The Token DPA™

Background

The Token DPA (Debt Payable by Assets) (“DPA”) is a debt security created by the Republic Crypto team specifically for token pre-sales. We've designed the Token DPA with unaccredited and international investors in mind, but we believe it's the best way to pre-sell tokens for any project and for accredited and unaccredited investors alike. Just as we created and open sourced the Crowd SAFE, we’re open sourcing the Token DPA with hopes that it becomes an industry standard to make investing easier and to help support the blockchain ecosystem more broadly. Feel free to send us an e-mail if you’re planning a token pre-sale or have already held one and want to build a larger, more inclusive network of non-accredited investors.

Token DPA –– Republic's Token Pre-Sale Instrument

As the industry has developed, numerous instruments have been used to pre-sell digital assets to investors. Popular instruments include the SAFT (Simple Agreement for Future Tokens) and the SAFTE (Simple Agreement for Future Tokens or/and Equity) but we don’t use them on Republic. Instead, Republic Crypto created and has successfully used the Token DPA as an alternative. Many instruments currently used are equivalent to IOUs, without clear procedures in the event the project fails or there are delays in development. Additionally, the use of the SAFTE which provides the prospect of future equity if tokens are not delivered may not provide compelling upside if the project fails as equity holders are generally below debt holders in the event of a liquidation.

Our team realized: Who wants an IOU when we have existing established regimes for lending money to projects and leaving deposits on future purchases?

We're primarily concerned with how many pre-sale instruments allows investors' token distribution rights to expire without the recourse of allowing participants to become a debtor; many do not provide the inability for investors' to request money back if goals or projects never materialize on the promised schedule. The Token DPA can reduce these concerns, providing flexible terms which can be made favorable to investors’ interests. Despite using a framework for every agreement, each Token DPA is different and investors should read and understand each investment contract before making an investment. As the Token DPA is a debt instrument, investors should assess the credit worthiness of any potential user of the Token DPA. Many pre-sale instruments require investors to wait for a public token sale or distribution by an issuing company to receive tokens, otherwise their right to a return on their investment can be left unfulfilled, possibly forever. In contrast, the Token DPA provides a method for investors to either request part or all of their principal back, earn a cash return or receive the desired tokens when certain events occur. It should be noted, these protections rely on the company issuing the Token DPA abiding by its terms, there can be no guarantee of this. For example, if a company issuing a Token DPA spends all of their capital before investors' right to request a return of capital occurs, investors could force the company into insolvency when they make the request.

What types of companies use the Token DPA?

We’ve made the Token DPA flexible enough to work for companies at every stage of development –– whether they’re ramping up their projects and are looking for early followers or have sufficient funding, are releasing their protocols, and now want to legally involve supporters who might not be accredited investors. Either way, we’ve designed the Token DPA for companies to get tokens into the hands of their users, friends, and followers. Under federal securities law, companies can not publicly sell most tokens (or the rights to tokens) to unaccredited investors without seeking a proper securities registration exemption; otherwise, they risk sanction for improperly selling securities. The Token DPA is an effective instrument to sell the right to tokens to anyone, using Reg CF or other securities exemptions.

How it works:

• Companies use the Token DPA to issue debt and collect necessary capital to build out their proof of concept, finalize their white paper and build their protocol. If a company is more advanced and already has done all of that, they can use the capital infusion to hire more staff, market their product, increase their working capital, engage legal counsel and prepare for the distribution of their tokens.
• Companies using the Token DPA through Republic Crypto can:
• Sell the right to tokens through Republic from non-accredited investors (those who don’t meet a high income / net worth threshold or who are from foreign countries) using a tried and tested securities registration exemption.
• The Token DPA sets a time limit for how long a company can hold the funds before paying interest or repaying the debt in tokens. The Token DPA encourages companies to use their funds slowly by giving investors the right to request them back. If the company does not retain the funds then they may become insolvent and will eventually fold. If investors do not request their funds back and never receive their tokens then they can earn interest on their principal. If the company completes its goals, they can repay the debt in tokens, effectively allowing investors to purchase them at a substantially discounted price.

Use & customize

The Token DPA’s terms can be modified to meet projects’ specific needs, allowing the loan to be paid back in cash or Tokens. For example, you can give your project breathing room by pushing back the date interest accrues. To reward early supporters, you can also ensure investors get preferential pricing on tokens if a token distribution event ever occurs. To make the Token DPA a more flexible instrument, the Token DPA can grant investors (instead of the company) the choice to have all or part of their monies refunded before the loan is paid back. There is no guarantee a company will have the funds to return an investor's principal, purchasing a Token DPA can result in a total loss.

In the event the startup folds due to insolvency, Token DPA holders may not receive tokens or cash back, but as debt holders they would be entitled to any available assets over equity or other-non debtors, during a dissolution of the business, generally.

A Token DPA can have a hard cap on the time period money may be borrowed in and can have built in milestones that provide investors the option to request the return of part or all of their capital if said milestones are not met. There can be no guarantee an issuer will have sufficient funds to pay back a request for a (partial or full) refund on the Token DPA and therefore these provisions may prove not to protect investors. Investors should review each Token DPA for its specific terms and conditions, as it may be different between issuers. Companies can customize the Token DPA to include repurchase rights as well as allow for refinancings. Depending on the terms of a company's Token DPA, investors should be aware that repayment in cash or tokens may result in no return.

Download:
Early Stage DPA.doc Late Stage DPA.doc Early Stage DPA with Escrow.doc Late Stage DPA with Escrow.doc

Companies should review and customize this template with the help of experienced counsel. Republic does not assume any responsibility for any consequence of using these documents.