IQONIQ’s liquidation and the murky waters of crypto assets — fungible or otherwise

One of the well-known companies in the “crypto-based fan engagement platforms” space has gone bust. Here’s why the recent boom of crypto-based technologies entering the sporting world needs to be monitored with caution.

Also read: 10 Biggest Crypto Deals in Sports

In 2020, Monaco-based fan engagement platform IQONIQ claimed it would “become the Number One Fan Engagement Platform for the Sport and Entertainment Industry within the next 3 – 5 years”. On Christmas Eve 2021, Journal de Monaco reported that the company had gone into liquidation.

By the end of the summer of 2020, IQONIQ had emerged as a big player in the “crypto-based fan engagement platforms” space by establishing partnerships with the likes of Crystal Palace, AS Roma, Real Sociedad and even LaLiga. Outside of football, the platform had deals with the McLaren Formula One team, Euroleague Basketball and the European Handball Federation.

IQONIQ offered fans “engagement” via its proprietary tokens, which the fans could only purchase through IQQ, IQONIQ’s dedicated cryptocurrency, which in turn could only be bought via Bitcoin or stablecoin Tether (USDT). IQQ started trading on the Bitcoin.com Exchange by March 2021. Now, in January 2022, after IQONIQ’s liquidation, its value is effectively zero.

As per The Times, IQONIQ owes Real Sociedad €820,000, while Crystal Palace have already started looking for legal actions they could take against the now-defunct platform over the missed payments of their sleeve sponsorship deal. The point remains, though, that over thousands of people are left with IQONIQ fan tokens that are virtually worthless. 

Over the past year or so, crypto companies have become commonplace in sports sponsorship portfolios, and understandably so. After all, given the amount of money they promise to bring in, especially with the financial difficulties all organisations are going through to some degree because of COVID, it is not easy to say no to them.

These companies offer a variety of crypto-based technologies. There are, for example, crypto exchange platforms that allow you to invest in and convert your cryptocurrency while providing other financial products like credit cards that offer rewards in some form of cryptocurrency.

Then there are “fan engagement” platforms, with the biggest name currently in this space being Socios.com. Powered by a cryptocurrency called “Chiliz”, Socios.com partners up with teams across the sporting landscape to offer their fans team-specific, limited-number fan tokens. Buying these fan tokens allows their holders to have a say in some matters, which Socios claims re-defines the way the modern fan engages with their favourite team, although the “matters” these fan token holders are allowed to have a say in go little further than choosing which music to play in a training session or which player will host the next Instagram takeover. 

Then we come to the non-fungible tokens, NFTs — currently the buzzword in the tech world.  

So, here’s a quick recap if you haven’t read a definition for NFTs yet: they are non-interchangeable pieces of code that are stored (mostly) on the Ethereum blockchain and serve as proof of ownership and provenance of a digital entity, so while a digital entity—say, an image—could be replicated by the right-click brigade, the ownership of said entity will remain only with the buying party.

Anything can be subject to an NFT. From tweets to an audio clip of someone’s farts — if it’s digital, there is a very good chance you could make an NFT out of it.

The term “NFT” has become a mainstream buzzword because of the eye-watering amounts of money some of the digital art has been sold for over the past year or so, and now everyone is getting in on the act to capitalise on this hyped market. Nearly every major organisation is at least considering the idea of having its own NFTs, unless it has already started “dropping” them.

Recently, big-name footballers have become the latest vehicle to drive this trend forward. The likes of John Terry and Reece James have been seen changing their social media profile pictures to that of a procedurally-generated digital portrait of an ape, inviting their followers to join them in this venture. 

Also Read – How cryptocurrency is spreading its wings in the world of sports

These “bored ape” NFTs are part of the Bored Ape Yacht Club (BAYC) and Mutant Ape Yacht Club (MAYC) projects. These projects offer these limited-number portraits that also double as membership passes to become a part of these exclusive communities.

BAYC and its off-shoot MAYC are not the only ones in town; there are hundreds more NFT projects like these, and we’d be here all day if I were to start listing and describing each of them, but there is a recurring theme — each project offers a limited number of portraits, which are procedurally-generated variants of an underlying avatar. This could be an ape, a lion, a cat, or a centaur — take your pick. These projects promise you an exclusive community that will be privy to, well, something. The end products are never really given much thought. What’s most important right now is that the prices at which these NFTs are going for is at least generating a sense of curiosity among people.

All of this begs the question: what is the issue here? If people are inclined to put their money into fan tokens and NFTs, who are we to say anything about it?

The issue is the unregulated nature of the crypto realm, and it needs addressing. Keep that word in mind: “unregulated”.

Whether you are a Paris Saint-Germain fan who wants to acquire a $PSG fan token just to see what the Socios.com experience is like or someone investing in NFTs hoping to flip them for a profit, the bottom line remains the same: you need to invest in cryptocurrency. These tokens cannot directly be acquired by the “legacy” currencies, so already you have to start by putting money into an asset that can and will fluctuate in value drastically.

By on-boarding big-name athletes and sporting organisations, these crypto projects are able to hype up their assets, creating a sense of FOMO among the general public, which is even more pronounced when it comes to cryptocurrencies. Rare they may be, but stories of people who went from rags to riches by investing into Bitcoin all those years ago are as real as the melting glaciers of the Arctic. What if this is another one of those trends?

Most of the people taking an interest into these crypto assets are in it for the money. Fair enough. But that requires them to invest into unregulated cryptocurrencies, meaning their investment is speculative; it’s gambling, to put it bluntly. 

Take the UK, for example. The British government has been trying for a while to reduce the number of betting and gambling sponsorships in football, hoping to eventually eradicate them altogether in a few years’ time. Compared to crypto companies, these organisations are significantly more regulated, need to acquire a licence to operate in the UK, pay their due taxes, and also need to provide disclaimers while promoting their products and participate in community initiatives that are aimed at reminding people to gamble responsibly. 

Because the betting and gambling sponsorships are set to go away in time, English clubs in particular have started fixing deals with crypto companies already in order to secure their financial future. But given the way betting sponsorships are regarded by the British public in general, it is not a surprise that when a club or some athletes promote a crypto asset, they are subject to criticism that is very much warranted. A multi-millionaire ex-footballer like John Terry might not cry financial ruin if his investment into BAYC’s tokens turns penniless tomorrow, but his hundreds of thousands of followers, many of whom will follow the trends he sets without a second thought, will end up in significantly worse—possibly irrevocable—situations. 

To be fair to the players promoting NFTs, there is a very likely chance that they are doing only what has been advised to them by their entourage, the people responsible for building their brand image. But when you have a following as big as John Terry’s, you have to take responsibility for the things you promote.

So, what’s the takeaway here?

Proceed with caution. Really, that’s it.

The realm of cryptocurrency is in a nascent stage itself, let alone the concept of NFTs. While the concept is not inherently bad, as there is a genuine potential here to create a space for digital artists, there are many downsides — environmental damage being the biggest of them all. The unregulated nature of cryptocurrencies means most NFT projects will not yield the treasure chest crypto evangelists will have you believe. A few of them might—the word doing some very heavy lifting here—result in a viable end product, but most of them will vanish into thin air, as the unregulated nature of crypto leaves the ground ripe for scams left, right and centre, with the scams looking just as legit as a worthwhile project. 

If you do invest in crypto assets, remember to do so judiciously, for if you end up losing your investment, you’ll be left with very little legal recourse. 

IQONIQ was not the first crypto company to go bust. It most certainly will not be the last.