Sequentia AG formally entered Liechtenstein’s commercial register on the 24th of August 2022, meeting its initial capital requirements with a contribution of 3 Bitcoin. It is to be the main operating entity behind the initial development of the Bitcoin sidechain called Sequentia, as well as the issuer of the Sequence (“SEQ”) token (subject to approval by Liechtenstein’s Financial Market Authority). The legal structure is an “Aktiengesellshaft” (a corporation limited by shares), it is seated in the Principality of Liechtenstein, and it is currently owned (in equal parts) by its two co-founders, Andreas Kohl and Alberto de Luigi. In the near future, they will transfer 100% of their shares to the Sequentia Foundation (a charitable Foundation, to-be-established soon), which will gain full ownership and control of Sequentia AG.
There are also plans to establish a physical base of operations in the Republic of El Salvador, where Sequentia will offer its contributors an idyllic work environment (as well as retreats for its remote workers) and also participate in the local economy, offering many opportunities targeted specifically towards Salvadorans.
This article aims at explaining all of the structural and entrepreneurial decisions that have been briefly described above, to give you some insight into the values that drive this project, and a taste of what is to come – Please feel free to skip ahead to the section of your interest, and as always, your comments and feedback are highly valued.
The Principality of Liechtenstein is an extremely underrated jurisdiction, with many subtle and understated “good habits” towards policy-making and geopolitical strategy that have been tried and tested for generations, and led to it being one of the most stable and appealing jurisdictions in the world for any long-term (indeed, multi-generational) endeavor.
Andreas’ interest in Liechtenstein began in 2012, around the same time as he found out about Bitcoin, when he happened upon The State in the Third Millennium, a political treatise written by Liechtenstein’s Ruling Prince, Hans-Adam II. The book describes the Prince’s thoughts on the role of the State in modern society, and reinforced Andreas’ own intuitions on free markets, self-determination, and decentralization, ultimately leading to his passions for Austrian Economics, political philosophy, and Bitcoin.
The State should treat its citizens like an enterprise treats its customers. For this to work, the State also needs competition. We, therefore, support the right of self-determination at the municipal level, in order to end the monopoly of the State over its territory.His Serene Highness Hans-Adam II, Reigning Prince of Liechtenstein
From the point of view of political self-determination, Liechtenstein could be considered the freest and most decentralized nation on earth, both in terms of national self-determination in the context of international affairs, and especially in terms of the internal or local self-determination of the peoples of Liechtenstein. Since 2003, the municipalities of Liechtenstein have become the only local governments on earth to share an equal, constitutionally protected right of self-determination altogether covering the entire territory of their State.
On one hand, this means that the citizens of each of these 11 municipalities (who number between about 400 in the smallest municipality, to about 6,000 in the largest), could hold a local vote at any time, to determine whether they will remain in Liechtenstein, become independent, or join any other State, such as one of the surrounding countries, that would accept their accession. On the other hand, however, this also subtly changes the “game theory” and overall incentive structure of any political discussion or organization in the country, harmonizing the interests of the national government with that of the local communities, and ensuring that such a right never needs to be enforced.
There exist several other checks and balances at the national level, whereby although most of the regular day-to-day affairs of government, including foreign policy, take the shape of a rather ordinary representative parliamentary democracy, there also exists an executive (the Monarch) with a legitimately democratic, hereditary mandate to advise and watch over the decisions of the parliament, intervening with an absolute veto and legislative capacity when and if necessary. Meanwhile, the people of Liechtenstein are also empowered through direct democracy (referenda) to exercise a similar role over their government, and also on the crown itself were it to lose its democratic legitimacy, making the national direct democratic process the most powerful political tool in Liechtenstein except for the local direct democratic process, which also makes the peoples of Liechtenstein some of the few truly self-governing and sovereign in the world.
The result of this unique political structure and mentality is as we previously claimed demonstrably one of the most stable and resilient nations in Europe, which has achieved the incredible feat of being one of the few microstates to maintain its independence through consistent application of key principles, enduring the chaos of many regional and even global conflicts with persistent neutrality. The people and the crown of Liechtenstein understand the vital importance of both not surrendering one’s sovereignty (staying out of international conflicts and excessive delegation of authority through treaties), but also staying in balance by keeping friendly and cooperative relations with its neighbors in order to maximize the freedom and prosperity of trade as well as of the overall society, and the security of the country.
In 2014, it was Andreas’ conviction that Liechtenstein’s, so to speak, “national values” were, compared to any other country at that time, the most aligned with that of Bitcoin. It was then that he participated and came in third place in an essay competition organized by members of the Princely Family of Liechtenstein, for which he wrote about the decentralization of government, industry, and money. The last section of this essay was thoroughly devoted to Bitcoin, and became the subject of most of his discussions on his following visit to Liechtenstein in early 2015, on the occasion of the award ceremony, during which he gifted His Serene Highness Hans-Adam II, the Reigning Prince of Liechtenstein, other members of the Princely Family and all other attendees some paper wallets each containing CHF 5.- worth of BTC at that time.
