ICOs and those kinds of scams have poisoned the well to the point where people can't really
tell what is a real business and what is not.
Hello there from Bedford, UK, the mecca of Bitcoin.
How are you all?
Welcome to the What Bitcoin Did podcast, which is brought to you by The Mighty Kraken, the
best place to buy, sell and trade Bitcoin.
I'm your host, Peter McCormack, and today I've got an interview with Alan Silbert, Jameson
Lopp and Samson Mao, where we talk about INX and their recent token offering.
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Okay, so onto the show.
And as I'm sure a lot of you have seen over the past week, things have been heating up
on Twitter after INX announced their token offering on Ethereum and registered with the
SEC, the first ever SEC registered security token offering.
Now lots of Bitcoiners were unhappy with the news that this was being offered as an ERC20
token on Ethereum, and there was a backlash to this and a bunch of other parts of the
project specifically aimed at Jameson Lopp and Samson Mow, who have both been very critical
of Ethereum.
Now I know Samson and Jameson well.
And when the news broke, I asked them to come on the show and give their side of the story.
I also asked Alan Silbert, the managing director of INX, to make his What Bitcoin Did debut
to go through this.
And as ever, I always try to be fair.
There's a lot I don't like about the project, but I also think some of the backlash has
been a bit over the top in places.
So I try to be fair as possible and I try to push them on the topics that I thought
were most interesting.
So I hope you enjoy this.
I hope you get out of it what you need, as ever.
You know, if you've got any questions about this, you don't agree, you do agree, you can
reach out to me.
My email address is hellowhatbitcoindid.com.
I've also added a link in the show notes to the prospectus.
If you want to check it out, it's in there.
And yeah, any questions, reach out to me.
Also check out Defiance.
We've got the final episode of my series documenting the band The Ghost Inside coming out on Thursday.
If you haven't followed that story, that's now the fastest
and biggest downloaded show on Defiance, which is very cool.
By Thursday, all four episodes will be out.
Outside of that, have a great week and I will see you all soon.
Right, Alan, Samson, Jameson, welcome and welcome, Alan, you haven't been on the show
before.
This is also a first for me.
This is the first time I've had three shit coiners on at the same time.
So welcome, listen, look, a lot to get into here, I've got a whole bunch of questions
and typically as I'm not technical, I'm also not particularly experienced in investing
or company structures like with most things.
So I've got a lot of questions and I'm going to try and be as fair as possible.
I do know that some people are going to listen to this.
Their starting point is, I hate this whatever, it's not Bitcoin, go fuck yourself.
So I'm going to ignore those people because a bit like when they score ice skating in
the Olympics, I'm ignoring the top and bottom five percent, I'm going to go in the middle
and try and figure this out.
Fundamentally I don't have an issue with that.
I wouldn't invest and I'll tell you why, but I fundamentally don't have an issue with this.
But anyway, lots and lots to get into.
Right, so a starting point I actually want to get into because I think some of this was
lost in the carnage of the announcement.
Alan, can you firstly just tell me who and what INX is and the team is behind it, what
they're trying to do, et cetera, because I know it's an exchange, but the majority of
the, let's call it, uproar was about the token and it failed to even get into the fundamentals
of the business.
So can you just tell me a bit about INX first?
Yeah, sure, absolutely.
And I'll kind of lead into it, but my background is in traditional finance.
I was always in regulated companies, middle market lending, did that for almost 20 years.
And I got introduced to Bitcoin by my brother, I think it was probably late 2012, dragged
my feet on it for months and months until he hit me over the head with it.
And around the same time, I was getting very bored with my career path.
And I was just done and I just wanted a new challenge.
So I started getting into Bitcoin, started digging in and kind of the crossing point
was one of these Jamie Dimon fortune articles said, Jamie Dimon thinks Bitcoin is a scam,
whatever.
I was working for Capital One Bank at the time and they took one of my tweets about
how Jamie Dimon was starting to backpedal and they kind of plopped it right in the middle
of the Fortune magazine article and it said, Alan Silbert, SVP Capital One said this.
So that didn't go over well at all.
So head of the commercial bank, HR, public relations, within 12 hours, I had a meeting
with all of them and they were like, you can never speak in public again about Bitcoin.
And in that moment, I was like, okay, this is my opportunity to get out.
Within like a week of that, I got introduced to the INX core team, who's in Israel.
All of our tech is in Israel, got introduced to them.
They were looking for somebody to run US operations for this platform.
And so that's kind of how it started.
I helped bring in the board members and the advisors as well.
Two of the famous ones are right here.
We wanted exchange experience like Samson's, I wanted security experience like Jameson's,
wanted trader experience like WhalePanda's.
Board members, we have a lot of big names in the legacy world, wanted very trustworthy
folks that understood the legacy trading systems like David Weald was from NASDAQ and Tom Lewis
was from Ameritrade and Nick Fidani was from the Toronto equities markets.
And the companies are going to get built out in the US in the New York area.
So this is where the critical mass is going to be.
But that's kind of the core of the team is the Israeli tech team.
We have a few of us who are in the US and do have all very visible board and advisors.
I know this might have a different answer long term, but is it essentially a crypto
only exchange or are you also looking at fractional assets of traditional kind of shares as well
as it just crypto only?
Yeah.
So it's going to start with in stages, it's going to be crypto first, which is going to
roll out about six months from the offering.
And then security tokens is the next stage and then derivatives is the next stage.
Okay.
Okay.
But crypto derivatives only?
Well, yeah, we'll do whatever we can manage from a regulatory perspective.
You'll see, I'll be a little squirrely and I'm not trying to be evasive.
I'm just under so many SCZ rules and stuff that I have to be a little bit careful.
But yeah, it's all laid out in the prospectus, the timelines and what we plan on.
Well, yeah, I'll come to the prospectus.
So I opened it and it was like 168 pages in very small type.
That's the compressed version.
Yeah, it's usually like 300 pages.
I know it's unprofessional made, but I was like, I'm not fucking reading that.
And then I opened the risk document.
I don't know how they expect anybody to actually read these things.
It's absolutely unbelievable.
And the risk document itself was like 23, 30 pages and that was even smaller type.
And I was like, okay, well, listen, if you can't explain it to me, then I'm not interested.
This is consumer protection, Peter.
This is how it works.
This is where we're informing everyone of the risks, right?
Yeah, but I think you could protect consumers more by forcing you to do it into a one pager.
Here are the main risks, not every variation.
So Alan might break his leg on the way to work and therefore can't come to work and
therefore decisions don't get made.
It was just like a bullshit level of risks and it was too much anyway.
It's like terms and conditions.
When you upgrade your iPhone, you don't read the terms and conditions and you just accept
them.
It's fucking nonsense wild.
All right, but listen, the exchange business is a tough business.
There's some massive companies out there, Kraken, Coinbase, Binance, et cetera.
It's a very competitive business.
Looking at the amount that you're looking to raise, imagining the size of the team,
imagining what you need to get to kind of break even point, that's a tough business
to break into.
Obviously, you're up to the challenge, but how do you think you're going to get significant
market share?
Yeah, so we're up for the challenge.
We obviously took the most difficult path ever with the SEC, so we like challenges.
This is probably the most challenging thing I've dealt with in my corporate career.
But yeah, we think, first of all, I won't name names, but I think some of the exchanges
that have been built to date in the US, I don't agree with how things have been done
or with their methods, I won't name any names there.
A few of the guys in the US exchange space, I do respect immensely and they do a great
job.
But we think we could bring a better trading experience for the trader.
We can do it without shitcoins and we can do it without regulatory baggage, which most
of them have.
We believe the token holders are crucial to our success as well.
So this was all done intentionally with the token holder community to be a very important
part of this company.
They're getting 40% of the net profits of the exchange.
We want them to be our brand ambassadors, XRP Army is a little cringy, but something
along the same lines.
And so you have like a captive marketing, captive ambassador army out there that's invested
in the profits of the exchange, which is why we gave them a large percentage of our profits.
And we think that they'll be very crucial to our success and help drive volume to us
as well.
Okay.
So there's one of the first points I need to press you on a bit.
So you said you think you can do this without shitcoins.
