WBD256 Audio Transcription

INX: Legitimate Token or S***coin? With Alan Silbert, Jameson Lopp & Samson Mow

Interview date: Monday 31st August 2020

Note: the following is a transcription of my interview with Alan Silbert, Jameson Lopp & Samson Mow from INX, Casa & Blockstream. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.

In this interview, I talk to Alan Silbert, Jameson Lopp and Samson Mow about the launch of INX. We discuss why they chose to tokenise on Ethereum, what makes something a shitcoin and the key criticisms directed towards them.

“ICO’s and those kind of scams have poisoned the well to the point where people can’t really tell what is a real business and what is not a real business anymore.”

— Samson Mow

Interview Transcription

Peter McCormack: All right, Alan, Samson, Jameson welcome. Welcome, Alan, you haven't been on the show before. This is also a first for me. This is the first time I've had three shitcoiners on at the same time, so welcome! Well listen, look, I've got a lot to get into here. I've got a whole bunch of questions and typically, as I'm not technical, I'm also not particularly experienced in investing or company structures, like with most things. So I've got a lot of questions and I'm going to try and be as fair as possible.

I do know there's some people are going to listen to this and their starting point is, "I hate this whatever, it's not Bitcoin, go fuck yourself." So I'm going to ignore those people because a bit like when they score ice skating in the Olympics, I'm ignoring the top and bottom 5%, I'm going to go in the middle and try and figure this out. Fundamentally, I don't have an issue with that. I wouldn't invest and I'll tell you why, but I fundamentally don't have an issue with this.

But anyway, lots and lots to get into. So a starting point I actually want to get into, because I think some of this was lost in the carnage of the announcement, Alan, can you firstly, just tell me who and what INX is, and the team is behind it, what they're trying to do etc? Because I know it's an exchange, but the majority of the, let's call it uproar, was about the token and it failed to even get into the fundamentals of the business. So can you just tell me a bit about INX first?

Alan Silbert: Yeah, sure, absolutely. I'll kind of lead into it, but my background is in traditional finance. I was always in regulated companies, middle market lending, did that for almost 20 years and I got introduced to Bitcoin by my brother, I think it was probably late 2012, dragged my feet on it for months and months until he hit me over the head with it. Around the same time I was getting very bored with my career path and I was just done and I just wanted a new challenge.

So started getting into Bitcoin, started digging in and kind of the crossing point was one of these Jamie Dimon Fortune articles, which said, "Jamie Dimon thinks Bitcoin's a scam", whatever. I was working for Capital One Bank at the time and they took one of my tweets about how Jamie Dimon was starting to backpedal, they kind of plopped it right in the middle of the Fortune magazine article and it said, "Alan Silbert, SVP at Capital One said this" so that didn't go over well at all.

So Head of the Commercial bank, HR, public relations within 12 hours, I had a meeting with all of them and they were like, "You can never speak in public again about Bitcoin" and in that moment I was like, "Okay, this is my opportunity to get out." Within like a week of that, I got introduced to the INX core team who's in Israel, all of our tech is in Israel, got introduced to them and they were looking for somebody to run U.S. Operations for this platform and so that's kind of how it started.

I helped bring in the board members and the advisors as well, two of the famous ones are right here. We wanted exchange experience like Samson's, I wanted security experience like Jameson's, I wanted trader experience like WhalePanda's, board members, we have a lot of big names in the legacy world, we wanted very trustworthy folks that understood the legacy trading systems like David Weild who was from NASDAQ and Tom Lewis was from Ameritrade.

Also Nick Thadaney was from the Toronto equities markets and the companies that we have built out in the U.S. in the New York area. So this is where the critical mass is going to be, but that's kind of the core of the team is the Israeli tech team. We have a few of us are in the U.S. and we have all very visible board and advisors.

Peter McCormack: I know you might have a different answer long-term, but is it essentially a crypto only exchange or are you also looking at fractional assets of traditional kind of shares as well, or is it just crypto only?

Alan Silbert: Yeah, so it's going to start in stages, it's going to be crypto first, which is going to roll out about six months from the offering and then security tokens is the next stage, then derivatives is the next stage.

Peter McCormack: Okay, but crypto derivatives only?

Alan Silbert: Well yeah. We'll do whatever we can manage from a regulatory perspective. You'll see that I'll be a little squirrely and I'm not trying to be evasive, I'm just under so many SEC rules and stuff that, I have to be a little bit careful, but yeah, it's all laid out in the prospectus, the timelines and what we plan on it.

Peter McCormack: Well yeah, I'll come to the prospectus. So I opened it and it was 168 pages in very small type.

Alan Silbert: That's the compressed version you're reading. Yeah, it's usually like 300 pages.

Peter McCormack: I know it's unprofessional of me, but I was like, "I'm not fucking reading that!" Then I opened the risk document...

Alan Silbert: I don't know how they expect anybody to actually read these things, it's absolutely unbelievable.

Peter McCormack: The risk document itself was 23, 30 pages and that was even smaller type! I was like, "Okay, well, listen, if you can't explain it to me, then I'm not interested."

Jameson Lopp: This is consumer protection Peter, this is how it works. We're informing everyone of the risks.

Peter McCormack: Yeah, but I think you could protect consumers more by forcing you to do it into a one pager, like here are the main risks, but not every variation. So Alan might break his leg on the way to work and therefore can't come to work and therefore, decisions don't get made. Give us just like a bullshit level of risks and it was too much anyway. It's like terms and conditions. When you upgrade your iPhone, you don't read the terms and conditions and you just accept them. It's fucking nonsense world!

All right, but listen, the exchange business is a tough business. There's some massive companies out there, Kraken, Coinbase, Binance etc, it's a very competitive business. Looking at the amount that you're looking to raise, imagining the size of the team, imagining in what you need to get to kind of breakeven point, that's a tough business to break into. Obviously you're up to the challenge, but how do you think you're going to get significant market share?

Alan Silbert: Yeah, we're up for the challenge! We obviously took the most difficult path ever with the SEC, so we like challenges. This is probably the most challenging thing I've dealt with in my corporate career. But yeah, first of all, I won't name names, but I think some of the exchanges that have been built to date in the U.S, I don't agree with how things have been done or with their methods, but won't name any names there.

A few of the guys in the U.S. Exchange space I do respect immensely and they do a great job, but we think we could bring a better trading experience for the trader. We can do it without shitcoins and we can do it without regulatory baggage, which most of them have. We believe the token holders are crucial to our success as well. So this was all done intentionally with the token holder community to be like a very important part of this company.

They're getting 40% of the net profits of the exchange. We want them to be our brand ambassadors, XRP army is a little cringey, but something along the same lines. So you have like a captive marketing, captive ambassador army out there that's invested in the profits of the exchange, which is why we gave them a large percentage of our profits and we think that there'll be very crucial to our success and help drive volume to us as well.

Peter McCormack: Okay, so there's one of the first points I need to press you on a bit. So you said that you think you can do this without shitcoins. Jameson, you sent me an article yesterday, which I thought was very well put together and you attempted to define what is a shitcoin. So do you want to like explain what you think is a shitcoin?

Jameson Lopp: Well personally I believe shitcoins are things that just do a terrible job at what they claim to do. Now that's a very vague hand wavy assertion, so it becomes a lot easier I think, to clarify a shitcoin, if we're talking about something that's claiming to be money. This is where I think the traditional Bitcoin maximalist argument started out and can be a lot more clear saying, "Okay, Bitcoin is the best hard sound money out there. Anything else that's trying to be money is probably making trade-offs and it's not as good a money as Bitcoin."

