Tezos Wired Magazine
- Community, Development, Tezos

Tezos Backstory Featured In Wired Magazine

If you see the latest issue of Wired Magazine this month, you’ll find Tezos founders Arthur and Kathleen Brietman gracing the cover. The story (The Blockchain: A Love Story/Horror Story), which clocks in at over 14,000 words, tells the entire history of the Tezos project from original conception all the way up to just a few months back when control for the Tezos Foundation was finally wrestled away from Johann Gevers and the project got back on track. If you follow Tezos, or are interested in crypto at any level, please spend the time reading it. Once I started, I couldn’t stop since the story is wrought with highs and lows as well as the emotions of Arthur and Kathleen living daily life after the blockbuster fundraiser happened back in July 2017.

Spoiler Alert: Here are a few of the most fascinating parts I found to be revealing about all the things that contributors and followers were not aware of happening since the fundraiser.

In the summer of 2014, a few months after their honeymoon, Arthur wrote a pair of white papers, under the pseudonym LM Goodman, and posted them on the cryptography listserv famous for Bitcoin’s quiet debut. (The pseudo­nym was a snide reference to Leah McGrath Goodman, the Newsweek journalist who notoriously misidentified the person behind Satoshi Nakamoto.) The papers outlined what Arthur saw as Bitcoin’s flaws, and they accurately anticipated issues that would soon plague Ethereum; they also predicted, with stunning foresight, that the digital world would soon be awash in new fly-by-night currencies.

The backstory of how Arthur came up with the concept of Tezos is fascinating because it speaks to how deeply his mind has worked through the world of blockchain. Watching the weaknesses of Bitcoin, and then Ethereum, Arthur built the vision for Tezos with the idea that the second mouse gets the cheese, and that security and superior research would win out.

With such a brilliant idea, and the ability to make it work, how did the Breitman’s become involved with the notorious Johann Gevers?

Gevers and Arthur had first encountered each other in 2011 as fellow travelers of Patri Friedman, who had employed Gevers on a project to build a libertarian-­minded charter city in Honduras. Arthur followed the project closely, and Gevers had been awestruck by his intelligence. Over the following few years Gevers had been pleased to see how their philosophies dovetailed—with each other and, now, with history. In the late summer of 2016, Arthur reached out to Gevers, who offered to make the introductory rounds in the Crypto Valley.

The project organization seemed simple enough. The Breitman’s would handle development, Gevers would handle the foundation and accept the contributions, and the rest would be history, or so the plan was laid.

Gevers, the Breitmans, and the MME lawyers agreed upon a Swiss foundation structure to support Arthur’s masterpiece. The public mission of the new Tezos Foundation, enshrined in its bilingual deed, would be to benefit “the fields of new open and decentralized software architectures,” with particular emphasis on the “so-called Tezos protocol” and related technologies. As steward of the money collected, it would set budgets and disburse funds toward that end. The Breitmans, as inventors of the technology, would play a crucial role in getting the platform off the ground, but their relationship to the foundation was drawn up as an arm’s-length contractual arrangement.

Gevers emerged as the logical choice for foundation president. He had all the right credentials—he was trained as an accountant, and his emails were returned by important figures, both locally and abroad. The Breitmans got the impression he was a pillar of the community, and no further due diligence struck them as especially necessary.

Everything was going fine, up to the point that Gevers sought the power for single-signature control over the foundation, after which the project plummeted into stagnation:

On June 2 [2017], according to notarial records available online, the foundation board approved a revision of the deed to give Gevers single-signature access to its bank accounts and safe-deposit boxes. A local American expat named Tom Gustinis, a former UBS controller who’d been in talks with Gevers to pitch in at Monetas, remembers pulling Arthur aside to ask if this seemed wise. “You do realize,” Gustinis recalls saying, “that this puts a lot of power in Gevers’ hands?”

Arthur hadn’t thought it was such a bad idea; the intention was to make the foundation more nimble and efficient, and the Breitmans’ major concern about Gevers was that his responsibilities at Monetas would leave little time for Tezos Foundation work.

It’s worth noting that Kathleen’s instincts were correct from the beginning to not trust Gevers:

In public, Kathleen described him as a “mensch,” but, as she told me later, she’d in fact been instantly put off by him, and she couldn’t help but prick at him in her pedantic way. She pointed to his nearly empty office and asked him how his big financing round was going. She offered to help circulate his pitch deck to people in the (other) Valley, but he didn’t respond.

