1 00:00:00,000 --> 00:00:21,940 Okay, super. 2 00:00:21,940 --> 00:00:29,580 Well, good evening, everyone, good afternoon, or good morning, depending where you are 3 00:00:29,580 --> 00:00:30,580 in the world. 4 00:00:30,580 --> 00:00:33,420 I know we have people from all over the world joining us today. 5 00:00:33,420 --> 00:00:39,980 This is session 10, financing models for NFTs and the metaverse, which is probably like, 6 00:00:39,980 --> 00:00:46,780 you know, financing models for organizations in this world. 7 00:00:46,780 --> 00:00:49,380 This is a very interesting topic. 8 00:00:49,380 --> 00:00:58,860 And it's also a very interesting topic to think about how we can do, in how we can handle 9 00:00:58,860 --> 00:01:03,020 in this period, because it's a very complicated topic. 10 00:01:03,020 --> 00:01:05,740 It is a very legally intensive topic. 11 00:01:05,740 --> 00:01:12,900 And it is a topic where even people with a ton of experience in this topic will go to 12 00:01:12,900 --> 00:01:23,460 specialized lawyers with even more experience in this topic to seek advice. 13 00:01:23,460 --> 00:01:32,540 And I know in our course we have a mixed level of knowledge about these types of topics. 14 00:01:32,540 --> 00:01:37,980 In fact, for I think many people, a very low level of knowledge about securities law, 15 00:01:37,980 --> 00:01:45,540 and I'm sure there's some people that have more advanced knowledge. 16 00:01:45,540 --> 00:01:51,180 The way I was thinking about this was, it would have been easy to overwhelm everyone with 17 00:01:51,180 --> 00:01:54,900 facts, figures, datas, cases, etc. 18 00:01:54,900 --> 00:02:00,860 But I'm not sure that helps anyone. 19 00:02:00,860 --> 00:02:14,260 Whereas I think what might be the right approach and the right answer here is leave with some 20 00:02:14,260 --> 00:02:20,380 very simple frameworks, some very simple ideas. 21 00:02:20,380 --> 00:02:29,140 And these simple ideas though, are applicable over and over and over and over again. 22 00:02:29,140 --> 00:02:34,140 I have, I think, a quite sophisticated understanding of this topic, but the way I think about it 23 00:02:34,140 --> 00:02:39,100 in practice is actually very simple. 24 00:02:39,100 --> 00:02:52,220 And so my goal today is to get less than 10 ideas in your head, maybe six or seven. 25 00:02:52,220 --> 00:02:56,380 And these ideas will help you in many different ways. 26 00:02:56,380 --> 00:03:03,260 They will explain why many things are the way they are in the financing environment. 27 00:03:03,260 --> 00:03:12,140 I see this constantly on my Twitter feed that people are confused about why things are financed 28 00:03:12,140 --> 00:03:14,700 the way they are financed. 29 00:03:14,700 --> 00:03:22,060 We will see where the risky areas are and where legal risk might be. 30 00:03:22,060 --> 00:03:28,020 Now, you're not going to learn the legal risk from this course. 31 00:03:28,020 --> 00:03:38,140 What you should learn is when you're within 100 miles of potential legal risk so that 32 00:03:38,140 --> 00:03:44,940 you go find someone qualified, a securities attorney, or really what you want, to help 33 00:03:44,940 --> 00:03:49,700 you think through what your legal risk might be. 34 00:03:49,700 --> 00:03:59,500 This is what I hope to accomplish today and so I really simplified my slides and I hope 35 00:03:59,500 --> 00:04:00,900 this will work. 36 00:04:00,900 --> 00:04:07,860 So let's jump in. 37 00:04:07,860 --> 00:04:10,380 And really there's two things. 38 00:04:10,380 --> 00:04:13,220 We're going to go into two sections. 39 00:04:13,220 --> 00:04:18,220 What are the key frameworks within US securities law that change financing models? 40 00:04:18,220 --> 00:04:24,540 I'm going to go into the financial, that's the financing models in use today. 41 00:04:24,540 --> 00:04:31,540 And you'll notice I'm going to be focused exclusively on US law. 42 00:04:31,540 --> 00:04:41,900 And the framework that we will cover here is a very US-specific framework. 43 00:04:41,900 --> 00:04:49,020 Almost no other country thinks about it in exactly this way. 44 00:04:49,020 --> 00:04:54,220 And then you might say, well, why are we doing that? 45 00:04:54,220 --> 00:04:55,220 It's a global field. 46 00:04:55,220 --> 00:04:57,340 It's a global industry. 47 00:04:57,340 --> 00:05:02,380 Why are we just focused on what the Americans are doing? 48 00:05:02,380 --> 00:05:14,940 And the reality is, the reason this is the case is that the startup industry in general 49 00:05:14,940 --> 00:05:23,860 and I think very large parts of the crypto industry in general and large parts of the 50 00:05:23,860 --> 00:05:30,220 NFT and the metaverse industry in general and the broader technology industry in general 51 00:05:30,220 --> 00:05:44,260 in the broadly speaking English language world or Europe and US world tends to be concentrated 52 00:05:44,260 --> 00:05:46,260 in the United States. 53 00:05:46,260 --> 00:05:48,420 China has a very different model. 54 00:05:48,420 --> 00:05:50,580 Russia has a different model. 55 00:05:50,580 --> 00:06:04,500 But in the world that public blockchains are heavily used in that world, what we tend to 56 00:06:04,500 --> 00:06:12,100 see is that there's a heavy concentration in the United States. 57 00:06:12,100 --> 00:06:18,740 And given that heavy concentration in the United States, the laws and regulations of 58 00:06:18,740 --> 00:06:33,260 the United States tend to be fairly, they shape the space for everyone else. 59 00:06:33,260 --> 00:06:41,060 And so a lot of what you see is the United States, it might be very specific to America, 60 00:06:41,060 --> 00:06:44,940 but it really does shape the space tremendously in a lot of what we see. 61 00:06:44,940 --> 00:06:48,500 So this is what we're going to talk about. 62 00:06:48,500 --> 00:06:56,740 I can't possibly disclaim this session enough, like this is not legal advice. 63 00:06:56,740 --> 00:07:00,460 It wouldn't even be legal advice in the United States and the United States should still 64 00:07:00,460 --> 00:07:06,860 set a, I know 20 times more than this presentation and I wouldn't do any of these things without 65 00:07:06,860 --> 00:07:07,860 a lawyer. 66 00:07:07,860 --> 00:07:13,180 And it certainly doesn't apply outside the United States because these are the US rules. 67 00:07:13,180 --> 00:07:22,060 So with all of these caveats and all of these ideas, let's jump in. 68 00:07:22,060 --> 00:07:29,140 And I was laughing when I wrote the title for the section, some relevant snippets of US 69 00:07:29,140 --> 00:07:30,980 securities law, and this is exactly what it is. 70 00:07:30,980 --> 00:07:37,740 US securities law is a gigantic body of work, of case law, with all types of nuanced and 71 00:07:37,740 --> 00:07:45,180 edge to edge cases that have been over time established. 72 00:07:45,180 --> 00:07:52,780 And here we're going to have four slides and fairly large font to talk about. 73 00:07:52,780 --> 00:08:03,980 But what I was trying to do is distill the parts that might matter for people and might 74 00:08:03,980 --> 00:08:08,820 matter in a practical way. 75 00:08:08,820 --> 00:08:14,500 So this is how does, where does all come from, actually came from the Great Depression. 76 00:08:14,500 --> 00:08:20,060 It is wild, but it's true. 77 00:08:20,060 --> 00:08:26,620 The basis for most of these laws is from 1933 and 1934. 78 00:08:26,620 --> 00:08:29,580 Now there have been modifications of these laws of run. 79 00:08:29,580 --> 00:08:40,300 They have been new laws over time, but the basic laws are from there. 80 00:08:40,300 --> 00:08:43,300 It's all we need to know for the slides. 81 00:08:43,300 --> 00:08:47,140 That's all we need to know. 82 00:08:47,140 --> 00:08:56,940 Now, here is the single most important concept you need to learn today. 83 00:08:56,940 --> 00:09:11,380 And quite frankly, the single most explanatory concept in the whole financing world of startups 84 00:09:11,380 --> 00:09:17,540 and crypto assets in general, of which NFTs and Metaverse are a subset. 85 00:09:17,540 --> 00:09:32,580 The concept is that the United States defines a security that needs to be registered using 86 00:09:32,580 --> 00:09:36,460 the Howey Test. 87 00:09:36,460 --> 00:09:44,820 And it is not designed prescriptively as it is in other jurisdictions. 88 00:09:44,820 --> 00:09:55,980 So in many other jurisdictions, people or legislators say, a security is these 17 specific 89 00:09:55,980 --> 00:10:09,900 things, derivative contracts, bonds, options on publicly traded securities, etc, etc, etc. 90 00:10:09,900 --> 00:10:15,700 And so you can go down the list and say, is my thing one of these things? 91 00:10:15,700 --> 00:10:29,700 And if the answer is no, then it's not a security and you can kind of go off and do whatever I'm 92 00:10:29,700 --> 00:10:33,060 planning to do. 93 00:10:33,060 --> 00:10:35,900 The United States is different. 94 00:10:35,900 --> 00:10:41,260 It's principles based in how it approaches this. 95 00:10:41,260 --> 00:10:53,140 And in that case, you have to analyze each specific potential security individually. 96 00:10:53,140 --> 00:10:56,820 And the principles are quite abstract. 97 00:10:56,820 --> 00:11:00,540 They fit here on this page. 98 00:11:00,540 --> 00:11:09,420 And what this is, how we test this is, you need to look at this potential security and ask 99 00:11:09,420 --> 00:11:12,020 yourself four questions. 