- Coinlist is a platform that helps digital asset companies manage their token sales and investors find high-quality deals.
- They provide compliance and transaction processing services for token sales.
- They have supported 3 out of 900 projects that have come through their platform.
- The right reasons for doing an ICO include raising money for protocols that need to be distributed and projects that have a disproportionate advantage by having early users be stakeholders on the network.
- They also mention securities tokens as a separate category.
- When evaluating projects, they consider the team quality, technical details, legal and economic structure of the sale, and the token economic model.
- They discuss the SEC chairman's statement that most tokens are securities and the possibility of tokens converting from being securities to non-securities.
- There is no clear guidance on the conversion and it is based on a facts and circumstances analysis.

- The SAFT (Simple Agreement for Future Tokens) is considered a security until it transitions into a utility token.
- CoinList uses a formal legal diligence process to ensure compliance with securities laws.
- CoinList offers a compliance service for projects that do not pass the investment diligence process.
- CoinList helps companies determine their sales structure and provides guidance on valuations.
- There are different regulations for selling securities, such as Reg D 506C (selling to accredited investors) and Reg CF (selling to unaccredited investors).
- CoinList's sister company, Republic, focuses on Reg CF offerings for crypto deals.
- Different jurisdictions have different regulations for crypto projects, and the US is expected to apply existing securities laws to ICOs.
- Airdrops, which involve giving users tokens without payment, are seen as a favorable distribution mechanism.

- Airdrops cannot be used to bypass securities laws if the token is still considered a security.
- Airdrops can be categorized into three types: broader universal airdrops, off-chain data airdrops, and on-chain data airdrops.
- Airdrops allow for broad distribution of tokens and can align incentives for users to grow the network.
- ICO companies aim to raise enough funds to build the network and increase the value of their stake, rather than making money from transactions on the network.
- There may be a liquidity crunch for post-ICO companies, but the long-term support from investors and token lock-up periods can help mitigate this.
- Companies with too much ownership of a network may face forks and reduced ownership percentages.
- The role of investors in crypto funds is to help get the network started and provide support and resources. Governance struggles may arise as networks go live.

- The speaker predicts that there will be more governance struggles and forks as more networks go live.
- The speaker believes that there will be constant competition between protocols and that there will not be a dominant protocol in each category.
- The speaker suggests the possibility of having fewer generalized protocols that are interoperable through layers on top of them.
- The speaker agrees with the theory of the FAT protocol, but also believes there will be additional layers on top of it.
- The speaker acknowledges that there are currently not many end user use cases in the industry, but expects this to change in the next 12 months.
- The speaker mentions the value of collectibles and the potential for building games and interactions with them.
- The speaker emphasizes the professionalization of the space and the entry of more product builders.

- The user bases and incentives in the blockchain industry are now strong enough for real product builders to enter the space.
- Building user-friendly products and interfaces is crucial for onboarding non-technical users to blockchain protocols.
- The example of Bloom's airdrop demonstrates the importance of making the onboarding process easy and intuitive for users.
- Index funds may become a popular way of investing in the crypto market, but it may not reach the same level as in traditional markets due to the early stage and volatility of the crypto industry.
- It is recommended to invest money in crypto that one is willing to lose, and to focus on stronger and more established projects.
- White papers should be more technical and detailed, but investors should not feel obligated to fully understand them before investing.
- It is important for potential employees to evaluate projects based on team, market, and token-specific factors, and to seek advice from experts in the field.
- The speaker got interested in the blockchain space through a professor who introduced him to Bitcoin.

- The speaker and a few others bought Bitcoin in 2012, leading to the creation of the Stanford Bitcoin group.
- The group conducted research on the economic impacts of Bitcoin and built projects in the space.
- They pitched Bitcoin to investors, with mixed results.
- Most of the group members are still involved in cryptocurrency.
- The speaker is interested in supporting the ecosystem and building tools for companies in the space.
- They believe that outside talent is needed in the industry and encourage people to join projects they believe in.
- There is a lot of excitement and energy in the industry, with many talented individuals involved.
- The speaker believes that the network effect will attract even more talented people to the industry.