When we start talking about things that aren't trying to be money, well, the water's become a lot muddier. So that's when you start getting into, is a non-money crypto token and a shitcoin or not? That's when it becomes a lot more subjective, because it comes down to in many cases, whether or not the person thinks this needs to be a token or on a blockchain or whatever in the first place and that's something that you can argue about ad infinitum as to whether or not the features that you get from being on a blockchain, if you're not going for things like censorship resistance, whether or not those things have value.

Peter McCormack: I kind of agree and I think there's like this spectrum. There's some people who are, "If it's not Bitcoin it's a shitcoin." There are some people that, "Okay, if it's not trying to be money", as you said, or "It's making poor trade-offs, it's not making poor trade-offs, it's not a shitcoin" and then there's some people that believe there's no such thing read kind of no such thing as a shitcoin.

They have a broad acceptance of any kind of crypto asset. I would say I'm towards the Bitcoin end of the spectrum, but I'm willing to look at things. I don't consider this a shitcoin, I just think it's a way where you've tokenized an asset and have a way of selling it and I'll come into my views on it. Samson, would you broadly agree with Jameson's view?

Samson Mow: Yeah, I think the article is really well written and it takes a step in the right direction, which is defining some things such as, what is a shitcoin or even what is a Bitcoin maximalist? I think the term maximalist has morphed over the years to become a Bitcoin only and don't touch anything else that uses cryptography, even if it's a stable coin or a security token and this is kind of a weird place that we're in right now. So I prefer the definition, Bitcoin pragmatist.

Peter McCormack: So would you say... Well Ethereum we'll treat on its own, but would you say Bitcoin cash is a shitcoin?

Samson Mow: Oh yeah, Bitcoin Cash is the shittiest of the shitcoins.

Peter McCormack: Okay, what about Litecoin?

Samson Mow: Litecoin, I don't think is a shitcoin. I'm biased because I'm friends with Charlie and Ricardo, but I don't think Litecoin and Monero are shitcoins. They don't have a massive pre-mine, they didn't scam anybody, they don't make promises that they can't deliver Litecoin just says it's silver to Bitcoin's gold and that's pretty much it.

With Monero, even if Fluffy Pony just says, "Don't use it, don't buy it", it's just a cryptocurrency and it doesn't really promise anything to the end users. I think Monero promises privacy And I think they do a better job at privacy than most other privacy coins out there, so I'm fine with those two and I don't consider them to be scams.

Peter McCormack: I'm kind of okay with Monero in that if I had to do a very private transaction, I think I'd be more comfortable doing it with Monero than Bitcoin, because I'm not very good at the privacy side of things, where I know someone like Jameson can probably nail it with Tor and CoinJoin and all that stuff. I know there's an argument, "well, you get seen with an on-ramp or the off-ramp of buying Monero", but the transaction itself, I'm fairly comfortable with. I don't hate it. I think by Jameson's definition, Litecoin is a shitcoin, even though Charlie's my friend. What about Zcash?

Samson Mow: I think Zcash is a shitcoin. They have a founder's reward or whatever they're calling it. They're using the project to enrich themselves. That's why I prefer Monero because it's more similar to Bitcoin in that it has a open development community and it's funded by developers working on it rather than this model where you take money and pay yourself out of the Blockboard.

Jameson Lopp: This is part of the issue though, is that someone may consider something to be a shitcoin, because it has more centralized or more obvious governance. Someone may consider something to be a shitcoin, because it has economic properties that aren't as sound, perhaps it has perpetual inflation.

Someone may consider another cryptocurrency to be a shitcoin, because of just the marketing and in the case of Bitcoin Cash, a lot of people are saying, "Oh, this is the real Bitcoin." Well now, you're going to trigger all the Bitcoin maximalists and so it's definitely a shitcoin.

Samson Mow: Well the other thing with Zcash, is I think Zooko said, " We'll build the back door" or something like that. I forgot exactly what he said, but it was along those lines and he's went out and made partnerships with banks, like Chase Bank. It's just kind of weird for a privacy coin.

Peter McCormack: Well Zcash is a company if you asked me, it's not a cryptocurrency, it's a company. Okay, so this is where one of the contradictions exists and one of the problems, because Alan's saying, "We can do it without shitcoins." I think there's an agreement that Bcash and Zcash are both shitcoins, but the website says, I'm just looking now, "INX blockchain asset trading solution, buy, sell crypto BTC, ETH, Litecoin, Zcash, BCH." So the exchange is going to be supporting shitcoins under the definition of Samson, yourself and you Jameson.

Samson Mow: Under Jameson's definitions, yes.

Peter McCormack: So Alan, you don't think Bitcoin Cash is a shitcoin?

Alan Silbert: I think if people want to trade it, then it's fine. I think that everybody has PTSD from 2017, obviously.

Peter McCormack: For sure.

Alan Silbert: The vast majority of crap that came out was just people throwing it up against the wall to see if it would stick. There were money grabs and no protections, no structure, no visible management etc. So everybody knows my opinion of that Bitcoin Cash. I don't think anybody's doing exit scam there, nobody's going to go to orphanage in India and implode the project. It's going to be around. Should it be a top 10 coin? I don't know.

Jameson Lopp: I think this may come down to, Alan may be using the term shitcoin from the perspective of whether or not it's a scam and is fleecing investors and there are certainly hundreds, if not thousands of straight up scam tokens that especially came out during the last wave of hype and those tended to be like pay to play, where they would go around and actually bribe the various shadier exchanges to get listed and then engage in various pump and dump operations.

Peter McCormack: I don't think you can excuse every one of those tokens, those coins from being involved in similar kind of pump and dump scenarios, I just think there's a bit of a contradiction here and there's definitely feels like a bit of a hypocrisy where I think that's where some of the kind of the feedback came from is people felt like, Samson, I feel like I can do any interview. I feel like if I need something from you, I can call you up and say, "Samson, I need you to help us something", I think you'll always help me.

But at the same time, I have to say, just in an interview like this, I think there is a certain amount of hypocrisy because you've been, especially ETH, you've been very against, but you have a financial interest in the success of this. By the way, I'm a hypocrite myself, because I have Kraken as a sponsor and they also trade in shitcoins and perhaps that pays part of my sponsorship.

Samson Mow: We have an array of interesting topics there. So what does it mean? The first one is what does it mean to support a shitcoin as an exchange? Can you list it and provide a market and provide disclaimers? For BTC Times, when we post an AltCoin article, we have a disclaimer there that says, "We don't support shitcoins and blah, blah, blah and you're going to get wrecked if you buy it." But can Alan list BCH or Bcash and provide that marketplace and is that okay?

Or is even the act of listing it, supporting it? Because that definition is kind of broad. You could even say, Bitfinex is supporting BSV, because they list the BSV market, but they're also defending the lawsuit that you're facing right now too, like some of the guys there. You can say, that's a good thing, they're taking the fees from people that are willing to trade BSV are paying and using that to counter some of the bad stuff, like really bad stuff that is being done by that group.

Then you could even say Blockstream is supporting shitcoins too, because we have the cryptocurrency data-feed that we launched together with ICE and that's pulling together data from all the different exchanges and compiling it into one data-feed and that's on our website and you can see all the shitcoin logos that are in that data-feed.

So I think it's very complicated once you start figuring out how clean is any given venue and defining all the questions of that purity test, because even the Bitcoin-only exchanges are sourcing their coins from, I don't know, Kraken or other exchanges that also indirectly support by listing.

Alan Silbert: Yeah, so from our perspective, we have to answer to regulators. So we have two sides, we're going to be trading cryptocurrencies, your role to the money transmitter authorities and it has to be clearly a cryptocurrency and not a security. So Bitcoin, Bitcoin Cash, Litecoin, Ethereum squeezed by, got grandfathered in, it's not a security, Zcash.

