What if I told you a giant mural on the side of a building in downtown Memphis is an NFT filled with unreleased Elvis Presley tracks? To download and listen to the tracks, you have to visit the location and scan the RFID chip or QR code outside the mural. Would you be interested in visiting the location?

Well, this is exactly what we accomplished! Except for the whole unreleased Elvis Presley tracks. We definitely did not do that. If Graceland reads this blog post, however, reach out and we can help you make it happen!

What we did do is create a technical demonstration riffing on earlier ideas from technology that allows the removal of middlemen and intermediaries. These so called “Trustless Trusts” use blockchain and smart contracts to interact with programmable value and Real World Assets in new and imaginative ideas. In this instance the vector of value is this awesome real life, supersized mural in Memphis Tennessee. Read all about the NFT that is charged with 100K that will generate interest for a charity St. Judes in a form of lossless charity that does not exhaust any of the principal.

A superpower of smart contract blockchain systems is their permissionless composability. We can start to plug various protocols together to interact in interesting and powerful ways. Much like Voltron.

https://www.youtube.com/watch?v=2M3cyCFWChg

We will use a few protocols here and the rest is more of recipe on “how to” for those that are technically inclined to follow along.

1. Charged Particles — a protocol that lets you put digital assets inside your NFTs. Now, ordinary NFTs (think neutral molecules) can contain a digital “charge” inside — ERC20, ERC721 or ERC1155 — giving you the unprecedented power to create nested NFTs. If you can digitize it, you can deposit it into your NFTs.
2. Kali DAO protocol — Launch DAOs with Legal Benefits in Seconds
3. Aave — Earn interest, borrow assets, and build applications
4. Polyscan— The block explorer which allows interaction with smart contracts on the blockchain without needing to directly use a front end.

The required action is to take the interest generated from a Charged Particle NFT that is charged up with Aave (interest bearing)tokens and direct them to a third party wallet and demonstrate the ability of a Kali DAO to manage the NFT and dispense the interest through its arbitrary external calls. Why? DAO’s need to be able to interact directly with smart contracts via their governance protocols and procedures. The power is that communities can serve as decentralized, autonomous (or not) bodies to manage valuable assets on digital blockchain ledgers. Otherwise, the DAO’s all need gatekeepers, fiduciaries and intermediaries to do the things they want to do.

Step 1 — Set Creator Annuities: Original Minter needs to set.

We use the Charged Particles protocol for nesting value generating ERC20’s into a NFT. To learn all about the protocol check out the website here. The accrued Aave tokens that build up the charge in a NFT can be dispensed to a 3rd party wallet, such as a charity. The “creator annuity” is the stream of interest/accruals in the Aave lending protocol. We assign the stream.

Charged Particles Contract on Matic : 0xdc29C7014d104432B15eD2334e654fCBf3d5E528

Go to Write as Proxy: Function 11 on polyscan

Percent is multiplied by 100. So if we want to assign 99% and hold 1% of the Creator Annuity (the Aave Interest) then it is 9999 as in the schematic. The creator annuity is the amount of value (the “charge”) that gets accrued through depositing Aave tokens into the NFT.

The contractAddress is the Proton Address: 0x1CeFb0E1EC36c7971bed1D64291fc16a145F35DC This is the contract for the Protons. Protons are the NFT’s that are minted using charged.fi.

Third Party address: 0xcbbd18d3ac27ab0fffd04bccd091b2802c92e0ca for testing. This is the beneficiary of the interest on the 99% split above.

TokenID — Is the NFT token ID that we are working with (the “Proton”). Each NFT-721 has a unique token ID (URI).

Step 2 — Claim Creator Annuities: Original Minter needs to set the split in Step 1

Go to Write as Proxy: Function 6 on polyscan

The function #6 is dischargeParticle that claims the accrued charge and splits. As I found it does take a minimum amount of charge before this will be claimable.

• The receiver is the party minter of the Proton (the Creator)
• Contract address is same as above the Proton Address
• TokenId is same as above and is the NFT token id
• wallentManagerID is for Aave the v2 should be aave.B
• assetToken depends on the Aave token in question. The above was for wMatic. Would need to get the token contract address accordingly if it is another token.

Step 3 — DAO control and Management of the NFT “Proton” and claiming

It is easy enough to transfer the NFT to a DAO Treasury. Here is a Kali Dao formed called BirdDAO on Matic Chain. It is a Kali-generated, unincorporated non profit association (“UNA”) in DE, and not intended to generate profits and only to decentralize the process of trustlessly managing NFTs and DAO assets. Learn more about UNA’s here from A16z.

Transfer the Proton NFT to the DAO treasury address above.

Step 4 — DAO proposal to “claim” the accrued interest.

If this were a charity such as Giving Block then a user could assign the split in Step 2 directly to the Ethereum wallet generated by the Giving Block. Here is their address for St. Jude’s Children Hospital. There appear to be limited options beyond Ethereum ERC-20’s, but worth checking in to see if they also support Matic.

Kali allows external calls to smart contracts that are then treated as proposals and then execute so long as they are passed via governance. This is similar to how DAO actions and votes might be signaled through a proposal, but all happens within the DAO and on-chain executable. In other words, this actually will become executable if it is passed via the DAO governance.

Next we click Calls under new proposal, enter the contract we want to call. In this case it is the same as in Step 2. We paste in the ABI and parse. We then select the function dischargeParticle and it should look similar below.

Here we use a different tokenID #11 that is charged with USDC into Aave Matic.

The USDC token address on Matic is here. Other variables should be the same as above. We submit a proposal and then it enters the queue. Protip always increase the Matic gas to a high or medium as it seems to underestimate for some reason.

Step 5 — DAO votes

Here we vote as a DAO. The voting period is three days. If the vote carries then come back and process it and it will execute on chain.

Congratulations, we have just used a NFT that is managed by a DAO, that is a legal entity, to discharge interest to a third party beneficiary. Natural extensions of this use case.

1. Real Property — Collect security deposits and rent and have them wrapped into value accruing assets.
2. Accounting- Assign a percentage of the income to taxable accounts to pay THE man.
3. Charity — well duh.
4. Management- DAOs working with contract workers can preassign the stream to the management company

NFTs as Proof of Endowment… or, EnDAOment was originally published in LexDAOism on Medium, where people are continuing the conversation by highlighting and responding to this story.

Hironymus Bosch Ludwig, called Hiro by his friends, was cloaked in dirt. Not the outside variety that easily brushes off. The ashen claylike muck was the type only found accumulating indoors in places that haven’t been disturbed in decades. He had repeatedly put off the task at hand since his Uncle Alpert had passed away the preceding spring. Alpert was the last of his branch of the family tree, that is, other than Hiro. His Nike limited edition unitard was caked in the ashen muck as he rummaged through his families’ attic at the old farmstead. He felt the country chill penetrate the woven circuity of his suit. He toggled the switch, turning the color dark to better cloak the soot from the appearance of others and turned up the temperature of his suit. The fibers twisted and contorted to differentiate the reflected light wavelengths and provide the appearances of darkness to any onlookers. Which currently, there were none.

The autonomous network of bee drones that insured compliance with The Code generally avoided remote locales at the farm. The absence of their whirring, buzzing and beeping was palpable to Hiro and the silence was oddly unsettling. The infernal quiet was why old paranoid Alpert preferred the solitude over the city. The bee drones were known to have mishaps around Uncle Alpert’s farm. He often joked of their mysteriously coming down with buckshot induced colony collapse disorder.

Hiro had no idea how long these boxes and file cabinets had remained undisturbed. From appearances, over a 100 years passed with the snapshot of the past treasures collecting dust particle by particle like sand at the beach. According to the calendar the house had been in his family for generations, going back to the early part of the 21st century.

The loss of his uncle left a numbness and uneasy emptiness that he was unable to shake. Outside of his metaverses, this was the first real death he had experienced. Alpert had not been well, but the loss still felt sudden. Things that should be said weren’t, and overall things didn’t feel settled. Alpert’s wishes were never properly conveyed. Hiro reckoned that coming to terms with the lack of existence was something that he would just have to get better at. The unsettling feelings were magnified at the farm (his uncle’s farm) and in the attic the feelings morphed to guilt from the sharp feeling of his intrusion. Who was he, to rummage through these physical artifacts, trying to categorize and select the keepers from the trash. The unmistakable feeling kept rising to the surface, was it ALL trash? Hiro had no use for these THINGS, these treasures to another consciousness. Most of Hiro’s treasured things weren’t exactly physical.

His curiosity at all the antiquity hung palpably in the air similar to the must gathering in the sealed attic. Hiro rummaged through old files, card stock with dead baseball players, tax returns, stuffed animals with the word Beanie Baby stamped into their skin. On the old wooden desk were bills for the delivery of charged electrons, and various other musings. The Code would probably not allow for the incineration of these treasures at the farm. The cost of transit, reclamation fees, and disposal costs began to balloon in Hiro’s neural linked calculator. He thought to himself that there has to be a respite from underpaid carbon tax…..in The Code, doesn’t there? How can someone just die and leave a liability to their heirs?

Deep in the stack of “Successful Farming” magazines, some oddity caught Hiro’s attention. Feathered into the magazines were random papers with QR codes and strings of random words. These random words were not in any particular order, just separated in columns and numbered 1–16. In some deeply underused part of his network, the 16 words were able to prompt the memory of Alpert telling him about something called a “seed phrase”. At the time, 5 year old Hiro, just assumed they had to do with farming. But he didn’t have the slightest idea what he should do with this information. Maybe he would sleep on it. He sometimes could set his neural network to probe for memories a little deeper using an index clue, but the effectiveness was amplified when he was asleep and the dream program was running on the frontal lobe end.

He noticed that he was exhausted anyway. This was the most work he could remember doing in years. Of course, pretty much any work would be the most that he had done in years. Most of the muscle toning was done when the mind was engaged in The Game. The body will play when the mind is away, they say. Hiro was happy that he could still use his neural headset on the farm, and run the dream program as it was not reliant on the network to propagate. He wasn’t sure that he could ever remember falling asleep on his own.

The requirement that the neural network dream programs be local storage became part of The Code after the so called Boogie Man dream hacks, caused so much mental damage in the 50’s. Hard to believe that one hacker, with access to humanity’s neural core could cause so much damage in one December night. Christmas was never the same.

Hiro slipped into the pod, put on his headset, and toggled to the Neon District dream. That would distract him, and like a switch he was off.

Epoch 2….TBD

ESTO PERPETUA is an experiment in the physics of charity and creative energy. It will be a story adventure using NFT’s, defi and the metaverse as the spirit guide.

This NFT artwork and some of the illustrations were created by Mikko Lyytinen

For more from the artist check out http://www.mikkolyytinen.com/

The accrued charge (the “creator annuity”) from this NFT will go to a charity address using an address minted from thegivingblock.com that will be collected on Matic via HiroDAO.

The idea is to use this NFT to collect a charge for the benefit of a charity. When there is 1,000 DAI (or other value) charging on the matic NFT, then the second Epoch of the story will be released.

The charity is APOPO US that trains HeroRats to sniff out landmines and unexploded ordnance. They are also used in the early detection of tuberculosis.

The creator royalty of 10% will be split between the original artist that helped Mikko Lyytinen and the Author. This will only happen (at the earliest) in 2023 to allow time for the charity to accrue interest. This initial sale (if it happens), less royalty, will also go to charity.

To charge the NFT for charity, go to Matic chain address and the NFT is here. For more on the mechanics see the article on charity and Trustless Trusts

Trustless Trusts — What if Assets can be Passed Between Parties without Trust?

There have been numerous debates over Ethereum style smart contracts. Are they smart? Are they contracts? What is clear, is that these computable commitments are able to run on “turing complete” blockchains deploying code “smart contracts” to serve and mimic legal structures. In other words, they are able to remove human intermediaries and offer predictable and programatic patterns of governance over assets. Traditional legal systems, in our zone of familiarity, with require intermediaries and/or judges to adjudicate the assets’ ownership.

