Tron is cashed up with US$70 million from a coin sale before China’s ICO ban. Where is it going?

Justin Sun Yuchen, the 28-year-old founder of Tron Foundation, has just moved into a new office in Beijing’s tech hub Zhongguancun and is already plotting the next move: setting up the blockchain start-up’s first office in India.

Such expansion ambition might have been unthinkable nine months ago when China banned initial coin offerings (ICO) fundraising and ordered the shutdown of local cryptocurrency exchanges. Tron was fortunate to have completed its ICO just before the ban came into effect, raising US$70 million.

After the ban was announced, Tron returned funds collected from mainland Chinese investors. “It’s [the clampdown] taken the heat off [the market]. It’s now more sensible,” said Sun in an interview with the South China Morning Post.

“It’s better for the industry. Most firms followed the ruling from the government. It didn’t trigger anything bad, if there had been a financial risk then it [the ban] would have solved it,” Sun said.

Explainer: What is an ICO, and why is China’s central bank banning it?

Chinese regulators brought the boom down on ICOs last September, driving scores of token issuers to Hong Kong and Japan, among other jurisdictions that have a more benign view on the disruptive form of fundraising. Tron is one of several coin issuers like Up.Live’s developer Asia Investments, that appear to be thriving and investing with the money they’ve raised from their ICOs.

But there is little sign that the ICO gold rush is fading away. There were 537 ICOs globally in the first five months, raising a total of US$13.7 billion, nearly double the whole of 2017, according to a June report by Crypto Valley Association with PwC’s strategy and consulting division Strategy&.

Still, scepticism has been mounting over the credibility of ICOs. Despite collecting millions of dollars from investors, about half of all ICOs have come to nothing, based on statistics collected by research firm Token Data. Many developers have struggled to launch products, attract users and build a sustainable business model.

Tron is an entertainment and content-sharing platform using blockchain technology to give digital content producers control of ownership and distribution. The endgame is to enable content creators to bypass Google Play or Amazon, avoiding charges from these centralised platforms.

For now, Tron does not have active users, relying on its blockchain-based Peiwo - a Snapchat-like app which matches and connects users through a 10-second audio sample - for profit. The app, with 10 million active users, may be a candidate for a capital raising, Sun said.

Tron paid US$120 million in June for BitTorrent, a software programme used to store and distribute data and electronic files over the web, according a report in CoinDesk last week, citing BitTorrent’s co-founder Ashwin Navin. That gives Tron 180 million users and an established business that can be integrated onto the platform for future expansion.

Further Reading: It takes 556 days of computing and a hefty electricity bill to mine a single bitcoin. Is it worth it?  

Sun, who graduated from Peking University in history, had never been a stranger to controversy. When Tron launched its ICO last year, members of the blockchain community, including ethereum founder Vitalik Buterin, accused Tron of plagiarism because of similarities between its white paper and those published by other blockchain projects.

Sun has kept an active presence on social media such as Twitter and Weibo, and does not shy away from responding to criticism.

“We wrote the whitepaper ourselves,” he said, adding that the document was amended to correct a translation error and that he had reached out to offer an explanation to the blockchain community. “We didn’t deliberately copy the work of others.”

Sun’s name popped up again this month when Li Xiaolai, one of China’s best known virtual currency entrepreneurs, and chief executive of ICO project Press.one, labelled Sun an “impostor” in a leaked recording that went viral online.

Li, a former English-language teacher, has been a vocal critic of speculative hype within the Chinese mainland’s start-up community.

However, some in the community also saw Li as having double standards, given that he also ran a ICO and was a co-founder of Yunbi exchange.

Sun said he has a more favourable outlook on Beijing’s start-up culture, adding that some cynicism might be due to a lack of understanding about specific companies.

Still, there have been cases in which investors have lost money in ICOs after the founders disappeared.

At one point Sun was reported in mainland Chinese media to have disappeared with 6 billion Tron coins after they surged to all-time high of 23 US cents in December.

“It was a nervous time and it brought some speculation. It was a rumour set up by a competitor who paid for a reporter to make up [a story],” Sun said.

Gabriel Chan, secretary general at the Hong Kong Blockchain Society, says it is not uncommon for project developers to criticise each other to gain credibility.

“Competing ICOs these days vie for attention like campaigning politicians,” said Chan. “Ideas on a napkin don’t fly any more. Yet, people still push incomplete solutions to ICO.”

Sun became a paper millionaire by investing early in bitcoin. He also successfully invested in Tesla shares using his college funds. After completing a master's degree in political economy at the University of Pennsylvania, he returned to Beijing in 2013, setting up Raybo, his first blockchain project, the following year. Sun says he had a conviction in the value and the potential of blockchain, even as the technology was little known in China.

“It was too early for China back then [when it comes to blockchain],” said Sun. “For a while the company had a hard time. The worst for me was when I borrowed US$700,000 and struggled to repay it. The company was that close to collapse,” he said.

Raybo is now in a strategic partner with Tron, focusing on building blockchain solutions for companies.

While China has said it wants to be a leader in blockchain technology, it has yet to reverse its decision to freeze out ICOs and cryptocurrency trading.

Earlier this month, the Chinese central bank said it had clamped down on 88 cryptocurrency trading platforms and 85 ICO platforms. It has also blocked 110 sites including the largest exchanges Huobi and Binance on which Tron is listed.

“Tron has a global strategy,” said Sun. “I still think China has a lot of resources in research and development and education. This is why we are in China building smart contracts on blockchain.”

Tron opened an office in San Francisco earlier this year, bringing its global headcount to 400. Sun said the payroll is likely to rise to 1,000 next year.

Currently, there are more than two million Tron token holders worldwide, with the token ranked 11th by market capitalisation. Tron has won the endorsement of cybersecurity visionary John McAfee who tweeted that the token was a “long term hold.”

Meanwhile, the sentiment over cryptocurrencies has turned bearish in the past few months. The value of Tron has dropped 85 per cent since hitting a high of 23 US cents in December. The token was recently quoted at 3.7 US cents, compared to its ICO price of US$0.0019.

Sun said he has sought to rise above the criticism levied by some of his contemporaries by remaining focused on the day-to-day challenges of running his company, and meeting quarterly performance targets.

“To measure the success of a striker [in football] you’ll look at how many goals he’s scored. To see how successful a sprinter is you look at his record time. For an entrepreneur, you’ll look at whether his products are being bought, if he is adding value to the community and customers. I feel what we are doing is worthwhile.”