1 00:00:00,400 --> 00:00:05,000 This is epicenter episode 328 with guest Gabe Shapiro. 2 00:00:06,800 --> 00:00:09,700 Hey there, Sebastian here, you know, the podcaster listener. 3 00:00:09,700 --> 00:00:13,200 Relationship is too unbalanced. You know, us a lot better than 4 00:00:13,200 --> 00:00:15,400 we know you, and we want to narrow that Gap. 5 00:00:15,600 --> 00:00:18,200 So, please do me a favor and answer our audience. 6 00:00:18,200 --> 00:00:21,900 Survey it takes four minutes and it will help us to continue 7 00:00:21,900 --> 00:00:26,100 producing content that informs and inspires you, you can find 8 00:00:26,100 --> 00:00:29,300 the survey at epicenter dot rocks / survey. 9 00:00:29,500 --> 00:00:32,800 And at the end, I'll tell you how you can get a free key, 10 00:00:32,800 --> 00:00:36,300 hardware wallet, courtesy of shape-shift to thank you for 11 00:00:36,300 --> 00:00:39,400 your Time. So, thanks in advance and on 12 00:00:39,400 --> 00:00:55,800 with the show. Hi, welcome to epicenter. 13 00:00:55,900 --> 00:00:57,700 My name is Sebastian with you today. 14 00:00:57,700 --> 00:01:00,800 Our guest is Gabe, Shapiro. Gabe is a lawyer at the firm 15 00:01:00,800 --> 00:01:02,700 zero law. They're experts in the area of 16 00:01:02,700 --> 00:01:05,800 tokenization dows and blockchain Engineering. 17 00:01:06,100 --> 00:01:09,800 Gabe has written a four-part series of monster blog posts 18 00:01:09,800 --> 00:01:13,900 where he shares his philosophy of Securities Law for As 19 00:01:13,900 --> 00:01:16,400 networks, this is an amazing piece of work. 20 00:01:16,700 --> 00:01:19,300 It takes about an hour and a half to read all posts, but I 21 00:01:19,300 --> 00:01:21,300 would strongly recommend everyone to read them. 22 00:01:21,500 --> 00:01:25,100 Now, let's try to understand why this is important and why it's 23 00:01:25,100 --> 00:01:29,300 so timely the moment for the last few months, there's an SEC, 24 00:01:29,300 --> 00:01:31,000 commissioner by the name of Hester Pierce. 25 00:01:31,000 --> 00:01:32,700 You may have heard of her. She also goes by the name of 26 00:01:32,700 --> 00:01:36,700 crypto mom and she's been pushing for this idea of Safe 27 00:01:36,700 --> 00:01:40,300 Harbor and under her proposal tokens would be exempt from 28 00:01:40,300 --> 00:01:43,600 being classified as Securities for a period of three years. 29 00:01:43,700 --> 00:01:46,300 Years. And this is so that projects 30 00:01:46,300 --> 00:01:49,500 could build an initial development team with the 31 00:01:49,500 --> 00:01:53,700 intention of becoming mature and becoming more decentralized 32 00:01:53,700 --> 00:01:57,600 until which point the SEC would no longer consider them to be 33 00:01:57,600 --> 00:02:00,400 Securities. Now, just as we were recording 34 00:02:00,400 --> 00:02:03,400 this interview with Gabe, commissioner Pierce posted an 35 00:02:03,400 --> 00:02:08,100 opinion piece on coin. Desks where she essentially asks 36 00:02:08,100 --> 00:02:10,600 the industry. What do you think of my proposal 37 00:02:10,600 --> 00:02:13,600 tell me if this is right? Tell me if this is wrong and 38 00:02:13,800 --> 00:02:16,900 Want to improve it, and fix it, which in my opinion, really 39 00:02:16,900 --> 00:02:18,900 shows the the openness of the SEC. 40 00:02:18,900 --> 00:02:21,600 And particularly if this commissioner to create an 41 00:02:21,600 --> 00:02:25,700 environment where the crypto industry can Thrive, and there 42 00:02:25,700 --> 00:02:31,000 have been a number of reactions to this this call for for 43 00:02:31,000 --> 00:02:32,400 feedback. There's been a number of 44 00:02:32,600 --> 00:02:36,300 reactions also, to the proposal in general, some positive, some 45 00:02:36,300 --> 00:02:39,900 more negative and gave also published an open letter in 46 00:02:39,900 --> 00:02:43,600 which he provides his feedback and his thoughts and his 47 00:02:43,700 --> 00:02:48,700 Philosophy on how the Safe Harbor proposal can be improved. 48 00:02:49,300 --> 00:02:53,300 So willing to Gabe's articles his open letter and Hester 49 00:02:53,300 --> 00:02:56,100 Pierce's, opinion piece in the show notes. 50 00:02:56,900 --> 00:02:59,900 So here's what you'll learn in this interview, Gabe's 51 00:02:59,900 --> 00:03:02,400 background, and how you got involved in crypto. 52 00:03:03,300 --> 00:03:07,000 The classifications that we tend to give tokens like Equity 53 00:03:07,000 --> 00:03:11,300 suffer products, Commodities, currencies and examples of why 54 00:03:11,400 --> 00:03:13,600 these classifications can be misguided. 55 00:03:14,200 --> 00:03:16,900 We got a crash course on Securities Law and the Howey 56 00:03:16,900 --> 00:03:21,400 test, we went deep into the exchange Act of 1934, which is 57 00:03:21,400 --> 00:03:25,200 an often forgotten piece of important legislation, but that 58 00:03:25,200 --> 00:03:27,800 has tremendous impact on companies that issue. 59 00:03:27,800 --> 00:03:31,800 Securities, we talked about Gabe's philosophy and how 60 00:03:31,800 --> 00:03:35,200 Securities Law should be applied when it comes to issuing tokens 61 00:03:35,300 --> 00:03:39,100 and launching networks. And we talked about the Safe 62 00:03:39,100 --> 00:03:42,700 Harbor proposal. What It Is, What It encompasses, 63 00:03:42,900 --> 00:03:46,800 how it defines Finds things like decentralization and network 64 00:03:46,800 --> 00:03:51,800 maturity and Gabe's thoughts on how it can be improved. 65 00:03:52,000 --> 00:03:54,500 So, I want to thank Gabe for coming on the podcast. 66 00:03:54,600 --> 00:03:56,200 Brian. And I did this interview and he 67 00:03:56,200 --> 00:03:59,500 was incredibly articulate. In sharing his philosophy, 68 00:03:59,600 --> 00:04:02,700 helping us understand, Securities Law, and also, how 69 00:04:02,700 --> 00:04:04,400 things could evolve in the future. 70 00:04:05,600 --> 00:04:08,200 Before I go to the interview, I want to tell you about some 71 00:04:08,200 --> 00:04:11,800 interesting developments epicenter, is the official 72 00:04:11,800 --> 00:04:15,900 podcast partner of ECC. And we're so happy to be doing 73 00:04:15,900 --> 00:04:18,600 this with Peppo. We're going to have a dedicated 74 00:04:18,600 --> 00:04:22,100 podcast booth in the main networking area upstairs. 75 00:04:22,500 --> 00:04:27,000 It'll be like epicenter mission control and we'll be recording 76 00:04:27,000 --> 00:04:31,200 interviews over the three days and posting a lot of content to 77 00:04:31,200 --> 00:04:34,700 Peppo will be soliciting the communities questions for the 78 00:04:34,700 --> 00:04:38,200 people that Reviewing and also getting people to share just 79 00:04:38,200 --> 00:04:41,800 what they're learning in the takeaways from the conference. 80 00:04:42,100 --> 00:04:46,000 Also we're having a casual drinks meet up on Wednesday the 81 00:04:46,000 --> 00:04:47,900 4th if you want to register for that. 82 00:04:47,900 --> 00:04:51,800 You can go to epicenter that rocks / Paris meet up and thanks 83 00:04:51,800 --> 00:04:54,400 to Papo for also sponsoring the drinks meet up. 84 00:04:54,800 --> 00:04:58,200 So if you're not going to eat CC, if you can't make it, Peppa 85 00:04:58,200 --> 00:05:01,300 is the best place for you to follow what's going on and to 86 00:05:01,308 --> 00:05:04,000 follow the conference. 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Please go to nervous, dot org, 111 00:06:13,700 --> 00:06:18,100 slash grants, / epicenter, that lets them know we sent you. 112 00:06:18,200 --> 00:06:21,300 You and here you can find all the information you need. 113 00:06:21,900 --> 00:06:25,400 And with that, here's our interview with Gabe Shapiro. 114 00:06:28,200 --> 00:06:31,000 We're here today with Gabe, Shapiro and Gabe. 115 00:06:31,000 --> 00:06:33,500 So first of all, this closer, but we have been working with 116 00:06:33,500 --> 00:06:36,000 him as our lawyer, through course wands. 117 00:06:36,000 --> 00:06:39,000 So, I've been kind of known gay for a while and work with him 118 00:06:39,000 --> 00:06:42,200 and he's he's a very thoughtful on. 119 00:06:42,200 --> 00:06:46,200 Lots of questions around Securities Law and and crypto 120 00:06:46,200 --> 00:06:47,700 and sort of understands both very well. 121 00:06:47,700 --> 00:06:50,600 Decrypt, the side as well as the legal side and of course, this 122 00:06:50,600 --> 00:06:55,900 is an endless topic that gives so much rise to discussion and 123 00:06:56,300 --> 00:07:01,800 Is written really very in depth and detail the a sort of series 124 00:07:01,800 --> 00:07:07,400 of posts about crypto Securities Law, and sort of his philosophy 125 00:07:07,400 --> 00:07:10,700 of what it should look like. So, we want to dive into that 126 00:07:10,700 --> 00:07:12,500 today. And yeah, thanks so much for 127 00:07:12,500 --> 00:07:16,700 joining us gave my pleasure. So, I guess, let's start with 128 00:07:16,700 --> 00:07:20,800 our, you know, our typical question of, what's your 129 00:07:20,800 --> 00:07:23,100 background? And how did you, how did you 130 00:07:23,100 --> 00:07:25,800 originally kind of get bitten by the crypto bog? 131 00:07:25,800 --> 00:07:29,000 And Get into this field. Sure. 132 00:07:29,000 --> 00:07:33,900 So, my original legal background is actually fairly traditional. 133 00:07:34,500 --> 00:07:40,500 I've been a corporate attorney based almost exclusively in the 134 00:07:40,500 --> 00:07:46,200 Bay Area for 10 years. And the first seven years of 135 00:07:46,200 --> 00:07:50,300 that I worked at, you know, really, really big law firms. 136 00:07:50,500 --> 00:07:54,200 Their California offices doing almost exclusively by side 137 00:07:54,200 --> 00:07:56,000 technology mergers and Acquisitions. 138 00:07:56,000 --> 00:07:59,500 So I did like, I represent represented Facebook in the 139 00:07:59,500 --> 00:08:01,500 Facebook. WhatsApp deal did a bunch of 140 00:08:01,500 --> 00:08:05,000 deals for Oracle, did a bunch of deals for eBay, big public to 141 00:08:05,008 --> 00:08:06,900 public deals. Some of them you know in many 142 00:08:06,900 --> 00:08:10,500 billions of dollars working very traditional law firms right 143 00:08:10,600 --> 00:08:12,400 alongside of that. You know I always had this 144 00:08:12,400 --> 00:08:15,300 interest in technology obviously most of the deals were fur 145 00:08:15,300 --> 00:08:19,100 technology clients and I got interested in sort of 146 00:08:19,100 --> 00:08:23,400 cryptography mainly from the perspective of messaging apps 147 00:08:23,400 --> 00:08:25,700 like WhatsApp, I done the WhatsApp acquisition. 148 00:08:26,200 --> 00:08:28,700 So thinking about end-to-end encryption and so on. 149 00:08:28,900 --> 00:08:31,500 As I was researching that, you know, I started running into 150 00:08:31,500 --> 00:08:35,799 cryptocurrencies and one day I was reading about this new one 151 00:08:35,799 --> 00:08:39,700 called aetherium and something called smart contracts and it 152 00:08:39,700 --> 00:08:42,400 actually was one of these Eureka moments when I read about what 153 00:08:42,400 --> 00:08:47,000 smart contracts were because I realized, oh this is basically, 154 00:08:47,000 --> 00:08:50,200 you know, an escrow without a bank, my deal with escrows all 155 00:08:50,200 --> 00:08:53,500 the time, but with banks as an m and a lawyer, you know, I could 156 00:08:53,500 --> 00:08:56,000 sort of immediately see where this was heading. 