J1 SAY 01 Evan Van Ness The current state of token models

okay so this is me I do we can etherium it's a weekly newsletter I'm a member of consensus for that I was the director of finance and risk at a online ticketing startup and I have been an investor trader consultant all those things in the past past all the levels of the CFA and the CAI exams I also sometimes admit to having an MBA which I you know unfortunately haven't and that's my brief bio so we're gonna all right I can fade this out we're gonna talk about about token models so I just wanted to start with history so you know you you might remember all of this and it might be all for you but if not it it hopefully is interesting you know we started with Bitcoin as a currency and that was the token right it was just just a currency 2011 was the beginning of you know the alts and really like in the beginning like they didn't really do very much I guess litecoin was a little bit resistant to Asics and then there were a few more and then there was a rower Quine somewhere around the 2013-2014 time which was like an airdrop to iceland to be their currency anyway 2013 was the master coin I see oh the first ICO which has given us the nomenclature which we are unfortunately still stuck with uh late 2013 people started doing interesting things or promising interesting things like NXT and bitshares were out there promising the world and they never did deliver the world the people involved in those projects now have different projects now and they are again promising the world so you know in in late 2013 Vitalik started talking about aetherium and then the sale was in July of 2014 and the basic model was you know we keep 20% to ourself and we saw the rest and originally it was even like 30% was going to be kept for the foundation and founders and there was pushback on that so it went down to 20% and that was basically you know sort of the same model that when we had the first round of token sales on a theorem in in q3 and q4 2015 of augur and digits and maker it was like the same basic model we will you know sell most of it and then keep you know 20% or so for a non-profit foundation or the idea of evolving an into a dhow moving in there really wasn't much for you know four solid six months there and then we moved in there was to q3 in q4 of 2016 and there was a singular and there was economy and there was Gollum and there was first blood and the model evolved a bit and there started to be a big incentive for getting in right away like first blood had a Power Hour and they sold out in like 10 minutes or something is his memory serves and you know that started seeming like maybe not the best model you know the ether sale had had at least like a week I believe where you could get the maximum price and then the sale started declining the price started declining winner or well increasing linearly I suppose alright I screwed this up multiple times already then it started to get into you know these sales that were selling out right away we had melon that sold out quite quickly and then we got into q2 and and bat sold out and you know 36 million and like a couple of blocks at Shane actually sold out in one block I was I believe the first sale that sold out in a block notices did they experimented a little bit and did a reverse auction which is really just a Dutch auction and they had a crazy evaluation because yeah it was a crazy time period the Dutch auction I think was a little bit more successful than I expected and left them with I think like 90% of their tokens I forget the exact number but really not not a the opposite of a we're distributing 80 percent of our tokens right off the bat and with the model evolve some into you know late q2 Bank or race crazy mouths status clogged the chain for an entire day if not more and raised 100 some million and you know they were trying to get away from this like everything up front but instead it ended up the way status did it it it clogged more for longer periods of time so I know this is a history lesson and early in the morning so I'm sorry I probably should have thought through that a little bit better I'll try to speed up anyway in q3 of last year you know the volume goes crazy is somebody that does a weekly newsletter I started you know I was keeping keeping a list of sales every every week right and all of a sudden there was you know it went from having a couple of sales up coming on the list who you know I could have listed hundreds and I think 0x like deserves credit for for doing the right thing they could have sold a lot and instead they sold like 15 million and they did some compliance and they were you know sort of set an example in in what was about to come which was because of the status clogging the the network for a day everybody started doing these deep discounts and insider sales is really what they ended up being and unfortunately like you know there was a tweet I'm you can look it up online I'm not gonna tell you who it is but if somebody who said like you know this isn't why I got into the space all of these in deals like I'm you know you're getting 50% off when you're a week before the public and that was you know a real shame like there there is some benefit to like making sure that people can get into your sale especially like the the larger guys that you might want in but you know this is ultimately unfortunately why regulators often start to get involved is when you have deals like that you know that's just wrong right when like the regular public is paying double a week later what what other people were paying so we started seeing more the bigger more reputable sales focus more on compliance although some of them were like compliance and name only like there was a sale that you know wanted to give itself like ten percent or double digit percent of of the sale like right into their own pocket there was still a big sale that you know they they sold like they sold it like a multiple a week later the public then then what their friends paid like a week before anyway it's it's definitely evolving so that we have basically re recreated the existing finance system where like the good deals are going to these days so what does this mean I mean it means the predominant model today is you raise around from quote-unquote accredited investors in the US or VC's angels then you get your project live so that the token has utility and then you do your sale and then you probably excluded Americans from your sale even so and you know like I said we've really just recreated startup