EARTHX® CORPORATION LTD
Limited Liability Company
COMPREHENSIVE LEGAL & REGULATORY DISCLOSURE
For
XLOTTERY.ai™
Promotional Redistribution Platform
&
LOTTERII™
Blockchain Position-Matching Reward System
Components of the XP2P® Monetary Generation & Redistribution Ecosystem
Document Version 1.2
January 2026
CONFIDENTIAL & PROPRIETARY
Table of Contents
IMPORTANT LEGAL NOTICE
This document provides a comprehensive analysis of the legal and regulatory framework applicable to XLOTTERY.a™i and LOTTERII™. This disclosure is provided for informational purposes only and does not constitute legal advice. EARTHX® Corporation Ltd. recommends that participants consult with qualified legal counsel regarding the laws applicable in their jurisdiction. Regulatory classifications may vary by state and country and are subject to change.
PART I: XLOTTERY.ai™ LEGAL FRAMEWORK
Section 1: Executive Summary
XLOTTERY.ai™ is a component of the XP2P® (Experience-to-Peer-to-Peer) monetary generation and redistribution ecosystem developed by EARTHX® Corporation Ltd. Unlike traditional lotteries, which function as government-operated gambling mechanisms designed to generate state revenue through negative expected value propositions, XLOTTERY.ai™ operates as a Promotional Redistribution Platform with fundamentally different economic mechanics, structural design, and consumer outcomes
This document establishes the legal and conceptual distinctions between XLOTTERY.ai™ and traditional gambling operations, analyzes applicable regulatory frameworks, and explains why the platform's design represents a paradigm shift in wealth redistribution technology.
Section 2: Legal Definition of Gambling — The Three-Element Test
Under United States law, the classification of an activity as gambling is determined by the presence of three elements, as established in FCC v. American Broadcasting Co., 347 U.S. 284 (1954):[1]
As articulated by multiple federal courts and state attorneys general, an activity must contain all three elements to constitute illegal gambling.[2] The removal of any single element places the activity outside the legal definition of gambling.[3]
Section 3: Traditional Lotteries — A Gambling Classification Analysis
Traditional state-operated lotteries unambiguously satisfy all three elements of the gambling test:
Prize: Cash prizes ranging from small amounts to multi-hundred-million-dollar jackpots
Chance: Winning numbers determined entirely by random selection with no skill component
Consideration: Purchase of a ticket (typically $1–$20) required to participate.
Traditional lotteries are legal only because they operate under specific governmental authorization. [4] Without such authorization, any private entity operating a lottery would be conducting illegal gambling.[5] The distinction is regulatory permission, not the nature of the activity itself.
Section 4: The Critical Distinction — Win Rates and Expected Value
4.1 The Mathematical Reality of Traditional Lotteries
The expected value of a lottery ticket is always negative for the player. Mathematical analysis demonstrates that lottery participants can expect to lose approximately $0.50–$0.90 for every $1.00 wagered.[6] This negative expected value is structural and intentional; it represents the government's revenue extraction mechanism.
4.2 Why Win Rate and Platform Fees Matter: Consumer Protection Analysis
Important Clarification: While win rate does not legally determine whether an activity constitutes gambling under the three-element test, it is critically relevant for consumer protection, ethical analysis, and distinguishing the purpose and effect of the platform.
The harm associated with gambling derives primarily from:
1. Negative Expected Value: Participants systematically lose money over time.[7]
2. Predatory Design: Variable-ratio reinforcement schedules that trigger addictive neurological responses.[8]
3. Wealth Extraction: Transfer of wealth from participants (disproportionately lower-income) to operators.[9]
A platform with a 60–75% win rate and positive expected value for participants inverts each of these harms. Rather than extracting wealth from participants, the platform redistributes wealth to participants. This represents a fundamentally different economic model.
Platform Fee: At 1.7% platform fee, LOTTERII™ is essentially operating as a redistribution utility rather than a profit-extraction business. That's a fundamentally different model — closer to a payment processing fee than a gambling house edge. This dramatically strengthens XLOTTERY.ai's™ legal and ethical positioning.
Section 5: Legal Pathways for XLOTTERY.ai™ Classification
5.1 Promotional Redistribution Program Model
XLOTTERY.ai™ is designed as a component of the XP2P® monetary redistribution ecosystem. Unlike gambling, where the operator retains a substantial percentage of funds as profit (the "house edge"), XLOTTERY.ai™ functions as a redistribution mechanism designed to move wealth from reserve pools to participants.
