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 Holder hereby agrees that, without the prior written consent of the Company, the Holder will not: (a) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any Locked Tokens, or (b) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any Locked Tokens; provided, however, that Holder may stake, vote or otherwise participate in the Network with respect to all of its Locked Tokens. "_ Transfer " means: (x) the direct or indirect sale, assignment, delegation, pledge, charge, lending, hypothecation, creation of a swap or other derivative with respect to, or transfer or disposition of, any Token or any interest, right, claim, obligation or liability with respect to any Token; or (y) a Holder entering into or becoming subject to a contract, agreement or understanding, written or oral, contemplating or relating to any of the foregoing. 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. But what happens when youre investing not in equity but in a web3 startups native tokens - an instrument that doesnt come with the same regulatory clarity? 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. The type of agreement needs to be: Create Agreement - Equity Raise with Token Warrant for Web3 Investors, Fundraising I need 2 templates. 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.. In summary, the choice of an investment document for Web3 projects is mostly influenced by the readiness of the tokenomic model. See below for an illustrative example where the method used can result in different outcomes for investors depending on the token allocation. 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. Just as a stock warrant allows the holder to buy shares of stock in the issuing company at a specified price in the future, a token warrant allows the holder to buy a certain amount of the companys tokens at a specified price in the future. What Is a Token Warrant? A Guide for Web3 Startups | Pulley Well analyze all the different documents and explore when they may be most suitable to use. The token side letter represents the option to receive future tokens, alongside the equity, of these early-stage crypto companies. Another important point that deserves attention is the process of assigning the token warrant from the DevLab to the Token SPV. The terms and additional documents you require may depend on whether you plan to launch a DAO or not. In addition, Legal Nodes does not assume responsibility for the consequence of using any version of the templates found on our website. CENTUS issues WARRANT tokens with different terms: from 1 month to a year. Instead, it only confirms the right of investors to purchase tokens with a discount or at a predetermined price. 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: SEC.gov | HOME IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of the date first written above. Of course, a web3 company may want to offer its tokens to venture capital and accredited investors as a means of fundraising. The warrant, requested by state police criminal investigator Trooper Justin Bedford of the Schuylkill Haven station, outlined the events that occurred at 222 Second St. The SAFT is a derivative of the SAFE and stands for the simple agreement for future tokens. On February 28, 2023, the Company issued an unsecured promissory note (the "Note") in the amount of $875,000. Crypto Fundraising with Token Side Letters or Token Warrants The number of tokens that will be issued is commensurate with the 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. Schedule a call and we'll discuss your equity and see how we can help. (To be completed and signed only upon each exercise of the Warrant). WebA SAFT is similar to a simple token warrant agreement for future equity (SAFE), allowing early-stage investors to convert their cash investment into equity later. 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. If founders have registered the DevLab outside of the US (i.e. 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. 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 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. WebSeedSAFT is the SeedLegals automated version of a SAFT (Simple Agreement for Future Tokens). Net Exercise Election. 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. IN WITNESS WHEREOF, the undersigned Holder has executed and delivered the Warrant and this Exercise Notice as of the date set forth below. 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. All Rights Reserved. Because the token sale agreement is signed at a more mature stage of a Web3 projects development and the investment amounts are quite significant, investors often have questions about obtaining control rights over the company and receiving tokens. You should not construe any such information as legal, tax, investment, trading, financial, or other advice. FTX TOKEN. "_ Fully Diluted Percentage _" means, with respect to a Holder, the quotient obtained by dividing (a) the total number of Common Stock then issuable (directly or indirectly) upon the conversion of Preferred Stock of the Company, as if converted, by (b) the total Common Stock of the Company then outstanding (assuming (i) full conversion of all Preferred Stock then outstanding, and treating for this purpose all Common Stock issuable upon exercise of or conversion of outstanding options, warrants or convertible securities, as if exercised or converted