(upbeat orchestra music) >> Hello there and welcome to this CUBEConversations. I'm John Furrier here in our Palo Alto studios. This is theCUBE, Cube Signal program. Here with Grant Fondo, partner at Goodwin, CUBE alumni, been on before, thanks for coming back in. >> Good to be back. >> Partner at Goodwin, one of the best law firms around ICOs and just corporate government. He's a security guru, regulatory guru. We've talked in the past there's a YouTube video out there. Check it out. Search for Grant Fondo, you'll find our previous interview laying out the ICO playbook. Update. Let's get the update to the playbook. So, ICO's kind of in a winter state now, but still ICO's going on. Signal announced massive traction with their ICO. They're going to do an insider kind of private sale, looks like and then open it up. They got millions of people. So that's interesting. But then ICO stabilized. You got Siemens at 20 million range. What's the current update from the ICO front? >> So I think in the US, the current update is sort of post Munchee. So there was a SEC enforcement action and then Commissioner Clayton made certain statements about ICOs and then the net on that is I think it has provided greater clarity about issuing utility tokens in the US. Clayton's statement essentially was that they haven't really, the SEC really hasn't seen any utility tokens that are really utility tokens. The Munchee decision emphasized that in some regard. So with the Munchee decision, some of the things that they focused on was the marketing of the token. Even though they essentially, the SEC assumed that the token was a utility, had tremendous utility essentially on the platform, but what the SEC did was looked past that and said okay, what's the practical reality of that? And so what they focused on, they focused was the marketing. So how is that company marketing the token? Are they selling to people just to use it on a platform? Or are they selling it much more broadly to investor, kind of crypto-investors, VCs, that type of thing? Also there were some certain marketing statements where the company was actually trying to drive up their, emphasize that the price of the token would go up in value. They also focused on the fact that it was going to be on an exchange. And so what they, what they said was listen, this token is not a pure utility token. What it is is a token for people to buy with the idea, hope and expectation that it will go up in profit. >> So they basically, Munchee decision was targeting guys who were throwing everything at the wall? They seem to be. >> Yeah so it's funny. I think that's a little bit of a misinterpretation. So there's, clearly there were statements in there that you sort of shake your head a little bit. But I think that misses the picture of the Munchee decision if you focus on oh well we won't make those sort of statements. You need to look at, and focus on also, what were the other underpinnings of that, that enforcement action and what was the message, combined message with that, with the July 25th guidance that they issued and then Clayton's statements. And I think the message is that utility tokens are going to be a tough road in the US going forward. They certainly have not identified what a valid utility token would look like. So I think it's, it's a little bit of a, they've created greater clarity, but also a lot of uncertainty as well. >> I was having a conversation with some friends. And we were talking about ICOs. As you know we're bullish on ICOs. But the conversation turned towards two bipolar positions. Man this is a crypto, so awesome, blockchain, innovation, take down the incumbent, decentralize the apps, this is the future. And then the other side, from very smart people, is man that's fraud, don't associate yourself with ICOs. So there's a little bit of a Wolf of Wall Street wolf of ICO kind of mentality going on where they see the pink sheets, the old over the counter market that they made the movie Wolf of Wall Street around. People are nervous about that. I'm not saying that's happening, but there's a vibe there. What's your reaction to that? And I'm sure you might have conversations about the same kind of reaction. >> Yeah my reaction is this is a seat change. And it's going to happen and it's happening. And I equate it to the internet in many ways. And so I think you have to go in eyes wide open. I think you have to understand the regulatory risks if you're a company doing it. You know, there's not a certain path to do it in the US. And you have to evaluate that. There's, you can go offshore and there's certain paths that way. But as someone who's potentially going to purchase tokens or digital currency, and I sort of separate them between like the Bitcoin and Ethereum, which is more digital currency, and then tokens which are some of the ones we've been talking about. >> Close to 1,400 now out there. >> I would assume there's even more at this point. So they're literally popping up every day. And I think you have to, like the internet, I think there will be winners and losers. There'll probably end up being more losers than winners. I think the regulatory environment will get more certain. And then there's going to be, and that's fine. You have to go eyes wide open and you may lose your money in it, and then there's the category of pure fraud. And so that, there's always, whenever there's an opportunity, the criminals come jumping in. Or people take advantage of a situation where maybe they would not have otherwise. And that's going to be a portion of it too. But I think you can get a pretty good read on some of these whether this sounds like pretty sketchy or not and you just have to be realistic about it. >> And you guys are doing a good job. The Goodwin practitioner community is really working hard. I mean I always say, my feeling on this, we've talked about this before, is that the internet bubble was a bubble, but everything played out. You can buy pet food online. You can have stuff delivered to your home. So I think the same thing's happening with ICO. I think the things that are coming out that's innovative will end up happening. The question is the compressed nature of how fast forward this bubble is. I mean look at the NASDAQ growth during the dot-com bubble stage. And look at the crypto market total market cap. It's so fast forward. It's happening faster than even the dot-com bubble. How do you keep up? I mean, what's your day like? Do you go through research notes? I mean, you're talking to clients. It's a fire hose. >> Yeah it is, but it's a great time to be a lawyer in this space too. So a lot of it's dealing with clients and trying to figure out how do we deal with the regulatory situation. Advising them, connecting with foreign council as well. Dealing, there's been some enforcement activity both on the state and federal level. So I'm dealing with that as well. Advising them through that process. So, I mean, it's a fun time to be a crypto lawyer, an ICO lawyer. And I think too that what is also part of it you're seeing here that's fun and interesting is that regardless of how you feel about ICOs, one of the great benefits of it is you have all these different companies that otherwise would have never thought about using the blockchain or hadn't focused on it. And they're suddenly using the blockchain and this technology. So you've mentioned about how fast forward it's going. How quickly things. I think these have accelerated this change and this disruption by five to 10 years. And I think that's an enormous impact that is a positive impact. And so no matter what happens with the coins that you buy or may not buy, that's going to be a change that's going to be with us going forward. >> Talk about the regulatory update. There's obviously concerns in whether you're investing in crypto or investing as an individual or a fund or as an entrepreneur trying to build a business. What are the regulatory things that people should be aware of now? That's different than before or that's maybe more prominent. How would you talk about the regulatory? >> So I think there's a couple of buckets. So one is if you're the company doing the ICO you've got to address whether that token is a security. I think the SEC has said most of them or all of them are securities. You have to deal with that reality. If you're trying to create a cryptocurrency you have to look at are we going to be registered by FinCEN? And so I think you need to assess those. I think if you are part of the ecosystem helping these sales, so let's say that you're doing the marketing for one of these token sales. Or you're an advisor who's trying to bring in other investors or things of that nature. You have to look at what's called participant liability under the SEC rules. And so you have to be aware of what you're doing whether does that create exposure to you or your company if that token ends up being an unlicensed security. Likewise, if you're an exchange, moving these tokens or facilitating the sale of these transactions. You now have to think about am I, should I be registered with FinCEN, should I be registered with the SEC? So those are really kind of issues, core issues that you have to deal with. And then as an investor, I think generally investors would be viewed as the victim by these regulatory agencies so I don't know that there's real exposure from a liability or litigation perspective, but I do think it's more, again, like doing the due diligence and eyes wide open and understanding that if it fails, you may not, may not have any recourse. >> So everyone wants their tokens to go up. That seems to be the trend. Let's parse through the concept of utility and security we did, but now I have a token out there. An ICO, and I plan to take and ICO, or I'm ICO. What's the role of exchanges in all this? Because good tokens should have liquidity. People should be exchanging tokens. Some people hold the tokens or hoard them. But the role of an exchange. Do I plug with an exchange? Do I do my own exchange? What's some of the law around that? Because you know if I'm an ICO candidate I'm like hey I'm going to launch my token. It's going to be a secondary token, but I'm going to run my own exchange. And of course, list my token on the big exchange so people can trade it and the price will go up. >> Yeah so that's-- >> So that's natural reaction. >> So that to the SEC is going to sound like a security. So one of the things you have to address is if you're going to do this in the US or bring in US money is, I think it's a real risk to put the tokens up on an exchange. >> Is there hybrid models? Cause I can see a utility vehicle and saying hey we're a utility like the arcade example we used before. But what good is a token if the price doesn't go up right? So say that utility doesn't go fast enough in all this arbitrage, can I do a hybrid utility and security? >> I think it's hard, I mean it depends on how it's structured. One way to do, potentially to do a hybrid. And this has not been tested as far as with a utility token. But the SEC has, sanctions is not the right word, but it said what's called passive bulletin boards, are not securities exchanges. So that's in the context, imagine, you essentially say here's the platform for people, buyers and sellers of our token to exchange it between each other. We're not in the middle, we're not taking any transaction fees. And so there's a path to that and that may not be attractive to certain ICO companies but that is a potential path where you can provide liquidity. >> So like a Craigslist, or like a bulletin board. >> Craigslist. >> The old school, you know, bulletin board days. >> Yes, people still use them. >> John: They still use the word bulletin board? >> Yeah. >> Good news, okay. >> Grant: Exactly. And so that.. >> Social network? >> Yeah, that's a path to do it. You can also, if you do create a system where the token does not leave the exchange, excuse me leave your platform, so it's a closed loop token. That's a potential path that you can do. Again, may, it may-- >> So there's solutions for people who need to have some sort of interaction between token holders. >> Grant: Yes. >> Without going pure exchange in the sense of trading and having a market cap and all that stuff. >> Yes, I think it's many clients would say that it's less attractive from a marketing perspective. But there are, there are potential paths. There's also the path that we're seeing more and more which is securities tokens. I think when you and I met last time we had just started touching on that, but I think that-- >> Explain. What's the big change? >> So the concept is the securities token is you're basically going to treat it like