Decentralized P2P Trust & Compliance Ecosystem
Token sales enabled through blockchain technology have been a welcome addition to start-up’s fundraising toolkit. This interest of course has been powered by the utility tokens ability to be substituted instead of giving away equity from contributing users by traditional funding methods.
Many companies that are in the process or have carried out token sales have received seed funding from traditional investment funds, angel investors or VCs who wish to acquire equity as well as discounted utility tokens. This has seen examples of a direct conflict of interest, where equity holders seek returns on equity at the expense of the token holders. There is even a growing desire amongst smaller investors to purchase equity instead of tokens to protect their long term interest. Do investors now have to hold equity to be protected against fraudulent behaviour from companies?
Recent lawsuits initiated against Ripple (XRP) were the result of 55 billion XRP being put into escrow as a means to ‘ensure certainty of total supply’ by the equity owners. This particular lawsuit suggested that Ripple had been funding themselves by selling close to $100m of XRP to reassure investors that Ripple’s majority control of its total circulation would not be abused by any sudden large sell-offs.
But how should one go about aligning the two parties who have different interests in the company?
Peer Mountain’s solution to this problem comes by properly structuring a token ecosystem’s entities so that interests of token holders and equity holders are aligned. This is also practiced by Peer Mountain, who currently is tentatively holding all of the equity in Peer Mountain DCB Ltd.
However agreements to allow some token buyers into the cap table are already in place for the right partners. These parties are required to accept the aligning shareholder agreement before equity distribution. Listed below are the key points of the agreement:
- Equity is solely for the governance of the technology development and improvement
- Peer Mountain’s mission is to increase the scalability and usage of the token ecosystem. This is done by increasing the number of participants in the system and increasing the volume and velocity of the transactions in the system.
- Peer Mountain will calculate and maintain its balance sheet in PMTN.
- Equity holders must also hold a base counter account (minimum stake) of PMTN, and sale of these PMTN shall trigger a pro-rata buyback by Peer Mountain LTD of their equity shares at par value.
- Equity holders explicitly agree that Peer Mountain will never pay dividends and will not take actions that may increase the value of its equity shares if those actions would be detrimental to the value of the ecosystem.
Peer Mountain will initiate a democratised, transparent and complimentary way of transferring equity shares at a flat rate value to maintain alignment between the equity and token holder.
Peer Mountain’s shareholder agreement above addresses a very prominent question of how companies who take in funds during (and after) a token sale can finely balance the interests of equity and utility token holders.
The resulting transparencies ensure equity will be solely used for governance of product development and not be a means for shareholders to extract value from the ecosystem. This prioritizing of actions beneficial to the ecosystem over actions that solely increase its equity shares value demonstrate that Peer Mountain is setting the industry governance lead in operating a fair and complaint token sale. By focusing on generating value for the token ecosystem, Peer Mountain has created the right framework that protects all stakeholders, from large investors to small individual token purchasers.
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