00:00.000 --> 00:21.940 Okay, super. 00:21.940 --> 00:29.580 Well, good evening, everyone, good afternoon, or good morning, depending where you are 00:29.580 --> 00:30.580 in the world. 00:30.580 --> 00:33.420 I know we have people from all over the world joining us today. 00:33.420 --> 00:39.980 This is session 10, financing models for NFTs and the metaverse, which is probably like, 00:39.980 --> 00:46.780 you know, financing models for organizations in this world. 00:46.780 --> 00:49.380 This is a very interesting topic. 00:49.380 --> 00:58.860 And it's also a very interesting topic to think about how we can do, in how we can handle 00:58.860 --> 01:03.020 in this period, because it's a very complicated topic. 01:03.020 --> 01:05.740 It is a very legally intensive topic. 01:05.740 --> 01:12.900 And it is a topic where even people with a ton of experience in this topic will go to 01:12.900 --> 01:23.460 specialized lawyers with even more experience in this topic to seek advice. 01:23.460 --> 01:32.540 And I know in our course we have a mixed level of knowledge about these types of topics. 01:32.540 --> 01:37.980 In fact, for I think many people, a very low level of knowledge about securities law, 01:37.980 --> 01:45.540 and I'm sure there's some people that have more advanced knowledge. 01:45.540 --> 01:51.180 The way I was thinking about this was, it would have been easy to overwhelm everyone with 01:51.180 --> 01:54.900 facts, figures, datas, cases, etc. 01:54.900 --> 02:00.860 But I'm not sure that helps anyone. 02:00.860 --> 02:14.260 Whereas I think what might be the right approach and the right answer here is leave with some 02:14.260 --> 02:20.380 very simple frameworks, some very simple ideas. 02:20.380 --> 02:29.140 And these simple ideas though, are applicable over and over and over and over again. 02:29.140 --> 02:34.140 I have, I think, a quite sophisticated understanding of this topic, but the way I think about it 02:34.140 --> 02:39.100 in practice is actually very simple. 02:39.100 --> 02:52.220 And so my goal today is to get less than 10 ideas in your head, maybe six or seven. 02:52.220 --> 02:56.380 And these ideas will help you in many different ways. 02:56.380 --> 03:03.260 They will explain why many things are the way they are in the financing environment. 03:03.260 --> 03:12.140 I see this constantly on my Twitter feed that people are confused about why things are financed 03:12.140 --> 03:14.700 the way they are financed. 03:14.700 --> 03:22.060 We will see where the risky areas are and where legal risk might be. 03:22.060 --> 03:28.020 Now, you're not going to learn the legal risk from this course. 03:28.020 --> 03:38.140 What you should learn is when you're within 100 miles of potential legal risk so that 03:38.140 --> 03:44.940 you go find someone qualified, a securities attorney, or really what you want, to help 03:44.940 --> 03:49.700 you think through what your legal risk might be. 03:49.700 --> 03:59.500 This is what I hope to accomplish today and so I really simplified my slides and I hope 03:59.500 --> 04:00.900 this will work. 04:00.900 --> 04:07.860 So let's jump in. 04:07.860 --> 04:10.380 And really there's two things. 04:10.380 --> 04:13.220 We're going to go into two sections. 04:13.220 --> 04:18.220 What are the key frameworks within US securities law that change financing models? 04:18.220 --> 04:24.540 I'm going to go into the financial, that's the financing models in use today. 04:24.540 --> 04:31.540 And you'll notice I'm going to be focused exclusively on US law. 04:31.540 --> 04:41.900 And the framework that we will cover here is a very US-specific framework. 04:41.900 --> 04:49.020 Almost no other country thinks about it in exactly this way. 04:49.020 --> 04:54.220 And then you might say, well, why are we doing that? 04:54.220 --> 04:55.220 It's a global field. 04:55.220 --> 04:57.340 It's a global industry. 04:57.340 --> 05:02.380 Why are we just focused on what the Americans are doing? 05:02.380 --> 05:14.940 And the reality is, the reason this is the case is that the startup industry in general 05:14.940 --> 05:23.860 and I think very large parts of the crypto industry in general and large parts of the 05:23.860 --> 05:30.220 NFT and the metaverse industry in general and the broader technology industry in general 05:30.220 --> 05:44.260 in the broadly speaking English language world or Europe and US world tends to be concentrated 05:44.260 --> 05:46.260 in the United States. 05:46.260 --> 05:48.420 China has a very different model. 05:48.420 --> 05:50.580 Russia has a different model. 05:50.580 --> 06:04.500 But in the world that public blockchains are heavily used in that world, what we tend to 06:04.500 --> 06:12.100 see is that there's a heavy concentration in the United States. 06:12.100 --> 06:18.740 And given that heavy concentration in the United States, the laws and regulations of 06:18.740 --> 06:33.260 the United States tend to be fairly, they shape the space for everyone else. 06:33.260 --> 06:41.060 And so a lot of what you see is the United States, it might be very specific to America, 06:41.060 --> 06:44.940 but it really does shape the space tremendously in a lot of what we see. 06:44.940 --> 06:48.500 So this is what we're going to talk about. 06:48.500 --> 06:56.740 I can't possibly disclaim this session enough, like this is not legal advice. 06:56.740 --> 07:00.460 It wouldn't even be legal advice in the United States and the United States should still 07:00.460 --> 07:06.860 set a, I know 20 times more than this presentation and I wouldn't do any of these things without 07:06.860 --> 07:07.860 a lawyer. 07:07.860 --> 07:13.180 And it certainly doesn't apply outside the United States because these are the US rules. 07:13.180 --> 07:22.060 So with all of these caveats and all of these ideas, let's jump in. 07:22.060 --> 07:29.140 And I was laughing when I wrote the title for the section, some relevant snippets of US 07:29.140 --> 07:30.980 securities law, and this is exactly what it is. 07:30.980 --> 07:37.740 US securities law is a gigantic body of work, of case law, with all types of nuanced and 07:37.740 --> 07:45.180 edge to edge cases that have been over time established. 07:45.180 --> 07:52.780 And here we're going to have four slides and fairly large font to talk about. 07:52.780 --> 08:03.980 But what I was trying to do is distill the parts that might matter for people and might 08:03.980 --> 08:08.820 matter in a practical way. 08:08.820 --> 08:14.500 So this is how does, where does all come from, actually came from the Great Depression. 08:14.500 --> 08:20.060 It is wild, but it's true. 08:20.060 --> 08:26.620 The basis for most of these laws is from 1933 and 1934. 08:26.620 --> 08:29.580 Now there have been modifications of these laws of run. 08:29.580 --> 08:40.300 They have been new laws over time, but the basic laws are from there. 08:40.300 --> 08:43.300 It's all we need to know for the slides. 08:43.300 --> 08:47.140 That's all we need to know. 08:47.140 --> 08:56.940 Now, here is the single most important concept you need to learn today. 08:56.940 --> 09:11.380 And quite frankly, the single most explanatory concept in the whole financing world of startups 09:11.380 --> 09:17.540 and crypto assets in general, of which NFTs and Metaverse are a subset. 09:17.540 --> 09:32.580 The concept is that the United States defines a security that needs to be registered using 09:32.580 --> 09:36.460 the Howey Test. 09:36.460 --> 09:44.820 And it is not designed prescriptively as it is in other jurisdictions. 09:44.820 --> 09:55.980 So in many other jurisdictions, people or legislators say, a security is these 17 specific 09:55.980 --> 10:09.900 things, derivative contracts, bonds, options on publicly traded securities, etc, etc, etc. 10:09.900 --> 10:15.700 And so you can go down the list and say, is my thing one of these things? 10:15.700 --> 10:29.700 And if the answer is no, then it's not a security and you can kind of go off and do whatever I'm 10:29.700 --> 10:33.060 planning to do. 10:33.060 --> 10:35.900 The United States is different. 10:35.900 --> 10:41.260 It's principles based in how it approaches this. 10:41.260 --> 10:53.140 And in that case, you have to analyze each specific potential security individually. 10:53.140 --> 10:56.820 And the principles are quite abstract. 10:56.820 --> 11:00.540 They fit here on this page. 11:00.540 --> 11:09.420 And what this is, how we test this is, you need to look at this potential security and ask 11:09.420 --> 11:12.020 yourself four questions. 11:12.020 --> 11:21.180 And if the answer is yes, to all four questions, then it's a security. 