In Re Tezos Securities Litigation: Claim Calculation
TL;DR:
A 5.(i) claimant is someone who sold their XTZ from July 14, 2017, through and including 6:31 a.m. PST on November 25, 2019. They can find their “Recognized Loss Amount” using this formula:
5.(i) Recognized Loss Amount =
((BTC spent on the ICO) - (BTC gained from sale)) * $7,242.58A 5.(ii) claimant is someone who claimed and still held their Tezos as of 6:32 a.m. PST on November 25, 2019. They can find their “Recognized Loss Amount” using this formula:
5.(ii) Recognized Loss Amount =
MAX( 0.00001, (ICO_BTC/ICO_XTZ) — 0.000178 ) * ICO_XTZ * $7,242.58A 5.(iii) claimant is someone does not want to go through KYC, lost their password, or intends to never access their Tezos. They can find their “Recognized Loss Amount” using this formula:
5.(iii) Recognized Loss Amount =
(BTC spent on the ICO) * $7,242.58The amount you get may be significantly less than your Recognized Loss Amount depending on how many people participate in the lawsuit. For example, if the available distribution is $16 million, and there is a total of $160 million in claims, you will only get 1/10th of your claim. I will talk about predicting this in a future post.
If you want to submit a claim, you need to do it before October 16, 2020! You can submit your claim here:
Background:
On August 27, 2020 the Final Settlement Order for the Tezos class-action lawsuit, Case Number: 17-cv-06779-RS (N.D. Cal.), In re Tezos Securities Litigation, was issued. It is a done deal. Money will be distributed to claimants. Now the question is how much will you get if you choose to submit a claim? Depending on the type of claimant you are, you will receive a different amount. In this article I will help you calculate your Recognized Claim Amount. 5.(i) Someone who sold before November 25th, 5.(ii) Someone who still had their XTZ on November 25th, and 5.(iii) Someone who has not accessed their XTZ due to KYC or lost password.
This article discusses how to properly calculate your “Recognized Loss Amount” if you file a claim. Please note that the amount you get from the settlement may be significantly less than your “Recognized Loss Amount”.
Calculating the Recognized Loss Amount for those who sold their XTZ.
A 5.(i) claimant is someone who sold their XTZ from July 14, 2017, through and including 6:31 a.m. PST on November 25, 2019. They can find their “Recognized Loss Amount” using this formula:
5.(i) Recognized Loss Amount =
(BTC spent on the ICO) - (BTC gained from sale) * $7,242.58I am not going to do a deep dive into this as there are plenty of ways of doing this. Basically if you bought Tezos at the ICO and sold it for a loss, you can submit a claim. You will need access to your trading records and you will need to document each trade.
Calculating the Recognized Loss Amount for those who have access to their funds.
A 5.(ii) claimant is someone who claimed and still held their Tezos as of 6:32 a.m. PST on November 25, 2019. They can find their “Recognized Loss Amount” using this formula:
5.(ii) Recognized Loss Amount =
MAX( 0.00001, (ICO_BTC/ICO_XTZ) — 0.000178 ) * ICO_XTZ * $7,242.58The amount you get may be significantly less than your Recognized Loss Amount.
How did I get the formula?
I read the notice! I also contacted the settlement about how to properly calculate the Recognized Loss Amount. I got a clear response from Jake Walker at Block & Leviton LLP verifying the math for 5.(ii) and 5.(iii) claims as outlined below. As with most lawyer responses, the calculations and formulas that were shared with me are for illustrative purposes.
(ii) Held as of 6:32 a.m. PST on November 25, 2019, the time at which a settlement in principle was reached, the Recognized Loss Amount will be the contribution amount in Bitcoin per Tez, minus the price of XTZ at 6:32 a.m. PST on November 25, 2019, 0.000178 BTC/XTZ. If the genesis block XTZ was purchased in Ether, it will be converted to Bitcoin per Tez using the exchange prices listed in Table 1 on the date of the purchase. In no event shall the recognized loss per Tez held be less than 0.00001 BTC.
Note: The last sentence in 5.(ii) ensures that the minimum you will get will be 0.00001 BTC per XTZ. In a formula, this is represented using the “max” function. Max will choose the greater of two different variables and is noted as MAX( 0.00001, B ) in the formula.
