10.9 No Passive Income Structure
A defining element of Asset Avenue’s compliance model is the requirement for members to actively participate in the governance and management of each real estate asset in which they are involved. This is a deliberate legal design decision that distinguishes Asset Avenue’s structure from traditional passive investment schemes and securities offerings.
In many jurisdictions, especially under the U.S. Securities and Exchange Commission’s (SEC) Howey Test, an investment contract is classified as a security if it involves:
An investment of money
In a common enterprise
With an expectation of profits
Primarily from the efforts of others
To ensure that our tokenized real estate offerings do not meet the fourth criterion (“profits from the efforts of others”), Asset Avenue structures its SPVs and token-holder rights such that members must play an active role in the management and decision-making related to the property they have invested in.
Key Points of Enforcement:
SPV DAO Membership: Each SPV that holds an asset is governed by a mini-DAO consisting of all token holders in that specific project. These members are responsible for overseeing budgets, operational decisions, rental strategies, service providers, and long-term asset planning.
Voting Participation & Quorum Requirements: Token holders must participate in governance votes concerning key asset-related decisions. Failure to engage may lead to reduced privileges, voting penalties, or being considered a non-active member under the bylaws of the SPV DAO.
Contributor Pools & Working Groups: Each SPV DAO creates working groups (e.g., maintenance oversight, tenant relations, financial audits) where members are required to contribute in proportion to their stake, either through time, services, or delegated proxy participation.
No Passive Income Guarantee: Income distributions from the asset (such as rental yields or appreciation gains) are not promised or automatically distributed. Instead, they are determined and voted upon by the SPV DAO based on performance and community decisions. Members must be actively engaged to access and influence these distributions.
Member Agreements Reflect Obligations: Legal agreements signed by verified and KYC’d members include clauses specifying the requirement for active participation and the community-managed nature of the asset. These agreements protect Asset Avenue from being classified as an unregistered security and serve as enforceable documentation of user responsibilities.
Why This Matters for Compliance:
This structure ensures that:
The offering is not classified as a passive security in jurisdictions like the U.S., Switzerland, or the EU.
Members are personally contributing to the value creation of each asset.
Asset Avenue operates more like a cooperative or syndicate model, which enjoys different regulatory treatment.
It protects the DAO from triggering centralized fund manager responsibilities or fiduciary risk that would arise if members were passive recipients.
Conclusion
Legal and regulatory compliance is not just a requirement—it’s a foundation for trust, growth, and mainstream adoption. Asset Avenue blends traditional legal frameworks with decentralized innovation, ensuring that every investor, project, and transaction is fully compliant, transparent, and protected. Through strategic jurisdictional planning, robust KYC protocols, securities compliance, and legally structured SPVs, Asset Avenue offers a pioneering model for Web3 real estate that is future-proof, adaptable, and legally sound.
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