- Coinlist is a platform that helps digital asset companies manage token sales and investors find good deals.
- They provide compliance and transaction processing services for token sales.
- They have supported 3 out of 900 projects that have come through their platform.
- They evaluate projects based on team quality, technical details, legal and economic structure, and token economics.
- They discuss the SEC chairman's statement on tokens being securities and the possibility of conversion.
- CoinList uses a formal legal diligence process to ensure compliance with securities laws.
- They offer compliance services for projects that don't pass the investment diligence process.
- They help companies determine their sales structure and provide guidance on valuations.
- Different regulations apply to selling securities, and CoinList's sister company focuses on Reg CF offerings.
- Airdrops are seen as a favorable distribution mechanism but can't bypass securities laws if the token is still a security.
- ICO companies aim to raise funds to build networks and increase the value of their stake.
- There may be a liquidity crunch for post-ICO companies, but long-term support and token lock-ups can help.
- The role of investors in crypto funds is to help get networks started and provide support.
- The speaker predicts more governance struggles and forks as more networks go live.
- The speaker believes there will be constant competition between protocols and the possibility of fewer generalized protocols with layers on top.
- The speaker expects more end user use cases in the next 12 months, including collectibles and games.
- Professionalization of the space and user-friendly products/interfaces are important for onboarding non-technical users.
- Index funds may become popular for investing in crypto, but may not reach the same level as traditional markets.
- It is recommended to invest money in crypto that one is willing to lose and focus on stronger, established projects.
- White papers should be technical and detailed, but investors don't need to fully understand them.
- Potential employees should evaluate projects based on team, market, and token-specific factors.
- The speaker got interested in the blockchain space through Bitcoin and is involved in supporting the ecosystem.
- They believe outside talent is needed and encourage people to join projects they believe in.
- The industry has a lot of excitement and energy, attracting talented individuals.

Andy Bromberg - https://twitter.com/andy_bromberg - is the cofounder and CEO of CoinList - https://coinlist.co/. Coinlist provides financial infrastructure for token creators and investors.

Ramon Recuero - https://twitter.com/ramonrecuero - is an engineer at YC. He's the author of the Decentralized Future Series, which you can read here - https://blog.ycombinator.com/author/ramon-recuero/

If you'd like to listen to more podcasts about crypto, here are episodes with Juan Benet (IPFS) and Dalton Caldwell (YC) - https://blog.ycombinator.com/ipfs-coinlist-and-the-filecoin-ico-with-juan-benet-and-dalton-caldwell/ - and Olaf Carlson-Wee (Polychain Capital) and Aaron Harris (YC) - https://blog.ycombinator.com/blockchain-investing-with-olaf-carlson-wee-and-aaron-harris/

The YC podcast is hosted by Craig Cannon - https://twitter.com/craigcannon

Let's just start Andy with a quick intro of who you are and what you're working on.

Coin list is a platform where the best digital asset companies manage their token sales, and we're also where investors find high quality deals in the space.

So we're working on helping with things like compliance, helping with things like transaction processing for deals in the space, and then helping investors, who are also our clients, find these high-quality deals and invest in them.

Broadly, we provide full services for sales like Filecoin and Blockstack and Props, and manage their sale on the platform.

And then separately, we just run compliance for a lot of sales as well.

So helping them with know your customer, anti-money laundering, and investor accreditation, which we could get into, but the nitty gritty technical stuff you've got to do if you're selling tickets.

Yeah, and Ramon, for people who don't know you, what are you working on?

Yeah, I work for YC, and before I had my own company, and I worked in video games for Zynga for a while.

Cool, all right, you want to start it off?

Yeah, so let's assume that we're starting a project.

So how should we think about this new mode of fundraising?

What kind of project could be perfect for a token sale versus going through an angel or through an incubator?

Most projects are not a good fit for this funding model.

Coinlist has done 3 publicly on the platform so far.

So most projects, not really high quality and not doing an ICO for the right reasons.

So when we think about the right reasons, for me it really comes down to 1 of a couple use cases.

So Filecoin's a great example of that from Protocol Labs, which is a YC company.

And there, I think the insight is that historically protocols have only been funded by governments, academic coalitions, sometimes really huge companies, because they're just expensive to develop.

When you're developing something that foundational, it's too costly for a startup to develop typically.

And so the ICO model, giving stakeholders a stake in that protocol on that network is actually the first time that we've had a way for new protocols to emerge and be funded for small teams with great ideas.

And what that's enabling is this world of competitive protocols where instead of 1 just being the king by default, because it's the only 1 that's capitalized well enough, now we can have competitive protocols going back and forth.