Note: “Bitcoin per Tez” = (BTC spent on the ICO) / (XTZ allocated to you).
I will use the term (ICO_BTC/ICO_XTZ) in the formula
Note: — 0.000178 will be used in the formula to remove the retained value of XTZ at the date of agreement.
Note: According to paragraph 9, the value of the recognized loss in USD is $7,242.58 per BTC.
Here is a unified formula that will give you the Recognized Loss Amount if you file a claim under 5.(ii), remember this number is not what you are going to get from the lawsuit, it is just the share you are asking for. Your actual settlement may be significantly less.
Recognized_Loss_Amount =
MAX( 0.00001, (ICO_BTC/ICO_XTZ) — 0.000178 ) * ICO_XTZ * $7,242.58Warning: You may not get the full Recognized Loss Amount. If your claim is for $100, and the total claim amount for all claimants is 10x the available funds, you will only get $10. We will discuss and predict the total claim value later in the article.
BTC Examples:
Using our formula, we are going to go through several examples.
Recognized_Loss_Amount =
MAX( 0.00001, (ICO_BTC/ICO_XTZ) — 0.000178 ) * ICO_XTZ * $7,242.58Example 1: You spent 1 BTC and got 6000 XTZ
Recognized_Loss_Amount = $434.55 =
MAX( 0.00001, (1/6000) — 0.000178 ) * 6000 * $7,242.58Note: In this case the “Max” part of the equation will choose 0.00001.
Example 2: You spent 1 BTC and got 5000 XTZ
Recognized_Loss_Amount = $796.68 =
MAX( 0.00001, (1/5000) — 0.000178 ) * 5000 * $7,242.58Note: In this case the “Max” part of the equation will choose the formula.
Here is a quick table if you spent 1 BTC.
What if you used ETH?
In this case we are going to modify the formula slightly. We will replace ICO BTC with ICO ETH. This is going to be the amount of ETH you contributed. Next we are going to replace ICO XTZ in the first part of the equation with the ETH/BTC value on the date of your contribution from Table 1 in the notice.
In this case your formula would look like:
Recognized_Loss_Amount =
MAX( 0.00001, ((ICO_ETH/[Table 1:ETH/BTC])/ ICO_XTZ) — 0.000178 ) * ICO_XTZ * $7,242.58Basically, what we are doing is substituting the variable ICO_BTC with ((The amount you contributed in ETH) / (Lookup value in Table 1))
Example 1: You spent 10 ETH on July 1, 2017 and got 6,768 XTZ.
Lookup the ETH/BTC value for July 1, 2017 in Table 1.
Our variables are:
ICO_ETH = 10
[Table 1:ETH/BTC] = July 1, 2017 in Table 1 = 8.86580481
ICO_XTZ = 6,768Recognized_Loss_Amount = $490.18 =
MAX( 0.00001, ((10/ 8.86580481) / 6,768) — 0.000178 ) * 6,768 * $7,242.58
Note that in this case, the “max” part of the equation will choose 0.00001.
Example 2: You spent 10 ETH on July 5, 2017 and got 5,187 XTZ
Lookup the ETH/BTC value for July 5, 2017 in Table 1.
Our variables are:
ICO_ETH = 10
[Table 1:ETH/BTC] = July 5, 2017 in Table 1 = 9.68110280
ICO_XTZ = 6,768Recognized_Loss_Amount = $794.18 =
MAX( 0.00001, ((10/ 9.68110280) / 5,187) — 0.000178 ) * 5,187 * $7,242.58
Note that in this case, the “max” part of the equation will choose the formula.
For Reference:
Is the formula fair for 5.(ii)?
Now that we have a formula that let’s see if the formula is fair for everyone who participated in the ICO. The ICO lasted for 2000 Bitcoin blocks from 473623 to 475622 (inclusive). From block 0–399, you got a 20% bonus, 400–799 a 15% bonus, 800–1199 a 10% bonus, 1200–1599 a 5% bonus, 1600–1999 no bonus. Let’s say you put in 1 BTC. What would your claim be?
Let’s see that in a graph.
Something does not seem right. If you participated late you are getting almost twice as much! If you participated in the middle (10% bonus) you are getting the least. Let’s look at the two main “reasons” people have told me why this could be.
