By Bloomberg
WITH cryptocurrency mania over for now, blockchain startups need to dig a little deeper to attract attention. Their latest secret weapon: Nobel laureates.
Covee Network is the latest venture to announce a partnership with an economist of the highest standing: game-theory and market design expert Alvin Roth, who shared the economics Nobel in 2012. Prysm Group is borrowing the brain — and name — of Oliver Hart of Harvard University, a 2016 co-laureate; and Cryptic Labs LLC has partnered with both Eric Maskin — who shared the prize in 2007 — and Christopher Pissarides — a 2010 co-laureate.
A year ago, just uttering the word “blockchain” was enough to spark interest. Photography pioneer Eastman Kodak Co. last year had a brief return to fame, and a 272 percent share-price jump, after a cryptocurrency licensing its name was announced. And soft-drink company Long Island Ice Tea Corp. rebranded as Long Blockchain Corp., with similar results, only to end up accused of misleading investors.
But the magic has faded. In August, funding from initial coin offerings, which are used as an alternative to public offerings by companies in the cryptocurrency business, dropped to the lowest in 16 months, according to data from Autonomous Research.
The question is: Do the laureates just supply their names and reputations, or are they fully engaged in the projects?
“When I was first approached about joining, I spent a good deal of time thinking about whether I would just be a decoration, or whether I would actually be able to contribute,” Roth said by phone. What persuaded him was how he could bring his unique skills to bear on the project. “They are embracing game theory as a way of incentivizing participation.”
Roth will help Zurich-based Covee set strategy in regular phone calls and has direct access to the team because he works in the same building as one of its members. Options remain open for him to become a part-owner of the company, though neither he nor Covee disclosed payment arrangements. Like the partners at Cryptic Labs and Prysm, he’s described as an adviser.
“It was the seriousness of the team, and our existing relationships that distinguished us,” allowing the firm to bag Roth, Covee Chief Executive Officer Marcel Dietsch, an alumnus of Oxford University, said by phone. The interest exhibited by serious thinkers “shows that the blockchain sector is growing up,” he added.
Of course, not all winners of the Nobel Memorial Prize in Economic Sciences agree on the benefits of cryptocurrencies.
“Bitcoin is evil,” Paul Krugman, a 2008 laureate, wrote in his New York Times column in December 2013. Even Roth says much of what Covee is setting out to do can initially be achieved without the blockchain.
Covee’s white paper — with its discussion of game theory, including payoff diagrams — seems custom-designed to win over an economist. It’s authored by six Ph.D.s from, among other schools, Harvard and Imperial College London, one of whom studied under Roth. The project is likely to launch in November. It does not currently have plans to raise funds via an ICO.
AMBITIOUS GOAL
Dietsch’s goal is ambitious: He wants to disrupt the firm itself.
Using the Ethereum network, he aims to create a marketplace for skills that will allow ad hoc teams to form around business projects. A scientist who has developed a new drug, for instance, could seek out an expert in regulation and someone with experience in marketing. Once the project is complete and the drug brought to market, they could disband. Dietsch says blockchains will replace the intermediation function of the firm. Value tokens will be used to enforce participation and solve the free-rider problem, while smart contracts will address coordination issues.
“Why is most of the workforce stuck within the boundaries of centralized intermediaries such as the centuries-old corporation?” Dietsch and his team ask in the white paper. “Both trust and traditional organizations are limited in terms of scale.”

By Bloomberg
IN a first for the solar industry, China’s Longi Green Energy Technology Co. plans to produce all of its panels using solar power in as little as three years.
President Li Zhenguo moved factories to areas of China and Malaysia that have access to hydropower in recent years — and away from China’s coal-heavy manufacturing zones — to make Longi’s production process more sustainable.
“For the future, we will build solar for solar,” Li said in an interview at the Solar Power International Conference in California. “We can do this in three to five years.”