Jameson, you sent me an article yesterday, which I thought was very well put together,
and you attempted to define what is a shitcoin.
So do you want to explain what you think is a shitcoin?
Well personally, I believe shitcoins are things that just do a terrible job at what they claim
to do.
Now that's a very vague, hand wavy assertion, right?
So it becomes a lot easier, I think, to clarify a shitcoin if we're talking about something
that's claiming to be money.
And this is where I think the traditional Bitcoin maximalist argument started out and
can be a lot more clear saying, okay, Bitcoin is the best hard sound money out there.
Anything else that's trying to be money is probably making tradeoffs and it's not as
good a money as Bitcoin.
When we start talking about things that aren't trying to be money, well, the waters become
a lot muddier, right?
And so that's when you start getting into, is a non-money crypto token a shitcoin or
not?
And that's when it becomes a lot more subjective because it comes down to, in many cases, whether
or not the person thinks this needs to be a token or on a blockchain or whatever in
the first place.
And that's something that you can argue about at Infinitum as to whether or not the features
that you get from being on a blockchain, if you're not going for things like censorship
resistance, whether or not those things have value.
I kind of agree.
And I think there's this spectrum.
There's some people who are, if it's not Bitcoin, it's a shitcoin.
There are some people that, okay, if it's not trying to be money, as you said, or it's
making poor tradeoffs, it's not making poor tradeoffs, then it's not a shitcoin.
And then there's some people who believe there's no such thing, kind of no such thing as a
shitcoin.
I don't have a broad acceptance of any kind of crypto asset.
I would say I'm towards the Bitcoin end of the spectrum, but I'm willing to look at things.
I don't consider this a shitcoin.
I just think it's a way of, you've tokenized an asset and have a way of selling it.
And I'll come into my views on it.
Samson, would you broadly agree with Jameson's view?
Yeah, I think the article is really well written and it takes a step in the right direction,
which is defining some things such as what is a shitcoin or even what is a Bitcoin maximalist.
I think the term maximalist has morphed over the years to become Bitcoin only and don't
touch anything else that uses cryptography, even if it's a stablecoin or a security token.
And this is kind of a weird place that we're in right now.
So I prefer the definition Bitcoin pragmatist.
So would you say, Ethereum will treat on its own, would you say Bitcoin cash is a shitcoin?
Oh yeah, Bitcoin cash is the shittiest of the shitcoins.
Okay.
What about Litecoin?
Litecoin, I don't think it's a shitcoin.
I'm biased because I'm friends with Charlie and Ricardo, but I don't think Litecoin and
Monero are shitcoins.
They don't have a massive pre-mine.
They didn't scam anybody.
They don't make promises that they can't deliver.
Litecoin just says it's silver to Bitcoin's gold and that's pretty much it.
Monero, even Fluffy Point, it says don't use it, don't buy it.
It's just a cryptocurrency.
It doesn't really promise anything to the end users.
I think Monero promises privacy and I think they do a better job at privacy than most
other privacy coins out there.
So I'm fine with those too and I don't consider them to be scams.
Yeah, I'm kind of okay with Monero in that if I had to do a very private transaction,
I think I'd be more comfortable doing it with Monero than Bitcoin because I'm not very good
at the privacy side of things where I know someone like Jameson can probably nail it
with Tor and CoinJoin and all that stuff.
And I know there's an argument, well, you get seen go with the on-ramp or the off-ramp
or buy Monero, but the transaction itself I'm fairly comfortable with.
I don't hate it.
I think by Jameson's definition Litecoin is a shit coin, even though Charlie's my friend.
I think by Jameson's...
What about Zcash?
I think Zcash is a shit coin.
They have a founder's reward or whatever they're calling it.
They're using the project to enrich themselves.
That's why I prefer Monero because it's more similar to Bitcoin in that it has a open development
community and it's funded by developers working on it rather than this model where you take
money and pay yourself out of the block reward.
This is part of the issue though, is that someone may consider something to be a shit
coin because it has more centralized or more obvious governance.
Someone may consider something to be a shit coin because it has economic properties that
aren't as sound, perhaps it has perpetual inflation.
Someone may consider another cryptocurrency to be a shit coin because of just the marketing
and in the case of Bitcoin Cash, a lot of people saying, oh, this is the real Bitcoin.
Well, now you're going to trigger all the Bitcoin maximalists and so it's definitely
a shit coin.
Well, the other thing about Zcash is I think Zuko said, we'll build the back door or something
like that.
I forgot exactly what he said, but it was along those lines and he's went out and made
partnerships with banks like Chase Bank.
It's just kind of weird for a privacy coin.
Zcash is a company if you ask me, it's not a cryptocurrency, it's a company.
This is where one of the contradictions exist and one of the problems because Alan's saying
we can do it without shit coins.
I think there's an agreement that Bcash and Zcash are both shit coins, but the website
says, I'm just looking now, INX Blockchain Asset Trading Solution, Bicel, Crypto, BTC,
ETH, Litecoin, Zcash, BCH.
The exchange is going to be supporting shit coins under the definition of Samson, yourself
and you, Jameson and Alan.
This isn't a culture.
Samson and Jameson's definitions, yes.
Alan, you don't think Bitcoin Cash is a shit coin?
I think that it is.
No, I do, really.
I think if people want to trade it, then it's fine.
I think that everybody has PTSD from 2017, obviously.
The vast majority of crap that came out was just people throwing it up against the wall
to see if it would stick.
There are money grabs and no protections, no structure, no visible management.
Everybody knows my opinion of that Bitcoin Cash.
I don't think anybody's doing an exit scam there.
Nobody's going to go to an orphanage in India and implode the project.
It's going to be around.
Should it be a top 10 coin?
I don't know.
I think this may come down to Alan maybe using the term shit coin from the perspective of
whether or not it's a scam and is fleecing investors.
There are certainly hundreds if not thousands of straight up scam tokens that especially
came out during the last wave of hype.
Those tended to be like pay to play, where they would go around actually bribe the various
shadier exchanges to get listed and then engage in various pump and dump operations.
I don't think you can excuse every one of those tokens, those coins from being involved
in similar kind of pump and dump scenarios.
I just think there's a bit of a contradiction here and there definitely feels like a bit
of a hypocrisy where I think that's where some of the feedback came from is people felt
like, you know, Samson, I feel like I can do any interview.
I feel like if I need something from you, I can call you up and say, Samson, I need
your help with something.
You will always help me, but at the same time, I have to say like, you know, just in an interview
like this, I think there is like a certain amount of hypocrisy because this, you know,
you've been, especially ETH, you've been very against, but you have a financial interest
in the success of this.
And by the way, I'm a hypocrite myself because I have Cracken as a sponsor and they also
trade in shit coins and perhaps that pays part of my sponsorship.
We have an array of interesting topics there, so what does it mean?
The first one is what does it mean to support a shit coin as an exchange?
Can you list it and provide a market and provide disclaimers like for BTC Times, when we post
an altcoin article, we have a disclaimer there that says, you know, we don't support
shit coins and blah, blah, blah, and you're going to get wrecked if you buy it.
But like, can Alan list via BCH or Bcash and provide that marketplace and is that OK?
Or is even the act of listing it, supporting it?
Because that definition is kind of broad.
You could even say, you know, Bitfinex is supporting BSV because they list the BSV market,
but they're also, you know, defending the lawsuit that you're facing right now, too,
like some of the guys there, and you can say that's a good thing.
They're taking the fees that the people that are willing to trade BSV are paying and using
that to counter some of the bad stuff, like really bad stuff that is being done by that
group.
Then you could even say Blockstream is supporting shit coins, too, because we have the cryptocurrency
data feed that we launched together with ICE, and that's pulling together data from all
the different exchanges and compiling into one data feed.
And that's on our website.
And you can see, like, all the shit coin logos are in that data feed.
So I think it's very complicated once you start figuring out how clean is any given
venue and defining all the questions of that purity test, because even the Bitcoin-only
exchanges are sourcing their coins from Kraken or other exchanges that also indirectly support
by listing.
Yeah.
So I mean, from our perspective, you know, we have to answer to regulators.
So we have two sides.
