As promised in our Community Vote #3 Proposal and in part 1 of our Community Vote #3 - FAQ, we have collated a large number of questions asked by the LCS Community over the past 2 days and have responded directly to these below in Part 2 of our FAQ.
Don't forget that we have also brought our Monthly live Telegram AMA forward this month to ensure that everyone in the LCS community has the chance to speak directly with the team about this topic. This month, our AMA will be held on Tuesday, September 17, 2019.
If you are unable to attend, you can also pre-submit your AMA questions in advance and the team will do their best to respond to questions submitted by members of the community who cannot attend the live event.
- Community Vote #3 Buyback and Burn Model Proposal
- Community Vote #3 - FAQ - Part 1
- Community Vote #3 - FAQ - Part 2
Q) Why is LCS deviating from the original idea?
The ability for the community to vote on various aspects of the project is key to the original idea of LocalCoinSwap. Hence why this issue is being taken to a vote. The fact is that regulations are changing and the LocalCoinSwap platform needs to be able to change with these developing regulations in order to remain compliant.
Our migration to a non-custodial platform ensures that we are able to retain the core ethos of the project which is that the LocalCoinSwap platform will remain non-KYC and be available to everyone, worldwide. With the transition to a completely non-custodial platform, there are additional hurdles in place that take away from the efficiency of the current dividend model. These include increased transaction fees which will dramatically affect dividend returns. We have proposed this vote to address these issues using a model that has been shown to deliver value to investors.
Q) What happens if no-one wants to sell their LCS?
In a free market, the rules of supply and demand dictate that there will be an incentive for someone to sell when it comes time for a buyback. For example, say you hold a single LCS token and no one else is willing to sell on the buyback date. You can now sell the smallest division of LCS 1e-18 (or 0.000000000000000001) LCS for 20% of the total quarter’s trade fees. Since it is a free market, everyone can do this and a fair price will be determined by the intersection of supply and demand.
Q) Why was the non-custodial migration not brought to a vote?
The key underlying ethos of LocalCoinSwap is a platform where users can freely exchange cryptocurrency without unnecessary verification requirements. Changes in regulation are not something that anyone can predict. And running a platform that may be in breach of the law is not something that the team is willing to do.
As time goes on it is becoming clear the direction that different regulations are trending. The common theme is “if you hold someone’s funds, you need to know who they are.”' And “if you support the exchange of crypto for fiat, you need to collect personal details about the users and their transactions”. This means that maintaining a custodial platform will lead to forced KYC on traders. This is why both Localbitcoins and Paxful have had to implement KYC recently. Becoming non-custodial eliminates these regulatory pressures (much like the fact that Myetherwallet or Electrum don’t need your personal details).
Non-custodial transactions were outlined in the whitepaper since day one as it stated that LocalCoinSwap will utilize multi-signature transactions where possible. Multisignature P2P trading is non-custodial trading. The only way to remain compliant without KYC is to go non-custodial.
Q) Can we have a community vote to return to the q1 format and have non-custodial removed?
If LocalCoinSwap remains a custodial platform, KYC will likely have to be implemented for all users that want to trade with various levels of KYC dependant on trade volume. LocalCoinSwap would no longer have a competitive advantage over other P2P platforms in this case and the project would be unlikely to succeed.
Q) Who decided to have this Community Vote #3? Was the vote brought on because of the non-custodial changes and does it need to be addressed simply because of those changes?
This vote was brought on by the non-custodial changes and the need to determine how the dividends would work with this from a technical, economic, and legal perspective. If we didn’t have this vote and kept the dividend system as it currently is:
- The vast majority of users would get no dividend returns due to excessive transaction costs
- The platform would likely have to require KYC for dividend redemption to remain compliant.
Q) Is it written in the whitepaper or somewhere that the team can't vote? If so it should stay that way!
The team has always been allowed to vote once their tokens are unlocked. Many of the team tokens are owned by past team members as well as present ones. Restricting past and present team members' ability to vote would be unfair as they are LCS holders with the same incentives as everyone else. However, some community members have raised concerns over the founders ability to vote. So neither Nathan or Daniel will be participating in the vote (you can verify this on the Blockchain), and if people want to stay with a dividend model then we'll just keep doing what we've been doing.
Q) How can you prove that the team doesn't just choose the outcome as they have the most tokens?
The team (past and present) collectively hold 10 million LCS. The total amount of LCS that can be voted with is about 62 million (72m less 10m in the community venture fund). Hence the team only hold around 16% of the voting power.