In this article we will use existing platforms to mimic various properties of a trust using NFT’s and decentralized finance. Probably need a better name than trustless trusts, but that leaves open the possibility of calling them T&Ts.

What is a Trust?

One definition is “an obligation arising out of a confidence reposed in the trustee or representative, who has the legal title to property conveyed to him, that he will faithfully apply the property according to the confidence reposed, or, in other words, according to the wishes of the grantor of the trust.”

So in simplest terms you have the giver of the property the “Settlor”, who gives property into a Trust to a “Trustee”, in charge of managing the trust, for the benefit of a third party, the “Beneficiary”.

Typical ways of making trusts are:

1. a written trust instrument created by the settlor and signed by both the settlor and the trustees (often referred to as an inter vivos or living trust);
2. an oral declaration or promise;
3. the will of a decedent, usually called a testamentary trust; or
4. a court order (for example in family proceedings) See also #FreeBritney

Not all trusts are so controversial, but for our purposes we will be exploring replacing and mimicking the first example of a written “trust agreement” with smart contracts, code, using an NFT. For comparative purposes, we look toward English common law for trusts which follow the “three certainties”. In the United States many states have passed versions of the Uniform Trust Code for statutory trusts. Either way the idea is whether a system that is based on “trusted” intermediaries can be mimicked to match the purpose of “trusts” where assets can be passed using distributed code on a blockchain. One is of law, and one is of code. The law has rules against perpetuities, the code has immutable code and infinite games.

The three certainties.

1. Certainty of Intent
2. Certainty of Subject Matter
3. Certainty of Objects

Can the three certainties be met using smart contracts and transactions on a blockchain such as Ethereum?

This is theoretical, but in this exercise we will go through some motions to see what a smart contract trustless trust might look like when trying to mimic the properties of a legal trust agreement while using code to remove intermediaries.

The Certainty of Intent

The intent prong seems fairly easy to meet. The singular actions speak louder than words may be enough to signal intent. For example, if we sign an Ethereum transaction that moves tokens into a contract, that benefits another Ethereum address. That would seem to be fairly clear prima facie evidence of intent. Lawyers would likely want to frame the actions with words in the form of a written agreement. The written “code deference” trust agreement could be referenced in an NFT as part of the metadata. Or even through a signed statement through products like EthSign, Openlaw, or Signator.

The Certainty of Subject Matter

Similarly this prong is more about separateness of the property intended to be held in the trust. Through the action of telling the smart contract, which other private key or smart contracts have approval to move the assets it is easy to mimic the complete separation of property similar to putting it in a digital vault. In other words, these digital assets can be segregated to the point that only certain other permissioned parties (if any) can effectuate a transfer or spend of the digital property. Therefore, the assets can be segregated for all intents and purposes similar to physical assets such as gold or cash.

Certainty of Objects

This prong is a little messier as it generally requires certainty of the beneficiaries of the trust being known. In our example the beneficiary would be the holder (or holders) of the private keys associated with a blockchain wallet. Therefore it is possible in the case that the keys are irretrievably lost that a trustless trust would vapor lock the assets and they would be immutably lost, similar to buried and lost treasure at the bottom of the ocean. Many modern trusts have the ability to appoint some discretion into the trust for the trustee to be able to carry out the intent of the trust. This is obviously useful for new found children that arise after the original trust, but not expressly written into the agreement. Similarly, with a trustless trust, one could maybe see a disparate DAO used as a multisig to retrieve, manage and disperse trust assets in accordance to any written instructions. In other words, disputable safety rails can be programmed into the pattern that would may be able to intervene in certain edge cases.

Example for Making a “Trustless Trust” pattern.

Now that we covered some basics, no need to recreate the wheel and develop smart contracts from scratch. There are fascinating possibilities of using NFT’s and defi tokens bundled together to carry out the intent of parties in computationally certain and predictable ways. To learn a little about a smart contract protocol that can be used, check out this article from Charged Particles platform.

In order to tease out the ideas of what happens when digital assets are lost and rediscovered I wrote a piece of immersive fiction as described here. On the surface it is a story about rummaging through the ghosts of the past, but hopefully it will bring up questions of purpose and adventure as well. Not many things last and what happens to digital artifacts will be as fascinating as excavating Egyptian tombs.

We use the special mechanics of Charged Particles and DeFi to direct the rewards from Aave tokens to a charity Web3 address. The idea is simply to have a NFT that is converted to a “digital wallet” that can store any ERC20 token. To the extent that a token is AAVE supported with a lending pool, then the ERC20’s are deposited and converted to aTOKENS that are earning yield from the Aave protocol. To oversimplify, the tokens will have a portion that looks like “principal” and then will accrue rewards that look like “interest”. The idea of calling it tokenized spawn has not taken off, so I will use the imperfect nomenclature of principal and interest from here on.

Separation of the Principal from the Interest

Let’s say we;

1. First mint this NFT from Esto Perpetua. To properly view you must be on the Polygon blockchain.
2. Deposit or have a 3rd party deposit micro donations. For example, Matic or Dai is wrapped into Aave and deposited into amWMATIC or amDAI respectively. These tokens then go into the lending pools on Aave.

Now we have a NFT that is holding principal and accruing interest. From this point, there are many interesting legal engineering things that can be done. Only a little imagination and digital elbow grease is required.

1. The NFT can be timelocked. What this means is that the owner of the NFT can’t remove the ERC20’s for a fixed amount of time. This ensures that the token will accumulate interest for a timeframe without dispersal of the corpus (the principal).
2. The interest stream can be separated from the principal and assigned to another address.
3. This assignment under the current smart contract has some dependencies. One the owner of the NFT is the party that can call, discharge and release the interest to the beneficiary.
4. The current max assignment is 35%, but it is possible to ramp this up to 90%.
5. Let’s start a DAO. In about 20 minutes we go to DaoHAUS and use their nifty front end to make a DAO with a charitable purpose. We added some members to govern the assets and we have HiroDAO. Hiro is the character from the story (and Snowcrash) and the charity is for Herro Rats that are trained to sniff out unexploded landmines and tuberculosis.
6. Note that the DAO has a controlled wallet of its own here, a “Minion”, that serves as the HiroDAO non rage quit-table wallet. We called this Alpert from the story Esto Perpetua.
7. For open finance fans, it is neat that the treasury and transactions are very transparent and open in real time. Wish I could say the same of many other larger charities.
8. We use this wallet address for the Minion as the assignee. So now “Alpert” is the beneficiary of 35% of the earned interest from the NFT.

WHAT DOES THIS LOOK LIKE ON THE BLOCKCHAIN

Currently there are only a few donated matic that were wrapped into interest generating Aave tokens. Below in the image, it is clear that there is a time lock until September 15, 2022. In other words, the principal/corpus cannot be removed by the NFT owner until then. Also, there is some incremental interest that has accrued in the NFT. We will click the discharge button and the interest is split and will follow the assignment 35% to the Minion and 65% to the Owner of the NFT.

Next we check the Alpert wallet, and in fact that discharge is split, though with an infinitesimal amount of value.

To recap and put into trustless trusts terms, we have a Settlor that donated something of value (a “Corpus”) to a smart contract. This smart contract wraps the ERC20’s into yield generating assets and splits the Corpus into its Principal and the Interest income that is generated. The trustee smart contract can be time locked to prevent exhaustion of the Corpus (no loss) donations. Then the interest can be split and assigned to a charity non-profit DAO (the “Beneficiary”), that is controlled by a multisig that is also on chain and open where anyone can view the transaction history and balance of the HiroDAO charity and expenditures.

What Next?

Hopefully we can start exploring the bluesky that this T&T model allows for having no-loss charity. There are additional smart contract patterns that are ripe for the picking. Examples:

1. Immutable Charity, where the income from the NFT is directed to a charity 100% and the NFT is “burned”; this would mimic a perpetuity where the income for better or worse is permanently directed. In other words an irrevocable enDAOment.
2. More customizable options, that allow splitting of the interest stream amongst multiple beneficiaries.
3. Timelocks that are longer than 1 year to allow for longer term faith that the corpus will be untouched.
4. Oracle dependent releases of “discharge” or release functions. One could easily have a database that would only release the corpus upon a certain event, such as death. The future might be such keeper bots scouring the oracles looking for keys to transfer assets. Basically the keeper bots would fund nonprobate transfers of assets on predetermined events.
5. Nesting and stacking and waterfalls. What if a Charged Particle NFT is used to send interest to another Charged Particle NFT until it reaches a certain threshold and then redirects the stream to another NFT. This could be almost like an automagic redirecting charity.
6. Trusts that blend defi and permissions that grant parties the rights and obligations to serve as trusted intermediaries. For example, the NFT could be held by a DAO that awaits written instructions from a wallet on the blockchain to disperse interest or release corpus.

THE ASK

I really like the idea of no loss altruism that enables doing good with only the opportunity cost of valuable things. Hopefully people will enjoy the low transaction costs to demonstrate micro transactions that are really only possible on matic and other sidechains. The fiction story that is referenced in the NFT is split into three parts. The first I am releasing here. I hope you like it and if we are able to get $1,000 worth of defi wrapped into the charity NFT (that benefits HiroDAO) then I will release the second part. The NFT is on Matic, so even donating 1$ or 2$ in tokens will add up and is possible with cheaper transaction costs.

Either way, give it a read and let us know what you think.

Special thanks to Nick Rishwain for providing feedback.

About LexDAO

LexDAO is a non-profit association of legal engineering professionals that brings the traditional legal settlement layer to code, and coded agreements to the masses. We believe that everyone deserves access to justice provided in a quick and efficient manner. If legal services were easier to use, verify, and enforce, we could live in a fairer world. Blockchain technology offers solutions to many problems in the legal space. Our mission is to research, develop and evangelize first-class legal methods and blockchain protocols that secure rules and promises with code rather than trust. We do this by training LexDAO certified legal engineers and building LexDAO certified blockchain applications. We strive to balance new deterministic tools with the equitable considerations of law to better serve our clients, allies, and ultimately citizens.

All links provided are for informational purposes only and not meant as recommendations of the people or products. Nothing herein is legal or financial advice and should not be relied upon without reaching out to your own personal attorney. The linked ABA disclaimer is appended to the blog.

Follow us on Twitter @lexDAO

Join our Discord lexdao.chat

Peruse our Github https://github.com/lexDAO

Trustless Trusts — What if Assets can be Passed Between Parties without Trust? was originally published in LexDAOism on Medium, where people are continuing the conversation by highlighting and responding to this story.

Rules against perpetual virtual machines

First Published on LexDAO substack here on December 21, 2021

There have been numerous debates over Ethereum style smart contracts. Are they smart? Are they contracts? What is clear, is that these computable commitments are able to run on “turing complete” blockchains deploying code “smart contracts” to serve and mimic legal structures. In other words, they are able to remove human intermediaries and offer predictable and programatic patterns of governance over assets. Traditional legal systems, in our zone of familiarity, with require intermediaries and/or judges to adjudicate the assets’ ownership.

In this article we will use existing platforms to mimic various properties of a trust using NFT’s and decentralized finance. Probably need a better name than trustless trusts, but that leaves open the possibility of calling them T&Ts.

What is a Trust?

One definition is “an obligation arising out of a confidence reposed in the trustee or representative, who has the legal title to property conveyed to him, that he will faithfully apply the property according to the confidence reposed, or, in other words, according to the wishes of the grantor of the trust.”

So in simplest terms you have the giver of the property the “Settlor”, who gives property into a Trust to a “Trustee”, in charge of managing the trust, for the benefit of a third party, the “Beneficiary”.