100 00:11:12,020 --> 00:11:21,180 And if the answer is yes, to all four questions, then it's a security. 101 00:11:21,180 --> 00:11:27,180 And if the answer is no, to any one of the four questions, it's not. 102 00:11:27,180 --> 00:11:31,220 And if you know, that's great, it's going to be hard to become a security. 103 00:11:31,220 --> 00:11:39,660 And the reality is is most things that most people will think of, most casual, naive or 104 00:11:39,660 --> 00:11:45,260 even like, kind of medium sophisticated ideas that people will think of for raising money 105 00:11:45,260 --> 00:11:51,460 do turn out to be securities under this test, which is bizarre, but yet true. 106 00:11:51,460 --> 00:11:53,900 So let's go through them. 107 00:11:53,900 --> 00:11:57,940 The first part of the task is an investment of money. 108 00:11:57,940 --> 00:12:01,780 This is the most straightforward. 109 00:12:01,780 --> 00:12:08,020 If you're volunteering at your local church, this is not going to be a security. 110 00:12:08,020 --> 00:12:10,180 This is an investment of money. 111 00:12:10,180 --> 00:12:23,220 Now money doesn't mean fiat dollars if you sell a security and you take, Ethereum, 112 00:12:23,220 --> 00:12:27,100 for example, that's still going to meet this test. 113 00:12:27,100 --> 00:12:29,340 So it can be considered an investment of money. 114 00:12:29,340 --> 00:12:35,300 It's not an investment of US dollars, investment of money more broadly. 115 00:12:35,300 --> 00:12:39,300 The second test in a common enterprise. 116 00:12:39,300 --> 00:12:50,580 So this is the way I think about it is something that has a definable mission, organision, goal etc. 117 00:12:50,580 --> 00:13:02,580 It's interesting people try and get around this by saying, oh, but there's not a legal 118 00:13:02,580 --> 00:13:17,780 entity here or, we call ourselves decentralized, but that doesn't matter so much. 119 00:13:17,780 --> 00:13:26,860 Like the SEC is going to look at this point conceptually, that this a common enterprise 120 00:13:26,860 --> 00:13:31,500 where, we're going to try and do something together. 121 00:13:31,500 --> 00:13:36,940 And the most simple base example is, a company. 122 00:13:36,940 --> 00:13:50,820 So if I founded a company and this company was supposed to sell NFTs, and it was called 123 00:13:50,820 --> 00:13:57,580 6529 NFT Limited or Incorporated. 124 00:13:57,580 --> 00:14:00,820 And I say, would you like to buy shares in my company? 125 00:14:00,820 --> 00:14:05,220 Yeah, it's a common enterprise where other companies were going to do something. 126 00:14:05,220 --> 00:14:08,900 So the interesting thing is, like, no, I'm not going to do it with a company. 127 00:14:08,900 --> 00:14:12,860 I'm just going to sell you these tokens and we're decentralized, 128 00:14:12,860 --> 00:14:15,060 and it doesn't matter so much, 129 00:14:15,060 --> 00:14:18,580 like the legal form doesn't matter so much. 130 00:14:18,580 --> 00:14:24,020 Does this have a coherent and cohesive set of activities? 131 00:14:24,020 --> 00:14:32,900 The third leg of the stool with the expectation of profits. 132 00:14:32,900 --> 00:14:43,820 Are people buying what it is you're selling for the way they are buying any other investment 133 00:14:43,820 --> 00:14:52,180 vehicle? 134 00:14:52,180 --> 00:15:01,100 If someone sells you a very nice six course dinner, it might be an investment of money 135 00:15:01,100 --> 00:15:04,500 in a common enterprise that I've run, but not buying with an expectation of profits. 136 00:15:04,500 --> 00:15:12,460 So someone sells you a pair of NIKE shoes, not buying them with an expectation of profit. 137 00:15:12,460 --> 00:15:17,780 I'll hold that example and come back to it later. 138 00:15:17,780 --> 00:15:31,260 If someone sells you a boost-up in a game, probably not something smart for the expectation 139 00:15:31,260 --> 00:15:33,900 of profits. 140 00:15:33,900 --> 00:15:50,060 If someone sells you something that says, yeah, buy this token, we are going to moon because 141 00:15:50,060 --> 00:15:55,820 of ABCDE reason, we start to get problematic. 142 00:15:55,820 --> 00:16:01,620 We still have to meet all the tests, but we start to get problematic. 143 00:16:01,620 --> 00:16:07,140 By the way, dumb level disclaimers don't work. 144 00:16:07,140 --> 00:16:10,660 So you see this all the time in our space. 145 00:16:10,660 --> 00:16:16,620 Someone says something that is absolutely, certainly, without a doubt, financial advice, 146 00:16:16,620 --> 00:16:20,420 and then at the bottom of their Tweet says, not financial advice, NFA, 147 00:16:20,420 --> 00:16:24,100 it doesn't count for anything, doesn't mean anything. 148 00:16:24,100 --> 00:16:26,900 Nothing about that is relevant. 149 00:16:26,900 --> 00:16:32,180 The substance is what you do. 150 00:16:32,180 --> 00:16:41,900 Fourth part, to be derived from the efforts of others. 151 00:16:41,900 --> 00:16:50,060 And this is the part that crypto teams really try and focus on. 152 00:16:50,060 --> 00:17:05,420 Which is saying, is there an identifiable group of people who are working to make this 153 00:17:05,420 --> 00:17:07,220 a success? 154 00:17:07,220 --> 00:17:08,380 Are there insiders? 155 00:17:08,380 --> 00:17:19,580 And the reason it's interesting from a regulatory perspective if there are insiders, the theory here 156 00:17:19,580 --> 00:17:28,500 about legislation, disclosure, and what have you, is about information asymmetry. 157 00:17:28,500 --> 00:17:34,700 If there are insiders, they might know more about the project than you do. 158 00:17:34,700 --> 00:17:47,980 And if they know more about the project than you do, then they might withhold information 159 00:17:47,980 --> 00:17:54,700 from you and sell you a security. 160 00:17:54,700 --> 00:17:58,780 And you might be taken advantage of. 161 00:17:58,780 --> 00:18:01,180 What's something that would not meet this test? 162 00:18:01,180 --> 00:18:08,460 Well, very famously, the United States has said and continues to say that Bitcoin is not 163 00:18:08,460 --> 00:18:11,260 a security. 164 00:18:11,260 --> 00:18:22,060 And they believe that a combination of mining and wallet holding and how transactions are 165 00:18:22,060 --> 00:18:29,540 processed is sufficiently decentralized. 166 00:18:29,540 --> 00:18:32,540 But the fourth leg doesn't get triggered. 167 00:18:32,540 --> 00:18:38,220 There's kind of other two legs do exist for Bitcoin, right? 168 00:18:38,220 --> 00:18:41,500 People buy Bitcoin, an investment of money. 169 00:18:41,500 --> 00:18:44,340 Bitcoin is kind of an obvious common enterprise, right? 170 00:18:44,340 --> 00:18:48,740 Trying to make a store value or payment network. 171 00:18:48,740 --> 00:18:58,380 Most people are buying Bitcoin with the hope that the price of Bitcoin goes up. 172 00:18:58,380 --> 00:19:14,620 But the, they're saying it's not an identifiable team that's driving the value of Bitcoin and 173 00:19:14,620 --> 00:19:19,140 that it's derived from the efforts of others. 174 00:19:19,140 --> 00:19:22,220 It's like a commodity. 175 00:19:22,220 --> 00:19:33,780 It's like, if you buy a barrel of oil, people say, oh, well, no, that's not a security. 176 00:19:33,780 --> 00:19:39,860 No, is the value of oil in some very, very weird abstract way derived also from the 177 00:19:39,860 --> 00:19:40,860 efforts of others? 178 00:19:40,860 --> 00:19:51,620 Sure, sort of, but there's not like one producer of oil that has specific power over 179 00:19:51,620 --> 00:19:54,540 the characteristics of oil. 180 00:19:54,540 --> 00:19:56,780 There's many producers around the world. 181 00:19:56,780 --> 00:19:59,540 There's many users around the world. 182 00:19:59,540 --> 00:20:05,740 There's no real information asymmetry in oil that someone needs to come and disclose. 183 00:20:05,740 --> 00:20:15,980 And it's viewed, for example, that Bitcoin has also reached that point of decentralization, 184 00:20:15,980 --> 00:20:19,100 if not information asymmetry. 185 00:20:19,100 --> 00:20:26,940 So what are things that almost certainly are securities in the token space? 186 00:20:26,940 --> 00:20:35,420 Obviously, if I, we had said, if we have 6529, NFTs Inc, and I go out and say, 187 00:20:35,420 --> 00:20:40,420 hey, would you like to buy 10 of the 100 shares? 188 00:20:40,420 --> 00:20:42,580 I have this really great idea. 189 00:20:42,580 --> 00:20:46,420 I'm going to mint NFTs and Tweet about them. 190 00:20:46,420 --> 00:20:49,660 We're going to make lots of money together. 191 00:20:49,660 --> 00:20:52,540 That is a trivial security. 192 00:20:52,540 --> 00:20:56,820 It's an investment of money and a common enterprise and expectation of prices to be derived from 193 00:20:56,820 --> 00:20:58,580 the efforts of others, aka me. 194 00:20:58,580 --> 00:21:07,900 Where a lot of people go wrong is they say, oh, well, if we do this as a token, we're 195 00:21:07,900 --> 00:21:09,980 somehow going to get away from this, right? 196 00:21:09,980 --> 00:21:23,340 If we say, oh, we're going to mint 6529 Dow tokens, and they're going to get a 197 00:21:23,340 --> 00:21:35,060 share of the revenue from all the other NFTs 6529 mints, without going into great 198 00:21:35,060 --> 00:21:43,380 detail in the situation specific areas, that has risked that it's a token security. 