11:21.180 --> 11:27.180 And if the answer is no, to any one of the four questions, it's not. 11:27.180 --> 11:31.220 And if you know, that's great, it's going to be hard to become a security. 11:31.220 --> 11:39.660 And the reality is is most things that most people will think of, most casual, naive or 11:39.660 --> 11:45.260 even like, kind of medium sophisticated ideas that people will think of for raising money 11:45.260 --> 11:51.460 do turn out to be securities under this test, which is bizarre, but yet true. 11:51.460 --> 11:53.900 So let's go through them. 11:53.900 --> 11:57.940 The first part of the task is an investment of money. 11:57.940 --> 12:01.780 This is the most straightforward. 12:01.780 --> 12:08.020 If you're volunteering at your local church, this is not going to be a security. 12:08.020 --> 12:10.180 This is an investment of money. 12:10.180 --> 12:23.220 Now money doesn't mean fiat dollars if you sell a security and you take, Ethereum, 12:23.220 --> 12:27.100 for example, that's still going to meet this test. 12:27.100 --> 12:29.340 So it can be considered an investment of money. 12:29.340 --> 12:35.300 It's not an investment of US dollars, investment of money more broadly. 12:35.300 --> 12:39.300 The second test in a common enterprise. 12:39.300 --> 12:50.580 So this is the way I think about it is something that has a definable mission, organision, goal etc. 12:50.580 --> 13:02.580 It's interesting people try and get around this by saying, oh, but there's not a legal 13:02.580 --> 13:17.780 entity here or, we call ourselves decentralized, but that doesn't matter so much. 13:17.780 --> 13:26.860 Like the SEC is going to look at this point conceptually, that this a common enterprise 13:26.860 --> 13:31.500 where, we're going to try and do something together. 13:31.500 --> 13:36.940 And the most simple base example is, a company. 13:36.940 --> 13:50.820 So if I founded a company and this company was supposed to sell NFTs, and it was called 13:50.820 --> 13:57.580 6529 NFT Limited or Incorporated. 13:57.580 --> 14:00.820 And I say, would you like to buy shares in my company? 14:00.820 --> 14:05.220 Yeah, it's a common enterprise where other companies were going to do something. 14:05.220 --> 14:08.900 So the interesting thing is, like, no, I'm not going to do it with a company. 14:08.900 --> 14:12.860 I'm just going to sell you these tokens and we're decentralized, 14:12.860 --> 14:15.060 and it doesn't matter so much, 14:15.060 --> 14:18.580 like the legal form doesn't matter so much. 14:18.580 --> 14:24.020 Does this have a coherent and cohesive set of activities? 14:24.020 --> 14:32.900 The third leg of the stool with the expectation of profits. 14:32.900 --> 14:43.820 Are people buying what it is you're selling for the way they are buying any other investment 14:43.820 --> 14:52.180 vehicle? 14:52.180 --> 15:01.100 If someone sells you a very nice six course dinner, it might be an investment of money 15:01.100 --> 15:04.500 in a common enterprise that I've run, but not buying with an expectation of profits. 15:04.500 --> 15:12.460 So someone sells you a pair of NIKE shoes, not buying them with an expectation of profit. 15:12.460 --> 15:17.780 I'll hold that example and come back to it later. 15:17.780 --> 15:31.260 If someone sells you a boost-up in a game, probably not something smart for the expectation 15:31.260 --> 15:33.900 of profits. 15:33.900 --> 15:50.060 If someone sells you something that says, yeah, buy this token, we are going to moon because 15:50.060 --> 15:55.820 of ABCDE reason, we start to get problematic. 15:55.820 --> 16:01.620 We still have to meet all the tests, but we start to get problematic. 16:01.620 --> 16:07.140 By the way, dumb level disclaimers don't work. 16:07.140 --> 16:10.660 So you see this all the time in our space. 16:10.660 --> 16:16.620 Someone says something that is absolutely, certainly, without a doubt, financial advice, 16:16.620 --> 16:20.420 and then at the bottom of their Tweet says, not financial advice, NFA, 16:20.420 --> 16:24.100 it doesn't count for anything, doesn't mean anything. 16:24.100 --> 16:26.900 Nothing about that is relevant. 16:26.900 --> 16:32.180 The substance is what you do. 16:32.180 --> 16:41.900 Fourth part, to be derived from the efforts of others. 16:41.900 --> 16:50.060 And this is the part that crypto teams really try and focus on. 16:50.060 --> 17:05.420 Which is saying, is there an identifiable group of people who are working to make this 17:05.420 --> 17:07.220 a success? 17:07.220 --> 17:08.380 Are there insiders? 17:08.380 --> 17:19.580 And the reason it's interesting from a regulatory perspective if there are insiders, the theory here 17:19.580 --> 17:28.500 about legislation, disclosure, and what have you, is about information asymmetry. 17:28.500 --> 17:34.700 If there are insiders, they might know more about the project than you do. 17:34.700 --> 17:47.980 And if they know more about the project than you do, then they might withhold information 17:47.980 --> 17:54.700 from you and sell you a security. 17:54.700 --> 17:58.780 And you might be taken advantage of. 17:58.780 --> 18:01.180 What's something that would not meet this test? 18:01.180 --> 18:08.460 Well, very famously, the United States has said and continues to say that Bitcoin is not 18:08.460 --> 18:11.260 a security. 18:11.260 --> 18:22.060 And they believe that a combination of mining and wallet holding and how transactions are 18:22.060 --> 18:29.540 processed is sufficiently decentralized. 18:29.540 --> 18:32.540 But the fourth leg doesn't get triggered. 18:32.540 --> 18:38.220 There's kind of other two legs do exist for Bitcoin, right? 18:38.220 --> 18:41.500 People buy Bitcoin, an investment of money. 18:41.500 --> 18:44.340 Bitcoin is kind of an obvious common enterprise, right? 18:44.340 --> 18:48.740 Trying to make a store value or payment network. 18:48.740 --> 18:58.380 Most people are buying Bitcoin with the hope that the price of Bitcoin goes up. 18:58.380 --> 19:14.620 But the, they're saying it's not an identifiable team that's driving the value of Bitcoin and 19:14.620 --> 19:19.140 that it's derived from the efforts of others. 19:19.140 --> 19:22.220 It's like a commodity. 19:22.220 --> 19:33.780 It's like, if you buy a barrel of oil, people say, oh, well, no, that's not a security. 19:33.780 --> 19:39.860 No, is the value of oil in some very, very weird abstract way derived also from the 19:39.860 --> 19:40.860 efforts of others? 19:40.860 --> 19:51.620 Sure, sort of, but there's not like one producer of oil that has specific power over 19:51.620 --> 19:54.540 the characteristics of oil. 19:54.540 --> 19:56.780 There's many producers around the world. 19:56.780 --> 19:59.540 There's many users around the world. 19:59.540 --> 20:05.740 There's no real information asymmetry in oil that someone needs to come and disclose. 20:05.740 --> 20:15.980 And it's viewed, for example, that Bitcoin has also reached that point of decentralization, 20:15.980 --> 20:19.100 if not information asymmetry. 20:19.100 --> 20:26.940 So what are things that almost certainly are securities in the token space? 20:26.940 --> 20:35.420 Obviously, if I, we had said, if we have 6529, NFTs Inc, and I go out and say, 20:35.420 --> 20:40.420 hey, would you like to buy 10 of the 100 shares? 20:40.420 --> 20:42.580 I have this really great idea. 20:42.580 --> 20:46.420 I'm going to mint NFTs and Tweet about them. 20:46.420 --> 20:49.660 We're going to make lots of money together. 20:49.660 --> 20:52.540 That is a trivial security. 20:52.540 --> 20:56.820 It's an investment of money and a common enterprise and expectation of prices to be derived from 20:56.820 --> 20:58.580 the efforts of others, aka me. 20:58.580 --> 21:07.900 Where a lot of people go wrong is they say, oh, well, if we do this as a token, we're 21:07.900 --> 21:09.980 somehow going to get away from this, right? 21:09.980 --> 21:23.340 If we say, oh, we're going to mint 6529 Dow tokens, and they're going to get a 21:23.340 --> 21:35.060 share of the revenue from all the other NFTs 6529 mints, without going into great 21:35.060 --> 21:43.380 detail in the situation specific areas, that has risked that it's a token security. 21:43.380 --> 21:48.740 The fact that it's not specifically shares in the company doesn't change anything. 21:48.740 --> 21:52.340 It's an investment of money and a common enterprise expectation of profit to be derived by the 21:52.340 --> 21:53.340 efforts of others. 21:53.340 --> 22:01.380 The fact that I said it's a token, not shares in the company, doesn't really count for anything. 