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The project intends to remain state-free as it operates entirely without support from the government, and most of the funds come from voluntary contributions of our donors and partly from commercial activities such as running a unique co­working space and the world’s first bitcoin-­only cafe.

It was founded by members of a contemporary-­art group Ztohoven, and Slovak and Czech hacker­spaces. Its main goal is to promote economic, social, and digital freedom. We try to be a vocal voice of freedom in order to shape the public discourse, and ultimately work towards a freer future.

It's not too far from my home, so it's right here.

If you think about where all of this started, with Bitcoin essentially, it was always about digital ownership.

And I was in 2013 and that's when I was starting to get interested in Bitcoin and buy some and experiment with it and get to know the technology.

And so then in 2014 I got to know Ethereum.

So then in summer 2014 I joined the Ethereum Foundation.

And if you think about the core of Ethereum, if you read

the white paper, a lot of the things actually happened, except of NFTs,

I think Vitalik prophesied almost everything.

And in there you see, this is a snippet from the white paper, the first implementation of a token, which could represent almost anything.

We called this ERC20, just the ERC20 standard, so it's easy to get compatible with wallets, exchanges and other things.

But this digital ownership, this is how it evolved and it is always at the heart of what we do at most of the

I started a company called Slogit and we did something called Lidao.

For me, partially too, to say it lightly.

Well, for those of you who have been not in the space in 2016, I'll give you a very, very short, condensed overview of what happened.

So we got Ethereum now, we got smart contracts now, so it was so obvious we had to do something with it.

And so the DAO, nobody really had an actual decentralized autonomous organization which should run on chain coded.

So I wrote the code, I wrote the white paper, we released it, we wanted to build something called the universal share network which is like a decentralized way of doing sharing economy similar to Airbnb or Uber.

And yes, it was successful, meaning there was about 11.5 million Ether what

Back then it was 150, 160 million dollars.

This was again, price was something like 5 to 10 dollars per ETH at the time.

Interestingly, we also got a lot of press.

New York Times, actually globally, and a lot of attention towards Ethereum about what is the thing, a decentralized autonomous organization.

So we got to explain it a lot and actually if you speak to people a lot of people came into Ethereum during that time because they got this thing got attention.

So the top 50 token holders collectively owned only 42% to see And also some of those were exchanges where a lot of smaller token holders were behind it.

So it was for DAO, for the first 1, actually a very good distribution.

don't know if 1 person has many addresses or behind 1 address could be an exchange of many persons.

do not know exactly how many participants we actually had.

We do not get into details of the hack and then the DAO wars and the white hats and then at the end the hard fork.

I often like to end this story with this quote, you never know how far you can go until you've gone too far.

So, but what we did learn is that tokens work very well for organizations, for governance, and for ownership.

Technically it failed, but conceptually we were on track.

So you see this little thing here in 2016 is $166 million.

But actually, after that, we got this ICO craziness.

We got billions of dollars being raised through ICOs.

And a lot of them we know were scams, many, many bad ICOs out there.

And I also don't want to get into those details.

But the fundraising process itself was really nice.

You could just pay some ether, get some tokens.

are in existence, the circulating supply.

So the transparency and the process of fundraising was really good.

And it was permissionless and was a crazy, really interesting time.

So after that, so at about 2018, well, SEC coming in, you had all the regulators paying attention, what is happening here?

They are always selling unregulated securities.

So and then people stopped this business model of setting up a Swiss foundation and having utility token which is somehow attached to the value of the product.

So yes it's a utility token but it's scarce and you have limited supply

and if more people use the product, they need to buy it, so the price goes up.

artificially create this nonprofit organization and somehow create a token which somehow is linked to the success of the product, which you could sell and not call it a security.

Of course, this is a dangerous path for many.

But what's security tokens, they are there, but they have not taken off.

But there are some inherent problems in security tokens.

That's for the most part, they leave everything as is and just put a token on top.

So if you have to transfer the rights to dividends or some actually ownership rights, what you actually want to give to your token holders, that's the ironic thing.