199 00:21:43,380 --> 00:21:48,740 The fact that it's not specifically shares in the company doesn't change anything. 200 00:21:48,740 --> 00:21:52,340 It's an investment of money and a common enterprise expectation of profit to be derived by the 201 00:21:52,340 --> 00:21:53,340 efforts of others. 202 00:21:53,340 --> 00:22:01,380 The fact that I said it's a token, not shares in the company, doesn't really count for anything. 203 00:22:01,380 --> 00:22:10,460 So if there's only one thing you remember today, it's this. 204 00:22:10,460 --> 00:22:17,420 Remember these four prongs, it's like 15 words. 205 00:22:17,420 --> 00:22:23,740 And when you see someone offering something as of does this, is this likely to look like 206 00:22:23,740 --> 00:22:24,740 this, right? 207 00:22:24,740 --> 00:22:31,380 It's okay, well, so what does it matter if it's a security? 208 00:22:31,380 --> 00:22:39,820 Well it matters because if it is a security in the United States, and I'm going to summarize 209 00:22:39,820 --> 00:22:51,100 but this is effectively right, you either have to, A, register it with the Securities and 210 00:22:51,100 --> 00:22:53,060 Exchange Commission. 211 00:22:53,060 --> 00:23:06,900 B, sell it only to a certain set of sophisticated investors, or C, take advantage of the crowdfunding 212 00:23:06,900 --> 00:23:07,900 exemptions registration. 213 00:23:07,900 --> 00:23:10,340 These are your only options. 214 00:23:10,340 --> 00:23:16,580 There's no fourth option for practical purposes. 215 00:23:16,580 --> 00:23:25,540 So, who are these sophisticated investors who can buy unregistered securities? 216 00:23:25,540 --> 00:23:32,220 They fall into two categories, Accredited Investors and Qualified Purchasers. 217 00:23:32,220 --> 00:23:38,220 Accredited Investors is the one you hear about casually. 218 00:23:38,220 --> 00:23:44,060 Online, it's the bigger category, it's the more common category, it's the lower standards 219 00:23:44,060 --> 00:23:50,580 category, Qualified Purchasers is a more institutional category. 220 00:23:50,580 --> 00:24:06,500 Don't 100% quote me on this, but the, the, I think every Qualified Purchaser is also 221 00:24:06,500 --> 00:24:11,620 an Accredited Investor, but not all Accredited Investors are Qualified Purchasers, I believe 222 00:24:11,620 --> 00:24:12,620 that's correct. 223 00:24:12,620 --> 00:24:16,820 Let's look at that Accredited Investor standards. 224 00:24:16,820 --> 00:24:21,020 You have to meet one of the standards, not all of them. 225 00:24:21,020 --> 00:24:28,060 You have annual income over $200,000 for the last two years or $300,000 if you include 226 00:24:28,060 --> 00:24:34,220 your spouse or partner, and you believe, you have a reasonable belief that supplies for 227 00:24:34,220 --> 00:24:36,380 the upcoming years. 228 00:24:36,380 --> 00:24:44,700 Or you have a net worth of over a million dollars excluding your primary residence. 229 00:24:44,700 --> 00:24:50,820 So excluding your home equity. 230 00:24:50,820 --> 00:24:57,660 This can also be jointly with your spouse or partner. 231 00:24:57,660 --> 00:25:03,020 Or, you meet certain professional criteria. 232 00:25:03,020 --> 00:25:09,100 You hold one of the securities industry certifications licenses that you've studied and passed the 233 00:25:09,100 --> 00:25:13,420 test work, Series 765 or E2. 234 00:25:13,420 --> 00:25:20,980 You're a high level officer, director in the company that's selling the security. 235 00:25:20,980 --> 00:25:27,300 You're a client in the family office, it's itself a credit investor. 236 00:25:27,300 --> 00:25:30,820 Or for in a fund, you're a knowledgeable employee of the fund. 237 00:25:30,820 --> 00:25:35,580 Or there's some other legal rules for legal entities. 238 00:25:35,580 --> 00:25:45,340 But basically, it is you're rich or kind of rich, 239 00:25:45,340 --> 00:25:48,500 or, you have financial services expertise. 240 00:25:48,500 --> 00:25:58,100 A Qualified Purchaser is similar type of things but with higher numbers, 5 million up to 25 million. 241 00:25:58,100 --> 00:26:01,740 We can ignore it for the purposes of discussion. 242 00:26:01,740 --> 00:26:13,340 And the theory here is, either you're rich, in which case if you go buy an unregistered 243 00:26:13,340 --> 00:26:23,940 security and you want given all the information you needed to properly evaluate it, 244 00:26:23,940 --> 00:26:38,460 and it turns out that it was risky and it turns out that you lose your money. 245 00:26:38,460 --> 00:26:42,580 Well, it's okay, you're rich. 246 00:26:42,580 --> 00:26:45,420 You can survive it. 247 00:26:45,420 --> 00:26:47,980 That's theory one. 248 00:26:47,980 --> 00:26:59,900 Theory two is, well maybe you're not rich but maybe you're like, have deep expertise in the financial services 249 00:26:59,900 --> 00:27:02,940 industry or meet the professional criteria 250 00:27:02,940 --> 00:27:07,140 and so you can take care of yourself. 251 00:27:07,140 --> 00:27:11,060 You can make the correct decisions. 252 00:27:11,060 --> 00:27:18,100 It is a paternalistic model of regulation. 253 00:27:18,100 --> 00:27:23,140 It divides the world into two buckets. 254 00:27:23,140 --> 00:27:30,060 It divides the world into people who can make these decisions by themselves and either have 255 00:27:30,060 --> 00:27:36,900 the expertise to make good decisions or the financial wherewithal not to be wrecked by 256 00:27:36,900 --> 00:27:37,900 these decisions. 257 00:27:37,900 --> 00:27:46,540 Which is not to say that people who make $200,000 a year couldn't buy an unregistered, 258 00:27:46,540 --> 00:27:53,340 a sufficiently large amount of an unregistered security to also destroy their lives financially. 259 00:27:53,340 --> 00:28:02,380 It's not actually the case that they won't do that. 260 00:28:02,380 --> 00:28:07,620 And then people will you say look, it's too risky for you. 261 00:28:07,620 --> 00:28:16,420 You need more protection, more information, less risk of information asymmetry. For people 262 00:28:16,420 --> 00:28:20,740 to be able to sell this to you, 263 00:28:20,740 --> 00:28:31,500 they need to come in and disclose a lot more information. 264 00:28:31,500 --> 00:28:45,740 The... I think this was sort of uncontroversial a few decades ago. 265 00:28:45,740 --> 00:28:55,900 And with the democratization of finance in general, the internet in general, 266 00:28:55,900 --> 00:29:02,700 and then really much more so with crypto. 267 00:29:02,700 --> 00:29:12,740 I think there's an interesting debate on this. This debate, by the way, tends to lean one way 268 00:29:12,740 --> 00:29:16,540 when prices are going up and a different way when prices are going down. 269 00:29:16,540 --> 00:29:25,500 But there's an interesting debate on if this is for the good of the people who are not 270 00:29:25,500 --> 00:29:27,900 Accredited Investors or if it's bad for them, you know. 271 00:29:27,900 --> 00:29:36,980 Does it exclude them from exciting and potentially valuable investment opportunities, or does it 272 00:29:36,980 --> 00:29:41,020 protect them from scams? 273 00:29:41,020 --> 00:29:49,300 Is this excellent protection for the unsophisticated or is this a way for the rich to get richer 274 00:29:49,300 --> 00:29:57,060 and everyone else not to have access to the same opportunities? 275 00:29:57,060 --> 00:30:11,580 There is also, you know, some people who feel that this legislation is no longer exactly right. 276 00:30:11,580 --> 00:30:13,580 Many states allow gambling. 277 00:30:13,580 --> 00:30:18,860 They allow lotteries. 278 00:30:18,860 --> 00:30:22,900 Those things are obviously bad for the unsophisticated. 279 00:30:22,900 --> 00:30:29,580 They allow anyone to participate in them. 280 00:30:29,580 --> 00:30:32,940 Seems strange that this would be allowed. 281 00:30:32,940 --> 00:30:37,620 They're allowed to invest, quote unquote, in lottery tickets, but they're not allowed 282 00:30:37,620 --> 00:30:41,460 to invest in potentially, a bad investment. 283 00:30:41,460 --> 00:30:48,100 We're not going to conclude on this topic, but these are the types of issues that are... 284 00:30:48,100 --> 00:30:49,100 Right. 285 00:30:49,100 --> 00:30:53,700 So this is who is allowed to purchase unregistered securities. 286 00:30:53,700 --> 00:30:56,620 Now what does registration mean? 287 00:30:56,620 --> 00:30:59,420 Basically you have to file for an IPO. 288 00:30:59,420 --> 00:31:04,460 It's that type of, well, we have to make an S1 as a registration statement. 289 00:31:04,460 --> 00:31:06,620 You send it to the SEC. 290 00:31:06,620 --> 00:31:07,620 They read it. 291 00:31:07,620 --> 00:31:08,620 They ask you questions. 292 00:31:08,620 --> 00:31:09,620 They ask you to make changes. 293 00:31:09,620 --> 00:31:10,620 You send it back. 294 00:31:10,620 --> 00:31:11,620 They read it. 295 00:31:11,620 --> 00:31:13,260 So on and so forth. 296 00:31:13,260 --> 00:31:21,980 And then you can sell, generally, shares to the public or other financial instruments, which 297 00:31:21,980 --> 00:31:22,980 generally shares. 298 00:31:22,980 --> 00:31:27,100 And then you have a whole bunch of ongoing reporting requirements. 299 00:31:27,100 --> 00:31:31,020 When do you have to file financial statements with the SEC? 300 00:31:31,020 --> 00:31:33,820 What things do you need to disclose? 