Lone Star Empire Blockchain Partnership

A Smart Partnership

 

 

 

 

GDP Driven Trustless Monetary Eco-System

 (Non-Tech White-Paper Elements for a 3rd Generation Blockchain Binary Crypto-System Ecology)

 

It Matters not if a Method of Exchange is Physical, Digital, Paper or Crypto, if it can-not be Directly Converted into Fundamental Commodities at a Published and Transparent Conversion Rate, it's not ‘Backed’ by Anything. A True 'Capital Currency' Should Never Experience Significant Volatility, a True 'Capital Currency' Should Always Produce a Dividend. The System Alluded to in this Paper Will Effectively Govern for Resiliency and Value Appreciation. Hallmarks of a Trustless, Transparent and Valued Method of Exchange (MOE).

Unless it Finds High-Value Utility in the Socio-Political Space, Domestic and International Commerce, is a Secure Store of Value for Future Trade, Trustless and Transparent. Unless the MOE is ‘Community Adjudicated’ as Advantageous to Hold and Save, ‘It Can Not Rule, It Will Not Endure’.

Eco-System must be Trustless, Decentralized, Anonymous and ‘Secured’ by Validated Eco-System GDP. A peer-to-peer cryptosystem for pseudonymously secure transactions, with no central point of failure and an integrated Peer-to-Peer (p2p) Application Development Platform.

Eco-System-GDP is Defined and Measured as: Authenticated Cash and Cash Equivalents from Operations, Modest Earnings Margin/Growth Multiple + Audited Net Asset Value (NAV) of Portfolio Holdings; land, buildings, equipment, finished goods inventory, natural resources, etc.

 

A Trustless p2p Eco-System and Application Platform Enabling the ‘Token’ or MOE to be sent directly from one party to another, without being mediated through a Centralized Gate-keeper, Regulatory body, or Exchange. In a word, Cryptosphere. ‘This is a System that Can Rule, this is a System that Will Endure’.

Eco-Systems

 

Notwithstanding their Revolutionary Potential, Existing Blockchain Protocols and Proposed Monetary Eco-Systems lack the Qualities Required to Create Ubiquitous, High-Value Mass-Market Utility in the Socio-Political Space or, Domestic and International Commerce.

Although Bitcoin, et al., may be Directionally and Conceptually Correct, they are far from being a Complete Fin-Tech Eco-System Solution.

Strategically, these MOE have no practical utility as a general and versatile medium of exchange. They simply lack the design, engineering or architecture needed for it. This is a Strategic and Fatal Flaw that Will Take All but a Handful of them to Zero.

The Monetary Eco-System must be Trustless, Decentralized, Anonymized and 'Secured' by Validated Eco-System GDP. Driving Rate of Adoption, Fungibility, Network Services, Exchange and Utility Values.

A Cryptocurrency Ecosystem or Cryptosphere Capable of Meeting the Needs of Hundreds of Millions of Consumers, Traders and Trans-Actors on a Truly Global Scale.

SBX Will Function More Like a Currency of ‘The Gold-Standard Class’ That Is Technically Implemented by Virtue of Blockchain Technology and Physically Secured by Premium Income Producing Assets.

An Authenticated and Viable Store of Value for Future Exchange, That Would Seamlessly Operate on the International Stage.

A Peer-To-Peer Cryptosystem for Pseudonymously Secure Transactions, With No Central Point of Failure and an Integrated (P2P) Application Development Platform.

Enabling the 'Token' or MOE to Be Sent Directly from One Party to Another, Without Being Mediated Through a Centralized Gate-Keeper, Regulatory Body, or Exchange. In a Word, Cryptosphere.

Conclusion: More Than an Elegantly Crafted Concept. This System Features Broad Functionality, Designed to Securely Host Generations of Trustless Services, Decentralized Applications and Distributed Autonomous Organizations.

A Complete Fin-Tech Solution Creating an Apex Class Competitor, with Effective Horizontal and Vertical Network Transaction-Chain Integration. 'This is a System That Can Rule, This is a System That Will Endure'.

 

 

Futures Protocol

 

A 3rd Generation Blockchain Binary Crypto-System Ecology

 

BitCoin Protocol is version 1.0 = Security, Transparency, Scarcity, etc. 1st Generation Technology.

Bitcoin, aside from the scalability, volatility, fungibility… issues, suffers from the “51% problem”. If a person or entity should gain control of 50% of the miners plus 1 that person or entity could in fact transfer any number of bitcoins from any number of bitcoin addresses on the blockchain to any other bitcoin addresses. Holders of Bitcoin are essentially “hoping” this never happens.

Altcoins reveal how little true price discovery there is to Bitcoin... Bitcoin's price is only a perceived fiat value, this is as true of any Altcoin or ‘currency’ which isn't directly linked and convertible into Fundamental Physical Commodities; land, buildings, equipment, finished goods inventory, food, water, shelter, natural resources, etc. At a Published and Transparent Conversion Rate.

Ethereum Protocol is version 2.0 (blockchain 2.0 projects) = Bitcoin + Scalability, Smart Contracts, Proof of Work, etc. 2nd Generation Tech. Ethereum has proven to be an effective and efficient platform for token crowd sales. Essentially, enabling any script kiddie or coder to create a new flavor of the week token, ‘me-too’, or even a ‘why not us coin’…This is becoming a Fin-Tech industry tipping point into an impending crisis.

Ethereum, Adaptation 2.1 is currently under development with contenders like Qtum, Cardano and Hashgraph. Better Blockchains, Not better ‘cryptos’, Proof of Authority (POA) Proof of Stake, etc. This is late stage, 2nd Generation Tech.

Since these begin at an extreme disadvantage with respect to Bitcoin, they will not succeed with technology that is just marginally superior to Bitcoin. It must be as significant an advance over Bitcoin as Bitcoin was over Fiat. It does not matter how brilliantly designed a ‘me-too’ token or Protocol is and or what cool features it may have. Liquidity, which is required for anything to be used as a currency, cannot be built into a protocol. It can be created only through and as a component product of a Closed-Loop GDP Driven Eco-System.

The Exchanges are essentially run by Gate-Keepers through private ledgers with little to zero transparency. This is where the majority of the Manipulation, Hacking and Fraud is Perpetrated and one of the Primary Weak Links currently plaguing block-chain technology in general and crypto-currencies in particular.

Futures Protocol 3G Technology will effectively and efficiently address these costly and vexing problems.

Futures Protocol: A 3rd Gen Ecology that will Facilitate Ultra-Secure Transactions, Trustless Execution of Dynamic Smart Contracts, Decentralized Peer to Peer Exchange, P2P Application Development Platform...Creating a Highly Productive, Dynamic, Durable and Completely Self-Regulated GDP Driven Cryptosphere.

·         Binary Crypto Ecology

·         Transparent GDP Driven Eco-System Price/ Value Discovery.

·         Incorruptible Constitutional Transparent Community Mgmt.

·         Futures Protocol p2p Mobile DApps Dev. Platform. Enhanced Fungibility and Utility.

·         Anonymized Peer to Peer (atomic swaps) Exchange. Security, Privacy and Resiliency.

·         Hybrid Blockchain that is Community Managed, all can audit it, permission necessary to record to it.

·         Futures (BUX) Provide Proof of Authority (POA) access to Blockchain, Eco-Syst. Services and 1-1 mining rights to SBX.

Development Roadmap:

The Futures Protocol technical roadmap includes the following milestones:

Mining Rights Sale (MRS) or ‘Token Event’

Ethereum-to-Futures Protocol Migration path/plan.

Launch Development of Futures Protocol

Payments Platform

Minimal Viable Test Network of Futures Protocol

Bot API and Platform

Testing and security audits of Futures Protocol

Futures Protocol External Secure ID

Deployment of Futures Protocol

Launch of Futures Wallet

Futures Protocol Services, Storage, Proxy, Dist. DNS...

Creation of SBX-Based Economy in the Futures Protocol Eco-System

 

 

Value Drivers

Primary Valuation Drivers Will Be Real Assets Producing Highly Sought-After Products and Services Marketed to Highly Motivated, Affluent and Economically Resilient Customer Groups and End-Users. SBX will be backed by real assets producing real income. Driving Transparent Value/ Price Discovery. Not Speculators.

Leverage existing ecosystem communities, developers, publishers, payment providers, and merchants to drive value and appreciable demand for SBX. An Eco-System enriched with high quality goods and services exchanged for a true Capital Currency of the, 'Gold with a Yield' Class. All these services can be integrated with third-party messaging and social networking applications, combining the best attributes of the centralized and the decentralized worlds for a sustainable, and balanced Closed Loop Eco-System.

What are the Problems Solved, Utility and Fungibility? What Can the Members of the Futures Protocol Community and Users of BUX/SBX Do, Buy, Experience?

