The cautionary tale of another failed ICO

CryptoInsider
Published: 10/22/2018
The cautionary tale of another failed ICO

There have been many ICOs that have failed, and promises un-kept. Recently, it has been realized that, Hmstr.io, has swiped funds from crypto investors and the team members.

Sifting through the ICO madness

Many great ideas are coming out of the world of digital tokenization and blockchain technology. While many have succeeded and are still working on their projects, more than half of the Initial Coin Offerings, or new tokens, have failed. It is almost difficult to keep up with them all.

Things like a contract security vulnerabilities, a flaw in the idea, or founders committing premeditated fraud, can cripple a project and token or cryptocurrency.

Take the DAO, Bitconnect, and POWH Coin as tales of caution.

These ICOs have completely failed in different ways and currently have no team or value.

The DAO and the POWH coin had smart contract defects that lead to hackers withdrawing the funds for themselves and leaving many investors with nothing. Of course the DAO was the culprit to the ETH split, but at least investors got their funds back.

The POWH investors were not so lucky, but it was a pittance compared to the DAO. Although funds were lost, these failures were coding errors, and could be written off as a mistake.

Then theres the obvious Ponzi schemes like Bitconnect and Onecoin. Both failed because they were selling a valueless product promising consistently high returns, using funds from new investors to pay off the old investors.

These types of schemes inevitably lead to government intervention and shutdown, which is why the tokens are currently valueless, if they ever even had value to begin with.

Then there is the exit scam example, Savedroid, where the founder shutdown the website and all communications as soon as the ICO ended, as a PR stunt, and to show people to be careful about investing in ICOs. The public sale made $50 million USD. Though the situation could have been bad, it was a bad stunt, and everything is going great at Savedroid.

It is really hard to tell which ICO will be the next great winner. There are many dApps that ICOed and are still crackin away, but failures do happen.

The marketplace that never was

The idea of a decentralized marketplace operated through cryptocurrency was an exciting revolution when I first heard about it. There would be no middle-men, third parties, or markup fees. The product would be sent direct from the seller to the buyer after the cryptocurrency transaction. And better yet, having a blockchain secure your transactions could help prevent fraud and keep the token funds transparent.

These were the promises of the Hamster Marketplace. Many people were excited about this new system coming to fruition, but it seems we will never see this marketplace, at least not from the company that created the idea.

There are dozens of articles about the Hamster Marketplace and the ICO, but none about what is going on now or what has happened since the funding ended.

The decentralized marketplace was going to allow small niche electronic and gadget companies to compete on a global scale without the high barriers to entry of getting on a store shelf, or dealing with a third party that takes a high portion of the profit margin. The business plan, or white paper, had a lot of marketing research and an explanation of what the investment funds would be for.

Team members, bounty hunters, and investors were to be paid in HMT token for the work and the rest would go to marketing and gaining users. Research went into how much it would cost per user and merchant acquisition. Without much more research, the plan sounded solid and many were excited for this new marketplace to come to existence. The website even had a prototype of the marketplace at https://market.hmstr.io.

Unfortunately, the team focused more on the ICO than the building of the product itself.

What happened?

When asked why the Telegram chat had become a ghost town on May 28, the only admin left responding explained:

We are very sorry for that, but we are all very busy with the exchanges, bounty payouts and calculations, solving issues with KYC and a dozen more deals. We are doing our best to be satisfying for our clients, but the problem is that we have only 24 hours each day. Also we want to say to bounty participants, that our CEO Denis Bulavin promised to make the bounty token repurchase in June!

All focus was on the ICO and getting funding.The token sale had ended April 19th, and the third round of ICI funding ended on May 19th, totaling $4.3 million according to the CEO.

The Telegram admin that was left was busy answering peoples questions and issues about the ICO. Was anyone still working on the marketplace platform?

Within weeks, things started to go awry.

The exit

The Twitter accountwent silent (and has since been changed and posts from Jan to May deleted), and the Telegram admin started getting overwhelmed with people having problems with the airdrop tokens, and the bounty tokens. Bounties were not issued in time, and it seemed everything just started falling behind.

On July 3rd, the CEO put out another memo through an admin on Telegram to bounty hunters about the sharp decline in the cryptocurrency markets and investments in the sector, and to have patience;

First of all, Id like to forward my message to Bounty hunters. We are very thankful for your participation in our campaign and in advertising, but unfortunately, advertising activity that was dedicated to mass and crowd investors, lost its effectiveness in token sale market and our project is not an exception. That is why the major part of our money collected is made by personal agreements. Now we have some difficulties with reception of this kind of investment, mainly it is connected with sharp declines in Cryptocurrency market and investments in the projects of this sector, but we make everything possible to regulate all the issues. And taking into account discontent of bounty hunters, Im offering to bounty hunters to have patience and wait for positive results of our campaign. Repurchase of tokens distributed for bounty activity remains one of the most priority expenses of the nearest time for us.

Denis Bulavin

CEO Hamster Marketplace

That was the last message heard from any admin or team member on Telegram.

Soon after, a bounty hunter found a bug in the test contract that allows a user to send 1 ETH to the contract and receive 2 ETH and the HMT Tokens. There was still no response from any admin or team member.

I was able to contact the last admin on the channel privately and was told that he was not paid as promised after the ICO and so he left. He also stated he had no response from their CEO about the status of the projet.

Another team member said the same thing, except he lost communication with the management right as the ICO launched, and stepped away from the project.

I had also contacted several other team members, as well as Denis Bulavin, and received no response.

One investor has mentioned that he was a creditor of the CEO for a non-related debit almost a year before the launch.

We have verified the case was won by the lender. He says he still has not received the payments owed to him, nor the funds from the judgement he won from the court.

The hmstr.io website went offline in August, and has not returned. It has become highly likely the CEO has taken the funds and ran for the exit. Additionally, the bounties cannot be repurchased as mentioned by the CEO because they cannot be sent until February 19, 2019 because they were frozen to prevent the team and investors from dumping their coins.

What is really interesting is how thorough and well made the business plan, website, and market material were, and that the marketplace could have actually worked.

Conclusion

What happened? Was it just bad timing? Or was the ICO an idea to get some quick money to pay off some bad debts. There is definitely something going on here, and $4.3 million in USD value has been taken from investors with a promise that a product would be created. This is just another reminder, that if you are going to invest in an ICO, maybe you should ensure there is a working product, or at least MVP.

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