Xenlui: the Blockchain’s Chinese Conundrum

Xenlui: the Blockchain’s Chinese Conundrum

Chen Lei, the CEO of Xunlei, a Chinese tech firm listed on the US Nasdaq exchange, has finally responded to claims that his company has conducted an unauthorised ICO. “We have been very straight on our business practices,” he told the South China Morning Post, “we do not sell tokens.

Chinese authorities banned ICOs last year, a stance which Chen applauded. “ICOs are terrible, and give a bad name to blockchain technology,” he said.  He had also stated that a government crackdown is the “only way blockchain can rebuild its reputation.”

Xunlei is now, however, subject to several lawsuits in the US, brought by investors suspicious of the company’s much-publicised pivot to blockchain. They allege that Xunlei made misleading, or even false, statements about the company’s activities and that it had run a “disguised ICO” in a case that now carries the potential of widening the field of activities which constitute an ICO, at least in the United States.

An ICO by Proxy?

Last October Xunlei shifted its focus towards blockchain technology with its “OneThing Cloud” solution which allows users to rent out excess computer storage and bandwidth for use by enterprise-level cloud computing customers.

The platform was powered by the LinkToken, also known as the Wankebi. The token, however, cannot be sold for fiat nor was it released to any crypto-currency exchanges. Further to that that, LinkToken has never been the object of a formal token sale. Chen’s claim that he did not organise an ICO appears at first glance to hold some water. 

The snag, however, is that users have been required to purchase OneThing Cloud hardware in order receive LinkToken payments which, in turn, grant access to a range of other products and services on the platform. The funds received from the purchase of hardware, in other words, have been interpreted by some as making the entire operation an ICO by proxy. It has not gone down well with regulators. 

The National Internet Finance Association (NIFA) of China released a statement in January this year warning against operations which it described as “ICOs in disguise”. It specifically named Xunlei’s token as a “risky model that warrants vigilance.” Plaintifs in the US lawsuit filed against Xenlui appear to agree.  

Chen, on the other and, continues to disagree, insisting on CNBC yesterday that for a token offering to be an ICO “you need to use it to raise money.” Responding to further claims that the company had also made false representations to manipulate its share price, he added “we are a small capital company, so our stock price does fluctuate.

In a further statement that appears directed specifically at American investors, he pointed out that “we’re operating in China and it is Chinese law and regulations that we need to observe”.