This idea, this sort of taxonomy of a token of a governance token versus utility token versus security token, came in and BVI doesn't have that, right? It doesn't sort of have that mica-esque type of approach of trying to, you know, everything fits in a neat, tidy bucket. Came in and BVI's definition of a virtual asset. It's basically anything issued on a blockchain that's transferable. And so you end up in this world of, well, a stable coin? Yeah, falls into that bucket and meme token falls into that bucket. Governance token, utility token, they all fall in that spectrum. This is where that relationship between development company on the one side of the diagram owned and operated by founders versus this independent foundation. And again, the foundation is unique because there is no shareholders. It's not owned and operated by anyone. It really is orphanized in the Cayman Islands. Foundation doesn't own or operate. DevCo does an owner operate the foundation. And I think seeing them as sort of co-equal, almost joined venture partners with those contractual relationships, explaining how they build a business together. Welcome to the Accountant Quits Podcast where we help accounting and finance professional slurn how to manage a business using crypto. Today's topic is a legal masterclass on token launches. Before a token ever hits the market, before it trends on eggs or gets listed on an exchange, founders face a maze of legal, tax and regulatory decisions that can make or break the success of their project. For example, where should the foundation be incorporated or in which jurisdiction should the issue they are token, but kind of token is even being launched, a utility, governance or security. And perhaps move over look, how does your personal residency as a founder put your project at risk from a tax perspective? To impact all of this, I'm joined by Jonathan Ternheim, managing partner at next law. Once resume is impressive, he's helped launch more than 350km foundations, more than any other offshore loafer. Since 2017, he's been advising crypto projects since the early ICO days and has worked with everyone from Leo1's, Leo2's, DeFi protocols, MetaVose projects, trading platform, prediction markets and even meme tokens. If you're involved in a token project of planning one soon, this episode could save you a legal headache or a visit from the regulator. Lastly, if you're new to this channel, I'd really appreciate your support to help us through by liking this video and subscribing. Now enjoy my conversation with Jonathan. Jonathan, welcome and thanks for taking the time to be here. Yeah, thanks, Martin. Pleasure to be here. To start, I mentioned in the intro that you've helped incorporate more than 350km in foundation, that can you share a little bit more about your background? How did you become interested with blockchain and a few years ago, how like that number started from zero and now it's at 350? Yeah, that's a good question. And I must admit, when I discovered it was as high as that, I was surprised. I knew I've been busy, very, very busy, for a number of years as well. But I've been in the Cayman Islands about 13 years. I was in Sydney, Australia for a few years before that. I came across like many lawyers do as a sort of fund formation, fund registration lawyer. I also had a technology background. I had acted for a lot of startups back in Australia and technology companies. One of my first legal exposures to crypto was launching some of the first crypto funds in Cayman 11 plus years ago. Now I guess it was. I call them crypto funds, but really Bitcoin was the only crypto at the time. And so they were just Bitcoin long funds. And they were charging four and 40 management performance fees to just hold Bitcoin. People that invested in those did exceptionally well. I was e by Bitcoin for 20 or 200 bucks a pop. You wait 10 years and sell it for 108,000. It was a pretty good strategy. Those early funds also then became some of the early venture capital, private equity funds that started investing more broadly into projects. And I'm talking post-Atherian world. And all the utility token craze and all the ICO craze of 2016, 17, 18 era came along. That's where we sort of cut our teeth. And I got involved in some of those early projects. It would have been early 2017, some of the first ones that we got involved in. I was the associate on some of those files because I was the only one that knew anything about crypto. Again, from my technology background, from having lots of those first Bitcoin funds, it was natural that it fell on my plate. The truth of it is we turned away probably the first 20 or 30 that came along because my position was I've got a good fund book or traditional practice, even if there is some crypto funds in there. There was no need to sort of dip into the Wild West or frontier territory of ICOs. The truth is we had clients pushing us continually saying, well, you are a crypto lawyer, to which I'd say, well, I'm a fund lawyer that did a crypto fund. And they said, well, that's a crypto lawyer in our world. You need to help us out. They got to a deal where they had the right dev team, they had a product, they had good onshore council, and there was kind of no polite way to say thanks, but no thanks. And so we did that deal way back when they raised $42 million. It was seven minute online crowd sale, right? This is early, early days. Once that happened, they told two people and those people told two people and those people told two people and before we knew it, I had done probably ten of these within a couple months after that and became the token, token token expert. All those deals were different, right? And it was early days, early territory in terms of how they were doing it, but word got out that, A, we were responsible, grown up lawyers that understood some of the risks involved and understood the structures and understood putting this together in a bit of a regulatory vacuum. There was no crypto laws. There was no fast, virtual assets service provider laws or other rules around this. So, structuring those deals in the early days was quite easy. You know, ten, twenty, became thirty, forty, fifty, pretty quickly. You go through crypto winter, one, two, three and four. It didn't really make a big difference for us because we had so many clients that are raised in a hot market. They were continuing to do stuff. They were seeding other deals. They were sending deal flow our way. And so we just had a huge head start. You know, say, we, it was substantively me doing all those deals. And so it didn't really matter whether the markets were up or down. There was always activity going on. I think that was the greatest thing for me is that I could become a full-time crypto, deep crypto lawyer. And again, not doing crypto funds anymore at that point. It was just doing token launches, protocols, platforms for, you know, video games, DeFi clients, layers, zero, layer one, layer two, layer three networks, metaverse projects, derivative trading platforms to full-fledged predictions markets. Right? And so the full spectrum, the common thread to all those is, yeah, they all had a foundation at the top and they all had a BVI token issuer. You know, we'll get into it further down the road. The questions of, you know, who runs the product side of the business? You know, the video games there, there, who runs and operates that. But just from experience. And, you know, I think I was one of the few lawyers, certainly in the offshore world, even onshore that spent full time all the time going back to 2016, 2017 in the space. And a little behold, one thing after another comes out that, yeah, I crunched those numbers and you see some of the stats that came out. But yeah, it's, it's about 350 at this point. Wow. All right. So I want to start the episode by going through some of the legal questions that perhaps you will be asking your client like on that first onboarding call, for example, what would be the client's actual use case, what kind of project are they building, how they plan to raise capital with the team based, and also to understand what's the type of token being issued. So I want to ask you, how should founders actually start thinking through these questions prior to a conlaunch and how would those answers basically help you determine what's the most appropriate jurisdiction to then register the entity? That's a great question. And I think the way I like to organize my thoughts around this and try and push clients down that path is really looking at generally speaking, there's three separate businesses on every one of these transactions. They'll typically be a for-profit onshore development company, the founder team in a Delaware C-Corp, if they're based in the States, or depending on where they are in the world, they could be very decentralized team. They may not even have that sort of development company side of the diagram yet. That's one piece of the business. That's the for-profit privately-owned founder-led side of it. They may have outside investors, and they may not. It may just be a bunch of kids living in their mom's basement, depending on the level of the complexity and how far down the path they are. Sometimes that could be a very sophisticated business. It could be a very traditional Web 2 gaming business with a hundred 500 employees, and they're like, yeah, we've been making games for 20 years, we want to add this thing on, what, what do we do it? Typically that DevCo is not our client. They've got their own lawyers, their own representation, they're often not based in K-meter BVI, and so we don't need to look out for them. The next piece of it is, is yeah, they've got a token that they want to launch. And again, those questions is, what is this token? And, you know, this idea, this sort of taxonomy of a token of a governance token versus utility token versus security token, K-M-M-BVI doesn't have that, right? It doesn't sort of have that mica-esque type approach of trying to, you know, everything fits in a neat, tidy bucket. And the question then becomes, is there one, two, five, ten, or 50 different categories asians? K-M-M-BVI's definition of virtual assets is basically anything issued on a blockchain that's transferable. Falls into that category. And so you end up in this world of a stable coin? Yeah, falls into that bucket, a meme token falls into that bucket, governance token, utility token, they all fall in that spectrum. And so I always ask the client, well, what is the business, right? Yeah, this token is great, but why would I want to token? What does it do? What is it power? What does it govern? And what's the utility in that token, right? Why am I going to spend $100 or $100 million by your token? Sometimes the answer is, because this is a cool meme token, and we'll catch some emotional drama out there in the right time, right place. And you know, it's a great example. How do me?