301 00:31:33,820 --> 00:31:35,620 What are your officers doing? 302 00:31:35,620 --> 00:31:37,740 Are they buying or selling shares? 303 00:31:37,740 --> 00:31:38,940 When are they trading? 304 00:31:38,940 --> 00:31:41,340 When are they not trading? 305 00:31:41,340 --> 00:31:44,940 All of these things are actually pretty good things. 306 00:31:44,940 --> 00:31:59,820 But, they are things that are hard to do in a natively crypto context. 307 00:31:59,820 --> 00:32:05,180 But they're also expensive. 308 00:32:05,180 --> 00:32:11,820 Even for a fairly small company preparing to file, or do a registration, will be a seven 309 00:32:11,820 --> 00:32:16,780 figure cost and probably seven figures of annual compliance. 310 00:32:16,780 --> 00:32:27,220 And so you can't really be a person who wants to run a half million dollar common enterprise 311 00:32:27,220 --> 00:32:29,420 and practically speaking, file. 312 00:32:29,420 --> 00:32:33,500 So they say, well, okay, 313 00:32:33,500 --> 00:32:34,500 we have a solution for that, 314 00:32:34,500 --> 00:32:38,020 that's the crowdfunding exemption, 315 00:32:38,020 --> 00:32:39,500 and this is Reg A. 316 00:32:39,500 --> 00:32:46,980 Reg A is the exemptions to registration. 317 00:32:46,980 --> 00:33:01,300 But there was a specific one done for crowdfunding. 318 00:33:01,300 --> 00:33:13,180 You can do effectively a light form of registration if you're crowdfunding within certain hurdles, 319 00:33:13,180 --> 00:33:17,340 20 million and 75 million respectively. 320 00:33:17,340 --> 00:33:25,260 And so you don't have to go through the whole full regulatory regime of being a public company 321 00:33:25,260 --> 00:33:27,820 like Google. 322 00:33:27,820 --> 00:33:31,420 You do have some reporting requirements, you can't just go out there and put your hand 323 00:33:31,420 --> 00:33:32,420 up and say, hey, look, I'm crowdfunding, 324 00:33:32,420 --> 00:33:33,420 I don't have to do anything. 325 00:33:33,420 --> 00:33:35,660 That's not how it works. 326 00:33:35,660 --> 00:33:36,820 But it's a lighter form, 327 00:33:36,820 --> 00:33:40,060 it's a significantly lighter registration form. 328 00:33:40,060 --> 00:33:55,620 So, practically speaking, if something is a security, you can sell it using one of three 329 00:33:55,620 --> 00:34:06,020 ways. One, to Acredited Investors and Qualified Purchasers. Two, to the public, host registration. 330 00:34:06,020 --> 00:34:14,340 Three, to the public under the crowdfunding exemptions, but within certain limits on how 331 00:34:14,340 --> 00:34:18,500 much you can raise. 332 00:34:18,500 --> 00:34:23,700 These are, or if it's not a security, you don't have to do any of these things, but then it 333 00:34:23,700 --> 00:34:31,580 really has to not be a security. 334 00:34:31,580 --> 00:34:37,060 On this section, this is what I would like you to remember. 335 00:34:37,060 --> 00:34:45,460 The Howey Test and these three models for securities, Acredited Investors, registration, 336 00:34:45,460 --> 00:34:47,660 Reg A crowdfunding exemptions. 337 00:34:47,660 --> 00:34:54,660 Now, how does this translate to real life? 338 00:34:54,660 --> 00:34:57,660 How does this translate to what people do? 339 00:34:57,660 --> 00:35:09,460 Well, the primary model for financing technology startups, remains venture capital firms. 340 00:35:09,460 --> 00:35:13,020 What are venture capital firms? 341 00:35:13,020 --> 00:35:25,500 Venture capital firms are investment funds who have a general partner who is a company, 342 00:35:25,500 --> 00:35:33,740 but you can think of it as the people running the fund, and limited partners, who are the 343 00:35:33,740 --> 00:35:34,740 investors. 344 00:35:34,740 --> 00:35:40,380 The investors and venture capital funds are Accredited Investors or Qualified Purchasers 345 00:35:40,380 --> 00:35:45,020 because units of a venture capital fund are definitely securities. 346 00:35:45,020 --> 00:35:49,540 And who are these famous institutional investors? 347 00:35:49,540 --> 00:36:03,900 Well, interestingly, the largest institutional investors in the world are pension funds. 348 00:36:03,900 --> 00:36:09,900 So, it's kind of funny that like, when you think of institutional investors and they're very big 349 00:36:09,900 --> 00:36:18,260 and not like a common person, it's primarily the retirement savings of school teachers 350 00:36:18,260 --> 00:36:25,180 and firefighters that have been aggregated, but because they have been aggregated, a very large 351 00:36:25,180 --> 00:36:30,260 number, will then have people managing those retirement savings. 352 00:36:30,260 --> 00:36:38,980 A one of the things those people do is invest those retirement savings into venture capital 353 00:36:38,980 --> 00:36:45,980 funds will then go and invest in the service. 354 00:36:45,980 --> 00:37:02,020 Other buckets of typical investors, sovereign wealth funds, some corporate treasurers, family 355 00:37:02,020 --> 00:37:11,300 offices, which is just a fancy word for effectively, an investment team for a really, really rich 356 00:37:11,300 --> 00:37:12,300 family. 357 00:37:12,300 --> 00:37:16,660 An ultra high net worth or a high net worth individuals. 358 00:37:16,660 --> 00:37:20,460 But really the biggest investor in venture capital funds tends to be pension funds, 359 00:37:20,460 --> 00:37:23,860 they have more money than any of these people. 360 00:37:23,860 --> 00:37:38,340 So VCs are both allowed to invest in unregistered securities and also have the orientation skill, 361 00:37:38,340 --> 00:37:46,020 mental desire to invest in technology startups. 362 00:37:46,020 --> 00:37:58,340 The... most of the, pretty much all of the infrastructure firms in NFT space, all of the gaming firms 363 00:37:58,340 --> 00:38:05,860 in NFT space, many of the metaverse firms in NFT space and some of the project teams 364 00:38:05,860 --> 00:38:15,940 in the NFT space, Yuga, dual, etc etc, have raised money from venture capital funds. 365 00:38:15,940 --> 00:38:18,300 Why? 366 00:38:18,300 --> 00:38:25,860 Because it is safe, easy and fast. 367 00:38:25,860 --> 00:38:34,900 Venture capital firms can make a decision fairly quickly, and by making that decision, 368 00:38:34,900 --> 00:38:41,380 they can write a cheque, for $2, $5, $10, $20 million. 369 00:38:41,380 --> 00:38:45,540 You do not, you can sell them normal equity, 370 00:38:45,540 --> 00:38:54,740 you don't have to go through any complicated convolutions of designing some unique instrument 371 00:38:54,740 --> 00:38:56,740 to make sure that it's not a security. 372 00:38:56,740 --> 00:39:06,300 You know, say, look, you can buy shares in our company and you, the entrepreneur, don't 373 00:39:06,300 --> 00:39:11,660 have to worry about any regulatory risk. 374 00:39:11,660 --> 00:39:23,300 They're very much allowed to buy shares in your company, and this practical aspect tends 375 00:39:23,300 --> 00:39:29,340 to be fairly dominant in how these firms are financed because most of the other ways 376 00:39:29,340 --> 00:39:34,540 you can do it, are actually pretty complicated. 377 00:39:34,540 --> 00:39:46,220 You're certainly, you're certainly not going to go registered to go public as a startup, 378 00:39:46,220 --> 00:39:47,220 right? 379 00:39:47,220 --> 00:39:50,420 You don't have the capacity or the money, you're not right, mature enough. 380 00:39:50,420 --> 00:39:57,420 So this tends to be if you're going to sell a security, a very easy and fast way to do 381 00:39:57,420 --> 00:39:58,420 it. 382 00:39:58,420 --> 00:40:00,620 What else are we seeing? 383 00:40:00,620 --> 00:40:09,900 Well, we see DAOs and DAOs is one of my pet peeves in the space because DAO literally 384 00:40:09,900 --> 00:40:12,540 means something very different. 385 00:40:12,540 --> 00:40:19,900 It says it right there in its name, Decentralized Autonomous Organization. 386 00:40:19,900 --> 00:40:27,620 DAOs were meant to be something like smart contracts that engaged in economic activity. 387 00:40:27,620 --> 00:40:35,380 They were actually decentralized and autonomous when first thought of in this way. 388 00:40:35,380 --> 00:40:39,060 Today people use the word now very differently. 389 00:40:39,060 --> 00:40:43,380 They use it as a group of people doing something. 390 00:40:43,380 --> 00:40:52,180 A group of people doing something is neither decentralized nor is it autonomous. 391 00:40:52,180 --> 00:40:58,900 It is, a group of people doing something. 392 00:40:58,900 --> 00:41:05,700 And when you have a group of people doing something, if they're not careful, one of the 393 00:41:05,700 --> 00:41:11,900 things they will discover they are doing, is selling unregistered securities to people. 394 00:41:11,900 --> 00:41:19,940 So my conceptual problems with the way that terms are being used aside, what do we see 395 00:41:19,940 --> 00:41:23,100 in terms of DAOs in the NFT space? 396 00:41:23,100 --> 00:41:33,500 Well, we see DAOs that are effectively correctly legally organized and compliant. 397 00:41:33,500 --> 00:41:40,540 These DAOs usually have registered a company, an LLC. 398 00:41:40,540 --> 00:41:51,860 They usually KYC check the information and write down your name and social security number 399 00:41:51,860 --> 00:41:55,700 and address of everyone investing. 