In order for the listed trading price of IHF (price on exchange) to track the NAV price per token (the price determined by the Fund’s managers), there needs to be some form of value distribution to token holders that ties directly to the intrinsic value of the Fund. This is done by implementing the token buy-and-burn protocol. Much like a share repurchase in traditional markets, the Hyperion fund will place buy orders on exchange below, and up to, the prevailing NAV price per token.
This method distributes fair value back to token holders wishing to liquidate their holdings. The buy-and-burn activity will inextricably tie the IHF token value to the Net Asset Value per token that the Invictus Capital team calculates on a quarterly basis.
In the scenario where the IHF token is trading at a discount to NAV at the time the buy-and-burn is implemented, a number of IHF tokens in the order book will be purchased below NAV until the prevailing spot price reaches the NAV price per token. In this case, the buy-and-burn will result in an increased NAV price per token for remaining token holders, subsequent to the purchased tokens being removed from the supply.
The net effect on the Hyperion Fund is that the overall NAV of the Fund will drop in USD terms, however the price per token will remain unchanged due to the token supply dropping alongside the NAV. This allows for equal treatment to token holders who wish to realize their investment, and those who wish to continue holding over a longer period.
The original fund mandate states that the IHF token buy-and-burn protocol will only be implemented once the net asset value of the fund reaches $30 million USD. It is left to the discretion of fund management, however, as to whether it is beneficial to undertake a token buyback before this milestone is reached. Due to the price of IHF tokens trading below NAV on exchanges, it has been deemed beneficial to do so as it translates to significant value accruing to remaining token holders:
The first buy-and-burn process was completed in Q1-20 as a test of the effectiveness of this protocol. This resulted in the purchase of 413,843 IHF tokens. The NAV value of these tokens at the time of purchase was $45,346.00, therefore $20,346.00 worth of additional value was captured by the fund. The transaction is viewable here and the circulating supply has subsequently been updated
In the Q1-20 Report, Invictus Capital announced the second buy-and-burn for the Hyperion Fund. Thanks to the rapid success of Quantfury, the Hyperion Fund received a dividend to the value of $1,249,924. A $100,000 buy-and-burn was conducted after receiving Q1s dividend which resulted in the purchase of 1,102,680 IHF tokens. The accounting value of these tokens at the time of purchase was $182,215.93, therefore $82,215.93 worth of additional value was captured by the fund. The transaction is viewable here and the circulating supply has subsequently been updated
A larger sum to the value of $200,000 was allocated to buy-and-burn activity over Q3-20
During Q3-20, a $200,000 buy-and-burn was conducted, which resulted in the purchase of 1,393,968.81 IHF tokens. The accounting value of these tokens at the time of purchase was $246,010.52, therefore $46,010.52 worth of additional value was captured by the fund and returned to remaining token holders in the form of IHF price appreciation. The burn transaction is viewable here and the circulating supply has subsequently been updated
Although no formal announcement was made in Q4 regarding token buy-and-burn activity, in keeping with a commitment to supporting the token price of IHF on secondary markets, Invictus Capital bought an additional 279,426 tokens off the open market at an average price of $0.1202 in an effort to both provide price support and distribute value back to long term token holders. The accounting value of these tokens at the time of purchase was $51,644, therefore $18,113 worth of additional value was captured by the fund and returned to remaining token holders in the form of IHF price appreciation. The burn transaction is viewable here and the circulating supply has subsequently been updated
A total of $268,531 was used in 2020 to conduct buy-and-burns which resulted in a total of 3,189,917 tokens being purchased and then burnt, reducing the total circulating supply. Due to these tokens being purchased below the prevailing token NAV, an additional $166,685 worth of value was captured for long term token holders
The first quarter of 2021 did not see Hyperion conduct any further buy-and-burns, and with little liquidity in the fund Invictus does not foresee any taking place over the second quarter of that year. The IHF token price has traded close to, or in some cases above the token NAV throughout the quarter. Investors looking to exit their positions have therefore had great opportunities to realize a fair value for their investment, which is ultimately the purpose of the buy-and-burn mechanism