A Complete Fin-Tech Solution in combination with an Authentic Trustless Capital Currency of 'The Gold-Standard Class'. GDP Driven Eco-System Liquidity with Annual Growth in Eco-System GDP and Consequent Growth in General Community and Cryptosphere Utility and Fungibility.

A Blockchain Authenticated Asset Portfolio Secured by Audited Net Asset Value, and Guaranteed Conversion into the Underlying Fundamental Commodities. True Value/ Price Discovery

Eco-System-GDP is Defined and Measured as: Authenticated Cash and Cash Equivalents from Operations, Modest Earnings Margin/Growth Multiple + Audited Net Asset Value (NAV) of Portfolio Holdings; land, buildings, equipment, finished goods inventory, natural resources, etc.

A 3rd Generation Blockchain Binary Crypto-System Ecology, Connecting Buyers and Sellers Peer to Peer, Trustlessly.

SBX Will Be Backed by Real Assets Producing Real Income. Driving True and Transparent Value/ Price Discovery and Authentic Appreciable Demand For SBX, Not Speculation.

Futures Protocol Will Leverage Existing Communities, Developers, Publishers, Payment Providers, and Merchants to Drive Value, Utility and Fungibility in a GDP Driven Cryptosphere.

Enriched with High Quality Goods and Services Exchanged for A True Capital Currency of the, 'Gold with a Yield' Class. Prosecuting a Proactive Posture and Preemptive Security Policy.

Monetization of Environmental Services; i.e. Beyond Organics Quality Food, Renewable Energy, GHG Mitigation, Carbon Sequestration Credits, Water and Wetland Reclamation... 100% Renewable, Self-Sustaining, Grid-Independent, Below-Zero Emissions, Carbon-Negative Operations.

 

·         Binary Token Ecology

·         GDP Driven Eco-System Liquidity

·         Authentic Trustless Capital Currency

·         Block Chain Authenticated Asset Portfolio

·         General Utility, Fungibility and Exclusivity

·         ‘Backed’ by Audited NAV and Eco-System GDP plus Annual Growth in GDP

·         A Complete Fin-Tech Solution with Guaranteed Conversion into Underlying Commodities

·         Futures Proxy will, Securely Connect Buyers and Sellers Peer to Peer

·         A 3rd Generation Blockchain Binary Crypto-System Ecology

·         Prosecuting a Proactive and Preemptive Security Policy and Posture.

 

 

Conclusion: The Monetary Eco-Systems and Cryptocurrencies that will Ultimately Succeed, Have Not Been Visioneered, Engineered and Brought to Market, Not Yet...

 

Asset Portfolio

What is the Historical Basis of all Sound, Traded and Saved Currency’s or Methods of Exchange?

They are, without exception, secured and backed by measured and validated tangibles and intangibles, at the very least, a portfolio of high quality income producing assets. Productive; Real Estate, Industry, Culture, Innovation... and the means to secure and defend it. The Production of Prized Premium Quality Products and Services. Food, Water, Shelter, Energy, Security, Finished Goods... Driving Transparent Value/ Price Discovery, Rate of Adoption and Fungibility in the Cryptosphere. Succinctly put, Eco-System-GDP.

Eco-System-GDP is Defined and Measured as: Authenticated Cash and Cash Equivalents from Operations, Modest Earnings Margin/*Growth Multiple + Audited Net Asset Value(NAV) of Asset Portfolio Holdings; land, buildings, equipment, finished goods inventory, food, water, shelter, natural resources, etc.

This System is Designed for Regulatory Compliance, Not Circumvention.

*Growth, as measured by the annual change in total value of all goods produced and services provided.

 

Example GDP Driven Asset Portfolio Model

Eco-Quest Industries: Ecologically Mindful; Agribusiness, Construction, Basic Industry, Logistics & Transport, Packaging and Fulfillment, Renewable Energy, Resource Management and Reclamation Technologies.

RE Ventures Group: Acquisition, Development and Management; Designer, Builder, Marketer and Operator of Master Planned Communities and Joint Venture Projects. Thematically Structured REIT’s.

Fine & Rare Group: Specialty Marketer of Branded, Super-Premium; Intelligent, Elegant & Unique; Foods, Fashions, Sprits, Gifts and Gear. “A Superior Lifestyle Experience” Simply the best The Empire has to offer.

Security Solutions Group: Vertically Integrated; Actionable Intelligence Services, Network Security, Risk Management, Security Enforcement and SpecOps/SWAT Training.

Visioneering Group: Intelligent Technologies; Applied Research, Design, Development, Manufacture, Integration and Maintenance of Advanced and Intelligent Technologies Systems. Visioneered; Products, Processes, Tools, Toys and Connections.

Opportunity Management Group: Turnarounds, Mergers and Acquisitions, Venture Funding.

Media: Communications, Public Relations, Organizational Development, Gifted and Remedial Education.

Initial Project Proposals for Asset Portfolio:

·         Data Caster Labs Operations and Development Center. Estimated Cost: $15.2 - $18.5M USD.

·         E Q Power – Waste to Energy Biofuel Plants, 15-45Mw. Estimated Cost: $15.5 - $18.5M USD.

·         MOE Farms, See Revenue and Earnings Projections Years 1–5, Est. Cost: $29.5 - $38.5M USD.

·         Empire Packers USDA Approved Multi-Species, Humane Harvest Packing Plant: $ 5.2M USD.

·         Empire Engineering, Machining, Fabrication, Construction and Maintenance Facilities: $3.2M USD.

·         Restoration of 900-acre Wetland area for Water Management and Wildlife Conservation: $3.0M USD.

Value Pipeline

 

Continued Growth in Fungibility and Utility.

Decentralized DApps Development Skunk Works.

New Products/Services/Projects/Network Utility, That Bring Appreciated Value to the Lives of Stakeholders.

Exclusive Additional TBA Benefits and Network Utility to the BUX tier, i.e. Top 100 Holders SHTF Plan. 

 

Data Caster Labs

Data Caster Labs Operations and Development Center

Ultra-Secure, Air-Gaped, Extreme-Off-Grid, Encrypted Laser Transmission to Fiber. No Takeovers, Hacks, Pump-and-dump schemes, DDoS Attacks, etc. Current exchanges (Centralized Trust Operations) are the weak link, currently plaguing block-chain technology in general and crypto-currencies in particular

Air-Gapped mirror of Futures Protocol, (Public Ledger) will be housed in an ultra-secure, Grid independent, EMP hardened facility, Data Caster Labs. First 75 miles of Internet connection will be laser to fiber in addition to encryption. This will provide a level of protection unique to BUX/SBX Cryptosphere.

If/When the Internet and/or Electrical Grid go Down BUX/SBX Will Remain Secure, Accessible and Tradeable.

AI Driven Algo-Mining for Actionable Intel.

Security

Futures Protocol = A 3rd. Generation Technology; Ultra-Secure, Dynamic Smart Contracts, Peer to Peer Atomic Swaps Exchange… Prosecuting a Proactive and Preemptive Security Policy and Posture.

Uploading content to the peer-to-peer grid is fully encrypted before ever leaving members device. Encryption ensures all content in the system is kept confidential and free of tampering, even when stored on a peer-to-peer grid.

Data Caster Labs (DCL’s) is rendered ultra-secure on several levels: Ultra-Secure remote location, EMP hardened Ultra-Secure Facility, Air-Gaped, Extreme-Off-Grid, Encrypted Laser Transmission to Fiber, local to state level political relationships and affiliations, etc. Fraud and Fugazi is mitigated. No takeovers, Ex-hacks, Pump-and-dump Schemes, etc.

In the event of disruption to internet, power grid, disaster manmade or otherwise. SBX will be secure and accessible on-site and will always be exchangeable into Beyond Organics and Prime+ quality food, water, feed, fuel, security and grid independent power with all the amenities of a trophy class preppers paradise.

For BUX/SBX, Internet and Power Doesn't go Down.

Network                                                                                        

At critical mass, the value obtained from the Network is greater than or equal to the price paid for the goods or services available through the Network.

A key concern must then be how to attract users prior to reaching critical mass.

A key strategy is to build a system that has enough tangibles/intangibles value, to early adopters, without significant network effects at the outset. As the number of users increases, the system becomes even more valuable and is able to attract and retain a resilient high-quality stakeholder base and grow the networks Member Service Utility and Fungibility Values.

Futures Proxy is a network proxy/anonymizer layer used to anonymize the identity and IP addresses of Futures nodes. Similar to I2P (Invisible Internet Project), this layer can be used to create decentralized VPN services and blockchain-based TOR alternatives to achieve anonymity and protect online privacy. In conjunction with the Futures P2P Network and Futures DNS, Futures Proxy can make any service, including messaging, effectively immune to censorship.