Typical ways of making trusts are:

1. a written trust instrument created by the settlor and signed by both the settlor and the trustees (often referred to as an inter vivos or living trust);
2. an oral declaration or promise;
3. the will of a decedent, usually called a testamentary trust; or
4. a court order (for example in family proceedings) See also #FreeBritney

Not all trusts are so controversial, but for our purposes we will be exploring replacing and mimicking the first example of a written “trust agreement” with smart contracts, code, using an NFT. For comparative purposes, we look toward English common law for trusts which follow the “three certainties”. In the United States many states have passed versions of the Uniform Trust Code for statutory trusts. Either way the idea is whether a system that is based on “trusted” intermediaries can be mimicked to match the purpose of “trusts” where assets can be passed using distributed code on a blockchain. One is of law, and one is of code. The law has rules against perpetuities, the code has immutable code and infinite games.

The three certainties.

1. Certainty of Intent
2. Certainty of Subject Matter
3. Certainty of Objects

Can the three certainties be met using smart contracts and transactions on a blockchain such as Ethereum?

This is theoretical, but in this exercise we will go through some motions to see what a smart contract trustless trust might look like when trying to mimic the properties of a legal trust agreement while using code to remove intermediaries.

The Certainty of Intent

The intent prong seems fairly easy to meet. The singular actions speak louder than words may be enough to signal intent. For example, if we sign an Ethereum transaction that moves tokens into a contract, that benefits another Ethereum address. That would seem to be fairly clear prima facie evidence of intent. Lawyers would likely want to frame the actions with words in the form of a written agreement. The written “code deference” trust agreement could be referenced in an NFT as part of the metadata. Or even through a signed statement through products like EthSign, Openlaw, or Signator.

The Certainty of Subject Matter

Similarly this prong is more about separateness of the property intended to be held in the trust. Through the action of telling the smart contract, which other private key or smart contracts have approval to move the assets it is easy to mimic the complete separation of property similar to putting it in a digital vault. In other words, these digital assets can be segregated to the point that only certain other permissioned parties (if any) can effectuate a transfer or spend of the digital property. Therefore, the assets can be segregated for all intents and purposes similar to physical assets such as gold or cash.

Certainty of Objects

This prong is a little messier as it generally requires certainty of the beneficiaries of the trust being known. In our example the beneficiary would be the holder (or holders) of the private keys associated with a blockchain wallet. Therefore it is possible in the case that the keys are irretrievably lost that a trustless trust would vapor lock the assets and they would be immutably lost, similar to buried and lost treasure at the bottom of the ocean. Many modern trusts have the ability to appoint some discretion into the trust for the trustee to be able to carry out the intent of the trust. This is obviously useful for new found children that arise after the original trust, but not expressly written into the agreement. Similarly, with a trustless trust, one could maybe see a disparate DAO used as a multisig to retrieve, manage and disperse trust assets in accordance to any written instructions. In other words, disputable safety rails can be programmed into the pattern that would may be able to intervene in certain edge cases.

Example for Making a “Trustless Trust” pattern.

Now that we covered some basics, no need to recreate the wheel and develop smart contracts from scratch. There are fascinating possibilities of using NFT’s and defi tokens bundled together to carry out the intent of parties in computationally certain and predictable ways. To learn a little about a smart contract protocol that can be used, check out this article from Charged Particles platform.

In order to tease out the ideas of what happens when digital assets are lost and rediscovered I wrote a piece of immersive fiction as described here. On the surface it is a story about rummaging through the ghosts of the past, but hopefully it will bring up questions of purpose and adventure as well. Not many things last and what happens to digital artifacts will be as fascinating as excavating Egyptian tombs.

We use the special mechanics of Charged Particles and DeFi to direct the rewards from Aave tokens to a charity Web3 address. The idea is simply to have a NFT that is converted to a “digital wallet” that can store any ERC20 token. To the extent that a token is AAVE supported with a lending pool, then the ERC20’s are deposited and converted to aTOKENS that are earning yield from the Aave protocol. To oversimplify, the tokens will have a portion that looks like “principal” and then will accrue rewards that look like “interest”. The idea of calling it tokenized spawn has not taken off, so I will use the imperfect nomenclature of principal and interest from here on.

Separation of the Principal from the Interest

Let’s say we;

1. First mint this NFT from Esto Perpetua. To properly view you must be on the Polygon blockchain.
2. Deposit or have a 3rd party deposit micro donations. For example, Matic or Dai is wrapped into Aave and deposited into amWMATIC or amDAI respectively. These tokens then go into the lending pools on Aave.

Now we have a NFT that is holding principal and accruing interest. From this point, there are many interesting legal engineering things that can be done. Only a little imagination and digital elbow grease is required.

1. The NFT can be time locked. What this means is that the owner of the NFT can’t remove the ERC20’s for a fixed amount of time. This ensures that the token will accumulate interest for a timeframe without dispersal of the corpus (the principal).
2. The interest stream can be separated from the principal and assigned to another address.
3. This assignment under the current smart contract has some dependencies. One the owner of the NFT is the party that can call, discharge and release the interest to the beneficiary.
4. The current max assignment is 35%, but it is possible to ramp this up to 90%.
5. Let’s start a DAO. In about 20 minutes we go to DaoHAUS and use their nifty front end to make a DAO with a charitable purpose. We added some members to govern the assets and we have HiroDAO. Hiro is the character from the story (and Snowcrash) and the charity is for Herro Rats that are trained to sniff out unexploded landmines and tuberculosis.
6. Note that the DAO has a controlled wallet of its own here, a “Minion”, that serves as the HiroDAO non rage quit-table wallet. We called this Alpert from the story Esto Perpetua.
7. For open finance fans, it is neat that the treasury and transactions are very transparent and open in real time. Wish I could say the same of many other larger charities.
8. We use this wallet address for the Minion as the assignee. So now “Alpert” is the beneficiary of 35% of the earned interest from the NFT.

WHAT DOES THIS LOOK LIKE ON THE BLOCKCHAIN

Currently there are only a few donated Matic that were wrapped into interest generating Aave tokens. Below in the image, it is clear that there is a time lock until September 15, 2022. In other words, the principal/corpus cannot be removed by the NFT owner until then. Also, there is some incremental interest that has accrued in the NFT. We will click the discharge button and the interest is split and will follow the assignment 35% to the Minion and 65% to the Owner of the NFT.

Next we check the Alpert wallet, and in fact that discharge is split, though with an infinitesimal amount of value.

To recap and put into trustless trusts terms, we have a Settlor that donated something of value (a “Corpus”) to a smart contract. This smart contract wraps the ERC20’s into yield generating assets and splits the Corpus into its Principal and the Interest income that is generated. The trustee smart contract can be time locked to prevent exhaustion of the Corpus (no loss) donations. Then the interest can be split and assigned to a charity non-profit DAO (the “Beneficiary”), that is controlled by a multisig that is also on chain and open where anyone can view the transaction history and balance of the HiroDAO charity and expenditures.

What Next?

Hopefully we can start exploring the bluesky that this T&T model allows for having no-loss charity. There are additional smart contract patterns that are ripe for the picking. Examples:

1. Immutable Charity, where the income from the NFT is directed to a charity 100% and the NFT is “burned”; this would mimic a perpetuity where the income for better or worse is permanently directed. In other words an irrevocable enDAOment.
2. More customizable options, that allow splitting of the interest stream amongst multiple beneficiaries.
3. Timelocks that are longer than 1 year to allow for longer term faith that the corpus will be untouched.
4. Oracle dependent releases of “discharge” or release functions. One could easily have a database that would only release the corpus upon a certain event, such as death. The future might be such keeper bots scouring the oracles looking for keys to transfer assets. Basically the keeper bots would fund nonprobate transfers of assets on predetermined events.
5. Nesting and stacking and waterfalls. What if a Charged Particle NFT is used to send interest to another Charged Particle NFT until it reaches a certain threshold and then redirects the stream to another NFT. This could be almost like an automagic redirecting charity.
6. Trusts that blend defi and permissions that grant parties the rights and obligations to serve as trusted intermediaries. For example, the NFT could be held by a DAO that awaits written instructions from a wallet on the blockchain to disperse interest or release corpus.

THE ASK

I really like the idea of no loss altruism that enables doing good with only the opportunity cost of valuable things. Hopefully people will enjoy the low transaction costs to demonstrate micro transactions that are really only possible on Polygon/Matic and other side chains. The fiction story that is referenced in the NFT is split into three parts. The first I am releasing here. I hope you like it and if we are able to get $1,000 worth of defi wrapped into the charity NFT (that benefits HiroDAO) then I will release the second part. The NFT is on Matic, so even donating 1$ or 2$ in tokens will add up and is possible with cheaper transaction costs.

Either way, give it a read and let us know what you think.

Special thanks to Nick Rishwain for providing feedback.

About LexDAO

LexDAO is a non-profit association of legal engineering professionals that brings the traditional legal settlement layer to code, and coded agreements to the masses. We believe that everyone deserves access to justice provided in a quick and efficient manner. If legal services were easier to use, verify, and enforce, we could live in a fairer world. Blockchain technology offers solutions to many problems in the legal space. Our mission is to research, develop and evangelize first-class legal methods and blockchain protocols that secure rules and promises with code rather than trust. We do this by training LexDAO certified legal engineers and building LexDAO certified blockchain applications. We strive to balance new deterministic tools with the equitable considerations of law to better serve our clients, allies, and ultimately citizens.

All links provided are for informational purposes only and not meant as recommendations of the people or products. Nothing herein is legal or financial advice and should not be relied upon without reaching out to your own personal attorney. The linked ABA disclaimer is appended to the blog.

Follow us on Twitter @lexDAO

Join our Discord lexdao.chat

Peruse our Github https://github.com/lexDAO

Trustless Trusts — What if Assets can be Passed Between Parties without Trust? was originally published in LexDAOism on Medium, where people are continuing the conversation by highlighting and responding to this story.

How to manage Real Property in a DAO (part 1/n)

Continuing on from this great article by eaglelex https://medium.com/lexdaoism/nfts-evolutions-from-collectibles-to-real-estate-72d657cec4b1. Real entities can manage real property, which is a captain obvious point. But DAO’s can also be real entities when they are basically companies that want to govern assets on a blockchain. RealDAO, LLC is a series LLC formed from Ricardian, LLC. RealDAO, LLC is formed to ideate around managing real property assets with DAO’s on the blockchain, tokenized as NFTs to start.

LLCs can, according to the states that they are organized under, buy, sell, rent, property in real life (“IRL”). Series LLCs are in a somewhat more legalistic purgatory. They are recognized in some states, such as Delaware, but treated as persona non grata in others (for example California). That said, they are regularly used and a growing component IRL and are often used for real property ownership and development.

You can see the RealDAO, LLC here which uses a DaoHaus front end to manage the DAO smart contract, that controls membership and assets.

For DAO-curious, you will also see the Ricardian LLC ‘NFT’ that is held via the DAO’s controlled minion, which is essentially an extension of the DAO’s authority that can execute more complex smart contract operations. Perhaps this is sufficient notice to those doing business with RealDAO to realize that they are contracting with a series LLC that is organized under the state of Delaware. It also demonstrates that the DAO can now control NFTs and manage them on behalf of the DAO. Further, the ‘master’ Ricardian LLC would/could theoretically ragekick RealDAO from the series by burning the NFT for sketchiness and malfeasance under its legal umbrella, as described in its operating agreements.

Why on God’s Green Earth would we want to have a DAO own real property?

The purpose of having a DAO own real property is not to “supplant” the real property records at the county courthouse and put land titling on the blockchain. The purpose is to layer a digital layer on top of the existing land records with legal entities that are DAO’s through code deference. It may be the case that legal land titles on the blockchain become a reality, but in likelihood this will be a 10 year process to adjudicate claims and move the existing chain of title onto a blockchain. This process will take political will as well, since many title companies and attorneys have invested heavily into having the books and records necessary to insure title.

What can a DAO as a legal entity do?

