Co.int podcast
Collective Intelligence podcast speaks to Director of The CryptoAssets Institute
CIL
In this podcast, Alex Shkor speaks with Ethan Pierse.
In this episode of CoInt podcast Alex speaks with Ethan Pierse, director at The CryptoAssets Institute, сo-founder of DESICO Security Token Platform, founder of Borderless Ventures for FrenchTech, CEE and ASEAN startups.
Ethan Pierse
Episode highlights
• We discuss recognized securities, their classification, and why self-regulation is still the best security right now, which opens new opportunities for smaller countries and their economics.

• We also touch on the subject of NFT communities, and how they can profit from crypto ecosystems, and why it's important to be able to tokenize assets with a bigger value than things like NFTs, and how to keep balance between the real world and a virtual one.
Episode transcript
Alex: Hi Ethan. Good to see you again.

Ethan: Good to see you Alex, this is great!

Alex: Long time no see

Ethan: I love it when things like this happen with serendipity. And you come someplace and like oh, I saw you three years ago. And it's so good to see you again.

Alex: Yeah. Good to see you again. Do you remember what it was, what we were discussing last time, like

Ethan: That was probably everything around tokenized securities, because about three years ago, it was the really big push of, you know, we can start tokenizing pretty much every asset and getting both the fractional access and the democratization piece in place.

And so, all the regulatory stuff happened, but the retail interest has been slow to kind of catch up in the meantime, but at least now all that is doable. Yeah. So, it's been pretty fun to watch. But I, you know, San Francisco or Paris or when we crossed out these things, it was the, it was the, that was the conversation.

Alex: Yeah, that was exactly. Yeah, like, you have a good memory. Started this discussion, because at that time, we're focused on realization of research and also making it a security token, and like, basically NFT, fractionalized NFTs, we still have the thing, but at that time, first of all, the condition of research is not that the commercial thing, like and security is also hard from regulated perspective.

But what I see now, it's really getting closer and closer when it can happen. And there's also now, compared to what we had like three years ago. Now, there's more motivation to do this, because there's verticals, which can provide liquidity for these assets, like in a very decentralized way. What do you think about applying the same techniques as Maker DAO has, like when you can borrow stable coins from protocol, but instead of cryptocurrency, just having some tokenized securities, for example…

Ethan: I think what's going to be interesting is, is how do we provide a lot of the stuff that we're looking at the NFT space, and all these different ways, we're looking at creating a, whatever it is that we're tokenizing, but that has small values, well that's going to be interesting and easy. But we're also now seeing things like, some of those things are worth millions and whatever.

So, we need that fractional access, or we have for whatever reason, we have a certain amount of an asset, some certain crypto that we need to keep, either because of tax purposes, we don't want to liquidate it, or because we don't have the right to liquidate it, but we want to be able to loan it out in some way or leverage it to get some kind of liquidity over here.

So, I think there's so many different ways people are discussing or putting that in place now. And it's a fascinating discussion. And it's a super useful one. I think the issue will be like all of the crypto stuff that we see right now, how do we create a front end that is solid and trustworthy, and that is simple enough for people to actually get it.

So I was talking to somebody earlier about a project and you know, they've, they're running on Ethereum, but they're using polygon as a way for the internal stuff to run without having gas fees and be super crazy. Except the problem is, they've got all these users that are constantly sending their polygon to the ETH and losing it.

And you know, so you have to get, if we're going to be doing all these things, we're layering different tokens next to each other, and people are kind of like, they get confused, we need to make sure that's super simple, and maybe even invisible, maybe they don't even see the crypto, they just see the value transaction moving around.

But I love the idea of whether it's, whether it's Dows, or with the NFT stuff or, or different things that we're seeing people, creating communities, tokenizing those communities, and then leveraging the asset of that token or the NFT or whatever that is to do something else. Like you know, to get into the party at NFT-NYC you had to have the board ape, Yacht Club NFT. Or, you know, I've seen several NFT communities that potentially own someone who owns a board ape. So, they're putting in technology to be able to loan it out by leveraging their token as a, or a fungible token to fractionalize access to that thing.

So, ownership stays here, but they can dole out the, you can rent it, or loan it out. Like there's all these different ways of how we're going to combine that governance model or the investment side with the democratization in fractionalization. It's a super concept, but it's also rather, rather still very complex.

Alex: Yeah, but it's generally just like we are attached to NFT or like, any token like economic and garments with value of assets, like and community can be also an asset and like it can be anything. The problem is how to maintain this link because if this is highly regulated, then it's much harder to basically make this attachment and basically to establish this link between these two, like worlds, like real individuals, but with communities, it looks like an easier thing to do. And I know you're also launching a community token, right? Like, maybe tell us about it.