Network Effects

Metcalfe’s Law, which measures the value of a network, can calculate a cryptocurrency’s value, assuming the key measure of value for cryptocurrencies is the quality of the network of members who use them.

The original law is based on the idea that the value of a network grows in proportion with the number of all possible connections.

In other words, it assumes that all nodes can connect with each other, not the quality of those connections.

This can happen for short periods of time because of factors such as herding behavior. However, without infinite Growth in number of members it is not sustainable. For this reason, crashes, and correction, are inevitable.

A key concern must then be how to attract early adopters and opinion leaders prior to reaching critical mass.

As the number of users increases, the system becomes even more valuable and is able to attract and retain a resilient high-quality stakeholder base, organically growing the networks Member Service and Utility Values.

The key strategy here is to create a system that builds-in enough tangible and experiential value, to early adopters, without significant network effects at the outset.

The Cryptosphere is an open-source P2P web application platform for decentralized, privacy-preserving applications keeping network members in control.

Futures Proxy is a network proxy anonymizer layer used to anonymize the identity and IP addresses of Futures nodes.

Similar to I2P (Invisible Internet Project), this layer can be used to create decentralized VPN services and blockchain-based TOR alternatives to achieve anonymity and protect online privacy.

Content is fully encrypted before ever leaving members device. HTML/JS applications loaded from the Cryptosphere are sand-boxed in-browser using a capability based security model.

Conclusion: In Combination with Futures Protocol, P2P Network and Futures DNS, Futures Proxy can make any service, including messaging, effectively immune to manipulation or censorship.

 

Cryptosphere

Key Question:

What is the historical basis of a Sound, Traded and Saved Currency or Method of Exchange (MOE)? Productive; Real Estate, Industry, Culture, Innovation... and the means to secure and defend it.

This paper outlines the Design for a new Cryptocurrency Ecosystem or Cryptosphere capable of meeting the needs of hundreds of millions of Consumers, Traders and Trans-Actors. Designed to securely host a new generation of trustless services, cryptocurrencies and decentralized applications.

Thus far, Bitcoin has established itself as the de facto ‘digital gold’ and Ethereum has proved to be an efficient platform for token crowd sales. However, there is no current standard cryptocurrency used for the regular exchange of value in the daily lives of ordinary people. The blockchain ecosystem needs a decentralized counterpart to everyday transactions, a mass-market cryptocurrency. Despite their revolutionary potential, existing cryptocurrencies lack the qualities required to create High-Value Mass-market Utility in Commerce.

Cryptosphere is an open-source P2P web application platform for decentralized, privacy-preserving applications which keep members in control. Content is fully encrypted before ever leaving members device. HTML/JS applications loaded from the Cryptosphere are sand-boxed in-browser using a capability based security model.

State-of-the-art encryption ensures all content in the system is kept confidential and free of tampering, even when stored on a peer-to-peer grid. Well-designed, well-documented, well-scrutinized, Open-Source.

SBX will function more like the currency of the gold-standard class that is technically implemented by virtue of Blockchain technology, and secured by physically tangible income producing assets. This instrument features broad functionality, more than a beautifully crafted concept, an authentic and viable instrument which would seamlessly operate on a global scale.

In addition to payments for all digital and physical assets sold by individual merchants within the Futures ecosystem and on other projects integrated with Futures, the SBX Tokens (Lone Star Bucks) will be used as:

·         Commission (gas) paid to Futures nodes (validators) for processing transactions and smart contracts;

·         Stakes deposited by validators to be eligible to validate transactions and generate new blocks and coins;

·         Capital loaned to validators in exchange for a share of their reward;

·         Voting power required to support or oppose changes in the parameters of the protocol;

·         Payment for services provided by apps built on the platform (Futures Services);

·         Payment for storing data securely in a decentralized way (Futures Storage);

·         Payment for registering blockchain-based domain names (Futures DNS) and hosting;

·         Futures-sites (www. Futures);

·         Payment for anonymized identity and IP addresses (Futures Proxy);

·         Payment for bypassing censorship imposed by local ISPs (Futures Proxy);

All of these services can be free for the users since the application owners may choose to cover the corresponding fees, and adopt a freemium or an advertisement-based business model.

Unified-Hybrid Scenario A: Futures Token Event

50.5% of Futures/BUX and 15% SBX retained in 3rd Party Audited 'Treasury’ with allocations administered through Smart Contract. Balance of 49,500,000 or 49.5% of Futures/BUX will be made available in Token Event. Post-ITO, up to 20% (Approx. 5-15M Tokens) of BUX Balance in 'Treasury’ Made Available for Mining Over 15-30 Month Period.

Futures/BUX is the Utility Token, One Aspect of its Utility is the 1-1 Mining Rights to SBX the Eco-System MOE. Futures Provide Proof of Authority (POA) Access to Blockchain; track transactions, verify identities, support uniformity, resist tampering, enable logistical control for large numbers of participants, protect privacy, and support accountability and auditing.

A maximum of 100 000 000 Lone Star Empire Tokens will ever be created, (aka ‘Lone ‘Star Bucks’ symbol SBX). 49.5 Million (BUX) will be made available through initial token offering (ITO) @ $1.00 ea. Founders, Developers and Operations team will be allocated 15M SBX to be held in locked escrow until Asset Portfolio is cash flow positive, (projected to be third quarter 2019). For a maximum of 64,500,000 SBX.

Mining of the tokens is safest from the current legal and regulatory point-of-view. However, slowest to funding. A two-token system addresses both issues. Creating a two-tier, Binary Crypto-system protocol that Provides for Seamless Funding and Future Capital Requirements. This System is Designed for Regulatory Compliance, Not Circumvention.

 

Futures BUX/ SBX: Do not constitute an interest in any enterprise, asset portfolio or claim to income derived therefrom. The purchase of BUX tokens provide only rights to the mining of SBX, any returns or expectation of profits will be solely or predominantly from token holders own efforts.

Miners Purchase Rights (Futures/ BUX) to Mine SBX. Mining Rights Sale (MRS) or ‘Token Event’

Exclusive Additional TBA Benefits and Network Utility to the BUX tier, i.e. Top 100 Holders SHTF Plan. 

Purchase Agreements for Cryptocurrency Mining, or “Simple Agreement for Future Tokens,”
Provide Proof of Authority (POA) access to Futures Protocol Blockchain

---------

Project developers looked at dozens of key metrics, formulas and tools for forecasting a reasonable, although speculative, forward looking valuation on SBX tokens. Projected Price to Earnings ratio (PPE) is one of the most commonly used and useful methods for accessing potential future value.

The formula for the forward PE ratio is:

Price Per Token /Expected Earnings Per Token.

Projected net asset value (NAV) + Cash from forecast earnings of $2.89 per SBX. At 9x NAV + Cash from earnings could support a price of $25.00 - $28.00 per SBX in third fiscal year. Giving SBX a forward-looking market cap. of $1.6 – $1.8 billion. Assuming 64.5 million SBX tradable at the end of third fiscal year.

Conclusion: A True Capital Currency of the, 'Gold with a Yield' Class. Driving Transparent Value/ Price Discovery and Appreciable Demand for SBX. Not Speculation. From Seed to Salad. Sustainable GDP Driven Trustless FinTech Eco-System.

All funds will be wired directly into contractors, vendors and service providers accounts when ‘Certified’ payable. Founders, development and management team will not exercise control over escrow funds at any time. Disbursements are to be in accord with build-out schedule and proof-of-work, invoices for work completed are submitted and third party on-site certification with hundreds of on-site security cameras that any token holder can access from any web enabled device for 24/7 visual Authentication. See Build-Out.

 

Eco-System-GDP Revenue and Earnings Projections Years 1 – 5

Project Details

Home Page:

Futures Protocol

Corporate Structure:

Blockchain Partnership

Team Openness:

Complete Transparency, Access and Availability Generous

White Paper:      

Yes

Prototype:

Yes (Beyond Organics, EQ Power, Data Caster Labs)

Token Details

Role of Token:

Proof of Authority, Enhanced Access to Products, Eco-System Services, etc.

Max Token Supply:

100 Million

Distributed in ITO:      

49.5 Million (Founders 15 Million SBX to be Held in Locked Escrow Until MOE Farms is Cash Flow Positive)

Blockchain:

Ethereum to Futures Protocol Platform (In Development)

Sale Details

Sale Period:

To Be Announced

Price:

$1.00 = 1 BUX

Accepted Coins:

Bitcoin

Token Distribution Date:      

14-21 Days From Close of ITO

How are Funds Held:

Direct Deposit to Trusted Escrow With Multi-Sig Security, 2 of 3 Required, See Operations and Build-Out for Detail

 

 

 

General use of proceeds, in Millions $:

 

 

·         15 Mw power, packing and waste water recovery plants. $16.0

USDA inspected multi-species packing plant (beef, pork, poultry, and game), 45 beeves per day cap. Waste to Bio-Gas/Diesel plant; cooling, heating, power generation (fertilizer, feed, fuel, and energy).