Legal DAOs can handle their internal governance “vote” to enact lease agreements, or other actions that govern assets held by the organization. From the starting point of legal entity “DAO” or “LAO” it is a short step, for the legal entity LAO, to enter into agreements, sales, loans, or just simply handle estate transfers and manage the property as a family LLC DAO. The following Venn diagram attempts to show the interplay between having a legal settlement layer IRL and also overlap for the smart contract settlement layer to handle digitized rights and governance:

What if you want to mint an NFT and use it as a placeholder to auction off real property?

For this tutorial we will use the following

1. We will use a RealNFT contract to mint the farm NFT.
2. Data and images are hosted using Pinata on IPFS.
3. Farmapper application creates a farm project with various documents, parcels, and data to publish a public URL. This is some of the ‘legal data’ to relate back to in the NFT metadata.
4. The LexLocker contract to lock the NFT into a double sided (buyer/seller) escrow smart contract. There are no intermediaries unless either the buyer or seller hail a resolver, locking the NFT for swift resolution. This escrow pattern will be fleshed out in Part 2 of this series.

Avid readers remember when we built a due diligence room on Farmapper in the cloud using tax assessor parcel shapes, legal descriptions, USDA Cropscape, and document storage to visualize a farm target for a purchase.

Similarly readers may remember using this pattern to prop up a gated due diligence room for interested parties. With the pattern shown in this article, much more powerful “real” asset management patterns become available.

If this is your first time hearing about Farmapper.com, it is a web application that allows a user to click on a point on the map and load shapes from a database to overlay over the map interface. These shapes can be saved, have documents saved to them, place icon stickers to mark improvements, and much much more. All of the information and data can be saved to a Farmapper project, that can then be used to generate a public URL or shared with other authenticated Farmapper users.

Can NFTs be wayfinders to the world?

An NFT is a token that is individually related by a certain NFT contract via a ‘token ID’ that points to certain metadata. For most NFT’s, that is a digital art file that is referenced through the metadata. At LexDAO, we want to develop a standard to relate the metadata to the information that might be useful to describe the “corners of the farm” and relate the real property to the “four corners” of a legal document.

Walking through the metadata, we show a .json file that the unique token references for its legal information. So when we look at a NFT on Opensea.io, these kinds of user-friendly front ends read such metadata and will reference the image and description of the real property, making links to off-chain legal documentation easier to digest.

Let’s break this down and make it a little easier to see. The files (images and documents) are hosted on Pinata IPFS, and the folder (the KML) is as well. This enables one to download the KML file to use Google Earth to fly to the farm location in the metaverse:

{“Address”: “0xef0ff94b152c00ed4620b149ee934f2f4a526387”,

“tokenId”: “TF”,

“name”: “Twin Falls Farm”,

“description”: “Twin Falls farm with TFCC shares and pivot and wheeline irrigated. This NFT presents data associated with the following real property as described in the legal description. Depictions are for illustrative purposes only and are not a substitute for a title report”,

“external_url”: “https://www.farmapper.com/project/public/ahFzcHJpbmctYmFubmVyLTgzOXIdCxIQUHJvamVjdFB1YmxpY1VybBiAgIC6kODNCAw",

“image”: “https://gateway.pinata.cloud/ipfs/QmVK8C8DNk1Mbc945e4B5vxYpkmdM4KpHHjFDLVzu36kze",

“attributes”: [

{“trait_type”: “Land Classification”,

“value”: “Farm/Development”},

{“trait_type”: “Location”,

“value”: “SW of Twin Falls, Idaho”},

{“trait_type”: “Legal/Deed”,

“value”: “https://gateway.pinata.cloud/ipfs/QmYCq95xPQV3wV2xE8AKJGfQe4Tn7eKb4h4jErXjGEVawr"},

{“trait_type”: “Parcels”,

“value”: “RP10S17E323000A, RP10S17E322410A, RP10S17E323010A”},

{“trait_type”: “Owner”,

“value”: “Passive Rockchuck, LLC”},

{“trait_type”: “KML download”,

“value”: “https://gateway.pinata.cloud/ipfs/QmUFwmvjMn3oZF1Gu4UY714Ba3u8kWbiwNmkpyVciBpK2A"},

{“trait_type”: “Tag”,

“value”: “Irrigated Row Crop”},

{“display_type”: “date”,

“trait_type”: “Created”,

“value”: 1614104534},

{“trait_type”: “Max Supply”,

“value”: “1”}]}

Once we have the json how we want it and verify the format using a json formatter, we can save this in IPFS via our pinning service as well. Here you can review the metadata via its json file.

Let’s Cook…

Next, we go to the RealNFT token contract that is permissioned (“Ownable”) for an authorized account, in this case, RealDAO or its representatives. What this means, basically, is that only the owner can mint NFTs from this contract, ensuring that token IDs can be maintained as consistent, and quality representations of real properties. Again, here is RealNFT. We go to the write function and input what address to mint the NFT to, the token ID (need to pick one that isn’t used yet), and the token URI string. Here we copy in the link that hosts the metadata.

Once the mint is complete, the NFT asset is issued with the legal metadata, and following our test of the escrow contract, ultimately is transferred to the RealDAO LLC-controlled “Minion” wallet.

The NFT provides useful data in the “traits” that reference the 4 corners of the farm “the legal”, as well as the legal description “the deed”, and other reference points to show its location on Earth “the kml”.

We can confirm these representations by going to opensea.io and searching the “Minion” address here. We see both the Ricardian LLC, NFT and the Twin Falls Farm NFT.

Useful legal data is referenced as traits, including the KML of location, the farmapper.com “live” project, the Assessor Parcel Numbers, the deed, location info, classifications, etc. It is truly a 3D NFT file cabinet that holds all the stuff we would need to reference this real property in leases, escrow transactions, buy/sell agreements or estate plans.

‘Push Button DAO’s’ organized as LLC’s using code deference

Tying things together on the side of legal formation, a proof of concept for ‘push button organizations’ is here, where it is possible to organize using options of a “code deference” unincorporated organization or a Ricardian Series LLC from Delaware, all launched on Daohaus:

If one wanted a full LLC “DAO”, then that can easily be done using cool tools such as etherize.io where a la carte entity formation is provided with registration (and upgradable with attorney review). In reality a series would likely be set up by the party to control its series of investments. For example, a property owner would form a master series, LLC, and would propagate its own child LLC’s for each property. Series LLC’s are not recognized in each jurisdiction and do come with additional regulatory uncertainty. So hire and talk to your attorney in your jurisdiction of choice.

After summoning, a Daohaus summoner is called to propagate a DAO smart contract on DauHAUS. This handy front end can be used to manage the tokens and NFT and then the governance of the asset is officially controlled by the DAO. So it is easy to imaging a family using such a contraption to manage their farm or ranch rights stack, even if only, amongst themselves.

LexLocker Decentralized Escrow

Many powerful real world patterns can be replicated and intermediaries removed using “smart contracts” similar to an escrow pattern. Each escrow pattern IRL comes with an intermediary (lawyer, broker, agent) that is often expensive and not user friendly. They go on vacation, sleep and have the audacity to retire. Perhaps in the world of turing complete blockchain these intermediaries are an unnecessary friction cost. The LexLocker v2 smart contract has powerful features that include the ability to lock funds or NFT’s into a smart contract until performance is completed. This pattern is peer-to-peer between Bob and Alice, with the additional safeguard of having a “resolver” if the deal goes haywire. In other words, if Bob and Alice can’t agree, then they agree to bring in a 3rd party to resolve the dispute similar to an arbitration proceeding.

Other perks, besides being noncustodial by a 3rd party, is that certain funds locked in the escrow can be earning yield while the escrow is in place using the BentoBox vault protocol developed by SushiSwap. Money never sleeps. Therefore, rent can be prepaid, or earnest money can be earned in earnest, etc.

Hypothetical pattern:

1. Mint Farm NFT that represents the real property that is held “fee simple” ownership in a DAO.
2. Transfer the NFT into a LexLocker v2 via a lease agreement from DAO to Alice.
3. The Agreement references the lease agreement and the NFT is time locked for the duration of lease.
4. Alice mirrors and starts LexLocker for the “deposit” amount, and perhaps a 3rd for rent in advance.
5. The stablecoins from the deposit and the prepaid rent are invested in yielding assets via BentoBox so the deposit isn’t dead weight AND the prepaid rent can function like a zero coupon bond to grow into the lease amount “the coupon”.

Surely we are just at the tip of exploring the center of the Venn diagram (first schematic) on how IRL legal systems and programmable legal systems can interact. The next part of the RealDAO Series we will continue down the rabbit hole and see what else we can do, and perhaps generate some form documents and general-purpose Dapps for a pattern that would be even more useful IRL.

Let us know what you think and share and comment if there are other topics to cover!

Special thanks to Ross Campbell for providing feedback.

About LexDAO

LexDAO is a non-profit association of legal engineering professionals that brings the traditional legal settlement layer to code, and coded agreements to the masses. We believe that everyone deserves access to justice provided in a quick and efficient manner. If legal services were easier to use, verify, and enforce, we could live in a fairer world. Blockchain technology offers solutions to many problems in the legal space. Our mission is to research, develop and evangelize first-class legal methods and blockchain protocols that secure rules and promises with code rather than trust. We do this by training LexDAO certified legal engineers and building LexDAO certified blockchain applications. We strive to balance new deterministic tools with the equitable considerations of law to better serve our clients, allies, and ultimately citizens.

All links provided are for informational purposes only and not meant as recommendations of the people or products. Nothing herein is legal or financial advice and should not be relied upon without reaching out to your own personal attorney. The linked ABA disclaimer is appended to the blog.

Follow us on Twitter: @lex_DAO

Join our Discord lexdao.chat

Peruse our Github legal coding: https://github.com/lexDAO

About Farmapper.com

We are on a mission at farmapper.com to bring agriculture together on the map. We want farmers to own and control their data and be able to use technology to remove friction costs. Please give us a clap or two and let us know what we should write the next series on.

Follow us on Twitter: @farmapper

Visit our Website: www.farmapper.com

Checkout our Facebook: https://www.facebook.com/farmapper/

If you have any questions, please reach out to support@farmapper.com, and someone will respond promptly!

When DAO’s Get Real — Managing Real Property on a Blockchain was originally published in LexDAOism on Medium, where people are continuing the conversation by highlighting and responding to this story.

The stated policy goals are to protect retail and encourage capital formation. Does retail feel protected by the current regulatory frameworks?

Part 1 and Part 2 of this “Beyond the Wall” series if you missed them.

Much of the essay has been spent on just the costs of the current regulatory regime in both compliance costs and the damage (whatever it is) to the pace of innovation. This essay will explore some basic questions regarding whether it is beneficial.

• Does it weed out fraud?
• Does the current disclosure regime really provide any actionable intelligence to the average retail investor?
• Does retail feel protected?
• Is decentralized finance (“DeFi”) more or less likely to build into a systematic risk than traditional finance?

Does it weed out fraud?

Assuredly having audited financials and risk of SEC censure would dissuade many fraudsters? But then again maybe not, there were over 400 class action security lawsuit filings in 2019. According to the Harvard study 1/14 S&P 500 companies were subject to litigation in federal courts in 2019 alone and 20% of IPO’s have been subject to a securities litigation filing in the 4 years after their IPO. As anyone who has invested for a time knows that the only one who wins in these cases are the attorneys with very few exceptions.

From personal experience, almost every class action securities claim is an exercise in frustration full packaging. It is difficult to track and see if the stock holding periods match the settlement claim form, and many of them that I have taken the hour or two to fill out result in rejection or a pittance. In other words, most of these securities fraud claims actually result in more harm than good for the average publicly traded stock investor. It is clear that the current regulatory frameworks do NOT in fact protect from fraud or we desperately need tort reform to prevent these lawsuits that damage common stockholders. I want to hear what Gensler plans to do to reform this seedy underworld, where common equity gets either defrauded with no redress OR has value of their investment needlessly slashed through the overzealous nature of our securities law bar.

