What the industry can learn from the NEM Foundation’s financial struggles

NEM cryptocurrency shocked the industry this year by announcing it had just one month left of funds. What can we learn from this as the bear market persists?

Last month, Coin Rivet reported that the NEM Foundation had found itself in a tight spot financially, with just one month left in funding. After a grilling from its community, the foundation admitted that it would not be able to “sustain the burn rate of the previous 2018 operations” and that its existing structure had failed. What does this mean for NEM cryptocurrency (XEM) and the future of the project, and what can the industry learn?

What is NEM cryptocurrency?

NEM stands for New Economy Movement. It is a dual-layer blockchain written in Java and has been going since 2015. Designed to support multiple ledgers and do away with other blockchains’ compatibility issues with existing enterprise systems, NEM is an enterprise-grade blockchain.

Its strong community of developers and NEM Foundation members have built a new code base that is configurable to manage anything from supply chains to financial assets. It’s also API driven, making it compatible with any application.

NEM cryptocurrency is harvested rather than mined. It uses a Proof of Importance (POI) algorithm rather than PoS or PoW. This importance is basically determined on the number of coins users have and how many transactions there are associated with their wallet. In short, NEM favours those who hold more currency for longer.

Some other features of NEM are its multi-signature accounts, Eigentrust++ reputation system, P2P messaging system, and the ability for businesses to create their own NEM token.

The NEM Foundation

The NEM Foundation is made up of an international network of professionals, developers, traders, and academics. The foundation’s role is to enhance the development of NEM’s blockchain technology. However, upon the transition from the 2018 governance council to the 2019 council, the foundation found itself “running low on XEM and FIAT funds”.

In 2018, the foundation followed a concept of “decentralised regional leadership”. This was designed to allow NEM users around the world to have the freedom to develop while promoting NEM.

It’s a shame that the NEM Foundation didn’t implement its own transparency to the handling of its funds. “Questionable ROI” and “lack of accountability” seem to have depleted the Smart Asset Blockchain’s funds considerably.

The bear market has been hard on all blockchain projects

Cryptocurrency’s longest bear market on record has been hard on all blockchain projects, and NEM was no exception. A quick glance at its chart on CMC confirms the plight of all major cryptocurrencies. NEM cryptocurrency started out 2018 with a market cap of over $17bn. 14 months later, that’s been slashed to a little over $450mn.

NEM called these “catastrophic drops” which lead the company to face some “challenging budget decisions”. Among these were the layoffs of NEM Foundation members and a reshuffle in the company moving forward. The company acknowledged:

“In terms of running an effective organization, the existing structure failed. Maybe that didn’t seem like a big problem when the XEM price was high, but it’s a very big problem as we seek to sustain a viable organization in the Crypto Winter.”

Good governance is needed to ensure project longevity

The news from NEM came as something of a shock to the crypto community. After all, NEM wasn’t a flash-in-the-pan ICO from 2017 that burned through funds and went under. NEM is a senior in the crypto community, coming out the same year as Ethereum.

However, NEM’s financial struggles have been felt across the board in this bear market, with major companies like ConsenSys also announcing layoffs.

One of the main lessons that the industry can learn is that good governance is essential throughout a bear market.

Take hardware wallet manufacturer Ledger as an example. The company raised a massive $75 million in funding at the start of 2018. However, having previously survived vicious bear markets, instead of trying to grow at breakneck speed, Ledger understood how and where to prioritise its funds to stay in the game.

And it seems that the NEM Foundation is now doing exactly that, currently making proposals to its core community.

On March 10th, the foundation released the good news that discussions with the NEM Core team about setting up fund disbursement had been successful. Funds will now be released every quarter, and the first installment of 25 million XEM started on March 7th.

NEM has also set up a ‘transformation task force’ team to advise on leadership KPIs, market positioning, good governance, and formal policies to support decision-making, among other areas.

It seems that the cold, hard reality check of almost going bankrupt forced the NEM team to pivot to ensure the future success of NEM cryptocurrency and its blockchain technology.

Sustainable financing into the future

That potentially game-changing cryptocurrency projects may not be able to stay the bear market is sad news for the industry. Yet, some cryptocurrency companies are looking to other means of sustainable financing into the future.

Some examples of this are Digitex Futures and Polymath. Polymath locked away some 7.5% of its total supply of tokens for five years in a treasury. Digitex locked away 10%. These will be released for public sale every quarter for the next two and a half years to ensure the longevity of the project.

The takeaway

NEM cryptocurrency isn’t the first blockchain project to encounter financial woes, and it’s unlikely that it will be the last. Good governance, accountability, and a constant idea of the funds you have are all key lessons here. Checking your balance a year later and finding you’ve got one month left is definitely not the way forward.

Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.

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