Ethan: Yeah. So, it's been interesting. So, my, right now I'm learning a lot about rally. Specifically, I launched Ethan as the creator coin on rally in June. And I'm, you know, I'm not a Twitch streamer, I don't have a huge YouTube thing or anything to kind of leverage with that.

So, I'm kind of, for me, it's a lot of conference speaking, I've got a huge LinkedIn and business community, the podcasts. I've got a community that's out there, but it's not organized in the same way. So, I'm in learning mode. But what I've seen these other creators do with that is absolutely amazing.

Being able to have, you know, one of them, she has like 2 million people on Twitter, she's got another like, 300,000 on YouTube, 340,000 on Twitch, and she's driving all of that into discord, where she's got, I don't know, 20, 30,000 people with through rally.

So, you get special access to private channels, you get your special roles, you get special access to maybe merch or other opportunities. And it's a way to, it's a way for people to be able to be close to their creators, potentially even have some governance, access from the perspective of you know, voting on certain things like maybe what conference they should choose to go to, or, okay, we're going to come out with 10 new T-shirts, or here's 10 new T shirt ideas, which three should we use, like.

Maybe that sounds silly, but at the same time, people who are passionate about the brands and creators, they follow, that's gold, they love that. And tying all of that through something where you can token gated. So you know, with rally, you can do all that stuff with, with Twitch and having special access to whatever, you know, having a special role or badge or things on Discord, the channels and stuff. They'll be having a WordPress plugin soon, I think that that allows you to token gate parts of your website, you can do a clubhouse room and only open, open to people with, with, with the tokens.

Like there's so many ways that's already been leveraged, so that your community can by backing you and holding some of those social tokens, whatever level you decide, or several levels, gets access to the creator, but also potentially more resources from the creator, I find that brilliant! Yeah.

It's not an investment. And, and the important thing also to understand is most of the people in this discord, they never talk about the value of the coin, or the market cap or any of the things that might make it sound like it's a security and an investment. That's completely not, that's not the point, we, it's not an investment, we're not presenting it as a way to make money, it's a way to gain, it's a way to potentially tip or do digital payments. It's a way to gain proximity and access to creators. And when you look at the communities being built around it, that is exactly what they value, they value that side of it.

And so, I say that because people kind of want to talk about, you know, it's a crypto, and our people blah, blah, blah and trying to make an investment conversation. And I don't see that happening in these communities. They it's about the proximity to the Creator, and the personal digital economy of a brand or creator built through a social token.

Alex: That's very interesting, basically, exactly the opposite direction of what we had like with crypto. First, we had like crypto and his investment and XenServer will look like really strong communities of funds being built around it because of the skin to gain. And with creators vice versa. Like we already have these creators with strong communities who just want to be even closer to these creators and these social tokens. Can we use tokens which basically gives them these rights?

But actually, it depends also on how much value is attached to these tokens, right? Because if you like attach royalties, distribution of these creators to this social token, the community token, it can be classified as security, like and, and actually like the problem is that in general, classification of security is like not, like there is not, like exact things like how to classify it, it's rather weak, like and it can change in future.

So what do you think about how these units will be classified in future and maybe on a global scale will be Blockchain volts, will be somewhat automatization herre. And, and just like even the reason of this classification is used to be like in steel used to protect investors and like, not like maybe those people who are not an expert in investments, but maybe we can also somehow automate the thinking just like I don't know, like, change the amount of investment they can do per week or per month automatically based on your track record experience amount of

Ethan: So interestingly the, for the, for the rally example of that, and I don't speak for rally, but just my personal experience in working with it. They're actually very aggressive mechanisms in place for the speculative piece.

So for example, if you buy some rally to send it to me as a tip, you can send all of it to me but if you buy some to send it to someone else, or to then the next day, it's worth more and you want to sell it, there are mechanisms in place where you can only sell a fractional part of that at a certain amount of time to squash any speculative you know, activity of that like there. And I don't I'm not speaking for them, or do I understand all the details, but I know that there is a system in place where, for example, if I were to go into my rally right now and try and liquidate a certain amount of what I have, in my token, it will only allow me to do a small percentage, I cannot just dump all of it and walk away.

And then whenever if I do sell a certain percentage that will have an effect on the price, yeah, which means then if I were to then have the right to sell some more tomorrow, or the next day, then I, you can't drive this to zero, and just dump your whole thing and empty the economy that's been built.

So, I think that the platforms that are building this, that don't want to see it as an investment are being very aggressive to limit investing activity in that sense, building a portfolio and trying to, you know, leverage any kind of liquidity or whatever, they're very much doing that to make sure that doesn't happen.

On the flip side, I do think there's an opportunity for other social token platforms to build things where you are investing in people's brands, personally or other things. And in that sense, that's obviously a security and should be and could therefore then be a great way to benefit from the increasing value of that brand. You know, whether it's a, you know, maybe you happen to own somebody's token before they, an actress token before they get that Oscar winning role. And then all of a sudden, their token is now worth a fortune. And you can benefit from that, or maybe even some of their revenue comes back into the token. Sure. That sounds brilliant!