By Bloomberg
ONLINE-polling company SurveyMonkey surged as much as 67 percent in its trading debut after raising $180 million in its bigger-than-targeted U.S. initial public offering.
Shares of SurveyMonkey, the operating name of Svmk Inc., closed up 44 percent at $17.24 Wednesday in New York. That price lifted the company’s market value to about $2.1 billion, topping its $2 billion valuation in a 2014 private funding round.
The company sold 15 million shares for $12 apiece Tuesday after earlier offering 13.5 million of them for $9 to $11. Concurrent with the offering, the company also sold $40 million in stock to Salesforce Ventures, the venture capital arm of Salesforce.com Inc.
SurveyMonkey is older than many of its newly public peers, having been founded almost two decades ago. While the company had more than 16 million active users in the past year, according to its IPO filing, only 3.8 percent of those were paying users.
SurveyMonkey has relied on paying users finding the tools through the company’s website or online searches, it said in its filing. It said it expects growth to continue through word-of-mouth from existing customers, and by up-selling existing users.
SALESFORCE, GOOGLE
In the past three years, the San Mateo, California-based company has begun partnering with companies such as Salesforce, Microsoft Corp. and Google, according to the filing.
For the first six months of 2018, SurveyMonkey’s net loss increased to $27.2 million from $19.1 million for the same period last year. In 2017 it had a net loss of $24 million on revenue of $218.8 million. That compared with a net loss of $76.4 million on $207.3 million in revenue in 2016.
SurveyMonkey plans on using the proceeds to pay down debt and meet income tax obligations related to a restricted stock unit settlement, as well as for working capital and general purposes including acquisitions and investing in technology.
Tiger Global Management LLC holds the largest stake in the company with 25 percent of the stock. The Sheryl K. Sandberg Revocable Trust holds an 8.4 percent stake and Facebook Inc. Chief Operating Officer Sheryl Sandberg is on the board. Her late husband, David Goldberg, was chief executive officer of the company.
JPMorgan Chase & Co., Allen & Co. and Bank of America Corp. led the offering. The company is trading on the Nasdaq Global Select Market under the symbol SVMK.

