THE ICONOMI CASE: WHO OWNS THE ASSETS AND HAS THE AUTHORITY TO DECIDE ON A FUNDAMENTAL CHANGE OF BUSINESS

The Slovenian ICONOMI project was a Token Sale pioneer in Europe in late summer 2016. Their ambitious plan has been to disrupt the traditional asset management fund by introducing smart contracts and crypto-assets. Currently, they are restructuring themselves in order to meet regulatory requirements. We appreciate that but actually do not particularly support how they are doing it.


The ICONOMI Project

The ICONOMI project was founded in March 2016 by Tim ZAGAR and Jani VALJAVE. Before the establishment of ICONOMI, they set up and ran the Prague-based Bitcoin payment gateway Cashila.

In summer 2016, ICONOMI conducted a Token Sale to raise the necessary funds to launch the ICONOMI Open Fund Management platform (OFM) with two types of new financial instruments:

  • the ICONOMI Coin Traded Fund (CTF) and
  • the ICONOMI Coin Managed Fund (CMF).

As the Whitepaper dated July 2016 stated:  “ICONOMI  is about disruption – the “uberisation” of fund management. ICONOMI will open up a new financial services category in the decentralized economy, with a guaranteed income stream and an ambitious platform vision. We are positive that ICONOMI is one of the most appealing business proposals of 2016 with its high probability of investment multiplication.

The ICN Tokens

The ICN Tokens are described in the Whitepaper (Version 3.2) as follows:

“100 % of the ICONOMI tokens represent 100 % ownership of the ICONOMI platform, comprising of all assets and liabilities, as well as each and every right and obligation, including but not limited to intellectual property rights, branding, and trademarks.

Tokens are a digital asset, bearing value by themselves based on their underlying assets, properties and/or rights. ICN tokens represent ownership of the ICONOMI platform, allowing their holders to receive dividends and vote on ICONOMI related issues.

ICN ownership entitles its possessor to participate in ICONOMI platform related voting.

That said, it’s pretty clear that ICN token holders are the beneficial owners of the ICONOMI platform and all associated assets. Like shareholders in a company, ICN token holders are entitled to vote on all platform-related issues.

The project succeeded in raising 10M USD in the token sale from 3.398 Investors by selling 85M ICN Token. 15M or 15% of the totally issued tokens (100M ICN Tokens) were distributed to the development team, advisors, bounties and the earliest adopters/contributors.

The Development of the ICONOMI Project

According to the published quarterly results, the ICONOMI guys did a rather good job.   For Q3 2018 the following information was published on Medium:

The project engages 37 DAA managers from 21 countries according to their latest Medium announcements. The average monthly revenues for the third quarter 2018  amounted to  USD 21,942, the monthly burn rate amounts to USD 442.522. As of the end of Q3 f 2018, the platform has 61,672 users. Also as of the end of the 3rd quarter 2018, the project showed digital assets with a book value (valued at the market value as of Sept. 30, 2018) of USD 96,232,810  including those Ethers locked in the Parity multi-sig wallet. No details were presented on the liabilities.

The development of the ICN Token:

Originally, the plan was to reward token holders with dividends (20% of the return made by the crypto currency investment funds). Instead, ICONOMI started to apply a buyback approach by using some of its profits to buy back ICN tokens from holders and then burning those repurchased tokens to create more value for investors.

In March 2018, ICONOMI started to accept ICN Tokens as a means of payment for its platform fees.

The public-listed ICN token reached an all-time high of $5.26 in early January 2018. The first price upon the initial listing in September 2016 was at $0.19 USD.

Iconomi ICN chart
Iconomi ICN chart

In June 2018, the ICN token was listed as #136 on Coinmarketcap.com based on the market cap. In September 30, 2018 the market cap for ICN amounted to USD 38,590,189.

Post-ICO Hype Restructuring

As of September 27, 2018, Tim ZAGAR announced that ICONOMI has to restructure due do regulatory issues. According to the announcement the restructuring was needed to acquire a license in the EU to become a fully regulated virtual financial asset service provider (grandfathering process in Malta was already started one week before). ICONOMI’s board of management decided to change its ownership structure by establishing a Joint stock corporation (“ICONOMI AG”) in Liechtenstein, tokenize the company’s shares and to them as security tokens under the symbol “ICN”.

