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LEGAL OPINION THE PROJECT: “Underground Waifus”
LEGAL OPINION THE PROJECT: Underground Waifus
November 17, 2022
This legal opinion will focus on United States federal security laws.
Based on our analysis of the current case law, regulations of the competent governmental institutions in different parts of the world, including such agencies as the SEC (Security and Exchange Commission), CFTC (Commodity Futures Trading Commission), MAS (Monetary Authority of Singapore), or ECB (European Central Bank), as well as based on various facts and materials derived from a plethora of ICOs conducted in different parts of the world, we come to the conclusion that the appropriately designed token may not entail risks of being recognized as an investment instrument.
Nevertheless, we cannot provide a thorough review of the token’s compliance with the regulatory regime of each jurisdiction. Hence, in this legal opinion we will focus on United States security laws.
This legal opinion concerns the verification of a token (hereinafter - "Token" or "GQ") presented by the Founders of the Project (hereinafter also " Company") ontheir website located at https://waifus.gitbook.io/whitepaper/, which is available to the general public with certain restrictions that may be imposed by the Company from time to time, (hereinafter “Platform”, “Project” or “Underground Waifus”) as towhether such a token can be considered a security under United State Federal Securities Laws.
It should be noted that the legal analysis herein may be updated in the future as the law in this area continues to develop. Furthermore, the below analysis is strictly theoretical, as no cases, of which we are aware and that are relevant to the subject matter, have been tested in US courts as of the date of preparation.
- 1.Security Law Framework for Blockchain Tokens in Light of SEC ReportIn re SEC v C.M. Joiner Leasing Corp., 320 U.S..344, 351 (1943) it is established that"The reach of the Securities Act does not stop with the obvious and commonplace. Novel, uncommon, or regular devices, whatever they appear to be, are also reachedif it be proved as a matter of fact that they were widely offered or dealt in under termsor courses of dealing which established their character in commerce as "investmentcontract", or any interest or instrument commonly known as security."The same was held in Reves v. Ernst and Young, 494 U.S. 56, 61 (1990):"Congress purpose in enacting the securities laws was to regulate investments, in whatever form they are made and whatever name they are called".The US Securities and Exchange Commission (hereinafter the “Commission” or “SEC”) adheres to this position and declares that any new forms of investments via smart contracts or blockchain technology fall under the purview of US federal securities laws and on July 25, 2017, it issued a Section 21(a) investigative report, Release No. 81207 on investigation of DAO case. Among others, the aforementionedSEC report distinguishes projects where tokens represent securities as described above.Hence, in this analysis, we shall investigate and provide our legal opinion as to whether the GQ is a type of an investment vehicle that triggers relevant federal security law provisions of the United States.
- 2.Security Law Analysis for the UNDERGROUND WAIFUS and Its TokenUnderstanding the model of the Project’s work will help us to understand the natureof GQ Token. Therefore, we start with the fact-based part of the analysis of this LegalOpinion with an attempt to delve into the matter of business, which is not possible without comprehending the difficulties the system users are trying to overcome, andto reveal solutions the Underground Waifus itself suggests in the White Paper (posted on the Project website at the link: https://waifus.gitbook.io/whitepaper/). For the purpose ofthis analysis, we have examined the White Paper (hereinafter the “WP”) of the Project.
JURVAL CORP is a company incorporated under the laws of Spain that develops the Platform that we are considering under this Legal Opinion.
«JURVAL CORP is a technology company made up of an interdisciplinary team dedicated to the development of applications and gamification.»
The White Paper reports that Underground Waifus
«is a multiplayer TCG (Trading Card Game) based on a cyberpunk universe, focused on a very specific vertical: Waifus in a post-apocalyptic future. One of the main sources of innovation is that it proposes a circular economy model that combines F2P (Free to Play) and P&E (play and earn) business models with the tokenized economy.»
On the official website and in WP, JURVAL CORP announces the launchof a platform called Underground Waifus. This Project combines a multiplayer online game, as well as a real economy based on the blockchain.
«Underground Waifus is a multiplayer TCG (Trading Card Game) based on a cyberpunk universe, focused on a very specific vertical: Waifus in a post- apocalyptic future.»
«One of the main sources of innovation is that it proposes a circular economy model that combines F2P (Free to Play) and P&E (play and earn) business models with the tokenized economy.»
«The universe of Underground Waifus takes place in the future, corrupted by the scarcity of materials, money: stardust, and the desire for power. An eternal war between different races and more than 9 factions.»
According to WP, the Platform allows users who are interested in online card gaming to participate in the game organized by the Company, as well as to participate in buying or selling cards that are used in the game. They can also buy items at the market place. In addition, the Project can be used for advertising, in WP The companyannounced the launch of in-game advertising platforms.
Based on the WP and information provided by the Company:
(a) in connection with the Project, the Company has distributed or will distribute afixed number of Tokens to buyers by selling such Tokens;
(b) Access to the multiplayer game is free. According to the Company statements
«Underground Waifus shares a freemium F2P (free 2 play) and a PaE (play and earn) model, making the game accessible to anyone.»;
(c) Each transaction made within the Platform is subject to a commission:
Tournament ticket buy-in fees: each ticket will generate 10% commissions added to the price, so if a ticket has a value of $1.00, its buy-in value will be $1.10. Commissions will be distributed as follows: 8.5% will be allocated to the token rewards pool.
16.5% will be allocated to the token's liquidity pool. 2.5% will be allocated for marketing activities (ads, influencers) 5% for closing partners, stakes, and CEX trading 12.5% will be allocated to be burned and taken out of circulation 5% will be allocated to the remaining marketing reinvestment budget for maintenance 50% will be allocated for maintenance and project team.
Marketplace purchase fees: These are the commissions generated from the purchase/sale of NFTs will generate 10% commissions added (5% from each part): 8.5% will be allocated to the token rewards pool.
16.5% will be allocated to the token's liquidity pool. 2.5% will be allocated for marketing activities (ads,influencers) 5% for closing partners, stakes, and CEX trading 12.5% will be allocated to be burned and taken out of circulation 5% will be allocated to the remaining marketing reinvestment budget for maintenance 50% will be allocated for maintenance and project team.
Withdrawals fees: These are the commissions generated from withdrawals the in-game softcurrency to the token, we take the 10% commissions of the total tokens generated: 8.5% will be allocated to the token rewards pool.
16.5% will be allocated to the token's liquidity pool. 2.5% will be allocated for marketing activities (ads,influencers) 5% for closing partners, stakes, and CEX trading 12.5% will be allocated to be burned and taken out of circulation 5% will be allocated to the remaining marketing reinvestment budget for
maintenance 50% will be allocated for maintenance and project team.
(d) According to the information provided in the White Paper, the Platform has one token Underground Waifus Token (GQ). As part of the Legal Opinion, an analysis of the GQ Token will be carried out;
(e) Tokens perform the following functions:
(1) Tokens can be used as their own currency in the payment infrastructure builtinto the Project, which allows Users to pay for products provided within the platform;
The actual GQ$ has 2 uses: off-game like GQ as a cryptocurrency and in-game like GQ as a softcurrency:
1) OFF-GAME as a CRYPTOCURRENCY Web3 Store: official game store to buy with game assets with GQ (Cryptocurrency):
Buy lootboxes Buy time boosters Buy game pass tickets for PVP games Buy game pass tickets for tournaments games
Web3 Marketplace: official marketplace where players buy and sell their NFTs with GQ (Cryptocurrency):
Buy lootboxes. Buy time boosters. Buy game pass tickets for PVP games. Buy game pass tickets for tournament games.
2) IN-GAME as a CRYPTOCURRENCY The GQ (Softcurrency) it's only generated by winning PVP battles, represents 1:1 with GQ (cryptocurrency). The functionalities are:
Level up the cards. Whitdraw as a 1:1 GQ$ (Cryptocurrency).
(2) GQ Tokens can be used by the Project participants to pay for access to additional games and levels developed within the Platform;
(3) According to the information provided in WP, Tokens can be used to gain access to new exclusive content;
COMPETITIVE PaE Model-based on competitions between players, with several game modes PVP, Tournaments, Seasons, and PVE. With an economic model where players can be rewarded based on player skill.
This differs from the free content:
FREEMIUM F2P In the model that we present, on the one hand, players can access and play from the first moment without buying NFT from the F2P application that will be available in the different applications and PC stores. In addition, if they want to access the competitive mode at some point, they can do it using the same account and share the user level, and profile experience obtained.
Note that we prepared and introduced here only the core features of the Project that will help us to analyze the GQ Token for the Howey Test.
In rendering this Opinion, we have made the assumptions (without enquiry) as set out in Appendix 1 of this Opinion (“Assumptions”). This Opinion is also subject to the qualifications as set out in Appendix 2 of this Opinion (the “Qualifications”).
At this stage, we begin our assessment with the main participants of the Platform inorder to understand the relationship between the Company on the one hand, and GQ users (platform participants), on the other hand. With this in mind, it is fair to state that the relationship between the GQ users referred to above will ultimately determine the relationship between the GQ users and the Project Company, and as aconsequence, these relationships will lead to the final conclusion of this Legal Opinion.
There are several core participants in the Platform: This concept of participants division is very general and introduced here only for the purposes of this Legal Opinion.
UNDERGROUND WAIFUS Platform target participants:
An analysis of the information presented in the White Paper and on the officialwebsite of the Project allows us to conclude that the Company is a separate category of participants in the Platform.
We believe that the Company is engaged in solving organizational and technicalissues and tasks that are directly related to the correct operation of the Project, its development and further functioning. Thus, in particular, the Founders ensure the correct operation of the Platform and GQ Tokens, develop new elements of the Platform ecosystem, control the work of the official website of the Project (link: https://waifus.gitbook.io/whitepaper/), and also edit the WP and other documents related to the operation of the Platform.
In addition, the White Paper states that the Company are actively working towards the marketing development of the Project.
According to the data presented in the White Paper, Project Users are a categoryof Platform participants who are primarily interested in participating in amultiplayer online game, as well as in the most profitable and reliable use of cards and NFTs.
The Company declares that, thanks to the capabilities of the Project, Users canaccess the functions that will be available in the future through the launch of various elements that form the ecosystem of the Project. Users get the opportunity to participate in the passage of game levels and tournaments, storetokens, publish content, participate in the purchase and sale of items useful forthe development of the user in the game.
The analysis of the Project allows us to conclude that all participants of the Platformare actively involved in the development of the Platform, since the more people become Users of the Platform, the more complex and flexible the Platform becomes.This finding also applies to the Platform mechanism. At the same time, Users performing transactions using the token and the Platform can determine its shortcomings and functions, which, in turn, may affect the further development andimprovement of the Platform.
Obviously, no legal opinion on the Howey Test may obviate the token analysis and we will scrutinize it not only in this part hereof. Only ensuring a practical use at thetime of launch is insufficient to remove the token from the securities
laws. However,we describe what we have in our case.
The liquidity comes with the risk of the SEC determination that the initial offering of the token may be a security offering. Any effort to create a secondary market significantly increases the likelihood that the SEC will deem the token sale to be a securities offering.
In this regard the SEC may question why tokens are sold to those who have no use for them and may have a compelling argument that the tokens could only have beensold as an investment vehicle in those specific situations.