157 00:08:56,200 --> 00:08:59,700 And the potential utility. So that was sort of n dish of 158 00:08:59,700 --> 00:09:04,300 2015, early 2016. And the first meet up I ended up 159 00:09:04,300 --> 00:09:08,300 going to was, if you can believe it or not, Nick Szabo talking at 160 00:09:08,300 --> 00:09:11,700 in a theory of Meetup, which nowadays would be unheard of and 161 00:09:11,700 --> 00:09:14,600 since he had this legal background and was talking about 162 00:09:15,000 --> 00:09:19,600 all the all the legal issues around blockchain, and the law 163 00:09:19,900 --> 00:09:22,300 that pretty much sealed the deal for me and, you know, then there 164 00:09:22,300 --> 00:09:26,000 was no looking back. And so, then what what has your 165 00:09:26,000 --> 00:09:28,000 kind of like Journey Through The Block Chain space? 166 00:09:28,000 --> 00:09:30,500 Look like, I know you did some some work on it. 167 00:09:30,508 --> 00:09:31,800 Here, IAM. That's right. 168 00:09:31,800 --> 00:09:33,700 Yeah. So and usually, you know, it's 169 00:09:33,700 --> 00:09:35,800 pretty tentative. I kept my normal job and all 170 00:09:35,800 --> 00:09:40,200 that. But the in 2018, I joined up 171 00:09:40,200 --> 00:09:44,800 with a company called grid plus, which is a consensus folk, they 172 00:09:44,800 --> 00:09:48,600 needed someone in-house for legal, and I sort of raise my 173 00:09:48,600 --> 00:09:52,300 hand worked at those guys for about six months to get them set 174 00:09:52,300 --> 00:09:55,000 up in the meantime. Time colleague of line from 175 00:09:55,000 --> 00:09:57,600 Hogan Lovells named. Louis Cohen, had started a 176 00:09:57,600 --> 00:10:01,300 boutique called DLX specializing in representing blockchain 177 00:10:01,300 --> 00:10:03,400 clients. So I kind of thought, hey, 178 00:10:04,100 --> 00:10:06,100 representing lots of blockchain clients is better than 179 00:10:06,100 --> 00:10:09,200 representing one. So I've moved over their work 180 00:10:09,200 --> 00:10:13,800 there for a while and then subsequently, I met some guys 181 00:10:13,800 --> 00:10:17,000 who are really interested in building out, sort of a 182 00:10:17,600 --> 00:10:20,800 tokenized stock platform for aetherium that we ended up 183 00:10:20,800 --> 00:10:23,500 calling the zero law org augmentation. 184 00:10:23,700 --> 00:10:25,900 Call. So, you know, I focused on that 185 00:10:25,900 --> 00:10:29,900 for a while, you know, that was sort of like my last big kind of 186 00:10:29,900 --> 00:10:32,400 commercial project. And in the meantime, I've been 187 00:10:32,400 --> 00:10:35,200 representing clients, like, Horace, one and some others. 188 00:10:36,100 --> 00:10:39,200 Let's get into your, you know, your article. 189 00:10:39,200 --> 00:10:41,600 So, first of all, give us a little bit. 190 00:10:41,600 --> 00:10:46,900 Like, once you take after being sort of active working in the 191 00:10:47,300 --> 00:10:50,600 legal space, especially when Securities Law in the blocks in 192 00:10:50,600 --> 00:10:52,700 space, after a few years and that, you know, what's what's 193 00:10:52,700 --> 00:10:55,800 your overall Take and what motivated you to write these, 194 00:10:55,800 --> 00:10:58,600 like, series of posts. Right. 195 00:10:58,600 --> 00:11:02,400 So basically, you know, back in 2017, when I see Romania was 196 00:11:02,400 --> 00:11:08,400 going hard and the SEC first started releasing its actions 197 00:11:08,400 --> 00:11:11,300 against tokens. Most of us lawyers, you know, 198 00:11:11,300 --> 00:11:14,200 we're having a lot of discussions at the time about 199 00:11:14,200 --> 00:11:16,900 what all that meant reading the tea leaves, where judges would 200 00:11:16,900 --> 00:11:18,600 come out on the issue. Etc. 201 00:11:18,900 --> 00:11:22,500 And while we knew there were open questions about it, I think 202 00:11:22,500 --> 00:11:25,400 we all thought that those would be long resolved by now. 203 00:11:25,400 --> 00:11:29,100 You know, it's been like nearly three years and Still very few 204 00:11:29,100 --> 00:11:33,400 of them are resolved and still even lawyers who understand the 205 00:11:33,400 --> 00:11:36,000 technology reasonably well and are good lawyers. 206 00:11:36,000 --> 00:11:39,300 Understand the law still debate with each other all the time and 207 00:11:39,300 --> 00:11:40,900 have very, very different opinions. 208 00:11:41,300 --> 00:11:46,000 And so my desire, having spent kind of three years in the 209 00:11:46,000 --> 00:11:49,000 trenches debating with everyone and thinking about it, a lot 210 00:11:49,000 --> 00:11:52,200 changing my own opinions quite a bit in that time and debating 211 00:11:52,200 --> 00:11:55,000 with myself. A lot was to try to write 212 00:11:55,000 --> 00:11:57,900 something that cuts through a lot of the noise. 213 00:11:58,300 --> 00:12:01,600 And Deals a little bit more at the conceptual level, right? 214 00:12:01,600 --> 00:12:04,200 Because I think people get very great and you know they're going 215 00:12:04,200 --> 00:12:06,800 through the elements of the Howey test and they're drawing 216 00:12:06,800 --> 00:12:09,800 analogies to pass cases. Is it token like an orange? 217 00:12:09,800 --> 00:12:13,500 Is it like receipt for delivery of future whiskey? 218 00:12:13,700 --> 00:12:15,800 What is it? And just to just to think about 219 00:12:15,800 --> 00:12:19,600 the tokens in the Network's themselves in the purest, 220 00:12:19,600 --> 00:12:23,900 possible terms with the fewest preconceptions as possible and 221 00:12:23,900 --> 00:12:27,200 just try to think about how do the people who actually buy 222 00:12:27,200 --> 00:12:29,900 them. And Like them and use them as 223 00:12:29,900 --> 00:12:33,300 well, think about them, and why do they value them? 224 00:12:33,400 --> 00:12:36,800 And then try to go from there about how that relates to the 225 00:12:36,800 --> 00:12:40,000 Securities laws. So that was sort of the approach 226 00:12:40,200 --> 00:12:42,900 and that was the reason for still writing about tokens and 227 00:12:42,900 --> 00:12:44,900 securities laws, three years later. 228 00:12:46,400 --> 00:12:49,700 So one thing that strikes me as interesting here, is that it 229 00:12:49,800 --> 00:12:54,500 like you said, it's been three years and US regulators and 230 00:12:54,500 --> 00:12:57,300 lawyers are still debating this in the US. 231 00:12:57,800 --> 00:12:59,700 Why do you think it's taking this long? 232 00:13:00,000 --> 00:13:02,700 I mean, speaking from the other side of the pond, it seems that 233 00:13:02,700 --> 00:13:05,900 in a lot of other jurisdictions, these things have been pretty 234 00:13:05,900 --> 00:13:08,000 much solved already here in France. 235 00:13:08,000 --> 00:13:11,200 There's a pretty robust framework for doing stos. 236 00:13:11,700 --> 00:13:14,300 I know there's sort of similar climate in Germany and places 237 00:13:14,300 --> 00:13:17,100 like that, so, Why is it that? This is so complicated in the 238 00:13:17,100 --> 00:13:19,900 US. Maybe it. 239 00:13:20,200 --> 00:13:23,100 So as not to be too, prejudicial, like, I almost like 240 00:13:23,100 --> 00:13:27,200 a, the, like, the recent fincen, guidance to the SEC guidance, 241 00:13:27,200 --> 00:13:29,200 right? In Finn sends guidance that they 242 00:13:29,200 --> 00:13:31,200 came out, and they said, in their guidance. 243 00:13:31,200 --> 00:13:34,700 Certain things are not subject to money transmission, right? 244 00:13:34,700 --> 00:13:37,700 Like, if it's non-custodial and, you know, they, they sort of 245 00:13:37,700 --> 00:13:39,600 said, what do we not have power over? 246 00:13:39,600 --> 00:13:42,400 And they were willing to say that in their guidance up front, 247 00:13:42,400 --> 00:13:44,700 right? And that's one thing that the 248 00:13:44,700 --> 00:13:48,900 SEC has really not been willing to do, they say what? 249 00:13:49,000 --> 00:13:53,300 Might be security is, right? And they try to, you know, site 250 00:13:53,300 --> 00:13:56,200 some of the factors that would lead them to be especially 251 00:13:56,200 --> 00:13:58,300 inclined to say that something is a security. 252 00:13:58,500 --> 00:14:01,600 But they're never sort of tying their own hands and in advance 253 00:14:01,600 --> 00:14:05,000 saying that they won't say something is a security except 254 00:14:05,000 --> 00:14:08,400 for these no action letters. You know, that were granted in 255 00:14:08,400 --> 00:14:12,400 somewhere around the last 12 months that are so conservative, 256 00:14:12,400 --> 00:14:14,300 right? In terms of fact, pattern that 257 00:14:14,400 --> 00:14:17,800 you know, anyone looking at that fact pattern without the SEC, 258 00:14:17,800 --> 00:14:20,300 weighing in would say, A that they're not Securities. 259 00:14:20,500 --> 00:14:23,300 And and so to me that is a bit of a problem. 260 00:14:23,300 --> 00:14:26,300 I'm happy with many of the things that the SEC has done but 261 00:14:26,300 --> 00:14:29,300 I do think that that's an area where it's fallen down a little 262 00:14:29,300 --> 00:14:33,600 bit and being unwilling to go out on a limb and ever say that 263 00:14:33,600 --> 00:14:36,700 that there's something that they wouldn't consider a security, 264 00:14:37,500 --> 00:14:40,000 okay? I mean, people tend to qualify 265 00:14:40,000 --> 00:14:42,600 and classify tokens in many different ways, you know, 266 00:14:42,800 --> 00:14:48,100 sometimes as Equity as software products as currencies 267 00:14:48,200 --> 00:14:53,700 commodities, Even give us some examples and explain why people 268 00:14:53,700 --> 00:14:56,400 usually get these wrong. Yeah. 269 00:14:56,400 --> 00:15:00,400 Again in you have to separate the the legal from the 270 00:15:00,400 --> 00:15:04,400 conceptual right legally speaking, for example, you know, 271 00:15:04,400 --> 00:15:07,700 Bitcoin is a commodity, right? It's commodity because they 272 00:15:07,700 --> 00:15:10,600 their Futures that relate to bitcoin and that automatically 273 00:15:10,600 --> 00:15:14,700 makes Bitcoin a commodity as a matter of law, but the intuitive 274 00:15:14,700 --> 00:15:19,700 concept of a commodity, right? You think about, you know, oil, 275 00:15:20,000 --> 00:15:23,200 you know you think about wheat. You think about these things? 276 00:15:23,200 --> 00:15:27,500 I mean, these they gold All right, these things are sort of 277 00:15:27,500 --> 00:15:31,100 like they have constraints of nature associated with them. 278 00:15:31,100 --> 00:15:33,700 They're not, they're not synthetic things that, that 279 00:15:33,700 --> 00:15:37,000 humans make their, they're not things that depend for their 280 00:15:37,000 --> 00:15:40,700 value, on a network of humans working together in accordance 281 00:15:40,700 --> 00:15:44,800 with certain rules. And so at a conceptual level, 282 00:15:45,100 --> 00:15:47,900 you know, tokens and token. Networks are very different from 283 00:15:47,900 --> 00:15:51,100 Commodities. A lot of people analogize tokens 284 00:15:51,100 --> 00:15:56,100 in 2017 to licenses and that was sort of One of the main 285 00:15:56,100 --> 00:15:59,300 arguments for why they wouldn't be Securities because there's an 286 00:15:59,300 --> 00:16:03,200 exception under our Securities, laws to the effect that if 287 00:16:03,200 --> 00:16:07,500 something is bought mainly for a consumer purpose. 288 00:16:08,100 --> 00:16:10,800 That that it's not a Securities transaction. 289 00:16:11,400 --> 00:16:15,700 Now, if you think about tokens there, clearly actually not 290 00:16:15,700 --> 00:16:20,100 software licenses because the software involved is is you 291 00:16:20,100 --> 00:16:23,100 don't need a token to get it right, and you can go onto the 292 00:16:23,100 --> 00:16:25,900 guest GitHub, right? And you can download Download 293 00:16:25,900 --> 00:16:29,300 The Gap software client and you now have a software client that 294 00:16:29,300 --> 00:16:31,500 embodies all the protocol rules of the etherium. 