token warrant agreement

Issued on ____________, 2022 (the " Issue Date"). 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. is ongoing, then for the purposes of Web3 fundraising, founders should consider the private token sale agreement (TSA) as a fundraising document. ETFs Rates. To better understand token warrants, lets review them through the lenses of tokenomics and how they relate to another token equity mechanism called a SAFT (Simple Agreement for Future Tokens). 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. On the terms and conditions set forth in the Warrant, the undersigned Holder hereby elects to purchase its Portion of the Total Network Tokens (the "Warrant Tokens"), pursuant to the terms of the attached Warrant, and tenders herewith payment of the Warrant Exercise Price in full. For early-stage crypto companies, theres a new fundraising document called the token side letter, that is being used to raise capital from accredited and institutional investors. Oftentimes, a projects tokenomics model develops over time, and it can be difficult to predict the future value of an individual token so early in a projects life. IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of the date first written above. Date of Issuance. This may result in the investor receiving a percentage of the total token allocation thats lower than their equity ownership percentage. 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. 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. WebRepresented Deconet in drafting the first blockchain-transferable software license, the Deconet Software License Agreement; Advising the founders of a top 10 token by market capitalization on fund formation and investment matters; Advising a leading entertainment company on all aspects of the development and minting of NFTs Our tools connect to third-party token custodians such as Coinbase to help you issue and track token liquidity from one simple interface.. have the same signatory, the DevLab company; use the same formula for calculating the portion of investors tokens. Form of Payment. a Token SPV). because its native KIN tokens were also found to violate securities laws. Have your token side letter docs ready to go with the terms that you want before you start fundraising. Your existing traction, team, strategy, industry (DeFi, DAO tooling, NFT, P2E gaming) may all result in different valuations, and comparable companies in your specific industry can be used as a part of your negotiation. "_ Company Intellectual Property _" means all patents, patent applications, registered and unregistered trademarks, trademark applications, registered and unregistered service marks, service mark applications, tradenames, copyrights, trade secrets, domain names, information and proprietary rights and processes, similar or other intellectual property rights, subject matter of any of the foregoing, tangible embodiments of any of the foregoing, and in any and all such cases that are owned by the Company. This Warrant shall be exercised by submitting a copy of the exercise notice attached hereto as Exhibit 1, duly executed by Holder, and by payment in a form specified in Section 2.2 hereof of an amount equal to the Warrant Exercise Price or, if applicable, an election to net exercise this Warrant as provided in Section 2.5 hereof for the number of Tokens to be acquired in connection with such exercise. The material terms of the TSA are almost the same as those of the SAFT, except that the TSA lacks a description of the conversion event and indicates a clear date of transfer of tokens to investors. Legal Nodes LTD is not an attorney or a law firm and does not provide legal advice. Well analyze all the different documents and explore when they may be most suitable to use. Tokens represent a tradable asset or utility that holders can use for a wide range of functions (e.g., voting, access to content, unlocking feature benefits, purchasing items or other digital assets). In this regard, many Web3 founders register a separate company (Token SPV) in a crypto-friendly jurisdiction to issue and distribute their token and sign all token-related documents from this company. But this promise for future tokens has run afoul of the Securities and Exchange Commission (SEC). Talk to your legal counsel to devise the right strategy for your situation and fundraising needs. Consequently, the DevLab is not involved in token sale (the paid token transfer) but instead it covers only the distribution of tokens previously received from Token SPV. On February 28, 2023, the Company issued an unsecured promissory note (the "Note") in the amount of $875,000. To learn more about how Pulley can help your startup usher in its Web3 future, schedule a call with us today. 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. Investor Agreement In order to be deemed eligible for the purchase of the Companys Tokens, the Investors agrees to and warrants that: The investor is an accredited or authorized investor in their jurisdiction. 1. Lets look into the key terms of these agreements and highlight the main points for negotiations. Make sure to be clear with the investors on the value of the equity and the tokens together so that you dont end up with the wrong token side letter terms, or delay closing the deal because of misalignment on valuations. Its not uncommon for the cap table of a web3 startup to include both traditional equity (RSAs, stock options, etc.) WebWe are engaging several investors who have asked for an offer and agreement for fundraising for our web3 product in development. | WebThis particular warrant agreement allows Hedge Fund Mast Hill to buy bulk shares at 0.175, which is well above the current stock price. Something went wrong while submitting the form. When using our token warrant template, remember that it is jurisdiction- and protocol-agnostic. "_ Business Day _" means a weekday on which banks are open for general banking business in San Francisco, California. 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.. 