An Algebraix Data Whitepaper Algebraix Token Economics October 2017, Version 1.0 Pg 1 (858) 381-4800 AlgebraixData.com 9601 Amberglen Blvd Austin, TX 78729
Algebraix Token Economics This document describes the economics of the Algebraix Token (ALX) and various aspects of the Algebraix Platform and Algebraix Network. Updates to this document will be posted on the Algebraix SAFT web page: https://algebraixdata.com/saft LEGAL DISCLAIMER: This document contains forward-looking statements, subject to risks and uncertainties that could cause actual results to differ materially from what is described here. Pg 2
Contents ALX Token Allocation... 4 ALX Token Circulation... 5 Vesting of ALX Allocations... 7 The Algebraix SAFT Offering... 10 Legal Work & The SAFT... 11 Network & SAFT FAQ... 12 Pg 3
ALX Token Allocation Token allocation is a mechanism for distributing tokens so that a wide supply is available once the Algebraix Network begins to operate and a flow of advertisements can be established. At genesis, 100 billion ALX tokens will be created. No further coins will be created and there will be no mechanism for their creation. The ALX tokens will be distributed in the following way: 5% will be made available to SAFT Investors (accredited investors who participate in the Simple Agreement for Future Tokens pre-sale of tokens). 35% will be made available to crowdfunding investors in a public crowdfunding. This will take place at the Network Launch, when the ALX ledger and an associated wallet are available. At this point, trading of ALX within the Algebraix blockchain will begin. 15% (the Company Allocation ) will be reserved for Algebraix employees and certain external developers, who build applications that operate on the Algebraix Network. 10% will be reserved for rewarding Advisers and Agents, who will assist in crowdfunding marketing activity. 35% of the ALX supply will be reserved for blockchain integration payments and customer rewards, to be allocated via the Algebraix Network. Figure 1. ALX Token Allocation In the first instance, the token allocation is a mechanism for distributing tokens so that a wide supply is available once the Algebraix Network begins to operate and a flow of ads can be established. The vesting of the various token allocations is discussed later in this report. The ALX token crowdsale will happen when Algebraix Network becomes operational and personal secure vault (PSV) owners begin to respond to ads presented to them. ALX tokens will then begin to circulate within the network. This circulation of ALX coins is discussed next. Pg 4
ALX Token Circulation The following entities will own and may circulate ALX coin within the Algebraix Network: Algebraix Data: Aside from its initial retained allocation of ALX tokens, Algebraix will earn ALX tokens by taking a commission on blockchain advertising transactions. PSV Owners: PSV Owners will accumulate ALX tokens through viewing ads and may also spend ALX tokens by using other Algebraix platform applications. Advertisers: Advertisers will either buy ALX coin on exchanges or directly from Algebraix to pay rewards to PSV owners who view their ads. Farmers (Resource Providers): Farmers, individuals or organizations running server hardware that supports the Algebraix network, are rewarded in ALX on the basis of work done. Developers: Independent software developers who develop apps for the Algebraix network may be rewarded directly in ALX as well as being paid usage royalties in ALX. Other Blockchain Networks: Algebraix may, in some circumstances, pay for the services provided by other blockchain networks in ALX tokens. Figure 2. ALX Token Circulation Pg 5
The diagram on the previous page illustrates all of the token circulation paths that can occur within the network. As the illustration shows, any of the participants in the network will be able to buy or sell ALX tokens at a cryptocurrency exchange, which they will naturally do if they wish to extract earned ALX value from the network or need to introduce ALX into the network in order to fund any of its services. Algebraix. Algebraix will use ALX tokens, either from its initial allocation of tokens or from those it earns in commission, for promotional purposes to attract PSV users. Our expectation is that the value of the ALX token will increase as the economic activity within the network increases. Farmers. Because all ALX coins are pre-mined, we choose the term farmers to describe the resource providers that deploy the hardware and network capacity and run the software which manages the Algebraix blockchain and stores user data. Farmers earn ALX tokens automatically for