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  • Why have we decided to establish the Phase 1 bank in Liechtenstein?
    While we did initially consider one jurisdiction on the basis of assumed factors and existing relationships, we were guided by legal and other experts to a solution that would protect our investors' interests and help us achieve our stated objectives without unnecessary risks or delays: 1) Liechtenstein's regulatory environment is understood to be highly favourable for establishing a new bank; the country's forward-thinking approach to crypto regulations, particularly following the Liechtenstein blockchain act, aligns well with our intended legal structure; 2) Liechtenstein's strong relationships and ties with influential neighbouring countries also enables us to immediately passport into the European Economic Area without additional ECB reviews; 3) by including the establishment of the Foundation in Liechtenstein, we are able to streamline all applications under the same jurisdiction and with the same legal team to ensure more efficient processes - consolidating our structure means we avoid having to interface with multiple regulators cross-jurisdiction, leading to a potentially faster and more cost-effective path to obtaining the necessary licence; 4) the Financial Market Authority, Liechtenstein's banking regulator, has a reputation for collaboration and approachability, and we have also carefully positioned our approach to ensure engagement with them is as constructive as possible.
  • Of regulatory and operational risks anticipated, what mitigation strategies have you considered?
    Critical to the success of this innovative project, we have proactively anticipated a number of factors that would either be required to fulfil our application requirements or we expect (based on team experience and legal advice) could arise as we activate and develop our ‘anchor bank’ platform. 1) Innovative offerings: At its core this project seeks to form an important and robust bridge between the still evolving and least regulated ‘defi’ ecosystems and the more regulated, onshore ‘traditional’ structures. We recognise that banking regulators are less familiar with and therefore can be sceptical of, the relatively untested domain of defi/token projects and the unconventional structures they propose. Solution: We are establishing the foundation (the entity directly connected to the token holders) in Liechtenstein which is the first country to ratify a Blockchain Act and which also makes it the first country to formally regulate the token economy. As such, Liechtenstein's bank regulator, the Financial Market Authority, is already familiar with token-based projects and has established a reputation for being open and supportive of new enterprise. 2) Banking licence applications: There are regulators who have a reputation for being inflexible making it difficult for new firms to establish and develop even if successful in their applications. Being one of the most powerful and toughest licences to obtain, many applicants attempt to cut corners to succeed; however this is an unacceptably high-risk approach we will not take. To avoid these challenges and to enhance the future entity’s reputation in the interbank and international depositor markets, a rigorous selection process was used to identify a jurisdiction that is both credible (not just handing out licences on ‘backhanders’) and sufficiently ‘bank friendly’ to welcome and support new bank applicants. Solution: Based on in-house analysis and experienced legal advice we decided to establish our first bank, the project’s ‘anchor bank’, in Liechtenstein: Seen as highly favourable for establishing a new bank, Liechtenstein's regulatory environment offers a forward-thinking approach to crypto regulations and aligns well with our intended legal structure; Liechtenstein's strong relationships and ties with influential neighbouring countries enables us to passport into the European Economic Area without ECB (European Central Bank) reviews; We are able to streamline all applications under the same jurisdiction and with the same legal team, ensuring a more efficient process. Centralising our structure this way allows us to avoid interfacing with multiple regulators cross-jurisdiction, obtaining the necessary licence potentially faster and more cost-effectively; While the Financial Market Authority has a reputation for collaboration and approachability, we have also carefully positioned our application to ensure engagement with them is as transparent and constructive as possible. 3) Source of funds compliance: to ensure its origin and source of investment are fully KYC/AML compliant, tier 1&2 capital is closely examined by the Regulators. Solution: To meet these standards, all investor capital received for this project passes through comprehensive KYC/AML checks by a regulated firm - the same will apply for the Liechtenstein entity. As per regulatory requirement, all investor KYC/AML information will be held on a server in Liechtenstein, which will fulfil any audit requirements and protect both the project and our investors from current and future scrutiny. 4) Difficulty in obtaining licence/risk of failure: Every aspect of this application has been studied in detail to achieve best chance of success, here we outline specific steps taken to improve our chances. In addition, given the complexity and current volatility of the regulatory landscape, our model includes a number of assumptions and potential alternatives in case the application process is unsuccessful Solution: To increase the chance of success (and reduce risk of failure) one of the advantages offered by Liechtenstein’s regulator is a voluntary pre-application phase where candidates submit a shortened and simplified application to receive early feedback from the regulator, via legal counsel. This affords us important guidelines on what, if any, improvements or adjustments might be needed to meet the FMA’s required standard. To secure this further, we have partnered with one of the leading law firms in Liechtenstein that has an established relationship with the regulator as well as extensive experience in processing FMA applications.
