How US persons can get the tokens they paid for, without putting the Devs at risk of breaking the Law. And the Devs get their promised ($$) too.
My idea may offer citizens of countries with restrictive securities laws the ability to acquire 'security' tokens, without putting the Devs at risk of breaking the law. And the Devs get their $$ too.
With the newest notice from the SEC, a legally robust and compliant
token sale should be on any prudent developer’s mind.
Developers take on serious risk when they allow certain citizens
to participate in their token sales. Sidewinder’s main goal is to
benefit and lower the risk for all parties involved in a token sale.
If the token is seen as a security by the SEC, the sale and offer of
the token to US persons is illegal, unless the token is registered or
exempted under private placement guidelines (reg D).
The thing is, these requirements can be limiting for a start-up.
Are there any other ways for an issuer to avoid breaking federal
(or state) securities law when dealing with token sales & US persons?
How can it be legally possible for a Developer to stack up a huge war
chest, while not having to register anything with the SEC, if the
US person also spends money and gets the tokens in the end?
The Sidewinder Loophole takes a bite out of these questions (heh)
and may have found a way for:
Developers to get the capital they need
US persons to get the tokens they ‘paid’ for
and a new profit avenue for certain investors!
The creation of a new token, vouchercoin (VC)
Introducing, the Sidewinder Loophole:
the TL;DR version of my idea is this:
US persons pledge an ether principal deposit and profit fee into a smart contract for a certain token sale that they like. A Non-US person deposits vouchercoin into the DAO and also agrees to smart contract stipulations. The Developers of the token sale create a 'donation incentive fund' for their new token, basically stating that they will donate X amount of tokens to US persons if they get Y amount of ether from non-US sources. The DAO connects the vouchercoin with ether deposits. Once a 'donation incentive fund' has 100% raised the ether and been 100% vouched with VC, The developer officially donates his tokens to a non profit. This non profit gifts US persons with tokens if they are eligible. to be eligible, a US person must: verify that they are US persons and have been vouched by non-US persons.
Once the developer has officially donated, the ether deposited into a smart contract (the principal deposit and the profit fee) goes to the Non-US person(s) in accordance to how much VC they put in.
Before all of this, an ICO for the new vouchercoin token was held. Humorously, a token sale that explicitly excludes US persons from participating is necessary to create a solution for said US persons.
This token sale involves the exchange of vouchercoin (VC) for liquid cryptos like ether (ETH). Vouchercoin will always have a set rate of 100 VC to 1 ETH and will be an ERC20 token built on Ethereum.
The war chest accumulated through the sale of vouchercoin will come from Non-US participants.
The liquid cryptos (ETH, BTC, etc.) gained through these Non-US persons will be locked away in secure cold storage.
Once the developer has officially donated the tokens to the non profit, the non profit gives a special access clearance to the DAO to release the cold storage funds of liquid cryptos, and send them to the developer. The non profit then gives the US person a gift of the tokens for free, in the form of a nonobligatory and deniable gift.
The DAO then keeps the VC coin (which came from the second smart contract) and then sells it to non-US persons who want to profit off the fees paid by US persons, the fees paid because of the vouching service the Non-US person offers. VC for ether, and then the DAO replenishes its ether fund to pay the next set of developers.
Here is the more explicit and detailed version, if you are interested:
In order to describe the workflow of Sidewinder, three items must
already be set up and in place: a tax exempt non-profit, a token sale,
and a DAO/Dapp which allows the creation of user generated smart contracts.
From now on, ‘US persons’ means any citizen from a country with
restrictive securities laws and a ‘Non-US person’ means a citizen who
can easily participate in a token sale legally.
Humorously, a token sale that explicitly excludes US persons from
participating is necessary to create a solution for said US persons.
This is all part of the design and serves a greater purpose later on.
This token sale involves the exchange of vouchercoin (VC) for liquid
cryptos like ether (ETH). Vouchercoin will always have a set rate of
100 VC to 1 ETH and will be a ERC20 token built on Ethereum.
The war chest accumulated through the sale of vouchercoin will come from
Non-US participants. The liquid cryptos (ETH, BTC, etc.) gained
through these Non-US persons will be locked away in secure cold storage.
They will be used later on in the process.
There are three parties in Sidewinder: US persons, Non-US persons,
and The Developers who are hosting token sales for their project.
The Sidewinder Dapp allows for US persons to create an account, verify
that they are US persons, deposit and withdraw ETH in a similar manner
found in crypto-exchanges, and to choose which token sale she would like
to allocate her deposit to. The Dapp also has a special portal for The
Developers to create and define their terms for their token sale (see
the finer details section on page for more info).
