The Top Things Investors Need to Know Before Buying Crypto Tokens

0:00America leads the world in medicine development. It matters. We get new medicines first, nearly three years faster. Five million Americans go to work because we make medicines here at home, and not relying on other countries keeps us safe. But China is racing to overtake us. Will we let them? Or will we choose to stay ahead? When America leads, America cures. Let's tell Washington to keep us in the lead. Learn how at AmericaCures.com. Pay for by Farma. Hi everyone. Look on Unchained. You're no hay preserves for all things crypto. I'm your host, Laura Shinne. Thanks for joining the live stream. Before we get started, a quick reminder, nothing you hear in Unchained is investment advice. The show is for informational and entertainment purposes only, and my guest tonight may hold a assist discussed on the show. For more disclosures, visit UnchainedCrypto.com. The episode is brought to you by Adaptive Security, the first cybersecurity company backed by OpenAI. As AI makes deep fakes and synthetic identities easier than ever,

1:03Adaptive helps companies test and strengthen their defenses. Learn more at AdaptiveSecurity.com. Quick note before we get into today's episode. Bits and Bits now has its dedicated fee. We're spinning off from the Unchained feed and moving to a new podcast and YouTube channel. So if you want to keep up with our weekly live streams and macro-leads, crypto breakdowns, make sure to subscribe to Bits and Bits directly. We won't publish there until March, but subscribe today so you can be ready for launch. Be sure to subscribe to the new feeds at UnchainedCrypto.com slash Bits and Bits. Today's topic is tokens versus equity. Indos. Here to discuss our Ryan Yee founder at Unchained Group and Fipe. She says, Filipe, Montelegray, co-founder and chief investment officer at Baya. Welcome Ryan and Filipe. Thank you for your help. So we're going to be discussing a topic that just keeps coming up again and again in crypto nowadays and that's this tension between tokens and equity. But before we dive into the details around the across token protocol, which is

2:08or the across token, which is the most recent news that concerns this topic. We're just going to have each of you describe your background and how you came to spend a lot of time thinking about this issue. Ryan, why don't we start with you? Sure, thanks Laura. Yeah, my name is Ryan. My background is primarily as a crypto VC. And so seeing a lot of these investment structures both from an equity perspective, but also a conversion into token as well as token directly. And then most recently kind of began to talk to a lot of founders kind of navigating these complex situations in relation to their business strategy. So yeah, we've set up a company basically targeted towards providing financial services, helping these founders navigate these issues. Filipe? Great, yeah. So my background is right now chief investment officer at Baya. Baya is a liquid token fund focused on long-term buy and hold for liquid tokens. So we focus primarily on projects with revenue earnings fundamentals. And we try to benefit from their growth

3:14in the same way that equity market participants would benefit from the growth of businesses. This is very different than the way that most token trading was done early on in our fund's life, where I think a lot of people were used to trading narrative tokens, hoping a token would catch a narrative, go up in price and then they could sell and exit. We're investing more the way that people invest for the long term. You buy a company, you trust a team, you plan out a strategy and then you benefit from business growth and revenue growth. In the process of doing that, building our fund, we realized that one of the major issues to this type of investing was the token problem, which is that tokens did not confer sufficient rights on for token holders. So there's a lot of ways that tokens can be sticky buckets. Thought it's easy for teams to sell or move away, but one of the most kind of pervasive problems was the equity token equity problem,

4:17where previous investors who had equity could siphon value from tokens. And that's why we think what's problem all the time, because it really impacts our long-term returns and our short-term returns. We've had issues with it multiple times, despite being very careful. And we know that every other liquid phone out there has had the same problems come up again and again. And it's frankly going to have an existential issue for the liquid token space. All right, so let's dive into the across token issue. Last week, the Risk Labs Foundation, which is behind a cross protocol, made waves, when it proposed that the Dow government protocol become a company, for the transition, they proposed retiring the ACX tokens and offering an equity exchange to token holders. Their motivation was this quote, as across deepens our work with institutional and enterprise partners, the token and desk structure has materially impacted our ability to close partnerships and integrations, transitioning to a traditional legal entity would meaningfully

5:17improve our ability to enter enforceable contracts, structure revenue agreements, and deliver more value to across stakeholders. So, as I mentioned earlier, this is just the most recent example of various entities in crypto, finding that Dow's are kind of cumbersome from a business perspective, and they're trying to change these structures to become more nimble. So this across proposal right now is just a temperature check, but it was so curious to hear your reaction to this idea, and either one of you can go first. Yeah, I mean, sure. I think at a high level, where we probably should begin is, what was maybe the premise of tokens to begin with kind of early in this industry? I think we have enough data points now where I think the user and the stakeholder really being aligned as your token holder is quite important. I think there are certain teams that execute this very well. So I think hyperliquid is a great

6:19example of this, where their main user is the trader, and therefore they're also probably their largest token holder as well. And I think in sort of the space of interoperability and bridging, kind of becoming a lot more clear around who your customer is in that regard, and whether or not they have the capacity or even desire to hold tokens. I think that maybe is a valid line of argument in some capacity, but I think there's actually a larger story here, if I'm being honest. So if we zoom out and look at the team that is building the across protocol project, people may have forgotten, but they're also the developers of an Oracle project called UMA, or UMA. And so if you think about it, this is one team that is really building two products at the same time, right? So they're building out this Oracle product, UMA, and then they're also building out this bridging product, which is across. And theoretically, UMA powers a lot of the across infrastructure, but I think as just taking sort of like the early stage sort of VC bucket hat on,

7:26it is actually kind of hard for a team to focus on two products at the same time. And I think the sort of if you, you know, everything in retrospect, but I think one mistake is thinking that you can have basically a token for each product as well, right? And so, you know, when you launch a token, yes, it's like great because you get liquidity and you're able to bootstrap your community, but at the same time, it's like the amount of cost that goes into it is the equivalent of like as a startup team, you're effectively going public as a company, right? So managing the token, managing market makers, managing listings, managing liquidity, like this is a huge time suck, especially if you're an early stage founder that's still trying to find product market phase, right? And so I think, you know, if I just looked at the stats or the fundamentals of the actual products involved, you know, across was one of the leading bridge providers and I think to this day still, you know, has a lot of usage, but in terms of the relation to their core product, which is UMA across at one point was 50% of all of UMA's activity, and now it's less than 10%. Right? And I

