Money Stuff: Asset-Backed Crypto Token Wasn’t

The oldest trick in the book is:

1. I have some magic beans.
2. You have some beautiful beachfront property in Poyais.
3. I would like to sell my beans to rubes, and you would like to sell plots of your Poyais land to rubes.
4. We go out and look for rubes, but we can’t find the right rubes. All the rubes we find are too sophisticated. They ask questions like “well what is the market value of these beans” and “well who else is buying property in Poyais,” and we do not have satisfactory answers.
5. We get to chatting.
6. We put out a press release (and some tweets) saying that we have entered into an innovative transaction, the largest magic-bean-denominated property acquisition in history, in which I have acquired 200 beachfront acres in Poyais for a price of $200 million, with the purchase price to be paid in the form of 2 million magic beans, at an agreed market valuation of $100 per bean.
7. Now we are cooking.
8. Now I go out and pitch my magic beans to rubes, saying “the magic bean market is hot, they are trading at $100 per bean and sophisticated international luxury property developers are clamoring to do deals for beans.” 
9. Now you go out and pitch your plots, saying “the Poyais property market is hot, we have sold 200 acres at a price of $1 million per acre, and we are a progressive forward-thinking developer who does innovative bean-denominated transactions.”
10. People buy our stuff for actual money.

Here is a bizarre and charming US Securities and Exchange Commission enforcement action against Unicoin Inc. and three of its executives (Alex Konanykhin, Silvina Moschini and Alex Dominguez) for all sorts of fun stuff. Unicoin is, approximately, a crypto company that wanted to sell tokens that were going to be (as the SEC complaint puts it) “asset-backed by billions of dollars in real estate and equity interests in promising pre-IPO companies.” There are various legal complexities that you have to deal with if you want to do that, including:

• Selling crypto tokens to individuals, particularly tokens that are backed by some investment program (and not just memes), implicates US securities laws, and you have to register your tokens or otherwise comply with securities laws.
• It seems legally and operationally complicated to “back” crypto tokens with a portfolio of assets, and you have to think about the contractual and technical arrangements there.
• Ideally you would not lie about the stuff backing your tokens.

And, according to the SEC, Unicoin, uh, messed all of those up pretty bad. But in a sweet way? Like they didn’t just ignore all of these requirements; they did stuff to comply with them, but haplessly.

The weirdest thing about Unicoin is that is is, sort of, a public company. Its stock does not trade publicly, not even over the counter, but for some reason Unicoin is registered with the SEC and files pretty normal annual reports about its business. Unicoin’s tokens also do not trade publicly; in fact, technically, Unicoin has never issued any unicoin tokens. [1] It raised money from investors by selling “unicoin rights certificates,” which entitled investors to get tokens eventually, but it has not yet issued the tokens. It might be a touch generous to say that this structure was designed to comply with securities laws, but it does look that way. (From its 10-K: “The unicoins will be issued once the groundwork for that issuance has been completed, such as legal, technical, regulatory, brand recognition, initial portfolio of assets, and listing on crypto exchanges. … As of February 1, 2025, we have not issued any unicoins and there is no assurance as to whether, or at what amount, or on what terms, unicoins will be available to be issued, if ever.”)

The gist of the SEC complaint is that Unicoin and its executives went around on social media promoting its tokens (technically, its Unicoin rights certificates) and making false claims about both the assets backing the tokens and how many tokens they had sold. But Unicoin is a public company that files audited financial statements, and its auditors seem to have done real audits and had normal accounting judgment, and the financial statements seem fine. The SEC is not saying that the financial statements are misleading. It is saying that the social media promotions were misleading, and you can tell by comparing them to the financial statements. 

For instance, Unicoin’s executives went around saying that they had sold a lot of tokens (or rather, rights certificates), but the financial statements reveal that they had not. From the complaint:

By June 2024, the Promoting Defendants claimed to have “exceeded $3B in Unicoin sales.” Specifically, on June 9, 2024, Moschini announced on her LinkedIn page, “I am pleased to share with you that we have achieved $3 billion in Unicoin sales! . . . Our record-breaking pre-ICO sales enabled us to start a massive branding campaign using a wide range of advertising options, including TV, online, print, events, and OOH advertising . . . prior to our ICO.” Konanykhin and Dominguez similarly touted the purported $3 billion milestone on LinkedIn the same day.