We're going to be trading cryptocurrencies, you roll up to the money transmitter authorities,
and it clearly has to be a cryptocurrency and not a security.
So Bitcoin, Bitcoin Cash, Litecoin, Ethereum squeezed by, got grandfathered in, it's not
a security, Zcash.
On the other side, the security token side, we have to answer to fit on the SEC.
So security tokens that we list are going to have to go through some kind of regulatory
process to, you know, show that they're, you know, they're viable and they're regulated.
So I was just going to say, I think what you're kind of saying, Samson, also, is like the
absolute purity isn't possible.
It's like, OK, I mean, I don't care if people trade this stuff.
I think some of it's dumb.
I don't care.
I've always, the way, not always, sorry, I've recently started to just think of it.
It's a game now.
Like, Bitcoin is money and the rest of a lot of this stuff is just a game, and you're playing
a game to just try and accumulate more money.
There's a reason why they're called shitcoin casinos, Peter.
Yes.
I know.
I know.
I know.
I know.
OK.
So the other thing I want to talk on is your point about hypocrisy.
And then I want to go into the financial incentives, too.
So I don't think that we are hypocrites.
The definition of Bitcoin maximalism has shifted over time.
And a lot of the people in the space now are so new that they lack any historical awareness.
Like someone watching Jameson's Twitter feed may just see him talking about Bitcoin all
day long.
But I think they forget that he was a BitGo engineer that has worked on Bitcoin multisig
and Ethereum, quote unquote, multisig, or whatever they passed to get away with that.
But he's worked on Ethereum before.
And my background is I used to run BTC China, the cryptocurrency exchange.
I was a COO there.
And we were, I think, the first exchange to list Litecoin.
And Litecoin, I think I've done a lot to help Litecoin over the years.
And why am I suddenly a hypocrite?
And I also helped ETC survive back when ETH split off from the original chain.
So I think people just have a very poor understanding of who anybody is.
They just see people posting good things about Bitcoin, and they presume that they are the
same as they are.
So you're saying you were always a shit corner.
You could say that.
The other point that you had was what the financial motivations.
Well, I hope that INX succeeds.
But there is still a chance that INX doesn't complete the capital raise.
And then the money I invested isn't worth anything.
And back when we invested in this project, that was like two and a half years ago.
It was not a sure thing.
And it could have been lost at any point along the way during those 900-some-odd days that
we were going up with the SEC and trying to get it approved.
So when you look at it now, it looks like, OK, that was a decent investment.
But when we made the investment, I'm just relying on Alan to not shit the bed.
Yeah, and this is a painful thing going around, is it's like this 90-times return.
It's so ridiculous.
Everything we do is subject to audit and valuation and regulators.
And we brought these guys on.
Like Samson said, it was a long time ago.
Company was in its infancy.
All we really had at that point was the beginnings of a platform construct and a team.
OK, so their token grants were not arbitrary.
It wasn't a handout.
It was the fair value at the time.
We were a startup.
There wasn't much to go on to generate a valuation.
But this is what the valuation was per an independent company and per audited by Ernst
and Young.
This was in the company's infancy.
So just to speak to this crazy 90-times issue that's coming up.
Well, I think this is actually a no-win situation, right?
So what we're doing right now, there are plenty of people out there who are going to say,
you're just going into a defensive position right now.
And you are hypocrites.
And you're basically twisting logic in a way to try to portray what you've done as not
being hypocritical.
So there's always going to be, I think, a difference in perspective there.
And kind of what Samson was hinting at, I think, is that I've seen a lot of people say,
oh, Jameson abandoned his principles, you know, hashtag cancel law, et cetera, et cetera.
And from my perspective, my principles have been the same the whole time.
What has been wrong is that there has been a misunderstanding, I think, between perhaps
what I have vocalized as my principles and therefore what other people have constructed
to be my principles or that they believe that their principles are exactly the same as mine.
And that's one of the things that I tried to cover in my article, where I show historically
I have gotten Twitter mob backlash on numerous occasions when I have mentioned my interest
in non-Bitcoin projects.
Yeah, that's one of the more recent ones.
That's definitely not the only time that this has happened, though.
I was running Zcash.
I was running Zcash before the network launched and playing around with it.
I'm sure I can dig up those tweets somewhere.
You know, everyone comes to Bitcoin and crypto with their own perspective and their own interests.
I'm a technologist, and I'm not ever going to apologize for being interested in other
technologies.
Now, I try not to hand out financial advice to anyone.
And if I have been telling people that they should put their money into anything, even
Bitcoin, I try not to say put a decent amount of money into.
Even Bitcoin, I tend to tell people it should be a small amount at most.
But that's because I'm not a finance professional.
I am a tech guy, and I play with technology.
And if that means that I end up pissing people off because they're coming at this from a
different perspective, I kind of view that as an inevitability.
And it's just something that I'm going to continue having to deal with.
And no one's going to cancel me.
I'm not going to stop doing what I've been doing for quite a few years.
I think what we have this issue, I don't know if some people say it's not an issue, shut
up, Pete.
But we have this thing where Bitcoin has created this moral business purity, which is very
hard to live up to, like extremely hard to live up to.
And if that's your benchmark for everyone, it's going to be very difficult to build an
economy off that, especially as humans themselves are flawed.
We are greedy.
We are competitive.
We do want to win.
Sometimes people have to push the limits.
Based on the purity test, for example, in my own podcast, I would have to dump Kraken
because they allowed trade of shitcoins, I have to dump BlockFi because they have a custodial
solution for interest, I have to dump Sportsbet because gambling is morally unethical.
I'm without sponsors, I'm without a business.
But if you actually look at the root of... a lot of libertarians talk about free choice.
All of these companies are free choice.
You're free to gamble if you want to gamble.
You're free to invest in tokens if you want a token.
You're free to deposit your money with BlockFi for interest if you want.
They're all free choice, but we have this moral benchmark of purity that's very hard
to live up to.
I struggle with it myself, but I think that's what you're being judged on by some parts.
Well, I think it's just people want to be angry at something.
There's a dozen different permutations of how INX's fundraising could have gone.
With each of those, there will be an outcry and angry mob.
I just think it's really ironic that you have these people that are supposed to be libertarian,
but they're so angry when people do things, especially something capitalistic like fundraising.
It just blows my mind.
But the other point you're making is that purity test.
It's kind of weird.
And I really think it's just people want to be angry.
I was arguing with somebody, I forgot who, and I said, well, why don't you hate on the
exchanges?
And he said, well, no, exchanges get a free pass.
But how does that make any sense?
INX is an exchange.
And it's like the other exchanges are delving more and more into shit cornering.
I get emails from exchanges saying, come stake with us.
And these are exchanges that hire very prominent Bitcoin maximalists.
And they're emailing me saying, stake and other crap.
And INX is using an ERC token, and that's just to launch the security.
It's not bound to that.
The security is with the company.
It's not with the rail, which is the token.
INX's token can be on any chain, like a stablecoin.
So just because they had to use Ethereum for pragmatic reasons doesn't mean that it's always
going to be on Ethereum or that they even want it or that the advisors like it.
But I think we all understand that there is pragmatism involved when you're doing business.
Well, let's deal with the Ethereum thing as you brought it up.
That was later on.
So this is 100%, and you're going to struggle to push me off this one, Samson.
This is a hypocritical position because you have validated Ethereum as having a use case.
Well, it does get used.
Like, obviously, people are using it to do things.
And even...
But you're using it.
Well, I'm not using it because I haven't taken my tokens, right?
You know what I mean.
Well, this is actually an interesting perspective, right?
Is that when I think forward about how I will be interacting with the tokens, if I choose
to exercise my option, I suspect I will just leave them on the INX exchange and let INX
custody those keys.
And because I'm already trusting INX 100% for everything, that could always change.
But this is kind of the perspective I've taken as a technologist and what I tried to explain
the functionality of the token itself is that it is agnostic as to the platform or network
that it's on, just really like Tether.
There is a single point of control, and that is INX, which ultimately is the bookkeeper,
the keeper of record of ownership of these tokens.
And so, unfortunately, for regulatory reasons, had to go with the Ethereum route.
But there's no reason why it couldn't eventually be on another network or even multiple networks,
just like Tether is.