400 00:41:55,700 --> 00:42:05,740 And they ask them to provide documentation or self-certification that they are accredited 401 00:42:05,740 --> 00:42:06,740 investors. 402 00:42:06,740 --> 00:42:13,260 A good example of this is Flamingo DAO. 403 00:42:13,260 --> 00:42:15,900 Flamingo DAO does all these things. 404 00:42:15,900 --> 00:42:23,740 It is a DAO, they call themselves a DAO, but effectively they're a company. 405 00:42:23,740 --> 00:42:34,740 And effectively they comply with similar hurdles for their members as venture capital funders. 406 00:42:34,740 --> 00:42:40,020 There are some differences in how they make decisions. 407 00:42:40,020 --> 00:42:47,100 All the down members can contribute to decisions, where the venture capital fund investors typically 408 00:42:47,100 --> 00:42:49,980 do not contribute to the decisions. 409 00:42:49,980 --> 00:42:57,100 But from a legal financial infrastructure perspective, it's very, very similar. 410 00:42:57,100 --> 00:43:07,500 Then there's what the NFT projects tend to call DAOs, which are all over the map, very 411 00:43:07,500 --> 00:43:10,500 poorly organized. 412 00:43:10,500 --> 00:43:15,900 I think in many cases very poorly thought out. 413 00:43:15,900 --> 00:43:28,940 And some of them are going to get in trouble because they are in fact, the type of activity 414 00:43:28,940 --> 00:43:32,620 that really should only be opened under US law, without judging whether it's right or 415 00:43:32,620 --> 00:43:39,180 wrong, to Accredited Investors and they're not limiting to Accredited Investors. 416 00:43:39,180 --> 00:43:51,060 And some of them are not going to get in trouble with the SEC in any way, but are kind of lying 417 00:43:51,060 --> 00:43:53,500 to the members. 418 00:43:53,500 --> 00:44:03,580 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 419 00:44:03,580 --> 00:44:04,740 projects NFTs. 420 00:44:04,740 --> 00:44:11,460 But the equity is owned by someone else, the governance of that equity is owned by someone 421 00:44:11,460 --> 00:44:14,660 else, the decisions are all made by someone else 422 00:44:14,660 --> 00:44:20,940 and sure, there's a DAO council and they'll ask the people their opinions here or there. 423 00:44:20,940 --> 00:44:27,420 Well, I mean, that's no different than having a customer advisory board. 424 00:44:27,420 --> 00:44:34,500 It's just if you told people, if you bought this NFT, you're part of our customer advisory 425 00:44:34,500 --> 00:44:38,860 board or community advisory board. 426 00:44:38,860 --> 00:44:44,300 It doesn't sound as appealing as being part of the DAO. 427 00:44:44,300 --> 00:44:51,260 And so what's going on there is I think they're misleading people for people to attribute more 428 00:44:51,260 --> 00:44:55,340 value to their token. 429 00:44:55,340 --> 00:44:59,020 And it's not great. 430 00:44:59,020 --> 00:45:09,060 I think it's going to be very hard for most non-legally organized DAOs to operate in a 431 00:45:09,060 --> 00:45:12,580 compliant manner the way they're doing it. 432 00:45:12,580 --> 00:45:17,340 I'm not going to judge any specific project. 433 00:45:17,340 --> 00:45:20,900 I don't know all the facts of an expert projects. 434 00:45:20,900 --> 00:45:28,780 But I believe there's certain quote unquote DAOs operating in the space that effectively, are 435 00:45:28,780 --> 00:45:30,820 violating security law. 436 00:45:30,820 --> 00:45:37,980 They might not be doing it on purpose, but they are effectively doing it. 437 00:45:37,980 --> 00:45:39,540 Well, Token Offerings. 438 00:45:39,540 --> 00:45:48,140 This is a very big deal in the quote unquote ICO era of 2017-2018, where everyone and their 439 00:45:48,140 --> 00:45:55,180 brother, mother, sister, parent was going around saying, well, we're going to do ICO. 440 00:45:55,180 --> 00:45:58,260 We're going to sell you this token, 441 00:45:58,260 --> 00:46:00,660 it will fund our operation, 442 00:46:00,660 --> 00:46:12,300 and we're going to make the "X for Y", the token for doctors to organize their medical practices, 443 00:46:12,300 --> 00:46:15,380 or what have you. 444 00:46:15,380 --> 00:46:22,820 The reality is the vast majority of these ICOs were actually securities, 445 00:46:22,820 --> 00:46:30,540 and eventually the SEC cracked down on them, 446 00:46:30,540 --> 00:46:35,500 and people stopped doing it because they don't want to get in trouble. 447 00:46:35,500 --> 00:46:46,500 I believe a typical fungible token ICO is very hard to do as a not a security. 448 00:46:46,500 --> 00:46:55,140 Or if I want to be more precise, it is very hard to make it not a security, but also achieve 449 00:46:55,140 --> 00:47:05,340 the objectives that the organizer of the token is likely trying to achieve. 450 00:47:05,340 --> 00:47:08,780 What do I mean by that? 451 00:47:08,780 --> 00:47:23,020 Well, most of the time people who are doing an ICO are trying to raise money to do something. 452 00:47:23,020 --> 00:47:24,020 They have an idea. 453 00:47:24,020 --> 00:47:30,020 They woke up one morning and said, oh, I want to do, execute this idea, 454 00:47:30,020 --> 00:47:35,220 I know I need a team to do it and in order to get that team, I need money to hire that 455 00:47:35,220 --> 00:47:40,580 team and to do marketing and what have you. 456 00:47:40,580 --> 00:47:51,180 And because of this, I need to raise money. 457 00:47:51,180 --> 00:48:00,260 The reality is most things of that genre are going to end up meeting the Howey Test. 458 00:48:00,260 --> 00:48:06,940 You're going to sell the token to people who are going to buy it with an expectation 459 00:48:06,940 --> 00:48:07,940 of profit. 460 00:48:07,940 --> 00:48:11,260 It's definitely an investment of money. 461 00:48:11,260 --> 00:48:15,220 There's almost certainly a common enterprise. 462 00:48:15,220 --> 00:48:24,900 And, it is most likely reliant on the efforts of others, namely you. 463 00:48:24,900 --> 00:48:38,140 And so the issue here is you can make a token offering that is not a security, 464 00:48:38,140 --> 00:48:41,180 it's just unlikely that you want to. 465 00:48:41,180 --> 00:48:48,460 But that's usually where the problem was, not that it's impossible to do it. 466 00:48:48,460 --> 00:48:53,420 It's just that once you do it, it's not likely to meet your objectives because your objectives 467 00:48:53,420 --> 00:48:56,700 usually work. 468 00:48:56,700 --> 00:49:03,660 Of the... in the genre of, I want to build something and I need money to build something and I'm 469 00:49:03,660 --> 00:49:08,740 the person who's going to build that thing that I'm trying to build, 470 00:49:08,740 --> 00:49:18,900 and that ends up generally likely not being sufficiently decentralized to not be a security. 471 00:49:18,900 --> 00:49:24,780 So I'm skeptical of most token offerings not being securities. 472 00:49:24,780 --> 00:49:28,980 Now, NFT sales, this is new. 473 00:49:28,980 --> 00:49:30,060 This is very interesting, 474 00:49:30,060 --> 00:49:36,380 and I suspect there is a little bit more fertile ground here to do it correctly while 475 00:49:36,380 --> 00:49:43,980 also, plenty of pitfalls to do it incorrectly. 476 00:49:43,980 --> 00:49:48,260 People can sell NFTs, which is underlying there's a form of token. 477 00:49:48,260 --> 00:49:50,340 And do all types of things. 478 00:49:50,340 --> 00:49:51,900 It could be a piece of work; 479 00:49:51,900 --> 00:49:52,900 I'm an NFT photographer, 480 00:49:52,900 --> 00:49:54,860 I sold a piece of work. 481 00:49:54,860 --> 00:49:59,500 It could be a PFP, then a PFP process. 482 00:49:59,500 --> 00:50:04,700 It could be a token that gives you some type of utility in a game or application, 483 00:50:04,700 --> 00:50:07,940 there are many reasons. 484 00:50:07,940 --> 00:50:15,580 Generally, if it's this type of thing like I just described, but they are buying something 485 00:50:15,580 --> 00:50:19,540 and that thing that they're buying is an object, 486 00:50:19,540 --> 00:50:24,860 but if it was sold pre tokens, I went to the gallery, 487 00:50:24,860 --> 00:50:30,540 I bought a painting. 488 00:50:30,540 --> 00:50:35,220 I went to the real estate agent, I bought a piece of land. 489 00:50:35,220 --> 00:50:41,100 These things are not securities. 490 00:50:41,100 --> 00:50:43,620 These things are perfectly fine as financing methods. 491 00:50:43,620 --> 00:50:49,900 These things are income or revenue to the person selling them to you, 492 00:50:49,900 --> 00:50:54,260 and they're not a financial instrument, right? 493 00:50:54,260 --> 00:50:57,220 Where people get in trouble though, and how I think people are going to get in trouble 494 00:50:57,220 --> 00:50:59,220 with NFts is, 495 00:50:59,220 --> 00:51:06,340 they say, oh, yeah, you buy this cool NFT, 496 00:51:06,340 --> 00:51:17,460 and it's in the, it will have a share of the project DAO and the project DAO is going 497 00:51:17,460 --> 00:51:27,540 to get 50% of the royalties from all the trades that happen later with the NFTs 498 00:51:27,540 --> 00:51:33,980 and also 10% of the primary sales of future NFTs so that DAO is going to be valuable and 499 00:51:33,980 --> 00:51:35,780 you'll have a share of the Dow, 500 00:51:35,780 --> 00:51:36,780 well, congratulations, 501 00:51:36,780 --> 00:51:40,660 you've made a security. 