- 1.Certain Considerations Related to the Decentralized Features of the ProjectDespite the fact that review and legal research on the matter related to whether the Project itself constitutes a decentralized application and the extent to which it may be considered as decentralized could add more value to and strengthen the conclusions made this Legal Opinion, we have not been asked to perform such research and, therefore, such analysis is out of scope of this letter.
- 2.The Howey Test and Its Adoption by the Federal Courts (will be analysed further tothe case)In accordance with Section 2(a)(1) of the federal Securities Act of 1933 (hereinafterthe “Securities Act” or “Security Law”), a security is:"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."The federal Exchange and Securities Acts tend to control issuing of securities and totestify particular interests attached to them. However, the Securities Act promotes a priority of the substance over the form. Therefore, if the Commission reveals any type of cooperation promising any future profits merely out of signing particular contract, it may investigate the case and declare this contract a security. Under such circumstances, promoters of such instrument shall disclose particular information and submit it to the SEC.
The Supreme Court case for determining whether an instrument meets the definitionof a security is SEC v. Howey, 328 U.S. 293 (1946). In that case, a promoter offeredto purchase certain services (cultivation of land) for the fixed price and cost of services. The promoter was delegated to distribute the net profits derived from the sale of fertile land among the holders of land plots during the harvesting period. There were only 42 investors interested in purchasing the land.
The Court construes the “investment contract” term within the definition of a securityand notes that it has been used to classify those instruments that are of a “more variable character” that may be considered as 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.” 11 Howey, 328 U.S. at 298; Golden v. Garafolo, 678 F.2d 1139, 1144 (2d. Cir. 1982).
More specifically, the court comes to the conclusion that the contract between the promoter and investor constitutes an investment contract. The court explains the definition of the security transaction as follows:
“a contract, transaction or scheme whereby a person invests his money in a commonenterprise and is led to expect profits solely from the efforts of the promoter or a third party.”
Moreover, the court said that this definition was “crystallized” in the state courts cases long before adoption of the federal act. The Supreme Court continues that the term
“had been broadly construed by state courts so as to afford the investing public a full measure of protection. Form was disregarded for substance and emphasis was placed on economic reality.”
The Court stated that its definition of investment contracts
“embodies a flexible rather than a static principle, one that is capable of adaptationto meet the countless and variable schemes devised by those who seek the use of themoney of others on the promise of profits.”
Eventually, to determine that this is an investment contract, the court has to establishthat the following applies: (i) investment of money; (ii) common enterprise; (iii) expectation of profits; (iv) solely from the efforts of others (e.g., from a promoter orthird party).
With regard to the first prong “investment of money”, there is no basis for disagreement. The only issue that may arise here is whether cryptocurrency may constitute viable consideration interest in lieu of the obtained interests attached to thetoken. This issue is addressed by the Supreme Court itself holding that the first prongrequires only
“tangible and definable consideration in return for an interest that had substantiallythe characteristics of a security.”
One of the legal issues related to the “investment of money” criterion, owed to blockchain technologies, is that there could be smart contracts that are acting autonomously and independently: cryptocurrency may be transferred to one contractwhile tokens, in lieu thereof, will be transferred (“airdropped”) by another smart contract.
However, the Supreme Court fails to specify the definition of a common enterprise. Federal Court developed two different concepts to analyze underlying contractual relationships of the parties. The first doctrine is “horizontal commonality” and the second is “vertical commonality”.
Horizontal commonality is found when a) investors’ contributions are pooled together (and according to some courts, there is a pro rata sharing of profits) and b) the fortune of each investor depends on the success of the overall enterprise.
In contrast, vertical commonality presupposes that common enterprise may be foundwhere the investors’ fortune is dependent on the expertise of the promoter or third parties. In case of narrow vertical commonality, investors’ profits shall be tied to theprofits of promoters.
It is not necessary that the funds of investors are pooled; what must be shown is thatthe fortunes of the investors are linked with those of the promoters, thereby establishing the requisite element of vertical commonality. Thus, a common enterprise exists if a direct correlation has been established between success or failureof the promoter's efforts and success or failure of the investment.
According to this view, the test is satisfied if the promoter and the investor are both exposed to risk and the profits and losses of investor and promoter are correlated.
In broad vertical commonality, investors’ success depends on the efficacy of the managers or third parties. Both the Fifth Circuit and the Eleventh Circuit follow thisview. If the investor relies on the promoter's expertise, then the transaction or schemerepresents a common enterprise and satisfies the second prong of the Howey Test.
As mentioned above, the circuits now disagree over the term “common enterprise”.
The third prong is an “expectation of profit derived from the entrepreneurial or managerial efforts of others”. Analyzing this prong, courts consider whether potential investors expect to receive profits 1) from their own efforts (use of rights or services obtained from promoters) or 2) from the efforts (managerial expertise) ofthe founders.
Even though in re Howey, the Court used the phrase “solely” from the efforts of others, the lower courts relaxed this prong, adopting concepts of “undeniably significant” or “predominantly” (Rivanna Trawlers Unlimited v. Thompson Trawlers, Inc., 840 F.2d 236, 240 n.4 (4th Cir. 1988) SEC v. Life Partners, Inc., 87
F.3d 536, 545 (D.C. Cir. 1996); SEC v. Int’l Loan Network, Inc., 968 F.2d 1304,
1308 (D.C. Cir. 1992). SEC v. Koscot Interplanetary, Inc., 497 F.2d 473, 483 (5th Cir. 1974) (quoting SEC v. Glenn W. Turner Enters., Inc., 474 F.2d 476, 482 (9th Cir.1973).
In United Housing Foundation, Inc. v. Forman, the Supreme Court stated, “The touchstone is the presence of an investment in a common venture premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.” 421 U.S. 837, 852 (1975).
Since that time, some courts are investigating whether there is de minimis efforts ofinvestors and whether efforts of them are insubstantial factor for the investor to participate in the contract.
Other courts have a look whether the efforts of offerors of the contract are predominant and more significant in comparison with those of investors in light of future expectation of profits or that efforts of those other than the investors are “theundeniably significant ones”.
Finally, some courts hold that the fourth prong is satisfied when the expectations of profits derive from the managerial and entrepreneurial efforts
of the offerors, “in unspecified measure and unspecified comparative weight as to the relative significance with investors’ efforts and offerors’ or third parties’ efforts.”
C. Considerations of DAO Case by the Securities and Exchange Commission.
Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: the DAO (hereinafter the “DAO case” or “Report” or “Investigation”) is thefirst investigation of the Commission in attempt to provide the ICO market with an interpretation or application of the US Security regulations (Securities Act of 1933)to a new paradigm of decentralized economy with the “rule of code”.
“The investigation raised questions regarding the application of the U.S. federal securities laws to the offer and sale of DAO Tokens, including the threshold question whether DAO Tokens are securities. Based on the investigation, and under the factspresented, the Commission has determined that DAO Tokens are securities under theSecurities Act of 1933 (“Securities Act”) and the Securities Exchange Act of 1934 (“Exchange Act”).”
The Report revealed that tokens introduced by the DAO were security instruments, hence are subject to the federal securities laws. Among others, the Report claims thatblockchain technology-based securities must be registered unless a valid exemptionapplies. Those participating in unregistered offerings may be liable for violations ofthe securities laws.
The Commission confidently stresses that federal law shall be equally applied as to conventional corporations issuing investment instruments as to virtual structures such as decentralized autonomous organizations – the DAO.
The four cornerstones formed by the US judicial law shall be intact. And in this regard, the Report looks at the DAO Token through the prism of four elements of thewell-known Howey Test: investment of money in a common enterprise for the expectation of profits solely from the managerial efforts of others.
As it is stated in the Investigation:
“This Report reiterates these fundamental principles of the U.S. federal securities laws and describes their applicability to a new paradigm—virtual organizations or capital raising entities that use distributed ledger or blockchain technology tofacilitate capital raising and/or investment and the related offer and sale of securities.
The automation of certain functions through this technology, “smart contracts,”3 orcomputer code, does not remove conduct from the purview of the U.S. federal securities laws.4 This Report also serves to stress the obligation to comply with the registration provisions of the federal securities laws with respect to products and platforms involving emerging technologies and new investor interfaces.”
Without any doubt, DAOs have dramatic effect on legal reasoning as to whether a token is a security instrument. This Legal Opinion is not an exception, as it will applyconclusions of the Commission and the four-prong test.
It is clearly stated in the Report that registration of securities is required for the purposes of full disclosure of information to the investors. Such disclosure enables purchasers to make a considerable decision and facilitates legal scrutiny for investorprotection.
Section 5 of the Securities Act declares:
“The registration provisions of the Securities Act contemplate that the offer or sale of securities to the public must be accompanied by the “full and fair disclosure” afforded by registration with the Commission and delivery of a statutory prospectuscontaining information necessary to enable prospective purchasers to make an informed investment decision. Registration entails disclosure of detailed “information about the issuer’s financial condition, the identity and background of management, and the price and amount of securities to be offered ...”
The DAO is a drastic example that was used by the founders as a representation of a“virtual” organization incorporated in a form of a code. The DAO was thought as a for profit organization that emits tokens to investors in order to form a corpus of assets that would be then used to fund “projects”.
Prospective holders of DAO tokens are supposed to share earnings from these projects as a return on their investment in DAO tokens. In addition, DAO token holders could monetize their investments re-selling tokens on a number of web- basedplatforms that supported secondary trading in the DAO Tokens.
“DAO Token holders were not restricted from re-selling DAO Tokens acquired in the offering, and DAO Token holders could sell their DAO Tokens in a variety of ways in the secondary market and thereby monetize their investment as discussed below. Prior to the Offering Period, Slock.it solicited at least one U.S. web-based platform to trade DAO Tokens on its system and, at the time of
the offering, The DAOWebsite and other promotional materials disseminated by Slock.it included representations that DAO Tokens would be available for secondary market trading after the Offering Period via several platforms.
During the Offering Period and afterwards, the Platforms posted notices on their own websites and on social media that each planned to support secondary market trading of DAO Tokens.”
“For example, customers of each Platform could buy or sell DAO Tokens by enteringa market order on the Platform’s system, which would then match with orders from other customers residing on the system. Each Platform’s system would automaticallyexecute these orders based on pre-programmed order interaction protocols established by the Platform.”
DAO construction was built in a way to allow any DAO token holder to have a voteright for a project that would promise certain investment returns. Each action of a token holder was executed via a smart contract
“According to the White Paper, in order for a project to be considered for funding with “a DAO [Entity]’s [ETH],” a “Contractor” first must submit a proposal to theDAO Entity. Specifically, DAO Token holders expected Contractors to submit proposals for projects that could provide DAO Token holders returns on their investments. Submitting a proposal to The DAO involved: (1) writing a smartcontract, and then deploying and publishing it on the public ledger.”
The Report starts its legal analysis by applying each element of the Howey Test. Thefirst one is straightforward. Each DAO participant invests a certain amount of fundsto acquire tokens that would provide him with ownership rights and the right to votein a project that promises to be profitable. Hence, the Commission finds the first element of the Howey Test to be satisfied.
“In exchange for ETH, The DAO created DAO Tokens (proportional to the amount of ETH paid) that were then assigned to the Ethereum Blockchain address of the person or entity remitting the ETH. A DAO Token granted the DAO Token holder certain voting and ownership rights. According to promotional materials, the DAO would earn profits by funding projects that would provide DAO Token holders a return on investment.”
The second element was found to be positive as well since the DAO was clear in itsintentions and provided on its website information on the for profit purpose of organization.