But he's on Ethereum.
Yeah.
I mean, I'm as Bitcoin maximalist as they come.
I think I own $10 worth of ETH or something, and 95% of my crypto portfolio is in Bitcoin.
So I'm about as maximalist as they come.
And this process started in late 2017.
There was zero other options.
This was it, to build a token with a regulatory construct that we could control things.
We're not claiming to be some new decentralized Bitcoin.
There's regulatory controls here.
We have Oracle rights and stuff.
We can change things.
But it was the only option.
And the way that the regulatory process goes, you just become more and more painted into
a corner.
It's like the risks and disclosures that you're mentioning is just one example.
Every time the SEC comes back with comments, they just add, they pile it on, put this disclosure
in, put this disclosure in.
And it's so expensive and so time consuming and so frustrating.
I got to the point in late last year where I was like, guys, don't change one fucking
sentence in this perspective anymore.
Just don't do it.
Because every sentence just has the ability to generate exponentially more questions.
So even if mid-process like a liquid was perfect for our functioning, we just get to the point
of no return.
It's the regulated process just does this to you.
Samson, we spoke to Vitalik the other day.
When people talk about Ethereum being a scam, I always struggle with the idea that a platform
is a scam.
I think people can be scammers and a platform can be used for scams, but I struggle with
the idea that a platform is a scam.
Again, this is going to annoy people, probably like Giacomo will be annoyed at me for saying
this.
When people talk about the history of Ethereum has changed, again, it doesn't really bother
me because technology pivots.
So I don't actually care about that.
And then also people say, well, it can't deliver in the future.
And again, I'm less bothered about that in that not every technology is forever.
I only have a mobile phone in my house now.
We used to have an analog phone.
We don't have that anymore.
Not every technology lives forever.
If right now that technology is usable to deliver something for a business and is the
only option, again, some people, especially someone like Giacomo can say you're validating
a scam, blah, blah, blah.
My point is whether it's a scam or not, you're validating the usage of it.
And that's, I think, yeah, I don't even know why I'm going with this, but what I'm saying
you're validating it has a use case, whilst also being very critical of it.
And there is a certain amount of hypocrisy there.
OK.
So Ethereum is a scam because of their massive pre-mine, the fact that they sold their token
for Bitcoin.
So they themselves basically put Bitcoin in the vending machine, get the Ethereum out,
and then they take the Bitcoin out of the back of the machine.
So they're basically self-dealing.
And they're telling people that it's a world computer.
It's never going to get rolled back, code is law.
So there's multiple facets of Ethereum that make it a scam.
And I think you can still use the technology, but the project itself is very scammy in my
view.
And I think I've been pretty consistent.
I can hate Ethereum and say, don't use Ethereum.
But I think I can also invest in a project that is using Ethereum because they have no
choice at that point.
The question really is, do I want to invest in the project or not?
It's not about if the project is using Ethereum or not, because it's not bound to it.
It's just like, I know, they could use Omni for all I care.
I don't really mind.
But if the end goal is that they're going to use something better, like Liquid, then
I'm OK to invest short term so they clear the regulatory hurdles.
And the Ethereum token, kind of like what Jameson is talking about, doesn't really come
into play until you have other security token exchanges that are supporting the token, because
you don't need to transport it.
You just leave it on INX.
I will never touch the INX ERC-20.
I'll take it when it becomes a Liquid token or when I need to move it.
But until then, it just can sit there and earn a 40% profit.
I think you technically don't even own the tokens right now, right?
I think it's still six months.
But Samson, I would say, just externally speaking, it's not always comfortable to say there's
somebody that you get on well with.
But I would say you're in a very, very small group of people who doesn't think this is
hypocrisy.
Yeah, I mean, I'll take the adversarial view on that, which is that by launching this project
on Ethereum, it is using gas.
It is paying Ethereum miners.
From a perspective, it is contributing to the financial support of the Ethereum network
as these tokens are being used.
And so that is not something that I would choose to support myself.
I'm not going to be moving around INX tokens on Ethereum for those reasons and others.
And that is why I think a number of us who prefer to see things supporting the Bitcoin
system would like to see it moved to something that is more Bitcoin adjacent.
But you are the technology advisor.
I am.
And yeah, and unfortunately, this is the clash between technology and regulation.
And correct me if I'm wrong, Alan, but I'm pretty sure by the time that I actually was
brought on board as the technology advisor, Ethereum as a platform had already been pretty
much set in stone.
Yeah, it predates all these guys.
It was one of the first decisions made in the company.
So we didn't retain these guys for their Ethereum experience.
But say what?
We retained them for their security and trading experience.
So what were the other options?
Did you look at Omni?
Was Omni an option?
No, I don't think it was even a viable option back then.
There was literally zero other options for what we wanted to accomplish with our smart
contract and the whitelisting.
We had no other options, but this was it.
Do you know what I see it as, actually?
The way I read it all, I saw it as there is an opportunity to...
We have a new world of investing, right, where people trade in tokens and cryptocurrencies
and they move things between exchanges and wallets.
There's this infrastructure that's been built.
And this now is an opportunity to add to that infrastructure.
It's not necessarily that a blockchain is the best design for this.
I appreciate the argument that some people said, you could have done this on a centralized
database.
You could have, but...
No, you couldn't have.
We'll get into that later.
Okay.
Well, we'll come back to that.
But there was an argument that you could have registered while you waited for liquid, potentially
that people had registered...
You could have registered their tokens on a centralized database.
But the point is, I wrote that off, is that you have this new type of investor who's used
to holding a hardware wallet, who's used to holding assets essentially offline in their
hardware wallets.
They used to trade on these certain corporate exchanges and this is potentially the future
of trading.
And I thought, well, perhaps there's a solid argument to say the infrastructure for this
already exists.
People already use this experience.
I don't buy shares.
I don't buy shares.
I haven't even looked at the process of buying shares, but if I wanted to, if I could do
it and store it on a ledger and buy it on Kraken or INX, I'm actually a little bit more
interested in that because I'm like, okay, that makes life a bit easier.
I actually like the idea of storing all my investment assets in one place.
Like I can have my Bitcoin next to my, what essentially are kind of shares.
I know they're not essentially equity shares, but having that all in one place, I bought
into the argument.
I buy into that.
It isn't a shit coin.
And that was my assumption.
Is that what you're going for?
You're seeing this future of trading that is these tokens, which are securitized.
And that is potentially where you're seeing the opportunity for INX in a very competitive
exchange market.
Yeah.
And I mean, there's trillions of illiquid assets out there that you can tokenize, which
is still, we're starting to see that open up.
We would have liked for it to be faster, but you're starting to see real estate seems to
be like the first kind of project where you have illiquid assets that are getting tokenized.
And that'll branch out into other things like art and other like debt assets or ideas that
are patents or other things that you can tokenize.
And it's like the sky's the limit.
There's trillions of dollars of assets that are possibilities.
And we thought that doing this in a regulated, structured way is the only way to kind of
get it to pass muster.
And it's the kind of like, again, the KYC thing came up.
And again, I understand you can't do this without KYC, right?
You can Bitcoin without KYC if you're very careful and you jump through certain hoops,
you have a way of acquiring offline, et cetera, et cetera.
But you can't actually do this without KYC.
And also I felt the KYC attack vector on you, Jameson, was unfair because you can't really
live without money, right?
So a need for non-KYC money, there's a logical argument.
You can't actually acquire any shares without KYC.
And it's optional.
You don't need shares to survive.
It's nice to invest and make a profit, but you can't get away from that.
So the KYC didn't bother me.
But are we heading into a world whereby I may own a certain asset and I'm KYC whitelisted
with you?
If I can transfer that to anybody else within the same ecosystem, I could be set in a pub
with Jameson and say, look, do you want to buy some of my, I don't know, my tokenized
shares in this Picasso?
And he's like, yeah, I'll take that off you.
And yeah, he gives me some Bitcoin and I can just send it to him.
Right.
Yeah.
Listen, this is, I think, one of the things that pisses off a lot of the hardcore cypher
punks and anarchists who hate the idea of the government getting their hands in everything.
