Bridges to the Digital State - Thad Batt, Yev Muchnik, Nathan Schneider and more...

hi everybody we've had a lot of great speakers this evening and i am happy to introduce our panelists um are we there there we are all right thank you uh we've had a lot of great speakers tonight from the state so far and i'm happy to be able to moderate a panel of folks uh we've got a couple of lawyers we've got a banker we've got a professor and we've got myself i'm that blockchain architect for the state um happy to be here tonight and what we're going to talk about is bridges to the state and that is going to follow up on a lot of the great conversations that we've had this evening about daos and how those fit in to operating and being in the crypto and crypto adjacent industries within uh the state of colorado and we've also uh got caitlyn here from wyoming who can give us some insight into what they've been doing up our lovely neighbors to the north uh nathan do you want to start introductions yeah sure absolutely i'm nathan schneider and i'm a professor of media studies at the university of colorado boulder where i work on cooperatives dows and everything in between all kinds of ways to share ownership and governance in communities caitlyn long founder and ceo of avanti bank we're going to be making some announcements next week we're getting close to launching and i'm from wyoming pretty active in the legislative scene in wyoming we've passed 24 laws in four different legislative sessions we've got seven more on top for the legislative session that started this week awesome looking forward to it i'm yev muchnick i'm an attorney based out of colorado i oh hello um i am with launch legal and jason weiner pc we do a lot of work in the dow co-op space um and i have put together some really cool legislative efforts that will be coming up soon so stay tuned for that too here in colorado i'm i'm jacqueline redebaugh i am an attorney with jason wine and pc as well i work with cooperatives worker ownership various forms of shared ownership values ford groups and since last summer i've been working closely with yav helping daos to adopt a legal entity that matches with their values and that happens to be colorado limited cooperative association as far as i'm concerned so good to be here that's great thanks guys so um in talking about daos we sort of want to talk a little bit about the history of what those mean in the state of colorado at least there's a massive amount of intersectionality between the digital concept of daos and the historical concept of co-ops and luckily nathan has some great insight into the history of how that has played out within the state of colorado great yeah you know my grandfather was born in uh uh jones jamestown up in northern colorado and and born in uh on a farm with no electricity and um and that farm only got electricity when the financing became available to create a co-op a group of people coming together neighbors um building a uh a community-owned and governed organization that brought electricity to that community and so this is a tradition that brings together a lot of the the values that are bringing people into daos enable a kind of participatory economy cooperative principles include for instance excuse me for instance autonomy the ability of members to really control their organization democratic participation that ability for participants to through their participation have control over what they're doing um and uh and and community capital so enabling uh members to uh uh be involved financially and to see the rewards of the value that they're creating so this is a legacy that has a lot in common with dows it's not a legacy that our society i think has empowered and enabled as much as it could and one of the things that really excites me about what's going on in crypto in general and particularly here in colorado is the ability to build on that legacy in new ways with dows and with these new tools that are coming online tools which can be really an operating system for community ownership for building on that legacy um but in ways that are supercharged by uh by this new technology stack thanks nathan uh yeah how how does how did the co-op laws in colorado enable uh down corporations within the state yeah we've been working with a number of dow co-ops including sporkdow and the employment commons the lca statutes are incredibly flexible they allow for patron members to be rewarded for contributions in the community um and it's it really rivals um llc's in so many ways i don't know if we have enough time to speak about it on this panel but but really the kind of the overlap of of principles like nathan was saying is is really evident in co-ops and dows and lcas also allow an investor member class in a multi-stakeholder cooperative so i'm sure jackie could speak more to it as well yeah it's it's good to see a legal entity type that actually builds in the values as part of the legal framework so that you have all that flexibility to change things and then you're subject to take over sometimes and things that you might want to prevent early on and the model itself brings enough flexibility but also enough protections for those values that you have committed to as a group as a dollar as a cooperative to remain in the structure uh despite or or regardless of how many contributors coming in and out so it kind of recognizes all the patronage contributions that has been done allows for distributions to be made on that basis um and again without harming or without detriment to the values that we want to keep in the movement