5.2 Sweepstakes Model Considerations
Under federal law and the laws of most states, a sweepstakes that eliminates the "consideration" element is not classified as gambling.[10] The Federal Trade Commission (FTC), Federal Communications Commission (FCC), and U.S. Postal Service jointly enforce "No Purchase Necessary" laws that permit prize promotions where no purchase is required to enter or win.[11]
5.3 Skill-Based Element Integration
Under the "Dominant Factor Test" applied by the majority of U.S. states, an activity is not gambling if skill, rather than chance, is the predominant factor determining the outcome.[12] To the extent XLOTTERY.ai™ incorporates skill-based selection mechanisms, strategic decision-making, or participant ability as factors in determining outcomes, the chance element may be diminished or eliminated under applicable legal tests.
XLOTTERY.ai's™ skill-based elements includ
- Tier Selection Strategy: Choosing among five tiers with different mathematical ranges, odds, and payout structures requires analytical skill
- Position Optimization: The position-by-position matching system rewards strategic number placement
- Auto-Pick Optimization: Industry-first Auto-Pick ability allows skilled players to optimize entries algorithmically
- Bankroll Management: Strategic allocation across tiers, draw frequency, and entry volume is a skill-based discipline
- Reserve Pool Strategy: Engagement with achievement badges, sponsor levels, and milestone triggers involves strategic long-term planning
Section 6: The Paradigm Shift — From Gambling to Redistribution
Traditional lotteries exist to extract money from participants. XLOTTERY.ai™ exists to distribute money to participants.
This is not a semantic distinction. It represents a fundamental inversion of the economic model:
Traditional Lottery Flow: Participants → Government → Public Programs (with 50–90% extraction)
XLOTTERY.ai™ Flow: Reserve Pools → Participants (with minimal 1.7% platform fees)
PART II: LOTTERII™ PLATFORM SPECIFICATIONS
Blockchain Position-Matching Reward System
NOTICE — READ BEFORE PARTICIPATING
LOTTERII™ IS NOT A TRADITIONAL LOTTERY
This platform operates in the decentralized finance (DeFi) ecosystem using blockchain technology and
operates fundamentally differently from government-run fiat lotteries and traditional crypto lotteries.
Section 7: What LOTTERII™ IS and IS NOT
Section 8: The 5-Tier Structure
LOTTERII™ offers five distinct entry tiers, each with unique odds, payouts, and thematic branding designed to create a progressive experience. Each tier provides dramatically better odds than traditional lotteries while maintaining transparent blockchain-based prize distribution.
LEGEND™ tier offers the BEST PAYOUT PERCENTAGE in the entire system with 75% payout
Section 9: Risk Disclosures
RISK WARNING
YOU MAY LOSE ALL MONEY YOU CONTRIBUTE
LOTTERII™ involves financial risk. While our Platform returns and redistributes 98.3% of all Player
money, and our winning odds are 8,900–121,700× better than traditional lotteries:
• Winning is not guaranteed
• You may never win anything
• You could lose your entire entry fee
• Platform could be shut down by regulators
• Smart contracts could fail
DO NOT PARTICIPATE WITH MONEY YOU CANNOT AFFORD TO LOSE
Gaming Risk: Participation involves risk of financial loss. Most participants will not win jackpots. Only participate with funds you can afford to lose.
Regulatory Risk: Gaming regulations vary by jurisdiction. Some jurisdictions may prohibit participation. It is your responsibility to ensure participation is legal in your jurisdiction.
Cryptocurrency Risk: Cryptocurrency values fluctuate. The USD value of winnings may vary based on cryptocurrency market conditions.
Platform Risk: While we strive for 100% uptime, technical issues may occasionally affect platform availability or draw timing.
PART III: REGULATORY COMPLIANCE FRAMEWORK
Section 10: U.S. Federal & State Compliance
EARTHX® Corporation Ltd. is committed to operating XLOTTERY.ai™ and LOTTERII™ in full compliance with applicable federal and state laws. This commitment includes:
Jurisdictional Compliance: Analysis of applicable laws in each jurisdiction where the platform operates, with geo-restriction of access where necessary.
State Registration: Registration and bonding in states that require it for promotional platforms (e.g., Florida, New York, Rhode Island).[13]
Consumer Disclosures: Clear and conspicuous disclosure of all terms, odds, prize structures, and legal limitations.
Age Verification: Verification that all participants meet minimum age requirements (18+).
Tax Reporting: Appropriate tax reporting (Form 1099) for prizes exceeding applicable thresholds.[14]
Section 11: Malta Gaming Authority Framework
LOTTERII™ is pursuing licensing under the Malta Gaming Authority (MGA), one of the world's most respected gaming regulators. Malta provides a comprehensive regulatory framework for blockchain-based gaming platforms that includes player protection, anti-money laundering compliance, and technical standards.
