Major Crypto Project NEM Has "One Month Left of Funding" (UPDATED 2)
The new council of the NEM Foundation, the developer of the NEM blockchain platform, said that it is facing a critical financial situation, having just “one month left of funding” to keep the organization afloat. The foundation claims that they “can solve this.”
Friday, UTC 06:00 AM: a new section has been added - "Former president denies wrongdoing."
Friday, UTC 03:00 PM: updated with additional answers from the NEM Foundation. Section "More details".)
The new council, which was assembled just a month ago, comprises the top management team of the NEM Foundation. Judging from the wording of an update, published Thursday morning, the council was surprised to see that the current organizational structure of the Foundation offered “little accountability for funds and questionable ROI [return on investment].”
This has reportedly led to a burn rate of 9 million XEM tokens per month just to keep the organization afloat – an unsustainable situation according to the council. According to today’s exchange rate, 9 million XEM is equivalent to USD 416,700.
XEM is down by less than 2% in the past 24 hours (UTC 06:44 AM.)
To deal with the situation, the new council said it has restructured the entire organization and eliminated regional teams that were focused on promotional work. Instead, these teams will now be replaced by newly created product-focused teams, the update said.
The council further wrote that the financial situation means they will not be able to support “current headcount, partnerships, and projects,” adding that “we need to put everything on hold.” The proposed solution, according to the update, is a new budget with a “burn rate reduced by about 60% from its previous level,” which involves a significant cut in the headcount of the organization.
Moreover, the newly elected president of the NEM Foundation, Alex Tinsman, told CoinDesk that NEM Foundation intends to submit a funding request to the NEM community fund for 160 million tokens (USD 7.5 million), money that would be used to rescue the organization from the verge of bankruptcy.
Also, the Foundation said that “in the face of this bad news, there are amazing possibilities.”
“NEM’s technology is still among the best for developers looking to build business applications, and our new focus is going to push us even further ahead in the industry,” they said, adding that the upcoming launch of Catapult, their latest technology update, “will revolutionize blockchain’s future.”
Former president denies wrongdoing
Meanwhile, co-founder and former president of NEM Foundation, Lon Wong, claims that during his term he "along with the rest of the NEM Foundation Council, managed our funds prudently."
"We requested for only 50% of the fund that was approved to be spent for 2017. When I resigned in early April 2018, we had spent less than 60m XEM. We also had a healthy USD 4 million fiat cash in the bank. That was 15 months into the term and 9 months short of the full term. Essentially, we had only spent about 21% of what we had set out to spend for 2017 during my 15-month tenure," Wong wrote in a blog post.
"At the end of every term, the new leadership should understand that the onus is on them to apply for a new budget to continue on the work of the foundation," he added.
After Wong left NEM, he founded ProximaX, "an infrastructure platform to be powered by NEM’s Catapult blockchain and combine off-chain storage and streaming layers in one framework designed for enterprise grade applications."
According to Wong, regardless of what happens at the Foundation level, he's confident "the NEM technology will continue to prosper because of the strength of the NEM core developers."
The NEM blockchain project, with its native XEM token, is currently ranked as the 18th largest cryptocurrency by market capitalization. The platform was launched in 2015, and has brought several innovations to the blockchain space, including a proof-of-importance (POI) algorithm and encrypted messages.
Along with many other cryptocurrencies, the XEM token has suffered badly through the ‘crypto winter,’ with a decline of about 97% from its all-time high in early January of 2018.
On Friday, NEM Foundation published answers to the questions from the unidentified media outlets. Majority of them can be found below:
Could you clarify on the submission of the funding request to the NEM community fund for 160 million tokens (worth roughly USD 7.5 million) which were to be ‘money used to rescue foundation’?
First, the request is not to the NEM community fund, there are dedicated NEM funds to support the contributors to the NEM ecosystem. This request will be made as a proposal to the community soon. It’s important to remember that the NEM Foundation operates as a separate entity and is one of many ecosystem contributors to the NEM open-source project. Therefore the NEM Foundation is not NEM. The NEM open source project remains strong and thriving and Catapult development is unaffected by the financial situation of the NEM Foundation.
