NEM, which opened Southeast Asia’s largest blockchain center last summer, reportedly now needs $7.5 million to avoid bankruptcy.
At its inception five years ago, NEM hoped to build a new digital currency that could enhance blockchain technology’s abilities to track and manage records for industries outside of finance. Known as the XEM token, the NEM blockchain’s native token offered a zero inflation guarantee due to the fixed number of units in circulation. The coin was also designed to offer users stronger scalability and lower hardware costs.
At the heart of the project was the NEM Foundation, a group of internationally-based individuals and corporations with expertise in the fields of trade, tech support, entrepreneurship and property development. The main goal was to enhance NEM’s blockchain and educate individuals around the world through training events and service providers regarding the technology’s growing benefits.
Over the years, NEM developed a hefty name for itself and accumulated several technical partners such as Atraura Blockchain, Blockchain Global, Dragonfly Fintech, Sumeru Inc. and Asta Solutions. In addition, the company’s team was growing to include developers that would enhance the NEM blockchain’s abilities to allow for mobile payments, escrow services and the creation of one’s own, unique cryptocurrencies through a program known as Catapult.
Winds of Winter
Things remained relatively steady until January 2018, a month that would mark a nasty time for most crypto enthusiasts. Coincheck — one of Japan’s largest cryptocurrency exchanges — fell victim to a massive hack and more than $500 million in NEM funds disappeared overnight. Surpassing the amount stolen through the notorious Mt. Gox attack by nearly $100 million, the Coincheck breach marked the largest cryptocurrency theft in history and digital asset prices would soon enter a portal of depreciation that has yet to subside.
While Coincheck immediately announced a plan to refund all affected customers, it took months to initiate reimbursements and NEM was now facing charges of central planning. After discovering the wallets of the hackers responsible for the attack, NEM targeted the wallets and flagged them, rendering the stolen funds null and void and placing the foundation in something of a regulatory role.
There was also concern regarding NEM’s proof-of-importance (PoI) consensus mechanism, which analysts claimed had been initially responsible for the Coincheck hack. PoI had incentivized storing XEM tokens in a hot wallet, which is what Coincheck had been doing at the time. In fact, NEM was the only digital asset not to be stored offline by the exchange, making it more vulnerable.
The circumstances lowered trust in NEM and brought the price down from just over $1 to about $0.85. At press time, XEM is trading for roughly $0.04 and has lost nearly all its previous value over the past 12 months.
To an extent, the currency has managed to retain a certain level of loyalty despite its connection to Coincheck. Between December and January, for instance, the currency has been newly listed on crypto exchanges like BitoPro, though it appears things aren’t quite where they should be.
Word has recently spread that the company’s finances are suffering heavily. After spending roughly 80 million XEM Tokens last year on marketing alone, Alex Tinsman — the NEM foundation president — has reportedly said that the venture needs approximately 160 million tokens (about $7.3 million) to stay afloat. Otherwise, the company is close to declaring bankruptcy.
Weathering the Storm
Tinsman blames the company’s circumstances on the previous mishandling of spending funds. (Distributed reached out to representatives of NEM for specific comment, but did not receive a response by press time.)
“We realized we had a month to operate due to the mismanagement of the previous governance council,” she said, per FXStreet. “We saw very little accountability for funds and questionable return on investment (ROI), leading to a burn rate of nine million XEM per month. In terms of running an effective organization, the existing structure failed.”
To make up for its present losses, the company has stated it will be laying off several members of its staff and Tinsman has said the company’s new council is restructuring NEM to become more “product-focused.”
The foundation is also proposing a new budget that would cut the present burn rate down by approximately 60 percent. Remaining employees will be divided into seven specific teams and will be responsible for delivering ROI and reporting respective metrics. Lastly, all spending must receive approval by the company’s head of finance beforehand.
While the hype and investment that drove the cryptocurrency market to new heights last year have petered out, many projects have had to pivot to avoid shutting down altogether. In this way, NEM is just one example of many. But each project in this space seeks to advance a distributed agenda differently and they will all evolve with the technology and the market in different ways — or fail.