Blockchain firm Hedera has officially announced this week that holders of its locked HBAR cryptocurrency tokens will receive additional compensation in crypto.
This offer is targeted at accredited investors who signed a Simple Agreement for Future Tokens (SAFT) and purchased future crypto assets from the company. Mance Harmon, CEO of Hedera, stated, "Participating SAFT holders will receive an annual additional allocation of cryptocurrency. Over time, the cumulative sum will equal the value of their original principal investment."
Harmon also indicated that this proposal aims to incentivize investors to support the network's usage and growth, potentially enhancing the HBAR price. The additional crypto amount will be equivalent to 10% of the company's annual revenue from treasury sales and transaction fees, capped at the investor's original investment amount.
This offer is optional. Investors who choose not to enroll in the new plan will retain their existing SAFT agreements without any modifications.
Hedera anticipates that the new agreement will extend the token distribution timeline by approximately 25%. For instance, an investor initially set to receive HBAR over 48 months would now wait an additional 12 months to obtain their full token allocation. However, the company clarified that there is no specific distribution schedule yet, as it will depend on investor feedback after the plan is sent out in early 2020.
As a cross-industry, scalable decentralized platform, Hedera raised over $124 million across three funding rounds in 2018. To comply with U.S. regulations, this transaction is only available to accredited investors. Since distributions began in September 2019, over 140 million HBAR (worth nearly $22 million at the time) has been allocated to investors.
Despite this, the price of HBAR plummeted over 90% following its initial token distribution. Harmon mentioned the company is reviewing the project's tokenomics model. This involves establishing a new schedule that would distribute tokens quarterly instead of monthly. The goal is to alleviate selling pressure and facilitate better price discovery.
Even with the significant price drop, Hedera maintains support from major corporate players. In August, companies like IBM, Tata Communications, and Boeing joined the project's governing council.
Understanding the New Compensation Model
The revised compensation strategy is designed to reward long-term commitment. By offering an annual bonus tied to network revenue, Hedera aligns investor rewards with the platform's overall health and adoption.
This model contrasts with traditional vesting schedules. It provides a potential upside based on performance, rather than a fixed timeline. Investors benefit directly from the ecosystem's success.
The 10% revenue share is a significant incentive. It demonstrates Hedera's confidence in its ability to generate substantial transaction fees and treasury sales. This approach may become a benchmark for other projects seeking to balance investor rewards with sustainable growth.
The Impact on Token Distribution
Extending the distribution period by 25% is a strategic move. It reduces the immediate selling pressure on HBAR tokens in the market. A slower release schedule can help stabilize the price by preventing large, sudden dumps.
Quarterly distributions, as opposed to monthly, allow for more measured market absorption. This gives investors time to assess the project's progress between each distribution. It also aligns with typical corporate reporting cycles, potentially attracting more institutional interest.
The lack of a fixed schedule introduces flexibility. Hedera can adjust based on market conditions and investor feedback. This adaptive approach is crucial in the volatile crypto market.
Historical Context and Fundraising Success
Hedera's $124 million fundraising in 2018 was a significant achievement. It highlighted strong investor belief in the hashgraph technology's potential. The platform aims to offer high throughput, fairness, and secure decentralized applications.
Compliance with U.S. regulations for accredited investors ensured a legally sound offering. This adherence to regulatory standards builds trust and credibility. It sets a precedent for other projects navigating complex legal landscapes.
The distribution of over 140 million HBAR tokens since September 2019 marks substantial progress. It reflects the company's commitment to fulfilling its initial promises to early backers.
Price Performance and Strategic Review
The dramatic price decline of HBAR post-launch is a common challenge in crypto. Many assets experience volatility after initial excitement wanes. Hedera's proactive review of its tokenomics shows a commitment to addressing this issue.
Shifting to quarterly distributions is a direct response to market dynamics. It aims to create a more sustainable economic model for the token. This could help in rebuilding investor confidence over time.
Price discovery is a complex process. By reducing the frequency of large distributions, Hedera hopes to allow the market to find a more organic price level. This benefits long-term holders and the project's stability.
Corporate Endorsements and Governance
The involvement of major corporations like IBM, Tata Communications, and Boeing is a strong vote of confidence. These entities would not join the governing council without believing in the technology's long-term viability.
Corporate participation brings expertise, credibility, and real-world use cases. It can drive adoption beyond the crypto native community. This diversity in governance helps in creating a balanced and resilient platform.
The governing council model ensures decentralization and prevents any single entity from having excessive control. This is crucial for maintaining trust in a public distributed ledger.
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Frequently Asked Questions
What is a SAFT agreement?
A SAFT (Simple Agreement for Future Tokens) is an investment contract. It allows accredited investors to purchase rights to tokens before they are developed or launched. It's a common tool used in crypto fundraising to comply with securities regulations.
Who is eligible for Hedera's new compensation offer?
Only accredited investors who previously purchased HBAR through a SAFT agreement with Hedera are eligible. These investors must opt into the new program to receive the additional annual crypto allocations.
How is the additional compensation calculated?
The bonus is 10% of Hedera's annual revenue from treasury sales and transaction fees. This amount is distributed to participating investors each year, but the total cumulative bonus cannot exceed their original investment principal.
What happens if an investor does not opt into the new plan?
Investors who choose not to participate will remain under the terms of their original SAFT agreement. Their distribution schedule and token allocation will not change; they simply will not receive the extra annual payments.
Why did Hedera decide to extend the distribution timeline?
The extension aims to reduce selling pressure on the HBAR token in the market. By stretching out the release of tokens, Hedera hopes to achieve more stable price discovery and encourage long-term holding.
How do corporate governors like IBM benefit from Hedera?
Corporate governors help operate network nodes and guide the platform's development. In return, they gain early access to innovative technology, influence over the protocol, and potential business efficiencies using Hedera's network.