The top 2 non-team holders alone control over 10 million LCS. Additionally, the tokens held collectively by users on the platform currently are around 10 million. So in no way does the team control anywhere near a majority of the tokens and the vote can go either way. Additionally, the founders have agreed not to take part in the vote, so this significantly diminishes the voting power that comes from the team.
This voting system was clearly outlined in the whitepaper and is a fair and democratic way to make big decisions relating to the project.
Q) Why exactly are we doing this? Are we doing it for KYC and regulation for the site? or KYC and regulation for dividends?
We are going non-custodial so that we do not need to implement KYC on the site. And we are voting on a buyback and burn proposal in regards to KYC, regulation, and the economics of the effect of transaction costs on dividend returns.
Q) I want to keep the current dividend system, it’s only been a year. When things are going in the right direction, why are we going to change it?
As stated above, changes in regulations and the effect of transaction costs on dividend returns in a non-custodial model is the reason why we are voting on this. If you want to keep the current system, then ensure you put in your vote.
Q) For such a fundamental change should we allow more time for it to be debated/questioned/thought through? Even if we need to postpone dividends until this is worked through and voted on?
The vote doesn’t conclude until October 7 so this is almost a month for the issue to be debated, questioned, thought through, and voted on.
Q) So with a buyback and burn model, LCS will become like any normal coin out there, what's the difference with our project now?
There are many different coins that have a wide variety of tokenomic models. We are not the only coin that currently pays dividends in multiple currencies, and if the vote goes in favor of a buyback/burn, we also won’t be the only project with that model. However, we will have a model that matches the most successful projects out there and also remains compliant to regulation.
Q) If we go to buyback and burn model short term, will there be the option/vote to return to the traditional dividend model?
The voting system will not be affected by this vote so there will be more votes in the future, and a change in the token model could definitely be another topic to be voted on then.
Q) Will the buyback order book be on the LCS platform?
No, LCS is a P2P platform and does not have an order book. The buyback would occur on an order book type exchange has high volume for LCS.
It is important for the buyback to occur on a public order book rather than through P2P transactions for the sake of transparency. LocalCoinSwap will make clear announcements ahead of time on the timing and platform of the buyback.
Some LCS holders have raised concerns about a potential buyback being on HotBit. There's also no reason a buyback has to be done on Hotbit, if you can suggest a more transparent way we would be happy to do it!
Q) In what currency would the buyback be? I’m assuming this will be consolidated as well? BTC/LCS pairing?
The buyback would be in whatever pairing has the highest volume, This is currently BTC/LCS and we expect it to remain this way unless another cryptocurrency knocks BTC off as the biggest crypto!
Q) What will be the use of the token if the burn model is used? It sounds like there will be no demand for it anymore without dividends.
The token will still provide the holder with voting rights whenever a community vote goes live. It will also provide the holder with a deflationary asset as the total supply will constantly be reduced, and the team will continue to explore other utility for the token in the LocalCoinSwap ecosystem. We are currently exploring the use of LCS in a fee-paying model for ETH and ERC20 transactions on the non-custodial platform.
Q) Will there be trading fees incurred on the buyback order book if it were to go ahead?
Yes, given that the buyback will occur on a platform not owned or operated by the team, there will be trading fees associated with the buyback. The current fees on the main exchange that LCS is listed on are 0.25%, which is in line with the global industry average.
Q) Buyback and burn means that the token becomes an appreciation of token right? The dividend will be a form of asset appreciation, is that correct?
Yes, in a buyback and burn model the token will appreciate in the same circumstances as the dividend model (a successful and profitable P2P platform).
Q) Can the team provide proof that there is no other option than the buyback and burn model? Otherwise, I will vote no.
To be clear there are definitely other options. I will list a few here and the issues with each:
- Continue with the current dividend model
Most users will not see returns due to transaction fees being higher than dividend returns for the vast majority of LCS holders. Additionally, it will be likely that KYC will have to be implemented on dividend redemption to remain compliant.
- Change to a single currency dividend model
Many users will still not see dividend returns as there are still transaction costs for redemption in one currency (although fewer users than distributing in multiple cryptocurrencies). BTC would be a likely candidate given it is the most popular but it also has the highest transaction costs, thus, the vast majority of users will still not see dividend returns due to their smaller holdings.
KYC will still likely have to be implemented on dividend redemption to remain compliant. And there will be trading fees involved in changing all the currencies traded into one for distribution. The result of this would still likely be that the vast majority of holders would not gain any returns in dividends.
Q) Can somebody provide an example of buyback and burn for somebody who let’s say holds 10,000 LCS? What price does the LCS get bought back at?