What does the current disclosure regime really provide to the average retail investor?

Westeros has those with the gift of foresight and can see the past and the future through the eye of the one-eyed raven . Despite this power of vision, Westeros is still a mess. Most disclosure regimes are simply disclosing things that have already happened. When investing is actually about the future expectations of growth. Oddly, trying to have your CFO be a one-eyed raven and predict the future is a dangerous path that actually exposes the company to securities violations. So more and more are simply choosing not to provide forward looking guidance at all. The message is clear that it is better to provide no information, or copy and paste form bank disclosures than to provide anything that might constitute actionable intelligence to the average investor.

To show the overall paper avalanche that is the current disclosure regime I am going to link a 10K from GE for perusal. It is 262 pages and contains a long list of disclosures and risks, some financial information “the financials”, and plenty of CYA language put in there to try and avoid the securities litigation gauntlet above. If an investor only invests in five investments, that is 1,250 pages of annual report information to peruse. Let’s see what useful disclosures there are:

Captain Obvious:

• COVID-19 — The global COVID-19 pandemic has had and is expected to continue to have a material adverse impact on our operations and financial performance, as well as on the operations and financial performance of many of the customers and suppliers in industries that we serve

Thanks Captain Obvious — You mean to tell me that a worldwide pandemic and lockdowns might impact business.

• Global macro-environment — Our growth is subject to global economic, political and geopolitical risks

Thanks Captain Obvious-You mean to tell me that a global company such as GE might be adversely impacted if WW3 breaks out.

• Industry dynamics and outlooks — The strategic priorities and financial performance of our businesses are subject to major trends in our industries, such as decarbonization and digitization, and we may not appropriately plan for or adapt quickly enough to dynamics that in some cases can take many years to play out.

Thanks Captain Obvious-You mean to tell me that we need to disclose that the company leadership itself might be wrong or incompetent.

• Competitive environment — We are dependent on the maintenance of existing product lines and service relationships, market acceptance of new product and service introductions and technology and innovation leadership for revenue and earnings growth.

Thanks Captain Obvious-You mean to tell me that you don’t compete in a monopolistic industry .

• Restructuring & retention — We have been undertaking extensive cost reduction and restructuring efforts; these efforts may have adverse effects on our operations, employee retention, results and reputation and may not achieve the expected benefits.

Thanks Captain Obvious-You mean to tell me that firing people and selling businesses might impact morale. The floggings will continue until morale improves, but if it doesn’t we disclose that here.

• Business portfolio — Our success depends on achieving our strategic and financial objectives, including through dispositions, acquisitions, integrations and joint ventures.

Thanks Captain Obvious-You mean to tell me that to be successful you need to be successful. This was almost worth reading, little alone writing and filing with the SEC.

• Intellectual property — Our intellectual property portfolio may not prevent competitors from independently developing products and services similar to or duplicative to ours, and the value of our intellectual property may be negatively impacted by external dependencies.

Thanks Captain Obvious-You mean to tell me that to be others might actually compete and copy us. One would think that us disclosing that we aren’t in a monopoly would be enough, but alas, this is for the super dense.

I could go on and these are just the highlights of the catch all disclose every possible risk in an inaccessible and lawyerly drawl that fills the page and really says nothing of any value. I do find it more than interesting that Michael Burry from the Big Short was successful because he actually read and scoured these reports for inconsistencies and material disclosures buried in the haystack of boilerplate language. Go to the part at 3:40, where they say only the lawyers read the disclosures. How then do these disclosures protect retail?

The Big Short (2015) — Dr Michael Burry analyzes Subprime MBSs (Feat. Margot Robbie) [HD 1080p]

Does retail feel protected?

This is a simple question and I am not sure the answer. From my cheap seats in the peanut gallery it appears to depend on which retail you are talking about.

The Baby Boomers seem to like their current system, they tear open the envelope of their Vanguard pension or IRA and look at the balance and say, boy ain’t life grand. This is somewhat of a misnomer though, as they still aren’t consuming the infinite disclosures buried in the haystack of 10k’s and 10Q’s “the paper dump”. They are actually relying on professional intermediaries to curate their investments into products. Then the investment gruel gets spoon fed to them like their Ovaltine. In other words, I doubt that many are actually reading their 10K’s, and those that do are probably actually “accredited” or institutional investors and not “retail” in any shape or form.

From the viewpoint of the younger generation, they look at it differently. Locked out of anything except for the same bloated overbought equities that their elders are about to sell the hell out of to fund their healthcare and retirement, they are looking for alternatives. Will the Youngs make mistakes investing, absolutely…they will. Mistakes are really a form of premium education in investing anyway. Maybe just maybe, we shouldn’t assume that the most educated generation in history is too stupid and unsophisticated to know how to invest their own money. If nothing else, with disintermediation of the fees associated with a curated investment experience they don’t even need to be that right to still outperform the Boomer cohort.

As a Gen Xer we are used to just watching the culture wars play out with a latch key around our neck, and apathetic angst. The Baby Boomers have a legacy system that they have a large stake in and it is clear that the Millenials and Gen Z are not quite feeling the same connection. It is probably normal to have generational conflict, but I think the sheer demographic heft of the Boomer generation has exacerbated the pent up frustrations of what I loosely call the Youngs.

The Youngs feel, in my observations, to have been rug pulled from home ownership and credit in 2008 and realize that inflation is the game being played to continue the facade and provide the exit liquidity for a generation that, on the whole, spent more than they earned on a public tax receipts basis. How else can they fund their retirements, but to have the ability to sell their houses and investments into a vortex of irrational exuberance and insanely valued equity valuations?

The Youngs no longer believe the disclosure, no longer trust the institutions and no longer believe that this is anything other than the latest in a long line of wealth transfers to plug a pension funding gap for their elders. Perhaps the governmental institutions should reflect on why they are losing legitimacy rather than try to mandate that they maintain it.

There is minority viewpoint and colorable disagreement within the SEC itself that is well worth a read. From Commissioner Hester Peirce speech:

One of today’s panels deals with “Reimagining Investor Protection in a Digital World.” When confronted with new technologies, new products, and new ways of doing things, the regulator’s tendency is to say no instead of yes, to say stop instead of go, to see danger instead of possibility. The regulatory labyrinth we have built over the years serves this “Not so fast, sonny, you might put your eye out!” mindset well. The SEC’s focus is appropriately on investor protection, particularly retail investor protection, and market integrity.

This Committee, however, can play a role in reminding us that investor opportunity matters too. By investor opportunity, I mean the chance for investors to try new products and services, to include in their portfolios new types of assets, to use the latest technologies, to get in on the ground floor of new opportunities, to experiment and learn from investment successes and failures. The regulatory process underrates investor opportunity, and investors lose out.

Investors want protection from fraud and easy access to robust disclosures, but they also want to be able to interact with their financial firms using the latest technologies, to have access to the full range of investment options, and to take charge of their financial future by spending their hard earned money as they see fit. Investors at times may be willing to take on more risk than the regulator thinks is prudent. A healthy regulatory response would resist the urge to override investor decisions and instead engage and educate investors using the same technologies through which they are investing. As you discuss digital platforms and other topics in the future, help us to remember that a regulator who always says no or takes too long to say yes is not serving investors well.

Is Decentralized Finance more or less likely to grow into a ‘systematic risk’ than traditional finance?

This is a really interesting chart from this article on naked credit swaps. Credit default swaps are not securities and not under the purview of the SEC, they are instead regulated under the CFTC for the most part. The above chart clearly portrays the systematic risk of “too big to fail” reflexive ponzinomics that was the state of affairs prior to the 2008 financial armageddon. AIG was the hub and insurer and taker of the other side of transactions from Goldman, Citi, Bofa, etc. So when these leaders and alums from Goldman talk about ponzi schemes, it is clear that they know what they are talking about. Overall, I am not sure why we seek leadership from the same folks that bet their firm on these positions and the only reason that Goldman didn’t follow Lehman and Bear Stearns down the drain is that they were bailed out specifically by the AIG rescue.

Senator Warren in an effort to head off decentralized technologies “defi”, wrote the following letter to US Treasury Janet Yellen.

What Senator Warren failed to mention was that the Financial Stability Board report (the report is also from 2019 which in crypto is eons ago) referenced as footnote 17 above, also said the following:

How can having a decentralized ledger lead to less systematic risk overall? Well it is clear that anyone with some chain analysis can effectively create a dashboard for a protocol system using the distributed ledger to see the assets that are held in the protocol. As an example, here is a dashboard using ‘on-chain’ queries from Dune analytics from MakerDAO, updated every few hours. This is real time on chain analytics, in other words these are living breathing financial statements.

Dashboard analytics can be used to query exposures, defi protocol overcollateralization ratios, etc to get a real picture of system health. For example the collateralization of the system is currently 177.97%. Point being is that having on chain open finance systems are the opposite of “opaque” as Senator Warren stated in her letter. They are the closest thing to real time financials and disclosures the world has ever seen.

The hypocrisy of many of the current regulators who had their jobs and wealth preserved through public bailouts, who had blood on their hands from the 2007–2008 financial crisis is staggering. The audacity of them lecturing us that we need to “trust” them to regulate decentralized finance because it poses some competitive risk to their financial incumbents that pay their speaking fees, provide their golden parachutes ane enable their rent seeking. “Defi” will need regulatory disclosures, constraints and monitoring, but until it becomes apparent what those risks are, the heavy handed regulatory posturing reeks of incumbent financial institutions using their regulatory captured positions to snuff out competition. Competition should be welcomed in financial services, perhaps especially, if it forces ossified industries and regulators into an uncomfortable position of having to reform and give up a scintilla of power.

Is this the end of the “Beyond the Wall” series?

Maybe, let us know what you think and share and comment if there are other topics to cover.

Special thanks to Nick Rishwain for providing feedback.

About LexDAO

LexDAO is a non-profit association of legal engineering professionals that brings the traditional legal settlement layer to code, and coded agreements to the masses. We believe that everyone deserves access to justice provided in a quick and efficient manner. If legal services were easier to use, verify, and enforce, we could live in a fairer world. Blockchain technology offers solutions to many problems in the legal space. Our mission is to research, develop and evangelize first-class legal methods and blockchain protocols that secure rules and promises with code rather than trust. We do this by training LexDAO certified legal engineers and building LexDAO certified blockchain applications. We strive to balance new deterministic tools with the equitable considerations of law to better serve our clients, allies, and ultimately citizens.

All links provided are for informational purposes only and not meant as recommendations of the people or products. Nothing herein is legal or financial advice and should not be relied upon without reaching out to your own personal attorney. The linked ABA disclaimer is appended to the blog.

Follow us on Twitter @lexDAO

Join our Discord lexdao.chat

Peruse our Github https://github.com/lexDAO

Part 3 Beyond the Wall — Does SEC regulation accomplish goals? was originally published in LexDAOism on Medium, where people are continuing the conversation by highlighting and responding to this story.

If so, how does it get it back. Click HERE for Part 1

The SEC appears to be rapidly losing legitimacy. The players that tried an approach of engagement, like Coinbase, are getting hammered. A growing list of billionaires from Elon Musk and Mark Cuban and common folk alike are criticizing the approach of investor protection from profits in an increasing brazen manner. Meanwhile it is clear that a new wave of flanking maneuvers are underway with decentralized finance. Tokens, token models, NFTs, art, social tokens, DAO’s, coops, continuous offerings, crowdfunding, utility tokens, all are arguably pushing up against the age-old definitions of “securities” under Reeves and Howey and even Chairman Gensler analogizes it to the “wild west”.

