Investors in IDB Development, the holding company controlled by Eduardo Elsztain, which among other things holds a controlling interest in Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS), may have noticed a laconic note in the small print of the financial statements of the company, published last Thursday: "The company posted a NIS 14 million loss from a drop in value of the CLN tokens purchased in December 2017."
IDB Development is not the only party to lose millions on an investment in this crypto token, for which an initial coin offering (ICO) was held three months ago. CLN is an acronym for Colu Local Network, a network of crypto tokens issued by Israeli startup Colu.
If the name Colu sounds familiar, it is probably because the company's payment app, which works in Tel Aviv, Haifa, and Liverpool, UK, has been mentioned repeatedly in the media in recent years. Users of the app can put money into their account using a credit card in local currency (shekels in Israel and pounds in the UK), and use it to pay for products and services from businesses working with Colu in these three cities. An e-mail sent by the company to its customers this week stated, "The Colu app is the future - a new, easy, and convenient form of payment."
Colu, founded in December 2014 by VP finance David Ring, VP blockchain Mark Smargon, and CEO Amos Meiri, has raised $40 million from investors in the past four years. Colu completed a $27.5 million financing round last February, including $14.5 million by IDB Development: $7 million in a presale of CLN tokens and $7.5 million in options on 10% of Colu's shares. Colu raised a total of $19 million in its ICO.
Light turnover and low value
Colu's crypto tokens are based on Ethereum's blockchain technology. According to Colu, its network of CLN tokens "is a new payments system for local communities that will replace clearance and payment processing companies. Instead of forcing consumers and businesses to pay unnecessary commissions, CLN will use cryptocurrencies to give the money saved back to the people with an interest in the network."
Trading in Colu's tokens began on a few cryptocurrency exchanges (trading platforms for digital currencies) on May 21. The token's value has fallen 67% since then. Its initial price of $0.065 dropped to $0.022 as of August 29, giving a market value of $2.6 million, according to figures from the CoinMarketCap website.
CLN trade figures for the past three months show that the token reached a peak of $0.10, close to the price at which it was first offered in February, and has since plummeted 80%, including over 30% in August, 12% in July, and 30% in June. Trading turnover in the token is quite low, amounting to a few tens of thousands of dollars daily.
The downfall of Colu's currency highlights the high risk incurred in digital currency investments, especially ICOs. 460 ICOs worldwide have been held in 2018, in which a total of $14.3 billion has been invested, according to CoinMarketCap's figures. The average amount raised was $31 million per ICO. Almost all of the currencies issued this year have already lost a substantial proportion of their value. The value of the entire cryptocurrencies market, which consists of 1,900 different currencies, has decreased by 62% this year.
Survived the break-in at Bancor
On June 5, Colu announced, "In another exciting development, prior to the first issuance of community currency tokens, we are delighted to announce a new partnership with decentralized liquidity network Bancor. This integration will allow CLN stakeholders to use the services of the Bancor Network. CLN token holders will be able to utilize the Bancor liquidity network, which is renowned for its fast, simple and secure service."
Unfortunately, however, on July 9, a month later, Bancor announced a break-in by hackers, who stole $23.5 million in crypto tokens. The break-in, reported last month in "Globes," is still under investigation. Investors in Colu can take comfort in the fact that the tokens stolen from Bancor were mostly Bancor BNT and Ethereum (ETH) tokens, not Colu (CLN) tokens. In addition to Bancor, Colu's tokens are traded in limited amounts on the EtherDelta, HitBTC, IDEX, and Liqui small trading platforms.
In addition to its crypto token, Colu launched three "community currencies" in June. The company explained, "A community currency is payment in cryptocurrency given as a gift for purchases using Colu in local businesses." Colu's users can see the community currencies that they received in their accounts when they use Colu's mobile apps. What can they do with these community currencies? As of now, nothing.
Published by Globes [online], Israel business news - www.globes-online.com - on September 3, 2018
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