Say at the end of the quarter the total exchange fees taken by the platform are equal to 50,000 USD in bitcoin. 20% of these funds (10,000 USD in BTC) will be used for the buyback and the other 40,000 will be used to pay operating expenses (server costs, security infrastructure, wages etc.)
For simplicity let's say 1 BTC = 10,000 USD
The 1 BTC will be deposited onto an exchange with a public order book. At a publicly pre-announced time, a market order will then be made to purchase LCS for 1 BTC. The price of the LCS purchased will be determined by the sell orders on the orderbook at that time.
All the tokens purchased at this time will be burnt and this will reduce the circulating supply. This will happen every quarter.
How this affects a user holding 1000 LCS depends on a variety of factors, much like the dividends depend on similar factors.
- If or when they sell their LCS
- The amount of trade volume on the exchange
- The price of the pairing currency at the time (likely BTC)
In principle, reducing the supply of an asset (with no change in demand) causes an increase in price.
Q) Why do you want to spend money on a buyback if you previously had said that the price of the token is not so important for the project?
This vote is surrounding the issues with the high transaction fees associated with paying dividends on a non-custodial platform, as well as the fact that regulations are trending towards forcing KYC on dividend redemption.
The team does not want to “spend money on a buyback”, rather we are asking the community to vote on how we proceed with the above-mentioned issues in a way where everyone can still benefit and smaller, or geographically specific holders are not structurally excluded from positive returns.
Q) Does the referral program get abolished when non-custodial kicks in?
The referral program will still be in place when the non-custodial platform launches. However, the way that referral fees are paid will be slightly different due to the transaction costs associated.
Q) Will the 10M LCSV tokens from the community venture be up for community decision?
The community venture fund will not be allocated any voting tokens.
Q) The KYC point I agree on: I'm very against it too, but we still live in a world with regulators. Is there no smart contract / multisig way to distribute?
It would be theoretically possible to distribute ethereum dividends through a smart contract, although again transaction fees would likely eat up the majority of holders dividends. But the majority of volume on the platform is bitcoin. Given that BTC is a different blockchain to Ethereum, distributing BTC dividends requires LocalCoinSwap to manually collect LCS holders BTC addresses, and this is where we would come under regulations surrounding KYC and dividends.
Q) Isn't the KYC only for the dividend sharing? I was thinking the P2P trading is not affected as we're non-custodial?
Correct, LocalCoinSwap is going non-custodial in order to remain compliant without forcing users to do KYC. However, separate to that, regulatory pressure is trending toward any dividend paying token requiring KYC from users in order to redeem. This goes against the underlying principles of the project. Hence why we are giving the community the chance to vote on how we proceed from here.
Q) Does a dividend distribution of a single cryptocurrency such as BTC or ETH (consolidated from the basket of cryptos by the LCS team) require KYC when it can be simply distributed after a snapshot just like LCSV and LCSD is distributed.
Unfortunately, the way that regulations are trending it is inevitable that KYC will be required for any type of dividend redemption, whether it be a single cryptocurrency or multiple cryptocurrencies. It is the dividends themselves that are an issue for regulators, not the way they are redeemed.
Q) Is it inevitable that the P2P exchange itself will demand KYC?
If LocalCoinSwap was to remain custodial, yes. This is the main reason for a transition to a non-custodial platform.
Q) If 20% of fees are being used for the buyback, what is the other 80% being used for?
The 80% of trading fees will be used to pay the ongoing costs associated with operating and maintaining the platform. These include server costs, security infrastructure, wages etc. Currently, these costs account for greater than 100% of revenue. This 20% buyback figure gives LCS holders a clearer expectation of expected returns regardless of profitability.
Q) How do we know that the team isn't going to pay whales to manipulate them and make them vote in the team's favor?
How does the team know that you will not pay whales to manipulate the vote in the direction you want it to go? This vote will be operated in a clear and transparent fashion that is verifiable on the blockchain. Exactly as outlined in the whitepaper and exactly the same as all previous votes.
People bought into LocalCoinSwap because it gives them a chance to have their say in the way the project progresses. The operating environment for crypto companies is constantly changing and this is a time when everyone gets to have their say in how we respond to these changes.
This vote is not a team vs community vote. It is simply a community vote. The community holds far more tokens than the team and it is up to the community to decide how we proceed. The team has outlined a proposal that provides a clear way forward from a technical, economical and legislative perspective. Some people have voiced that they like the proposal, and some have voiced that they do not. That is totally fine. It is impossible to please everyone in a democratic voting system. The aim is to please the majority and progress the project in an efficient way.
Once again, we would like to thank everyone in the community for their ongoing discourse related to this community vote and we look forward to chatting with you further on Tuesday, September 17 in our live Telegram AMA.