On the other side and the security token side, we have to answer to the Fed and the SEC. So security tokens that we list are going to have to go through some kind of regulatory process to show that they're viable and they're regulated.

Peter McCormack: Sorry, I was just going to say, I think what you're of saying Samson also, is the absolute purity isn't possible. It's like, okay, I don't care if people trade this stuff. I think some of it's dumb, but I don't care. I've recently started just think of it as, it's a game now. Bitcoin is money and the rest of this stuff, it's just a game and you're playing a game to just try to accumulate more money.

Jameson Lopp: There's a reason why they're called shitcoin casinos, Peter.

Peter McCormack: Yes, I know!

Samson Mow: So the other thing I wanted to talk on, is your point about hypocrisy, and then I want to go into the financial incentives too. So I don't think that we are hypocrites. The definition of Bitcoin maximalism has shifted over time and a lot of the people in the space now are so new that they lack any historical awareness. Like someone watching Jameson's Twitter feed may just see him talking about Bitcoin all day long, but I think they forget that he was a BitGo engineer that has worked on Bitcoin Multisig and Ethereum "Multisig" or whatever they cast to get away with that.

But he's worked on the Ethereum before and my background is I used to run BTC China, the cryptocurrency exchange. I was a COO there, and we were I think the first exchange to list Litecoin and I think I've done a lot to help Litecoin over the years. Why am I suddenly a hypocrite? I also help ETC survive back when ETH split off from the original chain, so I think people just have a very poor understanding of who anybody is. They just see people posting good things about Bitcoin and they presume that they are the same as they are.

Peter McCormack: So you're saying you were always a shitcoiner?

Samson Mow: You could say that! Yes, the other point that you had was what the financial motivations. Well, I hope that INX succeeds, but there's still a chance that INX doesn't complete the capital raise and then the money I invested isn't worth anything. 

Back when we invested in this project, that was like two and a half years ago, it was not a sure thing, and it could have been lost at any point along the way during those 900 somewhat days that we were going up with the SEC and trying to get it approved. So when you look at it now, it looks like, "Okay, that was a decent investment." But when we made the investment, I'm just relying on Alan to not shit the bed!

Alan Silbert: Yeah, this is a painful thing going around is it's like this 90 times return from, it's so ridiculous! Everything we do is subject to audit and valuation and regulators and we brought these guys on, like Samson said, it was a long time ago, the company was in its infancy, all we really had at that point was the beginnings of a platform construct and a team.

So their token grants were not arbitrary, it wasn't a handout and it was the fair value at the time. We were a start-up and there wasn't much to go on to generate a valuation, but this is what the valuation was per an independent company and per audit by Ernst & Young. This was in the company's infancy, so just to speak to this crazy 90 times issue that's coming up.

Jameson Lopp: Well I think this is actually a no win situation. So what we're doing right now, there are plenty of people out there who are going to say, "You're just going into a defensive position right now and you are hypocrites and you're basically twisting logic in a way to try to portray what you've done as not being hypocritical." So there's always going to be, I think, a difference in perspective there and what Samson was hinting at I think, is that I've seen a lot of people say, "Oh, Jameson abandoned his principles, #CancelLopp etc" and from my perspective, my principles have been the same the whole time.

What has been wrong is that there has been a misunderstanding I think, between perhaps what I have vocalized as my principles and therefore what other people have constructed to be my principles or they believe that their principals are exactly the same as mine and that's one of the things that I tried to cover in my article where I show, historically, I have gotten Twitter mob backlash on numerous occasions when I have mentioned my interest in non-Bitcoin projects.

Peter McCormack: Grin?

Jameson Lopp: Yeah, that's one of the more recent ones. That's definitely not the only time that this has happened though. I was running Zcash before the network launched and playing around with it, I'm sure I can dig up those tweets somewhere. But everyone comes to Bitcoin and crypto with their own perspective and their own interests. I'm a technologist and I am not ever going to apologize for being interested in other technologies.

Now I try not to hand out financial advice to anyone and if I have been telling people that they should put their money into anything, even Bitcoin, I try not to say put a decent amount of money into it. Even Bitcoin, I tend to tell people it should be a small amount at most, but that's because I'm not a finance professional.

I am a tech guy and I play with technology and if that means that I end up pissing people off because they're coming at this from a different perspective, I view that as an inevitability and it's just something that I'm going to continue having to deal with and no one's going to cancel me. I'm not going to stop doing what I've been doing for quite a few years.

Peter McCormack: I think why we have this issue... Some people say it's not an issue, shut up Pete, but we have this thing where Bitcoin has created this moral business purity, which is very hard to live up to, like extremely hard to live up to. If that's your benchmark for everyone, it's going to be very difficult to build an economy off that, especially as humans themselves are flawed.

We are greedy, we are competitive, we do want to win, and sometimes people have to push the limits. Based on the purity test, for example, my own podcast, I would have to dump Kraken because I had allowed trading shitcoins. I have to dump BlockFi because they have a custodial solution for interest, I'd have to dump Sports Bet because gambling is morally unethical and now I'm without sponsors and I'm without a business.

But, if you actually look at the root of a lot of libertarians talk about free choice, like all of these companies are free choice, you're free to gamble if you want to gamble, you're free to invest in tokens if you want a token, you're free to deposit your money with BlockFi for interest if you want. They're all free choice, but we have this moral benchmark of purity that's very hard to live up to and I struggle with it myself. But I think that's what you're being judged on by some parts.

Samson Mow: Well I think it's just people want to be angry at something. There's a dozen different permutations of how INX's fundraising could have gone and with each of those, there will be an outcry and an angry mob and I just think it's really ironic that you have these people that are supposed to be libertarian, but they're so angry when people do things, especially something capitalistic like a fundraising, it's just blows my mind.

But the other point you're making is that purity test, it's kind of weird and I really think it's just people want to be angry. I was arguing with somebody, I forgot who and I said, "Well, why don't you hate on the exchanges?" And he said, "Well, no exchanges get a free pass." But how does that make any sense? INX is an exchange and it's like the other exchanges are delving more and more into shitcoining. I get emails from an exchanger saying, "Come stake with us" and these are exchanges that hire very prominent Bitcoin maximalists and they're emailing me saying, "stake," and other crap.

INX is using a ERC token and that's just to launch the security, it is not bound to that. The security is with the company, it's not with the rail, which is the token. INX's token could be on any chain, like a stablecoin. So just because they had to use the Ethereum for pragmatic reasons, doesn't mean that it's always going to be on Ethereum or that they even want it or that the advisors like it. But I think we all understand that there is pragmatism involved when you're doing business.

Peter McCormack: Well let's deal with your Ethereum thing as you brought it up, that was later on. Okay, so this is a 100% and you're going to struggle to push me off this one Samson, this is a hypocritical position because you have validated Ethereum as having a use case.

Samson Mow: Well it does get used. Obviously people are using it to do things and even...

Peter McCormack: But you're using it.

Samson Mow: Well, I'm not using it because I haven't taken my tokens.

Peter McCormack: But you know what I mean?

Jameson Lopp: This is actually an interesting perspective, is that when I think forward about how I will be interacting with the tokens if I choose to exercise my option, I suspect I will just leave them on the INX exchange and let INX custody those keys, because I'm already trusting INX a hundred percent for everything. That could always change, but this is the perspective I've taken as a technologist and what I try to explain the functionality of the token itself is that it is agnostic as to the platform network that it's on, just really like Tether.