  • How does Valhalla plan to scale especially in diverse regulatory environments?
    Establishing the (stand-alone) network of community banks in quick succession is a critically important part of this project’s launch strategy. Several tools are being developed to ensure rapid but sustainable roll-out, one of which will be to streamline processes by use of existing documentation from the successful anchor bank application, as well as leveraging strong legal and regulatory connections to support our mission. We will be working very closely with our advisors, investors and legal counsel to identify and implement the most effective accelerants that can resolve any barriers to entry and mitigate risks, helping us expand to new markets as per our original plan. Network effects of the DAO’s token-holder and foundation matrix are expected to add further support to this strategy. It is important to note that in the months immediately following the establishment and profitability of the ‘anchor bank’, we will initially have to focus on setting up community banks in European jurisdictions where the model is already recognised in some form and regulations are similar to Liechtenstein. As soon as these are successfully established, we will be in a stronger position to offer expansion to Africa and Asian communities where local demand is high for a fair alternative. Potentially, these could present more challenging regulatory environments and so require jurisdiction-specific expertise that will need to be identified through our network and/or new stakeholders.
  • Why did we wait until 2Q24 to establish the Foundation?
    The project's roadmap has not been delayed, but we have had to allow time for the many interlocking processes to run their respective course as they emerged. We partnered with one of the most recognised law firms in Liechtenstein who have a proven track record in this area and an established relationship with the regulatory authorities. Banking industries are increasingly regulated and any proposed legal structure has to undergo scrutiny by the FMA; key to the success of this project is establishing a comprehensive token economy that can align with both investor expectations and regulatory requirements. Hence, before approaching the regulator, it was essential that the intricate relationships between the Foundation, the Council of the Foundation, the token holders, and the bank be fully understood and ratified. Designed with a robust token economy that prioritises longevity, regulatory and investor acceptance, rewards for active participation, as well as utility, this project is complex. Furthermore, given that establishing the Foundation is a one-time endeavour (they can be challenging to liquidate) it was imperative we have the right legal structure and token economy design in place before proceeding to the next step. Wherever possible we are expediting the process: completing all preliminary application documents beforehand, for example, which will allow us to submit the preliminary application just once (rather than in two stages) - which we have been advised presents a more credible and serious image to the regulator, building firm ground for our future relationship. While we established up-front that there is no rule against our intended legal structure and Legal counsel are confident that the regulator will approve our application without delay, it goes without saying that final approval does still depend on the regulator's final decision. In the unlikely event our proposed legal structure were not to be immediately approved, Legal counsel have confirmed that the regulator would revert with advice on changes that would need to be made, allowing us to continue the project as planned.
  • Beyond financial returns, what incentives are there for investors, particularly in terms of governance and community impact?
    We offer our founding investors the opportunity, and in fact actively invite them to join us on an advisory basis where they can contribute their experience or perspectives and most importantly, any networks or connections that might have the potential to support and accelerate our mission. As of 2024, we seek to develop connectivity with the project’s main target market: the Communities where demand for this solution is greatest and/or has the highest potential for rapid uptake - we will be looking for our investors to help in this effort. As outlined in the whitepaper, once profitable, investors will be actively involved in the decision-making around use of Foundation funds such as to support governance rewards, establish new community banks, or larger-scale social impact projects. After the TGE (token generation event), the community of token holders (primary and subsequent investors) will play an increasingly greater role in deciding Valhalla Network’s future expansion and development strategy. At the initial stage (2-5 years), the executive and non-executive teams as the majority token holders maintain a prominent role in directing the establishment of the first community banks. As the founding team’s tokens unlock and a fraction is naturally sold to the public, the community is expected to diversify and increasingly establish its own momentum of votes and decision-making on the use of the Foundation’s funds, the location of new community banks, and other large-scale community initiatives - exactly the self-perpetuating model that we originally envisioned.