“[P]rofits” include “dividends, other periodic payments, or the increased value of the investment.” Edwards, 540 U.S. at 394. As described above, the various promotional materials disseminated by Slock.it and its cofounders informed investors that The DAO was a for-profit entity whose objective was to fund 12 projects in exchange for a return on investment. 35 The ETH was pooled and available to The DAO to fund projects.”
The final element has been met as token holders were fully reliant on the actions of third parties.
“Investors in The DAO reasonably expected Slock.it and its co-founders, and The DAO’s Curators, to provide significant managerial efforts after The DAO’s launch.The expertise of The DAO’s creators and Curators was critical in monitoring the operation of The DAO, safeguarding investor funds, and determining whetherproposed contracts should be put for a vote.”
D. Consideration of Munchee Case by the Securities and Exchange Commission.
After the DAO Report the next case of a paramount importance is the cease- and- desist order (hereinafter – the “Order”) against a Californian corporation, MuncheeInc. (hereinafter – “Munchee”) where the latter was declared to be a company that organized the unregistered sale of security instruments.
After the Howey Test scrutiny, the Commission found that Munchee tokens did notsatisfy the third and fourth element of the test. The SEC implications in Munchee`s Order has a long-standing effect on the legal reasoning applied to the tokens of any ICO project.
Thereby the SEC has sent a clear message that it will take substantial approach to any ICO project.
That said, factual actions of a company may implicate that tokens are contemplated to be traded on a secondary market. For instance, if it is marketed beyond the targetedaudience or burned for its price appreciation or endorsed for third-party statements on token attraction for investment purposes. All these factors though not being explicitly stated shall be weighted in every ICO project, and in this Legal Opinion we analyze this fact pattern also.
Munchee created an iPhone application for people to review restaurant meals. In October and November 2017, Munchee arranged offering the digital tokens (hereinafter – “MUN” or “MUN token”) to be issued on a blockchain.
Munchee offered MUN tokens to raise about $15 million in capital so that it could, firstly, improve its existing application and, secondly, recruit application users(restaurants) to purchase advertisements, write reviews, post photographs or to buy food and conduct other transactions using MUN. The company communicatedthrough its website, a white paper, and other means that it would use the proceeds tocreate the platform.
The SEC has investigated in the Order that in the white paper Munchee ensured investors that token shall be listed on several prominent US exchange markets or at least it will take all reasonable steps for that. Then, the trade has occurred far beyondthe US while the visitors of the restaurant were in the California.
What is more, Munchee declared support of token price appreciation. Hence, any prospective token holder may reasonably believe that their investments in tokens could generate a considerable profit. The following is stated in the Order by the SEC:
“In the MUN White Paper, Munchee stated that it would work to ensure that MUN holders would be able to sell their MUN tokens on secondary markets, saying that “Munchee will ensure that MUN token is available on a number of exchanges in varying jurisdictions to ensure that this is an option for all token- holders.”
“Munchee represented that MUN tokens would be available for trading on at least one U.S.-based exchange within 30 days of the conclusion of the offering. It also stated that Munchee would buy or sell MUN tokens using its retained holdings in order to ensure there was a liquid secondary market in MUN tokens.”
In the white paper Munchee has tried to persuade investors that it would run its business in a way that would cause MUN tokens to rise in value. The so-called platform is structured to burn tokens taking them out of circulation and thereby raising their price. Or, in another case, it was stated in the white paper that the holderof more tokens would be rewarded with a major number of tokens.
Besides that, the SEC defined that despite of Munchee statements in the white paper, no economic circulation has finally occurred within the platform. Thereby, it may beconcluded that Munchee artificially intensified appreciation of token value. The following is stated in the Order of the Commission:
“In the MUN White Paper, on the Munchee Website and elsewhere, Munchee and itsagents further emphasized that the company. First, Munchee described a
“tier” planin which the amount it would pay for a Munchee App review would depend on the amount of the author’s holdings of MUN tokens.
For example, a “Diamond Level” holder having at least 300 MUN tokens would bepaid more for a 5 review than a “Gold Level” holder having only 200 MUN tokens.Also, Munchee said it could or would “burn” MUN tokens in the future when restaurants pay for advertising with MUN tokens, thereby taking MUN tokens out ofcirculation. Munchee emphasized to potential purchasers how they could profit fromthose efforts:
While Munchee told potential purchasers that they would be able to use MUN tokensto buy goods or services in the future after Munchee created an “Platform,” no onewas able to buy any good or service with MUN throughout the relevant period.”
As follows from the Order, the Munchee marketing campaign was aggressively designed as to deliver to investors an idea that MUN will be traded on a secondary market with an exponential growth. The more actively Munchee echoes this message,the less meaningful the economical use of the platform becomes. The SEC has tracedthe following blog post commercials that among others proves investors’expectations of profits.
“Munchee published a blog post on October 30, 2017 that was titled “7 Reasons YouNeed To Join The Munchee Token Generation Event.” Reason 4 listed on the post was “As more users get on the platform, the more valuable your MUN tokens will become” and then went on to describe how MUN purchasers could “watch their value increase over time” and could count on the “burning” of MUN tokens to raisethe value of remaining MUN tokens.”
Munchee underlines the strong linkage between the number of participants, buildingof the platform and growth of MUN token value.
“Similarly, on or about October 23, 2017, one of Munchee’s founders described theopportunity on a podcast about the MUN offering: So they [users] will create more quality content to attract more restaurants onto the platform.
So the more restaurants we have, the more quality content Munchee has, the value of the MUN token will go up – it’s like an underlying incentive for users to actually contribute and actually build the community.”
What is more, Munchee was negligent to endorse third party statements that touted the opportunity to profit.
“On October 25, 2017, Munchee created a public posting on Facebook, linked to a third-party YouTube video, and wrote “199% GAINS on MUN token at ICO price! Sign up for PRE-SALE NOW!” The linked video featured a person who said “Todaywe are going to talk about Munchee. Munchee is a crazy ICO. If you don’t know whatan ICO is, it is called an initial coin offering. Pretty much, if you get into it early enough, you’ll probably most likely get a return on it.”
This person went on to use his “ICO investing sheet” to compare the MUN token offering to what he called the “Top 15 ICOs of all time” and “speculate[d]” that a $1,000 investment could create a $94,000 return.”
Finally, the MUN token marketing campaign strengthened beyond the United Stateswhere the restaurants were not located and focused primarily on the forums of peoplewho are interested in crypto assets investments.
“Instead, Munchee and its agents promoted the MUN token offering in forums aimedat people interested in investing in Bitcoin and other digital assets, including on BitcoinTalk.org, a message board where people discuss investing in digital assets. These forums are available and attract viewers worldwide, even though the MuncheeApp was only available in the United States.”
Similarly, Munchee offered to provide MUN tokens to people who published promotional videos, articles or blog posts in forums such as BitcoinTalk.org or otherwise helped Munchee promote the MUN token offering. More than 300 peoplepromoted the MUN token offering through social media and by translating MUN token offering documents into multiple languages so that Munchee could reach potential investors in South Korea, Russia, and other
countries where the Munchee App was unavailable”
In conclusion and for the purposes of this Legal Opinion, we note that in accordancewith the SEC position in Re Munchee any ICO project may not meet the third and fourth prong (expectation of profits solely from the managerial benefits of others) ofthe Howey Test if the Project represents only veil without substantial economical underlines Platform.
E. Comparison with the Verge Crypto-Currency General Partnership case
Plaintiffs Cameron James and the other plaintiffs filed their Complaint against Justin
E. Valo. The case allegedly arises out of the theft of Plaintiffs’ Verge virtual currency(the “Verge Coins”), which were themselves unregistered securities, from a smart phone “hot wallet” application called CoinPouch, that was developed and marketedby two related Texas entities that are now in bankruptcy—Touch Titans, LLC, and Touch Titan Labs, LLC.
Among others, plaintiffs claim a Defendant Valo, the Lead Developer of Verge, andthe Verge Crypto-Currency General Partnership, a common law general partnershipthat formed to develop, market and benefit from the use of the Verge Coins(collectively the “Partnership”), engaged in intentional, reckless or negligent acts leading to the theft of their Verge Coins.
In accordance with the complaint, the Partnership violated Sections 5 and 12(a) of the Securities Act and the Computer Fraud and Abuse Act (“CFAA”) [18 U.S.C. § 1030], in addition to other relevant Texas state law claims pleaded. The second countwas securities law violation, the third count conversion, the fourth unjust enrichment,and the fifth claim was based on product liability.
For the purposes of this Legal Opinion, we consider one issue that, on our point of view, might be relevant to the fact pattern provided in the WP even though there is no court decision in the Justin E Valo case.
We do not consider how Plaintiff came to the conclusion that Verge token is not a security in accordance with the Howey Test, since the latter does not provide explanations on the reasoning behind the claim. However, the question we have proposed is whether the Underground Waifus amounts to a partnership.
In accordance with Uniform Partnership Act of 1997 Section 202:
- 1.a) ...association of two or more persons to carry on as co-owners a business for profit forms a partnership, whether or not the persons intend to form a partnership.
- 2.b) In determining whether a partnership is formed, the following rules apply:
- 3.(1) Joint tenancy, tenancy in common, tenancy by the entireties, joint property, common property, or part ownership does not by itself establish a partnership, even if the co-owners share profits made by the use of the property.
- 4.(2) The sharing of gross returns does not by itself establish a partnership, even if thepersons sharing them have a joint or common right or interest in property from which the returns are derived.
- 5.(3) A person who receives a share of the profits of a business is presumed to be a partner in the business, unless the profits were received in payment:
From the uniform law provided above it can be inferred that a major difference between a partnership and other forms of incorporation related to whether and the extent to which the entire business may be declared to be a legal entity.
In this respect, it can be defined that legal entity is a separate subject of law having its own rights such as the right to own and dispose of property, to sue and be sued, and to enter into contracts. In other words, there are two separate subjects recognizedby the law.
When individuals carry out a common enterprise as partners, the common law dictates that partnership does not exist. Under the common-law theory, a partnership is an aggregate word for individuals. The rights and duties recognized and imposed by common law are those of the individual partners.
Plaintiffs in their lawsuit did not unfold the doctrine of joint partnerships, but did make such a conclusion as several people were listed in the Black Paper with the main goal of investment collection: such as founders, developers, marketers.
In this respect, and considering the alleged claims to be true that people involved inbuilding an ecosystem are those that “receives a share of the profits,”
members of thedecentralized system could fall into the domain of Section 202 (a) (3) of the UniformPartnership Act 1997.
Based on the WP and information provided by the Platform Company, we note that the profit sharing element is not satisfied with respect to the Project tokens because:
- 1.(a) the Functions of the Tokens do not grant users any rights to participate in or receive any profit, income or other payments by virtue of their possession of theTokens. The exception in this case is the income that Users can receive due to thestaking available within the Project; and
- 2.(b) although a user using the Platform may be able to receive tokens for their contribution to the Platform, such distribution of rewards and / or incentives is based on the user contributing to the Platform by providing liquidity to the Platform's liquidity pool. Accordingly, rewards and / or incentives are allocated in accordance with such contributions of such user to the Project, and not becausesuch user owns tokens.