The following restructuring plan was published:

  1. Starting on November 1, 2018, eligible ICN token holders can choose either to opt into becoming shareholders of a new joint-stock company that will be tokenized with eICN tokens or to exchange their ICN tokens for ETH;
  2. ICN tokens whose holders opt into converting their tokens to ICONOMI AG shares will be transferred to the company as an in-kind contribution, raising the share capital of ICONOMI AG and instituting the former ICN holders as shareholders of ICONOMI AG.
  3. The value of one share will be set to 1 CHF, and the ICN/CHF exchange rate will be determined and duly published at a later stage, taking into consideration the specifics of this case and the provisions of applicable laws.
  4. Eligible owners will be token holders registered on the company’s platform as Tier 2 (full KYC check) or higher. All token holders who are not able to verify as Tier 2 users on the platform will be able to exchange their ICN tokens for ETH.
  5. The first phase of the transformation will end on December 31, 2018, with the tokenization process starting in Q1 2019;
  6. ETH will take the place of the ICN token’s utility on the ICONOMI platform (e.g. fees paid by DAA managers).
  7. There will be no limitation as to the eligibility of ICN token holders to convert their ICN tokens into ETH. Exchange of ICN tokens for ETH does not require Tier 2 verification on the ICONOMI platform.
  8. Non-eligible ICN token holder can decide to exchange their ICN at the fixed rate at 0.0019 ETH/ICN (based on the last six months) until the end of December 2018. After Dec 31, 2018, the exchange rate 0.0019 ETH/ICN cannot be promised.

For Tier 2 ICONOMI has partnered with IDnow, Inc. to carry out due diligence checks for our Know Your Customer (KYC) compliance process. As some countries like the United States are not currently supported by IDnow no Tier 2 verification is possible for them.

A Non-Compliant Procedure

According to the terms in the White paper, the ICN token holders are to be regarded as the beneficial owners of the ICONOMI project and its assets. Like the shareholders of a company, only the token holders should have the ultimate authority to decide on fundamental changes in the business and its structure.

The proposed restructuring procedure completely contradicts the terms of White paper for the token sale in 2016. Those terms have been repeatedly communicated and thus confirmed by ICONOMI in subsequent postings on Medium and REDDIT. According to the ICONOMI token sale terms, the following situation is given:

  • all assets and liabilities of ICONOMI are beneficially owned by lCN Token holder with the tokens representing the right of ownership and participation (dividends, voting)
  • it is more than questionable if the ICONONI management is legally entitled to make decisions regarding the assets and liabilities without the consent of the token holders as beneficial owners.
  • deciding on the assets without the consent of the token holders violates their ownership rights and is to be qualified as a sort of illicit expropriation.
  • If the management proposes a fundamental restructuring to get the required license for the asset management the ICN token holders have a say on that and to vote on the proposed change.
  • By the way: according to the white paper the project fulfilled EU licensing requirements at the time of the token sale.

Furthermore, in order to conduct a proper voting process, the company has to provide appropriate and transparent information material on the assets and liabilities of ICONOMI as well as on the restructuring process upfront (like materials for shareholder meetings have to be prepared upfront). Also, the short-term notice is not appropriate for such important restructuring steps.

Regarding the squeezing out of the non-eligible ICN Token Holders – if the voting results in a pro-restructuring decision – an actual valuation of the assets and liabilities has to be established by an independent valuator and based on this valuation, a proposal has to be made to the non-eligible ICN Token Holders.

The proposed procedures definitely do not meet the requirements as promised in the original White paper published. This situation shows again that the crypto scene still has to figure out the fundamental governance procedures.

Note: Pls be aware that we think that ICONOMI is a valuable project and we appreciate the efforts of the management team very much, but we also think that we have to discuss such issues as described above as we think that again the Slovenian project is a first mover.

We also wrote an article on the restructuring efforts regarding Cofound.it also an ICONOMI project.