And in fact, you know, I had a quip earlier where I was like, what is a scam?
I was about to actually mention, I received an article, I think it was from Old Ugly Goat
that was basically detailing why the SEC is one of the greatest scams in the existence
of, you know, finance.
And I, as a futurist and anarcho-capitalist, would love to see a world in which we could
tokenize everything from equity to other assets and freely trade them without having to do
AMLKYC whitelisting, et cetera, you know, really have a Bitcoin style censorship resistant
token for any asset under the sun.
And I think and I hope and I believe that we are all working to get there one day, but
I actually believe that by us moving the needle a little bit and trying to bridge the gap
from the regulated side of things to show that, you know, this blockchain crypto token
ecosystem is not automatically a scam, that, you know, you can actually get regulators
to say, okay, you know, you can do this and we're not going to throw you all in jail,
then that gets us a step closer, I believe, to onboarding people, perhaps a lot of people
who love the idea of government and regulation and they feel safe within that ecosystem.
And now they're starting to inch closer to this cypherpunk, self-sovereign type of future.
You know, one step at a time, you know, and each little step is going to piss off a lot
of people, you know, who have their own perspectives and they want to, you know, jump into their
utopian future right now.
But I believe that, you know, by eventually little by little bridging these gaps, we can
start to build a world in which people are able to engage in more voluntary interactions.
And this is not that perfect ideal world, but I think that it is at least a step in
the right direction and, you know, it's proving that we can get a little bit closer.
So I want to touch on that.
So what Lop is saying is we need to move the ball forward somehow.
And to your point, Peter, like me investing in a project that is using a theorem legitimizes
it.
I think you can argue that.
I think the more important part is I'm investing in a project to make a security token trading
platform exist.
And Ethereum is just irrelevant at that point.
It's just what they need to do to get the filing done, get the regulatory approvals
and launch the project.
What comes after is what really matters, not the genesis of it.
And like, Alan can attest to this, like since I joined, I've been badgering him at least
like once a week saying, can we do something, can we change it?
And on the other side, I'm doing what Lop is saying, which is I'm trying to make it
possible.
So we built liquid securities on top of the liquid network.
And I'm working on getting SEC and FINRA comfortable with liquid too.
But it's not just like you wish something happens and happens automatically.
There's a lot of work to be done behind the scenes to make it possible.
And for me, it's really just, do we have INX or do we not have INX?
And I'd rather have INX, take some shit from people online and make it what I want it to
be, which is a liquid supporting exchange.
Yeah, but I get that.
What I'm saying is you have to bend your principles a little bit.
Not really.
I'm still saying Ethereum is a scam.
It's just I'm investing in a security that happens to use it.
I don't think that's in conflict with my principles.
I'm quite consistent, I think, since the inception of Ethereum.
So I've always looked down on Ethereum and thought it was garbage.
From the day Vitalik came to BTC China and tried to launch it, I walked out of that meeting
halfway because I thought this is just technobabble and it's a shitty project.
But garbage and a scam are two different things.
I don't want to keep going over the point, but garbage, if you're saying it's a scam,
right, I personally think you're bending your principles to use it because you're essentially
okay with using the scam.
So that has to be a bending of your principles because I would have thought if you think
something's a scam, if you hold really strong principles, you say, I can't have anything
to do with that because my principles say this.
What I'm saying is you've bent your principles a little bit for it.
And by the way, I don't think that's the worst thing in the world.
I've bent my principles in life.
I think a lot of people do.
I don't think they always admit it.
I think a lot of the anarchists who have a vision of the world still liaise with and
use government services.
And that's just the way the world sometimes.
You have to sometimes bend your principles.
I'm pretty sure most of us live under the rule of a government, but personally, I'm
not going to touch it.
And you could say I've already bent my principles because I've bought ETC before in the past
to support the original chain, but I still won't use ETH myself.
But I think the other thing is a lot of people don't understand how companies work.
Just because I invested in it doesn't mean I get to control INX.
And you could say it's a cop-out, but I invested in it to steer it the way I think it should
go.
But I'm fully aware that I can't do that.
It's not my company.
I'm just an advisor and a shareholder.
It's a cop-out.
I think it is.
You're not going to win with me on that one.
I'm sorry.
Yeah.
I'll be as fair as I can.
And I was like, yeah, there's nothing you've said that's changed my view that you've bent
the principles.
But that's OK.
I've bent principles in life.
I've always been a pragmatist.
I've gone at it with Roger because I said credit cards are good.
And he says, no, you can only use Bitcoin.
But I think it's fine to use a credit card.
Pay for stuff using the biggest rail on the planet and settle it up with Bitcoin.
I've said good things about Tether.
I think Tether is a great utility for trading.
And it's on every chain.
So I don't think I've bent my principles.
I'm fine with things that are practical.
I think what will come out of this is not many people's opinions will change on that
individual point.
But it's not the end of the world.
Well, maybe.
Maybe.
All right, Alan, another thing I wanted to ask you about, because the other thing I didn't
understand is when you invest in a company, you usually get equity.
With this, you aren't.
It says on your website, before, represent ownership in a company, after, represent ownership
in an asset.
So can I ask, is there essentially two levels of ownership with this?
There is the equity in the company with which you have shareholders.
And there's now the token, which essentially has represent an ownership in the cash flow.
And they both exist in the two separate things.
Right.
So we wanted to create a totally new asset class.
The shareholders of the company, it's just your run-of-the-mill private equity.
They have voting rights, they're private equity holders.
So very straightforward.
So we wanted to build this whole incentive model with the token holders.
Like I said before, we think that they're crucial to the success of the company.
So we gave them the 40% profit share, and in addition to that, they get discounts of
trading fees, and they also get liquidation preference on the cash fund that we're building.
So what we figured is, OK, they're not getting voting rights, but they're technically above
the private equity on the balance sheet in the capital stack.
They're carried as liabilities, really.
And so we think that we gave them a compelling mix of benefits that makes this attractive.
So they get that 40% profit share, a large portion of the proceeds from this raise are
going into the cash fund.
And the cash fund is segregated, it can't be touched.
To backstop the exchange and to give it like a capital infusion, it's like an insurance
fund of types.
So in the liquidation scenario, the token holders get first rights to the cash fund.
If we get acquired, the cash fund gets distributed out to them, and the token lives on with all
of its rights.
So we think we gave them a mix of different attributes that are better attractive to them.
And they're above the equity on the balance sheet.
They come before equity holders.
OK.
But an acquirer of the business is under no compulsion to carry on the token, right?
They could cancel the token.
Yeah, I think the devil's in the details.
What we're contractually obligated to do is to pay out the cash fund pro rata to the token
holders if there's a change of control.
Is that essentially the cash flow of the business, is that the balance sheet?
No, the cash fund is a segregated insurance fund, essentially.
We could only go into it in certain scenarios, like a hack or some kind of regulatory shortfall.
There's very limited scenarios that we can touch it, and it's a segregated account.
So that's what they have rights to.
This is separate from the cash flow of the business.
We can't touch it.
OK.
Actually, let me ask a question before that.
So they have access to 40% of essentially the operational profits.
Is that before or after dividends are paid?
So it's operating cash flow.
It's like cash net profits.
So dividends would have to be declared by the board and be issued and stuff.
But I think dividends would have to be paid after this in the order of things.
But staff bonuses would be before?
Right, operating expenses would be before.
And it's their contractual right that they receive 40% of their profits.
It can't be changed without us reneging on a written contract we have with them.
I think I see what you're getting into there, and this is one of the more interesting adversarial
perspectives that people are saying of there's probably a way for INX to not pay out anything
and essentially pay themselves, right?
And I think that's where the incentive alignment is.
Like Alan said, the devil is in the details, especially when you start getting into the
game theory and incentive alignment of is there sufficient incentive amongst the power
players at the company as token holders to ensure that the token holders get decently
compensated?
I think there's also the question of if you want the token to continue to have value,
you need to prove that it is going to be making payouts.
I don't think that doing something rash, like playing around with the numbers to ensure
that token holders don't get anything is going to be good for the long term success of this
company.
Yeah.
It's like I said before also, the token is crucial to the business.
This community is crucial.
