Rchain (RHOC) Sees Suspicious Deals and the Waining Faith of Investors and Developers
It wasn't too long ago that the RHOC was a darling in the eye of investors everywhere. From sporting the highly sought after rank 30 according to CoinMarketCap while it was headed up by Vlad Zamfir and manned by an all-star cast of developers.
From all outward appearances, RChain looked very much like a rising star in the cryptocurrency world, only a stone's throw from becoming a crypto-star to rival major blockchains on the market such as Ethereum.
And there would certainly have been nothing in its way in being a stand out chain compared to new ones like EOS or Tezos. Especially as it centered its eyes on creating and implementing one of the first proof of stake validation systems to counter the ongoing issues that Ethereum faces when it comes to scalability. This is dovetailed with the gradual inclusion of hosted multiple decentralized apps which will be able to both support this goal, while also benefit from it.
Whether it was once seen as a rising star or not, it's certainly proven itself to be a comet in the process of burning up and crashing down. This is due to the fact that the team behind RChain has since revealed cracks of an incoming shortfall in their budget. Meanwhile, those once optimistic investors have started to lash out at its financial malpractices
This ranges from serious mishandling of money, to the inconsistent and all too often incomplete balance sheets, as well as the purchase of million-dollar properties, this is according to documents which were uncovered and subsequently reviewed by a news outlet.
Not only is this the sum total of controversy that the company faces, it is also enduring increasing pressure over an illicit acquisition of over $23.5 million dollars, for which the company itself owes a grand total of $15 million dollars. The company has also experienced its fair share of resignations, sparking off a great deal of outrage from investors as a result. These include the resignation of Medha Parlikar, who served in the early stages as the head of its development team. He was followed swiftly by the resignation of three board members, which also included the Chief Financial Officer, Kate Gonsalves, tendering her resignation on December 7th.
Since these issues came to light, RHOC's official ranking plummeted from 30th all the way down to the comparably undesirable position of 211th. But we do have to take into consideration the fact that this is also due, in large part, to the ongoing bearish trend that the cryptocurrency market faced.
RChain's treasury overall is in a state of ongoing downturn, with the CEO of the company, Greg Meredith, reporting this was to be attributed to “Poor management” which is according to an advisory company, which coincides with a “Sharp decline within the cryptocurrency market.” While a skin-surface analysis of the company would allow for this to be enough of an explanation, the issues are far more chronic and controversial according to a number of early investors in the company.
These sources requested anonymity in order to prevent them from building a strong legal case against the company, but they include some members of an Asian Investment organisation, which made up a total of 50% of the cooperative. According to this same company, they are “very upsey” thanks to the sheer lack of accountability and unscrupulous activities conducted by RChain, with their actions keenly described as truly “reckless Investments.”
These same investors and companies are nothing short of agitated, and they want answers and justice.
A Major Appetite for Dealings, And An Even Bigger Debt
Red flags start to fly violently in the eyes of investors with . regards to RChain. One of the first being the company's decision to conduct a $23.5 million dollar purchase in exchange for a five year license for Immersion Networks Audio-based Codec. The company had previously been contributing in the development of the Rsong App, which, theoretically would give users the ability to rent high-quality songs through RChain's blockchain.
This raised a great deal of concern from its existing investor base, which placed the deal under scrutiny for its relevance to the project overall, especially considering the enormous cost of the deal in particular. This is especially due to the fact that the RChain in general, had only managed to raise a total of $31 million dollars, making a purchase of that scale to be a business busting one in its own right. These same investors made it clear that the full amount that Immersion Networks was bought for was not officially disclosed to them until 2 months after the deal was concluded.
“I’m not saying it’s not a good piece of tech. But it was a crazy amount for what we had. Let’s say you’re building a house for yourself and it’s $1m. But then you find a nice piece of furniture and you blow half a million on it. And now you don’t have enough to finish the house and you’ve completely destroyed the main project you’re working on,”
said one investor.
