The flagship instrument. Uncapped income-linked dividend into perpetual equity claim.

A covenant is a smart contract on Base that mints exactly $N = 10{,}000$ ERC-20 tokens at deployment. The issuer receives principal $R$ upfront from backers; in return, the tokens carry two linked payoffs in sequence:

• —Phase 1 (years 1 to T): the issuer pays $s\%$ of annual TEB to the token pool — uncapped, no ceiling. If TEB doubles, payments double.
• —Phase 2 (year T+ to infinity): the token converts to a perpetual claim on $e\%$ of annual TEB, enforced through a Primary Economic Entity (an LLC or C-Corp controlled by the issuer). The token follows the individual across every role, pivot, and career move.

Tokens are locked at issuance (see the pre-IPO lock spec) and trade after three unlock thresholds clear. Phase 2 trades forever. The token never expires.

A covenant is defined by four issuer-set parameters, immutable after deployment:

Every parameter combination must satisfy the cap invariant: $s + e \le 25\%$ when they overlap (year $T$boundary is half-open, so they don’t overlap literally, but any cross-listing obligation adds to the stack, see the cross-listing math spec).

The dividend per token is pro-rata: each token holder receives their share of $s\%$ of TEB, paid quarterly.

The dividend is uncapped. If TEB grows, so does the payout, with no ceiling. That’s the key structural departure from prior ISA platforms (Purdue, Lambda School), which capped Phase 1 payouts at a 2×–3× multiple of principal: a ceiling on good outcomes that left bad ones still owing the floor. See What this is not for the full structural comparison.

At year $T$, the token auto-converts. It is no longer a claim on a time-bounded dividend stream. It becomes a perpetual share of the issuer’s lifetime TEB, enforced through a Primary Economic Entity (PEE).

The PEE is an LLC or C-Corp controlled by the issuer that holds the legal claim. It’s durable across every career move. If the issuer leaves their current role and joins another, the PEE still collects $e\%$ of their TEB on the new role. The claim is on the trajectory, not on any one company.

Phase 2 trades forever. The token never expires, never auto-redeems, and passes through estate mechanics on death (see the covenant risk section of the two-phase covenant wiki spec for succession rules).

Every token class has a single effective equity rate $e_{\text{eff}}$— the constant that makes the token claim a fixed fraction of the issuer’s lifetime human capital (see the human-capital spec). For the canonical covenant under constant TEB growth, the closed-form is:

Plain English: a weighted average of $s_1$ and $s_2$, where the weight on Phase 2’s lower rate $s_2$ grows as the term $T$ gets longer (more value sits in the perpetual tail). For the canonical $(s_1, s_2, T) = (3\%, 1\%, 10)$ at $r - g = 0.07$:

This is the constant-growth idealization: a pedagogical anchor, not the production number.Real forecasts are piecewise: front-loaded for early-career issuers, tapering toward a terminal rate. Maya’s piecewise forecast gives $e_{\text{eff}} = 1.66\%$ — about 17% below the constant-growth approximation, because the front-loaded forecast pushes more value into the perpetual tail (the lower- rate Phase 2). The pricing engine always runs the piecewise; the 2% number is for intuition only.

e_eff sensitivity to term length

Why it matters —The asymptotic limit as $T \to \infty$ is $e_{\text{eff}} \to s_2 = 1\%$ — at infinite term, the covenant converges to a perpetual $s_2$ claim, which is what Phase 2 already is. Direct Listings (no Phase 1 at all) sit at $e_{\text{eff}} = e$ exactly — see the DL spec.

Phase 2 tokens aren’t speculative. They’re a contractual claim with five rights written into the covenant at issuance:

Prior ISA platforms capped Phase 1 payouts at 2×–3× of principal, a ceiling on good outcomes that left bad ones still owing the floor. They were designed for consumer-credit contexts (career training) where the outcome distribution is roughly log-normal. Preflop issuers are early-career individuals with venture-style upside (founders especially, but also researchers and creators on a credible trajectory). Their outcome distribution is a power law, dominated by a small number of outsized wins.

In a power law the tail dominates the expectation. If you cap the tail, you collapse the distribution’s expected value to a mediocre median. That’s fine for consumer credit, where you want to minimize downside on a heavily regulated book. It’s exactly wrong for venture-stage human capital, where one 100× outcome funds a hundred 1× outcomes.

Why it matters —The economic logic: a backer’s portfolio of 20 covenants, held to Phase 2, is dominated in expectation by the 1 or 2 that compound into a multi-million-dollar Phase 2 claim. Cap those and the instrument competes with a corporate bond. Uncap them and it competes with a venture fund while giving the issuer better terms than equity (no governance rights attached, no pay-to-play dilution, no impingement on the issuer’s control over their own work).

The income-share-agreement category has scar tissue. The most-cited example is Lambda School (rebranded BloomTech in 2022): in April 2024 the CFPB found that BloomTech and its founder had marketed ISAs as “not a loan, no debt, no finance charge, risk-free,” while the actual average finance charge per ISA was approximately $4,000. The CFPB issued a permanent ban on consumer lending against the company and a 10-year ban on student lending against the founder personally. Earlier, Lambda had been documented selling roughly half its ISAs to a hedge fund at $10K each before students graduated, while telling those same students “we only get paid when you do.” Internal placement rates were in the 30–50% range against publicly advertised rates of 71–86%.

Preflop is structurally different. The differences are not branding; they are mechanics:

The ISA component of Preflop’s instrument is one phase of one entry mechanism on one of two listing paths. The product is the exchange.