But I think there are two boxes. There's the ones who want to build a non-security version, where it is not an investment, it is an access and a method of digital payments. And then there's the version where there is profit sharing or the ability to create a portfolio with liquidity in a way where it's clearly a trading activity. So, it becomes more of a security.

But those are staying apart, making sure that they don't encroach, and that they don't do that. And I think that's really important, because I think both need to exist.

Alex: Yeah, definitely both need to exist, and looks like both of them will be regulated, like fortunately or unfortunately. But coming back to this, like non-security tokens, like we, we already see a lot of really different rights we give to these tokens. But as soon as they become tradable, there's already a risk to be classified as security.

But if it's not tradable, like it still is, it kind of limits the potential of this token, because it can, cannot be disseminated as scalable, as a tradable token, because when they are tradable, basically means you can freely transfer it freely, freely transfer. Free transfer is basically the same thing as just maximum scalability of the token.

What do you think about these like, can, can these be mitigated or if it's a problem, like scalability of non-transferable token or like community tokens?

Ethan: I think the issue is why the regulators exist. If we look at the SEC there, you know the mandate is to protect unaccredited investors from being abused in an investment situation.

They're, they're not informed enough, they're not sophisticated enough, whatever the words are, that want to be applied.

So, it comes back to that idea of people who are professional investors, they can lose all the money they want to and it's their fault, because they should know better. Regulators are there to protect the people who don't know better. So, as long as the platforms that create these things are making sure they are not freely tradable, or that there's not a speculative aspect, then they're already self-limiting the behavior of people, hurting other people through some kind of an investment thing.

And so, I think that that's where the line is, is at. You know, I think regulation should exist in all these things, either through a regulator, like the SEC, or through the technology itself being self-regulating, we have to have a regulator. Is it just technology, or is it an organization? Yeah.

And so, I think that's where we're at, is how that will go.

So, in the future, I would think we will continue to see more of the regulation move to the technology itself. The smart contract, or the protocol itself that has the mechanisms built in to protect investors have therefore an organization does not have to step in.

Alex: That's right. I think it definitely will happen. And I think it's inevitable, because I think, just two boxes you mentioned like securities and non-securities. I think there's another box where it's security, but it's impossible to detect who issued it. And you can think about this as some examples of is DEXIS.

If there is like a security token, which basically issued and generate some yield from an anomaly meeting more tokens and there is like anonymous team issued these tokens or even it was issued by smart contract, action from some Oracle inputs, like signals, basically now there is nobody to see you except like us is all, like holders of the stock and like of the platform where it was issued. But what a thing like if we will imagine that, that SEC or other regulator will try to react to these things. Like what will they be able to do even

Ethan: I don't know if they can do a lot, but they can then limit the pieces of it, like at a certain point, that still goes to banks or still goes to other exchanges that are in a regulated environment, or the people who are, who are interfacing with that, they are identifiable, I still think there are going to be identifiable pieces.

That is why I actually think it's super important for crypto ecosystems to make sure that DeFi across the board behaves responsibly and ethically. And that it's built in from not, not even the humans behave ethically. But the technology is actually built to be equitable and ethical, and regulated by itself so that the SEC wouldn't have anything to complain about.

And then the next step of that is, then we have the bad actors. So, the people who build the DeFi protocol or whatever that is abusing people are being abused, well, then the crypto ecosystem just needs to shun that. Yeah. And so that we have the, we have the crypto economies that behave without regulation from a regulator, because they are self-regulated and they're behaving correctly. If that happens, we don't have a problem for anybody to go after.

For the bad actors, maybe the ecosystem needs to just make sure of that, no different than for example, maybe an NFT that has a discord, and we know that NFT's garbage, and that the discord, but that is just a money dump or something more people are doing it. Well, then all the other discords are talking about that and saying don't go there.

Alex: Yeah, like self-regulation. Yeah. So basically, like, if I need to summarize, you're saying like, let's build a regulation system right on Blockchain, which is much better than the existing one and then we will be there so there'll be no, nothing to complain about from other regulators.

Ethan: Exactly! From the way I would put it then, as short as possible, is there will be regulation. Yeah. But the regulator, like the SEC, won't even have to consider stepping in, in my opinion, if the technology is doing the job.

If there is no risk for unsophisticated or unaccredited investors to get abused by a certain thing, there is no broker-dealer situation where people are selling an investment, that if all those things aren't actually happening, then the regular doesn't have a complaint. And if they're not happening, because the technology took care of it, we're good.