295 00:16:31,800 --> 00:16:34,300 The token is not getting you that you could spin up your own 296 00:16:34,300 --> 00:16:38,100 private network of that, right? And you could be using that and 297 00:16:38,100 --> 00:16:40,700 you didn't need to go and buy eith to do that, right? 298 00:16:40,800 --> 00:16:43,200 So, so to me, that clearly seems wrong. 299 00:16:43,500 --> 00:16:47,000 But what is specific to 'if right? 300 00:16:47,000 --> 00:16:50,500 As what people call, 'if it's actually a specific Network, 301 00:16:50,500 --> 00:16:52,600 right? It's it's the way you can figure 302 00:16:52,600 --> 00:16:57,500 that software client to point at A tidy one, right? 303 00:16:57,500 --> 00:16:59,200 And, and that's the network you want. 304 00:16:59,200 --> 00:17:02,900 You want the token on that Network and if you think about 305 00:17:02,900 --> 00:17:06,400 that, that starts to make sense as a framework, right? 306 00:17:06,400 --> 00:17:11,099 Because why is the token on that instance, of the etherium 307 00:17:11,099 --> 00:17:13,400 software more valuable than the one. 308 00:17:13,400 --> 00:17:16,900 I just spun up at home. It's because they're all these 309 00:17:16,900 --> 00:17:19,599 other people. Using that particular Network, 310 00:17:19,599 --> 00:17:21,300 it's a selling point, so to speak. 311 00:17:21,300 --> 00:17:23,300 It's something everyone has converged on. 312 00:17:23,599 --> 00:17:27,500 And the more people that John that Network the higher, the 313 00:17:27,500 --> 00:17:31,700 value of that token will be and really in a certain sense, all 314 00:17:31,700 --> 00:17:36,800 these tokens are actually designed to track the value of 315 00:17:36,800 --> 00:17:39,600 that Network. The people do things like make 316 00:17:39,600 --> 00:17:44,100 them finite in Supply or, you know, restrict the rate at which 317 00:17:44,100 --> 00:17:47,300 they are. The new issuance is done right. 318 00:17:47,300 --> 00:17:51,600 And so, it's almost like they've been set up on purpose to, you 319 00:17:51,600 --> 00:17:56,200 know, appreciate indefinitely as the Value of this network. 320 00:17:56,200 --> 00:17:59,200 So that's sort of how I came up with the idea of. 321 00:17:59,200 --> 00:18:01,700 Well, what really are you investing in with the token? 322 00:18:01,900 --> 00:18:03,600 You're not investing in the token itself. 323 00:18:03,600 --> 00:18:06,000 It's not like buying a bottle of whiskey and you got the bottle 324 00:18:06,000 --> 00:18:08,800 whiskey, because you could drink the bottle whiskey, without The 325 00:18:08,800 --> 00:18:12,000 Distillery here, the equivalent to The Distillery is like the 326 00:18:12,000 --> 00:18:14,800 network and you need that network to use that token. 327 00:18:15,000 --> 00:18:18,300 So really, it's a method of investing in this specific 328 00:18:18,300 --> 00:18:22,800 Network and it seems to be a relatively good at tracking the 329 00:18:22,800 --> 00:18:28,300 value of that network over time. She described this as Network 330 00:18:28,300 --> 00:18:31,100 Equity was the first time that I've heard that, I heard that 331 00:18:31,100 --> 00:18:33,700 term. Can you explain what that is? 332 00:18:33,700 --> 00:18:37,500 And how it differs from the concept of equity and a company? 333 00:18:37,500 --> 00:18:41,700 As we've come to know it sure. Yeah, in this case, I mean 334 00:18:41,800 --> 00:18:44,000 equity and I was being sort of a little bit deliberately 335 00:18:44,000 --> 00:18:46,800 provocative, right? Because I knew a lot of lawyers 336 00:18:46,800 --> 00:18:49,400 would complain about using the word Equity because, you know, 337 00:18:49,400 --> 00:18:53,900 usually Equity means it's a claim on the assets of the 338 00:18:53,900 --> 00:18:55,900 Corporation. After Sure all of its debts are 339 00:18:55,908 --> 00:18:57,600 paid, right? That's what I that's what a 340 00:18:57,700 --> 00:19:01,300 share of stock is, in fact, less its preferred in which case it 341 00:19:01,300 --> 00:19:05,100 may have more debt like rights. But we also use terms like brand 342 00:19:05,100 --> 00:19:06,600 Equity, right? What is brand Equity? 343 00:19:06,600 --> 00:19:09,900 Really mean it's like it's like the value that's associated with 344 00:19:09,900 --> 00:19:12,800 a certain brand. Yeah that's that's the idea I 345 00:19:12,808 --> 00:19:16,100 could have called it also like a share of network value right in 346 00:19:16,100 --> 00:19:18,500 that would have been a little bit more of a neutral term, but 347 00:19:18,500 --> 00:19:23,200 I wanted to kind of hit people over the head with the idea that 348 00:19:23,600 --> 00:19:26,500 tokens are not. Investments in it of themselves, 349 00:19:26,500 --> 00:19:29,100 they're letting you track the value of something else. 350 00:19:29,100 --> 00:19:32,500 And so, it's sort of at least equity-like, but it doesn't 351 00:19:32,500 --> 00:19:37,300 necessarily entitle you to dividends and payments after 352 00:19:37,300 --> 00:19:38,600 liabilities. And so on. 353 00:19:38,600 --> 00:19:42,400 Although, if you look at proof of stake, networks starts to 354 00:19:42,400 --> 00:19:44,800 look even more, you know, like a piece of equity, right? 355 00:19:44,800 --> 00:19:48,000 You you stake it and you get payments as a result of owning 356 00:19:48,000 --> 00:19:51,100 it not exactly the same as a dividend, but somewhat similar, 357 00:19:51,100 --> 00:19:55,500 and you know, and so on. Yeah, I mean I would say that 358 00:19:55,500 --> 00:19:59,400 will dive into this a lot more of a maybe maybe to bring sort 359 00:19:59,400 --> 00:20:04,400 of a last point up that people would often use II member fix a 360 00:20:04,400 --> 00:20:06,200 kick. You start in their argument I 361 00:20:06,208 --> 00:20:09,800 think is like oh, but it's a currency, what's your? 362 00:20:09,800 --> 00:20:14,700 Take on on that like the idea that opens our currency in these 363 00:20:14,700 --> 00:20:19,300 Networks, Sure. I think they are currency, but 364 00:20:19,300 --> 00:20:21,500 the analogy I use in my article, right? 365 00:20:21,500 --> 00:20:24,900 Is that is The Old Company script, right? 366 00:20:24,900 --> 00:20:28,000 So there used to be these company towns and there actually 367 00:20:28,000 --> 00:20:32,300 are still Provisions in the corporate codes of Most states 368 00:20:32,300 --> 00:20:35,800 in the US where you can take a stock certificate and you could 369 00:20:35,800 --> 00:20:40,800 tear it into pieces and those little pieces are scrip and they 370 00:20:40,800 --> 00:20:43,500 don't have any of the rights of a stockholder while, but they 371 00:20:43,500 --> 00:20:45,900 still can have value. And if you put, you know, say 372 00:20:45,900 --> 00:20:48,500 there were 10, Pieces, you put 10 of them together. 373 00:20:48,600 --> 00:20:50,600 Now, you have the rights of a shareholder again. 374 00:20:51,000 --> 00:20:53,100 So there used to be these company towns where script would 375 00:20:53,100 --> 00:20:55,600 trade, you know, that's a kind of currency, right? 376 00:20:55,600 --> 00:20:57,700 But but it's not a very good currency, right? 377 00:20:57,700 --> 00:21:00,900 It's a currency in a very weak sense, and it still may be a 378 00:21:00,900 --> 00:21:02,700 security, right? Because it depends on the will 379 00:21:02,700 --> 00:21:05,600 of this company. But if suddenly lots and lots of 380 00:21:05,600 --> 00:21:08,800 company towns, started accepting the same script, right? 381 00:21:08,900 --> 00:21:11,300 And then it, that it's spread all across the nation, and it 382 00:21:11,300 --> 00:21:14,000 may be spread to other nations. Then it looks more like a 383 00:21:14,000 --> 00:21:15,900 currency. It's very similar. 384 00:21:15,900 --> 00:21:20,300 I think with Chain networks as they become more decentralized. 385 00:21:20,500 --> 00:21:25,000 This thing that you know, initially starts to look like 386 00:21:25,000 --> 00:21:28,400 it, maybe have a lot to do with some particular group of people 387 00:21:29,000 --> 00:21:32,500 who first created it, it starts to look more like a universal 388 00:21:32,500 --> 00:21:34,600 thing. And it starts to not so much 389 00:21:34,600 --> 00:21:38,600 depend on any particular person. And so over time, it's going to 390 00:21:38,600 --> 00:21:40,800 look more and more like a currency, right? 391 00:21:40,800 --> 00:21:44,400 So I do think it has aspects of a currency but I think legally 392 00:21:44,400 --> 00:21:47,500 speaking toward the beginning, I of its life. 393 00:21:47,700 --> 00:21:51,600 It's not so much best viewed as a currency as most likely 394 00:21:51,800 --> 00:21:55,100 security depending on the circumstances of its launch and 395 00:21:55,100 --> 00:21:57,900 who's controlling the network. You know, that's kind of 396 00:21:58,000 --> 00:22:03,000 coherent argument but let's let's get into a little bit like 397 00:22:03,000 --> 00:22:07,000 what Securities Law is and then kind of come back to, to your 398 00:22:07,000 --> 00:22:11,200 argument of how it should apply in the crypto instance. 399 00:22:11,500 --> 00:22:15,000 So, first of all, the Howey test, you know, most of most 400 00:22:15,000 --> 00:22:16,400 listeners will have heard of that. 401 00:22:16,600 --> 00:22:20,300 I have some familiarity of it but can you just very briefly 402 00:22:20,300 --> 00:22:24,900 run us through what the Howey test is and how it has kind of 403 00:22:24,900 --> 00:22:31,400 been applied in crypto space? Sure so yeah, this is a you know 404 00:22:31,400 --> 00:22:33,900 the key thing I would say here that maybe some people still 405 00:22:33,900 --> 00:22:35,200 don't get. Even though a lot of people talk 406 00:22:35,200 --> 00:22:39,200 about the Howey test is that it's a test for one type of 407 00:22:39,200 --> 00:22:41,600 security called an investment contract. 408 00:22:41,700 --> 00:22:45,900 There's a whole list of types of Securities in the 33 act stock, 409 00:22:46,000 --> 00:22:48,900 bonds, blah, blah, blah, right? Investment contract is one of 410 00:22:48,900 --> 00:22:53,000 them. The test is basically that when 411 00:22:53,200 --> 00:22:57,400 someone has made an investment of money and it doesn't have to 412 00:22:57,400 --> 00:23:01,200 be money Any that can be a contribution of your time that 413 00:23:01,200 --> 00:23:03,600 could be an opportunity cost as well. 414 00:23:03,600 --> 00:23:06,500 That you encourage Us by locking up some funds for a period of 415 00:23:06,500 --> 00:23:10,100 time and investment of money. Really an investment of value 416 00:23:10,500 --> 00:23:14,500 with a reasonable expectation of profits which are not just 417 00:23:14,500 --> 00:23:17,300 profits. In the sense of excess of 418 00:23:17,300 --> 00:23:20,600 revenues over costs. But any type of capital 419 00:23:20,600 --> 00:23:25,600 appreciation, any type of gain from predominantly from the 420 00:23:25,600 --> 00:23:27,800 entrepreneurial efforts of others. 421 00:23:28,500 --> 00:23:34,500 In a common Enterprise, then the law says that if that test is 422 00:23:34,500 --> 00:23:38,200 met, then there something called an investment contract exists, 423 00:23:38,200 --> 00:23:41,900 which is a security. Now, that security in most of 424 00:23:41,900 --> 00:23:45,500 the case law is not something, it's not a contract that people 425 00:23:45,500 --> 00:23:49,400 wrote down and said, I hereby agree to make efforts for you to 426 00:23:49,400 --> 00:23:53,000 help you make profits. Usually it's quite the opposite. 