All the incentives are really aligned here because for us to do something detrimental
to the token is really shooting ourselves in the foot.
Besides the fact that all of senior management's token holders, the board of directors token
holders, the advisors are token holders.
I think probably from a monetary perspective, I'm more incentivized to make sure the token
goes up in value than the private equity of the company based on how much I own or how
much I've been granted.
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I'm just trying to understand, like, put myself in the position of someone thinking of investing.
It's like, okay, it's 40% of operating cash flow, but for example, I would imagine, first
couple of years, there may not be any operating cash flow because businesses are tired.
Like it's hard work.
That could be for years, so therefore it might be an investment which is speculation on future
operating cash flow.
I don't imagine if I was to put $20,000, $30,000, $40,000 into INX, then next year I'm going
to suddenly get a lovely kind of token dividend payout of the cash flow.
I imagine what's going to happen is that most of the money is going to be reinvested just
to grow the business.
And that makes sense, I get that.
So it's essentially investment in the token is a speculation on the future cash flows.
And I don't think many people will be buying it for that.
They'll be buying it for speculation, which gets me to my next point.
It feels like we're now in this world of like a double kind of ownership structure of a
business.
You have the equity ownership, traditional equity ownership, and we now have this token
ownership.
But if you own the token, you have no benefit for the sale of the business, which equity
holders have.
And it seems to me now like a kind of a neat way of raising funds without giving up equity,
actually giving away cash flow.
Which if you ask me, and if I get in the way from any of the ethics of this, if I look
at my own business, I've been offered money to grow my tiny little podcast empire.
And I've considered, I thought, I don't want to give away ownership.
I'd rather just like bootstrap this and carry on.
But if somebody said, oh, but you can sell tokens and raise the same amount of money
and all you've got to give away is future cash flow, I'm like, well, I'm okay with that
because I live fine on my salary and I live fine on my bonus.
And actually, my future is hopefully to sell it as an entity.
But my point being is like, I find it is this like, it's a way now you've got a raising
funds without giving away any part of the business.
Kind of, excuse the analogy, because this will probably really piss you off, but kind
of what AOS did, they raised 4 billion for their fund.
So what about ownership of the company is important to you?
The exit.
Okay.
So a couple of things on that.
So first of all, like I mentioned before, the cash fund gives kind of a quasi floor
to the token value, we believe.
That's part of the reason why we put it there.
So in the case of a change of control, then the cash flow, the cash fund gets distributed
pro-rata token holders.
So you have that.
The tokens will live on with all of their rights after that, after the distribution.
That's not guaranteed though.
Didn't we cover that?
That's not guaranteed because any of, for example, say Kraken or Coinbase acquired you,
they might not want to have the token structure.
So they could-
So it's a current legal agreement, okay?
You can't write a new agreement that contradicts an existing legal contract, right?
So it has to be dealt with.
So you have to assume that if there's an acquisition that takes place, all parties involved are
incentivized to keep the current structure in place, right?
And that benefits equity and the token holders.
Like if somebody is going to come in and, I don't know, just like do away with a token,
just wipe it off the balance sheet, it doesn't do a lot for the continuing viability of the
business and the whole- if somebody is acquiring us, I'm assuming it's because we were successful
and that means that our model worked.
So it's kind of like all these pieces have to work together.
I know you're not saying that you don't get the upside of the private equity, but there's
these other kind of factors in place that make it very compelling.
And so it depends what you- what's interesting to you, is it more important for you to be
private equity and have voting rights and have the 60% and the upside, or do you want
to have the cash fund, which backstops you, which you have liquidation preference to,
which gets distributed and exit.
So it depends what asset class is advertising to you really.
What size- sorry, let me just carry on with this and then jump in.
So how big can the cash fund grow?
That's what I don't understand for kind of comparison purposes, because one of the things
about private equity is the liquidation is the trade-off, right?
I raise a bunch of money, but I have to liquidate part of my holdings, I relinquish part of
my holdings.
I have a smaller representation in the business because of that, and that's the trade-off.
But with this one, the trade-off is different in that you manage to raise money as an original
bunch of equity holders without actually having to give up any equity.
So I'm not saying it's a bad thing, I'm saying this is just- appears to be a new structure
that I think people need to get their heads around.
Yeah, absolutely.
It's a non-dilutive way to raise capital, absolutely, absolutely.
It's not equity per se, but the profit share is a meaningful part of the business.
If I say a good insurance fund backstop, yeah.
But you could potentially exit in three years having not once generated an operating profit,
and the private equity holders would be in for a sizable exit, whereas the token holders
might not have actually seen any of the operating cash flow at that point.
Well, if three years from now we're not generating operating cash flow, I don't see that turning
into a sizable exit, to be honest.
You could be, because you know what it's like.
This is tech world, right?
Plenty of companies are bought for a huge amount of money that aren't generating any
operating profit because you have the customer base.
Look at Blockfolio just sold for $150 million, and I don't know what kind of operating profit
they have.
It could be a loss.
I'm just saying it is a potential that someone acquires you without having reached operational
profit and therefore there's been no distribution to the token holders at that point, potentially.
Well, right.
But until the cash fund gets distributed to them at the time of a change of control.
So you start with a $70 million cash fund.
No.
So the cash fund, 75% of the proceeds from this IPO, over 25 million go into the cash
fund.
So if we raised the full $117 million, I think the cut ends up being net like $42 some million
for operations and something close to $70 million in a cash fund.
So this is a material amount of money.
So to what you're speaking of also, these kind of backstops don't exist in private equity
investing or anything.
This is a meaningful backstop to the token holders.
So they're risking it.
It's a speculative investment, but this cash fund is pretty unique in that there is a backstop
there for them.
Is that fair to say then, when you say backstop, that it is making it less likely that your
investment in the token goes to zero?
Right.
So thank you.
Oh, right, the base value should be the cash fund itself.
Right.
So in theory, because everything is, at the end of the day, is subject to law and courts
and everything, but yeah, in theory, you don't have the potential for 100% loss.
Because even if it went to bankruptcy, God forbid, then the cash fund goes to token holders
first, because they're seen as liability holders of the company.
So it's like an insurance fund for the token holders.
That's always interesting.
So okay, okay.
Okay.
So that bit's kind of interesting, but you do understand the point I'm getting at.
It's like, when I explain it to myself as a potential investor, I don't like it.
But then when I explain it to myself as somebody who wants to raise money, I fucking love it.
I think it's great.
I mean, raise money without dilution, that sounds amazing.
Well, so we've also spent a lot of time talking about, I think, the risks and what the possible
worst case scenarios for token holders are.
And I'm not sure if anyone's talked about what are the possible best case scenarios
for token holders.
Of course, yeah.
Well, the best case is that it's hugely successful.
You generate a huge amount of operating profit, and they essentially receive these nice token
dividends.
Well, I mean, you know, we're very similar to the BNB model, really.
I mean, we're like a regulated BNB.
And the tokens will trade like equity.
They'll follow, you know, people will follow how the exchange is doing.
It will keep an eye on our volumes.
And you know, so it'll trade real time.
We're a publicly reporting company, we're going to be putting out quarterly financials.
So we're ridiculously visible and transparent.
And so, yeah, I mean, that's the upside is, you know, for the token holders.
So I think INX is a totally non-traditional offering.
And it's been remarked as a landmark filing.
But what this is going forward, we're going to see a lot more different kinds of capital
raises.
So, you know, I'm doing the Infinite Fleet EXO security token.
That's similar in ways to INX, but also different.
So for EXO, the token holders get first rights on any liquidation or liquidity events like
M&A.
And they also get a profit share, but they don't retain the voting.
But I think it's inevitable that we're going to see different permutations of this kind
of thing that come out in the next couple of years.
It could be a mix of equity or voting or, you know, some different mix of those different
things.
And I don't think it's a bad thing, because secure tokens let you tokenize different parts
of your business if you want.
You could tokenize your ad revenue on what people are doing.
You can structure this in a million different ways.
Well, like I said, I mean, I looked at it before.
I looked at one point of raising a good few million to do this, to create a podcast network
similar to what Gimlet did, right?
I recognize there's an opportunity, it works well on the ad sales.
