Scratch Pivots Due to Regulatory Compliance, Community Being Offered Ownership

Since inception, the goal of the Scratch Engine has been to provide transparency and standardization in the NFT marketplace. We continue to believe deeply in this mission: empowering buyers and sellers to make transactions based on verified and up-to-date information. We want to extend that same transparency that we’re bringing to the NFT marketplace.

When we launched the SCRATCH Token, we did so only in the furtherance of this mission. We limited its release to the minimum supply necessary to provide proof of concept for the product. Instead, we found an incredible community of early adopters and believers in our project, who flocked to SCRATCH and showed their support of the Scratch Engine and the vision of a transparent NFT marketplace.

The NFT and crypto space is an ever-evolving one, and we need to evolve with it. In the interest of protecting our early adopters and SCRATCH Engine, LLC within the shifting regulatory landscape, we no longer believe that the SCRATCH Token, in its current form, has a viable future.

The looming threat of the SCRATCH Token being deemed an unregistered security has severely limited our ability to respond to changing market conditions or to follow anything like a coherent product development cycle of “launch, measure, iterate.” Now with the dissolution of the SCRATCH Token, we want to make that community something more: owners.

We are offering the opportunity to our early adopters to have ownership in the Company following a reorganization from a limited liability company into a corporation. Together we have already completed all the items on our Phase One roadmap and have continued to Phase Two, which we expect will include the launch of the Scratch Engine BETA V1 in Q1 2023. We believe that together we can build the Scratch Engine stronger and better than ever.

Additionally, although we originally intended to submit the SCRATCH Token for qualification as a security — and may pursue such a regulatory qualification of a future related digital asset to fuel the Scratch Engine, we now believe that the best path forward is to focus on the product and then — upon the public launch of the Scratch Engine — consider the release of a related digital asset. Everything comes back to our desire to maximize the integrity, security, and scalability of the Scratch Engine.

That’s why after much discussion and deliberation with our development, leadership, and legal teams, we have decided to end our support of the SCRATCH Token. To that end, we have collected all liquidity held by Uniswap and taken a snapshot of all holders as of 10/21/2022 at 7:35 A.M. CST. We will not issue any additional SCRATCH Tokens and will burn all SCRATCH Tokens in our control.

We want to be clear: one hundred percent of the liquidity extracted from Uniswap is being allocated to the Company to fund development, pay our service providers (legal, tax, marketing, and others), and repay any debts, which is consistent with our project-first focus.

Every penny available to put into the Company has been put into the Company, and we intend to stand by that policy until the Company has matured and stabilized enough to support full-time employees and management.

Scratch Engine has never been a token company — we are a product company.

To build this product, we need to protect the Company and its community, which requires being flexible and evolving in response to the changing regulatory landscape and market trends.

That said, we cannot build this alone, and we anticipate raising necessary capital through the sale of the equity in the near future.

As part of this raise, we intend to accept SCRATCH from any holders as of 10/21/2022 at 7:35 A.M. CST as consideration for our common stock (following our conversion from a limited liability company to corporation). Any holders who, for whatever reason, do not want to participate in this raise and become stockholders of the Company will have the ability to hold their SCRATCH Tokens, and we will make every effort to exchange those unredeemed SCRATCH Tokens for a Company digital asset in the future.

Additionally, we are taking the following actions:

  1. We have temporarily frozen Telegram and Discord. We want to give the community time to digest this news and to allow for the level of focus necessary during this crucial stage. Once complete, we will unfreeze both accounts. Again, this is temporary.
  2. We will follow up on this statement with a more detailed update to our Roadmap and the next steps of SCRATCH Engine, LLC.
  3. As soon as next week, we will be meeting with our moderator community, so they can be prepared for the unfreezing of our Telegram and Discord accounts. We want them to be in the best position possible to answer the concerns and questions of the community and the inquiring public.

We are grateful to the community members, developers, early adopters, and partners that have supported us so far. We take pride in what we have built so far and in the community that surrounds us. Our hope is that this inflection point does not push the community away, but instead provides an opportunity to unite, moving towards the next era in the evolution of the NFT marketplace, by offering a transparent and trusting ecosystem, empowering the new generation of artists, creators, and entrepreneurs.

As a company, we have and will continue to make every effort to go above and beyond as founders, thus it is important to us to be as transparent as possible with our community and supporters. No founder has received any payment, salary, or benefits since we began the Company. We will also be putting out a public press release detailing our forward momentum.

We acknowledge and understand that not everyone will be happy with these changes. We accept that this will be a difficult transition, but we strongly believe that the actions taken today are in the best interest of the Company, the product, and the community.

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Any questions or thoughts, please direct them to the SCRATCH Engine, LLC team at transition@scratchengine.com.

RESOURCE LINKS:

Forbes: Crypto Regulation: Is Cryptocurrency A Security?

Forbes: Are U.S. Crypto Regulators Staking Out Territory Via Enforcement Actions?

Bangkok Post: SEC eyes regulations for trading of utility tokens

Ledger Insights: SEC’s Gensler wants crypto exchanges to segregate market making, custody

Ledger Insights: SEC’s Gensler: wants legislation for cryptocurrency trading, lending, DeFi platforms

CoinDesk: SEC Calls 9 Cryptos ‘Securities’ in Insider Trading Case

CoinDesk: SEC, Ripple Call for Immediate Ruling in Suit Over Whether XRP Sales Violated Securities Laws

CoinDesk: Crypto Doesn’t Need More Guidance, SEC Chair Gensler Says

SEC.gov: SEC Nearly Doubles Size of Enforcement’s Crypto Assets and Cyber Unit

CFTC.gov: CFTC Imposes $250,000 Penalty Against bZeroX, LLC and Its Founders and Charges Successor Ooki DAO for Offering Illegal, Off-Exchange Digital-Asset Trading, Registration Violations, and Failing to Comply with Bank Secrecy Act

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