token project. There isn't a sort of third pillar. It's a development company and there's the token. But we don't say that it does anything, that it has any utility that powers anything. So it is really sort of two-dimensional. Obviously, those are some of the simplest deals you'll ever do. Pumped up. Fun made that very accessible. And to be honest, I've issued my own meme token four years ago because clients were like, "I bet you can't do it." And then five minutes later, there you are. Do you want some? Here's a million in my bullshit meme token. It's not worth anything, but there it is. It exists. But the truth is, I'll spend 45 minutes of that first hour call with a client or a potential client not wanting to talk at all about their token. So don't distract me with that. The focus is what's the product? And again, are you building a video game that's going to have a token integrated into it? Is it a network? There's the air layer one, layer two, layer three, whatever it may be. Is it a DeFi platform? Is it a launch pad? Is it derivatives trading platform? Is it a predictions market? Gaming gambling into the spectrum. The product side of these deals is the really hard question. The nice easy analogy I give to clients is the token is a kind of sort of an air mile. And an air mile, when you and me can magic up some air miles, they just have to be traded on a blockchain. The air mile is useful because there's an airline that's going to accept that. And that product side of the business of building the airline is complex. That's why I say to them, like, who's got the product here? And again, the meme tokens you put that aside, because there is no product. It's just developer plus tokens. But for those other ones, figure out what that product is and understanding that spectrum of risk. And my video game clients are some of my favorites because for two reasons, they generally own and operate the video game. And so I can say, well, it's not my problem. I can effectively close my eyes from a legal standpoint. I'm not acting for that on the shore side of the diagram where that video game sits. And it may be because they've already got access to Google Play app stores. They might already be across various platforms. They've already got a team of developers. They're already own all the intellectual property. They just want to add a token to that game again, a bit like an airline that's existed for 50 years, one and to then have air miles to kind of build the loyalty or build the next dimension around them. Those are some of the easiest deals that I do because I can just be sort of token counsel. I don't need to worry about the product side of it other than to the extent to say, well, a BVI token issue or SPV creates a token. We make it clear to the world. Don't bring it back to BVI because there's no utility or governance or aspects here. If you want to spend it, use it engage with the platform. Again, like the air mile, bring it to the airline, bring it to the platform side of the business. You know, if a client comes to me and says, I want to build an adult content website. I want to build a gaming gambling website. Those are the sort of the bright lines in Cayman. Just from a regulatory law standpoint, there's some stuff that just doesn't fit well in Cayman or BVI. And it tends to be around sort of the adult content side of it. Again, just fairly traditional laws that were substantially drafted 50 years ago. It's not the right venue for that. The other ones are some of the gaming gambling laws. Cayman's very antiquated when it comes to that. BVI is a bit more permissive, but still very early days. It's all often said, a client's, well, hey, you've got your development company. We can do a token that can power that platform. But if you want it to be a gaming gambling or an adult content platform, let's go off to Cyprus. Let's go off to Sations. Let's go off to Mauritius. Let's go off to Curacao. We will find the right jurisdiction. We know the right people, but benefit of having done 350 of these deals. There's no learning on our time. The client just gets the advice. And sometimes that advice is we can't help you, but we'll help you find the people that can and putting that team together. And it's funny. We can spend 45 minutes on a client call, not even talking about the token, because it really forces them to understand what their product is. Why this is unique? And for me, it's not a commercial question. I'm not like, do I want to back this client? Do I think they're going to make billions of dollars? It's a regulatory question. Does this operate in this jurisdiction? Where can we position it? Who's running that business? Who's got the risk on it? And if they say, well, it's their business, they own it and operate it. I said, well, we should talk to your lawyers as well and make sure that integrating this token into your nice, boring, traditional business doesn't blow it up. And again, those were lessons learned from the early days, where we had some clients with very traditional businesses that wanted to incorporate tokens into it. And I'd say to them, are you sure you want to do this? I know tokens are the big fad trend. This is back 2018, something like that. Do you really want to do this? The reason I'd ask those questions was what those founders were planning for their business? What is their exit path? If it's an IPO or a trade sale, how do they get out of this business? Some of them said, we don't have a plan. We don't want to do that. We want to run this thing forever. Fun. Other ones say, well, we got a plan to IPO. I said, do you really think you're going to be able to IPO in any of the main exchanges? If you've got tokens integrated into this platform and you may or may not have funded some of the development of that business with token sale proceeds, it's probably a bright line. Other clients say, well, we want to make ourselves an acquisition target. We want JP Morgan to buy us. All right, great. Good luck. Sure. They're due diligence process. Certainly back in those days, if you funded the development of a business with a bunch of token sale proceeds, they're just not going to touch it. It was too out to handle. They didn't know where that money came from. Was it a bunch of sanctioned Russian oligarchs that funded the entire operation? The answer is it was tough to tell. We don't think so, but you're not going to get a traditional large incumbent top 100 business kicking the tires on any of these with that level of risk. Long way of saying, no two of these deals are the same and understanding your product and why it's unique. Again, hey, we've got a D5 platform. Okay, well, great. Why is that better than 50 other D5 platforms? What's your unique selling point? Again, it's not for me to say I should take this client or not take them. It forces them to answer some tough questions. And ideally, all the founders are on that call and you can force them to confront some of these issues that they may not have even discussed themselves and think about these things. If I've done my job right, we can have very, very intense initial two or three hours of calls, figure out the infrastructure, figure out that architectural design for what the project is going to look like. Now, I've got notebook after notebook that just has nothing but diagrams of client deals on it. Once we get those architectural drawings done, the actual building of the project is pretty straightforward. Right? It's pretty mechanical at that point there because we've addressed all the concerns from a regulatory standpoint, from a tax standpoint, from a securities law standpoint, and from a whose risk is this standpoint? And I know we can unpack those a bit more, but those first client calls are usually way more intense than the client expects. They come off of it, think it was just going to be a meet and greet and loan behold, we've like torn apart and restructure their business in usually about 55 minutes. Moving on to the company structures that a project launching with token would typically have. So based on my understanding, these would involve like three separate entities. A token SPV, you've mentioned this earlier, and for the listness, SPV just stands for Special Purpose Vehicle, that token is usually used just to mint and issue the token. Then you have the foundation company that would receive the proceeds from that token sale, and then you have the lab company, which typically is like a DevCo where the team is employed. So can you walk us through the purpose of each of these entities, but also how funds would flow from the SPV to the lab company, and whether any of these entities actually hold a controlling interest like in one another? Sure, that's a great question. The division of labor and effort between, like you say, sort of pillar one, the development team, pillar two, very much the sort of came in foundation token issuer, and then pillar three, that product side of the business. Again, the main variable to solve for is is the product side of it. Whose business is it? Is it going to be owned and operated by the development company? And again, classic video game type clients, that's a very easy position to put it in. If it's a derivatives trading platform, if it's a predictions market, if it's a let's say a spicier business on that regulatory spectrum, oftentimes that will fall within the foundation side of the diagram and figure out again the jurisdiction where that sits. It is an important question. None of these entities own and operate each other. And so I think look at it as almost more of a joint venture, right? You as the developers, you've got some skill, you've got some ability, and the foundation has the ability to build product and sell tokens and run the platform side of the business, but it doesn't have the right technical skill set to do that. And so we know each other, right? Trying to pretend we're just like two strangers ships that pass in the night and build a billion dollar business together is not right. I go the other way of saying well, no, we've got the ability to issue tokens or run and build a product, but we need your skill set. We need the nerds for hire. We need the ones and zeros, the lines of code to do that. And this is where that relationship between development company on the one side of the diagram owned and operated by founders versus this independent foundation. And that's why the foundation structure works so well. Foundation says we've got a great idea that we want to deploy, but we need to hire the right people to do it. And so that relationship between development company getting hired under a development agreement, master services agreement, effectively we pay you to build stuff for the foundation. That agreement is arms length, right? It's separately negotiated. Anything that the dev team receives under that agreement is going to be subject to tax and whichever jurisdiction they're in. That level of tax depends on which jurisdiction therein and where those founders are. And again, tip