By Bloomberg
FOR nearly a decade, China has taken great pride at filing the largest number of domestic patents. It’s proving less keen on keeping them.
Despite huge numbers of filings, most patents are discarded by their fifth year as licensees balk at paying escalating fees. When it comes to design, more than nine out of every ten lapses — almost the mirror opposite of the U.S.
The high attrition rate is a symptom of the way China has pushed universities, companies and backyard inventors to transform the country into a self-sufficient powerhouse. Subsidies and other incentives are geared toward making patent filings, rather than making sure those claims are useful. So the volume doesn’t translate into quality, with the country still dependent on others for innovative ideas, such as modern smartphones.
“It means these patents really aren’t as valuable as people thought,” said Lu Junfeng, a patent attorney at Shanghai-based JZMC Patent and Trademark Law Office. “If the retention rate is so low for design patents, then it calls into question whether there’s a bigger systematic problem.”
China overtook Japan eight years ago to become the biggest hoarder of domestic patents and has remained in the lead ever since, approving 1.8 million last year alone. President Xi Jinping’s Made in China 2025 program — now at the center of tensions with the U.S. — aims to make the country a global leader in technology, and developing a hoard of intellectual property has become a central element of achieving that.
To get a clearer picture on the country’s patent history, it’s important to understand that not all of them are equal. In China there are three different categories: invention, utility model and design.
Invention patents, as the name suggests, are for new ideas that represent “notable progress” in advancing a technology. This category represents what most people understand about patents, a breakthrough in design, process or concept. It accounted for just 23 percent of the patents granted in China last year.
Just like in the U.S., they face a challenging path to approval in a process that can take 18 months and exposes them to testing and scrutiny. Successful ideas are protected for 20 years.
It’s the two other categories, which both have a 10-year life, that swell the headline numbers but are proving far less valuable. An example of a design patent would be the shape of a soda bottle, while a utility model would include something like sliding to unlock a smartphone. Neither is subject to rigorous examination and can be granted within less than a year.
As of last year, more than 91 percent of design patents granted in 2013 had been discarded because people stopped paying to maintain them, according to JZMC Patent and Trademark data compiled for a Bloomberg query. Things aren’t much better for utility models with 61 percent lapsing during the same five-year period, while invention patents had a disposal rate of 37 percent. In comparison, maintenance fees were paid on 85.6 percent of U.S. patents issued in 2013, according to the United States Patent and Trademark Office.
“The fact that design patent disposal rates are so high is astonishing,” said JZMC’s Lu. “People have such a low desire to keep them.”
While the Chinese government provides an incentive for new applications, that’s not the case once a patent is granted, and holders must pay ever-increasing fees just to keep them.
It costs 900 yuan ($131) a year to own an invention patent, a price that rises to as much as 8,000 yuan later in its life. For the other categories, tolls rise from 600 yuan to 2,000 yuan annually in the last two years.
A lax approval process for the less inventive categories has led to a flourishing of filings, where people literally copy a patent in the U.S. and seek approval in China, often with the intention of parlaying that into a settlement fee, said Wang Xiang, head of law firm Orrick’s China IP practice.
Some companies have also been exposed as frauds, seeking to use patent filings to get tax and residency benefits for employees. Since 2008, as part of China’s national policy to encourage innovation, companies certified as “high-tech firms” have won significant tax cuts and annual subsidies of 500,000 yuan in provinces like Hainan.
“There’s probably a lack of motive to strictly vet these companies,” Wang said. “Unfortunately under the existing judicial system, there is no effective deterrence against fraudulent filing or falsifying evidence.”
Chinese regulators are only just starting to notice some of the suspect practices. The Ministry of Science and Technology revoked high-tech licenses for at least 14 companies this year, without citing specific reasons. In an unusual move, the state-owned Xinhua News Agency lambasted China’s IP industry for plagiarism, forgery and other sub-par practices in August. It said the sector was beset by “weak IP, fake demands and some companies fervent on phony innovation.”
“Fake innovation takes up resources for subsidies, hurts innovators who are working hard, and also tampers with objectivity with policy makers,” it said.
To be sure, China’s support for patents has bolstered some sectors like artificial intelligence and cloud computing. Chinese companies filed eight times as many patents related to those technologies as their U.S. counterparts, according to Nigel Swycher of London-based IP consultancy Aistemos.
Tencent Holdings Ltd., with the largest portfolio among the Chinese trio, now holds three times as many patents as Facebook and double that of Amazon.com Inc.’s, Aistemos’s data shows. Alibaba Group Holding Ltd. has also outpaced those U.S. firms.
Yet the high disposal rates mean China still has a long way to go till it becomes the technologically sophisticated nation it aspires to be.
“While Chinese patent qualities have been improving every year, they are still far from close to the U.S. counterparts,” said Orrick’s Wang.

