Therefore, for our template to work for more early-stage projects, we have decided to go with a discount-based model. Warrant Schedule a call and we'll discuss your equity and see how we can help. According to the test, an investment contract exists if there is an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.. In this guide, well be focusing on fundraising for Web3 projects. www.sec.gov But this promise for future tokens has run afoul of the Securities and Exchange Commission (SEC). SAFTs & Token Warrants What They Are and How They Work Delivery of Tokens. Steve Glaveski is the founder of community-owned web3 accelerator and venture fund, Metarise, founder of innovation accelerator Collective Campus, and author of Time Rich: Do Your Best Work, Live Your Best Life.He hosts the Future Squared and Metarise podcasts, and frequently contributes to Harvard Business Review. Scenario 3: You have already issued a token, in which case, the best route may be a private token sale agreement (TSA). Select one of the following two alternatives: Cash Exercise. And if you plan to give a small amount of tokens to the company, it may be better to use the company allocation methodology (so that investors get fewer tokens for the same amount of capital). 4. during the twelve months following the end-date of the period described in the immediately preceding clause "(c)", 1/12th of 25% of the total number of the Tokens of Holder shall become unlocked on each monthly anniversary of such end-date. LayerZero Labs issued a letter saying it has come to an agreement with FTX, FTX Ventures and Alameda for a complete equity buyout. a clearly defined date for issuing tokens, or a specified event that will be a trigger in the SAFT for the issuance of tokens and their transfer to investors. The number of tokens issued to the holder upon exercise of the warrant is typically commensurate with the holders investment stake in the company, though it may also be affected by the total allocation of tokens for investors. For your tokens, have some baseline or early assumption of future token allocations by looking at comparable benchmarks from sources like Cooopahtroopas and Lauren Stephanians tokenomics analysis, Messaris company profile pages, and other recent token launches (Goldfinch, Braintrust, dYdX). Use valuation benchmarks to get a sense of what valuation range makes sense. If founders have registered the DevLab outside of the US (i.e. It gives investors the right to purchase a portion of tokens during the initial token sale, as well as fixes the price of the tokens. Warrants "_ Common Stock _" means the Company's Common Stock, par value [$0.00001] per share. This publication is not a substitute for such professional advice or services nor should it be used as a basis for any decision or action that may affect your business or interests. During the period beginning on the date of the Token Launch and ending on the four-year anniversary of such date (the "_ Lockup Period "), Holder shall not, without the prior written consent of the Company, Transfer any Tokens except to the extent such Tokens have become unlocked, as follows: Both Telegram and Kik were found to fail the, which determines whether or not a transaction qualifies as an investment contract and would therefore be deemed a security and subject to disclosure and registration requirements under the. This eradicates the need for the agreement to be validated by a lawyer. For example, if youre raising at $10M equity valuation for just the company, and you have tokens involved, you may also value the token network at $20M based on comparable companies. The token warrant provides investors with a right to purchase tokens in the future at a predetermined price or with a predetermined discount, while also specifying when the Token SPV will be formed. This article covers all there is to know about token warrants and includes a free token warrant template created by the team at Legal Nodes. Drafting and negotiating on token side letters can take multiple days and weeks, which could delay closing a critical investment deal. Also, the investor can claim the Token SPV shares to consolidate their control rights. Similarly, a SAFT is an agreement in which an investor pays money upfront for the right to own a certain number of tokens once the network is completed., SAFTs act somewhat like token warrants, in the sense that both entitle the holder to future tokens. The token side letter or warrant represents a right, but not the obligation, to receive or purchase future tokens. Lets explore these in the next chapters of this guide.. and signed agreements in their personal portals. An investor with a 10% ownership stake would be entitled to purchase only 2% of the total tokens (10% x 20% = 2%)., Token warrants are often mentioned alongside another token-based equity mechanism known as a SAFT, or Simple Agreement for Future Tokens., The structure of a SAFT is based on a similar equity-based mechanism called a SAFE (Simple Agreement for Future Equity). Three main types of managing the pro-rata rights of the token supply: Each of the pro-rata right methods has its advantages and disadvantages for the company or the investors. "_ Total Network Tokens _" means the total number of Tokens ever to be issued on (i) the Protocol, or (ii) any Token Issuer's network or protocol. CENTUS issues WARRANT tokens with different terms: from 1 month to a year. "_ Insider _" means any current or former investors, stockholders, Founders, employees, officers, directors and advisors or other consultants of the Company