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Sporting Crypto - March 14th 2022: Socios accused of withholding millions in tokens from former staff members

Sporting Crypto - March 14th 2022: Socios accused of withholding millions in tokens from former staff members

March 14, 2022

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Intro Notes, Plugs & Amendments 🔌🔧

Hello and welcome back to another edition of Sporting Crypto. I’m finally back at my desk, and it feels like I’m just in time. It does feel like we’re in an everything bubble. The state of some stock charts are not pretty, inflation doesn’t look like it is going away and geopolitical situations mean our world feels very volatile, including the economy and as a byproduct; crypto.

With that in mind, as news comes to the fore about the Premier League deciding on NFT partners, NFL ALL DAY launching and many other projects & partnerships come to light - it will still no doubt be a big year in this intersection

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This week’s deep dive: Socios accused of withholding millions in tokens to former staff members

Socios, the fan token partner for hundreds of sports franchises worldwide, has been accused of withholding payment from former employees.

The fan token platform has come under a lot of criticism from various journalists globally for various things have made themselves and lots of sports clubs, lots of money over the last two or so years. Some football clubs in particular, have made tens of millions of dollars selling fan tokens via socios

I wrote about why I don’t think this fan token model that they’ve employed, works. You can read that here:

The accusations

An article was posted on the 11th March 2022 by James Corbett, on a publication called ‘Off the Pitch’ titled “Football’s crypto king and the missing millions” - a really, really cringeworthy title, but that’s beside the point.

The article alleges that Socios withheld crypto payments of their native token Chiliz ($CHZ) to their former advisers. A ‘whistleblower’ who raised concerns about missed payments internally was sacked. Which isn’t great, if true.

According to a contract shown to Off the pitch, a gamer was to be paid $150,000 worth of Chiliz, presumably for an endorsement of their product. A high profile tech exec also signed a similar deal to endorse Chiliz, confirmed to off the pitch that they too were not paid in full.

The article alleges that Alexandre Dreyfus (CEO of Socios) refused to pay advisors in order to reduce the amount of downward pressure on $CHZ.

Advisers weren’t the only ones short changed howeverAccording to off the pitch’s article:

Staff were also due to be paid part of their salaries in chiliZ, but a whistleblower told us Dreyfus refused to hand over the currency to them either. According to our source there was a “put up or leave” mentality and staff were in fear of losing everything.

Many had moved to the Mediterranean island of Malta, where the company’s headquarters are based, and were stuck there, the whistleblower alleged, unhappily awaiting their windfall.

In March 2021, the chiliZ price went nuclear. At one stage it hit 89c – making the gamer’s stake alone worth around $13 million. One employee told us they could have cashed out then for $10 million.

Dreyfus allegedly went cold on a lot of these requests. Emails, telegrams and more were sent his way by advisers from Korea, the gamer and more - to no avail.

He was even reportedly pressured by co-founder Max Rabinovitch to hand over some of the money owed to appease said parties.

The employee who said that he could have cashed out for $10 million, told us that he was effectively left with no choice but to sign away any rights to that sum. Instead, he took around $60,000.

To this, Dreyfus and Socios issued a statement via medium addressing some of these issues.

It included the following passage:

The piece made serious allegations that delays in the transfer of $CHZ to Korean advisors and a former Korean consultant were an attempt to influence its price from January 2020.

Following its publication, we have been in conversation with the journalist regarding the factual inaccuracies. Whilst some of them have since been removed, we remain concerned that the article does not reflect the truth of the matter.

For the sake of clarity and transparency, we wanted to highlight and share the correct data points.

The data in question relates to the number of CHZ in supply at the time.

In January 2020, the circulating supply of CHZ was 3.7 billion as opposed to the stated (50 times smaller) number of 75 million. CHZ is built on a blockchain — a public ledger — and therefore this number can be verified on publicly available records. What’s more, one month later, there were 4.5 billion CHZ in supply.

Clearly, given this scale of circulating supply, the awarding of CHZ to Korean advisors would not be responsible for driving any movement in price. Indeed, the number of CHZ awarded to the small number of advisors in question at the time was circa 0.4% of the overall number of CHZ.