By Bloomberg
AS a trade war heats up between the U.S. and China, military tensions are also rising.
China on Tuesday refused a U.S. warship entry to Hong Kong next month, according to the U.S. Consulate General in Hong Kong, and Beijing’s top naval officer canceled a high-level meeting with his U.S. counterpart after being recalled to China, according to Lieutenant Colonel Dave Eastburn, a Pentagon spokesman.
The moves come as a worsening trade war prompts concern in Beijing over whether President Donald Trump’s latest tariffs are part of a master plan to stop China from threatening American dominance of the Indo-Pacific. The Trump administration last week levied unprecedented penalties on a Chinese military procurement agency and its director for allegedly purchasing Russian combat aircraft, claiming a violation of U.S. sanctions.
“It all adds up,” said Jean-Pierre Cabestan, who teaches U.S.-China relations at Hong Kong Baptist University. “It plays into the hands of the conservatives like Xi Jinping in China’s leadership that Trump’s real intent is to contain China’s rise.”
MIDTERM ELECTIONS
Trump’s latest assault came Wednesday when he accused China of trying to interfere in coming U.S. midterm elections in November. Trump said he had evidence, but didn’t provide any. He also said he and Xi might no longer be friends.
“We do not and will not interfere in any country’s domestic affairs,” Chinese Foreign Minister Wang Yi said at a session of the United Nations Security Council, through a translator. “We refuse to accept any unwarranted accusations against China.”
The U.S. State Department said its sanctions on the Chinese military’s Equipment Development Department — which oversees China’s defense technology — weren’t intended to undermine the military capabilities or combat readiness of any country, but rather to impose costs on Russia in response to alleged interference in the U.S. election process. Among Russia’s arms customers, only China has been targeted by American sanctions.
The list of Chinese grievances against the Trump administration has mounted since the president unleashed his trade war, placing tariffs on hundreds of billions of dollars of Chinese goods.
‘STRIKE BACK’
“In China, they are debating how they can respond and there are hawks who say, ‘We have to strike back,’” said Collin Koh Swee Lean, research fellow at Singapore’s S. Rajaratnam School of International Studies. The country’s military actions this week are a way of “showing displeasure without crossing the line into something more serious.”
China has employed similar messaging in the past. In 2016, Beijing denied a U.S. carrier strike group’s request for a Hong Kong port visit during a period of heightened tension with the U.S. over the South China Sea.
Washington has also adeptly deployed the tactic. To protest China’s militarization of artificial structures it has created in the waters, the U.S. earlier this year disinvited the Chinese from participating in the 2018 Rim of the Pacific exercises — drills held in the Pacific every two years that bring together the militaries of two dozen nations.
China will likely continue finding ways to express its dissatisfaction, without derailing its attempts to resolve the trade war via conciliation.
TOOK UMBRAGE
“I expect this kind of thing will continue,” said Ian Storey, a senior fellow at the ISEAS Yusof Ishak Institute in Singapore specializing in U.S.-China relations. “It’s what the Chinese do when they want to express anger over a particular issue.”
Beijing took umbrage in August, when U.S. senators pushed for sanctions against seven Chinese officials and two surveillance equipment manufacturers after reports that China is forcing as many as 1 million Muslims into “re-education” camps in its far western region of Xinjiang. On Monday, China’s Defense Ministry issued a sharply worded statement expressing dissatisfaction after the U.S. approved the sale of a $330 million military equipment package to Taiwan.
Taiwan has been an escalating point of tension between the U.S. and China since Trump’s election. Before he took office, he tweeted about his protocol-breaking phone conversation with Tsai Ing-wen, the island’s Beijing-skeptic president. He subsequently questioned the One-China policy, which has guided U.S.-China ties since the 1970s.
PARACEL ISLANDS
The British warship HMS Albion sailed by the Chinese-occupied Paracel Islands in the disputed South China Sea earlier this month, adding to China’s sense that countries were joining forces with the U.S. to stymie its expansion in the waters — of which Beijing claims more than 80 percent — said Koh. An international arbitration panel in the Hague ruled in 2016 that China’s claims have no legal standing.
France’s Defense Minister Florence Parly said at June’s Shangri-La Dialogue security conference in Singapore that French and British naval forces would sail together through “certain areas” in the South China Sea. The U.S. Navy routinely conducts freedom of so-called freedom of navigation operations to demonstrate its right to sail there.
Japan this month held a submarine exercise in the South China Sea. It led Chinese Foreign Ministry spokesman Geng Shuang to caution that the “relevant non-regional country” should refrain from undermining peace and security.