·         Beyond Organics© Garden facilities. (450k sf) $ 12.0

·         Real Estate acquisition, Knox County, Texas 5,230± acres. $10.5

·         Prime+© Livestock genetics, housing and handling facilities. $9.5

1,500 head Wagyu Prime+ beef operation (scaling to 3,600 head). 375 head American Landrace and American Landrace/ Duroc crossbred heritage pork operation. 5,000 count ‘Range-Fed’ poultry operation.

·         General operations budgeting, fiscal years 1-3. $6.5

·         Production, packaging, labeling, and warehousing facilities (75k sf) $6.0

·         Magnum Opus Manor (MOMs) Lodge. (22.5k sf) $4.0

·         Facilities related infrastructure, furnishing, fixtures and equipment. $3.75

·         M.O.E. Vineyards© 30± acres scaling to 100± $1.75

·         6 zone 360° security syst. to incl. 512 cameras and multi-sensor on-site enforcement. $1.5

·         Funding; organization, promotion and administration. $.75

·         Engineering, machining and fabrication shop. $.75

·         Multi-mix Batch plant; asphalt, concrete and cement. $.5

·         Landing strip, ¾ qtr. mi. and helipad. $.5

·         Data Caster Labs 10-year Leases w/ Power Purchase Agreements.

 

  

15-18 months w/ $47M budgeted, approx. $9.4M per quarter draw down

 

1. General Specifications Document – SOW: A Project Plan, including but not limited to, the item descriptions below. This document will include the Design, Engineering, BOMs, Project Timelines, Product and Service Quotes, Etc.

 

2. Aerial 3D & CAD – Structure and Infrastructure Layout: A baseline 3D CAD map of the property, and the placement of all structures and pathways.

3. Building Specification and Design Criteria for Operations, Maintenance, Security and Monitoring: Define the size, scope and requirements.

4. Building Specification and Design Criteria for Utilities: Define the size, scope and requirements.
a. Power Plant(s) Stationary and Mobile: Define and Quote the initial 15MW to the Planned 45MW of power plant assets. b. Water Treatment: Define, Size and Quote the on-site water treatment requirements for all uses. c. Waste Water Treatment: Define, Size and Quote the on-site waste processing

requirements for all uses.

5. Distribution Utilities – kWh, BTU, Gas, Water, Sewer and Telecom: Define, layout and quote the utility path and requirements of each.

6. Building Specification and Design Criteria for Livestock Production for Hogs, Chickens, and Wagyu: Livestock production facilities including the air, water and waste treatment requirements. Includes water, waste management, anaerobic digestion, biogas, NPK separation and organic solids.

7. Building Specification and Design Criteria for Food Processing and Storage: Define the size, scope and requirements.

8. Building Specification and Design Criteria for Data Center(s): Define and quote the size, scope and requirements.

9. Technology - Data, Voice, Video, Wireless, Security, Network Operations Center and Monitoring: Define and quote all technology components for the short, mid and long-term operations and services to others.

10. Legal – Contracts for Suppliers of Products, Services, Warranties and Spare Parts: Prepare the supplier agreements, implement the proper insurance and risk management procedures.

 

The Barger Team 

 

 

 Financial Administration and Consolidated Reporting: PENDING

 

 Financial Administration

·         Back Office Accounting for Management Company and General Partner Entities

·         Investor Capital Account Tracking

·         Waterfall Calculation Tracking

·         Cash Management (bill pay, deposits, transfers, etc.)

·         Processing of Investor Capital Calls and Distributions

·         Investor Relations and Support

·         Accounts Payable Management

·         Bank Statement Reconciliation

·         Payroll Administration

·         Federal and State Tax Return Preparation for Partnerships and LLCs

·         Dedicated P.O. Box and Mail Management

·         Create and Maintain Secured Client Portal for Each Investor

·         Document Management for Fund and Investor Correspondence

                        Consolidated Reporting

·         Financial StatementsBalance Sheet, Income Statement, Cash Flow Statements, rolling 12-Month Reports, Budget, Consolidated Entity Reports, NAV

·         Custom Reports- Investor Reporting Package, Management Reporting Package, Ad hoc Reporting

                        Consulting

·         Launch and Formation Consulting- Fund Structure, Tax Strategy, Fund Offering Documents, Policies and Procedures

·         External Audit Support

·         Compliance and Regulatory Support

·         Budgeting and Forecasting

·         Financial Analysis

·         Strategic Planning, Fractional CFO

 

 

Fund Allocation Control Process and Schedule:

(A Smart Contract: Reader Friendly Version)

 

All funds will be managed and paid out in accord with a 3-step proof-of-work verification and certification process through a multi-signature (2 of 3) trusted escrow. After project bids are accepted and approved, a purchase order will be submitted to the trustee by email attachment and a public record is published to the MOE Farms website not later than 10 days before payable (every effort will be made to post at least 30 days in advance). When work is complete, verification and certification for payment in three (3) steps:

1.    Contractor/vendor submits certification request to Former Knox County Judge Travis Floyd’s (22 years RET.)  office. Judge Floyd performs on-site verification of work and if approved, digitally signs off on vendor/contractor invoice and submits to escrow agent.

2.    On-site security cameras will provide visual proof-of-work to any interested party with a web-enabled device; 24 hours a day, 7 days a week.

3.    Contractor/vendor request and documentation must then be matched to Fund Allocation Control Process and Schedule as published 10-30 days in advance on the MOE Farms website.

Finally, approvals and documentation will be submitted to escrow agent. Escrow agent is then authorized to move funds from escrow into contractor/vendor designated account in accord with wiring instructions submitted with request. This is perhaps the most robust authentication and transparent fund allocation protocol, yet designed.

 

$10,460,000.00 Closing on LG Ranch property WIRING INSTRUCTIONS: To follow

$25,000.00 to Seller for administration costs and associated expenses. WIRING INSTRUCTIONS: To follow

Total sale price at close $10,485,000.00 to seller at wiring instructions above.

$667,000.00 Eaton Equipment Services, LLC., ‎Road & Dirt Work 1st 1.5 Mi X 24’ State Hwy. Grade w/6” base, Entry + 2 ck point gates = 1.330M$, 50% to Start Balance of $663,000.00 on certification.  2nd 1.8 Mi X 24’ State Hwy. Grade w/4” Base = 1.508M$. 50% Down, $754,000.00 Start Balance of $754,000.00 on certification. Tot. 2.838 M$. Total 3.3 miles Est. 120-day timeline.

$10,000.00 Knox City-O’ Brian CISD for temp office space and utilities March through December 2017

$12,000.00 Michael Burkham relocation expense reimbursement, Packing & Processing Plants General Manager

$15,000 Mike and Debbie Morehouse for ranch services rendered March-2017 through August 2017 WIRING INSTRUCTIONS: To follow

$150,000.00 Retainer Barger Tech Environmental, Build -Out General Contractor.

1. General Specifications Document – SOW: A Project Plan, including but not limited to, the item descriptions below. This document will include the Design, Engineering, BOMs, Project Timelines, Product and Service Quotes, Etc.

2. Aerial 3D & CAD – Structure and Infrastructure Layout: A baseline 3D CAD map of the property, and the placement of all structures and pathways.
3. Building Specification and Design Criteria for Operations, Maintenance, Security and Monitoring: Define the size, scope and requirements.
4. Building Specification and Design Criteria for Utilities: Define the size, scope and requirements.
    a. Power Plant(s) Stationary and Mobile: Define and Quote the initial 15MW to the Planned 45MW of power plant assets.

    b. Water Treatment: Define, Size and Quote the on-site water treatment requirements for all uses.

    c. Waste Water Treatment: Define, Size and Quote the on-site waste processing requirements for all uses.
5. Distribution Utilities – kWh, BTU, Gas, Water, Sewer and Telecom: Define, layout and quote the utility path and requirements of each.
6. Building Specification and Design Criteria for Livestock Production for Hogs, Chickens, and Wagyu: Livestock production facilities including the air, water and waste treatment requirements. Includes water, waste management, anaerobic digestion, biogas, NPK separation and organic solids.
7. Building Specification and Design Criteria for Food Processing and Storage: Define the size, scope and requirements.
8. Building Specification and Design Criteria for Data Center(s): Define and quote the size, scope and requirements.
9. Technology - Data, Voice, Video, Wireless, Security, Network Operations Center and Monitoring: Define and quote all technology components for the short, mid and long-term operations and services to others.
10. Legal – Contracts for Suppliers of Products, Services, Warranties and Spare Parts: Prepare the supplier agreements, implement the proper insurance and risk management procedures.