But in fact, when Unicoin sold rights certificates, it meticulously accounted for them by booking them as a liability: If it sold a unicoin right for $1 of cash, it debited $1 to cash and credited $1 to an offsetting liability to, you know, refund the cash. From its 10-K:

The Company accounts for unicoin rights by recording a liability representing the amount management believes the Company would be obligated to pay or refund (i.e., the amount holders have a right to claim and would likely be awarded in settlement) for fair value exchanged (i.e., in the form of cash or services) for rights to receive unicoins in the future in the event the unicoin is never launched. … As of December 31, 2024, any amounts received for unicoin rights are not considered equity or revenue, management determined that 100% of the obligation is a liability to be settled by through the issuance of unicoins, or through other means if unicoins are never issued.

Honestly that’s pretty conservative, for a crypto promoter; I’m sure some people are out there accounting for token sales as revenue. But the point is that you can just look at the financial statements and see that Unicoin had sold, not $3 billion of tokens, but $110 million. And the SEC did [2] :

Far from the $3 billion in Unicoin Rights Certificates the Promoting Defendants claimed to have sold by June 2024, the Company’s reported Unicoin Rights Financing Obligation shows that it had raised, at most, $110 million by that point. 

Ah. Meanwhile Unicoin was also telling investors, not only that it had sold a lot of tokens, but also that those tokens were innovative asset-backed crypto tokens. The assets backing the tokens would consist mainly of:

• Shares of private startups, which Unicoin would acquire in exchange for featuring the startups on “a streaming reality series called ‘Unicorn Hunters’” produced by a Unicoin-affiliated company. [3]  “Through ‘Unicorn Hunters,’” says the SEC, “the Company acquired minority interests in seven private companies that appeared on the show between November 2, 2021, and December 4, 2023.” Those stakes have a total value of about $8.2 million, according to the latest 10-K.
• Real estate, which Unicoin acquired under its “140% program,” in which “Unicoin would offer to pay 140% of the appraised value of real estate in Unicoin Rights Certificates, at the current price at which Unicoin was selling those rights certificates.” “In an April 18, 2023, Investor Update,” notes the SEC, “Konanykhin further explained that ‘[t]he objective of developing a large real estate portfolio is to provide backing of Unicoin by assets of unquestionable value,’ which would ‘further differentiat[e] [Unicoins] from . . . assetless
  cryptocurrencies.’” 

You can probably see where this is going. For instance, Unicoin acquired some mining rights in Argentina for “$210 million” in unicoin, a 40% premium to the “$150 million” value of the mining rights:

Unicoin and Konanykhin repeatedly represented to the public that the Argentine Mining Rights were valued at $150 million. ...

In the August 16, 2023, press release announcing the transaction, Unicoin claimed, “Unicoin, an assets-backed cryptocurrency that addresses the extreme volatility of the crypto market, announced today that it signed an agreement with . . . an Argentine corporation, to acquire from [it] the rights to explore and exploit mineral rights located in Argentina, primarily copper.”

The August 16, 2023, press release continued, “The purchase price shall be paid in unicoins. The acquisition is structured pursuant to Unicoin’s program of acquiring real estate assets at 140% of their appraised value for unicoins, at an agreed value of $0.50 per unicoin. Unicoin Inc. agreed to pay [the Argentine company] 420,000,000 unicoins for the acquisition, a $210M value at the 50¢/ú [Unicoin token] price investors currently pay for unicoins.”

Again, though, Unicoin has actual normal accountants, and presented with this mining concession, the accountants went out and got an actual appraisal and whoops:

On November 4, 2024, nearly 15 months after Unicoin announced the Argentine mining rights acquisition, the Company received for the first time an appraisal of the Argentine Mining Rights. This appraisal valued the Argentine Mining Rights at $7.1 million — less than 5% of the $150 million that Unicoin had announced in August 2023 and repeatedly touted through mid-2024.

Unicoin’s balance sheet in its 3Q2024 10-Q — which Unicoin filed with the SEC on November 14, 2024 — listed the Argentine Mining Rights at a value of only $7.1 million.

When Unicoin filed its 2024 10-K, the Company valued the Argentine Mining Rights on its audited balance sheet at just $580,000 based on a review by a mining-rights specialist retained by Unicoin’s auditor in connection with its audit of Unicoin’s 2024 financial statements. Unicoin’s auditor’s work papers indicated that the Company agreed with the revised valuation.

There are other examples, but here is the aggregate result:

Unicoin’s [2024] 10-K (which Konanykhin signed) shows that as of year-end 2024, the Company had acquired less than $1.5 million of real estate pursuant to the 140% program. …

Nonetheless, Unicoin and Konanykhin continued to represent publicly that Unicoin already had acquired real estate assets worth billions of dollars. For example, in an April 22, 2025, Investor Update, Konanykhin falsely claimed that Unicoin had “[c]losed over $2.5B of ‘Real Estate for unicoins’ deals.”

