The Token DPA (Debt Payable by Assets) (“DPA”) is an equity crowdfunding-specific security created by Republic to better protect participants while opening up a new market for blockchain companies. Just as we created and open sourced the Crowd SafeTM, we’re open sourcing the Token DPA in hopes that it becomes an industry standard, making investing in and building the blockchain space better and more accessible for everyone. If you’re planning a token pre-sale, or have already held one and want to give non-accredited participants the same access as accredited participants, drop us an e-mail.
The SAFT (Simple Agreement for Future Tokens) is the instrument widely used by blockchain companies to pre-sell tokens. With the DPA, we’re addressing two of its key limitations:
Generally only for accredited participants
Non-accredited participants (anyone over the age of 18) can participate via Republic Crypto
Allows participants’ rights to expire without recourse
Participants have options: can receive part or all of their principal back, earn a cash return or receive the token when certain events occur
Having seen the SAFTs pervasiveness with accredited investors who can incur more risk, the Republic team determined that the SAFT is not optimal for less sophisticated retail participants. Our chief concern with the SAFT was its willingness to allow participants’ rights to tokens to expire without recourse, therefore our team decided to create an instrument that we feel better protects participants’ interests while opening up a new market for blockchain companies.
With a typical SAFT, participants must wait for a public token sale by an issuing company to receive tokens, otherwise their right to a return on their investment can be left unfulfilled, possibly forever. In contrast, the Token DPA provides a method for participants to either receive part or all of their principal back, earn a cash return or receive the desired token when certain events occur. It should be noted, these protections rely on the company issuing the Token DPA abiding by its terms, there can be no guarantee of this.
We’ve made the Token DPA flexible enough to work for both pre-Public Coin Offering ("pre-PCO") companies and those just about to start or in the midst of their PCO. We split these companies into two camps:
Genesis: Early blockchain companies, not ready to complete a PCO.
Consensus: Later-stage blockchain companies
Currently under U.S. securities laws, selling tokens, which may be considered securities, to non-accredited participants is a risky proposition. The Consensus DPA model allows you to:
The Token DPAs terms can be modified to meet your specific needs, allowing the loan to be paid back in cash or Tokens. For example, you can give yourself breathing room by pushing back the date interest accrues. To reward early supporters, you can also ensure participants get preferential pricing on Tokens in the event a Token distribution event occurs. To make the Token DPA a more liquid instrument than the SAFT, the Token DPA can grant participants (instead of the company) the choice to have all or part of their monies refunded before the loan is paid back.
In the event the start up folds due to insolvency, Token DPA holders may not be entitled to any assets.
A Token DPA can have a hard cap on the time period money may be borrowed in, ensuring that participants’ capital isn’t contributed to a project that won’t materialize within a set period of time. Companies should review and customize this template with the help of experienced counsel. Republic does not assume any responsibility for any consequence of using these documents.
Companies can customize the Token DPA to include repurchase rights as well as allow for refinancings. Depending on the terms of a company's Token DPA, participants should be aware that repayment in cash or tokens may result in no return.
Download: Republic DPA.docx
Planning a token sale, or already held one?
Want to give non-accredited participants the same access as your accredited participants?
Even as development in the blockchain space is accelerating rapidly, existing regulations make it a risky proposition for token issuers to let everyday people participate, leaving most people out. Previously if you weren’t a US accredited investor — meaning you didn’t meet a high income / net worth threshold (3% of the US population), or if you weren’t born in the US — you couldn’t legally participate in cryptoassets offerings. We created the Token DPA to change that.
Anyone 18 or older can purchase the Token DPA — American or international citizens, accredited or non-accredited participants and even certain types of entities.
When you join a project on Republic Crypto, you typically receive a security called the Crowd DPA (Debt Payable by Assets) from the company you loaned money to.
As a loan contract between you and a blockchain startup, the Token DPA is the right to receive interest on your loan or have your loan paid back in the future with the token. The ability to have your loan paid back in tokens is contingent on a trigger event, meaning you will not receive tokens unless a public token offering occurs.
