Modum token swap
UPDATE: Vote is canceled and we will be informed on an updated token model later this year.
"The Board of Directors of modum.io AG (Modum) has decided 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. " (https://modum.io/news/modum-cancel-voting-swap-mod-tokens-tokenized-modum-shares)
Modum proposes to swap the MOD tokens into 16.21% of tokenized Modum shares held on the blockchain. Tokenholders are able to VOTE "yes" or "no" to this proposition
We are of opinion that voting NO is in the best interest of the tokenholder. Despite our bias, we do hope this website will help you make an independent and informed decision.
We strongly encourage you to
to the proposed token equity swap taking place 21 August - 4 September
Benefits of the proposed swap
Overall, we are of the opinion that swapping to tokenized shares is a positive (the terms make it negative): it decreases and clears the legal grey area that the MOD token currently experiences. Most notably, tokenized shares would come with
- voting rights;
- price differential of voting versus non-voting shares is usually only 3-5% (Stumpf & Cline, 2019)
- shareholder protection;
- certainty in participation surrounding a buyout (although acquiring company would also be bound to the agreement between Modum and tokenholders (Modum token FAQ)).
However, tokenholders consciously accepted the absence of the above in the token model due to full dividend rights balancing the risk/reward ratio.
The question therefore becomes: how much premium is put on providing above benefits, and what discounts are taken into account for switching to an equity token model?
Disadvantages of the proposed swap
In 2017, tokenholders provided USD 13.35 Million to Modum to commercialise and bring their products to market, in return for complete dividend rights. Now, through a highly controversial and questionable valuation method, Modum values the token at around USD 4.5 Million by using the token's market capitalisation of H1 2019.
Suspiciously coincidental, H1 2019 was also the time the MOD token reached all-time lows, due to Binance delisting MOD and the overall alt-coin market taking a hit. Importantly, both incidents don't influence on what fundamentally determines the MOD token's value: discounted future dividends, i.e. Modum's chance to grow and succeed.
When asked why this time frame was taken as reference to the token's total value, Marc Degen (Chairman of the Board) answered:
"We chose to pick the reference of 2019 as we're proposing this in 2019".
For being one of the most important questions in this ordeal, it is easy to view this as an unsatisfactory and somewhat disrespectful answer.
Furthermore, Marc Degen stated the following regarding valuation method:
"We decided to work with the most tangible part: facts".
Yet, projected net assets used in valuation methods are valued at what they speculated it will be at the end of 2019 (i.e. not a fact) (source). Either Marc Degen is a time traveller, or Marc Degen is contradicting himself in trying to justifying the valuation method.
Terms of the swap
The dubious valuation methods used estimated the total unlocked MOD tokens being worth 16.21% equity in Modum.io AG. We understand that early investors in a startup are compensated more. However, 16.21% for providing 96.4% of financing a mere eight months later than the seed round that only provided 3.6% of total funding? Disrespectful at best, fraudulent at worst.
In addition, the 16.21% is likely to be further diluted in the future when additional financing rounds happen, making it even harder to simply break-even on our investment. The current token model is undilutable, and we should be compensated with a higher equity stake for giving up this premium (currently we are not).
Misaligned interest and information asymmetry
Tokenholders are asked to vote (in a short period) on the proposed token swap, yet are not given information needed to properly assess the deal. Modum is not willing to release financial information to tokenholders. In addition, around 50% of shares is owned by Modum employees (source), who, especially in a smaller company like Modum, have access to insider information (customer pipeline, detailed financials, deals under NDA, etc.). This creates a dangerous situation of misaligned interest and information asymmetry, since well-informed shareholders get to create a deal on which tokenholders are then asked to vote on based on a gut feeling.
However frustrating, we can understand that Modum may want to keep a competitive advantage by keeping financials out of the public record. Misaligned interest and information asymmetry can be solved in two ways: an independent and verified third-party is asked to analyse financials and come with a valuation of net assets and the token market capitalisation (preferred); or we should be compensating for taking on the additional risk of accepting this deal with limited information.
Are your MOD tokens on Binance?
Binance is currently the biggest holder of MOD tokens (Binance delisted MOD in Feb. 2019) . However, it is still possible to withdraw your tokens from Binance at a cost of 5 MOD. If you haven't withdrawn your MOD tokens from Binance yet, please consider doing so now so that you can participate in the vote (or sell at e.g. IQFinex). If you feel that you have so few tokens that they are not worth the hassle of voting, or if you otherwise don't want to bother with your MOD tokens anymore, please consider donating them to our MODVOTE token address "https://etherscan.io/address/0x78135f054bf1243f1d5f8c0b36286e1cc18fe83c" (*). Potential funds at this address will be used to vote "No" in the upcoming token vote and, if necessary, used to cover potential legal fees combating the proposal (option of last resort). In the event of a surplus of MOD tokens in this fund after the ordeal is over, the remainder of tokens (or shares, if the swap goes through) will be donated to other crypto causes.
(*) this is the account we used to send our own community made MODVOTE token from. The MODVOTE token is airdropped to MOD token holders as an attempt to spread awareness about the upcoming vote and encourage MOD tokenholders to vote. Check out the MODVOTE token page at "https://etherscan.io/token/0xc01e52d1c8b6e26334ad45ba731ac7c20fc29d97".
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