8:28think the across product itself has also lost around 80% of its TVL since its peak. And then if you actually zoom out, the majority of UMA's activity is actually as an oracle for the polymarket prediction markets, right? And so I think if you're a team that's navigating these things and you're realizing, hey, like at one point, you know, one of these products actually had more mind share and more growth potential in our mind. Now going forward, that actually, that sort of matrix in terms of the ROI of having a token for each of those products in that respective capacity can also change over time as well. Right? And so the way I view this is that it's effectively like a tender offer to the token community. They're saying, hey, if you want to transition into this equity structure, you know, you have a chance to do that as a token holder. These are your rights. If you don't want to take that deal, that's fine. You can go and, you know, take this cash offer from the treasury. And effectively, it's up to the token holder on what they want to do. But ultimately, what the across project gets is they get the token holders that are aligned in

9:32their success when they convert into this equity structure. And effectively, they can shed all the activities as well as related costs that will come with managing an entire token community for another product within their portfolio. So that's how I would view it, sort of in not with an isolation, but within the broader sort of product strategy thinking behind a team. Philippe. Yeah, I agree with all that. I think across brings about a couple interesting questions. One is a question of equity versus token. And we've heard from a lot of teams that having an outstanding token hurts their ability to do V2B sales and their ability to deal with large institutions. And that's just a reality in the market today. Now those things can change over time, right? But if you're having a token is a problem through your core function in your core, go to market sales problem, it's a liability, right? And the question is, how do you solve that? And we've had some teams solve that by just discontinuing their token,

10:34which I believe is quite unethical to do that to people who have savings in a token. But the way that I crossed it is to meet from the outside, because I'm not close to that project, seems like a very fair way to do the migration, because you're offering everybody the ability to participate in the equity stack. And you know that you're offering in a good terms because the price shot up after the proposal. And we're still many days later trading above the proposal price. And that's kind of, you know, it's one of the core, I think, signals of what to look at, ask people to do these transitions over the next few months, is did the token go up or down relative to where we're trading before? And, you know, people will always kind of talk about the proposal and try to spend a narrative. But if the token goes down, people are actually getting less than they thought they had before. And if it goes up, then it resolves on uncertainty and maybe gives people even more than they thought they had before. So I think that was quite nice to see. Now that's not always a hard rule, because the question is, there are some ways to game that

11:37we can go into, but it's an overall, it's a pretty good rule. I think something that Ryan mentioned is important too is, you know, this idea of having multiple tokens doesn't make any sense at all. You don't see it in equity markets. There's like, there's like a handful of exceptions, one is Musk, the people always point to. And even he's consolidating operations now, it seems like. But like, most businesses have significant revenue generation from products that were launched after the initial IPO, right? The obvious examples are Amazon makes half of the earnings from AWS, which is launched six years after IPO, sorry, eight years after IPO, Apple makes most of the money from the iPhone, which was launched decades after IPO, like people invest in businesses in large part because they believe management teams will continue to ship products. And having in the idea that you'll have a token for each product doesn't make any sense for investors, because you lose all of that optionality. And it also doesn't make sense for an incentive point

12:38of view, because you always have the risk that you'll, the management team will focus all of their energy and use the treasure that they raise from your money as an investor on some new product of the new token. So I'm glad every time I see a business like across, consolidate from multiple tokens to one, or even just one equity, we're always happy to see that, because it doesn't make sense from a strategy or an incentive point of view. I'll just say it's the same with token and equity. You know, they had token and equity, that's the reality. There are many reasons why that happened. The first, the most common one is that people thought in a prior regime that won't come back, that tokens were kind of free capital. And every token in launch is kind of, you know, a free 50 or 100 million dollars market cap that you can count on. But the market's just no longer said that. So now that we've gone through that process of kind of rejecting that, you know, nonsensical idea, people are consolidating to one instrument token or equity. And, you know, we don't have it opinion, you can have token or equity, just do it in a way that's fair and

13:43and disclosed to all participants. So nobody is, is fooled into making a, into squalting their savings. Yeah, so to go back to your earlier point about the token price. So it basically doubled in price pretty much right away from about three and a half cents to seven cents. And then it dropped down to 4.37 cents, which is the price that they put in the proposal, you know, for those who choose not to participate in the token to equity exchange, they will be able to sell their ACX for exactly that price. So it makes sense that that would be the new floor for it. So one of the, you know, reasons that they cited for why they were going to, or why they were making this proposal is because they said, quote, at current ACX valuations, we believe the across protocol is significantly undervalued. And I wonder if you agreed with that. And if you also thought that turning into a private company would give it a more appropriate valuation,

14:43or if you just generally have a way to, you know, kind of do a quick back of the napkin math on coming up with such valuations. I don't have a view on whether it's undervalued or overvalued. Typically, we don't have a view unless we've done, you know, many weeks of doses and have access to all financial information. So I don't have it here. Ryan, did you? Yeah, I mean, that's the same. I think like the and what you should maybe look at is like what were the inputs that maybe the team was thinking through as part of that decision. So, you know, if you look at, you know, the token allocation, effectively, you know, 20% sort of belongs to the team of foundation, 25% belongs to the treasury, which technically is, you know, within the rights of the token holders. And then 55% are owned by investors in the public, which are all fully vested. So, you know, if you think about the sort of math here, you know, my view is I'm not exactly sure how much of the tokens are going

15:49to convert into equity, but just to make maybe like napkin math, right? Let's just assume that the 55% of all investors, they're the ones that actually have rights to basically the 21 million dollars at that token valuation, right? So my view there is really they're taking the amount of balance sheet that they have in treasury. They're probably thinking, hey, like to actually capitalize this business in the most like base case scenario, we need X amount of money. And the remainder amount of money that were allowed to give the token holders based on this base case for us is around like this 20 million dollar number. So in my view, that's probably the math that they were doing. So one of those inputs being the amount of dollars that they have in the treasury. And then the other was also simply just like the price of the token right now, right? And so, you know, if you look at the 40 announcement and basically the buy-off price, the buy-off price was higher. And so I think as a token holder, you could probably make the argument that like, hey, it's not like they're, you know, giving us a worse valuation here. They're technically giving us