their farming activity according to the terms of a smart contract. The use of their resources will be measured and they will be rewarded accordingly. Most likely, they will sell ALX tokens for a local currency via exchange on a regular basis. Developers. The behavior of developers is likely to be similar to that of farmers. They will receive ALX royalties for their applications automatically according to specific smart contracts. Other Blockchains. Interactions with other blockchain-based services may become complex, depending on the application using the blockchain services and how its blockchain network needs to receive payment. In most circumstances it is likely that Algebraix will need to keep a store of the appropriate cryptocurrency to make the payments needed to facilitate the use of the other network. Advertisers. The primary token flow in the network will involve advertisers paying PSV Owners in ALX according to specific smart contracts. Periodically they will buy ALX from Algebraix or from a cryptocurrency exchange in order to fund such ALX payments. PSV Owners. PSV owners will earn ALX, but may also buy ALX within the network in order to spend it on other Algebraix platform applications. Pg 6
Vesting of ALX Allocations The ALX allocations will vest in the following way: SAFT Investors (5%): At the time of the Network Launch, the Company will automatically issue to the SAFT investor 50% of the number of tokens to be allocated to them pursuant to the SAFT. The remaining 50% of these tokens will be issued to Investors on the six-month anniversary of the Network Launch. Crowdsale Investors (35%): All these ALX tokens will vest when purchased. Company Allocation (15%): Two thirds of the Company Allocation (10% of the supply) will vest on the six-month anniversary of the Network Launch. The remaining third of the Company Allocation will vest on each monthly anniversary thereafter. Thus, vesting of these ALX tokens will stretch out over a further 18 months. Adviser and Agents (10%): This 10% of the ALX supply will vest immediately. Customer Rewards & Integration Payments (25%): This supply of ALX will gradually be introduced into circulation as the number of PSV owners increases and more capability is added to the ALX network. The intention is that all but 5% of this supply will be in circulation within 2 years of the Network Launch. The remaining 10% will be kept as a reserve to dampen price fluctuations of ALX coin in relation to the U.S. dollar. The table below and the bar chart on the next page show how when all the ALX vesting arrangements are taken together with our plans to provide customer rewards to early adopters the amount of ALX tokens in circulation gradually increases. Date Growth in the Circulation of ALX Tokens % ALX In Circulation % Increase of Total Date % ALX In Circulation % Increase of Total Mar-18 48.5 1.0 Mar-19 69.0 1.8 Apr-18 49.5 1.0 Apr-19 70.8 1.8 May-18 50.5 1.0 May-19 72.5 1.8 Jun-18 51.5 1.0 Jun-19 74.3 1.8 Jul-18 52.5 1.0 Jul-19 76.0 1.8 Aug-18 53.5 1.0 Aug-19 77.8 1.8 Sep-18 58.5 7.5 Sep-19 79.5 1.8 Oct-18 60.3 1.8 Oct-19 81.3 1.8 Nov-18 62.0 1.8 Nov-19 83.0 1.8 Dec-18 63.8 1.8 Dec-19 84.8 1.8 Jan-19 65.5 1.8 Jan-20 86.5 1.8 Feb-19 67.3 1.8 Feb-20 88.3 1.8 Mar-20 90.0 1.8 Table 1. The Projected Growth in Circulation of ALX Tokens Pg 7
MAR-20 JAN-20 NOV-19 SEP-19 JUL-19 MAY-19 MAR-19 JAN-19 NOV-18 SEP-18 JUL-18 MAY-18 MAR-18 50.5 49.5 48.5 53.5 52.5 51.5 65.5 63.8 62.0 60.3 58.5 72.5 70.8 69.0 67.3 77.8 76.0 74.3 84.8 83.0 81.3 79.5 86.5 90.0 88.3 0 10 20 30 40 50 60 70 80 90 100 Figure 3. ALX Circulation Growth The above bar chart is one estimate of the possible growth in ALX circulation. It assumes that at the Network Launch, 47.5% of the supply of ALX immediately goes into circulation, 35% coming from the crowdfunding event itself, 10% from the rewards provided to advisers and agents and 2.5% from SAFT investors. At the Network Launch Algebraix will be recruiting users and, in so doing, will provide ALX rewards to early adopters who download the app. The assumption that the bar chart models is that each month, from the Network Launch onwards for 25 months, about 1% of the total ALX supply will be provided as rewards for adopters. Thus, by March 2020, most of the ALX supply that Algebraix held at the time of the Network Launch will be in the possession of PSV owners. However, Algebraix will still hold 10% of the total supply in reserve. The remaining gradual increase in ALX price will be caused by the vesting of the company allocation of ALX coin. The only irregularity in the increase in circulation will be caused by the vesting of the second half of the ALX coins sold to SAFT investors, which is expected to occur in September 2018. The supply of ALX will increase by 5% at that time. From the Network Launch onwards ALX coin will begin to circulate as advertisers pay for ads that PSV owners view. Advertisers will need to buy ALX coin to do this, either from exchanges or from Algebraix directly. Some PSV owners may by then have sold some of their ALX on exchanges. As part of the advertising process, Algebraix will earn commission on blockchain transactions which will be paid in ALX. The whole ALX circulation process will be monitored in real-time so that Algebraix knows Pg 8