 

$1,670,832.00 Central Power Systems & Services.Corporate Headquarters / 9200 Liberty Drive / Liberty, MO 64068 / 816-781-8070. 50% Down Payment required at the time of order for 24 – 450kW PowerForce Generator Sets. Balance $1,670,832.00 FOB 10-01-17. Price of $139,236.00 each for a total order price of $3,341,664.00 as per quote dated 6/27/2017. WIRING INSTRUCTIONS: United Missouri Bank 1010 Grand Ave Kansas City, MO. 64106 Routing # - 101000695 A/C # - 9870603667 Swift Code- UMKCUS44

$127,000.00 Diane Joffrion – Board of Advisors/Founding Investor – Expenses Reimbursement - March 2017 – April 2018 WIRING INSTRUCTIONS: To follow

$290,000.00 MOE Farms executive management team relocation costs, setup and administrative expenses through March 2018 WIRING INSTRUCTIONS: To follow

$750,000.00 Futures Protocol Campaign Management and Administration – Payable at close WIRING INSTRUCTIONS: To follow


Additional allocations will be posted, in advance, as build-out continues and General Contractor Specifications Document is developed, payroll as profit centers are commissioned and staffed, on-going materials and equipment purchases, etc. see Build-out

 

 

This website, or content herein, does not constitute an offer to sell, or a solicitation of an offer to buy, partnership interests in Lone Star Empire, BP. Any such offer or solicitation may only be made by delivery of an approved confidential offering memorandum. Past results if any, and of agribusiness investments in general, are not necessarily indicative of future performance, and results may be volatile. Investing with Lone Star Empire Partners involves the risk of loss as described in the associated confidential offering documents.

 

Regulatory Case for SBX

The Tokens have not been and will not be registered under the United States Securities Act of 1933, as amended (the “Securities Act”), and may not be offered or sold in the United States or to or for the benefit of US persons (as defined in Regulation S under the Securities Act) unless they are so registered, or an exemption from the registration requirements of the Securities Act is available.

One such exemption allows the resale of Tokens purchased for their own account and for investment who (i) are not otherwise affiliated with the Lone Star Empire BP, (ii) have been exposed for some time to the economic risks that ownership of Tokens entails, and(iii) are not part of the distribution of the Tokens.

 

A Securities Law Framework for Blockchain Tokens

A blockchain token is a digital token created on a blockchain as part of a decentralized software protocol.

There are many different types of blockchain tokens, each with varying characteristics and uses. Some blockchain tokens, like Bitcoin, function as a digital currency. Others can represent a right to tangible assets like gold or real estate.

Blockchain tokens can also be used in new protocols and networks to create distributed applications. These tokens are sometimes also referred to as App Coins or Protocol Tokens.

These types of tokens represent the next phase of innovation in blockchain technology, and the potential for new types of business models that are decentralized - for example, cloud computing without Amazon, social networks without Facebook, or online marketplaces without eBay.

However, there are a number of difficult legal questions surrounding blockchain tokens. For example, some tokens, depending on their features, may be subject to US federal or state securities laws. This would mean, among other things, that it is illegal to offer them for sale to US residents except by registration or exemption. Similar rules apply in many other countries.

The Framework focuses on US federal securities law because these laws pose the biggest risk for crowdsales of blockchain tokens. In many jurisdictions, there may also be issues under anti-money laundering laws and general consumer protection laws, as well as specific laws depending on what the token actually does.

This document is a general guide for developers and users of tokens.

Part 1 is designed to estimate how likely a particular token is to be a security under US federal securities law.

Part 2 sets out some best practices for crowdsales.

Part 3 is a detailed securities law analysis by Debevoise & Plimpton LLP.

As more fully set forth in the component parts of this document, the document does not constitute legal advice and should not be relied on by any person. Developers and users should consult their own counsel in connection with their initiatives in this area.


You should not rely on this Framework as legal advice. It is designed for general informational purposes only, as a guide to certain of the conceptual considerations associated with the narrow issues it addresses. You should seek advice from your own counsel, who is familiar with the particular facts and circumstances of what you intend and can give you tailored advice. This Framework is provided “as is” with no representations, warranties or obligations to update, although we reserve the right to modify or change this Framework from time to time. No attorney-client relationship or privilege is created, nor is this intended to be attorney advertising in any jurisdiction.

December 7, 2016

An initiative of Coinbase, Coin Center, Union Square Ventures and Consensys

Part 1: How to determine if a token is a security

The Howey Test

The US Supreme Court case of SEC v Howey established the test for whether an arrangement involves an investment contract. An investment contract is a type of security.

In the context of blockchain tokens, the Howey test can be expressed as three independent elements (the third element encompasses both the third and fourth prongs of the traditional Howey test). All three elements must be met in order for a token to be a security.

1.            An investment of money

2.            in a common enterprise

3.            with an expectation of profits predominantly from the efforts of others.

Using the Framework

Click here to access the framework (google sheet). Save a copy in order to use it, or follow the manual instructions below

Step 1: Access the google sheet or refer to the copy of the framework in the Appendix.

Step 2: Review each characteristic and determine whether or not it applies to the token.

Step 2: For the criteria that apply, add or subtract the corresponding points to get a total for each element.

Step 3: You now have three-point scores, one for each element. Your lowest point score represents your overall risk score.

Please remember that this methodology produces nothing more than an estimate. You should seek your own legal advice, tailored to your own specific situation and considerations.


Part 2: Best practices in token sales

The following principles help inform and protect buyers, and increase the chances of a successful token sale, especially for a sale which occurs before there is a live network using the token. They are guidelines and are not designed for any specific situation. Please consult your legal and other advisors.

Most of these best practices do not directly affect whether a token is a security under the Howey Test

Principle 1: Publish a detailed white paper

How?

               Describe the protocol and the network.

               Identify a clear and compelling reason for the token to exist.

               Provide a detailed technical description of the proposed implementation

               Set clear expectations for total token supply and distribution

               Have an independent expert review the whitepaper

Why?

A whitepaper defines the network and its use cases. It is critical for buyers to be able to understand the characteristics and functionality of the token they are buying, the challenges and risks of development, and the benefits of using the network.

 


 

Principle 2: For a presale, commit to a development roadmap

      Text Box: How?Provide a detailed development roadmap

      Include estimates of time and costs for each stage of the project

      Include a breakdown of estimated expenses by category

      Allocate funding for each stage of development and consider restricting access to funding until milestones are achieved

      List the names of key members of the development team and advisors

      Be transparent about remuneration paid to key members of the development team and advisors

      Quantify early contributions of members of the development team and advisors

      Between sale and launch of the network, report back to token holders periodically on progress against the development roadmap

      Set aside funds for independent security audits and a bug bounty program

Why? A clear development roadmap gives buyers confidence that the proceeds of the sale will be properly used for the project and that the network will be launched, meaning that they will be able to use the tokens as intended.

Setting aside funding for each stage of the project helps establish structure and allows buyers to assess the likelihood of success. Using blockchain features to restrict the development team’s access to funding can deliver more transparency.

Members of the development team and advisors should be paid full and fair value for their services, through a combination of money and tokens. Quantifying the value of contributions, especially early contributions (pre-crowdsale) provides transparency.

Identifying the development team and advisors helps potential buyers assess the credibility of the project and its potential for success. It reduces the likelihood of fraud.

Note: Many aspects of Principle 2 only apply to token sales which occur before there is a live network using the token

Principle 3: Use an open, public blockchain and publish all code

      Text Box: How?Use an open and transparent blockchain

      Use open source software

      Where possible, commit to using standard or well-known token contracts (e.g. ERC20)

      Do not use a private or unintelligible blockchain, or one for which the developer is the sole or primary transaction validator

      Commit to undertake an independent security audit before launch

Why? Building with open source software and using an open, public blockchain provides

transparency, enables real participation from token holders and independent developers, allows for auditing, and helps prevents fraud.

Enabling real and meaningful participation in the network from a diverse set of independent parties may also strengthen the arguments against the second and third criteria of the Howey test, because participants are less reliant on the initial developers.

Principle 4: Use clear, logical and fair pricing in the token sale

      Text Box: How?Set a maximum number of tokens to be sold in the crowdsale

      Use a pricing mechanism which does not increase over time. Consider a Dutch Auction or similar mechanism to price tokens fairly

      Set a cap for the amount to be raised

      Set a minimum amount and refund buyers if the minimum amount is not met

      Denominate the price in one currency (e.g. ETH or BTC)

Why? The total proceeds from a crowdsale should not exceed the estimated costs of

development. A crowdsale should be capped at the number and price of tokens required to raise this amount.