i'll just add that we've had a really terrific success with layering dow tooling on top of traditional co-ops so malik taos and and colony um governance styles and they've really kind of been a seamless adaptation on top of the lca cool so i i think that there are some some uh a very few number of states that actually have uh legislation on the books that uh that deal directly with co-ops and sort of help enable that on-ramp for dows but wyoming's done something interesting as well which doesn't uh doesn't involve co-op law but is specific to a dao as an llc caitlin do you have any information yeah the concept why would you bother to register your organization as a legal entity and the answer is that the state with legal entity registration bestows something in exchange for the registration which is limited liability for the participants and a limited liability company is just that it's a limited liability organization it does need to be centralized there are a lot of dows that registered as delaware llcs delaware being the state with the most common uh corp business entity registration but wyoming is actually number two behind delaware and wyoming created a special version of the llc called a dow llc that is a mind bender because it's a contradiction if how can you have a centralized entity that's also a dao and the answer is it it's a hybrid if it's a pure dow it wouldn't fit in the wyoming model but a pure dao that doesn't register potentially is what's called a general partnership under the law and one of the biggest concerns i had dating way back almost 10 years ago is that crypto was going to get tripped up as general partnership and all of a sudden there was going to be limit join what's called joint and several liability which is each participant in the organization is liable to the maximum extent of the losses of the organization that you don't want and so what wyoming did with the dow llc is say all right there has to be a human being involved it doesn't it can be decentralized to the extent that there's at least one what's called control person and what's happened is there are about probably 200 or so that have registered in wyoming since the dow llc law took effect in july some of the more prominent ones in the industry have registered there and there is a control person what's the benefit of pursuing the hybrid organization aside from getting limited liability for the members it's also that as a control person the entity can register for a bank account or a securities account if there's not a control person so a true dow a true co-op would not have a control person and therefore it's it's a lot harder to uh to qualify under the know your customer rules to get bank or securities accounts so some of the more interesting dows that have been involved in purchasing securities actually have securities accounts in order to keep those accounts available you need to have at least one person who's a control person and that's what keeps the entity alive the other benefit of doing it um keeps it registered rather the the other benefit of doing it that way is that you get um the long-term um essentially the the dow could could create code as the operating agreement under the llc laws technically you're required to have an operating agreement and lawyers we've got lawyers at the table here today are very practiced at putting those pieces of paper together typically 30 40 pages for an llc operating agreement but the wyoming dow expressly requires the judge in the event of a dispute to look to the code i think that's the first time that i know of in in the law where the the where a judge is given a roadmap and told if there's a dispute involving this entity you must look to the code and so that means that the lawyers have to understand how to read code and the judges have to go get experts and there has to be a court that has the ability to take code in as evidence that's a huge uh step forward because it's uh it up until this point pretty much everything is analog and wyoming said all right if you set up a dow llc your your operating agreement can be in the form of code we're getting a lot closer to the concept of code is law which i know is a mantra in this community awesome thanks kaitlyn so uh one interesting question i've got about that control person and the the sort of requirement to have a traditional bank account one of the main reasons to have that bank account for a company it occurs to me is to uh to pay taxes and to pay your state fees and all of those good things governor polis announced a little bit earlier tonight that colorado would start accepting payments in crypto um that applies to individuals but it also presumably applies to corporations companies uh llcs and co-ops as well so uh with that in mind i think that the ability to pay your taxes in crypto allows for truly crypto-native organizations to be able to thrive um within the state obviously we still have some federal hurdles to get over um but i think as states like colorado and wyoming sort of blaze the trail we're gonna we're gonna pull a lot more of the country together with us uh and hopefully make those changes on a on a higher level um does anyone have any input around what those what that might mean any any good insight about taxes and crypto better not to have any taxes that's that's true for wyoming but we like our schools and roads here in colorado yeah if you have to pay the taxes it's better to be able to pay them in crypto for sure yeah excellent um so uh i also wanted to touch a little bit on some stuff that's been going on in in both of our states and