Typically moving an allocation of tokens over to that onshore development company is pretty traditional, right? And whether that's because that development agreement or a master services agreement negotiated for an allocation of tokens, generally very early in the process, because they're going to want to rely on a very low valuation for those tokens. To say, well, yeah, development company did some development work for this foundation. It considered it a very risky client because it was very early days. It wasn't an established business and the development company was willing to take payment in tokens. Once this tokens are generated. And so they might say, well, we've done $50,000 worth of work. We might get 20% of the token supply or 30% of whatever that number ends up being, but they're not worth hundreds of millions of billions of dollars at that point because they're not out there on exchanges, out there on markets. There's no market price with investors. And again, some of the order of operations around putting these relationships in place is important. So that's how the dev team is motivated to support the project, not because they own and operate it, but because they are receiving tokens. And the value of those tokens, if they do their job right, hopefully increases over time. Often subject to lock up, festing periods, that sort of thing. And again, those are commercially negotiated terms. But yeah, back to your question, the foundation doesn't own or operate. And I think seeing them as sort of co-equal, almost joint venture partners with those contractual relationships, explain how they build a business together. Before we continue, let's take a quick commercial break to talk about something that every web 3 accountant, dev operator and finance professional can relate to, the chaos of on-chain data. Managing blockchain transactions can feel overwhelming when starting out. 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But hey, don't take my word for it, try that for yourself. Head over to octav.fi/deacamonquits and get 14 days for free with all their pro account features and discover how Octav can transform your crypto operations today. I also wanted to ask around what are the best jurisdictions but at the same time I mentioned that you've helped to incorporate more than 350 Cayman foundations so you might be biased. But I want to ask you, the clients when they come to you, I'm sure they should be asking, should I go to Switzerland or should I go to Cayman? What's like the pros and cons maybe of choosing the Cayman Islands? Yeah, is DVI the only really jurisdiction that's currently being used as the token SPV vehicle? Sure. That's a good question and I appreciate you throwing it out there. Obviously, there was a grain of sand and there's a heavy bias in this. Equally, I've sat on probably hundreds of hours of client calls with various onshore and offshore lawyers across easily 50 jurisdictions. As everyone in the very early days up until today, tries to unpack the best place to do this and think that they've got some new wild way of doing it that solves some problem that may or may not exist. Yeah, in the old days, it was Swiss either foundations or now Swiss associations are more popular. There was some projects out of Singapore back in the old days. There was projects out of Malta, Estonia, some of those early jurisdictions that were like, hey, we see an opportunity. We're going to try and support some of this. The truth is a lot of those jurisdictions have either high barriers to entry, just the cost of doing business there is high. The time to do a project in some of those jurisdictions could be long, two, three, four, five, six months, something like that, to literally deform a foundation or form an association. There would be often tax uncertainty, right? Those are not tax-free jurisdictions. They're not necessarily tax-free. Yes, I appreciate you might be able to apply for tax exemption certificates and get waivers etc. But none of that's guaranteed. Cayman did well because it gives certainty on some of those points. It's got the nice owner of this orphanage foundation. Cayman has been and always has been tax-free and so there's not a discretionary. You don't have to apply for it. You don't have to opt into it. It just is inherently tax-free in the Cayman Islands. And there's a sophistication of service providers. Again, I'll blow my own horn. I self-been one of them, alongside other lawyers that have deep experience in the space, alongside some of the independent director firms that have a lot of experience in the space, along with some of the foundation administration firms that are all based here. Those businesses didn't exist three, four, five years ago, right? They've grown because of the demand on the Cayman Islands and it's positioned itself as sort of the market leader. A lot of that is also linked to, there's been so much business inherently going through the Cayman Islands for the last 30, 40 years, whether it's traditional insurance business or traditional investment fund business, right? Cayman's been the offshore lead for investment funds for three or four decades now, which meant there was a familiarity already with the jurisdiction. So some of those large venture capital funds that were invested in the space already had their footprint here, already understood the legal jurisdiction. Already had lawyers here that could help them out doing some of these deals. They didn't need the sort of exotic uncertainty of going off to Estonia or Latvia or Lichens time, you know, or again, take your pick of maybe that works, but there's a lot of uncertainty here and cost, complexity, skill, etc. Why would we bother? You know, there's some projects we looked at some of these Gernsey trusts. It seemed like a good idea at the time, but a lot of those have been dismantled. It just didn't work out. A lot of the Swiss models and I work with Swiss lawyers all the time. What used to work in Switzerland three, four, five years ago doesn't necessarily work now, right? It became more sophisticated. Some of the products side of the business is that used to be in some of those jurisdictions, those windows shut. So in the last couple of years, I've been involved in a handful of large restructures for some of these projects that used to be based in here there in the other place just didn't work anymore, either from attacks or risk or regulatory standpoint or they brought in crypto laws that made their business no longer viable. Humans done really well in not just grabbing new market share, but also fixing, you know, safe haven for projects that might have been set up elsewhere. Those are some of my favorite because they're a lot harder and they're usually an established business and they've already got a treasury and they're getting the right advice to try and protect the players involved while trying to maintain a seamless user experience. They can't say, well, we're going to shut off our blockchain for 24 hours while we like transition this stuff. And so we're lying on about 20 years of legal experience and doing a lot of cross-border M&A activity. It's been a great opportunity to try and build up some of these structures. And regarding the token SPV and VVI, what's really the purpose once the token has been minted, issued, transferred to the foundation, does that entity become defunct? Sure. The classic model of a Cayman Foundation, an onerless Cayman Foundation, owned it at VVI subsidiary, really came about in the last few years where Cayman's VASP virtual asset service provider laws, which Cayman before VVI's did, they brought token issuances into scope. And so if you just had a foundation and you did a token issuance, you know, a sale of verk newly issued virtual assets to the public for consideration, which is the language there of what a token issuance is. If you did that in Cayman today, you would be looking at a probably four to six to eight month registration period to get your VASP registration. What you can do, or you can draw up a $4,000 subsidiary in VVI underneath the foundation, it's also tax-free in VVI. Most of the firms can handle VVI in Cayman law at the same time. And so you can cut out six or eight months of uncertainty in the cost and complexity of the registration under the Cayman VASP regime by having that VVI subsidiary. VVI also has a VASP regime. That came in a year or two after Cayman's regime. There's a lot of similarities between them. If you're custodian, if you're transmitter, if you're in exchange, then you get caught under both, right? And if you say, "I want to build finance at a Cayman or VVI or Coinbase," it's going to be the same. Those VASP laws are very, very similar between them. A token issuance is different. And again, if you ran the black line of the Cayman VASP versus VVI VASP, VVI just doesn't regulate a token issuer. And so that became very popular that had dropped that VVI subsidiary below it. VVI post-token issuance, there's two schools of thought on this. Some say, "Well, we minted the token today. We dividend and distributed the token up to the foundation or under contractual obligations we paid it to DevCo or paid it to early investors, et cetera, et cetera." And we say, "Well, just kill off VVI." [BLANK_AUDIO]