Statement 1: A party who put in 1 BTC at the end should get more because others have more “XTZ residual value” due to the bonus received.
Fair assessment: If that were true, we would see block 0–399 participants getting the least and a fair gradient going up to the final block. We do not see that. In fact, if you contributed in the middle, you are getting the least amount!
If you are curios about why, it is the “Max” part of the equation. Basically, for blocks 0–1199, it is using the 0.00001 BTC per XTZ as the value. This means that the someone who invested 1 BTC at block 0 got 6000 XTZ and that is valued at 0.00001 BTC per XTZ. Someone who invested 1 BTC on block 1199 only got 5500 XTZ which is equally valued at 0.00001 BTC per XTZ. The difference of 500 XTZ between the two is worth $36.21 ($36.21 = 500*0.00001*$7242.58 ).
Statement 2: The price of BTC at the time means that the allocation is fair because the price of BTC was more at the end of the fundraiser.
Fair assessment: Defiantly false. The ICO ran for about 13 days, basically, from July 1 to July 13. Let’s look at the price at that time.
It is more visible in graph format:
As we can see, the price of BTC during the blocks is basically inversely proportional to the recognized loss amount. The price of BTC was lowest at the end of the end of the ICO, but that block gets the highest payout! The people who invested in the middle are getting a raw deal!
What would have been fair?
“Fair” is subjective, what one party sees as fair is unfair to another. However, the current structure is a bit irrational and very lopsided. Here are two suggestions that would have been more in line with the questions people have asked me.
Suggestion 1: Create a constant conversion metric for 5.(ii) claimants.
0.000012895 BTC per XTZ allocated. This is the average amount between the five block clusters. The equation is simple. While it does bias those who bought in early, they did get more XTZ.
Suggestion 1 = 0.000012895 * XTZ allocated to you * $7,242.58Suggestion 2: Base it on the BTC you spent, not the XTZ you got.
$504.08 per BTC spent. This is the average amount between the five block clusters. The equation is simple. While it puts everyone on equal ground, it ignores people who had more XTZ.
Suggestion 2 = $504.08 per BTC spentThere are plenty of other suggestions and methods that would have provided better balance, but they are only suggestions, and at this point are irrelevant.
Is It Fair? No, but that is what you are going to get
It is not “totally” fair, but it is what you are getting. At this point the payout structure is a done deal. We can pontificate on what would have been better, but it is not what you are going to get. As a 5.(ii) claimant, this is the formula you will use:
Recognized Loss Amount =
MAX( 0.00001, (ICO_BTC/ICO_XTZ) — 0.000178 ) * ICO_XTZ * $7,242.58Calculating the Recognized Loss Amount for those who do not have access to their funds.
A 5.(iii) claimant is someone does not want to go through KYC, lost their password, or intends to never access their XTZ. They can find their “Recognized Loss Amount” using this formula:
5.(iii) Recognized Loss Amount =
(BTC spent on the ICO) * $7,242.58The amount you get may be significantly less than your Recognized Loss Amount.
What if I lost my password, or object to KYC?
In this case you may want to file under 5.(iii). This will give you a much larger Recognized Loss Amount Claim. Be aware that if you file under 5.(iii) then you are giving up all rights to ever access your XTZ, even if you find your password later! Here are the key things you should know:
Your Recognized Loss Amount is greatest if you file under 5.(iii) but you will never be able to access your funds.
How much greater? In most cases 16x compared to those filing under 5.(ii). The formula for calculating your Recognized Loss Amount is:
Recognized Loss Amount =
(BTC spent on the ICO) * $7,242.58Example: 1 BTC spent on the ICO at any time
Recognized Loss Amount = $7,242.58
1 BTC contributed * $7,242.58
As you can see from the above, there is no variance for when you made your purchase. It is simply the BTC you spent multiplied by $7,242.58. If you used ETH to make your purchase, you will need to convert it to BTC using the ETH/BTC column in Table 1 in the notice.
Recognized Loss Amount =
(ETH spent on the ICO / ETH/BTC in Table 1 on day) * $7,242.58Example: 10 ETH spent on 7/1
Recognized Loss Amount = $8,169.12
( 10 / 8.86580481 ) * $7,242.58
Remember, what you receive may be significantly less than your Recognized Loss Amount.
