Regulatory Approach

Our Commitment to Innovation and Compliance

Audio Exchange (AUDEX) is committed to building a vibrant, sustainable, and compliant ecosystem for music creators and collectors. We respect the important role of regulatory frameworks in protecting consumers and ensuring market integrity. Our approach is proactive and founded on a good-faith interpretation of current laws, which we are constantly reviewing with our legal counsel.

Our Position: A Marketplace for Digital Collectibles

We have designed AUDEX as a marketplace for **digital collectibles**, not securities. The assets on our platform are analogous to other established collectibles markets, such as rare art, limited-edition vinyl records, or trading cards. The value of an AUDEX asset is intended to be derived from its verifiable rarity, its connection to an artist, its unique artwork, its cultural relevance, and the personal enjoyment and status that comes from owning it.

AUDEX is **not a cryptocurrency exchange**. We do not facilitate the trading of general-purpose cryptocurrencies like Bitcoin or Ethereum. All transactions are related to specific, identifiable, and unique music-based digital assets.

Analyzing Our Framework Under the Howey Test

In the United States, the SEC often applies the "Howey Test" to determine if an asset qualifies as an "investment contract" and thus a security. An asset may be a security if it involves: 1) an investment of money, 2) in a common enterprise, 3) with a reasonable expectation of profits, 4) to be derived from the entrepreneurial or managerial efforts of others.

Our framework is built to distinguish AUDEX assets from securities, particularly concerning the third and fourth prongs of the test. While collectors may hope their assets appreciate in value, we believe this appreciation is driven by organic market forces of supply and demand, fandom, and cultural trends—similar to the art world—not from the ongoing "entrepreneurial or managerial efforts" of AUDEX or the original artist after the asset's release. The artist's primary work is complete upon release; AUDEX provides the venue for trading, but does not actively manage the value of any specific asset.

Our Compliance-Focused Platform Design

To align with our position as a collectibles marketplace and mitigate regulatory risk, our platform strategy includes several key design choices, which are subject to ongoing legal review:

• Clear Language and Marketing: We are careful to use language that frames AUDEX as a platform for "collecting," "owning," and "trading" digital memorabilia. We avoid terms that imply "investing" for profit based on our or the artist's efforts.
• Emphasis on Intrinsic Value: We highlight the inherent, non-monetary value of ownership—the ability to showcase a collection, the direct connection to an artist, and the enjoyment of the music and art itself.
• Fixed Royalty Structure: Artists receive a fixed, predetermined royalty from secondary sales, disclosed at the time of the initial sale. This is structured as a passive royalty right, similar to traditional music industry standards, not a variable share of ongoing platform profits or a dividend.
• Robust KYC/AML Procedures: We are implementing industry-standard Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures to promote a safe and transparent trading environment.

User Acknowledgment and Responsibility

By using the AUDEX platform, you acknowledge that you have read our Terms of Service and this compliance framework. You understand that the digital assets on this platform are collectibles with inherent risks and that their value can be volatile. You agree that you are responsible for complying with the laws of your jurisdiction and are not purchasing these assets with the primary expectation of profits derived from the managerial efforts of AUDEX or the artists.