Alex: I totally agree with you. And also, it's, actually this, this will sacrifice my mind because I'm thinking about this a lot, how we can do this, how we can make it on a global scale, how we can embed it like in a specific jurisdiction on income country levels, maybe like on national sovereign chains, which will govern securities locally, and then it can be like interacted like with other chains, public chains.

And you know what I think it's, it's impossible to build a good enough system without cooperation with the government, because they already have done a lot on making these regulations. And like, I always assume they do it on, on, for a good purpose. They actually have very good intentions. And just like this mindset, which was like present, like a lot, four years ago, not present anymore right now, like that, was Blockchain against the government, I think it was rather harmful for the whole movement.

And now I see the trends are changing. Like they're changing, basically, in a more collaborative environment. And governments are interested in this as well,

Ethan: Because every government that does become Blockchain friendly, creates an environment where the creators, the entrepreneurs want to build their or their, which causes all the other governments to have FOMO. And so, the snowball starts to roll a little downhill and picks up speed and starts to change. I think that's the interesting thing with this.

And so, in the past couple years, we have all these jurisdictions that are non, like bad, like financial destinations, that are getting into this and doing it right. Like Singapore or something like that, where the monetary authority wants to talk to creators in the space to make sure that things are being done well.

And if the regulation doesn't work, how do we make it you know, innovation friendly, and things like, well, if for every one of those that happens, it causes the other destinations to have to be like, well, sooner or later, all the economy is going to go to places that is friendly, but regulated, not non-regulated.

This isn't about being anarchistic or super libertarian, in the sense of leave everything alone. It's about the fact that we go to places that are innovation friendly in terms of regulation. Well, that's going to force all the other jurisdictions to catch up. Yeah, because what we see today, we see plenty of projects that leave the US or leave certain countries because they're not at home there or they can't do what they need to do. But they're trying to do it correctly. And they go somewhere that wants to work with them.

Alex: Yeah, that's right. I think it's also a very good opportunity to say this is a great opportunity for smaller countries to jump on this opportunity and basically build a jurisdiction in an ecosystem which is very open, and you maybe at some point will be able to deploy a smart contract on top of a nation sovereign chain.

Will be like really something which can basically drive adoption because once, once you have like your defined protocol deployed when national sovereign chain, you basically get an adoption from all the people who live there and can basically provide the services right away.

But what do you think is still missing in order to make this happen?

Ethan: I think it's happening organically. It's just a matter of time. I think it's, I was having this discussion earlier, which is just funny, like, we're at Web Summit at this huge startup and innovation festival and, and, and that already moves at light speed compared to the regular economy.

But Blockchain and crypto, you know, the startup space moves like, they do more in a month than the regular economy might do in a year. The Blockchain and crypto crowd does more in a month than the startup people do in a year. It's not mean to anyone; it's just this stuff happens so fast.

I took a week off this week to be here and do this. This weekend, I will be super behind on everything because it moves so fast. Yeah, so I think it's all happening. And it's all getting there at a very quick speed compared to what we could think might happen.

So, I think it's just a question of, you know, we see all of the different spaces of where we're at right now, whether it's the Creator economy with the social token stuff, whether it's we see everything across DeFi, and then everything around NFT's and then the, the Wonder subject, I think of the next year or two is just everything around Dows.

Just the ability for people to be a part of governance and, and of the things they love, whether that's the DeFi project, or it's an NFT community or whatever that might be, all those things are moving so fast, I don't think we have to wait long to see huge changes.

Because if we were to say, in a year from now, this this, and this will happen, it will probably be next month. And we haven't and we still won't have any idea what's happening a year from now. Yeah. It's just too fast.

Alex: And it looks like, like we should meet next year and see

Ethan: How right and wrong we were.

Alex: It was really great to discuss with you. It's awesome. Like it's a, it's a great finish four-hour conversation like on this like very positive note. And like, with the excitement and expectations that this thing will go

Ethan: Fascinating! It's such a fun time to be involved in something like this. And the thing I always tell people, if you feel like you're too late, the reality is you're still in front of everybody else. Even now, I've been saying that for six years, and it's still true. If you get involved in NFT's now, you're still ahead of most everyone else.

If you get involved in DeFi now, you're ahead of everyone else. You get involved in DAOs now you're still way ahead of everybody else. Like, like it's, that's great, super exciting.

Alex:
We need to spread this word massively because like, is this the same thing I'd tell two people because if they even think about these, not many people think about NFT's you know, like, like maybe like it's just like smart, small percentage of population think about this.

And this really gives you an opportunity to jump right now like and, and people like eight years ago I remember they were also telling me like, oh it's too late. It's too late like bitcoin is already too high but see what's happening now.

So yeah, everyone, please join Web3 space. We are waiting for you here. Ethan already gave you some guidance on how to do this. And yeah, thank you Ethan.

Ethan: It was so good to see you again and I look forward to the next time.

Alex: Look forward to chatting with you.