Pricing mechanisms which increase over time can encourage irrational behavior (e.g. FOMO) and do not treat buyers equally. Setting the price in a single currency reduces the potential for confusion and arbitrage.

Principle 5: Determine the percentage of tokens set aside for the development team

How? Decide on the percentage of the total token supply that represents a fair reward for the work of the development team and advisors.

Release those tokens to the development team incrementally over time (contingent on their continued work on the project).

Why? Concentrating too many tokens in the hands of the development team and other

contributors increases the risk of centralization of control of the network. On the other hand, setting aside too few tokens does not align the interests of the development team with the interests of other token holders.

Releasing tokens to the development team over time aligns their interests with other users over a longer period.

Releasing tokens to the development team over time also reduces the risk of affecting the market - it prevents large numbers of tokens from flooding the market at one time.

Principle 6: Avoid marketing the token as an investment

       Text Box: How?Do not promote the token as an investment that will increase in value

       Promote the token based on its functionality and the use case for the network

       Avoid analogies with existing investment language and processes - e.g. ‘ICO’

       Provide appropriate disclaimers about the token as a product, not as an investment.

Why? Marketing a token as a speculative investment, or drawing comparisons to existing

investment processes, may mislead or confuse potential buyers. It may also increase the likelihood that the token is a security.

Using a short, relevant disclaimer which accurately describes the risks of the tokens, protocols and network is useful. Long, legalistic disclaimers about the risks of investment are not helpful to buyers and may provide the impression that the token is an investment.


Part 3: Detailed Securities Law Analysis


Debevoise & Plimpton

Text Box: December 5, 2016Securities Law Analysis of Blockchain Tokens

You should not rely on this Memorandum as legal advice. It is designed for general informational purposes only, as a guide to certain of the conceptual considerations associated with the narrow issues it addresses. You should seek advice from your own counsel, who is familiar with the particular facts and circumstances of what you intend and can give you tailored advice. This Memorandum is provided “as is” with no representations, warranties or obligations to update, although we reserve the right to modify or change this Memorandum from time to time. No attorney-client relationship or privilege is created, nor is this intended to be attorney advertising in any jurisdiction.

This outline sets forth our analysis as to whether cryptographic blockchain tokens (known as “Blockchain Tokens”) with certain features (in our parlance, “rights” versus “investment interests”) would be considered a “security” for purposes of Section 2(a)(1) of the Securities Act of 1933 (“Securities Act”) and Section 3(a)(10) of the Securities Exchange Act of 1934 (“Exchange Act”).

In order to analyze Blockchain Tokens under the federal securities laws, we start with the broad definition of “security” contained in Section 2(a)(1) of the Securities Act: “any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement ... investment contract ... or, in general, any interest or instrument commonly known as a ‘security’, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing” (emphasis added).[1]

Based on that definition and our reading of relevant case law, as well as on our understanding of the facts and our review of the materials you provided on the structure of Blockchain Tokens, we conclude that appropriately designed Blockchain Tokens would not be deemed to meet the definition of security and, accordingly, that the federal securities laws would not apply to the initial distribution and subsequent trading of such Blockchain Tokens.[2]

We stress that this conclusion is dependent on the particular features of the relevant Blockchain Token. Accordingly, this outline first lists various rights that a Blockchain Token might have that we believe support the conclusion that it is not a security, as well as various investment interests a Blockchain Token might have that we believe would make such an instrument more likely to be considered a security. We then summarize the relevant legal principles for determining what constitutes a security, and why we conclude, based on those principles, that properly designed Blockchain Tokens are better considered something other than a security. Finally, we analogize these types of Blockchain Tokens to the rights of a franchisee or licensee, who would not be treated as a security-holder.

I.                    Nomenclature

A.                We understand that Blockchain Tokens can have different features depending on how they are designed, but at a basic level each Blockchain Token is associated with one or more computer systems.

B.                 For purposes of this analysis, we have adopted two specific terminologies:

1.                  Because they are associated with one or more computer systems, when discussing Blockchain Tokens for purposes of the analysis, we use the term “system” to include any computer system, network, platform, application, software or protocol.

2.                  When considering whether a Blockchain Token could be deemed to constitute a security, we use the term “rights” to indicate features a Blockchain Token might have and likely not meet the definition of security—these rights may be individual rights or a bundle of rights granted to the holder of the Blockchain Token.

We sometimes refer to these as “non-security Blockchain Tokens.” We use the term “investment interests” to indicate the features that a Blockchain Token may have that would, in our view, increase the likelihood that it would be considered a security. We sometimes refer to these as “Blockchain Token securities.”

II.                 A Preliminary List of Rights and Investment Interests

A.                While we broadly discuss features that may result in a Blockchain Token being viewed as a non-security, a further analysis based on the individual facts and circumstances of each relevant Blockchain Token (and its

the Securities Act. As such, the SEC or a court could reach an alternative conclusion different from those provided in this memorandum.

system) generally would be required to appropriately determine whether a particular Blockchain Token would constitute a security and fall under the federal securities laws.

B.                 We generally believe that a Blockchain Token with one or more of the following rights likely should not meet the definition of security (non­security Blockchain Token):

1.                  Rights to program, develop or create features for the system or to “mine” things that are embedded in the system;

2.                     Rights    to access or license the system;

3.                     Rights    to charge a toll for such access or license;

4.                     Rights    to contribute labor or effort to the system;

5.                     Rights    to use the system and its outputs;

6.                     Rights    to sell the products of the system; and

7.                     Rights    to vote on additions to or deletions from the system in terms

of features and functionality.

C.                 We believe that a Blockchain Token with one or more of the following investment interests likely should constitute a security Blockchain Token:

1.                  Ownership interest in a legal entity, including a general partnership;

2.                     Equity interest;

3.                     Share of profits and/or losses, or assets and/or liabilities;

4.                     Status as a creditor or lender;

5.                     Claim in bankruptcy as equity interest holder or creditor;

6.                  Holder of a repayment obligation from the system or the legal entity issuer of the Blockchain Token; and

7.                  A feature allowing the holder to convert a non-security Blockchain Token into a Blockchain Token or instrument with one or more investment interests, or granting the holder an option to purchase one or more investment interests.

D.                We believe that non-security Blockchain Tokens can be issued in different classes where each class has different bundles of rights (whether overlapping or not), so long as the class does not include investment interests.

E.                 We believe that the combination of investment interests with rights into the same Blockchain Token likely would result in a Blockchain Token security.

F.                  We note that an ownership interest in a fund or other legal entity vehicle that buys non-security Blockchain Tokens would still constitute ownership of a security, even if the fund would not be deemed to own any securities.

G.                We have considered the question of whether issuance of a Blockchain Token prior to the existence of a system would constitute a security. We have not found conclusive law on the subject, but believe that the better view is that a non-security Blockchain Token does not become a security merely because the system as to which it has rights has not yet been created or completed. Although not specifically mentioned in any case law, there is a significant school of thought that argues in favor of having the launch of the system and of the associated Blockchain Tokens occur as close in time as possible in order to reduce the likelihood that the Blockchain Tokens will constitute securities. We do not express a view on the viability of this line of reasoning, but note that it potentially implicates the common enterprise element of the Howey test and the “risk of loss” analysis, each discussed below.

III.              Analysis under the Howey Test

A.                Based on the background above, we consider below whether a Blockchain Token would fall under the definitions of security outlined in the Securities Act and the Exchange Act, as well as subsequent case law further defining the term security.

B.                 The seminal Supreme Court case for determining whether an instrument meets the definition of security is SEC v. Howey, 328 U.S. 293 (1946). The Supreme Court has reaffirmed the Howey analysis as recently as 2004 in SEC v. Edwards, 540 U.S. 398 (2004).

C.                 Howey focuses specifically on the term “investment contract” within the definition of security, noting that it has been used to classify those instruments that are of a “more variable character” that may be considered a form of “contract, transaction, or scheme whereby an investor lays out money in a way intended to secure income or profit from its employment.”

Howey, 328 U.S. at 298; Golden v. Garafolo, 678 F.2d 1139, 1144 (2d.

Cir. 1982) (stating “investment contract” has been used as a way to classify instruments that do not fit other categories); see also Black’s Law Dictionary (10th ed. 2014).

D.                From our understanding of them, Blockchain Tokens seem most likely to be analyzed as an investment contract. Some of the investment interests listed above are more properly characterized as traditional types of securities, so their combination with a non-security Blockchain Token likely produces a Blockchain Token security.

E.                 Not every contract or agreement is an “investment contract” and the Supreme Court developed a four-part test to determine whether an agreement constitutes an investment contract and therefore a security.

