Analysing the Token Sale Rewards

We’re talking about the top-right quadrant

As the actuarial grad in the house (NB: not the same as Actuary), it has fallen to my remit to be the “numbers” guy. In this post I unpeel the various numbers to do with the HelloGold Foundation Token Sale.

Background

Before getting into the numbers it’s important to highlight the basis of HelloGold’s ambitious plans.

1. Precedent. In Robin’s previous life as CFO of the World Gold Council, he was responsible for the world’s largest gold fund with US $30 billion in physical gold. He also worked with ICBC to build a gold business from 0 to 11 million customers and US$6 billion gold sales within four years. This idea has legs.
2. Partners. With HelloGold’s B2B2C market approach we are able to leverage on trusted brands to directly market to huge customer bases. Our launch partner, AEON has 4 million customers in Malaysia and 100 million customers across Asia. We are in talks with a major telco in the region (300 million customers in Asia) to be part of their mobile wallet, and have the right proposition to partner with many more.

A quick recap on the HelloGold reward structure is also useful (you should, however, always check the documentation yourself):

1. HelloGold charges a 2% annual management fee, calculated daily and charged monthly (in gold). On a side note: the 2% actually works out to ~1.98% due to the magic of compounding — to be explored in another blog post.
2. 10% of that monthly fee (in gold) is given each month as an endowment to the HelloGold Foundation (“Foundation”).
3. The HelloGold Foundation (along with its advisors) may, at its discretion, reward HelloGold Token (HGT) holders with Gold Backed Tokens (GBT), fully backed by the gold received from the endowment by HelloGold.
4. The reward is split across all 1 billion HGT until the total maximum cap of 3.8 million grams is reached.

The HGT holder will benefit in two ways:

1. The speed at which HelloGold’s AUM grows
2. Any increase in the underlying gold’s value

NB: we do plan to expand to other asset-backed tokens (eg silver, platinum) as shared in our roadmap, but as we don’t have those products in place right now we decided not to model any rewards from them.

Roadmap for reference

Sources & Assumptions

In coming up with our financial model and subsequently HGT projections, we used data from these sources:

1. World bank data
2. Mastercard
3. Manulife Asia

We also made assumptions as below:

1. HelloGold customers’ gold savings as a % of cash savings
2. Penetration into the target market
3. Cost of running the business (in other markets, based on expenses in Malaysia and prior benchmarks/experience of the team)
4. Foundation decides to reward HGT holders with all of the endowment received
5. No market for direct purchases of GBT (i.e. no additional gold AUM)

Results

I’ll spare you the number crunching

A quick calculation of potential rewards is by simply dividing the maximum cap of 3.8 million grams by 1 billion HGT. The maximum amount given to each HGT can then be determined as 0.0038 GBT. At a gold price of US$ 40/g and HGT price ranging from USD 0.024263–0.02921, the absolute return would be 5–6x for one (1) HGT.

Another example of erring on the conservative side: in the above calculation we ignore any potential increase in gold value. Below, we list down two results based on whether gold price stays flat over time or increases by an average annual return of 5% (historical against USD over the last 20 years).

1. Flat gold price

• the maximum cap of 3.8 million grams is reached in Year 8 of operations
• absolute return of 5–6x
• average annual return of 22–25%

2. 5% annual increase in gold price

• maximum cap is reached in Year 8 (but closer to year-end)
• absolute return of 7–9x
• average annual return of 28–30%

An important thing to note: for many of our supporters from the ASEAN region, the historical increase in gold price against the local currency is even higher. Over the last 20 years it has had an average annual return of 9.4% against the Malaysian Ringgit, 8.0% against the Thai Baht, and a whopping 15.9% against the Indonesian Rupiah.

As always, we welcome further discussion on the numbers and hope by sharing this post it’ll be a step forward for best practices in this space.