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Following is the contract I am using for the issue of TU.SILVER on BitFunder.
=Issuer Detail======usagi
[email protected]Longtime forum member
=Contract======SILVER is a company which operates a silver fund enabling investors to hold physical silver. We also sell covered call contracts to pay for secure storage, generate revenue for the company, and pay a modest dividend.
1. Each outstanding share in SILVER represents 1/10th (0.1oz) of 0.999 grade (or better) physical silver.
2. SILVER will allow shareholders to exchange shares for PHYSICAL silver bullion at any time:
2a. Shareholders must trade-in their shares in lots of 5, as the minimum denomination we can ship is a 1/2 oz. silver round.
2b. Shipping is 1 share per 10oz (i.e. 1%) airmailed anywhere in the world, with tracking number and insurance. Additional shipping options are available at the customer's expense. SILVER is not liable for customs, duties, taxes, VAT, etc.
3. SILVER will sell covered call options to generate revenue and pay for secure storage fees.
3a. SILVER will not sell covered call options if the call of the contract would reduce the backing of the fund below one tenth ounce of silver per share (unit).
4. SILVER will hire an advisor to prepare and publish acceptable financial reports twice per year.
4a. The current advisor is DeadTerra.
5. The issuer assumes personal liability for the silver and guarantees investors will retain the ability to claim their physical silver by trading in their shares as outlined in clause #2.
6. We have an exclusive arrangement with BitFunder to support BitFunder as a platform. We will not trade on any other exchange until August 2013.
6a. We can not honor the trade-in program for shares of an unlicensed passthrough operation.
=Executive Summary======I know the silver market very well and I have an excellent OTC rating. I have sold gold and silver on bitcointalk and on ebay for many years and I only have positive feedback from my customers. I have been watching the silver market for about six years now and I have a great business idea which I believe will work: SILVER. I hope you agree that the contract I've come up with is a good deal.
The core business here is not just allowing investors to buy silver in bitcoins like any other fund -- it's to leverage that position to generate dividends. The SILVER advantage is that if we are stopped out on our cash position, our physical SILVER rises in value to cover the loss and provide reasonable returns, while still allowing us to honor the trade-in program. While if the price of silver declines or remains steady, we generate income from our trading strategy.
The ability to generate dividends along with the promise of backing and the ability to claim your physical silver at any time, makes SILVER a unique business model that I feel will work well. I'm very excited to be able to stand by this contract and you may feel free to contact me by telephone or by e-mail if you have any questions.
=Business Description======Primary Business: Silver Storage
To start the company we will convert existing ounces of physical silver into units of the fund. We will then sell these units into the market at a premium to spot price, representing the existing premium* on 1/2 oz. coins and need to pay for secure storage. From that point physical silver will be bought and converted to shares of SILVER either out of the cash position of the company or immediate-term loan, then converted to units and sold on the market.
Secure storage costs 0.49% per year in Hong Kong (VIA MAT or G4S). Other vaults around the world have similar rates, although Switzerland is notably higher at 0.99% per year. I am planning to start with the vault in a local bank so that we may inspect the silver at our leisure.
Secondary Business: Selling Covered Calls
We will write covered call contracts against the silver position in order to pay for secure storage fees and generate revenue for shareholders. This will allow us to pay for secure storage fees on an ongoing, permanent basis, and to expand the fund.
Since storage fees are around 0.5% per year and we expect to make ~1% per month on the invested value, this implies we only need to write calls against 6% of the position in order to pay for secure storage. As we will be selling each unit for 5% to 10% above face value, the cash position will cover the risk of loss. As a result, I feel there is a very low risk of breaking the fund's model of retaining one tenth of an ounce of silver per unit. In short, should we get called on such a small position, we will have more than enough cash on hand to settle with no risk to the holders. Failing that, please see clause #5 in the contract.
=Definition of the Market======TL, DR: I have a passion for silver. Silver has been money for even longer than gold. Many languages in the world use the word silver as the word for money. The world's supply of silver is precariously low in comparison to historical supply. There is a historical ratio of 15 or 16 ounces of silver to one ounce of gold (due to mining supply), however due to industrial use this has fallen to a 1:1 ratio. Therefore I personally feel the silver story is more than just unique. I believe it presents an opportunity that will change the lives.
=Products and Services======Product: None, however one share (unit) is guaranteed to represent 1/10th of an ounce of silver, redeemable upon demand.
Services: Exchange program
We will allow investors to exchange shares of SILVER for physical silver on a 5 share for 1/2 oz round basis (or for larger denomination bars upon request, should we have them available). There will be a 1 share fee for shipping anywhere in the world per 10 oz.
=Organization and Management======Organization and Management:
I am the issuer and responsible for the daily operation of the company.
We have also hired an advisor to provide oversight and prepare financial reports.
Shareholder motions require 60% to pass.
Any shareholder with 5% or more can raise a motion.
I will maintain a forum thread and I will listen to and respond to the community's advice.
=Marketing Strategy======Out of the profits of the fund we will attempt to buy advertising on bitcoin-based websites like bitcointalk, feedzebirds, or any other community-based advertising services.
I am planning to spend ~10% of revenue on advertising. Not too much, basically just that or a little less.
=Financial Management======Start up costs will be around 10 BTC for initial advertising and to retain our financial advisor.
I plan to retain 1/3rd of net profit into the company's cash position, take 1/3rd as management fee, and pay 1/3rd as distribution to shareholders.
(BTC-TC does not force issuers to stay with us, quite the opposite, if they're unhappy, we make it easy to leave.)