financing which is definitely I don't know not really why I got in the space I don't know about you so didn't talk about a little bit about what's coming since it's the state of token models and now we can get out of the history hopefully that was nobody's asleep so far security tokens are definitely happening happening I would say that anybody that is doing a security token at the start an adverse selection problem right which is that like if you have a private equity fund and you can go out and raise from traditional investors like pension funds or you can like have you know public like which is unclear regulatory like you would definitely do the traditional like go out and raise from traditional LPS so I'm pretty skeptical of things where like there's really no reason for it to be on a blockchain like at least at the start because it tends to be the people that couldn't actually raise money otherwise so I think it's like interesting to look for things that are uniquely enabled so I think one thing that makes obvious sense there is real estate tokenizing you know big buildings you know that are in the deck of millions and hundreds of millions they can allow a new new access through through liquidity on the blockchain to to more people that makes sense a lot there's there's a couple projects that are doing that and that's actually to me where security tokens actually make make a lot of sense and I'm also going to suggest that as I've talked to people out in the community sales or projects that are getting close to doing a sale they like then they're thinking about it and the you know they raise money from VCS and accredited investors and then you know sort of the what I'm starting to see a lot of and people are thinking about it and someone haven't and nobody's really announced it but people are getting to that point is you know you bootstrap your community through a bounty and we will work a rewards token or maybe you airdrop it to existing a folders or something like that and you know the benefits are obvious you get water distribution you get your hands into the your token into the hands of actual people they care about your project rather than people that are trying to you know flip it for 2x in a matter of weeks like it's a project founder that's probably not a goal of yours right so and variable a project at home here I think has really led in this area they published something on August 27 20 2017 and that basically laid it out and it's funny because at the time I totally totally didn't really think it was a big deal and I think we have seen like in the last six months that people are definitely evolving towards us and alright well that worked didn't work on my computer so variable I guess I wanted to talk a little bit about how they do it right which is they are a a leveraged derivative platform and so they in August they announced their alpha and then their alpha ran and they had trading competitions and you can you can earn your tokens by using their their alpha which is on kovin I believe and it's a it's pretty neat like it's it's it's good design but I think will increasingly see people that like make you use the product in order to or the project and the product in order to like you know those are the people that you actually want to to be have your token and hold your token and then you can incentivize them through giving it away for referring your friends as variable to us as well or you know even coding you could bounties and bug bounties and and all that sorts of good things and then I this is the other example that that I that came to mind co-founder which I am an adviser to full disclosure and actually variable as a consensus project so I am also I guess interested in both although I didn't think about that when I was doing this talk it just worked out that way they're the co-founded has sort of come to the same conclusion as well I think this this this post was from a month ago and they are starting a fund which will invest in the equity of blockchain project and then they will airdrop the tokens once the project is live and and sort of get distribution through their community that way and so I mean variable is not the only person that's think about it co-found it is as well and independently and I'm actually I find it somewhat noteworthy that they are both European because I feel like it would have intuitively I would have assumed that it would have been the Americans that were worried about the sec that did this but not the case so I guess like talk through a little bit more some of the advantages of this model which is like the white paper for the sale that doesn't describe my project project and we certainly saw that in some of the early projects that they they had a white paper and that's not how the product works at all right now right like a specification I mean a theorem has changed a lot the tooling has changed a lot its nascent technology what they thought would be possible actually wasn't possible and especially with you know the cost of transactions now so a lot of things need to be reaaargh attacted and that's fine all of those people are good people like certainly did it with the best of intentions and it's fine when you know when it was two years ago or a year ago and it was our own little niche but as these things start becoming mainstream like that's clearly a problem you can't just be you know putting a white paper out there that doesn't describe what you actually deliver right whereas with this like you will you know you'll basically you'll only have the uncredited investors who are supposedly savvy risk takers well about that but anyway it also solves the problem of massive amounts of appreciated eath in the hands of early founders which is certainly a you know a blessing and a curse it's great that these are well funded at the same time like it's tough to stay nimble you know when you're pre product market fit because there's no constraints on you know financial constraints so it's easy to hire people and and you know when you hire people and have more people on your payroll you know the doesn't more people more resources sometimes means you move slower and not not faster and of course it should hopefully keep government's happy too right I think you know you're giving your tokens away to the people that care about your project and are involved in it doesn't look like it's secured in May I mean I don't think you can even really make an argument for that and though thankfully I am NOT a lawyer I dropped out of law school best