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Author Topic: Creating the ideal business equity token  (Read 937 times)
z00mer
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September 08, 2016, 06:56:22 AM
 #1

Long time lurker, first post. 

This is essentially an updated re-post of a topic I recently created on r/counterparty but things are not too lively there so am looking forward to what kind of input the bitcointalk community might share on this line of thinking.

I'm coming from the perspective of a business owner (going on 10 years, federally incorporated Canadian business) with a keen interest in leveraging crypto to issue securities (to a global audience and specifically in the form of dividend paying stocks/tokens). This interest is driven by two factors: A) it's the way I would want to invest in someone else's company and B) it is a convenient way let someone else invest in my company (though please note: I am not currently seeking investment).

To me, the solution is simple.  At the end of the day, you have to trust who you are investing in.   Once you have established this trust you should invest in them directly.  An exchange that helps to facilitate equity trades is secondary to that of the issuing company that will be responsible for creating the value of said equity.

The exciting part about this is that the procedure for facilitating the process of acquiring equity directly need not be complex.   It should be as easy as the company issuing a token for which you (the investor) and only you hold the private key and for which its public key is a target address the company uses to send your routine dividend payout.

How do you ensure the dividend payouts will continue to be payed out?  You don't - even companies traded on the major exchanges go bankrupt and no amount of security or technology in an investment platform will change that.

What you can do though is choose your investments carefully, in companies you trust and believe will do well - and hope for the best.

With that forward, I would like to share my vision of the 'ideal business equity token'.   Or perhaps worded better, the 'ideal business' + 'ideal equity token' because you can't have one without the other.   Hereon referred to as the cryptocorp and the token.


Token limit:
Only x tokens issued, ever. The token is essentially a private/public key combo for a payout address linked to the *smart contract I am about to describe.


Fixed IPO price:
The cryptocorp sets the initial price of the tokens and that price remains fixed until all tokens are sold.


The two features above effectively lets the cryptocorp define a valuation and target capital goal without overselling and diluting the value of everyone's tokens.  Ex: issue 100 tokens at the price of $1,000 each to raise $100,000 in capital.   


Blockchain bookkeeping:
The cryptocorp has a ledger consisting of public addresses. Ie: one for revenue and one for expenses, for which all businesses transaction flow happens, even if a transaction was entirely fiat (Ex: bought a hammer at hardware store, paid cash) the funds still flow in or out through these addresses to maintain immutable, public accountability.


Smart contract powered proportional profit share:
Each token receives a recurring revenue stream (ie: 'the dividend') from the business in proportion to the terms of the IPO. Ex: in this case there were 100 tokens issued, so each token shall receive 1% of all profit. If you have 25 tokens, you receive 25% of the company's profit (payout once per month) for forever, or as long as the company exists, or until you decide to sell your tokens.


These two features above maintain the integrity of the token long-term. An immutable ledger of transactions makes fraud difficult and the smart contract ensures token holders receive their payout automatically, indefinitely.

*smart contract need not be 'autonomous smart' but rather, it should simply be clear and open.  A basic agreement defined in words (and optionally, code) hosted on a repository with revision history should suffice. 



This isn't perfect, is intentionally simple & conservative, but my purpose was to design exactly the kind of investment I would want to partake in.  A responsible IPO that isn't a pyramid shape.  Open books and clear indication of profit so that when dividends arrive each month you know exactly why you received what you did.  And of course the inherit ROI potential of the token to create exponential gains, be it a long term trickle (dividends) or well timed exit (sell your token).

Awaiting your constructive criticisms, potential issues (including regulatory), and suggestions on implementation. 

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September 15, 2016, 06:17:18 AM
 #2

There is nothing simple about what you've described, especially the implementation of the grand ambitions that you have. Does your company actually generate any income from other sources now or has all your effort to date been expended on building this business plan? It seems much more convenient to issue shares of a company which achieves exactly the same thing.

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September 16, 2016, 06:37:41 AM
 #3

Long time lurker, first post. 

This is essentially an updated re-post of a topic I recently created on r/counterparty but things are not too lively there so am looking forward to what kind of input the bitcointalk community might share on this line of thinking.

I'm coming from the perspective of a business owner (going on 10 years, federally incorporated Canadian business) with a keen interest in leveraging crypto to issue securities (to a global audience and specifically in the form of dividend paying stocks/tokens). This interest is driven by two factors: A) it's the way I would want to invest in someone else's company and B) it is a convenient way let someone else invest in my company (though please note: I am not currently seeking investment).

To me, the solution is simple.  At the end of the day, you have to trust who you are investing in.   Once you have established this trust you should invest in them directly.  An exchange that helps to facilitate equity trades is secondary to that of the issuing company that will be responsible for creating the value of said equity.

The exciting part about this is that the procedure for facilitating the process of acquiring equity directly need not be complex.   It should be as easy as the company issuing a token for which you (the investor) and only you hold the private key and for which its public key is a target address the company uses to send your routine dividend payout.

How do you ensure the dividend payouts will continue to be payed out?  You don't - even companies traded on the major exchanges go bankrupt and no amount of security or technology in an investment platform will change that.

What you can do though is choose your investments carefully, in companies you trust and believe will do well - and hope for the best.

With that forward, I would like to share my vision of the 'ideal business equity token'.   Or perhaps worded better, the 'ideal business' + 'ideal equity token' because you can't have one without the other.   Hereon referred to as the cryptocorp and the token.


