There is a $500 million ICO to build a floating cryptocurrency casino in Macau

• Dragon Corp wants to raise $500 million from an ICO that will finance a floating casino in Macau.
• The digital coins will be exchangeable for non-negotiable gambling chips in the Dragon Pearl Hotel Casino.
• Or buyers can hold the coins as they fluctuate in value.
• The company got some bad publicity when a convicted gangster showed up at one of its events.

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Some people think that cryptocurrency initial coin offerings (ICOs) are a bit of a gamble. Here is one that is 100% gambling: Dragon Corp. tells Business Insider it is raising $500 million (£377 million) in an ICO that will give its buyers cryptocurrency coins that can be exchanged for non-negotiable gambling chips in a yet-to-be-built casino that will float at a dockside in Macau.

Buyers won't get equity in the casino. Just gambling chip tokens. 

Needless to say, there are some risks.

The territory of Macau has not authorised Bitcoin services, China recently banned ICOs, and gambling debts are not enforceable under Chinese law. The company is registered in the British Virgin Islands, the jurisdiction where investors will have to file if legal disputes arise.

So the regulatory framework is ... complicated.

And, to the embarrassment of Dragon, a convicted gangster — "Broken Tooth" Wan Kuok-koi, who served 14 years in prison for loan sharking and money laundering — showed up at a signing ceremony staged by Dragon to launch the ICO.

"Broken Tooth is not involved in Dragon," CEO Chris Ahmad told Business Insider just before Web Summit, the tech conference in Lisbon, Portugal. "Do we know him? We know of him. We know him. Not to a great extent. He came to the event introduced by someone else as a prominent figure in Macau ... He is not involved in Dragon and he is not financing Dragon in any way."

On paper, however, the Dragon ICO seems like a really good idea.

Macau's casinos are surrounded by a legal barrier that makes them very different from those in Las Vegas, London, or Monaco. China has strict laws preventing its citizens from moving cash out of the country.

So, in order to gamble in Macau, high-rolling customers pay junket companies in China to handle their trips to the former Portuguese enclave. Once in Macau, the junket then gives the gambler an equivalent stake in non-negotiable gambling chips. These chips can only be spent betting in the casinos, they cannot be immediately exchanged for cash. At the end of their trip, gamblers can exchange their winnings for cash, and that money is then handed back to them by the junket upon their return to China.

Chinese law is thus circumvented because the gambler's money doesn't really go anywhere — it stays with the junket in China, plus or minus the difference in winnings at the end. In Macau, the junket acts as a bank, extending the gambler credit, and settling the debt in cash at the end of the trip.

Macau's casinos typically pay stiff commissions to junket companies for bringing customers to the island, and gamblers pay fees to junkets for arranging their travel (and helping them avoid bank transactions).

The casino/junket market is huge: $17 billion (£12.8 billion) is staked each month through the single largest junket, SinCity Group, according to Bloomberg. Macau's gambling economy dwarfs that of Las Vegas, because it is accompanied by a large shadow financing sector operated in part by the junkets. "On paper, it's seven times the size of Las Vegas, but really it's probably about 20 times" in real life, Ahmad says.

The Dragon ICO essentially solves all that friction. Gamblers will buy Dragon crypto-coins and then exchange those for non-negotiable chips, Ahmad says. Dragon coins — which will be in limited supply — thus have two sources of demand: Gamblers who buy them to wager in the floating casino, and ICO investors who are buying the coins because they think it will go up in price like Bitcoin or Ethereum.

Dragon is also going to charge a fraction of the costs that traditional junkets add. Typical junket fees are 5% each way. "We charge 0.5% [each way], taking only 1%. It's much quicker, cheaper, faster, more transparent," Ahmad says. "You have full ownership of the tokens. It's better in all aspects."

"If you think about it casinos are one of the best investments you can do," Ahmad says, alluding to the truism that the house always wins.

20% of the ICO fundraising will go toward construction of the $300 million (£226 million) Dragon Pearl Hotel Casino, which will float in the sea. The other 80% of the cost is being financed by the Norwegian government, Ahmad says, which has a particular expertise in building offshore platforms due to its experience in the North Sea oil and gas business. The company that designed the hotel, Brova Idea, hopes to complete it by 2020.

"The floating hotel project provides a project that was unique, provided a tangibility in terms of asset value," Ahmad says. It's actually a sideshow to the main event: bringing the transparent blockchain ledger into Macau's junket business. Dragon has already signed four other casinos as partners, Ahmad says.

So is there any advantage to having the casino float?

"Definitely. It's not on land. If you wanted to move it, if economic problems arise, we could move it somewhere else," Ahmad says. That would be an interesting feat of seamanship because, he says, "it's the size of the MGM in Las Vegas."

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