2017 was by all accounts the year of initial coin offerings. The sudden windfall of companies listing tokens of all stripes drew in billions in liquidity. Everyone from Mark Cuban to the maintenance guy at your local hockey rink bought into one offering or another. The flood of token sales on the market naturally made regulators weary, not least those in Canada who have started to pay close attention to the crypto world for this reason. What makes ICOs such a hot button issue is that they’ve flown under the radar, circumventing established accredited investor requirements, and opening capital raising to the general public — without proper due-diligence. By fashioning themselves as ‘almost’ securities but not quite the full Monty, the hope was to keep with the spirit of the block-chain ‘revolution’ and give everyone, not just high income-earners and institutions the ability to buy-in. In reality, close inspection of the majority of ICOs currently on the market reveals that they are in fact not only securities, but as such are subject to a gauntlet of regulations already well established. But, before we get into where this all currently stands, its always a good idea to start at the beginning.
The world’s first ICO was launched in 2013, well before the ‘big bang,’ by Omni (formerly Mastercoin), raising $500,000 worth of bitcoin through the newly minted Mastercoin Foundation. During the early period, block-chain companies would typically set up non-for-profit foundations for the purposes of raising capital through ICOs because it best fit the bill with respect to their decentralized nature. The founders viewed themselves as part of an international collaborative network that relied on comradery and goodwill to see projects through to completion. The fact that they conveniently avoided labelling themselves as corporations to avoid tax obligations as a non-for-profit is just icing on the cake.
When Ethereum co-founder Vitalik Buterin launched his ICO in 2014, it successfully crowd-funded over $18 million dollars. Like Mastercoin, Buterin created his own non-for-profit, the Ethereum Foundation, but also teased the crypto-space by minting the ERC-20 smart contract as a more structured way to raise capital. Programmed on the Ethereum block-chain, these contracts would issue utility tokens in order to raise money, the lions share of which would presumably go to developing and refining the underlying block-chain application. These tokens are structured as options for receiving a secondary token once the application is finished. Unfortunately for Buterin and the rest of the gang, the option on the final token is a security.
Enter the SAFT (Simple Agreement for Future Tokens). In the ‘SAFT’ whitepaper, its proponents touted that it was a way for companies to raise capital and still comply with US securities laws. By selling only to accredited investors who were then allowed to re-sell tokens on the secondary market, the rationale was that even though the SAFT itself is a security, at the time of the issuance, no network exists. This means that any future developments of said network fall squarely within obligations resting on the managerial efforts of the board. When the network is complete, these tokens stop relying on any purported efforts, and as such would not constitute a security. So how does this token derive value then? Supposedly through its consumptive use, and secondly by ‘essential influences.’ In this scenario the token would derive value the same way a forward-contract on a commodity future like wheat or barley is affected by international market forces in the wheat or barely industry.
So the contract itself is a security, but somehow the token is a utility. The inherent ambiguity of that somehow is precisely why the SEC doesn’t buy it, and why Canadian regulators should also avoid the SAFT because it’s a headache waiting to happen. Any token, either issued in good faith as a place holder for the eventual ‘final product’ or otherwise, represents a claim against an entity. If you try to sell me a promise that you’re going to take my money and build something tangible out of a puff of smoke, then why bother with the SAFT contract in the first place? The successful replacement of the placeholder token with the final utility token would arguably depend on the successful completion of the network where that token will eventually be fungible. The network presumably won’t be built without profits accrued from the capital raise (otherwise why bother with the offering), so naturally those investors expect more than utility in return for their money. So we’re back to the token representing a claim against an entity. What the SAFT actually does is disguise a speculative investment vehicle as anything but. The whole process of building a network from scratch and promising tokens is essentially nothing more than a bet. It could fail, or it could succeed, but it wouldn’t be possible without that capital raise.
Unlike the SAFT, the RATE (Real Agreement for Tokens and Equity) solves the problem of utility/security duality by issuing two security tokens. The first confers equity, the second is a future token. If you have a company and want to launch an ICO, you can create an offering where for every share purchased, the buyer receives a pre-determined number of tokens. By doing this before the regular crowd sale, you can offer prestige investors the opportunity of a % discount on the common shares that will be issued during the regular crowd sale. The company launching the ICO would (pursuant to US securities laws) use Rule 506(c) of Regulation D (JOBS Act) to raise millions from accredited investors. In both cases a RATE confers equity and bonus tokens along with all the perks that come with it.
By launching from the gate with the idea that both tokens are securities — issuers run a greater chance of success by not fighting the Howey Test from the onset. True, its a longer process, relying on JOBS Act exemptions, and the RATE, but the flipside is a lower threshold for risk. Mitigating risk is what regulators love the most, so the long-run calculus of the RATE is transparency from the onset.
