Did B1 Act Fraudulently with EOS? A New Wired Article Appears to Suggest so

An article in Wired is the first time a major publication has presented EOS in a light its community recognises, adding fuel to the biggest critics of Block.one.

Credit: Bywire News, Canva
Credit: Bywire News, Canva
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LONDON (Bywire News) - Last year’s acrimonious split between B1 and the EOS community brought to an end a troubled relationship which can’t have worked out the way anyone hoped. Even now, though, the debate rages about who was to blame: was this simply a case of an ambitious project which for one reason or another failed, or can B1 be said to have acted fraudulently? The answer to that question will be critical to any potential legal action the EOS community makes against the company which created it. Wired’s story contains several revelations which could make it uncomfortable reading for B1. 

‘The most Hyped Blockchain in History’ 

The article effectively summarises the story so far. It tells the story of EOS’s dramatic rise with a $4bn ICO in 2017, and all the hype which came with it. This was going to be ‘the Ethereum Killer’ which would do everything Ethereum did but faster and better, or ‘Ethereum on steroids’ as developers began to refer to it. 

Their aims were ambitious – on reflection a little too ambitious. Speaking at the time William Mougayar managing partner at JM3 Capital said. “They have set the bar very high themselves in terms of delivery expectations. Now is the time to not just deliver the coins, but the technology with it.”

As it turned out the bar was more than a little too high. A few years later EOS was in free fall. Its price had more than halved to $4 from $10, and it was haemorrhaging developers right left or centre. 

When Yves La Rose addressed a virtual gathering of Chinese based users he was stark in his assessment. “EOS, as it stands, is a failure,” he said. However, he already had plans in place to save it. A few months earlier he had resigned his position at EOS Nation. His resignation followed the departure of Brock Pierce and Dan Larimer who had been instrumental in the creation of EOSIO. 

All three would also play a key role in what came next. La Rose launched the EOS Network Foundation with the goal of providing the support Block.one had promised, but failed to deliver. He would lead an effective uprising which would see the community marginalise Block.one and become the dominant force in the EOS community. 

From the outset, he openly described Block.one as being dishonest and even fraudulent in their behaviour towards EOS. He had a simple ultimatum – to reinvest some of the money it had taken from the EOS ecosystem and gift the intellectual property to the ENF otherwise the block producers would vote to halt the process of vesting which allocated 100 million EOS over the course of ten years. 

Caught in the crossfire was Brock Pierce. Block.one had transferred 45 million tokens to Pierce in return for his stake in Block.one. These tokens would be used to fund a new investment firm Helios which would aim to rescue EOS. The problem was many of these tokens were from those that were due to be vested. That deal fell through when the ENF and the block producers followed through with their threat resulting in a furious telephone conversation in which Pierce allegedly made death threats against La Rose. 

In an interview with Bywire’s Michael O'Sullivan, which was referenced in the Wired article Pierce claimed not to remember what he’d said. That B1 failed to deliver on their ambitions is not in dispute. The only question is whether they were honest in their statements to the community. 

This, as La Rose said in a recent online ‘fireside chat’ is the crux of the matter. 

What came out and which is no longer disputed is that B1 was intentional in their pursuit of greed. This was the design from the outset and the community rejected the Theranos and Elisabeth Holmes like behaviour and since then has established its own path with a sense of community driven values at its core.

The example of Elisabeth Holmes and Theranos is deliberate. She was the young pioneering entrepreneur who set out to create a revolutionary early warning system. However, once it became clear it could not do what it claimed to do, it misrepresented its capabilities. She now faces jail.

The important difference is how honest B1 were in their public pronouncements. Anyone can start a project which fails – either through bad luck or bad judgement. When it becomes fraud, in La Rose’s mind, is when a company knows it cannot deliver but hides this fact from the community. The ENF’s assertion is that B1’s promotions of EOS went far beyond its intentions. 

Was B1 surprised by the ICO?

One statement which supports this is the suggestion that despite a heavy marketing campaign B1 was surprised by how much money it made from the ICO. The article quotes a former executive as saying, the company’s chairman Kekuei Tuan had made it clear that B1 was a “marketing organisation selling a token: We need to put up the minimum software necessary and then get out.”

The ICO, says the executive, focused minds. “We thought, maybe we should be doing more than just selling tokens, putting up the bare minimum software, and walking away,” the former executive says. “Maybe there's more to be done here.” 

The ‘bare minimum’ sounds a long way from what the article describes as ‘the most hyped blockchain.” If that’s the case it suggests B1 were exaggerating their capacity and intentions from a very early stage. 

Broken promises 

Another broken promise centres on the $1bn from the ICO which was supposed to be invested in EOS VC which supports the underlying blockchain technology and fosters start-ups in the space. Speaking in 2020 Brendan Blumer said: “EOS VC is a program that is going to deploy $1 billion of capital into EOS projects over the course of the next couple of years.” Instead, EOS VC supported projects which had little or no relation to EOS and did nothing to grow the network.  

A paralysed organisation 

One of the most common excuses for B1’s failure to support EOS has often been the regulatory action taken by the SEC. This, as the article confirms, was a major problem. Insiders, they say, paint a picture of a company stricken by legal concerns and unable to bring any project to fruition. 

Brendan Blumer is painted as being overly cautious and unwilling to take the necessary decisions to drive ambitious projects such as EOS forward. None of these concerns, though, were communicated to the EOS community, who pressed forward and made significant investments in their projects in the belief that support was coming. 

Into the future 

That bad blood continues to drag on the EOS community. Through the ENF the community is now putting together the infrastructure and the support which B1 promised but failed to deliver. The ENF has already injected millions of dollars to support projects and develop EOS including the development of the Mandel upgrade, the Pomelo grants and Eden on EOS. 

For the first time in years, EOS has a team which can make bold promises to the community. However, negative sentiment continues. When a community has been lied to before, it’s unlikely to believe promises made in the future. The negative sentiment built up by B1 is one of the biggest threats to the ENF’s goals today.  

It is this which the ENF and the community believes continues to hold it back and supports the notion that B1’s actions went beyond the run of the mill negligence but amount to dishonesty and even fraud. 

This article, then, is a valuable addition to the conversation. It takes the version of EOS which exists within the minds of those close to the community and presents it to a much wider audience. It demonstrates that the new EOS is a very different animal. It has kicked out the fraudulent B1 and is putting in place the things which made EOS ‘the most hyped blockchain in the world’ in the first place. 

One thing which may be slightly disappointing is that the article focuses only on the dispute between B1 and the ENF and not on any of the good work being done now. The good news is that according to Yves La Rose this could be the first in a series, which means this should be a space which will be worth watching.  

(Writing by Tom Cropper, editing by Klaudia Fior)

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