  • How does Valhalla Network plan on measuring and reporting its social and economic impact on local communities?
    Externally: Valhalla Network’s existence is founded on a passionate commitment to offer a sustainable solution that can generate enduring positive social, economic and environmental impact. Where appropriate, the network will develop and maintain reporting that is aligned to prevailing National (country-level) as well as international (OECD and UN SDG-styled) metrics capable of informing stakeholders worldwide of the positive effects generated (directly and indirectly) as a result of enabling and empowering local communities through this solution. As recognition grows, one of our core objectives is to generate strong government-level endorsement and backing to help further accelerate development and adoption wherever a need is identified; the release-valve effect this could offer to governments under increasing cost pressures is significant. Internally: As described in the whitepaper, each bank will be partially owned by a (local) social impact foundation tasked with distributing a portion of dividends back into local community development programmes. Along with other initiatives supported by the bank, these will be reported back up to the Parent Foundation and thereby, the token holders. At all times, the Foundation will provide token holders with KPIs and other relevant metrics through a live dashboard built into the platform (more detail to follow as this is developed in 1H24).
  • How does the governance model prevent conflicts of interest in the DAO? How is effective and fair decision making monitored and enforced?
    By definition, DAOs are structured to actively limit power accumulation and conflicts of interest. In our case, as a token holder accumulates voting power, it becomes ‘increasingly expensive’ for them to accumulate further voting power (i.e. 1 token does not equal 1 vote), making access to a majority or swing vote virtually impossible. Conflicts of interest are also very quickly exposed as proposals and decisions are made ‘on chain’ in an open forum for greater transparency. Any proposals voted to pass have to obtain final approval from the Foundation’s non-executive Council who are actively responsible for overseeing governance, regulatory and legal concerns as well as ensuring the Foundation abides by any applicable laws and works continuously to preserve the best interests of its mission. In the project's infancy (2-5 years), the start-up team has a greater influence over the network's expansion through token ownership; this is to ensure decision-making and governance are effective and sustainable, developing increasingly mature processes over time. Community-accepted guidance will be formalised as part of this process, and as voting power is gradually distributed from the team, the ‘number of voices’ will increase to more accurately reflect the breadth and depth of the stakeholder network. As an emerging form of legal structure, it is understood that DAOs might advance further so part of our strategy is to actively monitor and develop increasingly robust and resilient governance frameworks capable of preserving and protecting Valhalla Network’s founding model while also empowering it to most effectively evolve to serve its mission stably and sustainably, regardless of regulatory change, volatility or turmoil.
  • What type of token standard is used?
    We will use the ERC-20 standard, starting on the Ethereum blockchain. As required, we will take the token to other chains as we see fit, continuing to use the ERC-20 token standard on any EVM compatible chain we operate on.The ERC-20 introduces a standard for Fungible Tokens, in other words, they have a property that makes each Token be exactly the same (in type and value) as another Token.
  • What are the base rules of the smart contract?
    There will be a number of smart contracts, and all of them will be fully validated and open for inspection on Etherscan, or the appropriate block explorer for any other chain we operate on. The full “rules” of our smart contract ecosystem is under design and development currently. For the ERC-20 token, we strive for a simple token with minimal gas cost in the token contract itself. We will also have vesting contracts, a governance participation reward contract, and depending on the governance testing results, we might end up with governance smart contracts as well. All of these will be open source, extensively unit tested, and audited prior to trusting them with value on mainnet. All state changes will result in readable events so we can easily track changes, and everything will default to having getters and setters, with explanations for why they are missing if something needs to be immutable.