decision I ever made and of course you don't have any sale mechanic issues which is some of the things I talked about earlier where the result these debates about how do we have these sale mechanics without clogging up the network and you know it turns out that if you don't have a sale you don't have those issues so that's it I think I sort of sped through my talk yeah it was a lot faster than I did it when I practice I guess that's what happens when you're nervous so I don't know anybody any questions comments arguments debates comments about anything else questions if not we can go get coffee yeah thank you so I was wondering now that we had so many icos in the past time which were probably not so perfect like say regulators will see that was a lot of insight rating what's the opinion how it will backfire in the future now that we have now done probably the wrong pass in the last few months yeah I have a lot of things to say about that I mean I I'm an American so I think about what the US government does I think the you know the the various you know sprawling agencies of the federal bureaucracy I mean they all think they're they're entitled to regulate this and it's really unclear like I think there was something a judge just said that the CFTC could regulate these crypto is his commodities right well it can't really be a commodity and a security and I think even like by law that's pretty much established so like is it a commodity or is it a security or is it money it's very unclear and I think that is going to complicate some of their efforts to yeah some of their efforts to to do things when they do eventually do things they've of course Americans the SEC has hyssop Enid a bunch of people in the last well it got it went public this week but I guess they did it over the past few months I mean we've seen some like outside of the outright scams we've seen some like I said compliance a name only that I consider you know bad behavior that frankly like most of it was in the Bay Area so I don't know what we'll see there I would I would expect that they will continue trying to sort of like issue statements that pump the brakes maybe go after somebody to make an example out of them because they have limited resources and they have to choose their targets carefully and then look for pressure points which is sort of what they've indicated which is like exchanges and the lawyers that are doing these sales I unfortunately like I you know I think anybody trying to comment on what regulators would do is like there's a million regulators so that's about as best as you can do and that's really only an American in perspective I don't even know what a European perspective would look like yeah that's really interesting to hear I'm from Switzerland and about three weeks ago I don't know maybe some of you have heard our financial Authority has kind of released some information about how they see tokens and they divided into three different pillars so there's a security assets and utility token and also what for those different pillars has to be produced in terms of booklets term sheets and so forth and still it gives a lot of room of interpretation I don't know if you have you seen some developments that go into the same direction I mean I read that I read the same release and I I thought it was it was good I mean it was it was certainly like a good attempt with good faith to attempt to define things I think like the devil is in the details and those things though right like you can say that there's utility tokens you can say that there's security tokens but you know how do you define that and how they they end up regulating and it in practice is you know completely different than what they say right now so you know because there was relatively light on details yeah I mean in the u.s. like they've they've ended up almost like going after the manner of sale more than they have the like the actual at least so far right they've gone after the people that were basically promising returns which is really more about how you advertise and marketed it rather than what your token actually was so yeah I don't know I would say in general though like you know if italic tweeted out recently I I think was a reply to two people so maybe not everybody saw it but that it was surprising to him that you know as somebody who grew up libertarian it was surprising to him that regulators treated him better than most of the actual like cypherpunks did which I laughed out when I saw but like I think I think in general like regulators have been quite reasonable on this stuff so far of course will say yeah to ask have you seen and do you believe there's room for non fungible token sales well I'm not a lawyer I would I mean I don't see how you really make the case of their securities but I mean you know I think that ultimately comes down to whether some regulated it somewhere it decides to go after go after somebody that does it I think you know there's probably some room in that for things to look like a security even in a non fungible token like if you start promising investment returns and you know things like that or you know some of these things also that have come out like frankly or look a lot like Ponzi schemes just the way that they're architected some of the like crypto kitty kitties clones but in general I don't see how you could really make an argument that like a collectible a digital collectible as a security but I mean I'm not a lawyer and I'm not a regulator so who knows we'll say hi so sometimes a company releases its tokens directly to the market with with no procedural token sale do you think there are some kind of problems with that what do you mean by introduce those speculations and stuff when a company directly releases its talking to the market like to an exchange or something without the procedural IC o---- do you have an example like an airdrop well yeah it's like you know not like an airdrop but it it just it makes a constant price under the exchange yes I can add an example for his question for this question like recently many crypto exchanges based in China they're actually releasing their exchange tokens directly via the exchange so I think that might be an example like like a like a by Nance you mean but they did a sale right so well did they did sell but directly not like you give them your wallet address or something honestly I don't know I just tried the finance thank you seriously so yeah no opinion sorry anybody else or should I go drink coffee alright thanks thanks for coming [Applause]