It was also during this visit that Andreas became the first person to meet with executives from the Financial Market Authority (FMA) in Liechtenstein to give a presentation about Bitcoin, and he additionally convinced the first three restaurants in Liechtenstein to accept Bitcoin. Later, as the FMA showed great interest and friendliness towards the field, Andreas began to promote Liechtenstein as the ideal jurisdiction for various types of projects involved with the issuance or trading of tokens and was able to witness the birth of what is now perhaps the most specialized service sector in the world catering to the tokenized economy, in part thanks to the law nicknamed “Blockchain Act”, described in the next section.
Why issue SEQ tokens under the TVTG (Liechtenstein “Blockchain Act”)?
As we come closer to the launch of the Sequentia network and therefore the Sequence (“SEQ”) token, Sequentia AG will apply to become a Trusted Technology Service Provider under the Liechtenstein TVTG (“Token- und VT-Dienstleister-Gesetz”, or “Token and Trusted Technologies Service Provider Act”), also known as “Blockchain Act”, and seek to register as a ‘TT Token Issuer’. To be clear, no such application has been made at the time of this publication, and Sequentia AG is not yet engaged in activities that require such regulatory supervision.
The TVTG came into force in January 2020 after some years of deliberation, accumulating the recommendations of several industry leaders and the know-how amassed by the FMA through its “regulatory laboratory” initiative. It provides a technology-neutral approach to regulating the entire tokenized economy and creates new civil law for tokens, as well as the legal basis for the ownership, possession, and disposition rights over tokens on so-called “trusted technology systems” like blockchains. It does not only cover digital assets (such as Bitcoin and Sequence) but also creates the legal basis for the tokenization of analog (“real-world”) assets.
In order to qualify as a Trusted Technology Service Provider, Sequentia AG will be required to comply with KYC/AML/CFT standards under the Due Diligence Act and be supervised by the Financial Market Authority in Liechtenstein (“FMA”). Furthermore, as part of our obligations as a registered Token Issuer, we will be held to high standards of both personal reliability and technical suitability, as well as standards on organizational structure, appropriate written internal proceedings, and control mechanisms. Finally, the minimum capital requirement for a TT issuer, in the case of Sequentia (depending on the initial market valuation) is 250,000 CHF, which will be held in the equivalent amount of Bitcoin. We will also pay the relevant supervisory fees to the FMA (0.1% of the value of funds raised in token sales, up to a maximum of 100,000 CHF).
The Container Token Model
The Liechtenstein Token Container Model has been studied in depth by Michael Juul Rugaard of The Tokenizer. Below we provide a short summary.
Instead of regulating each type of token separately – like payment tokens, utility tokens, stablecoins, and security tokens – the Liechtenstein act operates with a relatively high-level and abstract token definition that a token is a piece of information on a Trusted Technology (TT) System which:
1) can represent claims or rights of memberships against a person, rights to property, or other absolute or relative rights; and 2) is assigned to one or more TT Identifiers.Liechtenstein Token and Trusted Technologies Service Provider Act
The regulation applied to a given token depends on the claims or rights that are attached to the token. To make that individual legal judgment of a specific token, Liechtenstein started developing in November 2016 a model called the Token Container Model consisting of two independent but collaborating elements:
- the container as described in the basic, technology-neutral, token definition;
- the specific content, which changes depending on the features and qualities of the particular token.
This way, any relevant application in the token economy can be covered, as explained by Thomas Dünser (Director of the Office for Financial Market Innovation):
The scope of the token act should not be limited to regulating specific categories of tokens like Bitcoin or security tokens. The scope should be on the entire future token economy, and that called for a new and highly flexible token model.
The challenge is always the same for every token; we have civil law questions about what is a token. Can it be transferred? And what are the legal consequences of the transfer of the token? These fundamental questions are the same for every application in a token economy – no matter if it is bitcoin or security tokens. But on top of that, we have the innovation part: with the basic token definition, the container can be filled with any claims and/or rights. This means that if a security is represented in a token, security laws apply. If a financial instrument is represented in a token, financial market laws may apply, and so on.
Even in the case of tokens with no attached claims or rights the token model still works. A cryptocurrency like Bitcoin is an example of such a token that would leave the container empty since Bitcoin “only accrues an intrinsic value through the rules of the system in order to function as a means of payment”.
What is Sequentia AG?