Section 12: Securities Law Analysis (Howey Test)
LOTTERII™ has been structured to avoid classification as a security under the SEC v. W.J. Howey Co. test. Participants receive immediate consumptive utility (entry into prize pool), not an investment contract with expectation of profits derived from the efforts of others.
Not a Security: LOTTERII™ does not meet the criteria of the Howey Test. Participants receive gaming outcomes based on matching and skill-based elements, not returns derived from the efforts of others.
Not an MLM: LOTTERII™ does not require recruitment of new members for existing participants to earn rewards or win prizes.
Not a Pyramid Scheme: Revenue is generated through legitimate gaming operations, not through continuous recruitment of new participants.
ADDITIONAL DISCLOSURES
Section 13: Winner-Funded Commission Structure
13.1 How Commissions Work
Commissions from Winners: When a participant wins, a small percentage (up to 1.5% maximum) of the payout is allocated to referral commissions for the winner's upline affiliates. This ensures that entry fees remain untouched and go entirely toward building the prize pool.
No Impact on Odds: Since commissions are funded from winner payouts rather than entry fees, the prize pool is never reduced by referral costs.
Tiered Matrix Structure: Classic members can earn referral commissions up to 3 levels deep, Premium members up to 5 levels, and VIP members up to 7 levels.
FTC Compliant: Commissions are triggered only by actual gaming wins, not by the act of recruiting new members, making this fundamentally different from prohibited pyramid structures.
13.2 Why This Matters
No Recruitment Required: Any registered member can purchase entries and win prizes without ever referring a single person.
Win-Based Commissions: Commissions are only triggered when a referred member actually wins a prize.
Protected Entry Fees: 100% of entry fees are allocated to the prize pool.
Independent Sustainability: The platform's economic model does not depend on continuous growth or new member acquisition.
Section 14: Responsible Gaming
LOTTERII™ is committed to responsible gaming practices:
Age Restriction: All participants must be 18 years of age or older. Age verification is required during registration.
Self-Exclusion: Members can activate self-exclusion for periods ranging from 24 hours to permanent account suspension.
Deposit Limits: Members can set daily, weekly, or monthly deposit limits to control spending
Activity Tracking: Comprehensive play history and spending reports are available in every member's dashboard.
Support Resources: Links to recognized problem gambling organizations and helplines are prominently displayed.
If you or someone you know has a gambling problem, please seek help.
Section 15: Transparency Commitment
LOTTERII™ is committed to transparent operations:
Blockchain Verification: Every draw result is permanently recorded on the blockchain, creating an immutable and publicly accessible record.
Prize Pool Transparency: Real-time prize pool balances for each tier are publicly visible.
Fee Disclosure: The operational fee of approximately 1.7% is clearly communicated before any purchase, with no hidden charges.
Public Winners: All winning entries and payout amounts are publicly announced (with privacy-respecting anonymization options).
Provably Fair RNG: The random number generation system uses cryptographic algorithms with published seeds and proofs for each draw.
ENDNOTES AND CITATIONS
[1] FCC v. American Broadcasting Co., 347 U.S. 284, 290 (1954).
[2] See 38 C.J.S. Gaming § 5 (2022).
[3] See BrandMovers, The Complete Legal Guide For Running Sweepstakes (2024).
[4] 18 U.S.C. § 1307.
[5] See ShortStack, No Purchase Necessary Law (June 26, 2022).
[6] See University of Nebraska-Lincoln, Math In Society: Expected Value.
[7] See Portland Community College, Math In Society: Expected Value.
[8] See Kinnaird, Reconsidering the Legal Definition of Gambling, 109 Va. L. Rev. 963 (2023).
[9] See Wikipedia, Lottery.
[10] See Thompson Coburn LLP, Is It a Game of Chance or a Game of Skill? (Dec. 5, 2024).
[11] See RTM.com, No Purchase Necessary Laws and Your Sweepstakes (Oct. 27, 2025).
[12] See Skillz, The Legality of Skill Gaming.
[13] See Sideman & Bancroft LLP, Contests and Sweepstakes 101 (May 30, 2024).
[14] See 26 C.F.R. § 31.3402(q)-1.
Important Notice
This regulatory disclosure is provided for informational purposes. It does not constitute legal or financial advice. Participants should ensure participation is legal in their jurisdiction. All participation in LOTTERII™ is voluntary and at the participant’s own discretion and risk.
© EARTHX® Corporation Ltd. All rights reserved.
XLOTTERY.ai™, LOTTERII™, and XP2P® are trademarks of EARTHX® Corporation Ltd.