The Underground Waifus case is different since it is more likely that tokens do not represent an investment instrument as analyzed below. Taking for granted that Tokens are not securities, we may come to the conclusion that Section 202 (a) (3) isnot applicable here. Each User is not a partner to UNDERGROUND WAIFUS and is not promisedany share in any UNDERGROUND WAIFUS company.
Then, unlike with the Verge Case, in the Underground Waifus none of the materialsidentify persons involved in the promotion of the Project, its tight circle, bonds, investments interests or forms of incorporation.
Yet, the Underground Waifus might fall into a “safe harbor” under section 202 (a)2 of the Uniform Partnership Act 1997 providing the mere sharing of gross returns does not establish partnership even if the persons sharing them have a joint or common right or interest in property from which the returns are derived.
Considering all the above, we note that the Verge case is a mere claim of a Plaintiff.No decision by a competent court has yet introduced the decision and underlined itspoint of view, therefore this case is not decisive to this Legal Opinion.
F. Guidelines, Report on ICO and other Sources taking for Consideration in this LegalOpinion.
- 1.1) SEC’s order against blockchain company Block.one. to pay $24 million penaltyfor unregistered ICO;
- 2.2) SEC`s order against EtherDelta for operating an unregistered exchange;
- 3.3) SEC`s order against international security-based swaps dealer XBT Corp that targeted U.S. investors;
- 4.4) SEC`s order against ICO incubator ICOBox and founder for unregistered offering and unregistered broker activity;
- 5.5) SEC`s order against Bitqy and BitqyM and its founders for defrauding investorsin unregistered offering and operating unregistered digital asset exchange;
- 6.6) SEC`s order against research and rating provider ICORating for failing to disclose it was paid to tout digital assets;
- 7.7) SEC against Kik Interactive, No. 19-cv-5244 (S.D.N.Y., filed June 4, 2018);
- 8.8) SEC`s Investor Bulletin: Initial Coin Offerings, July 25, 2017;
- 9.9) SEC Investor Alert: “Bitcoin and Other Virtual Currency-Related Investments”;
- 10.10) SEC Investor Alert: “Ponzi Schemes Using Virtual Currencies”;
- 11.11) SEC Investor Alert: “Social Media and Investing – Avoiding Fraud”;
12)SEC Investor Alert: “Public Companies Making ICO-Related Claims” Aug. 28,2017;
- 1.13) Statement on framework for investment contract’ analysis of digital assets, Bill Hinman, Director of Division of Corporation Finance Valerie Szczepanik, SeniorAdvisor for Digital Assets and Innovation;
- 2.14) Chairman’s testimony on virtual currencies: “The Roles of the SEC and CFTC”Chairman Jay Clayton, Washington D.C., February 6, 2018;
15) Framework for “Investment Contract” Analysis of Digital Assets by the StrategicHub for Innovation and Financial Technology.
Analysis Under the Howey Test
We provide our analysis of the token below based on each Howey Test factor.
(1) Investment of Money
In determining whether an investment contract exists, the investment of “money” need not take the form of cash. See, e.g., Uselton v. Comm. Lovelace Motor Freight,Inc., 940 F.2d 564, 574 (10th Cir. 1991).
“In spite of Howey’s reference to an ‘investment of money,’ it is well established thatcash is not the only form of contribution or investment that will create an investmentcontract.”
In Re DAO Report:
“Investors in The DAO used ETH to make their investments, and DAO Tokens werereceived in exchange for ETH. Such investment is the type of contribution of value that can create an investment contract under Howey. See SEC v. Shavers, No. 4:13-CV-416, 2014 WL 4652121, at *1 (E.D. Tex. Sept. 18, 2014) (holding that an investment of Bitcoin, a virtual currency, meets the first prong of Howey); Uselton, 940 F.2d at 574 (“[T]he ‘investment’ may take the form of ‘goods and services,’ or some other ‘exchange of value’. ”
As we can see in the case law analysis above, it was not difficult for courts to establish the “investment money” prong.
There are no questions regarding the public offer, since at the time of preparation ofthis Legal Opinion, the White Paper was posted by the Company on the official website and is available to all third parties on it. In addition, the website itself contains information about GQ Tokens and their purchase.
However, further distribution of the Tokens will ultimately be outside of the Project’scontrol. Hence, we may treat this as broad communications to the general public. It is stated in the court’s decision that Bitcoin may be used to purchase goods or services or to pay for individual living expenses. The only limitation of Bitcoin is that it is limited to those places that accept it as currency.
Since Bitcoin or any other cryptocurrency has all functions inherent to a real currency, it can be considered as the “money” when it is used as consideration in forming an investment contract.
Therefore, this element of the test is straightforward for us and points toward the GQ Tokens being an investment contract.
(2) Common Enterprise
In contrast with the “Investment of Money” prong, the GQ Token does not satisfy either common enterprise or vertical element of the Howey Test, subject, however, to certain presumptions made below.
In accordance with the “Framework for Investment Contract Analysis of Digital Assets” designed by the Strategic Hub for Innovation and Financial Technology:
“Courts generally have analyzed a “common enterprise” as a distinct element of aninvestment contract. In evaluating digital assets, we have found that a “common enterprise” typically exists.
Based on our experiences to date, investments in digital assets have constituted investments in a common enterprise because the fortunes of digital asset purchasershave been linked to each other or to the success of the promoter’s efforts. See SEC v. Int’l Loan Network, Inc., 968 F.2d 1304, 1307 (D.C. Cir. 1992).”
The horizontal common enterprise is found where investors combine their investments in one pool and the fortune of each investor depends on the success of the overall enterprise. In some courts, judges are seeking to decide whether a pro ratasharing of profits takes place.
The essence of this approach is that investors are tied together in their risks either toreceive or to lose everything. That is not the case in our circumstances.
It is likely that funds are pooled together because the fund initially collected by the Project from the Token purchasers are pooled and locked in the smart contract.
Another element for the horizontal common enterprise that has to be found is
the dependence or, on the contrary, independence of the enterprise Company and each user. Under our circumstances, it cannot be inferred that the fortune of each investordepends on the success of the overall enterprise.
One may argue that, in respect of launching the Project, the success of each user shallindeed be equal to success of another, as the failure to develop the Platform would affect all users. However, this argument has many flaws.
We believe that with regard to the use of the Project, the participants and the Company are most likely independent. Any User of the Platform acts as an independent player, and the Platform provides technical support that can be used to perform various operations. Therefore, we can state that it is more likely that the stateof each GQ users is independent of the state of the Project.
Finally, the Platform is not designed to directly or indirectly share any of its profits with the users.
In the vertical enterprise test, it is not necessary that the funds of investors are pooled;what must be shown is that the fortunes of the investors are linked to those of the promoters, thereby establishing the requisite element of vertical commonality. Thus,a narrow vertical enterprise exists if a direct correlation has been established betweenthe success and failure of the promoter's efforts and the success and failure of the investor.
The risks a GQ Users accepts are more likely of a different nature as compared withthose risks that promoters incur (Company or some third parties).
The Project’s risks are associated with the inability to use funds in a way not specifiedin the WP, or to use them improperly, or to end up with a fiasco either with the use of funds or with the development of the system or its launch, or with the lack of a critical number of users that could increase the economy of the Project.
In all other cases, it is more likely that the promoter’s risks do not correlate with those of the users. We are inclined to believe that, in general, GQ Users only face risk if the declarations contained in the WP will be not implemented.
In broad vertical commonality, investors’ success depends on the efficacy of the managers or third parties. If the investor relies on the promoter's expertise, then the transaction or scheme represents a common enterprise and satisfies the second prongof the Howey Test.
The Platform may be launched by and is available for use to any allowed user, therefore, every member of the Project starts to pursue its own purposes and thus insuch pursuit will face its own risks, misfortunes, and failures that would not be commingled with the fortunes of the Project enterprise.
At the same time, we did not find any information on the way funds collected from the sale of the Tokens shall be distributed among Company, developers of the Projector advisers.
It might be inferred that the Token is more likely to be a consumer goods than a security since consumer goods companies do not generally induce purchasers to purchase their products by advertising how the purchase money will be used. It is likely that the relevant information provided in the White Paper serves for informational purposes only, rather than to incentivize the prospective purchasers tobuy the GQ Tokens.
Accordingly, and taking into account the above-mentioned, in our opinion, the GQ Token is more likely not to match a common enterprise element of the Howey Test.
The presumption in support of our reasoning here is based on the fact that aprospective GQ User purchases the Tokens not only with the speculative purposes but also with the intent to use the Platform and benefit from it.
However, this presumption may be eliminated by the fact that a single purchaser (orat least some of them) may purchase Tokens with no intention to use the Platform, rather to hold these Tokens and to profit from trading in exchanges or receiving a passive income.
(3) Expectation of Profits
We consider that the “Expectation of Profits” element is matched for the following reasons.
The case law that we have analyzed above revealed that the “Profits” definition maybe construed broadly and may include not only the fiat money but also other benefits.However, even though the above is true, it would be a superficial analysis of the Project at issue.
In Re DAO Report in was stated the following
“The ETH was pooled and available to The DAO to fund projects. The projects (or “contracts”) would be proposed by Contractors. If the proposed contracts were whitelisted by Curators, DAO Token holders could vote on whether The DAO shouldfund the proposed contracts. Depending on the terms of each particular contract, DAO Token holders stood to share in potential profits from the contracts. Thus, a reasonable investor would have been motivated, at least in part, by the prospect of profits on their investment of ETH in The DAO.”
At the same time, in consideration of the Munchee case, an interesting point has beenconcluded:
“Like many other instruments, the MUN token did not promise investors any dividendor other periodic payment. Rather, as indicated by Munchee and as would have reasonably been understood by investors, investors could expect to profit from the appreciation of value of MUN tokens resulting from Munchee’s efforts.”
The SEC goes further in Munchee and underlines the uselessness of merely denotingtoken a utility as such:
Even if MUN tokens had a practical use at the time of the offering, it would not preclude the token from being a security. Determining whether a transaction involvesa security does not turn on labelling – such as characterizing an ICO as involving a“utility token” – but instead requires an assessment of “the economic realities underlying a transaction.” Forman, 421 U.S. at 849. All of the relevant facts and circumstances are considered in making that determination. See Forman, 421 U.S. at 849 (purchases of “stock” solely for purpose of obtaining housing not purchase of “investment contract”); see also SEC v. C.M. Joiner Leasing Corp., 320 U.S. 344,352-53 (1943) (indicating the “test . . . is what character the instrument is given in commerce by the terms of the offer, the plan of distribution, and the economic inducements held out to the prospect”).
The expectation of profits from a purchase of any subject of value almost always takes place. One may be motivated and has to have speculative interest, for example,to resell the commodity or the right rather than retain an interest in personally consuming the subject of value.
“It is an investment where one parts with his money in the hope of receiving the profits from the efforts of others, and not where he purchases a commodity for personal consumption or living quarters for personal use.”
Applying the above-mentioned law to the case at hand, we can infer that like in anyother project, GQ Users will be inevitably divided into two groups - those who are seeking to use the Platform and those who merely intend to trade on the secondary market. We have to admit that some people in the first group of the users may enterthe exchange market to sell the tokens due to its market price appreciation.
As we can see from the facts described below, the Platform is designed in such a wayas to provide its holders with the opportunity not only to participate in an online multiplayer card game, use Tokens for transactions, but also engage in staking. Thus, it can be concluded that the token may have features of a security token.