Sequentia AG is the main operative arm of the Sequentia project; its broad, general mission is to secure and allocate resources towards the furtherance of the Sequentia protocol and ecosystem, and its more specific initial mandate is to organize all core aspects of the initial development and launch of the Sequentia network. It is led by a board of directors currently composed of its two co-founders and three other, external members of the board of directors supplied by Lexadmin Trust Reg., a fully licensed, Liechtenstein-based trust company.
Sequentia AG’s signatory authority currently requires at least one signature from one of the two co-founders and that of at least one of the three external, local directors.
Also, the company requires an auditing firm in the company administration. The private firm currently assigned to Sequentia AG for this scope of work is AREVA Allgemeine Revisions- und Treuhand AG.
When ownership of Sequentia AG is transferred to a yet-to-be-established Sequentia Foundation, the Foundation Council (obligatorily including another licensed trustee) may add new directors or replace any of the current directors.
The fact that signatory authority for any formal decision in the company requires at least one signature from the local director(s) constitutes a further assurance of proper oversight over company management.
In the case of Sequentia AG, the “purpose” which the local directors will supervise is stated in its Statute:
“The purpose of the Company is to develop software and platform for the transfer of digital, decentralized assets of any kind, to develop corresponding technologies and the provision of the respective services […]”Sequentia AG Statutes
We are proud to have entrusted our initial contribution of 3 Bitcoin to Lexadmin Trust Reg. for the registration of Sequentia AG and to have them join us on this journey as a protector of Sequentia’s values, mission, and resources, duty bound to uphold the statutes of the corporation, as well as the laws of the Principality and the fiduciary duty that is owed to our partners through our contractual relationships.
Sequentia AG will raise funds through both private sales of the Sequence (“SEQ”) token, and eventually (subject to regulatory approval) a public sale coinciding with the launch of the Sequentia network. Funds raised by Sequentia AG will eventually be transferred to its yet-to-be-established, future parent organization, the Sequentia Foundation.
What will the Sequentia Foundation be?
The concept of the Sequentia Foundation is our answer to the complex and controversial question of how to best manage a large sum of funds vested by both professional/institutional and retail investors for the development of a blockchain network and technology, as well as the stimulation of an associated ecosystem, in a manner that both guarantees proper transparency and regulatory oversight, and also manages to include the key stakeholders of the said ecosystem in its governance.
Since the Foundation will be registered as a public non-profit Foundation with a charitable purpose (the development of Sequentia and its ecosystem), it will be required to submit its accounts to both private and government-appointed auditors, as well as to release reports providing full transparency over the deliberations relating to grants and other financial operations. This overall legal structure is currently only possible in Liechtenstein, thanks to its pioneering approach to both foundation and trustee law.
The exact structure and bylaws of the Foundation have not yet been finalized, and below is only the latest draft at the time of this post of our design for its governance:
Since the production of blocks in the Sequentia network is governed by stakers of the Sequence (“SEQ”) token, we have decided to make these the core constituency that will ultimately decide how the executive Council is composed.
There shall be three “chambers”, organizations that technically stand outside the Foundation, but whose existence is implied and relied upon by the Foundation’s statutes. Membership to these chambers will be free, and perpetual, provided that one has a minimum amount of SEQ tokens that have been locked through a Sequentia staking node to participate in the block creation mechanism. The Chambers must be equipped with mechanisms to detect when a member has canceled their stake, and immediately revoke membership.
For one of the three chambers, the “Community” chamber, there shall be no further requirements beyond the tokens staked. For the two other Chambers, “Technical” and “Business”, additional requirements shall apply such as a minimum number of contributions to the Sequentia core development on GitHub, or the existence of a formal relationship as a service provider or other partner of Sequentia AG (or other entities of equal importance to the Sequentia ecosystem), respectively.
The three Chambers will each elect a Representative, which shall be formally appointed as such by the Foundation, and will therefore be part of the Foundation. The chosen Representative is also the de facto leader and secretary of the Chamber and shall arbitrate or help organize any discussions or procedures within the Chamber, but these informal duties may be delegated to or supplemented by others within the Chamber, especially in absence of the Representative.
Every 5 years there is an election, and the Foundation Council members are voted in by a ⅔ majority. Chamber Representatives cast their vote on behalf of the Chambers, and are prohibited from voting against their chambers’ wishes. Once every 2 years, but not before the first year, Chambers may, through their Representative, require an anticipated election of the Council.
Before the launch of the Sequentia Network, Chambers will temporarily replace their SEQ staking requirement with a minimum allocation requirement applying to holders of Simple Agreements for Future Tokens (SAFTs) signed with Sequentia AG or other holders of rights to SEQ tokens through different agreements.
Why El Salvador?