12/ Token warrants are a mechanism for equity holders to exercise the warrant to get tokens. The amount of tokens the investor can receive via the side letter or warrant is proportional to the equity granted via the SAFE. LayerZero claims it is well-capitalized with approximately If Holder Transfers any Token in contravention of this Section 3.3 (such Tokens "Transferred Tokens"), as liquidated damages and not as a penalty, Holder shall promptly (and, in any event, within five (5) days thereof) deliver and surrender to the Company a number of Tokens equal to the number of Transferred Tokens. "_ Affiliate _" means, with respect to any specified Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with such Person, including without limitation any general partner, managing member, officer, director or trustee of such Person, or any venture capital fund or registered investment company now or hereafter existing that is controlled by one or more general partners, managing members or investment advisers of, or shares the same management company or investment adviser with, such Person, where "control" is defined as directly or indirectly possessing the power to direct or cause the direction of the management and policies of the Affiliate, whether through ownership of voting securities, by contract or otherwise. Heres why: Registration of the DevLab outside of the U.S. usually means that the applicable laws will be a bit more flexible and a bit more certain; outside US jurisdiction, the risk of tokens being considered securities tends to be lower and so DevLabs are free to be partially involved in the distribution of tokens. We're also going to explore when it may be best to use token warrants instead of token side letters, and how a Token SPV influences the fundraising process. For startups in the early stage of development, many investors will suggest or even expect the startup to structure their investment by signing a SAFE or other regular equity convertible instrument (Convertible Note, Advanced Subscription Agreement, etc.). The token side letter or warrant represents a right, but not the obligation, to receive or purchase future tokens. As with any legal agreement, the token warrant comprises a number of terms and conditions. Transfer Restrictions; Lockup Period. These two documents are used in pre-seed Web3 fundraising and share a number of similarities. Your token side letter should reflect the 2:1 rights on the equity, reflecting the valuations of the equity and tokens together. |, Name: ____________________________(please print or type full name) |, Name:(please print or type full name) | Rival messaging app Kik was also ordered to pay a $5 million penalty because its native KIN tokens were also found to violate securities laws. Nothing should be construed as legal advice, Pulley's SOC 1 Type 1 audit was performed by BARR advisory. 5.1. Get started with Legal Nodes by downloading the free template on this page or requesting a demo to find out how we can help you solve your legal needs. "_ Person _" means any individual, corporation, partnership, trust, limited liability company, association or other entity. Otherwise, the United States is likely to face a brain drain at a time when it can ill afford it. Get early access to token side letters, token vesting, and cap table management solutions at LiquiFi. Token warrants arent the only way to issue token-based equity, but they may come with some regulatory and practical advantages. 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. Consider the following three points when comparing the registration of DevLabs in the US vs outside the US. For purposes of the calculation in Section 2.5(a), the fair market value of one Token shall be determined by the Company's Board of Directors in good faith. In particular, both the token warrant and the token side letter: Despite being related, appearing at the same point of the Web3 fundraising process, and having similar sounding names, the token warrant and the token side letter are sisters, not twins. Therefore, for our template to work for more early-stage projects, we have decided to go with a discount-based model. Generally, founders want to raise more capital and dilute less equity/tokens, while the incentive is reversed for investors. This Warrant may be exercised any number of times by Holder, prior to the Expiration Date, to provide Holder the opportunity to purchase up to Holder's Portion at each applicable Token Launch, less any Tokens purchased by Holder pursuant to any prior exercise of this Warrant with respect to such Tokens. The token purchase right is the right to buy tokens in the future. The token side letter represents the option to receive future tokens, alongside the equity, of these early-stage crypto companies. 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. 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. simple agreement for future tokens (SAFT), Token Warrant Agreements Template and Guide, decided on a mechanism for your token supply and demand, chosen a blockchain network and technical standard for your tokens, planned some security measures for the token protocol and treasury, set a date for the Network & Token Launch (NTL), DevLabs registered in the U.S. (usually registered as a. DevLabs registered in other jurisdictions outside of the US, like in the UK, Singapore, Hong Kong, or one of a handful of European countries, will have more freedom to choose which legal instrument to use. 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. You can speak to the team at Legal Nodes to find out more about how we can help you use these documents. 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. WebPublic Auction: "03/07/2023 COINS/STOCK CERTIFICATES/RELATED ITEMS" by Jeff Rich Auction Service. WebThe NVCA Model Legal Documents are the industry-embraced model documents that can be used in venture capital financings. And, as with stock warrants, token warrants are generally issued to investors, banks, and third-party partners (rather than to employees, consultants, and other service providers).. FTX TOKEN. 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. 