exactly how the network is behaving. Our expectation is that, from the time of the Network Launch, the value of ALX tokens will be determined by the value of the economic activity within the network that will drive demand for ALX and not by speculators. As that economic activity grows so should the value of the tokens. It is important to note that what we have described is simply a model of the ALX circulation growth. What will actually occur will depend on many factors including the level of advertising business, the growth in the user base and ALX-based incentive schemes. Pg 9
The Algebraix SAFT Offering Algebraix Data requires significant funding to develop the Algebraix Platform, which comprises the Personal Secure Vault (PSV), the Algebraix blockchain network, the advertising database and software that will drive it. For a variety of reasons particularly for the sake of scalability, since the network may eventually need to cater to hundreds of millions of users we need to develop all the software required: the farming software, the mobile and desktop client software and crypto wallet, user interfaces and apps, network infrastructure and monitoring, integrations with other blockchains, tooling for writing distributed apps and smart contracts for the Algebraix blockchain and more. Algebraix Data also needs to launch the blockchain network and facilitate its growth to the point where it can operate at scale. We will need to market to farmers, recruit sufficient numbers and on-board them to the network. We will also need to incentivize developers to build distributed apps for the network and we will likely need to bridge to other blockchains and enable them to be used from within the Algebraix network. Offering of Algebraix Data s SAFTs. To raise this funding, Algebraix Data is conducting an offering of SAFTs (SAFT stands for Simple Agreement for Future Tokens - see the legal section later in this document) through the SAFTlaunch platform. This is a pre-sale of 5% of ALX tokens to accredited investors. The SAFT We hope to assemble a large and diverse group of investors from around the world, not only individual accredited investors, but also companies that, in our view, should have a strong interest in seeing a reformation of the current complex and confused digital advertising market. We welcome strategic investments from companies who are likely to become regular users of the advertising service we are building and who may be able to contribute to its development. We also wish to reach as broad a user base as possible. We have structured the SAFT to reward a large group of people, who can help us build the network, by selling ALX tokens at what we think is a much lower price than will eventually be reached (caveat: as with any risky investment, we cannot make guarantees or reliable predictions). We are legally restricted to involving only accredited investors (world-wide investors accredited to U.S. or similar standards; see legal section). SAFT Details The SAFT details are as follows: Instrument: Algebraix Data SAFTs Fixed price of $0.004 per ALX Sale Cap: 5,000,000,000 ALX Sale Time-line: Opens October 10th and will run for a minimum of 4 weeks. The company may extend the SAFT time-line at its sole discretion. The SAFT will terminate at least two months prior to the Network Launch if it does not terminate before then. The intention is to raise $20,000,000. If there is demand we may increase this amount. The SAFT price provides a 20% discount on the intended crowdsale price of $0.005. Pg 10