427 00:23:53,200 --> 00:23:56,200 Usually they did a bunch of other things that don't look 428 00:23:56,200 --> 00:23:58,000 like Securities. But when you sort of look, Look 429 00:23:58,000 --> 00:24:00,800 at the total picture, it's just could be a Securities 430 00:24:00,800 --> 00:24:03,000 transaction. And so the law implies the 431 00:24:03,008 --> 00:24:05,600 existence of a security called an investment contract. 432 00:24:06,800 --> 00:24:10,700 You kind of alluded to it right that basically seems like what 433 00:24:10,700 --> 00:24:14,100 the lot of projects have done and you crypto space is sort of 434 00:24:14,100 --> 00:24:20,300 take his Howey test and then try to argue that, you know, they're 435 00:24:20,300 --> 00:24:22,000 not, they don't fall in this bucket. 436 00:24:22,500 --> 00:24:25,900 I guess mostly. It has been around the last 437 00:24:25,900 --> 00:24:28,900 point, right? This effort of others Point. 438 00:24:29,700 --> 00:24:32,000 That's right. Sometimes common Enterprise, you 439 00:24:32,000 --> 00:24:35,600 know, I like probably, you know, something like crypto kitties 440 00:24:35,600 --> 00:24:38,000 and FTS, right? Why are they not Securities? 441 00:24:38,200 --> 00:24:40,300 I think a big part of the reason is the lack of a common 442 00:24:40,300 --> 00:24:43,200 Enterprise, right? Because it's not like gapper 443 00:24:43,200 --> 00:24:48,800 Labs is keeping a copy of the same nft you know that it means 444 00:24:48,800 --> 00:24:52,200 each time and so it's not, similarly situated to each buyer 445 00:24:52,500 --> 00:24:54,600 but you're right. Typically they're hanging their 446 00:24:54,600 --> 00:24:59,700 hat on the efforts of others. So oftentimes the the Howey test 447 00:24:59,700 --> 00:25:02,900 is brought up and you know we've heard about the Howey test 448 00:25:03,100 --> 00:25:07,600 numbers of times but the exchange act isn't necessarily. 449 00:25:07,600 --> 00:25:10,800 The first thing that people will cite when talking about tokens 450 00:25:10,800 --> 00:25:14,900 and their possible security status, what is the exchange act 451 00:25:14,900 --> 00:25:16,300 and what does it have to do with all of this? 452 00:25:17,800 --> 00:25:20,600 Yeah, so you're exactly right. Most of the discussion has just 453 00:25:20,600 --> 00:25:23,600 been around fundraising activity, which is covered by 454 00:25:23,800 --> 00:25:28,000 what we call the 33 act and that, you know, the core of that 455 00:25:28,000 --> 00:25:32,800 act is every sale of Securities has to be either registered with 456 00:25:32,800 --> 00:25:35,800 the SEC or exempt from registration, very simple. 457 00:25:36,300 --> 00:25:39,700 The 34 Act deals with what happens next, what happens when 458 00:25:39,700 --> 00:25:43,700 you have a security and then you want to start treating it after 459 00:25:43,700 --> 00:25:47,400 the initial fundraising? So there's a whole set of 460 00:25:47,500 --> 00:25:50,800 secondary Market regulations around that and a little bit 461 00:25:50,800 --> 00:25:54,700 depends, which one's apply depend on what type of security 462 00:25:54,700 --> 00:25:56,900 it is. There are two main categories, 463 00:25:57,300 --> 00:25:59,300 debt, Securities and Equity Securities. 464 00:25:59,900 --> 00:26:03,600 If it's an equity security, it's much more highly regulated. 465 00:26:04,100 --> 00:26:06,900 So, the now you're now, you're kind of getting at my diabolical 466 00:26:06,900 --> 00:26:11,000 reason why I called it Network Equity is to suggest that maybe 467 00:26:11,000 --> 00:26:15,100 some of the regulations Under The Exchange act such as 468 00:26:15,100 --> 00:26:20,800 relating to limitation. On Insider swing trading of the 469 00:26:20,800 --> 00:26:25,000 security rules about how you solicit votes to. 470 00:26:25,000 --> 00:26:29,000 The extent that tokens, may be voting Securities, may be 471 00:26:29,000 --> 00:26:32,700 relevant early on, in a networks life while it's still 472 00:26:32,800 --> 00:26:35,600 effectively controlled by a small group of people. 473 00:26:37,200 --> 00:26:41,100 Can you go a little bit more in-depth as to the requirements 474 00:26:41,100 --> 00:26:44,200 in the exchange act? Like I mean I guess it would be 475 00:26:44,208 --> 00:26:47,800 interesting to understand where a lot of crypto projects maybe 476 00:26:47,800 --> 00:26:53,300 are failing to comply to the laws under which that, which 477 00:26:53,300 --> 00:26:55,400 fall under the exchange act. Sure. 478 00:26:55,500 --> 00:27:00,000 So the big one is if it's an equity security, there's a rule 479 00:27:00,000 --> 00:27:04,500 called 12g that says that if it's if the security is held by 480 00:27:04,600 --> 00:27:10,300 more than 499 unaccredited, And investors or more than 1999 481 00:27:11,500 --> 00:27:15,200 investors overall. And the issuer has at least ten 482 00:27:15,200 --> 00:27:18,400 million in assets. At the end of a fiscal year that 483 00:27:18,400 --> 00:27:20,900 the issue is required to become and exchange act reporting 484 00:27:20,900 --> 00:27:22,700 company. What is an exchange act 485 00:27:22,700 --> 00:27:25,800 reporting company? Think of Apple think of Tesla 486 00:27:26,000 --> 00:27:32,100 fully public companies. That's a very expensive regime, 487 00:27:32,500 --> 00:27:36,600 that really only mature high value companies are equipped to 488 00:27:36,600 --> 00:27:41,500 deal And one of the interesting things is that in pretty much 489 00:27:41,500 --> 00:27:45,600 all of the settlements that the SEC entered into with token 490 00:27:45,600 --> 00:27:50,300 issuers, Paragon are Fox Etc. Other than block, one part of 491 00:27:50,300 --> 00:27:53,100 the remediation that was ordered of those issuers. 492 00:27:53,100 --> 00:27:57,600 Was they had to become 12g reporters and none of them ended 493 00:27:57,600 --> 00:28:01,700 up successfully doing it so far. But so, clearly the SEC at least 494 00:28:01,700 --> 00:28:04,400 implicitly thinks that these may be Equity Securities. 495 00:28:05,000 --> 00:28:08,400 So once you're in an exchange act or Porter, you become, you 496 00:28:08,400 --> 00:28:11,300 have to file 10ks. You have to file 10-qs. 497 00:28:11,500 --> 00:28:14,800 These are long annual reports of a lot of financial information. 498 00:28:15,500 --> 00:28:17,900 You also have to publish a lot of information. 499 00:28:17,900 --> 00:28:20,800 This I think is probably more relevant to tokens than the 500 00:28:20,800 --> 00:28:23,800 financial stuff information about. 501 00:28:23,800 --> 00:28:26,600 Okay, who are your officers or directors? 502 00:28:27,000 --> 00:28:32,000 Who owns 5% or more of the security and you have to report 503 00:28:32,000 --> 00:28:34,400 about those things. And even if someone even if a 504 00:28:34,400 --> 00:28:38,300 third party goes out and it requires five Center more of the 505 00:28:38,300 --> 00:28:42,100 of the total outstanding tokens that person is just 506 00:28:42,100 --> 00:28:44,700 independently having nothing to do with the issue, where they're 507 00:28:44,700 --> 00:28:47,200 required to report with the SEC about their Holdings. 508 00:28:47,800 --> 00:28:51,100 So these are the types of these are the types of regulations 509 00:28:51,100 --> 00:28:53,100 that apply Under The Exchange act. 510 00:28:53,400 --> 00:28:56,500 And of course, there are a lot of sort of just pure 511 00:28:56,500 --> 00:28:59,900 market-based rules. Like, like, for example, all the 512 00:28:59,900 --> 00:29:02,400 rules about Securities exchanges, right? 513 00:29:02,400 --> 00:29:04,400 And then having to register, right? 514 00:29:04,500 --> 00:29:06,100 Those are under the exchange act as well. 515 00:29:07,800 --> 00:29:11,300 Yeah, I just wanted to be pleased looping on this thing. 516 00:29:11,300 --> 00:29:14,500 You said, so, yeah, they have been very settlements with the 517 00:29:14,500 --> 00:29:17,200 SEC, right? Like, Paragon being one thing 518 00:29:17,200 --> 00:29:21,300 and a bunch of others and to give mind just elaborating a 519 00:29:21,308 --> 00:29:23,400 little bit on. You said that none of them have 520 00:29:23,400 --> 00:29:27,500 been able to basically comply with live up to these reporting 521 00:29:27,500 --> 00:29:29,700 requirements that they've agreed to in the settlement. 522 00:29:29,700 --> 00:29:32,500 So like, how did those cases play out in the end? 523 00:29:33,700 --> 00:29:35,500 Yeah, I'm curious about that myself. 524 00:29:35,500 --> 00:29:37,800 They basically just totally flaked on the SEC. 525 00:29:37,800 --> 00:29:40,700 They made some preliminary filings the SEC made some 526 00:29:40,700 --> 00:29:44,100 comments and, you know, from what I understand, they just 527 00:29:44,100 --> 00:29:47,400 kind of, you know, scatter to the winds said, they ran out of 528 00:29:47,400 --> 00:29:50,600 money and I'm sort of waiting for the other shoe to drop on 529 00:29:50,600 --> 00:29:52,700 that one. But, you know, it does go to 530 00:29:52,700 --> 00:29:56,800 show that it's look, I don't know. 531 00:29:56,900 --> 00:30:00,600 Let's assume for the moment that that those teams were attempting 532 00:30:00,600 --> 00:30:02,400 to comply in good faith with the order. 533 00:30:03,000 --> 00:30:06,000 I'm not Totally surprised that they were having trouble doing. 534 00:30:06,000 --> 00:30:09,400 So, because it's just such a reporting regime that's designed 535 00:30:09,400 --> 00:30:11,500 for startups. It's designed for something like 536 00:30:11,500 --> 00:30:13,700 apple. You two are like, let's say, 537 00:30:13,700 --> 00:30:17,400 Uber, you know, that that had great funding and really built 538 00:30:17,400 --> 00:30:21,200 up a business over 10 years and then it's ready to IPO, right? 539 00:30:21,200 --> 00:30:23,600 So, I'm not surprised that they ran into problems. 540 00:30:25,100 --> 00:30:28,000 That's an interesting point. I think, like that, that is one 541 00:30:28,000 --> 00:30:30,900 of the things about, I guess, regulation that applies to 542 00:30:30,900 --> 00:30:33,300 crypto that, I mean, we, we talked about this. 543 00:30:33,700 --> 00:30:36,100 Also, with the idea for new, see, in terms of sort of kyc 544 00:30:36,100 --> 00:30:38,500 compliance and things like that, is that a lot of these 545 00:30:38,500 --> 00:30:41,500 regulations were just not meant to be applied to startups. 546 00:30:42,000 --> 00:30:46,000 And Regulators are either having a hard time or not wanting to, 547 00:30:46,000 --> 00:30:48,400 you know, have that regulation evolve. 548 00:30:48,900 --> 00:30:53,200 I mean, in terms of, in terms of the exchange act, I mean, just 549 00:30:53,200 --> 00:30:57,700 broadly, looking at most of the big crypto networks, you know, 550 00:30:58,000 --> 00:31:00,500 based on what you're telling us with regards to the proper 551 00:31:00,500 --> 00:31:03,000 record reporting, you know, insider trading Etc. 552 00:31:03,700 --> 00:31:07,000 It would seem like some of them might be failing to report or 553 00:31:07,000 --> 00:31:09,900 might be failing to be compliant with this exchange act. 554 00:31:10,100 --> 00:31:11,500 Why do you think we haven't seen? 555 00:31:11,500 --> 00:31:14,000 You know a lot of these projects getting sued by their talking 556 00:31:14,000 --> 00:31:16,700 holders and seems like no one's really talking about this. 557 00:31:18,000 --> 00:31:20,900 Let me pick up on two things you just talked about. 558 00:31:20,908 --> 00:31:24,600 So, the one thing I would say about the, you know, just going 559 00:31:24,600 --> 00:31:26,600 back to the point about the exchange act and it being 560 00:31:26,600 --> 00:31:30,000 difficult to comply with there is something called regulation 561 00:31:30,000 --> 00:31:33,100 A+, right? Which was sort of designed to be 562 00:31:33,100 --> 00:31:37,600 an IPO for startups, right? You know, because people do 563 00:31:37,600 --> 00:31:41,000 recognize that this is a problem and they would like companies to 564 00:31:41,000 --> 00:31:43,300 be able to get access to the public market sooner. 