22:01.380 --> 22:10.460 So if there's only one thing you remember today, it's this. 22:10.460 --> 22:17.420 Remember these four prongs, it's like 15 words. 22:17.420 --> 22:23.740 And when you see someone offering something as of does this, is this likely to look like 22:23.740 --> 22:24.740 this, right? 22:24.740 --> 22:31.380 It's okay, well, so what does it matter if it's a security? 22:31.380 --> 22:39.820 Well it matters because if it is a security in the United States, and I'm going to summarize 22:39.820 --> 22:51.100 but this is effectively right, you either have to, A, register it with the Securities and 22:51.100 --> 22:53.060 Exchange Commission. 22:53.060 --> 23:06.900 B, sell it only to a certain set of sophisticated investors, or C, take advantage of the crowdfunding 23:06.900 --> 23:07.900 exemptions registration. 23:07.900 --> 23:10.340 These are your only options. 23:10.340 --> 23:16.580 There's no fourth option for practical purposes. 23:16.580 --> 23:25.540 So, who are these sophisticated investors who can buy unregistered securities? 23:25.540 --> 23:32.220 They fall into two categories, Accredited Investors and Qualified Purchasers. 23:32.220 --> 23:38.220 Accredited Investors is the one you hear about casually. 23:38.220 --> 23:44.060 Online, it's the bigger category, it's the more common category, it's the lower standards 23:44.060 --> 23:50.580 category, Qualified Purchasers is a more institutional category. 23:50.580 --> 24:06.500 Don't 100% quote me on this, but the, the, I think every Qualified Purchaser is also 24:06.500 --> 24:11.620 an Accredited Investor, but not all Accredited Investors are Qualified Purchasers, I believe 24:11.620 --> 24:12.620 that's correct. 24:12.620 --> 24:16.820 Let's look at that Accredited Investor standards. 24:16.820 --> 24:21.020 You have to meet one of the standards, not all of them. 24:21.020 --> 24:28.060 You have annual income over $200,000 for the last two years or $300,000 if you include 24:28.060 --> 24:34.220 your spouse or partner, and you believe, you have a reasonable belief that supplies for 24:34.220 --> 24:36.380 the upcoming years. 24:36.380 --> 24:44.700 Or you have a net worth of over a million dollars excluding your primary residence. 24:44.700 --> 24:50.820 So excluding your home equity. 24:50.820 --> 24:57.660 This can also be jointly with your spouse or partner. 24:57.660 --> 25:03.020 Or, you meet certain professional criteria. 25:03.020 --> 25:09.100 You hold one of the securities industry certifications licenses that you've studied and passed the 25:09.100 --> 25:13.420 test work, Series 765 or E2. 25:13.420 --> 25:20.980 You're a high level officer, director in the company that's selling the security. 25:20.980 --> 25:27.300 You're a client in the family office, it's itself a credit investor. 25:27.300 --> 25:30.820 Or for in a fund, you're a knowledgeable employee of the fund. 25:30.820 --> 25:35.580 Or there's some other legal rules for legal entities. 25:35.580 --> 25:45.340 But basically, it is you're rich or kind of rich, 25:45.340 --> 25:48.500 or, you have financial services expertise. 25:48.500 --> 25:58.100 A Qualified Purchaser is similar type of things but with higher numbers, 5 million up to 25 million. 25:58.100 --> 26:01.740 We can ignore it for the purposes of discussion. 26:01.740 --> 26:13.340 And the theory here is, either you're rich, in which case if you go buy an unregistered 26:13.340 --> 26:23.940 security and you want given all the information you needed to properly evaluate it, 26:23.940 --> 26:38.460 and it turns out that it was risky and it turns out that you lose your money. 26:38.460 --> 26:42.580 Well, it's okay, you're rich. 26:42.580 --> 26:45.420 You can survive it. 26:45.420 --> 26:47.980 That's theory one. 26:47.980 --> 26:59.900 Theory two is, well maybe you're not rich but maybe you're like, have deep expertise in the financial services 26:59.900 --> 27:02.940 industry or meet the professional criteria 27:02.940 --> 27:07.140 and so you can take care of yourself. 27:07.140 --> 27:11.060 You can make the correct decisions. 27:11.060 --> 27:18.100 It is a paternalistic model of regulation. 27:18.100 --> 27:23.140 It divides the world into two buckets. 27:23.140 --> 27:30.060 It divides the world into people who can make these decisions by themselves and either have 27:30.060 --> 27:36.900 the expertise to make good decisions or the financial wherewithal not to be wrecked by 27:36.900 --> 27:37.900 these decisions. 27:37.900 --> 27:46.540 Which is not to say that people who make $200,000 a year couldn't buy an unregistered, 27:46.540 --> 27:53.340 a sufficiently large amount of an unregistered security to also destroy their lives financially. 27:53.340 --> 28:02.380 It's not actually the case that they won't do that. 28:02.380 --> 28:07.620 And then people will you say look, it's too risky for you. 28:07.620 --> 28:16.420 You need more protection, more information, less risk of information asymmetry. For people 28:16.420 --> 28:20.740 to be able to sell this to you, 28:20.740 --> 28:31.500 they need to come in and disclose a lot more information. 28:31.500 --> 28:45.740 The... I think this was sort of uncontroversial a few decades ago. 28:45.740 --> 28:55.900 And with the democratization of finance in general, the internet in general, 28:55.900 --> 29:02.700 and then really much more so with crypto. 29:02.700 --> 29:12.740 I think there's an interesting debate on this. This debate, by the way, tends to lean one way 29:12.740 --> 29:16.540 when prices are going up and a different way when prices are going down. 29:16.540 --> 29:25.500 But there's an interesting debate on if this is for the good of the people who are not 29:25.500 --> 29:27.900 Accredited Investors or if it's bad for them, you know. 29:27.900 --> 29:36.980 Does it exclude them from exciting and potentially valuable investment opportunities, or does it 29:36.980 --> 29:41.020 protect them from scams? 29:41.020 --> 29:49.300 Is this excellent protection for the unsophisticated or is this a way for the rich to get richer 29:49.300 --> 29:57.060 and everyone else not to have access to the same opportunities? 29:57.060 --> 30:11.580 There is also, you know, some people who feel that this legislation is no longer exactly right. 30:11.580 --> 30:13.580 Many states allow gambling. 30:13.580 --> 30:18.860 They allow lotteries. 30:18.860 --> 30:22.900 Those things are obviously bad for the unsophisticated. 30:22.900 --> 30:29.580 They allow anyone to participate in them. 30:29.580 --> 30:32.940 Seems strange that this would be allowed. 30:32.940 --> 30:37.620 They're allowed to invest, quote unquote, in lottery tickets, but they're not allowed 30:37.620 --> 30:41.460 to invest in potentially, a bad investment. 30:41.460 --> 30:48.100 We're not going to conclude on this topic, but these are the types of issues that are... 30:48.100 --> 30:49.100 Right. 30:49.100 --> 30:53.700 So this is who is allowed to purchase unregistered securities. 30:53.700 --> 30:56.620 Now what does registration mean? 30:56.620 --> 30:59.420 Basically you have to file for an IPO. 30:59.420 --> 31:04.460 It's that type of, well, we have to make an S1 as a registration statement. 31:04.460 --> 31:06.620 You send it to the SEC. 31:06.620 --> 31:07.620 They read it. 31:07.620 --> 31:08.620 They ask you questions. 31:08.620 --> 31:09.620 They ask you to make changes. 31:09.620 --> 31:10.620 You send it back. 31:10.620 --> 31:11.620 They read it. 31:11.620 --> 31:13.260 So on and so forth. 31:13.260 --> 31:21.980 And then you can sell, generally, shares to the public or other financial instruments, which 31:21.980 --> 31:22.980 generally shares. 31:22.980 --> 31:27.100 And then you have a whole bunch of ongoing reporting requirements. 31:27.100 --> 31:31.020 When do you have to file financial statements with the SEC? 31:31.020 --> 31:33.820 What things do you need to disclose? 31:33.820 --> 31:35.620 What are your officers doing? 31:35.620 --> 31:37.740 Are they buying or selling shares? 31:37.740 --> 31:38.940 When are they trading? 31:38.940 --> 31:41.340 When are they not trading? 31:41.340 --> 31:44.940 All of these things are actually pretty good things. 31:44.940 --> 31:59.820 But, they are things that are hard to do in a natively crypto context. 31:59.820 --> 32:05.180 But they're also expensive. 32:05.180 --> 32:11.820 Even for a fairly small company preparing to file, or do a registration, will be a seven 32:11.820 --> 32:16.780 figure cost and probably seven figures of annual compliance. 