This article is an addendum to one I wrote recently, following publication of IvyKoin’s updated whitepaper (V1.5). In that article I highlighted the change in the token allocation pie chart and identified some matters that warranted clarification.

Earlier today Ivy published a blog post announcing voluntary escrow arrangements for a significant number of tokens. This is potentially very good news for ivy token economics and should be welcomed by all token holders.

The announcement will impact upon initial circulating supply and this is discussed more below. There is still some uncertainty as to token ownership and this is also discussed below. Ivy has not yet provided further information in this respect and for this reason some of the below observations can only be considered as personal conjecture.

Who owns the tokens?

To recap, in the original pie chart 40% of tokens were allocated to token sales. This has now been revised to provide a more detailed breakdown, as follows:

24% Seed investor & IP vend tokens

11% Pre-sale token sales

3% Friends & family token sales

2% Fees paid for various services

It does appear as though not all tokens were actually ‘sold’. Instead, a significant quantity now appears to have been exchanged for value in the form of IP. This will have been in addition to any equity participation acquired in ivyKoin LLC by the IP vendors. I shall not discuss that here.

A small seed round of token sales had apparently raised in the region of $3 million at $0.05 per token. It is unclear as to whether these sales are the newly-revealed friends and family element (3% = about 48 million tokens = $2.4 million @ $0.05 per token). If the seed round referred to was in addition to the friends and family sale, then this will account for around 60 million tokens from the seed investor and IP pool.

Turning to the seed investor and IP pool. This represents about 384 million tokens. On the assumption that 60 million are accounted for by the seed sale, this leaves 324 million more to account for. It appears that CCA is the holder of 130 million, although earlier it had been stated that CCA’s token allocation formed part of the management and advisory pool. In any event, this still leaves 194 million tokens unaccounted for. Given the description of this category, it is reasonable to assume that those tokens were exchanged for IP. The only other source of IP declared by Ivy are the Patents controlled directly or indirectly by Michael Beck and/or his associates (possibly via dxChain).

Therefore, the seed investor and IP vend pool ownership may look like this:

60 million at $0.05 to seed investors

130 million nil paid to CCA

194 million nil paid to Michael Beck and/or associates

If correct, this would mean that Ivy and connected parties control around 82% of all tokens.

Why does this matter?

1. Transparency

Ivy has announced changes to the token distribution without sufficient explanation. There is a lack of transparency and this deserves questioning. Any material arrangement with connected parties in respect of tokens should be declared to all token holders, for the sake of equity.

2. Conflict of interest

Where token holders are also owners of equity in the token issuing vehicle, there is a potential conflict of interest. Where a token holder also provides value to a company for consideration that is not salary-related, there is a potential conflict of interest.

3. Influence over token market price

Where a token holder controls a significant number of tokens (directly or indirectly), their actions can exert significant influence over token market price, should they determine to sell a large quantity of tokens. Vesting arrangements limit but do not negate this effect.

Implications for circulating supply & market capitalisation

It has been consistently claimed that circulating supply is 54% of token supply, or 869 million tokens. This appears to comprise token sales (40%) and tokens allocated to the management and advisory pool that are not subject to vesting (13%). The 1% difference is due to rounding.

Today’s news is likely to result in a significant reduction of the circulating supply. It appears that the following tokens might be excluded from Ivy’s initial circulating supply:

209 million Management and advisory pool

324 million IP vend tokens

Here is how CoinMarketCap puts it: Coins that are locked, reserved, or not able to be sold on the public market are coins that can’t affect the price and thus should not be allowed to affect the market capitalization as well.

If all above tokens were excluded then initial circulating supply would be reduced to 336 million tokens. It may, in fact, be lower than that, once one factors in those seed investors who are also subject to the announced vesting arrangement.

A lower circulating supply of tokens will give rise to a lower market capitalisation at any given token price. However, a lesser circulating supply also increases scarcity, which can be supportive to token price and, consequently, market capitalisation.

Summary

Some key issues have been raised in respect of token ownership and token circulating supply.

Today’s news clarifies matters related to circulating supply and can be considered a very positive move by key Ivy token holders. The vesting arrangement announced gives a clear indication of how many tokens are vested and their release schedule. This increases the predictability of future token supply to the market and goes some way to addressing some of the potential conflicts of interest referred to earlier.

The matter of ownership of the seed investor and IP vend tokens remains unresolved. Given that connected parties appear to comprise a large proportion of these tokens, further transparency would be welcomed. This would certainly be the case for a publicly-listed company. Given that Ivy has set out to break the mould and remove itself from the ‘Wild West’ of token sales, it would be appropriate if they adopted a similar approach.

Disclaimer: The views expressed in this article are mine alone. I have drawn on subject material made available publicly by ivyKoin but have also made assumptions where specific information was unavailable. It is possible that some or all of those assumptions may be erroneous or contain material inaccuracies. I did seek clarification on those matters from ivyKoin but at the time of writing had not been able to obtain their feedback.