The second is projects that have a disproportionate advantage by having early users be stakeholders on the network.

The idea there is that if you can give the earliest users of a platform some upside if the project's successful, that's in theory good for every project.

If any company gave their early users some equity, if that was easier, then maybe that'd be good.

But we really think ICOs are good for ones where there's a disproportionate impact there.

So 1 example might be if you had some sort of tokenized or distributed TOR, right, Anonymous routing system, where if there aren't enough users on the platform, it just doesn't work.

It actually, it's just not anonymous or pseudonymous.

So the idea there is if you could give those users an early incentive, then perhaps that would be incentivized to grow the network faster, get to that critical point where it tips over and becomes useful much faster, and then be able to grow from there.

And then the last category I'll mention is, we're early on this 1, but separate from those 2 securities tokens, so asset-backed tokens that are taking an existing asset and tokenizing them.

That's appealing, but almost a totally different category from the first 1.

We could talk more about the difference between those.

And then the last thing I'll say there is, I imagine we're going to find a ton more use cases for ICOs.

We're basically a year into the market right now.

And so those first 2 categories for the more technical ones than the asset-backed ones are the ones that we find appealing so far, but there's going to be way more beyond that as this market evolves.

So you guys have supported 3 out of 900 projects that have come through.

What are the criteria that you're looking at?

So first of all, I think we're looking at the team and the team quality and the technical details.

So the team have a history of shipping product.

So a lot of the same things you'd look for initially in a venture capital investment, right?

Does it seem like it has a real chance of success?

But then with the ICO market, what's different from all the things you'd evaluate in, in the venture capital market, you know, so traditionally team product and, and market, the next step is a layer on top of that because this is different.

And the, the components there that I think are important that aren't as crucial in the venture capital world Are 1 the actual structure of the sale and when I say structure, I mean 2 things I mean legal structure and then how the sale is actually structured in terms of the economics of the sale.

In venture, both of those components are important, but nailed down at this point.

You don't really see a lot of weird stuff happening there.

But because the ICO market is so young, figuring out how to structure these legally, and then figuring out what's the pricing mechanism for the sale.

All of that becomes important to evaluate in the token industry.

Again, we imagine it'll become a little bit more standardized over time, but it's early there.

But then the second piece, which is I think a little bit unique to tokens is what we'd call the token economic model.

When you have a token and people are investing in the token, you need the value of the token to have a chance of going up.

Otherwise, why would you support this investment?

And so there's this question of, under what conditions will value actually accrue to the token?

How can you make it so that the token's actually worth something?

Another thing we could dive really deep into on how to value these tokens.

But we look at some of these systems for tokens and maybe they have a really great team, maybe they have a market that's really interesting, maybe they've built some real technology.

But then we get to the token and either it doesn't feel like value is going to accrue or it feels like the model is broken somehow.

And either good actors aren't incentivized enough to do what they have to do on the network or bad actors are overly incentivized to do bad things to the network.

And so digging in on that model is such a new concept that I think that'll be a really big piece of, you know, more and more people are becoming experts on that.

And I think the best experts I've seen are either traditional economists who have looked at game theory, economic incentives.

Because what are games but a system of incentives and getting people to do certain actions.

And so thinking about game economies and how those are designed, I think we're going to see people move over from that industry into this token economic evaluation.

Let's go back a little bit to something you said before.

You mentioned that, and I agree that this is great for projects like Wikipedia or Linux that are foundational and traditionally have been underfunded.

You see that Wikipedia is always asking for donations because they don't have enough money to continue.

So if I'm starting a project like that, how do you take on the recent statement by the SEC chairman that most tokens are securities instead of, and he hasn't seen any utility token per se?

And I should caveat that this is not legal advice, and everyone should get good counsel and talk to your lawyers.

So my reading of Chairman Jay Clayton, the SEC Commissioner and Chairman, his remarks over the past couple months has been that he hasn't seen an ICO an initial offering of a coin That wasn't a sale of securities.

think there's nuance there He's not saying that the tokens will always be securities He's saying that the initial offering is securities.

And without getting too in the weeds on the securities law here, there's this thing called the Howey test, which is a test in the United States of whether something's an investment contract or security.

And I think what he's saying is, at the time of the offering, these things are going to be securities.

Because 1 of the components of the Howey test is, is this project dependent on the efforts of a single company, a single entity?