Once the project achieves its seed raise goals, we will begin to endeavor the establishment of a permanent physical presence in El Salvador. To this end, we have already begun discussions with a new co-working space in the capital city of San Salvador which will be open exclusively to projects that are centered around Bitcoin. We will also begin recruitment efforts in El Salvador and around the world, giving priority to citizens of Central American countries residing in El Salvador for some non-technical positions, as well as for some entry-level technical positions or internship opportunities.
On the 5th of June 2021, President Nayib Bukele appeared via a conference call at the Bitcoin Conference 2021 in Miami and announced that El Salvador would become the first country in the world to make Bitcoin legal tender as well as the first true national “hodler” of Bitcoin (with a portfolio of over 2,300 BTC to date). He also described the immediate benefits that this decision and the accompanying payments infrastructure would have for the people of his country, specifically in the facilitation of remittances. He made good on his word, and today El Salvador definitely has the highest rate of Bitcoin acceptance out of any other country in the world, Bitcoin ATMs are accessible all around the country, and it is relatively easy for Salvadorans to interact with the legacy financial system through the Bitcoin services supported by the government.
It is especially worth mentioning that these initiatives have also had the side effect of attracting many passionate Bitcoiners from all around the world, both as expats and as temporary residents or visitors. This has resulted in one of the largest, most active, and vibrant Bitcoin communities in the world, which in contrast to almost any other Bitcoin community in the world is truly engaged with educating the surrounding society, hosts a consistent flow of new faces and ideas, groups together a wide range of different backgrounds, lifestyles as well as skills, and offers a non-stop stream of meet-ups, social initiatives, and other activities to get involved in.
In November 2021, President Bukele made a new promise: The creation of “Bitcoin City”, a new Special Economic Zone which will feature the world’s first tax-free, high-tech urban project entirely centered around the new Bitcoin economy. Lacking any corporate or income taxes, the local government of Bitcoin City is to be funded exclusively by a Value Added Tax (VAT). We predict that given the correct societal and institutional reforms in the rest of the country, Bitcoin City could become a shining, prosperous and cosmopolitan jewel of economic liberty that will become the marvel and guiding light of the region, much like Singapore has been and in many regards still is in the Asia Pacific region.
Luckily, Nayib Bukele is nothing if not a reformer, and we are confident that he will also be true to his word regarding Bitcoin City. In fact quite comparable in many respects to the venerable Lee Kuan Yew, who similarly lifted Singapore out of poverty and into its present economic success, President Bukele was elected to lead a nation with a deeply troubled past and difficult present. Violent organized crime has plagued the country since 1996 when the United States began mass deportations of the gangs that emerged especially in Los Angeles amongst the large migrant communities that had formed following the Salvadoran civil war (1979-92). The country was often even referred to as “The murder capital of the world” due to having the highest per capita murder rate in the world (as high as 103 per 100,000 people in 2015, or almost 18 murders per day).
Since then, President Bukele has been forced to initiate a state of exception, during which so far over 50,000 individuals associated with gang activity have been arrested, bringing the total number of incarcerated gang members to over 100,000. These are extremely important numbers in a country of only about 6.5 million inhabitants. The result has been an unprecedented drop in crime overall, and especially violent crime which is, for now, virtually inexistent; El Salvador is now one of, if not the safest country in Latin America.
Although much can still be done in terms of improving legal as well as institutional clarity and efficiency, to give the much-needed certainty to foreign investors that their capital will be protected according to private property rights and a proper, functioning rule of law; we can finally begin to see these changes brewing in the background, and we intend to contribute to the development of Nayib Bukele’s new El Salvador, pointing at the examples set by Liechtenstein and seeking to create ties between the two countries wherever possible.
It is also noteworthy that the government of El Salvador has elected to issue its US$1 billion “Volcano Bond”, which is destined to fund the development of Bitcoin City and the acquisition of even more Bitcoin by the government, as a tokenized asset on the Blockstream Liquid blockchain.
Sequentia will also be a Bitcoin sidechain built on the same codebase as Liquid (Elements) but will replace the “strong federation” consensus mechanism with what could be referred to as an “open federation”, which combines some components of proof-of-stake with a Bitcoin anchoring and checkpointing system that leverages Bitcoin’s proof-of-work to secure the network from posterior corruption and provide more interoperability with Bitcoin than is currently possible with Liquid’s strong federation.
We believe that Sequentia can find its first ideal use cases in the tokenization of financial obligations and other assets in El Salvador, both those issued or owned by the government, and perhaps more importantly, by private entities. For example, the tokenization of El Salvador’s stock market on Sequentia could facilitate direct investment into Salvadoran companies by Bitcoiners around the world (without forcing them to rely on any centralized intermediary or bitcoin peg-in mechanism in order to make the exchange), and therefore make “tokenized IPOs” a viable way for these companies to raise capital.
We at Sequentia are strongly committed to furthering the technological and monetary breakthroughs that might change the fate of financial markets forever, starting from this small but ambitious country.