and any Token Issuer (if other than the Company). In summary, if a DevLab is registered in the US, then it's best to use a token warrant along with SAFE. One increasingly popular way to do this is via the issuance of token warrants.. The number of tokens that they will be able to buy with the discounted price is then calculated pro-rata to the equity ownership of the investor. As with any legal agreement, the token warrant comprises a number of terms and conditions. The mechanics surrounding early-stage investment in company equity is a well-worn pursuit, honed over decades since HBS professor George Doriot raised a $3.5 million fund to invest in technology companies back in 1946. Notwithstanding the foregoing, it shall not be deemed a " Transfer _" of Tokens for a Holder to stake Tokens for the Holder's own account pursuant to the proof-of-stake protocol included in the Protocol. Method of Exercise. A SAFT, on the other hand, essentially represents a promise on the companys part to deliver future tokens to the investor at a later date., Many companies hoped the SAFT framework would serve as a means to issue utility tokens to investors without having to register them as securities. A SAFT (a simple agreement for future tokens) is a document that is usually signed with a startup that has already decided on the type of tokens it plans to issue, and already has detailed the tokenomics, and created a token distribution plan (including prices and stages of distribution) and a White Paper (which describes all of the above). But, as with all things crypto (and equity, for that matter), you wont want to dive in blindly. Agreement One key distinction is that a token warrant represents a right, not an obligation, to purchase future tokens. WebToken warrants are often mentioned alongside another token-based equity mechanism known as a SAFT, or Simple Agreement for Future Tokens . Consider the following three points when comparing the registration of DevLabs in the US vs outside the US. You can speak to the team at Legal Nodes to find out more about how we can help you use these documents. It is, however, rare for the tokenomics to be ready at such an early stage. Its no longer enough to understand the ins and outs of stock options, stock warrants, and other mechanisms of traditional equity. This checklist provides key information for those outside the legal field but we, of course, strongly advise engaging a lawyer before entering into any binding agreements. information about vesting, lock-ups and other encumbrances on the investor's tokens, which are important for the successful operation of the project's tokenomics. We refer to that certain Warrant to Purchase Tokens of the Company issued on _________, 2022 (the "Warrant"). as well as tokens. Token warrants arent the only way to issue token-based equity, but they may come with some regulatory and practical advantages. The key differences between the two are that the token side letter gives founders more flexibility in terms of whether they will issue tokens or not and what the token price would be. Otherwise, the United States is likely to face a brain drain at a time when it can ill afford it. Token Thank you! Holder may update such network address by providing written notice in accordance with Section 7.5; provided, that the Company need not consider such updated network address to be valid until the Company has confirmed receipt of such notice and has approved such updated network address. WebThis particular warrant agreement allows Hedge Fund Mast Hill to buy bulk shares at 0.175, which is well above the current stock price. In this case, the best option may be to sign a simple agreement for future tokens (SAFT).. |, Name: ____________________________(please print or type full name) |, Name:(please print or type full name) | Token Warrants Investors have one alternative that, as of May 2022, is growing in popularity amongst web3 venture funds the token warrant. Ideally you will have thought about and planned for the following aspects of your tokens lifecycle. In the event that legal counsel to the Company advises the Company that it is necessary or advisable for regulatory reasons, Holder shall also be required to deliver, as a condition to exercise, an accredited investor verification letter from a qualified third party verifying that Holder is an "accredited investor" within the meaning of Rule 501 of the Securities Act (as defined above). All Rights Reserved. These two documents are used in pre-seed Web3 fundraising and share a number of similarities. Legal Nodes LTD is not an attorney or a law firm and does not provide legal advice. 1. This may result in the investor receiving a percentage of the total token allocation thats lower than their equity ownership percentage. If you plan to allocate a large percentage of the tokens to the company, it may be better to use the conversion rate methodology. Please, The mechanics surrounding early-stage investment in company equity is a well-worn pursuit, honed over decades since HBS professor. Learn more at our website at liquifi.finance. Jonathan Chan is a partner in the corporate practice at Wilson Sonsini Goodrich & Rosati. A SAFT broadly follows the same principles as a SAFE (Simple Agreement for Future Equity) or, our SAFE equivalent, a The token side letter represents the option to receive future tokens, alongside the equity, of these early-stage crypto companies. American companies should be very careful about how they participate in the distribution and sale of tokens. Investors then buy tokens directly from the Token SPV, which is the actual issuer and has the right to sell them under a permit received from the regulator. 