32:16.780 --> 32:27.220 And so you can't really be a person who wants to run a half million dollar common enterprise 32:27.220 --> 32:29.420 and practically speaking, file. 32:29.420 --> 32:33.500 So they say, well, okay, 32:33.500 --> 32:34.500 we have a solution for that, 32:34.500 --> 32:38.020 that's the crowdfunding exemption, 32:38.020 --> 32:39.500 and this is Reg A. 32:39.500 --> 32:46.980 Reg A is the exemptions to registration. 32:46.980 --> 33:01.300 But there was a specific one done for crowdfunding. 33:01.300 --> 33:13.180 You can do effectively a light form of registration if you're crowdfunding within certain hurdles, 33:13.180 --> 33:17.340 20 million and 75 million respectively. 33:17.340 --> 33:25.260 And so you don't have to go through the whole full regulatory regime of being a public company 33:25.260 --> 33:27.820 like Google. 33:27.820 --> 33:31.420 You do have some reporting requirements, you can't just go out there and put your hand 33:31.420 --> 33:32.420 up and say, hey, look, I'm crowdfunding, 33:32.420 --> 33:33.420 I don't have to do anything. 33:33.420 --> 33:35.660 That's not how it works. 33:35.660 --> 33:36.820 But it's a lighter form, 33:36.820 --> 33:40.060 it's a significantly lighter registration form. 33:40.060 --> 33:55.620 So, practically speaking, if something is a security, you can sell it using one of three 33:55.620 --> 34:06.020 ways. One, to Acredited Investors and Qualified Purchasers. Two, to the public, host registration. 34:06.020 --> 34:14.340 Three, to the public under the crowdfunding exemptions, but within certain limits on how 34:14.340 --> 34:18.500 much you can raise. 34:18.500 --> 34:23.700 These are, or if it's not a security, you don't have to do any of these things, but then it 34:23.700 --> 34:31.580 really has to not be a security. 34:31.580 --> 34:37.060 On this section, this is what I would like you to remember. 34:37.060 --> 34:45.460 The Howey Test and these three models for securities, Acredited Investors, registration, 34:45.460 --> 34:47.660 Reg A crowdfunding exemptions. 34:47.660 --> 34:54.660 Now, how does this translate to real life? 34:54.660 --> 34:57.660 How does this translate to what people do? 34:57.660 --> 35:09.460 Well, the primary model for financing technology startups, remains venture capital firms. 35:09.460 --> 35:13.020 What are venture capital firms? 35:13.020 --> 35:25.500 Venture capital firms are investment funds who have a general partner who is a company, 35:25.500 --> 35:33.740 but you can think of it as the people running the fund, and limited partners, who are the 35:33.740 --> 35:34.740 investors. 35:34.740 --> 35:40.380 The investors and venture capital funds are Accredited Investors or Qualified Purchasers 35:40.380 --> 35:45.020 because units of a venture capital fund are definitely securities. 35:45.020 --> 35:49.540 And who are these famous institutional investors? 35:49.540 --> 36:03.900 Well, interestingly, the largest institutional investors in the world are pension funds. 36:03.900 --> 36:09.900 So, it's kind of funny that like, when you think of institutional investors and they're very big 36:09.900 --> 36:18.260 and not like a common person, it's primarily the retirement savings of school teachers 36:18.260 --> 36:25.180 and firefighters that have been aggregated, but because they have been aggregated, a very large 36:25.180 --> 36:30.260 number, will then have people managing those retirement savings. 36:30.260 --> 36:38.980 A one of the things those people do is invest those retirement savings into venture capital 36:38.980 --> 36:45.980 funds will then go and invest in the service. 36:45.980 --> 37:02.020 Other buckets of typical investors, sovereign wealth funds, some corporate treasurers, family 37:02.020 --> 37:11.300 offices, which is just a fancy word for effectively, an investment team for a really, really rich 37:11.300 --> 37:12.300 family. 37:12.300 --> 37:16.660 An ultra high net worth or a high net worth individuals. 37:16.660 --> 37:20.460 But really the biggest investor in venture capital funds tends to be pension funds, 37:20.460 --> 37:23.860 they have more money than any of these people. 37:23.860 --> 37:38.340 So VCs are both allowed to invest in unregistered securities and also have the orientation skill, 37:38.340 --> 37:46.020 mental desire to invest in technology startups. 37:46.020 --> 37:58.340 The... most of the, pretty much all of the infrastructure firms in NFT space, all of the gaming firms 37:58.340 --> 38:05.860 in NFT space, many of the metaverse firms in NFT space and some of the project teams 38:05.860 --> 38:15.940 in the NFT space, Yuga, dual, etc etc, have raised money from venture capital funds. 38:15.940 --> 38:18.300 Why? 38:18.300 --> 38:25.860 Because it is safe, easy and fast. 38:25.860 --> 38:34.900 Venture capital firms can make a decision fairly quickly, and by making that decision, 38:34.900 --> 38:41.380 they can write a cheque, for $2, $5, $10, $20 million. 38:41.380 --> 38:45.540 You do not, you can sell them normal equity, 38:45.540 --> 38:54.740 you don't have to go through any complicated convolutions of designing some unique instrument 38:54.740 --> 38:56.740 to make sure that it's not a security. 38:56.740 --> 39:06.300 You know, say, look, you can buy shares in our company and you, the entrepreneur, don't 39:06.300 --> 39:11.660 have to worry about any regulatory risk. 39:11.660 --> 39:23.300 They're very much allowed to buy shares in your company, and this practical aspect tends 39:23.300 --> 39:29.340 to be fairly dominant in how these firms are financed because most of the other ways 39:29.340 --> 39:34.540 you can do it, are actually pretty complicated. 39:34.540 --> 39:46.220 You're certainly, you're certainly not going to go registered to go public as a startup, 39:46.220 --> 39:47.220 right? 39:47.220 --> 39:50.420 You don't have the capacity or the money, you're not right, mature enough. 39:50.420 --> 39:57.420 So this tends to be if you're going to sell a security, a very easy and fast way to do 39:57.420 --> 39:58.420 it. 39:58.420 --> 40:00.620 What else are we seeing? 40:00.620 --> 40:09.900 Well, we see DAOs and DAOs is one of my pet peeves in the space because DAO literally 40:09.900 --> 40:12.540 means something very different. 40:12.540 --> 40:19.900 It says it right there in its name, Decentralized Autonomous Organization. 40:19.900 --> 40:27.620 DAOs were meant to be something like smart contracts that engaged in economic activity. 40:27.620 --> 40:35.380 They were actually decentralized and autonomous when first thought of in this way. 40:35.380 --> 40:39.060 Today people use the word now very differently. 40:39.060 --> 40:43.380 They use it as a group of people doing something. 40:43.380 --> 40:52.180 A group of people doing something is neither decentralized nor is it autonomous. 40:52.180 --> 40:58.900 It is, a group of people doing something. 40:58.900 --> 41:05.700 And when you have a group of people doing something, if they're not careful, one of the 41:05.700 --> 41:11.900 things they will discover they are doing, is selling unregistered securities to people. 41:11.900 --> 41:19.940 So my conceptual problems with the way that terms are being used aside, what do we see 41:19.940 --> 41:23.100 in terms of DAOs in the NFT space? 41:23.100 --> 41:33.500 Well, we see DAOs that are effectively correctly legally organized and compliant. 41:33.500 --> 41:40.540 These DAOs usually have registered a company, an LLC. 41:40.540 --> 41:51.860 They usually KYC check the information and write down your name and social security number 41:51.860 --> 41:55.700 and address of everyone investing. 41:55.700 --> 42:05.740 And they ask them to provide documentation or self-certification that they are accredited 42:05.740 --> 42:06.740 investors. 42:06.740 --> 42:13.260 A good example of this is Flamingo DAO. 42:13.260 --> 42:15.900 Flamingo DAO does all these things. 42:15.900 --> 42:23.740 It is a DAO, they call themselves a DAO, but effectively they're a company. 42:23.740 --> 42:34.740 And effectively they comply with similar hurdles for their members as venture capital funders. 42:34.740 --> 42:40.020 There are some differences in how they make decisions. 42:40.020 --> 42:47.100 All the down members can contribute to decisions, where the venture capital fund investors typically 42:47.100 --> 42:49.980 do not contribute to the decisions. 42:49.980 --> 42:57.100 But from a legal financial infrastructure perspective, it's very, very similar. 42:57.100 --> 43:07.500 Then there's what the NFT projects tend to call DAOs, which are all over the map, very 43:07.500 --> 43:10.500 poorly organized. 