It did its job. It was there for a day, a week, a month, whatever it is. And then it disappears. I'm not a huge fan of that structure. To my mind, BVI is the Blash Shield. It's kind of your bulletproof vest in these structures where we can all collectively say who issued the token or BVI did. And it might have hired people to help it do it, but the risk of the token issuance stays in that BVI entity. In a world where that BVI company doesn't exist, some people will say, well, too late, so sorry to attack Sethorety or to a regulator or even to an investor. Well, it's not here. It's gone. You killed it off. I think the reality is that I think most lawyers would generally accept that they're going to follow the money. And certainly if it's a tax authority, if it's a regulatory matter, they're going to say, well, I don't care that you killed off this $2 company and that it ceased to exist yesterday. Where did the dollar or $100 million go? We will quite happily follow that. The problem then becomes is that you've then sort of poison the foundation and what's meant to be a governance entity, a sort of a safe place to hold treasury assets is now directly confronting potential litigation or regulatory claims. Whereas if BVI is there, we can say, well, that's its problem. BVI can go to court, it can paddle it out and may or may not win, depending on the facts and circumstances, but at least there's a theoretical fighting chance that that issue work it ceased to exist and die off while the treasury exists while the community can continue. And so, it's a bit of a hedge, right? Maybe you keep an entity alive for the next five years or 10 years and maybe it's never required. Equally, you might kill it off and think, well, you're a genius for saving through $4,000 a year, but the one bit of insurance that you had to help protect the business, you may regret that decision. Very interesting. Now, BVI in Cayman, they often referred to as being tax neutral jurisdictions. I want to ask you, are there any kind of tax implication for the token SBV in BVI and the foundation in the Cayman, both at the point of the token sale and during the transfer funds between these entities? Yeah. Tax neutral is a playaway of saying they're tax free. Let's just call a spade a spade. There will be no tax. And again, if BVI sells $100 or the tokens or $100 million of the tokens, at day zero, those proceeds land there in that BVI entity. Again, whether it's pursuant to a token warrant or a staffed or a pre-sale agreement, what have you, they all land tax free in BVI. Cayman and BVI both have those same zero tax regimes. So we could pay a dividend up to the foundation. We could recapitalize BVI. We can move assets up and down all day, every day with zero tax implications. Where you can have some tax concerns is the mind management control of those otherwise offshore entities. And that's basically looking at who's driving that bus? Who is the directors on the foundation? Who do those directors act for? Who's really got the ideas? Who's driving that ship? And this is where it doesn't become a Cayman or BVI tax question. Just as a simple example, if you put a UK person, a US person, Canadian, Australian, or probably 150 onshore jurisdictions, if you start putting directors from those places onto that board, you may well create a tax nexus to their home territory. Wherever that is. It makes perfect sense. Let's assume you're revenue Canada. And you've got someone in Toronto. So it's their last week for consensus that says, yeah, I'm a director. I'm the sole director of an offshore foundation that has a hundred million dollars. And this BVI subsidiary raised that through a tax free token sale. revenue Canada is going to say, well, no, you might not own the foundation, but you were driving the bus. Right? You were controlling that thing. You were the mind management control. And you look at the CFC laws controlled form corporation laws of 150 plus sort of mainstream jurisdictions. They've got some version of this. And you know, shout out to PWC that puts out global tax guide policies. You can go and read this stuff. Clients are like, well, what if my brother in Estonia does it? I'm like, well, it's an Estonian tax question. But here, go read that link and you can figure it out for yourself. You know, it's an important point. Just merely having came in based directors doesn't necessarily guarantee that you're not going to fall into those onshore tax nets. Because those tax regimes look at the substantive ownership and control. And we say, well, no one owns this thing, but that control question. And if you just have a sort of stooge director that will sign anything that's put in front of them, you could run a real risk of, well, who's telling to sign those documents? Where did that arrangement come from? And that point that we spoke about about sort of joint venture light between a dev team and a foundation. That relationship starts to fall apart. It's not sort of co-equals on that. You end up having almost a fact of subsidiary where some of the dev team could arguably be driving the foundation, which yeah, will be very problematic. Not as a matter of Kamehner BVI law, because our laws don't care. And as long as those directors can pass KYC, they can be appointed. It's really a question of not bringing foreign tax risks into an otherwise offshore structure. Yeah, this is a good segue onto my next question. So we've touched on way to incorporate the token SBVN foundation. But I want to speak about the founders, so about their own residency and how their tax profile can create some other risk. So rules like controlled foreign corporations, CFC regimes can mean founders or tax on their offshore companies profits, even if nothing is distributed. There's also the concept of a place of effective management where basically your company might be taxed in your home country if you've seen as making key decisions from there. So I want to ask you, how should founders be thinking about their own personal tactics exposure when structuring a token launch? And yeah, what's the right way to avoid some mistakes? Yeah, I think the reality is is accepting that when we talk about a founder, they're the founder of the development company, right? That is their business. They own it, they operate it, and it's usually an onshore entity, right? And yes, they could raise outside a capital, they could bring it outside investors into it, they could do a classic safe, simple agreement for future equity to help fund raise. Let's assume an onshore development company. There's no doubt they own and operate that side of the business, and there's no doubt if that development company in the team is in an onshore jurisdiction, any dollar revenue or dollar worth of tokens or a hundred million dollars worth of tokens that may or may not get paid over to it is going to get subject to tax in their hands, not because they own and operate the foundation, but because they were service provider to it. And if someone pays them an Apple's oranges bananas or tokens, that's for some of these valuations coming to question where yeah, well, you got paid in kind for doing some work, and let's assume the IRS and the States, they don't allow that DevCoA to file its tax returns with I got paid in apples and oranges and bananas, they say, well, convert those to dollars and tell us what you actually got paid on an in kind basis. So the tax considerations for those founders, owners and operators of the DevCoA is understanding that yeah, when they provide services and they get paid in tokens, that that will be a taxable event for them. Again, generally speaking earlier in the process that a lower valuation is generally the operating procedure where it's a higher risk transaction for them to take on a risky client to say, well, yeah, I might have committed $50,000 worth of team time to do this in exchange for some tokens that are worth very little, right? They're worth $50,000 even if it's a huge number of them because that's the true value of the services that they provided. The question for those founders is then do they keep those tokens that the DevCo earned within development company, do they distribute them up to themselves, do they distribute them out to investors, etc. And again, I'm not a US tax lawyer, but I kind of spent hundreds of hours on these calls, figuring out what the most efficient tax path is for the founders as well as for the various employees of that development company. They're kind of classic 83B tax election, that allows them to pre-pay a portion of the tax on those, put a line in the sand to say, well, I paid tax on this thing that might have been worth a dollar. Hopefully a year for now is for the $100, but don't make me pay it, $100 value, make me pay it on the time I received it. Other jurisdictions have similar regimes in place, right? The UK has got a similar regime, Canada's got a similar regime, and this is where development teams really need to get their own tax advice as to what is most efficient for them. And it can be a complex question because you might have a UK DevCo that's owned by one UK person, one French person, and one German, just ran an example. You have a UK corporate tax question, you've got a UK personal tax question for that founder, you've got a French personal tax question for the second founder, and you got a German personal tax question for them. And God help you, you've got 30, 40, 50 employees, or contractors across another dozen jurisdictions, and everyone's getting some allocation of tokens. Again, as part of their compensation, as part of their package to be working there for the development company, those are the complex questions, right? I can't answer them. I know enough to be dangerous until my client goes get some, in that case, UK, French, and German tax advice. If everyone says we're all based in Dubai, it's a simpler question, because again, it's tax-free jurisdiction. But understanding what that liability is, understanding when that liability accrues, understanding what's going to be most efficient for founders on the one side, as well as for a lot of their employees or contractors, and understanding that the ability to be tax-efficient after the fact is impossible, right? You can't sort of unwind some of these transactions and have a second chance at it. So getting that advice early in the process and understanding, even if it's six months out, right? Like figure out the step plan. And that's where a lot of these clients, they want to move