565 00:31:43,300 --> 00:31:48,400 So that's why regulation A+ was passed and what enables You do 566 00:31:48,400 --> 00:31:53,900 is raise 50 million from the public up to 50 million and you 567 00:31:53,900 --> 00:31:56,700 have a much lighter reporting regime, still reporting regime, 568 00:31:56,700 --> 00:32:00,800 but lighter, you actually get an exemption from those tougher 569 00:32:01,200 --> 00:32:03,400 reporting obligations for some period of years. 570 00:32:03,600 --> 00:32:05,700 Now, there are some tweaks that might need to be made to that 571 00:32:05,700 --> 00:32:07,400 for tokens. Like, there's a transfer agent, 572 00:32:07,400 --> 00:32:11,200 requirement and stuff, but so there's not no option for 573 00:32:11,200 --> 00:32:13,400 startups. It's just that you have to 574 00:32:13,400 --> 00:32:15,700 decide to use it at the beginning, which would require 575 00:32:15,700 --> 00:32:18,500 that you labeled your tokens as a security from the Beginning 576 00:32:18,600 --> 00:32:21,900 and none of these projects did now as to why more projects 577 00:32:21,900 --> 00:32:24,900 haven't gotten pegged that again, is a complicated 578 00:32:24,900 --> 00:32:29,600 question, you know, I think it's one of the reasons is that the 579 00:32:29,800 --> 00:32:32,200 SEC can only go after so many things. 580 00:32:32,200 --> 00:32:34,200 There's a private right of action as you point out under 581 00:32:34,200 --> 00:32:36,800 the Securities, laws for people who feel like they got ripped 582 00:32:36,800 --> 00:32:39,500 off. A lot of people made money you 583 00:32:39,500 --> 00:32:43,300 know from a lot of tokens and a lot of people who bought tokens 584 00:32:43,500 --> 00:32:46,800 are not the kind of people who make it plaintiffs right, 585 00:32:46,800 --> 00:32:50,100 because my sense is a Of them made out of pay taxes on their 586 00:32:50,100 --> 00:32:52,900 crypto for many years. You know, a lot of the may not 587 00:32:52,900 --> 00:32:56,200 be US citizens, right? A lot of them may not want to 588 00:32:56,700 --> 00:33:00,200 kyc themselves in order to pursue a complaint even if they 589 00:33:00,200 --> 00:33:02,600 did lose money. So, I actually think on the on 590 00:33:02,600 --> 00:33:06,800 the private action side, there's quite a bit of that going on and 591 00:33:06,800 --> 00:33:08,900 on the SEC side there's a lot of. 592 00:33:09,200 --> 00:33:12,100 How do you unscramble the egg we went after some? 593 00:33:12,100 --> 00:33:14,800 It didn't really deliver a good result for investors. 594 00:33:15,100 --> 00:33:17,100 The block one result is interesting, right? 595 00:33:17,100 --> 00:33:20,500 Because They had a lot of money, still. 596 00:33:21,100 --> 00:33:24,400 They paid a really big fine and they weren't required to 597 00:33:24,400 --> 00:33:26,600 register the tokens as Securities. 598 00:33:26,800 --> 00:33:30,200 So, you know, in a sense, it was a big win for the SEC. 599 00:33:30,500 --> 00:33:33,200 I'm not quite sure what he owes holders, got out of it, but on 600 00:33:33,200 --> 00:33:36,500 the other hand, no EOS holders, who from the original sale will 601 00:33:36,500 --> 00:33:38,800 probably damaged because the token went up a lot. 602 00:33:39,000 --> 00:33:41,400 So there's a lot of that sort of thing going on just real 603 00:33:41,400 --> 00:33:44,600 politic, but you could probably see more. 604 00:33:44,600 --> 00:33:47,500 I think the SEC doesn't want to kill the technology so they've 605 00:33:47,500 --> 00:33:50,800 been Judicious about what they've gone after and when and 606 00:33:50,800 --> 00:33:55,200 why kick in telegram have been there two big targets that date 607 00:33:55,300 --> 00:33:59,300 and I think the reasoning behind that is it's a clear case of 608 00:33:59,600 --> 00:34:04,900 cure or two companies that use tokens kind of in lieu of an 609 00:34:04,900 --> 00:34:08,100 equity financing, right? And I think one of the things 610 00:34:08,100 --> 00:34:13,100 the SEC rightly doesn't want to happen in the market is they 611 00:34:13,100 --> 00:34:17,600 don't want to create a strange situation where a certain type 612 00:34:17,600 --> 00:34:21,400 of Of financing that implicates the Securities laws or maybe 613 00:34:21,400 --> 00:34:23,800 ought to implicate. The Securities laws is given 614 00:34:23,800 --> 00:34:27,400 preferential treatment and the whole Market just gets distorted 615 00:34:27,400 --> 00:34:29,900 toward that due to a weird loophole in the laws. 616 00:34:30,300 --> 00:34:33,000 I actually do think they're very smart about what they go after 617 00:34:33,000 --> 00:34:35,900 and they're not just trying to tyrannize the entire Market. 618 00:34:37,000 --> 00:34:40,199 Let's take a step back, we play because one of the things that 619 00:34:40,199 --> 00:34:44,400 you've discussed quite a bit in your post is sort of to say, 620 00:34:44,500 --> 00:34:49,100 okay, let's look at the culture of the cryptocurrency industry. 621 00:34:49,100 --> 00:34:52,800 Let's look at, you know, some of the maybe on this era Behavior, 622 00:34:52,800 --> 00:34:57,000 some of the strange incentives and how, you know, Securities 623 00:34:57,000 --> 00:34:59,800 laws has caused that. So can you talk a little bit 624 00:34:59,800 --> 00:35:01,300 about that? Like what's your take about, you 625 00:35:01,308 --> 00:35:04,700 know, kind of what's wrong in the blockchain industry and what 626 00:35:04,700 --> 00:35:09,200 it has to do with Securities Law What's wrong is basically it's 627 00:35:09,200 --> 00:35:12,300 just a strange species of hypocrisy in effect. 628 00:35:12,400 --> 00:35:15,700 We know why we like tokens people want the tokens to 629 00:35:15,700 --> 00:35:18,200 increase in price. People want to be trading the 630 00:35:18,200 --> 00:35:22,800 tokens people view the tokens as investments in the network, at 631 00:35:22,800 --> 00:35:26,600 the early stage in the team, they're evaluating the when they 632 00:35:26,600 --> 00:35:28,100 thinking about buying the tokens. 633 00:35:28,400 --> 00:35:30,900 They're looking at who the people on the team are just like 634 00:35:30,900 --> 00:35:33,800 they would be if it was a start-up, the people who are at 635 00:35:33,800 --> 00:35:38,100 the in the project there, look, giving up the Token allocations, 636 00:35:38,100 --> 00:35:41,200 just like they would be whacking up equity and a valuable, you 637 00:35:41,200 --> 00:35:43,600 know, potentially valuable hot start up. 638 00:35:44,400 --> 00:35:47,100 These are investments. Let's just view them as 639 00:35:47,100 --> 00:35:49,200 Investments. That's how people think of them. 640 00:35:49,200 --> 00:35:51,900 Right there, are exceptions, of course, crypto Kitty and FTS, 641 00:35:51,900 --> 00:35:52,900 right? Well, whatever. 642 00:35:53,100 --> 00:35:56,300 But for vast, majority of cases, they are investments. 643 00:35:56,400 --> 00:35:59,700 And we've been trying to stick our heads in the sand to try to 644 00:35:59,700 --> 00:36:03,500 get regulatory Arbitrage and argue that it's like buying 645 00:36:03,500 --> 00:36:06,300 cotton candy, you know, at the amusement park or something and 646 00:36:06,300 --> 00:36:10,900 it's just Not the part of point of my article is they can be 647 00:36:10,900 --> 00:36:14,300 Investments and still ultimately not be Securities, right? 648 00:36:14,400 --> 00:36:18,700 Because the SEC or director Hitman from the corpfin division 649 00:36:18,700 --> 00:36:21,500 of the SEC. Came out with this amazing 650 00:36:21,500 --> 00:36:26,100 speech called when how he met Gary plastic about how, 651 00:36:26,100 --> 00:36:30,300 basically, if may have started out as being a security and its 652 00:36:30,300 --> 00:36:34,300 early days and over time, it basically turned into a public, 653 00:36:34,300 --> 00:36:38,400 Commons controlled by no one. And so now it does Securities 654 00:36:38,400 --> 00:36:40,700 laws, just don't really make sense to apply to that. 655 00:36:41,400 --> 00:36:44,800 We need to figure out what that point in time is and Define it 656 00:36:44,800 --> 00:36:47,400 better for people, right? Which is what I think the 657 00:36:47,400 --> 00:36:51,400 purpose of a safe harbor should be, but what we shouldn't do is 658 00:36:51,400 --> 00:36:53,500 just keep pretending that they're not Investments because 659 00:36:53,500 --> 00:36:57,000 it's just not true and it's just kind of dumb and it'd be better 660 00:36:57,000 --> 00:37:00,400 if we could just all admit with the things are and pursue them 661 00:37:00,400 --> 00:37:04,000 for the reasons we want to and then figure out how the 662 00:37:04,000 --> 00:37:08,100 regulations do with it. Maybe just a final points on 663 00:37:08,100 --> 00:37:10,700 this. What do you think have been the 664 00:37:10,700 --> 00:37:16,600 negative effects of people as you sort of describe it? 665 00:37:16,600 --> 00:37:18,300 I guess. Kind of skirting around the 666 00:37:18,300 --> 00:37:21,800 issue so many negative effects, right. 667 00:37:21,800 --> 00:37:26,300 Because if everyone was open about the fact that the tokens 668 00:37:26,300 --> 00:37:29,500 are investments and what regulations applied, then, the 669 00:37:29,500 --> 00:37:35,300 teams could try to do their best to give the the buyers what 670 00:37:35,300 --> 00:37:37,900 they're looking for. His gains they could be like, 671 00:37:37,900 --> 00:37:41,500 Elon Musk is a Tesla. He owns a lot of the stock. 672 00:37:41,600 --> 00:37:43,700 He's always trying to make the stock go up. 673 00:37:43,800 --> 00:37:45,800 Sometimes he gets a little too aggressive with that. 674 00:37:45,800 --> 00:37:47,900 In the SEC gets mad at him, right? 675 00:37:48,000 --> 00:37:52,500 But the teams could be trying to deliver value to the people who 676 00:37:52,500 --> 00:37:57,000 are owed that value because they invested and instead perversely, 677 00:37:57,100 --> 00:37:59,300 they're driven to do the exact opposite. 678 00:37:59,300 --> 00:38:02,300 Thanks for the money. This was basically free money to 679 00:38:02,300 --> 00:38:05,200 us, I'm sorry the token price is going down. 680 00:38:05,200 --> 00:38:06,800 We can't do anything about About it. 681 00:38:06,800 --> 00:38:09,200 We can't get it listed on new exchanges. 682 00:38:09,400 --> 00:38:13,000 We can't Market it and go to the world, you know? 683 00:38:13,000 --> 00:38:16,400 And say why people should be buying this token, because we're 684 00:38:16,400 --> 00:38:18,800 driving value to the platform every day. 685 00:38:18,900 --> 00:38:22,900 That's just crazy, right? I think I saw an interview, you 686 00:38:22,900 --> 00:38:26,900 know, some talk metallic was given a while ago and people 687 00:38:26,900 --> 00:38:29,800 were asking questions of the audience and one guy stood off, 688 00:38:29,800 --> 00:38:33,600 he had the temerity to ask about each price and they like drag 689 00:38:33,600 --> 00:38:36,600 the guy out of the room. Now, imagine an apple 690 00:38:36,600 --> 00:38:39,400 stockholder conference, right? I'm not saying specifically for 691 00:38:39,400 --> 00:38:42,400 a theory on because now it is, you know, fairly far along but 692 00:38:42,400 --> 00:38:45,300 like, imagine an out like an Apple stock and someone asked 693 00:38:45,300 --> 00:38:48,300 him cook about Apple price, and they, like drag the guy out of 694 00:38:48,308 --> 00:38:50,700 the room. This should not be happening, 695 00:38:50,700 --> 00:38:52,400 right? Vitalik should feel free to 696 00:38:52,400 --> 00:38:56,200 answer some question about if price and honestly, I kind of 697 00:38:56,200 --> 00:38:57,900 feel like you should feel at least a little bit of an 698 00:38:57,900 --> 00:39:00,800 obligation as say, something about each price because after 699 00:39:00,800 --> 00:39:03,300 all, that's why the vast majority of the people have 700 00:39:03,300 --> 00:39:06,000 bought it. It's just gotten topsy-turvy 701 00:39:06,200 --> 00:39:09,200 because of this desire to try to pretend that it's not a security 702 00:39:09,200 --> 00:39:11,600 and doesn't have investment reasons for buying it. 703 00:39:12,300 --> 00:39:14,100 I love the clarity and what you just said. 704 00:39:14,600 --> 00:39:16,500 I just want to point that out. Good. 705 00:39:17,000 --> 00:39:20,500 Let's say we won did as you propose. 