There was founders who want to give them governance rights, dividends, the actual thing.

But they cannot, because then they feel it's a security and they have

But if you do something like this, a security token, you have usually contracts where the rights are transferred.

And you have all the paperwork and Germany and if you have a GMBH, you

But a token just makes things more complicated and doesn't really make things much better.

I use this a lot when I speak about the beginning of Ethereum, because a lot of the things we do in the Ethereum space can be brought down to

So you never change things by fighting the existing reality.

To change something, build a new model that makes the existing model obsolete.

A lot of the things we do in this space are following this paradigm.

So now think about companies and tokens again.

A firm just unites a group of people with contracts and having a joint mission to do something.

So it usually protects the owners of founders through limited liability.

That's actually a gift now the government is giving us.

Limited liability is actually something very nice and help for a lot of innovation and people taking risks.

So the management of shares are usually happening in contracts or public registries.

Some people ask me, would you do a DAO again or something like this?

And I would say actually no, not that kind

Because I do think that DAOs are really well suited for public goods, for maintenance of protocols such as ENS or many of the other things you hear here today, for community ownership.

What DAOs are not really good at is for product development, finding product market fit.

Let's call the Silicon Valley style startup, which tries to find something what people like.

For this period, you need a strong founder.

You need some kind of centralized governance maybe.

And for this, a traditional firm is usually more suited.

But you still want to have the benefits of the tokens.

But for most other jurisdictions, it's very similar.

But I'm talking about this 1 because that's how we start with our solution.

So most startups are private companies like LLCs or GMBHs.

Of course, they have a simple setup, simple governance, less rule compared to others.

But if you would now go to your lawyer and say, I want to tokenize my company, the first thing they would say is, go somewhere else, Cayman Islands, Bahamas, Singapore, whatever.

There are solutions for this, but don't do it here.

But this creates a lot of tax problems and other problems.

So if you want to stay here, in my case, Germany, at least make an AG, which is similar to an ink in

But even this is such a big hurdle financially and governance-wise and all the processes I have to follow that people don't like to do this.

That's why we have about 1.15 million GmbHs and only 50, 000 HEs in Germany.

And the way people raise capital is often in using convertible notes.

Well, that's just like a circumvention of the traditional way of doing it, meaning you just give

lot of problems with this, and Those convertible notes, they don't dilute each other.

And sometimes founders are very surprised when all those convertible loans are converting how much they have left in the company.

So then you have in German, capital erhöhung.

go to a notary, come up with some process.

And the other problem is you have those companies and you have a lot of stakeholders, but they have different assets So let's take the founder.

an investor with a convertible loan Then you

have an employee they have something like virtual shares or ease up and house ops in Germany it's different assets.

You cannot trade them on the secondaries.

But they all have ownership, kind of, in the company.

So it's actually a really weird structure.

So you could think about the public registry, the Germany Handelsregister, as something like the layer 1 of company ownership.

And yes, it's permission to write only to notary.

our case is the public Ethereum chain, which has permission to write, it's the owner of the token, it's fast, cheap, programmable.

I like to call Ether programmable money and this is now programmable equity if you want.

And you can interact with the DeFi ecosystem.

You can use these tokens on Uniswap or give yourself a loan using your token as collateral, all those nice things.

The question is how do we combine those tokens and those rights?

And here we have worked now for a very long time, paid a lot of money for lawyers to find the solution.

If you have your token, you can get dividends, liquidation proceeds, exit participation, and information rights.

And very important, you have a put option

So the details, you can find the paperwork on

So therefore a token is economically speaking the same as being a shareholder, especially because you have this way of converting it.

But now comes the innovative part where we

I explained to you a security token has this problem of having actual contracts giving 1 the rights from the seller to the buyer.

So it's a chain of contracts giving those rights to the next.

So let's say you trade this token on Uniswap and this token has now history of hundred different owners.

What if 1 of them was actually not authorized to do this, or his eight-year-old daughter signed this transaction, or for whatever reason this contract is invalid?