2. during the twelve months following the Cliff, 1/12th of 25% of the total number of the Tokens of Holder shall become unlocked on each monthly anniversary of the Cliff; Rarely used anymore. |, Title:(please print or type full title) | | "_ Parent _" shall mean any entity (other than the Company) in an unbroken chain of entities ending with the Company, if each of the entities other than the Company owns securities possessing 50.1% or more of the total combined voting power of all classes of securities in one of the other entities in such chain. You will have: To learn more about tokenomics and how it influences the legal structure of your Web3 project, read more in our dedicated guide on tokenomics. As a result, this process completely excludes the American company (the DevLab) from the token distribution process. All the information in this guide is for educational purposes only. Restrictions on Tokens. Payment for Holder's Portion of Tokens upon each exercise may be made by (a) a check payable to the Company's order, (b) wire transfer of funds to the Company, (c) cancellation of indebtedness of the Company to Holder, (d) by net exercise as provided in Section 2.5 hereof, (e) any other method of payment approved by the Company, or (f) any combination of the foregoing. Please issue and deliver the Warrant Tokens to Holder at the network address set forth below. In connection with each exercise pursuant to this Section 2, the Holder will provide to the Company with a network address to allocate Holder's Tokens to upon such exercise (or otherwise upon the applicable date of delivery, as described herein), and the Company shall deliver, or cause to be delivered, such Tokens to such network address, subject to the requirements of Section 3.2, and delivery and release pursuant thereto. SEC.gov | HOME Agreement The token warrant, however, requires a discount or a discounted price as one of its substantive terms to function. Equity term sheets are relatively standard, and today, when funds invest in an early-stage company, they typically use an instrument such as a convertible or a, (secure agreement for future equity) the latter popularized by. Because SAFTs are considered SAFTs & Token Warrants What They Are and How They Work This is not legal advice. Copyright 2023 Prolific Labs Incorporated. Remember! However, when the token warrant is executed during the initial token sale, the investors will be making a transaction with the Token SPV directly, at the rate of the previously determined price or discount. A SAFT is a security issued for the eventual transfer of tokens from web3 startups to investors. On the terms and conditions set forth in the Warrant, the undersigned Holder elects to convert its Portion of the Warrant into Tokens by net exercise election pursuant to Section 2.5 of the Warrant. When we say tokens, were referring broadly to blockchain-based digital assets. Anand Iyer | asi.eth on Twitter: "1/ Token Warrants have become If you want your Web3 fundraising to go smoothly and just the way you envision it, Legal Nodes would happily help you customise the template to address your specific fundraising needs.. Agreement That price would, naturally, be lower than the standard price during the token generation event. Finally, for those who are considering launching a DAO, well look at all you need to know about using token sale agreements. Upon each exercise of this Warrant and subject to the restrictions provided in Section 3.2 hereof, Holder may elect to make such exercise without the payment by Holder of any additional consideration, by submitting a copy of the exercise notice attached hereto as Exhibit 1 with the net exercise election selected, duly executed by Holder, for the number of Tokens that is obtained under the following formula: where X = the number of Tokens to be issued to Holder pursuant to a net exercise of this Warrant effected pursuant to this Section 2.5. As for a legal structure, in most cases, founders will have only registered a product development company (DevLab), most likely in one of the IT/IP-friendly countries currently available, like the US state of Delaware, the UK, UAE, Singapore, Estonia and other countries. Chief among these mechanisms are ICOs (Initial Coin Offerings), SAFTs (Simple Agreements for Future Tokens) and token warrants, the last of which well explore in this guide. You should not construe any such information as legal, tax, investment, trading, financial, or other advice., If youre considering fundraising options for your Web3 projects, youll most likely find yourself in one of the three following, rather common, scenarios:, Scenario 1: Youre at the beginning of developing your project and havent yet registered a token company (i.e. Oops! The number of tokens that will be issued is commensurate with the This is possible thanks to the token warrant assignment by the DevLab to the Token SPV at the time it is created or before the token generation event. SEFToken Inc., started the new year by announcing a new form of tokenized instrument a covered warrant. A covered warrant is an instrument, similar to an option, that gives the holder the right to buy or sell the underlying security at a certain price, up until a predetermined date. These warrants are often detachable, meaning that they can be separated from the tokens and sold on the secondary markets before expiration. Token Warrants WebThis Token Purchase Agreement (this Agreement ) contains the terms and