Although securities law in Canada has differences in comparison to the US, there is merit in learning from the ongoing processes both firms and regulatory bodies are wrangling with south of the border. By now it is pretty clear that tokens of this nature will most likely be securities. The province of Ontario will have much to do with catalyzing the wave of crypto-based law across the country by virtue of its development and posturing as an incubator for financial technology and impact-firms. Both the province’s Securities Act (s.53(1)), and the OSC (Ontario Securities Commission) instruments have tokens in their cross-hairs. At the very least, by establishing the token as a security it becomes easy to tabulate what the token is not. From there, firms will have to work collaboratively with governing bodies to ensure a safe and stable investment landscape because the issuance and surveillance of tokens is pretty new to everyone concerned.
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It’s tax time, and many Americans are waking up to the harsh reality of the gains on their crypto trades. The process is complicated, confusing, and costly. Everything from bitcoin purchases to airdrops are subject to capital gains tax, and the Internal Revenue Service (IRS) is lighting a fire under holders to collect what is owed…
Token Launch
JustHive partnered with OST KYC (kyc.ost.com) to perform the Token Launch and therefore will be using their book building platform to manage the Token Launch (including the KYC and AML policies and procedures).
To participate in the Token Launch, prospective Purchasers will need to visit where they will be required to register for the OST KYC book building portal. Once successfully registered and having satisfied the Company’s KYC and AML policies and procedures (including as to the source of funds), prospective Purchasers will be able to purchase Tokens using Ethereum. Purchasers will be buying Tokens to be used within the JustHive Platform, as mentioned above.
Users must list an ERC20 compatible wallet, such as MyEthereumWallet, to receive their Tokens. For instructions on how to create an ERC20 compliant wallet using MyEtherWallet, please refer to the following . Purchasers will also be required to provide additional information and documentation to verify their identity, residential address, nationality, and source of funds (among other things) as part of the Company’s KYC and AML policies and procedures. The Company reserves the right to reject a potential Purchaser in its sole and absolute discretion without providing a reason for such rejection.
Please be advised that all coin or token offerings are taxable. Receipts are viewed as taxable and as such, the offerings are subject to taxation before going into operations. Prospective Purchasers of the Tokens should seek tax and legal advice on this before committing to acquiring the Tokens.
Token Launch Overview
The first Token Sale will begin on April 13, 2018, 12:00 PM Pacific Standard Time (PST) and will conclude the earlier of (1) June 13, 2018, 12:00 PM Pacific Standard Time (PST) (the “Closing Date”); or (ii) until the amount of contributions received reaches 5925 ETH. If on the Closing Date the Company has not received a minimum of 1185 ETH in aggregate contributions for the purchase of Tokens, this will result in contributions being returned to the prospective Purchasers.
Token price during the main sale:
1 Token = $0.125
The exact number of Tokens to be received by a Purchaser will depend on what Token Sale the contribution is made, as determined by the Token allocation mechanism below:
First Token Pre-sale Structure:Date: Start on April 13, 2018, 12:00 PM Pacific Standard Time (PST) and end at the earlier of 8weeks after the start date or when the Hard Cap is met.Hard Cap: Equivalent of 5925 ETH.Soft Cap: Equivalent of 1185 ETH.Discount: 60%.Total Supply: 50 million initial allocation of Tokens.
2. Second Token Pre-sale Structure:
Date: Start approximately 2–4 weeks following the subsequent sale and end at the earlier of 8 weeks after the start date or when the Hard Cap is met.Hard Cap: Equivalent of $3.75mm USD.Soft Cap: Equivalent of $500k USDDiscount: 40%Total Supply: 50 million initial allocation of Tokens.
3. Third Token Pre-sale Structure:
Date: Start approximately 2–4 weeks following the subsequent sale and end at the earlier of 8 weeks after the start date or when the Hard Cap is met.Hard Cap: Equivalent of $5mm USD.Soft Cap: Equivalent of $500k USDDiscount: 20%Total Supply: 50 million initial allocation of Tokens.
4. Fourth Token Sale:
Date: Start approximately 2–4 weeks following the subsequent sale and end at the earlier of 8 weeks after the start date or when the Hard Cap is met.Hard Cap: Equivalent of $18.75mm USD.Soft Cap: Equivalent of $1mm USDDiscount: 0%.Total Supply: 150 million initial allocation of Tokens.
Bonus for Large Purchasers
Purchasers who commit to purchase a large number of Tokens during the Token Launch will be eligible for the optional extra bonus (“Private Sale”). All such bonuses will be discussed individually with each potential Purchaser who indicates a willingness to purchase a large number of Tokens.
