What are Pre IPO SPVs and SPV mirrors - where are the risks? There are no vested interests involved, I just feel that this matter is quite popular. It's not harmful to objectively understand it, after all, it's hard to make money these days and poop is unbearable. Consider it useless knowledge+1. After asking around for a rough understanding, there are indeed many "secondary sales" selling these in the market. In terms of the cryptocurrency circle, this situation is very similar to the "proxy investment" market before 2020. However, the problem is that if you don't get the actual token for a day, you don't know if it's real or fake, let alone many proxy investors who get it and run away. I cannot say 100% for the Pre IPO of MSX this time, but there is a probability of over 90% that it was bought from the secondary market, and these secondary markets are either human or ghost, so it depends on luck. Then I read the Service Agreement and reviewed the subscription process, and I roughly understood the logic of the operation. Here, I would like to reiterate that the results of secondary market purchases are unpredictable, and there is no intention of being "black" or "provocative". Recently, there has been a significant reaction to this matter, and I have only interpreted it myself. Perhaps my interpretation is incorrect. The first thing that can be confirmed is that this Pre IPO issue is a Token, and the structure of the Token is an SPV image. So, what is an SPV image? We need to first understand what SPV is and the direct relationship between SPV and SPV mirroring. SPV (Special Purpose Vehicle) is a "special purpose vehicle". In Pre IPO investment, it is usually a partnership enterprise (LLC or LP) specifically established to purchase equity in a particular company (such as SpaceX). In MSX's partnership, the fund marked as partnering with Republic Ventures is a type of SPV. The biggest use of SPV is for diversified investment, for example, the direct investment threshold for SpaceX may be as high as tens of millions of dollars, which ordinary high net worth individuals cannot enter. SPV can pool the money of dozens of investors together (such as each contributing $200000), save up $10 million, and buy as a whole. The key is here!! SPV requires compliance thresholds. In order to legally raise funds in the real world, SPVs must prove that their investors have the ability to withstand risks. Different regions have clear financial hard indicators, which I will not go into detail here. The main compliance directions are three: The first one is the registration and licensing requirements, such as: Institutions managing SPVs in the United States typically need to register as Registered Investment Advisors (RIAs), and some institutions may also take the ERA (exempt reporting advisor) path. Managers in Europe must obtain AIFM licenses. If a structure is identified as a Collective Investment Scheme (CIS) institution for sale in Singapore, it needs to enter the SFA regulatory framework Institutions managing SPVs in Hong Kong must hold a License No. 9 (Asset Management) issued by the Securities and Futures Commission (SFC) of Hong Kong Even in the most relaxed Cayman Islands, all closed SPVs targeting Pre IPO must be registered with the Cayman Islands Monetary Authority (CIMA) The second is user demand, all SPVs need to complete KYC and AML, and only qualified investors can participate, such as: In the United States, the minimum required income is over $200000 or net worth is over $1 million, not including real estate. In Singapore, the minimum income requirement is SGD 300000 or the minimum financial asset requirement is SGD 1 million. Even in the most relaxed Cayman Islands, the minimum investment amount starts at $100000. Of course, Republic does have SPVs for small investments, but they require very strict KYC and are only available for purchase on the Republic platform. The third requirement is that all funds must be held in custody. It is indeed possible to use stablecoins as subscription funds for SPVs, but the exchange between stablecoins and fiat currencies must be conducted, and the final custody funds are fiat currencies. After understanding SPV, what is SPV mirror? The mirror image of an SPV is slightly more complex, in simple terms, it is a shell of an SPV, for example, purchased by cross-border investors. Taking SpaceX as an example, a US SPV has already obtained SpaceX's share. But Chinese investors are unable to directly transfer money into the US SPV due to foreign exchange or legal reasons, so this SPV will set up a mirror SPV in Cayman or Hong Kong, and the underlying assets, profit distribution ratio, and management fees of the mirror SPV will be completely replicated from the US SPV. Investors invest their money into the mirror SPV, which is then linked to the main SPV through some financial agreement (such as a participation agreement). Additionally, some SPVs do not sell equity, but rather derivatives or contract exposures, without actual equity registration. It may be another secondary transaction subject of another