Token limit:
Only x tokens issued, ever. The token is essentially a private/public key combo for a payout address linked to the *smart contract I am about to describe.


Fixed IPO price:
The cryptocorp sets the initial price of the tokens and that price remains fixed until all tokens are sold.


The two features above effectively lets the cryptocorp define a valuation and target capital goal without overselling and diluting the value of everyone's tokens.  Ex: issue 100 tokens at the price of $1,000 each to raise $100,000 in capital.   


Blockchain bookkeeping:
The cryptocorp has a ledger consisting of public addresses. Ie: one for revenue and one for expenses, for which all businesses transaction flow happens, even if a transaction was entirely fiat (Ex: bought a hammer at hardware store, paid cash) the funds still flow in or out through these addresses to maintain immutable, public accountability.


Smart contract powered proportional profit share:
Each token receives a recurring revenue stream (ie: 'the dividend') from the business in proportion to the terms of the IPO. Ex: in this case there were 100 tokens issued, so each token shall receive 1% of all profit. If you have 25 tokens, you receive 25% of the company's profit (payout once per month) for forever, or as long as the company exists, or until you decide to sell your tokens.


These two features above maintain the integrity of the token long-term. An immutable ledger of transactions makes fraud difficult and the smart contract ensures token holders receive their payout automatically, indefinitely.

*smart contract need not be 'autonomous smart' but rather, it should simply be clear and open.  A basic agreement defined in words (and optionally, code) hosted on a repository with revision history should suffice. 



This isn't perfect, is intentionally simple & conservative, but my purpose was to design exactly the kind of investment I would want to partake in.  A responsible IPO that isn't a pyramid shape.  Open books and clear indication of profit so that when dividends arrive each month you know exactly why you received what you did.  And of course the inherit ROI potential of the token to create exponential gains, be it a long term trickle (dividends) or well timed exit (sell your token).

Awaiting your constructive criticisms, potential issues (including regulatory), and suggestions on implementation. 




Just a few thoughts:

Token limit:  In a publicly traded company, this is dictated by the entity's organizational documents and controlled by the board and shareholder votes. 

Blockchain bookkeeping:  Publicly traded companies are required to have their financials audited and certified by the accountant.  This is basically the same thing you are suggesting.

Smart contract powered proportional profit share: This is exactly how a corporation works.  It makes money and pays out dividends in accordance with the shares that you own.

My point in making these comments is that you are basically transferring the rules of corporations to the idea of crypto currency.  The idea behind blockchain was meant to revolutionize the global currencies into a fair, open and honest form of currency.  If you are attempting to do the same of entity formation and governance, then making it the same rules is probably not going to revolutionize it.

Hope that helps your thinking.

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September 17, 2016, 07:10:59 AM
 #4

Thanks for the feedback.   Yes that is helpful, these are great points.


Just a few thoughts:

Token limit:  In a publicly traded company, this is dictated by the entity's organizational documents and controlled by the board and shareholder votes.  

Blockchain bookkeeping:  Publicly traded companies are required to have their financials audited and certified by the accountant.  This is basically the same thing you are suggesting.

Smart contract powered proportional profit share: This is exactly how a corporation works.  It makes money and pays out dividends in accordance with the shares that you own.

My point in making these comments is that you are basically transferring the rules of corporations to the idea of crypto currency.  The idea behind blockchain was meant to revolutionize the global currencies into a fair, open and honest form of currency.  If you are attempting to do the same of entity formation and governance, then making it the same rules is probably not going to revolutionize it.

Hope that helps your thinking.

The main assumption is that the blockchain is a superior to the existing systems we have today.   So if the new business re-creates the current model of corporate governenace and security issuance but on the blockchain... then I think the goal will have been achieved.

For example, the government can freeze or take control of your bank accounts which would undermine any revenue flow from dividend payouts.

With a blockchain based token, as long as you have your private key no third party can prevent you from receiving your routine dividend payouts (baring hacks or physical coercion)  

Of course, the source of payouts; the business itself is the weakest link then and that business could certainly be targeted with legal pressure to stop issuing securities/dividend payouts but if they too have key business functions operating automatically on the blockchain; anonymously perhaps - then maybe it is not to much of a stretch to assume that the crypto business's ability to keep funds flowing can rival or surpass that of a publicly traded company.

Anyway, I suppose these 'outsmarting the system' features are principally contradictory with what was initially stated: that this ideal business would pay taxes; ie- play ball with governments.  And yeah, maybe it is just easier to play ball and jump through hoops.

The dilemma I keep returning to though is that crypto and modern tech seem to offer everything we need to conduct business without the need of this centralized authority - an authority who clearly abuses, over-extends, exploits (and worse, gets exploited) time and time again.  And so a part of me would love to say "fuck it, I'm out" and just fully embrace what is possible with crypto (raising capital, issuing securities, and so forth).  Then reality settles in and the potential repercussions from big brother are rather discouraging because I do value my existing freedoms, even if they are handicapped.
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September 17, 2016, 08:29:34 AM
 #5

the business itself is the weakest link then

You are still looking at this entirely the wrong way. A working business with a functional plan that results in profits is not a "weak link" - it is how the world economy works and trying to force the blockchain into the mix doesn't change anything.

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