you are going to treat it as security. You're going to own it and you're going to go to the SEC and get it registered through like a Reg A+, which is essentially is a 50 million or less raise. That's sort of a common one we're seeing. And so in that context, you are saying it's a token, but it's a security. You don't have to give up equity. There's other ways to do it so you can give up a percentage of the revenue. Sort of treat it like a divided. And in that way it's a regulated entity and you're not taking that risk about are a utility token or not. >> That's a good path and it makes sense. Depending on the ICO. Okay let's talk about bounties. As you know we love bounties, love the concept of bounties. Media business would call promotions spiff, channel partner, whatever, people use promotional incentives. Bounties are popular, you've seen bug bounty in open source being used. Tried to get Kelsey to, Kelsey kind of addressed it a little bit, but it's more of a legal thing now. What's the status of bounties? You mentioned before we came on that gets the SEC's attention. >> So the bounty is designed to sell the token. So you're in your fundraise round for example. And you put out a bounty so that people will go sell the tokens. I think it creates issues with the SEC. Part of it is it's very hard to control that bounty. So you're going to have people who are trying to make money selling your token. And they are potentially going to make statements that are going to indicate or make statements the SEC is not going to like. So it's something-- >> Or promises. Said basically to sell the deal. Broker dealer almost, right? >> Correct. So there's a couple of issues. Not only from the company perspective that you've got somebody out there who's probably marketing your token in a way that the SEC's not going to like and so that creates potential exposure but also from the bounty person, the person doing the bounty, there's potential exposure. But are they essentially doing a broker or are they acting as a broker dealer or other type of seller of unregistered securities as a participant for example. And so it's not something we generally recommend to our clients. That said, if you are going like more of a true utility tout, there's nothing wrong with like a reseller agreement. So you could structure something most of these bounties tend to be like hey if you bring us x amount of token sales, we'll just give you something. There's no real strong contractual arrangement. But if you are a company that has traditional resellers, and the purpose of the sell of these tokens is for that customer to use it on your platform, I think you can structure things so you have reseller agreements. >> So it's really case dependent. If you're using bounties >> Very case dependent. >> as an arbitrage to sell the deal versus actually part of your business model, that's kind of the way you look at it. >> Yes, I think that's a distinction and I think that's a distinction, no guarantees, but I think the SEC would understand. I mean, it's all part of it. They're looking at the picture. Are you trying to just make this token go up in value or is this token really supposed to be used on your platform? >> Alright so question for you. Since we last talked, I think it might have been two months ago, may have been 60 days or so, I can't remember the actual when you came in last, it seemed like yesterday. What's changed, what have you learned, what's new? What's surprised you? What's interesting that's happened over the past few months? >> So I don't think any of the regulatory action has surprised me. I think we sort of knew that was probably coming. I think what's surprised me though is that every time there's been guidance issued by or an enforcement action issued by the SEC, we now also have state actors, Massachusetts has become pretty active. Texas has also been active. You would think that it would dampen or slow down the market and it really hasn't. So I've been surprised that it almost has led to more phone calls. Not just about, oh are we in trouble, but more in the context of okay, we really recognize we need lawyers. We need to try and do this right. But it hasn't, the enthusiasm is still really there. >> So it's validation in the fact that they're issuing guidance, in my opinion. But I think it brings the question of man, I need help on this thing. People are then they got to call in the pros. Alright the other thing that's interesting about these guidances, if I can get your reaction to is has it really set the rules of the road yet? What I'm trying to look for is what are the rules of the road? I drive on the right side of the road here in the US, I stop at the stop sign, I can get through things. But the rules, what's changing, what's stable? Obviously securities tokens is solid, right? That's a good rule. >> Yep. >> John: What rules of the road are developing? >> So I think, using your analogy, I would say that what the SEC has said if you go over 20 miles an hour, probably more like 10 miles an hour, you're speeding and that's a security. But we're not going to tell you if the floor is 10 miles an hour. So it may be that if you go two, three, five miles an hour, we're also going to give you a ticket. And that's sort of the environment we're in. We know where there's the danger zone where you've crossed that line. What we don't know is where is the safety zone. And so that, that I think in some ways is where that guidance has come. I think where that is pushing people though, is is more offshore and I think that's always a risk. I was involved in digital currency several years ago with certain regulators and that's when I think the government was more interested in stamping it out. And there was a huge offshore movement. You're seeing that with token sales now too. The companies that want to be in the US are moving offshore. So hopefully, my goal and hope is that the regulators avoid that problem. I do think that it's, the regulators still are not looking to crush this industry, they're trying to regulate it. And I do think that's a big change. I'm not saying that there aren't going to be people hurt. >> It's better. >> It's better. >> Not great. >> Not great. >> They're not moving fast enough basically is the issue right? Or... >> Yeah, I also think that companies... For a company that's going through that process, it's sort of still extraordinarily painful. So I'm not saying in any way that the regulators are having a light touch, but I do think there's also recognition here that we don't want to destroy this industry. And I think Congress is the same way. >> And you do a great job, you guys are pioneering a whole new class of law. Documents, agreements are all being kind of re-casted and re-imagined with crypto. >> Grant: Daily. >> It's daily. Well I've got to ask you the final question. As things progress, things are happening, you've got a lot more deals under your belt now. You guys are doing great over there at Goodwin, you're the top set of law firms doing crypto deals. So I got to ask you. What are you advising clients now? I mean obviously you're trying to zig and zag at the right time based on guidance. Make sure everyone's covered and the risk reduction. But at the same time, you guys have also been, I don't want to say super aggressive, but you've balanced aggressiveness of opportunity recognition capture with risk management. What's your current advice now? >> I think if, generally it is really take a hard look at the securities token. I think that that, it's not the perfect path for everybody, there's costs, expense, et cetera. But I think if you really want to do a token in the US, you want to be safe, I think you've really got to look hard at going down the securities token route. The other one is to go purely off shore. And do, pick a venue that is relatively crypto friendly. And do everything offshore which means no US money. Not even at the soft stage early on. And also have the token go on and if you're going to put it on an exchange, don't put it on an exchange that has US people buying and selling tokens. That is sort of the two paradigms that we're seeing. I think anything in the middle, then we're advising, alright, let's talk about pure utility token here. Where, I mentioned it before, where the token stays, doesn't go outside the platform. Or where you've set a fixed price on the token. Or if you do create some type of token do a passive bulletin board. Those are models still to be explored. I don't think many companies are doing them. But those are sort of the paths. I think that the utility token that we've been seeing in the last six months now is a pretty difficult path to go. >> And the offshore thing, Kelsey Lemster, who was on Tact Partner at your firm, was just talking with me about, it might not be the best thing with the tax reform in the US. >> Grant: Yeah. >> So what's your state now on that? Do you still advising offshore? Or does it kind of depends now based upon decision making on whether you're a security or not? >> Yeah, so with Kelsey, he's talking about tax issues. And historically with these tokens, the tax issues were very significant and there was a push to go offshore for those reasons. And there was also always a push about whether you go offshore for the regulatory reasons. We're not going to touch the US. I think those are both things that companies have to figure out and intersect. So we had companies that ultimately decided not to go offshore because the tax advantages were not that significant. Maybe they'd lost a lot of money during the course of their three or four years and so they decided we can offset those gains. Also there's aggravation with going offshore. And so you have to build that in, getting money back from the Cayman Islands or elsewhere there's a process versus just going to a B of A down the street. So I think it's all these things that you have to counterbalance and like we mentioned, it's just everything's changing very rapidly and so it literally is like a day by day assessment of what's the next path. >> It's like the big set of waves coming in, it's really awesome. Final comment I'd like to get. I'm looking at a hedge fund, fund of funds deck from a crypto currency bond of funds, so now you're seeing funds of funds and bonds, and hedgefunds. So a couple of bullet points I want to get your reaction to. New investible asset class. Un-corelated with others. value creation as massive scale. Nascient markets with liquidity unlike VC. Inefficiency provides opportunity. Those are kind of the main bullets on the first page. (laughing) >> I think my reaction-- >> No regulation, regulatory concern, we got tax. It sounds great, I should jump right in. >> So, the advantage to the cryptocurrency is skyrocketing. I mean we've had kind of a pull back a little bit over the last week or so, but some of them are back up today. So I think it is, there is a lot of opportunity and I think some of the opportunity they're talking about, so we represent a number of hedge funds and others who create kind of financial products with this. Some of the opportunities, you look at the stock market. The stock market now is really hard to basically game the market in the sense of not cheating, but like doing arbitrage where if you go to one exchange and buy the stock from there and sell it in another, that type of thing, very hard to make money. There's a lot of sophisticated players, a lot of technology. You're talking literally, what was that movie about where they were able to do a trade like a millisecond faster and it gave them an advantage. That's what you're talking about. Here in the crypto space, you don't have that sophistication yet, so there are companies who are figuring out ways to buy and sell currency in the same currency and make money in that transaction. Maybe they buy from one exchange at a dollar and it's selling at a dollar 20 at the other exchange so they sell it. So I think there is a lot of opportunity. Ultimately these are being regulated. Even the cryptocurrencies are regulated. Some are regulated by FinCEN. The exchanges are regulated by FinCEN. So there's regulation, but there's a lot of opportunity. >> A lot of arbitrage certainly. >> Grant: Yep. >> Big time. >> Yep, so it's a really fascinating market. Very sophisticated market. Again, eyes wide open if you go in and invest in it. >> And this really talks about the make up and the personality of the people involved if you can handle the wave, you should get out there. Hence the reaction to some people look at it as a little bit nervous, they're the risk averse folks. You've got to be, you have to have a stomach for this. You know. >> You do. You also have to