seller, or it may even not have bought any shares at all, just "promising to buy in the future". What you bought is a "commitment letter", and the result may never be delivered. That's also why I say MSX is an SPV mirror. In fact, it should not even count as SPV images. So, by this point, friends should be very clear that even compliant SPVs carry a lot of risks, let alone the SPV image of nesting dolls: 1. Underlying assets and delivery risks SPV has raised all the funds externally, but the underlying shares have not been successfully purchased or have been delayed in delivery. The user only receives a 'committed position'. Pre IPO companies often have ROFR (Right of First Refusal), transfer windows, board approval, etc., which can cause transactions to fail or be delayed for many years at any time. 2. Lack of transparency Investors may not fully understand the performance, risks, or details of the internal assets of SPVs, leading to decision-making errors or information asymmetry. A complex multi-layered asset structure may conceal debt or actual value. 3. Liquidity and Exit Risk Compliant SPV shares are usually not freely transferable. And the company may not go public for a long time, even if its valuation falls, it may not repurchase. Even if an exit occurs, settlement, auditing, taxation, and fund repatriation may be delayed for a long time. PS: Not to mention that this is a token transaction, the liquidity will be even worse. 4. High valuation That's not much to say. I've looked at MSX's valuation this time, and it's basically reasonable, not very high, and not much different from the market. However, even so, the increase compared to the original valuation is still very high. 5. Handling fees It has to be mentioned that the actual transaction fee of MSX can reach up to 20%, which may be overlooked by many users. For example, with ByteDance's valuation of $550 billion, the actual purchase cost may increase by 20%, including a management fee of 1%, a subscription fee of 6%, a performance fee of 10%, and finally a platform service fee of 3% deducted from stablecoins during settlement. And the increased risk of SPV mirroring: 6. Risk of Property Rights Confirmation The legality of the mirror SPV depends entirely on its participation agreement with the main SPV. If this agreement is not legally recognized as a 'genuine sale', or if the articles of association of the main SPV prohibit such a split, then the investor's investment may only be an unsecured contractual claim in law. Of course, in this sale, since there is no delivery, this can no longer be called a "risk", and what the user buys is only the price of the corresponding target. It has nothing to do with actual assets. Moreover, due to the opacity of prices and differences in liquidity between platforms, the volatility of this price may exceed expectations. So, in the end, let's take a look I am not sure if there is a problem with MSX's sales this time. But from the terms, investors cannot obtain any actual qualifications for Pre IPO, nor can they obtain any investment assets, and even a large number of investors are not compliant investors. And according to the terms, MSX should use the financing funds from user participation in Pre IPO to purchase asset targets in the secondary market. MSX will extract a maximum fee of 20% from the user, and the user will only buy a "price" with the same name but a completely different asset structure. In human terms, users only buy the price of a token called SpaceX, which may anchor the price of SpaceX at any time and have significant price fluctuations due to liquidity. In practice, buying ByteDance Pre IPO on MSX is equivalent to buying long contracts with a valuation of 550 billion x 20%, and the fluctuating price does not depend on the real market price, but on the depth and liquidity of the platform. In human terms, the final decision on price is made by MSX and can be unilaterally adjusted. Moreover, many regulations are related to Republic, which in turn means that the sale of tokens is not related to Republic. Republic Ventures and its personnel are not the issuers, sales agents, or distributors of tokens, nor do they assume any responsibility for the issuance, marketing, or settlement of tokens. So there are quite a few 'bugs' in this Pre IPO. Because compliance and small-scale participation can only be achieved on the Republic platform. PS: Let me add that this type of purchase is' securities'. There are strict regulations in both China and the United States. Especially in the United States where X is located, if it is a paid promotion, it must be disclosed, otherwise it will be considered illegal. （Securities Act Section 17(b)） If the target audience of a promoter includes the public in Chinese Mainland, the Chinese regulatory documents have long listed "fabricating the imminent listing and inducing the public to purchase the so-called 'original shares/unlisted shares'" as one of the typical illegal securities activities; And the risk of illegal fundraising by soliciting funds from the public under various pretexts. End.