Personal Token Sales: Innovation, or Indentured Servitude?

Alan VanToai
April 25, 2020

Quick Takes

  • Entrepreneur Alex Masmej recently raised $20,000 in the sale of a personal $ALEX token, offering token purchases 15% of Alex’s earnings over the next 3 years (among other benefits).
  • The sale of personal tokens - the first of its kind on the Ethereum blockchain - was highly experimental and leaves many open questions around practicality, scalability, and legality.
  • Such "income share agreements” (“ISAs”) - ie 15% of earnings for 3 years - are in their infancy but have become more known in recent years with the growth of Lambda School’s ISA-based tuition model and others.
  • ISAs are controversial, on one hand allowing for new possibilities in personal finance, tuition/education, and personal fundraising. On the other, some argue such arrangements begins to resemble the dystopian elements of indentured servitude.

(Discuss this and more in our Future of Work community)

Inside $ALEX's $20,000 Token Sale

Last week, entrepreneur (and fellow MetaCartel member) Alex Masmej concluded a sale of 1M personal $ALEX tokens on the Ethereum blockchain, raising a total of $20,000 USD.

According to Masmej’s Medium post announcing the sale, $ALEX token holders will receive pro-rata distributions of 15% of Alex’s income over the next 3 years, paid quarterly.

In addition to the income distribution, $ALEX tokens will entitle purchasers and holders to a variety of other benefits including:

  • An hour of his time
  • An introduction to someone within his network
  • A shout-out on social media
  • The ability to vote on certain personal or professional decisions in Alex’s life

As an ERC20 token built on top of Ethereum, the $ALEX token is tradable on Uniswap and traceable on Etherscan.

Masmej intends to use the $20,000 raised in the sale to facilitate his move to San Francisco, where he plans to launch a startup in the fintech & decentralized finance (DeFi) space.

An Experiment With Unanswered Questions

The personal $ALEX token is the first of its kind to happen on the Ethereum blockchain, and while Alex is optimistic about the future of personal token sales, he’s the first to admit that his sale was highly experimental, and that the model leaves a lot of questions unanswered with regards to long-term practicality, scalability, and legality of such sales going forward.

To the question of how enforceable the ISA is, and how/whether Alex will report his earnings over the 3-year timeline of the ISA, Alex points to his personal brand, reputation, and relationships as the reinforcing factor - a solution that might work in Alex’s case, but would undoubtedly need to be more robust in order for personal token sales to gain a broader audience.

Also unclear is the legal thorn in the side of nearly every other project experimenting on the frontier of the blockchain and cryptocurrency industry - the question of whether or not such personal tokens are “securities” as defined by the SEC, in which case they must conform to complex (and expensive) regulations on distribution, sale, registration, disclosures, and more.

Innovation? Or Indentured Servitude?

Practical and legal concerns aside, there remains a final thorny issue around income sharing agreements - that being the complex ethical concerns built into the very nature of ISAs themselves.

Though still in their infancy, ISAs have become more known in recent years with the growing notoriety of Lambda School - the Silicon Valley-based coder school that exploded in size (and valuation) thanks in large part to the program's ISA-based tuition model.

With Lamda Schools ISA model, in lieu of paying an up-front tuition (~$20k cost of comparable programs), Lambda school grads agree to pay the program 17% of their salary for up to 2 years or up to $30,000 (whichever comes first), if they land a programming job paying $50,000/year or more after graduation.

On one hand such ISA models allow for new possibilities in tuition, fundraising, and personal finance. At best, this has the potential to unlock new opportunities for upward mobility for people with less cash.

For example: in the case of Lambda School, there are anecdotal examples of students who went from earning minimum wage in service jobs before the program, to earning $60-80k/year in entry-level programming jobs after.

For these students, putting together $20,000 cash to pay the program tuition up front would not have been possible, even though in the long-run, their resulting increase in income more than justifies the investment.

Lambda School’s agreement allows these cash-poor students to tap into their future earning potential in order to unlock the education that can change their lives forever.

That’s the good side.

On the other hand, by their very nature, income share agreements are essentially indistinguishable from the dystopian concept of indentured servitude:

Defined by Wikipedia: "an indentured servant or indentured laborer is an employee within a system of unfree labor who is bound by a signed or forced contract to work without pay for the owner of the indenture for a period of time. The contract often lets the employer sell the labor of an indenturee to a third party. Indenturees usually enter into an indenture for a specific payment or other benefit, or to meet a legal obligation, such as debt bondage.

Back to our previous example, in recent months, Lambda School has come under scrutiny for allegedly re-selling ISAs to third parties on Edly - an ISA marketplace where schools can sell their interest in future students incomes to buyers, investors, and speculators (a claim Lambda School CEO Austin Allred refutes).

Stepping Stones on the Road to the Future

With $1.6 Trillion in outstanding student loans in the United States, and ever-increasing wealth disparity between the America's “two economies”, it’s become increasingly clear that the time is right for innovations in money and finance.

At Telefuel, we’re optimistic about the role that cryptocurrencies and decentralized finance can play in the financial innovations to come. But in the process of innovation, like evolution, not everything survives.

Some of the experiments on the frontiers of finance today will go on to change the way societies operate for generations going forward, and others will fail and be remembered only as stepping stones on the road to the future.

Time will tell where personal token sales like $ALEX’s will eventually end up - but such experiments play a welcome - indeed necessary - role of the process of innovation, and should be commended and encouraged as such.

To the moon, $ALEX!

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Alan VanToai
Co-Founder of Telefuel
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