Under our analysis we look at how much development needs to happen for the tokento reach its usefulness. If a token is sold in an undeveloped state, that provides the stronger argument that purchasers are buying and expect profits “from the efforts of others.” Thus, the more work that needs to be done on the token, the greater the riskthe company takes at the time it sells that token.
Thus, the more work that needs to be done on the token, the greater the risk the company takes at the time it sells that token.
The White Paper and the official website of the Project contain information about theCompany's plans for the development of the Platform. As you can see from the datain the roadmap, most of the features described in WP are available to Token holdersright now, the rest of the features are in the final stages of development and will be available to Users in January 2023.
Since the Platform will be launched in January 2023, we can conclude that the under this prong is likely not to be a security token.
Therefore, and taking into account the foregoing, we suppose this prong is more likely to push the scale towards GQ Token being not deemed as a security.
(4) Solely from the Managerial Efforts of Others
Analyzing this prong, courts consider whether the potential investors expect to receive profits 1) from their own efforts (use of rights or services obtained from promoters) or 2) from the efforts (managerial expertise) of the others (promoters, managers).
As we discussed above, not all courts share the approach of the Supreme Court usingthe term “solely” that defines the efforts of others.
If we apply the concept “only” from the efforts of others, this prong is more likely not to be satisfied.
However, some federal courts later relaxed this approach exploiting “de minimis” efforts of others or the concept of “undeniably significant” or “predominantly” afterthe Re Forman case. So even if the investor has the power to be involved, the transaction may still be an investment contract if the efforts of others predominate.
“Whether the efforts made by those other than the investor are the undeniable significant ones, those essential managerial efforts which affect the failure or successof the enterprise” (The Forman case; SEC v Glenn W Turner Enters., 474 F.2 d 476sec.28 ( Feb.1, 1973).”
In Re DAO it was stated based on the facts:
“The Curators exercised significant control over the order and frequency of proposals, and could impose their own subjective criteria for whether the proposal should be whitelisted for a vote by DAO Token holders. DAO Token holders’ votes were limited to proposals whitelisted by the Curators, and, although any DAO Tokenholder could put forth a proposal, each proposal would follow the same protocol, which included vetting and control by the current Curators. While DAO Token holders could put forth proposals to replace a Curator, such proposals were subjectto control by the current Curators, including whitelisting and approval of the new address to which the tokens would be directed for such a proposal. In essence, Curators had the power to determine whether a proposal to remove a Curator was put to a vote.”
Then in the DAO case, the SEC underlines that investors mostly rely on the actions of Slock.it.
“Although DAO Token holders were afforded voting rights, these voting rights werelimited. DAO Token holders were substantially reliant on the managerial efforts of Slock.it, its co-founders, and the Curators.”
However, we are inclined to believe that GQ Users will rely on the managerial and entrepreneurial efforts of the Project’s team only to the extent that the latter will further develop the Platform that would permit all parties of the Platform to communicate and apply all functionality of the system as they
deem fit. Besides andas we discussed above all profit derived from the use of the Platform may be obtainedonly from their own efforts.
Therefore, this prong is more likely not to be satisfied.
IV. Summary and Conclusion
Based on the information and facts described in the previous paragraphs and subjectto all assumptions and qualifications, we believe that the token is not a security.
The GQ Token appears to satisfy the first prong of the Howey Test, and no one may reasonably conclude that the courts will determine otherwise.
The second prong is more difficult and debatable. However, our analysis has concluded that this element is not satisfied under both theories applied by the federal courts.
The third prong is also unlikely to be met, as noted in this report.
The fourth prongs of the Howey Test is not satisfied.
To conclude, since not all the elements of the Howey Test are met, in our opinion, the GQ Token does not meet the legal definition of a security under United States law.
Nevertheless, it should be noted that the Howey Test has not yet been directly appliedby courts to any utility tokens before. Only a U.S. court may definitively determine whether the GQ Token is a security, based in its opinion and regulatory enforcement.
IN THE PROCESS OF PREPARING THIS LEGAL OPINION, WE ANALYZED ONLY THE PROJECT TOKEN NAMED GQ FOR ITS COMPLIANCE WITH THE HOWEY TEST.
WE HAVE NOT ANALYZED OTHER PROJECTS THAT THE COMPANY COULD USE IN PERSPECTIVE ON THE PLATFORM. ACCORDINGLY, THIS LEGAL OPINION MAY NOT BE COUNTED AS A PROFESSIONAL ASSESSMENT OF THE LEGISLATION BY THE EXCHANGE OR OTHERTOKENIZATION PLATFORMS.
THE ABOVE ANALYSIS IS BASED ON INFORMATION OBTAINED
FROM A REPRESENTATIVE OF THE PROJECT, THE WHITE PAPER OFTHE PROJECT AND ITS WEBSITE. THE SEC OR A COURT OF COMPETENT JURISDICTION MAY REACH AN ALTERNATIVECONCLUSION TO THAT STATED IN THIS LEGAL OPINION LETTER. NO WARRANTIES OR GUARANTEES OF ANY KIND AS TO THE FUTURE TREATMENT OF USERS OR SIMILAR TOKENS ARE BEING MADE HEREIN.
NOTICE TO RESIDENTS OF THE UNITED STATES
IF YOU ARE FROM THE UNITED STATES OF AMERICA, WE HEREBY INFORM YOU THAT TO THE BEST OF OUR KNOWLEDGE, THE OFFEROF SALE OF THE GQ TOKEN DOES NOT REPRESENT THE SALE OF A SECURITY. THEREFORE, THE OFFER OR SALE IS NOT REGISTERED IN ACCORDANCE WITH THE UNITED STATES SECURITY LAWS. IN CASE YOU BELIEVE OTHERWISE, PLEASE CONSULT WITH YOUR LEGAL COUNSEL AND NOTE THAT NO ACTION MAY BE BROUGHT ON THE BASIS OF THIS LEGAL OPINION.
Ignacio Ferrer-Bonsoms Hernández AttorneyRegistration number 2227 (Pamplona, Spain)
Appendix 1 ASSUMPTIONS
- 1.(a) All documents are authentic, accurate, and complete and all copies submitted to usas certified or reproduced copies conform to the originals and such originals are authentic, accurate, and complete, and no relevant document, information or arrangement has been withheld from us.
- 2.(b) All facts, statements, representations, and/or information expressed in the documents and Instructions are and remain true, accurate and complete in all respects and not misleading due to the omission of any material matter, and we express no opinion on all such facts and information.
- 3.(c) All documents remain and will remain in the form reviewed by us, without amendment or supplement (whether in writing or otherwise).
Appendix 2 QUALIFICATIONS
- 1.(a) This Legal Opinion is limited, and relates solely to US Federal security law as at the date of this Legal Opinion. This Legal Opinion is confined to matters of US laws and is given on the basis that it will be governed by and construed in accordance with the laws of US. Accordingly, we do not express or imply any opinion whatsoever as to any laws other than the laws of US and we have made noinvestigation of any other laws which may be relevant to the documents submittedto us.
- 2.(b) Our statements on the provisions of Part III of the Securities Exchange Act discussed in this Legal Opinion have been given on the basis of our interpretationof the relevant provisions, current practice, and the positions expressed by the documents, and accordingly, where we provide a statement in this Legal Opinion,we are expressing our view but this does not guarantee that a court or any other regulatory authority of US would necessarily come to the same view.
- 3.(c) This Legal Opinion is also given on the basis that we undertake no responsibility and are under no obligation to advise you of any other matters, including any matters in relation to any additional features of the Tokens that may be introducedin respect of the Tokens that are not set out in the documents and the instructions.
- 4.(d) This Legal Opinion is addressed to, and for the sole benefit of, the Company, andexcept with our prior written permission, may not be transmitted or disclosed to orused or relied upon by any other person for any purpose or filed with anygovernmental agency or other person (other than pursuant to an order of a court ofUS).
Underground Waifus is a multiplayer TCG (Trading Card Game) based on a cyberpunk universe, focused on a very specific vertical: Waifus in a post-apocalyptic future.
One of the main sources of innovation is that it proposes a circular economy model that combines F2P (Free to Play) and P&E (play and earn) business models with the tokenized economy.
The universe of Underground Waifus takes place in the future, corrupted by the scarcity of materials, money: stardust, and the desire for power. An eternal war between different races and more than 9 factions.
The TCG is focused on a competitive side, with an easy player-driven economy: PVP (player vs. player) battles, and the player who wins takes it all.
The use of blockchain technology and assets in fungible or non-fungible tokens (NFT) empower the concept of TCG and digital collecting, with a limited supply of collections and future new limited collections on the different known blockchains that are annexed to the project. Players are the holders of the assets, either for mere collecting or playing, and can generate value for their invested time.
MISSION AND VISION
We love collecting and playing video games via Web3. Everything can converge and make sense. Our mission is to create a world in which to play, gather and make the user participate in its evolution.
VISION Our vision is to create a virtual universe where collectors and TCG players connect and use their assets. We want to give it further meaning by bringing our brand with physical editions of Underground Waifus, comics, and action figures.
Underground Waifus is a multiplayer TCG (Trading Card Game) based in a cyberpunk universe, where 9 factions fight to dominate territories in a post-apocalyptic future.The game focuses on competitiveness through PVP battles to be the best player of each season. Practice, train, and play massive tournaments to win great prize
The launch of the game is planned in different phases or milestones. This strategy allows for easy testing and constant updates. In this way, players enjoy the game from the very first moment, rewarding those committed to the project since its inception.
The game will be released for PC and Mobile, with free and p2e versions. Platforms such as Android and PC will be prioritized. Physical versions and complementary expansions will be launched when the game's development is more advanced to give more use and value to the tokenized assets.
Underground Waifus is a TCG that merges several themes: cyberpunk and manga/anime waifus. It is a card collecting and action game.
There are several combat modes:
- ● PVE (training, which will later only be available in the F2P mobile version).
- ● PVP version with a game pass or entry tickets, where the winning player getsall the tokens.
- ● PVP version of winning ELO will determine who is the winner of each SEASON.These battles are limited daily to 10 and are cumulative.The player is not obliged to play every day and can spend as much time as he wants, the day he desires.
Actually, there are 9 different factions with more than 400 cards, levels, and special powers. The factions are as follows:
Subtle and dangerous. They master arcane arts that allow them to harness the elements. They may not be the strongest, but they can take down anyone. It is an aggressive faction that plays with the hidden knowledge of the domain of fire, air, and earth. Their main weakness, they are conceited and sometimes underestimate their opponents
Proud and haughty. They are one of the oldest and most resourceful factions. They possess enormous physical abilities and are tremendously agile. They are convinced that they have the right to dominate the other factions and control all planets. The biggest weakness is the lack of new recruits for the faction.
Wild and effective. Thanks to their deep connection with animals, they are proficient in all styles of combat and also possess inimitable ragos of their own, which makes them more dangerous. They are another of the oldest factions and although they may seem adorable at times, they are ruthless. Their main weakness is that they do not always have control over themselves.
Deep and enigmatic. Their path is the study and deepening of combat styles related to science and magic. They possess the best and the worst of sorcery and science. They may seem unprepared physically, but they are fearsome in battle thanks to their knowledge. Their weakness is the difficulty of finding resources to make their potions and elixirs.
Tough and disciplined. Only those with the best combat training are chosen. Their training is savage which makes them fearsome to any enemy. Experienced in tactics and strategy, they are at the same time solid and resistant. Their greatest weakness is their dependence on orders to act, without their leaders they are vulnerable.