Is it noted that layoffs are planned across its entire 150-person staff? Could you comment further on that?
The exact amount is not finalised but NEM Foundation is doing its best to ensure that existing team members transition to the new structure that is proposed. It is noted that there will be a significant majority of the staff that will have to be made redundant due to the budget cuts and change of focus to a product-based organization. Our HR team is working with the leadership teams to speak to all team members affected. Words cannot describe the difficult decisions we had to make to come to this point. We are only one month old as the new council, and to face the facts of where we stand is painful. We cannot apologize for the past decisions before we came into leadership, but we want to let you know that there is hope for the future.
How many people are you letting go?
We would like to emphasize that the NEM Foundation is not firing any staff. Due to budget constraints, there are layoffs. In addition, there is a complete structure reorganization underway. Those that have been laid off will be given consideration for current openings under the new structure if funding is awarded.
Could you elaborate further on the quote, “basically we realized we had a month to operate, due to the mismanagement of the previous governance council.”
During the transition from the 2018 Council to the 2019 Council, operating funds were temporarily inaccessible until the new leadership took office on January 1, 2019. This was due to transition registration problems with our bank. All operational funds were safe and untouched during this transition. When the 2019 Council took office, a financial audit was done and showed the new leadership had low operational funds and therefore could not sustain the burn rate of the previous 2018 operations. Therefore, a new Foundation restructure proposal was created and operations and staff were suspended until additional funding was secured.
It was mentioned in the article that the foundation’s 202 registered members will be asked to vote on the funding request in February, could you elaborate more on this?
This information is not correct. The registered members may not be voting on the funding request. The decision, process and voting on the approval of the funding request will be disclosed in due time as details are still being finalised.
Is it true that the number of layoffs will be determined by how much funding the community approves as quoted?
No. Layoffs are being made regardless of the funding approval due to the budget restrictions at the present moment and also the proposal to restructure the Foundation to be product-focused. The funding request is still subject to multiple factors and the council has made the decision to conduct the layoffs regardless if the funding has been approved or not.
If the funding request is approved, will there be the hiring of new team members?
Yes, priority will be given to past existing team member who had been laid off according to skillsets available and required first.
Is NEM Foundation really bankrupt?
No, the current Foundation is not bankrupt. We are running low on XEM and FIAT funds. The 2019 Foundation is currently preparing a plan to achieve funding for the rest of the fiscal year and the restructure was place as a cost-saving measure.
What if you don’t get the funding?
NEM Foundation will have to stretch its budget and will look for other sources of funding to remain sustainable. We believe that NEM is owned by the community and we support the community’s decision regarding how future funds are spent.
80 million XEM was spent between Dec 2017 and Jan 2019, primarily on marketing - especially when Catapult was yet to launch, can you comment further on that? Why did the past management adopt this strategy?
The foundation’s original charter was to be the trustee of and make decisions for the public chain and spread its adoption. Awareness was a secondary goal of the foundation because it should increase naturally as a result of (successful) adoption. Therefore, in 2018 funds were primarily spent on marketing activities and training.
Since the new leadership came on 1 January 2019, the new strategic focus is to be product-focused and revenue-driven, changing the way NEM.io Foundation operates in its entirety. Decisions made by the past management had brought in value in different ways and the new structure would have to result lays offs and a focus on priority areas, one being the launch and commercialization of Catapult.
Is it true on claims by the anonymous developer that the past President ‘faltered when he used his visibility at the foundation to promote “sketchy” initial coin offerings such as Ecobit and ProximaX?
We can’t speak on behalf of the anonymous source but we can say that Lon Wong was a co-founder and the first president of the NEM Foundation which started in early 2017, two years after the launch of NEM. Lon left the NEM Foundation in April of 2018. Since that time he has been focusing on a project called ProximaX 10, in which is he the President. The NEM Foundation wishes Lon and ProximaX success in the future.
(Meanwhile, Lon Wong claims that as NEM Foundation President, he was asked to advise projects like Ecobit that wanted to use the NEM blockchain technology: "It was my duty to actively promote and assist projects that want to use the NEM blockchain solution. However, I never benefited personally from advising Ecobit and the project is still in existence today.)