43:10.500 --> 43:15.900 I think in many cases very poorly thought out. 43:15.900 --> 43:28.940 And some of them are going to get in trouble because they are in fact, the type of activity 43:28.940 --> 43:32.620 that really should only be opened under US law, without judging whether it's right or 43:32.620 --> 43:39.180 wrong, to Accredited Investors and they're not limiting to Accredited Investors. 43:39.180 --> 43:51.060 And some of them are not going to get in trouble with the SEC in any way, but are kind of lying 43:51.060 --> 43:53.500 to the members. 43:53.500 --> 44:03.580 You know, you see DAOs of the type that say, oh, you're a DAO, and you're in the DAO if you own the 44:03.580 --> 44:04.740 projects NFTs. 44:04.740 --> 44:11.460 But the equity is owned by someone else, the governance of that equity is owned by someone 44:11.460 --> 44:14.660 else, the decisions are all made by someone else 44:14.660 --> 44:20.940 and sure, there's a DAO council and they'll ask the people their opinions here or there. 44:20.940 --> 44:27.420 Well, I mean, that's no different than having a customer advisory board. 44:27.420 --> 44:34.500 It's just if you told people, if you bought this NFT, you're part of our customer advisory 44:34.500 --> 44:38.860 board or community advisory board. 44:38.860 --> 44:44.300 It doesn't sound as appealing as being part of the DAO. 44:44.300 --> 44:51.260 And so what's going on there is I think they're misleading people for people to attribute more 44:51.260 --> 44:55.340 value to their token. 44:55.340 --> 44:59.020 And it's not great. 44:59.020 --> 45:09.060 I think it's going to be very hard for most non-legally organized DAOs to operate in a 45:09.060 --> 45:12.580 compliant manner the way they're doing it. 45:12.580 --> 45:17.340 I'm not going to judge any specific project. 45:17.340 --> 45:20.900 I don't know all the facts of an expert projects. 45:20.900 --> 45:28.780 But I believe there's certain quote unquote DAOs operating in the space that effectively, are 45:28.780 --> 45:30.820 violating security law. 45:30.820 --> 45:37.980 They might not be doing it on purpose, but they are effectively doing it. 45:37.980 --> 45:39.540 Well, Token Offerings. 45:39.540 --> 45:48.140 This is a very big deal in the quote unquote ICO era of 2017-2018, where everyone and their 45:48.140 --> 45:55.180 brother, mother, sister, parent was going around saying, well, we're going to do ICO. 45:55.180 --> 45:58.260 We're going to sell you this token, 45:58.260 --> 46:00.660 it will fund our operation, 46:00.660 --> 46:12.300 and we're going to make the "X for Y", the token for doctors to organize their medical practices, 46:12.300 --> 46:15.380 or what have you. 46:15.380 --> 46:22.820 The reality is the vast majority of these ICOs were actually securities, 46:22.820 --> 46:30.540 and eventually the SEC cracked down on them, 46:30.540 --> 46:35.500 and people stopped doing it because they don't want to get in trouble. 46:35.500 --> 46:46.500 I believe a typical fungible token ICO is very hard to do as a not a security. 46:46.500 --> 46:55.140 Or if I want to be more precise, it is very hard to make it not a security, but also achieve 46:55.140 --> 47:05.340 the objectives that the organizer of the token is likely trying to achieve. 47:05.340 --> 47:08.780 What do I mean by that? 47:08.780 --> 47:23.020 Well, most of the time people who are doing an ICO are trying to raise money to do something. 47:23.020 --> 47:24.020 They have an idea. 47:24.020 --> 47:30.020 They woke up one morning and said, oh, I want to do, execute this idea, 47:30.020 --> 47:35.220 I know I need a team to do it and in order to get that team, I need money to hire that 47:35.220 --> 47:40.580 team and to do marketing and what have you. 47:40.580 --> 47:51.180 And because of this, I need to raise money. 47:51.180 --> 48:00.260 The reality is most things of that genre are going to end up meeting the Howey Test. 48:00.260 --> 48:06.940 You're going to sell the token to people who are going to buy it with an expectation 48:06.940 --> 48:07.940 of profit. 48:07.940 --> 48:11.260 It's definitely an investment of money. 48:11.260 --> 48:15.220 There's almost certainly a common enterprise. 48:15.220 --> 48:24.900 And, it is most likely reliant on the efforts of others, namely you. 48:24.900 --> 48:38.140 And so the issue here is you can make a token offering that is not a security, 48:38.140 --> 48:41.180 it's just unlikely that you want to. 48:41.180 --> 48:48.460 But that's usually where the problem was, not that it's impossible to do it. 48:48.460 --> 48:53.420 It's just that once you do it, it's not likely to meet your objectives because your objectives 48:53.420 --> 48:56.700 usually work. 48:56.700 --> 49:03.660 Of the... in the genre of, I want to build something and I need money to build something and I'm 49:03.660 --> 49:08.740 the person who's going to build that thing that I'm trying to build, 49:08.740 --> 49:18.900 and that ends up generally likely not being sufficiently decentralized to not be a security. 49:18.900 --> 49:24.780 So I'm skeptical of most token offerings not being securities. 49:24.780 --> 49:28.980 Now, NFT sales, this is new. 49:28.980 --> 49:30.060 This is very interesting, 49:30.060 --> 49:36.380 and I suspect there is a little bit more fertile ground here to do it correctly while 49:36.380 --> 49:43.980 also, plenty of pitfalls to do it incorrectly. 49:43.980 --> 49:48.260 People can sell NFTs, which is underlying there's a form of token. 49:48.260 --> 49:50.340 And do all types of things. 49:50.340 --> 49:51.900 It could be a piece of work; 49:51.900 --> 49:52.900 I'm an NFT photographer, 49:52.900 --> 49:54.860 I sold a piece of work. 49:54.860 --> 49:59.500 It could be a PFP, then a PFP process. 49:59.500 --> 50:04.700 It could be a token that gives you some type of utility in a game or application, 50:04.700 --> 50:07.940 there are many reasons. 50:07.940 --> 50:15.580 Generally, if it's this type of thing like I just described, but they are buying something 50:15.580 --> 50:19.540 and that thing that they're buying is an object, 50:19.540 --> 50:24.860 but if it was sold pre tokens, I went to the gallery, 50:24.860 --> 50:30.540 I bought a painting. 50:30.540 --> 50:35.220 I went to the real estate agent, I bought a piece of land. 50:35.220 --> 50:41.100 These things are not securities. 50:41.100 --> 50:43.620 These things are perfectly fine as financing methods. 50:43.620 --> 50:49.900 These things are income or revenue to the person selling them to you, 50:49.900 --> 50:54.260 and they're not a financial instrument, right? 50:54.260 --> 50:57.220 Where people get in trouble though, and how I think people are going to get in trouble 50:57.220 --> 50:59.220 with NFts is, 50:59.220 --> 51:06.340 they say, oh, yeah, you buy this cool NFT, 51:06.340 --> 51:17.460 and it's in the, it will have a share of the project DAO and the project DAO is going 51:17.460 --> 51:27.540 to get 50% of the royalties from all the trades that happen later with the NFTs 51:27.540 --> 51:33.980 and also 10% of the primary sales of future NFTs so that DAO is going to be valuable and 51:33.980 --> 51:35.780 you'll have a share of the Dow, 51:35.780 --> 51:36.780 well, congratulations, 51:36.780 --> 51:40.660 you've made a security. 51:40.660 --> 51:45.060 The real life equivalent would be you go to a gallery and you say, and the gallery is 51:45.060 --> 51:46.900 like, oh, I'm going to sell you this painting, 51:46.900 --> 51:52.020 and when you buy this painting and have a really beautiful painting, it's by G. Taring. 51:52.020 --> 51:57.340 and also, I am going to give you one 10,000th of the profit of my gallery for the rest of 51:57.340 --> 52:00.620 eternity. 52:00.620 --> 52:05.700 That part that I'm going to give you one 10,000th of my profit of my gallery for the rest of 52:05.700 --> 52:17.940 eternity, that part turns that key card in painting into security. 52:17.940 --> 52:21.100 We don't have case law in this area yet. 52:21.100 --> 52:27.460 There hasn't been enforcement in this area yet. 52:27.460 --> 52:32.740 I do think that though, both of these statements are going to be true. 52:32.740 --> 52:40.620 I think there's a lot of opportunities to have effectively community based funding that 52:40.620 --> 52:50.020 is not a security in a way that is hard to do with fungible tokens because you can solve 52:50.020 --> 52:54.060 something that has value in and of itself, whereas a fungible token, 52:54.060 --> 52:57.660 it's very hard to have value in and of itself. 