 Live from San Juan, Puerto Rico. It's theCUBE, covering Blockchain Unbound. Brought to you by Blockchain Industries. Hey, welcome back everyone. This is theCUBE's exclusive coverage here in Puerto Rico for Blockchain Unbound. I'm John Furrier, the co-host of SiliconANGLE Media. theCUBE is our flagship product. We go out to the events and extract the signal from the noise. My next guest is Christian Ferry, who's with Blockstar doing investments. ICO advisor, he's been in the space. Great to see you. Nice to meet you. Absolutely, thanks for having me, John. Thanks for joining. So okay, some people are saying that we're at the top of the bubble. Some people are saying it's the beginning of a revolution. Some people are like staying away. Oh my God, what's going on? Someone who's investing both in equity and token deals. What's your take on this? I mean, how do you explain this? It is a global phenomenon. I mean, what's your take? I think we're at the very early beginning right now. It's definitely, I would say in 1996, 97 of the internet bubble, if you will. We're seeing some amazing growth, right? So things are picking up real fast. I think the moment that Bitcoin hits $10,000, a lot of people get interested in all this phenomenon. ICOs are becoming the standard for fundraising for startups. It's an interesting model. You don't have to keep up any equity. You don't have to give up any board seats, right? It's much leaner, much simpler. But there are definitely some legalities and regulatory aspects that put some concerns on a lot of people's mind. What are the, I mean, honestly, I mean, if you're an investor, you got to get a pound of flesh somewhere. The old days was equity. And then that was a long game, a little bit ahead of a different gestation period. How are you making money now on the investments? Is it just getting on the discounted tokens? Is there a little liquidity going on? So if there's no dilution, you got to make money somewhere. So where's the secret? Yeah, absolutely, great question. So I think, you know, if you're looking at security tokens, the finance and investment vehicles, you know, the way you make money is by, you know, the value increases at the token, right? So as you buy at $1 and the token goes to $1.15, you have your 50% increase, right, return. You know, there aren't new companies in the ICO space. They're thinking about, you know, leveraging the equity side of things, but it's fairly new. Right now, it's mainly a token deal. So when you think about, you know, private sale, pre-sale is 99% a token deal, right? Although equity is coming in, there's a lot of more venture capital is coming in, and they're demanding a piece of the action from a company and equity perspective. And talk about the ICOs, because as we, you know, we've outlined this on theCUBE many times, blockchain, I call it the crypto stack. Blockchain, cryptocurrency, and the application on the financial is ICO. Right. But that ICO also translates into the application dynamics of token economics, hence the value creation, hence when you're talking about token value going up, kind of like how equity investment would go up if it got sold on valuation, et cetera. Okay, ICOs are hot. Now, the market's pretty aware of the scams, the scams out there. Young kid puts a fake white paper out there, raises 20 million. Next, you know, it's like, where's the money? I've heard that before. And then you got legit ICOs going off the blocks that are really legit doing great. How do you make sense of it? As an investor, it was classic word of mouth. What kind of due diligence are you doing? What's your filter? I think what you said, word of mouth, definitely plays a big role in it, right? The trust network, your network. You know, having a research team kind of helps understand the technology behind it if it's actually feasible. I go through 250 white papers a month. Coming to my desk. So you're a white paper reader? I'm not. My research team overseas actually does, right? But as an investment and advisory firm, we have a lot of inflow of companies who want to get advised on or invested in. And you know, a lot of these white papers are total moonshots. You know, it's like building YouTube when it's 1992. You have a dial-up. You can't do that. You need a broadband, right? So you have to have a very good due diligence process and team that does that. And then think about 99% of the white paper you'll see are going to be crap or junk. Only one or 2% are going to be good. So that selection process is very key. On top of that, there are a few things in the tokenization process that can raise red flags. For example, if there are too aggressive on the discounts of the private sale, like 70% discount, 80% discount, it's not a good indication. It's a red flag. Really, why not? It shows that the product is not that great, right? If you have to give somebody an 80%, if you're buying a Ferrari that it's discounted at 80%, would you buy it? Or would you say, well, I'm not sure. Well, it's like giving Warren coverage on an equity deal. I mean, you could go to someone and say, hey, I'm going to give you 80% discount because I want you in my deal and I want you to make more money than the other guys. And what we see, man. I mean, that's the counter argument. Yeah. And what we see. So there's two, I guess what you're saying is there's two vehicles. Desperation. I got to discount the shit out of it to get traction. And what I'm saying is it's kind of like a hot deal and you want the right