be smart. Like you shouldn't put all your money in it. You shouldn't pull out your 401k money to start investing in any asset class. You have to invest enough that if you lose it, it's not going to be life changing. >> Well a lot of smart people that I know, and I know that a lot of people who were really into this and see great opportunity, certainly there's the bad actors in there, but I love this opportunity, I think it's a once in a generation movement. I think it's the biggest wave that's hit since many generations so really awesome. Congratulations on the work you're doing. Any new update on Goodwin front? >> No, it's just been a fascinating time for us. And it has, we've got a ton of people doing a lot of interesting stuff. And literally every day we hear a new project. We're like wow that's a really interesting application of this technology. Or a different use case. And our clients are coming to us. I mean that's the beauty of Silicon Valley and that model is we learn things from our clients so we love having those meetings. I think you're just going to see tremendous change. Literally week to week. >> How's your VC client base? They're probably engaged heavily at this point. I'm hearing a lot of folks on the VC side. Not feeling like they're being left out, but they're seeing this as a new way. They certainly have been called out here in the hedge fund. Unlike VC. I mean classic venture capital's been out for a while. >> It's a new paradigm for them. I think they're grasping with it. I think that in some ways it's attractive to them because it does provide for their LPs. It provides much greater liquidity than a typical VC investment which is a five to 10 year wait. But they're also, people are saying they're being replaced and they're having issues where companies no longer want to go to VC, they say why should I give that equity and control when I can get the money through different means. So I think it's disrupting their world. I think they're slowly, not slowly they move pretty quick, they're adapting to it. I think that there's tremendous value to having VCs involved in the ecosystem. >> I mean they should do it, I mean they should take a little bit of their fund because just the opportunity to get appreciation and again, liquidity in an unregulated market is an opportunity. >> It is an opportunity. And they're in it, they're exploring it and stuff. >> Grant Fondo, partner at Goodwin, check out Goodwin. Great firm on the ICO front. They're the top in Silicon Valley and around they world. They've got great tax law, Grant, good friend of theCUBE. Thanks forc coming on again, appreciate your commentary. An update on the ICO playbook. I'm John Furrier, this is CUBEConversation. Thanks for watching (upbeat music)

>> Announcer: From Palo Alto, California, it's CUBEConversations with John Furrier. >> Welcome back to our special CUBEConversation here in Palo Alto. I'm John Furrier, co-founder of SiliconANGLE Media, and the co-host of theCUBE. We're with Grant Fondo who is an attorney, with Goodwin. Specializes in block chain, Initial Coin Offerings, also known as ICOs. Part two segment we just went over the high-level landscape, but I really want to walk through the playbook of ICO process. Call this the Initial Coin Offering, or ICO-101. Take me through the process, okay? Hypothetically, let's just say we want to do something, we want to have an ICO called "Crowd Coins". Something that we're looking at doing. But let's just walk through that. What's the advice, what's the playbook? Take me through the process. >> Sure. So the first question is, where are you located, and who are you targeting? So what I mean by that is, where is the founding team? Are they in the US? The threshold issue is whether they are in the US or abroad. If they're in the US, and they want to stay in the US, and most don't want to move, so they want to stay in the US, then we talk about, "Okay, you're going to be subject to US regu-- potentially subject to US regulation." And so, the next step on that is, who is your target audience for the token sales? Are you looking to do accredited investors? Are you looking for US people, are you looking for foreign, and who are those target people? So the threshold issue is, as I mentioned before, are you looking for accredited or unaccredited? Most people would rather, they believe in the democratization. >> Accredited over a million dollars of net worth? So it's like a... >> It's essentially a sophisticated-- yes, it's essentially a sophisticated investor. >> And what's the trade-off between the two of those? >> So the trade-off is, if you really want to get a large market, you do the unaccredited route. And that means anybody can participate. Accredited, if it's credited, it's a much more limited, typically from 50 to 100 people, high net worth individuals, there's a paperwork process, it's exemption under their security's rules. Most of the token sales we're seeing are unaccredited, although we're seeing a trend now, too, that people are doing a hybrid of accredited US investors, and unaccredited foreign investors. It's an interesting hybrid that we're seeing. But, so that's the initial threshold. We have many companies that say, "Well, what if we move our operations offshore? What if we open up a company in Switzerland or something like that?" And I think what they don't realize is that if they are trying to seek US money, or they are located in the US, or the money that they raise comes back to the US in some way, that they're going to be subject to US regulations. So simply sticking something offshore doesn't cut it from a regulatory perspective. So that's the first question we ask, is to trying to figure out, "Okay, where are we setting up this entity?" And typically you set up different entities to raise the token sale. >> So what if a company, say, us as an example, already exists, we're a Delaware corporation? Do I have to stand a new company up, or subsidiary? What's the playbook? So there's a clean sheet of paper is a new company, so that's where you start, I get that. But what about a pre-existing companies? >> So if you're a Delaware corporate pre-existing company, sometimes we'll set up a new, like a subsidiary. Sometimes just for typical corporate reasons it's good to set up separate entities. The other issue, threshold issue, is tax issues. We typically advise people to get sophisticated tax advice from CPAs, things like that, Deloitte's one of the players in the space, for example. And that decision then becomes, do you set that entity up in a more tax-friendly venue than the United States? The British Virgin Islands and the Cayman Islands are two of the examples of where these people set these entities up for tax purposes. >> The tax thing seems like it would take time. Does that slow things down, or is it...? It's super important, obviously. >> So, it does. It has a couple components. It slows it down because there's another player involved, you also have the potential transfer of assets and you have to figure out what are the assets that you're going to trade, move from the Delaware corporation, for example, to the Cayman Island corporation? You also have obligations of, you have to go live in the Cayman Islands for a while, which is not a bad thing. >> My wife wants me out of the house, time to go to the Cayman. >> So it's funny, I had a client who said, "Alright, let's set up in the hotel right next to the airport," and I'm like, "If you're in the Cayman Islands, go to the beach. Don't stay at the airport." >> Start scuba-diving. A lot of people would do that. Okay, so, great, so, jurisdiction and corporate structure is the first consideration. >> Yes. >> What's next? >> The next step is related to that, is what type of sale are you doing? Are you doing a token sale or a security sale? And what we mean, and that's a big threshold issue. What we mean by that is, and most of the sales are token sales. But is the token that you're using going to give someone equity in the company? Are they going to get a percentage of the profits from the company? Are they going to be able to control some of the decisions of the company? If so, that looks more like a stock. And so, therefore, it's deemed a security token. That is subject to SEC regulation, and there's a different route. Many people don't go that route, but some do. So, for example, people in real estate transactions where they want to give, use tokens, but they really want to give investors who get a percentage of the real estate profits. They'll go the accredited US investor route. For the other pivot is towards the utility token. Which is the utility token, like an arcade token, it's basically a token that works in the platform, and people use it so that they can transact on your platform, they can play games, they can get content, they can encourage people to find bugs in your software. >> John: So, transactional-type value. >> Transactional, exactly. >> So, smart network, smart contracts assume some sort of marketplace with coins and the currency, right? >> Grant: Exactly. >> Okay, so the next step. The tokens and security and utility, I get that. Okay, make that decision, now what? >> So the next step is, you need to do a white paper. And you need to hire a law firm to help you with the white paper and all the legal, all these different steps. So then we'll take a look at the white paper, and we'll advise them on what their token looks like, if they're trying to do the utility route we'll walk through the different language and things of that nature. We also try to clear it up, make it just a little bit more readable. And then, once they do the white paper, we then, also, help them with the pre-sale documents. Oftentimes they'll do two sales. So it's called a "pre-sale", which is where you give an opportunity for significant purchase, people that you believe will be significant purchases of tokens, and they'll come in and they'll buy a large amount of tokens, let's say $100,000 dollars in tokens, but at a significant discount from the price that will be for a regular token sale. So maybe a 20% discount. >> So once I have my token, security or utility, okay, now I got to go figure out how I'm going to sell this. >> Grant: Yes. >> And that's what we're getting at here. >> Yes. And so, typically you make a decision and do a pre-sale, and you raise a certain amount of money, and then you do the sale, the token sale, about a month later, typically. >> What about allocation of tokens? That comes up a lot. So I'm also thinking, "Okay, is there a structure for X percentage for the development, X percentage to sell, to offer to the community or network, how many stay in the company." we see people keep an allocation for the company, or, between 15 or some higher. So how do you put the pie chart together, or distribution of token? >> One of the things you have to figure out, is this a token that you're going to sell all your tokens right off the gate, except for some of the ones you keep, or do you envision later releasing tokens over time? So some of our token sales, every year, excuse me, token companies, will release tokens over the time to continue to provide tokens to the users. So you have to make that threshold decision. What you typically see, is you see a percentage kept by the company, you see, and it's usually, usually you see 15 to 20%, although I've seen companies up to 90%, and then you'll see a bunch of the tokens issued to the market, and they will tell people through their white paper what they intend to use that money for. Most of the times it's for R&D and development of the platform, and continued maintenance of the platform, but also legal and administrative expenses for that company. One of the big issues that companies face, is where are they in the development of that platform? Ideally, by the time they do the token sale, the platform exists and the tokens can be used immediately. That helps, we talked earlier about, being a security versus a token. That helps in that analysis. If you're building a platform, and you've already got it up and running, that looks more like utility token. If it's going to be a year or two before that platform's available for use, the SEC may say that looks more like a security. >> And a lot of people get flagged in ICOs where it's like, "We're going to see something in late 2018." And so they hope to raise money through the tokens to do development. And it can be like a Kickstarter kind of model there. But it's not legit. I mean, from a product standpoint. I shouldn't say, "not legit". It can be scrutinized. >> I think now, the SEC gave some guidance a couple weeks ago, and I think that in Coin Center, which is a very