ICO is evolution of crowdfunding. WePower token model
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Hey! I’m Artūras, co-founder of WePower — a blockchain based green energy trading platform.
I’m also a Senior Associate at Sorainen law firm, chairman of Lithuanian Fintech Association and two times recognized as Lithuanian Crowdfunding Patron by the EU Commission.
Last 5 years I have spent advising clients on banking and finance law issues, which also included digital banking, crowdfunding, electronic money, crypto currencies and their exchange, KYC/AML matters, and VC/Private equity investments. During my free time I have been drafting several laws and pushing Lithuania to become a leading Fintech jurisdiction in the region (which is going on very well!).
I have always had that desire to change something to better, to create and help people. With WePower and our team I believe we can not only help businesses to grow, increase investors’ returns, cut electricity cost for consumers but also fight against the climate change. WePower is a socially responsible venture, which calls every one of us to act for better.
In my first blog post I will tell you a little bit about Crowd Dialog conference in Athens, where I have represented Lithuania, EU Commission’s position about crypto currencies and ICOs and then provide you explanations about WePower token model from legal perspective.
Crowd Dialog Conference
Crowd Dialog conference is annual two days event, organized by the EU Commission and Michael Geber (and his team). This year conference was held in Athens. During two days event I have participated in the closed door EU Commission workshop on crowdfunding and conference. This event gathers crowdfunding experts from each EU Member States, who represent their countries against the EU Commission and then shares ideas, vision and best knowledge.
This year Crowd Dialog conference had a special session on blockchain and ICOs topics. Perhaps half of the conference was about that. It felt that everyone is fascinated by these topics and how fast ICOs are developing. It was good to meet Michael Geber (once again), Samson Williams and Alejandro Gomez De La Cruz Alcaniz and discuss crypto arena. Thanks guys!
I love Samson’s though about China’s ban on ICOs: “…One of the best things that China did when they banned ICO last week, they told approx. 400 million consumer in China “you can’t have this, you can’t have this ICO”, which made about 400 million people want it”.
Neither China, nor any other villain can stop ICOs and crypto currencies. Experts agreed — ICOs and crypto currencies are here to stay, it is the evolution of crowdfunding. It is amazing to sit in the front row and watch this movement.
EU Approach
During the closed door workshop with other 27 representatives of EU Member States and the EU Commission we have touched various topics about crowdfunding: its status, its growth, its expansion in other regions and, naturally, its evolution. These days crowdfunding evolved into initial coin offerings. Basically, crowd is using crypto currencies to finance new ventures. Only speciality that all ventures using ICO as a crowdfunding tool are deploying to blockchain, tokens and smart contracts.
Listening to the EU Commission I have understood, that politicians and experts in Brussels are fascinated by crypto currencies, blockchain and ICOs. It is one of the hottest topics in Brussels. The EU understands that it cannot kill the innovation, this innovation brings a lot of new opportunities (i.e. jobs as well), despite the associated risks. It seems that EU Commission will not make any sudden moves to regulate ICOs but it will be looking for a balanced regulatory framework. Everyone agrees that not all tokens are securities. However, the line between regulated and unregulated token models is very thin. If you are planning to do an ICO, the first thing should be to carefully structure your token model and talk with experienced lawyers.
A good example could be WePower token model, which not only grows in value, is backed by energy, but also meets reward based crowdfunding principles. WePower token model is structured as a reward based crowdfunding. One of the European regulators have reviewed our token model and confirmed that it does not fall under securities laws.
WePower Token (WPR) Model
WePower is raising funds from the contributors in the form of Ethereum crypto-currency in exchange for tokens issued by WePower, which would provide their holders with a free green energy. The green energy will be donated by the renewable energy producers that will be using WePower platform.
The core service of WePower is to allow renewable energy producers to finance the set up cost of renewable energy sources by selling energy to be produced in the future. The producer will be obliged to donate part of the energy to be created in the future to the community — WePower token holders.
This energy will be donated by the producers to the WePower token holders based on a concluded smart contract. As a proof of the donated energy and concluded smart contract, the WePower token holders will receive internal energy tokens representing the ownership of specific donated amount of energy. With the received energy that was donated by the producer the WePower token holder can do whatever he/she wants: 1) use it for the own benefit (if WePower is working in a specific market); 2) do nothing (produced green energy would just be transferred to the energy grid and sold under the market price); 3) sell it to any other person that needs green energy.
Such model does not fall under financial law regulation due to the following reasons:
1. WePower is not required to share its profits with the WePower token holders, it does not give any control rights to the token holders either.
2. WePower tokens do not provide any intellectual property rights and/or any right to get royalties from WePower.
3. Reward for the contribution for the WePower token holders is the donated energy to be produced in the future. The energy is donated directly to the token holders. WePower does not have any rights to get part of the energy donated to the contributors.
4. Reward depends on WePower expansion and ability to engage renewable energy producers to use the platform.
5. Energy is a physically settled asset which can be transferable. Once the energy is donated, the created smart contract evidences donation of the energy that will be created in the future. Once the energy is created, it is physically settled with the holder of this smart contract (i.e. energy is provided to the energy grid).
On a separate note, I would like draw your attention that internal tokens created by WePower, which are used to evidence the sale/purchase and ownership of energy to be produced in the future, are not considered to be financial derivatives. These tokens and underlying smart contracts represent power-purchase agreements, which are moved to the digital medium. These agreements evidence how much energy must be provided to a particular person. Therefore, based on such power purchase agreement the objective of sale/purchase is the energy that will be settled physically. Following such technicality, tokens are not financial derivatives and the platform itself does not fall under financial law regulation as a trading facility.
Definition of financial instruments in Law on Markets in Financial Instruments of the Republic of Lithuania (MiFI Law) corresponds to the definition set out in the Section C of Annex I to MiFID and refers to the EC Regulation 1287/2006. Paragraph 21 of recitals of the EC Regulation 1287/2006 provides that a derivative contract should only be considered a financial instrument under Section C(7) of Annex I of the MiFID if it relates to a commodity and meets the criteria of a derivative contract having the characteristics of other derivative financial instruments and not being for commercial purposes. Moreover, in accordance with the EC Regulation 1287/2006, a derivative contract as indicated in Section C(10) of Annex I of the MiFID should only be regarded as a financial instrument if it relates to a certain underlying financial instrument and has the characteristics of other derivative financial instruments.
If the above requirements are not met, the respective derivatives contracts should not qualify as financial instruments and should not fall under the regulation of the MiFI Law (e.g. transactions whereunder the energy, emission allowances, bullion as a commodity or other commodities are delivered in the future in exchange for the consideration paid upon the delivery, i.e. the transactions on physical settlement of underlying asset, which do not meet the requirements specified in EC Regulation 1287/2006 as specified above, are not financial instruments).
Therefore, WePower tokens issued during the ICO and internal tokens circulating within WePower platform are not financial instruments.
Looking at the ICO arena and WePower token model, it can be considered to be a revolutionary token model:
- It is structured as a reward based crowdfunding model.
- It grows in real value based on WePower expansion and ability to engage renewable energy producers.
- Token holders gets a reward — green energy, which they can either use or sell.
- Tokens are backed by green energy and the provided reward is liquid.
Cheers,
Artūras
Join the green revolution!