All is seemingly not well in the world of Resistance, a decentralized cryptocurrency exchange (DEX) that was founded in 2018 by Anthony Khamsei.
Before we get to the red flags, why do DEXs exist in the first place?
Well, most exchanges are centralized, and that in itself creates a high level of risk. After announcing a $30 million hack last week, and it seems more crypto assets are missing, Bitpoint is an excellent example of the problem with centralized exchanges.
Enter the DEX, which spreads the risk and makes it harder to hack. The problem with the first generation of DEXs is that they are typically slow, and offer only slight improvements in security and privacy.
According to the Resistance FAQ, the platform is “a decentralized, democratic platform driven by the belief that blockchain technology should empower users with the freedom to mine, trade, and innovate, regardless of their access to resources or technical expertise.”
The product, ResDEX, caters to novice users by design. Once a user has signed up, they can choose which coins to trade, which currently amount to over 300 choices. ResDEX offers the ability to buy Bitcoin (BTC) or Ethereum (ETH) with a credit card.
And while that all sounds wonderful, several red flags are causing both Resistance community members and investors to become nervous.
Listing on its own platform
As reported by BlockTelegraph, Resistance announced last week that its anticipated Initial Exchange Offering (IEO) would be held on its own platform, presenting a stark shift from earlier rhetoric alluding to a high profile offering.
Resistance touts itself as the “first privacy-focused decentralized exchange and blockchain,” with a privacy coin offering “shielded transactions” using a “zero-knowledge proof.” A decentralized, privacy-focused exchange is a good idea. Their token, however, is arriving late to the party and will have to compete with established privacy coins like Monero and Zcash. And Binance released a DEX in March 2019, which will likely gain the most market traction.
In addition to the change in IEO strategy, the project has been fraught with the kind of friction and delays that should raise some red flags for investors.
Launch Delays and Shifting Numbers
According to its white paper, Resistance coins are already supposed to be in circulation. The timeline on page 44 outlines a private sale and an IEO during first quarter 2019 which didn’t happen.
Missing timeline goals is sometimes a reality of building a startup and launching an IEO. Projects don’t always go as smoothly as anticipated, and that doesn’t necessarily condemn the platform in and of itself. But taking a more in-depth look at the reasons behind the delays, we only uncover more red flags.
CEO Anthony Khamsei initially set the hard cap of Resistance’s fundraise at an ambitious $25 million. When it became clear that the target was unrealistic, he lowered the hard cap to a more achievable $6.8 million. Instead of burning unsold tokens, however, Resistance plans to sell them daily via a market maker, which will put indefinite selling pressure on the project.
That’s going to impact coin values in a way that doesn’t favor investors, and Khamsei’s lack of foresight in overshooting the hard cap does not strike a positive, realistic note to start with. And many in the industry are beginning to pay attention to other issues and problems with Resistance’s token sales.
Enticing Investors With Misinformation
More alarmingly, Resistance has been building up interest for their fundraise and enticing investors by saying that they’ve been speaking to high profile exchanges, such as Singapore mega-exchange Huobi, over previous months, allegedly planning their IEO in partnership.
In an interview with Ian Balina, a blockchain investor, advisor, and evangelist, conducted by Brad Laurie (Blockchain Brad), Balina said “you told us this was going to launch in two months. We’re seven months in and still have no exchange. You’ve been telling us you’ve been talking to Huobi for two to three months, telling all the investors in our network who are primarily investing because of us.”
However, when Ian and other members of the advisory board approached Huobi Prime’s IEO director, they said they had never heard of such a project and denied that Resistance had ever been in touch with them. There is evidence of a localized announcement from Huobi MENA, but nothing from the headquarters. Advisors and investors didn’t seem to be getting the correct information.
In light of this, last week’s announcement of a partnership with Coinbit takes on the shade of a slippery, last-ditch backup plan.
Burning bridges with advisors
Indeed, Resistance seems to have been prone to internal drama and fiscal mismanagement.
Resistance has been accused of mismanaging funds. According to a source who has asked not to be named, Resistance is down to less than $300,000 left in the bank. Given the cost of development and the burn rate of supporting its team members, it is hard to imagine that’s enough money to sustain them through a successful launch.
Moreover, our source claims that eight different members of the advisory board approached Khamsei on various occasions to address the unsustainable way he was allocating funds. Some of them were even compelled to insist that Resistance hold up its end of contracts requiring them to pay service providers that had already done work for them.
All eight of these advisors, including MB Technology and 100X Advisors, suddenly disappeared from the team last month spurring uncertainty in the investment community. According to our source, Khamsei fired them for approaching them to discuss spending.
Needless to say, when a CEO fires their advisors for confronting him about mismanagement of funds, investors should hear alarms going off in their heads. It appears that any potential investors who don’t want to be swiftly parted with their money would do well to steer clear of this IEO, should it ever materialize.
As for a privacy-centered DEX, it seems this one offers too much resistance to be the answer to centralized exchanges.