  • How are the rules of the smart contract reflecting the workflow of the Phase 1 and Phase 2 bank structure?
    Smart contracts relate to token holders of Valhalla Network Foundation (the parent company of each bank). Governance token holders cannot govern the banks directly because the regulators would forbid such a governance structure. Each bank is a separate entity that is managed by senior bankers but owned by the Foundation. As a shareholder, the Foundation will have voting power over the banks through the Foundation’s Council (who are answerable to token holders and must act in the interests of token holders, wider project, and Foundation’s Statutes).
  • Why is the private sale tokens vesting period (1 year lock-up of assets) shorter than the start-up team’s tokens (2 years lock-up of assets)?
    The period of time relates to how long the tokens are locked for before they are accessible. The lock-in period is to align the interests of the team with that of our investors. By locking the team in for longer, investors will have the ability to sell all of their tokens (if they desire) before the team receives a single token - this gives investors confidence that the team is fully behind the project for the ‘long-term’ and aren’t looking to sell shortly after the token generation event. This is a huge benefit to investors and an important feature of a token start-up. It gives confidence that there is no malicious intent.
  • What kind of staking mechanism will be used?
    All of the staking mechanisms listed below apply to blockchains, and Valhalla Network is not starting a new blockchain, but making use of Ethereum. We will likely also expand to other EVM compatible chains, including L2s like Arbitrum. As such, we’ll be launching an ERC-20 token on Ethereum at our Token Generation Event (TGE). Many token projects include a staking element that guarantees a yield in order to incentivise “holding” of the token. Valhalla Network will not do this. What Valhalla Network will do instead is provide incentives for DAO governance. The name of this mechanism is to be decided, but in exchange for locking tokens AND participating in governance through active voting, a token holder can receive rewards. This is effectively a reward for the work it takes to participate in discussions, read and understand proposals, and make an informed vote. This will allow our token holders to earn something similar to a yield on tokens they are willing to lock for a period of time, but only in exchange for participating in governance. Holders will have an option to delegate their voting participation.
  • What information will be written in the blockchain blocks (transactions)?
    The absolute minimum possible, and almost all of this data will be transactional.
  • Will there be any token burning (except the failure scenario for the launch) in the future or similar mechanism for balancing?
    Token Burning will be an option available upon governance from the DAO. This means the ERC-20 will have a token burn mechanism for destroying a portion of the existing minted supply. The burn is there in case it’s necessary at some point in the future, and is meant to maximize options for future governance. There are no plans to use burning regularly, or as a way to deflate the coin and influence price.
  • With the current plan, is there a threat of a 51% attack or similar market manipulation before and after the initial 2 years?
    The biggest risk of a 51% attack comes through the DAO governance. All blockchain consensus must grapple with this attack vector. We are currently working on defining our goals around consensus, and one of these goals is to maintain security against this threat. Described below in the section on voting power is a description of non-linear voting, which would make gaining a 51% share significantly more expensive and painful. Our incentive design will focus on maximising voting participation and decentralisation. These and other options are still in R&D, including building scenarios and simulations, but these will be backstopped by metrics that will provide advance warning on suspicious accumulation of voting power.
  • Is there any voting power difference between tokens?
    All tokens will have the same voting power, though it won’t be as simple as counting tokens. We are discussing a “non-linear” form of governance that will make the voting power not a simple 1 token, 1 vote system. The purpose of this is to ensure that token holders with a large number of tokens are not easily able to overwhelm a large number of smaller holders. This will be a security measure, ensuring a majority of 51% of the vote will be much more expensive. This will be extensively documented, justified with simulation, and well explained to all token holders. Important to note: As mentioned previously, we will provide voting delegation. This makes it easier for people to participate fully in all votes, but has a risk of voting power becoming concentrated around specific individuals. This is a variant path towards a 51% attack. As such, we’ll establish metrics and mechanics to control for this type of power concentration, including proper incentives, the most obvious of which will be simply reporting the relative voting power of all the delegates. Delegate addresses will be known and tracked.
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