706 00:39:21,000 --> 00:39:25,000 What would that look like? Hester Pierce, right? 707 00:39:25,000 --> 00:39:28,400 Commissioner peers, came out with a safe, harbor proposal 708 00:39:28,400 --> 00:39:30,800 recently. And without getting into, too 709 00:39:30,800 --> 00:39:35,000 much, in the weeds audit, which he proposed is, is basically let 710 00:39:35,000 --> 00:39:38,200 these networks launch. Just only apply the fraud rules 711 00:39:38,200 --> 00:39:40,100 to them for the first three years. 712 00:39:40,400 --> 00:39:44,300 And then after three years test, basically, whether the network 713 00:39:44,300 --> 00:39:47,300 is mature, that may be overlap somewhat with sufficiently 714 00:39:47,300 --> 00:39:51,600 decentralized and decide whether their securities, I think that 715 00:39:51,600 --> 00:39:54,600 goes a little far I don't even know if the SEC has the power to 716 00:39:54,600 --> 00:39:57,800 just say yeah we're just going to say that we'd like something 717 00:39:57,800 --> 00:40:00,300 so much the Securities laws. Don't apply to it for three 718 00:40:00,300 --> 00:40:03,500 years, just to clarify they said you. 719 00:40:03,500 --> 00:40:08,300 Okay, Network's launch and only fraud rules apply would that 720 00:40:08,300 --> 00:40:13,400 mean that for example, public token sales like we saw in sort 721 00:40:13,400 --> 00:40:16,900 of 2017 like you could do that sort of thing. 722 00:40:17,300 --> 00:40:19,600 Yes. And not just sell to accredited 723 00:40:19,600 --> 00:40:22,800 investor and all that. Yeah, you could tell to anyone. 724 00:40:22,800 --> 00:40:25,500 I don't think that's going to end up being supported. 725 00:40:25,600 --> 00:40:29,200 You know, by people outside the space or by many people outside 726 00:40:29,200 --> 00:40:31,500 the space, but I do think what we should do. 727 00:40:31,500 --> 00:40:34,900 Right is clarify this point of, when does it stop being a 728 00:40:34,908 --> 00:40:36,700 security if it starts out being a security? 729 00:40:36,700 --> 00:40:39,000 When does it stop, right? Because a lot of even the most 730 00:40:39,000 --> 00:40:43,200 conservative members of the, the staff of the SEC seem to be 731 00:40:43,200 --> 00:40:45,000 somewhat aligned with that approach, right? 732 00:40:45,000 --> 00:40:47,400 A even Clayton, you know, seems to be somewhat aligned with that 733 00:40:47,400 --> 00:40:49,800 approach. What I think would look like is 734 00:40:49,800 --> 00:40:51,500 somewhat like what block stack did? 735 00:40:51,700 --> 00:40:53,800 They did a regulation A+ offering. 736 00:40:54,200 --> 00:40:56,800 They had to now to get that in and of itself is somewhat 737 00:40:56,800 --> 00:40:58,800 expensive and probably too expensive. 738 00:40:59,000 --> 00:41:02,400 The SEC could do things to lower the cost of doing a regulation 739 00:41:02,400 --> 00:41:04,700 A+ offering. They could do things. 740 00:41:04,700 --> 00:41:08,800 They can make a more specific, more crypto specific variation 741 00:41:08,800 --> 00:41:11,400 of Reggae plus I believe that's within their power. 742 00:41:11,400 --> 00:41:15,100 So for example, they could say that right now, there's a rule 743 00:41:15,100 --> 00:41:19,200 that if you did a regulation A+ offering for or an equity 744 00:41:19,200 --> 00:41:24,400 security, you get this kind of like indefinite plus 2 year-ish, 745 00:41:24,500 --> 00:41:30,300 reprieve from rule 12, G. If you use a transfer agent, you 746 00:41:30,300 --> 00:41:32,400 process all transactions through a transfer agent. 747 00:41:32,400 --> 00:41:34,500 Well, this is crypto. We don't want to process 748 00:41:34,500 --> 00:41:36,900 transactions through a transfer agent that's going to make it 749 00:41:36,900 --> 00:41:40,600 useless but the SEC could say, okay if it's crypto the 750 00:41:40,600 --> 00:41:42,300 blockchain is the transfer agent. 751 00:41:42,300 --> 00:41:45,400 They can totally do that and in fact block stack took that 752 00:41:45,400 --> 00:41:48,400 position in its filing and the SEC. 753 00:41:48,500 --> 00:41:52,700 By the filing you could use something like that reason. 754 00:41:52,700 --> 00:41:55,200 Why? A lot of that's not enough for 755 00:41:55,200 --> 00:41:58,400 many people in the industry is they say well blocks that gives 756 00:41:58,400 --> 00:42:01,100 and trading on coinbase, this is very bad, right? 757 00:42:01,400 --> 00:42:03,300 Okay. What I say to that is coinbase. 758 00:42:03,300 --> 00:42:06,100 Get your act together, go register as Securities Exchange, 759 00:42:06,100 --> 00:42:08,000 why can't you do that? Create a crypto. 760 00:42:08,000 --> 00:42:12,100 Create a coinbase, crypto Securities Pro or whatever, 761 00:42:12,200 --> 00:42:14,200 right? And have that be registered as a 762 00:42:14,207 --> 00:42:17,300 Securities Exchange and then those things could train there. 763 00:42:18,200 --> 00:42:22,000 What about dex's personally, I think that a true Dex is just 764 00:42:22,000 --> 00:42:26,100 facilitating, a peer-to-peer trade and I don't believe that 765 00:42:26,100 --> 00:42:29,800 that ought to be required to be registered as a Securities 766 00:42:29,800 --> 00:42:31,300 Exchange. The SEC. 767 00:42:31,300 --> 00:42:34,300 If they agree with me on that they could clarify that publicly 768 00:42:34,300 --> 00:42:37,200 to the world, right? And that would be a way that 769 00:42:37,200 --> 00:42:41,300 even non reggae plus, even sort of things issued in private 770 00:42:41,300 --> 00:42:44,700 placements that eventually become freely trading. 771 00:42:44,800 --> 00:42:47,400 You know, those could trade on their even and that would be an 772 00:42:47,400 --> 00:42:50,100 even less Expensive path. So, there are these ways. 773 00:42:50,200 --> 00:42:53,400 I think what we should do is not try to keep fighting the basics 774 00:42:53,400 --> 00:42:57,400 of American Securities Law, but focus on this, this idea of 775 00:42:57,400 --> 00:43:01,100 mutation and say in the meantime, let's improve the 776 00:43:01,100 --> 00:43:03,800 crypto Securities rails. So that even when things are 777 00:43:03,800 --> 00:43:07,200 securities, they can trade relatively freely and with 778 00:43:07,200 --> 00:43:10,900 people being protected and hey, by the way, there are also all 779 00:43:10,900 --> 00:43:13,800 still all these things called like stos and stuff like that 780 00:43:13,800 --> 00:43:17,200 like tokenize stock and things like this where it's never going 781 00:43:17,200 --> 00:43:19,600 to stop beings. Already and an incidental 782 00:43:19,600 --> 00:43:23,800 benefit of improving the crypto Securities rails for tokens that 783 00:43:23,800 --> 00:43:26,900 are temporarily Securities is it will also improve the crypto 784 00:43:26,900 --> 00:43:30,400 Securities rails for all those things and that may actually 785 00:43:30,400 --> 00:43:33,700 become the basis for fundamentally improving. 786 00:43:33,900 --> 00:43:37,200 The infrastructure of all of our public Securities markets. 787 00:43:38,100 --> 00:43:41,900 This type of approach, I think is more holistic, more 788 00:43:41,900 --> 00:43:45,700 forward-looking is actually Embraces crypto more in the long 789 00:43:45,700 --> 00:43:47,600 term and I think it's what we should do. 790 00:43:48,600 --> 00:43:51,000 Just to clarify that. So what you saying, basically 791 00:43:51,000 --> 00:43:55,100 what you're proposing is that like a project could go and 792 00:43:55,100 --> 00:43:59,900 raise funds, maybe through some sort of, you know, regulated reg 793 00:43:59,900 --> 00:44:03,800 the exemptions are selling to accredited investors or maybe 794 00:44:03,800 --> 00:44:06,600 there could be something like a reggae plus something like a 795 00:44:06,600 --> 00:44:11,200 block stack did but you know, maybe cheaper simplified 796 00:44:11,200 --> 00:44:12,600 version. That's more kind of geared 797 00:44:12,600 --> 00:44:16,300 around crypto. So what exactly does this? 798 00:44:16,500 --> 00:44:19,500 Let's say there was this three year You're safe harbor. 799 00:44:19,500 --> 00:44:23,000 Like what does that do? Well, so under commissioner 800 00:44:23,000 --> 00:44:25,900 Pierce's version, the part you just mentioned about needing 801 00:44:25,900 --> 00:44:28,900 reg, D or reggae plus, you wouldn't need those. 802 00:44:29,000 --> 00:44:32,200 You just get out of everything for three years, and coinbase 803 00:44:32,200 --> 00:44:35,100 could trade the tokens for three years, even though their 804 00:44:35,100 --> 00:44:38,400 securities. Under my version that wouldn't 805 00:44:38,400 --> 00:44:41,400 be the case you would need, you know, reggae Plus or you need to 806 00:44:41,400 --> 00:44:43,500 do reg D. They wouldn't be able to trade 807 00:44:43,500 --> 00:44:48,000 on normal coinbase, but you'd also have some benefits, right? 808 00:44:48,000 --> 00:44:51,000 You wouldn't have to like immediately be go become Apple. 809 00:44:51,900 --> 00:44:53,200 There's a difference in Vision there. 810 00:44:53,400 --> 00:44:54,400 Which way will it? Go? 811 00:44:54,400 --> 00:44:56,700 I don't know, right? The key thing that ever that 812 00:44:56,700 --> 00:45:00,500 both proposals have in common though, is you have to pin down 813 00:45:00,800 --> 00:45:04,400 some type of concept and you have to tell people in advance, 814 00:45:04,700 --> 00:45:06,400 when would this no longer be considered? 815 00:45:06,500 --> 00:45:08,500 Our security. That's the concept of network 816 00:45:08,500 --> 00:45:12,800 maturity under commissioner Pierce's definition. 817 00:45:13,200 --> 00:45:14,900 It's that. The either the network is 818 00:45:14,900 --> 00:45:19,200 functional for its kind of originally advertised purpose or 819 00:45:19,200 --> 00:45:23,000 its kind of no longer controlled by anyone under my version. 820 00:45:23,000 --> 00:45:26,700 It's a kind of a three-prong test its that there's, there's 821 00:45:26,700 --> 00:45:29,000 no longer functional control of the network. 822 00:45:29,300 --> 00:45:32,300 There's no longer economic control of the network and the 823 00:45:32,300 --> 00:45:35,900 initial development team has, sort of fulfilled, all of its 824 00:45:35,900 --> 00:45:38,200 promises. Is performed the investment 825 00:45:38,200 --> 00:45:39,400 contract. So, to speak. 826 00:45:39,500 --> 00:45:41,600 The investment contract has been performed. 827 00:45:41,700 --> 00:45:43,800 You're no longer is an investment contract and it's no 828 00:45:43,800 --> 00:45:47,200 longer a security, that's kind of the idea, but that would 829 00:45:47,200 --> 00:45:49,900 imply that there would need to be an investment contract. 