equity crowdfunding regulations. If a coin represents ownership and is eligible for dividends, you should assume that a company’s coin is the same as its stock.
The Marketing Challenge
Raising money is hard work. People with successful Kickstarter campaigns know that Kickstarter does not provide a built-in audience for their product. It is the same with a coin launch: you must prime the pump with your early adopters, then build a model of the people who form your early majority and go after each group in multiple ways. You’ll need a combination of press releases, growth hackers, content marketers, keyword marketing, online events, videos, ambassadors, social marketing, events, inbound, referral, contests, Slack participation, and luck. There are plenty of books written about this process. Type “how to launch on kickstarter” into Google and you will see many resources.
Most people don’t see the money spent behind the scenes to help promote a coin launch, but it can be significant. Sure, there are a few Steemit-type launches that seemingly come out of nowhere with a positive-feedback loop to get a lot of press, but in most cases all the excitement is the result of a lot of planning and experimentation to find the best acquisition strategy for each segment.
We are in the process of setting all this up at Lykke, so I can tell you a bit about how we are doing it.
The Lykke Crowdfunding Marketing Campaign
The first thing we do is divide our market into segments, so we can target them specifically.
As with any campaign, our early adopters are our most important asset. Since we had a contest to find the engineers to build our exchange, we have the contact information for these people. We’re inviting them to download and try our wallet, with a small reward of a few Lykke coins in their wallet when they complete the process.
Next come our existing investors and people we have pitched to in the past. These people are great resources. We’re asking them for quotes, connections, and to personally tell their friends about the Lykke crowd fund.
Another group is active traders, mostly FX traders. They know about OANDA, so we can tell that story and get press in the FX space. This is an important group — they are our future customers. We would love them to become owners. We need to go where they are already — they aren’t likely to be drawn by search results and keywords.
Next is a group I would call cryptocurrency buffs. They have experience trading cryptocurrencies and are building a portfolio of tokens they think will increase in value. These people talk to each other in forums and social media, so we need to reach out to them to find them where they are and tell them about us. We also need news stories for sites they read often, so we’ll be going to editors to pitch them on writing our story. We can reach them in Slack communities, Reddit — wherever they watch for news. For this group, buzz is important. You need to keep getting the name out constantly, keep tweeting and using social media and word of mouth, and tell the story of the crowd fund day by day, so they can see other people validating their investment.
Because we’ve had a reasonable amount of funding already, we want to tell our story to people who are momentum investors. These are people who aren’t early adopters but want to get into the latest trend. They formed the bulk of The DAO investor community — people who jumped on board but weren’t very active in further discussions (it’s not their fault the project failed). It’s likely these people have several other cryptographic tokens, mostly based on what they hear is popular and rising. People who have bought Steem tokens would be another good example. This group needs to hear the name Lykke ten times before they’ll even come to the web site. It’s a matter of trying many different media, using several consultants and channels to keep up a steady stream of updates on the crowd fund and how we’re changing the world.
Marketing is all about the details. You want a wide variety of channels and messages, to find what works. We started by asking the online marketing community to come see this page that describes what we’re trying to do and asking them for proposals. We are running a Twitter contest, to give away coins to people who tweet for us. And we’re asking different social-media marketing experts to help us with each target market.
It seems the current trend in landing pages these days is a DAO-style tote board, where visitors see the current numbers totaling up, increasing all the time. I’m not convinced that’s the only way to go, but it seems to work, so we created an ICO home page that has a tote board toward the bottom.
We want to make it easy for people to buy our coins. In the case of Lykke coins, you can buy them using any wallet that accepts colored coins. Once you have the wallet, you can purchase Lykke coins using Bitcoin. We have also set up the ability to make a SWIFT or credit-card payment. You can learn more about this process in our crowd sale FAQ. We also created a Terms and Conditions page, so people understand what they are getting.
At the time of the offering, the valuation of the company was 54.2 million CHF (64.3 million minus the 10.1 million of the value of all treasury coins). This sounds high for a start-up, but this startup is different. Its founder has a phenomenal track record in this space. The team has accomplished much in the first year, launching the platform and two apps on schedule. And the company is currently cash-flow positive, because it is already doing custom integrations of its system into a large bank, a large retailer, and other consulting clients who want the Lykke system to work for them.
In the first ten days, the Lykke ICO sold 440,000 CHF worth of coins. That’s not a bad start. We are now starting to get the word out to more people in more markets.
The Price Begins to Float
After October 10, the company will no longer sell coins from the treasury, but it will buy coins from people who want to sell. The price will fluctuate according to market demand. It’s important to set expectations, so people realize that the value of their investment could go down or up.
To help people get information on the company, Lykke teams will build a content and reporting platform. They plan to publish their books every six months, so people can analyze their finances. In this way, if people find mistakes or have ideas for saving money, the company will benefit.
Once the price is allowed to float, the company will maintain a reserve pool to provide liquidity on an ongoing basis. Olsen and his team are creating agent-based investment algorithms that buy and sell Lykke coins to provide liquidity — if an investor sells her shares, then the agent-based models will buy the shares and hold them until others buy them. The price of Lykke coins can now go up and down, but the algorithms are designed to help provide stability and prevent speculators from moving the price too much. The smaller your market-cap is, the more important these mechanisms are. Lykke hopes to do the same for other ICOs in the future. Please contact us if you would like us to provide this service for you.
To raise money for more license applications, Lykke plans another crowd sale in 2017, hopefully at a higher valuation.
A lot of effort goes into fundraising for a new company or project. We’ve left out the years of building credibility and relationships with investors to get the initial funding, which of course is the hardest part. Overall, the message is: the more work you put in and the more value you create, the more likely you will have a successful crowd sale. In the future, we hope the Lykke ecosystem will be that “Kickstarter” platform that helps you get your project or business funded. But that’s another story.
My name is David Siegel. I’m a Lykke ambassador and enthusiast. In this series, I’ll be exploring various aspects of the Lykke exchange and why it’s so important to humanity. Come learn about Lykke — the exchange built for the decentralized web of value.