Logan Paul fractional ownership sale of his PSA 10 illustrator Pikachu

Disclaimer that the following are my opinions on this matter, and opinions only. I have done some research and to the best of my ability will present them here. There may be bias in the way the information is presented. Please listen with an open mind.

Listen to this article instead on Card Journeys PokeTime Podcast here!

What happened

Logan bought the most expensive Pokemon card ever ($5.3 million), and some crypto. He is cash negative at least $5.8 million USD since last year, July 2021. Now he’s trying to squeeze out money from his highly priced assets - his PSA 10 Illustrator Pikachu. Sale is via fractional ownership & on the blockchain no-less. You need to buy his ERC-20 token, traded on his crypto exchange, to have a part ownership in his PSA 10 Illustrator Pikachu. What could go wrong?

To make matters worse, you can practically never own the physical card due to their Buy Out clause, which requires 80% of people to agree to your buy out price… more on this later.

Other news articles on this: LifestyleAsia.com / NME.com

What what are you really investing in

Trust in the company = trust in the people behind it. Therefore the people need to be reliable. Their team, lack of track record, and lack of liability as per their Terms and Condition do not present this.

Does blockchain add value in this instance

No, just a complicated ledger that adds crazy amount of risk. They could just use an excel spread sheet and contracts. Instead they decided to introduce their crypto, to be traded on their own exchange. So if their crypto or their exchange is just not popular or gets hit with negative news like hacks, there will be limited trade volume. So good luck trying to buy and sell your fractional shares.

What on earth is Liquid MarketPlace -take a look at the team and consultants.

Whole team of people with marketing background, or are social influencers. Nobody with blockchain experience. They still managed to raise CAD $10 million (approx. USD $8 Million)

What are the risks and challenges?

1. Proof of ownership. Is there a smart contract to show ownership?

2. Does the ERC-20 Token or the NFT you buy clearly have a contract stipulating ownership, and what happens in the event of theft, fire or water damage? What is the insurance policy? How much is the compensation and what timeframe is it carried out in?

2.1 Major issues with proof of ownership in the event of an insurance claim.

2.2 Event of Bankruptcy, the bank would seize the card as an asset to liquidate to settle debts.

2.3 Their token is traded on their exchange. External risks = hacks, Internal = execution (programming, marketing, debugging). Both result in poor investor confidence and devaluation of the Token. 

Who has liability? According to their T & C, not them.

Heres the deep dive

 What happened? How do we know he’s down nearly $6 million?

Thats because he told us.

On IMPAULSIVE EP. 326. 22 mins 50 seconds

“I have personally lost half a million thus far” (aired May 18th, 2022).

PSA Tweeted to help promote Logan Paul’s NFT token sale for part ownership in his PSA 10 Illustrator Pikachu, valued at USD Million $5.3.

The card was purchased by Logan Paul from Marwan Dubsy in Dubai on 22 July 2021, breaking the record for most expensive Pokémon trading card sold at a private sale. Logan Paul Traded his PSA 9 Illus Pika, valued at USD $1,275,000 plus USD $4,000,000

So is this a good investment for you to jump in on, and why?

Big picture:

1. Logan Paul’s business model

2. What has changed since July 2021 when he purchased the card.

His business model is hype central. Utilise his fanbase to push up prices of assets he’s invest in. He’s done this for lots of Pokemon cards, as well as crypto. Now he’s combining the two. No brainer right?

What has changed since he made the purchase? All markets have dropped, including stocks, cards and crypto. So he’s down USD $5.8 million, for investments we know of.

You are also all well aware that splitting up one asset and making it more affordable to sell in parts usually yields higher profit. Just like how 36 singly sold booster packs are higher than an entire booster box. This is no different.

So you know this guy is shill central and has lost a bunch of money. Should you still invest in him?

Fractional ownership and what you are actually investing in

Lets’ first discuss the idea of share ownership of assets, and then break down the details of this specific scenario. Shared ownership is nothing new. Time shares for property have existed for a long time, and there are a few companies that do shared ownership for collectibles, like Dibbs, Collectable and Otis. When buying a part ownership in something, you are really buying into the company behind it. You are trusting that this company will have correct and accurate records of ownership, won’t over value assets (i.e create extra shares), and won’t run away with your money or misappropriate funds (like investing into other crypto.). This means you’re looking for a company with a solid track history, are responsible, and therefore liable.

 Shared ownership only really needs an updated excel spreadsheet to show who owns what, and when shares trade hands. There might even be a printed certificate with their company chop to serve as a document to show proof of ownership. As long as you trust the company and the people working there, this is all that’s required.

On a functional level, investors also need to be wary of what happens in the event of loss or damage. More on this later… this leads us perfectly into the next topic.

What is the purpose or added value of using the blockchain?

Just a complicated digital ledger that adds crazy amount of risk. They could just use an excel spread sheet and contracts. Instead they decided to introduce their crypto, to be traded on their own exchange. If their crypto or their exchange is just not popular or gets hit with negative news like hacks, there will be limited trade volume. So good luck trying to buy and sell your fractional shares.

