Vacation rental company could become Wyoming blockchain pioneer

By Mark Wilcox
Wyoming Business Report
Via Wyoming News Exchange
 
JACKSON — A Wyoming-based business trying to keep things personal between vacation rental owners and managers and their tenants could become an initial coin offering pioneer after state legislation early this year made it easier. 
Vacayrx, owned by Jesse Martinek, will soon try to capitalize on new laws making Wyoming more cryptocurrency-friendly with a $10 million ICO fundraising effort for his company that more or less mirrors a Wall Street initial public offering.
Martinek formed his company after noticing a growing trend toward depersonalization in the burgeoning vacation rental market now dominated by Airbnb, VRBO, Homeaway and Booking.com.
As market players have coalesced into those giants, more percentage-based transaction fees have snuck in, even as platforms make it more difficult for property managers or owners to communicate directly with guests.
“Guests are in a situation where they have to make a leap of faith on big-purchase items, where they don’t know the people on the other side or the property isn’t accurately reported,” Martinek said. “There’s no point of contact as expected.”
While the move to cut direct communication channels out makes business sense for companies that could lose bookings if owners try to book a guest directly after being contacted through a platform, the depersonalization comes at a cost.
“People are saying it’s not the same,” Martinek said, adding that owners or property managers often act as a concierge for local knowledge, and like to be able to screen for rowdy guests. “And fees went up on both sides of the transaction, to add insult to injury.”
With Vacayrx – which is short for vacation rental exchange – Martinek decided to restore lost communication functionality and wedge it into a space more friendly to consumers and property owners or managers alike.
In the last year, his platform added 2,600 new properties for a total of 3,400. And he said the company has brought in revenue in 15 consecutive months, though he declined to offer specific numbers.
Though Martinek initially intended to go after equity crowdfunding, he realized moving onto the blockchain could be even better for his company. And the timing seemed to be perfect.
During the 2018 legislative session, the Wyoming Legislature passed five laws that some have billed as some of the most progressive laws for virtual currency and blockchain in the nation.
Just prior to the session, in December 2017, the most well-known virtual currency, Bitcoin, ballooned to a price of nearly $20,000 per “coin,” making some early investors into billionaires.
Close to the same time, a former University of Wyoming Foundation member who went on to form a blockchain company tried to donate a large sum of Bitcoin to UW, only to find impractical roadblocks in her way within Wyoming to change the donation into cash.
Against that backdrop, the series of laws passed easily, opening Wyoming up to alternate fundraising means like ICOs. Since then, the Wyoming Secretary of State’s Office said, 23 companies have come forward to file notices of intent for open blockchain tokens. Though these aren’t formal registrations, the many notices show a high degree of interest in a new arena.
“These notice filings are for consumptive tokens,” said Will Dinneen, public information officer at the Secretary of State’s Office, “backed by goods and services and, by definition, not for security tokens.”
In the case of Vacayrx, that means people would buy a “token” with virtual currency that could then be exchanged without fees toward vacation rentals.
But why jump through all those hoops?
Blockchain technologies use the power of a network to make a ledger more secure, said David Pope, a certified public accountant who co-founded the Wyoming Blockchain Coalition.
In a traditional database for accounting or anything else, a single server holds the master copy of data, which can then be accessed from authorized computers. That means if one server is hacked, or one employee is too loose with login info, an Equifax-style breach roars to life. Or an Anthem. Or a Target.
For companies seeking ICOs like Vacayrx, the technology populates its ledger across a network, or blockchain, offering a secure and cost-free method of transferring funds from one account to another.
But those benefits come with one major catch – funds raised for an ICO can’t be in simple dollars and cents. Or even in a straight-up cryptocurrency raise.
“Because these cryptocurrencies are under scrutiny by the SEC and other bodies, the industry has been forced to establish guidelines on how these things work,” Martinek said.
Guidelines like the creation of two kind of tokens: security tokens and utility tokens. Where a security token acts as a share in a company delivered for the digital exchange of virtual currency, a utility token acts more like a placeholder purchase for future goods or services. Think Kickstarter-style crowdfunding on the blockchain.
Wyoming’s legislation specifically loosened regulations for utility tokens, Pope said. He indicated that buying a token that could be exchanged for a future stay at a vacation rental could fit the definition of a utility token, making it so “they’re not treated as securities under Wyoming law.”
In a post-interview email, Pope said Vacayrx wants to take advantage of exceptions for raising capital through utility tokens, which gives them regulatory certainty within Wyoming, though not wiping out risk on the federal level.
“That’s what it does for a company like Vacayrx,” Pope said.
But it requires some serious commitment to get it done, and outcomes are far from certain as the crypto markets wobble under their own uncertainty.
“You have to build an ecosystem to encourage users to get tokens that are good for transactions within your system,” Martinek said.
Martinek will need to make Vacayrx the new kid on the blockchain to meet his fundraising goal of $10 million. And he’ll need to do it during what’s turned into a rough year for crypto markets. Vacayrx would require users to purchase tokens based on ethereum, a major cryptocurrency player that forms the backbone of many tokens.
In a white paper describing Vacayrx’s plans for its ICO back in August, he planned to sell 100 million tokens valued at 0.00025 ethereum apiece. At the time, that meant a raise of nearly $10.2 million if converted to dollars.
However, since August, virtual currency markets have been riddled with problems like wallet heists and downturns. Ethereum itself dropped from $407 in August when Martinek wrote his white paper to $218 as of this writing. That means he’ll have to bring in twice as much ethereum to cover the same ground.
Cryptocurrency capital markets are already challenging Wall Street after only three years, said Caitlin Long, the UW Bitcoin donor in a post on Forbes. In the second quarter, she noted that between April and June, ICOs raised 45 percent of what traditional IPOs did in the same period. That’s $7.2 billion raised in an alternative market.
However, the ICO market is rife with outright scams, though many large players like Overstock, Kodak and Sears and other reputable companies have also dabbled in the space.
According to CoinTelegraph.com, 80 percent of ICOs were identified as scams in 2017. Even so, 70 percent of funding seemed to be going toward reputable projects. That still means investors were duped out of nearly $1.9 billion in 2017 in the ICO market.
“As with all high-return investments, buying cryptocurrency is risky, and ICOs are riskier still,” said Sonya Mann, a reporter for Inc. Magazine, in a June 2017 article. “And as with all active investments in general, it is wise to never commit more money than you can afford to lose.”
As for Vacayrx, Martinek said he hopes to take advantage of the state’s economic diversification efforts through Kickstart: Wyoming, which opened its first funding cycle on Oct. 1. The program offers grants of $5,000-$50,000 to high growth potential companies, which Marti-nek would put toward pursuing his ICO.