830 00:45:50,100 --> 00:45:52,300 That's right to begin. With which in most cases, there 831 00:45:52,300 --> 00:45:54,500 are not any sort of formal investment contracts in these 832 00:45:54,500 --> 00:45:58,100 cases under my version, one of the ideas would be you file with 833 00:45:58,100 --> 00:46:00,500 the SEC at the beginning in order to take advantage of this 834 00:46:00,500 --> 00:46:02,900 Safe Harbor. And you basically say with the 835 00:46:02,900 --> 00:46:06,400 investment contract is, so now, instead of it being a bunch of 836 00:46:06,500 --> 00:46:10,100 Of implicit fuzzy promises. Are they promises? 837 00:46:10,100 --> 00:46:12,200 Are they not promises? Are they merely forward-looking 838 00:46:12,200 --> 00:46:15,300 statements in a white paper? And in some forums and in some 839 00:46:15,300 --> 00:46:18,900 slack channels, you now have the benefit of everyone. 840 00:46:18,900 --> 00:46:22,300 Knowing we are the founders of this project here, is what we're 841 00:46:22,300 --> 00:46:25,700 going to do. When we do this, we will go away 842 00:46:25,900 --> 00:46:27,900 and the network will have to stand on its own. 843 00:46:28,200 --> 00:46:31,400 And I just think that's better for everyone for the team for 844 00:46:31,400 --> 00:46:35,000 the buyers for the market and it lets you kind of say yeah, 845 00:46:35,200 --> 00:46:36,400 instead of the investment contract. 846 00:46:36,500 --> 00:46:39,400 Being applied by law and others. One written down on paper, and 847 00:46:39,400 --> 00:46:41,000 it's actually like objectively measurable. 848 00:46:42,100 --> 00:46:45,100 Do you think that this aligns with the incentives of Founders, 849 00:46:45,100 --> 00:46:47,100 like in your proposal? Do you feel that everyone's 850 00:46:47,100 --> 00:46:51,100 incentives are aligned in a way? That the founders can feel that 851 00:46:51,100 --> 00:46:54,100 they have made money from this project because they're also 852 00:46:54,100 --> 00:46:56,500 looking to make money, right? Like let's be honest about that 853 00:46:57,300 --> 00:47:00,100 by having an investment contract, in which they promised 854 00:47:00,100 --> 00:47:02,000 to it at some point. Leave the project. 855 00:47:02,100 --> 00:47:04,300 Can they still be aligned? That sense? 856 00:47:05,400 --> 00:47:06,900 By the way, they don't have to leave. 857 00:47:06,900 --> 00:47:10,100 They just have to stop being sort of the biggest contributors 858 00:47:10,300 --> 00:47:11,600 and they have to give up control. 859 00:47:11,600 --> 00:47:13,300 That's kind of the more important thing, right? 860 00:47:13,500 --> 00:47:15,900 If you're contributing, you don't have control at that 861 00:47:15,900 --> 00:47:18,600 doesn't implicate. The Securities laws the one way, 862 00:47:18,600 --> 00:47:22,100 it's worse for them, right? Is that the same way that Travis 863 00:47:22,100 --> 00:47:25,900 kalanick had to wait? You know, until sort of an Uber 864 00:47:25,900 --> 00:47:28,500 IPO until he could really cash out? 865 00:47:28,500 --> 00:47:31,400 This would go kind of in stages, right? 866 00:47:31,500 --> 00:47:33,900 Initially the, you know, Founders would have something 867 00:47:33,900 --> 00:47:37,500 that's the relatively illiquid and hard to price, just like in 868 00:47:37,500 --> 00:47:41,600 a normal startup over time it would become more liquid and 869 00:47:41,600 --> 00:47:44,200 easier to Price, Right? And they would have exit 870 00:47:44,200 --> 00:47:47,800 opportunities along the way, and they would probably want to 871 00:47:47,900 --> 00:47:50,300 titrate that over time. So that, you know, they're 872 00:47:50,300 --> 00:47:52,800 selling a little bit at each stage of the way. 873 00:47:52,800 --> 00:47:55,900 And if they've done their job, well, the value of the token 874 00:47:55,900 --> 00:47:59,100 will go up and up and they'll actually want to hold onto it. 875 00:47:59,100 --> 00:48:00,700 They won't want to sell at the earlier stage. 876 00:48:00,700 --> 00:48:02,800 They'll be Wally wanting to sell as late as they can. 877 00:48:03,500 --> 00:48:06,400 I think it align the incentives way better, it's more like a 878 00:48:06,408 --> 00:48:10,000 traditional company trajectory. What do you think the role of 879 00:48:10,000 --> 00:48:14,200 Foundations is in this context? And what are some of the 880 00:48:14,200 --> 00:48:17,900 criticisms that you have with regards to the way that many 881 00:48:17,900 --> 00:48:20,800 icos have structured themselves as Swiss foundations? 882 00:48:21,900 --> 00:48:23,400 I'm not trying to impunity one, right. 883 00:48:23,400 --> 00:48:26,300 A all these projects are doing good work etc. 884 00:48:26,600 --> 00:48:29,500 But from you know, kind of a let's cut through the noise 885 00:48:29,500 --> 00:48:31,600 here. The foundations are basically, 886 00:48:31,600 --> 00:48:35,000 you know, they're getting Massive tax benefits, right? 887 00:48:35,000 --> 00:48:38,200 Because the proceeds of the token sale are not treated as 888 00:48:38,200 --> 00:48:40,900 income. Ironically, if they were sold a 889 00:48:40,900 --> 00:48:43,300 Securities, they wouldn't be taxed as income either, right? 890 00:48:43,300 --> 00:48:46,100 Because they be Capital contributions but you know, 891 00:48:46,100 --> 00:48:48,200 really, I see it. As you know, that's another 892 00:48:48,200 --> 00:48:50,500 Distortion because the people didn't want to call them 893 00:48:50,500 --> 00:48:53,100 Securities. Now suddenly, it's like, oh, I'm 894 00:48:53,100 --> 00:48:55,200 saying for Securities Law purposes, I'm selling this 895 00:48:55,200 --> 00:48:57,600 product, oops. That means I'm going to be taxed 896 00:48:57,600 --> 00:49:00,300 on all this stuff, but really I just want to use it as capital 897 00:49:00,300 --> 00:49:03,300 to build the project. So I now need to find some other 898 00:49:03,300 --> 00:49:05,900 way of not getting taxed on it. Let's say we're not really a 899 00:49:05,908 --> 00:49:08,600 company. Let's say we're a non-profit but 900 00:49:08,600 --> 00:49:10,700 I think a lot of these foundations are basically run 901 00:49:10,700 --> 00:49:12,300 like companies. They're basically right. 902 00:49:12,300 --> 00:49:14,700 You know, because all the people in them, hold a bunch of the 903 00:49:14,700 --> 00:49:18,100 token, everything you're doing is driving profits to those 904 00:49:18,100 --> 00:49:20,200 people, you know it's just happening in a disguised way. 905 00:49:21,100 --> 00:49:23,800 That's really what I think is going on it would be better 906 00:49:23,800 --> 00:49:25,500 looking be better if they were just companies. 907 00:49:25,500 --> 00:49:28,100 To be honest with you I could just you know nakedly / super 908 00:49:28,300 --> 00:49:31,600 what they're actually doing you know which is driving value to 909 00:49:31,600 --> 00:49:35,000 this instrument and Hitting the people who bought it and the 910 00:49:35,000 --> 00:49:38,700 people who work at the foundation who hold it, I think 911 00:49:38,700 --> 00:49:41,700 woodsy cash has done to decentralized governance and 912 00:49:41,700 --> 00:49:43,700 again during a little bit of different boat, they never did 913 00:49:43,700 --> 00:49:45,600 an icy. Oh so who knows if they're 914 00:49:45,600 --> 00:49:46,600 thing? Exactly. 915 00:49:46,600 --> 00:49:49,400 Was covered by the Securities laws to begin with but it's very 916 00:49:49,400 --> 00:49:51,800 interesting, right? Because the foundation is sort 917 00:49:51,800 --> 00:49:55,300 of one player that's contributing value. 918 00:49:55,600 --> 00:49:58,100 There's also a company called the electric Coin Company. 919 00:49:58,100 --> 00:50:01,100 That's a for-profit thing that has Venture investors. 920 00:50:01,200 --> 00:50:04,500 That's some of the things that does are Related to Z cash, some 921 00:50:04,500 --> 00:50:08,400 not and they've set up a complicated sort of to taunt 922 00:50:08,400 --> 00:50:11,800 between those two main players for how to govern the network 923 00:50:11,800 --> 00:50:14,000 and that looks pretty decentralized to be. 924 00:50:14,000 --> 00:50:16,600 But most of them are not don't have that going on, right? 925 00:50:16,600 --> 00:50:19,400 It's really the foundation. Is that the elephant, and 926 00:50:19,400 --> 00:50:20,800 they're basically running the show. 927 00:50:21,800 --> 00:50:24,500 Just a brief introduction on the foundation's first. 928 00:50:24,600 --> 00:50:26,400 I'm personally, I actually find it. 929 00:50:26,400 --> 00:50:30,900 It's kind of a nice vehicle in that they do have a sort of like 930 00:50:30,900 --> 00:50:34,400 explicit purpose, right? Like at least in Switzerland, 931 00:50:34,400 --> 00:50:36,500 right here, they have like a description of like, okay, this 932 00:50:36,500 --> 00:50:40,000 is what the money has to be spent on and then they're like 933 00:50:40,000 --> 00:50:43,100 all the didn't supervise. And so there is kind of actually 934 00:50:43,100 --> 00:50:45,900 it's a little bit like what you described in the sense that this 935 00:50:45,900 --> 00:50:47,900 kind of like some sort of Promise made. 936 00:50:48,300 --> 00:50:50,600 And then the funds have been used to that, you know, it's 937 00:50:50,600 --> 00:50:54,500 very different from I think I love block one date, where you 938 00:50:54,500 --> 00:50:58,900 have this for profit came in on company and like they can do 939 00:50:58,900 --> 00:51:01,900 whatever they want with the money that this know, every 940 00:51:01,900 --> 00:51:05,200 child, I think they did also pay out like some massive dividend, 941 00:51:05,200 --> 00:51:09,500 right to the shareholders what I think should be you know, in the 942 00:51:09,500 --> 00:51:12,400 United States as a pure corporate law Movement, we have 943 00:51:12,400 --> 00:51:14,900 this new trend that even some of the old school. 944 00:51:14,900 --> 00:51:19,100 Delaware law junkies are getting into now called public benefit 945 00:51:19,100 --> 00:51:23,600 corporations right which Operations, that may be run for 946 00:51:23,600 --> 00:51:28,300 profit in a certain sense, but are able to, they're not sort of 947 00:51:28,800 --> 00:51:31,400 solely for the benefit of their stockholders. 948 00:51:32,300 --> 00:51:34,900 We've Just Begun, scratching the surface on the potential for 949 00:51:34,900 --> 00:51:39,700 that, but I think that kind of new entity which is sort of like 950 00:51:39,700 --> 00:51:42,800 it's for the public benefit, but it's not exactly. 951 00:51:42,800 --> 00:51:46,800 Not-for-profit is kind of what might end up ultimately being 952 00:51:46,800 --> 00:51:50,600 the right vehicle for these open source software Network, 953 00:51:50,600 --> 00:51:53,700 Commons, You know, to be governed under but no one's 954 00:51:53,700 --> 00:51:57,800 really, you know, kind of fully explored that yet you have any 955 00:51:57,800 --> 00:52:02,300 sort of coherent pieces for how you think it should play out. 956 00:52:02,300 --> 00:52:05,900 Now I'm curious, what do you think will actually happen? 957 00:52:06,000 --> 00:52:09,900 Like what's your prediction of how we see this thing develop in 958 00:52:09,900 --> 00:52:12,600 the next year or two years or beyond that? 959 00:52:13,600 --> 00:52:16,500 I have no idea man. I won't even say flip a coin, 960 00:52:16,800 --> 00:52:20,100 you know, get a Dungeons and Dragons you know Dice and roll 961 00:52:20,100 --> 00:52:22,600 that right because that's got like what I'd like 16 size or 962 00:52:22,600 --> 00:52:25,100 something and no one knows. It's too crazy man. 963 00:52:25,100 --> 00:52:27,000 I mean that's what that's what keeps me in the space. 964 00:52:27,800 --> 00:52:30,900 Don't forget, we've got so many other X Factor's out there. 