Stealthy and lethal. Capable of camouflaging themselves in any environment and attacking by surprise. They are experts in ambushes and traps, although they do not shy away from open combat. They handle all kinds of tactics, although they prefer the ancient arts of combat. Their weakness is their extreme fidelity to their code, which makes them inflexible in their decisions.
Calculating and fickle. They are unpredictable and that makes them very dangerous.
Not only do they know all the combat styles, they also dominate the trade in the
underworld of the territories they control. They are one of the factions with the best
equipment and the most treasures. Their main vulnerability is that their changing
moods can plunge them into melancholy.
Flirtatious and murderous. They may not be the most disciplined faction, but they are truly fearsome. Capable of fighting dirty if necessary or facing great challenges, without losing their smile or the color of their lips. Especially dangerous when they have no hope left, they are not afraid to fall in combat. Their weakness is that they are highly unstable and can sometimes fight each other, ruining a fight.
Majestic and courageous. They keep safe some of the most hidden secrets of the combat arts. They have their own rules of combat and fierce discipline. They are convinced that they have the right to dominate all other factions. Their best known weakness is their lack of empathy towards any other living being, which isolates them more and more.
HOW TO PLAY
The objective of Waifus is to finish with the 20 life points of the opponent player to win the game. Currently, there are 2 global variables representing life and attack power-ups for the cards (energy):
You have 20 life points in total, once these life points are eliminated, the game is over. Everyone starts with the same life, it is a global attribute that can be subtracted depending on the ability of some cards.
All players have 15 energy points, which are used per round, and when the round ends, they are recharged. These are attack bonuses that are added to one or more cards. The energy multiplies the base attack, and the result is added to the base attack to obtain the total attack of this card per round.
Below, we will see an example and explanation.
We can observe that the card's all-out attack comes from the base attack's summation together with the sum of the multiple of the energy used by its base attack.
● An example: using this base card, we observe that its attack is 6, and assuming we use 2 energy points, the final attack would be:
○ FINAL ATTACK = 18; OBTAINED FROM: 6 + (6*2) = 18.
Now that we have learned how the formulation of the attack works, before moving on to the gameplay, we must understand the cards and their different abilities that make this formula can vary.
CARD STRUCTURE & USES
All the cards have characteristics in common. They are the following:
It indicates how powerful a card is. To level up, it will be necessary to battle and obtain experience points (Stardust) and the use of the game's internal currency (Exocredits) that can only be obtained by playing and winning battles in Underground Waifus.
In addition, the higher the level of improvement for the card, the longer the waiting time for its evolution to be completed, and the cards that are leveling up, will not be able to be used.
This indicates how unique/rare this card is. The rarer the card, the more powerful it tends to be. These are the ordered rarities from minor to major:
This number is the BASE DAMAGE (ATK) of a creature (with which it will face another creature). This will be ENHANCED when you use ENERGY in combat. Each ENERGY multiplier will multiply the ATK x2.
- ● For example, We attack with this card that has 6 ATK, and we use 3 ENERGIES. Our card will receive a multiplier of 3 to its number, i.e., 6+(6x3) = 24.
- ● Our card will enter the battlefield with 24 ATTACKS. It will WIN if the enemy card has 23 ATTACKS or less. However, if the enemy has more than 24, we will lose.
This is the final damage inflicted on the enemy if you win in ATTACK on the opponent's card. It is the second number, which we find located to the right, is known as POWER (DIRECT DAMAGE).
This attribute will only be used if you WIN THE DUEL. If it wins, then the card will do THAT DAMAGE to the enemy player's life (20 points of LIFE).
FACTION ABILITY & BONUSES
The faction skill is the first value between the ATK (attack) and the PWR (damage). It acts directly on the formulation of the Final Damage. The Bonus, on the other hand, is located just below the Faction Skill and directly affects the Final Damage result. We will dedicate the following section to understanding in detail all the characteristics of the different powers that affect the skills and bonuses in the game.
If we take this card as an example, we observe that it has a "-1 ENEMY ATK" the ability is something that ALL CARDS have, but it will depend on the rarity and level of the card and how good this ability is. On the other hand, we also note that it has a BONUS, which is PUNISH: 4
IMPORTANT: ABILITY and BONUS will be applied before applying ENERGY.
- ● For example, this card grants -1 to the ATK (Attack) of the enemy card. So if we face a card with 6 ATK that has spent 3 ENERGY, that card theoretically should have 24 DAMAGE.
- ● But what would happen if this card is affected with a -1? Its damage would become 5, so the multiplier we have applied to it of 3 energy would multiply the 5, so it would be 5+(5x3) = 20.
- ● In addition, it has the PUNISH ability, subtracting life points from the opponent whenever it loses. So if this card were to lose in the ATTACK battle against his opponent, it would imply 4 life points directly to the opposing player.These skills will be of great importance when choosing a fighter to face an opponent, as they can give you victory and allow you to win duels using less energy.
EXPLANATION OF POWERS (ABILITIES AND BONUSES)
In Underground Waifus, each of the factions and their characters has different abilities and powers that increase as their levels increase.
The indicated damage. Applies to the final direct damage.
● Example with the card in the image: Let's say we use ENERGY (of the total 15) about 4 points so that the damage would be: 5 + (4*5) = 25 + 3 = 28 points of ATTACK.
PROTECT / SHIELD ABILITY
This ability reduces the opponent's final attack damage by "X%."
● Example with the card in the image: let's suppose that the opponent has a final attack of 25 ATQ points. If we apply our ability the opponent's final ATQ would be = 25 - (25*0,1) = 22,5.
This ability increases the life of the possessing player by "X "points if he loses in the confrontation against the rival card. The life points will not exceed 20.
● Example with the card in the picture: After losing, it would add to our life 3 points.
FURY ABILITY %:
This ability increases the final attack damage of the card by "X%."
● Example with the card in the image: Let's say we use ENERGY (out of the total 15) 4 points so that the damage would be: 5 + (4*5) = 25 + (25*0.1) = 27.5 points of ATTACK.
FURY + xABILITY:
This ability increases the final attack damage by adding an ATK multiplier.
● Example with the card in the image: we use ENERGY (of the 15 total) 4 points so that the damage would be: 7 + (7*5) = 42 + (2*7) = 56 points of ATTACK.
This ability reduces the energy applied to the opponent's final attack by "X" points. ● Example with the card in the picture: the opponent uses 4 points of ENERGY
(of the total 15), and his ATTACK is 6. Also, he does not use any bonus so the damage would be: 6 + (6*[4-2]) = 18 points of ATTACK.
This ability reduces the opponent's life by "X" points whenever the card loses. ● Example with the card in the picture: the opponent wins in ATTACK the battle,
directly 3 points of total life will be subtracted when defeating the card with this ability.
OTHER SKILLS (TOTAL LIST OF ABILITIES)
In Underground Waifus, we have more attack skills, adders, and multipliers. All the skills used in the game are listed below.
- ● Attack Plus: Adds the indicated amount to the card’s attack
- ● Attack Multiply: Multiplies the indicated amount to the card’s attack
- ● Power Plus: Adds the indicated amount to the card’s power
- ● Enemy attack minus: Subtracts the indicated amount from the enemy card’sattack
- ● Enemy power minus: Subtracts the indicated amount from the enemy card’spower
- ● Steak attack: Steal the indicated amount from the enemy card’s attack and addit to your card’s attack
- ● Terror: Subtracts the indicated amount of enemy’s used energy in that round
- ● Damage: Adds the indicated amount to the final damage value of the card
- ● Damage range: Adds a value taken between two numbers to the final damagevalue of your card
- ● Fury: Fury Skill Increases The Player's Own Final Damage By the indicatedpercentage. Fury plus: The Fury + Ability Multiplies The Base Damage (Atk) ByThe Fury + Score And Adds To The Final Damage
- ● Heal: The Heal Skill Heals The Player Based On Heal Points Once The Card IsDefeated
- ● Protect / Shield: The Protect / Shield Ability Reduces The Final Damage OfThe Enemy Card By Indicated percentage
- ● Enemy damage minus: Subtracts the Final damage amount of the enemy’scard by the indicated amount
- ● Enemy final damage divide: Divides the enemy’s final damage by theindicated amount
- ● Win equals Steal HP: If your card wins the round, then steal the enemy’s HPby the given amount
- ● Punish: The Punish Ability Subtracts The Point Value Of The Ability From TheOpponent's Life, Once The Card Is Defeated
- ● Draw equals Win: If the round ends in a draw, then you will win that roun
- ● Kill: if the enemy is from the faction that is indicated in the card, then kills thatcard
- ● Cancel skill: Cancels the enemy card’s skill
- ● Cancel Bonus: Cancels the enemy card’s Bonus
- ● Cancel Hab and Bonus: Cancels the enemy card’s Skill and bonusThroughout the game, you will learn and experience new skills with the latest expansions. Study your opponent and his cards to be the best.
Cards must be upgraded with stardust and GQ, and time, here are the amount:
Card level Level 1 to Level 2 Level 2 to Level 3 Level 3 to Level 4 Level 4 to Level 5
- ● STARDUST: is the experience obtained by players. It can only be obtained by playing battles.
- ● GQs: the juicy reward of each battle. Currently, it is the game's soft currency.
- ● TIME: the time it takes for cards to be upgraded.There is a possibility of accelerating the time. Currently, only 2 accelerations are allowed per day, with the benefit of lvl up the cards.
- DISCLAIMER: When a card it's leveling up it can't be used.
Underworld Waifus is a TCG where players can be rewarded for their skill in this card- action video game competition.
There are currently 4 game modes designed for the different archetypes of players who play TCGs. These are detailed below.
SEASONS: ELO BATTLES
Every 15 days, a new season opens in Underground Waifus. These tournaments are determined by ELO victories, where only the best players receive prizes each season.
The % of awards and their amount will be determined by how many total players host the season
The operation is simple: PVP battles are limited daily. This limitation is given by 10 cumulative matches per day, making it unnecessary to play them every day and that each player manages his time as he wants. He could even if a player wanted to play all 150 battles on the last day.
Elo points are added to your profile for winning a match and subtracted from your account for losing. The amount is calculated based on which Elo the player is in.
Rank Elo higher limit Elo lower limit Elowin Iron 800 1 25 Steel 950 801 20
Bronze Silver Gold Platinum Diamond Adamantium
1100 951 20 1300 1101 18 1450 1301 18 1650 1451 17 1850 1651 15 2001+ 1851 12
- ● Elo higher limit - the higher limit of the Elo
- ● Elo lower limit - the lower limit of the Elo
- ● Elo win - this amount of elo is added after winning a match inthat elo.
- ● Elo loss - this amount of elo is subtracted after losing amatchPVP: GAME PASS
The player who wins the match wins everything. These are PVP battles with the same matchmaking as the SEASONS, i.e., ELO + Deck level battles. To play these battles, you need tournament tickets previously purchased with the token. There will be several entry levels with different costs.
TOURNAMENTS: GAME PASS AND
These are multiplayer tournaments with a prize pool and a minimum limit of players to be held, either freerolls (free access) or paying entry tickets.
Within these tournaments, we have several modalities: tournaments determined by the ELO level and payments with entry tickets or free.
Tournaments without ELO, where all players get the same boosters at the beginning of the tournament, and the decks are made based on what is obtained in those boosters. At the end of the tournament, the cards are discarded. During the tournament performance, the experience will be gained, and cards can be upgraded without waiting for the upgrade time.
PVE: TRAINING MODE
These are PVE battles with no game limit where you get EXP points to improve your profile, level it up, customize and get exclusive freeroll tournament tickets.
TOKENIZATION OF THE
In the Underworld Waifus ecosystem, there is an utility token, GQ (Underground Waifus Token) -> it will not be shown yet along with the NFTs, which are the collectible cards. Currently, there are about 410 cards different from each other, divided into 9 factions.
The current maximum Supply is about 153,400 total cards, and the distribution of the booster packs.
We have launched 6 types of Packs, divided into different tiers, with 18000 which are described below:
- ● Common Pack(6000) - 8 cards by pack
- ● Rare Pack(5000) - 8 cards by pack
- ● Epic Pack(3300) - 8 cards by pack
- ● Legendary Pack(2700) - 8 cards by pack
- ● Mythic Pack(750) - 16 cards by pack
Founder Pack(250) - 24 cards by pack
25 13.5 1 0.5
25 22 2 1
40 42 5 2
0.2 1 5 55 24 14.8
0.1 0.2 0.7 29 50 20
PLAYER DRIVEN ECONOMY
Underground Waifus shares a freemium F2P (free 2 play) and a PaE (play and earn) model, making the game accessible to anyone.
In the model that we present, on the one hand, players can access and play from the first moment without buying NFT from the F2P application that will be available in the different applications and PC stores. In addition, if they want to access the competitive mode at some point, they can do it using the same account and share the user level, and profile experience obtained.
Model-based on competitions between players, with several game modes PVP, Tournaments, Seasons, and PVE. With an economic model where players can be rewarded based on player skill.
100,000,000 tokens will be launched at 0.06 (if counted at TGE value).
- ● 5% Angel Phase: priced at $0.028 (6% TGE release + 60 days cliff and 10 month vesting with daily releases).
- ● 10% Private: price $0.038 (7% TGE release + 30 days cliff the rest daily release for 10 months).
- ● 10% to IDO priced at $0.048 (8% TGE release + 30 days cliff remainder daily release for 12 months).
- ● 5% to TGE (50% Liquidity earmarked for initial DEX and the remainder to other DEX as deals are closed), to be included at an initial price of $0.06.
- ● 5% to Staking rewards and staking partners (10% on TGE + 10% every month).
- ● 5% to the Team with a 6 month cliff and a 12 month vesting period with daily releases
- ● 5% to Advisors with 2-month cliff 10 month vesting with daily releases.
- ● 55% In-game Tournament rewards (These rewards, without considering thecontributions made by each game fee to the rewards pool, are calculated to have a duration of approximately 40 months). With the contributions made to the tournament rewards pool, these rewards should never end.
- ● Initial MCAP: ○ 0,6 released from seed in TGE 600,000 tokens = $16,800 dollars ○ 0,7% released from private in TGE 700,000 tokens = $26,600 dollars ○ 0,8% released from IDO at TGE 800,000 tokens = $38,400 dollars■ TOTAL = $16,800 + $26,600 + $38,400 = $81,800 dollars
- ● Initial dex liquidity 2,500,000 tokens + equal in BUSD (fully locked 10 years) =$150,000 + $150,000 = $300,000$The rest of the liquidity will be added in other dex as biswap, apeswap or babyswap depending on the agreements reached.
- ● IDO + Private + Seed TGE = 2,100,000 tokens
- ● DEX liquidity(locked 10 years)= 2,500,000 tokens
- ● Stake + stake on partners= 500,000 tokensEARLY INVESTORS
For private investors, you have the opportunity to purchase all the packs at 60% discount except the founder one that you will have the 10% discount on it. Only one time.
The game economy is real. It has its own monetary system and laws that the players themselves influence. Players use the governance and utility token to interact with major cryptocurrencies.
Tokens can be acquired from different sources such as buying Packs, NFTs in the marketplace, Game Pass Tickets, and Time Accelerators. The various methods of economic interaction:
- ● Marketplace: where you can directly purchase in-game NFTs by matching them to the in-game token or other cryptocurrencies through a digital wallet previously exchanged for the native token.
- ● Ads: run by companies that display their banners or interstitials to players on the platform. In both F2P and PaE.
- ● Sponsored tournament: Companies can sponsor events as a means of advertising which they will sponsor.
- ● Transaction commission fees: Ticket purchases, tokens, NFTs, withdrawals, staking.
- ● Boosters: Direct in-game purchases such as boosts that speed up the time it takes to level up cards.
0.5 USD in GQ
1 USD in GQ
2 USD in GQ
1 hours 4 hours
It can be used a maximum of 4 times per day.
It can be used a maximum of 4 times per day.
It can be used a maximum of 4 times per day.
The actual GQ$ has 2 GQ as a softcurrency:
- ● Buy
- ● Buy
- ● Buy
- ● Buy
- ● Buy
- ● Buy
- ● Buy
- ● Buy
TOKEN USE CASES
uses: off-game like GQ as a cryptocurrency and in-game like
lootboxes time boosters game pass tickets for PVP games game pass tickets for tournaments games
lootboxes. time boosters. game pass tickets for PVP games. game pass tickets for tournament games.
1) OFF-GAME as a CRYPTOCURRENCY Web3 Store: official game store to buy with game assets with GQ (Cryptocurrency):
Web3 Marketplace: official marketplace where players buy and sell their NFTs with GQ (Cryptocurrency):
2) IN-GAME as a CRYPTOCURRENCY The GQ (Softcurrency) it's only generated by winning PVP battles, represents 1:1 with GQ (cryptocurrency). The functionalities are:
- ● Level up the cards.
- ● Whitdraw as a 1:1 GQ$ (Cryptocurrency).
DISTRIBUTION OF FEES
The model by Fee of commissions presented allows for nurturing the pools so that there is always feedback.
- ● Fees from lootboxes purchases: these are the commissions that come from the purchase of lootboxes where:○ 8.5% will be allocated to the token rewards pool. ○ 16.5% will be allocated to the token's liquidity pool. ○ 2.5% will be allocated for marketing activities (ads,influencers) ○ 5% for closing partners, stakes, and CEX trading ○ 12.5% will be allocated to be burned and taken out of circulation ○ 5% will be allocated to the remaining marketing reinvestment budget formaintenance ○ 50% will be allocated for maintenance and project team.
- ● Tournament ticket buy-in fees: each ticket will generate 10% commissions added to the price, so if a ticket has a value of $1.00, its buy-in value will be $1.10. Commissions will be distributed as follows:○ 8.5% will be allocated to the token rewards pool. ○ 16.5% will be allocated to the token's liquidity pool. ○ 2.5% will be allocated for marketing activities (ads,influencers) ○ 5% for closing partners, stakes, and CEX trading ○ 12.5% will be allocated to be burned and taken out of circulation ○ 5% will be allocated to the remaining marketing reinvestment budget formaintenance ○ 50% will be allocated for maintenance and project team.
- ● Time accelerator purchase fees: accelerators have limited daily uses and are scarce. Commissions are distributed as follows:○ 8.5% will be allocated to the token rewards pool. ○ 16.5% will be allocated to the token's liquidity pool. ○ 2.5% will be allocated for marketing activities (ads,influencers) ○ 5% for closing partners, stakes, and CEX trading ○ 12.5% will be allocated to be burned and taken out of circulation ○ 5% will be allocated to the remaining marketing reinvestment budget formaintenance ○ 50% will be allocated for maintenance and project team.
- ● Marketplace purchase fees: These are the commissions generated from the purchase/sale of NFTs will generate 10% commissions added (5% from each part):
- ○ 8.5% will be allocated to the token rewards pool.
- ○ 16.5% will be allocated to the token's liquidity pool.
- ○ 2.5% will be allocated for marketing activities (ads,influencers)
- ○ 5% for closing partners, stakes, and CEX trading
- ○ 12.5% will be allocated to be burned and taken out of circulation
- ○ 5% will be allocated to the remaining marketing reinvestment budget formaintenance
- ○ 50% will be allocated for maintenance and project team.
● Withdrawals fees: These are the commissions generated from withdrawals the in-game softcurrency to the token, we take the 10% commissions of the total tokens generated:
maintenance ○ 50% will be allocated for maintenance and project team.
REVENUE DISTRIBUTION BY SPONSORS
We currently have several sources of direct income added to advertising, tournament customization, or exclusive collections for brands and companies. We also have several models that coexist both in the F2P version and in the PaE version.
Actions to attract new users are a basic source for the project's growth, so we are committed to constant reinvestment in growing the project and expanding the brand.
- ● Distribution of F2P and PaE advertising revenue: This is the revenue from banners, interstitials, and video rewarded:maintenance ○ 50% will be allocated for maintenance and project team.
- ● Revenue distribution in sponsored tournaments: As an advertising channel, the possibility is offered to create tournaments with unique advertising from one or several advertisers themed, in which the sponsor can decide what and how the advertising is shown, including the breaks of the tournament:maintenance ○ 50% will be allocated for maintenance and project team.
- ● Revenue distribution in the creation of sponsored collections: To create exclusivity and offer an emerging meta-economy channel for brands, the possibility of creating limited collections for brands and companies under budget is raised:maintenance
○ 50% will be allocated for maintenance and project team.
- ● OCTOBER 2022: PreAlpha without economy ○ APP for Android test○ EXE for PC ○ Multiplayer ready ○ Season testing
- ● NOVEMBER 2022: WL for early investors and Improvements ○ Card Leveling Implemented (without economy) ○ Marketplace testing ○ APPV2○ EXE for PC V2○ Presale BUSD Ready
- ● DECEMBER 2022: All ready for launchment○ Tournaments Backend development ○ PreUpload to GooglePlay (Free2Play) ○ APP for IOs test ○ PreUpload to Steam (Free2Play) ○ Marketplace v2
- ● JANUARY 2023: IDO launchment ○ IDO Launchment○ 1o Sponsor tournament ○ Marketplace ○ Google Pre-Launchment (Free2Play)
Underground Waifus has been in development for one year. At first, it was thought of as a normal TCG, but it was redesigned later, detecting the opportunity to combine the worlds of collecting with digital property.
It is combined by work teams from 2 Spanish brands specialized in videogames, with titles such as Outer Ring and Warlands Corps, among others, specially Jeffrey with Gamezone and their huge experience on Gamefi.
We present a project roadmap focused on.
Q4 of 2022:
- ● WEBSITE LAUNCH
- ● DEMO TECH LAUNCH
- ● PRE-SALE PACKS
- ● MARKETPLACE LAUNCH
- ● BETA LAUNCHQ1 of 2023:
- ● TOKEN LAUNCH
- ● LAUNCH OF SPONSORED TOURNAMENTS
- ● LAUNCH ANDROID APP ON F2P (GOOGLE PLAY).Q2 of 2023:
- ● CREATION OF IOS APP FOR F2P.
- ● LAUNCH SCHOLARS.
- ● 1ST SPONSORED TOURNAMENT
- ● CREATION OF NEW CARDSQ3 of 2023:
- ● LAUNCH APP IOS
- ● INTRODUCTION OF NEW BLOCKCHAINSQ4 of 2023:
- ● DEPENDING ON RESULTS, PHYSICAL GAME PRINTING.
- ● IN-PERSON TOURNAMENT
- ● APPS AND PC VERSION UPDATE.
DISCLAIMER AND RIGHTS
This is not a final document, and it will be updated overtime. The purpose of this document is to provide selected details about the gameplay and economy of ‘Underground Waifus‘.
The information set out in this document may not be exhaustive and does not imply any element of contractual relationship. Nothing in this document shall be considered a prospectus of any kind or a solicitation of investment. All community contributions to this document may be freely used by the ‘Underground Waifus‘ (Jurval) team, and incorporated into other works, with rights equivalent to ownership. By commenting and providing feedback on this document, you agree that: any contributions you make to this document may be used, reproduced, distributed, publicly performed, publicly displayed, and used to create derivative works, on a non-exclusive basis, throughout the universe, in all media now known or hereafter created, and that the foregoing rights are sub-licensable and transferable. By commenting and giving feedback in this document or in any other related channel (such as Twitter, Telegram or Discord), you allow the ‘Underground Waifus‘ team to include your ideas and concepts in future game features as the development team sees fit.
The game economy is liquid and can vary significantly in line with the evolution and use of ‘Underground Waifus‘. The team (Jurval) may make changes to the economy that directly or indirectly affect the obtaining of GQ, always looking for the welfare of the player.
By using the website, app, game or marketplace you agree that you shall not be entitled to any compensation or claim whatsoever, if any monetary or other damages are suffered as a result of a change made to the tokenomics.
These assets can be displayed both on the website and in the game, which the user can interact with. The Smart Contracts and the Site are collectively referred to in these Terms as the ‘App’. Using the App, users can view their assets and use the
Smart Contracts to acquire, trade, fight, build and get pets in collaboration with other users of the App.
The information on the Site, App and Smart Contracts is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation or would subject us to any registration requirements in such jurisdiction or country.
Therefore, individuals who choose to access the Site and/or the App from other locations do so on their own initiative and are solely responsible for compliance with local laws, if and to the extent local laws are applicable. The Site is intended for users over the age of 18. Individuals under the age of 18 are not authorised to use or register on the Site, the App and Smart Contracts except with the direct supervision of their legal guardians, as long as their legal guardians are the owners of the account being used.
1. INTELLECTUAL PROPERTY RIGHTS
The Site and App, and the Smart Contracts, are our property, unless otherwise stated, as well as all source code, database, functionality, software, website design, audio, video, text, photographs and graphics on the Site and App (‘Content’) and the trademarks, service marks and logos contained therein (the ‘Marks’) are owned,
controlled or licensed by us and are protected by copyright and trademark laws, other intellectual property rights and the unfair competition laws of Spain, foreign jurisdictions and international conventions.
Provided that you are eligible to use the Site, the App and Smart Contracts, you are granted a limited license to access and use the Site or to download or print a copy of any portion of the Content that you have properly accessed solely for your personal, non-commercial use.
We reserve all rights not expressly granted to you in and to the Site, the App, the Content and the Marks.
Provided that you own an BEP721 UW asset, you are granted a limited license to create cards utilities and merchandise that may be used commercially as long as you follow the terms set forth herein: Anyone creating ‘Underground Waifus‘ fan art must own the NFT (card and others utilities) they are creating fan art of or receive written permission from the owner of the NFT.
2- Every work of card on related to it must clearly be labelled as ‘Underground Waifus‘ and be referenced to the official website https://waifus.gitbook.io/whitepaper and link directly in the marketplace to the NFT being used as inspiration.
It is accepted the creation of original fanart without monetization, without any licence or property.
2. SERVICE USER STATEMENTS
By using the Site, Application and Smart Contracts, you hereby declare and warrant that: - All registration information you submit will be true, accurate, current and complete.
- You will not access the Site, the App, the game, and the Smart Contracts through automated, non-human means, whether through a bot, script or otherwise. Except as expressly mentioned herein.
3. SERVICE USER REGISTRATION
You may be required to register with the Site, the Application, and the Smart Contracts. You understand you need to keep your password completely confidential, and you are responsible for all use of your account and for keeping your password secure. We reserve the right to delete, reclaim or change a username you might select if we determine, at our sole discretion, that such username is inappropriate, obscene, or otherwise objectionable.
4. BANNED ACTIVITIES
Service users cannot access or use the Site, Application and Smart Contracts for any other purpose than the ones we state and are available on the Site, Applica- tion and Smart Contracts. The Site, Application and Smart Contracts may not be used for any commercial activity except as agreed in a legally binding contract with JUVAR.
Service users are not allowed to perform the following: - Automatically retrieve data or other content from the Site, the Application, and the Smart Contracts to create or compile, directly or indirectly, a collection, compilation, database, or directory without our written permission. - Make any unauthorised use of the Site, App and Smart Contracts, including collecting usernames and/or email addresses of users by electronic or other means for the purpose of sending unsolicited email, or creating user benefits by automated means or under false pretence. - Use an automated or semi-automated shopping bot on the Site, App and Smart Contracts - Use the Site, App and Smart Contracts to advertise, or offer, false or mis leading goods and services with the intention of scamming other users. - Circumvent, disable, or otherwise interfere with security-related features of the Site, App and Smart Contracts, including features that prevent or restrict the use or the copying of any Content or enforce limitations on the use of the Site, App and Smart Contracts and/or the Content contained therein. - Participate in the creation of unauthorised links to the Site, the Game and Smart Contracts. - Cheat, trick or attempt to scam other users, especially with intent to acquire sensitive information such as users’ passwords. - Misuse our support services or file false reports of abuse or misconduct. - Participate in any automated use of the system, such as the use of scripts to send comments or messages, or the use of any data mining, robots or similar data gathering and extraction tools, except where this has been validated by the Company. - Interfering with, disrupting, or creating an undue burden on the Site, the App and Smart Contracts or networks or services connected to the Site. - Attempt to impersonate another people or service users or use another user’s username. - Sell or transfer your profile.
- Use any information obtained from the Site, the App and Smart Contracts to harass, abuse or harm other people. - Use the Site, Application and Smart Contracts as part of any effort to compete with us, or use the Site, Application and Smart Contracts and/or Content for any revenue- generating effort or commercial enterprise.
- Decrypt, decompile, disassemble, or apply reverse engineering to any of the software that makes up (or somehow forms) part of the Site, the App and Smart Contracts. - Attempt to circumvent any measures on the Site, designed to prevent or restrict access to the Site, or any part of the Site, the App and Smart Contracts.
- Upload or transfer (or attempt to upload or transfer) viruses such as trojan horses virus, or other material, including excessive use of all capital letters and spam (continuous posting of repetitive text), that interferes with any party’s uninterrupted use and enjoyment of the Site or game or that modifies, impairs, disrupts, interrupts, alters or interferes with the use, features, functions, operation or maintenance of the Site, game and Smart Contracts.
- Upload or transfer (or attempt to upload or transfer) any material that acts as a passive or active information gathering or transmission mechanism, including, without limitation, any formatting or other similar devices (sometimes referred to as ‘spyware’, ‘passive collection mechanisms’ or any potentially harmful files).
5. FEES AND PAYMENTS
‘Underground Waifus‘ has a FREEMIUM option game. However, if you choose to purchase, trade items, create digital estate, breed pets or build robots, it is important to remember that any financial transactions that take place will only take place through the blockchain via a wallet such as Meta Mask or Trust Wallet. We will have no knowledge or control over these payments or transactions, nor do we have the ability to reverse any transactions. Bearing this in mind, we shall have no liability to you or any third party for any claims or damages that may arise as a result of any transaction you make through the Site and/or the App or using the Smart Contracts; or any other transactions you conduct through the networks used by ‘Underground Waifus‘, which are your sole responsibility.
The networks where ‘Underground Waifus‘ is launched require the payment of a transaction fee (a ‘Gas Fee’) for each transaction that takes place on the network. The Gas Fee funds the network of computers that run a decentralised network, that is, you will have to pay a Gas Fee for each transaction that runs through the application. ‘Underground Waifus‘ has been optimised to reduce these costs to a minimum, being only required on the off-game side and for incoming and outgoing NFTS and digital as- sets from the game.
In addition to the Gas Fee, each time you use a Smart Contract to transact with another service users through the off-game marketplace and in-game marketplaces, you are authorizing us to charge a 10% fee (in the terms expressed in this WP) of the total value of that transaction (‘Commission’). You acknowledge and agree that the Commission will be transferred directly to the JUVAR portfolio as part of the transaction.
You shall be solely responsible for paying any and all sales, use, value added and other taxes, fees and levies (other than taxes on our net income) now or hereafter claimed or imposed by any governmental authority (collectively, ‘Taxes’) related to the use of the game (including, without limitation, any taxes that may be payable as a result of your ownership, transfer or reproduction of any of your Axes).
Except for income taxes imposed on the ‘Underground Waifus‘, you will: (i) pay or reimburse us for all national, federal, state, local or other taxes and levies of any jurisdiction, including value added taxes and taxes required by international tax treaties, customs or other import or export taxes, as well as amounts collected in lieu thereof based on charges assessed, services rendered or payments made hereunder, now or hereafter imposed by the authority of any national, state, local or other taxing jurisdiction; and (ii) you will not be entitled to deduct the amount of any such taxes, duties or levies from payments made to us in accordance with these Terms.
6. SUBMISSIONS: LEGAL RIGHTS
You acknowledge and agree that any questions, comments, suggestions, ideas, suggestions, or other information relating to the Site, the game and the Smart Contracts (‘Submissions’) that you provide to us, are non-confidential and become our direct property.
We own exclusive rights, including all intellectual property rights, and are entitled to the unrestricted use and dissemination of these Service users Submissions for any lawful purpose, commercial or otherwise, without acknowledgment or compensation. You hereby waive any moral rights in such Submissions, and warrant that such Submissions are original, nor that you have any vested rights.
You agree that there shall be no recourse or claim against us for any alleged or actual infringement or misappropriation of any proprietary right in your Submissions, as you are assigning them without expectation of any consideration by handing such Submissions to us.
We allow advertisers to display their advertisements and other information in certain areas of the Site and the game, for example, on sidebar advertisements or banner ads on the web. Or in-game, for example, fixed advertisements on the planetary
surface or in the daily galactic newspaper. If you are an advertiser, you must assume full responsibility for the advertisements you place on the Site and/ or the game, as well as for the services provided on the Site and/or the game, or for the products sold through such advertisements. You will also ensure that the information is truthful and correct.
In addition to all this, as the advertiser, you warrant and represent that you have all rights and authority to place advertisements on the Site and/or the game, including the intellectual property rights, publicity rights and contractual rights, among others. We merely provide the space to place such advertisements and have no other relationship with advertisers other than the mere business relationship, of such sale or rental of advertising placements.
WE MAY TERMINATE YOUR ACCESS OR PARTICIPATION IN THE SITE, APP, GAME AND SMART CONTRACTS, OR DELETE YOUR ACCOUNT WITHOUT PRIOR NOTICE, AT OUR SOLE DISCRETION.
If we terminate or suspend your account for any reason, you are prohibited from registering and creating a new account under your real, false or borrowed name; or under the name of a third party, even if you may be acting on behalf of that third party. Furthermore, we reserve the right to take legal actions that might include civil, criminal, and precautionary actions.
9. APPLICABLE LAW
10. CONFLICT RESOLUTION 10.1 Informal Negotiations
In order to expedite the resolution and control the cost of any dispute, controversy or claim relat