really, really quickly. I say well from my offshore came and be the ice standpoint, yeah, we can move as quick as you want. The difficulty is that some of the tax positions and what might be most efficient, the order of operations, doesn't necessarily always fit into build it tomorrow, launch the next day after that. Let's move quick. You know, we can manage that, but there's often some inefficiency there. Now we're still at the pre-incorporation stage. So we've touched on jurisdictions, we've touched on the liberty protection for the founders. Is there anything else worth mentioning at this stage? I think it's really having that strong grasp again back to that question of three separate businesses, a DevCo, a token-issue group, and the product. And understanding who's responsible for these, understanding the risk position, understanding that while we all tend to focus on the tax consequences of a token, there's also that product side of the business, or even if that product. I don't want to say it is a video game. People spend tokens to play the game. We've got a revenue model there, right? And understanding who owns that business, where does that money go? And I'll often have that conversation with those clients to be like, well, let's assume you build this platform. I don't know, a derivative trading platform. Let's say it earns a hundred million dollars in trading fees. Who's money is that? And like, this is where you get the ultimate founder, sort of dust up, or half of them say, it's mine, half of them say it's the communities, half of them say it goes to the token holders. And it's like, you guys need to figure this out, right? Like, this isn't the kind of discussion we want to have down the road. And this is where front loading those questions and understanding the sort of the tokenomics model of like, where that flow goes, what that looks like. And making sure you've got the right legal advisors, covering off those jurisdictions, at a minimum to say from a regulatory standpoint, yes, we can run this type of business in that jurisdiction. And then on top of that, understanding the tax position, obviously planned for a world of success, where this thing makes hundred million dollars. What does that mean? Where does that go? What's the risk profile for each of these people? And again, that order of operations, right? Going ABC and an organized path is very important to try to maximize efficiency. And you know, it's a nice problem to have, but I often get clients that are like, oops, we sort of accidentally minted a token that became the five hundred million dollar market cap. How do we fix this? And it's like, if you'd call me a month ago, we could have been a much different outcome and we could have structured this in a much different way. And this is where I think we're still in the early days of these markets, right? This sort of, we'll call it image-surity, but maybe some of the naivety of like just because we can do this and launch this platform, mint this token. The barrier to entry is nothing, right? Get a metamask and put three dollars of eth into it and you can go and launch your own token. You can launch your own platform. Often say to my clients, let's just pump the brakes a little bit. I know your dev team's ready and ready to go, but like there's a sequencing here that we want to go through and understanding that all the right pieces are in the right place at the right time. It doesn't need to be six or 12 months to do this, right? I've done some of these deals in as little as a week or two, but it's figuring out who's on the risk for each piece of this business. And ultimately, in the worst case scenario, if this blows up in a tax regulatory investigation, we should all know where the risk sits. What I don't want is three independent teams all pointing the finger at each other saying it was them. It was them. It was them. It was going to stand off position, right? That's just the last way that we want to try and structure one of these deals. So now at the incorporation stage, if you had to walk through a practical checklist at this stage from, I mean, the company has been set up, then you have to appoint all the key service providers, the directors, company secretary, there's a two-convaluation expert, obviously an accounting firm. So what should founders be prepared for? And what often gets messed or understood at this early stage? Yeah, well, that's it. I think the minimum requirements are, as we need to understand, bluntly, who's initially paying for the feces that some of the structures are up? And it's a few different paths to do that. Sometimes it's a gift from the community, sometimes it can be a loan arrangement from some of the deaf team members, sometimes it can be a loan from the deaf co-itself. Understanding how the funding gets into it. Second question is who's the director of the foundation, right? And again, this goes back to the tax question, mind, management, control, where they sit. What's that going to mean? Yeah, we could send introductions to probably 10 different director services firms in the Cayman Islands, and we work with all of them, right? They've all got strengths and weaknesses, summer former lawyer, summer former accountant, summer former technologists. And I say to clients, you should speak to all of them, right? You need to understand their skillset where your blind spots are, where their blind spots are. And again, back to this idea of a joint venture. Like, what can they bring to the table to be the yin to your yang and try and make this business work? I write down to personality clashes. Like, I just, the guy's smart, but I just don't like him, right? That happens. I'm trying to figure out what that structure looks like, because they become very important, particularly joint venture partners, right? And then you want to try and build a business over the next three, five, 10 years, whatever that is, and maintaining those relationships. And I'm fortunate to have become, well, be honest, good friends with a lot of those directors, because we work with them on a regular basis. And I say to them, I'm not going to go soul and exclusive. I'm not going to introduce you because I want to make sure every dev team has a chance to speak to a broad number of people. Those are sort of the day zero requirements. The registered office, the supervisor, the secretary of the foundation, a lot of the service providers can just do that, to kind of just fill those roles. It shouldn't be too much thought really thinking about it. The director question is really the main one. The next steps beyond that, once that foundation exists, is generally getting that development agreement, or that master services agreement in place, where the dev co-sform be hired by the foundation group entities. And that's important from a timing standpoint, A, to put that line in the sand of what that token payment is going to be, once those tokens get generated, and again, earlier is better than later. And also understanding, is that service agreement going to be pure technology, ones and zeroes, or is there going to be broader marketing, sort of advisory typework going on under that? And again, that's where you often see more of a master services agreement. Foundation team will often call dev co. Again, dev co is probably not quite the right word because it assumes they're only doing development, but they can also ask for them, sort of broader guidance and advice. And it might be on tokenomics, might be on some of the marketing activity. Some dev teams are geniuses on the development, but to be honest, hopeless on everything else. And so they would not be the right people to outsource for the foundation. And so building that broader team, like you say, bringing in the right outsource to counted, bringing in the tokenomics firm, bringing in the valuation firm, bringing in the marketing firm, kind of building that broader, motley crew of service providers that are each going to contribute and collaboratively work together, ensuring that they've all got a bluntly similar risk profile in terms of backing the project and understanding what the project is trying to achieve, understanding short, medium, and long term goals of the project. And again, a meme token has a different sort of shaped return than some of my derivatives trading platform clients. Or they might say, well, we spent a lot of money upfront. It's a slow burn, but we're getting users and we're going to go down the sort of hockey stick position. The meme token clients are like, well, if we haven't made a million dollars in the first five minutes, it's never going to happen. Sort of tend to agree with that. And you know, right down to then the next layer of, do we need custodians on this? Do we want to go and hire an anchorage or a copper or something like that to do that? Some clients say, yes, this is great for a security standpoint. Others say, it's a terrible idea. We've now got counterparty risk. Why would we do that? We're a bunch of crypto d-gents, you know, trust no one. We have a multi-save, multi-key wallets for everyone. Try to build that all out. And this is where getting the flavor of the client, right? Are they coming from a deep crypto d-gen world? You just have to accept that it's a different way from some of the Wall Street folks that have come out of from. I've already got a 20, 30, 40 year career. I want to use blockchain and more traditional business. I like both of those types of clients. It's a very different relationship, very different boyfriend, very different vocabulary, right? I know what I'm talking to a DJ and client when I'm wearing one of my Monero T shirts and they're like, yeah, anarchy, yeah, we're all gone. There's other clients who have no idea what it is, right? They're it's a different type of business, different background. And I think the benefit of having done 350 of these deals is understanding the weaknesses, their blind spots and having those awkward conversations to be like, you guys haven't thought this through. There's something missing here. You need to add something on. You need to hire the right person. You need to build that skill set out or or fortune. Oftentimes we already know some of those people. We can make those introductions, whether it's administrative firms to help them on some of the admin, whether it's tech developers to build some of the product side out, whether it's auditor's tax advisors and other foreign jurisdictions or foreign lawyers, right? Again, in the course of 350 of those deals, there's probably 100 plus jurisdictions that we've worked with over that period of time. And so we can really offer some second-hand search general counsel service to our clients. We're, you know, bring us your problem no matter where that is and we'll fix it. Whether we do it ourselves or we find the right people, we can help. Before we continue, let's take a quick commercial break from our sponsor. If you're serious about running your business using crypto, you need tools built for crypto. One of my favorite apps, and yes, one that I use multiple times a month, is Request Finance. 