But I was going to have to dilute something like 30, I think it was just over 30% of my
equity.
I would have to give up for that investment.
But like I said, if I could raise the same amount of money and I only have to give up
future cash flow, it's absolutely no problem for me, because my goal is an exit.
So I think it's advantageous to the equity holders.
I'm not sure, therefore, it's like, is this a zero sum game that this is actually disinvert?
Like is this a win-win situation or is this disadvantageous to the equity holders?
I don't know.
Well, I think you have to know that there are a lot of alignments and incentives in
place to keep everything running.
So all the shareholders are token holders too.
So why would they nuke their business and their token holdings, right?
They're locked up.
But I think ultimately, you could harp on it and really attack the point about the voting.
But I don't know if voting is necessarily a good thing.
I don't care about the voting.
Yeah.
Well, some people will care about the voting.
Yeah.
This seems to come up a lot and I mean, I guess I understand it from a point of view
of, I don't know, like a Carl Icahn, like an activist investor can come in and take
control or something.
But every proxy I've received in the mail over my years for like, you know, the stockholders
meeting is coming up.
But I mean, I think they've pretty much all gone in the trash.
Yeah.
So I don't know why people like to have this sticking point about voting rights, but you
know.
Well, it's an attack surface, right?
So if you look at Ubisoft, they faced a hostile takeover from Vendee that they managed to
fight off.
But having the voting rights out there is not a good thing all the time.
It's just another way for people to attack and destroy the business.
Yeah.
Quite honestly, you know, okay, so in our company, the private equity came first and
then the tokens came later.
The private equity had voting rights.
And layering on the voting rights on top of that for tokens, we just thought was going
to be incredibly confusing and been like a really...
So it wasn't like we were trying to take their vote away, more that it would have been a
kind of an impossible construct.
So we layered in the other benefits to kind of make up for it.
It's an IPO without dilution.
Yeah.
It's like it's not, it's a non dilutive race.
Yeah.
Interesting.
It's very interesting.
I haven't fully concluded where I'm at with it.
I mean, ultimately, look, it's free choice.
People have an absolute free choice to invest.
But like I said, as somebody running a business, it's great.
I mean, yeah, yeah, it's great.
Okay, fine.
Just past that point.
So 130 million tokens to be released.
Well, actually, just let's go back a step.
Some people have tokens and equity, so they essentially have double bubble.
Did you ever consider that equity holders shouldn't have the token?
Well, the equity holders, senior management has both, which makes sense because they're
the ones that you want to care about or align with the token holders.
If other private equity holders have token, they bought them at some point or in an early
stage, yeah.
But I think the important thing is that the people that you want to be aligned with the
token holders that control the company have a significant amount of tokens.
So senior management, board of directors, advisors, so all the incentives are aligned.
The other 70 million tokens, because you got a 200 million hard cap, what are they for?
So yeah, so 200 million tokens in total, no more can ever be created.
It's bound by the contract.
35 million are in a token reserve, which can be used for future acquisitions or other uses.
And the other 35 million are for employees, insiders, management, advisors.
So the breakdown is 130, 35, 35.
So the other 35 essentially can, it's a kind of potential dilution on the token.
So the profit pool only gets shared amongst the tokens that are out there in the public.
So we don't get a profit share on the tokens that we hold in our treasury.
It's not part of the profit pool.
But if you use them for acquisitions, for example, that could end up being a dilution
on the other token holders.
Yeah.
And I think, look, it's already out.
Everybody knows the total limits and it's finite.
So everything's still underneath the 200 million.
And yeah, we can use it as a currency in the future to acquire something.
You'd think it'd be accretive to the company if we're going to spend the tokens like that,
but it benefits everybody, including all the token holders.
So what is the total value at the kind of market rate for those 35 million tokens?
Is that essentially, so if it's nine, is it nine cents?
It's 90 cents is the price.
So that's like 31 million or 32 million or something.
Well, I mean, if you use in the future the token reserve as currency for an acquisition
or something, I mean, it's worth whatever is the market rate at the time or something
nearby it, I guess.
So those tokens become more and more valuable to us as currency for an acquisition or something
if the token value goes up in value.
So that is kind of a money printer in that you can then just release these tokens, dilute
the value of other people's tokens, use that for an acquisition that could increase their
value of equity holders in the business.
It's a little bit of a money printer.
Yeah, but again, everything through the profit share, everybody benefits under the umbrella.
So I think the incentives are way more towards equity holders, the structure of it.
Well, I think it's like what I said, everybody's going to benefit.
There's no way to kind of unequally benefit the shareholders over the token holders.
If you acquire a business, you would assume that it's an accretive, a beneficial thing
for the entire business, which brings more value to the shareholders, but brings more
potential future profits for the token holders.
So it's really hard to say we're like money printing to the detriment of the token holders.
If I want to go out and buy a crappy business that drains cash flows, well, I'm not doing
much for my enterprise value as a shareholder either.
So things are kind of like parallel lines.
But I wouldn't assume you would do that, but you might buy another business which has got
rapid growth, is again, not operationally profitable, but has got a huge customer base.
And again, that might not add anything to the cash flow in the short term, but it might
add something to the total equity value of the business or accelerate growth.
I think I would go again and fall back on the fact that the senior management holds
a very significant amount of tokens, that it doesn't make sense for us to do something
that I can't predict the future, but everything is...
Yeah, but the insurance fund values the tokens that you own higher than the price the senior
management bought them for or issued them.
Yeah, but that's just like any other, any businesses like that.
I mean, any founder is going to have shares that have a much lower valuation.
So I think people are complaining about money, it's like they're anti-capitalist.
No, no, no, no, I'm not anti-capitalist and I'm not complaining about the money.
I'm just trying to, because this is a new structure, right?
If I was to buy into equity, I understand what I'm buying into because the models existed
for a long time.
This is a brand new and unique model where you're investing in the future of the business
like I said, it's an IPO without dilution for the equity holders and for the token holder,
there's no guarantee of future token dividends, but you do have the backstop.
It's just, I'm like logically working through my head as I go through it.
You're trying to find a situation in which it would be logical for the company to make
a decision that is at the detriment of at least short term profitability, but not necessarily
good for long term profitability.
I mean, I think that companies make decisions and trade offs like that all the time where
it's short term bad or short term creating a lot of debt, but the goal is that over the
long term you will end up better off, right?
I mean, and going back also to the place that the token holders have in our ecosystem is
crucial, right?
So if you piss off token holders, it doesn't help the business, it's like our captive little
ambassador army.
So it really has the potential to do the business and if you don't do things that are the best
interests of them, they're linked to the future of the business really.
Of course, it's just the logic I'm just trying to work through of this, again, like I said,
there's two ownership structures and you can build massive value in the equity whilst not
building value in the token, certainly over a shorter timeframe because at most start
there are very few businesses are built for the future dividends.
They're not built for the hope of just delivering dividends.
Most businesses, especially in technology, are built for an exit, like everybody is sat
there saying, I want an exit at some point, I want to exit and I think INX is the same.
INX goal is to exit at some point, I would imagine so, therefore it's highly possible
that over certain timeframes that value is disproportionately built for equity holders
over token holders, yet token holders have funded the operations.
Yeah, well, I think the cash fund plays a large role here too.
It's a large portion of what they invested in, sits there essentially for them to have
first rights to, so they're not putting it, the private equity put 100% of their money
at risk.
They have no guarantee of anything, they're going to lose 100% of what they have.
That's what I mean.
It's just a different thing.
It's a new thing to weigh up.
There's like trade-offs there.
Old new experiment that I'm sure we're going to learn a lot of new interesting things about
over the coming years as these new dynamics play off against each other and who knows?
Perhaps the company, while not giving voting rights to token holders, since they care about
the market of the tokens, perhaps they end up doing some informal polling or other, you're
trying to suss out what the market of token holders would actually like.
This could go a million different ways.
You might get unions, you might get token holder unions who refuse to trade, or maybe
get some union leader to threaten to dump all of their tokens.
That could make a meaningful impact upon decisions by the operators of the company.
Exactly.
I think free markets are a stronger control than voting and shareholders like that.
INX is a totally new paradigm.