Legal Work & The SAFT Offering Documents Our offering is being conducted with the SAFT (Simple Agreement for Future Tokens) instrument, created to enable regulatory compliant token pre-sales. Read our Private Placement Memorandum (PPM) for a detailed description of our offering and a number of important legal disclosures. SAFTs, Token Sales & Securities Laws Most token sales happen as direct sales of the token, a crypto asset. Some happen as pre-sales of rights to tokens before the token and the network exist. Some such token sales may not comply with the securities laws of the U.S. and other jurisdictions. Some token sales have chosen to bar U.S. investors from participating for this reason. Others have chosen to offer rights to tokens only to accredited investors on the basis SAFTs as we are doing. For an excellent review of securities laws as they may or may not apply to crypto tokens, please see Coin Center s thorough Framework for Securities Regulation of Cryptocurrencies. Regulation D, 506(c) After extensive legal review, we have concluded that token sales such as ours should be cautious. Other blockchain projects have been deemed to be selling securities. Therefore, out of an abundance of caution and with the best long-term interests of the Algebraix Network at heart, we have structure our fundraising sale as an offering of SAFTs. We are conducting the SAFT offering in compliance with Rule 506(c), Regulation D, under the securities act of 1933, as amended, and other U.S. federal securities laws (see our PPM). SAFT The SAFT is a fundraising instrument and legal agreement between two parties, where one party (the buyer) buys rights to tokens at a future date from the other party (the seller), after the Network Launch, which will coincide with a crowdsale. You can find our more about the SAFT by downloading and reading the SAFT and our PPM. U.S. Accredited Investors We are required by law to ensure that all U.S. investors who participate in our SAFT sale qualify as Accredited Investors (i.e. have over $200K, or $300K w/ spouse, in income, or a net-worth over $1M, etc.). We unfortunately cannot offer the ALX SAFT to U.S. investors who do not meet that requirement. This may be disappointing for many people in our community, as so many of our supporters are not accredited. Nevertheless, the regulations are in place to protect people from bad actors, and we hope our community understands we must abide by them. Non-U.S. Investors Technically, we are not required to apply the same standard to non-u.s. investors, and we may be able to classify the sale to those as a Regulation S offering, exempt under U.S. securities laws. In such a case, we would need an extensive, world-wide review of each jurisdiction to figure out what restrictions we do or do not need to apply. This could take months of legal work to address thoroughly. Since the U.S. restrictions tend to be more stringent -- and world-wide investors often invest in U.S. ventures according to U.S. securities laws -- our legal team requires us to apply either the investors jurisdiction restrictions or at minimum the U.S. restrictions to all investors. Pg 11
What is the SAFT cap? Network & SAFT FAQ The SAFT cap is measured in terms of number of tokens. The Algebraix SAFT cap is 5,000,000,000 Algebraix tokens (ALX), meaning that Algebraix Data will sell SAFTs with rights to acquire up to 5 billion tokens. What is the total supply of ALX? The total supply will be: 100,000,000,000 (100 Billion) ALX and will never be increased. We expect the network to reach an equilibrium in terms of circulating ALX within 4 years if not earlier. Once equilibrium is achieved the value of an individual ALX will reflect the economic usage of the network, and hence its value. How many ALX will Algebraix retain? Following the Algebraix crowdsale, Algebraix will retain 35% of the supply of ALX. The rest will have been allocated to SAFT investors, Crowdsale investors, Advisors and Agents, and The Company Allocation. Of that 35%, 25% will be distributed as rewards to early PSV adopters. A buffer stock of 10% of the ALX supply will be retained. What is a SAFT and what do I get when I buy one? The Simple Agreement for Future Tokens (SAFT) is a legal agreement. You can think of it as resembling a forward contract for an amount of ALX tokens: the seller (Algebraix Data) sells the rights to tokens ahead of their release date to a buyer (you); the seller must then build the network that enables their use and deliver the tokens at the Network Launch. Half the number of ALX tokens purchased by SAFT investors will be delivered to them at the Network Launch. The remainder will be delivered on the six-month anniversary of the Network Launch. So when buying a SAFT, you purchase the rights to receive tokens from the issuer on a future date, subject to any limitations that are detailed in the SAFT itself. When is the Network Launch? The Network Launch is scheduled for end of March 2018. So those who purchase ALX tokens during the SAFT can expect half the number of ALX tokens to be delivered at end of March 2018 and half at end of