Spout Finance Inc.

Terms of Service

The terms governing your use of the Spout interface, including eligibility, risk disclosures, fees, and dispute resolution.

Effective date: Pending · Last updated: Pending

This document is published for review and is not yet in force. It takes effect on the date stated above once finalized.

These Terms of Service ("Terms") constitute a legally binding agreement between you ("you" or "User") and Spout Finance Inc., a Delaware corporation ("Spout," "Company," "we," "us," or "our"). By accessing or using our website at spout.finance, app.spout.finance, docs.spout.finance, or any related services (collectively, the "Interface"), you acknowledge that you have read, understood, and agree to be bound by these Terms.

PLEASE READ THESE TERMS CAREFULLY. THEY CONTAIN AN ARBITRATION AGREEMENT AND CLASS ACTION WAIVER IN SECTION 19 THAT AFFECT YOUR LEGAL RIGHTS. BY USING THE INTERFACE, YOU AGREE TO RESOLVE DISPUTES THROUGH BINDING INDIVIDUAL ARBITRATION AND WAIVE YOUR RIGHT TO PARTICIPATE IN CLASS ACTIONS OR JURY TRIALS.

If you do not agree to these Terms, you must not access or use the Interface.

1. The Interface and the Protocol

1.1. Spout Finance Inc. develops and maintains a web-based interface (the "Interface") that allows users to interact with the Spout Protocol, a set of autonomous smart contracts deployed on the Solana blockchain (the "Protocol"). The Interface provides a convenient way to access Protocol functionality, but it is not the only means of doing so. The Protocol exists independently on the Solana blockchain and can be accessed through other means.

1.2. spAssets are tokenized representations of US-listed equity securities. They are securities. The offer and sale of spAssets is conducted in compliance with Regulation S under the U.S. Securities Act of 1933 ("Regulation S"), which provides an exemption from SEC registration for securities offered and sold outside the United States to non-U.S. persons in offshore transactions. Accordingly, spAssets are not offered, sold, or otherwise made available to U.S. persons (as defined in Regulation S). The Company does not engage in directed selling efforts in the United States.

1.2.1. Spout Finance Inc. is not a bank, exchange, custodian, or investment adviser. The Company operates the Interface as a technology provider. Securities execution and equity custody are performed by Alpaca Securities LLC, a FINRA-member broker-dealer registered with the SEC and a member of SIPC. Company treasury custody is provided by Anchorage Digital.

1.3. The Protocol enables three core activities: (a) minting and redeeming tokenized representations of US equities ("spAssets"); (b) borrowing stablecoins against spAsset collateral; and (c) lending stablecoins to the Protocol's lending pool. Each of these activities is described in Section 7.

1.4. You acknowledge that transactions executed through the Protocol are processed on the Solana blockchain. Blockchain transactions are irreversible and publicly visible. The Company cannot reverse, cancel, or modify any on-chain transaction once it has been confirmed.

2. Acceptance and Eligibility

2.1. By using the Interface, you represent and warrant that:

(a) You are at least 18 years of age and have the legal capacity to enter into a binding agreement in your jurisdiction of residence.

(b) You are not a U.S. person as defined in Regulation S under the U.S. Securities Act of 1933, which includes (without limitation) any natural person resident in the United States, any partnership or corporation organized or incorporated under the laws of the United States, any estate of which any executor or administrator is a U.S. person, any trust of which any trustee is a U.S. person, and any agency or branch of a foreign entity located in the United States.

(c) You are not a resident of, citizen of, located in, incorporated in, or operating from any Restricted Jurisdiction as defined in Section 12.

(d) You are not identified on, or acting on behalf of any person or entity identified on, the Specially Designated Nationals and Blocked Persons List maintained by the U.S. Department of the Treasury's Office of Foreign Assets Control ("OFAC"), the Consolidated Sanctions List maintained by the European Union, or any similar sanctions list maintained by any governmental authority.

(e) You will not use the Interface for any purpose that is unlawful or prohibited by these Terms.

(f) Your use of the Interface complies with all applicable laws, regulations, and rules in your jurisdiction of residence.