conditions that govern your purchase of the INX Tokens, an ERC20 blockchain asset that is programmed "_ Protocol _" means software or code developed by the Token Issuer operating through a peer to peer network of computers operating the same software or code and holding an identical copy of a ledger of transactions, to which any Token relates. Heres why: in the case of the token warrant, its signatory is NOT responsible for the conversion event and thus does not sell tokens. Legal Due Diligence of a Web3 startup A Web3 startup needs to prepare several legal documents and materials for its project to negotiate with venture capital firms (VCs) successfully. When it comes to fundraising, the big question often is which Web3 fundraising document should I use?. The Company will promptly respond in writing to an inquiry by Holder as to the then current fair market value of one Token. 12/ Token warrants are a mechanism for equity holders to exercise the warrant to get tokens. In such cases, classic corporate equity investment documents are also signed in addition to the token sale agreement, namely, the subscription (share purchase) agreement and the shareholders agreement. 02/16: Freyr Battery, Finnish Minerals Group plan cathode material JV Plain-Vanilla-Warrants (Put) Underlying: FREYR BATTERY: Issuer: Citi: Any Tokens issued hereunder will be subject to such restrictions on transferability as required by applicable laws and regulations as determined by the Company's Board of Directors and as set forth in Section 3.3 hereto; provided, however, that such restrictions shall be no more stringent than those applicable to Tokens owned by or allocated to any Insider and shall be adjusted, as applicable, to accelerate or otherwise align with any such less stringent restrictions. Check out sources like Dovemetrics and fundraising announcements on Crunchbase and Twitter to get this data. Jonathan Chan | Wilson Sonsini Understand how much negotiating leverage you have when fundraising, and whether you need founder-friendly terms or investor-preferred terms for the token side letter to close the deal. These equity types generally allow investors in web3 startups to receive a certain number of tokens commensurate with the size of their investment.. Investors have a preferred method based on their own experiences, risk profile, and projections about the companys future token allocations. A usable or near finalized (i.e., not just a draft) White Paper with detailed tokenomics, a ready-made Token SPV, on whose behalf the SAFT will be signed, and which, based on the results of the conversion of the SAFT, will issue tokens to the investor. What Is a Simple Agreement for Future Tokens (SAFT)? If it is not ready yet and depending on where the DevLab is registered, then, in addition to standard equity instruments, the DevLab can also sign a token warrant in the U.S. or can sign either a token warrant and a token side letter if the DevLab is a non-U.S. entity., When the tokenomics is finalized, the Token SPV signs either a SAFT or a token sale agreement, where the choice depends on whether the tokens have already been issued before.. Ultimately, the decision will come down to a few factors, which we will explore further on in this guide., Scenario 2: You have finalized your White Paper, registered a Token SPV company, and know when you plan to issue tokens. One way a company can avoid this out-of-control minting of new tokens is by setting aside a certain percentage of its total token allocation for investors. "_ Insider Reserved Percentage _" means the percentage of the Total Network Tokens, in the aggregate, reserved for issuance to Insiders in connection with the applicable Token Launch. Comparatively, the current price is 215.40% higher than the all-time low price. SAFE (Simple Agreement for Future Equity), track both traditional equity and tokens in the same place. Legal Nodes LTD is not an attorney or a law firm and does not provide legal advice. Many web3 companies develop their own crypto tokens as part of a blockchain-based project, and these companies can theoretically mint as many tokens as they want. Automatic vesting ensures that tokens are seamlessly moved to connected wallet addresses upon vesting, and token holders can access advanced views that help them track the projected future value of their tokens. Web[Meta] Sticky Comment. Restrictions on Exercise. Nestor is a Co-founder & Head of Web3 Legal at Legal Nodes. Warrant (General Form) | Practical Law SEC.gov | HOME As the token warrant is signed together with the SAFE, the prices set out in the SAFE includes the value of the token warrant, which is also called a token purchase right. "_ SAFE _" shall mean any Simple Agreement for Future Equity or substantially similar agreement entered into by the Company. A SAFE is a sort of investment contract that an early-stage startup makes with an investor, in which the investor agrees to pay money now and receive shares of company stock later. Legal Nodes does not assume responsibility for the contents of any templates or documents in any form that are provided on the Legal Nodes website. Warrant SAFTs (secure agreement for future tokens) is one such mechanism. FTX TOKEN. Similar to the SAFE, under the SAFT, an investor, upon occurrence of a There are a couple of reasons why a SAFT is usually not signed before these steps have taken place. token-warrant/template.md at main lexDAO/token You also dont have your tokenomics established yet either. Consult with your legal counsel on whether the SAFT or SAFTE is appropriate for your