The full picture behind Litecoin’s new 9.9% stake in WEG Bank

Posted: 16 July 2018 10:24 am
News

Litecoin was freely given a 9.9% stake by TokenPay, which was initially approached by WEG Bank.

On 10 May 2018, a company called TokenPay purchased a 9.9% stake of a little-known German bank called WEG Bank, along with options to acquire an additional 80.1% of the bank with regulatory approval. In a blog post announcing the purchase, it said that it was approached by WEG Bank in December 2017 because "the bank has an interest in offering FinTech solutions that will align itself with the new economy, while at the same time continuing to service its existing real estate client base in a traditional fashion."

TokenPay went on to say that it "entered into a non-binding verbal commitment with a potential partner to bring its world-renowned technology expertise to the partnership." That partner has since turned out to be the Litecoin foundation as confirmed on Twitter by Litecoin founder Charlie Lee.

Part of the agreement with Litecoin was that the originally purchased 9.9% stake will be transferred to Litecoin, while TokenPay picks up an additional 9.9%, according to TokenPay.

In a nutshell it seems that

  • WEG Bank approached a controversial company called TokenPay in the middle of an ICO, with an offer to sell itself off almost in entirety.
  • TokenPay took the deal, and then freely handed Litecoin a portion of the bank in exchange for technical and marketing services.


Who are the main parties?

It's worth considering the nature of all the companies involved here.

TokenPay

TokenPay launched its ICO in 2017, wrapping up in December. At the same time, its own bounty program manager was outing it as a scam. It didn't start trading on exchanges until April 2018, with the company and its developers holding the majority of TokenPay coins in existence, at which point it immediately followed a typical pump and dump pattern.

It's also worth noting that TokenPay is a bitcoin fork headed up by the notoriously technically unskilled developers of the notoriously ill-fated Verge cryptocurrency. TokenPay doesn't have any blockchain or cryptocurrency developers of its own, except the Verge developers.

With a centralised company heading it up, holding back a majority of tokens for itself and indiscriminately selling to all comers, it's reasonable to assume the SEC might well classify the TokenPay ICO as an unlicensed security offering.

This makes it very unusual that a reasonably legal-minded bank would approach a company for a partnership in the middle of an ICO. It's even more unusual that a bank would approach TokenPay of all companies.

It's also worth emphasising that WEG Bank approached TokenPay, not vice versa.

The reason for the 9.9% stake is that under German law, a single entity cannot own more than a 9.9% stake of a bank without regulatory approval, hence 9.9% with options for an additional 80.1% later. The goal here isn't to buy a stake in a bank, it's to outright purchase an entire bank from previous owners that apparently very much want to get rid of it. This deal was finalised in April-May 2018, immediately after TokenPay tokens hit the open market.

At exactly the same time, right after hitting the market, TokenPay paid a couple million dollars' worth of crypto to its own Verge developers to finalise a much hyped and oft-delayed "partnership" with an anonymous company that later turned out to be Pornhub.

WEG Bank

WEG Bank is a small German bank specialising in real estate banking. The WEG Bank website doesn't have an SSL certificate, which is a major red flag.

WEG Bank is a company that approached the controversial TokenPay company in the middle of its controversial ICO to sell up to 90% of itself. That is also somewhat alarming.

According to TokenPay, WEG Bank approached it because it just wanted to partner with a hip new tech company to update its systems. Selling the entire company is a fairly drastic way of updating systems, so this doesn't really pass the sniff test.

According to the press release, the intention is to set up a separate branch of WEG Bank to offer crypto debit cards and similar without disrupting its existing services.

Litecoin Foundation

The Litecoin Foundation is the authority behind Litecoin, and according to Crunchbase, it was the one that purchased a stake in WEG Bank for an undisclosed amount rather than TokenPay.

However, according to the press release, TokenPay purchased the initial stake then passed it onto the Litecoin Foundation in exchange for "a broad a broad and comprehensive marketing and technology service agreement to benefit TokenPay and its related cryptocurrency and business operations."

What does it mean?

OPINION

The general aim for Litecoin, TokenPay and Verge is to offer cryptocurrency debit cards and complete payment-type services, which has so far proven to be a difficult hurdle for any cryptocurrency.

Most banks have so far been understandably reticent to offer these for cryptocurrencies, so the alternative seems to be to buy an existing bank outright. With WEG Bank being more than willing, it proved to be the perfect option.

But TokenPay/Verge were still in the tough spot of having a dubious reputation, relatively little reach of their own and not actually having any blockchain developers able to do much beyond copy and paste code from other projects. Roping Litecoin into the deal might be a satisfying quid pro quo where Litecoin gets its banking access, and Tokenpay/Verge get access to some actual blockchain developers of their own.

And in the longer run, if TokenPay and Verge end up failing, their newly acquired bank might still be able to bring in revenue with Litecoin as a prominent customer.

The entire partnership and sales process that's led to Litecoin's 10% stake might be quite alarming, but you can't argue with results – pending regulatory approval.


Disclosure: At the time of writing, the author holds ETH, IOTA, ICX, VET, XLM, BTC and NANO.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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