There is a single point of control and that is INX, which ultimately is the book keeper, the keeper of record of ownership of these tokens and so unfortunately for regulatory reasons, had to go with the Ethereum route, but there's no reason why it couldn't eventually be on another network or even multiple networks just like Tethers.

Peter McCormack: But it’s all Ethereum.

Alan Silbert: Yeah, I'm as Bitcoin maximalist as they come. I think I own $10 worth of Ether so that it's and 95% of my crypto portfolio is in Bitcoin. So I'm about as maximalist as they come and this process started in late 2017, there was zero other options. This was that, to build a token with the regulatory construct that we could control, we're not claiming to be some new decentralized Bitcoin, there're regulatory controls here.

We have Oracle rights and stuff, we can change things but it was the only option. The way that the regulatory process goes, you just become more and more painted into a corner. It's like the risks and disclosures that you're mentioning are just one example. Every time they asked us, he comes back with comments, they just add and pile it on, "Put this disclosure up, put this disclosure in" and it's so expensive and so time consuming and so frustrating.

I got to the point in late last year where I was like, "Guys, don't change one fucking sentence in this perspective anymore. Just don't do it because every sentence just has the ability to generate exponentially more questions." So even if mid-process, like Liquid was perfect for our functioning, we just got to the point of no return. It's a regulated process and it just does this to you.

Peter McCormack: Fine, but what I would say is because... Samson, we spoke to Vitalik the other day and when people talk about Ethereum being a scam, I always struggle with the idea that a platform is a scam. I think people could be scammers and a platform can be used for scams, I struggle with the idea that a platform is a scam and I don't...

Again, this is going to annoy people, probably like Giacomo might be annoyed at me for saying this, when people talk about the history of Ethereum has changed, again, it doesn't really bother me because technology pivots. So I don't actually care about that. Then also people say, "Well, it can't deliver in the future" and again, I'm less bothered about that in that not every technology is forever. I only have a mobile phone in my house now, we used to have an analogue phone, we don't have that anymore. Not every technology lives forever.

If right now, that technology is usable to deliver something for a business, and this is the only option, again, some people, especially someone Giacomo can say, "You're validating a scam", but point is, whether it's a scam or not, you're validating the usage of it. I don't even know where I'm going with this, but what I'm saying is you're validating... It has a use case whilst also being very critical of that and there is a certain amount of hypocrisy there.

Samson Mow: Okay, so Ethereum is a scam because of their massive pre-mine and the fact that they sold their token for Bitcoin. So they themselves basically put Bitcoin in the vending machine, get the Ethereum out, and then they take the Bitcoin out of the back of the machine. So they're basically self-dealing. They're telling people that it's a world's computer, it's never going to get rolled back, code is law and so there's multiple facets of Ethereum that make it a scam.

I think you can still use the technology, but the project itself is very scammy in my view and I think I've been pretty consistent. I can hate Ethereum and say, "Don't use Ethereum," but I think I can also invest in a project that is using Ethereum because they have no choice at that point. The question really is, do I want to invest in the project or not? It's not about if the project is using Ethereum or not, because it's not bound to it. It's just like, they could use Omni for all I care.

I don't really mind if the end goal is that they're going to use something better, like Liquid, then I'm okay to invest short term so they clear the regulatory hurdles. If the Ethereum token, like what Jameson is talking about, doesn't really come into play until you have other security token exchanges that are supporting the token because you don't need to transport it. You just leave it on INX. I will never touch the INX ERC-20, I'll take it when it becomes a Liquid Token or when I need to move it, but until then, it just can sit there and earn 40% profit.

Alan Silbert: I think you technically don't even own the tokens right now, I think it's still six months.

Peter McCormack: But Samson, I would say, just externally speaking, it's not always comfortable to say to somebody that you get on well with, but I would say you're in a very, very small group of people who doesn't think this is hypocrisy.

Jameson Lopp: Yeah, I'll take the adversarial view on that, which is that, by launching this project on Ethereum, it is using gas and it is paying Ethereum miners. From a perspective, it is contributing to the financial support of the Ethereum network as these tokens are being used and so that is not something that I would choose to support myself, I'm not going to be moving around INX tokens on Ethereum for those reasons and others.

That is why I think a number of us who prefer to see things supporting the Bitcoin system would like to see it move to something that is more Bitcoin adjacent.

Peter McCormack: But you are the technology advisor.

Jameson Lopp: I am and unfortunately this is the clash between technology and regulation and correct me if I'm wrong Alan, but I'm pretty sure by the time that I actually was brought on board as the technology advisor, Ethereum as a platform had already been pretty much set in stone.

Alan Silbert: Yeah, it predates all these guys. It was one of the first decisions made in the company. So we didn't retain these guys for their Ethereum experience, we retain them for their security and then trading experience.

Peter McCormack: So what were the other options? Did you look at Omni? Was Omni an option?

Alan Silbert: No, I don't think it was even a viable option back then. There were literally zero other options for what we wanted to accomplish with our smart contract and the whitelisting. We had no other options, so this was it.

Peter McCormack: Do you know what I see it as actually? The way I read it all, I saw it as there is an opportunity to... We have a new world of investor, where people trade in tokens and cryptocurrencies and they move things between exchanges and wallets. There's this infrastructure that's been built and this now is an opportunity to add to that infrastructure. It's not necessarily that a blockchain is the best designed for this, I appreciate the argument that some people say, "You could have done this on the centralized database." You could have, but...

Jameson Lopp: No, you couldn't have. We can get into this later!

Peter McCormack: Okay, well we'll come back to that. But there was an argument that you could have registered while you waited for Liquid, potentially the people are registered. You could register their tokens on a centralized database. But the point is, I wrote that off is that you have this new type of investor who's used to holding a hardware wallet, who's used to holding assets essentially offline in their hardware wallets, they're used to trading only on certain type of exchanges, and this is potentially the future of trading and I thought, "Well, perhaps there's a solid argument to say the infrastructure for this already exists.

People already use this experience." I don't buy shares, I haven't even looked at the process of buying shares, but if I wanted to, if I could do it and store it on a Ledger and buy it on Kraken, or INX, I'm actually a little bit more interested in that because I'm like, "Okay, that makes life a bit easier." I actually liked the idea of storing all my investment assets in one place, like I could have my Bitcoin next to my, what essentially are kind of shares, I know they're not exactly equity shares, but having that all in one place, I bought into the argument, I buy into that, it isn't a shitcoin.

That was my assumption. Is that what you're going for? You're seeing this future of trading, that is these tokens, which are securitized and that is potentially where you're seeing the opportunity for INX in a very competitive exchange market?

Alan Silbert: Yeah and there're trillions of illiquid assets out there that you can tokenize which are still... We're starting to see that open up. We would have liked for it to be faster, but you're starting to see real estate, which seems to be like the first kind of project where you have your liquid assets that are getting tokenized and then that'll branch out into other things like art and other dead assets or ideas that are patents or other things that you can tokenize, and it's like the sky's the limit. There's trillions of dollars of assets that are possibilities and we thought that doing this in a regulated, structured way is the only way to get it to pass muster.

Peter McCormack: Again, the KYC thing came up and again, I understand you can't do this without KYC. You can Bitcoin without KYC if you're very careful and you jump through certain hoops, you have a way of acquiring offline etc, but you can't actually do this without KYC. Also I felt the KYC attack vector on you Jameson was unfair because you can't really live without money. So a need for non-KYC money, there's a logical argument. You can't actually acquire any shares without KYC and it's optional. You don't need shares to survive.