The real estate portfolio was worth $2.5 billion in the unaudited investor update and $1.5 million — 99.94% less — in the audited financial statements.

There is another, less obvious problem here, which is that the unicoin tokens were “asset-backed” only in a general vibe-y way. It’s not like Unicoin was going to issue tokens that had some direct connection to the assets, with legal ownership rights or the ability to foreclose on them or whatever. [4] It’s more like:

• Unicoin issues tokens (or will, anyway);
• It has assets;
• Ehhh, come on, that’s asset-backed enough for crypto.

Maybe that’s even correct, but the SEC doesn’t like it:

Despite their numerous statements that Unicoin would be “asset-backed,” the Promoting Defendants also never actually intended for Unicoin tokens to be backed by any assets. Konanykhin, Moschini, and Dominguez have each admitted in sworn testimony that they never intended that any assets would “back” Unicoin tokens. Comparing cryptocurrency to a physical product like a bottle of water, Konanykhin testified that it “cannot be backed by something or reporting, et cetera.”

Moschini testified under oath that when she called Unicoin “asset-backed,” she meant only that the Company owned assets.

I sympathize. It’s asset-backed-ish; who can be bothered with the technicalities. 

More generally I am just charmed by Unicoin’s apparent double nature. As the SEC tells it, in their public promotions, Unicoin’s executives talked like stereotypical crypto promoters, making exaggerated claims about the value of their token, how it would revolutionize finance and how many people had bought it. Fine, normal. But then Unicoin was also — for no real reason? — publicly filing very sober and normal SEC reports, with audited financial statements, that deflated all of those claims. On that side of things, Unicoin was such a normal well-managed company that its 10-K includes a risk factor about how sometimes it says untrue things about its tokens:

Certain communications and marketing materials have incorrectly stated the regulatory status of unicoins, which could cause market confusion and expose the Company to enforcement actions by regulatory authorities such as the Securities and Exchange Commission if such statements are deemed to be materially misleading, which would adversely affect the Company’s ability to carry out its plans with respect to the launch of tokenized unicoins.

Statements contained in promotional videos and on our Unicorn Hunters show have erroneously stated the unicoins are “registered with the SEC,” which statements are factually incorrect, as unicoins have not been registered, and unicoin rights have been sold only pursuant to exemptions from the SEC’s registration requirements, as described in this Annual Report on Form 10-K and in “Risks Related to Our Unicoin Offering” below. Such statements were the result of the misunderstanding of the registration process and the regulatory status of unicoins and unicoin rights by the speakers of these statements. Despite the correct disclosure in the Company’s offering materials and other SEC filings, such incorrect statements could have material adverse effects on our company and its plans for the tokenization and launch of unicoins. 

They do seem to have had some adverse effects.

One of the most valuable resources in financial markets is bad counterparties. If you think a stock will go up, you will want to buy it, so you will have to find someone who wants to sell it, and presumably that person thinks it will go down. One of you is wrong. If you are trading with Warren Buffett, you might worry: “Wait, will this stock go up? What do I know that he doesn’t?” (This is called “adverse selection.”) If you are trading with, you know, the opposite of Warren Buffett, you might feel great: “Ooh, this stock will definitely go up, because I definitely know stuff that he doesn’t.” Getting steady access to the opposite of Warren Buffett is highly desirable, and you should be willing to pay for it.

Obviously it is hard to precisely identify “the opposite of Warren Buffett.” I once joked that “for equity market makers, there are few more beautiful phrases in the English language than ‘day trader and volleyball-programs coordinator,’” but joke’s on me because that guy made a ton of money trading GameStop. But there are rules of thumb, and the main one is that small-dollar amateur retail traders are worse at predicting stock price moves than big-dollar professional institutional traders. This is in part a question of skill and information, but in the short term it is also a question of trade size. When a big institution sells 10 shares of stock, it is probably going to continue selling 100,000 more shares, so if you buy those first 10 shares the stock will probably go down (as the institution sells more) and you will lose money. When an individual sells 10 shares of stock, that’s probably all she has, so you can safely buy them. 

You can slice things more finely than this, of course. There is a rough hierarchy, in which the counterparties you most want to avoid are “toxic” high-frequency trading firms whose business involves being first to notice price moves, so that every time you trade with them the price has already moved against you. [5] And then there are various institutions, with their desirability varying based on their size and sophistication and reasons for trading. And then retail is the best, though there is a range there too: One study has suggested that TD Ameritrade customers are the best people to trade with, while Interactive Brokers Pro customers are the least desirable (that is, best at trading) retail counterparties. [6]

And so a retail brokerage controls this hugely valuable resource: It has customers, the customers go on its app or website and press buttons to buy and sell stocks, and the retail brokerage collects their orders. It has to route those orders, that is, find someone to take the other side of the trade. And everyone wants to be on the other side.

