Tokens and US Securities Law

The Securities Act of 1933 and the Securities Exchange Act of 1934 impose strict regulations on the sale of "securities," defined broadly to include a wide range of instruments, including "investment contracts." The U.S. Supreme Court formulated what came to be called the "Howey test" (a set of four factors). If all four factors are present in a given instrument, it's an investment contract (and thus a security).

The four factors are:

1. An investment of money,

2. In a common enterprise,

3. With a reasonable expectation of profit,

4. Derived solely from the entrepreneurial or managerial efforts of others

The primary motivator to buy and sell BASE is to provide funds for development and for the burning of LUNC tokens. Community members interact with the smart contract to buy and sell BASE and in turn donate 4.8% towards the project's goals. The more BASE transactions the community makes; the more funds are raised for the benefit of the community. Buy or Sell transactions will incur the same 4.8% burn no matter where the price of BASE is located on the curve.

The TBC smart contract is deployed on-chain and operates autonomously. The smart contract follows a decentralized model and there is no person or promoter that is managing its operation. The TBC simply follows the mathematical formula automatically based on inputs and outputs by the community. Further, there is no person making any marketing efforts or providing materials to show reasonable expectations of profit. If the community stops supporting the TBC, its functionality ceases to exist due to the fact that community involvement is required. Any increase in the value of the BASE token is strictly the result of community activity.

Community members must understand that there are no entrepreneurial or managerial efforts provided by "others". The TBC is designed to be "sufficiently decentralized ... where purchasers would no longer reasonably expect a person or group to carry out essential managerial or entrepreneurial efforts". Stated another way, there are no Active Participants ("AP") that serve as "a promoter, sponsor, or other third party" to reasonably rely on for their profit. Community participants SHOULD NOT EXPECT TO GAIN ANY PROFIT from this project. In fact, community members should expect a minimum loss of 9.6% (4.8% Buy tax plus 4.8% Sell tax). In other words, community members are contributing 9.6% to the fundraiser.

No AP is available for:

1. the development, improvement (or enhancement), operation, or promotion of the network. BASE is an open-source project on github where anyone can make improvements.

2. to perform essential tasks or responsibilities. Instead, an unaffiliated, dispersed community of participants (a "decentralized" network) should perform those actions.

3. creation or supporting a market for, or the price of, the digital asset. Individuals that undertake those actions do so for the benefit of themselves only.

4. to function as a lead or central role in the direction of the ongoing development of the network or the digital asset. See #1.

5. filling a continuing managerial role in making decisions about or exercising judgment concerning the network or the characteristics or rights the digital asset represents. This is a DeFi project.

6. the community participants to reasonably expect to undertake efforts to promote its own interests and enhance the value of the network or digital asset. Individuals that undertake those actions do so for the benefit of themselves only.