There's other factors you have to consider.

And at the time of the offering, when the offering's happening, almost certainly it's going to be dependent on the efforts of a single company.

And so it's probably a security at that point.

But our belief, and what's being sorted out right now, I think, publicly and trying to be sorted out with the SEC and with these projects is, is it possible for something to convert from being a security at 1 point to a non-security at some point?

And if so, where's that line and how do you determine that?

So what we see is this idea that, yeah, it looks like these offerings are going to be offerings of securities.

We think a lot about how to sell securities to certain sets of investors.

There are other ways to sell securities to different sets of investors.

And we may just need to deal with the pain of that.

But it's in the interest of protecting investors and in the interest of protecting the innovation that's happening in the space.

And at some point, we will figure out where that line is and how these things can be non-securities at some point and be used way more freely and traded more freely among all users and investors.

And where's the current thought on that conversion, if ever it's going to happen?

Yeah, I think there's not a really clear guidance.

The Howey test is a facts and circumstances based analysis.

That's the term you'll always hear from lawyers

And so there's facts about what the thing is and how it works, and the circumstances of its current state.

And so there's no, at least right now, there's no bright line.

But when it fails, the prongs of the Howey test is when it, if you pass the Howey test, you're a security.

So counterintuitively, we want people to fail this test.

So so when it fails the Howie test at some point, when it fails these prongs and that's when it'll become a non security.

But the way to get there isn't, you know, someone sitting in a room and saying like, yeah, I'm feeling like this isn't a security now.

You go to great counsel who has deep securities law experience and you say, how about now?

And they do a legal analysis on it, and they come to you and they say, here's our memo.

We think this thing is now not a security.

And then you can try and operate with that assumption.

So in this line of reasoning, the SAFT that CoinList has used for Blockstack and Filecoin, it could be a security at the beginning, and then when the token is released that would transition into a utility?

So The idea is that the SAFT, the Simple Agreement for Future Tokens, which was developed by Protocol Labs and Cooley, is a security.

In the same way the YCSafe is a security, it's a security.

You're selling a promise of something in the future as issued by a single company.

The idea is that at some point, when the network's live and perhaps when the thing's not considered a security anymore by legal counsel, at that point, SAFT holders will redeem for tokens and those tokens will be non-securities.

The SAFT will always have been a security, but the tokens that get outputted at some point are non-security.

So that's the theory behind what the SAFT is and how it functions.

Okay, and so to go back a little bit on the point about sales, what is the test you guys run?

Like, okay, this seems like legit sale and maybe give an example of like, I don't know about this other scenario.

So for us, it's actually this formal legal diligence process as a result of how we're structured to make sure we're in compliance.

We have what's called a registered investment advisory entity.

And Coinless doesn't invest in these projects, but we make an investment decision and recommend the investment to investors that are clients of

So there's actually a formal process we have internally that involves a technical advisory committee, so some of the top developers in the space, a market advisory committee, so some of the top investors and luminaries in the space, giving us feedback on the project.

And then on top of that, deep legal diligence.

Doing things like bad actor checks on the projects themselves.

Doing things like understanding how they operate, how the company operates, how it's built out.

And then really writing an investment memo and digging in on the project itself on some of the facets that we mentioned before.

And it goes to our internal investment committee.

They come out and they say, Hey, we're good to go.

And at that point we can promote the sale and show the sale to the investors that are clients of ours on the platform.

Separate from that, we have a whole separate compliance service that we'll provide to people that even if they don't pass that, or even if they don't want to go through that process, we can still help them with this compliance piece.

And so even though we've only run 3 of these publicly and shown them on the platform, you know, there are 20-ish live right now that are using our compliance solution

And then do they move into a valuation area?

Like, are you providing guidance there as well?

We informally help these companies figure out their sales structure if we're gonna work with them.

We wanna be helpful to our partners, but ultimately it's not our decision.

And if they, that's part of the investment process, the investment advisory diligence process is understanding how their value, we can't make an investment recommendation without knowing what the price is.

We'll go back and forth with them on that and help them sort that out based on best practices and how the market's evolving.

And as for the next step there, once the due diligence is done, and you say, okay, this is a great project, what are the options that a great protocol has?

Because I know there are different regulations like Red D, Red A, which ones?

This is under the assumption that you're considered to be selling a security, which again, we believe all of these are, or all of them have been thus far.