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So how should founders think about marketing at the token distribution stage, especially in terms of their token positioning, jurisdictions they are being exposed to and any consumer protection laws. And yeah, we're also coming mistakes again that you've seen there. Sure, that's again a good question. As a matter of came in a BVI law, there's not much to think about there. And the short answer is is because in came in a BVI, those tokens are not a security or generally won't be a security. And again, I maybe two or three out of 350 of my clients would have been a security, those tokens in came in a BVI. But that means nothing to the rest of the world. And I can give clean legal opinions all day long that XYZ token is not a security under came in a BVI law because it's not. We've got old school antiquated 50-year old law that says the security is ABC. And if you're not on that list, you're not a security. The question that becomes, well, we know is not much marketing in came in a BVI because it's a small market there. It's really a push product on to other jurisdictions. And yeah, you start promoting those tokens in, you know, everyone picks the US. It often looks at the UK. They look at Canada. They look where, well, where's the intensity of our potential community? I don't know, if you're going to do like a sumo token, wrestler token, Japan's probably on your radar, I play, I think sumo is interesting. And I'm sure there's lots of fans all over the world. But Japan's quite clear that your target market. If you do a NASCAR token, you're probably looking at the US market more than anywhere else, given NASCAR's big in the US and not necessarily elsewhere. I'm sure I'll offend a bunch of people when I say that. But the point is you end up bringing yourself into those foreign jurisdictions. You've exposed the product and the project to those foreign laws because that's where that community is. The very lawyerly answer for me is, go get local counsel in that jurisdiction before you do anything and speak to them, explain the product, get a clean legal opinion as to what you can or cannot do. It's just not really a viable answer, right? And so people took a more cautious approach certainly in the US and you certainly look back and I sort of Gary Ginsburg SEC territory pre-Trump election. It was a very different risk profile than what we've seen in the last four months, right? Very, very different regime. And so the advice that from US counsel in the US six months ago was probably going to be guys either register and go down a path and you know register this token, go down a 506C, 506D, etc. I got not a US lawyer but I've done enough of these deals. Go and follow that path. Usually means sales only to accredited investors. You can't broadly market it. You have got to verify their accredited investor status and generally you've got to put a 12 month lockup, right? It was onerous. It was quite cumbersome to do that. But that was the tradeoff. If you want to play in the US market, those are the rules you generally had to follow. Getting that local advice was key. Do my clients go off to Mongolia and get Mongolian legal advice for the person that may stumble onto the token and want to buy it? No, they don't, right? They say, well, we didn't actively market in that jurisdiction. We weren't trying to do this. I think your question is, you know, this came up in the context of token 2049 and Dubai a couple of weeks ago, right? People were posting like, be careful under the VAR regime, etc. In the other regimes, ADGM in UAE, like there is restrictions on marketing. And so this idea of like having your booth at an event and like shilling tokens to people, you know, you can easily cross that line because guess what? You're in their home turf, you're in their jurisdiction, you're marketing guests to a lot of international people that attend the event. But the fact is you're on their home turf. And so getting the right advice in the right jurisdiction and certainly jurisdictions where you're promoting it. Any degree of advertisement, any degree of sort of targeted searching for those investors or users of the community. And again, it varies on the profile, right? If it's a video game token that powers a broadly played video game that's already been established, it's generally a lower risk situation because you're trying to say, well, it's a smaller transaction size. There's real utility. The project side of the business is already built out. It's isn't being sold to people to fund the development of the game. And you take a view of well, even in more aggressive jurisdictions, that wouldn't be a security. And you're right about consumer protection laws and money transmitter laws and a lot of other second, third tier considerations around this. Right? People think is it a security yes, no, and get opinions on that. That doesn't mean there's not 50 other laws that you may well fall into, right? You could be under the commodities laws, right? CFTC laws in the US as an example. You could be in stablecoin legislation, right? If you're building stablecoins, it's very different than a meme token. When this is where 350 projects, none of them are exactly the same. There's no cookie cutter approach. And so unpacking each of these is part of the process. Now going back to the Cayman Islands, I saw that actually while preparing this episode that the vast framework in the Cayman has recently been updated early April of this year. And they're now required to have at least three directors and one independent director, like a foundation, right? In the Cayman Islands. So prior to that, there wasn't like this minimum number of directors to have no need to have an independent director. Could you maybe provide an example like in practice, who this independent director typically is? And maybe what factors could generally threaten their independence? Sure. The vast regime in Cayman affected the evolved. We knew what this regime was going to look like. And when it came out four or five years ago, the initial version of it, there was always this language of there's a registration regime and there's a licensing regime. The licensing regime hadn't been turned on. And they said, well, until that regime, you know, that slab of the vast blog gets turned on, assume that you have to get registered. And so there was a lot of registrants that came through that process and got registered. The change that happened there back in April was that that licensing regime came on and you needed to be moved across. And again, there's grandfathering regimes to allow transition, etc. around that as well as some of these directorship changes as well as some of the very basic application fee and sort of capital requirements, right? Sort of the nitty gritty and the regulations. Some of that stuff changed. It's not that unusual for regulated entities in almost any jurisdiction. And certainly in Cayman, you look at the other licensing regimes, whether it's a company management regime, whether it's a fund administrator regime, etc. Whether it's the mutual funds or private funds regime, a lot of those do require more than one director and some of them do also require either in the law or as a matter of practice, but level of independence. And they want to see that there's a safe degree of oversight that it's not just a bunch of sort of yellow founders running this business with a very different risk profile. They want to have kind of some of us some outside skin in the game, right? That has some degree of responsibility in that business. And so in terms of those independent directors that can take on those roles, yeah, there's there's various service providers, operators here in the Cayman Islands. Again, they didn't exist five six seven years ago because the market wasn't very sure enough to support it. Now we're seeing quite a few of those providers come on board and some of them are specialized, right? They don't necessarily do foundation token issuers or that's not their core business. They have a concentration of vast entities, the regulated entities. Most of the vast entities that are registered or licensed are again, their exchanges, their custodians, their transmitters, they're doing the regulated activity, they're an on ramp or off ramp or pinch point within the ecosystem. And to be honest, they should be regulated, right? They're the danger points within the ecosystem and see what I make sure those grownups. And so a degree of independence and oversight on those entities makes sense. And most of them are not foundations, right? An onerous foundation could technically get a vast registration, but you generally wouldn't do that. It's usually going to be a for profit privately on site of it. Again, you want to build an offshore version of buy and answer coin base. That's the path you're looking down you get licensed and go through them. I think it's time to speak about the next floor, Chantan. So in light of what we've discussed around token launches, could you provide an overview of the services you provide at next floor? Sure, that's great. Next law was started earlier this year, really a need or a drive from the community generally to want smaller boutique specialized firms that can adapt their business to suit their clients needs. And I know that sounds like so trait to