F.                  The Court articulated the test as follows: A contract constitutes an investment contract that meets the definition of security if there is (i) an investment of money; (ii) in a common enterprise; (iii) with an expectation of profits; (iv) solely from the efforts of others (e.g., a promoter or third party), “regardless of whether the shares in the enterprise are evidenced by formal certificates or by nominal interest in the physical assets used by the enterprise.” Howey, 328 U.S. at 298-99. In order to be considered a security, all four factors must be met. See Edwards, 540 U.S. at 390.

G.                We provide our analysis of a non-security Blockchain Token below, based on each Howey factor:

1.         Investment of Money. Under Howey, and case law following it, an

investment of money may include not only the provision of capital, assets and cash, but also goods, services or a promissory note. See, e.g., Int’l Bhd. Of Teamsters v. Daniel, 439 U.S. 551, 560 n.12 (1979); Hector v. Wiens, 533 F.2d 429, 432-33 (9th Cir. 1976); Sandusky Land, Ltd. V. Uniplan Groups, Inc., 400 F. Supp. 440, 445 (N.D. Ohio 1975).

(a)               Given the broad definition of a money investment and the fact that non-security Blockchain Tokens will be distributed through a sale by the issuer to the buyers with the price set per token, we conclude that this factor should be satisfied.[3] We reach this conclusion notwithstanding the
fact that there may be a cap on the total amount raised and purchased.

2.                     Common Enterprise. Different circuits use different tests to

analyze whether a common enterprise exists. Three approaches predominate: (i) horizontal; (ii) narrow vertical and (iii) broad vertical. We define each and then discuss below.

(a)               Under the horizontal approach, a common enterprise is deemed to exist where multiple investors pool funds into an investment and the profits of each investor correlate with those of the other investors. See e.g., Curran v. Merrill Lynch, 622 F.2d 216 (6th Cir. 1980). Whether funds are pooled appears to be the key question, and thus in cases where there is no sharing of profits or pooling of funds, a common enterprise may not be deemed to exist. See e.g., Hirk v. Agri-Research Council, Inc., 561 F.2d 96, 101 (finding discretionary future trading account was not investment contract because there was no pooling of funds); Wals v. Fox Hills Dev. Corp., 24 F.3d 1016 (7th Cir. 1994) (promoter of condominium timeshare did not pool profits and thus no common enterprise existed).

(b)               The narrow vertical approach looks to whether the profits of an investor are tied to a promoter. See SEC v. Eurobond Exchange Ltd., 13 F.3d 1334 (9th Cir. 1994) (imposition of profit limitations on investors through requiring promoter to receive excess return rate tied promoter’s fortunes to investors).

(c)              
Text Box: right to mine in order to earn the eventual rights or rewards to a token, it might be reasonable to conclude that no investment of money had occurred.

The broad vertical approach considers whether the success of the investor depends on the promoter’s expertise. If there is such reliance, then a common enterprise will be deemed to exist. See e.g., SEC v. Continental Commodities Corp., 497 F.2d 516 (5th Cir. 1974) (promoter’s recommendations regarding certain futures contracts demonstrated investor reliance on promoter’s expertise).

Analysis under the approaches:

(i)                 Text Box: (d)Under the horizontal approach, the Blockchain Token may be considered a common enterprise where the reward for work—through mining or otherwise—correlates to the reward received by other participants. Thus, although the issuer has some control over the protocol, the rewards received by the token holders (e.g., through the receipt of more tokens or other forms of rewards) would likely be correlated.

(ii)              Under either of the vertical approaches, however, a common enterprise may not exist given the decentralized nature of the Blockchain Token framework, whereby Blockchain Token holders depend on their own efforts (mining or otherwise), rather than the issuer’s expertise (even though in certain cases the issuer may control or influence technical permissions or changes to the protocol). Thus, depending on the level of control of exerted by the issuer, the less of a reliance on the issuer’s expertise, may result in the view that a Blockchain Token should not be viewed as having a common enterprise.

(e)               Given the diverging approaches, the law on the “common enterprise” element is somewhat unclear and not easily susceptible to analysis. Putting things in more practical terms: In one sense, it would appear that the system is a common enterprise because it involves the efforts of Blockchain Token holders (and perhaps others) to create, update and enhance a system that is used by the Blockchain Token holders and third parties. On the other hand, it is possible to conceive of a system that does not rely on concerted effort to create, update or enhance such as where independent actors use the base code for a variety of unrelated activities (for example, IBM’s Watson can be used for many different purposes by independently operating groups).

(f)                Nevertheless, it would seem to us to be the case that where the issuer of the particular Blockchain Tokens uses the funds derived from the issuance to create, support or

maintain the system, a court might find the common

enterprise element satisfied.

(i)                 This may similarly apply in the case of a presale made prior to the launch of the system. For example, one court has found that a purchase agreement that was entered into prior to the construction of a resort community demonstrated a common enterprise. This was in part because the construction company was pooling presale purchase commitments in order to obtain financing to fund the project, and thus the completion of the project was dependent on generating sufficient investor interest. See Wooldridge Homes, Inc. v. Bronze Tree, Inc., 558 F. Supp. 1085 (D. Colo 1983).

(ii)              Although not definitive in this regard, depending on how the presale is structured, and whether the construction of the system is contingent on those funds, it may increase the likelihood that this element would be met.

(iii)            That said, we believe the better view is that a non­security Blockchain Token's character is not changed merely because it is sold before the system is constructed or in order to raise funds for construction of the system. We view presales as more akin to buying the right to use the system in the future, as opposed to receiving some type of investment interest. We think the analysis should hinge on whether the Blockchain Token holder can exploit directly the system for his/her own creative purposes or to produce a good or service sold to others (that is, profit from the rights separate from others using the system). We do not believe it is dispositive that the holder may sell the Blockchain Token prior to doing so; it is the fact that s/he could exploit the system that makes the difference.

(iv)             An alternative test, known as the “risk capital test,” considers whether an investment may be viewed as passive and relying on the efforts of others. Specifically, this test looks at four factors: (i) whether funds are being raised for a business venture or enterprise; (ii) whether the transaction is offered indiscriminately to the public at large; (iii) whether the investors are substantially powerless to effect the success of the enterprise; and (iv) whether the investor’s money is substantially at risk because it is inadequately secured. See Silver Hills Country Club v. Sobieski, 55 Cal. 2d 811 (1961). The risk capital test applies to a limited number of jurisdictions, and typically has been applied in the context of original “start-up” capitalization— particularly where membership is nothing more than a sale of right to use the existing facilities—i.e., where “the benefits of the membership have materialized and have been realized by other members prior to any capital raised by the sale of [the memberships].” See Jet Set Travels Club v. Corporation Com’r, 21 Or. App. 362 (1975). Thus, in these select jurisdictions, depending on the structure of the presale, there is some risk that the use of funds to raise capital may be viewed as a security, although this would be mitigated where some of the benefits have already been realized by other holders. We note that these cases involved memberships that did not allow for commercial exploitation for profit of the eventual club, but rather created only a personal right of use. We understand that non-security Blockchain Tokens will allow for the exploitation of the system by the holder, much like a licensee has rights to commercially exploit the license.

3.                  Expectation of Profits. Under this element, profit refers to the type

of return or income an investor seeks on their investment (rather than the profits that the system or issuer might earn).[4] Thus, for purposes of Blockchain Tokens, this could refer to any type of return or income earned as a result of being a Blockchain Token holder, which would be narrowed to the extent it is derived passively, ie., from the efforts of others. Since courts consider this factor through the lens of the “efforts of others” factor, we analyze

this prong along with the fourth factor below. In other words, just because there is a return or profit, does not mean that the investment contract is a security. It is the essentially passive nature of the return, as determined by the “efforts of others” analysis, that results in an “investment contract” and security as opposed to a simple contract instrument.

4.          Solely from the Efforts of Others. Typically, courts have been

flexible with the word “solely,” such that, in addition to the literal meaning, it also will include significant or essential managerial or other efforts necessary to the success of the investment. See e.g., SEC v. Glenn W. Turner Enters., 474 F.2d 476, 482-83 (9th Cir.

1973)                               ; SEC v. Koscot Interplanetary, Inc., 497 F.2d 473 (5th Cir.

1974)                                (holding that where promoters retain immediate control over the essential managerial conduct of an enterprise, rather than remote control similar to a franchise arrangement, this element is met); but see Hirsch v. Dupont, 396 F. Supp. 1214, 1218-20 (S.D.N.Y. 1975), aff’d, 553 F.2d 750 (2d Cir. 1977) (indicating that solely should have literal application).

