Modum – Real blockchain utility, in a sea of vaporware. Part 2 – Concerns regarding the token utility and possible classification as a security.

After looking at what appears to be a solid business plan, it’s only fair to balance that out with any concerns and competition the project has, and will face.

One of the common criticisms of ICOs is the tokens investors are receiving in return for their funds. When the Raiden team announced an ICO with a token, there was some outrage at the idea of raising funds for a protocol that would allow further low cost, scalable token transfers. In the run up to the announcement of the ICO, it was assumed by the vast majority this would just be a next step for Ethereum, akin to the Byzantium hard-fork. Now to be fair, the Raiden team posted a fairly solid response over at their Medium, however it did put recent ICOs under a lens by the community for the utility of their tokens. Modum was no exception to that scrutiny.

Token Utility Concerns

Modum is no exception to this spike in scrutiny, and the main concern raised is:

The modum token is not a utility token, and as such is not utilised by the company in its product. Where is the value?

Completely true, the modum token is a vehicle containing profit-sharing and voting rights. The white-paper states – “The board of modum.io decides and declares the amount of dividends when there is a profit. A payment equivalent to this amount is converted to Ether and sent to the modum smart contract. The modum smart contract evaluates the current holdings and distributes the profits to the token holders in Ether. The voting and profit share smart contract is open source.” So, while the open source nature of the contract might make some of us feel better, what does the rest of that sentence tell us?

Startups outside of crypto typically take years to post profits. On top of that, the board of modum.io decides how much profit is distributed. In theory, even once modum posts a profit the board could just decline to payout any dividends. However, this is true of pretty much any publicly-listed company, and they still pay out dividends yearly. The key difference here is that owning shares of a publicly traded company is different from just a profit sharing token, as token-holders don’t own a share of the company. However we can see in the whitepaper in the next three years a third of the token supply (tokens locked here) will be distributed to the shareholders (some of those being on the board of directors). Thus, there is a clear incentive here for all parties to profit share.

The value of the mod token, like most publicly traded companies who payout a dividend is then directly linked to how successful (and profitable) the company is. Simple as that! Although there is no actual share of ownership, the voting right element does provide a component of control over some key steps listed on page 13 & 14 of the whitepaper, including further releasing of tokens locked by the smart contract on milestone 2, 3 and 4, with the last step hopefully completed in Q1 2020.

Previous profit-sharing tokens such as iconomi ($ICN) have actually moved away from a profit-sharing model, and instead opted for a token-burn. Iconomi’s main concerns were around the dividend ensuring regulators would take the token as a security and lead to heavier regulatory concerns. Also with the sheer quantity of token holders with poor data management, how to resolve the issue with ‘dead’ accounts receiving the dividend to no benefit, and the loss of others was a concern. The buyback was an easy fix to that issue. The full article is worth a read and will be interesting to see if modum’s model changes in the next few years.

Tokens as a Security

There has been a fair amount of discussion on tokens as securities as inevitably regulation starts to come into play. A couple of pieces worth reading are linked on their images, but to summaries, while nothing is formal YET, all tokens, not just profit-sharing ones like modum could be classified as securities. During the ICO modum confirmed they have been in discussion with FINMA (the Swiss regulatory body for financial market legislation, including tax law), and the below guidance was issued. ICOs are not yet covered by legislation.


Now even if you don’t even glance at the two PDFs linked above, there is just one quote I believe you can take from it:

“Due to the close proximity in some areas of ICOs and token-generating events with transactions in conventional financial markets, the likelihood arises that the scope of application of at least one of the financial market laws may encompass certain types of ICO model. This is also the case for ICO activities which aim to circumvent those provisions. Owing to the wide variety in structure of ICO models, FINMA can only carry out a conclusive regulatory assessment in specific cases. Currently, FINMA is assessing a number of such cases. Where financial market legislation has been breached or circumvented, enforcement proceedings will be initiated.”

So, modum have been clear since the ICO, they have been in touch with FINMA, and may indeed be once of the cases they are assessing. Nothing is set in stone as of yet, but its fair to say legislation is coming, and not just from the Swiss government. Markets are being disrupted across the globe, and being up to date on the latest legislation from your home country, and ICOs  you are investing in is essential. When the dividend is paid, I wouldn’t be surprised to see a new wave of KYC requests for token-holders.

 

Token Economics

Image taken from whitepaper, page 13, figure 7.

 

Modum.io’s token split at ICO is seen in the above chart taken from the whitepaper. With the 30% of tokens held by modum being released at 4 different milestones across the next 2 years following a positive vote from token holders. Looking at the current etherscan breakdown of address holders, we can see a few points to touch on so far.

 

Modum so far is only listed on three well-used exchanges, Binance and KuCoin and EtherDelta. Binance’s hot and cold wallet, etherdelta, kucoin, and modum themselves hold around 35% of the total market cap, outside that only 3 wallets hold over 1% of  tokens. The vast majority of holders are small holders, hopefully pointing towards a market that is less likely to be manipulated. However with a a total supply of only 27.26 million tokens and with 94% of the volume only coming from Binance, we have seen huge sell/buy walls up. This token supply is also fixed.

Competition

There have been several recent ICOs looking to compete in the same market as $MOD, combining RFID sensors with blockchain tech.

