The Iconomi team has been working diligently to bring the first digital asset management platform to the world. The new era of development often comes with new hurdles, especially if the concept is an original… from which all others will be derived.
“Move fast and break things. Unless you are breaking stuff, you are not moving fast enough,” Facebook founder, Mark Zuckerburg.
Iconomi has been cautious in their release, slowly and steadily rolling out the Open Fund Management Platform (OFMP) beta, but moving rapidly to develop and improve their already revolutionary concept. Taking the first steps to set best practices, and potential standardization in the space, Iconomi announced today their new strategy for returning value to ICN (Iconomi platform ownership tokens) holders — the buyback.
As defined by Investopedia -
What is a ‘Buyback?’
A buyback, also known as a repurchase, is the purchase by a company of its outstanding shares that reduces the number of its shares on the open market. Companies buy back shares for a number of reasons, such as to increase the value of shares still available by reducing the supply of them or eliminate any threats by shareholders who may be looking for a controlling stake.
ICN will not be paying out dividends — Iconomi has decided to opt for a more efficient (and likely a more regulatorily favorable) value disbursement method. Iconomi will be purchasing ICN tokens for the buyback from the open market. The ICN tokens that are bought by Iconomi will be burned (meaning: destroyed by a smart contract) thus decreasing the total supply of ICN tokens in existence. This will not be a one time burn/buyback, it will be continuous.
The continuous purchasing of ICN tokens (buyback) will be done with:
- 3% management fee annually of the ICNX fund.
- 20% of the ICNP funds realized gains.
- A percentage of management & re-balancing fees of all user created DAAs on the OFMP.
- Any fees generated by the fiat on ramp to the Iconomi platform (fees from people buying Eth from the Iconomi team)
Dividends vs. Buyback
Dividends create a variety of problems in the digital asset space, one of the primary concerns is paying dividends to tokens held on an exchange. Dividends would be sent to the exchange’s custodial address, not the individuals who should own them, as they are the custodian(holders) of assets on their exchanges. In order to allow for a dividend disbursement to an exchange holding address, all of the exchanges would have to agree on how to handle the dividends, and the exchange could potentially just keep all distributed dividends. Most people in the cryptospace are aware that holding assets on an exchange has high risk (see: Mt.Gox) and the dividend payout would only compound that risk.
There is also the transaction cost of sending dividends to ICN holding addresses, as there are currently thousands, and it is likely there will be MANY more in the future. There is a small fee (ether’s transaction cost - gas) for every transaction that occurs on the network, this cost will reduce the value that could have been gained by ICN holders, but there is a way to reduce this cost dramatically: through buybacks.
Having a dividend pay out pretty much guarantees that an asset will be considered a security according to regulators - which means heavier regulation concerns and government interference. Switching to a buyback value distribution method puts ICN in a more favorable position and may potentially enable it to be used in many more jurisdictions around the world, resulting in further use and thus a greater value potential.
The case of lost ICN holding address keys/passwords is also important. The infant cryptospace is filled with the unfortunate mishandling of important data. It seems that almost daily there are new stories of people who lost their passwords, accidentally deleted important files, or their computer broke and they didn’t have a backup of their wallets. Certainly many of you have heard about the guy who accidentally threw out millions of dollars worth of Bitcoin. It would be a very unfortunate situation to be penalized by others mistakes/errors — and that is exactly what would happen to ICN holders if those mistakes occurred (THEY WILL AND HAVE ALREADY) with the dividend structure. The dividend payout in eth would be sent to those “dead” addresses creating a loss for “responsible” token holders — the eth that could have benefited ICN holders would be lost providing no gain to those who it should have benefited. The buyback solves this problem too. Instead of dead addresses receiving eth, all “responsible” ICN token holders will benefit double, as the dead addresses essentially burned the ICN tokens in them, and the buyback funds that would have been sent under the dividend model will now be used to further increase scarcity.
Dividends are seen as a definite return in a specific time period and would likely be taxed as such in that time period. For the case of buybacks, gains are uncertain, and unrealized until they are sold. This creates a situation of a sort of compounded interest with differed taxation. If you don’t sell, your value may grow untaxed, until gains are realized. The percentage of ownership of ICN you hold will grow as long as there is some amount of buyback power in Iconomi (mentioned above: continuous purchasing).
Buyback Improvements Summary
Holding on an Exchange — Solved
Transaction costs (gas) to send dividends to 1000’s of accounts — Solved/Improved
Regulatory classification — Improved
Dead addresses — contribute to further increase of responsible token holders value (perfected)
Tax Situation — compounding interest with differed taxes until you sell, potentially improved
Liquidity — Improved liquidity, price support — if platform indexes do well, guaranteed liquidity.
A Creative Solution
The buyback-burn method seems to solve many potential problems that dividends would have brought up, while still providing an equivalent (probably greater) value distribution solution to ICN holders. Currently there exists 100 million ICN tokens, 87 million being openly traded and owned by the public, with 13 million held by the Iconomi team for future funding needs. Beginning April 1st ICN tokens will start getting burned. This means that in less than a week, the number of tokens in existence will begin to decline or deflate. The lower the price is when the buyback is occurring, the more tokens that will be burned, further increasing the scarcity of the tokens.
The percentage of ownership that you hold will increase as the burning of tokens continues. So, if you wanted to have regular, realized gains from ICN tokens, you can simply sell some to keep your ownership percentage constant. YOU WILL NOT NEED TO DIMINISH YOUR PERCENTAGE OWNERSHIP TO REALIZE GAINS — a common misconception.
This is a visionaries token — for the long-term. The longer you can hold, the greater potential value distribution you will get. The majority of ICN tokens haven’t even left the ICO wallet yet, and have never even touched an exchange - this could be because most people got ICN with the intention of holding for the long haul. Now, instead of those tokens sitting dormant and taking in value via dividends, they are creating an incentive for weak hands to sell. Their dormancy will ramp up the price, as there will be a continuous buyer — Iconomi, but relatively few sellers. After a few major burns, its possible that long-term holders will be the only ones left, creating a major run-up in the price.
The fundamentals remain basically the same, the changes added improved efficiency and security, maybe even some additional regulatory favor. If the Open Fund Management Platform (OFMP) and the two flagship funds (ICNP & ICNX) do well, then the ICN holders benefit. Only now, there is a test of holding will power. If they perform exceptionally, then there will be big buybacks in the future, burning major amounts of ICN tokens. The strong-hands, the true believers of the platform, will be continuously increasing their ownership share and their access to value distributions, while weak hands simply take small short-term gains.
One last thing…
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