It's nice to invest and make a profit, but you can't get away from that so the KYC didn't bother me, but are we heading into a world whereby I may own a certain asset and I'm KYC whitelisted with you, I can transfer that to anybody else within the same ecosystem. I could be sat in a pub with Jameson and say, "Look, do you want to buy some of my tokenized shares in this Picasso." And he's like, "Yeah, I'll take that off you" and he gives me some Bitcoin and I can just send it to him.

Alan Silbert: Yeah!

Jameson Lopp: Listen, this is, I think one of the things that pisses off a lot of the hardcore Cypherpunks and anarchists who hate the idea of the government getting their hands in everything. In fact, I had a quip earlier where I was like, "What is a scam?" I was about to actually mention, I received an article, I think it was from Old Ugly Goat that was basically detailing why the SEC is one of the greatest scams in the existence of finance.

I, as you know, a futurist and anarcho-capitalist, would love to see a world in which we could tokenize everything from equity to other assets and freely trade them without having to do AML, KYC, whitelisting etc, really have a Bitcoin style censorship resistant token for any asset under the sun. I think, and I hope, and I believe that we are all working to get there one day, but I actually believe that by us moving the needle a little bit and trying to bridge the gap from the regulated side of things, to show that this blockchain crypto token ecosystem is not automatically a scam, that you can actually get regulators to say, "Okay, you can do this and we're not going to throw you all in jail."

That gets us a step closer I believe, to onboarding people, perhaps a lot of people who love the idea of government and regulation and they feel safe within that ecosystem and now they're starting to inch closer to this Cypherpunk, self-sovereign type of future one step at a time and each little step is going to piss off a lot of people who have their own perspectives and they want to jump into their Utopian future right now. But I believe that eventually, little by little bridging these gaps, we can start to build a world in which people are able to engage in more voluntary interactions and this is not that perfect ideal world, but I think that it is at least a step in the right direction and it's proving that we can get a little bit closer.

Samson Mow: So I want to touch on that. So what Lopp saying is, we need to move the ball forward somehow and to your point Peter, like me investing in a project that is using Ethereum legitimizes it, I think you can argue that, but I think the more important part is, I'm investing the project to make a security token trading platform exists and Ethereum is just irrelevant at that point.

What they need to do to get the filing done, get the regulatory approvals and launch the project. What comes after is what really matters, not the Genesis of it, Alan can attest to this. Since I joined, I've been badgering him at least once a week saying, "Can we do something? Can we change it?" On the other side, I'm doing what Lopp is saying, which is I'm trying to make it possible. So we've built Liquid securities on top of the Liquid network and I'm working on getting the SEC and FINRA comfortable with Liquid too, but it's not just like you wish something happens and it happens automatically, there's a lot of work to be done behind the scenes to make it possible.

For me, it's really just, do we have INX or do we not have an INX? I'd rather have INX, take some shit from people online and make it what I want it to be, which is a Liquid supporting exchange.

Peter McCormack: Yeah, but I get that. What I'm saying is you had to bend your principles a little bit.

Samson Mow: Not really. I'm still saying if Ethereum's a scam. It's just, I'm investing in a security that happens to use it. I don't think that's in conflict with my principles. I'm quite consistent since, I think, the inception of Ethereum. So I've always looked down on Ethereum and thought it was garbage from the day Vitalik came to BTC China and tried to launch it. I walked out of that meeting halfway because I thought this is just technobabble and it's a shitty project until...

Peter McCormack: Garbage and a scam are two different things. I don't want to keep going over the point, but if you're saying it's a scam, I personally think you're bending your principals to use it because you're essentially okay with using the scam. So there has to be a bending of your principles because I would've thought if you think something's a scam, if you hold really strong principles you say, "I can't have anything to do with that because my principals say this." What I'm saying is you've bent your principals a little bit for it.

By the way, I don't think that's the worst thing in the world. I've bent my principles in life and I think a lot of people do. I don't think they always admit it, I think a lot of the anarchists who have a vision of the world still liaise with and use government services and that's just the way of the world sometimes. You have to sometimes bend your principles.

Samson Mow: I'm pretty sure most of us live under the rule of a government, but personally I'm not going to touch it. You could say I've already bent my principles cause I've bought ETC before in the past to support the original chain. But I still won't use ETH myself. I think the other thing is a lot of people don't understand how companies work. Just because I invested in it doesn't mean I get to control INX and you could say it's a cop out, but I invested in it to steer it the way I think it should go. But I am fully aware that I can't do that, it's not my company, I'm just an advisor and a shareholder.

Peter McCormack: It's a cop out.

Samson Mow: Okay, it's a cop out then.

Peter McCormack: I think it is. You're not going to win with me on that one. I'm sorry, I'll be as fair as I can. There's nothing you've said that's changed my view that you've bent your principles. But that's okay, I've bent principles in life.

Samson Mow: I've always been a pragmatist. I've gone at it with Roger because I said credit cards are good and he says, "No, you can only use Bitcoin." But I think it's fine to use a credit card. Paying for stuff, using the biggest rail on the planet and settle it up with Bitcoin. I've said good things about Tether. I think Tether is a great utility for trading and it's on every chain. So I don't think I've bent my principles. I'm fine with things that are practical.

Peter McCormack: I think what will come out of this is, is not many people's opinions will change on that individual point, but it's not the end of the world. Well maybe! Right, Alan, another thing I wanted to ask you about because the other thing I didn't understand is when you invest in a company, you usually get equity. With this, you aren't. It says on your website "Before, represent ownership in a company, After, represent ownership in an asset."

So can I ask, is there essentially two levels of ownership with this? There is the equity in the company with which you have shareholders and there's now the token, which essentially represents an ownership in the cashflow and they both exist and they're two separate things.

Alan Silbert: So we wanted to create a totally new asset class. The shareholders of the company, it's just your run of the mill private equity. They have voting rights, they're private equity holders, so very straightforward. So we wanted to build this whole incentive model with the token holders. Like I said before, we think that they're crucial to the success of the company. So we gave them the 40% profit share and in addition to that, they get discounts off trading fees and they also get liquidation preference on the cash fund that we're building.

So what we figured is, okay, they're not getting voting rights but they're technically above the private equity on the balance sheet in the capital stack, they're carried as liabilities really and so we think that we gave them a compelling mix of benefits that makes this attractive. So they get that 40% profit share, a large portion of the proceeds in this raise are going into the cash fund and the cash fund is segregated, it can't be touched, it's to backstop the exchange and to give it a capital infusion. It's like an insurance fund of types.

So in the liquidation scenario, the token holders get first rights to the cash fund. If we get acquired, the cash fund gets distributed out to them and the token lives on with all of its rights. So we think we gave a mix of different attributes that are attractive to them and they're above the equity on the balance sheet. They come before equity holders.

Peter McCormack: But an acquirer of the business is under no compulsion to carry on the token, right? They could cancel the token...

Alan Silbert: I think the devil's in the details. What we're contractually obligated to do is to pay out the cash fund pro-rata to the token holders if there's a change of control.

Peter McCormack: The cash fund, is that essentially the cashflow of the business? Is that the balance sheet?

Alan Silbert: No, the cash fund is a segregated insurance fund essentially. We could only go into it in certain scenarios, like a hack or some kind of regulatory shortfall, but there's very limited scenarios that we can touch it and it's at a segregated account. So that's what they have rights to. This is separate from the cashflow of the business, we can't touch it.

Peter McCormack: Okay, because it's something kind of... Actually, let me ask you a question before that. So they have access to 40% of, essentially, the operational profits. Is that before or after dividends are paid?

Alan Silbert: It's operating cashflow, it's like cash net profits. So dividends would have to be declared by the board and be issued and stuff. The dividends would have to be get paid after this in the order of things.