(g) You have sufficient knowledge of and experience with blockchain technology, digital assets, and decentralized finance to understand the risks described in Section 9.

(h) You are acquiring spAssets for your own account and not for distribution, resale, or transfer to any U.S. person or within the United States.

2.2. The Company reserves the right to restrict access to the Interface to any person, for any reason, at any time, at its sole discretion.

3. Account and Wallet

3.1. To use the Interface, you must connect a compatible self-custodial digital wallet. The Interface uses Privy for authentication and wallet connection. You are solely responsible for the security of your wallet, private keys, seed phrases, and any credentials associated with your account. The Company does not have access to your private keys and cannot recover them if lost.

3.2. The Company is not responsible for any loss arising from unauthorized access to your wallet, whether caused by malware, phishing, social engineering, or your failure to safeguard your credentials.

3.3. You acknowledge that your wallet address and all associated on-chain transaction data are publicly visible on the Solana blockchain and cannot be deleted or made private by the Company or any other party.

4. Non-Custodial Representations

4.1. The Interface is non-custodial with respect to your digital assets on the Solana blockchain. The Company does not hold, control, or have access to the private keys associated with your wallet. Stablecoins deposited into the lending pool are managed by Protocol smart contracts, not by the Company. However, the underlying US equity securities represented by spAssets are custodied off-chain by Alpaca Securities LLC as described in Section 4.2. This means that while the on-chain layer is non-custodial, the underlying equities are held by a regulated broker-dealer in an intermediated custody arrangement.

4.2. Notwithstanding Section 4.1, the US equity securities underlying spAssets are purchased and held by Alpaca Securities LLC, a FINRA-member broker-dealer, which serves as both the executing broker-dealer and the custodian of the underlying equity shares. You acknowledge that the custody of underlying equities is subject to Alpaca Securities' terms, conditions, and regulatory obligations.

5. KYC and AML Compliance

5.1. Know Your Customer ("KYC") verification is required for the primary issuance (minting) of spAssets. KYC is performed through Persona, our third-party identity verification provider. KYC verification requires you to provide your full legal name, date of birth, government-issued photo identification, a selfie for liveness verification, and your residential address. For details on how this data is processed, see our Privacy Policy.

5.2. KYC is not required for purchasing existing spAssets on secondary markets, depositing existing spAssets as collateral, or depositing stablecoins into the lending pool.

5.3. By submitting KYC information, you represent and warrant that all information provided is accurate, current, and complete. You agree to promptly update any information that becomes inaccurate.

5.4. The Company reserves the right to refuse service, restrict access, freeze assets through the Token-2022 transfer hook mechanism, or terminate your access to the Interface if your KYC information is found to be inaccurate, if we receive a valid legal or regulatory request, or if we reasonably believe your use of the Interface violates these Terms or applicable law.

5.5. The Company maintains an anti-money laundering ("AML") compliance program. We screen users against OFAC, EU, and other applicable sanctions lists. If we determine that your wallet or identity is associated with a sanctioned person or jurisdiction, we will block your access to the Interface and may freeze any spAssets associated with your wallet using the Token-2022 transfer hook.

6. The Token-2022 Transfer Hook

6.1. spAssets are issued using the SPL Token-2022 standard on Solana with a transfer hook extension. This transfer hook enforces KYC compliance at the token level by preventing transfers of spAssets to wallets that have not completed KYC verification for primary issuance.

6.2. The Company reserves the right to use the transfer hook mechanism to restrict or freeze token transfers in the following circumstances: (a) to comply with applicable law, regulation, or valid legal process, including Regulation S transfer restrictions; (b) to enforce sanctions compliance; (c) to prevent fraud or other prohibited activity; or (d) as otherwise required by these Terms.

6.3. Transfer hook actions are governed by the following procedures: (a) freeze actions require authorization by a Company officer (CEO or General Counsel); (b) the affected user will be notified within 48 hours of a freeze action, except where notification is prohibited by law or would compromise an ongoing investigation; (c) the notice will state the reason for the freeze and, where applicable, the steps the user may take to resolve the restriction; (d) a user may submit a written appeal to [email protected] within 30 days of receiving notice, and the Company will respond within 15 business days.

