The Brooklyn Project has focused much of its attention on the sale of “consumer” tokens to actual consumers, rather than speculators or investors. Leveraging that work, Token Foundry developed a framework for selling consumer tokens and launching decentralized networks in a way that directs the tokens offered in the sale to actual users of these networks. This framework represents a first step towards standards for the sale of consumer tokens, and is only the beginning of an evolving conversation on creating decentralized networks that are usable, fair and secure.
Token Buyers Must Pass an Assessment Test
The users best positioned to make meaningful contributions to token-powered networks are those who understand the proposed purpose and use of the network on which the tokens will be used, and intend to use the tokens for that purpose. These users will also understand the role that they will be expected to undertake as a participant in the network, the risks associated with purchasing, utilizing, transferring and storing tokens generally, and can bear the costs and financial risks associated with participating in a new and untested network for that purpose. As a result, our new user onboarding process will involve a “token questionnaire” to ensure that prospective users are actually intended users of the platform and are the type of users whose activity will kickstart a new network.
Token Buyers Must Complete KYC, AML, and ID Verification
Before registering for a token sale, all users will be required to complete an ID verification process which involves uploading a Photo ID or Passport as well as uploading or taking a personal photo (aka a “selfie”). Token Foundry will match the selfie to the ID/Passport and cross-references the information against approved customer lists.
Token Sellers Must Complete Background Checks
We will also require background checks and bad actor reports on all prospective consumer token sellers and their affiliates, directors, officers and key investors before they are able to sell tokens. We will seek to ensure that the people who will have control of and access to the funds raised in a token sale have not previously committed any crimes or engaged in financial malfeasance. We do this to maintain the integrity of the community, and support the protection of purchasers.
Registration for Token Sales is Open to Everyone
Registration for each token sale is open to anyone who passes our new user assessment test and successfully verifies their ID.
Tokens Must Be Priced Responsibly
All tokens offered in an initial sale will be priced identically. Consumer token offerings, unlike certain securities offerings, will not provide any pre-sale opportunities or discounts on purchases to prospective token purchasers. Token pricing must also be in line with the design and utility of the network as well as the token's functionality and the potential value that can be generated by using the token for its intended purpose (ex. think about how taxi medallions are priced based on the future cash flows that can be generated driving a taxi).
Token Supply and Token Sale Must Be Structured Properly
Token supply and sale structure should be designed to promote network security, growth, and long term sustainability. Attributes of the token should be tailored to the needs of the network. Sales should be structured to avoid features that promote speculation or artificial price manipulation.
Network Must Be Decentralized by Design
Networks must be designed to be open, self-sustainable and “sufficiently decentralized.” The concept of “decentralization” is one that we intend to discuss with prospective sellers on an ongoing basis.
Token Buyers Must Be Informed and Have Intent to Use
Tokens will only be sold to real “qualified” consumers” who understand the technology and intend to use the tokens and actively participate in the underlying system. Prospective token purchasers will be required to complete questionnaires to ensure they fully understand the token they intend to purchase, including its intended use and that they intend to use the token and avail themselves of the underlying system. Buyers who fail an assessment test are prohibited from purchasing that token. The goal of this approach is to avoid speculators looking to purchase and sell token primarily for investment purposes.
Large Purchasers Must Provide Additional Info and Be Carefully Reviewed
Prospective purchasers requesting a large number of tokens in an initial token sale as compared to the expected normal usage levels within the system will be required to provide additional information explaining the basis for their request. Each request will then be manually reviewed by the seller, who has the discretion to accept, reject or negotiate each request based on its determination of whether the buyer has a legitimate intent to use the full amount of tokens requested (rather than for investment purposes).
Tokens Can’t Be Sold Until There is ‘Proof of a Network’
Tokens can’t be sold until there’s at least a working testnet version of the product and the tokens have some initial functionality on the testnet (not just a whitepaper).
Tokens Must Be ‘Locked Until Mainnet Launch’
This is enforced automatically through smart contracts. Tokens are non-transferable until the tokens are actually usable and have functionality on Mainnet.
Tokens Can Only Be ‘Used’ Initially
This is enforced automatically through smart contracts. Tokens are subject to resale restrictions to ensure that users are using their tokens for their intended purpose and not just reselling for profit or speculation. As the network develops, the project may enhance, eliminate, or otherwise change these resale restrictions. In all cases, prior to any changes to these restrictions, Token Foundry requires the network to operate and for the tokens to only be usable within the network for their intended purpose (not able to be resold) for at least 45 days after the network launches and the tokens have functionality on Mainnet and, where appropriate and practical, achieve one or more predefined metrics of network usage.
Tokens Can’t Be Resold Until Initial Buyers ‘Prove Use’
This is enforced automatically through smart contracts. Even after any resale restrictions are changed or removed, each token buyer must “prove use” (or have already proven use) of their tokens proportionate to the amount they purchased in the primary issuance before they can resell any of their tokens. Each token seller creates their own custom “Proof of Use” set-up and usage thresholds based on their specific network design and token functionality.
The tokenization of networks has the potential to disrupt some industries profoundly. Our framework exists to ensure this decentralized future manifests in a way that is fair, secure, and evenly distributed.