think tank in this area, they issued a spreadsheet, essentially, that talks about when are you more a token versus security. And I think that's an issue. I think, especially going forward, companies, if they can, are better off having a platform up and running by the time they issue the tokens. >> Okay, so next question is, okay, great, now I'm rockin' and rollin', now I got to do some blocking and tackling. I need a white paper, I got to have a website, what are the minimum viable elements that need to be in market for an ICO? Obviously a website. What are the elements there? >> One is the white paper, which we talked about. You also, as part of that white paper, you want to make sure you are conscious that this is a white paper that has to live and breathe potentially years, and so you want to be honest and forthcoming, and also give yourself some flexibility. But the other thing is, not every company is a super-sophisticated smart contract company. And so they'll often hire vendors to do that. >> John: Do the white paper. >> No, not to do the white paper, sorry, to do the actual smart contracts to set up the token sales. Those companies will also assist with the white paper, just like we do, but their primary platform, or purpose, is to help launch the smart contracts. You'll also have marketing companies that will assist with marketing the token sales, so that more of the community knows about your business, and that there's a platform out there and that hopefully that's a platform that you want to use tokens on, and so that's another component. And then, also, the tax advice that I mentioned before. >> Alright, so in that white paper, is also the consideration for who the service providers will be in the process. >> Sometimes. Not always, though. Sometimes it will identify who's going to get, if the service provider, for example, is going to get tokens, but oftentimes you don't see that in there. >> Alright, so white paper, probably an FAQ of some sort, but, again, thinking about this being an evergreen, living document that'll be on the web. It could bite you in the butt, or help you, so be careful, right? So that's what you're saying. Good advice. Okay. Tax considerations. Okay, now I have my tax hat on. Bring in Deloitte, bring in tax guys. What are they talking about? How does that impact the process? >> So, you mentioned the delay before. I think any time that you bring more players in it obviously delays things. But they're important players. All these are important players. And part of what you want to do, is you want to bring them in early, versus waiting, because the tax implications are significant. It takes time to set up foreign entities, it takes time to go live in the Cayman Islands, not the worst time, but it takes time. >> John: What duration in the Cayman Islands would someone have to live? >> I'm not an expert on that, but you're going to spend a couple weeks there, for sure, if not longer, and you're going to have to stay there through the token sale. >> Does the boat get paid as part of the token sale? >> I'll leave it up to you on how you decide to spend that money. >> Okay, so back on the jurisdictional thing, this is important. People, can they do it in the US? >> Yes. >> Yeah, they can. Okay. But how does that impact the process? Is it a tax issue, or is it just, comfort? What's the consideration between a Cayman Islands, foreign makes sense if you have people there, but Caymans would be the alternative to the US companies, right? >> So if you do it in the US, you can still have your operations here, and essentially you can have some people here, but the primary wallet, essentially, entity receiving the money would be in the Cayman Islands. If you decide, and that's really mostly for tax issues. If you decide to forego that, so some companies decide the tax issues are not significant enough that I want to deal with it, setting up a Cayman operation, there's a delay, there's expense, and we'll deal with the US tax issues. And so that's just a business decision. >> And because the tokens are viewed as income? >> Revenue. >> Revenue. >> Grant: It would be viewed as a revenue for the company. >> Okay, so does that mean, if a corporation wants to buy tokens, that's an expense? >> So, it's funny, we haven't had that question asked, and I'm not a tax expert, but yes, I think it would be an expense. >> We'll have to get a referral, get a tax guy in here to answer these questions. The post-ICO issues. Did we get to the ICO? So the next step is, okay, I got my tax considerations, it's time for the ICO. What happens next? Do I ring a bell? Is it a digital bell? What happens? >> It's kind of fun. Most companies, what they do is they put a countdown to when the ICO is about to start, and they usually give a window. And it's typically a two-component thing. One is, if we raise X, so let's just pick a number, $30 million dollars. It's a $30 million dollar X amount of tokens we sold, the token sale will stop at that point. And/or a time limit, so two weeks. We'll have a two week token sale. And so, you'll have the timeline, and they'll actually register for you on their website how much they've raised, how many tokens have been sold, as well as where they are in that timeline. And then the timeline ends either through one of those two mechanisms, and then the token sale is closed. >> And then I'm sure there's a protection issue around protecting the tokens. Can you add some color there? Because there's been rumors that someone raised $34 million dollars and lost it all. They've basically been robbed, digitally, by hackers. Who do you call, then? Better Coin Bureau? >> So we've dealt with that issue, and we can give advice when that happens, but it's a tough issue. Tracking, the FBI, obviously you notify the FBI... >> John: It's a fatal flaw. >> It's a real problem. Typically there are people abroad. So you have to assume it's gone. So one of the immediate things we talk about is security. And some of it is very basic security. And that is, if you are receiving all these Ethereum or Bitcoin or however you're raising it, set up a bunch of different wallets. If you're going to lose money, it's better to lose one out of 10 wallets, or one out of 20 wallets, versus one wallet with all your money there. So some of that is just prudent, in a sense, but I also think you really need to make sure. That's part of why you bring some experts in, if you don't have that inside expertise it's going to make it extraordinarily insecure. >> How do vet the service providers if I'm going to work with the company if I'm an entrepreneur or an entity to deal with the front-end of the first collection? The wallets make sense. You sprinkle it around, it's like digging a hole, or putting mattresses all over your house, so I get that. Who do I deal with on the inbound? Is there a central authority that takes the cash in before it goes to wallets, or it goes right into different wallets? >> That's where we talked about a smart contract vendor will assist you in setting things up so that it goes directly into a wallet. Part of it is just word of mouth. People get referrals, they look for who's done other ICOs. Part of it's reputational. Some of it, too, is when you talk to people, you can figure out, do they really know what they're talking about? Hopefully you have some IT security people on your team, or that at least you can rely on who can really vet, vet these providers and to say, okay, this is a really strong product, and we feel comfortable with that. And you're betting a lot on it, so it's a really important decision. >> John: So you invest in a security resource. >> I think you have to. >> Okay, now ICO is completed, everyone's high-fiving, the clock is ticking, and there's a post, maybe a trickle, or a one-shot opportunity, assuming that trickles is part of the process. What's the post ICO consideration? >> One of the issues is the money, right? So what do you do with it? So this is a pre and post token sale issue. And that is, do you provide employees, or founders, with tokens? And I think the consensus now is that the more you provide tokens for employees and founders it more looks like securities. So there's a tendency for people like advisors who come onto the company, to provide them tokens. I think there's a risk that if you do that, it looks more like securities. So you have to treat that money and that token, especially the tokens, because the company keeps some tokens, too, right? You have to continue to remember that that's a utility token, not a security token. As far as the money goes and what you want to use it for, you have to keep consistent with your mission. So it's just like crowdfunding. If you ask people to donate money to an idea, you can't change that idea. And if you do change that idea, you need to let them know about it. So you have to be very transparent. So there's no such thing as "free money", and I believe that one of the risks with the post-token sales is, some of these companies are not going to make it. And so you want to be very cognizant of that you're doing the right thing, you're making the right decisions. Pretend, in a sense, that it's truly your money, and every dollar that you spend is your own dollar. You want to use it wisely, and you never want to be embarrassed or ashamed or concerned about how you spent that money. >> As long as it's not buying a boat or having a, like on Silicon Valley, renting out Treasure Island and having a big party. Use it wisely, and to the mission of the firm. Okay, so the question I have for you, this comes up a lot is, okay, I get the utility token. That creates value for the currency, you're not selling the appreciation as an investment, it's a transactional component of a smart network with smart contracts, and values the creation and distribution of that value. I get that. If a company wants to do that, they can still have an equity plan, I assume, because you have to assume that that utility is contributing to the value of the overall enterprise itself, the company. That's where the employees would get the stock options in a normal stock option plan. >> Yeah, it's just like any other company. When you raise money, you still have equity. So I think they are generally Delaware corporations that stick with the standard structure. You can give options in the company. There's no concerns with that. >> So you have a coin vehicle going on, and a standard equity program. >> Grant: Yes. Absolutely. >> Okay, so, post-ICO, what else? Cross your fingers and hope you can use the development cash? >> I think, too, and this goes throughout the process from the beginning through the post, which is, be careful how you talk about the token sales. Don't talk about, "We're going to try to increase the value of the tokens." Remember, the token is a utility token. It's an arcade token. It's not a security. >> It's like playing a video game. Pinball Wizard. You pump it in to thing, play your game, and people get value out of that. >> So that's fine. But what you don't want to say, is you don't want to encourage people to continue to trade and buy the token for the purpose of they hope it's going to go up in value and not use the platform. >> Even though everyone's doing that. >> There's some truth to that. There's a little bit of, that's the elephant in the room, a little bit. But there's different ways to do that. As you build your community, as you talk about it and you're excited about your company, and people are. It's a great, it's a fantastic tool, and what's really been fun about it is you're seeing these companies that hadn't thought about the block chain and utility tokens and say, "Wow, this is such a great mechanism to build this huge community, and have all these people participate through these tokens. Setting aside the fund-raising aspect of it, but just this, it's a great mechanism to do this. The democratization of my platform. And I can reach internationally. So focus on that. Don't focus on the value of the token. There's another issue, which is putting them up on exchanges, particularly pre-token sale, I think you need to think twice about trying to connect with an exchange and sticking your tokens up on an exchange. >> John: Why? >> Because it sounds like security again. It sounds like you're trying to develop this market for more people to buy this token to go up in value. Now, it's okay to provide a platform, just like the arcade owner, it's okay if that arcade owner thinks that other people can sell his token for him, or her token for him, that's fine, but you got to be really careful about how you do it. >> So Brave browser, which is obviously utility, has BAT tokens. They're listed, I