A good friend of mine said to me the other day:

“The best thing about web3 is that it’s the wild west. The worst thing about web3 is that it’s the wild west”He’s right. The ability to move quickly and break things and do never before seen stuff is incredible. It’s a blank canvas. The murkiness of it, however, can equally leave you shortchanged, in dire straits or simply defrauded.

On the above story, if what Alex has written is correct regarding the circulation of tokens, I’m flabbergasted as to how the off the pitch piece has gotten it THAT wrong regarding the token supply. Blockchains are public ledgers. If you can’t look at coinmarketcap or any other aggregation site to look at token supplies (that are publicly available to all), I don’t really know what to say. If this is an incorrect fact check by the Socios team then my apologies, but it seems pretty simple to get that write, when you consider the seriousness and gravity (and quality) of the article.

That aside, this isn’t a great look, to say the least, for Socios.

The allegations are serious and something that won’t go away quickly. Commercially Socios have done incredibly well. For both them and sports clubs.

In my opinion, however, they’ve tarred their name and more broadly the name of everything associated with crypto, that interacts with sports. Which to me, is a big shame, obviously.

There’s an over-commercialisation that has happened here that I don’t like. The allegations from off the pitch, combined with that make me think that there will be big pressure on Socios over the next several months.

NFTs like NBA topshots may go for crazy prices if they’re rare, but some of them are also very cheap. And it’s a digital collectible. It’s something you hold, own and yo are proud of having. Like a baseball card.

No one is proud of owning a fan token. They all look and are the same. Some would say they’re fungible! (or semi fungible, technically!)

Therein lies a big issue. The actual core product.

But now that things that are being alleged back up the murky perception that many have of crypto (some rightfully, some wrongly) - it doesn’t bode well.

On the token supply thing, Alexandre does have a point, to some extent. The amount of tokens given to advisers or staff will be a small % of the total market cap. Chiliz has had $225m worth of tokens in trading volume on coinbase (crypto exchange). And the best and worst thing about tokens is that they’re liquid. As a retail investor, it means you can buy things early. Especially if you’re in the states, where accredited investor laws are present, this is important.

If you’re an employee or adviser you’re essentially given the equivalent of liquid equity. It’s not quite the same, but if you give me $100k worth of a token on a one year vesting schedule, if that token has a liquidity provider or is listen on an exchange, I can liquidate that the day after that one year is up. It’s far, far more liquid than stock options.

As a founder, however, you can put downward pressure on the price of your token if you 1) Have no vesting periods 2) Give too much out or 3) Renumerate too large a % of the package in tokens. That’s why I think, the gamer being given 15 million tokens, which currently would make a slight dent in the market cap, but wouldn’t cause mass liquidation in a market that is that liquid. (I must stress here I’m not a markets expert or a pro crypto trader, that’s just my take!)

With that in mind, Alexandre kind of insinuates that he doesn’t want people ‘dumping’ their tokens that they are given ‘for free’

As per the above screenshot presumably from the company’s slack, reading between the lines, he doesn’t want people dumping tokens they’ve got for free on those who are buying them with ‘real money’.

Again, with some rough maths, it doesn’t seem that this fear was justified in allegedly withdrawing payments.

Either way, it looks messy. Partners worldwide must be looking at this and definitely questioning the culture of the entity they’re working with.

I’ve talked about the issues with the product in the past, and now it seems that the allegations about company culture and price manipulation might be an even bigger concern.

Great reads, great tweeting and more general ‘stuff’

Matty is right. A lot of things feel really weird right now. But that’s because our lives have touched digital for about 30 years.
Again, here from my good friend Cobble. It's going to be seen as the stone age of the internet 15-20 years from now.
With the above in mind, it’s good to understand that nobody is an expert - we’re that early
The biggest bit of NFT news, ever? Yuga Labs - creator of Bored Ape Yacht Club - have acquired crypto punks & Meebits from Larva labs. Pretty huge.
Perspective is key.
The EU have voted against banning Proof of Work (the consensus mechanism that Bitcoin uses, that is so high in energy consumption)

Thanks!

Thanks for reading the latest edition of the Sporting Crypto newsletter. I’m really happy to see so many people enjoying it and sharing it with their networks. If you enjoyed this, please tell your friends who might be interested - and share it on social :)This newsletter is for informational purposes only and is not financial or business advice.