16:49a better valuation. But I think the more broader question though is that how do we kind of think about the new entity valuation based on the conversion, right? So if we believe most of the team and the foundation and the treasury is going to be moving over, then effectively that is in my view and some like not the full percentage of people take the money into the conversion, then effectively it's like an anti-delusion into that company. And so those people that do get value into the company effectively are able to own more of it, which is like, you know, a good sort of argument that goes against the other fact, which is now that, you know, this vehicle is illiquid. And so therefore, like there should be some discounted out as well. Okay, yeah, the that price, the 4.375 cents or whatever, that was 25% higher than the last 30 days of trading. So, I guess like the other, oh, go to Philippine. One really think quick thing. I don't think this

17:50is the case with the cross. I don't know, but I don't think it is. But everything in crypto gets gained over enough time. The big perverse perverse incentive here that people have is to drop price as they before making an announcement. Because basically the market is going to be is going to be happiest. It increases the price. And the deal will be perceived as fair. So companies could high financials roll in more costs, maybe make statements that make people question the validity of the token. It's very easy to get your price down as a management company. It's very easy. So basically, every company is going to do this equity to token equity conversion. Has a bit of a short on their own token because they can announce conversion that premium based on the price the day before. And I think it's just something to watch out for here. Because again, you know, it's perverse incentives have a way of being really taken to

18:50the limit in this industry. Okay, so let me actually want to add a comment to that, which is true, which is, you know, one of the one thing that's kind of interesting maybe in this sort of token equity conversion is that there is no details about the equity entity. And I don't think that's out of malice. I think that's actually more for regulatory reasons because you can't really do a public solicitation of a private investment opportunity. And so as a result, you know, I think they have done enough analysis with like their lawyers on what they can't say. And they're a bit publicly what's what said in the governance form is that, you know, the team shares will move one to one. And I think what they're basically saying is that like there's not going to be some like crazy dilution. But, you know, the fact is fact of the matter is that like you don't know until you actually read the equity opportunity. And so the reason why I think they put this out as a time check actually is they wanted people to know that they were doing this. And you basically have to signal intent on whether you wanted to see the equity opportunity or not. What I would guess

19:54then is that they would still certify from an accredited investor status. So then they can actually look at the equity opportunity. So this is one of those things where like in a perfect world, you would have both sets of investment opportunities in front of you as a token holder, whether that's like the cash buyout or whether that's the new equity entity. But I know probably for regulatory reasons, they can't actually show the equity opportunity until these token holders like self-certify that they have enough like across tokens. And, you know, they're they actually want to see what's happening here. So, you know, it's like you can assume like super perverse incentives. You can also assume it from like a regulatory side. But, you know, it's kind of this thing where like I think we have to kind of just wait and see on like what the final deal is on the other side of it. Yeah. And the last thing I'll say is we will know if it's fairly value or undervalued from the market price, you know, once this is in full swing. Because people who are KYC, you can see numbers. We'll bid this above the 4331 if it is cheap. Because it's just going to be a cheaper way to buy

20:55the equity for VC funds and the funds. So, right now, the market signaling that it's not undervalued, signaling people kind of prefer the cash option by and large. But, you know, we should give some time for the information to flow. Yeah. That bit that Ryan said about how they're probably trying to figure out kind of like how many people they might get. That makes sense because in the post, they have a little, you know, less than one minute survey that you, you know, they just want to kind of like gauge interest. And then for the audience who didn't see these details, I just want to call these out because these are, you know, just some of the details that Ryan and Felipe are referencing. So, you can exchange your tokens for equity exposure in this across code. They're calling it. Or if you have less than 5 million ACX tokens, then I think you, you can like get equity

21:57in some kind of special purpose vehicle. And then, you know, if you have more than 5 million, you can have direct equity in the C Corp. And then, and then that last other option that I mentioned was you can just get bought out for USDC. So, so one other thing that I want to talk about, and this goes back to the um of it. So, it's kind of funny because Hart Lamper, who is, I don't know, his exact title, but he's basically the head. He posted on X, talking about how the focus for across going forward was going to be agentic payments. And he basically said across quote, has two more yet to be announced deals that make moving money free for users because he talked about how with stablecoins, he felt like one of the problems was that the user had to pay the fees and that the issuer because they're making all the interest should be paying the fees for users. Um, and he he talked about how he thinks this will be like, you know, just kind of the main way that stablecoins are are handled from a business perspective in 2026. Um, and he said that,

23:04you know, securing securing these, quote, securing these deals requires contracts and out of protocol payments, which are functions that are not well suited for DAOs. So, um, you know, this, I mean, this is something we keep hearing over and over again. This is not the first DAO founder to talk about this, but I was just so curious because like, you know, Stony also mentioned this in a recent essay. So, what kind of activity do you think does make sense for a DAO to handle versus a centralised entity? So, there's a lot loaded onto the word DAO. That's, that's the, the thing that makes it hard to discuss. A political entity with multiple stakeholders that debate in public, I think is a very hard sell for businesses trying to compete in the global financial space. Um, if you're trying to compete with a global Fintech company, like five people who are really high quality, and you're having to get everything through a forum post, it's going to be really hard to compete. And, and you just mean that from like a

24:06competitive kind of privacy strategy perspective, right? Privacy strategy is more importantly, um, the ability to move fast and have leadership, right? Um, it's, you know, DAOs are good at, uh, opposing controls. They're not good at moving quickly. And that's why we've seen the number of DAOs and the influence of DAOs decline every year, since they were a big topic in, in 2020. Um, or since 2021. Now, you know, most, most private companies are led by, by leaders, who push the company forward? That's been the, that's been the evolutionary outcome of US capital markets and global capital markets. These companies are about leaders. Now, there's, there's one important nuance to that, which is in public markets where most values created, these leaders have controls. And that's the SEC reporting, um, you know, 10Ks, 8Ks, quarterly earnings, there, there is accountability to your, to your shareholder in public markets.

