A recent announcement by Kik regarding its Kin Foundation and Kin ERC20 tokens has at least one investor asking for a refund.
On December 13, 2017, in a live social media Q&A, Ted Livingston, CEO and founder of Kik Messenger as well as the creator of the Kik cryptocurrency and the Kin Foundation dropped a bombshell; citing reliability issues related to the surge of popularity in Cryptokitties that bogged down the network with transaction delays, he said, "So the number two thing we're working on is moving to a new blockchain. The blockchain we're targeting right now to move Kin to in sort of the Q2 ... timeframe right now is Stellar."
The move away from the Ethereum blockchain is concerning for some who invested in the token offering. The company's whitepaper was the sole source of information available to potential investors regarding Kik's intended trajectory for Kin as an ERC20 token, and it is the basis through which Kik collected Ether in exchange for Kin to fund its operation. The document explicitly states that development will take place on the Ethereum blockchain.
For example, section two of the whitepaper, titled "The Kin Cryptocurrency," provides:
"Kin will be implemented on the public Ethereum blockchain as an ERC20 token.(3)
The Ethereum blockchain is currently the industry standard for issuing custom digital assets and smart contracts. The ERC20 token interface allows for the deployment of a standard token that is compatible with the existing infrastructure of the Ethereum ecosystem, such as development tools, wallets, and exchanges. Ethereum's ability to deploy Turing-complete trustless smart contracts enables complex issuance rules for cryptocurrencies, digital financial contracts, and automated incentive structures. These advanced features and active ecosystem make Ethereum a natural fit for Kin.
(3) ERC20 is the Ethereum token standard: https://github.com/ethereum/EIPs/issues/20"
The whitepaper makes continuous references to the deployment on the Ethereum blockchain in other sections as well. From section three, "Building a digital economy inside Kik," it says:
"Ethereum settlement layer
Users wishing to transfer Kin into and out of the Kik application will be able to do so by interacting with the public Ethereum network, which will serve as the currency's decentralized settlement layer. Users interacting with Kin inside Kik will have a more managed experience. This will allow the early version of the system to solve for blockchain scalability bottlenecks, feeless transactions, faster transaction times, and encapsulation of complex features like private keys. (For more details, see Section 6 and the Kin Technical Whitepaper.) Over time, Kin will grow with the development of blockchain technology to accommodate these features in a fully decentralized setting."
Indeed, the entirety of section five, "Technical considerations," is dedicated to a specific on-chain and off-chain architecture designed to integrate Kik with Ethereum: "This section covers general technical considerations in grounding the Kin Ecosystem in the public Ethereum network."
Ethereum integration is mentioned yet again in section 7, the conclusion, wherein a hybrid throughput solution is described.
"The Kin cryptocurrency will be built on the Ethereum blockchain, initially using a hybrid on-chain and off-chain technology solution, with the goal of eventually transitioning to a fully decentralized and autonomous system."
The whitepaper does not disclose that Kik could opt to move Kin from Ethereum to another blockchain. Nor does the document generally state that the information therein is in the form of forward-looking statements that are subject to change.
In a statement made to ETHNews in June 2017, Livingston did raise the possibility of a future move away from Ethereum when he said that scalability "might come from an upgrade of Ethereum to Casper to proof of stake. That might come from a totally new blockchain, but for us, we are very motivated to find that blockchain that can guarantee the scarcity of a digital asset and can do smart contracts, and can do all that in a very scalable way."
However, that statement, and/or others like it, may not be enough to lay to rest criticism Kik faces from investors who believe they were misled by the whitepaper, which makes no mention of development on any blockchain platform aside from Ethereum and even goes so far as to call it "a natural fit."
One such individual believes Kik ought to reimburse investors at a rate of "1 KIN = 0.00000043 ETH," which is around the same rate of exchange during the token offering.
Through its token offering, Kik raised over $100 million to form the Kin Foundation, $50 million of which came from institutional backers. The rest came from over 10,000 individuals who sent Ether to Kin's token offering, totaling 168,732 ETH by contract closure. At press time, this represents a value of more than $129 million.
Whether or not backers will pursue legal action concerning Kik's decision to move Kin to Stellar remains to be seen, but the facts appear to be quite clear: potential investors were informed in the whitepaper that development of Kin would take place on the Ethereum blockchain. They bought into the platform relying on that fact, and now Kik is acting contrary to its statements in the whitepaper even though the document did not indicate that was a possibility.