Topic: [BTC-TC] CIPHERMINE.B1 - a virtual corporate bond with a 22% fixed-fiat APR - page 7. (Read 27599 times)

My point 1 has been addressed - my point 2 (secured only against the assets actually purchased with raised capital) may just be a case of talking at cross-purposes.

You gave the example of hire purchase agreements and secured loans.  My point was that your liability for the debt in those cases doesn't extend just to the value of whatever you borrowed the cash for.  If you take out a loan on a car, you don't get to limit repayments only to the value of the car.

From your response it seems you agree - and accept that Ciphermines is liable for repaying the bonds regardless of what happens with specific hardware purchased with the capital raised.  Which raises the question of what "secured against" means in the context used.

With personal loans the only way out of repayment (other than through negotiation) is bankruptcy.  With a company loan the equivalent is insolvency - hence my point that in practical terms the bond is secured against ALL of ciphermine's assets: if it isn't then it's not the company issuing the paper.  And in the event Ciphermine closed bonds would have to be repaid before shareholders received anything - debt is always paid before equity in liquidation.

So long as you agree with those principles I don't really care if you want to claim it's somehow specifically secured against unspecified assets that will depreciate without principal being paid down (which would be the case in genuinely secured loans - the capital gets repaid as fast or faster than the backing assets lose value).

The only other point would be that at the time you issue the bonds you should disclose any debt held by Ciphermine which has seniority over the bonds and commit not to taking on new debt unless it is junior.

Please see our main thread and news. The shareholders do not wish to have further dilution, but most businesses like ours would seek other means of raising growth capital, most obviously debt. Indeed, we arguably did things a bit backwards; raising funds through equity would normally be the last method a company used to raise capital, not the first - that would usually be a loan of some sort.

As for what for: To grow faster - simple as that. In practice this will mean buying additional mining hardware.

Kate.

You misunderstand; the face value will always be 0.01 BTC. Originally it was my intention to cap any value increase at 50% but having modeled the situation it became apparent that since we intend to invest it in SHA256 mining hardware we will be generating more anyway; the bond will be repaid by the yield from those machines.

If difficulty is rising too fast then we will take the option to repay the bonds early. Even in my worst case scenarios we can repay the bond early. However, paying interest linked to might BTC would become too risky, hence the fixed-fiat yield.

However, you also assume that BTC will rise. Personally I think there is a fair chance it will crash again soon, in which case the bond holders would be in a better position in terms of yield than they would be if it were BTC-linked. Personally I see this feature as quite a nice bonus for the investor - their returns are stable regardless of BTC's price.


I now see that I cannot differentiate between bonds in terms of issue either, a silly oversight. I could adjust the dividend yield as more bonds are issued, making it the average, but that would be complex and confusing for the investors. Alternatively it might be more sensible to issue the lot all at once and then just keep the BTC that we didn't need and take the hit on a slightly higher-than-necessary interest payment while we hold the funds. We can certainly afford to do this with minimal risk (ie. if we don't want to spend it all at once, just hold the BTC and pay the EUR interest).

This second approach would also support keeping the interest at a fiat-fixed rate. Editing the security now...


See above re. both points.

Kate.

EDIT: I've updated the security listing to address some of the issues raised.

To clarify my point 2 above, the clash is between the two items quoted above.

If you sell the bonds in tranches then there'll be a different exchange-rate when each tranche is sold.  You then can't honour the contract in respect of all tranches as there's no way to pay different amounts of interest to different tranches of bonds.  Unless you wanted to pay 22% of of face value at the most beneficial (to bondholders) exchange-rate at which you'd ever sold bonds.  That pretty much negates the whole point (for you) if exchange-rate moves significantly in EITHER direction between the placement of tranches (as, depending on direction of the move, you'd either have to pay new bondholders a far higher rate than you wanted or upgrade heavily the rate paid to existing ones).

For reference

Makes sense to secure bond with all assets. Should be changed to this as deprived mentioned

Admitting some ignorance to the finer details of CIPHERMINE's history, haven't you already issued shares of CIPHERMINE on numerous occasions to raise funds?

You still need more? For what?

Two things immediately spring to mind:

1. If it's valued in euro then the face value has to be in euro.  You can't sell all 100k at same BTC price as if they don't sell quickly and the exchange-rate moves it would be impossible for you to honour the contract to investors who bought at different exchange-rates.

2.  You can't issue a bond which is only secured against the assets purchased with capital raised from the bonds:
a)  That would necessitate you keeping seperate accounts in respect of the bonds - with all purchases recorded as being purchased with bond-capital or purchased with other capital.
b)  It's grossly unfair to purchasers of the bonds.  They take all losses associated with the bonds but have profits capped at 22% growth expressed in euros.

Bonds are issued by the company and secured against ALL its assets.  Bond-holders have senior claim over equity holders.

EDIT: It occurs to me that when you say "based on EUR/BTC value at time of issue" you may mean at time dividend is paid rather than at time the bonds were issued.  In that case my point 1 doesn't apply - though it then makes no sense as the interest would be based on BTC face value anyway (just with two currency conversions to get back to where you started from).

I am pleased to announce that CipherMine shall be issuing a virtual corporate bond on BTC Trading Co in order to raise growth capital.

Herein all EUR/BTC valuations refer to the 30-day weighted moving average of BitStamp's USD/BTC price converted to EUR at the current rates according to XE.com. For the purposes of the examples below we have used a price of €85.00 EUR/BTC.

100,000 bonds are to be created priced at 0.01 BTC each. The terms of the bond are as follows:

• An interest rate of ~22%/year (0.38%/week) based on EUR/BTC value at time of issue (eg. ~€0.0032 / bond / week).
• Dividends to be paid weekly.
• All 100,000 bonds to be issued at the first opportunity, at which time the interest yield will be set.
• Bond proceeds shall be spent discretion of CipherMine management, and only if they are satisfied that the funds can be repaid and that there is a useful way to spend them. Unspent funds shall be held as BTC to mitigate appreciation risks.
• After 12 months, each bond may be redeemed at any time by bondholder for 0.01 BTC.
• If before 12 months, three months notice is required to redeem bonds and rights to interest waived during that period.
• Bonds may be sold on the market at any time with no penalty.
• CipherMine has the right to redeem any bond in full with one month's notice to the bond holder at face value plus 12% less the number of months since issue.
• For example, after three months the redemtion value would be 0.0109 BTC/bond, and after 12 months the redemption value would be 0.010 BTC/bond. The redemption value will always be at least 0.010 BTC/bond.
• The bonds shall ultimately be secured against the assets purchased with the funds, but this security would only be needed in dire circumstances where CipherMine had completely run out of cash.
• Changes to the bond's shareholder contract would require approval both by a majority of CIPHERBOND bondholders and a majority of CIPHERMINE shareholders.
• Only CIPHERMINE shareholders would have the power to veto a motion (>25% voting against).

For further details please see CIPHERMINE.B1 on BTC TC.

Edited to bring inline with changes to main listing following feedback below.