believe. >> So you can list, yeah and I think, you can list, I think it's just a risk. And I think what you don't want to do, is you don't want to say, "We're listing our tokens and trying to encourage people to buy the tokens." >> So it's optics. It's how you position it. >> It's important. The optics are important. >> So talking about expectations. Can we talk about this in our first segment, but I just wanted to just end this, ICO-101. Went through the process, overall expectations? Any thoughts on that? What people should expect? Duration? Fees? Costs? Is it order or manual, what solar system are they in? Million dollars is it going to cost, is it going to be $20K, how do you engage on fees, and then process timeframe? >> The process depends in part of the company. How far along are they on the white paper, how far along are they on the platform? But setting aside that issue, and more from the legal technical advisor, generally takes two to three months. We're seeing some that are longer. It takes time to put the white paper together, and we proof it and give advice, and then I'll also have some of the other advisers give advice on it. It does take time to set up the tax structure, so if you're doing the Cayman Islands, that's probably a two to three month process for sure. Depends on how much IP you transfer as well, so that can slow things down. >> John: Licensing and agreements. It's like standard legal stuff. There's no fast-track. There's no shortcuts. >> There's no shortcuts. You're bringing in an initial consultant so it takes time to negotiate. So I think safe, you're going to assume at least three months, if not, definitely more. >> Well, the number one question I think here, today, for you, is, who's going to pay for this hour? Who are we going to bill for this? >> Grant: You'll get my bill. >> I appreciate the candid conversation. Thanks for sharing your knowledge, again. This is an expensive hour here on the CUBE. The community is a freebie. Grant, thanks for sharing. You do some great work. I think I'm going to look back on this time in history and say, "Man, glory days, or hell-of-a time." It's going to crash and burn or go big, in my opinion. Great stuff. Grant Fondo. Attorney at Goodwin. Great firm, check him out. Doing great work. 25+ ICOs in the pipeline. Done a bunch of work. New area. Exploring the future of block chain, a lot of disruption, anything that has to do with supply chain, anything that has to do with technology, decentralize concepts in a distributed manner is really the rage. We see this as a game changer. It's SiliconANGLE. I'm John Furrier, thanks for watching.

>> Voiceover: From Palo Alto, California, it's Cube Conversations with John Furrier. (bright music) >> Hello everyone, welcome to a special Cube Conversation here in Palo Alto, California. I'm John Furrier, the co-founder of Silicon Angle Media and also the co-host of the Cube. Our special guest here is Grant Fondo, who's with Goodwin. He's the legal expert in blockchain initial coin offerings, also known as ICOs. Experienced federal prosecutor and former assistant US attorney in the northern district of California, head of the blockchain group at Goodwin. A lot of legal action going on. Welcome to this Cube Conversation. >> Thank you, John, nice to be here. >> Thanks for coming in. Goodwin, you guys are a great firm, well known in the Valley, helping entrepreneurs, I mean the track record of Goodwin is pretty significant. Been familiar with Anthony McCusker and the team over there. You guys are doing a lot of work. I've been asking around all of Silicon Valley, because we're hot on the ICO trail ourselves, blockchain, we've been following, covering extensively, Bitcoin, going back to 2010, it's a hot market. It's very frothy. But in asking around, I'm like, who's doing the legal work? So a lot of people are kicking the tires now, are now getting their toe in the water, want to explore blockchain, want to explore the notion of cryptocurrencies. Take a minute to talk about Goodwin, what you guys are doing, because you guys have a lot going on. >> We do. >> And there's a lot of issues to talk about. We're going to get to that. What do you guys do? Take a minute to talk about Goodwin. >> Sure, so we've been involved in this space for three and a half years now, probably. I got involved, I was a former federal prosecutor, as you mentioned. So I got involved in the regulatory side, represented a company at a DOJ in FinCEN settlement, and prior to that, kind of that took off my interest in it. I thought this area was fascinating. And the amount of talent and energy in this area is tremendous. So that's what launched my initial interest. And then from there, we've represented a couple of other companies in significant regulatory matters. But we're also very actively involved in the startup, and that's kind of Goodwin's bread and butter. And so particularly in the fintech and blockchain space. We've been doing it for a while. And so now what we've really seen, probably over the last eight months, is just a tremendous growth in interest in the token sales. You refer to them as the ICOs. And so we're probably representing 20 to 30 companies at various stages from just initial concept to launches. >> Yeah, I want to just, personal observation, we were talking before we were on camera here, is that, you know, I've seen a lot of waves in my time. And you know, cloud computing, I thought that cloud intersecting with data and mobile was going to be a home run. But I see blockchain is really one of those disruptive, reminds me of the early days of the web where it truly was the wild west. And it is kind of happening. So you have involvement in the white collar litigation and area in the past. This is essentially a rush onto the marketplace because with cryptocurrencies, with decentralization, and people experiencing distributed computing, it's changing business models. So people are making a lot of cash, if you will, in the raising money side. So people are going there. So there's a lot of people migrating into the space, not without some uncertainties. What are the issues? I mean, because on one hand, it's a scam, people say, and some people say it's legit. Where is it, where is it, where's the difference between the two? >> So I think in many industries, especially new industries, there's uncertainty. And I know the attention goes to the scams, right, but I think that's really the minor, very minor component of it. What you're seeing is a lot of good companies with great ideas who have developed a new model to develop their platforms. And part of what you saw on digital currency that people loved early on, you're seeing it in blockchain and now you're seeing it in token sales, is the democratization of their industries and their platforms. And so they're allowing, you see all these marketplaces being created. And tokens is a way to facilitate that, not only in the context of obviously raising money, but also providing a platform for people to participate on that platform. And so it's been fascinating. And so- >> And a lot of smart people are getting involved, too. You're seeing a lot of big brains getting in, and also entrepreneurs that know how to hustle. That's why I kind of called the early days of the wild west of the blockchain. Is there any pattern that you're seeing? What is the, what is the catalyst in your opinion? What's driving all this, besides the new way to finance or a new way to provide value? >> I think there's a couple things. One is the interest in the blockchain and the greater understanding, even now more mainstream. You know, eight months ago it was really more crypto people doing the token sales. Now we're getting calls from all aspects of industry. And so, and some very conservative, historically conservative ones. And so what I think people are seeing is this blockchain technology is really here to stay. It's really a transformative technology. And it's technology that applies to so many different industries. It's not just a crypto technology. It's a technology for everybody. And it also allows so many different participants and transparency. And so people are really fascinated by it. And they're using the token sales in part to help build that industry. >> Grant, I got to ask you the number one question that I get and one thing that I think about a lot in our businesses. What's the playbook? Take us through a day in the life of what's going on at Goodwin as you guys are dealing with people knocking on the door saying, hey, help us. And now you've been kind of pivoted to blockchain from natural extension where you've come from. Great position to be in cause it's a natural place. But this is a first time market. These new things are emerging, new use cases. What is the playbook? What are people knocking the door saying, help me with, how do I get this implemented, blockchain or an ICO, is there a playbook that you're seeing that's working? And what are the pitfalls should be avoided? >> Sure, so I mean there's a couple initial decisions that you have to make. And one is, the question we often get is, people are trying to stay within the boundaries. The problem is the boundaries are still very uncertain. And so you try and work with a brand new technology and a brand new concept with regulatory regimes that are a little bit older and not quite built for it. And so part of that, part of what the initial questions are when people call us, is how do we fit what you want to do within the frameworks and try and minimize any risk? Because in any business there's risk, but the smart thing to do is try to minimize it. And nobody who calls us is trying to scam anyone. They're trying to do this, launch a fantastic business, one that will be truly disruptive in their industry. And so one of the things we first deal with is jurisdictional issues. Where do we set up companies? And so do we set up, people have this common perception if I just set up a corporation abroad, will I be fine? And that's not the answer. And so you set up corporations and entities that make sense for that business, where the people are located, the executive team is based here in the US, that changes the dynamic. We also get a lot of foreign companies that call. So there's a lot of decisions about where does this company get set up? >> So this is almost like going back to business school 101, where you domicile or where you start the corporation, what entity is it, and all the paperwork that goes on. But I want to step back and talk about some of the distinctions that are nuanced or actually specific, if you will. The notion of utility versus securities, concept that's well known in business, but as it applies to blockchain. Those are specific nuances, aren't they, in how the regulatory market looks at blockchain? >> Absolutely. >> Can you explain like what means, how people should think about utility versus a security? >> So I break it down in two kind of examples. The typical utility token would be, remember when there were arcades, and you would go to an arcade, and you'd stick the token into Space Invaders or whatever the game may be, and there's still arcades out there. So that's a utility token. Does that token have some utility on the platform, is it doing something on the platform? That's what the model is so that it's essentially, people avoid some of the regulatory hurdles with a security. Conversely, a security is as you think about it. Typically, Silicon Valley was built on companies selling parts of themselves for equity and people buying into the company and getting stock. And so you're trying, most token sales are trying to avoid being termed a security, where someone is getting an interest in the company, an interest in the profits, control over the company, and instead what the model is based is on this utility token. The test is called a Howey test, and it's basically, if you hit certain criteria, you end up being a security. If you don't, hopefully you stay in the token regime. And so it's really, and the way to best do that is you build a token that truly makes sense on your platform, that people can use it to build, to transact, to exchange goods, to build ideas. And they're not running the company. They're just using that token in a sense, much like an arcade token is used. >> So it's not like a security, like a stock, so there's no stock option plan, there's no token plan. You can't think about it that way, is that what you're saying? >> Yeah, well, so you raise a very interesting issue because there's, there have been some companies that have set up tokens like vesting over time that tend, or tokens for employees or tokens for advisors. And I think there's a risk that the