September 2018, subject to change. What is the SAFTs term? The SAFT term is until the Network Launch, dissolution or the Deadline Date (as defined in the SAFT). Why is Algebraix Data doing a SAFT rather than immediately doing an ICO? We have been advised by our lawyers that ICO pre-sales that are carried out before the token s application is ready are likely to be viewed by the SEC as the unregistered sale of a security. SAFTs reduce that risk and conduct the sale of an investment contract with approved accredited investors only, in reliance on the safe harbors for private offering exemption. What does Algebraix do to keep the SAFT tokens safe? Are there custodians? Since this transaction is for SAFTs (legal agreements tied to legal entities), you do not have to worry Pg 12
about private keys and custody until we deliver the token. As we get close to Network Launch, we will work with popular crypto asset wallets and exchanges to add support for Algebraix Coin (ALX) and, additionally, we will be providing an ALX wallet as part of the Personal Secure Vault. What about the danger from hackers? The SAFT applications are being processed by SAFTlaunch.com. Despite the fact that SAFTs are relatively new, SAFTlaunch has already conducted two SAFT offerings. It has security procedures in place to protect the data and unintended access to its website and has spent considerable time, effort, and money to ensure its website is a safe place to do business. It considers safety to be a core concern and one of its core competencies. What about problems of compliance and regulation? Regulatory compliance is a key focus both of Algebraix Data and SAFTlaunch. Both companies have employed the top attorneys in the industry to advise our process. SAFTlaunch s background is in investing, brokerage, security and technology, and it is very familiar with the regulations around securities issuance. It goes above and beyond the legal advice it has received in order to comply with all necessary laws and regulation. How does SAFTlaunch track the issuer s use of funds? SAFTlaunch requires issuers to convert all cryptocurrency proceeds to the currency they expect to have expenses in. It requires issuers to use an administrator to oversee expenses and spending. Issuers are required to have their own counsel to ensure compliance with any local or specific regulation or tax concerns. What are the confirmation times for each payment method? Please download the How to Invest in ALX document for exact timing and comparisons. Different payment methods available may have different confirmation times. For example, the Bitcoin block time is estimated to be around 10 min. Please note that network congestion can, at times, make blockchain confirmations much slower than the average time. We cannot clear an investment until it is fully confirmed. Is there a minimum investment requirement or a maximum investment limit for any individual investor? There is a minimum investment requirement of $10,000 (or the equivalent in cryptocurrency). There is no maximum investment limit for any individual investor or investing entity. What happens if I send a payment, and my investment triggers the $20 million cap? Unless the cap is increased, the SAFT will close as soon as the SAFT cap of $20 million is exceeded and, from then, no further investments will be accepted. At that time, any investments that have been entered and are in the queue to be processed will be processed and the appropriate number of tokens will be allocated. What happens if I send a payment, but it is not enough to cover the full investment? All investments remain open until the full-purchase price is received. This means any underpayment will keep the transaction open and uncompleted. You may still send additional money to the deposit address to complete the transaction until the SAFT closes, at which point any uncompleted transactions are canceled. We CANNOT issue a SAFT for partial investments, because the legal Pg 13
agreements signed will be for the EXACT amount you entered and agreed to. What happens if I send too much or too little money to complete an investment? What happens to that money? Any funds contributed to investments that were NOT completed by the end of the sale (i.e., too little money) will be canceled. Any extra funds contributed to an investment beyond the investment amount (i.e., too much money) will not be counted. Those funds will be refunded to the investor. For security reasons, we CANNOT return any such monies until after the sale has ended. Please do not make such a request. We WILL NOT make exceptions, as this is a very high security risk. Pg 14