OpenLaw has built a “smart” token purchase agreement, which creates a legally binding agreement to transfer an ERC20 token. To see a demo, scroll below or click here.

Overview of Tokens

One of the core benefits of blockchains is that they enable you to transfer assets to anyone around the globe. These assets can be native “protocol tokens,” like bitcoin or ether. They can be “app tokens,” which are managed by small computer scripts running on the Ethereum blockchain known as smart contracts. Or tokens can represent real world assets, like a barrel of oil, diamonds, stocks, bonds, investment securities, a piece of machinery, or even a contract itself (e.g., a lease, deed, or title to property).

Ethereum makes it relatively easy to create tokens. With less than a hundred lines of code, a software developer can create an ERC20 token, deploying a smart contract program on Ethereum that keeps track of who owns a given token at a particular point in time. Over the past several years, ERC20 tokens have taken the world by storm, with over $1.8 billion in tokens sold to date.

Although Ethereum makes it relatively straightforward to create and transfer any token, it does not make it easy to structure the sale and distribution of these tokens in a manner that aligns with today’s business practices. An Ethereum-based smart contract excels at helping disparate parties transfer tokens and other assets, but these code-based programs have limitations and cannot represent other basic promises that usually accompany a sale — things like representations and warranties, dispute resolution provisions, and affirmations related to the sophistication of the purchaser. Due to these limitations, existing token sales create risks for both the sellers and purchasers of tokens. Risks that invariably will create legal issues as token sales and token-based economies begin to mature.

Smart Token Purchase Agreements

OpenLaw has solved this problem. As previously demonstrated, OpenLaw is a blockchain-based protocol that enables parties to create traditional legal agreements that interact with Ethereum smart contracts. Our generic and modular approach means that you can quickly transform any legal agreement into one that incorporates and manages assets on a blockchain.

As shown in our third demo below, using OpenLaw you can generate a basic token purchase agreement to manage the sale and transfer of any Ethereum-based token with a few clicks. OpenLaw has markedup a Token Purchase Agreement — one that has been widely used as part of token sales — which, when signed by both parties, triggers a smart contract that manages payment and the transfer of tokens for the purchase.

Our blockchain-based approach provides certainty to the party selling the token that the sale is governed by a traditional legal agreement, reducing risks related to the transaction. Parties can enter into a familiar legal agreement and know that the sale will occur by relying on a smart contract.

In other words, a smart contract can govern payment for and transfer of a token, but the parties’ arrangement can be backed by a familiar written agreement in case of a dispute at some point down the line. If such an eventuality comes to pass, a court or other administrative body will be able to understand the context of any arrangement and administer its resolution.

What’s more, the smart contract can prevent unauthorized parties from attempting to purchase tokens during the sale. The smart contract is programmed to only transfer tokens to parties that have signed an agreement based on our template. Purchasers cannot purchase more than what is provided for in a signed agreement, providing sellers of tokens with more control over a token sale.

Importantly, the mechanics of the above demo can apply to any Ethereum-based token. For example, by using a similar smart contract program we can tokenize shares in a company, place those shares on a vesting schedule, and have the entire process managed with a blockchain and a smart contract. Tokens representing physical assets or receivables — such as those contemplated for various supply chain and trade finance initiatives — can now conceivably be managed by both a traditional legal agreement and smart contract code.

Peering further into the future, OpenLaw will be able to help facilitate more complex token purchase agreements, including those that rely on smart contracts to ensure regulatory compliance. For example, we intend to create a smart contract that can rely on an outside data feed (i.e., an “oracle”) to assess whether a purchasing party is an accredited investor. With this functionality, an OpenLaw based token purchase agreement can impose restrictions on who can own and transfer an ERC20 token. Such functionality will decrease the cost of regulatory compliance for token sales.

Development Update

OpenLaw has been heads down in development for just over two months. We’re making great progress on our ultimate goal: to rebuild how legal agreements are created and operate. Our mission is not humble: we are building a generalized legal protocol that is capable of creating and generating any legal agreement on the Internet supported by a community of incentivized legal professionals. We envision OpenLaw as a foundational layer for the emerging blockchain-based ecosystem, simplifying the creation and execution of emerging blockchain-based projects and accommodating the needs of enterprise-based applications.

Using OpenLaw, you’ll be able to build decentralized e-commerce marketplaces, like OpenBazaar, by simply building building a basic online portal and pulling one or more OpenLaw e-commerce templates from our API. You’ll be able to spin-up entire corporations that rely on OpenLaw templates, manage token sales, or even construct decentralized organizations.

At the same time, lawyers can use OpenLaw to automate their routine legal work and build next generation legal agreements that take advantage of the certainty and dynamism made increasingly available by blockchain technology: smart derivatives and securities, lease agreements, next generation EDI systems and the like.

We intend to share our progress (and failures) with you in a highly transparent way. Over the past several weeks, we have begun to finalize our framework to generate entire sets of documents (all managed via a blockchain ), have built tools that enable lawyers to work on templates collaboratively, and are working on more complex demos with some of the world’s largest law firms and organizations to demonstrate what the future of transactional law could look like.

If you’re interested in partnering for a demo or learning more, feel free to send us a note at hello@openlaw.io, or follow-us on Twitter @OpenLaw1. We’re hiring talented developers. Don’t be shy.

Please do not take this demo or our post as any encouragement or advice to engage in a token sale. If you intend to engage in a token sale, you should consult appropriate legal counsel.

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