25:10And you need that as well, because what we've seen in this space and in every time where accountability has been reduced is that a leader who has the ability to enrich themselves and the benefit of, of, of shareholders and no controls will, will, will do so, more often than not. And that's been the history of this industry for the past five years as well. So I think when you think about what DAOs did well, they did not do well. What they did not do well was the CEO role. You know, when, when, when the CEO is having to negotiate with the DAO to make decisions that are core to their job, I don't think DAO has done that well at all. And Stani said that in his post, and that makes sense. And this, it's been the things for everyone else, just had this situation come up, right? How can't negotiate a B2B contract through a DAO in the case of Ross? Now, where DAOs have been really good is in accountability. And obviously, I've had been a great project despite the, the DAO in efficiency. And a big part of that has been the accountability to all the token holders and all the stakeholders.

26:12Now, I think there are better ways to handle accountability than, than DAOs as they are conceived right now. But we absolutely need some way to have leaders of companies be accountable to token holders or token holders, depending on what path they pursue. Now, Meddadal, as we're down in it, is, it's a company that's, that's kind of about balancing that line where CEOs are allowed to lead their company. But anything that's a forward level decision, where you have to replace the CEO, liquidity company, go through an acquisition, is decided by, by token holders, through, you know, a novel governance mechanism. I think we'll see more experience like that, where the, the circle, where the kind of radius of the CEO is left intact, but everything that has to do with, with token holders right, the accountability is, is tackled through some DAO type mechanism. Yeah, I think I generally agree with Felipe there. I think the, the question really is kind of

27:18around, what is the, like, what exactly do they mean by the transaction? Or like, what do they mean by, like, deals in that capacity? And really, it's like two things. One is like, you're either trying to raise money from a new investor, or you're trying to find an efficient way to spend resources. And I think generally speaking, in terms of efficiently spending resources, the way that I've seen that work out in DAO is, you either need to ask for every time you want to basically get new resources, or you basically ask for a lot of money upfront so that you could do things on your own, and like, not have to deal with the DAO until, like, spend resources. What I've generally seen is that, yes, like, you can go in the direction of trying to ask for, like, some lump, some upfront so that you could spend it, because that gets rid of the efficiency problem in some capacity. But you can only judge in retrospect how efficient that use of cost of capital was. And I think if you ask a lot of token holders, they actually feel like,

28:18oh, we feel, actually, these teams are not good purveyors of capital. They did not spend this capital in a wise and efficient way. And I think on top of that, or just the worst case scenario, there's just no audit at all. In some ways, in the same way, startups raise money, and they spend money on hiring and all that kind of stuff, and they're free to do that. Ultimately, it is up to the discretion of the CEO and that perspective. I think my view is actually token startups are basically the same. Once they raise token, and they raise cash, they can do anything with it that they want. It's just a matter of tapping into the token reserves to ask for more money and capital. So I think my view here, at least with a cross, is I don't know how they're thinking about this agentic space, and whether they are thinking through an investment or a cost structure. But my sense is that in either case, if you're a VC that is wanting to back a company in the agentic side, chances are you probably want to back an equity company and don't want to touch a

29:20token. So they probably have some interest in investors from that side of the world, and they want to bring in those investors in like a future round. And I think secondly speaking, they probably do want to move quickly with sort of sharing what would typically be like an equity share with like some company. But in order to do that, they would probably need to go through a Dow process. And then in doing so, basically, you need to ask the Dow to approve some money and in a reveal what their product strategy is and who the partner is. And the partners probably don't want all the information out there as well. And so my view here is like, like I said, it depends on the product and it depends on the category. And maybe the across product at the end of the day is still a bridge, but now they're dealing with different stakeholders who are coming from the AI agentic side. And those people may not actually want to prefer touching anything token related. And so to that degree, like I'm willing to give the benefit of the Dow to the team, but it kind of goes back to this idea of like who are the stakeholders you actually trying to bring along for like your next phase of growth. And sometimes that may not actually

30:24be like crypto native people that might be like other parts of the stakeholder base. All right. So in a moment, we're going to talk about some of the other kind of developments around this tension between token inequity, tokens inequity, but first a quick word for the sponsors to make this show possible. This episode is brought to you by Adaptive Security, the first cybersecurity company backed by OpenAI. As AI becomes more capable, attackers no longer need to break it into your systems. They just need a convincing imitation of someone you trust. That could mean a deep-faked voice on a call, a synthetic coworker on Zoom, or phishing emails written by AI that are nearly impossible to distinguish from the real thing. Adaptive's platform is designed for this new reality. It runs deep-fake, vishing, and AI-generated phishing simulations, so your team can see exactly how these attacks work and practice responding before it happens for real. Their AI content creator also turns new threats or compliance updates into interactive multilingual training within minutes.

31:28You can learn more at AdaptiveSecurity.com. We're spinning off from Unchained and launching a standalone podcast and YouTube channel focused on the Fed, macro, AI, and how it all collides with crypto. If you want to keep up with our weekly live streams and macro meets crypto breakdowns, make sure you're following Bits and Bips directly. We won't start publishing until March, but getting set up now means you'll be ready on day one. You can find the new Bits and Bips channels at UnchainedCrypto.com slash Bits and Bips. You can also find us by searching Bits and Bips on YouTube, Apple Podcasts, Spotify, or wherever you listen. Back to my conversation with Ryan and Felipe. So we brought up a survey at some point that was the most recent debate over kind of labs versus Dow structures. And that, you know, unfortunately resulted in kind of like a splintering of the Dow, some of the key groups like

32:30BGD and AWAY Chan left. You know, so the initial proposal was AWAY Labs, you know, suggested having all of its revenues sent to the AWAY Dow Treasury and then requested that the foundation or sorry, the Dow basically grant them $25 million worth of stablecoins plus 75,000 AWAY tokens for work. They also thought the foundation should own the AWAY trademark in the IP but generally like, what did you think of that like before we get into all the drama and everything that happened? Like, what did you just think of that proposal? So that was a temcheck. I think the temcheck and the proposal, the upcoming proposal on the same, when the same idea are both important because AWAY has been facing this issue of token versed equity for a few months now in the liquid markets. You know, obviously one of the highest quality businesses in the on-chain space. Most people have a view of a price where they would

33:34want to buy this asset. You know, it has that rare quality where it's been able to maintain market share over four or five years now, which is really rare and hard to find in this industry. And it's one of the most profitable segments, you know, the Barbara Lennon segment, that has the most room for growth as this industry goes mainstream. So people want to own it. I think it's the problem has always been this token equity issue. And this temcheck and the different proposal solve that issue. That is, by far, the most important thing versus investors of that issue solves. There will be no AWAY lives equity or a Barbara equity that competes with the token. There will be no second token. All revenues created by the team will go to the AWAY token. That, again, that was an existential issue for the token. Then there's a matter of the details of the proposal and who has left and who has left and who stays behind with the ABBA project. I think there's a lot more that can be debated there. You know, the question is, are they getting too much capital?

