Token-Equity Swap

Frequently Asked Questions

Token-Equity Swap

Frequently Asked Questions

MOD Token-Equity Swap Voting Announcement to MOD tokenholders

On August 20, 2019 the Board of Directors of modum.io AG (Modum) has announced their decision to cancel the vote on the token-equity swap of MOD tokens into tokenized Modum shares on the blockchain. Modum will elaborate the best options for a long-term and sustainable token model and inform later this year.

FAQ

When we did the ICO, we were unsure on how the token market was going to develop. With the further clarification and development of regulations with regard to digital assets, crypto exchanges face increased requirements from regulators when hosting tokens with security-like functions. In order to clear the ambiguous circumstances around regulated and non-regulated exchanges the MOD token is facing, we will be one of the first companies in the world to proceed to a token-equity swap and convert to actual shares on the blockchain for all tokenholders participating.

 

Question updated 12 August 2019 (original: Why are you swapping the MOD token?)

Step 1: Voting (21 August , 11am CEST – 4 September, 11am CEST)

  • As the tokenization of shares of Modum and the MOD token – equity swap are new elements of Modum's token strategy, Modum has decided to let tokenholders vote on the proposed token-equity swap.
  • Our proposal is for a MOD tokenholder to become a shareholder of Modum.
  • Modum will provide a full documentation of the token-equity swap and the subsequent termination of all MOD token rights.
  • In case of a «no» to the vote, the options are either to restart a voting after a certain period or to leave the situation «as-is».

Step 2: Tokenize modum.io AG shares

  • Tokenize all Modum shares and issue a digital share register on the daura platform.  

Step 3: Onboarding for Tokenholders (16 September, 11am CEST – 30 November, 11am CEST)

  • Onboarding of new shareholders on daura platform (including KYC procedure).

Step 4: Swap (15 October, 11am CEST – 30 November, 11am CEST)

  • 9 MOD tokens = 1 tokenized Modum share which translates in an equity participation of 16.21% of all existing shares for all outstanding 21’266’200 MOD tokens. 
  • MOD tokens intended for the swap to be sent to Proof of Burn address (PoB)
  • Distribution of the tokenized shares via the daura platform.

 

Answer updated 12 August 2019 to reflect the new timeline. 

You get 1 tokenized Modum share for 9 MOD tokens. Shares are rounded down, so for example if you send 1,000 MOD tokens to your PoB address you will get 111 tokenized shares.

The Board of Directors (BoD) took into consideration multiple factors to decide on the offered exchange ratio of 9 MOD token for 1 Modum share. Starting point was the average market cap of the MOD token in H1/2019. Considering the projected net assets of Modum at the end of 2019 the BoD decided to offer a ratio at a net dilution of current shareholders of 16.21%. This price includes the waiving of the planned distribution of 6Mio MOD tokens to the current shareholders as additional incentive.

The Burn address will be randomly generated without access to the private key, and every tokenholder registering for the token-equity swap receives an individual burn address. MOD tokens intended to be swapped need to be sent to a burn address. 

The voting – comparable to the milestone voting – starts on 21 August 2019 and will be open for two weeks. The voting ends on 4 September 2019. If the voting results is a «yes», the token swap process will start on 16 September 2019 and remain open until 30 November 2019.

 

Answer updated 12 August 2019 to reflect the new timeline. 

While every vote is appreciated, there is no obligation to vote and there are no consequences for you if you do not participate. The voting is considered valid if a majority of participants vote «yes». There is no minimum voting turnout.

In case of a «no» we will either restart the process after grace period with another proposal or leave the situation «as-is».

daura is using Hyperledger Fabric as backbone for their blockchain infrastructure.

After the token-equity swap, Modum will terminate all MOD token rights. Tokenholders may request a compensation for the termination. The compensation will be provided in tokenized Modum shares at a rate of 12 to 1 (12 MOD tokens = 1 tokenized Modum share).

