Token Overview

The key innovation of the SPiCE token is that it is designed as a financial commitment to pay its holders the net revenues for all future investment exits executed by SPiCE VC. The SPiCE token acts as a digital security, guaranteeing that its holders receive a claim on the performance of the performance of the underlying portfolio. The fund is closed-ended; whenever a liquidity event occurs, all net proceeds are distributed among token holders on a pro rata basis. Individuals receive a percentage of every exit proportionate to the percentage of SPiCE tokens they possess. These proceeds and the appreciation of the token are reported in SPiCE’s quarterly Net Asset Value (NAV) reports.

Payments are distributed to investors through a buyback-and-burn token model. SPiCE VC claims that its token will become a freely exchangeable asset and ensure liquidity for its investors by being the first security token listed on OpenFinance; SPiCE tokens have been tradable on AirSwap since November, 2018, and will be available on tZERO in the near future according to managing partner and cofounder, Tal Elyashiv.

The maximum token supply could reach as high as 130 million if SPiCE’s hard cap of US$100 million is met. While Etherscan lists two SPiCE tokens — one with a circulating supply of 7,856,125.64 and another with 7,811,327 — neither of these figures is correct. In actuality, 12 million tokens were allocated in the first closing. Two separate SPiCE tokens are listed on Etherscan as a result of SPiCE upgrading its token to support Securitize’s Digital Securities (DS) Protocol, and the outdated tokens will be burned in the near future. Only 7,856,125.64 tokens appear in circulation as some investors chose not to receive their tokens until they have an account with a custodian; SPiCE VC claims they are keeping those tokens in a treasury and not deploying them to the blockchain until investors are ready.

The SPiCE token offering was made available inside the United States to up to 99 accredited investors in compliance with Regulation D and outside of the United States to non-U.S. persons in reliance on Regulations S. (Amin Ben-David, “We Have Lift-Off. SPiCE VC publishes its first quarterly NAV report and portfolio.” Medium, 2018.)

Realization Events

When there is a realization event in the portfolio of investments held by SPiCE VC, there will be mandatory buyback of a portion of issued SPiCE tokens from all token holders. Tokens that are acquired by SPiCE VC through buybacks will be burned to ensure a stable NAV for the remaining tokens.

The means for determining the price per token in a realization buyback (other than the final realization buyback) is the average market price of the SPiCE token the day before the buyback notice is published across the three largest exchanges trading the SPiCE token by volume and through the NAV per SPiCE token. The repurchase price for final realization buyback is determined by the NAV per SPiCE token.

Portion of SPiCE Tokens to be Repurchased = Net Realization Proceeds / (Repurchase Price / Issued SPiCE Tokens)

Business Model

While all future sales of SPiCE tokens will be conducted privately and no participant will be able to purchase SPiCE tokens below the main sale offering price, SPiCE VC is still in the early stages of developing the portfolio that will constitute their seven-year fund. SPiCE has demonstrated that the diversity of their portfolio effectively hedges against the volatility of the cryptocurrency market and is confident that the SPiCE token will benefit from being on the forefront of the security token market.

SPiCE VC states that general partners “will not be taking any carry from exits until 100 [percent] of the original money raised in the STO has been returned to token holders, after which they will be taking 15 [percent] of the net proceedings [sic].” Once the realized buybacks have returned the amount raised in the offering to SPiCE token holders, SPiCE VC will distribute 85 percent of all proceeds from realization events to token holders and 15 percent to the SPiCE manager and general partner (GP). It is important to note that, while the general partners’ compensation for the second private closing will be a 15 percent carry, they were also be granted an additional 7.5 percent in tokens.

The SPiCE fund manager and GP will be paid by SPiCE VC and SPiCE Investments LP respectively an amount equal to 2.5 percent of the total proceeds of the offering per annum. The GP’s fees will be paid quarterly in advance.

Bancor Token Reserve

SPiCE has partnered with Bancor to create a reserve of SPiCE tokens. The reserve will use the Bancor protocol but the SPiCE token will not be openly traded on the Bancor network; the only way to access this reserve will be through completing KYC and AML accreditation through SPiCE VC. According to SPiCE’s current documentation, the firm will hold up to five percent of its capital to use BNT as a connector token in the SPiCE token’s smart contract. This will provide SPiCE token holders some liquidity by allowing them to convert their SPiCE tokens to BNT or ETH. Token holders will not be exchanging tokens with one another and will exchange tokens directly with the reserve and therefore the fund.

Bancor’s algorithm adjusts the price of each conversion and allows the fund to offer additional liquidity to its investors. This solution will be available even in the US — where trading securities is limited due to investment lockups — because investors will receive liquidity directly from the fund via the reserve.

Digital Securities Protocol

The SPiCE token complies with Securitize’s DS Protocol, as do all tokens issued by Securitize. The DS Protocol is a digital ownership architecture that is designed to ensure the compliance of tokenized securities with the functionality of the Ethereum blockchain.

The DS Protocol addresses compliance through three elements: tokens, decentralized applications, and services. These elements operate in conjunction to ensure that the sale, custody, and transfer of tokenized securities issued by Securitize (DS tokens) remain compliant with U.S. securities law. Investors undergo Know-Your-Customer (KYC) and Anti-money Laundering (AML) checks, and their information is stored in an on-chain registry which contains — among other data points — a list of accredited investors and their associated wallet addresses. This registry is referenced each time an exchange of security tokens is attempted. Functionally, this enforces legally mandated KYC, AML, and custody compliance, and prevents the non-compliant exchange of tokenized securities.