Ok, I just went through the entire terms of use of Liquidmarketplace, and I’'ll be going over the most concerning parts here. This will also answer some questions, e.g. how selling works, what the voting mechanic is really about and what the 80% thing that enigma mentioned is about. But before covering the terms of use, here’s a general overview of how the system works:
- An item gets selected an authenticated by experts. It will then be transferred to a vault
- Liquid Marketplace then creates “ERC-20 Tokens on the Ethereum blockchain, stored in a digital wallet maintained by a third-party service provider, and recorded on the Platform”. Each token is initially worth $0.10. So in the case of the Illustrator which is initially priced at US$5,000,000, 50,000,000 tokens will be created.
- The item will be listed on Liquid Marketplace under “offerings” and people can begin to buy the created tokens for $0.10 each.
- After all tokens have sold out, the item is moved to the ‘MarketPlace’ where users can buy, sell, and trade tokens.
Right away, you should come to terms with the fact that what you are buying is a digital cryptocurrency representing the value of a real item, not a real part of the item. If you do not have faith in the safety of cryptocurrencies or NFTs and do not feel comfortable holding a part of your money in digital form for an extended period of time (e.g. you fear that the tokens could get stolen from the wallet), you have no reason to use Liquidmarketplace.
Now that the basic concept is clear, let’s go over the terms of use.
2.1 These Terms apply to the Platform, including any updates or supplements. We may change or revise any aspect of these Terms or the Platform from time to time in our sole discretion, by posting the revised Terms on the Platform or electronically sending you the revised Terms. […] Your use of the Platform after such revised Terms are made available will signify your acceptance of such revised Terms and your agreement to be bound by them. If you do not agree with any such modification, your sole and exclusive remedy is to terminate your use of the Platform and close your Account.
If you are short on time, you might as well stop reading right here. This part alone would deter me from using this marketplace. They could simply change the terms of use to say that the created tokens do not represent ownership of the item anymore and there’s nothing you can do about it. They have also included legal protections against lawsuits later on. But for the sake of the argument, let’s continue.
4.3 User Authorizations
You hereby authorize Liquid Marketplace, its third party service providers, and their respective employees and agents, in relation to your Account and use of the Platform, to, among other things:
[…]
(b) transfer of Funds to/from your Account;
[…]
(d) freeze further credit or debit to or from your Account due to your breach of these Terms or breach of applicable law, or if there is a suspicion of money laundering/terrorism financing, or if there are breaches of anti-money laundering/countering the financing of terrorism policies and procedures
This part didn’t surprise me and it’s not that extraordinary, but you should still be aware that Liquidmarketplace can freeze your account for a breach of terms of use (which they can change on a whim).
5.2 Purchasing Tokens
[…]We reserve the right to change the prices of each Token at any time or from time to time at our sole and absolute discretion, and to limit the number of Tokens each user is entitled to Purchase.
So not only can they decide how many Tokens I may buy, they also can change the value of each token by themselves (instead of letting the transactions on the marketplace regulate the price)? That makes the token worthless in my opinion, and it opens possibilities for all kinds of shenanigans.
7.2 Ownership of Collectible
In order to list a Collectible for sale on the Platform, the Collector (i.e. the owner of the Collectible) […] will convey all right, title and interest in and to the Collectible to the holders of the Tokens (“Tokenholders”) representing such Collectible.
7.3 Pursuant to the Custody Agreement, neither the Collector nor an individual Tokenholder will have the right to take possession of the Collectible or direct the Custodian in any manner whatsoever, unless an individual acquires sole ownership of the Tokens associated with a Collectible, whether through a Buyout (as defined below) or otherwise. […] Once an individual owns 100% of the Tokens associated with a Collectible on the Platform, that user may be given the option to take possession of the Collectible using the Platform. […]
These points reiterate that by listing the collectible on liquidmarketplace, the collector relinquishes the rights to the collectible to tokenholders, and that full ownership of the collectible can only be claimed again if anyone has all 100% of the tokens in their possession. The really egregious part is the buyouts that they mentioned. Here’s why:
7.4 Buyouts
We may allow users to Purchase all of the Tokens associated with a certain Collectible without the other Tokenholders associated with that Collectible executing a Sale (a “Buyout”). A Buyout can only be exercised by a user who first acquires the minimum number of Tokens associated with a Collectible that Liquid Marketplace may establish from time to time (the “Buyout Threshold”). […]
Once your ownership of Tokens associated with a Collectible meets or exceeds the Buyout Threshold, you may request a Buyout through the Platform (“Buyout Offer”). In order for the Buyout to be accepted, 80% of the Tokens associated with that Collectible (including the Tokens owned by you) must be voted in favour of the Buyout Offer within a 72-hour period. In the event that 80% or more of the Tokens associated with the Collectible vote in favour of the Buyout Offer, the remaining Tokens will automatically be tendered as part of the Buyout.
In essence, this means that if you own a certain amount of tokens from one item to exceed the token threshold (that liquidmarketplace defines and can change), you can request a buyout of any remaining token of the item that is not in your possession, and if 80% of the tokens get approved for sale, you get all 100%. Vice versa, this means that even if you did not list your tokens for sale, you are still at risk of losing them without your consent unless you own more than 20% of all tokens.
9.1 User Warranties
You agree that you are responsible for your own conduct while accessing or using the Platform, and for any consequences thereof. You agree to use the Platform only for purposes that are legal, proper and in accordance with these Terms and any applicable laws or regulations.
9.2 Effect of Your Breaches
If you engage in any of the Prohibited Activities we may, at our sole and absolute discretion, without notice or liability to you, and without limiting any of our other rights or remedies at law or in equity, immediately suspend or terminate your Account and/or delete your Tokens from the Platform. If we delete your Tokens from the Platform, you will not receive a refund of any amounts you paid for those Tokens.
As someone who has been trading crypto before, this is a major red flag. If they are able to delete tokens, it means they can manipulate the market at will (imagine if the creator of Bitcoin could simply delete Bitcoins from other people’s wallets, the entire currency would immediately collapse due to the breach of trust). It also begs the question if they could create additional tokens afterwards for an inflationary effect.
- Dispute Resolution; Binding Arbitration
To the full extent permitted by applicable law, you are agreeing to give up any rights to litigate claims in a court. Other rights that you would have if you went to court may also be unavailable or may be limited in arbitration. You hereby expressly give up your right to have a trial by jury, where applicable. To the fullest extent permitted by applicable law, you hereby expressly give up your right to participate as a member of a class of claimants in any lawsuit, but not limited to, class action lawsuits involving any such dispute.
I don’t know if this would stand in court, but they want to make really sure that you have no rights if push comes to shove.
To sum it up: If you participate in liquidmarketplace, you do not buy a physical contract that confirms partial ownership of an item and that you can safely store in your vault. You participate in an ecosystem that dictates all rules at leisure and gives you zero rights. And if that ecosystem thinks that you violated any terms of use, you will lose your tokens and thereby your partial ownership.