Again, what you receive may be significantly less than your Recognized Loss Amount.
Try to recover your password before the October 16, 2020 deadline
The Tezos XTZ Recovery group on Telegram is a great resource. If you can recover your password you can still file under 5.(ii) but you will have your XTZ back! People are very bad at creating secure passwords. I have helped plenty of people recover their coins. I will never ask for or need your seed words to help you. As long as you keep your seed words private your funds are protected.
What if I do not submit a claim by October 16, 2020?
If the October 16, 2020 deadline has passed, and you have not filed a claim you will not get any money from the settlement. You are still bound by the lawsuit, and you can still access your XTZ later if you find your password.
What if I file for 5.(iii) and I find my password later on?
You legally give up the rights to your funds when you are a 5.(iii) claimant. If you access your funds, they can come after you for damages. You made an agreement and got paid for it. Do not go back on your word. At some time they may create a governance change that will destroy your funds.
Can I file for 5.(ii) if I do not have my password?
Yes you can. In this case you are betting that you will be able to crack your password later. Be sure that you want to do this. I can provide you with assistance in determining the likelihood that you will be able to recover your password.
Can I file for 5.(ii) if I plan on going through KYC at a later date?
Yes. You are providing your information to the lawsuit anyways, so it may be a good time to go through the KYC process to access your funds. It is a good idea to do this before your claim. This way you can be absolutely sure that you can access your funds and that your password is correct.
How many people have not accessed their funds?
29.7% of ICO accounts have not accessed their funds! This is a surprisingly large amount of people! On September 21, 2020, I wrote a program and ran a deep analysis on the genesis commitments. On the day of my analysis, almost 1/3 of ICO accounts did not perform any action on the blockchain. While there may be other reasons, the two prominent reasons are adversity to KYC and lost passwords. Remember you are able to KYC without knowing your password. If you KYC and you do not perform any other actions (contracts, sending funds, baking,…), then I classify you as “Activated No Activity”. I will discuss this in detail in another article that will focus on predicting the claim rate on this settlement, but for now here is the breakdown:
I will write a separate article where I use this information and a lot of other features to predict how much you will actually get.
Edit Note: Values were updated on September 23, 2020 to reflect an increase of “Activated No Activity” accounts. The previous numbers did not include accounts that did not have access, but received funds from an external source.
Can they really destroy my tokens if I file under 5.(iii)?
Yes. It will need to be voted on by the Tezos community, but this sets up the legal framework to legitimize a governance change that would allow for the destruction of those coins.
If they can make a governance change to destroy coins can they do the same for recovery?
Yes. It is possible to do this, however no action has taken place. There is no indication that there is any support or assistance from the Tezos Foundation on a governance change. Remember while Tezos is decentralized, the foundation is not. The Foundation could provide a lot more assistance to the nearly 1/3 of people who purchased XTZ who are currently not part of the active Tezos blockchain.
Is this my only opportunity to get funds back if I lost my password?
I am not a lawyer, so I cannot say for sure. Trying to recover under the Securities Act may no longer be possible. According to Section 13 of the Securities Act of 1933, all claims under the Act must be brought within one year of the discovery of the violation or within three years after the security involved was first offered to the public. We are beyond that at this point.
There may be other legal mechanisms, but again I am not a lawyer, so I have no idea if there are other avenues.
Given the current level of support, it is also unreasonable to assume that there will be support in the form of a governance change.
Knowing what I know today, your two best options for recovery are filing a claim or trying to recover your password.
What do you mean I may get significantly less than the Recognized Loss Amount I calculated?
If the total of every claim is greater than the settlement fund. You will only get a weighted portion of your Recognized Loss Amount.
After all fees, there is only $16,425,674.03 left in the fund. If there is $69,612,171.62 claimed, then you will only get 23.6% of your Recognized Loss Amount. So if you have a claim for 1 BTC as a 5.(iii) you may only get $1,708.96. If you do a 5.(ii) claim for 6000 XTZ, you may only get $102.54.
I will write an article at a later date that goes into the predicted claim amounts. For now it is completely unknown. When I am done with the analysis I will update this article with the predicted rates.
I am not a lawyer, so please do your own research, and contact a lawyer as needed. I hope that this helps you and gives you some insights. If you have any questions please do not hesitate to contact me.
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