Peter McCormack: But staff bonuses would be before?

Alan Silbert: Right, operating expenses would be before. It's their contractual right that they receive 40% of that profits. It can't be changed without us reneging on a written contract we have with them.

Jameson Lopp: I think I see what you're getting into there, and this is one of the more interesting adversarial perspectives that people are saying of there's probably a way for INX to not pay out anything and essentially pay themselves and I think that's where the incentive alignment is. Like Alan said, the devil's in the details, especially when you start getting into the game theory and incentive alignment of, is there sufficient incentives amongst the power players at the company as token holders to ensure that the token holders get decently compensated.

I think there's also the question of, if you want the token to continue to have value, you need to prove that it is going to be making pay-outs. I don't think that that doing something rash, like playing around with the numbers to ensure the token holders don't get anything is going to be good for the long-term success of this company.

Alan Silbert: It's like I said before also, the token is crucial to the business and this community is crucial. All the incentives are really aligned here because for us to do something detrimental to the token is really shooting ourselves in the foot. Besides the fact that all of the senior management's token holders, the board of directors' token holders, the advisers are token holders, I think probably from a monetary perspective, I'm more incentivized to make sure the token goes up in value than the private equity of the company based on how much I owe or how much had been granted.

Peter McCormack: So I'm just trying to understand, like put myself in the position of someone thinking of investing. It's like, okay it's 40% of operating cashflow, but for example, I would imagine, first couple of years there may not be any operating cashflow because businesses are tired, it's hard work and that could be for years. So therefore it might be an investment which is speculation on future operating cashflow. I don't imagine if I was to put $20,000 - $40,000 into INX, the next year I'm going to suddenly get a lovely token dividend pay-out of the cashflow.

I imagine what's going to happen is that most of the money is going to be reinvested just to grow the business and that makes sense, I get that. So essentially, investment in the token is a speculation on the future cash flows and I don't think many people will be buying it for that, they'll be buying it for speculation, which gets me to my next point. It feels like we're now in this world of a double ownership structure of a business. You have the equity ownership, traditional equity ownership, and we now have this token ownership.

But if you own the token, you have no benefit for the sale of the business, which equity holders have and it seems to me now, like a neat way of raising funds without giving up equity and actually giving away cashflow, which if you asked me, and if I'm getting away from any of the ethics in this, if I look at my own business, I've been offered money to grow my tiny little podcast empire and I've considered, I thought I don't want to give away ownership, I'd rather just bootstrap this and carry on. But if somebody said, "Oh, but you can sell tokens and raise the same amount of money and all you've got to give away is future cashflow."

I'm like, "Well, I'm okay with that" because I live fine on my salary and I live fine on my bonus and actually my future is hopefully to sell it as an entity. But my point being is I find it as it's a way now we've got of raising funds without giving away any part of the business, kind of, excuse the analogy, because this will probably really piss you off, but kind of what EOS did. They raised $4 billion for their fund.

Alan Silbert: So what about ownership of the company is important to you?

Peter McCormack: The exit.

Alan Silbert: Okay, so a couple of things on that. So first of all, like I mentioned before, the cash fund gives kind of a quasi floor to the token value we believe, that's part of the reason why we put it there. So in the case of a change of control, then the cash fund gets distributed pro rata to the token holder so you have that. The tokens will live on with all of their rights after that, after the distribution.

Peter McCormack: That's not guaranteed though, didn't we cover that? That's not guaranteed because any... For example, say Kraken or Coinbase acquired you, they might not want to have the token structure. So they could...

Alan Silbert: So it's a current legal agreement and you can't write a new agreement that contradicts an existing legal contract, right? So it has to be dealt with. So you have to assume that if there's an acquisition that takes place, all parties involved are incentivized to keep the current structure in place and that benefits the equity and the token holders. If somebody is going to come in and just do away with a token, just wipe it off the balance sheet, it doesn't do a lot for the continuing viability of the business and the whole... If somebody's acquiring us, I'm assuming it's because we were successful and that means that our model worked.

So it's kind of like all these pieces have to work together. I know you're not saying that you don't get the upside of the private equity, but there's these other kinds of factors in place that make it very compelling and so it depends on what's interesting to you. Is it more important for you to be private equity and have voting rights and have the 60% of the upside, or do you want to have the cash fund, which backstops you, which you have liquidation preference to which gets distributed and exited? So it depends what asset class is appetizing to you really.

Peter McCormack: Sorry, let me just carry on with this and then jump in. So how big can the cash fund grow? That's what I don't understand for comparison purposes, because one of the things about private equity is the liquidation is the trade-off. I raise a bunch of money, but I have to liquidate part of my holdings, I relinquished part of my holdings, I have a smaller representation in the business because of that and that's the trade-off.

But with this one, the trade-off is different in that you managed to raise money as an original bunch of equity holders without actually having to give up any equity. So I'm not saying it's a bad thing, I'm saying this just appears to be a new structure that I think people need to get their heads around.

Alan Silbert: Yeah, absolutely. It's a non-dilutive way to raise capital, absolutely. It's not equity per se, but the profit share is a meaningful part of the business. That plus, say, a good insurance fund backstop.

Peter McCormack: But you could potentially exit in three years, having not once generated an operating profit and the private equity holders would be in for a sizeable exit, whereas the token holders might not have actually seen any of the operating cashflow at that point.

Alan Silbert: Well if three years from now and we're not generating operating cash flow, I don't see that turning into a sizable exit to be honest.

Peter McCormack: Well you could be because you know what it's like, this is the tech world. Plenty of companies are bought for a huge amount of money that aren't generating any operating profit because you have the customer base or... Look at Blockfolio just sold for, what $150 million? I don't know what kind of operating profit they have, it could be a loss. I'm just saying there's a potential there. Someone acquires you without having reached operational profit and therefore there's been no distribution to the token holders at that point potentially.

Alan Silbert: But until the cash fund gets distributed to them at a time of a change of control...

Peter McCormack: [Inaudible 01:05:55] $17 million cash fund.

Alan Silbert: No, so the cash fund... 75% of the proceeds from this IPO over $25 million go into the cash fund. So if we raised the full $117 million, I think the cut ends up being net like $42 million for operations and something close to $70 in a cash fund. So this is a material amount of money and so it's what you're speaking of also. These kinds of backstops don't exist in private equity investing or anything. This is a meaningful backstop to the token holders. It's a speculative investment, but this cashflow is pretty unique in that there is a backstop there for them.

Jameson Lopp: Is that fair to say then when you say backstopped, that it is making it less likely that your investment in the token goes to zero?

Alan Silbert: Right, thank you.

Peter McCormack: All right, the base value should be the cash fund itself.

Alan Silbert: Right. So in theory, because everything at the end of the day, is subject to law and courts and everything but in theory, you don't have the potential for a 100% loss, because even if it went to bankruptcy, God forbid, and then the cash fund goes to the token holders first because they're seen as liability holders of the company.

Samson Mow: So it's like an insurance fund for the token holders.

Peter McCormack: Okay, so that bit is kind of interesting. But you do understand the point I'm getting at. It's like when I explained it to myself as a potential investor, I don't like it. But then when I explain it to myself, as somebody who wants to raise money, I fucking love it and I think it's great. You raise money without dilution, that sounds amazing.

Jameson Lopp: So we've also spent a lot of time talking about, I think the risks and what the possible worst case scenarios for token holders are and I'm not sure if anyone's talked about what are the possible best case scenarios for token holders.

Peter McCormack: Well the best case is that it's usually successful. You generate a huge amount of operating profit and they essentially received these nice token dividends.

