Official Modum statements/promises
In this section we take a brief look at statements and promises made by modum.io AG regarding the token and the rights of the token holders, made in the „terms of token sale“, their whitepaper and their website. We then provide a short comment/analysis to the presented information. The goal is to provide facts as to what has been said and promised by Modum, so that we can more easily judge whether we think the current offer is fair/legal.
„The modum token (MOD) is a profit share token with voting and profit participation rights. The maximum total supply is 30 million tokens. 20.1 million are offered in the token sale, 0.9 are used to cover the token sale costs and for the Bug Bounty Program, and 9 million MOD are reserved for modum.io, to be vested based on major milestones. Token holders will vote to decide if the milestones are met and release the locked tokens. Locked tokens do not have profit share nor voting rights. Ethereum ERC20 technology was used to build the MOD token.“ (source: wp, page 12)
- Profit participation:
„The board of directors decides if and how much of a dividend is to be paid. If a dividend is determined, a payment equivalent to the defined dividend will be forwarded to all MOD token holders. The payment equivalent is always 100% of the defined dividend. The amount in CHF will be converted to ETH and sent to the Modum smart contract. The smart contract will evaluate the current holdings and distribute the profits to MOD token holders in ETH. The tokens that are locked for the shareholders of Modum do not come with profit-participation rights while they are locked.” (source: website, MOD token FAQ, question 8)
So 100% of defined dividend are to be distributed to the token holders, as further elaborated in the „terms of token sale“:
„The Profit Share Amount depends on the amount of unlocked MOD tokens in circulation. No Profit Share Amount will be paid on unlocked MOD tokens. Therefore, without any positive milestone voting event, 1 MOD token confers the right to receive the equivalent of 1 / 20’100’000 of the Dividend Amount. If a yes vote will be cast with regards to the first milestone (as defined below), 1 MOD token confers the right to receive the equivalent of 1 / 21’000’000 of the Dividend Amount. If a yes vote will be cast with regards to the first and the second milestone (as defined below), 1 MOD token confers the right to receive the equivalent of 1 / 24’000’000 of the Dividend Amount. If a yes vote will be cast with regards to the first, the second and the third milestone (as defined below), 1 MOD token confers the right to receive the equivalent of 1 / 27’000’000 of the Dividend Amount etc.“ (source: terms of token sale, „Profit share terms“, page 6)
If the board of directors decides for dividends paid out, token holders can claim their share through the smart contract. Shareholders can only participate in profit sharing by holding tokens:
„Each milestone gives token-holders the opportunity to affirm that Modum has met criteria and established in our white paper. Positive voting will release tokens held in a smart contract to the shareholders of Modum.
This system allows us to align the interest of our token holders and shareholders, who will receive their profit sharing through the tokens released to them at each voting milestone.“ (source: website)
„The Voting Right is the right to vote on the achievement of a set of milestones, which are defined by the Issuer on a discretionary basis, and will unlock 9.9 million MOD tokens (“Locked MOD tokens”), or portions thereof, to modum.io’s shareholders and/or beneficial owners, token sale consultants and the bug bounty program in the case where a “Yes”-vote is cast or keep 9.9 million MOD token, or portions thereof, locked where a “No”-vote is cast.
Milestone 1: expected earliest October 22nd, 2017 The objective is to ensure a proper minting and token distribution process to release, upon positive voting, 900,000 tokens (3% of the total MOD supply) to a wallet controlled by modum.io. The released tokens are used for our token sale consultants and the bug bounty program. No tokens will be distributed to the modum.io team.
Milestone 2: expected earliest Q1/2018 The objective is to ensure the go-to-market of our first product line including the mass production of our dedicated sensor device and the product ecosystem (application, validation, and qualification). We integrate at least two environmental sensors into the hardware platform (temperature and motion) and support, in addition to Ethereum as blockchain backend, at least one of the following blockchains: IOTA, NEO, Fabric, ETC or Rootstock. 3 million tokens are upon positive voting released to modum.io’s shareholders and/or beneficial owners.
Milestone 3: expected earliest Q1/2019 The objective is to deliver the next sensor generation with real-time interaction (via current or emerging network technologies, like LoRaWAN). We will integrate at least one additional environmental sensor (light or humidity) and any two additional blockchain backends of the following: IOTA, NEO, Fabric, ETC, Rootstock, Waves, Tezos, EOS or Cosmos. 3 million tokens are upon positive voting released to modum.io’s shareholders and/or beneficial owners.
Milestone 4: expected earliest Q1/2020 The Objective is to deliver the next sensor generation with a realtime, on-chip blockchain node. We integrate additional environmental sensors (e.g. light or humidity) and deliver the complete modum.io software in a fully decentralized architecture. 3 million tokens are, upon positive voting released to modum.io’s shareholders and/or beneficial owners.“ (source: terms of token sale, „Voting right terms“, page 8)
Voting rights for token holders are limited to four predefined milestone votings. For each positive milestone voting outcome, locked tokens are released to a wallet controlled by modum.io (Milestone 1: 900k MOD, Milestones 2-4: 3M MOD each). Those released tokens are contributed to shareholders for participation in profit sharing, as they haved forfeited the profit participation rights of their shares. According to the white paper, the predefined milestones can’t be changend without a prior additional vote:
„The funds collected in the token sale are used to meet predefined milestones in our product roadmap as elaborated below. The mentioned dates are “earliest dates possible” and no voting will take place before the dates mentioned. The milestones provide today’s view of the market needs. Due to the fast-evolving nature of the blockchain ecosystem those milestones are indicative, i.e. if a milestone needs to be changed, prior acceptance of the change is required, therefore an additional voting is conducted. In case of a negative voting, modum.io can reinitiate the voting process earliest 90 days after the end of a prior voting period. No milestones can be skipped by modum.io. We commit to these milestones regardless of the outcome of the token sales and total funds collected.“ (source: wp, page 13)
What they are proposing with the voting on the token-equity swap may even be seen as illegitimate use of the voting rights of the MOD token, especially considering the hastily manner in which Modum tries to push through this deal (little time between announcement of the proposal and the actual vote). Some feel that if Modum will go through with their plan, they will commit a breach of their promises (and possibly legal obligations) towards the tokenholders, by offering the MOD token under false pretences or trying to circumvent their own established rules for the token.