34:38Should there have been a way to make this work with Markseller or the BDG team? Obviously, that would have been better for everyone if there was a path there. You know, that's very much subject to the specifics of each personality or something you can debate when it comes to the amount of capital you're being given. But the overall point in the proposal, which was to unify equity and token under one ticker, was extremely important. And I hope it can get done with as little collateral damage as possible. Yeah, you know, I kind of zoom out and think about like the history of these projects and also from like, you know, taking more of a product-oriented view of kind of how we got here. So, you know, basically, obviously, it started off as like a token only, right? It was EFland actually back in the day and then they, they converted to AVE. And I think for a while it worked because, I think the core team worked together under the same umbrella. And even though some of the core

35:39team members effectively left, they were all still under the same sort of AVE coalition, right? So, whether they were represented under like a different entity name within the DAO, effectively, they were kind of all working in some sense of like coordination to execution, right? I think where things started to kind of show up was a couple of years ago when the Avara entity was created. And we noticed kind of, you know, the AVE sort of products we tried to go beyond just to AVE protocol, right? So, you have things like a wallet product, you had the, was it the social product lens, I believe it was called? And then, you know, they had all these other things they were working on. And I think in that time, it was fine until they actually start to face real competition from new upstarts, specifically Morpho. And so I think in that regard, they're like, oh wait, this is the Crown Jewel, this is the Crown, you know, the main product, we actually need to focus up here. And I think what came out of it was a realization of

36:41a couple things. One is, hey, like, let's not focus on any of these products anymore. Let's just focus on the AVE product. And so I believe, you know, the lens product was sold to another company. And they've kind of like shuttered off a lot of these other things as well. But I think it was another realization of like, okay, like if we were to ship sort of a new product and innovate and do all those things, do we still have the right business structure to tackle those things, right? And I think the short answer was basically then realizing that no, like we actually need to kind of centralize control under one sort of brand. And so I think the question was then like, okay, who should own that? How should we reward these people? And then how do we sort of fund this business sustainably? So I do think for AVE, a large part of their risk factor is actually sort of in the rear view mirror now. But now it is up to, you know, Stony and the rest of the stewards who are sort of driving the protocol forward to actually see whether they can sort of compete and you'll continue to innovate. And it does feel like things have just gotten a lot more competitive

37:43than that space as well. But did you think that their proposal was a good one? That it makes sense for them to do it that way? Well, I think the net outcome is basically you have one person driving the business and the product going forward. And then the second is like what is basically the economic relationship between, you know, the Dow and that team? Some people think it's like too expensive. Other people think it's fairly funded. I don't really have a strong opinion either way. But I think the core goal is like, you know, if you're a business wanting to integrate one of these protocols, you don't want every BD decision to be like, you know, you might talk to one person but like, okay, wait, I need to talk to like four or five other stakeholders who all work at different companies and like get them on the phone and then like we can come back to you with the proposal. But purely just for like business separation reasons, it delays like doing a deal by like weeks, right? Whereas like if you're just dealing with like one counterparty, you know, one entity effectively, it's just a lot easier to coordinate and like actually win those deals. And

38:45my sense is that now because of the like the next growth segment for that space is specifically dealing with enterprises and institutions, right? So, you know, I was involved in the Coinbase, sort of DeFi Moletheal that went out. And but ever since then now there's so many of these deals coming around, right? Yeah, you're talking a little more foe. Exactly. And I think like the counterparts that they're dealing with are definitely more within like the institutional world, sort of the more capital allocator world. And I think for those people, they need to have a lot more of like a tighter sort of business rhythm. Yeah. Yeah. And you can see that by, I mean, Morpho's in the same business, right? And they went the exact same route where there's centralized control by the Morpho team. And then the Morpho token saw the equity token problem perfectly, where they subsumed the equity into them not for profit entity that has a mandate to support the token. So they locked themselves basically said we cannot pay up dividends or do buybacks for equity. Your investment is safe with us. There's no way for anybody here to make any money

39:50through token price appreciation. And, you know, eventually token distributed, you know, cash distribution as well, possibly. But the flip side of that is you have to trust the team, right? We cannot take your value from you, but you have to trust us to, you know, have no revenue for the ones that take trust to compete. You have to trust us to negotiate deals privately and announce them when they're ready. You have to trust us to sell, you know, double digits percentage of the company to Coinbase and Apollo if we think that's necessary. You have to trust us to kind of steward this business. And that's a fine, that's a totally fine trade to make. You know, as token holders, we were happy to make that trade if we have the proper accountability security, which Morpho does. And what you're seeing from Alve is them actually following Morpho into the same structure. Again, because the other structure just will, you can, I, you know, I can, I expect zero political, like true Dallas to compete with

40:54the technical, global contact companies, zero. And if I'm wrong, I'll be wrong by one or two. And that's why you see companies like Alve Morpho, a new swap moving this direction. And it would have moved the direction sooner, had it not been for the game, which is kind of the, you know, the two original citizens of the token problem are the zero interest rate policy, because everything was valued at nonsensical valuations. People thought they could ship tokens with no revenue. And Gensler, which created this equity token split and all the nibbless language around these companies for four years, right? So Alve and NewSwap, both companies that I think we criticized heavily last year for having token equity problems have both come around and unified their token of equity behind the token in both cases, because they're no longer fighting with SEC. And they can do make a decision that makes the most sense for them as a business and for their investors. Yeah, I think that's really underappreciated the the regulatory factor here. I mean,