The MOD token will always exist on the Ethereum blockchain. However, if all tokens have been sent to PoB addresses, no more interaction with the MOD token will be possible. All rights related to the MOD token will be terminated. After December 1 2019, we will ask the remaining crypto exchanges to delist the MOD token from trading.

Modum has partnered with daura AG, a Zurich (Switzerland) based subsidiary of Swisscom AG. daura provides the platform for the blockchain based registration of the Modum shares (digitalization of share register). The daura platform is based on the Hyperledger Fabric permissioned blockchain framework. For legal and valuation advice, we counted on the reputable law firm Meyerlustenberger Lachenal (MLL) and on our long-time advisor S&K Partners.

 

We held an «ask-me-anything» (AMA) on 25 July 2019, you can read the summary below.

Summary of the AMA Session held on 25 July 2019 at 18:00 CET

Being an asset token in the current crypto space is no walk in the park – we're exposed to ambiguous decisions from our exchange partners with little to no information in a lot of cases around the decision rationale, and in consequence delistings come by surprise. As a start-up we do need to constantly adapt to the business environment. The wish for being listed on reputable exchanges just cannot be granted in any way, as the market and its behavior has changed in the last 2 years, clearly shifting towards stronger regulation.

For an asset token which was previously listed on an unregulated exchange it is not possible to be listed on a regulated exchange. So, we have 2 options:

  • Leave everything as is and fulfill the contractual obligation to the extent permitted by applicable law towards the tokenholder. The consequence of this option is not being listed on any exchange, leaving us with an illiquid asset. Having this token model in place will also limit our ability to address potential future investors as this model is unknown to them.
  • Swap the MOD token to a future proof equity share and in consequence terminating the contractual obligation of the token. The consequence being to have at least the possibility to list on a regulated exchange once such exchanges are launched and provide liquidity. Furthermore, being on a “100% equity” side, financing options for the future are way easier as this is a clear model. Having no constraints in potential future financing events is key for the future success of the company.

There is no action decided to this date. The current involvement of the tokenholder community is important, that’s exactly why we chose to perform a milestone voting even though the legal framework would not require this step. Perhaps because we’re Swiss – but we did not see a more involving procedure than having a vote where every vote counts, which is the key part of the decision process of the proposed equity swap. Through this voting we’re including the community in finding a solution.

After Milestone 2 there were 3 Million token distributed to shareholders which is less than 15% of the total supply. As a matter of fact, we do not know exactly how many of those tokens are still owned by shareholders and they can decide freely on the proposed milestone voting. However there are still more than 17 Million votes in the free market – that’s why every vote counts. Modum and its shareholders have in no way means to control the outcome of the voting. So whether or not you’re in favor of the proposed approach, please express this through your vote as a MOD tokenholder and help us making sure every MOD tokenholder does the same.

We have not decided yet on a default procedure with regard to what happens next if the vote results in a "No". We will inform you as soon as the procedure is defined. As outlined on the FAQ – receiving a “No” is an acceptable result. We will then either come back after 90 days with a different proposal or leave the MOD token model as is with all the respective consequences. The Modum board is clearly in favor of the proposed solution, otherwise we would not have suggested it, but we also fully accept the voice of the tokenholders expressed in their voting result as our key objective is to create clarity in this matter.

One MOD token represents one vote – we treat everybody the same. Shareholders owning tokens have a vote, shareholders not owning tokens don’t have a voting right.

We wrote in our terms of the token sale that the milestones can be changed with a voting. And we wanted to include the tokenholders in the decision process for such an important step with our strongest alignment instrument.

External events such as the delisting from Binance this year triggered our conclusion to act – so we want to create clarity in this matter now. The decision was not triggered by the bear market e.g. the token price. The decision was based on the ambiguous market conditions in the crypto space and the behavior of exchanges. We looked into all possible options and unfortunately won’t be able to list the MOD token on any proper exchange - neither a regulated exchange nor a non-regulated exchange.