6.4. The transfer hook also enforces Regulation S compliance by preventing transfers of spAssets to wallets associated with U.S. persons or wallets that have not completed KYC verification for primary issuance.

7. Description of Services

7.1. Minting and Redeeming spAssets (Buy)

When you mint a spAsset through the Interface, the Protocol purchases the corresponding US equity share through Alpaca Securities LLC. A corresponding SPL Token-2022 token is minted on Solana representing the underlying share on a 1:1 basis. The 1:1 backing is verified through a Proof of Reserve mechanism provided by Stork.

You may redeem (burn) a spAsset in exchange for the underlying equity or its stablecoin equivalent, subject to applicable fees and market conditions.

Dividends on underlying equities flow through to spAsset holders, net of applicable US withholding tax (currently 30% for non-US persons).

7.2. Borrowing

If you hold spAssets, you may deposit them as collateral and borrow stablecoins (USDC, USDT, or USD1) at a flat loan-to-value ("LTV") ratio of 50%. There is no interest charged on borrowed amounts.

While your collateral is deposited, the Protocol writes far out-of-the-money covered calls against the underlying equity shares through Alpaca Securities LLC. This covered call activity generates premium income that funds lender yield. The parameters of each covered call cycle are determined algorithmically by the Protocol on a per-asset, per-cycle basis, factoring in implied volatility, realized volatility, and prevailing market conditions.

Cycles are weekly or biweekly depending on the asset. Entry occurs on Friday at market open. No cycles are run through scheduled earnings periods for single-name equities.

Auto-Roll is enabled by default. When Auto-Roll is on, residual proceeds from an assigned option automatically repurchase the same asset and re-enroll in the next cycle. When Auto-Roll is off, residual proceeds settle in stablecoins and the position closes.

Your borrowing position is non-recourse. Your maximum loss is limited to the collateral you posted. You are not liable for any deficiency beyond the value of your collateral.

See Section 9 for a detailed description of the risks associated with borrowing, including assignment risk and liquidation.

7.3. Lending

You may deposit stablecoins (USDC, USDT, or USD1) into the Protocol's lending pool to earn yield. The yield is funded by covered call premium generated from borrower collateral. The Protocol charges a 20% performance fee on gross covered call premium; lenders receive the remaining 80%.

The lending pool is structured as two tranches:

Senior Tranche. Priority yield payment of approximately 7% from gross premium, plus a 25% share of residual yield. The target yield is approximately 8.67%. Senior tranche lenders may exit instantly at a dynamic haircut of 0% to 3% based on reserve health, or may join a FIFO queue to exit at full net asset value.

Junior Tranche. Higher target yield (approximately 24% to 27% net) in exchange for serving as first-loss capital after the insurance fund. Junior tranche lenders are subject to a 45-day minimum notice period for exits, paid in queue order as liquidity arrives. There is no instant exit for the junior tranche.

No yield figure stated in these Terms, in the Interface, or in any Spout documentation constitutes a guarantee, promise, or assurance of return. Yield figures are targets based on historical backtesting and current market conditions. Actual yields may be higher, lower, or zero. See Section 9.

7.4. Claim Resale

Queued withdrawal claims from the lending pool are fixed-dollar IOUs that may be sold to outside buyers on a bulletin board at market-determined prices. This mechanism provides a secondary liquidity option when the reserve is insufficient to fund immediate withdrawals. The Company makes no guarantees about the liquidity, pricing, or availability of claim resale.

8. Fees

8.1. The following fees apply to use of the Protocol:

(a) Performance Fee: 20% of gross covered call premium per weekly or biweekly cycle. This fee is deducted before yield is distributed to lenders.

(b) Swap / Minting Fee: 0.25% (25 basis points) on minting and redeeming spAssets.

(c) Withdrawal Fee: 1% on borrowing and lending withdrawals.

(d) Liquidation Fee: Variable per asset. The fee equals the buffer spread between the 50% LTV and the asset-specific liquidation threshold (ranging from 7.5% to 20% depending on the asset).

(e) Idle Routing Fee: Approximately 7% on yield from idle pool capital deployed to on-chain money markets.