Even law professors are getting in on the action of forcing reaction, or perhaps in age old guerilla warfare tactics an “overreaction”. Check out this non-fungible token titled “SEC No-Action Letter Request” as a NFT. Points deducted for not referencing letter in the metadata, but clever nonetheless. It is clear that we will see increasingly insurgent and brazen attempts of attacking the four corners of the regulatory framework to force results that appear “absurd”.

To Chairman Gensler any tradable token doodad on a blockchain is a security. The wild west was the wild west, specifically for the reason that the writ of power and law from a centralized authority was lacking. To analogize back to the “Free Folk”, will decentralized finance (which includes many outside of the US) bend the knee to allow a centralized authority to regulate? What if they aren’t US citizens, or if it is a “sufficiently decentralized” network that the rules and regs were clearly not designed to address? These questions are never answered. The only path appears to be just fight it out in court.

How can the SEC get its legitimacy back and why is it losing it?

As the enforcement cases take years to come to fruition, the cases themselves begin to actually hurt the retail investors that the law is meant to protect. Ask your average XRP holder what they think about the regulatory regime and the fact that the enforcement actions are years in arrears. The belated approach of enforcement allows many more to get hurt than if there was just a simple but clear model for registration and a path to “sufficient decentralization”.

Clearly there are multiple ways for the SEC to claw back legitimacy. Many sophisticated experienced and borderline “adult” investors are locked out of an increasingly large swathe of the investment world. Which path to choose for the SEC to regain legitimacy is a very interesting question. Will it try through reforming its rules and enforcement parameters, or perhaps through increasing violence (“zealous prosecution”)? The direction and tact appears under the new Biden administration appears to be more rule through “fear”. It is clear that the new SEC policy appears to be one of putting on brass knuckles and slugging it out. The tact of constructive engagement delineated in the proposed defi “safe harbor” proposal from Hester Peirce is completely ignored.

The current paradigm has plenty of zits of its own

There has already been much written defending “crypto”, permissionless systems, distributed ledgers, and the industry as a whole. It is difficult to constantly defend against allegations of fraud, wild west illegal activity, and salacious stories of money laundering and illicit activity when there is no comparative frame of reference. Everything is relative. What this series will do is offer a critique of the current “paradigm”, why the system is breeding contempt, and a grass roots desire to reform and remake the current regulatory regime.

It is clear that many feel the current system is sick, bloated, expensive, rife with its own fraud, and arbitrarily and capriciously enforced. The current system gates many lucrative investment opportunities behind “paywalls”, toll trolls, and makes rules that ensure that only the bourgeois can access. This article will look at the existing paradigm through the analogy to Westeros and critique it. There is value in self reflection and reformation and maybe it would explain the growing resentment of the current paradigm and why this does not look stable to hold together under popular revolt.

Why you throwing shade at these paragons of regulatory excellence? Because it is inefficient, anti-innovation, and doesn’t even perform its stated policy goals well or at all.

The Current regulatory paradigm is prohibitively expensive in both cost of compliance and opportunity cost of time. How much does it cost to go public? In other words, it is interesting to try and calculate what percentage of capital it costs to raise capital. How much has to go to the plethora of hard costs, underwriters, accountants, legal, and the ongoing reporting regime as well.

I am flabbergasted to know why nobody talks about the sheer capital inefficiency to raise capital in the public markets. So I got to Googling. Most of the following is from the PWC report for those considering an IPO. I selected from a smaller IPO range of 25M to 99M, which is telling that it takes a 25M raise to even make the list.

• Underwriter fee — 7%
• Legal 1.6M to 1.9M
• Accounting 375K to 550K (obviously this is also ongoing to keep Edgar and SEC happy)
• Printing 89K to 550K
• Exchange Listing Fee 20K to 150K
• Misc 272K to 675K
• Finra 20K -30K
• SEC 13K to 23K

So with some basic assumptions, if we take the middle range of a 50M raise and the middle of the fee structure. Guess how much is left over? Reminding the reader that this actually comes out of the shareholders pie as these are true expenses and the capital will not be available for company needs and investment into growth. A staggering 13.1% of the capital is gobbled by gatekeepers, accountants, lawyers, etc before it even gets to the company. That is 13% that is not invested in hiring employees, capital investments, and company infrastructure. With a little cowboy math, as long as the cost of fraud is less than 13% then both the company and the retail investors are better off without this public policy “framework”.

That does not even quantify the future costs of compliance (audits and Sarbanes Oxley), the increased risk of shareholder litigation, and other expenses (such as D&O Insurance and the opportunity cost of time).

Assuredly there is some good that comes from companies investing in and the company being forced to put in place accounting systems and proper auditing controls, and governance etc. That said, there is no doubt why more and more companies are choosing to go public later and later to avoid this money pit or defer to SPAC’s to bypass this regulatory regime entirely using regulatory shells as a service to skip the line and hassle.

To contrast how capital raises can be done, albeit without the same regulatory framework, one only has to look at a recent batch auction of 2007 Kia Sedonas. Yes you heard that right. With a few lines of code a project from Ethereum called Miso, was able to start a batch auction for 9,800 $DONA tokens redeemable for 2007 Kia Sedonas from the tongue and cheek bargain auto dealer Jay Pegs Automart. Regardless if this is a real auction of 9,800 used minivans or not, it becomes readily apparent that capital formation is heading toward a future where the intermediaries and regulators are going to be under pressure to justify their worth.

How many grifters can a system sustain?

With technology “friction costs” of intermediaries and trading should inexorably trend down. The future will be one or two possible outcomes 1) Where almost everyone is an “accredited investor” that can invest in earlier stage investments without opting in to the default regulatory frameworks or 2) Where capital formation just flows to offshore markets that embrace a permissionless reformation. The “invisible hand” will work its magic the same as it always has.

The SEC to its credit has made the bar to raising crowdfunding easier with Regulation CF. Regulation CF has definitely made it easier for earlier startups to raise capital, and increased access to non-accredited investors, but it is still plagued with HUGE fees and costs. Regulation CF still requires running the rubric of capital raising behind intermediaries, paper filings and gatekeepers and still costs well over 10% of the capital to raise.

Is there a traditional finance and crypto marriage to be struck that can efficiently raise capital and programmatically manage the securities regulations? I do find mechanisms such as the rolling “SAFE” continuous offerings to “accredited investors” to be interesting, as I am sure there is some excitement around digital shares such as “tZero” and LTSE’s focus on longer term value creation. But that really doesn’t touch the regulatory leviathan and the expense of raising capital in public. There are large swathes of the citizenry that are locked out of investing in the best risk rated investments. These technologically savvy investors are actually more sophisticated investors and internet research savvy than the gatekeepers give them credit for. So, the question has to be asked is the regulatory wall to protect investors, or to keep them out and from competing on the juiciest yielding investments in order to protect incumbents.

There is a moment in Game of Thrones where the kingdom is forced to sit down with the Iron Bank and negotiate a loan to fund its side of the civil war. the Iron Bank really just wants a return on its investment and to pick the winning side, or else, if it backs the wrong side it won’t get paid back. This is the conundrum in which regulators around the world find themselves. How to encourage new technological innovation that may be good for retail, and yet, due to disintermediation threatens the financial incumbents that the whole stack of cards is premised on.

It may be anathema in current circles to trust folks to safeguard their own assets without a centralized authority in control. Yet we have always allowed that for a wide range of other assets, such as jewelry, gold, real estate, and even cash sitting cool as a cucumber in the fridge. Which is probably why the bottom 90% has their wealth so heavy into real estate and vehicles. Neither asset class which really generates positive cash flow. It seems the notional difference is that this also threatens the incumbents. This dichotomy of the regulated legacy financial institutions crying to their regulators is captured much more poetically by Hester Peirce here.

Because of the prohibitive expense, uncertainty and opportunity cost innovation is hobbled

For those uneducated in such things, hobbling is basically tying a horse’s back legs together so that it can’t kick and be tended to, to clip its hooves, or provide veterinary care. Similarly, innovators and entrepreneurs have their hind (and in some cases front) limbs bound together to try to attempt to navigate the gauntlet that is preparing for an initial public offering.

In “Grow fast or die slow: Why unicorns are staying private”, Mckinsey demonstrated that in 2016 there were over 146 companies worth more than 1B and 14 over 10B that have opted to stay private. I would presume that some of this has to do with the regulatory burden and some has to do with advancements of private equity financing. But it is obvious that companies are waiting much longer to access public markets to raise capital, which is odd as technology has theoretically made it easier to aggregate data, disclosures and to track digital shares, etc. For those considering it, here is a 152 page checklist from Latham & Watkins.

What about capital formation for small companies, or just how many small businesses just choose to not raise money outside of their tight family networks, due to the expense, and overhead of implicating the securities public policy frameworks? Put differently, how many good innovative ideas just wither and die on the vine as they don’t have access to the capital formation to productize?

This is hard to know, it is in the Rumsfield “known, unknowns.” How many of these ideas would benefit from a vibrant and more obtainable crowdsource and investment framework? It is difficult to measure this, but I feel from my own experience with Farmapper it is just better to not raise money from others to avoid the quagmire and expenses. This is the case, especially at an early stage of growth. Other anecdotal evidence might be that half of the “unicorn” billion dollar startups are founded by immigrant founders. Which of course shows the vibrancy of the immigrants entrepreneurial muster, but might also be emblematic of a mindset and skill set to circumvent red tape, elite nimbleness, and willingness to go for broke that it takes to reach “unicorn” status.

In Part 3 we will dive into the disclosure regime itself and try to determine whether it is obfuscation by overproduction? What is the point of disclosure if nobody reads it?

Special thanks to Nick Rishwain for providing feedback.

About LexDAO

LexDAO is a non-profit association of legal engineering professionals that brings the traditional legal settlement layer to code, and coded agreements to the masses. We believe that everyone deserves access to justice provided in a quick and efficient manner. If legal services were easier to use, verify, and enforce, we could live in a fairer world. Blockchain technology offers solutions to many problems in the legal space. Our mission is to research, develop and evangelize first-class legal methods and blockchain protocols that secure rules and promises with code rather than trust. We do this by training LexDAO certified legal engineers and building LexDAO certified blockchain applications. We strive to balance new deterministic tools with the equitable considerations of law to better serve our clients, allies, and ultimately citizens.

All links provided are for informational purposes only and not meant as recommendations of the people or products. Nothing herein is legal or financial advice and should not be relied upon without reaching out to your own personal attorney. The linked ABA disclaimer is appended to the blog.

Follow us on Twitter @lexDAO

Join our Discord lexdao.chat

Peruse our Github https://github.com/lexDAO

Part 2 Beyond the Wall — Is the SEC losing legitimacy? was originally published in LexDAOism on Medium, where people are continuing the conversation by highlighting and responding to this story.

Part 1 — SEC Casts Watch — Crypto Regulation Beyond the Wall

Science Fiction and Fantasy are such great blueprints for ethical and societal problems. Imagination is the blueprint for outrageous metaphors showcasing societal caricatures and power dynamics. They are creative sandboxes to explore human nature, ethics and morals without judgment(or as much judgment). Currently we are in a battle of paradigms between a regulatory leviathan and a scrappy bunch of world citizens. For this article to make much sense, the reader probably needs to have watched or read “Game of Thrones.”

In Game of Thrones the “polite” society of the fictional land of Westeros had their rules, their leaders and their violence. This balance was generally a political one that had the King in power as the winner and uniter from the last war. But the Kingdom was not well and the delicate balance was overturned and the series followed the power struggle as the rule of law following entropic decline into chaos and war. From the historic perspective of the Kingdom, their forefathers had constructed a huge ice wall to keep out the invaders from North of the Wall, basically they were the others, the barbarians, the “wildlings.”

The civilized world actually had a protection force of sorts, the “Night Watch” that would be used to wage war on the wildlings and keep them in check and push them back over the wall if there were skirmishes. This was the homeostatic state that the world of Westeros found itself in. From the perspective of the people that lived north or the Wall, they were the “Free Folk”. They had to survive against very harsh conditions, a permanent winter, and obviously a monster or two. But they were free. Or at least appeared to have more liberty than “the living” in the civilized society of Westeros.