fundraising. This Warrant shall be deemed to have been exercised with respect to Holder immediately prior to the close of business on the date that it is exercised pursuant to the terms of Section 2 above by Holder, and the Person entitled to receive the Tokens issuable upon such exercise shall be treated for all purposes as the holder of record of such Tokens as of the close of business on such date. "_ Deemed __ Liquidation Event " has the meaning set forth for such term in the Company's Amended and Restated Certificate of Incorporation, as amended from time to time (the " Certificate _"). WebWe are engaging several investors who have asked for an offer and agreement for fundraising for our web3 product in development. SAFTE (Simple Agreement for Future Tokens or Equity) similar to SAFT, but gives investors equity with the optionality of converting to tokens. If Web3 founders plan to control the emission of tokens and the process of token distribution in a centralized way, and do not plan to launch a DAO to decentralize the governance of their project, then at later stages of investment, investors may start requesting the control rights over the Token SPV. VLOs analyze all the legal tasks needed to structure the fundraising, prepare cost estimates and then select the best legal providers from the Legal Nodes Network for each task. The model documents: Reduce transaction costs and time Reflect, guide, and establish industry norms In some cases, token warrants may even be used in conjunction with SAFEs or other more traditional equity mechanisms. Instead, our Virtual Legal Officers (VLOs) source and manage all the different legal specialists. is the founder of community-owned web3 accelerator and venture fund, Time Rich: Do Your Best Work, Live Your Best Life. As a part of this process, investors are also pricing the equity valuation in a scenario where there is no token launch to make sure that their investment is protected. For example, in the case of Maple, below, a seed investor who owns 10% of Maples equity would receive 2.6% of its tokens (10% x 26%). Its not uncommon for the cap table of a web3 startup to include both traditional equity (RSAs, stock options, etc.) The Token Purchase Agreement is for when tokens are just about to be issued or are already in circulation, rather than a SeedSAFT which is an advance purchase of tokens that will issued at some time in the future. What Is a Token Warrant? A Guide for Web3 Startups | Pulley Fortunately, Pulley makes it easy to track both traditional equity and tokens in the same place., With Pulley, you can create a single source of truth that allows you to issue, track, and record all token agreements and token sales the same way you do with your equity agreements. It does not take into account the specifics of all national frameworks and infrastructure of all existing blockchain protocols. When using our token warrant template, remember that it is jurisdiction- and protocol-agnostic. Model Legal Documents But in order for the tokens to maintain a relatively healthy and stable value, their developers must pay attention to tokenomics principles such as supply-and-demand and providing ongoing incentives to holders. LiquiFi provides examples of Token Side Letters with the most commonly used token pro-rata rights. If an early investor exercises a token warrant that results in the minting of a huge number of new tokens (and their subsequent flooding of the marketplace), the immediate supply may outstrip the demand and devalue the token. Depending on where the DevLab is incorporated, the following scenarios will unfold:. Net Exercise Election. ETF. Well analyze all the different documents and explore when they may be most suitable to use. You can view example token side letters with LiquiFi here. This could be done as soon as the Token SPV is incorporated. WebThe lowest price paid for Lotto Arbitrum (LOTTO) is $0.064796044161 , which was recorded on Mar 03, 2023 (13 hours). A tag already exists with the provided branch name. Token Warrants Investors have one alternative that, as of May 2022, is growing in popularity amongst web3 venture funds the token warrant. A Token company (also referred to as a Token SPV) is a company within a project's legal wrapper that is responsible for the initial token release and distribution. This allows investors to receive company shares as well as tokens, and its becoming an increasingly popular way to invest in web3 startups., If you dont plan ahead, you could quickly run into the complication of using separate systems to manage equity and tokens. - 10X jurisdictions. The fully diluted supply and conversion rate method gives investors a fixed token supply guarantee based on their equity ownership, while the company allocation method is subject to future token allocation decisions by the company. In cases where the investor expects to get not only the future tokens, but also the shares of the company, founders should consider using a simple agreement for future tokens and equity (SAFTE) instead of a SAFT. In terms of issuing tokens, the way they function is fundamentally different. SAFT (Simple Agreement for Future Tokens) investing capital for the right to purchase tokens or % of token supply at a specified price or discount rate. In exercising its Portion of the Warrant, the undersigned Holder hereby confirms and acknowledges that the representations and warranties set forth in Section 6 of the Warrant as they apply to the undersigned Holder are true and complete in all respects as of the date on which Holder exercises this instrument.