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. During the early ICO days and crypto fundraising, the SAFT (simple agreement for future tokens) was a document drafted to help crypto companies fundraise for their tokens. 02/16: Freyr Battery, Finnish Minerals Group plan cathode material JV Plain-Vanilla-Warrants (Put) Underlying: FREYR BATTERY: Issuer: Citi: In summary, if a DevLab is registered in the US, then it's best to use a token warrant along with SAFE. 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. All the information in this guide is for educational purposes only. Drafting and negotiating on token side letters can take multiple days and weeks, which could delay closing a critical investment deal. The SAFT is a derivative of the SAFE and stands for the simple agreement for future tokens. This commit does not belong to any branch on this repository, and may belong to a fork outside of the repository. You should not construe any such information as legal, tax, investment, trading, financial, or other advice. We refer to that certain Warrant to Purchase Tokens of the Company issued on _________, 2022 (the "Warrant"). For early-stage crypto companies, theres a new fundraising document called the token side letter, that is being used to raise capital from accredited and institutional investors. Notwithstanding the foregoing, "Tokens" shall not include tokens created for testing purposes or any NFTs issued in the ordinary course of business in arms' length transactions. You can view example token side letters with LiquiFi here. A token warrant agreement, commonly referred to as simply a token warrant and also known as a token purchase right, is a document often used by Web3 projects to attract early-stage investments. If you and your investors have agreed to value the token warrant/side letter rights and equity together at some value, the formula for token allocation should reflect that. Instead, it only confirms the right of investors to purchase tokens with a discount or at a predetermined price. In recent years, the rise of cryptocurrency and web3 startups has added a new chapter to the book on what early-stage investors need to know. (please print or type complete name of entity) | Disclosure: I am not a lawyer, this is not legal advice, and you should seek out independent legal counsel for your unique circumstances. Mentioning any of the assets in this article is not an endorsement to purchase them. For the avoidance of doubt, any Tokens issued upon exercise of this Warrant and subject to the Lockup Period will be delivered immediately upon exercise to Holder and held by Holder for its own account. 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. These Public Warrants will be under lockup for 91 days starting from 29-NOV-2022 to 28-FEB-2023. Please, The mechanics surrounding early-stage investment in company equity is a well-worn pursuit, honed over decades since HBS professor. 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. Welcome to Legal Nodes Playbook for Founders. Basically, its the token equivalent of a warrant for equity, or granting share options. See below for an illustrative example where the method used can result in different outcomes for investors depending on the token allocation. We can only hope that the executive order that Joe Biden signed in early 2022 regulates crypto investing in a way that amplifies rather than destroys its potential. We'll be glad to chat with you. However, it could alternatively take place just before the token generation event. For the token side letters, the same company that signs it, the DevLab, is also responsible for converting the document into tokens. Given the shifting nature of regulation in this space, we recommend consulting with your legal counsel before moving forward with any type of token-based equity.. Oops! 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.. Because SAFTs are considered This agreement is not suitable for retail investors or the general public. Unlike the token warrant, the token side letter doesn't specify token price or dates for token exercise. SAFTs are often used for seed-stage fundraising in crypto and Web3 projects. 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). Investors have one alternative that, as of May 2022, is growing in popularity amongst web3 venture funds the token warrant. Investors have a preferred method based on their own experiences, risk profile, and projections about the companys future token allocations. WebToken Warrants. One key distinction is that a token warrant represents a right, not an obligation, to purchase future tokens. Token Warrants Investors have one alternative that, as of May 2022, is growing in popularity amongst web3 venture funds the token warrant. When we say tokens, were referring broadly to blockchain-based digital assets. When standing at the crossroads trying to choose the most suitable document for pre-seed Web3 fundraising, its important to consider any regulatory restrictions on token transactions that are imposed on the DevLab by a local regulator. 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. WebIts not just vanilla SAFEs anymore, its all manner of complicated token and warrant agreements. Jonathan Chan is a partner in the corporate practice at Wilson Sonsini Goodrich & Rosati. Method of Exercise. "_ Portion _" means, with respect to Holder and as of the date of the applicable Token Launch, a number of Tokens equal to the product of (a) Holder's Fully Diluted Percentage; multiplied by (b) the Insider Reserved Percentage; and multiplied by (c) the Total Network Tokens, in each case as of the date of the Token Launch. 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. Instead, our Virtual Legal Officers (VLOs) source and manage all the different legal specialists. A token warrant is a derivative that allows the warrant holder to purchase tokens in the issuing company at a specified price on or before a specified expiration date. *Consult with your legal counsel on whether to use a token side letter or token warrant. This, in turn, can be reflected in the token sale agreement in the process of structuring the investment round or specified in the DAO Constitution, which is similar to a shareholders agreement in traditional Web2 investing. What a token warrant agreement is and how it actually works, When a token warrant agreement is typically signed, Similarities and differences between the token warrant and the, How to choose between a token warrant and a token side letter, What the terms of the token warrant (and the token purchase right terms) include, the token warrant is not used for automatic (unconditional) issuances: the, the price at which the investor buys the tokens in the future is fixed by the token warrant. 