FCC says, wait a minute, that looks a little bit like an option or a security. So one of things we advise is do not set up token plans or vesting token plans because that may be an indicia for the FCC to say, hey, listen, that's a security. >> Well I want to get to drill down on the whole government, cause it's still going to be some things are coming down the pipe, and this is also a global phenomenon. So it's interesting jurisdictional questions. I want to get to that in a second. But just to stay on the security piece, one you mentioned earlier that most of the blockchain activity around ICOs, around disruptive, or democratization, I think you used the word, but really it's disruption of markets. So one of the areas we're seeing is the Brave browser with the BAT token that's disrupting kind of the web browser kind of thing, or the user experience. Steam does like a bit of a Reddit kind of clone. And there's a variety of other ones. We've seen some all over the place in different verticals. And then there's one that's democratizing venture capital. So we've seen some activity around folks were using cryptocurrency to invest in companies. Talk about the dynamics between those two approaches and mainly the funding one. Is it still kind of wild west, undefined, or how does that work? >> So I think initially it was wild west. You had basically crypto people investing in companies and buying these tokens. Now what you're seeing is the VCs are smart people. We represent a bunch of them. They're successful for a reason. And they're aggressive, in the sense of they're not afraid to take risk, and they're constantly on the move for new ideas and- >> John: So VCs are investing in crypto? >> So now you're seeing, I think there's a lot of interest, I'm getting a lot of calls about, can we present, a VC fund will ask, will I come in and present and kind of walk through the token process, what are the risks. I get a lot of calls from investors, you know, more sophisticated, traditional investors, hedge funds, about what are the risks here, how do we invest, how do we minimize our risk? And it's a new paradigm, but it's a paradigm that I think the traditional financing vehicles are paying a lot of attention to now. >> So it's still an open book at this point, not truly defined but there is activity. What is the entrepreneur's perspective, what's that side of the table look like? Because they are looking at this, and certainly they're all in there, jumping in with the ICOs. How are the entrepreneurs looking at it, and how should they deal with these new, progressive investors? >> So the entrepreneurs are looking at it, quite frankly, as an alternative to VC and loans. And I think that they view it in part as, it's a quicker and easier way to raise money, in a sense, but also that there are potentially less strings attached. And I think there's some truth to that, but I think one of the key components is when you raise that money and you apply, you have to do it in a truthful, honest manner, and you can't mislead people. You need to be pretty, pretty forthcoming about your disclaimers and things like that. So it's not a, you know, unattached raise in a sense. You just have to be careful about that. But I think they're viewing it as, as any entrepreneur, you're always probing for what's new, how do I get, best get to what I need to do to achieve and have a chance with my business? And they're saying this is a great alternative. >> Alright, so I got to ask the tough question. And that is, from an entrepreneur perspective, this sounds like it's going to cost me a lot of dough to get this done. What are the fees like? I mean, you don't have to give specific numbers, but I mean, are we talking series A? Is it the financing kind of model? I mean, are we talking about hundreds of thousands, cause it sounds like there's a lot of work. It's getting first time work going on, the leverage and the economies of scale aren't there. You guys are doing a lot of work. So you're getting there, but I would imagine that the fees would be enormous. >> So I think it depends on what type of token sale you do. If you do an unaccredited token sale, which is the majority of them, fees are a lot less, or less. If you do accredited, it's a little bit more. But I think there's a couple different components. There's not only legal. And the legal can be, I mean, you can get sort of the Mercedes version of, we'll write you 10 memos about the following, but I don't think that's, most entrepreneurs don't take that approach. With some reason, because the memos are never going to say, whatever you do is perfect. So I don't typically recommend that. But so the fees are probably not as much as you would think. I think where the fees start to escalate is there's a lot of different components to this. One of the fascinating things about digital currency, blockchain, and now token sales, is there's so many components to it. And so for the entrepreneur, it's not only the legal, which I think they'll find is actually one of the least expensive parts of that process, but getting tax advice. So you're bringing in all these token sales. You really need good tax advice to make sure that you're maximizing your tax benefits when you do it. That can get expensive. >> And the tax issue could be significant because I'm sure even the government hasn't figured out, is it revenue or is it investment? So is it revenue or is it, I mean, how does the tax treatment? >> I think the IRS would look at it as revenue. >> Okay, so this frame, I kind of had a loaded question, I was kind of smiling there. But I want to go into the next question on that point because I think this brings up the next one, is how do I organize my company? Because you know, I'm scared to get sued, I don't want to get put out of business. I've already seen Robert Scobel say on Facebook, I'm doing an ICO. And then all of a sudden, almost like a legal, I'm not advising that company anymore. So someone must have coached him, like hey, if you get involved, you're promoting it. So people don't know where the lines are anymore on what was old kind of test standards, can't promote it, an offering, is it revenue, gray area. So people are organizing outside the US. >> Grant: Yes. >> What's the best practice of a company says, hey, I want to do an ICO. What do I do? >> So I don't think there's a best practice. I think you have, because every company is different. I think, but there are guideposts. And so I think the biggest guidepost is where are you located? If your team is in the US and you want to get, and or you want to get US dollars, you have to assume you're going to be regulated by the US regulatory regime. So you have to deal with that reality. And then so you structure things differently. So then the next question is, are you going after accredited or unaccredited token purchases? And so then, most people want to do unaccredited. So then the measure of protection is, okay, is our token truly utility. You and I talked about that a few minutes before. And so that's sort of the threshold issues. If you're going abroad, you really have to be completely abroad, meaning no US money, no US executive team, the company's abroad, the business is abroad, et cetera. Cause the US takes very, the US regulators, and I was a former prosecutor, they take a very broad view. >> John: So they'll see right through that mirage. >> They'll see right through it. If there's any impact in the US, they have jurisdiction over it. And they'll, if US people have been harmed, they will take notice. >> So there's no real kind of way you can get around that. How about the Cayman Islands, certainly the countries in Panama, been a lot of issues there. I mean what, is Cayman Islands an option, or? >> So the Cayman Islands, it's a great question. The Cayman Islands is a great option for tax purposes. So a lot of token sales are being run out of the Cayman Islands because of the tax benefits. It's not a regulatory protection in my view, unless you happen to be all abroad, and you're not seeking US money. But usually it's primarily sent there for the tax purposes. >> Alright, let's talk about the regulatory issue, cause this is still, we've heard, it's pretty much again the wild west. We said, there's been a rush, and there's been rumors that the FCC and the federal government's going to be putting things in place at the end of this year, maybe early next year. The timetable seems to be shifting, it's a moving train. What is the concern on regulatory, and how is that impacting people in the blockchain ICO market? Because it seems to be like a rush. Get out before you can be grandfathered, has there been any statements of grandfathered, that's a big area, what's going on there? >> So I think what you see is about two weeks, two, three weeks ago, the FCC came down and issued some guidance. And I say that with a little bit of a grain of salt because I don't think it was a tremendous amount of guidance, but there's a couple of takeaways. One is if you are, if act like a security, they're going to view you as a security. That's not news, but that's fine. The second component, which I thought in many ways was very interesting, was they said, they implied that some token sales are not securities, which we always believed, but it was a nice tacit concession. >> John: A utility. >> A utility, yes. So not all token sales are securities, and therefore they are utility. So I think, and that's where the battleground is. What was frustrating about, I mean one other aspect, too, was they mentioned the term participants. So if they believe that a token sale is a security, not only will they necessarily go after company, but they will go after participants of that token sale. >> Like, potentially VCs or investors, or? >> Well I think it's an open question, what participants mean. Historically, if you look at like securities, and I used to do securities litigation, and I do insider trading and things like that, participants would be like investment banks, for example. >> Got it. >> So if there's a pseudo-investment bank involved, and I think they would view that term broadly, cause it's typically not investment banks in token sales. But the FCC might say, listen, you're a participant. You benefited, you helped launch the sale, et cetera. So I think for participants there's potential risk as well. But they really did leave, they left the door open for the token. >> They're not hardcore, they're not, so it sounds like they're giving some guidance, like hey, we're watching you, but we're going to let this thing play out a little bit more. Let the professionals kind of deal with it. >> I think it's two things. One is I think they said, historically, those that launched earlier, we're probably going to let that pass, as long as you didn't commit fraud. That's sort of my read on it. And then the second component is that we are watching you, and you're on notice now. So don't cross that line. >> So you brought up the investment bankers, I mean, I just, I salivate when I see this whole, opportunities out there because you think about the traditional IPO process, not to compare ICOs to IPOs, but there is a serious bunch of cash coming in. I mean, a couple of these ICOs pulled in over 200 million dollars. That's some serious cabbage, as we would say back east. So this is significant. Is there like rules on market-making, what you can say, how you promote it? There's a Reg D and then there's like this A Plus stuff going on out there. I'm not an expert in that area. I'd love to get your thoughts on how should people watch the lines on how this gets done? Are there market-makers? There are certainly sites that promote ICOs. How is all that playing out? Is there, can you share some insight on that? >> Sure, so for if you're doing a utility sale, and your position is that you're not a security, general advice is you should not be marketing your token as an investment opportunity, that our token's going to go up in value, you don't want to be publicizing like, here's a great way to make money, buy our token. That's not, that looks like a security. You mentioned Reg D. So Reg D related to accredited investors in the US. And generally the rules are you can't publicize your token sale if you're targeting accredited investors. So likewise, you shouldn't be putting things on your website targeting all types of people. So that's where people will get in trouble. I think the area that for entrepreneurs, like Silicon Valley is so social media focused, right? Between Reddit, Twitter, et cetera. >> John: It's a lot of promotion going on. >> And the nice things about a lot of these token sales is they're building these communities. It's a