and (ii) without duplication, issuance of all shares reserved but unissued under the Company's equity incentive plan(s)). Ideally you will have thought about and planned for the following aspects of your tokens lifecycle. Choosing a Web3 Fundraising Document in 2023: a Playbook for These warrants are often detachable, meaning that they can be separated from the tokens and sold on the secondary markets before expiration. In some cases, token warrants may even be used in conjunction with SAFEs or other more traditional equity mechanisms. This may result in the investor receiving a percentage of the total token allocation thats lower than their equity ownership percentage. The token side letter provides an additional advantage for investors, as no additional payments are required to receive tokens. When it comes to fundraising, the big question often is which Web3 fundraising document should I use?. tokens 5.1. www.sec.gov Therefore, a detailed White Paper with a description of token use cases, tokenomics, and token distribution plans is necessary to prepare a fully-fledged SAFT. Basically, its the token equivalent of a warrant for equity, or granting share options. 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. 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 Let us look closely at each of the routes. Restrictions on Tokens. SAFE with a token side letter or warrant has become more commonplace. 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. While not the same, properly drafted token side letters and warrants are intended to achieve the same outcome and are used interchangeably for this article. The Company shall be entitled to assume the validity of any network address provided by a Holder and has no duty to verify such network address. | Unlike SAFTs, these token warrants typically come in the form of an optional side letter and dont guarantee the deployment of tokens - therefore avoiding the legal complications faced by its predecessor. "_ Warrant Exercise Price _" means (a) $1,000 (in the aggregate, to purchase that number of Tokens equal to Holder's Portion) for the initial exercise of the Warrant, and (b) $500.00 (in the aggregate, to purchase that number of Tokens equal to that portion of Holder's Portion remaining to be exercised) for each exercise of the Warrant thereafter. 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. To learn more about how Pulley can help your startup usher in its Web3 future, schedule a call with us today. These equity types generally allow investors in web3 startups to receive a certain number of tokens commensurate with the size of their investment.. 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. Choosing a Web3 Fundraising Document in 2023: a Playbook for Founders. Decide which token pro-rata right method you want to use by comparing outcomes with your token allocation and the three types of token pro-rata right methods. | Date: | Date: | The idea of that assignment is that the Token SPV then sells the tokens to investors at the price that has already been fixed in the token warrant. Web[Meta] Sticky Comment. Legal Nodes LTD is not an attorney or a law firm and does not provide legal advice. This Warrant may not be exercised if the issuance of the Tokens upon such exercise would constitute a violation of any applicable federal or state laws or other regulations, as determined by the Board of Directors on the advice of counsel. EthSign TokenTable Beta Launch. We are excited to announce Thus, like a SAFT, or Simple Agreement for Future Tokens, a token-based award in any event may be deemed a security, and its issuance should be compliant with Agreement This space will no doubt evolve over coming years as more regulatory clarity is offered. "_ Person _" means any individual, corporation, partnership, trust, limited liability company, association or other entity. Lets explore these in the next chapters of this guide.. As a result, this process completely excludes the American company (the DevLab) from the token distribution process. 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.. As a condition to each exercise of this Warrant, Holder shall execute a copy of the exercise notice attached hereto as Exhibit 1, confirming and acknowledging that the representations and warranties set forth in Section 6 of this Warrant as they apply to Holder are true and complete as of the date of exercise. After that, they manage the work, handling all communication with the service providers, quality-checking deliverables and ensuring that the fundraising and token launch are undertaken in a compliant way. General advice for startup fundraising applies here. Token in equity but in a web3 startups native tokens - an instrument that doesnt come with the same regulatory clarity? Warrant (In our template, available to download below, we chose to go with the pro-rata formula based on contributors allocation, meaning that the base for the calculation is not the entire token pool, but the part that is used for distribution to the core contributors. In addition, any such restrictive provisions shall provide that any discretionary waiver or termination of the restrictions of such agreements that are approved by the Company's Board of Directors with respect to any Insider shall apply to Holder, pro rata, based on the number of Tokens held by such parties. In the event that a Token Launch has occurred, then the Company shall provide notice to Holder no later than 30 days prior to the Expiration Date, which notice shall specify all Tokens that have been issued by a Token Issuer to such Holder during the term of the Warrant and the maximum number of Total Network Tokens issuable under this Warrant to such Holder. WebDuring this most recent bull market in 2021, the spirit of the SAFT has made a comeback in the form of token warrants or token rights agreements, but theyre now typically attached to either a SAFE or an equity investment. 