(f) Senior Tranche Instant Exit Haircut: A dynamic 0% to 3% haircut applied to instant exits from the senior lending tranche, based on reserve health. This is a price adjustment for immediate liquidity, not a fee. No haircut applies when exiting via the FIFO queue at full net asset value.

8.2. The Company reserves the right to modify fees at any time upon reasonable notice posted through the Interface. Continued use of the Interface after fee changes take effect constitutes acceptance of the modified fees.

8.3. You are solely responsible for any blockchain transaction fees ("gas fees") incurred in connection with your use of the Protocol.

9. Risk Disclosure

THIS SECTION DESCRIBES MATERIAL RISKS ASSOCIATED WITH USING THE PROTOCOL. YOU SHOULD READ THIS SECTION IN ITS ENTIRETY BEFORE USING ANY FEATURE OF THE INTERFACE. THE RISKS DESCRIBED BELOW ARE NOT EXHAUSTIVE. DIGITAL ASSETS AND DECENTRALIZED FINANCE INVOLVE NOVEL TECHNOLOGY AND EVOLVING REGULATORY FRAMEWORKS. THERE MAY BE ADDITIONAL RISKS THAT ARE NOT FORESEEN OR IDENTIFIED IN THESE TERMS.

9.1. Principal Loss

You can lose some or all of the value you deposit into the Protocol, whether as collateral (borrowing) or as stablecoins (lending). There is no deposit insurance, no government guarantee, and no backstop of any kind.

9.2. Assignment Risk (Borrowers)

When you deposit spAssets as collateral, the Protocol writes covered calls against your underlying equity position. If the market price of the underlying equity rises above the strike price of the covered call at expiration, the option will be assigned. When assignment occurs:

(a) Your underlying equity shares are sold at the strike price, which will be below the prevailing market price. You lose the difference between the market price and the strike price (the "borrower cost").

(b) If Auto-Roll is enabled, the residual proceeds (strike price minus the loaned amount) automatically repurchase the same asset and re-enroll. However, you will own fewer shares than before because you purchased at a higher market price than the strike at which your prior shares were sold.

(c) If Auto-Roll is disabled, the residual proceeds settle in stablecoins and your position closes.

In a rapidly rising market, assignment can result in a significant reduction in the value of your position relative to simply holding the underlying equity. You forgo upside above the strike price in exchange for 0% borrowing cost.

9.3. Liquidation Risk (Borrowers)

If the value of your collateral falls to the liquidation threshold (which varies by asset, ranging from a 7.5% to 20% buffer below the 50% LTV), a partial liquidation may occur. Liquidation is designed to be surgical and to preserve your position where possible, but in severe market conditions, your entire collateral position may be liquidated. A liquidation fee is assessed on liquidated collateral.

Liquidation can occur without prior notice. Liquidations are triggered by on-chain price movements reported by the Stork oracle. The Company cannot and does not guarantee the accuracy, timeliness, or availability of oracle price feeds. Oracle failures, network congestion, or extreme volatility may result in liquidations at prices that differ from actual market values.

9.4. Lending Pool Losses

As a lender, your deposited stablecoins fund loans to borrowers. If losses from the covered call engine or liquidations exceed the capacity of the insurance fund and (for senior tranche lenders) the junior tranche, your principal may be impaired.

The loss waterfall is: Insurance Fund, then Junior Tranche, then Protocol Treasury, then Senior Tranche. This means:

(a) Junior tranche lenders are exposed to loss after the insurance fund is depleted. They earn higher yield in exchange for bearing this first-loss risk.

(b) Senior tranche lenders are the last to absorb losses but are not immune to loss. If the insurance fund, junior tranche, and protocol treasury are all depleted, senior tranche lenders bear the remaining loss.

9.5. Smart Contract Risk

The Protocol relies on smart contracts deployed on the Solana blockchain. Smart contracts may contain bugs, vulnerabilities, or design flaws that could result in the loss of your assets. The Company has engaged Halborn, a blockchain security firm, to audit the Protocol's smart contracts. However, no audit can guarantee the absence of vulnerabilities.

