Chia Network on the road to IPO - unexpected complications

Loss of a banking partner

On October 3rd, an interview took place with Gene Hoffman, the CEO of Chia Network. The full recording is available on the YouTube channel of a user named Digital Spaceport. It is worth mentioning that the host of the aforementioned channel is a highly engaged community member, who strives to educate users on farming techniques.

The interview was initiated with Hoffman's statement on the delay of the IPO process. According to the CEO of Chia Network, it was caused by factors beyond the company's control. The source of the problems was the loss of a banking partner, Credit Suisse. This Swiss bank, with a 167-year tradition, decided to cease operations on March 18-19, 2023. In relation to Chia Network, it acted as an underwriter, i.e., a guarantor of the issue in the IPO process. Gene Hoffman admitted that while the company initially felt that Credit Suisse wanted to withdraw from cooperation, they did not expect the total cessation of operations by the Swiss bank.

In the CEO of Chia Network's opinion, the community perceives the SEC as another obstacle in the company's going public. However, he emphasized that this is not true, and cooperation with representatives of the U.S. Securities and Exchange Commission was positive. Gene Hoffman pointed out that the delay is solely due to the situation with Credit Suisse.

The Chia Network CEO aptly noted that the underwriter status is of great importance to potential investors. He also admitted that due to the uncertain future of Credit Suisse, the company was unsure of further actions until the end of September 2023. This situation not only delayed the IPO process. It also led to a series of other consequences that will undoubtedly disrupt the functioning of Chia Network, thereby shifting certain company goals in time.

Employee layoffs

Gene Hoffman openly admitted that due to the loss of the bank, the company had to make the difficult decision to lay off some of its employees. Out of 70 employees, about 26 will lose their jobs. The Chia Network CEO was not able to provide specific names at the time of recording the interview because discussions with these individuals had not yet been concluded. However, he highlighted that many of the laid-off employees still believe in the success of Chia, hence they will remain active in the community.

The Chia Network CEO stated that the layoff was necessary for the continued operation of the company. Human resources were reduced to lower operating costs. According to Hoffman, everything was conducted so that the company could operate efficiently, retaining employees with adequate expertise in all relevant sectors for the company. This primarily involves sectors that can positively influence the successful conduct of the IPO process.

"The great unknown"

In the latter part of the interview, Gene Hoffman referred to "the great unknown," which is the length of the runway, or in other words, the money burn rate. In other words, according to the CEO of Chia Network, the company should focus on actions aimed at ensuring enough time for further product development before financial resources are exhausted.

Gene also emphasized that it's not only about product readiness. He pointed out the risk associated with the market not being ready for Chia Network's offering. This very issue is the driving force of the company in extending the runway. However, there is no certainty whether the company's actions will be sufficient. There is a possibility that resources will run out, and therefore, they will need to be raised. Hence, "the great unknown." For this reason, Chia Network directs its ecosystem primarily to banks, governments, and corporations, which have a need for solid blockchain technology implementation right now. A good starting point, in the eyes of the Chia Network CEO, is the Chia blockchain-based carbon credit register built as part of the Climate Action Data Trust project.

Backup plan

When asked about new potential banking partners, Gene Hoffman confirmed that a completely new entity has become involved. He also highlighted that the delay associated with searching for a "backup player" does not rule out cooperation between Chia Network and the SEC. He also pointed out that, with the worrying development of the situation, the company began to formulate backup plans, some of which are currently being implemented with positive effect.

One such backup plan is raising funds by selling part of Chia Network's Strategic Reserve, the so-called pre-farm. Chia Network has locked 7/8 of the pre-farm and declared that if they want to use these resources, the community will receive appropriate information with a 90-day notice. The remaining 1/8 of the Strategic Reserve is not locked, allowing Chia Network to use it for business purposes. Gene Hoffman stated that he does not know if these funds will be used, and if so, in what timeframe and quantity. However, if it becomes necessary to use these resources, it will be done in a way to minimize the impact on the market situation. The CEO of Chia Network assured that the company has no reason to sell all 2.6 million XCH, which constitute 1/8 of the pre-farm. He also described the pre-farm as a mechanism that allows the company to avoid resorting to requests for grants.

So far, Chia Network has not sold any of its tokens due to concerns about how the SEC would classify them. If the assets offered for sale are classified as securities before the company successfully goes through the IPO process, such a sale would be considered unlawful. According to Hoffman, there is a chance that such tokens could be classified as digital commodities, as demonstrated by recent legal cases involving Ripple and Terraform Labs. One of the conditions is careful development of a decentralization system for such assets.

Closing thoughts

There is no doubt that Chia Network is currently going through a challenging period. However, it's important to note that this is not due to the actions of the company but rather the market situation. The downfall of a banking partner has forced the company to delay the IPO process, lay off some employees, and develop several contingency plans to maintain operations. Certainly, many members of the community have lost interest in the project at this point. Our team, however, plans to carefully analyze the situation and monitor further developments.