Then you have the biggest problem ever, Because

the token continues to trade, but the rights over someone else.

So if this token holder tries to exercise his rights, then the other guy comes and says, I want

And yes, my token is gone, but the rights are with me because this was invalid.

Because the person who did it was not authorized to.

So the question is, how can you avoid any contract, any chain of contracts, and have the actual right with a token?

The solution to this is a German word called Auslobung.

The best English translation I could find is public reward.

You basically say, I don't give you those rights based on a contract,

So to compare it, so I could say publicly, I announce that whoever solves this math problem,

If someone solves this problem, I have to give him 1000000 dollars.

And if he comes and solves it, he can bring me to court, and I have to give him the money.

We reward the action of holding the token with dividends.

We reward the action of giving the token back to the company with the right to receive an actual share.

But we don't give you this right based on any contract.

We give you this right based on an action you did.

And this action you can only do if you have a token.

And with this, we don't have this chain of contracts.

from a friend, just some transactions without any actual contract, it doesn't matter.

you have those rights because you can do those actions.

So this is the core idea of how we combine or tie together those rights, economically speaking, like being a shareholder, to the token.

And now we have access to this DeFi system.

So I want to go quickly, because I've only 6 minutes left, to what you can do with this token.

First of all, you have those programmable shares.

You can use them in the DeFi ecosystem or the Web3 world.

And you still have this GmbH, which gives you limited liability.

Traditionally, a company with all the benefits you have from having this.

And if you have the token, you can do fundraising.

And I call it fundraising as it's supposed to be.

We have on our platform 2 different ways to fundraise.

We're actually using a smart contract with create 2 opcode, that you don't see beforehand the offer, but only when executed.

the constructor of the smart contract, which is just a nice thing to do this.

you give a particular investor a fixed offer for a fixed amount of token for a fixed amount, there's an expiration date, which he can execute to buy a token at a certain price.

That's 1 usually for business angels, family and friends or some investors.

We already executed this with our own company, So this works.

The other 1 I think is a more interesting part This reminds me a little bit of this ICO time, which is the public offer Which I like to call continuous fundraising because why are we raising in rounds precedes?

Seeds to ABCD because there's so much hassle and you don't want to do it all the time.

But what if you could just say you have an Invest Now button on your website, which everybody can push, and there you see the terms, like current company valuation or price per token, how much tokens are currently available, and if they want, they can just buy.

It's a continuous public offer where the parameters can be set by the founder.

If he is fundraising, he makes the tokens to

doesn't want the fundraising right now, he can just pause it.

That's a continuous offer to the public that everybody can invest.

Now everybody, of course, I get to regulation in a second.

So another thing you can do is employee participation.

You can give the exact same assets to employees.

We have vesting smart contracts with the cliff which you can just use as you use in other programs to incentivize your employees.

I don't get into those details, but it's also available on the platform.

A lot of people would do exactly this they have a company would

love just to put the equity on you swap Without going to jail.

So so far what I explained to you is the civil right part of it mean the league the law How we tied it rights to the token now the other side You

would say in Germany of 6 rest or what in the US would be the SEC, in Germany, the BaFin.

So there are rules for those kinds of tokens which you have to follow, and we have

So Tokenized acts under a liability umbrella of Bitalo, which means they have a broker license, we have to of course fulfill all those requirements, KYC, AML check and so on.

The other thing is if you do an offer, now I'm speaking only of Germany and it's similar in other countries, you usually have to make

a prospectus, which is very expensive and takes

And we, of course, make use of those exceptions, 1 of them being if you make an offer for only up to 149 investors, in our case, the private offer, that's OK.

So that's 1 thing you can do on our platform of create 149 links which you can send to people to invest.

The other 1 if you want to raise up to 5 or 8000000 and then you need something called the Wertpapier-Informationsblatt which is also not too hard to get takes about 3 to 4 weeks cost you about 3 to 5000 euro.

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Tokenization of companies - from TheDAO, ICOs and security tokens to now / Christoph Jentzsch