$ASI Token Merge Accounting
How holders of $FET, $AGIX, and $OCEAN should account for the token merge event?
In April 2024, we witnessed the merger of three tokens in the artificial intelligence sector—OCEAN, AGIX, and FET—into a single new token named $ASI (Artificial SuperIntelligence token). How should a holder of any of the three previous tokens account for this? We will try to answer this question today.
Token Merge
The founding teams of Fetch.ai, SingularityNET, and Ocean Protocol identified a critical need for decentralization to effectively compete with centralized artificial intelligence offerings. They aimed to ensure that “to ensure everyone can freely manage their data and AI, honoring each person’s right to independence and control”. As a result, they proposed merging the three tokens (FET, AGIX, OCEAN) into the new $ASI token, governed by the Artificial Superintelligence Alliance.
On April 2, 2024, all three companies—Fetch.ai, SingularityNET, and Ocean Protocol—filed governance proposals with their respective communities. On April 16, each community approved the proposals by a simple majority. The token merge process began by forming a governing council of the Alliance, consisting of
Humayun Sheikh, Fetch.ai,
Ben Goertzel, SingularityNET,
Trent McConaghy, Ocean Protocol, and
Bruce Pon, Ocean Protocol.
The following mechanism of exchange of three tokens was formulated:
“…the token merger will proceed as follows:
$FET becomes $ASI with a total supply of 2.63055 billion tokens
$AGIX tokens migrate to $ASI, at a conversion rate of 0.433350 to 1
$OCEAN tokens migrate to $ASI, at a conversion rate of 0.433226 to 1”
These conversion rates were determined based on the 15-day average market prices and the total supply of each token, according to a snapshot taken on March 25, 2024.
“Starting with $FET as the base token of the Alliance, the $FET token will be renamed $ASI, and an additional 1.48 Billion tokens will be minted, with 867 million $ASI allocated to $AGIX holders and 611 million $ASI allocated to $OCEAN token holders. The total supply of $ASI tokens will be 2.63 Billion tokens.”
As per information published on the website of the newly created Alliance:
“…Once made available, this swap mechanism will be available indefinitely to allow long-term stakers to exchange their $OCEAN and $AGIX for $ASI tokens when their tokens unlock, without any FX or exchange risk.
DEXes and Pool Liquidity
We encourage liquidity providers to remove any $OCEAN and $AGIX related liquidity from DEXs at their convenience. Users may experience higher slippage in pools with lower liquidity. We recommend that you size your swap according to the available liquidity to minimize slippage.
Once a threshold of 95% of the $OCEAN and $AGIX token supply is converted to $ASI, Ocean Protocol and SingularityNET Foundations will remove any pool liquidity that we have provisioned.”
Price Impact
Unlike FET, AGIX, and OCEAN token holders will not automatically convert their tokens to ASI. Holders of AGIX and OCEAN will need to initiate transactions to convert tokens stored in cold storage, staked, or provided as liquidity. Consequently, they will incur additional costs in the form of transaction fees. FET holders, however, will not face such costs, as their existing tokens will simply be renamed to $ASI without requiring a physical conversion. This gives FET holders a financial advantage, as reflected in the subsequent price declines of AGIX and OCEAN tokens relative to FET, compared to the conversion rates noted above. You can see the current values of each token on the chart below:
Accounting Impact
One possible impact of the merger that may require attention, is whether a legally enforceable right to convert tokens was granted to existing holders. This legal right could potentially lead to an embedded feature of the host token holder agreement.
Illustrative Example
As of May 7, 2024, the following were the prices of each token according to Coingecko at 6:20 PM EST:
FET $2.35 / 0.00003739 BTC / 0.0007746 ETH
AGIX $0.9775 / 0.00001555 BTC / 0.0003221 ETH
OCEAN $0.9801 / 0.00001559 BTC / 0.0003229 ETH
We summarized the effect of the fixed conversion rate on the fair value of the merged tokens as follows:
Holders of 1,000 AGIX tokens can either sell these tokens on the active market for $977.50 or convert them into 433.35 ASI tokens, which have a fair value of $1,018.37. This represents an increase in fair value of $40.87 or 4.2%, which, however, will likely be fully offset by the incremental transaction fees required for this conversion.
Conversion Right
You may ask, whether it means that we need to bifurcate an embedded derivative. Personally, I believe the conversion feature of the tokens may not always be enforceable because the Artificial Superintelligence Alliance has no legal obligation to continue the conversion. The community may vote to stop the conversion process at a future date, and little can be done to protect the rights of the holders at that time (please let me know in the comments whether you agree or disagree with this conclusion).