41:59it's literally night and day, right? I think you, you know, projects that I've spoken with sort of that were building under the previous administration, they literally had to do everything and create all these like things to basically seem like the issuer had no relationship to the token. And so, you know, at face value, it's basically, oh, the teams actually don't care about the token. But even if the teams do care about the token, they had no like, their lawyers are basically telling them, don't do this under any circumstance. I think under this new regime now, the general climate is just a lot better. But I also, I'm also basically seeing like, you know, a lot of the legislation being passed and hopefully we'll see like clarity actually sort of actually sort of crystallizes into law, hopefully. But the idea is that I'm generally seeing founders be a lot more open in terms of their risk tolerance, in terms of speaking about their token more openly and actually associating with their token in a real way. And so, I think that's actually the primary driver as to why you're seeing all these kinds of like interesting transactions happening

43:02that are involving tokens, right? Whether that is like the across token buyout, whether that is sort of a restructuring and the AVE capacity, or whether that's like a unisophistic switch. And I do think like a lot of the US companies, especially, who are under this sort of equity versus token, I think they had that structure put on them through the sort of the VC fund raising sort of environment and apparatus that existed. And then they were effectively handicapped, whether they they couldn't really do one or the other. But I think now that's basically been lifted. And so, some teams are realizing, hey, like we should all fully go in on the token, which you've seen with like a uniswap. And then you'll see some teams are thinking, hey, like actually given where we are in terms of like the stage that we need to grow into and the stakeholder base and just the general crypto world seems more institutional, we actually need to go more towards equity. And so some maybe are thinking about, hey, like let's basically buy out the token orders and bring them into our equity region. And you're seeing it across space. We're talking about big deals here. But these transitions are happening at a small scale constantly. I can think of five teams and a

44:09portfolio company that are either have done this already or are in the process of doing this transition. One from this week is to arrive, the options protocol. You know, they've been around for five years. They've always been token owner friendly. But they published an official release talking about how the token was at the center of their business. There was no competing equity. Everybody was paid in token and basically representing their commitment to the token in all circumstances. And you're seeing a lot more of these releases come out and they really do have weight. So representations by teams like that. They are made with the intent that people can use them in investment committee to make investment decisions. And it's not something that you can say lightly. And during the Gensers, people were saying lawyers would advise the people against these posts because they do have teeth. They do have weight. They seem to apply as to disclosure protocols like the block works token transparency protocol. If you do a write up in those 20 pages

45:10and talk about your token and how you treat your token within your business. And whether your token is this main source of value of cruel investors will look at that to make investment decisions. And they can bring that up either legally or directly in the future. So these things are quite optimistic about the way this is moving in terms of people of tokens having true rights behind them. Yeah, yeah, these are all great examples and great points. But let's talk about one that maybe didn't go down so well, which was the controversy around circles acquisition of axelars development team, developer team. And that deal excluded the axelar network, the foundation, the axel token holders. I mean, there was another team that was brought in to manage all of those. But I wondered, you know, what you thought about how that deal played out. And if you had any thoughts on how you would have done it differently or if you thought, you know, that what they did made sense. Yeah, so let's just zoom out here for a second.

46:17This is not the first version of a deal like this where you basically have a labs equity entity and then you have basically the token. Most of these projects that were funded in this way, most VCs have exposure to both, right? So they invest into the equity and then they basically have some sort of convertible structure into owning the token as well. Now what usually ends up happening is that the team, the IP usually sits in the equity entity and then sort of the token balance sheet and all those things sit within sort of the token entity as well. So, you know, I think if you are somebody that is looking into acquiring a team or a product or anything like that, chances are there's probably going to be some sort of token structure involved. And, you know, there have been M&A deals in the past that actually are we're able to acquire the equity entity without having to touch the token, right? And so I believe Coinbase acquired a company called Ironfish, maybe like a year and a half ago to like focus on privacy. I believe

47:17they had a token. I believe they also had acquired, you know, a team, a red wallet which had like a token VRD token. So, you know, circle acquiring Axelar, I wouldn't put positive as like the only thing. It's like, there's basically a string of these types of deals that have been done before. I think the reality though is that, you know, for a lot of these teams, I have yet to see an actual sort of big product or strategic acquisition. So in other words, most of these were actually aquahires. And so in that capacity, the only thing that the acquire actually wants to touch is the talent. And the talent sits under the equity. And if you're a buyer, you're like, hey, like I can get the equity entity and I could get basically the team. But in order to do this, I actually can't be seen touching the token because as the acquire, I do not want to face any liability from the token holders because, you know, they could get sued, for example, by some token holder out there that feels like, hey, like you guys just basically, you know, we're able to take the main

48:19developers and managers of this protocol and like, you know, effectively no one's really working on this going forward. My view is that I actually think this is kind of the message of the past because that was under the regime of like, you know, you were completely separated from the token as the equity entity. And therefore, like, you know, because you gave that language and you gave that expectation in some capacity, you can effectively still do, you could have done that deal now. But I think that in current, in the current regime, as Philippine and I've been talking about, token holder rights are basically the non-negotiable. This is like the main, I think one of the main inputs that founders are really thinking through. And going forward, I can't really, it would be strange. And I think it actually would be a lot more negative ROI for a founder to basically try to repeat like what happened with the what the circle axler deal in my opinion. Yeah. Also, I think my view is that, you know, the more that you actually tie sort of the value of the token to the business and the product and the protocol, if you are actually the acquire and wants to bring

49:19that in-house, now you can't just do the deal without the token because the token is actually the core piece of that equation. So I do believe in this world actually where maybe one day these acquires are going to think about, hey, like, how do we bring this in-house? You can't just like steal the main like, you know, builder or like the employees. You actually need to deal with the token holders. And that probably looks something actually similar to like effectively a tender offer. Like it wasn't across, except that's in like sort of an asset sale and acquisition perspective. Yeah. Across is a better model, right? So I'm not close to axler at all. I don't even know the team, honestly. Tenser had a similar acquisition with Coinbase. You know, we weren't on investment in that either, but basically if you've promised anybody that a token will benefit from the business growth, you should do what across it and do a tender offer where you're allowed to where token was really allowed to convert your equity or receive cash. And I think the across signal is important for token founders that I think a long-term founders feel trapped by the business