For example, let’s say District0x would have wanted to open their
(recently finished) token sale to US participants.
So, they create a Developer account on the Dapp and decide to allocate
150M tokens to US persons, and they need $2.5M (about 12.5k ETH) in order
to let those tokens go. The Developers agree on a exchange rate of
12000 DNT = 1 ETH.
Bob from the US of A wants to get 96000 DNT for 8 ether. After Bob has
verified he is a US person, set up his account, and configured his 2-step
verification, he is ready to deposit his ETH into his account on the Dapp.
Bob’s principal deposit is 8 ether, but he is charged a fee of 1% on
the principal and also a gas fee necessary to send and place his deposit
into a smart contract. The 1% fee does not go to the Dapp, but to Non-US
persons who will vouch his deposit later. So, Bob sends 8.080 ETH to
a smart contract that holds all of the US deposits for District0x’s token
sale fund. He pays .002 ether in gas as well.
Remember that token sale of vouchercoin? Non-US persons who own VC can
vouch for US persons, so that the US person can receive tokens from the
specific token sale he desires.
Let’s say Anastasia from Russia decides to vouch for Bob, so that he can
receive his 96000 DNT. Anastasia deposits 800 VC (8 ETH * 100) into the
Dapp to vouch for Bob’s principal deposit of 8 ether. The Dapp holds all
the VC that was deposited to vouch for each US Person. The VC does not
enter into the old smart contract for District0x’s ICO, but a new one
with the DAO.
Anastasia can withdraw her VC deposit from the Dapp through her account
portal. Non-US persons do not have to verify their identity or sync up
with a third party 2-step verifier. They just need an email, a password,
and their public address for refunds.
When VC is deposited into the Dapp and then allocated towards vouching a
US person’s deposit for a specific token sale, the DAO makes sure that
all the new allocated VC goes towards 100% vouching a single deposit
first, before moving on to vouching another deposit to 100%. If 100% of a
token sale has been raised with ether deposits, and if that total
pool of funds has been 40% vouched with VC, then that means 40% of the
ETH deposits are 100% vouched... and the rest are at 0%.
Now, 100 US persons have made deposits in the district0x fund, and these
deposits total 5050 ether. The total amount of principal deposits is
5000 ETH or 40% of the hard cap raised (100% is 12.5k ether). The left
over 50 ether is the 1% profit fee that will go the Non-US vouchers once
certain conditions have been met. Let’s say that the total amount of
principal ETH deposits has been vouched with 500k VC (5000ETH * 100).
When 40% of the hard cap is both raised and vouched, the fourth command of
the smart contract Bob entered into executes. Withdraws are no longer
possible for either the Non-US person or US person. The funds are bound
into the contract until the developer donates the right amount of tokens
to the tax exempt non profit (more on this later).
What this means, is that since the token sale is 40% done, you cannot
withdraw funds because you’re in it for the long haul. If you made a
deposit of ETH or VC and the 40% limit has yet to be reached, then you can
still withdraw ETH or VC, less the transaction gas fee. But after the 40%
limit, you cannot withdraw ETH or VC. Any new deposits of ETH or VC, after
the 40% limit has been reached, cannot be withdrawn either.
The developer also receives a message stating that the fund is 40% raised
and he is now in it for the long haul. The developer has multiple options.
He can wait until the hard-cap is reached, wait until the time deadline is
finished, or decide to cut the token sale short for whatever reason. If he
cuts the sale short and the 40% has been reached, he keeps his deposit he
made in order to set up a token sale; however, he still must donate the
exact amount of tokens to the non profit or else he loses his deposit if
he bails and doesn’t deliver. If the sale is cut short and the 40% limit
has not been reached, then the developer loses half his deposit and if he
does not donate the tokens (to be delivered to US persons by non profit)
he loses all of his deposit.
With that out of the way, let’s assume the token sale for District0x is
100% funded and vouched, with 413 US persons having made deposits into
the smart contract. 12625 ether has been raised, with 125 ether as the
profit fee that will be distributed to Non-US vouchers in a moment.
The developer receives a message on his account dashboard which tells him
his hard cap has been reached and he now needs to donate 150m DNT tokens
to the tax exempt non profit.
The non profit part of The Sidewinder Loophole is the holy grail. It plays
an indistinguishable part in the legal distribution of the tokens to
US-persons. The Developers will officially donate the tokens to the
non profit, once the deadline, hard cap, or Developers stop the token sale.
It is legal to donate stocks, bonds, shares etc. to non profits;
many people do it to avoid paying capital gains tax. Once The Developers
donate the tokens to the non profit, the tokens become the non profit’s
property and they can use the funds in congruence with their mission
statement.