9.6. Oracle Risk

The Protocol relies on price feeds and Proof of Reserve attestations from Stork. If oracle data is delayed, inaccurate, or unavailable, it may result in incorrect liquidations, mispricing of spAssets, or temporary inability to use the Protocol.

9.7. Regulatory Risk

Tokenized securities, stablecoin lending, and options trading are subject to evolving and uncertain regulatory frameworks in multiple jurisdictions. Regulatory action by the SEC, CFTC, FinCEN, or other regulatory bodies could restrict or prohibit all or part of the Protocol's functionality. The Company may be required to suspend, modify, or discontinue the Interface or specific features of the Protocol in response to regulatory developments.

9.8. Broker-Dealer and Custodian Risk

The underlying equity securities are held by Alpaca Securities LLC. If Alpaca Securities experiences a business failure, regulatory action, or insolvency, your access to the underlying equities may be impaired or delayed. Broker-dealer customer accounts are generally protected by SIPC (Securities Investor Protection Corporation) up to specified limits. However, because the underlying equity securities are held by Alpaca Securities in an intermediated arrangement on behalf of the Protocol rather than in individual customer accounts in your name, SIPC protection may not extend to your holdings. You should assume that SIPC protection does not apply to your spAsset positions and evaluate your risk accordingly.

9.9. Stablecoin Risk

The Protocol accepts USDC, USDT, and USD1. Stablecoins may depeg from their intended value, may be subject to regulatory action, or may become illiquid. The Company does not guarantee the stability, value, or redeemability of any stablecoin.

9.10. Market Risk

The value of spAssets, underlying equities, and stablecoins is subject to market volatility. Prices can move rapidly and unpredictably. Past performance is not indicative of future results.

9.11. Blockchain Network Risk

The Solana blockchain may experience congestion, outages, forks, or other disruptions that could prevent you from accessing the Interface, executing transactions, or withdrawing your assets. The Company does not control the Solana network and cannot guarantee its availability or performance.

9.12. Insurance Fund Limitations

The Protocol maintains an insurance fund funded by a portion of the performance fee. The insurance fund is intended to absorb losses before they reach lenders. However, the insurance fund is finite. A sufficiently large loss event or series of loss events could deplete the fund entirely. The existence of the insurance fund does not constitute insurance in any legal or regulatory sense.

9.13. Liquidity Risk

There is no guarantee that you will be able to exit your position at the time or price you desire. Senior tranche instant exits are subject to a dynamic haircut. Junior tranche exits require a 45-day notice period. Claim resale depends on the availability of willing buyers. In stressed market conditions, all exit mechanisms may experience delays or unfavorable pricing.

10. Supported Assets

10.1. At launch, the Protocol supports the following assets: AAPL (Apple), NVDA (NVIDIA), GOOG (Alphabet), SMCI (Super Micro Computer), IBIT (iShares Bitcoin Trust), BSOL (Solana ETF), MSTR (MicroStrategy), PFE (Pfizer), GS (Goldman Sachs), XOM (ExxonMobil), and GLD (SPDR Gold Shares).

10.2. The Company may add or remove supported assets at any time at its sole discretion. Changes to the supported asset list will be reflected in the Interface.

11. Prohibited Uses

11.1. You agree not to use the Interface for any of the following purposes:

(a) Violating any applicable law, regulation, or rule, including securities laws, anti-money laundering laws, sanctions laws, or tax laws.

(b) Market manipulation, wash trading, spoofing, layering, front-running, or any form of manipulative or deceptive trading activity.

(c) Attempting to circumvent KYC requirements, sanctions screening, or geographic restrictions, including through the use of virtual private networks (VPNs), proxy servers, or similar technologies.

(d) Unauthorized access to, interference with, or disruption of the Interface, Protocol, or any connected systems, including denial-of-service attacks, exploiting smart contract vulnerabilities, or distributing malware.

(e) Scraping, data mining, or using automated systems to extract data from the Interface, except as expressly permitted by the Company.

(f) Using the Interface to launder money, finance terrorism, or evade sanctions.

(g) Infringing the intellectual property rights of the Company or any third party.

(h) Impersonating any person or entity, or misrepresenting your identity or affiliation.