fascinating area. But the downside of these communities and these constant communications is you have to be very careful with your language. So when you have these Reddit community hosts that are helping you with your launch, for example, be very careful what you say. You can't in any way imply that you're trying to, you know, raise, the tokens will go up in value, or trying to protect the value of the tokens. So you have to be very careful, and that's a tough thing. >> I better delete my Facebook post I just posted two days ago. (laughs) Let's get straight to that. So utility is the key. I think I would see and envision more utility deals going down because this is where the infrastructure change is happening, I think that's phenomenal. I think there'll be arbitrage on the security side, just from my personal experience and opinion. However, that is the key. If I'm a utility token, what is the language I should use? So avoid selling it as a security, so or using language. What's safe? What would be safe? If we're doing a utility token sale, what's safe language? Can I say, hey, get your coins, join our platform? Do I market it like software? Do I market it like a technology? >> I think you market like a token at an arcade, in a sense. It's a simplification, but I think the concept's the same. You're marketing that this token sale, this token has this great use on your platform. And people should be really excited about joining your platform. And they should be excited about buying those tokens so they can use them on the platform, whether it's to make money, whether it's to access games, whether it's to, you know, we're seeing in areas of artificial intelligence, life sciences, really the gamut. >> So show the utility use case more than money-making. (laughs) >> That's all you should be talking about is the utility case. Because you're selling your platform. And you're selling just a mechanism to get onto your platform. >> Okay, so what's the conversation like at the law firm these days? I'm sure that's, the firm's buzzing with the growth of the inbound. You have, I don't know if you can say the number of ICOs you've got in the pipeline. If you can, it'd be great if you can share. Greater than 10, less than 100? >> Yeah, no I, right now I'm actively advising probably 20 to 30 companies that are in the process or at some stage in the process. >> Where's the scar tissue? What have you learned? What's the big ah-ha takeaway for you that you could share, anecdotally from these ICO processes? >> That's a good question, really. So I think it's tempering people's expectations. I think you get, I mean we really, the reason I left the government and I got in with Goodwin and stayed in Silicon Valley was cause I loved the entrepreneurial aspect here. And so you get excited for your clients and you have these clients that approach you with these great ideas. And some of them are like mind-boggling. I should have thought of that, never did. And so you have to temper that a little bit, and temper their natural enthusiasm to say, okay, listen, there's a right way to do this, and there's a wrong way. Or there's not necessarily a wrong way, but a more gray area. And if you want to really be more in the right area, here's how we have to do it. It may not be quite as lucrative. It may not be as easy. But it's the right way to do it. And let us help you get there. >> Where's the operational bumps that you guys have hit, and where's it been similar to existing legal practices within the firm? >> I think the operational bumps is there's just not a lot of people that really know the space. I get calls a lot, and people will say, my god, you're a lawyer who actually understands what we're talking about. And so even in a firm like Goodwin, you know, there's a segment of us that, we have a team, and so we understand the language. But not everybody does, right? And so I get calls, even internally from the firm, can you help us out on this? I have a client who's talking a slightly different language. And so that's, but that's fun. I mean, that's the exciting part of the process. >> And you have a natural background in digital rights and securities and white collar crime, you mentioned some of the things you were involved in. Seems natural, that seems to be the profile, doesn't it, for a legal kind of pedigree? >> I think it is because what's another interesting aspect about this is it covers a lot of regulatory regimes. So obviously it's fraud, it's DOJ, where I used to work, US attorney's office, but also FinCEN and other- >> John: What's FinCEN? >> So FinCEN is basically the regulatory regimes that deals, federal level deals with money transfers. >> John: Oh, fintech or. >> Yeah, and so like Western Union, moving money back and forth. >> John: Got it. >> But there's a lot of issues with moving tokens as well. >> Wire fraud, right, it's like token frauds. We'll get a whole nother practice. You're going to be in business for a while. (laughs) Final question, your vision on how this plays out, just if you can shoot it forward five years, look at the trajectory. I mean, you must be sitting there pinching yourself, like man, this is pretty wild. I mean, is that where you're at? What's your vision of how this plays out? >> I think we're in the beginning stages. I think, you know, when I got involved with digital currency three and a half, four years ago, I didn't know where it was going, but I knew it was going somewhere. And I knew that no matter what we projected, it would go in a different direction. And it has. It's such a great technology. So I think the token sales will continue. I think as the regulatory regime becomes more certain, we'll continue to figure out how things go. But I think it's here to stay. The amount of interest outside the Valley now and other tech hotbeds is extraordinary. And so I think it's transformative, and I just think we're at the beginning of that wave. >> Great, great stuff, Grant Fondo. One final, final question cause it just popped in my head, is I get a lot of questions from some of my smart legal friends who are, you know, kind of in litigation, some are, you know, GCs and companies, some are at firms, CXOs at large enterprises. The number one question is get is, man, I got to pay attention to blockchain. What do I do? How do I find information? How should I attack learning and immersing myself into it? What advice would you give there? >> So a couple things. One is YouTube's got some great videos on just what is blockchain, what is digital currency? And I, you know, I sometimes check in on them, just to refresh my memory on them. So they're great. I also, we have a blog. So it's Digital Perspectives. So check out blogs that interest you. And those are great ways to do it. There's also meetups, like in Silicon Valley there's the Ethereum meetup. So there's a lot of opportunity to really get to know it. And those are the ways I recommend. You go to a couple of those Ethereum meetups, they're really interesting. >> Well we'll certainly have you back for checking in with us. And great to have you right down the street here from our Palo Alto office. Great firm, Goodwin, doing some great work. They have a whole department dedicated to blockchain and ICOs. This is the Cube's Conversation here in Palo Alto. I'm John Furrier. Thanks for watching. (bright music)

(Upbeat music) >> From the Hard Rock hotel in Las Vegas, its theCUBE! Covering the Hosho Con 2018, brought to you by Hosho. >> Okay, welcome back every one, this is theCUBE's exclusive coverage here live in Las Vegas for Hosho Con, the first inaugural event where security and block chain conferences is happening, it's the first of its kind where practitioners and experts get together to talk about the future, and solve some of the problems in massive growth coming they got a lot of them. Its good new and bad news but I guess the most important thing is security again, the first time ever security conference has been dedicated to all the top shelf conversations that need to be had and the news here are covering. Our next guest Greg Pinn who's the head of strategy and products for iComply Investor Services. Great to have you thanks for joining us. >> Very nice to be here >> So, we were just talking before we came on camera about you know all the kind of new things that are emerging with compliance and all these kind of in between your toes details and nuances and trip wires that have been solved in the traditional commercial world, that have gotten quite boring if you will, boring's good, boring means it works. It's a system. But the new model with Block Chain and Token Economics is, whole new models. >> Yeah I think what's so exciting about this is that in the Fiat world, from the traditional financial market, everyone is so entrenched in what they've been doing for 20, 30, 40 years. And the costs are enormous. And Block Chain, Crypto coming in now is like we don't have to do it that way. We have to do compliance. Compliance matters, it's important and it's your legal obligation. But you don't have to do it in the same sort of very expensive, very human way that people have been doing it in the past. >> And Cloud Computing, DevOps model of software proved that automations a wonderful thing >> Right >> So now you have automation and you have potentially AI opportunities to automate things. >> And what we've seen is huge increases in technology, in around machine learning and clustering of data, to eliminate a lot of the human process of doing AML, KYC verification, and that's driving down costs significantly. We can take advantage of that in the Crypto Space because we don't have thousands of people and millions of millions of dollars of infrastructure that we've built up, we're starting fresh, we can learn from the past and throw away all the stuff that doesn't work, or isn't needed anymore. >> Alright let's talk about the emerging state of regulation in the Block Chain community and industry. Where are we? What's the current state of the union? If you had to describe the progress bar you know with zero meaning negative to ten being it's working, where are we? What is the state of >> I think if you'd asked me a year ago I think negative would've been the answer. A year ago there was still a big fight in Crypto about do we even want to be part of Compliance, we don't want to have any involvement in that. Because it was still that sort of, Crypto goes beyond global borders, it goes beyond any of that. What's happened now is people have realized, it doesn't matter if you're dealing in Crypto Currency or traditional currency, or donkeys or mules or computers or whatever, if you're trading goods for value, that falls under Regulatory Landscape and that's what we're hearing from the SCC, from FinCEN, from all the regulators. It's not the form it's the function. So if you've got a security token, that's a security, whether you want it to be or not. You can call it whatever you want, but you're still going to be regulated just like a security. >> And I think most entrepreneurs welcome clarity. People want clarity, they don't want to have to be zigging when they should be zagging. And this is where we see domicile problem. Today it's Malta, tomorrow it's Bermuda. Where is it? I mean no one knows it's a moving train, the big countries have to get this right. >> A hundred percent. And beyond that what we're seeing, what's very, very frustrating for a market as global as this is it's not just country-level jurisdiction, the US you've got State-level jurisdiction as well. Makes it very, very hard when you're running a global business if you're an exchange, if you're any sort of global, with a global client reach. Managing that regulation is very, very difficult. >> You know I interviewed Grant Fondo who's with Goodwin Law Firm, Goodwin Proctor they call it Goodwin now, he's a regulatory guy, and they've been very on the right side of this whole SCC thing in the US. But it points to the issue at hand which is there's a set of people in the communities, that are there to be service providers. Law Firms, Tax, Accounting, Compliance. Then you got technology regulation. Not just financial you have GDPR, it's a nightmare! So okay, do we even need GDPR with Block Chain? So again you have this framework of this growth of internet society, now overlaid to a technical shift. That's going to impact not only technology standards and regulations but the business side of it where you have these needed service providers. Which is automated? Which isn't automated? What's your take on all of this? >> I agree with you a hundred percent, and I think what's helpful is to take a step back and realize while compliance is expensive and a