502 00:51:40,660 --> 00:51:45,060 The real life equivalent would be you go to a gallery and you say, and the gallery is 503 00:51:45,060 --> 00:51:46,900 like, oh, I'm going to sell you this painting, 504 00:51:46,900 --> 00:51:52,020 and when you buy this painting and have a really beautiful painting, it's by G. Taring. 505 00:51:52,020 --> 00:51:57,340 and also, I am going to give you one 10,000th of the profit of my gallery for the rest of 506 00:51:57,340 --> 00:52:00,620 eternity. 507 00:52:00,620 --> 00:52:05,700 That part that I'm going to give you one 10,000th of my profit of my gallery for the rest of 508 00:52:05,700 --> 00:52:17,940 eternity, that part turns that key card in painting into security. 509 00:52:17,940 --> 00:52:21,100 We don't have case law in this area yet. 510 00:52:21,100 --> 00:52:27,460 There hasn't been enforcement in this area yet. 511 00:52:27,460 --> 00:52:32,740 I do think that though, both of these statements are going to be true. 512 00:52:32,740 --> 00:52:40,620 I think there's a lot of opportunities to have effectively community based funding that 513 00:52:40,620 --> 00:52:50,020 is not a security in a way that is hard to do with fungible tokens because you can solve 514 00:52:50,020 --> 00:52:54,060 something that has value in and of itself, whereas a fungible token, 515 00:52:54,060 --> 00:52:57,660 it's very hard to have value in and of itself. 516 00:52:57,660 --> 00:53:07,460 If XCOPY, they did an example, wants to do all types of projects in the NFT field, 517 00:53:07,460 --> 00:53:19,860 and XCOPY sells a piece of one of one art for 100 ETH or 666 thrusters for however 518 00:53:19,860 --> 00:53:27,260 specific result or an open edition for one ETH. 519 00:53:27,260 --> 00:53:28,260 This is fine. 520 00:53:28,260 --> 00:53:34,180 None of these things are securities. 521 00:53:34,180 --> 00:53:36,380 XCOPY will have earned a lot of money. 522 00:53:36,380 --> 00:53:46,780 It will have been given to XCOPY by people who broadly believe in the XCOPY brand, universe, 523 00:53:46,780 --> 00:53:47,780 etc. 524 00:53:47,780 --> 00:53:52,980 They might even be expecting a profit, but they're not going to call an enterprise with XCOPY. 525 00:53:52,980 --> 00:53:55,260 They own an XCOPY painting. 526 00:53:55,260 --> 00:54:00,340 XCOPY is off to go do something else, they're not going to call an enterprise together. 527 00:54:00,340 --> 00:54:07,340 So, I believe this ability to reach out to your community, customers, fans, whatever you 528 00:54:07,340 --> 00:54:13,340 want to call them, and sell them tokens directly that are, in this case, non-fungible, is a 529 00:54:13,340 --> 00:54:17,940 viable fundraising method here. 530 00:54:17,940 --> 00:54:21,860 I also believe quite a few people are going to screw it up. 531 00:54:21,860 --> 00:54:29,100 They are going to accidentally create securities or in some cases on purpose, but I think in 532 00:54:29,100 --> 00:54:39,820 most cases, accidentally, and they will have some enforcement in a couple years against some 533 00:54:39,820 --> 00:54:42,020 of these accidental ones. 534 00:54:42,020 --> 00:54:46,900 They're not going to be able to chase around all of them because there's a lot of them, 535 00:54:46,900 --> 00:54:49,460 but they don't generally need to chase around a lot of them, 536 00:54:49,460 --> 00:54:52,260 they just go after a handful of them. 537 00:54:52,260 --> 00:54:57,700 And what happened last year was, they went after a handful of them and then everyone got worried and 538 00:54:57,700 --> 00:55:04,100 there was less, there was less, fewer ICOs after them. 539 00:55:04,100 --> 00:55:12,660 And so, to me, this is the most interesting and new area in the financing space. 540 00:55:12,660 --> 00:55:18,380 Is there a way to use NFTs or, what are the ways to use NFTs in a compliant manner? 541 00:55:18,380 --> 00:55:21,580 They went, I don't believe in all these things. 542 00:55:21,580 --> 00:55:25,220 I get it, I get it, and the rules should change. 543 00:55:25,220 --> 00:55:31,020 Yeah, I actually think the Howey Test needs to be updated or the Acreditor Investor rules 544 00:55:31,020 --> 00:55:36,860 need to be updated to account for the types of Web3 projects we're seeing. 545 00:55:36,860 --> 00:55:43,340 I do not believe that if you're spending points to ETH and you get part of the royalties 546 00:55:43,340 --> 00:55:49,500 of an NFT DAO, you actually need to have a million dollars in net worth to be able to do it. 547 00:55:49,500 --> 00:55:54,020 But that's going to involve changing the regulations of the United States and I don't 548 00:55:54,020 --> 00:55:56,220 think it's going to happen imminently. 549 00:55:56,220 --> 00:55:58,820 It maybe will happen in a few years, but it's not the case today. 550 00:55:58,820 --> 00:56:08,660 As I want to say, well, I live in, making some, I live in Kenya, these things don't 551 00:56:08,660 --> 00:56:09,660 apply in Kenya. 552 00:56:09,660 --> 00:56:11,820 Okay, they might not. 553 00:56:11,820 --> 00:56:16,340 The SEC rules obviously do not apply to you in Kenya. 554 00:56:16,340 --> 00:56:20,820 I don't know what rules do apply in Kenya though, so you should check. 555 00:56:20,820 --> 00:56:26,140 And then you probably have to be a little bit careful if you have US participants that 556 00:56:26,140 --> 00:56:28,500 are practically, you have an enforcement risk. 557 00:56:28,500 --> 00:56:32,860 Probably if you have a small project in Kenya, that would have been a security under US securities law, 558 00:56:32,860 --> 00:56:35,980 but under Kenya, it's a 50 ETH project. 559 00:56:35,980 --> 00:56:38,060 No, it's probably practically going to bother you. 560 00:56:38,060 --> 00:56:40,020 This is not legal advice. 561 00:56:40,020 --> 00:56:46,660 But if it becomes large and huge and successful, I don't know, you never know, the US regulatory 562 00:56:46,660 --> 00:56:49,460 authorities can be quite globally ambitious at times. 563 00:56:49,460 --> 00:56:56,420 So, you still need to be careful, my suggestion. 564 00:56:56,420 --> 00:57:00,660 And I think there are interesting things to explore that are not securities. 565 00:57:00,660 --> 00:57:02,580 So I am going to wrap up here. 566 00:57:02,580 --> 00:57:06,500 It's been about an hour, so I can take some questions. 567 00:57:06,500 --> 00:57:11,500 So let's take it again from the beginning. 568 00:57:11,500 --> 00:57:17,300 Step one, is it a security or not? 569 00:57:17,300 --> 00:57:22,980 If it is not, right, you can sell it to anyone. 570 00:57:22,980 --> 00:57:28,620 If it is, you either need to do an IPO, which practically speaking, you're not going to 571 00:57:28,620 --> 00:57:34,780 do, or you need to sell it only to Accredited Investors, or, you need to take advantage of 572 00:57:34,780 --> 00:57:42,500 the Reg A exemption for crowdfunding, which is also not totally none, not totally trivial. 573 00:57:42,500 --> 00:57:52,740 And so what that means in practice is because of these limitations imposed by the United 574 00:57:52,740 --> 00:58:05,780 States, even in this highly decentralized world, most things are funded by VCs. 575 00:58:05,780 --> 00:58:10,220 It remains difficult, I believe, to do a compliant, fungible token offering. 576 00:58:10,220 --> 00:58:17,900 It is very possible to do a non-compliant NFT offering. 577 00:58:17,900 --> 00:58:27,060 But there might be interesting ways to start building communities with NFTs that are not 578 00:58:27,060 --> 00:58:40,060 securities, and that do lead to a more decentralized model of financing than, than... 579 00:58:40,060 --> 00:58:48,060 what we have seen without non-fungible tokens. 580 00:58:48,060 --> 00:58:59,140 So, let's go to questions, and hopefully I have not absolutely bored everyone to death. 581 00:58:59,140 --> 00:59:08,060 This is, I think, the least artsy session we're going to do, but I do think it is important. 582 00:59:08,060 --> 00:59:32,620 I need to open Discord so I can get fed the questions. 583 00:59:32,620 --> 00:59:39,420 (63 seconds pause) 584 00:59:39,420 --> 00:59:50,620 585 01:00:20,620 --> 01:00:23,620 The first three questions are about Nouns. 586 01:00:26,620 --> 01:00:31,620 We're starting off with the hard questions. 587 01:00:32,620 --> 01:00:36,620 Let me read all three questions and I'll try and answer them together. 588 01:00:36,620 --> 01:00:39,620 Can you speak about the Nouns DAO model? 589 01:00:39,620 --> 01:00:44,620 It seems like the most sensible and successful type of DAO model I've seen 590 01:00:44,620 --> 01:00:49,620 and seems to circumvent the securities issues put forth. 591 01:00:50,620 --> 01:00:54,620 Would you consider Nouns an autonomous smart contract 592 01:00:54,620 --> 01:00:57,620 or a group of people working together? 593 01:00:57,620 --> 01:01:01,620 Are Nouns SEC compliant in your point of view? 594 01:01:02,620 --> 01:01:06,620 Well, the Noun smart contract is for sure a smart contract, 595 01:01:06,620 --> 01:01:09,620 it's for sure an autonomous smart contract. 596 01:01:09,620 --> 01:01:14,620 Creating a Noun every day until eternity. 597 01:01:15,620 --> 01:01:24,620 That part is fairly DAO-like from the way that I think of DAOs, the old fashioned way. 598 01:01:32,620 --> 01:01:37,620 The way the treasury is allocated is not autonomous, right? 