that is with regards to the ucc uh regulations um i think that there are you know uniform commercial code is on the books in every state in the union they all have somewhat different laws wyoming's recently made some amendments to their ucc codes i believe that colorado has been considering some similar changes as well in order to provide a little bit more uh blockchain and crypto friendly uh environment for businesses to thrive um does anybody want to talk about ucc we look we love what ucc is i'll throw a special thank you i don't see him um senator lomas's general counsel is here tonight she's been just awesome and he was the person who drafted the wyoming ucc amendment so he's here i don't see him at the moment he's in a red sweatshirt but what is the ucc the uniform commercial code is the fundamental basis of all commercial transactions every one of us uses it every day and uh it's really boring but it's really foundational and the challenge with the uniform commercial code it was written in the 1950s when everything was physical and it has struggled to deal with anything that's digital much less anything that's decentralized and so wyoming was the first to change the ucc um and there are two aspects of it that wyoming um led the way and the rest of the united states is following thank goodness because it's a it's state law you need all 50 states to recognize this and the two things that wyoming did that will be recognized nationwide probably within the next few years there's a group called the uniform law commission that has proposed a whole new amendment called uniform ucc uniform commercial code article 12. and that recognizes digital assets and it and it does two very important things it recognizes what's called super negotiability which means that if you are a a good faith purchaser of the asset you take it free and claim free and clear of any adverse claims ergo if somebody stole it and then turned around and sold it to you and you took it in good faith and you didn't know that it was stolen goods it's yours you have legal title to it it's called super negotiability uh and the other thing that is really important to the defy world is the understanding of how to what's called perfect a security interest so a lender can seize the collateral in the event of a default on the loan and that it used to be believe it or not when we started this process the lawyers all wanted the perfection of security interest in paper form and the the filing in most states is still in paper by snail mail and that just didn't work for crypto and so they moved to after wyoming started this they moved to a basically um possession is nine tenths of the law as they say if you possess and control the private keys you you you have the security interest in the asset these are critical moves that are going to really help smooth the way for our industry to flourish but also take a lot of bad lawsuits out of the courts i've been asked to get involved in interesting ucc type lawsuits and california law is totally screwed up i'm sure there are a lot of californians here um but but the law that applies to crypto in california is pawn shop law because of collectibles in the lack of any other law it kind of makes sense that the law applying to pawn shops might apply to crypto but that's crazy and we need to fix that and we will be fixing that in the next couple years [Applause] thanks caitlyn that was a great great backstory yeah do you wanna yeah and i believe in your in wyoming you don't actually have to be in the state to perfect the security interest so or the the digital asset doesn't have to be in the state and we're actually working on something like that in colorado there was a bill that went through the house yesterday portion of it was revised but i think that it's going to be coming through in the next legislative session as well yeah certainly i think that um you know the states are doing well with trying some are doing well some are not doing so well with trying to apply older older legislation to the newer dynamics and i think that co-op endow regulation is is falls more into the doing well part the the pawn shop and and crypto law does not so much so let's see um we covered a little bit of ground there um i didn't get much of a bite on the on the crypto tax stuff other than it's better to pay it in crypto than not um i personally will probably always always pay my tax bill in in cash rather than in my uh rather than in my safe than and appreciating crypto assets but there we go speaking of those assets you know i think a really important thing to recognize that states and and other levels of government need to start thinking about his equity right is about who has the ability to play in this in this kind of uh in this kind of world you know we have a regime in the existing startup world uh you know this is at the federal level that expects you know essentially it's a wealthy person's gain right and we have an opportunity to rewrite those rules and i think the challenge is to make sure to do that in a way that protects people who don't have a lot to lose but ensures that people who uh who are really creating value even if they don't have a lot of a lot of wealth can start building that wealth through these tools this is again something that that that co-op tradition uh really brings forward here in colorado in you know analog space one thing that the governor is leading on in addition to crypto is is actually supporting employee ownership conversions you know so just a a a couple of years ago new belgium brewing the brewery up in fort collins was sold to