We take note that the Securities and Futures Commission of Hong Kong has, on January 26, 2024, posted Floki and TokenFi Staking Program on its list of suspicious investment products. We regret that the SFC takes such an extreme measure.
Since December 2023, we have worked with our legal advisers to clarify and address potential regulatory issues relating to the staking programs, as Floki is a law-abiding project that strives to be legally compliant in all jurisdictions we operate in, although the very nature of the Internet means defining our operation areas is increasingly difficult.
We’ve taken steps to mitigate concerns in jurisdictions where the regulatory framework does not specifically cover or cater for the staking programs.
Insofar as Hong Kong is concerned:
1. We placed prominent warnings on the Floki and TokenFi staking websites to alert users from Hong Kong that they are not eligible to join the staking program.
2. We have taken other practical measures to block Hong Kong users from joining the staking program.
3. As a responsible community, we will continue to implement those measures to prevent Hong Kong users from joining the staking program until the relevant regulatory issues have been resolved. We can confirm that, as of today, to the best of our knowledge, there is no record of Hong Kong users having joined the staking program.
4. We paused our offline marketing campaign in Hong Kong before its scheduled launch in mid-December 2023.
As indicated by the statement of the SFC, it appears that the high APY of the Floki and TokenFi staking programs is their key concern. We understand that many might struggle to comprehend how the Floki and TokenFi staking programs can have the kind of high APY they currently have, so we believe it is important to address this:
A LOOK AT THE FLOKI STAKING/REWARDS PROGRAM: WHY IS THE APY HIGH, AND IS IT SUSTAINABLE?
The Floki staking program is unique in the sense that while the majority of projects reward stakers by minting new supply (which leads to inflation) or by allocating a small percentage of the token supply to staking initially (which results in low rewards), Floki actually rewards stakers with $TOKEN, which is the utility token of Floki’s sister project TokenFi.
TokenFi is an all-in-one tokenization platform that targets the tokenization industry, which is projected to be worth $16 trillion by 2030. The platform is powered by $TOKEN and is widely regarded as one of the top tokenization projects in the space at the moment.
There are two key reasons why the FLOKI staking APY is very high compared to other staking programs in the space:
1. Instead of raising tens of millions of dollars in VC funds and/or doing a huge presale prior to launch, which would have resulted in VCs and presale buyers getting most of the token supply, we opted not to raise funds from VCs or do a presale. Instead, the majority of the TokenFi token’s supply was allocated to users who stake FLOKI — in line with Floki’s ethos as the people’s cryptocurrency.
54% of the TokenFi supply was allocated to Floki stakers, and an additional 7% of the supply was allocated to TokenFi stakers — ensuring that rewards are concentrated in the hands of believers in the FLOKI ecosystem rather than VCs.
Combined, that is $156,709,000 worth of rewards to be earned by $FLOKI and $TOKEN stakers over a four-year period based on TokenFi’s current market cap, which is determined solely by market factors.
2. Rewards are volatile and subject to market forces since they are denominated in $TOKEN, which is the tradable utility token of the TokenFi platform. Staking APY can go up or down depending on the market prices of $TOKEN. In fact, the staking APY has gone down as more people staked.
For perspective, the original launch market cap of $TOKEN, when it was launched on October 27, 2023, was a $500k fully diluted valuation (FDV).
This is what the Floki staking APY would look like if the initial TokenFi launch market cap was used as a benchmark:
Instead, market forces (which are outside our control) resulted in the TokenFi price going up significantly from its initial launch market cap, with purchase pressure increasing its current market cap by over 500x compared to what it was launched at.
We do not control TokenFi’s market cap, and it can go up or down depending on market forces. Still, since Floki staking rewards are denominated in TokenFi’s native token, the APY also goes up or down with the project’s market cap.
We do not believe there is any confusion amongst users as to how the staking program works. Users who stake FLOKI are being rewarded in the utility token of a promising protocol, which the market currently has a strong interest in, and this is reflected in the current APY of the staking program — which could go up or down depending on fluctuations in the TokenFi market cap.
We also want to make it clear that the Floki and TokenFi staking programs are completely decentralized:
1. If the Floki/TokenFi team disappears today, users will still be able to stake and unstake their tokens and/or claim rewards at any time. Each staking program is already live on the blockchain and will always operate independently of our efforts.
2. While the team had a role in initializing the staking contracts, on the mandate of the Floki DAO, we do not have control over the tokens staked in the staking contract or the rewards. We cannot alter these rewards: we cannot increase or decrease the rewards. We also cannot access or make use of users’ tokens in any way.
3. The same staking rules, including durations and unstaking fees, apply equally to everybody who stakes without exceptions, including development team members who choose to stake and everyone else. No one gets an exemption of any sort.
4. $TOKEN is the main utility token of the TokenFi protocol. It derives its value from the growth of the TokenFi platform or people’s belief and confidence in the potential of the TokenFi platform. Due to this, the staking APY will go up or down based on $TOKEN’s market capitalization.
In a nutshell, we do not have access to users’ tokens, cannot make use of these tokens in any way, and users are able to continue to exercise full control over their tokens and access to them even if our team and developers were to become unavailable for a very long time.
The main reason the Floki and TokenFi staking APY is so high is because we opted not to raise tens of millions of dollars from VCs or presales. Instead, we allocated the majority of the token supply of a promising tokenization platform, TokenFi, to users who stake their $FLOKI or $TOKEN tokens such that the main distribution mechanism for TokenFi is to Floki and TokenFi stakers.
In Conclusion
We have huge respect for any and all regulators and will continue to engage with them to address any regulatory concerns they may have. If, as it appears, a decision to single out the staking programs was made solely because of the high APY of our staking programs stated in social media posts and as moved by market forces, as explained above, then we will have to respectfully disagree.