By Bloomberg
ONE of the cryptocurrency world’s most powerful, controversial and secretive companies just opened its books for the first time.
Bitmain Technologies, the virtual currency mining firm co-founded by billionaires Jihan Wu and Micree Zhan, released its first public financial statements in a Hong Kong regulatory filing late Wednesday. The disclosure, which also confirmed Bitmain’s intention to pursue an initial public offering, follows months of speculation about the company’s listing plans and its potential vulnerability to a more than $600 billion rout in digital assets since January.
Here are some highlights from Bitmain’s filing:

• Profit rose almost ninefold to $742.7 million in the first half from a year earlier

• Revenue rose about 10-fold to $2.8 billion in same period

• Adjusted return on equity of 58.9% Bitmain held $886.9 million of cryptocurrency assets at the end of June, or about 28% of total assets

• Company recorded an impairment loss of $102.7 million on crypto assets in the first half; impairment provision on inventory of $252.7 million

• Inventories swelled to $887 million from $558 million at end 2017

• Volatile markets may require “significant provisions” on inventories and crypto holdings

• Mining hardware sales make up 94.3% of revenue; mining pools 1.5%; mining farms 0.8%; proprietary mining 3.3%; others 0.1%

• Company has adopted a dual-class share structure, giving co-founders Wu and Zhan control China International Capital Corp. is the IPO sponsor

Founded in 2013, Bitmain is one of the biggest companies to emerge from the boom in digital assets that propelled Bitcoin to a 15-fold gain last year. As both the largest operator of Bitcoin mining collectives and the dominant supplier of virtual currency mining machines, the firm has enormous influence over the global crypto ecosystem — a role that has troubled members of the community who disdain anything resembling a centralization of power.
Yet questions over the sustainability of Bitmain’s meteoric rise have been multiplying in recent months. The 2018 tumble in virtual currency prices threatens both the profitability of Bitmain’s mining operations and demand for the custom chips it sells to other miners. Meanwhile, competition in the mining-gear business has grown more intense.
Two of Bitmain’s biggest rivals — Canaan Inc. and Ebang International Holdings Inc. — are also pursuing IPOs in Hong Kong as they seek funding for a technological arms race. Bitmain risks losing its competitive edge, Sanford C. Bernstein & Co. analysts wrote in a report last month.
For now though, Bitmain is still the industry bellwether, with a market share in crypto mining gear estimated by Frost & Sullivan at nearly 75 percent. If the company proceeds with the IPO, it will represent a major test of whether investors view virtual currencies as a temporary fad or an innovation with staying power. A Bitmain listing — with its myriad public disclosure requirements — may also help reduce the opacity of an industry that skeptics say is under-regulated and prone to misbehavior.
“From the initial numbers I saw, it’s quite encouraging,” said Jehan Chu, managing partner at blockchain investment and advisory company Kenetic Capital. The firm invested in Bitmain during an earlier round of funding, Chu said. “It’s great to have actual clarity, validated documents to shed some light on the company’s actual status and actual performance.”
The company has yet to disclose a target valuation or say how much it wants to raise from its IPO. People familiar with Bitmain’s plans told Bloomberg last month that the share sale may raise as much as $3 billion. The company has repeatedly declined to comment when asked for details of its listing plans.
Bitmain’s main product is called the Antminer, a server-sized box that sells for a few hundred to a few thousand dollars. Instead of the various parts that make up a traditional PC, Antminers are filled with dozens or hundreds of high-powered chips, known as ASICs, that perform the brute-force number crunching needed to verify virtual currency transactions. Customers are mostly large mining operators in places with cheap electricity.
While Bitmain gets most of its revenue from mining equipment sales, the company also runs some of the world’s biggest mining collectives, in which members combine their processing capacity and split the rewards.
Wu has said he wants Bitmain to branch out into non-crypto fields such as artificial intelligence, where ASICs also play an important role. In an interview earlier this year, he estimated that as much as 40 percent of Bitmain’s revenue will come from AI chips within five years. But skeptics, including Sanford C. Bernstein analyst Mark Li, have said a successful push into AI is far from certain.
There’s also no guarantee that investors will flock to Bitmain’s IPO, especially given the recent weakness in Hong Kong’s stock market.
The city’s benchmark Hang Seng Index has dropped 16 percent from this year’s high in January, one of the biggest declines among major markets worldwide.