people in. I've seen both. Have you? Yeah, it's a good point. Usually what we've seen in the past four and a half years is that the group deals, they don't get a discount in more than 35%. That's usually the max again is counted. And it's especially just because you said you need strategic partners to back you up to LPRs at the beginning. These people should be investing the project. They should not be incentivized by the discount that you're giving them on a private sale. That's a good point. But it should be incentivized because they believe in you and they believe in the project. So it's a judgment call. Yeah. You shouldn't have to drop your drawers. You got it. So to speak. That's right. Good feedback. That's great. Okay, now token sale economics. I'm the entrepreneur. How should I be thinking about going to you and I have a good deal. I have a great product. I got token economics. I'm a growing company. This is an opportunity for me to scale my business at an unprecedented level. I can get more capital than I can on the private market because it's flowing faster here. What do I got to do to get your attention? Well, so first of all, from an advisory perspective, we only take usually established companies. They have a minimum of 10 million ARR. So annual recurring revenue. We make a few exceptions. If there's a very strong team, very strong advisory board, or they have some few characteristics and qualities we look for, we're kind of trying to kind of wave that 10 million ARR. But we're looking for like stellar team rock, you know, rock star teams with good advisory board with technologies is actually feasible to be built in the next two, three years. And they can actually be deployed on the market. So they want to see product. You got to see product. Absolutely. So you don't invest in kind of the moonshot, as you said. No, not really. I mean, because it's essentially a seed deal. Yeah, exactly. I mean, there are circumstances where you have a very amazing team, right? They've done some crazy, amazing things in the past. And they're talking about moonshots, right? I'm not going to say name, but there's a big ICO right now that is raising billions of dollars. Telegram. Right, why? I'm not going to say that. Telegram. Are you into telegram? Yeah, well, you know, sorry. Are you into telegram? Yeah, I'm a user, right? Not a buyer of the ICO. I have not invested. I have a lot of people that want to invest in an ICO, but, you know, I personally, you know, have different opinions on it. But, you know, there's a lot of moonshoting over there, right? Yeah. So, you know, we just want to make sure there's a fine balance between what you're promising, you know, and what you can actually do. Great. All right, so what's your advice to entrepreneurs now? Okay, when they're at the stage of, you know, I really want to do a token sale. I think we're ready. What's your advisory role? How do you come in and help? They might not be ready for capital, but they might want some advisory. Maybe throw a little bit of token cash, not token cash in there, but legit cash via tokens. Absolutely. How do you engage? What's your, I mean, Austin, you mentioned some of the 10 million, but what do you bring to the table? Yeah, absolutely. So the way it works usually is that they come in with a white paper, an idea. I want to establish business. They want to tokenize. And then we basically have a conversation. We start having a conversation, figuring out what they want to do. But, you know, the first advice that I give my clients is to stop. This business has too much FOMO in it. Yeah. Right, if you're missing out. So not just because everybody's out there doing an SEO, you should be doing an SEO. Right? So this first thing, you take a step back, figure it out, will really make sense for you and your situations, your company. And number two, I always provide the example where think of going SEO in a three-step process. Right, you start with the business. Yeah. Right? So back in the 90s, I think you were around back then. Yeah, I was. When we were asking somebody, you would say, what are you doing? It was like, oh, I'm doing a startup. I'm building a company. I'm building a startup. Right? Everybody was talking about startups. I started a startup. You know, you just follow out to anywhere in the world. Talk about blockchain and stuff. Somebody would just say, what are you doing? An SEO. Right? Everyone's doing it. Everybody's doing it. Right? But SEO is an investment vehicle, not a company. Right? Yeah. So start with the business. Get the business mechanics down right. So free cash flow, unique value proposition, product market fit. Once you've done the business, think about the token model. The token model has to go in handy now with your business model and revenue model. And don't settle for the first one or two that come to mind. There are over 50 business models. I'm actually writing a book about it, the first ICO playbook. Coming out later today and later this year. Okay, great. It's gonna have a bunch of new token models in it. And once you figure out the business and token models, now it's time to think about compliance. And now, you know, compliance can actually enable the rest. And what are the right jurisdictions? There are a match for the token and the business model. All right, so the token playbook, great job. I'm glad you're writing that book. I think we need to get a good playbook down. Oh, so here's a playbook question for you. We're going to go to the playbook on this