The simplest way to route the orders is to send them to a national stock exchange — the New York Stock Exchange, Nasdaq, etc. — to execute against all of the other orders that all of the other traders send there. But if you do that, the orders lose their value. The stock exchanges are anonymous; everyone on the exchange will see an order to buy 10 shares of stock and won’t know if it’s from a nice inept retail trader or a toxic high-frequency trader. The retail orders aren’t any more desirable than any other orders, because you can’t tell which are which. [7] (This is exaggerated, because many stock exchanges recognize the problem and have various programs and order markers to segregate retail orders and preserve their value.)

And so the standard way to do it these days — the way we talk about a lot around here — is instead to route orders to a “wholesaler,” an electronic market-making firm that really wants to trade with retail orders. The wholesaler will make a deal with a retail broker, in which:

1. The retail broker agrees to send orders to the wholesaler.
2. The wholesaler agrees to fill them all (either by taking the other side of the trade or routing them somewhere else to execute).
3. The wholesaler promises to get better prices, all in all, than the retail broker could get from the stock exchange. (This is called “price improvement,” and is intended to satisfy the broker’s obligation to get “best execution” for its customers.)
4. The wholesaler also, at least in some cases, pays the retail broker directly for the arrangement. (This is called “payment for order flow.”)

The first element is what the wholesaler wants: a steady stream of retail investors to trade with, this valuable supply of bad counterparties. The other three are what the wholesaler gives to get that: a commitment to make markets, better prices for the customers, and cash for the broker. And there are a bunch of wholesalers who do this, and they compete mostly on efficiency (filling orders quickly) and price improvement. And it is hard to break into that business, because it requires good technology and the capacity to take risk to fill trades.

But meanwhile lots of people want to trade with retail orders, at least some of the time. Every professional mutual fund manager who wants to buy 10,000 shares of stock will think “well it would be nice if I could get 200 of them from retail.” These people are not going to set up a whole electronic market-making program to get into the wholesaling business: They don’t want to stand ready to buy or sell any stock; they just want to buy the stocks they want. But they’d like to buy them from retail, if that’s available. They will go to their institutional brokers and say “hey, could you match me up with some retail traders?” 

Is there a trade to be done? Well, maybe. Sometimes the institution’s broker also has a retail brokerage arm, and matching its retail customers with its institutional customers could be good customer service on both sides. (They can both get better prices than they would on the stock exchange.)

Or you could imagine a general solution, something like this. You set up a huge variety of bilateral trading channels. Each channel matches (1) one retail brokerage’s customers with (2) one institutional investing or trading firm. You have, like, the Robinhood/Fidelity channel, and the TD Ameritrade/Jane Street channel, etc., one for each combination of retail brokerage and institution. Each time a retail broker gets an order, it can expose it to whichever institutions it wants and see if they want to do the trade; each time an institution wants to do a trade, it can expose it to whichever retail brokers it wants and see if any of their customers want the other side.

If this worked — if people regularly succeeded in trading on these channels — presumably the institutions would like it, because they would at least sometimes get to trade with retail customers. The retail brokers might like it, if they got (1) better executions for their retail customers (more price improvement, faster trades, etc.), or (2) better executions for their institutional customers (if they have both), or (3) money.

In the limit, the effect of this would be to de-anonymize the stock market: Each time you wanted to trade, you could pick exactly who you’d be willing to trade with, and see who wanted to trade with you. You’d be able to specify how good or bad your counterparty would have to be, and you’d be willing to pay more to trade with a bad one. [8]

So here’s Bloomberg’s Katherine Doherty on retail private rooms:

These gated arenas are set up within dark pools, trading platforms originally designed specifically for only the biggest institutional business. But private rooms are luring in more modest activity from firms keen to pick and choose who they deal with in order to control their trading experience.

While it’s a small slice of the market for now, it’s a big contrast to the so-called wholesale model that dominates the industry, where retail orders are routed direct to the likes of Citadel Securities or Virtu Financial to be filled from their balance sheets. Citadel Securities has already flagged concerns about the growth of the new venues to US regulators.

But some brokers say private rooms offer a path to tap new liquidity beyond these big wholesalers — and often better pricing along the way. ...