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). Fundraising | Celo Documentation 3. during the twelve months following the end-date of the period described in the immediately preceding clause "(b)", 1/12th of 25% of the total number of the Tokens of Holder shall become unlocked on each monthly anniversary of such end-date; and Please, The mechanics surrounding early-stage investment in company equity is a well-worn pursuit, honed over decades since HBS professor. As of the Issue Date, the Holder shall deliver to the Company payment in cash equal to the Purchase Price. Agreement 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. Y = the number of Tokens equal to the portion of Holder's Portion remaining to be exercised. For the token side letters, the same company that signs it, the DevLab, is also responsible for converting the document into tokens. This company is usually registered in a jurisdiction where the legislation permits token issuance and provides defined rules for taxation of token-sale transactions. WebThis particular warrant agreement allows Hedge Fund Mast Hill to buy bulk shares at 0.175, which is well above the current stock price. LiquiFi, Inc. does not assume any liability for reliance on the information provided herein. 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 SAFE note (secure agreement for future equity) the latter popularized by Y-Combinator. WebEfficient and speed After both stakeholders have signed, the SAFT token warrant agreement can be developed as a smart contract and accomplished automatically. Public Auction Sale: 03/07/2023 COINS/STOCK Many Git commands accept both tag and branch names, so creating this branch may cause unexpected behavior. Anand Iyer | asi.eth on Twitter: "1/ Token Warrants have become There are differences between token side letters and token warrants depending on the legalese. LayerZero claims it is well-capitalized with approximately Token warrants arent the only way to issue token-based equity, but they may come with some regulatory and practical advantages. Foreword: Thank you to the Alliance DAO team and Lindsay for their insights and help in writing this article. WebWe are engaging several investors who have asked for an offer and agreement for fundraising for our web3 product in development. These two documents are used in pre-seed Web3 fundraising and share a number of similarities. You can view example token side letters with LiquiFi here. Come up with potential token allocations using recent token launches and benchmarks, understanding this could still change drastically in the future*. Transfer Restrictions; Lockup Period. 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 This happens either when the Token SPV is registered or some time before the token generation event. have the same signatory, the DevLab company; use the same formula for calculating the portion of investors tokens. The concept of the token purchase right in a token warrant can be roughly reduced into its three main features: Its important to note that these three circumstances apply to the signing of the token side letter too. Comparatively, the current price is 215.40% higher than the all-time low price. 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. 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. ContraFect has agreed to issue 128,000 shares of common stock and pre-funded warrants to purchase 2,372,000 shares of common stock. Heres why: in the case of the token warrant, its signatory is NOT responsible for the conversion event and thus does not sell tokens. "_ SAFE _" shall mean any Simple Agreement for Future Equity or substantially similar agreement entered into by the Company. Model Legal Documents 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. In summary, if a DevLab is registered in the US, then it's best to use a token warrant along with SAFE. It gives both startups and investors optionality. 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. If youre the founder of a web3 startup looking to attract venture capital investors, issuing token warrants could help you translate your protocol or dApps tokens into equity that fuels your startups growth. WebCheck out the article below to learn 5 Things to Know About Token Warrants. require an accommodating regulatory climate for their issuance and distribution, a DevLab may not always be the most suitable vehicle for token issuance. The latest industry news, updates and info. Depending on the business and how it leverages the tokens into the business model, investors will value the equity and tokens accordingly. https://lnkd.in/gTadru7d Unlike the token warrant, the token side letter doesn't specify token price or dates for token exercise. In recent actions brought against the messaging startups Telegram and Kikboth of which attempted to use the SAFT for unregistered securities offeringsthe U.S. Securities and Exchange Commission (SEC) has suggested that it sees otherwise..