50:22very often, trapped by the token because they don't want to do anything on ethical or kind of, you know, tokens are held by individuals with savings, right? So no, most people don't want to abandon these people and then kind of do something that's well-marked and forever as an unethical kind of scammer. Across is a good, is a good case study in what you can do, right? And giving people the ability to KYC get equity part of the transaction. Tenser and axler, you know, not close to axler, tensor definitely, is what you should not do, right? Because you are essentially sending a token to zero, sending people savings to zero. And if you had represented that the token was the value, you know, the value of chromaticism for the for the business, you essentially lied to people, had them invest into into into your token and had them lose their money. It's been in because of all the guardrails in the Gensur regime, it's hard for these early teams that are traditionally to be sued because usually they'll have no public language at all, saying that token was

51:29the main value of a cruel instrument. But to the extent that, you know, people have those representations, you won't be able to do these deals going forward without having token holder losses. All right, so there's just one more specific example I want to touch on before we go to more general questions, which is I saw that the exchange backpack is going to go with this hybrid model where basically they offer equity to long-term steakers of their token. And Armani Farante, the founder, wrote on x-quote, as far as I'm aware, this is the first time a user has been able to earn the equity of a company by just using the product. I wondered what you thought of that idea. I don't have a strong view on the on the back of model. You know, generally, I don't like having equity in token split, but here's a mechanism to convert one to the other.

52:31I would prefer them to have just one or the other, just equity or just token, but aside from that, no championing. Yeah, I agree on that. I think my view is that they're trying to build optionality into the type of business that they want to build. Obviously, on one side, they want to be this regulated exchange and I think having sort of a traditional capital structure that reflects that is sort of matches that strategy, but at the same time, they're also trying to do like a retail go-to-market, which obviously I think the token direction kind of matches that. And so my view there is they're kind of like trying to build optionality, but based on the conversation that we've been having during this hour, our view is like ultimately, one person's going to lose whether you're the token holder or the equity holder, and I think those things eventually need emergent to one type of structure. The dual models don't trade well. Look at pump that fund. One of the most profitable businesses in the industry, they have a ton of cash value. They are trying to pursue the dual equity token model to preserve optionality, and they trade, they have the lowest multiple of

53:36any business, above like 10 million dollars of revenue. And the reason why is because people don't trust that they have a claim to the cash and they don't trust that they will get the revenues indefinitely. And without saying whether that's right or wrong, it's a legitimate concern from token holders. You know, pump would trade much better if it only had a token or if it only had equity. You know, but let's say if it only had a token, it would trade much better if they resolved the token equity problem. And that's been the case for all these businesses. And the market is going to push them in one direction or the other. So what would be surprised is that having a background as well. Okay. Okay, so I'm so curious what you guys think generally about DAO's. You know, Stony, he wrote in this essay on X, he described trying to build with a DAO structure as quote, fighting your own organizational structure every single day. He said, quote, proposals that should take a day can often take weeks of foreign posts, temperature checks, and multiple votes.

54:38Meanwhile, your competitors ships and positions themselves against the slow DAO. DAO's also become politicized very quickly, and it's easy for voting to become about attention. Which yeah, that that's an interesting statement. Participants take sides, lean toward the loudest voices and form political alliances to get their own proposals past later. Just as large companies end up with managers instead of founders, DAO's end up with politicians. Yeah, all of this was a super interesting to me. And then he said, quote, it can often feel like we took the worst parts of corporate bureaucracy and remove the parts that create accountability in the name of decentralization. So what do you think of his remarks there? And I kind of asked this earlier, but still like, like, generally, like, what do you think is the future of DAO's? I think that's all true. Everything said, just from, you know, seeing DAO's from the outside participating, it's it is it's a bureaucratic process where we're having a political instinct can

55:41be an asset to people, right? So you want to get retreats, you want to use in inflammatory language, all the tools, I mean, it's a it's a it's a government, right? It's all the tools we see people using government will work in DAO as well. I think the future of DAO's is a system like metadata where the market decides. That's in the metadata structure, you basically create two two tokens based on the two decisions that are that are a hand. And then the the the business opts in for the one that trades higher. So in the case of something like, you know, the the other proposal we're talking about now, standing with a proposal, Zeller have a proposal, we'd have the market would trade alve under both circumstances. And then we could we could opt in for the one that makes the token trade higher. Basically, this is is is instantiating the token as the objective function for for the business, which is important that you know, US capital markets did that when

56:46the DAO's versus Ford decision was made over a hundred years ago. And it was a pivotal moment for US capital markets. We need to do that in internet capital markets as well. But more importantly, it makes it so that investors decide the outcome of businesses based on skin of the game trading decisions. So if I think that signed proposal is better for alve, I can buy more alve and that market that that signal can be reflected in the market price and push the market towards making a decision. And if I think that signed proposal is worse, I can sell alve, I can short alve under those circumstances. And then you don't have politicians, you don't have kind of, you know, political lobbying when you have is is investor communications where you're kind of pitching your strategy to investors. And sophisticated polls of capital can ultimately end up deciding where the where the you know, what to do is remain based on what benefits long term holders are most. And then would would you say that like the lab's entity could vote, I mean, sorry, could trade

57:49in that or like they absolutely absolutely because they would be they would first of all they have the most information about proposal. So it's an important source of information. But also trading means you are buying more contingent on proposal happening. So if you if you want to single I can say that say alve labs wanted to single hand by past proposal, they'd have to buy 30% of the office supply. And if they do that and past proposal, they are the ones who stand the most to lose from the proposal passing. So because you have skin in the game as the outcome of the future mechanism, those people who who have the most to lose with the outcome going wrong are the ones that that have the lattice voice. And that's very important in this in this in these outcomes. And then we we we approximate that in boards by having large share holders be able to place board members. Right. And you can have a pure version of that in private equity where the people who own the whole company make decisions your time ownership to decision making ability. And that's a that's a good