Jameson Lopp: Well we're very similar to the BNB model really. We're like a regulated BNB and the tokens will trade like equity. People will follow how the exchange is doing, it will keep an eye on our volumes, it'll trade real time. We're a publicly reporting company and we're going to be putting out quarterly financials, so we're ridiculously visible and transparent. So that's the upside for the token holders. 

So I think INX is a totally non-traditional offering and it's been remarked as a landmark filing, but what this is going forward, we're going to see a lot more different kinds of capital raises. So I'm doing the infinite fleet XO security token, that's similar in ways to INX but also different. So for XO, the token holders get first rights on any liquidation or liquidity events like M&A, and they also get a profit share but they don't retain the voting.

But I think it's inevitable that we're going to see different permutations of this kind of thing that come out in the next couple of years. It could be a mix of equity or voting or some different mix of those different things and I don't think it's a bad thing because [inaudible 01:09:39] that you tokenize different parts of your business, if you want. You could tokenize your ad revenue on...

Alan Silbert: You can structure this in a million different ways.

Peter McCormack: I kind of said, I looked at it before and I looked at one point of raising a good few million to do this, to create a podcast network similar to what Gimlet did, right? I recognize there's an opportunity, it works well on the ad sales, but I was going to have to dilute I think it was just over 30% of my equity. I would have to give up for that investment. But like I say, if I could raise the same amount of money, I only have to give up future cashflow.

It's absolutely no problem for me because my goal is an exit. So I think it's advantageous to the equity holders. I'm not sure, therefore is this a zero sum game that this is actually... Is this a win/win situation or is this disadvantageous to the equity holders? I don't know.

Samson Mow: Well I think you have to know that there are a lot of alignments and incentives in place to keep everything running. So all the shareholders are token holders too, so why would they nuke their business and their token holdings? They're locked up. But I think ultimately you could harp on it and really attack the point about the voting, but I don't know if voting is...

Peter McCormack: No I don't care about the voting.

Samson Mow: Well, some people would care about the voting.

Alan Silbert: I guess I understand it from a point of view of if a Carl Icahn, like an activist investor can come in and take control or something. Every proxy I've received in the mail over my years for like, the stockholders meeting is coming up, but I think they've pretty much all gone in the trash. So I don't know why people like to have this sticking point about voting rights but you know.

Jameson Lopp: It's an attack surface. So if you look at Ubisoft, they faced a hostile takeover from Vivendi that they managed to fight off, but having the voting rights out there is not a good thing all the time. It's just another way for people to attack.

Alan Silbert: I mean quite honestly... Okay, so in our company, the private equity came first and then the tokens came later. The private equity had voting rights then layering on the voting rights on top of that for tokens, we just thought was going to be incredibly confusing and been like a really... So it was like we were trying to take their vote away and more that it would have been an impossible construct. So we layered in the other benefits to make up for it.

Peter McCormack: It's an IPO without dilution.

Alan Silbert: Yeah, it's a non-dilutive raise.

Peter McCormack: Yeah, interesting. It's very interesting. Like I said, I haven't fully concluded where I'm at with it. Ultimately it's free choice, people have an absolutely free choice to invest, but like I said, as somebody running a business, it's great. Okay, fine, just pass that point, so 130 million tokens to be released. Well actually just let's go back a step. Some people have tokens and equity, so they essentially have double bubble. Did you ever consider that equity holders shouldn't have the token?

Alan Silbert: Senior management has both, which makes sense because they're the ones that you want to care about or are aligned with the token holders. If other private equity holders have tokens, they bought them at some point in a early stage. But I think the important thing is that the people that you want to be aligned with the token holders, that control the company, have a significant amount of tokens. So senior management, board of directors, advisors. So all the incentives are aligned.

Peter McCormack: The other 70 million tokens, because you've got a 200 million hard cap, what are they for?

Alan Silbert: So yeah, there are 200 million tokens in total, no more can ever be created and that's bound by the contract. 35 million are in a token reserve, which can be used for future acquisitions or other uses and the other 35 million are for employees, insiders, management, advisors. So the breakdown is 130, 35, 35.

Peter McCormack: The other 35 essentially can... It's a kind of potential dilution on the totals thereof?

Alan Silbert: So the profit pool only gets shared amongst the tokens that are out there in the public. So we don't get a profit share on the tokens that we hold at our treasury, it's not part of the profit pool.

Peter McCormack: But if you use them for acquisitions, for example, that could end up being a dilution on the other token holders?

Alan Silbert: Yeah, it's already out, everybody knows the total limits and it's finite. Everything is still underneath the 200 million and yeah, we can use it as a currency in the future to acquire something. You'd think it'd be accretive to the company if we're going to spend the tokens like that, that had benefits everybody, including all the token holders.

Peter McCormack: So what is total value at the market rate for those 35 million tokens? Is it nine cents?

Alan Silbert: 90 cents is the price.

Peter McCormack: So like $31 million or $32 million or something?

Alan Silbert: If you use in the future the token reserve as currency for an acquisition or something, it's worth whatever is the market rate at the time or something nearby it, I guess. Those tokens become more and more valuable to us as currency for an acquisition or something as if the token's value goes up in value.

Peter McCormack: But that is kind of a money printer in that you can then just release these tokens, dilute the value of other people's tokens, use that for an acquisition that could increase that value of equity holders in the business. It's a little bit of a money printer.

Alan Silbert: Yeah, but again, everything through the profit share... Everybody benefits under the umbrella.

Peter McCormack: Yeah, I think the incentives are way more towards equity holders, the structure of it.

Alan Silbert: It's like what I said, everybody's going to benefit there. There's no way to unequally benefit the shareholders over the token holders. If you acquire a business, you would assume that it's accretive, a beneficial thing for the entire business, which brings more value to the shareholders, but brings more potential future profits for the token holders.

So it's really hard to say, we're like money printing to the detriment of the token holders. If I want to go out and buy a crappy business that drains cash flows, well, I'm not doing much for my enterprise value as a shareholder either. So the things are kind of not aligned.

Peter McCormack: Hold on. I wouldn't assume you would do that, but you might buy another business, which has got rapid growth, is again, not operationally profitable, but has got a huge customer base and again, that might not add anything to the cashflow in the short-term but it might add something to the total equity value of the business or accelerate growth.

Alan Silbert: I would go again and fall back on the fact that the senior management holds a very significant amount of tokens that it doesn't make sense for us to do something that... I can't predict the future, but everything is...

Peter McCormack: But the insurance fund values the tokens that you own at higher than the price the senior management bought them for or issued them?

Alan Silbert: Yeah, but that's just like any business is like that. Any founder is going to have shares that have a much lower valuation. So I think people are complaining about money, like they're anti-capitalist.

Peter McCormack: No, I'm not anti-capitalist and I'm not complaining about the money, because this is a new structure. If I was to buy into equity, I understand what I'm buying into because the model's existed for a long time. This is a brand new and unique model where you're investing in the future of the business. Like I say, it's an IPO without dilution for the equity holders and for the token holder, there's no guarantee of future token dividends, but you do have the backstop. I'm logically working through my head as I go through it.

Jameson Lopp: You're trying to find a situation in which it would be logical for the company to make a decision that is at the detriment of at least short-term profitability, but not necessarily good for long-term profitability. I think that companies make decisions and trade-offs like that all the time where it's short-term, bad or short-term creating a lot of debt. But the goal is that over the long term you'll end up better off.

Alan Silbert: Just going back also to the place that the token holders have and our ecosystem is crucial. So if you piss off token holders, it doesn't help the business. It's like our captive little ambassador army. So it really has the potential to do the business in if you don't do things that are the best interests of them. They're linked to the future of the business, really.

