Quantstamp Under Fire: Buyers Allege Startup Undermining $65 Million Token

A blockchain project is facing an uproar from community members who say the team has been undermining the value of the token it used to raise millions.

The controversy around Quantstamp, maker of a protocol that seeks to decentralize smart contracts auditing, reached a fever pitch late last week, with acrimony spilling into the project’s social channels. There, representatives for the San Francisco-based company, registered in Delaware, took heated questions from token buyers.

At issue is Quantstamp’s acceptance of U.S. dollars and ether, rather than its token, QSP – which it used to raise a little over $30 million in an initial coin offering (ICO) last November – as payment for smart contract audits it has performed.

In that offering, the company exceeded a targeted $11 million by $9.5 million, raising $20.5 million from an initial round. The remaining $9.5 million was sold through a public crowdsale. So far, 65 percent of those issued QSP tokens, out of a 1 billion supply, have been distributed.

Quantstamp raised the funds under a Reg-S exemption, one that seeks to cover U.S. entities raising funds abroad, according to a December filing with the Securities and Exchange Commission.

But Friday’s discussion showcases that token owners are beginning to question the degree to which both QSP and the company’s own technology have been involved in the 484 audits Quantstamp claims to have completed, according to its website.

Documents obtained by CoinDesk indicate that the company has accepted ether (ETH) for services in one instance and priced its offerings in U.S. dollars in another, practices that appear to have run afoul of user expectations, with some claiming this clashes with practices they believe the company said it would pursue.

“We are concerned that you guys don’t need the token to grow in value for your company to succeed as a payment for manual audits,” James Chun wrote in the Quantstamp project’s Telegram group on June 10.

The same day, another user in the group, who goes by the handle “Carine,” framed the concern this way:

“As a token holder, we only benefit from those willing to hold and find value in the token. If the use case is unclear, this will not translate to increased ROI.”

Compounding the issue for these users is that the company wouldn’t say how frequently it has accepted payment in a currency other than QSP.

“Communication of the percentage of audits paid in QSP or USD would clear a lot [of] things up,” a third Telegram user, “Gato,” wrote June 11. But “for now it seems like [a] really vague story.”

In a statement to CoinDesk, Quantstamp said, “from the start we’ve been following the roadmap put forth in our initial white paper.” The company declined to answer numerous other questions on the record.

Pricing of services

Stepping back, however, it’s worth noting that in spite of user complaints there remains a real need for the kind of project envisioned by Quantstamp.

Founded by Richard Ma and Steven Stewart, both software engineers, Quantstamp cited in its white paper attacks on smart contracts in which hackers were able to steal millions as the motivation for starting the effort and raising funds. Underscoring the idea’s appeal, last November, Quantstamp announced its participation in the Y Combinator class of 2018, a prestigious accelerator program which provides startups with seed funding.

But, an open question token buyers now seem to be raising is whether the company’s decisions are economically aligned with their interests as well as the project’s original design.

Like most decentralized projects, Quantstamp not only envisions that certain actors necessary to its launch will become less important over time, but that a central entity is needed to bootstrap the idea until its management can be given completely to users.

“On the matter of open sourcing our codebase, that has always been the long-term goal because how else can the community take over the project?” co-founder Stewart said June 10 on the Telegram thread. “But, my present stance is that the codebase must reach a certain level of maturity first.”

This may be contributing to impressions held by users that Quantstamp’s acceptance of the token is key to its current, and perhaps future value, but public statements as to the relationship between the company and its tokens are limited.

In a review of Quantstamp’s public Twitter and Medium messages, as well as its ICO terms and conditions, the company doesn’t seem to have ever explicitly stated that it would accept only QSP tokens for audits. However, until the public grilling Friday, the company hadn’t indicated that it would accept U.S. dollars and ETH (though its white paper carves out room for exceptions).

“No person is bound to enter into any contract or binding legal commitment in relation to the sale and purchase of the QSP tokens and no cryptocurrency or other form of payment is to be accepted on the basis of this white paper,” it states.

Elsewhere, language on the Quantstamp website seems to hint at reasons for the confusion.

The company’s “Request a Full-Service Audit Form,” available online, only includes an option for users to pay in QSP tokens, specifically stating that “QSP tokens are required to power audits” and that users “must hold a minimum of 200,000 QSP to request an audit.”

According to the company’s published materials, users are meant to trade QSP to pay for, receive and improve verification services within the Quantstamp network.

This means bounty-hungry bug fixers receive QSP tokens from contract creators, as do code contributors verifying the Solidity programs used to implement the contracts, and validators running the Quantstamp validation node…

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