say that, but I came down to a version of larger law firms, and again, I came from a larger law firm, just don't have the sort of mobility and the nimbleness to cater to what some of these clients want to do. Whether that's, you know, literally taking payment and stable coins, taking payment and native tokens, being able to take payment and equity in some of the businesses and the flexibility around that, larger traditional firms just, they're not positioned well to do that. And also the level of expertise, clients are happy to pay premium rates for the right experience, but they also don't want sort of a wasteful approach to it. You know, if you show up with three, four, five associates on a call, clients are like, what's going on here? It's going to be very, very expensive, right? And I guess to my benefit, the fact that I grew up in the space, and I've been doing crypto deals for 11 plus 12 years now, again, early funds, days into some of the early token offerings, that learning curve has already been established. I've already built that up, I've already gone down that path. And so clients can come to me and say, well, yeah, we know we're not going to go to you for a litigation claim. We know we're not going to come to you for, I don't know, a local dispute that might arise. We're not going to come to you if we need a divorce lawyer. I'm like, yeah, of course not. What are the chances you need in them? They just want the core business and they want to say, well, hold on, we're happy to use you to go through this sort of launch process and be counsel to the foundation. But what was this something does go wrong? What if we're using litigation advice? I say, well, guess what? I can refer you out to 30 different law firms and we can find the best one that has the best skill, the best ability to do that. And I don't want to say too hard to knock on some of the larger firms, again, onshore offshore, that have every single department covered. And yeah, that one stop shop is convenient. That's great. The truth is the likelihood of you always getting the best lawyers across every single part of their business. It's not existing, right? That's just not the case. And I like the the ability for my clients to shop around to find the best people that have the best services, whether it's from a cost standpoint, whether it's from an experienced standpoint, whether it's from a responsiveness and capacity standpoint. The main difference with my Web 3 clients is that they sort of give client instructions in a matter of minutes or hours rather than days or weeks. And so the intensity isn't cut out for everyone. And so some of those other firms just aren't built for it, right? And you know, the feedback that I get from clients is we can jump on a call with you and you give us answers. I say, well, isn't that what all your lawyers do? No, no, no, no, lots of caveats, a lot of half answers. Let me bring this back. Let's let's take this offline. I'm like, that's not helpful, right? If I was a consumer of legal services, it would drive me crazy. If that was the answer I kept getting. So I think for us, it's knowing our expertise, knowing where we can leverage that skill set and also knowing our limitations, saying, no, this isn't our ideal for us either because we're jammed on a capacity standpoint or because there's a better jurisdiction to take us elsewhere. We'll make the introduction. And for every deal that we do, I probably give away one or two. It's like, well, because there's a better place. And this is how you should do it. There's non clients remember that and they might send the next five deals my way because they're like, well, you were honest enough to send us down the right path and help us out. And that's where a lot of our workflow comes from. It's from existing founder teams and they tell us about other founders and co-founders and those teams split and it's very grassroots organic for us, which is great. It means we get to work with a lot of different onshore firms. We get a lot of different exposure to the market and get to be a nice sounding board. And this is where some clients then lean on us and say, well, you know, the crypto ecosystem as well as anyone, because even living in the space across multiple jurisdictions, they say, well, we want that sort of outsourced GC model, right? Put us on a retainer model. We'll pay $X,000 a month just to be able to ask you questions and help us build this business out. Even if only some of it maybe based on KMN or BVI and there could be other parts of the business elsewhere. For me, that's like the ultimate sign of success, right? That's the ultimate sort of compliment. It's not that you refer five more clients my way. It's that you start asking us questions about every other jurisdiction and you look to us for guidance, you know, being inside the tent with the client rather than the outside looking in, right? And there is that moment where you sort of cross that bridge and become that actually trusted advisor, kind of the consigliary to the business, helping them build it out is generally the relationship that I go with my clients. Now, your clients are obviously with three native clients, but have you been pleasantly surprised in recent times to see maybe traditional web two players now being more interested on maybe some of the tokenization use case and they've approached you as a result. Yeah, for sure. Well, that's it. This is where the sort of, you know, people are talking about it at consensus in Toronto and even token 24/9 in Dubai, like a lot more suits and ties, right? Not just walking the floors, but even at the booths, right? And you think back to early stage consensus in Midtown Manhattan, you know, five Lamborghini's parked up front guys and sequined jump suits, cowboy hats. It was like, it was more of a rave party atmosphere than like a serious conference. And I miss a bit of that. And this is where I think I always appreciate it. Eath Denver has been much more grassroots and still very much that flavor of it. But yeah, is the traditional businesses coming into the space? Absolutely. And are they going to keep coming to the space? Yes, absolutely. I think more sophisticated regulatory regimes in the US, whether it's stablecoin bills or otherwise, kind of build the confidence into it. Obviously, some of those businesses now under the Trump administration say, well, now's our chance, right? And while we might have been thinking about this, why we might have been building behind the scenes, now's our opportunity to jump in, take advantages of this opportunity. But yeah, the traditional businesses, and to your point about whether it's sort of tokenized lending businesses, whether it's tokenized debt, whether it's tokenized real estate. Yeah, those are now use cases that didn't exist for some of this technology, you know, three, four, five years ago. Those are hard clients, right? Those are difficult businesses to do because, hey, they could be very, very disruptive in terms of what they're trying to build. And, importantly, these are real business to it. Right? It's not a meme token here today gone tomorrow. It's like we built this business. We're adding a crypto element to it to allow us to scale up to the next level or to allow us to bring down transaction costs or allow us to be more efficient. Right? Everyone talks about sort of the tokenized funds. It's great, right? And there's still a lot of regulatory complexity around that. And we'll do another podcast when the time comes on tokenized funds, but don't get me started on that. If they succeed in building some of this, it will have repercussions for the broader industry, right? Some of those middlemen that built their entire businesses on managing bits and piece of these and trying to be risk managers and administration, you end up cutting that out. And so the cost and the buried entry goes down. But there's also the fear that half of Midtown Manhattan would cease to have jobs, right? If there's a heavy adoption across this and the ultra efficiencies are realized across these various platforms, you know, you could literally have a ride on your hand. So I think we're seeing slow transition down this path where traditional businesses are much more willing to kick the tires on this. And even right down to a 20, 30 year old video game companies, right? And they kind of looked at it from the fringes. We're skeptical, but now starting to move into the space. And again, some of the most easy to use logical use cases. Those are the kind of client projects that I really enjoy. Jonathan, I'm really enjoying the episodes so far. And but maybe it's time to wrap up. I'm looking at the time the time is passing. But maybe before actually wrap up, I wanted to ask you about what are you actually looking forward to for this year, maybe which could further accelerate the adoption of crypto for institutions, right? So I mean, this could be anything around regulation. Of course, the Genius Act, of course, new vast regimes, maybe around the world. Or yeah, anything else that comes to mind. Yeah, I think continuing maturity of the market generally is what I look forward to. And by that, I mean more established players, traditional players moving into the space, right? And we saw surges of that in prior peaks and troughs in the market. But I feel like this may be where we really cross that line where traditional mainstream players fully embrace it and adopt it. And I think credit to the Trump administration to give them that confidence and to give them, well, whether it's two years until midterms or four years into the next presidential election, the confidence to really go into the space. And so again, this is where we see more activity on some of those traditional platforms in the last three or four months than we did in the three or four years before that. And the other thing that also gets psychs me is more use cases like more products that will bring the next, I won't say 100 million, I'll say the next 100 people in decrypto. Let's be manageable here. I like those projects, right? And they're kind of the eccentric projects, kind of fringe use cases, but like they build a new product and they're building in a space and they're being really inventive. For every one of those clients, I have three or four more traditional type clients, the layer zero, layer one, layer two, layer three network. And I say to myself, great, they'll do very well. They raise a lot of money. There'll be a lot of hype and excitement around them. But I also look at it from like a user standpoint. Do we really need 50 networks that can all do 500 million transactions per second? You think about it from like an infrastructure standpoint. We've got all these beautiful highways, we've got all these bridges and tunnels and everywhere, and everyone can get zero to a million miles an hour and move on all this infrastructure that we built. But again, back to that analogy, there's no cars, trains, or buses driving on a lot of these networks. And it's like I get the stats are very impressive, but like give me some