“The CEO [Greg Meredith] managed to sell the company to his investors by saying that we would be completely involved in the decision making process. But he managed to make an investment that was far beyond the expertise of him and his team, all without consulting relevant experts who would have given him a more strategic vision,”
It is a matter of irony that Immersion Networks' own Chief Operating Officer, stipulated that “Immersion was to be a very small component of the app overall.” Far from addressing investor concerns, this simply raises further concerns about the company in question: why was such a large volume of money spent on such a small component of what was to be a far larger project?
While Meredith was approached for a comment regarding this question, he defended the purchase, continuing on to argue that RSong would serve as a ‘flagship app,” with Immersion operating as one of its “marketing deal[s]”, demonstrating that it was more than stable enough to deliver high quality audio data to its users.
“The technology, by its own merits, is so compelling for artists, providing more than enough incentives for them to get involved,”
While this argument is an interesting one, it doesn't pair up with reality, especially considering that, at this moment in time, there are less than five songs available on it. And considering that it has been available for use for over three months, it doesn't inspire much confidence for these same artists that should be
“clamoring to get on.”
Meredith did go on to confirm that RChain was aiming to defer payment of the remaining and, as of yet outstanding 15.5 million dollars. The reason being that the company wanted to wait until its assets were more liquid in order to pay this outstandingly outstanding debt.
He did hint that the deal would pay off, adding further that they were in the middle of ‘ongoing negotiations' with Immersion, allowing it to become “immediately profitable.” RChain, however cannot be regarded as anything near profitable, especially when sources close to its investment pool describe it as ‘functionally bankrupt' and dependent on this deal in order to continue its existence. As a result, it nowhere near any kind of strong position for negotiation.
“Even he manages to sell it, to have done it in the depths of the bear market, to take all your remaining funds, to take on debt, is irresponsible. They’ve killed the project,” said one investor.
This is very much the interpretation given, especially when one simply takes a look at its latest balance sheet, which was published as of October this year. Overall, RChain is undergoing a USD deficit, which underlines a further tax bill estimation of an additional $5 million dollars. This is not helped by the fact that its assets can only be described as well and truly illiquid, holding only the sum of 480,000 RHOC, which equates to (at this moment in time), less than $154,000 dollars.
Even with this estimate given, its RHOC value in US denomination is, even now, overly inflated. It remains unclear if there is any kind of lockup or milestone constraint which would prove necessary to put these tokens to use.
The Surreptitious Dealings?
One of the other concerns that has emerged amongst the investors is over the recently forged strategic partnership between RChain and Pithia, which works as a Venture Capital fund called upon to help build RChain's ecosystem. This initially consisted of a loan provided to Pithia of 105 million RHOC tokens last year (the tokens of which were valued at nearly $1 each).
The expressed wish of this loan? to help find and subsequently fund a total of 12 startups. This was to be in exchange for keeping 20 percent of any of the profits that these startups returned on an annual basis.
The unusuality of this deal was the fact that these two parties subsequently came under renegotiation as of August 2018. And came to feature an outlandish clause, which stipulated that if RChain would go on to fail in its objective of launching its central Mainnet platform by March 31st, 2019, Pithia would be legally obliged to terminate the contract, and keep any of the remaining RHOC.
“That [legal clause] just makes no sense,” argued one large investor, who was responsible for investing over $1 million in the project. “By simple way of metaphor, it is as though Apple's CEO decided to invest money in a hedge fund, under the condition that it finds and funds startups on the apple store. But one of the conditions is that if Apple is late in releasing the latest iPhone, the hedge fund is legally allowed to keep the entirety of its investment, and they are not obligated to return anything.”
According to a report in October, Lawrence Lerner, the CEO of Pithia finally decided to use this clause in order to finally terminate the partnership with RChain, this was due to the fact that the company announced that it would be officially delaying the launch of its mainnet until April 1st. Just one day after the agreed schedule.
One particularly aggravated member of the RChain public discord server criticized this otherwise premature announcement.