At this point, up to June 2017, the project was progressing and then came the time for the fundraiser launch in July of 2017:

On the morning of July 1, 2017, the widely anticipated issuance of a new currency called the tez was set in motion. Blogs and online fora debated whether this was the birth of the new Ethereum. The initial retail price for 5,000 tezzies was arbitrarily floated at one bitcoin, or about 50 cents per tez—though a special discount structure incentivized early participation. For two weeks, there was no limit to the quantity of tezzies available for order. At the close of the business day on July 13, more than 607 million had been reserved for eventual distribution. In the end, the Tezos Foundation took in $232 million in alchemical exchange for a currency that did not yet exist, and, according to the fine print of the offering, might never.

The total sum, worth $232 million dollars, was unheard of at the time. Falling into this kind of funding can be good and bad for a project since it creates new challenges and new demands.

With the ICO successfully completed, everything seemed to be in place for the final transformation of Tezos from idea to reality.

The contract stipulated that it had a little less than nine months to do so; once the network was up and running for a specified interim, the foundation would acquire the original source code and the Tezos trademark from the Breitmans’ company for 8.5 percent of the ICO funds raised, plus 10 percent of all tokens issued on the “genesis block.” The foundation did not, one might reasonably have assumed, lack the necessary resources to get the work done; in fact, it was drowning in assets.

After that, the project went downhill quickly as Gevers’ leadership proved to be focused more on his own goals rather than actually bringing the Tezos project to fruition:

The first signs of discord appeared without delay. Just days after the close, Gevers messaged Arthur to propose that the foundation hire someone to serve as a joint COO of both the Tezos Foundation and Gevers’ own company, Monetas. The candidate Gevers had in mind was Tom Gustinis, the American expat who only a month earlier had warned Arthur about Gevers’ single-signature power. Arthur responded to say that he thought the foundation could probably afford its own full-time person but that Kathleen was a better judge of these things. Gevers continued undeterred. In his strategic vision, he wrote, Tezos and Monetas needed a dual executive.

Gevers and the Breitmans were not even on the same plane when it came to understanding what Tezos was and how it needed to be developed. For Gevers, this was another project, a crypto-related project that he could usurp into his own crypto portfolio and somehow market to investors. For Arthur, especially, Tezos was his vision of applied mathematics, cryptography, economics and computer science all coming together.

Small skirmishes followed one another in rapid succession. Arthur had developed Tezos in a functional programming language that had emerged from French academia, and had been working with software developers at OCamlPro, a specialized French contract shop. According to internal foundation emails I was able to review, Arthur got into a dispute with the contractor, which held that, in light of the Tezos ICO haul, a generous bonus was in order. Work on the protocol slowed, and Gevers suggested that the development could be done much more cheaply elsewhere. Arthur didn’t bother to hide his disdain: This was not simply a matter of outsourced IT, it was computer science.

Not long after the fundraiser, the issue of Gevers’ self-dealing came up as he attempted to bonus himself Tezos tokens while concealing their true value:

Four days later, Gevers wrote to demand in addition that the matter of his own contract be settled immediately, as he’d been working as “de facto executive director” of the Tezos Foundation for months. There were limitations on what he could be paid as president of the board, but he was free to propose himself for a salaried executive role, and the contract he attached included compensation in the hundreds of thousands of Swiss francs. He also asserted that he was still owed a quota of tokens from his own ICO contribution, noting that a verbal agreement with Arthur had supposedly granted him a personal 50 percent discount for that period; on top of that, his draft contract included provisions for additional tokens in the form of annual bonuses. The Tezos network itself hadn’t yet launched, of course, so any market value ascribed to these token allotments was almost entirely arbitrary. His proposed contract valued the allocations at a few hundred thousand dollars, but in a near-simultaneous private communication he expressed his belief that they were worth perhaps 10 times more. The cumulative contract value was potentially worth millions of dollars.

Luckily, for the Tezos contributors, there was one board member seeking to do right by the community and steer the project back on track. Enter the hero known as Diego Olivier Fernandez Pons.