Ambrosus $AMB

Ambrosus looks like the most direct competitor, focusing on food and medicinal shipments. There so far has been no showcase of any sensor equipment, but according to some of their updates they have a focus on data silos and management to speed up compliance and process analysis. In practical terms, they do seem a way behind modum with no evidence of pilots or partnerships going live, while modum has their fourth pilot going live with their proprietary technology, and 10,000 sensors hitting mass production in Q1.

From a token perspective, $AMB has a token supply of 361.5mil, with a market cap of 137.2mil USD.

You can buy Ambrosus $AMB at Binance and KuCoin.

Waltonchain $WTC

Waltonchain is another RFID-based solution, and recently Boxmining visted Waltonchain’s reserach center in Xiamen and had a look at their product demo. Like Modum and Ambrosus they are seeking to incorporating tracking of physical goods into the blockchain, and thus preventing counterfeiting etc.

WTC also has some different token mechanics, with the possiblity of becoming a masternode if holding 5K+ tokens.

You can buy Waltonchain $WTC at Binance and KuCoin.

WTC has a current market cap of 645mil USD, with a total supply of 70mil. This puts the valuation at $26USD per token, a massive sum. WTC has however just announced partnership with China Mobile IoT alliance, but the partnership has not been actually finialised, which caused a huge in the spike:

Modum is at time of publish is sitting at a market cap of 154mil USD, with a total supply of 27.26 mil tokens which can make it hugely attractive to potential investors with the small token supply. With partnerships to be announced in Q1, modum looks like a solid opportunity, even with a $10USD per token pricetag. While modum.io is focusing on pharma shipments to begin with, logistics integrity tracking is easily something that can be expanded or licenced out, and with relative first-mover advantage, modum is ready for big things this year.

You can buy modum.io $MOD at Binance and KuCoin.

Modum – Real blockchain utility, in a sea of vaporware. Part 1 – From the whitepaper to mass production.

So, what is modum? Luckily for me, there’s a little video here which is a great showcase for the tech and what it does. Briefly, Modum is a supply-chain monitor for the pharmaceutical sector that enables companies to comply with legislation from the EU regarding the delivery of medicinal products. Modum’s tech is a passive monitoring device that sits in with shipments to monitor the temperature. During the shipping the temperature is monitored, and when received by the customer, the data is reported back to the blockchain and is publically viewable to the distributor, and the customer. Currently some drug companies are shipping in temperature-controlled containers which are expensive, or use other data-logging devices like used in food distribution, which is unnecessary.

According to Modum’s whitepaper there are over 200 million shipments a year in the EU which would need to be monitored to comply with EU law, and if Modum can capture just a fraction of that market, it’s big money. Modum believes cost-per-shipment can be reduced up to 60%, that would be around 10 USD per shipment. They’ve stated the business has the potential to reduce the industry’s expenses here by up to 3 billion USD. Fairly impressive right. What’s even more exciting is since 2016 has already conducted several pilot programs with off-the-shelf tech, recorded over 10K datapoints and have close contracts with a $5+ billion revenue company. The whitepaper is clearly states the Modum system is being integrated with the leading last-mile logistics service provider in Switzerland, and three pilots completed. Announcements of partnerships with companies is now common in crypto, with developers working together, but this is a huge step in a company having blockchain tech adapted on such a large scale.

In the latest CEO update the first 200 prototype sensors have arrived, and mass-production of 10,000 has been set up. One of the issues brought up in the whitepaper from the first pilot was the need for quicker connectivity between the logger and mobile application, data transfer speed boosted, and a proper UI for data analysis created. This was addressed in the two further pilots, and the production of 10K sensors is an enormous investment by the company. Combined with the news of a contract signing, this is a strong message of confidence in the product from the customer and modum.

 

Modum’s prototype asset tracker was chosen by Canadian company Nordic Sensors as one of eight products for demonstration at the Consumer Technology Association, a huge technology conference held in LA. Variosystems was mentioned in a previous update as being involved in the production of the prototypes back in August. Modum on Dec 12. was announced as the latest member of the Trusted IoT alliance, the open source software consortium. So far the group consists of some huge names in technology, such as Bosch, Cisco, and UBS. Other recognizable names in crypto such as QTUM, vechain, IOTA and consensys are also members.

Alongside its announced partnerships, Modum’s physical location could also be an important factor to its future success. They are currently based in Zurich, near to Basel – European pharma hotspot. Novartis, Hoffmann-La Roche, Basilea Pharmaceutica, Straumann and Actelion have their HQs in Basel. Pascal Degen, the Head of Sterile Packaging at Novartis is also a member of the Modum team. Nearby is Zug, home to Crypto Valley which has KPMG as a strategic partner, and Crypto Valley Labs, where Blockchaingers, organizers of previous hackathons are based. From an academic perspective, partnerships with staff from University of Zurich and University of St. Gallen, such as Prof Burkhard Stiller (the communications chair at Zurich) and Prof Erik Hofmann (expert in strategic supply chain management and author of Supply Chain Finance and Blockchain Technology) all point towards a top-tier product based in reality.

What we can see here is a clear business model that concentrates on a specfic market, that also has potential for large and consistent revenue stream. The product is proven and has real backing across the pharma industry and academia. If you haven’t already I highly recommend you read the Modum Whitepaper.

Part 2 will contain token structure, performance in the market so far, concerns around its potential classification as a security and potential competitors in the cryptosphere and across the industry.

You can purchase Modum at Binance and KuCoin.

Part 2 is located here.