The non profit’s mission is to “provide the opportunity for eligible
citizens of countries with restrictive securities laws, who are disbarred
from participating in token sales, to receive these token assets in the
form of a free nonobligatory gift.”
By doing this, the non profit avoids the sale and offer of these tokens.
The non profit does everything for free and does not charge any fee or
offer any extra service in exchange for the tokens. The non profit does
not offer to the US person that they will receive the tokens if they deposit
money into a smart contract on the Dapp. The non profit does guarantee that
an eligible citizen will be provided the opportunity to accept these tokens
in the form of a gift, if they are verified and vouched by non US persons.
How does this play out? A US person, using the Dapp, allocates his ether
deposit to a certain token sale he likes. He agrees to deposit a principal
amount and a 1% fee, and he agrees to the smart contact stipulations:
If he is 100% vouched by a Non-US person (through VC) and the
developer donates the tokens to the non profit, then the smart
contract will send the public address of the US person to
‘DATABASECONTRACT’ and also the token exchange rate multiplied by
the deposit (1 ETH = 100 VC = XXXX ABC)*(X ETH).
If #1 is true, & if the developer does not donate the tokens, then
the US person will receive his full deposit + 1% fee - gas back.
If he is 100% vouched and developer donates, then the 1% fee gets
paid to the voucher(s) who vouched him. Same with principal deposit.
If 40% of the hard cap is both deposited and vouched, then he cannot
withdraw his deposit or fee, unless rule #2 happens.
If token sale ends and his deposit is <100% vouched, then his
deposit and fee are returned to him, minus gas. (all or nothing)
Notice the contract does not say he will receive the tokens he ‘paid’ for.
Next, the Non US person finds an open token sale in which he can vouch some
US persons in exchange for a 1% fee. He makes a deal with the DAO, saying:
I will deposit my VC with the DAO and I will be able to withdraw
my deposit (minus gas) if the hard cap limit has not reached both
40% completed and vouched.
The US person with whom my VC is used to 100% vouch his ETH deposit
will give me his principal deposit + his profit fee - gas when the
developer donates the tokens to the non profit. The DAO will send
these funds to my public address.
If the developer never donates tokens, my VC will be refunded.
Once developer donates and voucher receives payment, DAO keeps VC.
413 US persons deposit 12625 ETH into District0x’s token fund.
The developers receive a message saying his fund has been 100% funded and
vouched, and he needs to donate 150m DNT to the non profit. The developer
officially donates 150m DNT to the non profit, and the 12625 ether goes
to the vouchers in accordance with their VC contribution. The vouchers
get the principal deposit plus the 1% fee (125 ETH). The DAO, which already
was in possession of the VC (which came from the vouchers), now sends a
retrieval application for cold storage ETH funds. These ETH funds are the
war chest gained from the token sale of vouchercoin, which came from a
source of all Non-US persons. The person who has special access to send
these war chest funds sends 12500 ETH (the hard cap) to developers.
Now that the developers have their money (which came from Non-US sources
who can legally participate in ICOs), the non profit has the donated tokens,
and the vouchers have been paid ETH for their principal deposit of
VC + 1% fee from the vouchees, the non profit handles the ‘final lap.’
If you remember rule #1 of the smart contract entered by the US Person,
his public address and the token exchange rate is sent to a specific smart
contract. This smart contract holds all the US person’s addresses: the
ones who are eligible to receive the opportunity to accept a gift of
certain token assets. The non profit deposits the 150m DNT tokens into the
contract and the tokens are then divvied up and ready to send.
Finally, the US person gets a message saying he has received a gift. If he
accepts the gift through his account dashboard, he gets sent the tokens + an
e-card. If he denies it, he gets nothing, and the non profit keeps the assets.
The reason this might work is that the Developer never sales or offers the tokens to US investors. He receives a legal 'bribe' in order to be convinced to donate them to a non profit, and the non profit doesn't offer or sale the security tokens either. The developer never gives the tokens to the voucher or the vouchee. The Vouchee (US person) doesn't purchase the tokens from the Developer, but rather gets them as a gift from the non profit. The US person's money goes towards paying the voucher for his voucher service. The US Person's money is never given to the developer. Only funds from Non-US sources are given to developers and the developers legally donate the token assets to a non profit.
The problem I'm still having is called the 'boomerang effect.'
This is where the US person sends out his money like a boomerang, and then the money comes back to him in the form of ICO tokens. He still acquires the tokens with his money, not necessarily per se because his money goes to pay the vouchers, but still. This might be construed as a sale and offer.
What is your opinion of the idea? Leave a comment!
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