Pons emailed the board with a methodical summary of a situation he could only describe as “dire.” The foundation, in his view, had accomplished almost nothing since the ICO and now ran the risk that federal authorities would revoke its charter. Unless they got down to real, productive work, they would find themselves in breach of their contractual obligation to the Breitmans to complete the protocol. Foundation balance sheets for the period from July through October show inflows from crypto sales of about $65 million—and business expenses of less than a million dollars. The foundation had hired only a handful of contract employees, one of whom had sent screenshots of an empty bank account in a plea for payment. It was time, Pons wrote, to appoint an outside executive director.

Pons worked tirelessly on the board to counter Gevers and offer support for the vision of the project as Arthur had intended. If it had not been for Pons on the board, it’s quite possible the Tezos Foundation could have been dissolved in 2017 by Swiss authorities.

Having been unable to resolve the board matters, since Gevers essentially stopped communicating, the Breitmans turned to legal avenues.

On October 15 [2017], one of the Breitmans’ growing cadre of lawyers sent a 46-page letter, including exhibits, to Pons and the third board member, excluding Gevers. The document charged Gevers with “deception and self-dealing” in his attempt to award himself a “license to print money,” as well as with the Swiss crime of “disloyal management.” The Breitmans called for Gevers’ prompt removal.

Within a very short time, word of the letter and the ensuing tumult reached reporters working for the news agency Reuters, which had been investigating Tezos. On October 18, Reuters published a 3,300-word investigative report on Tezos, alleging that it was “now in danger of falling apart because of a battle for control playing out behind the scenes.” Gevers told Reuters that the letter’s censure represented nothing but “attempted character assassination. It’s a long laundry list of misleading statements and outright lies.”

Once the story with Gevers erupted in Reuters and the delays became public knowledge, Tezos contributors began to get worried and angry that the project was so far behind scheduled. This resulted in lawsuits from US-based contributors alleging Tezos as a sale of unregulated securities and suing for damages.

More than a few American securities lawyers, however, thought there were fundamental flaws with the entire Swiss model. The use of the magic word “donation” was not enough to indemnify coin issuers against the charge of selling unregistered securities; if it was unfair that a coin issuer was to be judged by somebody else’s expectation of a return, well, that was the law. The US allows individuals to sue in cases of potential securities fraud, and the assets of the foundation made Tezos a rich target for private litigation. A week after the Reuters article appeared, a class-action complaint against the Breitmans, Gevers, and various associates was filed in San Francisco. These first plaintiffs—token buyers—charged the Breitmans with the sale of $232 million in unregistered securities, securities fraud, false advertising, and unfair competition.

Once the lawsuits began, the communication ceased from the project as lawyers had advised the Breitmans to stop speaking publicly about launching the network or comment on any of the problems with the Foundation. The project remained in limbo for several months until community members, disgusted by the dereliction of duty perpetrated by Gevers, took action and decided to wrestle the Foundation away from the con man.

The leader of the T2 faction—a preternaturally tranquil and even-keeled Mormon named Ryan Jesperson—had sat in a room with Gevers and the lawyers for 10 hours of what he insisted was polite, amicable conversation. In the end Gevers had consented to his departure on the condition that the entire board be replaced. Gevers stepped down; an unsigned version of the final resolution of the first Tezos Foundation stipulated more than $400,000 in severance. Pons was ready to be rid of the whole travail, and he communicated, via Reddit, that he would be returning his own settlement to the foundation. He publicly invited Gevers to do the same, but according to Pons, no such donation had materialized. Jesperson moved, with his wife and three small children, from Utah to Zug to take over the new foundation.

A few things worth noting here. We know from instances, where Arthur confirmed in various reddit comments, that many influential people were leaning on Gevers to step down. Everyone from billionaire investor Tim Draper, to other well-known names backing the Tezos project, put pressure on Gevers to exit. In the end, it took Ryan Jesperson, a dedicated community member to put up $50,000 of his own money to hire a Swiss attorney and eventually push Gevers off the board. I’d love to know what was discussed in that room for ten hours as Jesperson and Gevers hammered out the details.

Now, here we sit, literally days from Betanet launch, with all of this in the past. The future is bright for Tezos, perhaps made brighter as time wore on and the community grew stronger.

There is much, much more to the story and lots of details in between that I couldn’t include. Give it a read, it’s worthwhile.