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Modum and their unique profit sharing model. Will it work in the crypto world?

 

Modum is a new blockchain startup out of Switzerland and they have a somewhat unique (at least to crypto) way of making their coins value increase. By creating a profit sharing model, the company plans on dividing up profits and sharing them with coin holders through Ethereum payments. You can think of this like a stock that pays a dividend. Of course, this is very similar to a security which makes it likely that Modum will not be listed on any American exchanges due to SEC regulations, although Modum insists the coin is not a security. But that is another debate all together.

Modum’s business model is to provide a type shipment tracking via the blockchain. Basically, they use a small tracking device that is put in with shipments. This device measures things like temperature and other stats that are required by the shipper. Once delivered, both parties can check the blockchain to make sure the proper storage was used along the way, at which point a smart contract can complete and even handle the payment. As of now they are focusing on pharmaceutical shipments in Europe, which will be requiring this sort of tracking for all shipments by law. So Modum looks to satisfy this requirement via a blockchain solution that they have created. If successful, it will be one of the largest real world uses of blockchain technology.

As you can see, the Modum token is not used as part of their technology, so how does it go up in value? Well, the company has said that it will share profits among coin holders. This is pretty standard in traditional stocks, but somewhat new to the crypto space. This model has also not been proven so there is some new ground to be covered as well since there are no laws or regulation protecting coin holders who are promised payouts. So let’s look at the possible benefits and possible pitfalls of a setup such as Modum.

Pro Argument – People who are hot on Modum like to compare their coin to something like a stock. Stocks are valued on a metric called a P/E ration which is price to earnings ratio. This is the ratio of what the company actually earns to the price of the stock. A PE ration for a company can be anywhere between 1 and as high as 300 for a stock like Amazon. So there is no clear PE ratio you can assign to company, it’s all market driven. But the argument here is that the price of the coin or stock is almost always more than the annual earnings by a certain factor. And proponents of Modum would like to think that their coin would be worth many times what the profit of the company is, similar to a hot tech stock. So in a simple example, if the Modum coin pays out $1 per coin in profit sharing, the coin itself could be worth $5 or as much as $300 if the market values the company similar to Amazon.

The Con Argument – The argument against this set up is mostly due to the fact that this is uncharted territory in the crypto space. Because of this, there is no legal obligation for the owners of Modum to pay anything out. Or they can simply change the amount they pay out at any time. This is because the price of the coin really has no effect on their business once it’s up an running. So you are basically just trusting Modum to follow through. Which of course they have some incentive to do. If they do become a large business, them scamming all their investors would be a bad look for sure. Another issue is how much they pay out per coin. They would need considerable revenue to be able to payout in the range of $1 or above per coin based on the number of coins. I think coins would need to be burned off at some point to increase profit per coin. But I’m not sure if they could even do that.

So as you can see, it’s uncharted territory when dealing with Modum. If they become a real world use for blockchain technology all across Europe, they could easily have a high PE ratio like Amazon for their coin that would make the value shoot up. However, they also have no real obligation to follow through with their initial promise of paying out profits to coin holders. So it’s high risk and high reward, or in other words, just another day in the crypto markets.

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