The Token DPA allows participants to earn interest on the money they lend blockchain companies. With the value of principal of the loan rising due to interest and a promised discount on tokens, participants who hold a Token DPA can receive an advantaged rate on Tokens after a period of time, but only if a public token offering occurs.
Companies both under the Genesis and Consensus models will provide a time period by which participants can be paid back, in cash.
Companies utilizing the Consensus model may provide participants an update on a set date after selling the Token DPA. If the participants don’t like what they hear, they can pull out a fixed percentage of their money and end the contract with the company — the Token DPA ensures these monies will be held in escrow, ensuring a hard cap on participants’ loss for a set term of the DPA.
Loans to blockchain companies are risky, regardless of stage, an you could lose your principalt. There is no guarantee that receiving a token in lieu of a cash repayment for a Token DPA will provide a liquid or valuable asset. You should read each company's Token DPA, as repayment terms may change from deal to deal:
There is no guarantee a public token offering will ever occur — in this case you could lose all of your principal.
The Token DPA is an unsecured loan. If the company selling the Token DPA dissolves, Token DPA holders will likely receive no return of capital.
If a Token DPA is repaid in tokens, those tokens may not be freely tradeable or have limited value due to a fluctuating market.
There is no guarantee a Public Token Sale will occur.
It is not known how many blockchain startups will reach a Public Token Sale. It is important to understand that as holders of a Token DPA, there are substantial restrictions on resale and trade during the first year of ownership, with few exceptions. Even after the first year, these securities are not easily traded or sold due to the possible lack of a market.
If the company decides to shut down and there are not enough assets to pay off creditors, other higher priority liability holders may receive assets first, leaving Token DPA holders without sufficient funds to be repaid in full, and they therefore may receive no return.
The company may be able to pay back the principal of your Token DPA with no interest at certain points, check the terms of each Token DPA for specifics.
Some DPAs allow you a limited time period to redeem 80% of the face value and "cash out". However the remaining 20% is forfeited to the company.
You are limited from selling or transferring your Token DPA for the first 12 months, unless selling back to the company, accredited investors and the like. See general selling restrictions.
If the tokens are utility tokens, they should be freely tradeable, regardless of when you receive them.
Find a company you want to invest in on Republic Crypto, sign up, select an investment amount, and pay with a bank or wire transfer Credit Card or bitcoin and wait for the fundraising campaign to end. If the company successfully reaches its funding goal, you will receive a Token DPA, otherwise you will be refunded. Currently you do not need to use Ether (ETH) or a bit wallet to purchase a Token DPA, however you will be responsible for providing the company with the address to one later.
Generally, you will be waiting for the company to either redeem the Token DPA for a cash repayment or tokens. The Token DPA starts to gain interest at a pre-disclosed percentage per quarter after its second anniversary, so the longer you wait potentially the great value in cash or tokens you can receive.
The Token DPA’s terms promise investors that their face value will gain interest after the 2nd anniversary; they also promise to provide tokens at the lowest public rate if a Public Token Sale ever occurs. This means that if you held onto a Token DPA for four years, after which a Public Token Sale occurs, you would receive Tokens at the lowest possible price and your investment will have gained value, giving you more buying power. The company can also choose to repay you after the 2 year anniversary in cash at the predetermined interest rate.
We appreciate the helpful feedback of friends and attorneys, and we expect we will iterate further on the Token DPA. Please send your comments to email@example.com.
“Crowdsafe”, “Crowd Safe” and “Token DPA” are trademarks of Republic and are either registered or are subjects of a registration application pending with the United States Patent and Trademark Office.
There is no guarantee that Public Coin Offering event will occur, meaning a participant may never receive tokens. Terms of a DPA may vary from deal to deal, please consult each issuer’s DPA for the terms of the offering. The value of a return on a DPA will be directly affected by the terms of the DPA and/or the value of tokens at the time they are issued, please consult the terms of a DPA for more information.
Republic does not verify information provided by companies on this Portal and makes no assurance as to the completeness or accuracy of any such information. Additional information about companies fundraising on the Portal can be found by searching the EDGAR database.