$POLY (Polymath): The Bear Case

  • Payments from investors to KYC (Know Your Customer) providers to achieve proper investor accreditation.
  • Payments from companies to legal delegates to achieve proper regulatory compliance.
  • Payments from companies to smart contract developers to receive third-party reviews.
  • Achieving legal compliance for a private company to sell its securities (whether it’s an IPO, venture round, etc.) costs 10% of the total money raised.
  • The payments to KYC providers and smart contract developers account for 10% of the POLY network’s transaction volume, while the payments to legal delegates account for the other 90%. The reasoning for this is: KYC providers will only be able to charge investors somewhere in the cents to dollars range. Smart contract developers can maximally charge an hourly rate of $50–100, for tasks that won’t take more than a week’s work. Compared to the billions in legal fees that legal delegates will bring in, KYC providers and smart contract developers should be expected to only bring in a small fraction of POLY transaction volume.
  • POLY is able to onboard companies worth $100bn USD annually.
  • Polymath provides no financial benefits over the current system for legal compliance. This is very generous to the valuation of POLY, as it would be unlikely that they could onboard securities worth $100bn USD annually without significant financial improvements over the current system. Prominent venture capitalists generally tell startups that they need to offer at least one order of magnitude (10x) improvement over the status-quo to become successful.
  1. Enough legal delegates would have to fail to meet the quality of work they ensured. This outcome is unlikely given that any legal delegate who posts a bond would be heavily incentivized economically to make sure it keeps its promise. Bad legal delegates would be extremely unlikely to post bonds.
  2. POLY token holders decide to burn the bonds of legal delegates who do meet the quality of work they ensured. However, that would cause good legal delegates to be less likely to either post bonds or join the network. This would consequently cause the value of the network to decline along with the decline of circulating tokens, not rendering any additional value to POLY tokens. In fact, it would probably decrease the value of the circulating tokens, even as tokens are burned.
  • A lack of technological innovation: Polymath isn’t creating anything new technologically. They are copying Ethereum’s token generator and attempting to merge it with proper regulatory compliance.
  • A high barrier to entry: Stock exchanges won’t move to the Polymath network. They are much, much more likely to create security tokens on their internal private blockchains.
  • Unhappy workers: Lawyers will hesitate to expose themselves to potential scams on the platform. Smart contract developers can find more meaningful, better-paid work than reviewing the work of companies who didn’t want to hire their own developers.




Partner at Bizantine Capital

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Andrew Bakst

Andrew Bakst

Partner at Bizantine Capital

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