(i) Using the Interface for any purpose that is fraudulent, deceptive, or harmful to the Company, its users, or any third party.

(j) Using the Interface while located in, or on behalf of any person located in, a Restricted Jurisdiction.

12. Sanctions and Restricted Jurisdictions

12.1. The Interface may not be accessed or used by any person or entity that is the subject of sanctions administered by the U.S. Department of the Treasury's Office of Foreign Assets Control ("OFAC"), the United Nations Security Council, the European Union, or any other applicable sanctions authority.

12.2. The following jurisdictions are restricted from accessing the Interface ("Restricted Jurisdictions"): the United States of America and its territories (including Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, and the Northern Mariana Islands); Cuba; Iran; North Korea (Democratic People's Republic of Korea); Syria; the Crimea, Donetsk, and Luhansk regions of Ukraine; Myanmar (Burma); Belarus; Russia; the People's Republic of China (mainland); and any other jurisdiction designated under comprehensive sanctions programs administered by OFAC, the European Union, or the United Nations Security Council.

12.3. The Company employs technical measures, including geofencing, IP-based restrictions, and KYC screening, to prevent access from Restricted Jurisdictions. Attempting to circumvent these restrictions is a material breach of these Terms.

13. No Investment Advice

13.1. Nothing contained in the Interface, these Terms, or any Spout documentation constitutes investment, financial, tax, or legal advice. The Company does not provide personalized investment recommendations and does not make any representation regarding the suitability of any asset, strategy, or transaction for any particular user.

13.2. All yield figures, APY estimates, performance data, and risk metrics displayed in the Interface are for informational purposes only. They are based on historical data, backtesting, or current market conditions and do not predict or guarantee future performance.

13.3. You should consult a qualified financial adviser, tax adviser, or legal adviser before making any investment decision. You are solely responsible for evaluating the merits and risks of each transaction you undertake through the Interface.

14. No Warranty

14.1. THE INTERFACE AND THE PROTOCOL ARE PROVIDED ON AN "AS IS" AND "AS AVAILABLE" BASIS WITHOUT WARRANTIES OF ANY KIND, WHETHER EXPRESS, IMPLIED, OR STATUTORY. THE COMPANY EXPRESSLY DISCLAIMS ALL WARRANTIES, INCLUDING WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, AND NON-INFRINGEMENT.

14.2. THE COMPANY DOES NOT WARRANT THAT THE INTERFACE WILL BE UNINTERRUPTED, ERROR-FREE, SECURE, OR FREE OF VIRUSES OR OTHER HARMFUL COMPONENTS. THE COMPANY DOES NOT WARRANT THE ACCURACY, COMPLETENESS, OR RELIABILITY OF ANY INFORMATION DISPLAYED THROUGH THE INTERFACE, INCLUDING PRICE DATA, YIELD ESTIMATES, PROOF OF RESERVE DATA, OR ACCOUNT BALANCES.

14.3. THE COMPANY DOES NOT WARRANT THAT THE PROTOCOL'S SMART CONTRACTS WILL PERFORM AS INTENDED OR THAT THEY ARE FREE OF BUGS, ERRORS, OR VULNERABILITIES.

15. Limitation of Liability

15.1. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, IN NO EVENT SHALL THE COMPANY, ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, AFFILIATES, SUCCESSORS, OR ASSIGNS (COLLECTIVELY, THE "COMPANY PARTIES") BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE DAMAGES, INCLUDING DAMAGES FOR LOSS OF PROFITS, REVENUE, DATA, GOODWILL, OR OTHER INTANGIBLE LOSSES, ARISING OUT OF OR IN CONNECTION WITH YOUR USE OF OR INABILITY TO USE THE INTERFACE OR THE PROTOCOL, REGARDLESS OF THE THEORY OF LIABILITY (CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE) AND REGARDLESS OF WHETHER THE COMPANY PARTIES HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

15.2. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, THE AGGREGATE LIABILITY OF THE COMPANY PARTIES FOR ALL CLAIMS ARISING OUT OF OR IN CONNECTION WITH THESE TERMS OR YOUR USE OF THE INTERFACE SHALL NOT EXCEED ONE HUNDRED U.S. DOLLARS (