“This is crazy. If you think you cannot complete something in time at least you try. Or at least you wait so that you pay the penalty on the last day…It looks like this letter was sent on purpose to ensure that Pithia gets the tokens even if they successfully deliver Mainnet in time,” suggesting that Meredith oversaw “a backroom deal” with the firm.
“My suspicion is that Greg was still a shareholder in Pithia [which used to be called RChain Holdings] when the deal was made. He had a huge influence over the delay, so it’s strange,”
This is according to one source that was interviewed during this time. He further questioned the reasoning as to why RChain had decided to renew the existing contract with Pithia, especially considering that the VC fund had only managed to invest in four of the overall total of twelve that was promised since March 2017.
There were a number of questions that subsequently would surface with regards to what Pithia went on to do with the total of $105 million worth of RHOC tokens provided to them. With the company's dedicated wallet being whittled down to a total of 63 million worth of RHOC by the time of writing this.
This would lead people to believe that the total amount missing was spent on “finding and funding” the startups it had become involved in. But according to other sources, only 11 million of these tokens were actually used to fund relevant startups, and as repayments provided to RChain. According to a number of sources, their demands for the conduction of a complete audit of Pithia as well as subsequent legal action against them were subsequently swatted down by Meredith.
Any further attempts made in order to gain further clarity from the CEO of Pithia on why exactly so much RHOC has been subject to liquidation were returned as inconclusive.
All About Meredith?
Of all the attributes of these companies, deals and members of staff facing scrutiny, there have been a large number of them brought up regarding Greg Meredith. This ranges from questions about himself with regards to the company, his management, and the range of independence which is actually provided to the company's board. This goes on to encompass and include the leading researcher of Ethereum, Vladimir Zamfir, and the four former board members.
“Greg basically runs it like a dictatorship,” according to one source. “Every time one of the investors tries to speak out against something, they get shut down. It's a hugely centralized board. The board members are largely either on his side or are his friends. How could this board be the one responsible for approving a $23.5 million acquisition when they're forced to look directly at the balance sheet of the company?”
This condemnation is not helped by the fact that Meredith has since confirmed that he and Zamfir are in fact ‘very good friends,' throwing the legitimacy of the board, in the eyes of investors, into further question. He does, however, go on to note that Vlad was not one of those present on the occasion when the Immersion note was brought up.
“Greg is a brilliant person. That’s the sad thing,”
said one investor of the CEO.
“He’s an exceptionally brilliant computer scientist, but he’s not much of a business leader,”
according to the account provided by Kevin Huynh, who was one of the large-scale private investors that bought into the company.
There was a great deal of scrutiny placed upon Meredith and his decision to buy a $1.5 million property in Seattle with the intention of being a residence for members of the co-operative to stay in on occasions. According to one post on Reddit thread, which boasted the auspicious title of: “Sketchy things going on at the RChain Co-op,” which brought up a large number of concerns from investors and onlookers.
“What we would really like to see is an updated balance sheet,”
concluded Mervyn Chng, one of the investors, who sought to get a better understanding of what the company's overall health is at this moment in time.
“I think this is what happens when you give blockchain founders too much money, too much power. Suddenly the ball drops that they’ve spent $23.5m,”
said another investor.
“I’ve given up on the co-op.”
Regardless of the current financial and legal landscape, Meredith remains quite upbeat about the current prospects for the company: “We have engaged in immensely lucrative deals. We're in the process of having very solid negotiations, and we do expect to provide shareholders and investors with some pretty outstanding announcements as of Q1 of 2019,” he stated.
He also went on to address the rumour which circulated around the body of investors which included that he was, in fact, begged to leave by investors. Meredith answered this directly, stating that “I was always going to step down, that was the point of this decentralized project.”
So is RChain and its management in the midst of a downward spiral and crash? Or can the management work hard enough to reverse this and keep the dream alive for its investors? Or is it, and has it always been a fools errand?