Peter McCormack: No, of course. It's the logic, I'm just trying to work through of this. Again, like I said, there's two ownership structures and you can build massive value in the equity whilst not building value in the token, certainly over a shorter timeframe because most are... Very few businesses are built for the future dividends. 

They're not built for the hope of just delivering dividends. Most businesses, especially in technology, are built for an exit. Everybody has said the saying, "I want an exit, at some point I want to exit" and I think INX is the same. INX's goal is to exit at some point, I would imagine so. Therefore, it's highly possible over certain timeframes that value is a disproportionately built for equity holders over token holders, yet token holders have funded the operations.

Alan Silbert: Yeah, well I think the cash fund plays a large role here too. It's a large portion of what they invested in, sits there essentially for them to have first rights to. So they're not putting on the shoe. The private equity put it a hundred percent of their money at risk, they have no guarantee of anything. They're going to lose a 100% of what they have.

Peter McCormack: That's what I mean, it's just a different thing. It's a new thing to weigh up, things like trade-offs...

Jameson Lopp: It's a bold new experiment that I'm sure we're going to learn a lot of new interesting things about over the coming years as these new dynamics play off against each other. Who knows, perhaps the company, while not giving voting rights to token holders, since they care about the market of the tokens, perhaps they end up doing some sort of like informal polling or other... Trying to suss out what the market of token holders would actually like. This could go a million different ways.

Peter McCormack: You might get unions, you might get token holder unions who refuse to trade, you might get...

Jameson Lopp: ... Threaten to dump all of their tokens. That could make a meaningful impact upon decisions by the operators of the company.

Samson Mow: Exactly. I think free markets are a stronger control than voting and shareholders like that. INX is a totally new paradigm. We don't know how it's going to play out and I think some of the assumptions you're making Peter are leaning towards... You're portraying that assumption so that the token holders are left holding the bag. But there's another scenario that you're not playing out, which is the token holders could be getting 40% profit shares for 10, 20 years and INX never sells and the shareholders never get a liquidity event. In that case, who wins?

Alan Silbert: And literally there's a million different scenarios that could play out here.

Peter McCormack: Oh no, because you'll still have... If it's 40% of the profits, so the other 60% will still be paid out, therefore... Not the entirety of either. You're not going to sit on 60% profits every year.

Samson Mow: No, you can reinvest profits into a company.

Peter McCormack: No, of course. I'm just saying...

Samson Mow: Those are not dividends until they actually are dividends.

Alan Silbert: While the 40% is actually a contractual right that they get every year, dividends, the board needs to declare them. But they don't exist right now.

Samson Mow: But if you believe in the free market, and let's say the shareholders pay out a hefty dividend of 60%, I think the token holders will start dumping and that will have an adverse effect on INX. INX is like pure free market play. If you don't like them, sell your token and that's how you vote, you vote with your money. I don't know why Bitcoiners hate that idea, because that's the whole idea of Bitcoin.

Peter McCormack: I don't hate your money.

Alan Silbert: Part of the painful point of hearing like the "scam, scam, scam" over and over is like, we killed ourselves to put every different protection and alignment in place for this thing. Nothing in the crypto space has ever been as transparent, I can confidently say that. I've been in this space since 2013, no chance any project has ever done anything like this.

That we have audited financials, every material agreement is public, my employment agreement is public, our board of directors is actual people that you can recognize that you know who they are and our board is independent by majority. We put so many protections in place, there's a million different scenarios, honestly. But I think we tried to align all the incentives with token holders are the chord to all of it and it's a new asset class. We're a little bit of an experiment, but we think we did best of both worlds for creating this asset class.

Samson Mow: I think what it is, is that ICOs and those kinds of scams have poisoned the well to the point where people can't really tell what is a real business and what is not a real business anymore. ICOs were essentially mimicking corporate governance structures or at least trying to mimic them.

Advisory boards and boards of directors are corporate things. Even then you can have a company with a great board that is a total scam, like Theranos. They had the US Secretary of Defense, former US Secretary of State, Henry Kissinger, a former director of the CDC, a scam is a scam. It doesn't really matter if it's a token project or a company project.

Alan Silbert: Exactly.

Peter McCormack: Like I said, I don't hate it and I don't think it's a scam. I don't, I just fundamentally don't think it's a scam. I've got my like concluding points, which... Well, is there anything I've not asked you Alan, you wish I had about this?

Alan Silbert: Oh, I thought you were winding up to pose some crazy question to me.

Peter McCormack: Oh no!

Alan Silbert: No, I think we've pretty well covered everything. I think we've kind of popped up overnight. This is part of the problem with the regulatory process also. So we have an uphill battle and people they're going to have to learn. We thought we were eminently getting approved like months ago. So we've been in a quiet period, on total clampdown for months, so we'll teach people the best we can. Nobody reads the prospectus, so we're going to have to educate everybody. But yeah, more will be coming out in the coming days and other people will learn more about us.

Peter McCormack: My concluding thoughts, like I said, I don't think it's a scam. I think you couldn't have been more transparent. Absolutely, you couldn't! I also like a lot of the ideas. I like the idea of being able to buy assets and hold them in my hardware wallet alongside so I only have to go to one place to sell all my different types of assets. I like that. I think that's really cool.

I like the fundraisers, it's an amazing way of raising funds. I don't think I could do it for a Bitcoin podcast. I think I'd lose all my audience, but I can see the incentives for that. Jameson, I don't think you've compromised your beliefs for as long as I've known you. First time we did an interview with you, we talked about Grin and that was nearly three years ago.

Jameson Lopp: Long time shitcoiner!

Peter McCormack: Yeah, long time shitcoiner! Samson, just one little air of slight hypocrisy I think, but we'll have to agree to disagree on that one. That is what it is. The thing is, I wouldn't invest and I tell you why, just very simple. I wouldn't invest, is that I believe over the next two to five years, Bitcoin's a better investment, but I believe that about almost anything. So I wouldn't, although I'm tempted to buy just a small amount to watch the experiment.

Jameson Lopp: The pony says a hundred dollars of every scheme.

Samson Mow: That's right, listen to the pony.

Peter McCormack: I'm tempted to try it, which will get me a backlash and suddenly I'm now a shitcoiner. No, I'm tempted to do it, just to follow the experiment, to see how it plays out.

Jameson Lopp: Just to be clear, Peter, you're not going to be able to hold your INX tokens in your Casa multisig, I'm sorry.

Peter McCormack: I had a feeling that would be the case, but that's good! I fucking love my set up.

Alan Silbert: But if Casa supports Liquid and INX is on Liquid?

Peter McCormack: Do I need to use an XPUB to buy my INX?

Alan Silbert: But you can buy it from a pub. I'll meet you at a pub!

Peter McCormack: This has been good. I told you I was going to just give you some honest, hard questions and I think you've answered them, I think you've been fair. Everyone knows you, Samson and Jameson, but you haven't been on before, Alan. Do you want to just tell people if they are interested in INX how do they find out more?

Alan Silbert: Yeah, go to inx.co is the website and I'll give you the prospectus as well to post with the video, which you definitely should.

Peter McCormack: All right, awesome. Well listen, best of luck with it. I think it's definitely an interesting experiment. I hope it's successful. How do I hope it's successful? I hope it's successful in changing the way people can invest and I don't have any issue with it fundamentally. There's some nuance to it, but yeah, best of luck with it and thanks for coming on!

Alan Silbert: Thank you! Thanks for having me.

Jameson Lopp: Thanks!

Samson Mow: Thanks Peter!