Ultimately an existential threat, the “Night King” the leader of an undead army, began to prey on the Free Folk north of the wall. This causes them to push against and attempt to breach their large gated prison. For them it was an existential threat, die fighting against the Night King or take their chances against the Night Watch. From the perspective of the Night Watch and Westeros it was to wage war on the “civilized” world of Westeros. By using fantasy metaphors, maybe we can talk about power, law and freedom.

Can’t have Culture without a Cult

Crypto has been described by some venerable media publications as a “cult”. Therefore, in this essay the cult of crypto is analogized to those vestiges of civilization trying to make its way as wildlings north of the wall. The wall is obviously the regulatory paradigm that has been built through law and increasingly administrative law (bureaucratic law). The references to stay in compliance as a starting guide are the Securities Act of 1933, 1934, Investment Company Act, Dodd Frank, etc, etc etc. When you are done reading and digesting all of those, then chances are George R. R. Martin will have finished the series.

The wall and SEC are considered by many to be “Crystal Clear”, just follow the rules and opt into the “public policy goals and frameworks” as described, but not really defined, by SEC Chairman Gensler. To many, they are not crystal clear and rely heavily on the arbitrary judgment and prosecutorial discretion of the SEC as the regulatory body in charge of the rules promulgation and the law’s enforcement. Just like Charlie in the Factory, you may have found that you missed the fine print.

Willy Wonka & the Chocolate Factory — You Lose! Good Day Sir! Scene (10/10) | Movieclips

SANDBOXES and SNOWSCAPES:

Without regulatory and economic sandboxes it becomes impossible to know what innovations might make sense, and which should fail. What is the cost of the regulation versus the cost of the harm that the regulation solves for? This weighing of the cost and benefits are rarely discussed or measured. In the example above, it becomes clear over the seasons that the “Free Folk” living north of the wall are more of a democratic monarchy, the leader which has more legitimacy amongst his people and less legitimacy through violence. Legitimacy through violence is all that Westeros knows. It literally holds the fabric of society together. Legitimacy is a funny thing, and this post is obviously guided in part by this fascinating Vitalik Buterin post on legitimacy here. How does one defend autonomy, freedom to invest and contract as a private citizen in a peer to peer manner while also defending against fraud, scams and financial violence?

Much like Westeros, our great United States is decentralized with certain state powers being reserved for the individual states. Economic sandboxes to explore regulatory changes in a safe and on a trial basis are gaining steam. It should be noted that this is perhaps coincidentally happening in the wild western states of Arizona and Utah, with reforms on the license and structure of law firms. For more on the Utah and Arizona regulatory sandbox check it out here. Kudos to them for trying something new even if it is wrong.

The value of an economic sandbox premised on neutral ground

Many of the power centers around the world are antsy and make pointed critiques that are often disingenuous and of dubious nature. Seems like every day is met with FUD de jure from some regulatory body somewhere in the world. As an example here is some from the Bank of International Settlements. Much like the Mountain, some of these paragons of international finance are dead, they just don’t know it yet.

What if there were a way to test the economic and legal models in production, to allow for commerce to transact in neutral waters similar to the historic and currently applicable law of the sea or other international consensus. Why would bureaucrats not want to know whether their proclamations and rules are value accretive? Often regulatory ossification is tough to overcome and becomes very resistant to innovation and reform. Stakeholders actually become profit takers from the regulatory friction. Much like the regulatory sandboxes in play in Utah and Arizona, it is not completely farfetched to imagine a regulatory safe zone for distributed ledger technology to test the limits of governance, self regulation and self custody in lieu of the current regulatory paradigm

In Part 2 (coming soon)we will explore if the SEC is losing legitimacy and if lost, how will it get it back.

Special thanks to Nick Rishwain for providing.

About LexDAO

LexDAO is a non-profit association of legal engineering professionals that brings the traditional legal settlement layer to code, and coded agreements to the masses. We believe that everyone deserves access to justice provided in a quick and efficient manner. If legal services were easier to use, verify, and enforce, we could live in a fairer world. Blockchain technology offers solutions to many problems in the legal space. Our mission is to research, develop and evangelize first-class legal methods and blockchain protocols that secure rules and promises with code rather than trust. We do this by training LexDAO certified legal engineers and building LexDAO certified blockchain applications. We strive to balance new deterministic tools with the equitable considerations of law to better serve our clients, allies, and ultimately citizens.

All links provided are for informational purposes only and not meant as recommendations of the people or products. Nothing herein is legal or financial advice and should not be relied upon without reaching out to your own personal attorney. The linked ABA disclaimer is appended to the blog.

Follow us on Twitter @lexDAO

Join our Discord lexdao.chat

Peruse our Github https://github.com/lexDAO

SEC Casts Watch — Crypto Regulation Beyond the Wall was originally published in LexDAOism on Medium, where people are continuing the conversation by highlighting and responding to this story.

EXPERIMENTS WITH NFT’s

Recently I have been fascinated with crypto history, firsts and lasts and going down some ever deepening rabbit holes. The DAO tokens, Cryptopunks and even early rug pulls. History is where we learn that most newly invented things were already invented in the past. Though usually lacking proper timing and memes. During the original rug pull meets Stanford Prison Experiment I was introduced to some of that interesting history through the DADA Creeps and Weirdos collection. Not sure why this project had a gravitational pull, but there is something honest and fresh with artists engaging in NFT “conversations” years prior to Paris Hilton or Beeple claiming the space for their own. Plus they are splendidly and fantastically weird and in varying degrees creepy as well.

The “collection of 100 unusual limited-edition drawings made by artists worldwide on DADA. These drawings are available for purchase with Ether cryptocurrency. The collection will have five levels of scarcity, from common to extremely rare drawings, all of which have been curated and priced according to their popularity and where they appear on DADA’s visual conversations.”

THE DADA EXPERIENCE

DADA was/is an early pioneer and the original smart contract associated with the collections that the NFT’s were minted on is particularly interesting as it ensures artists royalties in a particularly novel way. The contract mints at certain rarity and at certain eth values, but then stores these sale prices in the contract to allow the artists to have a 40% royalty of the net profit. The net profit is the increase over the last sale which the data of the “last sale” is presumably saved on chain. The DADA contracts are unverified on etherscan, so much of this is from innuendo and verbal representation.

During crypto winter, the project was somewhat buried under the blowing ice and snow of bear markets and mostly forgotten, some of the artists moved on, but others have kept plugging away. At some point the Dada storefront was frozen and new sales were disabled on the front end. Additionally, the DADA community was never able to get agreement from Opensea to “honor” the royalty scheme that is hard coded into the DADA smart contracts. So, Opensea sales were frozen as the contract froze transfers via the Opensea storefronts. Therefore, the only current way to sell these works (to my knowledge) is through person to person transfers.

THE INVISIBLE ECONOMY

As a recovering attorney, I find conversation through art much better than conversation through pleadings and interrogatories. As novel as the conversation-through-art is, I would be remiss not to mention the DADA goal of the “invisible economy” which similarly is an early blueprint for the DAO and creator economy that are governed by tokenized incentives amongst its participants rewarding the doers. It is a 12 part series and difficult to completely paraphrase, but I would highly recommend giving it a read. The invisible economy presents many interesting ideas that were perhaps too early, or we are too late. Hopefully we the people, and the proper ideas, can all get on the proper plane of existence at the same time. The ability to remix artistic expression similar to open source code is SUPER fascinating, as tokens enable microeconomy score keeping and allow the community to basically award market points. But clearly, I can’t say it any better than this from Part 8 of the series.

“Until recently, digital art had no value because it can be reproduced endlessly. But now, blockchain technology makes it possible to turn digital art into unique digital assets that can be transacted, bringing scarcity, authentication, and ownership to digital art, and allowing it to capture value just like physical art. This has spawned the emergence of a digital art market. Through cryptographic digital assets called tokens, blockchain also makes it possible to add layers to a digital artwork without the need for permission, allowing artists to collaborate freely while keeping track of their attribution. Since DADA is already a collaborative platform, this paves the way for exponential co-creation and for art to evolve freely in unexpected ways.”

So perhaps rather than parroting the latest words from VC’s or popular influencers, maybe we need to get in touch with the artist within, reach back to our childhood and allow an innate sense of fairness to develop. Though NFT token networks are mostly collectibles and art currently, their impact will soon shape legacy institutions as these integrated reward systems and royalties get filled out and user experience improves. Cascading royalties can be added similar to this “decaying” royalties scheme, from Stamford Hwang of Moleart DAO that I hope will dramatically change the need for traditional licensing regimes governing patent, copyrights, etc. It seems necessary to reward early innovation, and yet at the same time add market forces to allow the “Social Good” to purchase the right to open source intellectual property.

I CAME FOR THE FOIE GRAS

Clearly, you are all wondering what does any of this have to do with Foie Gras (as a metaphor)? I am irrationally excited about the infinite possibility of Charged Particles project and its ability to use NFT’s and ERC20’s and remix these into primitives similar to those envisioned in the Invisible Economy. Therefore, I accepted it as a challenge when told that it is impossible to sell these early Creeps on Opensea. I wondered if a NFT minted on Charged Particles could serve as the wrapper to stuff DADA’s into it. Basically force feed DADA NFT’s as “covalent” bonds into the parent NFT. Then the parent could be programmed with artists royalties to the DADA address, both creator resale and percentage of interest. Additionally, the NFT can be stuffed to the brim with personal tokens from the artists to tie the artist with the collectors, and would be a way to inexorably tie the artist and collectors. In other words, the NFT serves as a drop zone for all future interactions allowing artists, collectors and collaborators to share the same digital space and plane of existence. An example of this dynamic looks like it is already playing out as can be seen by artist @mxjxn (below) and @robnessofficial allowing his NFT’s dumpsters to be used as the receptacle to hold more $TRSH art.

LET’S MEET AT ETHERSCAN

The remainder of the article goes deep into etherscan links and labels, but much fun can be had from etherscan and though somewhat risky, interacting directly with contracts has actually bailed me out a time or two when a front end has gone dead as a dodo. Here we are looking how to interact with the Charged Particles protocol and mint wrapped Dada NFT’s:

1. The Charged Particles contracts linked below, allow the minting of covalent bonds. A fancy word for dropping NFT’s into other NFT’s. https://docs.charged.fi/charged-particles-protocol/developing-on-the-protocol/smart-contracts-documentation/contracts
2. Documentation for Developers for reference https://docs.charged.fi/charged-particles-protocol/developing-on-the-protocol/smart-contracts-documentation
3. The smart contract “Function” is covalentBond, but first need to

• Approve the token spend by the Charged Fi contract at 0xab1a1410ea40930755c1330cc0fb3367897c8c41
• An example of how to mint the Covalent Bond as follows

• The Basket Manager is likely generic, get the token ID’s of the Proton (the target charged particle NFT) and the subject (the NFT to send into a covalent bond with the target)

EEK DADA NFT CONTRACT IS NOT VERIFIED

As you will see when you go to the DADA NFT contract it is not verified on etherscan, which means you can’t access the ABI. https://etherscan.io/token/0x34d77a17038491a2a9eaa6e690b7c7cd39fc8392#readContract Which also means you can’t read the contract or interact on etherscan. So I went a much scarier path (don’t recommend). I figured I would look at other successful patterns from transactions on etherscan and try to emulate these on the blockchain using MEW (My Ether Wallet).

• https://etherscan.io/tx/0x85614a6953f61a738f8dd8d8170e47119cb2a0b4d99bb9fb4da184b5f026a715 DADA Transfer. Could use this to transfer a NFT.