52:57.660 --> 53:07.460 If XCOPY, they did an example, wants to do all types of projects in the NFT field, 53:07.460 --> 53:19.860 and XCOPY sells a piece of one of one art for 100 ETH or 666 thrusters for however 53:19.860 --> 53:27.260 specific result or an open edition for one ETH. 53:27.260 --> 53:28.260 This is fine. 53:28.260 --> 53:34.180 None of these things are securities. 53:34.180 --> 53:36.380 XCOPY will have earned a lot of money. 53:36.380 --> 53:46.780 It will have been given to XCOPY by people who broadly believe in the XCOPY brand, universe, 53:46.780 --> 53:47.780 etc. 53:47.780 --> 53:52.980 They might even be expecting a profit, but they're not going to call an enterprise with XCOPY. 53:52.980 --> 53:55.260 They own an XCOPY painting. 53:55.260 --> 54:00.340 XCOPY is off to go do something else, they're not going to call an enterprise together. 54:00.340 --> 54:07.340 So, I believe this ability to reach out to your community, customers, fans, whatever you 54:07.340 --> 54:13.340 want to call them, and sell them tokens directly that are, in this case, non-fungible, is a 54:13.340 --> 54:17.940 viable fundraising method here. 54:17.940 --> 54:21.860 I also believe quite a few people are going to screw it up. 54:21.860 --> 54:29.100 They are going to accidentally create securities or in some cases on purpose, but I think in 54:29.100 --> 54:39.820 most cases, accidentally, and they will have some enforcement in a couple years against some 54:39.820 --> 54:42.020 of these accidental ones. 54:42.020 --> 54:46.900 They're not going to be able to chase around all of them because there's a lot of them, 54:46.900 --> 54:49.460 but they don't generally need to chase around a lot of them, 54:49.460 --> 54:52.260 they just go after a handful of them. 54:52.260 --> 54:57.700 And what happened last year was, they went after a handful of them and then everyone got worried and 54:57.700 --> 55:04.100 there was less, there was less, fewer ICOs after them. 55:04.100 --> 55:12.660 And so, to me, this is the most interesting and new area in the financing space. 55:12.660 --> 55:18.380 Is there a way to use NFTs or, what are the ways to use NFTs in a compliant manner? 55:18.380 --> 55:21.580 They went, I don't believe in all these things. 55:21.580 --> 55:25.220 I get it, I get it, and the rules should change. 55:25.220 --> 55:31.020 Yeah, I actually think the Howey Test needs to be updated or the Acreditor Investor rules 55:31.020 --> 55:36.860 need to be updated to account for the types of Web3 projects we're seeing. 55:36.860 --> 55:43.340 I do not believe that if you're spending points to ETH and you get part of the royalties 55:43.340 --> 55:49.500 of an NFT DAO, you actually need to have a million dollars in net worth to be able to do it. 55:49.500 --> 55:54.020 But that's going to involve changing the regulations of the United States and I don't 55:54.020 --> 55:56.220 think it's going to happen imminently. 55:56.220 --> 55:58.820 It maybe will happen in a few years, but it's not the case today. 55:58.820 --> 56:08.660 As I want to say, well, I live in, making some, I live in Kenya, these things don't 56:08.660 --> 56:09.660 apply in Kenya. 56:09.660 --> 56:11.820 Okay, they might not. 56:11.820 --> 56:16.340 The SEC rules obviously do not apply to you in Kenya. 56:16.340 --> 56:20.820 I don't know what rules do apply in Kenya though, so you should check. 56:20.820 --> 56:26.140 And then you probably have to be a little bit careful if you have US participants that 56:26.140 --> 56:28.500 are practically, you have an enforcement risk. 56:28.500 --> 56:32.860 Probably if you have a small project in Kenya, that would have been a security under US securities law, 56:32.860 --> 56:35.980 but under Kenya, it's a 50 ETH project. 56:35.980 --> 56:38.060 No, it's probably practically going to bother you. 56:38.060 --> 56:40.020 This is not legal advice. 56:40.020 --> 56:46.660 But if it becomes large and huge and successful, I don't know, you never know, the US regulatory 56:46.660 --> 56:49.460 authorities can be quite globally ambitious at times. 56:49.460 --> 56:56.420 So, you still need to be careful, my suggestion. 56:56.420 --> 57:00.660 And I think there are interesting things to explore that are not securities. 57:00.660 --> 57:02.580 So I am going to wrap up here. 57:02.580 --> 57:06.500 It's been about an hour, so I can take some questions. 57:06.500 --> 57:11.500 So let's take it again from the beginning. 57:11.500 --> 57:17.300 Step one, is it a security or not? 57:17.300 --> 57:22.980 If it is not, right, you can sell it to anyone. 57:22.980 --> 57:28.620 If it is, you either need to do an IPO, which practically speaking, you're not going to 57:28.620 --> 57:34.780 do, or you need to sell it only to Accredited Investors, or, you need to take advantage of 57:34.780 --> 57:42.500 the Reg A exemption for crowdfunding, which is also not totally none, not totally trivial. 57:42.500 --> 57:52.740 And so what that means in practice is because of these limitations imposed by the United 57:52.740 --> 58:05.780 States, even in this highly decentralized world, most things are funded by VCs. 58:05.780 --> 58:10.220 It remains difficult, I believe, to do a compliant, fungible token offering. 58:10.220 --> 58:17.900 It is very possible to do a non-compliant NFT offering. 58:17.900 --> 58:27.060 But there might be interesting ways to start building communities with NFTs that are not 58:27.060 --> 58:40.060 securities, and that do lead to a more decentralized model of financing than, than... 58:40.060 --> 58:48.060 what we have seen without non-fungible tokens. 58:48.060 --> 58:59.140 So, let's go to questions, and hopefully I have not absolutely bored everyone to death. 58:59.140 --> 59:08.060 This is, I think, the least artsy session we're going to do, but I do think it is important. 59:08.060 --> 59:32.620 I need to open Discord so I can get fed the questions. 59:32.620 --> 59:39.420 (63 seconds pause) 59:39.420 --> 59:50.620 00:20.620 --> 00:23.620 The first three questions are about Nouns. 00:26.620 --> 00:31.620 We're starting off with the hard questions. 00:32.620 --> 00:36.620 Let me read all three questions and I'll try and answer them together. 00:36.620 --> 00:39.620 Can you speak about the Nouns DAO model? 00:39.620 --> 00:44.620 It seems like the most sensible and successful type of DAO model I've seen 00:44.620 --> 00:49.620 and seems to circumvent the securities issues put forth. 00:50.620 --> 00:54.620 Would you consider Nouns an autonomous smart contract 00:54.620 --> 00:57.620 or a group of people working together? 00:57.620 --> 01:01.620 Are Nouns SEC compliant in your point of view? 01:02.620 --> 01:06.620 Well, the Noun smart contract is for sure a smart contract, 01:06.620 --> 01:09.620 it's for sure an autonomous smart contract. 01:09.620 --> 01:14.620 Creating a Noun every day until eternity. 01:15.620 --> 01:24.620 That part is fairly DAO-like from the way that I think of DAOs, the old fashioned way. 01:32.620 --> 01:37.620 The way the treasury is allocated is not autonomous, right? 01:37.620 --> 01:49.620 There are DAO proposals and people who are holders of DAOs, vote on the proposals 01:49.620 --> 01:56.620 and they vote to send it out to space or to buy skateboards for kids or what have you, 01:56.620 --> 01:59.620 generally lovely things that they vote for. 01:59.620 --> 02:08.620 But they're not autonomous. An autonomous thing would not have humans in the decision making, right? 02:09.620 --> 02:14.620 How Bitcoin allocates block rewards is autonomous. 02:15.620 --> 02:24.620 You know it's an autonomous because you don't have to get a bunch of people every ten minutes 02:24.620 --> 02:29.620 to vote if this person needs to get a block reward or if this other person who's got a block reward, 02:29.620 --> 02:33.620 if they've made a nice proposal, or, so on. 02:39.620 --> 02:47.620 Are Nouns or some parts of Nouns SEC compliant? I can't answer that question, 02:47.620 --> 02:56.620 and I'm not going to answer that question for more or less anything because I'm not qualified to answer that question. 02:56.620 --> 03:01.620 I'm not an attorney, I'm not a securities attorney. 03:01.620 --> 03:10.620 I would feel comfortable, I guess, saying, you know, if XCOPY mints a one-of-one piece of art 03:10.620 --> 03:18.620 and that piece of art is just that piece of art, that's not a security. I'm pretty comfortable saying that. 03:18.620 --> 03:25.620 But what I don't want to get into, and if you notice, I'll never say this on Twitter either, 03:25.620 --> 03:33.620 is starting to get into the more ambitious projects and certainly projects that put the word DAO in their names 03:33.620 --> 03:41.620 and then having to fine-tune the differences between one or another or the third or the fourth or the fifth, 03:41.620 --> 03:44.620 but what about this one or what about the other one? 03:47.620 --> 03:56.620 It's not my position to come out and say, oh, no, 6529 said this, whatever project is not about nouns, right? 