one. Security token or utility token? Okay, we kind of got that figured out. Got to have utility. I'm going to raise money in the US and abroad. I've decided to go with the security token. Hypothetical instance. Yep, absolutely. What do I do? Yeah, security to equity, security for future cash flows, future for dividend. What is the playbook for the security token? Well, so it's more simple than it sounds in a sense, right? So the first thing is just, if you're not sure whether it's a utility or security, just file it as a security, right? And from a security standpoint, I think you're covered, right? Whether or not you're selling to the US by your US resident citizen, you still have to comply with the SEC regulations just because you're in the US, right? And so a security can actually have different terms, just like you said, a security to equity, a security to it and so forth. That depends on what your revenue model is and what your structure of the company is, right? So a lot of people are doing security equity, right? Other are doing security token just because they don't want to give up the equity of the company or the bullseeds. So what's the biggest thing that you're scared of in this market? As an investor, you worried about regulatory, you worry about too many deals, or too much money chasing not enough good deals. What's your fear? So one of the initiatives that started last year is called the Blockchain Compliance Alliance. So it's a no profit independent initiative to develop a standard for ICLs. And so by doing that- You started that? Yeah, I founded it last year with a few other folks and then it's, we have five or six people- Just try to build stability around the process. You got it, yeah. It's almost like a self-regulating standard, an SRO, right? Yeah, yeah. And we had an opportunity to engage with some regulators, some of the folks at the SEC and some other government agencies, not just in the US, but also in Europe. And they're very open, very, very, very open to kind of have a self-regulating standard. Yeah, we need self-regulation. Yeah. The community's got to take care of business. Yeah. A lot of scams out there. Absolutely. And so they're open to say, to have an industry self-regulating instead of being, you know, regulated from the top down, right? They kind of choke innovations, right? Yeah. So I'm not really concerned about too much regulations coming in from their regulators. Well, the SEC has just been signaling. I mean, they've taken a few obvious scammers down. But they really haven't overreached, in my opinion. I think the signaling has been good. But they're signaling. They're signaling. Took a look in the other way. Absolutely. And I think it's their job. It's their first job, right? They have to be signaling that. But then they don't know what they're talking about either. So the community's got to step up to your point. Correct. Right. So we're trying to be that, basically, that intermediary, if you will, right? Not a blockchain term. How many people are involved in that? Just take a quick minute to explain. URLs or a website? Yeah, we do. It's blockchaincompliancealliance.org. And who's involved in that real quick? There are five or six people we're getting on. Volunteers, probably not, right? It's a no-profit, right? So volunteers, we're looking for additional volunteers, donations, and a board of advisory. We have a few high-level, you know, high-level advisors. Whales, they're called whales. Yeah. Are they only whales? Yeah, it enthuses, well, whales. Are they corn billionaires? Whales don't want to be known. It's hard to find the whales. But it's like that we have a few high-level, you know, advisors that would like to come on board. We're going to make the announcement soon. Asminos out there. But he's going to be excited. Yep. That's awesome. OK, now back to the token economics. I'm fascinated by the token economics. Again, you can't just whitewash a business and saying, hey, I'm tokenizing now. There really has to be a dynamic. What do you look for? What do you observe? And what's your thoughts on how to actually think about the token economics alignment with the business model? Where does that have to line up for you? Yeah, especially I think there are different aspects of it. First of all, you need to define what a token is. Is it for you an incentive mechanism? In which case, you can use an airdrop model. You don't necessarily have to ask people for money. Or it's a fundraising mechanism. Or both. So once you start with these basic questions, you can think of it. You can move on to say, who's going to be my user? Who's going to use this token? Think about, are there going to be moms, dads, hospitals? What's my target? And then how they're going to use it? Are they going to hold it? Are they going to sell it? Are they going to trade it? So all these different things define the token model. And the token model, as we said, needs to go hand in hand with the business model and the revenue model as well. So for example, a lot of companies are using the token as a fundraising mechanism, but an incentive mechanism as well. To incentivize and incentivize best behavior. So talk about the dynamics of an airdrop and a token swap. We're starting to see airdrops are well known. Just take a minute to explain that the folks don't know. And then I'll get to the token swapping. We're seeing some synergistic karitsus forming. So airdrops and then token swaps. Yeah, airdrops are becoming basically the new standard, I would