So there's a number of, when you sell a security to investors, you have 2 options.

And the second option is a million sub options.

So that's like when someone files publicly, right?

They say, I'm registering this with the SEC and we're selling the security.

The SEC hasn't taken, hasn't accepted any securities registration so far.

That's not the path any of these sales have taken, but that's fine.

And just to give a sense there, when we do venture capital investments, we often exempt them.

You're allowed to exempt these things instead of registering them.

There are a bunch of exemptions for selling securities.

And it's actually probably instructive to run through a few of the ones that are being used a lot right now and we see as interesting.

So the 1 that Coinless deals with the most is what's called Reg D 506C.

And this is selling to only accredited investors.

So people with specific criteria isn't worth getting into, but significant net worth or income who are considered sophisticated investors.

And you're allowed to sell to them with certain restrictions and limits.

So the Filecoin and Blockstack and Prop sales that were helped by Coinlist were all Reg D 506 C offerings.

And part of that is you need to check these people's accreditation status.

You need to get evidence of net worth or income.

And that's for very small private sales where you have an existing relationship.

The issuer has an existing relationship with the investors.

And at that point, you can have the investors attest that they're accredited as opposed to providing all this evidence.

It's a little bit easier, but it's way more restrictive in terms of how many investors you can have in.

So part of 506C is general solicitation, saying publicly, the sale's happening.

It's only private people you have a relationship with.

So there's Reg CF, crowdfunding regulation, which came in after the Jobs Act in 2012.

And that is actually allowing you to sell to unaccredited investors.

But there's similarly a bunch of restrictions on that.

You can only raise $1.07 million with Reg CF right now, although that may change soon.

so Republic is a sister company of ours and they do reg CF offerings.

So they sell to unaccredited investors and they have actually a whole Republic crypto division now that is doing just these crypto deals.

So For example, with the prop sale, sometimes you can get the benefits of more than 1 of these.

For props, we sold a bunch of props to investors using Coinless.

And then separately, Republic sold a million dollars worth to unaccredited investors.

On top of that, just a couple of those that are worth mentioning.

Reg S is another exemption you can use to sell to international investors.

There's geographic restrictions on how it's transferred and all of that.

But you then have to comply with those countries securities laws as opposed to the US.

So you don't need to check them to US accreditation standards.

You can check them against that country where the investors from.

Well, let's go a little bit deeper on that.

Because I know like with crypto stuff, like the international things are like, you know, are you in Switzerland or Gibraltar or wherever?

Like, where are things going in the future?

I know right now it seems completely fragmented.

Everyone's operating at a different pace with different regulations.

I think we're really gonna have different projects do different things.

And 1 of the beautiful things about crypto is that it's global, it's distributed.

And that's both, I think, just practically true.

A lot of way more big projects for the stage we're at are around the world as opposed to being right in the US as compared to other industries.

But it's also, I think, a philosophical thing that crypto is distributed by its nature.

And so people take that to its fullest extent and distribute themselves.

There are advantages and disadvantages to each of these jurisdictions.

And I'll probably say this 40 times on this podcast, we are so early in the industry that most of these countries have not really nailed down exactly how these things are gonna be treated.

Some of them need to clarify their securities law as a result of this.

And so we're gonna see a lot of things shift.

I really believe that the US is going to do the right thing.

The regulators have been incredibly thoughtful so far.

They've taken their time in understanding the space.

But what we'd love to hear from them and what they're saying is we're going to apply existing regulation to this.

They're not trying to write a whole new book of laws on how to govern ICOs.

Not interesting to them, not interesting to us.

What the answer is, is securities law, commodities law, currency law, pretty well-lit, well-understood areas of the law.

There's some edge cases around crypto that we need to figure out exactly how to apply them.

So that's the challenging part, this question of when does something transition to being a utility.

And so I think we'll still see a ton of sales happening in the US.

And at the end of the day, just practically, If you want to run big token sales, there's a lot of capital in the US.

And if you're selling to US investors, even if you're not in the US, you've got to comply with US securities law.

At the end of the day, I think a lot of projects will be headquartered in the US, or even if they're not, they'll sell to US investors.

there are certainly advantages to being in other jurisdictions as well for all sorts of reasons from regulatory to even just where the talent is in some cases.

See all Y Combinator transcripts on Youtube

CoinList Cofounder Andy Bromberg and Ramon Recuero