03:56.620 --> 04:07.620 So, out of giving the exact same answer, whatever people had asked this question of. 04:07.620 --> 04:17.620 And so, even my non-answer, don't take it as an answer, don't take it as like, oh, 6529 didn't say that this wasn't a security, 04:17.620 --> 04:21.620 it means you think it is a security. That's not what I'm saying either. 04:21.620 --> 04:27.620 I am saying I've thought about this topic very, very carefully and I've thought about it before this class, 04:27.620 --> 04:33.620 I've thought about it for the last year and a half on my Twitter feed and you will never find a Tweet that says, 04:33.620 --> 04:38.620 I think this project is a security or I think this project is not a security. 04:38.620 --> 04:49.620 Because, if I get into being the securities regulator, well, that's not my job 04:49.620 --> 04:53.620 and I don't have all the information, I don't even have all the knowledge. 04:53.620 --> 05:00.620 And so, I don't want to make wrong decisions in either direction as a matter of policy. 05:00.620 --> 05:07.620 I don't want people like, oh, I don't think it's a security that it turns out it is and someone says, well, gosh, 6529 told us it was a security 05:07.620 --> 05:10.620 and then I bought it because I didn't think it was regulatory risk. 05:10.620 --> 05:18.620 And now, Gary Gensler thinks that whatever DAO is a security, 6529 has led me astray. 05:18.620 --> 05:20.620 I do not want to lead you astray. 05:20.620 --> 05:22.620 And I certainly don't want to do the opposite either. 05:22.620 --> 05:29.620 Like, if something turns out that it's not a security and I'm worried a little bit, but maybe I'm too conservative, 05:29.620 --> 05:32.620 I certainly don't want to say something inappropriate on a project. 05:32.620 --> 05:37.620 So, I'm just not going to answer that question for any project as a matter of policy. 05:37.620 --> 05:40.620 I've already seen something come in for prison and company. 05:40.620 --> 05:42.620 I'm not going to answer for that either. 05:42.620 --> 05:51.620 But part I do feel comfortable answering about the Nouns DAO, which is not part of the Howey Test. 05:51.620 --> 05:58.620 Right, per se, the Nouns DAO in aggregate is not 100% autonomous. 05:58.620 --> 06:03.620 So, the Nouns do vote on how to spend their pressure. 06:03.620 --> 06:05.620 So, that part requires humans. 06:05.620 --> 06:07.620 That doesn't mean it's a security, 06:07.620 --> 06:08.620 doesn't mean it's not a security. 06:08.620 --> 06:11.620 It just says it's a smart contract is taught. 06:11.620 --> 06:19.620 And I think that is fairly close to a DAO the way I used to think about. 06:19.620 --> 06:21.620 All right, next question. 06:21.620 --> 06:29.620 Will the way the US handles NFT projects legally be followed by the rest of the world or can other countries do their own things? 06:29.620 --> 06:32.620 I think it's going to be a mix. 06:32.620 --> 06:40.620 I think the general US policy on securities tends to be more restrictive than most of the rest of the world. 06:40.620 --> 06:42.620 I think that's going to continue. 06:42.620 --> 07:00.620 I think most of the rest of the world is more principles, no, 07:00.620 --> 07:11.620 less principles based and only principles and like good principles or bad principles. 07:11.620 --> 07:17.620 I think it is more prescriptive on what's a security and what's not a security, 07:17.620 --> 07:19.620 and I suspect that's not going to change. 07:19.620 --> 07:22.620 Whereas the US approach tends to be more principles based. 07:22.620 --> 07:24.620 I think that's not going to change either. 07:24.620 --> 07:34.620 So I don't think there's going to be some kind of end-to-end global convergence on this topic. 07:34.620 --> 07:38.620 What is your take on Gary Gensler refusing to allow spot BTC EFTs, 07:38.620 --> 07:51.620 and just stalling any project. Wall Street protection delaying cryptos for CBDC adoption, can't seem to see any logical reason? 07:51.620 --> 07:54.620 I don't know, I mean, Gary likes BTC. 07:54.620 --> 08:01.620 So Gary might not like, Gary as far as I can tell, is something close to Bitcoin Maxion. 08:01.620 --> 08:09.620 So I don't think the reason is Gary doesn't like BTC, because if there's one crypto that he does like, 08:09.620 --> 08:15.620 it is in fact BTC. 08:15.620 --> 08:36.620 What I think the SEC's official position is, is something along the lines of, it's still not comfortable with the way the BTC spot markets are working. 08:36.620 --> 08:40.620 They might be wrong. 08:40.620 --> 08:58.620 They might be right. They might be wrong, but in a way that it is because of their own intellectual biases or maybe they see some things we don't. 08:58.620 --> 09:12.620 I mean, the crypto market participants, institutional participants have not exactly covered themselves in glory, 09:12.620 --> 09:14.620 this cycle. 09:14.620 --> 09:35.620 So, I don't know. I don't want to judge. My guess is, my guess is that they should approve one and they're not. 09:35.620 --> 09:47.620 But I wouldn't like, put my hand 100% in the fire that I'm 100% certain that they're wrong. 09:47.620 --> 09:49.620 I think they're wrong but I'm not sure they're wrong. 09:49.620 --> 10:00.620 So there might be, there might be information that we don't have, 10:00.620 --> 10:06.620 answers to. 10:06.620 --> 10:09.620 But we don't, sorry, we don't have visibility into. 10:09.620 --> 10:12.620 But they do. I don't know. 10:12.620 --> 10:22.620 Okay. How do you avoid. Can you avoid security status if the "work" is being done by the person receiving the income instead of by the "work" of others? 10:22.620 --> 10:27.620 I'm a little concerned because the question came with quotes around the word work. 10:27.620 --> 10:36.620 So I'm assuming it just I'm reading without quotes or not saying like, oh, fake work or pretending that the work is being done by others. 10:36.620 --> 10:50.620 Look, if the person receiving the income is doing the work to receive the income without knowing the specific idea being shared here, 10:50.620 --> 10:54.620 that's generally not a security, that's generally income. 10:54.620 --> 10:59.620 Right. If I say I'm going to... 10:59.620 --> 11:06.620 Don't make Martinis for people and sell them and people are going to pay me money for making the Martinis. That's fine. 11:06.620 --> 11:09.620 That's not a security. 11:09.620 --> 11:20.620 And the SEC is not concerned that there's information asymmetry between me, the Martini maker and me, the person collecting money for making Martinis. 11:20.620 --> 11:26.620 Because presumably I know what I'm... I know all the information about what I'm doing. 11:26.620 --> 11:29.620 So, 11:29.620 --> 11:34.620 but it's hard for me to exactly imagine what 11:34.620 --> 11:40.620 that is. 11:40.620 --> 11:52.620 So... 11:52.620 --> 11:58.620 Okay. Next question. Without being financial advice, but perhaps being cultural advice. 11:58.620 --> 12:05.620 Are there any funding models that seem particularly appealing or interesting to you on Web3 currently 12:05.620 --> 12:13.620 besides being an artist minting work who has managed to find a collector audience aside? 12:13.620 --> 12:16.620 Okay. This one's tricky. I'm going to... 12:16.620 --> 12:20.620 I don't know for sure. 12:20.620 --> 12:25.620 I've been thinking about this. 12:25.620 --> 12:28.620 So I'll try and share some ideas. 12:28.620 --> 12:32.620 I don't think they're great, to be honest. 12:32.620 --> 12:38.620 If I had like fully fleshed out great ideas, I'd already be doing them. 12:38.620 --> 12:43.620 So for sure, artists selling art, 12:43.620 --> 12:45.620 is great. 12:45.620 --> 12:47.620 It works. 12:47.620 --> 12:52.620 For artists who have found their audience or an audience 12:52.620 --> 12:55.620 I think it's transformational. 12:55.620 --> 13:05.620 They should pay whatever taxes are due in wherever they live so they dont get in trouble for that. 13:05.620 --> 13:09.620 But other than that, its just the team, it's a whole new exciting world for that. So I think... I know you said not that model, but I am reiterating, it's a great model. 