SEC files lawsuit Against Kik Messenger
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The U.S. Securities and Exchange Commission (SEC) is suing Kik for conducting an Initial Coin Offering (ICO) of its Kin token in 2017. The SEC alleges that the ICO was in violation of the Securities Act of 1933 and did not register its offer and sale as required by U.S. securities law.
In the filing, the SEC highlights Kik’s timeline of activities related to the ICO, including internal emails with Kik employees, private meetings with Kik stakeholders, and specific reports given to Kik’s board of directors.
The lawsuit alleges that Kik conducted an ICO primarily to fund its existing business operations. As the filing suggests, Kik had never been profitable and was at risk of running out of money in 2017. Unable to raise capital through traditional means, Kik would go on to conduct a token sale, viewed by many as a last resort “Hail Mary pass”.
Kik sold its Kin tokens to the public, marketing the sale as an investment opportunity. The company informed investors that a demand in Kin tokens would drive its value. Kik expressed intentions to spur demand "by incorporating the tokens into its messaging app, creating a new Kin transaction service, and building a system to reward other companies that adopt Kin.”
While it is unlikely that the lawsuit against Kik will be resolved any time soon, the investigation will help further shed light on the SEC’s view of unregistered token sale offerings and prompt new discussions around the application of securities laws to cryptoassets.
Kik will likely not go down without a fight. As The Block notes, “If Kik can draw a distinction between its case and other ICO lawsuits that ended with companies accepting penalties, the firm might be able to lend itself in a more favorable position.”
CashApp’s Viral Marketing Approach
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Square's Cash App appears to have a unique marketing strategy that uses viral platforms such as Twitter, various podcasts, and even e-sports teams to acquire users at a very low cost today. Some examples of this strategy include Cash App’s recent partnership with Burger King on Twitter, during which Burger King payed for random users’ student debt via the Cash App. Burger King’s tweet subsequently went viral, counting nearly 100,000 user replies. Cash App also sponsors a number of podcasts, including the “Joe Rogan Experience” and Barstool Sports’ “Pardon My Take”. As part of another partnership with 100 Thieves, the e-sports teams, its founder handed out money on Twitter via the Cash App. Rappers Lil B and Travis Scott did the same in late 2017 and August 2018, with over 120,000 people commented on Travis Scott’s tweet.
Cash App’s own marketing effort on Twitter, “Cash App Fridays”, appears to be gaining momentum as well. Every Friday the official Cash App account sends out a tweet for other users to comment on with their own Cash Tag, allowing them to win funds via the Cash App. Over 80,000 people commented on May 24, when the company gave out $10,000 to random Twitter users. Cash App’s recent engagement on Twitter indicates that the Digital Wallet operator should be able to retain last year’s 115% year-on-year Monthly Active User (MAU) growth. In 2018, the “Cash App Friday” campaign saw only a fraction of the engagement it receives today.
This marketing approach allows Digital Wallets, such as Cash App, to acquire new users for roughly $20, while traditional banks pay between $350-1500 per new retail checking account. Investors value traditional bank customers at about $3,400 per account. At 200 million estimated US Digital Wallet users by 2023, the Digital Wallet opportunity could be worth $700 billion in the US alone. ARK believes low customer acquisition costs are central to future profitability of Digital Wallets, as laid out in ARK’s recent blog.