DYOR – is it just white noise?
Citywealth questions whether the current DYOR approach is still relevant for crypto natives. Interview with Charlotte Hill, Senior Associate, Penningtons Manches Cooper.
‘Do your own research’ of DYOR is something that pervades as a theme in the crypto industry, perhaps suggesting if you don’t or don’t do it well, that losses are your problem. Growing knowledge in crypto can take years of understanding the industry and terminology because it has been born from a software business not financial services – although financial services as well suffer from incomprehensible jargon. So how do entrepreneurs, accredited investors and family offices DYOR? It takes time to get up to speed. Arguably parts of the crypto industry like hedge funds are a good entry point but Citywealth questions whether the current mode of operation is still relevant if the industry is to grow. Although accepts that many organisations are now setting up from the other side as pure asset managers.
Karen Jones, Editor, Citywealth: “Having looked at a lot of whitepapers, I have found them, mainly to do with payments so many seem a bit copy and paste, despite saying they are ‘new’. As governments put themselves in the middle of crypto natives and the industry experience a deep winter, do you think white papers still stack up as a method of engagement?”
Charlotte Hill, Senior Associate, Commercial Dispute Resolution team, Penningtons Manches Cooper: “White papers are a good starting point, but they should not be relied upon as the only governing document. They were originally used to explain the business use of the product and would explain the background to it and why or how the product for instance tokens, are both scalable and tradable as a way to obtain investment. White papers are often very basic however and they tend to lack detail about the way in which the relationship is governed: they should therefore be treated with caution. Not least because they tend to be drafted by the developer and so focus on the product itself rather than the way in which an investment is likely to work.”
Karen: “Can you recommend any practical steps to DYOR?”
Charlotte: “There are many companies that can help (Citywealth can recommend Quintel Intelligence), but, so far as I’m aware, they all charge for their services. This is because an understanding of the blockchain technology is required, and DYOR can be time intensive. You can still do the basics without that assistance, however, find the purported company via its country’s registry; check the key stakeholders are affiliated to the company (as a director, or otherwise); do a Google search because often scams are reported online first; ask others in the industry for opinions on the product or individuals involved. Most of the scams that I see wouldn’t pass the sniff test, so a basic search can often throw up some red flags early on. If you can’t find any information, it is probably worth instructing an expert, particularly for large sums, to help carry out proper due diligence before you invest.”
Karen: “What else should crypto investors think about?”
Charlotte: “White papers are useful to understand the business use case of the product, but they don’t tend to be helpful beyond that usually because they are prepared by the developers who, understandably, have little understanding as to the financial profile or the legal aspects surrounding the token. The financial profile of the token is of paramount importance, as is considering which jurisdiction the tokens and business are in, as well as understanding how the company holds the tokens (whether in custodial wallets or designated wallets for each account holder). These factors will help to determine whether the assets in which you are investing are safe and can be retrieved, if necessary.”
Karen: “Some professional advisors now offer to write white papers so perhaps improvements are already afoot?”
Charlotte: “I am yet to see one drafted by a professional advisor and would love to do so. The ones I have seen tend to be the ones caught up in scams. On the scam front, watch out for typos, obvious errors which make no sense other than showing a rushed job, and circular statements which say nothing in a lot of words.”
Karen: “How do UHNW accredited investors and family offices DYOR effectively?”
Charlotte: “DYOR or whitepapers can help to decide whether a product is worth considering further. DYOR is a brilliant in this nascent industry which is generally recorded on public blockchains and so can be identified be Joe Bloggs (if they know where to look). It should not be the end game though. If you’re still interested in investing once you’ve carried out DYOR, engage a professional to carry out proper due diligence before deciding whether to commit to the token or scheme.”
Karen: “So in summary a whitepaper or DYOR proposal should be considered stage one; then do some basic research yourself through your own networks and Google to see if any forums show problems and finally ask for a financial proposal to understand the business side not just the product side. Twitter is a good forum to see stories emerging. Telegram is also a good source but not as easy to access. Citywealth also asks for the name of a professional advisor before working with crypto natives so an accountant or lawyer to get a reference so that there is a further touchpoint if things go wrong. Then, after following the above, if questions still remain, instruct a lawyer or due diligence company to provide an opinion.”
Charlotte Hill is a Senior Associate, Commercial Dispute Resolution team, Penningtons Manches Cooper, advises on a broad range of complex, high-value cross-border disputes across a number of commercial and business sectors, she specialises in fintech disputes and digital assets, advising clients about crypto assets, NFTs, blockchain, and trading platforms/exchanges. She has successfully acted for clients in some of the very few contested cryptocurrency disputes. She was a recent gold award winner at the Citywealth Power women awards in category “Woman of the Year – FinTech/Crypto Innovation – UK.
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