Legal
Terms of Service
Note
This is the legal surface. The principles behind it live at /spec/ethics.
1. Overview
Preflop (“we,” “us”) operates a platform that facilitates two-phase tokenized covenant (“ISA”) covenants between issuers and backers. These Terms of Service govern your use of the Preflop platform at app.preflop.co and any related services.
2. Eligibility
You must be at least 18 years old to use Preflop. Backers must be accredited investors as defined under SEC Regulation D during Phase 1. Issuer eligibility is determined by Preflop’s curation process, including conviction scoring and manual review.
3. Two-Phase Covenants
A covenant is a legally binding, two-phase agreement between an issuer and their backers, mediated by a smart contract on the Base blockchain. The four terms are set by the issuer and immutable once deployed on-chain: principal (P), income share (s), ISA duration (T), and equity conversion (e). During Phase 1 (years 1 through T) the issuer pays s% of gross income to all token holders combined, uncapped and unbounded. At the start of year T+1 the covenant transitions to Phase 2, in which token holders collectively hold a perpetual claim on e% of the issuer’s annual Total Economic Benefit. Preflop does not guarantee any return on investment.
4. Total Economic Benefit (TEB)
“Total Economic Benefit” for any period means the aggregate of (a) the issuer’s wage, salary, and self-employment income reported on IRS Form W-2 and Schedule C; (b) partnership and S-corp distributions reported on IRS Schedule K-1; (c) cash proceeds realized by the issuer from the sale, acquisition, buyback, distribution, secondary transaction, or dividend on any equity or equity-like interest held by the issuer; (d) book advances, royalties, licensing income, board fees, speaking fees; and (e) any other cash realization of the issuer’s human capital, including non-cash consideration valued at fair market value on the date received. TEB is intended to be comprehensive and is interpreted in favor of backers to prevent structural avoidance.
5. Tokens
Each covenant mints exactly 10,000 ERC-20 tokens on the Base network. Tokens represent a proportional claim on Phase 1 and Phase 2 obligations as defined by the covenant terms. Tokens are transferable within the constraints of applicable securities regulations after the pre-IPO lock is lifted. No additional tokens are minted after issuance. Tokens do not expire at the end of Phase 1 — they continue to trade and receive Phase 2 TEB distributions in perpetuity.
6. Fees
Preflop charges a 2.5% origination fee on capital raised through the platform, deducted at funding close. Secondary market trading fees will be announced prior to Phase 4 launch. There are no fees for issuers whose covenants do not reach funding.
7. Income and TEB Reporting
Issuers are contractually required to report Phase 1 income and Phase 2 TEB each period as specified in their covenant. Preferred verification is via Plaid bank connection and annual tax-return attestation. Manual reporting with audit trail is the fallback. Failure to report or intentional misreporting constitutes a material breach of the covenant.
8. Risk Disclosure
Investing in ISA covenants involves significant risk, including the risk of total loss. Past income is not indicative of future income. Conviction scores and risk assessments are estimates and should not be relied upon as investment advice. You should not invest more than you can afford to lose.
9. Regulatory Status
Preflop operates under Regulation D (accredited investors) during Phase 1 and intends to expand to Regulation CF for broader access. Preflop is not a registered broker-dealer, investment adviser, or exchange. We are working with securities counsel to ensure ongoing compliance.
10. Limitation of Liability
Preflop provides the platform on an “as is” basis. We are not liable for losses arising from covenant defaults, smart contract vulnerabilities, blockchain network failures, or market conditions. Our total liability is limited to fees paid to Preflop in the 12 months preceding the claim.
11. Governing Law
These terms are governed by the laws of the State of Delaware, United States. Any disputes will be resolved through binding arbitration in Delaware.
Last updated: April 2026 · Preflop · Delaware C-Corp