We don't know how it's going to play out.
I think some of the assumptions you're making, Peter, are leaning towards, you're portraying
that assumption so that the token holders are left holding the bag.
There's another scenario that you're not playing out, which is the token holders could be getting
40% profit shares for 10, 20 years, and INX never sells and the shareholders never get
a liquidity event.
In that case, who wins?
Literally, there's a million different scenarios that can play out here.
Because it's 40% of the profit, so the other 60% will still be paid out and therefore not
the entirety of you.
No, no.
Dividends will still exist.
You're not going to sit on 60% profits every year.
No, you can reinvest profits into a company.
Of course.
I'm just saying.
Those are not dividends until they are.
While the 40% is actually a contractual right that they get every year, the board needs
to declare them so that they don't exist at the moment right now.
But if you believe in the free market, and let's say the shareholders pay out a hefty
dividend of 60%, I think the token holders will start dumping and that will have an adverse
effect on INX.
So INX is like pure free market play.
If you don't like them, you sell your token and that's how you vote.
You vote with your money.
And I don't know why Bitcoiners hate that idea, because that's the whole idea of Bitcoin.
Well, it's like part of the painful point of hearing the scam, scam, scam over and over
is like, I mean, we killed ourselves to put every different protection and alignment in
place for this thing.
I mean, nothing in the crypto space has ever, ever been this transparent.
I can confidently say that, like I've been in this space since 2013.
No chance any project has ever done anything like this, that we have audited financials.
Every material agreement is public.
My employment agreement is public.
Our board of directors is actual people that you can recognize that you know who they are
and our board is independent by majority.
We put so many protections in place.
There's a million different scenarios, honestly, but I think we tried to align all the incentives.
The token holders are the core to all of it and it's a new asset class.
We're a little bit of an experiment, but we think we did like best of both worlds for
creating this asset class.
I think what it is, is that ICOs and those kind of scams have poisoned the world to the
point where people can't really tell what is a real business and what is not a real
business anymore because ICOs were essentially mimicking corporate governance structures
or at least trying to mimic them.
Advisory boards and boards of directors are corporate things.
Even then, you can have a company with a great boards that is a total scam like Theranos.
They had the US Secretary of Defense, former US Secretary of State Henry Kissinger, a former
director of the CDC, a scam is a scam.
It doesn't really matter if it's a token project or a company project.
Exactly.
Like I said, I don't hate it and I don't think it's a scam.
I don't.
I just fundamentally don't think it's a scam.
I've got my concluding points, which... Well, is there anything I've not asked you, Alan,
you wish I had about this?
Oh, I thought you were winding up to pose some crazy question to me.
I know.
No, I think we've pretty well covered everything.
I think we've popped up overnight.
This is part of the problem with the regulatory process also.
We have an uphill battle and people, they're going to have to learn.
We thought we were eminently getting approved months ago.
We've been in a quiet period, in total clamp down for months.
People will teach people the best we can.
Everybody reads the prospectus, so we're going to have to educate everybody, but more will
be coming out in the coming days and people will learn more about us.
My concluding thoughts are, like I said, I don't think it's a scam.
I think you couldn't have been more transparent.
Absolutely, you couldn't.
I also like a lot of the ideas.
I like the idea of being able to buy assets and hold them in my hardware wallet alongside.
I only have to go to one place to sell all my different types of assets.
I like that.
I think that's really cool.
I like the idea.
I like the fundraise.
It's an amazing way of raising funds.
I don't think I could do it for a Bitcoin podcast.
I think I'd lose all my audience, but I can see the incentives for that.
Jameson, I don't think you've compromised your beliefs, as long as I've known you.
The first time I did an interview with you, we talked about Grin, and that was nearly
three years ago.
Ah, shit coiner, long time shit coiner.
Yeah, long time shit coiner.
Samsung, just one little air of sleigh hypocrisy, I think, but we'll have to agree to disagree
on that one.
That is what it is.
The things I wouldn't invest, and I tell you why, just very simple, I wouldn't invest,
is that I believe over the next two to five years, Bitcoin's a better investment.
But I believe that about almost anything, so I wouldn't.
So I'm tempted to buy just a small amount to watch the experiment.
Just a little bit.
Pony says $100 of every scam.
That's right.
Yeah, I'm tempted to try it, which will get me a backlash, and suddenly I'm now a shit
coiner.
I'm tempted to do it, just to follow the experiment, to see how it plays out.
Just to be clear, Peter, you're not going to be able to hold your INX tokens in your
CASA multisig.
I'm sorry.
I had a feeling that would be the case, but that's good.
I fucking love my...
But if CASA supports liquid, and INX is on liquid...
Do I need to use an ex-pub to buy my INX?
No, but you can buy it from the pub.
That's right.
I'll meet you at our pub.
All right, listen, look.
This has been good.
I told you I was going to just give you some honest, hard questions.
I think you've answered them.
I think you've been fair.
Everyone knows you, Samson and Jameson, but you haven't been on before, Alan.
Do you want to just tell people if they are interested in INX, how do they find out more?
Yeah, go to inx.co is the website.
I'll give you the prospectus as well to post with the video, which you definitely should.
All right, awesome.
Well, listen, best of luck with it.
I think it's definitely an interesting experiment.
Yeah, I hope it's successful.
How do I hope it's successful?
I hope it's successful in changing the way people can invest, and I don't have any issue
with it fundamentally.
There's some nuance to it, but yeah, best of luck with it, and thanks for coming on.
Thank you.
Thanks for having me.
Thanks.
Okay, so what did you make of that one?
For me, this was kind of a bit tricky because, you know, I am a Bitcoiner.
I don't really have interest in anything else.
I don't consider myself an out and out maximalist.
I sometimes find that a little bit, I don't know, it just gets in your face a little bit,
and especially some of the attitudes of people is just so negative and such bullshit online
all the time.
Like I feel myself just kind of like wanting to be Bitcoin only, but not being that kind
of like hardcore camper people who just go fucking crazy about everything.
And what I wanted to do with INX was just be as fair as possible.
So I spent a lot of time reviewing the website, reviewing the content.
Look, ultimately, I don't think it is a scam, but I don't, there's a lot I don't like about
it.
And you will have heard that through the interview.
I mean, my primary issue with it is really is that they get to raise a lot of the funds
without diluting the equity, and I don't see this as just a win-win.
I see this as pushing most of the risk onto the token holders and removing the dilution
for the equity holders, which is kind of the trade off you make when you raise money.
It's like, do I bootstrap or do I raise money and dilute?
And I think they're skipping this step by going through a token, which makes it less
desirable for me.
Like I said, I don't think it's a scam.
I do think there's a lot to criticize.
I do think there's some hypocrisy in there.
I don't think the idea of just tokenizing a security is itself a scam.
I mean, some people will say it's a scam by supporting Ethereum, which is a scam, and
we go through this whole scanception thing, which all gets very, very confusing.
Just myself, I like that idea of being able to buy assets and hold that token on a hardware
wallet and perhaps that will be some tokenized equity in the future, which maybe exists on
liquid.
I don't know, but I'm not just going to stay there and just call everything bullshit from
the start.
But I think I was fair.
I think I pushed them enough and I think I was fair and I think I raised the right issues.
I know not everyone's going to agree with this.
I know there's going to be some people like, fucking bullshit, man, it's not Bitcoin, it's
a shitcoin.
And I get that approach.
That isn't me.
Anyway, if you've got any questions about this, you can feedback to me.
My email address is hello at whatbitcoindid.com.
Also massive thanks to everyone who supports the show.
Just had the numbers in for the last month.
Cross both shows.
I think I've just crossed 400,000 downloads, which is fucking insane.
So thank you to everyone who supports the show, comes on it, listens, downloads, shares.
If you do want to support the show, it's all up on my website.
Go to whatbitcoindid.com, click on the support section.
Also definitely check out Defiance, part four of my show covering this band, The Ghost Inside,
is out on Thursday.
It's the final part.
It's the most downloaded show that's been on Defiance, it's a fascinating story.
So check that out.
Anyway, have a great week.
And as I said, if you want to reach out to me, my email address is hello at whatbitcoindid.com
and I will see you all soon.