1 for the offer, 1 for the agreement outlining equity and token allocations. He represents technology companies and investors in all types of corporate transactions, including venture capital financings, public offerings, and mergers and acquisitions, and has a practice of representing dozens of companies and investors This is speculative and due in part to 1) token warrants optionality, and 2) the fact that the SEC has specifically called out issues with SAFTs promise to deliver future tokens to investors. Come up with potential token allocations using recent token launches and benchmarks, understanding this could still change drastically in the future*. Some investors prefer a guaranteed amount of tokens with the fully diluted supply or conversion rate method. Token warrants are typically issued to equity investors in an overarching corporation (for example, popular DeFi protocol UniSwap was built by Uniswap Labs LLC). The tokens are not a replacement for receiving company shares as an investor its complementary and used alongside the traditional equity agreement and cap table. Investors mint warrant tokens when they deposit capital into the aggregate pool. Token Warrant Agreements Free Template and Guide, By submitting this form you agree with our privacy policy. The two primary documents used for fundraising as a crypto company are: At LiquiFi, weve observed that the SAFE with the Token Side Letter has emerged as the preferred fundraising strategy due to the flexibility and other benefits they offer to the company and the investors. is the founder of community-owned web3 accelerator and venture fund, Time Rich: Do Your Best Work, Live Your Best Life. 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. Copyright 2023 Prolific Labs Incorporated. 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). 25% of the total number of the Tokens of Holder shall become unlocked on the 12-month anniversary of the Token Launch (the " Cliff _"); A growing number of web3 startups are turning toward mechanisms that allow them to issue equity to investors in the form of their native tokens. Your submission has been received! That being said, it is not the only way to structure the conversion formula, we chose this method as it is an industry practice we think will be most helpful to users of the document, as per our explanation below), So, if your tokenomics is finalised, meaning, the price of the token at the time of its issue and the hard cap is already determined, you will be ready to specify in the token warrant details about the number of tokens available to the investors and their specific price. While securities laws around tokens and digital currencies are still evolving, some may view SAFTs as carrying more legal and regulatory risks than token warrants. The earnout warrants have a strike price of $15 and a term of 10 years. Another important point that deserves attention is the process of assigning the token warrant from the DevLab to the Token SPV. Something went wrong while submitting the form. This happens either when the Token SPV is registered or some time before the token generation event. WebSAFE agreements, also known as simple agreements for future equity and SAFE notes , are legal contracts that startups use to raise seed financing capital and similar to a warrant. The use of the covered warrant structure in the digitized security token era of 2019 introduces a critical structural enhancement to the industry overall and we are If you plan to allocate a large percentage of the tokens to the company, it may be better to use the conversion rate methodology. 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. Until a token launch, there is always some non-zero chance that tokens may never be issued. in equity but in a web3 startups native tokens - an instrument that doesnt come with the same regulatory clarity? Multi-Signature Support. 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. "_ Preferred Stock _" means any series or class of preferred stock that is or may in the future be defined in the Certificate. Schedule a call and we'll discuss your equity and see how we can help. 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. LayerZero Labs issued a letter saying it has come to an agreement with FTX, FTX Ventures and Alameda for a complete equity buyout. Restrictions on Exercise. Investors not only want equity in the companies they invest in, but also the tokens that can be used to interact with these dApps because of their utility value. This is why its generally a smart idea for web3 startups to think twice before offering a massive token warrant to an early-stage investor.. While some web3 startups have moved more aggressively into token-based equity, the fundraising ecosystem hasnt changed overnight. During that time, the market conditions may change significantly, as it gives sufficient time even for new tokenomic models to emerge and be adopted.. If the tokens have already been issued and the process of their distribution (private/public sale, airdrops, issuance of token options, etc.) When fundraising, you want to have a valuation benchmark by looking at the market of comparable companies in recent fundraising. "_ Expiration Date _" means the earlier of (i) 5:00 p.m. Pacific Time on the date that is ten years following the Issue Date, and (ii) the date the Company and other Token Issuers irrevocably and affirmatively decide not to develop any Token. All Tokens distributed to or received by Holder pursuant hereto shall be subject to a mandatory Lockup Period.

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