Our terms of token sales also state, that everybody is investing at their own risk and we won’t cover anybody’s loss of owning MOD tokens. It furthermore states that any acquisition and use of MOD tokens is speculative and carries significant financial risk up to the possible loss of all value. So, in no situation whatsoever are we liable for any losses resulting from the volatility in pricing of MOD tokens. Furthermore – if we would cover a portion of the MOD token holder losses, we would create a leading case for anybody who ever owned a MOD token. This would open the door for a series of potential law suits, which would be putting the company at an existential risk.

From what we see, there are some fundamental misunderstandings in the tokenholder community about what our token model is – or as what it was perceived. Our terms of token sale stated absolutely clearly, that owning the MOD token does not imply in any way to own or have rights to an equity share of the company. In consequence, owning 100% of the MOD tokens does not imply the right to claim 100% of the equity of the company.

As stated in point 9 of this AMA summary, the MOD token market cap is not equivalent to 100% of its equity. Hence a tokenholder is not a shareholder. As a shareholder you have the full benefit of balance sheet earnings – not only dividend rights but additionally all other rights attached to normal registered shares of Swiss companies, such as voting rights, right to participate in shareholder meetings, rights to liquidation proceeds, and pre-emptive rights in cases of capital increases.

Becoming shareholder is not “just adding election rights” to the current model as outlined in point 10 of this AMA summary. Therefore, we decided against creating different share classes with different rights and decided to give every share the same rights.

Taking into account that 100% of the MOD do not represent 100% of equity of the company and we cannot be liable for the potential loss on the trading value of the MOD token, we modeled many different options. Instead of evaluating potential future revenues or “what we think the token should be valued at” – we decided to work with the most tangible information: facts. 

The trading price of the MOD token carries the market view on its value. Comparing this with the assets of the company at the end of 2019 seemed a very fair approach. By limiting the timeframe for market cap on one side and not incorporating any future events on the other side, we felt comfortable to propose the equity swap.

Exchanging the 21’266’200 MOD tokens in circulation into 2'362'911 shares represents the 16.21% shareholding of the modum.io AG.

 

The average market cap of the MOD token from H1/2019 represents 16.21% of this projected value.

Tokenizing the share gives us the possibility to list on a regulated exchange once such DLT-token exchanges are launched and provide liquidity.

As a shareholder you have full benefit of the balance sheet earnings – also if they are withheld for the company to further grow and build up more assets. Dividend participation can only be a fraction of the balance sheet earnings.

If we decide not to pay out any dividends until an undefined future point in time, because we invest in growth and therefore build up company assets, the MOD tokenholder currently does not have a guaranteed upside besides the hope of more future dividend.

The shareholder has a guaranteed upside at that very point in time of the full amount of the earnings in the balance sheet. In case of an exit, the participation right is guaranteed at that point in time and does not depend on the buyer who would have to take over the contractual obligation to pay the dividend.

In short – comparing MOD tokenholder rights and benefits to those of a shareholder is like comparing apples and oranges. Therefore, just comparing high-level numbers without taken into account the individual differences between these two groups can be misleading.

As stated in point 8 of this AMA summary, we cannot recognise any liability whatsoever for the loss on the trading value of the MOD token, and any acquisition and use of MOD tokens is speculative and carries significant financial risk up to the possible loss of all value.

We are a private company incorporated in Switzerland, audited by PwC and acting according to Swiss law. We are not required to and do not publish our yearly report to the public. The current shareholders do not have a personal copy of the yearly report. Company results are presented to shareholders during the annual general meeting of the company. The report is nevertheless accessible for shareholders upon request.

We welcome an in-person discussion. We have noticed that several interest groups are starting to gather on Telegram and Twitter and suggest that tokenholders align themselves with a group and that the group decides on an adequate form of representation to facilitate the discussion. Please approach Marc Degen by PM on Telegram to schedule an appointment.

And – please vote!

Update 5 August, 2019: If you would like to read the point-of-view of the recently formed Tokenholder Association, please visit their site at: https://www.modumtokenswap.com

The website of the Tokenholder Association is in no way associated with modum.io AG, and modum.io AG is not responsible for its content.