Blockchained Blues: Aussie JV Crashes and Burns
- By Lachlan Colquhoun
- January 29, 2024
When it began in 2020, Project Lygon seemed like a great idea to solve an age-old problem.
Named for Melbourne’s trendy Lygon Street café strip, where initial meetings between the participants were held, the project was a blockchain joint venture with major corporate shareholders such as three of Australia’s biggest banks—Westpac, ANZ and CBA—the country’s biggest shopping center operator Scentre and also IBM as the technology partner.
Project Lygon was created to solve the long-running and shared headache of managing bank guarantees, a problem that blockchain technology seemed ideally placed to address.
Less than four years later, Project Lygon has gone bankrupt, with debts of more than AUD14 million, and its intellectual property, valued initially at AUD5 million, has been sold off for only AUD500,000.
It is an unlikely end for a venture with such prominent shareholders, which appeared to have a compelling and highly scalable business case to solve a common problem of document management rooted in old, often paper-based, processes.
Property bank guarantees are required by tenants who, in place of cash deposits or rental bonds, must secure the lease payments on a rental property. Currently, they ask their bank for a guarantee, which is then kept by the landlord.
The version the landlord or beneficiary holds is the final or 'true' document and the paper on which all parties transact. If any changes are required, the beneficiary would send a request for the amendment to the tenant, who would then make a request to the bank. If that original copy is missing or can't be found, then a whole verification process needs to commence again.
A lack of standardization is also an issue. All major banks have their own standards for guarantees. This situation has persisted despite widespread agreement that an industry standard would streamline and simplify the process.
Guarantees are also an issue for landlords.
Scentre Group, for example, has 7,000 guarantees in its vaults. The company struggles with the complexities of producing what is essentially a one-page document, and managing accuracy is particularly arduous and time-consuming if there is an error on a guarantee or if one is lost.
Project Lygon’s blockchain technology claimed to be able to cut down the time it took to issue a bank guarantee from one month down to one day.
Stung with losses
So what went wrong? The company reportedly owes employees AUD720,000 in lost entitlement, and some smaller shareholders—staff members who also persuaded family and friends to invest—have been stung by the losses.
Like many startups, Lygon struggled for revenue and profitability. In its first year of operation, 2020, it posted an AUD1m loss, which fell to AUD640,000 the following year before ballooning to AUD7.3 million in the most recent trading period.
One customer believes they are owed close to AUD14 million for services contracted but not yet delivered.
“Customers of the company were often also investors and shareholders in the company.”
According to the liquidator, Lygon’s problems were around disputes with shareholders, a lack of sustainable working capital, a lack of recurring revenue and an inability to engage new customers.
The liquidator’s filing makes the point that “I note the customers of the company were often also investors and shareholders in the company.”
Questions over blockchain
Lygon is not the only blockchain startup to fail. The Celsius Network, a cryptocurrency lending platform that promoted itself as a safer alternative to banks, filed for Chapter 11 bankruptcy protection in the U.S. in late 2022. It is now struggling for a new business model as a bitcoin miner.
The Lygon venture, however, appeared to have so much going for it: strong shareholders, a leading technology partner, and a genuine problem to solve.
The company's failure will be closely studied, and the critical question is whether the business case was faulty rather than whether there were funding and shareholder issues.
Shareholder disagreements may have paralyzed the company's management. Still, the more significant issue is whether the blockchain solution effectively solved the bank guarantee issue to the point that it delivered value for users.
Were the founders carried away with too much enthusiasm as they shared coffee in Lygon Street, and did they overestimate the extent of the problem and the potential to scale a viable blockchain solution? Did they commit the common error of investing too much before revenues started rolling in to make the company sustainable?
As it now stands, someone—and it is understood to be the former management—has walked away with a significant amount of IP for the bargain basement price of AUD500,000.
How and if that IP resurfaces in another form will be the test of the original Lygon idea, and it will also tell the market about the actual viability of similar blockchain solutions to gain traction in the commercial market.
Lygon may have been a great idea botched by shareholder infighting and suffering from poor timing. It is too early for a definitive judgment, but we know that the blockchain does not guarantee an easy path to success.
Image credit: iStockphoto/ajfletch
Lachlan Colquhoun
Lachlan Colquhoun is the Australia and New Zealand correspondent for CDOTrends and the NextGenConnectivity editor. He remains fascinated with how businesses reinvent themselves through digital technology to solve existing issues and change their business models.