By making a crypto Token or an NFT, they are making something based off the value of the PSA 10 Illustrator Pikachu card. This is called a derivative product. This exists in the conventional stock market, and is often sold to less knowledgeable investors. The 2008/2009 Global Financial Crisis at the core was caused by derivatives of the Real estate market, called Collateralized Debt Obligation (CDO). Anyway, I digress.

The important take away is, the Token can rise and fall when the underlying Illus Pikachu card does not change in price. Which, once again means you're investing in the Company behind the Token (and the exchange its traded on), and NOT investing in the card itself.

A very simple example is, image their exchange shuts down, and theres no other place to trade Logan Paul's Token. The value falls to 0, whereas the PSA 10 card in the vault still holds value. Therefore if there is weak demand in the token or the exchange, it will cause the Token value to drop and no longer be proportional to the card's value.

What on earth is Liquid MarketPlace -take a look at the team and consultants.

The two founders are Amin Nikdel, a programmer and Ryan Bahadori, Director of Baha Industries.

Amin Nikdel -Past 5.5 years co-founding InteliStop. The website InteliStop.com shows… coming soon, as opposed to what his LinkedIn profile says. Prior to this he produced an online platform to help students learn better in University, called Sharp Scholar.

Ryan Bahadori -not much detail on his Linked In. Director of Baha Industries, a construction company with 3 years operating history

Rest of team of people with marketing background, community manager, director of marketing, social media manager, investor relations… or are social influencers. Only Amin Nikdel has a programming background but it seems he has no experience with the blockchain.

Their website looks amateur. Plastering Logan Paul everywhere. Still managed to raise CAD $10 million (approx. USD $8 Million) just a few months ago.

What are the risks and challenges?

1. Proof of ownership. Is there a smart contract to show ownership? It appears the investors buy the Liquid Marketplace ERC-20 crypto token... which is not an NFT with a smart contract. Perhaps investors need to use this token to trade for an NFT? Lack of clarify here.

2. Does the ERC-20 Token or the NFT you buy clearly have a contract stipulating ownership, and what happens in the event of theft, fire or water damage? What is the insurance policy? How much is the compensation and what timeframe is it carried out in?

 2.1 Major issues with proof of ownership in the event of an insurance claim. The insurance payout will likely be to one entity, namely the company who owns the card. But in this case its fractional ownership... with Logan owning the largest single portion of 49%. Logic dictates the payout would go to him, and he would then have to redistribute funds to every single owner of the remaining 51%. This could be to 2000 individual investors... so imagine the pain and time required to logistically contact and send money to each person. Do you think this would happen?

2.2 Event of Bankruptcy, the bank would seize the card as an asset to liquidate to settle debts. Priority of debt payment - likely first owed to their large angel investors + the bank (for any outstanding loans)… small private investors likely will be owed nothing due to their Terms and Condition. Even if you wanted anything back, you’d have to sue which takes years and lawyer fees are substantial, in the hundreds of US dollars per hour.

 2.3 Their token is traded on their exchange. External risks = hacks, Internal = execution (programming, marketing, debugging). Both result in poor investor confidence and devaluation of the Token. 

3. If Logan Paul buys an additional 2% of the Token offering, he will have 51% ownership and thus be the majority. Which means the 49% invested is free money for him, and he can do as he pleases with the card.

Who has liability? According to their T & C, not them.

So we mentioned about trust in the company, stems from responsibility and a good track record of being held accountable. Since they lack track record, let’s see how liable / responsible they are.

Liability as per their Terms & Conditions

“We have no liability to you or to any third party for any claims or damages that may arise as a result of any payments or Transactions that you engage in on the Platform, or any other payment or Transactions that you conduct through the third-party service providers. We do not provide refunds for any Purchases that you might take on or through the Platform, whether for Tokens or otherwise.” (Source)

This could be a standard terms and condition. But it still states they have no liability. 

Moreover..

“Ownership of each Token on the Platform is mediated entirely by a third party service provider and the Ethereum blockchain.”

I thought they own the platform, why is it mediated by a third party service? Does this mean they outsource their crypto exchange functions to a third party, and are only involved with the marketing of the project?

Buyout Clause

“A Buyout can only be exercised by a user who first acquires the minimum number of Tokens associated with a Collectible that Liquid Marketplace may establish from time to time (the “Buyout Threshold”). The Sale price under any such Buyout will include a premium over the Market Price of the Tokens associated with such Collectible (the “Buyout Premium”), with payment of the Sale price being made pro rata to Tokenholders being purchased in the Buyout. Additional fees may apply to Buyout Transactions.

In order for the Buyout to be accepted, 80% of the Tokens associated with that Collectible (including the Tokens owned by you) must be voted in favour of the Buyout Offer within a 72-hour period. In the event that 80% or more of the Tokens associated with the Collectible vote in favour of the Buyout Offer, the remaining Tokens will automatically be tendered as part of the Buyout.”  (source)

This clause basically makes it impossible for anyone to own the physical card.

Summary

Logan is trying to sell you a part ownership in his PSA 10 Illustrator Pikachu by selling you his crypto Token, to be traded on his crypto exchange, with policies set by him. When investing into fractional ownership of the card, you are in fact investing in the company behind the project. The Token is a derivative of the Illustrator Pikachu card and may rise/fall in price even when the physical card value remains unchanged. In short, it is not what it seems.

Stay sharp guys and be diligent. Hope this article helped!