SOMA Token Deep Dive: Dividends
The SOMA token offers holders unique benefits that are only available through bringing the technical advantages of blockchain to traditional finance on the SOMA platform. As part of a series providing a deep dive into the SOMA token, this article will look at dividends – including how they have functioned historically, and how SOMA.finance is incorporating them into the SOMA token to make it a unique digital asset in the cryptocurrency ecosystem.
- Dividends are paid to equity investors for their investment in a company.
- Dividends can be paid on either preferred equity or common equity.
- The SOMA token will be a security interest of SOMA.finance in the form of a preferred equity position.
- Dividend payments based on the net profit generated by SOMA.finance can be retrieved by the user directly to their digital wallets.
As SOMA.finance sets out to help bridge the realms of traditional finance (TradFi) and decentralized finance (DeFi), the main goal of the platform is to bring the benefits of both worlds onto one simple-to-use, blockchain-based, secure platform.
A central piece of our plans in achieving this goal is the SOMA token, which will be the first token to launch on our token launchpad, SOMA Starter. The SOMA token offers holders unique benefits that are only available through bringing the technical advantages of blockchain to traditional finance on the SOMA platform.
While the SOMA token may function in a manner similar to a platform token, it will also be an actual security representing a position in the corporate structure. As preferred equity, it sits on the SOMA.finance balance sheet in between debt and the common equity.
As part of a series providing a deep dive into the SOMA token, this article will look at dividends – including how they have functioned historically, and how SOMA.finance is incorporating them into the SOMA token to make it a unique digital asset in the cryptocurrency ecosystem.
Dividends: TradFi Style
In the world of traditional finance, the most often used dividend is the distribution of a company’s earnings to its common equity shareholders at a predetermined amount that is typically decided by the company’s board of directors.
Said differently, a dividend is a payment made to the shareholders as a return for their investment in a company's equity in the form of a percentage of the company’s net profit.
Dividends come in many different forms and can be set in either dollar or percentage amounts. Dividends can be paid on either common or preferred equity and can be in cash or in the form of additional shares of the company.
Companies elect to issue dividends for a variety of reasons, including as a reward for shareholders, as a way to demonstrate the strength of the company, or as a way to attract new investors and increase the stock price.
The most common form of dividends is a declared common stock cash dividend. In this scenario, often found among established, mature companies, the board of directors of the company will declare a dividend in a dollar amount. If the board declares a $5.00 dividend it will often be paid out in quarterly installments so that each holder of a share of common stock will receive $1.25 per share owned every quarter of that year. The dividend yield of the stock is determined by dividing the annual dividend amount by the current price of the stock. So if the stock were trading at $200 per share, in this example, the dividend yield of this stock would be 2.5%.
Another typical type of dividend might be a standard preferred dividend. Preferred dividends are often set as a percentage of the purchase price of the share itself. For example, if an investor bought a share of 8% Series B Preferred for $100, that would mean they would be getting a preferred dividend of $8.00 per year, regardless of the subsequent price of the share in later trading. Typically, these amounts are set so regardless of the performance of the company the payout is the same.
Knowing the dividend yield of a stock is an important investment tool and a critical differentiation between a “growth” stock that might be a younger company that is actively growing its business and using its cash in that effort and an “income” stock that might be a more mature business that is paying out profits from operations to its owners (i.e its stockholders).
All investors should consult with investment professionals to receive advice on how to properly balance their portfolio based on their individual needs and goals, whether that be long-term value appreciation or short-term income generation, or, most likely a balance of the two.
It’s uncommon for the average investor to actually hold the physical stock certificates for the shares that they own, so dividend payments are typically processed through brokerage houses, which limits a shareholder's access to those assets and dividend payments to normal business hours and T+2 settlement requirements.
Dividends: SOMA Style
The SOMA token is intended to be the centerpiece of SOMA.finance and will grant its holders rights of ownership of a security interest in SOMA.finance in the form of a preferred equity position.
Since SOMA aims to be a growing company that will need to reinvest funds in that growth, but also wants to provide its investors with income, neither a traditional common cash dividend nor a set percentage preferred dividend worked well for its current situation. As an approach to recognizing both the need for growth and the need for income, the SOMA board of directors has settled on a less typical format for the SOMA token. The token will be a participating preferred stock.
For holding the token, a portion of the profits generated by SOMA.finance will be distributed to SOMA token holders on a predetermined basis. The plan is to offer SOMA token holders up to 10% of the profits generated by SOMA.finance, but this figure is subject to final verification, including board approval, and could change. The definition of “profits” is also being finalized, whether this will be defined as “net income” or “cash flow” or, most likely, some metric in between, will be announced prior to the public sale of the token.
Where SOMA dividends differ from TradFi is the smart contract capabilities of the SOMA token, which is an ERC-20 standard token that, upon application to the digital claim contract, will be issued directly into a holder's digital wallet. This means that you are always in complete control of your assets, and there is no middleman between you and your SOMA tokens. It also means that dividend payments will be issued directly to your digital wallet, paid out in the USD Coin (USDC) stablecoin through the digital claim contract.
The open nature of blockchain means that all dividend payments and other transactions can be tracked on block explorers, and the fact that SOMA.finance operates as a decentralized exchange (DEX) means that all activity on the platform can be observed on the blockchain, which allows anyone to determine the amount of revenue generated.
Additional information will be provided by the SOMA.finance team related to operating expenses and any other business costs, which allows SOMA token holders to verify that they are receiving the dividend payments they are owed.
Unique in DeFi
As security offering, the SOMA token is also a unique asset within the DeFi space as the majority of projects have launched outside the legal purview of established financial regulations. Because the SOMA token is being sold as an actual security in compliance with the securities laws of the United States, dividends can be legally paid to investors.
A portion of the SOMA token dividend payment comes from fees generated on the SOMA.finance DEX, which sets SOMA apart from some of the largest DEXes in the ecosystem – which have yet to share revenue with their token holders since doing so would be a violation of securities laws.
Other portions of the dividend payment will come from activities like token launches and lending custodied assets. These income streams, and any “regulated” activity, will come through the SOMA partnership with Tritaurian Capital, Incorporated, a registered broker-dealer.
No information contained in the presentation should be construed as an offer to sell, a distribution, or a solicitation of an offer to buy any securities. SOMA Finance, LLC d/b/a SOMA.finance (“SOMA.finance”) is not the issuing entity, a registered broker-dealer, or crowdfunding portal, and is not acting in a regulated capacity in any way in connection with the proposed issuance of any securities referenced in this article. SOMA.finance has partnered with Tritaurian Capital, Incorporated (“TTC”), a registered Broker-Dealer and member of FINRA and SIPC, located at 430 Park Avenue, 19th Floor, New York, New York 10022, and any securities referenced in this presentation will be offered through TTC. You can view the TTC BrokerCheck record at www.brokercheck.finra.org and reach their website at www.tritauriancapital.com. Please review information provided there on TTC’s Regulation BI disclosures. Offering of securities are only made through the private placement memorandum and associated offering documents for each offering. These private placement memorandums contain specific details of fees paid to both SOMA.finance and TTC and should be reviewed in detail before investing. No communication by SOMA.finance, TTC, or any of their respective affiliates through this presentation or any other medium, should be construed or is intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice.