Thinking about launching an SEC-compliant crypto

Hey everyone, Check this out: https://youtube.com/shorts/1gcMx_IDOZY and then this: https://youtube.com/shorts/WGY0082PQZo I'm the founder of Little Brain Boosters®, a self-funded Edtech startup for kids based in Amsterdam. Our platform, Dopalearn®, is the first of its kind nano-learning app for children. It's totally free on iOS and Android (there's a pro version too for $2.99 a month). It's a mix of an LMS and a video platform; think of it like YouTube Shorts or TikTok, but instead of ads, we provide "nano-lessons" that last just 3 to 15 seconds. It's made for kids with learning difficulties like autism, ADHD, speech delays, and so on. We've been working on this for about 5 years now (I've been at it for 8 years), and we just launched. You can download it here: Playstore (Android): https://play.google.com/store/apps/details?id=com.littlebrainboosters.dopalearn Appstore (iOS): https://apps.apple.com/us/app/dopalearn/id1542507323 We're about to roll out a program for young content creators (the "Jr. Creators Hub") where they can upload, manage, and monetize their "premium" video content for our subscribers. Since we don’t run any ads in the app (and never will), we're introducing a "Learn to Earn" (LTE) model. Kids can earn points by completing challenges in the "Practice Mode" that's exclusive to premium members, and those points can unlock premium videos. We're allocating 15% of the subscription revenue for the content creators. But here's the thing... we're looking to create a cryptocurrency.

If your token has the character of a security, it will not cease to do so if you use your own exchange to allow people to convert it to fiat. The crucial part is if "investors" are profiting from the cryptocurrency (e.g. through premined tokens/units distributed in an ICO, or even by founders' rewards), and if the value of this currency depends on your own efforts. One way to make a SEC compliant cryptocurrency is distributing the units in a totally decentralized way, e.g. via Proof-of-work, but all tokens have to be distributed that way, even 1% premine can make it a security. Another way is to use it as an utility token which cannot grow in value, i.e. offering your own services for this crypto, but at a fixed rate, so it passes the Howey test because people can't use it to "invest" and profit from it. From your description your plan looks like a kind of utility token, but the fixed rate is the important part. Think of it like flight miles, then it should be ok. I am not a lawyer, but these topics were extensively discussed in this forum. However, I think you're in the wrong subforum as the thread is not so much about technical aspects, better move it to "Legal" or "Altcoin discussion".

Thanks for chiming in, D! I started here to get the technical aspect of the concept realized first, with input from the community (my blockchain knowledge is limited), I just wasn't sure I'm on the right path. I think my topic title was also slightly misleading to the true intent of this post (although that's the ultimate goal). But I think your input above has given me just enough to get me to the next stage. To move this thread to Legal, I just DM the moderator, yes? Btw, here is what I have in mind: Lets assume we go the utility token route and I mint a billion tokens. I then reserve those tokens as contribution rewards for our creators, say a fixed amount of 1000 tokens per video submitted + 1 token per view. At the end of each month, I take 15% of the revenue generated by the company and distribute it across those billion tokens to calculate a fixed token price for the month. We then list that price on our exchange as the "going rate" for that month, buying them back from the creators and ultimately, burning them. We continue this process every month until every one of those billion tokens has gone through the cycle (earned, exchanged, burnt). I still need to think through when the next round of minting will take place, but the goal is to limit the number of content creators and content being generated (for quality purposes). Example: Lets say our net income was $10 million in March and we take $1.5 million and distribute it across the 1 billion tokens: = $1,500,000 / 1,000,000,000 tokens = $0.0015 per token So, the fixed price on our exchange for March would be $0.0015 per token. If a creator decides to hold on to their tokens and wait until June to sell em at $0.01, would that still qualify as a utility? Thanks again for your time, I owe you some tokens Adam

Does that mean all party (customer, school, etc.) depends on Dopalearn server (which is centralized) to access the content? If yes, i would call your idea is centralized or semi-centralized "virtual school".

Hey ABCbits, So if the content is authored, hosted, and monetized on their side (i.e. their website) and minted as NFTs which can be loaded by the parent in Dopalearn after purchase, then it's decentralized, right? The only thing Dopalearn will doing is initially loading (locally caching on the child's device) the training elements (JSONs and MP3s) per the metadata in the NFT (course). We use Lottie for the animations so its all ultra light weight (for example, the English alphabet course below is 1.3 mbs, that includes 26 animations and 26 mp3s): https://www.youtube.com/watch?v=gYF7ZymNCN0

That's already the kind of detail I cannot provide not being a lawyer From my own interpretation of the Howey test however, I would interpret that such a token is still a security, unfortunately. Because if the token can grow in value, then: what exactly does this growth depend on? If it's the issuer company's efforts, then it's very likely a security. And in your example you wrote that the company's income is the variable from which ultimately the token value depends. The token may qualify for some kind of exception because of its limited scope, but if it's a cryptocurrency (in contrast to being e.g. a totally centralized server-based "currency" like flight miles) it's normally tradeable via smart contracts, so people can speculate with its price. Regarding moving the topic: Yes, you'll have to write a PM to a moderator, preferrably to @achow101 or @gmaxwell, which are the moderators here (link to their profiles is on the top of the forum overview).

Personally, i would say it's less centralized than storing everything on Dopalearn. And if you store the content on blockchain, i expect it could be costly even with compression (or other method to reduce content size).

Thank, D. This is very helpful! And you are correct, the value of the token will increase based on 2 main factors: 1. income & 2. the reduction of tokens in circulation. It'll boil down to patience, those that wait are guaranteed bigger returns, month after month. Let me get this moved to Legal and go from there. Thanks again for your input, stay tuned in!

SEC regulation has just begun, and therefore if your business operates in the United States, you will have to go through a lot of consultations with lawyers. But this will not provide guarantees, because most of the conflicts have not yet been eliminated and the SEC interprets some things in its own way, although the courts think otherwise. I don’t know why your project needs cryptocurrency? If you are not ready to spend money on lawyers, then you can use any available services and NFTs.

Good to know zasad@, thanks for chiming in. As to why project needs cryptocurrency, it ultimately boils down simplifying content distribution & subsequent tracking, and eventually rewarding, but in a decentralized manner. There are 2 main public contribution channels in the platform, one is education the other is entertainment. Dopalearn is essentially combining the two to deliver the experience AKA "edutainment". Here is an example: Lets say you're a music school and you authored a lesson package to teach children how to play the piano. We want the author to be able to mint a few thousand copies of the lesson package (based on the licensing agreement with us) and list it for sale on their website. Anyone (including our customers) should be able to purchase the training from them directly (i.e. their website), and use/launch it with Dopalearn. The only association we have with this school is the licensing agreement which includes the mechanism that makes their content compatible with Dopalearn and some other stuff. Now what role will our token play in all of this? Our license agreement with these schools will require them to list our token as a optional form of payment for the training (along side the other forms such as VISA). This is done for two reasons, 1. those who have earned the coin from the other contribution channels can use our token to purchase the training 2. we stay in compliance because these schools will have to use our exchange to convert their coins into fiat. In a nutshell, anyone that earns the token and wants to convert it to fiat at our exchange will be required to provide their details so we can issue them tax forms (1099/T4A, etc) at the end of the year.

So we won't be storing anything on Dopalearn side, aside from caching the learning elements on the child's device (the JSONs and mp3s), sourced from the NFT.  The publisher will host everything on their servers.  The only thing Dopalearn is doing is simply "decrypting" the NFT metadata to source the license and the content.

I’ll ask again, why do you need this unnecessary adventure? If you have the option of paying through VISA, then add the option of paying with cryptocurrencies through a partner. Your example is not entirely successful, because those who are looking for or taking piano lessons are completely far from the topic of cryptocurrencies and they do not need your tokens. You are overcomplicating the project with unnecessary services.

"Our license agreement with these schools will require them to list our token as a optional form of payment for the training (along side the other forms such as VISA)."

Ok, I'll write to you differently. Your business is not new, and its development model has long been built. I am sure that your competitors successfully operate without tokens and enter into all necessary licensing agreements. Sometimes you don’t need to reinvent the weight bike or attach a 5th wheel to the cart. You say that you personally worked on a children’s educational project for 8 years, and now you suddenly decided that you can outwit all the crypto regulators, because you came up with a brilliant idea. Well, OK. Bring your idea to life. Time will tell us who was right.

https://youtu.be/359pDMpTMIw Stay tuned, comrade.

This sounds like my old idea Club Crypto.     I created the term NFCT, the C meaning all the attributes are based off a blockchain or other proof.    I had grand ideas, including owner's licensing parts of their NFCT attributes. Most of the functionality you are looking for is available professionally, minus the crypto integration.  I would use a third party blockchain service for that.

Hey fellas, I am back. Lots of thinking and pondering, and I'm getting ready to move forward with the concept.  I started a thread this morning in altcoins to kick things off: https://bitcointalk.org/index.php?topic=5522170.0