users, right? Like build and integrate it back into this. And when I start hearing stories of you know, Facebook getting back into stablecoin territory and looking at that again and again you know, seem where they were three or four years ago were Libra first time around. That was an exciting moment. Obviously that didn't work out very well. But a use case like this where people don't even realize it's crypto. All of a sudden the technology under the hood of an app on their phone they're like, oh, well, this is powered by crypto. This isn't dangerous. This isn't complicated. You know, it's a transaction, right? And it's transparent and the system just works. I'm excited for some of those projects where it's not crypto in your face, right? I think the opposite into that spectrum is sort of meme token mania. And I think we're seeing that die down, you know, doing four or five, six thousand new tokens a day, I guess was fun while it lasted. But for me, that was beneficial that it showed the technology could survive. You know, saline and break the system worked. But ultimately I'm looking forward to more slower building, harder to build businesses, but ones that will still be here five years from now, right? Building a real business based on blockchain technology is, you know, those are the kind of clients I love. Is there any such projects that actually come to mind? Like, these projects that are not shouting crypto, but actually this crypto under the hood? We are working on a few of those. Obviously, I can't disclose who those are or what they're doing, but it is much more traditional businesses rebuilding their business around a better technology. And by that, I mean, if you had to recreate financial services and the way that our financial services industry operates, there's no way you would rebuild it today the same way it was built 100 years ago, right? We evolved down this very bizarre path of like middlemen and checks and balances all through the ecosystem. There's no way you would accidentally recreate that if you had a start from scratch. And so I think this is where some of those projects doing what you and me might consider very boring business, but in a world where it's more accessible to people, it's cheaper, it's easier to use, it can scale, it can grow faster, and they're using the technology not for the hype of crypto. Let's all get rich in bilambos, but like because this is actually a better way of doing it, right? Like the infrastructure supports the way we're building our business. And obviously with various token protocols, that may mean locked tokens, that may mean it's locked down in a sort of fence walled city, it may not be freely transferable, the vision of crypto de-gens of own your stuff and trade and sell it, do whatever you like with it. I think it's that real use case. It's like this building boring businesses where they've realized this isn't crypto for crypto sake, it's crypto because this is actually good technology. Yeah, the flip side is that sometimes these projects don't get the attention they deserve, right? See project that it's not the NFT or the meme. And that's it. And this is where I think I see a bit of a pattern developing. The people building those sort of boring crypto projects are some of my, let's say older, more experienced founders, right? If I wanted to exit, they've already built it out. They don't do this bluntly to get rich, right? They will as a byproduct if it succeeds, but they'll understand I don't need to go from nothing to billion dollar business in a week, right? Like, yeah, I know we could leverage AI and build the greatest thing ever. They're like, no, this is a slow burn, right? Like we need runway, we need to build this out, but this is where we're trying to get to. And it's not sort of burn hot and fast and then flame out, right? They're like, no, we don't want that. We're trying to change that pattern. And so, you know, it's funny. I could take 3, 4, 5, 6, 7 calls in a day and it can be polar opposites, right? It's hard to imagine two clients that could be more opposite in their view around these some of these things, but ultimately, being able to support their businesses and have those conversations. What are you trying to achieve? Like, what's your goal here, right? Like do you want to go down as the guy in crypto that was known to have built the greatest technology? Or do you want to not be affiliated with crypto, right? The fact that it's under the hood is just powering this thing and allows you that little bit of 1% competitive advantage over every other player, that might be enough to win you market share. Again, kind of, is it the dreamers or is it sort of the established establishment building in the space? Perfect. Jonathan, as closing thoughts, again, I'm really enjoying this episode, but to wrap up as closing thoughts, is there anything else that you'd like to share with the listeners or how would you summarize the main topic of today, which is around launching, around token launches? I think my main advice for them is two things. Have a plan, right? And I know that sounds incredibly boring, but like, let's be collaborative and let's figure this out, right? And that plan doesn't need to be a 10-year plan. And if you're talking anything more than three or six months, I'm telling you, you're probably planning too far ahead. Like, understand what your goals are, understand the order of operations, and figure that out. I think the second one is, is don't be too ambitious. And I know that sounds like the most sole destroyer bit of advice, but like, figure out what your minimum viable product is, and build it. Get it out there. Yes, you'd have a roadmap, you ask you to have a white paper with like, oh my god, this thing's going to evolve and replace Visa and MasterCard, and it will be the world's greatest currency. Fine, but like, that's not going to happen at day zero. So understand what you need to do. And I learned this from a client of mine that had a beautiful product that they built out, sort of in the entertainment space, but they were always like trying to fall market trends. I was like, we're not launching today, because hey, this came out, and that came out. We want to build this feature onto it. They kept trying to like make it the be all and end all of everything. They ended up building this sort of Frankenstein sort of zombie project that like, kind of had bits of pieces of everything jammed into it, but it was like, it was like a cake that had every single flavor. It was like, that actually tastes disgusting, right? Like, you've got too much built into this thing. No one quite understands what you're trying to achieve. And also, they just never got to market, because they're like, we're launching tomorrow, and then we're like, oh, mean tokens. Yeah, we need to have a launch pad built into this. And it's like, guys, it's like a consumer app for healthcare. Like, what the hell are you doing? Like, these things are not the same business. Don't do that. If you want to break it off into a separate project and spin this thing out, but like, maintain your core business and understand what differentiates you from the others. Doing everything is not the answer, right? You can't do it. And you'll just get spread too thin. So figure out what makes your business unique and focus on that, even if it is incredibly boring. Jonathan, there's a last question which I like to ask for my guess before the leave is, do you have a favorite quote or a maximum that you live by? Oh my god. I saw that question. I was like, I'll figure something else out in the course of this call. I think for me, it's find the right people you want to build with. And I say that for my standpoint, of a personal level as a lawyer, and it's the advice I give to my clients that like, you should enjoy this, right? You should surround yourself with other founders that share that vision. And if you guys don't have that today, as a grassroots bootstrap project, you're definitely not going to have it as a billion dollar business, right? And like, cut your losses, move on. And it's funny, because I learned that from a few of my clients where they did build billion dollar businesses. And then it wasn't outside investors. It wasn't regulatory or tax authorities that like attacked the project. It was founders that turned on each other. It was like this like resentment within them either because they think the technology should go this way or that way or summary it for short-term gains, others were long-term positions and like this dysfunction. And it's funny because I've had three or four of those clients and like we're talking household names in crypto, top 100 projects. Where I ended up being like divorce lawyers, like negotiating on arguably both sides of it, trying to be that consigley area of like, yeah, you guys could individually both below this project up. Either one of you, just one tweet and that's the end of it, right? Like go for it. And you might think, great, look at me, I'm so proud of what I've done. But no, don't do that, right? Like, let's figure out how to separate these businesses. And I've done it four or five times now. Separating a billion dollar business into usually two 500 million dollar businesses and like understanding where that sort of demilitarized zone is. Stay away from each other. You turn left, you turn right. Right down to the point where those clients then came back to me and said, well, can you act for us on that side of the project? And then a day later, the other one says, can you act for us on this side of the project? I sat there initially thinking, you know, I'm totally conflicted. And I was like, actually, no, I understand this. I understand their business. And more importantly, I can help police them to stay away from that middle zone and also tell both of them, if you start battling again, I'm out of here. Like I've tried to fix your business once. I'm not going to do it again. But yeah, the mantra of life is short, like build with people you want to build with, grow and scale that business. If it's not working, I think move on. That's a good one. Jonathan, thanks a lot for joining in today. For the listeners, we also kicked off our prime dinner series a few weeks back. And it was fantastic to have you, Jonathan, join our first dinner in Dubai. If people want to reach out to you, Jonathan, what's the best way to do so? Just by email
[email protected]. My initials at nxt.law are going to the website. You can hit us up there. We can then connect on 50 different social media channels if you like. We can spend all day bouncing between signal, telegram, discord, LinkedIn, take your pick. But I think email is probably best to get my attention. Perfect. Well, thanks a lot for your time again, Jonathan. And we'll keep in touch. Awesome. My pleasure. Take care.
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