Update October 14, 4:10 pm. Kik may not be so dead after all. On October 13, Kik’s Twitter account announced “Great news: Kik is here to stay!!!!AND there’s some really exciting plans for making the app even better. More details coming soon. Stay tuned.”
The U.S. Securities and Exchange Commission claimed a high profile scalp on September 23, when messaging service Kik announced it would shut down, laying off more than 100 employees.
In a blog post, CEO Ted Livingston said the firm would refocus on its Kin (KIN) cryptocurrency, keeping a 19-person team dedicated to maintaining and expanding the use of the cryptocurrency. The SEC sued Kik on June 4, claiming the September 2017 Kin initial coin offering (ICO) was an unregistered securities sale. The ICO raised more than $100 million.
The SEC has defined nearly all cryptocurrencies as securities, first green-lighting a pair of very limited-purpose token sales in July. They have also been allowed under a special regulation that allows start-ups to raise limited funds with less disclosure than a traditional initial public offering (IPO).
Livingston placed the blame for the shutdown directly on the SEC’s shoulders, noting that by abandoning Kik, the company could cut its spending by 85% in order to focus resources on the legal battle to protect the Kin ecosystem.
Livingston also framed the legal fight as a defense of not just Kin, but of the entire cryptocurrency industry.
“After 18 months of working with the SEC the only choice they gave us was to either label Kin a security or fight them in court,” he said. “Becoming a security would kill the usability of any cryptocurrency and set a dangerous precedent for the industry. So with the SEC working to characterize almost all cryptocurrencies as securities we made the decision to step forward and fight.”
On May 28, Fred Wilson, co-founder of venture capital fund Union Square Ventures, a leading Kik/Kin investor, announced that Kin had created DefendCrypto.org, a cryptocurrency legal defense fund aimed at fighting the SEC’s characterization of cryptocurrencies as securities. Originally a crowdfunding effort to support the Kin fight, the DefendCrypto.org project was eventually turned over to the Blockchain Association. It has raised $2 million to support other companies’ fights against the SEC.
LIvingston also accused the SEC of acting in bad faith, claiming Kik, “underestimated the tactics they would employ,” in its action. “How they would take our quotes out of context to manipulate the public to view us as bad actors. How they would pressure exchanges not to list Kin. And how they would draw out a long and expensive process to drain our resources.”
The action appears to have taken a personal toll on Livingston, who mistakenly drunk-texted a CoinDesk reporter with a message (probably directed at a Kik board member with the same first name) saying he intended to quit, the media outlet reported on September 24. Livingston later declined to comment, CoinDesk reported. Coindesk reported on September 24 that this text was a hoax.
The price of Kin was down more than 25% as of press time, selling for $0.000009, according to CoinMarketCap. It’s high came during a two-month spike at the beginning of 2018, hitting $0.001306 on January 6.
In defense of Kin and company
“[N]o matter what happens to Kik, Kin is here to stay,” Livingston declared. “We will focus on one thing, converting Kin users into Kin buyers.”
Ethereum-based Kin has more than 2 million monthly earners and 600,000 active monthly spenders, Livingston said, noting that the shutdown of Kik would “have a big impact on these numbers.” The cryptocurrency is overseen by the independent Kin Foundation.
Adding that Kin has “an open, decentralized infrastructure run by a dozen independent companies” across dozens of apps, he promised that, “while the SEC might be able to push us around, taking on the broader Kin Ecosystem will be a much bigger fight.”
Kin Ecosystem General Manager Alex Frenkel told Modern Consensus much the same thing in a July interview.
Kik and Kin are “very, very different,” he said. “Kik is only one of the partners in the ecosystem.”
Claiming that some of those have an even bigger users base than Kik—which once claimed 300 million users, although that is now down to 10 million—Frenkel pointed to online community host Tapatalk. He also highlighted 3D game development platform Unity, which released a plug-in allowing game developers to add Kin support over the summer.
And more may be coming. Without giving any details, Livingston said in his blog post that “the Ecosystem is close to adding a lot more firepower.”
With “literally millions of users using Kin and … building both the blockchain and the tools,” Frenkel said, “[w]e see the growth, traction and adoption. If you look at the numbers, you’ll see us growing and not in a linear way. It’s been accelerating. More partners are joining, more developers integrating.”
Of course, he also added that the Kin team had “more than 70” developers working on the ecosystem at the time.
A conspicuous target
Frenkel blamed Kik’s legal woes on the high profile of its ICO, noting “[w]e were a mainstream company with hundreds of millions of users, a very strong brand, and major investors including Union Square Ventures and Tencent.”
Having raised $120.5 million in its venture investments, Frenkel said that Kik, “reached a $1 billion valuation in its last round and was the biggest brand to do an ICO before Telegram. That caused a lot of attention.”
That attention came back to haunt it after the SEC found itself, “in a very challenging situation with many ICOs being terrible frauds and had to do something,” Frenkel speculated. “Initially they went after the scammy ones and tried to close them down, and then they tried to settle with other projects where it was clear that the token was not used by anyone, and they got a few settlements, and I think they wanted a similar settlement with Kik.”
For all that, Kik remains defiant, according to Wilson. In his own blog post announcing the decision to close Kik, Wilson summed up his feelings by quoting French Field Marshal Ferrdinand Foch’s famous report from the Battle of the Marne in World War I:
“My centre is giving way, my right is in retreat; situation excellent. I am attacking.”
Updated September 11 at 2:34 pm to reflect Coindesk hoax.