• https://etherscan.io/tx/0xa94e4ca7ca53d5d81e8787afa609ecdecdf4e93f4b3a83b89ced10207a0451a7 Dada Approve. Would need this to be able to approve the Charged Particles contract to be able to spend all tokens from the DADA contract. What?
• We want to try to allow the Charged Particles contract to spend the DADA to make it a covalent Bond with the Proton NFT (the vessel).

MEW FOR OLD TIMES

Go to MEW and connect the metamask account holds the DADA tokens.

After your connection, go to send transaction. You may remember this interface from such fun times as my transaction is stuck and I need to unstick it by playing games with nonce and higher gas prices to cancel.

The To address is the one we want to send the token approval for. Or the DADA contract (as this is not verified on etherscan, we need a workaround)

Next we input the data Add Data from above that calls the method setApprovalForAll

We mimic this function like so:

0xa22cb465000000000000000000000000aB1a1410EA40930755C1330Cc0fB3367897C8c410000000000000000000000000000000000000000000000000000000000000001

We see that the function requires the Method ID, followed by the address we are approving to spend (in our case the Charged Particles contract) followed by the string of zeroes and a 1. That will switch the boolean to “approved”.

We enter that string into the MEW wallet Advanced tab

Here looks like it worked or at least it successfully gave the Charged Fi contract the right to spend my DADA https://etherscan.io/tx/0xacc8473873254722937ab85209ec0972c149293fe83e6040b86dc66898fa7707

BUT DID IT WORK? (WELL NO)

As you will see we still ran into roadblocks or missteps. Here I played with minting my NFT the Devourer of Worlds and DADA as a Charged Particle.

• Next we want to Foie Gras a Dada NFT into the one we just minted on Charged Particles, because he has an insatiable appetite for Creeps and Weirdos.
• So we go back to the Charged Particles contract and try to mint the “Covalent Bond” function. Input the data (similar to 3b above), connect to metamask, and click Write.
• Unfortunately it doesn’t work, and shows the infinite gas error which is a telltale sign that something isn’t correct.
• What could it be? More likely than not, DADA would need to “whitelist” the Charged Particles contract to enable the function to work. Suspecting this, I asked in their discord and confirmed that they would need to whitelist the contract to allow the “wrapping” of the DADA’s into the Charged Particle NFT’s.
• Perhaps, I am just missing something simple. Too Bad. My dream of filling the gullet of my NFT with Creeps and Weirdos will be on hold. But I do want to feed my NFT something.

Neeraj A Pizza seems fitting. Though it seems likely to give my NFT indigestion and gas.

What can be creepier or weirder than force feeding it a lawyer NFT. You may remember these fellows from earlier escapades minting a lawyer NFT that is preloaded with music MP3. Like a lawyer bearer instrument of beats.

We force fed the “I ate a DADA” with the lawyer NFT. This way the lawyer is safe from wreaking havoc on the world and the dope Zplit beats will play ad infinitum in stommy. Here is the NFT in all of its glory, even charged it up with some lexDAO social token.

Special thanks to Nick Rishwain for providing comments and bearing with the zany nature of this article.

About LexDAO

LexDAO is a non-profit association of legal engineering professionals that brings the traditional legal settlement layer to code, and coded agreements to the masses. We believe that everyone deserves access to justice provided in a quick and efficient manner. If legal services were easier to use, verify, and enforce, we could live in a fairer world. Blockchain technology offers solutions to many problems in the legal space. Our mission is to research, develop and evangelize first-class legal methods and blockchain protocols that secure rules and promises with code rather than trust. We do this by training LexDAO certified legal engineers and building LexDAO certified blockchain applications. We strive to balance new deterministic tools with the equitable considerations of law to better serve our clients, allies, and ultimately citizens.

All links provided are for informational purposes only and not meant as recommendations of the people or products. Nothing herein is legal or financial advice and should not be relied upon without reaching out to your own personal attorney. The linked ABA disclaimer is appended to the blog.

Follow us on Twitter @lexDAO

Join our Discord lexdao.chat

Peruse our Github https://github.com/lexDAO

Foie Gras Charged Dada was originally published in LexDAOism on Medium, where people are continuing the conversation by highlighting and responding to this story.

How to Use Fancy Math to Token Gate Due Diligence Rooms

This is a cross post that combines my side side project Farmapper, with my side side project LexDAOism. Avid readers remember when we built a due diligence room on Farmapper in the cloud using tax assessor parcel shapes, legal descriptions, USDA Cropscape, document storage to visualize a farm target for a purchase. Similarly the following could apply in any mergers and acquisition project as parties that want to prop up a due diligence room for interested parties.

What if you wanted to form a due diligence room, but grant access to the information in an anonymous manner?

First why the heck would we want to do this? Well, perhaps the buyer wants to be able to perform their due diligence without tipping off the neighbors or the seller. Maybe it is as simple as you don’t want to keep email lists, and contact information. Or maybe the list of investors are accredited investors, and it is a possible securities offering. Maybe it is just a past feud between landowners or DAO’s.

There is also an opportunity of DAO’s merging away from “spinoffs” and merging into other DAO’s. Some of these teams are anonymous, or really don’t even have a developer team. They are just a DAO on chain. An example is where Inverse Finance acquihired Tonic Finance one person development team as executed here. How can they do their due diligence and preserve this pseudo-personal information. In the real world, there can be the onerous process of non-disclosure agreements that often are toothless in case of a breach.

For this article we work as if there is a transaction involving a real world asset “a farm”. If this is your first time hearing about Farmapper.com, it is a web application that allows a user to click on a point on the map and load shapes from a database to overlay over the map interface. These shapes can be saved, have documents saved to them, place icon stickers to mark improvements, and much much more. All of the information and data can be saved to a Farmapper project, that can then be used to generate a public URL or shared with other authenticated Farmapper users.

I Am the Gatekeeper are you the Keymaster?

We start with a gate. And gates need locks and keys. So in our example we have the Farmapper project locked behind a gate. This gate requires a unique NFT to unlock the gate and serve as the Key. A non-fungible token (NFT) is a special type of cryptographic token which represents something unique. So one could say that each photo in your photo album is unique. Slap a serial number on it and digitize it and you have the makings of a NFT.

For this tutorial we will use the following

1. Farmapper NFT contract to mint cheap NFT’s on the xdai network using cargo.build. These will be our keys
2. Farmapper application to create a farm project with various documents, parcels, and data to publish a public URL. This is the lock.
3. Mintgate used to token lock the above Farmapper project URL. This will be our lockmaker.

The target farm for our due diligence is one that there was a very high priced sale between two neighbors. This drove the reported farm sales price up to $18,800 per acre. The rest is just speculation. Imagine that one of the neighbors had a long standing beef with the prospective seller. And on the seller’s death bed, they said don’t sell this guy the farm. Ever!

With this the stage is set. The estate planner wants to have a process that realizes the most value from the real property, but without knowing who any of the interested parties are in the process. This can be accomplished through using encrypted key pair wallets. Without going into the complex math. Blockchain wallets generally work with the only identifiable information being a public address (think of this as a website for money). That is controlled by the owner of the wallet, through a private key. This is the key that enables the owner to move tokens, or make signatures on a blockchain.

We could imagine that interested parties could pseudoanonymously post $1,000 in earnest money in a noncustodial escrow and obtain an NFT token that will serve as the key to the lock.

Let’s mint the NFT

We want to mint our NFT, using the image from a Farmapper project. Here we go to this public project that follows a high sale between two neighbors as per this Twitter conversation. We recreated a proxy for the sale using farmapper.com and published the project to a live URL. We are going to assume that we want to lock the project URL so that it requires an NFT to access. We screen shot the image for the NFT. Farm art is the best.

With image in hand, we go to cargo.build which is an NFT minting and management platform. We use a different network than Ethereum as it is currently very expensive to mint on mainnet and we just need an NFT, not to secure a billion dollars.

We connect using a metamask account, which uses a browser extension to connect to blockchains. Be careful and make sure everything is official and authenticated and the private keys are kept private. It is the equivalent of having a real life wallet and if you leave it in the open in a bar overnight, it might not have all the stuff that you left in it.

Farmapper has executed a transaction on app.cargo.build that launches a smart contract that enables us to mint our own NFT’s on the xdai network. We want to mint another NFT for our “key” to the lock.

Basically, we add information including the name, a description, the number of tokens “keys” to mint, the image from our project, and we can even lock in files into the NFT. I am going to drop in a .kml file that is a Google Earth friendly version of our project shapes. There are even options for dropping in videos, audio or make 3D NFT’s. Yes the future is weird.

Next we mint, which basically prints the NFT token on the blockchain and relates the data that we stored to the token. Picture an NFT as a token that points to other data. In our case, it will point to other information. Here you can see that it points to my screenshot as an image, and to cargo to host the token in their marketplace.

Here is token #17

As the owner of the NFT, I can “unlock” the kml file that I buried in it. I can transfer it to anyone else or I can even list it for sale on their marketplace. Plus I can even include royalties every time that the NFT sells in the secondary market. But I won’t do that here.

I did transfer an NFT to another account so that it can be used as the key.

Using Mintgate to make the Lock

Now we want to “lock” some content that can be opened with the NFT as the key. We go to mintgate and authenticate with Twitter. I want to add the public URL to token lock it. Astute followers will know that the public url is still public, but for the general public it would not be available without the link. Though it is still public and crawlable to anyone or anybot with the url to view the project.

Insert the URL for what we want locked behind the gate.

I now select the xdai network, the contract address that was used to mint the NFT’s and the token identification number #19. This should create an “unlockable link” that looks like this. Try it out.

Now, if I go to this link with a wallet that holds the NFT, I should be able to sign an encrypted signature proving that the wallet holds the NFT and access the link.

If not, I just get a message that I don’t hold the token. So I transferred the NFT earlier, and click on the Mintgate link and after the signature verified the NFT key in my metamask wallet.

After the NFT key fits the lock, the link propagates and we see the due diligence room appear, with the farm project, the stickers, the documents, etc all available for the holder of the NFT.

Share Open Information with Anyone

Once again, in our example, the attorney was able to put together information in a due diligence room and allow the exchange between parties without the other knowing exactly who is accessing the information. All done using fancy cryptography to ensure that from the point of the blockchain it sees only the NFT owned by the wallet which gives the owner certain permissions.

In the future we hope that the NFT won’t just unlock due diligence rooms, but perhaps even easements, or leasehold rights, or camping sites, chat rooms, or whatever use case can be dreamed up. All without the either party needing to share precious information that can be subject to data breaches, future mail spam, etc.

Special thanks to Nick Rishwain for providing comments.

About Farmapper

We are on a mission at farmapper.com to bring agriculture together on the map. We want farmers to own and control their data and be able to use technology to remove friction costs. Please give us a clap or two and let us know what we should write the next series on.

Follow us on Twitter: @farmapper

Visit our Website: www.farmapper.com

Checkout our Facebook: https://www.facebook.com/farmapper/

About LexDAO

LexDAO is a non-profit association of legal engineering professionals that brings the traditional legal settlement layer to code, and coded agreements to the masses. We believe that everyone deserves access to justice provided in a quick and efficient manner. If legal services were easier to use, verify, and enforce, we could live in a fairer world. Blockchain technology offers solutions to many problems in the legal space. Our mission is to research, develop and evangelize first-class legal methods and blockchain protocols that secure rules and promises with code rather than trust. We do this by training LexDAO certified legal engineers and building LexDAO certified blockchain applications. We strive to balance new deterministic tools with the equitable considerations of law to better serve our clients, allies, and ultimately citizens.

All links provided are for informational purposes only and not meant as recommendations of the people or products. Nothing herein is legal or financial advice and should not be relied upon without reaching out to your own personal attorney. The linked ABA disclaimer is appended to the blog.

Follow us on Twitter @lexDAO

Join our Discord lexdao.chat

Peruse our Github https://github.com/lexDAO

Do your due diligence was originally published in LexDAOism on Medium, where people are continuing the conversation by highlighting and responding to this story.