a conglomerate and uh and all those workers took home a really good uh uh uh payout uh because of that of that transaction because that's a hundred percent it was a hundred percent employee-owned company um the state is starting to encourage more of those kinds of conversions um and it poses the question here about how um our communities can help both from the regulatory perspective as well as from um actually enabling and supporting communities to participate make sure that this isn't just a whales game right the crypto is something that really enables community wealth to grow and enables communities to participate in the same way you know for instance my you know my grandfather's community was able to participate in building uh their own you know electrical system when the investor-owned utilities wouldn't go there yeah and then i feel like it's important to to talk about the fact that you know cooperatives laws are well established around the country there are hundreds of those almost always states have adopted cooperative laws colorado does happen to have six different cooperative laws from various levels based on sector or interest of the lca limited cooperative association law adopted in 2012 addresses some of those um needs that can be very specific to your group right so we will talk about sharing ownership what does that mean sharing governance sharing financial returns uh to what extent and based on what so that can be based on how much money you put which is very traditional but in the cooperative movement and i think in the dow movement it's as nathan has pointed out is about the contributions and your participation and that it can be counted for the returns that come out of there so uh super important that the factor that we work very closely with dao's looking for a legal rapper is what what is your relationship your con who are your contributors um who are the main stakeholders of this this group and how you can benefit and how do you want to benefit from this together making decisions together and getting to that design that really works for a group where you can have a cooperative that really benefits the members through the the life of it like the brewery but also allows the members to make that call and say hey this worked well worked really well for us for a really long time now we want to get the paycheck and just you know exit out of this as well which it's a democratic decision that you can make as a group as well that's awesome i'm gonna i'm gonna uh wrap up the panel with a with a practical question that maybe some of the uh dao founders or potential founders who haven't already gone through the process might be interested in learning and that's uh you know i'm not going to ask you for the hourly rate that you guys are charging but i would be interested in knowing how long what's the effort the level of effort uh in order to get all the paperwork filed and get your dow registered i'll start with the attorney answer it defense and it depends on how prepared the group is to get legal support sometimes we're going to just tell you you know you need to do a little bit more homework you might need to actually figure out how you're operating are you actually operating and then if you're ready for it you have a little track record of being working as a group again uh we work at your white paper we will encourage you to have a business plan but you don't might not have to just need to figure out your revenue model um and then it can take you know from a month to a year plus working on closely with the design portion or with just the drafting so there's and i think we've yev and i have worked with a good enough number of dow that have adopted the cooperative model that we're able to offer have fees offering that address that account for the experience we have gathered from the dao and web 3 sector and then um kind of build on what the expertise we already bring from the cooperative practice as well i think i'll add to that to say that ultimately our position as lawyers is not to act as gatekeepers so we really you know are working with the communities at large we are working to make onboarding a lot more simpler we've been in talks with cali dao as well to templatize like a version one of um above the dao co-op so look out for that if you follow calidao and lextow but really i mean it's the purpose is to serve the community and to find a way to make them compliant to shield them from liability to be able to manage their treasure treasuries effectively and to really kind of benefit the bigger ecosystem i'm not a practicing attorney but i know if you have everything together it can be done in 15 minutes it's very simple and i have no idea but my but here in colorado if you're interested in developing new models and having a conversation partner um up at cu boulder we have a media enterprise design lab we can't help help you with uh with registration or anything like that but we do love to bounce ideas around with people who are developing innovative kinds of community ownership and governance can i just add so uh with jason weiner pc we just created a course a co-op course that you can just go through the website not paid you just kind of sign in you can learn more about the structure the cooperative and kind of figure out if that works for you it takes care of some of the education aspect and some of our material for dao co-ops are there as well so you can address some of the things before talking with an attorney awesome thanks so much guys this was a great panel look forward to hearing those avanti announcements [Applause]