965 00:52:30,900 --> 00:52:35,400 Like, what will the cftc do about defy, right? 966 00:52:35,400 --> 00:52:38,500 And then it's all the swaps, you know, and synthetic derivatives 967 00:52:38,500 --> 00:52:42,600 that are being created in defy. And what will fincen do? 968 00:52:42,900 --> 00:52:45,900 You know, secretary just sort of the treasury secretary just kind 969 00:52:45,900 --> 00:52:49,500 of sort of threatened last week that a bunch of new guidance and 970 00:52:49,500 --> 00:52:52,400 or regulations are coming about that. 971 00:52:52,500 --> 00:52:55,300 So there are many X Factor's I couldn't tell you. 972 00:52:55,400 --> 00:52:58,200 I could see something. I would say is equal odds that 973 00:52:58,200 --> 00:53:01,100 we give free rein to ico's again. 974 00:53:01,100 --> 00:53:04,400 And that, you know, there's like another like massive Crackdown 975 00:53:04,600 --> 00:53:07,600 you know where everything has to go underground and some of it 976 00:53:07,600 --> 00:53:10,800 depends on how the next election goes and who gets appointed as 977 00:53:10,800 --> 00:53:14,200 the next SEC commissioner and All this kind of thing it's 978 00:53:14,200 --> 00:53:17,200 fascinating and no one knows we have the telegram case. 979 00:53:17,200 --> 00:53:21,200 I think this week, this week, the motion for summary judgment 980 00:53:21,200 --> 00:53:27,600 on whether the distribution of g under telegrams pre purchase 981 00:53:27,600 --> 00:53:30,000 agreements. With this investors should be 982 00:53:30,000 --> 00:53:33,900 enjoined on the basis of Securities laws that could have 983 00:53:33,900 --> 00:53:36,600 a huge effect which way that goes down and I don't know which 984 00:53:36,600 --> 00:53:39,900 way it will go down. It would be great for all these 985 00:53:39,900 --> 00:53:43,000 Regulators, the cftc, the Securities Commission, 986 00:53:43,000 --> 00:53:46,900 everything like to align on some kind of coherent regulation in 987 00:53:46,900 --> 00:53:50,800 all their respective jurisdictions, but that's never 988 00:53:50,800 --> 00:53:53,600 going to happen. No, I don't know. 989 00:53:53,900 --> 00:53:56,600 That's anything that involves like lots of coordination or 990 00:53:56,607 --> 00:54:00,100 like, oh, well, create a new agency and it'll be a nuisance 991 00:54:00,300 --> 00:54:02,100 like that's going to be the hardest of, all right? 992 00:54:02,100 --> 00:54:04,300 And therefore, it's also the least likely, I would say 993 00:54:05,400 --> 00:54:08,500 there's sort of a final topic I wanted to dive into To a little 994 00:54:08,500 --> 00:54:12,700 bit, which is, you know, we've talked about the SEC and US 995 00:54:12,700 --> 00:54:16,100 Securities Law, pretty much the entire episode. 996 00:54:16,300 --> 00:54:20,800 Now, of course, blockchain space is, you know, probably the most 997 00:54:21,000 --> 00:54:23,800 certainly, one of the most kind of international Global 998 00:54:23,800 --> 00:54:26,800 industries that there is and kind of will almost every 999 00:54:26,800 --> 00:54:29,700 project is global from the get-go. 1000 00:54:29,700 --> 00:54:34,300 All these networks are team situated entities in many 1001 00:54:34,300 --> 00:54:37,500 places, token holders users all over the place. 1002 00:54:38,200 --> 00:54:42,300 How do you think that impacts first of all what makes sense 1003 00:54:42,300 --> 00:54:45,300 for the u.s. to do and like how do you assure the will approach 1004 00:54:45,300 --> 00:54:48,400 that and you know kind of like how this is all going to play 1005 00:54:48,400 --> 00:54:51,100 out. It's very tough, right? 1006 00:54:51,100 --> 00:54:53,000 That's the objection that a lot of people raised her like. 1007 00:54:53,000 --> 00:54:55,700 Well, look for in jurisdictions are much more liberal about 1008 00:54:55,700 --> 00:54:57,300 this. We can't have everything out of 1009 00:54:57,300 --> 00:55:02,000 sync, you know, the US needs to kind of get in sync, personally. 1010 00:55:02,100 --> 00:55:03,300 People are going to hate me for this. 1011 00:55:03,500 --> 00:55:05,200 People are going to think I'm a jingoist. 1012 00:55:05,400 --> 00:55:09,800 I do think that World Financial Market Regulators tend to 1013 00:55:09,800 --> 00:55:12,400 ultimately follow the United States, right? 1014 00:55:12,500 --> 00:55:15,800 Part of that is because, you know, the United States and its 1015 00:55:15,800 --> 00:55:18,900 International proxies start strong-arming. 1016 00:55:19,200 --> 00:55:22,900 Little local jurisdictions like Malta into doing, you know what, 1017 00:55:22,900 --> 00:55:24,700 it's like, look at what happened with Panama. 1018 00:55:24,800 --> 00:55:27,800 There's a great example, in Panama something called in the 1019 00:55:27,808 --> 00:55:29,600 United States. Bearer Shares are illegal. 1020 00:55:29,600 --> 00:55:31,000 You guys know what Bearer Shares are? 1021 00:55:31,200 --> 00:55:33,700 It's like a stud company issues, a stock certificate. 1022 00:55:33,700 --> 00:55:36,800 It's like, whoever is physically holding this stock certificate 1023 00:55:36,800 --> 00:55:40,300 in their hand owns a million shares, you know, of this 1024 00:55:40,300 --> 00:55:42,000 company, right? That's basically what it is. 1025 00:55:42,900 --> 00:55:45,900 That the last state in the United States to ban. 1026 00:55:45,900 --> 00:55:48,700 Bearers certificates, was Wyoming? 1027 00:55:48,800 --> 00:55:51,300 That was in 2007. I think there are legal in every 1028 00:55:51,300 --> 00:55:53,300 state. Sorry, why are they illegal in 1029 00:55:53,300 --> 00:55:55,700 the US? There are great tax Dodge. 1030 00:55:55,700 --> 00:55:57,200 Right. So basically, the federal 1031 00:55:57,200 --> 00:56:00,200 government, you know, pressured, all the states, to ban this 1032 00:56:00,300 --> 00:56:03,400 because it's an amazing just like crypto the same thing, you 1033 00:56:03,400 --> 00:56:06,600 know, who now hates crypto the most out of every agency the 1034 00:56:06,600 --> 00:56:10,200 IRS. But Panama and worldwide most 1035 00:56:10,200 --> 00:56:13,500 jurisdictions. Now been barristers Panama was 1036 00:56:13,500 --> 00:56:16,300 like the Haven. It was like, whatever the Cayman 1037 00:56:16,300 --> 00:56:18,900 Islands or Gibraltar are for tokens, right? 1038 00:56:19,000 --> 00:56:21,600 Panama was that for like companies that want to issue 1039 00:56:21,600 --> 00:56:24,200 Bearer shares. Eventually even they had to 1040 00:56:24,200 --> 00:56:26,800 capitulate right? And they didn't want to like go 1041 00:56:26,800 --> 00:56:28,400 so far. They want to totally lose face 1042 00:56:28,400 --> 00:56:31,200 by like Banning them but they set up this like complicated 1043 00:56:31,200 --> 00:56:34,500 structure where they have to be held in you know, effectively 1044 00:56:34,500 --> 00:56:38,000 they totally nullified them. It took a little while but all 1045 00:56:38,000 --> 00:56:41,000 the every time these like special jurisdictions come up 1046 00:56:41,000 --> 00:56:44,100 that are kind of like, hey come To us because we give you better 1047 00:56:44,100 --> 00:56:47,800 laws for the cool stuff you want to do it, never lasts the bigger 1048 00:56:47,800 --> 00:56:50,500 countries, that want the tighter regulations, always win. 1049 00:56:50,800 --> 00:56:54,300 And the other thing I would say is that the u.s. laws are 1050 00:56:54,300 --> 00:56:58,000 different from other Securities laws, really just in the sense 1051 00:56:58,000 --> 00:57:00,800 of these investment contract Howey test thing, right? 1052 00:57:00,800 --> 00:57:03,600 Where it kind of tends to suck everything in and and other 1053 00:57:03,600 --> 00:57:07,100 jurisdictions don't have that. But as these proof of stake 1054 00:57:07,300 --> 00:57:11,000 networks get more popular or existing proof-of-work, networks 1055 00:57:11,000 --> 00:57:15,300 transition into proof of steaks. And you have voting, you have 1056 00:57:15,300 --> 00:57:17,700 staking to get network rewards, right? 1057 00:57:17,700 --> 00:57:20,500 And you have companies like cracking that's going to make 1058 00:57:20,500 --> 00:57:24,300 that incredibly easy for people to do with putting in no work 1059 00:57:24,400 --> 00:57:28,100 and these sorts of things quesos were you vote and it's this 1060 00:57:28,100 --> 00:57:31,200 automatic upgrade when Regulators. 1061 00:57:31,400 --> 00:57:35,600 Even I think outside of the US start looking revisiting their 1062 00:57:35,600 --> 00:57:39,200 2017. If guidance in light of those 1063 00:57:39,200 --> 00:57:42,700 things, I think they're going to have a rethink because that It 1064 00:57:42,700 --> 00:57:46,100 starts to look like Securities under the laws of nearly any 1065 00:57:46,100 --> 00:57:50,000 jurisdiction, I don't know, ultimately, but if I had to bet 1066 00:57:50,000 --> 00:57:52,600 I would bet that the international laws start 1067 00:57:52,600 --> 00:57:55,200 becoming are more likely to start becoming like the u.s. 1068 00:57:55,200 --> 00:57:57,600 laws. Then the u.s. laws are like a 1069 00:57:57,600 --> 00:58:00,300 start becoming like the international laws which is why 1070 00:58:00,300 --> 00:58:03,300 I want the u.s. to say that within the laws. 1071 00:58:03,600 --> 00:58:06,600 You can have this Evolution and that once it's of the real 1072 00:58:06,600 --> 00:58:10,400 cypherpunk deal, decentralized, it's a peer-to-peer thing and 1073 00:58:10,400 --> 00:58:12,600 we're not trying to get in the middle of that that to me would 1074 00:58:12,700 --> 00:58:16,400 it'd be an incredible result. Well, that was certainly be 1075 00:58:16,600 --> 00:58:19,900 desirable and let's hope that things go that way. 1076 00:58:19,900 --> 00:58:21,500 I guess you're right. I mean, one of the things that 1077 00:58:21,500 --> 00:58:23,600 we'll have a massive influence on this is the result of next 1078 00:58:23,600 --> 00:58:25,700 year. S election, it's unfortunate to 1079 00:58:25,700 --> 00:58:27,700 consider what the results of that might be. 1080 00:58:27,800 --> 00:58:29,400 But I guess we'll have to see what happens. 1081 00:58:29,400 --> 00:58:32,000 Then, maybe we'll have you on again after that happens. 1082 00:58:32,200 --> 00:58:35,000 Depending on the result. I would love to thanks for 1083 00:58:35,000 --> 00:58:36,800 coming on. Get my pleasure, guys. 1084 00:58:36,800 --> 00:58:41,900 Thank you so much for having me. Thank you for joining us on this 1085 00:58:41,900 --> 00:58:44,200 week's episode. We release new episodes every 1086 00:58:44,200 --> 00:58:46,300 week. You can find And subscribe to 1087 00:58:46,300 --> 00:58:50,000 the show on iTunes Spotify, YouTube SoundCloud or wherever 1088 00:58:50,000 --> 00:58:52,400 you listen to podcast. And if you have a Google home or 1089 00:58:52,400 --> 00:58:55,200 Alexa device, you can tell it to listen to the latest episode of 1090 00:58:55,207 --> 00:58:59,100 the epicenter podcast, go to epicenter, .t V /, subscribe for 1091 00:58:59,100 --> 00:59:01,800 a full list of places where you can watch and listen, while 1092 00:59:01,800 --> 00:59:04,100 you're there, be sure to sign up for the newsletter so you get 1093 00:59:04,100 --> 00:59:07,400 new episodes in your inbox as they're released if you want to 1094 00:59:07,400 --> 00:59:10,300 interact with us guests or other podcast listeners, you can 1095 00:59:10,500 --> 00:59:13,000 Follow us on Twitter and please leave us a review on iTunes 1096 00:59:13,200 --> 00:59:15,600 helps people find the show and we're always happy to read them. 1097 00:59:16,500 --> 00:59:19,100 Well thanks so much and we look forward to being back next week.