13:09.620 --> 13:12.620 I think a second model of which, 13:12.620 --> 13:16.620 probably the best example is Gary V. 13:16.620 --> 13:18.620 Or it's easy to see Gary V, I'm not sure it's the best example, what should be done but 13:18.620 --> 13:27.620 I think there's clearly an opportunity for personalities to monetize their own personality. 13:27.620 --> 13:32.620 I mean, the V friends. 13:32.620 --> 13:35.620 Or bought primarily. 13:35.620 --> 13:41.620 I think without in any way wanting to cast dispersions on the artwork. 13:41.620 --> 13:48.620 I think people bought them as a bet on Gary V as an affinity with Gary V. 13:48.620 --> 13:56.620 Gary V has been very active on social media since the beginning. 13:56.620 --> 14:03.620 And I think if someone who was, I wouldn't say that Gary V and I hope he doesn't take his own way. 14:03.620 --> 14:06.620 Isn't any danger of being a museum great artist, right? 14:06.620 --> 14:11.620 I don't think people bought the Gary V art with the hope that 14:11.620 --> 14:14.620 someday the moment might want this. 14:14.620 --> 14:21.620 What I think they did was, I feel a bet on Gary V. 14:21.620 --> 14:23.620 I feel an affinity with Gary V. 14:23.620 --> 14:28.620 I want to be part of something Gary V. 14:28.620 --> 14:39.620 So the ability to fund and capture a personality is probably something that's interesting here 14:39.620 --> 14:43.620 that didn't exactly exist. 14:43.620 --> 14:46.620 The work I did was like, okay, well, that's kind of like an artist running an audience. 14:46.620 --> 14:54.620 What I'm really asking 6529 is how do you do something for someone who's not already rich and famous? 14:54.620 --> 15:02.620 Right? Okay, this is a hard question. 15:02.620 --> 15:12.620 Now, first answer might not be what people are looking for, but it's probably okay. 15:12.620 --> 15:17.620 Tokens directed to charitable causes are fine. 15:17.620 --> 15:25.620 So it doesn't match the expectation of profit. 15:25.620 --> 15:30.620 So let's say you set up a nonprofit and your nonprofit goal 15:30.620 --> 15:42.620 is to be cliche and lazy on this was to save the Amazonian rainforest and the way we're going to save it is by buying land and for any NFT you buy, 15:42.620 --> 16:00.620 you get an NFT representing that acre of land, but someone has properly set up a 501(c)(3)nonprofit organization in the United States 16:00.620 --> 16:11.620 and when they issue the NFT and let's say the NFT is, I don't know, 0.1 ETH and you buy this one acre in the jungle and the nonprofit gets the money 16:11.620 --> 16:20.620 they buy the acre, the title of the acre is with the nonprofit, not with the NFT holder. 16:20.620 --> 16:23.620 Again, without being legal advice, etc. etc. all will be okay. 16:23.620 --> 16:31.620 And my sense is, a better user experience. 16:31.620 --> 16:34.620 Than send money to someone, 16:34.620 --> 16:36.620 a charity in this case, 16:36.620 --> 16:41.620 and get an email receipt. 16:41.620 --> 16:47.620 I think once this stuff gets worked out, 16:47.620 --> 16:53.620 I believe it's going to be a more effective fundraising model for charity than what happens now. 16:53.620 --> 16:58.620 I'm just thinking of myself because it like it gave me fries and it makes it a little bit more fun. 16:58.620 --> 17:10.620 If I just sent $1,000 to the Amazonian rainforest charity and got some receipt that said thank you for your contribution 17:10.620 --> 17:12.620 you can use this to deduct it under taxes. 17:12.620 --> 17:19.620 I'm not going to be trying to boring with the funds over the second. I've done my good deed. Let's say, but the funds over the second. 17:19.620 --> 17:22.620 I've sent it and gotten my receipt. 17:22.620 --> 17:34.620 If instead there's a grid of whatever 10,000 acres and each acres and NFT and the NFT actually reflected the grid use a satellite photo or whatever 17:34.620 --> 17:38.620 don't pick out the acres you're trying to save. 17:38.620 --> 17:42.620 And then at the end you have like 10 NFTs instead of an email receipt. 17:42.620 --> 17:44.620 They might also send you an email receipt. 17:44.620 --> 17:47.620 They're like, you have 10 NFTs and I can show them in my wallet. 17:47.620 --> 17:58.620 And I'm like, look, I saved these 10 acres and maybe you'll say, gosh, you're getting ego benefits out of it. 17:58.620 --> 18:02.620 I'm going to say, okay, so what if I get an ego benefits out of it, we save the acres and they're a good thing. 18:02.620 --> 18:06.620 Or maybe I'll say, no, it's not for my ego by me highlighting this in my wallet. 18:06.620 --> 18:16.620 A lot of people look at my wallet. I'm going to help other people learn about this and maybe they'll save more acres. 18:16.620 --> 18:19.620 Yeah, that sounds interesting. 18:19.620 --> 18:24.620 Next bucket. 18:24.620 --> 18:33.620 I would like to see, you're going to say, why don't you do one and the answer is going to be I haven't thought of one yet. 18:33.620 --> 18:41.620 I would like to see some things that are pure down like my OG Definition. 18:41.620 --> 18:48.620 A smart contract that does something with NFTs. 18:48.620 --> 19:03.620 It doesn't, once it's been deployed, it does it automatically forever without human interaction. 19:03.620 --> 19:09.620 That's probably, okay. 19:09.620 --> 19:13.620 What that is, I don't know. 19:13.620 --> 19:20.620 I haven't figured it out. And it's not like it's an it. There are many possible it's there. 19:20.620 --> 19:32.620 But as a general principle, the idea that there'll be some smart contract on Ethereum every minute or hour or day or week. 19:32.620 --> 19:47.620 I've been thinking NFT or selling it and if you're buying it and without the part that there's like a bunch of people in a discord trying to decide something or another. 19:47.620 --> 19:49.620 I like that idea. 19:49.620 --> 19:53.620 I don't know what that idea would be, what it would do. 19:53.620 --> 19:56.620 But I like that idea. 19:56.620 --> 20:08.620 If you're investing in any NFT projects that may be subject to legal issues, do holders have to feel about fear of backlash? 20:08.620 --> 20:10.620 I'll end with this question. 20:10.620 --> 20:17.620 And I think the holders need to think about this in two buckets. 20:17.620 --> 20:33.620 The first bucket is the following. 20:33.620 --> 20:39.620 Will the price of the NFTs in that project, but I'm probably. 20:39.620 --> 20:50.620 If someone comes to a project and says, Oh, we've received or being sued by the SEC because our 20:50.620 --> 20:56.620 NFTs that give rights to their profits of the DAO might be secure. Well, no one's going to like that. Right? So the price is going to go down. 20:56.620 --> 21:01.620 People are going to sell. 21:01.620 --> 21:04.620 Second, maybe they'll be forced to change what they do. 21:04.620 --> 21:06.620 So maybe they'll be less appealing. 21:06.620 --> 21:09.620 Now, will you a holder have a new legal risk? 21:09.620 --> 21:10.620 Probably not. 21:10.620 --> 21:12.620 This is not legal advice. 21:12.620 --> 21:18.620 There was a very strange and interesting case where there was this DAO that was pretending to be autonomus but really wasn't, 21:18.620 --> 21:24.620 and the CFTC kind of said, Oh, I might go after people who voted because they were like part of the team. 21:24.620 --> 21:28.620 Now, I practiced the only one after the project promoters. 21:28.620 --> 21:33.620 There was a dissenting opinion in the CFTC that says, you know, basically this is nuts like. 21:33.620 --> 21:39.620 Since when would people in DAO have to think about this topic? 21:39.620 --> 21:42.620 Um. 21:42.620 --> 21:44.620 And okay. 21:44.620 --> 21:50.620 Um, do I believe this is a major risk? No, I do not. 21:50.620 --> 22:02.620 Do I believe it is zero risk in all scenarios? Like, no, I mean, it's conceivable. Let's say you were not the project promoter. 22:02.620 --> 22:10.620 But you were buyer number one and you bought a bunch of the NFTs and you went out and started promoting it yourself and voting and doing things. 22:10.620 --> 22:16.620 Could you imagine some relatively extreme, but not completely irrational cases? 22:16.620 --> 22:20.620 Well, as you see in the CFTC, you were part of this. You were doing this. 22:20.620 --> 22:26.620 You were kind of like the person selling the unregistered securities you weren't just a buyer of them. 22:26.620 --> 22:29.620 Yeah, conceivably, I can see in certain. 22:29.620 --> 22:42.620 I haven't seen too many things in the NFT space that would have triggered my concern on this topic, but I could imagine it happen. 22:42.620 --> 22:44.620 So. 22:44.620 --> 23:01.620 I will end here. Thank you as always everyone for joining, and see you back on Twitter. 23:14.620 --> 23:19.620 Thank you.