Token Launch Structure
Instrument: TokensHard Cap: Equivalent of $30 million USD.Soft Cap (Minimum Raise): If less than the equivalent of $1 million USD in proceeds have been received by the Token Sale End Date (the “Minimum Raise”), then all funds raised will be returned to the Purchasers (less any applicable transaction costs) without any Tokens being issued. Any refunds due to failure to meet the Minimum Raised will be refunded within a reasonable period of time from the end of the Token Sale End Date.Total Supply: 500 million Tokens are allocated to the Token Launch.
Vesting
The vesting schedule for each participating group is as follows:
Large Volume Purchasers (i.e., those who purchase Tokens valued a total of 3,000 ETH or more in a single transaction): 6 months vesting period with 16.67% vesting each calendar month beginning the calendar month after the end of the Token Launch.JustHive Employees: cliff vesting 1 year after the end of the Token Launch.
Token Launch Procedure and Allocation
To participate in the Token Launch, Purchasers will pay in the following currencies: Ethereum (ETH)
Transferability of the Tokens is governed by the applicable vesting period, if any, and the use of such Tokens on the JustHive Platform will also be subject to the proposed transferee of the Tokens having first complied with the Company’s AML and KYC policies and procedures.
The breakdown of token allocation is as follows:
60% of Tokens to be created will be allocated to the Token Launch25% of Tokens to be created will be part of the JustHive Reserve and will be retained by the Company, as described below.15% of Tokens to be created will be distributed to the JustHive Platform’s founders and employees, but vest 1 year after the year of Token Launch. The Company is committed to a transparent Token sale process and will notify the public of the total amount of Tokens in circulation after the completion of the Token Launch. The Company will not create any new Tokens after the Token Launch.
JustHive Reserve
As described above, the Company will use the Tokens in the JustHive Reserve for future distributions made to key people that can grow the business through influencers, developers, and key third-party advisors that will help drive the JustHive Platform to the public, achieving performance targets, and/or reaching certain milestones prior to receiving reserved Tokens. In addition, the JustHive Reserve will help address issues surrounding fluctuations in the circulation of Tokens that might otherwise impact the ability of the Tokens to serve as a useful medium of exchange for users who will engage in transactions on the JustHive Platform. To that end, we may use JustHive Reserve to purchase or sell Tokens on the open market, we may distribute Tokens to increase liquidity. However, the JustHive Reserve cannot be used for 1 year.
The JustHive Reserve may not be directly distributed to employees for the purposes of employee compensation, and is the sole property of the Company.
Budget Allocation Overview
It is important for JustHive that the community understands how the funds from the Token Launch will be spent. The pie-chart below illustrates an estimate of how the proceeds from the sale of the Tokens will be allocated after the conclusion of the Token Launch and after any taxes that may be due; however, actual business conditions may result in a budget allocation that is different from this estimate.
35% App Development, 35% Marketing and Public Relations, 10% Admin and Operations, 15% Legal, 2.5% Various Bounty Programs, 2.5% Server Costs.
App Development:
In order for the JustHive Platform to run smooth and efficiently it is crucial to have a dedicated team of engineers who are on top of it, making sure are all systems and code are up to date and working seamlessly. In order to do this, we will need funds to provide for development and all developmental needs;
Marketing and Public Relations:
JustHive will continue to run its marketing and public relations efforts through an affiliate company in order to implement and execute a proper marketing strategy to ensure success. All affiliate contracts will be validated as having arm’s length terms and conditions for JustHive’s market;
Admin and Operations:
JustHive currently functions as a lean, cost-effective start-up and aims to continue doing so in the future. Yet, in order to participate in the blockchain ecosystem at the highest levels, we will need funds for accounting and administrative activities. A portion of the funds will be used for a recapitalization to repay bridge capital that was used to pay for services, employees, research and development, and infrastructure prior to the token sale. Such repayment shall not exceed 20% of the overall funds raised, and JustHive will repay any unpaid amounts out of future profits;
Legal:
From the very beginning, it has been important to us to establish a concrete legal foundation for JustHive. And in order to have a solid foundation, we knew we needed to be represented by the best legal teams in the industry. Thus, this is why JustHive is represented by Shew Law Corporation.
Bug Bounty Programs:
We strive to ensure that the JustHive Platform will adhere to the highest security standards and have a limited number of bugs (if any). Although we currently have a team of 7 people (The team will undoubtedly grow with our expansion), we do acknowledge and agree that it is vital to reward the public for helping us build a platform with as few flaws as possible.
Server Costs:
In order to keep the JustHive Platform running smoothly and ensure scalability, it is crucial to have a proper cloud computing service. A small portion of funds will be dedicated to server costs to provide a properly functioning application.
Risks to Participating in the Token Launch
Although there are many reasons to be optimistic about JustHive’s prospects, participants in the Token Launch should keep in mind potential risks of participation. Those risks are outlined in the Token Sale Terms & Conditions and the section of the headed ‘Risk factors and disclosures’.
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