say. Outside of the US? Even the U.S. actually. They're doing the U.S. OK. There's a company called, I think it's called urn.com, where you can actually launch your airdrop campaign. For free or you have to pay something. What's the URL? urn.com. Urn.com. OK, yeah, I've seen that. Yeah, yeah. Explain what an airdrop is. Just define it. So it's a very simple, you know, terms. You basically airdrop token. You basically give tokens to user, to people, right? So basically people sign up on your site and you wild list an address. And then you basically send those tokens to that address. Right, so it's a way to circumvent a public sale. So get free tokens out. Yeah. To generate community activity, marketing buzz. Correct, correct. So you just kind of airdrop it kind of metaphorically. You know, there are some ways that, you know, people do private sales with airdropping. Where's the gotchas on the airdrops? Where are people getting in trouble? If the token is a security, right? I mean, it depends on, you know, if you're giving the token for free, but the value increases in, you know, the token increases in value, that delta, it becomes dubious, right? Is that, you know, from an IRS perspective, from an SEC perspective, from a CFTC perspective, right? So that we haven't still figured out. But, you know, ideally if you give out free tokens, you incentivize the community. Yeah, and that's normal marketing usage. You got it. And the SEC views that as a utility, a legit utility. Yeah, we've seen that we were yawning within you, Bill, in the past couple of days, right? That that's how they define utility tokens. Cool, all right, now let's talk about swaps, token swaps, because we're starting to see some activity around self-forming, which is natural in communities, adjacent businesses saying, hey, I'll swap, you know, two million dollars worth of tokens for two million a mine. Right. You know, it's kind of a Barney deal. You love me, I love you, back kind of thing. But it's trying to cross-pollinate communities and share value, basically it's a business deal. Yeah, absolutely. What do you think about that? It's great. I think I've seen that a lot of that, informing new partnerships between ICOs, right? So let's say there are two ICOs that, you know, they definitely want to somehow JV or partners together. They have some qualities they would like to kind of, you know, have of each other. And that's how they do it. They do a token swap. It's almost like an equity swap from a regular traditional company standpoint, right? It's almost like they want to have an action in the company. And I think it's a great model. It's a great incentive mechanism. Great legal bill too, on all this. I mean, someone's got to pay for it. Lawyers are having some fun with it. Kind of new progressive laws being figured out. Lawyers are generating new tokens for the first time. Final question for you. I know you got to run. Appreciate your time spending with us. Puerto Rico, your observation here, obviously you're from the Bay Area like we are. What are you doing here? Why are you here? What's your observation? What's the hallway conversation? Share some color commentary about blockchain unbound. So I'll start with why I'm here. So it's a beautiful place. It's just like the weather is amazing. The water is amazing. It's a great place to kind of take some time off. Speaking of a bunch of conferences and meeting a few people. And I'm part of the movement of the Puerto Rico crypto movement. I think it's great. I had a opportunity to meet with some of the government officials that came here at Blockchain Unbound today. And talk a little bit about what's happening. How can we actually make sure that we'll create some sort of ecosystem that is done, is made for ICOs and blockchain. And what I like about it is that they're very open to accept new ideas, very open to try out and to try new things, right? Which not always happens in the government space. So I'm very excited about the potential. And they're really active, the open arms. Absolutely, absolutely. So I had very high expectations and very good sense that things are going to pan out here. You doing any deals here? Writing checks, signing commitments, verbal MOUs, handshakes, what's happening? There's been some of that. Of course, I'm a big believer that you need to do enough to diligence in the process, right? So can I have a cool off period, right? A honeymoon period, can I cool off? But I think there's very interesting people here. I met some very interesting brains, very interesting projects. And the energy, you can feel the energy. People want to try their rest. I've seen a lot of people doing deals. I saw one VC, I'm sorry, VC investor, token investor. He's done six deals already here. He's buying tokens, handshake, verbal commitments, and MOUs. Yeah, there's a lot of that going on. And a lot of money coming in, a lot of international too. Absolutely. So great to see not just here in Puerto Rico, not just U.S., this is a global phenomenon. It is, very right. This is one of the things that blockchain is about. It's ubiquitous, it's everywhere. That's the beauty of it, right? So... Well, Christian, thanks so much for coming on theCUBE. Really appreciate it. Thanks for sharing the data and advice. The Blockchain Playbook is coming out at the end of the year. Check it out, Christian Ferry with Blockstar. I'm John Furrier with theCUBE, SiliconANGLE Media. Live coverage here, wall-to-wall two days. Back with more after this short break.