599 01:01:37,620 --> 01:01:49,620 There are DAO proposals and people who are holders of DAOs, vote on the proposals 600 01:01:49,620 --> 01:01:56,620 and they vote to send it out to space or to buy skateboards for kids or what have you, 601 01:01:56,620 --> 01:01:59,620 generally lovely things that they vote for. 602 01:01:59,620 --> 01:02:08,620 But they're not autonomous. An autonomous thing would not have humans in the decision making, right? 603 01:02:09,620 --> 01:02:14,620 How Bitcoin allocates block rewards is autonomous. 604 01:02:15,620 --> 01:02:24,620 You know it's an autonomous because you don't have to get a bunch of people every ten minutes 605 01:02:24,620 --> 01:02:29,620 to vote if this person needs to get a block reward or if this other person who's got a block reward, 606 01:02:29,620 --> 01:02:33,620 if they've made a nice proposal, or, so on. 607 01:02:39,620 --> 01:02:47,620 Are Nouns or some parts of Nouns SEC compliant? I can't answer that question, 608 01:02:47,620 --> 01:02:56,620 and I'm not going to answer that question for more or less anything because I'm not qualified to answer that question. 609 01:02:56,620 --> 01:03:01,620 I'm not an attorney, I'm not a securities attorney. 610 01:03:01,620 --> 01:03:10,620 I would feel comfortable, I guess, saying, you know, if XCOPY mints a one-of-one piece of art 611 01:03:10,620 --> 01:03:18,620 and that piece of art is just that piece of art, that's not a security. I'm pretty comfortable saying that. 612 01:03:18,620 --> 01:03:25,620 But what I don't want to get into, and if you notice, I'll never say this on Twitter either, 613 01:03:25,620 --> 01:03:33,620 is starting to get into the more ambitious projects and certainly projects that put the word DAO in their names 614 01:03:33,620 --> 01:03:41,620 and then having to fine-tune the differences between one or another or the third or the fourth or the fifth, 615 01:03:41,620 --> 01:03:44,620 but what about this one or what about the other one? 616 01:03:47,620 --> 01:03:56,620 It's not my position to come out and say, oh, no, 6529 said this, whatever project is not about nouns, right? 617 01:03:56,620 --> 01:04:07,620 So, out of giving the exact same answer, whatever people had asked this question of. 618 01:04:07,620 --> 01:04:17,620 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, 619 01:04:17,620 --> 01:04:21,620 it means you think it is a security. That's not what I'm saying either. 620 01:04:21,620 --> 01:04:27,620 I am saying I've thought about this topic very, very carefully and I've thought about it before this class, 621 01:04:27,620 --> 01:04:33,620 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, 622 01:04:33,620 --> 01:04:38,620 I think this project is a security or I think this project is not a security. 623 01:04:38,620 --> 01:04:49,620 Because, if I get into being the securities regulator, well, that's not my job 624 01:04:49,620 --> 01:04:53,620 and I don't have all the information, I don't even have all the knowledge. 625 01:04:53,620 --> 01:05:00,620 And so, I don't want to make wrong decisions in either direction as a matter of policy. 626 01:05:00,620 --> 01:05:07,620 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 627 01:05:07,620 --> 01:05:10,620 and then I bought it because I didn't think it was regulatory risk. 628 01:05:10,620 --> 01:05:18,620 And now, Gary Gensler thinks that whatever DAO is a security, 6529 has led me astray. 629 01:05:18,620 --> 01:05:20,620 I do not want to lead you astray. 630 01:05:20,620 --> 01:05:22,620 And I certainly don't want to do the opposite either. 631 01:05:22,620 --> 01:05:29,620 Like, if something turns out that it's not a security and I'm worried a little bit, but maybe I'm too conservative, 632 01:05:29,620 --> 01:05:32,620 I certainly don't want to say something inappropriate on a project. 633 01:05:32,620 --> 01:05:37,620 So, I'm just not going to answer that question for any project as a matter of policy. 634 01:05:37,620 --> 01:05:40,620 I've already seen something come in for prison and company. 635 01:05:40,620 --> 01:05:42,620 I'm not going to answer for that either. 636 01:05:42,620 --> 01:05:51,620 But part I do feel comfortable answering about the Nouns DAO, which is not part of the Howey Test. 637 01:05:51,620 --> 01:05:58,620 Right, per se, the Nouns DAO in aggregate is not 100% autonomous. 638 01:05:58,620 --> 01:06:03,620 So, the Nouns do vote on how to spend their pressure. 639 01:06:03,620 --> 01:06:05,620 So, that part requires humans. 640 01:06:05,620 --> 01:06:07,620 That doesn't mean it's a security, 641 01:06:07,620 --> 01:06:08,620 doesn't mean it's not a security. 642 01:06:08,620 --> 01:06:11,620 It just says it's a smart contract is taught. 643 01:06:11,620 --> 01:06:19,620 And I think that is fairly close to a DAO the way I used to think about. 644 01:06:19,620 --> 01:06:21,620 All right, next question. 645 01:06:21,620 --> 01:06:29,620 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? 646 01:06:29,620 --> 01:06:32,620 I think it's going to be a mix. 647 01:06:32,620 --> 01:06:40,620 I think the general US policy on securities tends to be more restrictive than most of the rest of the world. 648 01:06:40,620 --> 01:06:42,620 I think that's going to continue. 649 01:06:42,620 --> 01:07:00,620 I think most of the rest of the world is more principles, no, 650 01:07:00,620 --> 01:07:11,620 less principles based and only principles and like good principles or bad principles. 651 01:07:11,620 --> 01:07:17,620 I think it is more prescriptive on what's a security and what's not a security, 652 01:07:17,620 --> 01:07:19,620 and I suspect that's not going to change. 653 01:07:19,620 --> 01:07:22,620 Whereas the US approach tends to be more principles based. 654 01:07:22,620 --> 01:07:24,620 I think that's not going to change either. 655 01:07:24,620 --> 01:07:34,620 So I don't think there's going to be some kind of end-to-end global convergence on this topic. 656 01:07:34,620 --> 01:07:38,620 What is your take on Gary Gensler refusing to allow spot BTC EFTs, 657 01:07:38,620 --> 01:07:51,620 and just stalling any project. Wall Street protection delaying cryptos for CBDC adoption, can't seem to see any logical reason? 658 01:07:51,620 --> 01:07:54,620 I don't know, I mean, Gary likes BTC. 659 01:07:54,620 --> 01:08:01,620 So Gary might not like, Gary as far as I can tell, is something close to Bitcoin Maxion. 660 01:08:01,620 --> 01:08:09,620 So I don't think the reason is Gary doesn't like BTC, because if there's one crypto that he does like, 661 01:08:09,620 --> 01:08:15,620 it is in fact BTC. 662 01:08:15,620 --> 01:08:36,620 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. 663 01:08:36,620 --> 01:08:40,620 They might be wrong. 664 01:08:40,620 --> 01:08:58,620 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. 665 01:08:58,620 --> 01:09:12,620 I mean, the crypto market participants, institutional participants have not exactly covered themselves in glory, 666 01:09:12,620 --> 01:09:14,620 this cycle. 667 01:09:14,620 --> 01:09:35,620 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. 668 01:09:35,620 --> 01:09:47,620 But I wouldn't like, put my hand 100% in the fire that I'm 100% certain that they're wrong. 669 01:09:47,620 --> 01:09:49,620 I think they're wrong but I'm not sure they're wrong. 670 01:09:49,620 --> 01:10:00,620 So there might be, there might be information that we don't have, 671 01:10:00,620 --> 01:10:06,620 answers to. 672 01:10:06,620 --> 01:10:09,620 But we don't, sorry, we don't have visibility into. 673 01:10:09,620 --> 01:10:12,620 But they do. I don't know. 674 01:10:12,620 --> 01:10:22,620 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? 675 01:10:22,620 --> 01:10:27,620 I'm a little concerned because the question came with quotes around the word work. 676 01:10:27,620 --> 01:10:36,620 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. 677 01:10:36,620 --> 01:10:50,620 Look, if the person receiving the income is doing the work to receive the income without knowing the specific idea being shared here, 678 01:10:50,620 --> 01:10:54,620 that's generally not a security, that's generally income. 679 01:10:54,620 --> 01:10:59,620 Right. If I say I'm going to... 680 01:10:59,620 --> 01:11:06,620 Don't make Martinis for people and sell them and people are going to pay me money for making the Martinis. That's fine. 681 01:11:06,620 --> 01:11:09,620 That's not a security. 682 01:11:09,620 --> 01:11:20,620 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. 683 01:11:20,620 --> 01:11:26,620 Because presumably I know what I'm... I know all the information about what I'm doing. 684 01:11:26,620 --> 01:11:29,620 So, 685 01:11:29,620 --> 01:11:34,620 but it's hard for me to exactly imagine what 686 01:11:34,620 --> 01:11:40,620 that is. 687 01:11:40,620 --> 01:11:52,620 So... 688 01:11:52,620 --> 01:11:58,620 Okay. Next question. Without being financial advice, but perhaps being cultural advice. 689 01:11:58,620 --> 01:12:05,620 Are there any funding models that seem particularly appealing or interesting to you on Web3 currently 690 01:12:05,620 --> 01:12:13,620 besides being an artist minting work who has managed to find a collector audience aside? 691 01:12:13,620 --> 01:12:16,620 Okay. This one's tricky. I'm going to... 692 01:12:16,620 --> 01:12:20,620 I don't know for sure. 693 01:12:20,620 --> 01:12:25,620 I've been thinking about this. 694 01:12:25,620 --> 01:12:28,620 So I'll try and share some ideas. 