pain and a distraction for a lot of businesses. The end of the day it saves people's lives. And this is what, just like if someone was shooting a gun as you were running down the street, in your house, you're going to call the police, that is what financial institutions are doing to save these industries and individuals that are impacted by this. A lot of it from a Crypto Currency perspective, we have a responsibility because so much of what the average person perception is, is Ross Ulbricht and Silk Road. And we have to dig our way out of that sort of mentality of Crypto being used for negative things. And so that makes it even more important that we are ultra, ultra compliant and what's great about this is there's a lot great opportunities for new vendors to come into the space and harness what existed whether that's harnessing data, different data channels, different IDDent verification channels and creating integrated solutions that enable businesses to just pull this in as a service. It shouldn't be your business, if you're in exchange, compliance is something you have to do. It should not become your business. >> Yeah I totally agree, and it becomes table stakes not a differentiator. >> Exactly >> That's the big thing I learned this week it's people saying security's a differentiator, compliance is a, nah, nah, I have standards. Alright so I got to ask you about the, you know I always had been on the biased side of entrepreneurship which is when you hear regulations and you go whoa, that's going to really stunt the growth of organic innovation. >> Right. But in this case the regulatory peace has been a driver for innovation. Can you share some opinions and commentary on that because I think there's a big disconnect. And I used to be the one saying regulation sucks, let the entrepreneurs do their thing. But now more than ever there's a dynamic, can you just share your thoughts on this? >> Yeah, I mean regulators are not here to drive innovation. That's not what their job is. What's been so interesting about this is that because of regulations coming to Crypto along with these other things, it's allowing businesses to solve the problem of compliance in very exciting, interesting ways. And it's driving a lot of technologies around machine learning, what people like IBM Watson are doing around machine learning is becoming very, very powerful in compliance to reduce that cost. The cost is enormous. An average financial institution is spending 15 percent. Upwards of 15 percent of their revenue per year on compliance. So anything they can do to reduce that is huge. >> Huge numbers >> And we don't want Crypto to get to that point. >> Yeah and I would also love to get the percentage of how much fraud is being eaten into the equation too. I'm sure there's a big number there. Okay so on the compliance side, what are the hard problems that the industry is solving, trying to solve? Could you stack rank the >> I think number one: complexity. Complexity is the biggest. Because you're talking about verifying against sanctions, verifying against politically exposed persons, law enforcement lists, different geographical distributions, doing address verification, Block Chain forensics. The list just stacks and stacks and stacks on the complexity >> It's a huge list. >> It's a huge list >> And it's not easy either. These are hard problems. >> Right, these are very, very difficult problems and there's no one expert for all of these things. And so it's a matter of bringing those things together, and figuring out how can you combine the different levels of expertise into a single platform? And that's where we're going. We're going to that point where it's a single shop, you want to release an ICO? You're an exchange and you need to do compliance? All of that should be able to be handled as a single interface where it takes it off of your hands. The liability is still with the issuer. It's still with the exchange, they can't step away from their regulatory liability, but there's a lot that they can do to ease that burden. And to also just ignore and down-risk people that just don't matter. So many people are in Crypto, not the people here, but there's so many people in Crypto, you buy one tenth of a Bitcoin, you buy a couple of Ether, and you're like okay that was fine. Do we really need to focus our time on those people? Probably not. And a lot of the >> There's a lot big money moving from big players acting in concert. >> And that's where we need to be focused. Is the big money, we need to be focused on where terrorists are acting within Block Chain. That's not to say that Block Chain and Crypto is a terrorist vehicle. But we can't ignore the reality. >> And I think the other thing too is also the adversary side of it is interesting because if you look at what's happening with all these hacks, you're talking about billions of dollars in the hands now of these groups that are highly funded, highly coordinated, funded basically underbelly companies. They get their hands on a quantum computer, I was just talking to another guy earlier today he's like if you don't have a sixteen character password, you're toast. And now it's twenty four so, at what point do they have the resources as the fly wheel of profit rolls in on the hacks. >> You know, one of the interesting things we talk about a lot is we have to rely on the larger community. We can't, I can't, you can't solve all of the problems. Quantum computing's a great example. That's where we look for things like two-factor authentication and other technologies that are coming out to solve those problems. And we need to, as a community, acknowledge That these are real problems and we've identified potential solutions. Whether that's in academia, whether it's in something like a foundation like the Ethereum Foundation, or in the private sector. And it's a combination of those things that are really driving a lot of it's innovation. >> Alright so what's the agenda for the industry if you had to have a list this long, how do you see this playing out tactically over the next twelve months or so as people start to get clarity. Certainly SCC is really being proactive not trying to step on everybody at the same time put some guard rails down and bumpers to let people kind of bounce around within some frame work. >> I think the SCC has taken a very cautious approach. We've seen cease and desist letters, we've seen notifications we haven't seen enormous finds like we see in Fiat. Look at HSBC, look at Deutsche Bank, billions of dollars in fines from the SCC. We're not seeing that I think the SCC understands that we're all sort of moving together. At the same time their responsibility is to protect the investor. And to make sure that people aren't being >> Duped. >> Duped. I was trying to find an appropriate term. >> Suckered >> Suckered, duped. And we've seen that a lot in ICOs but we're not seeing it, the headlines are so often wrong. You see this is an ICO scam. Often it's not a scam, it's just the project failed. Like lots of businesses fail. That doesn't mean it's a scam, it means it was a business fail. >> Well if institutional investors have the maturity to handle they can deal with failures, but not the average individual investor. >> Right, which is why in the US we have the credit investor, where you have to be wealthy enough to be able to sustain the loss. They don't have that anywhere else. So globally the SCC care and the other financial intelligence units globally are monitoring this so we make that we're protecting the investor. To get back to your question, where do I see this going? I think we're going to need to fast track our way towards a more compliant regime. And this I see as being a step-wise approach. Starting with sanctions making sure everyone is screened against the sanction list. Then we're going to start getting more into politically exposed persons, more adverse media, more enhanced due diligence. Where we really have that suite of products and identify the risk based on the type of business and the type of relationship. And that's where we need to get fast. And I don't think the SCC is going to say yeah be there by 2024, it's going to be be there by next year. I was talking to Hartej, he was one of the co founders of Hosho and we were talking on TheCUBE about self-regulation and some self-policing. I think this was self-governed, certainly in the short term. And we were talking about the hallway conversations and this is one of the things that he's been hearing. So the question for you Greg is: What hallway conversations have you overheard, that you kind of wanted to jump into or you found interesting. And what hallway conversations that you've been involved in here. >> I think the most interesting, I mentioned this on a panel and got into a great conversation afterwards, about the importance of the Crypto community reaching out to the traditional financial services community. Because it's almost like looking across the aisle, and saying look we're trying to solve real business problems, we're trying to create great innovative things, you don't have to be scared. And I was speaking at a traditional financial conference last week and there it was all people like this Crypto is scary and it's I don't understand it. >> You see Warren Buffett and Bill Gates poopooing it and freak out. >> But we have an obligation then, we can't wait for them to realize what needs to be done. We need to go to them and say, look we're not scary, look let's sit down. If you can get a seat at a table with a head of compliance at a top tier bank, sit down with them and say let me explain what my Crypto ATM is doing and why it's not a vehicle for money laundering, and how it can be used safely. Those sorts of things are so critical and as a community for us to reach across the aisle, and bring those people over. >> Yeah bridge the cultures. >> Exactly. Because it's night and day cultures but I think there's a lot more in common. >> And both need each other. >> Exactly. >> Alright so great job, thanks for coming on and sharing your insights. >> Thank you so much. >> If you have a quick plug on what you're working on, give the plug for the company. >> Sure, so iComply Investor Services is here to help people who want to issue ICOs, do that in a very compliant way. Because you shouldn't have to worry about all of your compliance and KYC and Block Chain Forensics and all that, you should be worried about raising money for your company and building a product. >> Alright final question since I got you here 'cause this is on my mind. Security token, has got traction, people like it 'cause no problem being security. What are they putting against that these days, what trend are you seeing in the security token? Are they doing equity? I'm hearing from hedge funds and other investors they'll want a little bit of equity preferred and or common, plus the token. Or should the token be equity conversion? What is some of the strings you're seeing? >> You know I think it' really just a matter of do you want paper or do you want a token? Just like a stock certificate is worth nothing without the legal framework behind it. A security token is the same way. So we're seeing where some people are wanting to do equity, where some of their investors want the traditional certificate. And some are fine with the token. We're seeing people do hybrid tokens where it morphs from security to utility or back. Where they're doing very creative things. It's what's so great about the Ethereum Network and the Smart Contracts, is there are all of these great options. The hard part then is, how do you fit those options into regular framework. >> And defending that against being a security, and this is interesting because if it converts to a utility, isn't that what security is? >> So that's the question. >> Then an IPO is an, again this is new territory. >> Right, and very exciting territory. It's an exciting time to be involved in this industry. >> In fact I just had an AE3B Election on tokens, first time ever. >> Yeah it's an amazing state that we're in. Where serious investors are saying yeah token's great for me. Give me the RC20 I'll stick it in my MetaMask Wallet, it's unbelievable where we are. And only more exciting things to come. >> Greg Pinn, thanks for coming on and sharing your insights. TheCUBE covers live here in Las Vegas, Hoshocon, the first security conference in the industry of its kind where everyone's getting together talking about security. Not a big ICO thing, in fact it's all technical, all business all people shaping the industry, it's a community it's TheCUBE coverage here in Las Vegas. Stay with us for more after this short break. (Upbeat music)