(a)                                        We analyze the “expectation of profits” and “solely from

the efforts of others” factors below:

(i)                 The expectation of profits resulting from the purchase of a Blockchain Token would primarily relate to whether the holder receives (i) rights and/or (ii) investment interests. While non-security Blockchain Token holders may receive money or other forms of financial incentives by virtue of holding the token, we believe that any such incentives are derived through their own efforts, rather than through a passive investment (as would be the case with a Blockchain Token security).

(ii)              Essentially, each of the rights allows the non­security Blockchain Token holder to utilize, contribute to or license the use of the system in various ways, none of which would be considered a passive investment. Rather, we see the non-security Blockchain Token holders as active participants, like franchisees or licensees.

(iii)            Furthermore, although an issuer may have some managerial oversight over the system and the distribution of the Blockchain Tokens, if the holders retain voting rights related to changes to the protocol and other legal rights enforced through technical permissions, this would seem to strengthen the view that token holders have no reliance on the efforts of others. That said, security holders often have voting rights, so we do not view this point as being definitive.

(iv)             We note that appreciation in the value of a non­security Blockchain Token after issuance, due to secondary trading, does not change our view that it is not an investment contract. For example, the value of license or franchise right can increase over time due to the secondary market. Such increases in value derive both of the efforts of the holder and from the system itself, so we do not view such changes as decisive.

(v)               We note that the manner in which the sale of a Blockchain Token occurs, particularly the promotion and marketing, may also affect the “expectation of profits” analysis. For example, if the language used to promote the Blockchain Token includes words like “investment,” “returns” or “profits,” the purchasers of the Blockchain Token may be more likely to expect profits from the efforts of others than if the Blockchain Token is promoted on the basis of the usefulness of the rights attaching to it.

(b)               Courts have also analyzed the existence of voting rights through this Howey factor. Whether voting rights are determinative of a security will be based on the facts at hand. For example, where (i) the holder is provided with rights that provide it with significant managerial control—

i.                    e., the ability to participate in decisions that will affect the success of the enterprise; (ii) the holder has the resources and expertise to make a meaningful contribution; and (iii) the holder does, in fact, participate in management decisions, the instrument is less likely to be considered a security.[5]

(i) Thus, in our view, similar to our analysis above, the existence of voting rights itself should not result in a Blockchain Token being deemed a security.

Rather, whether a determination would need to be made as to whether the holder would be viewed as passive or reliant on the efforts of others. Given that holders of non-security Blockchain Tokens play a more active role by using, contributing to or licensing the use of the system, it is less likely that the voting rights in this regard would be viewed as a security.

IV.              Other Analytical Frameworks

A.                Reves and Loan Versus Security. We considered several other analytical frameworks, including the rubric for analyzing whether a loan is a security under the Securities Act and Exchange Act definitions. The Supreme Court articulated this analysis in Reves v. Ernst & Young, 494 U.S. 56 (1990) through its “family resemblance” test. Given that Reves focused on the term “note” rather than “investment contract” in the definitions of security, which was later distinguished by the Edwards court on these grounds, we determined that this analysis would not be a substantive addition to the outline.[6]

1.                     That said, we do note that the first factor of the Reves test

scrutinizes the motivations of the lender and the borrower to determine whether they are motivated by commercial purposes or for an investment. We view this element as similar to the “efforts of others” factor from the Howey test, and believe that non-security Blockchain Tokens are “commercial” in nature, rather than “investment” in nature, for the reasons described in Section III.[7]

B.                 System License. Another potential framework by which to consider non­security Blockchain Tokens is by using the analogy of a software license, where the rights associated with the Blockchain Tokens could be considered in line with the contractual contours of such a license.

1.                  Software licenses typically are governed by contract law, and one way in which to categorize software may be through focusing on the legal rights of the licensor and what rights may be granted to the licensor. For example, the licensor’s rights would include the ability to grant or distribute all, some or none of the rights attached to the use of the software code (originally the licensor’s intellectual property), as well as the right to exclude certain parties from using any of those rights. Thus, the licensee would receive either all of these rights, or a portion of these rights, depending on what the licensor grants.

2.                  For the purposes of Blockchain Tokens, this structure would be applicable in the following manner: (i) the issuer acts as the licensor of the system, which includes the underlying protocol, as well as the associated rights; (ii) the token holder acts as the licensee, who receives those rights (or a portion of those rights) in order to use the underlying protocol and the overall system; and

(iii)                                any associated rights provided to each token holder are accomplished through the initial issuance of the tokens (akin to negotiating a software licensing contract between two parties).

C.                 Franchise Law. Although we do not suggest that Blockchain Tokens fall under federal or state franchise law requirements, in thinking about the rights that might be included in a non-security Blockchain Token, we drew an analogy to franchise law.

1.          Under the franchise structure, a franchisor operates as the

overarching organization that owns the intellectual property of the franchise (and business plan) and has the authority to sell the franchise right to a potential franchisee. The franchisee is the person to whom these rights are granted.

2.                  In receiving these rights, the franchisee pays money to the franchisor, which can be an initial fee, an ongoing royalty or both.

3.                  Typically, state and federal laws governing franchises require franchisors to provide to prospective franchisees detailed information about the franchise. The disclosure obligations under the various federal and state franchise laws are primarily to mitigate the risk of loss to franchisees that make a capital contribution to the franchise.

(a)               The Federal Trade Commission (“FTC”) rules require a franchisor to provide a prospective franchisee with disclosures related to the trademark being used, the total investment needed to begin operations, the provisions of the franchise agreement and other related disclosure items related to receiving the franchise rights. 16 C.F.R. pt. 436.

(b)               New York franchise law has detailed disclosure requirements for the prospectus that the franchisor must provide to the prospective franchisee. N.Y. Gen. Bus. Law § 683, et seq.

(c)               California state law requires that a franchise agreement include certain protective rights for the franchisee should the franchisor terminate the franchise prior to its expiration date. The purpose of these provisions is to mitigate the loss of investment in the case of unlawful termination by a franchisor. Cal. Bus. & Prof. Code § 20020-22.

4.                  In a franchise, the franchisee puts forth the effort and work directly to build up the business in his/her location and the control or management of the franchisor is more remote. Thus, courts have held that a franchise interest should not be considered an investment security. See Koscot Interplanetary, 497 F.2d at 485; Lino v. City Investing, 487 F.2d 689 (3d. Cir. 1973).

5.                  We view the holder of a non-security Blockchain Token as being similar to a franchisee in that the rights granted by the Blockchain Token allow the holder to contribute to a system in a manner remote from the issuer of the Blockchain Tokens. In essence, the issuer provides the Blockchain Token holder with rights in the system by virtue of the associated Blockchain Token, rather than through a passive investment interest.

(a)               We believe that, despite the more decentralized framework of Blockchain Tokens, the franchise analogy is still useful based on how the initial issuer grants its intellectual property—ie., the system and its underlying protocol—to each individual token holder. Under the franchise model, a franchisor grants its intellectual property (which may also include a business plan) to a franchisor. While a franchise results in a more uniform application of the intellectual property or business plan by each franchisee, in the Blockchain Token context, analogously, the token holder is granted access to a system, which is the baseline framework by which the token holder operates.

(b)               Further, we think it is useful to consider whether the use of disclosures—both to inform token holders of their rights (e.g., voting rights and other systems rights) and to demonstrate the nature of the Blockchain Token—may be useful to incorporate at the time of the issuance of the tokens.

V.                 Conclusion

A.                Based on the above, we believe that an appropriately designed Blockchain Token that consists of rights and does not include any investment interests should not be deemed to be a security, subject to the specific facts, circumstances and characteristics of the Blockchain Token itself.

B.                 Rather, given our analysis in the above, it should be characterized as a simple contract, akin to a franchise or license agreement.

* * *

We hope this outline has been helpful. Please feel free to contact us with any further questions.


 

 


Contributors

Lee Schneider (Debevoise & Plimpton LLP)

Naeha Prakash (Debevoise & Plimpton LLP)

Reuben Bramanathan (Coinbase)

Shahab Asghar (Coinbase)

Fred Ehrsam (Coinbase)

Peter Van Valkenburgh (Coin Center)

Matt Corva (Consensys)

Joel Monegro (USV)

Marco Santori (Cooley LLP)

Chris Padovano (Decentralized Legal)

Demian Brener (Zeppelin)

Matthew Tan (Etherscan)

Emma Popovska (Brontech)

Chris Burniske

Further reading:

 

1.    Naval Ravikant, The Bitcoin Model for Crowdfunding

2.    Peter Van Valkenburgh, Framework for Securities Regulation of Cryptocurrencies

3.    Fred Ehrsam, How to Raise Money on a Blockchain with a Token

4.    Marco Santori, Appcoin Law: ICOs the Right Way

5.    Nick Tomaino, Discussing Crvptotoken Best Practices

6.    William Mougayar,  Best Practices in Transparency and Reporting for Cryptocurrency