58:55thing. It's not that thing. Yeah, I agree with that. I think like I always kind of I think this discussion is a little bit sort of predated in a sense because like you know the main goal I think right now for this state of the industry is let's not focus on the word now. Let's focus on the word token holder. And we're really at this point of the industry where we are basically getting a re rating in terms of the type of investor that actually wants to buy in tokens. Right. Because if you think about most of the activity and grew up that's happening crypto in the past sort of year and a half. Yeah, driven by like prediction markets and things like hyper liquid. There are risk taking happening, but they're not actually like dealing with tokens directly. Right. And so I do think this idea of token holder and token holder rights are becoming more more prevalent. And that's really the main goal right is can we trust these teams to build products that can actually scale and can we actually underwrite growth here. And I think that's really like the stage of the industry that we're in right now. Yeah, I think about us as basically

59:58going from like series B to like series C series D if if I to sort of use VC parlance. And I think sort of in that sort of quest to do that we're probably still at the stage where you still need to sort of centralize decision making and product roadmap under the team that has the most information. And is probably the original team that actually built like the main protocol. Right. And so my view is though is that as these sort of teams become bigger and bigger it probably will get to a point where if they want to launch a second product or a third product under the same sort of interface or brand. It actually doesn't make sense to launch another token for that. What might actually make sense is to ask for a bunch from the data to do that. And so in that direction it's kind of like you know you're basically mapping ownership of the token and the resources to the amount of you know importance that you're giving basically to the second product that may be generating value which is basically how like traditional corporations exist right now too. But this is at least more fluid and people can at least build in the open

1:01:02and then they can actually be audited in the open which I think is really the sort of power of continuing the Dow structure. But I just think at this point right now where we really need to focus on just like hey like how do we grow how do we have people believe in tokens again and how can we serve in force this idea of token holder rights. And I think once we do that then we can get to the second order question of like okay how do we have the right controls and transparency around these people. And I think both of these things are sort of independent but eventually they will converge into what I believe is like the end state of like what a public company in crypto would be which is basically a token at scale. And if you think about I think you know the biggest assets out there like Bitcoin like you know Satoshi was the issue or technically I guess if I want to use that word but nobody knows who he is right. And so who's the new voice of Bitcoin right. And then with Ethereum too I think you have italics still showing his soft power within the ecosystem but it's also a little bit more decentralized. I think for most projects you know they're a little bit more earlier stage in terms of just like reaching global scale right now where they probably

1:02:04don't need to have that level of decentralized coordination until they can actually scale and get to a point where investors have confidence like okay like this is not going to they're not going to be out competing like they're not going to go away. And they have like some sort of mode that's going to help and continue their business value at which point and then they can start to have these discussions around what's the most efficient use of capital. How do we think about the right stakeholder base and how do we sort of you know make sure the ecosystem is continuing to thrive and continue to sustain itself. Felipe do you have a minute to talk about what you think would be like the optimal outcome for either token holders or equity structures in crypto. Yeah and I'll go back to you know it's the same answer right I think I think the metadata should really get to right because you have accountability from day one because you need to accountability otherwise giving people money on the internet will lead to theft unless you have accountability. That's kind of an iron rule that that people learn many times

1:03:04and has been reinforced by this industry over and over again. So I just think that giving people you know no matter whether they're early state or late-stage give people money without control will will just not go well on average. And we've seen all I mean we've seen so many cases right where people I CEO raised a lot of money and then take the money and run or they moved to Bali stop working, pay themselves, pay their pay or they do consulting the you know consulting engagements to design the brand and get paid ten million dollars by house. Like the surface area for fraud without controls is too big to ever have a situation without control. But we just need to find a way to impose controls that does not hamper business growth because the the first side of that is like the most important companies in the world today are still centralized in the led by leaders right. Amazon, Google, Microsoft, Apple and video they have very clear leaders who decided it was happening in that company. They don't have any of this Dow type of like fighting

1:04:07your internal structure every day. So I think whether it's early late-stage you just need to be able to balance both those things. I think Mededow is a credible attempt a very credible attempt to give the CEO operating leo within the business and then when it comes to capital allocation or when it comes to budgets or things where theft can be involved where boards usually get involved in equity markets then you submit it to a futurking trade vote you know whatever you want to call it where the token holders have a say. But I think getting that you know you know whether it's Mededow or somebody else getting that balance right is critical because I you know I'm coming up to the end here. I do want to say tokens are not just kind of equity. There is a true token vision that's true and that the industry could solve it around. Like there are only 8,500 public companies for like half the world population right and getting a public company raising through the raising BC usually means being well connected in San Francisco or New York

1:05:08and definitely living in the US for the most part. That's not exactly true but it's closely true and the vision of having global capital flows on the internet, global fund raising through RICOs, tokens that you can really design and innovate around. We haven't even tried to service there because we have been kind of stuck on this token problem in the mud of the token problem but it is worth fighting for a good future for tokens and I think that something like the Mededow system balancing kind of ability and balancing debility to execute is critical to getting us into that next stage where we can focus on the benefits of tokens instead of who are the long tokens. Yeah, I grew up feeling there. I don't know the actual number but if you look at let's say the top 20 most profitable sort of projects in crypto, I would probably argue like at least half of them are purely on-chain businesses and those businesses actually have tokens. Right, so if you believe and eventually now that we've sort of figured out the institutional problem with ETFs and digital asset treasures and those kinds of things, to me it's the same

1:06:11outcome for the world where it's like okay your traditional company, you have some launching business model but you basically go public in like a traditional realm and then in the parallel case basically you have another business that is also at that stage a level of growth and profitability and revenue but they just are also represented through like an ETF of the actual underlying token. Right and I think both are actually like incredibly positive outcomes for this space and that actually would still in my opinion like meet the vision of like the original thesis of tokens and like why we did it because ultimately I do think it probably in the long run is a better form of like fundraising coordination and actual sort of incentive and transparency. All right you guys this was such a fun conversation thanks so much for sharing and if you want to shout out any social handles or websites go ahead right now. You can follow me at the research on Twitter. Yeah you can follow me at the underscore LON so you want.

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