695 01:12:28,620 --> 01:12:32,620 I don't think they're great, to be honest. 696 01:12:32,620 --> 01:12:38,620 If I had like fully fleshed out great ideas, I'd already be doing them. 697 01:12:38,620 --> 01:12:43,620 So for sure, artists selling art, 698 01:12:43,620 --> 01:12:45,620 is great. 699 01:12:45,620 --> 01:12:47,620 It works. 700 01:12:47,620 --> 01:12:52,620 For artists who have found their audience or an audience 701 01:12:52,620 --> 01:12:55,620 I think it's transformational. 702 01:12:55,620 --> 01:13:05,620 They should pay whatever taxes are due in wherever they live so they dont get in trouble for that. 703 01:13:05,620 --> 01:13:09,620 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. 704 01:13:09,620 --> 01:13:12,620 I think a second model of which, 705 01:13:12,620 --> 01:13:16,620 probably the best example is Gary V. 706 01:13:16,620 --> 01:13:18,620 Or it's easy to see Gary V, I'm not sure it's the best example, what should be done but 707 01:13:18,620 --> 01:13:27,620 I think there's clearly an opportunity for personalities to monetize their own personality. 708 01:13:27,620 --> 01:13:32,620 I mean, the V friends. 709 01:13:32,620 --> 01:13:35,620 Or bought primarily. 710 01:13:35,620 --> 01:13:41,620 I think without in any way wanting to cast dispersions on the artwork. 711 01:13:41,620 --> 01:13:48,620 I think people bought them as a bet on Gary V as an affinity with Gary V. 712 01:13:48,620 --> 01:13:56,620 Gary V has been very active on social media since the beginning. 713 01:13:56,620 --> 01:14:03,620 And I think if someone who was, I wouldn't say that Gary V and I hope he doesn't take his own way. 714 01:14:03,620 --> 01:14:06,620 Isn't any danger of being a museum great artist, right? 715 01:14:06,620 --> 01:14:11,620 I don't think people bought the Gary V art with the hope that 716 01:14:11,620 --> 01:14:14,620 someday the moment might want this. 717 01:14:14,620 --> 01:14:21,620 What I think they did was, I feel a bet on Gary V. 718 01:14:21,620 --> 01:14:23,620 I feel an affinity with Gary V. 719 01:14:23,620 --> 01:14:28,620 I want to be part of something Gary V. 720 01:14:28,620 --> 01:14:39,620 So the ability to fund and capture a personality is probably something that's interesting here 721 01:14:39,620 --> 01:14:43,620 that didn't exactly exist. 722 01:14:43,620 --> 01:14:46,620 The work I did was like, okay, well, that's kind of like an artist running an audience. 723 01:14:46,620 --> 01:14:54,620 What I'm really asking 6529 is how do you do something for someone who's not already rich and famous? 724 01:14:54,620 --> 01:15:02,620 Right? Okay, this is a hard question. 725 01:15:02,620 --> 01:15:12,620 Now, first answer might not be what people are looking for, but it's probably okay. 726 01:15:12,620 --> 01:15:17,620 Tokens directed to charitable causes are fine. 727 01:15:17,620 --> 01:15:25,620 So it doesn't match the expectation of profit. 728 01:15:25,620 --> 01:15:30,620 So let's say you set up a nonprofit and your nonprofit goal 729 01:15:30,620 --> 01:15:42,620 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, 730 01:15:42,620 --> 01:16:00,620 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 731 01:16:00,620 --> 01:16:11,620 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 732 01:16:11,620 --> 01:16:20,620 they buy the acre, the title of the acre is with the nonprofit, not with the NFT holder. 733 01:16:20,620 --> 01:16:23,620 Again, without being legal advice, etc. etc. all will be okay. 734 01:16:23,620 --> 01:16:31,620 And my sense is, a better user experience. 735 01:16:31,620 --> 01:16:34,620 Than send money to someone, 736 01:16:34,620 --> 01:16:36,620 a charity in this case, 737 01:16:36,620 --> 01:16:41,620 and get an email receipt. 738 01:16:41,620 --> 01:16:47,620 I think once this stuff gets worked out, 739 01:16:47,620 --> 01:16:53,620 I believe it's going to be a more effective fundraising model for charity than what happens now. 740 01:16:53,620 --> 01:16:58,620 I'm just thinking of myself because it like it gave me fries and it makes it a little bit more fun. 741 01:16:58,620 --> 01:17:10,620 If I just sent $1,000 to the Amazonian rainforest charity and got some receipt that said thank you for your contribution 742 01:17:10,620 --> 01:17:12,620 you can use this to deduct it under taxes. 743 01:17:12,620 --> 01:17:19,620 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. 744 01:17:19,620 --> 01:17:22,620 I've sent it and gotten my receipt. 745 01:17:22,620 --> 01:17:34,620 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 746 01:17:34,620 --> 01:17:38,620 don't pick out the acres you're trying to save. 747 01:17:38,620 --> 01:17:42,620 And then at the end you have like 10 NFTs instead of an email receipt. 748 01:17:42,620 --> 01:17:44,620 They might also send you an email receipt. 749 01:17:44,620 --> 01:17:47,620 They're like, you have 10 NFTs and I can show them in my wallet. 750 01:17:47,620 --> 01:17:58,620 And I'm like, look, I saved these 10 acres and maybe you'll say, gosh, you're getting ego benefits out of it. 751 01:17:58,620 --> 01:18:02,620 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. 752 01:18:02,620 --> 01:18:06,620 Or maybe I'll say, no, it's not for my ego by me highlighting this in my wallet. 753 01:18:06,620 --> 01:18:16,620 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. 754 01:18:16,620 --> 01:18:19,620 Yeah, that sounds interesting. 755 01:18:19,620 --> 01:18:24,620 Next bucket. 756 01:18:24,620 --> 01:18:33,620 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. 757 01:18:33,620 --> 01:18:41,620 I would like to see some things that are pure down like my OG Definition. 758 01:18:41,620 --> 01:18:48,620 A smart contract that does something with NFTs. 759 01:18:48,620 --> 01:19:03,620 It doesn't, once it's been deployed, it does it automatically forever without human interaction. 760 01:19:03,620 --> 01:19:09,620 That's probably, okay. 761 01:19:09,620 --> 01:19:13,620 What that is, I don't know. 762 01:19:13,620 --> 01:19:20,620 I haven't figured it out. And it's not like it's an it. There are many possible it's there. 763 01:19:20,620 --> 01:19:32,620 But as a general principle, the idea that there'll be some smart contract on Ethereum every minute or hour or day or week. 764 01:19:32,620 --> 01:19:47,620 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. 765 01:19:47,620 --> 01:19:49,620 I like that idea. 766 01:19:49,620 --> 01:19:53,620 I don't know what that idea would be, what it would do. 767 01:19:53,620 --> 01:19:56,620 But I like that idea. 768 01:19:56,620 --> 01:20:08,620 If you're investing in any NFT projects that may be subject to legal issues, do holders have to feel about fear of backlash? 769 01:20:08,620 --> 01:20:10,620 I'll end with this question. 770 01:20:10,620 --> 01:20:17,620 And I think the holders need to think about this in two buckets. 771 01:20:17,620 --> 01:20:33,620 The first bucket is the following. 772 01:20:33,620 --> 01:20:39,620 Will the price of the NFTs in that project, but I'm probably. 773 01:20:39,620 --> 01:20:50,620 If someone comes to a project and says, Oh, we've received or being sued by the SEC because our 774 01:20:50,620 --> 01:20:56,620 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. 775 01:20:56,620 --> 01:21:01,620 People are going to sell. 776 01:21:01,620 --> 01:21:04,620 Second, maybe they'll be forced to change what they do. 777 01:21:04,620 --> 01:21:06,620 So maybe they'll be less appealing. 778 01:21:06,620 --> 01:21:09,620 Now, will you a holder have a new legal risk? 779 01:21:09,620 --> 01:21:10,620 Probably not. 780 01:21:10,620 --> 01:21:12,620 This is not legal advice. 781 01:21:12,620 --> 01:21:18,620 There was a very strange and interesting case where there was this DAO that was pretending to be autonomus but really wasn't, 782 01:21:18,620 --> 01:21:24,620 and the CFTC kind of said, Oh, I might go after people who voted because they were like part of the team. 783 01:21:24,620 --> 01:21:28,620 Now, I practiced the only one after the project promoters. 784 01:21:28,620 --> 01:21:33,620 There was a dissenting opinion in the CFTC that says, you know, basically this is nuts like. 785 01:21:33,620 --> 01:21:39,620 Since when would people in DAO have to think about this topic? 786 01:21:39,620 --> 01:21:42,620 Um. 787 01:21:42,620 --> 01:21:44,620 And okay. 788 01:21:44,620 --> 01:21:50,620 Um, do I believe this is a major risk? No, I do not. 789 01:21:50,620 --> 01:22:02,620 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. 790 01:22:02,620 --> 01:22:10,620 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. 791 01:22:10,620 --> 01:22:16,620 Could you imagine some relatively extreme, but not completely irrational cases? 792 01:22:16,620 --> 01:22:20,620 Well, as you see in the CFTC, you were part of this. You were doing this. 793 01:22:20,620 --> 01:22:26,620 You were kind of like the person selling the unregistered securities you weren't just a buyer of them. 794 01:22:26,620 --> 01:22:29,620 Yeah, conceivably, I can see in certain. 795 01:22:29,620 --> 01:22:42,620 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. 796 01:22:42,620 --> 01:22:44,620 So. 797 01:22:44,620 --> 01:23:01,620 I will end here. Thank you as always everyone for joining, and see you back on Twitter. 798 01:23:14,620 --> 01:23:19,620 Thank you.