Not having the ability to give institutional clients access to retail orders is “a significant market structure issue” for bank brokers like Evercore ISI, according to Brian Suth, the firm’s head of electronic trading. So a year and a half ago it set up specific private rooms with retail brokers at the dark pools OneChronos and IntelligentCross.

“We’re now offering unique access to retail,” said Suth. Private rooms aren’t the only or most-popular way to route a trade, but the more retail brokers sign up “the more meaningful that marketplace becomes,” he said.

Wells Fargo was among the first retail brokers to utilize a private room for its retail arm at the end of 2023, mirroring a shift the firm had already made with its institutional business. Instead of going direct to wholesalers, orders are sent to dark pools such as IntelligentCross, where Wells Fargo runs private rooms. …

The key advantage of a private room is a firm knows exactly who its counterparty is, which allows it to control the quality of the trade, according to Mehmet Kinak, global head of equity trading at asset manager T. Rowe Price.

In practice a few of these exist, a tiny sampling from the vast potential space of counterparty combinations, but in theory one day everyone could have a private room with everyone else, and trading could be completely de-anonymized. The key advantage of the stock exchange is that your counterparty doesn’t know who you are, but sometimes knowing who they are is more important.

I write a lot about memecoins around here, so I suppose I should mention a small house in Dolton, Illinois, that carries at least $31,000 of pope premium:

The childhood Chicago-area home of Pope Leo XIV is being sold at a luxury auction following a surge of interest sparked by his election last week.

The three-bedroom house in Dolton, Illinois — about 20 miles (32 kilometers) south of downtown Chicago — will open bidding at $250,000, according to Paramount Realty USA, the firm managing the sale.

The home was initially listed in January for $219,000 as a typical residential property. But the listing was pulled from the market on May 8, just hours after Cardinal Robert Francis Prevost, 69, was named pope and the sellers discovered the connection.

“Before he was named pope, the house was a house,” said Misha Haghani, chief executive officer of Paramount Realty. “When the pope was elected, it became something else, it became much more than just a house.”

Presumably if you buy that house you get about $219,000 of value from having a place to live, and then $31,000 or more (depending on the auction-clearing price) of purely memetic value from having a place to live where the pope once lived. I take it that non-pope cardinals carry zero premium. 

That story is from Bloomberg’s Miranda Davis last week, but yesterday there was an update:

The law firm representing Dolton, about 20 miles (32 kilometers) south of downtown Chicago, sent a letter Tuesday to the auction company saying that the village intends to take possession of the property through eminent domain. Officials plan to work with the Archdiocese of Chicago to establish it as a historic site. …

“Please inform any prospective buyers that their ‘purchase’ may only be temporary since the Village intends to begin the eminent domain process very shortly,” Burton Odelson, the village’s attorney, wrote in the letter. 

I am by no means an expert in eminent domain, but generally speaking if the village is going to seize a property, it has to pay the fair market value for it. Presumably the fair market value includes both the value of the house ($219,000 I guess) and the pope premium. (The village wouldn’t be seizing the house if it weren’t for the pope connection!) I have said that the pope premium is at least $31,000, but I actually have no idea; they never ran the auction, and it seems hard to do it now that any buyer knows “that their ‘purchase’ may only be temporary.” So I guess they will have to get appraisals and argue in court about how much the pope premium should be.

Elsewhere in meme stuff, yesterday we discussed the Trumpcoin dinner trade, where you could buy President Donald Trump’s meme token, qualify for the dinner that he is throwing on May 22 for top holders of the token as of May 12, and then dump the tokens after the record date but before the actual dinner. But here is a claim that the trade to do with the Trumpcoin dinner was (1) buy a lot of Trumpcoin by the May 12 record date, so you get invited to the dinner and (2) simultaneously short Trumpcoin via perpetual futures, to hedge your price risk. If you did that you apparently got paid a funding premium (people wanted to hold futures more than they wanted to hold Trumpcoins, so they would pay you to do the arbitrage). So you could get invited to the dinner with no cost and no economic exposure to Trumpcoin. Sure, I guess.

Donald Trump considers order to open US retirement plans to private equity. Banks Are Shifting Quickly to Crypto as New Rules Loom. OpenAI’s Biggest Data Center Secures $11.6 Billion in Funding. Tesla Sets Record With $139 Million Pay Package for Finance Chief. Sixth Street’s Easterly Sees ‘ Complacency’ in Private Credit. HSBC warns of bonus cuts for staff who work from home too much. The $34.5 Billion Deal That Started With a Love Letter. How Two CEOs Mixed Romance and Business, Leading to Scandal. New York’s Wealthiest All Want to Live Downtown Now.

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